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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________.
Commission file number 0-14970
COST PLUS, INC.
(Exact name of registrant as specified in its charter)
California 94-1067973
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 4th Street 94607
Oakland, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (510) 893-7300
Securities registered pursuant to None
Section 12(b) of the Act:
Securities registered pursuant to Common Stock, $.01 par value
Section 12(g) of the Act: Preferred Share Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filer pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K ____
The aggregate market value of voting stock held by non-affiliates of the
registrant on March 31, 1999 was approximately $389,345,239 based upon the
last sale price reported for such date on the Nasdaq National Market. On that
date, 13,346,660 shares of Common Stock, $.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended January 30, 1999 ("Annual Report") are incorporated by reference into Part
II and Part IV.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held June 15, 1999 ("Proxy Statement") are incorporated by
reference into Part III.
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PART I
ITEM 1. BUSINESS
The Company
Cost Plus, Inc. ("Cost Plus World Market" or "the Company") is a leading
specialty retailer of casual home living and entertaining products. As of
January 30, 1999, the Company operated 85 stores under the name "Cost Plus World
Market" in 16 states, primarily in the Western United States, but has begun to
expand into other regions of the country. Cost Plus World Market's business
strategy is to differentiate itself by offering a large and everchanging
selection of unique products, many of which are imported, at competitive prices
in an exciting shopping environment. Many of Cost Plus World Market's products
are proprietary or private label, often incorporating the Company's own designs,
"World Market" brand name, quality standards and specifications, and typically
are not available at department stores and other specialty retailers.
Cost Plus World Market's expansion strategy is to open stores primarily in
metropolitan and suburban markets that can support multiple stores and enable
the Company to achieve advertising, distribution and operating efficiencies. The
Company may also selectively enter mid-size markets which can support one or two
stores that the Company believes can meet its profitability criteria. The
Company's stores, operated under the name "Cost Plus World Market", are located
predominantly in high traffic metropolitan and suburban locales, often near
major malls. In fiscal 1998, the Company opened a total of 15 stores, including
eight in existing markets in Austin, Chicago, Dallas, Detroit, Houston,
Sacramento and San Francisco and seven in new markets in Cincinnati,
Indianapolis, Omaha and St. Louis.
Merchandising
Cost Plus World Market's merchandising strategy is to offer customers a broad
selection of distinctive items related to the theme of casual living and home
entertaining.
Format and Presentation. The Company's stores are designed to evoke the
feeling of a "marketplace" through colorful and creative visual displays and
merchandise presentations, including goods in open barrels and crates, groupings
of related products in distinct "shops" within the store, and in-store
activities such as cooking demonstrations and food and coffee tastings. The
Company believes that its marketplace effect provides customers with a fun
shopping experience and encourages browsing throughout the store.
The average selling space of a Cost Plus World Market store is approximately
15,900 square feet, which allows space and flexibility for merchandise displays,
product adjacencies and directed traffic patterns. Complementary products are
positioned in proximity to one another, and cross merchandising themes are used
in merchandise displays to tie different product offerings together. The
unobstructed floor plan allows the customer to see virtually all of the
different product areas in a Cost Plus World Market store from the entrance. The
"power" aisle, where bulk displays highlight sharply priced items, leads the
customer through the store into the different product areas. The Company uses a
"swing" area near the front of the store to group seasonal products in themes,
such as Christmas and Easter. Store signage, including permanent as well as
promotional signs, is developed by the Company's in-house graphic design
department. End caps, bulk stacks and free standing displays are changed
monthly.
The Cost Plus World Market store format is also designed to reinforce the
Company's value image through exposed ceilings, concrete floors, simple wooden
fixtures and open or bulk displays of merchandise. The Company displays most of
its inventory on the selling floor and makes effective use of vertical space,
for example, a display of chairs arranged on a wall and rugs hanging vertically
from display racks.
The Company believes that its customers usually visit a Cost Plus World
Market store as a destination with a specific purchase in mind. The Company also
believes that once in the store, its customers often spend additional time
shopping and browsing, usually purchasing more items than they originally
intended.
Products. The Company believes its distinctive and unique merchandise
differentiates the Company from other retailers. Many of Cost Plus World
Market's products are proprietary or private label, often incorporating the
Company's own designs, "World Market" brand name, quality standards and
specifications, and typically are not available at department stores and other
specialty retailers. In addition to strengthening the stores' product offering,
proprietary and private label goods typically offer higher gross margin
opportunities than branded goods. A significant portion of Cost Plus World
Market's products are made abroad in approximately 50 countries, and many of
these goods are handcrafted by local artisans.
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The Company's product offerings are designed to provide solutions to
customers' casual living and home entertaining needs. The offerings include
home decorating items such as furniture, rugs, pillows, lamps, window coverings,
frames and baskets. Cost Plus World Market's furniture products include ready-
to-assemble living and dining room pieces, unusual handcrafted case goods and
occasional pieces, as well as outdoor furniture made from a variety of materials
such as rattan, hardwood and wrought iron. The Company also sells a number of
tabletop and kitchen items including glassware, ceramics, textiles and cooking
utensils. Kitchen products offer the casual gourmet an assortment of products
organized around a variety of themes such as baking, food preparation, barbeque
and international dining.
Cost Plus World Market offers a number of gift and decorative accessories,
including collectibles, cards, wrapping paper and Christmas and other seasonal
items. Because many of the gift and collectible items come from around the
world, they contribute to the exotic atmosphere of the stores.
Cost Plus World Market also offers its customers a wide selection of
gourmet foods and beverages, including wine, microbrewed and imported beer,
coffee, tea and mineral water. The wine assortment offers a number of
moderately priced premium wines, including a variety of well recognized labels,
as well as wines not readily available at neighborhood wine or grocery stores.
Consumable products, particularly beverage, generally have lower margins than
the Company's average. Coffee, roasted at the Company's own roasting plant, is
sold over-the-counter from bulk containers. Gourmet foods include packaged
products from around the world and seasonal items that relate to "old world"
holidays and customs. Packaged snacks, candy and pasta are displayed in open
barrels and crates. All food items typically have a shelf life that lasts six
months or longer.
The Company replaces or updates many of the items in its merchandise
assortment on a regular basis in order to encourage repeat shopping and to
promote a sense of discovery. The Company regularly marks down and eliminates
items that do not meet its turnover expectations.
Pricing. Cost Plus World Market offers quality products at competitive
prices. The Company complements its competitive everyday prices with
opportunistic buys, enabling the Company to pass on additional savings to the
customer. The Company routinely shops a variety of retailers to ensure that its
products are competitively priced.
Planning and Buying. Cost Plus World Market effectively manages a large
number of products by utilizing a centralized merchandise planning system. The
Company regularly monitors merchandise through its management information
systems to identify and respond to product trends. The Company maintains its own
central buying staff which is responsible for establishing the assortment of
inventory within the merchandise groups each season, including integrating
trends or themes identified by the Company into its different product
categories. The Company attempts to moderate the risk associated with
merchandise purchasing by testing selected new products in a limited number of
stores. The Company's long standing relationships with overseas suppliers, its
extensive international buying agency network and its extensive knowledge of
the import process facilitate the planning and buying process. The buyers work
closely with suppliers to develop unique products that will meet customers'
expectations for quality and value. The Company's buyers communicate with
district and store managers and use the management information systems to tailor
the merchandise mix of individual stores to regional conditions and to better
ensure that in-stock availability will be maintained in accordance with the
specific requirements of each store.
Advertising
The Company advertises through promotional ads in major daily newspapers
and on radio and television. The Company's approach is to regionalize its
advertising and use the most efficient media mix within a geographic area. The
Company uses eight to sixteen page full color tabloids and color or black and
white newspaper advertisements in selected markets to highlight product
offerings and selected promotions. Radio and television media is often used for
seasonal advertising, such as Christmas. For store grand openings, the Company
uses a combination of newspaper, radio and television.
Product Sourcing and Distribution
The Company purchases most of its inventory through its central purchasing
system, which allows the Company to take advantage of volume purchase discounts
and improve controls over inventory and product mix. The Company purchases its
merchandise from over 1,500 suppliers, and no supplier represented over 4.0% of
total purchases in the fiscal year ended January 30, 1999. A significant portion
of Cost Plus World Market's products are made abroad in approximately 50
countries in Europe,
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North and South America, Asia, Africa and Australia. The Company has established
a well developed overseas sourcing network and enjoys long standing
relationships with many of its vendors. As is customary in the industry, the
Company does not have long-term contracts with any suppliers. The Company's
buyers often work with suppliers to produce unique products exclusive to Cost
Plus World Market. The Company believes that, although there could be delays in
changing suppliers, alternate sources of merchandise for all product categories
are available at comparable prices. Cost Plus World Market typically purchases
overseas products on a free-on-board shipping point basis, and the Company's
insurance on such goods commences at the time it takes ownership. The Company
also purchases a number of domestic products, especially in the gourmet food and
beverage area. Due to state regulations, wine and beer are purchased from local
distributors in each state with purchasing controlled by the Corporate buying
office.
The Company currently services most of its stores from its primary
distribution center in Stockton, California. Domestically sourced merchandise is
usually delivered to the distribution center by common carrier or by Company
trucks. The Company believes that its distribution center will be able to
handle, or can be upgraded to handle, the Company's store expansion plans for
the Western United States over the next three years. Any significant
interruption in the operation of this facility would have a material adverse
effect on the Company's financial position and results of operations. To
facilitate servicing regions such as Illinois, Indiana, Michigan, Missouri, Ohio
and Wisconsin, the Company has a satellite distribution center located in Peru,
Indiana which became operational in a limited capacity during fiscal 1998. This
facility is expandable to meet the Company's needs over the next three years.
Management Information Systems
Each of the Company's stores is linked to the Cost Plus World Market
headquarters in Oakland, California through a point-of-sale system that
interfaces with an IBM AS/400 computer. The Company's information systems keep a
record, which is updated daily, of each merchandise item sold. The point-of-sale
system also has scanning, "price-look-up" and on-line credit card approval
capabilities, all of which improve transaction accuracy, speed checkout time and
increase overall store efficiency. The Company is in the process of upgrading
its in-store information system to improve information flow to store management
and enhance other in-store capabilities.
Purchasing operations are facilitated by the use of computerized merchandise
information systems which allow the Company to analyze product sell-through and
assist the buyers in making merchandise decisions. The Company's central
replenishment system includes a store-specific, individualized inventory "model
stock" which enables the Company to maintain adequate stock levels in each
location. The Company believes its centralized purchasing system has helped it
to reduce in-store inventory levels and control out-of-stock situations.
The Company uses several other customized management information and control
systems to direct the Company's operations and finances. These computerized
systems are designed to ensure the integrity of the Company's inventory, allow
the merchandising staff to reprice merchandise, replenish depleted store
inventories, track promotions, identify sales trends and monitor merchandise mix
throughout all of the Company's stores. The Company's distribution operations
use these systems to control, locate, pick and ship inventory to stores. The
Company believes that these systems allow for lower average store inventories,
higher operating efficiency, better in-stock availability and fewer markdowns.
These systems also enable the Company to produce the periodic financial
reports necessary for developing budgets and monitoring individual store and
consolidated Company performance. The Company believes that its current
management information system is readily upgradable to support the Company's
planned expansion for the foreseeable future.
Competition
The markets served by the Company are highly competitive. The Company competes
against a diverse group of retailers ranging from specialty stores to department
stores and wholesale clubs. The Company's product offerings compete with such
specialty retailers as Bed, Bath & Beyond, Crate & Barrel, Pottery Barn, Garden
Ridge, Lechters, Michaels Stores, Pier 1 Imports, Trader Joe's and Williams-
Sonoma. Specialty retailers tend to have higher prices and a more narrow
assortment of products than Cost Plus World Market. Department stores
typically have higher prices than Cost Plus World Market for similar
merchandise. Wholesale clubs may have lower prices than Cost Plus World Market,
but the product assortment is generally more limited. The Company competes with
these and other retailers for customers, suitable retail locations and qualified
management personnel.
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Employees
As of January 30, 1999, the Company had 1,019 full-time and 1,235 part-time
employees. Of these, 1,927 were employed in the Company's stores and 327 were
employed in the distribution center and corporate office. The Company regularly
supplements its work force with temporary workers, especially in the fourth
quarter of each year, to service increased customer traffic during the peak
Christmas season. Approximately 124 employees located in 13 stores in Northern
California are covered by a collective bargaining agreement which expires on May
31, 2003. The Company believes that it enjoys good relationships with its
employees.
Trademarks
The Company regards its trademarks and service marks as having significant
value and as being important to its marketing efforts. The Company has
registered its "Cost Plus," "Cost Plus World Market," "Crossroads," "World
Market" and "Where you can afford to be different" marks and its "Cost Plus
World Market" and "World Market" logos with the United States Patent and
Trademark Office on the Principal Register. The Company has also secured
California state registration of its "Crossroads" trademark. The Company's
policy is to pursue prompt and broad registration of its marks and to vigorously
oppose infringement of its marks.
Risk Factors
This Form 10-K, including the documents incorporated by reference herein,
contains forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, including statements that include
the words "believes," "expects" or "anticipates," or similar expressions. The
Company may also make additional written and oral forward looking statements
from time to time. Actual results may differ materially from those discussed
in such forward-looking statements due to a number of factors including those
set forth below and elsewhere in this Form 10-K and in documents which are
incorporated by reference herein. The Company does not undertake to update any
forward-looking statement that may be made from time to time by or on behalf of
the Company.
Seasonality and Quarterly Fluctuations. The Company's business is highly
seasonal, reflecting the general pattern associated with the retail industry of
peak sales and earnings during the Christmas season. Due to the importance of
the Christmas selling season, the fourth quarter of each fiscal year has
historically contributed, and the Company expects it will continue to
contribute, a disproportionate percentage of the Company's net sales and most of
its net income for the entire fiscal year. Any factors negatively affecting the
Company during the Christmas selling season in any year, including unfavorable
economic conditions, could have a material adverse effect on the Company's
financial condition and results of operations. The Company generally
experiences lower sales and earnings during the first three quarters and, as is
typical in the retail industry, has incurred and may continue to incur losses in
these quarters. The results of operations for interim periods are not
necessarily indicative of the results for a full fiscal year. In addition, the
Company makes decisions regarding merchandise well in advance of the season in
which it will be sold, particularly for the Christmas selling season.
Significant deviations from projected demand for products could have a material
adverse effect on the Company's financial condition and results of operations,
either by lost sales due to insufficient inventory or lost margin due to the
need to markdown excess inventory.
The Company's quarterly results of operations may also fluctuate based upon
such factors as the number and timing of store openings and related store
preopening expenses, the amount of net sales contributed by new and existing
stores, the mix of products sold, the timing and level of markdowns, store
closings, refurbishments or relocations, competitive factors and general
economic conditions.
Risks Associated with Expansion. The Company's ability to continue to
increase its net sales and earnings will depend in part on its ability to open
new stores and to operate such stores on a profitable basis. The Company's
continued growth will also depend on its ability to increase sales in its
existing stores. The Company opened 15 stores in fiscal 1998 and presently
anticipates opening approximately 17 stores in fiscal 1999. The Company intends
to open stores in both existing and new geographic markets. The opening of
additional stores in an existing market could result in lower net sales from
existing Company stores in that market. The success of the Company's planned
expansion will be dependent upon many factors, including the identification of
suitable markets, the availability and leasing of suitable sites on acceptable
terms, the hiring, training and retention of qualified management and other
store personnel, the availability of appropriate financing and general economic
conditions. To manage its planned expansion, the Company must ensure the
continuing adequacy of its existing systems and procedures, including product
distribution facilities, store management, financial controls and information
systems. There can be no assurance that the Company will be able to achieve its
planned expansion, that new stores will be effectively integrated into the
Company's existing operations or that such stores will be profitable.
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The Company's expansion strategy includes opening stores in new geographic
markets. These new markets may present competitive and merchandising challenges
that are different from those currently faced by the Company in its existing
geographic markets. The Company may incur higher costs related to advertising
and distribution in connection with entering new markets. If the Company opens
stores in new markets that do not perform to the Company's expectations, or if
store openings are delayed, the Company's financial condition and results of
operations could be materially adversely affected. In addition, in order to sell
wine and beer, the Company is required to obtain alcoholic beverage licenses for
each of its new stores, and the laws regulating the issuance of alcoholic
beverage licenses differ from state to state. Any delays in receiving alcoholic
beverage licenses for new stores could have an adverse impact on such stores'
operations.
Risks Associated with Merchandising. The Company's success depends in part
upon the ability of its merchandising staff to anticipate the tastes of its
customers and to provide merchandise that appeals to their preferences. The
Company's strategy requires it to introduce in a timely manner products from
around the world that are affordable, distinctive in quality and design, and not
widely available from other retailers. Many of the Company's products require
long lead times. In addition, a large percentage of the Company's merchandise
changes regularly. The Company's failure to anticipate, identify or react
appropriately to changes in consumer trends could lead to, among other things,
either excess inventories and higher markdowns or a shortage of products and
could have a material adverse effect on the Company's financial condition and
results of operations.
Effect of Economic Conditions and Geographic Concentration. The success of the
Company's business depends to a significant extent upon the level of consumer
spending. Among the factors that affect consumer spending are the general state
of the economy, the level of consumer debt and consumer confidence in future
economic conditions. A substantial majority of the Company's stores are located
in the Western United States, principally in California. Lower levels of
consumer spending in these regions could have a material adverse effect on the
Company's financial condition and results of operations. Reduced consumer
confidence and spending may result in reduced demand for the Company's products,
limitations on the Company's ability to increase prices and may require
increased levels of selling and promotional expenses, thereby adversely
affecting the Company's financial condition and results of operations.
Risks Associated with Importing. The Company imports a significant portion of
its merchandise from approximately 50 countries. The Company relies on its long-
term relationships with its suppliers but has no long-term contracts with such
suppliers. The Company's future success will depend in large measure upon its
ability to maintain its existing supplier relationships or to develop new ones.
As an importer, the Company's business is subject to the risks generally
associated with doing business abroad, such as foreign governmental regulations,
disruptions, delays in shipments or price increases and changes in political or
economic conditions in countries in which the Company purchases products. The
Company's business is also subject to the risks associated with any new or
revised United States legislation and regulations relating to imported products,
including quotas, duties, taxes and other charges or restrictions on imported
merchandise. Since certain of the Company's purchases are made in currencies
other than the U.S. dollar and its financial results are reported in U.S.
dollars, fluctuations in the rates of exchange between the U.S. dollar and other
currencies may have a material adverse effect on the Company's financial
condition and results of operations. Historically, the Company has not hedged
its currency risk and does not currently anticipate doing so in the future. If
any such factors were to render the conduct of business in particular countries
undesirable or impractical, or if additional United States quotas, duties, taxes
or other charges or restrictions were imposed upon the importation of the
Company's products in the future, the Company's financial condition and results
of operations could be materially adversely affected.
Risks Related to Distribution Facilities. The Company's distribution functions
for most of its stores are currently handled from its facility in Stockton,
California. Any significant interruption in the operation of this facility would
have a material adverse effect on the Company's financial condition and results
of operations. The Company began ramping up an additional distribution facility
in Peru, Indiana in fiscal 1998 to service its Midwest and Texas stores. A
failure to successfully transition its distribution operations for these stores
to the new facility or to coordinate the operations of the two facilities could
have a material adverse effect on the Company's financial condition and results
of operations.
Competition. The market served by the Company is highly competitive. The
Company competes against a diverse group of retailers ranging from specialty
stores to department stores and wholesale clubs. The Company's product
categories compete with such specialty retailers as Bed, Bath & Beyond, Crate &
Barrel, Pottery Barn, Garden Ridge, Lechters, Michaels Stores, Pier 1 Imports,
Trader Joe's and Williams-Sonoma. The Company competes with these and other
retailers for customers, suitable retail locations and qualified management
personnel. Many of the Company's competitors have significantly greater
financial, marketing
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and other resources than the Company, and there can be no assurance that the
Company will be able to compete successfully in the future.
Dependence on Key Personnel. The success of the Company's business will
continue to depend upon its key personnel. The Company does not maintain any key
man life insurance. The loss of the services of one or more of its key personnel
could have a material adverse effect on the Company's financial condition and
results of operations. The Company's success in the future will be dependent
upon its ability to attract, retain and motivate quality personnel, including
store managers. The Company's inability to attract and retain such key
employees, including store managers, in the future could have a material adverse
effect on the Company's financial condition and results of operations.
Possible Volatility of Stock Price. The stock market has from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These broad market fluctuations
may adversely affect the market price of the Company's common stock. In
addition, the market price of the shares of common stock is likely to be highly
volatile. Factors such as fluctuations in the Company's operating results, a
downturn in the retail industry, changes in stock market analysts'
recommendations regarding the Company, other retail companies or the retail
industry in general and general market and economic conditions may have a
significant effect on the market price of the Company's common stock.
Risks associated with the Year 2000. The Company's success depends in part
upon its ability to mitigate potential significant disruption of its operations
due to Year 2000 problems. The Company has a structured approach for modifying
existing software and converting to new software to address the Year 2000
issues. The Company has also identified areas of potential third party risk,
which include communications systems, utilities and elements of the merchandise
supply chain, including procurement, transportation and import activities. The
disruption of communications systems and utilities could impact the Company's
ability to operate its stores. The inability of principal suppliers to be Year
2000 compliant could result in delays in product deliveries from such suppliers
and disruption of the Company's distribution channel. The Company is developing
contingency plans for critical business processes in the event of compliance
failure on the part of the Company or its business partners. There can be no
assurance that other entities will achieve Year 2000 compliance or that the
Company can timely compensate for its risk should such entities fail to do so.
If the Company's internal systems are not adequately remediated, if necessary
modifications and conversions by other companies on whose systems some of the
Company's business processes depend are not completed on time, or if the
Company's contingency plans are not adequate, the Year 2000 issue could have a
material adverse effect on the Company's operations.
The Company's plans for expenditures to achieve Year 2000 compliance and the
dates by which Year 2000 compliance will be achieved are based on management's
best estimates. These estimates include certain assumptions about future
events, including the continued availability of certain resources. However,
there can be no assurance that these estimates will be achieved, and because of
the complex interdependencies involved with Year 2000 issues, actual results
could differ materially from these estimates. Because of the range of possible
issues and the large number of variables involved, it is impossible to quantify
the potential financial impact of problems if the Company's remediation efforts
or the efforts of those with whom it does business are not successful.
