**Exhibit 10.2**

**EMPLOYMENT SEVERANCE AGREEMENT**

This Employment Severance Agreement (the “Agreement”) ismade and entered into effective as of September 27, 2007 (the “Effective Date”), by and between Timothy W. Lester (the “Executive”) and Cost Plus, Inc. (the “Company”). 

R E C I T A L S 

A. Cost Plus desiresto retain the services of the Executive, and the Executive desires to be employed by Cost Plus, on the terms and subject to the conditions set forth in this Agreement. 

B. The Board of Directors of the Company (the “Board”) believes the Company should provide the Executive with certain severance benefits should the Executive’s employment with the Company terminateunder certain circumstances, such benefits to provide the Executive with enhanced financial security and sufficient incentive and encouragement to remain with the Company. 

C. Certain capitalized terms used in the Agreement are defined in Section 6 below. 

**AGREEMENT**

In consideration of the mutual covenants herein contained, theparties agree as follows: 

1. Duties and Scope of Employment. The Company shall employ the Executive in the positionof Vice President and Controller, with such duties, responsibilities and compensation as in effect as of the Effective Date. The Board and the Chief Executive Officer of the Company (the “CEO”) shall have the right to revise suchresponsibilities and compensation from time to time as the Board or the CEO may deem necessary or appropriate. If any such revision constitutes “Involuntary Termination” as defined in Section 6(d) of this Agreement, the Executiveshall be entitled to benefits upon such Involuntary Termination as provided under this Agreement. 

2. At-WillEmployment. The Company and the Executive acknowledge that the Executive’s employment is and shall continue to be at-will, as defined under applicable law. If the Executive’s employment terminates for any reason, the Executive shallnot be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Company’s established employee plans and practices or in accordancewith other agreements between the Company and the Executive. This Agreement shall remain in effect until the earlier of (i) the date that all obligations of the parties hereunder have been satisfied or (ii) the date upon which thisAgreement terminates by consent of the parties hereto. 

3. Severance Benefits. 

(a) Benefits upon Termination. Unless the Executive is entitled to benefits under Section 3(b) of this Agreement, if theExecutive’s employment terminates as a result of Involuntary Termination prior to June 15, 2008 and the Executive signs and does not revoke a Release of Claims, then the Company shall pay the Executive’s Base Compensation on a salarycontinuation basis in accordance with the Company’s normal payroll practices to the Executive for six (6) months from the Termination Date. The Executive shall not be entitled to receive any payments if the Executive voluntarily terminatesemployment other than as a result of an Involuntary Termination. 

(b) Benefits upon Termination After a Change ofControl. If after a Change of Control the Executive’s employment terminates as a result of Involuntary Termination prior to June 15, 2008 and the Executive signs and does not revoke a Release of Claims, then the Company shall pay theExecutive’s Base Compensation on a salary continuation basis in accordance with the Company’s normal payroll practices to the Executive for nine (9) months from the Termination Date. The Executive shall not be entitled to receive anypayments if the Executive voluntarily terminates employment other than as a result of an Involuntary Termination. 

(c)Stock Options. Unless otherwise provided in the Company’s stock option plans or in the Executive’s stock option agreements, the Executive shall not be entitled to acceleration of any unvested stock options upon the termination ofthe Executive’s employment for any reason, including an Involuntary Termination. 

(d) Miscellaneous. In additionto the benefits described in Section 3(a) or Section 3(b) of this Agreement, upon the termination of the Executive’s employment, (i) the Company shall pay the Executive any unpaid base salary due for periods prior to theTermination Date; (ii) the Company shall pay the Executive all of the Executive’s accrued and unused vacation through the Termination Date; (iii) following submission of proper expense reports by the Executive, the Company shallreimburse the Executive for all expenses reasonably and necessarily incurred by the Executive in connection with the business of the Company prior to the Termination Date; and (iv) if benefits will be paid under Section 3(a) orSection 3(b) of this Agreement, the Company shall pay the Executive a pro-rata portion of his fiscal year bonus, if any, under the Company’s Management Incentive Plan in effect for the fiscal year in which the Termination Date occurs. Suchamount shall be paid at the time bonuses for the completed fiscal year are paid to other executives (but no later than the period of time required to fit within the short-term deferral rule of Section 409A of the Internal Revenue Code of 1986,as amended (the “Code”)), shall be pro-rated for the period of time during the fiscal year that the Executive was an employee of the Company and shall only be paid if, and to the extent, that the relevant performance targets have beenachieved by the Company. Except for any bonus payment under clause (iv) of the preceding sentence, these payments shall be made promptly upon termination and within the period of time mandated by applicable law. 

