<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
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 99 CENTS 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROXY STATEMENT/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, through a wholly-owned
subsidiary ("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 contract otherwise requires and unless and until all Rights are
redeemed, all references to Universal Common Stock or Universal Shares shall
include the associated Rights. The Exchange Offer is subject to certain
conditions as set forth under "THE EXCHANGE OFFER--Certain 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 32% of the outstanding shares 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 the granting of voting rights to the shares of
Universal Common Stock acquired by 99CENTS Only Stores in the Exchange Offer
("99CENTS Only Stores Voting Rights"). The approval of voting rights requires
both (i) the affirmative vote of the holders of a majority of all outstanding
Universal Shares entitled to vote, and (ii) the affirmative vote of the holders
of a majority of all Universal Shares entitled to vote, excluding shares of
Universal held by 99CENTS Only Stores, any officer of Universal and any employee
of Universal who is also a director of Universal. 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 April 17, 1998
on the New York Stock Exchange was $39.31.
SEE "RISK FACTORS" COMMENCING ON PAGE 13 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 , including any adjournments or
postponements thereof. 99CENTS Only Stores is soliciting proxies for approval
from the shareholders of Universal, pursuant to Section 302A.671 of the
Minnesota Business Corporation Act (the "Minnesota Control Share Acquisition
Act"), of the voting rights associated with the shares of Universal Common Stock
acquired by 99CENTS Only Stores pursuant to the Exchange Offer (the "Control
Share Acquisition").
THE CONSUMMATION OF THE EXCHANGE OFFER IS CONDITIONED UPON THE APPROVAL OF
UNIVERSAL'S SHAREHOLDERS WITH RESPECT TO 99CENTS ONLY STORES' PROPOSED CONTROL
SHARE ACQUISITION. ACCORDINGLY, IT IS OF THE UTMOST IMPORTANCE THAT SHAREHOLDERS
WHO WISH TO TENDER THEIR UNIVERSAL SHARES TO 99CENTS ONLY STORES VOTE "FOR" THE
APPROVAL OF VOTING RIGHTS FOR UNIVERSAL SHARES ACQUIRED IN THE EXCHANGE OFFER BY
SIGNING, DATING AND MAILING THE ENCLOSED PROXY CARD.
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
Information 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 12:00 MIDNIGHT,
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:
<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 A NUMBER OF
FACTORS, INCLUDING THOSE 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." FURTHER DISCUSSION OF OTHER FACTORS
WHICH COULD AFFECT THE FINANCIAL RESULTS OF 99CENTS ONLY STORES AFTER
CONSUMMATION OF THE EXCHANGE OFFER AND THE TRANSACTIONS CONTEMPLATED HEREBY ARE
INCLUDED IN THE COMMISSION FILINGS INCORPORATED BY REFERENCE HEREIN.
IMPORTANT
Any shareholder desiring to tender shares of Universal Common Stock and the
associated common share purchase 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 Universal Shares, and any other required
documents, to the Exchange Agent or tender such Universal Shares 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 Universal Shares
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 Universal Shares.
Universal Shareholders will be required to tender one Right for each share
of Universal Common Stock tendered in order to effect a valid tender of
Universal Shares, unless the Rights Agreement Condition (as defined) has been
satisfied or waived. Unless the Distribution Date (as defined) occurs, a
<PAGE>
tender of shares of Universal Common Stock will constitute a tender of the
associated Rights. See "THE EXCHANGE OFFER--Certain Conditions of the Exchange
Offer."
A shareholder who desires to tender Universal Shares and whose certificates
evidencing such Universal Shares are not immediately available, or who cannot
comply with the procedure for book-entry transfer on a timely basis, may tender
such Universal Shares 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 , 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.,
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
2
<PAGE>
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) Current Reports on Form 8-K filed on February 19, 1998 and April 9,
1998; and
(c) 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; and
(b) Current Reports on Form 8-K filed February 10, 1998 and January 8,
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. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY SUCH REQUEST SHOULD BE MADE NO LATER THAN NINE BUSINESS DAYS PRIOR TO THE
EXPIRATION DATE (AS DEFINED HEREIN).
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 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 Universal Shares pursuant to this Exchange Offer of one share of
the Company's Common Stock for each 16 outstanding shares of Universal Common
Stock for an aggregate of approximately 305,800 shares of Company Common Stock.
The Company intends to acquire the balance of the Odd's-N-End's shares in a
4
<PAGE>
merger 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. 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
(as defined) 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 and neither recommends a
vote for or a vote against the approval of 99CENTS Only Stores Voting Rights.
However, Universal has agreed to support the Exchange Offer and to assist
99CENTS Only Stores in its solicitation of the Universal shareholders. See
- --"The Cooperation Agreement." See "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 and vote in favor of
99CENTS Only Stores Voting Rights.
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 position
in Universal in November 1997.
CONTINUED DISCOUNT RETAILER INVESTMENT OPPORTUNITY. If the Exchange Offer
is consummated, Universal's current operations will be combined with 99CENTS
Only Stores and Universal's existing shareholders 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 since May 1996 was percent
versus Universal's percent 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
5
<PAGE>
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.
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 Universal Shares
pursuant to the Exchange Offer (provided that not less than 32% of the
outstanding shares 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 also agreed to use its best efforts to assist 99CENTS Only Stores
in obtaining the approval of its shareholders under the Minnesota Control Share
Acquisition Act to provide voting rights to the Universal Common Stock acquired
by 99CENTS Only Stores in the Exchange Offer. 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. See
"Agreements Relating to Exchange Offer--The Cooperation Agreement."
According to the Annual Report on Form 10-K filed by Universal for the year
ended December 31, 1997, as of March 17, 1998, 9,393,328 shares of Universal
Common Stock were issued and outstanding (of
6
<PAGE>
which 4,500,000 shares were held by 99CENTS Only Stores). As a result, as of
such date, the Minimum Condition would be satisfied if 99CENTS Only Stores
acquired 3,014,662 outstanding Universal Shares, assuming no further issuances
of shares by Universal.
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 (the "Universal Exchange Consideration"). To be eligible
to receive the Universal Exchange Consideration, a holder of Universal Shares
must validly tender for exchange Universal Shares and not withdraw such
Universal Shares on or prior to the Expiration Date (as defined below). No
fractional shares of 99CENTS Only Stores Common Stock will be distributed in
connection with the Exchange Offer. Holders of Universal Shares 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 12:00 midnight, 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 Universal Shares
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 32% of the outstanding shares 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 the granting of voting rights to the shares of Universal
Common Stock acquired by 99CENTS Only Stores in the Exchange Offer. 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 32% of the outstanding shares 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. See "THE EXCHANGE
OFFER--Certain 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."
7
<PAGE>
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, and, unless theretofore accepted for exchange pursuant to the
Exchange Offer, after , 1998. 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. 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, 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 of Universal Shares
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. 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.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION. 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. See "BACKGROUND OF THE TRANSACTION AND RELATED MATTERS--Interests
of Certain Persons in the Transaction."
8
<PAGE>
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 (as defined) 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 and neither recommends a vote for or a vote
against the approval of 99CENTS Only Stores Voting Rights. However, Universal
has agreed to support the Exchange Offer and to assist 99CENTS Only Stores in
its solicitation of the Universal shareholders. See --"The Cooperation
Agreement." See "Background of the Exchange Offer and Related Matters--No
Recommendation of the Universal Board of Directors."
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 taxable
transaction. 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--Certain 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 will be made by 99CENTS Only Stores to list the
Universal Exchange Consideration on the New York Stock Exchange.
9
<PAGE>
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
early termination of the waiting period under the HSR Act with respect to the
Exchange Offer was requested. See "THE EXCHANGE OFFER--Regulatory Approvals."
SPECIAL MEETING OF UNIVERSAL SHAREHOLDERS. The Minnesota Control Share
Acquisition Act ("Section 671 of the MBCA") denies voting rights to shares of
Universal Common Stock acquired over thresholds of 20%, 33 % and 50%, unless the
shareholders of Universal 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 outstanding
shares entitled to vote, excluding "interested shares." "Interested Shares"
consist of all shares of Universal Common Stock held by an "Acquiring Person,"
any officers of Universal and any directors of Universal who are also employees
of Universal. An "Acquiring Person" is any person that makes or proposes to make
an acquisition of beneficial ownership of shares of Universal Common Stock that
would, when added to all other shares of Universal Common Stock beneficially
owned by such person, entitle such person immediately after such acquisition to
direct the exercise of voting power over any of the percentage thresholds
referred to above.
The effect of Section 671 of the MBCA is that minority shareholders can
defeat the proposal to accord voting rights to the Universal Shares acquired by
99CENTS Only Stores, even if the Exchange Offer is approved by the affirmative
vote of the holders of a majority of all outstanding shares entitled to vote.
Pursuant to Section 671 of the MBCA, a special meeting of shareholders of
Universal will be held on ,1998 at : .m. (local time) at the
(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 approve voting rights (the "99CENTS Only
Stores Voting Rights") for shares of Universal Common Stock acquired by 99CENTS
Only Stores pursuant to the Exchange Offer. Only shareholders of record at the
close of business on , 1998 (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 for the 99CENTS Only Stores Voting Rights.
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. 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 the Record Date, 994,092 shares of Universal
Common Stock or approximately 20% of shares outstanding, not including the
shares held by 99CENTS Only Stores. Shares other than "interested shares" at the
Universal Record Date will constitute approximately 52% of the outstanding
Universal Common Stock.
10
<PAGE>
As of the Universal Record Date, all executive officers and directors of
Universal, together with their respective affiliates, owned in the aggregate
1,000 shares of Universal Common Stock. See "THE UNIVERSAL SPECIAL MEETING."
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
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 April 17, 1998).................. 39.31 34.19 2.28 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 100% of the Universal Common Stock and (ii) on
, 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
11
<PAGE>
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
, 1998 $ $ $
</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.
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 rights of shareholders to call special
meetings of shareholders; 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."
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. See "99CENTS Only STORES --Recent Developments."
12
<PAGE>
On March 31, 1998, the Company announced that it had filed a registration
statement with the Securities and Exchange Commission covering a public offering
of an aggregate of 3,500,000 shares of Common Stock (4,025,000 shares if the
underwriters' over-allotment option is exercised in full). Of the shares to be
offered, the Company is offering to sell 750,000 newly issued shares (862,500
shares if the underwriters' over-allotment option is exercised in full) and
certain shareholders of the Company are offering to sell the balance of the
shares. If consummated as proposed, the net proceeds of the offering to the
Company will vary depending upon market conditions at the time of the offering,
but are currently estimated to be approximately $25.2 million. The Company will
not receive any of the net proceeds from the sale of shares by the selling
shareholders. The Company intends to use approximately $16.0 million of the net
proceeds to retire certain liabilities of Universal. The remaining net proceeds
will be used for store expansion and working capital. There can be no assurance
that the offering will actually be consummated.
13
<PAGE>
RISK FACTORS
HOLDERS OF UNIVERSAL COMMON STOCK SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION CONTAINED HEREIN, BEFORE
TENDERING UNIVERSAL SHARES.
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 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.
14
<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 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 and 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.
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,
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 for a period of
four years. 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 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
15
<PAGE>
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 Shares.
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. Although the recession
in the Southern California economy in the early 1990s had no material effect on
the Company's results of operations, 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. Although the Company maintains standard
property and business interruption insurance, the Company 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. Although management believes that 99CENTS Only Stores'
receiving and distribution process is efficient and well positioned to support
99CENTS Only Stores' expansion plans, 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. Although 99CENTS Only Stores
16
<PAGE>
maintains standard property and business interruption insurance, 99CENTS Only
Stores does not maintain earthquake insurance on its facilities and business.
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. Although 99CENTS Only Stores is not
dependent on any single supplier or group of suppliers, 99CENTS Only Stores'
results of operations could be adversely affected by a disruption in the
availability of merchandise. Further, although the Company believes it has
longstanding relationships with its suppliers and is competitively positioned to
continue to seek new sources, 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 sell 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.
17
<PAGE>
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 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.
INTERNATIONAL SALES AND PURCHASES
Although international sales have historically not been material to 99CENTS
Only Stores' consolidated net sales, 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.
AFFILIATE TRANSACTIONS
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
18
<PAGE>
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 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. As 99CENTS Only Stores continues to grow, it will
continue to hire, appoint or otherwise change senior managers and other key
executives. There can be no assurance that 99CENTS Only Stores will be able to
retain is 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.
MANAGEMENT INFORMATION SYSTEMS; YEAR 2000 COMPLIANCE
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 believes that its accounting
and management information system and inventory control system adequately
provide for its
19
<PAGE>
current needs. 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 and determined that it will be
required to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. Although the year 2000 project is estimated to be completed in
mid-1999 and is not anticipated to have a material effect on results of
operations, 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.
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. Although 99CENTS Only Stores has not been
notified of, and is not otherwise aware of, any current environmental liability,
claim or non-compliance, 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 December 31, 1997, David Gold, members of his immediate family and
certain of their respective affiliates beneficially owned 11,881,246 shares or
approximately 64% 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
20
<PAGE>
were to exchange their Universal Common Stock 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 %.
Further, if the public offering of 99CENTS Only Stores Common Stock is
consummated as anticipated, the percentage of voting stock beneficially owned by
David Gold, his family and their affiliates would be reduced to %.
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 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 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.
21
<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 in 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
December 31, 1997, in the case of book value data, and on January 1, 1997, 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
STORES UNIVERSAL COMBINED
----------- ----------- -----------
<S> <C> <C> <C>
Income (loss) per common share from continuing operations--Basic................ $ 1.02 $ (1.35) $ 0.78
Income (loss) per common share from continuing operations--Diluted.............. 1.01 (1.35) 0.77
Cash dividends declared per common share........................................ -- -- --
Book value per common share at period end....................................... 5.18 0.92 5.67
</TABLE>
22
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following information sets forth the unaudited pro forma condensed
combined financial information of the Company for the year ended December 31,
1997. The Unaudited Pro Forma Condensed Combined Statements of Operations for
the year ended December 31, 1997 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 December 31, 1997 gives effect to the
acquisitions as if they had occurred on December 31, 1997.
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 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 $7.0 million
(resulting from both the Company's initial purchase of 48% of Universal in
November 1997 and the Exchange Offer) but may vary depending on the actual
closing price of the 99CENTS Only Stores' Common Stock on the effective date of
closing. To the extent that the market price of 99CENTS Only Stores' Common
Stock on the effective date of closing is different than $35 1/4 per share, the
closing sales price per share on April 8, 1998 the amount of the purchase price
and the corresponding amount charged to goodwill would change. 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.
22
<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 35,483 234(a) 88,556
-------------- ----------- ----------- ----------
Operating income (loss) (e)................................ 31,219 (6,007) (234) 24,978
-------------- ----------- ----------- ----------
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(e)......... 32,074 (7,379) 472 25,167
Provision for income taxes:.................................. 13,124 -- (2,729)(c) 10,395
-------------- ----------- ----------- ----------
Net income (loss) (e)........................................ $ 18,950 $ (7,379) $ 3,201 $ 14,772
-------------- ----------- ----------- ----------
-------------- ----------- ----------- ----------
Earnings per common share:
Basic...................................................... $ 1.02 $ 0.78
Diluted.................................................... 1.01 0.77
Weighted average number of common shares outstanding:
Basic...................................................... 18,542 306(d) 18,848
Diluted.................................................... 18,756 306(d) 19,062
</TABLE>
- ------------------------
(a) Represents the amortization of estimated goodwill over a 30-year period
based on a December 31, 1997 acquisition date.
(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.
(c) Represents the net tax effect of the pro forma adjustments and the loss of
Universal.
(d) Represents the estimated increase in the number of shares to acquire the
remaining 52% ownership of Universal.
(e) 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 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.
23
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------
HISTORICAL
--------------------------- PRO FORMA
99CENTS ONLY -----------------------
STORES UNIVERSAL ADJUSTMENT COMBINED
-------------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash....................................................... $ 882 $ 1,053 $ (830)(a) $ 1,105
Short-term investments..................................... 32,584 -- -- 32,584
Accounts receivable, net................................... 1,510 312 -- 1,822
Inventory.................................................. 43,114 18,901 (292)(b) 61,723
Other current assets....................................... 673 2,105 -- 2,778
-------------- ----------- ----------- ----------
Total current assets..................................... 78,763 22,371 (1,122) 100,012
Property and equipment, net................................ 29,441 8,880 -- 38,321
Deferred taxes............................................. 5,947 -- 5,947
Investment in Universal International, Inc................. 3,708 -- (3,708) --
Goodwill................................................... -- -- 10,781(c) 7,010
830(c)
292(c)
(4,893)(c)
Other assets............................................... 1,584 137 -- 1,721
-------------- ----------- ----------- ----------
$ 119,443 $ 31,388 $ 2,180 $ 153,011
-------------- ----------- ----------- ----------
-------------- ----------- ----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving line of credit................................... $ -- $ 9,270 $ -- $ 9,270
Current portion of long term debt.......................... -- 634 -- 634
Current portion of capital lease obligation................ 704 -- -- 704
Accounts payable........................................... 5,534 7,014 -- 12,548
Accrued expenses........................................... 5,341 4,348 9,689
-------------- ----------- ----------- ----------
Total current liabilities................................ 11,579 21,266 -- 32,845
Long Term Liabilities:
Long term debt, net........................................ -- 1,494 -- 1,494
Capital lease obligation................................... 8,005 -- -- 8,005
Interest on capital lease obligation....................... 2,075 -- -- 2,075
Deferred rent.............................................. 1,476 -- -- 1,476
Deferred taxes............................................. -- 27 -- 27
-------------- ----------- ----------- ----------
Total long term liabilities.............................. 11,556 1,521 -- 13,077
Shareholders' Equity:
Common Stock, 40,000,000 authorized, 18,578,759 66,207 470 10,311(a) 76,988
outstanding..............................................
Additional paid-in-capital................................. -- 26,692 (26,692)(d) --
Retained earnings (deficit)................................ 30,101 (18,561) 18,561(d) 30,101
-------------- ----------- ----------- ----------
Total shareholders equity................................ 96,308 8,601 2,180 107,089
-------------- ----------- ----------- ----------
$ 119,443 $ 31,388 $ 2,180 $ 153,011
-------------- ----------- ----------- ----------
-------------- ----------- ----------- ----------
</TABLE>
- ------------------------
(a) Represents the issuance of approximately 305,800 shares of the Company's
Common Stock for the 52% of Universal not owned by the Company and payment
of $830,000 for the remaining 2.8 million
24
<PAGE>
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
$10.8 mllion 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) as if the transaction had occurred at December 31,
1997 at the Common Stock price as set forth on the cover of this Prospectus.
(d) Represents the elimination of additional paid in capital and related
retained deficit of Universal and the original investment in Universal.
25
<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.
26
<PAGE>
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 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, the former
Chief Executive Officer of Universal, 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, raised the possibility of an acquisition of
100% of the remaining outstanding shares of Universal through an exchange or
tender offer of shares of
27
<PAGE>
99CENTS Only Stores Common Stock for Universal Common Stock. There was a general
discussion concerning the proposed transaction, although no consensus was
reached.
On Friday, February 6, 1998, members of management of 99CENTS Only Stores
and the Board of Directors 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 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 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 for every 16 shares of Universal.
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
28
<PAGE>
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 Universal had not, at that point, decided whether to accept the offer.
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 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 approximately 10% of the total outstanding shares of
Universal Common Stock (not including the 48% held by 99CENTS Only Stores) 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. As
of , 1998, the Exchange Consideration represented 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 position in Universal in November 1997.
CONTINUED DISCOUNT RETAILER INVESTMENT OPPORTUNITY. If the Exchange Offer
is consummated, Universal's current operations will be combined with 99CENTS
Only Stores and Universal's existing shareholders 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 since May 1996 was
percent versus Universal's percent 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.
29
<PAGE>
- 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.
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. Universal neither recommends a vote for or a
vote against the approval of 99CENTS Only Stores Voting Rights, nor does
Universal make a recommendation that shareholders tender their Universal Shares
in the Exchange Offer.
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 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.
30
<PAGE>
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.
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.
- 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 and board 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
or Universal's management. See "THE EXCHANGE OFFER--Consequences to
Non-tendering Holders of Universal Common Stock."
31
<PAGE>
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 verbally retained by 99CENTS Only Stores on approximately
February 10, 1998 to provide its opinion. 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 or whether to tender
shares of Universal Common Stock in the Exchange Offer.
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;
(ii) reviewed 99CENTS Only Stores' annual reports to shareholders on Form 10-K
for the five fiscal years ended December 31, 1997; (iii) reviewed copies of the
Cooperation Agreement, Irrevocable Proxy, Option and Consulting Agreements and
Shareholder 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 we deem comparable to Universal and 99CENTS Only Stores,
and publicly available prices and premiums paid in other transactions that we
considered similar to the Transaction; (xi) reviewed drafts of certain documents
32
<PAGE>
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. 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 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. 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. 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.
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 material points of more detailed
analyses performed by Houlihan Lokey in arriving at its fairness opinion. The
preparation of the fairness opinion is a complex
33
<PAGE>
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
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.
INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE OFFER
In considering whether to vote in favor of the 99CENTS Only Stores Voting
Rights, 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.
As discussed under "Discussions Regarding the Exchange Offer," each of Mark
Ravich, the former Chief Executive Officer and 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 "(4)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 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. 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.
34
<PAGE>
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 12:00 midnight, 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 condition that Universal Common Stock representing at least 32% of
the number of shares of Universal Common Stock outstanding 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 20 twenty 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 Universal Shares must be received by the Exchange Agent at
such address or such Universal Shares 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
35
<PAGE>
Date, or (b) the tendering shareholder must comply with the guaranteed delivery
procedures described below.
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 Universal Shares 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 Universal Shares are
tendered (i) by a registered holder of Universal 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. See Instructions 1 and 5
of the Letter of Transmittal.
GUARANTEED DELIVERY. 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, provided
that all the following conditions are satisfied:
36
<PAGE>
(i) such tender is 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 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 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 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 form
of Notice of Guaranteed Delivery made available by 99CENTS Only Stores.
In all cases, the exchange of Universal Exchange Consideration for Universal
Shares 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 Universal Shares 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 Universal Shares 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 Universal Shares of any particular
shareholder, whether or not similar defects or irregularities are waived in the
case of other shareholders. No tender of Universal Shares 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, the
Information 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 Universal Shares
tendered by such shareholder and accepted for exchange by 99CENTS Only Stores
(and with respect to any and all other Universal Shares or other securities
issued or issuable in respect of such Universal Shares on or after the date of
this Proxy Statement/Prospectus). All such proxies shall be considered coupled
with an interest in the tendered Universal Shares. Such appointment will be
effective when, and only to the extent that, 99CENTS Only Stores accepts such
Universal Shares for exchange.
37
<PAGE>
Upon such acceptance for exchange, all prior powers of attorney and proxies
given by such shareholder with respect to such Universal Shares (and such other
Universal Shares 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 Universal Shares 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 Universal Shares 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 Shares made pursuant to the
Exchange Offer are irrevocable except that such Universal Shares may be
withdrawn at any time prior to the Expiration Date and, unless theretofore
accepted for payment by 99CENTS Only Stores pursuant to the Exchange Offer, may
also be withdrawn at any time after , 1998. If 99CENTS Only Stores extends
the Exchange Offer, is delayed in its acceptance for payment of Universal Shares
or is unable to accept Universal Shares 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 Universal Shares, 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 Universal 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 Shares 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
Shares have been tendered pursuant to the procedure for book-entry transfer as
set forth in "--Procedures for Accepting the Exchange Offer and
38
<PAGE>
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.
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 Universal Shares 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 later of
(i) the Expiration Date and (ii) the satisfaction or waiver of the conditions
set forth in "--Certain Conditions of the Exchange Offer." 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 share 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 "--Certain 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.
39
<PAGE>
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.
CERTAIN 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 32% of the then outstanding
Universal Common Stock (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
40
<PAGE>
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, or Universal shall have redeemed the
Rights (the "Rights Agreement Condition");
(f) the required approval of the shareholders of Universal under Section
671 of the MBCA necessary to accord full voting rights to the shares of
Universal Common Stock acquired by 99CENTS Only Stores in the Exchange Offer
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;
(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 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 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 Universal Shares 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 Universal Shares
(other than the issuance of Universal Shares 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), (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
41
<PAGE>
Rights inapplicable to the Exchange Offer 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 Shares 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 effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been initiated or threatened by the Commission.
42
<PAGE>
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. 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, (iii) to delay
(except as otherwise required by applicable law) acceptance for exchange of, or
exchange for, any shares of Universal Common Stock or (iv) to terminate the
Exchange Offer and not accept 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 shares of Universal
Common Stock eligible for exchange or changes are made in any dealer's
soliciting fee
43
<PAGE>
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 require 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 Common Stock no longer meets the requirements of the Nasdaq National
Market for continued listing and
44
<PAGE>
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 will be 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 Only Stores is fair to the holders of
Universal Common Stock (other than 99CENTS Only Stores) from a
45
<PAGE>
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 to act as the Information
Agent and 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, telex, telegraph 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 has requested
early termination of the waiting period applicable to the Exchange Offer. There
can be no assurance, however, that either the 30-day HSR Act waiting period will
be terminated early or that additional information or documentary material will
not be requested. If the acquisition of shares is delayed pursuant to a request
by the FTC or the Antitrust Division for additional information or documentary
material pursuant to the HSR Act, the Offer may, but need not, be extended and,
in any event, the purchase of and payment for shares will be deferred until 10
days after the request is substantially complied with, unless the extended
period expires on or before the date when the initial 30-day period would
otherwise have expired, or unless the waiting period is sooner terminated by the
FTC and the Antitrust Division. Only one extension of such waiting period
pursuant to a request for additional information is authorized by the HSR Act
and the rules promulgated thereunder, except by court order. Any such extension
of the waiting period will not give rise to any withdrawal rights not otherwise
provided for by applicable law. It is a condition to the Exchange
46
<PAGE>
Offer that the waiting period applicable under the HSR Act to the Exchange Offer
expire or be terminated. "THE EXCHANGE OFFER--Conditions to the 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 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 "--Certain 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
47
<PAGE>
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).
ACCOUNTING TREATMENT
Under applicable accounting standards, the Exchange Offer will be treated as
a purchase of Universal by 99CENTS Only Stores.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The receipt of Universal Exchange Consideration for shares pursuant to the
Exchange Offer will be a taxable transaction for federal income tax purposes and
may also be a taxable transaction under applicable state, local or foreign tax
laws. In general, a shareholder will recognize gain or loss for federal income
tax purposes equal to the difference between the fair market value of the
Universal Exchange Consideration and such shareholder's adjusted tax basis in
such shares. Assuming the shares constitute capital assets in the hands of the
shareholder, such gain or loss will be capital gain or loss. Capital gain
generally will be taxed to an individual stockholder at a maximum rate of 20
percent with respect to shares held for more than 18 months and generally will
be taxed at a maximum rate of 28 percent with respect to shares held for more
than one year but not more than 18 months. The tax rates applicable to ordinary
income will apply to the sale or exchange of shares held for one year or less.
The highest marginal income tax rate applicable to an individual shareholder is
39.6%. Capital losses not offset by capital gains 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 stockholder. 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.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO CERTAIN TYPES OF
SHAREHOLDERS, SUCH AS FINANCIAL INSTITUTIONS, BROKER-DEALERS, PERSONS WHO
RECEIVED PAYMENT IN RESPECT OF OPTIONS TO ACQUIRE SHARES, SHAREHOLDERS WHO
ACQUIRED SHARES PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE
AS COMPENSATION, INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED
STATES AND FOREIGN CORPORATIONS.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON PRESENT LAW. SHAREHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE
EXCHANGE OFFER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE
MINIMUM TAX, AND STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS AND CHANGES
IN SUCH TAX LAWS.
48
<PAGE>
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 not less than 32% of the
outstanding shares of Universal Common Stock are validly tendered and not
withdrawn (the "Minimum Condition")(other than the shares owned by 99CENTS Only
Stores)) 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 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 the Universal Common Stock acquired by 99CENTS Only
Stores in the Exchange Offer. 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.
According to Universal's Annual Report on Form 10-K for the year ended
December 31, 1997, as of March 17, 1998, 9,393,328 shares of Universal Common
Stock were issued and outstanding. As a result, as of such date, the Minimum
Condition would be satisfied if 99CENTS Only Stores acquired 3,014,662 Universal
Shares, assuming no further issuances of shares by Universal.
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 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.
49
<PAGE>
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 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.
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 as set forth below, 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. 99CENTS Only Stores'
obligation under the Exchange Offer to accept for payment and pay for shares is
subject to certain conditions, including conditions relating to the legal
matters discussed in this "Certain Legal Matters and Regulatory Approvals." See
"THE EXCHANGE OFFER--Conditions to the Exchange Offer".
50
<PAGE>
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.
Section 671 of the MBCA 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 pursuant to
Section 671 of the MBCA. See "THE UNIVERSAL SPECIAL MEETING."
Chapter 80B of the MBCA ("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.
99CENTS Only Stores does not believe that any state takeover laws, other
than Section 673 of the MBCA, Section 671 of the MBCA and Chapter 80B, 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 to 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 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
51
<PAGE>
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 to 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.
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
52
<PAGE>
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 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
53
<PAGE>
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 [a.m.] (local time) on
, 1998 at . 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 (the "MBCA") 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 ("Section 671 of the MBCA"), 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. Section 671 of the MBCA
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. Thus, in accordance with
Section 671 of the MBCA, Universal Shares acquired by 99CENTS Only Stores in the
Exchange Offer, in excess of 50 percent of the outstanding Universal Shares,
will have no voting rights, unless voting rights for such Universal Shares are
approved by a shareholder vote at the Universal Special Meeting. Consummation of
the Exchange Offer is conditioned upon, among other things, the approval of
voting rights for the Universal Shares acquired by 99CENTS Only Stores in the
Exchange Offer. This matter will be considered and voted upon by the holders of
Universal Shares at the Universal Special Meeting.
Under Section 671 of the MBCA, the resolution to accord voting rights to
Universal Shares acquired by 99CENTS Only Stores in the Exchange Offer must
receive the approval of both (i) the affirmative vote of the holders of a
majority of all outstanding Universal Shares entitled to vote, and (ii) the
affirmative vote of the holders of a majority of all Universal Shares entitled
to vote, excluding Interested Shares. Under Section 671 of the MBCA, "interested
shares" means shares held by an Acquiring Person (defined in Section 671 of the
MBCA as a person that makes or proposes to make a control share acquisition),
any officer of Universal and any employee of Universal who is also a director of
Universal. In the case of the Exchange Offer, the Acquiring Person means 99CENTS
Only Stores and its affiliates.
On , 1998, 99CENTS Only Stores delivered to Universal an
information statement (the "Information Statement") in accordance with Section
671 of the MBCA and requested that Universal call a special meeting of
shareholders to consider the voting rights to be accorded the Universal Shares
to be acquired by 99CENTS Only Stores pursuant to the Exchange Offer. A copy of
the Information Statement is attached hereto as Appendix "C". Under Section 671
of the MBCA, if the shareholders of Universal approve voting rights for
Universal Shares to be acquired in the Exchange Offer, such approval will cover
any Universal Shares acquired in the Exchange Offer during the 180-day period
immediately following the date of such approval.
UNIVERSAL RECORD DATE, QUORUM AND VOTE REQUIRED
The Universal Board of Directors has fixed the close of business on
, 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 (the "Universal Record Date"). At
the Universal Record Date, Universal Shares were outstanding. The
Universal Shares are the
54
<PAGE>
only outstanding shares of capital stock of Universal entitled to vote at the
Universal Special Meeting. Each holder of record of Universal Shares on the
Universal Record Date is entitled to cast one vote per share, in person or by
proxy, on all maters 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 holders of a majority of the Universal Shares entitled to vote at
the Universal Special Meeting is necessary to constitute a quorum.
The approval of voting rights with respect to Universal Shares acquired by
99CENTS Only Stores in the Exchange Offer (the "99CENTS Only Stores Voting
Rights") requires the affirmative vote, in person or by proxy, of (i) a majority
of all outstanding Universal Shares entitled to vote at the Universal Special
Meeting, and (ii) a majority of all Universal Shares entitled to vote at the
Universal Special Meeting, excluding Interested Shares. At the Universal Record
Date, 99CENTS Only Stores beneficially owned 4,500,000 Universal Shares, and
Universal's officers and its employees who are also directors beneficially owned
Universal Shares, representing in the aggregate approximately % of the
outstanding Universal Shares. Accordingly, to approve voting rights for
Universal Shares acquired in the Exchange Offer, the affirmative vote of the
holders of Universal Shares (including Interested Shares) and
Universal Shares (excluding Interested Shares) is required.
THE CONSUMMATION OF THE EXCHANGE OFFER IS CONDITIONED UPON A FAVORABLE VOTE
OF UNIVERSAL'S SHAREHOLDERS WITH RESPECT TO 99CENTS ONLY STORES VOTING RIGHTS.
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 APPROVAL OF SUCH VOTING RIGHTS.
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 and neither
recommends a vote for or a vote against the approval of 99CENTS Only Stores
Voting Rights. However, Universal has agreed to support the Exchange Offer and
to assist 99CENTS Only Stores on its solicitation of the Universal shareholders.
See "The Cooperation Agreement" and "Background of the Exchange Offer and
Related Maters--No Recommendation of the Universal Board of Directors."
PROXIES; REVOCABILITY OF PROXIES
All Universal Shares 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 in such proxies. A properly executed
proxy marked "ABSTAIN," however, although counted for purposes of determining
whether there is a quorum at the Universal Special Meeting, will not be voted in
favor of the 99CENTS Only Stores Voting Rights. If no instructions are
indicated, such proxies will be voted FOR the 99 CENTS Only Stores Voting
Rights. Broker non-votes will not be counted for purposes of determining the
presence of a quorum at the Universal Special Meeting and will have no effect on
the vote. A shareholder may revoke his or her proxy at any time prior to its use
by delivering to the Chief Financial Officer of 99 CENTS Only Stores a signed
notice of revocation or a later dated signed proxy, by attending the Universal
Special Meeting and voting in person or by giving notice of revocation of the
proxy at the Universal Special Meeting. Attendance at the Universal Special
Meeting will not in itself constitute the revocation of a proxy. Prior to the
Universal Special Meeting, any written notice of revocation or subsequent proxy
should be sent so as to be delivered to 99CENTS Only Stores, 4000 Union Pacific
Avenue, City of Commerce,
55
<PAGE>
California 90023, Attention: Chief Financial Officer, or hand delivered to the
Chief Financial Officer of 99CENTS Only Stores 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.
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. 99CENTS Only Stores
has retained at an estimated aggregate cost of $ , plus variable
telephone charges and reimbursement of expenses, to assist in the solicitation
of proxies from brokers, nominees, institutions and individuals. 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.
56
<PAGE>
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 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 March 17, 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 March 26, 1998, approximately 18,586,111 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.
57
<PAGE>
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
or in the terms of the shares, 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. 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 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
58
<PAGE>
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. 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 10
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, all amendments to Universal's Articles, unless
otherwise specified in the Articles, must be approved by the affirmative vote of
holders of the shares of capital stock entitled to vote thereon, unless a class
vote is required. Universal's Articles do not contain any super-majority or
other restrictions on amendment of the Articles.
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
59
<PAGE>
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. 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."
60
<PAGE>
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 is not
required where, in the case of a merger or exchange, there is no amendment of
the corporation's articles or where a change in the corporation's outstanding
stock is involved and the merger results in no more than a 20% increase in the
voting power of the outstanding common stock, or if the merger results 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.
LOANS TO DIRECTORS
The MBCA permits loans to be made to a director of the corporation if the
Board of Directors finds that the loan may benefit the corporation. The CGCL
permits loans to be made to directors (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 an employee incentive plan,
(iv) pursuant to a 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.
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,
61
<PAGE>
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.
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.
62
<PAGE>
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 stated purpose
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 fifty
stockholders) 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
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.
Neither the Universal Articles nor the Universal By-Laws contain such an "opt
out" provision.
The CGCL does not contain a similar provision.
Immediately after the Effective Date, Universal shareholders 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 the Board of Directors of Universal.
The MBCA includes three 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. 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
63
<PAGE>
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 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 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
64
<PAGE>
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.
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 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 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.
65
<PAGE>
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 in the management of
corporate affairs and the stockholders cannot break the deadlock; (b) the
directors have acted fraudulently, illegally, or 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 OPINIONS
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 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.
66
<PAGE>
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
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 solely for your benefit and may not be relied upon by
any other person without our express, prior written consent. This Opinion is
delivered to each recipient subject to the conditions, scope of engagement,
limitations and understandings set forth in this Opinion and our engagement
letter, and subject to the understanding that the obligations of Houlihan Lokey
in the Transaction are solely corporate obligations, and no officer, director,
employee, agent, shareholder or controlling person of Houlihan Lokey shall be
subjected to any personal liability whatsoever to any person, nor will any such
claim be asserted by or on behalf of you or your affiliates.
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 FOR THE OFFER IS:
X
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 FOR THE OFFER IS:
<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>
1.1 Dealer Manager Agreement**
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.*
3.1 Amended and Restated Articles of Incorporation of the Registrant.*
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.**
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.*
10.27 Irrevocable Proxy between Universal and the Registrant.*
10.28 Stockholder Support Agreement between Mark Ravich and the Registrant dated
as of February 24, 1998.*
</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.*
10.30 Stockholder Support Agreement between Alyssa Danielle Ravich 1991
Irrevocable Trust and the Registrant dated as of February 24, 1998.*
10.31 Stockholder Support Agreement between Alexander Coleman Ravich 1991
Irrevocable Trust and the Registrant dated as of February 24, 1998.*
10.32 Stockholder Support Agreement between Norman J. Ravich Irrevocable Trust
and the Registrant dated as of February 24, 1998.*
10.33 Stockholder Support Agreement between the Norman and Sally Ravich Family
Trust and the Registrant dated as of February 24, 1998.*
10.34 Option Agreements between the Registrant and Mark Ravich dated as of
February 26, 1998.*
10.35 Option Agreement between the Registrant and Norman Ravich dated as of
February 26, 1998.*
10.36 Consulting Agreement between the Registrant and Mark Ravich dated as of
February 24, 1998.*
10.37 Consulting Agreement between the Registrant and Norman Ravich dated as of
February 26, 1998.*
10.38 Cooperation Agreement between Universal and the Registrant dated as of
March 4, 1998.*
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.*
13.1 Universal International, Inc. Annual Report on Form 10-K.*
21.1 Subsidiaries of the Registrant.*
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.*
24.1 Power of Attorney (included on page II-5).**
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.**
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
II-4
<PAGE>
(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.
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.
(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
II-5
<PAGE>
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on April 16, 1998.
