-----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, NEDq8tBKaPcnCBru6lThu3GsbO0DAkkOGqR8vetIf8Rs5WQ+TNs/MtiU2Lp/KXb8 g6CJAEvoif0HBL/pymFH4g== 0000929624-97-001059.txt : 19970912 0000929624-97-001059.hdr.sgml : 19970912 ACCESSION NUMBER: 0000929624-97-001059 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19970802 FILED AS OF DATE: 19970905 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COST PLUS INC/CA/ CENTRAL INDEX KEY: 0000798955 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 941067973 STATE OF INCORPORATION: CA FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14970 FILM NUMBER: 97676036 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-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE - ----- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 2, 1997 OR _____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE 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 incorporation or (I.R.S. Employer Identification No.) organization) 201 Clay Street, Oakland, California 94607 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (510) 893-7300 Former name, former address and former fiscal year, N/A if changed since last report.
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 ----- ----- The number of shares of Common Stock, $0.01 par value, outstanding on September 3, 1997 was 8,211,900. COST PLUS, INC. FORM 10-Q FOR THE QUARTER ENDED AUGUST 2, 1997 INDEX
PAGE PART I. FINANCIAL INFORMATION ITEM 1. Condensed Consolidated Financial Statements Balance Sheets as of August 2, 1997 (unaudited), February 1, 1997 and August 3, 1996 (unaudited) 3 Statements of Operations (unaudited) for the three and six months ended August 2, 1997 and August 3, 1996 4 Statements of Cash Flows (unaudited) for the six months ended August 2, 1997 and August 3, 1996 5 Notes to Condensed Consolidated Financial Statements 6-7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-10 PART II. OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders 11 ITEM 5. Other Information 12 ITEM 6. Exhibits and Reports on Form 8-K 12 SIGNATURE PAGE 13
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS COST PLUS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
AUGUST 2, FEBRUARY 1, AUGUST 3, 1997 1997 1996 (UNAUDITED) (SEE NOTE 1) (UNAUDITED) ------------- -------------- ------------ ASSETS Current assets: Cash and cash equivalents $ 786 $ 14,398 $ 1,314 Merchandise inventories 50,557 42,605 41,231 Other current assets 2,609 2,413 2,060 ---------- ---------- ---------- Total current assets 53,952 59,416 44,605 Property and equipment, net 61,459 60,205 58,026 Other assets 8,271 8,577 8,222 ---------- ---------- ---------- Total assets $ 123,682 $ 128,198 $ 110,853 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 10,943 $ 14,706 $ 9,583 Income taxes payable -- 6,095 677 Accrued compensation 5,927 6,607 5,047 Revolving line of credit 4,900 -- 2,909 Other current liabilities 7,222 7,201 6,718 ---------- ---------- ---------- Total current liabilities 28,992 34,609 24,934 Capital lease obligations 13,980 14,215 14,424 Deferred income taxes 3,548 3,548 4,455 Other long-term obligations 2,854 2,617 2,228 Shareholders' equity: Preferred stock, $.01 par value: 5,000,000 shares authorized August 2, 1997; none issued and outstanding -- -- -- Common stock, $.01 par value: 30,000,000 authorized; issued and outstanding 8,210,502, 8,099,840 and 8,071,449 shares 82 81 81 Additional paid-in capital 91,970 91,166 90,788 Deficit (17,744) (18,038) (26,057) ---------- ---------- ---------- Total shareholders' equity 74,308 73,209 64,812 ---------- ---------- ---------- Total liabilities and shareholders' equity $ 123,682 $ 128,198 $ 110,853 ========== ========== ==========
See notes to condensed consolidated financial statements. 3 COST PLUS, INC. STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS, UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------------ ---------------------------- AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3, 1997 1996 1997 1996 -------------- ------------- ------------ ------------- Net sales $47,287 $39,986 $95,819 $79,113 Cost of sales and occupancy 30,558 25,774 62,364 51,326 -------------- ------------- ------------ ------------- Gross profit 16,729 14,212 33,455 27,787 Selling, general and administrative expenses 15,758 13,511 31,544 26,566 Preopening store expenses 200 556 640 840 -------------- ------------- ------------ ------------- Income from operations 771 145 1,271 381 Interest expense 460 479 781 1,384 -------------- ------------- ------------ ------------- Income (loss) before income taxes 311 (334) 490 (1,003) Provision for (benefit from) income taxes 124 (137) 196 (411) -------------- ------------- ------------ ------------- Net income (loss) $ 187 $ (197) $ 294 $ (592) ============== ============= ============ ============= Net income (loss) per common and common equivalent share $ .02 $ (.02) $ .03 $ (.08) ============== ============= ============ ============= Weighted average common and common equivalent shares outstanding 8,563 8,511 8,489 7,733 ============== ============= ============ =============
See notes to condensed consolidated financial statements. 4 COST PLUS, INC. STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS (IN THOUSANDS, UNAUDITED)
SIX MONTHS ENDED ------------------------------ AUGUST 2, AUGUST 3, 1997 1996 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 294 $ (592) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 3,874 3,285 Loss on disposal of property and equipment 31 -- Change in assets and liabilities: Merchandise inventories (7,952) (6,018) Other assets (171) (242) Accounts payable (3,147) 512 Income taxes payable (6,095) (2,682) Other liabilities (449) (746) ------------- ------------- Net cash used in operating activities (13,615) (6,483) ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (5,494) (3,110) ------------- ------------- Net cash used in investing activities (5,494) (3,110) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (payments) borrowings under revolving line of credit 4,900 (256) Payment of note payable to related parties -- (19,895) Principal payments on capital lease obligations (208) (168) Proceeds from issuance of stock, net of related costs 805 29,045 ------------- ------------- Net cash provided by financing activities 5,497 8,726 ------------- ------------- Net decrease in cash and cash equivalents (13,612) (867) Cash and cash equivalents: Beginning of period 14,398 2,181 ------------- ------------- End of period $ 786 $ 1,314 ============= =============
See notes to condensed consolidated financial statements. 5 COST PLUS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE AND SIX MONTHS ENDED AUGUST 2, 1997 AND AUGUST 3, 1996 (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared from the records of the Company without audit and, in the opinion of management, include all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at August 2, 1997 and August 3, 1996; the interim results of operations for the three and six months ended August 2, 1997 and August 3, 1996; and changes in cash flows for the six months then ended. The balance sheet at February 1, 1997, presented herein, has been derived from the audited financial statements of the Company for the fiscal year then ended. Accounting policies followed by the Company are described in Note 1 to the audited consolidated financial statements for the fiscal year ended February 1, 1997. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted for purposes of the condensed consolidated interim financial statements. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including notes thereto, for the year ended February 1, 1997. The results of operations for the three and six month periods herein presented are not necessarily indicative of the results to be expected for the full year. Impact of New Accounting Standards--In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings per Share ("EPS"). SFAS 128 requires dual presentation of basic EPS and diluted EPS on the face of all income statements issued after December 15, 1997 for all entities with complex capital structures. Basic EPS is computed as net income divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants and other convertible securities. The Company is required to adopt SFAS 128 in the fourth quarter of fiscal 1997 and will restate, at that time, EPS data for prior periods to conform with SFAS 128. Earlier application is not permitted. The pro forma effect assuming adoption of SFAS 128 at the beginning of each period is presented below:
Three Months Ended Six Months Ended -------------------- --------------------- August 2, August 3, August 2, August 2, 1997 1996 1997 1996 --------- --------- --------- --------- Pro forma EPS: Basic............. $0.02 $(0.02) $0.04 $(0.08) Diluted........... $0.02 $(0.02) $0.03 $(0.08)
In June 1997, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income, and No. 131 ("SFAS 131"), Disclosures about Segments of an Enterprise and Related Information. SFAS 130 requires that an enterprise report, by major components and as a single total, the change in its net assets during the period from nonowner sources; and SFAS 131 establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas and major customers. Adoptions of these statements will not impact the Company's consolidated financial position, results of operations or cash flows and any effect will be limited to the form and content of its disclosures. Both statements are effective for fiscal years beginning after December 15, 1997, with earlier application permitted. 6 COST PLUS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 2. STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURES Total cash paid for interest and income taxes was as follows:
Six Months Ended --------------------------- August 2, August 3, 1997 1996 ----------- ----------- ($000, unaudited) Interest $ 764 $ 1,763 Income Taxes $ 6,649 $ 2,322
3. REVOLVING LINE OF CREDIT AGREEMENT On May 7, 1996, the Company entered into a revolving line of credit agreement with Bank of America which was amended on May 15, 1997 and expires June 1, 1999. The amended agreement allows for cash borrowing and letters of credit up to $20.0 million from January 1 through June 30 and up to $35.0 million from July 1 through December 31 of each year. Interest is paid monthly at the bank's reference rate (8.50% at August 2, 1997) or LIBOR plus 1.75%, depending on the nature of the borrowings. The agreement is secured by the Company's inventory and receivables. The Company is subject to certain financial covenants including minimum tangible net worth and earnings coverage ratio. At August 2, 1997, the Company had $4.9 million of outstanding borrowings under the line of credit and $2.9 million outstanding under letters of credit. 4. STOCK OPTION PLANS In June 1997, the Company amended its 1995 Stock Option Plan to increase the number of shares available for grant by 400,000 to a total of 1,424,669 shares, less the aggregate number of shares issued or subject to options outstanding under the 1994 Stock Option Plan. The 1996 Director Option Plan was also amended to increase the number of shares available for grant by 40,000 to a total of 68,300 shares. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THE THREE MONTHS ("SECOND QUARTER") AND SIX MONTHS ("YEAR-TO-DATE", "FIRST HALF") ENDED AUGUST 2, 1997 AS COMPARED TO THE THREE MONTHS ("SECOND QUARTER") AND SIX MONTHS ("YEAR-TO-DATE", "FIRST HALF") ENDED AUGUST 3, 1996. NET SALES. Net sales increased $7.3 million, or 18.3%, to $47.3 million in the second quarter of fiscal 1997 from $40.0 million in the second quarter of fiscal 1996. For the first half of fiscal 1997, net sales were $95.8 million compared to $79.1 million for the same period of fiscal 1996, an increase of $16.7 million, or 21.1%. Comparable stores sales rose 6.8% in the second quarter and 7.3% in the first half, primarily as a result of a larger average transaction size. New store openings also contributed to the increase in net sales in both the second quarter and first half. As of August 2, 1997, the Company operated 60 stores compared to 52 stores as of August 3, 1996. GROSS PROFIT. As a percentage of net sales, gross profit was 35.4% in the second quarter of fiscal 1997 compared to 35.5% in the second quarter of fiscal 1996. Year-to-date, gross profit, as a percentage of net sales, was 34.9% this year compared with 35.1% last year. These slight decreases resulted from higher occupancy costs in new stores, partially offset by a sales mix more heavily weighted towards home furnishings and home decorating products, which generally have higher gross margins than the Company average. Lower inventory shrinkage also offset the higher occupancy costs. New stores generally have higher occupancy costs, as a percentage of net sales, until they reach maturity. SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES. As a percentage of net sales, SG&A expenses improved 0.5% to 33.3% in the second quarter of fiscal 1997 from 33.8% in the second quarter of fiscal 1996 primarily as a result of leveraging store payroll. Year-to-date, SG&A expenses decreased to 32.9% in the current fiscal year from 33.6% last year. The year-to-date decrease in SG&A, as a percentage of net sales, resulted from lower store payroll and other SG&A expenses partially offset by higher advertising costs to support an earlier Easter and a new spring merchandising event. PREOPENING STORE EXPENSES. Preopening store expenses, which include grand opening advertising and preopening merchandising expenses, were lower in the second quarter and first half of fiscal 1997 compared with the second quarter and first half of fiscal 1996, primarily as a result of the timing of store openings. In addition, year-to-date the average preopening costs per store declined to $217,000 from $240,000. This decrease in the average preopening costs per store was primarily attributable to lower grand opening advertising expenses. Expenses are generally incurred in both the month prior to and the month of the store opening and vary depending on the location of a store and whether it is located in a new or existing market. INTEREST EXPENSE. Interest expense was $0.5 million in the second quarter of both fiscal 1997 and fiscal 1996. Interest expense in the first half of fiscal 1997 consisted of $911,000 in capital lease interest offset by $130,000 of net interest income. In the first half of the previous fiscal year, interest expense included capital lease interest and interest expense on debt which was repaid in April 1996 with the proceeds from the Company's initial public offering of its common stock. PROVISION FOR INCOME TAXES. The Company's effective tax rate was 40.0% in fiscal 1997 compared to 41.0% in fiscal 1996. FACTORS THAT MAY AFFECT FUTURE RESULTS The Company's business is highly seasonal, reflecting the general pattern associated with much of 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 8 disproportionate percentage of the Company's net sales and most of its net income for the entire fiscal year/1/. 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. In addition, the Company makes decisions regarding merchandise well in advance of the season in which it will be sold, particularly for the Christmas selling season. Significant deviations from projected demand for products could have a material adverse effect on the Company's financial condition and results of operations, either by lost sales due to insufficient inventory or lost margin due to the need to mark down excess inventory. The Company's quarterly results of operations may fluctuate based upon such factors as the number and timing of store openings and related preopening store 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, weather conditions, competitive factors and general economic conditions. LIQUIDITY AND CAPITAL RESOURCES The Company's primary uses for cash, other than to fund operating expenses, are to support inventory requirements and for store expansion. Historically, the Company has financed its operations primarily with borrowings under the Company's credit facilities and internally generated funds. The Company believes that the available borrowings under its revolving line of credit and internally generated funds will be sufficient to finance its working capital and capital expenditures requirements for the next 12 months. /1/ Net cash used in operating activities in the first half of fiscal 1997 totaled $13.6 million, an increase of $7.1 million over the comparable period of the prior fiscal year. This increase resulted from higher income tax payments and the timing of payments for merchandise inventory. Net cash used in investing activities, primarily for new stores, totaled $5.5 million for the first half of fiscal 1997 compared to $3.1 million in the comparable period of the prior fiscal year. The Company estimates that capital expenditures will approximate $11.0 million in fiscal 1997. /1/ Net cash provided by financing activities was $5.5 million in the first half of fiscal 1997 and included $4.9 million of borrowings under the Company's revolving line of credit agreement and $805,000 from the issuance of stock to employees pursuant to the Company's stock option and stock purchase plans. Net cash provided by financing activities in fiscal 1996 included approximately $29.1 million received in April 1996 as a result of the Company's initial public offering. These proceeds were used to retire a $19.9 million long-term note payable and pay down the $3.2 million balance then outstanding on the Company's revolving credit line. Remaining unused proceeds were used for working capital and general corporate purposes. The Company has entered into an agreement to sell its San Francisco property and leaseback the store facility, subject to the satisfaction of certain conditions. If the transaction is completed, the Company will receive approximately $10.5 million in cash. On May 7, 1996, the Company entered into a revolving line of credit agreement with Bank of America which was amended on May 15, 1997 and expires June 1, 1999. The amended agreement allows for cash borrowing and letters of credit up to $20.0 million from January 1 through June 30 and up to $35.0 million from July 1 through December 31 of each year. Interest is paid monthly at the bank's reference rate (8.50% at August 2, 1997) or LIBOR plus 1.75%, depending on the nature of the borrowings. The agreement is secured by the Company's inventory and receivables. The Company is subject to certain financial covenants including minimum tangible net worth and earnings coverage ratio. At August 2, 1997, the Company had $4.9 million of outstanding borrowings under the line of credit and $2.9 million outstanding under letters of credit. IMPACT OF NEW ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings per Share ("EPS"). SFAS 128 requires dual presentation of basic EPS and diluted EPS on the face of all income statements issued after December 15, 1997 for all entities with complex capital structures. Basic EPS is computed as net income divided by the weighted average number of common shares outstanding for the period. - -------------------- /1/ Forward looking statement 9 Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants and other convertible securities. The Company is required to adopt SFAS 128 in the fourth quarter of fiscal 1997 and will restate, at that time, EPS data for prior periods to conform with SFAS 128. Earlier application is not permitted. In June 1997, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income, and No. 131 ("SFAS 131"), Disclosures about Segments of an Enterprise and Related Information. SFAS 130 requires that an enterprise report, by major components and as a single total, the change in its net assets during the period from nonowner sources; and SFAS 131 establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas and major customers. Adoptions of these statements will not impact the Company's consolidated financial position, results of operations or cash flows and any effect will be limited to the form and content of its disclosures. Both statements are effective for fiscal years beginning after December 15, 1997, with earlier application permitted. 10 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's 1997 Annual Meeting of Shareholders held on June 19, 1997, the shareholders voted on the following proposals: PROPOSAL 1. To re-elect seven directors for the ensuing year and until their successors are elected. PROPOSAL 2. To approve an amendment to the Company's 1995 Stock Option Plan to increase the shares reserved for issuance thereunder by 400,000 shares. PROPOSAL 3. To approve amendments to the Company's 1996 Director Option Plan to: (i) increase the shares reserved for issuance thereunder by 40,000 shares; and (ii) provide for automatic annual option grants of 2,000 shares to each of the Company's non-employee directors. PROPOSAL 4. To approve an amendment to the Company's By-Laws to authorize the Board of Directors to approve certain loans to officers of the Company without further shareholder approval. PROPOSAL 5. To approve the Company's 1997 Executive Officer and Key Employee Loan Plan. PROPOSAL 6. To ratify and approve the appointment of Deloitte & Touche LLP as independent auditors of the Company for the fiscal year ending January 31, 1998. 1997 ANNUAL MEETING ELECTION RESULTS PROPOSAL 1 - ELECTION OF DIRECTORS
