NDN 99 Cents Only Stores Common Stock

Use these links to rapidly review the document
TABLE OF CONTENTS
TABLE OF CONTENTS

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

Table of Contents

99¢ ONLY STORES
4000 Union Pacific Avenue
City of Commerce, California 90023

Dear 99¢ Only Stores Shareholders:

          We cordially invite you to attend the special meeting of shareholders of 99¢ Only Stores, a California corporation (the "Company"), to be held at City of Commerce Community Center, Rosewood Park Meeting Room, 5600 Harbor Street, City of Commerce, California 90040, on Thursday, January 12, 2012, at 1:00 p.m., local time.

          At the special meeting, you will be asked to consider and vote upon a proposal (a) to approve the Agreement and Plan of Merger (the "merger agreement"), dated as of October 11, 2011, by and among the Company, Number Holdings, Inc., a Delaware corporation ("Parent"), and Number Merger Sub, Inc., a California corporation and a wholly owned subsidiary of Parent ("Merger Sub"), pursuant to which Merger Sub will be merged with and into the Company, with the Company continuing as the surviving entity (the "merger") and (b) to approve a motion to adjourn or postpone the special meeting to another time and/or place for the purpose of soliciting additional proxies in favor of the proposal to approve the merger agreement, if necessary. Following the merger, the Company will cease to be a publicly traded company. Parent and Merger Sub are controlled by Ares Corporate Opportunities Fund III, L.P., a Delaware limited partnership, and the Canada Pension Plan Investment Board, a federal crown corporation incorporated pursuant to the Canada Pension Plan Investment Board Act 1997 (Canada).

          If the merger is completed, each share of the Company's common stock, no par value per share (the "common stock"), other than as provided below, will be converted into the right to receive $22.00 in cash, without interest and less any applicable withholding taxes (the "merger consideration"). The following shares of common stock will not be converted into the right to receive the merger consideration in connection with the merger: (a) shares owned by any of our shareholders who are entitled to and who properly exercise dissenters' rights under California law, (b) shares owned by the Company, and (c) shares owned by Parent, Merger Sub or any other direct or indirect wholly owned subsidiary of Parent, including shares to be contributed to Parent immediately prior to the completion of the merger by Eric Schiffer, our Chief Executive Officer, Jeff Gold, our President and Chief Operating Officer, Howard Gold, our Executive Vice President, Karen Schiffer and The Gold Revocable Trust dated October 26, 2005 (collectively, the "Rollover Investors"). David Gold, the Chairman of the Board of Directors of the Company (the "Board"), and Sherry Gold are co-trustees of The Gold Revocable Trust dated October 26, 2005.

           The Board, by a vote of its independent directors, has approved the merger agreement and recommends that you vote "FOR" the approval of the merger agreement.

          Your vote is very important. We cannot complete the merger unless we obtain the affirmative vote of the holders of a majority of the outstanding shares of our common stock. Please note that failing to vote has the same effect as a vote against the approval of the merger agreement.

          In considering the recommendation of the special committee and the Board, you should be aware that some of the Company's directors and executive officers have interests in the merger that are different from, or in addition to, the interests of our shareholders generally. The Rollover Investors and Au Zone Investments #2, L.P. (which is affiliated with the Rollover Investors) beneficially own approximately 33% of our outstanding common stock and have entered into a voting agreement with Parent pursuant to which they have agreed to vote all of their shares of our common stock in favor of the approval of the merger agreement.

          The accompanying proxy statement provides you with detailed information about the proposed merger and the special meeting. We encourage you to read the entire proxy statement and the merger agreement carefully. A copy of the merger agreement is attached as Annex A to the accompanying proxy statement.

           Whether or not you plan to attend the special meeting, please complete, sign, date and return the enclosed proxy card in the postage-paid envelope or submit your proxy by telephone or Internet prior to the special meeting. If your shares of common stock are held in "street name" by your broker, bank or other nominee, you should instruct your broker, bank or other nominee on how to vote your shares of common stock using the instructions provided by your broker, bank or other nominee. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy you previously submitted. However, if you hold your shares through a broker, bank or other nominee, you must provide a legal proxy issued from such nominee in order to vote your shares in person at the special meeting.

          The Board appreciates your continuing support of the Company and urges you to support the merger.

Sincerely,

Eric Schiffer
Chief Executive Officer

           Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

The proxy statement is dated December 12, 2011, and is first being mailed to shareholders on or about December 12, 2011.

Table of Contents

99¢ ONLY STORES
4000 Union Pacific Avenue
City of Commerce, California 90023

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JANUARY 12, 2012

         A special meeting of shareholders of 99¢ Only Stores, a California corporation (the "Company"), will be held at City of Commerce Community Center, Rosewood Park Meeting Room, 5600 Harbor Street, City of Commerce, California 90040, on Thursday, January 12, 2012, at 1:00 p.m., local time, for the following purposes:

•

to consider and vote upon a proposal to approve the Agreement and Plan of Merger (the "merger agreement"), dated as of October 11, 2011, by and among the Company, Number Holdings, Inc., a Delaware corporation ("Parent"), and Number Merger Sub, Inc., a California corporation and a wholly owned subsidiary of Parent ("Merger Sub"), including the principal terms of the merger agreement, the statutory merger agreement, and the merger pursuant to which Merger Sub will be merged with and into the Company, with the Company continuing as the surviving entity (the "merger"), as further described in the accompanying proxy statement; and



•

to approve a motion to adjourn or postpone the special meeting to another time and/or place for the purpose of soliciting additional proxies in favor of the proposal to approve the merger agreement, if necessary.

         Approval of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of the Company's common stock, no par value per share (the "common stock").

         Eric Schiffer, our Chief Executive Officer, Jeff Gold, our President and Chief Operating Officer, Howard Gold, our Executive Vice President, Karen Schiffer and The Gold Revocable Trust dated October 26, 2005 (collectively, the "Rollover Investors") and Au Zone Investments #2, L.P. (which is affiliated with the Rollover Investors) beneficially own approximately 33% of our outstanding common stock and have entered into a voting agreement with Parent pursuant to which they have agreed to vote all of their shares of our common stock in favor of the approval of the merger agreement. David Gold, the Chairman of the Board of Directors of the Company (the "Board"), and Sherry Gold are co-trustees of The Gold Revocable Trust dated October 26, 2005.

         You can vote at the special meeting and at any adjournment or postponement of the special meeting if at the close of business on December 2, 2011, you were a shareholder of record of the Company.

         Only shareholders of record and their proxies are invited to attend the special meeting in person. If you are a record shareholder who received a paper copy of this proxy statement, an admission ticket is included with the mailing and is attached to the proxy card. You will need to bring that admission ticket and your photo identification to the special meeting. If you hold your shares in "street name" through a broker, bank or other nominee or if you have received your proxy materials electronically, you may obtain an admission ticket in advance by sending a written request, along with proof of ownership, such as a bank or brokerage account statement, to us at Investor Relations at 99¢ Only Stores, 4000 Union Pacific Avenue, City of Commerce, California 90023. If you arrive at the special meeting without an admission ticket, we will admit you only if we are able to verify that you were an actual shareholder of the Company as of the record date for the special meeting.

          Whether or not you plan to attend the special meeting, please complete, sign, date and return the enclosed proxy card in the postage-paid envelope or submit your proxy by telephone or Internet prior to the special meeting. If your shares of common stock are held in "street name" by your broker, bank or other nominee, you should instruct your broker, bank or other nominee on how to vote your shares of common stock using the instructions provided by your broker, bank or other nominee. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy you previously submitted. However, if you hold your shares through a broker, bank or other nominee, you must provide a legal proxy issued from such nominee in order to vote your shares in person at the special meeting.

         Shareholders who do not vote in favor of the approval of the merger agreement will have the right to dissent and seek appraisal of the fair value of their shares of our common stock if the merger is completed, but only if they perfect their dissenters' right by complying with all of the required procedures under California law and demands for payment have been made with respect to at least five percent of the outstanding shares of our common stock. The specific statutory requirements are summarized in the enclosed proxy statement under "Dissenters' Rights" and the full text of California's dissenters' rights statute is included as Annex C to the enclosed proxy statement.

December 12, 2011

Important Notice Regarding the Availability of Proxy Materials for the Special Meeting To Be Held on January 12, 2012 . This Notice of Special Meeting of Shareholders and the accompanying Proxy Statement may be viewed, printed and downloaded from the Internet at www.proxyvote.com.

Table of Contents

TABLE OF CONTENTS

Table of Contents

Table of Contents

Table of Contents

SUMMARY TERM SHEET

         This Summary Term Sheet, together with the "Questions and Answers About the Merger and the Special Meeting," summarizes the material information in this proxy statement. We encourage you to read carefully this entire proxy statement, its annexes and the documents referred to or incorporated by reference in this proxy statement. Each item in this Summary Term Sheet includes a page reference directing you to a more complete description of that topic. See "Where You Can Find More Information" beginning on page 142. In this proxy statement, the terms "99¢ Only Stores," "Company," "we," "our" and "us" refer to 99¢ Only Stores and its subsidiaries, unless the context requires otherwise.

The Parties Involved in the Merger (page 95)

        99¢ Only Stores, a California corporation, is an extreme value retailer of primarily consumable general merchandise with an emphasis on name-brand products. Our stores offer a wide assortment of regularly available consumer goods as well as a broad variety of first-quality closeout merchandise. We emphasize quality name-brand consumables, priced at an excellent value, in convenient, attractively merchandised stores. Over half of our sales come from food and beverages, including produce, dairy, deli and frozen foods, along with organic and gourmet foods. We opened our first 99¢ Only Stores location in 1982 and we believe that we operate the nation's oldest existing general merchandise chain where items are primarily priced at 99.99¢, $1.00 or less. As of November 15, 2011, we operated 290 retail stores with 214 in California, 36 in Texas, 27 in Arizona, and 13 in Nevada.

        Number Holdings, Inc. ("Parent") is a Delaware corporation. Number Merger Sub, Inc. ("Merger Sub") is a California corporation and a wholly owned subsidiary of Parent. Both Parent and Merger Sub are controlled by Ares Corporate Opportunities Fund III, L.P., a Delaware limited partnership ("ACOF III"), and the Canada Pension Plan Investment Board, a federal crown corporation incorporated pursuant to the Canada Pension Plan Investment Board Act 1997 (Canada) ("CPPIB"), and were formed solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement.