<TABLE>
<S> <C> <C>
99CENTS ONLY STORES
By: /s/ ERIC SCHIFFER
-----------------------------------------
Eric Schiffer,
SENIOR VICE PRESIDENT OF FINANCE
AND OPERATIONS AND TREASURER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints David
Gold and Eric Schiffer, as his true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for him and his name, place and
stead, in any and all capacities, to sign any or all amendments (including post
effective amendments) to this Registration Statement and a new Registration
Statement filed pursuant to Rule 462(b) of the Securities Act of 1933 and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the foregoing, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ DAVID GOLD
- ------------------------------ Chairman of the Board and April 16, 1998
David Gold Chief Executive Officer
/s/ HOWARD GOLD Senior Vice President of
- ------------------------------ Distribution and April 16, 1998
Howard Gold Director
Senior Vice President of
/s/ JEFF GOLD Real Estate and
- ------------------------------ Information Systems and April 16, 1998
Jeff Gold Director
/s/ ERIC SCHIFFER Senior Vice President of
- ------------------------------ Finance and Operations, April 16, 1998
Eric Schiffer Treasurer and Director
II-7
<PAGE>
<TABLE>
<C> <S> <C>
/s/ LAWRENCE GLASCOTT
- ------------------------------ Director April 16, 1998
Lawrence Glascott
/s/ MARVIN L. HOLEN
- ------------------------------ Director April 16, 1998
Marvin L. Holen
/s/ BEN SCHWARTZ
- ------------------------------ Director April 16, 1998
Ben Schwartz
</TABLE>
II-8
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
99 CENTS ONLY STORES
ODD'S-N-END'S ACQUISITION CORP.
AND
ODD'S-N-END'S, INC.
MARCH 24, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S><C>
R E C I T A L S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
A G R E E M E N T. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.1. ACTIONS TO BE TAKEN. . . . . . . . . . . . . . . . . . . . . .3
2.2. CONVERSION OF COMMON STOCK OF SUB.. . . . . . . . . . . . . . .4
2.3. CONVERSION OR CANCELLATION OF COMPANY COMMON STOCK. . . . . . .4
2.4. DISSENTING SHARES. . . . . . . . . . . . . . . . . . . . . . .4
2.5. PAYMENT FOR SHARES. . . . . . . . . . . . . . . . . . . . . . .5
2.6. NO FURTHER RIGHTS OR TRANSFERS. . . . . . . . . . . . . . . . .6
2.7. STOCK TRANSFER BOOKS. . . . . . . . . . . . . . . . . . . . . .7
2.8. STOCKHOLDERS' MEETINGS. . . . . . . . . . . . . . . . . . . . .7
2.9. FILING OF MERGER DOCUMENTS. . . . . . . . . . . . . . . . . . .7
2.10. RELATED AGREEMENT . . . . . . . . . . . . . . . . . . . . . . .7
3. CLOSING DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
4. REPRESENTATIONS AND WARRANTIES OF COMPANY.. . . . . . . . . . . . . . .8
4.1. ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. . . . . . . . .8
4.2. AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . .8
4.3. NO CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . .8
4.4. CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . .9
4.5. SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . . . .9
4.6. SEC REPORTS AND FINANCIAL STATEMENT . . . . . . . . . . . . . 10
4.7. ABSENCE OF CERTAIN CHANGES OR EVENTS. . . . . . . . . . . . . 10
4.8. LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.9. PROPERTIES, ENCUMBRANCES. . . . . . . . . . . . . . . . . . . 11
4.10. COMPLIANCE WITH APPLICABLE LAW. . . . . . . . . . . . . . . . 11
4.11. NO BROKERS. . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.12. PROXY STATEMENT.. . . . . . . . . . . . . . . . . . . . . . . 12
4.13. INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 12
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. . . . . . . . . . . . . 12
5.1. ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. . . . . . . . 12
5.2. AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . 12
5.3. NO CONSENTS.. . . . . . . . . . . . . . . . . . . . . . . . . 13
5.4. SEC REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . 13
i
<PAGE>
5.5. ABSENCE OF CERTAIN CHANGES OR EVENTS. . . . . . . . . . . . . 14
5.6. LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.7. COMPLIANCE WITH APPLICABLE LAW. . . . . . . . . . . . . . . . 14
5.8. NO BROKERS. . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.9. PROXY STATEMENT . . . . . . . . . . . . . . . . . . . . . . . 15
5.10. INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 15
6. PRE-MERGER COVENANTS OF PURCHASER AND COMPANY . . . . . . . . . . . . 15
6.1. CONDUCT OF BUSINESS BY COMPANY. . . . . . . . . . . . . . . . 15
6.2. INSPECTION OF RECORDS . . . . . . . . . . . . . . . . . . . . 17
6.3. STOCKHOLDER APPROVAL. . . . . . . . . . . . . . . . . . . . . 17
6.4. PROXY STATEMENT. . . . . . . . . . . . . . . . . . . . . . . 17
6.5. EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.6. FILINGS; OTHER ACTION . . . . . . . . . . . . . . . . . . . . 18
6.7. PUBLICITY . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.8. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 18
6.9 ACQUISITION PROPOSALS. . . . . . . . . . . . . . . . . . . . 19
7. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. . . . . . 20
7.1. STOCKHOLDER APPROVAL. . . . . . . . . . . . . . . . . . . . . 20
8. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PURCHASER AND SUB . . . . . . 20
8.1. REPRESENTATIONS, COVENANTS, CERTIFICATE . . . . . . . . . . . 20
8.2. PERMITS AND APPROVALS . . . . . . . . . . . . . . . . . . . . 20
8.3. NO ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . . . 20
8.4. CERTAIN LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . 20
8.5. CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.6. TENDER FOR UNIVERSAL INTERNATIONAL. . . . . . . . . . . . . . 21
9. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF COMPANY . . . . . . . . . 21
9.1. NO LEGAL ACTION . . . . . . . . . . . . . . . . . . . . . . . 21
10. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
10.1. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . 21
10.2. EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . . . . 22
11. MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . 22
11.1. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.2. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . 23
11.3. EXHIBITS AND SCHEDULES. . . . . . . . . . . . . . . . . . . . 23
11.4. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . 23
11.5. NO ADVERSE CONSTRUCTION . . . . . . . . . . . . . . . . . . . 23
11.6. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . 23
ii
<PAGE>
11.7. COSTS AND ATTORNEYS' FEES . . . . . . . . . . . . . . . . . . 23
11.8. SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . 24
11.9. AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.10. WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.11. ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . 24
11.12. BEST EFFORTS. . . . . . . . . . . . . . . . . . . . . . . . . 24
11.13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . . . 24
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made and
entered into as of March 24, 1998, by and between ODD'S-N-END'S, INC., a
Delaware corporation ("Company"), 99 CENTS ONLY STORES, a California
corporation ("Purchaser"), and ODD'S-N-END'S ACQUISITION CORP., a Delaware
corporation and a wholly-owned subsidiary of Purchaser ("Sub"), with respect
to the following:
R E C I T A L S
WHEREAS, the Boards of Directors of Purchaser, Sub and Company, deeming it
advisable for the mutual benefit of Purchaser, Sub and Company, and their
respective stockholders, that Purchaser acquire Company by a merger of Sub into
Company, under the terms and conditions hereinafter set forth (the "Merger"),
have by duly adopted resolutions approved this Agreement and Plan of
Reorganization (this "Agreement") and the transactions contemplated hereby;
WHEREAS, it is the intent of the parties that the Merger will be treated
for tax purposes as a taxable merger; and
WHEREAS, the Board of Directors of Company has resolved to recommend to its
stockholders approval of the Merger and approval and adoption of this Agreement.
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. DEFINITIONS. As used in this Agreement, terms defined in the preamble
and recitals hereto shall have the respective meanings specified therein and the
following terms shall have the meanings set forth below:
(a) "AFFILIATE" means, when used with reference to a specified
Person, any Person that directly or indirectly through one or more
intermediaries controls or is controlled by, or is under common control with,
the specified Person.
(b) "AGREEMENT" shall mean this Agreement and Plan of
Reorganization.
(c) "CALIFORNIA LAW" shall mean the General Corporation Law of the
State of California.
1
<PAGE>
(d) "COMPANY" shall mean Odd's-N-End's, Inc., a Delaware
corporation.
(e) "COMPANY COMMON STOCK" shall mean the Common Stock, par value
$0.07 per share, of Company.
(f) "COMPANY SECURITIES" shall mean the Company Common Stock.
(g) "COMPANY STOCKHOLDERS" shall mean the stockholders of Company.
(h) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(i) "CONTROL" (including as used in the terms "controlling,"
"controlled by" and "under common control with") of a Person means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
(j) "DELAWARE LAW" shall mean the Delaware General Corporation Law.
(k) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
(l) "GAAP" shall mean generally accepted accounting principles.
(m) "MATERIAL ADVERSE EFFECT" means when used in connection with
Company or any of its Subsidiaries, or Purchaser or any of its Subsidiaries, as
the case may be, any condition, change or effect that, individually or when
taken together with all other such conditions, changes or effects that existed
or occurred prior to the date of determination of the existence or occurrence of
the Material Adverse Effect, is or is reasonably likely to be materially adverse
to the business, assets (including intangible assets), financial condition or
results of operations of Company and its Subsidiaries or Purchaser and its
Subsidiaries, in each case taken as a whole.
(n) "MERGER" shall have the meaning provided in the first recital
to this Agreement.
(o) "NYSE" shall mean the New York Stock Exchange.
(p) "PERSON" includes an individual, partnership, limited liability
company, limited liability partnership, trust, estate, corporation, joint
venture, unincorporated association, governmental bureau or agency or other
entity of whatsoever kind or nature.
(q) "SECURITIES ACT" means the Securities Act of 1933, as amended.
2
<PAGE>
(r) "PURCHASER COMMON STOCK" shall mean the Common Stock, no par
value per share, of Purchaser.
(s) "SEC" means the Securities and Exchange Commission.
(t) "SUBSIDIARY" of a corporation means (i) any corporation of
which equity securities possessing a majority of the ordinary voting power in
electing the board of directors are, at the time as of which such determination
is being made, owned by such corporation either directly or indirectly through
one or more Subsidiaries, and (ii) any Person (other than a corporation) in
which such corporation or any Subsidiary, directly or indirectly, has more than
a 10% ownership interest or over which it exercises control.
(v) "UNIVERSAL INTERNATIONAL" means Universal International, Inc.,
a Minnesota corporation.
2. THE MERGER.
2.1. ACTIONS TO BE TAKEN. (a) Upon the performance of all covenants
and obligations of the parties contained herein and upon the fulfillment (or
waiver) of all conditions to the obligations of the parties contained herein, at
the Effective Time (as defined below) and pursuant to Delaware Law, the
following will occur:
(i) Sub will be merged with and into Company, Company
shall be the surviving corporation (the "Surviving Corporation"), and the
separate existence and corporate organization of Sub shall cease, and thereupon
Sub and Company shall be a single corporation;
(ii) Company, as the Surviving Corporation, will succeed,
insofar as permitted by law, to all rights, assets, liabilities and obligations
of Sub in accordance with Delaware Law;
(iii) the Certificate of Incorporation of the Surviving
Corporation shall be amended to be substantially identical to the Certificate of
Incorporation of Sub;
(v) the Bylaws of the Surviving Corporation shall be
amended to be substantially identical to the Bylaws of Sub; and
(vi) the directors and officers of Sub immediately prior
to the Effective Time shall be the directors and officers of the Surviving
Corporation and shall hold office from the Effective Time until their respective
successors are duly elected and qualified in the manner provided in the
Certificate of Incorporation of the Surviving Corporation.
3
<PAGE>
(b) As soon as practicable after the terms and conditions
of this Agreement have been satisfied or waived, a Certificate of Merger,
properly completed and executed in accordance with Delaware Law (the
"Certificate of Merger"), will be filed with the Secretary of State of the State
of Delaware. The Merger shall be effective at such time as the Certificate of
Merger is filed in the office of the Secretary of State of the State of Delaware
(the "Effective Time").
2.2. CONVERSION OF COMMON STOCK OF SUB. At the Effective Time, by
virtue of the Merger and without any action on the part of Purchaser as the
holder thereof, all issued and outstanding shares of the common stock, $0.001
par value per share, of Sub will cease to be outstanding and will be converted
into the right to receive an aggregate of that number of shares of Company
Common Stock equal to 4,724,048, LESS 1,913,239, LESS any shares of Company
Common Stock purchased by Purchaser in transactions not involving the Company as
an issuer which are held by Purchaser at the Effective Time; PROVIDED that
shares of Company Common Stock which are purchased by Purchaser directly from
the Company from and after the date of this Agreement which are held by
Purchaser at the Effective Time shall not be so subtracted.
2.3. CONVERSION OR CANCELLATION OF COMPANY COMMON STOCK. At the
Effective Time, by virtue of the Merger and without any action on the part of
any holder thereof:
(a) Each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time, except for Perfected
Dissenting Shares and shares then owned by Purchaser or Universal International,
will cease to be outstanding and will, subject to the provisions of Section 2.4
hereof, be converted into the right to receive $0.30 (the "Merger
Consideration").
(b) Each share of Company Common Stock which, immediately
prior to the Effective Time, was issued and outstanding and held by Purchaser,
Sub or Universal International will continue to exist and remain outstanding.
(c) No Perfected Dissenting Shares will be converted into
the Merger Consideration under this Section 2.3, but such Perfected Dissenting
Shares will be subject to the provisions of Section 2.4 hereof.
(d) Each authorized but unissued share of Company Common
Stock will cease to exist.
2.4. DISSENTING SHARES. (a) Notwithstanding any provision of this
Agreement to the contrary, shares of Company Common Stock that are outstanding
immediately prior to the Effective Time and which are held of record or
beneficially owned by persons who have not voted such shares in favor of the
Merger and who shall have timely delivered a written demand for appraisal of
such shares in accordance with Section 262 of the Delaware Law are herein
referred to as a "Dissenting Shares". Dissenting Shares, the holders of which
have not effectively withdrawn or lost (for failure to timely file with Company
a demand for appraisal of their shares
4
<PAGE>
or otherwise) their dissenters' rights under Section 262 ("Perfected Dissenting
Shares"), shall not be converted into or represent a right to receive the Merger
Consideration pursuant to Section 2.3 hereof, but the holders thereof shall be
entitled only to such rights as are granted by Section 262. Each holder of
Dissenting Shares who becomes entitled to payment for such holder's Company
Common Stock pursuant to the provisions of Section 262 shall receive payment
therefor on a timely basis from the Surviving Corporation (but only after the
amount thereof shall have been agreed upon or finally determined pursuant to
such provisions); provided, however, that (i) if any such holder of Dissenting
Shares shall have failed to establish his entitlement to appraisal rights as
provided in Section 262 of the Delaware Law, (ii) if any such holder of
Dissenting Shares shall have effectively withdrawn his demand for appraisal of
such Shares or lost his right to appraisal and payment for his Shares under
Section 262 of the Delaware Law or (iii) if neither any holder of Dissenting
Shares nor the Surviving Corporation shall have filed a petition demanding a
determination of the value of all Dissenting Shares within the time provided in
Section 262 of the Delaware Law, such holder or holders (as the case may be)
shall forfeit the right to appraisal of such Shares and each such Share shall
thereupon be deemed to have been converted, as of the Effective Time, into and
represent the right to receive payment from the Surviving Corporation of the
Merger Consideration, without interest thereon, as provided in Section 2.3
hereof.
(b) If any holder of Dissenting Share has effectively
withdrawn or lost such holder's dissenter's rights under Section 262, such
Dissenting Shares shall be converted into the right to receive the Merger
Consideration pursuant to Section 2.3(a) hereof.
(c) Company will give Purchaser and Sub prompt notice of
any written demands for appraisal, withdrawals of demands for appraisal or
notices and any other instruments served pursuant to Section 262 and received by
Company and the opportunity to direct all negotiations with and proceedings with
respect to holders of Dissenting Shares. Company will not voluntarily make any
payment with respect to any demands for payment for shares under Section 262 and
will not, except with the prior written consent of Purchaser, settle or offer to
settle any such demands.
2.5. PAYMENT FOR SHARES. (a) Purchaser shall authorize an exchange
agent (the "Exchange Agent") hereunder. As soon as practicable following the
Effective Time, Purchaser will deliver to the Exchange Agent, funds (the
"Exchange Fund") necessary to make the payments contemplated by Section 2.3.
Out of the Exchange Fund, the Exchange Agent shall, pursuant to irrevocable
instructions, make the payments referred to in Section 2.3. The Exchange Fund
shall not be used for any other purpose. The Exchange Agent may invest portions
of the Exchange Fund, as directed by Purchaser (so long as such directions do
not impair the Exchange Agent's ability to make the payments referred to in
Section 2.3 hereof or otherwise impair the rights of holders of shares of
Company Common Stock), provided that no such investments may be made other than
in direct obligations of the United States of America, obligations for which the
full faith and credit of the United States of America is pledged to provide for
the payment of principal and interest, commercial paper rated of the highest
quality by Moody's Investors Services, Inc. or Standard & Poor's Corporation, or
certificates of deposit issued by a commercial bank having capital exceeding
$500,000,000. Any net earnings resulting from, or interest or
5
<PAGE>
income produced by, such investments shall be paid to the Surviving Corporation
as and when requested by Purchaser. The Surviving Corporation shall replace any
monies lost through any investment made pursuant to this Section 2.5. Deposit
of funds pursuant hereto shall not relieve Purchaser or the Surviving
Corporation of their obligations to make payments in respect of shares of
Company Common Stock and Purchaser hereby guarantees the Surviving Corporation's
obligations in respect thereof.
(b) LETTER OF TRANSMITTAL. Promptly after the Effective
Time, the Surviving Corporation shall cause the Exchange Agent to mail to each
record holder, as of the Effective Time, of an outstanding certificate or
certificates which immediately prior to the Effective Time represented Shares
(the "Certificates") a form letter of transmittal (the "Letter or Transmittal")
for return to the Exchange Agent (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Exchange Agent) and instructions for
use in effecting the surrender of the Certificates, for payment therefor. Upon
surrender to the Exchange Agent of a Certificate, together with the Letter of
Transmittal duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor cash in an amount equal to the product of the
number of shares of Company Common Stock represented by such Certificate
multiplied by the Merger Consideration, subject to any required withholding
taxes, and such Certificate shall forthwith be canceled. No interest will be
paid or accrued on the cash payable upon the surrender of the Certificates. If
payment is to be made to a person other than the person in whose name the
Certificate surrendered is registered, it shall be a condition of payment that
the Certificate so surrendered shall be properly endorsed or otherwise in proper
form of transfer and that the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a person other than
the registered holder of the Certificate surrendered or establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
applicable. Until surrendered in accordance with the provisions of this Section
2.5, each Certificate (other than Certificates representing shares of Company
held by Purchaser, Sub, Universal International or any other wholly-owned
subsidiary of Purchaser, Company or any wholly-owned subsidiary of Company which
shall have been canceled, or Dissenting Shares) shall represent for all purposes
the right to receive the Merger Consideration in cash multiplied by the number
of shares of Company Common Stock evidenced by such Certificate, without any
interest thereon.
(c) RETURN OF UNCLAIMED FUNDS. Any cash provided to the
Exchange Agent pursuant to this Section 2.5 and not exchanged for Certificates
within six months after the Effective Time will be returned by the Exchange
Agent to the Surviving Corporation, which thereafter will act as Exchange Agent.
Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto
shall be liable to a holder of shares of Company Common Stock for any Merger
Consideration delivered to a public official pursuant to applicable abandoned
property, escheat and similar laws.
2.6. NO FURTHER RIGHTS OR TRANSFERS. At and after the Effective
Time, each holder of a Certificate that represented issued and outstanding
shares of Company Common Stock immediately prior to the Effective Time shall
cease to have any rights as a stockholder of
6
<PAGE>
Company, except for the right to surrender his or her Certificate or
Certificates in exchange for the payment provided pursuant to Section 2.3 hereof
or to perfect his or her right to receive payment for his or her Shares pursuant
to Section 262 of the Delaware Law and Section 2.4 hereof if such holder has
validly exercised and perfected and not withdrawn his or her right to receive
payment for his or her shares of Company Common Stock, and there shall be no
transfers on the stock transfer books of the Surviving Corporation of the shares
of Company which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates formerly representing shares of Company
Common Stock are presented to the Surviving Corporation, they shall be canceled
and exchanged for cash as provided in this Section 2.6, subject to applicable
laws in the case of Dissenting Shares.
2.7. STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of Company shall be closed and no transfer of Company Common
Stock shall thereafter be made.
2.8. STOCKHOLDERS' MEETINGS. Purchaser and Company shall cooperate
in soliciting proxies, if required, from the stockholders of Company in favor
of approval of this Agreement and of the Merger pursuant to the terms of a proxy
statement (the "Proxy Statement") prepared and filed in accordance with Section
6.4 hereof.
2.9. FILING OF MERGER DOCUMENTS. As soon as practicable after the
requisite approvals of the stockholders of Company have been obtained as
provided in Section 2.9 hereof, and each other condition to the obligations of
Company, Purchaser and Sub hereunder has been satisfied or waived, Company and
Sub will deliver the Certificate of Merger for filing with the Secretary of
State of the State of Delaware, and Company, Purchaser and Sub will take such
other actions as may be required by the Delaware Law in connection with such
filing and the consummation of the Merger.
2.10. RELATED AGREEMENT. Each of the Principal Stockholders have
executed and delivered to Purchaser a separate agreement pursuant to which they
(i) agree to vote the shares of Company Common Stock held by them in favor of
this Agreement and the Merger at the Stockholders meeting called for that
purpose and have granted a proxy to Purchaser to do the same in their place and
stead, and (ii) agree not to sell, transfer, hypothecate or otherwise dispose of
any of their shares of Company Common Stock held by them as of the date hereof
until the earlier to occur of termination of this Agreement or the Effective
Time, except as expressly provided for therein. For purposes of this section,
"Principal Stockholders" shall mean all directors, executive officers and
holders of more than 5% of the Company Common Stock.
3. CLOSING DATE. The Closing of the Merger (the "Closing") shall, unless
another date or place is agreed to in writing by the parties, take place at the
offices of Troop Meisinger Steuber & Pasich, LLP, 10940 Wilshire Boulevard, Los
Angeles, California 90024 (except for the filing of the Certificates of Merger,
which shall take place in the office of the Secretary of State of the State of
Delaware) on the second business day following the satisfaction or waiver of all
conditions precedent to the Merger, including those set forth in Sections 7, 8
and 9 of this Agreement. The date of the Closing is referred to in this
Agreement as the "Closing Date."
7
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF COMPANY. Except as set forth in the
disclosure letter delivered at or prior to the execution of this Agreement by
Company, which shall refer to the relevant Sections of this Agreement (the
"Company Disclosure Letter"), Company represents and warrants to and agrees with
Purchaser and Sub as follows:
4.1. ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Company is qualified, licensed or domesticated as a
foreign corporation and is in good standing in all jurisdictions where the
character of its properties owned or held under lease or the nature of its
activities make such qualification necessary, except where the failure to be so
qualified, licensed or domesticated would not have a Material Adverse Effect on
Company. Company has all requisite power and authority and all requisite
licenses, permits and franchises necessary to own, lease and operate its
properties and assets and to carry on its business in the manner and in the
locations as presently conducted, except where the failure to do so would not
have a Material Adverse Effect on Company. Copies of the Certificate of
Incorporation (as certified by the Delaware Secretary of State) and Bylaws of
Company have been delivered to Purchaser and are accurate and complete as of the
date hereof.
4.2. AUTHORIZATION. Company has the requisite corporate power and
authority to enter into and carry out the terms and conditions of this Agreement
and all the transactions contemplated hereunder. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by Company's Board of Directors and, other than the
Stockholder approval required pursuant to Section 6.3 hereof, all corporate
proceedings have been taken and no other corporate proceedings on the part of
Company are necessary to authorize the execution, delivery and performance by
Company of this Agreement. This Agreement has been duly executed and delivered
by Company and constitutes the valid and binding obligations of Company,
enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting creditors' rights generally from time to
time in effect and except that equitable remedies may not in all cases be
available (regardless of whether enforceability is considered in a proceeding at
law or in equity) (collectively, the "Remedies Exception"). The execution,
delivery and performance of this Agreement by Company will not conflict with or
constitute a breach, violation or default under Company's Certificate of
Incorporation or Bylaws, any statute, law or administrative regulation, or under
any judgment, decree, order, writ, governmental permit or license, any material
contract, agreement, lease, indenture or instrument to which Company or any of
its Subsidiaries is a party or by which Company or any of its Subsidiaries is
bound.
4.3. NO CONSENTS. No consent, authorization, order or approval of,
or filing with or registration with, any governmental authority, commission,
board or other regulatory body of the United States or any state or political
subdivision thereof, or any other Person, is required to be made or obtained by
Company for or in connection with the execution and delivery by Company of this
Agreement and the consummation by Company of the transactions contemplated
hereby.
8
<PAGE>
4.4. CAPITAL STOCK. The authorized capital stock of Company
consists of 20,000,000 shares of Company Common Stock, par value $0.07 per
share. As of the date hereof, (i) there are 4,724,048 shares of Company Common
Stock issued and outstanding, all of which are duly authorized, validly issued,
fully paid and non-assessable and were not issued in violation of any preemptive
rights or any federal or state securities laws, and (ii) no shares of Company
Common Stock are held by Subsidiaries of Company. As of the date hereof, there
are (i) no options, warrants, purchase rights, calls, subscriptions, convertible
securities or other rights, (including preemptive rights), agreements,
understandings, arrangements or commitments of any character obligating the
Company now or at any time in the future to issue or sell any of its capital
stock or other equity interests of Company or any of its Subsidiaries
(including, without limitation, options or rights that may be issued and
outstanding under any Company stock option plan), and no shares of Company
Common Stock are reserved for future issuance for such purpose, (ii) there are
no obligations, contingent or otherwise, of Company or any of its Subsidiaries,
to repurchase, redeem or otherwise acquire any shares of capital stock or other
equity interests of Company or any of its Subsidiaries or to provide funds or to
make any investment (in the form of a loan, capital contribution or otherwise)
in any Subsidiary or another entity, other than guarantees of bank obligations
of Subsidiaries entered into in the ordinary course of business, (iii) there are
no outstanding bonds, debentures, notes or other obligations of Company the
holders of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the Stockholders on
any matter, (iv) there are no obligations, contingent or otherwise, guaranteeing
the value of any of the shares of Company Common Stock or any of its
Subsidiaries either now or at any time in the future, and (v) there are no
voting trusts, proxies or other agreements or understandings to which Company is
a party or is bound with respect to the voting of any capital stock or other
equity interests of Company or any of its Subsidiaries.
4.5. SUBSIDIARIES. The Company Disclosure Letter sets forth a true
and correct list of each Subsidiary of Company as of the date hereof. All of
the outstanding capital stock of each such Subsidiary is owned entirely by
Company or by a Subsidiary of Company, as the case may be, as of the date
hereof, free and clear of all liens, charges, pledges, security interests or
other encumbrances, except for restrictions on transfer imposed by applicable
securities laws. All such shares of capital stock have been duly authorized and
validly issued and are fully paid and nonassessable. There are no agreements,
understandings or undertakings governing the rights and duties of Company or any
Subsidiary of Company as a stockholder of any Subsidiary, including, without
limitation, any agreement, arrangement or understanding under which Company is
or may become obligated, directly or indirectly, to acquire or dispose of any
equity interest in, make any capital contribution or extend credit to, or act as
guarantor, surety or indemnitor for any liability of any Subsidiary. Each such
Subsidiary is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization, has the corporate power and authority
to carry on its business as it is now being conducted and is duly qualified to
do business and is in good standing in all jurisdictions where the failure to be
so qualified would have a Material Adverse Effect on Company. Other than its
Subsidiaries, Company has no interest in any corporation, joint venture,
partnerships or other business enterprise.
9
<PAGE>
4.6. SEC REPORTS AND FINANCIAL STATEMENTS. From and after January
1, 1994, Company and each subsidiary subject to the periodic reporting
requirements under the Exchange Act has filed with the SEC all forms, reports,
registration statements, proxy statements and other documents (collectively, the
"Company Reports") required to be filed by Company under the Securities Act, the
Exchange Act, and the rules and regulations promulgated thereunder
(collectively, the "Securities Laws"). Company has heretofore furnished
Purchaser with true and complete copies of all Company Reports filed as of the
date hereof. As of their respective dates, or, in the case of registration
statements, as of their effective dates, all of the Company Reports, including
all exhibits and schedules thereto and all documents incorporated by reference
therein, (i) complied as to form in all material respects with the requirements
of the Securities Laws applicable thereto, and (ii) did 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, in light of the
circumstances under which they were made, not misleading. Company has filed
with the SEC all documents and agreements which were required to be filed as
exhibits to the Company Reports. The audited consolidated financial statements
and unaudited interim consolidated financial statements of Company included or
incorporated by reference in Company Reports (collectively, the "Company
Financial Statements") have been prepared in accordance with GAAP applied on a
consistent basis in accordance with Company's historical practices which
practices conform to GAAP (except as may be indicated therein or in the notes
thereto) and fairly present the financial position of Company as of and at the
dates thereof and the results of operations and cash flows for the periods then
ended, subject in the case of the unaudited interim financial statements, to
normal, recurring year-end adjustments and any other adjustments described
therein, which were not and are not expected to be material in amount or effect.
Except as set forth or reflected in Company Financial Statements at December 31,
1996, or as set forth in the unaudited balance sheets included in the Company
Reports since that date, neither Company nor any of its Subsidiaries, has any
liabilities or obligations of any kind or nature (whether accrued, absolute,
contingent or otherwise) which would be required to be reflected or reserved
against in any balance sheet of Company or any of its Subsidiaries, or in the
notes thereto, prepared in accordance with GAAP consistently applied.
4.7. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
Company Reports filed with the SEC prior to the date hereof, since September 30,
1997, Company and its Subsidiaries each has conducted its business in all
material respects in the ordinary and usual course consistent with past
practice, and there has not been (a) any event or occurrence which could result
in a Material Adverse Effect on Company, (b) any material change in accounting
methods, principles and practices by Company and its Subsidiaries (except for
any such changes required by reason of a concurrent change in GAAP or to conform
a Subsidiary's accounting methods, principles or practices to those of Company),
(c) any damage, destruction or loss, whether covered by insurance or not, having
a Material Adverse Effect on Company, (d) any entry by Company or any of its
Subsidiaries into any commitment or transaction material to Company which is not
in the ordinary course of business consistent with past practice, (e) any
declaration, payment or setting aside for payment of any dividends, or (f) any
grant to any officer or director of any increase in compensation (other than
periodic salary increases not in excess of 10% made in the ordinary course of
business consistent with past practice or increases resulting
10
<PAGE>
from job promotions or expansions of employment responsibilities), or any loan
to any officer or director, or any adoption, amendment in any material respect
or termination of any bonus, profit sharing, stock option, employee stock
ownership, pension, retirement, deferred compensation, employment or consulting
or other plan, agreement or arrangement for the benefit of employees of Company.
4.8. LITIGATION. Company has disclosed in the Company Disclosure
Letter all information in its possession or custody or under its control with
respect to litigation pending as of the date hereof. Except as set forth in the
Company Disclosure Letter, Company has no litigation pending as of the date
hereof. To the best of Company's knowledge, the ultimate liability for damages
arising from such litigation (based upon assumptions that Company believes in
good faith to be reasonable under the circumstances) is either adequately
reserved against in the Company Financial Statements at December 31, 1996 or in
the unaudited balance sheets included in the Company Reports since that date or
will not have a Material Adverse Effect on Company. Except as set forth in
Company Disclosure Letter, there are no actions, suits or proceedings of any
nature pending, or, to the knowledge of Company, threatened, against or by
Company or any of its properties, assets or business, nor is Company or any of
its properties, assets or business, subject to any order, judgment, ruling, or
decree of any competent authority, which would have, or is reasonably likely to
have, a Material Adverse Effect on Company. Company has not received notice of
violation of any applicable statute, regulation, code, ordinance, rule, order,
judgment, decree or requirement relating to its operations or its owned or
leased properties and to Company's knowledge, no such violation exists, in each
case, other than a violation which would not have a Material Adverse Effect on
Company.
4.9. PROPERTIES, ENCUMBRANCES. Company and its Subsidiaries have
good and marketable title in fee simple to, or a valid leasehold interest in,
each of the real properties reflected on the Company Financial Statements or
which have been acquired after the date thereof or used by them as of the date
hereof (collectively, the "Company Properties"), in each case, free and clear of
all liens, mortgages or deeds of trust, claims against title, security interests
or other encumbrances on title ("Liens") or any rights of way, written
agreements, laws, ordinances or regulations affecting the use or occupancy of
such properties, or any reservations of an interest in title ("Restrictions")
except Liens and Restrictions included in the Company Disclosure Letter.
4.10. COMPLIANCE WITH APPLICABLE LAW. The businesses of Company and
its Subsidiaries are not being conducted in violation of any applicable law,
ordinance, regulation, decree or order of any governmental entity. Neither
Company nor any Company Subsidiary is a party to or subject to any judgment,
decree, or order entered in any suit or proceeding brought by any governmental
agency or by any other person, enjoining Company or any Company Subsidiary with
respect to any business practice, the acquisition of any property, or the
conduct of business in any area.
4.11. NO BROKERS. Neither Company nor any Company Subsidiary has
entered into any contract, arrangement or understanding with any Person or firm
which may result in the obligation of Company, the Surviving Corporation or
Purchaser to pay any finder's fee, brokerage
11
<PAGE>
or agent's commissions or other like payments in connection with the
negotiation, execution or performance of this Agreement and Company is not aware
of any claim for any such payment.
4.12. PROXY STATEMENT. None of the information supplied by Company
for inclusion in the Proxy Statement, at the time of the mailing thereof to the
Company Stockholders and at the time of the Company Stockholders meeting,
contains 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,
in light of the circumstances under which they were made, not misleading.
4.13. INFORMATION. All written information provided to Purchaser or
its respective agents by or on behalf of Company or any of its representatives
(including, without limitation, each representation and warranty of Company set
forth in this Agreement) is, and Company covenants that any such information
provided hereafter shall be, true and correct in all material respects and does
not, or shall not, omit any material fact required to be included therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Except as set forth in
the disclosure letter delivered at or prior to the execution of this Agreement
by Purchaser, which shall refer to the relevant Sections of this Agreement (the
"Purchaser Disclosure Letter"), Purchaser and Sub jointly and severally
represent, warrant, covenant and agree with Company as follows:
5.1. ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
Purchaser is qualified, licensed or domesticated as a foreign corporation and is
in good standing in all jurisdictions where the character of its properties
owned or held under lease or the nature of its activities make such
qualification necessary, except where the failure to be so qualified, licensed
or domesticated would not have a Material Adverse Effect on Purchaser. Sub has
not conducted any business prior to the date hereof and has no material assets
and liabilities other than those incident to its formation. Purchaser has all
requisite power and authority and all requisite licenses, permits and franchises
necessary to own, lease and operate its properties and assets and to carry on
its business in the manner and in the locations as presently conducted, except
where the failure to do so would not have a Material Adverse Effect on
Purchaser. Copies of the Articles of Incorporation (as certified by the
California Secretary of State and the Delaware Secretary of State, respectively)
and Bylaws of each of Purchaser and Sub have been delivered to Company and are
accurate and complete as of the date hereof.
5.2. AUTHORIZATION. Each of Purchaser and Sub has the requisite
corporate power and authority to enter into and carry out the terms and
conditions of this Agreement and all the transactions contemplated hereunder.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by Purchaser's and
Sub's Board of Directors and all corporate proceedings have been taken and no
other corporate proceedings on the part of Purchaser and Sub are necessary to
authorize the
12
<PAGE>
execution, delivery and performance by each of Purchaser and Sub of this
Agreement. This Agreement has been duly executed and delivered by each of
Purchaser and Sub and constitutes the legal, valid and binding obligations of
each of Purchaser and Sub, enforceable in accordance with its terms, subject to
the Remedies Exception. The execution, delivery and performance of this
Agreement by each of Purchaser and Sub will not conflict with or constitute a
breach, violation or default under Purchaser's or Sub's Articles of
Incorporation or Bylaws, any statute, law or administrative regulation, or under
any judgment, decree, order, writ, governmental permit or license, any material
contract, agreement, lease, indenture or instrument to which Purchaser or Sub or
any of the Subsidiaries of Purchaser is a party or by which Purchaser or any of
the Subsidiaries of Purchaser is bound, which breach, violation or default would
have a Material Adverse Effect on Purchaser.
5.3. NO CONSENTS. No consent, authorization, order or approval of,
or filing with or registration with, any governmental authority, commission,
board or other regulatory body of the United States or any state or political
subdivision thereof, or any other Person, is required to be made or obtained by
Purchaser or Sub for or in connection with the execution and delivery by
Purchaser and Sub of this Agreement and the consummation by Purchaser and Sub of
the transactions contemplated hereby, the absence of which would have a Material
Adverse Effect on Purchaser, other than the filing of the Certificate of Merger
with the Delaware Secretary of State, and compliance with the Securities Laws.
5.4. SEC REPORTS. Purchaser has filed with the SEC all forms,
reports, registration statements, proxy statements and other documents
(collectively, the "Purchaser Reports") required to be filed by Purchaser under
the Securities Laws, except failures to file which, individually or
collectively, do not have a Material Adverse Effect on Purchaser. As of their
respective dates, or, in the case of registration statements, as of their
effective dates, all of Purchaser Reports, including all exhibits and schedules
thereto and all documents incorporated by reference therein, (i) complied as to
form in all material respects with the requirements of the Securities Laws
applicable thereto, and (ii) did 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, in light of the circumstances under which they
were made, not misleading. Purchaser has filed with the SEC all documents and
agreements which were required to be filed as exhibits to Purchaser Reports,
except failures to file, if any, which, individually or collectively, do not
have a Material Adverse Effect on Purchaser. The audited consolidated financial
statements and unaudited interim consolidated financial statements of Purchaser
included or incorporated by reference in Purchaser Reports (collectively, the
"Purchaser Financial Statements") have been prepared in accordance with GAAP
applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and fairly present the financial position of Purchaser as of and
at the dates thereof and the results of operations and cash flows for the
periods then ended, subject in the case of the unaudited interim financial
statements, to normal, recurring year-end adjustments and any other adjustments
described therein, which were not and are not expected to be material in amount
or effect. Except as set forth or reflected in Purchaser Financial Statement at
September 30, 1997, or as set forth in the unaudited balance sheets included in
Purchaser Reports since that date, neither Purchaser nor any of its
Subsidiaries, has any liabilities or obligations of any kind
13
<PAGE>
or nature (whether accrued, absolute, contingent or otherwise) which would be
required to be reflected or reserved against in any balance sheet of Purchaser
or any of its Subsidiaries, or in the notes thereto, prepared in accordance with
GAAP consistently applied, except liabilities since September 30, 1997, either
(i) in the ordinary course of business or (ii) which, individually or
collectively, would not have a Material Adverse Effect on Purchaser.
5.5. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Purchaser Reports filed with the SEC prior to the date hereof, since
September 30, 1997, Purchaser and its Subsidiaries have conducted their business
in all material respects in the ordinary and usual course consistent with past
practice, and there has not been (a) any event or occurrence which could result
in a Material Adverse Effect on Purchaser, (b) any material change in accounting
methods, principles and practices by Purchaser and its Subsidiaries (except for
any such changes required by reason of a concurrent change in GAAP or to conform
a Subsidiary's accounting methods, principles or practices to those of
Purchaser), (c) any damage, destruction or loss, whether covered by insurance or
not, having a Material Adverse Effect on Purchaser, (d) any entry by Purchaser
or any of its Subsidiaries into any commitment or transaction material to
Purchaser which is not in the ordinary course of business consistent with past
practice, or (e) any declaration, payment or setting aside for payment of any
dividends.
