<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 1998
REGISTRATION NO. 333-50515
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
99CENTS ONLY STORES
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 5331 95-2411605
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code No.) Identification
Incorporation or Organization) No.)
</TABLE>
99CENTS ONLY STORES
4000 UNION PACIFIC AVENUE
CITY OF COMMERCE, CALIFORNIA 90023
(213) 980-8145
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
DAVID GOLD, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
99CENTS ONLY STORES
4000 UNION PACIFIC AVENUE
CITY OF COMMERCE, CALIFORNIA 90023
(213) 980-8145
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
--------------------------
COPIES TO:
C.N. FRANKLIN REDDICK III, ESQ.
LINDA GIUNTA MICHAELSON, ESQ.
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard
Los Angeles, California 90024
(310) 824-7000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT IS DECLARED EFFECTIVE.
--------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock................................ 374,271 Not Applicable $12,631,629 $3,726
</TABLE>
(1) Represents the maximum number of shares of 99CENTS Only Stores issuable in
the Exchange Offer, based upon the number of shares of Universal common
stock (on a fully diluted basis) reported outstanding as of March 17, 1998
(other than shares owned by 99 CENTS Only Stores).
(2) Estimated solely for the purposes of determining the registration fee in
accordance with Rule 457(f)(1). The proposed maximum offering price is based
on the average of the high and low prices of the common stock of Universal
International, Inc. on April 14, 1998 on the Nasdaq National Market. The
proposed maximum aggregate offering price is based on the product of
$2.109375 (the average of the high and low prices of Universal common stock
on April 14, 1998) and 5,988,328 (the maximum number of shares (on a fully
diluted basis) expected to be issued in connection with the transaction
described herein).
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
OF UNIVERSAL INTERNATIONAL, INC.
------------------------
OFFER TO EXCHANGE/PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
OFFER FOR ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON SHARE PURCHASE RIGHTS)
OF
UNIVERSAL INTERNATIONAL, INC.
ON THE BASIS OF
ONE SHARE OF COMMON STOCK OF 99CENTS ONLY STORES
FOR EACH 16 SHARES OF COMMON STOCK OF UNIVERSAL INTERNATIONAL, INC.
BY
99CENTS ONLY STORES
------------------------
99CENTS Only Stores, a California corporation, ("99CENTS Only Stores" or the
"Company"), hereby offers, upon the terms and subject to the conditions set
forth herein and in the related Letter of Transmittal (collectively, the
"Exchange Offer"), to exchange one share of common stock, no par value per share
(the "99CENTS Only Stores Common Stock"), for each sixteen (16) shares of common
stock, $0.05 par value per share (the "Universal Common Stock"), of Universal
International, Inc., a Minnesota corporation ("Universal"), including the
associated common share purchase rights (each, a "Right" and collectively, the
"Rights") issued pursuant to the Rights Agreement, dated as of April 19, 1996
between Universal and Norwest Bank Minnesota, National Association, as Rights
Agent (the "Rights Agreement"). Unless the context otherwise requires and unless
and until all Rights are redeemed, all references to Universal Common Stock
shall include the associated Rights. If all of the currently outstanding shares
of Universal Common Stock are exchanged (on a fully diluted basis), the Company
will issue to Universal shareholders an aggregate of approximately 367,333
shares of 99CENTS Only Stores Common Stock. The Exchange Offer is subject to
certain conditions as set forth under "THE EXCHANGE OFFER--Conditions of the
Exchange Offer", including the conditions that on or prior to the date on which
the Exchange Offer expires (i) not less than 3,801,862 shares, or approximately
37% of the outstanding shares (on a fully diluted basis) of Universal Common
Stock (other than shares owned by 99CENTS Only Stores) are validly tendered and
not withdrawn in the Exchange Offer and (ii) Universal shareholders have
approved an amendment to the By-Laws of Universal to provide that the Minnesota
Control Share Acquisition Act (Section 302A.671 of the Minnesota Business
Corporation Act) will not apply to Universal or its shareholders. The approval
of the amendment to Universal's By-Laws requires the affirmative vote of the
holders of a majority of the shares of Universal Common Stock present and
entitled to vote. As of June 12, 1998, there were 19,405,712 shares of 99CENTS
Only Stores Common Stock outstanding and 9,393,328 shares of Universal Common
Stock outstanding. The 99CENTS Only Stores Common Stock is traded on the New
York Stock Exchange under the symbol "NDN." The last reported sales price of the
99CENTS Only Stores Common Stock on June 12, 1998 on the New York Stock Exchange
was $38.38. The Universal Common Stock is traded on the Nasdaq National Market
under the symbol "UNIV". The last reported sales price of the Universal Common
Stock on June 12, 1998 on the Nasdaq National Market was $2.25.
SEE "RISK FACTORS" COMMENCING ON PAGE 14 OF THIS PROXY STATEMENT/PROSPECTUS
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CAREFULLY CONSIDERED BY
HOLDERS OF UNIVERSAL COMMON STOCK PRIOR TO TENDERING THEIR UNIVERSAL COMMON
STOCK PURSUANT TO THE EXCHANGE OFFER.
This Proxy Statement/Prospectus constitutes (i) the Prospectus of 99CENTS
Only Stores with respect to the securities to be issued by 99CENTS Only Stores
in the Exchange Offer and (ii) the Proxy Statement of Universal to be used in
soliciting proxies of its shareholders for the special meeting of Universal
shareholders to be held on , 1998, including any adjournments or
postponements thereof. Universal is soliciting proxies for approval from the
shareholders of Universal of an amendment to the By-Laws of Universal to provide
that Section 302A.671 of the Minnesota Business Corporation Act (the "Minnesota
Control Share Acquisition Act") will not apply to Universal or its shareholders.
Questions and requests for assistance or additional copies of this Proxy
Statement/Prospectus, the Letter of Transmittal and the Proxy Card (the
"Exchange Offer Documents") may be directed to the Dealer Manager or the
Exchange Agent at their respective addresses and telephone numbers set forth on
the back cover of this Proxy Statement/Prospectus.
------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON , 1998, UNLESS THE EXCHANGE OFFER IS
EXTENDED.
------------------------------------------------------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The Exchange Offer Documents are first being mailed to Universal shareholders on
or about
, 1998.
The date of this Proxy Statement/Prospectus is , 1998.
THE DEALER MANAGER FOR THE EXCHANGE OFFER IS: Piper Jaffray Inc.
<PAGE>
FORWARD-LOOKING STATEMENTS
IN ADDITION TO THE HISTORICAL INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE HEREIN, THIS PROXY STATEMENT/PROSPECTUS CONTAINS OR INCORPORATES
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT CONCERNING THE COMPANY'S OPERATIONS, UNIVERSAL'S OPERATIONS, EXPANSION
PLANS, ECONOMIC PERFORMANCE, FINANCIAL CONDITION, THE PENDING ACQUISITIONS OF
UNIVERSAL AND ODD'S-N-END'S AND THEIR EFFECT ON THE COMPANY'S RESULTS OF
OPERATIONS, FUTURE RESULTS OF OPERATIONS OF UNIVERSAL AND ODD'S-N-END'S, STORE
OPENINGS, PURCHASING ABILITIES, SALES PER SQUARE FOOT AND COMPARABLE STORE NET
SALES TRENDS AND CAPITAL REQUIREMENTS. SUCH FORWARD-LOOKING STATEMENTS MAY BE
IDENTIFIED BY THE USE OF WORDS SUCH AS "BELIEVE," "ANTICIPATE," "INTEND" AND
"EXPECT." SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND
UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE COMPANY'S CONTROL. ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED DUE TO THE FACTORS
DISCUSSED UNDER THE CAPTION "RISK FACTORS." SOME OF THOSE FACTORS INCLUDE (i)
THE COMPANY'S ABILITY TO OPEN NEW STORES ON A TIMELY BASIS AND OPERATE THEM
PROFITABLY, (ii) THE COMPANY'S ABILITY TO INTEGRATE UNIVERSAL AND ODD'S-N-END'S,
ACHIEVE ANTICIPATED OPERATING SYNERGIES AND TO OPERATE THEIR STORES AT MULTIPLE
PRICE POINTS AND IN DIFFERENT GEOGRAPHIC LOCATIONS, (iii) THE COMPANY'S ABILITY
TO ACHIEVE COST SAVINGS FROM THE ACQUISITION OF UNIVERSAL, (iv) THE ORDERLY
OPERATION OF THE COMPANY'S RECEIVING AND DISTRIBUTION PROCESS, (v) INFLATION,
CONSUMER CONFIDENCE AND OTHER GENERAL ECONOMIC FACTORS, (vi) THE AVAILABILITY OF
ADEQUATE INVENTORY AND CAPITAL RESOURCES, (vii) THE RISK OF A DISRUPTION IN
SALES VOLUME IN THE FOURTH QUARTER AND OTHER SEASONAL FACTORS AS DISCUSSED IN
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS--SEASONALITY AND
QUARTERLY FLUCTUATIONS," (viii) DEPENDENCE ON KEY PERSONNEL AND CONTROL FOR THE
COMPANY BY EXISTING SHAREHOLDERS AND (ix) INCREASED COMPETITION FROM NEW
ENTRANTS INTO THE DEEP-DISCOUNT RETAIL INDUSTRY. THE COMPANY DOES NOT ORDINARILY
MAKE PROJECTIONS OF ITS FUTURE OPERATING RESULTS AND UNDERTAKES NO OBLIGATION TO
PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF
NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. SEE "RISK FACTORS."
IMPORTANT
Any shareholder desiring to tender shares of Universal Common Stock and the
associated Rights, should either (1) complete and sign the Letter of Transmittal
(or a facsimile thereof) in accordance with the instructions in the Letter of
Transmittal and mail or deliver it together with the certificate(s) evidencing
tendered shares of Universal Common Stock, and any other required documents, to
the Exchange Agent or tender such shares of Universal Common Stock pursuant to
the procedure for book-entry transfer set forth in "THE EXCHANGE
OFFER--Procedures for Accepting the Exchange Offer and Tendering Shares" or (2)
request such holder's broker, dealer, commercial bank, trust company or other
nominee to effect the transaction for such holder. Any shareholder whose shares
of Universal Common Stock are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee must contact such broker,
dealer, commercial bank, trust company or other nominee if such holder desires
to tender such shares of Universal Common Stock.
Universal Shareholders will be required to tender one Right for each share
of Universal Common Stock tendered in order to effect a valid tender, unless the
Rights have been redeemed. Unless an event
i
<PAGE>
occurs which causes the Rights to exist separate from the Universal Common
Stock, a tender of shares of Universal Common Stock will constitute a tender of
the associated Rights. On April 20, 1998, the Rights Agreement was amended to
waive the application of the Rights Agreement to the Exchange Offer. See "THE
EXCHANGE OFFER--Conditions of the Exchange Offer."
A shareholder who desires to tender shares of Universal Common Stock and
whose certificates evidencing such shares of Universal Common Stock are not
immediately available, or who cannot comply with the procedure for book-entry
transfer on a timely basis, may tender such shares of Universal Common Stock by
following the procedure for guaranteed delivery set forth in "THE EXCHANGE
OFFER-- Procedures for Accepting the Exchange Offer and Tendering Shares."
NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY 99CENTS ONLY STORES OR THE
DEALER MANAGER. THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF ANY OFFER TO BUY, THE
SECURITIES OFFERED HEREBY OR A SOLICITATION OF A PROXY IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR THE ISSUANCE OF ANY SECURITIES HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF EITHER UNIVERSAL OR 99CENTS ONLY STORES SINCE THE DATE AS OF WHICH
INFORMATION IS FURNISHED OR THE DATE HEREOF.
IN ANY JURISDICTION WHERE THE SECURITIES, BLUE SKY OR OTHER LAWS REQUIRE THE
EXCHANGE OFFER TO BE MADE TO THE PUBLIC BY A LICENSED BROKER OR DEALER, THE
EXCHANGE OFFER IS HEREBY MADE ON BEHALF OF 99CENTS ONLY STORES BY PIPER JAFFRAY
INC., AS DEALER MANAGER, OR ONE OR MORE REGISTERED BROKERS OR DEALERS THAT ARE
LICENSED UNDER THE LAWS OF SUCH JURISDICTION.
AVAILABLE INFORMATION
99CENTS Only Stores has filed a Registration Statement on Form S-4 (together
with all amendments, documents incorporated by reference and exhibits thereto,
the "Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with the Securities and Exchange Commission (the
"Commission") covering the 99CENTS Only Stores Common Stock to be issued in
connection with the Exchange Offer. In addition, 99CENTS Only Stores will be
filing a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") with
the Commission in connection with the Exchange Offer pursuant to Rule 14d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As
permitted by the rules and regulations of the Commission, this Proxy
Statement/Prospectus omits certain information contained in the Registration
Statement and the Schedule 14D-1. For such information, reference is made to the
Registration Statement, the Schedule 14D-1 and the exhibits thereto.
Pursuant to Rules 14d-9 and 14e-2 under the Exchange Act, Universal will be
required to file with the Commission a Solicitation/Recommendation Statement on
Schedule 14D-9 (the "Schedule 14D-9") furnishing certain information with
respect to its position concerning the Exchange Offer.
99CENTS Only Stores and Universal each are subject to the informational
requirements of the Exchange Act, and in accordance therewith file reports,
proxy statements and other information with the Commission. The Registration
Statement, the reports, proxy statements and other information filed by each of
99CENTS Only Stores and Universal, and the Schedule 14D-1 and the Schedule 14D-9
can be inspected and copied at the Commission's Public Reference Section, Room
1024, 450 Fifth Street, N.W., Washington, D.C., 20549 and at the Commission's
regional offices at Suite 1400, Citicorp Center, 5600 West Madison Street,
Chicago, Illinois 60661 and Suite 1300, Seven World Trade Center, New York, New
York 10048 (except that the Schedule 14D-1, and the Schedule 14D-9 will not be
available at the regional offices of the Commission). Copies of such materials
can be obtained from the Commission at prescribed rates from the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
ii
<PAGE>
Washington, D.C. 20549. The 99CENTS Only Stores Common Stock is listed on the
New York Stock Exchange and such reports, proxy statements and other information
concerning 99CENTS Only Stores are available for inspection at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005. The
Universal Common Stock is listed on The Nasdaq Stock Market's National Market
tier (the "Nasdaq National Market") and such reports, proxy statements and other
information concerning Universal are available for inspection at the offices of
Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006. The Commission
also maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission (such as 99CENTS Only Stores and Universal) at
http://www.sec.gov.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission pursuant to the
Exchange Act by 99CENTS Only Stores (File No. 1-11735) are hereby incorporated
by reference in this Proxy Statement/ Prospectus:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1997;
(b) Quarterly Report on Form 10-Q for the quarter ended March 31, 1998;
(c) Current Reports on Form 8-K filed on February 19, 1998, April 9,
1998, April 22, 1998 and May 1, 1998; and
(d) The description of 99CENTS Only Stores Common Stock contained in
99CENTS Only Stores' Registration Statement on Form 8-A declared effective
on May 22, 1996.
The following documents previously filed with the Commission pursuant to the
Exchange Act by Universal (File No. 0-18823) are hereby incorporated by
reference in this Proxy Statement/Prospectus:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1997;
(b) Quarterly Report on Form 10-Q for the quarter ended March 31, 1998;
and
(c) Current Reports on Form 8-K filed January 8, 1998, February 10, 1998
and April 24, 1998.
Universal's Annual Report on Form 10-K for the fiscal year ended December
31, 1997 is being mailed to each Universal shareholder together with this Proxy
Statement/Prospectus.
All documents and reports filed by 99CENTS Only Stores with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date hereof and prior to the date on which the Exchange Offer is completed
shall be deemed to be incorporated by reference herein and to be a part hereof
from the respective dates of filing of such document or reports. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein, or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference herein, modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement/ Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE RELATING
TO 99CENTS ONLY STORES WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
THESE DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING
ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON
WRITTEN OR ORAL REQUEST, WITHOUT CHARGE, FROM 99CENTS ONLY STORES, 4000 UNION
PACIFIC AVENUE, CITY OF COMMERCE, CALIFORNIA 90023, ATTENTION: ERIC SCHIFFER,
TELEPHONE: (213) 980-8145. UPON REQUEST, THE DOCUMENTS WILL BE SENT BY FIRST
CLASS MAIL WITHIN ONE BUSINESS DAY UPON RECEIPT OF REQUEST. IN ORDER TO ENSURE
TIMELY DELIVERY OF
iii
<PAGE>
THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE NO LATER THAN NINE BUSINESS DAYS
PRIOR TO THE EXPIRATION DATE (AS DEFINED HEREIN).
iv
<PAGE>
TABLE OF CONTENTS
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PAGE
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FORWARD-LOOKING STATEMENTS................................................................................. i
IMPORTANT.................................................................................................. i
AVAILABLE INFORMATION...................................................................................... ii
INCORPORATION OF DOCUMENTS BY REFERENCE.................................................................... iii
SUMMARY.................................................................................................... 4
The Companies............................................................................................ 4
Relationship Between 99CENTS Only Stores and Universal; Background of the Exchange Offer................. 4
Advantages to Universal Shareholders..................................................................... 5
The Cooperation Agreement................................................................................ 6
Stockholder Support Agreements........................................................................... 6
The Exchange Offer....................................................................................... 7
Special Meeting of Universal Shareholders................................................................ 10
Risk Factors............................................................................................. 11
Regulatory Approvals..................................................................................... 11
Comparative Market Price Data and Dividend Information................................................... 11
Comparison of Minnesota and California Law............................................................... 13
Recent Developments...................................................................................... 13
RISK FACTORS............................................................................................... 14
Dependence on New Store Openings for Future Growth....................................................... 14
Pending Acquisitions..................................................................................... 14
Inability to Merge with Universal........................................................................ 15
Concentration of Operations.............................................................................. 16
Disruptions in Receiving and Distribution................................................................ 16
Supplier Relationships; Availability of Close-Out and Special-Situation Merchandise...................... 17
Large Volume Purchases; Inventory Concentrations......................................................... 17
Universal's History of Losses and Accumulated Deficit; Going Concern..................................... 17
Competition.............................................................................................. 17
Adverse Economic Factors; Change in Minimum Wage......................................................... 18
Political and Economic Risks of International Sales and Purchases........................................ 18
Risks Associated with Ownership of Properties by Affiliates.............................................. 18
Dependence on Key Management............................................................................. 19
Seasonality and Quarterly Fluctuations................................................................... 19
Need to Update Management Information Systems; Potential Inability to Complete Year 2000 Project......... 19
Potential Liability for Environmental Matters............................................................ 20
Anti-takeover Effect; Control by Existing Shareholders................................................... 20
Volatility of Stock Price................................................................................ 20
Limited Trading Volume................................................................................... 21
Inflation................................................................................................ 21
Uncertain Tax Consequences............................................................................... 21
Additional Regulatory Approvals.......................................................................... 21
Effect of Other Anti-Takeover Laws....................................................................... 22
COMPARATIVE PER SHARE DATA................................................................................. 23
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION............................................... 24
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
BACKGROUND OF THE EXCHANGE OFFER AND RELATED MATTERS....................................................... 29
Relationship between 99CENTS Only Stores and Universal................................................... 29
Discussions Regarding the Exchange Offer................................................................. 30
Advantages to Universal Shareholders..................................................................... 32
No Recommendation of the Universal Board of Directors.................................................... 33
Purpose of the Exchange Offer; Plans for Universal After the Offer....................................... 33
Opinion of 99CENTS Only Stores' Financial Advisor........................................................ 34
Conflicts of Interest.................................................................................... 38
THE EXCHANGE OFFER......................................................................................... 39
Terms of the Exchange Offer; Expiration Date............................................................. 39
Procedures for Accepting the Exchange Offer and Tendering Shares......................................... 39
Exchange of Universal Common Stock....................................................................... 43
Conditions of the Exchange Offer......................................................................... 44
Extension of Tender Period; Termination; Amendment....................................................... 47
Consequences to Non-tendering Holders of Universal Common Stock.......................................... 48
Listing of Universal Exchange Consideration.............................................................. 49
Fees and Expenses........................................................................................ 49
Source of Funds.......................................................................................... 50
Regulatory Approvals..................................................................................... 50
Miscellaneous............................................................................................ 51
Accounting Treatment..................................................................................... 51
United States Federal Income Tax Consequences............................................................ 52
AGREEMENTS RELATING TO EXCHANGE OFFER...................................................................... 54
The Cooperation Agreement................................................................................ 54
Stockholder Support Agreements........................................................................... 54
Consulting Agreements and Option Agreements with Certain Shareholders.................................... 55
CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS............................................................. 55
General.................................................................................................. 55
State Takeover Laws...................................................................................... 56
MANAGEMENT OF 99CENTS ONLY STORES UPON COMPLETION OF EXCHANGE OFFER........................................ 57
THE UNIVERSAL SPECIAL MEETING.............................................................................. 59
Time, Date and Place..................................................................................... 59
Purpose of the Universal Special Meeting................................................................. 59
Universal Record Date, Quorum and Vote Required.......................................................... 59
No Recommendation of the Universal Board of Directors.................................................... 60
Proxies; Revocability of Proxies......................................................................... 60
Appraisal Rights......................................................................................... 60
Proxy Solicitation....................................................................................... 61
</TABLE>
2
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<TABLE>
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PAGE
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<S> <C>
COMPARISON OF RIGHTS OF SHAREHOLDERS OF 99CENTS ONLY STORES AND UNIVERSAL.................................. 62
Authorized Capital Stock................................................................................. 62
Board of Directors....................................................................................... 62
Removal of Directors..................................................................................... 63
Voting Rights............................................................................................ 63
Cumulative Voting........................................................................................ 63
Notice of Shareholder Meetings........................................................................... 63
Special Meetings of Shareholders......................................................................... 64
Shareholder Actions by Written Consent................................................................... 64
Amendments to Articles of Incorporation.................................................................. 64
Amendments to By-Laws.................................................................................... 65
Indemnification of Officers and Directors................................................................ 65
CERTAIN DIFFERENCES BETWEEN CALIFORNIA AND MINNESOTA CORPORATION LAW....................................... 66
Vote Required for Certain Mergers........................................................................ 66
Loans to Directors, Officers and Employees............................................................... 66
Preemptive Rights........................................................................................ 66
Dividends................................................................................................ 67
Rights of Dissenting Shareholders........................................................................ 67
Inspection of List of Shareholders....................................................................... 68
Business Combinations/Anti-Takeover Laws................................................................. 68
Indemnification and Limitation of Liability.............................................................. 69
Dissolution.............................................................................................. 71
LEGAL OPINION.............................................................................................. 71
EXPERTS.................................................................................................... 71
ANNEXES:
Annex A Cooperation Agreement
Annex B Opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
</TABLE>
3
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT/PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS AND THE ANNEXES
HERETO. HOLDERS OF UNIVERSAL COMMON STOCK ARE URGED TO READ THIS PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES HERETO IN THEIR ENTIRETY.
THE COMPANIES
99CENTS ONLY STORES. 99CENTS Only Stores is a leading deep-discount
retailer of primarily name-brand, consumable general merchandise at an
affordable, single price point of 99CENTS. The Company's stores offer a wide
assortment of regularly available consumer goods as well as a broad variety of
first-quality, close-out merchandise. In 1997, a majority of the Company's
product offerings were comprised of recognizable name-brand merchandise and were
regularly available for reorder. 99CENTS Only Stores provides customers
significant value on their everyday household needs and an exciting shopping
experience in customer-service-oriented stores which are attractively
merchandised, brightly lit and well-maintained. The Company believes that its
name-brand focus, along with a product mix emphasizing value-priced food and
beverage and other everyday household items, increases the frequency of consumer
visits and impulse purchases and reduces the Company's exposure to seasonality
and economic cycles. 99CENTS Only Stores believes its format appeals to
value-conscious customers in all socio-economic groups and results in a high
volume of sales. The Company's 55 existing 99CENTS Only Stores are located in
Southern California and have an average size of approximately 15,000 square
feet. The Company's 99CENTS Only Stores generated average net sales per
estimated saleable square foot of $354, which the Company believes is among the
highest in the deep-discount convenience store industry, and average net sales
per store of $3.8 million in 1997. 99CENTS Only Stores is a California
corporation with its principal executive offices at 4000 Union Pacific Avenue,
City of Commerce, California 90023. Its telephone number is (213) 980-8145.
UNIVERSAL. Universal, through its wholly-owned subsidiary, Only Deals Inc.,
owns and operates 44 retail stores in Minnesota and the surrounding upper
Midwest region and eight stores in Texas. Universal's retail operations sell
consumer goods in a variety of categories including food, health and beauty
aids, housewares, and many others. Universal owns approximately 41% of one of
its customers, Odd's-N-End's, Inc. ("Odd's-N-End's"), which operates 22 retail
stores in upstate New York. These stores are deep-discount retail stores
offering primarily close-out merchandise featuring a broad range of general
household items at multiple price points. Universal sells about one-half of the
items it offers for $1.00 or less. In 1997, Universal had consolidated net
sales, operating loss and net loss from continuing operations of $68.7 million,
$6.0 million and $7.4 million, respectively. Universal is a Minnesota
corporation with its principal executive offices at 5000 Winnetka Avenue North,
New Hope, Minnesota 55428. Its telephone number is (612) 533-1169.
RELATIONSHIP BETWEEN 99CENTS ONLY STORES AND UNIVERSAL; BACKGROUND OF THE
EXCHANGE OFFER
In November 1997, 99CENTS Only Stores acquired, pursuant to a stock purchase
agreement with Universal, 4,500,000 newly issued shares of Universal Common
Stock, or approximately 48% of all outstanding shares of Universal Common Stock.
Since that date, 99CENTS Only Stores has provided merchandise to Universal
which, as of March 31, 1998 approximated $1.4 million. After reviewing various
alternatives for its investment in Universal with its legal and financial
advisors, in February 1998, the Company announced its intention to acquire the
balance of the Universal and Odd's-N-End's shares not owned. The Company intends
to acquire the shares of Universal Common Stock pursuant to this Exchange Offer
of one share of 99 CENTS Only Stores Common Stock for each 16 outstanding shares
of Universal Common Stock which, if all shares (on a fully diluted basis) were
tendered, would result in the issuance of approximately 367,333 shares of
99 CENTS Only Stores Common
4
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Stock (the "Universal Exchange Consideration"). The Company intends to acquire
the balance of the
Odd's-N-End's shares in a merger for an aggregate consideration of approximately
$830,000 in cash. Universal currently has a note receivable due from
Odd's-N'End's which approximated $10.5 million at March 31, 1998. See
"BACKGROUND OF THE EXCHANGE OFFER AND RELATED MATTERS."
Although Houlihan Lokey Howard & Zukin Financial Advisors, Inc. ("Houlihan
Lokey") has advised 99CENTS Only Stores with respect to the Exchange Offer and
has delivered an opinion to the Board of Directors of 99CENTS Only Stores to the
effect that as of the date of such opinion, the Universal Exchange Consideration
to be furnished by 99CENTS Only Stores is fair to the holders of Universal
Common Stock (other than 99CENTS Only Stores) from a financial point of view,
due to the composition of the board of directors of Universal including three
designees of 99CENTS Only Stores and two designees of Universal, the Universal
board of directors has decided to remain neutral with respect to the Exchange
Offer and has not made a determination that the Exchange Offer is fair to or in
the best interests of Universal and its shareholders. However, Universal has
agreed to support the Exchange Offer. In addition, the Universal board of
directors recommends a vote for the approval of an amendment to the By-Laws of
Universal to provide that the Minnesota Control Share Acquisition Act will not
apply to Universal or its shareholders. See "--The Cooperation Agreement" and
"BACKGROUND OF THE EXCHANGE OFFER AND RELATED MATTERS--No Recommendation of the
Universal Board of Directors."
The Board of Directors of 99CENTS Only Stores has received the opinion of
Houlihan Lokey and has voted unanimously to approve the Exchange Offer. The
Board of Directors of 99 CENTS Only Stores recommends that shareholders of
Universal tender their shares of Universal Common Stock.
ADVANTAGES TO UNIVERSAL SHAREHOLDERS
SIGNIFICANT PREMIUM. The Exchange Offer provides shareholders of Universal
an opportunity to receive a significant premium for their shares of Universal
Common Stock. The Exchange Consideration, based on 99CENTS Only Stores' closing
prices on June 9, 1998, represents a % and % premium to the Universal
Common Stock's closing sales prices one day and one week, respectively, prior to
the date 99CENTS Only Stores announced the acquisition of its initial 48%
position in Universal in November 1997, and a 15.5% and 81.7% premium to the
Universal Common Stock's closing prices one day and one week, respectively,
prior to the date 99CENTS Only Stores announced its offer to acquire the
remaining outstanding shares of Universal in February 1998.
CONTINUED DISCOUNT RETAILER INVESTMENT OPPORTUNITY. If the Exchange Offer
is consummated, Universal's current operations will be combined with 99CENTS
Only Stores and the shareholders of Universal who tender will become
shareholders of 99CENTS Only Stores and will continue to participate in the
deep-discount retail and wholesale industry.
MANAGEMENT. As the nation's oldest one-price general merchandise chain,
99CENTS Only Stores has assembled a quality management team, which has been
stable and consistent over the last several years and has contributed
significantly to 99CENTS Only Stores' results.
SUPERIOR STOCK PERFORMANCE. Since its initial public offering in 1996,
99CENTS Only Stores has produced share price appreciation in excess of
Universal, although past stock price performance is not necessarily indicative
of likely future stock price performance.
RISKS OF FAILURE TO TENDER. By declining to exchange shares of Universal
Common Stock for 99CENTS Only Stores Common Stock, shareholders are assuming the
risk that the value of shares of Universal Common Stock may not appreciate
following the Exchange Offer. This risk may be intensified by the following
issues:
- Arthur Andersen LLP, Universal's independent public accountants, expressed
doubt about Universal's ability to continue as a going concern in its
audit opinion issued in March 1998.
- Universal has reported losses in each of the last eight fiscal quarters.
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- Universal's need for infusions of working capital to continue operations.
Although shareholders of Universal who tender their shares in the Exchange
Offer will receive a
premium for their shares of Universal Common Stock, there can be no assurance
that 99CENTS Only Stores' stock price will continue to outpace the growth in
Universal's stock price or that 99CENTS Only Stores' management team will remain
in place. An investment in 99CENTS Only Stores, while also in the deep-discount
retail industry, has risks not found in Universal: 99CENTS Only Stores is
limited by its single price point, and the location of all of its stores solely
in California adds risks not found in the upper Midwest region, upstate New York
or Texas. See "Risk Factors--Pending Acquisitions."
THE COOPERATION AGREEMENT
In connection with the Exchange Offer, 99CENTS Only Stores and Universal
entered into an agreement dated as of March 4, 1998 (the "Cooperation
Agreement"), a copy of which is attached hereto as Annex A. The Cooperation
Agreement provides that Universal will support the Exchange Offer and will
provide to 99CENTS Only Stores access to the books and records of Universal, as
well as to Universal's officers and directors for purposes of preparing filings
and completing due diligence. In addition Universal agreed to file a Schedule
14D-9 with respect to the Exchange Offer and agreed not to oppose the Exchange
Offer in the Schedule 14D-9. Universal also agreed to promptly furnish to
99CENTS Only Stores mailing labels, security position listings and any other
available listing or computer file containing the names and addresses of the
record holders of Universal Common Stock for purposes of mailing the Exchange
Offer Documents.
Promptly upon the purchase by 99CENTS Only Stores of shares of Universal
Common Stock pursuant to the Exchange Offer (provided that not less than
3,801,862 shares or approximately 37% of the outstanding shares (on a fully
diluted basis) of Universal Common Stock (other than shares owned by 99CENTS
Only Stores) are validly tendered and not withdrawn (the "Minimum Condition"))
and from time to time thereafter, 99CENTS Only Stores shall be entitled, subject
to compliance with Section 14(f) of the Exchange Act, to designate up to such
number of directors, rounded down to the next whole number (except where such
rounding down would cause 99CENTS Only Stores to not be entitled to designate at
least a majority of directors on the board, in which case, such number will be
rounded up) on the board of directors of Universal as will give 99CENTS Only
Stores representation on the board equal to the product of the number of
directors on the board (giving effect to the directors elected pursuant to this
sentence) multiplied by the percentage that the aggregate number of shares of
Universal Common Stock then beneficially owned by 99CENTS Only Stores and its
affiliates following such purchase bears to the total number of shares of
Universal Common Stock then outstanding. In the Cooperation Agreement, Universal
agreed to promptly take all actions necessary to cause 99CENTS Only Stores'
designees to be elected or appointed as directors of Universal, including
increasing the size of the Board or securing the resignations of incumbent
directors or both. 99CENTS Only Stores has named three of the five current
directors to the Board of Universal.
Universal further agreed to take all action necessary to either (a) amend
the Rights Agreement so that the Exchange Offer would not cause (i) the
occurrence of a "Distribution Date" (as such term is defined in the Rights
Agreement) or (ii) the common stock purchase rights issued pursuant to the
Rights Agreement becoming evidenced by, and transferable pursuant to,
certificates separate from the certificates representing the Universal Common
Stock or (b) redeem the rights before 99CENTS Only Stores becomes an "Acquiring
Person" pursuant to the terms of the Rights Agreement. The Rights Agreement was
amended as of April 20, 1998 to waive the application of the Rights Agreement to
the Exchange Offer. See "Agreements Relating to Exchange Offer--The Cooperation
Agreement."
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STOCKHOLDER SUPPORT AGREEMENTS
On February 24, 1998, 99CENTS Only Stores and each of Mark Ravich, Norman
Ravich and certain trusts for which Mark Ravich is the trustee (the "Principal
Stockholders") entered into separate Stockholder Support Agreements in which
each Principal Stockholder agreed to vote his shares of Universal Common Stock
(i) in favor of the Exchange Offer and (ii) in favor of any other matter deemed
necessary by 99CENTS Only Stores to effectuate the Exchange Offer or solicited
in connection with the Exchange Offer and considered and voted upon by the
shareholders of Universal. Mark Ravich is the former Chief Executive Officer and
both Mark Ravich and Norman Ravich are former members of the board of directors
of Universal. In addition, each shareholder executing a Stockholder Support
Agreement agreed to tender and sell all of its Universal Common Stock to 99CENTS
Only Stores pursuant to the terms of the Exchange Offer. Together the Principal
Stockholders owned, as of July 9, 1998 (the "Universal Record Date"), 994,092
shares of Universal Common Stock or approximately 10% of all shares of Universal
Common Stock outstanding.
In order to meet the Minimum Condition that approximately 37% of the
outstanding shares (on a fully diluted basis) of Universal Common Stock (other
than shares owned by 99CENTS Only Stores) be validly tendered and not withdrawn,
an aggregate of 2,807,770 shares (not including shares held by the Principal
Stockholders) must be tendered.
As of the date of this Proxy Statement/Prospectus, all executive officers
and directors of Universal, together with their respective affiliates, owned in
the aggregate 2,700 shares of Universal Common Stock. See "THE UNIVERSAL SPECIAL
MEETING."
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER. 99CENTS Only Stores is offering to exchange
one share of 99CENTS Only Stores Common Stock for each 16 outstanding shares of
Universal Common Stock. To be eligible to receive the Universal Exchange
Consideration, a holder of shares of Universal Common Stock must validly tender
for exchange such shares and not withdraw such shares on or prior to the
expiration date of the Exchange Offer set forth below. No fractional shares of
99CENTS Only Stores Common Stock will be distributed in connection with the
Exchange Offer. Holders of shares of Universal Common Stock who would otherwise
be entitled to receive a fractional share of 99CENTS Only Stores Common Stock
will be paid cash in lieu of such fraction. See "THE EXCHANGE OFFER--Terms of
the Exchange Offer; Expiration Date."
PURPOSE OF THE EXCHANGE OFFER. The purpose of the Exchange Offer is for
99CENTS Only Stores to acquire control of, and ultimately the entire common
equity interest in, Universal.
EXPIRATION DATE; EXTENSION AND AMENDMENT; TERMINATION. The Exchange Offer
will expire at 5:00 p.m., New York City time, on , 1998 (the
"Expiration Date"), unless the Exchange Offer is extended, in which case the
term "Expiration Date" shall mean the last date and time to which the Exchange
Offer is extended. 99CENTS Only Stores expressly reserves the right, in its sole
discretion, at any time or from time to time to (i) extend the period of time
during which the Exchange Offer is to remain open by giving oral or written
notice of such extension to the Exchange Agent, (ii) amend the Exchange Offer,
(iii) delay acceptance for exchange of, or exchange for, any shares of Universal
Common Stock and (iv) terminate the Exchange Offer. See "THE EXCHANGE
OFFER--Extension of Tender Period; Termination; Amendment."
CONDITIONS OF THE EXCHANGE OFFER. The Exchange Offer is subject to certain
conditions, including that (i) not less than approximately 37% of the
outstanding shares (on a fully diluted bases) of Universal Common Stock (other
than shares owned by 99 CENTS Only Stores) are validly tendered and not
withdrawn in the Exchange Offer and (ii) Universal shareholders approve an
amendment to the By-Laws of Universal to provide that the Minnesota Control
Share Acquisition Act will not apply to Universal or its shareholders.
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<PAGE>
If such conditions are not met, 99CENTS Only Stores may terminate the Exchange
Offer or waive such conditions and purchase those shares of Universal Common
Stock that have been validly tendered. If 99CENTS Only Stores acquires in the
Exchange Offer less than 37% of the outstanding shares (on a fully diluted
basis) of Universal Common Stock (other than shares owned by 99 CENTS Only
Stores), 99CENTS Only Stores may maintain its minority position or it may from
time to time purchase additional shares of Universal Common Stock or sell
Universal Common Stock, depending on its strategic objectives, market conditions
and other factors.
In order to meet the Minimum Condition to the consummation of the Exchange
Offer that approximately 37% of the outstanding shares (on a fully diluted
basis) of Universal Common Stock (other than shares owned by 99CENTS Only
Stores) be validly tendered and not withdrawn, an aggregate of 3,801,862 shares
must be tendered. See "THE EXCHANGE OFFER--Conditions of the Exchange Offer."
PROCEDURES FOR TENDERING. Holders of Universal Common Stock desiring to
accept the Exchange Offer must complete and sign the Letter of Transmittal in
accordance with the instructions contained therein and forward or hand deliver
it, together with any other required documents, to the Exchange Agent (as
defined below), either with the Universal Common Stock to be tendered or in
compliance with the specified procedures for guaranteed delivery of Universal
Common Stock. Certain financial institutions may also effect tenders by
book-entry transfer through The Depository Trust Company, the Midwest Securities
Trust Company and the Philadelphia Depository Trust Company (collectively the
"Book-Entry Transfer Facilities"). Holders of Universal Common Stock having such
Universal Common Stock registered in the name of a broker, dealer, commercial
bank, trust company or nominee are urged to contact such person promptly if they
wish to tender any Universal Common Stock. See "THE EXCHANGE OFFER-- Procedures
for Accepting the Exchange Offer and Tendering Shares."
WITHDRAWAL RIGHTS. Subject to the conditions set forth herein, tenders of
Universal Common Stock may be withdrawn at any time on or prior to the
Expiration Date. See "THE EXCHANGE OFFER-- Procedures for Accepting the Exchange
Offer and Tendering Shares--Withdrawal Rights."
DELIVERY OF UNIVERSAL EXCHANGE CONSIDERATION. Upon the terms and subject to
the conditions of the Exchange Offer, the acceptance for exchange, and the
exchange, of all outstanding Universal Common Stock validly tendered and not
theretofore withdrawn will be made as soon as practicable after the Expiration
Date. See "THE EXCHANGE OFFER--Exchange of Universal Common Stock."
EXCHANGE AGENT. American Stock Transfer & Trust Company has been appointed
exchange agent (the "Exchange Agent") in connection with the Exchange Offer. The
Letter of Transmittal (or a facsimile copy thereof) and certificates for
Universal Common Stock should be sent by each holder of Universal Common Stock
or such holder's broker, dealer, commercial bank or other nominee thereof to the
Exchange Agent at the addresses set forth on the back cover of this Proxy
Statement/Prospectus.
CONSEQUENCES TO NON-TENDERING HOLDERS OF UNIVERSAL COMMON STOCK. The rights
of non-tendering holders of Universal Common Stock will not be altered, impaired
or modified by the Exchange Offer. However, the purchase by 99CENTS Only Stores
of Universal Common Stock pursuant to the Exchange Offer will reduce the number
of holders of Universal Common Stock and the number of shares of Universal
Common Stock that might otherwise trade publicly and could adversely affect the
liquidity and market value of the remaining Universal Common Stock, if any, held
by the public. The Universal Common Stock is currently listed and quoted on the
Nasdaq National Market, which constitutes the principal trading market for the
Universal Common Stock. Depending on the number of shares of Universal Common
Stock purchased pursuant to the Exchange Offer, the Universal Common Stock may
no longer meet the requirements for continued listing on the Nasdaq National
Market and consequently may be delisted. Universal Common Stock is currently
registered under the Exchange Act. Depending on the number of shares of
Universal Common Stock purchased pursuant to the Exchange Offer, the Universal
Common Stock might become eligible for termination of registration under the
Exchange Act.
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<PAGE>
99CENTS Only Stores intends to seek termination of registration of the Universal
Common Stock under the Exchange Act as soon after the completion of the Exchange
Offer as the requirements for such termination are met. Such delisting and
termination could materially adversely affect the market for the Universal
Common Stock. In addition, depending on the number of shares of Universal Common
Stock tendered, the Universal Common Stock may no longer constitute "margin
securities" for purposes of the Federal Reserve Board's margin regulations, in
which event the Universal Common Stock could no longer be used as collateral for
margin loans made by brokers. Further, 99CENTS Only Stores does not currently
intend to merge Universal with 99CENTS Only Stores. Consequently, if the
Company's Exchange Offer is successful, shareholders of Universal who do not
tender may have to retain their investment indefinitely. 99CENTS Only Stores has
no current intention to pay dividends on the Universal Shares.
OWNERSHIP OF 99CENTS ONLY STORES COMMON STOCK AFTER THE TRANSACTION. After
giving effect to the Exchange Offer (assuming all of the Universal shareholders
tender) and assuming no exercise of any outstanding options, warrants or rights
entitling the holders thereof to receive 99CENTS Only Stores Common Stock, the
former holders of Universal Common Stock will own, in the aggregate,
approximately 1.6% of the outstanding 99CENTS Only Stores Common Stock, based on
the number of shares of 99CENTS Only Stores Common Stock outstanding as of March
31, 1998.
CONFLICTS OF INTEREST. Certain of Universal's directors and officers have
interests in the Exchange Offer that are in addition to, and potentially in
conflict with, the interests of the holders of Universal Common Stock.
Following the consummation of the Exchange Offer, 99CENTS Only Stores has
agreed to pay to Richard Ennen, the President of Universal, cash in an amount
equal to the difference between his option exercise price and the Universal
Exchange Consideration with respect to options to purchase 100,000 shares of
Universal Common Stock. In addition, 99CENTS Only Stores has agreed to convert
Mr. Ennen's remaining options to acquire Universal Common Stock into options to
acquire 9,375 shares of 99CENTS Only Stores Common Stock at an exercise price of
$40 per share and to grant Mr. Ennen an option to purchase 12,000 shares of
99CENTS Only Stores Common Stock at an exercise price equal to the closing
market price of 99CENTS Only Stores Common Stock on the date of closing of the
Exchange Offer.
Each of Mark Ravich, the former Chief Executive Officer and a former member
of the board of directors of Universal and Norman Ravich, a former board member
of the board of directors of Universal, entered into Consulting Agreements with
99CENTS Only Stores to provide advisory services in connection with the Exchange
Offer and to provide consulting services thereafter in exchange for which
99CENTS Only Stores granted to Mark Ravich an option to acquire 9,375 shares of
99CENTS Only Stores Common Stock at $40.00 per share and an option to acquire
15,000 shares of 99CENTS Only Stores Common Stock at $33.5625 per share and to
Norman Ravich an option to purchase 4,688 shares of 99CENTS Only Stores Common
Stock at $40.00 per share. See "BACKGROUND OF THE TRANSACTION AND RELATED
MATTERS--Conflicts of Interest."
NO RECOMMENDATION OF THE UNIVERSAL BOARD OF DIRECTORS. Although Houlihan
Lokey has delivered an opinion to 99CENTS Only Stores to the effect that as of
the date of such opinion the Universal Exchange Consideration to be furnished by
99CENTS Only Stores is fair to the holders of Universal Common Stock (other than
99CENTS Only Stores) from a financial point of view, due to the composition of
the board of Universal including three designees of 99CENTS Only Stores and two
designees of Universal, the Universal board of directors has decided to remain
neutral with respect to the Exchange Offer and has not made a determination that
the Exchange Offer is fair to or in the best interests of Universal and its
shareholders. The Universal board of directors does, however, recommend a vote
for the approval of an amendment to the By-Laws of Universal to provide that the
Minnesota Control Share Acquisition Act will not apply to Universal or its
shareholders. See --"The Cooperation Agreement," "BACKGROUND OF THE EXCHANGE
OFFER AND RELATED MATTERS--No Recommendation of the Universal Board of
Directors."
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OPINION OF FINANCIAL ADVISOR. Houlihan Lokey made an oral presentation on
February 16, 1998 to the Board of Directors of 99CENTS Only Stores (which
presentation was confirmed by an opinion delivered in writing to the 99CENTS
Only Stores Board of Directors) to the effect that, as of the date of such
opinion, the Universal Exchange Consideration to be received by the holders of
Universal Common Stock (other than 99CENTS Only Stores) is fair, from a
financial point of view, to such holders. A copy of the opinion of Houlihan
Lokey setting forth the assumptions made, the matters considered, the scope and
limitations of the review undertaken and the procedures followed by Houlihan
Lokey in rendering such opinion is attached to this Proxy Statement/Prospectus
as Annex B. Such opinion should be carefully read in its entirety by holders of
Universal Common Stock. See "BACKGROUND OF THE TRANSACTION AND RELATED
MATTERS--Opinion of the Financial Advisor."
ACCOUNTING TREATMENT OF EXCHANGE OFFER. Under applicable accounting
standards, the Exchange Offer will be treated as a purchase of Universal by
99CENTS Only Stores. See "ACCOUNTING TREATMENT."
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER. It is expected that
the Exchange Offer will be treated for federal income tax purposes as a tax-free
reorganization. In that event, no gain or loss should be recognized by holders
of Universal Common Stock upon the receipt of 99CENTS Only Stores Common Stock.
Holders of Universal Common Stock are strongly encouraged to consult their own
tax advisors regarding the tax consequences of the Exchange Offer. See "THE
EXCHANGE OFFER-- United States Federal Income Tax Consequences."
APPRAISAL RIGHTS. Holders of Universal Common Stock will not be entitled to
appraisal rights in connection with the Exchange Offer. See "THE UNIVERSAL
SPECIAL MEETING--Appraisal Rights."
LISTING. The 99CENTS Only Stores Common Stock is listed on the New York
Stock Exchange. Application has been made by 99CENTS Only Stores to list the
Universal Exchange Consideration on the New York Stock Exchange.
SPECIAL MEETING OF UNIVERSAL SHAREHOLDERS
Unless otherwise expressly provided in the Articles of Incorporation or
By-Laws approved by a corporation's shareholders, the Minnesota Control Share
Acquisition Act denies voting rights to shares of stock of a Minnesota
corporation acquired in a control share acquisition over thresholds of 20%,
33 1/3% and 50% of the corporation's voting power, unless the shareholders of
the corporation approve voting rights for the shares by (i) the affirmative vote
of the holders of a majority of all shares entitled to vote, and (ii) the
affirmative vote of the holders of a majority of all shares entitled to vote,
excluding "Interested Shares." "Interested Shares" consist of all shares of the
corporation's stock held by an "Acquiring Person," any officers of the
corporation and any directors of the corporation who are also employees of the
corporation. An "Acquiring Person" is any person that makes or proposes to make
an acquisition of beneficial ownership of shares of the corporation's stock that
would, when added to all other shares of stock of the corporation beneficially
owned by such person, entitle such person immediately after such acquisition to
exercise or direct the exercise of voting power over any of the percentage
thresholds referred to above. The Minnesota Control Share Acquisition Act
currently applies to Universal and its shareholders since neither Universal's
Articles of Incorporation nor By-Laws contain a provision electing to opt out of
the statute. Under the Minnesota Control Share Acquisition Act, 99CENTS Only
Stores currently owns 4,500,000 shares of Universal Common Stock acquired
directly from Universal in a transaction exempt from the Minnesota Control Share
Acquisition Act. However, unless Universal's Articles of Incorporation or
By-Laws are amended to opt out of the Minnesota Control Share Acquisition Act,
that Act would prevent 99CENTS Only Stores from voting the shares acquired in
the Exchange Offer without (i) the affirmative vote of the holders of a majority
of all shares entitled to vote, and (ii) the affirmative vote of the holders of
a majority of all shares entitled to vote, excluding "Interested Shares."
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A special meeting of shareholders of Universal will be held on August ,
1998 at 9:00 a.m. (local time) at the offices of Universal, 5000 Winnetka Avenue
North, New Hope, Minnesota 55428 (including any adjournments and postponements
thereof, the "Universal Special Meeting"). The purpose of the Universal Special
Meeting is to consider and vote upon a proposal to amend the By-Laws of
Universal to provide that the Minnesota Control Share Acquisition Act will not
apply to Universal or its shareholders. Only shareholders of record at the close
of business on the Universal Record Date will be entitled to notice of, and to
vote at, the Universal Special Meeting. 99CENTS Only Stores has no obligation to
consummate the Exchange Offer if Universal shareholders do not vote in favor of
the proposal to amend the By-Laws.
All shares of Universal Common Stock represented by properly executed
proxies received prior to or at the Universal Special Meeting, and not revoked,
will be voted in accordance with the instructions indicated on such proxies. The
approval of the amendment to the By-Laws requires the affirmative vote of a
majority of the shares of Common Stock of Universal present or represented and
voting on the matter at the Universal Special Meeting. Abstentions will be
deemed to be present or represented at the meeting and entitled to vote.
