-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MIEn68a+XqmDmUwpM336l3rmNBg4wLoumerCLkkywJMdUXmr/uxe/ENe7aF7pJED 773a3kMT4U5b9kAjNiepxQ== 0000929624-01-500167.txt : 20010503 0000929624-01-500167.hdr.sgml : 20010503 ACCESSION NUMBER: 0000929624-01-500167 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20010203 FILED AS OF DATE: 20010502 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COST PLUS INC/CA/ CENTRAL INDEX KEY: 0000798955 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-HOME FURNITURE, FURNISHINGS & EQUIPMENT STORES [5700] IRS NUMBER: 941067973 STATE OF INCORPORATION: CA FISCAL YEAR END: 0130 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-14970 FILM NUMBER: 1619331 BUSINESS ADDRESS: STREET 1: 201 CLAY ST STREET 2: P O BOX 23350 CITY: OAKLAND STATE: CA ZIP: 94607 BUSINESS PHONE: 4158937300 MAIL ADDRESS: STREET 1: P O BOX 23350 STREET 2: P O BOX 23350 CITY: OAKLAND STATE: CA ZIP: 94623 10-K405 1 d10k405.txt FORM 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 3, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________. Commission file number 0-14970 COST PLUS, INC. (Exact name of registrant as specified in its charter) California 94-1067973 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 200 4th Street 94607 Oakland, California (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code (510) 893-7300 Securities registered pursuant to None Section 12(b) of the Act: Securities registered pursuant to Common Stock, $.01 par value Section 12(g) of the Act: Preferred Share Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filer pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- The aggregate market value of voting stock held by non-affiliates of the registrant on March 30, 2001 was approximately $487,214,000 based upon the last sale price reported for such date on the Nasdaq National Market. On that date, 21,125,854 shares of Common Stock, $.01 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended February 3, 2001 ("Annual Report") are incorporated by reference into Part II and Part IV. Portions of the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held June 26, 2001 ("Proxy Statement") are incorporated by reference into Part III. This Form 10-K, including the documents incorporated by reference herein, contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including statements that include the words "believes," "expects" or "anticipates ," or similar expressions. The Company may also make additional written and oral forward-looking statements from time to time. Actual results may differ materially from those discussed in such forward-looking statements due to a number of factors including those set forth below and elsewhere in this Form 10-K and in documents which are incorporated by reference herein. The Company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company. PART I ITEM 1. BUSINESS The Company Cost Plus, Inc. ("Cost Plus World Market" or "the Company") is a leading specialty retailer of casual home furnishings and entertaining products. As of February 3, 2001, the Company operated 127 stores under the name "World Market," "Cost Plus World Market," "Cost Plus" or "Cost Plus Imports" in 19 states, primarily in the Western United States, but with stores as far east as Georgia, North Carolina and Virginia. Cost Plus World Market's business strategy is to differentiate itself by offering a large and ever-changing selection of unique products, many of which are imported, at competitive prices in an exciting shopping environment. Many of Cost Plus World Market's products are proprietary or private label, often incorporating the Company's own designs, "World Market" brand name, quality standards and specifications, and typically are not available at department stores and other specialty retailers. Cost Plus World Market's expansion strategy is to open stores primarily in metropolitan and suburban markets that can support multiple stores and enable the Company to achieve advertising, distribution and operating efficiencies. The Company may also selectively enter mid-size markets which can support one or two stores that the Company believes can meet its profitability criteria. The Company's stores are located predominantly in high traffic metropolitan and suburban locales, often near major malls. In fiscal 2000, the Company opened a total of 24 stores, including fourteen in existing markets of Chicago, Cleveland, Columbus, Dallas/Fort Worth, Los Angeles, Phoenix, Portland, and San Antonio, and ten in new markets of Atlanta, Charlotte, Raleigh, San Luis Obispo, Santa Fe, Temecula and Northern Virginia. Merchandising Cost Plus World Market's merchandising strategy is to offer customers a broad selection of distinctive items related to the theme of casual home furnishing and home entertaining. Products. The Company believes its distinctive and unique merchandise differentiates the Company from other retailers. Many of Cost Plus World Market's products are proprietary or private label, often incorporating the Company's own designs, "World Market" brand name, quality standards and specifications and typically are not available at department stores and other specialty retailers. In addition to strengthening the stores' product offering, proprietary and private label goods typically offer higher gross margin opportunities than branded goods. A significant portion of Cost Plus World Market's products are made abroad in approximately 70 countries and many of these goods are handcrafted by local artisans. The Company's product offerings are designed to provide solutions to customers' casual living and home entertaining needs. The offerings include home decorating items such as furniture, rugs, pillows, lamps, window coverings, frames and baskets. Cost Plus World Market's furniture products include ready-to-assemble living and dining room pieces, unusual handcrafted case goods and occasional pieces, as well as outdoor furniture made from a variety of materials such as rattan, hardwood and wrought iron. The Company also sells a number of tabletop and kitchen items including glassware, ceramics, textiles and cooking utensils. Kitchen products offer the casual gourmet an assortment of products organized around a variety of themes such as baking, food preparation, barbeque and international dining. Cost Plus World Market offers a number of gift and decorative accessories, including collectibles, cards, wrapping paper and Christmas and other seasonal items. Because many of the gift and collectible items come from around the world, they contribute to the exotic atmosphere of the stores. Cost Plus World Market also offers its customers a wide selection of gourmet foods and beverages, including wine, microbrewed and imported beer, coffee, tea and mineral water. The wine assortment offers a number of moderately priced premium wines, including a variety of well recognized labels, as well as wines not readily available at neighborhood wine or grocery stores. Consumable products, particularly beverages, generally have lower margins than the Company's average. Coffee, roasted at the Company's own roasting plant, is sold over-the-counter from bulk containers. Gourmet foods include packaged products from around the world and seasonal items that relate to "old world" holidays and customs. Packaged snacks, candy and pasta are displayed in open barrels and crates. All food items typically have a shelf life of six months or longer. The Company replaces or updates many of the items in its merchandise assortment on a regular basis in order to encourage repeat shopping and to promote a sense of discovery. The Company regularly marks down and eliminates items that do not meet its turnover expectations. Format and Presentation. The Company's stores are designed to evoke the feeling of a "world marketplace" through colorful and creative visual displays and merchandise presentations, including goods in open barrels and crates, groupings of related products in distinct "shops" within the store and in-store activities such as cooking demonstrations and food and coffee tastings. The Company believes that its "world marketplace" effect provides customers with a fun shopping experience and encourages browsing throughout the store. The average selling space of a Cost Plus World Market store is approximately 16,000 square feet, which allows flexibility for merchandise displays, product adjacencies and directed traffic patterns. Complementary products are positioned in proximity to one another and cross merchandising themes are used in merchandise displays to tie different product offerings together. The unobstructed floor plan allows the customer to see virtually all of the different product areas in a Cost Plus World Market store from the entrance. The "power" aisle, where bulk displays highlight sharply priced items, leads the customer through the store into the different product areas. The Company uses a "swing" area near the front of the store to group seasonal products in themes, such as Christmas and Easter. Store signage, including permanent as well as promotional signs, is developed by the Company's in-house graphic design department. End caps, bulk stacks and free standing displays are changed frequently. The Cost Plus World Market store format is also designed to reinforce the Company's value image through exposed ceilings, concrete floors, simple wooden fixtures and open or bulk presentations of merchandise. The Company displays most of its inventory on the selling floor and makes effective use of vertical space, for example, a display of chairs arranged on a wall and rugs hanging vertically from racks. The Company believes that its customers usually visit a Cost Plus World Market store as a destination with a specific purchase in mind. The Company also believes that once in the store, its customers often spend additional time shopping and browsing and purchasing more items than they originally intended. Pricing. Cost Plus World Market offers quality products at competitive prices. The Company complements its competitive everyday prices with opportunistic buys, enabling the Company to pass on additional savings to the customer. The Company routinely shops a variety of retailers to ensure that its products are competitively priced. Planning and Buying. Cost Plus World Market effectively manages a large number of products by utilizing centralized merchandise planning, tracking and replenishment systems. The Company regularly monitors merchandise activity at the item level through its management information systems to identify and respond to product trends. The Company maintains its own central buying staff which is responsible for establishing the assortment of inventory within its merchandise classifications each season, including integrating trends or themes identified by the Company into its different product categories. The Company attempts to moderate the risk associated with merchandise purchasing by testing selected new products in a limited number of stores. The Company's long-standing relationships with overseas suppliers, its international buying agency network and its knowledge of the import process facilitate the planning and buying process. The buyers work closely with suppliers to develop unique products that will meet customers' expectations for quality and value. The Company's buyers communicate with district and store managers and use the management information systems to tailor the merchandise mix of individual stores to regional conditions and to better ensure that in-stock availability will be maintained in accordance with the specific requirements of each store. Advertising The Company advertises primarily through promotional ads in major daily newspapers and on radio and television. The Company's approach is to regionalize its advertising and use the most efficient media mix within a geographic area. The Company uses four to sixteen page full color tabloids and color or black and white newspaper advertisements in selected markets to highlight product offerings and selected promotions. Radio and television media is often used for seasonal advertising, such as Christmas. For store grand openings, the Company uses a combination of newspaper and radio. Product Sourcing and Distribution The Company purchases most of its inventory through its central purchasing system, which allows the Company to take advantage of volume purchase discounts and improve controls over inventory and product mix. The Company purchases its merchandise from over 1,700 suppliers and no supplier represented over 4% of total purchases in the fiscal year ended February 3, 2001. A significant portion of Cost Plus World Market's products are made abroad in approximately 70 countries in Europe, North and South America, Asia, Africa and Australia. The Company has established a well developed overseas sourcing network and enjoys long standing relationships with many of its vendors. As is customary in the industry, the Company does not have long-term contracts with any suppliers. The Company's buyers often work with suppliers to produce unique products exclusive to Cost Plus World Market. The Company believes that, although there could be delays in changing suppliers, alternate sources of merchandise for core product categories are available at comparable prices. Cost Plus World Market typically purchases overseas products on a free-on-board shipping point basis, and the Company's insurance on such goods commences at the time it takes ownership. The Company also purchases a number of domestic products, especially in the gourmet food and beverage area. Due to state regulations, wine and beer are purchased from local distributors, with purchasing controlled by the Corporate buying office. The Company currently services all of its stores from its distribution center in Stockton, California. Domestically sourced merchandise is usually delivered to the distribution center by common carrier or by Company trucks. Any significant interruption in the operation of this facility would have a material adverse effect on the Company's financial position and results of operations. In December 2000, the Company closed its 100,000 square foot satellite distribution center in Peru, Indiana. In mid-year 2002, the Company expects to open a 500,000 square foot full-service distribution center in Isle of Wight County, Virginia. The Company believes that its Stockton, California distribution center will be able to handle, or can be upgraded to handle, the Company's store expansion plans until the Virginia distribution center becomes fully operational. Management Information Systems Each of the Company's stores is linked to the Cost Plus World Market headquarters in Oakland, California through a point-of-sale system that interfaces with an IBM AS/400 computer. The Company's information systems keep records, which are updated daily, of each merchandise item sold in each store, as well as financial, sales and inventory information. The point-of-sale system also has scanning, "price-look-up" and on-line credit/debit card approval capabilities, all of which improve transaction accuracy, speed checkout time and increase overall store efficiency. The Company continually upgrades its in-store information systems to improve information flow to store management and enhance other in-store administration capabilities. Purchasing operations are facilitated by the use of computerized merchandise information systems which allow the Company to analyze product sell- through and assist the buyers in making merchandise decisions. The Company's central replenishment system includes SKU/store-specific, individualized inventory "model stock" logic which enables the Company to maintain adequate stock levels on basic goods, in each location. The Company believes its centralized purchasing system has helped it to reduce in-store inventory levels and improve in-stock conditions. The Company uses several other customized management information and control systems to direct the Company's operations and finances. These computerized systems are designed to ensure the integrity of the Company's inventory, allow the merchandising staff to reprice merchandise, process payroll, pay bills, control cash, maintain fixed assets and track promotions, throughout all of the Company's stores. The Company's distribution operations use systems to receive, locate, pick and ship inventory to stores. The Company believes that these systems allow for higher operating efficiency and improve profitability. Additional systems also enable the Company to produce the periodic financial reports necessary for developing budgets and monitoring individual store and consolidated Company performance. The Company believes that its current management information system is upgradable to support the Company's planned expansion for the foreseeable future. Competition The markets served by the Company are highly competitive. The Company competes against a diverse group of retailers ranging from specialty stores to department stores and discounters. The Company's product offerings compete with such specialty retailers as Bed, Bath & Beyond, Linens n' Things, Crate & Barrel, Pottery Barn, Michaels Stores, Pier 1 Imports, Trader Joe's and Williams-Sonoma. Specialty retailers tend to have higher prices and a more narrow assortment of products than Cost Plus World Market. Department stores typically have higher prices than Cost Plus World Market for similar merchandise. Discounters may have lower prices than Cost Plus World Market, but the product assortment is generally more limited. The Company competes with these and other retailers for customers, suitable retail locations and qualified management personnel. Employees As of February 3, 2001, the Company had 1,668 full-time and 2,092 part-time employees. Of these, 3,165 were employed in the Company's stores and 595 were employed in the distribution center and corporate office. The Company regularly supplements its work force with temporary staff, especially in the fourth quarter of each year, to service increased customer traffic during the peak Christmas season. Employees in 13 stores in Northern California are covered by a collective bargaining agreement which expires on May 31, 2003. The Company believes that it enjoys good relationships with its employees. Trademarks The Company regards its trademarks and service marks as having significant value and as being important to its marketing efforts. The Company has registered its "Cost Plus," "Cost Plus World Market," "Crossroads," "World Market," "Electric Reindeer" and "Where you can afford to be different" marks and its "Cost Plus World Market" and "World Market" logos with the United States Patent and Trademark Office on the Principal Register. The Company has also secured California state registration of its "Crossroads" trademark. The Company's policy is to pursue prompt and broad registration of its marks and to vigorously oppose infringement of its marks. Risk Factors Seasonality and Quarterly Fluctuations. The Company's business is highly seasonal, reflecting the general pattern associated with the retail industry of peak sales and earnings during the Christmas season. Due to the importance of the Christmas selling season, the fourth quarter of each fiscal year has historically contributed, and the Company expects it will continue to contribute, a disproportionate percentage of the Company's net sales and most of its net income for the entire fiscal year. Any factors negatively affecting the Company during the Christmas selling season in any year, including unfavorable economic conditions, could have a material adverse effect on the Company's financial condition and results of operations. The Company generally experiences lower sales and earnings during the first three quarters and, as is typical in the retail industry, may incur losses in these quarters. The results of operations for these interim periods are not necessarily indicative of the results for a full fiscal year. In addition, the Company makes decisions regarding merchandise well in advance of the season in which it will be sold, particularly for the Christmas selling season. Significant deviations from projected demand for products could have a material adverse effect on the Company's financial condition and results of operations, either by lost gross sales due to insufficient inventory or lost gross margin due to the need to mark down excess inventory. The Company's quarterly results of operations may also fluctuate based upon such factors as the number and timing of store openings and related store preopening expenses, the amount of net sales contributed by new and existing stores, the mix of products sold, the timing and level of markdowns, store closings, refurbishments or relocations, competitive factors, changes in fuel and other shipping costs and general economic conditions. Risks Associated with Expansion. The Company's ability to continue to increase its net sales and earnings will depend in part on its ability to open new stores and to operate such stores on a profitable basis. The Company's continued growth will also depend on its ability to increase sales in its existing stores. The Company opened 24 stores in fiscal 2000 and presently anticipates opening approximately 23 stores in fiscal 2001. The Company intends to open stores in both existing and new geographic markets. The opening of additional stores in an existing market could result in lower net sales from existing Company stores in that market. The success of the Company's planned expansion will be dependent upon many factors, including the identification of suitable markets, the availability and leasing of suitable sites on acceptable terms, the hiring, training and retention of qualified management and other store personnel, the availability of appropriate financing and general economic conditions. To manage its planned expansion, the Company must ensure the continuing adequacy of its existing systems, controls, and procedures, including product distribution facilities, store management, financial controls and information systems. There can be no assurance that the Company will be able to achieve its planned expansion, that new stores will be effectively integrated into the Company's existing operations or that such stores will be profitable. The Company's expansion strategy includes opening stores in new geographic markets. These new markets may present competitive and merchandising challenges that are different from those currently faced by the Company in its existing geographic markets. The Company may incur higher costs related to advertising and distribution in connection with entering new markets. If the Company opens stores in new markets that do not perform to the Company's expectations or if store openings are delayed, the Company's financial condition and results of operations could be materially adversely affected. In addition, in order to sell wine and beer, the Company is required to obtain alcoholic beverage licenses for each of its new stores and the laws regulating the issuance of alcoholic beverage licenses differ from state to state. Any delays in receiving alcoholic beverage licenses for new stores could have an adverse impact on such stores' operations. Risks Associated with Merchandising. The Company's success depends in part upon the ability of its merchandising staff to anticipate the tastes of its customers and to provide merchandise that appeals to their preferences. The Company's strategy requires it to introduce in a timely manner products from around the world that are affordable, distinctive in quality and design and not widely available from other retailers. Many of the Company's products require long lead times. In addition, a large percentage of the Company's merchandise changes regularly. The Company's failure to anticipate, identify or react appropriately to changes in consumer trends could lead to, among other things, either excess inventories and higher markdowns or a shortage of products and could have a material adverse effect on the Company's financial condition and results of operations. Effect of Economic Conditions and Geographic Concentration. The success of the Company's business depends to a significant extent upon the level of consumer spending. Among the factors that affect consumer spending are the general state of the economy, the level of consumer debt, prevailing interest rates and consumer confidence in future economic conditions. A substantial number of the Company's stores are located in the Western United States, principally in California. Lower levels of consumer spending in this region could have a material adverse effect on the Company's financial condition and results of operations. Reduced consumer confidence and spending may result in reduced demand for the Company's products, limitations on the Company's ability to increase prices and may require increased levels of selling and promotional expenses, thereby adversely affecting the Company's financial condition and results of operations. Risks Associated with Importing. The Company imports a significant portion of its merchandise from approximately 70 countries. The Company relies on its long-term relationships with its suppliers but has no long-term contracts with such suppliers. The Company's future success will depend in large measure upon its ability to maintain its existing supplier relationships or to develop new ones. As an importer, the Company's business is subject to the risks generally associated with doing business abroad, such as foreign governmental regulations, economic disruptions, delays in shipments, freight cost increases and changes in political or economic conditions in countries in which the Company purchases products. The Company's business is also subject to the risks associated with any new or revised United States legislation and regulations related to imported products, including quotas, duties, taxes and other charges or restrictions on imported merchandise. Additionally, since certain of the Company's purchases are made in currencies other than the U.S. Dollar and its financial results are reported in U.S. Dollars, fluctuations in the rates of exchange between the U.S. Dollar and other currencies may have a material adverse effect on the Company's financial condition and results of operations. Historically, the Company has not hedged its currency risk and does not currently anticipate doing so in the future. If any such factors were to render the conduct of business in particular countries undesirable or impractical or if additional United States quotas, duties, taxes or other charges or restrictions were imposed upon the importation of the Company's products in the future, the Company's financial condition and results of operations could be materially adversely affected. Dependence on a Single Distribution Facility. The Company's distribution functions for all of its stores are currently handled from a single facility in Stockton, California. Any significant interruption in the operation of this facility would have a material adverse effect on the Company's financial condition and results of operations. In mid-year 2002, the Company expects to open a 500,000 square foot, full-service distribution center in Isle of Wight County, Virginia. Delays in construction of this facility, cost over-runs with its construction and operational inefficiencies during start-up could have a material adverse effect on the Company's financial condition and results of operations. In addition, after the initial start-up, failure to successfully coordinate the operations of these facilities could have a material adverse effect on the Company's financial condition and results of operations. Competition. The markets served by the Company are highly competitive. The Company competes against a diverse group of retailers ranging from specialty stores to department stores and discounters. The Company's product offerings compete with such specialty retailers as Bed, Bath & Beyond, Linens n' Things, Crate & Barrel, Pottery Barn, Michaels Stores, Pier 1 Imports, Trader Joe's and Williams-Sonoma. The Company competes with these and other retailers for customers, suitable retail locations and qualified management personnel. Many of the Company's competitors have significantly greater financial, marketing and other resources than the Company and there can be no assurance that the Company will be able to compete successfully in the future. Dependence on Key Personnel. The success of the Company's business will continue to depend upon its key personnel. The Company does not maintain any key man life insurance policies. The loss of the services of one or more of its key personnel could have a material adverse effect on the Company's financial condition and results of operations. Changes in Energy Costs. The Company incurs significant costs for the purchase of fuel in transporting goods to its distribution center and stores and for the purchase of utility services for its store, distribution center and corporate office locations. Significant increases in the cost of fuel and utility services could have a material adverse effect on the Company's financial condition and results of operations. Possible Volatility of Stock Price. The stock market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These broad market fluctuations have adversely affected the market price of the Company's common stock. Factors such as fluctuations in the Company's operating results, a downturn in the retail industry, changes in stock market analysts' recommendations regarding the Company, other retail companies or the retail industry in general and general market and economic conditions may have a significant effect on the market price of the Company's common stock. ITEM 2. PROPERTIES As of March 31, 2001, the Company operated 132 stores in 19 states. The average selling space of a Cost Plus World Market store is approximately 16,000 square feet. The table below summarizes the distribution of stores by state: Arizona.................. 8 Idaho.................. 1 Nevada............... 3 Virginia............... 2 California............... 42 Illinois............... 11 New Mexico........... 2 Washington............. 6 Northern California.... 19 Indiana................ 1 North Carolina....... 3 Wisconsin.............. 1 Southern California.... 23 Michigan............... 9 Ohio................. 13 Colorado................. 3 Missouri............... 3 Oregon............... 4 Georgia.................. 3 Nebraska............... 1 Texas................ 16
