<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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 Rule 14a-11(c) or Rule 14a-12
COST-U-LESS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
============================================================================================================
Per unit price or other Proposed
underlying value of maximum
Title of each class of Aggregate number of transaction computed aggregate
securities to which securities to which pursuant to Exchange Act value of
transaction applies: transaction applies: Rule 0-11: transaction: Total Fee Paid
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
============================================================================================================
</TABLE>
[_] 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 indentify 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>
[LOGO OF COST-U-LESS]
April 7, 2000
Dear Cost-U-Less, Inc. Shareholders:
I am pleased to invite you to the Cost-U-Less Annual Meeting of
Shareholders. The meeting will be at 9:00 a.m. on Thursday, May 18, 2000 at
the Embassy Suites Hotel (Diplomat Room), 3225 158th Ave. S.E., Bellevue,
Washington.
The accompanying Notice of Annual Meeting of Shareholders and the Proxy
Statement describe the matters to be presented at the meeting.
We hope you can join us on May 18. Whether or not you can attend, please
read the attached Proxy Statement. When you have done so, please mark your
votes on the enclosed proxy card, sign and date the proxy card, and return it
to us in the enclosed envelope. Your vote is important, so please return your
proxy card promptly.
Sincerely,
/s/ Roy W. Sorensen
Roy W. Sorensen
Secretary
<PAGE>
COST-U-LESS, INC.
12410 S.E. 32nd Street
Bellevue, Washington 98005
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held Thursday, May 18, 2000
April 7, 2000
Dear Cost-U-Less Shareholders:
On Thursday, May 18, 2000, Cost-U-Less, Inc. will hold its Annual Meeting of
Shareholders at the Embassy Suites Hotel (Diplomat Room), 3225 158th Ave.
S.E., Bellevue, Washington. The Annual Meeting will begin at 9:00 a.m. The
record date for the meeting has been set at March 18, 2000. At the Annual
Meeting we will ask you to:
(1) Elect three directors to hold office for the term as described in the
attached Proxy Statement;
(2) Ratify the appointment of Ernst & Young LLP as our independent auditors;
and
(3) Transact any other business properly presented at the meeting.
Nominees for directors are named in the accompanying Proxy Statement. Only
shareholders that owned stock at the close of business on March 18, 2000 will
be entitled to notice of and to vote at this meeting or any adjournments that
may take place.
At the meeting we will also report on the 1999 business results of Cost-U-
Less and other matters of interest to shareholders.
To assure your representation at the Annual Meeting, you are urged to
complete, sign, date, and return the enclosed proxy card as soon as possible
in the enclosed postage prepaid envelope. Your stock will be voted in
accordance with the instructions you give on your proxy card. You may, of
course, attend the Annual Meeting and vote in person even if you have
previously returned your proxy card.
By Order of the Board of Directors,
/s/ Roy W. Sorensen
Roy W. Sorensen
Secretary
<PAGE>
COST-U-LESS, INC.
----------------
2000 PROXY STATEMENT
----------------
General
The Board of Directors of Cost-U-Less, Inc. is sending you this Proxy
Statement in connection with its solicitation of proxies for use at the Cost-
U-Less 2000 Annual Meeting of Shareholders. The Annual Meeting will be held at
the Embassy Suites Hotel (Diplomat Room), 3225 158th Ave. S.E., Bellevue,
Washington, on Thursday, May 18, 2000 at 9:00 a.m.
This Proxy Statement and accompanying proxy card are being mailed to the
shareholders of Cost-U-Less, Inc. on or about April 7, 2000.
Record Date and Outstanding Shares
Only those shareholders that owned common stock at the close of business on
March 18, 2000, the record date for the Annual Meeting, can vote. As of that
date, there were 3,576,858 issued and outstanding shares of common stock.
Quorum
A quorum for the Annual Meeting is a majority of the outstanding shares of
common stock entitled to vote and present, whether in person or by proxy, at
the Annual Meeting.
Revocability of Proxies
If you give your proxy to Cost-U-Less, you have the power to revoke it at
any time before it is exercised. Your proxy may be revoked by:
. notifying the Secretary of Cost-U-Less in writing before the Annual
Meeting;
. delivering to the Secretary of Cost-U-Less before the Annual Meeting a
signed proxy with a later date; or
. attending the Annual Meeting and voting in person.
Voting
You are entitled to one vote for each share of common stock you hold. For
the proposal to elect directors, the three directors who receive the greatest
number of affirmative votes cast by holders of common stock present, in person
or by proxy, and entitled to vote at the Annual Meeting, will be elected to
the Board of Directors. You are not entitled to cumulate votes in the election
of directors. The proposal to ratify the appointment of Ernst & Young LLP as
our independent auditors will be approved if the number of votes cast in favor
of the proposal by holders of common stock present, in person or by proxy, and
entitled to vote at the Annual Meeting, exceeds the number of votes cast
against it. Abstentions from voting will have no effect on these proposals
since they will not represent votes cast at the Annual Meeting for the purpose
of voting on such proposals.
