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 (S)240.14a-11(c) or (S)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:
(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.
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Notice of Annual Meeting of Shareholders
To Be Held June 15, 1999
To The Shareholders:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareholders (the
"Annual Meeting") of Cost Plus, Inc. (the "Company"), a California
corporation, will be held on June 15, 1999 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 and
until their successors are elected: Murray H. Dashe, Joseph H.
Coulombe, Danny W. Gurr, Olivier L. Trouveroy 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 400,000 shares.
3. To approve an amendment to the Company's 1996 Director Option Plan (the
"Director Option Plan") to terminate the automatic option grant
mechanism in response to proposed changes in accounting rules relating
to stock options and to grant the Board of Directors flexibility in
establishing the terms of options granted under the Director Option
Plan.
4. To ratify and approve the appointment of Deloitte & Touche LLP as
independent auditors of the Company for the fiscal year ending January
29, 2000.
5. 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 April 28, 1999 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 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 14, 1999
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.
[MAP APPEARS HERE]
COST PLUS, INC.
ANNUAL MEETING OF SHAREHOLDERS
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PROXY STATEMENT
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General
The enclosed Proxy is solicited on behalf of the Board of Directors of Cost
Plus, Inc. (the "Company") for use at the 1999 Annual Meeting of Shareholders
(the "Annual Meeting") to be held June 15, 1999 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 14, 1999 to
all shareholders entitled to vote at the Annual Meeting.
On March 1, 1999, the Company effected a three-for-two split of its Common
Stock. All amounts related to the Company's Common Stock, including stock
options, that are contained herein have been adjusted to reflect the stock
split.
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:
Charmaine Casella, 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, Three and Four, 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 five 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 five 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 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 April 28, 1999 are
entitled to notice of and to vote at the Annual Meeting. As of April 28, 1999,
13,476,939 shares of the Company's Common Stock were issued and outstanding.
PROPOSAL ONE
ELECTION OF DIRECTORS
Nominees
The Board of Directors of the Company currently consists of six directors,
as a result of the resignation of Ralph D. Dillon in May 1999. Additionally,
one of the six directors, Nancy Pedot, has indicated that she will not be
standing for re-election. The Board of Directors, therefore, has approved an
amendment to the Company's Bylaws which, effective immediately prior to the
Annual Meeting, reduces the number of directors to five. Accordingly, a board
of five directors is to be elected at the Annual Meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for the
Company's five 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 five 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.
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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
--------------- --- -------------------- --------
Murray H. Dashe............. 56 Chairman, Chief Executive Officer 1997
and President
Joseph H. Coulombe.......... 68 Independent Management Consultant 1995
Danny W. Gurr............... 41 President, Dorling Kindersley 1995
Publishing Inc.
Olivier L. Trouveroy........ 44 Managing Partner, Hampshire 1995
Equity Partners
Thomas D. Willardson........ 48 Senior Vice President, Finance 1991
and 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. 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 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. Coulombe has served as a director of the Company since November 1995.
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. From November 1992 to
February 1994, Mr. Coulombe was an independent business consultant. From March
1992 to October 1992, Mr. Coulombe served as Executive Vice President of
Pacific Enterprises, with principal responsibility for Thrifty Corporation, an
operator of drug and sporting goods chain stores and also served as Co-
Chairman of Thrifty Corporation. From June 1989 through March 1992, Mr.
Coulombe served as an independent business consultant. 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. Gurr has served as a director of the Company since November 1995. Since
April 1998, Mr. Gurr has served as President of Dorling Kindersley 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. Mr. Gurr also serves as a director for DK Holdings PLC.
Mr. Trouveroy has served as a director of the Company since March 1995. Mr.
Trouveroy joined Internationale Nederlanden (U.S.) Capital Corporation
("ING"), a diversified financial services institution, in 1992 and currently
serves as a managing partner of Hampshire Equity Partners (formerly ING Equity
Partners, LP I). From 1990 through 1991, Mr. Trouveroy was a managing director
of General Electric Capital Corporation ("GECC") in charge of GECC's Corporate
Finance office in Paris, France. From 1984 to 1990, Mr. Trouveroy
3
was an investment banker in the mergers and acquisitions department of Drexel
Burnham Lambert Incorporated in New York, most recently as a first vice
president. Mr. Trouveroy also serves as a director of e.spire Communications,
Inc. and Kasper A.S.L., Ltd.
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.
Board Meetings and Committees
The Board of Directors of the Company held a total of four meetings during
the fiscal year ended January 30, 1999. The Board of Directors has an Audit
Committee and a Compensation Committee. The Board of Directors does not have a
nominating committee or any committee performing similar functions.
The Audit Committee of the Board of Directors consists of Messrs. Trouveroy,
Coulombe and Gurr and held two 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 for reviewing and evaluating the Company's accounting
principles and its system of internal accounting controls.
The Compensation Committee of the Board of Directors consists of Ms. Pedot
(who will not stand for re-election) and Messrs. Trouveroy and Willardson and
held four meetings 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.
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.
Director Compensation
Cash Compensation
In the 1998 fiscal year, each of the Company's non-employee directors,
except for Mr. Trouveroy and Edward A. Mule (who resigned from the Board in
November 1998), was compensated at the rate of $10,000 per annum for service
on the Board of Directors and committees thereof, with adjustments for service
for a portion of the year. This rate was increased to $12,000 per annum in
February 1999. Directors are also reimbursed for reasonable expenses incurred
in connection with attendance at Board of Directors and committee meetings.
1996 Director Option Plan
The Company's 1996 Director Option Plan (the "Director Option Plan") was
adopted by the Board of Directors and approved by the Company's shareholders
in March 1996. Under the Director Option Plan, the Company initially reserved
42,450 shares of Common Stock for issuance to the non-employee directors of
the Company. Each non-employee director elected after the date of the Director
Option Plan automatically receives an option to purchase 10,612 shares of
Common Stock on the date such person becomes a director. An amendment to the
Director Option Plan, which was approved by the Board of Directors in April
1997 and by the shareholders in June 1997, added an additional 60,000 shares
to the Director Option Plan and provided for automatic annual option grants of
3,000 shares to each of the Company's non-employee directors, except for
4
Messrs. Trouveroy and Mule. In the case of Messrs. Trouveroy and Mule, the
annual option grants would be made to their respective employers, ING Equity
Partners, LPI ("ING Equity Partners") (now Hampshire Equity Partners) and
Goldman, Sachs & Co. ("Goldman Sachs"). The annual option grants would occur
on the date of the Company's Annual Meeting of Shareholders beginning with the
1997 Annual Meeting, or June 30 of each year, whichever is earlier. Each
option granted under the 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. Twenty-five percent of options granted pursuant to the Director
Option Plan vest on each anniversary of their dates of grant, provided that
the optionee continues to serve as a director on such dates. The Director
Option Plan will be in effect for a term of ten years unless sooner
terminated.
Pursuant to the Director Option Plan, ING Equity Partners, Goldman Sachs and
each of Messrs. Coulombe, Gurr, and Willardson were granted options to
purchase 3,000 shares of Common Stock on June 18, 1998 at an exercise price
per share of $21.083. Upon her appointment to the Board of Directors in June
1998, Ms. Pedot was granted an option to purchase 10,612 shares at an exercise
price of $21.083 per share.
In May 1999, in response to proposed changes in the accounting treatment for
options granted to directors, the Board of Directors approved an amendment to
the Director Option Plan which terminates the automatic grant mechanism and
provides flexibility to the Board in establishing the terms of options granted
under the plan. The Company is seeking shareholder approval of the amendment
to the Director Option Plan. See "Proposal Three-- Approval of Amendments to
1996 Director Option Plan."
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. Currently,
2,512,004 shares are reserved for issuance under the 1995 Option Plan.
However, under the terms of the 1995 Option Plan, that number must be reduced
by 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, a total of 1,964,591 shares of Common Stock are now available for
issuance under the 1995 Option Plan, which number will automatically increase
to the extent that any of the 25,914 options outstanding as of March 31, 1999
under the 1994 Option Plan lapse or are canceled without being exercised.
As of March 31, 1999, options to purchase 1,298,734 shares of Common Stock
were outstanding under the 1995 Option Plan, 396,604 shares had been issued by
the Company upon exercise of options under the 1995 Option Plan and 269,253
shares remained available for future option grants under the 1995 Option Plan.
In May 1999, the Board of Directors approved a proposal to amend the 1995
Option Plan to increase the shares reserved for issuance thereunder by 400,000
shares. The proposed increase represents less than three percent of the
Company's outstanding stock as of the record date for the Annual Meeting,
which is equivalent to, or less than, prior increases to the 1995 Option Plan
approved by the shareholders in 1998, 1997 and 1996. The Company is seeking
shareholder approval of the proposed amendment to the 1995 Option Plan. A
summary of the amended 1995 Option Plan 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 awarding 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.
