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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
COST PLUS, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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Notes:
COST PLUS, INC.
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 26, 2001
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To The Shareholders:
NOTICE IS HEREBY GIVEN that the 2001 Annual Meeting of Shareholders (the
"Annual Meeting") of Cost Plus, Inc. (the "Company"), a California
corporation, will be held on June 26, 2001 at 2:00 p.m., local time, at the
Company's corporate headquarters located at 200 4th Street, Oakland,
California 94607, for the following purposes:
(1) To elect the following directors to serve for the ensuing year or until
their successors are elected: Joseph H. Coulombe, Murray H. Dashe,
Barry J. Feld, Danny W. Gurr, Fredric M. Roberts, Kim D. Robbins and
Thomas D. Willardson.
(2) To approve an amendment to the Company's 1995 Stock Option Plan to
increase the shares reserved for issuance thereunder by 350,000 shares.
(3) To ratify and approve the appointment of Deloitte & Touche LLP as
independent auditors of the Company for the fiscal year ending February
2, 2002.
(4) To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on May 2, 2001 are
entitled to notice of and to vote at the Annual Meeting.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to mark, sign and return the enclosed proxy card as promptly as possible
in the postage-prepaid envelope enclosed for that purpose. Any shareholder
attending the Annual Meeting may vote in person even if he or she has returned
a proxy.
By Order of the Board of Directors
Murray H. Dashe
Chairman of the Board, Chief Executive
Officer and President
Oakland, California
May 25, 2001
YOUR VOTE IS IMPORTANT
To assure your representation at the Annual Meeting, you are requested
to complete, sign and date the enclosed proxy as promptly as possible
and return it in the enclosed envelope, which requires no postage if
mailed in the United States.
DIRECTIONS TO COST PLUS, INC.'S
CORPORATE HEADQUARTERS
Cost Plus, Inc.
200 4th Street
Oakland, California 94607
(510) 893-7300
Directions from San Francisco
Take the Bay Bridge to Interstate 580 East, to Interstate 980 (Downtown
Oakland), which turns into Interstate 880, to Jackson Street. Exit Jackson
Street and take a right onto Jackson Street and a left on Fourth Street. The
corporate headquarters are located right on the corner.
Directions from Oakland Airport (and from the south)
Take Interstate 880 North to Oak Street Exit. Exit Oak Street and go
straight ahead for two blocks and turn left on Jackson Street. Go two blocks
and turn left on Fourth Street. The corporate headquarters are located right
on the corner.
COST PLUS, INC.
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ANNUAL MEETING OF SHAREHOLDERS
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PROXY STATEMENT
General
The enclosed Proxy is solicited on behalf of the Board of Directors of Cost
Plus, Inc. (the "Company") for use at the 2001 Annual Meeting of Shareholders
(the "Annual Meeting") to be held June 26, 2001 at 2:00 p.m., local time, or
at any adjournment or postponement thereof, for the purposes set forth in this
Proxy Statement and in the accompanying Notice of Annual Meeting of
Shareholders. The Annual Meeting will be held at the Company's corporate
headquarters located at 200 4th Street, Oakland, California 94607. The
telephone number of the Company's corporate headquarters is (510) 893-7300.
These proxy solicitation materials were mailed on or about May 25, 2001 to
all shareholders entitled to vote at the Annual Meeting.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company, Attention:
Jane L. Baughman, Inspector of Elections, a written notice of revocation or a
duly executed proxy bearing a later date or by attending the Annual Meeting
and voting in person. The mere presence at the Annual Meeting of the
shareholder who has appointed a proxy will not revoke the prior appointment.
If not revoked, the proxy will be voted at the Annual Meeting in accordance
with the instructions indicated on the proxy card, or if no instructions are
indicated, will be voted "FOR" the slate of directors described herein, "FOR"
Proposals Two and Three and, as to any other matter that may be properly
brought before the Annual Meeting, in accordance with the judgment of the
proxy holders.
Voting and Solicitation
Every shareholder voting for the election of directors may cumulate such
shareholder's votes and either give one candidate a number of votes equal to
the number of directors to be elected multiplied by the number of shares held
by such shareholder or distribute the shareholder's votes on the same
principle among as many candidates as the shareholder thinks fit, provided
that votes cannot be cast for more than seven candidates. However, no
shareholder shall be entitled to cumulate votes unless the candidate's name
has been placed in nomination before the voting and the shareholder, or any
other shareholder, has given notice at the Annual Meeting, prior to the
voting, of the intention to cumulate the shareholder's votes. If any one
shareholder gives such notice, all shareholders may cumulate their votes. On
all other matters, each share has one vote.
The seven nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to vote shall be elected as
directors. On each other matter, the affirmative vote of a majority of the
votes cast is required under California law for approval. For this purpose,
the "votes cast" are defined under California law to be the shares of the
Company's Common Stock represented and voting in person or by proxy at the
Annual Meeting. In addition, the affirmative votes must constitute at least a
majority of the required quorum, which quorum is a majority of the shares
outstanding on the record date for the meeting. Votes that are cast against a
proposal will be counted for purposes of determining: (i) the presence or
absence of a quorum; and (ii) the total number of votes cast with respect to
the proposal. While there is no definitive statutory or case law authority in
California as to the proper treatment of abstentions in the counting of votes
with respect to a proposal, the Company believes that abstentions should be
counted for purposes of determining both: (i) the
1
presence or absence of a quorum for the transaction of business; and (ii) the
total number of votes cast with respect to the proposal. In the absence of
controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, abstentions will have the same effect
as a vote against the proposal. Broker non-votes will be counted for purposes
of determining the presence or absence of a quorum for the transaction of
business, but will not be counted for purposes of determining the number of
votes cast with respect to a proposal. An automated system administered by the
Company's transfer agent tabulates the votes. Each proposal is tabulated
separately.
This solicitation of proxies is made by the Company, and all related costs
will be borne by the Company. In addition, the Company may reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation material to such beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone,
facsimile or personal solicitation, without payment of additional
compensation, by directors, officers, or regular employees of the Company. In
addition, the Company has retained Corporate Investor Communications, Inc. to
assist in the solicitation of proxies at an estimated fee of $5,500, plus
reimbursement of reasonable out-of-pocket expenses.
Only shareholders of record at the close of business on May 2, 2001 are
entitled to notice of and to vote at the Annual Meeting. As of May 2, 2001,
21,198,026 shares of the Company's Common Stock were issued and outstanding.
2
PROPOSAL ONE
ELECTION OF DIRECTORS
Nominees
The Board of Directors of the Company currently consists of seven
directors. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's seven nominees named below, all of
whom are presently directors of the Company. If any nominee of the Company is
unable or declines to serve as a director at the time of the Annual Meeting,
the proxies will be voted for any nominee designated by the present Board of
Directors to fill the vacancy. Management has no reason to believe that any of
the nominees will be unable or unwilling to serve if elected. If additional
persons are nominated for election as directors, the proxy holders intend to
vote all proxies received by them so that the election of as many of the
nominees listed below as possible is assured under cumulative voting. In this
event, the specific nominees to be voted for will be determined by the proxy
holders. The term of office of each person elected as a director will continue
until the next Annual Meeting of Shareholders or until such person's successor
has been elected and qualified.
Required Vote
The seven nominees receiving the highest number of affirmative votes of the
holders of the shares of the Company's Common Stock represented in person or
by proxy and entitled to vote on the proposal shall be elected to the Board of
Directors. See "Voting and Solicitation" above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED BELOW.
The names of the nominees, their ages as of the date of this proxy
statement and certain information about them are set forth below:
Director
Name of Nominee Age Principal Occupation Since
--------------- --- -------------------- --------
Joseph H. Coulombe...... 70 Independent Management Consultant 1995
Murray H. Dashe......... 58 Chairman, Chief Executive Officer 1997
and President
Barry J. Feld........... 43 Chairman, Chief Executive Officer 2001
and President, PCA International,
Inc.