Accordingly, an abstention from voting by a shareholder has the same effect as a
vote "against" the matter. Broker non-votes will not be deemed to be present or
represented at the meeting and entitled to vote. Accordingly, broker non-votes
will be treated as neither a vote "for" nor a vote "against" the matter.
On February 24, 1998, 99CENTS Only Stores and each of the Principal
Stockholders entered into separate Stockholder Support Agreements in which each
Principal Stockholder agreed to vote his shares of Universal Common Stock (i) in
favor of the Exchange Offer and (ii) in favor of any other matter deemed
necessary by 99CENTS Only Stores to effectuate the Exchange Offer or solicited
in connection with the Exchange Offer and considered and voted upon by the
shareholders of Universal. Together the Principal Stockholders owned, as of the
Universal Record Date, 994,092 shares of Universal Common Stock or approximately
10% of shares of Universal Common Stock outstanding at such date.
As of the Universal Record Date, all executive officers and directors of
Universal, together with their respective affiliates, owned in the aggregate
2,700 shares of Universal Common Stock. See "THE UNIVERSAL SPECIAL MEETING."
As of the Universal Record Date, the total number of shares of Universal
Common Stock with respect to which an intent to vote in favor of the amendment
to the By-Laws has been expressed was 5,496,792 (including the shares owned by
99CENTS Only Stores), representing approximately 53% of the total number of
shares outstanding (on a fully diluted basis) as of such date.
RISK FACTORS
Holders of Universal Common Stock should consider certain risks relating to
an investment in 99CENTS Only Stores. See "RISK FACTORS."
REGULATORY APPROVALS
HSR APPROVAL. The Exchange Offer is reportable by 99CENTS Only Stores under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act"). A
Notification and Report Form under the HSR Act was filed on April 21, 1998 and
the waiting period under the HSR Act with respect to the Exchange Offer has
expired. See "THE EXCHANGE OFFER--Regulatory Approvals."
COMPARATIVE MARKET PRICE DATA AND DIVIDEND INFORMATION
The 99CENTS Only Stores Common Stock is traded on the New York Stock
Exchange ("NYSE") under the symbol "NDN." The Universal Common Stock is traded
on the Nasdaq National Market under the symbol "UNIV." The following table sets
forth, for the calendar periods indicated, the high and low closing prices per
share of 99CENTS Only Stores Common Stock and of Universal Common Stock, as
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reported by the New York Stock Exchange and Nasdaq National Market,
respectively. On March 31, 1998, there were approximately 3,900 holders of
record of 99CENTS Only Stores Common Stock and according to the Annual Report on
Form 10-K for the year ended December 31, 1997, as of March 17, 1998 there were
over 100 holders of record of the Universal Common Stock.
<TABLE>
<CAPTION>
99CENTS ONLY STORES
UNIVERSAL
COMMON STOCK COMMON STOCK
-------------------- --------------------
<S> <C> <C> <C> <C>
HIGH LOW HIGH LOW
--------- --------- --------- ---------
1996
First Quarter (1)........................................ $ -- $ -- $ 5.25 $ 3.38
Second Quarter (1)....................................... 12.70 10.91 5.13 4.38
Third Quarter............................................ 12.20 10.50 4.63 2.63
Fourth Quarter........................................... 13.91 10.70 2.88 1.63
1997
First Quarter............................................ $ 16.09 $ 12.80 $ 2.75 $ 1.13
Second Quarter........................................... 24.09 15.50 1.94 0.31
Third Quarter............................................ 27.59 21.60 1.00 0.50
Fourth Quarter........................................... 30.56 25.60 4.00 0.72
1998
First Quarter............................................ $ 39.50 $ 27.00 $ 2.75 $ 1.69
Second Quarter (through June 15, 1998)................... 43.31 33.94 2.56 2.00
</TABLE>
- ------------------------
(1) Trading in 99CENTS Only Stores Common Stock commenced on the New York Stock
Exchange on May 23, 1996. Prior to that time, there was no public market for
the 99CENTS Only Stores Common Stock. All 99CENTS Only Stores stock prices
have been restated to reflect a five-for-four stock split effected in the
form of a stock dividend which was paid on December 1, 1997.
The following table sets forth the closing market price per share of 99CENTS
Only Stores Common Stock on an historical basis and the market price per share
of Universal Common Stock on an historical and equivalent per share basis (i) on
February 13, 1998, the last trading day preceding public announcement of 99CENTS
Only Stores' proposal to acquire the balance of the Universal Common Stock not
already owned and (ii) on June 12, 1998, the last trading day preceding the date
of this Proxy Statement/ Prospectus. The historical market prices represent the
closing prices per share on such dates on the NYSE with respect to 99CENTS Only
Stores and on the Nasdaq National Market with respect to Universal. The
equivalent market prices per share represent the closing price per share of
99CENTS Only Stores Common Stock multiplied by 1/16.
<TABLE>
<CAPTION>
99CENTS
ONLY UNIVERSAL
STORES UNIVERSAL EQUIVALENT
DATE HISTORICAL HISTORICAL PER SHARE
- -------------------- ----------- ----------- -----------
<S> <C> <C> <C>
February 13, 1998... $ 33.56 $ 2.06 $ 2.10
June 12, 1998 $ 38.38 $ 2.25 $ 2.40
</TABLE>
Because the Universal Exchange Consideration is fixed and because the market
price of 99CENTS Only Stores Common Stock is subject to fluctuation, the market
value of the shares of 99CENTS Only Stores Common Stock that holders of
Universal Common Stock will receive in the Exchange Offer may increase or
decrease prior to and following the Exchange Offer. 99CENTS Only Stores has not
paid any cash dividends on the 99CENTS Only Stores Common Stock since its
initial public offering in May 1996. 99CENTS Only Stores anticipates that all of
its income in the foreseeable future will be retained for the development and
expansion of its business and therefore does not anticipate paying dividends on
the 99CENTS Only Stores Common Stock in the foreseeable future.
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Universal has not declared any cash dividends on the Universal Common Stock
within the past 10 years. Universal presently intends to continue to retain all
of its income in the foreseeable future for the development and expansion of its
business. In addition, dividends currently are prohibited by the terms of
Universal's revolving credit agreement. Universal, therefore, does not
anticipate paying dividends on the Universal Common Stock in the foreseeable
future.
HOLDERS OF UNIVERSAL COMMON STOCK ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR THE UNIVERSAL COMMON STOCK AND THE 99CENTS ONLY STORES COMMON
STOCK.
COMPARISON OF MINNESOTA AND CALIFORNIA LAW
One of the results of the Exchange Offer is that exchanging shareholders of
Universal, whose rights are governed by Minnesota law, will become shareholders
of 99CENTS Only Stores, whose rights are governed by California law. The
statutes and court decisions with respect to the rights of shareholders of
corporations incorporated under the laws of those two jurisdictions reflect
certain differences, including among others, differences in the available source
of dividends; redemption of shares; the exercise of appraisal rights; and the
votes required in order to authorize certain actions and corporate transactions.
See "COMPARISON OF RIGHTS OF SHAREHOLDERS OF 99CENTS ONLY STORES AND UNIVERSAL"
and "CERTAIN DIFFERENCES BETWEEN CALIFORNIA AND MINNESOTA CORPORATION LAW."
RECENT DEVELOPMENTS
Concurrently with the announcement that 99CENTS Only Stores proposed to
acquire Universal for the Universal Exchange Consideration, 99CENTS Only Stores
also announced a proposal to acquire 100% of an approximately 41% owned
subsidiary of Universal, Odd's-N-End's. 99CENTS Only Stores and Odd's-N-End's
entered into a definitive merger agreement with respect to the acquisition in
March 1998 pursuant to which 99CENTS Only Stores agreed to acquire the balance
of the Odd's-N-End's shares not owned by Universal for an aggregate
consideration of approximately $830,000 cash. Universal currently has a note
receivable due from Odd's-N-End's which approximated $10.5 million at March 31,
1998. 99CENTS Only Stores currently intends to complete the acquisition of
Odd's-N-End's immediately following consummation of the Exchange Offer. The
acquisition of Odd's-N-End's is subject to approval of the stockholders of
Odd's-N-End's, the ownership by 99CENTS Only Stores after the Exchange Offer of
more than 80% of the Universal Common Stock and other customary closing
conditions. On March 2, 1998, Universal executed a proxy giving 99CENTS Only
Stores the right to vote the shares of Odd's-N-End's held by Universal in favor
of the merger.
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RISK FACTORS
HOLDERS OF UNIVERSAL COMMON STOCK SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION CONTAINED HEREIN, BEFORE
TENDERING SHARES OF UNIVERSAL COMMON STOCK.
DEPENDENCE ON NEW STORE OPENINGS FOR FUTURE GROWTH
99CENTS Only Stores' future operating results will depend largely upon its
ability to open and operate new stores successfully and to manage a larger
business profitably. In 1995, 1996 and 1997, 99CENTS Only Stores opened four,
eight and ten stores, respectively (two, seven and ten stores, respectively, net
of relocated stores). During 1998, 99CENTS Only Stores has opened two stores
(including one relocation) and expects to open at least eleven additional stores
(including one relocation) in Southern California during the remainder of the
year, including its first store in San Diego County. The Company plans to open
new stores over the next several years at a rate of approximately 20% per annum.
The success of 99CENTS Only Stores' expansion strategy is dependent upon many
factors, including identifying suitable markets and sites for new stores,
negotiating leases with acceptable terms, refurbishing stores, appropriately
upgrading its financial and management information systems and controls and
managing its operating expenses. In addition, 99CENTS Only Stores must be able
to continue to hire, train, motivate and retain competent managers and store
personnel. Many of these factors are beyond 99CENTS Only Stores' control. As a
result, there can be no assurance that 99CENTS Only Stores will be able to
achieve its expansion goals. Any failure of 99CENTS Only Stores to achieve its
expansion goals on a timely basis, obtain acceptance in markets in which it
currently has limited or no presence, attract and retain qualified management
and other personnel, appropriately upgrade its financial and management
information systems and controls or manage operating expenses could adversely
affect 99CENTS Only Stores' future operating results and its ability to execute
its business strategy.
There can be no assurance that the opening of new stores will improve the
Company's results of operations. A variety of factors, including store location,
store size, rental terms, the level of store sales and the level of initial
advertising expenditures influence if and when a store becomes profitable.
Assuming 99CENTS Only Stores' planned expansion occurs as anticipated, 99CENTS
Only Stores' store base will include a relatively high proportion of stores with
relatively short operating histories. There can be no assurance that the new
stores will achieve the sales per saleable square foot and store-level operating
margins currently achieved at 99CENTS Only Stores' existing stores. If the new
stores on average fail to achieve these results, 99CENTS Only Stores' planned
expansion could produce a decrease in 99CENTS Only Stores' overall sales per
saleable square foot and store-level operating margins. Increases in the level
of advertising and pre-opening expenses associated with the opening of new
stores could also contribute to a decrease in 99CENTS Only Stores' operating
margins. Finally, the opening of new stores in existing markets has in the past
and may in the future reduce retail sales of existing stores in those markets,
negatively affecting comparable store sales.
PENDING ACQUISITIONS
The Company acquired approximately 48% of the capital stock of Universal in
November 1997. In February 1998, the Company announced a proposal to acquire, by
an exchange offer, all of the remaining issued and outstanding shares of
Universal not already held by the Company and to acquire all of the issued and
outstanding shares of Odd's-N-End's (the "Odd's-N-End's Merger"). In March 1998,
the Company and Odd's-N-End's (which is held approximately 41% by Universal)
entered into a definitive merger agreement. The Company is seeking to acquire
Universal and Odd's-N-End's with the expectation that the transactions will
enable the Company to provide a retail outlet for merchandise it acquires at
prices other than the Company's single price point, increase the Company's
distribution capabilities, diversify its geographic presence and to further
capitalize on greater volume discounts in merchandise purchases.
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<PAGE>
Achieving these anticipated benefits depends in part on the efficient,
effective and timely integration of the operations of Universal and
Odd's-N-End's with those of the Company. The combination of these businesses
requires, among other things, integration of the companies' management staffs,
coordination of the companies' sales and marketing efforts, integration and
coordination of the companies' purchasing departments and the identification and
elimination of redundant overhead and under-performing retail stores. Further,
the Company believes that the continued employment of Richard Ennen, President
and Chief Executive Officer of Universal and Odd's-N-End's, is integral to the
successful integration and operation of Universal and Odd's-N-End's following
consummation of the acquisitions. Both the Universal and Odd's-N-End's
acquisitions will require the Company to offer discount general merchandise at
multiple price points, a new strategy for the Company's retail business.
Further, the acquisitions of Universal and Odd's-N-End's expand the Company's
operations into geographic locations outside of Southern California. There can
be no assurance that the Company will be successful in these markets.
Full integration of these businesses will require considerable effort on the
part of the Company's management. During the integration period, it is
anticipated that the Company's accounting staff, operations personnel and other
staff will be required to dedicate considerable time toward integrating the
financial and information systems, management staffs and organizational cultures
of the three geographically separated organizations. There can be no assurance
that the Company will not experience problems associated with the integration or
the integration will proceed efficiently or successfully. Furthermore, even if
the operations of the three companies are ultimately successfully integrated, it
is anticipated that the integration will be accomplished over time and, in the
interim, the combination may have an adverse effect on the Company's business
and results of operations.
INABILITY TO MERGE WITH UNIVERSAL
Universal is a Minnesota corporation and is subject to the provisions of
Section 302A.673 of the Minnesota Business Corporation Act ("Section 673 of the
MBCA"). Section 673 of the MBCA provides, with certain exceptions, that a
Minnesota corporation which qualifies as an "issuing public corporation" may not
engage in any of a broad range of business combinations, including a merger,
with a person, or affiliate or associate of such person, who is an "interested
shareholder" for a period of four years from the date that person became an
interested shareholder unless the transaction resulting in the person becoming
an interested shareholder, or the business combination, is approved before the
person becomes an interested shareholder by a special committee of the board of
directors of the corporation consisting solely of disinterested directors. An
"interested shareholder" is defined as any person that is (a) the owner of 10%
or more of the outstanding voting stock of the corporation or (b) an affiliate
or associate of the corporation who was the owner of 10% or more of the
outstanding voting stock of the corporation at any time within the four-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested shareholder. An "issuing public
corporation" is defined as (i) a publicly held corporation that has at least 50
shareholders or (ii) any other corporation with at least 100 shareholders.
In November 1997, 99CENTS Only Stores became an interested shareholder of
Universal when it acquired shares representing 48% of the Universal Common
Stock. 99CENTS Only Stores' acquisition of the Universal Common Stock, while
unanimously approved by Universal's full board of directors, was not approved by
a separate committee of Universal's board of directors consisting solely of
disinterested directors. Accordingly, upon completion of the Exchange Offer, and
if Universal is still considered an "issuing public corporation", 99CENTS Only
Stores may be unable to acquire by way of merger or other form of business
combination any shares of Universal Common Stock that were not tendered to
99CENTS Only Stores in the Exchange Offer. As a result, 99CENTS Only Stores may
not be able to acquire 100% of the Universal Common Stock until November 2001.
Also, depending on the number of shares of Universal Common Stock acquired
pursuant to the Exchange Offer, the Universal Common Stock may no longer meet
the requirements for continued listing
15
<PAGE>
on the Nasdaq National Market and consequently may be delisted. Universal Common
Stock is currently registered under the Exchange Act. Depending on the number of
shares of Universal Common Stock purchased pursuant to the Exchange Offer, the
Universal Common Stock might become eligible for termination of registration
under the Exchange Act. 99CENTS Only Stores intends to seek termination of
registration of the Universal Common Stock under the Exchange Act as soon after
the completion of the Exchange Offer as the requirements for such termination
are met. Such delisting and termination could materially adversely affect the
market for the Universal Common Stock. In addition, depending on the number of
shares of Universal Common Stock tendered, the Universal Common Stock may no
longer constitute "margin securities" for purposes of the Federal Reserve
Board's margin regulations, in which event the Universal Common Stock could no
longer be used as collateral for margin loans made by brokers. Further, 99CENTS
Only Stores does not currently intend to merge Universal with 99CENTS Only
Stores. Consequently, if the Company's Exchange Offer is successful,
shareholders of Universal who do not tender may have to retain their investment
indefinitely. 99CENTS Only Stores has no current intention to pay dividends on
the Universal Common Stock.
CONCENTRATION OF OPERATIONS
All of the Company's 99CENTS Only Stores are currently located in Southern
California. In addition, the Company's current retail expansion plans anticipate
that new stores will be primarily located in this geographic region.
Consequently, the Company's results of operations and financial condition are
dependent upon general trends in this regional economy. Between 1989 and 1993 a
significant decline in retail spending was recorded in most counties of
California, particularly the greater Los Angeles region. Although retail markets
in this region began to recover and this recovery has continued from 1995
through 1997, there can be no assurance that this trend will continue or that
retail spending will not decline in the future. In addition, Southern California
historically has been vulnerable to certain natural disasters and other risks,
such as earthquakes, fires, floods and civil disturbance, which at times have
disrupted the local economy. These events pose physical risks to the Company's
properties and could adversely affect the Company's operations. The Company
maintains standard property and business interruption insurance, but does not
maintain earthquake insurance on its facilities and business.
Following the acquisitions of Universal and Odd's-N-End's, the Company will
have stores clustered in geographic regions in the upper Midwest, upstate New
York and Texas. The upper Midwest, upstate New York and Texas regions have
economic characteristics unique to their particular locale. In addition, unlike
Southern California, extreme winter weather conditions in the Midwest and New
York may cause decreases in retail spending during certain times of the year.
DISRUPTIONS IN RECEIVING AND DISTRIBUTION
Substantially all of 99CENTS Only Stores' inventory is shipped or picked up
directly from suppliers and delivered to 99CENTS Only Stores' single warehouse
and distribution facility in Los Angeles County, California, where inventory is
processed and distributed. 99CENTS Only Stores' success depends in large part on
the orderly operation of this receiving and distribution process, which depends,
in turn, on adherence to shipping schedules and effective management of the
warehouse operations. There can be no assurance that 99CENTS Only Stores' has
anticipated, or will anticipate, all of the changing demands its expanding
operations will impose on its receiving and distribution system or that events
beyond the control of 99CENTS Only Stores will not result in delays in the
delivery of merchandise to the warehouse or from the warehouse to the stores. In
addition, because 99CENTS Only Stores' receiving and distribution operations are
concentrated at a single location, a fire, earthquake or other disaster at its
warehouse and distribution facility could materially and adversely affect its
business and results of operations. Such a disaster could be particularly
damaging because much of the Company's inventory is purchased as close-outs and
special-situations and could not be readily replaced for its carrying value, if
at all. 99CENTS Only Stores does not maintain earthquake insurance on its
facilities and business.
16
<PAGE>
SUPPLIER RELATIONSHIPS; AVAILABILITY OF CLOSE-OUT AND SPECIAL-SITUATION
MERCHANDISE
99CENTS Only Stores' success depends in large part upon its ability to
locate and purchase quality close-out and special-situation merchandise at
attractive prices in order to maintain a mix of name-brand and other merchandise
at the 99CENTS price point. There can be no assurance that such merchandise will
continue to be available in the future. Further, there can be no assurance that
such merchandise will be available in quantities necessary to accommodate
99CENTS Only Stores' expansion strategy.
99CENTS Only Stores has no continuing contracts for the purchase of
merchandise and must continuously seek out buying opportunities from both its
existing suppliers and new sources, for which it competes with other
wholesalers, discount and deep-discount chains, mass merchandisers, food
markets, drug chains, club stores, other retailers and various small
privately-held companies and individuals. 99CENTS Only Stores' results of
operations could be adversely affected by a disruption in the availability of
merchandise. There can be no assurance that the Company will be successful in
maintaining an adequate supply of quality merchandise at attractive prices.
99CENTS Only Stores' suppliers sometimes restrict the advertising, promotion
and method of distribution of the merchandise sold to 99CENTS Only Stores. These
restrictions may make it more difficult for 99CENTS Only Stores to resell
quickly items in its inventory that are subject to such restrictions.
LARGE VOLUME PURCHASES; INVENTORY CONCENTRATION
99CENTS Only Stores takes advantage of large volume purchases, close-outs
and other special-situations in order to obtain inventory at favorable prices.
As a result, 99CENTS Only Stores typically maintains inventory at levels that
are generally higher than other discount retailers. At December 31, 1995, 1996
and 1997, 99CENTS Only Stores had net inventory recorded of $34.3 million, $36.9
million and $43.1 million, respectively.
99CENTS Only Stores periodically reviews the net realizable value of its
inventory and makes adjustments to its carrying value when appropriate. While
the current carrying value of 99CENTS Only Stores' inventory reflects
management's belief that 99CENTS Only Stores will realize the net values
recorded on 99CENTS Only Stores' balance sheet, there can be no assurance that
99CENTS Only Stores will be able to do so. A sale by 99CENTS Only Stores of any
material portion of its inventory at an amount less than its carrying value or a
determination to write down any material portion of 99CENTS Only Stores'
inventory will have a material adverse impact on 99CENTS Only Stores' cost of
sales, gross profits, operating income and net income during the period in which
such event or events occur.
UNIVERSAL'S HISTORY OF LOSSES AND ACCUMULATED DEFICIT; GOING CONCERN
Universal has incurred net losses in each of the last two fiscal years,
including net losses of approximately $11.9 million for the fiscal year ended
December 31, 1997, and at such date had an accumulated deficit of approximately
$18.6 million. Arthur Andersen LLP, Universal's independent public accountants,
expressed substantial doubt about Universal's ability to continue as a going
concern in their report for the fiscal year ended December 31, 1997. If the
Exchange Offer is not consummated, there is no assurance that Universal will
generate significant revenue or become profitable on a sustained basis, if at
all.
COMPETITION
99CENTS Only Stores faces competition in both the acquisition of inventory
and sale of merchandise from other wholesalers, discount and deep-discount
stores, single price point merchandisers, mass merchandisers, food markets, drug
chains, club stores and other retailers. Industry competitors also include a
large number of privately held companies and individuals. In some instances
these competitors are also
17
<PAGE>
customers of 99CENTS Only Stores' Bargain Wholesale division. There is
increasing competition with other wholesalers and retailers, including other
deep-discount retailers, for the purchase of quality close-out and other
special-situation merchandise. Some of these competitors have substantially
greater financial resources and buying power than 99CENTS Only Stores. 99CENTS
Only Stores' ability to compete will depend on many factors including the
success of its purchase and resale of such merchandise at lower prices than the
competition. 99CENTS Only Stores may face intense competition in the future from
new entrants in the
deep-discount retail industry, among others, that could have an adverse effect
on 99CENTS Only Stores' business and results of operations.
ADVERSE ECONOMIC FACTORS; CHANGE IN MINIMUM WAGE
99CENTS Only Stores' ability to provide quality merchandise at its 99CENTS
price point is subject to certain economic factors beyond 99CENTS Only Stores'
control, including inflation, other operating costs (such as employee health
care costs or prevailing wage levels), consumer confidence and general economic
conditions. There can be no assurance that such factors will remain favorable
or, in particular, that health care costs or 99CENTS Only Stores' wages will
remain at current levels. Currently, none of the Company's employees is party to
a collective bargaining agreement. The minimum wage in California was increased
in March 1997 from $4.75 to $5.00 per hour, in September 1997 to $5.15 per hour
and again in March 1998 to $5.75 per hour. Further, legislation has been
introduced in California to increase the minimum wage to $6.75 per hour as of
January 1, 1999. The federal minimum wage increased in September 1997 to $5.15
per hour and a bill has been proposed in Congress to increase the minimum wage
to $6.15 per hour on September 1, 1999, and to $6.65 per hour on September 1,
2000, with adjustments on such date and each September 1 thereafter to reflect
increases in the Consumer Price Index for All Urban Consumers during the most
recent 12-month period for which data are available. Significant increases in
health care costs, wages or other operating costs or a declining consumer
confidence or general economic conditions could have a material adverse effect
on the Company's business and results of operations, especially given
constraints on the Company's ability to pass on any incremental costs through
price increases.
POLITICAL AND ECONOMIC RISKS OF INTERNATIONAL SALES AND PURCHASES
International sales have historically not been material to 99CENTS Only
Stores' consolidated net sales, but they have contributed to growth in Bargain
Wholesale's net sales. In addition, some of the inventory purchased by 99CENTS
Only Stores is manufactured outside the United States. International
transactions may be subject to political and economic risks, including political
instability, currency controls, exchange rate fluctuations, and changes in
import/export regulations, tariff and freight rates. In addition, various forms
of protectionist trade legislation have been proposed in the United States and
certain other countries. Any resulting changes in current tariff structures or
other trade and monetary policies could adversely affect 99CENTS Only Stores'
international operations. Political and economic factors have been identified by
99CENTS Only Stores' with respect to certain of the markets in which it
competes. There can be no assurance that these factors will not result in the
reduction of purchases of 99CENTS Only Stores' products.
RISKS ASSOCIATED WITH OWNERSHIP OF PROPERTIES BY AFFILIATES
As of March 31, 1998, 99CENTS Only Stores leased 13 of its 55 store
locations and a parking lot associated with one of these stores from David Gold,
the Company's Chief Executive Officer, and certain other members of the Gold
family and their affiliates (together, the "Gold Family"). Annual rental expense
for the facilities owned by the Gold Family was approximately $1.6 million, $1.8
million and $2.0 million in 1995, 1996 and 1997, respectively. 99CENTS Only
Stores believes that these leases and contracts are no less favorable to 99CENTS
Only Stores than those an unrelated party would have provided after arm's-length
negotiations. It is the Company's current policy not to enter into real estate
transactions with
18
<PAGE>
affiliated parties, except with respect to the renewal or modification of
existing leases and occasions where such transactions are determined to be in
the best interests of 99CENTS Only Stores. Moreover, all real estate
transactions between 99CENTS Only Stores and affiliated parties require the
unanimous approval of the independent directors on 99CENTS Only Stores' 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 99CENTS Only Stores and the Gold
Family will be able to agree on renewal terms for the properties currently
leased by 99CENTS Only Stores from the Gold Family, or, if such terms are agreed
to, that the independent directors on the Board of Directors will approve such
terms. The failure of 99CENTS Only Stores to renew a lease will result in
99CENTS Only Stores having to relocate or close the store associated with such
lease; one or more such relocations or closures will be costly and may have a
material adverse effect on 99CENTS Only Stores' business and results of
operations.
DEPENDENCE ON KEY MANAGEMENT
99CENTS Only Stores' success will continue to depend to a significant extent
on David Gold, the Company's Chief Executive Officer. The Company is also
dependent on the continued service of its executive officers and other key
management, particularly Helen Pipkin, its Senior Vice President of Wholesale
Operations. 99CENTS Only Stores does not have an employment contract with any of
its executive officers and does not maintain "key man" life insurance on any of
its executive officers. There can be no assurance that 99CENTS Only Stores will
be able to retain its executive officers and key personnel or attract additional
qualified members to management in the future.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Historically, 99CENTS Only Stores' highest net sales and operating income
have occurred during the fourth quarter, which includes the Christmas and
Halloween selling seasons. During 1995, 1996 and 1997, approximately 29.3%,
28.8% and 29.2%, respectively, of 99CENTS Only Stores' net sales and
approximately 33.0%, 32.6% and 32.3%, respectively, of its operating income were
generated during the fourth quarter. Further, the operations of Universal and
Odd's-N-End's are more dependent upon results in the fourth quarter and even
without the acquisition of Universal, the Company's investment in Universal is
expected to further increase the impact of fourth quarter sales on the Company's
results of operations. Accordingly, any adverse trend in net sales for the
fourth quarter could have a material adverse effect upon 99CENTS Only Stores'
profitability and adversely affect 99CENTS Only Stores' results of operations
for the entire year.
In addition to seasonality, 99CENTS Only Stores' results of operations may
fluctuate from quarter to quarter as a result of the number and timing of sales
contributed by new stores, the level of advertising and pre-opening expenses
associated with the opening of new stores and the integration of new stores into
the operations of 99CENTS Only Stores, as well as other factors.
NEED TO UPDATE MANAGEMENT INFORMATION SYSTEMS; POTENTIAL INABILITY TO COMPLETE
YEAR 2000 PROJECT
The Company's business is currently supported by a standard accounting and
financial reporting system utilizing a PC-based local area network (LAN) and a
separate partially customized inventory control system processed on a
Hewlett-Packard RISC-based computer. The Company intends to continue to update
and enhance its systems in order to improve capabilities and provide for planned
growth. If the Company should experience faster than anticipated growth, the
Company may be required to install a new management information or inventory
control system or undergo a significant modification of its current systems to
accommodate a larger business.
The Company has completed an assessment of its existing software systems and
determined that it will be required to modify or replace portions of its
software so that its computer systems will function properly
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<PAGE>
with respect to dates in the year 2000 and thereafter. Although the year 2000
project is estimated to be completed in mid-1999 and the cost is not anticipated
to have a material effect on the Company's business, results of operations or
financial condition, there can be no assurance that the Company will not
encounter unanticipated problems in modifying its systems or that there will not
be delays in completing the project. Any difficulties in modifying its systems
could impact the Company's ability to communicate with and effectively make
purchases from its suppliers.
POTENTIAL LIABILITY FOR ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws and regulations, a
current or previous owner or occupant of real property may become liable for the
costs of removal or remediation of hazardous substances at such real property.
Such laws and regulations often impose liability without regard to fault.
99CENTS Only Stores currently leases all but three of its stores, as well as its
warehouse and distribution facility (where its executive offices are located).
The Company currently intends to exercise an option to purchase the warehouse
and distribution facility in December 2000, the end of the lease term. 99CENTS
Only Stores could be held liable for the costs of remedial actions with respect
to hazardous substances on such properties under the terms of the governing
lease and/or governing law. In addition, 99CENTS Only Stores operates one
underground diesel storage tank and one above-ground propane storage tank at its
warehouse and distribution facility. 99CENTS Only Stores has not been notified
of, and is not otherwise aware of, any current environmental liability, claim or
non-compliance; however, there can be no assurance that 99CENTS Only Stores will
not be required to incur remediation or other costs in the future in connection
with its leased properties or its storage tanks.
In the ordinary course of its business, 99CENTS Only Stores from time to
time handles or disposes of ordinary household products that are classified as
hazardous materials under various federal, state and local environmental laws
and regulations. 99CENTS Only Stores has adopted policies regarding the handling
and disposal of these products, and has implemented a training program for
employees on hazardous material handling and disposal. There can be no
assurance, however, that such policies or training will be successful in
assisting 99CENTS Only Stores in avoiding violations of environmental laws and
regulations relating to the handling and disposal of such products in the
future.
ANTI-TAKEOVER EFFECT; CONTROL BY EXISTING SHAREHOLDERS
A number of provisions of 99CENTS Only Stores' Articles of Incorporation and
Bylaws and certain California laws and regulations pertaining to matters of
corporate governance (including the ability to issue preferred stock without
shareholder approval) may be deemed to have and may have the effect of making
more difficult, and thereby discouraging, a merger, tender offer, proxy contest
or assumption of control and change of incumbent management, even when
shareholders other than 99CENTS Only Stores' principal shareholders consider
such a transaction to be in their best interest. Accordingly, shareholders may
be deprived of an opportunity to sell their shares at a substantial premium over
the market price of the shares.
As of June 1, 1998, David Gold, members of his immediate family and certain
of their respective affiliates beneficially owned 9,131,370 shares or
approximately 47.1% of the voting stock of 99CENTS Only Stores. This ownership
position enables these owners to control 99CENTS Only Stores' policies and to
prevent a change in control of 99CENTS Only Stores. If all of the Universal
shareholders were to exchange their Universal Common Stock (on a fully diluted
basis) for 99CENTS Only Stores Common Stock, the percentage of voting stock of
99CENTS Only Stores beneficially owned by David Gold, his family and their
affiliates would be reduced to 46.2%.
20
<PAGE>
VOLATILITY OF STOCK PRICE
The market price of 99CENTS Only Stores' Common Stock has risen
substantially since the Company's initial public offering on May 23, 1996.
Trading prices for the 99CENTS Only Stores' Common Stock could be subject to
significant fluctuations due to many factors, including the depth of the market
for the 99CENTS Only Stores Common Stock, investor perception of the Company,
fluctuations in the Company's operating results and changes in conditions or
trends in the Company's industry or in the industries of any of the Company's
significant clients, changes in any securities analysts' estimates of the
Company's future performance or general market conditions. In addition, future
sales of substantial amounts of Common Stock by existing shareholders could also
adversely affect the prevailing market price of the Common Stock. See
"SUMMARY--Comparative Market Price Data and Dividend Information."
LIMITED TRADING VOLUME
The purchase of Universal Common Stock by 99CENTS Only Stores pursuant to
the Exchange Offer will reduce the number of holders of Universal Common Stock
and the number of shares of Universal Common Stock that might otherwise trade
publicly and could adversely affect the liquidity and market value of the
remaining shares of Universal Common Stock held by the public. The Universal
Common Stock is currently traded on the Nasdaq National Market. Depending upon
the number of shares of Universal Common Stock purchased pursuant to the
Exchange Offer, the Universal Common Stock may no longer meet the requirements
for continued listing on the Nasdaq National Market and may be delisted and, in
such event, the market for and trading in Universal Common Stock could be
adversely affected. In addition, 99CENTS Only Stores intends to seek termination
of the registration of the Universal Common Stock under the Exchange Act as soon
after completion of the Exchange Offer as the requirements for such termination
are met. Such termination could have a material adverse effect on the market for
Universal Common Stock. See "THE EXCHANGE OFFER--Consequences to Non-tendering
Holders of Universal Common Stock."
INFLATION
The Company's ability to provide quality merchandise at the 99CENTS price
point is subject to certain economic factors which are beyond the Company's
control, including inflation. Inflation could have a material adverse effect on
the Company's business and results of operations, especially given the
constraints on the Company to pass on any incremental costs due to price
increases or other factors. The Company believes that it will be able to respond
to ordinary price increases resulting from inflationary pressures by adjusting
the number of items sold at the single price point (e.g., two items for 99CENTS
instead of three items for 99CENTS) and by changing its selection of
merchandise. Nevertheless, a sustained trend of significantly increased
inflationary pressure could require the Company to abandon its single price
point of 99CENTS per item, which could have a material adverse effect on the
Company's business and results of operations.
UNCERTAIN TAX CONSEQUENCES
99 CENTS Only Stores has received an opinion from its counsel that the
Exchange Offer will be treated for federal income tax purposes as a tax-free
reorganization with the result that no gain or loss will be recognized to
holders of Universal Common Stock upon the receipt of 99 CENTS Only Stores
Common Stock in exchange for Universal Common Stock. There are, nevertheless,
certain unresolved tax questions that may be important to holders of Universal
Common Stock depending upon their circumstance. See "United States Federal
Income Tax Consequences." Holders of Universal Common Stock are strongly
encouraged to consult their own tax advisors regarding the tax consequences of
the Exchange Offer.
21
<PAGE>
ADDITIONAL REGULATORY APPROVALS
Based upon its examination of publicly available information with respect to
Universal and the review of certain information furnished by Universal to
99CENTS Only Stores and discussions of representatives of 99CENTS Only Stores
with representatives of Universal during 99CENTS Only Stores' investigation of
Universal, 99CENTS Only Stores is not aware of any license or other regulatory
permit that appears to be material to the business of Universal and its
subsidiaries, taken as a whole, which might be adversely affected by the
acquisition of shares by 99CENTS Only Stores pursuant to the Exchange Offer, or,
except for approvals which 99CENTS Only Stores has already applied for, of any
approval or other action by any domestic (federal or state) or foreign
governmental, administrative or regulatory authority or agency which would be
required prior to the acquisition of shares by 99CENTS Only Stores pursuant to
the Exchange Offer. Should any such approval or other action be required, it is
99CENTS Only Stores' present intention to seek such approval or action. 99CENTS
Only Stores does not currently intend, however, to delay the purchase of shares
tendered pursuant to the Exchange Offer pending the outcome of any such action
or the receipt of any such approval (subject to 99CENTS Only Stores' right to
decline to purchase shares if the conditions relating to the HSR Act or any of
the other conditions in "THE EXCHANGE OFFER-- Conditions to the Exchange Offer"
shall have occurred). There can be no assurance that any such approval or other
action, if needed, would be obtained without substantial conditions or that
adverse consequences might not result to the business of Universal or 99CENTS
Only Stores or that certain parts of the businesses of Universal or 99CENTS Only
Stores might not have to be disposed of or held separate or other substantial
conditions complied with in order to obtain such approval or other action or in
the event that such approval was not obtained or such other action was not
taken.
EFFECT OF OTHER ANTI-TAKEOVER LAWS
99CENTS Only Stores does not believe that any state takeover laws, other
than Section 673 of the MBCA, the Minnesota Control Share Acquisition Act,
Chapter 80B of the Minnesota Business Corporation Act ("Chapter 80B") and
Section 675 of the Minnesota Business Corporation Act ("Section 675 of the
MBCA"), apply to the Exchange Offer and it has not complied with any other state
takeover laws. If 99CENTS Only Stores becomes aware of any valid state statute
prohibiting the making of the Exchange Offer or the acceptance of shares
pursuant thereto, 99CENTS Only Stores will make a good faith effort to comply
with such statute. If, after such good faith effort, 99CENTS Only Stores cannot
comply with such state statute, the Exchange Offer will not be made to (nor will
tenders be accepted from or on behalf of) the holders of shares of Universal
Common Stock in such state. See "THE EXCHANGE OFFER-- Conditions of the Exchange
Offer" and "CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS--State Takeover
Laws."
Universal, directly or through subsidiaries, conducts business in a number
of states throughout the United States in addition to Minnesota, some of which
have also enacted takeover laws. 99CENTS Only Stores does not know whether any
of the laws of these states will, by their terms, apply to the Exchange Offer
and has not complied with any such laws. Should any person seek to apply any
state takeover law in addition to those of Minnesota, 99CENTS Only Stores will
take such action as then appears desirable, which may include challenging the
validity or applicability of any such statute in appropriate court proceedings.
In the event it is asserted that one or more state takeover laws is applicable
to the Exchange Offer, and an appropriate court does not determine that it is
inapplicable or invalid as applied to the Exchange Offer, 99CENTS Only Stores
might be required to file certain information with, or receive approvals from,
the relevant state authorities. In addition, if enjoined, 99CENTS Only Stores
might be unable to accept for payment any shares tendered pursuant to the
Exchange Offer, or be delayed in continuing or consummating the Exchange Offer.
In such case, 99CENTS Only Stores may not be obligated to accept for payment any
shares tendered. See "THE EXCHANGE OFFER--Conditions of the Exchange Offer" and
"CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS--State Takeover Laws."
22
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth historical per share data for 99CENTS Only
Stores and Universal, unaudited pro forma per share data for 99CENTS Only Stores
giving effect to the Exchange Offer and equivalent unaudited pro forma per share
data for Universal. The information presented should be read in conjunction with
the historical financial statements and notes thereto of 99CENTS Only Stores
incorporated by reference into this Proxy Statement/Prospectus and the
historical financial statements and related notes thereto of Universal and the
unaudited pro forma condensed combined financial information and related notes
thereto included in this Proxy Statement/Prospectus. Pro forma and equivalent
pro forma per share data reflect the combined results of 99CENTS Only Stores and
Universal, after giving effect to the Exchange Offer as if it had occurred on
March 31, 1998, in the case of book value data, and on January 1, 1997, for the
twelve months ended December 31, 1997 and for the three months ended March 31,
1998 in the case of statements of operations data. The pro forma per share data
is not necessarily indicative of actual results had the Exchange Offer occurred
on such dates or of future expected results. See "INCORPORATION OF DOCUMENTS BY
REFERENCE" and "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
HISTORICAL
------------------------
99 CENTS
ONLY PRO FORMA EQUIVALENT
YEAR ENDED DECEMBER 31, 1997 STORES UNIVERSAL COMBINED PRO FORMA
- ------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income (loss) per common share from continuing operations--Basic... $ 1.02 $ (1.35) $ 0.78 $ 0.05
Income (loss) per common share from continuing
operations--Diluted.............................................. $ 1.01 $ (1.35) $ 0.77 $ 0.05
Cash dividends declared per common share........................... -- -- -- --
THREE MONTHS ENDED MARCH 31, 1998
- -------------------------------------------------------------------
Income (loss) per common share from continuing operations--Basic... $ 0.24 $ (0.17) $ 0.23 $ 0.01
Income (loss) per common share from continuing
operations--Diluted.............................................. $ 0.24 $ (0.17) $ 0.23 $ 0.01
Cash dividends declared per common share........................... -- -- -- --
Book value per common share at period end.......................... $ 5.43 $ 0.73 $ 5.91 $ 0.37
</TABLE>
23
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following information sets forth the Unaudited Pro Forma Condensed
Combined Statements of Operations for the three months ended March 31, 1998 and
for the year ended December 31, 1997, which gives effect to the acquisitions of
Universal and Odd's-N-End's, which is included in Universal's historical
financial statements, as if they had occurred on January 1, 1997. The Unaudited
Pro Forma Condensed Combined Balance Sheet as of March 31, 1998 gives effect to
the acquisitions as if they had occurred on March 31, 1998.
The historical balances represent the financial position and results of
operations for each company and were derived from the respective financial
statements filed with the Securities and Exchange Commission for the indicated
period. The historical results of Universal for the year ended December 31, 1997
are for continuing results of operations and exclude losses on discontinued
operations of approximately $4.5 million. The acquisitions will be accounted for
as purchase transactions. The estimated total purchase price plus transaction
costs will be allocated to the fair value of the assets and liabilities
acquired. The excess of the purchase price over the fair value of net assets
acquired will be allocated to goodwill and as such amortized on a straightline
basis over a 30-year period. The preliminary amount allocated to goodwill is
estimated to be $8.2 million (resulting from both the Company's initial purchase
of 48% of Universal in November 1997 and the Exchange Offer). Pro forma
adjustments for Universal and Odd's-N-End's include elimination of the accounts
of Odd's-N-End's which have been included in the Universal financial statements.
The pro forma financial information presented does not purport to be
indicative of the financial position or operating results which would have been
achieved had the transactions described above taken place at the dates indicated
and are not necessarily indicative of the Company's financial position or
results of operations for any future date or period.
24
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
--------------------------------------------------
HISTORICAL
------------------------ PRO FORMA
99CENTS ------------------------
ONLY STORES UNIVERSAL ADJUSTMENT COMBINED
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Sales:
Retail........................................................... $ 51,482 $ 15,501 -- $ 66,983
Wholesale........................................................ 11,400 -- -- 11,400
----------- ----------- ----------- -----------
Total.......................................................... 62,882 15,501 -- 78,383
Cost of sales...................................................... 39,839 8,586 -- 48,425
----------- ----------- ----------- -----------
Gross profit....................................................... 23,043 6,915 29,958
Selling, general and administrative expenses....................... 14,424 8,123 68(a) 22,615
----------- ----------- ----------- -----------
Operating income (loss).......................................... 8,619 (1,208) (68) 7,343
Other (income) expense:
Equity loss in minority interest................................. 742 -- (742)(b) --
Interest income.................................................. (404) -- 195(c) (209)
Interest expense................................................. 189 345 (345)(c) 189
----------- ----------- ----------- -----------
527 345 (892) (20)
----------- ----------- ----------- -----------
Income (loss) before provision for income taxes.................. 8,092 (1,553) 824 7,363
Provision for income taxes:........................................ 3,551 -- (561)(d) 2,990
----------- ----------- ----------- -----------
Net income (loss).................................................. $ 4,541 $ (1,553) $ 1,385 $ 4,373
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per common share:
Basic............................................................ $ 0.24 $ (0.17) -- $ 0.23
Diluted.......................................................... $ 0.24 $ (0.17) -- $ 0.23
Weighted average number of common shares outstanding:
Basic............................................................ 18,582 9,393 367(e) 18,949
Diluted.......................................................... 18,964 9,393 367(e) 19,331
</TABLE>
- ------------------------
(a) Represents the amortization of estimated goodwill over a 30-year period.
(b) Represents the elimination of the equity loss in minority interest in
Odd's-N-End's.
(c) Represents the elimination of Universal's interest expense based on the
Company paying off all of Universal's debt with excess cash and the
reduction in the interest income of the Company as a result of using cash
that would otherwise be invested in marketable securities. The Company
historically has not had outside borrowings as part of its normal business
practices.
(d) Represents the net tax effect of the pro forma adjustments and Universal's
loss from continuing operations.
(e) Represents the estimated number of 99CENTS Only Stores shares to be issued
to acquire the remaining 52% ownership of Universal and all outstanding
options to acquire Universal Common Stock.
25
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------
HISTORICAL
--------------------------- PRO FORMA
99CENTS ONLY -----------------------
STORES UNIVERSAL ADJUSTMENT COMBINED
-------------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Sales:
Retail............................................... $ 186,024 $ 68,705 $ -- $ 254,729
Wholesale............................................ 44,831 -- -- 44,831
-------------- ----------- ----------- ----------
Total.............................................. 230,855 68,705 -- 299,560
Cost of sales.......................................... 146,797 39,229 -- 186,026
-------------- ----------- ----------- ----------
Gross profit........................................... 84,058 29,476 -- 113,534
Selling, general and administrative expenses........... 52,839 35,483 272(a) 88,594
-------------- ----------- ----------- ----------
Operating income (loss)(f)........................... 31,219 (6,007) (272) 24,940
-------------- ----------- ----------- ----------
Other (income) expense:
Interest income...................................... (1,613) (27) 693(b) (947)
Interest expense..................................... 758 1,399 (1,399)(b) 758
-------------- ----------- ----------- ----------
(855) 1,372 (706) (189)
-------------- ----------- ----------- ----------
Income (loss) before provision for income taxes(f)... 32,074 (7,379) 434 25,129
Provision for income taxes:............................ 13,124 -- (2,729)(c) 10,395
-------------- ----------- ----------- ----------
Net income (loss)(f)................................... $ 18,950 $ (7,379)(e) $ 3,163 $ 14,734
-------------- ----------- ----------- ----------
-------------- ----------- ----------- ----------
Earnings per common share:
Basic................................................ $ 1.02 $ (1.35)(e) $ 0.78
Diluted.............................................. 1.01 (1.35)(e) 0.77
Weighted average number of common shares outstanding:
Basic................................................ 18,542 5,456(e) 367(d) 18,909
Diluted.............................................. 18,756 5,456(e) 367(d) 19,123
</TABLE>
- ------------------------
(a) Represents the amortization of estimated goodwill over a 30-year period.
(b) Represents the elimination of Universal's interest expense based on the
Company paying off all of Universal's debt with excess cash and the
reduction in the interest income of the Company as a result of using cash
that would otherwise be invested in marketable securities. The Company
historically has not had outside borrowings as part of its normal business
practices.
(c) Represents the net tax effect of the pro forma adjustments and Universal's
loss from continuing operations.
(d) Represents the estimated number of 99CENTS Only Stores shares to be issued
to acquire the remaining 52% ownership of Universal and all outstanding
options to acquire Universal Common Stock.
(e) Represent loss and loss per common share from continuing operations.
(f) The accompanying Pro Forma Condensed Combined Statements of Operations do
not give effect to certain other efficiencies and synergies available by
operating on a cooperative basis which include economies of scale in
purchasing, freight, retail expenses, insurance, marketing, advertising,
human resources and administration. Management estimates that, had the
companies been combined, the
26
<PAGE>
cost savings during the year following the acquisition would have been
approximately $5.0 million. However, there can be no assurances that all of
these savings could, or would, be realized.
27
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------------------
HISTORICAL
--------------------------- PRO FORMA
99CENTS ONLY -----------------------
STORES UNIVERSAL ADJUSTMENT COMBINED
-------------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash....................................................... $ 2,338 $ 885 $ (830)(a) $ 2,393
Short-term investments..................................... 33,084 -- -- 33,084
Accounts receivable, net................................... 2,718 416 -- 3,134
Inventory.................................................. 43,598 22,099 (292)(b) 65,405
Other current assets....................................... 2,155 927 -- 3,082
-------------- ----------- ----------- ----------
Total current assets..................................... 83,893 24,327 (1,122) 107,098
Property and equipment, net................................ 30,735 8,351 -- 39,086
Deferred taxes............................................. 5,947 -- -- 5,947
Investment in Universal International, Inc................. 2,594 -- (2,594)(c) --
Goodwill................................................... (4,234)(c) 8,151
11,013(a)
830(a)
250(d)
292(b)
Other assets............................................... 3,181 134 -- 3,315
-------------- ----------- ----------- ----------
$ 126,350 $ 32,812 $ 4,435 $ 163,597
-------------- ----------- ----------- ----------
-------------- ----------- ----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving line of credit................................... $ -- $ 11,573 $ -- $ 11,573
Current portion of long term debt.......................... -- 637 -- 637
Current portion of capital lease obligation................ 716 -- -- 716
Accounts payable........................................... 6,639 8,018 250(d) 14,907
Accrued expenses........................................... 6,547 4,361 -- 10,908
-------------- ----------- ----------- ----------
Total current liabilities................................ 13,902 24,589 250 38,741
Long Term Liabilities:
Long term debt, net........................................ -- 1,368 -- 1,368
Capital lease obligation................................... 7,821 -- -- 7,821
Interest on capital lease obligation....................... 2,224 -- -- 2,224
Deferred rent.............................................. 1,494 -- -- 1,494
Deferred taxes............................................. -- 27 -- 27
-------------- ----------- ----------- ----------
Total long term liabilities.............................. 11,539 1,395 -- 12,934
Shareholders' Equity:
Common Stock, 40,000,000 authorized, 18,587,841
outstanding.............................................. 66,267 470 11,013(a) 77,280
(470)(c)
Additional paid-in-capital................................. -- 26,692 (26,692)(c) --
Retained earnings (deficit)................................ 34,642 (20,334) 20,334(c) 34,642
-------------- ----------- ----------- ----------
Total shareholders equity................................ 100,909 6,828 4,185 111,922
-------------- ----------- ----------- ----------
$ 126,350 $ 32,812 $ 4,435 $ 163,597
-------------- ----------- ----------- ----------
-------------- ----------- ----------- ----------
</TABLE>
- ------------------------
(a) Represents the issuance of approximately 367,333 shares of the Company's
Common Stock for the
28
<PAGE>
52% of Universal not owned by the Company and all outstanding options to
acquire Universal Common Stock, and payment of $830,000 for the remaining
2.8 million Odd's-N-End's shares not held by Universal. Odd's-N-End's is
included in the consolidated historical balances of Universal.