        Eric Schiffer, our Chief Executive Officer, Jeff Gold, our President and Chief Operating Officer, Howard Gold, our Executive Vice President, Karen Schiffer and the Gold Revocable Trust dated October 26, 2005 (collectively, the "Rollover Investors") entered into a commitment letter (the "Rollover Letter") with Parent pursuant to which the Rollover Investors will contribute, immediately prior to the effective time of the merger, a portion of their shares of our common stock to Parent in exchange for common stock of Parent. In addition, the Rollover Letter provides, among other things, that Messrs. Schiffer, J. Gold and H. Gold will enter employment agreements with Parent and they will each be members of the board of directors of Parent following the consummation of the merger. The Rollover Letter also provides that David Gold, the Chairman of the Board of Directors of the Company (the "Board"), will enter into a consulting agreement with Parent and will hold the title of Chairman Emeritus (or a similar title) following the consummation of the merger. Mr. D. Gold and Sherry Gold are co-trustees of The Gold Revocable Trust dated October 26, 2005. The Rollover Investors and Au Zone Investments #2, L.P. (which is affiliated with the Rollover Investors) beneficially own approximately 33% of our outstanding common stock and have entered into a voting agreement with Parent pursuant to which they have agreed to vote all of their shares of our common stock in favor of the approval of the merger agreement. For more information on the consequences of the merger for the executive officers and directors of the Company, see " Special Factors—Interests of Company's Directors and Executive Officers in the Merger ," starting at page 77.

The Merger (page 97)

        You are being asked to approve an Agreement and Plan of Merger (the "merger agreement"), dated as of October 11, 2011 (as it may be amended from time to time), by and among 99¢ Only

4

Table of Contents

Stores, Parent and Merger Sub. The merger agreement provides for the merger of Merger Sub with and into 99¢ Only Stores (the "merger"). After the merger, 99¢ Only Stores will be a wholly owned subsidiary of Parent. Upon completion of the merger, 99¢ Only Stores will cease to be a publicly traded company, and you will cease to have any rights in 99¢ Only Stores as a shareholder. The merger agreement is attached as Annex A to this proxy statement. The statutory merger agreement that will be filed with the Secretary of State of the State of California is attached as Annex D to this proxy statement. Approval of the merger agreement includes approval of the principal terms of the merger agreement, the statutory merger agreement and the merger.

Merger Consideration (page 98)

        If the merger is completed, each share of our common stock, other than as provided below, will be cancelled and converted into the right to receive $22.00 in cash, without interest and less any applicable withholding taxes (the "merger consideration"). The following shares of our common stock will not be converted into the right to receive the merger consideration in connection with the merger: (a) shares owned by any of our shareholders who are entitled to and who properly exercise dissenters' rights under California law, (b) shares owned by the Company, and (c) shares owned by Parent, Merger Sub or any other direct or indirect wholly owned subsidiary of Parent, including shares to be contributed to Parent immediately prior to the completion of the merger by the Rollover Investors.

When the Merger is Expected to be Completed

        We currently anticipate that the merger will be completed in the first quarter of calendar year 2012. However, there can be no assurances that the merger will be completed at all, or if completed, that it will be completed in the first quarter of calendar year 2012.

Vote Required for Approval of the Merger Agreement (page 92)

        The approval of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of our common stock (the "Shareholder Approval"). Please note that failing to vote has the same effect as a vote against the approval of the merger agreement. The adjournment proposal requires the affirmative vote of a majority of the holders of our common stock present in person or by proxy.

Voting Agreement

        To induce Parent and Merger Sub to enter into the merger agreement, the Rollover Investors and Au Zone Investments #2, L.P. entered into a voting agreement with Parent concurrently with the execution of the merger agreement. As of November 15, 2011, the Rollover Investors and Au Zone Investments #2, L.P. beneficially owned 23,236,812 shares of our common stock, which is approximately 33% of our outstanding common stock. Pursuant to the voting agreement, the Rollover Investors and Au Zone Investments #2, L.P. agreed, among other things, to vote, or cause to be voted, all of their shares of our common stock (a) in favor of the approval of the merger agreement, (b) in favor of any related proposal necessary to consummate the merger and the transactions contemplated by the merger agreement, and (c) against, among other matters, any action, proposal, transaction or agreement that could reasonably be expected to impede, interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the merger. In addition, the Rollover Investors and Au Zone Investments #2, L.P. agreed not to sell, transfer, offer, exchange, assign, pledge, encumber, hypothecate or otherwise dispose of their shares of common stock during the term of the voting agreement, subject to certain exceptions for customary permitted transfers. The Rollover Investors and Au Zone Investments #2, L.P. granted Parent an irrevocable proxy with respect to the voting of their shares in relation to the aforementioned matters.

5

Table of Contents

        The voting agreement also provides that the Rollover Investors and Au Zone Investments #2, L.P. are prohibited from taking certain actions that the Company is prohibited from taking under the merger agreement, as described under " The Merger Agreement—Restrictions on Solicitations of Other Offers ." The voting agreement will terminate on the earliest to occur of (a) the effective time of the merger, (b) the termination of the merger agreement in accordance with its terms, (c) the written agreement of Parent, the Rollover Investors and Au Zone Investments #2, L.P. or (d) the amendment, modification or waiver of any terms of the merger agreement without the prior consent of the Rollover Investors and Au Zone Investments #2, L.P. if such amendment, modification or waiver (i) changes the amount of the merger consideration or purchase price, or changes the form of such consideration, or (ii) could reasonably be expected to adversely affect any of the Rollover Investors or Au Zone Investments #2, L.P., in their capacity as a shareholder of the Company, in any material manner, with certain obligations to survive up to twelve months after termination of the voting agreement.

The Special Meeting

        See " Questions and Answers About the Merger and the Special Meeting " beginning on page 14 and " The Special Meeting " beginning on page 15.

Recommendation of Our Special Committee and Board of Directors (page 33)

        A special committee of the Board unanimously determined that the merger agreement, the terms thereof, and the transactions contemplated thereby, including the merger, are advisable and are fair to and in the best interests of 99¢ Only Stores and its shareholders (other than the Rollover Investors and Parent and Parent's affiliates to the extent that any of them own shares of the Company's common stock), and are just and reasonable as to the Company, and unanimously recommended that the Board:

•

approve, adopt and declare advisable the merger agreement and the transactions contemplated by the merger agreement, including the merger, and



•

subject to certain provisions in the merger agreement, recommend that the shareholders of the Company approve and adopt the merger agreement, including the principal terms thereof, the statutory merger agreement, and the merger.

        After considering the unanimous recommendations of the special committee and the opinion of the special committee's financial advisor described in " Special Factors—Opinion of Financial Advisor to Our Special Committee and Board of Directors ," the independent directors of our Board unanimously approved and declared advisable the merger agreement and the transactions contemplated by the merger agreement, including the merger, and determined that (a) the terms of the merger agreement are just and reasonable as to the Company, (b) the merger agreement, the terms of the merger agreement, and the transactions contemplated by the merger agreement, including the merger, are fair to and in the best interests of the Company and our shareholders (other than the Rollover Investors and Parent and Parent's affiliates to the extent that any of them own shares of our common stock), (c) the merger consideration is the highest price per share of our common stock reasonably attainable. In addition, the Board recommended that the shareholders of the Company approve and adopt the merger agreement, including the principal terms of the merger agreement, the statutory merger agreement, and the merger. The special committee and the Board further believe that the merger is substantively and procedurally fair to our unaffiliated shareholders. For a discussion of the material factors considered by our special committee and the Board in reaching their conclusions, see " Special Factors—Purpose and Reasons for the Merger; Recommendation of Our Special Committee and Board of Directors; Fairness of the Merger ," beginning on page 33.

         Our Board recommends that you vote "FOR" the proposal to approve the merger agreement.

6

Table of Contents

Interests of the Company's Directors and Executive Officers in the Merger (page 77)

        In considering the recommendations of our special committee and the Board, you should be aware that some of our directors and our executive officers have interests in the merger that are different from, or in addition to, your interests as a shareholder and that may present actual or potential conflicts of interest. These interests include, among others:

•

equity ownership in Parent by Messrs. Schiffer, D. Gold, J. Gold and H. Gold and their affiliates following the effective time of the merger pursuant to the Rollover Letter;



•

entry into employment, non-competition, non-solicitation and confidentiality agreements by Messrs. Schiffer, J. Gold and H. Gold with Parent pursuant to the Rollover Letter;



•

entry into a consulting agreement and a non-competition, non-solicitation and confidentiality agreement by Mr. D. Gold with Parent pursuant to the Rollover Letter;



•

entry into new leases by members of the Gold/Schiffer Family (as defined in " Special Factors—Background of the Merger ") and certain of their affiliates with the surviving corporation pursuant to the Lease Letter Agreement (as defined in " Special Factors—Interests of the Company's Directors and Executive Officers in the Merger ");



•

accelerated vesting of stock options;



•

payment of all outstanding performance stock units; and



•

the continuation of indemnification and directors' and officers' liability insurance applicable to the period prior to completion of the merger through the sixth anniversary of the effective time of the merger.

Our special committee and Board were aware of these interests and considered them, among other matters, prior to making their determination to recommend the approval of the merger agreement to our shareholders. These and other interests of our directors and executive officers, some of which may be different than those of our shareholders generally, are more fully described under " Special Factors—Interests of the Company's Directors and Executive Officers in the Merger " beginning on page 77 and " Special Factors—Golden Parachute Compensation " beginning on page 84.

Opinion of Financial Advisor to Our Special Committee and Board of Directors (page 41)

        Lazard Frères & Co. LLC ("Lazard") rendered its oral opinion to the special committee and the Board, subsequently confirmed in writing, that, as of October 11, 2011, and based upon and subject to the assumptions, procedures, factors, qualifications and other matters and limitations set forth in Lazard's opinion, the $22.00 per share merger consideration to be paid to holders of the Company's common stock (other than the Rollover Investors, the Company, Parent, Merger Sub and holders who are entitled to and properly demand an appraisal of their shares) in the merger was fair, from a financial point of view, to such holders.

        The full text of Lazard's written opinion, dated October 11, 2011, which sets forth the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Lazard in connection with its opinion, is attached to this proxy statement as Annex B and is incorporated by reference herein. Lazard's opinion was addressed to the special committee and the Board (each in its capacity as such) in connection with their evaluation of the merger. The opinion addresses only the fairness of the merger consideration from a financial point of view, does not address any other aspect of the merger and does not constitute a recommendation to any shareholder as to how such shareholder should vote or act with respect to the merger or any related matter. Lazard will receive a fee for its services, portions of which have been paid, and a significant portion of which will be payable upon consummation of the merger.