Danny W. Gurr........... 43 President, DK Publishing Inc. 1995
Kim D. Robbins.......... 55 Director of Product Development, 1999
Jack Nadel, Inc.
Fredric M. Roberts...... 58 President, F. M. Roberts and 1999
Company, Inc.
Thomas D. Willardson.... 50 Senior Vice President of Finance and 1991
Treasurer, Leap Wireless
International, Inc.
Except as set forth below, each of the nominees has been engaged in his
principal occupation described above during the past five years. There is no
family relationship between any director or executive officer of the Company.
Mr. Coulombe has served as a director of the Company since November 1995.
Since 1989, in his capacity as an independent business consultant, Mr.
Coulombe has served in various senior executive roles on a temporary basis.
From February 1995 to April 1995, Mr. Coulombe served as President and Chief
Executive Officer of Sport Chalet Inc., a sporting goods retailer. From
February 1994 to January 1995, Mr. Coulombe served as Chief Executive Officer
of Provigo Corp., a wholesale and retail grocer. Mr. Coulombe is the founder
of Trader Joe's, a specialty food grocery chain, and served as its Chief
Executive Officer from 1957 to 1989. Mr. Coulombe also serves as a director of
PIA Merchandising.
Mr. Dashe joined the Company in June 1997 as Vice Chairman of the Board of
Directors and was named President in September 1997, and Chairman of the Board
of Directors and Chief Executive Officer in February
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1998. From August 1992 to June 1997, he was Chief Operating Officer of
Leslie's Poolmart, Inc., a swimming pool supply retail chain, and was a
director of that company from August 1989 to November 1996. From May 1990
through August 1992, he was President and Chief Executive Officer of
RogerSound Labs, a Southern California retailer of audio/video consumer
electronics. From September 1985 through April 1990, Mr. Dashe held several
positions with SILO, a consumer electronics and appliance retailer, including
Regional President, Regional Vice President and Director of Stores.
Previously, he was employed in an executive capacity by other retailers,
including Allied Stores Corp. (now Federated Department Stores), where he
served in a variety of positions of increasing responsibility, including Vice
President/Director of Stores.
Mr. Feld has served as a director of the Company since February 2001. Mr.
Feld is currently the President, Chief Executive Officer, and Chairman of the
Board of Directors of PCA International, Inc., the largest North American
operator of portrait studios focused on serving the discount retail market.
Prior to joining PCA International, Inc., in August 1999, Mr. Feld was
President and Chief Operating Officer and a member of the Board of Directors
of Vista Eyecare, Inc., a retail chain of nine hundred plus vision centers
operating throughout the continental United States and Mexico. Mr. Feld joined
Vista Eyecare, Inc., as a result of an acquisition of New West Eyeworks, Inc.
where he had been serving as President, Chief Executive Officer, and a member
of the Board of Directors. Prior to joining New West Eyeworks in May 1991, Mr.
Feld was President of Frame-n-Lens Optical, Inc., which was the largest chain
of retail optical stores in California.
Mr. Gurr has served as a director of the Company since November 1995. Since
April 1998, Mr. Gurr has served as President of DK Publishing Inc., a
publisher of illustrated books, videos and multi-media products. From
September 1991 to February 1998, Mr. Gurr served as President and Chief
Executive Officer of Lauriat's Books, Inc., an operator of various bookstore
chains ("Lauriat's Books"). In March 1998, Lauriat's Books filed for
protection under Chapter 11 of the Federal Bankruptcy Act. From November 1995
until June 1997, Mr. Gurr served as President and Chief Executive Officer of
Chadwick Miller, Inc., an importer and wholesaler of housewares and gifts.
From September 1990 to September 1991, Mr. Gurr was Vice President of
Publishing and Acquisition for the Outlet Book Company Division of Random
House, Inc.
Ms. Robbins has served as a director of the Company since November 1999.
Ms. Robbins is the Director of Product Development for Jack Nadel, Inc., a
direct response promotion agency specializing in creative marketing and
merchandise solutions. From 1996 to 1997, she was the Executive Vice President
and General Merchandise Manager of House of Fabrics, Inc., which operates
sewing and craft stores throughout the United States. From 1995 to 1996, she
was the Vice President of Merchandising for Sport Chalet Inc., a sporting
goods retailer. From 1976 to 1993, Ms. Robbins served in capacities of ever
increasing responsibility at Carter Hawley Hale, culminating in her
appointment as Senior Vice President and General Merchandising Manager.
Mr. Roberts has served as a director of the Company since November 1999.
Mr. Roberts is President of F. M. Roberts & Company, Inc., an investment
banking firm he established in 1980. Mr. Roberts served as 1993 Chairman of
the Board of Governors of the National Association of Securities Dealers
("NASD"), which owns and operates the Nasdaq Stock Market. From 1994 to 1996,
he was a member of the Nasdaq Board of Directors and its Executive Committee.
Mr. Willardson was re-elected as a director of the Company in April 1996.
He also served as a director of the Company from March 1991 to February 1996.
Mr. Willardson is the Senior Vice President, Finance and Treasurer of Leap
Wireless International, Inc., a wireless communications carrier. From August
1997 to June 1998, he served as a Vice President and Associate Managing
Director of Bechtel Enterprises Inc., a wholly-owned investment and
development subsidiary of Bechtel Group, Inc. He served as a manager of that
company from July 1995 until August 1997. From January 1986 to July 1995, Mr.
Willardson served as a principal at The Fremont Group, an investment company.
4
Board Meetings and Committees
The Board of Directors of the Company held a total of four meetings during
the fiscal year ended February 3, 2001. The Board of Directors has an Audit
Committee, a Compensation Committee and a Nominating Committee.
The Audit Committee of the Board of Directors consists of Messrs.
Willardson, Coulombe and Gurr and held four meetings during the last fiscal
year. The Audit Committee recommends engagement of the Company's independent
auditors and is primarily responsible for approving the services performed by
the Company's independent auditors and assisting the Board of Directors in
fulfilling its responsibility for oversight of the quality and integrity of
the accounting, auditing, and reporting practices of the Company. The Audit
Committee has adopted a written charter, which is attached to this Proxy
Statement as Appendix B. Each member of the Company's Audit Committee is
"independent" as defined under the National Association of Securities Dealers'
listing standards.
The Compensation Committee of the Board of Directors currently consists of
Ms. Robbins and Messrs. Roberts and Feld and held one meeting during the last
fiscal year. The Compensation Committee establishes the Company's executive
compensation policy, determines the salary and bonuses of the Company's
executive officers and approves stock option grants for executive officers.
In February 2001, the Company appointed a Nominating Committee of the Board
of Directors, which consists of Messrs. Gurr, Feld and Willardson. The
Nominating Committee has responsibility for identifying, screening, and
recommending to the Board any candidates for addition to the Company's Board
of Directors. The Nominating Committee will consider nominees recommended by
management and stockholders. Such recommendations may be delivered in writing
to the attention of the Nominating Committee in care of the Secretary at the
Company's principal executive offices.
No director attended fewer than 75% of the aggregate of the total number of
meetings of the Board of Directors and the total number of meetings of all
committees of the Board of Directors on which that director served.
Audit Committee Report
The Audit Committee of the Board of Directors is responsible for monitoring
the integrity of the Company's consolidated financial statements, its system
of internal controls and the independence and performance of its independent
auditors. We also recommend to the Board of Directors, subject to shareholder
ratification, the selection of the Company's independent auditors. The
Committee is composed of three non-employee directors and operates under a
written charter adopted and approved by the Board of Directors. Each Committee
member is independent as defined by NASD listing standards.