ITEM 2. PROPERTIES
The Company currently operates 90 stores in 16 states. The average selling
space of a Cost Plus World Market store is approximately 15,900 square feet. The
table below summarizes the distribution of stores by state:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Arizona................. 5 Illinois............ 6 New Mexico....... 1
California.............. Indiana............. 1 Ohio............. 4
Northern California... 19 Michigan............ 8 Oregon........... 2
Southern California... 18 Missouri............ 2 Texas............ 11
Colorado................ 3 Nebraska............ 1 Washington....... 4
Idaho................... 1 Nevada.............. 3 Wisconsin........ 1
</TABLE>
The Company leases land and buildings for 83 stores (of which 18 are capital
leases), leases land and owns the buildings for six stores and owns the land and
building for one store. The Company currently leases its executive headquarters
in Oakland, California pursuant to a lease which expires in October 2008. The
Company currently leases its distribution facility of approximately 540,000
square feet in Stockton, California pursuant to a lease which expires in
September 2001 and has three renewal options for five years each. The Company
leases an additional distribution center in Peru, Indiana pursuant to a lease
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which expires in December 2000, initially covering 100,000 square feet. The
lease term can be extended to December 2009 with an additional four options of
five years each, and the facility is expandable to 450,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings other than
ordinary routine litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Murray H. Dashe.......... 56 Chairman of the Board, Chief Executive Officer and President
John F. Hoffner.......... 51 Executive Vice President of Administration, Chief Financial
Officer, and Secretary
Kathi P. Lentzsch........ 43 Executive Vice President, Merchandising and Marketing
Joan S. Fujii............ 52 Senior Vice President, Human Resources
Gary D. Weatherford...... 42 Senior Vice President, Store Operations
Michael J. Allen......... 44 Vice President, Store Development
Charmaine D. Casella..... 36 Vice President, Controller and Chief Accounting Officer
Ron P. Perkuchin......... 51 Vice President, Distribution and Logistics
Judy A. Soares........... 49 Vice President, Information Systems
Malcolm R. Carden........ 52 Treasurer
</TABLE>
Mr. Dashe joined the Company in June 1997 and has served as Chairman of the
Board and Chief Executive Officer since February 1998 with continued
responsibilities as President. In September 1997, Mr. Dashe was appointed
President with continued responsibilities as Vice Chairman of the Board. From
June 1997 to September 1997, Mr. Dashe served as the Company's Vice Chairman of
the Board. Mr. Dashe is responsible for overseeing all day-to-day operations of
the Company. 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 April 1990 through June
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., where
he served in a variety of positions, including Vice President/Director of
Stores.
Mr. Hoffner joined the Company in June 1998 as Executive Vice President of
Administration, Chief Financial Officer and Secretary. Prior to joining the
Company, Mr. Hoffner served as Executive Vice President and Chief Financial
Officer of Sweet Factory, Inc. from April 1993 to June 1998. From January 1991
to April 1993, Mr. Hoffner was employed by Wherehouse Entertainment, Inc. where
he served as Senior Vice President, Finance and Administration. Prior to that,
he held executive positions in finance and administration with retailers such as
Dayton Hudson and Federated Department Stores.
Ms. Lentzsch joined the Company in February 1997 as Executive Vice President
of Merchandising and Marketing. From May 1996 to January 1997, Ms. Lentzsch
served as a retail consultant to several specialty retailers. From May 1993 to
May 1996, Ms. Lentzsch was employed by Pottery Barn, a division of Williams-
Sonoma, Inc., where she was most recently Senior Vice President, Merchandising.
From April 1991 to May 1993, Ms. Lentzsch was General Merchandising Manager and
Vice President, Merchandising and Marketing at Impostors, a retail costume
jewelry chain. Prior to that, she held a number of merchandising and marketing
executive positions with several retailers, including Vice President,
Merchandising at Pier 1 Imports, Inc.
Ms. Fujii was named the Company's Senior Vice President, Human Resources in
February 1998. Ms. Fujii joined the Company in May 1991 and served as Vice
President, Human Resources from October 1994 until February 1998. From May 1991
to October 1994, Ms. Fujii served as the Company's Director of Human Resources.
From September 1975 to May 1991, she was employed by Macy's California in the
operations and personnel departments, ultimately serving as Vice President,
Human Resources at Macy's Union Square store in San Francisco.
Mr. Weatherford was named Senior Vice President, Store Operations in February
1998. Mr. Weatherford joined the Company in January 1988 and served as Vice
President, Store Operations from June 1995 until February 1998. From April 1991
to June 1995, Mr. Weatherford served as a Regional Manager for the Company, and
from January 1990 to April 1991 he was a Senior Store Manager for the Company.
From January 1988 to January 1990, Mr. Weatherford served as a Buyer and Store
Design Director for the Company.
8
<PAGE>
Mr. Allen was named the Company's Vice President, Store Development in
February 1998. Mr. Allen joined the Company in December 1988 and served as
Director of Stores from May 1995 until February 1998. From December 1988 to May
1995, Mr. Allen served as Regional Manager for the Company. Prior to joining
the Company, Mr. Allen was a Regional Manager and Store Manager for Liquor Barn.
Ms. Casella was named Vice President and Chief Accounting Officer with
continued responsibilities as the Company's Controller in February 1999. From
August 1997 to February 1999, Ms. Casella served as the Company's Controller.
Ms. Casella served as the Company's Assistant Controller from February 1993 to
August 1997. From August 1991 until January 1993, Ms. Casella was Corporate
Accounting Manager for Nestle Food Co., a manufacturer and distributor of food
products. Prior to that date, she was a Manager with the public accounting firm
of Price Waterhouse LLP. Ms. Casella is a Certified Public Accountant.
Mr. Perkuchin joined the Company as Vice President, Distribution and Logistics
in May 1998. Prior to joining the Company, Mr. Perkuchin was employed at Ross
Stores, an off-price apparel retailer, where he served as Staffing and
Production Manager. From December 1995 to April 1997, Mr. Perkuchin served as
Vice President of Distribution and Logistics at Home Express, a retailer which
specialized in home accessories. From September 1990 to December 1995, Mr.
Perkuchin was employed by Mervyn's California, a department store chain part of
the Dayton Hudson Corporation, where he most recently served as Northern
California Distribution Director.
Ms. Soares joined the Company as Vice President Information Systems in May
1998. Prior to joining the Company, Ms. Soares served as Vice President,
Management Information Systems of Natural Wonders, a specialty retailer of gift
items relating to science and nature, from June 1996 to May 1998. From March
1993 to March 1996, Ms. Soares was employed with Home Express, a retailer which
specialized in home accessories, where she served as Vice President, Management
Information Systems. Prior to that, Ms. Soares held Senior level information
systems positions with various retail companies such as The Gap and Mervyns's.
Mr. Carden was named the Company's Treasurer in August 1996. Mr. Carden joined
the Company in October 1986 and served as Director of Finance from May 1992 to
August 1996. From October 1986 to May 1992, Mr. Carden served as Manager of
Financial Planning. Prior to joining the Company, Mr. Carden was Manager of
Strategic Planning for Genstar Corporation.
PART II
Information called for by Part II (Items 5,6,7, and 8) have been filed as
Exhibit 13 to this report on Form 10-K. Such information is incorporated herein
by reference.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information required by this item is incorporated herein by reference to
the Company's 1998 Annual Report to Shareholders (on page 19), filed as Exhibit
13 to this report on Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by reference to
the Company's 1998 Annual Report to Shareholders (on page 13), filed as Exhibit
13 to this report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated herein by reference to
the Company's 1998 Annual Report to Shareholders (on pages 14 - 19), filed as
Exhibit 13 to this report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by reference to
the Company's 1998 Annual Report to Shareholders (on page 19), filed as Exhibit
13 to this report on Form 10-K.
9
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
The information required by this item is incorporated herein by reference to
the Company's 1998 Annual Report to Shareholders (on pages 20-32), filed as
Exhibit 13 to this report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
Information called for by Part III (Items 10, 11, 12 and 13) of this report on
Form 10-K has been omitted as the Company intends to file with Securities and
Exchange Commission not later than May 18, 1999 a definitive Proxy Statement
pursuant to Regulation 14A promulgated under the Securities Exchange Act of
1934. Such information will be set forth in such Proxy Statement and is
incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference to
the section entitled "Executive Officers of the Registrant" at the end of Part I
of this report and the Proxy Statement for the Company's 1999 Annual Meeting of
Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
the Proxy Statement for the Company's 1999 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to
the Proxy Statement for the Company's 1999 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to
the Proxy Statement for the Company's 1999 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. Financial Statements:
The following financial statements of Cost Plus, Inc. are incorporated
herein by reference to the Company's 1998 Annual Report to Shareholders
for the year ended January 30, 1999, filed as Exhibit 13 to this report
on Form 10-K:
Independent Auditors' Report
Consolidated Balance Sheets as of January 30, 1999
and January 31, 1998
Consolidated Statements of Operations for the
fiscal years ended January 30, 1999, January 31,
1998 and February 1, 1997
Consolidated Statement of Shareholders' Equity for
the fiscal years ended January 30, 1999,
January 31, 1998 and February 1, 1997
Consolidated Statements of Cash Flows for the
fiscal years ended January 30, 1999, January 31,
1998 and February 1, 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
10
<PAGE>
Financial statement schedules of Cost Plus, Inc. have been omitted from
Item 14(d) because they are not applicable or the information is
included in the financial statements or notes thereto.
3. List of Exhibits:
See Exhibit Index beginning on page 13.
(b) Reports on form 8-K:
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Cost Plus, Inc.
Date: April 23, 1999 By: /s/ Murray H. Dashe
----------------------------------------
Murray H. Dashe
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Murray H. Dashe Chairman of the Board, Chief April 23, 1999
------------------ Executive Officer and President
Murray H. Dashe (Principal Executive Officer)
/s/John F. Hoffner Executive Vice President of Administration, April 23, 1999
------------------ Chief Financial Officer and Secretary
John F. Hoffner (Principal Financial and Accounting Officer)
/s/Ralph D. Dillon Chairman Emeritus April 23, 1999
------------------
Ralph D. Dillon
/s/Joseph H. Coulombe Director April 23, 1999
---------------------
Joseph H. Coulombe
/s/Danny W. Gurr Director April 23, 1999
----------------
Danny W. Gurr
/s/Nancy J. Pedot Director April 23, 1999
-----------------
Nancy J. Pedot
/s/Olivier L. Trouveroy Director April 23, 1999
-----------------------
Olivier L. Trouveroy
/s/Thomas D. Willardson Director April 23, 1999
-----------------------
Thomas D. Willardson
</TABLE>
12
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits
- ----------- -----------------------
<S> <C>
3.1 Amended and Restated Articles of Incorporation as filed with the California Secretary of State on April 1, 1996
incorporated by reference to Exhibit 3.1 to the Form 10-K filed for the year ended February 1, 1997.
3.2 Certificate of Determination as filed with California Secretary of State on July 27, 1998.
3.3 Amended and Restated By-laws dated June 18, 1998.
10.1 Form of Indemnification Agreement between the Company and each of its directors and officers, incorporated by
reference to Exhibit 10.1 to the Registration Statement on Form S-1 effective April 3, 1996.
10.2 Registration Rights Agreement, dated March 17, 1995, between the Company and certain holders of the
Company's securities, incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1
effective April 3, 1996.
10.3 Lease Agreement, dated August 27, 1991, as amended, between the Company and The Stockton Port District for
certain warehouses for storage and distribution located in Stockton, California and extension thereto dated
February 21, 1996, incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1 effective
April 3, 1996.
10.4 Lease Agreement, dated August 27, 1997, between the Company and Grissom Redevelopment Authority for certain
warehouse for storage and distribution located in Peru, Indiana, incorporated by reference to Exhibit 10.4 to the
Form 10-K filed for the year ended January 31, 1998.
10.5 Lease agreement between the Company and Square I, LLC for certain Corporate office space located in Oakland,
California, incorporated by reference to the Form 10-Q filed for the quarter ended October 31, 1998.
10.6 Business Loan Agreement, dated October 12, 1998, between the Company and Bank of America National Trust
and Savings Association, incorporated by reference to Exhibit 10.2 to the Form 10-Q filed for the quarter ended
October 31, 1998.
10.7* Third Amended and Restated 1988 Stock Option Plan and form of Stock Option Agreement thereunder,
incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1 effective April 3, 1996.
10.8* 1994 Stock Option Plan and form of Stock Option Agreement thereunder, incorporated by reference to Exhibit 10.3
to the Registration Statement on Form S-1 effective April 3, 1996.
10.9.1* 1995 Stock Option Plan, as amended, incorporated by reference to Exhibit 10.1 to the Form 10-Q filed for the
quarter ended August 1, 1998.
10.9.2* Form of Stock Option Agreement, 1995 Stock Option Plan, incorporated by reference to Exhibit 10.4 to the Form
10-K filed for the year ended February 1, 1997.
10.10.1* 1996 Director Option Plan, as amended, incorporated by reference to Exhibit 10.2 to the Form 10-Q filed for the
quarter ended August 2, 1997.
10.10.2* Form of Stock Option Agreement, 1996 Director Option Plan, incorporated by reference to Exhibit 10.14 to the
Registration Statement on Form S-1 effective April 3, 1996.
10.11* 1996 Employee Stock Purchase Plan, incorporated by reference to Exhibit 10.13 to the Registration Statement on
Form S-1 effective April 3, 1996.
10.12* The Cost Plus, Inc. Deferred Compensation Plan effective October 1, 1997 incorporated by reference to Exhibit 10.11 to
the Form 10-K filed for the year ended January 31, 1998.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.13* Management Incentive Plan, incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1
effective April 3, 1996.
10.14* 1997 Executive Officer and Key Employee Loan Plan, dated May 7, 1997, incorporated by reference to Appendix
C of the Company's Proxy Statement dated May 22, 1997.
10.15.1* Employment Agreement, dated September 6, 1990, between the Company and Ralph D. Dillon as amended by the
First Amendment to Employment Agreement dated December 1, 1996, incorporated by reference to Exhibit 10.4
to the Form 10-K filed for the year ended February 1, 1997.
10.15.2* Amendment to Employment Agreement, dated February 12, 1998, between the Company and Ralph D. Dillon incorporated by
reference to Exhibit 10.14.2 to the Form 10-K filed for the year ended January 31, 1998.
10.16.1* Employment Agreement, dated June 17, 1997, between the Company and Murray H. Dashe, incorporated by
reference to Exhibit 10.4 to the Form 10-Q filed for the quarter ended August 2, 1997.
10.16.2* Amendment to Employment Agreement, dated January 13, 1999, between the Company and Murray H. Dashe.
10.17.1* Employment Agreement, dated February 2, 1997, between the Company and Kathi P. Lentzsch, incorporated by
reference to Exhibit 10.5 to the Form 10-Q filed for the quarter ended August 2, 1997.
10.17.2* Employment Severance Agreement, dated January 13, 1999, between the Company and Kathi P. Lentzsch.
10.18.1* Employment Agreement, dated May 6, 1998, between the Company and John F. Hoffner, incorporated by reference
to Exhibit 10.4 to the Form 10-Q filed for the quarter ended August 1, 1998.
10.18.2* Amendment to Employment Agreement, dated January 13, 1999, between the Company and John F. Hoffner.
10.19* Employment Severance Agreement, dated January 13, 1999 between the Company and Gary D. Weatherford.
10.20* Employment Severance Agreement, dated January 13, 1999, between the Company and Joan S. Fujii.
10.21 Preferred Shares Rights Agreement, dated June 30, 1998 between Cost Plus, Inc. and BankBoston, N.A., including
the Certificate of Determination, the form of Rights Certificate and the Summary of Rights, incorporated by
reference to Exhibit 1 to the Form 8-A filed on July 27, 1998.
13 Registrant's 1998 Annual Report to Shareholders (only those portions specifically incorporated by reference into
this Report are deemed "filed" with the Securities and Exchange Commission).
21 List of Subsidiaries, incorporated by reference to Exhibit 21.1 to the Registration Statement on Form S-1 effective
April 3, 1996.
23 Independent Auditors' Consent.
27 Financial Data Schedule for the fiscal year ended January 30, 1999 (submitted for SEC use only).
</TABLE>
* Management compensation plan or arrangement.
14
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF DETERMINATION OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES A PARTICIPATING PREFERRED STOCK OF
COST PLUS, INC.
We, Murray H. Dashe and John F. Hoffner, the President and the Secretary,
respectively, of Cost Plus, Inc. (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of California, in
accordance with the provisions of Section 401 thereof, DO HEREBY CERTIFY:
That the authorized number of shares of Preferred Stock of the Corporation
is 5,000,000, that no such Preferred Stock has been issued and no Series A
Preferred Stock has been issued; and
That pursuant to the authority conferred upon the Board of Directors by the
Articles of Incorporation of the said Corporation, the said Board of Directors
on June 30, 1998 adopted the following resolution creating a series of 100,000
shares of Preferred Stock designated as Series A Participating Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation by the Articles of Incorporation, the Board of Directors does
hereby provide for the issue of a series of Preferred Stock of the Corporation,
to be designated "Series A Participating Preferred Stock," $0.01 par value,
initially consisting of 100,000 shares, and to the extent that the designations,
powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions of the Series A Participating
Preferred Stock are not stated and expressed in the Articles of Incorporation,
does hereby fix and herein state and express such designations, powers,
preferences and relative and other special rights and the qualifications,
limitations and restrictions thereof, as follows (all terms used herein which
are defined in the Articles of Incorporation shall be deemed to have the
meanings provided therein):
Section 1. Designation and Amount. The shares of such series shall be
----------------------
designated as "Series A Participating Preferred Stock," no par value, and the
number of shares constituting such series shall be 100,000.
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the prior and superior right of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Participating Preferred Stock with respect to dividends, the holders
of shares of Series A Participating Preferred Stock shall
<PAGE>
be entitled to receive when, as and if declared by the Board of Directors out
of funds legally available for the purpose, quarterly dividends payable in
cash on the last day of January, April, July and October in each year (each
such date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Participating Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to, subject
to the provision for adjustment hereinafter set forth, 1,000 times the
aggregate per share amount of all cash dividends, and 1,000 times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions other than a dividend payable in shares of Common Stock or
a subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise), declared on the Common Stock of the Corporation (the "Common
Stock") since the immediately preceding Quarterly Dividend Payment Date, or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Participating
Preferred Stock. In the event the Corporation shall at any time after June 30,
1998 (the "Rights Dividend Declaration Date") (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount to which holders of shares
of Series A Participating Preferred Stock were entitled immediately prior to
such event under the preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior
to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue on outstanding shares of Series A
Participating Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Participating Preferred
Stock, unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or unless
the date of issue is a Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Series A Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Participating Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of holders of
shares of Series A Participating Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
<PAGE>
Section 3. Voting Rights. The holders of shares of Series A Participating
-------------
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Participating Preferred Stock shall entitle the holder
thereof to 1,000 votes on all matters submitted to a vote of the shareholders of
the Corporation. In the event the Corporation shall at any time after the
Rights Dividend Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the number of votes per share to which holders of shares
of Series A Participating Preferred Stock were entitled immediately prior to
such event shall be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a vote
of shareholders of the Corporation.
(C) Except as required by law, holders of Series A Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
--------------------
(A) The Corporation shall not declare any dividend on, make any
distribution on, or redeem or purchase or otherwise acquire for consideration
any shares of Common Stock after the first issuance of a share or fraction of a
share of Series A Participating Preferred Stock unless concurrently therewith it
shall declare a dividend on the Series A Participating Preferred Stock as
required by Section 2 hereof.
(B) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Participating Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Participating
Preferred Stock outstanding shall have been paid in full, the Corporation shall
not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Series A Participating Preferred Stock;
(ii) declare or pay dividends on, or make any other
distributions on, any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding
<PAGE>
up) with Series A Participating Preferred Stock, except dividends paid ratably
on the Series A Participating Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Participating
Preferred Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such parity stock in exchange for shares of
any stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Participating Preferred
Stock;
(iv) purchase or otherwise acquire for consideration any
shares of Series A Participating Preferred Stock, or any shares of stock
ranking on a parity with the Series A Participating Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(C) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Participating
-----------------
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 6. Liquidation, Dissolution or Winding Up.
--------------------------------------
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred Stock unless,
prior thereto, the holders of shares of Series A Participating Preferred Stock
shall have received two-hundred thousand dollars ($200,000) per share, plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment (the "Series A Liquidation
Preference"). Following the payment of the full amount of the Series A
Liquidation Preference, no additional distributions shall be made to the holders
of shares of Series A Participating Preferred Stock unless, prior thereto, the
holders of shares of Common Stock shall have received an amount per share (the
"Common Adjustment") equal to the quotient obtained by dividing (i) the Series A
Liquidation Preference by (ii) 1,000 (as appropriately adjusted as set forth in
<PAGE>
subparagraph (C) below to reflect such events as stock splits, stock dividends
and recapitalization with respect to the Common Stock) (such number in clause
(ii), the "Adjustment Number"). Following the payment of the full amount of the
Series A Liquidation Preference and the Common Adjustment in respect of all
outstanding shares of Series A Participating Preferred Stock and Common Stock,
respectively, holders of Series A Participating Preferred Stock and holders of
shares of Common Stock shall receive their ratable and proportionate share of
the remaining assets to be distributed in the ratio of the Adjustment Number to
1 with respect to such Preferred Stock and Common Stock, on a per share basis,
respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full to the Series A Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series A Participating Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to permit payment in
full of the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Dividend Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case (a) the Series A Liquidation Preference in effect immediately
prior to such event shall be adjusted by multiplying such Liquidation Preference
by a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately prior to such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately after such
event, and (b) the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
---------------------------
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Dividend Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Participating Preferred Stock shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of
<PAGE>
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 8. No Redemption. The shares of Series A Participating Preferred
-------------
Stock shall not be redeemable.
Section 9. Ranking. The Series A Participating Preferred Stock shall rank
-------
junior to all other series of the Corporation's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
Section 10. Amendment. The Articles of Incorporation of the Corporation
---------
shall not be further amended in any manner which would materially alter or
change the powers, preference or special rights of the Series A Participating
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of a majority or more of the outstanding shares of Series A
Participating Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. Series A Participating Preferred Stock may
-----------------
be issued in fractions of a share which shall entitle the holder, in proportion
to such holder's fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series A Participating Preferred Stock.
RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of this corporation be, and they hereby
are, authorized and directed to prepare and file (or cause to be prepared and
filed) a Certificate of Determination of Rights, Preferences and Privileges in
accordance with the foregoing resolution and the provisions of California law
and to take such actions as they may deem necessary or appropriate to carry out
the intent of the foregoing resolution."
<PAGE>
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Dated: July 21, 1998
/s/ Murray Dashe
-------------------------------------------------
Murray H. Dashe, President and Chief Executive
Officer
/s/ John F. Hoffner
-------------------------------------------------
John F. Hoffner, Secretary
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED/1/
BY-LAWS
OF
COST PLUS, INC.
