Exhibit 10.3

FORM OF

COST PLUS, INC.

1996 DIRECTOR OPTION PLAN

NOTICE OF GRANT OF DEFERRED STOCK UNITS

Unless otherwise defined herein, the terms defined in the Cost Plus, Inc. (the
“Company”) 1996 Director Option Plan, as amended (the “Plan”) shall have the
same defined meanings in this Notice of Grant and Deferred Stock Unit Award
Agreement (the “Agreement”), attached hereto as Appendix A.

Name of Grantee:                                                      

You have been granted                  Deferred Stock Units under the Plan equal
to a target of [$                    ] on the Date of Grant, subject to the
terms and conditions of the Agreement (the “Award”). Each such Deferred Stock
Unit is equivalent to one Share of Common Stock of the Company for purposes of
determining the number of Shares subject to this Award. None of the Shares will
be issued (nor will you have the rights of a shareholder with respect to the
underlying Shares) until the vesting conditions described below are satisfied.
Additional terms of this grant are as follows:

 

Date of Grant:   ________________ Vesting Schedule:   Subject to the terms of
the Plan, this Award shall vest                                             
                                         
                                      .   Unless otherwise specified in the
Deferred Stock Unit Election Form (the “Election”), the Settlement Date for the
DSUs shall be the Vesting Date.

You acknowledge and agree that the Notice of Grant, the Agreement, and the
vesting schedule set forth herein does not constitute an express or implied
promise of continued engagement as a Director for the vesting period, for any
period, or at all, and shall not interfere with your right or the Company’s
right to terminate your relationship as a Director at any time, with or without
cause.

You hereby agree to accept as binding, conclusive and final all decisions or
interpretations of the Committee upon any questions relating to the Plan and
this Award.

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By your signature and the signature of the Company’s representative below, you
and the Company agree that this Notice of Grant, the Agreement, and the Plan
constitute your entire agreement with respect to this Award and may not be
modified adversely to your interest except by means of a writing signed by the
Company and you.

 

GRANTEE:     COST PLUS, INC.           Signature     By           Print Name    
Title

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Exhibit 10.3

APPENDIX A

COST PLUS, INC.

1996 DIRECTOR OPTION PLAN

DEFERRED STOCK UNIT AWARD AGREEMENT

1. Grant. Cost Plus, Inc. (the “Company”) hereby grants to you, [Name] (the
“Participant”) an award of Deferred Stock Units (each, a “DSU”), as set forth in
the Notice of Grant of Deferred Stock Units (the “Notice of Grant”) and subject
to the terms and conditions in this Deferred Stock Unit Award Agreement (the
“Agreement”) and the Company’s 1996 Director Option Plan, as amended (the
“Plan”). Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Agreement.

2. Company’s Obligation. Each DSU has a value equal to the Fair Market Value of
a Share on the date of grant. Unless and until the DSUs vest, the Participant
will have no right to receive payment of such DSUs. Prior to actual payment of
any vested DSUs, such DSUs will represent an unsecured obligation of the
Company, payable (if at all) only from the general assets of the Company.

3. Vesting Schedule. Subject to paragraph 4, the DSUs awarded by this Agreement
will vest in the Participant according to the vesting schedule specified in the
Notice of Grant. Unless otherwise specified in the Deferred Stock Unit Election
Form (the “Election”), the Settlement Dates for the DSUs shall be the Vesting
Dates.

4. Forfeiture upon Termination as Director. Subject to the vesting schedule
specified in the Notice of Grant and any acceleration provisions set forth
therein or as otherwise set forth in the Plan, if the Participant terminates
service as a Director for any or no reason prior to vesting, the unvested DSUs
awarded by this Agreement will thereupon be forfeited at no cost to the Company.

5. Payment after Vesting.

(a) Any DSUs that vest in accordance with paragraph 3 will be paid to the
Participant (or in the event of the Participant’s death, to his or her
estate) in Shares, provided that to the extent determined appropriate by the
Company, any federal, state and local withholding taxes with respect to such
DSUs will be paid by reducing the number of vested DSUs actually paid to the
Participant. The Company shall issue to the Participant, on a date within thirty
(30) days following the Settlement Date, a number of whole Shares equal to the
vested DSUs. Such Shares shall not be subject to any restriction on transfer
other than any such restriction as may be required pursuant to paragraph 7.

