SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. _____)
Filed by the registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2)
[ ] Soliciting Material Under
Rule 14a-12
99(CENT)ONLY STORES
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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Page 1
99(CENT) ONLY STORES
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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TIME...................... 10:00 a.m. Pacific Standard Time on
Wednesday, June 5, 2002
PLACE..................... 5600 Harbor Street
City of Commerce Community Center
Rosewood Park Meeting Room
City of Commerce, California 90040
ITEMS OF BUSINESS......... (1) To elect a Board of nine directors to
hold office until the next annual
meeting of shareholders and until his or
her successor is elected.
(2) To amend our Amended and Restated
Articles of Incorporation to increase
the authorized number of shares of
common stock from 100,000,000 shares to
200,000,000 shares.
(3) To amend our 1996 Stock Option Plan to
increase the maximum number of shares of
common stock that may be issued pursuant
to awards granted under the plan from
12,334,367 to 17,000,000; and to amend
the 1996 Stock Option Plan to extend its
termination date an additional five
years to May 31, 2011.
(4) To consider and act upon a shareholder
proposal.
(5) To transact such other business as may
properly come before the annual meeting
and any adjournments or postponements
thereof.
RECORD DATE............... You can vote if at the close of business on
April 18, 2002 if you were a shareholder of the
99(cent)ONLY Stores.
PROXY VOTING.............. All shareholders are cordially invited to attend
the annual meeting in person. However, to ensure
your representation at the annual meeting, you
are urged to complete and return the enclosed
proxy as promptly as possible. If you receive
more than one proxy card because you own shares
registered in different names or at different
addresses, each card should be completed and
returned.
/S/ ERIC SCHIFFER
May __, 2001 Eric Schiffer
ASSISTANT CORPORATE SECRETARY
Page 2
99(CENT) ONLY STORES
4000 UNION PACIFIC AVENUE
CITY OF COMMERCE, CALIFORNIA 90023
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation by
the Board of Directors of 99(cent) Only Stores, A California corporation, of
proxies to be voted at our 2002 annual meeting of shareholders and at any
adjournments or postponements thereof.
You are invited to attend our annual meeting of shareholders on Wednesday,
June 5, 2002, beginning at 10:00 a.m. Pacific Standard Time. The meeting will be
held at 5600 Harbor Street, City of Commerce Community Center, Rosewood Park
Meeting Room, City of Commerce, California 90040.
It is anticipated that this proxy statement and the accompanying proxy will
be mailed to shareholders on or about April 26, 2002.
SHAREHOLDERS ENTITLED TO VOTE. The close of business on April 18, 2002, has been
fixed as the record date for the determination of shareholders entitled to
notice of and to vote at the annual meeting and any postponements or
adjournments thereof. At the record date, 69,740,618 shares of our common stock,
no par value, were outstanding. Our common stock is the only outstanding class
of securities entitled to vote at the annual meeting. At the record date, we had
approximately 13,177 shareholders, which includes 479 shareholders of record.
PROXIES. Your vote is important. If your shares are registered in your name, you
are a shareholder of record. If your shares are in the name of your broker or
bank, your shares are held in street name. We encourage you to vote by proxy so
that your shares will be represented and voted at the meeting even if you cannot
attend. All shareholders can vote by written proxy card. Your submission of the
enclosed proxy will not limit your right to vote at the annual meeting if you
later decide to attend in person. If your shares are held in street name, you
must obtain a proxy, executed in your favor, from the holder of record to be
able to vote at the meeting. If you are a record holder, you may revoke your
proxy at any time before the meeting either by filing with our Secretary, at our
principal executive offices, a written notice of revocation or a duly executed
proxy bearing a later date, or by attending the annual meeting and voting your
shares in person. If no instruction is specified on the enclosed proxy with
respect to a matter to be acted upon, the shares represented by the proxy will
be voted (i) in favor of the election of the nominees for director set forth
herein, (ii) in favor of the proposed amendment to our Amended and Restated
Articles of Incorporation, (iii) in favor of the proposed amendment to our 1996
Stock Option Plan, (iv) against the shareholder proposal, and (v) if any other
business is properly presented at the annual meeting, in accordance with the
recommendations of the Board of Directors.
QUORUM. The presence, in person or by proxy, of a majority of the votes entitled
to be cast by the shareholders entitled to vote at the annual meeting is
necessary to constitute a quorum. Abstentions and broker non-votes will be
included in the number of shares present at the annual meeting for determining
the presence of a quorum. Broker non-votes occur when a broker holding customer
securities in street name has not received voting instructions from the customer
on certain non-routine matters and, therefore, is barred by the rules of the
applicable securities exchange from exercising discretionary authority to vote
those securities.
VOTING. A shareholder is entitled to cast one vote for each share held of record
on the record date on all matters to be considered at the annual meeting.
Abstentions will be counted toward the tabulation of votes cast on proposals
submitted to shareholders and will have the same effect as negative votes, while
broker non-votes will not be counted as votes cast for or against such matters.
ELECTION OF DIRECTORS. The nine nominees for director receiving the highest
number of votes at the annual meeting will be elected. If any nominee is unable
or unwilling to serve as a director at the time of the annual meeting, the
proxies will be voted for such other nominee(s) as shall be designated by the
current Board of Directors to fill any vacancy. We have no reason to believe
that any nominee will be unable or unwilling to serve if elected as a director.
Page 3
AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION. Approval of the
amendment to our Amended and Restated Articles of Incorporation will require the
affirmative vote of 66-2/3% of the issued and outstanding shares of common
stock.
AMENDMENT TO THE 1996 STOCK OPTION PLAN. Approval of the amendment to the 1996
Stock Option Plan will require the affirmative vote of a majority of the shares
of common stock present or represented and voting at the annual meeting.
SHAREHOLDER PROPOSAL. Approval of the shareholder proposal will require the
affirmative vote of a majority of the shares of common stock present or
represented and voting at the annual meeting.
OTHER MATTERS. All other matters that may properly come before the meeting
require for approval the favorable vote of a majority of shares voting at the
meeting in person or by proxy. At the date this proxy statement went to press,
we do not know of any other matter to be raised at the annual meeting.
Page 4
ITEM 1: ELECTION OF DIRECTORS
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Item I is the election of nine members of the Board of Directors. In
accordance with our bylaws, 99(cent) Only StoRES' directors are elected at each
annual meeting and hold office until the next annual meeting and until their
successors are elected and qualified. Our bylaws provide that the Board of
Directors shall consist of no less than seven and no more than eleven directors
as determined from time to time by the board of directors. The Board of
Directors currently consists of nine directors.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the nominees named below. If any nominee is unable or
unwilling to serve as a director at the time of the annual meeting or any
adjournments thereof, the proxies will be voted for such other nominee(s) as
shall be designated by the current Board of Directors to fill any vacancy. We
have no reason to believe that any nominee will be unable or unwilling to serve
if elected as a director.
The Board of Directors proposes the election of the following nominees as
directors:
William Christy
Lawrence Glascott
David Gold
Howard Gold
Jeff Gold
Marvin Holen
Eric Schiffer
Ben Schwartz
John Shields
If elected, each of the nominees is expected to serve until the 2003 annual
meeting of shareholders and thereafter until his or her successor is duly
elected and qualified.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE ELECTION OF THE LISTED NOMINEES.
Page 5
INFORMATION WITH RESPECT TO NOMINEES AND EXECUTIVE OFFICERS
The following table sets forth information with respect to the nominees and
our executive officers as of March 31, 2002:
YEAR FIRST
AGE AT ELECTED OR
MARCH 31, APPOINTED
NAME: 2002 DIRECTOR PRINCIPAL OCCUPATION
---- --------- ---------- --------------------
NOMINEES:
David Gold 69 1965 DAVID GOLD has been Chairman of the
Board and our Chief Executive Officer
since the founding of the Company in
1965. Mr. Gold has over 45 years of
retail experience.
Howard Gold 42 1991 HOWARD GOLD has been one of our
directors since 1991. He joined us in
1982 and has served in various
managerial capacities. He currently
serves as Senior Vice President of
Distribution. Mr. Gold received his
B.S. degree from the University of
California at Los Angeles in 1984.
Eric Schiffer 41 1991 ERIC SCHIFFER has been one of our
directors since 1991. He joined us in
1991 and has served in various
managerial capacities. In March 2000,
he was promoted to President. From 1987
to 1992, he was employed by Oxford
Partners, a venture capital firm. Mr.
Schiffer received his B.S.E. degree
from Duke University in 1983 and his
M.B.A. from Harvard Business School in
1987.
Jeff Gold 34 1991 JEFF GOLD has been one of our directors
since 1991. He joined us in 1984 and
has served in various managerial
capacities. He currently serves as
Senior Vice President of Real Estate
and Information Systems. Mr. Gold
received his B.A. degree from the
University of California at Berkeley in
1989.
William O. Christy 70 1992 WILLIAM O. CHRISTY has been one of our
directors since 1992 and serves on our
Audit Committee and Compensation
Committee. He was President and Chief
Executive Officer of Certified Grocers
of California from 1977 until his
retirement in 1990. He has served on
numerous trade association boards
including the executive committee of
the National Grocers Association Board
and Chairman of the Merchant and
Manufacturer Association Board.
Marvin Holen 72 1991 MARVIN HOLEN has been one of our
directors since 1991 and serves on our
Compensation Committee. He is an
attorney and in 1960 founded the law
firm of Van Petten & Holen. He served
on the Board of the Southern California
Rapid Transit District from 1976 to
1993 (six of those years as the Board's
President). He served on the Board of
Trustees of California Blue Shield from
1972 to 1978, on the Board of United
California Savings Bank from 1992 to
1994 and on several other corporate,
financial institution and philanthropic
boards of directors.
Page 6
Ben Schwartz 84 1993 BEN SCHWARTZ has been one of our
directors since 1993 and serves on our
Audit Committee. He was Chairman of
Foods Company Markets, a supermarket
chain, from 1980 until it was acquired
in 1987 by Boys Markets. Prior thereto,
he served for many years as its
president. He served on the Board of
Directors of Certified Grocers of
California, including four years as
Chairman. Additionally, Mr. Schwartz
sits on a number of industry trade
boards, including the Food Marketing
Institute.
John Shields 70 2001 JOHN SHIELDS was appointed to our board
of directors in January 2001 and serves
on our Compensation Committee. He has
been Chief Executive Officer of Trader
Joe's since 1989. Trader Joe's Company
is a Southern California based
privately held 156 store retail chain.