Management is responsible for the financial reporting process, including
the system of internal controls, and for the preparation of consolidated
financial statements in accordance with accounting principles generally
accepted in the United States of America. The Company's independent auditors
are responsible for auditing those financial statements. Our responsibility is
to monitor and review these processes. However, we are not professionally
engaged in the practice of accounting or auditing and are not experts in the
fields of accounting or auditing, including with respect to auditor
independence. We rely, without independent verification, on the information
provided to us and on the representations made by management and the
independent auditors.
In this context, we held four meetings during fiscal year 2000. The
meetings were designed, among other things, to facilitate and encourage
communication among the Committee, management and the Company's independent
auditors, Deloitte & Touche LLP. We discussed with the Company's independent
auditors the overall scope and plans for their audit. We met with the
independent auditors, with and without management present, to discuss the
results of their examination and their evaluations of the Company's internal
controls.
5
We have reviewed and discussed the audited consolidated financial
statements for the fiscal year ended February 3, 2001 with management and
Deloitte & Touche LLP.
We also discussed with the independent auditors matters required to be
discussed with audit committees under auditing standards generally accepted in
the United States of America, including, among other things, matters related
to the conduct of the audit of the Company's consolidated financial statements
and the matters required to be discussed by Statement on Auditing Standards
No. 61, as amended (Communication with Audit Committees).
The Company's independent auditors also provided to us the written
disclosures and the letter required by Independence Standards Board Standards
No. 1 (Independence Discussions with Audit Committees), and we discussed with
the independent auditors their independence from the Company. When considering
Deloitte & Touche's independence, we considered whether their provision of
services to the Company beyond those rendered in connection with their audit
and review of the Company's consolidated financial statements was compatible
with maintaining their independence. We also reviewed, among other things, the
amount of fees paid to Deloitte & Touche for audit and non-audit services.
Based on our review and these meetings, discussions and reports, and
subject to the limitations on our role and responsibilities referred to above
and in the Audit Committee Charter, we recommended to the Board of Directors
that the Company's audited consolidated financial statements for the fiscal
year ended February 3, 2001 be included in the Company's Annual Report on Form
10-K. We have also recommended the selection of Deloitte & Touche LLP as the
Company's independent auditors for the fiscal year ending February 2, 2002.
See Proposal Three.
The Audit Committee
Thomas D. Willardson, Chairman
Joseph H. Coulombe
Danny W. Gurr
Director Compensation
Cash Compensation
In fiscal year 2000, each of the Company's non-employee directors was
compensated at the rate of $12,000 per annum for service on the Board of
Directors and committees thereof, with adjustments for service for a portion
of the year. In addition, each non-employee director received a fee of $750
for each in-person Board meeting attended. Directors are also reimbursed for
reasonable expenses incurred in connection with attendance at meetings of the
Board of Directors and its committees. The Chairmen of the Compensation and
Audit Committees receive additional annual compensation of $4,000 and $2,500,
respectively, for their services as chairs of those committees.
1996 Director Option Plan
The Company's 1996 Director Option Plan (the "Director Plan") was adopted
by the Board of Directors and approved by the Company's shareholders in March
1996. Under the Director Plan, the Company has reserved 253,675 shares of
Common Stock for issuance to the non-employee directors of the Company. The
Director Plan will be in effect for a term of ten years unless sooner
terminated. Under the Plan each Director is awarded stock at the sole
discretion of the Company's Board of Directors.
On June 22, 2000, Messrs. Willardson, Roberts, Coulombe, Gurr and Ms.
Robbins each received grants under the Director Plan of options to purchase
4,500 shares of Common Stock at an exercise price of $25.4375. These option
grants are subject to four-year vesting and will be fully vested in June 2004.
6
PROPOSAL TWO
AMENDMENT OF THE 1995 STOCK OPTION PLAN
The Company's 1995 Stock Option Plan (the "1995 Option Plan") was approved
by the Board of Directors and by the shareholders in November 1995. An
aggregate of 4,718,006 shares of Common Stock have been reserved for issuance
under the 1995 Option Plan. However, under the terms of the 1995 Option Plan,
that number must be reduced by 821,120 shares, the aggregate number of shares
of Common Stock subject to options outstanding under the Company's 1994 Stock
Option Plan (the "1994 Option Plan") and issued upon exercise of options
granted under the 1994 Option Plan. Accordingly, an effective total of
3,896,886 shares of Common Stock are available for issuance under the 1995
Option Plan, which number will automatically increase to the extent that any
of the 21,871 options outstanding as of February 3, 2001 under the 1994 Option
Plan lapse or are canceled without being exercised. As of February 3, 2001,
options to purchase 1,603,547 shares of Common Stock were outstanding under
the 1995 Option Plan, 1,514,813 shares had been issued by the Company upon
exercise of options under the 1995 Option Plan and 778,526 shares remained
available for future option grants under the 1995 Option Plan. In February
2001 as part of the Company's annual grant program, options to purchase an
additional 460,500 shares of Common Stock were granted under the 1995 Option
Plan leaving 318,026 shares available for future option grants.
In February 2001, the Board of Directors approved a proposal to amend the
1995 Option Plan to increase the shares reserved for issuance thereunder by
350,000 shares. The proposed increase represents less than two percent of the
Company's outstanding stock as of the record date for the Annual Meeting and
is equal to the increase to the 1995 Option Plan approved by the shareholders
at the annual meeting of shareholders in June 2000. The Company is seeking
shareholder approval of the proposed amendment to the 1995 Option Plan. A
summary of the 1995 Option Plan, as amended, is included as Appendix A to this
Proxy Statement.
The Board of Directors believes that the proposed increase is in the best
interests of the Company for several reasons. First, the increase will provide
an adequate reserve of shares for issuance under the 1995 Option Plan, which
is an integral part of the Company's overall compensation program. In this
regard, the Company anticipates continuing to award stock options in the
future to a broader group of its management personnel to strengthen incentives
for such persons. Second, the Board of Directors believes the proposed
increase is essential for the Company to compete successfully against other
companies in attracting and retaining key employees, thereby facilitating the
future potential growth of the Company. Third, the Board of Directors believes
the 1995 Option Plan is an important contributor to the alignment of employee
and shareholder interests.
7
Amended 1995 Option Plan Benefits
The following table sets forth information with respect to stock option
grants under the 1995 Option Plan for the fiscal year ended February 3, 2001
to: (i) the Chief Executive Officer and the four other most highly compensated
executive officers of the Company in the fiscal year ended February 3, 2001;
(ii) all current executive officers as a group; and (iii) all other employees,
including all current officers who are not executive officers, as a group:
Amended Plan Benefits Table
Number of Shares
Dollar Value Subject to
Name of Individual or Identity of Group ($) (1) Options Granted
--------------------------------------- ------------ ----------------
Murray H. Dashe (2).......................... $ 460,625 72,213
John F. Hoffner.............................. 125,625 15,000
Kathi P. Lentzsch (2)........................ 125,625 26,250
Stephen L. Higgins........................... 67,000 8,000
Gary D. Weatherford (2)...................... 100,500 19,650
All current executive officers as a group (14
total) (2).................................. 1,417,493 220,012
All other current employees as a group (2)... 2,744,437 380,625
- --------
(1) Calculated by determining the difference between the fair market value of
the Company's Common Stock on February 2, 2001 ($25.00) and the exercise
price of such options, multiplied by the number of shares.
(2) The Dollar Value calculations exclude options which had an exercise price
greater than the fair market value of the Company's Common Stock on
February 2, 2001.
Required Vote
The proposed amendment of the 1995 Option Plan requires the affirmative
vote of the holders of a majority of the shares of the Company's Common Stock
represented in person or by proxy and entitled to vote on the proposal, which
shares voting affirmatively must also constitute a majority of the required
quorum. See "Voting and Solicitation" above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
THE 1995 STOCK OPTION PLAN.