If your shares are represented by proxy, they will be voted in accordance
with your directions. If your proxy is signed and returned without any
direction given, your shares will be voted (i) "FOR" the election of the three
nominees for the Board of Directors named on the following pages, and (ii)
"FOR" the ratification of the appointment of Ernst & Young LLP as auditors for
Cost-U-Less for 2000. Cost-U-Less is not aware, as of the date of this Proxy
Statement, of any matters to be voted on at the Annual Meeting other than as
stated in the
1
<PAGE>
Proxy Statement and the accompanying Notice of Annual Meeting of Shareholders.
If any other matters are properly brought before the Annual Meeting, the
enclosed proxy gives discretionary authority to the persons named in it to
vote the shares in their best judgment.
Brokers who hold shares for the accounts of their clients who have not been
given specific voting instructions as to a matter by their clients may vote
their clients' proxies in their own discretion.
Solicitation of Proxies
Proxies will be solicited by certain of the directors, officers and regular
employees of Cost-U-Less, without payment of any additional compensation to
them. Proxies will be solicited by personal interview, mail and telephone. Any
costs relating to such solicitation of proxies will be borne by Cost-U-Less.
In addition, Cost-U-Less may reimburse brokerage firms and other persons
representing beneficial owners of shares of common stock for their expenses in
forwarding solicitation materials to such beneficial owners.
PROPOSAL 1: ELECTION OF DIRECTORS
In accordance with the Bylaws of Cost-U-Less, there are six directors who
currently sit on the Cost-U-Less Board of Directors. Directors generally are
elected for three-year terms, and the Board is divided into three classes,
with one class of directors elected to a three-year term at each annual
meeting of shareholders. At the Annual Meeting, three directors will be
elected to hold office until the 2003 Annual Meeting of Shareholders, or until
their respective successors are elected and qualified.
The Board of Directors has proposed that the following nominees be elected
at the Annual Meeting: Wayne V. Keener, George C. Textor, and J. Jeffrey
Meder. Messrs. Keener, Textor, and Meder will be elected for three-year terms.
Unless otherwise instructed, persons named in the accompanying proxy will vote
FOR these nominees. Although Cost-U-Less anticipates that these nominees will
be available to serve as directors, should any of them not accept the
nomination, or otherwise be unable to serve, the proxies will have
discretionary authority to vote for a substitute nominee.
The Board of Directors recommends a vote "FOR" approval of this proposal.
Nominees for the Board of Directors
Wayne V. Keener has been a Director of Cost-U-Less since 1989. Since 1960,
Mr. Keener has been the President and Chief Executive Officer of Keener's,
Inc.--dba K&N Meats ("Keener's"), of which he has been a 50% owner since 1989.
Mr. Keener serves as a director of both the National Meat Association and the
North American Meat Association.
George C. Textor has been a Director of Cost-U-Less since January, 1998. Mr.
Textor is a general partner of Capstan Partners, a Seattle-based private
equity investment fund which he co-founded in 1988. From 1982 to 1988, Mr.
Textor was a founding general partner of Cable Howse & Ragen (now Ragen
MacKenzie Group Incorporated), an investment banking and brokerage firm
located in the Pacific Northwest. Mr. Textor serves as a director of Pyramid
Breweries, Inc., a public company that makes specialty beers.
J. Jeffrey Meder became the President and CEO of Cost-U-Less in September,
1999. Previously, he served as co-founder and President/Chief Executive
Officer of Drug Emporium, N.W. He had provided overall direction and vision
for that Company since 1981. During that time, he led the growth of the
Company to twenty stores with over $180 million in sales and employing
approximately 1,600 employees in the Pacific Northwest. Prior to co-founding
Drug Emporium, N.W., Mr. Meder was employed in the banking industry from 1975-
1981. His last position in banking was Assistant Vice President in the
Commercial Division of Huntington National Bank in Columbus, Ohio, where his
responsibilities included business development and work-out loan situations.
2
<PAGE>
Continuing Directors Until 2001
Michael J. Rose is the founder and Chairman of the Board of Cost-U-Less.
Prior to 1992, Mr. Rose was President and a 50% shareholder of Rose-Chamberlin
Inc., a brokerage company founded in 1985, which acted as a manufacturers'
representative and sold merchandise primarily to Costco Companies, Inc.
Continuing Directors Until 2002
David A. Enger has been a Director of Cost-U-Less since 1993. Mr. Enger has
served since 1992 as Executive Vice President of Keener's, one of the
Northwest's largest distributors of fresh foods. In 1990, Mr. Enger founded
the Business & Banking Institute, where he currently engages in business and
banking consulting and training. From 1980 to 1990, Mr. Enger served as a
principal of Management Advisory Services, Inc., a business and banking
consulting firm which he co-founded in 1980. From 1976 to 1980, Mr. Enger was
a vice president of Seafirst Bank. Mr. Enger serves as a director of Keener's,
Colmac Industries, Inc., a dry-cleaning equipment manufacturer, and Colmac
Coil Manufacturing, Inc., a heating and air-conditioning coils manufacturer.