From 1978 to 1987 he was Vice President
of Operations for Mervyn's Department
Stores. Prior to that he spent 20 years
with Macy's, ultimately as Senior Vice
President of Operations. In 1993 he was
Entrepreneur of the Year for Los
Angeles and in 1994 he was honored as
retailer of the year.
Lawrence Glascott 67 1996 LAWRENCE GLASCOTT has been one of our
directors since October 1996 and serves
on our Audit Committee and
Compensation Committee. From 1991 to
1996 he was the Vice President -
Finance of Waste Management
International, an environmental
services company. Prior thereto, Mr.
Glascott was a partner at Arthur
Andersen LLP and was the Arthur
Andersen LLP partner in charge of the
99(cent)Only Stores account for six years.
Additionally, Mr. Glascott was in
charge of the Los Angeles based Arthur
Andersen LLP Enterprise Group practice
for over 15 years.
OTHER EXECUTIVE OFFICERS:
Helen Pipkin 59 HELEN PIPKIN joined us in 1991 and
serves as Senior Vice President of
Wholesale Operations. From 1985 through
1991, Ms. Pipkin served as Controller
and Manager of Wholesale and Import
Operations of Cobra Associated
International, a wholesaler of variety
merchandise. Prior to 1985, for many
years, Ms. Pipkin was an owner, Vice
President and Controller of Markell
Imports, a general merchandise
wholesaler.
Andy Farina 55 ANDY FARINA joined us in September 1996
and serves as Chief Financial Officer.
From April 1993 through August 1996,
Mr. Farina was Vice President of
Finance of Crown BBK, Inc., a food
brokerage business. Mr. Farina was
employed by a division of Sara Lee from
1976 through 1988, ultimately in the
capacity of President. Mr. Farina
began his career with Arthur Andersen
LLP.
Jose Gomez 42 JOSE GOMEZ joined us in 1980 and has
served in many different managerial
capacities, most recently as Vice
President of Retail Operations. He has
over 20 years of retail experience.
David Gold is the father of Howard Gold and Jeff Gold and the father-in-law of
Eric Schiffer.
Page 7
FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS
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BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of 8 meetings during the fiscal year
ended December 31, 2001. The Board of Directors has an Audit Committee and a
Compensation Committee. During the fiscal year ended December 31, 2001, each
director during the term of his tenure, attended all meetings of the Board of
Directors held. Each director also attended all meetings of the committees of
the Board of Directors on which he served.
The Audit Committee currently consists of are Messrs. Christy, Schwartz and
Glascott. The Audit Committee recommends the engagement of our independent
public accountants, and periodically meets with the independent public
accountants and our Chief Financial Officer to review matters relating to our
financial statements, our accounting principles and our system of internal
accounting controls, and reports its recommendations as to the approval of our
financial statements to the Board of Directors. The role and responsibilities of
the Audit Committee are more fully set forth in a written charter adopted by the
Board of Directors. The Audit Committee held four meetings during fiscal 2001,
at which each member of the Audit Committee was present.
The Compensation Committee currently consists of Messrs. Christy, Holen,
Glascott and Shields. The Compensation Committee is responsible for considering
and making recommendations to the Board of Directors regarding executive
compensation and is responsible for administering our stock option plan. The
Compensation Committee held two meetings during fiscal 2001, at which each
member of the Compensation Committee was present.
COMPENSATION OF DIRECTORS
Each director who is not an officer of or otherwise employed by us receives
$1,500 per month, plus $500 for each board meeting attended plus $150 for each
committee meeting attended on a day when no board meeting is held, or $250 for
each committee meeting attended as committee chairperson. In addition, each
non-employee director receives an automatic annual grant on May 1 of a
non-qualified option to purchase 3,000 shares of common stock with a per share
exercise price equal to the fair market value of a share of our common stock on
the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of our Board of Directors currently consists of
Messrs. Christy, Holen, Glascott and Shields. None of these individuals was our
officer or employee at any time during fiscal 2001. None of our current
executive officers has served as a member of the board of directors or
compensation committee of any entity for which a member of our Board of
Directors or Compensation Committee has served as an executive officer.
Page 8
ITEM 2: PROPOSAL TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
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The Board of Directors has adopted, subject to shareholder approval, an
amendment to the first paragraph of Article III of our Amended and Restated
Articles of Incorporation (the "Amendment") to increase our authorized number of
shares of common stock from 100,000,000 shares to 200,000,000 shares. The text
of the first paragraph of Article III of the Amended and Restated Articles of
Incorporation, as it is proposed to be amended, is as follows:
"This Corporation is authorized to issue two classes of shares,
designated "Common Stock," and "Preferred Stock." The total number of
shares which this Corporation is authorized to issue is 201,000,000.
The number of shares of Preferred Stock which this Corporation is
authorized to issue is 1,000,000. The number of shares of Common Stock
which this Corporation is authorized to issue is 200,000,000."
Please see Appendix A for a copy of the Certificate of Amendment of the
Amended and Restated Articles of Incorporation as it has been proposed.
PRINCIPAL EFFECTS OF THE AMENDMENT
The additional common stock to be authorized by adoption of the Amendment
would have rights identical to our currently outstanding common stock. Adoption
of the proposed Amendment and issuance of the common stock would not affect the
rights of the holders of our currently outstanding common stock, except for
effects incidental to increasing the number of shares of our common stock
outstanding, such as dilution of the earnings per share and voting rights of
current holders of common stock. If the Amendment is adopted, it will become
effective upon filing of a Certificate of Amendment of our Amended and Restated
Articles of Incorporation with the Secretary of State of California.
As of March 25, 2002, of the 100,000,000 shares of common stock presently
authorized: 69,694,658 shares were issued and outstanding. After taking into
account shares reserved for issuance pursuant to our 1996 Stock Option Plan,
approximately 17,970,975 shares were available for issuance.
REASONS FOR THE AMENDMENT
We declared a stock split effected in the form of a stock dividend on March
25, 2002, whereby 17,423,663 shares of common stock were issued to shareholders.
The stock dividend reduced the number of unissued and unreserved shares to
17,970,975 shares. We require an increase in the number of authorized shares of
common stock to provide flexibility for business and financial purposes in the
future. The additional shares may be used, without further shareholder approval,
for various purposes including, without limitation, expanding our business
through the acquisition of other businesses, future stock dividends, raising
capital, issuing stock options to officers, directors or employees and
establishing strategic relationships with other companies. The size of the
proposed increase will give our Board of Directors the broad latitude to
authorize the issuance of additional capital stock without further shareholder
approval.
The additional shares of common stock that would become available for
issuance if the proposal were adopted could also be used by us to oppose a
hostile takeover attempt or delay or prevent changes in control or our
management. Although this proposal to increase the authorized common stock has
been prompted by business and financial considerations and not by the threat of
any hostile takeover attempt (nor is the Board of Directors currently aware of
any such attempts directed at us), nevertheless, shareholders should be aware
that approval of the proposal could facilitate future efforts by us to deter or
prevent changes in control, including transactions in which the shareholders
might otherwise receive a premium for their shares over then current market
prices.
We do not contemplate seeking shareholder approval for any future issuance
of capital stock unless required to do so by an obligation imposed by applicable
law, a regulatory authority or a third party. Under our Amended and Restated
Articles of Incorporation, no shareholder is entitled to preemptive rights with
respect to any
Page 9
future issuances of capital stock. The Board of Directors believes the proposed
increase in the authorized common stock will make a sufficient number of shares
available should we decide to use our shares for one or more of the previously
mentioned purposes or otherwise. We reserve the right to seek a further increase
in authorized shares from time to time in the future as considered appropriate
by the Board of Directors.
BOARD RECOMMENDATION AND REQUIRED VOTE
The approval of the Amendment requires the affirmative vote of 66-2/3% of
the issued and outstanding shares of common stock. The Board of Directors is of
the opinion that the Amendment is in our best interests and recommends a vote
for the approval of the Amendment. All proxies will be voted to approve the
Amendment unless a contrary vote is indicated on the enclosed proxy card.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE APPROVAL OF THE AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
Page 10
ITEM 3: PROPOSAL TO AMEND THE 1996 STOCK OPTION PLAN
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GENERAL
The Board of Directors has approved an amendment (the "Stock Plan
Amendment") to the 1996 Stock Option Plan (the "Stock Plan") to increase the
number of shares of common stock available for issuance under the Stock Plan
from 12,334,367 shares to 17,000,000 shares and to extend the termination date
of the Stock Plan from March 19, 2006 to March 19, 2011. A copy of the Stock
Plan is attached hereto as Appendix B. The Stock Plan Amendment is being
submitted to shareholders for approval.
The Board of Directors approved the Stock Plan Amendment to ensure that a
sufficient number of shares are available for issuance under the Stock Plan. At
March 31, 2002, 2,463,061 shares remained available for grants of awards under
the Stock Plan. The Board of Directors believes that the ability to grant
stock-based awards is important to our future success. The grant of stock
options and other stock-based awards can motivate high levels of performance and
provide an effective means of recognizing employee contributions to our success.
In addition, stock-based compensation can be valuable in recruiting and
retaining key personnel who are in great demand as well as rewarding and
providing incentives to our current employees. The increase in the number of
shares available for awards under the Stock Plan will enable us to continue to
realize the benefits of granting stock-based compensation. Further, it is our
current policy to give to all employees (except David Gold, our Chief Executive
Officer; Howard Gold, our Senior Vice President, Distribution; Jeff Gold, our
Senior Vice President Real Estate and Information Systems; Eric Schiffer, our
President and Sherry Gold, Bargain Wholesale's cash and carry operations
manager), full-time or part-time, with tenure of more than six months with us,
an annual grant of stock options.
On March 25, 2002, upon our distribution of a dividend of 0.3334 shares of
common stock for each share of common stock then outstanding, the number of
shares of common stock available for grants of awards under the Stock Plan was
automatically increased pursuant to the terms of the Stock Plan from 1,847,203
shares to 2,463,061 shares. In addition, as a result of the stock dividend,
proportionate adjustments were made to the number of shares of common stock
underlying awards then outstanding under the Stock Plan and to the maximum
number of shares with respect to which awards may be granted to any participant
in the Stock Plan in any fiscal year.
As of March 28, 2002, the last reported sales price of the common stock on
the New York Stock Exchange was $28.76 per share.
SUMMARY OF THE STOCK PLAN
GENERAL. The purpose of the Stock Plan is to advance our interests and
those of our shareholders by strengthening our ability to obtain and retain the
services of the types of employees, consultants, officers and directors who will
contribute to our long term success and to provide incentives which are linked
directly to increases in stock value which will inure to the benefit of all of
our shareholders.