(b) Notwithstanding anything in the Plan or this Agreement to the contrary, if
the vesting of the balance, or some lesser portion of the balance, of the DSUs
is accelerated in

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connection with the Participant’s termination as a Director (provided that such
termination is a “separation from service” within the meaning of Section 409A,
as determined by the Company), other than due to death, and if (x) the
Participant is a “specified employee” within the meaning of Section 409A at the
time of such termination as a Director and (y) the payment of such accelerated
DSUs will result in the imposition of additional tax under Section 409A if paid
to the Participant on or within the six (6) month period following the
Participant’s termination as a Director, then the payment of such accelerated
DSUs will not be made until the date six (6) months and one (1) day following
the date of the Participant’s termination as a Director, unless the Participant
dies following his or her termination as a Director, in which case, the DSUs
will be paid in Shares in accordance with paragraph 6 as soon as practicable
following his or her death. It is the intent of this Agreement to comply with
the requirements of Section 409A so that none of the DSUs provided under this
Agreement or Shares issuable thereunder will be subject to the additional tax
imposed under Section 409A, and any ambiguities herein will be interpreted to so
comply. For purposes of this Agreement, “Section 409A” means Section 409A of the
Code, and any proposed, temporary or final Treasury Regulations and Internal
Revenue Service guidance thereunder, as each may be amended from time to time.

6. Payments after Death. Any distribution or delivery to be made to the
Participant under this Agreement will, if the Participant is then deceased, be
made to the administrator or executor of the Participant’s estate. Any such
administrator or executor must furnish the Company with (a) written notice of
his or her status as transferee, and (b) evidence satisfactory to the Company to
establish the validity of the transfer and compliance with any laws or
regulations pertaining to said transfer.

7. Deferral Election. If permitted, the Participant may elect to defer delivery
of the payment of any Shares, which election will be subject to such
documentation as the Company may promptly and reasonably request, and any terms
under the Plan as the Committee deems appropriate. Unless otherwise determined
by the Committee, any such deferral election by the Participant will be void and
not given effect unless the Participant’s deferral election is made at least
twelve (12) months prior to the date the Shares otherwise are scheduled to be
paid. The Committee may require that the Participant make an election earlier
than twelve (12) months prior to the date the Shares are scheduled to be paid.
Upon the date the Shares vest to which a deferral election applies, the Company
will create a bookkeeping entry initially representing an amount equivalent to
the Fair Market Value of the number of Shares that would have otherwise been
payable hereunder had a deferral election not been made. Any such obligation
will represent an unfunded and unsecured obligation of the Company.

8. Withholding of Taxes. If Participant is subject to tax withholding
obligations upon the vesting of DSUs awarded by this Agreement, no certificate
representing the Shares will be issued to the Participant, unless and until
satisfactory arrangements (as determined by the Committee) will have been made
by the Participant with respect to the payment of income, employment and other
taxes which the Company determines must be withheld with respect to such Shares
so issuable. The Committee, in its sole discretion and pursuant to such
procedures as it may specify from time to time, may permit the Participant to
satisfy such tax withholding obligation, in whole or in part by one or more of
the following: (a) paying by cash or check, (b) electing to have the Company

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withhold otherwise deliverable Shares having a Fair Market Value equal to the
minimum amount required to be withheld, (c) delivering to the Company already
vested and owned Shares having a Fair Market Value equal to the amount required
to be withheld, (d) selling a sufficient number of such Shares otherwise
deliverable to Participant through such means as the Company may determine in
its sole discretion (whether through a broker or otherwise) equal to the amount
required to be withheld, or (e) any combination of the foregoing methods of
payment. If the Participant fails to make satisfactory arrangements for the
payment of any required tax withholding obligations hereunder at the time any
applicable DSUs otherwise are scheduled to vest pursuant to paragraph 3, the
Participant will permanently forfeit such DSUs and the DSUs will be returned to
the Company at no cost to the Company and the Participant will have no rights to
acquire any Shares with respect thereto.

9. Rights as Shareholder. Neither the Participant nor any person claiming under
or through the Participant will have any of the rights or privileges of a
shareholder of the Company in respect of any Shares deliverable hereunder unless
and until certificates representing such Shares will have been issued, recorded
on the records of the Company or its transfer agents or registrars, and
delivered to the Participant or Participant’s broker.

10. No Guarantee of Continued Service. Participant acknowledges and agrees that
the vesting of shares pursuant to the vesting schedule in the Notice of Grant is
earned only by continuing as a Director at the will of the Company (or the
Parent or Subsidiary employing or retaining Participant) and not through the act
of being hired, being granted this DSU Award or acquiring shares hereunder.
Participant further acknowledges and agrees that this Agreement, the
transactions contemplated hereunder and the vesting schedule set forth in the
Notice of Grant do not constitute an express or implied promise of continued
engagement as a Director for the vesting period, for any period, or at all, and
will not interfere in any way with Participant’s right or the right of the
Company (or the Parent or Subsidiary employing or retaining Participant) to
terminate Participant’s relationship as a Director at any time, with or without
cause.

