UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
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
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec.240.14a-12
99(Cent) Only Stores
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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:
-----------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-----------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------
[ ] 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
99 CENTS ONLY STORES
_____________________________________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
_____________________________________________________
TIME . . . . . . . . . . . 9:00 a.m. Pacific Daylight Savings Time on Friday, June
11, 2004
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, each to hold
office until the next annual meeting of shareholders and
until his or her successor is elected.
(2) To consider and act upon a shareholder proposal, if
properly presented at this meeting.
(3) To consider and act upon a second shareholder
proposal, if properly presented at this meeting.
(4) 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 14,
2004 you were a shareholder of 99 Cents 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
April 24, 2004 Eric Schiffer
Assistant Corporate Secretary
99 CENTS ONLY STORES
PROXY STATEMENT
FOR THE 2004 ANNUAL MEETING OF SHAREHOLDERS ON
JUNE 11, 2004
This proxy statement is furnished in connection with the solicitation by
the Board of Directors of 99 Cents Only Stores, a California corporation, of
proxies to be voted at our 2004 annual meeting of shareholders and at any
adjournments or postponements thereof.
You are invited to attend our annual meeting of shareholders on Friday,
June 11, 2004, beginning at 9:00 a.m. Pacific Daylight Savings Time. The meeting
will be held at 5600 Harbor Street, City of Commerce Community Center, Rosewood
Park Meeting Room, City of Commerce, California 90040 (see back cover for map).
It is anticipated that this proxy statement and the accompanying proxy will
be mailed to shareholders on or about April 24, 2004.
SHAREHOLDERS ENTITLED TO VOTE. The close of business on April 14, 2004, 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, 72,162,327 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 22,927 shareholders, which includes 534
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. 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 a street name, however, you must direct the holder of record
as to how to vote your shares, or you must obtain a proxy, executed in your
favor, from the holder of record to be able to vote in person 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) against the
shareholder proposals, and (iii) 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 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.
3
SHAREHOLDER PROPOSALS. Approval of the shareholder proposals 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.
ITEM 1: ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
Item 1 is the election of nine members of the Board of Directors. In
accordance with our bylaws, 99 Cents 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. One of our current Directors,
John Shields, has elected to retire from his position on the Board of Directors.
As a result, his tenure will end on the date of our 2004 annual meeting of
shareholders.
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 nominees, all but two of whom currently serve
on the Board of Directors, 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:
Ben Schwartz Howard Gold William Christy
Lawrence Glascott Jeff Gold Eric Schiffer
David Gold Marvin Holen Eric G. Flamholtz
If elected, each of the nominees is expected to serve until the 2004 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.
SHAREHOLDER PROPOSALS
THE COMPANY HAS BEEN ADVISED BY TWO HOLDERS OF OUR COMMON STOCK OF THEIR
INTENTION TO INTRODUCE AT THE ANNUAL MEETING THE FOLLOWING PROPOSALS. THE BOARD
OF DIRECTORS AND THE COMPANY DISCLAIM ANY RESPONSIBILITY FOR THE CONTENT OF THE
PROPOSALS AND FOR THE STATEMENTS MADE IN SUPPORT THEREOF, WHICH ARE PRESENTED AS
RECEIVED FROM THE STOCKHOLDERS. THE NUMBER OF SHARES OWNED BY EACH OF THESE TWO
SHAREHOLDERS WILL BE PROVIDED TO SHAREHOLDERS BY THE COMPANY PROMPTLY UPON
REQUEST.
ITEM 2: SHAREHOLDER PROPOSAL #1 - VENDOR STANDARDS RESOLUTION
- --------------------------------------------------------------------------------
Aaron Merle Epstein, 13455 Ventura Blvd. #209, Sherman Oaks, California 91423
submitted the following proposal:
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 for non-closeout and
made-to order merchandise with its vendors.
4
99 CENTS ONLY STORES - STATEMENT OF VENDOR STANDARDS
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 contractors,
subcontractors, suppliers, and other businesses.
99 Cents Only Stores will seek vendors that will allow us full knowledge of the
facilities used in 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 coercion or as punishment for holding or for peacefully expressing
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 or
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 work weeks 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 wages 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 persons 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 of 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
5
PROPOSAL. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED AGAINST
THIS PROPOSAL UNLESS OTHERWISE SPECIFIED BY THE SHAREHOLDER IN THE PROXY.
ITEM 3: SHAREHOLDER PROPOSAL #2 - SHAREHOLDER INPUT ON POISON PILLS
- --------------------------------------------------------------------------------
John Chevedden, 2215 Nelson Ave., No. 205, Redondo Beach, Calif. 90278 submitted
the following proposal:
RESOLVED: Shareholders request that our Directors increase shareholders' rights
and submit the adoption, maintenance or extension of any poison pill to a
shareholder vote as a separate ballot item on the earliest possible shareholder
ballot. Also once this proposal is adopted, any dilution or removal of this
proposal is requested to be submitted to a shareholder vote as a separate ballot
item at the earliest possible shareholder election.
We as shareholders voted in support of this topic:
Year Yes Vote (40% of our stock held by insiders)
---- ---------
2003 32%
This percentage is based on yes and no votes cast. With 40% of our stock held by
insiders the yes vote equaled approximately 50% of our shares held by
non-insiders. The Council of Institutional Investors www.cii.org formally
-----------
recommends adoption of this proposal topic.
I believe the votes obtained were more significant because our directors
hindered the readability of the 2003 proposal and its ballot listing. Our
directors authorized taking the 2003 proposal and running the title plus all the
separations for paragraphs, bullet points and headings together to make a single
block of regular text. Also ballots left out the topic of the proposal,
although the one item our directors put on the ballot was left in. Our
directors deleted the bold font in the proposal. Yet our directors left in bold
font in their corresponding opinion piece. I believe equality of presentation
is important to shareholders' rights.
This topic also won an overall 60% yes-vote at 79 companies in 2003. I do not
see how our Directors could object to this proposal because it gives our
Directors the flexibility to ignore our shareholders input if our Directors
seriously believe they have a good reason.
PILLS ENTRENCH CURRENT MANAGEMENT. Poison pills entrench the current
management, even when it's doing a poor job. Pills water down shareholders'
votes and deprive them of a meaningful voice in corporate affairs. From "Take
on the Street" by Arthur Levitt, SEC Chairman, 1993-2001.
POISON PILL NEGATIVE. The key negative of poison pills is that pills can
preserve management deadwood. Source: Moringstar.com
DILUTED STOCK. An anti-democratic management scheme [poison pill] to flood
the market with diluted stock is not a reason that a tender offer for our stock
should fail. Source: The Motley Fool
LIKE A DICTATOR. Poison pills are like a dictator who says, "Give up more
of your freedom and I'll take care of you. T.J. Dermot Dunphy, CEO of Sealed
Air (NYSE) for 25 years.
A response by our directors, which could still allow our directors to give a
poison pill without a shareholder vote, would not substitute for this proposal.
DIRECTOR CONFIDENCE IN THEIR OVERSIGHT. I believe that a Board of
Directors, which supports this proposal topic, is sending a powerful signal of
confidence in its own oversight skill and strategy.