(a California corporation)
(the "corporation")
Article I
OFFICES
Section 1.1 Principal Office. The principal office for the transaction
----------- ----------------
of the business of the corporation shall be located at 201 Clay Street, Oakland,
State of California. The Board of Directors of the corporation (the "Board" or
the "Board of Directors") is hereby granted full power and authority to change
said principal office to another location within or without the State of
California.
Section 1.2 Other Offices. One or more branch or other subordinate
----------- -------------
offices may at any time be fixed and located by the Board of Directors at such
place or places within or without the State of California as it deems
appropriate.
Article II
DIRECTORS
Section 2.1 Exercise of Corporate Powers. Except as otherwise provided
----------- ----------------------------
by the Articles of Incorporation of the corporation or by the laws of the State
of California now or hereafter in force, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the Board of Directors. The Board may delegate the
management of the day-to-day operation as permitted by law provided that the
business and affairs of the corporation shall be managed and all corporate
powers shall be exercised under the ultimate direction of the Board. Without
limiting the foregoing, in addition to any other action required by law, by the
Articles of Incorporation or by these By-Laws, approval by the Board of
Directors or a duly established committee of the Board shall be required for any
of the following corporate actions:
(a) the election and removal of the Chairman (if any), the President,
the Chief Financial Officer, or any other executive officer of the corporation
or any significant subsidiary (as such term is defined in Regulation S-X
promulgated under the Securities Act of 1933, as amended) of the
- -----------------------
/1/ As of June 18, 1998
<PAGE>
corporation, the compensation of any of them, and the prescription of such
powers and duties for them as are not inconsistent with the Articles of
Incorporation, these By-Laws or applicable law;
(b) lease of any real property on terms which exceed parameters
approved by the Board;
(c) ceasing of operations at any of the business locations of the
corporation and any writeoff for any such location in excess of $250,000;
(d) sale, exchange, mortgage, pledge or other disposition or
encumbrance by the corporation of any real property or any other assets of the
corporation having a net book or fair market value in excess of $1,000,000 other
than sales of inventory in the ordinary course of business;
(e) settlement of any claim involving a payment or forbearance, or any
writeoff, by the corporation in excess of $500,000 not included in the annual
capital expenditure budgets for the corporation;
(f) appointment of auditors for the corporation and any significant
change in the accounting principles or tax elections applicable to the
corporation which are not mandated by generally accepted accounting principles
or applicable law; and
(g) any contract or other transaction between the corporation and one
or more of its directors or officers or any entity in which one or more of its
directors or officers has a material financial interest.
Section 2.2 Number. The number of directors of the corporation
----------- ------
shall be not less than five (5) nor more than nine (9). The exact number of
directors shall be eight (8) until changed, within the limits specified above,
by a bylaw amending this Section 2.2, duly adopted by the Board of Directors or
by the shareholders. The indefinite number of directors may be changed, or a
definite number may be fixed without provision for an indefinite number, by a
duly adopted amendment to the Articles of Incorporation or by an amendment to
this bylaw duly adopted by the vote or written consent of holders of a majority
of the outstanding shares entitled to vote; provided, however, that an amendment
reducing the fixed number or the minimum number of directors to a number less
than five cannot be adopted if the votes cast against its adoption at a meeting,
or the shares not consenting in the case of an action by written consent, are
equal to more than 16-2/3% of the outstanding shares entitled to vote thereon.
No amendment may change the stated maximum number of authorized directors to a
number greater than two times the stated minimum number of directors minus one.
Section 2.3 Need Not Be Shareholders. The directors of the
----------- ------------------------
corporation need not be shareholders of the corporation.
Section 2.4 Compensation. Directors shall receive such
----------- ------------
compensation for their services as directors and such reimbursement for their
expenses of attendance at meetings as may be determined from time to time by
resolution of the Board. Nothing herein contained shall be construed
-2-
<PAGE>
to preclude any director from serving the corporation in any other capacity
and receiving compensation therefor.
Section 2.5 Election and Term of Office. At each annual meeting of
----------- ---------------------------
shareholders, directors shall be elected to hold office until the next annual
meeting, provided, that if for any reason, said annual meeting or an adjournment
thereof is not held or the directors are not elected thereat, then the directors
may be elected at any special meeting of the shareholders called and held for
that purpose. The term of office of the directors shall begin immediately after
their election and shall continue until the expiration of the term for which
elected and until their respective successors have been elected and qualified.
Section 2.6 Vacancies. A vacancy or vacancies in the Board of
----------- ---------
Directors shall exist when any authorized position of director is not then
filled by a duly elected director, whether caused by death, resignation, removal
change in the authorized number of directors (by the Board or the shareholders)
or otherwise. The Board of Directors may declare vacant the office of a
director who has been declared of unsound mind by an order of court or convicted
of a felony. Except for a vacancy created by the removal of a director,
vacancies on the Board may be filled by a majority of the directors then in
office, whether or not less than a quorum, or by a sole remaining director. A
vacancy created by the removal of a director may be filled only by the approval
of the shareholders. The shareholders may elect a director at any time to fill
any vacancy not filled by the directors, but any such election by written
consent requires the consent of a majority of the outstanding shares entitled to
vote. Any director may resign effective upon giving written notice to the
Chairman of the Board, the President, the Secretary or the Board of Directors of
the corporation, unless the notice specifies a later time for the effectiveness
of such resignation. If the resignation is effective at a future time, a
successor may be elected to take office when the resignation becomes effective.
Section 2.7 Removal. (a) Any and all of the directors may be
----------- -------
removed without cause if such removal is approved by the affirmative vote of a
majority of the outstanding shares entitled to vote at an election of directors,
except that no director may be removed (unless the entire Board is removed) when
the votes cast against removal, or not consenting in writing to such removal,
would be sufficient to elect such director if voted cumulatively at an election
at which the same total number of votes were cast (or, if such action is taken
by written consent, all shares entitled to vote were voted) and the entire
number of directors authorized at the time of the director's most recent
election were then being elected.
(b) Any reduction of the authorized number of directors does not
remove any director prior to the expiration of such director's term of office.
Section 2.8 Approval of Loans. The corporation may, upon the
----------- -----------------
approval of the Board of Directors alone, make loans of money or property to, or
guarantee the obligations of, any officer of the corporation or of its parent,
if any, whether or not a director, or adopt an employee benefit plan or plans
authorizing such loans or guaranties provided that: (i) the Board of Directors
determines that such a loan or guaranty or plan may reasonably be expected to
benefit the corporation; (ii) the corporation has outstanding shares held of
record by 100 or more persons (determined as provided in Section 605 of the
-3-
<PAGE>
California General Corporation Law) on the date of approval by the Board of
Directors; and (iii) the approval of the Board of Directors is by a vote
sufficient without counting the vote of any interested director or directors.
Notwithstanding the foregoing, the corporation shall have the power to make
loans otherwise permitted by the California General Corporation Law.
Article III
OFFICERS
Section 3.1 Election and Qualifications. The officers of this
----------- ---------------------------
corporation shall consist of a President, a Chief Financial Officer and a
Secretary who shall be chosen by the Board of Directors and such other officers,
including a Chairman of the Board, one or more Vice Presidents, an Assistant
Treasurer, an Assistant Secretary and a Controller, as the Board of Directors
shall deem expedient, who shall be chosen in such manner and hold their offices
for such terms as the Board of Directors may prescribe. Any two or more of such
offices may be held by the same person. Any Vice President, Assistant Treasurer
or Assistant Secretary, respectively, may exercise any of the powers of the
President, the Chief Financial Officer, or the Secretary, respectively, as
directed by the Board of Directors and shall perform such other duties as are
imposed upon such officer by the By-Laws or the Board of Directors.
Section 3.2 Term of Office and Compensation. The term of office
----------- -------------------------------
and salary of each of said officers and the manner and time of the payment of
such salaries shall be fixed and determined by the Board of Directors and may be
altered by said Board from time to time at its pleasure, subject to the rights,
if any, of said officers under any contract of employment.
Section 3.3 Removal and Vacancies. Any officer of the
----------- ---------------------
corporation may be removed at the pleasure of the Board of Directors at any
meeting or by vote of shareholders entitled to exercise the majority of voting
power of the corporation at any meeting. Any officer may resign at any time
upon written notice to the corporation without prejudice to the rights, if any,
of the corporation under any contract to which the officer is a party. If any
vacancy occurs in any office of the corporation, the Board of Directors may
elect a successor to fill such vacancy for the remainder of the unexpired term
and until a successor is duly chosen and qualified.
Article IV
CHAIRMAN OF THE BOARD
Section 4.1 Powers and Duties. The Chairman of the Board of
----------- -----------------
Directors, if there be one, shall have the power to preside at all meetings of
the Board of Directors, and to call meetings of the shareholders and of the
Board of Directors to be held within the limitations prescribed by law or by
these By-Laws, at such times and at such places as the Chairman of the Board
shall deem proper. The Chairman of the Board shall have such other powers and
shall be subject to such other duties as the Board of Directors may from time to
time prescribe.
-4-
<PAGE>
Article V
PRESIDENT
Section 5.1 Powers and Duties. The powers and duties of the
----------- -----------------
President are:
(a) To act as the chief executive officer of the corporation and,
subject to the control of the Board of Directors, to have general supervision,
direction and control of the business and affairs of the corporation.
(b) To preside at all meetings of the shareholders and, in the absence
of the Chairman of the Board, or if there be none, at all meetings of the Board
of Directors.
(c) To call meetings of the shareholders and also of the Board of
Directors to be held, subject to the limitations prescribed by law or by these
By-Laws, at such times and at such places as the President shall deem proper.
(d) To affix the signature of the corporation to all deeds,
conveyances, mortgages, leases, obligations, bonds, certificates and other
papers and instruments in writing which have been authorized by the Board of
Directors or which do not require the approval of the Board of Directors under
Section 2.1 of the By-Laws and in the judgment of the President should be
executed on behalf of the corporation, to sign certificates for shares of stock
of the corporation and, subject to the direction of the Board of Directors, to
have general charge of the property of the corporation and to supervise and
control all officers, agents and employees of the corporation.
Section 5.2 President pro tem. If neither the Chairman of the
----------- -----------------
Board, the President, nor any Vice President is present at any meeting of the
Board of Directors, a President pro tem may be chosen to preside and act at such
meeting. If neither the President nor any Vice President is present at any
meeting of the shareholders, a President pro tem may be chosen to preside at
such meeting.
Article VI
VICE PRESIDENT
Section 6.1 Powers and Duties. In case of the absence, disability
----------- -----------------
or death of the President, the Vice President, or one of the Vice Presidents,
shall exercise all the powers and perform all the duties of the President. If
there is more than one Vice President, the order in which the Vice Presidents
shall succeed to the powers and duties of the President shall be as fixed by the
Board of Directors. The Vice President or Vice Presidents shall have such other
powers and perform such other duties as may be granted or prescribed by the
Board of Directors.
-5-
<PAGE>
Article VII
SECRETARY
Section 7.1 Powers and Duties. The powers and duties of the
----------- -----------------
Secretary are:
(a) To keep a book of minutes at the principal office of the
corporation, or such other place as the Board of Directors may order, of all
meetings of its directors and shareholders with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice thereof
given, the names of those present at directors' meetings, the number of shares
present or represented at shareholders' meetings and the proceedings thereof.
(b) To keep the seal of the corporation and to affix the same to all
instruments which may require it.
(c) To keep or cause to be kept at the principal office of the
corporation, or at the office of the transfer agent or agents, a share register,
or duplicate share registers, showing the names of the shareholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for shares, and the number and date of cancellation of every
certificate surrendered for cancellation.
(d) To keep a supply of certificates for shares of the corporation, to
fill in all certificates issued, and to make a proper record of each such
issuance; provided, that so long as the corporation shall have one or more duly
appointed and acting transfer agents of the shares, or any class or series of
shares, of the corporation, such duties with respect to such shares shall be
performed by such transfer agent or transfer agents.
(e) To transfer upon the share books of the corporation any and all
shares of the corporation; provided, that so long as the corporation shall have
one or more duly appointed and acting transfer agents of the shares, or any
class or series of shares, of the corporation, such duties with respect to such
shares shall be performed by such transfer agent or transfer agents, and the
method of transfer of each certificate shall be subject to the reasonable
regulations of the transfer agent to which the certificate is presented for
transfer, and also, if the corporation then has one or more duly appointed and
acting registrars, to the reasonable regulations of the registrar to which the
new certificate is presented for registration; and provided, further, that no
certificate for shares of stock shall be issued or delivered or, if issued or
delivered, shall have any validity whatsoever until and unless it has been
signed or authenticated in the manner provided in Section 14.4 hereof.
(f) To make service and publication of all notices that may be
necessary or proper, and without command or direction from anyone, in case of
the absence, disability, refusal or neglect of the Secretary to make service or
publication of any notices, then such notices may be served and/or published by
the President or a Vice President, or by any person thereunto authorized by
either of them or by the Board of Directors or by the holders of a majority of
the outstanding shares of the corporation.
-6-
<PAGE>
(g) Generally to do and perform all such duties as pertain to the
office of Secretary and as may be required by the Board of Directors.
Article VIII
CHIEF FINANCIAL OFFICER
Section 8.1 Powers and Duties. The powers and duties of the Chief
----------- -----------------
Financial Officer are:
(a) To supervise and control the keeping and maintaining of adequate
and correct accounts of the corporation's properties and business transactions,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, retained earnings and shares. The books of account shall at
all reasonable times be open to inspection by any director.
(b) To have the custody of all funds, securities, evidence of
indebtedness and other valuable documents of the corporation and, at the Chief
Financial Officer's discretion, to cause any or all thereof to be deposited for
the account of the corporation with such depositary as may be designated from
time to time by the Board of Directors.
(c) To receive or cause to be received, and to give or cause to be
given receipts and acquittances for moneys paid in for the account of the
corporation.
(d) To disburse, or cause to be disbursed, all funds of the
corporation as may be directed by the Board of Directors, taking proper vouchers
for such disbursements.
(e) To render to the President and to the Board of Directors, whenever
they may require, accounts of all transactions and of the financial condition of
the corporation.
(f) Generally to do and perform all such duties as pertain to the
office of Chief Financial Officer and as may be required by the Board of
Directors.
Article IX
TREASURER
Section 9.1 Powers and Duties. The Treasurer shall have such
----------- -----------------
powers and duties as from time to time may be prescribed by the board of
directors or these By-Laws, including custody of and responsibility for all
money and investments.
-7-
<PAGE>
Article X
CONTROLLER
Section 10.1 Powers and Duties. The Controller, if there be one,
------------ -----------------
shall have the power and duty to keep and maintain adequate and correct accounts
of the corporation's properties and business transactions, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings and shares, and to render to the Chief Financial Officer, the
President and the Board of Directors, whenever they may require, accounts of all
transactions and of the financial condition of the corporation. The Controller
shall generally have the power to do and perform all such other duties as
pertain to the office of Controller and as may be required by the Board of
Directors.
Article XI
COMMITTEES OF THE BOARD
Section 11.1 Appointments and Procedure. The Board of Directors
------------ --------------------------
may, by resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors, to
serve at the pleasure of the Board, designate members of any committee, and
designate one or more directors as alternate members of any committee, who may
replace any absent member at any meeting of the committee.
Section 11.2 Powers. Any committee appointed by the Board of
------------ ------
Directors, to the extent provided in the resolution of the Board or in these By-
Laws, shall have all the authority of the Board except with respect to:
(a) the approval of any action for which the California General
Corporation Law or the Articles of Incorporation or these By-Laws requires the
approval or vote of the shareholders or of a majority or supermajority of the
directors then serving on the Board of Directors;
(b) the filling of vacancies on the Board or on any committee;
(c) the fixing of compensation of the directors for serving on the
Board or on any committee;
(d) the amendment or repeal of By-Laws or the adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the Board which by
its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the Board;
and
-8-
<PAGE>
(g) the appointment of other committees of the Board or the members
thereof.
Section 11.3 Executive Committee. In the event that the Board of
------------ -------------------
Directors appoints an Executive Committee, such Executive Committee, in all
cases in which specific directions to the contrary shall not have been given by
the Board of Directors, shall have and may exercise, during the intervals
between the meetings of the Board of Directors, all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation (except as provided in Section 11.2 hereof) in such manner as the
Executive Committee may deem best for the interests of the corporation.
Article XII
MEETINGS OF SHAREHOLDERS
Section 12.1 Place of Meetings. Meetings (whether regular, special
------------ -----------------
or adjourned) of the shareholders of the corporation shall be held at the
principal office for the transaction of business as specified in accordance with
Section 1.1 hereof, or any place within or without the State which may be
designated by written consent of all the shareholders entitled to vote thereat,
or which may be designated by the Board of Directors.
Section 12.2 Time of Annual Meetings. The annual meeting of the
------------ -----------------------
shareholders shall be held at the hour of 9:00 o'clock in the morning on the
fourth Thursday in June in each year, if not a legal holiday, and if a legal
holiday, then on the next succeeding business day not a legal holiday, or such
other time or date as may be set by the Board of Directors.
Section 12.3 Special Meetings. Special meetings of the shareholders
------------ ----------------
may be called by the Board of Directors, the Chairman of the Board, the
President or the holders of shares entitled to cast not less than 10% of the
vote at the meeting.
Section 12.4 Notice of Meetings. (a) Whenever shareholders are
------------ ------------------
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given not less than 10 nor more than 60 days before the day of
the meeting to each shareholder entitled to vote thereat. Such notice shall
state the place, date and hour of the meeting and (1) in the case of a special
meeting, the general nature of the business to be transacted, and no other
business may be transacted, or (2) in the case of the annual meeting, those
matters which the Board, at the time of the mailing of the notice, intends to
present for action by the shareholder, but subject to the provisions of
subdivision (b) any proper matter may be presented at the meeting for such
action. The notice of any meeting at which directors are to be elected shall
include the names of nominees intended at the time of the notice to be
presented by management for election.
(b) Any shareholder approval at a meeting, other unanimous approval by
those entitled to vote, on any of the matters listed below shall be valid only
if the general nature of the proposal so approved was stated in the notice of
meeting or in any written waiver of notice:
-9-
<PAGE>
(1) a proposal to approve a contract or other transaction
between a corporation and one or more of its directors, or between a
corporation and any corporation, firm or association in which one or more
directors has a material financial interest;
(2) a proposal to amend the Articles of Incorporation;
(3) a proposal regarding a reorganization, merger or
consolidation involving this corporation;
(4) a proposal to wind up and dissolve the corporation; and
(5) a proposal to adopt a plan of distribution of the shares,
obligations or securities of any other corporation, domestic or foreign,
or assets other than money which is not in accordance with the
liquidation rights of any preferred shares as specified in the Articles
of Incorporation.
(c) To be properly brought before an annual meeting or special
meeting, nominations for the election of directors or other business (not
specified in Section 12.4 (b)) must be (1) specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the Board of
Directors, (2) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (3) otherwise properly brought before
the meeting by a shareholder. For such nominations or other business to be
considered properly brought before the meeting by a shareholder, such
shareholder must have given timely notice and in proper form of his intent to
bring such business before such meeting. To be timely, such shareholder's
notice must be delivered to or mailed and received by the secretary of the
corporation not less than 35 days prior to the meeting; provided, however, that
in the event that less than 60 days notice or prior public disclosure of the
date of the meeting is given or made to shareholders, notice by the shareholder
to be timely must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made. To be in proper form, a
shareholder's notice to the secretary shall set forth:
(1) the name and address of the shareholder who intends to make
the nominations, propose the business, and, as the case may be, the name
and address of the person or persons to be nominated or the nature of the
business to be proposed;
(2) a representation that the shareholder is a holder of record
of stock of the corporation entitled to vote at such meeting and, if
applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice or introduce the
business specified in the notice;
(3) if applicable, a description of all arrangements or
understandings between the shareholders and each nominee and any other
person or persons (naming such person or persons, pursuant to which the
nomination or nominations are to be made by the shareholder);
-10-
<PAGE>
(4) such other information regarding each nominee or each
matter of business to be proposed by such shareholder as would be
required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had the nominee been
nominated, or intended to be nominated, or the matter been proposed, or
intended to be proposed by the board of directors; and
(5) if applicable, the consent of each nominee to serve as
director of the corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination
of any person or the proposal of any business not made in compliance with the
foregoing procedure.
Section 12.5 Delivery of Notice. Notice of shareholders' meeting or
------------ ------------------
any report shall be given either personally or by mail or other means of written
communication, addressed to the shareholder at the address of such shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice; or if no such address appears or is
given, at the place where the principal executive office of the corporation is
located or by publication at least once in a newspaper of general circulation in
the county in which the principal executive office is located. The notice or
report shall be deemed to have been given at the time when delivered personally
or deposited in the mail or sent by other means of written communication. An
affidavit of mailing of any notice or report in accordance with the provisions
of this section, executed by the Secretary, Assistant Secretary or any transfer
agent, shall be prima facie evidence of the giving of the notice or report.
If any notice or report addressed to the shareholders at the address
of such shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice or report to the
shareholder at such address, all future notices or reports shall be deemed to
have been duly given without further mailing if the same shall be available for
the shareholder upon written demand of the shareholder at the principal
executive office of the corporation for a period of one year from the date of
the giving of the notice to all other shareholders.
Section 12.6 Adjourned Meetings. When a shareholders' meeting is
------------ ------------------
adjourned to another time or place, unless the By-Laws otherwise require and
except as provided in this section, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the corporation may transact any
business which might have been transacted at the original meeting. If the
adjournment is for more than 45 days or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each shareholder of record entitled to vote at the meeting.
Section 12.7 Consent to Shareholders' Meeting. The transactions of
------------ --------------------------------
any meeting of shareholders, however called and noticed, and wherever held, are
as valid as though had at a meeting duly held after regular call and notice, if
a quorum is present either in person or by proxy,
-11-
<PAGE>
and if either before or after the meeting each of the persons entitled to
vote, not present in person or by proxy signs a written waiver of notice or a
consent to the holding of the meeting or an approval of the minutes thereof.
All such waivers, consents and approvals shall be filed with the corporate
records or made a part of the minutes of the meeting. Attendance of a person
at a meeting shall constitute a waiver of notice of such meeting, except when
the person objects, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened and except
that attendance at a meeting is not a waiver of any right to object to the
consideration of matters required by the California General Corporation Law to
be included in the notice but not so included in the notice if such objection
is expressly made at the meeting. Neither the business to be transacted at nor
the purpose of any regular or special meeting of shareholders need be
specified in any written waiver of notice, unless otherwise provided in the
Articles of Incorporation or By-Laws, except as provided in subdivision (b) of
Section 12.4.
