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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)
Cost Plus, Inc.
- --------------------------------------------------------------------------------
(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:
(2) Aggregate number of securities to which transaction applies:
(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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
COST PLUS, INC.
501 CLAY STREET
OAKLAND, CA 94607
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PROXY STATEMENT
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TO THE SHAREHOLDERS OF COST PLUS, INC.:
NOTICE IS HEREBY GIVEN that the Board of Directors of Cost Plus, Inc., a
California corporation (the "Company"), has unanimously approved (i) an
increase of 250,000 shares in the number of shares reserved for issuance under
the Company's 1995 Stock Option Plan and (ii) certain other amendments to the
1995 Stock Option Plan. In order for such increase to become effective and for
the 1995 Stock Option Plan to qualify under Section 162(m) of the Internal
Revenue Code of 1986, as amended, the increase and the 1995 Stock Option Plan
must be approved by holders of a majority of the Company's Common Stock. The
purpose of this Proxy Statement is to solicit such approval by written
consent.
By Order of the Board of Directors,
Alan E. Zimtbaum
President, Chief Operating Officer,
Chief Financial Officer and
Secretary
Oakland, California
November 7, 1996
YOUR CONSENT IS IMPORTANT. PLEASE COMPLETE, SIGN AND RETURN THE ACCOMPANYING
WRITTEN CONSENT OF SHAREHOLDERS BY NOVEMBER 29, 1996.
PROXY STATEMENT
OF
COST PLUS, INC.
201 CLAY STREET
OAKLAND, CA 94607
INFORMATION CONCERNING CONSENT SOLICITATION
This Proxy Statement and the accompanying Action by Written Consent of the
Shareholders (the "Written Consent") are being furnished to the shareholders
of Cost Plus, Inc. (the "Company") in connection with the approval by the
Company's Board of Directors to increase by 250,000 shares (the "1995 Plan
Increase") the number of shares of Common Stock reserved for issuance under
the Company's 1995 Stock Option Plan (the "1995 Plan") and to approve the 1995
Plan, as currently amended, in order for it to qualify under Section 162(m) of
the Internal Revenue Code of 1986, as amended. The Written Consent is
solicited by the Board of Directors of the Company. A shareholder who signs
the Written Consent and mails it as directed will be counted as approving the
proposed 1995 Plan Increase and the 1995 Plan, as amended, if the Written
Consent is received before the close of business on November 29, 1996. If
Written Consents representing a majority of the shares outstanding and
consenting to the 1995 Plan Increase and the approval of the 1995 Plan are
returned before such date, the Written Consent shall become effective on the
date such majority approval is obtained.
Any shareholder giving a Written Consent may revoke such Written Consent by
a writing received by the Company prior to the time that Written Consents from
holders of a majority of the outstanding Common Stock approving the 1995 Plan
Increase and the 1995 Plan have been received by the Company or its agents.
Any such written revocation should be addressed to Cost Plus, Inc., Attn:
Corporate Secretary, 201 Clay Street, Oakland, California 94607.
RECORD DATE AND SHARE OWNERSHIP
These materials are being mailed on or about November 7, 1996 to holders of
the Company's Common Stock of record on such date. Only shareholders of record
on October 25, 1996 are entitled to a notice of and to consent or withhold
consent to the 1995 Plan Increase and the 1995 Plan. On that date, 8,090,883
shares of Common Stock were issued and outstanding and held of record by
approximately 33 shareholders.
The following table sets forth information known to the Company with respect
to the beneficial ownership of its Common Stock as of April 4, 1996 (except as
otherwise noted) by (i) each person or entity who is known by the Company to
own beneficially more than 5% of the Common Stock, (ii) each of the Company's
directors, (iii) the Company's Chief Executive Officer and each of the other
four most highly compensated executive officers for services rendered in all
capacities to the Company during 1995, and (iv) all directors and executive
officers as a group.
SHARES
BENEFICIALLY
NAME AND ADDRESS (1) OWNED(2) PERCENT
-------------------- ------------ -------
International Nederlanden (U.S.) Capital
Corporation(3).................................... 2,318,641 28.8%
135 East 57th Street
New York, NY 10022
The Goldman Sachs Group, L.P.(4)................... 2,318,641 28.8
85 Broad Street
New York, NY 10004
Fremont Group, Inc. ............................... --(5) --(5)
50 Fremont Street, Suite 3700
San Francisco, CA 94105-1895
Ralph D. Dillon(6)................................. 163,229 2.0
Alan E. Zimtbaum(7)................................ 35,740 *
Patricia A. Belardi(8)............................. 12,823 *
Dennis R. Daugherty(9)............................. 35,740 *
Patricia T. Saucy(10).............................. 9,286 *
Joseph H. Coulombe................................. -- *
Danny W. Gurr...................................... -- *
Mervin G. Morris................................... -- *
Edward A. Mule(11)................................. 2,318,641 28.8
Olivier L. Trouveroy(3)............................ 2,318,641 28.8
Thomas D. Willardson............................... -- *
All directors and executive officers as a group (14
persons)(12)....................................... 4,907,718 59.9
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* 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.
(2) Percentage ownership is based on 8,042,878 shares of Common Stock
outstanding as of April 4, 1996 plus any shares issuable pursuant to the
options held by the person or group in question which was exercised
within 60 days of April 4, 1996.
(3) Shares held of record by International Nederlanden (U.S.) Capital
Corporation ("ING") on behalf of ING Equity Partners LP I ("Equity
Partners"), the beneficial owner of such shares. Mr. Trouveroy, a
director of the Company, is a managing director of Equity Partners.
Accordingly, Mr. Trouveroy may be deemed to be a beneficial owner of
these shares. Mr. Trouveroy disclaims beneficial ownership of such shares
except to the extent of his pecuniary interests therein.
(4) Shares held by Pearl Street L.P., an affiliate of the Goldman Sachs
Group, L.P. ("Pearl Street").
