<PAGE>
 
                                                                   EXHIBIT 10.12


                        EMPLOYMENT SEVERANCE AGREEMENT



  This Severance Agreement (the "Agreement") is made and entered into effective
as of ______________, 199__ (the "Effective Date"), by and between
____________________ (the "Executive") and Cost Plus, Inc. (the "Company").


                                R E C I T A L S
                                ---------------

 
  A. The Board believes the Company should provide the Executive with certain
severance benefits should the Executive's employment with the Company terminate
under certain circumstances, such benefits to provide the Executive with
enhanced financial security and sufficient incentive and encouragement to remain
with the Company.

  B. Certain capitalized terms used in the Agreement are defined in Section 5
below.


                                   AGREEMENT

  In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Executive by the Company, the
parties agree as follows:

  1. Duties and Scope of Employment.  The Company shall employ the Executive in
     ------------------------------                                            
the position of President, Chief Operating Officer, Chief Financial Officer and
Secretary 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 such responsibilities 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 5(c) of this Agreement, the Executive shall be entitled to
benefits upon such Involuntary Termination as provided under this Agreement.

  2. At-Will Employment.  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 shall not 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 accordance with 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 this Agreement terminates by consent of the parties hereto.

  3. Severance Benefits.
     ------------------ 

<PAGE>
 
     (a) Benefits upon Termination.  If the Executive's employment terminates as
         -------------------------                                              
a result of Involuntary Termination other than Cause prior to September 1, 1998
and the Executive signs a Release of Claims, then the Company shall pay
Executive's Base Compensation to the Executive until August 31, 1998 with each
monthly installment payable on the last day of such month.  Executive shall not
be entitled to receive any payments if Executive's employment terminates as a
result of Executive's voluntary resignation.

     (b) Stock Options; Bonus.  Executive shall not be entitled to receive any
         --------------------                                                 
unvested stock options or partial bonus payments for an incomplete bonus plan
year.

     (c) Miscellaneous.  In addition, (i) the Company shall pay the Executive
         -------------                                                       
any unpaid base salary due for periods prior to the Termination Date; (ii) the
Company shall pay the Executive all of the Executive's accrued and unused
vacation through the Termination Date; and (iii) following submission of proper
expense reports by the Executive, the Company shall reimburse the Executive for
all expenses reasonably and necessarily incurred by the Executive in connection
with the business of the Company prior to termination.  These payments shall be
made promptly upon termination and within the period of time mandated by
applicable law.

  4. Non-Solicitation.  In consideration for the mutual agreements as set forth
     ----------------                                                          
herein, Executive agrees that Executive shall not, at any time, within twelve
(12) months following termination of Executive's employment with the Company for
any reason, directly or indirectly solicit the employment or 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.

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

     (a) Base Compensation.  "Base Compensation" shall mean Executive's monthly
         -----------------                                                     
base salary for services performed based on the average base salary for the six
(6) months prior to the Termination Date.

     (b) Cause.  "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).

     (c) Involuntary Termination.  "Involuntary Termination" shall mean:
         -----------------------                                        

               (i) termination of Executive's employment with the Company for
any reason 

                                      -2-
<PAGE>
 
other than Cause;

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

               (iii) a material reduction by the Company in the kind or level of
employee benefits (other than salary and bonus) to which Executive is entitled
immediately prior to such reduction with the result that Executive's overall
benefits package (other than salary and bonus) is substantially reduced (other
than any such reduction applicable to officers of the Company generally);

               (iv) any material breach by the Company of any material provision
of this Agreement which continues uncured for 30 days following notice thereof;

provided that none of the foregoing shall constitute Involuntary Termination to
the extent Executive has agreed thereto.

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

     (e) Termination Date.  "Termination Date" shall mean the date on which an
         ----------------                                                     
event which would constitute Involuntary Termination 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.

  6. Confidentiality.  Executive acknowledges that during the course of
     ---------------                                                   
Executive's employment, 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
Executive's employment by the Company, Executive agrees to hold 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, or copies
thereof, relating to the Company's business, or the business of an affiliated
company, which Executive shall prepare, or use, or come into contact with, shall
be and remain the sole property of the Company, or of an affiliated company, 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.