(b) Represents the required reduction in inventory due to the elimination of
intercompany profit recorded in inventory shipped to Universal by the
Company as part of the initial acquisition of 48% of Universal stock.
(c) To record goodwill associated with the excess of the aggregate purchase
price for 100% of Universal and Odd's-N-End's (including the original $3.7
million investment for 48% of Universal, the estimated purchase price of
$11.0 million of Company Common Stock for the remaining 52% of Universal
common stock and the payment of $830,000 for the remaining 2.8 million
shares of Odd's-N-End's) over the net asset value of Universal (net of the
required adjustment to eliminate intercompany profit in inventory as
described in (b) above) and the elimination of additional paid in capital
and related retained deficit of Universal and the original investment in
Universal as if the transaction had occurred at March 31, 1998 at the Common
Stock price as set forth on the cover of this Prospectus.
(d) Represents the transaction costs associated with the Exchange Offer,
primarily professional fees for legal and accounting services.
29
<PAGE>
BACKGROUND OF THE EXCHANGE OFFER AND RELATED MATTERS
RELATIONSHIP BETWEEN 99CENTS ONLY STORES AND UNIVERSAL
In January 1997, Mark Ravich, the former Chief Executive Officer of
Universal, and his father, Norman Ravich, met with David Gold, Chairman and
Chief Executive Officer of 99CENTS Only Stores. Following the meeting, Mark
Ravich sent a letter to David Gold dated January 20, 1997 about the possibility
of a relationship between Universal and 99CENTS Only Stores. Mark Ravich
expressed in the letter Universal's need for access to additional capital and
additional sources of product. No substantive discussions regarding a possible
transaction between the parties occurred until June 1997.
In early June 1997, Eric Schiffer, Senior Vice President of Finance and
Operations of 99CENTS Only Stores met with Mark Ravich to discuss a potential
business relationship. Following that meeting, Mark Ravich, by letter dated June
30, 1997, proposed another possible transaction for the two companies which
would require a smaller investment by 99CENTS Only Stores in Universal, with
certain board representation and a supply agreement between 99CENTS Only Stores
and Universal. Mark Ravich explained in the letter that Universal needed
approximately $3 million to enable it to open new stores and improve the mix of
merchandise in its stores. Mark Ravich proposed that 99CENTS Only Stores acquire
19.9% of the common stock of Universal and become a supplier of dollar
merchandise to the Universal stores.
Discussions continued to evolve throughout the summer, and by letter dated
August 15, 1997 Mark Ravich provided further information about Universal to
99CENTS Only Stores for a potentially larger investment. Mark Ravich expressed
in the letter Universal's determination that in order to assure itself of
uninterrupted product flow through the holiday season, it would need to reach
agreement with a potential investor quickly.
Conversations continued through the early fall and in early October Mark
Ravich contacted David Gold to propose that 99CENTS Only Stores make a $5
million investment in Universal for approximately 48% of Universal's outstanding
Common Stock. In response to this proposal, David Gold and Sherry Gold, Bargain
Wholesale's cash and carry operations manager, visited Universal's offices in
Minnesota to meet with Mark Ravich and other key members of management.
Following this visit, later in October during a telephone conference call,
99CENTS Only Stores proposed an investment of $4,000,000 for approximately 48%
of the Common Stock of Universal. Universal accepted the proposal subject to
negotiation of definitive agreements. Following the conference call, 99CENTS
Only Stores conducted a due diligence investigation of Universal.
On October 15, 1997, at a special meeting, the Board of 99CENTS Only Stores
met to discuss the proposed investment in Universal. Following a review of the
status of discussions regarding the potential transaction with Universal, and
after consulting 99CENTS Only Stores' legal advisors, and learning the results
of the due diligence investigation, it was the consensus of the Board of 99CENTS
Only Stores that management should try to negotiate an acceptable stock purchase
agreement with Universal.
On October 21, 1997, a draft of the Stock Purchase Agreement was circulated
by 99CENTS Only Stores to Universal, and thereafter, Universal and 99CENTS Only
Stores and their respective legal advisors negotiated the terms of the Stock
Purchase Agreement. The parties continued their due diligence reviews.
Also on October 21, 1997, the Board of Directors of 99CENTS Only Stores held
a regular meeting at which the progress of the Universal transaction was
generally discussed.
On November 3, 1997, the Board of 99CENTS Only Stores held a special meeting
to review the status of negotiations. After discussing the results of the due
diligence investigation, the price for the Universal Common Stock and the draft
Stock Purchase Agreement, the Board authorized management to enter into the
Stock Purchase Agreement.
On November 11, 1997, 99CENTS Only Stores and Universal executed the Stock
Purchase Agreement and on November 17, 1997, 99CENTS Only Stores consummated the
acquisition (the "November 17
30
<PAGE>
Acquisition") of 4,500,000 shares of Universal Common Stock from Universal for a
purchase price of $4,000,000, comprised of $2,000,000 in cash and $2,000,000
evidenced by a credit established on the books and records of 99CENTS Only
Stores against which Universal could apply the purchase price of merchandise
purchased by Universal from 99CENTS Only Stores at 99CENTS Only Stores customary
wholesale prices or as otherwise mutually agreed. As part of the November 17
Acquisition, Universal granted 99CENTS Only Stores certain registration rights
with respect to the 4,500,000 shares of Universal Common Stock.
In addition, Universal, 99CENTS Only Stores and Mark Ravich entered into a
Shareholders Agreement (the "Shareholders Agreement") providing that as long as
99CENTS Only Stores owns at least 20% of the shares acquired in the November 17
Acquisition, Universal would nominate and recommend to its shareholders that
they elect designees of 99CENTS Only Stores to the board of directors of
Universal in such number that at all times 99CENTS Only Stores' designees
constitute at least one member less than a majority of the members of the board
of directors of Universal. As long as Mark Ravich owns at least 4% of the
outstanding shares of Universal Common Stock and consents to serving, Universal
agreed to nominate and recommend to its shareholders that they elect Mark Ravich
to the board of directors of Universal. Mark Ravich agreed to vote his shares of
Universal Common Stock in favor of electing the nominees of 99CENTS Only Stores
to the board of directors of Universal and 99CENTS Only Stores agreed to vote
its shares of Universal Common Stock in favor of electing Mark Ravich to the
board of directors of Universal. In addition, Mark Ravich agreed, subject to
certain conditions, if requested by 99CENTS Only Stores, to serve as a director
of Universal for at least two additional years following the November 17
Acquisition.
DISCUSSIONS REGARDING THE EXCHANGE OFFER
Since the November 17 Acquisition, 99CENTS Only Stores has provided
merchandise to Universal above the initial $2 million merchandise credit which,
as of March 31, 1998, approximated $1.4 million. In January 1998, the Board of
99CENTS Only Stores began reviewing its ownership interest in Universal.
Throughout January, management of 99CENTS Only Stores discussed with Universal
the needs of Universal and its options with respect to its investment in
Universal. The Board of Directors and management of 99CENTS Only Stores
continued to evaluate alternatives with respect to the Universal Common Stock,
including an acquisition of Universal, a sale of Universal or, possibly, a
bankruptcy of Universal.
Also during the course of January, management of 99CENTS Only Stores began
working with management of Universal to implement new purchasing procedures and
a new merchandising program that places greater emphasis on consumables and
focuses on attractive, convenient store layouts. On January 31, 1998, at a
regular meeting with the board of directors of Universal at which Jeff Gold,
Howard Gold and Andy Farina, as 99CENTS Only Stores's designees, were present,
Richard Ennen reported that the initial results of the remerchandising program
were very positive. Also at this meeting, Mark Ravich resigned as Chief
Executive Officer to become Chairman of the Board and Richard Ennen was
appointed Chief Executive Officer.
In February 1998, the Board of Directors of 99CENTS Only Stores contacted
its legal and financial advisors for assistance in analyzing methods for
protecting 99CENTS Only Stores' level of ownership of Universal.
On February 3, 1998, at a regular meeting of the Board of 99CENTS Only
Stores, Andy Farina and David Gold reported to the Board on the results of the
Universal board meeting, after which there was substantial discussion. Mr.
Marvin Holen, a member of the Board of 99CENTS Only Stores, raised the
possibility of an acquisition of 100% of the remaining outstanding shares of
Universal through an exchange or tender offer of shares of 99CENTS Only Stores
Common Stock for Universal Common Stock. There was a general discussion
concerning the proposed transaction, although no consensus was reached.
31
<PAGE>
On Friday, February 6, 1998, members of management and the Board of
Directors of 99CENTS Only Stores met with representatives of Troop Meisinger
Steuber & Pasich, LLP, outside special counsel to 99CENTS Only Stores ("Troop
Meisinger"), to discuss plans for 99CENTS Only Stores' investment in Universal.
Representatives of Troop Meisinger explained the possible structures for a
transaction with Universal and the need, in any transaction, for a fairness
option from a reputable investment banking firm. Based on conversations during
that meeting, management was authorized to contact Houlihan Lokey for the
purposes of possibly providing a fairness opinion if the Board of Directors
decided to further consider an acquisition of Universal.
On Thursday, February 12, 1998, a Board of Directors meeting was held and
representatives of Troop Meisinger and Houlihan Lokey attended the meeting. The
Board was advised by Troop Meisinger of its options with respect to its
investment in Universal. In addition, at the Board's request, Houlihan Lokey
addressed certain financial considerations with respect to 99CENTS Only Stores'
investment in Universal. The Board considered the effects of making no change to
its investment, the possibility of a bankruptcy of Universal without the
continued financial support of 99CENTS Only Stores, the possibility of an
acquisition of Universal via merger, tender offer for cash and exchange offer
and the potential transaction costs and timing of each alternative. The Board
members expressed their desire to preserve cash and to effect any type of
acquisition through the use of 99CENTS Only Stores' stock and determined that if
the Board chose to proceed, that an exchange offer directly to the shareholders
of Universal probably would be the most efficient and cost-effective transaction
structure. The Board members discussed with Houlihan Lokey the experience of
Houlihan Lokey in transactions of the type proposed by 99CENTS Only Stores, and
the methodology Houlihan Lokey would expect to employ in evaluating the fairness
from a financial point of view of the Exchange Consideration to be received by
Universal shareholders in any proposal that 99CENTS Only Stores might make. At
the end of the meeting, and without having discussed a price to offer to the
Universal shareholders, Houlihan Lokey was retained to proceed to determine a
range of prices which would be fair from a financial point of view to the
shareholders of Universal (other than 99CENTS Only Stores). Houlihan Lokey
reported that they would be prepared to give a preliminary opinion on February
16. Troop Meisinger was directed to begin preparing documents to structure a
likely exchange offer.
On Friday, February 13, 1998, various members of management of 99CENTS Only
Stores contacted Richard Ennen, President of Universal, to discuss the
possibility of an acquisition of Universal.
On Sunday, February 15, 1998, David Gold telephoned Mark Ravich, the former
chief executive officer of Universal and a member of Universal's Board, and
Norman Ravich, the founder of Universal, both of whom are significant
shareholders of Universal, to set up a conference call for Monday, February 16,
1998 with the entire board of Universal to discuss the possibility of an
acquisition of Universal.
On Monday, February 16, 1998, the Board of Directors of 99CENTS Only Stores
met to discuss the proposed acquisition of Universal. Houlihan Lokey made a
presentation to the Board of 99CENTS Only Stores of its preliminary oral opinion
regarding the range of prices to pay to the Universal Shareholders (other than
99CENTS Only Stores) on which Houlihan Lokey could provide a fairness opinion in
connection with the Exchange Offer. Following the presentation by Houlihan
Lokey, the Board of Directors of 99CENTS Only Stores approved the recommendation
that 99CENTS Only Stores proceed with the Exchange Offer on the terms described
in this Proxy Statement/Prospectus.
Following this meeting, the Board contacted the board of directors of
Universal to discuss the proposed Exchange Offer and to offer an exchange ratio
of one share of 99CENTS Only Stores Common Stock for every 16 shares of
Universal Common Stock. Negotiations continued throughout the day and into the
evening. The Board of Directors of 99CENTS Only Stores decided to issue a press
release before the opening of the market on Tuesday, February 17, 1998, to
announce its proposal to acquire the outstanding shares of Universal Common
Stock for the Universal Exchange Consideration. The board of directors of
Universal had not, at that point, decided whether to accept the offer.
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On February 24, 1998, 99CENTS Only Stores and each of the Principal
Stockholders entered into separate Stockholder Support Agreements in which each
stockholder agreed to vote its shares of Universal Common Stock (i) in favor of
the Exchange Offer and (ii) in favor of any other matter deemed necessary by
99CENTS Only Stores to effectuate the Exchange Offer or solicited in connection
with the Exchange Offer, and considered and voted upon by the shareholders of
Universal. In addition, each shareholder executing a Stockholder Support
Agreement agreed to tender and sell all of its Universal Common Stock to 99CENTS
Only Stores pursuant to the terms of the Exchange Offer.
As a result of the Stockholder Support Agreements, 99CENTS Only Stores
obtained the agreement of 994,092 shares, or approximately 10% of the total
outstanding shares of Universal Common Stock to vote in favor of the Exchange
Offer and to tender shares in the Exchange Offer.
The Stockholder Support Agreements also provided that Mark Ravich would
resign immediately from the board of directors of Universal.
ADVANTAGES TO UNIVERSAL SHAREHOLDERS
SIGNIFICANT PREMIUM. The Exchange Offer provides shareholders of Universal
an opportunity to receive a significant premium for their Universal Shares. The
Exchange Consideration represents a % and % premium to the Universal
Common Stock's closing sales prices one day and one week, respectively, prior to
the date 99CENTS Only Stores announced the acquisition of its initial 48%
position in Universal in November 1997, and a 15.5% and 81.67% premium to the
Universal Common Stock's closing prices one day and one week, respectively,
prior to the date 99CENTS Only Stores announced its offer to acquire the
remaining outstanding shares of Universal in February 1998.
CONTINUED DISCOUNT RETAILER INVESTMENT OPPORTUNITY. If the Exchange Offer
is consummated, Universal's current operations will be combined with 99CENTS
Only Stores and shareholders of Universal who tender their shares will become
shareholders of 99CENTS Only Stores. The former Universal shareholders will
continue to participate in the deep-discount retail and wholesale industry.
MANAGEMENT. 99CENTS Only Stores believes that a significant portion of its
existing success is attributable to its strong management and dedicated
employees. As the nation's oldest one-price general merchandise chain, 99CENTS
Only Stores has assembled a quality management team. 99CENTS Only Stores' senior
management has been stable and consistent over the last several years and has
contributed significantly to 99CENTS Only Stores' results.
SUPERIOR STOCK PERFORMANCE. Since its initial public offering in 1996,
99CENTS Only Stores has produced share price appreciation in excess of
Universal. 99CENTS Only Stores' share price growth from May 23, 1996 through
June 10, 1998 was 201.2% versus Universal's -51.0% for the same period. Past
stock price performance is not necessarily indicative of likely future stock
price performance.
RISKS OF FAILURE TO TENDER. Shareholders of Universal now have the
opportunity to receive a premium for their Universal Shares, and to participate
in the benefits of 99CENTS Only Stores' operating capabilities and financial
results, by participating in the Exchange Offer. By declining an opportunity to
exchange Universal Shares for 99CENTS Only Stores Common Stock, and choosing
instead to continue with an investment in Universal, shareholders are assuming
the risk that the value of Universal Shares may not appreciate following the
Exchange Offer. This risk may be intensified by the following issues:
- Arthur Andersen LLP's audit opinion issued in March 1998 expressed doubt
about Universal's ability to continue as a going concern.
- Universal's financial condition--Universal has reported losses in each of
the last eight fiscal quarters.
- Universal's need for infusions of working capital to continue operations.
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Although shareholders of Universal will receive a premium for their shares
of Universal Common Stock, there can be no assurance that 99CENTS Only Stores'
stock price will continue to outpace the growth in Universal's stock price or
that 99CENTS Only Stores' management team will remain in place. An investment in
99CENTS Only Stores, while also in the deep-discount retail industry, has risks
not found in Universal: 99CENTS Only Stores' is limited by its single price
point and the location of all of its stores solely in California adds risks not
found in the upper Midwest, upstate New York or Texas.
NO RECOMMENDATION OF THE UNIVERSAL BOARD OF DIRECTORS
Although Houlihan Lokey has delivered an opinion to 99CENTS Only Stores to
the effect that as of the date of such opinion, the Exchange Consideration to be
furnished by 99CENTS Only Stores is fair to the holders of Universal Common
Stock (other than 99CENTS Only Stores) from a financial point of view, due to
the composition of the board of Universal including three designees of 99CENTS
Only Stores and two designees of Universal, the Universal board of directors has
decided to remain neutral with respect to the Exchange Offer and has not made a
determination that the Exchange Offer is fair to or in the best interests of
Universal and its shareholders. The board of directors of Universal does,
however, recommend a vote for the approval of an amendment to the By-Laws of
Universal to provide that the Minnesota Control Share Acquisition Act will not
apply to Universal or its shareholders.
PURPOSE OF THE EXCHANGE OFFER; PLANS FOR UNIVERSAL AFTER THE OFFER
The Company's investment in Universal in November 1997 was motivated by an
opportunity to apply the Company's core competencies to two under-performing
retail chains which the Company believes have significant upside potential.
Universal's strengths include its many attractive store locations, strong trade
name identity and inventory of first-quality, close-out merchandise. In
addition, Universal has built a strong management team led by its Chief
Executive Officer, Richard Ennen, who was hired in September 1996 as Vice
President of Merchandising and assumed his current position in February 1998,
and a solid corporate infrastructure and operating systems. The Company believes
Universal's historical performance has been impaired by (i) a lack of capital,
which has limited its access to merchandise and its ability to purchase
merchandise at attractive prices, (ii) a failure to focus attention on store
merchandising and layout to create an attractive store environment and (iii) a
failure to identify and take advantage of cost saving opportunities. In
addition, Universal's historical performance has been adversely impacted by a
wholesale business and inventory appraisal and consulting service which were
discontinued in 1997.
Since the Company acquired its approximately 48% interest in Universal in
November 1997, Universal has appointed Richard Ennen its new Chief Executive
Officer, gained greater access to name-brand, close-out and regularly available
goods, implemented more savvy purchasing procedures, and developed and begun to
implement a new merchandising program that places greater emphasis on
consumables and focuses on attractive, convenient store layouts. Further,
Universal has determined to close two unprofitable stores and has completed the
consolidation of its three warehouse and distribution facilities into a single
facility. In addition, Universal has identified several areas for cost savings,
including freight, supplies and advertising. Universal introduced its new
merchandising program into one store in late January 1998 with positive initial
results and has expanded its reach to include two additional stores in February
and March 1998. The new merchandising program is expected to be implemented in
all stores by the end of the second quarter of 1998. The full effect of the
measures discussed above are not expected to be reflected in Universal's results
of operations until the third and fourth quarters of 1998. The Company believes
that its strong reputation among suppliers and the depth of its operating
experience in the deep-discount industry has contributed to these changes. The
Company and Universal continue to review Universal's operations to identify
other opportunities for cost savings and improvements to operations. In
addition, the Company and Universal are reviewing less profitable stores to
determine whether any should be relocated or closed.
In light of Universal's on-going capital requirements, insights gained by
the Company's management into Universal's operations and the opportunities the
Company's management believes exist for operating synergies, the Company has
determined to acquire the balance of the Universal and Odd's-N-End's shares.
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99CENTS Only Stores currently owns approximately 48% of the outstanding
Universal Common Stock. 99CENTS Only Stores is seeking 100% ownership of
Universal for the following reasons:
- FULL BENEFIT OF CURRENT INVESTMENT. 99CENTS Only Stores believes that in
order to derive the full benefit from the value and potential of its
current 48% ownership interest in Universal, an acquisition of Universal
will provide it with the maximum flexibility in utilizing the resources of
Universal and 99CENTS Only Stores to optimize the return to 99CENTS Only
Stores' shareholders.
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- OPPORTUNITIES FOR THE SALE OF GOODS AT VARIABLE PRICES. Universal's Only
Deals and Odd's-N-End's stores will provide the Company a retail channel
for merchandise at prices other than the Company's single price point and
will enable the Company to increase the volume of merchandise distributed
by it. The Company believes that this greater distribution capability will
provide the Company an opportunity to further solidify its relationship
with its suppliers, increase the Company's exposure to opportunistic
buying opportunities, allow the Company to capture a wider range of
merchandise and enable the Company to take greater advantage of volume
discounts.
- INCREASED ACCESS TO NEW MARKETS. The Exchange Offer will increase the
number of stores owned by 99CENTS Only Stores to 129 and diversify 99CENTS
Only Stores' geographic presence into the Midwest, Texas and New York
(including the stores to be acquired through the proposed acquisition of
Odd's-N-End's). This geographic presence could serve as a basis for
launching the Company's 99CENTS Only Stores retail format into these
regions in future periods.
- COST SAVINGS AND SYNERGIES. The Company believes further opportunities
exist for improving store level economics. In addition, it is anticipated
that the acquisition will provide the combined businesses with
opportunities to realize the efficiencies and synergies available by
operating on a cooperative basis which include economies of scale in
purchasing, freight, retail expenses, insurance, marketing, advertising,
human resources and administration.
- BETTER BUYING OPPORTUNITIES. The Company believes that through the
acquisition of Universal, it will gain greater access to better buying
opportunities through the capability to purchase in larger volumes and at
different prices.
- ELIMINATION OF EXPENSES. 99CENTS Only Stores believes that ownership of
Universal will remove the burdens on Universal of being a public
corporation subject to the reporting requirements of the Exchange Act and
the annual shareholders meeting requirements and will reduce expenses to
the benefit of each of 99CENTS Only Stores and Universal. 99CENTS Only
Stores expects these savings will result from decreased legal, accounting
and printing costs, as well as the time saved by Universal's employees who
will no longer be required to participate in the preparation of filings
required under the Exchange Act.
Except as indicated in this Proxy Statement/Prospectus, 99CENTS Only Stores
does not have any present plans or proposals which relate to or would result in
an extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving Universal or any subsidiary, a sale or transfer of a
material amount of assets of Universal or any subsidiary or any material change
in Universal's capitalization or dividend policy or any other material changes
in Universal's corporate structure or business, or the composition of the board
of directors of Universal or Universal's management. See "THE EXCHANGE
OFFER--Consequences to Non-tendering Holders of Universal Common Stock."
OPINION OF 99CENTS ONLY STORES' FINANCIAL ADVISOR
The Board of Directors of 99CENTS Only Stores engaged Houlihan Lokey to
render an opinion that the Transaction (as defined in the fairness opinion
attached hereto as Annex B), is fair to the public stockholders of Universal
from a financial point of view. The summary of the fairness opinion, as set
forth herein, is qualified in its entirety by reference to the full text of the
opinion. Universal's shareholders are urged to, and should, read the opinion in
its entirety.
Houlihan Lokey is a nationally recognized investment banking firm that is
continually engaged in providing financial advisory services in connection with
mergers and acquisitions, leveraged buyouts, business valuations for a variety
of regulatory and planning purposes, recapitalizations, financial restructurings
and private placements of debt and equity securities. Houlihan Lokey has no
material prior relationship with 99CENTS Only Stores, Universal or their
affiliates.
Houlihan Lokey was orally retained by 99CENTS Only Stores on approximately
February 10, 1998 to provide its opinion. The terms of such retention were
confirmed in an engagement letter dated March 3,
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1998. On February 16, 1998, Houlihan Lokey delivered orally to the Board of
Directors of 99CENTS Only Stores its opinion to the effect that, as of the date
of such opinion and based upon certain considerations and assumptions, the
Transaction is fair, from a financial point of view, to the public shareholders
of Universal. Houlihan Lokey's opinion was confirmed in writing as of April 20,
1998.
As compensation to Houlihan Lokey for its services in connection with the
Transaction, 99CENTS Only Stores has agreed to pay Houlihan Lokey a fee of
$75,000. No portion of Houlihan Lokey's fees are contingent upon the successful
completion of the Transaction. 99CENTS Only Stores has also agreed to indemnify
Houlihan Lokey and related persons against certain liabilities, including
liabilities under federal securities laws arising out of the engagement of
Houlihan Lokey.
In arriving at its opinion, Houlihan Lokey made its determination as to the
fairness, from a financial point of view, of the Transaction to the public
shareholders of Universal, on the basis of the analyses described below. No
restrictions or limitations were imposed by 99CENTS Only Stores upon Houlihan
Lokey with respect to its investigation or the procedures followed by Houlihan
Lokey in rendering its opinion. Houlihan Lokey's opinion is not intended to be
and does not constitute a recommendation to any shareholder of Universal as to
how to vote with respect to approval of the Transaction.
In arriving at its opinion, Houlihan Lokey made such reviews, analyses and
inquiries as it deemed necessary and appropriate under the circumstances. Among
other things, Houlihan Lokey has (i) reviewed Universal's annual reports to
shareholders on Form 10-K for the three fiscal years ended December 31, 1997 and
quarterly reports on Form 10-Q for the period ended September 30, 1997, and
Company-prepared interim financial statements for the period ended November 30,
1997, which certain members of Universal's board of directors had identified as
being the most current financial statements available; (ii) reviewed 99CENTS
Only Stores' annual reports to shareholders on Form 10-K for the five fiscal
years ended December 31, 1997 and quarterly reports on Form 10-Q for the period
ended September 30, 1997; (iii) reviewed copies of the Cooperation Agreement,
Irrevocable Proxy, Option and Consulting Agreements and Stockholder Support
Agreements; (iv) reviewed a final draft of the Registration Statement on Form
S-4 with respect to the Exchange Offer dated April 16, 1998; (v) met with
certain members of the senior management of 99CENTS Only Stores to discuss the
operations, financial condition, future prospects and projected operations and
performance of 99CENTS Only Stores; and met with certain members of the board of
directors of Universal to discuss the operations, financial condition, future
prospects and projected operations and performance of Universal; (vi) visited
certain facilities and business offices of 99CENTS Only Stores; (vii) reviewed
forecasts and projections prepared by certain members of Universal's board of
directors with respect to Universal for the years ended December 31, 1998 and
1999; (viii) reviewed forecasts and projections prepared by 99CENTS Only Stores'
management with respect to 99CENTS Only Stores for the year ended December 31,
1998; (ix) reviewed the historical market prices and trading volume for
Universal's and 99CENTS Only Stores' publicly traded securities; (x) reviewed
certain other publicly available financial data for certain companies that
Houlihan Lokey deems comparable to Universal and 99CENTS Only Stores, and
publicly available prices and premiums paid in other transactions that Houlihan
Lokey considered similar to the Transaction; (xi) reviewed drafts of certain
documents to be delivered at the closing of the Transaction; and (xii) conducted
such other studies, analyses and inquiries as we have deemed appropriate.
Houlihan Lokey used several methodologies to assess the fairness of the
Transaction from a financial point of view. Each methodology provided an
estimate as to the value of 99CENTS Only Stores, and Universal and these
valuations formed the basis for analyzing the fairness of the Transaction from a
financial point of view.
The primary methodologies utilized by Houlihan Lokey to estimate the value
of Universal were the Comparative Market Multiple approach, the Discounted Cash
Flow approach, and the Transaction Multiple approach.
COMPARATIVE MARKET MULTIPLE APPROACH. The comparative market multiple
analysis considered the trading multiples for certain income and cash flows of a
peer group of companies and then applied a
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selected multiple of earnings or cash flow to Universal's projected 1998
earnings or cash flow. 1998 projected earnings and cash flow levels were used in
Houlihan Lokey's analysis as Universal incurred losses for 1997. The peer group
of companies consisted of Consolidated Stores Corp., Dollar General Corp.,
Dollar Tree Stores, Inc., Family Dollar Stores, Fred's, Inc., and Mazel Stores,
Inc. The selection of the multiples to be applied to Universal's 1998 projected
income and cash flow levels was based on a comparative financial analysis of
Universal and the peer group of companies. Houlihan Lokey believes these
companies are engaged in lines of business that are generally similar to those
of the Company. Houlihan Lokey determined the equity value for each comparable
company (defined as the shares outstanding times the current share price) and
derived its Total Invested Capital (defined as the equity value determined
above, plus all interest bearing liabilities at book value, less excess cash)
for each of the comparable companies for which there was sufficient public
information. Houlihan Lokey calculated a range of such TIC values as a multiple
of revenues, earnings before interest, taxes, depreciation and amortization
("EBITDA") and earnings before interest and taxes ("EBIT"). In addition,
Houlihan Lokey calculated a range of equity values as a multiple of cash flow
and net income. TIC as a multiple of the latest twelve months revenues averaged
1.5x and ranged from 0.6x to 2.6x. TIC as a multiple of the next fiscal year
EBITDA averaged 12.7x and ranged from 9.1x to 16.2x, and TIC as a multiple of
the next fiscal year EBIT averaged 14.8x and ranged from 9.9x to 18.2x. Equity
value as a multiple of next fiscal year cash flow averaged 18.7x and ranged from
12.9x to 24.6x. Equity value as a multiple of next fiscal year net income
averaged 24.1x and ranged from 14.8x to 30.6x.
DISCOUNTED CASH FLOW APPROACH. The Discounted Cash Flow analysis considered
the projected cash flow stream generated by Universal and then discounted that
stream to the present using a market based, risk adjusted discount rate.
Houlihan Lokey performed a discounted cash flow analysis of Universal on a stand
alone basis utilizing a set of underlying operating projections that were
developed by certain members of Universal's board of directors. Utilizing such
projections, Houlihan Lokey calculated the theoretical unlevered discounted
present value for Universal by adding together the present value of (i) the
projected stream of unlevered free cash flow through the year 1998 for Universal
and (ii) the projected value of Universal at the end of year 1998 (the "Terminal
Value"). The Terminal Value was determined using the Gordon Growth model. The
Gordon Growth model is a perpetuity model which uses free cash flow as its
basis. This "normalized" free cash flow figure incorporates expectations of the
level of cash investment (i.e., net capital expenditures and working capital)
required to maintain Universal's operations in the future, as well as the return
on investment that Universal can be expected to sustain. The normalized cash
flow figure is then capitalized as a perpetuity by a risk adjusted discount
rate, adjusted for some level of growth which can be expected into perpetuity.
In Houlihan Lokey's analysis of Universal, the unlevered after-tax discount
rates utilized in the discounted cash flow analysis ranged from 22.5% to 25.5%
and the perpetual growth rates used in the analysis ranged from 8.0% to 10.0%.
Note that the above approaches represent the value of a transferable
minority ownership position and hence, do not incorporate the premium that
acquirors are generally willing to pay to garner a controlling majority
ownership position. In order to compare values for a transferable minority
interest with a control position, Houlihan Lokey applied a control premium to
the transferable minority valuation suggested by the above approaches.
TRANSACTION MULTIPLE APPROACH. The Transaction Multiple approach is similar
to the Comparative Market Multiple approach, except that transaction multiples
from completed transactions that Houlihan Lokey deems comparable to the
Transaction are used as a basis for selecting multiples to apply to Universal's
1998 projected income and cash flow streams. Using publicly available
information, Houlihan Lokey reviewed the purchase prices and multiples paid in
selected mergers and acquisitions involving discount retail companies which
Houlihan Lokey deemed relevant. In particular, Houlihan Lokey focused on
multiples of TIC to trailing twelve months revenues, EBITDA and EBIT, and
multiples of equity value to trailing twelve months cash flow.
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Houlihan Lokey reviewed the following acquisitions of discount retailers for
which public information was available: the acquisition of Mac Frugals Bargain
Close Outs by Consolidated Stores Corp.; the acquisition of Revco DS Inc. by CVS
Corp.; the acquisition of Tuesday Morning Corp., by Madison Dearborn Partners;
the acquisition of Thrifty Payless Holdings by Rite Aid Corp., and the
acquisition of Fay's Inc. by J.C. Penney.
For the transactions involving discount retailers from which public
information was available, the multiple of TIC to revenues for the acquired
companies for the latest twelve month period prior to closing averaged 0.8x and
ranged from 0.4x to 1.3x and the multiple of TIC to EBITDA averaged 10.7x and
ranged from 10.3x to 11.0x. The multiples of equity value to cash flow for the
latest twelve month period prior to closing averaged 16.8x and ranged from 13.9x
to 23.8x.
Based on the above approaches Houlihan Lokey concluded that the per share
value on a controlling interest basis of Universal common stock was reasonably
stated in the range of $1.66 to $2.16.
The primary methodologies utilized by Houlihan Lokey to estimate the value
of 99CENTS Only Stores include a public trading price analysis, a Market
Multiple approach and a Discounted Cash Flow approach.
To determine the fairness of the Transaction, from a financial point of
view, to the public shareholders of Universal, Houlihan Lokey compared the
estimated value of the consideration to be received by Universal's public
shareholders (in the form of 99CENTS Only Stores Common Stock) with the value
public shareholders of Universal were exchanging (in the form of Universal
Common Stock) for such 99CENTS Only Stores Common Stock.
Based on the analyses completed by Houlihan Lokey, Houlihan Lokey concluded
that the consideration to be received by the public stockholders of Universal in
connection with the Transaction is fair to them from a financial point of view.
The aforementioned analyses required studies of the overall market, economic
and industry conditions in which 99CENTS Only Stores and Universal operate, and
99CENTS Only Stores' and Universal's operating results. Research into, and
consideration of, these conditions were incorporated into the analyses.
Houlihan Lokey's opinion is based on the business, economic, market and
other conditions as they existed as of the date of this opinion. In rendering
its opinion, Houlihan Lokey has relied upon and assumed, without independent
verification, that the financial results provided to Houlihan Lokey by 99CENTS
Only Stores have been reasonably prepared and reflect the best current available
estimates of the financial results and condition of 99CENTS Only Stores and
Universal. Houlihan Lokey did not independently verify the accuracy or
completeness of the information supplied to it with respect to 99CENTS Only
Stores or Universal and does not assume responsibility for it. Except as set
forth above, Houlihan Lokey did not make any physical inspection or independent
appraisal of the specific properties or assets of 99CENTS Only Stores or
Universal.
The summary set forth above describes the more detailed analyses performed
by Houlihan Lokey in arriving at its fairness opinion. The preparation of the
fairness opinion is a complex analytical process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and application of those methods to the particular circumstances, and
is therefore not readily susceptible to summary description. In arriving at its
opinion, Houlihan Lokey did not attribute any particular weight to any analysis
or factor considered by it, but rather made the qualitative judgements as to the
significance and relevance of each analysis and factor. Accordingly, Houlihan
Lokey believes that its analyses and the summary set forth herein must be
considered as a whole and that selecting portions of its analyses, without
considering all factors and analysis, or portions of this summary, without
considering all factors and analyses, could create an incomplete view of the
processes underlying the analyses set forth in the Houlihan Lokey opinion. In
its analysis, Houlihan Lokey made numerous assumptions with respect to 99CENTS
Only Stores and Universal, industry performance, general business, economic,
market, and
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financial conditions and other matters, many of which are beyond the control of
99CENTS Only Stores and Universal. The estimates contained in such analyses are
not necessarily indicative of actual values or predictive of future results or
values, which may be more or less favorable than suggested by such analyses.
Additionally, analyses relating to the value of businesses or securities are not
appraisals. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty.
CONFLICTS OF INTEREST
In considering whether to vote in favor of the amendment to Universal's
By-Laws and to exchange shares of Universal Common Stock, shareholders should be
aware that certain members of the management of Universal and the board of
directors of Universal have certain interests in the Exchange Offer that are in
addition to the interest of shareholders of Universal generally.
Following the consummation of the Exchange Offer, 99CENTS Only Stores has
agreed to pay to Richard Ennen, the President of Universal, cash in an amount
equal to the difference between his option exercise price and the Universal
Exchange Consideration with respect to options to purchase 100,000 shares of
Universal Common Stock. In addition, 99CENTS Only Stores has agreed to convert
Mr. Ennen's remaining options to acquire Universal Common Stock into options to
acquire 9,375 shares of 99CENTS Only Stores Common Stock at an exercise price of
$40 per share and to grant Mr. Ennen an option to purchase 12,000 shares of
99CENTS Only Stores Common Stock at an exercise price equal to the closing
market price of 99CENTS Only Stores Common Stock on the date of closing of the
Exhange Offer.
As discussed under "Discussions Regarding the Exchange Offer," each of Mark
Ravich, the former Chief Executive Officer and a former board member of
Universal, Norman Ravich, a former board member of Universal and certain trusts
for which Mark Ravich is trustee, entered into a separate Stockholder Support
Agreement with 99CENTS Only Stores. See "Discussions Regarding the Exchange
Offer."
Furthermore, on February 24, 1998, Mark Ravich entered into a Consulting
Agreement with 99CENTS Only Stores whereby Mark Ravich agreed to provide
advisory services to 99CENTS Only Stores in connection with the Exchange Offer
and thereafter to provide sales, management and operations consulting services
in connection with the operation of the business of Universal following
completion of the Exchange Offer. The term of the consulting agreement ends
February 24, 1999. As compensation for the consulting services provided, 99CENTS
Only Stores granted to Mark Ravich an option to acquire 9,375 shares of 99CENTS
Only Stores Common Stock at $40.00 per share, and an option to acquire 15,000
shares of 99CENTS Only Stores Common Stock at $33.5625 per share pursuant to
separate option agreements. Each of the options terminates on the earlier to
occur of a termination of the Exchange Offer and February 19, 2005. Each of the
options becomes fully exercisable on the first business day following
consummation of the Exchange Offer.
On February 26, 1998, Norman Ravich also entered into a Consulting Agreement
with 99CENTS Only Stores whereby Norman Ravich agreed to provide advisory
services to 99CENTS Only Stores in connection with the Exchange Offer and
thereafter to provide sales, management and operation consulting services in
connection with the operation of the business of Universal following completion
of the Exchange Offer. The Consulting Agreement ended on May 27, 1998. As
compensation for the consulting services provided, 99CENTS Only Stores granted
to Norman Ravich an option to purchase 4,688 shares of 99CENTS Only Stores
Common Stock at $40.00 per share pursuant to a separate option agreement. The
option terminates on the earlier to occur of a termination of the Exchange Offer
and February 19, 2005. The option becomes fully exercisable on the first
business day following consummation of the Exchange Offer.
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THE EXCHANGE OFFER
THIS PROXY STATEMENT/PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL
CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE EXCHANGE OFFER.
TERMS OF THE EXCHANGE OFFER; EXPIRATION DATE
Upon the terms and subject to the conditions of the Exchange Offer
(including, if the Exchange Offer is extended or amended, the terms and
conditions of such extension or amendment), 99CENTS Only Stores hereby offers to
exchange one share of 99CENTS Only Stores Common Stock for each 16 outstanding
shares of Universal Common Stock validly tendered prior to the Expiration Date
(as hereinafter defined) and not withdrawn as provided under "Withdrawal
Rights". The term "Expiration Date" means 5:00 P.M., New York City time, on
, , 1998, unless and until 99CENTS Only Stores, in its sole
discretion shall have extended the period during which the Exchange Offer is
open, in which event the term "Expiration Date" shall mean the latest time and
date at which the Exchange Offer, as so extended by 99CENTS Only Stores, shall
expire.
Upon the terms and subject to the conditions of the Exchange Offer,
including the Minimum Condition that at least 37% of the shares of Universal
Common Stock outstanding (on a fully diluted basis) at the Expiration Date
(other than shares owned by 99CENTS Only Stores) have been validly tendered for
exchange and not withdrawn prior to the Expiration Date, 99CENTS Only Stores
will exchange all Universal Common Stock for the Universal Exchange
Consideration. Tendering holders will not be obligated to pay any charges or
expenses of the Exchange Agent or any brokerage commissions. Except as set forth
in the Letter of Transmittal, transfer taxes on the exchange of Universal Common
Stock pursuant to the Exchange Offer will be paid by and on behalf of 99CENTS
Only Stores.
No fractional shares of 99CENTS Only Stores Common Stock will be issued in
connection with the Exchange Offer. Holders of Universal Common Stock otherwise
entitled to receive fractional shares will receive in lieu thereof cash in an
amount equal to such fraction of 99CENTS Only Stores Common Stock which the
holders of Universal Common Stock would otherwise be entitled to receive
multiplied by the average closing price of 99CENTS Only Stores Common Stock as
reported by the New York Stock Exchange for the twenty (20) trading days
immediately preceding the Expiration Date.
Universal has agreed to provide 99CENTS Only Stores with Universal's
shareholder list and security position listings for the purpose of disseminating
the Exchange Offer to holders of shares of Universal Common Stock. This Proxy
Statement/Prospectus and the related Letter of Transmittal will be mailed to
record holders of shares whose names appear on Universal's shareholder list and
will be furnished, for subsequent transmittal to beneficial owners of shares, to
brokers, dealers, commercial banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on the shareholder list or, if
applicable, who are listed as participants in a clearing agency's security
position listing.
PROCEDURES FOR ACCEPTING THE EXCHANGE OFFER AND TENDERING SHARES
In order for a holder of shares of Universal Common Stock validly to tender
shares pursuant to the Exchange Offer either (a) the Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, together with any
required signature guarantees or, in the case of a book-entry transfer, an
Agent's Message (as defined below), and any other documents required by the
Letter of Transmittal, must be received by the Exchange Agent at one of its
addresses set forth on the back cover of this Proxy Statement/Prospectus and
either the certificates for Universal Common Stock (the "Share Certificates")
evidencing tendered shares of Universal Common Stock must be received by the
Exchange Agent at such address or such shares of Universal Common Stock must be
tendered pursuant to the procedure for book-entry transfer described below and a
Book-Entry Confirmation must be received by the Exchange Agent, in each case
prior to the Expiration Date, or (b) the tendering shareholder must comply with
the guaranteed delivery procedures described below.
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THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
BOOK-ENTRY TRANSFER. The Exchange Agent will establish accounts with
respect to the shares of Universal Common Stock at the Book-Entry Transfer
Facilities for purposes of the Exchange Offer within two business days after the
date of this Proxy Statement/Prospectus. Any financial institution that is a
participant in the system of any Book-Entry Transfer Facility may make a
book-entry delivery of shares by causing such Book-Entry Transfer Facility to
transfer such shares into the Exchange Agent's account at such Book-Entry
Transfer Facility in accordance with such Book-Entry Transfer Facility's
procedures for such transfer. However, although delivery of shares may be
effected through book-entry transfer at a Book-Entry Transfer Facility, the
Letter of Transmittal (or a facsimile thereof), properly completed and duly
executed, together with any required signature guarantees, or an Agent's
Message, and any other required documents, must, in any case, be received by the
Exchange Agent at one of its addresses set forth on the back cover of this Proxy
Statement/Prospectus prior to the Expiration Date, or the tendering shareholder
must comply with the guaranteed delivery procedure described below. DELIVERY OF
DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
The term "Agent's Message" means a message transmitted by a Book-Entry
Transfer Facility to, and received by, the Exchange Agent and forming a part of
a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Universal Common Stock that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that 99CENTS Only Stores may enforce such agreement against such participant.
SIGNATURE GUARANTEES. Signatures on all Letters of Transmittal must be
guaranteed by a firm which is a financial institution (including most commercial
banks, savings and loan associations and brokerage houses) that is a participant
in the Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program
(each, an "Eligible Institution"), except in cases where shares of Universal
Common Stock are tendered (i) by a registered holder of such shares who has not
completed either the box entitled "Special Payment Instructions" or the box
entitled "Special Exchange Instructions" on the Letter of Transmittal or (ii)
for the account of an Eligible Institution. If a Share Certificate is registered
in the name of a person other than the signatory of the Letter of Transmittal,
or if payment is to be made, or a Share Certificate not accepted for payment or
not tendered is to be returned, to a person other than the registered holder(s),
then the Share Certificate must be endorsed or accompanied by appropriate stock
powers, in either case signed exactly as the name(s) of the registered holder(s)
appear on the Share Certificate, with the signature(s) on such Share Certificate
or stock powers guaranteed by an Eligible Institution.
GUARANTEED DELIVERY. If a shareholder desires to tender shares of Universal
Common Stock pursuant to the Exchange Offer and such shareholder's Share
Certificates evidencing such shares of Universal Common Stock are not
immediately available or such shareholder cannot deliver the Share Certificates
and all other required documents to the Exchange Agent prior to the Expiration
Date, or such shareholder cannot complete the procedure for delivery by
book-entry transfer on a timely basis, such shares of Universal Common Stock may
nevertheless be tendered, provided that all the following conditions are
satisfied:
(i) such tender is made by or through an Eligible Institution;
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(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by 99CENTS Only Stores,
is received by the Exchange Agent prior to the Expiration Date as provided
below; and
(iii) the Share Certificates (or a Book-Entry Confirmation) evidencing
all tendered shares of Universal Common Stock, in proper form for transfer,
in each case together with the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or, in the case of a book-entry transfer, an Agent's Message,
and any other documents required by the Letter of Transmittal are received
by the Exchange Agent within three New York Stock Exchange trading days
after the date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by telegram or facsimile transmission to the Exchange Agent and must
include a guarantee by an Eligible Institution in the form set forth in the
Notice of Guaranteed Delivery made available by 99CENTS Only Stores.
In all cases, the exchange of Universal Exchange Consideration for shares of
Universal Common Stock tendered and accepted for exchange pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent of
the Share Certificates evidencing such shares, or a Book-Entry Confirmation of
the delivery of such shares, and the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, and any other documents required by the Letter of Transmittal or, in
the case of a book-entry transfer, an Agent's Message.
The tender of shares of Universal Common Stock pursuant to any of the
procedures described above will constitute a binding agreement between the
tendering shareholder and 99CENTS Only Stores upon the terms and subject to the
conditions of the Exchange Offer, including the tendering shareholder's
representation and warranty that such holder has the full power and authority to
tender and assign the Universal Common Stock tendered, as specified in the
Letter of Transmittal.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for exchange of any
tender of shares of Universal Common Stock will be determined by 99CENTS Only
Stores in its sole discretion, which determination shall be final and binding on
all parties. 99CENTS Only Stores reserves the absolute right to reject any and
all tenders determined by it not to be in proper form or the acceptance for
exchange of which may, in the opinion of its counsel, be unlawful. 99CENTS Only
Stores also reserves the absolute right to waive any condition of the Exchange
Offer or any defect or irregularity, in the tender of any shares of Universal
Common Stock of any particular shareholder, whether or not similar defects or
irregularities are waived in the case of other shareholders. No tender of shares
of Universal Common Stock will be deemed to have been validly made until all
defects and irregularities have been cured or waived. None of 99CENTS Only
Stores, the Dealer Manager, the Exchange Agent or any other person will be under
any duty to give notification of any defects or irregularities in tenders or
incur any liability for failure to give any such notification. 99CENTS Only
Stores' interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) will be final
and binding.
OTHER REQUIREMENTS. By executing the Letter of Transmittal as set forth
above (including through delivery of an Agent's Message), a tendering
shareholder irrevocably appoints designees of 99CENTS Only Stores as such
shareholder's attorneys-in-fact and proxies, each with full power of
substitution, in the manner set forth in the Letter of Transmittal, to the full
extent of such shareholder's rights with respect to the shares of Universal
Common Stock tendered by such shareholder and accepted for exchange by 99CENTS
Only Stores (and with respect to any and all other shares of Universal Common
Stock or other securities issued or issuable in respect of such shares of
Universal Common Stock on or after the date of this Proxy Statement/Prospectus).
All such proxies shall be considered coupled with an interest in the tendered
shares of Universal Common Stock. Such appointment will be effective when, and
only to the extent that, 99CENTS Only Stores accepts such shares of Universal
Common Stock for exchange. Upon such acceptance for exchange, all prior powers
of attorney and proxies given by such shareholder with
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respect to such shares of Universal Common Stock (and such other shares of
Universal Common Stock and securities) will be revoked without further action,
and no subsequent powers of attorney and proxies may be given nor any subsequent
written consent executed by such shareholder (and, if given or executed, will
not be deemed to be effective) with respect thereto. The designees of 99CENTS
Only Stores will, with respect to the shares of Universal Common Stock for which
the appointment is effective, be empowered to exercise all voting and other
rights of such shareholder as they in their sole discretion may deem proper at
any annual or special meeting of Universal's shareholders or any adjournment or
postponement thereof, by written consent in lieu of any such meeting or
otherwise. 99CENTS Only Stores reserves the right to require that, in order for
shares of Universal Common Stock to be deemed validly tendered, immediately upon
99CENTS Only Stores' payment for such shares, 99CENTS Only Stores must be able
to exercise full voting rights with respect to such shares.
IN ORDER TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO
UNIVERSAL EXCHANGE CONSIDERATION RECEIVED BY SHAREHOLDERS PURSUANT TO THE
EXCHANGE OFFER, EACH SUCH SHAREHOLDER MUST PROVIDE THE EXCHANGE AGENT WITH SUCH
SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH
SHAREHOLDER IS NOT SUBJECT TO BACKUP WITHHOLDING BY COMPLETING THE SUBSTITUTE
FORM W-9 IN THE LETTER OF TRANSMITTAL. CERTAIN SHAREHOLDERS (INCLUDING, AMONG
OTHERS, ALL CORPORATIONS AND CERTAIN FOREIGN INDIVIDUALS AND ENTITIES) ARE NOT
SUBJECT TO BACKUP WITHHOLDING. ALL SHAREHOLDERS SURRENDERING SHARES PURSUANT TO
THE OFFER SHOULD COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 (INCLUDED IN THE
LETTER OF TRANSMITTAL) TO PROVIDE THE INFORMATION NECESSARY TO AVOID BACKUP
WITHHOLDING (UNLESS AN APPLICABLE EXEMPTION EXISTS AND IS PROVED IN A MANNER
SATISFACTORY TO THE EXCHANGE AGENT). NON-CORPORATE FOREIGN SHAREHOLDERS SHOULD
COMPLETE AND SIGN A FORM W-8, CERTIFICATE OF FOREIGN STATUS (A COPY OF WHICH MAY
BE OBTAINED FROM THE EXCHANGE AGENT), IN ORDER TO AVOID BACKUP WITHHOLDING. SEE
INSTRUCTION 10 OF THE LETTER OF TRANSMITTAL.