(5) On April 16, 1996 underwriters for the Company's initial public offering
exercised their over-allotment option in full and Fremont Group, Inc. and
its affiliate, CP Capital Partners, L.P., sold 420,000 shares in the
offering, representing their entire position in the Company's Common
Stock.
2
(6) Includes 72,208 shares issuable upon exercise of stock options
exercisable within 60 days of April 4, 1996.
(7) Includes 18,052 shares issuable upon exercise of stock options
exercisable within 60 days of April 4, 1996.
(8) Includes 11,939 shares issuable upon exercise of stock options
exercisable within 60 days of April 4, 1996.
(9) Includes 24,243 shares issuable upon exercise of stock options
exercisable within 60 days of April 4, 1996.
(10) Includes 6,633 shares issuable upon exercise of stock options exercisable
within 60 days of April 4, 1996.
(11) Shares held by Pearl Street. Mr. Mule, a director of the Company, is a
general partner of the general partnership that is the general partner of
Pearl Street, and, has the right to direct the voting and disposition of
the shares. Accordingly, Mr. Mule may be deemed to be a beneficial owner
of these shares. Mr. Mule disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest therein.
(12) See notes (3), (5) and (11) above. Also includes 145,809 shares issuable
upon exercise of stock options exercisable within 60 days of April 4,
1996.
VOTING AND SOLICITATION
Each shareholder is entitled to one vote for each share of Common Stock.
This solicitation of consents 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 consents by mail may be supplemented by telephone,
telegraph or personal solicitations by directors, officers or employees of the
Company. No additional compensation will be paid for any such services.
Proposals of shareholders of the Company which are intended to be presented
by such shareholders at the Company's 1997 Annual Meeting, which the Company
currently intends to hold in May or June of 1997, must be received by the
Company by January 31, 1997.
AMENDMENT AND APPROVAL OF
1995 STOCK OPTION PLAN
The Company's 1995 Stock Option Plan (the "1995 Plan") provides for the
granting to employees of incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), and for the
granting to employees, directors, and consultants of non-statutory stock
options. The 1995 Plan was approved by the shareholders and the Board of
Directors in November 1995. Unless terminated sooner, the 1995 Plan will
terminate automatically in November 2005.
In October 1996, the Board of Directors (the "Board") approved a 250,000
share increase in the number of shares reserved for issuance under the 1995
Plan, bringing the total shares currently reserved for issuance under the 1995
Plan to 1,024,669 shares. The Board also approved certain other amendments to
the 1995 Plan, as described below, to (i) allow the Company to vary the
vesting schedule for option grants, (ii) allow the Company to permit options
to fully vest upon disability or retirement of the optionee, (iii) remove
certain provisions from the 1995 Plan which no longer apply after the
Company's initial public offering and (iv) revise the 1995 Plan for recent
changes in Securities and Exchange Commission regulations concerning equity
compensation plans. This Proposal seeks shareholder approval of the increase
in shares reserved and of the 1995 Plan as a whole. Approval of the 1995 Plan
as currently amended serves to perfect the shareholder approval requirement of
Sections 162(m) of the Internal Revenue Code of 1986, as amended.
In general, Section 162(m) limits a public company's tax deduction for
compensation paid to its chief executive officer or any of its four other most
highly compensated executives to $1 million per covered executive per year.
The deduction limitation does not apply to "performance-based" compensation
programs that were disclosed to and approved by shareholders.
The Board believes that the increase in shares will provide an adequate
reserve of shares for issuance under the 1995 Plan, which is necessary to
enable the Company to compete successfully with other companies to attract and
retain valuable employees. The Board also believes that the other amendments
are in the best interests of the Company.
3
As of October 15, 1996, options to purchase 338,050 shares of Common Stock
(net of lapsed and terminated options) had been granted under the 1995 Plan,
686,619 shares remained available for future option grants (assuming the
250,000 share increase is approved) and no options had been exercised.
CONSENTS REQUIRED
The consent of holders of a majority of the outstanding shares of Common
Stock will be required to approve the 1995 Plan and the increase of the number
of shares reserved under the 1995 Plan. Pearl Street and ING, holders of a
majority of the Company's Common Stock, have advised the Company that they
will approve the 1995 Plan Increase and the 1995 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A CONSENT "FOR" THE 1995 PLAN INCREASE AND
THE 1995 PLAN.
The material provisions of the 1995 Plan are outlined below. This
description is qualified in its entirety by reference to the copy of the full
1995 Plan attached hereto as Exhibit A.
ADMINISTRATION
The 1995 Plan is administered by the Board or a committee appointed by the
Board. 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 Securities Exchange Act of 1934, as amended (the
"Exchange Act") or (ii) two or more "outside" directors in order to grant
options intended to qualify as "performance-based compensation" under the tax
laws. The administrators of the 1995 Plan are referred to herein as the
"Administrator."
ELIGIBILITY; LIMITS ON GRANTS
The 1995 Plan provides that options may be granted to employees, including
officers, directors and consultants to 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. The 1995 Plan is administered so as to satisfy certain
requirements under the Code and the federal securities laws, including under
the Exchange Act.
The 1995 Plan limits the discretion allowed to the Administrator in granting
options. This limitation is intended to preserve the Company's ability to
deduct for federal income tax purposes the compensation expense relating to
options granted to certain executive officers under the 1995 Plan. Without
this provision in the 1995 Plan, the federal tax legislation enacted in August
1993 (Section 162(m) of the Code) might limit the Company's ability to deduct
such compensation expense. The limitation provides that under the 1995 Plan no
employee may be granted in any one fiscal year options to receive more than
265,322 shares of Common Stock. See discussion below under "Tax Information"
for a summary of the more general rules governing the availability to the
Company of tax deductions in connection with stock options granted under the
1995 Plan.
TERMS OF OPTIONS
The terms of options granted under the 1995 Plan are determined by the
Administrator but may not be longer than ten years. 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:
EXERCISE OF THE OPTION: The Administrator determines when options may be
exercisable. The Administrator may accelerate the vesting of any
outstanding option. The purchase price of the shares to be purchased upon
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).