7

Table of Contents

        We encourage our shareholders to read Lazard's opinion carefully and in its entirety. For a further discussion of Lazard's opinion, see " Special Factors—Opinion of Financial Advisor to Our Special Committee and Board of Directors " beginning on page 41.

Position of the Rollover Investors as to the Fairness of the Merger (page 57)

        The Rollover Investors believe that the merger is substantively and procedurally fair to the unaffiliated shareholders of the Company for the reasons described under " Special Factors—Position of the Rollover Investors as to the Fairness of the Merger ," beginning on page 57.

Position of Parent, Merger Sub, the Ares Filing Persons and CPPIB as to the Fairness of the Merger (page 60)

        Parent, Merger Sub, the Ares Filings Persons and CPPIB believe that the merger is substantively and procedurally fair to the unaffiliated shareholders of the Company for the reasons described under " Special Factors—Position of Parent, Merger Sub, the Ares Filing Persons and CPPIB as to the Fairness of the Merger ," beginning on page 60.

Treatment of Stock Options, Restricted Stock Units and Performance Stock Units (page 80)

        Stock Options.     Under the merger agreement, each outstanding stock option granted under our equity incentive plans that represents the right to acquire our common stock, whether or not then vested or exercisable, will as of immediately prior to the effective time of the merger become fully vested and exercisable contingent on the closing of the merger and cancelled as of the effective time of the merger. The holder of such stock option will be entitled to receive a cash payment for each share of our common stock subject to such stock option, equal to the excess, if any, of (a) the $22.00 per share merger consideration over (b) the option exercise price payable in respect of such share of our common stock issuable under such stock option, without interest and less any applicable withholding taxes.

        Restricted Stock Units.     Under the merger agreement, each outstanding restricted stock unit granted under our equity incentive plans will be cancelled as of the effective time of the merger. The holder of such restricted stock unit will be entitled to receive a cash payment equal to the product of (a) the number of unforfeited shares of our common stock subject to the restricted stock unit, multiplied by (b) the $22.00 per share merger consideration, without interest and less any applicable withholding taxes.

        Performance Stock Units.     Under the merger agreement, each outstanding performance stock unit granted under our equity incentive plans will be cancelled as of the effective time of the merger. The holder of such performance stock unit will be entitled to receive a cash payment equal to the product of (a) the number of unforfeited shares of our common stock subject to the performance stock unit, multiplied by (b) the $22.00 per share merger consideration, without interest and less any applicable withholding taxes.

Financing of the Merger (page 67)

        Parent estimates that the aggregate amount of consideration necessary to complete the merger and the payment of related fees and expenses in connection with the merger and the financing arrangements will be approximately $1.6 billion. This amount is expected to be funded by Parent and Merger Sub with a combination of the equity financing contemplated by the equity commitment letters and the Rollover Letter, debt financing contemplated by the debt commitment letter, and cash of the Company. These equity and debt financings are subject to the terms and conditions set forth in the commitment letters and the Rollover Letter pursuant to which the financings will be provided. See " Special Factors—Financing of the Merger " beginning on page 67.

8

Table of Contents

Governmental and Regulatory Approvals (page 88)

        Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), the merger may not be completed until the Company and Parent each file a notification and report form under the HSR Act with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "DOJ") and the applicable waiting period has expired or been terminated. The Company and Parent filed the notification and report forms under the HSR Act with the FTC and the DOJ on October 31, 2011, and the FTC and the DOJ granted early termination of the waiting period on November 8, 2011.

Material United States Federal Income Tax Consequences (page 73)

        If you are a U.S. holder, for U.S. federal income tax purposes, your receipt of cash in exchange for your shares of common stock in the merger generally will result in your recognizing gain or loss measured by the difference, if any, between the cash you receive in the merger and your tax basis in your shares of common stock. You should consult your tax advisor for a complete analysis of the effect of the merger on your U.S. federal, state, local and/or foreign taxes.

Solicitations of Other Offers and Change in Recommendation (page 105)

        The Company has agreed to cease and terminate any previous discussions or negotiations with respect to any "Company Takeover Proposal" (as defined in " The Merger Agreement—Solicitations of Other Offers ") or any inquiry with respect thereto. Subject to certain exceptions described below, we and our subsidiaries generally have agreed not to:

•

solicit, initiate, or encourage or take any other action knowingly to facilitate or cause the submission of, or enter into any contract relating to, any Company Takeover Proposal, or the making of any inquiry, proposal or offer that would reasonably be expected to lead to a Company Takeover Proposal;



•

enter into, continue, conduct, maintain or otherwise participate in any discussions or negotiations regarding, furnish to any person any information with respect to, or otherwise cooperate in any way with any person with respect to, any Company Takeover Proposal or any inquiry with respect thereto; or



•

amend or grant any waiver or release under, or fail to use commercially reasonable efforts to enforce, any standstill or similar contract with respect to any capital stock of the Company or its subsidiaries.

        If the Company or its representatives receive a written Company Takeover Proposal or a request for information or inquiry that contemplates or that the Company believes could reasonably be expected to lead to a Company Takeover Proposal, that was made after the date of the merger agreement and did not result from a breach of the merger agreement's restrictions on solicitation, and that our Board or our special committee determines in good faith, after consultation with its outside legal counsel and its independent financial advisor, constitutes or could reasonably be expected to lead to a "Superior Company Proposal" (as defined in " The Merger Agreement—Restrictions on Solicitations of Other Offers "), and our Board or our special committee has determined, acting reasonably and in good faith, after giving due consideration to the written opinion of its outside legal counsel, that the failure to take such action would be inconsistent with its fiduciary duties, then we may, prior to the receipt of the Shareholder Approval:

•

provide access to or furnish information with respect to the Company and our subsidiaries to the person making the Company Takeover Proposal, request or inquiry pursuant to a confidentiality agreement; and

9

Table of Contents

•

enter into, conduct or otherwise participate in discussions and negotiations (including solicitation of a revised Company Takeover Proposal) with such person regarding the Company Takeover Proposal.

        Neither our Board nor the special committee may (a) adversely change its recommendation that our shareholders approve the merger agreement in response to an intervening event or a Superior Company Proposal or (b) accept a Superior Company Proposal and terminate the merger agreement, in each case, unless our Board or our special committee has determined, acting reasonably in good faith, after giving due consideration to the written opinion of its outside legal counsel, and after consulting its independent financial advisor, that the failure to take such action would be inconsistent with its fiduciary duties.

Conditions to the Completion of the Merger (page 113)

        The completion of the merger is subject to, among other things, the following conditions:

•

the approval of the merger agreement by the holders of our common stock pursuant to the Shareholder Approval, described above in this Summary Term Sheet;



•

the absence of any laws or governmental orders that prohibit the consummation of the merger;



•

all approvals from or registrations, declarations or filings with, or notices to, or permits from any governmental entity shall have been filed or obtained without imposition of material conditions, other than such approvals the failure of which to obtain has not had, and would not reasonably be expected to have, a Company Material Adverse Effect (as defined in " The Merger Agreement—Definition of Company Material Adverse Effect and Parent Material Adverse Effect ");



•

each party's respective representations and warranties in the merger agreement being true and correct as of the date of the merger agreement and as of the closing date in the manner described in " The Merger Agreement—Conditions to the Completion of the Merger ";



•

the absence of a Company Material Adverse Effect;



•

each party's performance in all material respects of its obligations required to be performed under the merger agreement prior to the closing date of the merger, and



•

the expiration or termination of the applicable waiting period under the HSR Act.

Termination of the Merger Agreement (page 115)

        The Company and Parent may agree in writing to terminate the merger agreement without completing the merger at any time, even after our shareholders have approved the merger agreement. The merger agreement may also be terminated upon written notice in certain other circumstances, including:

•

by either the Company or Parent:



•

if the merger is not completed on or before April 6, 2012 (the "Walk-Away Date"), except that the right to terminate will not be available to any party whose failure to comply with any of its obligations under the merger agreement results in the failure of the merger to be completed by the Walk-Away Date;



•

if a law or final and non-appealable governmental order prohibits the consummation of the merger, so long as the party seeking to terminate has used its reasonable best efforts to challenge the governmental order;



•

if the Shareholder Approval was not obtained at the special meeting or any adjournment or postponement of the special meeting, except this right to terminate will not be available to

10

Table of Contents

the Company if the failure to obtain the Shareholder Approval was the result of the Company's failure to perform any of its obligations under the merger agreement; or

•

if the other party breaches or fails to perform any of its representations, warranties or covenants contained in the merger agreement such that certain closing conditions to the merger agreement would not be satisfied, and which breach cannot be cured by the Walk-Away Date or, if capable of being cured, has not been cured by the earlier of (a) twenty days after the delivery of written notice by the terminating party to the breaching party of such breach and (b) the Walk-Away Date, so long as the terminating party is not then in material breach of any representation or warranty in the merger agreement such as would give rise to the failure of the breaching party's closing condition with respect to the accuracy of the terminating party's representations and warranties in the merger agreement and the terminating party has not failed to perform in any material respect any covenant in the merger agreement;



•

by Parent:



•

prior to the Shareholder Approval, if (a) we, our Board or any committee thereof (i) withdraws, qualifies or modifies, or proposes publicly to withdraw, qualify or modify, in a manner adverse to Parent or Merger Sub, its recommendation that our shareholders approve the merger agreement or its approval of the merger agreement, or approves or recommends any Company Takeover Proposal, or (ii) delivers a notice to Parent informing Parent that we have received a Superior Company Proposal and that, in connection with such Superior Company Proposal, we are prepared to terminate the merger agreement, (b) a Company Takeover Proposal becomes publicly known and neither our special committee nor our Board has confirmed the recommendation of the Board within five business days of Parent's written request that it do so, or (c) we breached any of our obligations regarding Company Takeover Proposals or Superior Company Proposals in any material respect; and



•

by the Company:



•

prior to the Shareholder Approval, if, in order to accept a Superior Company Proposal, we comply with the notice and other requirements described in " The Merger Agreement—Termination in Connection with a Superior Proposal " and we pay Parent the termination fee described in " The Merger Agreement—Termination Fee "; or



•

if the Shareholder Approval has been obtained and all other conditions to the obligations of Parent and Merger Sub to effect the merger (other than as specified in the merger agreement) have been satisfied, we have notified Parent that all conditions to our obligations to effect the merger (other than as specified in the merger agreement) have been satisfied or will be waived, the marketing period (as defined in " The Merger Agreement—Financing ") has ended, and Parent and Merger Sub have failed to consummate the merger prior to the Walk-Away Date (unless such failure was a result of our failure to perform our obligations under the merger agreement or to deliver any of the documents or information or cause to occur any other actions with respect to which we are required to use our reasonable best efforts to deliver or cause to be delivered or occur pursuant to our covenant to cooperate with Parent's financing efforts).