SHAREHOLDER INPUT ON POISON PILLS
YES ON 3
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE AGAINST THIS
PROPOSAL FOR THE FOLLOWING REASONS:
Although the Company currently does not have a shareholder rights plan, or
"poison pill," in place, we believe that it is in the best interests of the
Company and its shareholders that the Board retain the flexibility to adopt such
an anti-takeover provision if and when necessary. The purpose of a shareholder
rights plan is to protect a
6
corporation from an acquisition that may not be in the best interest of the
corporation and its shareholders by forcing potential acquirers to negotiate
with the corporation's board of directors, which allows the board to better
represent its shareholders' interests. A study by Georgeson Shareholder
Communications Inc. showed that between 1992 and 1996, stockholders of companies
with shareholder rights plans received significantly higher value in
acquisitions than companies without them. (Georgeson Shareholder Communications
Inc., "Mergers & Acquisitions: Poison Pills and Shareholder Value/1992-1996,"
1997). If we were required to obtain prior stockholder approval of such a plan,
we could be prevented from appropriately responding to a takeover attempt, which
could jeopardize our ability to negotiate effectively and protect shareholders'
interests.
We are committed to acting in the best interests of the Company and its
shareholders in all matters of corporate governance, including any decision to
adopt a shareholder rights plan.
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.
- --------------------------------------------------------------------------------
INFORMATION WITH RESPECT TO NOMINEES AND EXECUTIVE OFFICERS
- -----------------------------------------------------------
The following table sets forth information with respect to the director
nominees and our executive officers as of March 31, 2004:
DIRECTOR NOMINEES:
AGE AT YEAR FIRST
MARCH ELECTED OR
31, APPOINTED
NAME: 2004 DIRECTOR PRINCIPAL OCCUPATION
- ------------------ ------ ---------- -----------------------------------------------------------------------------
David Gold 71 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 44 1991 Howard Gold has been one of our directors since 1991. He joined us in
1982 and has served in various managerial capacities. Since 1991 he has
served as Senior Vice President of Distribution.
Jeff Gold 36 1991 Jeff Gold has been one of our directors since 1991. He joined us in 1984
and has served in various managerial capacities. Since 1991 he has served
as Senior Vice President of Real Estate and Information Systems.
Eric Schiffer 43 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 1991, he was employed by
Oxford Partners, a venture capital firm.
Lawrence Glascott 69 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 Cents 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.
7
Marvin Holen 73 1991 Marvin Holen has been one of our directors since 1991 and serves on our
Audit and 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.
Ben Schwartz 86 1993 Ben Schwartz has been one of our directors since 1993. 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.
William O. Christy 72 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.
Eric G. Flamholtz Age 2004 Eric G. Flamholtz, Ph. D, has been a professor of management at the
61 Anderson Graduate School of Management, University of California at Los
Angeles since 1973 and President of Management Systems Consulting
Corporation, which he founded in 1978. He is the author of several books
including GROWING PAINS: Transitioning from an Entrepreneurship to a
Professionally Managed Firm. As a consultant he has extensive experience
with firms ranging from entrepreneurships to Fortune 500 companies,
including Starbucks, Countrywide Financial Corporation, Baskin Robins,
Jamba Juice and Grocery Outlets.
RETIRING DIRECTOR:
John Shields 72 2001 John Shields was appointed to our board of directors in January 2001
and serves on our Compensation Committee. He served as Chief
Executive Officer of Trader Joe's from 1989 to 2002. Trader Joe's
Company is a Southern California based privately held 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.
OTHER EXECUTIVE OFFICERS:
Helen Pipkin 61 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
8
1985, for many years, Ms. Pipkin was an owner, Vice President and
Controller of Markell Imports, a general merchandise wholesaler.
Jose Gomez 44 Jose Gomez joined us in 1980 and has served in many different
managerial capacities. Since 1997 he has served as Vice President of
Retail Operations. He has over 20 years of retail experience.
Andy Farina 57 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.
We would like to sincerely thank John Shields, who has decided for personal
reasons not to stand for re-election as a board member. We greatly appreciate
his years of valuable contribution to our Company and we wish him well in his
retirement from our Board of Directors in June 2004. We welcome our new nominee
to our Board, Eric Flamholtz, Ph. D.
FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
INDEPENDENCE
The Board of Directors has concluded that the following directors and
nominee for director are independent in accordance with the director
independence standards of the New York Stock Exchange, and it has determined
that none of them has a material relationship with the Company which would
impair his independence from management or otherwise compromise his ability to
act as an independent director: Lawrence Glascott, Marvin Holen, Ben Schwartz,
William Christy and Eric Flamholtz, Ph. D. In making its determination with
respect to Mr. Schwartz, the Board of Directors considered the relationships
discussed later in this proxy statement under the heading "Certain Transactions
with Directors and Executive Officers" and determined that such relationships do
not impugn his independence because they are insignificant to both Mr. Schwartz
and the Company.
MEETINGS AND COMMITTEES
The Board of Directors held a total of 9 meetings during the fiscal year
ended December 31, 2003. During the fiscal year ended December 31, 2003, each
director attended all meetings of the Board of Directors held. Directors are
encouraged but not required to attend annual meetings of shareholders. All of
our directors at the date of the 2003 annual meeting of shareholders attended
that meeting.
The Board of Directors has established an Audit Committee in accordance
with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The Audit
Committee currently consists of Messrs. Glascott (Chairman), Christy and Holen,
each of whom meets the criteria for independence set forth in the New York Stock
Exchange's rules and in Rule 10A-3 under the Securities Exchange Act. The Board
of Directors has determined that Mr. Glascott is an "audit committee financial
expert" as that term is used in Item 401(h) of Regulation S-K promulgated under
the Securities Exchange Act. The Audit Committee selects the independent public
accountants to perform the Company's audit, and periodically meets with the
independent public accountants and our management 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 Board of Directors amended the Audit Committee's
charter on April 21, 2003, and the amended charter is attached as Appendix A and
----------
is available on our website at www.99only.com. The Audit Committee held nine
meetings during fiscal 2003, at which each member of the Audit Committee was
present.
The Board of Directors also has a Compensation Committee. The Compensation
Committee currently consists of Messrs. Christy (Chairman), Glascott, Holen and
Shields, each of whom is independent in accordance with New York Stock Exchange
rules. This Committee is responsible for considering and making recommendations
9
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 2003, at which each member of the Compensation Committee
was present. A copy of the charter of the Compensation Committee is available
on our website at www.99only.com.
On April 21, 2003, the Board of Directors established a Nominating and
Corporate Governance Committee. The Nominating and Corporate Governance
Committee currently consists of Messrs. Holen (Chairman), Christy, Glascott and
Shields, each of whom is independent in accordance with New York Stock Exchange
rules. The role of the Nominating and Corporate Governance Committee is to
assist the Board of Directors by identifying, evaluating and recommending
director nominees and recommending and monitoring corporate governance
guidelines applicable to the Company. In identifying director nominees, the
Nominating and Corporate Governance Committee looks for independent individuals
with business and professional experience, relevant industry knowledge or
experience, an ability to read and understand financial statements and other
relevant qualifications. There is not a formal policy by which shareholders may
recommend director candidates, but the members of the Nominating and Corporate
Governance Committee will certainly consider candidates recommended by
shareholders. A shareholder wishing to submit such a recommendation should send
a letter to the Corporate Secretary at 4000 Union Pacific Avenue, City of
Commerce, California 90023. The mailing envelope must contain a clear notation
indicating that the enclosed letter is a "Director Nominee Recommendation." The
letter must identify the author as a shareholder and provide a brief summary of
the candidate's qualifications, as well as contact information for both the
candidate and the shareholder. At a minimum, candidates for election to the
Board should meet the independence requirements of the New York Stock Exchange
and Rule 10A-3 under the Securities Exchange Act, as well as the criteria
identified above. Candidates recommended by shareholders will be evaluated in
the same manner as candidates recommended by anyone else. A copy of the charter
of the Nominating and Corporate Governance Committee is available on our website
at www.99only.com.