5.6. LITIGATION. Purchaser has disclosed in the Purchaser
Disclosure Letter all information in its possession or custody or under its
control with respect to litigation pending as of the date hereof. Except as set
forth in the Purchaser Disclosure Letter, Purchaser has no material litigation
pending as of the date hereof. To the best of Purchaser's knowledge, the
ultimate liability for damages arising from such litigation (based upon
assumptions that Purchaser believes in good faith to be reasonable under the
circumstances) is either adequately reserved against in the Purchaser Financial
Statement at December 31, 1996 or in the unaudited balance sheets included in
Purchaser Reports since that date or will not have a Material Adverse Effect on
Purchaser. Except as set forth in Purchaser Disclosure Letter, there are no
actions, suits or proceedings of any nature pending, or, to the knowledge of
Purchaser, threatened, against or by Purchaser or any of its properties, assets
or business, nor is Purchaser or any of its properties, assets or business,
subject to any order, judgment, ruling, or decree of any competent authority,
which would have, or is reasonably likely to have, a Material Adverse Effect on
Purchaser. Purchaser has not received notice of violation of any applicable
statute, regulation, code, ordinance, rule, order, judgment, decree or
requirement relating to its operations or its owned or leased properties and to
Purchaser's knowledge, no such violation exists, in each case, other than a
violation which would not have a Material Adverse Effect on Purchaser.
5.7. COMPLIANCE WITH APPLICABLE LAW. The businesses of Purchaser
and its Subsidiaries are not being conducted in violation of any applicable law,
ordinance, regulation, decree or order of any governmental entity, except for
violations which either singly or in the aggregate do not and are not expected
to have a Material Adverse Effect on Purchaser. Neither Purchaser nor any
Purchaser Subsidiary is a party to or subject to any judgment, decree, or order
entered in any suit or proceeding brought by any governmental agency or by any
other person,
14
<PAGE>
enjoining Purchaser or any Purchaser Subsidiary with respect to any business
practice, the acquisition of any property, or the conduct of business in any
area.
5.8. NO BROKERS. Neither Purchaser nor any of its Subsidiaries has
entered into any contract, arrangement or understanding with any Person or firm
which may result in the obligation of Purchaser, the Surviving Corporation or
Company to pay any finder's fee, brokerage or agent's commissions or other like
payments in connection with the negotiation, execution or performance of this
Agreement and Purchaser is not aware of any claim for any such payment.
5.9. PROXY STATEMENT. None of the information supplied by Purchaser
for inclusion or incorporation by reference in the Proxy Statement will, at the
time of the mailing thereof to the stockholders of Company and at the time of
such stockholders meeting, 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, in light of the circumstances under which they were
made, not misleading.
5.10. INFORMATION. All written information provided to Company or
its agents by or on behalf of Purchaser or any of its representatives
(including, without limitation, each representation and warranty of Purchaser
set forth in this Agreement) is, and Purchaser covenants that any such
information provided hereafter shall be, true and correct in all material
respects and does not, or shall not, omit any material fact required to be
included therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
6. PRE-MERGER COVENANTS OF PURCHASER AND COMPANY. Each of Purchaser and
Company covenants and agrees with the other that:
6.1. CONDUCT OF BUSINESS BY COMPANY. During the period from the
date of this Agreement until the earlier to occur of the termination of this
Agreement or the Effective Time, except as contemplated by this Agreement,
unless Purchaser has consented in writing thereto, Company (i) shall, and shall
cause each of its Subsidiaries to, conduct its operations only in, and Company
and its Subsidiaries shall not take any action except in, the ordinary course of
business and in a manner consistent with past practice, and (ii) shall use its
reasonable commercial efforts, and shall cause each of its Subsidiaries to use
its reasonable commercial efforts, to preserve intact its respective business
organizations and goodwill, keep available the services of its respective
officers and employees and maintain satisfactory relationships with those
persons having business relationships with it, and (iii) shall confer on a
regular basis with one or more representatives of Purchaser to report
operational matters of materiality and any proposals to engage in any material
transactions. By way of amplification and not limitation, and except as noted
above, neither Company nor any of its Subsidiaries shall, during the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, directly or indirectly, do, or propose
to do, any of the following without the prior written consent of Purchaser:
15
<PAGE>
(a) amend or otherwise change its Articles of Incorporation or
Bylaws;
(b) split, combine, reclassify or amend the terms of any of its
capital stock;
(c) declare, set aside or pay any dividend or distribution
payable in cash, stock or property or any combination thereof with respect to
shares of its capital stock;
(d) authorize, issue, sell, pledge, encumber or agree to
authorize, issue, sell, pledge or encumber any additional shares of its capital
stock of any class or any other securities in respect of, in lieu of or in
substitution of Company Common Stock outstanding as of the date hereof or any
options, warrants, conversion rights or other rights to acquire capital stock of
Company or any of its Subsidiaries;
(e) redeem or otherwise acquire any of its outstanding equity
securities or any outstanding options or rights to purchase any such equity
securities or make any commitment to take such action;
(f) accelerate, amend or change (or permit any acceleration,
amendment or change of) the period of exercisability of any Company Purchase
Right or authorize cash payments in exchange for any Company Purchase Right
(other than pursuant to the express terms of such Company Purchase Right);
(g) sell, pledge, dispose of or encumber any material assets of
Company or any of its Subsidiaries, except in the ordinary course of business
consistent with past practice;
(h) acquire (by merger, consolidation or acquisition of stock
or assets) any corporation, partnership or any other business organization or
division thereof;
(i) incur any indebtedness for borrowed money, or assume,
guarantee or otherwise as an accommodation become responsible for, the
obligations of any other person or entity (in the case of any such indebtedness,
Purchaser's consent shall not be unreasonably withheld or delayed);
(j) authorize any capital expenditures or purchase of fixed
assets for Company and its Subsidiaries which are in the aggregate more than
$10,000;
(k) increase the compensation or benefits payable or to become
payable to its officers or employees, except in amounts consistent with past
practices; or grant any severance or termination pay to, or enter into any
employment or severance agreement with, any director, officer or other employee
of Company or any of its Subsidiaries; or establish any collective bargaining,
bonus, profit sharing, compensation, stock option, pension, retirement,
16
<PAGE>
deferred compensation, employment or consulting or other plan, agreement, trust,
fund, plan, policy or arrangement for the benefit of any current or former
directors, officers or employees;
(l) take any action to change accounting policies or
procedures;
(m) make any material tax election inconsistent with past
practices or settle or compromise any material federal, state, local or foreign
tax liability;
(n) pay, discharge or satisfy any material claims, liabilities
or obligations other than in the ordinary course of business and consistent with
past practices;
(o) take or agree to take, any action which would cause a
material breach of any of the representations or warranties of Company contained
in this Agreement or prevent Company from performing or cause Company not to
perform its covenants hereunder in any material respect; or
(p) submit any matters to the Stockholders for a vote prior to
the Closing other than the Merger.
6.2. INSPECTION OF RECORDS. From the date hereof to the earlier to
occur of the termination of this Agreement and the Effective Time, Company shall
allow the duly authorized and appropriate officers, attorneys, accountants and
other representatives of the other access at all reasonable times to the records
and files, correspondence, audits and properties, as well as to all information
relating to commitments, contracts, titles and financial position, or otherwise
pertaining to, the business and affairs of Company and its Subsidiaries.
6.3. STOCKHOLDER APPROVAL. In order to consummate the Merger,
Company, acting through the Board, shall, in accordance with applicable law and
Company's Certificate of Incorporation and Bylaws, (i) duly call, give notice
of, convene and hold a special meeting of its stockholders as soon as
practicable for the purpose of considering and taking action on this Agreement
and the Merger and (ii), (A) include in the Proxy Statement the unanimous
recommendation of the Board that the holders of the Shares approve and adopt
this Agreement and the Merger and (B) use its reasonable efforts to obtain such
approval and adoption of the holders of shares of Company Common Stock. At the
stockholders' meeting, Purchaser and Sub shall cause all shares of Company
Common Stock then owned directly or indirectly by them and their subsidiaries to
be voted in favor of the approval and adoption of this Agreement and the Merger.
6.4. PROXY STATEMENT. As promptly as reasonably practicable,
Company shall file the Proxy Statement with the SEC under the Exchange Act, and
shall use its reasonable efforts to have the Proxy Statement cleared by the SEC.
Purchaser, Sub and Company shall cooperate with each other in the preparation of
the Proxy Statement, and Company shall notify Purchaser of the receipt of any
comments of the SEC with respect to the Proxy Statement and of any requests by
the SEC for any amendment or supplement thereto or for additional information
and shall provide to Purchaser promptly copies of all correspondence between
Company or any
17
<PAGE>
representative of Company and the SEC. Company shall give Purchaser and its'
counsel the reasonable opportunity to review the Proxy Statement prior to its
being filed with the SEC and shall give Purchaser and its counsel the
opportunity to review all amendments and supplements to the Proxy Statement and
all responses to requests for additional information and replies to comments
prior to their being filed with, or sent to, the SEC. Each of Purchaser, Sub
and Company agrees to use its reasonable efforts, after consultation with the
other parties hereto, to respond promptly to all such comments of, and requests
by, the SEC and to cause the Proxy Statement and all required amendments and
supplements thereto to be mailed to the holders of shares of Common Stock
entitled to vote at the Company stockholders meeting at the earliest practicable
time.
6.5. EXPENSES. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses except as
expressly provided herein and except that the filing fee in connection with the
filing of the Proxy Statement with the SEC and the expenses incurred in
connection with printing and mailing the Proxy Statement, shall be paid by
Purchaser.
6.6. FILINGS; OTHER ACTION. Subject to the terms and conditions
herein provided, Company and Purchaser shall use all reasonable efforts to
cooperate with one another in (i) determining which filings are required to be
made prior to the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from
states and foreign jurisdictions in connection with the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
and (ii) timely making all such filings and timely seeking all such consents,
approvals, permits or authorizations; and 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
transactions contemplated by this Agreement. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purpose of this Agreement, the proper officers and directors of Purchaser and
Company shall take all such necessary action.
6.7. PUBLICITY. The initial press release relating to this
Agreement shall be a joint press release in a form mutually agreeable to
Purchaser and Company, and Purchaser and Company shall, subject to their
respective legal obligations of public companies, use reasonable efforts to
agree upon the text of any other press release before issuing any such press
release or otherwise making public statements with respect to the transactions
contemplated hereby and in making any filings with any federal or state
governmental or regulatory agency or with any national securities exchange with
respect thereto.
6.8. INDEMNIFICATION. From and after the Effective Time, Purchaser
shall cause the Surviving Corporation to, and the Surviving Corporation shall,
include as part of its Certificate of Incorporation and Bylaws provisions
relating to the indemnification of all current and former directors, officers,
employees and agents of Company which are substantially similar to the
provisions contained in Company's Certificate of Incorporation and Bylaws. Such
18
<PAGE>
provisions shall not be amended, repealed or otherwise modified after the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who at any time prior to the Effective Time were directors,
officers, employees or agents of Company in respect to actions or omissions
occurring at or prior to the Effective Time (including, without limitation,
actions or omissions which occur in connection with the transactions
contemplated by this Agreement), unless such modification is required by law.
6.9 ACQUISITION PROPOSALS. Prior to the Effective Time, Company
agrees (a) that neither it nor any of its Subsidiaries shall, and it shall
direct and use its best efforts to cause its officers, directors, employees,
agents and representatives (including, without limitation, any investment
banker, attorney or accountant retained by it or any of its Subsidiaries) not
to, initiate, solicit or encourage, directly or indirectly, any inquiries or the
making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its Stockholders) with respect to a merger,
acquisition, consolidation or similar transaction involving, or any purchase of
all or any significant portion of the assets or any equity securities of, the
Company or any of its Subsidiaries (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal") or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal;
(b) that it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing and will take the necessary steps to inform
the individuals or entities referred to above of the obligations undertaken in
this Section 6.9; and (c) that it will notify Purchaser immediately if any such
inquiries or proposals are received by, any such information is received from,
or any such negotiations or discussions are sought to be initiated or continued
with, it; PROVIDED, HOWEVER, that nothing contained in this Section 6.9 shall
prohibit the Board of Directors of the Company from (i) furnishing information
to or entering into discussions or negotiations with, any person or entity that
makes an unsolicited bona fide proposal to acquire the Company pursuant to a
merger, consolidation, share exchange, purchase of a substantial portion of the
assets, business combination or other similar transaction, if, and only to the
extent that (A) the Board of Directors determines in good faith that such action
is required for the Board of Directors to comply with its fiduciary duties to
stockholders imposed by law, (B) the Board of Directors has received a legal
opinion from its counsel that such action is required for the Board of Directors
to comply with its fiduciary duties to stockholders imposed by law, (C) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person or entity, Company provides written notice to the effect that
it is furnishing information to, or entering into discussions or negotiations
with, such person or entity, and (D) subject to any confidentiality agreement
with such person or entity (which such party determined in good faith was
required to be executed in order for the Board of Directors to comply with its
fiduciary duties to stockholders imposed by law), Company keeps Purchaser
informed of the status (not the terms) of any such discussions or negotiations;
and (ii) to the extent applicable, complying with Rule 14e-2 promulgated under
the Exchange Act with regard to an Acquisition Proposal. Nothing in this
Section 6.9 shall (x) permit any party to terminate this Agreement (except as
specifically provided in Section 10 hereof), (y) permit any party to enter into
any agreement with respect to an Acquisition Proposal during the term of this
19
<PAGE>
Agreement (it being agreed that during the term of this Agreement, no party
shall enter into any agreement with any person that provides for, or in any way
facilitates, an Acquisition Proposal (other than a confidentiality agreement in
customary form)), or (z) affect any other obligation of any party under this
Agreement.
7. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following condition:
7.1. STOCKHOLDER APPROVAL. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of Company
to the extent required by Delaware Law and the Certificate of Incorporation of
Company.
8. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PURCHASER AND SUB. All
obligations of Purchaser and Sub under this Agreement are subject to the
fulfillment at or prior to the Closing of the following additional conditions,
any of which may be waived in writing in whole or in part by Purchaser:
8.1. REPRESENTATIONS, COVENANTS, CERTIFICATE. Company shall have
performed in all material respects its agreements contained in this Agreement
required to be performed on or prior to the Effective Time, and the
representations and warranties of Company herein contained shall be true in all
material respects as of the date of this Agreement and the Effective Time.
8.2. PERMITS AND APPROVALS. All material filings, registrations,
covenants, permits, authorizations and regulatory approvals of governmental
authorities necessary for the consummation of the Merger shall have been duly
obtained or made and shall be in full force and effect.
8.3. NO ADVERSE CHANGE. There shall not have occurred any change in
the financial condition, business or operations of Company and its subsidiaries
that would have or would be reasonably likely to have a Material Adverse Effect
on Company.
8.4. CERTAIN LEGAL MATTERS. There shall not have been any statute,
rule, regulation or order promulgated, enacted, entered, enforced or deemed
applicable to the Merger by any United States federal or state government or
governmental authority, nor shall there be in effect an order or judgment
entered by any United States federal or state court, which (i) would make the
consummation of the Merger illegal or would materially delay the Effective Time,
(ii) would require the divestiture by Purchaser, Company or any of their
respective Subsidiaries of any of the shares of Company Common Stock or of a
material portion of the business, assets, or property of either Purchaser or any
of its Subsidiaries, or of Company or any of its Subsidiaries, or impose any
material limitation on the ability of any of them to conduct their respective
businesses and own their respective assets or property, or (iii) impose any
limitations on the ability
20
<PAGE>
of Purchaser, directly or indirectly, to control in any material respect the
business or operations of Company, or any of its Subsidiaries.
8.5. CERTIFICATE. Purchaser shall have received a certificate of
Company dated the Effective Time, signed by a senior officer of Company,
certifying that (i) all representations and warranties of Company were true and
correct in all material respects when made and are true and correct in all
material respects on the Effective Time as if made on the Effective Time, and
(ii) Company has performed and complied in all material respects with all
covenants and agreements required in this Agreement to be performed or complied
with by it on or prior to the Effective Time.
8.6. TENDER FOR UNIVERSAL INTERNATIONAL. Purchaser shall have
completed its tender offer for shares of Universal International and shall have
acquired a number of shares of common stock of Universal International such
that, when added to the shares it owned prior to the commencement of the tender
offer, it shall own at least eighty percent (80%) of the issued and outstanding
common stock of Universal International.
9. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF COMPANY. All obligations
of Company under this Agreement are subject to the fulfillment at or prior to
the Closing of the following additional condition, which may be waived in
writing, in whole or in part, by Company:
9.1. NO LEGAL ACTION. No preliminary or permanent injunction or
other order, decree or ruling issued by any court of competent jurisdiction, or
by any governmental, administrative or regulatory agency or commission, in the
United States preventing the consummation of the Merger shall be in effect.
10. TERMINATION.
10.1. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding the approval thereof by the
stockholders of Company or Purchaser:
(a) By Purchaser, if any material condition to the
obligations of Purchaser set forth in Section 7 or 8 is not substantially
satisfied at the time or times contemplated thereby and such condition is not
waived by Purchaser or, by Company, if any material condition to the obligations
of Company set forth in Section 7 or 9 is not substantially satisfied at the
time or times contemplated thereby and such condition is not waived by Company.
Each party's right to terminate under this Section 10.1.(a) shall relate only to
conditions to that party's obligations;
(b) By Purchaser, upon a breach of any representation,
warranty, covenant or agreement on the part of the Company set forth in this
Agreement such that the conditions to the obligations of Purchaser set forth
herein would not be satisfied;
21
<PAGE>
(c) By either Purchaser or Company if the Merger shall not
have been consummated on or before December 31, 1998;
(d) By either Purchaser or Company if a court of competent
jurisdiction or governmental, regulatory or administrative agency or commission
shall have issued a non-appealable final order, degree or ruling or taken any
other action, in each case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger;
(e) By mutual written consent of Company and Purchaser
authorized by their respective Boards of Directors.
10.2. EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 10.1, this Agreement shall become void and of no effect with
no liability on the part of any party hereto, except that (a) the agreement
contained in Section 6.5 shall survive the termination hereof and (b) if
termination of this Agreement shall be judicially determined to have been caused
by willful breach of this Agreement, then, in addition to other remedies at law
or equity for breach of this Agreement, the party so found to have willfully
breached this Agreement shall indemnify the other parties for their respective
costs, fees and expenses of their counsel, accountants and other experts and
advisors as well as fees and expenses incident to negotiation, preparation and
execution of this Agreement and related documentation.
11. MISCELLANEOUS PROVISIONS.
11.1. NOTICES. All notices, demands or other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered in person, on the date actually given, (ii) by United States mail,
certified or registered, with return receipt requested, on the date which is two
business days after the date of mailing, or (iii) if sent by telex or facsimile
transmission, with a copy mailed on the same day in the manner provided in (ii)
above, on the date transmitted provided receipt is confirmed by telephone:
(a) if to Purchaser to:
99 CENTS Only Stores
4000 East Union Pacific Avenue
City of Commerce, California 90023
Attention: David Gold
Telecopy No.: (213) 980-8160
With copies to:
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard
Los Angeles, California 90024
Attention: C.N. Franklin Reddick III, Esq.
Telecopy No.: (310) 443-8512
22
<PAGE>
(b) if to Company to:
Odd's-N-End's, Inc.
5000 Winnetka Avenue North
New Hope, Minnesota 55428
Attention: Richard Ennen, President and Chief
Executive Officer
Telecopy No.: (612) 533-1158
or at such other address as may have been furnished by such Person in writing to
the other parties.
11.2. 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.
11.3. EXHIBITS AND SCHEDULES. Each Exhibit and Schedule delivered
pursuant to the terms of this Agreement and each document, instrument and
certificate delivered by the parties in connection with the transactions
contemplated hereby constitutes an integral part of this Agreement.
11.4. GOVERNING LAW. Except to the extent the laws of the State of
Delaware are applicable, 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
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 Merger 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 Merger may not be
enforced in any or by any of the above-named courts.
11.5. 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.
11.6. 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.
11.7. 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
23
<PAGE>
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.
11.8. 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.
11.9. 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 Merger Consideration, or
which is otherwise not permitted by the California or Delaware 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.
11.10. WAIVER. At any time prior to the Effective Time, any party
hereto, by action taken by its Board of Directors, at any time before or after
approval hereof by the Stockholders of Company, may (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties of the other
parties contained herein or in any document delivered pursuant hereto, and (iii)
waive compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto shall be valid if set forth in an
instrument in writing signed on behalf of such party by a duly authorized
officer.
11.11. ENTIRE AGREEMENT. This Agreement, the attached Exhibits and
Schedules, the other schedules referred to in this Agreement and the
Confidentiality Agreement contain the entire understanding of the parties and
there are no further or other agreements or understandings, written or oral, in
effect between the parties relating to the subject matter hereof unless
expressly referred to herein.
11.12. 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.
11.13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements contained herein and in
any certificate or other writing delivered pursuant hereto shall not survive the
Effective Time.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
99 CENTS ONLY STORES,
A CALIFORNIA CORPORATION
By: /s/ David Gold
--------------------
Name: David Gold
Title: President and Chief Executive Officer
ODD'S-N-END'S, INC.,
A DELAWARE CORPORATION
By: /s/ Richard Ennen
--------------------
Name: Richard Ennen
Title: President and Chief Executive Officer
ODDS'S-N-END'S ACQUISITION CORP.,
A DELAWARE CORPORATION
By: /s/ David Gold
--------------------
Name: David Gold
Title: President and Chief Executive Officer
25
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
99 CENTS ONLY STORES
David Gold and Sherry Gold certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of 99 CENTS ONLY STORES, a California corporation (the
"Corporation").
2. The Articles of Incorporation of this Corporation, as amended
to the date of the filing of this certificate, are amended and restated to
read in full as follows:
I
The name of this Corporation is:
99 CENTS ONLY STORES
II
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business, or the practice of a profession permitted to be
incorporated by the California Corporations Code.
III
This Corporation is authorized to issue two classes of shares,
designated "Common Stock," and "Preferred Stock." The total number of shares
which this Corporation is authorized to issue is 41,000,000. The number of
shares of Preferred Stock which this Corporation is authorized to issue is
1,000,000. The number of shares of Common Stock which this Corporation is
authorized to issue is 40,000,000. Upon the filing of these Amended and
Restated Articles of Incorporation, each outstanding share of Common Stock
shall, without any further action on the part of the Corporation, be split up
and converted into 80,324.17 fully paid and validly issued shares of Common
Stock.
The Preferred Stock authorized by these Articles of Incorporation shall
be issued in one or more series. The Board of Directors of this Corporation
is authorized to determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of
Preferred Stock, and within the limitations or restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the
number of shares constituting any series, to increase or decrease (but not
below the number of shares of any such
<PAGE>
series then outstanding) 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.
IV
(a) The liability of the directors of this Corporation for monetary
damages shall be eliminated to the fullest extent permissible under
California law.
(b) This Corporation is authorized to provide, whether by bylaw,
agreement or otherwise, for the indemnification of agents (as defined in
Section 317 of the General Corporation Law of California (the "GCL")) of this
Corporation in excess of that expressly permitted for those agents by Section
317 of the GCL, for breach of duty to this Corporation and its shareholders
to the extent permissible under California law (as now or hereafter in
effect). In furtherance and not in limitation of the powers conferred by
statute:
(i) this Corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of this
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 (each an
"Indemnified Party"), 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 this Corporation would have the power to
indemnify against such liability under the provisions of law; and
(ii) this 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 indemnification as provided therein, or elsewhere.
No such agreement or other form of indemnification shall be interpreted
as limiting in any manner the rights which such agents would have to
indemnification in the absence of such bylaw, agreement or other form of
indemnification.
(c) Any repeal or modification of the foregoing provisions of this
Article IV by the shareholders of this Corporation shall not adversely affect
any right or protection of a current or former Indemnified party existing at
the time of such repeal or modification.
2
<PAGE>
V
The right of the shareholders of the Corporation to take action by
written consent is hereby expressly eliminated.
VI
Cumulative voting for the election of directors of the Corporation shall
be eliminated effective upon the date when the Corporation becomes, and for
as long as the Corporation is, a "listed corporation" within the meaning of
Section 301.5 of the GCL.
3. The foregoing Amended and Restated Articles of Incorporation have
been duly approved by the Board of Directors of the Corporation.
4. The foregoing Amended and Restated Articles of Incorporation have
been duly approved by the required vote of shareholders in accordance with
Section 902 of the General Corporation Law of the State of California. The
Corporation only has one class of shares, and the total number of outstanding
shares of the Corporation is 100 shares of Common Stock. The number of
shares voting in favor of the amendment equaled or exceed the vote required.
The percentage vote required was more than 50% of the Common Stock.
The undersigned declares under penalty of perjury under the laws of the
State of California that the matters set forth in this Certificate are true
and correct of her own knowledge.
Date: March 29, 1996
/s/ David Gold
--------------------------------
David Gold, President
/s/ Sherry Gold
--------------------------------
Sherry Gold, Secretary
3
<PAGE>
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION
OF
99 CENTS ONLY STORES
David Gold and Sherry Gold certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of 99 CENTS ONLY STORES, a California corporation
(the "Corporation").
2. Article III of the Articles of Incorporation of the
Corporation is amended to read in full as follows:
"This Corporation is authorized to issue two classes of shares,
designated "Common Stock," and "Preferred Stock." The total number of
shares which this Corporation is authorized to issue is 41,000,000. The
number of shares of Preferred Stock which this Corporation is authorized
to issue is 1,000,000. The number of shares of Common Stock which this
Corporation is authorized to issue is 40,000,000. Upon the filing of
this Certificate of Amendment of Articles of Incorporation, each
outstanding share of Common Stock shall, without any further action on
the part of the Corporation, be split up and converted into
1.23613290993 fully paid and validly issued shares of Common Stock.
The Preferred Stock authorized by this Amendment of Articles of
Incorporation shall be issued in one or more series. The Board of
Directors of the Corporation 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 resolution or resolutions of
the Board of Directors originally fixing the number of shares
constituting any series, to increase or decrease (but not below the
number of shares of any such series then outstanding) 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."
3. The foregoing amendments to the Articles of Incorporation of
the Corporation have been duly approved by the Board of Directors of the
Corporation.
4. The foregoing amendments to the Articles of Incorporation of
the Corporation have been duly approved by the required vote of shareholders
in accordance with Section 902 of the General Corporation Law of the State of
California. The Corporation only has one class of shares, and the total
number of outstanding shares of the Corporation is 8,032,417 shares of Common
Stock. The number of shares voting in favor of the amendment equaled or
exceed the vote required. The percentage vote required was more than 50% of
the Common Stock.
<PAGE>
The undersigned declare under penalty of perjury under the laws of the
State of California that the matters set forth in this Certificate are true
and correct of our own knowledge.
Date: May 9, 1996
/s/ David Gold
-----------------------------------
David Gold, President
/s/ Sherry Gold
----------------------------------
Sherry Gold, Secretary
2
<PAGE>
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION
OF
99 CENTS ONLY STORES
David Gold and Sherry Gold certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of 99 CENTS ONLY STORES, a California corporation (the
"Corporation").
2. Article VII is hereby added to the Amended and Restated
Articles of Incorporation to read in full as follows:
"Amendment to Articles III, V and VI of the Amended and Restated
Articles of Incorporation of this Corporation shall require the vote of
66-2/3% of the issued and outstanding shares of stock voting as a
whole."
3. The foregoing amendment to the Amended and Restated Articles
of Incorporation of the Corporation has been duly approved by the Board of
Directors of the Corporation.
4. The foregoing amendment to the Amended and Restated Articles
of Incorporation of the Corporation has been duly approved by the required
vote of shareholders in accordance with Section 902 of the General
Corporation Law of the State of California. The Corporation only has one
class of shares, and the total number of outstanding shares of the
Corporation is 9,929,135 shares of Common Stock. The number of shares voting
in favor of the amendment equaled or exceed the vote required. The
percentage vote required was more than 50% of the Common Stock.
The undersigned declare under penalty of perjury under the laws of the
State of California that the matters set forth in this Certificate are true
and correct of our own knowledge.
Date: May 28, 1996
/s/ David Gold
------------------------------
David Gold, President
/s/ Sherry Gold
------------------------------
Sherry Gold, Secretary
<PAGE>
99 CENTS ONLY STORES
STANDARD MULTI-TENANT FORM LEASE
The Gardens Center, Hawaiian Gardens, CA
THIS LEASE (this "Lease") is made and executed this 8th day of February,
1995 by and between Hawaiian Gardens Redevelopment Agency, a California
Governmental Entity (the "Landlord"), and 99CENTS Only Stores, a California
corporation (the "Tenant"), who agree as follows:
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of the
Lease referred to in this Article One explain and define the Basic Terms and are
to be read in conjunction with the Basic Terms. In the event of any conflict or
contradiction between this Article One and such other Articles, Sections and
Paragraphs of the Lease, such other Articles, Sections and Paragraphs shall
control and supersede the provisions of this Article One in regards to such
conflict or contradiction.
Section 1.01. Landlord's Address:
21815 Pioneer Boulevard
Hawaiian Gardens, CA 90716-1299
Telephone: (310) 420-2641
Fax: (310) 496-3708
ATTN: Executive Director
Section 1.02. Tenant's Address:
4000 East Union Pacific Avenue
City of Commerce, CA 90023
Telephone: (213) 980-8145
Fax: (213) 980-8160
ATTN: Real Estate Department
Section 1.03. Property: The demised premises (the "Property") is
part of Landlord's multi-tenant real property known as The Gardens Center (the
"Shopping Center"). The Shopping Center includes the land, the buildings and
all other improvements located on the land, and the Common Areas described in
Section 4.05(a). The Property is commonly known as 12123-12125 Carson Street,
Hawaiian Gardens California and is more specifically shown on the site plan
attached to this Lease as Exhibit "A" comprising approximately 15,042 square
feet of ground floor area.
Page 1 of 33
<PAGE>
The Gardens Center, Hawaiian Gardens, CA
Section 1.04. Lease Term: Approximately seven (7) years beginning on
the date that Landlord delivers possession of the Property to Tenant in the
condition specified in Section 6.01 and ending on January 31, 2002 unless sooner
terminated in accordance with this Lease (the "Initial Lease Term"). Tenant
shall have the option to extend the Lease Term beyond the Initial Lease Term as
set forth in Section 2.02.
Section 1.05. Permitted Uses: General retail store use only as more
particularly described in Article 5 hereof.
Section 1.06. Prepaid Base Rent: Eighteen Thousand Dollars ($18,000)
(the "Prepaid Base Rent") payable upon execution of this Lease and to be applied
in accordance with Section 3.01.
Section 1.07. N/A
Section 1.08. Brokers: None.
Section 1.09. Rent and Other Charges Payable by Tenant:
(a) BASE RENT: Beginning on the Rent Commencement Date (as defined
in Section 3.01), Tenant shall pay the sum of Nine Thousand Dollars ($9,000) per
month (the "Base Rent") as rent for the Property. The Base Rent shall be
subject to adjustment as set forth in Section 3.03.
(b) OTHER PERIODIC PAYMENTS: (i) Property Taxes (See Section 4.02);
(ii) Utilities (See Section 4.03); (iii) Insurance Premiums (See Section 4.04);
(iv) Maintenance, Repairs and Alterations (See Article Six).
Section 1.10. Riders: The following Riders are attached to and made a
part of this Lease: None.
ARTICLE TWO: LEASE TERM
Section 2.01. Lease of Property For Lease Term. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.04 above, and shall
begin and end
Page 2 of 33
<PAGE>
on the dates specified in Section 1.04 above, unless the beginning or end of the
Lease Term is changed under any provision of this Lease. The "Commencement
Date" shall be the date specified in Section 1.04 above for the beginning of the
Lease Term, unless advanced or delayed under any provision of this Lease.
Section 2.02. Right to Extend Lease Term. Tenant shall have the
right to extend the Lease Term, on the terms and provisions set forth in this
Lease, for an additional five (5)-year period ("First Extended Term") following
expiration of the Initial Lease Term by giving written notice of exercise to
Landlord at least one hundred eighty (180) days prior to the expiration of the
Initial Lease Term. Tenant shall have the right to extend the Lease Term, on
the terms and provisions set forth in this Lease, for an additional five
(5)-year period ("Second Extended Term") following expiration of the First
Extended Term by giving written notice of exercise to Landlord at least one
hundred eighty (180) days prior to the expiration of the First Extended Term.
The Base Rent during any such Extended Terms shall be subject to increase as set
forth in Section 3.03.
Section 2.03. Delivery of Property. Landlord shall deliver
possession of the Property to Tenant in the condition specified in Section 6.01
on or before July 31, 1995, and after having provided Tenant with a written
Notice setting forth the anticipated date of delivery at least thirty (30) days
before such anticipated delivery date. The date that Landlord so delivers
possession of the Property and Tenant accepts possession, shall hereinafter be
referred to as the "Delivery Date". Within ten (10) days after such Delivery
Date, Landlord shall send a written notice to Tenant memorializing the Delivery
Date, Commencement Date, and the Rent Commencement Date and if Tenant does not
object to such dates set forth in Landlord's notice within ten (10) calendar
days of receipt thereof, then such dates shall be deemed correct and such notice
shall be attached to this Lease and be incorporated herein. Landlord's failure
to so deliver possession of the Property shall constitute a material breach of
this Lease, and Tenant shall, without prejudice to any of Tenant's other rights
or remedies, have the right to terminate this Lease upon written notice by
Tenant to Landlord. If Tenant terminates this Lease pursuant to this Section,
Landlord shall immediately return to Tenant all prepaid
Page 3 of 33
<PAGE>
rent, security deposits and other sums paid by Tenant to Landlord.
Section 2.04. Holding Over. If Tenant does not vacate the Property
upon the expiration or earlier termination of the Lease and Landlord thereafter
accepts rent from Tenant, Tenant's occupancy of the Property shall be a
"month-to-month" tenancy, subject to all of the terms of this Lease applicable
to a month-to-month tenancy.
Section 2.05. Contingency Period. Tenant shall have a period of time
following the execution of this Lease and ending 30 days thereafter to satisfy
itself that the Property is satisfactory for Tenant's intended use (the
"Contingency Period"). The date of expiration of the Contingency Period is
referred to in this Lease as the "Contingency Period Expiration Date." If Tenant
discovers that the Property is unsatisfactory for Tenant's intended use for any
reason, including, without limitation, the Property's noncompliance with
applicable ordinances or parking requirements, then Tenant shall have the right
to terminate this Lease by giving written notice of termination to Landlord at
any time prior to the Contingency Period Expiration Date. Upon Tenant giving
notice of termination, Landlord and Tenant shall be released from their
obligations under this Lease except that landlord shall immediately return to
Tenant all Prepaid Rent and other sums paid by Tenant hereunder. During the
Contingency Period, Tenant shall have the right to enter upon and inspect the
Property at all reasonable times and to conduct, at Tenant's expense, any
studies, tests, investigations or assessments as Tenant deems necessary or
appropriate. Tenant shall periodically communicate with Landlord as to the
progress of the investigations in connection with this Contingency Period and
any material findings in such regards. Tenant shall provide copies, within a
reasonable time after Landlord's request therefore, of any formal written
reports prepared for Tenant by licensed professionals, such as structural
engineers or environmental experts, in connection with such Contingency Period.
ARTICLE THREE: BASE RENT
Section 3.01 Time and Manner of Payment. Beginning on the Rent
Commencement Date (as defined below) and the first day
Page 4 of 33
<PAGE>
of each calendar month thereafter, Tenant shall pay Landlord the Base Rent, in
advance. The Base Rent shall be payable at Landlord's address or at such other
place as Landlord may designate in writing. The Prepaid Base Rent shall be
applied to and be considered payment for the Base Rent payable for the first
full month immediately following the Rent Commencement Date. Base Rent for any
partial month shall be prorated based on the actual number of days in the
calendar month involved.
Section 3.02 Rent Commencement Date. For purposes of this Lease, the
"Rent Commencement Date" shall be Ninety (90) days after the Delivery Date.
Section 3.03 Base Rent Increases.
(a) The Base Rent shall be increased on February 1, 2002 and February
1, 2007 ("Rent Adjustment Dates"). The Base Rent shall be increased on each
Rent Adjustment Date during the Initial Lease Term (or any extension thereof, if
applicable) in accordance with the increase in the United States Department of
Labor, Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers
for the United States (base year 1982-84 = 100) (the "Index") as follows. The
Base Rent (for purposes of this Section 3.03(a), the "Comparison Base Rent") in
effect immediately before each Rent Adjustment Date shall be increased by the
percentage that the Index has increased from the date (for purposes of this
Section 3.03(a), the "Comparison Date") on which payment of the Comparison Base
Rent began through the month in which the applicable Rent Adjustment Date
occurs; provided, however, in no event shall the monthly Base Rent during the
First Extended Term be less than one hundred and twenty one percent (121%) nor
greater than one hundred and thirty five percent (135%) of the monthly Base Rent
during the Initial Lease Term, and in no event shall the monthly Base Rent
during the Second Extended Term be less than one hundred and fifteen percent
(115%) nor greater than one hundred and twenty five percent (125%) of the
monthly Base Rent during the First Extended Term.
(b) General CPI Provisions. Landlord shall notify Tenant of each
increase by a written statement which shall include the Index for the applicable
Comparison Date, the Index for the applicable Rent Adjustment Date, the
percentage increase between those two Indices, and the new Base Rent. Tenant
shall pay the new Base Rent from the applicable Rent Adjustment Date until the
next Rent Adjustment Date. Landlord's notice of
Page 5 of 33
<PAGE>
increase may be given after the applicable Rent Adjustment Date, and Tenant
shall pay Landlord the accrued rental adjustment for the time elapsed between
the effective date of the increase and Landlord's notice of such increase at the
same time as the next Base Rent payment to Landlord is due. If the format or
components of the Index are materially changed after the Commencement Date,
Landlord shall substitute an index which is published by the Bureau of Labor
Statistics or similar agency and which is most nearly equivalent to the Index in
effect on the Commencement Date. The substitute index shall be used to
calculate the increase in the Base Rent unless Tenant objects to such index in
writing. If Tenant objects, Landlord and Tenant shall submit the selection of
the substitute index for binding arbitration in accordance with the rules and
regulations of the American Arbitration Association at its office closest to the
Property. The costs of arbitration shall be borne equally by Landlord and
Tenant.
Section 3.04. N/A
Section 3.05 Termination; Advance Payments. Upon termination of this
Lease under Article Seven (Damage or Destruction), Article Eight (Condemnation)
or any other termination not resulting from Tenant's default, and after Tenant
has vacated the Property in the manner required by this Lease, Landlord shall
immediately refund or credit to Tenant (or Tenant's successor) the unused
portion of the Security Deposit, any advance rent or other advance payments made
by Tenant to Landlord, and any amounts paid for Operating Expenses or otherwise
which apply to any time periods after the effective date of the termination of
the Lease.