5
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 January 30, 1999
to: (i) the Chief Executive Officer and the five most highly compensated
executive officers of the Company in the fiscal year ended January 30, 1999;
(ii) all current executive officers as a group; (iii) all current directors
who are not executive officers as a group; and (iv) all other employees,
including all current officers who are not executive officers, as a group:
Amended Plan Benefits Table
Dollar Number of Shares
Value Subject to Options
Name of Individual or Identity of Group ($)(1) Granted (#)
- --------------------------------------- -------- ------------------
Ralph D. Dillon.................................... $128,400 27,000
Murray H. Dashe.................................... 88,800 30,000
John F. Hoffner.................................... 167,925 75,000
Kathi P. Lentzsch.................................. 22,200 7,500
Joan S. Fujii...................................... 8,800 3,000
Gary D. Weatherford................................ 8,800 3,000
All current executive officers as a group (11
total)............................................ 493,113 169,050
All current non-employee directors (5 persons)..... 0 0
All other current employees as a group............. 422,472 99,450
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(1) Calculated by determining the difference between the fair market value of
the Company's Common Stock on January 30, 1999 ($23.67), and the exercise
price of such options, multiplied by the number of shares.
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.
PROPOSAL THREE
APPROVAL OF AMENDMENTS TO 1996 DIRECTOR OPTION PLAN
The 1996 Director Option Plan (the "Director Option Plan") was adopted by
the Board of Directors and approved by the shareholders in March 1996. The
Board of Directors and shareholders of the Company approved certain amendments
to the plan in 1997, including a 60,000 share increase in the number of shares
reserved for issuance under the plan. As a result of the 1997 amendments, a
cumulative total of 102,450 shares of Common Stock have been reserved for
issuance under the Director Option Plan. As of March 31, 1999, options to
purchase 40,613 shares were issued and outstanding under the Director Option
Plan, options to purchase 61,087 shares remained available for future grant
and options to purchase 750 shares of Common Stock had been exercised.
The Director Option Plan is designed to attract capable individuals to serve
as directors of the Company, to retain such individuals as directors, and to
incentivize non-employee directors (by providing them with an opportunity to
acquire a significant ownership interest in the Company's Common Stock) to use
their influence and talent to maximize value for all shareholders. Directors
who are employed by the Company are not eligible to participate in the plan.
6
The Director Option Plan was originally designed to be automatic in its
operation. It provided that upon joining the Board of Directors each
nonemployee director would be granted options to purchase 10,612 shares of
Common Stock and each year thereafter, on the date of the annual meeting of
shareholders (or June 30, if earlier), would be granted options to purchase an
additional 3,000 shares of Common Stock. The exercise price of each option is
the market value of the Common Stock on the date of grant. Additionally, such
options have terms of 10 years, but terminate earlier if the individual ceases
to serve as a director. Such options become exercisable by the holder at the
rate of 25% of the shares subject to the option each year.
Historically, options granted to nonemployee directors have been accounted
for in the same manner as options granted to employees. Accordingly, such
options have not caused any compensation expense to be recorded on the
Company's income statement. In December 1998, the Financial Accounting
Standards Board (the "FASB") proposed certain changes in the accounting
treatment for options granted to directors that, if they become effective,
will result in compensation expense charges that may affect future accounting
periods in an unpredictable manner. Under the new proposals, prior to the
respective vesting dates for option installments, the issuer of the option
will have to accrue compensation expense at each quarterly accounting period
if the market value of the stock exceeds the exercise price, based on the
difference. Thus, if the Company's stock performs well, the compensation
expense associated with options that are not fully exercisable at the time of
grant will also increase commensurately.
In view of these proposed changes in the accounting treatment for director
options, the Board of Directors believes that it is desirable to amend the
Director Option Plan to terminate the automatic grant mechanism and to provide
flexibility to the Board of Directors in establishing the terms of options
granted under the plan. Accordingly, the Board has approved amendments to the
Director Option Plan to permit such flexibility and is asking the shareholders
to approve such amendments. The Company is not seeking any increase in the
number of shares reserved for issuance under the Director Option Plan. A
summary of the amended Director Option Plan is included as Appendix B to this
Proxy Statement.
The effect of these amendments will be that in the future the Board of
Directors will be able to grant its members who are not employed by the
Company options to purchase such number of shares as may be determined by the
Board and having terms of up to 10 years. Such options may be subject to
vesting based on continued service or may be fully vested upon grant and may
be granted at such times as the Board of Directors determines. Options granted
under the Director Option Plan will continue to have exercise prices equal to
the fair market value of the option at the date of grant. Further, if the
Board wishes to grant options to purchase more than the current number of
shares reserved for grant under the plan it will have to seek shareholder
approval of the increase.
If the proposed amendments are approved, the Board of Directors intends to
implement the following program of option grants. Directors who join the Board
after the amendments are approved would be granted options to purchase 2,850
shares of Common Stock upon joining the Board and again in each of the next
three years. These options would be fully vested and exercisable at the time
of grant and would terminate on the earlier of 10 years from the date of grant
or six months after the individual ceases to serve as a director.
Additionally, each director would receive an annual option grant on the date
of the Annual Meeting or June 30th, whichever is earlier, provided that such
director has served on the Board for the preceding six months. These annual
option grants, which will have the same vesting, exercisability and
termination provisions as the grants to new directors, will be made according
to the following schedule:
Options to
Year of Grant(1) be Granted
---------------- ----------
Year 1......................................................... 950
Year 2......................................................... 1,900
Year 3......................................................... 2,850
Each year thereafter........................................... 3,800
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(1) For current directors, Year 1 is 1999. For directors appointed after the
amendment, Year 1 will be the year of the first annual meeting after such
director has served on the Board for the requisite six-month period.
7
Under the changes proposed by the FASB for the accounting treatment of
director options, the value of such options would be charged to the Company's
income statement as compensation expense on the date of grant. Because the
options would be fully vested on the grant date, there would be no further
compensation expense associated with such options.
Amended Director Option Plan Benefits
The following table sets forth information with respect to stock option
grants expected to be made in the current fiscal year under the Director
Option Plan to the Company's non-employee directors or their assignees:
Amended Plan Benefits Table
Options to
be Granted During
Name of Individual or Identity of Group Fiscal 1999(1)
--------------------------------------- -----------------
Joseph H. Coulombe..................................... 950
Danny W. Gurr.......................................... 950
Olivier L. Trouveroy (2)............................... 950
Thomas D. Willardson................................... 950
All current directors who are not executive officers (5
persons).............................................. 3,800
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(1) The exercise price for all grants will be at the fair market value of the
Company's Common Stock at the time of grant.
(2) These options will be granted to Hampshire Equity Partners with which Mr.
Trouveroy is employed. See "Security Ownership of Certain Beneficial
Owners and Management."
Required Vote
The amendments to the 1996 Director Option Plan require the approval 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 AMENDMENTS TO
THE 1996 DIRECTOR OPTION PLAN.
8
PROPOSAL FOUR
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 January 29, 2000 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 a statement if they desire to do so, and
are expected to be available to respond to appropriate questions.
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 five other most highly compensated executive officers of the
Company in the fiscal year ended January 30, 1999:
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------- ----------------------
Restricted Securities All Other
Fiscal Salary Bonus Stock Underlying Compensation
Name and Principal Position Year ($) ($) Award ($) Options (#) ($)
- --------------------------- ------ ------------------- ---------- ----------- ------------
Ralph D. Dillon (1)..... 1998 $289,047 $ 50,000 $ -- 27,000 $36,824(2)
1997 387,077 234,181 -- 108,375 --
1996 368,846 245,908 -- 75,000 --
Murray H. Dashe......... 1998 348,923 168,320 -- 30,000 --
Chairman, Chief 1997 199,904 87,958 -- 159,375 --
Executive Officer
and President (3)
John F. Hoffner......... 1998 141,923 53,249 -- 75,000 55,820(5)
Executive Vice
President,
Administration,
Chief Financial Officer
and Secretary (4)
Kathi P. Lentzsch....... 1998 209,923 74,686 -- 7,500 --
Executive Vice 1997 200,000 77,000 -- 94,500 --
President,
Merchandising and
Marketing
Joan S. Fujii........... 1998 123,693 38,444 -- 3,000 --
Senior Vice President, 1997 117,308 37,392 -- 31,500 --
Human Resources 1996 104,002 31,303 -- 12,000 --
Gary D. Weatherford..... 1998 135,808 50,599 -- 3,000 --
Senior Vice President, 1997 125,001 46,645 -- 36,000 --
Stores 1996 97,889 35,732 -- 12,000 --
- --------
(1) Mr. Dillon served as the Company's Chief Executive Officer until his
resignation from that position in February 1998. Following his resignation
as Chief Executive Officer, Mr. Dillon remained employed by the Company as
Chairman Emeritus of the Board of Directors and was compensated for
providing consulting services to the Company. In May 1999, Mr. Dillon
resigned from the Board of Directors but remained an employee of the
Company. See "Employment and Related Agreements; Change in Control
Arrangements."
(2) Amount reimbursed to Mr. Dillon for relocation expenses.
(3) Mr. Dashe became Chief Executive Officer and Chairman of the Board of the
Company in February 1998 following the resignation of Mr. Dillon. Mr.
Dashe joined the Company in June 1997 as Vice Chairman of the Board of
Directors and was named President of the Company in September 1997.
(4) Mr. Hoffner joined the Company in June 1998 and the table reflects amounts
earned by Mr. Hoffner from that date through the end of the Company's
fiscal year, during which time he served as Executive Vice President,
Administration, Chief Financial Officer and Secretary of the Company.
(5) Amount reimbursed to Mr. Hoffner 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 January 30, 1999 to the persons named in the Summary Compensation Table.
