Prepared by R.R. Donnelley Financial -- Form 10-Q

-----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, HNTUmjzcwHbRjtRmNUDrEyUcFT1MjQbaNiUhg9P2oeNt7H8zGQv+Wkld+tXXTof1 WsPlmAsa8vK9RvAVzCBAwQ== 0001021408-02-011421.txt : 20020827 0001021408-02-011421.hdr.sgml : 20020827 20020827172334 ACCESSION NUMBER: 0001021408-02-011421 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020803 FILED AS OF DATE: 20020827 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COST PLUS INC/CA/ CENTRAL INDEX KEY: 0000798955 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-HOME FURNITURE, FURNISHINGS & EQUIPMENT STORES [5700] IRS NUMBER: 941067973 STATE OF INCORPORATION: CA FISCAL YEAR END: 0130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14970 FILM NUMBER: 02749989 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: 201 CLAY ST STREET 2: P O BOX 23350 CITY: OAKLAND STATE: CA ZIP: 94623 10-Q 1 d10q.htm FORM 10-Q Prepared by R.R. Donnelley Financial -- Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 3, 2002

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 organization)		(I.R.S. Employer Identification No.)

200 4th Street, Oakland, California		94607
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (510) 893-7300

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 August 21, 2002 was 21,729,428.

COST PLUS, INC.

FORM 10-Q

For the Quarter Ended August 3, 2002

INDEX

PART I. FINANCIAL INFORMATION		Page

ITEM 1.	Condensed Consolidated Financial Statements (unaudited)

	Balance Sheets as of August 3, 2002, February 2, 2002 and August 4, 2001	3

	Statements of Operations for the three and six months ended August 3, 2002 and August 4, 2001	4

	Statements of Cash Flows for the six months ended August 3, 2002 and August 4, 2001	5

	Notes to Condensed Consolidated Financial Statements	6-8

ITEM 2	Management’s Discussion and Analysis of FinancialCondition and Results of Operations	9-10

ITEM 3.	Quantitative and Qualitative Disclosure about Market Risk	11

PART II. OTHER INFORMATION

ITEM 1.	Legal Proceedings	11

ITEM 4.	Submission of Matters to a Vote of Security Holders	11-12

ITEM 5.	Other Information	12

ITEM 6.	Exhibits and Reports on Form 8-K	12

Signature Page		13

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

COST PLUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts, unaudited)

	August 3, 2002		February 2, 2002		August 4, 2001
ASSETS
Current assets:
Cash and cash equivalents	$	8,010	$	45,420	$	14,669
Merchandise inventories		157,209		131,344		120,383
Other current assets		16,563		16,789		12,997

Total current assets		181,782		193,553		148,049
Property and equipment, net		116,692		110,922		84,199
Goodwill		4,178		4,178		4,259
Other assets, net		8,996		9,287		10,018

Total assets	$	311,648	$	317,940	$	246,525

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	35,112	$	43,990	$	27,598
Income taxes payable		225		10,082		—
Accrued compensation		7,173		8,305		5,670
Other current liabilities		15,107		13,795		11,817

Total current liabilities		57,617		76,172		45,085
Capital lease obligations		37,163		33,216		13,263
Other long-term obligations		10,599		9,843		9,057
Shareholders’ equity:
Preferred stock, $.01 par value: 5,000,000 shares authorized; none issued and outstanding		—		—		—
Common stock, $.01 par value: 67,500,000 shares authorized; issued and outstanding 21,727,997, 21,549,643 and 21,433,448 shares		217		215		214
Additional paid-in capital		135,456		131,730		129,602
Retained earnings		70,596		66,764		49,304

Total shareholders’ equity		206,269		198,709		179,120

Total liabilities and shareholders’ equity	$	311,648	$	317,940	$	246,525

See notes to condensed consolidated financial statements.

COST PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)

	Three Months Ended						Six Months Ended
	August 3, 2002			August 4, 2001			August 3, 2002			August 4, 2001
Net sales	$	138,339		$	112,101		$	272,688		$	225,016
Cost of sales and occupancy		91,244			74,759			179,893			150,413

Gross profit		47,095			37,342			92,795			74,603
Selling, general and administrative expenses		41,492			33,736			82,226			67,910
Store preopening expenses		1,336			945			2,869			2,011

Income from operations		4,267			2,661			7,700			4,682
Interest income		(59	)		(245	)		(224	)		(673	)
Interest expense		896			433			1,744			860

Income before income taxes		3,430			2,473			6,180			4,495
Income taxes		1,275			964			2,348			1,753

Net income	$	2,155		$	1,509		$	3,832		$	2,742

Net income per share
Basic	$	0.10		$	0.07		$	0.18		$	0.13
Diluted	$	0.10		$	0.07		$	0.17		$	0.13

Weighted average shares outstanding
Basic		21,699			21,381			21,641			21,239
Diluted		22,231			21,907			22,142			21,751

See notes to condensed consolidated financial statements.

COST PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

	Six Months Ended
	August 3, 2002			August 4, 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,832		$	2,742
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		10,183			7,667
Change in assets and liabilities:
Merchandise inventories		(25,865	)		(10,554	)
Other assets		276			599
Accounts payable		(8,878	)		(3,994	)
Income taxes payable		(8,833	)		(9,933	)
Other liabilities		1,034			(2,213	)

Net cash used in operating activities		(28,251	)		(15,686	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(11,358	)		(12,911	)

Net cash used in investing activities		(11,358	)		(12,911	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations		(505	)		(199	)
Proceeds from the issuance of common stock		2,704			4,650

Net cash provided by financing activities		2,199			4,451

Net decrease in cash and cash equivalents		(37,410	)		(24,146	)
Cash and cash equivalents:
Beginning of period		45,420			38,815

End of period	$	8,010		$	14,669

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	1,352		$	118

Cash paid for taxes	$	11,181		$	9,487

NON-CASH FINANCING:
Capital lease obligations related to distribution center	$	4,354		$	—

See notes to condensed consolidated financial statements.

COST PLUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and Six Months Ended August 3, 2002 and August 4, 2001

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared from the records of Cost Plus, Inc. (the “Company”) without audit and, in the opinion of management, include all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company’s financial position at August 3, 2002 and August 4, 2001; the interim results of operations for the three and six months ended August 3, 2002 and August 4, 2001 and changes in cash flows for the six months then ended. The balance sheet at February 2, 2002, 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 2, 2002. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted for purposes of the interim condensed consolidated financial statements. Such financial statements should be read in conjunction with the audited consolidated financial statements, including notes thereto, for the fiscal year ended February 2, 2002.

The results of operations for the three and six month periods ended August 3, 2002 presented herein are not necessarily indicative of the results to be expected for the full year.

2. STOCK OPTION PLANS

In June 2002, pursuant to a vote of its shareholders, the Company amended its 1995 Stock Option Plan to increase the number of shares available for grant by 900,000 to a total of 5,968,006 shares, less the aggregate number of shares issued or subject to options outstanding under the 1994 Stock Option Plan of 821,120 shares, leaving 5,146,886 shares currently available under the 1995 Stock Option Plan. Additionally, pursuant to a vote of its shareholders, the Company amended its 1996 Director Option Plan to increase the shares reserved for issuance by 150,000 to a total of 403,675 shares.

3. IMPACT OF NEW ACCOUNTING STANDARD

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives not be amortized, but rather be tested at least annually for impairment. The Company has adopted the standard for the fiscal year beginning February 3, 2002. As required by SFAS No. 142, the Company has evaluated such goodwill for impairment and such evaluation did not result in an impairment charge. If the statement had been adopted at the beginning of fiscal year 2001, after adding back $41,000 (net of tax) of goodwill and intangibles amortization, the Company would have reported net income of $1,550,000 for the three-months ended August 4, 2001. For the six months ended August 4, 2001 reported net income would have been $2,831,000 after adding back $89,000 (net of tax) of goodwill and intangibles amortization. There would be no impact on reported basic or diluted earnings per share for either period.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets,” which addresses accounting for and reporting of the impairment or disposal of long-lived assets that is effective for fiscal year 2002. The initial adoption of SFAS No. 144 had no impact on the Company’s financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting

guidance, Emerging Issues Task Force Issue No. 94-3. The Company will adopt the provisions of SFAS No. 146 for restructuring activities, if any, initiated after December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost was recognized at the date of the Company’s commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized.