Gary W. Nettles has been a Director of Cost-U-Less since 1996. Mr. Nettles
is a certified public accountant and President of Guchereau & Nettles, an
accounting firm located in Costa Mesa, California, where he has worked since
1987.
Information on Meetings and Committees of the Board of Directors
During the last fiscal year there were four regular meetings and one special
meeting of the Board of Directors. All incumbent directors attended at least
75% of the Board meetings held. All incumbent directors attended at least 75%
of the meetings held by all committees on which they served.
The Board maintains an Audit Committee and a Compensation Committee.
The Audit Committee, currently composed of Messrs. Enger (Chairman), Keener,
Nettles, and Textor, is responsible, among other things, for recommending the
selection of certified public accountants to the Board of Directors, reviewing
the scope and results of audits, reviewing the accounting policies and
procedures of Cost-U-Less and reviewing systems of internal controls. During
the past year, there were four Audit Committee meetings.
The Compensation Committee, currently composed of Messrs. Nettles
(Chairman), Enger, Keener and Textor, is responsible for, among other things,
recommending to the Board of Directors the adoption and amendment of employee
benefit plans and arrangements and the engagement of, and terms of, any
employment agreements and arrangements with, and terminations of, all
corporate executive officers. During the past year, there were four
Compensation Committee meetings.
Compensation of Directors
Directors of Cost-U-Less are paid $1,500 for each Board of Directors meeting
attended and $250 for each committee meeting attended, including attendance at
meetings of subcommittees of which they are not members. Cost-U-Less also
reimburses directors for travel expenses in attending meetings. Cost-U-Less
has granted nonqualified stock options to its directors pursuant to individual
director stock option agreements. Directors had generally been granted a 10-
year, immediately exercisable option to purchase 10,331 shares of common stock
at an exercise price equal to the fair market value of the underlying shares,
and a 10-year option to purchase 2,951 shares of common stock at an exercise
price equal to the fair market value of the underlying shares, vesting ratably
over a five-year period.
In October, 1999, Cost-U-Less granted non-employee directors fully-vested
options to purchase 1,000 shares of common stock for each year of service on
the Board, applied retroactively. Directors will receive an automatic annual
grant of options to purchase 1,000 shares of common stock on the date of each
Shareholders' Meeting under the Company's 1998 Stock Incentive Compensation
Plan.
3
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 1, 2000, certain information
regarding the beneficial ownership(1) of Cost-U-Less common stock by:
. each person known by Cost-U-Less to own beneficially 5% or more of our
common stock;
. each director and nominee for director of Cost-U-Less;
. each executive officer of Cost-U-Less for whom compensation information
is given in the Summary Compensation Table in this Proxy Statement, and
. all directors and executive officers as a group.
To the knowledge of Cost-U-Less, the beneficial owners listed below have
sole voting and investment power with respect to the shares shown as
beneficially owned.
<TABLE>
<CAPTION>
Outstanding Shares
of Common Stock Percent of
Beneficial Owner(2) Beneficially Owned Class
------------------- ------------------ ----------
<S> <C> <C>
Michael J. Rose(3).............................. 631,945 17.2%
The Kula Fund(4)................................ 357,000 9.7
Wayne V. Keener(5).............................. 245,964 6.8
Donald L. Gevirtz(6)............................ 88,554 2.4
Gary W. Nettles(7).............................. 73,206 2.0
David A. Enger(8)............................... 20,282 *
Michael T. Scalzo(9)............................ 14,857 *
George C. Textor(10)............................ 12,922 *
William W. Lofgren(11).......................... 12,140 *
J. Jeffrey Meder(12)............................ 0 0
Roy W. Sorensen(12)............................. 0 0
All directors and executive officers as a group
(9 persons)(13)................................ 1,456,870 36.8%
</TABLE>
- --------
* Less than 1% of the outstanding shares of common stock.
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission and includes shares over which the
indicated beneficial owner exercises voting and/or investment power.
Shares of common stock subject to options currently exercisable or
exercisable within 60 days are deemed outstanding for computing the
percentage ownership of the person holding the options but are not
deemed outstanding for computing the percentage ownership of any other
person.
(2) All beneficial owners can be reached c/o Cost-U-Less, Inc.; 12410 SE
32nd Street; Bellevue, Washington 98005.
(3) Includes 12,077 shares held by the Michael J. Rose Childrens' Trust
dated January 6, 1992, 32,470 shares held by the Michael J. Rose Trust
for Children and Grandchildren, and 85,599 shares subject to a warrant
and to options exercisable within 60 days of March 1, 2000. Mr. Rose
disclaims beneficial ownership of the shares held in trust.