The Company leases land and buildings for 125 stores (of which 16 are capital leases), leases land and owns the buildings for six stores and owns the land and building for one store. The Company currently leases its executive headquarters in Oakland, California pursuant to a lease which expires in October 2008. The Company currently leases its distribution facility of approximately 740,000 permanent square feet in Stockton, California pursuant to a lease which expires in September 2001 and has three renewal options for five years each. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any pending legal proceedings other than ordinary routine litigation incidental to the business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are as follows:
Name Age Position - --------------------------------------------------- --------- ---------------------------------------------------------- Murray H. Dashe 58 Chairman of the Board, Chief Executive Officer and President John F. Hoffner 53 Executive Vice President of Administration and Chief Financial Officer Kathi P. Lentzsch 45 Executive Vice President, Business Development Joan S. Fujii 54 Senior Vice President, Human Resources Richard L. Grice 55 Senior Vice President, Logistics Stephen L. Higgins 51 Senior Vice President, Merchandising Gary D. Weatherford 44 Senior Vice President, Store Operations
Mr. Dashe joined the Company in June 1997 and has served as Chairman of the Board and Chief Executive Officer since February 1998 with continued responsibilities as President. In September 1997, Mr. Dashe was appointed President with continued responsibilities as Vice Chairman of the Board. From June 1997 to September 1997, Mr. Dashe served as the Company's Vice Chairman of the Board. Mr. Dashe is responsible for overseeing all day-to-day operations and long-term strategies of the Company. From August 1992 to June 1997, he was Chief Operating Officer of Leslie's Poolmart, Inc., a swimming pool supply retail chain and was a director of that company from August 1989 to November 1996. From April 1990 through June 1992, he was President and Chief Executive Officer of RogerSound Labs, a Southern California retailer of audio/video consumer electronics. From September 1985 through April 1990, Mr. Dashe held several positions with SILO, a consumer electronics and appliance retailer, including Regional President, Regional Vice President and Director of Stores. Previously, he was employed in an executive capacity by other retailers, including Allied Stores Corp., where he served in a variety of positions, including Vice President/Director of Stores. Mr. Hoffner joined the Company in June 1998 as Executive Vice President, Administration and Chief Financial Officer. Prior to joining the Company, Mr. Hoffner served as Executive Vice President and Chief Financial Officer of Sweet Factory, Inc. from April 1993 to June 1998. From January 1991 to April 1993, Mr. Hoffner was employed by Wherehouse Entertainment, Inc. where he served as Senior Vice President, Finance and Administration. Prior to that, he held executive positions in finance and administration with retailers such as Dayton Hudson and Federated Department Stores. Ms. Lentzsch joined the Company in February 1997 and served as Executive Vice President, Merchandising and Marketing until February 2001 when she was appointed Executive Vice President, Business Development. From May 1996 to January 1997, Ms. Lentzsch served as a retail consultant to several specialty retailers. From May 1993 to May 1996, Ms. Lentzsch was employed by Pottery Barn, a division of Williams-Sonoma, Inc., where she was most recently Senior Vice President, Merchandising. From April 1991 to May 1993, Ms. Lentzsch was General Merchandising Manager and Vice President, Merchandising and Marketing at Impostors, a retail costume jewelry chain. Prior to that, she held a number of merchandising and marketing executive positions with several retailers, including Vice President, Merchandising at Pier 1 Imports, Inc. Ms. Fujii was named the Company's Senior Vice President, Human Resources in February 1998. Ms. Fujii joined the Company in May 1991 and served as Vice President, Human Resources from October 1994 until February 1998. From May 1991 to October 1994, Ms. Fujii served as the Company's Director of Human Resources. From September 1975 to May 1991, she was employed by Macy's California in the operations and personnel departments, ultimately serving as Vice President, Human Resources at Macy's Union Square store in San Francisco. Mr. Grice joined Cost Plus World Market in January 2000 as Senior Vice President, Logistics. Prior to joining the Company, Mr. Grice served as Vice President Logistics and Chemical Packaging General Manager at Leslie's PoolMart, Inc., a swimming pool supply retail chain, from January 1996 to January 2000. From March 1994 to December 1995, he served as Senior Vice President, General Manager at Daisy Kingdom, Inc., a manufacturer and retailer of fabrics, crafts and children's wear, in Portland, Oregon. Prior to that he held a number of executive positions in distribution and logistics with several department store and specialty retailers, including Fabric-Centers of America, Inc. (now Jo- Ann's), from 1988 to 1993 and SILO, a consumer electronics and appliance retailer, from 1985 to 1988. Mr. Higgins joined the Company in December 1999 as Vice President, Merchandising and was promoted to Senior Vice President in September 2000, with added responsibility for Visual Merchandising beginning in February 2001. Prior to joining the Company and from November 1996 to November 1999, Mr. Higgins served as President, Chief Operating Officer of Centex Life Solutions. From September 1994 to October 1996, Mr. Higgins was President, Chief Executive Officer of Everything Organized. From January 1992 to August 1994, Mr. Higgins was President, Chief Operating Officer of Tuesday Morning the nation's largest off-price Home/Gift retailer and from October 1988 to December 1991, he was its Senior Vice President of Merchandising. Mr. Weatherford was named Senior Vice President, Store Operations in February 1998. Mr. Weatherford joined the Company in January 1988 and served as Vice President, Store Operations from June 1995 until February 1998. From April 1991 to June 1995, Mr. Weatherford served as a Regional Manager for the Company and from January 1990 to April 1991 he was a Senior Store Manager for the Company. From January 1988 to January 1990, Mr. Weatherford served as a Buyer and Store Design Director for the Company. PART II Information called for by Part II (Items 5,6,7 and 8) has been filed as Exhibit 13 to this report on Form 10-K. Such information is incorporated herein by reference. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The information required by this item is incorporated herein by reference to the Company's 2000 Annual Report to Shareholders (on page 11), filed as Exhibit 13 to this report on Form 10-K. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is incorporated herein by reference to the Company's 2000 Annual Report to Shareholders (on page 5), filed as Exhibit 13 to this report on Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is incorporated herein by reference to the Company's 2000 Annual Report to Shareholders (on pages 6 - 11), filed as Exhibit 13 to this report on Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is incorporated herein by reference to the Company's 2000 Annual Report to Shareholders (on pages 10 - 11), filed as Exhibit 13 to this report on Form 10-K. ITEM 8. FINANCIAL STATEMENTS The information required by this item is incorporated herein by reference to the Company's 2000 Annual Report to Shareholders (on pages 12 - 27), filed as Exhibit 13 to this report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III Information called for by Part III (Items 10, 11, 12 and 13) of this report on Form 10-K has been omitted as the Company intends to file with the Securities and Exchange Commission not later than May 26, 2001 a definitive Proxy Statement pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934. Such information will be set forth in such Proxy Statement and is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated herein by reference to the section entitled "Executive Officers of the Registrant" at the end of Part I of this report and the Proxy Statement for the Company's 2001 Annual Meeting of Shareholders. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to the section entitled "Executive Compensation and other Matters" in the Proxy Statement for the Company's 2001 Annual Meeting of Shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by reference to the section entitled "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement for the Company's 2001 Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated herein by reference to the section entitled "Certain Relationships and Related Transactions" in the Proxy Statement for the Company's 2001 Annual Meeting of Shareholders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)1. Financial Statements: The following financial statements of Cost Plus, Inc. are incorporated herein by reference to the Company's 2000 Annual Report to Shareholders for the year ended February 3, 2001, filed as Exhibit 13 to this report on Form 10-K: Consolidated Balance Sheets as of February 3, 2001 and January 29, 2000 Consolidated Statements of Operations for the fiscal years ended February 3, 2001, January 29, 2000 and January 30, 1999 Consolidated Statement of Shareholders' Equity for the fiscal years ended February 3, 2001, January 29, 2000 and January 30, 1999 Consolidated Statements of Cash Flows for the fiscal years ended February 3, 2001, January 29, 2000 and January 30, 1999 Notes to Consolidated Financial Statements Independent Auditors' Report 2. Financial Statement Schedules: Financial statement schedules of Cost Plus, Inc. have been omitted from Item 14(d) because they are not applicable or the information is included in the financial statements or notes thereto. 3. List of Exhibits: See Exhibit Index beginning on page 13. (b) Reports on form 8-K: None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Cost Plus, Inc. Date: May 1, 2001 By:________________________________ Murray H. Dashe Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Murray H. Dashe Chairman of the Board, Chief May 1, 2001 - --------------------------- Executive Officer and President Murray H. Dashe (Principal Executive Officer) /s/ John F. Hoffner Executive Vice President, Administration and May 1, 2001 - --------------------------- Chief Financial Officer John F. Hoffner (Principal Financial and Accounting Officer) /s/ Joseph H. Coulombe Director May 1, 2001 - --------------------------- Joseph H. Coulombe /s/ Barry J. Feld Director May 1, 2001 - --------------------------- Barry J. Feld /s/ Danny W. Gurr Director May 1, 2001 - --------------------------- Danny W. Gurr /s/ Kim D. Robbins Director May 1, 2001 - --------------------------- Kim D. Robbins /s/ Fredric M. Roberts Director May 1, 2001 - --------------------------- Fredric M. Roberts /s/ Thomas D. Willardson Director May 1, 2001 - --------------------------- Thomas D. Willardson
INDEX TO EXHIBITS Exhibit No. Description of Exhibits - ----------- ----------------------- 3.1 Amended and Restated Articles of Incorporation as filed with the California Secretary of State on April 1, 1996 incorporated by reference to Exhibit 3.1 to the Form 10-K filed for the year ended February 1, 1997. 3.1.1 Certificate of Amendment of Restated Articles of Incorporation as filed with the California Secretary of State on February 25, 1999, incorporated by reference to Exhibit 3.1 to the Form 10-Q filed for the quarter ended May 1, 1999. 3.1.2 Certificate of Amendment of Restated Articles of Incorporation as filed with the California Secretary of State on September 24, 1999 incorporated by reference to Exhibit 3.1.2. to the Form 10-K for the year ended January 29, 2000. 3.2 Certificate of Determination as filed with California Secretary of State on July 27, 1998 incorporated by reference to Exhibit 3.2 to the Form 10-K filed for the year ended January 30, 1999. 3.3 Amended and Restated By-laws dated February 22, 2001. 4.0 Preferred Shares Rights Agreement, dated June 30, 1998 between Cost Plus, Inc. and BankBoston, N.A., including the Certificate of Determination, the form of Rights Certificate and the Summary of Rights, incorporated by reference to Exhibit 1 to the Form 8-A filed on July 27, 1998. 10.1 Form of Indemnification Agreement between the Company and each of its directors and officers, incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-1 effective April 3, 1996. 10.2 Registration Rights Agreement, dated March 17, 1995, between the Company and certain holders of the Company's securities, incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1 effective April 3, 1996. 10.3 Lease Agreement, dated August 27, 1991, as amended, between the Company and The Stockton Port District for certain warehouses for storage and distribution located in Stockton, California and extension thereto dated February 21, 1996, incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1 effective April 3, 1996. 10.4 Lease agreement between the Company and Square I, LLC for certain Corporate office space located in Oakland, California, incorporated by reference to Exhibit 10.1 to the Form 10-Q filed for the quarter ended October 31, 1998. 10.5 Business Loan Agreement, dated May 19, 2000, between the Company and Bank of America National Trust and Savings Association, incorporated by reference to Exhibit 10.2 to the Form 10-Q filed for the quarter ended April 29, 2000. 10.5.1 Amendment Number 1 to Business Loan Agreement, dated October 2, 2000, between the Company and Bank of America National Trust and Savings Association. 10.6* 1994 Stock Option Plan and form of Stock Option Agreement thereunder, incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-1 effective April 3, 1996. 10.7.1* 1995 Stock Option Plan, as amended, incorporated by reference to Exhibit 10.2 to the Form 10-Q filed for the quarter ended July 29, 2000. 10.7.2* Form of Stock Option Agreement, 1995 Stock Option Plan, incorporated by reference to Exhibit 10.4 to the Form 10-K filed for the year ended February 1, 1997. 10.8.1* 1996 Director Option Plan, as amended, incorporated by reference to Exhibit 10.1 to the Form 10-Q filed for the quarter ended July 29, 2000. 10.8.2* Form of Stock Option Agreement, 1996 Director Option Plan, incorporated by reference to Exhibit 10.4 to the Form 10-Q filed for the quarter ended July 31, 1999. 10.9* 1996 Employee Stock Purchase Plan, incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-1 effective April 3, 1996. 10.10* The Cost Plus, Inc. Deferred Compensation Plan effective October 1, 1997 incorporated by reference to Exhibit 10.11 to the Form 10-K filed for the year ended January 31, 1998. 10.11* 1997 Executive Officer and Key Employee Loan Plan, dated May 7, 1997, incorporated by reference to Appendix C of the Company's Proxy Statement dated May 22, 1997. 10.12.1* Employment Agreement, dated June 12, 1997, between the Company and Murray H. Dashe, incorporated by reference to Exhibit 10.4 to the Form 10-Q filed for the quarter ended August 2, 1997. 10.12.2* Amendment to Employment Agreement, dated January 13, 1999, between the Company and Murray H. Dashe incorporated by reference to Exhibit 10.16.2 to the Form 10-K filed for the year ended January 30, 1999. 10.12.3* Amendment to Employment Agreement, dated July 22, 1999, between the Company and Murray H. Dashe, incorporated by reference to Exhibit 10.6 to the Form 10-Q filed for the quarter ended July 31, 1999. 10.12.4* Amendment to Employment Agreement, dated March 29, 2001, between the Company and Murray H. Dashe. 10.13.1* Employment Agreement, dated February 2, 1997, between the Company and Kathi P. Lentzsch, incorporated by reference to Exhibit 10.5 to the Form 10-Q filed for the quarter ended August 2, 1997. 10.13.2* Employment Severance Agreement, as amended, dated July 22, 1999, between the Company and Kathi P. Lentzsch incorporated by reference to Exhibit 10.8 to the Form 10-Q filed for the quarter ended July 31, 1999. 10.14.1* Employment Agreement, dated May 6, 1998, between the Company and John F. Hoffner, incorporated by reference to Exhibit 10.4 to the Form 10-Q filed for the quarter ended August 1, 1998. 10.14.2* Amendment to Employment Agreement, dated January 13, 1999, between the Company and John F. Hoffner incorporated by reference to Exhibit 10.18.2 to the Form 10-K filed for the year ended January 30, 1999. 10.14.3* Amendment to Employment Agreement, dated July 22, 1999, between the Company and John F. Hoffner, incorporated by reference to Exhibit 10.7 to the Form 10-Q filed for the quarter ended July 31, 1999. 10.14.4* Amendment to Employment Agreement dated March 29, 2001, between the Company and John F. Hoffner. 10.15.1* Employment Severance Agreement, as amended, dated July 22, 1999, between the Company and Gary D. Weatherford incorporated by reference to Exhibit 10.9 to the Form 10-Q filed for the quarter ended July 31, 1999. 10.15.2* Amendment to Employment Severance Agreement dated March 29, 2001 between the Company and Gary D. Weatherford. 10.16.1* Employment Severance Agreement, as amended, dated July 22, 1999, between the Company and Joan S. Fujii incorporated by reference to Exhibit 10.10 to the Form 10-Q filed for the quarter ended July 31, 1999. 10.16.2* Amendment to Employment Severance Agreement dated March 29, 2001, between the Company and Joan S. Fujii. 10.17* Executive Transition Agreement, dated May 7, 1999, between the Company and Ralph D. Dillon incorporated by reference to Exhibit 10.1 to the Form 10-Q filed for the quarter ended May 1, 1999. 10.18* Amended and Restated Severance Agreement dated March 29, 2001 between the Company and Stephen L. Higgins. 13 Registrant's 2000 Annual Report to Shareholders (only those portions specifically incorporated by reference into this Report are deemed "filed" with the Securities and Exchange Commission). 21 List of Subsidiaries of the Company. 23 Independent Auditors' Consent. * Management compensation plan or arrangement. EX-3.3 2 dex33.txt AMENDED AND RESTATED BY-LAWS DATED 02/22/01 Exhibit 3.3 AMENDED AND RESTATED/1/ BY-LAWS OF COST PLUS, INC. (a California corporation) (the "corporation") Article I OFFICES Section 1.1 Principal Office. The principal office for the transaction of ---------------- the business of the corporation shall be located at 200 4th Street, Oakland, State of California. The Board of Directors of the corporation (the "Board" or the "Board of Directors") is hereby granted full power and authority to change said principal office to another location within or without the State of California. Section 1.2 Other Offices. One or more branch or other subordinate offices ------------- may at any time be fixed and located by the Board of Directors at such place or places within or without the State of California as it deems appropriate. Article II DIRECTORS Section 2.1 Exercise of Corporate Powers. Except as otherwise provided by ---------------------------- the Articles of Incorporation of the corporation or by the laws of the State of California now or hereafter in force, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. The Board may delegate the management of the day-to-day operation as permitted by law provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board. Without limiting the foregoing, in addition to any other action required by law, by the Articles of Incorporation or by these By-Laws, approval by the Board of Directors or a duly established committee of the Board shall be required for any of the following corporate actions: (a) the election and removal of the Chairman (if any), the President, the Chief Financial Officer, or any other executive officer of the corporation or any significant subsidiary (as such term is defined in Regulation S-X promulgated under the Securities Act of 1933, as amended) ____________________________________ /1/ As of February 22, 2001 of the corporation, the compensation of any of them, and the prescription of such powers and duties for them as are not inconsistent with the Articles of Incorporation, these By-Laws or applicable law; (b) lease of any real property on terms which exceed parameters approved by the Board; (c) ceasing of operations at any of the business locations of the corporation any writeoff for any such location in excess of $250,000; (d) sale, exchange, mortgage, pledge or other disposition or encumbrance by the corporation of any real property or any other assets of the corporation having a net book or fair market value in excess of $1,000,000 other than sales of inventory in the ordinary course of business; (e) settlement of any claim involving a payment or forbearance, or any writeoff, by the corporation in excess of $500,000 not included in the annual capital expenditure budgets for the corporation; (f) appointment of auditors for the corporation and any significant change in the accounting principles or tax elections applicable to the corporation which are not mandated by generally accepted accounting principles or applicable law; and (g) any contract or other transaction between the corporation and one or more of its directors or officers or any entity in which one or more of its directors or officers has a material financial interest. Section 2.2 Number. The number of directors of the corporation shall be not ------ less than five (5) nor more than nine (9). The exact number of directors shall be seven (7) until changed, within the limits specified above, by a bylaw amending this Section 2.2, duly adopted by the Board of Directors or by the shareholders. The indefinite number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the Articles of Incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the fixed number or the minimum number of directors to a number less than five cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of an action by written consent, are equal to more than 16-2/3% of the outstanding shares entitled to vote thereon. No amendment may change the stated maximum number of authorized directors to a number greater than two times the stated minimum number of directors minus one. Section 2.3 Need not Be Shareholders. The directors of the corporation need ------------------------ not be shareholders of the corporation. Section 2.4 Compensation. Directors shall receive such compensation for ------------ their services as directors and such reimbursement for their expenses of attendance at meetings as may be determined from time to time by resolution of the Board. Nothing herein contained shall be construed to -2- preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Section 2.5 Election and Term of Office. At each annual meeting of --------------------------- shareholders, directors shall be elected to hold office until the next annual meeting, provided, that if for any reason, said annual meeting or an adjournment thereof is not held or the directors are not elected thereat, then the directors may be elected at any special meeting of the shareholders called and held for that purpose. The term of office of the directors shall begin immediately after their election and shall continue until the expiration of the term for which elected and until their respective successors have been elected and qualified. Section 2.6 Vacancies. A vacancy or vacancies in the Board of Directors --------- shall exist when any authorized position of director is not then filled by a duly elected director, whether caused by death, resignation, removal change in the authorized number of directors (by the Board or the shareholders) or otherwise. The Board of Directors may declare vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony. Except for a vacancy created by the removal of a director, vacancies on the Board may be filled by a majority of the directors then in office, whether or not less than a quorum, or by a sole remaining director. A vacancy created by the removal of a director may be filled only by the approval of the shareholders. The shareholders may elect a director at any time to fill any vacancy not filled by the directors, but any such election by written consent requires the consent of a majority of the outstanding shares entitled to vote. Any director may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. Section 2.7 Removal. (a) Any and all of the directors may be removed ------- without cause if such removal is approved by the affirmative vote of a majority of the outstanding shares entitled to vote at an election of directors, except that no director may be removed (unless the entire Board is removed) when the votes cast against removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election at which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of the director's most recent election were then being elected. (b) Any reduction of the authorized number of directors does not remove any director prior to the expiration of such director's term of office. Section 2.8 Approval of Loans. The corporation may, upon the approval of ----------------- the Board of Directors alone, make loans of money or property to, or guarantee the obligations of, any officer of the corporation or of its parent, if any, whether or not a director, or adopt an employee benefit plan or plans authorizing such loans or guaranties provided that: (i) the Board of Directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation; (ii) the corporation has outstanding shares held of record by 100 or more persons (determined as provided in Section 605 of the California General Corporation Law) on the date of approval by the Board of Directors; and (iii) the approval of the Board of Directors is by a vote sufficient without counting the -3- vote of any interested director or directors. Notwithstanding the foregoing, the corporation shall have the power to make loans otherwise permitted by the California General Corporation Law. Article III OFFICERS Section 3.1 Election and Qualifications. The officers of this corporation --------------------------- shall consist of a President, a Chief Financial Officer and a Secretary who shall be chosen by the Board of Directors and such other officers, including a Chairman of the Board, one or more Vice Presidents, an Assistant Treasurer, an Assistant Secretary and a Controller, as the Board of Directors shall deem expedient, who shall be chosen in such manner and hold their offices for such terms as the Board of Directors may prescribe. Any two or more of such offices may be held by the same person. Any Vice President, Assistant Treasurer or Assistant Secretary, respectively, may exercise any of the powers of the President, the Chief Financial Officer, or the Secretary, respectively, as directed by the Board of Directors and shall perform such other duties as are imposed upon such officer by the By-Laws or the Board of Directors. Section 3.2 Term of Office and Compensation. The term of office and salary ------------------------------- of each of said officers and the manner and time of the payment of such salaries shall be fixed and determined by the Board of Directors and may be altered by said Board from time to time at its pleasure, subject to the rights, if any, of said officers under any contract of employment. Section 3.3 Removal and Vacancies. Any officer of the corporation may be --------------------- removed at the pleasure of the Board of Directors at any meeting or by vote of shareholders entitled to exercise the majority of voting power of the corporation at any meeting. Any officer may resign at any time upon written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. If any vacancy occurs in any office of the corporation, the Board of Directors may elect a successor to fill such vacancy for the remainder of the unexpired term and until a successor is duly chosen and qualified. Article IV CHAIRMAN OF THE BOARD Section 4.1 Powers and Duties. The Chairman of the Board of Directors, if ----------------- there be one, shall have the power to preside at all meetings of the Board of Directors, and to call meetings of the shareholders and of the Board of Directors to be held within the limitations prescribed by law or by these By- Laws, at such times and at such places as the Chairman of the Board shall deem proper. The Chairman of the Board shall have such other powers and shall be subject to such other duties as the Board of Directors may from time to time prescribe. -4- Article V PRESIDENT Section 5.1 Powers and Duties. The powers and duties of the President are: ----------------- (a) To act as the chief executive officer of the corporation and, subject to the control of the Board of Directors, to have general supervision, direction and