4. RECONCILIATION OF BASIC SHARES TO DILUTED SHARES

The following is a reconciliation of the weighted average number of shares (in thousands) used in the Company’s basic and diluted per share computations.

	Three Months Ended						Six Months Ended
	Basic EPS		Effect of Dilutive Stock Options		Diluted EPS		Basic EPS		Effect of Dilutive Stock Options		Diluted EPS
August 3, 2002
Shares		21,699		532		22,231		21,641		501		22,142
Amount	$	0.10	$	0.00	$	0.10	$	0.18	$	0.01	$	0.17
August 4, 2001
Shares		21,381		526		21,907		21,239		512		21,751
Amount	$	0.07	$	0.00	$	0.07	$	0.13	$	0.00	$	0.13

Options to purchase common stock were outstanding but were not included in the computation of diluted earnings per share because the effect would be antidilutive as their exercise price exceeded the average stock price for the period. For the three months ended August 3, 2002 and August 4, 2001, these options totaled 206,399 and 241,049 and for the six months ended August 3, 2002 and August 4, 2001 they were 206,399 and 281,049.

5. COMMITMENTS AND CONTINGENCIES

The Company is a defendant in a purported class action lawsuit alleging it improperly classified certain California-based managers as “exempt” from overtime rather than entitled to overtime pay as are non-exempt hourly employees. The action, entitled Barry, et al, v. Cost Plus, Inc., was filed in the Orange County Superior Court in California on September 17, 2001. The complaint seeks an injunction against any unlawful practices, restitution of wages improperly withheld, unpaid overtime and penalties and costs, including attorneys’ fees. The case is in process and a hearing has yet to be held on the plaintiff’s motion for class certification. The Company believes the plaintiffs are not entitled to class certification and intends to vigorously oppose the motion. Furthermore, the Company believes it has strong defenses against the charges contained in the lawsuit, which it will also vigorously pursue. The Company is currently in settlement discussions which, if successfully concluded, may result in a material non-recurring charge to quarterly or annual earnings in the period in which settlement occurs.

The Company is also involved in litigation, claims and assessments incidental to its business, the disposition of which is not expected to have a material effect on the Company’s financial position or results of operations. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in the Company’s assumptions related to any such proceedings. The Company accrues its best estimate of the probable cost for the resolution of all litigation, claims and assessments. When appropriate, such estimates are developed

in consultation with outside counsel and advisors handling these matters and are based on a combination of litigation and settlement strategies. To the extent additional information arises or the Company’s strategies change, it is possible that the Company’s best estimate of its probable liability in these matters may change.

6. REVOLVING LINE OF CREDIT

Effective May 29, 2002, the Company entered into a new, unsecured revolving line of credit agreement with a syndication of banks, which expires June 1, 2005. This agreement replaces the prior revolving line of credit agreement which expired. The new agreement allows for cash borrowings and letters of credit up to $30.0 million from January through June of each year, increasing to $75.0 million from July through December of each year to coincide with Holiday borrowing needs. Interest is paid quarterly in arrears on base rate loans and at each interest period applicable to IBOR loans (30, 60 and 90 days) based on the Company’s election of the bank’s reference rate or IBOR plus 0.9% from May 29, 2002 to June 1, 2003, increasing to IBOR plus 1.125% from June 2, 2003 to June 1, 2004 and IBOR plus 1.25% from June 2, 2004 to June 1, 2005. The agreement requires a 30-day ‘clean-up period’ each year where outstanding credit advances, as defined in the agreement can (a) not exceed $20 million for not less than 30 consecutive days during the period from January 1, 2003 through March 31, 2003, and (b) must be zero for not less than 30 consecutive days during the period from January 1, 2004 through March 31, 2004, and from January 1, 2005 through March 31, 2005. The Company is subject to certain financial covenants customary to such agreements.

At August 3, 2002, the Company had no outstanding borrowings under its line of credit agreement and $9.2 million outstanding under its letters of credit.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

AN ASTERISK “*” DENOTES A FORWARD-LOOKING STATEMENT REFLECTING CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS AND SHAREHOLDERS OF COST PLUS, INC. (THE “COMPANY” OR “COST PLUS”) SHOULD CAREFULLY REVIEW THE CAUTIONARY STATEMENTS SET FORTH IN THIS FORM 10-Q, INCLUDING, “FACTORS THAT MAY AFFECT FUTURE RESULTS” ON PAGE 9 HEREOF. THE COMPANY MAY FROM TIME TO TIME MAKE ADDITIONAL WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS CONTAINED IN THE COMPANY’S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION AND IN ITS REPORTS TO SHAREHOLDERS. THE COMPANY DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT THAT MAY BE MADE FROM TIME TO TIME BY OR ON BEHALF OF THE COMPANY.

Results of Operations

The three months (second quarter) and six months (year-to-date) ended August 3, 2002 as compared to the three months and six months ended August 4, 2001.

Net Sales. Net sales increased $26.2 million, or 23.4%, to $138.3 million in the second quarter of fiscal 2002 from $112.1 million in the second quarter of fiscal 2001. Year-to-date, net sales were $272.7 million compared to $225.0 million for the same period of fiscal 2001, an increase of $47.7 million, or 21.2%. The increase in net sales, for the three and six months of fiscal 2002, was primarily attributable to new store sales and increased comparable store sales. At August 3, 2002, the Company operated 163 stores compared to 137 stores at August 4, 2001. Comparable store sales increased 6.1% in the second quarter compared to a decrease of 0.5% last year and year-to-date comparable sales increased 5.0% on top of a 2.0% increase in the prior year. The increase in comparable store sales for the quarter was primarily due to a 4.5% increase in customer count and a 1.5% increase in average transaction size.

Gross Profit. As a percentage of net sales, gross profit was 34.0% for both the second quarter and year-to-date periods compared to 33.3% in the second quarter of fiscal 2001 and 33.2% last fiscal year-to-date. The increase in the gross profit percentage in the second quarter and year-to-date primarily resulted from an increase in the percentage of higher margin home furnishings sales and increased initial mark ups.

Selling, General and Administrative (“SG&A”) Expenses. As a percentage of net sales, SG&A expenses decreased to 30.0% in the second quarter of fiscal 2002 from 30.1% in the second quarter of the prior fiscal year. Year-to-date, SG&A expenses decreased to 30.1% in the current fiscal year from 30.2% last fiscal year. The decrease in the SG&A rates resulted primarily from leveraging store payroll, advertising and other store and corporate overhead expenses against higher net sales, offset somewhat by higher professional fees and salary-related costs.

Store Preopening Expenses. Store preopening expenses, which include grand opening advertising and preopening merchandise setup expenses, were $1.3 million in the second quarter of fiscal 2002 and $945,000 in the second quarter of the prior fiscal year. Expenses vary depending on the particular store site and whether it is located in a new or existing market. The Company opened seven stores in the second quarter of fiscal 2002 compared to five in the prior fiscal year. Year-to-date, store preopening expenses were $2.9 million in fiscal 2002 and $2.0 million in fiscal 2001, as a result of opening fourteen stores in fiscal 2002 vs. ten stores in fiscal 2001.

Interest Income and Expense. The increase in interest expense was due to interest expense on capital lease obligations for the new distribution center facility and equipment. The decline in interest income was due to lower interest rates earned on short-term investments.

Income Taxes. The Company’s effective tax rate was 38.0% in fiscal 2002 and 39.0% in fiscal 2001. The change in the effective rate was primarily due to additional state incentive tax credits earned in California.

Factors That May Affect Future Results

The Company’s quarterly and annual results of operations may be materially impacted by certain risk factors which include, but are not limited to: a material unfavorable outcome with respect to litigation described in Note 5 of the Notes to the Condensed Consolidated Financial Statements “Contingencies and Commitments” and in Item 1—Legal Proceedings, or other litigation, claims and assessments against the Company, changes in economic conditions that effect consumer spending, timely introduction and customer acceptance of the Company’s merchandise offerings, changes in the competitive environment, foreign and domestic labor market fluctuations, interruptions in the flow of merchandise including those associated with possible labor disruptions at U.S. West Coast ports of entry, increases in fuel and other transportation costs, unseasonable weather, store construction delays, further terrorist attacks and our nation’s response thereto, and changes in accounting rules and regulations.