(4) Includes 117,000 shares subject to a warrant exercisable within 60 days
of March 1, 2000. This warrant is held by the Kula Fund, which is
managed by a venture capital firm for which former director
Mr. Emberson-Bain had served as Chief Executive Officer and Managing
Director.
(5) Includes 221,387 shares held by Keener's and 24,282 shares subject to
options exercisable within 60 days of March 1, 2000. Mr. Keener has sole
voting and investment power with respect to the shares held by Keener's.
(6) Represents 88,554 shares subject to options exercisable within 60 days
of March 1, 2000.
(7) Includes 11,807 shares held by the Alyce Christene Gangwish Irrevocable
Trust of 1995, 27,477 shares held by The Lenz Educational Partnership,
8,855 shares held by the Brittney Elizabeth Lenz Irrevocable Trust of
1995, and 8,855 shares held by the Cody Allan Lenz Irrevocable Trust of
1995 (for each of which Mr. Nettles acts as Co-Trustee), 700 shares held
by Guchereau & Nettles SEP and 15,512 shares subject to options
exercisable within 60 days of March 1, 2000.
4
<PAGE>
(8) Represents 20,282 shares subject to options exercisable within 60 days
of March 1, 2000.
(9) Includes 5,842 shares subject to options exercisable within 60 days of
March 1, 2000.
(10) Represents 12,922 shares subject to options exercisable within 60 days
of March 1, 2000.
(11) Represents 12,140 shares subject to options exercisable within 60 days
of March 1, 2000.
(12) Owns no shares and has no shares subject to options exercisable within
60 days of March 1, 2000.
(13) Includes 382,133 shares subject to warrants and options exercisable
within 60 days of March 1, 2000.
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF ERNST & YOUNG LLP
AS THE INDEPENDENT AUDITORS OF COST-U-LESS
The Board unanimously recommends that you vote "FOR" the ratification of the
appointment of Ernst & Young LLP as the independent auditors of Cost-U-Less
for 2000. Ernst & Young has audited the accounts of Cost-U-Less and its
subsidiaries since 1996. Representatives of Ernst & Young are expected to
attend the Annual Meeting and will have the opportunity to make a statement
and to respond to appropriate questions from shareholders. In the event this
ratification of the appointment of Ernst & Young is not approved by a majority
of the votes cast, the selection of other auditors will be considered and
determined by the Board of Directors. The Board of Directors has unanimously
approved the appointment of Ernst & Young as auditors for Cost-U-Less and its
subsidiaries.
The Board of Directors recommends a vote "FOR" approval of this proposal.
EXECUTIVE OFFICERS
The following persons are executive officers of Cost-U-Less as of March 1,
2000 who will serve in the capacities noted until May 18, 2000, or until the
election and qualification of their successors. Each officer named below is
expected to be re-elected at the Board meeting to be held on May 18, 2000.
<TABLE>
<CAPTION>
Name Age Positions and Offices With Cost-U-Less
---- --- --------------------------------------
<S> <C> <C>
J. Jeffrey Meder(1)..... 48 President and Chief Executive Officer
Roy W. Sorensen(2)...... 46 Vice President, Chief Financial Officer, Secretary & Treasurer
Michael J. Rose (3)..... 48 Chairman of the Board
William W. Lofgren(4)... 37 Vice President, Information Systems
Michael T. Scalzo(5).... 35 Vice President, Merchandising
</TABLE>
- --------
(1) For a biographical summary of J. Jeffrey Meder, see "PROPOSAL 1: ELECTION
OF DIRECTORS."
(2) Roy W. Sorensen became the Vice President, Chief Financial Officer of
Cost-U-Less in September, 1999. Previously, Mr. Sorensen served as CFO
and Treasurer of Drug Emporium NW. In this capacity, he played a key role
in successfully negotiating the sale of the company in July, 1998 to
Longs Drugs, a $3.1 billion regional retailer. He also has held various
executive financial positions with other companies in the Pacific
Northwest, including Seattle Lighting Fixture Co., Egghead Software, and
Seafirst Corporation. Mr. Sorensen holds a CPA license, and received his
MBA from the University of Puget Sound.
(3) For a biographical summary of Michael J. Rose, see "PROPOSAL 1: ELECTION
OF DIRECTORS."
(4) William W. Lofgren joined the company in 1992 as information systems
manager before becoming operations manager in 1996 with overall
operational responsibility for Cost-U-Less' stores. He was recently
promoted to Vice President, Information Systems. Previously, Mr. Lofgren
served as electronic maintenance manager of Costco from 1986 to 1991.