8
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has selected Deloitte &
Touche LLP, independent auditors, to audit the financial statements of the
Company for the current fiscal year ending February 2, 2002 and recommends
that the shareholders ratify this selection. In the event of a negative vote
on such ratification, the Board of Directors will reconsider its selection.
Representatives of Deloitte & Touche LLP are expected to be available at the
meeting with the opportunity to make any statements if they desire to do so,
and are also expected to be available to respond to appropriate questions.
Independent Accountant Fees
The aggregate professional fees billed for Deloitte & Touche LLP, the
member firms of Deloitte Touche Tohmatsu, and their respective affiliates
(collectively "Deloitte") for the fiscal year ended February 3, 2001 were as
follows:
Audit Fees....................................................... $124,000
Financial Information Systems Design and Implementation Fees..... --
All Other Fees................................................... $262,000
The Audit Committee has considered whether the fiscal 2000 non-audit
services provided by Deloitte are compatible with maintaining auditor
independence.
Required Vote
The ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors requires the affirmative vote of the holders of
a majority of the shares of the Company's Common Stock represented in person
or by proxy and entitled to vote on the proposal, which shares voting
affirmatively must also constitute a majority of the required quorum. See
"Voting and Solicitation" above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
9
EXECUTIVE COMPENSATION AND OTHER MATTERS
The table below sets forth information for the three most recently
completed fiscal years concerning the compensation of the Chief Executive
Officer of the Company and the four other most highly compensated executive
officers of the Company in the fiscal year ended February 3, 2001:
Summary Compensation Table
Annual Long-Term
Compensation Compensation
-------------------- ---------------------
Restricted Securities
Stock Underlying All Other
Name and Principal Fiscal Salary Bonus Award Options Compensation
Position Year ($) ($) ($) (#) ($)
- ------------------ ------ -------- -------- ---------- ---------- ------------
Murray H. Dashe......... 2000 $465,004(2) $247,824 $ -- 72,213 $ --
Chairman, Chief 1999 360,577 314,184 -- 109,500 --
Executive Officer
and President 1998 348,923 168,320 -- 45,000 --
John F. Hoffner......... 2000 252,409 87,990 -- 15,000 --
Executive Vice
President,
Administration 1999 238,269 60,461 -- 33,750 48,098(3)
and Chief Financial 1998 141,923 53,249 -- 112,500 55,820(3)
Officer
Kathi P. Lentzsch....... 2000 268,940 85,523 -- 26,250 --
Executive Vice 1999 231,500 113,615 -- 33,750 --
President,
Business Development 1998 209,923 74,686 -- 11,250 --
Stephen L. Higgins...... 2000 208,654 57,150 -- 8,000 72,685(3)
Senior Vice President, 1999 15,385 20,000 -- 25,000 --
Merchandising (1)
Gary D. Weatherford..... 2000 192,731 59,429 -- 19,650 --
Senior Vice President, 1999 155,923 78,312 -- 21,000 --
Stores
1998 135,808 50,599 -- 4,502 --
- --------
(1) Mr. Higgins became Senior Vice President, Merchandising in September 2000.
Mr. Higgins joined the Company in December 1999 as Vice President,
Merchandising.
(2) Includes $23,654 of salary earned in fiscal 1999 but paid in fiscal 2000.
(3) Amount reimbursed for relocation expenses.
10
The table below provides the specified information concerning grants of
options to purchase the Company's Common Stock made during the fiscal year
ended February 3, 2001 to the persons named in the Summary Compensation Table.
Option Grants in Last Fiscal Year
Individual Grants
------------------------------------------------
Potential
Realizable Value at
Assumed Rates of
Number of Percent of Stock Price
Securities Total Options Exercise Appreciation for
Underlying Granted to Price Option Term (3)
Option Employees in ($/Share) Expiration -------------------
Name Granted (#) Fiscal Year (1) (2) Date 5% ($) 10% ($)
- ---- ----------- --------------- --------- ---------- -------- ----------
Murray H. Dashe......... 55,000 8.83% $16.625 2/23/2010 $575,046 $1,457,278
17,213 2.76 33.8125 3/31/2010 366,026 927,581
John F. Hoffner......... 15,000 2.41 16.625 2/23/2010 156,830 397,440
Kathi P. Lentzsch....... 15,000 2.41 16.625 2/23/2010 156,830 397,440
11,250 1.81 33.8125 3/31/2010 239,226 606,245
Stephen L. Higgins...... 8,000 1.28 16.625 2/23/2010 83,642 211,968
Gary D. Weatherford..... 12,000 1.93 16.625 2/23/2010 125,464 317,952
7,650 1.23 33.8125 3/31/2010 162,673 412,246
- --------
(1) The Company granted options to employees and directors to purchase a total
of 623,137 of the Company's Common Stock during the fiscal year ended
February 3, 2001.
(2) All options were granted at the fair market value of the Company's Common
Stock on the date of grant, as determined by the Board of Directors. The
exercise price may be paid in cash, check, shares of the Company's Common
Stock or through a cashless exercise procedure involving same-day sale of
the purchased shares, or by any combination of such methods.
(3) Potential realizable value is net of exercise price, but before taxes
associated with exercise. The amounts represent certain assumed rates of
appreciation only, based on the Securities and Exchange Commission rules.
Actual gains, if any, on stock option exercises are dependent on the
future performance of the Company's Common Stock, overall market
conditions and the option holders' continued employment through the
vesting period. The amounts reflected in this table may not necessarily be
achieved and do not reflect the Company's estimate of future stock price
growth.
The table below provides the specified information concerning the exercise
of options to purchase the Company's Common Stock in the fiscal year ended
February 3, 2001 and the unexercised options held as of February 3, 2001 by
the persons named in the Summary Compensation Table.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
Value of Unexercised
Number of Securities In the Money Options
Underlying Unexercised at Fiscal Year-End ($)
Shares Value Options at Fiscal Year-End (#) (1)
Acquired on Realized ---------------------------------- -------------------------
Name Exercise (#) ($) (1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ---------- --------------- --------------- ----------- -------------
Murray H. Dashe......... 123,675 $2,476,379 29,713 179,675 $ -- $1,762,304
John F. Hoffner......... 34,687 545,064 15,000 80,625 114,375 742,604
Kathi P. Lentzsch....... 20,359 477,215 101,669 86,251 1,247,120 970,799
Stephen L. Higgins...... -- -- 8,333 24,667 -- 67,000
Gary D. Weatherford..... 41,420 1,072,745 22,900 37,554 127,982 370,394
- --------
(1) Calculated by determining the difference between the fair market value of
the Company's Common Stock on the date of exercise or on February 2, 2001
($25.00), as applicable, and the exercise price of such options,
multiplied by the number of shares.
11
Employment and Related Agreements; Change in Control Provisions
The Company has entered into retention agreements with the following
executive officers: Murray Dashe, John Hoffner, Kathi Lentzsch, Joan Fujii,
Stephen Higgins and Gary Weatherford. These agreements provide for payments to
them in certain circumstances upon their involuntary termination of
employment, including termination following a change of control (as such terms
are defined below). Mr. Dashe's agreement provides for 18 months of severance
pay in the event he is involuntarily terminated prior to June 15, 2003, and
24 months of severance pay if he is involuntarily terminated after a change of
control prior to June 15, 2003. Mr. Hoffner's and Ms. Lentzsch's agreements
provide for 12 months of severance pay in the event such employee is
involuntarily terminated prior to June 15, 2002 (June 15, 2001 in the case of
Ms. Lentzsch), and 18 months of severance pay if such employee is
involuntarily terminated after a change of control prior to June 15, 2002
(June 15, 2001 in the case of Ms. Lentzsch). Both Ms. Fujii's and Mr.