Individual Grants Potential Realizable
--------------------------------------------------- Value at Assumed
Number of Percent of Rates of Stock Price
Securities Total Options Appreciation for
Underlying Granted to Exercise Option Term (3)
Options Employees in Price Expiration --------------------
Name Granted (#) Fiscal Year (1) ($/Share)(2) Date 5%($) 10%($)
---- ----------- --------------- ------------ ---------- --------- ----------
Ralph D. Dillon......... 12,000 4.06% $16.67 2/11/2008 $ 125,779 $ 318,748
15,000 5.08 20.71 3/31/2008 195,363 495,089
Murray H. Dashe......... 30,000 10.15 20.71 3/31/2008 390,700 990,112
John F. Hoffner......... 52,500 17.77 21.08 6/15/2008 696,107 1,764,074
22,500 7.61 22.25 11/10/2008 314,840 797,867
Kathi P. Lentzsch....... 7,500 2.54 20.71 3/31/2008 97,676 247,528
Joan S. Fujii........... 3,000 1.02 20.71 3/31/2008 39,083 99,045
Gary D. Weatherford..... 3,000 1.02 20.71 3/31/2008 39,083 99,045
Option Grants in Last Fiscal Year
- --------
(1) The Company granted options to employees to purchase a total of 295,500
shares of Common Stock during the fiscal year ended January 30, 1999.
(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, 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 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.
11
The table below provides the specified information concerning the exercise
of options to purchase the Company's Common Stock in the fiscal year ended
January 30, 1999 and the unexercised options held as of January 30, 1999 by
the persons named in the Summary Compensation Table.
Aggregated Option Exercises In Last Fiscal Year and Fiscal Year-End Option
Values
Number of
Securities Underlying Value of Unexercised
Unexercised Options at in the Money Options
Shares Fiscal Year-End at Fiscal Year-End(1)($)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized(1)($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------------- ----------- ------------- ----------- -------------
Ralph D. Dillon......... 201,298 $2,554,425 85,339 176,207 $969,652 $1,922,742
Murray H. Dashe......... 15,000 102,500 19,500 154,875 160,875 1,080,719
John F. Hoffner......... -- -- -- 75,000 -- 167,500
Kathi P. Lentzsch....... -- -- 19,249 82,751 255,320 809,243
Joan S. Fujii........... 8,676 143,056 35,209 46,396 545,854 473,218
Gary Weatherford........ 23,877 440,079 24,744 43,001 336,525 414,024
- --------
(1) Calculated by determining the difference between the fair market value of
the Company's Common Stock on the date of exercise or at January 30, 1999
($23.67), as applicable, and the exercise price of such options,
multiplied by the number of shares.
Employment and Related Agreements; Change in Control Arrangements
During the fiscal year ended January 31, 1998, the Company had an employment
agreement with Ralph Dillon (the "Dillon Employment Agreement") which provided
for Mr. Dillon's employment by the Company as Chief Executive Officer at an
annual base salary of not less than $340,000, such sum to be reviewed for
possible increases by the Board of Directors prior to each anniversary of the
date of the Dillon Employment Agreement, as well an annual performance bonus.
The foregoing compensation package was in effect until February 11, 1998,
which was the date Mr. Dillon ceased to be the Chief Executive Officer of the
Company and became Chairman Emeritus of the Board of Directors and remained an
employee of the Company. Effective February 12, 1998, the Dillon Employment
Agreement was amended to provide that Mr. Dillon will receive an annual salary
of $185,500 until the later of August 12, 1998 or the date upon which he
ceases to be Chairman Emeritus of the Board of Directors of the Company.
Thereafter, for the remaining term of the Dillon Employment Agreement, which
extends until Mr. Dillon's 65th birthday, Mr. Dillon will be paid a minimal
salary in exchange for limited consulting services. See "Certain Relationships
and Related Transactions." In May 1999, the Company and Mr. Dillon entered
into an Executive Transition Agreement (the "Transition Agreement") which
provided for Mr. Dillon's continued employment by the Company as an advisor to
the Chief Executive Officer providing management advice and strategic planning
services. Pursuant to the Transition Agreement, Mr. Dillon will receive a base
salary of: (i) $185,500 per year until March 31, 2000; (ii) $214,000 per year
from April 1, 2000 until March 31, 2001; and (iii) $14,000 per year until
September 30, 2005, at which time the Transition Agreement terminates.
On May 6, 1998, the Company entered into an employment agreement with John
Hoffner (the "Hoffner Employment Agreement"), which provides for Mr. Hoffner's
employment by the Company as Executive Vice President, Chief Administrative
Officer and Chief Financial Officer. The compensation package under the
Hoffner Employment Agreement includes: (i) an annual base salary of $220,000,
which may be increased at the discretion of the Company; (ii) a performance
bonus of up to 35% of Mr. Hoffner's base salary; and (iii) a stock option
grant of 52,500 shares, with a ten-year term and four-year vesting. Under the
Hoffner Employment Agreement, in the event of the involuntary termination (as
defined below) of Mr. Hoffner's employment prior to June 15, 2000, Mr. Hoffner
will receive his monthly base compensation for a period of 12 months, and
continued health, disability and life insurance benefits until the earlier of
the date upon which he becomes covered under another employer's benefit plan
or 12 months following the date of termination. In November 1998, the Board
12
of Directors amended the Hoffner Employment Agreement to provide for 18 months
of severance pay if, prior to June 15, 2000, his employment is involuntarily
terminated after a change of control (as defined below).
The Company has entered into retention agreements with the following
executive officers: Murray Dashe, Kathi Lentzsch, Joan Fujii and Gary
Weatherford. These agreements provide for payments to them in certain
circumstances upon their involuntary termination, including termination
following a change of control (as such terms are defined below). Pursuant to
his agreement, Mr. Dashe will receive his monthly base compensation for a
period of 12 months, and continued health, disability and life insurance
benefits until the earlier of the date upon which he becomes covered under
another employer's benefit plan or 12 months following the date of termination
if his employment is involuntarily terminated prior to June 2000 by the
Company for other than cause. In November 1998, the Board of Directors amended
Mr. Dashe's agreement to provide for 18 months of severance pay in the event
his employment is involuntarily terminated after a change of control. Pursuant
to her agreement, Ms. Lentzsch will receive 12 months of severance pay if her
employment is involuntarily terminated prior to June 15, 2000; provided,
however, that if her employment is involuntarily terminated after a change of
control, Ms. Lentzsch will receive 18 months of severance pay. Both Ms.
Fujii's and Mr. Weatherford's agreements provide for six months of severance
pay in the event either such employee is involuntarily terminated prior to
June 15, 2000, and nine months of severance pay if either such employee is
involuntarily terminated after a change of control.
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.
13
REPORT OF THE COMPENSATION COMMITTEE
The Company's Executive Compensation program is administered by the
Compensation Committee composed of three non-employee directors: Thomas D.
Willardson, Chairman, Olivier L. Trouveroy and Nancy Pedot (who is not
standing for re-election as a director). Edward A. Mule served as Chairman of
the Compensation Committee until his resignation from the Board of Directors
in November 1998.
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
. 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 a 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 was
promoted to Chairman, CEO and President on February 12, 1998 and his base
salary was raised to $350,000. 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 for the fiscal year ended
January 30, 1999 was based on the EBITDA target established prior to the
fiscal year. The Company exceeded the EBITDA target for the fiscal year,
resulting in the incentive award payments for Mr. Dashe and the other
executive officers reflected in the Summary Compensation Table above. Mr.
Dashe's incentive award payment for the fiscal year ended January 30, 1999 was
$168,320.
Mr. Dashe was also awarded stock option grants for the purchase of an
aggregate of 30,000 shares of Common Stock during the last fiscal year. Of
these, options to purchase 15,000 shares were awarded as a standard annual
option grant, and options to purchase 15,000 shares were considered
"performance options" that would become exercisable if the Company met a
specified earnings per share target for the fiscal year, which target was
achieved.
14
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
Thomas D. Willardson, Chairman
Nancy Pedot
Olivier L. Trouveroy
Compensation Committee Interlocks and Insider Participation
Neither Nancy Pedot, Olivier L. Trouveroy nor Thomas D. Willardson, the
members of the Company's Compensation Committee, is an executive officer of
any entity for which any executive officer of the Company serves as a director
or a member of the Compensation Committee. See also "Certain Relationships and
Related Transactions."
15
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 January 30, 1999.
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.
[PERFORMANCE GRAPH APPEARS HERE]
IPO Quarter End
------ ----------------------------------------------------------------------------------------------
4/4/96 Apr-96 Jul-96 Oct-96 Jan-97 Apr-97 Jul-97 Oct-97 Jan-98 Apr-98 Jul-98 Oct-98 Jan-99
------------------------------------------------------------------------------------------------------
Cost Plus, Inc. 100 158 150 118 115 110 170 181 165 216 197 200 237
Nasdaq Stock Market 100 113 104 118 119 128 145 146 149 162 138 163 232
Nasdaq Retail Trade 100 112 107 111 105 108 121 125 126 144 105 124 154
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.