control of the business and affairs of the corporation. (b) To preside at all meetings of the shareholders and, in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. (c) To call meetings of the shareholders and also of the Board of Directors to be held, subject to the limitations prescribed by law or by these By-Laws, at such times and at such places as the President shall deem proper. (d) To affix the signature of the corporation to all deeds, conveyances, mortgages, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board of Directors or which do not require the approval of the Board of Directors under Section 2.1 of the By-Laws and in the judgment of the President should be executed on behalf of the corporation, to sign certificates for shares of stock of the corporation and, subject to the direction of the Board of Directors, to have general charge of the property of the corporation and to supervise and control all officers, agents and employees of the corporation. Section 5.2 President pro tem. If neither the Chairman of the Board, the ----------------- President, nor any Vice President is present at any meeting of the Board of Directors, a President pro tem may be chosen to preside and act at such meeting. If neither the President nor any Vice President is present at any meeting of the shareholders, a President pro tem may be chosen to preside at such meeting. Article VI VICE PRESIDENT Section 6.1 Powers and Duties. In case of the absence, disability or death ----------------- of the President, the Vice President, or one of the Vice Presidents, shall exercise all the powers and perform all the duties of the President. If there is more than one Vice President, the order in which the Vice Presidents shall succeed to the powers and duties of the President shall be as fixed by the Board of Directors. The Vice President or Vice Presidents shall have such other powers and perform such other duties as may be granted or prescribed by the Board of Directors. -5- Article VII SECRETARY Section 7.1 Powers and Duties. The powers and duties of the Secretary are: ----------------- (a) To keep a book of minutes at the principal office of the corporation, or such other place as the Board of Directors may order, of all meetings of its directors and shareholders with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at shareholders' meetings and the proceedings thereof. (b) To keep the seal of the corporation and to affix the same to all instruments which may require it. (c) To keep or cause to be kept at the principal office of the corporation, or at the office of the transfer agent or agents, a share register, or duplicate share registers, showing the names of the shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for shares, and the number and date of cancellation of every certificate surrendered for cancellation. (d) To keep a supply of certificates for shares of the corporation, to fill in all certificates issued, and to make a proper record of each such issuance; provided, that so long as the corporation shall have one or more duly appointed and acting transfer agents of the shares, or any class or series of shares, of the corporation, such duties with respect to such shares shall be performed by such transfer agent or transfer agents. (e) To transfer upon the share books of the corporation any and all shares of the corporation; provided, that so long as the corporation shall have one or more duly appointed and acting transfer agents of the shares, or any class or series of shares, of the corporation, such duties with respect to such shares shall be performed by such transfer agent or transfer agents, and the method of transfer of each certificate shall be subject to the reasonable regulations of the transfer agent to which the certificate is presented for transfer, and also, if the corporation then has one or more duly appointed and acting registrars, to the reasonable regulations of the registrar to which the new certificate is presented for registration; and provided, further, that no certificate for shares of stock shall be issued or delivered or, if issued or delivered, shall have any validity whatsoever until and unless it has been signed or authenticated in the manner provided in Section 14.4 hereof. (f) To make service and publication of all notices that may be necessary or proper, and without command or direction from anyone, in case of the absence, disability, refusal or neglect of the Secretary to make service or publication of any notices, then such notices may be served and/or published by the President or a Vice President, or by any person thereunto authorized by either of them or by the Board of Directors or by the holders of a majority of the outstanding shares of the corporation. -6- (g) Generally to do and perform all such duties as pertain to the office of Secretary and as may be required by the Board of Directors. Article VIII CHIEF FINANCIAL OFFICER Section 8.1 Powers and Duties. The powers and duties of the Chief Financial ----------------- Officer are: (a) To supervise and control the keeping and maintaining of adequate and correct accounts of the corporation's properties and business transactions, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. (b) To have the custody of all funds, securities, evidence of indebtedness and other valuable documents of the corporation and, at the Chief Financial Officer's discretion, to cause any or all thereof to be deposited for the account of the corporation with such depositary as may be designated from time to time by the Board of Directors. (c) To receive or cause to be received, and to give or cause to be given receipts and acquittances for moneys paid in for the account of the corporation. (d) To disburse, or cause to be disbursed, all funds of the corporation as may be directed by the Board of Directors, taking proper vouchers for such disbursements. (e) To render to the President and to the Board of Directors, whenever they may require, accounts of all transactions and of the financial condition of the corporation. (f) Generally to do and perform all such duties as pertain to the office of Chief Financial Officer and as may be required by the Board of Directors. Article IX TREASURER Section 9.1 Powers and Duties. The Treasurer shall have such powers and ----------------- duties as from time to time may be prescribed by the board of directors or these By-Laws, including custody of and responsibility for all money and investments. -7- Article X CONTROLLER Section 10.1 Powers and Duties. The Controller, if there be one, shall have ----------------- the power and duty to keep and maintain adequate and correct accounts of the corporation's properties and business transactions, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings and shares, and to render to the Chief Financial Officer, the President and the Board of Directors, whenever they may require, accounts of all transactions and of the financial condition of the corporation. The Controller shall generally have the power to do and perform all such other duties as pertain to the office of Controller and as may be required by the Board of Directors. Article XI COMMITTEES OF THE BOARD Section 11.1 Appointments and Procedure. The Board of Directors may, by -------------------------- resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the Board, designate members of any committee, and designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. Section 11.2 Powers. Any committee appointed by the Board of Directors, to ------ the extent provided in the resolution of the Board or in these By-Laws, shall have all the authority of the Board except with respect to: (a) the approval of any action for which the California General Corporation Law or the Articles of Incorporation or these By-Laws requires the approval or vote of the shareholders or of a majority or supermajority of the directors then serving on the Board of Directors; (b) the filling of vacancies on the Board or on any committee; (c) the fixing of compensation of the directors for serving on the Board or on any committee; (d) the amendment or repeal of By-Laws or the adoption of new By-Laws; (e) the amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable; (f) a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the Board; and (g) the appointment of other committees of the Board or the members thereof. -8- Section 11.3 Executive Committee. In the event that the Board of Directors ------------------- appoints an Executive Committee, such Executive Committee, in all cases in which specific directions to the contrary shall not have been given by the Board of Directors, shall have and may exercise, during the intervals between the meetings of the Board of Directors, all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation (except as provided in Section 11.2 hereof) in such manner as the Executive Committee may deem best for the interests of the corporation. Article XII MEETINGS OF SHAREHOLDERS Section 12.1 Place of Meetings. Meetings (whether regular, special or ----------------- adjourned) of the shareholders of the corporation shall be held at the principal office for the transaction of business as specified in accordance with Section 1.1 hereof, or any place within or without the State which may be designated by written consent of all the shareholders entitled to vote thereat, or which may be designated by the Board of Directors. Section 12.2 Time of Annual Meetings. The annual meeting of the ----------------------- shareholders shall be held at the hour of 9:00 o'clock in the morning on the fourth Thursday in June in each year, if not a legal holiday, and if a legal holiday, then on the next succeeding business day not a legal holiday, or such other time or date as may be set by the Board of Directors. Section 12.3 Special Meetings. (a) Special meetings of the shareholders may ---------------- be called by the Board of Directors, the Chairman of the Board, the President or the holders of shares entitled to cast not less than 10% of the vote at the meeting. (b) If a special meeting is called by any person or persons other than the Board of Directors, the Chairman of the Board or the President, then the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the Chairman of the Board, the President, any Vice President or the Secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders entitled to vote, in accordance with the provisions of Sections 12.4 and 12.5 of these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, then the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 12.3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the Board of Directors may be held. Section 12.4 Notice of Meetings. (a) Whenever shareholders are required or ------------------ permitted to take any action at a meeting, a written notice of the meeting shall be given not less than 10 nor more than 60 days before the day of the meeting to each shareholder entitled to vote thereat. Such notice -9- shall state the place, date and hour of the meeting and (1) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (2) in the case of the annual meeting, those matters which the Board, at the time of the mailing of the notice, intends to present for action by the shareholder, but subject to the provisions of subdivision (b) any proper matter may be presented at the meeting for such action. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by management for election. (b) Any shareholder approval at a meeting, other unanimous approval by those entitled to vote, on any of the matters listed below shall be valid only if the general nature of the proposal so approved was stated in the notice of meeting or in any written waiver of notice: (1) a proposal to approve a contract or other transaction between a corporation and one or more of its directors, or between a corporation and any corporation, firm or association in which one or more directors has a material financial interest; (2) a proposal to amend the Articles of Incorporation; (3) a proposal regarding a reorganization, merger or consolidation involving this corporation; (4) a proposal to wind up and dissolve the corporation; and (5) a proposal to adopt a plan of distribution of the shares, obligations or securities of any other corporation, domestic or foreign, or assets other than money which is not in accordance with the liquidation rights of any preferred shares as specified in the Articles of Incorporation. Section 12.5 Delivery of Notice. Notice of shareholders' meeting or any ------------------ report shall be given either personally or by mail or other means of written communication, addressed to the shareholder at the address of such shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice; or if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located. The notice or report shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. An affidavit of mailing of any notice or report in accordance with the provisions of this section, executed by the Secretary, Assistant Secretary or any transfer agent, shall be prima facie evidence of the giving of the notice or report. If any notice or report addressed to the shareholders at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written -10- demand of the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice to all other shareholders. Section 12.6 Adjourned Meetings. When a shareholders' meeting is adjourned ------------------ to another time or place, unless the By-Laws otherwise require and except as provided in this section, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 45 days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. Section 12.7 Consent to Shareholders' Meeting. The transactions of any -------------------------------- meeting of shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if either before or after the meeting each of the persons entitled to vote, not present in person or by proxy signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the California General Corporation Law to be included in the notice but not so included in the notice if such objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of shareholders need be specified in any written waiver of notice, unless otherwise provided in the Articles of Incorporation or By-Laws, except as provided in subdivision (b) of Section 12.4. Section 12.8 Quorum. (a) The presence in person or by proxy of the persons ------ entitled to vote the majority of the voting shares at any meeting shall constitute a quorum for the transaction of business. Except as otherwise expressly required by statute, the Articles of Incorporation and these By-Laws, if a quorum is present, the affirmative vote of the majority of shares represented at the meeting and entitled to vote on any matter shall be the act of the shareholders. (b) The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of the number of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. (c) In the absence of a quorum, any meeting of shareholders from time to time by the vote of a majority of the shares represented either in person or by proxy, but no other business may be transacted, except as provided in subdivision (b). Section 12.9 Actions without Meeting. (a) Any action which may be taken at ----------------------- any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding -11- shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted; provided that, subject to the provisions of Section 2.6, directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. (b) Unless the consents of all shareholders entitled to vote have been solicited in writing, (1) notice of any shareholder approval on matters described in subparagraphs (1), (3) or (5) of subdivision (b) of Section 12.4 or respecting indemnification of agents of the corporation without a meeting by less than unanimous written consent shall be given at least 10 days before the consummation of the action authorized by such approval, and (2) prompt notice shall be given of the taking of any other corporate action approved by shareholders without a meeting by less than unanimous written consent, to those shareholders entitled to vote but who have not consented in writing; the provisions of Section 12.5 shall apply to such notice. Section 12.10 Revocation of Consent. Any shareholder giving a written --------------------- consent, or the shareholder's proxy holders, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holders, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the corporation. Section 12.11 Voting Rights. Except as provided in Section 12.13 or in the ------------- Articles of Incorporation or in any statute relating to the election of directors or to other particular matters, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of shareholders. Any holder of shares entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, other than elections to office, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares such shareholder is entitled to vote. Section 12.12 Determination of Holders of Record. (a) In order that the ---------------------------------- corporation may determine the shareholders entitled to notice of or to vote at any meeting or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action, the Board of Directors may fix in advance, a record date, which shall not be more than 60 nor less than 10 days prior to the date of such meeting nor more than 60 days prior to any other action. (b) In the absence of any record date set by the Board of Directors pursuant to subdivision (a) above, then: -12- (1) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (2) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board has been taken, shall be the day on which the first written consent is given. (3) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later. (c) A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board fixes a new record date of the adjourned meeting, but the Board shall fix a new record date if the meeting is adjourned for more than 45 days from the date set for the original meeting. (d) Shareholders on the record date are entitled to notice and to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles of Incorporation or these By-Laws or by agreement or applicable law. Section 12.13 Election of Directors. (a) In any election of directors, the --------------------- candidates receiving the highest number of votes of the shares entitled to be voted for them up to the number of directors to be elected by such shares are elected. (b) Election for directors need not be by ballot unless a shareholder demands election by ballot at the meeting and before the voting begins or unless the By-Laws so requires. Section 12.14 Proxies. (a) Every person entitled to vote shares may ------- authorize another person or persons to act by proxy with respect to such shares. Any proxy purporting to be executed in accordance with the provisions of the General Corporation Law of the State of California shall be presumptively valid. (b) No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy continues in full force and effect until revoked by the person executing it prior to the vote pursuant thereto, except as otherwise provided in this section. Such revocation may be effected by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by, or by attendance at the meeting and voting in person by, the person executing the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. (c) A proxy is not revoked by the death or incapacity of the maker unless, before the vote is counted, written notice of such death or incapacity is received by the corporation. -13- Section 12.15 Inspectors of Election. (a) In advance of any meeting of ---------------------- shareholders the Board may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairman of any meeting of shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse) at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed. (b) The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. (c) The inspectors of election shall perform their duties, impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein. Section 12.16 Advance Notice of Shareholder Nominations. Nominations of ----------------------------------------- persons for election to the Board of Directors of the corporation may be made at a meeting of shareholders by or at the direction of the Board of Directors or by any shareholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this Section. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than twenty (20) days prior to the meeting; provided, -------- however, that in the event less than thirty (30) days' notice or prior public - ------- disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder's notice shall set forth (a) as to each person, if any, whom the shareholder proposes to nominate for election or re-election as a director: (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the corporation which are beneficially owned by such person, (iv) any other information relating to such person that is required by law to be disclosed in solicitations of proxies for election of directors, and (v) such person's written consent to being named as a nominee and to serving as a director if elected; and (b) as to the shareholder giving the notice: (i) the name and address, as they appear on the corporation's books, of such shareholder, (ii) the class and number of shares of the corporation which are beneficially owned by such shareholder, and (iii) a description of all arrangements or understandings between such shareholder and each nominee and any other person or persons (naming such person or persons) relating to the nomination. At the request of the Board of Directors any person nominated by the Board of Directors for election as a director shall furnish to the -14- Secretary of the corporation that information required to be set forth in the shareholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section. The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these By-Laws, and if the chairman should so determine, the chairman shall so declare at the meeting and the defective nomination shall be disregarded. Section 12.17 Advance Notice of Shareholder Business. At the annual meeting -------------------------------------- of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (a) as specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a shareholder. Business to be brought before the meeting by a shareholder shall not be considered properly brought if the shareholder has not given timely notice thereof in writing to the Secretary of the corporation. To be timely, a shareholder's notice must be delivered to the principal executive offices of the corporation not less than forty five (45) days prior to the date on which the corporation first mailed proxy materials for the prior year's annual meeting; provided, however, that if the corporation's annual meeting of shareholders - -------- ------- occurs on a date more than thirty (30) days earlier or later than the corporation's prior year's annual meeting, then the corporation's Board of Directors shall determine a date a reasonable period prior to the corporation's annual meeting of shareholders by which date the shareholders notice must be delivered and publicize such date in a filing pursuant to the Securities Exchange Act of 1934, as amended, or via press release. Such publication shall occur at least ten (10) days prior to the date set by the Board of Directors. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address of the shareholder proposing such business, (iii) the class and number of shares of the corporation, which are beneficially owned by the shareholder, (iv) any material interest of the shareholder in such business, and (v) any other information that is required by law to be provided by the shareholder in his capacity as proponent of a shareholder proposal. Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section. The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section, and, if the chairman should so determine, the chairman shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. Article XIII MEETINGS OF DIRECTORS Section 13.1 Place of Meetings. Unless otherwise specified in the notice ----------------- thereof, meetings (whether regular, special or adjourned) of the Board of Directors of this corporation shall be held at the principal office of the corporation for the transaction of business, as specified in accordance with -15- Section 1.1 hereof, which is hereby designated as an office for such purpose in accordance with the laws of the State of California, or at any other place within or without the State which has been designated from time to time by resolution of the Board or by written consent of all members of the Board. Section 13.2 Regular Meetings. Regular meetings of the Board of Directors, ---------------- of which no notice need be given except as required by the laws of the State of California, shall be held after the adjournment of each annual meeting of the shareholders (which meeting shall be designated the Regular Annual Meeting) and at such other times as may be designated from time to time by resolution of the Board of Directors. Section 13.3 Special Meetings. Special meetings of the Board of Directors ---------------- may be called at any time by the Chairman of the Board or the President or by any Vice President or the Secretary or by any two or more of the directors. Section 13.4 Notice of Meetings. Except in the case of regular meetings, ------------------ notice of which has been dispensed with, the meetings of the Board of Directors shall be held upon four days' notice by mail or 48 hours' notice delivered personally or by telephone, telegraph or other electronic or wireless means. If the address of a director is not shown on the records and is not readily ascertainable, notice shall be addressed to him at the city or place in which the meetings of the directors are regularly held. Except as set forth in Section 13.6, notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place be fixed at the meeting adjourned. Section 13.5 Quorum. A majority of the authorized number of directors ------ constitutes a Quorum of the Board for the transaction of business. Except as otherwise expressly required by statute, the Articles of Incorporation or these By-Laws and every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. Section 13.6 Adjourned Meeting. A majority of the directors present, ----------------- whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than 24 hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment. Section 13.7 Waiver of Notice and Consent. (a) Notice of a meeting need not ---------------------------- be given to any director who signs a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. (b) The transactions of any meeting of the Board, however called and noticed or wherever held, are as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present or who, though present, has prior to the meeting or at its commencement, protested the lack of proper notice to him, signs a written waiver of notice, a consent to holding the meeting or an approval of the -16- minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 13.8 Action Without a Meeting. Any action required or permitted to ------------------------ be taken by the Board may be taken without a meeting, if all members of the Board shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. Section 13.9 Conference Telephone Meetings. Members of the Board may ----------------------------- participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Participation in a meeting pursuant to this section constitutes presence in person at such meeting. Section 13.10 Meetings of Committees. The provisions of this Article apply ---------------------- also to committees of the Board and action by such committees. Article XIV SUNDRY PROVISIONS Section 14.1 Instruments in Writing. All checks, drafts, demands for money ---------------------- and notes of the corporation, and all written contracts of the corporation, shall be signed by such officer or officers, agent or agents, as the Board of Directors may from time to time by resolution designate. No officer, agent, or employee of the corporation shall have power to bind the corporation by contract or otherwise unless authorized to do so by these By-Laws or by the Board of Directors. Section 14.2 Fiscal Year. The fiscal year of this corporation shall end on ----------- the Saturday nearest to the last day of January of each year. Section 14.3 Shares Held by the Corporation. Shares in other corporations ------------------------------ standing in the name of this corporation may be voted or represented and all rights incident thereto may be exercised on behalf of this corporation by the President or by any other officer of this corporation authorized so to do by resolution of the Board of Directors. Section 14.4 Certificates of Stock. There shall be issued to each holder --------------------- of fully paid shares of the capital stock of the corporation a certificate or certificates for such shares. Every holder of shares in the corporation shall be entitled to have a certificate signed in the name of the corporation by the Chairman or Vice Chairman of the Board or the President or a Vice President and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. -17- Section 14.5 Lost Certificates. The corporation may issue a new share ----------------- certificate or a new certificate for any other security in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate or the owner's legal representative to give the corporation a bond (or other adequate security) sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. The