The Board of Directors has adopted a Code of Business Conduct and Ethics applicable to all of our directors, officers and employees of the Company.employees. A copy of the Code of Business Conduct and Ethics is available on the Company’sour website at www.99only.com.
Name and Principal Position | | Fiscal Year Ended (except 2005, which is a three month fiscal period) (1) | | Annual Compensation (except 2005, which is a three month fiscal period) (1) | | Other Annual Compensation | | Long-Term Compensation (Number of Securities Underlying Options((#) | | All Other Compensation ($) | |
| | | | Salary | | Bonus | | | | | | | |
| | | | | | | | | | | | | |
Eric Schiffer (a) | | | 3/31/2006 | | $ | 120,000 | | | - | | | - | | | - | | | - | |
Chief Executive | | | 3/31/2005 | | | 32,308 | | | - | | | - | | | - | | | - | |
Officer | | | 12/31/2004 | | | 124,615 | | | - | | | - | | | - | | | - | |
| | | 12/31/2003 | | | 117,692 | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | |
Jeff Gold (b) | | | 3/31/2006 | | $ | 122,308 | | | - | | | - | | | - | | | - | |
President and Chief | | | 3/31/2005 | | | 34,615 | | | - | | | - | | | - | | | - | |
Operating Officer | | | 12/31/2004 | | | 124,615 | | | - | | | - | | | - | | | - | |
| | | 12/31/2003 | | | 123,231 | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | |
Howard Gold (c) | | | 3/31/2006 | | $ | 122,308 | | | - | | | - | | | - | | | - | |
Executive Vice | | | 3/31/2005 | | | 34,615 | | | - | | | - | | | - | | | - | |
President Of | | | 12/31/2004 | | | 124,615 | | | - | | | - | | | - | | | - | |
Special Projects | | | 12/31/2003 | | | 124,615 | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | |
Michael Zelkind | | | 3/31/2006 | | $ | 240,000 | | $ | 26,250 | | | - | | | - | | | - | |
Former Executive | | | 3/31/2005 | | | 50,000 | | | 8,750 | | | - | | | - | | | - | |
Vice President | | | 12/31/2004 | | | 35,000 | | | 25,000 | | | - | | | 40,002 | | | - | |
Of Supply Chain and Merchandising | | | 12/31/2003 | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | |
Robert Kautz | | | 3/31/2006 | | $ | 129,500 | | $ | 20,000 | | | - | | | 150,000 | | | - | |
Chief Financial | | | 3/31/2005 | | | - | | | - | | | - | | | - | | | - | |
Officer | | | 12/31/2004 | | | - | | | - | | | - | | | - | | | - | |
| | | 12/31/2003 | | | - | | | - | | | - | | | - | | | | |
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Objectives
Our compensation program for named executive officers (“executives”) is different than many public company programs. Given the desire of each of Eric Schiffer, our CEO, Jeff Gold, our President and COO, and Howard Gold, our Executive Vice President of Special Projects, to have his compensation unchanged, following the annual review of their compensation by the Compensation Committee, the Compensation Committee did not propose an increase to the compensation of these executives for fiscal 2008 and does not anticipate proposing any material increase in the compensation of these three executives in the foreseeable future. In addition, at the request of each of these executives, the Compensation Committee did not approve any bonuses or equity-based awards for these executives during fiscal 2008. The compensation of each of these executives has been relatively flat for at least the last five years, and no bonuses or equity-based awards have been paid to them since 1997. We believe that the significant Company share ownership of these individuals serves to motivate and retain them and to align their interests with the long term interests of our shareholders better than any compensation program we might otherwise adopt for their benefit. For these three executives, the only material element of their compensation is their base salary.
Our compensation program with respect to our other executives is designed to:
| (a)· | Includes $92,308, $99,692, $25,846,attract, motivate and $96,000 in discretionary contributions made to a deferred compensation plan for the year ended December 31, 2003, the year ended December 31, 2004, the three month period ended March 31, 2005,retain individuals of outstanding abilities and the fiscal year ended March 31, 2006, respectively.experience capable of achieving our strategic business goals, |
| (b)· | Includes $94,892, $99,692, $27,692,align total compensation with the short and $97,846 in discretionary contributions made to a deferred compensation plan for the year ended December 31, 2003, the year ended December 31, 2004, the three month period ended March 31, 2005, and the fiscal year ended March 31, 2006, respectively.long-term performance of our Company, |
| (c)· | Includes $96,000, $99,692, $27,692,recognize outstanding individual contributions, and $97,846 in discretionary contributions made to a deferred |
| · | provide competitive compensation plan for the year ended December 31, 2003, the year ended December 31, 2004, the three month period ended March 31, 2005, and the year ended March 31, 2006, respectively.opportunities. |
(1) | The 2005 period reflected in this table is the transition period of January 1, 2005 through March 31, 2005 due to the change from the calendar year-end December 31 reporting to fiscal year-end March 31 reporting. |
Option GrantsWe provide ongoing income and security in Last Fiscal Year
The following table sets forth certain information regarding the grantform of salary and benefits to our other executives that are intended to be both attractive and competitive. We also provide our other executives with short term incentives in the form of an annual cash bonus to build accountability and reward the achievement of annual goals that support our business objectives. A significant part of total compensation opportunity for our other executives is long-term incentive compensation, which promotes retention and provides a link between executive compensation and stockholder value creation over a multi-year period. Our long-term incentive compensation consists of stock options made during the fiscal year ended March 31, 2006and performance stock units (PSUs). The stock options provide compensation tied to the Named Executive Officers. No grants were madeprice of our common stock, paid in either cash or stock, and have no value if our common stock falls below the grant price. Our PSUs, which are a new element of our executive compensation program, are designed to the Named Executive Officers during the three months ended March 31, 2005.
Name | | Number Of Securities Underlying Option Granted (a) | | Percent Of Total Options Granted To Employees in Fiscal Year (b) | | Exercise Or Base Price | | Expiration Date | | Potential Realizable Value At Assumed Annual Rates of Stock Price Appreciation for Option Term | |
| | | | | | | | | | 5% | | 10% | |
Eric Schiffer | | | - | | | - | | | - | | | - | | | - | | | - | |
Jeff Gold | | | - | | | - | | | - | | | - | | | - | | | - | |
Howard Gold | | | - | | | - | | | - | | | - | | | - | | | - | |
Michael Zelkind | | | - | | | - | | | - | | | - | | | - | | | - | |
Robert Kautz | | | 150,000 | | | 85.7 | % | $ | 9.54 | | | 11/11/2015 | | $ | 899,948 | | $ | 2,280,645 | |
focus executives on achieving improved operating results and delivering value to shareholders. PSUs provide a payout (in shares) to a recipient only if specific earnings goals are achieved.
(a) | The option grant set forth on this chart vests in three equal annual installments beginning on November 11, 2006. |
(b) | Options covering an aggregate of 175,000 shares were granted to eligible persons during the fiscal year ended March 31, 2006. |
Elements of Compensation
Stock Options Held at Fiscal Year End
The following table sets forth, for each of the Named Executive Officers, information regarding the number of shares of Common Stock underlying stock options held at fiscal 2006 year end and the value of options held at fiscal 2006 year end. None of the Named Executive Officers exercised any options during the fiscal year ending March 31, 2006 or during the three month period ended March 31, 2005.
| | | | Number of Securities Underlying Unexercised Options at March 31, 2006 | | Value of Unexercised In-the-Money Options At March 31, 2006(a) | |
Name | | Shares Acquired Upon Exercise | | Value Realized | | Exercisable | | Unexercisable | | Exercisable | | Unexercisable | |
| | | | | | | | | | | | | |
Eric Schiffer | | | - | | | - | | | 75,006 | | | - | | $ | 720,058 | | | - | |
Jeff Gold | | | - | | | - | | | 75,006 | | | - | | $ | 720,058 | | | - | |
Howard Gold | | | - | | | - | | | 75,006 | | | - | | $ | 720,058 | | | - | |
Michael Zelkind | | | - | | | - | | | 13,334 | | | 26,666 | | $ | 4,467 | | $ | 8,934 | |
Robert Kautz | | | - | | | - | | | - | | | 150,000 | | | - | | $ | 603,000 | |
(a) | Based on the last reported sale price of the Company’s Common Stock on the New York Stock Exchange on March 31, 2006 ($13.56) less the option exercise price. |
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee is charged with the responsibility of administering the Company’s compensation program pertaining to executive officers. The committee, which currently is comprised of three independent, non-employee directors and no employee directors, also grants all stock options and otherwise generally administers the Company’s 1996 Stock Option Plan. Following review and approval by the committee, determinations pertaining to executive officer compensation are submitted to the full Board of Directors for approval.