WITHDRAWAL RIGHTS. Tenders of Universal Common Stock made pursuant to the
Exchange Offer are irrevocable except that such shares of Universal Common Stock
may be withdrawn at any time prior to the Expiration Date. If 99CENTS Only
Stores extends the Exchange Offer, is delayed in its acceptance for payment of
shares of Universal Common Stock or is unable to accept shares of Universal
Common Stock for payment pursuant to the Exchange Offer for any reason, then,
without prejudice to 99CENTS Only Stores' rights under the Exchange Offer, the
Exchange Agent may, nevertheless, on behalf of 99CENTS Only Stores, retain
tendered shares of Universal Common Stock, and such shares may not be withdrawn
except to the extent that tendering shareholders are entitled to withdrawal
rights as described herein. Any such delay will be by an extension of the
Exchange Offer to the extent required by law.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Exchange Agent
at one of its addresses set forth on the back cover page of this Proxy
Statement/Prospectus. Any such notice of withdrawal must specify the name of the
person who tendered the shares to be withdrawn, the number of such shares to be
withdrawn and the name of the registered holder of such shares, if different
from that of the person who tendered such shares. If Share Certificates
evidencing Universal Common Stock to be withdrawn have been delivered or
otherwise identified to the Exchange Agent, then, prior to the physical release
of such Share Certificates, the serial numbers shown on such Share Certificates
must be submitted to the Exchange Agent and the signature(s) on the notice of
withdrawal must be guaranteed by an Eligible Institution, unless such shares
have been tendered for the account of an Eligible Institution. If Universal
Common Stock has been tendered pursuant to the procedure for book-entry transfer
as set forth in "--Procedures for Accepting the Exchange Offer and Tendering
Shares," any notice of withdrawal must specify the name and number of the
account at the Book-Entry Transfer Facility to be credited with the withdrawn
shares.
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All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by 99CENTS Only Stores in its sole
discretion, whose determination will be final and binding. None of 99CENTS Only
Stores, the Dealer Manager, the Exchange Agent, the Information Agent or any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
Any shares of Universal Common Stock properly withdrawn will thereafter be
deemed not to have been validly tendered for purposes of the Exchange Offer.
However, withdrawn shares may be re-tendered at any time prior to the Expiration
Date by following one of the procedures described in "--Procedures for Accepting
the Offer and Tendering Shares."
EXCHANGE OF UNIVERSAL COMMON STOCK
Upon the terms and subject to the conditions of the Exchange Offer, 99CENTS
Only Stores will accept for exchange, and will transfer Universal Exchange
Consideration in exchange for, Universal Common Stock validly tendered and not
withdrawn by the Expiration Date as promptly as practicable after the Expiration
Date. 99CENTS Only Stores reserves the right, in its sole discretion subject to
Rules 13e-4(f) and 14e-1(c) under the Exchange Act, to delay the acceptance for
exchange or delay exchange of any shares of Universal Common Stock in order to
comply in whole or in part with any applicable law. For a description of 99CENTS
Only Stores rights to terminate the Exchange Offer and not accept for exchange
of, or exchange for, any shares of Universal Common Stock or to delay acceptance
for exchange of, or exchange for, any shares of Universal Common Stock, see
"--Extension of Tender Period; Termination; Amendment."
For purposes of the Exchange Offer, 99CENTS Only Stores shall be deemed to
have accepted for exchange shares of Universal Common Stock tendered for
exchange when, as and if 99CENTS Only Stores gives oral or written notice to the
Exchange Agent of its acceptance of the tenders of such shares of Universal
Common Stock for exchange. Exchange of shares of Universal Common Stock accepted
for exchange pursuant to the Exchange Offer will be made by deposit of Universal
Exchange Consideration with the Exchange Agent which will act as agent for the
tendering holders of Universal Common Stock for the purpose of receiving
Universal Exchange Consideration from 99CENTS Only Stores and transmitting such
Universal Exchange Consideration to tendering holders of Universal Common Stock.
In all cases, exchange for Universal Common Stock accepted for exchange pursuant
to the Exchange Offer will be made only after timely receipt by the Exchange
Agent of certificates for Universal Common Stock (or of a confirmation of a
book-entry transfer of such Universal Common Stock into the Exchange Agent's
account at one of the Book-Entry Transfer Facilities), a properly completed and
duly executed Letter of Transmittal (or a facsimile thereof), or an Agent's
Message in the case of a book-entry transfer of Universal Common Stock and any
other required documents. For a description of the procedure for tendering
Universal Common Stock pursuant to the Exchange Offer, see "--Procedures for
Accepting the Exchange Offer and Tendering Shares." Accordingly, exchange of
Universal Exchange Consideration for Share Certificates and other required
documents occur at different times. Under no circumstances will interest be paid
by 99CENTS Only Stores pursuant to the Exchange Offer, regardless of any delay
in making such exchange.
If any condition of the Exchange Offer is not satisfied, 99CENTS Only Stores
will not be obligated to exchange Universal Exchange Consideration for Share
Certificates pursuant to the Exchange Offer. See "--Conditions of the Exchange
Offer." 99CENTS Only Stores will exchange the same amount of Universal Exchange
Consideration for each share accepted for exchange pursuant to the Exchange
Offer.
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If any tendered shares of Universal Common Stock are not exchanged pursuant
to the Exchange Offer for any reason, or if certificates are submitted for more
shares of Universal Common Stock than are tendered, certificates for such
unexchanged or untendered shares of Universal Common Stock will be returned (or,
in the case of shares of Universal Common Stock tendered by book-entry transfer,
such shares of Universal Common Stock will be credited to an account maintained
at one of the Book-Entry Transfer Facilities), without expense to the tendering
holder of shares of Universal Common Stock, as promptly as practicable following
the expiration or termination of the Exchange Offer.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, without prejudice
to 99CENTS Only Stores' other rights under the Exchange Offer, 99CENTS Only
Stores will not be required to accept for exchange or exchange any shares of
Universal Common Stock tendered pursuant to the Exchange Offer, and may
terminate the Exchange Offer as provided in "--Extension of Tender Period;
Termination; Amendment" or amend the Exchange Offer and may postpone the
acceptance for exchange of the shares of Universal Common Stock, unless shares
of Universal Common Stock representing not less than 37% of the then outstanding
Universal Common Stock (on a fully diluted basis) (other than shares owned by
99 CENTS Only Stores) are validly tendered and not withdrawn prior to the
Expiration Date and unless:
(a) the representations and warranties of Universal contained in the
Stock Purchase Agreement in connection with the November 17 Acquisition are
in all material respects true and accurate as of the date when made and,
except for changes expressly contemplated by the Stock Purchase Agreement,
at and as of the Expiration Date as if made on the Expiration Date;
(b) there has not been threatened or instituted by any governmental
authority any action or proceeding before any court or governmental,
administrative or regulatory authority or agency of competent jurisdiction,
domestic or foreign, (i) challenging or seeking to make illegal, materially
delay or otherwise directly or indirectly restrain or prohibit or make
materially more costly the making of the Exchange Offer, the acceptance for
payment of, or payment for, any shares of Universal Common Stock by 99CENTS
Only Stores or any other affiliate of or the consummation of any other
transaction contemplated by the Exchange Offer or seeking to obtain material
damages in connection with any transaction contemplated by the Exchange
Offer; (ii) seeking to prohibit or limit materially the ownership or
operation by 99CENTS Only Stores or any of its subsidiaries of all or any
material portion of the business or assets of Universal, 99CENTS Only Stores
or any of their subsidiaries, or to compel Universal, 99CENTS Only Stores or
any of their subsidiaries to dispose of or hold separate all or any portion
of the business or assets of Universal, 99CENTS Only Stores or any of their
subsidiaries, as a result of the transaction contemplated by the Exchange
Offer; (iii) seeking to impose or confirm limitations on the ability of
99CENTS Only Stores or any other affiliate of 99CENTS Only Stores to
exercise effectively full rights of ownership of any shares, including,
without limitation, the right to vote any shares acquired by 99CENTS Only
Stores pursuant to the Exchange Offer or otherwise on all matters properly
presented to Universal's shareholders, including, without limitation, the
approval of the transactions contemplated by the Exchange Offer; (iv)
seeking to require divestiture by 99CENTS Only Stores or any other affiliate
of 99CENTS Only Stores of any shares; or (v) which otherwise gives rise to
any circumstance, change in or effect on Universal or any subsidiary that
is, or is reasonably likely to be, materially adverse to the business,
financial condition, results of operations, assets or liabilities
(including, without limitation, contingent liabilities) of Universal and the
subsidiaries, taken as a whole ("Material Adverse Effect");
(c) there has not been any action taken, or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction
enacted, entered, enforced, promulgated, amended, issued or deemed
applicable to (i) 99CENTS Only Stores, Universal or any subsidiary or
affiliate of 99CENTS Only Stores or (ii) any transaction contemplated by the
Exchange Offer, by any legislative body, court, government or governmental,
administrative or regulatory authority or agency, domestic
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or foreign, other than the routine application of the waiting period
provisions of the HSR Act to the Exchange Offer, which is reasonably likely
to result, directly or indirectly, in any of the consequences referred to in
clauses (i) through (v) of paragraph (b) above, except that the Exchange
Offer may not be terminated or amended solely because of a temporary order
or injunction unless it is not lifted within 20 days after being issued;
(d) no written advice has been received by 99CENTS Only Stores or
Universal, or their respective counsel from any governmental body, and
remains in effect, stating that an action or proceeding will, if the
Exchange Offer is consummated or sought to be consummated, be filed seeking
to invalidate or restrain the Exchange Offer;
(e) the Rights Agreement shall have been amended to waive the
application of the Rights Agreement to the Exchange Offer and the other
transactions contemplated hereby (which amendment was made effective on
April 20, 1998), or Universal shall have redeemed the Rights (the "Rights
Agreement Condition");
(f) the required approval of the shareholders of Universal to amend the
By-Laws of Universal to provide that the Minnesota Control Share Acquisition
Act will not apply to Universal or its shareholders, and all approvals and
authorizations of public authorities have been obtained, and no such
consents or approvals have imposed a condition to such consent or approval
which is unduly burdensome to the business of 99CENTS Only Stores or
Universal, and all waiting periods specified by law (including under HSR
Act) have passed (the waiting period under the HSR Act has expired);
(g) there will not have occurred any changes, conditions, events or
developments that have, individually or in the aggregate, a Material Adverse
Effect;
(h) there will not have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the New York Stock
Exchange, (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or (iii) any limitation
(whether or not mandatory) by any government or governmental, administrative
or regulatory authority or agency of the United States on the extension of
credit by banks or other lending institutions;
(i) it will not have been publicly disclosed or 99CENTS Only Stores will
not have otherwise learned that beneficial ownership (determined for the
purposes of this paragraph as set forth in Rule 13d-3 promulgated under the
Exchange Act) of more than 20% of the then outstanding shares of Universal
Common Stock has been acquired by any person, other than 99CENTS Only Stores
or any of its affiliates or (ii) (A) the board of directors of Universal or
any committee thereof has withdrawn or modified in a manner adverse to
99CENTS Only Stores its position with respect to the Exchange Offer, or
approved or recommended any acquisition proposal or any other acquisition of
shares other than the Exchange Offer or (B) the board of directors of
Universal or any committee thereof has resolved to do any of the foregoing;
(j) neither Universal nor any of its subsidiaries shall have, directly
or indirectly, (i) split, combined, subdivided, consolidated or otherwise
changed, or authorized or proposed a split, combination, subdivision,
consolidation or other change of, the Universal Shares or otherwise changed
its capitalization, (ii) acquired or otherwise caused a reduction in the
number of, or authorized or proposed the acquisition or other reduction in
the number of, outstanding shares of Universal Common Stock or other
securities, other than a redemption of the Rights in accordance with the
terms of the Rights Agreement, (iii) issued, distributed or sold, or
authorized, proposed or announced the issuance, distribution or sale of,
additional shares of Universal Common Stock (other than the issuance of
shares of Universal Common Stock under currently outstanding options), (iv)
declared or paid, or proposed to declare or pay, any dividend or other
distribution, whether payable in cash, securities or other property, on or
with respect to any shares in the capital of Universal (other than a
distribution in respect of a redemption of the Rights in accordance with the
Rights Agreement),
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(v) altered or proposed to alter any material term of any outstanding
security (including the Rights) other than to amend the Rights Agreement to
make the Rights inapplicable to the Exchange Offer (which Universal did on
April 20, 1998) and the transactions contemplated thereby, (vi) issued,
distributed or sold, or authorized or proposed the issuance, distribution or
sale of, any debt securities or any securities convertible into or
exchangeable for debt securities or any rights, warrants or options
entitling the holder thereof to purchase or otherwise acquire any debt
securities or incurred, or
authorized or proposed the incurrence of, any debt other than in the
ordinary course of business or any debt containing burdensome covenants,
(vii) authorized, recommended, proposed, entered into or announced its
intention to enter into an agreement with respect to, or to cause, any
merger, consolidation, liquidation, dissolution, business combination,
acquisition of assets or securities, disposition of assets or securities,
release or relinquishment of any material contractual or other right of
Universal or any of its subsidiaries or any comparable event, (viii)
authorized, recommended, proposed or entered into, or announced its
intention to authorize, recommend, propose or enter into, any agreement or
arrangement with any person or group that in the sole judgment of 99CENTS
Only Stores could adversely affect either the value of Universal or any of
its subsidiaries or the value of the Universal Common Stock to 99CENTS Only
Stores, (ix) entered into any employment, severance, or similar agreement,
arrangement or plan with or for the benefit of any of its employees other
than in the ordinary course of business in accordance with past practice or
entered into or amended any agreements, arrangements or plans or exercised
any discretion conferred on Universal's or any subsidiary's board of
directors or any committee thereof so as to provide for increased or
accelerated benefits to any employees as a result of or in connection with
the transactions contemplated by the Exchange Offer or any other business
combination or otherwise amended any such agreement, arrangement or plan to
make the same more favorable to any such employee, (x) except as may be
required by law, taken any action to terminate or amend any employee benefit
plan (as defined in Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended) of Universal or any of its subsidiaries, (xi)
amended, or authorized or proposed any amendment to, its articles or any
other material agreement (other than any amendment which provides that the
Rights are inapplicable to the Exchange Offer) or (xii) otherwise acted out
of the ordinary course of business, consistent with past practice;
(k) a tender or exchange offer, takeover bid or insider bid for some
portion or all of any outstanding securities of Universal or any of its
subsidiaries (including the Universal Shares or Rights) shall not have been
publicly proposed to be made or shall not have been made by another person
(including Universal or any of its subsidiaries or affiliates);
(l) Universal shall not have failed to perform in any material respect
any obligation or to comply in any material respect with any agreement or
covenant of Universal to be performed or complied with by it under the
Agreement;
(m) 99CENTS Only Stores and Universal shall not have agreed that 99CENTS
Only Stores will terminate the Exchange Offer or postpone the acceptance for
payment of or payment for shares of Universal Common Stock thereunder,
which, in the reasonable good faith judgment of 99CENTS Only Stores in any
such case, and regardless of the circumstances (including any action or
inaction by 99CENTS Only Stores or any of its affiliates) giving rise to any
such condition, makes it inadvisable to proceed with such acceptance for
payment or payment;
(n) any approval, permit, authorization, favorable review or consent of
any governmental entity shall have been obtained on terms satisfactory to
99CENTS Only Stores in its sole discretion;
(o) the Exchange Offer Consideration shall have been listed on the New
York Stock Exchange; and
(p) the Registration Statement has become effective prior to the
commencement of the Exchange Offer and the mailing of this Proxy
Statement/Prospectus, no stop order suspending the
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effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been initiated or threatened by the
Commission.
The foregoing conditions are for the sole benefit of 99CENTS Only Stores and
may be asserted by 99CENTS Only Stores in its sole discretion regardless of the
circumstances giving rise to any such conditions or may be waived by 99CENTS
Only Stores in its sole discretion in whole at any time or in part from time to
time. Each of the foregoing conditions must be satisfied or waived at or prior
to the Expiration Date. The failure by 99CENTS Only Stores at any time to
exercise its rights under any of the foregoing conditions shall not be deemed a
waiver of any such right, the waiver of any such right with respect to
particular facts and circumstances shall not be deemed a waiver with respect to
any other facts and circumstances, and each such right shall be deemed an
ongoing right which may be asserted at any time or from time to time. Any
determination by 99CENTS Only Stores concerning the events described in the
preceding paragraph will be final and binding upon all parties.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
99CENTS Only Stores reserves the right (but will not be obligated), at any
time or from time to time (whether before or after the requisite approval of
Universal Shareholders), in its sole discretion, (i) to extend the period of
time during which the Exchange Offer is open by giving oral or written notice of
such extension to the Exchange Agent, (ii) to amend the Exchange Offer by giving
oral or written notice of such amendment to the Exchange Agent, or (iii) to
delay (except as otherwise required by applicable law) acceptance for exchange
of, or exchange for, any shares of Universal Common Stock.
If 99CENTS Only Stores extends the period of time during which the Exchange
Offer is open, is delayed in accepting for exchange or exchanging any shares of
Universal Common Stock or is unable to accept for exchange or exchange any
shares of Universal Common Stock pursuant to the Exchange Offer for any reason,
then, without prejudice to 99CENTS Only Stores' rights under the Exchange Offer,
the Exchange Agent may, on behalf of 99CENTS Only Stores, retain all shares of
Universal Common Stock tendered, and such shares of Universal Common Stock may
not be withdrawn except as otherwise provided in "--Withdrawal Rights." The
reservation by 99CENTS Only Stores of the right to delay acceptance for exchange
of, or exchange for, any shares of Universal Common Stock is subject to the
requirements of Rules 13e-4(f) and 14e-1(c) under the Exchange Act, which
require that 99CENTS Only Stores pay the consideration offered or return the
shares of Universal Common Stock deposited by or on behalf of holders of shares
of Universal Common Stock promptly after the termination or withdrawal of the
Exchange Offer.
If 99CENTS Only Stores makes a material change in the terms of the Exchange
Offer or the information concerning the Exchange Offer or waives a material
condition of the Exchange Offer, 99CENTS Only Stores will disseminate additional
tender offer materials and extend the Exchange Offer to the extent required by
Rules 13e-4(d), 13e-4(e), 13e-4(f), 14d-4(c), 14d-6(d) and 14e-1 under the
Exchange Act. The minimum period during which an offer must remain open
following material changes in the terms of the offer or information concerning
the offer, other than a change in price or a change in the percentage of
securities sought or a change in any dealer's soliciting fee, will depend upon
the facts and circumstances then existing, including the relative materiality of
the changed terms or information. In the Commission's view, an offer should
remain open for a minimum of five business days from the date a material change
is first published, sent or given to security holders, and, if material changes
are made with respect to information that approaches the significance of price
and share levels, a minimum of ten business days may be required to allow for
adequate dissemination and investor response. With respect to a change in price
or, subject to certain limitations, a change in the percentage of securities
sought or a change in any dealer's soliciting fee, a minimum period of ten
business days is generally required under the applicable rules and regulations
of the Commission to allow for adequate dissemination to security holders and
investor response. Accordingly, if (i) 99CENTS Only Stores increases or
decreases the consideration offered for Universal Common Stock pursuant to the
Exchange Offer, 99CENTS Only Stores decreases the number of
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shares of Universal Common Stock eligible for exchange or changes are made in
any dealer's soliciting fee and (ii) the Exchange Offer is scheduled to expire
at any time earlier than the expiration of a period ending on the tenth business
day from and including the date that notice of such increase or decrease is
first published, sent or given, the Exchange Offer will be extended until the
expiration of such period of ten business days. The term "business day" shall
mean any day other than a Saturday, Sunday or a federal holiday and shall
consist of the time period from 12:01 A.M. through 12:00 midnight, New York City
time.
Any extension, delay, waiver, amendment or termination of the Exchange Offer
will be followed as promptly as practicable by a public announcement. In the
case of an extension, Rule 14e-1(d) under the Exchange Act requires that the
announcement be issued no later than 9:00 A.M., New York City time, on the next
business day after the previously scheduled Expiration Date in accordance with
the public announcement requirements of Rule 14d-4(c) under the Exchange Act.
Subject to applicable law (including Rules 13e-4(e), 14d-4(c) and 14d-6(d) under
the Exchange Act, which requires that any material change in the information
published, sent or given to holders of Universal Common Stock in connection with
the Exchange Offer be promptly disseminated to holders of Universal Common Stock
in a manner reasonably designed to inform holders of Universal Common Stock of
such change), and without limiting the manner in which 99CENTS Only Stores may
choose to make any public announcement, 99CENTS Only Stores will not have any
obligation to publish, advertise or otherwise communicate any such public
announcement other than by making a release to the Dow Jones News Service.
CONSEQUENCES TO NON-TENDERING HOLDERS OF UNIVERSAL COMMON STOCK.
The rights of non-tendering holders of Universal Common Stock will not be
altered, impaired or modified by the Exchange Offer. However, the purchase of
Universal Common Stock pursuant to the Exchange Offer will reduce the number of
holders of Universal Common Stock and the number of shares that might otherwise
trade publicly and could adversely affect the liquidity and market value of the
remaining shares, if any, held by the public. Universal Common Stock is
currently listed and traded on the Nasdaq National Market, which constitutes the
principal trading market for the Universal Common Stock. Depending upon the
number of shares purchased pursuant to the Exchange Offer, the Universal Common
Stock may no longer meet the requirements for continued listing on the Nasdaq
National Market and may be delisted. The Nasdaq National Market published
guidelines indicate that it would consider delisting the Universal Common Stock
if, among other things, the total number of publicly held shares falls below
200,000, the market value of publicly held shares is less than $1 million or the
total number of shareholders should fall below 400 (or 300 holders of round
lots). If these standards are not met, quotations might continue to be published
in the Nasdaq National Market, but if the number of holders of the shares of
Universal Common Stock falls below 300, or if the number of publicly held shares
falls below 100,000, or if the aggregate market value of such publicly held
shares does not exceed $200,000 or there are not at least two registered and
active market makers, one of which may be a market maker entering a stabilizing
bid, Nasdaq rules provide that the securities would no longer qualify for
inclusion in Nasdaq and Nasdaq would cease to provide any quotations. Shares
held directly or indirectly by an officer or director of Universal or by a
beneficial owner of more than 10% of the Universal Shares will ordinarily not be
considered as being publicly held for this purpose. In the event the shares were
no longer eligible for Nasdaq quotation, quotations might still be available
from other sources. The extent of the public market for the shares and the
availability of such quotations would, however, depend upon the number of
holders of such shares remaining at such time, the interest in maintaining a
market in such shares on the part of securities firms, the possible termination
of registration of such shares under the Exchange Act as described below and
other factors.
According to the Annual Report on Form 10-K filed by Universal for the year
ended December 31, 1997, as of March 17, 1998, there were over 100 holders of
record of Universal Common Stock (which do not include shares held under "street
name") and 9,393,328 shares were outstanding. If, as a result of the purchase of
Universal Common Stock pursuant to the Exchange Offer or otherwise, the
Universal
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Common Stock no longer meets the requirements of the Nasdaq National Market for
continued listing and the listing of Universal Common Stock is discontinued on
the Nasdaq National Market, the market for and trading in Universal Common Stock
could be adversely affected.
The Universal Common Stock is currently registered under the Exchange Act.
Registration of the Universal Common Stock under the Exchange Act may be
terminated upon application of Universal to the Commission if the Universal
Common Stock is not held by 300 or more holders of record. Termination of
registration of Universal Common Stock under the Exchange Act would make certain
provisions of the Exchange Act no longer applicable to Universal, such as the
short-swing profit recovery provisions of Section 16(b) of the Exchange Act, the
requirement of furnishing a proxy statement pursuant to Section 14(a) of the
Exchange Act in connection with shareholders' meetings and the related
requirement of furnishing an annual report to shareholders and the requirements
of Rule 13e-3 under the Exchange Act with respect to "going private"
transactions and would substantially reduce the information required to be
furnished by Universal to its shareholders and to the Commission. Furthermore,
the ability of "affiliates" of Universal and persons holding "restricted
securities" of Universal to dispose of such securities pursuant to Rule 144 or
144A promulgated under the Securities Act, may be impaired or eliminated.
99CENTS Only Stores cannot predict whether the reduction in the number of
shares of Universal Common Stock that might otherwise trade, or the termination
of registration of outstanding shares of Universal Common Stock, would have an
adverse effect on the market price for or the marketability of the shares of
Universal Common Stock.
99CENTS Only Stores intends to seek termination of registration of the
shares of Universal Common Stock under the Exchange Act as soon after the
completion of the Exchange Offer as the requirements for termination are met.
Additionally, it is likely that subsequent to the completion of the Exchange
Offer the shares of Universal Common Stock will no longer qualify for listing on
the Nasdaq National Market and consequently may be delisted. Such termination
and delisting could have a material adverse effect on the market for Universal
Common Stock.
Universal Common Stock is currently a "margin security" under the
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which has the effect, among other things, of allowing
brokers to extend credit on the collateral of the Universal Common Stock.
Depending upon factors similar to those described above regarding listing and
market quotations, it is possible that, following the Exchange Offer, the
Universal Common Stock would no longer constitute a "margin security" for the
purposes of the margin regulations of the Federal Reserve Board and therefore
could no longer be used as collateral for loans made by brokers. If registration
of Universal Common Stock under the Exchange Act were terminated, the Universal
Common Stock would no longer be a "margin security" or be eligible for reporting
on the Nasdaq National Market.
Further, 99CENTS Only Stores does not currently intend to merge Universal
with 99CENTS Only Stores. Consequently, if the Company's Exchange Offer is
successful, shareholders of Universal who do not tender may have to retain their
investment indefinitely. 99CENTS Only Stores has no current intention to pay
dividends on the Universal Shares.
LISTING OF UNIVERSAL EXCHANGE CONSIDERATION
The 99CENTS Only Stores Common Stock is listed on the New York Stock
Exchange. Application has been made to list the 99CENTS Only Stores Common Stock
issuable in connection with the Exchange Offer on the New York Stock Exchange.
FEES AND EXPENSES
Houlihan Lokey provided an opinion to the Board of Directors of 99CENTS Only
Stores to the effect that as of the date of such opinion, the Universal Exchange
Consideration to be furnished by 99CENTS
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Only Stores is fair to the holders of Universal Common Stock (other than 99CENTS
Only Stores) from a financial point of view. In connection with such services,
99CENTS Only Stores has agreed to pay to Houlihan Lokey an aggregate fee of
$75,000. 99CENTS Only Stores has also agreed to indemnify Houlihan Lokey and its
affiliates against certain claims and liabilities to which they may become
subject, including liabilities under the federal securities laws. See
"BACKGROUND OF THE TRANSACTION AND RELATED MATTERS--Opinion of 99CENTS Only
Stores' Financial Advisor."
99CENTS Only Stores has retained Piper Jaffray Inc. to act as the Dealer
Manager in connection with the Exchange Offer. In connection with such services,
99CENTS Only Stores has agreed to pay Piper Jaffray Inc. a fee of $75,000 in
connection with the Exchange Offer. 99CENTS Only Stores has also agreed to
indemnify Piper Jaffray Inc. and its affiliates against certain claims and
liabilities to which they may become subject, including liabilities under the
federal securities laws.
99CENTS Only Stores has retained to act as the Information
Agent and American Stock Transfer & Trust Company to act as the Exchange Agent
in connection with the Exchange Offer. The Information Agent may contact holders
of Universal Common Stock by mail, telephone, facsimile and personal interview
and may request brokers, dealers and other nominee holders of Universal Common
Stock to forward materials relating to the Exchange Offer to beneficial owners.
The Information Agent and the Exchange Agent each will receive reasonable and
customary compensation for their respective services, will be reimbursed for
certain reasonable out-of-pocket expenses and will be indemnified against
certain liabilities in connection therewith, including certain liabilities under
the federal securities laws.
Except as described above, 99CENTS Only Stores will not pay any fees or
commission to any broker or dealer or any other person for soliciting tenders of
Universal Common Stock pursuant to the Exchange Offer. Brokers, dealers,
commercial banks and trust companies will, upon request, be reimbursed by
99CENTS Only Stores for reasonable and necessary costs and expenses incurred by
them in forwarding materials to their customers.
SOURCE OF FUNDS
99CENTS Only Stores expects to obtain the funds for (i) amounts payable in
lieu of fractional shares of Universal Common Stock which would otherwise be
issuable in connection with the Exchange Offer and (ii) fees and expenses
related to the Exchange Offer, from a combination of available cash and cash
equivalents.
REGULATORY APPROVALS
Under the HSR Act and the rules that have been promulgated thereunder by the
Federal Trade Commission (the "FTC"), certain acquisition transactions may not
be consummated unless certain information has been furnished to the Antitrust
Division of the Department of Justice (the "Antitrust Division") and the FTC and
certain waiting period requirements have been satisfied. The acquisition of the
Universal Common Stock pursuant to the Exchange Offer is subject to the HSR Act.
On April 21, 1998, 99CENTS Only Stores filed with the Antitrust Division and
the FTC its Hart-Scott-Rodino Notification and Report Forms with respect to the
Exchange Offer. Under the applicable provisions of the HSR Act, the acquisition
of Universal Common Stock under the Exchange Offer cannot be consummated until
the expiration of a 30-day waiting period following the filing of such forms by
99CENTS Only Stores. Pursuant to the HSR Act, 99CENTS Only Stores requested
early termination of the waiting period applicable to the Exchange Offer, which
period has expired. See "--Conditions of the Exchange Offer".
Federal and state antitrust enforcement agencies frequently scrutinize the
legality under the antitrust laws of transactions such as 99CENTS Only Stores'
acquisition of the Universal Common Stock pursuant
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to the Exchange Offer. At any time before or after 99CENTS Only Stores'
acquisition of Universal Common Stock, any such agency could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the acquisition of Universal Common Stock
in the Exchange Offer or otherwise seeking divestiture of Universal Common Stock
acquired by 99CENTS Only Stores or divestiture of substantial assets of 99CENTS
Only Stores and/or Universal. Private parties may also bring legal action under
the antitrust laws under certain circumstances.
Based upon an examination of publicly available information relating to the
business in which both 99CENTS Only Stores and Universal are engaged, 99CENTS
Only Stores believes that the Exchange Offer will not violate antitrust laws.
Nevertheless, there can be no assurance that a challenge to the Exchange Offer
on antitrust grounds will not be made or that, if such a challenge is made,
99CENTS Only Stores will prevail. See "--Conditions of the Exchange Offer."
Based upon an examination of publicly available information filed by
Universal with the Commission and other publicly available information with
respect to Universal, except as disclosed above, 99CENTS Only Stores is not
aware of any license or regulatory permit or any other approval or other action
by any state, federal or foreign government or governmental agency that would be
required prior to the acquisition of Universal Common Stock pursuant to the
Exchange Offer or would be required in connection with the Exchange Offer and
which if not obtained, in any such case, would have a material adverse effect on
99CENTS Only Stores or Universal or either of their respective businesses. There
can be no assurance that any license, permit, approval or other action, if
needed, would be obtained or, if so obtained, when, or that adverse consequences
might not result to 99CENTS Only Stores or Universal or to their respective
businesses in the event of adverse regulatory action or inaction.
MISCELLANEOUS
99CENTS Only Stores is not aware of any jurisdiction where the making of the
Exchange Offer or the acceptance thereof would not be in compliance with
applicable law. If 99CENTS Only Stores becomes aware of any jurisdiction where
the making of the Exchange Offer or acceptance thereof would not be in
compliance with any valid, applicable law, 99CENTS Only Stores will make a good
faith effort to comply with such law. If, after such good faith effort, 99CENTS
Only Stores cannot comply with such law, the Exchange Offer will not be made to,
nor will tenders be accepted from or on behalf of, holders of Universal Common
Stock in any such jurisdiction.
In any jurisdiction where the securities, blue sky or other laws require the
Exchange Offer to be made by a licensed broker or dealer, the Exchange Offer
shall be deemed to be made on behalf of 99CENTS Only Stores by the Dealer
Manager or by one or more registered brokers or dealers licensed under the laws
of such jurisdiction.
No person is authorized to give any information or make any representation
on behalf of 99CENTS Only Stores not contained in this Proxy
Statement/Prospectus or in the Letter of Transmittal and, if given or made, such
information or representation must not be relied upon as having been authorized.
Pursuant to Rule 14d-3 of the General Rules and Regulations under the
Exchange Act, 99CENTS Only Stores has filed with the Commission the Schedule
14D-1, together with exhibits, furnishing certain additional information with
respect to the Exchange Offer. The Schedule 14D-1 and any amendments thereto,
including exhibits, may be inspected at, and copies may be obtained from, the
same places and in the same manner as set forth in "AVAILABLE INFORMATION"
(except that they will not be available at the regional offices of the
Commission).
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ACCOUNTING TREATMENT
Under applicable accounting standards, the Exchange Offer will be treated as
a purchase of Universal by 99CENTS Only Stores.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain anticipated U.S. federal income tax
consequences to a holder of Universal Common Stock (a "Holder") arising from the
exchange of Universal Common Stock for the Universal Exchange Consideration is
intended only as a general guide to current U.S. federal income tax law and IRS
authority applicable to Universal shareholders who for federal income tax
purposes are U.S. Persons (as defined below) and who beneficially own Universal
Common Stock as capital assets. The term "U.S. Person," as used herein, is
defined in Section 7701(a)(30) of the Internal Revenue Code ("IRC"), and
includes the following: (i) a citizen or resident of the U.S.; (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the U.S. or any political subdivision thereof; (iii) any estate the
income of which is subject to U.S. federal income taxation regardless of source;
and (iv) any trust if (A) a court within the U.S. is able to exercise primary
supervision over the administration of the trust and (B) one or more U.S.
Persons (as defined herein) have the authority to control all substantial
decisions of the trust. This discussion is based on laws, regulations, rulings,
and decisions in effect on the date hereof, all of which are subject to change
(possibly with retroactive effect) and differing interpretations. Further, this
discussion is for general information only, and does not address all aspects of
U.S. federal income taxation that may be applicable to Holders of Universal
Common Stock that are or may be subject to special treatment under the IRC,
including banks, tax-exempt organizations, insurance companies, dealers in
securities or foreign currency, Holders owning stock as part of a "straddle,"
"hedge" or "conversion transaction" and Holders who are not U.S. Persons. This
discussion does not address the state, local, or foreign tax consequences of the
Exchange Offer. EACH HOLDER OF UNIVERSAL COMMON STOCK CONSIDERING THE EXCHANGE
OFFER SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISOR REGARDING THE TAX
CONSEQUENCES OF AN EXCHANGE OF HIS, HER OR ITS SHARES OF UNIVERSAL COMMON STOCK
FOR THE UNIVERSAL EXCHANGE CONSIDERATION PURSUANT TO THE EXCHANGE OFFER IN LIGHT
OF SUCH HOLDER'S OWN SITUATION, INCLUDING THE APPLICATION AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS.
In the opinion of Troop Meisinger Steuber and Pasich, LLP, counsel to
99CENTS Only Stores, the following summary sets forth the material federal
income tax consequences of the Exchange Offer to a holder of Universal Common
Stock.
The exchange by a Holder of his, her or its shares of Universal Common Stock
for the Universal Exchange Consideration pursuant to the Exchange Offer will be
treated for U.S. federal income tax purposes as a reorganization within the
meaning of Section 368(a)(1)(B) of the IRC, provided that the terms of the
Exchange Offer are met. As a result, such Holder will not recognize any gain or
loss on the exchange except with respect to cash received in exchange for a
fractional share of 99CENTS Only Stores Common Stock (as discussed below). The
aggregate adjusted tax basis of the shares of 99CENTS Only Stores Common Stock
received in the Exchange Offer will be equal to the aggregate adjusted tax basis
of the Universal Common Stock surrendered therefor, and the holding period of
such 99CENTS Only Stores Common Stock will include the holding period during
which such Universal Common Stock was held. If the Holder has differing bases or
holding periods in respect of its Universal Common Stock, he, she or it should
consult his, her or its tax advisor prior to the exchange with regard to
identifying the bases or holding periods of the particular shares of 99CENTS
Only Stores Common Stock received pursuant to the Exchange Offer.
Cash received in exchange for a fractional share of 99CENTS Only Stores
Common Stock will be treated as received in redemption of a commensurate
fractional share of 99CENTS Only Stores Common
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Stock, and gain or loss will be recognized equal to the difference between the
amount of cash received and the portion of the basis of the Universal Common
Stock allocable to such fractional interest. Provided that a Holder held his,
her or its shares of Universal Common Stock as a capital asset, any such gain or
loss will be capital gain or loss, and will be (i) long-term capital gain or
loss if the holding period for such Universal Common Stock was more than 18
months as of the date of the exchange, (ii) mid-term capital gain or loss if the
holding period for such stock was more than one year but less than or equal to
18 months or (iii) short-term capital gain or loss if the holding period for
such stock was less than or equal to one year. Generally speaking, long-term
capital gain is taxed at a maximum 20% federal income tax rate, mid-term capital
gain is taxed at a maximum 28% federal income tax rate and short-term capital
gain is taxed at a maximum 39.6% ordinary federal income tax rates.
If the terms of the Exchange Offer are not met, or the Exchange Offer does
not otherwise result in a successful reorganization under Section 368(a)(i)(b)
of the IRC, then 99CENTS Only Stores may still exchange its shares for tendered
Universal Common Stock. An exchange under those conditions, however, will be
taxable to holders of Universal Common Stock under federal income tax laws and
may also be a taxable transaction under applicable state, local and foreign tax
laws. In such case, each Holder of Universal Common Stock participating in the
Exchange Offer will recognize gain or loss for federal income tax purposes equal
to the difference between the fair market value of the Universal Exchange
Consideration received by such holder in the Exchange and his, her or its
adjusted tax basis in such shares of Universal Common Stock exchanged therefor.
Provided that a holder held his, her or its shares of Universal Common Stock as
a capital asset, any such gain or loss will be capital gain or loss, and will be
(i) long-term capital gain or loss if the holding period for such Universal
Common Stock was more than 18 months as of the date of the exchange, (ii)
mid-term capital gain or loss if the holding period for such stock was more than
one year but less than or equal to 18 months or (iii) short-term capital gain or
loss if the holding period for such stock was less than or equal to one year.
Capital losses not offset by capital gain may be deducted against an individual
shareholder's ordinary income up to a maximum annual amount of $3,000. Unused
capital losses may be carried forward indefinitely by an individual shareholder.
All net capital gain of a corporate shareholder is subject to tax at ordinary
corporate rates. A corporate shareholder can deduct capital losses only to the
extent of capital gains, with unused losses being carried back three years and
forward five years.
In order to avoid "backup withholding" of federal income tax on payments of
cash to a Holder who participates in the Exchange Offer, a Holder must comply
with certain reporting and certification procedures, unless an exception applies
under the applicable law and regulations. In general, the backup withholding
rate is 31% for federal income tax purposes. A foreign Holder should consult
his, her or its tax advisor with respect to the application of withholding rules
to him, her or it with respect to any cash payments received pursuant to the
Exchange Offer.
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AGREEMENTS RELATING TO EXCHANGE OFFER
THE COOPERATION AGREEMENT
In connection with the Exchange Offer, 99CENTS Only Stores and Universal
entered into the Cooperation Agreement. The Cooperation Agreement provides that
Universal will support the Exchange Offer and will provide 99CENTS Only Stores
access to the books and records of Universal, as well as to Universal's officers
and directors for purposes of preparing filings and completing due diligence. In
addition, Universal agreed to file a Schedule 14D-9 with respect to the Exchange
Offer and agreed that Universal would not oppose the Exchange Offer in the
Schedule 14D-9. Universal also agreed to promptly furnish to 99CENTS Only Stores
with mailing labels, security position listings and any other available listing
or computer file containing the names and addresses of the record holders of
Universal Common Stock for purposes of mailing the Exchange Offer Documents.
Promptly upon the purchase by 99CENTS Only Stores of Universal Shares
pursuant to the Exchange Offer (provided that the Minimum Condition is
satisfied) and from time to time thereafter, 99CENTS Only Stores shall be
entitled, subject to compliance with Section 14(f) of the Exchange Act, to
designate up to such number of directors, rounded down to the next whole number
(except where such rounding down would cause 99CENTS Only Stores to not be
entitled to designate at least a majority of directors on the board, in which
case, such number will be rounded up) on the board of directors of Universal as
will give 99CENTS Only Stores representation on the board equal to the product
of the number of directors on the board (giving effect to the directors elected
pursuant to this sentence) multiplied by the percentage that the aggregate
number of shares of Universal Common Stock then beneficially owned by 99CENTS
Only Stores and its affiliates following such purchase bears to the total number
of shares of Universal Common Stock then outstanding. In the Cooperation
Agreement, Universal has agreed to promptly take all actions necessary to cause
99CENTS Only Stores' designees to be elected or appointed as directors of
Universal, including increasing the size of the board or securing the
resignations of incumbent directors or both.
Universal further agreed to take all action necessary to either (a) amend
the Rights Agreement so that the Exchange Offer would not cause (i) the
occurrence of the "Distribution Date" (as such term is defined in the Rights
Agreement) or (ii) the common stock purchase rights issued pursuant to the
Rights Agreement becoming evidenced by, and transferable pursuant to,
certificates separate from the certificates representing the Universal Common
Stock or (b) redeem the rights before 99CENTS Only Stores becomes an "Acquiring
Person" pursuant to the terms of the Rights Agreement. The Rights Agreement was
amended as of April 20, 1998 to waive the application of the Rights Agreement to
the Exchange Offer.
STOCKHOLDER SUPPORT AGREEMENTS
On February 24, 1998, 99CENTS Only Stores and each of the Principal
Stockholders entered into separate Stockholder Support Agreements in which each
Principal Stockholder agreed to vote its shares of Universal Common Stock (i) in
favor of the Exchange Offer and (ii) in favor of any other matter deemed
necessary by 99CENTS Only Stores to effectuate the Exchange Offer or solicited
in connection with the Exchange Offer, and considered and voted upon by the
shareholders of Universal. Together, the Principal Stockholders owned, as of the
Universal Record Date, 994,092 shares of Universal Common Stock, or
approximately 10% of the outstanding shares of Universal Common Stock. In
addition, each shareholder executing a Stockholder Support Agreement agreed to
tender and sell all of its Universal Common Stock to 99CENTS Only Stores
pursuant to the terms of the Exchange Offer.
In order to meet the Minimum Condition to the consummation of the Exchange
Offer that 37% of the outstanding shares (on a fully diluted basis) of Universal
Common Stock (other than shares owned by 99CENTS Only Stores) be validly
tendered and not withdrawn, an aggregate of 2,807,770 shares (not including
shares held by the Principal Stockholders) must be tendered.
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CONSULTING AGREEMENTS AND OPTION AGREEMENTS WITH CERTAIN SHAREHOLDERS
Furthermore, on February 24, 1998, Mark Ravich entered into a Consulting
Agreement with 99CENTS Only Stores whereby Mark Ravich agreed to provide
advisory services to 99CENTS Only Stores in connection with the Exchange Offer
and thereafter to provide sales, management and operations consulting services
in connection with the operation of the business of Universal following
completion of the Exchange Offer. The term of the consulting agreement ends
February 24, 1999. As compensation for the consulting services provided, 99CENTS
Only Stores granted to Mark Ravich an option to acquire 9,375 shares of 99CENTS
Only Stores Common Stock at $40.00 per share, and an option to acquire 15,000
shares of 99CENTS Only Stores Common Stock at $33.5625 per share pursuant to
separate Option Agreements each dated as of February 26, 1998. Each of the
options terminates on the earlier to occur of a termination of the Exchange
Offer and February 19, 2005. Each of the options becomes fully exercisable on
the first business day following consummation of the Exchange Offer.
On February 26, 1998, Norman Ravich also entered into a Consulting Agreement
with 99CENTS Only Stores whereby Norman Ravich agreed to provide advisory
services to 99CENTS Only Stores in connection with the Exchange Offer and
thereafter to provide sales, management and operation consulting services in
connection with the operation of the business of Universal following completion
of the Exchange Offer. The Consulting Agreement ended on May 27, 1998. As
compensation for the consulting services provided, 99CENTS Only Stores granted
to Norman Ravich an option to purchase 4,688 shares of 99CENTS Only Stores
Common Stock at $40.00 per share pursuant to a separate option agreement dated
February 26, 1998. The option terminates on the earlier to occur of a
termination of the Exchange Offer and February 19, 2005. The option becomes
fully exercisable on the first business day following consummation of the
Exchange Offer.
CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS
GENERAL
Based upon its examination of publicly available information with respect to
Universal and the review of certain information furnished by Universal to
99CENTS Only Stores and discussions of representatives of 99CENTS Only Stores
with representatives of Universal during 99CENTS Only Stores' investigation of
Universal, 99CENTS Only Stores is not aware of any license or other regulatory
permit that appears to be material to the business of Universal and its
subsidiaries, taken as a whole, which might be adversely affected by the
acquisition of shares by 99CENTS Only Stores pursuant to the Exchange Offer, or,
except for approvals which 99CENTS Only Stores has already applied for, of any
approval or other action by any domestic (federal or state) or foreign
governmental, administrative or regulatory authority or agency which would be
required prior to the acquisition of shares by 99CENTS Only Stores pursuant to
the Exchange Offer. Should any such approval or other action be required, it is
99CENTS Only Stores' present intention to seek such approval or action. 99CENTS
Only Stores does not currently intend, however, to delay the purchase of shares
tendered pursuant to the Exchange Offer pending the outcome of any such action
or the receipt of any such approval (subject to 99CENTS Only Stores' right to
decline to purchase shares if the conditions relating to the HSR Act or any of
the other conditions in "THE EXCHANGE OFFER-- Conditions of the Exchange Offer"
shall have occurred). There can be no assurance that any such approval or other
action, if needed, would be obtained without substantial conditions or that
adverse consequences might not result to the business of Universal or 99CENTS
Only Stores or that certain parts of the businesses of Universal or 99CENTS Only
Stores might not have to be disposed of or held separate or other substantial
conditions complied with in order to obtain such approval or other action or in
the event that such approval was not obtained or such other action was not
taken.
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STATE TAKEOVER LAWS
Section 673 of the MBCA generally provides that a publicly-held Minnesota
corporation may not engage in any business combination (defined to include a
variety of transactions, including mergers), or vote, consent or otherwise act
to authorize any of its subsidiaries to engage in a business combination, with
any Interested Shareholder (defined to include, among others, any person who
beneficially owns or controls 10% or more of a corporation's outstanding voting
stock) for a period of four years following the date such person became an
Interested Shareholder, unless before such person became an Interested
Shareholder, a committee consisting of all disinterested directors of the
corporation approved the business combination or approved the transaction in
which the Interested Shareholder became an Interested Shareholder. In November
1997, 99CENTS Only Stores became an Interested Shareholder of Universal when it
acquired 48% of Universal's Common Stock. 99CENTS Only Stores' acquisition of
Universal Common Stock, while unanimously approved by Universal's full board of
directors, was not approved by a separate committee consisting solely of
disinterested directors. Because a committee of the board of directors of
Universal consisting of all of the disinterested directors of Universal was not
formed pursuant to Section 673 of the MBCA in connection with the November 17
Acquisition, 99CENTS Only Stores may be unable to consummate a merger with
Universal following the Exchange Offer.
The Minnesota Control Share Acquisition Act generally provides that a
shareholder beneficially owning stock with 20%, 33 1/3% or 50% or more of the
voting power of the outstanding capital stock of a publicly held corporation or
certain other corporations cannot vote more than 20%, 33 1/3% or 50%,
respectively of the total voting power of the outstanding stock of the
corporation unless voting rights are approved by (i) the affirmative vote of the
holders of a majority of all shares entitled to vote and (ii) the affirmative
vote of the holders of a majority of all outstanding shares entitled to vote,
excluding Interested Shares. On , 1998, shareholders of Universal
will vote upon whether to amend the By-Laws of Universal to provide that the
Minnesota Control Share Acquisition Act will not apply to Universal or its
shareholders. See "THE UNIVERSAL SPECIAL MEETING."
Chapter 80B generally provides that it is unlawful for any person to make a
takeover offer unless a registration statement on the form prescribed by the
Minnesota Commissioner of Commerce shall have been filed with the Commissioner
of Commerce and delivered to the target company, and the material terms of and
certain specified information shall be delivered to all offerees residing in
Minnesota as soon as practicable after the filing of such registration
statement. 99CENTS Only Stores intends to comply with Chapter 80B in connection
with the Exchange Offer.
Section 675 of the MBCA provides that for two years following the last
purchase of shares pursuant to a tender offer in the nature of the Exchange
Offer, an acquiror may not acquire shares unless the shareholder from whom the
shares are being acquired is given an opportunity to dispose of the shares upon
substantially equivalent terms as those provided in the tender offer.
99CENTS Only Stores does not believe that any state takeover laws, other
than Section 673 of the MBCA, the Minnesota Control Share Acquisition Act,
Chapter 80B and Section 675 of the MBCA, apply to the Exchange Offer and it has
not complied with any other state takeover laws. If 99CENTS Only Stores becomes
aware of any valid state statute prohibiting the making of the Exchange Offer or
the acceptance of shares pursuant thereto, 99CENTS Only Stores will make a good
faith effort to comply with such statute. If, after such good faith effort,
99CENTS Only Stores cannot comply with such state statute, the Exchange Offer
will not be made to (nor will tenders be accepted from or on behalf of) the
holders of shares of Universal Common Stock in such state. See "THE EXCHANGE
OFFER--Conditions of the Exchange Offer".
Universal, directly or through subsidiaries, conducts business in a number
of states throughout the United States in addition to Minnesota, some of which
have also enacted takeover laws. 99CENTS Only Stores does not know whether any
of the laws of these states will, by their terms, apply to the Exchange Offer
and has not complied with any such laws. Should any person seek to apply any
state takeover law in
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addition to those of Minnesota, 99CENTS Only Stores will take such action as
then appears desirable, which may include challenging the validity or
applicability of any such statute in appropriate court proceedings. In the event
it is asserted that one or more state takeover laws is applicable to the
Exchange Offer, and an appropriate court does not determine that it is
inapplicable or invalid as applied to the Exchange Offer, 99CENTS Only Stores
might be required to file certain information with, or receive approvals from,
the relevant state authorities. In addition, if enjoined, 99CENTS Only Stores
might be unable to accept for payment any shares tendered pursuant to the
Exchange Offer, or be delayed in continuing or consummating the Exchange Offer.
