<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[_] Preliminary proxy statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting material pursuant to (S)240.14a-11(c) or (S)240.14a-12
COST PLUS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
COST PLUS, INC.
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 22, 2000
----------------
To The Shareholders:
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Shareholders (the
"Annual Meeting") of Cost Plus, Inc. (the "Company"), a California
corporation, will be held on June 22, 2000 at 2:00 p.m., local time, at the
Company's corporate headquarters located at 200 4th Street, Oakland,
California 94607, for the following purposes:
(1) To elect the following directors to serve for the ensuing year and
until their successors are elected: Joseph H. Coulombe, Murray H.
Dashe, Danny W. Gurr, Fredric M. Roberts, Kim D. Robbins and Thomas D.
Willardson.
(2) To approve an amendment to the Company's 1995 Stock Option Plan to
increase the shares reserved for issuance thereunder by 350,000 shares.
(3) To approve an amendment to the Company's 1996 Director Option Plan to
increase the shares reserved for issuance thereunder by 100,000 shares.
(4) To ratify and approve the appointment of Deloitte & Touche LLP as
independent auditors of the Company for the fiscal year ending February
3, 2001.
(5) To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on April 26, 2000 are
entitled to notice of and to vote at the Annual Meeting.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to mark, sign and return the enclosed proxy card as promptly as possible
in the postage-prepaid envelope enclosed for that purpose. Any shareholder
attending the Annual Meeting may vote in person even if he or she returned a
proxy.
By Order of the Board of Directors
Murray H. Dashe
Chairman of the Board,
Chief Executive Officer and
President
Oakland, California
May 19, 2000
YOUR VOTE IS IMPORTANT
To assure your representation at the Annual Meeting, you are requested to
complete, sign and date the enclosed proxy as promptly as possible and
return it in the enclosed envelope, which requires no postage if mailed in
the United States.
<PAGE>
DIRECTIONS TO COST PLUS, INC.'S
CORPORATE HEADQUARTERS
Cost Plus, Inc.
200 4th Street
Oakland, California 94607
(510) 893-7300
Directions from San Francisco
Take the Bay Bridge to Interstate 580 East, to Interstate 980 (Downtown
Oakland), which turns into Interstate 880, to Jackson Street. Exit Jackson
Street and take a right onto Jackson Street and a left on Fourth Street. The
corporate headquarters are located right on the corner.
Directions from Oakland Airport (and from the south)
Take Interstate 880 North to Oak Street Exit. Exit Oak Street and go straight
ahead for two blocks and turn left on Jackson Street. Go two blocks and turn
left on Fourth Street. The corporate headquarters are located right on the
corner.
[MAP APPEARS HERE]
<PAGE>
COST PLUS, INC.
----------------
ANNUAL MEETING OF SHAREHOLDERS
----------------
PROXY STATEMENT
General
The enclosed Proxy is solicited on behalf of the Board of Directors of Cost
Plus, Inc. (the "Company") for use at the 2000 Annual Meeting of Shareholders
(the "Annual Meeting") to be held June 22, 2000 at 2:00 p.m., local time, or
at any adjournment or postponement thereof, for the purposes set forth in this
Proxy Statement and in the accompanying Notice of Annual Meeting of
Shareholders. The Annual Meeting will be held at the Company's corporate
headquarters located at 200 4th Street, Oakland, California 94607. The
telephone number of the Company's corporate headquarters is (510) 893-7300.
These proxy solicitation materials were mailed on or about May 19, 2000 to
all shareholders entitled to vote at the Annual Meeting.
On March 1 and October 1, 1999, the Company effected three-for-two splits
of its Common Stock. All amounts related to the Company's Common Stock,
including stock options, that are contained herein have been adjusted to
reflect the stock splits.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company, Attention:
Jane L. Baughman, Inspector of Elections, a written notice of revocation or a
duly executed proxy bearing a later date or by attending the Annual Meeting
and voting in person. The mere presence at the Annual Meeting of the
shareholder who has appointed a proxy will not revoke the prior appointment.
If not revoked, the proxy will be voted at the Annual Meeting in accordance
with the instructions indicated on the proxy card, or if no instructions are
indicated, will be voted "FOR" the slate of directors described herein, "FOR"
Proposals Two, Three and Four and, as to any other matter that may be properly
brought before the Annual Meeting, in accordance with the judgment of the
proxy holders.
Voting and Solicitation
Every shareholder voting for the election of directors may cumulate such
shareholder's votes and either give one candidate a number of votes equal to
the number of directors to be elected multiplied by the number of shares held
by such shareholder or distribute the shareholder's votes on the same
principle among as many candidates as the shareholder thinks fit, provided
that votes cannot be cast for more than six candidates. However, no
shareholder shall be entitled to cumulate votes unless the candidate's name
has been placed in nomination before the voting and the shareholder, or any
other shareholder, has given notice at the Annual Meeting, prior to the
voting, of the intention to cumulate the shareholder's votes. If any one
shareholder gives such notice, all shareholders may cumulate their votes. On
all other matters, each share has one vote.
The six nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to vote shall be elected as
directors. On each other matter, the affirmative vote of a majority of the
votes cast is required under California law for approval. For this purpose,
the "votes cast" are defined under California law to be the shares of the
Company's Common Stock represented and voting in person or by proxy at the
Annual Meeting. In addition, the affirmative votes must constitute at least a
majority of the required quorum, which quorum is a majority of the shares
outstanding on the record date for the meeting. Votes that are cast against a
proposal will be counted for purposes of determining: (i) the presence or
absence of a quorum; and (ii) the total number of votes cast with respect to
the proposal. While there is no definitive statutory or case law
1
<PAGE>
authority in California as to the proper treatment of abstentions in the
counting of votes with respect to a proposal, the Company believes that
abstentions should be counted for purposes of determining both: (i) the
presence or absence of a quorum for the transaction of business; and (ii) the
total number of votes cast with respect to the proposal. In the absence of
controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, abstentions will have the same effect
as a vote against the proposal. Broker non-votes will be counted for purposes
of determining the presence or absence of a quorum for the transaction of
business, but will not be counted for purposes of determining the number of
votes cast with respect to a proposal. An automated system administered by the
Company's transfer agent tabulates the votes. Each proposal is tabulated
separately.
This solicitation of proxies is made by the Company, and all related costs
will be borne by the Company. In addition, the Company may reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation material to such beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone,
facsimile or personal solicitation, without payment of additional
compensation, by directors, officers, or regular employees of the Company. In
addition, the Company has retained Corporate Investor Communications, Inc., to
assist in the solicitation of proxies at an estimated fee of $5,500, plus
reimbursement of reasonable out-of-pocket expenses.
Only shareholders of record at the close of business on April 26, 2000 are
entitled to notice of and to vote at the Annual Meeting. As of April 26, 2000,
20,687,778 shares of the Company's Common Stock were issued and outstanding.
2
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
Nominees
The Board of Directors of the Company currently consists of seven directors.
One of the seven directors, Olivier Trouveroy, has indicated that he will not
be standing for re-election. The Board of Directors, therefore, has approved an
amendment to the Company's Bylaws which, effective immediately prior to the
Annual Meeting, reduces the number of directors to six. Accordingly, a board of
six directors is to be elected at the Annual Meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for the
Company's six nominees named below, all of whom are presently directors of the
Company. If any nominee of the Company is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee designated by the present Board of Directors to fill the vacancy.
Management has no reason to believe that any of the nominees will be unable or
unwilling to serve if elected. If additional persons are nominated for election
as directors, the proxy holders intend to vote all proxies received by them so
that the election of as many of the nominees listed below as possible is
assured under cumulative voting. In this event, the specific nominees to be
voted for will be determined by the proxy holders. The term of office of each
person elected as a director will continue until the next Annual Meeting of
Shareholders or until such person's successor has been elected and qualified.
Required Vote
The six nominees receiving the highest number of affirmative votes of the
holders of the shares of the Company's Common Stock represented in person or by
proxy and entitled to vote on the proposal shall be elected to the Board of
Directors. See "Voting and Solicitation" above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED BELOW.