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. Such non-employee
directors also receive $150 for each committee meeting attended or $250 for each
committee meeting attended as committee chairperson ($500 for the audit
committee chairperson). In addition, each non-employee director receives an
automatic annual grant in May of a non-qualified option to purchase 3,000 shares
of our 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 has at
any time been an officer or employee of the Company. 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.
SHAREHOLDER COMMUNICATION WITH THE BOARD OF DIRECTORS
Shareholders who wish to communicate with the Board of Directors or a
particular director may send a letter to the Corporate Secretary at 4000 Union
Pacific Avenue, City of Commerce, California 90023. The mailing envelope must
contain a clear notation indicating that the enclosed letter is a
"Shareholder-Board Communication" or "Shareholder-Director Communication." All
such letters must identify the author as a shareholder and clearly state whether
the intended recipients are all members of the Board or just certain specified
individual directors. The Corporate Secretary will make copies of all such
letters and circulate them to the appropriate director or directors.
CODE OF ETHICS
- --------------------------------------------------------------------------------
The Board of Directors has adopted a Code of Ethics applicable to the
Company's chief executive officer, chief financial officer, controller and
persons performing similar functions. A copy of the Code of Ethics may be
obtained at no charge by written request to the attention of the Corporate
Secretary at 4000 Union Pacific Avenue, City of Commerce, California 90023.
10
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.
Annual Long-Term
Fiscal Year Compensation Compensation
Ended Number of Securities All Other
Name and Principal Position December 31 Salary Bonus Underlying Options Compensation
- ---------------------------- ----------- -------- -------- -------------------- ------------
David Gold . . . . . . . 2003 $158,173 - - -
Chairman of the Board & 2002 167,596 - - -
Chief Executive Officer 2001 181,730 - - -
Eric Schiffer. . . . . . . . 2003 $117,692 - - -
President 2002 120,615 - - -
2001 124,615 - - -
Andrew Farina. . . . . . . . 2003 $172,100 $ 25,000 13,500 -
Chief Financial Officer 2002 163,400 25,000 13,500 -
2001 162,300 25,000 18,000 -
Jose Gomez . . . . . . . . 2003 $171,800 $ 25,000 13,500 -
Vice President of Retail 2002 169,600 25,000 13,500 -
Operations 2001 174,900 25,000 18,000 -
Helen Pipkin . . . . . . . 2003 $127,240 $ 20,000 9,000 -
Vice President of 2002 120,960 20,000 9,000 -
Wholesale Operations 2001 143,100 20,000 16,000 -
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, 2003 to the Named
Executive Officers.
Potential
Realizable Value
At Assumed Annual
Number Of Percent Of Total Rates of Stock Price
Securities ------- 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 - - - - - -
Eric Schiffer - - - - - -
Andrew Farina 13,500 1.3% $ 29.35 5/20/2013 $ 249,184 $ 631,481
Jose Gomez 13,500 1.3% $ 29.35 5/20/2013 $ 249,184 $ 631,481
Helen Pipkin 9,000 1.0% $ 29.35 5/20/2013 $ 167,990 $ 425,720
(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 Securities and
Exchange Commission and do not represent a forecast of the future
appreciation of the common stock.
11
(b) The option grants set forth on this chart vest in three equal annual
installments beginning on May 30, 2003.
(c) Options covering an aggregate of 1,074,579 shares were granted to eligible
persons during the fiscal year ended December 31, 2003.
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.
Number of Securities Number of Securities
Underlying Exercised Underlying Unexercised Value of Unexercised
Options at Options at In-the-Money Options
December 31, 2003 December 31, 2003 At December 31, 2003(a)
------------------------ -------------------------- ----------------------------
Name Shares Value Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------- ------ ---------------- ----------- ------------- ------------ --------------
David Gold. . - - - - - -
Eric Schiffer - - 75,006 - $ 1,745,385 -
Andrew Farina 78,154 $ 2,037,597 85,300 28,500 $ 823,880 $ 40,305
Jose Gomez. . 50,000 $ 1,217,500 161,506 28,500 $ 2,148,775 $ 40,305
Helen Pipkin. 42,835 $ 1,371,448 17,570 20,333 $ 366,605 -
(a) Based on the last reported sale price of the common stock on the New York
Stock Exchange on December 31, 2003 ($27.23) less the option exercise
price.
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, 2003, David Gold served as the Company's
Chief Executive Officer. Mr. Gold's base salary of $158,173 was determined
based upon his service to the Company, the financial performance of the Company
in the year ended December 31, 2003, and the salaries received by similarly
situated executives at other companies. See "Executive Compensation -- Summary
Compensation Table."
12
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 2003.
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 2003 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 have
chosen not to receive bonuses or stock option awards.
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 and each
of the Company's four most highly paid executive officers other than the Chief
Executive Officer. 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 2002 is
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
13
REPORT OF THE AUDIT COMMITTEE
- --------------------------------------------------------------------------------
The Audit Committee of the Board of Directors, which consists entirely of
directors who meet the independence requirements of the New York Stock Exchange
and Rule 10A-3 under the Securities Exchange Act, has furnished the following
report:
The Audit Committee assists the Board in overseeing and monitoring the
integrity of the Company's financial reporting process, its compliance with
legal and regulatory requirements and the quality of its internal and external
audit processes. The role and responsibilities of the Audit Committee are set
forth in a written Charter adopted by the Board. The Audit Committee reviews and
reassesses the Charter annually and recommends any changes to the Board for
approval.
The Audit Committee is responsible for overseeing the Company's overall
financial reporting process. In fulfilling its responsibilities for the
financial statements for fiscal year 2003, the Audit Committee:
1. Reviewed and discussed the audited financial statements for the
fiscal year ended December 31, 2003 with management and
PricewaterhouseCoopers LLP, the Company's independent auditors;
2. Discussed with PricewaterhouseCoopers LLP the matters required to
be discussed by Statement on Auditing Standards 61, 89 and 90
relating to the conduct of the audit; and
3. Received written disclosures and the letter from
PricewaterhouseCoopers LLP regarding its independence as required
by Independence Standards Board Standard Number 1. The Audit
Committee also discussed with PricewaterhouseCoopers LLP the
firms' 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 PricewaterhouseCoopers LLP, the Audit
Committee recommended to the Board that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2003 for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
Lawrence Glascott (Chairman)
William Christy
Marvin Holen
14
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, 1998
to December 31, 2003, 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, 1998 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.