Termination Fees and Expense Reimbursement (page 116)

        We will be obligated to pay to Parent a termination fee of $47.25 million if:

•

the merger agreement is terminated by either the Company or Parent because the Shareholder Approval has not been obtained at the special meeting or any adjournment or postponement of the special meeting;

11

Table of Contents

•

we terminate the merger agreement prior to obtaining the Shareholder Approval in order to accept a Superior Company Proposal;



•

if Parent terminates the merger agreement for any of the following reasons:



•

the Company, our Board or our special committee (a) delivers a notice of a Superior Company Proposal and a statement that, in connection with such Superior Company Proposal, we are prepared to terminate the merger agreement, or (b) withdraws, qualifies or modifies, in a manner adverse to Parent, its recommendation that our shareholders approve the merger agreement;



•

a Company Takeover Proposal becomes publicly known and neither our special committee nor our Board has confirmed the recommendation of the Board within five business days of Parent's written request that it do so;



•

we breached any of our obligations regarding a Company Takeover Proposal or a Superior Company Proposal in any material respect; or



•

we failed to perform any of our representations, warranties or covenants contained in the merger agreement such that certain of Parent's closing conditions to the merger agreement would not be satisfied, and which breach cannot be cured by the Walk-Away Date or, if capable of being cured, has not been cured by the earlier of (a) twenty days after the delivery of written notice by Parent to us of such breach and (b) the Walk-Away Date, so long as Parent and Merger Sub are not then in material breach of any representation or warranty in the merger agreement such as would give rise to the failure of our closing condition with respect to the accuracy of Parent and Merger Sub's representations and warranties in the merger agreement and Parent and Merger Sub have not failed to perform in any material respect any covenant in the merger agreement; or



•

the merger agreement is terminated because of the failure to consummate the merger on or before the Walk-Away Date and:



•

the Company's closing conditions have been satisfied (other than as specified in the merger agreement) and the marketing period has not ended as a result of the Company's failure to perform any of its obligations under the merger agreement; or



•

a Company Takeover Proposal has been announced after the date of the merger agreement and not withdrawn, the termination occurs before the special meeting, and within the 12 months following such termination the Company enters into a definitive agreement to consummate a Company Takeover Proposal or a Company Takeover Proposal is consummated (for purposes of this bullet, references to "20%" in the definition of Company Takeover Proposal will be deemed references to "50%").

        Parent will be obligated to pay us a termination fee of $94.5 million if the Shareholder Approval has been obtained and all other conditions to the obligations of Parent and Merger Sub to effect the merger (other than as specified in the merger agreement) have been satisfied and:

•

the marketing period has ended, we have notified Parent that all conditions to our obligations to effect the merger (other than as specified in the merger agreement) have been satisfied or will be waived and Parent and Merger Sub have failed to consummate the merger prior to the Walk-Away Date (unless such failure was a result of our failure to perform our obligations under the merger agreement or to deliver any of the documents or information or cause to occur any other actions with respect to which we are required to use our reasonable best efforts to deliver or cause to be delivered or occur pursuant to our covenant to cooperate with Parent's financing efforts); or

12

Table of Contents

•

the Walk-Away Date has occurred and the marketing period has not ended as a result of any reason other than our failure to perform any of our obligations under the merger agreement or to deliver any of the documents or information or cause to occur any other actions with respect to which we are required to use our reasonable best efforts to deliver or cause to be delivered or occur pursuant to our covenant to cooperate with Parent's financing efforts.

        Also, if either Parent or the Company successfully sues to enforce the payment of its respective termination fee, the non-prevailing party will pay the prevailing parties' out-of-pocket costs and expenses (including reasonable attorneys' fees), up to a maximum of $10 million.

Remedies (page 75)

        In no event will we be entitled to monetary damages under the merger agreement other than the $94.5 million termination fee plus certain out-of-pocket costs and expenses. Subject to certain exceptions, we are entitled to seek specific performance in order to enforce Parent and Merger Sub's obligations under the Merger Agreement; however, we cannot seek specific performance to require Parent or Merger Sub to cause the equity financing to be funded or to consummate the merger.

        Concurrently with the execution of the merger agreement, each of ACOF III and CPPIB entered into a limited guarantee in our favor pursuant to which it irrevocably guaranteed its pro rata portion of Parent's obligations with respect to the termination fee described above and certain expenses payable by Parent to enforce the payment of the termination fee. These limited guarantees are our sole recourse against ACOF III, CPPIB and certain of their respective affiliates and representatives for any damages we may incur in connection with the merger agreement and the transactions contemplated by the merger agreement.

Dissenters' Rights (page 119)

        If you do not wish to accept the $22.00 per share merger consideration in the merger, you have the right under California law to have your shares appraised by a California court, provided that you comply with certain procedures. These dissenters' rights are subject to a number of restrictions and technical requirements. Generally, in order to exercise dissenters' rights, among other things, (a) you must not vote in favor of the approval of the merger agreement, (b) you must make a written demand for appraisal in compliance with California law within 30 days of notification that the merger agreement has been approved, (c) you must hold shares of our common stock on the record date and continuously hold such shares through the completion of the merger and (d) demands for payment must be filed with respect to at least five percent of the outstanding shares of our common stock. The fair value of your shares of our common stock as determined in accordance with California law may be more or less than, or the same as, the merger consideration to be paid to non-dissenting shareholders in the merger. Annex C to this proxy statement contains a copy of the California statute relating to shareholders' dissenters' rights. Failure to follow all of the steps required by this statute will result in the loss of your dissenters' rights.

Market Price of the Company's Common Stock (page 129)

        The Company's common stock is listed on the New York Stock Exchange under the symbol "NDN." The closing trading price of our common stock on October 10, 2011, the last trading day prior to our public announcement that we had entered into the merger agreement, was $20.49 per share. The closing trading price of our common stock on March 10, 2011, the day prior to public disclosure by the Company that we had received an acquisition proposal from certain of our affiliates and Leonard Green & Partners, L.P. ("LGP"), was $16.68 per share. The merger consideration represents a premium of approximately 32% to our closing share price on March 10, 2011. On December 9, 2011, which is the most recent practicable trading date prior to the date of this proxy statement, the closing trading price of our common stock was $21.88 per share.

13

Table of Contents

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING

         The following questions and answers address briefly some questions you may have regarding the merger and the special meeting. These questions and answers may not address all questions that may be important to you as a shareholder of the Company. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement.

The Merger and Related Transactions

Q:    What is the proposed transaction?

A:

The proposed transaction is the acquisition of the Company pursuant to the Agreement and Plan of Merger, dated as of October 11, 2011, as it may be amended from time to time, by and among the Company, Parent and Merger Sub. Parent and Merger Sub are controlled by ACOF III and CPPIB. Under the terms of the merger agreement, if the merger agreement is approved by the Company's shareholders and the other closing conditions under the merger agreement have been satisfied or waived (other than those which, by their nature, are satisfied upon the closing of the merger or are non-waivable), Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation. Upon consummation of the merger, the Company will become a wholly owned subsidiary of Parent. After the merger, shares of the Company's common stock will not be publicly traded.

Q:    What will I receive for my shares of the Company's common stock in the merger?

A:

Upon completion of the merger, you will receive $22.00 per share in cash, without interest and less any applicable withholding taxes, for each share of our common stock that you own. This does not apply to (a) shares owned by any of our shareholders who are entitled to and who properly exercise dissenters' rights under California law, (b) shares owned by the Company, and (c) shares owned by Parent, Merger Sub or any other direct or indirect wholly owned subsidiary of Parent, including shares to be contributed to Parent immediately prior to the completion of the merger by the Rollover Investors. Upon consummation of the merger, you will not own shares in the Company or Parent. See " Special Factors—Material United States Federal Income Tax Consequences " beginning on page 73 for a description of the U.S. tax consequences of the merger. You should consult your own tax advisor for a full understanding of how the merger will affect your federal, state, local and/or foreign taxes.

Q:    How will the Company's stock options be treated in the merger?

A:

Each outstanding stock option to purchase the Company's common stock granted under our equity incentive plans and outstanding as of immediately prior to the effective time of the merger will become fully vested and exercisable immediately prior to and contingent on the closing of the merger and will be cancelled as of the effective time of the merger. The holder of such stock option will be entitled to receive a cash payment for each share of our common stock subject to such stock option, equal to the excess, if any, of (a) the $22.00 per share merger consideration over (b) the option exercise price payable in respect of such share of our common stock issuable under such stock option, without interest and less any applicable withholding taxes.

Q:    How will the Company's restricted stock units and performance stock units be treated in the merger?

A:

Each outstanding restricted stock unit and performance stock unit granted under our equity incentive plans will be cancelled as of the effective time of the merger. The holder of such restricted stock unit or performance stock unit will be entitled to receive a cash payment equal to the product of (a) the number of unforfeited shares of our common stock subject to the restricted

14

Table of Contents

stock unit or performance stock unit, as applicable, multiplied by (b) the $22.00 per share merger consideration, without interest and less any applicable withholding taxes.

Q:    When do you expect the merger to be completed?

A:

We are working toward completing the merger as quickly as possible, and we anticipate that it will be completed in the first quarter of calendar year 2012. In order to complete the merger, we must obtain the Shareholder Approval and the other closing conditions under the merger agreement must be satisfied or waived (to the extent such conditions are waivable). Neither we nor Parent and Merger Sub are obligated to complete the merger unless and until the closing conditions in the merger agreement have been satisfied or waived (to the extent such conditions are waivable), which conditions are described in " The Merger Agreement—Conditions to the Completion of the Merger " beginning on page 113. The merger will be effective at the time the statutory merger agreement is filed with the Secretary of State of the State of California or such other time as may be provided in the statutory merger agreement as the effective time of the merger. A copy of the statutory merger agreement is attached as Annex D to this proxy statement. Unless otherwise agreed by the parties to the merger agreement, the closing of the merger will occur on the later of (a) the third business day following the satisfaction or waiver of the conditions described in " The Merger Agreement — Conditions to the Completion of the Merger ", and (b) the date that is the earlier of (i) any business day during the marketing period to be specified by Parent and (ii) the third business day after the final day of the marketing period. For purposes of the merger agreement, "marketing period" means a period of at least 15 consecutive business days following the Company and Parent's satisfaction of certain obligations with respect to Parent's financing of the merger as described in " The Merger Agreement — Financing of the Merger ", excluding any day from November 21, 2011, to November 25, 2011. The marketing period either will be completed on or prior to December 19, 2011, or will commence on or after January 4, 2012.