NAME FOR WITHHELD ---- --- -------- Ralph D. Dillon 7,413,456 811 Joseph H. Coulombe 7,413,364 903 Danny W. Gurr 7,403,493 10,774 Mervin G. Morris 7,403,493 10,774 Edward A. Mule 7,413,493 774 Olivier L. Trouveroy 7,403,493 10,774 Thomas D. Willardson 7,413,493 774
PROPOSAL 2, 3, 4, 5 AND 6
BROKER PROPOSAL FOR AGAINST ABSTAIN NON-VOTES -------- --- ------- ------- --------- Amendment to the 1995 Stock Option Plan 6,126,445 870,434 3,882 413,506 Amendments to the 1996 Director Option Plan 6,954,928 41,664 4,169 413,506 Amendment to the By-Laws 6,644,070 338,308 7,738 424,151 Executive Officer and Key Employee Loan Plan 6,891,508 88,595 10,013 424,151 Appointment of Deloitte & Touche LLP 7,401,136 12,500 631 0
11 ITEM 5. OTHER INFORMATION Murray H. Dashe joined the Company as Vice Chairman of the Board of Directors, a newly created position, effective June 23, 1997. As Vice Chairman, Mr. Dashe is responsible for overseeing all day-to-day operations of the Company. Previously, Mr. Dashe served as Chief Operating Officer and as a member of the Board of Directors of Leslie's Poolmart., Inc., a swimming pool supplies retail chain. In addition, see the Company's press release of September 3, 1997, a copy of which is attached as Exhibit 10.6, which is incorporated by reference herein. ITEM 6. EXHIBITS AND REPORTS ON FORM 8K (a) Exhibits 3.2 Amended and Restated By-laws. 10.1 1995 Stock Option Plan, as amended. 10.2 1996 Director Option Plan, as amended. 10.3 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. 10.4 Employment Agreement, dated June 17, 1997 between the Company and Murray H. Dashe. 10.5 Employment Agreement, dated February 2, 1997 between the Company and Kathi P. Lentzsch. 10.6 Press release of September 3, 1997 11 Statement re: Computation of Per Share Earnings. 27 Financial Data Schedule (submitted for SEC use only). (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the period covered by this report. 12 SIGNATURES Pursuant to the requirements 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. ---------------------------------- Registrant /s/ Patricia T. Saucy ---------------------------------- By: Patricia T. Saucy Vice President Finance Date: September 5, 1997 13 EX-3.2 2 AMENDED AND RESTATED BY-LAWS AMENDED AND RESTATED/1/ BY-LAWS OF COST PLUS, INC. (a California corporation) (the "corporation") Article I OFFICES Section 1.1 Principal Office. The principal office for the transaction ----------- ---------------- of the business of the corporation shall be located at 201 Clay Street, Oakland, State of California. The Board of Directors of the corporation (the "Board" or the "Board of Directors") is hereby granted full power and authority to change said principal office to another location within or without the State of California. Section 1.2 Other Offices. One or more branch or other subordinate ----------- ------------- offices may at any time be fixed and located by the Board of Directors at such place or places within or without the State of California as it deems appropriate. Article II DIRECTORS Section 2.1 Exercise of Corporate Powers. Except as otherwise provided ----------- ---------------------------- by the Articles of Incorporation of the corporation or by the laws of the State of California now or hereafter in force, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. The Board may delegate the management of the day-to-day operation as permitted by law provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board. Without limiting the foregoing, in addition to any other action required by law, by the Articles of Incorporation or by these By-Laws, approval by the Board of Directors or a duly established committee of the Board shall be required for any of the following corporate actions: (a) the election and removal of the Chairman (if any), the President, the Chief Financial Officer, or any other executive officer of the corporation or any significant subsidiary (as such term is defined in Regulation S-X promulgated under the Securities Act of 1933, as amended) of the - -------------------------- /1/ As of June 19, 1997 corporation, the compensation of any of them, and the prescription of such powers and duties for them as are not inconsistent with the Articles of Incorporation, these By-Laws or applicable law; (b) lease of any real property on terms which exceed parameters approved by the Board; (c) ceasing of operations at any of the business locations of the corporation and any writeoff for any such location in excess of $250,000; (d) sale, exchange, mortgage, pledge or other disposition or encumbrance by the corporation of any real property or any other assets of the corporation having a net book or fair market value in excess of $1,000,000 other than sales of inventory in the ordinary course of business; (e) settlement of any claim involving a payment or forbearance, or any writeoff, by the corporation in excess of $500,000 not included in the annual capital expenditure budgets for the corporation; (f) appointment of auditors for the corporation and any significant change in the accounting principles or tax elections applicable to the corporation which are not mandated by generally accepted accounting principles or applicable law; and (g) any contract or other transaction between the corporation and one or more of its directors or officers or any entity in which one or more of its directors or officers has a material financial interest. Section 2.2 Number. The number of directors of the corporation ----------- ------ shall be not less than five (5) nor more than nine (9). The exact number of directors shall be eight (8) until changed, within the limits specified above, by a bylaw amending this Section 2.2, duly adopted by the Board of Directors or by the shareholders. The indefinite number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the Articles of Incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the fixed number or the minimum number of directors to a number less than five cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of an action by written consent, are equal to more than 16-2/3% of the outstanding shares entitled to vote thereon. No amendment may change the stated maximum number of authorized directors to a number greater than two times the stated minimum number of directors minus one. Section 2.3 Need not Be Shareholders. The directors of the ----------- ------------------------ corporation need not be shareholders of the corporation. Section 2.4 Compensation. Directors shall receive such ----------- ------------ compensation for their services as directors and such reimbursement for their expenses of attendance at meetings as may be determined from time to time by resolution of the Board. Nothing herein contained shall be construed -2- to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Section 2.5 Election and Term of Office. At each annual meeting of ----------- --------------------------- shareholders, directors shall be elected to hold office until the next annual meeting, provided, that if for any reason, said annual meeting or an adjournment thereof is not held or the directors are not elected thereat, then the directors may be elected at any special meeting of the shareholders called and held for that purpose. The term of office of the directors shall begin immediately after their election and shall continue until the expiration of the term for which elected and until their respective successors have been elected and qualified. Section 2.6 Vacancies. A vacancy or vacancies in the Board of ----------- --------- Directors shall exist when any authorized position of director is not then filled by a duly elected director, whether caused by death, resignation, removal change in the authorized number of directors (by the Board or the shareholders) or otherwise. The Board of Directors may declare vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony. Except for a vacancy created by the removal of a director, vacancies on the Board may be filled by a majority of the directors then in office, whether or not less than a quorum, or by a sole remaining director. A vacancy created by the removal of a director may be filled only by the approval of the shareholders. The shareholders may elect a director at any time to fill any vacancy not filled by the directors, but any such election by written consent requires the consent of a majority of the outstanding shares entitled to vote. Any director may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. Section 2.7 Removal. (a) Any and all of the directors may be ----------- ------- removed without cause if such removal is approved by the affirmative vote of a majority of the outstanding shares entitled to vote at an election of directors, except that no director may be removed (unless the entire Board is removed) when the votes cast against removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election at which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of the director's most recent election were then being elected. (b) Any reduction of the authorized number of directors does not remove any director prior to the expiration of such director's term of office. Section 2.8 Approval of Loans. The corporation may, upon the ----------- ----------------- approval of the Board of Directors alone, make loans of money or property to, or guarantee the obligations of, any officer of the corporation or of its parent, if any, whether or not a director, or adopt an employee benefit plan or plans authorizing such loans or guaranties provided that: (i) the Board of Directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation; (ii) the corporation has outstanding shares held of record by 100 or more persons (determined as provided in Section 605 of the California General Corporation Law) on the date of approval by the Board of Directors; and (iii) the -3- approval of the Board of Directors is by a vote sufficient without counting the vote of any interested director or directors. Notwithstanding the foregoing, the corporation shall have the power to make loans otherwise permitted by the California General Corporation Law. Article III OFFICERS Section 3.1 Election and Qualifications. The officers of this ----------- --------------------------- corporation shall consist of a President, a Chief Financial Officer and a Secretary who shall be chosen by the Board of Directors and such other officers, including a Chairman of the Board, one or more Vice Presidents, an Assistant Treasurer, an Assistant Secretary and a Controller, as the Board of Directors shall deem expedient, who shall be chosen in such manner and hold their offices for such terms as the Board of Directors may prescribe. Any two or more of such offices may be held by the same person. Any Vice President, Assistant Treasurer or Assistant Secretary, respectively, may exercise any of the powers of the President, the Chief Financial Officer, or the Secretary, respectively, as directed by the Board of Directors and shall perform such other duties as are imposed upon such officer by the By-Laws or the Board of Directors. Section 3.2 Term of Office and Compensation. The term of office ----------- ------------------------------- and salary of each of said officers and the manner and time of the payment of such salaries shall be fixed and determined by the Board of Directors and may be altered by said Board from time to time at its pleasure, subject to the rights, if any, of said officers under any contract of employment. Section 3.3 Removal and Vacancies. Any officer of the corporation ----------- --------------------- may be removed at the pleasure of the Board of Directors at any meeting or by vote of shareholders entitled to exercise the majority of voting power of the corporation at any meeting. Any officer may resign at any time upon written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. If any vacancy occurs in any office of the corporation, the Board of Directors may elect a successor to fill such vacancy for the remainder of the unexpired term and until a successor is duly chosen and qualified. Article IV CHAIRMAN OF THE BOARD Section 4.1 Powers and Duties. The Chairman of the Board of ----------- ----------------- Directors, if there be one, shall have the power to preside at all meetings of the Board of Directors, and to call meetings of the shareholders and of the Board of Directors to be held within the limitations prescribed by law or by these By-Laws, at such times and at such places as the Chairman of the Board shall deem proper. The Chairman of the Board shall have such other powers and shall be subject to such other duties as the Board of Directors may from time to time prescribe. -4- 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 -8- (g) the appointment of other committees of the Board or the members thereof. Section 11.3 Executive Committee. In the event that the Board of ------------ ------------------- Directors appoints an Executive Committee, such Executive Committee, in all cases in which specific directions to the contrary shall not have been given by the Board of Directors, shall have and may exercise, during the intervals between the meetings of the Board of Directors, all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation (except as provided in Section 11.2 hereof) in such manner as the Executive Committee may deem best for the interests of the corporation. Article XII MEETINGS OF SHAREHOLDERS Section 12.1 Place of Meetings. Meetings (whether regular, special ------------ ----------------- or adjourned) of the shareholders of the corporation shall be held at the principal office for the transaction of business as specified in accordance with Section 1.1 hereof, or any place within or without the State which may be designated by written consent of all the shareholders entitled to vote thereat, or which may be designated by the Board of Directors. Section 12.2 Time of Annual Meetings. The annual meeting of the ------------ ----------------------- shareholders shall be held at the hour of 9:00 o'clock in the morning on the fourth Thursday in June in each year, if not a legal holiday, and if a legal holiday, then on the next succeeding business day not a legal holiday, or such other time or date as may be set by the Board of Directors. Section 12.3 Special Meetings. Special meetings of the shareholders ------------ ---------------- may be called by the Board of Directors, the Chairman of the Board, the President or the holders of shares entitled to cast not less than 10% of the vote at the meeting. Section 12.4 Notice of Meetings. (a) Whenever shareholders are ------------ ------------------ required or permitted to take any action at a meeting, a written notice of the meeting shall be given not less than 10 nor more than 60 days before the day of the meeting to each shareholder entitled to vote thereat. Such notice shall state the place, date and hour of the meeting and (1) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (2) in the case of the annual meeting, those matters which the Board, at the time of the mailing of the notice, intends to present for action by the shareholder, but subject to the provisions of subdivision (b) any proper matter may be presented at the meeting for such action. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by management for election. (b) Any shareholder approval at a meeting, other unanimous approval by those entitled to vote, on any of the matters listed below shall be valid only if the general nature of the proposal so approved was stated in the notice of meeting or in any written waiver of notice: -9- (1) a proposal to approve a contract or other transaction between a corporation and one or more of its directors, or between a corporation and any corporation, firm or association in which one or more directors has a material financial interest; (2) a proposal to amend the Articles of Incorporation; (3) a proposal regarding a reorganization, merger or consolidation involving this corporation; (4) a proposal to wind up and dissolve the corporation; and (5) a proposal to adopt a plan of distribution of the shares, obligations or securities of any other corporation, domestic or foreign, or assets other than money which is not in accordance with the liquidation rights of any preferred shares as specified in the Articles of Incorporation. (c) To be properly brought before an annual meeting or special meeting, nominations for the election of directors or other business (not specified in Section 12.4 (b)) must be (1) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (2) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (3) otherwise properly brought before the meeting by a shareholder. For such nominations or other business to be considered properly brought before the meeting by a shareholder, such shareholder must have given timely notice and in proper form of his intent to bring such business before such meeting. To be timely, such shareholder's notice must be delivered to or mailed and received by the secretary of the corporation not less than 35 days prior to the meeting; provided, however, that in the event that less than 60 days notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. To be in proper form, a shareholder's notice to the secretary shall set forth: (1) the name and address of the shareholder who intends to make the nominations, propose the business, and, as the case may be, the name and address of the person or persons to be nominated or the nature of the business to be proposed; (2) a representation that the shareholder is a holder of record of stock of the corporation entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or introduce the business specified in the notice; (3) if applicable, a description of all arrangements or understandings between the shareholders and each nominee and any other person or persons (naming such person or persons, pursuant to which the nomination or nominations are to be made by the shareholder); -10- (4) such other information regarding each nominee or each matter of business to be proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed, or intended to be proposed by the board of directors; and (5) if applicable, the consent of each nominee to serve as director of the corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person or the proposal of any business not made in compliance with the foregoing procedure. Section 12.5 Delivery of Notice. Notice of shareholders' meeting or ------------ ------------------ any report shall be given either personally or by mail or other