[GRAPH OMITTED]
Cumulative Total Return
----------------------------------------------
12/98 12/99 12/00 12/01 12/02 12/03
------ ------ ------ ------ ------ ------
99 CENTS ONLY STORES 100.00 78.87 74.29 157.34 150.83 149.35
S & P MID CAP 400 100.00 113.35 131.72 129.57 109.55 146.83
RUSSELL 2000 100.00 111.68 106.99 108.08 84.76 123.22
EQUITY COMPENSATION PLAN INFORMATION
- --------------------------------------------------------------------------------
As of December 31, 2003:
- ------------------------
Number of securities
remaining available for
Number of securities to be future issuance under equity
issued upon exercise of Weighted-average exercise compensation plans
outstanding options, price of outstanding (excluding securities
warrants and rights options, warrants and rights reflected in column (a))
--------------------------- ------------------------------ -----------------------------
Plan category (a) (b) (c)
Equity compensation plans
approved by security
holders 4,428,672 $ 21.12 5,268,045
--------------------------- ------------------------------ -----------------------------
Equity compensation plans
not approved by security
holders - - -
--------------------------- ------------------------------ -----------------------------
Total 4,428,672 $ 21.12 5,268,045
=========================== ============================== =============================
15
CERTAIN TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
As of March 28, 2004, we leased 12 of our 195 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, $2.2 million and
$2.1 million in 2001, 2002 and 2003, 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. In
addition, an outside director, Ben Schwartz, is one of the trustees of a trust
which acquired a multi-unit shopping center, approximately five years after the
Company became a long term lessee for a single 99 Cents Only Stores location in
that center. Annual rent expense for this store was approximately $0.3 million
per year in 2003, 2002 and 2001. Mr. Schwartz's son, is an independent broker
for the sale of some of the merchandise of the Company's wholesale division, and
received approximately $576,000 in gross commissions and fees in 2003, $439,000
in 2002 and $368,000 in 2001.
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 Cents 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
continued to provide certain ongoing administrative and other services to
Universal pursuant to a Services Agreement. In 2001 we receive a management fee
of 6% of Universal's sales revenue. During 2002 Universal closed its retail
business operations. The service agreement was terminated mid December 2003. 99
Cents Only Stores, in 2003, received $1.4 million in management fees under the
Services Agreement and also received $1.4 million in lease payments for rental
of a distribution facility to Universal.
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
The following table sets forth as of March 31, 2004, 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. Unless otherwise noted, the
address of each person listed is in care of 99 Cents 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). . . . . . . . . . . . 15,864,832 21.7%
Sherry Gold (c)(e) . . . . . . . . . . . 15,864,832 21.7%
Howard Gold (d)(e) . . . . . . . . . . . 9,255,599 12.7%
Jeff Gold (d)(e) . . . . . . . . . . . . 9,255,599 12.7%
16
Eric and Karen Schiffer (e)(f) . . . . . 9,300,605 12.8%
Au Zone Investments #3, LLC(e) . . . . . 6,860,124 9.4%
FMR Corp.(q) . . . . . . . . . . . . . . 9,040,599 12.4%
Myron Kaplan(n). . . . . . . . . . . . . 6,965,668 9.6%
Baron Capital Group, Inc. (r). . . . . . 5,955,650 8.2%
Goldman Sachs Asset Management, L.P. (s) 3,890,816 5.3%
William O. Christy (g) . . . . . . . . . 43,503 *
Marvin Holen (h) . . . . . . . . . . . . 57,000 *
Ben Schwartz (i) . . . . . . . . . . . . 13,667 *
Lawrence Glascott (j). . . . . . . . . . 48,835 *
Helen Pipkin (k) . . . . . . . . . . . . 28,903 *
Jose Gomez(l). . . . . . . . . . . . . . 176,506 *
Andrew Farina(m) . . . . . . . . . . . . 100,300 *
John Shields(p). . . . . . . . . . . . . 5,933 *
All of the Company's executive officers. 23,510,910 32.2%
and directors as a group,
15 persons(o)
* 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, 2004 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 4,502,354 shares owned by Sherry Gold, David Gold's spouse, and
6,860,124 shares controlled through Au Zone Investments #3, LLC, a
California limited liability company.
(c) Includes 4,502,354 shares owned by David Gold, Sherry Gold's spouse, and
6,860,124 shares controlled through Au Zone Investments #3, LLC.
(d) Includes 6,860,124 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 6,860,124 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 Investments #3, LLC.
(f) Includes 6,860,124 shares controlled through Au Zone Investments #3, LLC,
and 150,010 shares reserved for issuance upon exercise of stock options
which are exercisable.
(g) Includes 43,503 shares of common stock reserved for issuance upon exercise
of stock options which are or will become exercisable on or before May 30,
2004.
(h) Includes 44,503 shares of common stock reserved for issuance upon exercise
of stock options which are or will become exercisable on or before May 30,
2004.
(i) Includes 10,667 shares of common stock reserved for issuance upon exercise
of stock options which are or will become exercisable on or before May 30,
2004.
(j) Includes 46,754 shares of common stock reserved for issuance upon exercise
of stock options which are or will become exercisable on or before May 30,
2004.
(k) Includes 28,903 shares of common stock reserved for issuance upon exercise
of stock options which are or will become exercisable on or before May 30,
2004.
(l) Includes 176,506 shares of common stock reserved for issuance upon exercise
of stock options which are or will become exercisable on or before May 30,
2004.
(m) Includes 100,300 shares of common stock reserved for issuance upon exercise
of stock options which are or will become exercisable on or before May 30,
2004.
(n) Includes 6,688,667 shares of common stock owned directly and for which Mr.
Kaplan has sole voting power and 227,001 shares of Common Stock owned by
Kaplan Nathan & Company, LLP a Delaware limited partnership, and for which
Mr. Kaplan shares voting and dispositive power. This information is based
on a Schedule13G amendment filed by Mr. Kaplan, Box 385 Leona , N.J. 07605,
on February 12, 2004.
(o) Includes (i) 4,502,354 shares owned by Sherry Gold, the spouse of David
Gold, (ii) 6,860,124 shares controlled through Au Zone Investments #3, LLC,
and (iii) 901,320 shares of common stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or before
May 30, 2004.
(p) Includes 5,333 shares of common stock reserved for issuance upon exercise
of stock options which are or will become exercisable on or before May 30,
2004.
17
(q) This information is based on a Schedule 13G amendment filed by FMR Corp. 82
Devonshire Street, Boston, Massachusetts 02109, on February 16, 2004. The
Schedule 13G also reports that the interest of Fidelity Management and
Research Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp. and
an investment adviser registered under Section 203 of the Investment
Advisers Act of 1940, in the shares of common stock beneficially owned by
FMR Corp. amounted to 9,040,299 shares including 6,879,433 shares owned by
Fidelity Contrafund, an investment company for which Fidelity serves as
investment adviser.
(r) Includes 5,737,000 shares of common stock owned beneficially owned by
BAMCO, Inc., and 218,650 shares beneficially owned by Baron Capital
Management, Inc. each of which are investment advisers registered under
Section 203 of the Investment Advisers Act of 1940. This information is
based on a Schedule 13G filed by Baron Capital Group, Inc. on February 12,
2004.
(s) This information is based on a Schedule13G amendment filed by Goldman Sachs
Asset Management, L.P., 32 Old Slip, New York, NY 10005 on February 13,
2004.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
- --------------------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires our 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. 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 us 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, 2003, with the exception of late reports
(reporting a grant of options) filed on June 27, 2003 by each of Andrew Farina,
Jose Gomez, Helen Pipkin, William Christy, Lawrence Glascott, Marvin Holen, John
Shields and Ben Schwartz, a late report (reporting an option exercise and sale
of underlying stock) filed on August 1, 2003 by William Christy, and a late
report (reporting an option exercise and sale of underlying stock) filed on
October 20, 2003 by John Shields, all of our officers, directors and
greater-than-ten percent shareholders complied with all Section 16(a) filing
requirements.