ADMINISTRATION. The Stock Plan must be administered by a committee of our
Board of Directors (the "Committee") consisting of two or more directors, each
of whom shall be both a "disinterested person," as that term is defined in Rule
16b-3(c) of the Rules and Regulations (the "Rules") of the Securities and
Exchange Commission (the "Commission") under the Securities Exchange Act of
1934, as amended, an "outside director" for purposes of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations of
the Internal Revenue Service adopted thereunder, as such Rules and such Code and
its regulations may from time to time be amended or interpreted, and a director
who is not also one of our employees. Members of the Committee serve at the
pleasure of our Board of Directors. The Stock Plan is currently administered by
the Compensation Committee of the Board of Directors.
Subject to the provisions of the Stock Plan, the Committee has full and
final authority to (i) to select from among eligible directors, officers,
employees and consultants, those persons to be granted awards under the Stock
Plan, (ii) to determine the type, size and terms of individual awards to be made
to each person selected, (iii) to determine the time when awards will be granted
and to establish objectives and conditions (including, without limitation,
vesting and performance conditions), if any, for earning awards, (iv) to amend
the terms or conditions of any outstanding award, subject to applicable legal
restrictions and to the consent of the other party to such award, (v) to
authorize any person to execute, on behalf of us, any instrument required to
carry out the purposes of the Stock
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Plan, and (vii) to make any and all other determinations which the Committee
determines to be necessary or advisable in the administration of the Stock Plan.
The Committee has full power and authority to administer and interpret the Stock
Plan and to adopt, amend and revoke such rules, regulations, agreements,
guidelines and instruments for the administration of the Stock Plan and for the
conduct of its business as the Committee deems necessary or advisable.
ELIGIBILITY. Any person who is an officer, employee or consultant of us or
our subsidiaries (a "Participant"), is eligible to be considered for the grant
of awards under the Stock Plan. Directors who are not our employees are only
entitled to receive automatic grants of awards under the Stock Plan as discussed
below. No Participant may receive in any fiscal year awards representing more
than 125,000 shares of common stock, subject to adjustment as provided in the
Stock Plan. It is our policy to give to all employees (except David Gold, our
Chief Executive Officer; Howard Gold, our Senior Vice President, Distribution;
Jeff Gold, our Senior Vice President Real Estate and Information Systems; Eric
Schiffer, our President and Sherry Gold, Bargain Wholesale's cash and carry
operations manager), full-time or part-time, with tenure of more than six months
with us, an annual grant of stock options.
MANDATORY GRANTS TO NON-EMPLOYEE DIRECTORS. Each of our non-employee
directors who is serving on the Board of Directors as of the date of each annual
meeting of shareholders (or any special meeting in lieu of the annual meeting)
is entitled to receive a ten year non-statutory stock option to purchase 3,000
shares of common stock, with a per share exercise price equal to the fair market
value (as determined pursuant to the Stock Plan) of a share of common stock on
the day preceding the date of grant.
TYPES OF AWARDS. Awards authorized under the Stock Plan may consist of any
type of arrangement with a Participant that, by its terms, involves or might
involve or be made with reference to the issuance of shares of our common stock,
or a derivative security with an exercise or conversion price related to the
common stock or with a value derived from the value of the common stock. Awards
are not restricted to any specified form or structure and may include sales,
bonuses and other transfers of stock, restricted stock, stock options, reload
stock options, stock purchase warrants, other rights to acquire stock or
securities convertible into or redeemable for stock, stock appreciation rights,
phantom stock, dividend equivalents, performance units or performance shares, or
any other type of award which the Committee shall determine is consistent with
the objectives and limitations of the Stock Plan. An award may consist of one
such security or benefit, or two or more of them in tandem or in the
alternative.
CONSIDERATION. The common stock or other property underlying an award may
be issued for any lawful consideration as determined by the Committee,
including, without limitation, a cash payment, services rendered, or the
cancellation of indebtedness. An award may provide for a purchase price of the
common stock or other property at a value less than the fair market value of the
common stock or other property on the date of grant. In addition, an award may
permit the recipient to pay the purchase price of the common stock or other
property or to pay such recipient's tax withholding obligation with respect to
such issuance, in whole or in part, by delivering previously owned shares of our
capital stock or other property, or by reducing the number of shares of common
stock or the amount of other property otherwise issuable pursuant to such award.
TERMINATION OF AWARDS. All awards granted under the Stock Plan expire ten
years from the date of grant, or such shorter period as is determined by the
Committee. No option is exercisable by any person after such expiration. If an
award expires, terminates or is canceled, the shares of common stock not
purchased thereunder shall again be available for issuance under the Stock Plan.
AMENDMENT AND TERMINATION OF THE STOCK PLAN. The Committee may amend the
Stock Plan at any time, may suspend it from time to time or may terminate it
without approval of the shareholders; provided, however, that shareholder
approval is required for any amendment which materially increases the number of
shares for which awards may be granted, materially modifies the requirements of
eligibility, or materially increases the benefits which may accrue to recipients
of awards under the Stock Plan. However, no such action by the Board of
Directors or shareholders may unilaterally alter or impair any award previously
granted under the Stock Plan without the consent of the recipient of the award.
In any event, the Stock Plan shall terminate on March 19, 2006 (ten years
following the date it was approved by our shareholders) unless the Stock Plan
Amendment is adopted to extend the termination date to March 19, 2001 or the
Stock Plan is sooner terminated by action of the Board of Directors.
EFFECT OF SECTION 16(B) OF THE SECURITIES EXCHANGE ACT OF 1934. The
acquisition and disposition of common stock by officers, directors and our
greater than 10% stockholders ("Insiders") pursuant to awards granted to them
Page 12
under the Stock Plan may be subject to Section 16(b) of the Securities Exchange
Act of 1934. Pursuant to Section 16(b), a purchase of common stock by an Insider
within six months before or after a sale of common stock by the Insider could
result in recovery by us of all or a portion of any amount by which the sale
proceeds exceed the purchase price. Insiders are required to file reports of
changes in beneficial ownership under Section 16(a) of the Securities Exchange
Act of 1934 upon acquisitions and dispositions of shares. Rule 16b-3 provides an
exemption from Section 16(b) liability for certain transactions pursuant to
certain employee benefit plans. The Stock Plan is designed to comply with Rule
16b-3.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES. As of March 31, 1999, the
only type of award granted by us under the Stock Plan has been stock options.
The following is a general discussion of the principal tax considerations for
both "incentive stock options" within the meaning of Section 422 of the Code
("Incentive Stock Options") and non-statutory stock options ("Non-statutory
Stock Options"), and is based upon the tax laws and regulations of the United
States existing as of the date hereof, all of which are subject to modification
at any time. The Stock Plan does not constitute a qualified retirement plan
under Section 401(a) of the Code (which generally covers trusts forming part of
a stock bonus, pension or profit-sharing plan funded by the employer and/or
employee contributions which are designed to provide retirement benefits to
participants under certain circumstances) and is not subject to the Employee
Retirement Income Security Act of 1974 (the pension reform law which regulates
most types of privately funded pension, profit sharing and other employee
benefit plans).
CONSEQUENCES TO EMPLOYEES: INCENTIVE STOCK OPTIONS. No income is recognized
for federal income tax purposes by an optionee at the time an Incentive Stock
Option is granted, and, except as discussed below, no income is recognized by an
optionee upon his or her exercise of an Incentive Stock Option. If the optionee
makes no disposition of the common stock received upon exercise within two years
from the date such option was granted or one year from the date such option is
exercised, the optionee will recognize mid-term or long-term capital gain or
loss when he or she disposes of his or her common stock depending on the length
of the holding period. Such gain or loss generally will be measured by the
difference between the exercise price of the option and the amount received for
the common stock at the time of disposition. If the optionee disposes of the
common stock acquired upon exercise of an Incentive Stock Option within two
years after being granted the option or within one year after acquiring the
common stock, any amount realized from such disqualifying disposition will be
taxable as ordinary income in the year of disposition to the extent that (i) the
lesser of (a) the fair market value of the shares on the date the Incentive
Stock Option was exercised or (b) the fair market value at the time of such
disposition exceeds (ii) the Incentive Stock Option exercise price. Any amount
realized upon disposition in excess of the fair market value of the shares on
the date of exercise will be treated as long-term, mid-term or short-term
capital gain, depending upon the length of time the shares have been held. The
use of stock acquired through exercise of an Incentive Stock Option to exercise
an Incentive Stock Option will constitute a disqualifying disposition if the
applicable holding period requirement has not been satisfied. For alternative
minimum tax purposes, the excess of the fair market value of the stock as of the
date of exercise over the exercise price of the Incentive Stock Option is
included in computing that year's alternative minimum taxable income. However,
if the shares are disposed of in the same year, the maximum alternative minimum
taxable income with respect to those shares is the gain on disposition. There is
no alternative minimum taxable income from a disqualifying disposition in
subsequent years.
CONSEQUENCES TO EMPLOYEES: NON-STATUTORY STOCK OPTIONS. No income is
recognized by a holder of Non-statutory Stock Options at the time Non-statutory
Stock Options are granted under the Stock Plan. In general, at the time shares
of common stock are issued to a holder pursuant to exercise of Non-statutory
Stock Options, the holder will recognize ordinary income equal to the excess of
the fair market value of the shares on the date of exercise over the exercise
price. A holder will recognize gain or loss on the subsequent sale of common
stock acquired upon exercise of Non-statutory Stock Options in an amount equal
to the difference between the selling price and the tax basis of the common
stock, which will include the price paid plus the amount included in the
holder's income by reason of the exercise of the Non-statutory Stock Options.
Provided the shares of common stock are held as a capital asset, any gain or
loss resulting from a subsequent sale will be short-term, mid-term or long-term
capital gain or loss depending upon the length of time the shares have been
held.
Page 13
CONSEQUENCES TO THE COMPANY: INCENTIVE STOCK OPTIONS. We will not be
allowed a deduction for federal income tax purposes at the time of the grant or
exercise of an Incentive Stock Option. There are also no federal income tax
consequences to us as a result of the disposition of common stock acquired upon
exercise of an Incentive Stock Option if the disposition is not a disqualifying
disposition. At the time of a disqualifying disposition by an optionee, we will
be entitled to a deduction for the amount received by the optionee to the extent
that such amount is taxable to the optionee as ordinary income.
CONSEQUENCES TO THE COMPANY: NON-STATUTORY STOCK OPTIONS. Generally, we
will be entitled to a deduction for federal income tax purposes in the year and
in the same amount as the optionee is considered to have realized ordinary
income in connection with the exercise of Non-statutory Stock Options.