means of written communication, addressed to the shareholder at the address of such shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice; or if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located. The notice or report shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. An affidavit of mailing of any notice or report in accordance with the provisions of this section, executed by the Secretary, Assistant Secretary or any transfer agent, shall be prima facie evidence of the giving of the notice or report. If any notice or report addressed to the shareholders at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice to all other shareholders. Section 12.6 Adjourned Meetings. When a shareholders' meeting is ------------ ------------------ adjourned to another time or place, unless the By-Laws otherwise require and except as provided in this section, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 45 days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. Section 12.7 Consent to Shareholders' Meeting. The transactions of ------------ -------------------------------- any meeting of shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if either before or after the meeting each of the persons entitled to vote, not present in person or -11- by proxy signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the California General Corporation Law to be included in the notice but not so included in the notice if such objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of shareholders need be specified in any written waiver of notice, unless otherwise provided in the Articles of Incorporation or By-Laws, except as provided in subdivision (b) of Section 12.4. Section 12.8 Quorum. (a) The presence in person or by proxy of the ------------ ------ persons entitled to vote the majority of the voting shares at any meeting shall constitute a quorum for the transaction of business. Except as otherwise expressly required by statute, the Articles of Incorporation and these By-Laws, if a quorum is present, the affirmative vote of the majority of shares represented at the meeting and entitled to vote on any matter shall be the act of the shareholders. (b) The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of the number of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. (c) In the absence of a quorum, any meeting of shareholders from time to time by the vote of a majority of the shares represented either in person or by proxy, but no other business may be transacted, except as provided in subdivision (b). Section 12.9 Actions without Meeting. (a) Any action which may be ------------ ----------------------- taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted; provided that, subject to the provisions of Section 2.6, directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. (b) Unless the consents of all shareholders entitled to vote have been solicited in writing, (1) notice of any shareholder approval on matters described in subparagraphs (1), (3) or (5) of subdivision (b) of Section 12.4 or respecting indemnification of agents of the 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 -12- (2) prompt notice shall be given of the taking of any other corporate action approved by shareholders without a meeting by less than unanimous written consent, to those shareholders entitled to vote but who have not consented in writing; the provisions of Section 12.5 shall apply to such notice. Section 12.10 Revocation of Consent. Any shareholder giving a ------------- --------------------- written consent, or the shareholder's proxy holders, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holders, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the corporation. Section 12.11 Voting Rights. Except as provided in Section 12.13 or ------------- ------------- in the Articles of Incorporation or in any statute relating to the election of directors or to other particular matters, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of shareholders. Any holder of shares entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, other than elections to office, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares such shareholder is entitled to vote. Section 12.12 Determination of Holders of Record. (a) In order that ------------- ---------------------------------- the corporation may determine the shareholders entitled to notice of or to vote at any meeting or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action, the Board of Directors may fix in advance, a record date, which shall not be more than 60 nor less than 10 days prior to the date of such meeting nor more than 60 days prior to any other action. (b) In the absence of any record date set by the Board of Directors pursuant to subdivision (a) above, then: (1) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (2) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board has been taken, shall be the day on which the first written consent is given. (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. -13- (c) A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board fixes a new record date of the adjourned meeting, but the Board shall fix a new record date if the meeting is adjourned for more than 45 days from the date set for the original meeting. (d) Shareholders on the record date are entitled to notice and to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles of Incorporation or these By-Laws or by agreement or applicable law. Section 12.13 Election of Directors. (a) In any election of ------------- --------------------- directors, the candidates receiving the highest number of votes of the shares entitled to be voted for them up to the number of directors to be elected by such shares are elected. (b) Election for directors need not be by ballot unless a shareholder demands election by ballot at the meeting and before the voting begins or unless the By-Laws so require. Section 12.14 Proxies. (a) Every person entitled to vote shares may ------------- ------- authorize another person or persons to act by proxy with respect to such shares. Any proxy purporting to be executed in accordance with the provisions of the General Corporation Law of the State of California shall be presumptively valid. (b) No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy continues in full force and effect until revoked by the person executing it prior to the vote pursuant thereto, except as otherwise provided in this section. Such revocation may be effected by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by, or by attendance at the meeting and voting in person by, the person executing the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. (c) A proxy is not revoked by the death or incapacity of the maker unless, before the vote is counted, written notice of such death or incapacity is received by the corporation. Section 12.15 Inspectors of Election. (a) In advance of any meeting ------------- ---------------------- of shareholders the Board may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairman of any meeting of shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election (or persons to replace those who so fail or 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. -14- (b) The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. (c) The inspectors of election shall perform their duties, impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein. Article XIII MEETINGS OF DIRECTORS Section 13.1 Place of Meetings. Unless otherwise specified in the ------------ ----------------- notice thereof, meetings (whether regular, special or adjourned) of the Board of Directors of this corporation shall be held at the principal office of the corporation for the transaction of business, as specified in accordance with Section 1.1 hereof, which is hereby designated as an office for such purpose in accordance with the laws of the State of California, or at any other place within or without the State which has been designated from time to time by resolution of the Board or by written consent of all members of the Board. Section 13.2 Regular Meetings. Regular meetings of the Board of ------------ ---------------- Directors, of which no notice need be given except as required by the laws of the State of California, shall be held after the adjournment of each annual meeting of the shareholders (which meeting shall be designated the Regular Annual Meeting) and at such other times as may be designated from time to time by resolution of the Board of Directors. Section 13.3 Special Meetings. Special meetings of the Board of ------------ ---------------- Directors may be called at any time by the Chairman of the Board or the President or by any Vice President or the Secretary or by any two or more of the directors. Section 13.4 Notice of Meetings. Except in the case of regular ------------ ------------------ meetings, notice of which has been dispensed with, the meetings of the Board of Directors shall be held upon four days' notice by mail or 48 hours' notice delivered personally or by telephone, telegraph or other electronic or wireless means. If the address of a director is not shown on the records and is not readily ascertainable, notice shall be addressed to him at the city or place in which the meetings of the 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. -15- Section 13.5 Quorum. A majority of the authorized number of directors ------------ ------ constitutes a Quorum of the Board for the transaction of business. Except as otherwise expressly required by statute, the Articles of Incorporation or these By-Laws and every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. Section 13.6 Adjourned Meeting. A majority of the directors present, ------------ ----------------- whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than 24 hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment. Section 13.7 Waiver of Notice and Consent. (a) Notice of a meeting ------------ ---------------------------- need not be given to any director who signs a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. (b) The transactions of any meeting of the Board, however called and noticed or wherever held, are as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present or who, though present, has prior to the meeting or at its commencement, protested the lack of proper notice to him, signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 13.8 Action Without a Meeting. Any action required or ------------ ------------------------ permitted to be taken by the Board may be taken without a meeting, if all members of the Board shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. Section 13.9 Conference Telephone Meetings. Members of the Board may ------------ ----------------------------- participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Participation in a meeting pursuant to this section constitutes presence in person at such meeting. Section 13.10 Meetings of Committees. The provisions of this Article ------------- ---------------------- apply also to committees of the Board and action by such committees. Article XIV SUNDRY PROVISIONS -16- Section 14.1 Instruments in Writing. All checks, drafts, demands for ------------ ---------------------- money and notes of the corporation, and all written contracts of the corporation, shall be signed by such officer or officers, agent or agents, as the Board of Directors may from time to time by resolution designate. No officer, agent, or employee of the corporation shall have power to bind the corporation by contract or otherwise unless authorized to do so by these By-Laws or by the Board of Directors. Section 14.2 Fiscal Year. The fiscal year of this corporation shall ------------ ----------- end on the Saturday nearest to the last day of January of each year. Section 14.3 Shares Held by the Corporation. Shares in other ------------ ------------------------------ corporations standing in the name of this corporation may be voted or represented and all rights incident thereto may be exercised on behalf of this corporation by the President or by any other officer of this corporation authorized so to do by resolution of the Board of Directors. Section 14.4 Certificates of Stock. There shall be issued to each ------------ --------------------- holder of fully paid shares of the capital stock of the corporation a certificate or certificates for such shares. Every holder of shares in the corporation shall be entitled to have a certificate signed in the name of the corporation by the Chairman or Vice Chairman of the Board or the President or a Vice President and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. Section 14.5 Lost Certificates. The corporation may issue a new share ------------ ----------------- certificate or a new certificate for any other security in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate or the owner's legal representative to give the corporation a bond (or other adequate security) sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. The Board of Directors may adopt such other provisions and restrictions with reference to lost certificates, not inconsistent with applicable law, as it shall in its discretion deem appropriate. Section 14.6 Certification and Inspection of By-Laws. The corporation ------------ --------------------------------------- shall keep at its principal executive office in this State, or if its principal executive office is not in this State at its principal business office in this State, the original or a copy of these By-Laws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. 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. -17- Section 14.7 Notices. Any reference in these By-Laws to the time a ------------ ------- notice is given or sent means, unless otherwise expressly provided, the time a written notice by mail is deposited in the United States mails, postage prepaid; or the time any other written notice is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient; or the time any oral notice is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving wire the notice has reason to believe will promptly communicate it to the recipient. Section 14.8 Reports to Shareholders. Except as may otherwise be ------------ ----------------------- required by law, the rendition of an annual report to the shareholders is waived so long as there are less than 100 holders of record of the shares of the corporation (determined as provided in Section 605 of the California General Corporation Law). At such time or times, if any, that the corporation has 100 or more holders of record of its shares, the Board of Directors shall cause an annual report to be sent to the shareholders not later than 120 days after the close of the fiscal year or within such shorter time period as may be required by applicable law, and such annual report shall contain such information and be accompanied by such other documents as may be required by applicable law. Section 14.9 Indemnification of Officers, Directors, Employees and ------------ ----------------------------------------------------- Other Agents. (a) The corporation shall, to the fullest extent permissible - ----- ------ under, and in the manner permitted by, California law, indemnify each of its directors and officers against "Expenses" (as defined in Section 317(a) of the California General Corporation Law), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any "Proceeding" (as defined in Section 317(a) of the California General Corporation Law), arising by reason of the fact that such person is or was an Agent (as defined in Section 317(a) of the California General Corporation Law) of the corporation. For purposes of this Section 14.9, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director of officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. (b) The corporation shall have the power, to the fullest extent permissible under, and in the manner permitted by, California law, to indemnify each of its employees and other Agents against Expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any Proceeding, arising by reason of the fact that such person is or was an employee or Agent of the corporation. For purposes of this Section 14.9, an "employee" or "Agent" of the corporation includes any person (i) who is or was an employee or Agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or Agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or Agent of the corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. -18- (c) Expenses incurred in defending any civil or criminal action or proceeding for which indemnification is required or permitted pursuant to this Section 14.9 shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Section 14.9. (d) Enforcement. Without the necessity of entering into an express ----------- contract, all rights to indemnification and advances under this Section 14.9 shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or officer who serves in such capacity at any time while this By-Law and other relevant provisions of the California General Corporation Law and other applicable law, if any, are in effect. Any right to indemnification or advances granted by this Section 14.9 to a director or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part or (ii) no disposition of such claim is made within 90 days of request therefor. The claimant in such enforcement action (an "Action"), if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. It shall be a defense to any Action that a claimant has not met the standard of conduct which make it permissible under the California General Corporation Law for the corporation to indemnify the claimant for the amount claimed, provided that such defense shall not be available for an Action brought to enforce a claim for the advancement of expenses pursuant to subdivision (d) above if the claimant has tendered the required undertaking to the corporation. It shall not be a defense to an Action, nor shall it create a presumption that the claimant has not met the applicable standard of conduct, that the corporation (including its Board of Directors, independent counsel or shareholders) has failed, prior to the commencement of the Action, to have made a determination that the indemnification of the claimant is proper in the circumstances, or that the corporation (including its Board of Directors, independent counsel or shareholders) has actually determined that the claimant has not met the applicable standard of conduct. (e) Non-Exclusivity of Rights. The rights conferred on any person by ------------------------- this Section 14.9 shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, By-Laws, agreement, vote of shareholders or disinterested directors or otherwise both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or other Agents respecting indemnification and advances, to the fullest extent permitted by the California General Corporation Law. (f) No indemnification or advance shall be made under this Section 14.9, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (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 -19- of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (2) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. (g) Survival of Rights. The rights conferred on any person by this ------------------ Section 14.9 shall continue as to a person who has ceased to be a director, officer, employee or other Agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (h) Insurance. The corporation shall have the power to purchase and --------- maintain insurance on behalf of any person who is or was an Agent of the corporation against any liability asserted against or incurred by such person in such capacity or arising out of such person's status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Section 14.9. (i) Repeal or Modification. Any repeal or modification of this ---------------------- Section 14.9 shall not adversely affect any rights under this Section 14.9 of any director, officer or other Agent of the corporation relating to acts or omissions occurring prior to such repeal or modification. (j) Saving Clause. If this Section 14.9 or any portion hereof shall ------------- be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director or officer, any may nevertheless indemnify any employee or other Agent, to the full extent permitted by any applicable portion of this Section 14.9 that shall not have been invalidated, or by any other applicable law. (k) If the California General Corporation Law is hereafter amended to further indemnification of Agents of the corporation, then the Corporation shall be authorized to indemnify such Agents to the fullest extent permissible under the California General Corporation Law as so amended. Article XV CONSTRUCTION OF BY-LAWS WITH REFERENCE TO PROVISIONS OF LAW Section 15.1 Definitions. Unless defined otherwise in these By-Laws ------------ ----------- or unless the context otherwise requires, terms used herein shall have the same meaning, if any, ascribed thereto in the California General Corporation Law, as amended from time to time. Section 15.2 By-Law Provisions Additional and Supplemental to ------------ ------------------------------------------------ Provisions of Law. All restrictions, limitations, requirements and other - ------------- --- provisions of these By-Laws shall be construed, insofar as possible, as supplemental and additional to all provisions of law applicable to the subject -20- 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-10.1 3 AMENDED STOCK OPTION PLAN COST PLUS, INC. 1995 STOCK OPTION PLAN (Adopted November 1, 1995) (Amended October 15, 1996) (Amended July 23, 1996) (Amended April 21, 1997) 1. Purpose. ------- The purpose of this Plan is to strengthen Cost Plus, Inc., a California corporation (the "Company"), by providing an incentive to selected officers and other key employees and thereby encouraging them to devote their abilities and industry to the success of the Company's business enterprise. It is intended that this purpose be achieved by extending to selected officers and other key employees of the Company and its subsidiaries an added long-term incentive for high levels of performance and unusual efforts through the grant of options to purchase Common Stock of the Company. 