In such case, 99CENTS Only Stores may not be obligated to accept for payment any
shares tendered. See "THE EXCHANGE OFFER--Conditions of the Exchange Offer".
MANAGEMENT OF 99CENTS ONLY STORES UPON COMPLETION OF EXCHANGE OFFER
The management of 99 CENTS Only Stores and the 99 CENTS Only Stores Board of
Directors will be unaffected by the Exchange Offer. The Cooperation Agreement
provides that if 99 CENTS Only Stores acquires at least a majority of the
Universal Common Stock pursuant to the Exchange Offer, 99 CENTS Only Stores will
be entitled to designate for appointment or election to Universal's board, upon
written notice to Universal, that number of directors which reflects 99 CENTS
Only Stores' proportional ownership of Universal Common Stock. The following
sets forth certain information as of March 31, 1998 with respect to each
director, executive officer and key employee of 99 CENTS Only Stores:
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS AGE POSITION
- --------------------------------------- --- -------------------------------------------------------------------
<S> <C> <C>
David Gold............................. 65 Chairman of the Board and Chief Executive Officer
Howard Gold............................ 38 Senior Vice President of Distribution and Director
Eric Schiffer.......................... 37 Senior Vice President of Finance and Operations, Treasurer and
Director
Jeff Gold.............................. 30 Senior Vice President of Real Estate and Information Systems and
Director
Andy Farina............................ 51 Chief Financial Officer
Helen Pipkin........................... 55 Senior Vice President of Wholesale Operations
William O. Christy..................... 66 Director
Marvin Holen........................... 68 Director
Ben Schwartz........................... 80 Director
Lawrence Glascott...................... 63 Director
<CAPTION>
CERTAIN KEY EMPLOYEES
- ---------------------------------------
<S> <C> <C>
Larry Borenstein....................... 46 Vice President of Construction and Advertising
Carolyn J. Brock....................... 47 Vice President of Human Resources
Jose Gomez............................. 38 Vice President of Retail Operations
Kenneth R. Phipps...................... 47 Vice President of Distribution
</TABLE>
The executive officers of the Company are appointed by and serve at the
discretion of the Board of Directors. David Gold is the father of Howard Gold
and Jeff Gold and the father-in-law of Eric Schiffer.
DAVID GOLD has been Chairman of the Board and Chief Executive Officer of the
Company since the founding of the Company in 1965. Mr. Gold has over 40 years of
retail experience and 20 years of wholesale experience.
HOWARD GOLD has been a director of the Company since 1991. He joined the
Company in 1982 and has served in various managerial capacities. He currently
serves as Senior Vice President of Distribution. Mr. Gold received his B.S.
degree from the University of California at Los Angeles in 1984.
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ERIC SCHIFFER has been a director of the Company since 1991. He joined the
Company in 1992 and served in various managerial capacities. He currently serves
as Senior Vice President of Finance and Operations and Treasurer. Prior to
joining the Company, from 1987 to 1992, he was employed by Oxford Partners, a
venture capital firm. Mr. Schiffer received his B.S.E. degree from Duke
University in 1983 and his M.B.A. from the Harvard Business School in 1987.
JEFF GOLD has been a director of the Company since 1991. He joined the
Company in 1984 and has served in various managerial capacities since 1989. He
currently serves as Senior Vice President of Real Estate and Information
Systems. Mr. Gold received his B.A. degree from the University of California at
Berkeley in 1989.
ANDY FARINA joined the Company in September 1996 as Chief Financial Officer.
Prior to joining the Company, from April 1993 through August 1996, Mr. Farina
was Vice President of Finance of Crown BBK, Inc., a food brokerage business. Mr.
Farina was employed by a division of Sara Lee from 1976 through 1988, ultimately
in the capacity of President. Mr. Farina began his career with Arthur Andersen
LLP.
HELEN PIPKIN joined the Company in 1991 and serves as Senior Vice President
of Wholesale Operations. Prior to joining the Company, from 1985 through 1991,
Ms. Pipkin served as Controller and Manager of Wholesale and Import Operations
of Cobra Associated International, a wholesaler of variety merchandise. Prior to
1985, for many years Ms. Pipkin was an owner, Vice President and Controller of
Markell Imports, a general merchandise wholesaler.
WILLIAM O. CHRISTY has been a director of the Company since 1992. He was
President and Chief Executive Officer of Certified Grocers of California from
1977 to 1990 where he spent the majority of his career. He has served on
numerous trade association boards including the executive committee of the
National Grocers Association Board and Chairman of the Merchant and Manufacturer
Association Board.
MARVIN HOLEN has been a director of the Company since 1991. He is an
attorney and in 1960 founded the law firm of Van Petten & Holen. He served on
the Board of the Southern Californian Rapid Transit District from 1976 to 1993
(six of those years as the Board's President). He also 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 has been a director of the Company 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 has also 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 (FMI).
LAWRENCE GLASCOTT has been a director of the Company since October 1996. He
was the former Vice President--Finance of Waste Management International. 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.
CERTAIN KEY EMPLOYEES:
LARRY BORENSTEIN joined the Company in 1984 and currently serves as Vice
President of Construction and Advertising. Mr. Borenstein has also served in
various other managerial capacities within the Company.
CAROLYN J. BROCK joined the Company in 1994 and currently serves as Vice
President of Human Resources. During 1993 and 1994, Ms. Brock was employed by
Dodge, Warren & Peters Consultants, Inc., a consulting firm, where she served as
Executive Vice President. From 1992 to 1993, she was an owner and
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the Vice President of Comp Solutions, a worker's compensation consulting firm.
From 1990 to 1992, she was the President of Employers Management Services, a
human resources consulting firm.
JOSE GOMEZ joined the Company in 1980 and has served in many different
managerial capacities, most recently as Vice President of Retail Operations. He
has over 20 years of retail experience.
KENNETH R. PHIPPS joined the Company in 1993 and serves as Vice President of
Distribution. From 1991 until 1993, Mr. Phipps served as Director of Operations
for SE Rykoff Inc., a large food wholesaler. From 1970 to 1991, Mr. Phipps was
employed by Lucky Stores, Inc., a large grocery chain, where his
responsibilities included, at various times, serving as the distribution center
manager at three Lucky's facilities.
THE UNIVERSAL SPECIAL MEETING
TIME, DATE AND PLACE
The Universal Special Meeting will be held at 9:00 a.m. (local time) on
August , 1998 at the offices of Universal, 5000 Winnetka Avenue North, New
Hope, Minnesota 55428. This Proxy Statement/Prospectus is being sent to holders
of Universal Common Stock and is accompanied by the form of proxy which is being
solicited by 99CENTS Only Stores for use at the Universal Special Meeting and at
any adjournment or postponement thereof.
PURPOSE OF THE UNIVERSAL SPECIAL MEETING
The Minnesota Business Corporation Act defines a "control share acquisition"
as an acquisition, directly or indirectly, by an acquiring person of beneficial
ownership of shares of a subject corporation that, but for the Minnesota Control
Share Acquisition Act, would, when added to all other shares of the subject
corporation beneficially owned by the acquiring person, entitle the acquiring
person, immediately after the acquisition, to exercise or direct the exercise of
a new range of voting power of the subject corporation within any of the
following ranges: (i) at least 20 percent but less than 33 1/3 percent; (ii) at
least 33 1/3 percent but less than or equal to 50 percent; and (iii) over 50
percent. Unless otherwise expressly provided in the Articles of Incorporation or
By-Laws approved by a corporation's shareholders, the Minnesota Control Share
Acquisition Act provides that shares acquired in a control share acquisition in
excess of any of the aforementioned thresholds will have no voting rights,
unless voting rights are accorded such shares by a vote of the shareholders. The
Minnesota Control Share Acquisition Act currently applies to Universal and its
shareholders since neither Universal's Articles of Incorporation nor By-Laws
contain a provision electing to opt out of the statute. In accordance with the
Minnesota Control Share Acquisition Act, shares of Universal Common Stock
acquired by 99CENTS Only Stores in the Exchange Offer will have no voting
rights, unless the shareholders of Universal vote in favor of an amendment to
the By-Laws of Universal to provide that the Minnesota Control Share Acquisition
Act will not apply to Universal or its shareholders. Consummation of the
Exchange Offer is conditioned upon, among other things, the approval of the
amendment to Universal's By-Laws. This matter will be considered and voted upon
by the holders of shares of Universal Common Stock at the Universal Special
Meeting.
UNIVERSAL RECORD DATE, QUORUM AND VOTE REQUIRED
The Universal board of directors has fixed the close of business on July 9,
1998 as the Universal Record Date for the determination of shareholders entitled
to notice of, or to vote at, the Universal Special Meeting and any of its
adjournments or postponements. At the Universal Record Date, 9,393,328 shares of
Universal Common Stock were outstanding. The shares of Universal Common Stock
are the only outstanding shares of capital stock of Universal entitled to vote
at the Universal Special Meeting. Each holder of record of shares of Universal
Common Stock on the Universal Record Date is entitled to cast one vote per
share, in person or by proxy, on all matters submitted to the shareholders for
approval at the Universal Special Meeting. The presence at the Universal Special
Meeting, in person or by proxy, of the
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holders of a majority of the shares of Universal Common Stock entitled to vote
at the Universal Special Meeting is necessary to constitute a quorum.
The approval of the amendment to Universal's By-Laws requires the
affirmative vote, in person or by proxy, of a majority of all shares present and
entitled to vote. At the Universal Record Date, 99CENTS Only Stores beneficially
owned 4,500,000 shares of Universal Common Stock, the Principal Stockholders
owned 994,092 shares of Universal Common Stock, and Universal's officers and its
employees who are also directors beneficially owned 2,700 shares, representing
in the aggregate approximately 53% of the outstanding shares of Universal Common
Stock (on a fully diluted basis).
THE CONSUMMATION OF THE EXCHANGE OFFER IS CONDITIONED UPON A FAVORABLE VOTE
OF UNIVERSAL'S SHAREHOLDERS WITH RESPECT TO THE AMENDMENT TO UNIVERSAL'S
BY-LAWS. ACCORDINGLY, IT IS OF THE UTMOST IMPORTANCE THAT SHAREHOLDERS WHO WISH
TO TENDER THEIR SHARES TO 99CENTS ONLY STORES IN CONNECTION WITH THE EXCHANGE
OFFER VOTE "FOR" THE AMENDMENT TO UNIVERSAL'S BY-LAWS.
NO RECOMMENDATION OF THE UNIVERSAL BOARD OF DIRECTORS
Although Houlihan Lokey has delivered an opinion to the Board of Directors
of 99CENTS Only Stores to the effect that as of the date of such opinion, the
Exchange Consideration to be furnished by 99CENTS Only Stores is fair to the
holders of Universal Common Stock (other than 99CENTS Only Stores) from a
financial point of view, due to the composition of the board of Universal
including three designees of 99CENTS Only Stores and two designees of Universal,
the Universal board of directors has decided to remain neutral with respect to
the Exchange Offer and has not made a determination that the Exchange Offer is
fair to or in the best interests of Universal and its shareholders. However,
Universal has agreed to support the Exchange Offer. In addition, the Universal
board of directors recommends a vote for the approval of an amendment to the
By-Laws of Universal to provide that the Minnesota Control Share Acquisition Act
will not apply to Universal or its shareholders. See "AGREEMENTS RELATING TO
EXCHANGE OFFER--The Cooperation Agreement" and "BACKGROUND OF THE EXCHANGE OFFER
AND RELATED MATTERS--No Recommendation of the Universal Board of Directors."
PROXIES; REVOCABILITY OF PROXIES
All shares of Universal Common Stock represented by properly executed
proxies received prior to or at the Universal Special Meeting, and not revoked,
will be voted and will be voted in accordance with the instructions indicated in
such proxies. The approval of the amendment to the By-Laws requires the
affirmative vote of a majority of the shares of Common Stock of Universal
present or represented and voting on the matter at the Universal Special
Meeting. Abstentions will be deemed to be present or represented at the meeting
and entitled to vote. Accordingly, an abstention from voting by a shareholder
has the same effect as a vote "against" the matter. Broker non-votes will not be
deemed to be present or represented at the meeting and entitled to vote.
Accordingly, broker non-votes will be treated as neither a vote "for" nor a vote
"against" the matter. A shareholder may revoke his or her proxy at any time
prior to its use by delivering to an officer of Universal a signed notice of
revocation or a later dated signed proxy. Prior to the Universal Special
Meeting, any written notice of revocation or subsequent proxy should be
delivered to Universal International, Inc., 5000 Winnetka Avenue North, New
Hope, Minnesota 55428, Attention: President or Chief Financial Officer, or hand
delivered to the President or Chief Financial Officer of Universal at the
aforementioned address, at or before the taking of the vote at the Universal
Special Meeting.
APPRAISAL RIGHTS
Holders of Universal Common Stock will not be entitled to appraisal rights
in connection with the Exchange Offer.
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PROXY SOLICITATION
All expenses of this solicitation in connection with the Universal Special
Meeting, including the cost of preparing and mailing this Proxy
Statement/Prospectus, will be borne by 99CENTS Only Stores. Arrangements will
also be made with custodians, nominees and fiduciaries for forwarding of proxy
solicitation materials to beneficial owners of shares held of record by such
custodians, nominees and fiduciaries, and 99CENTS Only Stores will reimburse
such custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
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COMPARISON OF RIGHTS OF SHAREHOLDERS
OF 99CENTS ONLY STORES AND UNIVERSAL
The rights of the Universal shareholders are governed by Universal's
Articles of Incorporation (the "Universal Articles") and By-Laws (the "Universal
By-Laws") and the Minnesota Business Corporation Act (the "MBCA"). Upon
consummation of the Exchange Offer, the Universal shareholders who tender their
shares of Universal Common Stock will become shareholders of 99CENTS Only Stores
and their rights as shareholders and the internal affairs of 99CENTS Only Stores
will be governed by the General Corporation Law of the State of California (the
"CGCL") and by 99CENTS Only Stores' Articles of Incorporation (the "99CENTS Only
Stores Articles") and By-Laws (the "99CENTS Only Stores By-Laws"), which differ
in certain material respects from the Universal Articles and the Universal
By-Laws. The following is a summary of certain differences between the rights of
Universal shareholders compared with those of 99CENTS Only Stores shareholders.
The following discussion of the differences between the Universal Articles
and the Universal By-Laws and the 99CENTS Only Stores Articles and 99CENTS Only
Stores By-Laws is not intended to be complete and is qualified in its entirety
by reference to the articles and by-laws of 99CENTS Only Stores and Universal.
The CGCL and the MBCA are discussed herein as they supplement, modify or limit
the provisions of each company's articles or by-laws. Certain significant
differences which may affect the rights and interests of shareholders are
summarized below in "CERTAIN DIFFERENCES BETWEEN CALIFORNIA AND MINNESOTA
CORPORATION LAW."
AUTHORIZED CAPITAL STOCK
UNIVERSAL. Universal is authorized to issue 75,000,000 shares of Common
Stock, $.05 par value per share. As of June 9, 1998, 9,393,328 shares of
Universal Common Stock were outstanding.
99CENTS ONLY STORES. 99CENTS Only Stores is authorized to issue 40,000,000
shares of Common Stock and 1,000,000 shares of Preferred Stock, no par value.
The Board of Directors of 99CENTS Only Stores is authorized to determine or
alter the rights, preferences, privileges and restrictions granted or imposed
upon any wholly unissued series of Preferred Stock and, within the limitations
or restrictions stated in any Board resolution originally fixing the number of
shares constituting any series, to increase or decrease the number of shares of
any such series subsequent to the issue of shares of that series, to determine
the designation and par value of any series and to fix the number of shares of
any series. As of June 9, 1998, approximately 19,405,712 shares of 99CENTS Only
Stores Common Stock and no shares of 99CENTS Only Stores Preferred Stock were
outstanding.
BOARD OF DIRECTORS
UNIVERSAL. Universal's By-Laws provide that the Universal board shall
consist of one or more directors as determined by the shareholders prior to the
election of directors. At March 31, 1998, the number of directors constituting
the entire board was five. A director may serve for a fixed term specified by
the shareholders at the time of election, which shall not exceed five years, or,
if no term is specified at the time of election, the director's term shall
expire at the next regular meeting of shareholders.
99CENTS ONLY STORES. 99CENTS Only Stores' By-Laws provide that the number
of directors constituting the entire Board shall be not less than seven (7) nor
more than eleven (11) as fixed by a duly adopted resolution of the Board. At
March 31, 1998, the number of directors constituting the entire Board was eight
(8). The 99CENTS Only Stores By-Laws also provide that an amendment to the
Articles or the Bylaws reducing the number of directors to a number less than
five cannot be adopted if the votes cast against its adoption at a meeting or
the shares not consenting to its adoption in the case of action by written
consent are equal to more than 16 2/3% of the outstanding shares entitled to
vote.
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REMOVAL OF DIRECTORS
UNIVERSAL. Under the MBCA, unless modified by the articles, the bylaws or a
shareholder control agreement, any one or all of the directors may be removed at
any time, with or without cause, by the affirmative vote of the holders of the
proportion or number of the voting power of the shares of the classes or series
the director represents sufficient to elect them, except for those corporations
with cumulative voting. The Universal By-Laws provide that any one or all of the
directors may be removed at any time, with or without cause, by the affirmative
vote of the holders of the proportion or number of the voting power of the
shares of the classes or series the director represents sufficient to elect
them.
99CENTS ONLY STORES. The CGCL provides that any or all directors may be
removed without cause if the removal is approved by the holders of a majority of
the outstanding shares; however, no individual director may be removed (unless
the entire board is removed) if the number of votes cast against removal, or not
consenting in writing to the removal, would be sufficient to elect the director
if voted cumulatively at an election at which the same number of votes were cast
and the entire number of directors authorized at the time of the director's most
recent election were then being elected. The CGCL provides that any or all of
the directors may be removed from office, without cause, if such removal is
approved by a vote of a majority of the outstanding shares entitled to vote.
VOTING RIGHTS
UNIVERSAL. The MBCA provides that unless otherwise provided in the
articles, in the terms of the shares or pursuant to the Minnesota Control Share
Acquisition Act, a shareholder has one vote for each share held. The Universal
Articles make no provision for the amount of votes per share, and thus each
holder of Universal Common Stock is entitled to one vote per share on all
matters to be voted upon by Universal shareholders, except as otherwise provided
in the Minnesota Control Share Acquisition Act. The Universal By-Laws provide
that the holders of shares entitled to vote for directors of Universal may, by
unanimous affirmative vote, take any action that Chapter 302A of the MBCA
requires or permits the board to take or the shareholders to take after action
or approval of the board.
99CENTS ONLY STORES. Each shareholder is entitled to one vote for each
share held of record on all matters to be voted on by the shareholders.
CUMULATIVE VOTING
UNIVERSAL. The Universal Articles provides that there shall be no
cumulative voting by its shareholders.
99CENTS ONLY STORES. The 99CENTS Only Stores Articles provide that
shareholders may not cumulative votes in the election of directors as long as
99CENTS Only Stores is a "listed corporation" within the meaning of Section
301.5 of the CGCL. A "listed corporation" includes a corporation, such as
99CENTS Only Stores, with outstanding shares listed on the New York Stock
Exchange. Accordingly, cumulative voting currently is not permitted in the
election of directors.
NOTICE OF SHAREHOLDER MEETINGS
UNIVERSAL. Pursuant to the Universal By-Laws, notice of all meetings of
shareholders shall be given to every holder of shares entitled to vote at such
meeting between 3 and 60 days before the date of the meeting. The notice shall
contain the date, time and place of the meeting, and any other information
required under the MBCA. In the case of a special meeting, the notice shall
contain a statement of the purposes of the meeting.
99CENTS ONLY STORES. The 99CENTS Only Stores By-Laws provide that written
notice of each meeting of shareholders, annual or special, shall be given to
each shareholder entitled to vote thereat, not
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less than 10 nor more than 60 days before the date of the meeting. The notice of
each such annual or special meeting of shareholders shall state the place, the
date, and the hour of the meeting, and (1) in the case of a special meeting, the
general nature of the business to be transacted at the meeting (and no other
business may be transacted at the meeting), or (2) in the case of the annual
meeting, those matters which the Board, at the time of the mailing of the
notice, intend to present for action by the shareholders, and any proper matter
may be presented at the meeting for action, provided, however, that the notice
shall specify the general nature of a proposal, if any, to take action with
respect to approval of (i) a contract or other transaction with an interested
director pursuant to Section 310 of the CGCL, (ii) amendment of the Articles of
Incorporation pursuant to Section 902 of the CGCL , (iii) a reorganization of
the corporation pursuant to Section 1201 of the CGCL, (iv) voluntary dissolution
of the corporation pursuant to Section 1900 of the CGCL or (v) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, if any, pursuant to Section 2007 of the CGCL. The notice of any meeting
at which directors are to be elected shall include the names of nominees
intended at the time of the notice to be presented by management for election.
SPECIAL MEETINGS OF SHAREHOLDERS
UNIVERSAL. The Universal By-Laws provide that special meetings of the
shareholders may be called for any purpose or purposes at any time by the Chief
Executive Officer, the Treasurer, or two or more directors. Under the MBCA, a
special meeting of the shareholders may also be called by the Chief Financial
Officer. A special meeting of the shareholders may also be called by the board
upon written notice of demand given to the Chief Executive Officer or Treasurer
of Universal by a shareholder or shareholders holding ten percent or more of the
voting power of all shares entitled to vote.
99CENTS ONLY STORES. The 99CENTS Only Stores By-Laws provide that special
meetings of the shareholders for the purpose of taking any action which the
shareholders are permitted to take under the CGCL may be called at any time by
the Chairman of the Board or the President, or by the Board, or by any Vice
President, or by one or more shareholders entitled to cast not less than ten
percent of the votes of the meeting.
SHAREHOLDER ACTIONS BY WRITTEN CONSENT
UNIVERSAL. Section 302A.441 of the MBCA provides that an action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting by written action signed by all of the shareholders entitled to vote on
that action. The written action is effective when it has been signed by all of
those shareholders, unless a different effective time is provided in the written
action. The Universal By-Laws provide that an action required or permitted to be
taken at a meeting of the shareholders may be taken without a meeting by written
action signed by all of the shareholders entitled to vote on that action.
99CENTS ONLY STORES. Section 603 of CGCL states that unless otherwise
provided in the articles, any action which may be taken at any annual or special
meeting of shareholders may be taken without a meeting and without prior notice,
if a consent in writing, setting forth the action so taken, shall be signed by
the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. The 99CENTS
Only Stores Articles expressly provide that the right of the shareholders to
take action by written consent is eliminated.
AMENDMENTS TO ARTICLES OF INCORPORATION
UNIVERSAL. Under the MBCA, amendments to Universal's Articles, unless
otherwise specified in the Articles, generally must be approved by the
affirmative vote of holders of a majority of the voting power of all shares
present and entitled to vote on the amendment, unless a class vote is required.
Universal's Articles do not contain any super-majority or other restrictions on
amendment of the Articles.
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99CENTS ONLY STORES. Under the CGCL, unless otherwise specified in the
company's articles of incorporation, an amendment to such articles of
incorporation may be adopted if approved by the board and approved by the
affirmative vote of holders of the shares of stock entitled to vote thereon,
unless a class vote is required. The 99CENTS Only Stores Articles do not contain
any super-majority or other restrictions on amendment of the Articles.
AMENDMENTS TO BY-LAWS
UNIVERSAL. The Universal By-Laws provide that they may be amended or
altered by the board at any meeting. By-Laws amended or altered by the board may
be amended or repealed by the shareholders in accordance with the applicable
provisions of the MBCA. Under the MBCA, unless reserved by the articles to the
shareholders, the power to adopt, amend, or repeal the by-laws is vested in the
board. The power of the board is subject to the power of the shareholders, to
adopt, amend, or repeal by-laws adopted, amended, or repealed by the board.
Further, after the adoption of the initial by-laws, under the MBCA, the board
can not adopt, amend or repeal a by-law fixing a quorum for meetings of
shareholders, prescribing procedures for removing directors or filling vacancies
in the board, or fixing the number of directors or their classifications,
qualifications, or terms of office, but may adopt or amend a by-law to increase
the number of directors. If a shareholder or shareholders holding three percent
or more of the voting power of the shares entitled to vote propose a resolution
for action by the shareholders to adopt, amend, or repeal by-laws adopted,
amended, or repealed by the board and the resolution sets forth the provision or
provisions proposed for adoption, amendment, or repeal, the limitations and
procedures for submitting, considering, and adopting the resolution are the same
as those for an amendment of the articles of incorporation.
99CENTS ONLY STORES. The CGCL provides that by-laws may be adopted, amended
or repealed either by affirmative vote of the holders of capital shares entitled
to vote thereon or by approval of the board. Moreover, the articles or by-laws
may restrict or eliminate the power of the board to adopt, amend or repeal any
or all by-laws. The 99CENTS Only Stores By-Laws provide that by-laws may be
adopted, amended or repealed by the vote of holders of a majority of the
outstanding shares entitled to vote. In addition, by-laws other than a by-law or
an amendment of a by-law changing the authorized number of directors, may be
adopted, amended or repealed by the board of directors. By-Laws adopted, amended
or repealed by the board may be adopted, amended or repealed by the shareholders
in accordance with the applicable provisions of the CGCL.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
For a discussion of Indemnification of Officers and Directors for both
99CENTS Only Stores and Universal, refer to "CERTAIN DIFFERENCES BETWEEN
CALIFORNIA AND MINNESOTA CORPORATION LAW."
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CERTAIN DIFFERENCES BETWEEN CALIFORNIA AND
MINNESOTA CORPORATION LAW
The rights of Universal shareholders who become shareholders of 99CENTS Only
Stores will be governed by the CGCL rather than the MBCA. The MBCA and the CGCL
differ in many respects and, consequently, it is not practical to summarize all
of such differences. In addition to matters discussed elsewhere in this Proxy
Statement/Prospectus, and the differences described under "COMPARISON OF RIGHTS
OF SHAREHOLDERS OF 99CENTS ONLY STORES AND UNIVERSAL," the following is a
summary of certain significant differences which may affect the rights and
interests of the shareholders of Universal.
VOTE REQUIRED FOR CERTAIN MERGERS
Both the MBCA and CGCL require that certain mergers and exchanges be
approved by a majority of the outstanding shares entitled to vote thereon. Under
the MBCA, a vote of the shareholders of the surviving corporation in a merger is
not required where there is no amendment of the corporation's articles, each
holder of shares of the corporation that were outstanding immediately before the
effective time of the transaction will hold the same number of shares with
identical rights immediately after the effective time, and if a change in the
corporation's outstanding stock is involved, the merger results in no more than
a 20% increase in the voting power of the outstanding stock, and in no more than
a 20% increase in the number of shares entitled to participate without
limitation in corporate distributions. Under the CGCL no approval of the
outstanding shares is required in the case of any corporation if such
corporation, or its shareholders immediately before the merger, shall own equity
securities, other than any warrant or right to subscribe to or purchase such
equity securities, of the surviving or acquiring corporation possessing more
than five-sixths of the voting power of the surviving or acquiring corporation.
A statutory share exchange requires the approval only of the shareholders of the
corporation whose shares will be acquired by the acquiring corporation in the
statutory share exchange.
LOANS TO DIRECTORS, OFFICERS AND EMPLOYEES
The MBCA permits loans to be made to a director, officer or employee of the
corporation if the board of directors finds that the loan will benefit the
corporation or a related organization. The CGCL permits loans to be made to
directors, officers or employees (i) as an advance for anticipated reasonable
expenses to be incurred in the performance or his or her duties, (ii) with
approval of a majority of the shareholders, or (iii) by the board alone if
certain corporate procedures are followed.
PREEMPTIVE RIGHTS
Under the MBCA, unless denied or limited in the articles of incorporation,
shareholders have preemptive rights to acquire a certain fraction proportionate
to the shares held when the corporation proposes to issue new or additional
shares or rights to purchase shares of the same series or class held by the
shareholder unless the shares are issued (i) for consideration other than money,
(ii) pursuant to a plan of merger, (iii) pursuant to a shareholder approved
employee incentive plan, (iv) pursuant to a court approved reorganization, or
(v) as part of a public offering. The CGCL provides that unless the articles
provide otherwise, the board may issue shares, options or securities having
conversion or option rights without first offering them to shareholders of any
class.
The Universal Articles provide that the shareholders of the company shall
not have preemptive rights to subscribe for or acquire shares of any class or
series of the company.
The 99CENTS Only Stores Articles make no provision for shareholder rights of
preemption.
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DIVIDENDS
Under California law, a corporation may not make any distribution (including
dividends, whether in cash or other property, and repurchase of its shares)
unless either the corporation's retained earnings immediately prior to the
proposed distribution equal or exceed the amount of the proposed distribution
or, immediately after giving effect to such distribution, the corporation's
assets (exclusive of goodwill, capitalized research and development expenses and
deferred charges) would be at least equal to 1 1/4 times its liabilities (not
including deferred taxes, deferred income and other deferred credits), and the
corporation's current assets would be at least equal to its current liabilities
or, if the average earnings of the corporation before taxes on income and
interest expense for the two preceding fiscal years was less than the average of
the interest expense of the corporation for those fiscal years, at least equal
to 1 1/4 times its current liabilities; provided, however, that in determining
the amount of the assets of the corporation profits derived from an exchange of
assets shall not be included unless the assets received are currently realizable
in cash; and provided, further, that for the purpose of this rule "current
assets" may include net amounts which the board has determined in good faith may
reasonably be expected to be received from customers during the 12-month period
used in calculating current liabilities pursuant to existing contractual
relationships obligating those customers to make fixed or periodic payments
during the term of the contract. Under California law, there are certain
additional regulations to the foregoing rules for repurchases of shares.
Under Minnesota law, the board may authorize and cause the corporation to
make a distribution only if the board determines that the corporation will be
able to pay its debts in the ordinary course of business after making the
distribution and the board does not know before the distribution is made that
the determination was or has become erroneous. The right of the board to
authorize, and the corporation to make, distributions may be prohibited,
limited, or restricted by, or the rights and priorities of persons to receive
distributions may be established by, the articles or by-laws or an agreement.
The MBCA is therefore somewhat more flexible with respect to the payment of
dividends than the CGCL.
Universal has not paid any cash dividends on the Universal Common Stock
within the past 10 years. According to Universal's Annual Report on Form 10-K
for the year ended December 31, 1997, Universal presently intends to continue to
retain any earnings in connection with its business. In addition, dividends
currently are prohibited by the terms of Universal's revolving credit agreement.
Universal, therefore, does not anticipate paying dividends on the Universal
Common Stock in the foreseeable future.
99CENTS Only Stores has not paid any cash dividends on the 99CENTS Only
Stores Common Stock since its initial public offering in May 1996. 99CENTS Only
Stores anticipates that all of its income in the foreseeable future will be
retained for the development and expansion of its business and therefore does
not anticipate paying dividends on the 99CENTS Only Stores Common Stock in the
foreseeable future.
RIGHTS OF DISSENTING SHAREHOLDERS
Under both the CGCL and the MBCA, a dissenting shareholder of a corporation
participating in certain transactions may, in certain circumstances, receive
cash in the amount of the fair value of his or her shares in lieu of the
consideration otherwise receivable in the transaction.
The CGCL does, in general, afford dissenters' rights in a share for share
exchange, a sale of assets, reorganization or a merger. In the case of a
corporation whose shares are listed on a national securities exchange,
dissenters' rights would nevertheless be available in certain transactions for
any shares with respect to which there are certain restrictions on transfer and
for any class with respect to which the holders of five percent or more of the
class claim dissenters' rights. Also, under the CGCL shareholders of a
corporation involved in a reorganization are not entitled to dissenters' rights
if the corporation, or its shareholders immediately before the reorganization,
or both, will own immediately after the reorganization more than five-sixths of
the voting power of the surviving or acquiring corporation or its parent entity.
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Under the MBCA, a shareholder of a corporation may dissent from, and obtain
payment for the fair value of the shareholder's shares in the event of, certain
transactions. Unless the corporation's articles or bylaws, or a resolution
approved by the corporation's board otherwise provide, the right to obtain
payment upon dissent does not apply to a shareholder of the surviving
corporation in a merger if the shares of the shareholder are not entitled to be
voted on the merger.
INSPECTION OF LIST OF SHAREHOLDERS
Both the CGCL and the MBCA allow a corporation's shareholders to inspect a
list of shareholders for a purpose reasonably related to a person's interest as
a shareholder.
Under the CGCL, a shareholder or shareholders holding at least five percent
in the aggregate of the outstanding voting shares of a corporation or who hold
at least one percent of those voting shares and have filed a Schedule 14A with
the Securities and Exchange Commission shall have an absolute right to (1)
inspect and copy the record of shareholders' names and addresses and share
holdings during usual business hours upon five business days' prior written
demand upon the corporation, or (2) obtain from the transfer agent for the
corporation, upon written demand and upon the tender of usual charges for such a
list, a list of the shareholders' names and addresses who are entitled to vote
for the election of directors, and their share holdings, as of the most recent
record date for which it has been compiled or as of a date specified by the
shareholder subsequent to the date of demand.
The MBCA provides that a shareholder, beneficial owner, or a holder of a
voting trust certificate of a publicly held corporation has, upon written demand
a right at any reasonable time to examine and copy the corporation's share
register and other corporate records reasonably related to the purpose stated in
the demand and described with reasonable particularity in the written demand
upon demonstrating the stated purpose is a proper purpose.
BUSINESS COMBINATIONS/ANTI-TAKEOVER LAWS
Section 302A.673 of the MBCA provides that an "issuing public corporation"
(one which is incorporated under or governed by the MBCA and has at least 100
shareholders or, if a publicly held corporation, at least 50 shareholders) may
not engage in any of a broad range of business combinations, including a merger,
with a person, or affiliate or associate of a person, that acquires beneficial
ownership of 10 percent or more of the voting stock of that corporation (i.e.,
an interested shareholder) for a period of four years following the date that
the person became a 10 percent shareholder (the share acquisition date) unless,
prior to the share acquisition date, a special committee of the board of
directors of the corporation consisting solely of all disinterested directors
approves either the business combination or the acquisition of shares. The MBCA
permits a corporation to "opt out" of the business combination statute by
electing to do so in its articles or by-laws approved by its shareholders
effective 18 months after the approval. Neither the Universal Articles nor the
Universal By-Laws contain such an "opt out" provision.
In November 1997, 99CENTS Only Stores became an interested shareholder of
Universal when it acquired shares representing 48% of the outstanding Universal
Common Stock. 99CENTS Only Stores' acquisition of the Universal Common Stock,
while unanimously approved by Universal's full board of directors, was not
approved by a separate committee of Universal's board of directors consisting
solely of disinterested directors. Accordingly, upon completion of the Exchange
Offer, and if Universal is still considered an "issuing public corporation",
99CENTS Only Stores may be unable to acquire by way of merger or other form of
business combination any shares of Universal Common Stock that were not tendered
to 99CENTS Only Stores in the Exchange Offer. As a result, 99CENTS Only Stores
may not be able to acquire 100% of the Universal Common Stock until November
2001.
The CGCL does not contain a similar provision.
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Immediately after the Effective Date, Universal shareholders who tender
their shares will become 99CENTS Only Stores shareholders and therefore will no
longer benefit from the protections of Section 302A.673 of the MBCA. This law
was designed to make more difficult certain kinds of "unfriendly" corporate
takeovers or other transactions involving a corporation and one or more of its
significant shareholders. Section 302A.673 regulates large accumulations of
shares, including those made by tender offers and it has the effect of
significantly delaying a purchaser's ability to acquire the entire interest in
Universal if such acquisition is not approved by a committee of the board of
directors of Universal consisting solely of all disinterested directors.
The MBCA includes four other provisions relating to takeovers. First, the
MBCA contains a provision which prohibits a publicly-held corporation from
entering into or amending agreements (commonly referred to as golden parachutes)
that increase current or future compensation of any officer or director during
any tender offer or request or invitation for tenders (other than routine
agreements or routine increases in compensation). Second, the MBCA contains a
provision which limits the ability of a corporation to pay greenmail. The
statute provides that a publicly held corporation is prohibited from purchasing
or agreeing to purchase any shares from a person who beneficially owns more than
five percent of the voting power of the corporation if the shares had been
beneficially owned by that person for less than two years, and if the purchase
price would exceed the market value of those shares. However, such a purchase
will not violate the statute if the purchase is approved at a meeting of the
stockholders by a majority of the voting power of all shares entitled to vote or
if the corporation's offer is of at least equal value per share and to all
holders of shares of the class or series and to all holders of any class or
series into which the securities may be converted. Third, the MBCA also
authorizes the board of directors, in considering the best interests of the
corporation with respect to a proposed acquisition of an interest in the
corporation, to consider the interest of the corporation's employees, customers,
suppliers and creditors, the economy of the state and nation, community and
social considerations and the long-term as well as short term interests of the
corporation and its stockholders, including the possibility that these interests
may best be served by the continued independence of the corporation. The MBCA
also provides that for two years following the last purchase of shares pursuant
to a tender offer (in the nature of the Exchange Offer), an acquiror may not
acquire shares unless the shareholder is given an opportunity to dispose of the
shares upon substantially equivalent terms as those provided in the tender
offer.
The CGCL does not contain a similar provision.
Section 302A.671 of the MBCA contains provisions which, among other things,
provide that a person who acquires stock in excess of certain thresholds
beginning with 20% of the outstanding stock, may not vote shares which exceed
the thresholds, unless the affirmative vote of a majority of the voting power of
the corporation entitled to vote (excluding all shares held by the acquiring
person, any officer of the corporation and any employee director of the
corporation), permits such shares to have full voting rights. The effect of this
provision may be to give the board more bargaining power in the event of an
unsolicited tender offer. See "THE UNIVERSAL SPECIAL MEETING."
The CGCL does not contain a similar provision.
INDEMNIFICATION AND LIMITATION OF LIABILITY
California and Minnesota have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. The laws of
both states permit, with certain exceptions, a corporation to adopt a provision
in its articles of incorporation eliminating the liability of a director of the
corporation for monetary damages for breach of the director's fiduciary duty of
care. Indeed, the 99CENTS Only Stores Articles and the Universal Articles
include such a provision.
The CGCL authorizes a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the corporation to procure a judgment in its favor)
by reason of the fact that the person is or was an agent (including any person
who is
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or was a director, officer, employee or other agent of the corporation) of the
corporation, against expenses, judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with the proceeding if that
person acted in good faith and in a manner the person reasonably believed to be
in the best interests of the corporation and, in the case of a criminal
proceeding, had no reasonable cause to believe the conduct of the person was
unlawful. The termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in the best interests of the
corporation or that the person had reasonable cause to believe that the person's
conduct was unlawful. Moreover a corporation shall have power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action by or in the right of the corporation
to procure a judgment in its favor by reason of the fact that the person is or
was an agent of the corporation, against expenses actually and reasonably
incurred by that person in connection with the defense or settlement of the
action if the person acted in good faith, in a manner the person believed to be
in the best interests of the corporation and its shareholders.
The CGCL also provides that the articles of a company may set forth a
provision, eliminating or limiting the personal liability of a director for
monetary damages in an action brought by or in the right of the corporation for
breach of a director's duties to the corporation and its shareholders, as set
forth in Section 309 of the CGCL, provided, however, that (A) such a provision
may not eliminate or limit the liability of directors (i) for acts or omissions
that involve intentional misconduct or a knowing and culpable violation of law,
(ii) for acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders or that involve the absence of
good faith on the part of the director, (iii) for any transaction from which a
director derived an improper personal benefit, (iv) for acts or omissions that
show a reckless disregard for the director's duty to the corporation or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to the corporation or its shareholders, (v) for acts or
omissions that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the corporation or its shareholders, (vi)
under Section 310, or (vii) under Section 316, (b) no such provision shall
eliminate or limit the liability of an officer for any act or omission as an
officer, notwithstanding that the officer is also a director or that his or her
actions, if negligent or improper, have been ratified by the directors. The
99CENTS Only Stores Articles provide for such a provision which states that the
liability of the directors of the corporation for monetary damages shall be
eliminated to the fullest extent permissible under California law.
The CGCL also provides that the articles of a company may also set forth a
provision authorizing, the indemnification of agents (as defined in Section 317)
in excess of that expressly permitted under California law for those agents of
the corporation for breach of duty to the corporation and its stockholders,
provided, however, that the provision may not provide for indemnification of any
agent for any acts or omissions or transactions from which a director may not be
relieved of liability. The 99CENTS Only Stores Articles provide that (i) the
corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the corporation or is serving
at the request of this Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify against such
liability under the provisions of law; and (ii) the corporation may create a
trust fund, grant a security interest and/or use other means (including, without
limitation, letters of credit, surety bonds and/or other similar arrangements,
as well as enter into contracts providing indemnification, to the fullest extent
authorized or permitted by law and including as part thereof provisions with
respect to any or all of the foregoing to ensure the payment of such amounts as
may become necessary to effect the indemnification as provided therein, or
elsewhere.
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Unless limited by the articles of incorporation or by-laws of a corporation,
the MBCA provides for mandatory indemnification of a director, officer, employee
or committee member against certain liabilities and expenses if such person (i)
acted in good faith; (ii) received no improper personal benefit; (iii) in the
case of a criminal proceeding, had no reasonable cause to believe the conduct
was unlawful; and (iv) depending upon the capacity in which such person was
serving, either believed the conduct was in the best interests or, was not
opposed to the best interests, of the corporation.
The Universal Articles provide that a director of the corporation shall not
be personally liable to the corporation or its shareholders for monetary damages
for breach of fiduciary duty as a director, except for (i) liability based on a
breach of the duty of loyalty to the corporation or the shareholders; (ii)
liability for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; (iii) liability based on the payment
of an improper dividend or an improper repurchase of the corporation's stock
under Section 559 of the MBCA (illegal distributions) or on violations of
federal or state securities laws; (iv) liability for any transaction from which
the director derived an improper personal benefit; or (v) liability for any act
or omission occurring prior to the date of such Article. If the MBCA thereafter
is amended to authorize the further elimination or limitation of the liability
of directors, than the liability of a director of the corporation in addition to
the limitation on personal liability provided in the Article, shall be limited
to the fullest extent permitted under the amended MBCA.
DISSOLUTION
Under the CGCL, shareholders holding fifty percent or more of the total
voting power may authorize a corporation's dissolution, with or without the
approval of the corporation's Board of Directors, and this right may not be
modified by the corporation's articles of incorporation.
The MBCA provides that a corporation may be dissolved by the voluntary
action of holders of a majority of a corporation's shares entitled to vote at a
meeting called for the purpose of considering such dissolution. The MBCA also
provides that a court may dissolve a corporation in an action by a stockholder
where: (a) the situation involves a deadlock in the management of corporate
affairs and the stockholders cannot break the deadlock; (b) the directors have
acted fraudulently, illegally, or (if the corporation is not publicly held) in a
manner unfairly prejudicial to the corporation; (c) the stockholders are divided
in voting power for two consecutive regular meetings to the point where a
successor directors are not elected; (d) there is a case of misapplication or
waste of corporate assets; or (e) the duration of the corporation has expired.
LEGAL OPINION
The legality of the 99CENTS Only Stores Common Stock to be issued in
connection with the Exchange Offer is being passed on by the law firm of Troop
Meisinger Steuber & Pasich, LLP, Los Angeles, California.
EXPERTS
The audited financial statements of 99CENTS Only Stores as of December 31,
1996 and 1997, and for each of the three years in the period ended December 31,
1997 incorporated by reference in this Registration Statement, have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference herein in
reliance upon the authority of such firm as experts in giving said reports.
The audited consolidated financial statements of Universal as of December
31, 1997, and for the year ended December 31, 1997, incorporated by reference in
this Registration Statement, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of such firm as experts in giving
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said reports. Reference is made to said report which includes an explanatory
paragraph that describes Universal's ability to continue as a going concern.
The consolidated balance sheet of Universal International, Inc. as of
December 31, 1996, and the consolidated statements of operations, stockholders'
equity and cash flows and the financial statement schedule for each of the two
years in the period ended December 31, 1996, incorporated by reference in this
Registration Statement, have been incorporated by reference herein in reliance
on the reports, which include an explanatory paragraph related to going concern
considerations, of Coopers & Lybrand L.L.P., independent accountants, given on
the authority of that firm as experts in accounting and auditing.
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ANNEX A
COOPERATION AGREEMENT
This Agreement is made and entered into as of March 4, 1998, by and between
Universal International, Inc., a Minnesota corporation ("UNIVERSAL") and 99CENTS
Only Stores, a California corporation ("99CENTS ONLY") with respect to the
following:
R E C I T A L S
WHEREAS, on November 17, 1997, 99CENTS Only acquired 4,500,000 shares of the
common stock, $0.001 par value per share (the "Common Stock"), of Universal,
representing approximately 48% of the outstanding Common Stock;
WHEREAS, on February 17, 1998, 99CENTS Only publicly announced that it had
made a proposal to the Board of Directors of Universal to acquire 100% of the
outstanding Common Stock of Universal for an exchange ratio of one share of
99CENTS Only for each 16 shares of Universal Common Stock;
WHEREAS, 99CENTS Only has determined to effect the acquisition by an
exchange offer (the "Offer") to all of the Universal stockholders;
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants and agreements contained herein, the
parties to this Agreement hereby agree as follows:
1. AGREEMENT TO SUPPORT TENDER OFFER GENERALLY. Universal agrees to
support the Offer by 99CENTS Only and not to make any statement privately or
publicly opposing the Offer. Universal hereby agrees to cooperate generally with
99CENTS Only in the Offer by providing access during normal business hours to
the books and records of Universal, as well as to Universal's officers and
directors for purposes of providing information to make all appropriate filings
under the applicable federal and state laws. Furthermore, Universal agrees to
assist 99CENTS Only in soliciting proxies in favor of affording voting rights to
the shares of Universal acquired by 99CENTS Only in the Offer.
2. SCHEDULE 14D-9. Universal hereby agrees to file with the Securities and
Exchange Commission ("SEC") in accordance with the provisions of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), its Solicitation
Recommendation Statement on Schedule 14D-9 pertaining to the Offer (together
with any amendments or supplements thereto, the "Schedule 14D-9") and to mail
promptly (but in no event later than as is required by applicable law) the
Schedule 14D-9 to the stockholders of Universal. Universal agrees that in the
Schedule 14D-9 it will not oppose the Offer and will either support the Offer or
take a position neutral to the position of 99CENTS Only. Universal shall provide
to 99CENTS Only and its counsel draft copies of the Schedule 14D-9 as soon as
practicable prior to its filing with the SEC such that 99CENTS Only and its
legal counsel shall have a reasonable opportunity to review and comment on the
Schedule 14D-9. Universal shall provide to 99CENTS Only and its counsel in
writing any comments Universal or its counsel may receive from the SEC or its
staff with respect to the Schedule 14D-9 as soon as practicable after the
receipt thereof. Universal represents and warrants to 99CENTS Only that the
Schedule 14D-9 will comply in all material respects with the provisions of
applicable federal securities laws and the securities laws of the State of
Minnesota. Each of 99CENTS Only and Universal represents and warrants to the
other that the information provided and to be provided by 99CENTS Only and
Universal, as the case may be, by or through their respective representatives
for use in the Schedule 14D-9 shall not, on the date filed with the SEC, on the
dates first published or sent or given to the stockholders of Universal and on
the expiration date of the Offer, contain any untrue statement of a material
fact with respect to such party or omit to state any material fact with respect
to such party required to be stated therein or necessary in order to make the
statements therein, in light of the
A-1
<PAGE>
circumstances under which they were made, not misleading. Universal and 99CENTS
Only each agrees to correct promptly any information provided by it for use in
the Schedule 14D-9 if and to the extent that it shall have become false or
misleading in any material respect, and Universal further agrees to take all
steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the
SEC and to be disseminated to stockholders of Universal to the extent required
by applicable federal securities laws and the Minnesota Business Corporation Act
("Minnesota Laws").
3. STOCKHOLDER LISTS. In connection with the Offer, Universal will
promptly furnish 99CENTS Only with mailing labels, security position listings
and any available listing or computer file containing the names and addresses of
the record holders of Universal Common Stock as of a recent date and shall
furnish 99CENTS Only with such additional information and assistance as 99CENTS
Only or its agents may reasonably request in communicating the Offer to the
record and beneficial holders of Universal Common Stock. Subject to the
requirements of applicable law, and except for such steps as are necessary to
disseminate the Offer documents, 99CENTS Only and their affiliates, associates,
agents and advisors shall use the information contained in any such labels,
listing and files only in connection with the Offer and, if this Agreement shall
be terminated, will deliver to Universal all copies of such information then in
their possession.
4. COMPOSITION OF THE BOARD OF DIRECTORS; SECTION 14(f). (a) In the event
that immediately following the Offer, 99CENTS Only owns at least a majority of
the Universal Common Stock outstanding, 99CENTS Only shall be entitled to
designate for appointment or election to Universal's Board of Directors and any
committee thereof, upon written notice to Universal, that number of directors
equal to the product of (i) the number of directors on the Universal Board of
Directors or the applicable committee and (ii) the percentage which the number
of shares of Universal Common Stock held by 99CENTS Only after the Offer bears
to the total number of shares of Universal Common Stock outstanding, rounded up
to the next whole number. Prior to consummation of the Offer, the Board of
Directors of Universal will use its best efforts to either adopt an amendment to
Universal's By-Laws to provide in effect that upon the request of 99CENTS Only
following the acquisition by 99CENTS Only of a majority of the shares of
Universal Common Stock outstanding pursuant to the Offer, the number of members
of Universal's Board of Directors and any committee thereof shall be increased
to the extent necessary to provide the persons designated by 99CENTS Only
pursuant to this Section with representation on the Board of Directors and its
committees, or will obtain the resignation of such number of directors as is
necessary to enable such number of 99CENTS Only designees to be so elected.
(b) Universal's obligations to cause designees of 99CENTS Only to be elected
or appointed to the Board of Directors of Universal and any committee thereof
shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder. Universal shall promptly take all actions required pursuant to such
Section and Rule in order to fulfill its obligations under this Section and
shall include in the Schedule 14D-9 such information with respect to 99CENTS
Only and its officers and directors as is required under such Section and Rule
in order to fulfill its obligations under this Section. 99CENTS Only will supply
to Universal in writing any information with respect to it and its nominees,
officers, directors and affiliates required by such Section and Rule.