Compensation Philosophy. The Company’s compensation program pertaining to executive officers is designed to (1) provide levels of compensation that integrate pay and incentive plans with the Company’s strategic goals, so as to align the interests of executive management with the long-term interests of the Company’s shareholders, (2) attract, motivate and retain executives of outstanding abilities and experience capable of achieving the strategic business goals of the Company, (3) recognize outstanding individual contributions, and (4) provide compensation opportunities which are competitive to those offered by other retail companies of similar size and performance. To achieve these goals, the Company’sOur executive compensation program consists of three main elements: (i) base salary, (ii)
We have chosen these primary elements because each supports achievement of one or more of our compensation objectives, and (iii) long-term incentives. Each element of compensationeach has an integral role in our total compensation program.
Our Compensation Committee reviews the total executive compensation program and specific individual compensation arrangements of executives at least annually. During fiscal 2008, the Compensation Committee retained Watson Wyatt Worldwide as an independent compensation consultant to provide advice and perspective to the Compensation Committee with respect to the Compensation Committee’s review of our long-term compensation program. GivenIn connection with this review, the current share ownershipCompensation Committee considered aggregated survey data compiled by Watson Wyatt Data Services, as described below, in determining the amounts of Howard Gold, Jeff Goldlong-term incentive awards. The Compensation Committee also considered peer data compiled by Watson Wyatt with respect to the long-term incentive practices of a broad set of public company retailers in determining the structure of its long-term incentive program. The Compensation Committee considered this data because it believes we compete against companies both within and Eric Schiffer,outside our own industry to fill many of our top management positions.
Our CEO evaluates each executive and makes recommendations about compensation to the Compensation Committee. The Compensation Committee considers these membersrecommendations but is ultimately responsible, together with the Board, for the approval of management have chosenall executive compensation arrangements. Our CEO is not to receive bonuses or stock option awards.present during the Committee’s deliberations about his own compensation.
Base Salary. Base salaries are negotiated at the commencement of an executive officer’sexecutive’s employment with us and the Company and are reviewedCompensation Committee reviews them annually. Base salaries are designed to reflect the position, duties and responsibilities of each executive, officer, the cost of living in the area in which the officer is located,Southern California, and the market for base salaries of similarly situated executives at other companies engaged in businesses similar to that of the Company and the Company’s performance against its financial and strategic goals.companies. Base salaries are generally designedintended to be at the mid-range of salaries of comparable companies. Duringother public companies with similar size in terms of number of employees and unit volumes, in similar industries, and with similar growth plans, challenges, and profit potential, all in the judgment of our Board members and human resource professionals based on their substantial accumulated experience and knowledge of these matters. The initial salary of Mr. Kautz in fiscal year ended March 31, 20062007 ($400,000) was based on the competitive market for his position and his compensation at previous employers. Mr. Schiffer also discussed the transition period ended March 31, 2005,total compensation package for Mr. Kautz, and each component thereof, and comparative numbers from other companies, with the national executive search firm the Company had retained to fill his position, although this search firm was not retained by the Company to provide such advice. Mr. Schiffer shared the views of this firm with the Compensation Committee. Based on its annual review, the Compensation Committee determined that the base salary of Mr. Kautz remained appropriate and no increase was made for fiscal 2008. The base salaries of the other executive officers, Messrs. Eric Schiffer, served as the Company’s Chief Executive Officer. Mr. Schiffer’s base annual salary of $120,000 was determinedJeff Gold, and Howard Gold, were originally set based upon his service to the Company, the financial performance of the Company in the fiscal year ended March 31, 2006on their earlier responsibilities and the transition period ended March 31, 2005, histheir stock ownership, position in the Company. See “Executive Compensation -- Summary Compensation Table.”and have remained unchanged at their request at $120,000 per annum (see further discussion above under “Compensation Objectives”).
Annual Cash Bonuses. All executive officersexecutives are eligible to receive annual incentive bonuses in amounts approved at the discretion of the Compensation Committee and the Board of Directors. Executive officer bonuses are calculated based on the Company’s annual performance, individual performance, the executive’s position and his base compensation level.level, the performance of the individual executives in achieving specified individual goals, typically related to the short and long term business and financial performance of our Company, as well as, in the case of Mr. Kautz, the terms of his employment agreement. The terms of Mr. Kautz’s employment agreement provide that he is entitled to an annual bonus of up to 50% of his base salary (or $200,000) based on achievement of goals related to both Company and personal performance. In fiscal 2008, the Compensation Committee approved annual goals for Mr. Kautz specifically related to increased sales, decreased store and distribution/transportation costs, strategic planning, weekly and monthly reporting enhancements, timely SEC filings and the elimination of material weaknesses in our internal control over financial reporting. Mr. Kautz also was assigned monthly goals during the year by the CEO and achieved a majority of both the annual and monthly goals. The Compensation Committee noted that Mr. Kautz has delivered strong performance for the Company throughout his tenure with the Company and received his full bonus in fiscal 2007, but Mr. Kautz mutually agreed with the Company not to receive any cash bonus in fiscal 2008. Messrs. Howard Gold,Eric Schiffer, Jeff Gold and Eric SchifferHoward Gold have also chosen not to receive an annual incentive bonus for fiscal 20062008.
Long-Term Incentives.
Overview. We have historically provided our executives (other than, at their election, Eric Schiffer, Jeff Gold and the transition period ended March 31, 2005.
Long-Term Incentives. The Company provides its executive officersHoward Gold) with long-term incentive compensation through stock option grant awards under our stock option plan. Under this plan, the Company’s 1996 Stock Option Plan. Under the 1996 Stock Option Plan, the Board of DirectorsCompensation Committee is authorized to grant any type of award which might involve the issuance of shares of Common Stock, an option, warrant, convertible security, stock appreciation right or similar right or any other security or benefit with a value derived from the value of theour Common Stock. The Compensation Committee of the Board of Directors is currently responsible for selecting the individuals to whom grants of awards will be made, the timing of grants, the determination of the per share exercise price and the number of shares subject to each award. All awards granted byIn fiscal 2008, the Compensation Committee pursuantundertook a review, with the assistance of management and Watson Wyatt, of our long-term management incentive compensation program in light of changes in accounting for stock options and resulting changes in competitive practices, as well as a desire to link long-term incentive compensation more closely to our operating results. As a result of this review, in January 2008, the 1996 Stock Option Plan have been in the formCompensation Committee approved grants of stock options.options and new PSUs as a long-term, stock-based pay for performance award designed to focus our management on achieving improved operating results and delivering value to shareholders. The Compensation Committee believes that stock options provideand PSUs are subject to vesting requirements, and the Company’s executive officers withPSUs also require continued employment through an attainment date in order to be credited for the opportunity to purchase and maintain an equity interest in the Company and to share in the appreciation of the value of the Common Stock. The Compensation Committee believes that stock options directly motivate an executive to maximize long-term shareholder value. The options incorporate vesting periodsEBT attainment, in order to encourage keyretention. This new long term incentive is a replacement for the Company's customary annual stock option grants which had been made in or around May of each year. These grants of PSUs and time-vesting stock options are expected to be the total equity awards for the employees included in these grants through the end of the performance period, March 31, 2012. In order to continuealign managements' interest with that of the stockholders, the PSU design incorporates a philosophy of awarding long term equity incentive compensation based on meeting profitability performance criteria and based on increases in the employ of the Company. As a result of the Company’s delay in filing its reportsCompany's stock price.
PSU/Option Grants. The Compensation Committee, with the Securitiesinput from Watson Wyatt and Exchange Commission (“SEC”) during the transition period ended March 31, 2005 and fiscal 2006,management, established long-term incentive award values by management level. In establishing these values, the Compensation Committee did not approve its traditionalconsidered the 2007/2008 Report on Long Term Incentives; Plans, Policies and Practices, prepared by Watson Wyatt Data Services. Based on the assumption that our salary levels were at the market median level reported, Watson Wyatt utilized this report (together with a regression analysis for the size of our Company) to determine target values for an annual grant to employeeslong-term incentive award by salary level. These target values were then multiplied by five, based on the Compensation Committee’s goal of establishing an award that would ordinarily have been madeprovide long-term incentive compensation for recipients over the period from March 30, 2008 through March 31, 2012. The Compensation Committee then allocated PSUs and stock options to each recipient based on the applicable five-year target dollar value. The split between PSUs that vest only based on attaining increasing levels of earnings and options that vest over time was determined to provide a significant incentive to achieve increases in early fiscal 2006 until June 2006. All options granted in June 2006,earnings as well as a significant incentive to increase the small number of option grants made during fiscal 2006, were granted at the fair market value of shares of our common stock.