11. Address for Notices. Any notice to be given to the Company under the terms
of this Agreement will be addressed to the Company at 200 Fourth Street,
Oakland, CA 94607, Attn: Stock Administration, or at such other address as the
Company may hereafter designate in writing or electronically.

12. Grant is Not Transferable. Except to the limited extent provided in
paragraph 6, this grant and the rights and privileges conferred hereby will not
be transferred, assigned, pledged or hypothecated in any way (whether by
operation of law or otherwise) and will not be subject to sale under execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of this grant, or any right or privilege
conferred hereby, or upon any attempted sale under any execution, attachment or
similar process, this grant and the rights and privileges conferred hereby
immediately will become null and void.

13. Binding Agreement. Subject to the limitation on the transferability of this
grant contained herein, this Agreement will be binding upon and inure to the
benefit of the heirs, legatees, legal representatives, successors and assigns of
the parties hereto.

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14. Additional Conditions to Issuance of Stock. If at any time the Company will
determine, in its discretion, that the listing, registration or qualification of
the Shares upon any securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory authority is necessary or
desirable as a condition to the issuance of Shares to the Participant (or his or
her estate), such issuance will not occur unless and until such listing,
registration, qualification, consent or approval will have been effected or
obtained free of any conditions not acceptable to the Company. Where the Company
determines that the delivery of the payment of any Shares will violate federal
securities laws or other applicable laws, the Company will defer delivery until
the earlier date at which the Company reasonably anticipates that the delivery
of Shares will no longer cause such violation. The Company will make all
reasonable efforts to meet the requirements of any such state or federal law or
securities exchange and to obtain any such consent or approval of any such
governmental authority.

15. Plan Governs. This Agreement and the Notice of Grant are subject to all
terms and provisions of the Plan. In the event of a conflict between one or more
provisions of this Agreement or the Notice of Grant and one or more provisions
of the Plan, the provisions of the Plan will govern.

16. Committee Authority. The Committee will have the power to interpret the Plan
and this Agreement and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to
interpret or revoke any such rules (including, but not limited to, the
determination of whether or not any DSUs have vested). All actions taken and all
interpretations and determinations made by the Committee in good faith will be
final and binding upon Participant, the Company and all other interested
persons. No member of the Committee will be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
this Agreement.

17. Captions. Captions provided herein are for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.

18. Agreement Severable. In the event that any provision in this Agreement will
be held invalid or unenforceable, such provision will be severable from, and
such invalidity or unenforceability will not be construed to have any effect on,
the remaining provisions of this Agreement.

19. Modifications to the Agreement. This Agreement constitutes the entire
understanding of the parties on the subjects covered. The Participant expressly
warrants that he or she is not accepting this Award Agreement in reliance on any
promises, representations, or inducements other than those contained herein.
Modifications to this Agreement or the Plan can be made only in an express
written contract executed by a duly authorized officer of the Company.
Notwithstanding anything to the contrary in the Plan or this Agreement, the
Company reserves the right to revise this Agreement as it deems necessary or
advisable, in its sole discretion and without the consent of the Participant, to
comply with Section 409A or to otherwise avoid imposition of any additional tax
or income recognition under Section 409A in connection to this Award of DSUs.

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20. Electronic Delivery. The Company may, in its sole discretion, decide to
deliver any documents related to DSUs awarded under the Plan or future DSUs that
may be awarded under the Plan by electronic means or request Participant’s
consent to participate in the Plan by electronic means. Participant hereby
consents to receive such documents by electronic delivery and agrees to
participate in the Plan through an on-line or electronic system established and
maintained by the Company or another third party designated by the Company.
Electronic execution of this Agreement and/or other documents shall have the
same binding effect as a written or hard copy signature and accordingly, shall
bind the Participant and the Company to all of the terms and conditions set
forth in the Plan, this Agreement and/or such other documents.

21. Governing Law. This Agreement will be governed by the laws of the State of
California, without giving effect to the conflict of law principles thereof. For
purposes of litigating any dispute that arises under this Award of DSUs or this
Agreement, the parties hereby submit to and consent to the jurisdiction of the
State of California, and agree that such litigation shall be conducted in the
courts of Alameda County, California, or the federal courts for the United
States for the Northern District of California, and no other courts, where this
Award of DSUs is made and/or to be performed.

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APPENDIX B

COST PLUS, INC.