5. APPROVAL OF THE STOCKHOLDERS. Pursuant to the requirements of Section
302A.671 of the Minnesota Laws, the Offer requires (i) the affirmative vote of
the holders of a majority of the voting power of all shares of Common Stock of
Universal entitled to vote, including all shares held by 99CENTS Only, and (ii)
the affirmative vote of the holders of a majority of the voting power of all
shares of Common Stock of Universal entitled to vote, excluding the shares held
by 99CENTS Only, and shares held by officers and employee directors of
Universal. Without the affirmative vote of the stockholders of Universal, the
shares of Universal Common Stock acquired by 99CENTS Only representing over 50%
of the outstanding Common Stock of Universal would be denied voting rights. In
accordance with Section 302A.671, 99CENTS Only and Universal shall cooperate to
prepare and file with the SEC a registration statement on Form S-4 (the
"Registration Statement"), a portion of which shall include a proxy statement
(the "Offer
A-2
<PAGE>
Proxy Statement/Prospectus") with respect to a meeting of stockholders of
Universal to vote on the Offer for purposes of Section 302A.671 of the Minnesota
Laws. Each of 99CENTS Only and Universal represents and warrants to the other
that the information provided and to be provided by 99CENTS Only and Universal,
as the case may be, by or through their respective representatives for use in
the Registration Statement shall not, and on the date filed with the SEC, and
with respect to the Offer Proxy Statement/ Prospectus, on the dates first
published or sent or given to the holders of Universal Common Stock, contain any
untrue statement of a material fact with respect to such party or omit to state
any material fact with respect to such party required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Universal and 99CENTS Only each
agrees to correct promptly any information provided by it for use in the Offer
Proxy Statement/Prospectus if and to the extent that it shall have become false
or misleading in any material respect, and 99CENTS Only further agrees to take
all steps necessary to cause the Registration Statement as so corrected to be
filed with the SEC and for the Offer Proxy Statement/Prospectus to be
disseminated to the holders of shares of Universal Common Stock, in each case as
and to the extent required by applicable federal securities laws and the
Minnesota Laws. Universal agrees to use its best efforts to obtain the approval
of its stockholders pursuant to Section 302A.671 of the Minnesota Laws.
6. TAKEOVER PROVISIONS INAPPLICABLE; AMENDMENT TO RIGHTS
AGREEMENT. Universal agrees to take all necessary action to approve an
amendment of the Rights Agreement, dated as of April 19, 1996 (the "Rights
Agreement"), between Universal and Norwest Bank Minnesota, N.A., as rights agent
Rights Agreement so that (a) none of the execution or delivery of this
Agreement, the making of the Offer, the acceptance for payment or payment for
shares of Universal Common Stock by 99CENTS Only pursuant to the Offer or the
consummation of any other transaction with 99CENTS Only will result in (i) the
occurrence of the "Distribution Date" described under Section 3 of the Rights
Agreement, or (ii) the common stock purchase rights (the "Company Rights")
issued pursuant to the Rights Agreement becoming evidenced by, and transferable
pursuant to, certificates separate from the certificates representing Universal
Common Stock, or (b) the Company Rights will be redeemed prior to 99CENTS Only
becoming an "Acquiring Person" pursuant to the terms of the Rights Agreement.
7. FILINGS. 99CENTS Only and Universal agree to (a) use all reasonable
efforts to cooperate with one another in (i) determining which filings are
required to be made prior to consummation of the Offer, and which consents,
approvals, permits or authorizations are required to be obtained from states and
foreign jurisdictions in connection with the consummation of the Offer and (ii)
timely making such filings and timely seeking all such consents, approvals,
permits or authorizations; and (b) use all reasonable efforts to take, or cause
to be taken, all other action and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the Offer.
8. TERMINATION. This Agreement may be terminated (i) by either 99CENTS
Only or Universal if the Offer shall not have been consummated on or before
September 30, 1998 or (ii) by the mutual written consent of Universal and
99CENTS Only authorized by their respective Boards of Directors. If this
Agreement is terminated pursuant to this Section, this Agreement shall become
void and of no effect with no liability on the part of any party hereto.
9. MISCELLANEOUS.
(a) SEVERABILITY. Should any Section or any part of a Section within
this Agreement be rendered void, invalid or unenforceable by any court of
law for any reason, such invalidity or unenforceability shall not void or
render invalid or unenforceable any other Section or part of a Section in
this Agreement.
(b) GOVERNING LAW. Except to the extent that the laws of Minnesota are
mandatorily applicable to the Offer, this Agreement shall be governed by,
and construed in accordance with, the laws of the State of California
applicable to contracts executed in and to be performed in that State. All
actions and proceedings arising out of or relating to this Agreement shall
be heard and determined in
A-3
<PAGE>
any U.S. federal court located in the City of Los Angeles. The parties
hereto hereby (i) submit to the exclusive jurisdiction of any U.S. federal
court located in the City of Los Angeles for the purpose of any action
arising out of or based upon this Agreement or the Offer brought by any
party hereto, and (ii) waive, and agree not to assert by way of motion, as a
defense, or otherwise, in any such action, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that its property
is exempt or immune from attachment or execution, that the action is brought
in an inconvenient forum, that the venue of the action is improper, or that
this Agreement or the Offer may not be enforced in any or by any of the
above-named courts.
(c) NO ADVERSE CONSTRUCTION. The rule that a contract is to be
construed against the party drafting the contract is hereby waived, and
shall have no applicability in construing this Agreement or any provisions
hereof.
(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(e) COSTS AND ATTORNEYS' FEES. In the event that any action, suit, or
other proceeding is instituted concerning or arising out of this Agreement,
the prevailing party shall recover all of such party's costs, and reasonable
attorneys' fees incurred in each and every such action, suit, or other
proceeding, including any and all appeals or petitions therefrom.
(f) SUCCESSORS AND ASSIGNS. All rights, covenants and agreements of
the parties contained in this Agreement shall, except as otherwise provided
herein, be binding upon and inure to the benefit of their respective
successors and assigns.
(g) AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors at any time before or
after approval hereof by the stockholders, but after any such approval, no
amendment shall be made which changes the consideration to be paid to the
stockholders pursuant to the Offer, or which is otherwise not permitted by
the California or Minnesota Laws, without the further approval of the
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
(h) BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each party will use its best efforts to take, or cause to be
taken, all actions and do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement.
A-4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
<TABLE>
<S> <C> <C>
99CENTS ONLY STORES
A CALIFORNIA CORPORATION
By: /s/ DAVID GOLD
-----------------------------------------
Name: David Gold
Title: President and Chief Executive
Officer
UNIVERSAL INTERNATIONAL, INC.
A MINNESOTA CORPORATION
By: /s/ RICHARD ENNEN
-----------------------------------------
Name: Richard Ennen
Title: President and Chief Executive
Officer
</TABLE>
A-5
<PAGE>
ANNEX B
[LETTERHEAD OF HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.]
April 20, 1998
To the Board of Directors of
99CENTS Only Stores
Gentlemen:
We understand that 99CENTS Only Stores ("99") owns approximately 48 percent of
the outstanding stock of Universal International, Inc. ("Universal" or the
"Company"). Universal has received an offer from 99 to acquire the publicly
traded securities of Universal not owned by 99, in exchange for shares of common
stock of 99. 99 proposes to issue to the public stockholders of Universal one
share of common stock of 99 for each 16 shares of common stock held by the
public stockholders of Universal. Such transaction and all related transactions
are referred to collectively herein as the "Transaction."
The Board of Directors of 99 has requested our opinion (the "Opinion") as to the
matters set forth below. The Opinion does not address 99 or the Company's
underlying business decision to effect the Transaction. We have not been
requested to, and did not, solicit third party indications of interest in
acquiring all or any part of the Company. Furthermore, at the request of the
Board of Directors of 99, we have not negotiated the Transaction or advised the
participating parties with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports to shareholders and on Form 10-K
for the three fiscal years ended 1997 and quarterly reports on Form
10-Q for the period ended September 30, 1997, and Company-prepared
interim financial statements for the period ended November 30, 1997,
which certain members of the Company's Board of Directors has
identified as being the most current financial statements available;
2. reviewed 99's annual reports to shareholders on Form 10-K for the five
fiscal years ended 1997 and quarterly reports on Form 10-Q for the
period ended September 30, 1997;
3. reviewed copies of the following: (i) Cooperation Agreement; (ii)
Irrevocable Proxy; (iii) Option and Consulting Agreements; and (iv)
Stockholder Support Agreements;
4. reviewed a final draft of the Form S-4 with respect to the Transaction,
dated April 16, 1998;
5. met with certain members of the senior management of 99 to discuss the
operations, financial condition, future prospects and projected
operations and performance of 99; and met with certain members of the
Board of Directors of the Company to discuss the operations, financial
condition, future prospects and projected operations and performance of
the Company;
6. visited certain facilities and business offices of 99;
7. reviewed forecasts and projections prepared by certain members of the
Board of Directors of the Company with respect to the Company for the
years ended December 31, 1998 and 1999;
8. reviewed forecasts and projections prepared by 99's management with
respect to 99 for the year ended December 31, 1998;
B-1
<PAGE>
To The Board of Directors of
99CENTS Only Stores
April 20, 1998
9. reviewed the historical market prices and trading volume for the
Company's and 99's publicly traded securities;
10. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company and 99, and publicly
available prices and premiums paid in other transactions that we
considered similar to the Transaction;
11. reviewed drafts of certain documents to be delivered at the closing of
the Transaction; and
12. conducted such other studies, analyses and inquiries as we have deemed
appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company and 99, and that there has been no material
change in the assets, financial condition, business or prospects of the Company
and 99 since the date of the most recent financial statements made available to
us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company or 99 and do not assume
any responsibility with respect to it. We have not made any physical inspection
or independent appraisal of any of the properties or assets of the Company or
99. Our Opinion is necessarily based on business, economic, market and other
conditions as they exist and can be evaluated by us at the date of this letter.
Based upon the foregoing and in reliance thereon, it is our opinion that the
consideration to be received by the Public Stockholders of Universal
International, Inc. in connection with the Transaction is fair to them from a
financial point of view.
This Opinion is furnished to you solely for your benefit and may not be relied
on by any other person (other than by the shareholders of Universal, to the
extent that such persons are entitled under applicable law to rely hereon)
without an express, prior written consent. This Opinion is delivered subject to
the conditions, scope of engagement, limitations and understandings set forth in
this Opinion and in our engagement letter dated March 3, 1998.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
B-2
<PAGE>
Facsimile copies of the Letter of Transmittal will be accepted. The Letter
of Transmittal, certificates for Universal Common Stock and any other required
documents should be sent by each holder of Universal Common Stock or his
broker-dealer, commercial bank, trust company or other nominee to the Exchange
Agent as follows:
THE EXCHANGE AGENT IS:
AMERICAN STOCK TRANSFER & TRUST COMPANY
BY MAIL: BY OVERNIGHT COURIER BY HAND:
DELIVERY:
x x x
Facsimile for Eligible Institutions: x
Facsimile Confirmation Only: x
Questions or requests for assistance may be directed to the Dealer Manager
at its address and telephone number listed below. Additional copies of this
Proxy Statement/Prospectus, the Letter of Transmittal and other tender offer
materials may also be obtained from the Exchange Agent or the Dealer Manager.
You may also contact your broker-dealer, commercial bank or trust company or
other nominee for assistance concerning the Exchange Offer.
THE DEALER MANAGER IS:
PIPER JAFFRAY INC.
222 South Ninth Street
Minneapolis, Minnesota 55402
(612) 342-6221
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation include a provision that
eliminates the personal liability of its directors to the Registrant and its
shareholders for monetary damages for breach of the directors' fiduciary duties
in certain circumstances. This limitation has no effect on a director's
liability (i) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law, (ii) for acts or omissions that a
director believes to be contrary to the best interests of the Registrant or its
shareholders or that involve the absence of good faith on the part of the
director, (iii) for any transaction from which a director derived an improper
personal benefit, (iv) for acts or omissions that show a reckless disregard for
the director's duty to the Registrant or its shareholders in circumstances in
which the director was aware, or should have been aware, in the ordinary course
of performing a director's duties, of a risk of a serious injury to the
Registrant or its shareholders, (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Registrant or its shareholders, (vi) under Section 310 of the
California Corporations Code (the "California Code") (concerning contracts or
transactions between the Registrant and a director) or (vii) under Section 316
of the California Code (concerning directors' liability for improper dividends,
loans and guarantees). The provision does not extend to acts or omissions of a
director in his capacity as an officer. Further, the provision will not affect
the availability of injunctions and other equitable remedies available to the
Registrant's shareholders for any violation of a director's fiduciary duty to
the Registrant or its shareholders.
The Registrant's Articles of Incorporation also include an authorization for
the Registrant to indemnify its agents (as defined in Section 317 of the
California Code), through bylaw provisions, by agreement or otherwise, to the
fullest extent permitted by law. Pursuant to this latter provision, the
Registrant's Bylaws provide for indemnification of the Registrant's directors,
officers and employees. In addition, the Registrant, at its discretion, may
provide indemnification to persons whom the Registrant is not obligated to
indemnify. The Bylaws also allow the Registrant to enter into indemnity
agreements with individual directors, officers, employees and other agents.
These indemnity agreements have been entered into with all directors and provide
the maximum indemnification permitted by law. These agreements, together with
the Registrant's Bylaws and Articles of Incorporation, may require the
Registrant, among other things, to indemnify such directors against certain
liabilities that may arise by reason of their status or service as directors
(other than liabilities resulting from willful misconduct of a culpable nature),
to advance expenses to them as they are incurred, provided that they undertake
to repay the amount advanced if it is ultimately determined by a court that they
are not entitled to indemnification, and to obtain directors' and officers'
insurance if available on reasonable terms.
Section 317 of the California Code and the Registrant's Bylaws make
provision for the indemnification of officers, directors and other corporate
agents in terms sufficiently broad to indemnify such persons, under certain
circumstances, for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.
The Registrant maintains director and officer liability insurance.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Reorganization dated as of March 24, 1998, by and
among the Registrant, Odd's-N-End's Acquisition Corp. and Odd's-N-End's,
Inc.(3)
3.1 Amended and Restated Articles of Incorporation of the Registrant.(3)
3.2 Amended and Restated Bylaws of the Registrant.(1)
4.1 Specimen certificate evidencing Common Stock of the Registrant.(1)
5.1 Opinion of Troop Meisinger Steuber & Pasich, LLP.*
8.1 Opinion of Troop Meisinger Steuber & Pasich, LLP regarding tax matters.*
10.1 Form of Indemnification Agreement and Schedule of Indemnified Parties.(1)
10.2 Business Loan Agreement, dated January 21, 1997, by and between the
Registrant and Bank of America National Trust and Savings Association;
Amendment No. 1 thereto, dated May 20, 1997; and Amendment No. 2
thereto, dated December 11, 1997.(2)
10.3 Form of Tax Indemnification Agreement, between and among the Registrant
and the Existing Shareholders.(1)
10.4 1996 Stock Option Plan.(1)
10.5 Lease for 730 West Foothill Boulevard, Azusa, California, dated as of
December 1, 1995, by and between the Registrant as Tenant and HKJ Gold,
Inc. as Landlord, as amended(1).
10.6 Lease for 13023 Hawthorne Boulevard, Hawthorne, California, dated April 1,
1994, by and between the Registrant as Tenant and HKJ Gold, Inc. as
Landlord, as amended.(1)
10.7 Lease for 6161 Atlantic Boulevard, Maywood, California, dated November 11,
1985, by and between the Registrant as Lessee and David and Sherry Gold,
among others, as Lessors.(1)
10.8 Lease for 14139 Paramount Boulevard, Paramount, California, dated as of
March 1, 1996, by and between the Registrant as Tenant and 14139
Paramount Properties as Landlord, as amended.(1)
10.9 Release Agreement, dated March 25, 1996, regarding 11382 Beach Boulevard,
Stanton, California, by and between the Registrant and 11382 Beach
Partnership.(1)
10.10 Lease for 6124 Pacific Boulevard, Huntington Park, California, dated
January 31, 1991, by and between the Registrant as Tenant and David and
Sherry Gold as the Landlord, as amended.(1)
10.11 Lease for 14901 Hawthorne Boulevard, Lawndale, California, dated November
1, 1991, by and between Howard Gold, Karen Schiffer and Jeff Gold, dba
14901 Hawthorne Boulevard Partnership as Landlord and the Registrant as
Tenant, as amended.(1)
10.12 Lease for 5599 Atlantic Avenue, North Long Beach, California, dated August
13, 1992, by and between the Registrant as Tenant and HKJ Gold, Inc. as
Landlord, as amended.(1)
10.13 Lease for 1514 North Main Street, Santa Ana, California, dated as of
November 12, 1993, by and between the Registrant as Tenant and Howard
Gold, Jeff Gold, Eric J. Schiffer and Karen R. Schiffer as Landlord, as
amended.(1)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.14 Lease for 6121 Wilshire Boulevard, Los Angeles, California, dated as of
July 1, 1993, by and between the Registrant as Tenant and HKJ Gold, Inc.
as Landlord, as amended; and lease for 6101 Wilshire Boulevard, Los
Angeles, California, dated as of December 1, 1995, by and between the
Registrant as Tenant and David and Sherry Gold as Landlord, as
amended.(1)
10.15 Lease for 8625 Woodman Avenue, Arleta, California, dated as of July 8,
1993, by and between the Registrant as Tenant and David and Sherry Gold
as Landlord, as amended.(1)
10.16 Lease for 2566 East Florence Avenue, Walnut Park, California, dated as of
April 18, 1994, by and between HKJ Gold, Inc. as Landlord and the
Registrant as Tenant, as amended.(1)
10.17 Lease for 3420 West Lincoln Avenue, Anaheim, California, dated as of March
1, 1996, by and between the Registrant as Tenant and HKJ Gold, Inc. as
Landlord, as amended.(1)
10.18 Master Lease for 4000 East Union Pacific Avenue, City of Commerce,
California ("Warehouse and Distribution Facility Lease"), dated as of
December 20, 1993, by and between the Registrant as Lessee and TBC
Realty II Corporation ("TBC") as Lessor, together with Lease Guaranty
("Lease Guaranty"), dated December 20, 1993, by and between Sherry and
David Gold and TBC with respect thereto and Letter Agreement, dated
December 15, 1993, among Registrant, The Mead Corporation, TBC and
Citicorp Leasing, Inc. with respect to the Lease Guaranty.(1)
10.10 Hawaiian Gardens Indemnity Agreement, dated as of March 25, 1996, by and
between the Registrant and HKJ Gold, Inc.(1)
10.20 North Broadway Indemnity Agreement, dated as of May 1, 1996, by and
between HKJ Gold, Inc. and the Registrant.(1)
10.21 Lease for 2606 North Broadway, Los Angeles, California, dated as of May 1,
1996, by and between HKJ Gold, Inc. as Landlord and the Registrant as
Tenant.(1)
10.22 Grant Deed concerning 8625 Woodman Avenue, Arleta, California, dated May
2, 1996, made by David Gold and Sherry Gold in favor of Au Zone
Investments #2, L.P., a California limited partnership.(1)
10.23 Grant Deed concerning 6101 Wilshire Boulevard, Los Angeles, California,
dated May 2, 1996, made by David Gold and Sherry Gold in favor of Au
Zone Investments #2, L.P., a California limited partnership.(1)
10.24 Grant Deed concerning 6124 Pacific Boulevard, Huntington Park, California,
dated May 2, 1996, made by David Gold and Sherry Gold in favor of Au
Zone Investments #2, L.P., a California limited partnership.(1)
10.25 Grant Deed concerning 14901 Hawthorne Boulevard, Lawndale, California,
dated May 2, 1996, made by Howard Gold, Karen Schiffer and Jeff Gold in
favor of Au Zone Investments #2, L.P., a California limited
partnership.(1)
10.26 Lease for 12123-12125 Carson Street, Hawaiian Gardens, California, dated
February 8, 1995, by and between the Hawaiian Gardens Redevelopment
Agency and 99 CENTS Only Stores.(3)
10.27 Irrevocable Proxy between Universal and the Registrant.(3)
10.28 Stockholder Support Agreement between Mark Ravich and the Registrant dated
as of February 24, 1998.(3)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.29 Stockholder Support Agreement between Norman Ravich and the Registrant
dated as of February 24, 1998.(3)
10.30 Stockholder Support Agreement between Alyssa Danielle Ravich 1991
Irrevocable Trust and the Registrant dated as of February 24, 1998.(3)
10.31 Stockholder Support Agreement between Alexander Coleman Ravich 1991
Irrevocable Trust and the Registrant dated as of February 24, 1998.(3)
10.32 Stockholder Support Agreement between Norman J. Ravich Irrevocable Trust
and the Registrant dated as of February 24, 1998.(3)
10.33 Stockholder Support Agreement between the Norman and Sally Ravich Family
Trust and the Registrant dated as of February 24, 1998.(3)
10.34 Option Agreements between the Registrant and Mark Ravich dated as of
February 26, 1998.(3)
10.35 Option Agreement between the Registrant and Norman Ravich dated as of
February 26, 1998.(3)
10.36 Consulting Agreement between the Registrant and Mark Ravich dated as of
February 24, 1998.(3)
10.37 Consulting Agreement between the Registrant and Norman Ravich dated as of
February 26, 1998.(3)
10.38 Cooperation Agreement between Universal and the Registrant dated as of
March 4, 1998.(3)
10.39 Grant Deed concerning 12123-12125 Carson Street, Hawaiian Gardens,
California dated March 11, 1997 made by The Hawaiian Gardens
Redevelopment Agency in favor of Au Zone Investments #2, L.P., a
California limited partnership.(3)
13.1 Universal International, Inc. Annual Report on Form 10-K.(3)
13.2 Universal International, Inc. Amendment to Annual Report on Form 10-K.*
21.1 Subsidiaries of the Registrant.(3)
23.1 Consent of Troop Meisinger Steuber & Pasich, LLP (included in Exhibit
5.1).*
23.2 Consent of Arthur Andersen LLP.*
23.3 Consent of Arthur Andersen LLP.*
23.4 Consent of Coopers & Lybrand L.L.P.*
23.5 Consent of Houlihan Lokey Howard & Zukin Financial Advisors, Inc.*
24.1 Power of Attorney.(3)
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Letter to Brokers, Dealers, Commercial Banks.*
99.4 Form of Letter to Clients.*
99.5 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.*
99.6 Form of Exchange Agent Agreement.*
99.7 Form of Dealer Manager Agreement.*
</TABLE>
- ------------------------
* Filed herewith.
II-4
<PAGE>
** To be filed by amendment.
(1) Incorporated by reference from the Company's Registration Statement on Form
S-1 as filed with the Securities and Exchange Commission on May 21, 1996.
(2) Incorporated by reference from the Company's Registration Statement on Form
S-3 as filed with the Securities and Exchange Commission on March 31, 1998.
(3) Filed with the Registration Statement on Form S-4 on April 20, 1998.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by a controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(2) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-5
<PAGE>
(3) The undersigned registrant hereby undertakes to respond to requests for
information that are incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first-class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to effective date of the registration statement through the date of
responding to the request.
(4) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(5) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Los Angeles, State of California, on June 15,
1998.
<TABLE>
<S> <C> <C>
99CENTS ONLY STORES
By: /s/ ERIC SCHIFFER
-----------------------------------------
Eric Schiffer,
SENIOR VICE PRESIDENT OF FINANCE
AND OPERATIONS AND TREASURER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons, in the
capacities indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
*
- ------------------------------ Chairman of the Board and June 15, 1998
David Gold Chief Executive Officer
* Senior Vice President of
- ------------------------------ Distribution and June 15, 1998
Howard Gold Director
Senior Vice President of
* Real Estate and
- ------------------------------ Information Systems and June 15, 1998
Jeff Gold Director
/s/ ERIC SCHIFFER Senior Vice President of
- ------------------------------ Finance and Operations, June 15, 1998
Eric Schiffer Treasurer and Director
*
- ------------------------------ Director June 15, 1998
Lawrence Glascott
*
- ------------------------------ Director June 15, 1998
Marvin L. Holen
*
- ------------------------------ Director June 15, 1998
Ben Schwartz
*By: /s/ ERIC SCHIFFER
-------------------------
Eric Schiffer June 15, 1998
ATTORNEY-IN-FACT
II-7
<PAGE>
[LETTERHEAD]
June 15, 1998
99CENTS Only Stores
4000 Union Pacific Avenue
City of Commerce, California 90023
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form
S-4, File No. 333-50515 filed by 99CENTS Only Stores, a California
corporation (the "Company"), with the Securities and Exchange Commission on
April 20, 1998, as amended by Amendment No. 1 to Registration Statement (the
"Registration Statement"), in order to register under the Securities Act of
1933, as amended (the "Securities Act"), up to 374,271 shares of the Common
Stock, no par value per share (the "Common Stock"), of the Company (the
"Company Shares") and any additional shares of Common Stock which may be
registered pursuant to Rule 462(b) under the Securities Act (the "Additional
Shares", and together with the Company Shares, the "Shares") in connection
with the Company's exchange offer of one share of the Company's Common Stock
for each 16 shares of the common stock, $0.05 par value per share, of
Universal International, Inc. (the "Exchange Offer"). In connection with the
proposed Exchange Offer, the Company has filed the Registration Statement and
may file an additional registration statement to register the Additional
Shares pursuant to Rule 462(b) (the "Abbreviated Registration Statement"),
with the Securities and Exchange Commission for the purpose of registering
the Additional Shares under the Securities Act.
We are of the opinion that (i) the Company Shares and the Additional
Shares have been duly authorized and, upon issuance in conformity with and
pursuant to the Registration Statement, and receipt by the Company of the
shares of Universal common stock therefor as specified in the Registration
Statement, the Company Shares and the Additional Shares will be legally and
validly issued, fully paid and non-assessable.
<PAGE>
99CENTS Only Stores
June 15, 1998
Page 2
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and the Abbreviated Registration Statement and to the
reference to our firm under the caption "Legal Opinion". This opinion may be
incorporated by reference into the Abbreviated Registration Statement.
Respectfully submitted,
/s/ Troop Meisinger Steuber & Pasich, LLP
TROOP MEISINGER STEUBER & PASICH, LLP
<PAGE>
[LETTERHEAD]
June 9, 1998
Board of Directors
99CENTS Only Stores
4000 Union Pacific Ave.
City Of Commerce, CA 90023
Re: 99CENTS ONLY STORES, INC., A CALIFORNIA CORPORATION
REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
In connection with the registration by 99CENTS Only Stores, a California
corporation (the "Company"), of shares of common stock of the Company, no par
value (the "Shares"), under the Securities Act of 1933, as amended (the
"Act"), on Form S-4 filed with the Securities and Exchange Commission (the
"Commission") on April 20, 1998, and, as such filing may be hereafter amended
(the "Registration Statement"), you have requested our opinion with respect
to the matter set forth below.
In our capacity as your counsel in connection with such registration, we
are familiar with the proceedings taken and proposed to be taken by the
Company in connection with the authorization and issuance of the Shares and,
for the purposes of this opinion, have assumed such proceedings will be
timely completed in the manner presently proposed. In addition, we have made
legal and factual examinations and inquiries, including an examination of
originals or copies certified or otherwise identified to our satisfaction of
such documents, corporate records and instruments as we have deemed necessary
or proper for purposes of this opinion.
In our examination we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, and the authenticity of all
documents submitted to us. In making our examination of documents executed
by the parties, we have assumed that such parties have the power to enter
into and perform all obligations thereunder and have also assumed the due
authorization by all requisite action and the valid execution and delivery by
such parties of such documents and the validity, binding effect and
enforceability thereof.
This opinion is based on various assumptions, and is conditioned upon
certain representations to be made by the Company as to factual matters
through a certificate of an officer of the Company, and certain
representations as to factual matters through an additional certificate
<PAGE>
99CENTS Only Stores, Inc.
June 9, 1998
Page
of an officer of Universal International, Inc., a Minnesota corporation.
Also, this opinion is based upon the factual representations of the Company
representing its business and properties as set forth in the Registration
Statement. Furthermore, we have assumed that the Exchange Offer will be
consummated pursuant to its terms, including the exhibits thereto.
We are opining herein as to the effect on the subject transaction only
of the federal income tax laws of the United States, and we express no
opinion with respect to the applicability thereto, or the effect thereon, of
other federal laws, the laws of any other jurisdiction or as to any matters
of municipal law or the laws of any other local agencies within any state.
Based upon the facts set forth in the Registration Statement and in the
form of Certificates, it is our opinion that the information set forth under
the caption "THE EXCHANGE OFFER-- United States Federal Income Tax
Consequences" in the Proxy Statement/Prospectus included within the
Registration Statement, to the extent that such information constitutes
matters of law, summaries of legal matters, or legal conclusions, is correct
in all material respects.
No opinion is expressed as to any matter not discussed therein.
This opinion is based on various statutory provisions of the Internal
Revenue Code of 1986, as amended, Treasury Regulations promulgated
thereunder, pertinent judicial authorities, interpretive rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant. It should be noted that statutes, regulations, judicial decisions
and administrative interpretations are subject to change at any time and in
some circumstances, with retroactive effect. A material change in the
authorities upon which our opinion is based, and any variation or difference
in the facts from those set forth in the Registration Statement or the
Certificates, could affect our conclusions.
This opinion is rendered to you solely for use in connection with the
Registration Statement. We consent to your filing this opinion as an exhibit
to the Registration Statement and to the reference to our firm contained
under the heading "Legal Opinions."
Very truly yours,
/s/ Troop Meisinger Steuber & Pasich, LLP
TROOP MEISINGER STEUBER & PASICH, LLP
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-K/A
/X/ AMENDMENT NO. 1 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-18823
-----------
UNIVERSAL INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
MINNESOTA 41-0776502
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5000 WINNETKA AVENUE NORTH, 55428
NEW HOPE, MINNESOTA (Zip Code)
(Address of Principal Executive Office)
(612) 533-1169
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
-------------------
COMMON STOCK, $0.05 PAR VALUE
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO .
--- ---
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. YES NO X .
--- ---
As of April 24, 1998, 9,393,328 shares of common stock of the Registrant
were outstanding of which 3,897,236 shares were held by non-affiliates, and the
aggregate market value of the common stock of the Registrant as of that date
(based upon the $2.50 last reported sale price of the common stock at that date
by the NASDAQ National Market System), held by non-affiliates was approximately
$9,743,000.
DOCUMENTS INCORPORATED BY REFERENCE
1. The Registrant's Report on Form 8-K/A dated January 8, 1998 is incorporated
by reference in this Form 10-K/A.
2. The Registrant's Report on Form 8-K dated February 3, 1998 is
incorporated by reference in this Form 10-K/A.
3. The Registrant's Report on Form 10-K dated March 30, 1998 for the fiscal
year ended December 31, 1997 is incorporated by reference in this
Form 10-K/A.
4. The Registrant's Report on Form 8-K dated April 24, 1998 is incorporated by
reference in this Form 10-K/A.
- --------------------------------------------------------------------------------
Universal International, Inc. (the "Company") hereby amends its Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 previously filed with
the Securities and Exchange Commission on March 31, 1998, to include the
information required by Part III of Form 10-K contained in this Amendment No. 1.
- --------------------------------------------------------------------------------
2
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
INFORMATION WITH RESPECT TO DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the current
directors and executive officers of the Company as of April 24, 1998:
<TABLE>
<CAPTION>
AGE AT YEAR FIRST
APRIL 24, ELECTED OR APPOINTED
NAME 1998 DIRECTOR/OFFICER PRINCIPAL OCCUPATION
---- ---- ---------------- --------------------
<S> <C> <C> <C>
Richard L. Ennen 45 1997 Chief Executive
Officer; President;
Director
Dennis A. Hill 34 1998 Chief Financial Officer
Robert R. Langer 42 1998 Chief Operating Officer
of Only Deals, Inc.; Director
Jeff Gold 30 1997 Director
Howard Gold 38 1997 Director
Andy Farina 51 1997 Director
</TABLE>
RICHARD L. ENNEN Richard L. Ennen became Chief Executive Officer of the
Company in January 1998 and the President of the Company in August 1997; he
has served as a director of the Company since August 1997. Mr. Ennen joined
the Company in September 1996, as Executive Vice President and General
Merchandising Manager and became President of Only Deals, Inc. ("Only
Deals"), a wholly owned subsidiary of the Company, in October 1996. From
1992 to September 1996, Mr. Ennen was Director of Retail Merchandising and
Retail Operations for Holiday Companies, a large grocery, wholesale and
gasoline company based in Bloomington, Minnesota. Mr. Ennen is also a
director of Odd's-N-End's, Inc. ("Odd's-N-End's") which is 40.5% owned by the
Company and its President as of January 1998.
DENNIS A. HILL
Dennis A. Hill became Chief Financial Officer of the Company in January
1998. Mr. Hill joined the Company in January 1996 as Corporate Controller.
Mr. Hill also became the Chief Financial Officer of both Odd's-N-End's and
Only Deals in January 1998. From January 1994 to January 1996, Mr. Hill was
Manager of Financial Reporting for Damark International, a mail order
retailer. From September 1986 to January 1994, Mr. Hill was employed by
Touche Ross/Deloitte & Touche, an international accounting firm, where he
served as Audit Manager from September 1991.
ROBERT R. LANGER
Robert R. Langer became a director of the Company in January 1998. In
August 1996, Mr. Langer became the Chief Operating Officer of Odd's-N-End's and
has been one of its directors since March 1995. Mr. Langer became Chief
Operating Officer of Only Deals in September 1994; he joined Only Deals in
February 1992 as Vice President-Retail Operations. From June 1989 to January
1992, Mr. Langer was Director of the Retail Division for Lieberman Enterprises,
a major music and video distributor. Mr. Langer is also a director of
Odd's-N-End's.
JEFF GOLD
Jeff Gold became a director of the Company in November 1997 in conjunction
with the acquisition by 99CENTS Only Stores, a California corporation
("99CENTS Only Stores"), of 4.5 million shares of the Company's Common Stock.
Pursuant to a
3
<PAGE>
Shareholders Agreement made as of November 17, 1997, by and among the Company,
99CENTS Only Stores and Mark Ravich (the "Shareholders Agreement"), so long as
99CENTS Only Stores owns at least 20% of the Company's shares, the Company shall
nominate and recommend the election of designees of 99CENTS Only Stores in such
number that at all times 99CENTS Only Stores' designees constitute at least one
member less than a majority of the members of the Company's Board of Directors.
Mr. Gold is currently, and has been since 1991, a director of 99CENTS Only
Stores. He has served in various managerial capacities for 99CENTS Only Stores
since 1989 and is currently its Senior Vice President of Real Estate and
Information Systems. Mr. Gold received his B.A. degree from the University of
California at Berkeley in 1989. Jeff Gold is the brother of Howard Gold.
HOWARD GOLD
Howard Gold became a director of the Company in November 1997 in
conjunction with 99CENTS Only Stores' acquisition of 4.5 million shares of the
Company's Common Stock pursuant to the Shareholders Agreement. Mr. Gold is
currently, and has been since 1991, a director of 99CENTS Only Stores. He has
served in various managerial capacities for 99CENTS Only Stores since 1982 and
is currently its Senior Vice President of Distribution. Mr. Gold received his
B.S. degree from the University of California at Los Angeles in 1984. Howard
Gold is the brother of Jeff Gold.
ANDY FARINA
Andy Farina became a director of the Company in November 1997 in
conjunction with 99CENTS Only Stores' acquisition of 4.5 million shares of
the Company's Common Stock pursuant to the Shareholders Agreement. Mr.
Farina is currently, and has been since September 1996, the Chief Financial
Officer of 99CENTS Only Stores. From April 1993 through August 1996, Mr.
Farina was Vice President of Finance of Crown BBK, Inc., a food brokerage
business. Mr. Farina was employed by a division of Sara Lee from 1976
through 1988, ultimately in the capacity of President. Mr. Farina began his
career with Arthur Andersen LLP.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers, directors, and
persons who own more than ten percent of a registered class of the Company's
equity securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "SEC"). Executive officers, directors
and greater-than-ten percent stockholders are required by SEC regulations to
furnish the Company with all Section 16(a) forms they file. Based solely on its
review of the copies of the forms received by it and written representations
from certain reporting persons that they have complied with the relevant filing
requirements, the Company believes that, during the fiscal year ended December
31, 1997, Messrs. Richard Ennen, Norman Ravich, Mark Ravich and Robert Langer
did not file Form 4s with respect to options they received during the Company's
last fiscal year and will file such Form 4s late. The Company also believes
that Messrs. Jeff Gold, Howard Gold and Andy Farina did not file Form 3s with
respect to each of them becoming a director of the Company and will file such
Form 3s late.
4
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, as to the Chief Executive Officer, the
other three most highly compensated officers whose compensation exceeded
$100,000 during the last fiscal year and an additional individual for whom
disclosure is made pursuant to Item 402(a)(3)(iii) of Regulation S-K (the "Named
Executive Officers"), information concerning all compensation paid for services
to the Company in all capacities for each of the three fiscal years ended
December 31 indicated below.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- AWARDS
SECURITIES ($)
($) ($) UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION(1)
--------------------------- ---- ------ ----- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Richard L. Ennen. . . . . . . 1997 149,132 25,000 175,000 6,000
CEO and President(2) 1996 44,615 20,783 75,000 2,000
1995 0 0 0 0
Norman J. Ravich (3). . . . . 1997 132,693 0 75,000 0
1996 150,000 0 0 4,140
1995 149,808 50,000 75,000 8,775
Mark H. Ravich (4). . . . . . 1997 157,212 0 50,000 9,000
Formerly CEO 1996 157,212 0 0 9,000
1995 149,808 62,000 150,000 (5) 9,000
Robert R. Langer. . . . . . . 1997 134,940 0 10,000 6,000
Chief Operating Officer 1996 115,866 0 8,000 6,000
1995 110,000 24,800 0 6,000
Stevan Buxbaum (6). . . . . . 1997 140,000 0 0 6,000
President of Universal 1996 105,000 18,958 100,000 14,839
Asset-Based Services, Inc. 1995 0 0 0 0
</TABLE>
- ----------------------
(1) Consists of car allowances other than $10,339 to Stevan Buxbaum in 1996 for
reimbursement of moving expenses.
(2) Mr. Ennen became the Company's Chief Executive Officer in January 1998.
(3) Norman Ravich, the Company's founder, served as the Chairman of the Board
until November 1997 and was engaged as a buyer and seller of the Company's
merchandise.
(4) Mark Ravich served as the Company's Chief Executive Officer until January
1998.
(5) Issued upon cancellation of 100,000 options previously issued to Mr.
Ravich.
(6) Stevan Buxbaum served as the President of Universal Asset-Based Services,
Inc. until January 1998 when it was sold by the Company.
5
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding the grant of
stock options made during the fiscal year ended December 31, 1997 to the Named
Executive Officers.
<TABLE>
<CAPTION>
REALIZABLE VALUE
POTENTIAL AT ASSUMED
RATE OF STOCK PRICE
NUMBER OF PERCENT OF APPRECIATION FOR OPTION
SECURITIES TOTAL OPTIONS TERM (4)
UNDERLYING GRANTED TO ($) --------
OPTIONS EMPLOYEES IN EXERCISE OR EXPIRATION ($) ($)
NAME GRANTED FISCAL YEAR (3) BASE PRICE DATE 5% 10%
---- ------- --------------- ---------- ---------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Richard L. Ennen . . . . 75,000 (1) 19.33% 2.50 03/02/02 51,803 114,471
100,000 (1) 25.77% 1.00 08/06/02 27,628 61,051
Norman J. Ravich . . . . 75,000 (2) 19.33% 1.13 10/09/02 23,415 51,741
Mark H. Ravich . . . . . 50,000 (2) 12.89% 1.13 10/09/02 15,610 34,494
Robert R. Langer . . . . 10,000 (1) 2.58% 1.00 10/09/02 2,763 6,105
</TABLE>
- ------------------------
(1) Options indicated vest and become exercisable over a five year period from
the date of grant based upon optionee continuing to be employed by the
Company.
(2) Options indicated vested immediately upon issuance.
(3) The Company granted options to purchase a total of 388,000 shares during
the fiscal year ended December 31, 1997.
(4) 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.
STOCK OPTIONS HELD AT FISCAL YEAR END
The following table sets forth, for each of the Named Executive Officers,
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 based upon the last
reported sales price of the Common Stock on the Nasdaq National Market on
December 31, 1997 ($2.00 per share). No Named Executive Officers exercised
options during 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997(1)
----------------- --------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Norman Ravich . . . . 150,000 0 $ 65,250 0
Mark Ravich . . . . . 200,000 0 43,500 0
Richard L Ennen . . . 15,000 235,000 0 $100,000
Robert R. Langer. . . 17,000 26,000 0 10,000
Stevan Buxbaum. . . . 0 100,000 0 0
</TABLE>
- -----------------------
(1) Based on the closing sale price of $2.00 for the Common Stock at December
31, 1997, less the option exercise price.
6
<PAGE>
COMPENSATION OF DIRECTORS
The Company no longer compensates any directors for attending regular or
special meetings of the Board of Directors or any committee meetings. Prior
to November 1997, the Company compensated non-employee directors $500 for
attending regular or special meetings of the Board of Directors and $250 for
committee meetings. The Company currently reimburses directors for costs and
expenses in connection with such directors' participation at Board of
Directors meetings. During 1997, the non-employee directors were compensated
an aggregate of $3,750 for attendance at regular, special and committee
meetings. In 1997, non-employee directors did not receive any options to
purchase shares of the Company's Common Stock for the year of service as a
director of the Company. Stock options for 8,750 shares to non-employee
directors vested in 1997.
EMPLOYMENT CONTRACTS
Norman J. Ravich entered into a three year employment agreement in October
1992 which was amended in January 1995 and again on October 9, 1997. Under the
amended employment agreement, Mr. Ravich agreed to serve as the Company's
Chairman for an annual base salary of $60,000 for services rendered from October
4, 1997 through October 4, 1998 and as determined by the Company's Board of
Directors for any time thereafter, but not less than the revised 1997 level.
This agreement further provides that Mr. Ravich shall be entitled to a bonus to
be determined by the Board of Directors at the end of each year. Additionally,
the Company granted Mr. Ravich a five year option to purchase 75,000 shares of
the Company's Common Stock at an exercise price of $1.13 per share, which option
vested upon issuance. The options to purchase 75,000 shares previously granted
to Mr. Ravich were amended to extend their expiration date until March 31, 2001.
Finally, the amended agreement provided for nine months of annual base pay plus
health benefits as severance in the event any investor acquires over 40% of the
Common Stock of the Company and Mr. Ravich was either terminated or left
voluntarily. In April 1998, Mr. Ravich left the Company voluntarily and is
currently being paid pursuant to the severance provision in his employment
contract.
Mark H. Ravich entered into a three year employment agreement in October
1992 which was amended in January 1995 and again on October 9, 1997. Under the
amended employment agreement, Mr. Ravich agreed to serve as the Company's Chief
Executive Officer for an annual base salary of $157,500 for services rendered
through December 31, 1997 and as determined by the Company's Board of Directors
for any time thereafter, but not less than the revised 1997 level. This
agreement further provides that Mr. Ravich shall be entitled to a bonus to be
determined by the Board of Directors at the end of each year. Additionally, the
Company granted Mr. Ravich a five year option to purchase 50,000 shares of the
Company's Common Stock at an exercise price of $1.13 per share, which option
vested upon issuance. The options to purchase 150,000 shares previously granted
to Mr. Ravich were amended to extend their expiration date until March 31, 2001.
Finally, the amended agreement provided for nine months of annual base pay plus
health benefits as severance in the event any investor acquires over 40% of the
Common Stock of the Company and Mr. Ravich was either terminated or left
voluntarily. In February 1998, Mr. Ravich left the Company voluntarily and is
currently being paid pursuant to the severance provision in his employment
contract.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At the beginning of 1997, the Company's Compensation Committee was
comprised of Mark L. Bartholomay, Ernest M. Simon and Stanford A. Weiner. Mr.
Bartholomay resigned as a director of the Company in February 1997, Mr. Simon
resigned as a director in November 1997 and Mr. Weiner resigned as a director in
March 1998. Mr. Bartholomay was the Company's Chief Financial Officer from
February 1992 through April 1993. Since November 1997, the members of the
Compensation Committee have been Andy Farina, Jeff Gold and Howard Gold. Mr.
Farina is the Chief Financial Officer of 99CENTS Only Stores, a position he has
held since September 1996. Jeff Gold and Howard Gold are brothers, each of whom
is a director and officer of 99CENTS Only Stores.
7
<PAGE>
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board of Directors establishes the
general compensation policies of the Company as well as the compensation plans
and specific compensation levels for executive officers.
EXECUTIVE OFFICERS' COMPENSATION PROGRAM
There are three basic components to the Company's executive compensation
program: base salary, annual incentive bonus, and long-term equity based
incentive compensation in the form of stock options. Various benefits including
medical and retirement savings plans generally available to employees of the
Company are also made available. While base salaries are fixed pursuant to the
employment agreements, the other components of the executive officers'
compensation are established in light of individual and Company performance,
comparable compensation programs, equity among employees, and cost
effectiveness.
BASE SALARY
Base salaries are designed to be competitive, although conservative as
compared to salary levels for equivalent positions at comparable companies. The
1997 base salary was a fixed amount in the Chief Executive Officer's employment
agreement.
BONUS PLAN
The Company had an established bonus plan which provided for the payment of
cash bonuses payable to executive officers and other management personnel. Such
bonuses were determined either by a formula based on pre-tax profits of the
Company or on a discretionary basis and varied in amount from year to year. The
President's bonus for 1997 was discretionary and determined by the Compensation
Committee in January 1998. Presently, the Company's bonus plan is entirely
discretionary as determined by the Compensation Committee.
STOCK OPTIONS
One of the principal factors considered in granting stock options to the
executive officers of the Company is the ability of the executive officers to
influence the Company's long-term growth and profitability. All options are
granted at or above the market price. Since the value of an option bears a
direct relationship to the Company's stock price, the Committee believes that
options motivate executive officers to manage the Company in a manner which will
also benefit stockholders. The Committee therefore views stock option grants as
an important component of its long-term, performance-based compensation
philosophy. In 1997, stock options exercisable for 175,000 shares of Common
Stock were granted to Richard Ennen, the current Chief Executive Officer and
President of the Company. Seventy-five thousand of these options expire on
March 2, 2002 and one-hundred thousand of these options expire on August 6,
2002. All of Mr. Ennen's options vest over a five year period. In October
1997, Norman Ravich, the Company's founder and Chairman of the Board until
November 1997 received options for 75,000 shares of Common Stock. These options
expire on October 9, 2002 and vested immediately upon issuance. In October
1997, Mark Ravich, the Company's Chief Executive Officer until January 1998,
received options for 50,000 shares of Common Stock. These options expire on
October 9, 2002 and vested immediately upon issuance. In August 1997, Robert
Langer, the Chief Operating Officer of Only Deals since September 1994, received
options for 10,000 shares of the Company's Common Stock. These options expire
on October 9, 2002 and vest over five years.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Mark Ravich served as a director of the Company from 1979 to 1997 and as
Chief Executive Officer from September 1990 to January 1998. His base salary
was $157,500 in 1996 and was set at $157,500 for 1997. Mr. Ennen, the
Company's current Chief Executive Officer, will receive a base salary of
$157,500 for 1998 and is eligible for a discretionary bonus. The Compensation
Committee determined the level of compensation paid to the Company's former
and current Chief Executive Officer to be appropriate.
Members of the Compensation Committee
Andy Farina
Jeff Gold
Howard Gold
8
<PAGE>
PERFORMANCE GRAPH
The following graph sets forth the percentage change in cumulative total
stockholder return of the Company's Common Stock during the five-year period
from December 31, 1992 to December 31, 1997, compared with the cumulative
returns of the Nasdaq Stock Market (US Companies) Index and an index of peer
companies selected by the Company. The comparison assumes $100 was invested
on January 1, 1993 in the Common Stock and in each of the foregoing indices.
The stock price performance on the following graph is not necessarily
indicative of future stock price performance.
COMPARISON OF CUMULATIVE RETURN AMONG
UNIVERSAL INTERNATIONAL, THE NASDAQ STOCK MARKET INDEX AND THE COMPANY'S
PEER GROUP
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
UNIV NASDAQ PEER GROUP
------ ------ ----------
<S> <C> <C> <C>
12/31/92 100 100 100
12/31/93 70.18 114.75 90.33
12/31/94 59.65 111.08 83.62
12/31/95 133.33 155.42 76.91
12/31/96 56.14 190.71 132.61
12/31/97 56.14 240 180.23
</TABLE>
The Company's peer group is comprised of other close-out wholesalers and
retailers. The members of the peer group are as follows: Consolidated Stores
Corporation, Tues Morning Corp., Dolgencorp and Family Dollar, Inc.
9
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth as of April 24, 1998 certain information
relating to the ownership of the Common Stock by (i) each person known by the
Company to be the beneficial owner of more than five percent of the outstanding
shares of the Company's Common Stock, (ii) each of the Company's directors,
(iii) each of the Named Executive Officers, and (iv) all of the Company's
executive officers and directors as a group. Except as may be indicated in the
footnotes to the table and subject to applicable community property laws, each
such person has the sole voting and investment power with respect to the shares
owned. The address of each person listed is in care of the Company unless
otherwise set forth below such person's name.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
NAME AND ADDRESS BENEFICIALLY OWNED %
---------------- ------------------ ---
<S> <C> <C>
99 Cents Only Stores 4,500,000 47.91
4000 Union Pacific Avenue
City of Commerce, CA 90023
Mark H. Ravich (1). . . . . . . . . . . . . 1,085,472 11.31
Norman J. Ravich (2). . . . . . . . . . . . 258,620 2.71
Richard L. Ennen (3). . . . . . . . . . . . 30,000 0.32
Robert R. Langer (4). . . . . . . . . . . . 20,500 0.22
Dennis A. Hill (5). . . . . . . . . . . . . 3,700 *
Jeff Gold . . . . . . . . . . . . . . . . . 0 0
Howard Gold . . . . . . . . . . . . . . . . 0 0
Andy Farina . . . . . . . . . . . . . . . . 0 0
Directors and Executive Officers as a group
(6 persons) (6) . . . . . . . . . . . . . . 54,200 0.57
</TABLE>
- ---------------
* Less than 0.1%
(1) Includes: (a) 372,472 shares of Common Stock held by Mr. Ravich; (b)
265,000 shares held by the Norman and Sally Ravich Family Trust of which
Mr. Ravich is co-trustee; (c) 220,000 shares held by the Norman J. Ravich
Irrevocable Agreement of which Mark Ravich is sole trustee; (d) 28,000
shares held in trust for Mr. Ravich's children of which he is co-trustee;
and (e) options to purchase 200,000 shares of Common Stock.