The names of the nominees, their ages as of the date of this proxy statement
and certain information about them are set forth below:
<TABLE>
<CAPTION>
Director
Name of Nominee Age Principal Occupation Since
--------------- --- -------------------- --------
<C> <C> <S> <C>
Joseph H. Coulombe.... 69 Independent Management Consultant 1995
Chairman, Chief Executive Officer and
Murray H. Dashe....... 57 President 1997
President, Dorling Kindersley
Danny W. Gurr......... 42 Publishing Inc. 1995
Director of Product Development, Jack
Kim D. Robbins........ 54 Nadel, Inc. 1999
President, F. M. Roberts and Company,
Fredric M. Roberts.... 57 Inc. 1999
Thomas D. Willardson.. 49 Senior Vice President, Finance and 1991
Treasurer, Leap Wireless
International, Inc.
</TABLE>
Except as set forth below, each of the nominees has been engaged in his
principal occupation described above during the past five years. There is no
family relationship between any director or executive officer of the Company.
Mr. Coulombe has served as a director of the Company since November 1995.
From February 1995 to April 1995, Mr. Coulombe served as President and Chief
Executive Officer of Sport Chalet Inc., a sporting goods retailer. From
February 1994 to January 1995, Mr. Coulombe served as Chief Executive Officer
of Provigo Corp., a wholesale and retail grocer. From November 1992 to February
1994, Mr. Coulombe was an independent business consultant. From March 1992 to
October 1992, Mr. Coulombe served as Executive Vice President of Pacific
Enterprises, with principal responsibility for Thrifty Corporation, an operator
of drug and sporting goods chain stores and also served as Co-Chairman of
Thrifty Corporation. From June 1989 through March 1992, Mr. Coulombe served as
an independent business consultant. Mr. Coulombe is the founder of Trader
Joe's, a specialty food grocery chain, and served as its Chief Executive
Officer from 1957 to 1989. Mr. Coulombe also serves as a director of PIA
Merchandising.
3
<PAGE>
Mr. Dashe joined the Company in June 1997 as Vice Chairman of the Board of
Directors and was named President in September 1997, and Chairman of the Board
of Directors and Chief Executive Officer in February 1998. From August 1992 to
June 1997, he was Chief Operating Officer of Leslie's Poolmart, Inc., a
swimming pool supply retail chain, and was a director of that company from
August 1989 to November 1996. From May 1990 through August 1992, he was
President and Chief Executive Officer of RogerSound Labs, a Southern
California retailer of audio/video consumer electronics. From September 1985
through April 1990, Mr. Dashe held several positions with SILO, a consumer
electronics and appliance retailer, including Regional President, Regional
Vice President and Director of Stores. Previously, he was employed in an
executive capacity by other retailers, including Allied Stores Corp. (now
Federated Department Stores), where he served in a variety of positions of
increasing responsibility, including Vice President/Director of Stores.
Mr. Gurr has served as a director of the Company since November 1995. Since
April 1998, Mr. Gurr has served as President of Dorling Kindersley Publishing
Inc., a publisher of illustrated books, videos and multi-media products. From
September 1991 to February 1998, Mr. Gurr served as President and Chief
Executive Officer of Lauriat's Books, Inc., an operator of various bookstore
chains ("Lauriat's Books"). In March 1998, Lauriat's Books filed for
protection under Chapter 11 of the Federal Bankruptcy Act. From November 1995
until June 1997, Mr. Gurr served as President and Chief Executive Officer of
Chadwick Miller, Inc., an importer and wholesaler of housewares and gifts.
From September 1990 to September 1991, Mr. Gurr was Vice President of
Publishing and Acquisition for the Outlet Book Company Division of Random
House, Inc. Mr. Gurr also serves as a director for DK Holdings PLC.
Ms. Robbins has served as a director of the Company since November 1999.
Ms. Robbins is the Director of Product Development for Jack Nadel, Inc., a
direct response promotion agency specializing in creative marketing and
merchandise solutions. From 1996 to 1997, she was the Executive Vice President
and General Merchandise Manager of House of Fabrics, Inc., which operates
sewing and craft stores throughout the United States. From 1995 to 1996, she
was the Vice President of Merchandising for Sport Chalet Inc., a sporting
goods retailer.
Mr. Roberts has served as a director of the Company since November 1999.
Mr. Roberts is President of F. M. Roberts & Company, Inc., an investment
banking firm he established in 1980. Mr. Roberts served as 1993 Chairman of
the Board of Governors of the National Association of Securities Dealers
("NASD"), which owns and operates the Nasdaq Stock Market. From 1994 to 1996,
he was a member of the Nasdaq Board of Directors and its Executive Committee.
Mr. Willardson was re-elected as a director of the Company in April 1996.
He also served as a director of the Company from March 1991 to February 1996.
Mr. Willardson is the Senior Vice President, Finance and Treasurer of Leap
Wireless International, Inc., a wireless communications carrier. From August
1997 to June 1998, he served as a Vice President and Associate Managing
Director of Bechtel Enterprises Inc., a wholly-owned investment and
development subsidiary of Bechtel Group, Inc. He served as a manager of that
company from July 1995 until August 1997. From January 1986 to July 1995, Mr.
Willardson served as a principal at The Fremont Group, an investment company.
Board Meetings and Committees
The Board of Directors of the Company held a total of six meetings during
the fiscal year ended January 29, 2000. The Board of Directors has an Audit
Committee and a Compensation Committee. The Board of Directors does not have a
nominating committee or any committee performing similar functions.
The Audit Committee of the Board of Directors consists of Messrs.
Trouveroy, Coulombe and Gurr and held two meetings during the last fiscal
year. The Audit Committee recommends engagement of the Company's independent
auditors and is primarily responsible for approving the services performed by
the Company's independent auditors and assisting the Board of Directors in
fulfilling its responsibility for oversight of the quality and integrity of
the accounting, auditing, and reporting practices of the Company.
4
<PAGE>
The Compensation Committee of the Board of Directors consists of Ms.
Robbins and Messrs. Roberts and Willardson and held three meetings during the
last fiscal year. The Compensation Committee establishes the Company's
executive compensation policy, determines the salary and bonuses of the
Company's executive officers and approves stock option grants for executive
officers.
No director attended fewer than 75% of the aggregate of the total number of
meetings of the Board of Directors and the total number of meetings of all
committees of the Board of Directors on which that director served.
Director Compensation
Cash Compensation
In fiscal year 1999, each of the Company's non-employee directors was
compensated at the rate of $12,000 per annum for service on the Board of
Directors and committees thereof, with adjustments for service for a portion
of the year. In addition, commencing in November 1999, each non-employee
director received a fee of $750 for each in-person board meeting attended.
Directors are also reimbursed for reasonable expenses incurred in connection
with attendance at meetings of the Board of Directors and its committees. The
Chairmen of the Compensation and Audit Committees receive additional annual
compensation of $4,000 and $2,500, respectively, for their services as chairs
of those committees.
1996 Director Option Plan
The Company's 1996 Director Option Plan (the "Director Plan") was adopted
by the Board of Directors and approved by the Company's shareholders in March
1996. Under the Director Plan, the Company has reserved 153,675 shares of
Common Stock for issuance to the non-employee directors of the Company. The
Director Plan will be in effect for a term of ten years unless sooner
terminated.
The Director Plan was originally designed to be automatic in its operation
and provided that, upon joining the Board of Directors, each non-employee
director would be granted options to purchase 15,918 shares of Common Stock
and, each year thereafter on the date of the annual meeting of shareholders
(or June 30, if earlier), would be granted options to purchase an additional
4,500 shares of Common Stock. In December 1998, the Financial Accounting
Standards Board (the "FASB") proposed certain changes in the accounting
treatment for options granted to directors that, if they had become effective,
would have resulted in compensation expense charges that would have affected
future accounting periods in an unpredictable manner. In view of these
proposed changes in the accounting treatment for director options, the Board
of Directors and the Company's stockholders approved amendments to the
Director Plan to terminate the automatic grant mechanism and to provide
flexibility to the Board of Directors in establishing the terms of options
granted under the plan. On June 15, 1999 pursuant to the amended Director
Plan, Lexington Equity Partners II, of which Mr. Trouveroy is a partner, and
each of Messrs. Coulombe, Gurr, and Willardson were granted options to
purchase 1,425 shares of Common Stock at an exercise price of $24.75. These
options are fully vested.