(5) Michael T. Scalzo had been general merchandise manager since 1995, after
joining the company in 1992 as a buyer. He was recently promoted to Vice
President, Merchandising. Mr. Scalzo assisted in creating Cost-U-Less'
buying office and was one of the original buyers for the company. From
1990 to 1992, Mr. Scalzo worked as an account executive for Rose-
Chamberlin Inc., a brokerage company selling merchandise primarily to
Costco.
5
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain compensation information as to (1)
the Chief Executive Officer of Cost-U-Less and (2) the next most highly
compensated executive officers of the Company (the "Named Executive Officers")
for services rendered in all capacities for Cost-U-Less during the fiscal
years ended December 26, 1999, December 27, 1998, and December 28, 1997.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
---------------- ----------------- All Other
Bonus Shares Underlying Compensation
Name and Principal Position Year Salary ($)(1) Options (#) ($)(2)
- --------------------------- ---- -------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Michael J. Rose............ 1999 $250,000 $ 0 0 $3,700
Chairman of the Board 1998 250,000 37,000 28,041 5,860
1997 220,000 22,600 13,282 8,102
J. Jeffrey Meder(3)........ 1999 $ 67,500 $ 8,975 0 $2,500
President, Chief Executive 1998 -- -- -- --
Officer, 1997 -- -- -- --
and Board Member
Roy W. Sorensen(4)......... 1999 $ 30,289 $ 3,515 0 $ 0
Vice President, Chief 1998 -- -- -- --
Financial Officer, 1997 -- -- -- --
Secretary and Treasurer
Michael T. Scalzo(5)....... 1999 $120,000 $13,104 10,000 $2,500
Vice President, 1998 114,787 11,324 4,451 2,500
Merchandising 1997 101,585 9,787 -- 2,375
William W. Lofgren(6)...... 1999 $110,000 $12,012 10,000 $2,500
Vice President, 1998 107,787 10,570 2,000 2,500
Information Systems 1997 101,585 9,787 -- 2,375
</TABLE>
- --------
(1) Represents bonuses paid pursuant to the Cost-U-Less Manager Bonus
Program.
(2) Consists of matching contributions to the Cost-U-Less 401(k) profit-
sharing plan and payments of life insurance premiums, if applicable.
(3) J. Jeffrey Meder joined the Company in September, 1999.
(4) Roy W. Sorensen joined the Company in September, 1999.
(5) Michael T. Scalzo was promoted to this Vice President position in April,
1999.
(6) William W. Lofgren was promoted to this Vice President position in April,
1999.
6
<PAGE>
Option Grants in Fiscal 1999
The following table sets forth certain information regarding options granted
during the fiscal year ended December 26, 1999 to the named executive
officers.
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed Annual
Rates of Stock
Price
Appreciation
for Option
Individual Grants Term(4)
--------------------------------------------------------------- ---------------
Percent of Total
Number of Options Granted Exercise
Securities Underlying to Employees Price Expiration
Name Options Granted (#)(1) in Fiscal Year ($/Share)(2) Date(3) 5% ($) 10% ($)
---- ---------------------- ---------------- ------------ ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
J. Jeffrey Meder........ 0 0% -- -- -- --
Roy W. Sorensen......... 0 0 -- -- -- --
Michael J. Rose......... 0 0 -- -- -- --
William W. Lofgren...... 10,000 8.7% $4.875 4/19/09 $30,659 $77,693
Michael T. Scalzo....... 10,000 8.7% $4.875 4/19/09 $30,659 $77,693
</TABLE>
- --------
(1) Per the terms of the Cost-U-Less Stock Option Plan of Issuance.
(2) The exercise price of the options is equal to the closing price of the
common stock as of the day of grant.
(3) All options granted in 1999 terminate 10 years from the date of grant.
(4) The future values of current year grants assume appreciation of 5% and
10% per year over the 10-year option period, as required by applicable
regulations of the Securities and Exchange Commission and, therefore, are
not intended to forecast possible future appreciation, if any, of the
common stock price. The actual values realized depends on the future
performance of the common stock and overall market conditions, and may be
greater or less than the potential realizable values set forth in the
table.
Option Exercises in Fiscal 1999 and Year-End Values
The following table sets forth certain information as of December 26, 1999
regarding options held by the Named Executive Officers.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Shares Unexercised Options at In-the-Money Options at
Acquired on Fiscal Year-End (#) Fiscal Year-End ($)(1)
Exercise Value ------------------------- -------------------------
Name (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Rose......... -- $ 0 53,130 11,808 $ 0 $ 0
J. Jeffrey Meder........ -- 0 0 0 0 0
Roy W. Sorensen......... -- 0 0 0 0 0
Michael T. Scalzo....... 7,379 $10,367 2,952 14,450 0 0
William W. Lofgren...... -- 0 9,150 13,180 $406 0
</TABLE>
- --------
(1) Stock options are value based upon the closing price of a share of common
stock as reported on the NASDAQ National Market on December 26, 1999
($4.125 per share).