1996 DIRECTOR OPTION PLAN

DEFERRED STOCK UNIT ELECTION

TO:                           , COST PLUS, INC. (the “Company”)

FROM:                                                                   (the
“Participant”)

I hereby elect to defer the settlement of my Deferred Stock Units that I would
otherwise receive from the Company, subject to the terms and conditions of the
Company’s 1996 Director Option Plan, as amended (the “Plan”), Deferred Stock
Unit Award Agreement (the “Agreement”) and this Deferred Stock Unit Election
Form (the “Election”). I understand that my election is irrevocable. The terms
of my election are as follows:

1. Deferred Stock Units to which Election applies.

 

  [    ] My Election applies to the Award of Deferred Stock Units granted on
                                     (the “Date of Grant”).

 

  [    ] My Election applies to any Award that I may be granted in the calendar
year that begins after the date of this Election.

2. Deferred Stock Units Deferred. I elect to defer settlement of 100% of my
Award.

3. Deferred Stock Units Deferral Elections. I hereby make the following
elections with respect to the settlement of my vested Deferred Stock Units. I
understand that if I fail to make an election, or if the election is terminated,
that I will be deemed to have elected settlement of my Deferred Stock Units when
such units vest as provided in the Notice of Grant of Deferred Stock Units.

Form of Settlement of Deferred Stock Units: I understand that my shares of Stock
will be payable in a single lump sum payment.

Settlement Date: Subject to the terms of the Plan and my Deferred Stock Units
Agreement (the “Agreement”), I will receive shares of Stock in settlement of my
Award (to the extent vested) within thirty (30) days of the earlier of (i) any
Settlement Date I have elected below, (ii) the date of my termination of service
as a Director, provided that such cessation is a “separation from service”
within the meaning of Section 409A of the Code, or (iii) the date of any Merger
or Asset Sale, provided that such Merger or Asset Sale is a “change of control”
within the meaning of Section 409A of the Code.

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I understand that:

A Settlement Date that I select may be no earlier than January 1 of the third
calendar year following the date of this Election.

If the thirty (30) day period straddles two calendar years, under no
circumstances will I be permitted, directly or indirectly, to designate the
taxable year in which my Deferred Stock Units are settled.

That I may (but am not required) to elect a Settlement Date, however, if I do
not select a Settlement Date, but have completed this form and elected to defer
settlement of the Award beyond the date such award would have become vested,
that I will have made an irrevocable election to defer settlement of the Award
until my termination of service as a Director.

 

  [    ] I elect a Settlement Date for 100% of my Award on _________________.
(please select a date no earlier than January 1 of the third calendar year
following the date of this Election, however, remember that the Award becomes
vested on the date provided in the Notice of Grant and unless you select a later
Settlement Date, would be settled on the vesting date)

 

  [    ] I do not elect a Settlement Date (and I understand this means that the
Settlement Date will be the date I terminated service as a Director, provided
that such cessation is a “separation from service” within the meaning of Section
409A of the Code, or the date of any Merger or Asset Sale, provided that such
Merger or Asset Sale is a “change of control” within the meaning of Section 409A
of the Code).

Notwithstanding the foregoing, if I am a “specified employee” within the meaning
of Section 409A of the Code at the time of my termination of service as a
Director (assuming such termination is a “separation from service” within the
meaning of Section 409A of the Code), then the Deferred Stock Units I would
otherwise be entitled to receive on the Settlement Date will not be settled
until the date six (6) months and one (1) day following the date of separation
from service, unless I die following my separation from service, in which case,
my Deferred Stock Units will be settled as soon as practicable following my
death.

Change of Settlement Date:

I understand that I may make, with the consent of the Company, a subsequent
election to further defer settlement of this Award, and that such an election
must be made at least one (1) year prior to my originally selected Settlement
Date and I further understand that my newly elected Settlement Date must be at
least five (5) years after the date of the originally selected Settlement Date.
I further understand that the ability to make such a subsequent deferral
election may not be available to me in the future if the Company changes its
administration policies to reflect any changes to the applicable law governing
deferred compensation.

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4. Filing of Election.

If this Election is being completed for a specific Award, it must be filed with
the Chief Financial Officer of the Company no later than thirty (30) days after
the Date of Grant. No Election filed after this date will be effective.

If instead this Election is being completed for an Award that might be granted
in a future year, it must be filed with the Chief Financial Officer of the
Company no later than December 31st of the calendar year prior to the year such
Award will be granted.

5. Irrevocability of Election. This Election will become irrevocable after it
has been submitted to the Company’s Chief Financial Officer.

6. Award is Unfunded. I understand that the Company has not formally funded my
Award and that I am considered a general unsecured creditor of the Company with
respect to my rights under the Award.

7. Subject to Plan. This Election is in all respects subject to the terms and
conditions of the Plan. Should any inconsistency exist between this Election,
the Plan, the Deferred Stock Units Agreement, and/or any applicable law, then
the provisions of either the applicable law or the Plan will control, with the
Plan subordinated to the applicable law.

 

          Participant Signature     Date