Subsequently, the FASB decided not to proceed with the proposed accounting
changes. In November 1999, the Board of Directors reviewed director
compensation information for companies that compete with the Company. As a
result of this review and the FASB's decision not to enact changes in the
accounting treatment for options granted to directors, the Board of Directors
determined to revert to the director stock option award structure in effect
under the Director Plan prior to the proposed changes. At that time, the Board
of Directors granted Lexington Equity Partners II and each of Messrs.
Coulombe, Gurr, and Willardson options to purchase 3,550 shares of Common
Stock at an exercise price per share of $33.4375. In addition, upon their
appointments to the Board of Directors, Mr. Roberts and Ms. Robbins were each
granted options to purchase 15,918 shares of Common Stock at an exercise price
of $33.4375 per share. Consistent with the original Director Plan, these
option grants are subject to four year vesting and will be fully vested in
November 2003.
See Proposal Three for additional information on the Director Plan.
5
<PAGE>
PROPOSAL TWO
AMENDMENT OF THE 1995 STOCK OPTION PLAN
The Company's 1995 Stock Option Plan (the "1995 Option Plan") was approved
by the Board of Directors and by the shareholders in November 1995. An
aggregate of 4,368,006 shares of Common Stock have been reserved for issuance
under the 1995 Option Plan. However, under the terms of the 1995 Option Plan,
that number must be reduced by 821,120 shares, the aggregate number of shares
of Common Stock subject to options outstanding under the Company's 1994 Stock
Option Plan (the "1994 Option Plan") and issued upon exercise of options
granted under the 1994 Option Plan. Accordingly, an effective total of
3,546,886 shares of Common Stock are available for issuance under the 1995
Option Plan, which number will automatically increase to the extent that any
of the 23,409 options outstanding as of January 29, 2000 under the 1994 Option
Plan lapse or are canceled without being exercised. As of January 29, 2000,
options to purchase 1,600,738 shares of Common Stock were outstanding under
the 1995 Option Plan, 948,121 shares had been issued by the Company upon
exercise of options under the 1995 Option Plan and 998,027 shares remained
available for future option grants under the 1995 Option Plan. In February
2000 as part of the Company's annual grant program, options to purchase an
additional 449,000 shares of Common Stock were granted under the 1995 Option
Plan leaving 549,027 shares available for future option grants.
In February 2000, the Board of Directors approved a proposal to amend the
1995 Option Plan to increase the shares reserved for issuance thereunder by
350,000 shares. The proposed increase represents less than two percent of the
Company's outstanding stock as of the record date for the Annual Meeting and
is less than the increase to the 1995 Option Plan approved by the shareholders
at the annual meeting of shareholders in June 1999. The Company is seeking
shareholder approval of the proposed amendment to the 1995 Option Plan. A
summary of the 1995 Option Plan, as amended, is included as Appendix A to this
Proxy Statement.
The Board of Directors believes that the proposed increase is in the best
interests of the Company for several reasons. First, the increase will provide
an adequate reserve of shares for issuance under the 1995 Option Plan, which
is an integral part of the Company's overall compensation program. In this
regard, the Company anticipates awarding stock options in the future to a
broader group of its management personnel to strengthen incentives for such
persons. Second, the Board of Directors believes the proposed increase is
essential for the Company to compete successfully against other companies in
attracting and retaining key employees, thereby facilitating the future
potential growth of the Company. Third, the Board of Directors believes the
1995 Option Plan is an important contributor to the alignment of employee and
shareholder interests.
6
<PAGE>
Amended 1995 Option Plan Benefits
The following table sets forth information with respect to stock option
grants under the 1995 Option Plan for the fiscal year ended January 29, 2000
to: (i) the Chief Executive Officer and the five most highly compensated
executive officers of the Company in the fiscal year ended January 29, 2000;
(ii) all current executive officers as a group; and (iii) all other employees,
including all current officers who are not executive officers, as a group:
Amended Plan Benefits Table
<TABLE>
<CAPTION>
Name of Individual or Identity of Dollar Value Number of Shares Subject
Group ($)(1) to Options Granted (#)
--------------------------------- ------------ ------------------------
<S> <C> <C>
Murray H. Dashe...................... $199,840 109,500
John F. Hoffner...................... 62,450 33,750
Kathi P. Lentzsch.................... 62,450 33,750
Judith A. Soares..................... 31,225 11,250
Gary D. Weatherford.................. 37,470 21,000
All current executive officers as a
group (12 total).................... 505,853 318,253
All other current employees as a
group............................... 401,317 263,085
</TABLE>
- --------
(1) Calculated by determining the difference between the fair market value of
the Company's Common Stock on January 29, 2000 ($18.22), and the exercise
price of such options, multiplied by the number of shares. The
calculations exclude options which had an exercise price greater than the
fair market value of the Company's Common Stock on January 29, 2000.
Required Vote
The proposed amendment of the 1995 Option Plan requires the affirmative
vote of the holders of a majority of the shares of the Company's Common Stock
represented in person or by proxy and entitled to vote on the proposal, which
shares voting affirmatively must also constitute a majority of the required
quorum. See "Voting and Solicitation" above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
THE 1995 STOCK OPTION PLAN.
7
<PAGE>
PROPOSAL THREE
AMENDMENT OF THE 1996 DIRECTOR OPTION PLAN
The 1996 Director Option Plan (the "Director Plan") was adopted by the
Board of Directors and approved by the shareholders in March 1996. Under the
terms of the Director Plan, the exercise price of each option is the market
value of the Common Stock on the date of grant. Additionally, such options
have terms of 10 years, but terminate earlier if the individual ceases to
serve as a director. The Director Plan was originally designed to be automatic
in its operation and provided that upon joining the Board of Directors each
non-employee director would be granted options to purchase 15,918 shares of
Common Stock and each year thereafter, on the date of the annual meeting of
shareholders (or June 30, if earlier), would be granted options to purchase an
additional 4,500 shares of Common Stock. In December 1998, the Financial
Accounting Standards Board (the "FASB") proposed certain changes in the
accounting treatment for options granted to directors that, if they had become
effective, would have resulted in compensation expense charges that would have
affected future accounting periods in an unpredictable manner. In view of
these proposed changes in the accounting treatment for director options, the
Board of Directors and the Company's stockholders approved amendments to the
Director Plan to terminate the automatic grant mechanism and to provide
flexibility to the Board of Directors in establishing the terms of options
granted under the plan. On June 15, 1999 pursuant to the amended Director
Plan, outside directors were granted options to purchase 1,425 shares of
Common Stock.
Subsequently, the FASB decided not to proceed with the proposed accounting
changes. In November 1999, the Board of Directors reviewed director
compensation information for companies that compete with the Company. As a
result of this review and the FASB's decision not to enact changes in the
accounting treatment for options granted to directors, the Board of Directors
determined to revert to the director stock option award structure in effect
under the Director Plan prior to the proposed changes. Therefore, the Board of
Directors granted each existing outside director an option to purchase 3,550
shares of Common Stock and granted each of the two newly-appointed outside
directors options to purchase 15,918 shares of Common Stock.
A cumulative total of 153,675 shares of Common Stock have been reserved for
issuance under the Director Plan. As of January 29, 2000 options to purchase
92,780 shares were issued and outstanding under the Director Plan, options to
purchase 17,104 shares of Common Stock had been exercised, and options to
purchase 43,790 shares remained available for future grants.
In February 2000, the Board of Directors approved a proposal to amend the
Director Plan to increase the shares reserved for issuance thereunder by
100,000 shares. The Company is seeking shareholder approval of the proposed
amendment to the Director Plan. A summary of the Director Plan, as amended, is
included as Appendix B to this Proxy Statement. The Board of Directors
believes that the proposed amendments are in the best interest of the Company
and its stockholders for a number of reasons. The Board of Directors believes
that the Company's Director Plan serves as an incentive to current Directors
and helps align their interests with those of the Company's stockholders.