Weatherford's agreements provide for nine months of severance pay in the event
either such employee is involuntarily terminated prior to June 15, 2002, and
12 months of severance pay if either such employee is involuntarily terminated
after a change of control prior to June 15, 2002. Mr. Higgins's agreement
provides for six months of severance pay in the event he is involuntarily
terminated prior to June 15, 2002, and nine months of severance pay if he is
involuntarily terminated after a change of control prior to June 15, 2002. In
addition, the agreements for Mr. Dashe and Mr. Hoffner provide a minimum base
salary.
The agreements discussed in the preceding two paragraphs define an
"involuntary termination" as either the termination by the Company of the
executive's employment with the Company, other than for cause, or a material
reduction in either the executive's salary and bonus or the executive's
employee benefits. A "change of control" is defined as: (i) the acquisition by
any person of securities representing 50% or more of the voting power of the
Company's outstanding securities; (ii) a change in the composition of the
Board of Directors within a two-year period resulting in a minority of
incumbent directors; (iii) a merger or consolidation in which the Company's
shareholders immediately prior to the transaction hold less than 50% of the
voting power of the surviving entity immediately after the transaction; (iv)
the sale or disposition of all or substantially all of the Company's assets;
or (vi) the complete liquidation or dissolution of the Company.
The Company's 1995 Stock Option Plan provides that in the event of a change
of control of the Company, as that term is defined in the 1995 Stock Option
Plan, outstanding stock options will become fully vested and will either be
exchanged for the same per share consideration other shareholders receive in
the sale, less the option exercise price, or become exercisable thereafter for
such consideration.
Certain Relationships and Related Transactions
On April 28, 2000, the Company loaned Stephen Higgins, Senior Vice
President of Merchandising, $175,000 to assist with his relocation to the San
Francisco Bay Area. The loan, which bears interest at 6.75% per annum, is due
on the earlier of the third anniversary of the loan or the third business day
after the sale of his prior residence. Mr. Higgins has not made any repayments
of principal or interest under the loan.
12
REPORT OF THE COMPENSATION COMMITTEE
The Company's Executive Compensation program is administered by the
Compensation Committee. For the fiscal year ended February 3, 2001, the
Compensation Committee was composed of three non-employee directors: Fredric
M. Roberts, Kim D. Robbins and Thomas D. Willardson. Mr. Roberts served as
Chairman of the Compensation Committee.
Compensation Philosophy
The objectives of the executive compensation program are:
. to align compensation with Company performance in meeting both short-
term and long-term business objectives and with the interests of the
Company's shareholders;
. to enable the Company to attract, retain and reward leaders who are key
to the continued successful growth of the Company; and
. to reward high levels of performance, with pay-at-risk increasing at
higher levels of the organization.
Compensation Program
The Committee annually reviews the compensation of its executive officers
on the basis of each executive's responsibility, position and level of
experience in conjunction with a competitive peer company salary survey. The
Company's total direct compensation program consists of base salary, annual
cash incentive opportunity (the "Cash Plus Incentive Plan") and long-term
equity-based incentive opportunity. The base salary structure is targeted at
median competitive levels.
. The Cash Plus Incentive Plan rewards the achievement of short-term
operational goals based on the Company's achievement of targets
established prior to the fiscal year for earnings before interest,
taxes, depreciation and amortization (EBITDA), and other financial
goals. The Committee believes that target bonus awards, in combination
with base salaries, provide total cash compensation opportunity at
median competitive levels. If actual performance exceeds target levels,
total cash compensation would be above median competitive levels. If
actual performance does not meet target levels, total cash compensation
would fall below median competitive levels.
. Long-term incentive opportunity is delivered through annual basic grants
under the Company's 1995 Option Plan at what the Committee believes are
median competitive levels. An annual performance option grant provides
additional equity opportunity above median competitive levels, based on
the achievement of earnings per share targets.
Compensation of Chief Executive Officer
The Committee generally uses the factors and criteria described above in
establishing the compensation of the Chief Executive Officer. Mr. Dashe's base
salary was raised to $450,000 per annum effective April 1, 2000. Mr. Dashe is
also provided an incentive bonus, which was satisfied through his
participation in the Company's Cash Plus Incentive Plan. Mr. Dashe's incentive
award payment of $247,824 for the fiscal year ended February 3, 2001 was based
on the EBITDA target established prior to the fiscal year.
Mr. Dashe was also awarded stock option grants for the purchase of an
aggregate of 72,213 shares of Common Stock during the last fiscal year. Of
these, options to purchase 27,500 shares were considered "performance options"
that would become exercisable at an earlier date if the Company met a
specified earnings per share target for the fiscal year, which target was not
achieved.
13
It is the opinion of the Committee that the aforementioned compensation
policies and structures provide the necessary discipline to properly align the
Company's corporate economic performance and the interest of the Company's
shareholders with progressive, balanced and competitive executive total
compensation practices in an equitable manner.
The Compensation Committee
Fredric M. Roberts, Chairman
Kim D. Robbins
Thomas D. Willardson
Compensation Committee Interlocks and Insider Participation
For the fiscal year ended February 3, 2001, neither Kim D. Robbins, Fredric
M. Roberts, nor Thomas D. Willardson, the members of the Company's
Compensation Committee, was an executive officer of any entity for which any
executive officer of the Company served as a director or a member of the
Compensation Committee.
14
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total return for the
Company's Common Stock, the Nasdaq National Market--U.S. Index and the Nasdaq
CRSP Retail Group Index from the date trading commenced in the Company's Common
Stock (April 4, 1996) through the fiscal year ended February 3, 2001. In
preparing the graph it was assumed that: (i) $100 was invested on April 4, 1996
in the Company's Common Stock at an initial public offering price of $10.00 per
share, the Nasdaq National Market--U.S. Index and the Nasdaq CRSP Retail Group
Index; and (ii) all dividends were reinvested.
COMPARISON OF 58 MONTH CUMULATIVE TOTAL RETURN
AMONG COST PLUS, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ RETAIL TRADE INDEX
- --------------------------------------------------------------------------------------------------
A B C
- --------------------------------------------------------------------------------------------------
THE NASDAQ STOCK THE NASDAQ RETAIL
LEVEL COST PLUS, INC. MARKET (U.S.) INDEX TRADE INDEX
- --------------------------------------------------------------------------------------------------
1 4/4/96 100 100 100
- --------------------------------------------------------------------------------------------------
2 4/96 237.52 108.29 109.04
- --------------------------------------------------------------------------------------------------
3 7/96 225.02 98.52 100.34
- --------------------------------------------------------------------------------------------------
4 10/96 177.52 110.76 108.18
- --------------------------------------------------------------------------------------------------
5 1/97 172.52 125.87 108.27
- --------------------------------------------------------------------------------------------------
6 4/97 165.02 114.62 97.44
- --------------------------------------------------------------------------------------------------
7 7/97 255.03 145.38 119.03
- --------------------------------------------------------------------------------------------------
8 10/97 271.28 145.75 122.11
- --------------------------------------------------------------------------------------------------
9 1/98 247.52 148.51 126.27
- --------------------------------------------------------------------------------------------------
10 4/98 323.78 171.32 149.62
- --------------------------------------------------------------------------------------------------
11 7/98 295.03 171.1 142.22
- --------------------------------------------------------------------------------------------------
12 10/98 300.03 163.08 122.91
- --------------------------------------------------------------------------------------------------
13 1/99 355.04 232.47 154.82
- --------------------------------------------------------------------------------------------------
14 4/99 528.8 235 152.84
- --------------------------------------------------------------------------------------------------
15 7/99 660.07 244.56 141.06
- --------------------------------------------------------------------------------------------------
16 10/99 821.33 275.71 134.89
- --------------------------------------------------------------------------------------------------
17 1/00 376.91 363.31 125.93
- --------------------------------------------------------------------------------------------------
18 4/00 687.74 356.19 114.04
- --------------------------------------------------------------------------------------------------
19 7/00 749.62 348.25 91.61
- --------------------------------------------------------------------------------------------------
20 10/00 630.06 310.87 94.14
- --------------------------------------------------------------------------------------------------
21 1/1/2001 561.15 254.85 97.58
- --------------------------------------------------------------------------------------------------
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange
Act of 1934 that might incorporate future filings, including this proxy
statement, in whole or in part, the preceding Report of the Compensation
Committee and the preceding Performance Graph shall not be incorporated by
reference into any such filings; nor shall such Compensation Committee Report
or Performance Graph be incorporated by reference into any future filings.