7
<PAGE>
Option Repricing
There was no repricing of options held by the named executive officers
during fiscal year 1999. Cost-U-Less has not repriced any options held by the
executive officers during the past 10 years, other than those described below.
<TABLE>
<CAPTION>
Number of Market Price Exercise Length Of
Securities of Stock at Price At New Original Option Term
Underlying Time Of Time Of Exercise Remaining At Date
Name Date Options Repricing Repricing Price(1) Of Repricing
---- ---------------- ---------- ------------ --------- -------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Rose......... October 21, 1998 2,951 $4.375 $10.16 $7.00 8.5 years
Michael J. Rose......... October 21, 1998 10,331 4.375 10.16 7.00 8.5 years
Michael J. Rose......... October 21, 1998 14,759 4.375 8.46 7.00 9.3 years
Michael T. Scalzo....... October 21, 1998 2,951 4.375 10.16 7.00 9.3 years
William W. Lofgren...... October 21, 1998 2,951 4.375 10.16 7.00 8.5 years
</TABLE>
- --------
(1) Options granted on October 21, 1998 have an exercise price equal to the
price of the common stock in the Company's initial public offering on
July 23, 1998.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is currently composed of Messrs. Nettles
(Chairman), Enger, Keener and Textor. No executive officer of Cost-U-Less
serves as a member of the compensation committee or board of directors of any
entity that has one or more executive officers serving as a member of the
Cost-U-Less Compensation Committee or Board of Directors.
8
<PAGE>
REPORT ON EXECUTIVE COMPENSATION BY THE COMPENSATION COMMITTEE
The compensation policy of Cost-U-Less as established by the Board of
Directors is intended to provide competitive compensation to all employees,
giving consideration to the relative contribution and performance of each
employee on an individual basis. It is the Cost-U-Less policy to compensate
its executive officers at levels consistent with industry norms, primarily in
the form of base salary, together with incentive bonuses. In addition, it is
the Cost-U-Less policy to grant stock options to each of its executive
officers to align their interests with shareholder value.
Determining the compensation of executive officers of Cost-U-Less is the
responsibility of the Board of Directors, through the Compensation Committee,
which has overall responsibility for compensation policies for senior
management. The Compensation Committee makes recommendations to the Board of
Directors as to the salaries of, and incentive bonuses awarded to, the Chief
Executive Officer and the Chief Financial Officer.
Executive compensation consists of three major components: base salary,
annual incentive bonuses, and stock options. The determination of base
salaries of the Chief Executive Officer and the Chief Financial Officer is
based on assessments of individual performance and achievement of
predetermined operating goals that are established annually by the Board of
Directors. Assessments of individual performance include objective standards
and subjective evaluations of the value of individual executives. The
Compensation Committee meets early in the year or when needed to determine the
annual salary component of executive compensation to be paid during the
calendar year. In the case of Mr. Meder, the Chief Executive Officer, the
Compensation Committee established a 1999 base salary of $225,000. The
Compensation Committee established a 1999 base salary of $125,000 for Mr.
Sorensen, the Chief Financial Officer, after considering the additional
responsibilities of the Chief Financial Officer, primarily resulting from
sharing of Chief Operating Officer responsibilities with Mr. Meder.
Cash incentive bonus compensation to be awarded the executive officers is
administered through the Manager Bonus Program. This program treats executive
officers the same as all other key managers of Cost-U-Less. Early in 1999, the
Compensation Committee approved a bonus of 9% of "Adjusted" net income to be
paid before March 31, 2000 to participants in the Manager Bonus Program
provided that at least 80% of the "Adjusted" net income goal for 1999 was
achieved. "Adjusted" includes certain adjustments to pretax income as
determined by the Compensation Committee. Executive officers and managers
included in the Manager Bonus Program earn their bonus based upon their salary
as a percent of total salaries of participants in the Bonus Program. In 1999,
bonuses under the Bonus Program totaled $270,802, of which executive officers
received $37,606, or 13.9%.
Options to purchase shares of Cost-U-Less common stock were granted during
1999. The option grants were undertaken pursuant to the Cost-U-Less 1998 Stock
Incentive Compensation Plan, initially implemented in 1998, wherein employees
are eligible to receive a grant of stock options dependent on individual
performance and position held. Under this plan, in 1999 Michael T. Scalzo and
William W. Lofgren each received option grants to purchase 10,000 shares of
stock at an exercise price of $4.875 per shares. Non-employee directors
received fully-vested option grants to purchase 1,000 shares of common stock
for each year of service on the Board, applied retroactively.
Compensation Committee
Gary W. Nettles (Chairman)
David A. Enger
Wayne V. Keener
George C. Textor
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PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
shares of common stock of Cost-U-Less during fiscal year 1999 (commencing on
July 23, 1998, the date on which Cost-U-Less became a publicly held
corporation) with the cumulative total return of the Nasdaq Stock Market Index
(US) and the Nasdaq Retail Trade Stocks Index over the same period (assuming
an investment of $100 in the common stock, stocks comprising The Nasdaq Stock
Market Index (US), and the stocks comprising the Nasdaq Retail Trade Stocks
Index on July 23, 1998, and the reinvestment of all dividends).