(2) Includes options to purchase 150,000 shares of Common Stock.
(3) Includes options to purchase 30,000 shares of Common Stock.
(4) Includes options to purchase 19,500 shares of Common Stock.
(5) Includes options to purchase 2,000 shares of Common Stock.
(6) Includes options to purchase 51,500 shares of Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1997, 99CENTS Only Stores acquired approximately 48% of the
outstanding Common Stock of the Company for $4 million in cash and
merchandise. The Company owns approximately 41% of the outstanding common
stock of Odd's-N-End's. In February 1998, 99CENTS Only Stores announced its
intention to acquire the balance of the Company's shares which it does not
own and the balance of the Odd's-N-End's' shares not owned by the Company.
Subject to the terms and conditions set forth in the registration statement
on Form S-4 filed by 99CENTS Only Stores with the SEC, 99CENTS Only Stores is
offering to exchange one share of its common stock for every sixteen shares
of the Company's Common Stock (the "Exchange Offer").
10
<PAGE>
AGREEMENTS RELATING TO EXCHANGE OFFER
THE COOPERATION AGREEMENT
In connection with the Exchange Offer, 99CENTS Only Stores and the Company
entered into a Cooperation Agreement which provides that the Company will
support the Exchange Offer and will provide 99CENTS Only Stores access to the
books and records of the Company, as well as to the Company's officers and
directors for purposes of preparing filings and completing due diligence. In
addition, the Company agreed to file a Schedule 14D-9 with respect to the
Exchange Offer and agreed that it would not oppose the Exchange Offer in the
Schedule 14D-9. The Company also agreed to promptly furnish to 99CENTS Only
Stores mailing labels, security position listings and any other available
listings or computer files containing the names and addresses of the record
holders of Company Common Stock for purposes of mailing Exchange Offer
documents.
Promptly upon the purchase by 99CENTS Only Stores of the Company shares
pursuant to the Exchange Offer (provided that not less than 80% of the
outstanding shares of the Company Common Stock are validly tendered and not
withdrawn (the "Minimum Condition")) and from time to time thereafter, 99CENTS
Only Stores shall be entitled, subject to compliance with Section 14(f) of the
Exchange Act, to designate up to such number of directors, rounded down to the
next whole number (except where such rounding down would cause 99CENTS Only
Stores to not be entitled to designate at least a majority of directors, in
which case, such number will be rounded up) on the Board of Directors of the
Company as will give 99CENTS Only Stores representation on the Board equal to
the product of the number of directors on the Board (giving effect to the
directors elected pursuant to this sentence) multiplied by the percentage that
the aggregate number of shares of Company Common Stock then beneficially owned
by 99CENTS Only Stores and its affiliates following such purchase bears to the
total number of shares of Company Common Stock then outstanding. In the
Cooperation Agreement, the Company has agreed to promptly take all actions
necessary to cause 99CENTS Only Stores' designees to be elected or appointed as
directors of the Company, including increasing the size of the Board or securing
the resignations of incumbent directors or both.
The Company also agreed to assist 99CENTS Only Stores in obtaining the
approval of its shareholders under the Minnesota Control Share Acquisition Act
to provide voting rights to Company Common Stock acquired by 99CENTS Only Stores
in the Exchange Offer. The Company further agreed to take all action necessary
to either (a) amend the Rights Agreement so that the Exchange Offer would not
cause (i) the occurrence of the "Distribution Date" (as such term is defined in
the Rights Agreement) or (ii) the common stock purchase rights issued pursuant
to the Rights Agreement becoming evidenced by, and transferable pursuant to,
certificates separate from the certificates representing Company Common Stock or
(b) redeem the rights before 99CENTS Only Stores becomes an "Acquiring Person"
pursuant to the terms of the Rights Agreement.
STOCKHOLDER SUPPORT AGREEMENTS
On February 24, 1998, 99CENTS Only Stores and each of Mark Ravich, Norman
Ravich and certain trusts for which Mark Ravich is the trustee entered into
separate Stockholder Support Agreements in which each stockholder agreed to vote
its shares of Company Common Stock (i) in favor of the Exchange Offer and (ii)
in favor of any other matter deemed necessary by 99CENTS Only Stores to
effectuate the Exchange Offer or solicited in connection with the Exchange
Offer, and considered and voted upon by the shareholders of the Company. In
addition, each shareholder executing a Stockholder Support Agreement agreed to
tender and sell all of its Company Common Stock to 99CENTS Only Stores pursuant
to the terms of the Exchange Offer.
CONSULTING AGREEMENTS AND OPTION AGREEMENTS
Furthermore, on February 24, 1998, Mark Ravich entered into a Consulting
Agreement with 99CENTS Only Stores whereby Mark Ravich agreed to provide
advisory services to 99CENTS Only Stores in connection with the Exchange Offer
and thereafter to provide sales, management and operations consulting services
in connection with the operation of the business of the Company following
completion of the Exchange Offer. The term of the consulting agreement ends
February 24, 1999. As compensation for the consulting services provided,
99CENTS Only Stores granted to Mark Ravich an option to acquire 9,375 shares of
99CENTS Only Stores Common Stock at $40.00 per share, and an option to acquire
15,000 shares of 99CENTS Only Stores Common Stock at $33.5625 per share pursuant
to separate Option Agreements each dated as of February 26, 1998. Each of the
options terminates
11
<PAGE>
on the earlier to occur of a termination of the Exchange Offer and February 19,
2005. Each of the options becomes fully exercisable on the first business day
following consummation of the Exchange Offer.
On February 26, 1998, Norman Ravich also entered into a Consulting
Agreement with 99CENTS Only Stores whereby Norman Ravich agreed to provide
advisory services to 99CENTS Only Stores in connection with the Exchange Offer
and thereafter to provide sales, management and operation consulting services in
connection with the operation of the business of the Company following
completion of the Exchange Offer. The Consulting Agreement ends on May 27,
1998. As compensation for the consulting services provided, 99CENTS Only Stores
granted to Norman Ravich an option to purchase 4,688 shares of 99CENTS Only
Stores Common Stock at $40.00 per share pursuant to a separate option agreement
dated February 26, 1998. The option terminates on the earlier to occur of a
termination of the Exchange Offer and February 19, 2005. The option becomes
fully exercisable on the first business day following consummation of the
Exchange Offer.
12
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. The Consolidated Financial Statements, notes thereto, and accountants'
reports thereon are included in the Company's Form 10-K which has been
incorporated by reference.
2. The Consolidated Financial Statements Schedule are included in the
Company's Form 10-K which has been incorporated by reference.
Other financial statement schedules are omitted because they are not
required or are not applicable.
3. Exhibits
See Exhibit Index immediately following signature page.
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K on December 23, 1997, as amended
January 8, 1998, relating to a change in the Company's independent
auditors. The Company filed a Report on Form 8-K during the quarter
ended December 31, 1997 relating to the issuance of 4.5 million shares
of common stock to 99CENTS Only Stores. The Company filed a Report on
Form 8-K on February 10, 1998 relating to the sale of its 95% owned
interest in Universal Asset-Based Services, Inc. The Company also filed
a Report on Form 8-K on April 24, 1998 relating to the amendment of the
Rights Agreement filed as Exhibit 4.7.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNIVERSAL INTERNATIONAL, INC.
Date: April 29, 1998 By: /s/ Richard L. Ennen
----------------------
Richard L. Ennen
CHIEF EXECUTIVE OFFICER AND PRESIDENT
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C> <C> <C>
/s/ Richard L. Ennen Chief Executive Officer, President
------------------------- and Director (principal executive officer) April 29, 1998
Richard L. Ennen
/s/ Dennis A. Hill Chief Financial Officer
------------------------- (principal financial and accounting officer) April 29, 1998
Dennis A. Hill
/s/ Robert R. Langer Chief Operating Officer of Only Deals
-------------------------- and Director April 29, 1998
Robert R. Langer
/s/ Jeff Gold
--------------------------
Jeff Gold Director April 29, 1998
/s/ Howard Gold
--------------------------
Howard Gold Director April 29, 1998
/s/ Andy Farina
-------------------------
Andy Farina Director April 29, 1998
</TABLE>
14
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated March 2, 1998
included in 99 CENTS Only Stores Form 10-K for the year ended December 31, 1997
and to all references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Los Angeles, California
June 12, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report, which includes an
explanatory paragraph related to going concern considerations, dated March 6,
1998 on the consolidated financial statements of Universal International, Inc.
for the year ended December 31, 1997 included in 99 Cents Only Stores Form 10-K
and Universal International Inc.'s Form 10-K for the year ended December 31,
1997 and to all references to our Firm included in the registration statement on
Form S-4.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
June 15, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of 99CENTS Only Stores on Form S-4 (File No. 333-50515) of our reports, which
include an explanatory paragraph related to going concern considerations, dated
April 15, 1997, on our audits of the consolidated financial statements and the
financial statement schedule of Universal International, Inc. as of December 31,
1996, and for the years ended December 31, 1996 and 1995, which reports are
included in the Annual Report on Form 10-K of Universal International, Inc. for
the year ended December 31, 1997. We also consent to the reference to our firm
under the caption "Experts."
Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
June 15, 1998
<PAGE>
Exhibit 23.5
[LETTERHEAD]
June 3, 1998
We hereby consent to the attachment of our fairness opinion to the
Registration Statement on Form S-4.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
/s/ Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
WHP:neb
Attachments
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON SHARE PURCHASE RIGHTS)
OF
UNIVERSAL INTERNATIONAL, INC.
PURSUANT TO THE EXCHANGE OFFER
BY
99CENTS ONLY STORES
DESCRIBED IN THE PROXY STATEMENT/PROSPECTUS DATED , 1998
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1998, UNLESS THE EXCHANGE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
American Stock Transfer and Trust Company
<TABLE>
<S> <C> <C>
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT
American Stock Transfer ( ) DELIVERY:
and Trust Company CONFIRM FACSIMILE BY TELEPHONE: American Stock Transfer
40 Wall Street ( ) And Trust Company
New York, New York 10005 40 Wall Street - 46th Floor
New York, New York 10005
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A NUMBER
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by shareholders if
certificates for Universal Shares (as defined below) are to be forwarded
herewith or, unless an Agent's Message (as defined below) is utilized, if
tenders of Universal Shares are to be made by book-entry transfer to an account
maintained by American Stock Transfer and Trust Company (the "Exchange Agent")
at The Depository Trust Company, the Midwest Securities Trust Company or the
Philadelphia Depository Trust Company (each a "Book-Entry Transfer Facility" and
collectively referred to as the "Book-Entry Transfer Facilities"), pursuant to
the procedures set forth in the section of the Proxy Statement/ Prospectus
entitled "THE EXCHANGE OFFER--Procedures for Accepting the Exchange Offer and
Tendering Shares."
Holders of Universal Shares whose certificates for such shares (the "Share
Certificates") are not immediately available or who cannot deliver their Share
Certificates and all other required documents to the Exchange Agent on or prior
to the Expiration Date (as defined in the Proxy Statement/Prospectus (as defined
below)) or who cannot complete the procedures for a book-entry transfer on a
timely basis, must tender their Universal Shares according to the guaranteed
delivery procedures set forth in the section of the Proxy Statement/Prospectus
entitled "THE EXCHANGE OFFER--Procedures for Accepting the Exchange Offer and
Tendering Shares." See Instruction 2. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY
TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
/ / CHECK HERE IF TENDERED UNIVERSAL SHARES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A BOOK-
ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _________________________________________________
Check Box of Book-Entry Transfer Facility:
/ / The Depository Trust Company
/ / Midwest Securities Trust Company
/ / Philadelphia Depository Trust Company
Account Number: ________________________________________________________________
Transaction Code Number: _______________________________________________________
/ / CHECK HERE IF TENDERED UNIVERSAL SHARES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING. PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF
GUARANTEED DELIVERY.
Name(s) of Registered Holder(s): ___________________________________________
Window Ticket Number (if any): _____________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Name of Institution which Guaranteed Delivery: _____________________________
DESCRIPTION OF UNIVERSAL SHARES TENDERED
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(S) OF REGISTERED SHAREHOLDER(S) SHARE CERTIFICATE(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) AND UNIVERSAL SHARES TENDERED
APPEAR(S) ON SHARE CERTIFICATE(S) (ATTACH ADDITIONAL LIST IF NECESSARY)
- ----------------------------------------------------------------------------------------------------------
TOTAL NUMBER OF
UNIVERSAL NUMBER OF
SHARES UNIVERSAL
CERTIFICATE REPRESENTED BY SHARES
NUMBER(S)* CERTIFICATE(S)* TENDERED**
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
TOTAL NUMBER OF
UNIVERSAL
SHARES
- ----------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry shareholders.
** Unless otherwise indicated, it will be assumed
that all Universal Shares represented by any
certificates delivered to the Exchange Agent are
being tendered. See Instruction 4.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to 99 CENTS Only Stores, a California
corporation ("99 CENTS Only Stores"), the above-described shares of common
stock, $0.05 par value per share (the "Universal Shares"), of Universal
International, Inc., a Minnesota corporation ("Universal"), including the
associated common share purchase rights (each, a "Right" and collectively, the
"Rights") issued pursuant to the Rights Agreement, dated as of April 19, 1996,
between Universal and Norwest Bank Minnesota, National Association, as Rights
Agent. Unless the contract otherwise requires and unless and until all Rights
are redeemed, all references to Universal Shares shall include the associated
Rights. The undersigned is tendering the above-described Universal Shares
pursuant to the offer by 99 CENTS Only Stores to exchange one share of common
stock, no par value per share (the "99 CENTS Only Stores Common Stock"), of
99 CENTS Only Stores for each sixteen (16) Universal Shares (the "Exchange
Consideration"), upon the terms and subject to the conditions set forth in the
Proxy Statement/Prospectus dated , 1998 of 99 CENTS Only Stores (the
"Proxy Statement/Prospectus"), receipt of which is hereby acknowledged, and in
this Letter of Transmittal (which, as amended from time to time, together with
the Proxy Statement/Prospectus, constitute the "Exchange Offer").
Subject to, and effective upon, acceptance for exchange of and exchange for
the Universal Shares tendered herewith in accordance with the terms and subject
to the conditions of the Exchange Offer (including, if the Exchange Offer is
extended or amended, the terms and conditions of such extension or amendment),
the undersigned hereby sells, assigns and transfers to, or upon the order of,
99 CENTS Only Stores all right, title and interest in and to all of the
Universal Shares that are being tendered hereby and any and all dividends on the
Universal Shares or any distribution (including, without limitation, the
issuance of additional Universal Shares pursuant to a stock dividend or stock
split, the issuance of other securities or the issuance of rights for the
purchase of any securities) with respect to the Universal Shares that is
declared or paid by Universal on or after , 1998 and is payable or
distributable to shareholders of record on a date prior to the transfer into the
name of 99 CENTS Only Stores or its nominees or transferees on Universal's stock
transfer records of the Universal Shares exchanged pursuant to the Exchange
Offer (a "Distribution"), and constitutes and irrevocably appoints the Exchange
Agent the true and lawful agent, attorney-in-fact and proxy of the undersigned
to the full extent of the undersigned's rights with respect to such Universal
Shares (and any Distributions) with full power of substitution (such power of
attorney and proxy being deemed to be an irrevocable power coupled with an
interest), to (a) deliver Share Certificates (and any Distributions), or
transfer ownership of such Universal Shares on the account books maintained by
the Book-Entry Transfer Facilities, together in each case with all accompanying
evidences of transfer and authenticity, to or upon the order of 99 CENTS Only
Stores upon receipt by the Exchange Agent, as the undersigned's agent, of the
Exchange Consideration, (b) present such Universal Shares (and any
Distributions) for transfer on the books of Universal and (c) receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Universal Shares (and any Distributions), all in accordance with the terms of
the Exchange Offer.
The undersigned hereby irrevocably appoints and
, and each of them, the attorneys-in-fact and proxies of the
undersigned, each with full power of substitution, to vote in such manner as
each such attorney and proxy or his substitute shall in his sole discretion deem
proper, and otherwise act (including pursuant to written consent) with respect
to all of the Universal Shares tendered hereby which have been accepted for
exchange by 99 CENTS Only Stores prior to the time of such vote or action (and
any Distributions) which the undersigned is entitled to vote at any meeting of
the shareholders of Universal (whether annual or special and whether or not an
adjourned meeting). This power of attorney and proxy is coupled with an interest
in Universal and in the Universal Shares and is irrevocable and is granted in
consideration of, and is effective upon, the acceptance for exchange of such
Universal Shares by 99 CENTS Only Stores in accordance with the terms of the
Exchange Offer. Such acceptance for exchange shall revoke, without further
action, any other power of attorney or proxy granted by the undersigned at any
time with respect to such Universal Shares (and any Distributions) and no
subsequent powers of attorney or proxies will be given (and if given will be
deemed not to be effective) with respect thereto by the undersigned. The
undersigned understands that 99 CENTS Only Stores reserves the right to require
that, in order for the Universal Shares to be deemed validly tendered,
immediately upon 99 CENTS Only Stores' acceptance for exchange of such Universal
Shares, 99 CENTS Only Stores is able to exercise full voting rights with respect
to such Universal Shares and other securities, including voting at any meeting
of shareholders.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Universal Shares
tendered hereby, and when the Universal Shares tendered hereby are accepted for
exchange by 99 CENTS Only Stores, 99 CENTS Only Stores will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim. The undersigned will,
upon request, execute and deliver any additional documents deemed by the
Exchange Agent or 99 CENTS Only Stores to be necessary or desirable to complete
the sale, assignment and transfer of the Universal Shares tendered hereby. The
undersigned has read and agrees to all of the terms of the Exchange Offer.
<PAGE>
All authority herein conferred or agreed to be conferred pursuant to this
Letter of Transmittal shall not be affected by and shall survive the death,
incapacity, bankruptcy or insolvency of the undersigned, and any obligation of
the undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned. Except as stated in
the Exchange Offer, this tender is irrevocable.
The undersigned understands that tenders of Universal Shares pursuant to any
one of the procedures described in the section of the Proxy Statement/Prospectus
entitled "THE EXCHANGE OFFER--Procedures for Accepting the Exchange Offer and
Tendering Shares" and in the instructions hereto will constitute an agreement
between the undersigned and 99 CENTS Only Stores upon the terms and subject to
the conditions of the Exchange Offer. The undersigned recognizes that under
certain circumstances set forth in the Proxy Statement/Prospectus, 99 CENTS Only
Stores may not be required to accept for exchange any of the Universal Shares
tendered hereby.
Unless otherwise indicated herein under "Special Exchange Instructions,"
please issue the certificates for shares of 99 CENTS Only Stores Common Stock
and any cash payment in lieu of fractional shares of 99 CENTS Only Stores Common
Stock, as discussed in the Proxy Statement/Prospectus, and return any Share
Certificates not tendered or not accepted for exchange, in the name(s) of the
undersigned (and, in the case of Universal Shares tendered by book-entry
transfer, by credit to the account at the Book-Entry Transfer Facility
designated above). Similarly, unless otherwise indicated herein under "Special
Delivery Instructions", please mail the certificates for the shares of 99 CENTS
Only Stores Common Stock and any check for cash payment in lieu of fractional
shares of 99 CENTS Only Stores Common Stock and any Share Certificates not
tendered or not accepted for exchange (and accompanying documents as
appropriate) to the undersigned at the address shown below the undersigned's
signature(s). In the event that both "Special Exchange Instructions" and
"Special Delivery Instructions" are completed, please issue the certificates for
the shares of 99 CENTS Only Stores Common Stock and any check for cash payment
in lieu of fractional shares of 99 CENTS Only Stores Common Stock and any Share
Certificates not tendered or not accepted for exchange in the name(s) of, and
mail said check and certificates to, the person(s) so indicated. The undersigned
recognizes that 99 CENTS Only Stores has no obligation, pursuant to the "Special
Exchange Instructions," to transfer any Universal Shares from the name of the
registered holder(s) thereof if 99 CENTS Only Stores does not accept for
exchange any of the Universal Shares so tendered.
- ------------------------------------------------
SPECIAL EXCHANGE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the certificates for shares of 99 CENTS Only
Stores Common Stock and any check for any cash payment in lieu of fractional
shares of 99 CENTS Only Stores Common Stock or Share Certificates not
tendered or not accepted for exchange are to be issued in the name of
someone other than the undersigned.
Issue to:
Name _______________________________________________________________________
(PLEASE PRINT)
Address ____________________________________________________________________
____________________________________________________________________________
(ZIP CODE)
__________________________________________________________________________
(TAXPAYER IDENTIFICATION NO.)
- ------------------------------------------------------------
- ------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the certificates for shares of 99 CENTS Only
Stores Common Stock and any check for any cash payment in lieu of fractional
shares of 99 CENTS Only Stores Common Stock or Share Certificates not
tendered or not accepted for exchange are to be mailed to someone other than
the undersigned or to the undersigned at an address other than that shown
below the undersigned's signature(s).
Mail to:
Name _______________________________________________________________________
(PLEASE PRINT)
Address ____________________________________________________________________
____________________________________________________________________________
(ZIP CODE)
- -----------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
IMPORTANT
HOLDERS OF UNIVERSAL SHARES SIGN HERE
(ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW)
Signature(s) of Owner(s) ___________________________________________________
____________________________________________________________________________
Dated ______________________________________________________________________
(Must be signed by the registered holder(s) exactly as name(s) appear(s)
on the Share Certificate(s) or on a security position listing or by
person(s) authorized to become registered holder(s) by certificates and
documents transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or any
other person acting in a fiduciary or representative capacity, please set
forth full title and see Instruction 5.)
Name(s) ____________________________________________________________________
____________________________________________________________________________
(PLEASE PRINT)
Capacity (full title) ______________________________________________________
Address ____________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number _____________________________________________
Taxpayer Identification or Social Security Number __________________________
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTIONS 1 AND 5)
Authorized Signature _______________________________________________________
Name _______________________________________________________________________
(PLEASE PRINT)
Name of Firm _______________________________________________________________
Address ____________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number _____________________________________________
Dated ______________________________________________________________________
- --------------------------------------------------------------------------------
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. GUARANTEE OF SIGNATURES. All signatures on this Letter of Transmittal
must be guaranteed by a firm which is a financial institution (including most
commercial banks, savings and loan associations and brokerage houses) that is a
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange
Medallion Program (each, an "Eligible Institution"), except in cases where
Universal Shares are tendered (i) by a registered holder of Universal Shares who
has not completed either the box entitled "Special Exchange Instructions" or the
box entitled "Special Delivery Instructions" on this Letter of Transmittal or
(ii) for the account of an Eligible Institution. If a Share Certificate is
registered in the name of a person other than the signatory of this Letter of
Transmittal, or if payment is to be made, or a Share Certificate not accepted
for exchange or not tendered is to be returned, to a person other than the
registered holder(s), then the Share Certificate must be endorsed or accompanied
by appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appears on the Share Certificate, with the signature(s) on
such Share Certificate or stock powers guaranteed by an Eligible Institution.
See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND UNIVERSAL SHARES. This Letter of
Transmittal is to be used either if certificates are to be forwarded herewith or
if delivery of Universal Shares is to be made by book-entry transfer pursuant to
the procedures set forth in the section of the Proxy Statement/Prospectus
entitled "THE EXCHANGE OFFER--Procedures for Accepting the Exchange Offer and
Tendering Shares." Certificates for all physically delivered Universal Shares,
or a confirmation of a book-entry transfer into the Exchange Agent's account at
one of the Book-Entry Transfer Facilities of all Universal Shares delivered
electronically, as well as a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof), or an Agent's Message in connection with a
book-entry delivery of Universal Shares, and any other documents required by
this Letter of Transmittal, must be received by the Exchange Agent at one of its
addresses set forth on the front page of this Letter of Transmittal by the
Expiration Date. If a shareholder desires to tender Universal Shares pursuant to
the Exchange Offer and such shareholder's Share Certificates evidencing such
Universal Shares are not immediately available or such shareholder cannot
deliver the Share Certificates and all other required documents to the Exchange
Agent prior to the Expiration Date, or such shareholder cannot complete the
procedure for delivery by book-entry transfer on a timely basis, such Universal
Shares may nevertheless be tendered pursuant to the guaranteed delivery
procedure set forth in the section of the Proxy Statement/Prospectus entitled
"THE EXCHANGE OFFER--Procedures for Accepting the Exchange Offer and Tendering
Shares." Pursuant to such procedure: (i) such tender must be made by or through
an Eligible Institution; (ii) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form made available by 99 CENTS Only
Stores, must be received by the Exchange Agent prior to the Expiration Date; and
(iii) the Share Certificates (or a book-entry confirmation) evidencing all
tendered Universal Shares, in proper form for transfer, in each case together
with the Letter of Transmittal (or a facsimile thereof), properly completed and
duly executed, with any required signature guarantees, or, in the case of a
book-entry transfer, an Agent's Message, and any other documents required by the
Letter of Transmittal must be received by the Exchange Agent within three New
York Stock Exchange trading days after the date of execution of such Notice of
Guaranteed Delivery.
The term "Agent's Message" means a message transmitted by a Book-Entry
Transfer Facility to, and received by, the Exchange Agent and forming a part of
a book-entry confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Universal Shares that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that 99 CENTS Only Stores may enforce such agreement against such participant.
THE METHOD OF DELIVERY OF UNIVERSAL SHARES AND ALL OTHER REQUIRED DOCUMENTS,
INCLUDING THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND SOLE
RISK OF THE TENDERING HOLDER OF UNIVERSAL SHARES AND THE DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
SHAREHOLDERS WHOSE UNIVERSAL SHARES ARE REGISTERED IN THE NAME OF A BROKER,
INVESTMENT DEALER, BANK, TRUST COMPANY OR OTHER NOMINEE SHOULD CONTACT THAT
NOMINEE FOR ASSISTANCE IN TENDERING THOSE UNIVERSAL SHARES.
No alternative, conditional or contingent tenders will be accepted, and no
fractional Universal Shares will be exchanged. By executing this Letter of
Transmittal (or a facsimile hereof), the tendering holder of Universal Shares
waives any right to receive any notice of the acceptance for exchange of the
Universal Shares.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Universal Shares and any other required
information should be listed on a separate signed schedule which is attached to
this Letter of Transmittal.
<PAGE>
4. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF UNIVERSAL SHARES WHO
TENDER BY BOOK-ENTRY TRANSFER). If fewer than all the Universal Shares
represented by any certificate delivered to the Exchange Agent are to be
tendered, fill in the number of Universal Shares which are to be tendered in the
box entitled "Number of Universal Shares Tendered." In such case, a new
certificate for the remainder of the Universal Shares represented by the old
certificate will be sent to the person(s) signing this Letter of Transmittal,
unless otherwise provided in the appropriate box on this Letter of Transmittal,
as promptly as practicable following the expiration or termination of the
Exchange Offer. All Universal Shares represented by certificates delivered to
the Exchange Agent will be deemed to have been tendered unless otherwise
indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the
Universal Shares tendered hereby, the signature(s) must correspond with the
name(s) as written on the face of the certificates representing such Universal
Shares without any alteration or change whatsoever.
If any of the Universal Shares tendered hereby are held of record by two or
more persons, all such persons must sign this Letter of Transmittal.
If any of the Universal Shares tendered hereby are registered in different
names on different certificates, it will be necessary to complete, sign and
submit as many separate Letters of Transmittal as there are different
registration of certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Universal Shares tendered hereby, no endorsements of certificates or separate
stock powers are required unless certificates for shares of 99 CENTS Only Stores
Common Stock or any checks for any cash payment in lieu of fractional shares of
99 CENTS Only Stores Common Stock are issued, or Universal Shares not tendered
or not accepted for exchange are to be returned, in the name of any person other
than the registered holder(s). Signatures on any such certificates or stock
powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Universal Shares tendered hereby, certificates must
be endorsed or accompanied by stock powers, in either case, signed exactly as
the name(s) of the registered holder(s) appear(s) on the certificates for such
Universal Shares. Signature(s) on any such certificates or stock powers must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal or any certificate or stock power is signed by
a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory to
99 CENTS Only Stores of the authority of such person to act must be submitted.
6. STOCK TRANSFER TAXES. Any stock transfer taxes with respect to the
exchange and transfer of any Universal Shares to 99 CENTS Only Stores or its
order pursuant to the Exchange Offer will be paid by or on behalf of 99 CENTS
Only Stores. If, however, certificates for shares of 99 CENTS Only Stores Common
Stock or any checks for any cash payment in lieu of fractional shares of
99 CENTS Only Stores Common Stock are issued, or Universal Shares not tendered
or not accepted for exchange are to be returned, in the name of any person other
than the registered holder(s), the amount of any stock transfer taxes (whether
imposed on the registered holder(s), such other person or otherwise) payable on
account of the transfer to such person will be deducted from the consideration
to be received by such holder unless satisfactory evidence of the payment of
such taxes, or exception therefrom, is submitted.
7. SPECIAL EXCHANGE AND DELIVERY INSTRUCTIONS. If the certificates for
shares of 99 CENTS Only Stores Common Stock or any checks for any cash payment
in lieu of payment of fractional shares of 99 CENTS Only Stores Common Stock are
to be issued, or any Universal Shares not tendered or not accepted for exchange
are to be returned, in the name of a person other than the person(s) signing
this Letter of Transmittal or if the certificates for shares of 99 CENTS Only
Stores Common Stock, or any checks for any cash payment in lieu of fractional
shares of 99 CENTS Only Stores Common Stock or any certificates for Universal
Shares not tendered or not accepted for exchange are to be mailed to someone
other than the person(s) signing this Letter of Transmittal or to the person(s)
signing this Letter of Transmittal at an address other than that shown above,
the appropriate boxes on this Letter of Transmittal should be completed.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance may be directed to the Information Agent or the Dealer Manager at
their respective addresses and telephone numbers listed below. Additional copies
of the Proxy Statement/Prospectus, the Letter of Transmittal and other exchange
offer materials may be obtained from the Information Agent as set forth below.
You may also contact your broker, dealer, commercial bank, trust company or
other nominee, as applicable, for assistance concerning the Exchange Offer.
9. SUBSTITUTE FORM W-9. Under U.S. federal income tax law, a holder of
Universal Shares whose Universal Shares are accepted for exchange is required to
provide the Exchange Agent with such holder's correct taxpayer identification
number ("TIN") on the Substitute Form W-9 set forth below. If the Exchange Agent
is not provided
<PAGE>
with the correct TIN, the Internal Revenue Service may subject the holder or
other payee to a $50.00 penalty. In addition, payments that are made to such
holder or other payee with respect to Universal Shares exchanged in the Exchange
Offer may be subject to 31% backup withholding.
Certain holders of Universal Shares (including among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. In order for a foreign individual to
qualify as an exempt recipient, the holder of Universal Shares must submit a
Form W-8, signed under penalties of perjury, attesting to that individual's
exempt status. A Form W-8 may be obtained from the Exchange Agent. See the
enclosed "Guidelines For Certification of Taxpayer Identification Number On
Substitute Form W-9" for more instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any such payments made to the holder of Universal Shares or other payee.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
The box in Part 3 of the Substitute Form W-9 should be checked if the
tendering holder of Universal Shares has not been issued a TIN and has applied
for a TIN or intends to apply for a TIN in the near future. If the box in Part 3
is checked, the holder of Universal Shares or other payee must also complete the
Certificate of Awaiting Taxpayer Identification Number below in order to avoid
backup withholding. Notwithstanding that the box in Part 3 is checked and the
Certificate of Awaiting Taxpayer Identification Number is completed, the
Exchange Agent will withhold 31% of all payments made prior to the time a
properly certified TIN is provided to the Exchange Agent.
The holder of Universal Shares is required to give the Exchange Agent the
TIN (E.G., social security number or employer identification number) of the
record owner of the Universal Shares or of the last transferee appearing on the
transfers attached to, or endorsed on, the Universal Shares. If the Universal
Shares are in more than one name or are not in the name of the actual owner,
consult the enclosed "Guidelines For Certification of Taxpayer Identification
Number on Substitute Form W-9" for additional guidance as to which number to
report.
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate(s)
representing Universal Shares has been lost, destroyed or stolen, the
shareholder should promptly notify the Exchange Agent. The shareholder will then
be instructed as to the steps that must be taken in order to replace the
certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost or destroyed certificates have
been followed.
11. WAIVER OF CONDITIONS. Subject to the terms of the Exchange Offer,
99 CENTS Only Stores reserves the absolute right in its sole discretion to waive
any of the specified conditions of the Exchange Offer, in whole or in part, in
the case of any Universal Shares tendered.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE COPY HEREOF) OR AN
AGENT'S MESSAGE TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY
TRANSFER OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF GUARANTEED DELIVERY
AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR
PRIOR TO THE EXPIRATION DATE.
<PAGE>
TO BE COMPLETED BY ALL TENDERING SHAREHOLDERS
(SEE INSTRUCTION 9)
PAYER'S NAME: AMERICAN STOCK TRANSFER AND TRUST COMPANY
<TABLE>
<C> <S> <C>
- ---------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN Social Security Number
FORM W-9 IN THE BOX AT THE RIGHT AND or Employer
Department of the Treasury CERTIFY BY SIGNING AND DATING Identification Number
Internal Revenue Service BELOW. ------------------------
-----------------------------------------------------------------
PART 2--Certifications--Under penalties of perjury, I certify
that:
(1) The number shown on this form is my correct Taxpayer
Payer's Request for Taxpayer Identification Number (or I am waiting for a number to be issued
Identification Number ("TIN")
to me and have checked the box in Part 3), and
(2) I am not subject to backup withholding because: (a) I am
exempt from backup withholding, or (b) I have not been notified
by the Internal Revenue Service (the "IRS") that I am
subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup
withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if
you have been notified by the IRS that you are subject to backup
withholding because of underreporting interest or dividends on
your tax return. However, if after being notified by the IRS that
you were subject to backup withholding you received another
notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2).
-----------------------------------------------------------------
SIGNATURE Part 3--Awaiting TIN--> / /
DATE
- ---------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART
3 OF SUBSTITUTE FORM W-9.
- ----------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or
delivered an application to receive a taxpayer identification number
to the appropriate Internal Revenue Service Center or Social Security
Administration Office, or (2) I intend to mail or deliver an
application in the near future. I understand that if I do not provide
a taxpayer identification number by the time of payment, 31% of all
reportable payments made to me will be withheld, but that such amounts
will be refunded to me if I then provide a Taxpayer Identification
Number within sixty (60) days.
Signature
- -------------------------------------------------------- Date
- -------------------
- ----------------------------------------------------------------------
<PAGE>
THIS LETTER OF TRANSMITTAL, CERTIFICATES FOR UNIVERSAL SHARES AND ANY OTHER
REQUIRED DOCUMENTS SHOULD BE SENT OR DELIVERED BY EACH SHAREHOLDER OF UNIVERSAL
OR HIS BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE TO THE
EXCHANGE AGENT AT ONE OF ITS ADDRESSES SET FORTH BELOW:
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
AMERICAN STOCK TRANSFER AND TRUST COMPANY
<TABLE>
<S> <C> <C>
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT
American Stock Transfer ( ) DELIVERY:
and Trust Company CONFIRM FACSIMILE BY TELEPHONE: American Stock Transfer
40 Wall Street ( ) And Trust Company
New York, New York 10005 40 Wall Street - 46th Floor
New York, New York 10005
</TABLE>
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
listed below. Additional copies of the Proxy Statement/Prospectus, the Letter of
Transmittal and other exchange offer materials may be obtained from the
Information Agent as set forth below. You may also contact your broker, dealer,
commercial bank, trust company or other nominee, as applicable, for assistance
concerning the Exchange Offer.
THE INFORMATION AGENT FOR THE EXCHANGE OFFER IS:
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
THE DEALER MANAGER FOR THE EXCHANGE OFFER IS:
PIPER JAFFRAY INC.
222 South Ninth Street
Minneapolis, Minnesota 55402
(612) 342-6221
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON SHARE PURCHASE RIGHTS)
OF
UNIVERSAL INTERNATIONAL, INC.
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
This form, or a form substantially equivalent to this form, must be used to
accept the Exchange Offer (as defined below) if certificates representing shares
of common stock, $0.05 par value per share (the "Universal Shares"), of
Universal International, Inc., a Minnesota corporation ("Universal"), are not
immediately available or time will not permit all required documents to reach
American Stock Transfer and Trust Company (the "Exchange Agent") on or prior to
the Expiration Date (as defined in the Proxy Statement/Prospectus (as defined
below)), or the procedures for delivery by book-entry transfer cannot be
completed on a timely basis. All references to Universal Shares shall include
the associated common share purchase rights issued pursuant to the Rights
Agreement, dated as of April 19, 1996, between Universal and Norwest Bank
Minnesota, National Association, as Rights Agent. This Notice of Guaranteed
Delivery may be delivered by hand or sent by facsimile transmission or mail to
the Exchange Agent. See the section of the Proxy Statement/Prospectus entitled
"THE EXCHANGE OFFER--Procedures for Accepting the Exchange Offer and Tendering
Shares."
The Exchange Agent for the Exchange Offer is:
AMERICAN STOCK TRANSFER AND TRUST COMPANY
<TABLE>
<S> <C> <C>
BY HAND OR OVERNIGHT
BY MAIL: BY FACSIMILE TRANSMISSION: DELIVERY:
American Stock Transfer ( ) American Stock Transfer
and Trust Company CONFIRM FACSIMILE BY And Trust Company
40 Wall Street TELEPHONE: 40 Wall Street - 46th Floor
New York, New York 10005 ( ) New York, New York 10005
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER
THAN AS LISTED ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to 99 CENTS Only Stores, a California
corporation ("99 CENTS Only Stores"), upon the terms and subject to the
conditions set forth in the Proxy Statement/Prospectus of 99 CENTS Only Stores
dated , 1998 (the "Proxy Statement/Prospectus"), and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
are hereby acknowledged, the number of Universal Shares indicated below pursuant
to the guaranteed delivery procedure set forth in the section of the Proxy
Statement/Prospectus entitled "THE EXCHANGE OFFER--Procedures for Accepting the
Exchange Offer and Tendering Shares."
- -------------------------------------------
Number of Universal
Shares______________________________________________________________________
Universal Share Certificate Numbers (if available):
____________________________________________________________________________
____________________________________________________________________________
If Universal Shares will be delivered by book-entry transfer, check one box:
/ / The Depository Trust Company
/ / Midwest Securities Trust Company
/ / Philadelphia Depository Trust Company
Account Number______________________________________________________________
Dated_______________________________________________________________________
- -------------------------------------------
- -------------------------------------------
Name(s) of Record Holder(s)
____________________________________________________________________________
____________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address(es)_________________________________________________________________
____________________________________________________________________________
Zip Code
Area Code and Telephone Number______________________________________________
Signature(s)________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
Date________________________________________________________________________
- ------------------------------------------
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a bank, broker, dealer, credit union, savings association
or other entity that is a member in good standing of the Securities Transfer
Agents Medallion Program, the New York Stock Exchange Medallion Signature
Guarantee Program or the Stock Exchange Medallion Program (each, an "Eligible
Institution"), hereby guarantees that either the certificates representing the
Universal Shares tendered hereby in proper form for transfer, or timely
confirmation of a book-entry transfer of such Universal Shares into the Exchange
Agent's account at a Book-Entry Transfer Facility (as defined in the Proxy
Statement/Prospectus), together with a properly completed and duly executed
Letter of Transmittal (or a manually signed facsimile thereof) with any required
signature guarantee, or an Agent's Message (as defined in the Proxy
Statement/Prospectus) in connection with a book-entry transfer of Universal
Shares, and any other required documents, will be received by the Exchange Agent
at one of its addresses set forth above within three New York Stock Exchange,
Inc. trading days after the date of execution hereof.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Universal Shares tendered hereby to the Exchange Agent
within the time period set forth above and that failure to do so could result in
a financial loss to the undersigned.
Name of Firm____________________________________________________________________
Address_________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Zip Code
Area Code and
Telephone Number________________________________________________________________
________________________________________________________________________________
Authorized Signature
Name____________________________________________________________________________
Please Print or Type
Title___________________________________________________________________________
Dated___________________________________________________________________________
NOTE: DO NOT SEND CERTIFICATES FOR UNIVERSAL SHARES WITH THIS NOTICE OF
GUARANTEED DELIVERY. CERTIFICATES FOR UNIVERSAL SHARES ARE TO BE
DELIVERED WITH THE LETTER OF TRANSMITTAL.
3
<PAGE>
OFFER FOR ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON SHARE PURCHASE RIGHTS)
OF
UNIVERSAL INTERNATIONAL, INC.
ON THE BASIS OF
ONE SHARE OF COMMON STOCK OF 99CENTS ONLY STORES
FOR EACH 16 SHARES OF COMMON STOCK OF UNIVERSAL INTERNATIONAL, INC.
BY
99CENTS ONLY STORES
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON , 1998, UNLESS THE EXCHANGE OFFER IS EXTENDED.
, 1998
To: Brokers, Dealers, Commercial
Banks, Trust Companies and
Other Nominees:
We have been appointed by 99CENTS Only Stores, a California corporation
("99CENTS Only Stores"), to act as Dealer Manager in connection with 99CENTS
Only Stores' offer to exchange one share of common stock, no par value per share
("99CENTS Only Stores Common Stock"), of 99CENTS Only Stores for each sixteen
(16) shares of common stock, $.05 par value per share ("Universal Shares"), of
Universal International, Inc., a Minnesota corporation ("Universal"), upon the
terms and subject to the conditions set forth in the Proxy Statement/Prospectus
dated , 1998 and the related Letter of Transmittal (which together
constitute the "Exchange Offer"). All references to Universal Shares shall
include the associated common share purchase rights issued pursuant to the
Rights Agreement, dated as of April 19, 1996, between Universal and Norwest Bank
Minnesota, National Association, as Rights Agent.
For your information and for forwarding to your clients for whom you hold
Universal Shares registered in your name or in the name of your nominee, we are
enclosing the following documents:
1. Proxy Statement/Prospectus dated June , 1998.
2. Universal's Annual Report on Form 10-K, as amended.
3. Letter of Transmittal for your use to tender Universal Shares and for
the information of your clients.
4. Notice of Guaranteed Delivery to be used to accept the Exchange Offer if
the Universal Shares and all other required documents cannot be delivered to the
Exchange Agent by the Expiration Date (as defined in the Proxy
Statement/Prospectus).
5. A form of letter which may be sent to your clients for whose accounts
you hold Universal Shares registered in your name or in the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Exchange Offer.
6. Universal's Solicitation/Recommendation Statement on Schedule 14D-9 with
regard to the Exchange Offer.
7. Guidelines of the Internal Revenue Service for Certification of Taxpayer
Identification Number on Substitute Form W-9.
8. Return envelope addressed to American Stock Transfer and Trust Company,
the Exchange Agent.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE EXCHANGE OFFER AND WITHDRAWAL
<PAGE>
RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998,
UNLESS THE EXCHANGE OFFER IS EXTENDED.
Upon the terms and subject to the conditions of the Exchange Offer
(including, if the Exchange Offer is extended or amended, the terms and
conditions of any such extension or amendment), 99CENTS Only Stores will be
deemed to have accepted for exchange, and will transfer 99CENTS Only Stores
Common Stock in exchange for, all Universal Shares validly tendered and not
withdrawn prior to the Expiration Date (as defined in the Proxy
Statement/Prospectus) when, as and if 99CENTS Only Stores gives oral or written
notice to the Exchange Agent of 99CENTS Only Stores's acceptance of tenders of
such Universal Shares for exchange pursuant to the Exchange Offer. Exchange for
Universal Shares accepted for exchange pursuant to the Exchange Offer will be
made only after timely receipt by the Exchange Agent of certificates for such
Universal Shares (or confirmation of a book-entry transfer of such Universal
Shares into the Exchange Agent's account at one of the Book-Entry Transfer
Facilities (as defined in the Proxy Statement/Prospectus), a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof), or an Agent's
Message (as defined in the Proxy Statement/Prospectus) in connection with a
book-entry transfer of Universal Shares, and any other required documents.
In order to take advantage of the Exchange Offer, a duly executed and
properly completed Letter of Transmittal, with any required signature
guarantees, or an Agent's Message in connection with a book-entry transfer of
Universal Shares and any other required documents, should be sent to the
Exchange Agent and the tendered Universal Shares should be so delivered, all in
accordance with the instructions set forth in the Letter of Transmittal and the
Proxy Statement/Prospectus.
Holders of Universal Shares whose certificates for such shares are not
immediately available or who cannot deliver their certificates and all other
required documents to the Exchange Agent on or prior to the Expiration Date or
who cannot complete the procedures for a book-entry transfer on a timely basis,
must tender their Universal Shares according to the guaranteed delivery
procedures set forth in the section of the Proxy Statement/Prospectus entitled
"THE EXCHANGE OFFER--Procedures for Accepting the Exchange Offer and Tendering
Shares."
99CENTS Only Stores will not pay any fees or commissions to any broker or
dealer or other person (other than as described in the Proxy
Statement/Prospectus) for soliciting tenders of Universal Shares pursuant to the
Exchange Offer. 99CENTS Only Stores will, however, upon request, reimburse you
for reasonable and necessary costs and expenses incurred by you in forwarding
materials to your clients. All stock transfer taxes applicable to 99CENTS Only
Stores's acceptance of Universal Shares pursuant to the Exchange Offer will be
paid by or on behalf of 99CENTS Only Stores, subject to Instruction 6 of the
Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer should be
addressed to, and additional copies of the enclosed materials may be obtained
from, the Information Agent or the undersigned at the addresses and telephone
numbers set forth on the back cover of the Proxy Statement/Prospectus.
Very truly yours,
PIPER JAFFRAY INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF 99CENTS ONLY STORES, THE DEALER MANAGER, THE INFORMATION AGENT OR THE
EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE
ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE EXCHANGE OFFER
OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
2
<PAGE>
OFFER FOR ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON SHARE PURCHASE RIGHTS)
OF
UNIVERSAL INTERNATIONAL, INC.
ON THE BASIS OF
ONE SHARE OF COMMON STOCK OF 99CENTS ONLY STORES
FOR EACH 16 SHARES OF COMMON STOCK OF UNIVERSAL INTERNATIONAL, INC.
BY
99CENTS ONLY STORES
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON , 1998, UNLESS THE EXCHANGE OFFER IS EXTENDED.
To Our Clients:
Enclosed for your consideration are the Proxy Statement/Prospectus dated
, 1998 and the related Letter of Transmittal (which together
constitute the "Exchange Offer") and other materials in connection with the
offer by 99CENTS Only Stores, a California corporation ("99CENTS Only Stores"),
to exchange one share of common stock, no par value per share ("99CENTS Only
Stores Common Stock"), of 99CENTS Only Stores for each sixteen (16) shares of
common stock, $.05 par value per share ("Universal Shares"), of Universal
International, Inc., a Minnesota corporation ("Universal"), upon the terms and
subject to the conditions of the Exchange Offer. All references to Universal
Shares shall include the associated common share purchase rights issued pursuant
to the Rights Agreement, dated as of April 19, 1996, between Universal and
Norwest Bank Minnesota, National Association, as Rights Agent.
WE ARE THE HOLDER OF RECORD OF UNIVERSAL SHARES HELD FOR YOUR ACCOUNT. A
TENDER OF SUCH UNIVERSAL SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD
AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU
FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER UNIVERSAL SHARES
HELD BY US FOR YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish us to tender any
or all of the Universal Shares held by us for your account, upon the terms and
subject to the conditions set forth in the Proxy Statement/Prospectus and the
Letter of Transmittal.
Your attention is directed to the following:
1. The exchange consideration is one share of 99CENTS Only Stores Common
Stock for each sixteen Universal Shares.
2. The Exchange Offer and withdrawal rights expire at 5:00 P.M., New York
City time, on , 1998, unless the Exchange Offer is extended.
3. The Exchange Offer is being made for all outstanding Universal Shares
not owned by 99CENTS Only Stores.
4. The Exchange Offer is subject to certain conditions set forth in the
Proxy Statement/Prospectus, including the conditions that on or prior to the
date on which the Exchange Offer expires (i) not less than 37% of the
outstanding Universal Shares (on a fully diluted basis) (other than shares owned
by 99CENTS Only Stores) are validly tendered and not withdrawn in the Exchange
Offer and (ii) Universal shareholders have approved an amendment to the By-Laws
of Universal to provide that the Minnesota Control Share Acquisition Act will
not apply to Universal or its shareholders.
5. Any stock transfer taxes applicable to the exchange of Universal Shares
pursuant to the Exchange Offer will be paid by or on behalf of 99CENTS Only
Stores, except as otherwise provided in Instruction 6 of the Letter of
Transmittal.
<PAGE>
If you wish to have us tender any or all of your Universal Shares, please so
instruct us by completing, executing and returning to us the instruction form
set forth below. An envelope to return your instructions to us is enclosed. If
you authorize tender of your Universal Shares, all such Universal Shares will be
tendered unless otherwise specified on the instruction form set forth below.
Your instructions should be forwarded to us in ample time to permit us to submit
a tender on your behalf by the expiration of the Exchange Offer.
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, holders of Universal Shares in any jurisdiction in which the
making of the Exchange Offer or acceptance thereof would not be in compliance
with the laws of such jurisdiction. In any jurisdiction where the securities,
blue sky or other laws require the Exchange Offer to be made by a licensed
broker or dealer, the Exchange Offer shall be deemed to be made on behalf of
99CENTS Only Stores by Piper Jaffray Inc., the Dealer Manager for the Exchange
Offer, or one or more registered brokers or dealers licensed under the laws of
such jurisdiction.