BOARD RECOMMENDATION AND REQUIRED VOTE
The approval of the Stock Plan Amendment requires the affirmative vote of a
majority of shares of our common stock present or represented and voting on this
matter at the annual meeting. The Board of Directors is of the opinion that the
Stock Plan Amendment is in our best interests and those of our shareholders and
recommends a vote for the approval of the Stock Plan Amendment. All proxies will
be voted to approve the Stock Plan Amendment unless a contrary vote is indicated
on the enclosed proxy card.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE APPROVAL OF THE AMENDMENT TO THE 1996 STOCK OPTION PLAN.
Page 14
ITEM 4: SHAREHOLDER PROPOSAL
- --------------------------------------------------------------------------------
Aaron Merle Epstein, 13455 Ventura Boulevard #209, Sherman Oaks, California
91423-6122, owning 113 shares of our common stock, has notified us of his intent
to introduce the following proposal at the annual meeting.
"Whereas: Consumers and shareholders continue to be concerned about whether
low wages and abusive working conditions exist in facilities where the products
they buy or produced or assembled.
Resolved: Shareholders request the Board of Directors adopt the following
Vendor Standards to be inserted in all purchasing contracts with its vendors.
99 Cents Only Stores has a tradition of conducting its business in an
ethical manner that reflects our respect for the public franchise under which we
operate. As such we are concerned with the worldwide state of being of human
rights and environmental degradation. We expect that the vendors with whom we
source our products to share these same ethical concerns as well. 99 Cents Only
Stores will use the following Standards of Vendor Engagement in selecting
vendors and will seek compliance with these standards by our contractor,
subcontractors, suppliers, and other businesses.
99 Cents Only Stores will seek vendors that will allow us full knowledge of
the facilities used in their production. We reserve the right to undertake
affirmative measures, such as on-site inspection of production facilities in
order to implement and monitor these standards. Any effort to suppress any of
these standards will be met with strong objection on our part and we will take
into account any such actions on the part of our vendors when reviewing and
evaluating our business relationships. Safe and healthy workplace: 99 Cents Only
Stores will seek vendors who provide their employees with a safe and healthy
workplace in compliance with local laws. Forced or Compulsory Labor: 99 Cents
Only Stores will not knowingly work with vendors that use forced or other
compulsory labor in the manufacture of products intended for our stores. This
includes labor that is required as a means of political views. Disciplinary
practices: 99 Cents Only Stores will not knowingly use vendors who use corporal
punishment or other forms of mental or physical coercion. Non-Discrimination: 99
Cents Only Stores recognizes and respects the cultural differences found in the
worldwide marketplace. However, we believe that workers should be employed on
the basis of their ability to carry out the duties of a particular job, rather
than on the basis of personal characteristics of beliefs. We will seek vendors
who share this belief. Working Hours and Overtime: 99 Cents Only Stores will
seek vendors who do not require more than 60-hour workweeks on a regularly
scheduled basis, except for appropriately compensated overtime in compliance
with local laws. Fair Wages: 99 Cents Only Stores will seek vendors who share
our commitment to the betterment of wage and benefit levels that address the
basic needs of workers and their families so far as possible and appropriate in
light of national practices and conditions. Child Labor: 99 Cents Only Stores
will seek vendors who do not use child labor. 99 Cents Only Stores will expect
its vendors to comply with the law of the country of origin in defining the term
"child", but we will not knowingly use vendors that use labor from person under
the age of 14 regardless of the law of the country of origin. 99 Cents Only
Stores will support the development of legitimate workplace apprenticeship
programs for the educational benefit of younger people as long as the child is
not being exploited or given jobs that are dangerous to the child's health or
safety."
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE AGAINST THIS
PROPOSAL FOR THE FOLLOWING REASONS:
We recognize our responsibility to engage in business with vendors that
have strong business ethics and regard for human rights. We also believe that
substantial progress has been made in improving international human rights
through a combination of cooperative efforts between business and the local
governments to improve living standards and awareness and education or human
rights. We believe our business activities are consistent with the objectives of
good business ethics and that we have performed responsibly. The Board of
Directors believes that the proposed resolution is not warranted.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE ADOPTION OF THIS
PROPOSAL. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED AGAINST THIS
PROPOSAL UNLESS OTHERWISE SPECIFIED BY THE SHAREHOLDER IN THE PROXY.
Page 15
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
The following table sets forth, as to the Chief Executive Officer and as to
each of the other four most highly compensated officers whose compensation
exceeded $100,000 during the last fiscal year (the "Named Executive Officers"),
information concerning all compensation paid for services to us in all
capacities during the last three fiscal years or accrued within the current
fiscal year. The number of securities underlying the options in the table below,
as well as in the Option Grants in The Last Fiscal Year table and the Aggregated
Options Exercised in the Last Fiscal Year and Year-End Values table have been
adjusted to reflect our four-for-three stock dividend distributed April 3, 2002
to shareholders of record on March 25, 2002.
LONG-TERM
COMPENSATION
NUMBER OF
FISCAL YEAR SECURITIES
ENDED ANNUAL COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION DECEMBER 31, SALARY BONUS OPTIONS
- --------------------------- ------------ ---------- --------- ------------
David Gold.......................... 2001 $181,730 - -
Chairman of the Board and 2000 168,300 - -
Chief Executive Officer 1999 175,000 - -
Andrew Farina ...................... 2001 $162,300 $25,000 18,000
Chief Financial Officer 2000 141,500 20,000 30,000
1999 128,000 15,000 40,000
Jose Gomez.......................... 2001 $174,900 $25,000 18,000
Vice President of 2000 160,200 25,000 30,000
Retail Operations 1999 159,600 25,000 40,000
Helen Pipkin........................ 2001 $143,100 $20,000 16,000
Senior Vice President of 2000 137,700 20,000 30,000
Wholesale Operations 1999 145,800 20,000 40,000
Eric Schiffer ...................... 2001 $124,615 - -
President 2000 120,800 -
1999 120,000 - -
Page 16
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding the
grant of stock options made during the fiscal year ended December 31, 2001 to
the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED OPTION TERM(A)
OPTION TO EMPLOYEES IN EXERCISE OR EXPIRATION --------------------
NAME GRANTED(B) FISCAL YEAR (C) BASE PRICE DATE 5% 10%
---- ---------- ---------------- ----------- ----------- --------------------
David Gold............ - - - - - -
Jose Gomez............ 18,000 1.5% $ 20.51 5/06/11 $ 232,204 $588,450
Helen Pipkin.......... 16,000 1.4% 20.51 5/06/11 206,403 523,066
Andrew Farina......... 18,000 1.5% 20.51 5/06/11 232,204 588,450
Eric Schiffer......... - - - - - -
<FN>
(a) The potential realizable value is based on the assumption that the common
stock appreciates at the annual rate shown (compounded annually) from the
date of grant until the expiration of the option term. These amounts are
calculated pursuant to applicable requirements of the Commission and do not
represent a forecast of the future appreciation of the common stock.
(b) The option grants set forth on this chart vest in three equal annual
installments beginning on May 6, 2002.
(c) Options covering an aggregate of 1,178,491 shares were granted to eligible
persons during the fiscal year ended December 31, 2001.
</FN>
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 year end and the value of options held at fiscal year
end.
AGGREGATED OPTIONS EXERCISED IN THE LAST FISCAL YEAR AND YEAR-END VALUES
NUMBER OF SECURITIES NUMBER OF SECURITIES
UNDERLYING EXERCISED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 2001 DECEMBER 31, 2001 AT DECEMBER 31, 2001(A)
------------------------ ----------------------------- ----------------------------
NAME SHARES VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------------- ----------- ------------- ----------- -------------
David Gold........ - - - - - -
Jose Gomez........ 50,000 $ 968,113 161,672 51,333 $3,068,669 $528,350
Helen Pipkin...... 152,001 $1,521,449 59,671 49,333 1,098,052 512,000
Andrew Farina..... - - 142,920 51,333 2,633,289 528,350
Eric Schiffer..... - - 75,004 - 1,854,694 -
<FN>
(a) Based on the last reported sale price of the common stock on the New York
Stock Exchange on December 31, 2001 ($28.69) less the option exercise
price.
</FN>
Page 17
REPORT OF THE COMPENSATION COMMITTEE
- --------------------------------------------------------------------------------
The Compensation Committee is charged with the responsibility of
administering all aspects of the Company's executive compensation programs. The
committee, which currently is comprised of four 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 compensation
are submitted to the full Board of Directors for approval.
COMPENSATION PHILOSOPHY. The Company's executive compensation program 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's executive
compensation program consists of three main elements: (i) base salary, (ii)
annual cash bonus and (iii) long-term incentives. Each element of compensation
has an integral role in the total executive compensation program. Given the
current share ownership of Messrs. David Gold, Howard Gold, Jeff Gold and Eric
Schiffer, these members of management have chosen not to receive bonuses or
stock option awards.
BASE SALARY. Base salaries are negotiated at the commencement of an
executive's employment with the Company and are reviewed 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, 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. Base salaries are
generally designed to be at the mid-range of salaries of comparable companies.
During the year ended December 31, 2001, David Gold served as the Company's
Chief Executive Officer. Mr. Gold's base salary of $175,000 was determined based
upon his service to the Company, the financial performance of the Company in the
year ended December 31, 2001, and the salaries received by similarly situated
executives at other companies. See "Executive Compensation -- Summary
Compensation Table."
ANNUAL CASH BONUSES. Executive officers and key members of management are
eligible to receive annual incentive bonuses from an executive bonus pool in
amounts determined at the discretion of the Board of Directors. The executive
bonus pool is calculated based on the Company's annual performance against a
business plan developed each year by senior management and reviewed and approved
by the Board of Directors. The executive bonus pool is capped at 3% of the
Company's operating profit. Funding of the bonus pool is determined based on a
performance matrix consisting of three variables: (i) the increase in store
sales during the subject year over store sales during the immediately preceding
year; (ii) operating income goals; and (iii) the individual performance of the
executives. Individual bonus targets for executives range from 0% to 20% of the
executive's base salary depending on the level of responsibility and attainment
of individual performance goals. Messrs. David Gold, Howard Gold, Jeff Gold and
Eric Schiffer have chosen not to receive an annual incentive bonus for 2001.
LONG-TERM INCENTIVES. The Company provides its executive officers with
long-term incentive compensation through grants of awards under the Company's
1996 Stock Option Plan. Under the 1996 Stock Option Plan, the Board of Directors
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 the 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 by the Compensation Committee pursuant to the 1996 Stock Option
Plan have been in the form of stock options. The Compensation Committee believes
that stock options provide the Company's executive officers with 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 periods in order to encourage
key employees to continue in the employ of the Company. All options granted in
2000 were granted at the fair market value of the Company's Common Stock on the
date of grant. The Compensation Committee considers the grant of each option
subjectively, considering factors such as the individual performance of
executive officers and competitive compensation packages in the industry.