  7. Successors.
     ---------- 

     (a) Company's Successors.  Any successor to the Company (whether direct or
         --------------------                                                  
indirect 

                                      -3-
<PAGE>
 
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company'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 such obligations 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 to this subsection (a) or which
becomes bound by the terms of this Agreement by operation of law.

     (b) Executive's Successors.  The terms of this Agreement and all rights of
         ----------------------                                                
the Executive 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.

  8. 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, return
receipt requested and postage prepaid.  In the case of the Executive, mailed
notices shall be addressed to him at the home address which Executive most
recently communicated to the Company in writing.  In the case of the Company,
mailed notices 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
hereto given in accordance with Section 8(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 basis for termination under the provision so indicated, and shall
specify the termination date (which shall be not more than 30 days after the
giving of such notice).  The failure by the Executive to include in the notice
any fact or circumstance 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 his rights
hereunder.

  9. Miscellaneous Provisions.
     ------------------------ 

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

     (b) Waiver.  No provision of this Agreement shall be modified, waived or
         ------                                                              
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Executive and 

                                      -4-
<PAGE>
 
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 condition or 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.

     (c) 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.

     (d) 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 employment agreement entered into between
the Executive and the Company.

     (e) Choice of Law.  The validity, interpretation, construction and
         -------------                                                 
performance of this Agreement shall be governed by the laws of the State of
California.

     (f) Severability.  The invalidity 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.

     (g) No Assignment of Benefits.  The rights of any person to payments or
         -------------------------                                          
benefits under this Agreement shall not be made subject to option 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 be void.

     (h) Employment Taxes.  All payments made pursuant to this Agreement will be
         ----------------                                                       
subject to withholding of applicable income and employment taxes.

     (i) Assignment by Company.  The Company may assign its rights under this
         ---------------------                                               
Agreement 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 net worth 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.

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

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

                                      -5-
<PAGE>
 
COMPANY:                      COST PLUS, INC.


                              ------------------------------------
                              By
 
                              ------------------------------------
                              Title


Executive:                    ------------------------------------
 

                                      -6-
<PAGE>
 
                        EMPLOYMENT SEVERANCE AGREEMENT



This Severance Agreement (the "Agreement") is made and entered into effective
as of ______________, 199__ (the "Effective Date"), by and between __________
(the "Executive") and Cost Plus, Inc. (the "Company").


                                R E C I T A L S
                                ---------------

 
A. The Board believes the Company should provide the Executive with certain
severance benefits should the Executive's employment with the Company terminate
under certain circumstances, such benefits to provide the Executive with
enhanced financial security and sufficient incentive and encouragement to remain
with the Company.

B. Certain capitalized terms used in the Agreement are defined in Section 5
below.


                                   AGREEMENT

In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Executive by the Company, the
parties agree as follows:

1. Duties and Scope of Employment.  The Company shall employ the Executive in
   ------------------------------                                            
the position of Vice President in charge of General Merchandise 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 such responsibilities 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 5(c) of this
Agreement, the Executive shall be entitled to benefits upon such Involuntary
Termination as provided under this Agreement.

2. At-Will Employment.  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 shall not 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 accordance with 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 this Agreement terminates by consent of the parties hereto.

3. Severance Benefits.
   ------------------ 

   (a) Benefits upon Termination.  If the Executive's employment terminates as
       -------------------------                                              
a result of

<PAGE>
 
Involuntary Termination other than Cause prior to March 1, 1998 and the
Executive signs a Release of Claims, then the Company shall pay Executive's Base
Compensation to the Executive for six (6) months from the Termination Date with
each monthly installment payable on the last day of such month. Executive shall
not be entitled to receive any payments if Executive's employment terminates as
a result of Executive's voluntary resignation.

     (b) Stock Options; Bonus.  Executive shall not be entitled to receive any
         --------------------                                                 
unvested stock options or partial bonus payments for an incomplete bonus plan
year.