 

-2- 

4. Limitation on Payments. 

(a) Code Section 409A. Notwithstanding anything to the contrary in this Agreement, if Executive is a “specifiedemployee” within the meaning of Section 409A of the Code and the final regulations and any other guidance promulgated thereunder (“Section 409A”) at the time of his termination, and the severance payable to Executive, if any,pursuant to this Agreement, when considered together with any other severance payments or separation benefits which may be considered deferred compensation under Section 409A (together, the “Deferred Compensation Separation Benefits”)will not and could not under any circumstances, regardless of when such termination occurs, be paid in full by the fifteenth day of the third month of the Company’s fiscal year following Executive’s termination, then only that portion ofthe Deferred Compensation Separation Benefits which do not exceed the Section 409A Limit (as defined below) may be made within the first six (6) months following Executive’s termination of employment in accordance with the paymentschedule applicable to each such payment or benefit. For these purposes, each severance payment is hereby designated as a separate payment and will not collectively be treated as a single payment. Any portion of the Deferred Compensation SeparationBenefits in excess of the Section 409A Limit shall accrue and, to the extent such portion of the Deferred Compensation Separation Benefits would otherwise have been payable within the first six (6) months following Executive’stermination of employment, will become payable on the first payroll date that occurs on or after the date six (6) months and one (1) day following the date of Executive’s termination of employment. All subsequent Deferred CompensationSeparation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. 

This provisionis intended to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will beinterpreted to so comply. The Company and Executive agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additionaltax or income recognition prior to actual payment to Executive under Section 409A. 

For purposes of this Agreement, “Section 409ALimit” shall mean the lesser of two (2) times: (i) Executive’s annualized compensation based upon the annual rate of pay paid to Executive during the Company’s taxable year preceding the Company’s taxable year ofExecutive’s termination of employment as determined under Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service guidance issued with respect thereto; or (ii) the maximum amount that may be taken into account undera qualified plan pursuant to Section 401(a)(17) of the Code for the year in which Executive’s employment is terminated. 

(b) Code Section 280G. In the event that the severance and other benefits provided for in this Agreement or otherwise payable to the Executive (i) constitute “parachute payments” within the meaning ofSection 280G of the Code and (ii) but for this Section 4, would be subject to the excise tax imposed by Section 4999 of the Code, then the Executive’s severance benefits under Section 3(b) of this Agreement shall beeither: 

(i) delivered in full, or 

(ii) delivered as to such lesser extent which would result in no portion of such severance benefits being subject to excise tax underSection 4999 of the Code, 

 

-3- 

whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and theexcise tax imposed by Section 4999 of the Code, results in the receipt by the Executive on an after-tax basis, of the greatest amount of severance benefits, notwithstanding that all or some portion of such severance benefits may be taxableunder Section 4999 of the Code. Unless the Company and the Executive otherwise agree in writing, any determination required under this Section 4 shall be made in writing by the Company’s independent public accountants immediatelyprior to Change of Control (the “Accountants”), whose determination shall be conclusive and binding upon the Executive and the Company for all purposes. For purposes of making the calculations required by this Section 4, theAccountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Executive shallfurnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with anycalculations contemplated by this Section 4. 

5. Non-Solicitation. In consideration for the mutual agreements asset forth herein, the Executive agrees that the Executive shall not, at any time, within twelve (12) months following termination of the Executive’s employment with the Company for any reason, directly or indirectly solicit the employmentor other services of any individual who at that time shall be or within the prior twelve (12) months shall have been an employee of the Company. 

6. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings: 

(a) Base Compensation. “Base Compensation” means the Executive’s monthly base salary paid by the Company for services performed calculated as the average base salary for the six (6) monthscompleted prior to the Termination Date. If the Executive has not been employed by the Company for six (6) complete months prior to the Termination Date, Base Compensation shall be calculated as the average base salary for the period of theExecutive’s employment. 

(b) Cause. “Cause” means the Executive’s (i) intentional failure toperform 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 whichtransaction is adverse to the interests of the Company or any of its subsidiaries and which is engaged in for the Executive’s personal enrichment or (iv) willful violation of any material law, rule or regulation in connection with theperformance of duties. 

 

-4- 

(c) Change of Control. “Change of Control” means the consummation of anyof the following events: 

(i) The acquisition by any “person” (as such term is used in Sections 13(d) and14(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 theExchange 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 (2)-year period, as a result of whichfewer 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 theBoard 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 ornomination 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 (eitherby 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 outstandingimmediately 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 theCompany’s assets; 

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

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

(d) Involuntary Termination. “Involuntary Termination” means: 

(i) termination of the Executive’s employment by the Company for any reason other than Cause; 

(ii) a material reduction in the Executive’s salary, other than any such reduction which is part of, and generally consistent with,a general reduction of officer salaries; 

(iii) any material breach by the Company of any material provision of thisAgreement which continues uncured for thirty (30) days following notice thereof; or 

(iv) a material reduction in theExecutive’s duties, responsibilities or authority; 

 

-5- 

provided that none of the foregoing shall constitute Involuntary Termination to the extent the Executivehas agreed thereto. Any purported Involuntary Termination pursuant to Section 6(d)(ii) through 6(d)(v) will not be effective until the Executive has delivered to the Company, within sixty (60) days of the initial existence of theInvoluntary Termination condition, a written explanation which describes the basis for the Executive’s belief that the Executive should be permitted to terminate his employment and have it treated as an Involuntary Termination and the Companyhas been given thirty (30) days following delivery of such notice to cure any curable violation. 