EXERCISE PRICE: The exercise price under the 1995 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 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
4
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.
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. The Administrator may provide in the
stock option agreement for the options to become fully vested and
exercisable on the date of such termination.
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), for all options including those not otherwise vested or
exercisable on the date of termination.
TERMINATION FOR CAUSE: If an 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 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.
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.
TERMINATION OF OPTIONS: Stock options granted under the 1995 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.
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.
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 option's grant date.
OTHER PROVISIONS: The option agreement may contain such other terms,
provisions and conditions not inconsistent with the 1995 Plan as may be
determined by the Administrator.
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 Plan, the maximum number of shares which may be
granted annually to each employee under the 1995 Plan and the number of shares
subject to outstanding options under the 1995 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.
5
In the event of a sale of the Company, at the election of the Company, each
optionee will receive for all options, vested and unvested, the same
consideration entitled to each shareholder in connection with the sale of the
Company. The consideration received by an optionee will be reduced by the
exercise price of each option and an amount equal to optionee's proportionate
share of the expenses of the sale incurred by certain controlling shareholders
of the Company. The Company may also take certain actions to ensure that the
sale of the Company qualifies as a pooling transaction under Generally
Accepted Accounting Principles. 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 THE 1995 PLAN
The Board of Directors may amend the 1995 Plan at any time, or may terminate
the 1995 Plan, without approval of the shareholders; provided, however, that
shareholder approval is required for any amendment to the 1995 Plan for which
shareholder approval would be required under the Code or other applicable
rules, and that no action by the Board of Directors or shareholders may
unilaterally impair any option previously granted under the 1995 Plan. In any
event, the 1995 Plan will terminate in November 2005. Any options outstanding
under the 1995 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 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.
INCENTIVE STOCK OPTIONS
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and one year after exercising the option, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange 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. 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. The Company will be
entitled to a deduction in the same amount as the ordinary income recognized
by the optionee. Any gain or loss recognized on such a premature disposition
of the shares in excess of the amount treated as ordinary income will be
characterized as long-term or short-term capital gain or loss, depending on
the holding period.
NON-STATUTORY STOCK OPTIONS
All other options which do not qualify as incentive stock options are
referred to as non-statutory stock options. An optionee will not recognize any
taxable income at the time he or she is granted a non-statutory stock option.
However, upon the option's exercise, the optionee will recognize taxable
income, generally measured as the excess of the then fair market value of the
shares purchased over the exercise price. Any taxable income recognized in
connection with an option exercise by an optionee who is also an employee of
the Company will be subject to tax withholding by the Company. The Company
will be entitled to a tax deduction in the same amount as the ordinary income
recognized by the optionee. Upon resale of such shares by the optionee, any
difference between the sales price and the exercise price, to the extent not
recognized as taxable income as described above, will be treated as long-term
or short-term capital gain or loss, depending on the holding period.
6
AMENDED PLAN BENEFITS
The following table sets forth as to the Named Executive Officers (as
defined below), all current executive officers as a group, all current
directors who are not executive officers as a group, and all other employees
as a group information with respect to stock option grants under the 1995 Plan
(i) the market value of the shares of Common Stock underlying the options
granted to such persons or group of persons during the fiscal year ended
February 3, 1996, (ii) the number of shares subject to such options granted
under the 1995 Plan to each such individual or group and (iii) the exercise
price per share with respect to such options:
NUMBER OF SHARES
NAME OF INDIVIDUAL OR DOLLAR SUBJECT TO OPTIONS EXERCISE
IDENTIFY GROUP AND POSITION VALUE($)(1) GRANTED(#) PRICE/SHARE($)
--------------------------- ------------- ------------------ --------------
Ralph D. Dillon............. $2,364,828.38 144,417 $5.77
1,480,938.63 90,439 11.31
Alan E. Zimtbaum............ 591,203.00 36,104 5.77
366,390.63 22,375 11.31
Patricia A. Belardi......... 391,018.63 23,879 5.77
566,542.25 34,598 11.31
Dennis R. Daugherty......... 591,203.00 36,104 5.77
366,390.63 22,375 11.31
Patricia T. Saucy........... 217,230.75 13,266 5.77
289,641.00 17,688 11.31
All current executive
officers as a group
(8 persons)................ 4,155,483.75 253,770 5.77
133,227.00 8,136 5.94
3,602,594.13 220,003 11.31
All current directors who
are not executive officers
as a group (3 persons)..... 347,559.38 21,225 11.31
All other employees as a
group...................... 2,411,284.25 147,254 5.77
72,524.88 4,429 5.94
1,612,970.25 98,502 11.31
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(1) Based on a market value of $16.375 per share, which was the closing price
of the Company's Common Stock on October 25, 1996 on The Nasdaq National
Market.
Each of the current executive officers and directors of the Company is
eligible to be granted options under the 1995 Plan. In October 1996, the Board
approved the grant of additional options under the 1995 Plan to purchase an
aggregate of 130,500 shares of Common Stock to certain of the Company's
executive officers. The options will be granted on the date of approval of the
1995 Plan increase by the Company's shareholders and the option exercise
prices will be determined based on the market value of the Common Stock on
such date.
7
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and each of the other four most highly compensated
executive officers of the Company (collectively, the "Named Executive
Officers") for services rendered in all capacities to the Company during
fiscal 1995:
LONG-TERM
COMPENSATION
------------
ANNUAL NUMBER OF
COMPENSATION(1) SECURITIES
----------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
--------------------------- -------- -------- ------------
Ralph D. Dillon............................. $336,404 $235,620 234,851
Chairman and Chief Executive Officer
Alan E. Zimtbaum............................ 185,858 70,884 58,478
President, Chief Operating Officer, Chief
Financial Officer and Secretary
Patricia A. Belardi......................... 147,425 65,604 58,475
Vice President, General Merchandise Manager
Dennis R. Daugherty......................... 126,300 48,168 58,478
Executive Vice President, Operations
Patricia T. Saucy........................... 101,462 25,800 30,952
Vice President and Chief Accounting Officer
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(1) Salary and other compensation for fiscal 1995 represents amounts earned
during the 11 month period (49 weeks) from February 26, 1995 to February
3, 1996.