2. Definitions. ----------- For purposes of the Plan: 2.1 "Affiliate" means (i) with respect to any Person which is not a natural person, any other Person that directly or indirectly through one or more intermediaries controls, or is controlled by or under common control with, such Person; and (ii) with respect to any Person who is a natural person, any of the following: (x) any spouse, parent, child, brother or sister of such Person or any issue of the foregoing (as used in this definition, issue shall include persons legally adopted into the line of descent), (y) a trust solely for the benefit of such Person or any spouse, parent, child, brother or sister of such Person or for the benefit of any issue of the foregoing or (z) any corporation or partnership which is controlled by such Person, or by any spouse, parent, child, brother or sister of such Person or by any issue of the foregoing. 2.2 "Agreement" means the written agreement between the Company and an Optionee evidencing the grant of an Option and setting forth the terms and conditions thereof. 2.3 "Board" means the Board of Directors of the Company. 2.4 "Cause," unless otherwise defined in the Agreement evidencing a particular Option, means an Eligible Individual's (i) intentional failure to perform reasonably assigned duties, (ii) dishonesty or willful misconduct in the performance of duties, (iii) engaging in a transaction in connection with the performance of duties to the Company or any of its Subsidiaries thereof which transaction is adverse to the interests of the Company or any of its Subsidiaries and which is engaged in for personal profit or (iv) willful violation of any law, rule or regulation in connection with the performance of duties (other than traffic violations or similar offenses). 2.5 "Change in Capitalization" means any change in the Shares or exchange of Shares for a different number or kind of shares or other securities of the Company, by reason of a reclassification, recapitalization, merger, consolidation, reorganization, spin-off, stock dividend, stock split or reverse stock split. 2.6 "Code" means the Internal Revenue Code of 1986, as amended. 2.7 "Committee" means a committee, as described in Section 3.1, appointed by the Board to administer the Plan and to perform the functions set forth herein. 2.8 "Company" means Cost Plus, Inc., a California corporation. 2.9 "Controlling Shareholders" means Internationale Nederlanden (U.S.) Capital Corporation and Pearl Street L.P., collectively. 2.10 "Disability" means a physical or mental infirmity which impairs the Optionee's ability to perform substantially his or her duties for a period of one hundred eighty (180) consecutive days. 2.11 "Eligible Individual" means any director, officer or employee of the Company or a Subsidiary, or any consultant or advisor. 2.12 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2.13 "Fair Market Value" means on any date, (i) with respect to any stock or other security (including, without limitation, the Shares) (a) if such security is listed or admitted to trading on a national securities exchange or the Nasdaq National Market of the National Association of Securities Dealers Automated Quotation System, the closing price of such security (or the closing bid, if no shares were reported, as quoted on such system or exchange or the exchange with the greatest volume of trading in such security for the last market trading day prior to the time of determination) as reported in the Wall Street Journal or such other source as the Committee deems reliable, (b) if such securities are not listed or admitted to trading, the arithmetic mean of the closing bid price and the closing asked price on such date as quoted on such other market in which such prices are regularly quoted, or (c) if there have been no published bid or asked quotations with respect to such security on such date, the Fair Market Value shall be the value established by the Committee in good faith and, in the case of securities relating to an Incentive Stock Option, in accordance with Section 422 of the Code, and (ii) with respect to all other property and consideration, the value conclusively determined in good faith by the Committee in its sole discretion. Any determination made by the Committee hereunder shall be final, binding and non-appealable. -2- 2.14 "First Vesting Date" means, (i) as to Options granted prior to June 30, 1996, the earlier to occur of June 30, 1997 and the first anniversary of the Company's Initial Public Offering, and (ii) as to each Option granted on or after June 30, 1996, the first anniversary of the Grant Date for such Option. 2.15 "Grant Date" means with respect to each Option, the Grant Date as defined in the applicable Agreement. 2.16 "Incentive Stock Option" means an Option satisfying the requirements of Section 422 of the Code and designated by the Committee as an Incentive Stock Option. 2.17 "Independent Third Party" means any Person who, immediately prior to the contemplated transaction, does not own in excess of 5% of the Shares on a fully diluted basis (a "5% Owner"), and any Person who is not an Affiliate of a 5% Owner. 2.18 "Initial Public Offering" means the consummation of the first public offering of Shares pursuant to one or more effective registration statements under the Securities Act (other than registrations on Form S-8 or Form S-4 or any other registration statement used for a business combination or any successor form to any such Forms) ("Registration Statements"). 2.19 "Nonqualified Stock Option" means an Option which is not an Incentive Stock Option. 2.20 "Option" means an option to purchase Shares granted pursuant to the Plan. 2.21 "Optionee" means a person to whom an Option has been granted under the Plan. 2.22 "Outside Director" means a director of the Company who is an "outside director" within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder. 2.23 "Own" or any derivation thereof means beneficial ownership as defined in Rule 13d-3 promulgated under the Exchange Act. 2.24 "Parent" means any corporation which is a parent corporation (within the meaning of Section 424(e) of the Code) with respect to the Company. 2.25 "Per Share Option Price" means, with respect to each Option, the per share exercise price with respect to such Option. -3- 2.26 "Person" means any natural person, corporation, partnership, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. 2.27 "Plan" means this Cost Plus, Inc. 1995 Stock Option Plan. 2.28 "Pooling Period" means, with respect to a Pooling Transaction, the period ending on the first date on which the combined entity resulting from such Pooling Transaction publishes combined operating results for at least thirty (30) days. 2.29 "Pooling Transaction" means an acquisition of the Company in a transaction which is treated as a "pooling of interests" under generally accepted accounting principles. 2.30 "Sale of the Company" means any of the following transactions which are approved by the Board and the shareholders of the Company in accordance with the Articles of Incorporation of the Company then in effect: (i) the sale of all or substantially all of the assets of the Company determined on a consolidated basis, (ii) the complete liquidation or dissolution of the Company, or (iii) a merger, consolidation or reorganization involving the Company (a "Business Combination"), unless the shareholders of the Company, immediately before the Business Combination, Own, directly or indirectly, at least a majority of the combined voting power of the outstanding voting securities of the corporation resulting from the Business Combination in substantially the same proportions as their Ownership of the outstanding voting securities immediately before such transaction. 2.31 "Securities Act" means the Securities Act of 1933, as amended. 2.32 "Shares" means the common stock, par value $.01 per share, of the Company. 2.33 "Subsidiary" means any corporation which is a subsidiary corporation (within the meaning of Section 424(f) of the Code) with respect to the Company. 2.34 "Successor Corporation" means a corporation, or a parent or subsidiary thereof within the meaning of Section 424(a) of the Code, which issues or assumes a stock option in a transaction to which Section 424(a) of the Code applies. 2.35 "Ten-Percent Shareholder" means an Eligible Individual, who, at the time an Incentive Stock Option is to be granted to him or her, owns (within the meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, or of a Parent or a Subsidiary. 3. Administration. -------------- 3.1 The Plan shall be administered as follows: -4- (a) The Plan shall be administered by the Committee which shall hold meetings at such times as may be necessary for the proper administration of the Plan. The Committee shall keep minutes of its meetings. Except as otherwise provided in the Company's Articles of Incorporation or By-Laws, a quorum shall consist of not less than two members of the Committee and a majority of a quorum may authorize any action. Except as otherwise provided in the Company's Articles of Incorporation or Bylaws, any decision or determination reduced to writing and signed by the requisite number of the members of the Committee shall be as fully effective as if made by the vote of the requisite number of members at a meeting duly called and held. (b) Procedure. --------- (i) Multiple Administrative Bodies. The Committee shall be ------------------------------ composed of the Board or a committee of the Board. The Plan may be administered by different Committees with respect to different Optionees. (ii) Section 162(m). To the extent that the Board determines it -------------- to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more Outside Directors. (iii) Rule 16b-3. To the extent desirable to qualify ---------- transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. (iv) Other Administration. Other than as provided above, the -------------------- Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws. (c) No member of the Committee shall be liable for any action, failure to act, determination or interpretation made in good faith with respect to this Plan or any transaction hereunder, except for liability arising from his or her own willful misfeasance, gross negligence or reckless disregard of his or her duties. The Company hereby agrees to indemnify each member of the Committee for all costs and expenses and, to the extent permitted by applicable law, any liability incurred in connection with defending against, responding to, negotiation for the settlement of or otherwise dealing with any claim, cause of action or dispute of any kind arising in connection with any action in administering this Plan or in authorizing or denying authorization to any transaction hereunder. 3.2 Subject to the express terms and conditions set forth herein, the Committee shall have the power from time to time: (a) to determine those Eligible Individuals to whom Options shall be granted under the Plan and, subject to Section 5.2, the number of Shares subject to each Option to be -5- granted, to prescribe the terms and conditions (which need not be identical) of each such Option, including the Fair Market Value on any date, the Per Share Option Price for the Shares subject to each Option in accordance with Section 5.3, and to make any amendment or modification to any Agreement, including the acceleration of vesting, consistent with the terms of the Plan; (b) to construe and interpret the Plan and the Options granted hereunder and to establish, amend and revoke rules and regulations for the administration of the Plan, including, but not limited to, correcting any defect or supplying any omission, or reconciling any inconsistency in the Plan or in any Agreement, in the manner and to the extent it shall deem necessary or advisable so that the Plan complies with applicable law, including Rule 16b-3 under the Exchange Act and the Code to the extent applicable, and otherwise to make the Plan fully effective. All decisions and determinations by the Committee in the exercise of this power shall be final, binding and conclusive upon the Company, its Subsidiaries, the Optionees, and all other persons having any interest therein; (c) to determine the duration and purposes for leaves of absence which may be granted to an Optionee on an individual basis without constituting a termination of employment or service for purposes of the Plan; (d) to exercise its discretion with respect to the powers and rights granted to it as set forth in the Plan; and (e) generally, to exercise such powers and to perform such acts as are deemed necessary or advisable to promote the best interests of the Company with respect to the Plan. 4. Stock Subject to the Plan. ------------------------- (a) The maximum number of Shares that may be made the subject of Options granted under the Plan shall be 1,424,669 Shares (post split), less the aggregate number of Shares from time to time (i) subject to options outstanding under the Cost Plus, Inc. 1994 Stock Option Plan (the "1994 Option Plan") or (ii) issued upon exercise of options granted under the 1994 Option Plan. Options to be granted under the Plan shall be granted under the Form of Cost Plus, Inc. 1995 Stock Option Plan Incentive Stock Option Agreement attached as Exhibit A-1 ----------- or Nonqualified Stock Option Agreement attached as Exhibit A-2, which forms of ----------- agreement may be modified or amended by the Committee from time to time so long as any such modified or amended agreement is not inconsistent with any provision of the Plan. (b) Upon a Change in Capitalization, the number of Shares set forth in this Section 4 and in Section 5 shall be adjusted in number and kind pursuant to Section 6. (c) Upon the granting of an Option, the number of Shares available for the granting of further Options shall be reduced by the number of Shares in respect of which the Option is granted. Whenever any outstanding Option or portion thereof expires, is canceled or is otherwise terminated for any reason without having been exercised or payment having been made in respect -6- thereof, the Shares allocable to the expired, canceled or otherwise terminated portion of the Option shall again be available for the granting of Options by the Committee under the terms of the Plan. (d) The Board shall reserve for the purpose of the Plan, out of its authorized but unissued Shares, 1,024,669 Shares (post split), less the aggregate number of Shares from time to time (i) subject to options outstanding under the 1994 Option Plan or (ii) issued upon exercise of options granted under the 1994 Option Plan. 5. Option Grants for Eligible Individuals. -------------------------------------- 5.1 Authority of Committee. Except as otherwise expressly provided ---------------------- in this Plan, the Committee shall have full and final authority to select those Eligible Individuals who will receive Options, the terms and conditions of which shall be set forth in an Agreement; provided, however, that no person shall ----------------- receive any Incentive Stock Options unless he or she is an employee of the Company, a Parent or a Subsidiary at the time the Incentive Stock Option is granted. 5.2 Eligibility. ----------- (a) No Eligible Individual may be granted, in any fiscal year of the Company, Options to purchase more than 265,322 Shares; provided that the limitation set forth in this Section 5.2(a) shall only apply to Options granted after the Company's Initial Public Offering. If an Option is cancelled (other than in connection with a Sale of the Company), the cancelled Option will be counted against the limit set forth in this Section 5.2(a). For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. (b) Each Option shall be designated in the Agreement as either an Incentive Stock Option or a Nonqualified Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value: (i) of Shares subject to an Optionee's Incentive Stock Options granted by the Company, any Parent or Subsidiary, which (ii) become exercisable for the first time during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonqualified Stock Options. For purposes of this Section 5.2(b), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. 