Second, the Board of Directors believes that the Director Plan is an important
element of the Company's strategy to attract and retain qualified persons
willing to serve on the Company's Board of Directors.
8
<PAGE>
Amended Director Plan Benefits
The following table sets forth information with respect to stock option
grants expected to be made in the current fiscal year under the Director Plan
to the Company's non-employee directors or their assignees:
Amended Plan Benefits Table
<TABLE>
<CAPTION>
Options to be Granted
During Fiscal
Name of Individual or Identity of Group 2000 (#)(1)
--------------------------------------- ---------------------
<S> <C>
Joseph H. Coulombe..................................... 4,500
Danny W. Gurr.......................................... 4,500
Kim D. Robbins......................................... 4,500
Fredric M. Roberts..................................... 4,500
Thomas D. Willardson................................... 4,500
All current non-employee directors (5 persons)......... 22,500
</TABLE>
- --------
(1) The exercise price for all grants will be at the fair market value of the
Company's Common Stock at the time of grant.
Required Vote
The amendments to the 1996 Director Option Plan require the approval of a
majority of the shares of the Company's Common Stock represented in person or
by proxy and entitled to vote on the proposal, which shares voting
affirmatively must also constitute a majority of the required quorum. See
"Voting and Solicitation" above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENTS
TO THE 1996 DIRECTOR OPTION PLAN.
9
<PAGE>
PROPOSAL FOUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has selected Deloitte &
Touche LLP, independent auditors, to audit the financial statements of the
Company for the current fiscal year ending February 3, 2001 and recommends
that the shareholders ratify this selection. In the event of a negative vote
on such ratification, the Board of Directors will reconsider its selection.
Representatives of Deloitte & Touche LLP are expected to be available at the
meeting with the opportunity to make a statement if they desire to do so, and
are expected to be available to respond to appropriate questions.
Required Vote
The ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors requires the affirmative vote of the holders of
a majority of the shares of the Company's Common Stock represented in person
or by proxy and entitled to vote on the proposal, which shares voting
affirmatively must also constitute a majority of the required quorum. See
"Voting and Solicitation" above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
10
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
The table below sets forth information for the three most recently
completed fiscal years concerning the compensation of the Chief Executive
Officer of the Company and the four other most highly compensated executive
officers of the Company in the fiscal year ended January 29, 2000:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------ ---------------------
Restricted Securities
Stock Underlying All other
Name and Principal Fiscal Salary Bonus Award Options Compensation
Position Year ($) ($) ($) (#) ($)
------------------ ------ -------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Murray H. Dashe........ 1999 $360,577 $314,184 $ -- 109,500 $ --
Chairman, Chief
Executive Officer 1998 348,923 168,320 -- 45,000 --
and President(1) 1997 199,904 87,958 -- 239,063
John F. Hoffner........ 1999 238,269 60,461 -- 33,750 48,098(2)
Executive Vice
President, 1998 141,923 53,249 -- 112,500 55,820(2)
Administration, Chief
Financial Officer and
Secretary
Kathi P. Lentzsch...... 1999 231,500 113,615 -- 33,750 --
Executive Vice
President,
Merchandising 1998 209,923 74,686 -- 11,250 --
and Marketing 1997 200,000 77,000 -- 141,750 --
Judith A. Soares....... 1999 160,789 35,502 -- 11,250 --
Vice President,
Information Systems 1998 107,788 20,986 -- 45,000 --
Gary D. Weatherford.... 1999 155,923 78,312 -- 21,000 --
Senior Vice President,
Stores 1998 135,808 50,599 -- 4,502 --
1997 125,001 46,645 -- 54,004 --
</TABLE>
- --------
(1) Mr. Dashe became Chief Executive Officer and Chairman of the Board of the
Company in February 1998. Mr. Dashe joined the Company in June 1997 as
Vice Chairman of the Board of Directors and was named President of the
Company in September 1997.
(2) Amount reimbursed to Mr. Hoffner for relocation expenses.
11
<PAGE>
The table below provides the specified information concerning grants of
options to purchase the Company's Common Stock made during the fiscal year
ended January 29, 2000 to the persons named in the Summary Compensation Table.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Rates of
Stock Price
Appreciation for
Individual Grants Option Term(3)
---------------------------------------------- -------------------
Percent of
Total
Number of Options
Securities Granted to
Underlying Employees Exercise
Options in Fiscal Price Expiration
Name Granted (#) Year(1) ($/Share)(2) Date 5% ($) 10% ($)
- ---- ----------- ---------- ------------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Murray H. Dashe......... 72,000 11.37% $15.4444 2/15/2009 $699,330 $1,772,242
37,500 5.92 31.5208 9/15/2009 743,373 1,883,853
John F. Hoffner......... 22,500 3.55 15.4444 2/15/2009 218,540 553,826
11,250 1.78 31.5208 9/15/2009 223,012 565,156
Kathi P. Lentzsch....... 22,500 3.55 15.4444 2/15/2009 218,540 553,826
11,250 1.78 31.5208 9/15/2009 223,012 565,156
Judith A. Soares........ 11,250 1.78 15.4444 2/15/2009 109,270 276,912
Gary D. Weatherford..... 13,500 2.13 15.4444 2/15/2009 131,124 332,296
7,500 1.18 31.5208 9/15/2009 148,675 376,771
</TABLE>
- --------
(1) The Company granted options to employees and directors to purchase a total
of 633,074 shares of Common Stock during the fiscal year ended January 29,
2000.
(2) All options were granted at the fair market value of the Common Stock on
the date of grant, as determined by the Board of Directors. The exercise
price may be paid in cash, check, shares of the Company's Common Stock or
through a cashless exercise procedure involving same-day sale of the
purchased shares, or by any combination of such methods.
(3) Potential realizable value is net of exercise price, but before taxes
associated with exercise. The amounts represent certain assumed rates of
appreciation only, based on the Securities and Exchange Commission rules.
Actual gains, if any, on stock option exercises are dependent on the
future performance of the Common Stock, overall market conditions and the
option holders' continued employment through the vesting period. The
amounts reflected in this table may not necessarily be achieved and do not
reflect the Company's estimate of future stock price growth.
12
<PAGE>
The table below provides the specified information concerning the exercise
of options to purchase the Company's Common Stock in the fiscal year ended
January 29, 2000 and the unexercised options held as of January 29, 2000 by
the persons named in the Summary Compensation Table.
Aggregated Option Exercises In Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal in the Money Options at
Shares Value Year-End (#) Fiscal Year-End ($)(1)
Acquired on Realized ------------------------ -------------------------
Name Exercise (#) ($)(1) Exercisable Unexercisble Exercisable Unexercisable
- ---- ----------- ---------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Murray H. Dashe......... 110,212 $1,473,251 0 260,850 $ 0 $1,318,099
John F. Hoffner......... 30,937 466,002 0 115,312 0 384,480
Kathi P. Lentzsch....... 19,720 405,423 47,779 119,250 446,329 832,354
Judith A. Soares........ 11,248 154,766 0 45,001 0 203,599
Gary D. Weatherford..... 40,394 906,028 20,216 62,009 168,344 385,796
</TABLE>
- --------
(1) Calculated by determining the difference between the fair market value of
the Company's Common Stock on the date of exercise or at January 29, 2000
($18.22), as applicable, and the exercise price of such options,
multiplied by the number of shares.
Employment and Related Agreements; Change in Control Arrangements
The Company has entered into retention agreements with the following
executive officers: Murray Dashe, John Hoffner, Kathi Lentzsch, Joan Fujii and
Gary Weatherford. These agreements provide for payments to them in certain
circumstances upon their involuntary termination, including termination
following a change of control (as such terms are defined below). Mr. Dashe's,
Mr. Hoffner's, and Ms. Lentzsch's agreements provide for 12 months of
severance pay in the event such employee is involuntarily terminated prior to
June 15, 2001 (June 15, 2002 in the case of Mr. Dashe), and 18 months of
severance pay if such employee is involuntarily terminated after a change of
control prior to June 15, 2001 (June 15, 2002 in the case of Mr. Dashe). Both
Ms. Fujii's and Mr. Weatherford's agreements provide for six months of
severance pay in the event either such employee is involuntarily terminated
prior to June 15, 2001, and nine months of severance pay if either such
employee is involuntarily terminated after a change of control. In addition,
the agreements for Mr. Dashe and Mr. Hoffner provide a minimum base salary.