8
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding options granted
during fiscal 1995 to the Named Executive Officers:
INDIVIDUAL GRANTS
------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------------
NAME GRANTED(#) FISCAL YEAR(1) ($/SHARE)(2) DATE 5%($) 10%($)
---- ---------- -------------- ------------ ---------- -----------------------------
Ralph D. Dillon......... 144,417 19.17% $ 5.77 3/17/05 $ 523,727 $ 1,327,226
90,439 12.00 11.31 11/27/05 643,090 1,629,715
Alan E. Zimtbaum........ 36,104 4.79 5.77 3/17/05 130,930 331,802
22,375 2.97 11.31 11/27/05 159,107 403,207
Patricia A. Belardi..... 23,879 3.17 5.77 3/17/05 86,595 219,449
34,598 4.59 11.31 11/27/05 246,016 623,453
Dennis R. Daugherty..... 36,104 4.79 5.77 3/17/05 130,930 331,802
22,375 2.97 11.31 11/27/05 159,107 403,207
Patricia T. Saucy....... 13,266 1.76 5.77 3/17/05 48,106 121,911
17,688 2.35 11.31 11/27/05 125,771 318,728
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(1) The Company granted options to employees to purchase 753,358 shares of
Common Stock during fiscal 1995.
(2) All options were granted at the fair market value of the Common Stock on
the date of grant, as determined by the Board of Directors. The exercise
price may be paid in cash, check or shares of the Company's Common Stock
through a cashless exercise procedure involving same-day sale of the
purchased shares or by any combination of such methods.
(3) Options may terminate before their expiration date if the optionee's
status as an employee or consultant is terminated or upon optionee's
death.
(4) In accordance with the rules of the Securities and Exchange Commission
(the "Commission"), shown are the gains or "option spreads" that would
exist for the respective options granted. These gains are based on the
assumed rates of annual compound stock price appreciation of 5% and 10%
from the date the option was granted over the full option term. These
assumed annual compound rates of stock price appreciation are mandated by
the rules of the Commission and do not represent the Company's estimate or
projection of future Common Stock prices.
9
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information regarding options held at
February 3, 1996 and exercised during fiscal 1995 by the Named Executive
Officers, including the aggregate value of gains on the date of exercise:
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN
OPTIONS AT THE MONEY OPTIONS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END(1)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Ralph D. Dillon......... 47,726 $274,400 72,208 162,643 $816,672 $1,839,492
Alan E. Zimtbaum........ 17,688 101,725 18,052 40,426 204,168 457,218
Patricia A. Belardi..... 884 5,200 11,939 47,420 135,030 536,320
Dennis R. Daugherty..... 11,497 36,715 24,244 40,427 274,199 457,229
Patricia T. Saucy....... 2,653 15,600 6,633 24,319 75,019 275,048
- --------
(1) Calculated based on fair market value of the Common Stock at February 3,
1996, determined by the Board of Directors to be $11.31 per share, less
the exercise price.
(2) Calculated by determining the difference between the fair market value of
the securities underlying the option on the date of exercise, as
determined by the Board of Directors, and the exercise price of the
option.
EMPLOYMENT AGREEMENT
The Company has an employment agreement with Ralph D. Dillon (the
"Employment Agreement"), dated September 6, 1990 which provides for Mr.
Dillon's employment by the Company as President and Chief Executive Officer at
an annual base salary of not less than $340,000, with such sum to be reviewed
for possible increases by the Board of Directors prior to each anniversary of
the date of the Employment Agreement. Pursuant to the Employment Agreement,
Mr. Dillon is also entitled to an annual performance bonus based upon the
Company achieving at least 85% of its targeted earnings before interest and
taxes as approved by the Board of Directors for each prospective fiscal year
(the "85% EBIT Attainment Level"). Such annual performance bonuses can
increase on a sliding scale to the extent the Company's financial performance
exceeds the 85% EBIT Attainment Level. The Board of Directors also reserves
the right to award a bonus to Mr. Dillon should the Company fail to realize
the 85% EBIT Attainment Level. The Employment Agreement further provides for
certain payments to Mr. Dillon or his beneficiary upon the occurrence of
certain events, including termination upon disability or death, termination
for cause and termination by Mr. Dillon for good reason (including a reduction
in responsibilities) or upon a change in control. Depending upon the reason
for termination, Mr. Dillon could be entitled to receive a lump sum severance
payment equal to up to three months' base salary plus a pro-rata portion of
the bonus to which he would be entitled for the fiscal year in which such
event occurred. Thereafter, the Company could be required to pay Mr. Dillon
his then-current base salary for a period of 12 months after termination,
reduced by the amount of such other compensation he receives during that
period from any new employment. The term of the Employment Agreement is
automatically extended from year to year each September 1 unless written
notice of termination is provided by the Company or Mr. Dillon to the other at
least 90 days prior to September 1 of the then-current term.
SEVERANCE AGREEMENTS
The Board has authorized, and the Company is in the process of implementing,
severance agreements with five officers of the Company including Alan
Zimtbaum, Dennis Daugherty, and Patricia Belardi. Messrs. Zimtbaum and
Daugherty will receive their monthly base compensation until August 31, 1998
if they are involuntarily terminated by the Company for other than cause. The
other executives, including Patricia Belardi, will receive their monthly base
compensation for six months if they are involuntarily terminated by the
Company for other than cause prior to March 1, 1998. As defined in the
agreements, an involuntarily termination is either the termination by the
Company of the executive's employment with the Company or a material reduction
in either the executive's salary and bonus or the executive's employee
benefits.