The Company’s business is highly seasonal, reflecting the general pattern associated with the retail industry of peak sales and earnings during the fourth quarter (Holiday) selling season. The fourth quarter of each fiscal year has historically contributed and the Company expects it will continue to contribute, a disproportionate percentage of the Company’s net sales and most of its net income for the entire fiscal year.* Any factors negatively affecting the Company during the Holiday selling season in any year, including unfavorable economic conditions, could have a material adverse effect on the Company’s 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 Holiday 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 gross margin due to the need to mark down excess inventory.

Liquidity and Capital Resources

The Company’s primary uses for cash are to fund operating expenses, inventory requirements and new store expansion. Historically, the Company has financed its operations primarily from internally generated funds and seasonal borrowings under the Company’s revolving credit facility. The Company believes that the combination of its cash and cash equivalents, internally generated funds and available borrowings under its revolving line of credit will be sufficient to finance its working capital and capital expenditure requirements for at least the next twelve months.*

Net cash used in operating activities in the first half of fiscal 2002 totaled $28.3 million, an increase of $12.6 million from the first half of the prior fiscal year. The increase in cash used for operating activities was primarily for inventory to support a 19% increase in stores, an additional distribution center and the accelerated receipt of goods in anticipation of a possible interruption in the flow of goods at certain U.S. West Coast ports of entry.

Net cash used in investing activities was $11.3 million for the first half of fiscal 2002 compared to $12.9 million in the prior fiscal year. This decrease is primarily due to higher capital expenditures in the prior year for improvements made to the Company’s distribution infrastructure. The Company estimates that fiscal 2002 capital expenditures will approximate $26.5 million.*

Net cash provided by financing activities was $2.2 million in the first half of fiscal 2002 and $4.5 million in the first half of fiscal 2001 and was primarily related to proceeds from the issuance of common stock in connection with the Company’s stock option and stock purchase plans.

At August 3, 2002, the Company had no outstanding borrowings under its line of credit agreement and $9.2 million outstanding under its letters of credit.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

There are no material changes to our market risk as disclosed in the Company’s report on Form 10-K filed for the fiscal year ended February 2, 2002.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security Holders

At the Company’s 2002 Annual Meeting of Shareholders held on June 27, 2002, the shareholders voted on the following proposals, each of which was approved:

Proposal 1. To 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 900,000 shares.

Proposal 3. To approve an amendment to the Company’s 1996 Director Option Plan to increase the shares reserved for issuance thereunder by 150,000 shares.

Proposal 4. To ratify and approve the appointment of Deloitte & Touche LLP as independent auditors of the Company for the fiscal year ending February 1, 2003.

2002 ANNUAL MEETING ELECTION RESULTS

Proposal 1—Election of Directors

Name	For	Withheld
Murray H. Dashe	19,279,337	297,896
Joseph H. Coulombe	19,278,618	298,615
Barry J. Feld	19,264,466	312,767
Danny W. Gurr	19,263,866	313,367
Kim D. Robbins	19,265,979	313,254
Fredric M. Roberts	19,263,977	313,256
Thomas D. Willardson	19,263,752	313,481

Proposals 2, 3 and 4

Proposal	For	Against	Abstain	Broker Non-Votes
2. Amendment to the 1995 Stock Option Plan	16,069,472	3,395,845	111,916	0

3. Amendment to the 1996 Director Option Plan	17,820,337	1,694,541	62,355	0

4. Appointment of Deloitte & Touche LLP	18,702,644	801,228	73,361	0

Item 5. Other Information

On April 2, 2002, the Company granted an interest-bearing housing relocation assistance loan in the amount of $992,244.11 to Murray Dashe, Chairman, President and Chief Executive Officer. On June 19, 2002, in connection with the closing of escrow on the sale of his prior residence, Mr. Dashe repaid the then-outstanding balance of the loan together with accrued interest.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits


10.1		1995 Stock Option Plan, as amended.

10.2		1996 Director Option Plan, as amended.

10.3		Employment agreement, dated July 3, 2002, between the Company and Murray H. Dashe.

10.4		Amended and Restated Form of Indemnification Agreement between the Company and its directors and officers.

(b) Reports on Form 8-K

No reports on Form 8-K were filed by the Company during the period covered by this report.

SIGNATURE

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

By:		/s/ JOHN J. LUTTRELL
		John J. Luttrell Senior Vice President Chief Financial Officer Duly Authorized Officer

Date: August 27, 2002

EX-10.1 3 dex101.htm 1995 STOCK OPTION PLAN, AS AMENDED Prepared by R.R. Donnelley Financial -- 1995 Stock Option Plan, as amended

EXHIBIT 10.1

COST PLUS, INC.

1995 STOCK OPTION PLAN

(Adopted November 1, 1995)

(Amended July 23, 1996)

(Amended October 15, 1996)

(Amended April 21, 1997)

(Amended February 12, 1998)

(Amended June 18, 1998)

(Amended June 15, 1999)

(Amended June 22, 2000)

(Amended June 26, 2001)

(Amended June 27, 2002)

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 “Change of Control” means the occurrence of any of the following events:

(i) The acquisition by any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of the “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities;

(ii) A change in the composition of the Board of Directors of the Company occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board of Directors of the Company with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual not otherwise an Incumbent Director whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company);

(iii) A merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the approval by the stockholders of the Company of a plan of complete liquidation of the Company or of an agreement for the sale or disposition by the Company of all or substantially all the Company’s assets;

(iv) The sale of all or substantially all of the assets of the Company determined on a consolidated basis; or

(v) The complete liquidation or dissolution of the Company.

2.7 “Code” means the Internal Revenue Code of 1986, as amended.

2.8 “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.

2.9 “Company” means Cost Plus, Inc., a California corporation.

2.10 “Controlling Shareholders” means Internationale Nederlanden (U.S.) Capital Corporation and Pearl Street L.P., collectively.

2.11 “Disability” means a physical or mental infirmity that impairs the Optionee’s ability to perform substantially his or her duties for a period of one hundred eighty (180) consecutive days.

2.12 “Eligible Individual” means any director, officer or employee of the Company or a Subsidiary, or any consultant or advisor.

2.13 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

2.14 “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 sales 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.

2.15 “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.

2.16 “Grant Date” means with respect to each Option, the Grant Date as defined in the applicable Agreement.

2.17 “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.

2.18 “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.

2.19 “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”).

2.20 “Nonqualified Stock Option” means an Option which is not an Incentive Stock Option.

2.21 “Option” means an option to purchase Shares granted pursuant to the Plan.

2.22 “Optionee” means a person to whom an Option has been granted under the Plan.

2.23 “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.

2.24 “Own” or any derivation thereof means beneficial ownership as defined in Rule 13d-3 promulgated under the Exchange Act.

2.25 “Parent” means any corporation which is a parent corporation (within the meaning of Section 424(e) of the Code) with respect to the Company.

2.26 “Per Share Option Price” means, with respect to each Option, the per share exercise price with respect to such Option.

2.27 “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.

2.28 “Plan” means this Cost Plus, Inc. 1995 Stock Option Plan.

2.29 “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.

2.30 “Pooling Transaction” means an acquisition of the Company in a transaction which is treated as a “pooling of interests” under generally accepted accounting principles.

2.31 “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:

(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 Bylaws, 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 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 5,968,006 Shares, 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 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, 5,968,006 Shares, 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 397,983 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 Change of Control), 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 no less than 100% of the Fair Market Value per Share on the Grant Date. 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.

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.

(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 Change of Control. 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 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 Change of Control.

(a) In the event of a Change of Control, each outstanding Option shall become fully (100%) vested and exercisable. In addition, at the election of the Company the following shall occur:

(A) (i) each Option shall be deemed to have been exercised to the extent it had not been exercised prior to that date, (ii) the Shares issuable in connection with the deemed exercise of each Option shall be issued to and in the name of the acquiror of the Company, if any, and (iii) 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 Change of Control, reduced by the Per Share Option Price, or

(B) immediately after each outstanding Option has become fully (100%) vested it shall be terminated in exchange for a per share payment for each Share then subject to such Option equal to the number (or amount) and kind of stock, securities, cash, property or other consideration that each holder of a Share was entitled to receive in connection with the Change of Control, reduced by the Per Share Option Price, or

(C) in the event of a Change of Control 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) Any sale of Shares by any Optionee in any Change of Control 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.

(c) 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.