Q:    What effects will the proposed merger have on the Company?

A:

Upon completion of the proposed merger, the Company will cease to be a publicly traded company and will be wholly owned by Parent. As a result, you will no longer have any interest in our future earnings or growth, if any. Following completion of the merger, the registration of our common stock and our reporting obligations with respect to our common stock under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are expected to be terminated. In addition, upon completion of the merger, shares of our common stock will no longer be listed on the New York Stock Exchange (the "NYSE") or any other stock exchange or quotation system.

Q:    What happens if the merger is not completed?

A:

If the merger agreement is not approved by our shareholders, or if the merger is not completed for any other reason, our shareholders will not receive any payment for their shares pursuant to the merger agreement. Instead, the Company will remain as a public company and our common stock will continue to be registered under the Exchange Act and listed and traded on the NYSE. Under specified circumstances, the Company may be required to pay Parent a termination fee, or Parent may be required to pay the Company a termination fee, in each case, as described in " The Merger Agreement—Termination Fee " beginning on page 116.

15

Table of Contents

The Special Meeting

Q:    Where and when is the special meeting?

A:

The special meeting will be held at City of Commerce Community Center, Rosewood Park Meeting Room, 5600 Harbor Street, City of Commerce, California 90040, on Thursday, January 12, 2012, at 1:00 p.m., local time.

Q:    What matters will be voted on at the special meeting?

A:

You will be asked to consider and vote on the following proposals:

•

the approval of the merger agreement; and

•

the approval of a motion to adjourn or postpone the special meeting to another time and/or place for the purpose of soliciting additional proxies in favor of the proposal to approve the merger agreement, if necessary.

Q:    Does our Board recommend that our shareholders vote "FOR" the approval of the merger agreement?

A:

Yes. After careful consideration and upon the unanimous recommendation of our special committee, our Board, by the unanimous vote of our independent directors, recommends that you vote:

•

" FOR " the approval of the merger agreement.

You should read " Special Factors—Purpose and Reasons for the Merger; Recommendation of Our Special Committee and Board of Directors; Fairness of the Merger " beginning on page 33 for a discussion of the factors that our special committee and Board considered in deciding to recommend the approval of the merger agreement. In addition, in considering the recommendation of our special committee and Board with respect to the merger agreement, you should be aware that some of the Company's directors and executive officers have interests in the merger that are different from, or in addition to, the interests of our shareholders generally. See " Special Factors—Interests of the Company's Directors and Executive Officers in the Merger " beginning on page 77.

Q:    How do the directors and executive officers of the Company and the Rollover Investors intend to vote?

A:

Our directors and executive officers have informed us that they intend to vote all of their shares of common stock "FOR" the approval of the merger agreement because they believe that the merger and the merger agreement are in the best interests of the Company and its shareholders. None of our executive officers and directors has made a recommendation with respect to the proposed transaction other than as set forth in this proxy statement. In the aggregate, they beneficially own approximately 33.5% of the total number of outstanding shares of the Company's common stock (which includes approximately 33% beneficially owned by the Rollover Investors and Au Zone Investments #2, L.P.). The Rollover Investors and Au Zone Investments #2, L.P. have entered into a voting agreement with Parent whereby they have agreed to vote all of their shares in favor of the merger.

Q:    Are all shareholders of the Company as of the record date entitled to vote at the special meeting?

A:

Yes. All shareholders who own our common stock at the close of business on December 2, 2011, which is the record date for the special meeting, will be entitled to vote (in person or by proxy) the shares of our common stock that they hold on that date at the special meeting, or any adjournments of the special meeting.

16

Table of Contents

Q:    What constitutes a quorum for the special meeting?

A:

The presence at the special meeting in person or by proxy of the holders of a majority of the shares of our common stock outstanding on the record date will constitute a quorum for purposes of the special meeting. Abstentions are counted for this purpose, but "broker non-votes" are not.

Q:    What do I need to attend the special meeting?

A:

Only shareholders and their proxies may attend the special meeting. If you are a record shareholder who received a paper copy of this proxy statement, an admission ticket is included with the mailing and is attached to the proxy card. You will need to bring that admission ticket and your photo identification to the special meeting. If you hold your shares in "street name" through a broker, bank or other nominee or if you have received your proxy materials electronically, you may obtain an admission ticket in advance by sending a written request, along with proof of ownership, such as a bank or brokerage account statement, to us at Investor Relations at 99¢ Only Stores, 4000 Union Pacific Avenue, City of Commerce, California 90023. If you arrive at the special meeting without an admission ticket, we will admit you only if we are able to verify that you were an actual shareholder of the Company as of the record date for the special meeting.

Q:    What vote of the Company's shareholders is required to approve the merger agreement?

A:

The approval of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of the Company's common stock. A failure to vote your shares, abstention from the vote or a "broker non-vote" will have the same effect as voting "AGAINST" the approval of the merger agreement. A "broker non-vote" occurs when a broker does not have discretion to vote on approval of the merger agreement because the broker has not received instructions from the beneficial holder as to how such holder's shares are to be voted.

Q:    What vote of the Company's shareholders is required to adjourn the special meeting for the purpose of soliciting additional proxies to approve the merger agreement?

A:

Approval of the proposal to adjourn the special meeting, if necessary, for the purpose of soliciting additional proxies requires the affirmative vote of a majority of the holders of our common stock present in person or by proxy and voting on the proposal. A failure to vote your shares of common stock or a broker non-vote will have no effect on the outcome of the vote to approve the proposal to adjourn the special meeting. An abstention will have the same effect as voting "AGAINST" the proposal to adjourn the special meeting.

Q:    How do I vote my shares without attending the special meeting?

A:

If you hold shares in your name as a shareholder of record on the record date, then you received this proxy statement and a proxy card from us. You may submit a proxy for your shares by Internet, telephone or mail without attending the special meeting. To submit a proxy by Internet or telephone twenty-four hours a day, seven days a week, follow the instructions on the proxy card. To submit a proxy by mail, complete, sign and date the proxy card and return it in the postage-paid envelope provided. Internet and telephone proxy facilities for shareholders of record will close at 11:59 p.m. Eastern Time on January 11, 2012, the day prior to the special meeting. If you hold shares in "street name" through a broker, bank or other nominee, then you received this proxy statement from the nominee, along with the nominee's voting instructions. You should instruct your broker, bank or other nominee on how to vote your shares of common stock using the voting instructions provided to you.

17

Table of Contents

Q:    How do I vote my shares in person at the special meeting?

A:

If you hold shares in your name as a shareholder of record on the record date, you may vote those shares in person at the special meeting by giving us a signed proxy card or ballot before voting is closed. If you would like to do that, please bring your admission ticket and your photo identification with you to the special meeting. Even if you plan to attend the special meeting, we strongly encourage you to submit a proxy for your shares in advance as described above, so your vote will be counted if you later decide not to attend. If you hold shares in "street name" through a broker, bank or other nominee, you may vote those shares in person at the meeting only if you obtain and bring with you a signed proxy from the necessary nominee giving you the right to vote the shares, an admission ticket and your photo identification. To obtain a signed proxy prior to the special meeting, you should contact your nominee.

Q:    If my shares are held in "street name" by my broker, bank or other nominee, will my nominee vote my shares for me?

A:

Your broker, bank or other nominee will not vote your shares on your behalf unless you provide instructions to your broker, bank or other nominee on how to vote. You should follow the directions provided by your broker, bank or other nominee regarding how to instruct it to vote your shares. Without those instructions, your shares will not be voted, which will have the same effect as voting "AGAINST" the approval of the merger agreement, but will have no effect for purposes of the proposal to adjourn the special meeting, if necessary, to solicit additional proxies.

Q:    Can I revoke or change my vote after I submit my proxy?

A:

Yes. If you hold your shares through a broker, bank, or other nominee, you have the right to change or revoke your proxy at any time before the vote is taken at the special meeting by following the directions received from your broker, bank or other nominee to change those instructions. If you hold your shares in your name as a shareholder of record, you have the right to change or revoke your proxy at any time before the vote is taken at the special meeting by (a) delivering to our Corporate Secretary at 99¢ Only Stores, 4000 Union Pacific Avenue, City of Commerce, California 90023, a signed written notice of revocation, bearing a date later than the date of the proxy, stating that the proxy is revoked, (b) attending the special meeting and voting in person (your attendance at the meeting will not, by itself, change or revoke your proxy—you must vote in person at the meeting to change or revoke a prior proxy), (c) submitting a later-dated proxy card or (d) submitting a proxy again at a later time by telephone or Internet prior to the time at which the telephone and Internet proxy facilities close by following the procedures applicable to those methods of submitting a proxy.

Q:    What does it mean if I receive more than one proxy card or vote instruction form?

A:

If your shares are registered differently and are in more than one account, you may receive more than one proxy card or voting instruction form. Please complete, sign, date and return all of the proxy cards and voting instruction forms you receive regarding this special meeting (or submit your proxy for all shares by telephone or Internet) to ensure that all of your shares are voted.

Q:    Are dissenters' rights available?

A:

Yes. Under California law, you have the right to seek appraisal of the fair market value of your shares of our common stock as determined by a California court if the merger is completed, but only if (a) you do not vote in favor of approving the merger agreement, (b) you comply with the requirements of California law and (c) demands for payment are filed with respect to at least five

18

Table of Contents

percent of the outstanding shares of our common stock. See " Dissenters' Rights " beginning on page 119.

Q:    Will any proxy solicitors be used in connection with the special meeting?

A:

Yes. To assist in the solicitation of proxies, the Company has engaged Morrow & Co., LLC.

Q:    Who will count the votes cast at the special meeting?

A:

A representative of our transfer agent, American Stock Transfer & Trust Company, LLC, will count the votes and act as an inspector of election.

Q:    Should I send in my stock certificates now?