The Compensation Committee approved an award of 280,000 PSUs to Mr. Kautz out of a total of 1,598,799 PSUs awarded to officers and other key personnel. The Compensation Committee also approved a grant of 110,678 stock options to Mr. Kautz, with a three year vesting period, out of a total of 614,452 stock options granted to officers and other key personnel. The long term incentive awards are the Company’s Common Stockonly equity awards expected to be awarded to each participant through the end of the performance period, March 31, 2012. The crediting of the PSUs is based on achievement of increases in earnings. At their request, no stock option or PSU awards were made to Eric Schiffer, Jeff Gold or Howard Gold.
PSU Structure. The PSUs are eligible for conversion, on a one-for-one basis, to shares of our common stock based on (1) attainment of one or more of eight specified levels of EBT attainment (as defined below) during the performance period (consisting of fiscal years 2008 through 2012), (2) continuous employment with the Company, and (3) certain vesting requirements. During the period beginning on March 31, 2008 and ending on the date we file our annual financial statements for fiscal year 2012, goal attainment will be measured on each date we file our quarterly and/or annual financial statements with the SEC (each such date, a “measurement date”). To date, no PSUs have been converted to shares.
EBT attainment means the sum of grant.our earnings before taxes for the four most recent fiscal quarters as calculated pursuant to generally accepted accounting principles and reported in our financial statements, as adjusted to exclude: (1) any gains or losses on sales, exchanges or other dispositions of our real estate interests held as of December 31, 2007, and (2) extraordinary items. If we either repurchase shares of our common stock or pay cash dividends to our shareholders during the performance period, the calculation of EBT attainment will also adjust earnings before taxes to include interest income that would have been earned from short term securities in the amount of the cumulative repurchases or dividends during the performance period. The Committee believed that these were appropriate adjustments so that the earnings calculation reflected our ordinary course operations and not extraordinary events, and so that management would not be disincentivized from recommending share repurchases or cash dividends to the Board in light of the negative effect such events would have on our income from investments. The Compensation Committee considersretained the grant of each option subjectively, considering factors suchright to amend the PSU awards, as long as the individualamendments do not (without the recipient’s consent) adversely affect the recipient’s rights. This would allow the Compensation Committee to make adjustments to EBT as may be appropriate to maintain fairness and the desired incentive for executive management to attain long term growth in earnings. PSUs can be credited, in whole, or in part, as follows:
Performance Level | | | #1 | | | | #2 | | | | #3 | | | | #4 | | | | #5 | | | | #6 | | | | #7 | | | | #8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
EBT Attainment Required | | $ | 18,000,000 | | | $ | 25,000,000 | | | $ | 38,000,000 | | | $ | 50,000,000 | | | $ | 63,000,000 | | | $ | 75,000,000 | | | $ | 87,000,000 | | | $ | 99,000,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
% of PSUs Credited | | | 5.0 | % | | | 10.0 | % | | | 15.0 | % | | | 15.0 | % | | | 15.0 | % | | | 15.0 | % | | | 12.5 | % | | | 12.5 | % |
EBT Attainment will be measured on each measurement date. Each performance level can only be attained once within the performance period; however, more than one performance level can be attained on a given measurement date. Although some of the credited PSUs would continue to be subject to time-based vesting after the end of the performance period, any PSUs that are not credited based on EBT attainment by the end of the performance period will generally be forfeited.
The other compensation plans available to our named executive officers consist of our compensation deferral plan and competitive compensation packages in the industry. Since 1997, Messrs. Howard Gold, Jeff Gold and Eric Schiffer have chosen not to receive bonuses or stock option awards.
Compensation Deferral Plan Plan. Effective January 1, 2000 the Company establishedAs discussed below under Deferred Compensation, we have a voluntary compensation deferral plan for highly compensated employees. Under the compensation deferralthis plan, participantseach executive (and other highly compensated employees) may defer up to 80% of his or her base pay.salary each year.
401(k) Plan. All of our full-time employees are eligible to participate in our 401(k) Plan after one year of service. Prior to fiscal 2007, we could elect to match employee contributions or make discretionary contributions to the 401(k) Plan on behalf of employees, but had elected not to do so. We amended the 401(k) plan in fiscal 2007 to provide for Company matches in cash at a rate of 100% of the first 3% of base compensation that each employee contributes, and 50% of the next 2% of base compensation that an employee contributes, with immediate vesting, as a result of internal surveys and an analysis of various benefits that could be provided in connection with our decision, as discussed in our Form 10-K for fiscal 2007 to discontinue our practice of automatically awarding stock options to most employees throughout the Company. Our executives are also eligible for these Company matches, subject to regulatory limits on contributions to 401(k) plans.
Omnibus Budget Reconciliation Act Implications for Executive Compensation. Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), places a limit of $1,000,000 on the amount of compensation that may be deducted by the Company in any year with respect to the Chief Executive Officer and each of the Company’s four most highly paid executive officers other than the Chief Executive Officer and the Chief Financial Officer. Certain “performance-based” compensation that has been approved by the Company’sour shareholders is not subject to the deduction limit. The Company’s 1996 Stock Option Plan isAwards of stock options under our stock option plan are intended to qualify so that awards under the plan constituteas performance-based compensation not subject to Section 162(m) of the Code. The PSU awards do not qualify as performance-based compensation under Section 162(m) because our stock option plan, under which the PSUs were granted, does not include approved performance measures for such equity awards. In addition, the PSU awards were not granted during the first 90 days of the performance period, as required by Section 162(m). This may limit the deductibility of our executive compensation in future periods. All compensation paid to the Company’s employeesour executives in fiscal 20062007 and the transition period ended March 31, 2005 isfiscal 2008 was fully deductible.
Employment AgreementsPost-Termination Arrangements. We have historically evaluated an award of severance benefits to a departing executive on a case by case basis, with Executive Officers On November 14, 2005, the Company announced the appointment of Robert Kautz as Executive Vice President and Chief Financial Officer of the Company.no formal plan in which all executives participate. In connection with this appointment, the Company and Mr. Kautz enteredentering into an employment agreement (the “Agreement”) datedwith Mr. Kautz when we retained him in November 11, 2005. The Agreement provides2005, we agreed that, Mr. Kautz’s salary is $400,000 per year, subject to increase at the discretionupon a termination of the Company and the Compensation Committee of the Board of Directors, and that he is eligible for an annual bonus of up to 50% of his salary. Mr. Kautz received an initial grant of 150,000 nonqualified stock options. Upon a termination during the five-year term of the Agreementagreement either by the Company without cause or by Mr. Kautz upon the Company failing to cure a material breach of the Agreementagreement after notice, Mr. Kautz iswould be entitled to a payment equal to 12 months of his salary and the vesting of any unvested options from his initial option grant. Upon a termination during the term of the Agreementagreement either by the Company for cause or by Mr. Kautz for any other reason Mr. Kautz is not entitled to any termination payment, and all of his unvested options are forfeited. Other terms of this employment agreement are discussed under “Potential Payments Upon Termination or Change of Control.” We do not have any other employment agreements with our executives.
Under the terms of each PSU award, including the PSU award granted to Mr. Kautz, if the recipient is terminated for any reason other than death or disability, all PSUs that have not converted to shares shall be forfeited.forfeited and shall lapse for no consideration. Because the PSU awards are intended to cover four years’ worth of long-term incentive compensation, the Compensation Committee decided to provide some acceleration of crediting and vesting of PSUs upon a change of control. The amount of crediting and vesting decreases over the term of the performance period, based on the rationale that the further the Company is into the performance period, the more management will have had the opportunity to achieve the specified earnings goals. A further description of the crediting and vesting of PSUs upon a change of control is set forth below under “Potential Payments Upon Termination or Change of Control.”