(d) With respect to Incentive Stock Options granted prior to February 12, 1998, in the event of a Change of Control as described in Sections 2.6 (iii), (iv) and (v), 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.)

(e) With respect to Incentive Stock Options granted prior to February 12, 1998, in any case, in the event of a Change of Control as described in Sections 2.6(iii), (iv) and (v) (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 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.

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 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 arrangements 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;

(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.

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 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.

EX-10.2 4 dex102.htm 1996 DIRECTOR OPTION PLAN, AS AMENDED Prepared by R.R. Donnelley Financial -- 1996 Director Option Plan, as amended

EXHIBIT 10.2

COST PLUS, INC.

1996 DIRECTOR OPTION PLAN

(Amended June 19, 1997)

(Amended June 15, 1999)

(Amended June 22, 2000)

(Amended June 27, 2002)

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.

(d) “Committee” means a committee appointed by the Board to administer the Plan and to perform the functions set forth herein, or, if no such committee is appointed, the Board.

(e) “Company” means Cost Plus, Inc., a California corporation.

(f) “Director” means a member of the Board.

(g) “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.

(h) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(i) “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;

(ii) 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;

(iii) 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.

(j) “Inside Director” means a Director who is an Employee.

(k) “Option” means a stock option granted pursuant to the Plan.

(l) “Optioned Stock” means the Common Stock subject to an Option.

(m) “Optionee” means a Director or an entity that holds an Option.

(n) “Outside Director” means a Director who is not an Employee.

(o) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

(p) “Plan” means this 1996 Director Option Plan.

(q) “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.

(r) “Share” means a share of the Common Stock, as adjusted in accordance with Section 10 of the Plan.

(s) “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 403,675 Shares of Common Stock. 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.

4. Administration and Grants of Options under the Plan.

(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 a majority of the 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) The Committee shall be composed of the Board of Directors or a committee appointed by the Board.

(i) to determine those individuals to whom Options shall be granted under the Plan and the number of Shares subject to each Option to be granted, to prescribe the terms and conditions (which need not be identical) of each such Option, including the Fair Market Value on any date, and to make any amendment or modification to any option agreement, including the acceleration of vesting, consistent with the terms of the Plan;

(ii) 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, 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;

(iii) to exercise its discretion with respect to the powers and rights granted to it as set forth in the Plan; and

(iv) 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.

(d) Procedure for Grants. The terms of an Option granted hereunder shall be as follows:

(i) the term of the Option shall be up to ten (10) years.

(ii) subject to Sections 8 and 10 hereof, the Option shall be exercisable:

(A) in the event of an Option held directly by an Outside Director, only while the Outside Director remains a Director of the Company.

(B) in the event of an Option held by an entity pursuant to Section 5(b) hereof, only while the Representative Director remains a Director of the Company.

(iii) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Option. In the event that the date of grant of the 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 Option.

(iv) subject to Section 10 hereof, the Option shall become exercisable as determined by the Committee at the time of grant of the Option.

5. Eligibility.

(a) Except as provided in Section 5(b) hereof, Options may be granted only to Outside Directors.

(b) In the event an Outside Director is a Representative Director, Options 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.

(c) The Plan shall not confer upon any Outside Director 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. 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.

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 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 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 an 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 the Optionee 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.

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 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 (or, in the case of an entity Optionee, such Optionee’s Representative Director) serves as a Director or a director of the Successor Corporation. Following such assumption or substitution, if the Optionee’s (or, in the case of an entity Optionee, such Optionee’s Representative Director’s) status as a Director or director of the Successor Corporation, as applicable, is terminated other than upon a voluntary resignation by the Optionee (or, in the case of an entity Optionee, such Optionee’s Representative Director), 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(b) through (d) 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 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 such Optionee’s 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.

15. Option Agreement. Options shall be evidenced by written option agreements in such form as the Board shall approve.

EX-10.3 5 dex103.htm EMPLOYMENT AGRMT, DATED JULY 3, 2002 Prepared by R.R. Donnelley Financial -- Employment Agrmt, dated July 3, 2002

EXHIBIT 10.3

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT, dated as of the third day of July 2002, by and between Cost Plus, Inc., a California corporation (“Cost Plus”), and Murray H. Dashe, the undersigned Executive (“Mr. Dashe”).

Recitals

Cost Plus desires to retain the services of Mr. Dashe, and Mr. Dashe desires to be employed by Cost Plus, on the terms and subject to the conditions set forth in this Agreement;

NOW, THEREFORE, in consideration of the foregoing recitals and the respective undertakings of Cost Plus and Mr. Dashe set forth below, Cost Plus and Mr. Dashe agree as follows:

1. Employment.

(a) Duties. Cost Plus agrees to employ Mr. Dashe as Chairman of the Board, Chief Executive Officer, and President. Mr. Dashe agrees to perform such reasonable responsibilities and duties as may be required of him by Cost Plus provided, however, that the Board of Directors of Cost Plus (the “Board”) shall have the right to revise such responsibilities from time to time as the Board may deem appropriate. Mr. Dashe 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. Mr. Dashe shall report directly to the Board and shall serve as its Chairman, subject to any required stockholder approval.

(b) Term of Employment. Subject to earlier termination as provided for in Section 3 of this Agreement, Cost Plus shall employ Mr. Dashe for an initial term of three (3) years commencing on the date of this Agreement. The term of employment hereunder shall automatically extend for successive additional terms of one (1) year each (each, a “Successive One-Year Term”) unless, at least ninety (90) days prior to the end of the initial three (3) year term or any Successive One-Year Term, Cost Plus or Mr. Dashe gives written notice of intent to terminate this Agreement (a “Notice of Non-Renewal”). The term of employment under this Agreement shall include the initial three (3) year period and any extension thereof (the “Employment Term”). If Mr. Dashe terminates employment as a result of the receipt of a Notice of Non-Renewal from Cost Plus, Mr. Dashe shall be entitled to the payments and benefits under Section 3(a) of this Agreement.

2. Compensation and Benefits.

(a) Base Compensation. Cost Plus shall pay Mr. Dashe as compensation for his services a base salary at the annualized rate of Five Hundred Twenty-Five Thousand Dollars ($525,000) for the first year of this Agreement. The Board shall review Mr. Dashe’s base salary then in effect at least annually and make such increases as the Board may approve in its sole discretion, consistent with past practices in terms of performance review standards and percentage increases in base salary. Such base salary shall be subject to applicable tax withholding and shall be paid periodically in accordance with normal Cost Plus payroll practices. The annual compensation specified in this Section 2(a), together with any increases in such compensation, is referred to in this Agreement as “Base Compensation.”

(b) Bonus. Mr. Dashe shall be eligible for an annual bonus target of sixty percent (60%) of his Base Compensation upon achievement of financial and other goals under the Cost Plus Cash Plus Bonus Plan, as determined by the Board or the Compensation Committee of the Board (the “Compensation Committee”). In accordance with standard Cost Plus policies, Mr. Dashe shall be eligible for an annual bonus payout above the target percentage upon exceptional achievement in exceeding the financial goals established by the Board or Compensation Committee. The bonus period shall begin with Cost Plus’s 2002 fiscal year and the 2002 fiscal year bonus shall be payable in April 2003 and based on Mr. Dashe’s 2002 fiscal year salary. The Board or the Compensation Committee may increase the target bonus in any subsequent year or years in its sole discretion. However, the exercise of such discretion must be consistent with past practice.

(c) Executive Benefits. Mr. Dashe shall be eligible to participate in the employee benefit plans that are available or that become available, in the discretion of Cost Plus, to other executives of Cost Plus, 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. Mr. Dashe shall be entitled to four (4) weeks of vacation per year in accordance with the normal vacation policies of Cost Plus.

(e) Stock Options. Mr. Dashe shall be eligible for options to purchase Cost Plus’s Common Stock as may be granted by the Board or the Compensation Committee in its sole discretion. However, the exercise of such discretion must be consistent with past practice. The terms and conditions of any options granted to Mr. Dashe shall be established by the Board or the Compensation Committee in its sole discretion, subject to Section 3(a)(iv) and 3(f)(iv) of this Agreement and the terms of the applicable stock option plans from which the options are granted. All options granted to Mr. Dashe before the date of this Agreement shall continue to vest in accordance with the original terms of the options.