15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth as of March 31, 2001 (except as otherwise
indicated) certain information with respect to the beneficial ownership of the
Company's Common Stock by: (i) each person known by the Company to own
beneficially more than five percent (5%) of the outstanding shares of Common
Stock; (ii) each director of the Company; (iii) each executive officer named
in the Summary Compensation Table; and (iv) all directors and executive
officers as a group.
Shares Beneficially Percentage
Name and Address (1) Owned (2)
- -------------------- ------------------- ----------
Delaware Management Holdings, Inc. (3)......... 1,943,061 9.20%
One Commerce Square
2005 Market Street
Philadelphia, PA 19103
The TCW Group, Inc. (4)........................ 1,899,569 8.99%
865 South Figueroa
Los Angeles, CA 90017
Murray H. Dashe (5)............................ 135,835 *
John F. Hoffner (5)............................ 10,322 *
Kathi P. Lentzsch (5).......................... 63,099 *
Stephen L. Higgins (5)......................... 9,666 *
Gary D. Weatherford (5)........................ 62,875 *
Joseph H. Coulombe (6)......................... 15,204 *
Barry J. Feld.................................. 0 *
Danny W. Gurr (7).............................. 24,476 *
Kim D. Robbins (5)............................. 3,979 *
Fredric M. Roberts (5)......................... 3,979 *
Thomas D. Willardson (5)....................... 10,856 *
All current directors and executive officers as
a group (20 persons)(5)....................... 619,273 2.85%
- --------
* Less than 1%
(1) Except as otherwise indicated in the footnotes to this table and pursuant
to applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock shown.
(2) Percentage ownership is based on 21,125,854 shares of Common Stock
outstanding as of March 31, 2001 plus any shares issuable pursuant to the
options held by the person or group in question which may be exercised
within 60 days of March 31, 2001.
(3) Information is as of February 7, 2001, and is based solely on a Schedule
13G/A filed with the Securities and Exchange Commission by Delaware
Management Holdings, Inc. and Delaware Management Business Trust, both of
which report to have beneficial ownership of the shares.
(4) Information is as of February 12, 2001, and is based solely on a Schedule
13G filed with the Securities and Exchange Commission by The TCW Group,
Inc. Mr. Robert Day is the majority shareholder of The TCW Group, Inc. and
is deemed also to have beneficial ownership of the shares held by The TCW
Group, Inc.
(5) Includes shares issuable upon exercise of stock options exercisable within
60 days of March 31, 2001, as follows: Mr. Dashe, 135,835; Mr. Higgins,
9,666; Mr. Hoffner, 10,000; Ms. Lentzsch, 61,875; Ms. Robbins, 3,979; Mr.
Roberts, 3,979; Mr. Weatherford, 62,327; Mr. Willardson, 10,856; and all
directors and executive officers as a group (20 persons), 603,593.
(6) Includes 2,756 shares held by the Coulombe Family Trust. Also includes
12,448 shares issuable upon exercise of stock options exercisable within
60 days of March 31, 2001.
(7) Includes 3,200 shares registered in the name of Mr. Gurr's spouse, Vivian
Southwell. Also includes 19,876 shares issuable upon exercise of stock
options exercisable within 60 days of March 31, 2001.
16
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership
and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and holders of more than 10% of
the Company's Common Stock are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of those reports
furnished to the Company during the fiscal year ended February 3, 2001, all
officers, directors and greater than ten percent shareholders complied with
all Section 16(a) filing requirements except that Thomas D. Willardson did not
timely file one Form 4 during 2000, covering one transaction.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS--2002 ANNUAL MEETING
Shareholders of the Company are entitled to present proposals for
consideration at forthcoming shareholder meetings, provided that they comply
with the proxy rules promulgated by the Securities and Exchange Commission and
the Bylaws of the Company. If any Shareholder wishes to include a proposal in
the proxy statement for the Company's 2002 Annual Meeting, it must be
submitted to the Company by January 25, 2002. If any Shareholder wishes to
present a proposal at the 2002 Annual Meeting, it must be submitted by April
10, 2002.
OTHER MATTERS
The Company knows of no other matters to be brought before the Annual
Meeting. If any other matters properly come before the Annual Meeting, it is
the intention of the persons named in the enclosed Proxy to vote the shares
they represent as the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
Murray H. Dashe
Chairman of the Board, Chief
Executive Officer and President
Dated: May 25, 2001
17
APPENDIX A
SUMMARY OF 1995 STOCK OPTION PLAN
(INCLUDING PROPOSED AMENDMENT)
The essential features of the 1995 Stock Option Plan (the "1995 Option
Plan") are summarized below. This summary does not purport to be complete and
is subject to, and qualified in its entirety by, the provisions of the 1995
Option Plan. Capitalized terms used herein and not defined shall have the
meanings set forth in the 1995 Option Plan.
Purpose. The purpose of the 1995 Option Plan is to strengthen the Company
by providing an incentive to selected officers and other key employees and
thereby encouraging them to devote their abilities and industry to the success
of the Company's business enterprise. It is intended that this purpose be
achieved by extending to selected officers and other key employees of the
Company and its subsidiaries an added long-term incentive for high levels of
performance and unusual efforts through the grant of stock options to purchase
Common Stock of the Company.
Administration. The 1995 Option Plan is administered by the Board or a
committee appointed by the Board (as applicable, the "Administrator"). Such
committee may consist of (i) two or more "non-employee" directors in order to
grant options to officers and directors in compliance with Rule 16b-3
promulgated under the Exchange Act or (ii) two or more "outside" directors in
order to grant options intended to qualify as "performance-based compensation"
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). The Administrator may make any determinations deemed necessary or
advisable for the 1995 Option Plan.
Eligibility. The 1995 Option Plan provides that options may be granted to
employees, including officers, directors and consultants of the Company, its
parent or subsidiaries. Incentive stock options may be granted only to
employees, including employee directors and officers. The Administrator
approves the participants, the time or times at which options are granted and
the number of shares subject to each grant.
Limits on Grants. Section 162(m) of the Code places limits on the
deductibility for federal income tax purposes of compensation paid to certain
executive officers of the Company. In order to preserve the Company's ability
to deduct the compensation income associated with options granted to such
persons, the 1995 Option Plan provides that no employee, director or
consultant may be granted, in any fiscal year of the Company, options to
purchase more than 397,983 shares of Common Stock.
Reserved Shares. The maximum number of shares that may be subject to option
grants under the 1995 Option Plan is 5,068,006 shares, less the aggregate
number of shares (i) subject to options outstanding under the Company's 1994
Stock Option Plan and (ii) issued upon exercise of options granted under the
1994 Stock Option Plan. Subject to the provisions of the 1995 Option Plan, any
shares of Common Stock which cease to be subject to an option will become
available for future option grants under the 1995 Option Plan.