16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with Mr. Dillon's resignation as the Company's Chief Executive
Officer in February 1998, the Company purchased from him, pursuant to the
terms of the Dillon Employment Agreement (See "Employment and Related
Agreements; Change in Control Agreements"), 225,002 shares of Common Stock of
the Company at a price per share of $16.67 (the closing price of the Common
Stock as reported by the Wall Street Journal for the Nasdaq National Market
System on February 12, 1998), for a total purchase price of $3,750,025.
In July 1998, the Board of Directors approved a bridge loan to John Hoffner
to assist him in relocating to the San Francisco Bay Area from his home in San
Diego. The loan was for the principal amount of $180,000 with simple interest
at the rate of 5.88%. The loan was due and payable upon the earlier of (i)
three years after its issuance or (ii) the third business day after the sale
of Mr. Hoffner's home in San Diego. The Company made the loan to Mr. Hoffner
pursuant to the 1997 Executive Officer and Key Employee Loan Plan, which was
approved by the Board of Directors in May 1997 and the Company's shareholders
in June 1997. Mr. Hoffner has repaid the loan in full.
17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth as of March 31, 1999 (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
Name and Address(1) Owned Percentage(2)
- ------------------- ------------ -------------
The TCW Group, Inc.(3).............................. 1,230,292 9.22%
865 South Figueroa
Los Angeles, CA 90017
Delaware Management Holdings, Inc.(4)............... 1,098,442 8.23%
One Commerce Square
2005 Market Street
Philadelphia, PA 19103
Citigroup, Inc.(5).................................. 1,030,633 7.72%
153 East 53rd Street
New York, NY 10043
Capital Research and Management Company
SMALLCAP World Fund, Inc.(6)....................... 855,000 6.41%
333 South Hope Street
Los Angeles, CA 90071
Dresdner Bank AG (7)................................ 756,600 5.67%
Jurgen--Ponto--Platz 1
60301 Frankfurt, Germany
Ralph D. Dillon (8)................................. 182,576 1.35%
Murray H. Dashe(9).................................. 16,475 *
John F. Hoffner..................................... -- --
Kathi P. Lentzsch(10)............................... 41,784 *
Joan S. Fujii(11)................................... 37,159 *
Gary D. Weatherford(12)............................. 37,407 *
Joseph H. Coulombe(13).............................. 8,708 *
Danny W. Gurr(14)................................... 8,456 *
Nancy Pedot......................................... -- --
Olivier L. Trouveroy(15)............................ 29,708 *
Thomas D. Willardson(16)............................ 8,709 *
All current directors and executive officers as a
group (16 persons)(17)............................. 273,884 2.02%
- --------
* 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 13,346,660 shares of Common Stock
outstanding as of March 31, 1999 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, 1999.
(3) Information is as of February 12, 1999, 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.
18
(4) Information is as of February 8, 1999, and is based solely on a Schedule
13G 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.
(5) Information as of February 12, 1999, and is based solely on a Schedule
13G filed with the Securities and Exchange Commission by Citigroup, Inc.
("Citigroup"), Salomon Smith Barney Holdings Inc. ("SSB Holdings") and
Mutual Management Corp. ("MMC"). Citigroup is the sole stockholder of SSB
Holdings, and SSB Holdings is the sole stockholder of MMC. Citigroup has
shared voting and dispositive power with SSB Holdings with respect to
1,030,633 shares. Citigroup and SSB Holdings have shared voting and
dispositive power with MMC with respect to 770,550 shares.
(6) Information as of February 11, 1999, and is based solely on a Schedule
13G filed with the Securities and Exchange Commission by Capital Research
and Management Company ("Capital Research") and SMALLCAP World Fund, Inc.
("SMALLCAP"). Capital Research is an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940 and has sole
dispositive power as to 855,000 shares. SMALLCAP is an investment company
registered under the Investment Company Act of 1940 which is advised by
Capital Research, and has sole voting power as to 855,000 shares.
(7) Information as of February 16, 1999, and is based solely on a Schedule
13G filed with the Securities and Exchange Commission by Dresdner Bank AG
("Dresdner Bank"), Dresdner RCM Global Investors US Holdings LLC,
("Dresdner Holdings") and Dresdner RCM Global Investors LLC ("Dresdner
RCM"). Dresdner RCM is an investment adviser and a wholly owned
subsidiary of Dresdner Holdings which is a wholly owned subsidiary of
Dresdner Bank. Each of Dresdner Bank, Dresdner Holdings and Dresdner RCM
report sole voting power of 407,100 shares and sole dispositive power of
756,600 shares.
(8) Includes 46,463 shares held by The Dillon Trust, of which Mr. Dillon and
his spouse are trustees. Also includes 136,113 shares issuable upon
exercise of stock options exercisable within 60 days of March 31, 1999.
(9) Consists of 16,475 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 1999.
(10) Includes 41,250 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 1999.
(11) Includes 35,175 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 1999.
(12) Includes 36,281 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 1999.
(13) Includes 5,304 shares held by the Coulombe Family Trust. Also includes
3,404 shares issuable upon exercise of stock options exercisable within
60 days of March 31, 1999.
(14) Includes 1,800 shares registered in the name of Mr. Gurr's spouse, Vivian
Southwell. Also includes 6,056 shares issuable upon exercise of stock
options exercisable within 60 days of March 31, 1999.
(15) Includes 21,000 shares held of record by ING (U.S.) Capital Corporation
("ING") on behalf of Hampshire Equity Partners (formerly ING Equity
Partners, LP I) ("Equity Partners"), the beneficial owner of such shares.
Mr. Trouveroy, a director of the Company, is a managing partner of Equity
Partners. Also includes 8,708 shares issuable upon exercise of stock
options held by ING exercisable within 60 days of March 31, 1999.
(16) Consists of 8,709 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 1999.
(17) See notes (9) through (16) above. Also includes 13,452 shares held by
executive officers of the Company not named in the table above and 71,936
shares issuable upon exercise of stock options exercisable within 60 days
of March 31, 1999 held by such officers.
19
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 greater than ten percent
shareholders 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 the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended January 30, 1999, all
officers, directors and greater than ten percent shareholders complied with
all Section 16(a) filing requirements, except that Form 5s filed by Mervin G.
Morris (who served on the Board of Directors until June 1998), Joseph H.
Coulombe, Thomas D. Willardson and Danny W. Gurr omitted the annual option
grants to non-employee directors that occurred in June 1997. Messrs. Morris,
Coulombe, Willardson and Gurr reported the option grants in Form 4s filed
during the fiscal year ended January 30, 1999.
DEADLINE FOR RECEIPT OF SHAREHOLDER
PROPOSALS -- 2000 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. Shareholders wishing to present a proposal at the
Company's 2000 Annual Shareholder Meeting must submit such proposal to the
Company by January 15, 2000 if they wish for it to be eligible for inclusion
in the proxy statement and form of proxy relating to that meeting. In
addition, under the Company's Bylaws, a shareholder wishing to make a proposal
at the 2000 Annual Shareholder Meeting must submit such a proposal to the
Company prior to March 30, 2000.
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 14, 1999
20
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 2,912,004 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 further, that, in the case of an incentive stock option granted to
an employee who, at the time of such grant,
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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 option's 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
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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.
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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.
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.
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APPENDIX B
Summary of 1996 Director Option Plan
(including proposed amendments)
The essential features of the 1996 Director Option Plan (the "Director
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 Director Option Plan. Capitalized terms used herein and not defined
shall have the meanings set forth in the Director Option Plan.
Purpose. The purposes of the Director Option Plan are to attract and retain
the best available individuals for service as non-employee directors of the
Company ("Outside Directors"), to provide additional incentive to the Outside
Directors and to encourage their continued service on the Board of Directors.
Administration. The Director Option Plan is administered by the Board of
Directors or a committee appointed by the Board (the "Committee"), whose
members receive no additional compensation for such service. All grants of
options under the Director Option Plan are subject to the discretion of the
Committee pursuant to the terms of the Director Option Plan. All questions of
interpretation or application of the Director Option Plan are determined by
the Board of Directors, whose decisions are final and binding upon all
participants.
Eligibility. Options under the Director Option Plan may be granted only to
Outside Directors of the Company or the director's assignee. As of the Record
Date, there were five Outside Directors of the Company, four of whom have been
nominated to serve as directors for the 1999 fiscal year.
Terms of Options. The specific terms of each option granted under the
Director Option Plan are determined by the Committee. Each option granted
under the Director Option Plan is evidenced by a written stock option
agreement between the Company and the optionee. Options are generally subject
to the terms and conditions listed below.
Exercise of the Option. Options granted under the Director Option Plan
expire as determined by the Committee, but in no event later than ten years
from the date of grant. An option is exercised by giving written notice of
exercise to the Company specifying the number of full shares of Common Stock
to be purchased and by tendering payment of the purchase price. Payment for
shares purchased upon exercise of an option shall be in cash, check, certain
other shares of the Company's Common Stock, pursuant to a "cashless" exercise
program or any combination of the foregoing payment methods.
Exercise Price. The per share exercise price for shares to be issued
pursuant to exercise of an option under the Director Option Plan is 100% of
the fair market value per share of the Company's Common Stock on the date of
grant of the option. The fair market value is determined by the closing price
on the Nasdaq National Market on the date of the grant of the option.