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed with management the above Compensation Discussion and Analysis. Based on our review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
COMPENSATION COMMITTEE |
| Jennifer Holden Dunbar (Chairwoman) |
| Eric G. Flamholtz |
| Marvin Holen |
| Lawrence Glascott |
| Peter Woo |
Summary Compensation Table
The following table sets forth, as to the Chief Executive Officer, Chief Financial Officer and the other two most highly compensated executive officers during fiscal 2008 (the “Named Executive Officers”), information concerning all compensation paid for services to the Company in all capacities during the periods indicated.
Name and Principal Position | | | Fiscal Year | | | Salary ($) | | | Bonus ($) | | | Stock Awards ($)(d) | | | Option Awards ($)(e) | | | All Other Compensation ($)(f) | | | Total ($) | |
| | | | | | | | | | | | | | | | | | | | | | |
Eric Schiffer | | | 2008 | | | | 120,000 | (a) | | | - | | | | - | | | | - | | | | 5,140 | | | | 125,140 | |
Chief Executive | | | 2007 | | | | 117,692 | (a) | | | - | | | | - | | | | - | | | | 1,540 | | | | 119,232 | |
Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Robert Kautz | | | 2008 | | | | 400,000 | | | | - | | | | - | | | | 269,508 | | | | 7,297 | | | | 676,805 | |
Chief Financial Officer | | | 2007 | | | | 415,385 | | | | 255,000 | | | | - | | | | 219,500 | | | | 3,995 | | | | 893,880 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Jeff Gold | | | 2008 | | | | 120,000 | (b) | | | - | | | | - | | | | - | | | | 4,996 | | | | 124,996 | |
President and | | | 2007 | | | | 120,000 | (b) | | | - | | | | - | | | | - | | | | 1,367 | | | | 121,367 | |
Chief Operating | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Howard Gold | | | 2008 | | | | 120,000 | (c) | | | - | | | | - | | | | - | | | | 5,140 | | | | 125,140 | |
Executive Vice President Of | | | 2007 | | | | 120,000 | (c) | | | - | | | | - | | | | - | | | | 1,540 | | | | 121,540 | |
Special Projects | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) | Includes $88,269 and $92,769 in discretionary contributions made to a deferred compensation plan for fiscal 2008 and 2007, respectively. |
(b) | Includes $80,031 and $96,254 in discretionary contributions made to a deferred compensation plan for fiscal 2008 and 2007, respectively. |
(c) | Includes $80,031 and $96,254 in discretionary contributions made to a deferred compensation plan for fiscal 2008 and 2007, respectively. |
(d) | Mr. Kautz was granted a PSU award during fiscal 2008, as described above under “Compensation Discussion and Analysis -- Long-Term Incentives.” No expense was recognized in fiscal 2008 related to this grant due to the uncertainty of achieving the performance targets. |
(e) | The dollar amounts do not necessarily reflect the dollar amounts of compensation actually realized or that may be realized. In accordance with SEC regulations, these amounts reflects the dollar amounts recognized by us for financial statement reporting purposes for fiscal 2008 in accordance with the provisions of FASB Statement No. 123(R), “Share-Based Payment”. See Note 8 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for fiscal 2008 filed with the Securities and Exchange Commission on June 11, 2008. |
(f) | Other compensation for Mr. Schiffer, Jeff Gold, Howard Gold and Robert Kautz includes matching contribution under the 401(k) Plan and life insurance premiums. |
Deferred Compensation
We have a deferred compensation plan to provide certain key management employees the ability to defer up to 80% of their base compensation and bonuses. The plan is an unfunded nonqualified plan. The deferred amounts and earnings thereon are payable to participants, or designated beneficiaries, at specified future dates, upon retirement or death. We do not make contributions to this plan or guarantee earnings. Funds in the plan are held in a rabbi trust. In accordance with EITF No. 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts Earned are Held in a Rabbi Trust,” the assets and liabilities of a rabbi trust must be accounted for as if they are our assets and liabilities. The assets held in the rabbi trust are not available for general corporate purposes. The rabbi trust is subject to creditor claims in the event of insolvency.
The following table shows the deferred compensation that was deferred by each Named Executive Officer during fiscal 2008:
Summary. The Compensation Committee believes that its executive officer compensation philosophy of paying the Company’s executive officers by means of base salaries, annual cash bonuses and long-term incentives (other than Messrs. Howard Gold, Jeff Gold and Eric Schiffer), as described in this report, serves the interests of the Company and its shareholders.
COMPENSATION COMMITTEEName | | Executive Contributions in Last Fiscal Year ($) (a) | | | Registrant Contributions in Last Fiscal Year ($) | | | Aggregate Earnings in Last Fiscal Year ($) | | | Aggregate Withdrawals/Distributions ($) | | | Aggregate Balance at Last Fiscal Year-End ($) | |
| | | | | | | | | | | | | | | |
Eric Schiffer | | 88,269 | | | - | | | (25,008) | | | - | | | 946,347 | |
Robert Kautz | | - | | | - | | | - | | | - | | | - | |
Jeff Gold | | 80,031 | | | - | | | (11,073) | | | - | | | 941,438 | |
Howard Gold | | 80,031 | | | - | | | (11,138) | | | - | | | 946,584 | |
| Eric G. Flamholtz (Chairman) (a) | Reflects amounts reported as compensation earned by Named Executive Officers in the Summary Compensation Table. |
Grants of Plan-Based Awards in Fiscal 2008
The following table shows information regarding each grant of a plan-based award made to a Named Executive Officer during fiscal 2008:
| | | | | Estimated Future Payouts Under Equity Incentive Plan Awards | | | | |
Name | | Grant Date | | | Threshold (#) | | | Target (#) | | | Maximum (#)(b) | | | All Other Stock Awards: Number of Shares of Stock or Units (#) | | | All Other Option Awards: Number of Securities Underlying Options (#) | | | Exercise Base Price of Options Awards ($/Sh) | | | Grant Date Fair Value of Stock and Option Awards ($)(c) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Eric Schiffer | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Jeff Gold | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Howard Gold | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Robert Kautz | | 1/11/2008(a) | | | | | | | | | | | | | | | | | | | | 110,678 | | | | 6.58 | | | | 728,261 | |
| | 1/11/2008 | | | | - | | | | - | | | | 280,000 | | | | - | | | | - | | | | - | | | | 1,842,400 | |
(a) | Marvin Holen The grant is subject to vesting in three equal annual installments beginning January 11, 2009. |
(b) | Lawrence Glascott The amount in this column represents the PSU award granted to Mr. Kautz under our long-term stock based pay for performance plan. In setting the performance levels for PSUs, the Compensation Committee did not set any specific threshold or target amounts. Rather, it only set maximum attainment amounts, which apply over a multi-year period, as shown in the table above and described above under “Compensation Discussion and Analysis -- Long-Term Incentives.” |
(c) | The dollar amounts in this column represent the full grant date fair value of the equity awards granted to Mr. Kautz in fiscal 2008 calculated in accordance with the provisions of FASB Statement No. 123(R), “Share-Based Payment”, except that estimated forfeitures have been disregarded for this purpose. See Note 8 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for fiscal 2008 filed with the Securities and Exchange Commission on June 11, 2008. |
Outstanding Equity Awards at Fiscal Year End
The following table sets forth, for each of the Named Executive Officers, information on the current holdings of stock options and stock awards held as of March 29, 2008:
| | Option Awards | | Stock Awards |
Name | | Number of Securities Underlying Unexercised Options (#) | | | Number of Securities Underlying Unexercised Options (#) | | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | | Option Exercise Price ($) | | | Option Expiration Date | | Number of Shares or Units of Stock that have not vested (#) | | Market Value of Shares or Unit of Stock that have not Vested ($) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that have not vested (#)(a) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other rights that have not vested ($)(b) |
| | Exercisable | | | Unexercisable | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Eric Schiffer | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | |
Jeff Gold | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | |
Howard Gold | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | |
| | | 100,000 | | | | 50,000 | | | | | | | | 9.54 | | | 11/11/2015 | | | | | | | | |
| | | - | | | | 110,678 | | | | - | | | | 6.58 | | | 1/11/2018 | | | | | | 280,000 | | 2,746,800 |
(a) | Amounts in this column represent the maximum number of shares that can be obtained upon conversion of the PSU award granted to Mr. Kautz during fiscal 2008. This award is for a multi-year period, as described above under “Compensation Discussion and Analysis -- Long-Term Incentives. We have presented the maximum number of shares that can be obtained over this multi-year period because the PSU awards do not provide for threshold or target performance measures. |
(b) | The market value of the shares was calculated by multiplying the number of shares by $9.81, the closing price of our common stock on March 28, 2008. |
REPORT OF THE AUDIT COMMITTEE.