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COMPENSATION OF DIRECTORS
Mr. Dillon currently does not receive any cash compensation for service on
the Board of Directors or any committee thereof, but may be reimbursed for
reasonable expenses incurred in connection with attendance at Board and
committee meetings. Messrs. Coulombe, Gurr, Morris and Willardson each receive
an aggregate of $10,000 each fiscal year for service on the Board of Directors
and any committee thereof, and each of Messrs. Coulombe, Gurr and Morris
received an option to purchase 7,075 shares of Common Stock at an exercise
price of $11.31 per share in November 1995. In addition, Mr. Willardson
received an option to purchase 7,075 shares of Common Stock pursuant to the
Company's 1996 Director Option Plan at an exercise price of $15.00 per share
in April 1996. Under the 1996 Director Option Plan, each future non-employee
director will automatically receive an option to purchase 7,075 shares of
Common Stock on the date such person becomes a director. Each option granted
under the 1996 Director Option Plan is exercisable at 100% of the fair market
value of the Company's Common Stock on the date such option was granted.
Outside directors are also reimbursed for reasonable expenses incurred in
connection with attendance at Board and committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company had no Compensation Committee during the fiscal year ended
February 3, 1996. Ralph Dillon, Chairman and Chief Executive Officer, and Joan
Fujii, Vice President of Human Resources, participated from time-to-time in
deliberations of the Board of Directors regarding executive compensation. No
interlocking relationship existed between any of such persons and any other
member of the Company's Board of Directors.
All shareholders are encouraged to immediately sign, date and return the
accompanying Written Consent in the enclosed postage prepaid envelope.
By Order of the Board of Directors,
Alan E. Zimtbaum
President, Chief Operating Officer,
Chief Financial Officer and
Secretary
Dated: November 7, 1996
11
EXHIBIT A
COST PLUS, INC.
1995 STOCK OPTION PLAN
1. Purpose. The purpose of this Plan is to strengthen Cost Plus, Inc., a
California corporation (the "Company"), by providing an incentive to selected
officers and other key employees and thereby encouraging them to devote their
abilities and industry to the success of the Company's business enterprise. It
is intended that this purpose be achieved by extending to selected officers
and other key employees of the Company and its subsidiaries an added long-term
incentive for high levels of performance and unusual efforts through the grant
of options to purchase Common Stock of the Company.
2. Definitions. For purposes of the Plan:
2.1 "Affiliate" means (i) with respect to any Person which is not a
natural person, any other Person that directly or indirectly through one or
more intermediaries controls, or is controlled by or under common control
with, such Person; and (ii) with respect to any Person who is a natural
person, any of the following: (x) any spouse, parent, child, brother or
sister of such Person or any issue of the foregoing (as used in this
definition, issue shall include persons legally adopted into the line of
descent), (y) a trust solely for the benefit of such Person or any spouse,
parent, child, brother or sister of such Person or for the benefit of any
issue of the foregoing or (z) any corporation or partnership which is
controlled by such Person, or by any spouse, parent, child, brother or
sister of such Person or by any issue of the foregoing.
2.2 "Agreement" means the written agreement between the Company and an
Optionee evidencing the grant of an Option and setting forth the terms and
conditions thereof.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Cause," unless otherwise defined in the Agreement evidencing a
particular Option, means an Eligible Individual's (i) intentional failure
to perform reasonably assigned duties, (ii) dishonesty or willful
misconduct in the performance of duties, (iii) engaging in a transaction in
connection with the performance of duties to the Company or any of its
Subsidiaries thereof which transaction is adverse to the interests of the
Company or any of its Subsidiaries and which is engaged in for personal
profit or (iv) willful violation of any law, rule or regulation in
connection with the performance of duties (other than traffic violations or
similar offenses).
2.5 "Change in Capitalization" means any change in the Shares or exchange
of Shares for a different number or kind of shares or other securities of
the Company, by reason of a reclassification, recapitalization, merger,
consolidation, reorganization, spin-off, stock dividend, stock split or
reverse stock split.
2.6 "Code" means the Internal Revenue Code of 1986, as amended.
2.7 "Committee" means a committee, as described in Section 3.1, appointed
by the Board to administer the Plan and to perform the functions set forth
herein.
2.8 "Company" means Cost Plus, Inc., a California corporation.
2.9 "Controlling Shareholders" means Internationale Nederlanden (U.S.)
Capital Corporation and Pearl Street L.P., collectively.
2.10 "Disability" means a physical or mental infirmity which impairs the
Optionee's ability to perform substantially his or her duties for a period
of one hundred eighty (180) consecutive days.
2.11 "Eligible Individual" means any director, officer or employee of the
Company or a Subsidiary, or any consultant or advisor.
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2.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.13 "Fair Market Value" means on any date, (i) with respect to any stock
or other security (including, without limitation, the Shares) (a) if such
security is listed or admitted to trading on a national securities exchange
or the Nasdaq National Market of the National Association of Securities
Dealers Automated Quotation System, the average of the high and low sales
prices of such security on such date, (b) if such securities are not so
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.
2.14 "First Vesting Date" means, (i) as to Options granted prior to June
30, 1996, the earlier to occur of June 30, 1997 and the first anniversary
of the Company's Initial Public Offering, and (ii) as to each Option
granted on or after June 30, 1996, the first anniversary of the Grant Date
for such Option.
2.15 "Grant Date" means with respect to each Option, the Grant Date as
defined in the applicable Agreement.
2.16 "Incentive Stock Option" means an Option satisfying the requirements
of Section 422 of the Code and designated by the Committee as an Incentive
Stock Option.
2.17 "Independent Third Party" means any Person who, immediately prior to
the contemplated transaction, does not own in excess of 5% of the Shares on
a fully diluted basis (a "5% Owner"), and any Person who is not an
Affiliate of a 5% Owner.