Section 3.06. Work Letter. The work letter (the "Work Letter")
attached to this Lease as Exhibit "B" sets forth certain work and improvements
anticipated to be constructed by Tenant with respect to the Property prior to
Tenant's opening for business ("Tenant's Work"). Tenant shall pay for the cost
of constructing Tenant's Work. Following the execution of this Lease, Tenant
shall have the right to enter upon the Property for the purpose of constructing
Tenant's Work; provided, however, that prior to such entry, Tenant shall have
obtained the policies of insurance required to be obtained by Tenant under
Section 4.04 hereof and also providing that the Property is vacant at such
Page 6 of 33
<PAGE>
time. For the purposes of Section 6.05, Tenant's Work is hereby approved.
Tenant's entry upon the Property pursuant to this paragraph shall not advance
the Commencement Date of this Lease. The Work Letter also sets forth certain
work to be performed by Landlord ("Landlord's Work") at Landlords sole cost and
expense. Landlord's Work and Tenant's Work shall be completed within the time
frames specified in the Work Letter. Landlord and Tenant hereby agree to
cooperate (including providing sufficient advance notice) with each other with
respect to their respective work as set forth in this Section 3.06, so as not to
unreasonably interfere with the other party's work and business operations.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY LANDLORD AND TENANT
Section 4.01 Additional Rent. All charges payable by Tenant other
than Base Rent are called "Additional Rent." Unless this Lease provides
otherwise, Tenant shall pay all Additional Rent then due with the next monthly
installment of Base Rent. The term "rent" shall mean Base Rent and Additional
Rent.
Section 4.02 Property Taxes.
(a) Real Property Taxes. Landlord is responsible for the payment of
all real property taxes on the Property (excluding any fees, taxes or
assessments against, or as a result of, any tenant improvements installed on the
Property by Tenant).
(b) Definition of "Real Property Tax." "Real property tax" means: (i)
any fee, license fee, license tax, business license fee, commercial rental tax,
or other tax imposed by any taxing authority against the Property (however not
including those specifically against Tenant's business); and (ii) any tax or
charge for fire protection, streets, sidewalks, road maintenance, refuse or
other services provided to the Property by any governmental agency.
(c) Personal Property Taxes.
(i) Tenant shall pay all taxes charged against trade
fixtures, furnishings, equipment or any other personal property
belonging to Tenant. Tenant shall try to have personal property
taxed separately from the Property.
(ii) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal
property within fifteen (15) days after Tenant receives a written
Page 7 of 33
<PAGE>
statement from Landlord for such personal property taxes.
Section 4.03. Utilities. Tenant shall pay, directly to the
appropriate supplier, the cost of all natural gas, heat, light, power, sewer
service, telephone, water, refuse disposal and other utilities and services
supplied to the Property. However, if any services or utilities are jointly
metered with other parties, Tenant shall pay its reasonable share thereof to
Landlord within fifteen (15) days after receipt of Landlord's written invoice
therefore and such other supporting documentation as Tenant may reasonably
request.
Section 4.04. Insurance Policies.
(a) Liability Insurance. During the Lease Term, Tenant shall
maintain, at Tenant's sole cost and expense, a policy of commercial general
liability insurance (sometimes known as broad form comprehensive general
liability insurance) insuring Tenant against liability for bodily injury,
property damage (including loss of use of property) and personal injury arising
out of the operation, use or occupancy of the Property. Tenant shall name
Landlord as an additional insured under such policy. The initial amount of such
insurance shall be One Million Dollars ($1,000,000.00) per occurrence and shall
be subject to periodic adjustment based upon inflation, liability awards,
recommendation of Landlord's professional insurance advisers and other relevant
factors. The liability insurance obtained by Tenant under this Section 4.04(a)
shall (i) be primary and non-contributing; (ii) contain cross-liability
endorsements; and (iii) insure Landlord against Tenant's lack of performance
under Section 5.04. The amount and coverage of such insurance shall not limit
Tenant's liability nor relieve Tenant of any other obligation under this Lease.
(b) Property Insurance. During the Lease Term, Landlord shall
maintain, at Landlord's sole cost and expense, policies of insurance covering
loss of or damage to the Property in the full amount of its replacement value.
Such policy shall provide protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief,
special extended perils (all risk), sprinkler leakage and any other perils which
Landlord deems reasonably necessary. Landlord shall have the right to obtain
flood and earthquake insurance if required by any lender holding a security
interest
Page 8 of 33
<PAGE>
in the Property. Landlord shall not obtain insurance for Tenant's fixtures or
equipment or building improvements installed by Tenant on the Property. Tenant
shall not do or permit anything to be done which invalidates any such insurance
policies.
(c) Payment of Premiums. Upon Landlord's request, Tenant shall
deliver to Landlord a copy of any policy of insurance which Tenant is required
to maintain under this Section 4.04. At least thirty (30) days prior to the
expiration of any such policy, Tenant shall deliver to Landlord a renewal of
such policy. As an alternative to providing a policy of insurance, Tenant shall
have the right to provide Landlord a certificate of insurance, executed by an
authorized officer of the insurance company, showing that the insurance which
Tenant is required to maintain under this Section 4.04 is in full force and
effect and containing such other information which Landlord reasonably requires.
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain under this
Lease shall include a provision which requires the insurance carrier
to give Landlord not less than thirty (30) days' written notice prior
to any cancellation or modification of such coverage.
(ii) If Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this Lease within thirty (30) days
following written request from Landlord for such evidence of
insurance, Landlord may obtain such insurance, in which case Landlord
shall immediately notify Tenant and Tenant shall reimburse Landlord
for the cost of such insurance within fifteen (15) days after receipt
of a statement that indicates the cost of such insurance.
(iii) Tenant shall maintain all insurance required under this
Lease with companies holding a "General Policy Rating" of B+ or
better, as set forth in the most current issue of "Best Key Rating
Guide". Landlord and Tenant acknowledge the insurance markets are
rapidly changing and that insurance in the form and amounts described
in this Section 4.04 may not be available in the future. Tenant
acknowledges that the insurance described in this Section 4.04 is for
the primary benefit of Landlord. If at any time during the Lease
Term, Tenant is unable to maintain the insurance
Page 9 of 33
<PAGE>
required under the Lease, Tenant shall nevertheless maintain insurance
coverage which is customary and commercially reasonable in the
insurance industry for Tenant's type of business, as that coverage may
change from time to time.
(iv) Unless prohibited under any applicable insurance policies
maintained, Landlord and Tenant each hereby waive any and all rights
of recovery against the other, or against the officers, employees,
agents or representatives of the other, for loss of or damage to its
property or the property of others under its control, if such loss or
damage is covered by any insurance policy in force (whether or not
described in this Lease) at the time of such loss or damage. Upon
obtaining the required policies of insurance, Landlord and Tenant
shall give notice to the insurance carriers of this mutual waiver of
subrogation.
Section 4.05. Common Areas; Use, Maintenance and Costs.
(a) Common Areas. As used in this Lease, "Common Areas" shall mean
all areas within the Shopping Center which are not leased or held for the
exclusive use of Tenant or other tenants, including, but not limited to, parking
areas, driveways, sidewalks, loading areas, access roads, lobby areas,
elevators, corridors, landscaping and planted areas as depicted on Exhibit "A."
Landlord shall not change the size, location, nature and use of any of the
Common Areas, including vehicle parking spaces, convert Common Areas into
leasable areas, or decrease Common Area land and/or facilities, without Tenant's
prior written consent, which shall not be unreasonably withheld. No activities
or changes are permitted to the Common Areas if they would materially affect
Tenant's use of the Property. Tenant may withhold its consent, in its sole and
absolute discretion, to any changes to the common area which would reduce the
amount of parking available to Tenant's customers, decrease visibility or access
to the Property, or reduce the effectiveness of Tenant's signage.
(b) Use of Common Areas. Tenant shall have the nonexclusive right
(in common with other tenants) to use the Common Areas for the purposes intended
at no additional cost to Tenant, subject to such reasonable rules and
regulations as Landlord may establish from time to time. Tenant shall abide by
Page 10 of 33
<PAGE>
such rules and regulations and shall use its best efforts to cause others who
use the Common Areas with Tenant's express or implied permission to abide by
Landlord's rules and regulations. At any time, Landlord may temporarily close
any Common Areas to perform any acts in the Common Areas as, in Landlord's
judgment, are necessary to improve the Shopping Center; provided that Landlord
gives Tenant appropriate prior written notice and Landlord takes all reasonable
actions to avoid so doing during the months of November and December. Tenant
shall not interfere with the rights of Landlord, other tenants or any other
person entitled to use the Common Areas.
(c) Vehicle Parking. Tenant and its invitee and customers shall be
entitled to the nonexclusive use of all vehicle parking spaces in the Shopping
Center for non-reserved parking without the payment of any additional rent by
Tenant or charge to Tenant or its invitees or customers. All such vehicle
parking spaces shall be available only for customers of tenants of the shopping
center, other tenants of the Shopping Center and their employees shall not be
permitted to use any of the vehicle parking spaces. Handicapped spaces shall
only be used by those legally permitted to use them.
(d) Maintenance of Common Areas. Landlord shall maintain and operate
the Common Areas safely and in good order, condition and repair, all at
Landlord's sole cost and expense. Landlord's maintenance of the Common Areas
shall include, but not be limited to, the timely and first quality performance
of the following: Sweeping, trash removal, graffiti removal, deterring loitering
and panhandling, landscape planting and maintenance, asphalt maintenance,
security, painting exterior of structures, lighting, traffic and parking
control, and all other things normally done in the maintenance or operation of a
first class shopping center.
(e) Loading. Tenant shall be permitted, at all times, to use
portions of the Common Areas, labeled and depicted as "Tenant's Loading Areas"
on Exhibit "A", as necessary, for making deliveries of merchandise, storing
shopping carts, operating vending machines and otherwise as necessary for the
smooth and ordinary operation of its business. Subject to the provisions of
Section 6.05, as they apply to alterations, additions, and improvements of the
Property, Tenant may change Tenant's Loading Areas to facilitate Tenant's
receipt of merchandise and/or the storage/use of shopping carts, provided that
Tenant obtains
Page 11 of 33
<PAGE>
Landlord's prior written consent, which shall not be unreasonably withheld.
ARTICLE FIVE: USE OF PROPERTY
Section 5.01. Permitted Uses. Tenant may use the Property only for
the purpose of conducting a general retail store (including, without limitation,
beer and wine sales for off-site consumption and all other merchandise generally
sold at Tenant's other locations), for business offices in connection therewith
and such other uses related or incidental thereto, consistent with all laws,
federal, state or local, and with any applicable regulation of any government
body and for no other purpose during the term of the Lease. Landlord agrees to
fully cooperate with Tenant in obtaining any desired permits from governmental
agencies or approvals from other tenants of the Shopping Center concerning
Tenant's use of the Property permitted or desired under this Lease, including,
without limitation, a beer and wine sales permit for off-site consumption.
Landlord shall indemnify and defend Tenant against any and all claims asserted
by third parties claiming that Tenant's use infringes any rights to exclusivity
which such third party may have in the Shopping Center. Tenant may use the
Property for other purposes with Landlords written consent which shall not be
unreasonably withheld. Nothing in this Article shall be construed as a covenant
by Tenant of continuous operations. Landlord represents and warrants to Tenant
that Tenant may transfer its beer and wine license for its existing business at
12226 Carson Street, Hawaiian Gardens without violating laws of the City of
Hawaiian Gardens or any entity associated therewith. Notwithstanding the prior
sentence, Tenant shall not sell any alcoholic beverages unless permitted to do
so by the California Department of Alcoholic Beverage Control, or such other
party which may have jurisdiction thereon.
Section 5.02. Manner of Use. Tenant shall not cause or permit the
Property to be used in any way which constitutes a violation of any law,
ordinance, or governmental regulation or order, which annoys or interferes with
the rights of tenants of the Shopping Center, or which constitutes a nuisance or
waste. Tenant shall obtain and pay for all permits required for Tenant's
occupancy of the Property and shall promptly take all actions necessary to
comply with all applicable statutes, ordinances,
Page 12 of 33
<PAGE>
rules, regulations, orders and requirements regulating the use by Tenant of the
Property. Notwithstanding any other provision of this Lease, if at any time
during the Lease Term either the Property or the Shopping Center is not in
conformity with any present or future law or regulation relating to the use,
occupation or reconstruction thereof (including, without limitation, the
Americans with Disabilities Act, earthquake safety codes, fire sprinkler codes,
and laws governing the presence of regulated or hazardous substances (such as
asbestos) incorporated into the Property (which were not placed there by
Tenant)) or is subject to any order of any governmental agency ordering any
rebuilding, alteration or repair thereof, Landlord shall immediately at its own
cost and expense, and without any right of reimbursement from Tenant (unless the
work is required because of Tenant's particular use of the Property or the Lease
has been terminated under any provision of this Lease), effect such alterations
and repairs to the Property or the Shopping Center as may be necessary to comply
with such laws, regulations, orders or requirements. All such alterations and
repairs, if made to the Property, shall be made in accordance with the plans and
specifications approved in writing by Tenant.
Section 5.03 Signs. Tenant shall have the right to place such signs
on the exterior of the Property as Tenant may desire; provided that such signs
comply with applicable laws. Tenant shall have the right to use and modify any
sign area used by any prior tenant of the Property, whether such sign area is
located on the Property, within the Common Areas, or elsewhere in the Shopping
Center. Tenant shall also have the right to modify existing monument signage or
add additional monument signage in the Common Area or elsewhere in the Shopping
Center, subject only to applicable governmental approvals and any existing
written obligations of Landlord to existing tenants of the Shopping Center.
Landlord represents to Tenant that Landlord has disclosed to Tenant in writing
the relevant details of all such obligations. Landlord shall use its best
efforts to obtain any required approvals from the other tenants of the Shopping
Center and applicable governmental agencies in connection with any signs desired
to be installed by Tenant. For a period of time 60 days following the end of
the Lease term, Tenant shall be permitted to place two signs not to exceed 24
inches by 36 inches in size, in prominent places visible from the exterior of
the premises informing the public of Tenant's relocation and other similar
Page 13 of 33
<PAGE>
information. Landlord shall cooperate with Tenant to obtain the best possible
signage in Tenant's judgement. Landlord shall seek the cooperation of the City
of Hawaiian Gardens and any entity affiliated therewith to obtain Tenant's
maximum desired signage.
Section 5.04. Indemnity. Except for losses, damages and claims
arising out of the acts or omissions of Landlord or Landlord's agents,
contractors and employees, Tenant shall indemnify Landlord against and hold
Landlord harmless from any and all costs, claims or liability arising from: (a)
Tenant's use of the Property; (b) the conduct of Tenant's business or anything
else done or permitted by Tenant to be done in or about the Property, (c) any
breach or default in the performance of Tenant's obligations under this Lease;
or (d) any misrepresentation or breach of warranty by Tenant under this Lease.
Tenant shall defend Landlord against any such cost, claim or liability at
Tenant's expense with counsel reasonably acceptable to Landlord.
Section 5.05. Landlord's Access. Landlord or its agents may enter
the Property at reasonable times to inspect the Property; or for any other
purpose Landlord deems reasonably necessary. Landlord shall give Tenant prior
notice of such entry, except in the case of an emergency.
Section 5.06. Quiet Possession. So long as Tenant is not in default
under this Lease, Tenant may occupy and enjoy the Property for the full Lease
Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.01. Condition of Property. Landlord shall deliver the
Property to Tenant in a clean and good condition and with Landlord's Work as set
forth in Section 3.06 and Exhibit "B" complete on the Commencement Date.
Landlord warrants to Tenant to the best of Landlord's actual knowledge and
without any special inquiry or investigation, that the Property, in the state
existing on the Commencement Date, but without regard to alterations or
improvements made by Tenant or the use for which Tenant will occupy the
Property, does not violate any covenants or restrictions of record, or any
applicable building or other code, regulation or ordinance in effect on the
Commencement Date.
Page 14 of 33
<PAGE>
In the event it is determined that any of the foregoing covenants or warranties
have been violated, then it shall be the obligation of Landlord, after written
notice from Tenant, to promptly, at Landlord's sole cost and expense, rectify
any such violation.
Section 6.02. Exemption of Landlord from Liability. Landlord shall
not be liable for any damage or injury to the person, business (or any loss of
income therefrom), goods, wares or property of Tenant, Tenant's employees,
invitee, clients, customers or any other person in or about the Property,
whether such damage or injury is caused by or results from: (a) theft, fire,
steam, electricity, water, gas or rain, (b) the breakage, leakage, obstruction
or other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures or any other cause, (c) conditions arising in
or about the Property or upon other portions of the Shopping Center, or from
other sources or places or from new construction or repair of the Property or
the Shopping Center, or (d) any act or omission of any other tenant of the
Shopping Center; except for damage or injury caused by or resulting from
Landlord's (or its agents or contractor's) gross negligence or willful
misconduct or Landlord's failure to perform its obligations under this Lease.
Section 6.03. Landlord's Obligations. Except as provided in Article
Seven (Damage or Destruction) and Article Eight (Condemnation), Landlord, at its
sole cost and expense, shall keep the roof, foundations, exterior walls (except
for painting thereof), and sidewalks of the Property in good order, condition
and repair. Landlord shall make repairs under this Section 6.03 within a
reasonable time after receipt of written notice from Tenant of the need for such
repairs. Landlord represents and warrants to Tenant that, on the Commencement
Date, the heating, ventilation, air conditioning, electrical, plumbing and other
systems contained within or servicing the Property shall be in good working
condition and repair.
Section 6.04. Tenant's Obligations.
(a) Except as provided in Section 5.02, Section 6.03, Article Seven
(Damage or Destruction) and Article Eight (Condemnation), Tenant shall keep all
portions of the Property (excepting foundations, exterior walls, roofs and
sidewalks) in good order, condition and repair (including interior repainting
and refinishing, as needed). If any portion of the Property
Page 15 of 33
<PAGE>
which Tenant is obligated to repair cannot be fully repaired or restored, Tenant
shall promptly replace such portion of the Property, regardless of whether the
benefit of such replacement extends beyond the Lease Term; but if the benefit or
useful life of such replacement extends beyond the remaining Lease Term (as such
term may be extended by exercise of any options), the cost of such replacement
shall be amortized over its useful life, and Tenant shall be liable only for
that portion of the amortized cost which is applicable to the remaining Lease
Term (as extended).
(b) Tenant shall fulfill all of Tenant's obligations under this
Section 6.04, except as otherwise provided, at Tenant's expense. If Tenant
fails to maintain, repair or replace the Property as required by this Section
6.04, Landlord may, upon ten (10) days' prior notice to Tenant (except that no
notice shall be required in the case of an emergency), enter the Property and
perform such maintenance or repair (including replacement, as needed) on behalf
of Tenant. In such case, Tenant shall reimburse Landlord for costs incurred in
performing such maintenance or repair for which Tenant is responsible
immediately upon demand.
Section 6.05. Alterations, Additions, and Improvements. (a) Tenant
shall not make any alterations, additions, or improvements to the Property
without Landlord's prior written consent, except for non-structural alterations
which do not exceed Ten Thousand Dollars ($10,000.00) in cost cumulatively over
the Lease Term. Landlord may require Tenant to provide demolition and/or lien
and completion bonds in form and amount satisfactory to Landlord. Tenant shall
promptly remove any alterations, additions, or improvements constructed in
violation of this Section 6.05(a) upon Landlord's written request and restore
such portions of the Property to their condition immediately prior to Tenant's
construction of such alterations, additions, or improvements. All alterations,
additions, and improvements shall be done in a good and workmanlike manner, in
conformity with all applicable laws and regulations, and by a contractor
approved by Landlord. Upon completion of any such work, Tenant shall provide
Landlord with "as built" plans, copies of all construction contracts, and proof
of payment for all labor and materials, to the extent that the same are
available to Tenant.
Page 16 of 33
<PAGE>
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty (20)
days' prior written notice of the commencement of any work on the Property,
regardless of whether Landlord's consent to such work is required. Landlord may
elect to record and post notices of non-responsibility on the Property.
Section 6.06. Condition upon Termination. Upon the termination of
the Lease, Tenant shall surrender the Property to Landlord, broom clean and in
the same condition as received except for ordinary wear and tear which Tenant
was not otherwise obligated to remedy under any provision of this Lease.
However, Tenant shall not be obligated to repair any damage which Landlord is
required to repair under Article Seven or elsewhere under this Lease. In
addition, Landlord may require Tenant to remove any of Tenant's alterations,
additions or improvements (whether or not made with Landlord's consent) prior to
the expiration of the Lease and to restore the Property to its prior condition,
all at Tenant's expense. All alterations, additions and improvements which
Landlord has not required Tenant to remove shall become Landlord's property and
shall be surrendered to Landlord upon the expiration or earlier termination of
the Lease, except that Tenant may remove any of Tenant's trade fixtures,
machinery or equipment. Tenant shall repair, at Tenant's expense, any damage to
the Property caused by the removal of any such trade fixtures, machinery or
equipment. If any alteration, addition or improvement made by Tenant shall not
be in the condition required above for surrender, then Tenant may, at Tenant's
option, either restore such alteration, addition, or improvement to the required
condition or remove or restore such affected portion of the Property to its
condition immediately prior to such alteration, addition, or improvement.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01. Partial Damage to Property.
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage and less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Section 4.04(b) are
Page 17 of 33
<PAGE>
sufficient to pay for the necessary repairs, this Lease shall remain in effect
and Landlord shall repair the damage as soon as reasonably possible. Landlord
may elect (but is not required) to repair any damage to Tenant's fixtures,
equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not sufficient
to pay the entire cost of repair, or if the cause of the damage is not covered
by the insurance policies which Landlord maintains under Section 4.04(b),
Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to terminate this Lease, Tenant may elect to continue
this Lease in full force and effect, in which case Tenant shall repair any
damage to the Property and any building in which the Property is located.
Tenant shall pay the cost of such repairs, except that upon satisfactory
completion of such repairs, Landlord shall deliver to Tenant any insurance
proceeds received by Landlord for the damage repaired by Tenant. Tenant shall
give Landlord written notice of such election within ten (10) days after
receiving Landlord's termination notice, and in such event Landlord shall have
no responsibility to repair or replace Tenant's trade fixtures, inventory, or
other personal property, all of which shall be Tenant's responsibility to handle
as Tenant determines in Tenant's sole discretion.
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more than thirty (30) days
to repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
Section 7.02. Substantial or Total Destruction. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.02), and
regardless of whether Landlord receives any insurance proceeds, this Lease
Page 18 of 33
<PAGE>
shall terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months after
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense.
Section 7.03. Temporary Reduction of Rent. If the Property is
destroyed or damaged and Landlord or Tenant repairs or restores the Property
pursuant to the provisions of this Article Seven, any rent payable during the
period of such damage, repair and/or restoration shall be reduced according to
the degree, if any, to which Tenant's use of the Property is impaired.
ARTICLE EIGHT: CONDEMNATION
Section 8.01. If all or any portion of the Property is taken under
the power of eminent domain or sold under the threat of that power (all of which
are called "Condemnation"), this Lease shall terminate as to the part taken or
sold on the date the condemning authority takes title or possession, whichever
occurs first. If more than twenty percent (20%) of the floor area of the
building in which the Property is located, or which is located on the Property,
is taken, either Landlord or Tenant may terminate this Lease as of the date the
condemning authority takes title or possession, by delivering written notice to
the other within ten (10) days after receipt of written notice of such taking
(or in the absence of such notice, within ten (10) days after the condemning
authority takes title or possession). If neither Landlord nor Tenant terminates
this Lease, this Lease shall remain in effect as to the portion of the Property
not taken, except that the Base Rent and Additional Rent shall be reduced in
proportion to the reduction in the floor area of the Property. Any award for
the taking of all or any part of the Property or the Shopping Center under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Landlord; provided, however, that Tenant shall be
entitled to any award for (i) loss of or damage to Tenant's trade fixtures,
personal property and tenant improvements that have been paid for by Tenant and
(ii) the value
Page 19 of 33
<PAGE>
of the leasehold estate (I.E., the leasehold bonus value). Landlord shall have
no obligation to assist (provide counsel) Tenant in obtaining any such award.
In the event that this Lease is not terminated by reason of such condemnation,
Landlord shall to the extent of severance damages received by Landlord in
connection with such condemnation, repair any damage to the Property caused by
such condemnation except to the extent that Tenant has been reimbursed therefor
by the condemning authority.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. Landlord's Consent Required. No portion of the
Property or of Tenant's interest in this Lease may be acquired by any other
person or entity, whether by sale, assignment, mortgage, sublease, transfer,
operation of law, or act of Tenant, without Landlord's prior written consent,
which consent shall not be unreasonably withheld. Notwithstanding the
foregoing, assignment or subletting of the Property to an entity, which controls
or is controlled by or is under common control with Tenant, or to any affiliate
resulting from the merger or consolidation with Tenant, or to any person or
entity which acquires all the assets of Tenant as a going concern of the
business that is being conducted on the Property, shall not require Landlord's
consent. Landlord's consent to an assignment or subletting shall not be deemed
consent to a subsequent assignment or subletting.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01. Covenants and Conditions. Tenant's performance of
each of Tenant's obligations under this Lease is a condition as well as a
covenant. Tenant's right to continue in possession of the Property is
conditioned upon such performance.
Section 10.02. Defaults. Tenant shall be in material default under
this Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance described in Section 4.04;
(b) If Tenant fails to pay rent or any other charge due within five
(5) days following written notice from Landlord that such sum is due;
Page 20 of 33
<PAGE>
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30)-day period and thereafter diligently
pursues its completion. The notice required by this Section is intended to
satisfy any and all notice requirements imposed by law on Landlord and is not in
addition to any such requirement.
(d) (i) If Tenant makes a general assignment or general arrangement
for the benefit of creditors; (ii) if a petition for adjudication of bankruptcy
or for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines that any of
the acts described in this subparagraph (d) is not a default under this Lease,
and a trustee is appointed to take possession (or if Tenant remains a debtor in
possession) and such trustee or Tenant transfers Tenant's interest hereunder,
then Landlord shall receive, as Additional Rent, the excess, if any, of the rent
(or any other consideration) paid in connection with such assignment or sublease
over the rent payable by Tenant under this Lease.
Section 10.03. Remedies. On the occurrence of any material default
by Tenant, Landlord may, at any time thereafter, with or without notice or
demand and without limiting Landlord in the exercise of any right or remedy
which Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which
Landlord had earned at the time of the
Page 21 of 33
<PAGE>
termination; (ii) the worth at the time of the award of the amount by which the
unpaid Base Rent, Additional Rent and other charges which Landlord would have
earned after termination until the time of the award exceeds the amount of such
rental loss that Tenant proves Landlord could have reasonably avoided; (iii) the
worth at the time of the award of the amount by which the unpaid Base Rent,
Additional Rent and other charges which Tenant would have paid for the balance
of the Lease term after the time of award exceeds the amount of such rental loss
that Tenant proves Landlord could have reasonably avoided; and (iv) any other
amount necessary to compensate Landlord for all the detriment proximately caused
by Tenant's failure to perform its obligations under the Lease or which in the
ordinary course of things would be likely to result therefrom, including, but
not limited to, any costs or expenses Landlord incurs in maintaining or
preserving the Property after such default, the cost of recovering possession of
the Property, expenses of reletting, including necessary renovation or
alteration of the Property, Landlord's reasonable attorneys' fees incurred in
connection therewith, and any real estate commission paid or payable. As used
in subparts (i) and (ii) above, the "worth at the time of the award" is computed
by allowing interest on unpaid amounts at the rate of fifteen percent (15%) per
annum, or such lesser amount as may then be the maximum lawful rate. As used in
subpart (iii) above, the "worth at the time of the award" is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of the award, plus one percent (1%). If Tenant has
abandoned the Property, Landlord shall have the option of (i) retaking
possession of the Property and recovering from Tenant the amount specified in
this Section 10.03(a), or (ii) proceeding under Section 10.03(b);
(b) Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant has abandoned the Property. In
such event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due; and/or
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Property is
located.
Section 10.04. Automatic Termination. Notwithstanding any other term
or provision hereof to the contrary, the Lease
Page 22 of 33
<PAGE>
shall terminate on the occurrence of any act which affirms the Landlord's
intention to terminate the Lease as provided in Section 10.03 hereof, including
the filing of an unlawful detainer action against Tenant. On such termination,
Landlord's damages for default shall include all costs and fees, including
reasonable attorney's fees that Landlord incurs in connection with the filing,
commencement, pursuing and/or defending of any action in any bankruptcy court or
other court with respect to the Lease; the obtaining of relief from any stay in
bankruptcy restraining any action to evict Tenant; or the pursuing of any action
with respect to Landlord's right to possession of the Property. All such
damages suffered (apart from Base Rent and other rent payable hereunder) shall
constitute pecuniary damages which must be reimbursed to Landlord prior to the
assumption of the Lease by Tenant or any successor to Tenant in any bankruptcy
or other proceeding.
Section 10.05. Cumulative remedies. Landlord's exercise of any right
or remedy shall not prevent it from exercising any other right or remedy.
ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. Subordination. Landlord shall have the right to
subordinate this Lease to any ground lease, deed of trust or mortgage
encumbering the Property, any advances made on the security thereof and any
renewals, modifications, consolidations, replacements or extensions thereof,
whenever made or recorded; provided that the holder of such encumbrance enters
into a commercially reasonable non-disturbance agreement with Tenant. Tenant
shall cooperate with Landlord and any lender which is acquiring a security
interest in the Property or the Lease. Tenant shall execute such further
documents and assurances as such lender may require, provided that Tenant's
obligations under this Lease shall not be increased in any material way (the
performance of ministerial acts shall not be deemed material), and Tenant shall
not be deprived of its rights under this Lease. Tenant's right to quiet
possession of the Property during the Lease term shall not be disturbed if the
Tenant pays rent and performs all of Tenant's obligations under this Lease and
is not otherwise in default. Landlord shall, promptly following execution of
this Lease, use its reasonable best efforts to cause any holder of an existing
ground lease,
Page 23 of 33
<PAGE>
deed of trust or mortgage encumbering the Property or the Shopping Center to
enter into a commercially reasonable non-disturbance agreement with Tenant.
Section 11.02. Attornment. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.03. Signing of Documents. Tenant shall sign and deliver
any instrument or documents necessary or appropriate to evidence any such
attornment or subordination or agreement to do so. If Tenant fails to do so
within ten (10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.04. Estoppel certificates. Upon Landlord's written
request, Tenant shall execute, acknowledge and deliver to Landlord a written
statement certifying: (i) that none of the terms or provisions of this Lease
have been changed (or if they have been changed, stating how they have been
changed); (ii) that this Lease has not been canceled or terminated; (iii) the
last date of payment of the Base Rent and other charges and the time period
covered by such payment; (iv) that Landlord is not in default under this Lease
(or, if Landlord is claimed to be in default, stating why); and (v) that Tenant
has accepted possession of the Property and the Lease is in full force and
effect. Tenant shall deliver such statement to Landlord within ten (10) days
after Landlord's request. Landlord may give any such statement by Tenant to any
prospective purchaser or encumbrancer of the Property. Such purchaser or
encumbrancer may rely conclusively upon such statement as true and correct.
Page 24 of 33
<PAGE>
ARTICLE TWELVE: LEGAL COSTS
Section 12.01 Legal Proceedings. If Tenant or Landlord shall be in
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Non-defaulting Party") upon demand for any costs
or expenses that the Non-defaulting Party reasonably incurs in connection with
any breach or default of the Defaulting Party under this Lease, whether or not
suit is commenced or judgment entered. Such costs shall include actual legal
fees and costs incurred for the negotiation of a settlement, enforcement of
rights or otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the court in such action shall award to
the party in whose favor a judgment is entered, a reasonable sum as attorneys'
fees and costs. The losing party in such action shall pay such attorneys' fees
and costs.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. Non-Discrimination. Tenant promises, and it is a
condition to the continuance of this Lease, that there will be no discrimination
against, or segregation of, any person or group of persons on the basis of race,
color, sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
Section 13.02. Severability. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.03. Interpretation. The captions of the Articles or
Sections of this Lease are to assist the parties in reading this Lease and are
not a part of the terms or provisions of this Lease. Whenever required by the
context of this Lease, the singular shall include the plural the plural shall
include the singular. The masculine, feminine and neuter genders shall each
include the other. No provision of this Agreement is to be interpreted for or
against either party because that party or that party's legal representative
drafted such provision.
Page 25 of 33
<PAGE>
Section 13.04. Incorporation of Prior Agreements; Modifications.
This Lease is the only agreement between the parties pertaining to the lease of
the Property and no other agreements are effective. All amendments to this
Lease shall be in writing and signed by all parties. Any other attempted
amendment shall be void.
Section 13.05. Notices. All notices required or permitted under this
Lease shall be in writing and shall be personally delivered or sent by certified
mail, return receipt requested, postage prepaid. Notices to Tenant shall be
delivered to the address specified in Section 1.02 above. Notices to Landlord
shall be delivered to the address specified in Section 1.01 above. All notices
shall be effective upon delivery. Either party may change its notice address
upon written notice to the other party.
Section 13.06. Waivers. All waivers must be in writing and signed by
the waiving party. Landlord's failure to enforce any provision of this Lease or
its acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future.
Section 13.07. No Recordation. Neither party shall record this Lease
without prior written consent from the other party. However, either Landlord or
Tenant may require that a "Short Form" memorandum of this Lease executed by both
parties be recorded. The party requiring such recording shall pay all transfer
taxes and recording fees.
Section 13.08. Binding Effect; Choice of Law. This Lease binds and
inures to the benefit of any party who legally acquires any rights or interest
in this Lease from Landlord or Tenant. However, Landlord shall have no
obligation to Tenant's successor unless the rights or interests of Tenant's
successor are properly acquired in accordance with the terms of this Lease. The
laws of the state in which the Property is located shall govern this Lease.
Section 13.09. Corporate Authority; Partnership Authority. If
Landlord or Tenant is a corporation, each person signing this Lease on behalf of
such party represents and
Page 26 of 33
<PAGE>
warrants that he has full authority to do so and that this Lease binds the
corporation. If Landlord or Tenant is a partnership, each person or entity
signing this Lease for such party represents and warrants that he or it is a
general partner of the partnership, that he or it has full authority to sign for
the partnership and that this Lease binds the partnership and all general
partners of the partnership.
Section 13.10. Execution of Lease. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument.
Section 13.11. Survival. All representations and warranties of
Landlord and Tenant shall survive the termination of this Lease.
Section 13.12. Confidentiality. The parties hereto shall keep this
Lease and all documents delivered pursuant to this Lease strictly confidential,
except as necessary for bona fide lenders, prospective purchasers, or to
governmental entities.
Section 13.13. Right of First Refusal. Should Landlord receive a
bonafide offer to purchase the Property or any portion of the Shopping Center
with commercially reasonable terms and conditions that Landlord is willing to
accept at any time during the Lease Term, Landlord shall so notify Tenant in
writing and provide Tenant with a copy of the offer or an appropriate written
description of the offer, and if Tenant do desires, Tenant may elect to purchase
the Property or applicable portion of the Shopping Center under the same terms
and conditions as the offer. If Tenant does not notify Landlord of its election
to purchase the Property or portion of the Shopping Center within ten (10)
working days after Tenant's receipt of Landlord's notice, then Landlord shall
have no further obligation to sell to Tenant. If Landlord does not consummate
any sale, or after the consummation of any such sale, then any subsequent offers
shall also me subject to this Section 13.13.
Section 13.14. Consent. All requests for consent or approval
required or permitted under this Lease shall be made in writing and in
reasonable detail and otherwise in the manner
Page 27 of 33
<PAGE>
required for notices hereunder. No such requests for consent or approval shall
be unreasonably refused or delayed. Any refusal of any such request for consent
or approval shall also be made in writing and otherwise in the manner required
for notices hereunder and shall identify, in reasonable detail, the reasons for
such refusal. Without affecting the generality of this Section 13.14, unless
otherwise specifically stated in this Lease, if any such request for consent or
approval shall not be refused within ten (10) days after the making thereof,
then a second request for consent may then be made, and if such second request
for consent or approval shall not be refused within ten (10) days after the
making of such request, then such consent or approval shall be deemed granted.
Section 13.15. Brokers. Each of the parties represents and warrants
to the other that it has dealt with no broker, other than as set forth in
Section 1.08, in connection with this Lease, and, insofar as it knows, no other
broker or other person is entitled to any commission or fee in connection with
this Lease. Landlord represents and warrants to Tenant that Tenant shall have
no responsibility regarding any agreement made between Landlord and any broker
and that Tenant shall have no responsibility for the payment of any commission
or fee. Each of the parties hereby indemnifies the other against any commission
or fee such indemnifying party may have incurred in connection with this Lease.
Section 13.16. Police Substation. Tenant is aware that a portion of
the Shopping Center is to be used as a police substation. Tenant understands
that such use may not provide as much commercial traffic to the Shopping Center
as a retail or other commercial use. Providing that such use does not violate
other terms of this Lease, Tenant hereby consents to such use in the Shopping
Center.
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED
HERETO. IF ADDITIONAL PROVISIONS ARE TO BE INSERTED, PLEASE CHECK BELOW.
( ) Rider Attached
Page 28 of 33
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease
effective as of the date first written above, and have initialed all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD": Hawaiian Gardens Redevelopment Agency,
a California Governmental Entity
By: /s/ NELSON E. OLIVA 2-14-95 6:45 p.m.
---------------------------------------
Nelson E. Oliva, Executive Director
"TENANT": 99CENTS ONLY STORES,
a California corporation
By: /s/ DAVE GOLD
---------------------------------------
Dave Gold, President
Page 29 of 33
<PAGE>
EXHIBIT "A"
Description of Property, Common Areas and Shopping Center
[FLOOR PLAN]
Page 30 of 33
<PAGE>
EXHIBIT "B"
Work Letter
Details of
Tenant's Work
and
Landlord's Work
[TO BE INSERTED AS SET FORTH IN LETTER DATED FEBRUARY 8, 1995]
Page 31 of 33
<PAGE>
EXHIBIT "B"
Work Letter
A. TENANT'S WORK:
Tenant's work may include the following:
Installing new floor covering.
Adding, removing, or altering lighting.
Installing cardboard baler.
Installing alarm, phone, and PA systems.
Installing fixtures, equipment, and inventory.
Demolition of interior walls.
Building new partition walls.
Interior signage.
Modifying storefront glass.
Installing automatic door(s).
Installing window displays.
Modifying, removing, adding drop ceiling.
Installing drinking fountain and mop sink.
Neon lights on front of building.
Interior patching.
Interior painting.
Any other work deemed reasonably necessary by Tenant for Tenant's use.
Page 32 of 33
<PAGE>
B. LANDLORD'S WORK:
Landlord's work shall include the following, which shall be completed prior to
the Delivery Date:
Landlord shall deliver the Property to Tenant in broom clean and good
condition, free of environmental hazards and in compliance with law.