Messrs. David Gold, Howard Gold, Jeff Gold and Eric Schiffer, these members of
management have chosen not to receive bonuses or stock option awards.
Page 18
COMPENSATION DEFERRAL PLAN. Effective January 1, 2000 the Company
established a compensation deferral plan for highly compensated employees. Under
the compensation deferral plan participants may defer up to 80% of base pay.
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 each of
the Company's four most highly paid executive officers. Certain
"performance-based" compensation that has been approved by the Company's
shareholders is not subject to the deduction limit. The Company's 1996 Stock
Option Plan is intended to qualify so that awards under the plan constitute
performance-based compensation not subject to Section 162(m) of the Code. All
compensation paid to the Company's employees in fiscal 2001 will be fully
deductible.
SUMMARY. The Compensation Committee believes that its executive
compensation philosophy of paying the Company's executive officers by means of
base salaries, annual cash bonuses and long-term incentives (other than Messrs.
David Gold, Howard Gold, Jeff Gold and Eric Schiffer), as described in this
report, serves the interests of the Company and its shareholders.
COMPENSATION COMMITTEE
WILLIAM CHRISTY
MARVIN HOLEN
LAWRENCE GLASCOTT
JOHN SHIELDS
Page 19
REPORT OF THE AUDIT COMMITTEE
- --------------------------------------------------------------------------------
The Audit Committee of the Board of Directors, which consists entirely of
directors who meet the independence and experience requirements of the New York
Stock Exchange, 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 2001, the Audit Committee:
1. Reviewed and discussed the audited financial statements for the fiscal
year ended December 31, 2000 with management and Arthur Andersen LLP,
the Company's independent auditors;
2. Discussed with Arthur Andersen LLP the matters required to be
discussed by Statement on Auditing Standards 61 relating to the
conduct of the audit; and
3. Received written disclosures and the letter from Arthur Andersen LLP
regarding its independence as required by Independence Standards Board
Standard Number 1. The Audit Committee discussed with Arthur Andersen
LLP their 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 Committee determined appropriate.
Based on the Audit Committee's review of the audited financial statements
and discussions with management and Arthur Andersen LLP, the Audit Committee
recommended to the Board that the audited financial statements be included in
the Corporation's Annual Report on Form 10-K for the fiscal year ended December
31, 2000 for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
WILLIAM CHRISTY
BEN SCHWARTZ
LAWRENCE GLASCOTT
Page 20
PERFORMANCE GRAPH
The following graph sets forth the percentage change in cumulative total
shareholder return of our common stock during the period from December 31, 1996
to December 31, 2001, 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, 1996 in the common stock and in each of the foregoing indices.
The stock price performance on the following graph is not necessarily indicative
of future stock price performance.
COMPARISON OF 5 YEARS CUMULATIVE RETURN*
AMONG 99 CENTS ONLY STORES, THE S & P MID CAP 400
INDEX
AND THE RUSSELL 2000 INDEX
[GRAPHIC OMITTED]
Cumulative Total Return
-------------------------------------------------------
12/96 12/97 12/98 12/99 12/00 12/01
----- ----- ----- ----- ----- -----
99(cent)ONLY STORES 100.00 225.48 469.31 365.44 348.65 738.42
S & P MID CAP 400 100.00 130.44 153.48 173.98 202.15 198.87
RUSSELL 2000 100.00 120.52 116.38 139.22 133.34 134.72
Page 21
CERTAIN TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
As of March 28, 2002, we leased 12 of our 132 store locations and a parking
lot associated with one of these stores from certain members of the Gold family
and their affiliates. Annual rental expense for the facilities owned by the Gold
family and their affiliates was approximately $1.9 million, $1.9 million and
$1.9 million in 1999, 2000 and 2001, respectively. We believe that such leases
and contracts are no less favorable to us than those an unrelated party would
have provided after arm's-length negotiations. It is our current policy not to
enter into real estate transactions with the Gold family or their affiliates,
except with respect to the renewal or modification of existing leases and
occasions where such transactions are determined to be in our best interests.
Moreover, all real estate transactions between us and the Gold family or their
affiliates will require the unanimous approval of the independent directors on
our Board of Directors and a determination by such independent directors that
such transactions are the equivalent of a negotiated arm's-length transaction
with a third party. There can be no guarantee that we and the Gold family or
their affiliates will be able to agree on renewal terms for the properties
currently leased by us from, or, if such terms are agreed to, that the
independent directors on the Board of Directors will approve such terms.
On September 30, 2000, the Board of Directors approved the sale of
Universal International, Inc. and Odd's-N-End's, Inc. (collectively,
"Universal") to Universal Deals, Inc. and Universal Odd's-N-End's, Inc.,
respectively. Both Universal Deals, Inc. and Universal Odd's-N-End's are owned
100% by David and Sherry Gold who are significant shareholders of 99(cent) Only
Stores. Mr. Gold is also our Chairman and Chief Executive Officer. The sales
price for Universal was our carrying value as of the close of business on
September 30, 2000 which was $33.9 million as determined by the parties and
approved by our Board of Directors. The sale was effective as of the close of
business on September 30, 2000. The Universal net assets at September 30, 2000
included $29.2 million in inventory, net fixed assets of $7.6 million and $0.6
million of other assets. These assets were offset by $3.5 million of accounts
payable, accrued and other liabilities. In connection with this transaction, we
continue to provide certain ongoing administrative and other services to
Universal pursuant to a Services Agreement. We receive a management fee of 6% of
Universal's sales revenue. During 2001, we received $3.7 million in management
fees under the Services Agreement with Universal. We have also received $1.4
million in lease payments for rental of a distribution facility to Universal.
Additionally, through our Bargain Wholesale division, we sold $4.7 million of
product to Universal at a 10% margin.
Page 22
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
The following table sets forth as of March 31, 2002, certain information
relating to the ownership of our common stock by (i) each person known by us to
be the beneficial owner of more than five percent of the outstanding shares of
our common stock, (ii) each of our directors, (iii) each of the Named Executive
Officers, and (iv) all of our 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. The address of each person
listed is in care of 99(cent) Only Stores, 4000 Union Pacific Avenue, City of
Commerce, California 90023.
NUMBER OF PERCENT
NAMES AND ADDRESSES SHARES(A) OF CLASS (A)
-------------------------------------------- ------------- ------------
David Gold (b)(e)........................... 14,144,545 20.03%
Sherry Gold (c)(e).......................... 14,144,545 20.03%
Howard Gold (d)(e).......................... 9,255,601 13.07%
Jeff Gold (d)(e)............................ 9,255,601 13.07%
Eric and Karen Schiffer (e)(f).............. 9,300,607 13.17%
Au Zone Investments #3, LLC(e).............. 6,860,125 9.72%
William O. Christy (g)...................... 58,836 *
Marvin Holen (h)............................ 46,672 *
Ben Schwartz (i)............................ 6,000 *
Lawrence Glascott (j)....................... 42,087 *
Helen Pipkin (k)............................ 88,337 *
Jose Gomez(l)............................... 191,005 *
Andrew Farina(m)............................ 172,253 *
John Shields................................ 2,933
Myron Kaplan(n)............................. 5,139,837 7.28%
All of the Company's executive officers
and directors as a group,
12 persons(o)............................... 28,784,228 40.77%
<FN>
* 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 stock subject to options held by that person that currently are
exercisable or exercisable within 60 days of March 31, 2002 are deemed
outstanding. Unless otherwise indicated, the persons named in this table
have sole voting and sole investment power for all shares shown as
beneficially owned, subject to community property laws where applicable.
(b) Includes 4,502,355 shares owned by Sherry Gold, David Gold's spouse, and
6,860,125 shares controlled through Au Zone Investments #3, LLC, a
California limited liability company.
(c) Includes 4,502,355 shares owned by David Gold, Sherry Gold's spouse, and
6,860,125 shares controlled through Au Zone Investments #3, LLC.
(d) Includes 6,860,125 shares controlled through Au Zone Investments #3, LLC,
and 75,005 shares reserved for issuance upon exercise of stock options
which are exercisable.
(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 shares of common stock. The limited
partners of the Partnership are David Gold, Sherry Gold, Howard Gold, Jeff
Gold and Karen Schiffer. Each of the limited partners of the Partnership
owns a 20% interest in Au Zone #3 Investments #3, LLC.
(f) Includes 6,860,125 shares controlled through Au Zone Investments #3, LLC,
and 112,508 shares reserved for issuance upon exercise of stock options
which are exercisable.
(g) Includes 58,836 shares of common stock reserved for issuance upon exercise
of stock options which are or will become exercisable on or before May 30,
2002.
(h) Includes 46,672 shares of common stock reserved for issuance upon exercise
of stock options which are or will become exercisable on or before May 30,
2002.
(i) Includes 6,000 shares of common stock reserved for issuance upon exercise
of stock options which are or will become exercisable on or before May 30,
2002.
(j) Includes 42,087 shares of common stock reserved for issuance upon exercise
of stock options which are or will become exercisable on or before May 30,
2002.
(k) Includes 88,337 shares of common stock reserved for issuance upon exercise
of stock options which are or will become exercisable on or before May 30,
2002.
(l) Includes 172,253 shares of common stock reserved for issuance upon exercise
of stock options which are or will become exercisable on or before May 30,
2002.
Page 23
(m) Includes 172,253 shares of common stock reserved for issuance upon exercise
of stock options which are or will become exercisable on or before May 30,
2002.
(n) Includes 4,721,165 shares of common stock owned directly and for which Mr.
Kaplan has sole voting power and 418,672 shares of Common Stock owned by
Kaplan Nathan & Company, LLP a Delaware limited partnership, and for which
Mr. Kaplan shares voting and depositive power. This information is based on
a Scedule13G amendment filed by Mr. Kaplan, Box 385 Leona , N.J. 07605, on
January 9, 2002.
(o) Includes (i) shares owned by Sherry Gold, the spouse of David Gold, (ii)
shares controlled through Au Zone Investments #3, LLC, and (iii) shares of
common stock reserved for issuance upon exercise of stock options which are
or will become exercisable on or before May 30, 2002.