A:

No. PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES WITH YOUR PROXY. If you hold your shares in your name as a shareholder of record, then shortly after the merger is completed you will receive a letter of transmittal with instructions informing you how to send in your stock certificates to the paying agent in order to receive the $22.00 per share merger consideration in respect of your shares of our common stock. You should use the letter of transmittal to exchange your stock certificates for the merger consideration which you are entitled to receive as a result of the merger. If you hold your shares in "street name" through a broker, bank or other nominee, then you will receive instructions from your broker, bank or other nominee as to how to effect the surrender of your "street name" shares in exchange for the merger consideration.

Q:    Who can help answer my other questions?

A:

If you have more questions about the merger, need assistance in submitting your proxy or voting your shares, or need additional copies of the proxy statement or the enclosed proxy card, you should contact the Company's proxy solicitor:

		470 West Avenue—3rd Floor Stamford, CT 06902 Banks and Brokerage Firms, please call (203) 658-9400 Shareholders, please call (800) 566-9061

19

Table of Contents

SPECIAL FACTORS

Background of the Merger

        In recent years, David Gold, Chairman of our Board, together with members of his family (the "Gold/Schiffer Family"), have contemplated that the Company might be more suitable for ownership as a private company, considering, among other things, that as a privately-held company, the Company could focus on long-term growth initiatives without the stock market reaction to quarterly earnings or sales announcements and the negative impact on trading prices of potentially failing to meet analyst forecasts.

        In the fourth calendar quarter of 2010, in light of the historic low interest rates for acquisition financing at that time, the Gold/Schiffer Family began to consider the desirability and feasibility of a potential going private transaction of the Company. At or around that time, members of the Gold/Schiffer Family, including Eric Schiffer, the Company's Chief Executive Officer, and Jeff Gold, the Company's President and Chief Operating Officer, entered into discussions with Leonard Green & Partners, L.P. ("LGP"), an existing investor in the Company with the financial capability to execute a potential transaction and significant expertise in the retail industry. Among other matters, and based solely on publicly available information about the Company, members of the Gold/Schiffer Family and LGP discussed the Company and its competitive landscape, different balance sheet options and the general benefits of going private. These discussions were exploratory only and were initiated by the Gold/Schiffer family in their capacity as shareholders. In addition, at that time the Gold/Schiffer Family had not made a determination of whether it wanted to move forward with a transaction, and LGP had informed the Gold/Schiffer Family that it did not wish to proceed with any transaction without their involvement.

        During this exploratory phase and while these discussions were ongoing, the law firm of Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden") advised the Gold/Schiffer Family. The Gold/Schiffer Family also consulted with Guggenheim Securities, LLC ("Guggenheim"), including with respect to the structural and financial aspects of such a transaction.

        On January 17, 2011, Mr. Schiffer contacted a representative of Munger, Tolles & Olson LLP ("Munger Tolles"), the Company's outside corporate counsel, to discuss the fact that the Gold/Schiffer Family was considering the possibility of making a proposal to the Company for a going private transaction and would be informing the Board of this development. He also told Munger Tolles that the Gold/Schiffer Family would be requesting the Board's approval to share confidential information of the Company with potential partners in such a transaction. At Mr. Schiffer's request, Munger Tolles then discussed these matters further with a representative of Skadden. On that same day, Mr. Schiffer also informed the independent members of the Board of this development and called a Board meeting for January 19, 2011.

        On January 19, 2011, the Board met telephonically. Representatives of Munger Tolles and Skadden were also present. Messrs. Schiffer, J. Gold and David Gold, the members of the Gold/Schiffer Family who serve on the Board (the "Interested Directors"), and other members of the Gold/Schiffer Family who also attended the meeting, informed the independent members of the Board of their potential interest in a going private transaction involving the Company, but that no decision to proceed with a proposal had been made. They also informed the independent members of the Board that preliminary discussions were proceeding with LGP regarding LGP's potential participation in such a transaction, and that the Gold/Schiffer Family had not agreed to be exclusive with LGP and would not enter into any exclusive arrangements with LGP without the approval of the independent members of the Board. Also at the meeting, the Interested Directors requested that the Board approve the sharing of confidential information of the Company with private equity firms and potential sources of financing in connection with this process. The Interested Directors then recused themselves and left the meeting, as did Skadden. The independent directors then discussed the information that had been shared with the

20

Table of Contents

Board by the Interested Directors, and asked questions of Munger Tolles as to potential next steps. Following this discussion, the independent directors authorized the Company to provide confidential information to potential investment partners and/or financing sources of the Gold/Schiffer Family pursuant to an appropriate confidentiality and standstill agreement.

        On January 20, 2011, Mr. Schiffer met with a senior executive of LGP to confirm LGP's potential interest in participating in a going private transaction involving the Company.

        On January 21, 2011, Munger Tolles delivered a proposed confidentiality and standstill agreement to LGP. On January 24, 2011, LGP delivered its comments to the proposed confidentiality and standstill agreement to Munger Tolles.

        Over the next few days, Munger Tolles discussed LGP's comments and certain other changes to the agreement with Marvin Holen, an independent member of the Board, and Chairman of the Board's Corporate Governance Committee, Rob Kautz, the Company's Chief Financial Officer, and Russell Wolpert, the Company's Chief Legal Officer, as well as with LGP, and a confidentiality and standstill agreement was entered into between the Company and LGP on January 27, 2011.

        On or about February 1, 2011, the Company established a protocol to share a limited amount of confidential information with potential partners of the Gold/Schiffer Family. All decisions as to what confidential information would be shared were made by Mr. Holen, Mr. Kautz and Mr. Wolpert.

        During February 2011, after execution by LGP and the Company of the confidentiality and standstill agreement, the Company provided LGP a limited amount of confidential information, including income statement summaries detailing the Company's revenues and expenses for the 2008 to 2011 fiscal years, schedules comparing the Company's financial performance during the first three quarters of the 2011 fiscal year against the Company's projected results, various inventory, sales and store performance analytics prepared by the Company (with individual stores referred to only by a reference code to disguise their identity), information relating to Company capital expenditures and estimated depreciation costs and other financial information and data measuring the Company's recent financial performance. Following establishment of the special committee, all of the confidential information provided to LGP in February 2011 was furnished to Lazard and was posted in the data room for review by other prospective bidders.

        Messrs. Schiffer, J. Gold and Kautz met with LGP on February 8, 2011, and February 15, 2011, and Mr. Kautz met with LGP on March 2, 2011, to discuss the Company's operations and financial information and other diligence matters.

        During the month of February and the first week of March, representatives of the Gold/Schiffer Family and representatives of LGP, together with their respective advisors, engaged in a series of discussions regarding the potential structure of a going private transaction, the possible price to be paid to the Company's shareholders in such transaction, the capital structure of the Company following such transaction, and certain arrangements that would govern the relationship of the parties after the closing of such transaction. During the course of these discussions, it was determined that the most likely structure to effect a going private transaction would be a merger of the Company with a new entity to be formed by LGP and the Gold/Schiffer Family, and that the price to be offered to the Company's shareholders in such transaction would likely be at or around $19.00 per share.

        From February 16 through February 18, 2011, Skadden and Munger Tolles had several discussions regarding process. Skadden informed Munger Tolles that, if the Gold/Schiffer Family's discussions with a private equity firm led to a going private proposal, the preference of the Gold/Schiffer Family was to enter into a definitive merger agreement that would provide the Company with a go-shop period in which to solicit alternative proposals to acquire the Company after the signing of the definitive agreement. Skadden also mentioned the alternative possibility of a limited solicitation process being run by the Board on a confidential basis, prior to execution of a definitive agreement. During this period,

21

Table of Contents

Munger Tolles discussed these ideas and various alternatives with the independent directors. The independent directors, who met telephonically with Munger Tolles on February 18, expressed the view that they would not approve the Company entering into a definitive agreement with the Gold/Schiffer Family and any other potential buyer or have any discussion regarding potential terms of such a transaction without public disclosure of any acquisition proposal and a full and open process to explore other alternatives conducted by a special committee of independent directors with independent advisors. On February 18, Munger Tolles informed Skadden of the independent directors' views.

        On February 22 and February 24, 2011, Skadden and Munger Tolles had several additional discussions, during which Skadden informed Munger Tolles that the Gold/Schiffer Family intended to retain Guggenheim as a financial advisor, and that the Gold/Schiffer Family planned to assess LGP's position as to a potential proposal to acquire the Company. During these discussions, Skadden confirmed to Munger Tolles that the Gold/Schiffer Family would not enter into any binding or exclusive relationship with LGP in connection with such a proposal, and that the Gold/Schiffer Family remained open to pursuing a transaction with another buyer if one emerged.

        On February 25, 2011, the independent directors had a telephone discussion with Munger Tolles to discuss Munger Tolles' recent discussions with Skadden as well as the Gold/Schiffer Family's retention of Guggenheim as its financial advisor.

        On March 8, 2011, representatives of LGP sent a written proposal to representatives of the Gold/Schiffer Family regarding the terms of a potential transaction in which LGP would participate with the Gold/Schiffer Family in a buyout of the Company. Between March 8, 2011, and March 10, 2011, representatives of the Gold/Schiffer Family and representatives of LGP, together with their respective advisors, discussed the potential terms of such a transaction.

        On March 10, 2011, Skadden informed Munger Tolles that the Gold/Schiffer Family and LGP planned to deliver a letter to the Board with a going private proposal later that day, and that the Gold/Schiffer Family and LGP understood that the proposal would be publicly disclosed. Skadden requested, on behalf of LGP, that the Board confirm that the delivery of a going private proposal by LGP would not violate LGP's confidentiality and standstill agreement. Munger Tolles informed the independent directors of these developments in a telephone call that same day. The independent directors determined that they would be willing to convene a Board meeting to consider LGP's request with respect to its confidentiality and standstill agreement, subject to confirmation from the Gold/Schiffer Family that any arrangement between the Gold/Schiffer Family and LGP would be non-binding and non-exclusive and that the Gold/Schiffer Family would remain free to enter into another transaction with a different bidder. Munger Tolles called Skadden to inform them of the position of the independent directors, and Skadden stated that the Gold/Schiffer Family would be in a position to confirm all of these matters to the Board. Skadden also confirmed that the Company could state in any press release about the going private proposal that the Gold/Schiffer Family had not made any commitment of exclusivity with LGP relating to a transaction. As part of the conversations that gave rise to their proposal, the Gold/Schiffer Family and LGP also had preliminary discussions regarding issues that would be addressed in a shareholders agreement should any definitive agreement with the Company regarding the proposed transaction be reached in the future.