(f) Relocation Expenses. Cost Plus shall reimburse Mr. Dashe for Mr. Dashe’s relocation expenses in accordance with Cost Plus’s “Director and Above Relocation Policy.” Cost Plus shall reimburse Mr. Dashe’s relocation expenses if Mr. Dashe relocates prior to September 30, 2002. Notwithstanding the foregoing, in the event Mr. Dashe voluntarily resigns from his employment with Cost Plus prior to December 31, 2002, he shall repay Cost Plus all reimbursed relocation costs.

3. Severance Payments.

(a) Involuntary Termination. If Mr. Dashe’s employment terminates as a result of an Involuntary Termination other than for Cause during the Employment Term, Cost Plus shall pay or provide Mr. Dashe with the following (subject to Mr. Dashe executing and not revoking a Release of Claims):

(i) an amount equal to one (1) times Mr. Dashe’s Base Compensation for each of the two (2) years following Mr. Dashe’s termination, payable in substantially equal installments in accordance with Cost Plus’s standard payroll practice;

(ii) a lump-sum amount equal to one hundred percent (100%) of Mr. Dashe’s target bonus for the year of termination, payable within thirty (30) days of termination of employment;

(iii) to the extent eligible on the date of termination, continued participation for Mr. Dashe and his covered dependents, at no additional after-tax cost to Mr. Dashe than Mr. Dashe would have as an employee in all welfare plans until twenty-four (24) months following termination, subject to the approval of Cost Plus’ insurance carrier. In the event Mr. Dashe becomes covered under another employer’s benefit plans that provide substantially similar benefits as determined by Cost Plus in its sole discretion, as to any particular welfare plan, such continuation of coverage by Cost Plus for such benefits under such plan shall immediately cease;

(iv) all stock option grants to Mr. Dashe shall vest in full so as to become fully exercisable as of the date of the termination to the extent such stock options are outstanding and unexercisable at the time of such termination; and

(v) any unpaid base salary due for periods prior to the date of termination, all accrued and unused vacation through the date of termination, and following submission of proper expense reports, reimbursement for all expenses Mr. Dashe reasonably and necessarily incurred in connection with the business of Cost Plus prior to termination (the “Accrued Benefits”).

(b) Termination in the Event of Disability. If Mr. Dashe’s employment terminates as a result of his Disability during the Employment Term, Cost Plus shall pay or provide Mr. Dashe with the following:

(ii) a lump-sum amount equal to one hundred (100%) of Mr. Dashe’s target bonus for the year of termination multiplied by a fraction where the numerator is the number of days in the applicable bonus period prior to Mr. Dashe’s termination and the denominator is the number of days in the bonus period, payable within thirty (30) days after termination of employment;

(iii) to the extent eligible on the date of termination, continued participation for Mr. Dashe and his covered dependents, at no additional after-tax cost to Mr. Dashe than Mr. Dashe would have as an employee in Cost Plus’s health, dental and life insurance plans until twenty-four (24) months following termination, subject to the approval of Cost Plus’ insurance carrier. In the event Mr. Dashe becomes covered under another employer’s benefit plans that provide substantially similar benefits as determined by Cost Plus in its sole discretion, as to any particular welfare plan, such continuation of coverage by Cost Plus for such benefits under such plan shall immediately cease; and

(iv) any Accrued Benefits.

Notwithstanding any contrary provision of this Agreement, Mr. Dashe shall continue to receive the payments and benefits described in Section 2 of this Agreement or otherwise payable in connection with his employment with Cost Plus during the term of any Disability Period (as defined in Section 7(d)). The payments described in sections (ii) through (iv) above shall be in addition to any benefits available to Mr. Dashe under disability or other insurance provided by Cost Plus.

(c) Termination in the Event of Death. If Mr. Dashe’s employment terminates as a result of his death during the Employment Term, Cost Plus shall pay or provide Mr. Dashe’s beneficiary(ies) or estate with the following:

(i) an amount equal to one (1) times Mr. Dashe’s Base Compensation for each of the two (2) years following Mr. Dashe’s death, payable in substantially equal installments in accordance with Cost Plus’s standard payroll practice;

(ii) a lump-sum amount equal to one hundred (100%) of Mr. Dashe’s target bonus for the year of death multiplied by a fraction where the numerator is the number of days in the bonus period prior to Mr. Dashe’s death and the denominator is the number of days in the bonus period, payable within thirty (30) days after death;

(iii) to the extent eligible on the date of death, continued participation, at no additional after-tax cost to Mr. Dashe’s covered dependents than Mr. Dashe would have as an employee in Cost Plus’s health and dental plans until twenty-four (24) months following Mr. Dashe’s death; and

(iv) any Accrued Benefits.

The payments described sections (i) through (iv) above shall be in addition to any benefits available to Mr. Dashe’s beneficiaries or estate under life or other insurance provided by Cost Plus.

(d) Death After Termination of Employment. In the event that Mr. Dashe should die after termination of his employment, his beneficiary(ies) or estate shall receive all severance pay, transition payments, employee benefits, bonuses, and stock options to which Mr. Dashe would be entitled under this Agreement and under the terms of the applicable stock option plans and agreements governing Mr. Dashe’s stock options.

(e) Voluntary Termination During Initial Three-Year Employment Term or Termination for Cause. If Mr. Dashe voluntarily terminates employment with Cost Plus at any time during the initial three (3) years of the Employment Term (except during the second twelve (12) month period following a Change of Control in which case Mr. Dashe shall be entitled to the payments and benefits under Section 3(f) of this Agreement) or if Mr. Dashe’s employment with Cost Plus is terminated at any time for Cause, Mr. Dashe shall not be entitled to any additional payments or benefits hereunder, other than any Accrued Benefits.

(f) Voluntary Termination After Initial Three-Year Employment Term. If Mr. Dashe voluntarily terminates employment with Cost Plus at any time after the initial three (3) years of the Employment Term (except during the first twelve (12) month period immediately following a Change of Control in which case Mr. Dashe shall be entitled only to the payments and benefits under Section 3(e) of this Agreement), Cost Plus shall pay or provide the following (subject to Mr. Dashe executing and not revoking a Release of Claims):

(i) an amount equal to fifty percent (50%) of Mr. Dashe’s Base Compensation for each of the three (3) years following Mr. Dashe’s resignation, payable in substantially equal installments in accordance with Cost Plus’s standard payroll practice, provided that, if Mr. Dashe accepts employment with another employer, other than “Permitted Employment,” such payments shall immediately cease;

(ii) a lump-sum amount equal to 100% of Mr. Dashe’s target bonus for the year of resignation, payable within thirty (30) days after resignation;

(iii) to the extent eligible on the date of termination, continued participation for Mr. Dashe and his covered dependents, at no additional after-tax cost to Mr. Dashe that Mr. Dashe would have as an employee in all welfare plans until thirty-six (36) months following termination, subject to the approval of Cost Plus’ insurance carrier and provided that if Mr. Dashe accepts employment with another employer, other than “Permitted Employment,” such benefits shall immediately cease;

(v) any Accrued Benefits.

(g) Limitation on Severance Payments and Benefits. Notwithstanding anything to the contrary in this Agreement, the severance payments and benefits provided in this Section 3 shall cease if Mr. Dashe, on his own behalf, or as owner, manager, advisor, principal, agent, partner, consultant, director, officer, stockholder or employee of any business entity, participates in the development or provision of goods or services that are directly or indirectly competitive with goods or services provided (or proposed to be provided) by Cost Plus without the express written authorization of Cost Plus; provided, however, that it will not be a violation of this Section 3(g) for Mr. Dashe to acquire 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.

4. Golden Parachute Excise Tax Gross-Up. In the event that the severance payments and other benefits provided for in this Agreement or otherwise payable to Mr. Dashe constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and will be subject to the excise tax imposed by Section 4999 of the Code, then Mr. Dashe shall receive (i) a payment from Cost Plus sufficient to pay such excise tax, and (ii) an additional payment from Cost Plus sufficient to pay the excise tax and federal and state income taxes arising from the payments made by Cost Plus to Mr. Dashe pursuant to this sentence. Unless Cost Plus and Mr. Dashe otherwise agree in writing, the determination of Mr. Dashe’s excise tax liability and the amount required to be paid under this Section shall be made in writing by Cost Plus’s independent certified public accountants (the “Accountants”). In the event that the excise tax incurred by Mr. Dashe is determined by the Internal Revenue Service to be greater or lesser than the amount so determined by the Accountants, Cost Plus and Mr. Dashe agree to promptly make such additional payment, including interest and any tax penalties, to the other party as the Accountants reasonably determine is appropriate to ensure that the net economic effect to Mr. Dashe under this Section 4, on an after-tax basis, is as if the Code Section 4999 excise tax did not apply to Mr. Dashe. For purposes of making the calculations required by this Section 4, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on interpretations of the Code for which there is a “substantial authority” tax reporting position. Cost Plus and Mr. Dashe shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. Cost Plus shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 4.