Termination of Continuous Status as Director. If an optionee ceases to serve
as a director, he or she may, but only within six months after the date he or
she ceases to be a director of the Company, exercise his or her option to the
extent that he or she was entitled to exercise it at the date of such
termination (but in no event later than the expiration of its term). To the
extent that he or she was not entitled to exercise the option at the date of
such termination, or if he or she does not exercise such option within the
time specified, the option terminates.
Disability or Death. In the event that a director is unable to continue the
director's service as such with the Company as a result of his or her total
and permanent disability (as defined in Section 22(e)(3) of the Code) or if an
optionee should die while a director of the Company, the director or his or
her estate may, but only within twelve months from the date of termination due
to disability or death, exercise the option to the extent the director was
entitled to exercise the option at the date of such termination (but in no
event later than the
B-1
expiration of its term). To the extent that the director was not entitled to
exercise the option at the date of such termination, or if the director or his
or her estate does not exercise such option within the time specified, the
option terminates.
Liquidation or Dissolution. In the event of a proposed liquidation or
dissolution of the Company, options under the Director Option Plan shall
terminate.
Merger or Asset Sale. In the event of a merger of the Company or the sale of
substantially all of the assets of the Company, each option may be assumed or
an equivalent option substituted by the successor corporation. If the
successor does not agree to assume or substitute the option, each option shall
also become fully vested and exercisable for a period of thirty days from the
date the Board notifies the optionee, after which period the option shall
terminate. If, after the assumption or substitution of the options, the
director does not continue as a director of the Company or the successor
corporation other than as a result of a voluntary resignation, the option will
become fully vested and exercisable and remain exercisable for six months
after the end of the directorship.
Capital Changes. In the event of any changes made in the Company's
capitalization which result in an exchange of Common Stock for a greater or
lesser number of shares without receipt of consideration, appropriate
adjustment shall be made in the exercise price and in the number of shares
subject to options outstanding under the Director Option Plan, as well as the
number of shares reserved for issuance under the Director Option Plan.
Nontransferability of Option. Options granted pursuant to the Director
Option Plan may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent or
distribution and may be exercised, during the lifetime of the optionee, only
by the optionee.
Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Director Option Plan as
may be determined by the Board.
Amendment and Termination
The Board may at any time amend, alter, suspend or discontinue the Director
Option Plan, but no amendment, alteration, suspension or discontinuance shall
be made which would impair the rights of any optionee under any grant
theretofore made without such optionee's consent. In addition, to the extent
necessary and desirable to comply with any applicable law or regulation,
including the requirements of the NASD (or an established stock exchange), the
Company shall obtain shareholder approval of any amendment to the Director
Option Plan in such a manner and to such a degree as required.
Federal Income Tax Aspects of the Director Option Plan
Options granted pursuant to the Director Option Plan are "nonstatutory
options" and will not qualify for any special tax benefits to the optionee.
An optionee will not recognize any taxable income at the time the option is
granted. Upon exercise of the option, the optionee will generally recognize
ordinary income for federal tax purposes measured by the excess, if any, of
the fair market value of the shares over the exercise price. Because shares
held by directors might be subject to restrictions on resale under Section
16(b) of the Exchange Act, the date of taxation may be deferred unless the
optionee files an election with the Internal Revenue Service pursuant to
Section 83(b) of the Code within thirty days after the date of exercise.
Upon a resale of shares acquired pursuant to an option under the Director
Option Plan, any difference between the sales price and the exercise price, to
the extent not recognized as ordinary income as provided above, will be
treated as capital gain or loss. The tax rate on net capital gain (net long-
term capital gain minus net short-term capital loss) is capped at 28%. Capital
losses are allowed in full against capital gains plus $3,000 of other income.
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The Company will be entitled to a tax deduction in the amount and at the
time that the optionee recognizes ordinary income with respect to shares
acquired upon exercise of an option under the Director Option Plan. The
Company is not required to withhold any amount for tax purposes on any such
income included by the optionee.
The foregoing summary of the effect of federal income taxation upon the
optionee and the Company with respect to the grant of options under the
Director Option Plan does not purport to be complete, and reference should be
made to the applicable provisions of the Code. In addition, this summary does
not discuss the provisions of the income tax laws of any municipality, state
or foreign country in which the optionee may reside.
B-3
1505-PS99
COST PLUS, INC.
1995 STOCK OPTION PLAN
(Adopted November 1, 1995)
(Amended October 15, 1996)
(Amended July 23, 1996)
(Amended April 21, 1997)
(Amended February 12, 1998)
(Amended June 18, 1998)
(Amended May ___, 1999)
1. Purpose.
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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.
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For purposes of the Plan:
2.1 "Affiliate" means (i) with respect to any Person which is not a
natural person, any other Person that directly or indirectly through one or more
intermediaries controls, or is controlled by or under common control with, such
Person; and (ii) with respect to any Person who is a natural person, any of the
following: (x) any spouse, parent, child, brother or sister of such Person or
any issue of the foregoing (as used in this definition, issue shall include
persons legally adopted into the line of descent), (y) a trust solely for the
benefit of such Person or any spouse, parent, child, brother or sister of such
Person or for the benefit of any issue of the foregoing or (z) any corporation
or partnership which is controlled by such Person, or by any spouse, parent,
child, brother or sister of such Person or by any issue of the foregoing.
2.2 "Agreement" means the written agreement between the Company and
an Optionee evidencing the grant of an Option and setting forth the terms and
conditions thereof.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Cause," unless otherwise defined in the Agreement evidencing a
particular Option, means an Eligible Individual's (i) intentional failure to
perform reasonably assigned duties, (ii) dishonesty or willful misconduct in the
performance of duties, (iii) engaging in a transaction in
connection with the performance of duties to the Company or any of its
Subsidiaries thereof which transaction is adverse to the interests of the
Company or any of its Subsidiaries and which is engaged in for personal profit
or (iv) willful violation of any law, rule or regulation in connection with
the performance of duties (other than traffic violations or similar offenses).
2.5 "Change in Capitalization" means any change in the Shares or
exchange of Shares for a different number or kind of shares or other securities
of the Company, by reason of a reclassification, recapitalization, merger,
consolidation, reorganization, spin-off, stock dividend, stock split or reverse
stock split.
2.6 "Change of Control" means the occurrence of any of the following
events:
(i) The acquisition by any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) (other than the Company or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Company) of the "beneficial ownership" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing fifty percent (50%) or more of the total voting power
represented by the Company's then outstanding voting securities;
(ii) A change in the composition of the Board of Directors of the
Company occurring within a two-year period, as a result of which fewer than a
majority of the directors are Incumbent Directors. "Incumbent Directors" shall
mean directors who either (A) are directors of the Company as of the date
hereof, or (B) are elected, or nominated for election, to the Board of Directors
of the Company with the affirmative votes of at least a majority of the
Incumbent Directors at the time of such election or nomination (but shall not
include an individual not otherwise an Incumbent Director whose election or
nomination is in connection with an actual or threatened proxy contest relating
to the election of directors to the Company);
(iii) A merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the approval by the stockholders of the Company of a plan of
complete liquidation of the Company or of an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets;
(iv) The sale of all or substantially all of the assets of the
Company determined on a consolidated basis; or
(v) The complete liquidation or dissolution of the Company.
2.7 "Code" means the Internal Revenue Code of 1986, as amended.
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2.8 "Committee" means a committee, as described in Section 3.1,
appointed by the Board to administer the Plan and to perform the functions set
forth herein.
2.9 "Company" means Cost Plus, Inc., a California corporation.
2.10 "Controlling Shareholders" means Internationale Nederlanden
(U.S.) Capital Corporation and Pearl Street L.P., collectively.
2.11 "Disability" means a physical or mental infirmity which impairs
the Optionee's ability to perform substantially his or her duties for a period
of one hundred eighty (180) consecutive days.
2.12 "Eligible Individual" means any director, officer or employee of
the Company or a Subsidiary, or any consultant or advisor.
2.13 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.14 "Fair Market Value" means on any date, (i) with respect to any
stock or other security (including, without limitation, the Shares) (a) if such
security is listed or admitted to trading on a national securities exchange or
the Nasdaq National Market of the National Association of Securities Dealers
Automated Quotation System, the closing price of such security (or the closing
bid, if no shares were reported, as quoted on such system or exchange or the
exchange with the greatest volume of trading in such security for the last
market trading day prior to the time of determination) as reported in the Wall
Street Journal or such other source as the Committee deems reliable, (b) if such
securities are not listed or admitted to trading, the arithmetic mean of the
closing bid price and the closing asked price on such date as quoted on such
other market in which such prices are regularly quoted, or (c) if there have
been no published bid or asked quotations with respect to such security on such
date, the Fair Market Value shall be the value established by the Committee in
good faith and, in the case of securities relating to an Incentive Stock Option,
in accordance with Section 422 of the Code, and (ii) with respect to all other
property and consideration, the value conclusively determined in good faith by
the Committee in its sole discretion. Any determination made by the Committee
hereunder shall be final, binding and non-appealable.
2.15 "First Vesting Date" means, (i) as to Options granted prior to
June 30, 1996, the earlier to occur of June 30, 1997 and the first anniversary
of the Company's Initial Public Offering, and (ii) as to each Option granted on
or after June 30, 1996, the first anniversary of the Grant Date for such Option.
2.16 "Grant Date" means with respect to each Option, the Grant Date as
defined in the applicable Agreement.
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2.17 "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Committee as an
Incentive Stock Option.