Options Exercises and Stock Vested during Fiscal Year 2008
The following table sets forth, for each of the Named Executive Officers, information regarding options and stock awards, exercised and vested during fiscal 2008:
| | Option Awards | | | Stock Awards | |
| | Number of Shares Acquired on Exercise | | | Value Realized on Exercise | | | Number of Shares Acquired on Exercise | | | Value Realized on Exercise | |
Name | | (#) | | | ($) | | | (#) | | | ($) | |
| | | | | | | | | | | | | | |
Eric Schiffer | | | - | | | | - | | | | - | | | | - | |
Jeff Gold | | | - | | | | - | | | | - | | | | - | |
Howard Gold | | | - | | | | - | | | | - | | | | - | |
Robert Kautz | | | - | | | | - | | | | - | | | | - | |
Potential Payments Upon Termination or Change of Control
The following section describes the benefits that may become payable to our Named Executive Officers, in connection with certain terminations of their employment with the Company and/or a change in control of the Company.
Pursuant to our employment agreement with Mr. Kautz, upon a termination during the five-year term of the agreement either by us without cause or by Mr. Kautz upon our failing to cure a material breach of the agreement after notice, Mr. Kautz is entitled to a payment equal to 12 months of his salary at the rate in effect on his termination date and the vesting of any unvested options from his initial option grant. Upon a termination during the term of the agreement either by us for cause or by Mr. Kautz for any other reason, Mr. Kautz is not entitled to any termination payment and all of his unvested options shall be forfeited. In addition, the initial options granted to Mr. Kautz under his employment agreement shall become 100% vested on any “Acceleration Date” as defined in his employment agreement, which includes various change of control events. Under this agreement, we have also agreed to enable Mr. Kautz to exercise his options simultaneous with the event causing the Acceleration Date.
During fiscal 2008, Mr. Kautz received an award of PSUs, as discussed above under “Long-Term Incentives” and “Post-Termination Arrangements.” If Mr. Kautz’s employment terminates upon his death, all time-based restrictions on credited PSUs will lapse and the related PSUs will convert to shares. In addition, his estate would receive the benefit of the immediate conversion into shares of a number of PSUs related to the attainment of one additional performance level (or, in the case of a termination when no performance levels have been attained, the attainment of performance level 1). If Mr. Kautz’s employment terminates upon his disability (as defined in the PSU award agreement), all time-based restrictions on credited PSUs will lapse and the related PSUs will convert to shares. In addition, he would receive the benefit of the attainment of any performance level attained on any measurement date(s) during the period of time that is 12 months after the date of disability. If a change of control (as defined in the PSU award agreement) occurs during the performance period or up to two years from the final measurement date (and subject to Mr. Kautz’s continuous employment through such time), any PSUs that have been credited based on EBT attainment but remain subject to vesting will become fully vested and convert to shares on the date of the change of control. In addition, if a change of control occurs during the performance period, the crediting and vesting of PSUs related to one additional performance level for every two quarters that remain in the performance period will also accelerate and the related shares will be paid out. If an odd number of quarters remains within the performance period, vesting for 50% of the PSUs related to the fractional performance level will accelerate.
In addition, upon a termination of employment or change of control, each of Eric Schiffer, Jeff Gold and Howard Gold is entitled to a distribution of all deferred amounts and earnings thereon held on his behalf pursuant to our deferred compensation plan described above under “Deferred Compensation.”
The following table sets forth information on the potential payments to the Named Executive Officers upon termination or change of control, assuming a termination or change of control occurred on March 29, 2008, at which time the closing price of our common stock was $9.81.
Name | | Cash Payment($) | | | Acceleration of Vesting of Options ($)(c) | | | Acceleration of Crediting/Vesting of PSUs ($) | |
| | | | | | | | | |
Eric Schiffer | | | | | | | | | | |
· Termination | | | 946,347 | (a) | | | | | | | | |
· Change in Control | | | 946,347 | (a) | | | | | | | | |
Robert Kautz | | | | | | | | | | | | |
· Termination Without Cause or With Good Reason | | | 400,000 | (b) | | | 370,990 | | | | - | |
· Change in Control | | | 400,000 | (b) | | | 370,990 | | | | 2,746,800 | (d) |
· Death | | | | | | | | | | | 137,340 | (e) |
· Total and Permanent Disability | | | | | | | | | | | (f) |
Jeff Gold | | | | | | | | | | | | |
· Termination | | | 941,438 | (a) | | | | | | | | |
· Change in Control | | | 941,438 | (a) | | | | | | | | |
Howard Gold | | | | | | | | | | | | |
· Termination | | | 946,584 | (a) | | | | | | | | |
· Change in Control | | | 946,584 | (a) | | | | | | | | |
(a) | Assumes a termination on March 29, 2008 and payments based on the aggregate balance in the deferred compensation plan as of such date. As discussed above deferred compensation cash payments consists entirely of cash contributed by the named executive officers. |
(b) | Assumes a termination on March 29, 2008 and payments based on a base salary as of March 29, 2008. |
(c) | Amounts determined by multiplying the number of options for which vesting is accelerated by our closing stock price on March 28, 2008 ($9.81 per share) and subtracting the exercise price of such option shares. |
(d) | Amount obtained by multiplying (i) 280,000, which is the number of PSUs that would be converted into shares based on a change of control occurring on March 29, 2008, by (ii) the closing stock price on March 28, 2008 of $9.81 per share. |
(e) | Amount obtained by multiplying (i) 14,000, or 5% of 280,000, which is the number of PSUs that would be converted into shares based on achieving performance level 1 at March 29, 2008, by (ii) the closing stock price on March 28, 2008 of $9.81 per share. |
(f) | As described above, the number of PSUs that would convert into shares upon a termination of Mr. Kautz’s employment due to disability is determined based the performance levels, if any, that are attained on any measurement dates during the period of time that is 12 months after the date of disability. Because we do not know which, if any, performance levels will be attained during this period of time, we do not believe it is possible to provide a calculation of the share payment that would be due Mr. Kautz as a result of such a termination of employment. No PSUs were credited to Mr. Kautz as of March 29, 2008, and therefore there would not have been any benefit to Mr. Kautz from the lapsing of time-based restrictions on credited PSUs on this date. |
REPORT OF THE AUDIT COMMITTEE |
The Audit Committee of the Board of Directors, which consists entirely of directors who meet the independence requirements of the New York Stock Exchange and Rule 10A-3 under the Securities Exchange Act, has furnished the following report:
The Audit Committee assists the Board in overseeing and monitoring the integrity of the Company’s financial reporting process, its compliance with legal and regulatory requirements and the quality of its internal and external audit processes. The role and responsibilities of the Audit Committee are set forth in a written Charter adopted by the Board. The Audit Committee reviews and reassesses the Charter annually and recommends any changes to the Board for approval.
The Audit Committee is responsible for overseeing the Company’s overall financial reporting process. In fulfilling its responsibilities for the financial statements for fiscal year 2006 and the transition period ended March 31, 2005,2008, the Audit Committee:
| 1. | Reviewed and discussed the audited financial statements for the fiscal year ended March 31, 2006 and the transition period ended March 31, 200529, 2008 with management and BDO Seidman, LLP, the Company��sCompany’s independent registered accounting firm; |
| 2. | Discussed with BDO Seidman, LLP the matters required to be discussed by Statement on Auditing Standards No. 61 89 and 90 relating to the conduct of the audit;(Communications with Audit Committees), as amended; and |
| 3. | Received written disclosures and a letter from BDO Seidman, LLP regarding its independence as required by Independence Standards Board Standard NumberNo. 1. The Audit Committee also discussed with BDO Seidman, LLP the firm’s independence. |
The Audit Committee also considered the status of pending litigation, taxation matters and other areas of oversight relating to the financial reporting and audit process that the Audit Committee determined appropriate.