The major systems shall be provided in good working order and of
sufficient capacity for the building and Tenant's use. These systems
shall include, but not be limited to, the roof, building structure,
main electrical (800 Amps), plumbing, HVAC (40 tons), and sewer
service. The building shall also be provided with 2 handicap
bathrooms to Health Department Codes. The floor slab shall be
substantially smooth and level for Tenant's installation of vinyl
floor tile. (Tenant shall be responsible for removing existing floor
coverings if Tenant so desires).
Loading facilities shall be created for Tenant's regular deliveries
via 45 and 48 foot semi-trucks and shall include:
One 10 foot by 12 foot commercial grade roll up door at rear of
building.
Gradually sloped ramp/driveway from loading door to street.
Loading zone.
Page 33 of 33
<PAGE>
IRREVOCABLE PROXY
THIS IRREVOCABLE PROXY is made and entered into, as of the date
indicated on the signature page hereof, by and between UNIVERSAL INTERNATIONAL,
INC., a Minnesota corporation, as the holder (the "Holder") of shares (together
with any shares which may be acquired hereafter, the "Shares) of common stock
of ODD'S-N-END'S, INC., a Delaware corporation (the "Company"), and 99 CENTS
ONLY STORES, a California corporation ("99 CENTS Only Stores").
With respect to the proposed merger (the "Merger") of the Company
and Odd's-N-End's Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of 99 CENTS Only Stores (the "Sub"), which will be evidenced
by an Agreement and Plan of Reorganization (the "Merger Agreement"), the
Holder agrees as follows:
1. a. The Holder hereby appoints David Gold and Eric Schiffer, as
designees of 99 CENTS Only Stores, or any of them acting alone, the sole
and exclusive and true and lawful proxy, agent and attorney-in-fact of
the Holder, with full power of substitution and resubstitution, to vote
or to execute and deliver written consents or otherwise act with respect
to all of the Shares whether now owned or hereafter acquired by the
Holder, as fully, to the same extent and with the same effect, as the
Holder might or could do under any applicable laws or regulations
governing the rights and powers of stockholders of a Delaware corporation,
but only in connection with the approval of the Merger and the Merger
Agreement and such other matters as 99 CENTS Only Stores may deem
necessary to effectuate the Merger and the transactions contemplated
under the Merger Agreement (the "Proxy");
b. The Holder shall execute such additional documents and take
such additional actions as 99 CENTS Only Stores may reasonably request to
effectuate or further secure and protect the rights of 99 CENTS Only
Stores under this Proxy;
c. 99 CENTS Only Stores and the Holder intend that this Proxy is
coupled with an interest in the Shares and in the Company, and, as a
result, this Proxy shall be irrevocable until the date this Proxy
terminates as provided in Section 5 hereof, whereupon it shall
automatically lapse; and
d. The Holder hereby revokes any other proxy or proxies to act
and vote on behalf of any and all Shares now or hereafter owned by the
Holder, and hereby ratifies and confirms all acts and votes that the
persons specified in this Proxy may lawfully perform by virtue of this
authorization.
2. The Holder agrees that, from and after the date hereof, and until
this Proxy shall terminate in accordance with Section 5 hereof, the Holder
may not sell, transfer, assign, pledge,
<PAGE>
hypothecate or otherwise dispose of all or any part of the Shares, except as
contemplated by the Merger Agreement and any such transfer or pledge shall be
void and of no effect.
3. The Holder represents and warrants that it beneficially and of
record owns 1,913,239 shares of common stock of the Company (which Shares
currently constitute all the Shares owned by the Holder or in which the
Holder has any other legal or equitable right, title or interest) and has
full right, power and authority to vote such Shares and to grant this Proxy
with respect to such Shares pursuant hereto, and owns such Shares free and
clear of any liens, claims, encumbrances or rights or interests of others.
4. The Holder agrees not to take any action in respect of the Holder's
ownership interest in the Shares including, without limitation, the
solicitation of proxies from other stockholders of the Company or voting of
the Shares, which may impede, or adversely affect the likelihood of, the
consummation of the Merger and the transactions contemplated under the Merger
Agreement.
5. This Proxy shall terminate and this Proxy shall be revoked (i) only
with the written consent of 99 CENTS Only Stores; or (ii) on the first to
occur of (a) the consummation of the Merger; or (b) the termination of the
Merger Agreement in accordance with its terms.
6. The Holder acknowledges that 99 CENTS Only Stores' rights hereunder
are unique and that it will not have adequate remedies at law for the
Holder's failure to perform its obligations hereunder. Accordingly, it is
agreed that 99 CENTS Only Stores shall have the right to specific performance
and equitable injunctive relief for the enforcement of such obligations in
addition to all other available remedies at law or in equity.
7. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED BOTH AS TO
VALIDITY AND PERFORMANCE AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES
THEREOF.
<PAGE>
IN WITNESS WHEREOF, this Proxy has been duly executed by
or on behalf of each party as of this 2nd day of March, 1998.
ATTEST: 99 CENTS ONLY STORES,
a California Corporation
/s/ Andrew Farina By: /s/ David Gold
- ------------------------- -----------------------------
David Gold
Its: Chairman of the Board, President
and Chief Executive Officer
WITNESS: UNIVERSAL INTERNATIONAL, INC.,
a Minnesota corporation
/s/ Andrew Farina By: /s/ Richard Ennen
- ------------------------- -----------------------------
Richard Ennen
Its: President
<PAGE>
STOCKHOLDER SUPPORT AGREEMENT
THIS STOCKHOLDER SUPPORT AGREEMENT (this "Agreement"), is made and
entered into, as of the date indicated on the signature page hereof, by and
between Mark Ravich (the "Stockholder"), a stockholder of Universal
International, Inc., a Minnesota corporation (the "Company"), and 99 CENTS
Only Stores, a California corporation ("99 CENTS Only Stores").
WHEREAS, as of the date hereof, the Stockholder owns of record and
beneficially an aggregate of 372,472 shares of Common Stock, par value $0.05
per share ("Company Common Stock") of the Company (such shares of Company
Common Stock, together with any other voting or equity securities of the
Company hereafter acquired by the Stockholder prior to the termination of
this Agreement, being referred to herein collectively as the "Shares");
WHEREAS, 99 CENTS Only Stores proposes to make a tender offer to
acquire all of the issued and outstanding shares of Company Common Stock (the
"Offer") pursuant to which 99 CENTS Only Stores will offer to exchange one
share of Common Stock, no par value, of 99 CENTS Only Stores, for 16 shares of
Company Common Stock (the "Exchange Ratio") ( the purchase (if any) of shares
of the Common Stock of Universal pursuant to the Offer is referred to herein
as the "Closing," and the date of such purchase (if any) of shares of the
Common Stock of Universal pursuant to the Offer is referred to herein as the
"Closing Date"); and
WHEREAS, as a condition to the willingness of 99 CENTS Only Stores
to make the Offer, 99 CENTS Only Stores has requested that the Stockholder
agree, and in order to induce 99 CENTS Only Stores to make the Offer, the
Stockholder has agreed, to enter into this Agreement and perform its
obligations hereunder.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereby agree as follows:
Section 1. VOTING OF SHARES. Subject to the provisions of Section 3
below, the Stockholder hereby agrees that, at any meeting of the stockholders
of the Company, however called, and in any action by consent of the
stockholders of the Company, the Stockholder will vote all of the Shares (a)
in favor of the Offer and (b) in favor of any other matter deemed necessary
by 99 CENTS Only Stores to effectuate the Offer or solicited in connection
with the Offer, and considered and voted upon by the stockholders of the
Company (or any class thereof).
Section 2. TENDER OF SHARES. Subject to the provisions of Section 3
below, the Stockholder hereby irrevocably agrees to tender and sell all of
the Shares to 99 CENTS Only Stores pursuant to the terms of the Offer.
Section 3. THE OFFER. Stockholder's obligations under Section 1 and
2 above are conditioned upon (x) the actual exchange ratio included as part
of the Offer being no less favorable to the Stockholder than the Exchange
Ratio, and (y) the Stockholder receiving in consideration for his tender
pursuant to Section 2 above, the same per share consideration offered to the
stockholders of the Company generally in the Offer. In addition, following
commencement of the
<PAGE>
Offer, 99 CENTS Only Stores shall be obligated to purchase and acquire the
Shares concurrent with its acquisition of the first shares of Company Common
Stock it acquires from any stockholder of the Company pursuant to the Offer.
Section 4. OPTIONS TO PURCHASE UNIVERSAL INTERNATIONAL COMMON STOCK.
Stockholder is the holder of options to purchase 50,000 shares of the Common
Stock of the Company for a per share exercise price of $1.125 per share (the
"Existing Options"). Stockholder agrees to exercise the Existing Options
after the date upon which Stockholder receives notice from 99 CENTS Only
Stores of the commencement of the Offer and prior to the expiration of the
Offer, and to tender and sell to 99 CENTS Only Stores all of the shares of
Company Common Stock issuable upon exercise of the Existing Options in the
Offer pursuant to Section 2 above (and subject to the provisions of Section 3
above); PROVIDED, that Stockholder shall not be required to exercise the
Existing Options if the closing sales price of the Common Stock of the
Company is less than the exercise price of the Existing Options on the
trading day immediately preceding the date of the Closing of the Offer. If
necessary to enable Stockholder to comply with the time periods set forth in
the immediately preceding sentence, 99 CENTS Only Stores will use its best
efforts to cause the Company to extend the term of the Existing Options.
Stockholder agrees and acknowledges that any and all other options to
purchase securities of the Company held by him which have not been exercised
after the date upon which Stockholder receives notice from 99 CENTS Only
Stores of the commencement of the Offer and prior to the Closing of the Offer
shall terminate.
Section 5. CONSULTING AGREEMENT. Stockholder has resigned from the
Board of Directors of the Company effective with the execution of this
Agreement and 99 CENTS Only Stores hereby consents to such resignation. In
order to provide for an orderly transition, Universal International, 99 CENTS
Only Stores and Stockholder shall enter into a consulting agreement pursuant
to which Stockholder shall provide consulting services to 99 CENTS Only Stores
to assist in the transactions contemplated by the Offer for a period of 12
months following the date of this Agreement as reasonably requested by
99 CENTS Only Stores; provided that Stockholder shall not be required to
provide more than 16 hours of consulting services during any calendar month
hereunder. In consideration of such services, Stockholder shall be granted
options as set forth in the forms of Option Agreement included as Exhibit A
and B hereof. The form of Consulting Agreement is attached hereto as Exhibit
C.
Section 6. TRANSFER OF SHARES. Other than for sales of Shares to
99 CENTS Only Stores made pursuant to the Offer or otherwise, from and after
the date hereof until the earlier of any termination of this Agreement in
accordance with the terms hereof or the Closing Date, the Stockholder will
not, directly or indirectly, (a) sell, assign, transfer, pledge, encumber or
otherwise dispose of any of the Shares, (b) deposit any of the Shares into a
voting trust or enter into a voting agreement or arrangement with respect to
any of the Shares or grant any proxy or power of attorney with respect
thereto which is inconsistent with this Agreement or (c) enter into any
contract, option or other arrangement or undertaking with respect to the
direct or indirect sale, assignment, transfer or other disposition of any
Company Common Stock.
Section 7. TERMINATION. This Agreement shall terminate (a) only
with the written consent of 99 CENTS Only Stores and Stockholder or (b) on the
first to occur of (x) that date (whether prior to or following commencement
of the Offer, and prior to such time (if any) that the Company
<PAGE>
actually purchases any shares of the Common Stock of Universal) on which the
Company announces that it has determined not to proceed with the Offer, and
(y) September 30, 1998.
Section 8. MISCELLANEOUS.
a. This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, both written and oral, between the
parties with respect thereto. This Agreement may not be amended, modified or
rescinded except by an instrument in writing signed by each of the parties
hereto.
b. This Agreement and all other similar agreements entered into
concurrently herewith include all of the shares held of record and held
beneficially by Stockholder and any and all trusts with which either party is
affiliated which hold of record of beneficially any shares of Company Common
Stock.
c. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, or public policy,
all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible to the
fullest extent permitted by applicable law in a mutually acceptable manner in
order that the terms of this Agreement remain as originally contemplated to
the fullest extent possible. Nothing in this Agreement shall be deemed to
modify in any respect the Executive Employment Agreement, as amended, in
effect between the parties hereto.
d. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
e. This Agreement may be executed in counterparts, each of which
shall be deemed an original and all of which together shall constitute one
and the same instrument.
f. The Stockholder acknowledges that 99 CENTS Only Stores's rights
hereunder are unique and that it will not have adequate remedies at law for
the Stockholder's failure to perform his obligations hereunder. Accordingly,
it is agreed that 99CENTS Only Stores shall have the right to specific
performance and equitable injunctive relief for the enforcement of such
obligations in addition to all other available remedies at law or in equity.
g. Concurrently upon execution of this Agreement, 99 CENTS Only
Stores shall reimburse Mark Ravich and Norman Ravich up to $5,000 for legal
fees and disbursements incurred in connection with the negotiation and
execution of this Agreement and all ancillary or related agreements
(including the Stockholder Support Agreement between 99CENTS Only Stores and
Norman Ravich) and the exhibits hereto and thereto.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the 24th day of February, 1998.
99 CENTS Only Stores
By: /s/ David Gold
------------------------------
Name: David Gold
Its: Chairman of the Board, Chief Executive
Officer and President
STOCKHOLDER
/s/ Mark Ravich
------------------------------
Mark Ravich
<PAGE>
STOCKHOLDER SUPPORT AGREEMENT
THIS STOCKHOLDER SUPPORT AGREEMENT (this "Agreement"), is made and
entered into, as of the date indicated on the signature page hereof, by and
between Norman Ravich (the "Stockholder"), a stockholder of Universal
International, Inc., a Minnesota corporation (the "Company"), and 99CENTS
Only Stores, a California corporation ("99 CENTS Only Stores").
WHEREAS, as of the date hereof, the Stockholder owns of record and
beneficially an aggregate 108,620 shares of Common Stock, par value $0.05 per
share ("Company Common Stock") of the Company (such shares of Company Common
Stock, together with any other voting or equity securities of the Company
hereafter acquired by the Stockholder prior to the termination of this
Agreement, being referred to herein collectively as the "Shares");
WHEREAS, 99 CENTS Only Stores proposes to make a tender offer to
acquire all of the issued and outstanding shares of Company Common Stock (the
"Offer") pursuant to which 99 CENTS Only Stores will offer to exchange one
share of Common Stock, no par value, of 99 CENTS Only Stores, for 16 shares
of Company Common Stock (the "Exchange Ratio") ( the purchase (if any) of
shares of the Common Stock of Universal pursuant to the Offer is referred to
herein as the "Closing," and the date of such purchase (if any) of shares of
the Common Stock of Universal pursuant to the Offer is referred to herein as
the "Closing Date"); and
WHEREAS, as a condition to the willingness of 99 CENTS Only Stores
to make the Offer, 99 CENTS Only Stores has requested that the Stockholder
agree, and in order to induce 99 CENTS Only Stores to make the Offer, the
Stockholder has agreed, to enter into this Agreement and perform its
obligations hereunder.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereby agree as follows:
Section 1. VOTING OF SHARES. Subject to the provisions of Section 3
below, the Stockholder hereby agrees that, at any meeting of the stockholders
of the Company, however called, and in any action by consent of the
stockholders of the Company, the Stockholder will vote all of the Shares (a)
in favor of the Offer and (b) in favor of any other matter deemed necessary
by 99 CENTS Only Stores to effectuate the Offer or solicited in connection
with the Offer, and considered and voted upon by the stockholders of the
Company (or any class thereof).
Section 2. TENDER OF SHARES. Subject to the provisions of Section 3
below, the Stockholder hereby irrevocably agrees to tender and sell all of
the Shares to 99 cents Only Stores pursuant to the terms of the Offer.
Section 3. THE OFFER. Stockholder's obligations under Section 1 and
2 above are conditioned upon (x) the actual exchange ratio included as part
of the Offer being no less favorable to the Stockholder than the Exchange
Ratio, and (y) the Stockholder receiving in consideration for his tender
pursuant to Section 2 above, the same per share consideration offered to the
stockholders of the Company generally in the Offer. In addition, following
commencement of the
<PAGE>
Offer, 99 CENTS Only Stores shall be obligated to purchase and acquire the
Shares concurrent with its acquisition of the first shares of Company Common
Stock it acquires from any stockholder of the Company pursuant to the Offer.
Section 4. OPTIONS TO PURCHASE UNIVERSAL INTERNATIONAL COMMON STOCK.
Stockholder is the holder of options to purchase 75,000 shares of the Common
Stock of the Company for a per share exercise price of $1.125 per share (the
"Existing Options"). Stockholder agrees to exercise the Existing Options
after the date upon which Stockholder receives notice from 99 CENTS Only
Stores of the commencement of the Offer and prior to the expiration of the
Offer, and to tender and sell to 99 CENTS Only Stores all of the shares of
Company Common Stock issuable upon exercise of the Existing Options in the
Offer pursuant to Section 2 above (and subject to the provisions of Section 3
above); PROVIDED, that Stockholder shall not be required to exercise the
Existing Options if the closing sales price of the Common Stock of the
Company is less than the exercise price of the Existing Options on the
trading day immediately preceding the date of the Closing of the Offer. If
necessary to enable Stockholder to comply with the time periods set forth in
the immediately preceding sentence, 99 CENTS Only Stores will use its best
efforts to cause the Company to extend the term of the Existing Options.
Stockholder agrees and acknowledges that any and all other options to
purchase securities of the Company held by him which have not been exercised
after the date upon which Stockholder receives notice from 99 cents Only
Stores of the commencement of the Offer and prior to the Closing of the Offer
shall terminate.
Section 5. CONSULTING AGREEMENT. In order to provide for an orderly
transition, Universal International, 99 CENTS Only Stores and Stockholder
shall enter into a consulting agreement pursuant to which Stockholder shall
provide consulting services to 99 CENTS Only Stores to assist in the
transactions contemplated by the Offer for a period of 90 days following the
date of this Agreement as reasonably requested by 99 CENTS Only Stores;
provided that Stockholder shall not be required to provide more than 16 hours
of consulting services during any calendar month hereunder. In consideration
of such services, Stockholder shall be granted an option as set forth in the
form of Option Agreement included as Exhibit A hereof. The form of Consulting
Agreement is attached hereto as Exhibit B.
Section 6. TRANSFER OF SHARES. Other than for sales of Shares to
99 CENTS Only Stores made pursuant to the Offer or otherwise, from and after
the date hereof until the earlier of any termination of this Agreement in
accordance with the terms hereof or the Closing Date, the Stockholder will
not, directly or indirectly, (a) sell, assign, transfer, pledge, encumber or
otherwise dispose of any of the Shares, (b) deposit any of the Shares into a
voting trust or enter into a voting agreement or arrangement with respect to
any of the Shares or grant any proxy or power of attorney with respect
thereto which is inconsistent with this Agreement or (c) enter into any
contract, option or other arrangement or undertaking with respect to the
direct or indirect sale, assignment, transfer or other disposition of any
Company Common Stock.
Section 7. TERMINATION. This Agreement shall terminate (a) only
with the written consent of 99 CENTS Only Stores and Stockholder or (b) on the
first to occur of (x) that date (whether prior to or following commencement
of the Offer, and prior to such time (if any) that the Company actually
purchases any shares of the Common Stock of Universal) on which the Company
announces that it has determined not to proceed with the Offer, and (y)
September 30, 1998.
<PAGE>
Section 8. MISCELLANEOUS.
a. This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, both written and oral, between the
parties with respect thereto. This Agreement may not be amended, modified or
rescinded except by an instrument in writing signed by each of the parties
hereto.
b. This Agreement and all other similar agreements entered into
concurrently herewith include all of the shares held of record and held
beneficially by Stockholder and any and all trusts with which either party is
affiliated which hold of record of beneficially any shares of Company Common
Stock.
c. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, or public policy,
all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible to the
fullest extent permitted by applicable law in a mutually acceptable manner in
order that the terms of this Agreement remain as originally contemplated to
the fullest extent possible. Nothing in this Agreement shall be deemed to
modify in any respect the Executive Employment Agreement, as amended, in
effect between the parties hereto.
d. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
e. This Agreement may be executed in counterparts, each of which
shall be deemed an original and all of which together shall constitute one
and the same instrument.
f. The Stockholder acknowledges that 99 CENTS Only Stores's rights
hereunder are unique and that it will not have adequate remedies at law for
the Stockholder's failure to perform his obligations hereunder. Accordingly,
it is agreed that 99 CENTS Only Stores shall have the right to specific
performance and equitable injunctive relief for the enforcement of such
obligations in addition to all other available remedies at law or in equity.
g. Concurrently upon execution of this Agreement, 99 CENTS Only
Stores shall reimburse Mark Ravich and Norman Ravich up to $5,000 for legal
fees and disbursements incurred in connection with the negotiation and
execution of this Agreement and all ancillary or related agreements
(including the Stockholder Support Agreement between 99 CENTS Only Stores and
Mark Ravich) and the exhibits hereto and thereto.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the 24th day of February, 1998.
99 CENTS Only Stores
By: /s/ David Gold
-------------------------------
Name: David Gold
Its: Chairman of the Board, Chief Executive
Officer and President
STOCKHOLDER
/s/ Norman Ravich
-------------------------------
Norman Ravich
<PAGE>
STOCKHOLDER SUPPORT AGREEMENT
THIS STOCKHOLDER SUPPORT AGREEMENT (this "Agreement"), is made and
entered into, as of the date indicated on the signature page hereof, by and
between the Alyssa Danielle Ravich 1991 Irrevocable Trust (the "Stockholder"),
a stockholder of Universal International, Inc., a Minnesota corporation (the
"Company"), and 99 CENTS Only Stores, a California corporation ("99 CENTS Only
Stores").
WHEREAS, as of the date hereof, the Stockholder owns of record and
beneficially an aggregate of 14,000 shares of Common Stock, par value $0.05
per share ("Company Common Stock") of the Company (such shares of Company
Common Stock, together with any other voting or equity securities of the
Company hereafter acquired by the Stockholder prior to the termination of
this Agreement, being referred to herein collectively as the "Shares");
WHEREAS, 99 CENTS Only Stores proposes to make a tender offer to
acquire all of the issued and outstanding shares of Company Common Stock (the
"Offer") pursuant to which 99 CENTS Only Stores will offer to exchange one
share of Common Stock, no par value, of 99 CENTS Only Stores, for 16 shares of
Company Common Stock (the "Exchange Ratio") ( the purchase (if any) of shares
of the Common Stock of Universal pursuant to the Offer is referred to herein
as the "Closing," and the date of such purchase (if any) of shares of the
Common Stock of Universal pursuant to the Offer is referred to herein as the
"Closing Date"); and
WHEREAS, as a condition to the willingness of 99 CENTS Only Stores
to make the Offer, 99 CENTS Only Stores has requested that the Stockholder
agree, and in order to induce 99 CENTS Only Stores to make the Offer, the
Stockholder has agreed, to enter into this Agreement and perform its
obligations hereunder.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereby agree as follows:
Section 1. VOTING OF SHARES. Subject to the provisions of Section 3
below, the Stockholder hereby agrees that, at any meeting of the stockholders
of the Company, however called, and in any action by consent of the
stockholders of the Company, the Stockholder will vote all of the Shares (a)
in favor of the Offer and (b) in favor of any other matter deemed necessary
by 99 CENTS Only Stores to effectuate the Offer or solicited in connection
with the Offer, and considered and voted upon by the stockholders of the
Company (or any class thereof).
Section 2. TENDER OF SHARES. Subject to the provisions of Section 3
below, the Stockholder hereby irrevocably agrees to tender and sell all of
the Shares to 99 cents Only Stores pursuant to the terms of the Offer.
Section 3. THE OFFER. Stockholder's obligations under Section 1 and
2 above are conditioned upon (x) the actual exchange ratio included as part
of the Offer being no less favorable to the Stockholder than the Exchange
Ratio, and (y) the Stockholder receiving in consideration for his tender
pursuant to Section 2 above, the same per share consideration offered to the
<PAGE>
stockholders of the Company generally in the Offer. In addition, following
commencement of the Offer, 99 CENTS Only Stores shall be obligated to purchase
and acquire the Shares concurrent with its acquisition of the first shares of
Company Common Stock it acquires from any stockholder of the Company pursuant
to the Offer.
Section 4. TRANSFER OF SHARES. Other than for sales of Shares to
99 CENTS Only Stores made pursuant to the Offer or otherwise, from and after the
date hereof until the earlier of any termination of this Agreement in accordance
with the terms hereof or the Closing Date, the Stockholder will not, directly or
indirectly, (a) sell, assign, transfer, pledge, encumber or otherwise dispose of
any of the Shares, (b) deposit any of the Shares into a voting trust or enter
into a voting agreement or arrangement with respect to any of the Shares or
grant any proxy or power of attorney with respect thereto which is inconsistent
with this Agreement or (c) enter into any contract, option or other arrangement
or undertaking with respect to the direct or indirect sale, assignment, transfer
or other disposition of any Company Common Stock.
Section 5. TERMINATION. This Agreement shall terminate (a) only
with the written consent of 99 CENTS Only Stores and Stockholder or (b) on the
first to occur of (x) that date (whether prior to or following commencement
of the Offer, and prior to such time (if any) that the Company actually
purchases any shares of the Common Stock of Universal) on which the Company
announces that it has determined not to proceed with the Offer, and (y)
September 30, 1998.
Section 6. MISCELLANEOUS.
a. This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, both written and oral, between the
parties with respect thereto. This Agreement may not be amended, modified or
rescinded except by an instrument in writing signed by each of the parties
hereto.
b. This Agreement and all other similar agreements entered into
concurrently herewith include all of the shares held of record and held
beneficially by Stockholder and any and all trusts with which either party is
affiliated which hold of record of beneficially any shares of Company Common
Stock.
c. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, or public policy,
all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible to the
fullest extent permitted by applicable law in a mutually acceptable manner in
order that the terms of this Agreement remain as originally contemplated to
the fullest extent possible.
d. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
<PAGE>
e. This Agreement may be executed in counterparts, each of which
shall be deemed an original and all of which together shall constitute one
and the same instrument.
f. The Stockholder acknowledges that 99 CENTS Only Stores's rights
hereunder are unique and that it will not have adequate remedies at law for
the Stockholder's failure to perform his obligations hereunder. Accordingly,
it is agreed that 99 CENTS Only Stores shall have the right to specific
performance and equitable injunctive relief for the enforcement of such
obligations in addition to all other available remedies at law or in equity.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the 24th day of February, 1998.
99 CENTS Only Stores
By: /s/ David Gold
--------------------------------
Name: David Gold
Its: Chairman of the Board, Chief Executive
Officer and President
STOCKHOLDER
THE ALYSSA DANIELLE RAVICH 1991
IRREVOCABLE TRUST
/s/ Mark Ravich
----------------------------------
Mark Ravich, Trustee
<PAGE>
STOCKHOLDER SUPPORT AGREEMENT
THIS STOCKHOLDER SUPPORT AGREEMENT (this "Agreement"), is made and
entered into, as of the date indicated on the signature page hereof, by and
between the Alexander Coleman Ravich 1991 Irrevocable Trust (the "Stockholder"),
a stockholder of Universal International, Inc., a Minnesota corporation (the
"Company"), and 99 CENTS Only Stores, a California corporation ("99 CENTS Only
Stores").
WHEREAS, as of the date hereof, the Stockholder owns of record and
beneficially an aggregate of 14,000 shares of Common Stock, par value $0.05
per share ("Company Common Stock") of the Company (such shares of Company
Common Stock, together with any other voting or equity securities of the
Company hereafter acquired by the Stockholder prior to the termination of
this Agreement, being referred to herein collectively as the "Shares");
WHEREAS, 99 CENTS Only Stores proposes to make a tender offer to
acquire all of the issued and outstanding shares of Company Common Stock (the
"Offer") pursuant to which 99 CENTS Only Stores will offer to exchange one
share of Common Stock, no par value, of 99 CENTS Only Stores, for 16 shares
of Company Common Stock (the "Exchange Ratio") ( the purchase (if any) of
shares of the Common Stock of Universal pursuant to the Offer is referred to
herein as the "Closing," and the date of such purchase (if any) of shares of
the Common Stock of Universal pursuant to the Offer is referred to herein as
the "Closing Date"); and
WHEREAS, as a condition to the willingness of 99 CENTS Only Stores
to make the Offer, 99 CENTS Only Stores has requested that the Stockholder
agree, and in order to induce 99 CENTS Only Stores to make the Offer, the
Stockholder has agreed, to enter into this Agreement and perform its
obligations hereunder.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereby agree as follows:
Section 1. VOTING OF SHARES. Subject to the provisions of Section 3
below, the Stockholder hereby agrees that, at any meeting of the stockholders
of the Company, however called, and in any action by consent of the
stockholders of the Company, the Stockholder will vote all of the Shares (a)
in favor of the Offer and (b) in favor of any other matter deemed necessary
by 99 CENTS Only Stores to effectuate the Offer or solicited in connection
with the Offer, and considered and voted upon by the stockholders of the
Company (or any class thereof).
Section 2. TENDER OF SHARES. Subject to the provisions of Section 3
below, the Stockholder hereby irrevocably agrees to tender and sell all of
the Shares to 99 CENTS Only Stores pursuant to the terms of the Offer.
Section 3. THE OFFER. Stockholder's obligations under Section 1 and
2 above are conditioned upon (x) the actual exchange ratio included as part
of the Offer being no less favorable to the Stockholder than the Exchange
Ratio, and (y) the Stockholder receiving in consideration for his tender
pursuant to Section 2 above, the same per share consideration offered to the
<PAGE>
stockholders of the Company generally in the Offer. In addition, following
commencement of the Offer, 99 CENTS Only Stores shall be obligated to purchase
and acquire the Shares concurrent with its acquisition of the first shares of
Company Common Stock it acquires from any stockholder of the Company pursuant
to the Offer.
Section 4. TRANSFER OF SHARES. Other than for sales of Shares to
99 CENTS Only Stores made pursuant to the Offer or otherwise, from and after
the date hereof until the earlier of any termination of this Agreement in
accordance with the terms hereof or the Closing Date, the Stockholder will
not, directly or indirectly, (a) sell, assign, transfer, pledge, encumber or
otherwise dispose of any of the Shares, (b) deposit any of the Shares into a
voting trust or enter into a voting agreement or arrangement with respect to
any of the Shares or grant any proxy or power of attorney with respect
thereto which is inconsistent with this Agreement or (c) enter into any
contract, option or other arrangement or undertaking with respect to the
direct or indirect sale, assignment, transfer or other disposition of any
Company Common Stock.
Section 5. TERMINATION. This Agreement shall terminate (a) only
with the written consent of 99 CENTS Only Stores and Stockholder or (b) on the
first to occur of (x) that date (whether prior to or following commencement
of the Offer, and prior to such time (if any) that the Company actually
purchases any shares of the Common Stock of Universal) on which the Company
announces that it has determined not to proceed with the Offer, and (y)
September 30, 1998.
Section 6. MISCELLANEOUS.
a. This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, both written and oral, between the
parties with respect thereto. This Agreement may not be amended, modified or
rescinded except by an instrument in writing signed by each of the parties
hereto.
b. This Agreement and all other similar agreements entered into
concurrently herewith include all of the shares held of record and held
beneficially by Stockholder and any and all trusts with which either party is
affiliated which hold of record of beneficially any shares of Company Common
Stock.
c. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, or public policy,
all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible to the
fullest extent permitted by applicable law in a mutually acceptable manner in
order that the terms of this Agreement remain as originally contemplated to
the fullest extent possible.
d. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
<PAGE>
e. This Agreement may be executed in counterparts, each of which
shall be deemed an original and all of which together shall constitute one
and the same instrument.
f. The Stockholder acknowledges that 99 CENTS Only Stores's rights
hereunder are unique and that it will not have adequate remedies at law for
the Stockholder's failure to perform his obligations hereunder. Accordingly,
it is agreed that 99 CENTS Only Stores shall have the right to specific
performance and equitable injunctive relief for the enforcement of such
obligations in addition to all other available remedies at law or in equity.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the 24th day of February, 1998.
99 CENTS Only Stores
By: /s/ David Gold
------------------------------
Name: David Gold
Its: Chairman of the Board, Chief Executive
Officer and President
STOCKHOLDER
THE ALEXANDER COLEMAN RAVICH 1991
IRREVOCABLE TRUST
/s/ Mark Ravich
-------------------------------
Mark Ravich, Trustee
<PAGE>
STOCKHOLDER SUPPORT AGREEMENT
THIS STOCKHOLDER SUPPORT AGREEMENT (this "Agreement"), is made and
entered into, as of the date indicated on the signature page hereof, by and
between the Norman J. Ravich Irrevocable Trust (the "Stockholder"), a
stockholder of Universal International, Inc., a Minnesota corporation (the
"Company"), and 99 CENTS Only Stores, a California corporation ("99 CENTS Only
Stores").
WHEREAS, as of the date hereof, the Stockholder owns of record and
beneficially an aggregate of 220,000 shares of Common Stock, par value $0.05
per share ("Company Common Stock") of the Company (such shares of Company
Common Stock, together with any other voting or equity securities of the
Company hereafter acquired by the Stockholder prior to the termination of
this Agreement, being referred to herein collectively as the "Shares");
WHEREAS, 99 CENTS Only Stores proposes to make a tender offer to
acquire all of the issued and outstanding shares of Company Common Stock (the
"Offer") pursuant to which 99 CENTS Only Stores will offer to exchange one
share of Common Stock, no par value, of 99 CENTS Only Stores, for 16 shares of
Company Common Stock (the "Exchange Ratio") ( the purchase (if any) of shares
of the Common Stock of Universal pursuant to the Offer is referred to herein
as the "Closing," and the date of such purchase (if any) of shares of the
Common Stock of Universal pursuant to the Offer is referred to herein as the
"Closing Date"); and
WHEREAS, as a condition to the willingness of 99 CENTS Only Stores
to make the Offer, 99 CENTS Only Stores has requested that the Stockholder
agree, and in order to induce 99 CENTS Only Stores to make the Offer, the
Stockholder has agreed, to enter into this Agreement and perform its
obligations hereunder.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereby agree as follows:
Section 1. VOTING OF SHARES. Subject to the provisions of Section 3
below, the Stockholder hereby agrees that, at any meeting of the stockholders
of the Company, however called, and in any action by consent of the
stockholders of the Company, the Stockholder will vote all of the Shares (a)
in favor of the Offer and (b) in favor of any other matter deemed necessary
by 99 CENTS Only Stores to effectuate the Offer or solicited in connection
with the Offer, and considered and voted upon by the stockholders of the
Company (or any class thereof).
Section 2. TENDER OF SHARES. Subject to the provisions of Section 3
below, the Stockholder hereby irrevocably agrees to tender and sell all of
the Shares to 99 CENTS Only Stores pursuant to the terms of the Offer.
Section 3. THE OFFER. Stockholder's obligations under Section 1 and
2 above are conditioned upon (x) the actual exchange ratio included as part
of the Offer being no less favorable to the Stockholder than the Exchange
Ratio, and (y) the Stockholder receiving in consideration for his tender
pursuant to Section 2 above, the same per share consideration offered to the
<PAGE>
stockholders of the Company generally in the Offer. In addition, following
commencement of the Offer, 99 CENTS Only Stores shall be obligated to purchase
and acquire the Shares concurrent with its acquisition of the first shares of
Company Common Stock it acquires from any stockholder of the Company pursuant
to the Offer.
Section 4. TRANSFER OF SHARES. Other than for sales of Shares to
99 CENTS Only Stores made pursuant to the Offer or otherwise, from and after
the date hereof until the earlier of any termination of this Agreement in
accordance with the terms hereof or the Closing Date, the Stockholder will
not, directly or indirectly, (a) sell, assign, transfer, pledge, encumber or
otherwise dispose of any of the Shares, (b) deposit any of the Shares into a
voting trust or enter into a voting agreement or arrangement with respect to
any of the Shares or grant any proxy or power of attorney with respect
thereto which is inconsistent with this Agreement or (c) enter into any
contract, option or other arrangement or undertaking with respect to the
direct or indirect sale, assignment, transfer or other disposition of any
Company Common Stock.
Section 5. TERMINATION. This Agreement shall terminate (a) only
with the written consent of 99 CENTS Only Stores and Stockholder or (b) on the
first to occur of (x) that date (whether prior to or following commencement
of the Offer, and prior to such time (if any) that the Company actually
purchases any shares of the Common Stock of Universal) on which the Company
announces that it has determined not to proceed with the Offer, and (y)
September 30, 1998.
Section 6. MISCELLANEOUS.
a. This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, both written and oral, between the
parties with respect thereto. This Agreement may not be amended, modified or
rescinded except by an instrument in writing signed by each of the parties
hereto.
b. This Agreement and all other similar agreements entered into
concurrently herewith include all of the shares held of record and held
beneficially by Stockholder and any and all trusts with which either party is
affiliated which hold of record of beneficially any shares of Company Common
Stock.
c. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, or public policy,
all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible to the
fullest extent permitted by applicable law in a mutually acceptable manner in
order that the terms of this Agreement remain as originally contemplated to
the fullest extent possible.
d. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
<PAGE>
e. This Agreement may be executed in counterparts, each of which
shall be deemed an original and all of which together shall constitute one
and the same instrument.
f. The Stockholder acknowledges that 99 CENTS Only Stores's rights
hereunder are unique and that it will not have adequate remedies at law for
the Stockholder's failure to perform his obligations hereunder. Accordingly,
it is agreed that 99 CENTS Only Stores shall have the right to specific
performance and equitable injunctive relief for the enforcement of such
obligations in addition to all other available remedies at law or in equity.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the 24th day of February, 1998.
99 CENTS Only Stores
By: /s/ David Gold
----------------------------------------
Name: David Gold
Its: Chairman of the Board, Chief Executive
Officer and President
STOCKHOLDER
THE NORMAN J. RAVICH IRREVOCABLE TRUST
/s/ Mark Ravich
-------------------------------------------
Mark Ravich, Trustee
<PAGE>
STOCKHOLDER SUPPORT AGREEMENT
THIS STOCKHOLDER SUPPORT AGREEMENT (this "Agreement"), is made and
entered into, as of the date indicated on the signature page hereof, by and
between the Norman and Sally Ravich Family Trust (the "Stockholder"), a
stockholder of Universal International, Inc., a Minnesota corporation (the
"Company"), and 99 CENTS Only Stores, a California corporation ("99 CENTS Only
Stores").