Section 12.8 Quorum. (a) The presence in person or by proxy of the
------------ ------
persons entitled to vote the majority of the voting shares at any meeting shall
constitute a quorum for the transaction of business. Except as otherwise
expressly required by statute, the Articles of Incorporation and these By-Laws,
if a quorum is present, the affirmative vote of the majority of shares
represented at the meeting and entitled to vote on any matter shall be the act
of the shareholders.
(b) The shareholders present at a duly called or held meeting at which
a quorum is present may continue to transact business until adjournment
notwithstanding the withdrawal of the number of enough shareholders to leave
less than a quorum, if any action taken (other than adjournment) is approved by
at least a majority of the shares required to constitute a quorum.
(c) In the absence of a quorum, any meeting of shareholders from time
to time by the vote of a majority of the shares represented either in person or
by proxy, but no other business may be transacted, except as provided in
subdivision (b).
Section 12.9 Actions without Meeting. (a) Any action which may be
------------ -----------------------
taken at any annual or special meeting of shareholders may be taken without a
meeting and without prior notice, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted; provided that, subject to the provisions of Section 2.6,
directors may not be elected by written consent except by unanimous written
consent of all shares entitled to vote for the election of directors.
(b) Unless the consents of all shareholders entitled to vote have been
solicited in writing,
(1) notice of any shareholder approval on matters described in
subparagraphs (1), (3) or (5) of subdivision (b) of Section 12.4 or
respecting indemnification of agents of the
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<PAGE>
corporation without a meeting by less than unanimous written consent shall
be given at least 10 days before the consummation of the action authorized
by such approval, and
(2) prompt notice shall be given of the taking of any other
corporate action approved by shareholders without a meeting by less than
unanimous written consent, to those shareholders entitled to vote but who
have not consented in writing; the provisions of Section 12.5 shall apply
to such notice.
Section 12.10 Revocation of Consent. Any shareholder giving a
------------- ---------------------
written consent, or the shareholder's proxy holders, or a transferee of the
shares or a personal representative of the shareholder or their respective proxy
holders, may revoke the consent by a writing received by the corporation prior
to the time that written consents of the number of shares required to authorize
the proposed action have been filed with the Secretary of the corporation, but
may not do so thereafter. Such revocation is effective upon its receipt by the
Secretary of the corporation.
Section 12.11 Voting Rights. Except as provided in Section 12.13 or
------------- -------------
in the Articles of Incorporation or in any statute relating to the election of
directors or to other particular matters, each outstanding share, regardless of
class, shall be entitled to one vote on each matter submitted to a vote of
shareholders. Any holder of shares entitled to vote on any matter may vote part
of the shares in favor of the proposal and refrain from voting the remaining
shares or vote them against the proposal, other than elections to office, but,
if the shareholder fails to specify the number of shares such shareholder is
voting affirmatively, it will be conclusively presumed that the shareholder's
approving vote is with respect to all shares such shareholder is entitled to
vote.
Section 12.12 Determination of Holders of Record. (a) In order that
------------- ----------------------------------
the corporation may determine the shareholders entitled to notice of or to vote
at any meeting or entitled to receive payment of any dividend or other
distribution or allotment of any rights or entitled to exercise any rights in
respect of any other lawful action, the Board of Directors may fix in advance, a
record date, which shall not be more than 60 nor less than 10 days prior to the
date of such meeting nor more than 60 days prior to any other action.
(b) In the absence of any record date set by the Board of Directors
pursuant to subdivision (a) above, then:
(1) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close
of business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the business
day next preceding the day on which the meeting is held.
(2) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, when no prior
action by the Board has been taken, shall be the day on which the first
written consent is given.
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<PAGE>
(3) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board
adopts the resolution relating thereto, or the 60th day prior to the date
of such other action, whichever is later.
(c) A determination of shareholders of record entitled to notice of or
to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board fixes a new record date of the adjourned meeting, but
the Board shall fix a new record date if the meeting is adjourned for more than
45 days from the date set for the original meeting.
(d) Shareholders on the record date are entitled to notice and to vote
or to receive the dividend, distribution or allotment of rights or to exercise
the rights, as the case may be, notwithstanding any transfer of any shares on
the books of the corporation after the record date, except as otherwise provided
in the Articles of Incorporation or these By-Laws or by agreement or applicable
law.
Section 12.13 Election of Directors. (a) In any election of
------------- ---------------------
directors, the candidates receiving the highest number of votes of the shares
entitled to be voted for them up to the number of directors to be elected by
such shares are elected.
(b) Election for directors need not be by ballot unless a shareholder
demands election by ballot at the meeting and before the voting begins or unless
the By-Laws so require.
Section 12.14 Proxies. (a) Every person entitled to vote shares may
------------- -------
authorize another person or persons to act by proxy with respect to such shares.
Any proxy purporting to be executed in accordance with the provisions of the
General Corporation Law of the State of California shall be presumptively valid.
(b) No proxy shall be valid after the expiration of 11 months from the
date thereof unless otherwise provided in the proxy. Every proxy continues in
full force and effect until revoked by the person executing it prior to the vote
pursuant thereto, except as otherwise provided in this section. Such revocation
may be effected by a writing delivered to the corporation stating that the proxy
is revoked or by a subsequent proxy executed by, or by attendance at the meeting
and voting in person by, the person executing the proxy. The dates contained on
the forms of proxy presumptively determine the order of execution, regardless of
the postmark dates on the envelopes in which they are mailed.
(c) A proxy is not revoked by the death or incapacity of the maker
unless, before the vote is counted, written notice of such death or incapacity
is received by the corporation.
Section 12.15 Inspectors of Election. (a) In advance of any meeting
------------- ----------------------
of shareholders the Board may appoint inspectors of election to act at the
meeting and any adjournment thereof. If inspectors of election are not so
appointed, or if any persons so appointed fail to appear or refuse to act, the
chairman of any meeting of shareholders may, and on the request of any
shareholder or a shareholder's proxy shall, appoint inspectors of election (or
persons to replace those who so fail or
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<PAGE>
refuse) at the meeting. The number of inspectors shall be either one or three.
If appointed at a meeting on the request of one or more shareholders or
proxies, the majority of shares represented in person or by proxy shall
determine whether one or three inspectors are to be appointed.
(b) The inspectors of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum and the authenticity, validity and effect of proxies,
receive votes, ballots or consents, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine when the polls shall close, determine
the result and do such acts as may be proper to conduct the election or vote
with fairness to all shareholders.
(c) The inspectors of election shall perform their duties,
impartially, in good faith, to the best of their ability and as expeditiously as
is practical. If there are three inspectors of election, the decision, act or
certificate of a majority is effective in all respects as the decision, act or
certificate of all. Any report or certificate made by the inspectors of
election is prima facie evidence of the facts stated therein.
Article XIII
MEETINGS OF DIRECTORS
Section 13.1 Place of Meetings. Unless otherwise specified in the
------------ -----------------
notice thereof, meetings (whether regular, special or adjourned) of the Board of
Directors of this corporation shall be held at the principal office of the
corporation for the transaction of business, as specified in accordance with
Section 1.1 hereof, which is hereby designated as an office for such purpose in
accordance with the laws of the State of California, or at any other place
within or without the State which has been designated from time to time by
resolution of the Board or by written consent of all members of the Board.
Section 13.2 Regular Meetings. Regular meetings of the Board of
------------ ----------------
Directors, of which no notice need be given except as required by the laws of
the State of California, shall be held after the adjournment of each annual
meeting of the shareholders (which meeting shall be designated the Regular
Annual Meeting) and at such other times as may be designated from time to time
by resolution of the Board of Directors.
Section 13.3 Special Meetings. Special meetings of the Board of
------------ ----------------
Directors may be called at any time by the Chairman of the Board or the
President or by any Vice President or the Secretary or by any two or more of the
directors.
Section 13.4 Notice of Meetings. Except in the case of regular
------------ ------------------
meetings, notice of which has been dispensed with, the meetings of the Board of
Directors shall be held upon four days' notice by mail or 48 hours' notice
delivered personally or by telephone, telegraph or other electronic or wireless
means. If the address of a director is not shown on the records and is not
readily ascertainable, notice shall be addressed to him at the city or place in
which the meetings of the
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<PAGE>
directors are regularly held. Except as set forth in Section 13.6, notice of
the time and place of holding an adjourned meeting need not be given to absent
directors if the time and place be fixed at the meeting adjourned.
Section 13.5 Quorum. A majority of the authorized number of
------------ ------
directors constitutes a Quorum of the Board for the transaction of business.
Except as otherwise expressly required by statute, the Articles of
Incorporation or these By-Laws and every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors. A meeting at
which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved
by at least a majority of the required quorum for such meeting.
Section 13.6 Adjourned Meeting. A majority of the directors present,
------------ -----------------
whether or not a quorum is present, may adjourn any meeting to another time and
place. If the meeting is adjourned for more than 24 hours, notice of any
adjournment to another time or place shall be given prior to the time of the
adjourned meeting to the directors who were not present at the time of the
adjournment.
Section 13.7 Waiver of Notice and Consent. (a) Notice of a meeting
------------ ----------------------------
need not be given to any director who signs a waiver of notice, whether before
or after the meeting, or who attends the meeting without protesting, prior
thereto or at its commencement, the lack of notice to such director.
(b) The transactions of any meeting of the Board, however called and
noticed or wherever held, are as valid as though had at a meeting duly held
after regular call and notice if a quorum is present and if, either before or
after the meeting, each of the directors not present or who, though present, has
prior to the meeting or at its commencement, protested the lack of proper notice
to him, signs a written waiver of notice, a consent to holding the meeting or an
approval of the minutes thereof. All such waivers, consents and approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.
Section 13.8 Action Without a Meeting. Any action required or
------------ ------------------------
permitted to be taken by the Board may be taken without a meeting, if all
members of the Board shall individually or collectively consent in writing to
such action. Such written consent or consents shall be filed with the minutes
of the proceedings of the Board. Such action by written consent shall have the
same force and effect as a unanimous vote of such directors.
Section 13.9 Conference Telephone Meetings. Members of the Board may
------------ -----------------------------
participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another. Participation in a meeting pursuant to this section
constitutes presence in person at such meeting.
Section 13.10 Meetings of Committees. The provisions of this Article
------------- ----------------------
apply also to committees of the Board and action by such committees.
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<PAGE>
Article XIV
SUNDRY PROVISIONS
Section 14.1 Instruments in Writing. All checks, drafts, demands for
------------ ----------------------
money and notes of the corporation, and all written contracts of the
corporation, shall be signed by such officer or officers, agent or agents, as
the Board of Directors may from time to time by resolution designate. No
officer, agent, or employee of the corporation shall have power to bind the
corporation by contract or otherwise unless authorized to do so by these By-Laws
or by the Board of Directors.
Section 14.2 Fiscal Year. The fiscal year of this corporation shall
------------ -----------
end on the Saturday nearest to the last day of January of each year.
Section 14.3 Shares Held by the Corporation. Shares in other
------------ ------------------------------
corporations standing in the name of this corporation may be voted or
represented and all rights incident thereto may be exercised on behalf of this
corporation by the President or by any other officer of this corporation
authorized so to do by resolution of the Board of Directors.
Section 14.4 Certificates of Stock. There shall be issued to each
------------ ---------------------
holder of fully paid shares of the capital stock of the corporation a
certificate or certificates for such shares. Every holder of shares in the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the Chairman or Vice Chairman of the Board or the President or a
Vice President and by the Chief Financial Officer or an Assistant Treasurer or
the Secretary or any Assistant Secretary, certifying the number of shares and
the class or series of shares owned by the shareholder. Any or all of the
signatures on the certificate may be facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if such person were an officer, transfer agent or
registrar at the date of issue.
Section 14.5 Lost Certificates. The corporation may issue a new
------------ -----------------
share certificate or a new certificate for any other security in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate or the owner's legal representative to give the
corporation a bond (or other adequate security) sufficient to indemnify it
against any claim that may be made against it (including any expense or
liability) on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate. The Board of Directors
may adopt such other provisions and restrictions with reference to lost
certificates, not inconsistent with applicable law, as it shall in its
discretion deem appropriate.
Section 14.6 Certification and Inspection of By-Laws. The
------------ ---------------------------------------
corporation shall keep at its principal executive office in this State, or if
its principal executive office is not in this State at its principal business
office in this State, the original or a copy of these By-Laws as amended to
date, which shall be open to inspection by the shareholders at all reasonable
times during office hours.
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<PAGE>
If the principal executive office of the corporation is outside this State and
the corporation has no principal business office in this State, it shall upon
the written request of any shareholder furnish to such shareholder a copy of
the By-Laws as amended to date.
Section 14.7 Notices. Any reference in these By-Laws to the time a
------------ -------
notice is given or sent means, unless otherwise expressly provided, the time a
written notice by mail is deposited in the United States mails, postage prepaid;
or the time any other written notice is personally delivered to the recipient or
is delivered to a common carrier for transmission, or actually transmitted by
the person giving the notice by electronic means, to the recipient; or the time
any oral notice is communicated, in person or by telephone or wireless, to the
recipient or to a person at the office of the recipient who the person giving
wire the notice has reason to believe will promptly communicate it to the
recipient.
Section 14.8 Reports to Shareholders. Except as may otherwise be
------------ -----------------------
required by law, the rendition of an annual report to the shareholders is waived
so long as there are less than 100 holders of record of the shares of the
corporation (determined as provided in Section 605 of the California General
Corporation Law). At such time or times, if any, that the corporation has 100
or more holders of record of its shares, the Board of Directors shall cause an
annual report to be sent to the shareholders not later than 120 days after the
close of the fiscal year or within such shorter time period as may be required
by applicable law, and such annual report shall contain such information and be
accompanied by such other documents as may be required by applicable law.
Section 14.9 Indemnification of Officers, Directors, Employees and
------------ -----------------------------------------------------
Other Agents. (a) The corporation shall, to the fullest extent permissible
- ------------
under, and in the manner permitted by, California law, indemnify each of its
directors and officers against "Expenses" (as defined in Section 317(a) of the
California General Corporation Law), judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any "Proceeding" (as
defined in Section 317(a) of the California General Corporation Law), arising by
reason of the fact that such person is or was an Agent (as defined in Section
317(a) of the California General Corporation Law) of the corporation. For
purposes of this Section 14.9, a "director" or "officer" of the corporation
includes any person (i) who is or was a director or officer of the corporation,
(ii) who is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a director of officer of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
(b) The corporation shall have the power, to the fullest extent
permissible under, and in the manner permitted by, California law, to indemnify
each of its employees and other Agents against Expenses, judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any Proceeding, arising by reason of the fact that such person is or was an
employee or Agent of the corporation. For purposes of this Section 14.9, an
"employee" or "Agent" of the corporation includes any person (i) who is or was
an employee or Agent of the corporation, (ii) who is or was serving at the
request of the corporation as an employee or Agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or
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<PAGE>
Agent of the corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
(c) Expenses incurred in defending any civil or criminal action or
proceeding for which indemnification is required or permitted pursuant to this
Section 14.9 shall be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified as
authorized in this Section 14.9.
(d) Enforcement. Without the necessity of entering into an express
-----------
contract, all rights to indemnification and advances under this Section 14.9
shall be deemed to be contractual rights and be effective to the same extent and
as if provided for in a contract between the corporation and the director or
officer who serves in such capacity at any time while this By-Law and other
relevant provisions of the California General Corporation Law and other
applicable law, if any, are in effect. Any right to indemnification or advances
granted by this Section 14.9 to a director or officer shall be enforceable by or
on behalf of the person holding such right in any court of competent
jurisdiction if (i) the claim for indemnification or advances is denied, in
whole or in part or (ii) no disposition of such claim is made within 90 days of
request therefor. The claimant in such enforcement action (an "Action"), if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any Action that a claimant has
not met the standard of conduct which make it permissible under the California
General Corporation Law for the corporation to indemnify the claimant for the
amount claimed, provided that such defense shall not be available for an Action
brought to enforce a claim for the advancement of expenses pursuant to
subdivision (d) above if the claimant has tendered the required undertaking to
the corporation. It shall not be a defense to an Action, nor shall it create a
presumption that the claimant has not met the applicable standard of conduct,
that the corporation (including its Board of Directors, independent counsel or
shareholders) has failed, prior to the commencement of the Action, to have made
a determination that the indemnification of the claimant is proper in the
circumstances, or that the corporation (including its Board of Directors,
independent counsel or shareholders) has actually determined that the claimant
has not met the applicable standard of conduct.
(e) Non-Exclusivity of Rights. The rights conferred on any person by
-------------------------
this Section 14.9 shall not be exclusive of any other right which such person
may have or hereafter acquire under any statute, provision of the Articles of
Incorporation, By-Laws, agreement, vote of shareholders or disinterested
directors or otherwise both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or other Agents respecting indemnification
and advances, to the fullest extent permitted by the California General
Corporation Law.
(f) No indemnification or advance shall be made under this Section
14.9, except where such indemnification or advance is mandated by law or the
order, judgment or decree of any court of competent jurisdiction, in any
circumstance where it appears:
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<PAGE>
(1) That it would be inconsistent with a provision of the
Articles of Incorporation, these By-Laws, a resolution of the
shareholders or an agreement in effect at the time of the accrual of the
alleged cause of the action asserted in the proceeding in which the
expenses were incurred or other amounts were paid, which prohibits or
otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
(g) Survival of Rights. The rights conferred on any person by this
------------------
Section 14.9 shall continue as to a person who has ceased to be a director,
officer, employee or other Agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(h) Insurance. The corporation shall have the power to purchase and
---------
maintain insurance on behalf of any person who is or was an Agent of the
corporation against any liability asserted against or incurred by such person in
such capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Section 14.9.
(i) Repeal or Modification. Any repeal or modification of this
----------------------
Section 14.9 shall not adversely affect any rights under this Section 14.9 of
any director, officer or other Agent of the corporation relating to acts or
omissions occurring prior to such repeal or modification.
(j) Saving Clause. If this Section 14.9 or any portion hereof shall
-------------
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director or officer, any may
nevertheless indemnify any employee or other Agent, to the full extent permitted
by any applicable portion of this Section 14.9 that shall not have been
invalidated, or by any other applicable law.
(k) If the California General Corporation Law is hereafter amended to
further indemnification of Agents of the corporation, then the Corporation shall
be authorized to indemnify such Agents to the fullest extent permissible under
the California General Corporation Law as so amended.
Article XV
CONSTRUCTION OF BY-LAWS WITH
REFERENCE TO PROVISIONS OF LAW
Section 15.1 Definitions. Unless defined otherwise in these By-Laws
------------ -----------
or unless the context otherwise requires, terms used herein shall have the same
meaning, if any, ascribed thereto in the California General Corporation Law, as
amended from time to time.
Section 15.2 By-Law Provisions Additional and Supplemental to
------------ ------------------------------------------------
Provisions of Law. All restrictions, limitations, requirements and other
- -----------------
provisions of these By-Laws shall be construed,
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<PAGE>
insofar as possible, as supplemental and additional to all provisions of law
applicable to the subject matter thereof and shall be fully complied with in
addition to the said provisions of law unless such compliance shall be
illegal.
Section 15.3 By-Law Contrary to or Inconsistent with Provisions of
------------ -----------------------------------------------------
Law. Any article, section, subsection, subdivision, sentence, clause or phrase
- ---
of these By-Laws which upon being construed in the manner provided in Section
15.2 hereof, shall be contrary to or inconsistent with any applicable provision
of law, shall not apply so long as said provisions of law shall remain in
effect, but such result shall not affect the validity or applicability of any
other portions of these By-Laws, it being hereby declared that these By-Laws
would have been adopted and each article, section, subsection, subdivision,
sentence, clause or phrase thereof, irrespective of the fact that any one or
more articles, sections, subsections, subdivisions, sentences, clauses or
phrases is or are illegal.
Article XVI
ADOPTION, AMENDMENT OR REPEAL OF BY-LAWS
Section 16.1 By Shareholders. Except as otherwise expressly required
------------ ---------------
by statute, the Articles of Incorporation or these By-Laws, By-Laws may be
adopted, amended or repealed by the approval of the affirmative vote of a
majority of the outstanding shares of the corporation entitled to vote.
Section 16.2 By the Board of Directors. Except as otherwise
------------ -------------------------
expressly required by statute, the Articles of Incorporation or these By-Laws
and subject to the right of shareholders to adopt, amend or repeal By-Laws, By-
Laws other than a By-Law or amendment thereof changing the authorized number
of directors (except to fix the authorized number of directors pursuant to a
By-Law providing for a variable number of directors) may be adopted, amended
or repealed by the Board of Directors.
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<PAGE>
EXHIBIT 10.16.2
AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT, dated as of January 13, 1999 (the "Amendment"), to the Executive
Employment Agreement, dated June 12, 1997, between Cost Plus, Inc., a California
corporation, and Murray Dashe (the "Employee") (the "Employee Agreement").
WITNESSETH:
-----------
WHEREAS, the parties hereto desire to amend certain provisions of the
Employment Agreement as provided herein;
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, and for other valuable consideration the receipt of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. Amendment of Section 3(a). Section 3(a) of the Employment Agreement is
-------------------------
hereby amended in its entirety and a new Section 3(b) shall be added to read as
follows. The former Section 3(b) and all subsections of Section 3 thereafter
shall be renumbered accordingly:
3. Severance Benefits.
------------------
(a) Benefits upon Termination. Except as provided in Section
-------------------------
3(b), if the Executive's employment terminates as a result of
Involuntary Termination prior to June 15, 2000 and the Executive signs
a Release of Claims, then the Company shall pay Executive's Base
Compensation to the Executive for twelve (12) months from the
Termination Date with each monthly installment payable on the last day
of such month. Executive shall not be entitled to receive any
payments if Executive voluntarily terminates employment other than as
a result of an Involuntary Termination.
(b) Benefits upon Termination After a Change of Control. If
---------------------------------------------------
after a Change of Control the Executive's employment terminates as a
result of Involuntary Termination prior to June 15, 2000 and the
Executive signs a Release of Claims, then the Company shall pay
Executive's Base Compensation to the Executive for eighteen (18)
months from the Termination Date with each monthly installment payable
on the last day of such month. Executive shall not be entitled to
receive any payments if Executive voluntarily terminates employment
other than as a result of an Involuntary Termination.
2. Amendment to Section 6. A new Section 16(b) shall be added to the
----------------------
Employment Agreement to read as follows. The present Section 16(b) and all
subsections thereafter shall be renumbered accordingly.
<PAGE>
(c) "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 or 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.
3. Counterparts. This Amendment may be signed in any number of
------------
counterparts, all of which counterparts, taken together, shall constitute one
and the same instrument.
4. Governing Law. This Amendment and the rights and obligations of the
-------------
parties hereto shall be governed by, and construed and interpreted in accordance
with, the law of the State of California.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
COST PLUS, INC.