Board of Directors may adopt such other provisions and restrictions with reference to lost certificates, not inconsistent with applicable law, as it shall in its discretion deem appropriate. Section 14.6 Certification and Inspection of By-Laws. The corporation shall --------------------------------------- keep at its principal executive office in this State, or if its principal executive office is not in this State at its principal business office in this State, the original or a copy of these By-Laws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside this State and the corporation has no principal business office in this State, it shall upon the written request of any shareholder furnish to such shareholder a copy of the By-Laws as amended to date. Section 14.7 Notices. Any reference in these By-Laws to the time a notice ------- is given or sent means, unless otherwise expressly provided, the time a written notice by mail is deposited in the United States mails, postage prepaid; or the time any other written notice is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient; or the time any oral notice is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving wire the notice has reason to believe will promptly communicate it to the recipient. Section 14.8 Reports to Shareholders. Except as may otherwise be required ----------------------- by law, the rendition of an annual report to the shareholders is waived so long as there are less than 100 holders of record of the shares of the corporation (determined as provided in Section 605 of the California General Corporation Law). At such time or times, if any, that the corporation has 100 or more holders of record of its shares, the Board of Directors shall cause an annual report to be sent to the shareholders not later than 120 days after the close of the fiscal year or within such shorter time period as may be required by applicable law, and such annual report shall contain such information and be accompanied by such other documents as may be required by applicable law. Section 14.9 Indemnification of Officers, Directors, Employees and Other ----------------------------------------------------------- Agents. (a) The corporation shall, to the fullest extent permissible under, and - ------ in the manner permitted by, California law, indemnify each of its directors and officers against "Expenses" (as defined in Section 317(a) of the California General Corporation Law), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any "Proceeding" (as defined in Section 317(a) of the California General Corporation Law), arising by reason of the fact that such person is or was an Agent (as defined in Section 317(a) of the California General Corporation Law) of the corporation. For purposes of this Section 14.9, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other -18- enterprise, or (iii) who was a director of officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. (b) The corporation shall have the power, to the fullest extent permissible under, and in the manner permitted by, California law, to indemnify each of its employees and other Agents against Expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any Proceeding, arising by reason of the fact that such person is or was an employee or Agent of the corporation. For purposes of this Section 14.9, an "employee" or "Agent" of the corporation includes any person (i) who is or was an employee or Agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or Agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or Agent of the corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. (c) Expenses incurred in defending any civil or criminal action or proceeding for which indemnification is required or permitted pursuant to this Section 14.9 shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Section 14.9. (d) Enforcement. Without the necessity of entering into an express ----------- contract, all rights to indemnification and advances under this Section 14.9 shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or officer who serves in such capacity at any time while this By-Law and other relevant provisions of the California General Corporation Law and other applicable law, if any, are in effect. Any right to indemnification or advances granted by this Section 14.9 to a director or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part or (ii) no disposition of such claim is made within 90 days of request therefor. The claimant in such enforcement action (an "Action"), if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. It shall be a defense to any Action that a claimant has not met the standard of conduct which make it permissible under the California General Corporation Law for the corporation to indemnify the claimant for the amount claimed, provided that such defense shall not be available for an Action brought to enforce a claim for the advancement of expenses pursuant to subdivision (d) above if the claimant has tendered the required undertaking to the corporation. It shall not be a defense to an Action, nor shall it create a presumption that the claimant has not met the applicable standard of conduct, that the corporation (including its Board of Directors, independent counsel or shareholders) has failed, prior to the commencement of the Action, to have made a determination that the indemnification of the claimant is proper in the circumstances, or that the corporation (including its Board of Directors, independent counsel or shareholders) has actually determined that the claimant has not met the applicable standard of conduct. (e) Non-Exclusivity of Rights. The rights conferred on any person by ------------------------- this Section 14.9 shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, By-Laws, agreement, vote of shareholders or -19- disinterested directors or otherwise both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or other Agents respecting indemnification and advances, to the fullest extent permitted by the California General Corporation Law. (f) No indemnification or advance shall be made under this Section 14.9, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (1) That it would be inconsistent with a provision of the Articles of Incorporation, these By-Laws, a resolution of the shareholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (2) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. (g) Survival of Rights. The rights conferred on any person by this ------------------ Section 14.9 shall continue as to a person who has ceased to be a director, officer, employee or other Agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (h) Insurance. The corporation shall have the power to purchase and --------- maintain insurance on behalf of any person who is or was an Agent of the corporation against any liability asserted against or incurred by such person in such capacity or arising out of such person's status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Section 14.9. (i) Repeal or Modification. Any repeal or modification of this ---------------------- Section 14.9 shall not adversely affect any rights under this Section 14.9 of any director, officer or other Agent of the corporation relating to acts or omissions occurring prior to such repeal or modification. (j) Saving Clause. If this Section 14.9 or any portion hereof shall ------------- be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director or officer, any may nevertheless indemnify any employee or other Agent, to the full extent permitted by any applicable portion of this Section 14.9 that shall not have been invalidated, or by any other applicable law. (k) If the California General Corporation Law is hereafter amended to further indemnification of Agents of the corporation, then the Corporation shall be authorized to indemnify such Agents to the fullest extent permissible under the California General Corporation Law as so amended. -20- Article XV CONSTRUCTION OF BY-LAWS WITH REFERENCE TO PROVISIONS OF LAW Section 15.1 Definitions. Unless defined otherwise in these By-Laws or ----------- unless the context otherwise requires, terms used herein shall have the same meaning, if any, ascribed thereto in the California General Corporation Law, as amended from time to time. Section 15.2 By-Law Provisions Additional and Supplemental to Provisions of -------------------------------------------------------------- Law. All restrictions, limitations, requirements and other provisions of these - --- By-Laws shall be construed, insofar as possible, as supplemental and additional to all provisions of law applicable to the subject matter thereof and shall be fully complied with in addition to the said provisions of law unless such compliance shall be illegal. Section 15.3 By-Law Contrary to or Inconsistent with Provisions of Law. Any --------------------------------------------------------- article, section, subsection, subdivision, sentence, clause or phrase of these By-Laws which upon being construed in the manner provided in Section 15.2 hereof, shall be contrary to or inconsistent with any applicable provision of law, shall not apply so long as said provisions of law shall remain in effect, but such result shall not affect the validity or applicability of any other portions of these By-Laws, it being hereby declared that these By-Laws would have been adopted and each article, section, subsection, subdivision, sentence, clause or phrase thereof, irrespective of the fact that any one or more articles, sections, subsections, subdivisions, sentences, clauses or phrases is or are illegal. Article XVI ADOPTION, AMENDMENT OR REPEAL OF BY-LAWS Section 16.1 By Shareholders. Except as otherwise expressly required by --------------- statute, the Articles of Incorporation or these By-Laws, By-Laws may be adopted, amended or repealed by the approval of the affirmative vote of a majority of the outstanding shares of the corporation entitled to vote. Section 16.2 By the Board of Directors. Except as otherwise expressly ------------------------- required by statute, the Articles of Incorporation or these By-Laws and subject to the right of shareholders to adopt, amend or repeal By-Laws, By-Laws other than a By-Law or amendment thereof changing the authorized number of directors (except to fix the authorized number of directors pursuant to a By-Law providing for a variable number of directors) may be adopted, amended or repealed by the Board of Directors. -21- EX-10.5.1 3 dex1051.txt AMENDMENT #1 TO BUSINESS LOAN DATED 10/02/00 EXHIBIT 10.5.1 Bank of America [LOGO] ================================================================================ Amendment to Documents AMENDMENT NO. 1 TO BUSINESS LOAN AGREEMENT This Amendment No. 1 (the "Amendment") dated as of October 2, 2000, is between Bank of America, N.A. (the "Bank") and Cost Plus, Inc. (the "Borrower"). RECITALS -------- A. The Bank and the Borrower entered into a certain Business Loan Agreement dated as of May 19, 2000 (the "Agreement"). B. The Bank and the Borrower desire to amend the Agreement. AGREEMENT --------- 1. Definitions. Capitalized terms used but not defined in this Amendment ----------- shall have the meaning given to them in the Agreement. 2. Amendments. The Agreement is hereby amended as follows: ---------- 2.1 Subparagraph 7.20(f) of the Agreement is amended to read in its entirety as follows: "(f) sell, assign, lease, transfer or otherwise dispose of all or a substantial part of the Borrower's business or the Borrower's assets except (i) in the ordinary course of the Borrower's business and (ii) to Cost Plus Marketing Services, Inc. and Cost Plus Management Services, Inc." 2.2 A new Paragraph 8.13 is added to the Agreement, which reads in its entirety as follows: "8.13 Guarantors Covenants. Cost Plus Marketing Services, Inc. and Cost Plus Management Services, Inc. (the "Guarantors") fail to comply with the following covenants: (a) Other Debts. Each Guarantor agrees not to have ----------- outstanding or incur any direct or contingent liabilities or capital lease obligations (other than those to the Bank), or become liable for the liabilities of others, without the Bank's written consent, which consent shall not be unreasonably withheld. This does not prohibit: (i) Acquiring goods, supplies, merchandise, or services on normal trade credit. (ii) Endorsing negotiable instruments received in the usual course of business. (iii) Obtaining surety bonds in the usual course of business. (iv) Liabilities, lines of credit and leases in existence on the date of this Agreement disclosed in writing to the Bank prior to closing and acceptable to the Bank. (v) Additional debts arising from the finance or refinance of existing real property of any Guarantor. (vi) Other unsecured indebtedness incurred in the ordinary course of business. (vii) Additional debts and lease obligations for business purposes which do not exceed a total principal amount of Five Hundred Thousand Dollars ($500,000) outstanding at any one time. (b) Other Liens. Each Guarantor agrees not to create, ----------- assume, or allow any security interest or lien (including judicial liens) on property which such Guarantor now or later owns, except: (i) Deeds of trusts in favor of the Bank. (ii) Liens for taxes not yet due. (iii) Additional purchase money security interests or purchase money liens in personal property or real property acquired after the date of this Agreement which secure indebtedness permitted by subparagraph (a) of the preceding paragraph. - -------------------------------------------------------------------------------- -1- - -------------------------------------------------------------------------------- (iv) Liens on the financed or refinanced real property which secure indebtedness permitted by subparagraph (a) of the preceding paragraph. (v) Liens arising in the ordinary course of any of the Guarantor's business by operation of law or regulation, but only if payment in respect of such lien is not yet due. (vi) Liens in favor of customs and revenues authorities which secure payment of customs duties in connection with the importation of goods. (vii) Landlord's liens arising under lease contracts or by operation of law in the ordinary course of business which are not delinquent or remain payable without penalty. (viii) Additional purchase money security interests in equipment or other personal property fixed assets acquired after the date of this Agreement, if the total principal amount of debts secured by such liens does not exceed Five Hundred Thousand Dollars ($500,000) at any one time. (c) Change of Ownership. Each Guarantor agrees not to ------------------- cause, permit, or suffer any material change, direct or indirect, in its capital ownership. (d) Audits. Each Guarantor agrees to allow the Bank and its ------ agents to inspect such Guarantor's properties and examine, audit, and make copies of books and records at any reasonable time. If any of such Guarantor's properties, books or records are in the possession of a third party, each Guarantor authorizes that third party to permit the Bank or its agents to have access to perform inspections or audits and to respond to the Bank's requests for information concerning such properties, books and records. (e) Preservation of Rights. Each Guarantor agrees to ---------------------- maintain and preserve all rights, privileges, and franchises it now has. (f) Maintenance of Properties. Each Guarantor agrees to make ------------------------- any repairs, renewals, or replacements to keep its properties in good working condition. (g) Cooperation. Each Guarantor agrees to take any action ----------- reasonably requested by the Bank to carry out the intent of this Agreement. (h) General Business Insurance. Each Guarantor agrees to -------------------------- maintain insurance satisfactory to the Bank as to amount, nature and carrier covering property damage (including loss of use and occupancy) to any of its properties, public liability insurance including coverage for contractual liability, product liability and workers' compensation, and any other insurance which is usual for such Guarantor's business. (i) Additional Negative Covenants. Each Guarantor agrees not ----------------------------- to, without the Bank's written consent, which consent shall not be unreasonably withheld: (i) Engage in any business activities substantially different from any of the Guarantor's present business. (ii) liquidate or dissolve any of the Guarantor's business. (iii) sell or otherwise dispose of any assets for less then fair market value, or enter into any agreement to do so; provided, however, that sales or other dispositions for less than fair market value of assets with an aggregate fair market value not exceeding Three Million Dollars ($3,000,000) are permitted for each Guarantor in any fiscal year. (iv) sell, assign, lease, transfer or otherwise dispose of all or a substantial part of any of the Guarantor's business or any of such Guarantor's assets except (A) in the ordinary course of such Guarantor's business and (B) to the Borrower." 3. Representations and Warranties. When the Borrower signs this ------------------------------ Amendment, the Borrower represents and warrants to the Bank that: (a) there is no event which is, or with notice or lapse of time or both would be, a default under the Agreement except those events, if any, that have been disclosed in writing to the Bank or waived in writing by the Bank, (b) the representations and warranties in the Agreement are true as of the date of this Amendment as if made on the date of this Amendment, (c) this Amendment is within the Borrower's powers, has been duly authorized, and does not conflict with any of the Borrower's organizational papers, and (d) this Amendment does not conflict with any law, agreement, or obligation by which the Borrower is bound. - -------------------------------------------------------------------------------- -2- - -------------------------------------------------------------------------------- 4. Conditions. This Amendment will be effective when the Bank receives ---------- the following items, in form and content acceptable to the Bank: 4.1 This Amendment, duly executed by the Borrower and the Bank. 4.2 Guaranties signed by Cost Plus Marketing Services, Inc. and Cost Plus Management Services, Inc., each in the amount of Fifty Million Two Hundred Thousand Dollars ($50,200,000). 4.3 Corporate Resolution Authorizing Execution of Guaranty certified by the Secretary of Cost Plus Marketing Services, Inc. in the amount of Fifty Million Two Hundred Thousand Dollars ($50,200,000). 4.4 Corporate Resolution Authorizing Execution of Guaranty certified by the Secretary of Cost Plus Management Services, Inc. in the amount of Fifty Million Two Hundred Thousand Dollars ($50,200,000). 5. Effect of Amendment. Except as provided in this Amendment, all of the ------------------- terms and conditions of the Agreement shall remain in full force and effect. This Amendment is executed as of the date stated at the beginning of this Amendment. Bank of America, N.A. Cost Plus, Inc. X /s/ Lisa M. Thomas X /s/ John Hoffner ------------------------------- ------------------------------------- By: Lisa M. Thomas By: John Hoffner Senior Vice President Chief Financial Officer - -------------------------------------------------------------------------------- -3- Bank of America [LOGO] ================================================================================ To: Continuing Guaranty Bank of America, N.A. Borrowers: Cost Plus, Inc. Guarantors: Cost Plus Marketing Services, Inc. (1) For valuable consideration, the undersigned ("Guarantors") jointly and severally unconditionally guarantee and promise to pay to Bank of America, N.A. ("Bank"), or order, on demand, in lawful money of the United States, any and all indebtedness of Cost Plus, Inc. ("Borrowers") to Bank. The word "indebtedness" is used herein in its most comprehensive sense and includes any and all advances, debts, obligations, and liabilities of Borrowers or any one or more of them to Bank, heretofore, now, or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether direct or acquired by Bank by assignment or succession, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Borrowers may be liable individually or jointly with others, or whether recovery upon such indebtedness may be or hereafter become barred by any statute of limitations, or whether such indebtedness may be or hereafter become otherwise unenforceable. (2) The liability of Guarantors under this Guaranty (exclusive of liability under any other guaranties executed by Guarantors) shall not exceed at any one time the total of (a) Fifty Million Two Hundred Thousand and 00/100 Dollars ($50,200,000.00), for the principal amount of the indebtedness and (b) all interest, fees, and other costs and expenses relating to or arising out of the indebtedness or such part of the indebtedness as shall not exceed the foregoing limitation. Bank may permit the indebtedness to exceed Guarantors' liability, and may apply any amounts received from any source, other than from Guarantors, to the unguaranteed portion of the indebtedness. This is a continuing guaranty relating to any indebtedness, including that arising under successive transactions which shall either continue the indebtedness or from time to time renew it after it has been satisfied. Any payment by Guarantors shall not reduce their maximum obligation hereunder, unless written notice to that effect be actually received by Bank at or prior to the time of such payment. (3) If any Borrower is a partnership and any Guarantor is a general partner of that partnership, then such Guarantor shall not be liable under this Guaranty for any indebtedness of such Borrower which is secured by real property; provided, however, that such Guarantor shall remain liable under partnership law for all the indebtedness of such Borrower. (4) The obligations hereunder are joint and several, and independent of the obligations of Borrowers, and a separate action or actions may be brought and prosecuted against Guarantors whether action is brought against Borrowers or whether Borrowers be joined in any such action or actions; and Guarantors waive the benefit of any statute of limitations affecting their liability hereunder. (5) Guarantors authorize Bank, without notice or demand and without affecting their liability hereunder, from time to time, either before or after revocation hereof, to (a) renew, compromise, extend, accelerate, or otherwise change the time for payment of, or otherwise change the terms of the indebtedness or any part thereof, including increase or decrease of the rate of interest thereon; (b) receive and hold security for the payment of this Guaranty or any of the indebtedness, and exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any such security; (c) apply such security and direct the order or manner of sale thereof as Bank in its discretion may determine; and (d) release or substitute any one or more of the endorsers or guarantors. (6) Guarantors waive any right to require Bank to (a) proceed against Borrowers; (b) proceed against or exhaust any security held from Borrowers; or (c) pursue any other remedy in Bank's power whatsoever. Guarantors waive any defense arising by reason of any disability or other defense of Borrowers, or the cessation from any cause whatsoever of the liability of Borrowers, or any claim that Guarantors' obligations exceed or are more burdensome than those of Borrowers. Until the indebtedness shall have been paid in full, even though the indebtedness is in excess of Guarantors' liability hereunder, Guarantors waive any right of subrogation, reimbursement indemnification, and contribution (contractual, statutory, or otherwise) including, without limitation, any claim or right of subrogation under the Bankruptcy Code (Title 11, United States Code) or any successor statute, arising from the existence or performance of this Guaranty and Guarantors waive any right to enforce any remedy which Bank now has or may hereafter have against Borrowers and waive any benefit of, and any right to participate in, any security now or hereafter held by Bank. Guarantors waive all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional indebtedness. (7) (a) Guarantors understand and acknowledge that if Bank forecloses, either by judicial foreclosure or by exercise of power of sale, any deed of trust securing the indebtedness, that foreclosure could impair or destroy any ability that Guarantors may have to seek reimbursement, contribution, or indemnification from Borrowers or others based on any right Guarantors may have of subrogation, reimbursement, contribution, or indemnification for any amounts paid by Guarantors under this Guaranty. Guarantors further understand and acknowledge that in the absence of this paragraph, such potential impairment or destruction of Guarantors' rights, if any, may entitle Guarantors to assert a defense to this Guaranty based on Section 580d of the California Code of Civil Procedure as interpreted in Union Bank v. Gradsky, 265 Cal. App. 2d. 40 (1968). --------------------- By executing this Guaranty, Guarantors freely, irrevocably, and unconditionally: (i) waive and - -------------------------------------------------------------------------------- -1- - -------------------------------------------------------------------------------- relinquish that defense and agree that Guarantors will be fully liable under this Guaranty even though Bank may foreclose, either by judicial foreclosure or by exercise of power of sale, any deed of trust securing the indebtedness; (ii) agree that Guarantors will not assert that defense in any action or proceeding which Bank may commence to enforce this Guaranty; (iii) acknowledge and agree that the rights and defenses waived by Guarantors in this Guaranty include any right or defense that Guarantors may have or be entitled to assert based upon or arising out of any one or more of Sections 580a, 580b, 580d, or 726 of the California Code of Civil Procedure or Section 2848 of the California Civil Code; and (iv) acknowledge and agree that Bank is relying on this waiver in creating the indebtedness, and that this waiver is a material part of the consideration which Bank is receiving for creating the indebtedness. (b) Guarantors waive any rights and defenses that are or may become available to Guarantors by reason of Sections 2787 to 2855, inclusive, of the California Civil Code. (c) Guarantors waive all rights and defenses that Guarantors may have because any of the indebtedness is secured by real property. This means, among other things: (i) Bank may collect from Guarantors without first foreclosing on any real or personal property collateral pledged by Borrowers; and (ii) if Bank forecloses on any real property collateral pledged by Borrowers: (1) the amount of the indebtedness may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price, and (2) Bank may collect from Guarantors even if Bank, by foreclosing on the real property collateral, has destroyed any right Guarantors may have to collect from Borrowers. This is an unconditional and irrevocable waiver of any rights and defenses Guarantors may have because any of the indebtedness is secured by real property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure. (d) Guarantors waive any right or defense they may have at law or equity, including California Code of Civil Procedure Section 580a, to a fair market value hearing or action to determine a deficiency judgment after a foreclosure. (e) No provision or waiver in this Guaranty shall be construed as limiting the generality of any other waiver contained in this Guaranty. (8) Guarantors acknowledge and agree that they shall have the sole responsibility for obtaining from Borrowers such information concerning Borrowers' financial conditions or business operations as Guarantors may require, and that Bank has no duty at any time to disclose to Guarantors any information relating to the business operations or financial conditions of Borrowers. (9) To secure all of Guarantors' obligations hereunder, Guarantors assign and grant to Bank a security interest in all moneys, securities, and other property of Guarantors now or hereafter in the possession of Bank, all deposit accounts of Guarantors maintained with Bank, and all proceeds thereof. Upon default or breach of any of Guarantors' obligations to Bank, Bank may apply any deposit account to reduce the indebtedness and may foreclose any collateral as provided in the Uniform Commercial Code and in any security agreements between Bank and Guarantors. (10) Any obligations of Borrowers to Guarantors, now or hereafter existing, including but not limited to any obligations to Guarantors as subrogees of Bank or resulting from Guarantors' performance under this Guaranty, are hereby subordinated to the indebtedness. Such obligations of Borrowers to Guarantors if Bank so requests shall be enforced and performance received by Guarantors as trustees for Bank, and the proceeds thereof shall be paid over to Bank on account of the indebtedness, but without reducing or affecting in any manner the liability of Guarantors under the provisions of this Guaranty. (11) This Guaranty may be revoked at any time by Guarantors in respect to future transactions, unless there is a continuing consideration as to such transactions which Guarantors do not renounce. Such revocation shall be effective upon actual receipt by Bank, at the address shown below or at such other address as may have been provided to Guarantors by Bank, of written notice of revocation. Revocation shall not affect any of Guarantors' obligations or Bank's rights with respect to transactions