The agreements discussed in the preceding two paragraphs define an
"involuntary termination" as either the termination by the Company of the
executive's employment with the Company, other than for cause, or a material
reduction in either the executive's salary and bonus or the executive's
employee benefits. A "change of control" is defined as: (i) the acquisition by
any person of securities representing 50% or more of the voting power of the
Company's outstanding securities; (ii) a change in the composition of the
Board of Directors within a two-year period resulting in a minority of
incumbent directors; (iii) a merger or consolidation in which the Company's
shareholders immediately prior to the transaction hold less than 50% of the
voting power of the surviving entity immediately after the transaction; (iv)
the sale or disposition of all or substantially all of the Company's assets;
or (vi) the complete liquidation or dissolution of the Company.
The Company's 1995 Stock Option Plan provides that in the event of a change
of control of the Company, as that term is defined in the 1995 Stock Option
Plan, outstanding stock options will become fully vested and will either be
exchanged for the same per share consideration other shareholders receive in
the sale, less the option exercise price, or become exercisable thereafter for
such consideration.
13
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Company's Executive Compensation program is administered by the
Compensation Committee composed of three non-employee directors: Thomas D.
Willardson, Kim D. Robbins, and Fredric M. Roberts. Mr. Willardson serves as
Chairman of the Compensation Committee.
Compensation Philosophy
The objectives of the executive compensation program are:
. to align compensation with Company performance in meeting both short-
term and long-term business objectives and with the interests of the
Company's shareholders
. to enable the Company to attract, retain and reward leaders who are key
to the continued successful growth of the Company
. to reward high levels of performance, with pay-at-risk increasing at
higher levels of the organization
Compensation Program
The Committee annually reviews the compensation of its executive officers
on the basis of each executive's responsibility, position and level of
experience in conjunction with a competitive peer company salary survey. The
Company's total direct compensation program consists of base salary, annual
cash incentive opportunity (the "Cash Plus Incentive Plan") and long-term
equity-based incentive opportunity.
. The base salary structure is targeted at median competitive levels.
. The Cash Plus Incentive Plan rewards the achievement of short-term
operational goals based on the Company's achievement of targets
established prior to the fiscal year for earnings before interest,
taxes, depreciation and amortization (EBITDA), and other financial
goals. The Committee believes that target bonus awards, in combination
with base salaries, provide a total cash compensation opportunity at
median competitive levels. If actual performance exceeds target levels,
total cash compensation would be above median competitive levels. If
actual performance does not meet target levels, total cash compensation
would fall below median competitive levels.
. Long-term incentive opportunity is delivered through annual basic grants
under the Company's 1995 Option Plan at what the Committee believes are
median competitive levels. An annual performance option grant provides
additional equity opportunity above median competitive levels, based on
the achievement of earnings per share targets.
Compensation of Chief Executive Officer
The Committee generally uses the factors and criteria described above in
establishing the compensation of the Chief Executive Officer. Mr. Dashe's base
salary was raised to $400,000 per annum on November 17, 1999. Mr. Dashe is
also provided an incentive bonus, which was satisfied through his
participation in the Company's Cash Plus Incentive Plan. Mr. Dashe's incentive
award payment for the fiscal year ended January 29, 2000 was based on the
EBITDA target established prior to the fiscal year. The Company exceeded the
EBITDA target for the fiscal year, resulting in the incentive award payments
for Mr. Dashe and the other executive officers reflected in the Summary
Compensation Table above. Mr. Dashe's incentive award payment for the fiscal
year ended January 29, 2000 was $314,184.
Mr. Dashe was also awarded stock option grants for the purchase of an
aggregate of 109,500 shares of Common Stock during the last fiscal year. Of
these, options to purchase 36,000 shares were considered "performance options"
that would become exercisable at an earlier date if the Company met a
specified earnings per share target for the fiscal year, which target was
achieved.
14
<PAGE>
It is the opinion of the Committee that the aforementioned compensation
policies and structures provide the necessary discipline to properly align the
Company's corporate economic performance and the interest of the Company's
shareholders with progressive, balanced and competitive executive total
compensation practices in an equitable manner.
The Compensation Committee
Thomas D. Willardson, Chairman
Kim D. Robbins
Fredric M. Roberts
Compensation Committee Interlocks and Insider Participation
Neither Kim D. Robbins, Fredric M. Roberts, nor Thomas D. Willardson, the
members of the Company's Compensation Committee, is an executive officer of
any entity for which any executive officer of the Company serves as a director
or a member of the Compensation Committee.
15
<PAGE>
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total return for the
Company's Common Stock, the Nasdaq National Market--U.S. Index and the Nasdaq
CRSP Retail Group Index from the date trading commenced in the Company's
Common Stock (April 4, 1996) through the fiscal year ended January 29, 2000.
In preparing the graph it was assumed that: (i) $100 was invested on April 4,
1996 in the Company's Common Stock at an initial public offering price of
$10.00 per share, the Nasdaq National Market--U.S. Index and the Nasdaq CRSP
Retail Group Index; and (ii) all dividends were reinvested.
COMPARISON OF 46 MONTH CUMULATIVE TOTAL RETURN
AMONG COST PLUS, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ RETAIL TRADE INDEX
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG COST PLUS, INC., NASDAQ STOCK MARKET
AND NASDAQ RETAIL TRADE
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
NASDAQ NASDAQ
Measurement Period COST PLUS STOCK RETAIL
(Fiscal Year Covered) INC MARKET TRADE
- --------------------- --------------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-04/04/1996 $100.00 $100.00 $100.00
FYE 04/1996 $238 $113 $112
FYE 07/1996 $225 $104 $107
FYE 10/1996 $178 $118 $111
FYE 01/1997 $173 $119 $105
FYE 04/1997 $165 $128 $108
FYE 07/1997 $255 $145 $121
FYE 10/1997 $271 $146 $125
FYE 01/1998 $248 $149 $126
FYE 04/1998 $324 $162 $144
FYE 07/1998 $295 $138 $105
FYE 10/1998 $300 $163 $124
FYE 01/1999 $355 $232 $154
FYE 04/1999 $529 $233 $154
FYE 07/1999 $660 $245 $150
FYE 10/1999 $821 $272 $139
FYE 01/2000 $377 $356 $129
</TABLE>
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange
Act of 1934 that might incorporate future filings, including this proxy
statement, in whole or in part, the preceding Report of the Compensation
Committee and the preceding Performance Graph shall not be incorporated by
reference into any such filings; nor shall such Compensation Committee Report
or Performance Graph be incorporated by reference into any future filings.
16
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth as of March 31, 2000 (except as otherwise
indicated) certain information with respect to the beneficial ownership of the
Company's Common Stock by: (i) each person known by the Company to own
beneficially more than five percent (5%) of the outstanding shares of Common
Stock; (ii) each director of the Company; (iii) each executive officer named
in the Summary Compensation Table; and (iv) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
Shares
Beneficially
Name and Address(1) Owned Percentage(2)
------------------- ------------ -------------
<S> <C> <C>
Delaware Management Holdings, Inc.(3).............. 1,700,600 8.30%
One Commerce Square
2005 Market Street
Philadelphia, PA 19103
The TCW Group, Inc.(4)............................. 1,372,575 6.70%
865 South Figueroa
Los Angeles, CA 90017
Murray H. Dashe(5)................................. 53,925 *
John F. Hoffner.................................... 135 *
Kathi P. Lentzsch(5)............................... 96,886 *
Judith A. Soares(5)................................ 13,124 *
Gary D. Weatherford(5)............................. 53,134 *
Joseph H. Coulombe(6).............................. 19,716 *
Danny W. Gurr(7)................................... 21,838 *
Kim D. Robbins..................................... 0 *
Fredric Roberts ................................... 0 *
Olivier L. Trouveroy(8)............................ 5,406 *
Thomas D. Willardson(5)............................ 14,238 *
All current directors and executive officers as a
group (18 persons)................................ 520,959 2.54%
</TABLE>
- --------
* Less than 1%
(1) Except as otherwise indicated in the footnotes to this table and pursuant
to applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock shown.