Based on the Audit Committee’sour review of the audited financial statements and discussions with management and BDO Seidman, LLP, the Audit Committeewe recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 200629, 2008 for filing with the Securities and Exchange Commission.
| AUDIT COMMITTEE |
| |
| Lawrence Glascott (Chairman) |
| Marvin Holen |
| Thomas Unterman Jennifer Holden Dunbar |
RELATED PERSON TRANSACTIONS |
PERFORMANCE GRAPH
The following graph sets forth the percentage change in cumulative total shareholder return of the Company’s Common Stock during the period from December 31, 2000 to March 31, 2006, compared with the cumulative returns of the S&P Mid Cap 400 Index and the Russell 2000 Index. The comparison assumes $100 was invested on December 31, 2000 in the common stock and in each of the foregoing indices shown. The stock price performance on the following graph is not necessarily indicative of future stock price performance.
| | 12/2000 | | 12/2001 | | 12/2002 | | 12/2003 | | 12/2004 | | 3/2005 | | 3/2006 | |
99 Cents Only Stores | | $ | 100 | | $ | 210 | | $ | 196 | | $ | 199 | | $ | 118 | | $ | 96 | | $ | 99 | |
S&P 400 | | $ | 100 | | $ | 98 | | $ | 83 | | $ | 111 | | $ | 128 | | $ | 128 | | $ | 153 | |
Russell 2000 | | $ | 100 | | $ | 101 | | $ | 79 | | $ | 115 | | $ | 135 | | $ | 127 | | $ | 158 | |
CERTAIN TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
The CompanyWe currently leaseslease 13 store locations and a parking lot associated with one of these stores from the Gold family and their affiliates, of which 11 stores are leased on a month to month basis and are in negotiation for renewal.basis. Rental expense for these facilities was approximately $2.1 million in calendareach of fiscal years 2003, 20042008, 2007 and fiscal 2006. Rental expense for these facilities was approximately $0.5 million for the three months ended March 31, 2005. The Company entersWe enter into real estate transactions with affiliates (“Affiliate Real Estate Transactions”) only for the renewal or modification of existing leases and on occasions where it determineswe determine that such transactions are in our best interests and those of our shareholders. Moreover, the Company’s best interests. Moreover,Nominating and Corporate Governance Committee, consisting of all of the independent members of the Board of Directors, must unanimously approve all real estate transactions between the Company and its affiliates. They must also determine that such transactions are equivalent to a negotiated arm’s-length transaction with a third party. The CompanyWe cannot guarantee that itwe will reach agreements with the Gold family on renewal terms for the properties the Companywe currently leaseslease from them. In addition, even if the Company agreeswe agree to such terms, itwe cannot be certain that the independent directorsNominating and Corporate Governance Committee will approve them. If the Company failswe fail to renew one of these leases, itwe could be forced to relocate or close the leased store.
In addition, one of the Company’s former directors, Ben Schwartz, who resigned during the three months ended March 31, 2005, was a trustee of a trust that owns a property on which a single 99¢ Only Stores is located. Rent expense on this store amounted to $0.3 million in 2004. Rent expense on this store was $46,000 for the three months ended March 31, 2005 and $0.2 million for the year ended March 31, 2006.
In 2004, the Company engaged Boris Zelkind, a partner in the law firm of Zelkind and Schakelford LLP and the brother of Michael Zelkind, the Company's former Executive Vice President of Supply Chain and Merchandizing, to perform various legal services. The Company paid Zelkind and Schakelford LLP less than $60,000 in fiscal 2004 and $94,000 in the fiscal year ended March 31, 2006. No payments were made for the three months ended March 31, 2005.
Prior to the sale of Universal International, Inc. (a former subsidiary of the Company)Inc (“Universal”) to Dave and Sherry Gold in 2000, the Company signed documents purporting to guarantee certain obligations under leases in which Universal, or a subsidiary, was the lessee. Subsequent toHowever, as part of the sale, Universal may have defaulted onDavid and Sherry Gold agreed to indemnify the Company for any and all attorney fees, costs, judgments, settlements or other payments that the Company might make under its guarantees of these lease agreements.leases. The Company was potentially contingently liable for lease payments totaling up to $1.1 million as of March 31, 2006, as well as additional costs for attorney fees, rent increases and common area maintenance charges, in connection with three lawsuits brought by the lessors under these leases. As part of the Universal sale in 2000, David and Sherry Gold agreed to indemnify the Company for any and all attorney fees, costs, judgments, settlements or other payments that the Company may make under its guarantees of these leases, which indemnity David and Sherry Gold confirmed in writing in April 2004 and re-executed on August 5, 2005. As of June 2006, one of the matters settled, and the Company has been fully reimbursed for the settlement pursuant to the guarantees by David and Sherry Gold. TheOn April 13, 2007, the Company and the plaintiffs in the two remaining cases have agreed onentered into a tentative settlement of the cases,agreement, pursuant to which David and Sherry Gold paid the Company would be responsible for an aggregate settlement payment of $150,000. This settlement has not yet been reduced
Pursuant to writing the charter of the Nominating and Corporate Governance Committee, it is responsible for the review, approval and/or approved by the Court. The Company anticipates full reimbursementratification of any such settlement paymenttransactions with “related persons,” as that term is defined in the regulations of the Securities and Exchange Commission, if the amount involved exceeds $120,000. Only related person transactions which the Nominating and Corporate Governance Committee finds to be in the best interests of the Company and our shareholders will be approved or other obligation in connection with these cases underratified. In addition, Affiliate Real Estate Transactions are subject to the guarantees of Davidadditional standards set forth above. The Nominating and Sherry Gold.Corporate Governance Committee has reviewed and approved or ratified the above transactions.
PRINCIPAL SHAREHOLDERS
The following table sets forth as of February 28, 2007,June 30, 2008, certain information relating to the ownership of the Company’s Common Stockour common stock by (i) each person known to be the beneficial owner of more than five percent of the outstanding shares of the Company’s Common Stock,our common stock, (ii) each of the Company’sour directors, (iii) each of the Named Executive Officers, and (iv) all of the Company’sour executive officers and directors as a group. Except as may be indicated in the footnotes to the table and subject to applicable community property laws, each such person has the sole voting and investment power with respect to the shares owned. Unless otherwise noted, the address of each person listed is in care of 99¢ Only Stores, 4000 Union Pacific Avenue, City of Commerce, California 90023.