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 26, 2004. In addition, in the event a stockholder proposal is not
received by us by March 10, 2005, the proxy to be solicited by the Board of
Directors for the 2005 annual meeting will confer discretionary authority on the
holders of the proxy to vote the shares if the proposal is presented at the 2005
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 2005 Annual
Meeting is advanced or delayed more than 30 days from the date of our 2004
Annual Meeting, stockholder proposals intended to be included in the proxy
materials for the 2004 annual meeting must be received by us within a reasonable
time before we begin to print and mail the proxy materials for the 2005 annual
meeting. Upon determination by us that the date of the 2005 annual meeting will
be advanced or delayed by more than 30 days from the date of the 2003 annual
meeting, we will disclose such change in the earliest possible Quarterly Report
on Form 10-Q.
INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
As of June 13, 2002, upon the recommendation of the Audit Committee, our
Board of Directors dismissed Arthur Andersen LLP ("Andersen") as our independent
auditors. Andersen had served as our independent auditors since 1989. On June
13, 2002, we engaged PricewaterhouseCoopers LLP as our independent auditors to
audit our financial statements for the fiscal year ending December 31, 2002. The
decision to engage PricewaterhouseCoopers LLP ("PWC") was recommended by the
Audit Committee and approved by the Board of Directors. During the two fiscal
years ended December 31, 2001 and the subsequent interim period through June 13,
2002, we did not consult with PWC with respect to the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on our consolidated financial
statements, or any other matters or reportable events as set forth in Items
304(a)(2)(i) and (ii) of Regulation S-K. During our two fiscal years ended
December 31, 2001 and the subsequent interim period through June 13, 2002, there
were: (i) no disagreements between us and Andersen on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to Andersen's satisfaction, would have caused
them to make reference to the subject matter of the disagreement in connection
with
18
their reports on our consolidated financial statements for such years; and (ii)
no "reportable events" as defined in Item 304(a)(1)(v) of Regulation S-K. We
requested and received a letter from Andersen confirming that there were no such
disagreements or reportable events. Andersen's reports on our consolidated
financial statements for the two fiscal years ended December 31, 2001 did not
contain any adverse opinion or disclaimer of opinion, nor were such reports
qualified or modified as to uncertainty, audit scope or accounting principles.
As of April 6, 2004, our Audit Committee dismissed PWC as our independent
auditors. On April 19, 2004, our Audit Committee engaged Deloitte & Touche LLP
("Deloitte") as our independent auditors to audit our financial statements for
the fiscal year ending December 31, 2004. During the two fiscal years ended
December 31, 2003, and the subsequent interim period through the date Deloitte
was engaged, we did not consult with Deloitte with respect to the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on our consolidated
financial statements, or any other matters or reportable events as set forth in
Items 304(a)(2)(i) and (ii) of Regulation S-K. During our two fiscal years
ended December 31, 2003 and the subsequent interim period through April 6, 2004,
there were: (i) no disagreements between us and PWC on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to PWC's satisfaction, would have caused them
to make reference to the subject matter of the disagreement in connection with
their reports on our consolidated financial statements for such years; and (ii)
no "reportable events" as defined in Item 304(a)(1)(v) of Regulation S-K. We
requested and received a letter from PWC confirming that there were no such
disagreements or reportable events. PWC's reports on our consolidated financial
statements for the two fiscal years ended December 31, 2003 did not contain any
adverse opinion or disclaimer of opinion, nor were such reports qualified or
modified as to uncertainty, audit scope or accounting principles.
Representatives of Deloitte are expected to be present at the Annual
Meeting and will be afforded the opportunity to make a statement if they desire
and will be available to respond to appropriate questions from shareholders.
Representatives of PWC are not expected to be present at the Annual Meeting.
For the fiscal years ended December 31, 2003 and December 31, 2002,
PricewaterhouseCoopers billed the fees set forth below.
2003 2002
-------- --------
Audit Fees $263,100 $243,100
Audit Related Fees - -
Tax Fees(a) $229,525 $100,325
All Other Fees - -
(a) Tax fees primarily include fees for services performed in connection
with IRS and California Franchise Tax Board audits.
The Audit Committee has considered whether the provision of non-audit
services by our principal auditor is compatible with maintaining auditor
independence and determined that it is. Pursuant to the rules of the Securities
and Exchange Commission, before our independent public accountant is engaged to
render audit or non-audit services, the engagement must be approved by the Audit
Committee or entered into pursuant to the Audit Committee's pre-approval
policies and procedures. The Audit Committee has adopted a policy granting
pre-approval to certain specific audit and audit-related services and specifying
the procedures for pre-approving other services. The policy is attached as
Appendix B.
- ------------
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.
19
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, 2003, WILL BE MADE
AVAILABLE TO SHAREHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO 99 CENTS ONLY
STORES, 4000 UNION PACIFIC AVENUE, CITY OF COMMERCE, CALIFORNIA 90023,
ATTENTION: CHIEF FINANCIAL OFFICER. THE EXHIBITS OF THIS REPORT WILL ALSO BE
PROVIDED UPON REQUEST AND PAYMENT OF COPYING CHARGES.
ON BEHALF OF THE BOARD OF DIRECTORS
/s/ Eric Schiffer
Eric Schiffer, President
4000 Union Pacific Avenue
City of Commerce, California 90023
April 24, 2004
20
Appendix A
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF 99 CENTS ONLY STORES
This Charter identifies the purpose, composition, meeting requirements,
committee responsibilities, annual evaluation procedures and investigations and
studies of the Audit Committee (the "COMMITTEE") of the Board of Directors (the
"BOARD") of 99 Cents Only Stores, a California corporation (the "COMPANY").
I. PURPOSE
The Committee has been established to: (a) assist the Board in its
oversight responsibilities regarding (1) the integrity of the Company's
financial statements, (2) the Company's compliance with legal and regulatory
requirements, (3) the independent accountant's qualifications and independence
and (4) the performance of the Company's internal audit function; (b) prepare
the report required by the United States Securities and Exchange Commission (the
"SEC") for inclusion in the Company's annual proxy statement; (c) retain and
terminate the Company's independent accountant; (d) approve audit and non-audit
services to be performed by the independent accountant; and (e) perform such
other functions as the Board may from time to time assign to the Committee. In
performing its duties, the Committee shall seek to maintain an effective working
relationship with the Board, the independent accountant, the internal auditors
and management of the Company.
II. COMPOSITION
The Committee shall be composed of at least three, but not more than five,
members (including a Chairperson), all of whom shall be "independent directors,"
as such term is defined in the rules and regulations of the SEC, the New York
Stock Exchange and the Sarbanes-Oxley Act. The members of the Committee and the
Chairperson shall be selected annually by the Board and serve at the pleasure of
the Board. A Committee member (including the Chairperson) may be removed at any
time, with or without cause, by the Board. The Board may designate one or more
independent directors as alternate members of the Committee, who may replace any
absent or disqualified member or members at any meetings of the Committee. No
person may be made a member of the Committee if his or her service on the
Committee would violate any restriction on service imposed by any rule or
regulation of the SEC or any securities exchange or market on which shares of
the common stock of the Company are traded. All members of the Committee shall
have a working familiarity with basic finance and accounting practices, and at
least one member of the Committee shall have accounting or related financial
management expertise. The Chairperson shall maintain regular communication with
the chief executive officer, chief financial officer, the lead partner of the
independent accountant, and the director of internal audit.