which precede Bank's receipt of such notice, regardless of whether or not the indebtedness related to such transactions, before or after revocation, has been renewed, compromised, extended, accelerated, or otherwise changed as to any of its terms, including time for payment or increase or decrease of the rate of interest thereon, and regardless of any other act or omission of Bank authorized hereunder. Revocation by any one or more of Guarantors shall not affect any obligations of any nonrevoking Guarantors. If this Guaranty is revoked, returned, or canceled, and subsequently any payment or transfer of any interest in property by Borrowers to Bank is rescinded or must be returned by Bank to Borrowers, this Guaranty shall be reinstated with respect to any such payment or transfer, regardless of any such prior revocation, return, or cancellation. (12) Where any one or more of Borrowers are corporations, partnerships, or limited liability companies, it is not necessary for Bank to inquire into the powers of Borrowers or of the officers, directors, partners, members, managers, or agents acting or purporting to act on their behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. - -------------------------------------------------------------------------------- -2- - -------------------------------------------------------------------------------- (13) Guarantors authorize Bank to verify or check any information given by Guarantors to Bank, check Guarantors' credit references, verify employment, and obtain credit reports. Guarantors acknowledge and agree that the authorizations provided in this paragraph apply to any individual general partner of any Guarantor and to any Guarantor's spouse and any such general partner's spouse if such Guarantor or such general partner is married and lives in a community property state. (14) Bank may, without notice to Guarantors and without affecting Guarantors' obligations hereunder, assign the indebtedness and this Guaranty, in whole or in part. Guarantors agree that Bank may disclose to any assignee or purchaser, or any prospective assignee or purchaser, of all or part of the indebtedness any and all information in Bank's possession concerning Guarantors, this Guaranty, and any security for this Guaranty. (15) Guarantors agree to pay all reasonable attorneys' fees, including allocated costs of Bank's in-house counsel, and all other costs and expenses which may be incurred by Bank (a) in the enforcement of this Guaranty or (b) in the preservation, protection, or enforcement of any rights of Bank in any case commenced by or against Guarantors under the Bankruptcy Code (Title 11, United States Code) or any similar or successor statute. (16) Where there is but a single Borrower, or where a single Guarantor executes this Guaranty, then all words used herein in the plural shall be deemed to have been used in the singular where the context and construction so require; and when there is more than one Borrower named herein, or when this Guaranty is executed by more than one Guarantor, the words "Borrowers" and "Guarantors" respectively shall mean all and any one or more of them. (17) This Guaranty shall be governed by and construed according to the laws of the State of California, to the jurisdiction of which the parties hereto submit. (18) (a) Any controversy or claim between or among the parties, including but not limited to those arising out of or relating to this Guaranty or any agreements or instruments relating hereto or delivered in connection herewith and any claim based on or arising from an alleged tort, shall at the request of any party be determined by arbitration. The arbitration shall be conducted in accordance with the United States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law provision in this Guaranty, and under the Commercial Rules of the American Arbitration Association ("AAA"). The arbitrators shall give effect to statutes of limitation in determining any claim, except as expressly waived hereunder by Guarantors. Any controversy concerning whether an issue is arbitrable shall be determined by the arbitrators. Judgment upon the arbitration award may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief. (b) Notwithstanding the provisions of subparagraph (a), no controversy or claim shall be submitted to arbitration without the consent of all parties if, at the time of the proposed submission, such controversy or claim arises from or relates to an obligation to Bank which is secured by real property collateral located in California. If all parties do not consent to submission of such a controversy or claim to arbitration, the controversy or claim shall be determined as provided in subparagraph (c). (c) A controversy or claim which is not submitted to arbitration as provided and limited in subparagraphs (a) and (b) shall, at the request of any party, be determined by a reference in accordance with California Code of Civil Procedure Section 638 et seq. If such an election is made, the parties shall ------ designate to the court a referee or referees selected under the auspices of the AAA in the same manner as arbitrators are selected in AAA-sponsored proceedings. The presiding referee of the panel, or the referee if there is a single referee, shall be an active attorney or retired judge. Judgment upon the award rendered by such referee or referees shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. (d) No provision of this paragraph shall limit the right of any party to this Guaranty to exercise self-help remedies such as setoff, to foreclose against or sell any real or personal property collateral or security, or to obtain provisional or ancillary remedies from a court of competent jurisdiction before, after, or during the pendency of any arbitration or other proceeding. The exercise of a remedy does not waive the right of either party to resort to arbitration or reference. At Bank's option, foreclosure under a deed of trust or mortgage may be accomplished either by exercise of - -------------------------------------------------------------------------------- -3- - -------------------------------------------------------------------------------- power of sale under the deed of trust or mortgage or by judicial foreclosure. Date: October 2, 2000 ------------------------- Witnessed: Cost Plus Marketing Services, Inc. X /s/ Jane L. Baughman X /s/ John F. Hoffner - --------------------------------- --------------------------------------- Witness By: John F. Hoffner Chief Financial Officer 200 4th Street, Oakland, CA 94607 200 Fourth Street - --------------------------------- Oakland, CA 94607 Address X /s/ Linda S. Cano - --------------------------------- Witness 200 4th Street, Oakland, CA 94607 - --------------------------------- Address Address for Notices: Bank of America, N.A. Bay Area Commercial Banking Office #01473 345 Montgomery Street San Francisco, CA 94104 - -------------------------------------------------------------------------------- -4- Bank of America [LOGO] ================================================================================ To: Continuing Guaranty Bank of America, N.A. Borrowers: Cost Plus, Inc. Guarantors: Cost Plus Management Services, Inc. (1) For valuable consideration, the undersigned ("Guarantors") jointly and severally unconditionally guarantee and promise to pay to Bank of America, N.A. ("Bank"), or order, on demand, in lawful money of the United States, any and all indebtedness of Cost Plus, Inc. ("Borrowers") to Bank. The word "indebtedness" is used herein in its most comprehensive sense and includes any and all advances, debts, obligations, and liabilities of Borrowers or any one or more of them to Bank, heretofore, now, or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether direct or acquired by Bank by assignment or succession, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Borrowers may be liable individually or jointly with others, or whether recovery upon such indebtedness may be or hereafter become barred by any statute of limitations, or whether such indebtedness may be or hereafter become otherwise unenforceable. (2) The liability of Guarantors under this Guaranty (exclusive of liability under any other guaranties executed by Guarantors) shall not exceed at any one time the total of (a) Fifty Million Two Hundred Thousand and 00/100 Dollars ($50,200,000.00), for the principal amount of the indebtedness and (b) all interest, fees, and other costs and expenses relating to or arising out of the indebtedness or such part of the indebtedness as shall not exceed the foregoing limitation. Bank may permit the indebtedness to exceed Guarantors' liability, and may apply any amounts received from any source, other than from Guarantors, to the unguaranteed portion of the indebtedness. This is a continuing guaranty relating to any indebtedness, including that arising under successive transactions which shall either continue the indebtedness or from time to time renew it after it has been satisfied. Any payment by Guarantors shall not reduce their maximum obligation hereunder, unless written notice to that effect be actually received by Bank at or prior to the time of such payment. (3) If any Borrower is a partnership and any Guarantor is a general partner of that partnership, then such Guarantor shall not be liable under this Guaranty for any indebtedness of such Borrower which is secured by real property; provided, however, that such Guarantor shall remain liable under partnership law for all the indebtedness of such Borrower. (4) The obligations hereunder are joint and several, and independent of the obligations of Borrowers, and a separate action or actions may be brought and prosecuted against Guarantors whether action is brought against Borrowers or whether Borrowers be joined in any such action or actions; and Guarantors waive the benefit of any statute of limitations affecting their liability hereunder. (5) Guarantors authorize Bank, without notice or demand and without affecting their liability hereunder, from time to time, either before or after revocation hereof, to (a) renew, compromise, extend, accelerate, or otherwise change the time for payment of, or otherwise change the terms of the indebtedness or any part thereof, including increase or decrease of the rate of interest thereon; (b) receive and hold security for the payment of this Guaranty or any of the indebtedness, and exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any such security; (c) apply such security and direct the order or manner of sale thereof as Bank in its discretion may determine; and (d) release or substitute any one or more of the endorsers or guarantors. (6) Guarantors waive any right to require Bank to (a) proceed against Borrowers; (b) proceed against or exhaust any security held from Borrowers; or (c) pursue any other remedy in Bank's power whatsoever. Guarantors waive any defense arising by reason of any disability or other defense of Borrowers, or the cessation from any cause whatsoever of the liability of Borrowers, or any claim that Guarantors' obligations exceed or are more burdensome than those of Borrowers. Until the indebtedness shall have been paid in full, even though the indebtedness is in excess of Guarantors' liability hereunder, Guarantors waive any right of subrogation, reimbursement indemnification, and contribution (contractual, statutory, or otherwise) including, without limitation, any claim or right of subrogation under the Bankruptcy Code (Title 11, United States Code) or any successor statute, arising from the existence or performance of this Guaranty and Guarantors waive any right to enforce any remedy which Bank now has or may hereafter have against Borrowers and waive any benefit of, and any right to participate in, any security now or hereafter held by Bank. Guarantors waive all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional indebtedness. (7) (a) Guarantors understand and acknowledge that if Bank forecloses, either by judicial foreclosure or by exercise of power of sale, any deed of trust securing the indebtedness, that foreclosure could impair or destroy any ability that Guarantors may have to seek reimbursement, contribution, or indemnification from Borrowers or others based on any right Guarantors may have of subrogation, reimbursement, contribution, or indemnification for any amounts paid by Guarantors under this Guaranty. Guarantors further understand and acknowledge that in the absence of this paragraph, such potential impairment or destruction of Guarantors' rights, if any, may entitle Guarantors to assert a defense to this Guaranty based on Section 580d of the California Code of Civil Procedure as interpreted in Union Bank v. Gradsky, 265 Cal. App. 2d. 40 (1968). --------------------- By executing this Guaranty, Guarantors freely, irrevocably, and unconditionally: (i) waive and - -------------------------------------------------------------------------------- -1- - -------------------------------------------------------------------------------- relinquish that defense and agree that Guarantors will be fully liable under this Guaranty even though Bank may foreclose, either by judicial foreclosure or by exercise of power of sale, any deed of trust securing the indebtedness; (ii) agree that Guarantors will not assert that defense in any action or proceeding which Bank may commence to enforce this Guaranty; (iii)) acknowledge and agree that the rights and defenses waived by Guarantors in this Guaranty include any right or defense that Guarantors may have or be entitled to assert based upon or arising out of any one or more of Sections 580a, 580b, 580d, or 726 of the California Code of Civil Procedure or Section 2848 of the California Civil Code; and (iv) acknowledge and agree that Bank is relying on this waiver in creating the indebtedness, and that this waiver is a material part of the consideration which Bank is receiving for creating the indebtedness. (b) Guarantors waive any rights and defenses that are or may become available to Guarantors by reason of Sections 2787 to 2855, inclusive, of the California Civil Code. (c) Guarantors waive all rights and defenses that Guarantors may have because any of the indebtedness is secured by real property. This means, among other things: (i) Bank may collect from Guarantors without first foreclosing on any real or personal property collateral pledged by Borrowers; and (ii) if Bank forecloses on any real property collateral pledged by Borrowers: (1) the amount of the indebtedness may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price, and (2) Bank may collect from Guarantors even if Bank, by foreclosing on the real property collateral, has destroyed any right Guarantors may have to collect from Borrowers. This is an unconditional and irrevocable waiver of any rights and defenses Guarantors may have because any of the indebtedness is secured by real property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure. (d) Guarantors waive any right or defense they may have at law or equity, including California Code of Civil Procedure Section 580a, to a fair market value hearing or action to determine a deficiency judgment after a foreclosure. (e) No provision or waiver in this Guaranty shall be construed as limiting the generality of any other waiver contained in this Guaranty. (8) Guarantors acknowledge and agree that they shall have the sole responsibility for obtaining from Borrowers such information concerning Borrowers' financial conditions or business operations as Guarantors may require, and that Bank has no duty at any time to disclose to Guarantors any information relating to the business operations or financial conditions of Borrowers. (9) To secure all of Guarantors' obligations hereunder, Guarantors assign and grant to Bank a security interest in all moneys, securities, and other property of Guarantors now or hereafter in the possession of Bank, all deposit accounts of Guarantors maintained with Bank, and all proceeds thereof. Upon default or breach of any of Guarantors' obligations to Bank, Bank may apply any deposit account to reduce the indebtedness and may foreclose any collateral as provided in the Uniform Commercial Code and in any security agreements between Bank and Guarantors. (10) Any obligations of Borrowers to Guarantors, now or hereafter existing, including but not limited to any obligations to Guarantors as subrogees of Bank or resulting from Guarantors' performance under this Guaranty, are hereby subordinated to the indebtedness. Such obligations of Borrowers to Guarantors if Bank so requests shall be enforced and performance received by Guarantors as trustees for Bank, and the proceeds thereof shall be paid over to Bank on account of the indebtedness, but without reducing or affecting in any manner the liability of Guarantors under the provisions of this Guaranty. (11) This Guaranty may be revoked at any time by Guarantors in respect to future transactions, unless there is a continuing consideration as to such transactions which Guarantors do not renounce. Such revocation shall be effective upon actual receipt by Bank, at the address shown below or at such other address as may have been provided to Guarantors by Bank, of written notice of revocation. Revocation shall not affect any of Guarantors' obligations or Bank's rights with respect to transactions which precede Bank's receipt of such notice, regardless of whether or not the indebtedness related to such transactions, before or after revocation, has been renewed, compromised, extended, accelerated, or otherwise changed as to any of its terms, including time for payment or increase or decrease of the rate of interest thereon, and regardless of any other act or omission of Bank authorized hereunder. Revocation by any one or more of Guarantors shall not affect any obligations of any nonrevoking Guarantors. If this Guaranty is revoked, returned, or canceled, and subsequently any payment or transfer of any interest in property by Borrowers to Bank is rescinded or must be returned by Bank to Borrowers, this Guaranty shall be reinstated with respect to any such payment or transfer, regardless of any such prior revocation, return, or cancellation. (12) Where any one or more of Borrowers are corporations, partnerships, or limited liability companies, it is not necessary for Bank to inquire into the powers of Borrowers or of the officers, directors, partners, members, managers, or agents acting or purporting to act on their behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. - -------------------------------------------------------------------------------- -2- - -------------------------------------------------------------------------------- (13) Guarantors authorize Bank to verify or check any information given by Guarantors to Bank, check Guarantors' credit references, verify employment, and obtain credit reports. Guarantors acknowledge and agree that the authorizations provided in this paragraph apply to any individual general partner of any Guarantor and to any Guarantor's spouse and any such general partner's spouse if such Guarantor or such general partner is married and lives in a community property state. (14) Bank may, without notice to Guarantors and without affecting Guarantors' obligations hereunder, assign the indebtedness and this Guaranty, in whole or in part. Guarantors agree that Bank may disclose to any assignee or purchaser, or any prospective assignee or purchaser, of all or part of the indebtedness any and all information in Bank's possession concerning Guarantors, this Guaranty, and any security for this Guaranty. (15) Guarantors agree to pay all reasonable attorneys' fees, including allocated costs of Bank's in-house counsel, and all other costs and expenses which may be incurred by Bank (a) in the enforcement of this Guaranty or (b) in the preservation, protection, or enforcement of any rights of Bank in any case commenced by or against Guarantors under the Bankruptcy Code (Title 11, United States Code) or any similar or successor statute. (16) Where there is but a single Borrower, or where a single Guarantor executes this Guaranty, then all words used herein in the plural shall be deemed to have been used in the singular where the context and construction so require; and when there is more than one Borrower named herein, or when this Guaranty is executed by more than one Guarantor, the words "Borrowers" and "Guarantors" respectively shall mean all and any one or more of them. (17) This Guaranty shall be governed by and construed according to the laws of the State of California, to the jurisdiction of which the parties hereto submit. (18) (a) Any controversy or claim between or among the parties, including but not limited to those arising out of or relating to this Guaranty or any agreements or instruments relating hereto or delivered in connection herewith and any claim based on or arising from an alleged tort, shall at the request of any party be determined by arbitration. The arbitration shall be conducted in accordance with the United States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law provision in this Guaranty, and under the Commercial Rules of the American Arbitration Association ("AAA"). The arbitrators shall give effect to statutes of limitation in determining any claim, except as expressly waived hereunder by Guarantors. Any controversy concerning whether an issue is arbitrable shall be determined by the arbitrators. Judgment upon the arbitration award may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief. (b) Notwithstanding the provisions of subparagraph (a), no controversy or claim shall be submitted to arbitration without the consent of all parties if, at the time of the proposed submission, such controversy or claim arises from or relates to an obligation to Bank which is secured by real property collateral located in California. If all parties do not consent to submission of such a controversy or claim to arbitration, the controversy or claim shall be determined as provided in subparagraph (c). (c) A controversy or claim which is not submitted to arbitration as provided and limited in subparagraphs (a) and (b) shall, at the request of any party, be determined by a reference in accordance with California Code of Civil Procedure Section 638 et seq. If such an election is made, the parties shall ------ designate to the court a referee or referees selected under the auspices of the AAA in the same manner as arbitrators are selected in AAA-sponsored proceedings. The presiding referee of the panel, or the referee if there is a single referee, shall be an active attorney or retired judge. Judgment upon the award rendered by such referee or referees shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. (d) No provision of this paragraph shall limit the right of any party to this Guaranty to exercise self-help remedies such as setoff, to foreclose against or sell any real or personal property collateral or security, or to obtain provisional or ancillary remedies from a court of competent jurisdiction before, after, or during the pendency of any arbitration or other proceeding. The exercise of a remedy does not waive the right of either party to resort to arbitration or reference. At Bank's option, foreclosure under a deed of trust or mortgage may be accomplished either by exercise of - -------------------------------------------------------------------------------- -3- - -------------------------------------------------------------------------------- power of sale under the deed of trust or mortgage or by judicial foreclosure. Date: October 2, 2000 ------------------------- Witnessed: Cost Plus Management Services, Inc. X /s/ Jane L. Baughman X /s/ John F. Hoffner - --------------------------------- --------------------------------------- Witness By: John F. Hoffner Chief Financial Officer 200 4th Street, Oakland, CA 94607 200 Fourth Street - --------------------------------- Oakland, CA 94607 Address X /s/ Linda S. Cano - --------------------------------- Witness 200 4th Street, Oakland, CA 94607 - --------------------------------- Address Address for Notices: Bank of America, N.A. Bay Area Commercial Banking Office #01473 345 Montgomery Street San Francisco, CA 94104 - -------------------------------------------------------------------------------- -4- Bank of America [LOGO] ================================================================================ Corporate Resolution Authorizing Execution of Guaranty WHEREAS, Bank of America, N.A. ("Bank") is unwilling to extend or continue to extend certain financial accommodations to Cost Plus, Inc. ("Borrower"), unless such obligations are guaranteed, in whole or part, by this corporation up to and including the amount hereinafter set forth; and WHEREAS, it is of a business benefit to this corporation that such financial accommodations be extended or continue to be extended to Borrower and the required guaranty be executed; NOW, THEREFORE, BE IT RESOLVED, that this corporation guarantee any and all obligations of Borrower to Bank in an amount which shall not exceed at any one time the total of (a) Fifty Million Two Hundred Thousand and 00/100 Dollars ($50,200,000.00) for the principal amount of such obligations and (b) all interest, fees and other costs and expenses relating to or arising out of such obligations or such part of such obligations as shall not exceed the foregoing limitation, and such guaranty shall be in addition to amounts guaranteed for Borrower under any other resolution of this corporation and shall not act to revoke or alter any such resolutions previously delivered to Bank; RESOLVED FURTHER, that 1. If only one signature is obtained, any one of the following: a. Murray Dashe, Chief Executive Officer b. John F. Hoffner, Chief Financial Officer c. d. e. f. 2. If two signatures are obtained, any one of the following: a. b. c. d. e. f. together with any one of the following: g. h. i. j. k. l. of this corporation, acting individually or in any combination as may be set forth above (the "Authorized Officers"), are hereby authorized and directed, in the name of this corporation, to execute and deliver to Bank, and Bank is requested to accept, the guaranty in such form as may be agreed upon by the Authorized Officers and Bank (the "Guaranty"); RESOLVED FURTHER, that the Authorized Officers are hereby authorized and directed as security for the Guaranty to grant in favor of Bank a security interest in or lien on any real or personal property belonging to or under the control of this corporation, and to execute and deliver to Bank any and all security agreements, deeds of trust, mortgages, financing statements, fixture filings or other instruments, agreements and documents as Bank may require and the Authorized Officers may approve; RESOLVED FURTHER, that any and all of the instruments, agreements and documents referred to above may contain such recitals, covenants, agreements and other provisions as Bank may require and the Authorized Officers may approve, and the execution of such instruments, agreements and documents by the Authorized Officers shall be conclusive evidence of such approval, and that the Authorized Officers are authorized from time to time to execute renewals or extensions of any and all such instruments, agreements and documents; RESOLVED FURTHER, that Bank is authorized to act upon these resolutions until written notice of revocation is received by Bank, and that the authority hereby granted shall apply with equal force and effect to the successors in office of the Authorized Officers. - -------------------------------------------------------------------------------- -1- - -------------------------------------------------------------------------------- CORPORATE SECRETARY'S CERTIFICATE I, John F. Hoffner, Secretary of Cost Plus Management Services, Inc., a corporation organized and existing under the laws of the State of California (the "Corporation"), hereby certify that the foregoing is a full, true and correct copy of resolutions of the Board of Directors of the Corporation, duly and regularly adopted by the Board of Directors of the Corporation in all respects as required by law and the by-laws of the Corporation on ________________________, _________, at a meeting at which a quorum of the Board of Directors of the Corporation was present and the requisite number of such directors voted in favor of said resolutions, or by the unanimous consent in writing of all members of the Board of Directors of the Corporation to the adoption of said resolutions. I further certify that said resolutions are still in full force and effect and have not been amended or revoked, and that the specimen signatures appearing below are the signatures of the officers authorized to sign for the Corporation by virtue of such resolutions. Date: October 2, 2000 ---------------- AUTHORIZED SIGNATURES: X /s/ Murray Dashe X /s/ John F. Hoffner --------------------------------------- ------------------------------------ Murray Dashe, Chief Executive Officer John F. Hoffner Secretary of X /s/ John F. Hoffner Cost Plus Management Services, Inc. --------------------------------------- a California corporation John F. Hoffner, Chief Financial Officer X --------------------------------------- Affix X Corporate --------------------------------------- Seal Here X --------------------------------------- X --------------------------------------- - -------------------------------------------------------------------------------- -2- Bank of America [LOGO] ================================================================================ Corporate Resolution Authorizing Execution of Guaranty WHEREAS, Bank of America, N.A. ("Bank") is unwilling to extend or continue to extend certain