Terms of Options. The specific terms of each option granted under the 1995
Option Plan are determined by the Administrator. Each option is evidenced by a
written agreement between the Company and the optionee to whom such option is
granted and is subject to the following additional terms and conditions:
(a) Exercise of Option. The Administrator determines when options may be
exercisable. The Administrator may accelerate the vesting of any
outstanding option. The purchase price of the exercise of any option may be
paid, at the discretion of the Administrator, in cash, check, cashless
exercise, or other shares of Common Stock (with some restrictions).
(b) Exercise Price. The exercise price under the 1995 Option Plan is
determined by the Administrator, provided that, in the case of an incentive
stock option, the exercise price may not be less than 100% of the fair
market value of the Common Stock on the date the option is granted, and,
provided
A-1
further, that, in the case of an incentive stock option granted to an
employee who, at the time of such grant, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the
Company or any parent or subsidiary of the Company, the exercise price may
be no less than 110% of the fair market value of the Common Stock on the
date the option is granted.
(c) Disability or Retirement of Optionee. If optionee's employment with
or service as a consultant to or director of the Company ends because of
optionee's disability or voluntary retirement (at or after age 65 or at or
after age 55 with the Company's consent), optionee may exercise his or her
options for one year after the date of termination (but in no event later
than the expiration date of the options) to the extent the options were
vested as of the date of termination unless otherwise provided for in the
stock option agreement. The Administrator may provide in the stock option
agreement for the options to become fully vested and exercisable on the
date of such termination.
(d) Death of Optionee. If an optionee should die while employed by or
serving as a consultant to or director of the Company, or within thirty
days after termination of optionee's employment, consultancy or
directorship, the options may be exercised at any time within one year
after the date of death (but in no event later than the date of expiration
of the term of the option). If an optionee's employment with the Company is
terminated because of his or her death, all options held by the optionee
shall be exercisable, including those not vested or exercisable on the date
of such optionee's death.
(e) Termination for Cause. If an optionee's employment with or service
as a consultant to the Company is terminated for cause, all options held by
the optionee will terminate on the date of optionee's termination. Cause
includes (i) the intentional failure to perform reasonably assigned duties,
(ii) dishonesty or willful misconduct in the performance of duties, (iii)
engaging in actions in connection with the performance of duties which are
adverse to the Company's interests or for personal profit or (iv) the
willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) in connection with the performance of
duties.
(f) Termination of Employment. If the optionee's status as an employee,
consultant or director terminates for any reason other than death,
disability, retirement, or cause, an option may be exercised for thirty
days after such termination (but in no event later than the date of
expiration of the term of the option) and may be exercised only to the
extent such option was exercisable and vested on the date of termination.
(g) Termination of Options. Stock options granted under the 1995 Option
Plan expire as determined by the Administrator, but in no event later than
ten (10) years from the date of grant. However, in the case of an incentive
stock option granted to an employee who, at the time of such grant, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any parent or subsidiary of the Company,
the term of the option may not be greater than five (5) years. Under the
form of option agreement currently used by the Company, options generally
expire ten (10) years from the date of grant.
(h) Non-transferability of Options. Unless otherwise specified by the
Administrator, options are non-transferable by the optionee other than by
will or by the laws of descent or distribution and are exercisable during
the optionee's lifetime only by the optionee.
(i) Vesting. Unless otherwise determined by the Administrator, one-
fourth of the shares subject to option will vest and become exercisable
each year on the anniversary of the options grant date.
(j) Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the 1995 Option Plan as may
be determined by the Administrator.
Adjustments Upon Changes in Capitalization. In the event a change in the
Company's capitalization as a result of a merger, consolidation,
reorganization, spin-off, stock dividend, stock split, reclassification or
recapitalization, the Administrator will determine the appropriate adjustment
to be made in the number of shares reserved for issuance under the 1995 Option
Plan, the maximum number of shares which may be granted annually to each
employee under the 1995 Option Plan and the number of shares subject to
outstanding options
A-2
under the 1995 Option Plan, as well as in the price per share of Common Stock
covered by such options. Such adjustment will be made so as not to cause a
modification (as defined in the Code) of any incentive stock options.
Change of Control. In connection with a change of control of the Company,
each outstanding option shall become fully vested and exercisable and, at the
election of the Company:
(a) (i) each option shall be deemed to have been exercised to the extent
it had not been exercised prior to that date, (ii) the shares issuable in
connection with the deemed exercise of each option shall be issued to the
acquiror of the Company, if any, and (iii) the optionee shall receive a per
share payment equal to the number (or amount) and kind of consideration
that each holder of a share was entitled to receive in connection with the
transaction, reduced by the per share option price, or
(b) shall be terminated in exchange for a per share payment for each
share then subject to such option equal to the number (or amount) and kind
of consideration that each holder of a share was entitled to receive in
connection with the transaction, reduced by the per share option price, or
(c) in the event of a change of control of the Company that is
consummated pursuant to a merger, consolidation or reorganization (a
"Transaction"), each outstanding option shall become fully (100%) vested
and exercisable, and the 1995 Option Plan and the outstanding options shall
continue in effect and each optionee shall be entitled to receive in
respect of each share subject to any outstanding option, upon exercise of
such option, the same number (or amount) and kind of consideration that
each holder of a share was entitled to receive in connection with the
Transaction.
A change of control means (i) a merger or consolidation of the Company
where the Company's stockholders prior to the merger or consolidation do not
own at least fifty percent of the Company after the merger or consolidation,
(ii) the sale of all or substantially all of the assets of the Company, (iii)
the complete liquidation or dissolution of the Company, (iv) an acquisition by
any person directly or indirectly of fifty percent or more of the total voting
power of the Company and (v) certain changes in the composition of the Board
of Directors occurring within a two year period.
Sale of the Company. In the event of a sale of the Company, each optionee
shall sell all incentive stock options, vested and unvested, granted prior to
February 12, 1998, and receive the same consideration entitled to each
shareholder in connection with the sale of the Company and, if certain
conditions are met, may be required to vote in favor of the sale of the
Company. The consideration received by an optionee with an incentive stock
option granted prior to February 12, 1998 will be reduced by an amount equal
to the optionee's proportionate share of the expenses of the sale incurred by
certain controlling shareholders of the Company. A sale of the Company
includes a sale of all or substantially all of the assets of the Company, a
complete liquidation or dissolution of the Company, and a merger consolidation
or reorganization involving the Company if certain conditions are met.
Amendment and Termination of Plan. The Board of Directors may amend the
1995 Option Plan at any time, or may terminate the 1995 Option Plan, without
approval of the shareholders; provided, however, that shareholder approval is
required for any amendment to the 1995 Option Plan for which shareholder
approval would be required under the Code or other applicable rules, and no
action by the Board of Directors or shareholders may unilaterally impair any
option previously granted under the 1995 Option Plan. In any event, the 1995
Option Plan will terminate in November, 2005. Any options outstanding under
the 1995 Option Plan at the time of its termination will remain outstanding
until they expire by their terms.
Tax Information
The following is a summary of the effect of federal income taxation with
respect to the grant and exercise of options under the 1995 Option Plan. It
does not purport to be complete and does not discuss the tax consequences of
the optionee's death or the income tax laws of any municipality, state or
foreign country in which a participant may reside.
A-3
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise is an adjustment item for alternative
minimum tax purposes and may subject the optionee to the alternative minimum
tax. Upon a disposition of the shares more than two years after grant of the
option and one year after exercise of the option, any gain or loss is treated
as long-term capital gain or loss. Capital losses are allowed in full against
capital gains and up to $3,000 against other income. If these holding periods
are not satisfied, the optionee recognizes ordinary income at the time of
disposition equal to the difference between the exercise price and the lower
of (i) the fair market value of the shares at the date of the option exercise
or (ii) the sale price of the shares. Any gain or loss recognized on such a
premature disposition of the shares in excess of the amount treated as
ordinary income is treated as long-term or short-term capital gain or loss,
depending on the holding period. A different rule for measuring ordinary
income upon such a premature disposition may apply if the optionee is also an
officer, director, or 10% shareholder of the Company. Unless limited by
Section 162(m) of the Code, the Company is entitled to a deduction in the same
amount as the ordinary income recognized by the optionee.