Except for Board and Committee fees, a member of the Committee shall not be
permitted to accept any fees paid directly or indirectly for services as a
consultant, legal advisor or financial advisor or any other fees prohibited by
the rules of the SEC and the New York Stock Exchange. In addition, no member of
the Committee may be an affiliated person(1) of the Company or any of its
subsidiaries. Members of the Committee may receive their Board and Committee
fees in cash, Company stock or options or other in-kind consideration as
determined by the Board or the Compensation Committee, as applicable, in
addition to all other benefits that other directors of the Company receive. No
director may serve on the Committee, without the approval of the Board, if such
director simultaneously serves on the audit committee of more than three public
companies.
III. MEETING REQUIREMENTS
- ---------------
1 The term "affiliated person" is not defined by the Sarbanes-Oxley Act or in
the rules of the NYSE or Nasdaq. As some guidance, Rule 12b-2 under the
Securities Exchange Act of 1934 defines an "affiliate" of, or a person
"affiliated" with, a specified person as a person that "directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the person specified."
1
The Committee shall meet as necessary, but at least four times each year,
to enable it to fulfill its responsibilities. The Committee shall meet at the
call of its Chairperson. The Committee may meet in person, by telephone
conference call, or by any other means permitted by law or the Company's Bylaws.
A majority of the members of the Committee shall constitute a quorum. The
Committee shall act on the affirmative vote of a majority of members present at
a meeting at which a quorum is present. Without a meeting, the Committee may
act by unanimous written consent of all members. The Committee shall determine
its own rules and procedures, including designation of a chairperson pro
tempore, in the absence of the Chairperson, and designation of a secretary, who
shall prepare minutes. The Committee shall keep written minutes of its
meetings, which shall be recorded or filed with the books and records of the
Company. Any member of the Board shall be provided with copies of such
Committee minutes if requested.
The Committee may ask members of management, employees, outside counsel,
the independent accountant or others whose advice and counsel are relevant to
the issues then being considered by the Committee, to attend any meetings and to
provide such pertinent information as the Committee may request.
The Chairperson of the Committee shall be responsible for leadership of the
Committee, including preparing the agenda, presiding over Committee meetings,
making Committee assignments and reporting the Committee's actions to the Board
from time to time (but at least once each year) as requested by the Board.
As part of its responsibility to foster free and open communication, the
Committee should meet periodically with management, the internal auditors and
the independent accountant in separate executive sessions to discuss any matters
that the Committee or any of these groups believe should be discussed privately.
In addition, the Committee or at least its Chairperson should meet with the
independent accountant and management quarterly to review the Company's
financial statements prior to their public release consistent with the
provisions set forth below in Section IV.
IV. COMMITTEE RESPONSIBILITIES
In carrying out its responsibilities, the Committee's policies and
procedures should remain flexible to enable the Committee to react to changes in
circumstances and conditions so as to ensure the Company remains in compliance
with applicable legal and regulatory requirements. In addition to such other
duties as the Board may from time to time assign, the Committee shall have the
following responsibilities:
A. Oversight of the Financial Reporting Processes
---------------------------------------------------
1. In consultation with the independent accountant and the internal auditors,
review the integrity of the organization's financial reporting processes,
both internal and external.
2. Consider the independent accountant's judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting. Consider alternative accounting principles and
estimates.
3. Annually review major issues regarding the Company's auditing and
accounting principles and practices and its presentation of financial
statements, including the adequacy of internal controls and special audit
steps adopted in light of material internal control deficiencies.
4. Discuss with appropriate internal management and if necessary with external
professionals the status of pending litigation, taxation matters,
compliance policies and other areas of oversight applicable to the legal
and compliance area as may be appropriate.
5. Meet at least annually with the chief financial officer, the internal
auditors and the independent accountant in separate executive sessions.
6. Review analyst reports and other pertinent materials about the Company's
accounting and disclosure practices and principles.
2
7. Review analyses prepared by management and the independent accountant of
significant financial reporting issues and judgments made in connection
with the preparation of the Company's financial statements, including any
analysis of the effect of alternative generally accepted accounting
principle ("GAAP") methods on the Company's financial statements and a
description of any transactions as to which management obtained Statement
on Auditing Standards No. 50 letters(2).
8. Review with management and the independent accountant the effect of
regulatory and accounting initiatives, as well as off-balance sheet
structures, on the Company's financial statements.
B. Review of Documents and Reports
-----------------------------------
1. Review and discuss with management and the independent accountant
the Company's annual audited financial statements and quarterly
financial statements (including disclosures under the section
entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operation") and any reports or other
financial information submitted to any governmental body, or the
public, including any certification, report, opinion or review
rendered by the independent accountant, considering, as
appropriate, whether the information contained in these documents
is consistent with the information contained in the financial
statements and whether the Company's professionals are satisfied
with the disclosure and content of such documents. These
discussions shall include consideration of the quality of the
Company's accounting principles as applied in its financial
reporting, including review of audit adjustments (whether or not
recorded) and any such other inquires as may be appropriate.
Based on the review, the Committee shall make its recommendation
to the Board as to the inclusion of the Company's audited
consolidated financial statements in the Company's annual report
on Form 10K.
2. Review and discuss with management and the independent accountant
earnings press releases, as well as financial information and
earnings guidance provided to analysts and rating agencies. The
Committee need not discuss in advance each earnings release but
should generally discuss the types of information to be disclosed
and the type of presentation to be made in any earnings release
or guidance.
3. Review the regular internal reports to management prepared by the
internal auditors and management's response thereto.
4. Review any reports from management, the internal auditors and the
independent accountant on the Company's subsidiaries and
affiliates, compliance with the Company's code of conduct and
other applicable requirements.
5. Review with management and the independent accountant any
significant correspondence with regulators and any employee
complaints or published reports that raise material issues
regarding the Company's financial statements or accounting
policies.
6. Prepare the report required by the rules of the SEC to be
included in the Company's annual proxy statement.
7. Submit the minutes of all meetings of the Committee to, or
discuss the matters discussed at each Committee meeting with, the
Board.
8. Review any restatements of financial statements that have
occurred or were recommended. Review the restatements made by
other clients of the independent accountant.
- ---------------
2 SAS No. 50 provides performance and reporting standards for written reports
from accountants with respect to the application of accounting principles to new
transactions and financial products or regarding specific financial reporting
issues.
3
C. Independent Accountant Matters
------------------------------
1. Interview and retain the Company's independent accountant, considering the
accounting firm's independence and effectiveness and approve the engagement
fees and other compensation to be paid to the independent accountant.
2. On an annual basis, the Committee shall evaluate the independent
accountant's qualifications, performance and independence. To assist in
this undertaking, the Committee may require the independent accountant to
report on (a) the independent accountant's internal quality-control
procedures, (b) any material issues raised by the most recent internal
quality-control review, or peer review, of the accounting firm or by any
inquiry or investigations by governmental or professional authorities
(within the preceding five years) respecting one or more independent audits
carried out by the independent accountant, and any steps taken to deal with
any such issues and (c) all relationships the independent accountant has
with the Company and relevant third parties to determine the independent
accountant's independence.