5. Covenant Not to Solicit.

(a) Until the later of (i) five (5) years after the date of this Agreement, or (ii) one year after termination of Mr. Dashe’s employment, upon the termination of Mr. Dashe’s employment with Cost Plus for any reason, Mr. Dashe agrees that he shall not either directly or indirectly solicit, induce, attempt to hire, recruit, encourage, take away, hire any employee of Cost Plus, or cause an employee to leave their employment either for Mr. Dashe or for any other entity or person.

(b) Mr. Dashe represents that he (i) is familiar with the foregoing covenant 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 provisions.

6. Confidential Information.

(a) Company Information. Mr. Dashe agrees at all times during the Employment Term and thereafter, to hold in strictest confidence, and not to use, except for the benefit of Cost Plus, or to disclose to any person, firm or corporation without written authorization of the Board of Directors of Cost Plus, any Confidential Information of Cost Plus. Mr. Dashe understands that “Confidential Information” means any Cost Plus 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 Cost Plus to whom Mr. Dashe becomes acquainted during the term of his employment), markets, developments, marketing, finances or other business information disclosed to Mr. Dashe by Cost Plus either directly or indirectly in writing, orally or by drawings or observation of parts or equipment. Mr. Dashe further understands that Confidential Information does not include any information that has become publicly known and made generally available through no wrongful act of Mr. Dashe or of others who were under confidentiality obligations as to that information.

(b) Third Party Information. Mr. Dashe recognizes that Cost Plus has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on Cost Plus’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. Mr. Dashe agrees to hold all such confidential or proprietary information in accordance with Cost Plus’s agreement with such third party. Mr. Dashe also agrees not to disclose such information to any person, firm or corporation or to use it except as necessary in carrying out his work for Cost Plus consistent with Cost Plus’s agreement with such third party.

7. Definitions. As used herein, the terms

(a) Cause. “Cause” shall mean:

(i) Mr. Dashe has engaged in willful and material misconduct, including willful and material failure to perform his duties as an officer or employee of Cost Plus 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 Cost Plus;

(ii) The commission of an act of fraud or embezzlement resulting in loss, damage or injury to Cost Plus, whether directly or indirectly;

(iii) Mr. Dashe’s use of narcotics, liquor or illicit drugs has had a detrimental effect on the performance of his employment responsibilities, as determined by Cost Plus’s Board of Directors;

(iv) Mr. Dashe’s violation of Sections 5 or 6 or this Agreement;

(v) The arrest, indictment or filing of charges relating to a felony or misdemeanor, either in connection with the performance of Mr. Dashe’s obligations to Cost Plus or that shall adversely affect his 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 Cost Plus; or

(vii) The commission of an act constituting unfair competition with Cost Plus or inducing any customer of Cost Plus to break a contract with Cost Plus.

(b) Involuntary Termination. “Involuntary Termination” shall mean:

(i) termination by Cost Plus of Mr. Dashe’s employment with Cost Plus for any reason other than Cause;

(ii) a material reduction in Mr. Dashe’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 Cost Plus in the kind or level of employee benefits (other than salary and bonus) to which Mr. Dashe is entitled immediately prior to such reduction with the result that his overall benefits package (other than salary and bonus) is substantially reduced (other than any such reduction applicable to officers of Cost Plus generally);

(iv) a material reduction in Mr. Dashe’s title, duties, responsibilities, or authority; or

(v) any material breach by Cost Plus of any material provision of this Agreement that continues uncured for thirty (30) days following notice thereof;

provided, however, none of the foregoing shall constitute Involuntary Termination to the extent Mr. Dashe has voluntarily agreed thereto.

(i) The acquisition by any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) (other than Cost Plus or a person who directly or indirectly controls, is controlled by, or is under common control with, Cost Plus) of the “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Cost Plus representing fifty percent (50%) or more of the total voting power represented by Cost Plus’s then outstanding voting securities;

(ii) A change in the composition of the Board of Directors of Cost Plus occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of Cost Plus as of the date hereof, or (B) are elected, or nominated for election, to the Board of Directors of Cost Plus with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual not otherwise an Incumbent Director whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to Cost Plus);

(iii) A merger or consolidation of Cost Plus with any other corporation other than a merger or consolidation that would result in the voting securities of Cost Plus outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of Cost Plus or such surviving entity outstanding immediately after such merger or consolidation, or the approval by the stockholders of Cost Plus of a plan or complete liquidation of Cost Plus or of an agreement for the sale or disposition by Cost Plus of all or substantially all Cost Plus’s assets;

(iv) The sale of all or substantially all of the assets of Cost Plus determined on a consolidated basis; or

(v) The complete liquidation or dissolution of Cost Plus.

(d) Disability. “Disability” shall mean that Mr. Dashe is unable, as the result of physical or mental incapacity, to perform his material duties under this

Agreement for a period of at least six (6) consecutive months. The period of time during which Mr. Dashe is unable to perform his duties prior to termination of his employment under this provision shall be the “Disability Period”. Any question as to the existence of Mr. Dashe’s Disability shall be determined by an independent physician acceptable to Cost Plus and Mr. Dashe. If the parties cannot agree on such physician, the determination shall be made by a consensus of three physicians of recognized standing selected, one selected by Cost Plus in good faith, the second selected by Mr. Dashe in good faith and the third selected by the other two physicians in good faith.

(e) Release of Claims. “Release of Claims” shall mean a waiver by Mr. Dashe of all claims, causes of action and obligations against Cost Plus or its employees relating to Mr. Dashe’s employment in a form substantially similar to Exhibit A to this Agreement. Such Release of Claims shall not release Cost Plus from its obligations under the Amended and Restated Indemnification Agreement between Mr. Dashe and Cost Plus.

(f) Permitted Employment. “Permitted Employment” shall mean, subject to Section 3(g), an employment or consulting arrangement with another employer that requires service of not more than fifty (50) hours per month, board memberships or any other arrangement as approved in writing by the Board.

8. Prior Agreements. Mr. Dashe represents that Mr. Dashe has not entered into any agreements, understandings, or arrangements with any person or entity that he would breach as a result of, or that would in any way preclude or prohibit him from entering into this Agreement with Cost Plus or performing any of the duties and responsibilities provided for in this Agreement.

9. Conflicting Employment. Mr. Dashe agrees that, during the Employment Term, without the consent of the Board, he will not engage in any other employment, occupation, consulting or other business activity directly related to the business in which Cost Plus is now involved or becomes involved during the Employment Term, nor will he engage in any other activities that conflict with his obligations to Cost Plus.

10. Returning Company Documents. Mr. Dashe agrees that, at the time of leaving the employ of Cost Plus, he will deliver to Cost Plus (and will not keep in his 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 Mr. Dashe pursuant to his employment with Cost Plus or otherwise belonging to Cost Plus, its successors, or assigns.

11. 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 Mr. Dashe, at the address set forth below his signature at the end hereof.

If to Cost Plus:

200 Fourth Street

Oakland, California 94607

Attn: Joan Fujii, Senior Vice President, HR

or to such other address as any party hereto may designate by notice given as herein provided.

12. 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.

13. 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.

14. 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.

15. Successors.

(a) Company’s Successors. Any successor to Cost Plus (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of Cost Plus’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 Cost Plus would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Cost Plus” shall include any successor to Cost Plus’s business and/or assets that executes and delivers the assumption agreement described in this subsection (a) or that 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 Mr. Dashe hereunder shall inure to the benefit of, and be enforceable by, Mr. Dashe’s personal or legal representatives, executors, administrators, successor, heirs, distributes, devisees or legatees.

16. Entire Agreement. This Agreement, any outstanding stock option agreements between Cost Plus and Mr. Dashe, and the Amended and Restated

Indemnification Agreement between Cost Plus and Mr. Dashe (the “Indemnification 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) not expressly set forth in this Agreement (including, but not limited to, Mr. Dashe’s previous Employment Agreement dated June 12, 1997 and all amendments thereto), the outstanding stock option agreements and the Indemnification Agreement have been made or entered into by either party with respect to the relevant subject matter hereof.