Comparison of Five-Year Cumulative Total Returns
Performance Graph for
Cost U Less, Inc.
Prepared by the Center for Research in Security Prices
Produced on 03/27/2000 including data to 12/26/1999
[PERFORMANCE GRAPH APPEARS HERE]
Nasdaq Retail
Trade Stocks
Nasdaq Stock (SIC 5200-5599,
Market 5700-5799, 5900-5999
Date Cost-U-Less, Inc. (US Companies) US & Foreign)
7/23/98 100 100 100
8/31/98 76.786 77.566 68.941
9/30/98 73.214 88.328 72.804
10/27/98 73.214 89.408 77.387
11/30/98 62.5 101.583 92.598
12/28/98 78.571 114.165 98.866
1/29/99 107.143 131.431 101.948
2/26/99 98.214 119.645 94.04
3/31/99 83.929 128.644 99.728
4/30/99 78.571 132.769 100.6
5/28/99 71.429 129.227 92.991
6/30/99 67.857 140.764 96.717
7/30/99 75 138.273 93.226
8/31/99 75 144.051 83.464
9/30/99 60.714 144.176 86.957
10/29/99 67.857 155.426 89.354
11/30/99 64.286 173.585 97.77
12/26/99 58.9 207.2 87.9
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on
the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not
a trading day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 07/23/1998.
10
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Concurrent Reg. S Placement to Kula Fund. During 1997 and 1998, Cost-U-Less
discussed with Commonwealth Development Corporation a range of potential
business relationships. On July 23, 1998 these discussions concluded with the
sale of 160,000 shares of common stock to the Kula Fund in a private placement
(the "Concurrent Reg. S Placement") at a price of $7.00 per share, concurrent
with the Company's initial public offering, and the sale, for nominal
consideration, of a warrant to purchase 117,000 shares of common stock at an
exercise price of $8.40 per share. This warrant contains standard net issuance
provisions (permitting the holder to exchange the warrant for a lesser number
of shares based on the then-current market value of the common stock) and is
exercisable at any time until July 23, 2002. These transactions were
structured to meet the requirements of the exclusion from registration
provided by Regulation S under the Securities Act of 1933, as amended.
Gevirtz Option. In January 1998, Donald L. Gevirtz, who was then a director
of Cost-U-Less, was granted a 10-year, immediately exercisable option to
purchase up to 88,554 shares of common stock at an exercise price of $7.62 per
share in connection with his appointment to the Board of Directors. In order
to encourage Mr. Gevirtz to join the Board of Directors, the Board granted him
an option with a per share exercise price that was less than the fair market
value of the common stock on the date of grant. Cost-U-Less therefore
recognized a compensation expense of $75,000 in the first quarter of fiscal
1998 in connection with this grant. In October 1998, Cost-U-Less offered
directors with options having exercise prices greater than $7.00 per share the
opportunity to surrender those options and receive new options with an
exercise price of $7.00 per share. With the exception of the exercise price, a
six-month blackout on exercise and a six-month delay in vesting, the terms of
the new options are identical to the terms of the old options. Although Mr.
Gevirtz resigned in 1999, he still has the option to purchase these shares for
two years from his date of resignation.
Fiji Lease. In April 1998, Cost-U-Less entered into a 10-year lease
agreement with Westmall Limited, a Fiji limited liability company, to lease
premises for the store in Nadi, Fiji. Westmall Limited is partly owned (25%)
by Terence R. Buckley, who assists with Pacific expansion of Cost-U-Less. The
monthly lease payments are approximately $14,000. Cost-U-Less believes that
the terms of this transaction were no less favorable to Cost-U-Less than those
available from independent third parties.
Employment of Gerald J. Rose. Gerald J. Rose, the brother of Michael J.
Rose, the Chairman of the Board of Cost-U-Less, has been employed by Cost-U-
Less since January, 1993. He currently serves as logistics manager for general
offshore operations of Cost-U-Less. He earned compensation of approximately
$75,000 in fiscal 1999.
Purchases of Product From Beneficial Owner. Cost-U-Less has purchased
product from Keener's, a company that beneficially owns more than 5% of the
common stock and that is 50% owned by Wayne V. Keener, a director of Cost-U-
Less. David A. Enger, an Executive Vice President and director of Keener's, is
also a director of Cost-U-Less. Cost-U-Less purchased from Keener's
approximately $188,000 of product in fiscal 1999. Cost-U-Less believes that
the terms of these purchases were no less favorable to Cost-U-Less than those
available from independent third parties.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the officers, directors and persons who own more than 10% of a registered
class of equity securities of Cost-U-Less to file reports of ownership and
changes in ownership with the Commission. Officers, directors and greater-
than-10% shareholders are required by Commission regulation to furnish Cost-U-
Less with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms it received, or
written representations from certain reporting persons that no forms were
required for those persons, Cost-U-Less believes that during 1999 all filing
requirements required by Section 16(a) applicable to its officers, directors
and greater-than-10% beneficial owners were complied with by such persons.