3. Review on an annual basis the experience and qualifications of the senior
members of the audit team. Discuss the knowledge and experience of the
independent accountant and the senior members of the audit team with
respect to the Company's industry. The Committee shall ensure the regular
rotation of the lead audit partner and audit review partner as required by
law.
4. Review the performance of the independent accountant and terminate the
independent accountant when circumstances warrant.
5. Consider hiring policies for employees or former employees of the
independent accountant.
6. Review with the independent accountant any problems or difficulties the
auditor may have encountered and any "management" or "internal control"
letter provided by the independent accountant and the Company's response to
that letter. Such review should include:
(a) any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or access to
required information and any disagreements with management;
(b) any accounting adjustments that were proposed by the independent
accountant that were not agreed to by the Company;
(c) communications between the independent accountant and its
national office regarding any issues on which it was consulted by the
audit team and matters of audit quality and consistency;
(d) any changes required in the planned scope of the internal audit;
and
(e) the responsibilities, budget and staffing of the Company's
internal audit function.
7. Communicate with the independent accountant regarding (a) alternative
treatments of financial information within the parameters of GAAP, (b)
critical accounting policies and practices to be used in preparing the
audit report and (c) such other matters as the SEC and the New York Stock
Exchange may direct by rule or regulation.
8. Periodically consult with the independent accountant out of the presence of
management about internal controls and the fullness and accuracy of the
organization's financial statements.
9. Oversee the independent accountant relationship by discussing with the
independent accountant the nature and rigor of the audit process, receiving
and reviewing audit reports and ensuring that the independent accountant
has full access to the Committee (and the Board) to report on any and all
appropriate matters.
10. Discuss with the independent accountant prior to the audit the general
planning and staffing of the audit.
4
11. Obtain a representation from the independent accountant that Section 10A of
the Securities Exchange Act of 1934 has been followed.
D. Internal Audit Control Matters
---------------------------------
1. Discuss with management policies with respect to risk assessment and risk
management. The Committee should discuss guidelines and policies to govern
the process by which risk assessment and management is handled and review
the steps management has taken to monitor and control the Company's risk
exposure.
2. Establish regular and separate systems of reporting to the Committee by
each of management, the independent accountant and the internal auditors
regarding any significant judgments made in management's preparation of the
financial statements and the view of each as to appropriateness of such
judgments.
3. Following completion of the annual audit, review separately with each of
management, the independent accountant and the internal auditors any
significant difficulties encountered during the course of the audit,
including any restrictions on the scope of work or access to required
information.
4. Review with the independent accountant, the internal auditors and
management the extent to which changes or improvements in financial or
accounting practices have been implemented. This review should be conducted
at an appropriate time subsequent to implementation of changes or
improvements, as decided by the Committee.
5. Advise the Board about the Company's policies and procedures for compliance
with applicable laws and regulations and the Company's code of conduct.
6. Establish procedures for receiving accounting complaints and concerns and
anonymous submissions from employees and others regarding questionable
accounting matters.
7. Periodically discuss with the chief executive officer and chief financial
officer (a) significant deficiencies in the design or operation of the
internal controls that could adversely affect the Company's ability to
record, process, summarize and report financial data and (b) any fraud that
involves management or other employees who have a significant role in the
Company's internal controls.
8. Ensure that no officer, director or any person acting under their direction
fraudulently influences, coerces, manipulates or misleads the independent
accountant for purposes of rendering the Company's financial statements
materially misleading.
E. Evaluation of Internal Auditors
----------------------------------
1. Review activities, structure and qualifications of the internal
auditors.
2. Review and concur in the appointment, replacement, reassignment
or dismissal of the director of internal auditing.
3. Consider and review with management and the director of internal
auditing:
(a) significant findings during the year and management's
responses thereto;
(b) any difficulties encountered in the course of internal
audits, including any restrictions on the scope of the internal
auditors' work or access to required information;
(c) any changes required in the planned scope of the internal
auditors' audit plan;
(d) the internal auditors' budget and staffing; and
(e) The internal auditors' compliance with The Institute of
Internal Auditors' Standards for the Professional Practice of
Internal Auditing.
5
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate and
are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent accountant.
V. ANNUAL EVALUATION PROCEDURES
The Committee shall annually assess its performance to confirm that it is
meeting its responsibilities under this Charter. In this review, the Committee
shall consider, among other things, (a) the appropriateness of the scope and
content of this Charter, (b) the appropriateness of matters presented for
information and approval, (c) the sufficiency of time for consideration of
agenda items, (d) frequency and length of meetings and (e) the quality of
presentations. The Committee may recommend to the Board such changes to this
Charter as the Committee deems appropriate.
VI. INVESTIGATIONS AND STUDIES
The Committee shall have the authority and sufficient funding, if and when
required, to retain special outside legal, accounting or other consultants
(without seeking Board approval) to advise the Committee. The Committee may
conduct or authorize investigations into or studies of matters within the
Committee's scope of responsibilities as described herein, and may retain, at
the expense of the Company, independent outside counsel or other outside
consultants or experts necessary to assist the Committee in any such
investigations or studies. The Committee shall have sole authority to negotiate
and approve the fees and retention terms of such independent counsel or other
consultants.
VII. MISCELLANEOUS
Nothing contained in this Charter is intended to expand applicable
standards of liability under statutory or regulatory requirements for the
directors of the Company or members of the Committee. The purposes and
responsibilities outlined in this Charter are meant to serve as guidelines
rather than as inflexible rules and the Committee is encouraged to adopt such
additional or differing procedures and standards as it deems necessary from time
to time to fulfill its responsibilities.
Adopted by the Board of Directors this 21st day of April, 2003.
6
Appendix B
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF
99 CENTS ONLY STORES
PRE-APPROVAL POLICY
I. STATEMENT OF PRINCIPLES
The Audit Committee of the Board of Directors (the "Board") of 99 Cents
Only Stores (the "Corporation") is required to pre-approve the audit and
non-audit services performed by the independent auditor in order to assure that
the provision of such services does not impair the auditor's independence.
Unless a type of service to be provided by the independent auditor has received
pre-approval pursuant to this policy, it will require specific pre-approval by
the Audit Committee. Any proposed services exceeding pre-approved cost levels
will require specific pre-approval by the Audit Committee.
The term of any pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee specifically provides for a different period. The
Audit Committee will periodically review previously pre-approved services, based
on subsequent determinations.
II. DELEGATION
To ensure prompt handling of unexpected matters, the Audit Committee
delegates to the Chair of the Audit Committee the authority to amend or modify
the list of pre-approved non-audit services and fees. The Chair will report
action taken to the Audit Committee at its next scheduled meeting. The Audit
Committee may also delegate pre-approval authority to one or more of its members
who shall report any pre-approval decisions to the Audit Committee at its next
scheduled meeting. The Audit Committee does not delegate its responsibilities
to pre-approve services performed by the independent auditor to management or to
the Board generally.
III. AUDIT SERVICES
The annual audit services engagement terms and fees will be subject to the
specific pre-approval of the Audit Committee. The independent auditor will
provide the Audit Committee with an engagement letter and fee proposal outlining
the scope and cost of the audit services proposed to be performed during the
fiscal year. Once agreed to by the Audit Committee, the final engagement letter
and fee proposal will be formally accepted. The Audit Committee will then
approve, if necessary, any changes in terms, conditions and fees resulting from
changes in audit scope, Corporation structure or other matters.