financial accommodations to Cost Plus, Inc. ("Borrower"), unless such obligations are guaranteed, in whole or part, by this corporation up to and including the amount hereinafter set forth; and WHEREAS, it is of a business benefit to this corporation that such financial accommodations be extended or continue to be extended to Borrower and the required guaranty be executed; NOW, THEREFORE, BE IT RESOLVED, that this corporation guarantee any and all obligations of Borrower to Bank in an amount which shall not exceed at any one time the total of (a) Fifty Million Two Hundred Thousand and 00/100 Dollars ($50,200,000.00) for the principal amount of such obligations and (b) all interest, fees and other costs and expenses relating to or arising out of such obligations or such part of such obligations as shall not exceed the foregoing limitation, and such guaranty shall be in addition to amounts guaranteed for Borrower under any other resolution of this corporation and shall not act to revoke or alter any such resolutions previously delivered to Bank; RESOLVED FURTHER, that 1. If only one signature is obtained, any one of the following: a. Murray Dashe, Chief Executive Officer b. John F. Hoffner, Chief Financial Officer c. d. e. f. 2. If two signatures are obtained, any one of the following: a. b. c. d. e. f. together with any one of the following: g. h. i. j. k. l. of this corporation, acting individually or in any combination as may be set forth above (the "Authorized Officers"), are hereby authorized and directed, in the name of this corporation, to execute and deliver to Bank, and Bank is requested to accept, the guaranty in such form as may be agreed upon by the Authorized Officers and Bank (the "Guaranty"); RESOLVED FURTHER, that the Authorized Officers are hereby authorized and directed as security for the Guaranty to grant in favor of Bank a security interest in or lien on any real or personal property belonging to or under the control of this corporation, and to execute and deliver to Bank any and all security agreements, deeds of trust, mortgages, financing statements, fixture filings or other instruments, agreements and documents as Bank may require and the Authorized Officers may approve; RESOLVED FURTHER, that any and all of the instruments, agreements and documents referred to above may contain such recitals, covenants, agreements and other provisions as Bank may require and the Authorized Officers may approve, and the execution of such instruments, agreements and documents by the Authorized Officers shall be conclusive evidence of such approval, and that the Authorized Officers are authorized from time to time to execute renewals or extensions of any and all such instruments, agreements and documents; RESOLVED FURTHER, that Bank is authorized to act upon these resolutions until written notice of revocation is received by Bank, and that the authority hereby granted shall apply with equal force and effect to the successors in office of the Authorized Officers. - -------------------------------------------------------------------------------- -1- - -------------------------------------------------------------------------------- CORPORATE SECRETARY'S CERTIFICATE I, John F. Hoffner, Secretary of Cost Plus Marketing Services, Inc., a corporation organized and existing under the laws of the State of California (the "Corporation"), hereby certify that the foregoing is a full, true and correct copy of resolutions of the Board of Directors of the Corporation, duly and regularly adopted by the Board of Directors of the Corporation in all respects as required by law and the by-laws of the Corporation on ________________________, _________, at a meeting at which a quorum of the Board of Directors of the Corporation was present and the requisite number of such directors voted in favor of said resolutions, or by the unanimous consent in writing of all members of the Board of Directors of the Corporation to the adoption of said resolutions. I further certify that said resolutions are still in full force and effect and have not been amended or revoked, and that the specimen signatures appearing below are the signatures of the officers authorized to sign for the Corporation by virtue of such resolutions. Date: October 2, 2000 ---------------- AUTHORIZED SIGNATURES: X /s/ Murray Dashe X /s/ John F. Hoffner --------------------------------------- ------------------------------------ Murray Dashe, Chief Executive Officer John F. Hoffner Secretary of X /s/ John F. Hoffner Cost Plus Marketing Services, Inc. --------------------------------------- a California corporation John F. Hoffner, Chief Financial Officer X --------------------------------------- Affix X Corporate --------------------------------------- Seal Here X --------------------------------------- X --------------------------------------- - -------------------------------------------------------------------------------- -2- EX-10.12.4 4 dex10124.txt AMENDMENT TO EMPLOYMENT AGREEMENT-MURRAY DASHE EXHIBIT 10.12.4 AMENDMENT TO EMPLOYMENT AGREEMENT THIS THIRD AMENDMENT, dated as of March 29, 2001 (the "Amendment"), to the Executive Employment Agreement, dated June 12, 1997, between Cost Plus, Inc., a California corporation, and Murray Dashe (the "Employee") (the "Employment Agreement"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the parties hereto desire to amend certain provisions of the Employment Agreement as provided herein; NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, and for other valuable consideration the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Amendment of Section 2(f). Section 2(f) of the Employment Agreement is hereby amended in its entirety and a new Section 2(f) shall be added to read as follows: (f) Relocation Expenses. The Company shall reimburse Executive for ------------------- Executive's relocation expenses in accordance with the Company's " Director and Above Relocation Policy." The Company acknowledges that Executive will not relocate immediately due to personal circumstances, therefore, the Company shall reimburse Executive's relocation expenses if Executive relocates prior to September 30, 2002. Notwithstanding the foregoing, in the event Executive voluntarily resigns from his employment with the Company prior to the later of (i) six (6) months after relocating or (ii) the second anniversary of this Agreement, Executive shall repay to the Company all reimbursed relocation costs. 2. Amendment of Section. Section 3(a) and 3(b) of the Employment -------------------- Agreement (as renumbered by the first amendment to the Employment Agreement) are hereby amended in their entirety to read as follows: 3. Severance Benefits. ------------------ (a) Benefits upon Termination. Except as provided in Section 3(b), ------------------------- if the Executive's employment terminates as a result of Involuntary Termination prior to June 15, 2003 and the Executive signs a Release of Claims, then the Company shall pay Executive's Base Compensation to the Executive for eighteen (18) months from the Termination Date with each monthly installment payable on the last day of such month. Executive shall not be entitled to receive any payments if Executive voluntarily terminates employment other than as a result of an Involuntary Termination. (b) Benefits upon Termination After a Change of Control. If, --------------------------------------------------- after a Change of Control, the Executive's employment terminates as a result of Involuntary Termination prior to June 15, 2003 and the Executive signs a Release of Claims, then the Company shall pay Executive's Base Compensation to the Executive for twenty-four (24) months from the Termination Date with each monthly installment payable on the last day of such month. Executive shall not be entitled to receive any payments if Executive voluntarily terminates employment other than as a result of an Involuntary Termination. 3. Counterparts. This Amendment may be signed in any number of ------------ counterparts, all of which counterparts, taken together, shall constitute one and the same instrument. 4. Governing Law. This Amendment and the rights and obligations of the ------------- parties hereto shall be governed by, and constructed and interpreted in accordance with, the law of the State of California. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. COST PLUS, INC. By: /s/ Joan Fujii ----------------------------------- Name: Joan Fujii Title: SVP HR MURRAY DASHE /s/ Murray Dashe --------------------------------------- SIGNATURE PAGE OF THIRD AMENDMENT TO THE EMPLOYMENT AGREEMENT 2 EX-10.14.4 5 dex10144.txt AMENDMENT TO EMPLOYMENT AGREEMENT-JOHN HOFFNER EXHIBIT 10.14.4 AMENDMENT TO EMPLOYMENT AGREEMENT THIS THIRD AMENDMENT, dated as of March 29, 2001 (the "Amendment"), to the Executive Employment Agreement, dated May 6, 1998, between Cost Plus, Inc., a California corporation, and John Hoffner (the "Employee") (the "Employment Agreement"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the parties hereto desire to amend certain provisions of the Employment Agreement as provided herein; NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, and for other valuable consideration the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Amendment of Section 3. Section 3(a) and 3(b) of the Employment ---------------------- Agreement (as renumbered by the first amendment to the Employment Agreement) are hereby amended in their entirety to read as follows: 3. Severance Benefits. ------------------ (a) Benefits upon Termination. Except as provided in Section ------------------------- 3(b), if the Executive's employment terminates as a result of Involuntary Termination prior to June 15, 2002 and the Executive signs a Release of Claims, then the Company shall pay Executive's Base Compensation to the Executive for twelve (12) months from the Termination Date with each monthly installment payable on the last day of such month. Executive shall not be entitled to receive any payments if Executive voluntarily terminates employment other than as a result of an Involuntary Termination. (b) Benefits upon Termination After a Change of Control. If --------------------------------------------------- after a Change of Control the Executive's employment terminates as a result of Involuntary Termination prior to June 15, 2002 and the Executive signs a Release of Claims, then the Company shall pay Executive's Base Compensation to the Executive for eighteen (18) months from the Termination Date with each monthly installment payable on the last day of such month. Executive shall not be entitled to receive any payments if Executive voluntarily terminates employment other than as a result of an Involuntary Termination. 2. Counterparts. This Amendment may be signed in any number of ------------ counterparts, all of which counterparts, taken together, shall constitute one and the same instrument. 3. Governing Law. This Amendment and the rights and obligations of the ------------- parties hereto shall be governed by, and construed and interpreted in accordance with, the law of the State of California. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. COST PLUS, INC. By: /s/ M. Dashe --------------------------------- Name: M. DASHE Title: CEO JOHN HOFFNER /s/ John Hoffner ------------------------------------- SIGNATURE PAGE OF AMENDMENT TO THE EMPLOYMENT AGREEMENT -2- EX-10.15.2 6 dex10152.txt AMENDMENT TO EMPLOYMENT AGREEMENT-GARY WEATHERFORD EXHIBIT 10.15.2 AMENDMENT TO EMPLOYMENT SEVERANCE AGREEMENT THIS FIRST AMENDMENT, dated as of March 29, 2001 (the "Amendment"), to the Employment Severance Agreement, dated July 22, 1999, between Cost Plus, Inc., a California corporation, and Gary Weatherford (the "Employee") (the "Employment Agreement"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the parties hereto desire to amend certain provisions of the Employment Agreement as provided herein; NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, and for other valuable consideration the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Amendment of Section. Section 3(a) and 3(b) of the Employment Agreement -------------------- are hereby amended in their entirety to read as follows: 3. Severance Benefits. ------------------ (a) Benefits upon Termination. Except as provided in Section 3(b), if ------------------------- the Executive's employment terminates as a result of Involuntary Termination prior to June 15, 2002 and the Executive signs a Release of Claims, then the Company shall pay Executive's Base Compensation to the Executive for nine (9) months from the Termination Date with each monthly installment payable on the last day of such month. Executive shall not be entitled to receive any payments if Executive voluntarily terminates employment other than as a result of an Involuntary Termination. (b) Benefits upon Termination After a Change of Control. If after a --------------------------------------------------- Change of Control the Executive's employment terminates as a result of Involuntary Termination prior to June 15, 2002 and the Executive signs a Release of Claims, then the Company shall pay Executive's Base Compensation to the Executive for twelve (12) months from the Termination Date with each monthly installment payable on the last day of such month. Executive shall not be entitled to receive any payments if Executive voluntarily terminates employment other than as a result of an Involuntary Termination. 2. Counterparts. This Amendment may be signed in any number of ------------ counterparts, all of which counterparts, taken together, shall constitute one and the same instrument. 3. Governing Law. This Amendment and the rights and obligations of the ------------- parties hereto shall be governed by, and constructed and interpreted in accordance with, the law of the State of California. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. COST PLUS, INC. By: /s/ M. Dashe ---------------------------------------- Name: M. Dashe Title: CEO GARY WEATHERFORD /s/ Gary Weatherford ------------------------------------------- SIGNATURE PAGE OF AMENDMENT TO THE EMPLOYMENT AGREEMENT 2 EX-10.16.2 7 dex10162.txt AMENDMENT TO EMPLOYMENT AGREEMENT-JOAN FUJII EXHIBIT 10.16.2 AMENDMENT TO EMPLOYMENT SEVERANCE AGREEMENT THIS FIRST AMENDMENT, dated as of March 29, 2001 (the "Amendment"), to the Employment Severance Agreement, dated July 22, 1999, between Cost Plus, Inc., a California corporation, and Joan Fujii (the "Employee") (the "Employment Agreement"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the parties hereto desire to amend certain provisions of the Employment Agreement as provided herein; NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, and for other valuable consideration the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Amendment of Section. Section 3(a) and 3(b) of the Employment Agreement -------------------- are hereby amended in their entirety to read as follows: 3. Severance Benefits. ------------------ (a) Benefits upon Termination. Except as provided in Section 3(b), if ------------------------- the Executive's employment terminates as a result of Involuntary Termination prior to June 15, 2002 and the Executive signs a Release of Claims, then the Company shall pay Executive's Base Compensation to the Executive for nine (9) months from the Termination Date with each monthly installment payable on the last day of such month. Executive shall not be entitled to receive any payments if Executive voluntarily terminates employment other than as a result of an Involuntary Termination. (b) Benefits upon Termination After a Change of Control. If after a --------------------------------------------------- Change of Control the Executive's employment terminates as a result of Involuntary Termination prior to June 15, 2002 and the Executive signs a Release of Claims, then the Company shall pay Executive's Base Compensation to the Executive for twelve (12) months from the Termination Date with each monthly installment payable on the last day of such month. Executive shall not be entitled to receive any payments if Executive voluntarily terminates employment other than as a result of an Involuntary Termination. 2. Counterparts. This Amendment may be signed in any number of ------------ counterparts, all of which counterparts, taken together, shall constitute one and the same instrument. 3. Governing Law. This Amendment and the rights and obligations of the ------------- parties hereto shall be governed by, and constructed and interpreted in accordance with, the law of the State of California. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. COST PLUS, INC. By: /s/ M. Dashe ---------------------------------------- Name: M. Dashe Title: CEO JOAN FUJII /s/ Joan Fujii -------------------------------------------- SIGNATURE PAGE OF AMENDMENT TO THE EMPLOYMENT AGREEMENT 2 EX-10.18 8 dex1018.txt AMENDMENT TO EMPLOYMENT AGREEMENT-STEPHEN HIGGINS EXHIBIT 10.18 AMENDED AND RESTATED EMPLOYMENT SEVERANCE AGREEMENT This Amended and Restated Severance Agreement (the "Agreement") is made and entered into effective as of March 29, 2001 (the "Effective Date"), by and between Stephen Higgins (the "Executive") and Cost Plus, Inc. (the "Company"). R E C I T A L S --------------- A. The Board believes the Company should provide the Executive with certain severance benefits should the Executive's employment with the Company terminate under certain circumstances, such benefits to provide the Executive with enhanced financial security and sufficient incentive and encouragement to remain with the Company. B. Certain capitalized terms used in the Agreement are defined in Section 5 below. C. This Agreement amends and restates that Employment Severance Agreement dated December 22, 1999 between the Company and the Executive. AGREEMENT In consideration of the mutual covenants herein contained, and in consideration of the continuing employment of Executive by the Company, the parties agree as follows: 1. Duties and Scope of Employment. The Company shall employ the ------------------------------ Executive in the position of Senior Vice President, Merchandising with such duties, responsibilities and compensation as in effect as of the Effective Date. The Board and the Chief Executive Officer of the Company (the "CEO") shall have the right to revise such responsibilities and compensation from time to time as the Board or the CEO may deem necessary or appropriate. If any such revision constitutes "Involuntary Termination" as defined in Section 5(c) of this Agreement, the Executive shall be entitled to benefits upon such Involuntary Termination as provided under this Agreement. 2. At-Will Employment. The Company and the Executive acknowledge that ------------------ the Executive's employment is and shall continue to be at-will, as defined under applicable law. If the Executive's employment terminates for any reason, the Executive shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Company's established employee plans and practices or in accordance with other agreements between the Company and the Executive. This Agreement shall remain in effect until the earlier of (i) the date that all obligations of the parties hereunder have been satisfied or (ii) the date upon which this Agreement terminates by consent of the parties hereto. 3. Severance Benefits. ------------------ (a) Benefits upon Termination. Except as provided in Section 3(b), ------------------------- if the Executive's employment terminates as a result of Involuntary Termination prior to June 15, 2002 and the Executive signs a Release of Claims, then the Company shall pay Executive's Base Compensation to the Executive for six (6) months from the Termination Date with each monthly installment payable on the last day of such month. Executive shall not be entitled to receive any payments if Executive voluntarily terminates employment other than as a result of an Involuntary Termination. (b) Benefits upon Termination After a Change of Control. If after a --------------------------------------------------- Change of Control the Executive's employment terminates as a result of Involuntary Termination prior to June 15, 2002 and the Executive signs a Release of Claims, then the Company shall pay Executive's Base Compensation to the Executive for nine (9) months from the Termination Date with each monthly installment payable on the last day of such month. Executive shall not be entitled to receive any payments if Executive voluntarily terminates employment other than as a result of an Involuntary Termination. (c) Stock Options; Bonus. Except as otherwise provided for in the -------------------- Company's 1995 Stock Option Plan or in Executive's stock option agreements, Executive shall not be entitled to receive any unvested stock options or partial bonus payments for an incomplete bonus plan year. (d) Miscellaneous. In addition, (i) the Company shall pay the ------------- Executive any unpaid base salary due for periods prior to the Termination Date; (ii) the Company shall pay the Executive all of the Executive's accrued and unused vacation through the Termination Date; and (iii) following submission of proper expense reports by the Executive, the Company shall reimburse the Executive for all expenses reasonably and necessarily incurred by the Executive in connection with the business of the Company prior to termination. These payments shall be made promptly upon termination and within the period of time mandated by applicable law. 4. Non-Solicitation. In consideration for the mutual agreements as set ---------------- forth herein, Executive agrees that Executive shall not, at any time, within twelve (12) months following termination of Executive's employment with the Company for any reason, directly or indirectly solicit the employment or other services of any individual who at that time shall be or within the prior twelve (12) months shall have been an employee of the Company. 5. Definition of Terms. The following terms referred to in this ------------------- Agreement have the following meanings: (a) Base Compensation. "Base Compensation" shall mean Executive's ----------------- monthly base salary for services performed based on the average base salary for the six (6) months prior to the Termination Date. (b) Cause. "Cause," unless otherwise defined in the Agreement ----- evidencing a particular Option, means an Eligible Individual's (i) intentional failure to perform reasonably assigned duties, (ii) dishonesty or willful misconduct in the performance of duties, (iii) engaging in a transaction in connection with the performance of duties to the Company or any of its -2- Subsidiaries thereof which transaction is adverse to the interests of the Company or any of its Subsidiaries and which is engaged in for personal profit or (iv) willful violation of any law, rule or regulation in connection with the performance of duties (other than traffic violations or similar offenses). (c) "Change of Control" means the occurrence of any of the following events: (i) The acquisition by any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of the "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company's then outstanding voting securities; (ii) A change in the composition of the Board of Directors of the Company occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board of Directors of the Company with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual not otherwise an Incumbent Director whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); (iii) A merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the approval by the stockholders of the Company of a plan of complete liquidation of the Company or of an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; (iv) The sale of all or substantially all of the assets of the Company determined on a consolidated basis; or (v) The complete liquidation or dissolution of the Company. (d) Involuntary Termination. "Involuntary Termination" shall mean: ----------------------- (i) termination of Executive's employment by the Company for any reason other than Cause; (ii) a material reduction in Executive's salary, other than any such reduction which is part of, and generally consistent with, a general reduction of officer salaries; -3- (iii) a material reduction by the Company in the kind or level of employee benefits (other than salary and bonus) to which Executive is entitled immediately prior to such reduction with the result that Executive's overall benefits package (other than salary and bonus) is substantially reduced (other than any such reduction applicable to officers of the Company generally); (iv) any material breach by the Company of any material provision of this Agreement which continues uncured for 30 days following notice thereof; provided that none of the foregoing shall constitute Involuntary Termination to the extent Executive has agreed thereto. (e) Release of Claims. "Release of Claims" shall mean a waiver by ----------------- Executive, in a form satisfactory to the Company, of all employment related obligations of and claims and causes of action against the Company. (f) Termination Date. "Termination Date" shall mean the date on ---------------- which an event which would constitute Involuntary Termination occurs, or the later of (i) the date on which a notice of termination is given, or (ii) the date (which shall not be more than thirty (30) days after the giving of such notice) specified in such notice. 6. Confidentiality. Executive acknowledges that during the course of --------------- Executive's employment, Executive will have produced and/or have access to confidential information, records, notebooks, data, formula, specifications, trade secrets, customer lists and secret inventions, and processes of the Company and its affiliated companies. Therefore, during or subsequent to Executive's employment by the Company, Executive agrees to hold in confidence and not directly or indirectly to disclose or use or copy or make lists of any such information, except to the extent authorized by the Company in writing. All records, files, drawings, documents, equipment, and the like, or copies thereof, relating to the Company's business, or the business of an affiliated company, which Executive shall prepare, or use, or come into contact with, shall be and remain the sole property of the Company, or of an affiliated company, and shall not be removed from the Company's or the affiliated company's premises without its written consent, and shall be promptly returned to the Company upon termination of employment with the Company. 7. Successors. ---------- (a) Company's Successors. Any successor to the Company (whether -------------------- direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term "Company" shall include any successor to the Company's business and/or assets which executes and delivers the assumption agreement pursuant to this subsection (a) or which becomes bound by the terms of this Agreement by operation of law. -4- (b) Executive's Successors. The terms of this Agreement and all ---------------------- rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 8. Notice. ------ (a) General. Notices and all other communications contemplated by ------- this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Executive, mailed notices shall be addressed to Executive at the home address, which Executive most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its CEO. (b) Notice of Termination. Any termination by the Company for Cause --------------------- or by the Executive as a result of a voluntary resignation or an Involuntary Termination shall be communicated by a notice of termination to the other party hereto given in accordance with Section 8(a) of this Agreement. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the termination date (which shall be not more than 30 days after the giving of such notice). The failure by the Executive to include in the notice any fact or circumstance which contributes to a showing of Involuntary Termination shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing Executive's rights hereunder. 9. Miscellaneous Provisions. ------------------------ (a) No Duty to Mitigate. The Executive shall not be required to ------------------- mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Executive may receive from any other source. (b) Waiver. No provision of this Agreement shall be modified, waived ------ or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time. (c) Whole Agreement. No agreements, representations or --------------- understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. (d) Severance Provisions in Other Agreements. The Executive ---------------------------------------- acknowledges and that the severance provisions set forth in this Agreement shall supersede -5- any such provisions in any employment agreement entered into between the Executive and the Company. (e) Choice of Law. The validity, interpretation, construction and ------------- performance of this Agreement shall be governed by the laws of the State of California. (f) Severability. The invalidity or unenforceability of any ------------ provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. (g) No Assignment of Benefits. The rights of any person to payments ------------------------- or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor's process, and any action in violation of this subsection shall be void. (h) Employment Taxes. All payments made pursuant to this Agreement ---------------- will be subject to withholding of applicable income and employment taxes. (i) Assignment by Company. The Company may assign its rights under --------------------- this Agreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Company or to the Company; provided, however, that no assignment shall be made if the net worth of the assignee is less than the net worth of the Company at the time of assignment. In the case of any such assignment, the term "Company" when used in a section of this Agreement shall mean the corporation that actually employs the Executive. (j) Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be deemed an original, but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written. COMPANY: COST PLUS, INC. /s/ M. Dashe ------------------------------------- By CEO ------------------------------------- Title EXECUTIVE: /s/ Stephen Higgins ------------------------------------- STEPHEN HIGGINS -6- EX-13 9 dex13.txt REGISTRANT'S 2000 ANNUAL REPORT TO SHAREHOLDERS EXHIBIT 13 cost plus world market annual report 2000 letter to our shareholders 01 five year summary of selected financial data 05 management's discussion and analysis 06 consolidated balance sheets 12 consolidated statements of operations 13 consolidated statement of shareholders' equity 14 consolidated statements of cash flows 15 notes to consolidated financial statements 16 independent auditors' report 27 directors, officers and corporate data 28 store locations 29