(2) Percentage ownership is based on 20,487,395 shares of Common Stock
outstanding as of March 31, 2000 plus any shares issuable pursuant to the
options held by the person or group in question which may be exercised
within 60 days of March 31, 2000.
(3) Information is as of February 10, 2000, and is based solely on a Schedule
13G/A filed with the Securities and Exchange Commission by Delaware
Management Holdings, Inc. and Delaware Management Business Trust, both of
which report to have beneficial ownership of the shares.
(4) Information is as of February 14, 2000, and is based solely on a Schedule
13G filed with the Securities and Exchange Commission by The TCW Group,
Inc. Mr. Robert Day is the majority shareholder of The TCW Group, Inc. and
is deemed also to have beneficial ownership of the shares held by The TCW
Group, Inc.
(5) Includes shares issuable upon exercise of stock options exercisable within
60 days of March 31, 2000, as follows: Mr. Dashe, 53,925; Ms. Lentzsch,
95,778; Ms. Soares, 13,124; Mr. Weatherford, 47,419; Mr. Willardson,
13,238; and all directors and executive officers as a group (18 persons),
460,781.
(6) Includes 9,106 shares held by the Coulombe Family Trust. Also includes
10,610 shares issuable upon exercise of stock options exercisable within
60 days of March 31, 2000.
(7) Includes 3,700 shares registered in the name of Mr. Gurr's spouse, Vivian
Southwell. Also includes 16,738 shares issuable upon exercise of stock
options exercisable within 60 days of March 31, 2000.
17
<PAGE>
(8) Includes 5,406 shares issuable upon exercise of stock options held by
Lexington Equity Partners II exercisable within 60 days of March 31, 2000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership
and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than ten percent
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended January 29, 2000, all
officers, directors and greater than ten percent shareholders complied with
all Section 16(a) filing requirements.
DEADLINE FOR RECEIPT OF SHAREHOLDER
PROPOSALS--2001 ANNUAL MEETING
Shareholders of the Company are entitled to present proposals for
consideration at forthcoming shareholder meetings provided that they comply
with the proxy rules promulgated by the Securities and Exchange Commission and
the Bylaws of the Company. Shareholders wishing to present a proposal at the
Company's 2001 Annual Shareholder Meeting must submit such proposal to the
Company by January 19, 2001 if they wish to include it in the proxy statement
and form of proxy relating to that meeting. In addition, under the Company's
Bylaws, a shareholder wishing to make a proposal at the 2001 Annual
Shareholder Meeting must submit such proposal to the Company prior to April 3,
2001.
OTHER MATTERS
The Company knows of no other matters to be brought before the Annual
Meeting. If any other matters properly come before the Annual Meeting, it is
the intention of the persons named in the enclosed Proxy to vote the shares
they represent as the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
Murray H. Dashe
Chairman of the Board,
Chief Executive Officer and
President
Dated: May 19, 2000
18
<PAGE>
APPENDIX A
SUMMARY OF 1995 STOCK OPTION PLAN
(INCLUDING PROPOSED AMENDMENT)
The essential features of the 1995 Stock Option Plan (the "1995 Option
Plan") are summarized below. This summary does not purport to be complete and
is subject to, and qualified in its entirety by, the provisions of the 1995
Option Plan. Capitalized terms used herein and not defined shall have the
meanings set forth in the 1995 Option Plan.
Purpose. The purpose of the 1995 Option Plan is to strengthen the Company
by providing an incentive to selected officers and other key employees and
thereby encouraging them to devote their abilities and industry to the success
of the Company's business enterprise. It is intended that this purpose be
achieved by extending to selected officers and other key employees of the
Company and its subsidiaries an added long-term incentive for high levels of
performance and unusual efforts through the grant of stock options to purchase
Common Stock of the Company.
Administration. The 1995 Option Plan is administered by the Board or a
committee appointed by the Board (as applicable, the "Administrator"). Such
committee may consist of (i) two or more "non-employee" directors in order to
grant options to officers and directors in compliance with Rule 16b-3
promulgated under the Exchange Act or (ii) two or more "outside" directors in
order to grant options intended to qualify as "performance-based compensation"
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). The Administrator may make any determinations deemed necessary or
advisable for the 1995 Option Plan.
Eligibility. The 1995 Option Plan provides that options may be granted to
employees, including officers, directors and consultants of the Company, its
parent or subsidiaries. Incentive stock options may be granted only to
employees, including employee directors and officers. The Administrator
approves the participants, the time or times at which options are granted and
the number of shares subject to each grant.
Limits on Grants. Section 162(m) of the Code places limits on the
deductibility for federal income tax purposes of compensation paid to certain
executive officers of the Company. In order to preserve the Company's ability
to deduct the compensation income associated with options granted to such
persons, the 1995 Option Plan provides that no employee, director or
consultant may be granted, in any fiscal year of the Company, options to
purchase more than 397,983 shares of Common Stock.
Reserved Shares. The maximum number of shares that may be subject to option
grants under the 1995 Option Plan is 4,718,006 shares, less the aggregate
number of shares (i) subject to options outstanding under the Company's 1994
Stock Option Plan and (ii) issued upon exercise of options granted under the
1994 Stock Option Plan. Subject to the provisions of the 1995 Option Plan, any
shares of Common Stock which cease to be subject to an option will become
available for future option grants under the 1995 Option Plan.
Terms of Options. The specific terms of each option granted under the 1995
Option Plan are determined by the Administrator. Each option is evidenced by a
written agreement between the Company and the optionee to whom such option is
granted and is subject to the following additional terms and conditions:
(a) Exercise of Option. The Administrator determines when options may be
exercisable. The Administrator may accelerate the vesting of any
outstanding option. The purchase price of the exercise of any option may be
paid, at the discretion of the Administrator, in cash, check, cashless
exercise, or other shares of Common Stock (with some restrictions).
(b) Exercise Price. The exercise price under the 1995 Option Plan is
determined by the Administrator, provided that, in the case of an incentive
stock option, the exercise price may not be less than 100% of the fair
market value of the Common Stock on the date the option is granted, and,
provided
A-1
<PAGE>
further, that, in the case of an incentive stock option granted to an
employee who, at the time of such grant, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the
Company or any parent or subsidiary of the Company, the exercise price may
be no less than 110% of the fair market value of the Common Stock on the
date the option is granted.
(c) Disability or Retirement of Optionee. If optionee's employment with
or service as a consultant to or director of the Company ends because of
optionee's disability or voluntary retirement (at or after age 65 or at or
after age 55 with the Company's consent), optionee may exercise his or her
options for one year after the date of termination (but in no event later
than the expiration date of the options) to the extent the options were
vested as of the date of termination unless otherwise provided for in the
stock option agreement. The Administrator may provide in the stock option
agreement for the options to become fully vested and exercisable on the
date of such termination.
(d) Death of Optionee. If an optionee should die while employed by or
serving as a consultant to or director of the Company, or within thirty
days after termination of optionee's employment, consultancy or
directorship, the options may be exercised at any time within one year
after the date of death (but in no event later than the date of expiration
of the term of the option). If an optionee's employment with the Company is
terminated because of his or her death, all options held by the optionee
shall be exercisable, including those not vested or exercisable on the date
of such optionee's death.
(e) Termination for Cause. If an optionee's employment with or service
as a consultant to the Company is terminated for cause, all options held by
the optionee will terminate on the date of optionee's termination. Cause
includes (i) the intentional failure to perform reasonably assigned duties,
(ii) dishonesty or willful misconduct in the performance of duties, (iii)
engaging in actions in connection with the performance of duties which are
adverse to the Company's interests or for personal profit or (iv) the
willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) in connection with the performance of
duties.