2.18 "Independent Third Party" means any Person who, immediately prior
to the contemplated transaction, does not own in excess of 5% of the Shares on a
fully diluted basis (a "5% Owner"), and any Person who is not an Affiliate of a
5% Owner.
2.19 "Initial Public Offering" means the consummation of the first
public offering of Shares pursuant to one or more effective registration
statements under the Securities Act (other than registrations on Form S-8 or
Form S-4 or any other registration statement used for a business combination or
any successor form to any such Forms) ("Registration Statements").
2.20 "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
2.21 "Option" means an option to purchase Shares granted pursuant to
the Plan.
2.22 "Optionee" means a person to whom an Option has been granted
under the Plan.
2.23 "Outside Director" means a director of the Company who is an
"outside director" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
2.24 "Own" or any derivation thereof means beneficial ownership as
defined in Rule 13d-3 promulgated under the Exchange Act.
2.25 "Parent" means any corporation which is a parent corporation
(within the meaning of Section 424(e) of the Code) with respect to the Company.
2.26 "Per Share Option Price" means, with respect to each Option, the
per share exercise price with respect to such Option.
2.27 "Person" means any natural person, corporation, partnership,
firm, association, trust, government, governmental agency or any other entity,
whether acting in an individual, fiduciary or other capacity.
2.28 "Plan" means this Cost Plus, Inc. 1995 Stock Option Plan.
2.29 "Pooling Period" means, with respect to a Pooling Transaction,
the period ending on the first date on which the combined entity resulting from
such Pooling Transaction publishes combined operating results for at least
thirty (30) days.
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2.30 "Pooling Transaction" means an acquisition of the Company in a
transaction which is treated as a "pooling of interests" under generally
accepted accounting principles.
2.31 "Securities Act" means the Securities Act of 1933, as amended.
2.32 "Shares" means the common stock, par value $.01 per share, of the
Company.
2.33 "Subsidiary" means any corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code) with respect to
the Company.
2.34 "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes a stock option in a transaction to which Section 424(a) of the
Code applies.
2.35 "Ten-Percent Shareholder" means an Eligible Individual, who, at
the time an Incentive Stock Option is to be granted to him or her, owns (within
the meaning of Section 422(b)(6) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company, or of a Parent or a Subsidiary.
3. Administration.
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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.
-5-
(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 employ ment or service for purposes of the Plan;
-6-
(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 2,912,004 Shares (post split), less the
aggregate number of Shares from time to time (i) subject to options outstanding
under the Cost Plus, Inc. 1994 Stock Option Plan (the "1994 Option Plan") or
(ii) issued upon exercise of options granted under the 1994 Option Plan. Options
to be granted under the Plan shall be granted under the Form of Cost Plus, Inc.
1995 Stock Option Plan Incentive Stock Option Agreement attached as Exhibit A-1
-----------
or Nonqualified Stock Option Agreement attached as Exhibit A-2, which forms of
-----------
agreement may be modified or amended by the Committee from time to time so long
as any such modified or amended agreement is not inconsistent with any provision
of the Plan.
(b) Upon a Change in Capitalization, the number of Shares set forth in
this Section 4 and in Section 5 shall be adjusted in number and kind pursuant to
Section 6.
(c) Upon the granting of an Option, the number of Shares available for
the granting of further Options shall be reduced by the number of Shares in
respect of which the Option is granted. Whenever any outstanding Option or
portion thereof expires, is canceled or is otherwise terminated for any reason
without having been exercised or payment having been made in respect 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, 2,912,004 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.
-7-
5.2 Eligibility.
-----------
(a) No Eligible Individual may be granted, in any fiscal year of the
Company, Options to purchase more than 397,983 Shares; provided that the
limitation set forth in this Section 5.2(a) shall only apply to Options granted
after the Company's Initial Public Offering. If an Option is cancelled (other
than in connection with a Change of Control), the cancelled Option will be
counted against the limit set forth in this Section 5.2(a). For this purpose,
if the exercise price of an Option is reduced, the transaction will be treated
as a cancellation of the Option and the grant of a new Option.
(b) Each Option shall be designated in the Agreement as either an
Incentive Stock Option or a Nonqualified Stock Option. However, notwithstanding
such designations, to the extent that the aggregate Fair Market Value:
(i) of Shares subject to an Optionee's Incentive Stock
Options granted by the Company, any Parent or Subsidiary, which
(ii) become exercisable for the first time during any
calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options shall be treated as Nonqualified Stock
Options. For purposes of this Section 5.2(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
5.3 Option Exercise Price. The Per Share Option Price for the Shares
---------------------
to be issued pursuant to exercise of an Option shall be such price as is
determined by the Committee, but shall be 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.
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
-8-
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.
-9-
5.5 Vesting. Unless otherwise provided for by the Committee in an
-------
Agreement and subject to Section 5.10, each Option shall become vested and
exercisable as to 25% of the aggregate number of Shares covered by the Option on
the First Vesting Date, and as to an additional 25% of the aggregate number of
Shares covered by the Option on each of the first, second and third
anniversaries of the First Vesting Date. Any fractional number of Shares
resulting from the application of the vesting percentage shall be rounded to the
next higher whole number of Shares. To the extent not exercised, installments
shall accumulate and be exercisable, in whole or in part, at any time after
becoming exercisable, but not later than the date an Option expires or
terminates. Notwithstanding the foregoing (or any other provision to the
contrary contained in the Plan or any Agreement) all outstanding Options shall
immediately become fully (100%) vested and exercisable upon a Change of Control.
In addition, the Committee may accelerate the exercisability of any Option or
portion thereof at any time.
5.6 Modification. No modification of an Option shall adversely alter
------------
or impair any rights or obligations under the Option without the Optionee's
consent.
5.7 Nontransferability. Unless otherwise provided by the Committee
------------------
in an Agreement, no Option granted hereunder shall be transferable by the
Optionee to whom granted otherwise than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined in
the Code. An Option may be exercised during the lifetime of such Optionee only
by the Optionee or his or her guardian or legal representative. The terms of
such Option shall be final, binding and conclusive upon the beneficiaries,
executors, administrators, heirs and successors of the Optionee.
5.8 Method of Exercise. The exercise of an Option shall be made only
------------------
by a written notice delivered in person or by mail to the Secretary of the
Company at the Company's principal executive office, specifying the number of
Shares to be purchased and accompanied by payment therefor and otherwise in
accordance with the Agreement pursuant to which the Option was granted. The
purchase price for any Shares purchased pursuant to the exercise of an Option
shall be paid in full upon such exercise by any one or a combination of the
following: (i) cash, (ii) check, (iii) transferring Shares to the Company upon
such terms and conditions as determined by the Committee or (iv) pursuant to a
cashless exercise providing for the exercise of the Option and sale of the
underlying Shares by a designated broker and delivery of the Shares by the
Company to such broker. Cashless exercises shall be subject to such procedures
as may be established from time to time by the Committee in its sole discretion.
The Committee shall have discretion to determine at the time of grant of each
Option or at any later date (up to and including the date of exercise) the form
of payment acceptable in respect of the exercise of such Option. With respect
to the transfer of Shares to the Company as payment, in part or in whole, of the
exercise price (i) any Shares transferred to the Company as payment of the
purchase price under an Option shall be valued at their Fair Market Value on the
day preceding the date of exercise of such Option; and (ii) any Shares acquired
upon the exercise of an option must have been owned by the Optionee for more
than six months prior to such transfer. If requested by the Committee, the
Optionee shall deliver the Agreement evidencing the Option to the Secretary of
the Company who shall endorse thereon a
-10-
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.
5.1 Change of Control.
-----------------
(a) In the event of a Change of Control, each outstanding Option
shall become fully (100%) vested and exercisable. In addition, at the election
of the Company the following shall occur:
(A) (i) each Option shall be deemed to have been exercised
to the extent it had not been exercised prior to that date, (ii) the Shares
issuable in connection with the deemed exercise of each Option shall be issued
to and in the name of the acquiror of the Company, if any, and (iii) in
respect of each Share issued in connection with the deemed exercise of an
Option, the Optionee shall receive a per Share payment equal to the number (or
amount) and kind of stock, securities, cash, property or other consideration
that each holder of a Share was entitled to receive in connection with the
Change of Control, reduced by the Per Share Option Price, or
(B) immediately after each outstanding Option has become
fully (100%) vested it shall be terminated in exchange for a per share payment
for each Share then subject to such Option equal to the number (or amount) and
kind of stock, securities, cash, property or other consideration that each
holder of a Share was entitled to receive in connection with the Change of
Control, reduced by the Per Share Option Price, or
(C) in the event of a Change of Control that is consummated
pursuant to a merger, consolidation or reorganization (a "Transaction"), each
outstanding Option shall become fully (100%) vested and exercisable, and the
Plan and the outstanding Options shall continue in effect in accordance with
their respective terms and each Optionee shall be entitled to receive in
respect of each Share subject to any outstanding Option, upon exercise of such
Option, the same number (or amount) and kind of stock, securities, cash,
property or other consideration that each holder of a Share was entitled to
receive in connection with the Transaction in respect of a Share.
-11-
(b) Any sale of Shares by any Optionee in any Change of Control shall
be for the same consideration per share, on the same terms and subject to the
same conditions as the sale by the shareholders of the Company.