WHEREAS, as of the date hereof, the Stockholder owns of record and
beneficially an aggregate of 265,000 shares of Common Stock, par value $0.05
per share ("Company Common Stock") of the Company (such shares of Company
Common Stock, together with any other voting or equity securities of the
Company hereafter acquired by the Stockholder prior to the termination of
this Agreement, being referred to herein collectively as the "Shares");
WHEREAS, 99 CENTS Only Stores proposes to make a tender offer to
acquire all of the issued and outstanding shares of Company Common Stock (the
"Offer") pursuant to which 99 CENTS Only Stores will offer to exchange one
share of Common Stock, no par value, of 99 CENTS Only Stores, for 16 shares of
Company Common Stock (the "Exchange Ratio") ( the purchase (if any) of shares
of the Common Stock of Universal pursuant to the Offer is referred to herein
as the "Closing," and the date of such purchase (if any) of shares of the
Common Stock of Universal pursuant to the Offer is referred to herein as the
"Closing Date"); and
WHEREAS, as a condition to the willingness of 99 CENTS Only Stores
to make the Offer, 99 CENTS Only Stores has requested that the Stockholder
agree, and in order to induce 99 CENTS Only Stores to make the Offer, the
Stockholder has agreed, to enter into this Agreement and perform its
obligations hereunder.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereby agree as follows:
Section 1. VOTING OF SHARES. Subject to the provisions of Section 3
below, the Stockholder hereby agrees that, at any meeting of the stockholders
of the Company, however called, and in any action by consent of the
stockholders of the Company, the Stockholder will vote all of the Shares (a)
in favor of the Offer and (b) in favor of any other matter deemed necessary
by 99 CENTS Only Stores to effectuate the Offer or solicited in connection
with the Offer, and considered and voted upon by the stockholders of the
Company (or any class thereof).
Section 2. TENDER OF SHARES. Subject to the provisions of Section 3
below, the Stockholder hereby irrevocably agrees to tender and sell all of
the Shares to 99 CENTS Only Stores pursuant to the terms of the Offer.
Section 3. THE OFFER. Stockholder's obligations under Section 1 and
2 above are conditioned upon (x) the actual exchange ratio included as part
of the Offer being no less favorable to the Stockholder than the Exchange
Ratio, and (y) the Stockholder receiving in consideration for his tender
pursuant to Section 2 above, the same per share consideration offered to the
<PAGE>
stockholders of the Company generally in the Offer. In addition, following
commencement of the Offer, 99 CENTS Only Stores shall be obligated to purchase
and acquire the Shares concurrent with its acquisition of the first shares of
Company Common Stock it acquires from any stockholder of the Company pursuant
to the Offer.
Section 4. TRANSFER OF SHARES. Other than for sales of Shares to
99 CENTS Only Stores made pursuant to the Offer or otherwise, from and after
the date hereof until the earlier of any termination of this Agreement in
accordance with the terms hereof or the Closing Date, the Stockholder will
not, directly or indirectly, (a) sell, assign, transfer, pledge, encumber or
otherwise dispose of any of the Shares, (b) deposit any of the Shares into a
voting trust or enter into a voting agreement or arrangement with respect to
any of the Shares or grant any proxy or power of attorney with respect
thereto which is inconsistent with this Agreement or (c) enter into any
contract, option or other arrangement or undertaking with respect to the
direct or indirect sale, assignment, transfer or other disposition of any
Company Common Stock.
Section 5. TERMINATION. This Agreement shall terminate (a) only
with the written consent of 99 CENTS Only Stores and Stockholder or (b) on the
first to occur of (x) that date (whether prior to or following commencement
of the Offer, and prior to such time (if any) that the Company actually
purchases any shares of the Common Stock of Universal) on which the Company
announces that it has determined not to proceed with the Offer, and (y)
September 30, 1998.
Section 6. MISCELLANEOUS.
a. This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, both written and oral, between the
parties with respect thereto. This Agreement may not be amended, modified or
rescinded except by an instrument in writing signed by each of the parties
hereto.
b. This Agreement and all other similar agreements entered into
concurrently herewith include all of the shares held of record and held
beneficially by Stockholder and any and all trusts with which either party is
affiliated which hold of record of beneficially any shares of Company Common
Stock.
c. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, or public policy,
all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible to the
fullest extent permitted by applicable law in a mutually acceptable manner in
order that the terms of this Agreement remain as originally contemplated to
the fullest extent possible.
d. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
<PAGE>
e. This Agreement may be executed in counterparts, each of which
shall be deemed an original and all of which together shall constitute one
and the same instrument.
f. The Stockholder acknowledges that 99 CENTS Only Stores's
rights hereunder are unique and that it will not have adequate remedies at
law for the Stockholder's failure to perform his obligations hereunder.
Accordingly, it is agreed that 99 CENTS Only Stores shall have the right to
specific performance and equitable injunctive relief for the enforcement of
such obligations in addition to all other available remedies at law or in
equity.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the 24th day of February, 1998.
99 CENTS Only Stores
By: /s/ David Gold
----------------------------------------
Name: David Gold
Its: Chairman of the Board, Chief Executive
Officer and President
STOCKHOLDER
THE NORMAN AND SALLY RAVICH FAMILY TRUST
/s/ Mark Ravich
-------------------------------------------
Mark Ravich, Trustee
<PAGE>
OPTION AGREEMENT
THIS OPTION AGREEMENT (this "OPTION AGREEMENT") is made as of February
26, 1998, by and between 99 CENTS Only Stores, a California corporation (the
"COMPANY") and Mark Ravich ("OPTIONEE").
RECITALS
A. The Company proposes to make a tender offer (the "OFFER") to
acquire all of the issued and outstanding shares of Common Stock of Universal
International, Inc., a Minnesota corporation ("UNIVERSAL").
B. In connection with the Offer, Optionee and the Company have entered
into that certain Consulting Agreement of even date herewith, pursuant to
which Optionee has agreed to provide certain consulting services to the
Company as more fully set forth therein, and the Company has agreed to
compensate Optionee for agreeing to provide such consulting services by
entering into this Option Agreement and granting to Optionee the option
contained herein.
C. Optionee and the Company desire to enter into this Option Agreement
to compensate Optionee for agreeing to enter into the Consulting Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing recitals, and the
terms, conditions and covenants contained herein, the Company and Optionee
agree as follows:
1. GRANT OF OPTION. The Company hereby grants to Optionee the right
and option (the "OPTION"), upon the terms and subject to the conditions set
forth in this Option Agreement, to purchase all or any portion of 15,000
shares of the Common Stock of the Company at a per share exercise price of
$33.5625 (such shares of Common Stock are collectively referred to herein as
the "SHARES," and such per share exercise prices are collectively referred to
herein as the "EXERCISE PRICE").
2. TERM OF OPTION. The Option shall terminate and expire on the
earlier to occur of (x) that date prior to the commencement of the Offer on
which the Company announces that it has determined not to proceed with the
Offer, (y) that date following the commencement of the Offer but prior to
such time (if any) that the Company actually purchases any shares of the
Common Stock of Universal pursuant to the Offer on which the Offer is
terminated, and (iii) February 19, 2005. Upon request of Optionee, following
the date the Company actually purchases any shares of the Common Stock of
Universal pursuant to the Offer, the Company will issue to Optionee a new
Option Agreement replacing this Option Agreement which will restate this
Section 2 to read as follows: "2. Term of Option. The Option shall
terminate and expire on February 19, 2005."
<PAGE>
3. EXERCISE PERIOD. The Option shall become exercisable (in whole or
in part) on first business day following the date that the Company actually
purchases shares of the Common Stock of Universal pursuant to the Offer (the
"Closing"). Upon request of Optionee, following the Closing, the Company
will issue to Optionee a new Option Agreement replacing this Option Agreement
which will restate this Section 3 to read as follows: "The Option is
exercisable (in whole or in part)."
4. EXERCISE OF OPTION. There is no obligation to exercise the Option,
in whole or in part. The Option may be exercised, in whole or in part, only
by delivery to the Company of:
(a) written notice of exercise stating the number of Shares then
being purchased (the "PURCHASED SHARES"); and
(b) payment of the Exercise Price of the Purchased Shares, either
(1) in cash, or (2) by (i) delivery to the Company of other shares of Common
Stock with an aggregate Fair Market Value equal to the total Exercise Price
of the Purchased Shares, (ii) by withholding from the Purchased Shares due
Optionee upon exercise, that number of shares with a Fair Market Value of the
exercise price due; or (iii) in any other form of legal consideration that
may be acceptable to the Board. In the event the Option is exercised for
less than all of the Shares, the Company shall, concurrent with its delivery
of the Purchased Shares, deliver to Optionee a new Option Agreement identical
to this Option Agreement representing the right to purchase that number of
Shares that remain unexercised.
Following receipt of the notice and payment referred to above, the
Company shall issue and deliver to Optionee a stock certificate or stock
certificates evidencing the Purchased Shares; PROVIDED, HOWEVER, that the
Company shall not be obligated to issue a fraction or fractions of a share of
its Common Stock, and may pay to Optionee, in cash or by check, the Fair
Market Value of any fraction or fractions of a share exercised by Optionee.
"FAIR MARKET VALUE" shall be determined as follows: (1) if the Common Stock
is listed on any established stock exchange or a national market system,
including without limitation the Nasdaq National Market, the Fair Market
Value of a share of Common Stock shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such
system or exchange (or the exchange with the greatest volume of trading in
the Common Stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable; (2) if the Common Stock is quoted on the Nasdaq
System (but not on the Nasdaq National Market) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of Common Stock shall be the mean between the bid and
asked prices for the Common Stock on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable; and (3) in the absence of an established
market for the Common Stock, the Fair Market Value shall be determined in
good faith by the Board.
5. ADJUSTMENTS UPON RECAPITALIZATION.
2
<PAGE>
(a) Subject to the provisions of Section 5(b), if any change is
made in the Common Stock, without receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares,
change in corporate structure or other transaction not involving the receipt
of consideration by the Company) the Option will be appropriately adjusted in
the class(es) and number of shares and price per share of stock subject to
the Option. Such adjustments shall be reasonably made by the Board. The
conversion of any convertible securities of the Company shall not be treated
as a "transaction not involving the receipt of consideration by the Company."
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation
in which the Company is not the surviving corporation; or (3) a reverse
merger in which the Company is the surviving corporation but the shares of
the Common Stock outstanding immediately preceding the merger are converted
by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, then, at the sole discretion of the Board and
to the extent permitted by applicable law, the Option shall continue in full
force and effect and, if applicable, the surviving corporation or an
Affiliate of such surviving corporation shall assume the Option and/or shall
substitute similar option or award in place of the Option.
(c) To the extent that the foregoing adjustments relate to stock
or securities of the Company, such adjustments shall be made reasonably by
the Board.
(d) The provisions of this Section 5 are intended to be exclusive,
and Optionee shall have no other rights arising under this Option Agreement
upon the occurrence of any of the events described in this Section 5.
(e) The grant of the Option shall not affect in any way the right
or power of the Company to make adjustments, reclassifications,
reorganizations or changes in its capital or business structure, or to merge,
consolidate, dissolve or liquidate, or to sell or transfer all or any part of
its business or assets.
6. WAIVER OF RIGHTS TO PURCHASE STOCK. By signing this Option
Agreement, Optionee acknowledges and agrees that neither the Company nor any
other person or entity is under any obligation to sell or transfer to
Optionee any option or equity security of the Company, other than the Shares
subject to the Option and any other right or option to purchase Common Stock
which was previously granted in writing to Optionee by the Board. By signing
this Option Agreement, Optionee specifically waives all rights which he or
she may have had prior to the date of this Option Agreement to receive any
option or equity security of the Company.
7. LEGEND ON STOCK CERTIFICATES. Optionee agrees that all certificates
representing the Purchased Shares will be subject to such stock transfer orders
and other restrictions (if any) as the Company may reasonably determines to be
necessary under the rules, regulations and other
3
<PAGE>
requirements of the Commission, any stock exchange upon which the Common
Stock is then listed and any applicable federal or state securities laws, and
the Company may cause a legend or legends to be put on such certificates to
make appropriate reference to such restrictions. If any such shares are
issued with a legend, the Company shall promptly cause such legend to be
removed if Optionee delivers a written opinion of counsel to the effect that
the Shares are no longer to such restrictions.
8. NO RIGHTS AS SHAREHOLDER. Except as provided in Section 5 of this
Option Agreement, Optionee shall have no rights as a shareholder with respect
to the Shares until the date of the issuance to Optionee of a stock
certificate or stock certificates evidencing such Shares (which issuance
shall not be unreasonably delayed or withheld following the date of
exercise). Except as may be provided in Section 5 of this Option Agreement,
no adjustment shall be made for dividends (ordinary or extraordinary, whether
in cash, securities or other property) or distributions or other rights for
which the record date is prior to the date such stock certificate is issued.
9. REGISTRATION OF SHARES. Prior to the date upon which the Shares
first become exercisable under this Option Agreement, the Company shall
register the resale of such Shares by Optionee pursuant to a Registration
Statement on Form S-8 or S-3 (at the election of the Company) to be filed by
the Company under the 1933 Act and shall maintain such Registration Statement
current until the earlier to occur (x) such time as the Optionee has
transferred all of the Shares, or (y) such date as the Optionee shall be
eligible to transfer such shares pursuant to Rule 144 of the Securities and
Exchange Commission.
10. CHARACTER OF OPTION. The Option is not intended to qualify as an
"incentive stock option" as that term is defined in Section 422 of the Code.
11. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Optionee shall promptly take all actions
and execute all documents requested by the Company which the Company deems to
be reasonably necessary to effectuate the terms and intent of this Option
Agreement.
(b) NOTICES. All notices, requests, demands and other
communications under this Option Agreement shall be in writing and shall be
given to the parties hereto as follows:
If to the Company:
99 CENTS Only Stores
4000 East Union Pacific Avenue
City of Commerce, California 90023
If to Optionee:
Mark Ravich
[address]
4
<PAGE>
or at such other address or addresses as may have been furnished by such
either party in writing to the other party hereto. Any such notice, request,
demand or other communication shall be effective (i) if given by mail, 72
hours after such communication is deposited in the mail by first-class
certified mail, return receipt requested, postage prepaid, addressed as
aforesaid, or (ii) if given by any other means, when delivered at the address
specified in this subsection (b).
(c) OPTION TRANSFERABLE. Optionee may sell, transfer, assign or
otherwise dispose of all or any portion of the Option, subject to Optionee's
compliance with all applicable laws. In the event the Optionee shall sell,
transfer, assign or otherwise dispose of all or any portion of the Option,
the Company shall deliver to Optionee (and in the event the Optionee shall
sell, transfer, assign or otherwise dispose of less than all of the Option,
to Optionee and the transferee of such portion of the Option) a new Option
Agreement identical to this Option Agreement representing the right to
purchase that number of Shares so transferred or retained, as the case may
be.
(d) SUCCESSORS AND ASSIGNS. Except to the extent specifically
limited by the terms and provisions of this Option Agreement, this Option
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives.
(e) GOVERNING LAW. THIS OPTION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA APPLICABLE TO
CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE.
(f) NO RIGHT OF SET-OFF. The obligations of the Company hereunder
are conditioned upon Optionee's performance of its obligations under Section
1 and Section 2 of that certain Stockholder Support Agreement, dated the date
hereof, by and between Optionee and the Company (the "Support Agreement").
Except as provided in the preceding sentence, the Company shall have no right
to set off any obligation owing from Optionee to the Company against the
Company's obligations hereunder. Further, no breach or alleged breach by
Optionee under any other agreement with the Company or otherwise shall in any
manner modify or otherwise excuse the Company from performing its obligations
under this Agreement. Upon request of Optionee following performance of
Optionee's obligations under Section 1 and Section 2 of the Support Agreement
and delivery of this Option Agreement to the Company for cancellation, the
Company will issue to Optionee a new Option Agreement replacing this Option
Agreement which will restate this Section 11(f) to read as follows: "(f) No
right of Set-Off. The Company shall have no right to set off any obligation
owing from Optionee to the Company against the Company's obligations
hereunder. Further, no breach or alleged breach by Optionee under any other
agreement with the Company or otherwise shall any manner modify or otherwise
excuse the Company from performing its obligations under this Agreement."
5
<PAGE>
(g) MISCELLANEOUS. Titles and captions contained in this Option
Agreement are inserted for convenience of reference only and do not
constitute a part of this Option Agreement for any other purpose. Except as
specifically provided herein, neither this Option Agreement nor any right
pursuant hereto or interest herein shall be assignable by any of the parties
hereto without the prior written consent of the other party hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective
on the day and year first hereinabove set forth.
99 CENTS ONLY STORES
By: /s/ David Gold
--------------------------
Its: Chairman of the Board,
Chief Executive Officer
and President
/s/ Mark Ravich
----------------------------
Mark Ravich
6
<PAGE>
OPTION AGREEMENT
THIS OPTION AGREEMENT (this "OPTION AGREEMENT") is made as of February
26, 1998, by and between 99 CENTS Only Stores, a California corporation (the
"COMPANY") and Mark Ravich ("OPTIONEE").
RECITALS
A. The Company proposes to make a tender offer (the "OFFER") to
acquire all of the issued and outstanding shares of Common Stock of Universal
International, Inc., a Minnesota corporation ("UNIVERSAL").
B. In connection with the Offer, Optionee and the Company have entered
into that certain Consulting Agreement of even date herewith, pursuant to
which Optionee has agreed to provide certain consulting services to the
Company as more fully set forth therein, and the Company has agreed to
compensate Optionee for agreeing to provide such consulting services by
entering into this Option Agreement and granting to Optionee the option
contained herein.
C. Optionee and the Company desire to enter into this Option Agreement
to compensate Optionee for agreeing to enter into the Consulting Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing recitals, and the
terms, conditions and covenants contained herein, the Company and Optionee
agree as follows:
1. GRANT OF OPTION. The Company hereby grants to Optionee the right
and option (the "OPTION"), upon the terms and subject to the conditions set
forth in this Option Agreement, to purchase all or any portion of 9,375
shares of the Common Stock of the Company at a per share exercise price of
$40.00 (such shares of Common Stock are collectively referred to herein as
the "SHARES," and such per share exercise prices are collectively referred to
herein as the "EXERCISE PRICE").
2. TERM OF OPTION. The Option shall terminate and expire on the
earlier to occur of (x) that date prior to the commencement of the Offer on
which the Company announces that it has determined not to proceed with the
Offer, (y) that date following the commencement of the Offer but prior to
such time (if any) that the Company actually purchases any shares of the
Common Stock of Universal pursuant to the Offer on which the Offer is
terminated, and (iii) February 19, 2005. Upon request of Optionee, following
the date the Company actually purchases any shares of the Common Stock of
Universal pursuant to the Offer, the Company will issue to Optionee a new
Option Agreement replacing this Option Agreement which will restate this
Section 2 to read as follows: "2. Term of Option. The Option shall
terminate and expire on February 19, 2005."
<PAGE>
3. EXERCISE PERIOD. The Option shall become exercisable (in whole or
in part) on the first business day following the date that the Company
actually purchases any shares of the Common Stock of Universal pursuant to
the Offer (the "Closing"). Upon request of Optionee, following the Closing,
the Company will issue to Optionee a new Option Agreement replacing this
Option Agreement which will restate this Section 3 to read as follows: "The
Option is exercisable (in whole or in part)."
4. EXERCISE OF OPTION. There is no obligation to exercise the Option,
in whole or in part. The Option may be exercised, in whole or in part, only
by delivery to the Company of:
(a) written notice of exercise stating the number of Shares then
being purchased (the "PURCHASED SHARES"); and
(b) payment of the Exercise Price of the Purchased Shares, either
(1) in cash, or (2) by (i) delivery to the Company of other shares of Common
Stock with an aggregate Fair Market Value equal to the total Exercise Price
of the Purchased Shares, (ii) by withholding from the Purchased Shares due
Optionee upon exercise, that number of shares with a Fair Market Value of the
exercise price due; or (iii) in any other form of legal consideration that
may be acceptable to the Board. In the event the Option is exercised for
less than all of the Shares, the Company shall, concurrent with its delivery
of the Purchased Shares, deliver to Optionee a new Option Agreement identical
to this Option Agreement representing the right to purchase that number of
Shares that remain unexercised.
Following receipt of the notice and payment referred to above, the
Company shall issue and deliver to Optionee a stock certificate or stock
certificates evidencing the Purchased Shares; PROVIDED, HOWEVER, that the
Company shall not be obligated to issue a fraction or fractions of a share of
its Common Stock, and may pay to Optionee, in cash or by check, the Fair
Market Value of any fraction or fractions of a share exercised by Optionee.
"FAIR MARKET VALUE" shall be determined as follows: (1) if the Common Stock
is listed on any established stock exchange or a national market system,
including without limitation the Nasdaq National Market, the Fair Market
Value of a share of Common Stock shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such
system or exchange (or the exchange with the greatest volume of trading in
the Common Stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable; (2) if the Common Stock is quoted on the Nasdaq
System (but not on the Nasdaq National Market) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of Common Stock shall be the mean between the bid and
asked prices for the Common Stock on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable; and (3) in the absence of an established
market for the Common Stock, the Fair Market Value shall be determined in
good faith by the Board.
2
<PAGE>
5. ADJUSTMENTS UPON RECAPITALIZATION.
(a) Subject to the provisions of Section 5(b), if any change is
made in the Common Stock, without receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares,
change in corporate structure or other transaction not involving the receipt
of consideration by the Company) the Option will be appropriately adjusted in
the class(es) and number of shares and price per share of stock subject to
the Option. Such adjustments shall be reasonably made by the Board. The
conversion of any convertible securities of the Company shall not be treated
as a "transaction not involving the receipt of consideration by the Company."
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation
in which the Company is not the surviving corporation; or (3) a reverse
merger in which the Company is the surviving corporation but the shares of
the Common Stock outstanding immediately preceding the merger are converted
by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, then, at the sole discretion of the Board and
to the extent permitted by applicable law, the Option shall continue in full
force and effect and, if applicable, the surviving corporation or an
Affiliate of such surviving corporation shall assume the Option and/or shall
substitute similar option or award in place of the Option.
(c) To the extent that the foregoing adjustments relate to stock
or securities of the Company, such adjustments shall be made reasonably by
the Board.
(d) The provisions of this Section 5 are intended to be exclusive,
and Optionee shall have no other rights arising under this Option Agreement
upon the occurrence of any of the events described in this Section 5.
(e) The grant of the Option shall not affect in any way the right
or power of the Company to make adjustments, reclassifications,
reorganizations or changes in its capital or business structure, or to merge,
consolidate, dissolve or liquidate, or to sell or transfer all or any part of
its business or assets.
6. WAIVER OF RIGHTS TO PURCHASE STOCK. By signing this Option
Agreement, Optionee acknowledges and agrees that neither the Company nor any
other person or entity is under any obligation to sell or transfer to
Optionee any option or equity security of the Company, other than the Shares
subject to the Option and any other right or option to purchase Common Stock
which was previously granted in writing to Optionee by the Board. By signing
this Option Agreement, Optionee specifically waives all rights which he or
she may have had prior to the date of this Option Agreement to receive any
option or equity security of the Company.
3
<PAGE>
7. LEGEND ON STOCK CERTIFICATES. Optionee agrees that all
certificates representing the Purchased Shares will be subject to such stock
transfer orders and other restrictions (if any) as the Company may reasonably
determines to be necessary under the rules, regulations and other
requirements of the Commission, any stock exchange upon which the Common
Stock is then listed and any applicable federal or state securities laws, and
the Company may cause a legend or legends to be put on such certificates to
make appropriate reference to such restrictions. If any such shares are
issued with a legend, the Company shall promptly cause such legend to be
removed if Optionee delivers a written opinion of counsel to the effect that
the Shares are no longer to such restrictions.
8. NO RIGHTS AS SHAREHOLDER. Except as provided in Section 5 of this
Option Agreement, Optionee shall have no rights as a shareholder with respect
to the Shares until the date of the issuance to Optionee of a stock
certificate or stock certificates evidencing such Shares (which issuance
shall not be unreasonably delayed or withheld following the date of
exercise). Except as may be provided in Section 5 of this Option Agreement,
no adjustment shall be made for dividends (ordinary or extraordinary, whether
in cash, securities or other property) or distributions or other rights for
which the record date is prior to the date such stock certificate is issued.
9. REGISTRATION OF SHARES. Prior to the date upon which the Shares
first become exercisable under this Option Agreement, the Company shall
register the resale of such Shares by Optionee pursuant to a Registration
Statement on Form S-8 or S-3 (at the election of the Company) to be filed by
the Company under the 1933 Act and shall maintain such Registration Statement
current until the earlier to occur (x) such time as the Optionee has
transferred all of the Shares, or (y) such date as the Optionee shall be
eligible to transfer such shares pursuant to Rule 144 of the Securities and
Exchange Commission.
10. CHARACTER OF OPTION. The Option is not intended to qualify as an
"incentive stock option" as that term is defined in Section 422 of the Code.
11. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Optionee shall promptly take all actions
and execute all documents requested by the Company which the Company deems to
be reasonably necessary to effectuate the terms and intent of this Option
Agreement.
(b) NOTICES. All notices, requests, demands and other
communications under this Option Agreement shall be in writing and shall be
given to the parties hereto as follows:
If to the Company:
99 CENTS Only Stores
4000 East Union Pacific Avenue
City of Commerce, California 90023
4
<PAGE>
If to Optionee:
Mark Ravich
[address]
or at such other address or addresses as may have been furnished by such
either party in writing to the other party hereto. Any such notice, request,
demand or other communication shall be effective (i) if given by mail, 72
hours after such communication is deposited in the mail by first-class
certified mail, return receipt requested, postage prepaid, addressed as
aforesaid, or (ii) if given by any other means, when delivered at the address
specified in this subsection (b).
(c) OPTION TRANSFERABLE. Optionee may sell, transfer, assign or
otherwise dispose of all or any portion of the Option, subject to Optionee's
compliance with all applicable laws. In the event the Optionee shall sell,
transfer, assign or otherwise dispose of all or any portion of the Option,
the Company shall deliver to Optionee (and in the event the Optionee shall
sell, transfer, assign or otherwise dispose of less than all of the Option,
to Optionee and the transferee of such portion of the Option) a new Option
Agreement identical to this Option Agreement representing the right to
purchase that number of Shares so transferred or retained, as the case may
be.
(d) SUCCESSORS AND ASSIGNS. Except to the extent specifically
limited by the terms and provisions of this Option Agreement, this Option
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives.
(e) GOVERNING LAW. THIS OPTION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA APPLICABLE TO
CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE.
(f) NO RIGHT OF SET-OFF. The obligations of the Company hereunder
are conditioned upon Optionee's performance of its obligations under Section
1 and Section 2 of that certain Stockholder Support Agreement, dated the date
hereof, by and between Optionee and the Company (the "Support Agreement").
Except as provided in the preceding sentence, the Company shall have no right
to set off any obligation owing from Optionee to the Company against the
Company's obligations hereunder. Further, no breach or alleged breach by
Optionee under any other agreement with the Company or otherwise shall in any
manner modify or otherwise excuse the Company from performing its obligations
under this Agreement. Upon request of Optionee following performance of
Optionee's obligations under Section 1 and Section 2 of the Support Agreement
and delivery of this Option Agreement to the Company for cancellation, the
Company will issue to Optionee a new Option Agreement replacing this Option
Agreement which will restate this Section 11(f) to read as follows: "(f) No
right of Set-Off. The Company shall have no right to
5
<PAGE>
set off any obligation owing from Optionee to the Company against the
Company's obligations hereunder. Further, no breach or alleged breach by
Optionee under any other agreement with the Company or otherwise shall any
manner modify or otherwise excuse the Company from performing its obligations
under this Agreement."
(g) MISCELLANEOUS. Titles and captions contained in this Option
Agreement are inserted for convenience of reference only and do not
constitute a part of this Option Agreement for any other purpose. Except as
specifically provided herein, neither this Option Agreement nor any right
pursuant hereto or interest herein shall be assignable by any of the parties
hereto without the prior written consent of the other party hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective on
the day and year first hereinabove set forth.
99 CENTS ONLY STORES
By: /s/ David Gold
--------------------------
Its: Chairman of the Board,
Chief Executive Officer
and President
/s/ Mark Ravich
-----------------------------
Mark Ravich
6
<PAGE>
OPTION AGREEMENT
THIS OPTION AGREEMENT (this "OPTION AGREEMENT") is made as of February
26, 1998, by and between 99 CENTS Only Stores, a California corporation (the
"COMPANY") and Norman Ravich ("OPTIONEE").
RECITALS
A. The Company proposes to make a tender offer (the "OFFER") to
acquire all of the issued and outstanding shares of Common Stock of Universal
International, Inc., a Minnesota corporation ("UNIVERSAL").
B. In connection with the Offer, Optionee and the Company have entered
into that certain Consulting Agreement of even date herewith, pursuant to
which Optionee has agreed to provide certain consulting services to the
Company as more fully set forth therein, and the Company has agreed to
compensate Optionee for agreeing to provide such consulting services by
entering into this Option Agreement and granting to Optionee the option
contained herein.
C. Optionee and the Company desire to enter into this Option Agreement
to compensate Optionee for agreeing to enter into the Consulting Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing recitals, and the
terms, conditions and covenants contained herein, the Company and Optionee
agree as follows:
1. GRANT OF OPTION. The Company hereby grants to Optionee the right
and option (the "OPTION"), upon the terms and subject to the conditions set
forth in this Option Agreement, to purchase all or any portion of 4,688
shares of the Common Stock of the Company at a per share exercise price of
$40.00 (such shares of Common Stock are collectively referred to herein as
the "SHARES," and such per share exercise prices are collectively referred to
herein as the "EXERCISE PRICE").
2. TERM OF OPTION. The Option shall terminate and expire on the
earlier to occur of (x) that date prior to the commencement of the Offer on
which the Company announces that it has determined not to proceed with the
Offer, (y) that date following the commencement of the Offer but prior to
such time (if any) that the Company actually purchases any shares of the
Common Stock of Universal pursuant to the Offer on which the Offer is
terminated, and (iii) February 19, 2005. Upon request of Optionee, following
the date the Company actually purchases any shares of the Common Stock of
Universal pursuant to the Offer, the Company will issue to Optionee a new
Option Agreement replacing this Option Agreement which will restate this
Section 2 to read as follows: "2. Term of Option. The Option shall
terminate and expire on February 19, 2005."
<PAGE>
3. EXERCISE PERIOD. The Option shall become exercisable (in whole or
in part) on first business day following the date that the Company actually
purchases shares of the Common Stock of Universal pursuant to the Offer (the
"Closing"). Upon request of Optionee, following the Closing, the Company
will issue to Optionee a new Option Agreement replacing this Option Agreement
which will restate this Section 3 to read as follows: "The Option is
exercisable (in whole or in part)."
4. EXERCISE OF OPTION. There is no obligation to exercise the Option,
in whole or in part. The Option may be exercised, in whole or in part, only
by delivery to the Company of:
(a) written notice of exercise stating the number of Shares then
being purchased (the "PURCHASED SHARES"); and
(b) payment of the Exercise Price of the Purchased Shares, either
(1) in cash, or (2) by (i) delivery to the Company of other shares of Common
Stock with an aggregate Fair Market Value equal to the total Exercise Price
of the Purchased Shares, (ii) by withholding from the Purchased Shares due
Optionee upon exercise, that number of shares with a Fair Market Value of the
exercise price due; or (iii) in any other form of legal consideration that
may be acceptable to the Board. In the event the Option is exercised for
less than all of the Shares, the Company shall, concurrent with its delivery
of the Purchased Shares, deliver to Optionee a new Option Agreement identical
to this Option Agreement representing the right to purchase that number of
Shares that remain unexercised.
Following receipt of the notice and payment referred to above, the
Company shall issue and deliver to Optionee a stock certificate or stock
certificates evidencing the Purchased Shares; PROVIDED, HOWEVER, that the
Company shall not be obligated to issue a fraction or fractions of a share of
its Common Stock, and may pay to Optionee, in cash or by check, the Fair
Market Value of any fraction or fractions of a share exercised by Optionee.
"FAIR MARKET VALUE" shall be determined as follows: (1) if the Common Stock
is listed on any established stock exchange or a national market system,
including without limitation the Nasdaq National Market, the Fair Market
Value of a share of Common Stock shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such
system or exchange (or the exchange with the greatest volume of trading in
the Common Stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable; (2) if the Common Stock is quoted on the Nasdaq
System (but not on the Nasdaq National Market) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of Common Stock shall be the mean between the bid and
asked prices for the Common Stock on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable; and (3) in the absence of an established
market for the Common Stock, the Fair Market Value shall be determined in
good faith by the Board.
2
<PAGE>
5. ADJUSTMENTS UPON RECAPITALIZATION.
(a) Subject to the provisions of Section 5(b), if any change is
made in the Common Stock, without receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares,
change in corporate structure or other transaction not involving the receipt
of consideration by the Company) the Option will be appropriately adjusted in
the class(es) and number of shares and price per share of stock subject to
the Option. Such adjustments shall be reasonably made by the Board. The
conversion of any convertible securities of the Company shall not be treated
as a "transaction not involving the receipt of consideration by the Company."
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation
in which the Company is not the surviving corporation; or (3) a reverse
merger in which the Company is the surviving corporation but the shares of
the Common Stock outstanding immediately preceding the merger are converted
by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, then, at the sole discretion of the Board and
to the extent permitted by applicable law, the Option shall continue in full
force and effect and, if applicable, the surviving corporation or an
Affiliate of such surviving corporation shall assume the Option and/or shall
substitute similar option or award in place of the Option.
(c) To the extent that the foregoing adjustments relate to stock
or securities of the Company, such adjustments shall be made reasonably by
the Board.
(d) The provisions of this Section 5 are intended to be exclusive,
and Optionee shall have no other rights arising under this Option Agreement
upon the occurrence of any of the events described in this Section 5.
(e) The grant of the Option shall not affect in any way the right
or power of the Company to make adjustments, reclassifications,
reorganizations or changes in its capital or business structure, or to merge,
consolidate, dissolve or liquidate, or to sell or transfer all or any part of
its business or assets.
6. WAIVER OF RIGHTS TO PURCHASE STOCK. By signing this Option
Agreement, Optionee acknowledges and agrees that neither the Company nor any
other person or entity is under any obligation to sell or transfer to
Optionee any option or equity security of the Company, other than the Shares
subject to the Option and any other right or option to purchase Common Stock
which was previously granted in writing to Optionee by the Board. By signing
this Option Agreement, Optionee specifically waives all rights which he or
she may have had prior to the date of this Option Agreement to receive any
option or equity security of the Company.
3
<PAGE>
7. LEGEND ON STOCK CERTIFICATES. Optionee agrees that all
certificates representing the Purchased Shares will be subject to such stock
transfer orders and other restrictions (if any) as the Company may reasonably
determines to be necessary under the rules, regulations and other
requirements of the Commission, any stock exchange upon which the Common
Stock is then listed and any applicable federal or state securities laws, and
the Company may cause a legend or legends to be put on such certificates to
make appropriate reference to such restrictions. If any such shares are
issued with a legend, the Company shall promptly cause such legend to be
removed if Optionee delivers a written opinion of counsel to the effect that
the Shares are no longer to such restrictions.
8. NO RIGHTS AS SHAREHOLDER. Except as provided in Section 5 of this
Option Agreement, Optionee shall have no rights as a shareholder with respect
to the Shares until the date of the issuance to Optionee of a stock
certificate or stock certificates evidencing such Shares (which issuance
shall not be unreasonably delayed or withheld following the date of
exercise). Except as may be provided in Section 5 of this Option Agreement,
no adjustment shall be made for dividends (ordinary or extraordinary, whether
in cash, securities or other property) or distributions or other rights for
which the record date is prior to the date such stock certificate is issued.
9. REGISTRATION OF SHARES. Prior to the date upon which the Shares
first become exercisable under this Option Agreement, the Company shall
register the resale of such Shares by Optionee pursuant to a Registration
Statement on Form S-8 or S-3 (at the election of the Company) to be filed by
the Company under the 1933 Act and shall maintain such Registration Statement
current until the earlier to occur (x) such time as the Optionee has
transferred all of the Shares, or (y) such date as the Optionee shall be
eligible to transfer such shares pursuant to Rule 144 of the Securities and
Exchange Commission.
10. CHARACTER OF OPTION. The Option is not intended to qualify as an
"incentive stock option" as that term is defined in Section 422 of the Code.
11. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Optionee shall promptly take all actions
and execute all documents requested by the Company which the Company deems to
be reasonably necessary to effectuate the terms and intent of this Option
Agreement.
(b) NOTICES. All notices, requests, demands and other
communications under this Option Agreement shall be in writing and shall be
given to the parties hereto as follows:
If to the Company:
99 CENTS Only Stores
4000 East Union Pacific Avenue
City of Commerce, California 90023
4
<PAGE>
If to Optionee:
Norman Ravich
[address]
or at such other address or addresses as may have been furnished by such
either party in writing to the other party hereto. Any such notice, request,
demand or other communication shall be effective (i) if given by mail, 72
hours after such communication is deposited in the mail by first-class
certified mail, return receipt requested, postage prepaid, addressed as
aforesaid, or (ii) if given by any other means, when delivered at the address
specified in this subsection (b).
(c) OPTION TRANSFERABLE. Optionee may sell, transfer, assign or
otherwise dispose of all or any portion of the Option, subject to Optionee's
compliance with all applicable laws. In the event the Optionee shall sell,
transfer, assign or otherwise dispose of all or any portion of the Option,
the Company shall deliver to Optionee (and in the event the Optionee shall
sell, transfer, assign or otherwise dispose of less than all of the Option,
to Optionee and the transferee of such portion of the Option) a new Option
Agreement identical to this Option Agreement representing the right to
purchase that number of Shares so transferred or retained, as the case may
be.
(d) SUCCESSORS AND ASSIGNS. Except to the extent specifically
limited by the terms and provisions of this Option Agreement, this Option
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives.
(e) GOVERNING LAW. THIS OPTION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA APPLICABLE TO
CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE.
(f) NO RIGHT OF SET-OFF. The obligations of the Company hereunder
are conditioned upon Optionee's performance of its obligations under Section 1
and Section 2 of that certain Stockholder Support Agreement, dated the date
hereof, by and between Optionee and the Company (the "Support Agreement").
Except as provided in the preceding sentence, the Company shall have no right
to set off any obligation owing from Optionee to the Company against the
Company's obligations hereunder. Further, no breach or alleged breach by
Optionee under any other agreement with the Company or otherwise shall in any
manner modify or otherwise excuse the Company from performing its obligations
under this Agreement. Upon request of Optionee following performance of
Optionee's obligations under Section 1 and Section 2 of the Support Agreement
and delivery of this Option Agreement to the Company for cancellation, the
Company will issue to Optionee a new Option Agreement replacing this Option
Agreement which will restate this Section 11(f) to read as follows: "(f) No
right of Set-Off. The Company shall have no right to set off any obligation
owing from Optionee to the Company against the Company's obligations
5
<PAGE>
hereunder. Further, no breach or alleged breach by Optionee under any other
agreement with the Company or otherwise shall any manner modify or otherwise
excuse the Company from performing its obligations under this Agreement."
(g) MISCELLANEOUS. Titles and captions contained in this Option
Agreement are inserted for convenience of reference only and do not
constitute a part of this Option Agreement for any other purpose. Except as
specifically provided herein, neither this Option Agreement nor any right
pursuant hereto or interest herein shall be assignable by any of the parties
hereto without the prior written consent of the other party hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective
on the day and year first hereinabove set forth.