(e) Release ofClaims. “Release of Claims” shall mean a waiver by the Executive, in a form satisfactory to the Company, of all employment-related obligations of and claims and causes of action against the Company. 

(f) Termination Date. “Termination Date” shall mean the date on which an event that would constitute InvoluntaryTermination occurs, or the later of (i) the date on which a notice of termination is given, or (ii) the date (which shall not be more than thirty (30) days after the giving of such notice) specified in such notice. 

(g) Management Incentive Plan. “Management Incentive Plan” shall mean the Company’s bonus program, as implemented bythe Company’s board of directors from time to time and pursuant to which the Executive may receive incentive-based compensation at fiscal year end. 

7. Confidentiality. The Executive acknowledges that during the course of the Executive’s employment, the Executive will have produced and/or have access to confidential information, records, notebooks,data, formula, specifications, trade secrets, customer lists and secret inventions, and processes of the Company and its affiliated companies. Therefore, during or subsequent to the Executive’s employment by the Company, the Executive agrees tohold in confidence and not directly or indirectly to disclose or use or copy or make lists of any such information, except to the extent authorized by the Company in writing. All records, files, drawings, documents, equipment, and the like, orcopies thereof, relating to the Company’s business, or the business of an affiliated company, which the Executive shall prepare, or use, or come into contact with, shall be and remain the sole property of the Company, or of an affiliatedcompany, and shall not be removed from the Company’s or the affiliated company’s premises without its written consent, and shall be promptly returned to the Company upon termination of employment with the Company. 

8. Successors. 

(a) Company’s Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of theCompany’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform suchobligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers the assumption agreement pursuant tothis subsection (a) or which becomes bound by the terms of this Agreement by operation of law. 

 

-6- 

(b) Executive’s Successors. The terms of this Agreement and all rights of theExecutive hereunder shall inure to the benefit of, and be enforceable by, the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 

9. Notice. 

(a) General. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, returnreceipt requested and postage prepaid. In the case of the Executive, mailed notices shall be addressed to the Executive at the home address that the Executive most recently communicated to the Company in writing. In the case of the Company, mailednotices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its CEO. 

(b) Notice of Termination. Any termination by the Company for Cause or by the Executive as a result of a voluntary resignation or an Involuntary Termination shall be communicated by a notice of termination to the other party heretogiven in accordance with Section 9(a) of this Agreement. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basisfor termination under the provision so indicated, and shall specify the termination date (which shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive to include in the notice any fact orcircumstance which contributes to a showing of Involuntary Termination shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive’s rights hereunder.

10. Miscellaneous Provisions. 

(a) Non-Disparagement. The Executive agrees to refrain from any defamation, libel or slander of the Company and its respectiveofficers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns or tortious interference with the contracts and relationships of the Company and itsrespective officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns. The Executive acknowledges and agrees that any breach of this paragraphshall constitute a material breach of the Agreement and shall entitle the Company immediately to recover all consideration paid under this Agreement, including, but not limited to the consideration described in Section 3.

(b) No Duty to Mitigate. The Executive shall not be required to mitigate the amount of any payment contemplated bythis Agreement, nor shall any such payment be reduced by any earnings that the Executive may receive from any other source. 

 

-7- 

(c) Waiver. No provision of this Agreement shall be modified, waived or dischargedunless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive). No waiver by either party of any breach of, or of compliance with, any conditionor provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time. 

(d) Whole Agreement. No agreements, representations or understandings (whether oral or written and whether express or implied)which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. 

(e) Severance Provisions in Other Agreements. The Executive acknowledges and agrees that the severance provisions set forth in this Agreement shall supersede any such provisions in any other agreement enteredinto between the Executive and the Company. 

(f) Choice of Law. The validity, interpretation, construction andperformance of this Agreement shall be governed by the laws of the State of California. 

(g) Severability. Theinvalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. 

(h) No Assignment of Benefits. The rights of any person to payments or benefits under this Agreement shall not be made subject tooption or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any action in violation of this subsection shall bevoid. 

(i) Employment Taxes. All payments made pursuant to this Agreement will be subject to withholding ofapplicable income and employment taxes. 

(j) Assignment by Company. The Company may assign its rights under thisAgreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Company or to the Company; provided, however, that no assignment shall be made if the net worth of the assignee is less than the networth of the Company at the time of assignment. In the case of any such assignment, the term “Company” when used in a section of this Agreement shall mean the corporation that actually employs the Executive. 

(k) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of whichtogether will constitute one and the same instrument. 

***[Signature Page to Follow]***

 

-8- 

IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by itsduly authorized officer, as of the day and year first above written. 

 

COMPANY:
  COST PLUS, INC.   /s/ Joan Fujii  By   EVP HR  Title
EXECUTIVE:
  /s/ Timothy Lester  Timothy W. Lester
 

-9-