17. Mediation. Mr. Dashe and Cost Plus 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 forty-five (45) days of either party notifying the other of a dispute or controversy regarding this Agreement or Mr. Dashe’s employment relationship with Cost Plus. Unless otherwise provided for by law, Cost Plus and Mr. Dashe shall each pay half the costs and expenses of the mediation.

18. Arbitration.

(a) In the event mediation pursuant to Section 17 fails to resolve a dispute or controversy, Mr. Dashe and Cost Plus 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 parties. 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, Cost Plus will pay for any administrative or hearing fees of such arbitration, except that Mr. Dashe shall pay the first $200.00 of any filing fees associated with any arbitration Mr. Dashe initiates.

(d) MR. DASHE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES ARBITRATION. MR. DASHE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, MR. DASHE 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 HIS RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP.

19. 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.

20. 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/ JOAN FUJII
		Joan Fujii Senior Vice President, HR

MURRAY H. DASHE

		/s/ MURRAY H. DASHE

EXHIBIT A

RELEASE OF CLAIMS AGREEMENT

This Release of Claims Agreement (“Agreement”) is made by and between Cost Plus, Inc. (“Cost Plus”), and Murray H. Dashe, the undersigned Executive (“Mr. Dashe).

WHEREAS, Mr. Dashe was employed by Cost Plus;

WHEREAS, Cost Plus and Mr. Dashe have entered into an Employment Agreement, dated as of (the “Employment Agreement”).

NOW THEREFORE, in consideration of the mutual promises made herein, Cost Plus and Mr. Dashe hereby agree as follows:

1. Termination. Mr. Dashe’s employment from Cost Plus terminated on .

2. Consideration. Subject to and in consideration of Mr. Dashe’s release of claims as provided herein, Cost Plus has agreed to pay Mr. Dashe certain payments and benefits as set forth in the Employment Agreement.

3. Payment of Accrued Salary and Benefits. Mr. Dashe acknowledges and represents that Cost Plus has paid all salary, wages, accrued vacation, business expenses and any and all other benefits due Mr. Dashe through the effective date of this Agreement.

4. Release of Claims. The parties agree that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released. Notwithstanding the following, this release does not extend to (i) any claims based upon obligations under the Employment Agreement that survive termination of Mr. Dashe’s employment with Cost Plus, (ii) any claims based upon obligations under the Amended and Restated Indemnification Agreement between Mr. Dashe and Cost Plus, (iii) any claims based upon obligations incurred under this Agreement, and (iv) any pending workers’ compensation claims.

Mr. Dashe agrees that the foregoing consideration represents settlement in full of all outstanding obligations owed to Mr. Dashe by Cost Plus and its officers, managers, supervisors, agents and employees. Mr. Dashe, on his own behalf, and on behalf of his respective heirs, representatives, family members, executors, agents, and assigns, hereby fully and forever releases Cost Plus and its officers, directors, employees, agents, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations from, and agree not to sue concerning, any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that Mr. Dashe may possess arising from any omissions, acts or facts that have occurred up until and including the effective date of this Agreement, including, without limitation:

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(a) any and all claims relating to or arising from Mr. Dashe’s employment relationship with Cost Plus and the termination of that relationship;

(b) any and all claims relating to, or arising from, Mr. Dashe’s right to purchase, or actual purchase of shares of stock of Cost Plus, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law;

(c) any and all claims under the law of any jurisdiction including, but not limited to, wrongful discharge of employment; constructive discharge from employment; termination in violation of public policy; discrimination; breach of contract, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; and conversion;

(d) any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, The Worker Adjustment and Retraining Notification Act, Older Workers Benefit Protection Act; the California Fair Employment and Housing Act, and the California Labor Code;

(e) any and all claims for violation of the federal, or any state, constitution;

(f) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination;

(g) any claim for any loss, cost, damage, or expense arising out of any dispute over the non-withholding or other tax treatment of any of the proceeds received by Mr. Dashe as a result of this Agreement; and

(h) any and all claims for attorneys’ fees and costs.

5. Acknowledgement of Waiver of Claims Under ADEA. Mr. Dashe acknowledges that he is waiving and releasing any rights he may have under the Age Discrimination in Employment Act of 1967 (“ADEA”) and that this waiver and release is knowing and voluntary. Mr. Dashe and Cost Plus agree that this waiver and release does not apply to any rights or claims that may arise under ADEA after the effective date of this Agreement. Mr. Dashe acknowledges that the consideration given for this waiver and release Agreement is in addition to anything of value to which Mr. Dashe was already entitled. Mr. Dashe further acknowledges that he/she has been advised by this writing that

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(a) he/she should consult with an attorney prior to executing this Agreement;

(b) he/she has up to twenty-one (21) days within which to consider this Agreement;

(d) this Agreement shall not be effective until the revocation period has expired; and

(e) nothing in this Agreement prevents or precludes Mr. Dashe from challenging or seeking a determination in good faith of the validity of this waiver under the ADEA, nor does it impose any condition precedent, penalties or costs for doing so, unless specifically authorized by federal law.

6. Civil Code Section 1542. The parties represent that they are not aware of any claim by either of them other than the claims that are released by this Agreement. Mr. Dashe acknowledges that he has had the opportunity to seek the advice of legal counsel and is familiar with the provisions of California Civil Code Section 1542, which provides as follows:

A GENERAL RELEASE DOES NOT EXTEND TO

CLAIMS WHICH THE CREDITOR DOES NOT KNOW

OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME

OF EXECUTING THE RELEASE, WHICH IF KNOWN

BY HIM MUST HAVE MATERIALLY AFFECTED HIS

SETTLEMENT WITH THE DEBTOR.

Mr. Dashe, being aware of said code section, agrees to expressly waive any rights he may have thereunder, as well as under any other statute or common law principles of similar effect.

7. No Pending or Future Lawsuits. Mr. Dashe represents that he has no lawsuits, claims, or actions pending in his name, or on behalf of any other person or entity, against Cost Plus or any other person or entity referred to herein. Mr. Dashe also represents that he does not intend to bring any claims on his own behalf or on behalf of any other person or entity against Cost Plus or any other person or entity referred to herein.

8. Costs. The parties shall each bear their own costs, expert fees, attorneys’ fees and other fees incurred in connection with this Agreement.

9. Arbitration. The parties agree that any and all disputes arising out of, or relating to, the terms of this Agreement, their interpretation, and any of the matters herein released, shall be subject to binding arbitration in Alameda County before the American Arbitration Association under its National Rules for the Resolution of Employment

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Disputes. The parties agree that the prevailing party in any arbitration shall be entitled to injunctive relief in any court of competent jurisdiction to enforce the arbitration award. The parties agree that the prevailing party in any arbitration shall be awarded its reasonable attorneys’ fees and costs. The parties hereby agree to waive their right to have any dispute between them resolved in a court of law by a judge or jury. This section will not prevent either party from seeking injunctive relief (or any other provisional remedy) from any court having jurisdiction over the parties and the subject matter of their dispute relating to the obligations under this Agreement and the agreements incorporated herein by reference.

10. Authority. Cost Plus represents and warrants that the undersigned has the authority to act on behalf of Cost Plus and to bind Cost Plus and all who may claim through it to the terms and conditions of this Agreement. Mr. Dashe represents and warrants that he has the capacity to act on his own behalf and on behalf of all who might claim through him to bind them to the terms and conditions of this Agreement. Each party warrants and represents that there are no liens or claims of lien or assignments in law or equity or otherwise of or against any of the claims or causes of action released herein.

11. No Representations. Each party represents that it has had the opportunity to consult with an attorney, and has carefully read and understands the scope and effect of the provisions of this Agreement. Neither party has relied upon any representations or statements made by the other party hereto which are not specifically set forth in this Agreement.

12. Severability. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision so long as the remaining provisions remain intelligible and continue to reflect the original intent of the parties.

13. Entire Agreement. This Agreement and the Employment Agreement and the agreements and plans referenced therein represent the entire agreement and understanding between Cost Plus and Mr. Dashe concerning the subject matter of this Agreement and Mr. Dashe’s relationship with Cost Plus, and supersedes and replaces any and all prior agreements and understandings between the Parties concerning the subject matter of this Agreement and Mr. Dashe’s relationship with Cost Plus.