        On the evening of March 10, the Board met, with representatives of Munger Tolles and Skadden present. The Interested Directors provided the other Board members with background on the potential proposal, noting that, as part of the proposal, the Gold/Schiffer Family was prepared to roll over a substantial portion of their existing equity investment in the Company. The Interested Directors also confirmed that they had not entered into any binding agreements or arrangements with LGP. The Interested Directors then recused themselves and left the meeting, as did Skadden. After further discussion, the independent directors determined that the delivery of a going private proposal by LGP and the Gold/Schiffer Family would not violate LGP's confidentiality and standstill agreement. Following the Board meeting, the Gold/Schiffer Family and LGP delivered a letter to the Board with

22

Table of Contents

the terms of a non-binding, conditional going private proposal to acquire the Company at $19.09 per share stating, among other things, that the Gold/Schiffer Family was prepared to roll over a substantial percentage of its equity ownership and expected to increase its pro forma percentage ownership in the Company. The proposal was conditioned on: (a) the completion of due diligence, including financial, legal, accounting and tax diligence, (b) the receipt of financing commitments with respect to the financing necessary to complete the proposed transaction, (c) the negotiation of a satisfactory acquisition agreement with customary terms and conditions, (d) reaching agreement among members of the Gold/Schiffer Family and LGP with respect to the terms of a shareholders' agreement and (e) reaching agreements with the management of the Company with respect to their ongoing roles as managers of the Company. The Board convened again on the evening of March 10, with Munger Tolles and Skadden present, and discussed the terms of the going private proposal. The Interested Directors then recused themselves and left the meeting, as did Skadden, and the independent directors approved the disclosure of the going private proposal before the opening of the NYSE the next morning.

        On March 11, 2011, prior to the opening of the NYSE, the Company issued a press release announcing the receipt of the going private proposal from the Gold/Schiffer Family and LGP. That afternoon, the Board and Munger Tolles convened by telephone to discuss the formation of a special committee of the Board. After discussion, and the recusal of the Interested Directors, the Board approved the formation of a special committee of independent directors, consisting of Lawrence Glascott, Marvin Holen and Peter Woo (the "special committee"), to consider the going private proposal and other proposals and strategic alternatives available to the Company, including the possibility of taking no action with respect to the going private proposal and remaining a public company. At the March 11, 2011 meeting, the members of the special committee unanimously agreed that Marvin Holen would serve as Chairman of the special committee.

        Following the March 11, 2011 Board meeting, the special committee met on several occasions with Munger Tolles to discuss appropriate next steps in light of its charter and its obligations to the Company's shareholders. The special committee then considered its choice of legal counsel at meetings held on March 17 and March 18, 2011. After considering the qualifications and experience of several law firms, on March 18, 2011, the special committee engaged Morrison & Foerster LLP ("Morrison & Foerster") as its independent legal counsel.

        At a meeting of the special committee held on March 23, 2011, Morrison & Foerster reviewed with the special committee its fiduciary duties to the Company and its shareholders. The special committee discussed and confirmed the independence of each member of the special committee. The special committee also reviewed with Morrison & Foerster the scope of the special committee's mandate and noted that the Board resolutions appointing the special committee provided the special committee with authority to, among other things, consider, and, if deemed appropriate, negotiate the proposal received from LGP and the Gold/Schiffer Family as well as any other proposals received by the Company and to consider other strategic alternatives, including remaining an independent public company. The special committee then discussed the process for selection of a financial adviser. During the meeting, a teleconference was held with Messrs. Kautz and Wolpert and a representative of Munger Tolles. The special committee instructed the Company representatives to furnish to the special committee copies of all information previously furnished by the Company to LGP. In addition, the special committee advised the Company representatives that the special committee would have sole responsibility for managing the process of furnishing any additional information to LGP or to any other potential counterparties.

        On March 24, 2011, a representative of Skadden contacted Morrison & Foerster and advised that he had been contacted by a private equity firm, which we refer to as Bidder C, regarding Bidder C's potential interest in a transaction with the Company. The representative of Skadden reported that he had advised Bidder C it should speak with Morrison & Foerster. In the same conversation with Morrison & Foerster, the representative of Skadden stated that the Gold/Schiffer Family was open to

23

Table of Contents

discussions with strategic bidders and other private equity firms and that the Gold/Schiffer Family would consider selling its entire equity interest to a strategic buyer in the retail space if an attractive offer was made. Later on March 24, Morrison & Foerster spoke with a representative of Bidder C who expressed his firm's interest in exploring a potential transaction with the Company. Morrison & Foerster advised Bidder C that the special committee would respond after it had selected its financial adviser.

        Between March 23 and March 30, 2011, the special committee reviewed materials received from 21 investment banks seeking to act as financial adviser to the special committee. The special committee met with five investment banks, asking them, among other things, about their experience with companies in the Company's industry, with special committees and with going private transactions, and about their relationships, if any, with LGP and members of the Gold/Schiffer Family and other potential acquirors of the Company. On March 30, after considering the qualifications, experience, and independence of the investment banks, the special committee resolved to engage Lazard Frères & Co. LLC ("Lazard") as its financial adviser, subject to negotiation of an acceptable engagement agreement. Following negotiation of such agreement, Lazard was engaged on April 8, 2011, to act as financial adviser to the special committee.

        On March 29, 2011, Latham & Watkins LLP ("Latham"), LGP's legal counsel, and Skadden contacted Morrison & Foerster. Latham suggested that the Company enter into a definitive merger agreement with LGP, based on the March 10, 2011 proposal from LGP and the Gold/Schiffer Family, that would include a go-shop provision allowing the special committee to solicit alternative transactions for some period of time after signing the definitive merger agreement. Later that day, Morrison & Foerster discussed the LGP proposal with the special committee and discussed the advantages and disadvantages of following such a process as compared to other potential processes, including in particular the solicitation of other potential bidders prior to signing a binding definitive acquisition agreement with any bidder. Following this discussion, the special committee concluded that it would be more beneficial to the Company's shareholders for the special committee to review the position and outlook of the Company and strategic alternatives that may be available to it and to conduct a market check prior to signing a merger agreement and directed Morrison & Foerster to so inform Latham. In April and May 2011, similar proposals were made by LGP and advisers to the Gold/Schiffer Family who suggested that such a process might allow the special committee to take advantage of the then favorable financing market conditions. In each case, the special committee considered the proposal, but concluded that it would be more beneficial to the Company's shareholders for the special committee to complete its review of the Company and conduct a market check prior to signing a merger agreement.

        On April 11, 2011, at the direction of the special committee, the Company issued a press release stating that the special committee had been formed to, among other things, consider the March 10, 2011 proposal from LGP and the Gold/Schiffer Family. The press release stated that the special committee was also authorized to consider other proposals and strategic alternatives which might be available to the Company and that the special committee had retained Lazard as its financial adviser and Morrison & Foerster as its legal counsel. The press release also stated that the Gold/Schiffer Family had assured the Company that it would support a full and open process and consider other bidders arising from such a process.

        Later on April 11, 2011, the special committee met with Lazard and Morrison & Foerster. Following a further discussion of the March 10 proposal from LGP and the Gold/Schiffer Family and discussion of various alternative courses of action, the special committee again concluded that a competitive bidding process would be most beneficial to the Company's unaffiliated shareholders and instructed Lazard to implement a process pursuant to which bids would be sought from both potential strategic buyers and private equity buyers. The special committee further instructed Lazard to consider alternatives to selling the Company. At this meeting, the special committee also discussed the status of the Company's four-year business plan, which was being prepared by Company management in the

24

Table of Contents

ordinary course of business and which had not yet been completed. The special committee noted, among other things, that the financial projections to be included in the plan, could be used to facilitate the special committee's review of the Company and strategic alternatives available to the Company and the solicitation of bids to acquire the Company.

        During the next several weeks, Lazard conducted a review of the Company and its business. Lazard was contacted during this time period by Bidder C and another private equity firm, both of which expressed an interest in a possible transaction with the Company. However, the other private equity firm never submitted a bid despite having signed a non-disclosure agreement. With Lazard's assistance, the Company began preparing a confidential information memorandum to be furnished to prospective bidders. In addition, with Lazard's assistance, the special committee worked with Mr. Kautz and other members of the Company's management team as they finalized the Company's four-year business plan projections for consideration and use by the special committee in its evaluation of the Company and strategic alternatives available to the Company, and for inclusion in the confidential information memorandum.

        On April 25, 2011, Lazard and Morrison & Foerster participated in a teleconference with Guggenheim and Skadden. During this discussion, Guggenheim and Skadden confirmed that there were no agreements between LGP and the Gold/Schiffer Family and that the Gold/Schiffer Family was open to strategic and private equity buyers. Guggenheim and Skadden explained that there had been discussions between the Gold/Schiffer Family and LGP regarding, among other things, debt leverage, corporate governance and exit strategies with respect to the post-merger company. During these discussions, Guggenheim and Skadden advised that the discussions with LGP contemplated that the Gold/Schiffer Family would own a majority interest in the post-acquisition company as a result of rolling over a substantial ownership interest in the Company. Guggenheim also discussed its views regarding the likelihood of certain parties bidding for the Company.

        On April 28, 2011, the special committee met with Lazard and Morrison & Foerster. The special committee again discussed alternative processes for seeking bids for the Company and reconfirmed its intention of seeking other bidders and considering other strategic alternatives before it made any recommendation to the Board. The special committee then reviewed with Lazard potential counterparties who might be contacted to ascertain their interest in acquiring the Company. Following the special committee's agreement on a list of potential counterparties, the special committee directed Lazard to commence contacting the potential counterparties as soon as practicable.

        During May 2011, at the direction of the special committee, Lazard commenced a marketing process, ultimately contacting 51 potential bidders, comprised of 33 potential strategic acquirers and 18 private equity firms. Lazard advised the potential bidders that the special committee would consider proposals to acquire all of the outstanding shares of the Company, including those held by the Gold/Schiffer Family, as well as proposals to acquire the Company together with the Gold/Schiffer Family. Lazard also reiterated to potential bidders that the Gold/Schiffer Family had not made any commitment of exclusivity with LGP. On or about May 6, 2011, a representative of Lazard called a representative of Ares Management LLC ("Ares Management") regarding the possibility of Ares Management submitting a proposal for an acquisition transaction with the Company. In that call and in subsequent contacts between Ares Management and Lazard, Lazard assured Ares Management that the special committee was fully committed to conducting a full and open competitive bidding process with respect to any acquisition transaction and that the Gold/Schiffer Family had not made any formal or informal exclusive arrangements with any buyer and would entertain transactions involving all potential buyers. Lazard further informed Ares Management that the Gold/Schiffer Family was not mandating any specific rollover investment amount by the Gold/Schiffer Family and in the interest of having an open process to help maximize value to existing shareholders would consider proposals with little to no rollover. Lazard further informed Ares Management, during the May 6 ^th  call and in subsequent

25

Table of Contents

contacts, that Ares Management would be afforded the same opportunity to conduct diligence as were other potential buyers.