</FN>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
- --------------------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires our executive
officers, directors, and persons who own more than ten percent of a registered
class of our equity securities to file reports of ownership and changes in
ownership with the Commission. Executive officers, directors and
greater-than-ten percent shareholders are required by the Commission's
regulations to furnish us with all Section 16(a) forms they file. Based solely
on our review of the copies of the forms received by it and written
representations from certain reporting persons that they have complied with the
relevant filing requirements, we believe that, during the year ended December
31, 2001, all of our executive officers, directors and greater-than-ten percent
shareholders complied with all Section 16(a) filing requirements., with the
exception of the following: Helen Pipkin filed one Form 5 covering four
transactions and one late Form 4 covering sixteen transactions; Jose Gomez filed
one late Form 4 covering four transactions; each of Andy Farina, William
Christy, Lawrence Glascott and Ben Schwartz filed one late Form 4 covering one
transaction; Marvin Holen filed two late Form 4's covering four transactions;
each of Au-Zone Investments #2, LLC and Au Zone Investments #3, L.P. filed one
late Form 4 covering two transactions; each of Karen Schiffer and Sherry Gold
filed two late Form 4's covering three transactions; and each of David Gold,
Jeff Gold, Howard Gold and Eric Schiffer filed one late Form 4 covering two
transactions.
SHAREHOLDER PROPOSALS
Any shareholder who intends to present a proposal at the next annual
meeting for inclusion in our proxy statement and proxy relating to such annual
meeting must submit such proposal to us at our principal executive offices by
December 29, 2002. In addition, in the event a stockholder proposal is not
received by us by March 17, 2003, the proxy to be solicited by the Board of
Directors for the 2003 annual meeting will confer discretionary authority on the
holders of the proxy to vote the shares if the proposal is presented at the 2003
Annual Meeting without any discussion of the proposal in the proxy statement for
such meeting.
SEC rules and regulations provide that if the date of our 2003 Annual
Meeting is advanced or delayed more than 30 days from the date of our 2002
Annual Meeting, stockholder proposals intended to be included in the proxy
materials for the 2003 annual meeting must be received by us within a reasonable
time before we begin to print and mail the proxy materials for the 2003 annual
meeting. Upon determination by us that the date of the 2003 annual meeting will
be advanced or delayed by more than 30 days from the date of the 2002 annual
meeting, we will disclose such change in the earliest possible Quarterly Report
on Form 10-Q.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen, LLP, independent public accountants, were selected by the
Board of Directors to serve as our independent public accountants for the year
ended December 31, 2001. In February 2002, the Board, after receiving the
recommendation of the Audit Committee, appointed Arthur Andersen as our
independent auditors for the fiscal year ended December 31, 2002. On March 14,
2002, Arthur Andersen was indicted in connection with the destruction of
documents related to the audit of Enron Corporation. As a result of the
uncertainty regarding the future of Arthur Andersen, the Board is considering
whether it is appropriate to continue the engagement of Arthur Andersen as our
independent auditor for 2002.
Should the Board conclude that Arthur Andersen should not serve as our
independent auditor for 2002, the Audit Committee intends to carefully consider
a potential accounting firm's qualifications as independent accountants before
recommending an independent auditor for appointment. This may include a review
of the qualifications of the engagement team, the quality control procedures the
firm has established, and any issues raised by the most recent quality control
review of the firm, as well as its reputation for integrity and competence in
the fields of accounting and auditing. The Audit Committee also intends to
analyze matters required to be considered
Page 24
under the committee's charter and under the Commission's Rules on Auditor
Independence, including the nature and extent of non-audit services to ensure
that they will not impair the independence of the accountants.
Any decision by the Board to discharge Arthur Andersen and engage a
different independent public accountant will be made after additional
information is obtained and the Audit Committee has conducted a review and made
a recommendation to the Board. If we decide to change our independent public
accountants, we will promptly provide disclosure required by the regulations of
the Securities and Exchange Commission. A representative of Arthur Andersen will
be present at the annual meeting, will be afforded the opportunity to make a
statement if he or she desires to do so, and will be available to respond to
appropriate questions from shareholders.
During the fiscal year ended December 31, 2001, we retained Arthur Andersen
to provide services in the following categories and amounts.
1. Audit fees $330,000
2. Financial Information System
Design and Implementation Fees $ -
3. Other services $142,000
The Audit Committee has considered whether the provision of non-audit
services by our principal auditor is compatible with maintaining auditor
independence.
SOLICITATION OF PROXIES
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
our 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.
ANNUAL REPORT ON FORM 10-K
OUR ANNUAL REPORT ON FORM 10-K, WHICH HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 2001, WILL BE MADE
AVAILABLE TO SHAREHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO 99(cent) ONLY
STORES, 4000 UNION PACIFIC AVENUE, CITY OF COMMERCE, CALIFORNIA 90023,
ATTENTION: CHIEF FINANCIAL OFFICER.
ON BEHALF OF THE BOARD OF DIRECTORS
/S/ ERIC SCHIFFER
Eric Schiffer
President
4000 Union Pacific Avenue
City of Commerce, California 90023
April 18, 2002
Page 25
APPENDIX A
FORM OF
CERTIFICATE OF AMENDMENT
OF THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
99(CENT) ONLY STORES
Eric Schiffer and Andrew Farina do hereby certify that:
1. They are the President and Chief Financial Officer, respectively, of
99(cent) Only Stores (hereinafter called the "Corporation"), a corporation
organized and existing under and by virtue of the provisions of the laws of
the State of California.
2. The Corporation filed Amended and Restated Articles of Incorporation on
April 3, 1996.
3. The Corporation filed a Certificate of Amendment of Articles of
Incorporation on May 14, 1996.
4. The Corporation filed a Certificate of Amendment of Articles of
Incorporation on June 7, 1996.
5. The Corporation filed a Certificate of Amendment of the Amended and
Restated Articles of Incorporation on June 20, 2000.
6. The first paragraph of Article III of the Amended and Restated Articles of
Incorporation, as amended, is amended to read in its entirety as follows:
ARTICLE III
This Corporation is authorized to issue two classes of shares,
designated "Common Stock" and "Preferred Stock." The total number
of shares which this Corporation is authorized to issue is
201,000,000. The number of shares of Preferred Stock which this
Corporation is authorized to issue is 1,000,000. The number of
shares of Common Stock which this Corporation is authorized to
issue is 2,000,000.
7. The Board of Directors of the Corporation has duly approved the foregoing
amendment to the Amended and Restated Articles of Incorporation.
8. The foregoing amendment to the Amended and Restated Articles of
Incorporation have been duly approved by the required vote of shareholders
in accordance with Section 903 of the General Corporation Law of the State
of California. The total number of outstanding shares of Common Stock is
__________. The number of shares of Common Stock voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote
required was more than sixty-six and two thirds percent (66-2/3%) of the
outstanding Common Stock.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge.
Executed in the City of Los Angeles, State of California, on this ____ day
of May, 2002.
--------------------------------------
Eric Schiffer, President
--------------------------------------
Andrew Farina, Chief Financial Officer
APPENDIX B
AS AMENDED EFFECTIVE APRIL 30, 2001
99(CENT) ONLY STORES
1996 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
The purpose of this 1996 Stock Option Plan, as amended and restated (the
"Plan") is to provide incentives and rewards to selected eligible directors,
officers, employees and consultants of 99(cent) Only Stores (the "Company") or
its subsidiaries in order to assist the Company and its subsidiaries in
attracting, retaining and motivating those persons by providing for or
increasing the proprietary interests of those persons in the Company, and by
associating their interests in the Company with those of the Company's
shareholders.
2. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by a committee of the Board of Directors of
the Company (the "Committee") consisting of two or more directors, each of whom
shall be both a "non-employee director," as that term is defined in Rule
16b-3(b)(3)(i) of the Rules and Regulations (the "Rules") of the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, and
an "outside director" for purposes of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code") and the regulations of the Internal
Revenue Service adopted thereunder, as such Rules and such Section and
regulations may from time to time be amended or interpreted. Members of the
Committee shall serve at the pleasure of the Board of Directors of the Company.
The Committee shall have all the powers vested in it by the terms of the
Plan, including exclusive authority (i) to select from among eligible directors,
officers, employees and consultants, those persons to be granted "Awards" (as
defined below) under the Plan; (ii) to determine the type, size and terms of
individual Awards (which need not be identical and will likely vary from person
to person) to be made to each person selected; (iii) to determine the time when
Awards will be granted, and to establish objectives and conditions (including,
without limitation, vesting and performance conditions), if any, for earning
Awards, and whether Awards will be paid after the end of the Award period; (iv)
to amend the terms or conditions of any outstanding Award, subject to applicable
legal restrictions; (v) to determine the duration and purpose of leaves of
absences which may be granted to holders of Awards without constituting
termination of their employment for purposes of their Awards; (vi) to authorize
any person to execute, on behalf of the Company, any instrument required to
carry out the purposes of the Plan; and (vii) to make any and all other
determinations which it determines to be necessary or advisable in the
administration of the Plan. The Committee shall have full power and authority to
administer and interpret the Plan and to adopt, amend and revoke such rules,
regulations, agreements, guidelines and instruments for the administration of
the Plan and for the conduct of its business as the Committee deems necessary or
advisable. The Committee's interpretation of the Plan, and all actions taken and
determinations made by the Committee pursuant to the powers vested in it
hereunder, shall be conclusive and binding on all parties concerned, including
the
Page 1
Company, its shareholders, any participants in the Plan and any other employee
of the Company or any of its subsidiaries.
3. PERSONS ELIGIBLE UNDER THE PLAN.
Any person who is an officer, employee or consultant of the Company, or any
of its subsidiaries (an "Employee"), including any member of the Board of
Directors of the Company who is an Employee, shall be eligible to be considered
for the grant of Awards under the Plan. Subject to the provisions of Section 5
hereof, members of the Board of Directors of the Company who are not employees
(each a "non-employee Director") shall be eligible to be considered for the
grant of Awards under the Plan.
4. AWARDS.
(a) COMMON STOCK AND DERIVATIVE SECURITY AWARDS. Awards authorized under
the Plan shall consist of any type of arrangement with an Employee that is not
inconsistent with the provisions of the Plan and that, by its terms, involves or
might involve or be made with reference to the issuance of (i) shares of the
Common Stock, no par value, of the Company (the "Common Stock") or (ii) a
"derivative security" (as that term is defined in Rule 16a-l(c) of the Rules, as
the same may be amended from time to time) with an exercise or conversion price
related to the Common Stock or with a value derived from the value of the Common
Stock
(b) TYPES OF AWARDS. Awards are not restricted to any specified form or
structure and may include, but need not be limited to, sales, bonuses and other
transfers of stock, restricted stock, stock options, reload stock options, stock
purchase warrants, other rights to acquire stock or securities convertible into
or redeemable for stock, stock appreciation rights, phantom stock, dividend
equivalents, performance units or performance shares, or any other type of Award
which the Committee shall determine is consistent with the objectives and
limitations of the Plan. An Award may consist of one such security or benefit,
or two or more of them in tandem or in the alternative.