By: /s/ John F. Hoffner
----------------------
Name: John F. Hoffner
Title: EVP, CFO
MURRAY DASHE
/s/ Murray Dashe
----------------
SIGNATURE PAGE OF AMENDMENT TO THE EMPLOYMENT AGREEMENT
3
<PAGE>
EXHIBIT 10.17.2
EMPLOYMENT SEVERANCE AGREEMENT
This Severance Agreement (the "Agreement") is made and entered into
effective as of January 13, 1999 (the "Effective Date"), by and between Kathi
Lentzsch (the "Executive") and Cost Plus, Inc. (the "Company").
R E C I T A L S
---------------
A. The Board believes the Company should provide the Executive with
certain severance benefits should the Executive's employment with the Company
terminate under certain circumstances, such benefits to provide the Executive
with enhanced financial security and sufficient incentive and encouragement to
remain with the Company.
B. Certain capitalized terms used in the Agreement are defined in Section
5 below.
AGREEMENT
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Executive by the Company, the
parties agree as follows:
1. Duties and Scope of Employment. The Company shall employ the
------------------------------
Executive in the position of Executive Vice President, Merchandising/Marketing
with such duties, responsibilities and compensation as in effect as of the
Effective Date. The Board and the Chief Executive Officer of the Company (the
"CEO") shall have the right to revise such responsibilities and compensation
from time to time as the Board or the CEO may deem necessary or appropriate. If
any such revision constitutes "Involuntary Termination" as defined in Section
5(c) of this Agreement, the Executive shall be entitled to benefits upon such
Involuntary Termination as provided under this Agreement.
2. At-Will Employment. The Company and the Executive acknowledge that
------------------
the Executive's employment is and shall continue to be at-will, as defined under
applicable law. If the Executive's employment terminates for any reason, the
Executive shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in accordance with the Company's established employee plans and
practices or in accordance with other agreements between the Company and the
Executive. This Agreement shall remain in effect until the earlier of (i) the
date that all obligations of the parties hereunder have been satisfied or (ii)
the date upon which this Agreement terminates by consent of the parties hereto.
<PAGE>
3. Severance Benefits.
------------------
(a) Benefits upon Termination. Except as provided in Section 3(b),
-------------------------
if the Executive's employment terminates as a result of Involuntary Termination
prior to June 15, 2000 and the Executive signs a Release of Claims, then the
Company shall pay Executive's Base Compensation to the Executive for twelve (12)
months from the Termination Date with each monthly installment payable on the
last day of such month. Executive shall not be entitled to receive any payments
if Executive voluntarily terminates employment other than as a result of an
Involuntary Termination.
(b) Benefits upon Termination After a Change of Control. If after a
---------------------------------------------------
Change of Control the Executive's employment terminates as a result of
Involuntary Termination prior to June 15, 2000 and the Executive signs a Release
of Claims, then the Company shall pay Executive's Base Compensation to the
Executive for eighteen (18) months from the Termination Date with each monthly
installment payable on the last day of such month. Executive shall not be
entitled to receive any payments if Executive voluntarily terminates employment
other than as a result of an Involuntary Termination.
(c) Stock Options; Bonus. Executive shall not be entitled to receive
--------------------
any unvested stock options or partial bonus payments for an incomplete bonus
plan year.
(d) Miscellaneous. In addition, (i) the Company shall pay the
-------------
Executive any unpaid base salary due for periods prior to the Termination Date;
(ii) the Company shall pay the Executive all of the Executive's accrued and
unused vacation through the Termination Date; and (iii) following submission of
proper expense reports by the Executive, the Company shall reimburse the
Executive for all expenses reasonably and necessarily incurred by the Executive
in connection with the business of the Company prior to termination. These
payments shall be made promptly upon termination and within the period of time
mandated by applicable law.
4. Non-Solicitation. In consideration for the mutual agreements as set
----------------
forth herein, Executive agrees that Executive shall not, at any time, within
twelve (12) months following termination of Executive's employment with the
Company for any reason, directly or indirectly solicit the employment or other
services of any individual who at that time shall be or within the prior twelve
(12) months shall have been an employee of the Company.
5. Definition of Terms. The following terms referred to in this
-------------------
Agreement shall have the following meanings:
(a) Base Compensation. "Base Compensation" shall mean Executive's
-----------------
monthly base salary for services performed based on the average base salary for
the six (6) months prior to the Termination Date.
(b) Cause. "Cause," unless otherwise defined in the Agreement
-----
evidencing a particular Option, means an Eligible Individual's (i) intentional
failure to perform reasonably assigned
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<PAGE>
duties, (ii) dishonesty or willful misconduct in the performance of duties,
(iii) engaging in a transaction in connection with the performance of duties to
the Company or any of its Subsidiaries thereof which transaction is adverse to
the interests of the Company or any of its Subsidiaries and which is engaged 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).
(c) "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.
(d) Involuntary Termination. "Involuntary Termination" shall mean:
-----------------------
(i) termination of Executive's employment by the Company for
any reason other than Cause;
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<PAGE>
(ii) a material reduction in Executive's salary, other than
any such reduction which is part of, and generally consistent with, a general
reduction of officer salaries;
(iii) a material reduction by the Company in the kind or
level of employee benefits (other than salary and bonus) to which Executive is
entitled immediately prior to such reduction with the result that Executive's
overall benefits package (other than salary and bonus) is substantially reduced
(other than any such reduction applicable to officers of the Company generally);
(iv) any material breach by the Company of any material
provision of this Agreement which continues uncured for 30 days following notice
thereof;
provided that none of the foregoing shall constitute Involuntary Termination to
the extent Executive has agreed thereto.
(e) Release of Claims. "Release of Claims" shall mean a waiver by
-----------------
Executive, in a form satisfactory to the Company, of all employment related
obligations of and claims and causes of action against the Company.
(f) Termination Date. "Termination Date" shall mean the date on
----------------
which an event which would constitute Involuntary Termination occurs, or the
later of (i) the date on which a notice of termination is given, or (ii) the
date (which shall not be more than thirty (30) days after the giving of such
notice) specified in such notice.
6. Confidentiality. Executive acknowledges that during the course of
---------------
Executive's employment, Executive will have produced and/or have access to
confidential information, records, notebooks, data, formula, specifications,
trade secrets, customer lists and secret inventions, and processes of the
Company and its affiliated companies. Therefore, during or subsequent to
Executive's employment by the Company, Executive agrees to hold in confidence
and not directly or indirectly to disclose or use or copy or make lists of any
such information, except to the extent authorized by the Company in writing.
All records, files, drawings, documents, equipment, and the like, or copies
thereof, relating to the Company's business, or the business of an affiliated
company, which Executive shall prepare, or use, or come into contact with, shall
be and remain the sole property of the Company, or of an affiliated company, and
shall not be removed from the Company's or the affiliated company's premises
without its written consent, and shall be promptly returned to the Company upon
termination of employment with the Company.
7. Successors.
----------
(a) Company's Successors. Any successor to the Company (whether
--------------------
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence
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<PAGE>
of a succession. For all purposes under this Agreement, the term "Company"
shall include any successor to the Company's business and/or assets which
executes and delivers the assumption agreement pursuant to this subsection (a)
or which becomes bound by the terms of this Agreement by operation of law.
(b) Executive's Successors. The terms of this Agreement and all
----------------------
rights of the Executive hereunder shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
8. Notice.
------
(a) General. Notices and all other communications contemplated by
-------
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the Executive,
mailed notices shall be addressed to Executive at the home address which
Executive most recently communicated to the Company in writing. In the case of
the Company, mailed notices shall be addressed to its corporate headquarters,
and all notices shall be directed to the attention of its CEO.
(b) Notice of Termination. Any termination by the Company for Cause
---------------------
or by the Executive as a result of a voluntary resignation or an Involuntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with Section 8(a) of this Agreement. Such notice
shall indicate the specific termination provision in this Agreement relied upon,
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination under the provision so indicated, and shall
specify the termination date (which shall be not more than 30 days after the
giving of such notice). The failure by the Executive to include in the notice
any fact or circumstance which contributes to a showing of Involuntary
Termination shall not waive any right of the Executive hereunder or preclude the
Executive from asserting such fact or circumstance in enforcing Executive's
rights hereunder.
9. Miscellaneous Provisions.
------------------------
(a) No Duty to Mitigate. The Executive shall not be required to
-------------------
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that the Executive may receive from any
other source.
(b) Waiver. No provision of this Agreement shall be modified, waived
------
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Executive and by an authorized officer of the Company
(other than the Executive). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
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<PAGE>
(c) Whole Agreement. No agreements, representations or
---------------
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
(d) Severance Provisions in Other Agreements. The Executive
----------------------------------------
acknowledges and agrees that the severance provisions set forth in this
Agreement shall supersede any such provisions in any employment agreement
entered into between the Executive and the Company.
(e) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California.
(f) Severability. The invalidity or unenforceability of any
------------
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(g) No Assignment of Benefits. The rights of any person to payments
-------------------------
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection shall be
void.
(h) Employment Taxes. All payments made pursuant to this Agreement
----------------
will be subject to withholding of applicable income and employment taxes.
(i) Assignment by Company. The Company may assign its rights under
---------------------
this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another affiliate of the Company or to the Company; provided,
however, that no assignment shall be made if the net worth of the assignee is
less than the net worth of the Company at the time of assignment. In the case
of any such assignment, the term "Company" when used in a section of this
Agreement shall mean the corporation that actually employs the Executive.
(j) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
COMPANY: COST PLUS, INC.
/s/ Murray H. Dashe
--------------------------------------------
By: MURRAY H. DASHE
CEO
--------------------------------------------
Executive /s/ Kathi P. Lentzsch
------------------------------------
KATHI LENTZSCH
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<PAGE>
EXHIBIT 10.18.2
AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT, dated as of January 13, 1999 (the "Amendment"), to the
Executive Employment Agreement, dated May 6, 1998, between Cost Plus, Inc., a
California corporation and John Hoffner (the "Employee") (the "Employment
Agreement").
WITNESSETH:
-----------
WHEREAS, the parties hereto desire to amend certain provisions of the
Employment Agreement as provided herein;
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, and for other valuable consideration the receipt of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. Amendment of Section 3(a). Section 3(a) of the Employment Agreement
-------------------------
is hereby amended in its entirety and a new Section 3(b) shall be added to read
as follows. The present Section 3(b) and all subsections of Section 3 thereafter
shall be renumbered accordingly:
3. Severance Benefits.
------------------
(a) Benefits upon Termination. Except as provided in Section
-------------------------
3(b), if the Executive's employment terminates as a result of
Involuntary Termination prior to June 15, 2000 and the Executive signs
a Release of Claims, then the Company shall pay Executive's Base
Compensation to the Executive for twelve (12) months from the
Termination Date with each monthly installment payable on the last day
of such month. Executive shall not be entitled to receive any
payments if Executive voluntarily terminates employment other than as
a result of an Involuntary Termination.
(b) Benefits upon Termination After a Change of Control. If after
---------------------------------------------------
a Change of Control the Executive's employment terminates as a result
of Involuntary Termination prior to June 15, 2000 and the Executive
signs a Release of Claims, then the Company shall pay Executive's Base
Compensation to the Executive for eighteen (18) months from the
Termination Date with each monthly installment payable on the last day
of such month. Executive shall not be entitled to receive any
payments if Executive voluntarily terminates employment other than as
a result of an Involuntary Termination.
2. Amendment to Section 6. A new Section 16(b) shall be added to the
-----------------------
Employment Agreement to read as follows. The present Section 16(b) and all
subsections thereafter shall be renumbered accordingly.
<PAGE>
(c) "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 or 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.
3. Counterparts. This Amendment may be signed in any number of
------------
counterparts, all of which counterparts, taken together, shall constitute one
and the same instrument.
4. Governing Law. This Amendment and the rights and obligations of the
-------------
parties hereto shall be governed by, and construed and interpreted in accordance
with, the law of the State of California.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
COST PLUS, INC.
By: /s/ Murray H. Dashe
--------------------------------
Name: Murray H. Dashe
Title: CEO
JOHN HOFFNER
/s/ John F. Hoffner
--------------------------------
SIGNATURE PAGE OF AMENDMENT TO THE EMPLOYMENT AGREEMENT
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<PAGE>
EXHIBIT 10.19
EMPLOYMENT SEVERANCE AGREEMENT
This Severance Agreement (the "Agreement") is made and entered into
effective as of January 13, 1999 (the "Effective Date"), by and between Gary
Weatherford (the "Executive") and Cost Plus, Inc. (the "Company").
RECITALS
--------
A. The Board believes the Company should provide the Executive with
certain severance benefits should the Executive's employment with the Company
terminate under certain circumstances, such benefits to provide the Executive
with enhanced financial security and sufficient incentive and encouragement to
remain with the Company.
B. Certain capitalized terms used in the Agreement are defined in Section
5 below.
AGREEMENT
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Executive by the Company, the
parties agree as follows:
1. Duties and Scope of Employment. The Company shall employ the Executive
------------------------------
in the position of Senior Vice President in charge of Stores with such duties,
responsibilities and compensation as in effect as of the Effective Date. The
Board and the Chief Executive Officer of the Company (the "CEO") shall have the
right to revise such responsibilities and compensation from time to time as the
Board or the CEO may deem necessary or appropriate. If any such revision
constitutes "Involuntary Termination" as defined in Section 5(c) of this
Agreement, the Executive shall be entitled to benefits upon such Involuntary
Termination as provided under this Agreement.
2. At-Will Employment. The Company and the Executive acknowledge that the
------------------
Executive's employment is and shall continue to be at-will, as defined under
applicable law. If the Executive's employment terminates for any reason, the
Executive shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in accordance with the Company's established employee plans and
practices or in accordance with other agreements between the Company and the
Executive. This Agreement shall remain in effect until the earlier of (i) the
date that all obligations of the parties hereunder have been satisfied or (ii)
the date upon which this Agreement terminates by consent of the parties hereto.
<PAGE>
3. Severance Benefits.
------------------
(a) Benefits upon Termination. Except as provided in Section 3(b), if
-------------------------
the Executive's employment terminates as a result of Involuntary Termination
prior to June 15, 2000 and the Executive signs a Release of Claims, then the
Company shall pay Executive's Base Compensation to the Executive for six (6)
months from the Termination Date with each monthly installment payable on the
last day of such month. Executive shall not be entitled to receive any payments
if Executive voluntarily terminates employment other than as a result of an
Involuntary Termination.
(b) Benefits upon Termination After a Change of Control. If after a
---------------------------------------------------
Change of Control the Executive's employment terminates as a result of
Involuntary Termination prior to June 15, 2000 and the Executive signs a Release
of Claims, then the Company shall pay Executive's Base Compensation to the
Executive for nine (9) months from the Termination Date with each monthly
installment payable on the last day of such month. Executive shall not be
entitled to receive any payments if Executive voluntarily terminates employment
other than as a result of an Involuntary Termination.
(c) Stock Options: Bonus. Executive shall not be entitled to receive
--------------------
any unvested stock options or partial bonus payments for an incomplete bonus
plan year.
(d) Miscellaneous. In addition, (i) the Company shall pay the
-------------
Executive any unpaid base salary due for periods prior to the Termination Date;
(ii) the Company shall pay the Executive all of the Executive's accrued and
unused vacation through the Termination Date; and (iii) following submission of
proper expense reports by the Executive, the Company shall reimburse the
Executive for all expenses reasonably and necessarily incurred by the Executive
in connection with the business of the Company prior to termination. These
payments shall be made promptly upon termination and within the period of time
mandated by applicable law.
4. Non-Solicitation. In consideration for the mutual agreements as set
----------------
forth herein, Executive agrees that Executive shall not, at any time, within
twelve (12) months following termination of Executive's employment with the
Company for any reason, directly or indirectly solicit the employment or other
services of any individual who at that time shall be or within the prior twelve
(12) months shall have been an employee of the Company.
5. Definition of Terms. The following terms referred to in this Agreement
-------------------
shall have the following meanings:
(a) Base Compensation. "Base Compensation" shall mean Executive's
-----------------
monthly base salary for services performed based on the average base salary for
the six (6) months prior to the Termination Date.
2
<PAGE>
(b) Cause. "Cause," unless otherwise defined in the Agreement
-----
evidencing a particular Option, means an Eligible Individual's (i) intentional
failure to perform reasonably assigned duties, (ii) dishonesty or willful
misconduct in the performance of duties, (iii) engaging in a transaction in
connection with the performance of duties to the Company or any of its
Subsidiaries thereof which transaction is adverse to the interests of the
Company or any of its Subsidiaries and which is engaged 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).
(c) "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.
3
<PAGE>
(d) Involuntary Termination. "Involuntary Termination" shall mean:
-----------------------
(i) termination of Executive's employment by the Company for any
reason other than Cause;
(ii) a material reduction in Executive's salary, other than any
such reduction which is part of, and generally consistent with, a general
reduction of officer salaries;
(iii) a material reduction by the Company in the kind or level
of employee benefits (other than salary and bonus) to which Executive is
entitled immediately prior to such reduction with the result that Executive's
overall benefits package (other than salary and bonus) is substantially reduced
(other than any such reduction applicable to officers of the Company generally);
(iv) any material breach by the Company of any material provision
of this Agreement which continues uncured for 30 days following notice thereof;
provided that none of the foregoing shall constitute Involuntary Termination to
the extent Executive has agreed thereto.
(e) Release of Claims. "Release of Claims" shall mean a waiver by
-----------------
Executive, in a form satisfactory to the Company, of all employment related
obligations of and claims and causes of action against the Company.
(f) Termination Date. "Termination Date" shall mean the date on which
----------------
an event which would constitute Involuntary Termination occurs, or the later of
(i) the date on which a notice of termination is given, or (ii) the date (which
shall not be more than thirty (30) days after the giving of such notice)
specified in such notice.
6. Confidentiality. Executive acknowledges that during the course of
---------------
Executive's employment, Executive will have produced and/or have access to
confidential information, records, notebooks, data, formula, specifications,
trade secrets, customer lists and secret inventions, and processes of the
Company and its affiliated companies. Therefore, during or subsequent to
Executive's employment by the Company, Executive agrees to hold in confidence
and not directly or indirectly to disclose or use or copy or make lists of any
such information, except to the extent authorized by the Company in writing.
All records, files, drawings, documents, equipment, and the like, or copies
thereof, relating to the Company's business, or the business of an affiliated
company, which Executive shall prepare, or use, or come into contact with, shall
be and remain the sole property of the Company, or of an affiliated company, and
shall not be removed from the Company's or the affiliated company's premises
without its written consent, and shall be promptly returned to the Company upon
termination of employment with the Company.
4
<PAGE>
7. Successors.
----------
(a) Company's Successors. Any successor to the Company (whether
--------------------
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement pursuant to this subsection
(a) or which becomes bound by the terms of this Agreement by operation of law.
(b) Executive's Successors. The terms of this Agreement and all
----------------------
rights of the Executive hereunder shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
8. Notice.
------
(a) General. Notices and all other communications contemplated by
-------
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the Executive,
mailed notices shall be addressed to Executive at the home address which
Executive most recently communicated to the Company in writing. In the case of
the Company, mailed notices shall be addressed to its corporate headquarters,
and all notices shall be directed to the attention of its CEO.
(b) Notice of Termination. Any termination by the Company for Cause
---------------------
or by the Executive as a result of a voluntary resignation or an Involuntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with Section 8(a) of this Agreement. Such notice
shall indicate the specific termination provision in this Agreement relied upon,
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination under the provision so indicated, and shall
specify the termination date (which shall be not more than 30 days after the
giving of such notice). The failure by the Executive to include in the notice
any fact or circumstance which contributes to a showing of Involuntary
Termination shall not waive any right of the Executive hereunder or preclude the
Executive from asserting such fact or circumstance in enforcing Executive's
rights hereunder.
9. Miscellaneous Provisions.
------------------------
(a) No Duty to Mitigate. The Executive shall not be required to
-------------------
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that the Executive may receive from any
other source.
5
<PAGE>
(b) Waiver. No provision of this Agreement shall be modified, waived
------
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Executive and by an authorized officer of the Company
(other than the Executive). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(c) Whole Agreement. No agreements, representations or understandings
---------------
(whether oral or written and whether express or implied) which are not expressly
set forth in this Agreement have been made or entered into by either party with
respect to the subject matter hereof.
(d) Severance Provisions in Other Agreements. The Executive
----------------------------------------
acknowledges and agrees that the severance provisions set forth in this
Agreement shall supersede any such provisions in any employment agreement
entered into between the Executive and the Company.
(e) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California.
(f) Severability. The invalidity or unenforceability of any provision
------------
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
(g) No Assignment of Benefits. The rights of any person to payments
-------------------------
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection shall be
void.
(h) Employment Taxes. All payments made pursuant to this Agreement
----------------
will be subject to withholding of applicable income and employment taxes.
(i) Assignment by Company. The Company may assign its rights under
---------------------
this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another affiliate of the Company or to the Company; provided,
however, that no assignment shall be made if the net worth of the assignee is
less than the net worth of the Company at the time of assignment. In the case of
any such assignment, the term "Company" when used in a section of this Agreement
shall mean the corporation that actually employs the Executive.
(j) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
6
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
COMPANY: COST PLUS, INC.
By /s/ Murray H. Dashe
-------------------
Title CEO
-------------------
Executive: /s/ Gary Weatherford
---------------------
GARY WEATHERFORD
7
<PAGE>
EXHIBIT 10.20
EMPLOYMENT SEVERANCE AGREEMENT
This Severance Agreement (the "Agreement") is made and entered into
effective as of January 13, 1999 (the "Effective Date"), by and between Joan
Fujii (the "Executive") and Cost Plus, Inc. (the "Company").
RECITALS
--------
A. The Board believes the Company should provide the Executive with
certain severance benefits should the Executive's employment with the Company
terminate under certain circumstances, such benefits to provide the Executive
with enhanced financial security and sufficient incentive and encouragement to
remain with the Company.
B. Certain capitalized terms used in the Agreement are defined in Section
5 below.
AGREEMENT
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Executive by the Company, the
parties agree as follows:
1. Duties and Scope of Employment. The Company shall employ the Executive
------------------------------
in the position of Senior Vice President in charge of Human Resources with such
duties, responsibilities and compensation as in effect as of the Effective Date.
The Board and the Chief Executive Officer of the Company (the "CEO") shall have
the right to revise such responsibilities and compensation from time to time as
the Board or the CEO may deem necessary or appropriate. If any such revision
constitutes "Involuntary Termination" as defined in Section 5(c) of this
Agreement, the Executive shall be entitled to benefits upon such Involuntary
Termination as provided under this Agreement.