2.18 "Initial Public Offering" means the consummation of the first public
offering of Shares pursuant to one or more effective registration
statements under the Securities Act (other than registrations on Form S-8
or Form S-4 or any other registration statement used for a business
combination or any successor form to any such Forms) ("Registration
Statements").
2.19 "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
2.20 "Option" means an option to purchase Shares granted pursuant to the
Plan.
2.21 "Optionee" means a person to whom an Option has been granted under
the Plan.
2.22 "Outside Director" means a director of the Company who is an
"outside director" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
2.23 "Own" or any derivation thereof means beneficial ownership as
defined in Rule 13d-3 promulgated under the Exchange Act.
2.24 "Parent" means any corporation which is a parent corporation (within
the meaning of Section 424(e) of the Code) with respect to the Company.
2.25 "Per Share Option Price" means, with respect to each Option, the per
share exercise price with respect to such Option.
2.26 "Person" means any natural person, corporation, partnership, firm,
association, trust, government, governmental agency or any other entity,
whether acting in an individual, fiduciary or other capacity.
2.27 "Plan" means this Cost Plus, Inc. 1995 Stock Option Plan.
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2.28 "Pooling Period" means, with respect to a Pooling Transaction, the
period ending on the first date on which the combined entity resulting from
such Pooling Transaction publishes combined operating results for at least
thirty (30) days.
2.29 "Pooling Transaction" means an acquisition of the Company in a
transaction which is treated as a "pooling of interests" under generally
accepted accounting principles.
2.30 "Sale of the Company" means any of the following transactions which
are approved by the Board and the shareholders of the Company in accordance
with the Articles of Incorporation of the Company then in effect: (i) the
sale of all or substantially all of the assets of the Company determined on
a consolidated basis, (ii) the complete liquidation or dissolution of the
Company, or (iii) a merger, consolidation or reorganization involving the
Company (a "Business Combination"), unless the shareholders of the Company,
immediately before the Business Combination, Own, directly or indirectly,
at least a majority of the combined voting power of the outstanding voting
securities of the corporation resulting from the Business Combination in
substantially the same proportions as their Ownership of the outstanding
voting securities immediately before such transaction.
2.31 "Securities Act" means the Securities Act of 1933, as amended.
2.32 "Shares" means the common stock, par value $.01 per share, of the
Company.
2.33 "Subsidiary" means any corporation which is a subsidiary corporation
(within the meaning of Section 424(f) of the Code) with respect to the
Company.
2.34 "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes a stock option in a transaction to which Section 424(a)
of the Code applies.
2.35 "Ten-Percent Shareholder" means an Eligible Individual, who, at the
time an Incentive Stock Option is to be granted to him or her, owns (within
the meaning of Section 422(b)(6) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of
stock of the Company, or of a Parent or a Subsidiary.
3. Administration.
3.1 The Plan shall be administered as follows:
(a) The Plan shall be administered by the Committee which shall hold
meetings at such times as may be necessary for the proper
administration of the Plan. The Committee shall keep minutes of its
meetings. Except as otherwise provided in the Company's Articles of
Incorporation or By-Laws, a quorum shall consist of not less than two
members of the Committee and a majority of a quorum may authorize any
action. Except as otherwise provided in the Company's Articles of
Incorporation or Bylaws, any decision or determination reduced to
writing and signed by the requisite number of the members of the
Committee shall be as fully effective as if made by the vote of the
requisite number of members at a meeting duly called and held.
(b) Procedure.
(i) Multiple Administrative Bodies. The Committee shall be
composed of the Board or a committee of the Board. The Plan may be
administered by different Committees with respect to different
Optionees.
(ii) Section 162(m). To the extent that the Board determines it to
be desirable to qualify Options granted hereunder as "performance-
based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more
Outside Directors.
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(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 1,024,669 Shares (post split), less the
aggregate number of Shares from time to time (i) subject to options
outstanding under the Cost Plus, Inc. 1994 Stock Option Plan (the "1994
Option Plan") or (ii) issued upon exercise of options granted under the
1994 Option Plan. Options to be granted under the Plan shall be granted
under the Form of Cost Plus, Inc. 1995 Stock Option Plan Incentive Stock
Option Agreement attached as Exhibit A-1 or Nonqualified Stock Option
Agreement attached as Exhibit A-2, which forms of agreement may be modified
or amended by the Committee from time to time so long as any such modified
or amended agreement is not inconsistent with any provision of the Plan.
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(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, 1,024,669 Shares (post split), less the
aggregate number of Shares from time to time (i) subject to options
outstanding under the 1994 Option Plan or (ii) issued upon exercise of
options granted under the 1994 Option Plan.
5. Option Grants for Eligible Individuals.
5.1 Authority of Committee. Except as otherwise expressly provided in
this Plan, the Committee shall have full and final authority to select
those Eligible Individuals who will receive Options, the terms and
conditions of which shall be set forth in an Agreement; provided, however,
that no person shall receive any Incentive Stock Options unless he or she
is an employee of the Company, a Parent or a Subsidiary at the time the
Incentive Stock Option is granted.
5.2 Eligibility.
(a) No Eligible Individual may be granted, in any fiscal year of the
Company, Options to purchase more than 265,322 Shares; provided that
the limitation set forth in this Section 5.2(a) shall only apply to
Options granted after the Company's Initial Public Offering. If an
Option is canceled (other than in connection with a Sale of the
Company), the cancelled Option will be counted against the limit set
forth in this Section 5.2(a). For this purpose, if the exercise price
of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
(b) Each Option shall be designated in the Agreement as either an
Incentive Stock Option or a Nonqualified Stock Option. However,
notwithstanding such designations, to the extent that the aggregate
Fair Market Value:
(i) of Shares subject to an Optionee's Incentive Stock Options
granted by the Company, any Parent or Subsidiary, which
(ii) become exercisable for the first time during any calendar
year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options shall be treated as
Nonqualified Stock Options. For purposes of this Section 5.2(b),
Incentive Stock Options shall be taken into account in the order in
which they were granted, and the Fair Market Value of the Shares
shall be determined as of the time the Option with respect to such
Shares is granted.