Names and Addresses | | Number of Shares(a) | | | Percent Of Class (a) | |
David Gold (b)(d)(e) | | | 15,870,681 | | | | 22.6 | % |
Sherry Gold (c)(d)(e) | | | 15,870,681 | | | | 22.6 | % |
Howard Gold (d)(e) | | | 9,231,449 | | | | 13.1 | % |
Jeff Gold (d)(e) | | | 9,231,449 | | | | 13.1 | % |
Eric and Karen Schiffer (d)(e) | | | 9,306,455 | | | | 13.3 | % |
Au Zone Investments #3, LLC (e) | | | 6,865,973 | | | | 9.8 | % |
Akre Capital Management, LLC (f) | | | 9,438,440 | | | | 13.4 | % |
Freidman Billings Ramsey Group, Inc. (g) | | | 5,791,474 | | | | 8.2 | % |
Primecap Management Company (h) | | | 5,786,000 | | | | 8.2 | % |
Daruma Asset Management, Inc. (i) | | | 4,903,900 | | | | 7.0 | % |
Triviam Capital Management, LLC (j) | | | 4,389,380 | | | | 6.3 | % |
Marvin Holen (k) | | | 56,000 | | | | * | |
Lawrence Glascott (l) | | | 47,835 | | | | * | |
Eric Flamholtz (m) | | | 6,000 | | | | * | |
Robert Kautz (n) | | | 100,000 | | | | * | |
Jennifer Holden Dunbar (o) | | | 2,500 | | | | * | |
Peter Woo (p) | | | 16,000 | | | | * | |
All of the Company’s current executive officers and directors as a group, 10 persons (q) | | | 23,270,450 | | | | 33.1 | % |
Names and Addresses | | Number of Shares(a) | | Percent Of Class (a) |
David Gold (b)(d)(e) | | 15,864,832 | | 22.6% |
Sherry Gold (c)(d)(e) | | 15,864,832 | | 22.6% |
Howard Gold (d)(e) | | 9,225,600 | | 13.2% |
Jeff Gold (d)(e) | | 9,225,600 | | 13.2% |
Eric and Karen Schiffer (d)(e) | | 9,300,606 | | 13.3% |
Au Zone Investments #3, LLC (e) | | 6,860,124 | | 9.8% |
Akre Capital Management, LLC (f) | | 6,911,295 | | 9.9% |
Primecap Management Company (g) | | 5,154,700 | | 7.4% |
Dimensional Fund Advisors LP (h) | | 4,937,363 | | 7.1% |
Marvin Holen (i) | | 62,000 | | * |
Lawrence Glascott (j) | | 53,835 | | * |
Eric Flamholtz (k) | | 2,000 | | * |
Thomas Unterman (l) | | 2,000 | | * |
Robert Kautz (m) | | 50,000 | | * |
Jennifer Holden Dunbar | | - | | |
Peter Woo | | 5,000 | | * |
All of the Company’s current executive officers and directors as a group, 11 persons (n) | | 23,211,101 | | 33.1 % |
* | Less than 1% |
(a) | Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission that deem shares to be beneficially owned by any person who has or shares voting or investment power with respect to such shares. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Common Stockcommon stock subject to options held by that person that currently are exercisable or exercisable within 60 days of February 28, 2007June 30, 2008 are deemed outstanding. |
(b) | Includes 4,502,354 shares owned by Sherry Gold, David Gold’s spouse. |
(c) | Includes 4,502,354 shares owned by David Gold, Sherry Gold’s spouse. |
(d) | Includes 6,860,1246,865,973 shares controlled through Au Zone Investments #3, LLC. |
(e) | Au Zone Investments #3, LLC, is the general partner of Au Zone Investments #2, L.P., a California limited partnership (the “Partnership”). The Partnership is the registered owner of 6,860,1246,865,973 shares of Common Stock.common stock. The limited partners of the Partnership are David Gold, Sherry Gold, Howard Gold, Jeff Gold and Karen Schiffer (the daughter of David and Sherry Gold). Each of the limited partners of the Partnership owns a 20% interest in Au Zone Investments #3, LLC. |
(f) | This information is based on a Schedule 13G13D/A filed by Akre Capital Management, LLC, 2 West Marshall Street, Middleburg, Virginia 20118, on February 13, 2007.4, 2008, as updated by a Form 4 filed by Akre Capital Management, LLC on June 12, 2008. According to these filings, Akre Capital Management and Mr. Charles T. Akre Jr. have shared voting power with respect to 9,438,440 shares and shared dispositive power with respect to 9,438,440 shares. |
(g) | This information is based on a Schedule 13G/A filed by Freidman Billings Ramsey Group Inc., 1001 Nineteenth Street North, Arlington, Virginia 22209, on January 10, 2008. According to this filing, Freidman Billings Ramsey Group Inc., FBR TRS Holdings, Inc., FBR Capital Markets Corporation, FBR Asset Management Holdings Inc., and FBR Fund Advisers, Inc., have shared voting power with respect to 5,791,474 shares and shared dispositive power with respect to 5,791,474 shares. |
(h) | This information is based on a Schedule13G/A filed by Primecap Management Company, 225 South Lake Avenue #400, Pasadena, CA 91101, on February 14, 2007. According to this filing, Primecap Management Company has sloe voting power with respect to 2,909,900 shares and sole dispositive power with respect to 5,786,000 shares. |
(h)(i) | This information is based on a Schedule 13G/Schedule13G filed by Daruma Asset Management, Inc., 80 West 40th Street , 9th Floor, New York, NY, 10018, on February 13, 2008. According to this filing, Daruma Asset Management, Inc. has sole investment discretion over 4,903,900 shares and sole voting discretion over 1,834,300 shares. |
(j) | This information is based on a Schedule13G/A filed by Dimensional Fund Advisors LP, 1299 Ocean Avenue, Santa Monica, California 90401,Trivium Capital Management, LLC, 600 Lexington Ave, 23rd, New York, NY, 10022, on February 09, 2007.15, 2008. According to this filing, Trivium Capital Management, LLC has shared voting power with respect to 4,239,116 shares and shared dispositive power with respect to 4,389,380 shares. |
(i)(k) | Includes 48,50330,000 shares of Common Stockcommon stock reserved for issuance upon exercise of stock options, which are or will become exercisable on or before AprilAugust 29, 2007.2008. |
(j)(l) | Includes 48,50330,000 shares of Common Stockcommon stock reserved for issuance upon exercise of stock options, which are or will become exercisable on or before AprilAugust 29, 2007.2008. |
(k)(m) | Includes 2,0006,000 shares of Common Stockcommon stock reserved for issuance upon exercise of stock options, which are or will become exercisable on or before AprilAugust 29, 2007.2008. |
(l)(n) | Includes 2,000100,000 shares of Common Stockcommon stock reserved for issuance upon exercise of stock options, which are or will become exercisable on or before AprilAugust 29, 2007.2008. |
(m)(o) | Includes 50,0001,000 shares of Common Stockcommon stock reserved for issuance upon exercise of stock options, which are or will become exercisable on or before AprilAugust 29, 2007.2008. |
(n)(p) | Includes 1,000 shares of common stock reserved for issuance upon exercise of stock options, which are or will become exercisable on or before August 29, 2008. |
(q) | Includes (i) 4,502,354 shares of common stock owned by Sherry Gold, the spouse of David Gold, and (ii) 6,860,1246,865,973 shares of common stock controlled through Au Zone Investments #3, LLC and (iii) 151,006168,000 shares of Common Stock reservedcommon stock that may be acquired upon exercise of stock option, whichoptions that are exercisable.or will become exercisable on or before August 29, 2008. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’sour officers, directors, and persons who own more than ten percent of a registered class of the Company’sour equity securities to file reports of ownership and changes in ownership with the Commission.SEC. Officers, directors and greater-than-ten percent shareholders are required by the Commission’sSEC’s regulations to furnish us with all Section 16(a) forms they file. Based solely on the Company’sour review of the copies of the forms received by the Companyus and written representations from certain reporting persons that they have complied with the relevant filing requirements, we believe that, during the fiscal year ended March 31, 2006 and the transition period ended March 31, 2005,2008, all of the Company’sour officers, directors and greater-than-ten percent shareholders complied with all Section 16(a) filing requirements.requirements, with the exception of one Form 4 filing required to be made by each of Dave Gold, Sherry Gold, Eric Schiffer, Karen Schiffer, Jeff Gold and Howard Gold with respect to a distribution of 5,849 shares of our common stock by an investment fund to Au Zone Investments #2, L.P., of which each of Dave Gold, Sherry Gold, Jeff Gold, Howard Gold and Karen Schiffer are limited partners.
SHAREHOLDER PROPOSALS
Any shareholder who intends to present a proposal at the next annual meeting for inclusion in the Company’sour proxy statement and proxy relating to such annual meeting must submit such proposal to the Companyus at itsour principal executive offices withinby April 17, 2009. In addition, in the event a reasonable time before it begins to print and mailshareholder proposal is not received by us by July 10, 2009, the proxy materialsto be solicited by the Board of Directors for the 20072009 annual meeting. Upon determination bymeeting will confer discretionary authority on the Companyholders of the dateproxy to vote the shares if the proposal is presented at the 2009 annual meeting without any discussion of the 2007 annual meeting, the Company will disclose that dateproposal in the earliest possible Quarterly Report on Form 10-Q.proxy statement for such meeting.
OTHER BUSINESS
The Board knows of no business other than that described in this Proxy Statement that will be presented for consideration at the Annual Meeting. If other business shall properly come before the Annual Meeting, shares of our common stock represented by valid proxies will be voted on such matters in accordance with the best judgment of the persons named as proxies on the proxy cards for the Annual Meeting, or their duly authorized designees.
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
On April 6, 2004, the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) dismissed PricewaterhouseCoopersBDO Seidman, LLP (“PWC”BDO”) served as the Company’s independent registered public accounting firm but retained them for tax services. The decision to change independent registered public accounting firms was not the result of any disagreement between the Company and PWC on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. The audit reports of PWC with respect to the consolidated financial statements as of and for the fiscal years ended December 31, 2003 and 2002 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.
On April 19, 2004, the Audit Committee engaged Deloitte & Touche LLP (“D&T”) as the Company’s independent registered public accounting firm to audit its financial statements for the year ended December 31, 2004. During the Company’s two most recent years ended December 31, 2003 and subsequent interim period through April 19, 2004, the Company did not consult D&T with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be renderedreported on the Company’s consolidated financial statements or any other matters or reportable events as set forth in Items 304 (a) (2) (i)for fiscal 2008 and (ii) of Regulation S-K.fiscal 2007.