In addition to the annual audit services engagement approved by the Audit
Committee, the Audit Committee may grant pre-approval for other audit services
that only the independent auditor reasonably can provide. The Audit Committee
has pre-approved (i) statutory audits or financial audits for subsidiaries or
affiliates of the Corporation, (ii) services associated with SEC registration
statements, periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings (e.g., comfort letters,
consents, etc.), and assistance in responding to SEC comment letters, and (iii)
consultations by the Corporation's management as to the accounting or disclosure
treatment of transactions or events and/or the actual or potential impact of
final or proposed rules, standards or interpretations by the SEC, FASB or other
regulatory or standard setting body (other than services that are
"audit-related" services under SEC rules which have been separately
pre-approved). Other audit services that reasonably could be performed by
someone other than the independent auditor must be separately pre-approved by
the Audit Committee.
1
IV. AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the
Corporation's financial statements and that are traditionally performed by the
independent auditor. The Audit Committee believes that the provision of
audit-related services does not impair the independence of the auditor, and has
pre-approved audit-related services related to (i) internal control reviews and
assistance with internal control reporting requirements, (ii) consultations by
the Corporation's management as to the accounting or disclosure treatment of
transactions or events and/or the actual or potential impact of final or
proposed rules, standards or interpretations by the SEC, FASB or other
regulatory or standard setting body (other than services that are "audit"
services under SEC rules which have been separately pre-approved), (iii) attest
services not required by statute or regulation, and (iv) agreed-upon or expanded
audit procedures relating to accounting and/or billing records required to
respond to or comply with financial, accounting or regulatory reporting matters.
All other audit-related services must be separately pre-approved by the Audit
Committee.
V. TAX SERVICES
It is the preference of the Audit Committee for tax services such as tax
compliance, tax planning and tax advice to be performed by an accountant other
than the independent auditor. However, if the Audit Committee believes that the
independent auditor can provide tax services to the Corporation without
impairing the auditor's independence, and the Audit Committee desires to retain
the independent auditor for tax services, those services must be specifically
pre-approved by the Audit Committee. In no event will the Audit Committee
permit the retention of the independent auditor in connection with a transaction
initially recommended by the independent auditor, the purpose of which may be
tax avoidance and the tax treatment of which may not be supported in the
Internal Revenue Code and related regulations.
VI ALL OTHER SERVICES
The Audit Committee may grant pre-approval to those permissible non-audit
services classified as "all other" services that it believes are routine and
recurring services, and would not impair the independence of the auditor.
A list of the SEC's prohibited non-audit services is attached to this
policy as Exhibit 1. The SEC's rules and relevant guidance should be consulted
to determine the precise definitions of these services and the applicability of
exceptions to certain of the prohibitions.
VII. PRE-APPROVAL FEE LEVELS
Pre-approval fee levels for all services to be provided by the independent
auditor will be established periodically by the Audit Committee. Any proposed
services exceeding these levels will require specific pre-approval by the Audit
Committee. The initial pre-approval fee level shall be $30,000.
VIII. SUPPORTING DOCUMENTATION
With respect to each proposed pre-approved service, the independent
auditor will be required to provide detailed back-up documentation, which will
be provided to the Audit Committee, regarding the specific services to be
provided.
IX. PROCEDURES
Except for the annual audit services engagement (the procedures for which
are set forth in Section III above), all requests or applications to provide
services that require separate approval by the Audit Committee will be submitted
to the Audit Committee by both the independent auditor and the Chief Executive
Officer, and must include a joint statement as to whether, in their view, the
request or application is permissible under all legal requirements and
consistent with the SEC's rules on auditor independence.
2
EXHIBIT 1
PROHIBITED NON-AUDIT SERVICES
- - Bookkeeping or other services related to the accounting records or
financial statements of the audit client*
- - Financial information systems design and implementation*
- - Appraisal or valuation services, fairness opinions or contribution-in-kind
reports*
- - Actuarial services*
- - Internal audit outsourcing services*
- - Management functions
- - Human resources
- - Broker-dealer, investment adviser or investment banking services
- - Legal services
- - Expert services unrelated to the audit
* Provision of these non-audit services may be permitted if it is reasonable
to conclude (without reference to materiality) that the results of these
services will not be subject to audit procedures during the audit of the
Corporation's financial statements.
3
PROXY
99 CENTS ONLY STORES
4000 UNION PACIFIC AVENUE
CITY OF COMMERCE, CALIFORNIA 90023
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF 99 CENTS ONLY
STORES
The undersigned, a shareholder of 99 CENTS ONLY STORES, a California corporation
(the "Company") hereby appoints David Gold and Eric Schiffer, and each of them,
the proxy of the undersigned, with full power of substitution, to attend, vote
and act for the undersigned at Company's Annual Meeting of Shareholders (the
"Annual Meeting"), to be held on JUNE 11, 2004, and at any of its postponement
or adjournments, to vote and represent all of the shares of the Company which
the undersigned would be entitled to vote, as follows:
(PLEASE SIGN AND DATE ON THE REVERSE SIDE)
- ------------------------------------------------------------------------------------------------------------------------------
Please mark your
X Votes as in this
example using dark THE BOARD OF DIRECTORS RECOMMENDS A WITH VOTE ON ITEM 1
ink only. AND AN AGAINST VOTE ON ITEM 2 AND ITEM 3
2. SHAREHOLDER PROPOSAL #1 FOR AGAINST ABSTAIN
WITHOUT Authority to
1. ELECTION OF DIRECTORS, Vote for the The Board of Directors recommends a vote [ ] [ ] [ ]
As provided in the WITH nominees listed AGAINST the adoption of proposal #1.
Company's Proxy Proxies solicited by the Board of
Statement: [ ] [ ] Directors will be voted against this
proposal unless otherwise specified by
the shareholder in the proxy.
(Instructions: To withhold authority for a nominee,
through or otherwise strike line out the name of 3. SHAREHOLDER PROPOSAL #2 FOR AGAINST ABSTAIN
the nominee below)
The Board of Directors recommends a vote [ ] [ ] [ ]
Eric Schiffer Marvin Holen AGAINST the adoption of proposal #2.
Lawrence Glascott Ben Schwartz Proxies solicited by the Board of
David Gold William Christy Directors will be voted against this
Howard Gold Eric G. Flamholtz proposal unless otherwise specified by
Jeff Gold the shareholder in the proxy.
The undersigned hereby revokes any other proxy to vote at the Annual
Meeting, and hereby ratifies and confirms all that the proxy holder may
lawfully do by virtue hereof. As to any business that may properly come
before the Annual Meeting and any of its postponement or adjournments, the
proxy holder is authorized to vote in accordance with its best judgement.
This Proxy will be voted in accordance with the instructions set forth
above. This Proxy will be treated as a GRANT OF AUTHORITY TO VOTE WITH the
election of the directors named above and an AGAINST the shareholder
proposal and as the proxy holder shall deem advisable on such other
business as may come before the Annual Meeting, unless otherwise directed.
The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting and accompanying Proxy Statement dated April 24, 2004 relating to
the Annual Meeting.
________________________________________________________ Date:____________
Signature(s) of Shareholder(s) (See Intructions Below)
The signature(s) hereon should correspond exactly with the name(s) of the
shareholder(s) appearing on the Stock Certificate. If stock is jointly
held, 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.