COST PLUS WORLD MARKET 1 letter to our shareholders Dear Shareholder: Fiscal 2000 was the second consecutive year, and only the second year in the Company's 42 year history, in which we produced earnings in all four quarters. Our sales volume of $493.7 million and earnings of $1.00 per share for the year, representing a 54% growth in earnings per share over two years, are also new records for us. These accomplishments were particularly noteworthy, given the challenging economic and retail climate of the fourth quarter. Despite the relatively severe impact felt by Cost Plus and most retailers during the holiday season, we were pleased with the rapid response of our management team in producing earnings in line with revised expectations and inventories well-positioned to enter our spring season. Sales growth in fiscal 2000 was fueled by a 23% increase in our store base and a 4.6% increase in same-store sales on top of an 8.6% increase last year. This marks the tenth consecutive year the Company has produced same store sales growth in excess of 4.5%, a track record quite unique in retailing. Looking forward, we will continue to manage our organization with fresh thinking and attention to detail. And, we will work particularly hard to ensure that our value orientation remains a cornerstone of our operating philosophy. Our customers visit our stores, not only to discover goods from all over the world, but also to find attractive price points in this cautious economic climate. Our emphasis on cost-effective marketing, merchandising and distribution strategies has again paid off. We continue to make regular investments in infrastructure, technology and management talent to help ensure that our stores operate efficiently. Our firm belief in simplicity, discipline and fiscally prudent growth is clearly exemplified by our national expansion which is financed entirely from internal cash flow. 2 COST PLUS WORLD MARKET Financially strong, we will continue our expansion with 23 planned new store openings in 2001. Last year, we opened 24 new stores, as promised, and introduced Cost Plus World Market to five new markets: Atlanta, Charlotte, Raleigh/Durham, San Luis Obispo and metropolitan Washington, DC. Throughout our expansion, our new stores have continued to perform to our internal expectations. Certainly, this is encouraging evidence that our retail concept retains broad appeal as we expand beyond major markets and include mid-sized markets in our growth plans. At Cost Plus, we believe that our unique retail shopping experience is a major point of differentiation. When coupled with our commitment to provide exciting merchandise from around the world at consistently great prices, we believe it will allow us to continue to expand on a profitable basis for years to come. We would like to thank those who have supported us in our endeavors to build a high-quality retail company: our employees, our customers and our shareholders. [PHOTO OF MURRAY H. DASHE] /S/ MURRAY H. DASHE MURRAY H. DASHE CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT COST PLUS WORLD MARKET 3 now coast to coast Our store count grew 23% last year to 127 stores, the sixth consecutive year of double-digit expansion. In the process, we introduced the World Market concept to such diverse markets as Atlanta, San Luis Obispo and Washington, DC. In our earlier years as a successful retailer, Cost Plus World Market proved that our concept was attractive in major markets around the United States. We are now pleased to report that, based on more recent successes in such areas as Omaha, Nebraska, Spokane, Washington, and Reno, Nevada, the concept is scalable to mid-markets, as well. As a result, the Company now believes that there is potential for as many as four hundred Cost Plus World Market stores in the United States. This truly gives us many more years of growth ahead. Profitable growth achieved market-by-market and store-by-store, is the guiding principle of our nationwide expansion program. To achieve this, we often cluster store openings in new cities to achieve immediate economies of scale and regularly add stores to existing markets to maximize penetration. Rigorous internal performance standards require that new stores achieve operating margins comparable to existing stores within three years. Again, in 2000, that objective was achieved. Cost Plus World Market's investment in growth in 2000 was not limited to stores. Our technology infrastructure was significantly enhanced, while maintaining relative simplicity in its execution. In addition, we continued to utilize our Stockton, California distribution center to leverage existing assets while building a state-of-the-art facility near Norfolk, Virginia. This facility will open by mid-2002, and will enable the Company to meet the growing consumer demand for a Cost Plus World Market throughout America. 4 COST PLUS WORLD MARKET five year compound annual growth rates 1996 - 2000 [GRAPH APPEARS HERE] stores 21% sales 22% operating income 26% net income 42%
net sales operating income net income dollars in millions dollars in millions dollars in millions [GRAPH APPEARS HERE] [GRAPH APPEARS HERE] [GRAPH APPEARS HERE] 96 214.8 96 15.0 96 7.4 97 260.5 97 18.1 97 10.0 98 315.1 98 22.9 98 13.2 99 402.3 99 33.1 99 19.7 00 493.7 00 36.2 00 21.7
COST PLUS WORLD MARKET 5 five year summary of selected financial data
Fiscal Year --------------------------------------------------------------------- (In thousands, except per share and selected 2000/1/ 1999 1998 1997 1996 operating data) --------------------------------------------------------------------- Statement of Operations Data: Net sales $ 493,661 $ 402,292 $ 315,135 $ 260,494 $ 214,814 Cost of sales and occupancy 316,500 255,383 200,023 164,394 135,072 --------------------------------------------------------------------- Gross profit 177,161 146,909 115,112 96,100 79,742 Selling, general and administrative expenses 135,923 110,108 89,261 75,238 62,649 Store preopening expenses 5,044 3,671 2,927 2,744 2,053 --------------------------------------------------------------------- Income from operations 36,194 33,130 22,924 18,118 15,040 Net interest expense 666 859 1,226 1,679 2,451 --------------------------------------------------------------------- Income before income taxes 35,528 32,271 21,698 16,439 12,589 Income taxes 13,856 12,586 8,462 6,432 5,162 --------------------------------------------------------------------- Net income $ 21,672 $ 19,685 $ 13,236 $ 10,007 $ 7,427 ===================================================================== Net income per share--diluted $ 1.00 $ 0.93 $ 0.65 $ 0.51 $ 0.41 Weighted average shares outstanding--diluted 21,568 21,189 20,363 19,574 18,237 ===================================================================== Selected Operating Data: Percent of sales: Gross profit 35.9% 36.5% 36.5% 36.9% 37.1% Selling, general and administrative expenses 27.5% 27.4% 28.3% 28.9% 29.2% Income from operations 7.3% 8.2% 7.3% 7.0% 7.0% Number of stores: Opened during period 24 18 15 12 9 Closed during period -- -- -- -- -- Open at end of period 127 103 85 70 58 Average sales per selling square foot/2/ $ 273 $ 269 $ 258 $ 259 $ 252 Comparable store sales increase/3/ 4.6% 8.6% 5.5% 7.0% 6.1% ===================================================================== Balance Sheet Data (at period end): Working capital $ 98,001 $ 80,663 $ 61,031 $ 52,630 $ 24,807 Total assets 252,865 214,699 173,141 152,000 128,198 Note payable and capital lease obligations, less current portion 13,474 14,416 15,110 15,692 14,215 Total shareholders' equity 169,121 138,335 109,403 95,609 73,209 Current ratio 2.59 2.47 2.43 2.52 1.72 Debt to equity ratio 8.2% 10.9% 14.3% 16.9% 20.0% =====================================================================
1 The Company's fiscal year end is the Saturday closest to the end of January. Fiscal 2000 was 53 weeks and ended on February 3, 2001. All other fiscal years presented consist of 52 weeks. 2 Calculated using net sales for stores open during the entire period divided by the selling square feet of such stores. 3 A store is considered as comparable at the beginning of its fourteenth full month of operation. 6 COST PLUS WORLD MARKET management's discussion and analysis of financial condition and results of operations An asterisk "*" denotes a forward-looking statement reflecting current expectations that involve risks and uncertainties. Actual results may differ materially from those discussed in such forward-looking statements, and shareholders of Cost Plus, Inc. (the "Company" or "Cost Plus") should carefully review the cautionary statements set forth in this Annual Report, including "Quarterly Results and Seasonality" beginning on page 8. The Company may from time to time make additional written and oral forward-looking statements, including statements contained in the Company's filings with the Securities and Exchange Commission and in its reports to shareholders. The Company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company. Results of Operations Fiscal 2000 Compared to Fiscal 1999 Net Sales Net sales increased $91.4 million, or 22.7%, to $493.7 million in fiscal 2000 from $402.3 million in fiscal 1999. The increase in net sales was attributable to new stores and an increase in comparable store sales. Comparable store sales rose 4.6% for fiscal 2000, as a result of a larger average transaction. As of February 3, 2001, the Company operated 127 stores compared to 103 stores as of January 29, 2000. Gross Profit As a percentage of net sales, gross profit was 35.9% in fiscal 2000 and 36.5% in fiscal 1999. This change is substantially explained by heavier promotional and clearance mark-downs to meet competitve sales pressures, reduced leverage on occupancy costs from a higher percentage of new stores in our base and from lower sales, as well as increased fuel and transportation costs. New stores generally have higher occupancy costs as a percentage of sales until they reach maturity. Selling, General and Administrative ("SG&A") Expenses As a percentage of net sales, SG&A expenses increased slightly to 27.5% in the current fiscal year from 27.4% last fiscal year. The increase in the SG&A expense rate resulted primarily from higher advertising expenditures to respond to a more difficult retail environment in the fourth quarter. Store Preopening Expenses Store preopening expenses, which include grand opening advertising and preopening merchandise setup expenses, were $5.0 million in fiscal 2000 and $3.7 million in fiscal 1999. Expenses vary depending on the particular store site and whether it is located in a new or existing market. The Company opened 24 stores in fiscal 2000 compared to 18 stores in fiscal 1999. COST PLUS WORLD MARKET 7 Net Interest Expense Net interest expense, which includes interest on capital leases and interest expense net of interest income, was $666,000 in fiscal 2000 and $859,000 in fiscal 1999. The modest decrease in net interest expense was due to higher interest rates on short-term investments and a small increase in the average cash balances available for investment. Income Taxes The Company's effective tax rate was 39.0% in both fiscal 2000 and fiscal 1999. Fiscal 1999 Compared to Fiscal 1998 Net Sales Net sales increased $87.2 million, or 27.7%, to $402.3 million in fiscal 1999 from $315.1 million in fiscal 1998. The increase in net sales was attributable to new stores and an increase in comparable store sales. Comparable store sales rose 8.6% for fiscal 1999, as a result of a larger average transaction size and an increase in customer count. As of January 29, 2000, the Company operated 103 stores compared to 85 stores as of January 30, 1999. Gross Profit As a percentage of net sales, gross profit was 36.5% in both fiscal 1999 and fiscal 1998. Improvements in merchandise margin offset higher occupancy costs in new stores. New stores generally have higher occupancy costs, as a percentage of net sales, until they reach maturity. The improvements in merchandise margin percentage resulted primarily from lower markdowns and an increase in initial markon. Selling, General and Administrative ("SG&A") Expenses As a percentage of net sales, SG&A expenses decreased to 27.4% in fiscal 1999 from 28.3% in fiscal 1998. The decrease in the SG&A expense rate resulted primarily from leveraging store payroll, advertising expense, corporate overhead and store expenses against higher net sales and an expanded base of stores. Store Preopening Expenses Store preopening expenses, which include grand opening advertising and preopening merchandise setup expenses, were $3.7 million in fiscal 1999 and $2.9 million in fiscal 1998. Expenses vary depending on the particular store site and whether it is located in a new or existing market. The Company opened 18 stores in fiscal 1999 compared to 15 stores in fiscal 1998. Net Interest Expense Net interest expense, which includes interest on capital leases and interest expense net of interest income, was $859,000 in fiscal 1999 and $1.2 million in fiscal 1998. The decrease in net interest expense was due to higher cash balances primarily resulting from higher operating cash flows and proceeds from the issuance of common stock in connection with the Company's stock option and stock purchase plans. Income Taxes The Company's effective tax rate was 39.0% in both fiscal 1999 and fiscal 1998. 8 COST PLUS WORLD MARKET Inflation The Company does not believe that inflation has had a material effect on its financial condition and results of operations during the past three fiscal years. However, there can be no assurance that the Company's business will not be affected by inflation in the future. Quarterly Results and Seasonality The following table sets forth the Company's unaudited quarterly operating results for its eight most recent quarterly periods.
Three Months Ended -------------------------------------------------------------------- (In thousands, except per share data and April 29, 2000 July 29, 2000 Oct. 28, 2000 Feb. 3, 2001/1/ number of stores) -------------------------------------------------------------------- Net sales $ 92,238 $ 92,765 $ 101,913 $ 206,745 Gross profit 31,791 31,633 35,333 78,404 Net income 1,133 1,449 283 18,807 Net income per share Basic $ 0.06 $ 0.07 $ 0.01 $ 0.90 Diluted $ 0.05 $ 0.07 $ 0.01 $ 0.87 Number of stores open at end of period 109 113 122 127 Three Months Ended ------------------------------------------------------------------- (In thousands, except per share data and May 1, 1999 July 31, 1999 Oct. 30, 1999 Jan. 29, 2000 number of stores) ------------------------------------------------------------------- Net sales $ 75,389 $ 76,556 $ 82,834 $ 167,513 Gross profit 25,864 26,540 29,008 65,497 Net income 707 1,108 478 17,392 Net income per share Basic $ 0.04 $ 0.05 $ 0.02 $ 0.85 Diluted $ 0.03 $ 0.05 $ 0.02 $ 0.82 Number of stores open at end of period 90 94 99 103
- ------------ /1/ The three months ended February 3, 2001 was a fourteen-week period as compared to the three months ended January 29, 2000 which was a thirteen- week period. COST PLUS WORLD MARKET 9 The Company's business is highly seasonal, reflecting the general pattern associated with the retail industry of peak sales and earnings during the Christmas season. Due to the importance of the Christmas selling season, the fourth quarter of each fiscal year has historically contributed, and the Company expects it will continue to contribute, a disproportionate percentage of the Company's net sales and most of its net income for the entire fiscal year.* Any factors negatively affecting the Company during the Christmas selling season in any year, including unfavorable economic conditions, could have a material adverse effect on the Company's financial condition and results of operations. The Company generally experiences lower sales and earnings during the first three quarters and, as is typical in the retail industry, may incur losses in these quarters. The results of operations for these interim periods are not necessarily indicative of the results for a full fiscal year. In addition, the Company makes decisions regarding merchandise well in advance of the season in which it will be sold, particularly for the Christmas selling season. Significant deviations from projected demand for products could have a material adverse effect on the Company's financial condition and results of operations, either by lost gross sales due to insufficient inventory or lost gross margin due to the need to mark down excess inventory. The Company's quarterly results of operations may also fluctuate based upon such factors as the number and timing of store openings and related store preopening expenses, the amount of net sales contributed by new and existing stores, the mix of products sold, the timing and level of markdowns, store closings, refurbishments or relocations, competitive factors, changes in fuel and other shipping costs and general economic conditions. Liquidity and Capital Resources The Company's primary uses for cash are to fund operating expenses, inventory requirements and new store expansion. Historically, the Company has financed its operations primarily from internally generated funds and borrowings under the Company's revolving credit facilities. The Company believes that the combination of its cash and cash equivalents, internally generated funds and available borrowings under its revolving line of credit will be sufficient to finance its working capital and capital expenditure requirements for at least the next twelve months.* Net cash provided by operating activities totaled $22.1 million for fiscal 2000, a decrease of $0.3 million from fiscal 1999. Improved profitability and an increase in depreciation expense were offset by a reduction in net liabilities. Net cash used in investing activities, primarily capital expenditures for new stores, totaled $26.5 million in fiscal 2000 compared to $17.0 million in fiscal 1999. The Company estimates that fiscal 2001 capital expenditures will approximate $33.5 million.* Net cash provided by financing activities was $4.8 million in fiscal 2000, which was primarily proceeds from the issuance of common stock in connection with the Company's stock option and stock purchase plans. Net cash provided by financing activities was $4.4 million in fiscal 1999, and was also related to the proceeds received from common stock issued under the Company's stock option and stock purchase plans. 10 COST PLUS WORLD MARKET Effective May 19, 2000, the Company entered into a new, unsecured revolving line of credit agreement with a bank, which expires June 1, 2002. This agreement replaced the amended October 12, 1998 revolving line of credit agreement. The new agreement allows for cash borrowings and letters of credit of up to $10.0 million from January 1 through June 30 of each year, $40.0 million from July 1, 2000 through December 31, 2000 and $50.0 million from July 1, 2001 through December 31, 2001. Interest is paid monthly based on the Company's election of the bank's reference rate minus 0.75% (7.75% at February 3, 2001) or IBOR/LIBOR plus 0.9%. The Company is subject to certain financial covenants customary with such agreements. At February 3, 2001, the Company had no outstanding borrowings under the line of credit and $4.1 million outstanding under letters of credit. Impact of New Accounting Standards Statement of Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities, is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The Company does not utilize derivative instruments, however it has adopted SFAS 133 effective February 4, 2001. Management does not expect the adoption of SFAS 133 to have a significant impact on the financial position, results of operations, or cash flows of the Company. Quantitative and Qualitative Disclosure About Market Risk The Company is exposed to market risks, which include changes in U.S. interest rates and, to a lesser extent, foreign exchange rates. The Company does not engage in financial transactions for trading or speculative purposes. Interest Rate Risk The interest payable on the Company's bank line of credit is based on variable interest rates and is therefore affected by changes in market interest rates. If interest rates on existing variable rate debt were to rise 80 basis points (a 10% change from the Company's borrowing rate as of February 3, 2001), the Company's results of operations and cash flows would not be materially affected. In addition, the Company has fixed and variable income investments consisting of cash equivalents and short-term investments which are also affected by changes in market interest rates. COST PLUS WORLD MARKET 11 Foreign Currency Risks The Company enters into a significant amount of purchase obligations outside of the United States which are settled in U.S. Dollars and therefore, the Company has only minimal exposure to foreign currency exchange risks. The Company does not hedge against foreign currency risks and believes that foreign currency exchange risk is immaterial. Stock Activity The Company's common stock is currently traded on the over-the-counter market and is quoted on the Nasdaq National Market under the symbol "CPWM." The following table sets forth the high and low closing sales prices, for the periods indicated, as reported by the Nasdaq National Market. As of March 10, 2001, the Company had 37 shareholders of record. This number excludes individual shareholders holding stock in nominee or street name by brokers. The Company's present policy is to retain its earnings to finance growth, and it does not intend to pay cash dividends.
Price Range ------------------------------- High Low ------------------------------- Fiscal Year Ended February 3, 2001 First Quarter $ 35.19 $ 15.94 Second Quarter 35.88 24.13 Third Quarter 38.81 24.81 Fourth Quarter 31.94 19.19 Fiscal Year Ended January 29, 2000 First Quarter $ 24.17 $ 15.11 Second Quarter 33.42 20.92 Third Quarter 38.03 26.58 Fourth Quarter 39.94 17.44
12 COST PLUS WORLD MARKET consolidated balance sheets
February 3, January 29, (Dollars in thousands, except per share amounts) 2001 2000 -------------- ------------- Assets Current assets: Cash and cash equivalents $ 38,815 $ 38,411 Merchandise inventories 109,829 91,402 Other current assets 11,107 5,654 ---------------------------------- Total current assets 159,751 135,467 Property and equipment, net 78,694 67,520 Other assets, net 14,420 11,712 ---------------------------------- Total assets $ 252,865 $ 214,699 ================================== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 31,592 $ 26,061 Income taxes payable 9,933 9,237 Accrued compensation 8,506 8,909 Other current liabilities 11,719 10,597 ---------------------------------- Total current liabilities 61,750 54,804 Capital lease obligations 13,474 14,416 Other long-term obligations 8,520 7,144 Shareholders' equity: Preferred stock, $.01 par value: 5,000,000 shares authorized; none issued and outstanding -- -- Common stock, $.01 par value: 67,500,000 shares authorized; issued and outstanding 21,005,337 and 20,521,884 shares 210 205 Additional paid-in capital 122,349 113,240 Retained earnings 46,562 24,890 ---------------------------------- Total shareholders' equity 169,121 138,335 ---------------------------------- Total liabilities and shareholders' equity $ 252,865 $ 214,699 ==================================
See notes to consolidated financial statements. COST PLUS WORLD MARKET 13 consolidated statements of operations
Fiscal Year Ended ----------------------------------------------------------------- February 3, January 29, January 30, (In thousands, except per share amounts) 2001 2000 1999 ----------------------------------------------------------------- Net sales $ 493,661 $ 402,292 $ 315,135 Cost of sales and occupancy 316,500 255,383 200,023 ----------------------------------------------------------------- Gross profit 177,161 146,909 115,112 Selling, general and administrative expenses 135,923 110,108 89,261 Store preopening expenses 5,044 3,671 2,927 ----------------------------------------------------------------- Income from operations 36,194 33,130 22,924 Net interest expense 666 859 1,226 ----------------------------------------------------------------- Income before income taxes 35,528 32,271 21,698 Income taxes 13,856 12,586 8,462 ----------------------------------------------------------------- Net income $ 21,672 $ 19,685 $ 13,236 ================================================================= Net income per share Basic $ 1.04 $ 0.97 $ 0.67 Diluted $ 1.00 $ 0.93 $ 0.65 ================================================================= Weighted average shares outstanding Basic 20,813 20,321 19,724 Diluted 21,568 21,189 20,363 =================================================================
See notes to consolidated financial statements. 14 COST PLUS WORLD MARKET consolidated statement of shareholders' equity
Common Stock Additional Retained Total ------------------------ Paid-in Earnings Shareholders' (In thousands, except shares) Shares Amount Capital (Deficit) Equity ------------------------- ------------- -------------- ------------ Balance at January 31, 1998 19,549,101 $ 195 $ 103,445 $ (8,031) $ 95,609 Repurchase of stock (337,503) (3) (3,747) (3,750) Stock issued under Employee Stock Purchase Plan 16,889 -- 195 195 Exercise of stock options 708,030 7 3,149 3,156 Tax effect of disqualifying stock dispositions 957 957 Net income 13,236 13,236 ------------------------------------------------------------------------- Balance at January 30, 1999 19,936,517 199 103,999 5,205 109,403 Stock issued under Employee Stock Purchase Plan 9,332 -- 249 249 Exercise of stock options 576,035 6 4,761 4,767 Tax effect of disqualifying stock dispositions 4,231 4,231 Net income 19,685 19,685 ------------------------------------------------------------------------- Balance at January 29, 2000 20,521,884 205 113,240 24,890 138,335 Stock issued under Employee Stock Purchase Plan 15,768 -- 380 380 Exercise of stock options 467,685 5 5,138 5,143 Tax effect of disqualifying stock dispositions 3,591 3,591 Net income 21,672 21,672 ------------------------------------------------------------------------- Balance at February 3, 2001 21,005,337 $ 210 $ 122,349 $ 46,562 $ 169,121 =========================================================================
See notes to consolidated financial statements. COST PLUS WORLD MARKET 15 consolidated statements of cash flows
Fiscal Year Ended -------------------------------------------------------- February 3, January 29, January 30, (In thousands) 2001 2000 1999 -------------------------------------------------------- Cash Flows From Operating Activities: Net income $ 21,672 $ 19,685 $ 13,236 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,887 11,052 9,116 Loss on disposal of property and equipment 407 173 120 Deferred income taxes (2,103) (2,425) (1,927) Changes in assets and liabilities: Merchandise inventories (18,427) (20,722) (14,074) Other assets (3,172) (997) (990) Accounts payable 6,520 6,515 4,400 Other liabilities 3,317 9,119 6,734 ------------------------------------------------------- Net cash provided by operating activities 22,101 22,400 16,615 ------------------------------------------------------- Cash Flows From Investing Activities: Purchases of property and equipment (26,529) (17,023) (14,555) ------------------------------------------------------- Net cash used in investing activities (26,529) (17,023) (14,555) ------------------------------------------------------- Cash Flows From Financing Activities: Principal payments on capital lease obligations (691) (582) (494) Proceeds from the issuance of common stock 5,523 5,016 3,350 Cash used for common stock repurchase -- -- (3,750) Net cash provided by (used in) ------------------------------------------------------- financing activities 4,832 4,434 (894) ------------------------------------------------------- Net increase in cash and cash equivalents 404 9,811 1,166 Cash and cash equivalents: Beginning of period 38,411 28,600 27,434 ------------------------------------------------------- End of period $ 38,815 $ 38,411 $ 28,600 ======================================================= Supplemental Disclosures of Cash Flow Information: Cash paid for interest $ 669 $ 960 $ 1,230 ======================================================= Cash paid for taxes $ 11,672 $ 9,724 $ 7,533 ======================================================= See notes to consolidated financial statements.