Nonqualified Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonqualified stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price.
Any taxable income recognized in connection with an option exercise by an
employee of the Company is subject to tax withholding by the Company. Unless
limited by Section 162(m) of the Code, the Company is entitled to a deduction
in the same amount as the ordinary income recognized by the optionee. Upon a
disposition of such shares by the optionee, any difference between the sale
price and the optionee's exercise price, to the extent not recognized as
taxable income as provided above, is treated as long-term or short-term
capital gain or loss, depending on the holding period. Capital losses are
allowed in full against capital gains and up to $3,000 against other income.
A-4
APPENDIX B
CHARTER FOR THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF
COST PLUS, INC.
(Amended as of June 22, 2000)
PURPOSE:
The purpose of the Audit Committee of the Board of Directors of Cost Plus,
Inc. (the "Company") shall be:
. to provide oversight and monitoring of Company management and the
independent auditors and their activities with respect to the Company's
financial reporting process;
. to provide the Company's Board of Directors with the results of its
monitoring and recommendations derived therefrom;
. to nominate to the Board of Directors independent auditors to audit the
Company's financial statements and oversee the activities and
independence of the auditors; and
. to provide to the Board of Directors such additional information and
materials as it may deem necessary to make the Board of Directors aware
of significant financial matters that require the attention of the Board
of Directors.
The Audit Committee will undertake those specific duties and
responsibilities listed below and such other duties as the Board of Directors
may from time to time prescribe.
MEMBERSHIP:
The Audit Committee members will be appointed by, and will serve at the
discretion of, the Board of Directors. Prior to June 14, 2001, at least a
majority of the members will be independent directors. On or before June 14,
2001, the Committee will consist of at least three members of the Board of
Directors who will meet the following criteria:
1. Each member will be an independent director, in accordance with the
Nasdaq Stock Market Audit Committee requirements;
2. Each member will be able to read and understand fundamental financial
statements, in accordance with the Nasdaq Stock Market Audit Committee
requirements; and
3. At least one member will have past employment experience in finance or
accounting, requisite professional certification in accounting, or other
comparable experience or background, including a current or past
position as a chief executive or financial officer or other senior
officer with financial oversight responsibilities.
RESPONSIBILITIES:
The responsibilities of the Audit Committee shall include:
. Providing oversight and monitoring of Company management and the
independent auditors and their activities with respect to the Company's
financial reporting process;
. Recommending the selection and, where appropriate, replacement of the
independent auditors to the Board of Directors;
. Reviewing fee arrangements with the independent auditors;
B-1
. Reviewing the independent auditors' proposed audit scope, approach and
independence;
. Reviewing the performance of the independent auditors, who shall be
accountable to the Board of Directors and the Audit Committee;
. Requesting from the independent auditors of a formal written statement
delineating all relationships between the auditor and the Company,
consistent with Independent Standards Board Standard No. 1, and engaging
in a dialogue with the auditors with respect to any disclosed
relationships or services that may impact the objectivity and
independence of the auditors;
. Directing the Company's independent auditors to review before filing
with the SEC the Company's interim financial statements included in
Quarterly Reports on Form 10-Q, using professional standards and
procedures for conducting such reviews;
. Discussing with the Company's independent auditors the matters required
to be discussed by Statement on Accounting Standard No. 61, as it may be
modified or supplemented;
. Reviewing with management, before release, the audited financial
statements and Management's Discussion and Analysis in the Company's
Annual Report on Form 10-K;
. Providing a report in the Company's proxy statement in accordance with
the requirements of Item 306 of SEC Regulation S-K and Item 7(e) (3) of
Schedule 14A of the SEC's proxy rules;
. Reviewing the Audit Committee's own structure, processes and membership
requirements; and
. Performing such other duties as may be requested by the Board of
Directors.
MEETINGS:
The Audit Committee will meet at least quarterly. Meetings may be held
telephonically or in person. The Audit Committee may establish its own
schedule, which it will provide to the Board of Directors in advance.
The Audit Committee will meet separately with the independent auditors as
well as members of the Company's management as it deems appropriate in order
to review the financial controls of the Company.
MINUTES:
The Audit Committee will maintain written minutes of its meetings, which
minutes will be filed with the minutes of the meetings of the Board of
Directors.
REPORTS:
Apart from the report prepared pursuant to Item 306 of Regulation S-K and
Item 7(e) (3) of Schedule 14A, the Audit Committee will summarize its
examinations and recommendations to the Board from time to time as may be
appropriate, consistent with the Committee's charter.
B-2
1505-PS-2001
DETACH HERE
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PROXY
COST PLUS, INC.
PROXY FOR 2001 ANNUAL MEETING OF SHAREHOLDERS
This Proxy is Solicited by the Board of Directors
The undersigned shareholder(s) of Cost Plus, Inc., a California corporation
(the "Company"), hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated May 25, 2001, and hereby appoints
MURRAY H. DASHE and JOHN F. HOFFNER, and each of them, Proxies and Attorneys-
in-Fact, with full power to each of substitution, on behalf and in the name of
the undersigned, to represent the undersigned at the 2001 Annual Meeting of
Shareholders of Cost Plus, Inc. to be held on June 26, 2001 at 2:00 p.m., local
time, at the Company's corporate headquarters located at 200 4th Street,
Oakland, California 94607 and at any adjournment or postponement thereof, and to
vote all shares of Common Stock which the undersigned would be entitled to vote
on any of the matters on the reverse side if personally present, and with
discretionary authority as to any and all other matters that may properly come
before the meeting.
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
DETACH HERE
- --------------------------------------------------------------------------------
[X] Please mark votes as in this example.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED BY
THIS PROXY WILL BE VOTED FOR EACH OF THE PERSONS AND PROPOSALS SET FORTH BELOW
AND FOR SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AS THE PROXY
HOLDERS DEEM ADVISABLE.
1. Election of Directors to serve one year terms. Nominees: (01) Murray H.
Dashe, (02) Joseph H. Coulombe, (03) Barry J. Feld, (04) Danny W. Gurr,
(05) Kim D. Robbins, (06) Fredric M. Roberts, and (07) Thomas D. Willardson
FOR ALL NOMINEES [_] WITHHELD FROM ALL [_]
NOMINEES
[_] _______________________________________________
(Instruction: To withhold authority to vote for any
individual nominee write that nominee's name in the
space above.)
2. To approve an amendment to the [_] FOR [_] AGAINST [_] ABSTAIN
Company's 1995 Stock Option Plan to
increase the shares reserved for
issuance thereunder by 350,000 shares.
3. To ratify and approve the appointment of [_] FOR [_] AGAINST [_] ABSTAIN
Deloitte & Touche LLP as independent
auditors of the Company for the fiscal
year ending February 2, 2002.
MARK HERE FOR [_]
ADDRESS CHANGE
AND NOTE BELOW
MARK HERE IF YOU [_]
PLAN TO ATTEND THE
MEETING
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK, SIGN AND
DATE THIS PROXY AND RETURN IT AS PROMPTLY AS POSSIBLE.
(This proxy should be marked, dated and signed by each shareholder exactly
as such shareholder's name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. A
corporation is requested to sign its name by its President or other authorized
officer, with the office held designated. If shares are held by joint tenants
or as community property, both holders should sign.)
Signature: _________________________________________ Date: _____________________
Signature: _________________________________________ Date: _____________________