2. At-Will Employment. The Company and the Executive acknowledge that the
------------------
Executive's employment is and shall continue to be at-will, as defined under
applicable law. If the Executive's employment terminates for any reason, the
Executive shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in accordance with the Company's established employee plans and
practices or in accordance with other agreements between the Company and the
Executive. This Agreement shall remain in effect until the earlier of (i) the
date that all obligations of the parties hereunder have been satisfied or (ii)
the date upon which this Agreement terminates by consent of the parties hereto.
<PAGE>
3. Severance Benefits.
------------------
(a) Benefits upon Termination. Except as provided in Section 3(b),
-------------------------
if the Executive's employment terminates as a result of Involuntary Termination
prior to June 15, 2000 and the Executive signs a Release of Claims, then the
Company shall pay Executive's Base Compensation to the Executive for six (6)
months from the Termination Date with each monthly installment payable on the
last day of such month. Executive shall not be entitled to receive any
payments if Executive voluntarily terminates employment other than as a result
of an Involuntary Termination.
(b) Benefits upon Termination After a Change of Control. If after a
---------------------------------------------------
Change of Control the Executive's employment terminates as a result of
Involuntary Termination prior to June 15, 2000 and the Executive signs a Release
of Claims, then the Company shall pay Executive's Base Compensation to the
Executive for nine (9) months from the Termination Date with each monthly
installment payable on the last day of such month. Executive shall not be
entitled to receive any payments if Executive voluntarily terminates employment
other than as a result of an Involuntary Termination.
(c) Stock Options: Bonus. Executive shall not be entitled to receive
--------------------
any unvested stock options or partial bonus payments for an incomplete bonus
plan year.
(d) Miscellaneous. In addition, (i) the Company shall pay the
-------------
Executive any unpaid base salary due for periods prior to the Termination Date;
(ii) the Company shall pay the Executive all of the Executive's accrued and
unused vacation through the Termination Date; and (iii) following submission of
proper expense reports by the Executive, the Company shall reimburse the
Executive for all expenses reasonably and necessarily incurred by the Executive
in connection with the business of the Company prior to termination. These
payments shall be made promptly upon termination and within the period of time
mandated by applicable law.
4. Non-Solicitation. In consideration for the mutual agreements as set
----------------
forth herein, Executive agrees that Executive shall not, at any time, within
twelve (12) months following termination of Executive's employment with the
Company for any reason, directly or indirectly solicit the employment or other
services of any individual who at that time shall be or within the prior twelve
(12) months shall have been an employee of the Company.
5. Definition of Terms. The following terms referred to in this Agreement
-------------------
shall have the following meanings:
(a) Base Compensation. "Base Compensation" shall mean Executive's
-----------------
monthly base salary for services performed based on the average base salary for
the six (6) months prior to the Termination Date.
(b) Cause. "Cause," unless otherwise defined in the Agreement
-----
evidencing a particular Option, means an Eligible Individual's (i) intentional
failure to perform reasonably assigned
2
<PAGE>
duties, (ii) dishonesty or willful misconduct in the performance of duties,
(iii) engaging in a transaction in connection with the performance of duties to
the Company or any of its Subsidiaries thereof which transaction is adverse to
the interests of the Company or any of its Subsidiaries and which is engaged 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).
(c) "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.
(d) Involuntary Termination. "Involuntary Termination" shall mean:
-----------------------
(i) termination of Executive's employment by the Company for any
reason other than Cause;
3
<PAGE>
(ii) a material reduction in Executive's salary, other than any
such reduction which is part of, and generally consistent with, a general
reduction of officer salaries;
(iii) a material reduction by the Company in the kind or level
of employee benefits (other than salary and bonus) to which Executive is
entitled immediately prior to such reduction with the result that Executive's
overall benefits package (other than salary and bonus) is substantially reduced
(other than any such reduction applicable to officers of the Company generally);
(iv) any material breach by the Company of any material provision
of this Agreement which continues uncured for 30 days following notice thereof;
provided that none of the foregoing shall constitute Involuntary Termination to
the extent Executive has agreed thereto.
(e) Release of Claims. "Release of Claims" shall mean a waiver by
-----------------
Executive, in a form satisfactory to the Company, of all employment related
obligations of and claims and causes of action against the Company.
(f) Termination Date. "Termination Date" shall mean the date on which
----------------
an event which would constitute Involuntary Termination occurs, or the later of
(i) the date on which a notice of termination is given, or (ii) the date (which
shall not be more than thirty (30) days after the giving of such notice)
specified in such notice.
6. Confidentiality. Executive acknowledges that during the course of
---------------
Executive's employment, Executive will have produced and/or have access to
confidential information, records, notebooks, data, formula, specifications,
trade secrets, customer lists and secret inventions, and processes of the
Company and its affiliated companies. Therefore, during or subsequent to
Executive's employment by the Company, Executive agrees to hold in confidence
and not directly or indirectly to disclose or use or copy or make lists of any
such information, except to the extent authorized by the Company in writing.
All records, files, drawings, documents, equipment, and the like, or copies
thereof, relating to the Company's business, or the business of an affiliated
company, which Executive shall prepare, or use, or come into contact with, shall
be and remain the sole property of the Company, or of an affiliated company, and
shall not be removed from the Company's or the affiliated company's premises
without its written consent, and shall be promptly returned to the Company upon
termination of employment with the Company.
7. Successors.
----------
(a) Company's Successors. Any successor to the Company (whether
--------------------
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence
4
<PAGE>
of a succession. For all purposes under this Agreement, the term "Company"
shall include any successor to the Company's business and/or assets which
executes and delivers the assumption agreement pursuant to this subsection (a)
or which becomes bound by the terms of this Agreement by operation of law.
(b) Executive's Successors. The terms of this Agreement and all
----------------------
rights of the Executive hereunder shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
8. Notice.
------
(a) General. Notices and all other communications contemplated by
-------
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the Executive,
mailed notices shall be addressed to Executive at the home address which
Executive most recently communicated to the Company in writing. In the case of
the Company, mailed notices shall be addressed to its corporate headquarters,
and all notices shall be directed to the attention of its CEO.
(b) Notice of Termination. Any termination by the Company for Cause
---------------------
or by the Executive as a result of a voluntary resignation or an Involuntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with Section 8(a) of this Agreement. Such notice
shall indicate the specific termination provision in this Agreement relied upon,
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination under the provision so indicated, and shall
specify the termination date (which shall be not more than 30 days after the
giving of such notice). The failure by the Executive to include in the notice
any fact or circumstance which contributes to a showing of Involuntary
Termination shall not waive any right of the Executive hereunder or preclude the
Executive from asserting such fact or circumstance in enforcing Executive's
rights hereunder.
9. Miscellaneous Provisions.
------------------------
(a) No Duty to Mitigate. The Executive shall not be required to
-------------------
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that the Executive may receive from any
other source.
(b) Waiver. No provision of this Agreement shall be modified, waived
------
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Executive and by an authorized officer of the Company
(other than the Executive). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
5
<PAGE>
(c) Whole Agreement. No agreements, representations or
---------------
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
(d) Severance Provisions in Other Agreements. The Executive
----------------------------------------
acknowledges and agrees that the severance provisions set forth in this
Agreement shall supersede any such provisions in any employment agreement
entered into between the Executive and the Company.
(e) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California.
(f) Severabiliiy. The invalidity or unenforceability of any
------------
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(g) No Assignment of Benefits. The rights of any person to payments
-------------------------
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or
other creditor's process, and any action in violation of this subsection shall
be void.
(h) Employment Taxes. All payments made pursuant to this Agreement
----------------
will be subject to withholding of applicable income and employment taxes.
(i) Assignment by Company. The Company may assign its rights under
---------------------
this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another affiliate of the Company or to the Company; provided,
however, that no assignment shall be made if the net worth of the assignee is
less than the net worth of the Company at the time of assignment. In the case
of any such assignment, the term "Company" when used in a section of this
Agreement shall mean the corporation that actually employs the Executive.
(j) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
6
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
COMPANY: COST PLUS, INC.
By /s/ Murray H. Dashe
--------------------
Title CEO
-----------------
Executive: /s/ Joan Fujii
--------------
JOAN FUJII
7
<PAGE>
LETTER TO OUR SHAREHOLDERS
8
ABOUT COST PLUS WORLD MARKET
10
FINANCIAL HIGHLIGHTS
12
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
13
MANAGEMENT'S DISCUSSION AND ANALYSIS
14
CONSOLIDATED BALANCE SHEETS
20
CONSOLIDATED STATEMENTS OF OPERATIONS
21
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
22
CONSOLIDATED STATEMENTS OF CASH FLOWS
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
24
INDEPENDENT AUDITORS' REPORT
32
DIRECTORS, OFFICERS AND CORPORATE DATA
33
STORE LOCATIONS
34
<PAGE>
EXHIBIT 13.1
LETTER TO OUR SHAREHOLDERS
Murray H. Dashe
[PHOTO APPEARS HERE] Chairman of the Board,
Chief Executive Officer
and President
(center)
John F. Hoffner
Executive Vice President
of Administration and
Chief Financial Officer
(left)
Kathi P. Lentzsch
Executive Vice President,
Merchandising and Marketing
(right)
Dear Shareholders
There's a lot of sound and fury in retailing today. It's easy to get distracted.
That's why we work so hard at Cost Plus World Market to stay focused on a few
essential disciplines: Perfecting a strong concept. Executing it with
consistency, efficiency, and passion. Continually challenging it for relevance,
and refreshing it with bright new ideas. These are the compass points which have
guided our development for the past 40 years - a period during which Cost Plus
World Market has grown from a single retail outlet into a network of stores
stretching into the Midwest, with a burgeoning national identity as a leader in
casual home furnishings and entertaining.
These compass points have also proven to be valuable guides during our
first three years as a publicly traded company. Cost Plus World Market once
again delivered a strong financial and operating performance in fiscal 1998,
producing record profitability while expanding store count at a 21% annual rate.
Our total sales also grew 21% last year, to $315 million. Same store sales - a
measure of annual sales from all stores open a minimum of 14 months - increased
5.5%, the eighth consecutive year we've produced same store sales in excess of
5%. We also opened 15 new stores last year, introducing Cost Plus World Market
to consumers in St. Louis, Cincinnati, Indianapolis and Omaha. These
accomplishments, coupled with an ongoing commitment to effective margin and
expense management, generated the highest earnings level in the Company's
history. Net income rose 32%, to $13.2 million. Earnings per share increased
27%, to $0.98.
For our customers, we tackle a different kind of challenge - continually
enhancing the shopping experience that has engaged their imaginations and
attracted their repeat business for 40
8 Cost Plus, Inc.
<PAGE>
years. In the midst of today's intense competition for consumer attention, our
World Market stores remain distinctive for a number of important reasons. We
offer a unique blend of everchanging merchandise, presented in a casual,
slightly offbeat atmosphere with a sense of discovery awaiting customers around
each corner. We work hard to maintain a friendly, welcoming store environment.
And, perhaps most important, we provide great value in the products we market.
Whether it be a pulse-quickening, one-of-a-kind gift discovery, a repeat
purchase from among our gourmet foods and beverages, or a more substantial
investment in a home furnishing item, our merchandise is competitively priced,
and our customers are regularly delighted with the value they receive for the
dollars they spend in our stores.
Successful, consistent execution is where the interests of our shareholders
and our customers intersect. We place a high priority at Cost Plus World Market
on disciplined growth, cost-effective marketing and advertising strategies,
continually updated information and distribution systems, and meaningful
employee development programs. These factors provide critical, if less visible
support to the creative sourcing and merchandising talents which are the
backbone of our organization's long-term success.
Here, too, we made solid progress during fiscal 1998. Individual store
profitability remained high as we continued to expand beyond our traditional
West Coast markets - strong evidence that our retailing concept has broad
appeal. To support this growth, we added a 100,000 square-foot distribution
center in Indiana that is now serving our Midwestern expansion. We continued to
strengthen our senior management team with the addition of our new
administrative executive vice president and chief financial officer, John
Hoffner, along with key hires in information systems and logistics. And we
relocated our headquarters to a new, significantly larger space with minimal
impact on operating costs.
I have no doubt the noise level will continue to rise in retailing as the
competitive nature of our industry intensifies. We'll face new challenges and
new opportunities at Cost Plus World Market, and I'm confident we will succeed.
The enthusiasm and excitement here continues to grow with every successful
addition to our market base. We are fully committed to building a top-flight
nationwide enterprise, and we have the resources, the management talent and the
creativity to accomplish our biggest dreams.
To all those who support us in this journey - our customers, our employees,
our shareholders - I'd like to express our deepest appreciation.
/s/ Murray Dashe
Murray H. Dashe
Chairman, Chief Executive Officer and President
Cost Plus, Inc. 9
<PAGE>
ABOUT COST PLUS WORLD MARKET
Our Mission is to be a specialty retailer
offering customers a wide and ever-
changing selection of exciting products
imported from around the world,
emphasizing both quality and value in
a fun and friendly environment
Fifty Countries, One Store
And an endless variety of product choices for today's casual, home-oriented
lifestyles. Whether decorating a home, planning a dinner party, or just looking
for a special gift, our customers know they will discover thousands of options
in casual furnishings, housewares, gifts, decorative accessories, gourmet foods
and beverages at their local Cost Plus World Market store.
The unique character and wide array of our World Market product lines are
key elements in the Company's enduring consumer appeal. While today's retailing
world is increasingly filled with look-alikes and wannabes, our store aisles are
filled with distinctive, one-of-a-kind items. Many of our products, sourced from
approximately 50 countries around the world, reflect the regional character and
personal artistic expression of the local artisans who created them. Many of our
supplier relationships span decades. Many of our product lines are crafted
exclusively for Cost Plus World Market. It is a product-sourcing strategy
developed over a 40-year history in the import business, and one difficult to
recreate.
10 Cost Plus, Inc.
<PAGE>
Adventure Shopping
Enter a Cost Plus World Market for the first time and you're likely to be
surprised. Delightfully so. The informal, rough-hewn backdrop of concrete floors
and exposed beam ceilings. The conscious clutter of aisles spilling over with
merchandise. The bright colors, rich textures and tantalizing aromas that
captivate your senses and evoke the memory of an open air marketplace. All of
these elements play a central role in the shopping experience at Cost Plus World
Market.
But there's clearly method to this madness. The relaxed atmosphere and
sense of fun that pervades a World Market store encourages browsing, impulse
buying and regular, repeat visits. The baskets, barrels and shipping crates that
overflow with merchandise continually beckon customers with the possibility of
yet another discovery. Amid all the bustle, strong focal points on walls,
ceilings and shelf-top displays provide important visual cues which guide
shoppers from point to point, from key product line to key product line. In
today's highly competitive contest for consumer attention, our slightly
irreverent, slightly mysterious, treasure-hunt approach to merchandising helps
attract and hold the interest of shoppers for an average of fifty minutes per
visit.
Building a National Enterprise
Profitable growth, achieved market by market and store by store, is the
centerpiece of our national expansion program. Our primary goal is to build a
network of Cost Plus World Market stores stretching from coast to coast. Annual
growth targets include a 20% increase in store count, mid-single digit
improvement in same-store sales, and a steady strengthening of profit margins,
as operating costs are leveraged over higher sales volume.
To achieve the strongest possible results from geographic expansion, we
cluster store openings in new markets to immediately achieve economies of scale,
and regularly add stores in existing markets to maximize our penetration. We pay
close attention to the costs of distribution, advertising and management
development, and to the opportunities presented by new information technologies.
Most importantly, we measure and manage profitability at Cost Plus World Market
store by store. Our internal performance standards result in a new store model
which achieves operating margins comparable to existing stores within three
years. These disciplines, coupled with the broad-based appeal of our core
retailing concept, provide a strong foundation for the national enterprise we
are determined to build.
Cost Plus, Inc. 11
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Pro Forma
Fiscal Year Twelve Month Fiscal Year
------------------------------------- Period Ended -----------
February 3,
1998 1997 1996 1996/1/ 1994
-------- -------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share
and selected operating data)
Statement of Operations Data:
Net sales $315,135 $260,494 $214,814 $182,845 $151,196
Income from operations 22,924 18,118 15,040 11,599 7,890
Net income 13,236 10,007 7,427 3,816 1,817
Net income per share-diluted/2/ $ 0.98 $ 0.77 $ 0.61 $ 0.41 --
-------- -------- -------- -------- --------
Selected Operating Data:
Number of stores open
(at end of period) 85 70 58 49 43
Average sales per selling square foot/3/ $ 258 $ 259 $ 252 $ 238 $ 224
Comparable store sales increase/4/ 5.5% 7.0% 6.1% 6.1% 7.7%
-------- -------- -------- -------- ---------
Balance Sheet Data (at period end):
Working capital $ 61,031 $ 52,630 $ 24,807 $ 11,102 $ 8,918
Total assets 173,141 152,000 128,198 105,986 99,245
Note payable and capital lease
obligations, less current portion 15,110 15,692 14,215 34,528 34,839
Total shareholders' equity 109,403 95,609 73,209 36,359 32,542
======== ======== ======== ======== =========
</TABLE>
/1/ Effective in fiscal 1995, the Company changed its fiscal year from the
Saturday closest to the end of February to the Saturday closest to the end
of January. The Company's 1995 fiscal year was approximately 11 months (49
weeks) and ended on February 3, 1996. For comparative purposes, the 1995
results have been restated on a twelve month (54 week) pro forma basis. All
other fiscal years presented consisted of 52 weeks.
/2/ Per share data is restated for a three-for-two common stock split effective
March 11, 1999.
/3/ Calculated using net sales for stores open during the entire period divided
by the selling square feet of such stores.
/4/ A store is considered as comparable at the beginning of its fourteenth full
month of operation.
[GRAPH APPEARS HERE] [GRAPH APPEARS HERE] [GRAPH APPEARS HERE]
Net Sales Operating Income Net Income
Fiscal Years 1994-1998/1/ Fiscal Years 1994-1998/1/ Fiscal Years 1994-1998/1/
(dollars in millions) (dollars in millions) (dollars in millions)
12 Cost Plus, Inc.
<PAGE>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Pro Forma
Fiscal Year Twelve Month Eleven Month Fiscal Year
-------------------------------- Period Ended Period Ended -----------
(In thousands, except per share February 3, February 3,
and selected operating data) 1998 1997 1996 1996/1/ 1996/1/ 1994
-------- -------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $315,135 $260,494 $214,814 $182,845 $171,548 $151,196
Cost of sales and occupancy 200,023 164,394 135,072 115,516 107,800 95,608
-------- -------- -------- -------- -------- --------
Gross profit 115,112 96,100 79,742 67,329 63,748 55,588
Selling, general and
administrative expenses 89,261 75,238 62,649 54,110 50,194 46,561
Store preopening expenses 2,927 2,744 2,053 1,620 1,620 1,137
-------- -------- -------- -------- -------- --------
Income from operations 22,924 18,118 15,040 11,599 11,934 7,890
Net interest expense 1,226 1,679 2,451 5,131 4,843 4,862
-------- -------- -------- -------- -------- --------
Income before income taxes 21,698 16,439 12,589 6,468 7,091 3,028
Income taxes 8,462 6,432 5,162 2,652 2,909 1,211
-------- -------- -------- -------- -------- --------
Net income $ 13,236 $ 10,007 $ 7,427 $ 3,816 $ 4,182 $ 1,817
======== ======== ======== ======== ======== ========
Net income per share diluted/2/ $ 0.98 $ 0.77 $ 0.61 $ 0.41 $ 0.45 --
Weighted average shares
outstanding - diluted/2/ 13,575 13,049 12,158 9,230 9,230 --
-------- -------- -------- -------- -------- ---------
Selected Operating Data:
Percent of sales:
Gross profit 36.5% 36.9% 37.1% 36.8% 37.2% 36.8%
Selling, general and
administrative expenses 28.3% 28.9% 29.2% 29.6% 29.3% 30.8%
Income from operations 7.3% 7.0% 7.0% 6.3% 6.9% 5.2%
Number of stores:
Opened during period 15 12 9 6 6 5
Closed during period -- -- -- -- -- 3
Open at end of period 85 70 58 49 49 43
Average sales per selling square foot/3/ $ 258 $ 259 $ 252 $ 238 $ 228 $ 224
Comparable store sales increase/4/ 5.5% 7.0% 6.1% 6.1% 6.6% 7.7%
======== ======== ======== ======== ======== ========
Balance Sheet Data (at period end):
Working capital $ 61,031 $ 52,630 $ 24,807 $ 11,102 $ 11,102 $ 8,918
Total assets 173,141 152,000 128,198 105,986 105,986 99,245
Note payable and capital lease obligations,
less current portion 15,110 15,692 14,215 34,528 34,528 34,839
Total shareholders' equity 109,403 95,609 73,209 36,359 36,359 32,542
======== ======== ======== ======== ======== ========
</TABLE>
/1/ Effective in fiscal 1995, the Company changed its fiscal year end from the
Saturday closest to the end of February to the Saturday closest to the end
of January. The Company's 1995 fiscal year was approximately 11 months (49
weeks) and ended on February 3, 1996. For comparison purposes, the 1995
results have been restated on a twelve month (54 week) pro forma basis. All
other fiscal years presented consisted of 52 weeks.
/2/ Per share data is restated for a three-for-two common stock split effective
March 11, 1999.
/3/ Calculated using net sales for stores open during the entire period divided
by the selling square feet of such stores.
/4/ A store is considered as comparable at the beginning of its fourteenth full
month of operation.
Cost Plus, Inc. 13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
An asterisk "*" denotes a forward-looking statement reflecting current
expectations that involve risks and uncertainties. Actual results may differ
materially from those discussed in such forward-looking statements, and
shareholders of Cost Plus, Inc. (the "Company" or "Cost Plus") should carefully
review the cautionary statements set forth in this Annual Report, including
"Quarterly Results and Seasonality" beginning on page 16. The Company may from
time to time make additional written and oral forward-looking statements,
including statements contained in the Company's filings with the Securities
and Exchange Commission and in its reports to shareholders. The Company does not
undertake to update any forward-looking statement that may be made from time to
time by or on behalf of the Company.
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997
Net Sales
Net sales increased $54.6 million, or 21.0%, to $315.1 million in fiscal 1998
from $260.5 million in fiscal 1997. The increase in net sales was attributable
to new stores and an increase in comparable store sales. Comparable store sales
rose 5.5% for fiscal 1998, primarily as a result of a larger average transaction
size. As of January 30, 1999, the Company operated 85 stores compared to 70
stores as of January 31, 1998. New and non-comparable stores contributed
approximately $40.8 million of the increase in net sales.
Gross Profit
As a percentage of net sales, gross profit was 36.5% this year compared with
36.9% last year. The decrease in gross profit rate resulted from higher
occupancy costs in new stores, partially offset by an improvement in initial
markon and lower inventory shrinkage. New stores generally have higher occupancy
costs, as a percentage of net sales, until they reach maturity.