     (c) Miscellaneous.  In addition, (i) the Company shall pay the Executive
         -------------                                                       
any unpaid base salary due for periods prior to the Termination Date; (ii) the
Company shall pay the Executive all of the Executive's accrued and unused
vacation through the Termination Date; and (iii) following submission of proper
expense reports by the Executive, the Company shall reimburse the Executive for
all expenses reasonably and necessarily incurred by the Executive in connection
with the business of the Company prior to termination.  These payments shall be
made promptly upon termination and within the period of time mandated by
applicable law.

4. Non-Solicitation.  In consideration for the mutual agreements as set forth
   ----------------                                                          
herein, Executive agrees that Executive shall not, at any time, within twelve
(12) months following termination of Executive's employment with the Company for
any reason, directly or indirectly solicit the employment or 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.

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

     (a) Base Compensation.  "Base Compensation" shall mean Executive's monthly
         -----------------                                                     
base salary for services performed based on the average base salary for the six
(6) months prior to the Termination Date.

     (b) Cause.  "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).

     (c) Involuntary Termination.  "Involuntary Termination" shall mean:
         -----------------------                                        

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

                                      -2-
<PAGE>
 
           (ii)   a material reduction in Executive's salary, other than any
such reduction which is part of, and generally consistent with, a general
reduction of officer salaries;

           (iii)  a material reduction by the Company in the kind or level of
employee benefits (other than salary and bonus) to which Executive is entitled
immediately prior to such reduction with the result that Executive's overall
benefits package (other than salary and bonus) is substantially reduced (other
than any such reduction applicable to officers of the Company generally);

           (iv)    any material breach by the Company of any material provision
of this Agreement which continues uncured for 30 days following notice thereof;

provided that none of the foregoing shall constitute Involuntary Termination to
the extent Executive has agreed thereto.

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

     (e) Termination Date.  "Termination Date" shall mean the date on which an
         ----------------                                                     
event which would constitute Involuntary Termination 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.

6.   Confidentiality.   Executive acknowledges that during the course of
     ---------------                                                    
Executive's employment, 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
Executive's employment by the Company, Executive agrees to hold 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, or copies
thereof, relating to the Company's business, or the business of an affiliated
company, which Executive shall prepare, or use, or come into contact with, shall
be and remain the sole property of the Company, or of an affiliated company, 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.

7.   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 

                                      -3-
<PAGE>
 
substantially all of the Company'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 such obligations 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 to this subsection (a) or which becomes bound
by the terms of this Agreement by operation of law.

     (b) Executive's Successors.  The terms of this Agreement and all rights of
         ----------------------                                                
the Executive 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.

8.   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, return
receipt requested and postage prepaid.  In the case of the Executive, mailed
notices shall be addressed to Executive at the home address which Executive most
recently communicated to the Company in writing.  In the case of the Company,
mailed notices 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
hereto given in accordance with Section 8(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 basis for termination under the provision so indicated, and shall
specify the termination date (which shall be not more than 30 days after the
giving of such notice).  The failure by the Executive to include in the notice
any fact or circumstance 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 Executive's
rights hereunder.

9.   Miscellaneous Provisions.
     ------------------------ 

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

     (b) Waiver.  No provision of this Agreement shall be modified, waived or
         ------                                                              
discharged unless 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 

                                      -4-
<PAGE>
 
any breach of, or of compliance with, any condition or 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.

     (c) 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.

     (d) 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 employment agreement entered into between
the Executive and the Company.

     (e) Choice of Law.  The validity, interpretation, construction and
         -------------                                                 
performance of this Agreement shall be governed by the laws of the State of
California.

     (f) Severability.  The invalidity 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.

     (g) No Assignment of Benefits.  The rights of any person to payments or
         -------------------------                                          
benefits under this Agreement shall not be made subject to option 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 be void.

     (h) Employment Taxes.  All payments made pursuant to this Agreement will be
         ----------------                                                       
subject to withholding of applicable income and employment taxes.

     (i) Assignment by Company.  The Company may assign its rights under this
         ---------------------                                               
Agreement 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 net worth 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.

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

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


COMPANY:  COST PLUS, INC.

                                      -5-
<PAGE>
 
                              ---------------------------------------
                              By

                              --------------------------------------- 
                              Title


Executive:
                              --------------------------------------- 


                                      -6-