5.3 Option Exercise Price. The Per Share Option Price for the Shares to
be issued pursuant to exercise of an Option shall be such price as is
determined by the Committee, but shall be subject to the following:
(a) In the case of an Incentive Stock Option granted to an Eligible
Individual who, at the time of the grant of such Incentive Stock
Option, is a Ten-Percent Shareholder, the Per Share Option Price shall
be no less than 110% of the Fair Market Value per Share on the Grant
Date.
(b) In the case of an Incentive Stock Option granted to any Eligible
Individual other than a Ten-Percent Shareholder, the Per Share Option
Price shall be no less than 100% of the Fair Market Value per Share on
the Grant Date.
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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
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Option expires or terminates. Notwithstanding the foregoing (or any other
provision to the contrary contained in the Plan or any Agreement) all
outstanding Options shall immediately become fully (100%) vested and
exercisable upon a Sale of the Company. In addition, the Committee may
accelerate the exercisability of any Option or portion thereof at any time.
5.6 Modification. No modification of an Option shall adversely alter or
impair any rights or obligations under the Option without the Optionee's
consent.
5.7 Nontransferability. Unless otherwise provided by the Committee in an
Agreement, no Option granted hereunder shall be transferable by the
Optionee to whom granted otherwise than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined
in the Code. An Option may be exercised during the lifetime of such
Optionee only by the Optionee or his or her guardian or legal
representative. The terms of such Option shall be final, binding and
conclusive upon the beneficiaries, executors, administrators, heirs and
successors of the Optionee.
5.8 Method of Exercise. The exercise of an Option shall be made only by a
written notice delivered in person or by mail to the Secretary of the
Company at the Company's principal executive office, specifying the number
of Shares to be purchased and accompanied by payment therefor and otherwise
in accordance with the Agreement pursuant to which the Option was granted.
The purchase price for any Shares purchased pursuant to the exercise of an
Option shall be paid in full upon such exercise by any one or a combination
of the following: (i) cash, (ii) check, (iii) transferring Shares to the
Company upon such terms and conditions as determined by the Committee or
(iv) pursuant to a cashless exercise providing for the exercise of the
Option and sale of the underlying Shares by a designated broker and
delivery of the Shares by the Company to such broker. Cashless exercises
shall be subject to such procedures as may be established from time to time
by the Committee in its sole discretion. The Committee shall have
discretion to determine at the time of grant of each Option or at any later
date (up to and including the date of exercise) the form of payment
acceptable in respect of the exercise of such Option. With respect to the
transfer of Shares to the Company as payment, in part or in whole, of the
exercise price (i) any Shares transferred to the Company as payment of the
purchase price under an Option shall be valued at their Fair Market Value
on the day preceding the date of exercise of such Option; and (ii) any
Shares acquired upon the exercise of an option must have been owned by the
Optionee for more than six months prior to such transfer. If requested by
the Committee, the Optionee shall deliver the Agreement evidencing the
Option to the Secretary of the Company who shall endorse thereon a notation
of such exercise and return such Agreement to the Optionee. No fractional
Shares (or cash in lieu thereof) shall be issued upon exercise of an Option
and the number of Shares that may be purchased upon exercise shall be
rounded to the nearest whole number of Shares.
5.9 Rights of Optionees. No Optionee shall be deemed for any purpose to
be the owner of any Shares subject to any Option unless and until (i) the
Option shall have been exercised pursuant to the terms thereof, (ii) the
Company shall have issued and delivered the Shares to the Optionee, and
(iii) the Optionee's name shall have been entered as a shareholder of
record on the books of the Company. Thereupon, the Optionee shall have full
voting, dividend and other ownership rights with respect to such Shares,
subject to such terms and conditions as may be set forth in the applicable
Agreement.
5.10 Sale of Company.
(a) In the event of a Sale of the Company, effective as of the date
of consummation of the transaction constituting the Sale of the
Company, at the election of the Company and, without any action by any
Optionee:
(A) (i) each outstanding Option shall become fully (100%) vested
and exercisable, (ii) each Option shall be deemed to have been
exercised to the extent it had not been exercised prior to that
date, (iii) the Shares issuable in connection with the deemed
exercise of each Option shall be issued to and in the name of the
acquiror of the Company, if any, and (iv) in respect of each Share
A-7
issued in connection with the deemed exercise of an Option, the
Optionee shall receive a per Share payment equal to the number (or
amount) and kind of stock, securities, cash, property or other
consideration that each holder of a Share was entitled to receive in
connection with the Sale of the Company, reduced by the Per Share
Option Price, or
(B) each outstanding Option shall become fully (100%) vested and
shall simultaneously be terminated in exchange for a per share
payment for each Share then subject to such Option equal to the
number (or amount) and kind of stock, securities, cash, property or
other consideration that each holder of a Share was entitled to
receive in connection with the Sale of the Company, reduced by the
Per Share Option Price, or
(C) in the event of a Sale of the Company that is consummated
pursuant to a merger, consolidation or reorganization (a
"Transaction"), each outstanding Option shall become fully (100%)
vested and exercisable, and the Plan and the outstanding Options
shall continue in effect in accordance with their respective terms
and each Optionee shall be entitled to receive in respect of each
Share subject to any outstanding Option, upon exercise of such
Option, the same number (or amount) and kind of stock, securities,
cash, property or other consideration that each holder of a Share
was entitled to receive in connection with the Transaction in
respect of a Share.
(b) In the event of a Sale of the Company, the Optionee shall sell
his or her Shares and, if shareholder approval of the transaction is
required and if the Company receives an opinion of an independent,
nationally recognized investment banking firm retained by the Board to
the effect that the consideration to be received in such Sale of the
Company, as the case may be, is fair to the shareholders of the
Company, shall vote his or her Shares in favor thereof, and waive any
dissenters' rights, preemptive rights, appraisal rights or similar
rights, as the case may be. (The fees and expenses incurred in
obtaining such opinion shall be borne by the Company.)