99 CENTS ONLY STORES
By: /s/ David Gold
--------------------------
Its: Chairman of the Board,
Chief Executive Officer
and President
/s/ Norman Ravich
----------------------------
Norman Ravich
6
<PAGE>
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "AGREEMENT") is made as of February 24,
1998, by and between 99 CENTS Only Stores, a California corporation (the
"COMPANY") and Mark Ravich, an individual ("CONSULTANT").
RECITALS
A. Consultant currently serves as a director of Universal
International, Inc., a Minnesota corporation ("UNIVERSAL"), and possesses
extensive experience in all phases of the business operations of Universal.
B. The Company proposes to make a tender offer to acquire all of the
issued and outstanding shares of Common Stock of Universal (the "OFFER"),
and the Company desires to retain Consultant to provide advisory services to
the Company in connection with the Offer, and thereafter to provide sales,
management and operations consulting services in connection with the
operation of the business of Universal following the completion of the Offer
(collectively, the "SERVICES"), and Consultant desires to provide the
Services pursuant to this Agreement.
C. It is a condition to the willingness of the Company to make the
Offer that Consultant agree to provide the Services to the Company pursuant
to this Agreement, and as an inducement to the Company to make the Offer,
consultant has agreed to provide the Services to the Company pursuant to this
Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing recitals, and the
terms, conditions and covenants contained herein, the Company and Consultant
agree as follows:
1. CONSULTING SERVICES. The Company hereby retains Consultant to
provide, and Consultant agrees to provide, his services as a consultant to
the Company and to render when requested pursuant to the terms of this
Agreement the Services.
2. SCOPE OF SERVICES, RESPONSIBILITY AND DUTIES. Consultant's
services and duties as a consultant shall be to provide the Services in the
form of advice and consultation with the Board of Directors of the Company,
its President and other senior executive officers. The Company understands
that Consultant will be concurrently engaged in other business and personal
ventures, and therefore agrees to provide Consultant with at least five (5)
business days' notice of the need for any Services hereunder; PROVIDED that
Services may be provided upon shorter notice with the consent of Consultant.
The actual working hours during which Consultant shall be required to provide
Services hereunder shall be mutually agreed upon between Consultant and the
Company's
<PAGE>
Board of Directors, but in no event shall Consultant be required to provide
Services in excess of sixteen (16) hours during any calendar month hereunder.
The Services may be provided at such location, or by such means (including
telephonic or other electronic means of transmission) as Consultant shall
reasonably determine to be appropriate. The Company acknowledges and agrees
that the Services provided by Consultant hereunder are non-exclusive;
consequently, subject to Consultant's compliance at all times with the
provisions of Sections 5 of this Agreement, in the course of Consultant's
business activities, Consultant may perform services similar to the Services
(including services as an employee) for any other Person.
3. TERM. The term of this Agreement shall commence upon the date
hereof and shall continue for a period of twelve (12) months from the date
hereof.
4. COMPENSATION AND EXPENSES.
4.1 COMPENSATION. In consideration of Consultant's agreeing to
provide the Services, the Company shall, effective as of the date of this
Agreement, grant to Consultant options in the forms attached to the
Stockholder Support Agreement to which this Agreement is attached as Exhibits
A and B (the "Consultant Option"). The Company agrees that the Consultant
Option is granted to Consultant in consideration of Consultant agreeing to
enter into this Agreement and to make himself available to perform the
Services, and shall be fully earned by Consultant regardless of whether the
Company shall utilize Consultant to perform any Services hereunder.
4.2 OTHER COMPENSATION. All compensation derived by Consultant
from other employment or activities not proscribed by the terms of this
Agreement shall inure solely to the benefit of Consultant.
4.3 EXPENSES. Any and all reasonable travel, entertainment and
out of pocket expenses incurred by Consultant on behalf of the Company in
connection with rendering the Services contemplated by this Agreement shall
be fully reimbursed to Consultant within ten (10) days of the submission of a
request for reimbursement by Consultant to the Company accompanied by
appropriate documentation in accordance with the Company's then-current
expense reimbursement policies.
5. CONFIDENTIALITY AND TRADE SECRETS. Consultant shall not, at any
time during the term of this Agreement, exploit, use for any purpose not
specifically related to the Services or disclose to any Person any
confidential information, including price lists, pricing information,
customer lists, customer names, financial information, trade secrets,
know-how, unprinted or printed data or any related intangible property
developed during or prior to the term of this Agreement, belonging to, used
by, or developed by or for the benefit of the Company or Universal
(collectively "Trade Secrets"); PROVIDED, HOWEVER, that any such information
that may be obtained by a reasonably diligent businessman from readily
available and public sources of information shall not be deemed to be Trade
Secrets, unless such information was first published in breach of
2
<PAGE>
this Agreement or any other confidentiality agreement entered into between
Consultant and the Company.
6. RETURN OF CORPORATE PROPERTY AND TRADE SECRETS. Upon any
termination of this Agreement, Consultant shall turn over to the Company all
property, writings or documents then in his possession or custody belonging
to or relating to the affairs of the Company or Universal, or comprising or
relating to any Trade Secrets.
7. RESIGNATION AS DIRECTOR. Concurrent with the execution of this
Agreement, Consultant hereby resigns as a director of Universal. In the
event that either (x) prior to the commencement of the Offer, the Company
announces that it has determined not to proceed with the Offer, or (y)
following the commencement of the Offer but prior to such time (if any) that
the Company actually purchases any shares of the Common Stock of Universal
(the "Closing") pursuant to the Offer, the Offer is terminated, the Company
agrees to take all steps reasonably necessary to cause Consultant to be
reelected as a director of Universal, including without limitation, causing
the Company's Board designees to vote in favor of electing Consultant to the
Board and voting all shares of common stock of Universal then held by the
Company in favor of the election of Consultant to the Board, and shall
thereafter use its reasonable efforts to assure Consultant's continued
presence on the Board until November 17, 1999.
8. MISCELLANEOUS.
8.1 Consultant is entering into this Agreement as an independent
contractor, and no employment relationship, partnership, joint venture, or
other association shall be deemed to be created by this Agreement.
8.2 This Agreement shall be binding on and inure to the benefit of
the parties hereto and their respective successors and assigns; PROVIDED,
that Consultant's duties and obligations hereunder may not be delegated or
assigned by him in any manner.
8.3 This Agreement may be executed in two or more counterparts,
all of which, when taken together, shall constitute one and the same
Agreement.
8.4 The internal substantive laws (and not the choice of law
rules) of the State of Minnesota shall govern the validity and interpretation
of this Agreement and the performance by the parties hereto of their
respective duties and obligations hereunder.
8.5 Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to make the provision valid and enforceable
under the applicable law, but if any provision of this Agreement shall be or
become invalid or prohibited under any applicable law, such provision shall
be ineffective to the extent of such prohibition or invalidity only, without
thereby invalidating the remainder of such provision or the remaining
provisions of this Agreement.
3
<PAGE>
8.6 The obligations of Consultant under Section 5 and Section 6 of
this Agreement shall survive the termination of this Agreement and/or the
cessation of the provision of Services by Consultant regardless of the reason
or cause therefor.
8.7 No modifications, extensions, or waiver of any provisions
hereof or any release of any right hereunder shall be valid, unless the same
is in writing and is consented to by all parties hereto.
8.8 This Agreement embodies the entire understanding of the
parties hereto and no change may be made in it except in writing signed by
both parties.
8.9 All notices and communications provided for hereunder shall be
in writing and shall be given by personal delivery or by registered or
certified mail to the following business addresses or to such other address
as either party shall designate in writing to the other.
If to the Company:
99 CENTS Only Stores
4000 East Union Pacific Avenue
City of Commerce, CA 90023
Attn: Andy Farina
If to Consultant:
Mark Ravich
[address]
8.10 Captions and paragraphs headings used herein are for
convenience only and are not a part of this Agreement and shall not be used
in construing it.
8.11 Whenever the term "Person" is used in this Agreement, the term
shall mean and include any individual, partnership, trust, corporation, joint
venture, association, government, government bureau or agency, foreign or
domestic, or other entity of whatever kind or nature. Whenever the singular
is used herein and where required by the context, the same shall include the
plural, and the neuter gender shall include the masculine and feminine
genders.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective on the day and year first hereinabove set forth.
99 CENTS ONLY STORES
By: /s/ David Gold
--------------------------
Its: Chairman of the Board,
Chief Executive Officer
and President
/s/ Mark Ravich
-----------------------------
Mark Ravich
5
<PAGE>
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "AGREEMENT") is made as of February 26,
1998, by and between 99 CENTS Only Stores, a California corporation (the
"COMPANY") and Norman Ravich , an individual ("CONSULTANT").
RECITALS
A. Consultant currently serves as a director of Universal
International, Inc., a Minnesota corporation ("UNIVERSAL"), and possesses
extensive experience in all phases of the business operations of Universal.
B. The Company proposes to make a tender offer to acquire all of the
issued and outstanding shares of Common Stock of Universal (the "OFFER"),
and the Company desires to retain Consultant to provide advisory services to
the Company in connection with the Offer, and thereafter to provide sales,
management and operations consulting services in connection with the
operation of the business of Universal following the completion of the Offer
(collectively, the "SERVICES"), and Consultant desires to provide the
Services pursuant to this Agreement.
C. It is a condition to the willingness of the Company to make the
Offer that Consultant agree to provide the Services to the Company pursuant
to this Agreement, and as an inducement to the Company to make the Offer,
consultant has agreed to provide the Services to the Company pursuant to this
Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing recitals, and the
terms, conditions and covenants contained herein, the Company and Consultant
agree as follows:
1. CONSULTING SERVICES. The Company hereby retains Consultant to
provide, and Consultant agrees to provide, his services as a consultant to
the Company and to render when requested pursuant to the terms of this
Agreement the Services.
2. SCOPE OF SERVICES, RESPONSIBILITY AND DUTIES. Consultant's
services and duties as a consultant shall be to provide the Services in the
form of advice and consultation with the Board of Directors of the Company,
its President and other senior executive officers. The Company understands
that Consultant will be concurrently engaged in other business and personal
ventures, and therefore agrees to provide Consultant with at least five (5)
business days' notice of the need for any Services hereunder; PROVIDED that
Services may be provided upon shorter notice with the consent of Consultant.
The actual working hours during which Consultant shall be required to provide
Services hereunder shall be mutually agreed upon between Consultant and the
Company's
<PAGE>
Board of Directors, but in no event shall Consultant be required to provide
Services in excess of sixteen (16) hours during any calendar month hereunder.
The Services may be provided at such location, or by such means (including
telephonic or other electronic means of transmission) as Consultant shall
reasonably determine to be appropriate. The Company acknowledges and agrees
that the Services provided by Consultant hereunder are non-exclusive;
consequently, subject to Consultant's compliance at all times with the
provisions of Sections 5 of this Agreement, in the course of Consultant's
business activities, Consultant may perform services similar to the Services
(including services as an employee) for any other Person.
3. TERM. The term of this Agreement shall commence upon the date
hereof and shall continue for a period of ninety days from the date hereof.
4. COMPENSATION AND EXPENSES.
4.1 COMPENSATION. In consideration of Consultant's agreeing to
provide the Services, the Company shall, effective as of the date of this
Agreement, grant to Consultant an option in the form attached to the
Stockholder Support Agreement to which this Agreement is attached as Exhibit
A (the "Consultant Option"). The Company agrees that the Consultant Option
is granted to Consultant in consideration of Consultant agreeing to enter
into this Agreement and to make himself available to perform the Services,
and shall be fully earned by Consultant regardless of whether the Company
shall utilize Consultant to perform any Services hereunder.
4.2 OTHER COMPENSATION. All compensation derived by Consultant
from other employment or activities not proscribed by the terms of this
Agreement shall inure solely to the benefit of Consultant.
4.3 EXPENSES. Any and all reasonable travel, entertainment and
out of pocket expenses incurred by Consultant on behalf of the Company in
connection with rendering the Services contemplated by this Agreement shall
be fully reimbursed to Consultant within ten (10) days of the submission of a
request for reimbursement by Consultant to the Company accompanied by
appropriate documentation in accordance with the Company's then-current
expense reimbursement policies.
5. CONFIDENTIALITY AND TRADE SECRETS. Consultant shall not, at any
time during the term of this Agreement, exploit, use for any purpose not
specifically related to the Services or disclose to any Person any
confidential information, including price lists, pricing information,
customer lists, customer names, financial information, trade secrets,
know-how, unprinted or printed data or any related intangible property
developed during or prior to the term of this Agreement, belonging to, used
by, or developed by or for the benefit of the Company or Universal
(collectively "Trade Secrets"); PROVIDED, HOWEVER, that any such information
that may be obtained by a reasonably diligent businessman from readily
available and public sources of information shall not be deemed to be Trade
Secrets, unless such information was first published in breach of this
Agreement or any other confidentiality agreement entered into between
Consultant and the
2
<PAGE>
Company.
6. RETURN OF CORPORATE PROPERTY AND TRADE SECRETS. Upon any
termination of this Agreement, Consultant shall turn over to the Company all
property, writings or documents then in his possession or custody belonging
to or relating to the affairs of the Company or Universal, or comprising or
relating to any Trade Secrets.
7. MISCELLANEOUS.
7.1 Consultant is entering into this Agreement as an independent
contractor, and no employment relationship, partnership, joint venture, or
other association shall be deemed to be created by this Agreement.
7.2 This Agreement shall be binding on and inure to the benefit of
the parties hereto and their respective successors and assigns; PROVIDED,
that Consultant's duties and obligations hereunder may not be delegated or
assigned by him in any manner.
7.3 This Agreement may be executed in two or more counterparts,
all of which, when taken together, shall constitute one and the same
Agreement.
7.4 The internal substantive laws (and not the choice of law
rules) of the State of Minnesota shall govern the validity and interpretation
of this Agreement and the performance by the parties hereto of their
respective duties and obligations hereunder.
7.5 Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to make the provision valid and enforceable
under the applicable law, but if any provision of this Agreement shall be or
become invalid or prohibited under any applicable law, such provision shall
be ineffective to the extent of such prohibition or invalidity only, without
thereby invalidating the remainder of such provision or the remaining
provisions of this Agreement.
7.6 The obligations of Consultant under Section 5 and Section 6 of
this Agreement shall survive the termination of this Agreement and/or the
cessation of the provision of Services by Consultant regardless of the reason
or cause therefor.
7.7 No modifications, extensions, or waiver of any provisions
hereof or any release of any right hereunder shall be valid, unless the same
is in writing and is consented to by all parties hereto.
7.8 This Agreement embodies the entire understanding of the
parties hereto and no change may be made in it except in writing signed by
both parties.
7.9 All notices and communications provided for hereunder shall be
in writing
3
<PAGE>
and shall be given by personal delivery or by registered or certified mail to
the following business addresses or to such other address as either party
shall designate in writing to the other.
If to the Company:
99 CENTS Only Stores
4000 East Union Pacific Avenue
City of Commerce, CA 90023
Attn: Andy Farina
If to Consultant:
Norman Ravich
[address]
7.10 Captions and paragraphs headings used herein are for
convenience only and are not a part of this Agreement and shall not be used
in construing it.
7.11 Whenever the term "Person" is used in this Agreement, the term
shall mean and include any individual, partnership, trust, corporation, joint
venture, association, government, government bureau or agency, foreign or
domestic, or other entity of whatever kind or nature. Whenever the singular
is used herein and where required by the context, the same shall include the
plural, and the neuter gender shall include the masculine and feminine
genders.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement effective on the day and year first hereinabove set forth.
99 CENTS ONLY STORES
By: /s/ David Gold
-----------------------------
Its: Chairman of the Board
/s/ Norman Ravich
--------------------------------
Norman Ravich
5
<PAGE>
EXHIBIT 10.38
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 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
<PAGE>
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 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,
<PAGE>
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 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.
<PAGE>
(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.
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>
<PAGE>
ORDER NO. 97-435339
ESCROW NO. -------------------------------------------
LOAN NO. RECORDED/FILED IN OFFICIAL RECORDS
RECORDER'S OFFICE
WHEN RECORDED MAIL TO: LOS ANGELES COUNTY
CALIFORNIA
AU ZONE INVESTMENTS # 2, L.P.
5657 E. WASHINGTON BL. 4:41 PM MAR 21 1997
LOS ANGELES, CA 90040
-------------------------------------------
- --------------------------------------------------------------------------------
DOCUMENTARY TRANSFER TAX $4,400.00 SPACE ABOVE THIS LINE FOR RECORDER'S USE
---------
X Computed on the consideration or
- --- value of property conveyed, OR THE UNDERSIGNED GRANTOR
- --- Computed on the consideration or ----------------------------------------
value less liens or encumbrances Signature of Declarant or Agent
remaining at time of sale. determining tax - Firm Name
- --------------------------------------------------------------------------------
GRANT DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
The Hawaiian Gardens Redevelopment Agency
hereby GRANT(S) to
Au Zone Investments #2, L.P., a California Limited Partnership
the real property in the City of Hawaiian Gardens
County of Los Angeles , State of California, described as
See Exhibit "A" attached hereto and made a part hereof
Dated March 11, 1997 The Hawaiian Gardens
----------------- Redevelopment Agency
--------------------------------------
STATE OF CALIFORNIA )
) ss. By: /s/ Lupe A. Cabrera
--------------------------------------
COUNTY OF Los Angeles ) Lupe A. Cabrera
---------------- Chairman
On March 20, 1997 before me,
---------------- ------
- --------------------------------------
personally appeared Lupe A. Cabrera ROSITA FLORES
------------------ Commission #1066184
- -------------------------------------- Notary Public -- California
Los Angeles County
personally known to me to be the person(s) My Comm. Expires Jul. 26, 1999
whose name(s) is/are subscribed to the
within instrument and acknowledged to me
that he/she/they executed the same in
his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on
the instrument the person(s) or the entity
upon behalf of which the person(s) acted,
executed the instrument.
WITNESS my hand and official seal.
Signature /s/ Rosita Flores (This area for official notarial seal)
-----------------------------
MAIL TAX STATEMENTS TO:
same as above
<PAGE>
EXHIBIT "A"
PARCEL A:
PARCELS 2 TO 6 OF PARCEL MAP NO.19227, IN THE CITY OF HAWAIIAN GARDENS, AS PER
MAP FILED IN BOOK 225 PAGES 80 TO 82 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF
THE COUNTY RECORDER OF SAID COUNTY.
EXCEPT FROM THAT PORTION WITHIN THE WEST HALF OF THE SOUTHEAST QUARTER OF THE
SOUTHWEST QUARTER OF SECTION 7, TOWNSHIP 4 SOUTH, RANGE 11 WEST, SAN BERNARDINO
MERIDIAN, ONE-SIXTH (1/6TH) OF ALL OIL, GAS, ASPHALTUM AND OTHER HYDROCARBON
SUBSTANCES IN AND UNDER SAID LAND, AS RESERVED IN THE DEED FROM THE BANK OF
AMERICAN NATIONAL TRUST AND SAVINGS ASSOCIATION, RECORDED JANUARY 27, 1938 IN
BOOK 15545 PAGE 202 OFFICIAL RECORDS.
ALSO EXCEPT ONE-THIRD OF ALL OIL AND MINERAL RIGHTS AS RESERVED BY ABRAM VAN
AALST AND ALICE M. VAN AALST, IN DEED DATED MARCH 6, 1947 AND RECORDED IN
BOOK 24416 PAGE 146 OFFICIAL RECORDS, IN AND TO THAT PORTION OF THE SOUTHEAST
QUARTER OF THE SOUTHWEST QUARTER OF SECTION 7, TOWNSHIP 4 SOUTH, RANGE 11 WEST,
IN THE RANCHO LOS COYOTES, AS PER MAP RECORDED IN BOOK 7425 PAGES 20 AND 21 OF
OFFICIAL RECORDS, DESCRIBED AS FOLLOWS:
BEGINNING AT THE INTERSECTION OF THE NORTHERLY LINE OF CARSON STREET, 100 FEET
WIDE AS SHOWN ON COUNTY SURVEYOR'S MAP NO. B-1259 ON FILE IN THE OFFICE OF THE
COUNTY SURVEYOR OF SAID COUNTY, WITH THE WESTERLY LINE OF TRACT 5206, AS PER MAP
RECORDED IN BOOK 100 PAGE 27 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY; THENCE ALONG SAID NORTHERLY LINE OF CARSON STREET, SOUTH 89DEG.
54' 37" WEST 88.00 FEET TO THE TRUE POINT OF BEGINNING; THENCE NORTH 00DEG. 15'
20" WEST 170.00 FEET; THENCE SOUTH 89DEG. 54' 37" WEST 64.00 FEET; THENCE SOUTH
00DEG. 15' 20" EAST 170.00 FEET TO SAID NORTHERLY LINE OF CARSON STREET; THENCE
NORTH 89DEG. 54' 37" EAST 64.00 FEET TO THE TRUE POINT OF BEGINNING.
PARCEL B:
NON-EXCLUSIVE EASEMENTS FOR (I) ACCESS, INGRESS AND EGRESS, BY PEDESTRIAN AND
VEHICULAR TRAFFIC, TO, FROM AND BETWEEN PARCEL A AND ANY PUBLIC OR PRIVATE
THOROUGHFARES ADJACENT TO PARCEL B, OVER AND UPON THE PARKING AREAS, SIDEWALKS,
WALKWAYS AND ROADWAYS, INCLUDING ALL INTERIOR CIRCULATION ROADWAYS, IF ANY,
CONSTITUTING PARCEL B AND (II) TO PARK AUTOMOBILE AND OTHER VEHICLES IN AND ON
ALL SPACE LOCATED ON PARCEL B DESIGNATED TO ACCOMMODATE THE PARKING OF
AUTOMOBILES AND OTHER VEHICLES SET FORTH AND DEFINED IN A DOCUMENT ENTITLED
"RECIPROCAL EASEMENT AGREEMENT AND COVENANTS," RECORDED ON JANUARY 22, 1988 AS
INSTRUMENT NO. 88-91994, OVER THOSE PORTIONS OF LAND THEREIN DESCRIBED AND AS
AMENDED BY "AMENDMENT NO. 1 TO RECIPROCAL EASEMENT AGREEMENT AND COVENANTS,"
RECORDED ON MAY 16, 1988 AS INSTRUMENT NO. 88-780511, AND AS AMENDED BY
"AMENDMENT NO. 2 TO RECIPROCAL EASEMENT AGREEMENT AND COVENANTS" RECORDED ON
JANUARY 24, 1989 AS INSTRUMENT NO. 89-120197.
<PAGE>
Exhibit 13.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
/X/ 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 the registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
(612) 533-1169
Registrant's telephone number
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 ____.
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 _X_ NO ____.
As of March 17, 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 $2.25 last reported sale price of the common stock at that date
by the NASDAQ National Market System), held by non-affiliates was approximately
$8,769,000.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's definitive proxy statement to be filed pursuant
to Regulation 14A are incorporated by reference in this Form 10-K.
2. The Registrant's Report on Form 8-K/A dated January 8, 1998 is incorporated
by reference in this Form 10-K.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Universal International, Inc. ("Universal" or the "Company") was a large
national wholesaler of quality "closeout" merchandise through early 1997.
However, in the first quarter of 1997, the Company began reducing wholesale
inventories and restructuring and downsizing wholesale operations to minimize
the impact of reductions in its credit line (see "Liquidity and Capital
Resources") and to focus more Company resources on retail operations.
During 1997, the Company liquidated its wholesale inventory and eliminated
its wholesale business. Also during 1997, the Company adopted a plan to sell
Universal Asset-Based Services, Inc. (Asset-Based Services), a 95% owned
subsidiary formed during 1996 which provided inventory valuation and liquidation
services to a wide range of financial institutions, retailers and manufacturers.
The sale of Asset-Based Services was completed in January 1998 with no material
financial impact to the Company. These business segments have been accounted for
as discontinued operations, and prior years financial statements have been
restated to reflect the discontinuation of these segments.
As of December 31, 1997, the Company, through its wholly owned subsidiary,
Only Deals, Inc. ("Only Deals"), owned and operated 56 retail stores offering
close-out merchandise in 8 states in the Upper Midwest and in Texas. Only Deals
stores sell consumer goods in a variety of categories including toys, food,
health and beauty aids, housewares, and many others.
During 1994, the Company entered into a supply agreement with one of its
wholesale customers and in late 1994 the Company made a 40.5% equity investment
in this customer, Odd's-N-End's, Inc. ("Odd's-N-End's"). Odd's-N-End's owns and
operates 22 retail stores offering close-out merchandise in New York state. In
early 1995, the Company entered into a financing arrangement with Odd's-N-End's,
and assumed control over day to day operations of Odd's-N-End's. Accordingly,
commencing in 1995, the results of Odd's-N-End's are consolidated with those of
the Company for financial reporting purposes.
The Company was incorporated under the laws of Minnesota in 1956. The
principal executive offices of the Company are located at 5000 Winnetka Avenue
North, New Hope, Minnesota, 55428, and its telephone number is (612) 533-1169.
In the first quarter of 1997, the Company was in technical default on
several provisions of its then existing revolving credit agreement. As a result
of these defaults, the lender reduced the credit line in stages from $16 million
to $10 million as of May 31, 1997 and increased the interest rate on the
outstanding borrowings from prime plus 1.5% to prime plus 3.5%.
In June 1997, the Company entered into a borrowing arrangement with a new
lender which replaced the previous credit line and Odd's-N-End's then existing
bank notes payable of $1.3 million. Under the new revolving credit agreement,
the Company may borrow up to $14 million against a borrowing base derived from
the level of qualifying accounts receivable and inventory. In September 1997,
the Company obtained a seasonal increase in the revolving credit agreement to
$16.75 million through December 31, 1997. In addition, the lender waived
compliance by the Company of its consolidated tangible net worth covenant
through December 31, 1997.
In November 1997, the Company issued 4.5 million shares of Common Stock to
99 CENTS Only Stores for $4 million, $2 million in cash and $2 million in
merchandise credits. As a result 99 CENTS Only Stores currently owns 48% of the
Company's Common Stock. Subsequent to December 31, 1997, 99 CENTS Only Stores
made a proposal to the Company's Board of Directors to acquire the remaining
shares of Common Stock of the Company in exchange for shares of Common Stock of
99 CENTS Only Stores. In addition, 99 CENTS Only Stores made a proposal to the
Board of Directors of Odd's-N-End's to acquire all outstanding shares of Common
Stock of Odd's-N-End's not owned by the Company, for cash of approximately
$830,000.
2
<PAGE>
Subsequent to December 31, 1997, the Company's lender waived compliance by
the Company of its consolidated tangible net worth covenant through March 30,
1998. However, management does not believe that the Company will be in
compliance with this covenant as of March 31, 1998. This condition, as well as
the Company's operating results for 1997, raise a concern as to the Company's
ability to continue as a going concern.
The Company is currently in the process of negotiating with the lender to
obtain another waiver of the consolidated tangible net worth covenant. In
addition, management believes that 99 CENTS Only Stores will provide sufficient
financing to satisfy the Company's planned operating requirements through
December 31, 1998. However, there can be no assurance that the Company will
obtain a waiver from the lender or that 99 CENTS Only Stores will provide
sufficient financing to operate the Company.
SUPPLY OF CLOSE-OUT MERCHANDISE
The Company requires a significant number of close-out consumer products to
operate its business. During 1997, the Company experienced difficulty in
obtaining shipments from many of its vendors primarily due to concerns about the
Company's liquidity following its default under its credit facility. (See
"Liquidity and Capital Resources").
The supply of merchandise improved dramatically during the second half of
1997 after the Company obtained its new revolving credit facility. However, the
Company continued to experience difficulty in obtaining shipments from certain
vendors until 99 CENTS Only Stores made its investment in the Company in
November 1997. The Company is currently experiencing no difficulty in obtaining
merchandise due to its relationship with 99 CENTS Only Stores, and the Company
does not anticipate having a significant problem sourcing an adequate supply of
merchandise for the foreseeable future.
SEASONALITY
The Company's business is affected by the pattern of seasonality common to
most retail businesses, in particular the Christmas selling season. Quarterly
results are affected by, among other things, the timing of holidays, new store
openings and sales performance of existing stores.
COMPETITION
The Company operates in a highly competitive environment, competing with
discount stores, chain stores and other retailers. Many of these competitors
have longer established relations with suppliers and consumers as well as
substantially greater financial resources and wider distribution capabilities
than the Company. In addition to competing in the retail sale of merchandise,
the Company encounters significant competition in purchasing merchandise for its
stores. The Company's ability to purchase a broad array of merchandise at
close-out prices is critical to its success. Large retailers enjoy a competitive
advantage of economies of scale in both the purchase and sale of merchandise.
These retailers are often unable to take advantage of close-out merchandise
purchases, however, due to the limited quantities of merchandise sometimes
available for purchase and the fact that the goods cannot be reordered.
EMPLOYEES
At March 13, 1998, the Company had 273 full-time employees, of whom 6 were
involved in the purchase of close-out goods, 86 were involved in warehousing and
administration, and 181 were involved in the retail operations. Also, 685
employees were employed in a part-time capacity in the retail operations. In
addition, Odd's-N-End's had 66 full-time and 243 part-time employees at March
13, 1998. None of the Company's, Only Deals, or Odd's-N-End's employees are
covered by a collective bargaining agreement.
3
<PAGE>
ITEM 2. PROPERTIES
The Company's executive offices and warehouse are located at 5000 Winnetka
Avenue North in New Hope, Minnesota. This facility has 210,000 square feet and
is currently being fully utilized by the Company. The Company has a 10-year
lease for this warehouse which commenced in 1989 and expires on July 31, 2000
and contains a right of first refusal to purchase the facility.
All of the Company's stores are leased. Only Deals leases approximately
520,000 square feet of retail space for its 56 stores. Only Deals stores average
10,000 gross square feet. Only Deals store leases expire in April 1998 through
January 2003. Odd's-N-End's leases approximately 220,000 square feet of retail
space for its 22 operating stores, an average of 10,000 square feet per store.
Odd's-N-End's store leases expire in January 1999 through January 2004. Some
store leases have renewal options. For certain Only Deals store leases, the
Company has set provisions which allow the Company (and in some cases, the
landlord) to terminate the lease if stores do not obtain pre-established sales
levels at the end of a specified period of time from the lease commencement
date, or if other conditions are not met.
ITEM 3. LEGAL PROCEEDINGS
The Company experiences routine litigation in the normal course of its
business. The Company does not believe that any pending litigation will have a
material adverse effect on the financial condition, results of operations, or
cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during
the fourth quarter ended December 31, 1997.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information concerning the executive
officers of the Company as of March 17, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- ----------- -------------------------------------------
<S> <C> <C>
Richard L. Ennen........................... 45 Chief Executive Officer
Robert R. Langer........................... 42 Chief Operating Officer
Dennis A. Hill............................. 34 Chief Financial Officer
</TABLE>
Richard L. Ennen became Chief Executive Officer of the Company in January
1998. Mr. Ennen joined the Company in September 1996, as Executive Vice
President and General Merchandising Manager and became President of Only Deals
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.
Robert R. Langer became Chief Operating Officer of Only Deals in September
1994. Mr. Langer 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, Inc.
Dennis A. Hill became Chief Financial Officer of the Company in January
1998. Mr. Hill joined the Company in January 1996, as Corporate Controller. 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.
4
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Universal's common stock trades on The NASDAQ Stock Market under the symbol
UNIV. The following table sets forth the quarterly high and low sale prices of
the common stock for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Year Ended December 31, 1996
First Quarter.............................................................. $ 5.25 $ 3.38
Second Quarter............................................................. $ 5.13 $ 4.38
Third Quarter.............................................................. $ 4.63 $ 2.63
Fourth Quarter............................................................. $ 2.88 $ 1.63
Year Ended December 31, 1997
First Quarter.............................................................. $ 2.75 $ 1.13
Second Quarter............................................................. $ 1.94 $ .31
Third Quarter.............................................................. $ 1.00 $ .50
Fourth Quarter............................................................. $ 4.00 $ .72
</TABLE>
As of March 17, 1998, there were more than a hundred holders of record of
the Company's common stock. The Company believes that there are more than 1,400
beneficial owners in addition to the shareholders of record. The last reported
sales price of the common stock on March 17, 1998, was $2.25. Over-the-counter
market quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission and may not necessarily represent actual transactions.
Universal has not declared any cash dividends with respect to its common
stock within the past 10 years. The Company presently intends to continue to
retain any earnings in connection with its business. Currently, dividends are
prohibited by the terms of the Company's revolving line of credit. Payment of
dividends on its common stock in the future will be within the discretion of the
Board of Directors and will depend upon, among other factors, earnings and the
operating and financial condition of the Company, and any restrictions in future
revolving credit agreements.
5
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following data has been derived from the Company's Consolidated
Financial Statements and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and notes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1997 1996 1995 1994 1993
---------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales................................................. $ 68,705 $ 59,863 $ 47,655 $ 22,335 $ 17,592
Gross margin.............................................. $ 29,476 $ 26,205 $ 21,584 $ 10,153 $ 8,299
Loss from continuing operations........................... $ (7,379) $ (2,956) $ (695) $ (1,322) $ (836)
Income (loss) from discontinued operations................ $ (4,508) $ (1,345) $ 2,005 $ (301) $ (2,430)
Net Income (loss)......................................... $ (11,887) $ (4,301) $ 1,310 $ (1,623) $ (3,266)
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Basic Income (loss) Per Common Share:
From Continuing Operations.............................. $ (1.35) $ (.60) $ (.14) $ (.27) $ (.17)
From Discontinued Operations............................ (.83) (.28) .41 (.06) (.50)
---------- --------- --------- --------- ---------
Net income (loss)......................................... $ (2.18) $ (.88) $ .27 $ (.33) $ (.67)
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Diluted Income (loss) Per Common Share:
From Continuing Operations.............................. $ (1.35) $ (.60) $ (.14) $ (.27) $ (.17)
From Discontinued Operations............................ (.83) (.28) .40 (.06) (.50)
---------- --------- --------- --------- ---------
Net income (loss)......................................... $ (2.18) $ (.88) $ .26 $ (.33) $ (.67)
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Weighted average common shares outstanding:
Basic................................................... 5,456 4,893 4,893 4,893 4,893
Diluted................................................. 5,456 4,893 5,082 4,893 4,893
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------
1997 1996 1995 1994 1993
---------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital........................................... $ 1,105 $ 8,038 $ 18,641 $ 14,519 $ 17,326
Total assets.............................................. 31,388 42,207 35,509 27,346 26,922
Long term debt and revolver, including current
maturities.............................................. 11,398 10,078 4,465 -- 738
Total liabilities......................................... 22,787 25,719 14,224 7,867 5,820
Stockholders' equity...................................... 8,601 16,488 20,789 19,479 21,102
</TABLE>
6
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Universal International, Inc. ("Universal" or the "Company") was a large
national wholesaler of quality "closeout" merchandise through early 1997.
However, in the first quarter of 1997, the Company began reducing wholesale
inventories and restructuring and downsizing wholesale operations to minimize
the impact of reductions in its credit line (see "Liquidity and Capital
Resources") and to focus more Company resources on retail operations.
During 1997, the Company liquidated its wholesale inventory and eliminated
its wholesale business. Also during 1997, the Company adopted a plan to sell
Universal Asset-Based Services, Inc. (Asset-Based Services), a 95% owned
subsidiary formed during 1996 which provided inventory valuation and liquidation
services to a wide range of financial institutions, retailers and manufacturers.
The sale of Asset-Based Services was completed in January 1998 with no material
financial impact to the Company. These business segments have been accounted for
as discontinued operations, and prior years financial statements have been
restated to reflect the discontinuation of these segments.
The Company, through its wholly owned subsidiary, Only Deals, Inc. ("Only
Deals"), owns and operates 56 retail stores offering close-out merchandise in 8
states in the Upper Midwest and in Texas. Only Deals stores sell consumer goods
in a variety of categories including toys, food, health and beauty aids,
housewares, and many others.
On December 28, 1994, the Company acquired a 40.5 percent interest in
Odd's-N-End's, Inc., a Buffalo, New York-based close-out retailer with 22 retail
stores. The Company's investment was under a court approved plan of
reorganization of Odd's-N-End's, Inc. which emerged from bankruptcy on December
28, 1994. In early 1995, the Company assumed control over day to day operations
of Odd's-N-End's. Accordingly, commencing in 1995, the Company is fully
consolidating the results of Odd's-N-End's with those of the Company with
elimination of intercompany transactions, including those under a supply
agreement between the Company and Odd's-N-End's.
In November 1997, the Company issued 4.5 million shares of Common Stock to
99 CENTS Only Stores for $4 million, $2 million in cash and $2 million in
merchandise credits. As a result 99 CENTS Only Stores currently owns 48% of the
Company's Common Stock. Subsequent to December 31, 1997, 99 CENTS Only Stores
made a proposal to the Company's Board of Directors to acquire the remaining
shares of Common Stock of the Company in exchange for shares of Common Stock of
99 CENTS Only Stores. In addition, 99 CENTS Only Stores made a proposal to the
Board of Directors of Odd's-N-End's to acquire all outstanding shares of Common
Stock of Odd's-N-End's not owned by the Company, for cash of approximately
$830,000.
FORWARD LOOKING INFORMATION
Information contained in this Form 10-K contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, which can be identified by the use of forward-looking terminology such
as "may", "will", "expect", "plan", "anticipate", "estimate" or "continue" or
the negative thereof or other variations thereon or comparable terminology.
There are certain important factors that could cause results to differ
materially from those anticipated by some of these forward-looking statements.
Investors are cautioned that all forward-looking statements involve risks and
uncertainty. The factors, among others, that could cause actual results to
differ materially include: the ability of the Company to obtain from its lender
a waiver of the consolidated tangible net worth covenant, the ability of the
Company to obtain additional financing from 99 CENTS Only Stores, the Company's
ability to execute its business plan, continuity of a relationship with or
purchases from major vendors, competitive pressures on sales and pricing,
increases in other costs which cannot be recovered through improved pricing of
merchandise, and the adverse effect of weather conditions on retail sales.
7
<PAGE>
RESULTS OF CONTINUING OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's consolidated statement of operations expressed as a
percentage of net sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0%
Cost of goods sold...................... 57.1 56.2 54.7
-------- -------- --------
Gross margin............................ 42.9 43.8 45.3
Selling, general & administrative
expenses.............................. 51.6 47.4 46.8
-------- -------- --------
Operating loss.......................... (8.7)% (3.6)% (1.5)%
-------- -------- --------
-------- -------- --------
Net income (loss)....................... (17.3)% (7.2)% 2.7%
-------- -------- --------
-------- -------- --------
</TABLE>
1997 COMPARED TO 1996
NET SALES
Overall net sales for the Company in 1997 increased to $68.7 million, a
14.8% increase from net sales of $59.9 million for 1996. This increase was
primarily due to the full year performance from the addition of 21 new stores
during 1996 and the addition of eight new stores in October 1997. At December
31, 1997, the Company had 78 retail stores in operation (including five stores
reserved for closing) compared to 73 (including one store reserved for closing)
at December 31, 1996. Three stores were closed in 1997. Net sales in 1997 were
negatively impacted by supply disruptions which began prior to the closing of
the new credit facility and which continued through the remainder of 1997.