5.3 Option Exercise Price. The Per Share Option Price for the Shares --------------------- to be issued pursuant to exercise of an Option shall be such price as is determined by the Committee, but shall be subject to the following: -7- (a) In the case of an Incentive Stock Option granted to an Eligible Individual who, at the time of the grant of such Incentive Stock Option, is a Ten-Percent Shareholder, the Per Share Option Price shall be no less than 110% of the Fair Market Value per Share on the Grant Date. (b) In the case of an Incentive Stock Option granted to any Eligible Individual other than a Ten-Percent Shareholder, the Per Share Option Price shall be no less than 100% of the Fair Market Value per Share on the Grant Date. 5.4 Duration of Options. ------------------- (a) Maximum Duration. Each Option granted hereunder shall be for a ---------------- term of not more than ten (10) years from the date it is granted (five (5) years in the case of an Incentive Stock Option granted to a Ten-Percent Shareholder). The Committee may, subsequent to the granting of any Option, extend the term thereof but in no event shall the term as so extended exceed the maximum term provided for in the preceding sentence. (b) Termination of Employment. ------------------------- (i) Death, Disability or Retirement. In the event the Optionee's ------------------------------- employment with or service as a consultant to or director of the Company is terminated as a result of Disability or death or the voluntary retirement of the Optionee at or after age 65 (or age 55 with Company consent) ("Retirement") or the Optionee dies within the thirty (30) day period described in Section 5.4(b)(iii) below, the Optionee or, in the case of the Optionee's death, Optionee's legal representatives, may at any time within one (1) year after his or her termination, exercise any Options then held by the Optionee to the extent, but only to the extent, that such Options or portions thereof are exercisable on the date of such termination, after which time such Options shall terminate in full; provided, however, that if the employment of an Optionee is terminated as a result of Disability that does not qualify as a "permanent and total disability" as defined in Code Section 22(e)(3) and the regulations thereunder, Incentive Stock Options held by the Optionee shall be treated as Nonqualified Stock Options as of the date that is three (3) months and one (1) day following such termination of employment. Any portion of an Incentive Stock Option granted to an Optionee which is not exercised within the three (3) month period following the Optionee's Retirement shall thereafter cease to be an Incentive Stock Option and shall be treated as a Nonqualified Stock Option. In the event of an Optionee's termination of employment due to death as described in this Section, all Options held by the Optionee shall be exercisable, even as to Shares previously unvested, by the legatee or legatees under the Optionee's will, or by the Optionee's personal representatives or distributees and such person or persons shall be substituted for the Optionee each time the Optionee is referred to herein. Notwithstanding anything else in this Section, the Committee may, in its discretion, provide in the Agreement that any Options held by Optionee on the date Optionee's employment with or service as a consultant or director of the Company terminates as a result of Disability or Retirement shall become fully vested and exercisable as of such termination date. -8- (ii) Cause. In the event Optionee's employment with or service as ----- a consultant to or director of the Company is terminated for Cause, all Options held by the Optionee shall terminate on the date of the Optionee's termination whether or not exercisable. (iii) Other Termination. If Optionee's employment with or service ----------------- as a consultant to or director of the Company is terminated for any reason other than Disability, death, Retirement or Cause (including the Optionee's ceasing to be employed by or a consultant to or director of a Subsidiary or division of the Company or any Subsidiary as a result of the sale of such Subsidiary or division or an interest in such Subsidiary or division), the Optionee may at any time within thirty (30) days after such termination, exercise any Options held by the Optionee to the extent, but only to the extent, that such Options or portions thereof are exercisable on the date of the termination, after which time such Options shall terminate in full. 5.5 Vesting. Unless otherwise provided for by the Committee in an ------- Agreement and subject to Section 5.10, each Option shall become vested and exercisable as to 25% of the aggregate number of Shares covered by the Option on the First Vesting Date, and as to an additional 25% of the aggregate number of Shares covered by the Option on each of the first, second and third anniversaries of the First Vesting Date. Any fractional number of Shares resulting from the application of the vesting percentage shall be rounded to the next higher whole number of Shares. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date an Option expires or terminates. Notwithstanding the foregoing (or any other provision to the contrary contained in the Plan or any Agreement) all outstanding Options shall immediately become fully (100%) vested and exercisable upon a Sale of the Company. In addition, the Committee may accelerate the exercisability of any Option or portion thereof at any time. 5.6 Modification. No modification of an Option shall adversely alter ------------ or impair any rights or obligations under the Option without the Optionee's consent. 5.7 Nontransferability. Unless otherwise provided by the Committee ------------------ in an Agreement, no Option granted hereunder shall be transferable by the Optionee to whom granted otherwise than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code. An Option may be exercised during the lifetime of such Optionee only by the Optionee or his or her guardian or legal representative. The terms of such Option shall be final, binding and conclusive upon the beneficiaries, executors, administrators, heirs and successors of the Optionee. 5.8 Method of Exercise. The exercise of an Option shall be made only ------------------ by a written notice delivered in person or by mail to the Secretary of the Company at the Company's principal executive office, specifying the number of Shares to be purchased and accompanied by payment therefor and otherwise in accordance with the Agreement pursuant to which the Option was granted. The purchase price for any Shares purchased pursuant to the exercise of an Option shall be paid in full upon such exercise by any one or a combination of the following: (i) cash, (ii) check, (iii) transferring -9- Shares to the Company upon such terms and conditions as determined by the Committee or (iv) pursuant to a cashless exercise providing for the exercise of the Option and sale of the underlying Shares by a designated broker and delivery of the Shares by the Company to such broker. Cashless exercises shall be subject to such procedures as may be established from time to time by the Committee in its sole discretion. The Committee shall have discretion to determine at the time of grant of each Option or at any later date (up to and including the date of exercise) the form of payment acceptable in respect of the exercise of such Option. With respect to the transfer of Shares to the Company as payment, in part or in whole, of the exercise price (i) any Shares transferred to the Company as payment of the purchase price under an Option shall be valued at their Fair Market Value on the day preceding the date of exercise of such Option; and (ii) any Shares acquired upon the exercise of an option must have been owned by the Optionee for more than six months prior to such transfer. If requested by the Committee, the Optionee shall deliver the Agreement evidencing the Option to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such Agreement to the Optionee. No fractional Shares (or cash in lieu thereof) shall be issued upon exercise of an Option and the number of Shares that may be purchased upon exercise shall be rounded to the nearest whole number of Shares. 5.9 Rights of Optionees. No Optionee shall be deemed for any purpose ------------------- to be the owner of any Shares subject to any Option unless and until (i) the Option shall have been exercised pursuant to the terms thereof, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a shareholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such Shares, subject to such terms and conditions as may be set forth in the applicable Agreement. 5.10 Sale of Company. --------------- (a) In the event of a Sale of the Company, effective as of the date of consummation of the transaction constituting the Sale of the Company, at the election of the Company and, without any action by any Optionee: (A)(i) each outstanding Option shall become fully (100%) vested and exercisable, (ii) each Option shall be deemed to have been exercised to the extent it had not been exercised prior to that date, (iii) the Shares issuable in connection with the deemed exercise of each Option shall be issued to and in the name of the acquiror of the Company, if any, and (iv) in respect of each Share issued in connection with the deemed exercise of an Option, the Optionee shall receive a per Share payment equal to the number (or amount) and kind of stock, securities, cash, property or other consideration that each holder of a Share was entitled to receive in connection with the Sale of the Company, reduced by the Per Share Option Price, or (B) each outstanding Option shall become fully (100%) vested and shall simultaneously be terminated in exchange for a per share payment for each Share then subject to such Option equal to the number (or amount) and kind of stock, securities, cash, property or other -10- consideration that each holder of a Share was entitled to receive in connection with the Sale of the Company, reduced by the Per Share Option Price, or (C) in the event of a Sale of the Company that is consummated pursuant to a merger, consolidation or reorganization (a "Transaction"), each outstanding Option shall become fully (100%) vested and exercisable, and the Plan and the outstanding Options shall continue in effect in accordance with their respective terms and each Optionee shall be entitled to receive in respect of each Share subject to any outstanding Option, upon exercise of such Option, the same number (or amount) and kind of stock, securities, cash, property or other consideration that each holder of a Share was entitled to receive in connection with the Transaction in respect of a Share. (b) In the event of a Sale of the Company, the Optionee shall sell his or her Shares and, if shareholder approval of the transaction is required and if the Company receives an opinion of an independent, nationally recognized investment banking firm retained by the Board to the effect that the consideration to be received in such Sale of the Company, as the case may be, is fair to the shareholders of the Company, shall vote his or her Shares in favor thereof, and waive any dissenters' rights, preemptive rights, appraisal rights or similar rights, as the case may be. (The fees and expenses incurred in obtaining such opinion shall be borne by the Company.) (c) Any sale of Shares by any Optionee in any Sale of the Company shall be for the same consideration per share, on the same terms and subject to the same conditions as the sale by the shareholders of the Company. (d) In any case, in the event of a Sale of the Company, the payment made to each Optionee shall be further reduced by an amount equal to the Optionee's proportionate share of the expenses of sale incurred by the Controlling Shareholders in connection with the Sale of the Company. In any Sale of the Company, at the request of the Controlling Shareholders or the Company, each Optionee shall execute and deliver a counterpart of an agreement pursuant to which such Optionee agrees to sell its Shares in the Sale of the Company, provided that such Optionee shall not be required to make, in -------- connection with such Sale of the Company, any representations and warranties with respect to the Company or its business or with respect to any other Optionee or selling shareholder. In addition, each Optionee shall be responsible for such Optionee's proportionate share of the expenses of sale incurred by the selling shareholders in connection with the Sale of the Company and the obligations and liabilities (including obligations and liabilities for indemnification (including indemnification obligations and liabilities for (x) breaches of representations and warranties made by the Company or any other Optionee or selling shareholder with respect to the Company or its business, (y) breaches of covenants and (z) other matters), amounts paid into escrow and post- closing purchase price adjustments) incurred by the selling shareholders in connection with the Sale of the Company; provided that (i) without the written -------- consent of such Optionee, the amount of such obligations and liabilities shall not exceed the gross proceeds received by such Optionee in such Sale of the Company (provided that to the extent the proceeds received by the Optionee in --------- such Sale of the Company are reduced by the Per Share Option Price, the "gross proceeds received by such -11- Optionee" shall be deemed to mean the sum of such proceeds plus the Per Share Option Price for purposes of this Plan) and (ii) such Optionee shall not be responsible for the fraud of any other Optionee or selling shareholder or any indemnification obligations and liabilities for breaches of representations and warranties made by any other Optionee or selling shareholder with respect to such other Optionee's or selling shareholder's ownership of and title to shares of capital stock of the Company, organization and authority. In connection with a Sale of the Company, and subject to Section 5.10(b) and Section 5.10(c) hereof, each Optionee shall do and perform or cause to be done and performed all further acts and things and shall execute and deliver all other agreements, certificates, instruments and documents as the Company or the Controlling Shareholders reasonably may request in connection with such Sale of the Company. (e) For all purposes of the Plan, the value of stock, securities, property or other consideration shall be the Fair Market Value of such stock, securities, property or other consideration as determined in accordance with Section 2.13. (f) In the case of a Transaction which also constitutes a Pooling Transaction, notwithstanding anything to the contrary contained in the Plan or any Agreement, (i) to the extent not earlier exercised or terminated under this Section 5.10, all Options outstanding on the date of the Transaction shall remain exercisable until the date which is thirty (30) days after the last day of the Pooling Period, whether or not the Optionee is then an employee of the Company, but in no event beyond the stated term of the Option, and (ii) if the Board determines after consultation with an independent accounting firm retained by the Company (the "Independent Accountant") that it is reasonably necessary in order to assure that the Pooling Transaction will qualify as such, the Committee may provide, in its sole discretion and pursuant to the specific recommendations of the Independent Accountant, that (A) all Options, or, in the alternative, such Options held by Optionees specifically identified by the Committee, shall not become immediately and fully exercisable on the date of the Transaction but rather shall become immediately and fully exercisable on the date following the last day of the Pooling Period, (B) the Optionees holding such Options shall be required to surrender such Options (or any portion of such Options) for cancellation in return for the consideration provided under this Section 5.10 only during the thirty (30) day period commencing on the date following the last day of the Pooling Period, but in no event after the stated term of the Option, and/or (C) the consideration specified above in this Section 5.10 shall be paid in the form of cash, Shares or securities of a successor of the Company or a combination of the foregoing, as designated by the Committee. 6. Adjustment Upon Changes in Capitalization. ----------------------------------------- (a) In the event of a Change in Capitalization, the Committee shall conclusively determine the appropriate adjustments, if any, to (i) the maximum number and class of Shares or other stock or securities with respect to which Options may be granted under the Plan, (ii) the maximum number of Shares with respect to which Options may be granted to any Eligible Individual during the term of the Plan, and (iii) the number and class of Shares or other stock or securities which -12- are subject to outstanding Options granted under the Plan, and the purchase price therefor, if applicable. (b) Any such adjustment in the Shares or other stock or securities subject to outstanding Incentive Stock Options (including any adjustments in the purchase price) shall be made in such manner as not to constitute a modification as defined by Section 424(h)(3) of the Code and only to the extent otherwise permitted by Sections 422 and 424 of the Code. (c) If, by reason of a Change in Capitalization, an Optionee shall be entitled to exercise an Option with respect to, new, additional or different shares of stock or securities, such new, additional or different shares shall thereupon be subject to all of the conditions, restrictions and performance criteria which were applicable to the Shares subject to the Option prior to such Change in Capitalization. 7. Termination and Amendment of the Plan. ------------------------------------- The Plan shall terminate on the day preceding the tenth anniversary of the date of its adoption by the Board and no Option may be granted thereafter. The Board may sooner terminate the Plan and the Board may at any time and from time to time amend, modify or suspend the Plan; provided, however, that, except ----------------- with the consent of the Optionee, no such amendment, modification, suspension or termination shall impair or adversely alter any Options theretofore granted under the Plan, nor shall any amendment, modification, suspension or termination deprive any Optionee of any Shares which he or she may have acquired through or as a result of the Plan. To the extent necessary and desirable to comply with the Code or any other applicable laws, the Company shall obtain shareholder approval of any amendment to the Plan. 8. Non-Exclusivity of the Plan. --------------------------- The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrange- ments may be either applicable generally or only in specific cases. 9. Limitation of Liability. ----------------------- As illustrative of the limitations of liability of the Company, but not intended to be exhaustive thereof, nothing in the Plan shall be construed to: (i) give any person any right to be granted an Option other than at the sole discretion of the Committee; -13- (ii) give any person any rights whatsoever with respect to Shares except as specifically provided in the Plan; (iii) limit in any way the right of the Company to terminate the employment of any person at any time; or (iv) be evidence of any agreement or understanding, expressed or implied, that the Company will employ any person at any particular rate of compensation or for any particular period of time. 10. Regulations and Other Approvals: Governing Law. ---------------------------------------------- 10.1 Except as to matters of federal law, this Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of California without giving effect to conflicts of law principles. 10.2 The obligation of the Company to sell or deliver Shares with respect to Options granted under the Plan shall be subject to all applicable laws, rules, and regulations, including all applicable federal and state securities laws and all applicable stock exchange rules, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. 10.3 It is intended that from and after the date that any class of equity securities of the Company are registered under Section 12 of the Exchange Act, the Plan shall be administered in compliance with Rule 16b-3 promulgated under the Exchange Act and the Committee shall interpret and administer the provisions of the Plan or any Agreement in a manner consistent therewith. Any provisions inconsistent with such Rule shall be inoperative and shall not affect the validity of the Plan. 10.4 The Board may make such changes as may be necessary or appropriate to comply with the rules and regulations of any government authority, or to obtain for Eligible Individuals granted Incentive Stock Options the tax benefits under the applicable provisions of the Code and regulations promulgated thereunder. 