(f) Termination of Employment. If the optionee's status as an employee,
consultant or director terminates for any reason other than death,
disability, retirement, or cause, an option may be exercised for thirty
days after such termination (but in no event later than the date of
expiration of the term of the option) and may be exercised only to the
extent such option was exercisable and vested on the date of termination.
(g) Termination of Options. Stock options granted under the 1995 Option
Plan expire as determined by the Administrator, but in no event later than
ten (10) years from the date of grant. However, in the case of an incentive
stock option granted to an employee who, at the time of such grant, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any parent or subsidiary of the Company,
the term of the option may not be greater than five (5) years. Under the
form of option agreement currently used by the Company, options generally
expire ten (10) years from the date of grant.
(h) Non-transferability of Options. Unless otherwise specified by the
Administrator, options are non-transferable by the optionee other than by
will or by the laws of descent or distribution and are exercisable during
the optionee's lifetime only by the optionee.
(i) Vesting. Unless otherwise determined by the Administrator, one-
fourth of the shares subject to option will vest and become exercisable
each year on the anniversary of the option's grant date.
(j) Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the 1995 Option Plan as may
be determined by the Administrator.
Adjustments Upon Changes in Capitalization. In the event a change in the
Company's capitalization as a result of a merger, consolidation,
reorganization, spin-off, stock dividend, stock split, reclassification or
recapitalization, the Administrator will determine the appropriate adjustment
to be made in the number of shares reserved for issuance under the 1995 Option
Plan, the maximum number of shares which may be granted annually to each
employee under the 1995 Option Plan and the number of shares subject to
outstanding options
A-2
<PAGE>
under the 1995 Option Plan, as well as in the price per share of Common Stock
covered by such options. Such adjustment will be made so as not to cause a
modification (as defined in the Code) of any incentive stock options.
Change of Control. In connection with a change of control of the Company,
each outstanding option shall become fully vested and exercisable and, at the
election of the Company:
(a) (i) each option shall be deemed to have been exercised to the extent
it had not been exercised prior to that date; (ii) the shares issuable in
connection with the deemed exercise of each option shall be issued to the
acquiror of the Company, if any; and (iii) the optionee shall receive a per
share payment equal to the number (or amount) and kind of consideration
that each holder of a share was entitled to receive in connection with the
transaction, reduced by the per share option price, or
(b) shall be terminated in exchange for a per share payment for each
share then subject to such option equal to the number (or amount) and kind
of consideration that each holder of a share was entitled to receive in
connection with the transaction, reduced by the per share option price, or
(c) in the event of a change of control of the Company that is
consummated pursuant to a merger, consolidation or reorganization (a
"Transaction"), each outstanding option shall become fully (100%) vested
and exercisable, and the 1995 Option Plan and the outstanding options shall
continue in effect and each optionee shall be entitled to receive in
respect of each share subject to any outstanding option, upon exercise of
such option, the same number (or amount) and kind of consideration that
each holder of a share was entitled to receive in connection with the
Transaction.
A change of control means (i) a merger or consolidation of the Company
where the Company's stockholders prior to the merger or consolidation do not
own at least fifty percent of the Company after the merger or consolidation,
(ii) the sale of all or substantially all of the assets of the Company, (iii)
the complete liquidation or dissolution of the Company, (iv) an acquisition by
any person directly or indirectly of fifty percent or more of the total voting
power of the Company and (v) certain changes in the composition of the board
of directors occurring within a two year period.
Sale of the Company. In the event of a sale of the Company, each optionee
shall sell all incentive stock options, vested and unvested, granted prior to
February 12, 1998, and receive the same consideration entitled to each
shareholder in connection with the sale of the Company and, if certain
conditions are met, may be required to vote in favor of the sale of the
Company. The consideration received by an optionee with an incentive stock
option granted prior to February 12, 1998 will be reduced by an amount equal
to the optionee's proportionate share of the expenses of the sale incurred by
certain controlling shareholders of the Company. A sale of the Company
includes a sale of all or substantially all of the assets of the Company, a
complete liquidation or dissolution of the Company, and a merger consolidation
or reorganization involving the Company if certain conditions are met.
Amendment and Termination of Plan. The Board of Directors may amend the
1995 Option Plan at any time, or may terminate the 1995 Option Plan, without
approval of the shareholders; provided, however, that shareholder approval is
required for any amendment to the 1995 Option Plan for which shareholder
approval would be required under the Code or other applicable rules, and no
action by the Board of Directors or shareholders may unilaterally impair any
option previously granted under the 1995 Option Plan. In any event, the 1995
Option Plan will terminate in November, 2005. Any options outstanding under
the 1995 Option Plan at the time of its termination will remain outstanding
until they expire by their terms.
Tax Information
The following is a summary of the effect of federal income taxation with
respect to the grant and exercise of options under the 1995 Option Plan. It
does not purport to be complete and does not discuss the tax consequences of
the optionee's death or the income tax laws of any municipality, state or
foreign country in which a participant may reside.
A-3
<PAGE>
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise is an adjustment item for alternative
minimum tax purposes and may subject the optionee to the alternative minimum
tax. Upon a disposition of the shares more than two years after grant of the
option and one year after exercise of the option, any gain or loss is treated
as long-term capital gain or loss. Capital losses are allowed in full against
capital gains and up to $3,000 against other income. If these holding periods
are not satisfied, the optionee recognizes ordinary income at the time of
disposition equal to the difference between the exercise price and the lower
of (i) the fair market value of the shares at the date of the option exercise
or (ii) the sale price of the shares. Any gain or loss recognized on such a
premature disposition of the shares in excess of the amount treated as
ordinary income is treated as long-term or short-term capital gain or loss,
depending on the holding period. A different rule for measuring ordinary
income upon such a premature disposition may apply if the optionee is also an
officer, director, or 10% shareholder of the Company. Unless limited by
Section 162(m) of the Code, the Company is entitled to a deduction in the same
amount as the ordinary income recognized by the optionee.
Nonqualified Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonqualified stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price.
Any taxable income recognized in connection with an option exercise by an
employee of the Company is subject to tax withholding by the Company. Unless
limited by Section 162(m) of the Code, the Company is entitled to a deduction
in the same amount as the ordinary income recognized by the optionee. Upon a
disposition of such shares by the optionee, any difference between the sale
price and the optionee's exercise price, to the extent not recognized as
taxable income as provided above, is treated as long-term or short-term
capital gain or loss, depending on the holding period. Capital losses are
allowed in full against capital gains and up to $3,000 against other income.
A-4
<PAGE>
APPENDIX B
SUMMARY OF 1996 DIRECTOR OPTION PLAN
(INCLUDING PROPOSED AMENDMENT)
The essential features of the 1996 Director Option Plan (the "Director
Plan") are summarized below. This summary does not purport to be complete and
is subject to, and qualified in its entirety by, the provisions of the
Director Plan. Capitalized terms used herein and not defined shall have the
meanings set forth in the Director Plan.
Purpose. The purposes of the Director Plan are to attract and retain the
best available individuals for service as non-employee directors of the
Company ("Outside Directors"), to provide additional incentive to the Outside
Directors and to encourage their continued service on the Board of Directors.
Administration. The Director Plan is administered by the Board of Directors
or a committee appointed by the Board (the "Committee"), whose members receive
no additional compensation for such service. All grants of options under the
Director Plan are subject to the discretion of the Committee pursuant to the
terms of the Director Plan. All questions of interpretation or application of
the Director Plan are determined by the Board of Directors, whose decisions
are final and binding upon all participants.
Reserved Shares. The maximum number of shares that may be subject to option
grants under the Director Plan is 253,675 shares.
Eligibility. Options under the Director Plan may be granted only to Outside
Directors of the Company or the director's assignee. As of the Record Date,
there were five Outside Directors of the Company, five of whom have been
nominated to serve as directors for the 2000 fiscal year.
Terms of Options. The specific terms of each option granted under the
Director Plan are determined by the Committee. Each option granted under the
Director Plan is evidenced by a written stock option agreement between the
Company and the optionee. Options are generally subject to the terms and
conditions listed below.