(c) Any sale of Shares by any Optionee in any Sale of the Company
shall be for the same consideration per share, on the same terms and
subject to the same conditions as the sale by the shareholders of the
Company.
(d) In any case, in the event of a Sale of the Company, the payment
made to each Optionee shall be further reduced by an amount equal to
the Optionee's proportionate share of the expenses of sale incurred by
the Controlling Shareholders in connection with the Sale of the
Company. In any Sale of the Company, at the request of the Controlling
Shareholders or the Company, each Optionee shall execute and deliver a
counterpart of an agreement pursuant to which such Optionee agrees to
sell its Shares in the Sale of the Company, provided that such Optionee
shall not be required to make, in connection with such Sale of the
Company, any representations and warranties with respect to the Company
or its business or with respect to any other Optionee or selling
shareholder. In addition, each Optionee shall be responsible for such
Optionee's proportionate share of the expenses of sale incurred by the
selling shareholders in connection with the Sale of the Company and the
obligations and liabilities (including obligations and liabilities for
indemnification (including indemnification obligations and liabilities
for (x) breaches of representations and warranties made by the Company
or any other Optionee or selling shareholder with respect to the
Company or its business, (y) breaches of covenants and (z) other
matters), amounts paid into escrow and post-closing purchase price
adjustments) incurred by the selling shareholders in connection with
the Sale of the Company; provided that (i) without the written consent
of such Optionee, the amount of such obligations and liabilities shall
not exceed the gross proceeds received by such Optionee in such Sale of
the Company (provided that to the extent the proceeds received by the
Optionee in such Sale of the Company are reduced by the Per Share
Option Price, the "gross proceeds received by such 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
A-8
ownership of and title to shares of capital stock of the Company,
organization and authority. In connection with a Sale of the Company,
and subject to Section 5.10(b) and Section 5.10(c) hereof, each
Optionee shall do and perform or cause to be done and performed all
further acts and things and shall execute and deliver all other
agreements, certificates, instruments and documents as the Company or
the Controlling Shareholders reasonably may request in connection with
such Sale of the Company.
(e) For all purposes of the Plan, the value of stock, securities,
property or other consideration shall be the Fair Market Value of such
stock, securities, property or other consideration as determined in
accordance with Section 2.13.
(f) In the case of a Transaction which also constitutes a Pooling
Transaction, notwithstanding anything to the contrary contained in the
Plan or any Agreement, (i) to the extent not earlier exercised or
terminated under this Section 5.10, all Options outstanding on the date
of the Transaction shall remain exercisable until the date which is
thirty (30) days after the last day of the Pooling Period, whether or
not the Optionee is then an employee of the Company, but in no event
beyond the stated term of the Option, and (ii) if the Board determines
after consultation with an independent accounting firm retained by the
Company (the "Independent Accountant") that it is reasonably necessary
in order to assure that the Pooling Transaction will qualify as such,
the Committee may provide, in its sole discretion and pursuant to the
specific recommendations of the Independent Accountant, that (A) all
Options, or, in the alternative, such Options held by Optionees
specifically identified by the Committee, shall not become immediately
and fully exercisable on the date of the Transaction but rather shall
become immediately and fully exercisable on the date following the last
day of the Pooling Period, (B) the Optionees holding such Options shall
be required to surrender such Options (or any portion of such Options)
for cancellation in return for the consideration provided under this
Section 5.10 only during the thirty (30) day period commencing on the
date following the last day of the Pooling Period, but in no event
after the stated term of the Option, and/or (C) the consideration
specified above in this Section 5.10 shall be paid in the form of cash,
Shares or securities of a successor of the Company or a combination of
the foregoing, as designated by the Committee.
6. Adjustment Upon Changes in Capitalization.
(a) In the event of a Change in Capitalization, the Committee shall
conclusively determine the appropriate adjustments, if any, to (i) the
maximum number and class of Shares or other stock or securities with
respect to which Options may be granted under the Plan, (ii) the maximum
number of Shares with respect to which Options may be granted to any
Eligible Individual during the term of the Plan, and (iii) the number and
class of Shares or other stock or securities which 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
A-9
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,
A-10
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
A-11
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.
A-12
PROXY
DETACH HERE
COST PLUS, INC.
WRITTEN CONSENT OF SHAREHOLDERS
THIS WRITTEN CONSENT IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholders of COST PLUS, INC., a California
Corporation (the "Company"), in accordance with Section 603 of the California
Corporations Code and the Bylaws of the Company, take the following action by
WRITTEN CONSENT, as set forth on the reverse side.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE
SIDE
DETACH HERE
[X] Please mark
votes as in
this example.
ACTION BY WRITTEN CONSENT
OF THE SHAREHOLDERS OF
COST PLUS, INC.
The undersigned holder of shares of Common Stock of Cost Plus, Inc. (the
"Company") hereby adopts the following resolution:
FOR AGAINST ABSTAIN
RESOLVED: That the shareholders approve the 1995 Stock
Option Plan and the increase of 250,000 shares in the [_] [_] [_]
number of shares of Common Stock reserved for issuance
under the 1995 Stock Option Plan.
This Written Consent may be executed in counterparts, all of which together will
constitute one and the same instrument. This Written Consent shall apply to all
shares of the Common Stock of the Company held by the undersigned.
MARK HERE
FOR ADDRESS [_]
CHANGE AND
NOTE AT LEFT
Please sign exactly as your name appears hereon.
If the stock is registered in the names of two
or more persons, each should sign. Executors,
administrators, trustees, guardians and
attorneys-in-fact should add their titles. If
signer is a corporation, please give full
corporate name and have a duly authorized
officer sign, stating title. If signer is a
partnership, please sign in partnership name by
authorized person.
Signature _________________ Date _____ Signature__________________ Date _____