(c) For all purposes of the Plan, the value of stock, securities,
property or other consideration shall be the Fair Market Value of such stock,
securities, property or other consideration as determined in accordance with
Section 2.13.
(d) With respect to Incentive Stock Options granted prior to February
12, 1998, in the event of a Change of Control as described in Sections 2.6
(iii), (iv) and (v), the Optionee shall sell his or her Shares and, if
shareholder approval of the transaction is required and if the Company receives
an opinion of an independent, nationally recognized investment banking firm
retained by the Board to the effect that the consideration to be received in
such Sale of the Company, as the case may be, is fair to the shareholders of the
Company, shall vote his or her Shares in favor thereof, and waive any
dissenters' rights, preemptive rights, appraisal rights or similar rights, as
the case may be. (The fees and expenses incurred in obtaining such opinion
shall be borne by the Company.)
(e) With respect to Incentive Stock Options granted prior to February
12, 1998, in any case, in the event of a Change of Control as described in
Sections 2.6(iii), (iv) and (v) (a "Sale of the Company"), the payment made to
each Optionee shall be further reduced by an amount equal to the Optionee's
proportionate share of the expenses of sale incurred by the Controlling
Shareholders in connection with the Sale of the Company. In any Sale of the
Company, at the request of the Controlling Shareholders or the Company, each
Optionee shall execute and deliver a counterpart of an agreement pursuant to
which such Optionee agrees to sell its Shares in the Sale of the Company,
provided that such Optionee shall not be required to make, in connection with
- --------
such Sale of the Company, any representations and warranties with respect to the
Company or its business or with respect to any other Optionee or selling
shareholder. In addition, each Optionee shall be responsible for such
Optionee's proportionate share of the expenses of sale incurred by the selling
shareholders in connection with the Sale of the Company and the obligations and
liabilities (including obligations and liabilities for indemnification
(including indemnification obligations and liabilities for (x) breaches of
representations and warranties made by the Company or any other Optionee or
selling shareholder with respect to the Company or its business, (y) breaches of
covenants and (z) other matters), amounts paid into escrow and post-closing
purchase price adjustments) incurred by the selling shareholders in connection
with the Sale of the Company; provided that (i) without the written consent of
--------
such Optionee, the amount of such obligations and liabilities shall not exceed
the gross proceeds received by such Optionee in such Sale of the Company
(provided that to the extent the proceeds received by the Optionee in such Sale
- ---------
of the Company are reduced by the Per Share Option Price, the "gross proceeds
received by such Optionee" shall be deemed to mean the sum of such proceeds plus
the Per Share Option Price for purposes of this Plan) and (ii) such Optionee
shall not be responsible for the fraud of any other Optionee or selling
shareholder or any indemnification obligations and liabilities for breaches of
representations and warranties made by any other Optionee or selling shareholder
with respect to such other
-12-
Optionee's or selling shareholder's ownership of and title to shares of
capital stock of the Company, organization and authority. In connection with a
Sale of the Company, and subject to Section 5.10(b) and Section 5.10(c)
hereof, each Optionee shall do and perform or cause to be done and performed
all further acts and things and shall execute and deliver all other
agreements, certificates, instruments and documents as the Company or the
Controlling Shareholders reasonably may request in connection with such Sale
of the Company.
6. Adjustment Upon Changes in Capitalization.
-----------------------------------------
(a) In the event of a Change in Capitalization, the Committee shall
conclusively determine the appropriate adjustments, if any, to (i) the maximum
number and class of Shares or other stock or securities with respect to which
Options may be granted under the Plan, (ii) the maximum number of Shares with
respect to which Options may be granted to any Eligible Individual during the
term of the Plan, and (iii) the number and class of Shares or other stock or
securities which are subject to outstanding Options granted under the Plan, and
the purchase price therefor, if applicable.
(b) Any such adjustment in the Shares or other stock or securities
subject to outstanding Incentive Stock Options (including any adjustments in the
purchase price) shall be made in such manner as not to constitute a modification
as defined by Section 424(h)(3) of the Code and only to the extent otherwise
permitted by Sections 422 and 424 of the Code.
(c) If, by reason of a Change in Capitalization, an Optionee shall be
entitled to exercise an Option with respect to, new, additional or different
shares of stock or securities, such new, additional or different shares shall
thereupon be subject to all of the conditions, restrictions and performance
criteria which were applicable to the Shares subject to the Option prior to such
Change in Capitalization.
7. Termination and Amendment of the Plan.
-------------------------------------
The Plan shall terminate on the day preceding the tenth anniversary of
the date of its adoption by the Board and no Option may be granted thereafter.
The Board may sooner terminate the Plan and the Board may at any time and from
time to time amend, modify or suspend the Plan; provided, however, that, except
-----------------
with the consent of the Optionee, no such amendment, modification, suspension or
termination shall impair or adversely alter any Options theretofore granted
under the Plan, nor shall any amendment, modification, suspension or termination
deprive any Optionee of any Shares which he or she may have acquired through or
as a result of the Plan. To the extent necessary and desirable to comply with
the Code or any other applicable laws, the Company shall obtain shareholder
approval of any amendment to the Plan.
-13-
8. Non-Exclusivity of the Plan.
---------------------------
The adoption of the Plan by the Board shall not be construed as
amending, modifying or rescinding any previously approved incentive arrangement
or as creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including, without limitation,
the granting of stock options otherwise than under the Plan, and such arrange
ments may be either applicable generally or only in specific cases.
9. Limitation of Liability.
-----------------------
As illustrative of the limitations of liability of the Company, but
not intended to be exhaustive thereof, nothing in the Plan shall be construed
to:
(i) give any person any right to be granted an Option other than
at the sole discretion of the Committee;
(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
-14-
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 Indi viduals granted Incentive Stock
Options the tax benefits under the applicable provisions of the Code and
regulations promulgated thereunder.
10.5 Each Option is subject to the requirement that, if at any time
the Committee determines, in its discretion, that the listing, registration or
qualification of Shares issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Option or the issuance of
Shares, no such Options shall be granted or payment made or Shares issued, in
whole or in part, unless listing, registration, qualification, consent or
approval has been effected or obtained free of any conditions other than as
acceptable to the Committee.
10.6 Notwithstanding anything contained in the Plan or any Agreement
to the contrary, in the event that the disposition of Shares acquired pursuant
to the Plan is not covered by a then current registration statement under the
Securities Act of 1933, as amended, and is not otherwise exempt from such
registration, such Shares shall be restricted against transfer to the extent
required by the Securities Act of 1933, as amended, and Rule 144 or other
regulations thereunder. The Committee may require any individual receiving
Shares pursuant to an Option granted under the Plan, as a condition precedent to
receipt of such Shares, to represent and warrant to the Company in writing that
the Shares acquired by such individual are acquired without a view to any
distribution thereof and will not be sold or transferred other than pursuant to
an effective registration thereof under said Act or pursuant to an exemption
applicable under the Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder and to the effect set forth in Section 14 of
the Agreement. The certificates evidencing any of such Shares shall bear an
appropriate legend to reflect their status as restricted securities as
aforesaid.
11. Miscellaneous.
-------------
11. 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. 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
-15-
other amounts as may be required by law to be withheld by the Company in
connection with the Taxable Event (the "Withholding Taxes") prior to the
issuance or the payment of such Shares, cash or other consideration. The
Company shall have the right to deduct from any payment of cash to an Optionee
an amount equal to the Withholding Taxes in satisfaction of the obligation to
pay Withholding Taxes. In satisfaction of the obligation to pay Withholding
Taxes to the Company, the Optionee may make a written election (the "Tax
Election"), which may be accepted or rejected in the sole discretion of the
Committee, to have withheld a portion of the Shares then issuable to him or
her having an aggregate Fair Market Value, on the date preceding the date of
such issuance, equal to the Withholding Taxes. Notwithstanding the foregoing,
the Committee may, by the adoption of rules or otherwise, (i) modify the
provisions of this Section 11.2 or impose such other restrictions or
limitations on Tax Elections as may be necessary to ensure that the Tax
Elections will be exempt transactions under Section 16(b) of the Exchange Act,
and (ii) permit Tax Elections to be made at such other times and subject to
such other conditions as the Committee determines will constitute exempt
transactions under Section 16(b) of the Exchange Act.
(b) If an Optionee makes a disposition, within the meaning of Section
424(c) of the Code and regulations promulgated thereunder, of any Share or
Shares issued to such Optionee pursuant to the exercise of an Incentive Stock
Option within the two-year period commencing on the day after the date of the
grant or within the one-year period commencing on the day after the date of
transfer of such Share or Shares to the Optionee pursuant to such exercise, the
Optionee shall, within ten (10) days of such disposition, notify the Company
thereof, by delivery of written notice to the Company at its principal executive
office.
12. Effective Date.
--------------
The Plan shall become effective upon its adoption by the Board of
Directors of the Company; provided that continuance of the Plan shall be subject
to approval by the shareholders of the Company within twelve (12) months after
the date the Plan is so adopted. Such shareholder approval shall be obtained in
the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Shares are listed.