14. Governing Law. This Agreement shall be deemed to have been executed and delivered within the State of California, and it shall be construed, interpreted, governed, and enforced in accordance with the laws of the State of California, without regard to conflict of law principles.

15. Attorneys’ Fees. In the event that either party brings an action to enforce or effect its rights under this Agreement, the prevailing party shall be entitled to recover its costs and expenses, including the costs of mediation, arbitration, litigation, court fees, plus reasonable attorneys’ fees, incurred in connection with such an action.

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16. Effective Date. This Agreement is effective after it has been signed by both Parties and after eight (8) days have passed since Mr. Dashe has signed the Agreement (the “Effective Date”), unless revoked by Mr. Dashe within seven (7) days after the date the Agreement was signed by Mr. Dashe.

17. Counterparts. This Agreement may be executed in counterparts, and each counterpart shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned.

18. Voluntary Execution of Agreement. This Agreement is executed voluntarily and without any duress or undue influence on the part or behalf of the Parties hereto, with the full intent of releasing all claims. The Parties acknowledge that:

(a) They have read this Agreement;

(b) They have been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of their own choice or that they have voluntarily declined to seek such counsel;

(d) They are fully aware of the legal and binding effect of this Agreement.

IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below.

COST PLUS, INC.

By:
		Officer Name Title

Dated:




Murray H. Dashe

Dated:

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EX-10.4 6 dex104.htm AMENDED AND RESTATED FORM OF INDEMNIFICATION Prepared by R.R. Donnelley Financial -- Amended and Restated Form of Indemnification

EXHIBIT 10.4

COST PLUS, INC.

AMENDED AND RESTATED

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (“Agreement”) is made as of by and between Cost Plus, Inc., a California corporation (the “Company”), and (“Indemnitee”).

WHEREAS, the Company and Indemnitee recognize the increasing difficulty in obtaining directors’ and officers’ liability insurance, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance;

WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting officers and directors to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited;

WHEREAS, Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other officers and directors of the Company may not be willing to continue to serve as officers and directors without additional protection; and

WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve as officers and directors of the Company and to indemnify its officers and directors so as to provide them with the maximum protection permitted by law.

NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:

1. Indemnification.

(a) Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee is or was a party to or witness or other participant in or is threatened to be made a party to or witness or other participant in any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees, expert fees, other professional fees and court costs), judgments (including punitive and exemplary damages), penalties, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably

incurred by Indemnitee in connection with such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee’s conduct was unlawful. The termination of any action or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that (i) Indemnitee did not act in good faith, (ii) Indemnitee did not act in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or (iii) with respect to any criminal action or proceeding, Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful.

(b) Proceedings By or in the Right of the Company. The Company shall indemnify Indemnitee if Indemnitee was or is a party to or witness or other participant in or is threatened to be made a party to or witness or other participant in any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) and, to the fullest extent permitted by law, amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company and its shareholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company in the performance of Indemnitee’s duty to the Company and its shareholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine.

2. Expenses; Indemnification Procedure.

(a) Advancement of Expenses. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action or proceeding referenced in Section 1(a) or (b) hereof (but not amounts actually paid in settlement of any such action or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined by the court (as to which all rights of appeal therefrom have been exhausted or lapsed) that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the Company.

(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to his right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought

under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). Notice shall be deemed received three business days after the date postmarked if sent by domestic certified or registered mail, properly addressed; otherwise notice shall be deemed received when such notice shall actually be received by the Company. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee’s power.

(c) Procedure. Any indemnification provided for in Section 1 shall be made no later than twenty (20) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company’s Articles of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within twenty (20) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 14 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys’ fees, expert fees, other professional fees and court costs) of bringing such action irrespective of the ultimate determination as to Indemnitee’s entitlement to indemnification. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company, and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Subsection 2(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties’ intention that if the Company contests Indemnitee’s right to indemnification, the question of Indemnitee’s right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct.

(d) Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to Section 2(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

(e) Selection of Counsel. In the event the Company shall be obligated under Section 2(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved in writing by Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to

Indemnitee of written notice of its election so to do. After delivery of such notice, written approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ his counsel in any such proceeding at Indemnitee’s expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee’s counsel shall be at the expense of the Company. Neither the Company nor the Indemnitee will settle any matter the subject of this Agreement without the written consent of the other, which will not be unreasonably withheld.

3. Additional Indemnification Rights; Nonexclusivity.

(a) Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company’s Articles of Incorporation, the Company’s Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute or rule which expands the right of a California corporation to indemnify a member of its board of directors or an officer, such changes shall be, ipso facto, within the purview of Indemnitee’s rights and Company’s obligations, under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its Board of Directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties’ rights and obligations hereunder.

(b) Nonexclusivity. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company’s Articles of Incorporation, its Bylaws, any agreement, any vote of shareholders or disinterested directors, the General Corporation Law of the State of California, or otherwise, both as to action in Indemnitee’s official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he may have ceased to serve in such capacity at the time of any action or other covered proceeding.

4. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any civil or criminal action or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled.

5. Contribution. If the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for expenses, in connection with any claim relating to an indemnifiable event, in such proportion as is deemed fair and reasonable in light of all circumstances of such action by the court before which such action was brought in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such action; and/or (ii) the relative fault of the Company (and its other directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s). Indemnitee’s right to contribution under this Section 5 shall be determined in accordance with, pursuant to and in the same manner as, the provisions in Section 1 hereof relating to Indemnitee’s right to indemnification under this Agreement.

6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee.

7. Directors’ and Officers’ Liability Insurance. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company’s performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of directors’ and officers’ liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if Indemnitee is a director; or of the Company’s officers, if Indemnitee is not a director of the Company but is an officer; or of the Company’s key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company.

8. Severability. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company’s inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent

permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms.

9. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:

(a) Excluded Acts. To indemnify Indemnitee for any acts or omissions or transactions from which a director may not be relieved of liability under the California General Corporation Law; or

(b) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such suit; or

(c) Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; or

(d) Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of directors’ and officers’ liability insurance maintained by the Company; or

(e) Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.

10. Effectiveness of Agreement. To the extent that the indemnification permitted under the terms of certain provisions of this Agreement exceeds the scope of the indemnification provided for in the California General Corporation Law, such provisions shall not be effective unless and until the Company’s Articles of Incorporation authorize such additional rights of indemnification. In all other respects, the balance of this Agreement shall be effective as of the date set forth on the first page and may apply to acts or omissions of Indemnitee which occurred prior to such date if Indemnitee was an officer, director, employee or other agent of the Company, or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, at the time such act or omission occurred. All of the Company’s obligations under this Agreement will continue as long as Indemnitee is subject to any actual or possible matter which is the subject of this Agreement, notwithstanding Indemnitee’s termination of service as an officer or director of the Company.

11. Construction of Certain Phrases.

(a) For purposes of this Agreement, references to the “Company” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

(b) For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries.

12. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

13. Successors and Assigns. This Agreement shall be binding upon the Company and its successors (whether direct or indirect, by purchase, merger or otherwise) and assigns, and shall inure to the benefit of Indemnitee and Indemnitee’s estate, heirs, legal representatives and assigns. Any such assumption will not release the Company from its obligations under this Agreement.

14. Attorneys’ Fees. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys’ fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee’s counterclaims and cross-claims made in such action), unless as a part of such action the court determines (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of Indemnitee’s material defenses to such action was made in bad faith or were frivolous.

15. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt, or (ii) if mailed by domestic certified or

registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice.

16. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of California.

17. Amendments. Neither the Company’s Articles of Incorporation nor its Bylaws will be changed to increase liability of the Company’s officers or directors or to limit Indemnitee’s indemnification. Any repeal or modification of Company’s Articles of Incorporation or Bylaws or any repeal or modification of the relevant provisions of any applicable law will not in any way diminish any of Indemnitee’s rights or the Company’s obligations under this Agreement. This Agreement cannot be amended except with the written consent of the Company and Indemnitee.

18. Choice of Law. This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of California as applied to contracts between California residents entered into and to be performed entirely within California.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

COST PLUS, INC.

By:
		Name: Title:

		Address: 200 4th Street Oakland, CA 94607

AGREED TO AND ACCEPTED:

INDEMNITEE:



Name:


Address:

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