Selling, General and Administrative ("SG&A") Expenses
As a percentage of net sales, SG&A expenses decreased to 28.3% in the current
fiscal year from 28.9% last fiscal year. The decrease in the SG&A expense rate
resulted primarily from leveraging store payroll and corporate overhead expenses
against higher sales.
Store Preopening Expenses
Store preopening expenses, which include grand opening advertising and
preopening merchandise setup expenses, were $2.9 million in fiscal 1998 and $2.7
million in fiscal 1997. Expenses vary depending on the location of a store and
whether it is located in a new or existing market. The Company opened 15 stores
in fiscal 1998 compared to 12 stores in the prior fiscal year.
Net Interest Expense
Net interest expense, which includes interest on capital leases and interest
expense net of interest income, was $1.2 million in fiscal 1998 compared to $1.7
million in fiscal 1997. This decrease in expense resulted from higher interest
income and lower average borrowings throughout the year due to cash generated
from the sale of the Company's San Francisco property and the leaseback of its
store facility in September 1997 and to proceeds from a secondary offering of
the Company's common stock in October 1997.
Income Taxes
The Company's effective tax rate was 39% in both fiscal 1998 and fiscal 1997.
14 Cost Plus, Inc.
<PAGE>
FISCAL 1997 COMPARED TO FISCAL 1996
Net Sales
Net sales increased $45.7 million, or 21.3%, to $260.5 million in fiscal 1997
from $214.8 million in fiscal 1996. This increase in net sales was attributable
to new stores and an increase in comparable store sales. Comparable store sales
increased 7.0% in fiscal 1997, primarily as a result of a larger average
transaction size. At January 31, 1998, the Company operated 70 stores compared
to 58 stores at February 1, 1997. New and non-comparable stores contributed
approximately $31.1 million of the increase in net sales.
Gross Profit
As a percentage of net sales, gross profit was 36.9% in fiscal 1997 compared to
37.1% in fiscal 1996. The decrease in gross profit rate resulted from higher
occupancy costs in new stores, partially offset by an improvement in the
merchandise margin percentage. New stores generally have higher occupancy costs,
as a percentage of net sales, until they reach maturity. The merchandise margin
improvement resulted primarily from a sales mix more heavily weighted towards
higher margin goods and lower markdowns.
Selling, General and Administrative ("SG&A") Expenses
As a percentage of net sales, SG&A expenses decreased to 28.9% in fiscal 1997
compared to 29.2% in fiscal 1996. This decrease resulted from lower store and
corporate payroll expenses, as a percentage of net sales, which were partially
offset by higher advertising expenses.
Store Preopening Expenses
Store preopening expenses, which include grand opening advertising and
preopening merchandise setup expenses, were $2.7 million for fiscal 1997 and
$2.1 million for fiscal 1996. The increase in store preopening expenses was the
result of opening 12 stores in fiscal 1997 versus opening nine stores in fiscal
1996. Store preopening expenses per store in fiscal 1997 were consistent with
fiscal 1996.
Net Interest Expense
Net interest expense, which includes capital lease interest and interest expense
net of interest income, was $1.7 million for fiscal 1997 and $2.5 million for
fiscal 1996. In September 1997, the Company completed the sale of its San
Francisco property and the leaseback of its store facility. Proceeds from the
sale approximated $10.6 million, after deducting commissions and fees, and were
used to pay down outstanding borrowings on the Company's revolving line of
credit.
The proceeds from the Company's October 1997 secondary public offering of common
stock were used for the repayment of outstanding borrowings, working capital and
other general corporate purposes. In fiscal 1996, interest expense included
capital lease interest and interest expense on debt which was repaid in April
1996 with the proceeds from the Company's initial public offering of its common
stock.
Income Taxes
The Company's effective tax rate was reduced for fiscal 1997 to 39% from 41% in
fiscal 1996 as a result of expanding into states with lower tax rates.
INFLATION
The Company does not believe that inflation has had a material effect on its
financial condition and results of operations during the past three fiscal
years. However, there can be no assurance that the Company's business will not
be affected by inflation in the future.
Cost Plus, Inc. 15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth the Company's unaudited quarterly operating
results for its eight most recent quarterly periods.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------
(In thousands, except per May 2, Aug. 1, Oct. 31, Jan. 30,
share data and number of stores) 1998 1998 1998 1999
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $56,839 $58,168 $66,689 $133,439
Gross profit 19,067 20,089 23,013 52,943
Net income (loss) 292 105 (782) 13,621
Net income (loss) per share/1/
Basic $ 0.02 $ 0.01 $ (0.06) $ 1.03
Diluted/2/ $ 0.02 $ 0.01 $ (0.06) $ 1.00
Number of stores open at end of period 71 74 82 85
Three Months Ended
--------------------------------------------------------
(In thousands, except per May 3, Aug. 2, Nov. 1, Jan. 31,
share data and number of stores) 1997 1997 1997 1998
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $48,532 $47,287 $54,687 $109,988
Gross profit 16,726 16,729 19,087 43,558
Net income (loss) 107 187 (1,252) 10,965
Net income (loss) per share/1/
Basic $ 0.01 $ 0.02 $ (0.10) $ 0.84
Diluted/2/ $ 0.01 $ 0.01 $ (0.10) $ 0.80
Number of stores open at end of period 60 60 68 70
</TABLE>
/1/ Per share data is restated for a three-for-two common stock split effective
March 11, 1999.
/2/ Loss quarters exclude common stock equivalents since they are antidilutive.
The Company's business is highly seasonal, reflecting the general pattern
associated with the retail industry of peak sales and earnings during the
Christmas season. Due to the importance of the Christmas selling season, the
fourth quarter of each fiscal year has historically contributed, and the Company
expects it will continue to contribute, a disproportionate percentage of the
Company's net sales and most of its net income for the entire fiscal year. Any
factors negatively affecting the Company during the Christmas selling season in
any year, including unfavorable economic conditions, could have a material
adverse effect on the Company's financial condition and results of operations.
The Company generally experiences lower sales and earnings during the first
three quarters and, as is typical in the retail industry, has incurred and may
continue to incur losses in these quarters. The results of operations for
interim periods are not necessarily indicative of the results for a full fiscal
year. In addition, the Company makes decisions regarding merchandise well in
advance of the season in which it will be sold, particularly for the Christmas
selling season. Significant deviations from projected demand for products could
have a material adverse effect on the Company's financial condition and results
of operations, either by lost sales due to insufficient inventory or lost margin
due to the need to mark down excess inventory.
The Company's quarterly results of operations may also fluctuate based upon such
factors as the number and timing of store openings and related store preopening
expenses, the amount of net sales contributed by new and existing stores, the
mix of products sold, the timing and level of markdowns, store closings,
refurbishments or relocations, competitive factors and general economic
conditions.
16 Cost Plus, Inc.
<PAGE>
YEAR 2000 READINESS DISCLOSURE
State of readiness
The Year 2000 issue is primarily the result of certain computer systems using a
two-digit format rather than four-digits to indicate the year. Such computer
systems will, unless modified, be unable to interpret dates beyond the year
1999, potentially causing errors and failures which may disrupt operations of
such systems. To address this issue, the Company has developed a comprehensive
plan (the "Plan") intended to ensure that all critical systems, devices and
applications, as well as data exchanged with customers, trade suppliers and
other third parties, have been evaluated and will be suitable for continued use
into and beyond the year 2000. In addition to areas normally associated with
information technology ("IT"), the Plan also includes areas normally considered
outside of IT, but which may utilize embedded microprocessors with potential
Year 2000 problems.
The Company's Year 2000 Project (the "Project") has been divided into four
phases: i) assessment; ii) remediation; iii) testing and certification; and iv)
contingency planning. An assessment of all IT systems has been completed. The
remediation of in-house systems was approximately 85% complete at the end of
fiscal 1998 and is targeted for completion by the end of the first quarter of
fiscal 1999.* The Company expects that all key hardware and software systems
will be tested and determined to be compliant by the end of the second quarter
of fiscal 1999, with any remaining work on minor systems scheduled for
completion in the third quarter of fiscal 1999*. Hardware upgrades which were
planned for growth, some of which also assist in Year 2000 compliance, have been
accelerated into fiscal 1998 and fiscal 1999.
The Company is in the process of surveying key vendors, suppliers and service
providers for their readiness. This process is expected to be complete by the
end of the second quarter of fiscal year 1999.* Assessment of the risks
associated with vendors and third party service providers' failure to remediate
their own Year 2000 issues will continue throughout the duration of the Project.
Costs to address Year 2000 issues
In addressing the Year 2000 Project, the Company has relied and continues to
rely primarily on internal resources, with supervised support from consultants
and contractors. Internal costs, which are principally payroll for its
information systems personnel, are not separately tracked. The costs for the
Year 2000 Project have not been and are not expected to be material.* Costs are
consistent with and included in the Company's operating budgets and, based on
information gathered to date, future Project costs are not expected to have a
material adverse effect on the results of operations in any period, on
liquidity, financial position or other information technology project
schedules.*
Risks of the Year 2000 issues
The Company believes that its structured approach toward modifications of
existing software and conversions to new software for certain applications, as
discussed above, should mitigate significant disruption of its operations due to
potential Year 2000 problems.* The Company has also identified areas of
potential third party risk, which include communications systems, utilities and
elements of the merchandise supply chain, including procurement, transportation
and import activities. The disruption of communications systems and utilities
could impact the Company's ability to operate its stores. The inability of
principal suppliers to be Year 2000 compliant could result in delays in product
deliveries from such suppliers and disruption of the Company's distribution
channel. There can be no assurance that other entities will achieve Year 2000
compliance or that the Company can timely compensate for its risks should such
entities fail to do so. If the Company's internal systems are not adequately
remediated, or if necessary modifications and conversions by other companies on
whose systems some of the Company's business processes depend are not completed
on time, the Year 2000 issue could have a material adverse effect on the
Company's operations.
The Company's plans for expenditures to achieve Year 2000 compliance and the
dates by which Year 2000 compliance will be achieved are based on management's
best estimates. These estimates include certain assumptions about future events,
including the continued availability of certain resources. However, there can be
no assurance that these estimates will be
Cost Plus, Inc. 17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
achieved, and because of the complex interdependencies involved with Year 2000
issues, actual results could differ materially from these estimates. Because of
the range of possible issues and the large number of variables involved, it is
impossible to quantify the potential financial impact of problems if the
Company's remediation efforts or the efforts of those with whom it does business
are not successful.
Contingency plans
The Company is developing contingency plans for critical business processes in
the event of compliance failure on the part of the Company or its business
partners including communications systems, utilities, suppliers and other
service providers. Contingency plans will be completed by approximately the end
of the second quarter of fiscal 1999.* However, there can be no assurance that
such contingency plans will address all of the Year 2000 issues which the
Company might ultimately encounter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses for cash are to fund operating expenses, inventory
requirements and new store expansion. Historically, the Company has financed its
operations primarily with borrowings under the Company's credit facilities and
internally generated funds. The Company believes that the available borrowings
under its revolving line of credit and internally generated funds will be
sufficient to finance its working capital and capital expenditure requirements
for the next 12 months.*
Net cash provided by operating activities totaled $16.6 million for fiscal 1998,
an increase of $14.1 million from fiscal 1997. This increase resulted primarily
from cash generated by higher sales and the timing of payments for merchandise
inventories received near the end of the fiscal year.
Net cash used in investing activities, primarily for new stores, totaled $14.6
million in fiscal 1998. In fiscal 1997, net cash used in investing activities
totaled $872,000 and consisted of $11.5 million of property and equipment
purchases, primarily for new stores, partially offset by $10.6 million from the
sale of the San Francisco property. The Company estimates that fiscal 1999
capital expenditures will approximate $16.1 million.*
Net cash used in financing activities was $894,000 in fiscal 1998, primarily as
a result of the repurchase of 225,002 shares of common stock for $3.8 million
from the Company's former Chief Executive Officer, which was partially offset by
proceeds from stock issued under the Company's stock option and stock purchase
plans. Net cash provided by financing activities was $11.4 million in fiscal
1997, which was primarily proceeds from the issuance of stock in connection with
the October 1997 secondary offering of the Company's common stock and the
Company's stock option and stock purchase plans. Proceeds from the October 1997
offering were used for repayment of outstanding borrowings and for working
capital and other general corporate purposes.
On October 12, 1998, the Company entered into a revolving line of credit
agreement with a bank, which expires June 1, 2000. This agreement replaced the
Company's previous revolving line of credit agreement. The new agreement allows
for cash borrowings and letters of credit of up to $20.0 million from January 1
through June 30 and up to $40.0 million from July 1 through December 31 of each
year. Interest is paid monthly at the bank's reference rate minus 0.5% (7.25% at
January 30, 1999) or IBOR plus 1.125%, depending on the nature of the
borrowings. The agreement is secured by the Company's inventory and receivables.
The Company is subject to certain financial covenants customary with such
agreements. At January 30, 1999, the Company had no outstanding borrowings under
the line of credit and $1.3 million outstanding under letters of credit.
IMPACT OF NEW ACCOUNTING STANDARDS
Effective February 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This statement
requires that all items recognized under accounting standards as components of
comprehensive income be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. The
Company's comprehensive income and net income are the same.
Effective February 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information." This statement establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas and major customers.
18 Cost Plus, Inc.
<PAGE>
The Company's operations include only activities related to the sale of casual
home living and entertaining products to the general public through similar
stores throughout the United States and comprise only one segment. Therefore,
adoption of this standard did not impact the Company's financial statement
presentation.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in either assets or liabilities. This statement is effective for fiscal
years beginning after June 15, 1999 and is not to be applied retroactively to
financial statements for prior periods. Since the Company does not engage in
derivative or hedging activities, application of the standard would not have a
material effect on the Company's consolidated financial position, results of
operations or cash flows.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risks, which include changes in U.S. interest
rates and, to a lesser extent, foreign exchange rates. The Company does not
engage in financial transactions for trading or speculative purposes.
Interest rate risk
The interest payable on the Company's bank line of credit is based on variable
interest rates and is therefore affected by changes in market interest rates. If
interest rates on existing variable rate debt rise 73 basis points (a 10% change
from the Company's borrowing rate as of January 30, 1999), the Company's results
of operations and cash flows will not be materially affected. In addition, the
Company has fixed and variable income investments consisting of cash equivalents
and short-term investments which are also affected by changes in market interest
rates. The Company does not use derivative financial instruments in its
investment portfolio.
Foreign currency risks
The Company enters into a significant amount of purchase obligations outside of
the United States which are settled in U.S. Dollars and, therefore, has only
minimal exposure to foreign currency exchange risks. The Company does not hedge
against foreign currency risks and believes that foreign currency exchange risk
is immaterial.
STOCK ACTIVITY
The Company's common stock is currently traded on the over-the-counter market
and is quoted on the Nasdaq National Market under the symbol "CPWM", where it
has traded since the Company's initial public offering on April 4, 1996.
The following table sets forth the high and low closing sales prices, for the
periods indicated, as reported by the Nasdaq National Market. Per share data is
restated for a three-for-two common stock split effective March 11, 1999.
On March 12, 1999, the last sale price of the common stock as reported on the
Nasdaq National Market was $25.63 per share, and the Company had 29 shareholders
of record as of that date. This number excludes individual shareholders holding
stock in nominee or street name by brokers. The Company's present policy is to
retain its earnings to finance growth, and it does not intend to pay cash
dividends.
<TABLE>
<CAPTION>
Price Range
--------------------
High Low
------ ------
<S> <C> <C>
Fiscal Year Ended January 30, 1999
First Quarter $22.67 $15.17
Second Quarter 23.33 18.92
Third Quarter 21.29 15.83
Fourth Quarter 24.17 19.67
Fiscal Year Ended January 31, 1998
First Quarter $12.33 $10.00
Second Quarter 17.50 11.00
Third Quarter 19.67 15.33
Fourth Quarter 23.50 15.00
</TABLE>
Cost Plus, Inc. 19
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 30, January 31,
(Dollars in thousands, except per share amounts) 1999 1998
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 28,600 $ 27,434
Merchandise inventories 70,680 56,606
Other current assets 4,553 3,137
-------- --------
Total current assets 103,833 87,177
Property and equipment, net 59,034 53,539
Other assets, net 10,274 11,284
-------- --------
Total assets $173,141 $152,000
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 17,568 $ 13,707
Income taxes payable 8,180 6,282
Accrued compensation 7,421 7,132
Other current liabilities 9,633 7,426
-------- --------
Total current liabilities 42,802 34,547
Capital lease obligations 15,110 15,692
Deferred income taxes 173 1,969
Other long-term obligations 5,653 4,183
Shareholders' equity:
Preferred stock, $.01 par value: 5,000,000 shares authorized;
none issued and outstanding -- --
Common stock, $.01 par value: 45,000,000 shares authorized;
issued and outstanding 13,291,010 and 13,032,733 shares 133 130
Additional paid-in capital 104,065 103,510
Retained earnings (deficit) 5,205 (8,031)
-------- --------
Total shareholders' equity 109,403 95,609
-------- --------
Total liabilities and shareholders' equity $173,141 $152,000
======== ========
</TABLE>
See notes to consolidated financial statements.
20 Cost Plus, Inc.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------
January 30, January 31, February 1,
(In thousands, except per share amounts) 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $315,135 $260,494 $214,814
Cost of sales and occupancy 200,023 164,394 135,072
-------- -------- --------
Gross profit 115,112 96,100 79,742
Selling, general and administrative expenses 89,261 75,238 62,649
Store preopening expenses 2,927 2,744 2,053
-------- -------- --------
Income from operations 22,924 18,118 15,040
Net interest expense 1,226 1,679 2,451
-------- -------- --------
Income before income taxes 21,698 16,439 12,589
Income taxes 8,462 6,432 5,162
-------- -------- --------
Net income $ 13,236 $ 10,007 $ 7,427
======== ======== ========
Net income per share
Basic $ 1.01 $ 0.80 $ 0.64
Diluted $ 0.98 $ 0.77 $ 0.61
======== ======== ========
Weighted average shares outstanding
Basic 13,149 12,489 11,582
Diluted 13,575 13,049 12,158
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
Cost Plus, Inc. 21
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------- Additional Retained Total
Paid-in Earnings Shareholders'
(In thousands, except shares) Shares Amount Capital (Deficit) Equity
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at
February 3, 1996 8,859,396 $ 88 $ 61,736 $ (25,465) $ 36,359
Initial public offering,
net of related costs 3,204,921 32 28,865 28,897
Stock issued under
Employee Stock
Purchase Plan 19,050 -- 251 251
Exercise of stock options 66,393 1 178 179
Tax effect of
disqualifying stock
dispositions 96 96
Net income 7,427 7,427
------------- ------------- ------------- ------------- -------------
Balance at
February 1, 1997 12,149,760 121 91,126 (18,038) 73,209
Secondary public offering,
net of related costs 600,000 6 10,361 10,367
Stock issued under
Employee Stock
Purchase Plan 14,474 -- 191 191
Exercise of stock options 268,499 3 1,279 1,282
Tax effect of
disqualifying stock
dispositions 553 553
Net income 10,007 10,007
------------- ------------- ------------- ------------- -------------
Balance at
January 31, 1998 13,032,733 130 103,510 (8,031) 95,609
Repurchase of stock (225,002) (2) (3,748) (3,750)
Stock issued under
Employee Stock
Purchase Plan 11,259 -- 195 195
Exercise of stock options 472,020 5 3,151 3,156
Tax effect of
disqualifying stock
dispositions 957 957
Net income 13,236 13,236
------------- ------------- ------------- ------------- -------------
Balance at
January 30, 1999 13,291,010 $ 133 $ 104,065 $ 5,205 $ 109,403
============= ============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
22 Cost Plus, Inc.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------
January 30, January 31, February 1,
(In thousands) 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 13,236 $ 10,007 $ 7,427
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,116 7,939 6,810
Loss on disposal of property and equipment 120 62 81
Deferred income taxes (1,927) (1,513) (962)
Change in assets and liabilities:
Merchandise inventories (14,074) (14,001) (7,392)
Other assets (990) (1,489) (1,514)
Accounts payable 4,400 (1,019) 5,024
Other liabilities 6,734 2,522 4,717
----------- ----------- -----------
Net cash provided by operating activities 16,615 2,508 14,191
----------- ----------- -----------
Cash Flows From Investing Activities:
Purchases of property and equipment (14,555) (11,490) (8,001)
Proceeds from the sale of property -- 10,618 --
----------- ----------- -----------
Net cash used in investing activities (14,555) (872) (8,001)
----------- ----------- -----------
Cash Flows From Financing Activities:
Net payments under revolving line of credit -- -- (3,165)
Principal payments on capital lease obligations (494) (440) (336)
Proceeds from the issuance of stock 3,350 11,840 29,423
Cash used for common stock repurchase (3,750) -- --
Payments on other long-term debt -- -- (19,895)
----------- ----------- -----------
Net cash (used in) provided by financing activities (894) 11,400 6,027
----------- ----------- -----------
Net increase in cash and cash equivalents 1,166 13,036 12,217
Cash and cash equivalents:
Beginning of period 27,434 14,398 2,181
----------- ----------- -----------
End of period $ 28,600 $ 27,434 $ 14,398
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest $ 1,230 $ 1,667 $ 2,850
=========== =========== ===========
Cash paid during the year for taxes $ 7,533 $ 7,204 $ 3,358
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
Cost Plus, Inc. 23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business
Cost Plus, Inc. and subsidiaries (the "Company") is a specialty retailer of
casual home living and entertaining products. At January 30, 1999, the Company
operated 85 stores under the name "Cost Plus World Market" in 16 states,
primarily in the western United States. The Company's product offerings are
designed to provide solutions to customers' casual living and home entertaining
needs. The offerings include home decorating items such as furniture and rugs as
well as a variety of tabletop and kitchen products. Cost Plus stores also offer
a number of gift and decorative accessories including collectibles, cards,
wrapping paper and other seasonal items. In addition, Cost Plus offers its
customers a wide selection of gourmet foods and beverages, including wine,
micro-brewed and imported beer, coffee and tea.
Principles of Consolidation
The consolidated financial statements include the accounts of Cost Plus, Inc.
and its subsidiaries. Intercompany balances and transactions are eliminated in
consolidation.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, as well as disclosures of
contingent assets and liabilities, at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires entities to disclose the fair value of
their financial instruments. The carrying value of current assets and current
liabilities approximates their fair market value.
Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less as cash equivalents.
Merchandise Inventories
Inventories are stated at the lower of cost or market as determined under the
retail inventory method. Cost includes certain buying and distribution costs
related to the procurement, processing and transportation of merchandise.
Property and Equipment
Furniture, fixtures and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives, which is generally five
years. Buildings and leasehold improvements are amortized on a straight-line
basis over the lesser of the related lease terms or their useful lives.