Exercise of the Option. Options granted under the Director Plan expire as
determined by the Committee, but in no event later than ten years from the
date of grant. An option is exercised by giving written notice of exercise to
the Company specifying the number of full shares of Common Stock to be
purchased and by tendering payment of the purchase price. Payment for shares
purchased upon exercise of an option shall be in cash, check, certain other
shares of the Company's Common Stock, pursuant to a "cashless" exercise
program or any combination of the foregoing payment methods.
Exercise Price. The per share exercise price for shares to be issued
pursuant to exercise of an option under the Director Plan is 100% of the fair
market value per share of the Company's Common Stock on the date of grant of
the option. The fair market value is determined by the closing price on the
Nasdaq National Market on the date of the grant of the option.
Termination of Continuous Status as Director. If an optionee ceases to
serve as a director, he or she may, but only within six months after the date
he or she ceases to be a director of the Company, exercise his or her option
to the extent that he or she was entitled to exercise it at the date of such
termination (but in no event later than the expiration of its term). To the
extent that he or she was not entitled to exercise the option at the date of
such termination, or if he or she does not exercise such option within the
time specified, the option terminates.
Disability or Death. In the event that a director is unable to continue the
director's service as such with the Company as a result of his or her total
and permanent disability (as defined in Section 22(e)(3) of the Code) or if an
optionee should die while a director of the Company, the director or his or
her estate may, but only within twelve months from the date of termination due
to disability or death, exercise the option to the extent the director was
entitled to exercise the option at the date of such termination (but in no
event later than the
B-1
<PAGE>
expiration of its term). To the extent that the director was not entitled to
exercise the option at the date of such termination, or if the director or his
or her estate does not exercise such option within the time specified, the
option terminates.
Liquidation or Dissolution. In the event of a proposed liquidation or
dissolution of the Company, options under the Director Plan shall terminate.
Merger or Asset Sale. In the event of a merger of the Company or the sale
of substantially all of the assets of the Company, each option may be assumed
or an equivalent option substituted by the successor corporation. If the
successor does not agree to assume or substitute the option, each option shall
also become fully vested and exercisable for a period of thirty days from the
date the Board notifies the optionee, after which period the option shall
terminate. If, after the assumption or substitution of the options, the
director does not continue as a director of the Company or the successor
corporation other than as a result of a voluntary resignation, the option will
become fully vested and exercisable and remain exercisable for six months
after the end of the directorship.
Capital Changes. In the event of any changes made in the Company's
capitalization which result in an exchange of Common Stock for a greater or
lesser number of shares without receipt of consideration, appropriate
adjustment shall be made in the exercise price and in the number of shares
subject to options outstanding under the Director Plan, as well as the number
of shares reserved for issuance under the Director Plan.
Nontransferability of Option. Options granted pursuant to the Director Plan
may not be sold, pledged, assigned, hypothecated, transferred or disposed of
in any manner other than by will or by the laws of descent or distribution and
may be exercised, during the lifetime of the optionee, only by the optionee.
Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Director Plan as may be
determined by the Board.
Amendment and Termination
The Board may at any time amend, alter, suspend or discontinue the Director
Plan, but no amendment, alteration, suspension or discontinuance shall be made
which would impair the rights of any optionee under any grant theretofore made
without such optionee's consent. In addition, to the extent necessary and
desirable to comply with any applicable law or regulation, including the
requirements of the NASD (or an established stock exchange), the Company shall
obtain shareholder approval of any amendment to the Director Plan in such a
manner and to such a degree as required.
Federal Income Tax Aspects of the Director Plan
Options granted pursuant to the Director Plan are "nonstatutory options"
and will not qualify for any special tax benefits to the optionee.
An optionee will not recognize any taxable income at the time the option is
granted. Upon exercise of the option, the optionee will generally recognize
ordinary income for federal tax purposes measured by the excess, if any, of
the fair market value of the shares over the exercise price. Because shares
held by directors might be subject to restrictions on resale under Section
16(b) of the Exchange Act, the date of taxation may be deferred unless the
optionee files an election with the Internal Revenue Service pursuant to
Section 83(b) of the Code within thirty days after the date of exercise.
Upon a resale of shares acquired pursuant to an option under the Director
Plan, any difference between the sales price and the exercise price, to the
extent not recognized as ordinary income as provided above, will be treated as
capital gain or loss. The tax rate on net capital gain (net long- term capital
gain minus net short-term capital loss) is capped at 28%. Capital losses are
allowed in full against capital gains plus $3,000 of other income.
B-2
<PAGE>
The Company will be entitled to a tax deduction in the amount and at the
time that the optionee recognizes ordinary income with respect to shares
acquired upon exercise of an option under the Director Plan. The Company is
not required to withhold any amount for tax purposes on any such income
included by the optionee.
The foregoing summary of the effect of federal income taxation upon the
optionee and the Company with respect to the grant of options under the
Director Plan does not purport to be complete, and reference should be made to
the applicable provisions of the Code. In addition, this summary does not
discuss the provisions of the income tax laws of any municipality, state or
foreign country in which the optionee may reside.
B-3
<PAGE>
DETACH HERE
- --------------------------------------------------------------------------------
PROXY COST PLUS, INC. PROXY
PROXY FOR 2000 ANNUAL MEETING OF SHAREHOLDERS
This Proxy is Solicited by the Board of Directors
The undersigned shareholder(s) of Cost Plus, Inc., a California
corporation (the "Company"), hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement, each dated May 19, 2000, and
hereby appoints MURRAY H. DASHE and JOHN F. HOFFNER, and each of them, Proxies
and Attorneys-in-Fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the 2000 Annual
Meeting of Shareholders of Cost Plus, Inc. to be held on June 22, 2000 at 2:00
p.m., local time, at the Company's corporate headquarters located at 200 4th
Street, Oakland, California 94607 and at any adjournment or postponement
thereof, and to vote all shares of Common Stock which the undersigned would be
entitled to vote if personally present on any of the matters on the reverse
side and with discretionary authority as to any and all other matters that may
properly come before the meeting.
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
DETACH HERE
- --------------------------------------------------------------------------------
<PAGE>
[X] Please mark votes as in this example.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED BY
THIS PROXY WILL BE VOTED FOR EACH OF THE PERSONS AND PROPOSALS SET FORTH BELOW
AND FOR SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AS THE PROXY
HOLDERS DEEM ADVISABLE.
1. Election of Directors to serve one year terms. Nominees: Murray H. Dashe,
Joseph H. Coulombe, Danny W. Gurr, Kim D. Robbins, Fredric M. Roberts,
Thomas D. Willardson
<TABLE>
<CAPTION>
FOR [_] WITHHELD [_] MARK HERE [_]
ALL FROM ALL IF YOU PLAN TO
NOMINEES NOMINEES ATTEND THE MEETING
[_]______________________________ MARK HERE [_]
(Instruction: To withhold authority to FOR ADDRESS
vote for any individual nominee write CHANGE AND NOTE BELOW
that nominee's name in the space above.)
<S> <C> <C> <C>
2. To approve an amendment to the Company's 1995 Stock [_] FOR [_] AGAINST [_] ABSTAIN
Option Plan to increase the shares reserved for
issuance thereunder by 350,000 shares.
3. To approve an amendment to the Company's 1996 [_] FOR [_] AGAINST [_] ABSTAIN
Director Option Plan to increase the shares reserved
for issuance thereunder by 100,000 shares.
4. To ratify and approve the appointment of Deloitte & [_] FOR [_] AGAINST [_] ABSTAIN
Touche LLP as independent auditors of the Company for
the fiscal year ending February 3, 2001.
</TABLE>
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK, SIGN and
DATE THIS PROXY AND RETURN IT AS PROMPTLY AS POSSIBLE.
(This proxy should be marked, dated and signed by each shareholder exactly
as such shareholder's name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. A
corporation is requested to sign its name by its President or other authorized
officer, with the office held designated. If shares are held by joint tenants
or as community property, both holders should sign.)
Signature: Date:
-------------------------- ------------------------
Signature: Date:
-------------------------- ------------------------
