Senior Vice President, Marketing and Advertising Employment Severance Agreement - Frank Castiglione

Exhibit 10.7

EMPLOYMENT SEVERANCE AGREEMENT

This Employment Severance Agreement (the " Agreement" ) is made and entered into effective as of 4-17-06 (the " Effective Date" ), by and between Frank Castiglione (the " Executive" ) and Cost Plus, Inc. (the " Company" ). R E C I T A L S

A. Cost Plus desires to 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 terminate under 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, the parties agree as follows:

1. Duties and Scope of Employment . The Company shall employ the Executive in the position of Senior Vice President, Marketing and Advertising, 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 6(d) 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 . Unless the Executive is entitled to benefits under Section 3(b) of this Agreement, if the Executive' s employment terminates as a result of Involuntary Termination prior to June 15, 2007 and the Executive signs and does not revoke a Release of Claims, then the Company shall pay the Executive' s Base Compensation on a salary continuation basis in accordance with the Company' s normal payroll practices to the Executive for twelve (12) months from the Termination Date. The Executive shall not be entitled to receive any payments if the Executive voluntarily terminates employment other than as a result of an Involuntary Termination.

(b) Benefits upon Termination After a Change of Control . If after a Change of Control the Executive' s employment terminates as a result of Involuntary Termination prior to June 15, 2007 and the Executive signs and does not revoke a Release of Claims, then the Company shall pay the Executive' s Base Compensation on a salary continuation basis in accordance with the Company' s normal payroll practices to the Executive for eighteen (18) months from the Termination Date. The Executive shall not be entitled to receive any payments 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 of the Executive' s employment for any reason, including an Involuntary Termination.

(d) Miscellaneous . In addition to 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 the Termination 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 shall reimburse 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) or Section 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. Such amount 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 been achieved 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.


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4. Limitation on Payments . (a) Code Section 409A . If the Company reasonably determines that Section 409A will result in the imposition of additional tax to an earlier payment of the severance and other benefits provided in this Agreement or otherwise payable to the Executive, then the first six (6) months of the Executive' s severance benefits under Section 3 of this Agreement will accrue during the six (6)-month period following the Executive' s termination and will become payable in a lump sum payment on the date that is six (6) months and one (1) day following the date of the Executive' s termination of employment. The remaining severance benefits will be payable as provided in Section 3 of this Agreement.

(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 of Section 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 be either: (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 under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise 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 taxable under 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 indepen ...