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE
EXCHANGE OFFER FOR ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON SHARE PURCHASE RIGHTS)
OF
UNIVERSAL INTERNATIONAL, INC.
BY
99CENTS ONLY STORES
The undersigned acknowledge(s) receipt of your letter and the enclosed Proxy
Statement/Prospectus dated , 1998, and the related Letter of
Transmittal, in connection with the Exchange Offer made by 99CENTS Only Stores
with respect to the Universal Shares.
This will instruct you to tender the number of Universal Shares indicated
below held by you for the account of the undersigned, upon the terms and subject
to the conditions set forth in the Proxy Statement/ Prospectus and the related
Letter of Transmittal.
Dated:
NUMBER OF UNIVERSAL SHARES TO BE TENDERED:
UNIVERSAL SHARES*
Signature(s): _________________________________________________________________
(Print Name(s)): ______________________________________________________________
(Print Address(es)): __________________________________________________________
________________________________________________________________________________
(Area code and telephone number(s)): __________________________________________
(Taxpayer Identification or
Social Security Number(s)): ___________________________________________________
- ------------------------
* Unless otherwise indicated, it will be assumed that you instruct us to
tender all Universal Shares held by us for your account.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
- -- Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
- --------------------------------------------------------------------------------
GIVE THE EMPLOYER
GIVE THE SOCIAL IDENTIFICATION
FOR THIS TYPE OF SECURITY NUMBER OF FOR THIS TYPE OF NUMBER
ACCOUNT: -- ACCOUNT: OF--
- ----------------------------------------
----------------------------------------
<TABLE>
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account, or, if combined
funds, any one of the
individuals(1)
3. Husband and wife (joint The actual owner of the
account) account or, if joint
funds, either person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if the minor
account) is the only contributor,
the minor(2)
6. Account in the name of The ward, minor, or
guardian or committee incompetent person(3)
for a designated ward,
minor, or incompetent
person
7. a. The usual revocable The grantor-trustee(1)
savings trust account
(grantor is also
trustee)
b. So-called trust The actual owner(1)
account that is not a
legal or valid trust
under State law
</TABLE>
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a), or an individual
retirement plan.
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or
agency or instrumentality thereof.
- - An international organization or any agency, or instrumentality thereof.
- - A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a).
- - An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- - Payments to nonresident aliens subject to withholding under section 1441.
- - Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals. NOTE: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Exempt payees described above should file Substitute Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND
RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE
DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045 and 6050A.
PRIVACY ACT NOTICE--Section 6109 requires most recipients of dividend, interest,
or other payments to give taxpayer identification numbers to payers who must
report the payments to IRS. The IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1993, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING--If you make
a false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE
2
<PAGE>
_________, 1998
FORM OF
EXCHANGE AGENT AGREEMENT
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, NY 11219
Ladies and Gentlemen:
99 Cents Only Stores, a California corporation (the "Purchaser"), is
making a tender offer to exchange all outstanding shares of common stock, $0.05
per share (the "Company Common Stock") of Universal International, Inc., a
Minnesota corporation (the "Company"), for shares of the common stock, no par
value per share of the Purchaser (the "Purchaser Common Stock"), at the rate of
one (1) share of Purchaser Common Stock per sixteen (16) shares of Company
Common Stock. The terms and conditions of the Exchange Offer as currently
contemplated are set forth in a proxy statement/prospectus, dated _________,
1998 (the "Prospectus").
The Purchaser hereby appoints American Stock Transfer & Trust
Company to act as exchange agent (the "Exchange Agent") in connection with
the Exchange Offer. References hereinafter to "you" shall refer to American
Stock Transfer & Trust Company.
The Exchange Offer is expected to be commenced by the Purchaser on
or about ________, 1998. The Letter of Transmittal accompanying the
Prospectus (or in the case of book entry securities, the ATOP system) is to
be used by the holders of Company Common Stock to accept the Exchange Offer
and contains instructions with respect to the delivery of certificates for
Company Common Stock tendered in connection therewith.
The Exchange Offer shall expire at 5 p.m., New York City time,
on _______, 1998 or on such later date or time to which the Purchaser may extend
the Exchange Offer (the "Expiration Date"). Subject to the terms and conditions
set forth in the Prospectus, the Purchaser expressly reserves the right to
extend the Exchange Offer from time to time and may extend the Exchange Offer by
giving oral (confirmed in writing) or written notice to you before 9:00 A.M.,
New York City time, on the business day following the previously scheduled
Expiration Date.
The Purchaser expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Company Common Stock not
theretofore accepted for exchange, upon the occurrence of any of the conditions
of the Exchange Offer specified in the Prospectus under the caption "The
Exchange Offer -- Conditions to the Exchange Offer." The Purchaser will give
oral (confirmed in writing) or written notice of any amendment, termination or
nonacceptance to you as promptly as practicable.
<PAGE>
In carrying out your duties as Exchange Agent, you are to act in
accordance with the following instructions:
1. You will perform such duties and only such duties as are
specifically set forth in the section of the Prospectus captioned "The Exchange
Offer" or as specifically set forth herein; PROVIDED, HOWEVER, that in no way
will your general duty to act in good faith be discharged by the foregoing.
2. You shall examine each of the Letters of Transmittal and
certificates for shares of Company Common Stock and any other documents
delivered or mailed to you by or for holders of the shares of Company Common
Stock to ascertain whether: (i) the Letters of Transmittal and any such other
documents are duly executed and properly completed in accordance with
instructions set forth therein and (ii) the shares of Company Common Stock have
otherwise been properly tendered. In each case where the Letter of Transmittal
or any other document has been improperly completed or executed or any of the
certificates for Company Common Stock are not in proper form for transfer or
some other irregularity in connection with the acceptance of the Exchange Offer
exists, you shall endeavor to cause such action to be taken as is necessary to
correct such irregularity. Determination of all questions as to the validity,
form, eligibility (including timeliness of receipt) and acceptance of any shares
of Company Common Stock tendered or delivered shall be determined by you on
behalf of Purchaser in the first instance, but final decisions on all such
matters shall be made by the Purchaser. Purchaser shall reserve in the Exchange
Offer the absolute right to reject any or all tenders of particular shares of
Company Common Stock not in appropriate form or the acceptance of which would,
in the opinion of Purchaser's counsel, be unlawful and to waive any of the
conditions of the Exchange Offer or any defect or irregularity in the tender of
any shares of Company Common Stock, and Purchaser's interpretation of the terms
and conditions of the Exchange Offer will be final.
3. In instances where any irregularity is neither corrected nor
waived, as soon as practicable, you will return to the party surrendering its
shares of Company Common Stock (by first class mail under a blanket surety bond
or insurance or by registered mail insured separately for replacement value, as
you determine at your discretion) any stock certificates in connection
therewith, together with the Letters of Transmittal and any other documents
relating thereto and a letter of notice explaining the reasons for the return of
the stock certificates and other documents.
4. With the approval of the President, any Senior Vice President or
the Chief Financial Officer of the Purchaser (such approval, if given orally, to
be confirmed in writing) or any other party designated by such an officer in
writing, you are authorized to waive any irregularities in connection with any
tender of Company Common Stock pursuant to the Exchange Offer.
5. All shares of Company Common Stock must be tendered in accordance
with the terms and conditions set forth in the Exchange Offer. The exchange of
Purchaser Common Stock for shares of Company Common Stock properly tendered
pursuant to the Exchange Offer shall be made only after deposit with you of the
certificates therefor, the
<PAGE>
Letter of Transmittal and any other required documents. Notwithstanding the
provisions of this paragraph 5, shares of Company Common Stock which the
President, any Senior Vice President or the Chief Financial Officer of the
Purchaser shall approve as having been properly tendered shall be considered
to be properly tendered (such approval, if given orally, shall be confirmed
in writing).
6. You shall advise the Purchaser with respect to any shares of
Company Common Stock received subsequent to the Expiration Date and accept
its instructions with respect to such shares.
7. You shall accept tenders:
(a) in cases where the shares of Company Common Stock are registered
in two or more names only if signed by all named holders;
(b) in cases where the signing person (as indicated on the Letter of
Transmittal) is acting in a fiduciary or a representative capacity only when
proper evidence of his or her authority so to act is submitted; and
(c) from persons other than the registered holder of Company Common
Stock provided that the Letter of Transmittal accompanying the certificates has
been properly endorsed (or otherwise put in proper form for transfer), with a
proper form of signature guaranty, and the person requesting such payment has
established to your satisfaction either (i) that any transfer and other taxes or
government charges required by reason of such payment in a name other than that
of the registered holder of the certificate have been paid or (ii) that no such
tax or charge is applicable.
8. You shall accept partial tenders of shares of Company Common
Stock where so indicated and as permitted in the Letter of Transmittal and
deliver certificates for shares of Company Common Stock to the transfer agent
for split-up and return any untendered shares of Company Common Stock to the
holder (or such other person as may be designated in the Letter of Transmittal)
as promptly as practicable after expiration or termination of the Exchange
Offer.
9. Upon satisfaction or waiver of all of the conditions to the
Exchange Offer, the Purchaser will notify you (such notice if given orally, to
be confirmed in writing) of its acceptance, promptly after the Expiration Date,
of all shares of Company Common Stock properly tendered and you, on behalf of
the Purchaser, will exchange such shares of Company Common Stock for Purchaser
Common Stock and cause such shares of Company Common Stock to be canceled.
Delivery of Purchaser Common Stock will be made on behalf of the Purchaser by
you at the rate of one share of Purchaser Common Stock for sixteen (16) shares
of Company Common Stock tendered promptly after notice (such notice if given
orally, to be confirmed in writing) of acceptance of said shares by the
Purchaser; provided, however, that in all cases, shares of Company Common Stock
tendered pursuant to the Exchange Offer will be exchanged only after timely
receipt by you of certificates for such shares of Company Common Stock, a
properly completed and duly executed Letter of Transmittal (or facsimile
<PAGE>
thereof) with any required signature guarantees and any other required
documents.
10. Tenders pursuant to the Exchange Offer are irrevocable, except
that, subject to the terms and upon the conditions set forth in the Prospectus
and the Letter of Transmittal, shares of Company Common Stock tendered pursuant
to the Exchange Offer may be withdrawn at any time prior to the Expiration Date.
11. The Purchaser shall not be required to exchange any shares of
Company Common Stock tendered if any of the conditions set forth in the Exchange
Offer are not met. Notice of any decision by the Purchaser not to exchange any
shares of Company Common Stock tendered shall be given (and confirmed in
writing) by the Purchaser to you.
12. If, pursuant to the Exchange Offer, the Purchaser does not accept
for exchange all or part of the shares of Company Common Stock tendered because
of an invalid tender, the occurrence of certain other events set forth in the
Prospectus under the caption "The Exchange Offer -- Conditions to the Exchange
Offer" or otherwise, you shall as soon as practicable after the expiration or
termination of the Exchange Offer return those certificates for unaccepted
shares of Company Common Stock, together with any related required documents and
the Letters of Transmittal relating thereto that are in your possession, to the
persons who deposited them.
13. All certificates for reissued shares of Company Common Stock,
unaccepted shares of Company Common Stock or for Purchaser Common Stock shall be
forwarded by first-class mail.
14. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other persons or
to engage or utilize any person to solicit tenders.
15. As Exchange Agent hereunder you:
(a) shall have no duties or obligations other than those
specifically set forth herein or as may be subsequently agreed to in writing by
you and the Purchaser;
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of any of
the certificates or the shares of Company Common Stock represented thereby
deposited with you pursuant to the Exchange Offer, and will not be required to
and will make no representation as to the validity, value or genuineness of the
Exchange Offer;
(c) shall not initiate any legal action hereunder without
written approval of Purchaser and then only upon such reasonable indemnity as
you may request;
(d) may reasonably rely on and shall be protected in acting in
reliance upon any certificate, instrument, opinion, notice, letter, telegram or
other document or security delivered to you and reasonably believed by you to be
genuine and to have been signed by the proper party or parties;
<PAGE>
(e) may reasonably act upon any tender, statement, request,
comment, agreement or other instrument whatsoever not only as to its due
execution and validity and effectiveness of its provisions, but also as to
the truth and accuracy of any information contained therein, which you shall
in good faith believe to be genuine or to have been signed or represented by
a proper person or persons;
(f) may rely on and shall be protected in acting upon written or
oral instructions from the President, any Senior Vice President or the Chief
Financial Officer of the Purchaser;
(g) may consult with your counsel with respect to any questions
relating to your duties and responsibilities and the advice or opinion of such
counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted to be taken by you hereunder in good faith
and in accordance with the advice or opinion of such counsel; and
(h) shall not advise any person tendering shares of Company
Common Stock pursuant to the Exchange Offer as to the wisdom of making such
tender or as to the market value or decline or appreciation in market value of
any shares of Company Common Stock.
16. You shall take such action as may from time to time be requested
by the Purchaser or its counsel (and such other action as you may reasonably
deem appropriate) to furnish copies of the Prospectus, Letter of Transmittal and
the Notice of Guaranteed Delivery (as defined in the Prospectus) or such other
forms as may be approved from time to time by the Purchaser, to all persons
requesting such documents and to accept and comply with telephone requests for
information relating to the Exchange Offer, provided that such information shall
relate only to the procedures for accepting (or withdrawing from) the Exchange
Offer. The Purchaser will furnish you with copies of such documents at your
request. All other requests for information relating to the Exchange Offer
shall be directed to the Purchaser, Attention: Andy Farina.
17. You shall advise by facsimile transmission or telephone, and
promptly thereafter confirm in writing to Andy Farina, Chief Financial Officer
of the Purchaser, and such other person or persons as may request, daily (and
more frequently during the week immediately preceding the Expiration Date and if
otherwise requested) up to and including the Expiration Date, as to the number
of shares of Company Common Stock which have been tendered pursuant to the
Exchange Offer and the items received by you pursuant to this Agreement,
separately reporting and giving cumulative totals as to items properly received
and items improperly received. In addition, you will also inform, and cooperate
in making available to, the Purchaser or any such other person or persons upon
oral request made from time to time prior to the Expiration Date of such other
information as it or he or she reasonably requests. Such cooperation shall
include, without limitation, the granting by you to the Purchaser and such
person as the Purchaser may request of access to those persons on your staff who
are responsible for receiving tenders, in order to ensure that immediately prior
to the Expiration Date the Purchaser shall have received information in
sufficient detail to
<PAGE>
enable it to decide whether to extend the Exchange Offer. You shall prepare a
final list of all persons whose tenders were accepted, the number of shares
of Company Common Stock tendered, the number of shares of Company Common
Stock accepted and deliver said list to the Purchaser.
18. Letters of Transmittal and Notices of Guaranteed Delivery shall
be stamped by you as to the date and the time of receipt thereof and shall be
preserved by you for a period of time at least equal to the period of time you
preserve other records pertaining to the transfer of securities. You shall
dispose of unused Letters of Transmittal and other surplus materials by
returning them to the Purchaser. You are to match Notices of Guaranteed Delivery
submitted pursuant to Section __ of the Prospectus with the shares of Company
Common Stock tendered pursuant thereto. If so instructed by Purchaser, you
shall telephone Eligible Institutions (as defined in Section __ of the Offer to
Purchase) which have tendered a significant number of shares of Company Common
Stock by means of the aforementioned procedures to ascertain information in
connection therewith.
19. For services rendered as Exchange Agent hereunder, you shall be
entitled to such compensation as set forth on Schedule I attached hereto.
20. You hereby acknowledge receipt of the Prospectus and the Letter
of Transmittal and further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal (as they may be amended from time to time), on the
other hand, shall be resolved in favor of the latter two documents, except with
respect to the duties, liabilities and indemnification of you as Exchange Agent,
which shall be controlled by this Agreement.
21. The Purchaser covenants and agrees to indemnify and hold you
harmless in your capacity as Exchange Agent hereunder against any loss,
liability, cost or expense, including attorneys' fees and expenses, arising out
of or in connection with any act, omission, delay or refusal made by you in
reliance upon any signature, endorsement, assignment, certificate, order,
request, notice, instruction or other instrument or document reasonably believed
by you to be valid, genuine and sufficient and in accepting any tender or
effecting any transfer of shares of Company Common Stock reasonably believed by
you in good faith to be authorized, and in delaying or refusing in good faith to
accept any tenders or effect any transfer of shares of Company Common Stock;
provided, however, that the Purchaser shall not be liable for indemnification or
otherwise for any loss, liability, cost or expense to the extent arising out of
your gross negligence or willful misconduct. In no case shall the Purchaser be
liable under this indemnity with respect to any claim against you unless the
Purchaser shall be notified by you, by letter or by facsimile confirmed by
letter, of the written assertion of a claim against you or of any other action
commenced against you, promptly after you shall have received any such written
assertion or notice of commencement of action. The Purchaser shall be entitled
to participate at its own expense in the defense of any such claim or other
action, and, if the Purchaser so elects, the Purchaser shall assume the defense
of any suit brought to enforce any such claim. In the event that the Purchaser
shall assume the defense of any such suit, the Purchaser shall not be liable for
the fees and expenses of any additional counsel thereafter retained by you so
long as the Purchaser shall retain counsel satisfactory to you to defend such
suit, and so long as you have not determined, in your reasonable judgment, that
a conflict of interest exists between you and the Purchaser.
<PAGE>
22. You shall deliver or cause to be delivered, in a timely manner
to each governmental authority to which any transfer taxes are payable in
respect of the exchange of shares of Company Common Stock, your check in the
amount of all transfer taxes so payable, and the Purchaser shall reimburse
you for the amount of any and all transfer taxes payable in respect of the
exchange of shares of Company Common Stock; provided, however, that you shall
reimburse the Purchaser for amounts refunded to you in respect of your
payment of any such transfer taxes, at such time as such refund is received
by you.
23. This Agreement and your appointment as Exchange Agent hereunder
shall be construed and enforced in accordance with the laws of the State of
California applicable to agreements made and to be performed entirely within
such state, and without regard to conflicts of law principles, and shall inure
to the benefit of, and the obligations created hereby shall be binding upon, the
successors and assigns of each of the parties hereto.
24. This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
25. In case any provision of this Agreement shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
26. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged. This Agreement may not be modified orally.
27. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar writing) and shall be given to such party, addressed to it, at its
address or facsimile number set forth below:
<PAGE>
If to the Purchaser:
99 Cents Only Stores
4000 Union Pacific Avenue
City of Commerce, California 90023
Facsimile: 213-881-9933
Attention: Chief Financial Officer
With copies to:
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard
Los Angeles, California 90024
Facsimile: 310-443-8602
Attention: Linda Giunta Michaelson
If to the Exchange Agent:
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, NY 11219
Facsimile:
28. Unless terminated earlier by the parties hereto, this Agreement
shall terminate 90 days following the Expiration Date. Notwithstanding the
foregoing, Paragraphs 21, 23 and 25 shall survive the termination of this
Agreement. Upon any termination of this Agreement, you shall promptly deliver
to the Purchaser any certificates for shares of Company Common Stock, funds or
property then held by you as Exchange Agent under this Agreement.
29. This Agreement shall be binding and effective as of the date
hereof.
<PAGE>
Please acknowledge receipt of this Agreement and confirm the
arrangements herein provided by signing and returning the enclosed copy.
99 CENTS ONLY STORES
By:
---------------------
Name:
Title:
Accepted as of the date
first above written:
AMERICAN STOCK TRANSFER & TRUST COMPANY, as Exchange Agent
By:
----------------------
Name:
Title:
<PAGE>
SCHEDULE I
FEES
$_______ for Exchange Offer
<PAGE>
DEALER MANAGER AGREEMENT
June __, 1998
Piper Jaffray Inc.
222 South Ninth Street
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
99CENTS Only Stores, a California corporation ("the Company"), proposes
to offer (the "Exchange Offer") to exchange one share of the Company's common
stock, no par value per share (the "Company Stock"), for each 16 shares of
common stock, $.05 par value per share (the "Universal Stock"), of Universal
International, Inc., a Minnesota corporation ("Universal"). Unless the
context requires otherwise, all references in this Agreement to Universal
Stock shall include the associated common share purchase rights (each, a
"Right" and collectively, the "Rights") issued pursuant to the Rights
Agreement, dated as of April 19, 1996, between Universal and Norwest Bank
Minnesota, National Association, as Rights Agent (the "Rights Agreement").
Any exchange of Company Stock for Universal Stock pursuant to the Exchange
Offer is herein referred to as an "Exchange."
The Company hereby confirms its agreement with Piper Jaffray Inc. (the
"Dealer Manager"), as follows:
1. REGISTRATION STATEMENT, PROSPECTUS AND OFFERING MATERIALS. The Company
has filed with the Securities and Exchange Commission (the "Commission"), under
the Securities Act of 1933, as amended, and the rules and regulations of the
Commission promulgated thereunder (collectively, the "Securities Act"), a
registration statement on Form S-4 covering the registration of the Company
Stock. Such registration statement, including the exhibits thereto and any
documents incorporated by reference therein, as amended at the time it becomes
effective or as thereafter amended or supplemented from time to time, is herein
called the "Registration Statement." The final prospectus included in the
Registration Statement (including any documents incorporated in the proxy
statement/prospectus by reference) is herein called the "Prospectus," except
that if the final prospectus furnished to the Dealer Manager for use in
connection with the Exchange Offer differs from the prospectus set forth in the
Registration Statement (whether or not such prospectus is required to be filed
pursuant to Rule 424(b)), the term "Prospectus" shall refer to the final
prospectus furnished to the Dealer Manager for such use. The terms "supplement"
and "amendment" or "amend" as used herein with respect to the Prospectus shall
include all documents deemed to be
<PAGE>
incorporated by reference in the Prospectus that are filed subsequent to the
date of the Prospectus and prior to the termination of the Exchange Offer by
the Company with the Commission pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act").
The Registration Statement, Prospectus, Tender Offer Statement on
Schedule 14D-1 (the "Schedule 14D-1"), related letters to securities brokers,
dealers, commercial banks, trust companies and other nominees, letters to
beneficial owners of Universal stock, letters of transmittal (the "Letters of
Transmittal"), notices of guaranteed delivery (the "Notices of Guaranteed
Delivery") and any newspaper announcements, press releases and other offering
materials and information the Company or Subsidiary may use or prepare, approve
or authorize for use in connection with the Exchange Offer, as amended or
supplemented from time to time, are herein collectively referred to as the
"Offering Materials."
2. AGREEMENT TO ACT AS DEALER MANAGER.
(a) The Company intends to commence the Exchange Offer as soon as
practicable after the Registration Statement becomes effective under the
Securities Act by mailing the Prospectus, the related Letters of Transmittal and
such of the other Offering Materials as is required or as the Company elects to
each holder of Universal Stock (the date of the commencement of such mailing
being herein called the "Commencement Date"). Thereafter, to the extent
practicable until the expiration of the Exchange Offer, the Company will use its
best efforts to cause copies of such material and a return envelope to be mailed
to each person who becomes a holder of record of any shares of Universal Stock.
(b) The Company retains the Dealer Manager to act as dealer manager
and to advise the Company and Subsidiary in connection with the solicitation of
Exchanges (each a "Solicitation" and collectively the "Solicitations"),
including responding to inquiries from offerees in connection with the
Solicitations. On the basis of the representations, warranties and agreements
of the Company herein contained and subject to and in accordance with the terms
and conditions hereof and of the Offering Materials, the Dealer Manager agrees
to act as dealer manager in connection with the Exchange Offer and to advise the
Company and Subsidiary in connection with the Solicitations.
(c) The Company shall furnish the Dealer Manager as soon as
practicable after the date hereof (to the extent not previously furnished), with
such information as is available to the Company as to the names of persons who
were the holders of record or, to the extent available to the Company, the
beneficial owners of the Universal Stock as of a recent date, together with the
number of shares of Universal Stock held by them. Additionally, the Company
shall use its best efforts to update such information from time to time during
the term of this Agreement as may be reasonably requested by the Dealer Manager.
Except as otherwise provided herein, the Dealer Manager agrees to use such
information only in connection with the Solicitations.
<PAGE>
(d) The Dealer Manager shall act hereunder as an independent
contractor, and nothing herein contained shall make the Dealer Manager an agent
of the Company or Subsidiary in connection with any Solicitation. Nothing
contained in this Agreement shall constitute the Dealer Manager partner of or
joint venturer with the Company or Subsidiary. Neither the Dealer Manager nor
any of its affiliates, partners, directors, officers, agents, employees or
controlling persons (if any) shall have any liability to the Company, the
Subsidiary or any other person for any act or omission on the part of any
securities broker or dealer (other than the Dealer Manager), commercial bank or
trust company that solicits exchanges, and neither the Dealer Manager nor any of
such persons or entities referred to above shall have any liability based on the
Dealer Manager's or their exclusive or contributory negligence or otherwise, to
the Company, the Subsidiary or any person asserting claims on behalf of or in
right of the Company in connection with or as a result of either the Dealer
Manager's engagement or any matter referred to in this Agreement except to the
extent that such liability results from the gross negligence or bad faith of the
Dealer Manager in performing the services that are the subject of this
Agreement.
(e) The Dealer Manager shall not have any obligation to cause any
Offering Materials to be transmitted generally to the holders of the Universal
Stock. The Dealer Manager agrees not to give any written information and not to
make any representations to holders of the Universal Stock in connection with
any Solicitation that are inconsistent with the Offering Materials. The Company
agrees that it will not use or furnish to any person Offering Materials that
have been amended after the date hereof without first notifying the Dealer
Manager.
(f) The Company authorizes the Dealer Manager to communicate with
any information agent (each an "Information Agent") or exchange agent (each an
"Exchange Agent") appointed by the Company to act in such capacity in connection
with the Exchange Offer with respect to matters relating to the Exchange Offer.
(g) The Company agrees that any reference to the Dealer Manager in
any Offering Materials or in any newspaper announcement or press release or
other document or communication is subject to the Dealer Manager's prior
consent, which consent shall not be unreasonably withheld.
3. COMPENSATION AND EXPENSES.
(a) The Company will pay to the Dealer Manager, as compensation for
its services to the Company hereunder, a fee of $75,000, which fee shall be
payable upon the earlier of the completion or the termination of the Exchange
Offer, and shall be payable without regard to whether or not any shares are
exchanged pursuant to the Exchange Offer.
(b) Whether or not the Exchange Offer is consummated, the Company
will pay all costs and expenses incurred in connection with this Agreement and
the Solicitations, including, without limitation, (i) the preparation, printing
and filing of the Registration Statement (including financial statements and
exhibits), as originally filed and as amended, the
<PAGE>
preliminary prospectuses, the Prospectus and the other Offering Materials and
any amendments or supplements to any of the foregoing, and the cost of
furnishing copies thereof to the Dealer Manager, (ii) the preparation and
distribution of certificates for the Company Stock and any Blue Sky surveys
and the printing of certificates for the Company Stock, (iii) the
distribution of the Offering Materials to the holders of the Universal Stock,
(iv) the fees and disbursements of the Company's counsel and accountants, (v)
the qualification of the Company Stock under the applicable securities laws
in accordance with Section 4(f) and any filing for review of the Exchange
Offer with the NASD, (vi) the fees and expenses of the Transfer Agent, the
Registrar, the Information Agent and the Exchange Agent, and (vii) all other
costs and expenses incident to the Solicitations incurred by the Company and
its subsidiaries; provided, however, that the Dealer Manager shall be
responsible for its own expenses, including the fees and disbursements of its
counsel.
4. CERTAIN COVENANTS OF THE COMPANY. Until termination of the Exchange
Offer, the Company covenants with the Dealer Manager:
(a) to notify the Dealer Manager immediately and, if requested by
the Dealer Manager, to confirm the notice in writing (i) when the Registration
Statement and any post-effective amendment to the Registration Statement shall
have become effective, or any supplement to the Prospectus or any amended
Prospectus or any amended or additional Offering Materials shall have been
filed, (ii) of the receipt of any comments from the Commission relating to the
Exchange Offer, (iii) of any request by the Commission to amend the Registration
Statement or amend or supplement the Prospectus or the other Offering Materials
or for additional information relating to the Exchange Offer, (iv) of (A) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (B) of the issuance by the Commission of any order
preventing or suspending the use of any of the Offering Materials, (C) of the
suspension of the qualification of the Company Stock for offering or sale in
connection with the Exchange Offer in any jurisdiction, (D) of the institution
or threatening of any proceedings for any of such purposes and (v) other than as
described in the Prospectus, of the occurrence of any event that could cause the
Company to withdraw, rescind, terminate or modify the Exchange Offer or would
permit the Company to exercise any right not to accept the Universal Stock
tendered pursuant to the Exchange Offer. The Company will use its reasonable
best efforts to prevent the issuance of any such stop order, the issuance of any
order preventing or suspending such use and the suspension of any such
qualification and, if any such order is issued or qualification suspended, to
obtain the lifting of such order or suspension at the earliest practicable time.
(b) prior to the termination of the Exchange Offer and before
amending or supplementing the Registration Statement or the Prospectus, to
furnish copies of drafts to, and consult with, the Dealer Manager and its
counsel within a reasonable time in advance of filing with the Commission of any
amendment or supplement to the Registration Statement, the Prospectus or the
other Offering Materials. The Company shall not file any such amendment or
supplement to which counsel for the Dealer Manager shall reasonably object;
provided, however, that the foregoing shall not apply to any of the Company's
filings with the
<PAGE>
Commission required to be filed pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act, copies of which such filings the Company will cause to
be delivered to the Dealer Manager promptly after being transmitted for
filing with the Commission.
(c) to furnish promptly to the Dealer Manager, without charge, one
signed copy of the Registration Statement, all amendments thereto and any other
filing with the Commission in connection with the Exchange Offer, whether filed
before or after the Registration Statement becomes effective;
(d) to furnish promptly to the Dealer Manager, without charge, from
time to time until the effective date of the Registration Statement, as many
copies of each preliminary prospectus as the Dealer Manager may reasonably
request, and the Company hereby consents to the use of such copies for purposes
permitted by the Securities Act and the Exchange Act. The Company will furnish
promptly to the Dealer Manager, without charge, as soon as the Registration
Statement shall have become effective and during the period mentioned in the
second sentence of Section 4(e) below such number of copies of the Prospectus
and the other Offering Materials (as supplemented or amended) as the Dealer
Manager may reasonably request, and the Company will cause all amendments and
supplements filed with the Commission to be distributed to holders of Universal
Stock as may be required by the Securities Act and the Exchange Act.
(e) to comply in all material respects with the Securities Act and
the Exchange Act in connection with the Offering Materials, the Exchange Offer
and the transactions contemplated hereby and thereby, as applicable. If at any
time when the Prospectus is required by the Securities Act or Exchange Act to be
delivered in connection with any Solicitation or Exchange any event shall occur
or condition shall exist as a result of which it is necessary, in the opinion of
counsel for the Dealer Manager or counsel for the Company, to amend the
Registration Statement or amend or supplement the Prospectus or any other
Offering Materials in order that the Prospectus or such other Offering Materials
will not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements in the Prospectus or
such other Offering Materials, in the light of the circumstances under which
they were made, not misleading or if, in the opinion of either such counsel, it
shall be necessary to amend the Registration Statement or amend or supplement
the Prospectus or any other Offering Materials to comply with the requirements
of the Securities Act or Exchange Act, the Company will promptly prepare, file
with the Commission, subject to Section 4(b) of this Agreement, and furnish, at
its own expense, to the Dealer Manager and to the dealers (whose names and
address will be furnished to the Company by the Dealer Manager) to which Company
Stock may have been exchanged, such amendment or supplement as may be necessary
to correct such untrue statement or omission or to make the Registration
Statement or the Prospectus or such other Offering Materials comply with such
requirements.
(f) to endeavor to qualify the Company Stock for offering and sale
in connection with the Exchange Offer under the applicable securities or Blue
Sky laws of such jurisdictions as the Company may elect and to maintain such
qualifications in effect for such
<PAGE>
time as may be required for the consummation of the Exchange Offer; provided,
however, that the Company shall not be obligated to file any general consent
to service of process or to qualify as a foreign corporation or as a dealer
in securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any jurisdiction
in which it is not otherwise so subject or to meet any other requirements
deemed by the Company to be unduly burdensome. The Company will file such
statements and reports as may be required by the laws of each jurisdiction in
which the Company Stock has been qualified as above provided.
(g) to make generally available to its security holders as soon as
practicable an earnings statement of the Company covering a twelve-month period
beginning on the first day of the first full fiscal quarter after the date of
this Agreement, which earning statement shall satisfy the provisions of Section
11(a) of the Securities Act.
(h) to use its best efforts to effect the listing of the shares of
Company Stock issued pursuant to the Exchange Offer on the New York Stock
Exchange ("NYSE"), subject to official notice of issuance, as soon as
practicable after the date hereof.
(i) to timely file any report or other document required to be
filed by the Company with the Commission pursuant to Section 13, 14 or 15 of the
Exchange Act during the period of time referred to in the second sentence of
Section 4(e) hereof.
(j) to furnish or cause the Exchange Agent to furnish to the Dealer
Manager such information as may be reasonably requested from time to time with
respect to the shares of Universal Stock that have been validly tendered.
(k) to promptly inform the Dealer Manager of any litigation or
administrative action with respect to the Exchange Offer.
(l) to give the Dealer Manager notice of any change of the
expiration time of the Exchange Offer (the "Expiration Time").
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants and agrees with the Dealer Manager that:
(a) It has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of California.
(b) The Subsidiary is a wholly owned subsidiary of the Company, has
been duly incorporated and is validly existing as a corporation in good standing
under the laws of the State of California.
(c) It has the requisite corporate power and authority and has duly
taken all necessary corporate action to authorize the making and consummation of
the Exchange Offer and the execution, delivery and performance of this
Agreement; and this Agreement has been
<PAGE>
duly executed and delivered by, and constitutes a valid and binding agreement
of, the Company.
(d) Each preliminary prospectus filed as part of the Registration
Statement, as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 of the Securities Act, complied or will comply when so
filed, in all material respects, with all applicable requirements of the
Securities Act and the Exchange Act; the Registration Statement at the time it
becomes effective and the Prospectus and any other Offering Materials, on the
Commencement Date and on the date on which the Company commences delivery of the
Company Stock for exchange of the Universal Stock pursuant to the Exchange Offer
(such date, the "Exchange Date"), will comply, in all material respects, with
all applicable requirements of the Securities Act and the Exchange Act; the
Registration Statement when it becomes effective will not contain, and the
Registration Statement, as amended, if applicable, when such amendment becomes
effective will not contain, any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and as of the Commencement Date and the
Exchange Date, none of the Prospectus or the other Offering Materials will
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this Section 5(d) do not apply to
statements or omissions made based upon and in conformity with information
expressly relating to a Dealer Manager supplied in writing by a Dealer Manager
expressly for use in the Registration Statement, Prospectus, or any other
Offering Materials.
(e) The Company Stock to be issued pursuant to the Exchange Offer
will be duly authorized and, when issued in exchange for Universal Stock
pursuant to the Exchange Offer, will be validly issued and fully paid and
nonassessable, not subject to any preemptive or similar rights, and will conform
in all material respects to all statements relating thereto contained in the
Prospectus.
(f) Except as set forth in the Prospectus, the making and
consummation of the Exchange Offer, including the issuance and delivery by the
Company of the Company Stock, and the execution, delivery and performance by the
Company of this Agreement do not and will not (i) conflict with, or result in
the acceleration of any obligation under or in a breach of, or constitute a
default under, any of the provisions of any indenture, agreement or undertaking
to which the Company or any of its subsidiaries is a party or by which any of
them is bound or to which any of their property or assets is subject, or of the
Articles of Incorporation or By-laws, as amended as of the date hereof, of the
Company or (ii) contravene any federal, state or local law, rule or regulation
known to the Company (based upon the best knowledge of the Company after
reasonable investigation), or any order applicable to the Company or any of its
subsidiaries of any court or of any other governmental agency or instrumentality
having jurisdiction over any of them or any of their property.
(g) It has obtained all consents, approvals, authorizations and
orders of, and has duly made all registrations, qualifications and filings with,
any court or regulatory
<PAGE>
authority or other governmental agency or instrumentality required in
connection with the making and consummation of the Exchange Offer and the
execution, delivery and performance of this Agreement, except such as may be
required under the securities laws and Blue Sky laws of the various states of
the United States in connection with the solicitation of tenders of the
Company Stock by securities dealers and except that the filings required
under the 1934 Act with respect to the Exchange Offer have not yet been made
but will be duly made as soon as practicable on the Commencement Date.
(h) It is not, nor after giving effect to the consummation of the
Exchange Offer, will it be, and it is not directly or indirectly controlled by,
or acting on behalf of any person which is, an investment company within the
meaning of the Investment Company Act of 1940, as amended.
6. INDEMNIFICATION.
(a) The Company agrees to hold harmless and indemnify the Dealer
Manager and its affiliates and any officer, director, employee or agent of the
Dealer Manager or any such affiliates and any person controlling (within the
meaning of Section 20(a) of the Exchange Act or Section 15 of the Securities
Act) the Dealer Manager or any of such affiliates (each, a "Dealer Manager
Indemnitee") from and against any and all losses, claims, damages, liabilities
or expenses whatsoever to which they may become subject under any statute or
common law and shall reimburse the Dealer Manager and any other Dealer Manager
Indemnitee for any and all legal or other expenses (including, to the extent
hereinafter provided, reasonable counsel fees) incurred in connection with
investigating any such losses, claims, damages or liabilities or in connection
with defending any action, insofar as such losses, claims, damages, liabilities,
expenses or actions (i) arise out of or are based upon (A) any untrue statement
or alleged untrue statement of a material fact contained in the Offering
Materials or any other solicitation material used by the Company or Subsidiary
or the omission or alleged omission to state in any such document a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (other than statements or omissions made in reliance upon and in
conformity with information expressly relating to the Dealer Manager and
furnished by the Dealer Manager in writing to the Company expressly for use
therein), (B) any withdrawal or termination by the Company of, or failure by the
Company to make or consummate, the Exchange Offer, (C) any actions taken or
omitted to be taken by the Dealer Manager or any other Dealer Manager Indemnitee
with the consent of the Company or in conformity with actions taken or omitted
to be taken by the Company or (D) any breach by the Company of any
representation or warranty, or any failure by the Company to comply with any
agreement or covenant, contained in this Agreement or (ii) arise out of, relate
to or are in connection with or are alleged to arise out of, relate to or be in
connection with the Exchange Offer, any of the other transactions contemplated
by the Offering Materials or the performance of your services as Dealer Manager
with respect to the Exchange Offer. However, the Company will not be obligated
to indemnify any Dealer Manager Indemnitee for any loss, claim, damage,
liability or expense pursuant to clause (ii) of the preceding sentence which has
been determined in a final judgment by a court of competent
<PAGE>
jurisdiction to have resulted directly from willful misconduct or negligence
on the part of such Dealer Manager Indemnitee. The agreement of the Company
to so indemnify contained in this subparagraph (a) shall remain operative and
in full force and effect regardless of any termination of this Agreement or
of any investigation made by or on behalf of the Company, its directors or
officers, or by the Dealer Manager or any other Dealer Manager Indemnitee,
and shall survive the termination of the Exchange Offer.
(b) Each Dealer Manager Indemnitee shall, upon the receipt of
notice of the commencement of any action in respect of which indemnity may be
sought on account of any indemnity agreement contained herein, promptly give
written notice of the commencement thereof to the Company, but the omission so
to notify the Company of any such action shall not relieve the Company from any
liability which it may have to the Dealer Manager Indemnitee under this
paragraph 6 except to the extent that it has been prejudiced in any material
respect by such failure and in any event shall not relieve the Company from any
other obligation or liability which it may have to such Dealer Manager
Indemnitee otherwise than on account of such indemnity agreement. In case such
notice of any such action shall be so given, the Company shall be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of such action, in which event such defense shall be conducted by
counsel chosen by the Company and satisfactory to the indemnified party or
parties who shall be defendant or defendants in such action, and such defendant
or defendants shall bear the fees and expenses of any additional counsel
retained by them; but if the Company shall elect not to assume the defense of
such action, the Company will reimburse such indemnified party or parties for
the reasonable fees and expenses of any counsel retained by them; provided,
however, if the defendants in any such action (including impleaded parties)
include both a Dealer Manager Indemnitee and the Company and counsel for the
Company shall have reasonably concluded that there may be a conflict of interest
involved in the representation by a single counsel of both the Company and the
Dealer Manager Indemnitee, the Dealer Manager Indemnitee shall have the right to
select separate counsel, satisfactory to the Company to conduct the defense on
behalf of the Company (it being understood, however, that the Company shall not
be liable for the expenses of more than one separate counsel (in addition to
local counsel) representing the indemnified parties who are parties to such
action). The Company and the Dealer Manager each agree that without the other
party's prior consent, which consent shall not be unreasonably withheld, it will
not settle, compromise or consent to the entry of any judgment in any claim in
respect of which indemnification may be sought under the indemnification
provision of this Agreement, unless such settlement, compromise or consent (i)
includes an unconditional release of such other party from all liability arising
out of such claim and (ii) does not include a statement as to or an admission of
fault, culpability or a failure to act by or on behalf of such other party.
(c) If the indemnification provided for in subparagraph (a) above
shall be unenforceable under applicable law, the Company agrees to contribute to
such Dealer Manager Indemnitee with respect to any and all losses, claims,
damages, liabilities and expenses for which each such indemnification provided
for in subparagraph (a) above shall be unenforceable, in such proportion as
shall be appropriate to reflect (i) the relative fault of the Company or
Subsidiary on the one hand and the Dealer Manager Indemnitee on the other in
<PAGE>
connection with the actions, statements or omissions which have resulted in
such losses, claims, damages, liabilities and expenses, (ii) the relative
benefits received by the Company on the one hand and the Dealer Manager on
the other hand from the Exchange Offer as contemplated by this Agreement, and
(iii) any other relevant equitable considerations; provided, however, that no
indemnified party guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution
from any indemnifying party not guilty of such fraudulent misrepresentation.
Relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such indemnifying party or the indemnified party and each such
party's relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company and the
Dealer Manager agree that it would not be just and equitable if contributions
pursuant to this subparagraph (c) were to be determined by any method of
allocation which does not take account of the equitable considerations
referred to above.
(d) The indemnity and contribution obligations of the Company under
this Section 6 shall be in addition to any liability that the Company may
otherwise have, shall extend upon the same terms and conditions to any affiliate
of the Dealer Manager and its partners, directors, officers, agents, employees
and controlling persons (if any) and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the
Company, the Dealer Manager, any such affiliate and any of such other persons
referred to above. If the obligations of the Company set forth in this Section
6 are not assumed by operation of law or by contract by a party or parties
satisfactory to the Dealer Manager, the Company agrees to arrange alternative
means of providing for such obligations, including providing insurance or
creating an escrow, in each case in an amount and upon terms and conditions
reasonably satisfactory to the Dealer Manager.
7. CONDITIONS TO THE DEALER MANAGER'S OBLIGATIONS. The obligations of
the Dealer Manager hereunder are subject as of the Commencement Date and as of
the Exchange Date to the accuracy of the representations and warranties of the
Company contained herein or in certificates of any officer of the Company
delivered pursuant to the provisions hereof, to the performance, in all material
respects, by the Company of its obligations to be performed hereunder with
respect to the Exchange Offer, and the following additional conditions:
(a) On the Commencement Date and the Exchange Date, the
Registration Statement shall have become effective under the Securities Act; no
stop order suspending the effectiveness of the Registration Statement shall be
in effect, and no proceedings for such purpose shall be pending before or, to
the Company's knowledge, threatened by the Commission.
(b) On the Commencement Date and the Exchange Date, there shall not
have been since the respective date as of which information is given in the
Registration Statement, with respect to the Exchange Offer, any material adverse
change in the business, property or financial condition of the Company.
<PAGE>
(c) The Dealer Manager shall have received on the Exchange Date
and the Commencement Date a certificate, dated such date and signed by an
executive officer of the Company, to the effect set forth in clause (b) above
and to the effect that (i) the representations and warranties of the Company
contained in this Agreement are true and correct in all material respects as
of such date and (ii) the Company has complied in all material respects with
all of the agreements and satisfied in all material respects all of the
conditions on its part to be performed or satisfied on or before such date.
(d) On the Commencement Date, the Dealer Manager shall have
received a signed opinion of _________, counsel for the Company, dated as of
such date, to the effect that:
(i) the Company is a corporation duly authorized by its articles of
incorporation, as amended, to conduct the business which it is now
conducting.
(ii) this Agreement has been duly authorized, executed and delivered
by the Company and the Exchange Offer and the other transactions with
respect to the Company contemplated by the Prospectus have been duly
authorized by the Company;
(iii) the Registration Statement has become and is effective under the
Securities Act; and the Registration Statement, Prospectus and other
Offering Materials, as they may have been amended and supplemented prior to
the date of such counsel's opinion, comply in all material respects with
the requirements of all applicable provisions of the Securities Act and
Exchange Act;
(iv) when issued, in exchange for shares of Universal Stock, the
Company Stock will be duly authorized, validly issued, fully paid and
nonassessable;
(v) other than as stated in the Registration Statement and the
Prospectus, there are no material pending legal proceedings to which the
Company is a party or of which property of the Company is the subject which
depart from the ordinary routine litigation incident to the kind of
business conducted by the Company, and to such counsel's best knowledge no
such proceedings are contemplated;
(vi) such counsel has no reason to believe that (A) the Registration
Statement, as of its effective date, included an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or (B)
the Prospectus, as it may have been amended or supplemented prior to the
date of such counsel's opinion, included or includes an untrue statement of
a material fact or omitted or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
<PAGE>
With respect to subparagraph (vi) above, such counsel may state that
it has not independently verified the accuracy, completeness or fairness of the
statements made or included or incorporated by reference therein and takes no
responsibility therefor and that such opinion is based upon such counsel's
examination of the Registration Statement, the Prospectus as amended or
supplemented and any documents incorporated by reference thereto, its
investigations made in connection with the preparation of the Registration
Statement, Prospectus and other Offering Materials and its participation in
conferences with certain officers and employees of the Company and with
representatives of Arthur Andersen and any others referred to in such opinion.
(e) On the Commencement Date, the Dealer Manager shall have
received from the Company's independent public accountants, in form and
substance satisfactory to the Dealer Manager and dated as of such date,
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in or incorporated by
reference into the Prospectus.
(f) At the Exchange Date, the Dealer Manager shall have received
from the Company's independent public accountants, in form and substance
satisfactory to the Dealer Manager and dated as of such date, to the effect that
such accountants reaffirm the statements made in the letter furnished pursuant
to Section 7(e).
(g) By the Exchange Date, the Company shall have entered into
appropriate agreements with the Information Agent and the Exchange Agent for
purposes of the Exchange Offer.
8. TERMINATION.
(a) This Agreement shall terminate upon the earliest to occur of
(i) the last closing date with respect to the Exchanges, (ii) the date on which
the Dealer Manager gives notice to the Company that any of the conditions
specified in Section 7 have not been fulfilled as of any date such conditions
are required to be fulfilled pursuant to Section 7 or (iii) the date on which
the Company terminates or withdraws the Exchange Offer for any reason (the
earliest to occur of clauses (i), (ii) or (iii) being referred to as the
"Termination Date").
(b) Notwithstanding termination of this Agreement pursuant to
Section 8(a), the obligations of the Company to compensate the Dealer Manager
pursuant to Section 3, the representations and warranties contained in Section 5
and the provisions of Section 6 shall survive any termination of this Agreement.
9. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered, mailed or
transmitted by any standard form of telecommunication. Notices to the Dealer
Manager shall be directed to Piper Jaffray Inc., 222 South Ninth Street,
Minneapolis, MN 55402, attention Douglas R. Whitaker, with a copy to Dorsey &
Whitney LLP, 220 South Sixth Street, Minneapolis, MN
<PAGE>
55402, attention Patrick F. Courtemanche, and notices to the Company or the
Subsidiary shall be directed to either of them c/o 99CENTS Only Stores, 4000
Union Pacific Avenue, City of Commerce, CA 90023, attention _________, with a
copy to ___________________________. Any notice under Section 6 hereof may
be made by telephone, but if so made, shall be subsequently confirmed
promptly in writing.
10. TOMBSTONE. The Company acknowledges that the Dealer Manager may (but
shall not be obligated to), with the prior review and approval of the Company,
which approval shall not be unreasonably withheld, place an announcement in such
newspapers and periodicals as the Dealer Manager may choose, stating that the
Dealer Manager is or was acting as dealer manager to the Company in connection
with the Exchange Offer. The costs relating to any such tombstone shall be
borne by the Dealer Manager.
11. SURVIVAL OF CERTAIN PROVISIONS. The representations, warranties,
indemnities and agreements of the Company will remain operative and in full
force and effect regardless of any investigation made by or on behalf of the
Dealer Manager or any affiliate or controlling person thereof and will survive
the consummation of the Exchange Offer.
12. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of Minnesota, without giving effect to
principles of conflicts of laws.
13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by different parties hereto on separate counterparts, each of
which counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute one and
the same Agreement.
14. SEVERABILITY. In the event that any provision hereof shall be
determined to be invalid or unenforceable in any respect, such determination
shall not affect such provision in any other respect or any other provision
hereof, which shall remain in full force and effect.
15. SUCCESSORS. This Agreement is made solely for the benefit of the
Dealer Manager, the Company and, to the extent expressed, the parties
indemnified pursuant to Section 6, and no other persons shall acquire or have
any right under or by virtue of this Agreement. Nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective successors and assigns, and, to the extent expressly
set forth herein, the parties indemnified pursuant to Section 6 hereof, any
rights or remedies under or by reason of this Agreement. Without limiting the
generality of the foregoing, the parties acknowledge that nothing in this
Agreement, expressed or implied, is intended to confer on holders of the
securities of the Company or creditors of the Company or the respective
successors and assigns of such creditors, any rights or remedies under or by
reason of this Agreement.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement between the Company and the Dealer
Manager in accordance with its terms.
Very truly yours,
99CENTS ONLY STORES
By: ________________________
Its: ________________________
Confirmed and accepted as of the date
first above written:
PIPER JAFFRAY INC.
By: ________________________
Its: ________________________