10.5 Each Option is subject to the requirement that, if at any time the Committee determines, in its discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Option or the issuance of Shares, no such Options shall be granted or payment made or Shares issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions other than as acceptable to the Committee. -14- 10.6 Notwithstanding anything contained in the Plan or any Agreement to the contrary, in the event that the disposition of Shares acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act of 1933, as amended, and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required by the Securities Act of 1933, as amended, and Rule 144 or other regulations thereunder. The Committee may require any individual receiving Shares pursuant to an Option granted under the Plan, as a condition precedent to receipt of such Shares, to represent and warrant to the Company in writing that the Shares acquired by such individual are acquired without a view to any distribution thereof and will not be sold or transferred other than pursuant to an effective registration thereof under said Act or pursuant to an exemption applicable under the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder and to the effect set forth in Section 14 of the Agreement. The certificates evidencing any of such Shares shall bear an appropriate legend to reflect their status as restricted securities as aforesaid. 11. Miscellaneous. ------------- 11.1 Multiple Agreements. The terms of each Option may differ from ------------------- other Options granted under the Plan at the same time, or at some other time. The Committee may also grant more than one Option to a given Eligible Individual during the term of the Plan, either in addition to, or in substitution for, one or more Options previously granted to that Eligible Individual. 11.2 Withholding of Taxes. -------------------- (a) At such times as an Optionee recognizes taxable income in connection with the receipt of Shares, cash or other consideration hereunder (a "Taxable Event"), the Optionee shall pay to the Company an amount equal to the federal, state and local income taxes and other amounts as may be required by law to be withheld by the Company in connection with the Taxable Event (the "Withholding Taxes") prior to the issuance or the payment of such Shares, cash or other consideration. The Company shall have the right to deduct from any payment of cash to an Optionee an amount equal to the Withholding Taxes in satisfaction of the obligation to pay Withholding Taxes. In satisfaction of the obligation to pay Withholding Taxes to the Company, the Optionee may make a written election (the "Tax Election"), which may be accepted or rejected in the sole discretion of the Committee, to have withheld a portion of the Shares then issuable to him or her having an aggregate Fair Market Value, on the date preceding the date of such issuance, equal to the Withholding Taxes. Notwithstanding the foregoing, the Committee may, by the adoption of rules or otherwise, (i) modify the provisions of this Section 11.2 or impose such other restrictions or limitations on Tax Elections as may be necessary to ensure that the Tax Elections will be exempt transactions under Section 16(b) of the Exchange Act, and (ii) permit Tax Elections to be made at such other times and subject to such other conditions as the Committee determines will constitute exempt transactions under Section 16(b) of the Exchange Act. (b) If an Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to -15- such Optionee pursuant to the exercise of an Incentive Stock Option within the two-year period commencing on the day after the date of the grant or within the one-year period commencing on the day after the date of transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office. 12. Effective Date. -------------- The Plan shall become effective upon its adoption by the Board of Directors of the Company; provided that continuance of the Plan shall be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is so adopted. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law and the rules of any stock exchange upon which the Shares are listed. 13. Termination of Existing Option Plan. ----------------------------------- At such time as this Plan shall become effective and shall have been approved by the shareholders as required by Section 12, the 1994 Stock Option Plan shall terminate and the Shares allotted for stock option grants under the 1994 Option Plan, other than Shares that are the subject of outstanding options granted under the 1994 Option Plan, and any Shares which become available due to the forfeiture, expiration or other termination of any option, or portion thereof, outstanding under the 1994 Option Plan, shall not be available for the granting of any further options or other awards under the 1994 Option Plan or any other option or stock incentive plan or arrangement of the Company. Each option outstanding under the 1994 Option Plan shall remain outstanding and shall continue to be subject to the terms of the applicable agreement evidencing the grant of such option and the terms of the 1994 Option Plan. -16- EX-10.2 4 DIRECTOR OPTION PLAN COST PLUS, INC. 1996 DIRECTOR OPTION PLAN/1/ 1. Purposes of the Plan. The purposes of this 1996 Director Option Plan -------------------- are to attract and retain the best available personnel for service as Outside Directors (as defined herein) of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board. All options granted hereunder shall be nonstatutory stock options. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Board" means the Board of Directors of the Company. ----- (b) "Code" means the Internal Revenue Code of 1986, as amended. ---- (c) "Common Stock" means the Common Stock of the Company. ------------ (d) "Company" means Cost Plus, Inc., a California corporation. ------- (e) "Director" means a member of the Board. -------- (f) "Employee" means any person, including officers and Directors, -------- employed by the Company or any Parent or Subsidiary of the Company. The payment of a Director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company. (g) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (h) "Fair Market Value" means, as of any date, the value of Common ----------------- Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; - ------------------------ /1/ Includes amendment by the board of directors on April 21, 1997 and approval by the shareholders on June 19, 1997. (i) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the date of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable, or; (ii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board. (i) "Inside Director" means a Director who is an Employee. --------------- (j) "Option" means a stock option granted pursuant to the Plan. ------ (k) "Optioned Stock" means the Common Stock subject to an Option. -------------- (l) "Optionee" means a Director who holds an Option. -------- (m) "Outside Director" means a Director who is not an Employee. ---------------- (n) "Parent" means a "parent corporation," whether now or hereafter ------ existing, as defined in Section 424(e) of the Code. (o) "Plan" means this 1996 Director Option Plan. ---- (p) "Representative Director" means a Director who is a member of the ----------------------- Board as the representative for an entity that employs such Director. The determination of whether an Outside Director is a Representative Director shall be determined by the representations of such Director and such determination may be changed at any time by such Director. (q) "Share" means a share of the Common Stock, as adjusted in ----- accordance with Section 10 of the Plan. (r) "Subsidiary" means a "subsidiary corporation," whether now or ---------- hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of 1986. 3. Stock Subject to the Plan. Subject to the provisions of Section 10 of ------------------------- the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 68,300 Shares of Common Stock (the "Pool"). The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan. -2- 4. Administration and Grants of Options under the Plan. --------------------------------------------------- (a) Procedure for Grants. All grants of Options to Outside Directors -------------------- under this Plan shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions: (i) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options granted to Outside Directors. (ii) Thomas Willardson shall be automatically granted an Option to purchase 7,075 Shares (the "IPO Option") on the date the Company's registration statement on Form S-1 is declared effective by the Securities and Exchange Commission. (iii) Each Outside Director elected after the date this Plan is adopted shall be automatically granted an Option to purchase 7,075 Shares (the "First Option") on the date on which such person first becomes an Outside Director, whether through election by the shareholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside Director but who remains a Director shall not receive a First Option. (iv) Each Outside Director shall be automatically granted an Option to purchase 2,000 Shares (a "Subsequent Option") each year on the earlier of (i) the date of the annual shareholder meeting or (ii) June 30th; provided as of such date he or she is then an Outside Director and has served on the Board for at least the preceding six (6) months. (v) Notwithstanding the provisions of subsections (ii) and (iii) hereof, any exercise of an Option granted before the Company has obtained shareholder approval of the Plan in accordance with Section 16 hereof shall be conditioned upon obtaining such shareholder approval of the Plan in accordance with Section 16 hereof. (vi) In the event an Outside Director is a Representative Director, options granted under subsections (iii) and (iv) above shall be granted in the name of the entity employing such Representative Director and such Representative Director shall not personally receive any option grants in the Representative Director's own name. (vii) The terms of an IPO Option granted hereunder shall be as follows: (A) the term of the IPO Option shall be ten (10) years. (B) the IPO Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof. -3- (C) the exercise price per Share shall be 100% of the price to the public as set forth in the final prospectus included within the registration statement on Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Common Stock. (D) subject to Section 10 hereof, the IPO Option shall become exercisable as to 25% of the Shares subject to the IPO Option on each anniversary of its date of grant, provided that the Optionee continues to serve as a Director on such dates. (viii) The terms of a First Option granted hereunder shall be as follows: (A) the term of the First Option shall be ten (10) years. (B) the First Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof. (C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the First Option. In the event that the date of grant of the First Option is not a trading day, the exercise price per Share shall be the Fair Market Value on the next trading day immediately following the date of grant of the First Option. (D) subject to Section 10 hereof, the First Option shall become exercisable as to 25% of the Shares subject to the First Option on each anniversary of its date of grant, provided that the Optionee continues to serve as a Director on such dates. (ix) The terms of a Subsequent Option granted hereunder shall be as follows: (A) the term of the Subsequent Option shall be ten (10) years. (B) the Subsequent Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof. (C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Subsequent Option. In the event that the date of grant of the Subsequent Option is not a trading day, the exercise price per Share shall be the Fair Market Value on the next trading day immediately following the date of grant of the Subsequent Option. (D) subject to Section 10 hereof, the Subsequent Option shall become exercisable as to 25% percent of the Shares subject to the Subsequent Option on each anniversary of its date of grant, provided that the Optionee continues to serve as a Director on such dates. (x) In the event that any Option granted under the Plan would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased -4- under Options to exceed the Pool, then the remaining Shares available for Option grant shall be granted under Options to the Outside Directors on a pro rata basis. No further grants shall be made until such time, if any, as additional Shares become available for grant under the Plan through action of the Board or the shareholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder. 5. Eligibility. Options may be granted only to Outside Directors. All ----------- Options shall be automatically granted in accordance with the terms set forth in Section 4 hereof. The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate the Director's relationship with the Company at any time. 6. Term of Plan. The Plan shall become effective upon the earlier to ------------ occur of its adoption by the Board or its approval by the shareholders of the Company as described in Section 16 of the Plan; provided, however, that in the absence of an underwritten initial public offering of the Company's Common Stock on or before March 1, 1997, this Plan shall be null and void. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 11 of the Plan. 7. Form of Consideration. The consideration to be paid for the Shares to --------------------- be issued upon exercise of an Option, including the method of payment, shall consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (iv) delivery of a properly executed exercise notice together with such other documentation as the Company and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, or (v) any combination of the foregoing methods of payment. 8. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Shareholder. Any Option ----------------------------------------------- granted hereunder shall be exercisable at such times as are set forth in Section 4 hereof; provided, however, that no Options shall be exercisable until shareholder approval of the Plan in accordance with Section 16 hereof has been obtained. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 7 of the Plan. Until the issuance (as evidenced by the appropriate -5- entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Continuous Status as a Director. Subject to ---------------------------------------------- Section 10 hereof, in the event an Optionee's status as a Director terminates (other than upon the Optionee's death or total and permanent disability (as defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her Option, but only within six (6) months following the date of such termination, and only to the extent that the Optionee was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of such termination, and to the extent that the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (c) Disability of Optionee. In the event Optionee's status as a ---------------------- Director terminates as a result of total and permanent disability (as defined in Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but only within twelve (12) months following the date of such termination, and only to the extent that the Optionee was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of termination, or if he or she does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (d) Death of Optionee. In the event of an Optionee's death, the ----------------- Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance may exercise the Option, but only within twelve (12) months following the date of death, and only to the extent that the Optionee was entitled to exercise it on the date of death (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of death, and to the extent that the Optionee's estate or a person who acquired the right to exercise such Option does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. 9. Non-Transferability of Options. The Option may not be sold, pledged, ------------------------------ assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. -6- 10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or ------------------------------------------------------------------ Asset Sale. - ---------- (a) Changes in Capitalization. Subject to any required action by the ------------------------- shareholders of the Company, the number of Shares covered by each outstanding Option, the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per Share covered by each such outstanding Option, and the number of Shares issuable pursuant to the automatic grant provisions of Section 4 hereof shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, to the extent that an Option has not been previously exercised, it shall terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company -------------------- with or into another corporation or the sale of substantially all of the assets of the Company, outstanding Options may be assumed or equivalent options may be substituted by the successor corporation or a Parent or Subsidiary thereof (the "Successor Corporation"). If an Option is assumed or substituted for, the Option or equivalent option shall continue to be exercisable as provided in Section 4 hereof for so long as the Optionee serves as a Director or a director of the Successor Corporation. Following such assumption or substitution, if the Optionee's status as a Director or director of the Successor Corporation, as applicable, is terminated other than upon a voluntary resignation by the Optionee, the Option or option shall become fully exercisable, including as to Shares for which it would not otherwise be exercisable. Thereafter, the Option or option shall remain exercisable in accordance with Sections 8(c) through (e) above. If the Successor Corporation does not assume an outstanding Option or substitute for it an equivalent option, the Option shall become fully vested and exercisable, including as to Shares for which it would not otherwise be exercisable. In such event the Board shall notify the Optionee that the Option shall be fully exercisable for a period of thirty (30) days from the date of such notice, and upon the expiration of such period the Option shall terminate. For the purposes of this Section 10(c), an Option shall be considered assumed if, following the merger or sale of assets, the Option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and -7- if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares). 11. Amendment and Termination of the Plan. ------------------------------------- (a) Amendment and Termination. Except as set forth in Section 4, the ------------------------- Board may at any time amend, alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with any other applicable law or regulation (including any rule of a stock exchange or automated stock quotation system upon which the shares are traded), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. Any such amendment or ---------------------------------- termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated. 12. Time of Granting Options. The date of grant of an Option shall, for ------------------------ all purposes, be the date determined in accordance with Section 4 hereof. 13. Conditions Upon Issuance of Shares. Shares shall not be issued ---------------------------------- pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares, if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 14. Reservation of Shares. The Company, during the term of this Plan, --------------------- will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. -8- 15. Option Agreement. Options shall be evidenced by written option ---------------- agreements in such form as the Board shall approve. 16. Shareholder Approval. Continuance of the Plan shall be subject to -------------------- approval by the shareholders of the Company at or prior to the first annual meeting of shareholders held subsequent to the granting of an Option hereunder. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law. EX-10.4 5 EMPLOYMENT AGREEMENT - DASHE EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT, dated as of the [17th] day of June, 1997, by and between Cost Plus, Inc., a California corporation (the "Company"), and Murray Dashe, the undersigned executive (the "Executive"). Recital ------- The Company desires to retain the services of Executive, and Executive desires to be employed by the Company, on the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the foregoing recital and the respective undertakings of the Company and Executive set forth below, the Company and Executive agree as follows: 1. Employment. ---------- (a) Duties. The Company agrees to employ the Executive as Vice Chairman, ------ and the Executive agrees to perform such reasonable responsibilities and duties as may be required of him by the Company provided, however, that the Board of Directors of the Company (the "Board") shall have the right to revise such responsibilities from time to time as the Board may deem appropriate. The Executive shall carry out his duties and responsibilities hereunder in a diligent and competent manner and shall devote his full business time, attention and energy thereto. Executive shall report directly to the Chairman/Chief Executive Officer of the Company. At the next meeting of the Board, the Executive shall be nominated to serve as a director of the Company. (b) Employment At-Will. The Company and the Executive acknowledge and ------------------ agree that the Executive's employment is at-will, as defined under applicable law and may be terminated at any time, with or without Cause. 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 in Section 3 of this Agreement. 2. Compensation and Benefits. ------------------------- (a) Base Compensation. The Company shall pay the Executive as compensation ----------------- for his services a base salary at the annualized rate of $315,000. Such salary shall be subject to applicable tax withholding and shall be paid periodically in accordance with normal Company payroll practices. The annual compensation specified in this Section 2, together with any increases in such compensation that the Company may, in its sole discretion, grant from time to time, is referred to in this Agreement as "Base Compensation." (b) Bonus. Executive shall be eligible for a bonus of up to forty percent ----- (40%) of Executive's Base Compensation upon achievement of financial goals as determined by the Board. All bonuses shall be paid in accordance with standard Company policies. The bonus period shall begin with the Company's 1997 fiscal year and the 1997 fiscal year bonus shall be payable in April, 1998 and based on Executive's 1997 fiscal year salary. (c) Executive Benefits. Executive shall be eligible to participate in the ------------------ employee benefit plans which are available or which become available, in the discretion of the Company, to other executives of the Company of a comparable level, subject in each case to the generally applicable terms and conditions of the plan or program in question and to the determination of any committee administering such plan or program. (d) Vacation. Executive shall be entitled to three weeks of vacation per -------- year in accordance with the normal vacation policies of the Company. (e) Stock Option. On the date hereof, the Company shall grant Executive an ------------ option (the "Option") to purchase 60,000 shares of the Company's Common Stock. The per share exercise price for the Option shall be equal to the per share fair market value of the Company's Common Stock on the date of grant. The term of the Option shall be ten (10) years and the Option shall vest at a rate of twenty-five percent (25%) per year on the anniversary of the grant date. In addition, the Company shall grant Executive an option to purchase 8,000 shares of the Company's Common Stock (the "Performance Option"). The Performance Option shall vest in August 1998 if the Company's 1997 fiscal year earnings per share targets (as determined by the Board) is met. Except as otherwise provided herein, the Option and the Performance Option shall be granted pursuant to, and shall be governed by, the Company's 1995 Stock Option Plan and conform to the Company's standard policies with respect to options. (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, 1999. 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. 3. Severance Payments. ------------------ (a) Payments upon Termination. If the Executive's employment terminates as ------------------------- a result of an Involuntary Termination other than for Cause prior to June, 2000 and the Executive signs a Release of Claims, then the Company shall pay Executive's Base Compensation to the Executive for twelve (12) months after Executive's termination of employment with each monthly installment payable on the last day of such month. (b) Benefits. In the event the Executive is entitled to severance benefits -------- pursuant to Section 3(a), then in addition to such severance benefits, the Executive shall receive health, dental, long term disability and life insurance coverage as provided to Executive immediately prior to the Executive's termination ( the "Company-Paid Coverage"). If such coverage included the Executive's dependents -2- immediately prior to the Executive's termination, such dependents shall also be covered to the extent covered prior to Executive's termination. Company-Paid Coverage shall continue until the earlier of (i) twelve (12) months following termination in the case of a termination, or (ii) the date the Executive becomes covered under another employer's group health, dental or life insurance plan (to the extent covered under such plans). (c) Stock Options; Bonus. Executive shall not be entitled to receive any -------------------- unvested stock options or partial bonus payments for an incomplete bonus plan year. (d) Miscellaneous. In addition, (i) the Company shall pay the Executive ------------- any unpaid base salary due for periods prior to the date of Executive's termination; (ii) the Company shall pay the Executive all of the Executive's accrued and unused vacation through the date of Executive's termination; 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. (e) Voluntary Resignation; Termination for Cause. If the Executive's -------------------------------------------- employment terminates by reason of Executive's voluntary resignation or if the Executive is terminated for Cause, the Executive shall not be entitled to receive severance payments or other benefits under this Section 3. (f) Death or Disability. If the Executive's employment terminates as a ------------------- result of his death or disability, neither the Executive or, in the case of death, Executive's beneficiary or estate, shall be entitled to any compensation, severance payments, or any other benefits under this Section 3; provided, however, that if Executive's employment terminates as a result of his disability, Executive shall be entitled to severance and other benefits pursuant to this Section 3 until Executive begins receiving payments pursuant to the Company's long term disability policy described above in Section 3(b). Upon commencement of such long term disability payments, Executive shall not be entitled to any further severance, compensation, or other benefits including those under this Section 3. 4. Covenants Not to Compete and Not to Solicit. ------------------------------------------- (a) Until the Executive has received all Severance Payments as provided in Section 3, upon the termination of the Executive's employment with the Company for any reason, the Executive agrees that he shall not, on his own behalf, or as owner, manager, advisor, principal, agent, partner, consultant, director, officer, stockholder or employee of any business entity, or otherwise participate in the development or provision of goods or services which are directly or indirectly competitive with goods or services provided (or proposed to be provided) by the Company without the express written authorization of the Company. The foregoing covenant shall not be deemed to prohibit Executive from acquiring an investment not more than one percent of the capital stock of a competing business, whose stock is traded on a national securities exchange or through the automated quotation system of a registered securities association. -3- (b) Until the later of (i) five years after the date of this Agreement or (ii) one year after termination of Executive's employment, upon the termination of Executive's employment with the Company for any reason, the Executive agrees that he shall not either directly or indirectly solicit, induce, attempt to hire, recruit, encourage, take away, hire any employee of the Company or cause an employee to leave their employment either for Executive or for any other entity or person. (c) The Executive represents that he (i) is familiar with the foregoing covenants not to compete and not to solicit, and (ii) is fully aware of his obligations hereunder, including, without limitation, the reasonableness of the length of time, scope and geographic coverage of these covenants. 5. Confidential Information. ------------------------ (a) Company Information. Executive agrees at all times during the term of ------------------- Executive's employment and thereafter, to hold in strictest confidence, and not to use, except for the benefit of the Company, or to disclose to any person, firm or corporation without written authorization of the Board of Directors of the Company, any Confidential Information of the Company. Executive understands that "Confidential Information" means any Company proprietary information, trade secrets or know-how, including, but not limited to, market research, product plans, products, services, customer lists and customers (including, but not limited to, customers of the Company to whom Executive becomes acquainted during the term of Executive's employment), markets, developments, marketing, finances or other business information disclosed to Executive by the Company either directly or indirectly in writing, orally or by drawings or observation of parts or equipment. Executive further understands that Confidential Information does not include any of the foregoing items which has become publicly known and made generally available through no wrongful act of Executive or of others who were under confidentiality obligations as to the item or items involved. (b) Third Party Information. Executive recognizes that the Company has ----------------------- received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. Executive agrees to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out Executive's work for the Company consistent with the Company's agreement with such third party. 6. Definitions. As used herein, the terms ----------- (a) Cause. "Cause" means the Executive's termination only upon: ----- (i) Executive has engaged in willful and material misconduct, including wilful and material failure to perform his duties as an officer or employee of the Company or a material breach of this Agreement and has failed to "cure" such default within thirty (30) days after receipt of written notice of default from the Company; -4- (ii) The commission of an act of fraud or embezzlement which results in loss, damage or injury to the Company, whether directly or indirectly; (iii) Executive's use of narcotics, liquor or illicit drugs has had a detrimental effect on the performance of his employment responsibilities, as determined by the Company's Board of Directors; (iv) Executive's violation of Sections 4 or 5 of this Agreement; (v) The arrest, indictment or filing of charges relating to a felony or misdemeanor, either in connection with the performance of the Executive's obligations to the Company or which shall adversely affect the Executive's ability to perform such obligations; (vi) Gross negligence, dishonesty, breach of fiduciary duty or material breach of the terms of the Agreement or any other agreement in favor of the Company; (vii) The commission of an act which constitutes unfair competition with the Company or which induces any customer of the Company to break a contract with the Company. (b) Involuntary Termination. "Involuntary Termination" shall mean: ----------------------- (i) termination by the Company of Executive's employment with the Company for any reason other than Cause; (ii) a material reduction in Executive's Base Compensation (not including bonus), other than any such reduction which is part of, and generally consistent with, a general reduction of officer salaries; (iii) a material reduction by the Company in the kind or level of employee benefits (other than salary and bonus) to which Executive is entitled immediately prior to such reduction with the result that Executive's overall benefits package (other than salary and bonus) is substantially reduced (other than any such reduction applicable to officers of the Company generally); (iv) any material breach by the Company of any material provision of this Agreement which continues uncured for 30 days following notice thereof; provided that none of the foregoing shall constitute Involuntary Termination to the extent Executive has agreed thereto. -5- (c) Release of Claims. "Release of Claims" shall mean a waiver by ----------------- Executive of all claims, causes of action and obligations against the Company or its employees relating to Executive's employment in a form acceptable to the Company. Such Release of Claims shall not release the Company from its obligations, under the Amended and Restated Indemnification Agreement between Executive and the Company. 7. Prior Agreements. Executive represents that Executive has not entered ---------------- into any agreements, understandings, or arrangements with any person or entity which would be breached by Executive as a result of, or that would in any way preclude or prohibit Executive from entering into this Agreement with the Company or performing any of the duties and responsibilities provided for in this Agreement. 8. Conflicting Employment. Executive agrees that, during the term of ---------------------- Executive's employment with the Company, Executive will not engage in any other employment, occupation, consulting or other business activity directly related to the business in which the Company is now involved or becomes involved during the term of Executive's employment, nor will Executive engage in any other activities that conflict with Executive's obligations to the Company. 9. Returning Company Documents. Executive agrees that, at the time of --------------------------- leaving the employ of the Company, Executive will deliver to the Company (and will not keep in Executive's possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by Executive pursuant to Executive's employment with the Company or otherwise belonging to the Company, its successors or assigns. 10. Notices. Any notice, report or other communication required or ------- permitted to be given hereunder shall be in writing to both parties and shall be deemed given on the date of delivery, if delivered, or three days after mailing, if mailed first-class mail, postage prepaid, to the following addresses: If to the Executive, at the address set forth below the Executive's signature at the end hereof. If to the Company: 201 Clay Street Oakland, CA 94607 Attn.: Joan Fujii or to such other address as any party hereto may designate by notice given as herein provided. -6- 11. Governing Law. This Employment Agreement shall be governed by and ------------- construed and enforced in accordance with the internal substantive laws, and not the choice of law rules of California. 12. Amendments. This Employment Agreement shall not be changed or ---------- modified in whole or in part except by an instrument in writing signed by each party hereto. 13. 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. 14. 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 described in this subsection (a) or which becomes bound by the terms of this Agreement by operation of law. (b) Executive's Successors. The terms of this Agreement and all rights of ---------------------- the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive's personal or legal representatives, executors, administrators, successor, heirs, distributees, devisees or legatees. 15. Entire Agreement. Except with respect to specific provisions of any ---------------- prior written agreement between the Executive and the Company relating to the Executive's agreement not to compete with the Company or solicit the Company's employees, this Agreement shall supersede and replace all prior agreements or understandings relating to the subject matter hereof, and no agreement, representations or understandings (whether oral or written or 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 relevant matter hereof. 16. Mediation. Executive and the Company agree that any dispute or --------- controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach or termination thereof, shall first be submitted to mediation. The mediation shall be conducted within 45 days of Executive notifying the Company of a dispute or controversy regarding this Agreement or Executive's employment relationship with the Company. Unless otherwise provided for by law, the Company and Executive shall each pay half the costs and expenses of the mediation. 17. Arbitration. ----------- -7- (a) In the event that mediation pursuant to Section 16 fails to resolve a dispute or controversy, Executive and the Company agree that any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof, shall be finally settled by binding arbitration to be held in Oakland, California under the National Rules for the Resolution of Employment Disputes supplemented by the Supplemental Procedures for Large Complex Disputes, of the American Arbitration Association as then in effect (the "Rules"). The parties shall be entitled to conduct discovery pursuant to the California Code of Civil Procedure. The arbitrator may regulate the timing and sequence of such discovery and shall decide any discovery disputes or controversies between the Company. The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. (b) The arbitrator(s) shall apply California law to the merits of any dispute or claim, without reference to rules of conflicts of law. (c) Unless otherwise provided for by law, the Company and the Executive shall each pay half of the costs and expenses of such arbitration. (d) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES a WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP. 18. Counterparts. This Employment Agreement may be executed in several ------------ counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. 19. Effect of Headings. The section headings herein are for convenience ------------------ only and shall not affect the construction or interpretation of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first written above. COST PLUS, INC. By: /s/ Ralph D. Dillon ----------------------------- -8- EXECUTIVE /s/ Murray H. Dashe ------------------------- (Signature) Murray H. Dashe ------------------------- Murray Dashe ------------------------- (Print Address) ------------------------- (Print Telephone Number) -9- EX-10.5 6 EMPLOYMENT AGREEMENT - LENTZSCH EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT, dated as of the 2nd day of February, 1997, by and between Cost Plus, Inc., a California corporation (the "Company"), and Kathi Lentzsch, the undersigned executive (the "Executive"). Recital ------- The Company desires to retain the services of Executive, and Executive desires to be employed by the Company, on the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the foregoing recital and the respective undertakings of the Company and Executive set forth below, the Company and Executive agree as follows: 1. Employment. ---------- (a) Duties. The Company agrees to employ the Executive as Executive Vice ------ President, Merchandising/Marketing, and the Executive agrees to perform such reasonable responsibilities and duties as may be required of her by the Company; provided, however, that the Chief Executive Officer of the Company (the "CEO") shall have the right to revise such responsibilities from time to time as the CEO may deem appropriate. The Executive shall carry out her duties and responsibilities hereunder in a diligent and competent manner and shall devote her full business time, attention and energy thereto. Executive shall report directly to the CEO. (b) Employment At-Will. The Company and the Executive acknowledge and ------------------ agree that the Executive's employment is at-will, as defined and interpreted under California law and may be terminated at any time, with or without cause. No provision of this Agreement shall be construed as conferring upon Executive a right to continue as an employee of the Company. 