On September 14, 2005, the CompanyServices provided by BDO and the Chairman of the Audit Committee related fees for fiscal years 2008 and 2007,were advised by D&T, that D&T resigned as the Company’s independent registered public accounting firm. The Company was informed by D&T that its decision to resign was not the result of any disagreement between the Company and D&T on matters of accounting principles or practices, financial statement disclosure or auditing scope or procedures. The audit report of D&T on the Company’s financial statements for the fiscal year ended December 31, 2004 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principle, but it did reference D&T’s report of August 30, 2005 which disclaimed an opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting because of a scope limitation and expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting because of material weaknesses and the effects of the scope limitation. The Audit Committee was informed of, but neither recommended nor approved, the termination of the client-auditor relationship with D&T.follows:
From April 19, 2004, the date of D&T’s appointment as the Company’s independent registered public accounting firm, through September 14, 2005, there were no disagreements with D&T on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of D&T, would have caused D&T to make a reference thereto in connection with its report on the Company’s financial statements.
From April 19, 2004 through September 14, 2005, there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K, except that management was unable to complete its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and therefore D&T was unable to perform auditing procedures necessary to form an opinion on management’s assessment in connection with its engagement to audit management’s assessment of the effectiveness of the Company’s internal control over financial reporting. Material weaknesses in internal control over financial reporting were identified by management and included in management’s assessment and in D&T’s report, all of which were listed in Item 4.01 of the Company’s Current Report on Form 8-K filed with the SEC on September 20, 2005, which is hereby incorporated herein by reference.
On October 31, 2005, the Company’s audit committee engaged BDO Seidman, LLP (“BDO”) to serve as the Company’s independent registered public accounting firm to audit its financial statements for the three months ended March 31, 2005 and the fiscal year ended March 31, 2006. During the Company’s two most recent years ended December 31, 2003 and 2004 and subsequent interim period through October 31, 2005, the Company did not consult BDO with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements or any other matters or reportable events as set forth in Items 304 (a) (2) (i) and (ii) of Regulation S-K.
Representatives of BDO are expected to be present at the Annual Meeting and will be afforded the opportunity to make a statement if they desire and will be available to respond to appropriate questions from shareholders. Representatives of D&T and PWC are not expected to be present at the Annual Meeting.
For the fiscal year ended March 31, 2006, the three months ended March 31, 2005 and the year ended December 31, 2004, the Company’s principal accountants billed the aggregate fees set forth below for work performed for the periods indicated.
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| | Year Ended March 31, 2006 | | Period Ended March 31, 2005 | | Year Ended December 31 2004 | | | Year Ended March 29, 2008 | | | Year Ended March 31, 2007 | |
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Audit Fees (a) | | $ | 2,760,000 | | $ | 829,000 | | $ | 2,346,000 | | | $ | 2,010,000 | | | $ | 2,466,000 | |
Audit Related Fees | | | - | | | - | | | - | | | | - | | | | - | |
Tax Fees | | | - | | | - | | | - | | | | - | | | | - | |
All Other Fees | | | | - | | | | - | |
The Audit Committee has considered whether the provision of non-audit services by the Company’sour principal accountant is compatible with maintaining auditor independence and determined that it is. Pursuant to the rules of the Securities and Exchange Commission, before the Company’sour independent registered accounting firm is engaged to render audit or non-audit services, the engagement must be approved by the Audit Committee or entered into pursuant to the Audit Committee’s pre-approval policies and procedures. The Audit Committee has adopted a policy filed as attached as Appendix A, granting pre-approval to certain specific audit and audit-related services and specifying the procedures for pre-approving other services.
The expenses of preparing, assembling, printing and mailing this Proxy Statement and the materials used in the solicitation of proxies will be borne by us. It is contemplated that the proxies will be solicited through the mails, but the Company’sour officers, directors and regular employees may solicit proxies personally. Although there is no formal agreement to do so, we may reimburse banks, brokerage houses and other custodians, nominees and fiduciaries for their reasonable expenses in forwarding the proxy materials to shareholders whose stock in us is held of record by such entities. In addition, we may use the services of individuals or companies we do not regularly employ in connection with the solicitation of proxies if management determines it advisable.
The Audit Committee of the Board of Directors (the “Board”) of 99¢ Only Stores (the “Corporation”) is required to pre-approve the audit and non-audit services performed by the independent auditor in order to assure that the provision of such services does not impair the auditor's independence. Unless a type of service to be provided by the independent auditor has received pre-approval pursuant to this policy, it will require specific pre-approval by the Audit Committee. Any proposed services exceeding pre-approved cost levels will require specific pre-approval by the Audit Committee.
The term of any pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. The Audit Committee will periodically review previously pre-approved services, based on subsequent determinations.
To ensure prompt handling of unexpected matters, the Audit Committee delegates to the Chair of the Audit Committee the authority to amend or modify the list of pre-approved non-audit services and fees. The Chair will report action taken to the Audit Committee at its next scheduled meeting. The Audit Committee may also delegate pre-approval authority to one or more of its members who shall report any pre-approval decisions to the Audit Committee at its next scheduled meeting. The Audit Committee does not delegate its responsibilities to pre-approve services performed by the independent auditor to management or to the Board generally.
The annual audit services engagement terms and fees will be subject to the specific pre-approval of the Audit Committee. The independent auditor will provide the Audit Committee with an engagement letter and fee proposal outlining the scope and cost of the audit services proposed to be performed during the fiscal year. Once agreed to by the Audit Committee, the final engagement letter and fee proposal will be formally accepted. The Audit Committee will then approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Corporation structure or other matters.
In addition to the annual audit services engagement approved by the Audit Committee, the Audit Committee may grant pre-approval for other audit services that only the independent auditor reasonably can provide. The Audit Committee has pre-approved (i) statutory audits or financial audits for subsidiaries or affiliates of the Corporation, (ii) services associated with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings (e.g., comfort letters, consents, etc.), and assistance in responding to SEC comment letters, and (iii) consultations by the Corporation’s management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB or other regulatory or standard setting body (other than services that are “audit-related” services under SEC rules which have been separately pre-approved). Other audit services that reasonably could be performed by someone other than the independent auditor must be separately pre-approved by the Audit Committee.
Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Corporation's financial statements and that are traditionally performed by the independent auditor. The Audit Committee believes that the provision of audit-related services does not impair the independence of the auditor, and has pre-approved audit-related services related to (i) internal control reviews and assistance with internal control reporting requirements, (ii) consultations by the Corporation’s management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB or other regulatory or standard setting body (other than services that are “audit” services under SEC rules which have been separately pre-approved), (iii) attest services not required by statute or regulation, and (iv) agreed-upon or expanded audit procedures relating to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters. All other audit-related services must be separately pre-approved by the Audit Committee.
It is the preference of the Audit Committee for tax services such as tax compliance, tax planning and tax advice to be performed by an accountant other than the independent auditor. However, if the Audit Committee believes that the independent auditor can provide tax services to the Corporation without impairing the auditor's independence, and the Audit Committee desires to retain the independent auditor for tax services, those services must be specifically pre-approved by the Audit Committee. In no event will the Audit Committee permit the retention of the independent auditor in connection with a transaction initially recommended by the independent auditor, the purpose of which may be tax avoidance and the tax treatment of which may not be supported in the Internal Revenue Code and related regulations.
The Audit Committee may grant pre-approval to those permissible non-audit services classified as “all other” services that it believes are routine and recurring services, and would not impair the independence of the auditor.
A list of the SEC's prohibited non-audit services is attached to this policy as Exhibit 1. The SEC's rules and relevant guidance should be consulted to determine the precise definitions of these services and the applicability of exceptions to certain of the prohibitions.
Pre-approval fee levels for all services to be provided by the independent auditor will be established periodically by the Audit Committee. Any proposed services exceeding these levels will require specific pre-approval by the Audit Committee. The initial pre-approval fee level shall be $30,000.
With respect to each proposed pre-approved service, the independent auditor will be required to provide detailed back-up documentation, which will be provided to the Audit Committee, regarding the specific services to be provided.
Except for the annual audit services engagement (the procedures for which are set forth in Section III above), all requests or applications to provide services that require separate approval by the Audit Committee will be submitted to the Audit Committee by both the independent auditor and the Chief Executive Officer, and must include a joint statement as to whether, in their view, the request or application is permissible under all legal requirements and consistent with the SEC's rules on auditor independence.
* Provision of these non-audit services may be permitted if it is reasonable to conclude (without reference to materiality) that the results of these services will not be subject to audit procedures during the audit of the Corporation’s financial statements.