16 COST PLUS WORLD MARKET notes to consolidated financial statements Note 1. Summary of Business and Significant Accounting Policies Business Cost Plus, Inc. and subsidiaries (the "Company") is a specialty retailer of casual home living and entertaining products. At February 3, 2001, the Company operated 127 stores in 19 states under the names "World Market," "Cost Plus World Market," "Cost Plus" and "Cost Plus Imports." The Company's product offerings are designed to provide solutions to customers' casual home furnishing and home entertaining needs. The offerings include home decorating items such as furniture and rugs, as well as a variety of tabletop and kitchen products. Cost Plus World Market stores also offer a number of gift and decorative accessories including collectibles, cards, wrapping paper and other seasonal items. In addition, Cost Plus World Market offers its customers a wide selection of gourmet foods and beverages, including wine, micro-brewed and imported beer, coffee and tea. The Company accounts for its operations as one operating segment. Fiscal Year The Company's fiscal year end is the Saturday closest to the end of January. The fiscal year ended February 3, 2001 (fiscal 2000) contained 53 weeks. All other fiscal years presented consist of 52 weeks. Principles of Consolidation The consolidated financial statements include the accounts of Cost Plus, Inc. and its subsidiaries. Intercompany balances and transactions are eliminated in consolidation. Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosures of contingent assets and liabilities, at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A provision for sales returns is estimated and recorded in the current year based on actual returns subsequent to year end. Fair Value of Financial Instruments The carrying value of current assets and current liabilities approximates their fair market value. Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less as cash equivalents. Merchandise Inventories Inventories are stated at the lower of cost or market as determined under the retail inventory method. Cost includes certain buying and distribution costs related to the procurement, processing and transportation of merchandise. COST PLUS WORLD MARKET 17 Property and Equipment Furniture, fixtures and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives, which are generally three to ten years. Buildings and leasehold improvements are amortized on a straight-line basis over the lesser of the related lease terms or their useful lives. Capital Leases Noncancelable leases which meet the criteria of capital leases are capitalized as assets and amortized on a straight-line basis over their related lease terms. Other Assets Goodwill is amortized on a straight-line basis over 40 years. Lease rights and interests are amortized on a straight-line basis over their related lease terms. Long-Lived Assets The Company's policy is to review annually the recoverability of all long-lived assets or whenever events or changes indicate that the carrying amount of an asset may not be recoverable. Based upon the Company's review as of February 3, 2001 and January 29, 2000, no adjustments to the carrying value of such assets were necessary. Deferred Rent Certain of the Company's operating leases contain predetermined fixed escalations of minimum rentals during the initial term. For these leases, the Company recognizes the related rental expense on a straight-line basis over the life of the lease and records the difference between amounts charged to operations and amounts paid as deferred rent. As part of its lease agreements, the Company may receive certain lease incentives, primarily construction allowances. These allowances are also deferred and are amortized on a straight- line basis over the life of the lease as a reduction of rent expense. Advertising Expense Advertising costs are expensed as incurred. For the fiscal years ended February 3, 2001, January 29, 2000 and January 30, 1999, advertising costs were $27,156,000, $21,651,000 and $17,371,000, respectively. Store Preopening Expenses Store preopening expenses include grand opening advertising, labor, travel and hiring expenses and are expensed as incurred. Concentration of Credit Risk Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents. The Company places its cash with high quality financial institutions. At times, such balances may be in excess of FDIC insurance limits. Income Taxes Income taxes are accounted for using an asset and liability approach that requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's consolidated financial statements or tax returns. 18 COST PLUS WORLD MARKET Comprehensive Income Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," requires that any items recognized under accounting standards as components of comprehensive income be reported in an annual financial statement that is displayed with the same prominence as other financial statements. The Company's comprehensive income and net income are the same for all periods presented. Net Income per Share The following is a reconciliation of the weighted average number of shares used in the Company's Basic and Diluted per share computations.
Fiscal Year Ended ----------------------------------------- February 3, January 29, January 30, (In thousands) 2001 2000 1999 ----------------------------------------- Basic shares 20,813 20,321 19,724 Effect of dilutive stock options 755 868 639 ----------------------------------------- Diluted shares 21,568 21,189 20,363 =========================================
Stock-Based Compensation The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Impact of New Accounting Standards Statement of Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities, is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The Company does not utilize derivative instruments, however it has adopted SFAS 133 effective February 4, 2001. Management does not expect the adoption of SFAS 133 to have a significant impact on the financial position, results of operations, or cash flows of the Company. COST PLUS WORLD MARKET 19 Note 2. Property and Equipment Property and equipment consist of the following:
February 3, January 29, (In thousands) 2001 2000 ------------------------------------- Land and land improvements $ 530 $ 530 Building and leasehold improvements 52,872 44,188 Furniture, fixtures and equipment 60,281 45,218 Facilities under capital leases 27,449 28,694 ------------------------------------- Total 141,132 118,630 Less accumulated depreciation (62,438) (51,110) ------------------------------------- Property and equipment, net $ 78,694 $ 67,520 =====================================
Note 3. Other Assets Other assets consist of the following:
February 3, January 29, (In thousands) 2001 2000 ------------------------------------- Goodwill $ 3,972 $ 3,972 Deferred income taxes 4,454 2,222 Lease rights and interests 3,146 3,146 Other 8,340 7,160 ------------------------------------- Total 19,912 16,500 Less accumulated amortization (5,492) (4,788) ------------------------------------- Other assets, net $ 14,420 $ 11,712 =====================================
Note 4. Leases The Company leases certain properties consisting of retail stores, warehouses, the corporate office and equipment. Store leases typically contain provisions for two to three renewal options of five to ten years each, with renewal periods from 2001 to 2040 at the then-current market rates. The retail store, warehouse and corporate office leases generally provide that the Company assumes the maintenance and all or a portion of the property tax obligations on the leased property. 20 COST PLUS WORLD MARKET The minimum rental payments required under capital leases (with interest rates generally at 12.75%) and noncancelable operating leases with an initial lease term in excess of one year at February 3, 2001, are as follows:
(In thousands) Capital Leases Operating Leases Total - ------------------------------------------------------------------------------------------------------- Fiscal year: 2001 $ 2,067 $ 33,113 $ 35,180 2002 2,073 32,264 34,337 2003 2,073 31,263 33,336 2004 2,073 30,175 32,248 2005 2,034 27,934 29,968 Thereafter through the year 2040 25,500 145,610 171,110 ------------------------------------------------------- Minimum lease commitments 35,820 $300,359 $336,179 Less amount representing interest (21,966) ================================ -------- Present value of capital lease obligations 13,854 Less current portion (380) -------- Long-term portion $ 13,474 ========
Accumulated depreciation related to capital leases amounted to $13,894,000 and $13,164,000 at February 3, 2001 and January 29, 2000, respectively. Depreciation expense related to capital leases is classified as occupancy cost. For the fiscal years ended February 3, 2001, January 29, 2000 and January 30, 1999, such depreciation expense was $1,198,000, $1,223,000 and $1,223,000, respectively. Interest expense related to capital leases was $1,772,000, $1,898,000 and $1,962,000 for the fiscal years ended February 3, 2001, January 29, 2000 and January 30, 1999, respectively. Minimum and contingent rental expense, which is based upon certain factors such as sales volume and property taxes, under operating and capital leases, as well as sublease rental income, are as follows:
Fiscal Year Ended ------------------------------------------------- February 3, January 29, January 30, (In thousands) 2001 2000 1999 ------------------------------------------------- Operating leases: Minimum rental expense $28,488 $22,732 $17,100 Contingent rental expense 981 937 821 Less sublease rental income (1,070) (1,281) (1,153) ---------------------------------------------- Total $28,399 $22,388 $16,768 ============================================== Capital leases--contingent rental expense $ 1,047 $ 1,072 $ 1,022 ==============================================
Total minimum rental income to be received from noncancelable sublease agreements through 2011 is approximately $4,665,000 as of February 3, 2001. COST PLUS WORLD MARKET 21 Note 5. Revolving Line of Credit Effective May 19, 2000, the Company entered into a new, unsecured revolving line of credit agreement with a bank, which expires June 1, 2002. This agreement replaced the amended October 12, 1998 revolving line of credit agreement. The new agreement allows for cash borrowings and letters of credit of up to $10.0 million from January 1 through June 30 of each year, $40.0 million from July 1, 2000 through December 31, 2000 and $50.0 million from July 1, 2001 through December 31, 2001. Interest is paid monthly based on the Company's election of the bank's reference rate minus 0.75% (7.75% at February 3, 2001) or IBOR/LIBOR plus 0.9%. The Company is subject to certain financial covenants customary with such agreements. At February 3, 2001, the Company had no outstanding borrowings under the line of credit and $4.1 million outstanding under letters of credit. Interest expense under borrowing arrangements was $167,000, $132,000 and $109,000 for the fiscal years ended February 3, 2001, January 29, 2000 and January 30, 1999, respectively. Note 6. Income Taxes The provision for income taxes consists of the following:
Fiscal Year Ended ---------------------------------------------------- February 3, January 29, January 30, (In thousands) 2001 2000 1999 ---------------------------------------------------- Current: Federal $13,442 $12,408 $ 8,621 State 2,517 2,603 1,768 ----------------------------------------------- Total current 15,959 15,011 10,389 ----------------------------------------------- Deferred: Federal (1,788) (2,074) (1,556) State (315) (351) (371) ----------------------------------------------- Total deferred (2,103) (2,425) (1,927) ----------------------------------------------- Provision for income taxes $13,856 $12,586 $ 8,462 ===============================================
22 COST PLUS WORLD MARKET The differences between the U.S. federal statutory tax rate and the Company's effective tax rate are as follows:
Fiscal Year Ended -------------------------------------------- February 3, January 29, January 30, 2001 2000 1999 -------------------------------------------- U.S. federal statutory tax rate 35.0% 35.0% 35.0% State income taxes (net of U.S. federal income tax benefit) 4.0 4.4 4.3 Non-deductible expenses 0.3 0.3 0.4 Other (0.3) (0.7) (0.7) ----------------------------------------- Effective income tax rate 39.0% 39.0% 39.0% =========================================
Significant components of the Company's deferred tax assets and liabilities are as follows:
February 3, January 29, (In thousands) 2001 2000 ------------------------------- Current deferred tax asset: Deductible reserves $ 241 $ 370 Long-term deferred tax asset (liability): Deferred rent 2,963 2,435 Capital leases (860) (1,215) Lease rights (549) (624) Depreciation 1,827 854 Deferred compensation 414 318 Other 659 454 ------------------------ Total 4,454 2,222 ------------------------ Net deferred tax assets $4,695 $ 2,592 ========================
Note 7. Equity and Stock Compensation Plans Shareholder Rights Plan Each outstanding share of common stock has a Preferred Share Purchase Right (expiring on June 30, 2008) which is exercisable only upon the occurrence of certain change in control events. COST PLUS WORLD MARKET 23 Options. The Company currently has options outstanding under two employee stock option plans: the 1994 Stock Option Plan ("1994 Plan") and the 1995 Stock Option Plan ("1995 Plan"). The 1994 Plan permitted the granting of options to employees to purchase at fair market value as of the date of grant, up to 1,940,976 shares of common stock at prices ranging from 85% to 100% of fair market value as of the date of grant. Options are exercisable over ten years and became fully vested upon the Company's initial public offering in April 1996. Upon approval of the 1995 Plan in November 1995, the 1994 Plan was terminated except for options then outstanding. The 1995 Plan permits the granting of options to employees and directors to purchase, at fair market value as of the date of grant, up to 4,368,006 shares of common stock, less the aggregate number of shares outstanding under the 1994 Plan grants or any shares issued upon exercise of options granted under the 1994 Plan (821,120 at February 3, 2001). Options are exercisable over ten years and vest as determined by the Board of Directors, generally over three or four years. An additional 350,000 increase in the number of shares of common stock reserved for issuance was approved by the Board of Directors in February 2000 and by shareholders in June 2000. On March 13, 1996, the Board of Directors approved the 1996 Director Stock Option Plan ("Director Option Plan") which was last amended by the shareholders in June 2000. The Director Option Plan permits the granting of options to non- employee directors to purchase up to 253,675 shares of common stock at fair market value as of the date of grant. Options are exercisable over ten years and vest as determined by the Board of Directors, generally over four years. A summary of activity under the above option Plans is set forth below:
Weighted Average Shares Exercise Price -------------------------------------- Outstanding at January 31, 1998 (733,527 exercisable at a weighted average price of $4.34) 2,360,092 $ 6.99 Granted 470,250 13.46 Exercised (708,030) 4.34 Canceled and expired (268,691) 8.94 ----------------------------- Outstanding at January 30, 1999 (462,690 exercisable at a weighted average price of $6.89) 1,853,621 9.36 Granted 644,509 22.27 Exercised (576,035) 8.69 Canceled and expired (202,918) 14.96 ----------------------------- Outstanding at January 29, 2000 (366,508 exercisable at a weighted average price of $8.02) 1,719,177 13.80 Granted 623,137 19.72 Exercised (467,685) (10.97) Canceled and expired (143,106) (19.51) ----------------------------- Outstanding at February 3, 2001 1,731,523 $ 16.21 =============================
24 COST PLUS WORLD MARKET Additional information regarding options outstanding as of February 3, 2001 is as follows:
Options Exercisable --------------------------------- Weighted Remaining Average Weighted Weighted Number Contractual Average Number Average Range of Exercise Prices Outstanding Life (Yrs.) Exercise Price Exercisable Exercise Price - ------------------------------------------------------------------------------------------------------------------------------- $ 2.56-$ 2.64 21,871 4.2 $ 2.60 21,871 $ 2.60 5.03- 7.00 216,669 5.3 5.80 199,793 5.70 8.00- 10.72 346,915 6.5 10.46 151,612 10.23 13.11- 17.81 792,244 8.4 15.79 162,312 14.90 20.06- 27.17 112,775 9.2 24.94 11,775 26.29 31.13- 33.81 241,049 8.8 32.35 112,517 32.80 ----------------------------------------------------------------------------------------------- 1,731,523 7.7 $16.21 659,880 $13.89 ===============================================================================================
At February 3, 2001, 778,526 and 121,290 shares were available for future grants under the 1995 Stock Option Plan and the 1996 Director Stock Option Plan, respectively. Employee Stock Purchase Plan On March 13, 1996, the Board of Directors approved the 1996 Employee Stock Purchase Plan ("Purchase Plan"). A total of 675,000 shares have been authorized for issuance under the Purchase Plan, of which 121,290 remain available for issue as of February 3, 2001. Employees who work at least 20 hours per week and more than five calendar months per calendar year and have been so employed for at least one year are eligible to have a specified percentage (not to exceed 10%) of each salary payment withheld to purchase common stock at 90% of its fair market value as of the last day of the purchase period. Additional Stock Plan Information As discussed in Note 1, the Company continues to account for its stock-based awards using the intrinsic value method in accordance with Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees," and its related interpretations. Consequently, no compensation expense has been recognized in the financial statements for employee stock arrangements. COST PLUS WORLD MARKET 25 Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," requires the disclosure of pro forma net income and earnings per share as if the Company had adopted the fair value method at the beginning of fiscal 1995. Under SFAS 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Company's calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions:
Fiscal Year Ended ------------------------------------------------ February 3, January 29, January 30, 2001 2000 1999 ------------------------------------------------ Stock volatility 65.0% 63.0% 52.6% Risk free interest rates 6.4% 5.4% 5.4% Expected life after vesting (in years) 1.8 1.8 1.8 Weighted average fair value per share granted $11.22 $12.35 $6.57 Expected dividends -- -- --
The Company's calculations are based on a multiple option valuation approach, and forfeitures are recognized as they occur. If the computed fair values of the fiscal 1995 through fiscal 2000 awards had been amortized to expense over the vesting period of the awards, consistent with the methods of SFAS 123, the Company's net income and net income per share would have been reduced to the pro forma amounts indicated below:
Fiscal Year Ended ------------------------------------------------ (In thousands, except February 3, January 29, January 30, per share data) 2001 2000 1999 ------------------------------------------------ Net income As reported $21,672 $19,685 $13,236 Pro forma 17,981 17,724 11,983 Basic net income per share As reported $ 1.04 $ 0.97 $ 0.67 Pro forma 0.86 0.87 0.61 Diluted net income per share As reported $ 1.00 $ 0.93 $ 0.65 Pro forma 0.83 0.84 0.59
The impact of outstanding non-vested stock options granted prior to fiscal 1995 has been excluded from the pro forma calculation; accordingly, pro forma adjustments presented in the previous table are not necessarily indicative of future period pro forma adjustments, when the calculation will include all applicable stock options. 26 COST PLUS WORLD MARKET Note 8. Employee Benefit Plans The Company has a 401(k) plan for employees who meet certain service and age requirements. Participants may contribute up to 15% of their salaries to a maximum of $10,500 per year and qualify for favorable tax treatment under Section 401(k) of the Internal Revenue Service Code. In fiscal 1997, the Company began matching 25% of the employee's contribution, up to a maximum of 3% of base salary. In fiscal 2000, the Company increased its matching to 50% of the employee's contribution, up to a maximum of 4% of base salary. The Company contributed approximately $328,000 in fiscal 2000, $105,000 in fiscal 1999 and $90,000 in fiscal 1998. In addition, a non-qualified deferred compensation plan is available to certain employees whose benefits are limited under Section 401(k) of the Internal Revenue Service Code. Compensation deferrals approximated $514,000 for fiscal 2000 and $253,000 for fiscal 1999. Note 9. Related Party Transactions In February 1998, the Company repurchased 337,503 shares of common stock for $3,750,000 from its former Chief Executive Officer. COST PLUS WORLD MARKET 27 independent auditors' report Board of Directors and Shareholders Cost Plus, Inc. Oakland, California We have audited the accompanying consolidated balance sheets of Cost Plus, Inc. and subsidiaries as of February 3, 2001 and January 29, 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for the fiscal years ended February 3, 2001, January 29, 2000 and January 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Cost Plus, Inc. and subsidiaries as of February 3, 2001 and January 29, 2000 and the results of their operations and their cash flows for the fiscal years ended February 3, 2001, January 29, 2000 and January 30, 1999 in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP San Francisco, California March 12, 2001 28 COST PLUS WORLD MARKET directors, officers and corporate data
Directors Senior Officers Murray H. Dashe Murray H. Dashe Chairman, Chief Executive Officer and President, Chairman of the Board, Chief Executive Officer and Cost Plus, Inc. President Joseph H. Coulombe/1/ John F. Hoffner Independent Management Consultant Executive Vice President, Administration and Chief Financial Officer Barry J. Feld/2/ President, Chief Executive Officer, Kathi P. Lentzsch PCA International, Inc. Executive Vice President, Business Development Professional Photography Service Firm Joan S. Fujii Danny W. Gurr/1/ Senior Vice President, Human Resources President, Dorling Kindersley Publishing, Inc. Book and Media Publishing Products Richard L. Grice Senior Vice President, Logistics Kim D. Robbins/2/ Director of Product Development, Stephen L. Higgins Jack Nadel, Inc. Senior Vice President, Merchandising Direct Response Marketing Agent Gary D. Weatherford Fredric M. Roberts/2/ Senior Vice President, Store Operations President, F. M. Roberts and Company, Inc. Investment Banking Firm Officers Thomas D. Willardson/1/ Michael J. Allen Senior Vice President of Finance and Treasurer, Vice President, Store Development Leap Wireless International Wireless Communication Carrier Gail H. Fuller Vice President, Divisional Merchandise Manager, /1/ Member of the Audit Committee of the Board of Directors. Trend Director /2/ Member of the Compensation Committee of the Board of Directors. Alan J. Gardner Vice President, General Counsel and Secretary Corporate Data Patricia A. Juckett Corporate Headquarters Vice President, Marketing and Advertising Cost Plus, Inc. 200 4th Street John J. Luttrell Oakland, CA 94607 Vice President, Controller www.costplusworldmarket.com Ronald J. Rouse Vice President, Planning and Allocation Annual Report (Form 10-K) A copy of the Company's fiscal 2000 Annual Report on Judith A. Soares Form 10-K as filed with the Securities and Exchange Vice President, Information Systems Commission is available to shareholders by contacting: Investor Relations Department at the address above or by calling: (510) 893-7300, ext. 3003. Transfer Agent and Registrar Bank Boston c/o EquiServe, LP Boston, MA (781) 575-3120 Independent Auditors Deloitte & Touche LLP San Francisco, CA Of Counsel Wilson Sonsini Goodrich & Rosati Palo Alto, CA
COST PLUS WORLD MARKET 29 cost plus world market across the country one hundred thirty-two stores nationwide*
Arizona San Francisco Michigan Oregon Chandler San Jose (2) Ann Arbor Clackamas Mesa San Luis Obispo Auburn Hills Gresham Peoria San Mateo Kentwood Portland Phoenix (2) Santa Ana Lansing Tigard Scottsdale (2) Santa Cruz Portage Tucson Santa Rosa Rochester Hills Texas Temecula Shelby Township Austin (3) California Thousand Oaks Troy Dallas Brea Torrance Westland Fort Worth Citrus Heights Valencia Grapevine City of Industry Walnut Creek Missouri Houston (5) Colma West Los Angeles Brentwood Plano (2) Concord Woodland Hills Chesterfield San Antonio (3) Escondido Sunset Hills Fremont Colorado Virginia Fresno Aurora Nebraska Fairfax Glendale Denver (2) Omaha Falls Church La Jolla La Mesa Georgia Nevada Washington Lakewood Atlanta (3) Las Vegas (2) Bellevue Marin Reno Lynnwood Mission Viejo Idaho Seattle Modesto Boise New Mexico Spokane Mountain View Albuquerque Tacoma Northridge Illinois Santa Fe Tukwila Oakland Aurora Oceanside Chicago (2) North Carolina Wisconsin Ontario Evanston Cary Madison Palm Desert Gurnee Charlotte (2) Pasadena Northbrook *As of March 31, 2001 Pleasanton Oak Brook Ohio Roseville Orland Park Akron Sacramento Schaumburg Avon San Diego Skokie Cincinnati (4) San Dimas St. Charles Columbus (3) Mayfield Heights Indiana Mentor Carmel North Canton North Olmsted
[Graphic Appears Here] Cost Plus World Market Investor Relations 200 4th Street Oakland, CA 94607 www.costplusworldmarket.com EX-21 10 dex21.txt LIST OF SUBSIDIARIES OF THE COMPANY Exhibit 21 ---------- Cost Plus, Inc. List of Subsidiaries State of Name Incorporation Cost Plus of Idaho, Inc. Idaho Cost Plus of Texas, Inc. Texas Cost Plus Management Services, Inc. California Cost Plus Marketing Services, Inc. California EX-23 11 dex23.txt INDEPENDENT AUDITORS' CONSENT Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 333-56975, 333-67441, 333-83561 and 333-45710 of Cost Plus, Inc. and subsidiaries on Form S-8 of our report dated March 12, 2001, incorporated by reference in this Annual Report on Form 10-K of Cost Plus, Inc. and subsidiaries for the year ended February 3, 2001. San Francisco, California May 1, 2001 -----END PRIVACY-ENHANCED MESSAGE-----