13. Termination of Existing Option Plan.
-----------------------------------
At such time as this Plan shall become effective and shall have been
approved by the shareholders as required by Section 12, the 1994 Stock Option
Plan shall terminate and the Shares allotted for stock option grants under the
1994 Option Plan, other than Shares that are the subject of outstanding options
granted under the 1994 Option Plan, and any Shares which become available due to
the forfeiture, expiration or other termination of any option, or portion
thereof, outstanding under the 1994 Option Plan, shall not be available for the
granting of any further options or other awards under the 1994 Option Plan or
any other option or stock incentive plan or arrangement of the Company. Each
option outstanding under the 1994 Option Plan shall remain outstanding and shall
continue to be subject to the terms of the applicable agreement evidencing the
grant of such option and the terms of the 1994 Option Plan.
-16-
COST PLUS, INC.
1996 DIRECTOR OPTION PLAN /1/
1. Purposes of the Plan. The purposes of this 1996 Director Option Plan
--------------------
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the Common Stock of the Company.
------------
(d) "Committee" means a committee appointed by the Board to administer
---------
the Plan and to perform the functions set forth herein, or, if no such committee
is appointed, the Board.
(e) "Company" means Cost Plus, Inc., a California corporation.
-------
(f) "Director" means a member of the Board.
--------
(g) "Employee" means any person, including officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(i) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the day of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
- ------------------------------------------
/1/ Includes amendment by the board of directors on April 21, 1997 and
approval by the shareholders on June 19, 1997. Also includes adjustments for
the March 1999 3-for-2 stock split and the amendment by the board of directors
in May 1999.
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the date of determination, as reported in The
Wall Street Journal or such other source as the Board deems reliable, or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(j) "Inside Director" means a Director who is an Employee.
---------------
(k) "Option" means a stock option granted pursuant to the Plan.
------
(l) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(m) "Optionee" means a Director or an entity that holds an Option.
--------
(n) "Outside Director" means a Director who is not an Employee.
----------------
(o) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(p) "Plan" means this 1996 Director Option Plan.
----
(q) "Representative Director" means a Director who is a member of the
-----------------------
Board as the representative for an entity that employs such Director. The
determination of whether an Outside Director is a Representative Director shall
be determined by the representations of such Director and such determination may
be changed at any time by such Director.
(r) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 10 of the Plan.
(s) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 102,450 Shares of Common Stock. The Shares may be authorized,
but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
-2-
4. Administration and Grants of Options under the Plan.
---------------------------------------------------
(a) The Plan shall be administered by the Committee which shall hold
meetings at such times as may be necessary for the proper administration of the
Plan. The Committee shall keep minutes of its meetings. Except as otherwise
provided in the Company's Articles of Incorporation or By-Laws, a quorum shall
consist of a majority of the members of the Committee and a majority of a quorum
may authorize any action. Except as otherwise provided in the Company's
Articles of Incorporation or Bylaws, any decision or determination reduced to
writing and signed by the requisite number of the members of the Committee shall
be as fully effective as if made by the vote of the requisite number of members
at a meeting duly called and held.
(b) The Committee shall be composed of the Board of Directors or a
committee appointed by the Board.
(c) Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time:
(i) to determine those individuals to whom Options shall be
granted under the Plan and the number of Shares subject to each Option to be
granted, to prescribe the terms and conditions (which need not be identical) of
each such Option, including the Fair Market Value on any date, and to make any
amendment or modification to any option agreement, including the acceleration of
vesting, consistent with the terms of the Plan;
(ii) to construe and interpret the Plan and the Options granted
hereunder and to establish, amend and revoke rules and regulations for the
administration of the Plan, including, but not limited to, correcting any defect
or supplying any omission, or reconciling any inconsistency in the Plan or in
any Agreement, in the manner and to the extent it shall deem necessary or
advisable so that the Plan complies with applicable law, and otherwise to make
the Plan fully effective. All decisions and determinations by the Committee in
the exercise of this power shall be final, binding and conclusive upon the
Company, its Subsidiaries, the Optionees, and all other persons having any
interest therein;
(iii) to exercise its discretion with respect to the powers
and rights granted to it as set forth in the Plan; and
(iv) generally, to exercise such powers and to perform such
acts as are deemed necessary or advisable to promote the best interests of the
Company with respect to the Plan.
(d) Procedure for Grants. The terms of an Option granted hereunder
--------------------
shall be as follows:
(i) the term of the Option shall be up to ten (10) years.
(ii) subject to Sections 8 and 10 hereof, the Option shall be
exercisable:
-3-
(A) in the event of an Option held directly by an Outside
Director, only while the Outside Director remains a Director of the Company.
(B) in the event of an Option held by an entity pursuant to
Section 5(b) hereof, only while the Representative Director remains a Director
of the Company.
(iii) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option. In the event that
the date of grant of the Option is not a trading day, the exercise price per
Share shall be the Fair Market Value on the next trading day immediately
following the date of grant of the Option.
(iv) subject to Section 10 hereof, the Option shall become
exercisable as determined by the Committee at the time of grant of the Option.
5. Eligibility.
-----------
(a) Except as provided in Section 5(b) hereof, Options may be granted
only to Outside Directors.
(b) In the event an Outside Director is a Representative Director,
Options shall be granted in the name of the entity employing such Representative
Director and such Representative Director shall not personally receive any
option grants in the Representative Director's own name.
(c) The Plan shall not confer upon any Outside Director any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate the Director's relationship with the
Company at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares to
---------------------
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) delivery of a properly
executed exercise notice together with such other documentation as the Company
and the broker, if applicable, shall require to effect an exercise of the Option
and delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (v) any combination of the foregoing methods of payment.
-4-
8. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
----------------------------------------------
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than the Optionee's death or total and permanent disability (as defined
in Section 22(e)(3) of the Code)), the Optionee may exercise his or her Option,
but only within six (6) months following the date of such termination, and only
to the extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option
on the date of such termination, and to the extent that the Optionee does not
exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event an Optionee's status as a
----------------------
Director terminates as a result of total and permanent disability (as defined in
Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but
only within twelve (12) months following the date of such termination, and only
to the extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option
on the date of termination, or if the Optionee does not exercise such Option (to
the extent otherwise so entitled) within the time specified herein, the Option
shall terminate.
(d) Death of Optionee. In the event of an Optionee's death, the
-----------------
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the
-5-
Optionee was entitled to exercise it on the date of death (but in no event later
than the expiration of its ten (10) year term). To the extent that the Optionee
was not entitled to exercise an Option on the date of death, and to the extent
that the Optionee's estate or a person who acquired the right to exercise such
Option does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares which have been authorized for issuance under the
Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share covered by each such outstanding Option shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the
Option or equivalent option shall continue to be exercisable as provided in
Section 4 hereof for so long as the Optionee (or, in the case of an entity
Optionee, such Optionee's Representative Director) serves as a Director or a
director of the Successor Corporation. Following such assumption or
substitution, if the Optionee's (or, in the case of an entity Optionee, such
Optionee's Representative Director's) status as a Director or director of the
Successor Corporation, as applicable, is terminated other than upon a voluntary
resignation by the Optionee (or, in the case of an entity Optionee, such
Optionee's Representative Director), the Option or option shall become fully
exercisable, including as to Shares for which it would not otherwise be
exercisable. Thereafter, the Option or option shall remain exercisable in
accordance with Sections 8(b) through (d) above.
-6-
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
11. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. Except as set forth in Section 4, the
-------------------------
Board may at any time amend, alter, suspend, or discontinue the Plan, but no
amendment, alteration, suspension, or discontinuation shall be made which would
impair the rights of any Optionee under any grant theretofore made, without such
Optionee's consent. In addition, to the extent necessary and desirable to
comply with any other applicable law or regulation (including any rule of a
stock exchange or automated stock quotation system upon which the shares are
traded), the Company shall obtain shareholder approval of any Plan amendment in
such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
-7-
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
-8-
DETACH HERE
- ----------------------------------------------------------------------------
PROXY
COST PLUS, INC.
PROXY FOR 1999 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 14, 1999,
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
1999 Annual Meeting of Shareholders of Cost Plus, Inc. to be held on June 15,
1999 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 if personally present on any of the
matters on the reverse side 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: Murray H. Dashe, Joseph H. Coulombe, Danny W. Gurr, Olivier L.
Trouveroy, Thomas D. Willardson
FOR [ ] [ ] WITHHELD MARK HERE [ ]
ALL FROM ALL IF YOU PLAN TO
NOMINEES NOMINEES ATTEND THE
MEETING
[_]___________________________ MARK HERE
(Instruction: To withhold authority to FOR ADDRESS [ ]
vote for any individual nominee write CHANGE AND
that nominee's name in the space above.) NOTE BELOW
FOR AGAINST ABSTAIN
2. To approve an amendment to the Company's [ ] [ ] [ ]
1995 Stock Option Plan to increase the
shares reserved for issuance thereunder
by 400,000 shares.
FOR AGAINST ABSTAIN
3. To approve an amendment to the Company's [ ] [ ] [ ]
1996 Director Option Plan (the "Director
Option Plan") to terminate the automatic
option grant mechanism and to grant the
Board of Directors flexibility in establishing
the terms of options granted under the
Director Option Plan.
FOR AGAINST ABSTAIN
4. To ratify and approve the appointment of [ ] [ ] [ ]
Deloitte & Touche LLP as independent
auditors of the Company for the fiscal
year ending January 29, 2000.
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 shareholders 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:
------------ --------- -------------- -------