2. Compensation and Benefits. ------------------------- (a) Base Compensation. The Company shall pay the Executive as compensation ----------------- for her services a base salary at the annualized rate of $200,000. Such salary shall be subject to applicable tax withholding and shall be paid in accordance with normal Company payroll practices. The annual compensation specified in this Section 2, together with any increases in such compensation that the Company may, in its sole discretion, grant from time to time, is referred to in this Agreement as "Base Compensation." (b) Bonus. Executive shall be eligible for a bonus of up to 35% of ----- Executive's Base Compensation upon achievement of financial and merchandising goals as determined by the Company's Board of Directors. All bonuses shall be paid in accordance with standard Company policies. The bonus period shall begin with the Company's fiscal year beginning on or about February 1, 1997. The Company will provide Executive with a written bonus plan within sixty (60) days of the date of this Agreement. (c) Executive Benefits. Executive shall be eligible to participate in the ------------------ employee benefit plans which are available or which become available, in the discretion of the Company, to other employees of the Company, subject in each case to the generally applicable terms and conditions of the plan or program in question and to the determination of any committee administering such plan or program. (d) Vacation. Executive shall be entitled to three weeks of vacation per -------- year in accordance with the normal vacation policies of the Company; provided, however, that beginning with the fourth year of Executive's employment with the Company, Executive shall be entitled to four weeks of vacation per year in accordance with the normal vacation policies of the Company. (e) Stock Option. On the date hereof, the Company shall grant Executive an ------------ option (the "Option") to purchase 30,000 shares of the Company's Common Stock. The per share exercise price for the Option shall be equal to the per share fair market value of the Company's Common Stock on the date of grant, the Executive's first date of employment. The term of the Option shall be ten (10) years and the Option shall vest at a rate of 25% per year on the anniversary of the date of this Agreement. In all other respects, the options shall conform to the Company's standard policies with respect to options. Except as otherwise provided herein, the Option shall be granted pursuant to, and shall be governed by, the Company's 1995 Stock Option Plan and conform to the Company's standard policies with respect to options. 3. Severance Payments. ------------------ (a) Payments upon Termination. If the Executive's employment terminates as ------------------------- a result of Involuntary Termination other than Cause occurring prior to February 2, 1999 and the Executive signs a Release of Claims (the "Severance Event"), then the Company shall pay Executive's Base Compensation to the Executive until February 1, 1999 with each monthly installment payable on the last day of such month. (b) Stock Options. Upon the Severance Event, in addition to any payments ------------- described in Section 3(a) above, Executive shall vest in and be able to exercise, prior to Executive's termination of employment, any shares subject to option which would have otherwise vested and become exercisable prior to or on February 2, 1999 if not for the Involuntary Termination. (c) Bonus. Executive shall not be entitled to receive any partial bonus ----- payments for an incomplete bonus plan year; provided, however, that the CEO, in his discretion, may award the Executive a bonus for a partial bonus plan year. (d) Benefits; Miscellaneous. If the Employee is entitled to severance ----------------------- benefits under Section 3(a), then in addition to such severance benefits, the Employee shall receive health, dental, long term disability and life insurance coverage as provided to the Employee immediately prior to the Termination Date. Such coverage shall continue following termination until the earlier of (i) February 1, 1999 or (ii) until (and to the extent) the Employee becomes covered under another employer's group -2- health, dental, long term disability or life insurance plan. In addition, (i) the Company shall pay the Employee any unpaid base salary due for periods prior to the Termination Date; (ii) the Company shall pay the Employee all of the Employee's accrued and unused vacation through the Termination Date; and (iii) following submission of proper expense reports by the Employee, the Company shall reimburse the Employee for all expenses reasonably and necessarily incurred by the Employee 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 California law. (e) Voluntary Resignation; Termination for Cause. If the Executive's -------------------------------------------- employment terminates by reason of Executive's voluntary resignation, death, disability, or if the Executive is terminated for Cause, the Executive shall not be entitled to receive severance payments under this Section 3, except for those severance payments (if any) as may then be established under the Company's existing severance and benefit plans and policies at the time of such termination. (f) Death or Disability. If the Executive's employment terminates as a ------------------- result of her death or disability, no compensation or payments will be made to either the Executive or, in the case of death, Executive's beneficiary or estate, other than those to which she is entitled under the Company's existing benefit plans and policies at the time of such termination. 4. Covenant Not to Solicit. ----------------------- (a) Until one year after termination of Executive's employment with the Company for any reason, the Executive agrees that she shall not solicit, induce, attempt to hire, recruit, encourage, take away, hire any employee of the Company or cause an employee to leave their employment either for Executive or for any other entity or person. (b) The Executive represents that she (i) is familiar with the foregoing covenant not to solicit, and (ii) is fully aware of her obligations hereunder, including, without limitation, the reasonableness of the length of time, scope and geographic coverage of this covenant. 5. Confidential Information. ------------------------ (a) Company Information. Executive agrees at all times during the term of ------------------- Executive's employment and thereafter, to hold in strictest confidence, and not to use, except for the benefit of the Company, or to disclose to any person, firm or corporation without written authorization of the Board of Directors of the Company, any Confidential Information of the Company. Executive understands that "Confidential Information" means any Company proprietary information, trade secrets or know-how, including, but not limited to, market research, product plans, products, services, customer lists and customers (including, but not limited to, customers of the Company on whom Executive will call), markets, developments, marketing, finances or other business information disclosed to Executive by the Company either directly or indirectly in writing, orally or by drawings or observation of parts or equipment. Executive further understands that Confidential Information does not include any of the foregoing items which is based on either Executive's prior knowledge or the experience of the Executive -3- or has become publicly known and made generally available through no wrongful act of Executive or of others who were under confidentiality obligations as to the item or items involved. (b) Third Party Information. Executive recognizes that the Company has ----------------------- received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. Executive agrees to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out Executive's work for the Company consistent with the Company's agreement with such third party. 6. Definitions. As used herein, the terms ----------- (a) Cause. "Cause" means an Executive's (i) intentional failure to ----- perform reasonably assigned duties where Executive has not "cured" such failure within thirty (30) days after receipt of written notice of such failure by the Company, (ii) dishonesty or willful misconduct in the performance of duties, (iii) engaging in a transaction in connection with the performance of duties to the Company or any of its Subsidiaries thereof which transaction is adverse to the interests of the Company or any of its Subsidiaries and which is engaged in for personal profit or (iv) willful violation of any law, rule or regulation in connection with the performance of duties (other than traffic violations or similar offenses). (b) Involuntary Termination. "Involuntary Termination" shall mean: ----------------------- (i) termination by the Company of Executive's employment with the Company for any reason other than Cause (as defined in Section 6(a) above); (ii) a material reduction in Executive's duties and responsibilities with the Company or a demotion from the position of Executive Vice President, Merchandising/Marketing; (iii) a five percent reduction in Executive's Base Compensation (not including bonus), other than any such reduction which is part of, and generally consistent with, a general reduction of officer salaries; (iv) 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); (v) any material breach by the Company of Section 2 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. -4- (c) Release of Claims. "Release of Claims" shall mean a waiver by ----------------- Executive, in substantially the form attached as Exhibit A, of all employment related obligations of and claims and causes of action against the Company. 7. Prior Agreements. Executive represents that Executive has not entered ---------------- into any agreements, understandings, or arrangements with any person or entity which would be breached by Executive as a result of, or that would in any way preclude or prohibit Executive from entering into this Agreement with the Company or performing any of the duties and responsibilities provided for in this Agreement. 8. Conflicting Employment. Executive agrees that, during the term of ---------------------- Executive's employment with the Company, Executive will not engage in any other employment, occupation, consulting or other business activity directly related to the business in which the Company is now involved or becomes involved during the term of Executive's employment, nor will Executive engage in any other activities that conflict with Executive's employment obligations to the Company without the Company's prior written consent. 9. Returning Company Documents. Executive agrees that, at the time of --------------------------- leaving the employ of the Company, Executive will deliver to the Company (and will not keep in Executive's possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by Executive pursuant to Executive's employment with the Company or otherwise belonging to the Company, its successors or assigns. 10. Notices. Any notice, report or other communication required or ------- permitted to be given hereunder shall be in writing to both parties and shall be deemed given on the date of delivery, if delivered, or three days after mailing, if mailed first-class mail, postage prepaid, to the following addresses: If to the Executive, at the address set forth below the Executive's signature at the end hereof. If to the Company: 201 Clay Street Oakland, CA 94607 Attn: Joan Fujii or to such other address as any party hereto may designate by notice given as herein provided. 11. Governing Law. This Employment Agreement shall be governed by and ------------- construed and enforced in accordance with the laws of the state of California. -5- 12. Amendments. This Employment Agreement shall not be changed or ---------- modified in whole or in part except by an instrument in writing signed by each party hereto. 13. 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. 14. 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 described in this subsection (a) or which becomes bound by the terms of this Agreement by operation of law. (b) Executive's Successors. The terms of this Agreement and all rights of ---------------------- the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive's personal or legal representatives, executors, administrators, successor, heirs, distributees, devisees or legatees. 15. Entire Agreement. This Agreement shall supersede and replace all ---------------- prior agreements or understandings relating to the subject matter hereof, and no agreement, representations or understandings (whether oral or written or 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 relevant matter hereof. 16. Mediation; Arbitration. ---------------------- (a) Mediation. The Executive agrees that any dispute or controversy --------- arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach or termination thereof, shall first be submitted to mediation. The mediation shall be conducted within 45 days of Executive notifying the Company of a dispute or controversy regarding this Agreement or Executive's employment relationship with the Company. Unless otherwise provided for by law, the Company and Executive shall each pay half the costs and expenses of the mediation. (b) Arbitration. Executive agrees that any dispute or controversy arising ----------- out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, or breach thereof, shall be finally settled by binding arbitration to be held in Oakland, California under the National Rules for the Resolution of Employment Disputes supplemented by the Supplemental Procedures for Large Complex Disputes, of the American Arbitration Association as then in effect (the "Rules"). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the -6- arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. (c) The arbitrator(s) shall apply California law to the merits of any dispute or claim, without reference to rules of conflicts of law. The arbitration proceedings shall be governed by California arbitration law and the Rules. (d) Unless otherwise provided for by law, the Company and the Executive shall each pay half of the costs and expenses of such arbitration. (e) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS EMPLOYMENT AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, OR BREACH THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AS TO THESE ISSUES ONLY. 17. Counterparts. This Employment Agreement may be executed in several ------------ counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. 18. Effect of Headings. The section headings herein are for convenience ------------------ only and shall not affect the construction or interpretation of this Agreement. -7- IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first written above. COST PLUS, INC. By: /s/ Ralph D. Dillon -------------------------- EXECUTIVE /s/ Kathi P. Lentzsch --------------------- (Signature) Kathi P. Lentzsch --------------------- Kathi Lentzsch --------------------- (Print Address) --------------------- (Print Telephone Number) -8- EX-10.6 7 PRESS RELEASE OF SEPTEMBER 3, 1997 (EXHIBIT 10.6) FOR IMMEDIATE RELEASE - --------------------- COST PLUS, INC. ANNOUNCES MANAGEMENT CHANGES; MURRAY DASHE, VICE CHAIRMAN AND PRESIDENT; PATRICIA SAUCY NAMED VICE PRESIDENT, FINANCE AND ACTING CFO OAKLAND, CA -- September 3, 1997 -- Cost Plus, Inc. (Nasdaq:CPWM) announced today several management changes, effective immediately. Murray H. Dashe, 55, who joined Cost Plus in June 1997 as Vice Chairman, assumes the additional title of President, and will continue to be responsible for the day-to-day operations of the Company. Patricia T. Saucy, 46, previously Vice President and Controller was promoted to Vice President, Finance and Acting Chief Financial Officer. Additionally, Charmaine D. Casella, 35, who served as Assistant Controller, was promoted to Controller. These management changes were made following the resignation of Alan E. Zimtbaum, who previously served as President, Chief Operating Officer, Chief Financial Officer and Secretary. "These changes will allow us to continue to implement our corporate strategy," said Ralph D. Dillon, Chairman and Chief Executive Officer. "Our operating and financial management depth is solid and we are poised to go forward with this experienced management team. We wish Alan all the best in his future endeavors and we thank him for his contributions to Cost Plus," stated Dillon. Saucy joined Cost Plus in January, 1991 as Vice President and Controller. Prior to that, she served as Vice President and Controller for Crescent Jewelers and as Assistant Controller for Ross Stores. Ms. Saucy received a B.S. degree in Business Administration from California State University at Hayward and an M.B.A. degree from St. Mary's College in Moraga, California and is a Certified Public Accountant. Casella served as Assistant Controller since February 1993 when she joined Cost Plus. She was previously Corporate Accounting Manager for Nestle Food Company and a Manager with the public accounting firm of Price Waterhouse LLP. Ms. Casella received a B.S. degree in Accounting from the University of Arizona and is a certified public accountant. Cost Plus, Inc. is a leading retailer of casual home living and entertaining products. The Company operates 65 stores under the name "Cost Plus World Market" in 12 states. CONTACT: Ralph D. Dillon Murray H. Dashe Chairman and CEO Vice Chairman and President (510) 893-7300 ext. 3002 EX-11 8 COMPUTATION OF EARNINGS PER SHARE (Exhibit 11) COST PLUS, INC. COMPUTATION OF NET INCOME (LOSS) PER SHARE (IN THOUSANDS EXCEPT PER SHARE AMOUNTS, UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED --------------------- ------------------------------ AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3, 1997 1996 1997 1996 --------- ---------- ----------- ----------- NET INCOME (LOSS) $ 187 $ (197) $ 294 $ (592) ========= ========== ========== =========== Weighted average shares outstanding during the period: Common stock 8,153 8,067 8,129 7,354 Add incremental shares from assumed exercise of stock options 410 444 360 379 --------- ---------- ---------- ----------- Weighted average common and common equivalent shares outstanding 8,563 8,511 8,489 7,733 ========= ========== ========== =========== PRIMARY NET INCOME (LOSS) PER SHARE $ .02 $ (.02) $ .03 $ (.08) ========= ========== ========== =========== Weighted average shares outstanding during the period: Common Stock 8,153 8,067 8,129 7,354 Add incremental shares from assumed exercise of stock options 436 444 452 424 --------- ---------- ---------- ----------- Weighted average common and common equivalent shares outstanding 8,589 8,511 8,581 7,778 ========= ========== ========== =========== FULLY DILUTED NET INCOME (LOSS) PER SHARE $ .02 $ (.02) $ .03 $ (.08) ========= ========== ========== ===========
EX-27 9 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the financial statements of Cost Plus, Inc. for the six months ended August 8, 1997 and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS JAN-31-1998 FEB-02-1997 AUG-02-1997 786 0 0 0 50,557 53,952 95,382 33,923 123,682 28,992 0 0 0 82 74,226 123,682 95,819 95,819 62,364 94,548 0 0 781 490 196 0 0 0 0 294 .03 .03
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