Capital Leases
Noncancelable leases which meet the criteria of capital leases are capitalized
as assets and amortized on a straight-line basis over their related lease terms.
Other Assets
Goodwill is amortized on a straight-line basis over 40 years. Lease rights and
interests are amortized on a straight-line basis over their related lease terms.
Long Lived Assets
The Company's policy is to review the recoverability of all long-lived assets
annually and whenever events or changes indicate that the carrying amount of an
asset may not be recoverable. Based upon the Company's review as of January 30,
1999 and January 31, 1998, no material adjustments to the carrying value of such
assets were necessary.
24 Cost Plus, Inc.
<PAGE>
Deferred Rent
Certain of the Company's operating leases contain predetermined fixed
escalations of minimum rentals during the initial term. For these leases, the
Company recognizes the related rental expense on a straight-line basis over the
life of the lease and records the difference between amounts charged to
operations and amounts paid as deferred rent. As part of its lease agreements,
the Company receives certain lease incentives, primarily construction
allowances. These allowances are also deferred and are amortized on a straight-
line basis over the life of the lease as a reduction of rent expense.
Advertising Expense
Advertising costs are expensed as incurred. For the fiscal years ended January
30, 1999, January 31, 1998 and February 1, 1997, advertising costs were
$17,371,000, $14,202,000 and $11,519,000, respectively.
Store Preopening Expenses
Store preopening expenses include grand opening advertising, labor and hiring
expenses and are expensed as incurred.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentration of
credit risk, consist principally of cash and cash equivalents. The Company
places its cash with high quality financial institutions. At times, such
balances may be in excess of FDIC insurance limits.
Income Taxes
Income taxes are accounted for using an asset and liability approach that
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
consolidated financial statements or tax returns. In estimating future tax
consequences, all expected future events are taken into consideration except for
changes in the tax laws or rates.
Stock Split
On February 16, 1999, the Company's Board of Directors authorized a three-for-
two split of its common stock effective March 11, 1999 for shareholders of
record at the close of business on March 1, 1999. All share and per share data
in the accompanying consolidated financial statements and notes has been
restated to reflect the stock split.
Net Income per Share
The following is a reconciliation of the weighted average number of shares (in
thousands) used in the Company's Basic and Diluted per share computations.
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
January 30, January 31, February 1,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Basic shares 13,149 12,489 11,582
Effect of dilutive stock options 426 560 576
----------- ----------- -----------
Diluted shares 13,575 13,049 12,158
----------- ----------- -----------
</TABLE>
Stock-Based Compensation
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Impact of New Accounting Standards
Effective February 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This statement
requires that all items recognized under accounting standards as components of
comprehensive income be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. The
Company's comprehensive income and net income are the same.
Cost Plus, Inc. 25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Effective February 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information." This statement establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas and major customers. The Company's
operations include only activities related to the sale of casual home living and
entertaining products to the general public through similar stores throughout
the United States and comprise only one segment. Therefore, adoption of this
standard did not impact the Company's consolidated financial statement
presentation.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in either assets or liabilities. This statement is effective for fiscal
years beginning after June 15, 1999 and is not to be applied retroactively to
financial statements for prior periods. Since the Company does not engage in
derivative or hedging activities, application of the standard would not have a
material effect on the Company's consolidated financial position, results of
operations or cash flows.
NOTE 2. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
January 30, January 31,
(In thousands) 1999 1998
----------- -----------
<S> <C> <C>
Property and equipment consist of the following:
Land and land improvements $ 530 $ 530
Building and leasehold improvements 36,155 31,246
Furniture, fixtures and equipment 34,809 30,032
Facilities under capital leases 28,694 28,694
----------- -----------
Total 100,188 90,502
Less accumulated depreciation (41,154) (36,963)
----------- -----------
Property and equipment, net $ 59,034 $ 53,539
=========== ===========
</TABLE>
During September 1997, the Company completed the sale of its San Francisco
property and the leaseback of its store facility. Proceeds from the sale
approximated $10.6 million, after deducting commissions and fees, and were used
to pay down the outstanding borrowings on the Company's revolving line of
credit. The store facility was leased back for a period of 16 years with three
option periods of five years each.
NOTE 3. OTHER ASSETS
<TABLE>
<CAPTION>
January 30, January 31,
(In thousands) 1999 1998
----------- -----------
<S> <C> <C>
Other assets consist of the following:
Goodwill $ 3,972 $ 3,972
Lease rights and interests 3,146 3,146
Other 7,326 7,916
----------- -----------
Total 14,444 15,034
Less accumulated amortization (4,170) (3,750)
----------- -----------
Other assets, net $10,274 $11,284
=========== ===========
</TABLE>
NOTE 4. LEASES
The Company leases certain property consisting of retail stores, warehouses, the
corporate office and equipment. Store leases typically contain provisions for
two to three renewal options of five to ten years each, with renewal periods
from 1999 to 2040 at the then current market rates. The retail store, warehouse
and corporate office leases generally provide that the Company assume the
maintenance and all or a portion of the property tax obligations on the leased
property.
26 Cost Plus, Inc.
<PAGE>
The minimum rental payments required under capital leases (with interest rates
generally at 12.75%) and noncancelable operating leases with an initial lease
term in excess of one year at January 30, 1999, are as follows:
<TABLE>
<CAPTION>
(In thousands) Capital Leases Operating Leases Total
-------------- ---------------- ----------
<S> <C> <C> <C>
Fiscal year:
1999 $ 2,486 $ 22,166 $ 24,652
2000 2,521 22,151 24,672
2001 2,144 21,273 23,417
2002 2,151 20,414 22,565
2003 2,151 19,638 21,789
Thereafter through the year 2040 30,922 117,340 148,262
-------------- ---------------- ----------
Minimum lease commitments 42,375 $ 222,982 $265,357
================ ==========
Less amount representing interest (26,683)
--------------
Present value of capital lease obligations 15,692
Less current portion (582)
--------------
Long-term portion $ 15,110
==============
</TABLE>
Accumulated depreciation related to capital leases amounted to $11,942,000 and
$10,719,000 at January 30, 1999 and January 31, 1998, respectively. Depreciation
expense related to capital leases is classified as occupancy. For the fiscal
years ended January 30, 1999, January 31, 1998 and February 1, 1997, such
depreciation expense was $1,223,000, $1,139,000 and $1,098,000, respectively.
Interest expense related to capital leases was $1,962,000, $1,888,000 and
$1,870,000 for the fiscal years ended January 30, 1999, January 31, 1998 and
February 1, 1997, respectively.
Minimum and contingent rental expense, which is based upon certain factors such
as sales volume and property taxes, under operating and capital leases, as well
as sublease rental income, are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------
January 30, January 31, February 1,
(In thousands) 1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Operating leases:
Minimum rental expense $ 17,100 $ 13,485 $ 9,924
Contingent rental expense 821 757 554
Less sublease rental income (539) (1,692) (1,884)
------------ ------------ -----------
Total $ 17,382 $ 12,550 $ 8,594
============ ============ ===========
Capital leases -- contingent rental expense $ 1,022 $ 950 $ 813
============ ============ ===========
</TABLE>
Total minimum rental income to be received from noncancelable sublease
agreements through 2011 is approximately $7,024,000 as of January 30, 1999.
NOTE 5. REVOLVING LINE OF CREDIT
On October 12, 1998, the Company entered into a revolving line of credit
agreement with a bank, which expires on June 1, 2000. This agreement replaced
the Company's previous revolving line of credit agreement. The new agreement
allows for cash borrowings and letters of credit of up to $20.0 million from
January 1 through June 30 and up to $40.0 million from July 1 through December
31 of each year. Interest is paid monthly at the bank's reference rate minus
0.5% (7.25% at January 30, 1999) or IBOR plus 1.125%, depending on the nature of
the borrowings. The agreement is secured by the Company's inventory and
receivables. The Company is subject to certain financial covenants customary
with such agreements. At January 30, 1999, the Company had no outstanding
borrowings under the line of credit and $1.3 million outstanding under letters
of credit. Interest expense under borrowing arrangements was $109,000, $211,000
and $779,000 for the fiscal years ended January 31, 1999, January 30, 1998 and
February 1, 1997, respectively.
Cost Plus, Inc. 27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 6. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------
January 30, January 31, February 1,
(In thousands) 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Payable:
Federal $ 8,621 $ 6,683 $ 5,240
State 1,768 1,304 1,045
----------- ----------- -----------
Total payable 10,389 7,987 6,285
----------- ----------- -----------
Deferred:
Federal (1,556) (1,346) (989)
State (371) (209) (134)
----------- ----------- -----------
Total deferred (1,927) (1,555) (1,123)
----------- ----------- -----------
Provision for income taxes $ 8,462 $ 6,432 $ 5,162
=========== =========== ===========
</TABLE>
The differences between the U.S. federal statutory tax rate and the Company's
effective tax rate are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------
January 30, January 31, February 1,
(In thousands) 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
U.S. federal statutory tax rate 35.0% 35.0% 35.0%
State income taxes (net of U.S. federal income tax benefit) 4.3 4.3 4.7
Non-deductible expenses 0.4 0.5 0.6
Other (0.7) (0.7) 0.7
----------- ----------- -----------
Effective income tax rate 39.0% 39.1% 41.0%
=========== =========== ===========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
January 30, January 31,
(In thousands) 1999 1998
----------- -----------
<S> <C> <C>
Current deferred tax asset:
Deductible reserves $ 341 $ 210
Long-term deferred tax asset (liability):
Deferred rent 1,858 1,208
Capital leases (1,456) (1,610)
Lease rights (681) (731)
Depreciation (31) (280)
Deferred compensation 181 --
Other (44) (556)
----------- -----------
Total (173) (1,969)
----------- -----------
Net deferred tax assets (liabilities) $ 168 $(1,759)
=========== ===========
</TABLE>
28 Cost Plus, Inc.
<PAGE>
NOTE 7. EQUITY AND STOCK COMPENSATION PLANS
Stock Split
All share and per share data in the accompanying consolidated financial
statements and notes has been restated to reflect a three-for-two split of the
Company's common stock effective March 11, 1999.
Shareholder Rights Plan
Each outstanding share of common stock has a Preferred Share Purchase Right
(expiring on June 30, 2008) which is exercisable only upon the occurrence of
certain change in control events.
Options
The Company currently has options outstanding under three employee stock option
plans: the 1988 Stock Option Plan ("1988 Plan"), the 1994 Stock Option Plan
("1994 Plan") and the 1995 Stock Option Plan ("1995 Plan"). The 1988 and 1994
Plans permitted the granting of options to employees to purchase up to 1,622,717
shares of common stock at prices ranging from 85% to 100% of fair market value
as of the date of grant. Options are exercisable over ten years and became fully
vested upon the Company's initial public offering in April 1996. Upon approval
of the 1994 Plan in March 1995, the 1988 Plan was terminated except for options
then outstanding. Upon approval of the 1995 Plan in November 1995, the 1994 Plan
was terminated except for options then outstanding.
The 1995 Plan permits the granting of options to employees and directors to
purchase, at fair market value as of the date of grant, up to 2,137,004 shares
of common stock, less the aggregate number of shares outstanding under the 1994
Plan grants or any shares issued upon exercise of options granted under the 1994
Plan (547,413 at January 30, 1999). Options are exercisable over ten years and
vest as determined by the Board of Directors, generally over three or four
years. An additional 375,000 increase in the number of shares of common stock
reserved for issuance was approved by the Board of Directors in March 1998 and
by shareholders in June 1998.
On March 13, 1996, the Board of Directors approved the 1996 Director Stock
Option Plan ("Director Option Plan") which permits the granting of options to
non-employee directors to purchase up to 102,450 shares of common stock at fair
market value as of the date of grant. Each non-employee director elected after
March 13, 1996 will automatically be granted, upon election, a nonstatutory
option to purchase 10,613 shares of common stock. In addition, each non-employee
director will automatically receive an annual grant of a non-statutory option to
purchase 3,000 shares. Options are exercisable over ten years and vest over a
four-year period.
A summary of activity under the above option Plans is set forth below:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
---------- ---------
<S> <C> <C>
Outstanding at February 3, 1996 (143,024 exercisable at a weighted average price of $2.00) 1,081,436 $ 5.51
Granted 283,088 11.85
Exercised (66,393) 2.67
Canceled (17,411) 5.65
---------- ---------
Outstanding at February 1, 1997 (496,625 exercisable at a weighted average price of $3.83) 1,280,720 7.05
Granted 712,800 14.31
Exercised (268,499) 4.77
Canceled and expired (151,625) 9.41
---------- ---------
Outstanding at January 31, 1998 (489,018 exercisable at a weighted average price of $6.51) 1,573,396 10.48
Granted 313,500 20.19
Exercised (472,020) 6.51
Canceled and expired (179,127) 13.41
---------- ---------
Outstanding at January 30, 1999 1,235,749 14.04
========== =========
</TABLE>
Cost Plus, Inc. 29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Additional information regarding options outstanding as of January 30, 1999 is
as follows:
<TABLE>
<CAPTION>
Options Exercisable
-------------------------------
Remaining Weighted Average Weighted Average Weighted Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life (Yrs.) Price Exercisable Price
------------------------- ----------- ---------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.04 - $ 0.04 119 3.1 $ 0.04 119 $ 0.04
3.85 - 3.96 35,809 6.2 3.87 35,809 3.87
7.54 - 10.50 386,649 7.3 8.86 139,822 9.44
12.00 - 16.67 557,872 8.3 15.17 132,711 13.03
19.67 - 22.25 255,300 9.4 20.84 -- --
------------------------- ----------- ---------------- ---------------- ------------- ----------------
1,235,749 8.2 14.04 308,461 10.33
=========== ================ ================ ============= ================
</TABLE>
At January 30, 1999, 526,302 and 61,088 shares were available for future grants
under the 1995 Stock Option Plan and the 1996 Director Stock Option Plan,
respectively.
Employee Stock Purchase Plan
On March 13, 1996, the Board of Directors approved the 1996 Employee Stock
Purchase Plan ("Purchase Plan"). A total of 450,000 shares have been authorized
for issuance under the Purchase Plan. Employees who work at least 20 hours per
week and more than five calendar months per calendar year and have been so
employed for at least one year are eligible to have a specified percentage (not
to exceed 10%) of each salary payment withheld to purchase common stock at 90%
of its fair market value as of the last day of the purchase period.
Additional Stock Plan Information
As discussed in Note 1, the Company continues to account for its stock-based
awards using the intrinsic value method in accordance with Accounting Principles
Board No. 25, "Accounting for Stock Issued to Employees," and its related
interpretations. Consequently, no compensation expense has been recognized in
the financial statements for employee stock arrangements.
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation," requires the disclosure of pro forma net income
and earnings per share had the Company adopted the fair value method as of the
beginning of fiscal 1995. Under SFAS 123, the fair value of stock-based awards
to employees is calculated through the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The Company's calculations
were made using the Black-Scholes option pricing model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------
January 30, January 31, February 1,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Stock volatility 52.6% 60.0% 55.3%
Risk free interest rates 5.4% 6.3% 5.9%
Expected life (in years) 1.8 1.8 1.8
Weighted average fair value per share $9.85 $9.17 $5.24
Expected dividends -- -- --
</TABLE>
30 Cost Plus, Inc.
<PAGE>
The Company's calculations are based on a multiple option valuation approach,
and forfeitures are recognized as they occur. If the computed fair values of the
fiscal 1998, fiscal 1997 and fiscal 1996 awards had been amortized to expense
over the vesting period of the awards, consistent with the methods of SFAS 123,
the Company's net income and net income per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------
January 30, January 31, February 1,
(In thousands, except per share data) 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income
As reported $13,236 $10,007 $7,427
Pro forma 11,983 8,920 6,747
Basic net income per share
As reported $ 1.01 $ 0.80 $ 0.64
Pro forma 0.91 0.71 0.58
Diluted net income per share
As reported $ 0.98 $ 0.77 $ 0.61
Pro forma 0.88 0.69 0.55
</TABLE>
The impact of outstanding non-vested stock options granted prior to fiscal 1995
has been excluded from the pro forma calculation; accordingly, the fiscal 1998,
fiscal 1997 and fiscal 1996 pro forma adjustments are not indicative of future
period pro forma adjustments, when the calculation will include all applicable
stock options.
NOTE 8. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan for employees who meet certain service and age
requirements. Participants may contribute up to 15% of their salaries to a
maximum of $10,000 per year and qualify for favorable tax treatment under
Section 401(k) of the Internal Revenue Code. In fiscal 1997, the Company began
matching 25% of the employee's contribution, up to a maximum of 3% of their base
salary. The Company contributed approximately $90,000 in fiscal 1998 and $79,000
in fiscal 1997.
Additionally, beginning in fiscal 1997, a non-qualified deferred compensation
plan was made available to certain employees whose benefits are limited under
Section 401(k) of the Internal Revenue Code. Compensation deferrals approximated
$327,000 for fiscal 1998 and $129,000 for fiscal 1997.
NOTE 9. RELATED PARTY TRANSACTIONS
In February 1998, the Company repurchased 225,002 shares of common stock for
$3,750,000 from its former Chief Executive Officer.
Cost Plus, Inc. 31
<PAGE>
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
COST PLUS, INC.
OAKLAND, CALIFORNIA
We have audited the accompanying consolidated balance sheets of Cost Plus, Inc.
and subsidiaries as of January 30, 1999 and January 31, 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the fiscal years ended January 30, 1999, January 31, 1998 and February 1, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Cost Plus, Inc. and subsidiaries as
of January 30, 1999 and January 31, 1998 and the results of their operations and
their cash flows for the fiscal years ended January 30, 1999, January 31, 1998
and February 1, 1997 in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
March 15, 1999
32 Cost Plus, Inc.
<PAGE>
DIRECTORS, OFFICERS AND CORPORATE DATA
BOARD OF DIRECTORS
Murray H. Dashe
Chairman,
Chief Executive Officer and President
Cost Plus, Inc.
Ralph D. Dillon
Chairman Emeritus
Cost Plus, Inc.
Joseph H. Coulombe/1/
Independent Management
Consultant
Danny W. Gurr/1/
President
Dorling Kindersley Publishing Inc.
Nancy Pedot/2/
Independent Management
Consultant
Olivier L. Trouveroy/1/,/2/
Managing Partner
ING Equity Partners, L.P.I
Thomas D. Willardson/2/
Senior Vice President of
Finance and Treasurer
Leap Wireless International
CORPORATE OFFICERS
Murray H. Dashe
Chairman of the Board,
Chief Executive Officer
and President
John F. Hoffner
Executive Vice President of
Administration, Chief Financial
Officer and Secretary
Kathi P. Lentzsch
Executive Vice President,
Merchandising and Marketing
Joan S. Fujii
Senior Vice President,
Human Resources
Gary D. Weatherford
Senior Vice President,
Store Operations
Michael J. Allen
Vice President,
Store Development
Charmaine D. Casella
Vice President, Controller and
Chief Accounting Officer
Patricia A. Juckett
Vice President, Marketing and Advertising
Ron P. Perkuchin
Vice President,
Distribution and Logistics
Judy A. Soares
Vice President,
Information Systems
Malcolm R. Carden
Treasurer
CORPORATE DATA
Corporate Headquarters
Cost Plus, Inc.
200 4th Street
Oakland, CA 94607
Transfer Agent and Registrar
The First National Bank of Boston
c/o Boston EquiServe, LP
Canton, MA
(617) 575-3120
Independent Auditors
Deloitte & Touche LLP
San Francisco, CA
General Counsel
Wilson Sonsini Goodrich & Rosati
Palo Alto, CA
/1/ Member of the Audit Committee of the Board of Directors.
/2/ Member of the Compensation Committee of the Board of Directors.
Cost Plus, Inc. 33
<PAGE>
COST PLUS WORLD MARKET ACROSS THE COUNTRY
[MAP APPEARS HERE]
Ninety Stores Nationwide*
Arizona
Mesa
Phoenix (2)
Scottsdale
Tucson
California
Brea
Citrus Heights
City of Industry
Colma
Concord
Fremont
Fresno
Glendale
La Jolla
La Mesa
Lakewood
Marin
Mission Viejo
Modesto
Mountain View
Oakland
Oceanside
Palm Desert
Pasadena
Pleasanton
Roseville
Sacramento
San Diego
San Dimas
San Francisco
San Jose (2)
San Mateo
Santa Ana
Santa Cruz
Santa Rosa
Thousand Oaks
Torrance
Valencia
Walnut Creek
West Los Angeles
Woodland Hills
Colorado
Aurora
Denver (2)
Idaho
Boise
Illinois
Aurora
Chicago (2)
Oak Brook
Schaumburg
Skokie
Indiana
Carmel
Michigan
Ann Arbor
Auburn Hills
Kentwood
Portage
Rochester Hills
Shelby Township
Troy
Westland
Missouri
Brentwood
Sunset Hills
Nebraska
Omaha
Nevada
Las Vegas (2)
Reno
New Mexico
Albuquerque
Ohio
Cincinnati (2)
Columbus
Springdale
Oregon
Portland
Tigard
Texas
Austin (2)
Dallas
Grapevine
Houston (3)
Plano
San Antonio
Sugar Land
The Woodlands
Washington
Bellevue
Lynnwood
Seattle
Tukwila
Wisconsin
Madison
*As of March 31, 1999
34 Cost Plus, Inc.
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-27739, 333-56975 and 333-67441 of Cost Plus, Inc. and subsidiaries on Form
S-8 of our report dated March 15, 1999, incorporated by reference in this Annual
Report on Form 10-K of Cost Plus, Inc. and subsidiaries for the year ended
January 30, 1999.
/s/ Deloitte & Touche LLP
San Francisco, California
April 27, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF COST PLUS, INC. FOR THE TWELVE MONTHS ENDED JANUARY 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 28,600
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 70,680
<CURRENT-ASSETS> 103,833
<PP&E> 100,188
<DEPRECIATION> 41,154
<TOTAL-ASSETS> 173,141
<CURRENT-LIABILITIES> 42,802
<BONDS> 0
0
0
<COMMON> 133
<OTHER-SE> 109,270
<TOTAL-LIABILITY-AND-EQUITY> 173,141
<SALES> 315,135
<TOTAL-REVENUES> 315,135
<CGS> 200,023
<TOTAL-COSTS> 292,211
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,226
<INCOME-PRETAX> 21,698
<INCOME-TAX> 8,462
<INCOME-CONTINUING> 13,236
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,236
<EPS-PRIMARY> 1.01<F1>
<EPS-DILUTED> 0.98<F1>
<FN>
<F1> Per share data is restated for a three-for-two common stock split effective
March 11, 1999 for shareholders of record on March 1, 1999. Prior Financial Data
Schedules have not been restated for the re-capitalization.
</FN>
</TABLE>