(c) CONSIDERATION. Common Stock may be issued pursuant to an Award for any
lawful consideration as determined by the Committee, including, without
limitation, a cash payment, services rendered, or the cancellation of
indebtedness.
(d) GUIDELINES. The Committee may adopt, amend or revoke from time to time
written policies that provide guidelines implementing the Plan. Such guidelines
may include, but need not be limited to, the type, size and term of Awards to be
made to participants and the conditions for payment of such Awards. The
guidelines shall provide that the grant of Awards under the Plan is within the
sole discretion of the Committee. No employee shall have any right to receive an
Award unless so determined by the Committee. Unless otherwise specifically
provided by the Committee in the guidelines, under no circumstances will the
Company grant Awards to any person who for any reason (including any leave of
absence) is not actively working and performing services on an ongoing, regular,
and full-time basis for the Company at the time Awards are otherwise customarily
made to other participants. The Committee may, however, establish specific
service criteria for part-time employees to be eligible, in the sole discretion
of the Committee, to receive Awards under the Plan.
Page 2
(e) TERMS AND CONDITIONS. Subject to the provisions of the Plan, the
Committee, in its sole and absolute discretion, shall determine all of the terms
and conditions of each Award granted pursuant to the Plan, which terms and
conditions may include, among other things:
(i) any provision necessary for such Award to qualify as an incentive
stock Option under Section 422 of the Code (an "Incentive Stock Option");
(ii) a provision permitting the recipient of such Award (including any
recipient who is a director or officer of the Company) to pay the purchase
price of the Common Stock or other property issuable pursuant to such
Award, or to pay such recipient's tax withholding obligation with respect
to such issuance, in whole or in part, by delivering previously owned
shares of capital stock of the Company (including "pyramiding") or other
property, or by reducing the number of shares of Common Stock or the amount
of other property otherwise issuable pursuant to such Award; or
(iii) a provision conditioning or accelerating the receipt of benefits
pursuant to the Award, or terminating the Award, either automatically or in
the discretion of the Committee, upon the occurrence of specified events,
including, without limitation., a change of control of the Company, an
acquisition of a specified percentage of the voting power of the Company,
the dissolution or liquidation of the Company, a sale of substantially all
of the property and assets of the Company or an event of the type described
in Section g of the Plan.
(f) MAXIMUM AWARDS. An employee may be granted multiple Awards under the
Plan. However, notwithstanding any other provision of the Plan, the maximum
number of shares of Common Stock with respect to which options or rights or
other Awards may be granted under the Plan to any Employee during any fiscal
year shall be 50,000, subject to adjustment as provided in Section 8 of the
Plan.
(g) SUSPENSION OR TERMINATION OF AWARDS. If the Company or the Committee
has reason to believe that an Employee or a non-employee director who has
received the grant of Awards under the Plan (each a "participant") may have
engaged in Detrimental Activity, the Committee shall be entitled (but without
prejudice to its right subsequently to terminate such Award, and/or such
Participant's service or employment, on the same or any other ground) to suspend
the participant's rights under any then outstanding Award for so long as it is
reasonably necessary to enable an investigation to be undertaken. The Committee
may cancel, rescind, suspend, withhold or otherwise limit or restrict any
unexpired, unpaid, or deferred Awards at any time if it determines that the
participant, while employed by the Company or subsequent thereto, engaged or
engages in any Detrimental Activity or otherwise is not in compliance with all
applicable provisions of the Award Agreement and the Plan. (In addition, no new
or future stock option grants will be issued to such persons, and no future
stock option exercises will be permitted by such persons.) Options may not be
exercised by any person who for any reason (including any leave of absence or
other absence from the Company for any reason) is not actively working and
performing services on an ongoing, regular basis for the Company at the time
such person seeks to exercise any portion of his or her options under the Plan.
As a condition of exercise, payment or delivery pursuant to an Award, the
Page 3
participant shall first certify in a manner acceptable to the Company that he or
she is and while employed by the Company has been in compliance with the terms
and conditions of the Plan, has not engaged in and will not engage in any
Detrimental Activity. In the event a participant engages or has engaged in
Detrimental Activity or otherwise fails to comply with or sign such
certification prior to or during the six months after any exercise, payment or
delivery pursuant to an Award, such exercise, payment or delivery may be refused
if not already granted or, if already granted, may be rescinded within two years
thereafter. In the event of any such rescission, the participant shall pay to
the Company the amount of any gain realized or payment received as a result of
the rescinded exercise, payment or delivery, in such manner and on such terms
and conditions as may be required, and the Company shall be entitled to set-off
against the amount of any such gain any amount owed to the participant by the
Company.
(i) For purposes of this Section 4(g), "Detrimental Activity" means
a) The disclosure to anyone outside the Company or its
Affiliates, or the use in other than the Company's or a
subsidiary's business, without written authorization from
the Company, of any confidential information or proprietary
information, relating to the business of the Company or its
subsidiaries, acquired by a participant prior to the
participant's termination of service or employment;
b) Activity while employed that results, or if known could
result, in the participant's termination of service or
employment for Cause (even though no Cause is required for
termination, because employment with the Company is "at
will," meaning that employment may be terminated at any time
for any reason or for no reason, in the Company's sole
discretion);
c) Any attempt, directly or indirectly, to solicit, induce or
hire (or the identification for solicitation, inducement or
hire) any non-clerical employee of the Company or its
subsidiaries to be employed by, or to perform services for,
the participant or any person or entity with which the
participant is associated (including, but not limited to,
due to the participant's employment by, consultancy for,
equity interest in, or creditor relationship with such
person or entity) or any person or entity from which the
participant receives direct or indirect compensation or fees
as a result of such solicitation, inducement or hire (or the
identification for solicitation, inducement or hire)
without, in all cases, written authorization from the
Company;
d) Any attempt, directly or indirectly, to induce any current
or prospective employee, vendor, or customer of the Company
or its subsidiaries to not comply with or to breach a
contract with the Company or its subsidiaries;
e) The participant's disparagement, or inducement of others to
do so, of the Company or its subsidiaries or their past and
present officers, directors, employees or products;
Page 4
f) Diversion of any opportunity available, offered or belonging
to the Company for a plan participant's private gain or
benefit; or
g) Any other conduct or act determined by the Committee, in its
sole discretion, to be injurious, detrimental or prejudicial
to any interest of the Company or its subsidiaries.
For purposes of the exceptions to the definition of Detrimental Activity in
Section 4(g)(i)(C), the President, Chief Executive Officer and the General
Counsel of the Company shall each have authority to provide the participant with
written authorization to engage in the activities contemplated thereby and no
other person shall have authority to provide the participant with such
authorization.
(ii) For purposes of Section 4(g)(i), "Cause" means not only
conduct that constitutes a breach of a participant's fiduciary duty or
duty of loyalty to the Company, but also other misconduct or
wrongdoing, including, but not limited to:
a) Any act of disobedience, insubordination, dishonesty,
deceit, the theft of any money, products, or other property
or rights of or belonging to the Company, making or
accepting any bribe, kick-back, favor or other inducement,
incompetence, moral turpitude, the failure or refusal to
follow or comply with any lawful order, directive, or
instruction while at or in connection with employment or
service for the Company, speaking ill of the Company in
front of any fellow employee (except to the extent necessary
and permitted under the Company's grievance procedures to
voice a grievance, as set forth in the Company's current
Employee handbook), any failure or refusal to comply with
any material term of the Employee Handbook, or any other
action or failure or refusal to act that is materially
detrimental to the Company (including, without limitation,
willful or knowing violation of Company policies or
directives), or the refusal or failure to fully, properly,
timely and competently perform his or her duties or
responsibilities for any reason other than illness or
incapacity as determined by the Committee in its sole
discretion; or
b) With respect to a non-employee Director's termination of
Directorship, "Cause" shall mean an act or failure to act
that constitutes cause for removal of a director under
applicable California law.
Notwithstanding the above or anything in the Plan to the contrary, the Committee
shall have the sole and absolute authority to construe and interpret the terms
"Detrimental Activity" and "Cause" and apply any provisions of the Plan relating
to such terms;
5. MANDATORY GRANTS TO NON-EMPLOYEE DIRECTORS.
(a) GRANTS TO NON-EMPLOYEE DIRECTORS. Notwithstanding any other provision
of the Plan, the grant of Awards to non-employee Directors shall be subject to
the following limitations of this Section 5:
(i) Prior to the date of the first registration of an equity security
of the Company under Section 12 of the Securities Exchange Act of 1934 (the
"Exchange Act"), Non-Employee Directors shall be entitled to participate in
the Plan and receive Awards to the same extent as Employees pursuant to
Section 4 of the Plan.
(ii) following the date of the first registration of an equity
security of the Company under Section 12 of the Exchange Act, each
non-employee Director who is serving on the Board of Directors of the
Company as of the date of each Annual Meeting of the Company's Shareholders
(or any Special Meeting in lieu of the Annual Meeting), shall receive a ten
year Non-Statutory Option to purchase 3,000 shares of Stock;
(iii) all Stock Options granted to non-employee Directors under this
Section 5 shall be exercisable at an exercise price equal to 100% of the
fair market value (which shall be determined by reference to the average
closing price of the Common Stock during the 20 trading days immediately
preceding the date of grant or if the Common Stock is not a publicly traded
security on the date of grant by the Committee in the exercise of their
reasonable discretion) of a share of Common Stock on the day preceding the
Date of Grant; and
(iv) all Non-Statutory Options granted to non-employee Directors under
this Section 5 will be exercisable as to 1,000 of the shares of Common
Stock subject to such Non-Statutory Options on the first anniversary of the
Date of Grant, and as to 1,000 of the shares of Common Stock subject to
such Non-Statutory Option on each subsequent anniversary of the Date of
Grant until such Non-Statutory Option is fully exercisable.
(b) PROHIBITION OF OTHER GRANTS TO NON-EMPLOYEE DIRECTORS. Notwithstanding
any other provisions in this Plan, the mandatory grants described in this
Section 5 shall constitute the only grant of Awards under the Plan permitted to
be made to non-employee Directors.
(c) PROHIBITION AGAINST CERTAIN AMENDMENTS. Notwithstanding any other
provisions of this Plan, the provisions of this Section 5 shall not be amended
more than once every six months, other than to comport with changes in the
Internal Revenue Code, the Employee Retirement Income Security Act, or the rules
thereunder.