Despite these disruptions, net sales improved in the second half of 1997 due to
aggressive advertising and improvements in merchandise mix and inventory levels.
Management expects 1998 net sales to increase significantly as a result of a
more consistent flow of merchandise, including merchandise from 99 CENTS Only
Stores, and due to an effort currently underway to re-merchandise the stores.
GROSS MARGINS
Gross margins for 1997, excluding the impact of intercompany profit under
the supply agreement, increased to $29.5 million, a 12.5% increase from gross
margins of $26.2 million for 1996. Gross margins, as a percent of sales,
decreased due primarily to increased promotional pricing during 1997 and due to
the lack of higher margin import merchandise as a result of supply disruptions.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for 1997 were $35.5 million, a
25% increase from 1996 selling, general and administrative expenses of $28.4
million. This increase was due primarily to the addition of 21 and 8 stores
during 1996 and 1997, respectively. Increased advertising costs, increased store
closing reserve and higher hourly wages in 1997 also contributed to the
increase. These increases were partially offset by decreases due to the
elimination of certain corporate overhead costs associated with the Buffalo, New
York office and warehouse, which was sold during the third quarter of 1996.
INTEREST EXPENSES AND OTHER
Interest expense increased to $1.4 million in 1997 compared to $1.3 million
in 1996. Interest expense in 1997 reflects the higher level of borrowings to
support the Company's continuing losses.
INCOME TAXES
The Company is in a net operating loss carryforward position with no
remaining carryback available.
8
<PAGE>
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
Income (loss) from discontinued operations was a loss of $4.5 million in
1997 compared to a loss of $1.3 million in 1996. The increase was primarily due
to the Company's liquidation of the wholesale business in 1997 and the related
reductions in (i) sales from $26.7 million in 1996 to $14.2 million in 1997 and
(ii) gross margin from 22.5% in 1996 to 5.2% in 1997.
1996 COMPARED TO 1995
NET SALES
Overall net sales for the Company in 1996 increased to $59.9 million, a
25.6% increase from net sales of $47.7 million in 1995. This increase was
primarily due to the addition of nine new stores in the second half of 1995 and
the addition of 21 new stores during 1996. At December 31, 1996, the Company had
73 stores in operation (including one store reserved for closing) compared to 53
(including two stores reserved for closing) at December 31, 1995. Two stores
were closed in January 1996 and one was closed in February 1997.
GROSS MARGINS
Gross margins for 1996, excluding the impact of intercompany profit under
the supply agreement, increased to $26.2 million a 21.3% increase from gross
margins of $21.6 million for 1995. Gross margins decreased as a % of net sales
primarily due to higher than planned markdowns of seasonal merchandise in the
first quarter of 1996 and increased promotional pricing during the fourth
quarter of 1996.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $28.4 million for 1996 an
increase of 27% from the 1995 level of $22.3 million.
The increase was due primarily to the addition of nine and 21 stores during
1995 and 1996, respectively. Pre-opening expenses incurred by the 21 new stores
opened during 1996 in addition to increased infrastructure costs incurred to
support the growth in the retail business also contributed to the increase. The
Company charges to expense as incurred all costs associated with the opening of
new stores, except for purchases of equipment and the costs of leasehold
improvements which are capitalized.
The increase was offset partially by the elimination of certain corporate
overhead costs associated with the Buffalo, New York office and warehouse, which
was sold during the third quarter of 1996 for a nominal gain.
INTEREST EXPENSE AND OTHER
Interest expense increased to $1,276,000 in 1996 compared to $667,000 in
1995 due to an increase in borrowings under the revolving credit facility to
support the Only Deals expansion and to fund Odd's-N-End's working capital
needs.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
Income (loss) from discontinued operations was a loss of $1.3 million in
1996 compared to income of $2.0 million in 1995. The decrease was due to lower
net sales and lower wholesale gross margins of 22.5% in 1996 versus 23.4% in
1995.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had a $16 million revolving credit
agreement with a financial institution. During the first quarter of 1997, the
Company defaulted on several provisions of the amended
9
<PAGE>
loan agreement. As a result of these defaults, the lender reduced the credit
line to $12.5 million and increased the interest rate on the outstanding
borrowings from prime plus 1.5% to prime plus 3.5%. The lender further reduced
the credit line to $11 million as of April 30, 1997 and $10 million as of May
31, 1997.
As a result of these reductions in the credit line and to focus more Company
resources on retail operations, during early 1997, the Company began the process
of substantially reducing wholesale inventories and restructuring and downsizing
wholesale operations. The Company completed this process during the second half
of 1997.
In June 1997 the Company entered into a borrowing arrangement with a new
lender which replaced the previous credit line and the then existing
Odd's-N-End's bank notes payable of $1.3 million. Under the new revolving credit
agreement, as amended, the Company may borrow up to $14 million against a
borrowing base derived from the level of qualifying accounts receivable and
inventory. The agreement expires in June 1999, but may be automatically renewed
each year thereafter at the option of both the lender and the Company.
Borrowings under the agreement are collateralized by substantially all assets of
the Company, and outstanding borrowings bear interest at prime plus 2% (the
prime rate at December 31, 1997 was 8.5%). The Company also obtained $1.9
million of term loan financing from the new lender, which is included in the
total line limit. The term note is payable in monthly installments of $39,000
plus interest at prime plus 2% through June 30, 1999, at which time the
remaining balance is due. The term note is collateralized by the Company's
equipment and fixtures. The amount available under the revolving credit
agreement at December 31, 1997, based on the borrowing base, was $13.25 million,
of which there were outstanding borrowings of $9.3 million, outstanding
borrowings on the fixture loan of $1.7 million, and outstanding letters of
credit of $0.5 million.
During 1997, the Company was unable to pay its vendors within normal trade
terms as it experienced continued net losses and a substantial decline in
consolidated net worth. As a result, management focused its efforts on obtaining
additional financing, and in November 1997, the Company issued 4.5 million
shares of Common Stock to 99 CENTS Only Stores for $4 million, $2 million in
cash and $2 million in merchandise credits. Subsequent to December 31, 1997,
99 CENTS Only Stores made a proposal to the Company's Board of Directors to
acquire the remaining shares of Common Stock of the Company in exchange for
shares of Common Stock of 99 CENTS Only Stores.
Subsequent to December 31, 1997, the Company's lender waived compliance by
the Company of its consolidated tangible net worth covenant through March 30,
1998. However, management does not believe that the Company will be in
compliance with this covenant as of March 31, 1998.
The Company is currently in the process of negotiating with the lender to
obtain another waiver of the consolidated tangible net worth covenant. In
addition, management believes that 99 CENTS Only Stores will provide sufficient
financing to satisfy the Company's planned operating requirements through
December 31, 1998. There can be no assurance that the Company will obtain a
waiver from the lender or that 99 CENTS Only Stores will provide sufficient
financing to operate the Company through December 31, 1998.
Net cash used by operating activities was $1.6 million for the year ended
December 31, 1997 principally due to an $11.9 million net loss and a $4.3
million decrease in operating liabilities, offset by a $7.6 million decrease in
inventories, a $3.4 million decrease in accounts receivable and $3.8 million of
non-cash expenses. Payments of long-term debt totaling $2.0 million and the $1.6
million net cash used by operating activities were funded primarily by proceeds
from the $1.9 million term loan, $2.0 million of proceeds from the issuance of
Common Stock and by a $1.5 million increase in borrowings under the revolving
credit facility.
Net cash used by operating activities was $1.7 million for the year ended
December 31, 1996 versus net cash used by operating activities of $1.4 million
for the year ended December 31, 1995. Inventories increased $4.4 million in
1996, net of shrink and obsolescence, and accounts payable increased $5.8
million.
10
<PAGE>
Inventories increased $3.5 million in 1995, net of shrink and obsolescence, and
accounts payable increased approximately $900,000. Inventories increased $1.2
million in 1995 in the Odd's-N-End's retail locations to a more historically
normal level. In addition, Only Deals inventories increased to support the
increased retail space in 1995 and 1996, and wholesale inventories increased to
support the increased needs of Only Deals and Odd's-N-End's. Accounts payable
increased due to substantially increased operations and increased inventory
levels in 1996.
The Company has an agreement which, as amended, provides for advances of up
to $10 million to Odd's-N-End's, collateralized by a secondary interest in
substantially all assets, with interest payable at prime plus 2.5%. There were
advances totaling $8.7 million and $3.6 million under this agreement as of
December 31, 1997 and 1996, respectively.
EFFECTS OF INFLATION AND ECONOMIC TRENDS
In the Company's business of buying and selling close-out merchandise, each
purchase is individually negotiated based upon the price at which the Company
feels the product can be resold. Therefore, since inflation generally will
affect overall price levels similarly in the types of merchandise the Company
purchases, the impact of inflation is not expected to have a significant impact
on the Company's overall buying or selling opportunities.
The Company is in the process of assessing its systems and equipment with
respect to Year 2000 compliance. The Year 2000 issues will either be addressed
with scheduled system upgrades or through the Company's internal systems
development staff. The incremental costs will be charged to expense as incurred
and are not expected to have a material impact on the financial position or
results of operations of the Company. However, the Company could be adversely
impacted if the Year 2000 modifications are not properly completed by either the
Company or its vendors, banks or any other entity with whom the Company conducts
business. Accordingly, the Company plans to devote the necessary resources to
resolve all significant Year 2000 issues in a timely manner.
11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company are included
under this item:
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... 13
Report of Independent Accountants.......................................................................... 14
Consolidated Balance Sheets, December 31, 1997 and 1996.................................................... 15
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995................. 16
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996 and 1995....... 17
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995................. 18
Notes to Consolidated Financial Statements................................................................. 19
Report of Independent Accountants on Consolidated Financial Statement Schedule............................. 29
Consolidated Financial Statement Schedule.................................................................. 30
</TABLE>
12
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Universal International, Inc.:
We have audited the accompanying consolidated balance sheet of Universal
International, Inc. and subsidiaries (a Minnesota corporation) as of December
31, 1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Universal International,
Inc. and subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2, the Company has experienced negative operating results and liquidity
constraints that raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 2. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements and supplementary data is presented for purposes of
complying with the Securities and Exchange Commissions rules and is not part of
the basic financial statements. This schedule for the year ended December 31,
1997 has been subjected to the auditing procedures applied in the audit of the
basic financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
March 6, 1998
13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Universal International, Inc.:
We have audited the accompanying consolidated balance sheet of Universal
International, Inc. as of December 31, 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Universal
International, Inc. as of December 31, 1996, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that Universal International, Inc. will continue as a going concern. As
more fully described in Note 6, the Company was in default of several provisions
of its then existing revolving credit agreement and had not obtained new
financing to replace this revolving credit agreement. In addition, the Company
incurred a consolidated net loss of $4.3 million in 1996. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans are described in Note 2. The 1996 consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
April 15, 1997
14
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
---------- ---------
<S> <C> <C>
Current assets:
Cash..................................................................................... $ 1,053 $ 521
Accounts receivable, net of allowance of $480 and $200, respectively..................... 312 3,707
Inventories.............................................................................. 18,901 26,458
Other current assets..................................................................... 2,105 1,313
---------- ---------
Total current assets................................................................... 22,371 31,999
Equipment and improvements, net.......................................................... 8,880 10,056
Other assets, net........................................................................ 137 152
---------- ---------
Total assets........................................................................... $ 31,388 $ 42,207
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under revolving credit agreement.............................................. $ 9,270 $ 7,791
Current portion of long-term debt........................................................ 634 556
Accounts payable......................................................................... 7,014 12,606
Accrued expenses......................................................................... 4,348 3,008
---------- ---------
Total current liabilities.............................................................. 21,266 23,961
Deferred income taxes...................................................................... 27 27
Long-term debt, less current portion....................................................... 1,494 1,731
---------- ---------
Total liabilities...................................................................... 22,787 25,719
---------- ---------
Commitments and contingencies (Notes 8, 9 and 11)
Stockholders' equity:
Common stock, $.05 par value, 75,000 shares authorized; 9,393 and 4,893 shares issued and
outstanding for 1997 and 1996, respectively............................................ 470 245
Additional paid-in capital............................................................... 26,692 22,917
Accumulated deficit...................................................................... (18,561) (6,674)
---------- ---------
Total stockholders' equity............................................................. 8,601 16,488
---------- ---------
Total liabilities and stockholders' equity............................................. $ 31,388 $ 42,207
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
15
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales..................................................................... $ 68,705 $ 59,863 $ 47,655
Cost of goods sold............................................................ 39,229 33,658 26,071
---------- ---------- ----------
Gross margin................................................................ 29,476 26,205 21,584
Selling, general and administrative expenses.................................. 35,483 28,376 22,299
---------- ---------- ----------
Operating loss.............................................................. (6,007) (2,171) (715)
Interest expense and other.................................................... (1,372) (1,281) (607)
---------- ---------- ----------
Loss before non-controlling interest, income taxes, and discontinued
operations.................................................................. (7,379) (3,452) (1,322)
Non-controlling interest in subsidiary's net loss............................. -- 496 657
---------- ---------- ----------
Loss before income taxes, and discontinued operations......................... (7,379) (2,956) (665)
Income tax expense............................................................ -- -- 30
---------- ---------- ----------
Loss from continuing operations............................................... (7,379) (2,956) (695)
Income (loss) from discontinued operations.................................... (4,508) (1,345) 2,005
---------- ---------- ----------
Net income (loss)............................................................. $ (11,887) $ (4,301) $ 1,310
---------- ---------- ----------
---------- ---------- ----------
Basic Income (loss) Per Common Share:
From Continuing Operations:................................................... $ (1.35) $ (.60) $ (.14)
From Discontinued Operations:................................................. (.83) (.28) .41
---------- ---------- ----------
Net income (loss)......................................................... $ (2.18) $ (.88) $ .27
---------- ---------- ----------
---------- ---------- ----------
Diluted Income (loss) Per Common Share:
From Continuing Operations:................................................... $ (1.35) $ (.60) $ (.14)
From Discontined Operations:.................................................. (.83) (.28) .40
---------- ---------- ----------
Net income (loss)......................................................... $ (2.18) $ (.88) $ .26
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding:
Basic......................................................................... 5,456 4,893 4,893
---------- ---------- ----------
---------- ---------- ----------
Diluted....................................................................... 5,456 4,893 5,082
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ ADDITIONAL TOTAL
PAR PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1995.............................. 4,893 $ 245 $ 22,917 $ (3,683) $ 19,479
Net income............................................. -- -- -- 1,310 1,310
----- ----- ----------- ------------ ------------
Balances, December 31, 1995............................ 4,893 245 22,917 (2,373) 20,789
Net loss............................................... -- -- -- (4,301) (4,301)
----- ----- ----------- ------------ ------------
Balances, December 31, 1996............................ 4,893 245 22,917 (6,674) 16,488
Issuance of Common Stock............................... 4,500 225 3,775 -- 4,000
Net loss............................................... -- -- -- (11,887) (11,887)
----- ----- ----------- ------------ ------------
Balances, December 31, 1997............................ 9,393 $ 470 $ 26,692 $ (18,561) $ 8,601
----- ----- ----------- ------------ ------------
----- ----- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................... $ (11,887) $ (4,301) $ 1,310
Adjustments to reconcile net income (loss) to net cash used for continuing
operations:
(Income) loss from discontinued operations................................ 4,508 1,345 (2,005)
Depreciation and amortization............................................. 1,249 895 463
Provision for inventory obsolescence and shrinkage........................ 1,151 1,257 858
Provision for losses on store closings.................................... 296 -- --
Non-controlling interest in subsidiary's net loss......................... -- (496) (657)
Changes in operating assets and liabilities:
Inventories............................................................. (6,499) (3,329) (3,296)
Other current assets.................................................... 56 159 (387)
Accounts payable........................................................ 557 2,910 672
Accrued expenses........................................................ 1,184 221 63
---------- ---------- ----------
Net cash used for operating activities of continuing operations..... (9,385) (1,339) (2,979)
---------- ---------- ----------
Cash flows from investing activities:
Additions to equipment and improvements, Net................................ (506) (3,603) (3,008)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from borrowings under revolving credit agreements.................. 83,329 89,548 63,363
Payments on borrowings under revolving credit agreements.................... (81,850) (84,080) (61,040)
Issuance of Common Stock.................................................... 2,000 -- --
Proceeds from long-term debt................................................ 1,873 -- --
Payments of long-term debt.................................................. (2,032) (485) (107)
---------- ---------- ----------
Net cash provided by financing activities............................... 3,320 4,983 2,216
---------- ---------- ----------
Cash provided by (used in) discontinued operations............................ 7,103 (331) 1,591
---------- ---------- ----------
Net increase (decrease) in cash............................................... 532 (290) (2,180)
Cash, beginning of year....................................................... 521 811 2,991
---------- ---------- ----------
Cash, end of year............................................................. $ 1,053 $ 521 $ 811
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS DESCRIPTION:
Universal International, Inc. (the Company) acquires close-out merchandise
from company overstocks, business liquidations and other sources and sells this
merchandise through its retail operations.
The Company's wholly owned subsidiary, Only Deals, Inc. ("Only Deals"),
operates 56 variety close-out retail stores in eight states in the upper Midwest
and in Texas as of December 31, 1997. These stores are located in strip shopping
centers and enclosed shopping malls. The stores offer close-out consumer
products.
The Company has a 40.5% equity investment in Odd's-N-End's, Inc.
("Odd's-N-End's"), which operates 22 variety close-out retail stores in New York
state. The Company also has control over the day-to-day operations of
Odd's-N-End's and as a result, Odd's-N-End's financial information is fully
consolidated with that of the Company.
SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION:
The Company recognized revenue for its wholesale operations upon shipment of
merchandise to customers and recognizes revenue for its retail operations upon
sale of merchandise.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its subsidiaries, as well as, the full consolidation of the accounts of
Odd's-N-End's. All significant intercompany accounts and transactions have been
eliminated in consolidation.
STORE PRE-OPENING COSTS:
Purchases of equipment and the costs of leasehold improvements are
capitalized. All other costs associated with the opening of new stores are
charged to expense as incurred.
INVENTORIES:
Inventories, consisting of finished goods merchandise held for sale, are
stated at the lower of cost or market, with cost determined on a first-in,
first-out basis. The retail inventory method is utilized by the retail
operations.
EQUIPMENT AND IMPROVEMENTS:
Equipment and improvements are recorded at cost. Maintenance and repairs are
charged to expense as incurred. The cost and related accumulated depreciation or
amortization of assets sold or disposed of are removed from the accounts and the
resulting gain or loss is included in the results of operations.
Depreciation and amortization is calculated using the straight-line method
over the shorter of the estimated useful lives or related lease terms of the
assets.
19
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
ADVERTISING COSTS:
Advertising costs are expensed as incurred. Advertising expense, including
costs incurred by Odd's-N-End's, totaled $3,944, $2,361, and $1,583 for the
years ended December 31, 1997, 1996 and 1995, respectively.
INCOME TAXES:
The Company accounts for income taxes using the liability method. Deferred
income taxes are recorded to reflect the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
NET INCOME (LOSS) PER COMMON SHARE:
Basic income (loss) per common share is computed by dividing net income
(loss) for the period by the weighted average number of common shares
outstanding during each period. Diluted income (loss) per common share is
computed by dividing net income (loss) by the weighted average number of common
shares outstanding during each year, adjusted in 1995 for incremental shares
assumed issued on the exercise of stock options. Stock options were excluded
from diluted per share computations for the years ended December 31, 1997 and
1996 as the effect would be anti-dilutive.
USE OF ESTIMATES:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The most
significant areas which require the use of management's estimates relate to the
determination of the allowances for obsolete inventories, uncollectible accounts
receivable and inventory shrink reserves, as well as the assessment of
impairment related to long-lived assets.
OTHER COMPREHENSIVE INCOME:
The Company has no significant items of other comprehensive income.
2. GOING CONCERN:
The Company's viability as a going concern is dependent upon obtaining
additional financing, maintaining its current credit facility and ultimately, a
return to profitability.
During 1997, the Company was unable to pay its vendors within normal trade
terms as it experienced continued net losses and a substantial decline in
consolidated net worth. As a result, management focused its efforts on obtaining
additional financing, and in November 1997, the Company issued 4.5 million
shares of Common Stock to 99 CENTS Only Stores for $4 million, of which $2
million was paid in cash and $2 million in merchandise credits. Subsequent to
December 31, 1997, 99 CENTS Only Stores made a proposal to the
20
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
2. GOING CONCERN: (CONTINUED)
Company's Board of Directors to acquire the remaining shares of Common Stock of
the Company in exchange for shares of Common Stock of 99 CENTS Only Stores.
Subsequent to December 31, 1997, the Company's lender waived compliance by
the Company of its consolidated tangible net worth covenant through March 30,
1998. However, management does not believe that the Company will be in
compliance with this covenant as of March 31, 1998. This condition, as well as
the Company's operating results and negative operating cash flow, raise
substantial doubt about the Company's ability to continue as a going concern.
The Company is currently in the process of negotiating with the lender to
obtain another waiver of the consolidated tangible net worth covenant. In
addition, management believes that 99 CENTS Only Stores will provide sufficient
financing to satisfy the Company's planned operating requirements through
December 31, 1998. Management's plans to return operations to profitability
include planned increases in sales from remerchandising the retail stores and
from providing an uninterrupted supply of merchandise; reduction of store
operating costs, such as advertising, freight and supplies; and further
reductions of corporate overhead costs.
There can be no assurance that the Company will obtain a waiver from the
lender or that 99 CENTS Only Stores will provide sufficient financing to operate
the Company through December 31, 1998. In addition, there can be no assurance
that management's plans to return operations to profitability will be
successful.
3. DISCONTINUED OPERATIONS:
During 1997, the Company liquidated its wholesale inventory and eliminated
its wholesale business. Also during 1997, the Company adopted a plan to sell
Asset-Based Services, which sale was completed in January 1998 with no material
financial impact to the Company. These business segments have been accounted for
as discontinued operations, and prior years financial statements have been
restated to reflect the discontinuation of these segments. Revenues for 1997,
1996 and 1995 for the wholesale business were $14,203, $26,678 and $29,315,
respectively and for Asset-Based Services $943, $1,089 and $0, respectively. No
interest expense was allocated to discontinued operations as all amounts
incurred were in support of continuing operations.
4. INVESTMENT IN ODD'S-N-END'S:
The Company has entered into an agreement, as amended, to advance up to
$10,000 to Odd's-N-End's, collateralized by a secondary interest in
substantially all assets of Odd's-N-End's, with interest payable at prime plus
2.5%.
During 1996, the non-controlling interest in Odd's-N-End's was reduced to $0
due to losses incurred by Odd's-N-End's. As a result, during 1996, the Company
began recording the entire amount of Odd's-N-End's net loss, and such losses
totaled $2,630 through December 31, 1997.
21
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
5. OTHER FINANCIAL STATEMENT DATA:
The following provides additional disclosures for selected consolidated
balance sheet accounts:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Equipment and improvements:
Fixtures and equipment................................................. $ 8,369 $ 8,179
Leasehold improvements................................................. 5,234 5,311
--------- ---------
13,603 13,490
Less accumulated depreciation and amortization......................... 4,723 3,434
--------- ---------
$ 8,880 $ 10,056
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Accrued expenses:
Accrued payroll.......................................................... $ 1,072 $ 896
Unremitted sales tax..................................................... 619 598
Other.................................................................... 2,657 1,514
--------- ---------
$ 4,348 $ 3,008
--------- ---------
--------- ---------
</TABLE>
The following provides supplemental disclosures of consolidated cash flow
information:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash paid during the year for:
Interest......................................................... $ 1,293 $ 1,279 $ 649
Income taxes..................................................... -- 20 13
Noncash disclosures:
Disposal of inventories, equipment and improvements related to
store closings................................................. 140 74 818
Capital leases for equipment..................................... -- 630 102
Common stock issued for inventories.............................. 2,000 -- --
</TABLE>
22
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
6. DEBT:
REVOLVING CREDIT AGREEMENT:
At December 31, 1996, the Company had a $16,000 revolving credit agreement
with a financial institution. During the first quarter of 1997, the Company
defaulted on several provisions of the amended loan agreement. As a result of
these defaults, the lender reduced the credit line to $12,500 and increased the
interest rate on outstanding borrowings to prime plus 3.5%. The lender further
reduced the credit line to $10,000 as of May 31, 1997.
In June 1997 the Company entered into a borrowing arrangement with a new
lender which replaced the previous credit line and the then existing
Odd's-N-End's bank notes payable of $1,300. Under the new revolving credit
agreement, as amended, the Company may borrow up to $14,000 (seasonally adjusted
to the $16,750 for the fourth quarter of 1997) against a borrowing base derived
from the level of qualifying accounts receivable and inventory. The agreement
expires in June 1999, but may be automatically renewed each year thereafter at
the option of both the lender and the Company. Borrowings under the agreement
are collateralized by substantially all assets of the Company, and outstanding
borrowings bear interest at prime plus 2% (the prime rate at December 31, 1997
was 8.5%). The Company also obtained $1,873 of term loan financing from the new
lender, which is included in the total line limit. The amount available at
December 31, 1997, based on the borrowing base, was $13,244, of which there were
outstanding borrowings of $9,270, outstanding borrowings on the fixture loan of
$1,678, and outstanding letters of credit of $499.
LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Note payable--bank, due in monthly installments of $39 plus interest of prime plus 2% (10.5% at
December 31, 1997) remaining balance due June 30, 1999....................................... $ 1,678 $ --
Note payable--bank, paid June 1997, interest paid monthly at prime plus 3.25% during 1996 and
prime plus 4% during 1997.................................................................... -- 566
Note payable--bank, paid June 1997, interest paid monthly at prime plus 3.25% during 1996, and
prime plus 4% during 1997.................................................................... -- 1,096
Capital lease obligations payable in various monthly installments through August 2000,
including interest at 5.0% to 11.1%.......................................................... 450 625
--------- ---------
2,128 2,287
Less current maturities...................................................................... 634 556
--------- ---------
$ 1,494 $ 1,731
--------- ---------
--------- ---------
</TABLE>
23
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
6. DEBT: (CONTINUED)
Scheduled future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year Ending December 31:
1998............................................................................. $ 634
1999............................................................................. 1,342
2000............................................................................. 152
---------
$ 2,128
---------
---------
</TABLE>
Future minimum lease payments under capital lease obligations are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Year Ending December 31:
1998.............................................................................. $ 208
1999.............................................................................. 155
2000.............................................................................. 161
---------
524
Less interest..................................................................... 74
---------
Present value of minimum lease payments........................................... $ 450
---------
---------
</TABLE>
7. INCOME TAXES:
At December 31, 1997, the Company has federal net operating loss
carryforwards of approximately $13,900 and apportioned state net operating loss
carryforwards of approximately $11,500 available to offset against future
taxable income.
The federal net operating loss carryforwards expire as follows:
<TABLE>
<S> <C>
2008...........................................................
2009........................................................... $ 1,100
2010........................................................... --
2011........................................................... 3,000
2012........................................................... 9,800
-----------
Total.......................................................... $ 13,900
-----------
-----------
</TABLE>
The Company utilized approximately $900 of net operating loss carryforwards
in 1995, resulting in a variance between the effective tax rate and the
statutory tax rate. The provision recorded in 1995 represents alternative
minimum taxes due for federal and state tax purposes.
24
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
7. INCOME TAXES: (CONTINUED)
Temporary differences reflected in the Company's balance sheets for December
31, 1997 and 1996, consisted of:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Inventories......................................................... $ 597 $ 508
AMT credit carryover................................................ 152 152
NOL carryover....................................................... 5,569 1,829
Other............................................................... 268 375
Depreciation........................................................ (693) (693)
Deferred tax valuation allowance.................................... (5,920) (2,198)
--------- ---------
Net deferred taxes................................................ $ (27) $ (27)
--------- ---------
--------- ---------
</TABLE>
8. COMMITMENTS:
OPERATING LEASES:
The Company is committed under long-term operating leases for the rental of
its office and warehouse facilities and retail store locations. The main
facility lease expires on July 31, 2000 and contains a right of first refusal to
purchase the facility.
The terms for the retail store leases range from one to ten years with the
leases structured so that the Company generally can extend, at its option, the
terms of the leases to a total of ten years. The Company is also required to pay
additional rent for some of the retail store locations based on a percentage of
sales and, in most cases, real estate taxes and other expenses. Additional rent
incurred was not significant in 1997, 1996 or 1995.
Total rent expense under all leases, for the years ended December 31, 1997,
1996 and 1995 was $8,158, $6,341, and $5,431, respectively, including percentage
rent, real estate taxes and other rental pass through expenses.
As of December 31, 1997, future minimum lease payments (excluding real
estate taxes, other rental pass through expenses and percentage rents) due under
existing noncancellable operating leases, with remaining terms of greater than
one year are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998........................................................................... $ 4,966
1999........................................................................... 4,624
2000........................................................................... 3,483
2001........................................................................... 2,049
2002........................................................................... 1,155
Thereafter..................................................................... 581
---------
$ 16,858
---------
---------
</TABLE>
25
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
9. EMPLOYEE BENEFIT PLANS:
STOCK OPTIONS:
The Company has reserved 450 shares of common stock for issuance under the
1990 Stock Option Plan (the Plan), as amended in 1996. Options granted under the
Plan can be either incentive stock options or nonqualified stock options. The
Board of Directors has the authority to grant options and set the terms. The
options are granted at fair market value on the date of grant.
The Plan also provides for the issuance of stock appreciation rights (SARs)
and restricted stock awards. No SARs or restricted stock awards have been issued
as of December 31, 1997.
All stock options under the Plan have a maximum term of five years from the
date of grant, unless a lesser period is provided for in the option agreement.
Generally, stock options vest in equal annual portions over five years.
In addition to the options under the Plan, the Company has granted
nonqualified stock options to certain officers and directors. All nonqualified
stock options have a maximum term of five years from the date of grant, unless a
lesser period is provided for in the option agreement. Generally, nonqualified
stock options vest in equal annual portions over a maximum four-year period.
A summary of changes in outstanding stock options is as follows:
<TABLE>
<CAPTION>
1990 PLAN NONQUALIFIED
------------------------ ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTION EXERCISE OPTION EXERCISE
SHARES PRICE SHARES PRICE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994.............................................. 197 $ 2.50 528 $ 6.40
Options canceled........................................................ (55) 2.50 (300) 7.75
Options granted......................................................... 99 3.69 458 2.49
--- ----- --- -----
Balance, December 31, 1995.............................................. 241 2.99 686 3.20
Options canceled........................................................ (65) 3.38 -- --
Options granted......................................................... 137 3.73 100 4.75
--- ----- --- -----
Balance, December 31, 1996.............................................. 313 3.23 786 3.40
Options canceled........................................................ (164) 2.68 (228) 4.63
Options granted......................................................... 263 1.54 125 1.13
--- ----- --- -----
Balance, December 31, 1997.............................................. 412 $ 2.37 683 $ 2.57
--- ----- --- -----
--- ----- --- -----
Options exercisable:
December 31, 1995....................................................... 59 $ 2.50 347 $ 3.90
December 31, 1996....................................................... 90 2.51 464 3.54
December 31, 1997....................................................... 59 2.94 583 2.20
</TABLE>
26
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
9. EMPLOYEE BENEFIT PLANS: (CONTINUED)
Proforma disclosures of net income (loss) and net income (loss) per common
share as if the fair value based method of accounting for stock options had been
applied are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss): As reported.......................... $ (11,887) $ (4,301) $ 1,310
Pro forma............................ (12,391) (4,663) 976
Net income (loss) per common share: As reported
Basic................................ $ (2.18) $ (.88) $ .27
Diluted.............................. (2.18) (.88) .26
Pro forma............................
Basic................................ (2.27) (.95) .20
Diluted.............................. (2.27) (.95) .19
</TABLE>
The fair value of each employee and director stock option has been estimated
on the date of grant using the Black-Scholes option pricing model with the
following assumptions used for grants in 1997, 1996 and 1995, respectively:
risk-free interest rates of 6.27%, 6.17% and 6.31%; expected volatility of 204%,
49% and 57%; expected life of one to five years; and no dividend yields. The pro
forma disclosures may not be representative of the effects on net earnings in
future years because the disclosures do not consider pro forma compensation
expense related to grants made prior to 1995.
PROFIT SHARING AND 401(K) PLAN:
The Company maintains a defined contribution profit sharing plan covering
employees who meet certain age and service requirements and which contains
provisions for a savings portion to be qualified under Internal Revenue Code
Section 401(k). Participants in the savings portion of the plan may contribute
up to 15 percent of annual compensation. The Company contributes discretionary
amounts to both the profit sharing and savings portions of the plan. The total
Company contributions to the defined contribution plan were $32, $33 and $33 in
1997, 1996 and 1995, respectively.
10. STOCKHOLDERS' EQUITY:
STOCKHOLDERS' RIGHTS PLAN:
In June 1996, the Company adopted a stockholder rights plan, pursuant to
which the Company declared a dividend distribution of one Common Stock Purchase
Right for each outstanding share of the Company's Common Stock. Each Right
entitles the stockholder to purchase one share of Common Stock at a price of $25
per share, subject to adjustment. The description and terms of the Rights are
set forth in a Rights Agreement dated April 19, 1996, between the Company and
Norwest Bank Minnesota, N.A., as Rights Agent.
11. CONTINGENCIES:
The Company is a defendant in various claims and disputes arising in the
ordinary course of business. While the outcome of these matters cannot be
predicted with certainty, management presently believes the disposition of these
matters will not have a material effect on the results of operations, financial
position or cash flows of the Company.
27
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
12. SUBSEQUENT EVENT:
Subsequent to December 31, 1997, 99 CENTS Only Stores made a proposal to the
Company's Board of Directors to acquire the remaining shares of Common Stock of
the Company in exchange for shares of Common Stock of 99 CENTS Only Stores. As
proposed, 99 CENTS Only Stores would issue to the stockholders of the Company
one share of common stock of 99 CENTS Only Stores for each 16 shares of the
Company's Common Stock. In addition, subsequent to December 31, 1997, 99 CENTS
Only Stores made a proposal to the Board of Directors of Odd's-N-End's to
acquire all outstanding shares of Common Stock of Odd's-N-End's not owned by the
Company for cash of approximately $830,000.
13. RECLASSIFICATIONS:
Certain reclassifications have been made to the prior year financial
statements to conform with the current year presentation. These
reclassifications had no impact on net income (loss) or stockholders' equity, as
previously reported.
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Universal International, Inc.:
Our report on the consolidated financial statements of Universal
International, Inc. as of December 31, 1996 and for the years ended December 31,
1996 and 1995 is included on page 14 of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule listed in the index in Item 14 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
The accompanying consolidated financial statements have been prepared
assuming that Universal International, Inc. will continue as a going concern. As
more fully described in Note 6, the Company was in default of several provisions
of its then existing revolving credit agreement and had not obtained new
financing to replace this revolving credit agreement. In addition, the Company
incurred a consolidated net loss of $4.3 million in 1996. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans are described in Note 2. The 1996 consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
April 15, 1997
29
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE AT ADDITIONS DEDUCTIONS BALANCE
BEGINNING CHARGED TO FROM AT END
DESCRIPTION OF PERIOD EXPENSE ALLOWANCE OF PERIOD
- ------------------------------------------------------------------ ----------- ----------- ----------- -----------
Year ended December 31, 1997:
Allowance for doubtful accounts (deducted from accounts
receivable)................................................... $ 200 $ 575 $ 295 $ 480
Inventory obsolescence and shrink reserve (deducted from
inventory).................................................... $ 1,017 $ 1,347 $ 1,611 $ 753
Store closing allowance......................................... $ 74 $ 296 $ 140 $ 230
Year ended December 31, 1996:
Allowance for doubtful accounts (deducted from accounts
receivable)................................................... $ 200 $ 204 $ 204 $ 200
Inventory obsolescence and shrink reserve (deducted from
inventory).................................................... $ 728 $ 1,506 $ 1,217 $ 1,017
Store closing allowance......................................... $ 195 $ -- $ 121 $ 74
Year ended December 31, 1995:
Allowance for doubtful accounts (deducted from accounts
receivable)................................................... $ 300 $ 168 $ 268 $ 200
Inventory obsolescence and shrink reserve (deducted from
inventory).................................................... $ 525 $ 950 $ 747 $ 728
Store closing allowance......................................... $ 1,220 $ -- $ 1,025 $ 195
</TABLE>
30
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Reference is hereby made to the Company's Report on Form 8-K/A dated January
8, 1998, which is incorporated herein by reference.
There were no disagreements with accountants on accounting and financial
disclosures.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the Company's directors required by Item 10 is
incorporated herein by reference to the section entitled, "Item 1--Election of
Directors," in the Company's proxy statement for its 1998 Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days of the Company's fiscal year ended
December 31, 1997. Information regarding the Company's executive officers
required by Item 10 is included in Part I of this Annual Report on Form 10-K as
permitted by General Instruction G(3) to Form 10-K. Information required by this
Item concerning compliance with Section 16(a) of the Securities Act of 1934 is
included in the proxy statement under the section entitled "Security Ownership
of Certain Beneficial Owners and Management," and such information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the section entitled "Compensation of Executive Officers and Directors" in the
Company's proxy statement for its 1998 Annual Meeting of Shareholders which will
be filed with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days of the Company's fiscal year ended December 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's proxy statement for its 1998 Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days of the Company's fiscal year ended
December 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to
the section entitled "Certain Transactions" in the Company's proxy statement for
its 1998 Annual Meeting of Shareholders which will be filed with the Securities
and Exchange Commission pursuant to Regulation 14A within 120 days of the
Company's fiscal year ended December 31, 1997.
31
<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 Part II, Item 8 of this
report.
2. Consolidated Financial Statements Schedule included in Part II Item 8
of this report:
Schedule II--Valuation and Qualifying Accounts
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 Form 8-K during the quarter ended December 31,
1997 relating to the issuance of 4.5 million shares of common stock
to 99 CENTS Only Stores.
32
<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.
<TABLE>
<S> <C> <C>
UNIVERSAL INTERNATIONAL, INC.
Date: March 30, 1998 By: /s/ RICHARD L. ENNEN
-----------------------------------------
Richard L. Ennen
CHIEF EXECUTIVE OFFICER
</TABLE>
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.
NAME TITLE
- ------------------------------ -------------------
Chief Executive
/s/ RICHARD L. ENNEN Officer
- ------------------------------ and Director March 30, 1998
Richard L. Ennen (principal
executive officer)
Chief Financial
/s/ DENNIS A. HILL Officer
- ------------------------------ (principal March 30, 1998
Dennis A. Hill financial and
accounting officer)
/s/ ROBERT R. LANGER Chief Operating
- ------------------------------ Officer and March 30, 1998
Robert R. Langer Director
/s/ JEFF GOLD
- ------------------------------ Director March 30, 1998
Jeff Gold
/s/ HOWARD GOLD
- ------------------------------ Director March 30, 1998
Howard Gold
/s/ ANDY FARINA
- ------------------------------ Director March 30, 1998
Andy Farina
33
<PAGE>
EXHIBIT 21.1
List of Subsidiaries
Odd's-N-End's Acquisition Corp.
<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
April 14, 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
April 16, 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- ) 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
April 16, 1998