However, due to a clerical error, the year-end Form 5 filings may not have
been timely filed.
11
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting, with the opportunity to make a statement, if the
representative so desires, and is expected to be available to respond to
appropriate questions from shareholders.
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Under the Commission's proxy rules, shareholder proposals that meet certain
conditions may be included in the proxy statement and proxy card for a
particular annual meeting. Shareholders that intend to present a proposal at
the 2001 Annual Meeting of Cost-U-Less must give notice of the proposal to
Cost-U-Less no later than December 9, 2000 to be considered for inclusion in
the proxy statement and proxy card relating to that meeting. Shareholders that
intend to present a proposal that will not be included in the proxy statement
and proxy card must give notice of the proposal to Cost-U-Less no fewer than
60 nor more than 90 days prior to the date of the 2001 Annual Meeting pursuant
to the Bylaws of Cost-U-Less. Cost-U-Less reserves the right to reject, rule
out of order, or take other appropriate action with respect to any proposal
that does not comply with these and other applicable requirements.
OTHER MATTERS
As of the date of this Proxy Statement, the Board does not intend to
present, and has not been informed that any other person intends to present,
any matters for action at the Annual Meeting other than the matters
specifically referred to in this Proxy Statement. If other matters properly
come before the Annual Meeting, it is intended that the holders of the proxies
will act with respect thereto in accordance with their best judgment.
Copies of the Cost-U-Less 1999 Annual Report to Shareholders are being
mailed to shareholders, together with this Proxy Statement, form of Proxy and
Notice of Annual Meeting of Shareholders. Additional copies of the Annual
Report may be obtained from the Secretary of Cost-U-Less, 12410 S.E. 32nd
Street, Bellevue, Washington, 98005.
AS REQUIRED, THE ANNUAL REPORT OF COST-U-LESS ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 26, 1999, WAS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON March 27, 2000. Copies of the 10-K may be obtained from the
Secretary of Cost-U-Less, 12410 S.E. 32nd Street, Bellevue, Washington, 98005.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Roy W. Sorensen
Roy W. Sorensen
Secretary
Bellevue, Washington
April 7, 2000
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COST-U-LESS, INC.
This Proxy is solicited by the Board of Directors for the
Annual Meeting of Shareholders-May 18, 2000
The undersigned hereby appoint(s) J. Jeffrey Meder and Roy W. Sorensen and each
of them as proxies, with full power of substitution, to represent and vote as
designated all shares of common stock of Cost-U-Less, Inc. held of record by the
undersigned on March 18, 2000 at the Annual Meeting of Shareholders of
Cost-U-Less to be held at the Embassy Suites Hotel (Diplomat Room), 3225 158th
Ave. S.E., Bellevue, Washington, at 9:00 a.m. on Thursday, May 18, 2000, with
authority to vote upon the matters listed below and with discretionary authority
as to any other matters that may properly come before the meeting or any
adjournment or postponement thereof.
IMPORTANT-PLEASE DATE AND SIGN ON THE OTHER SIDE
- --------------------------------------------------------------------------------
v FOLD AND DETACH HERE v
<PAGE>
Please mark
your votes [X]
as indicated
WITHHOLD
AUTHORITY
(1) ELECTION OF THREE DIRECTORS: FOR the to vote for the
Nominees Nominees
Nominees: Wayne V. Keener [ ] [ ]
George C. Textor, and
J. Jeffrey Meder
WITHHOLD for the following only: (write the name of the nominee in the space
below)
- --------------------------------------------------------------------------------
unless otherwise directed, all votes will be apportioned equally among those
persons for whom authority is given to vote
(2) RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT AUDITORS OF
COST-U-LESS
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
[ ] I plan to attend the Annual Meeting
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
SHAREHOLDER IN THE SPACE PROVIDED. IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED "FOR THE NOMINEES" IN ITEM 1 AND "FOR" ITEM 2. The Board of
Directors recommends a vote "FOR the Nominees" in Item 1 and "FOR" Item 2.
Date ____________________________________
Signature(s) ____________________________
Date ____________________________________
Signature(s) ____________________________
Please sign exactly as name appears
hereon. Attorneys, trustees, executors
and other fiduciaries acting in a
representative capacity should sign their
names and give their titles. An
authorized person should sign on behalf
of corporations, partnerships,
associates, etc. and give his or her
title. If your shares are held by two or
more persons, each person must sign.
Receipt of the notice of meeting and
proxy statement is hereby acknowledged.
v FOLD AND DETACH HERE v