6. SHARES OF COMMON STOCK SUBJECT TO THE PLAN
The aggregate number of shares of Common Stock that may be issued or
issuable pursuit to all Awards under the Plan (including Awards in the form of
Incentive Stock Options and Non- Statutory Options) shall not exceed an
aggregate of 2,500,000 shares of Common Stock, subject to adjustment as provided
in Section 8 of the Plan. Shares of Common Stock subject to the Plan may
consist, in whole or in part, of authorized and unissued shares or treasury
shares. Any shares of Common Stock subject to an Award that for any reason
expires or is terminated unexercised as to such shares shall again be available
for issuance under the Plan. For purposes of this Section 6, the aggregate
number of shares of Common Stock that may be issued at any time pursuant to
Awards granted under the Plan shall be reduced by: (i) the number of shares of
Common Stock previously issued pursuant to Awards granted under the Plan, other
than shares of Common Stock subsequently reacquired by the Company pursuant to
the terms and conditions
Page 5
of such Awards and with respect to which the holder thereof received no benefits
of ownership, such as dividends; and (ii) the number of shares of Common Stock
which were otherwise issuable pursuant to Awards granted under this Plan but
which were withheld by the Company as payment of the purchase price of the
Common Stock issued pursuant to such Awards or as payment of the recipient's tax
withholding obligation with respect to such issuance.
7. PAYMENT OF AWARDS.
The Committee shall determine the extent to which Awards shall be payable
in cash, shares of Common Stock or any combination thereof. The Committee may,
upon request of a participant, determine that all or a portion of a payment to
that participant under the Plan, whether it is to be made in cash, shares of
Common Stock or a combination thereof, shall be deferred. Deferrals shall be for
such periods and upon such terms as the Committee may determine in its sole
discretion; provided however that no deferrals shall be made with respect to
Awards granted pursuant to Section 5 of the Plan
8. DILUTION AND OTHER ADJUSTMENT.
In the event of any change in the outstanding shares of the Common Stock or
other securities then subject to the Plan by reason of any stock split, reverse
stock split, stock dividend, recapitalization, merger, consolidation,
combination or exchange of shares or other similar corporate change, or if the
outstanding securities of the class then subject to the Plan are exchanged for
or converted into cash, property or a different kind of securities, or if cash,
property or securities are distributed in respect of such outstanding securities
(other than a regular cash dividend), then, unless the terms of such transaction
shall provide otherwise, such equitable adjustments shall be made in the Plan
and the Awards thereunder (including, without limitation, appropriate and
proportionate adjustments in (i) the number and type of shares or other
securities or cash or other property that may be acquired pursuant to Incentive
Stock Options and other Awards theretofore granted under the Plan, including,
without limitation Awards granted under Section 5 of the Plan, (ii) the maximum
number and type of shares or other securities that may be issued pursuant to
Incentive Stock Options and other Awards thereafter granted under the Plan; and
(iii) the maximum number of securities with respect to which Awards may
thereafter be granted to any Employee in any fiscal year) as the Committee
determines are necessary or appropriate, including, if necessary, any
adjustments in the maximum number of shares referred to in Section 6 of the
Plan. Such adjustments shall be conclusive and binding for all purposes of the
Plan.
9. MISCELLANEOUS PROVISIONS.
(a) DEFINITIONS. As used herein, "subsidiary" means any current or future
corporation which would be a "subsidiary corporation," as that term is defined
in Section 425 of the Code, of the Company; and the term "or" means "and/or."
(b) CONDITIONS ON ISSUANCE. Securities shall not be issued pursuant to
Awards unless the grant and issuance thereof shall comply with all relevant
provisions of law and the requirements of any securities exchange or quotation
system upon which any securities of the Company are listed, and shall be further
subject to approval of counsel for the Company with respect to such
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compliance. Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is determined by Company counsel to be
necessary to the lawful issuance and sale of any security or Award, shall
relieve the Company of any liability in respect of the nonissuance or sale of
such securities as to which requisite authority shall not have been obtained.
(c) RIGHTS AS SHAREHOLDER. A participant under the Plan shall have no
rights as a holder of Common Stock with respect to Awards hereunder, unless and
until certificates for shares of such stock are issued to the participant .
(d) ASSIGNMENT OR TRANSFER. No Awards under the Plan or any rights or
interests therein shall be assignable or transferable by a participant except by
will or the laws of descent and distribution. During the lifetime of a
participant, Awards hereunder are exercisable only by, and payable only to, the
participant .
(e) AGREEMENTS. All Awards granted under the Plan shall be evidenced by
written agreements in such form and containing such terms and conditions (not
inconsistent with the Plan) as the Committee shall from time to time adopt.
(f) WITHHOLDING TAXES. The Company shall have the right to deduct from all
Awards hereunder paid in cash any federal, state, local or foreign taxes
required by law to be withheld with respect to such awards and, with respect to
awards paid in stock, to require the payment (through withholding from the
participant's salary or otherwise) of any such taxes. The obligation of the
Company to make delivery of Awards in cash or Common Stock shall be subject to
currency or other restrictions imposed by any government.
(g) NO RIGHTS TO AWARD. No Employee or other person shall have any right to
be granted an Award under the Plan. Neither the Plan nor any action taken
hereunder shall be construed as giving any Employee any right to be retained in
the employ of the Company or any of its subsidiaries or shall interfere with or
restrict in any way the rights of the Company or any of its subsidiaries, which
are hereby reserved, to discharge the Employee at any time for any reason
whatsoever or for no reason, in the Company's sole and absolute discretion, with
or without cause.
(h) COSTS AND EXPENSES. The costs and expenses of administering the Plan
shall be borne by the Company and not charged to any Award nor to any Employee
receiving an Award.
(i) FUNDING OF PLAN. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Award under the Plan.
10. AMENDMENTS AND TERMINATION.
(a) AMENDMENTS. The Committee may at any the terminate or from time to time
amend the Plan in whole or in part, but, except as may be provided herein or in
the Company's other Plan documents and as may be permitted by applicable law, no
such action shall adversely affect any rights or obligations with respect to any
Awards theretofore made under the Plan. However,
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with the consent of the Employee affected, the Committee may amend outstanding
agreements evidencing Awards under the Plan in a manner not inconsistent with
the terms of the Plan.
(b) SHAREHOLDER APPROVAL. To the extent that Rule 16b-3 of the Rules,
Section 422 of the Code, other applicable law, or the rules, regulations,
procedures or listing agreement of any national securities exchange or quotation
system, requires that any such amendment be approved by the shareholders of the
Company, no such amendment shall be effective unless and until it is approved by
the shareholders in such a manner and to such a degree as is required.
(c) TERMINATION. Unless the Plan shall theretofore have been terminated as
above provided, the Plan (but not the awards theretofore granted under the Plan)
shall terminate on and no awards shall be granted after March 19, 2006.
11. EFFECTIVE DATE.
The Plan is effective on March 19, 1996, the date on which it was adopted
by the Board of Directors of the Company and the holders of the majority of the
Common Stock of the Company. The Plan was amended effective May 12, 1998, which
amendment is applicable to all grants made on or after such date (including
those grants authorized on April 25, 1998). The Plan was further amended and
restated effective April 30, 2001, which amendment is applicable to all grants
that are outstanding as of the effective date and all subsequent grants that are
made pursuant to the Plan, unless the Award Agreement specifically states
otherwise.
12. GOVERNING LAW.
The corporate law of California shall govern issues related to the validity
and issuance of Common Stock. Otherwise, the Plan and any agreements entered
into thereunder shall be construed and governed by the laws of the State of
California applicable to contracts made within, and to be performed wholly
within, such state.
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99(CENT) ONLY STORES
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, a stockholder of 99(cent) Only Stores, a California
corporation (the "Company"), hereby nominates, constitutes and appoints Eric
Schiffer and Andrew Farina, or either one of them, as proxy of the undersigned,
each with full power of substitution, to attend, vote and act for the
undersigned at the Annual Meeting of Stockholders of the Company, to be held on
June 5, 2002, and any postponements or adjournments thereof, and in connection
therewith, to vote and represent all of the shares of the Company which the
undersigned would be entitled to vote with the same effect as if the undersigned
were present, as follows:
A VOTE FOR PROPOSALS 1, 2 AND 3 AND A VOTE AGAINST PROPOSAL 4 IS RECOMMENDED BY
THE BOARD OF DIRECTORS:
Proposal 1. To elect the Board of Directors' nine nominees as directors:
David Gold Howard Gold Jeff Gold
Eric Schiffer William Christy Lawrence Glascott
Marvin Holen Ben Schwartz John Shields
|_| FOR ALL NOMINEES LISTED ABOVE (except as marked to the contrary
below)
|_| WITHHELD for all nominees listed above
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space below:)
-----------------------------------------------------------------------
The undersigned hereby confer(s) upon the proxies and each of them
discretionary authority with respect to the election of directors in the
event that any of the above nominees is unable or unwilling to serve.
Proposal 2. To amend the Company's Amended and Restated Articles of
Incorporation to increase the authorized number of shares of common
stock issuable by the Company to 200,000,000.
|_| FOR |_| AGAINST |_| ABSTAIN
Proposal 3. To amend the Company's 1996 Stock Option Plan to increase the
number of shares of common stock reserved for issuance under the
1996 Stock Option Plan and to extend the termination date of the
1996 Stock Option Plan by five years to March 19, 2011.
|_| FOR |_| AGAINST |_| ABSTAIN
Proposal 4. Shareholder proposal.
|_| FOR |_| AGAINST |_| ABSTAIN
The undersigned hereby revokes any other proxy to vote at the Annual
Meeting, and hereby ratifies and confirms all that said attorneys and proxies,
and each of them, may lawfully do by virtue hereof. With respect to matters not
known at the time of the solicitation hereof, said proxies are authorized to
vote in accordance with their best judgment.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH
ABOVE OR, TO THE EXTENT NO CONTRARY DIRECTION IS INDICATED, WILL BE TREATED AS A
GRANT OF AUTHORITY TO VOTE FOR PROPOSALS 1, 2 AND 3 AND AGAINST PROPOSAL 4. IF
ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL MEETING, THIS PROXY CONFERS
AUTHORITY TO AND SHALL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE
PROXIES.
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The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting dated May __, 2002 and the accompanying Proxy Statement relating to the
Annual Meeting.
Dated:___________________________, 2002
Signature:_____________________________
Signature:_____________________________
Signature(s) of Stockholder(s)
(See Instructions Below)
The Signature(s) hereon should correspond
exactly with the name(s) of the Stockholder(s)
appearing on the Share Certificate. If stock is
held jointly, all joint owners should sign. When
signing as attorney, executor, administrator,
trustee or guardian, please give full title as
such. If signer is a corporation, please sign
the full corporation name, and give title of
signing officer.
|_| Please indicate by checking this box if you
anticipate attending the Annual Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE
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