        Over the course of the second half of May and the first week of June, ACOF Operating Manager III, LLC, an affiliate of Ares Management (collectively, "Ares"), Bidder C, and four other private equity firms signed confidentiality agreements with the Company. The confidentiality agreements included a customary standstill provision prohibiting bidders from acquiring shares of Company common stock or making proposals to acquire the Company as well as a prohibition on discussions or negotiations with any party (including members of the Gold/Schiffer Family) regarding a potential acquisition of the Company unless the special committee had consented to such discussions. The firms that signed a confidentiality agreement received a confidential information memorandum about the Company and were provided with access to selected documents through a virtual data room. Three of the four other private equity firms that signed confidentiality agreements ultimately declined to proceed further. The fourth firm, which we refer to as Bidder D, continued with the process.

        On May 10, 2011, the special committee asked LGP to amend its existing confidentiality agreement to conform to the confidentiality agreement used by the special committee in its process. Following several discussions of the terms of an amendment, LGP signed an amended and restated confidentiality agreement on July 13, 2011.

        On May 13, 2011, Lazard and Morrison & Foerster met with Guggenheim and Skadden at their request. Guggenheim and Skadden reviewed their discussions with LGP regarding debt leverage, corporate governance and exit strategies for the post-merger entity and indicated that these would be important considerations in connection with any alternative transaction proposal that required a significant rollover by the Gold/Schiffer Family. Guggenheim and Skadden requested guidance from Lazard and Morrison & Foerster with respect to the marketing process envisioned by the special committee. In a follow up conversation on May 17, 2011, Lazard and Morrison & Foerster described generally the marketing process that the special committee had decided to implement.

        During the first half of June 2011, Ares, Bidder C and Bidder D attended management presentations and participated in initial meetings with the Gold/Schiffer Family. The meetings with the Gold/Schiffer Family were also attended by representatives of Lazard on behalf of the special committee and by representatives of Guggenheim.

        After the management presentation attended by Ares on June 9, Ares, Lazard, Guggenheim, Mr. Schiffer and Mr. J. Gold discussed LGP's publicly disclosed going private proposal and the Gold/Schiffer Family's relationship with LGP. In such discussions, Mr. Schiffer expressed the Gold/Schiffer Family's support for a full and open process and a willingness to give consideration to alternative proposals.

        On June 15, 2011, the special committee discussed whether or not to obtain appraisals of the real properties owned by the Company. The special committee conferred with Lazard regarding the potential uses of such appraisals and the potential costs and time required to obtain such appraisals. Based on their business experience and knowledge of the Company and its assets, the special committee concluded that it was highly likely that the value of the Company as a going concern exceeded the value obtainable through a liquidation of the real estate and other assets of the Company by a significant margin. The special committee also considered alternative methods of financing the Company's real estate, but noted that disposition of the real properties owned by the Company would result in the Company having to incur substantial expenses in order to lease back the same properties, as well as the disruption of the Company's operations if the Company were unable to lease back those properties and was required to move all of the stores and warehouse operations currently conducted in properties owned by the Company to separate locations. Based on the foregoing, the special committee decided not to obtain appraisals of the real properties owned by the Company.

26

Table of Contents

        On June 17, 2011, Lazard sent a process letter to each of Ares, Bidder C and Bidder D. The letter requested non-binding proposals by June 29, 2011, and required bidders to describe their proposed arrangements, if any, with the Gold/Schiffer Family. Subsequently, each of these parties was provided access to additional information in the virtual data room. In addition, each party met on one occasion in June with members of the Gold/Schiffer Family to discuss their potential interest in rolling over a portion of their equity interests in the Company. Lazard and Guggenheim attended all of these meetings between the prospective bidders and members of the Gold/Schiffer Family. Lazard periodically furnished oral reports to the special committee on such meetings and the other diligence efforts undertaken by Ares, Bidder C and Bidder D. In such oral reports, Lazard advised the special committee that the prospective bidders had discussed in general terms with members of the Gold/Schiffer Family the bidder's investment philosophy, the bidder's views on the discount retail sector and how each prospective bidder might support the Company's future operations.

        On June 29, 2011, Bidder C submitted a non-binding indication of interest proposing a potential acquisition of the Company for $20.09 per share in cash. Bidder C's proposal did not require members of the Gold/Schiffer Family to roll over any equity interests in the Company, although Bidder C separately expressed a preference for some level of on-going equity participation by the Gold/Schiffer Family in the transaction. Bidder C's proposal also contemplated combining the Company with another business owned by Bidder C. On June 30, Ares submitted a non-binding indication of interest proposing a potential acquisition of the Company for $21.50 per share in cash. The proposal from Ares was conditioned upon on-going participation and support from the Gold/Schiffer Family, although no specific amount or structure was proposed. Both Bidder C and Ares indicated that the indicative price set forth in their indication of interest was subject to further diligence. Bidder D chose not to submit a non-binding indication of interest. The special committee, together with its advisers, at meetings held on July 1 and July 5, 2011, reviewed the indications of interest received from Ares and Bidder C and discussed the potential for other bidders to enter the process. Without concluding whether the proposed purchase prices represented an attractive valuation for the Company, the special committee determined that the proposals were of sufficient interest to merit further consideration and directed Lazard to continue discussions with both parties while continuing to solicit other potential bids and considering other alternatives.

        On June 29, 2011, the special committee met with LGP at LGP's request. Lazard and Morrison & Foerster attended the meeting, as did Latham. LGP discussed their interest in the Company and acknowledged the special committee's desire to run, and the potential benefits of, a competitive bidding process. However, LGP also stated their concerns about restrictions the special committee had imposed on communications by bidders with the Gold/Schiffer Family, in particular the prohibition on bidders having communications with the Gold/Schiffer Family that were not chaperoned by Lazard. The meeting ended without any agreement on process. On July 6 and 7, Morrison & Foerster engaged in further discussions with Skadden regarding the restrictions on bidders' communications with the Gold/Schiffer Family. After further discussions with Lazard and Morrison & Foerster, and considering the potential benefits and appropriate safeguards, the special committee determined to allow bidders to have limited, un-chaperoned conversations with the Gold/Schiffer Family before any deadline established by the special committee for submitting final, definitive bids and potentially in other circumstances. The topics to be discussed at such un-chaperoned meetings would be limited to those approved by the special committee, which reserved the right to impose such other conditions on un-chaperoned meetings as it deemed appropriate. Un-chaperoned meetings would be permitted only if the potential bidders agreed not to enter into any agreements with the Gold/Schiffer Family, without the special committee's prior consent, regarding a potential rollover of the shares owned by the Gold/Schiffer Family and with respect to related matters. This position was conveyed to LGP, as well as to Ares and Bidder C. On July 13, LGP signed an amended and restated confidentiality agreement. LGP publicly disclosed the amended and restated confidentiality agreement in a Schedule 13D amendment filed on July 14, 2011. LGP was thereafter provided with a copy of the management

27

Table of Contents

presentation and the confidential information memorandum and access to the Company's virtual data room. LGP also attended a management presentation on July 15, 2011.

        On July 11, 2011, at the request of Lazard, Ares, Lazard, Guggenheim and members of the Gold/Schiffer Family, including Mr. Schiffer and Messrs. D. Gold, J. Gold and H. Gold, met to further discuss Ares' proposal. At such meeting, members of the Gold/Schiffer Family again expressed their support for a full and open process.

        LGP, Ares and Bidder C all continued their diligence efforts through July and August of 2011. Such diligence efforts included additional meetings with Company management and meetings with members of the Gold/Schiffer Family, all of which were attended by representatives of Lazard. At the meetings with the Gold/Schiffer Family, general discussions were held about the possibility of members of the Gold/Schiffer Family rolling over a portion of their equity interests in the Company and their expectations in the event they were to roll over a portion of their equity interests. In addition, Bidder C discussed with the Gold/Schiffer Family the possible combination of the Company with another business owned by Bidder C. During the course of these diligence efforts, on July 12, 2011, Bidder C orally advised Lazard that it would be prepared to raise its non-binding indication of interest to $20.49 per share in cash. Furthermore, on or about July 21, 2011, members of the Gold/Schiffer Family requested that Lazard coordinate a meeting with Ares so that they could better familiarize themselves with Ares as a potential buyer and further discuss Ares' proposed transaction structure.

        On July 15, 2011, a potential strategic acquirer, whom we refer to as Bidder E, signed a confidentiality agreement with the Company. On August 2, 2011, another potential strategic acquirer, whom we refer to as Bidder F, also signed a confidentiality agreement. Both Bidder E and Bidder F were provided with the confidential information memorandum, attended management presentations and had an opportunity to meet with members of the Gold/Schiffer Family in meetings attended by representatives of Lazard. Subsequently, Bidders E and F declined to proceed.

        On July 25, 2011, representatives of Ares met with members of the Gold/Schiffer Family in a meeting attended by representatives of Lazard and Guggenheim to discuss debt leverage in connection with a potential acquisition transaction and certain post-acquisition corporate governance matters.

        On July 26, 2011, the special committee met with Morrison & Foerster and Lazard. Lazard reviewed the process for soliciting bids and reported on the status of the discussions with the current bidders and several potential bidders. Lazard also reviewed the Company's recent operating performance and stock price performance, and the Company's projections. Lazard then presented to the special committee its preliminary valuation analyses, comprised of a preliminary public trading analysis, a preliminary selected precedent transactions analysis and a preliminary discounted cash flow analysis. Lazard also reviewed with the special committee, for its information, a preliminary leveraged recapitalization analysis, including the potential impact of a leveraged dividend, and discussed the potential structure of a stock repurchase program.

        In late July 2011, Bidder D advised Lazard that it was still interested in a transaction with the Company, notwithstanding its failure to submit a non-binding indication of interest. Bidder D met with members of the Gold/Schiffer Family on August 1, 2011, in a meeting attended by representatives of Lazard and Guggenheim to discuss the interest of members of the Gold/Schiffer Family in participating as minority investors in an acquisition by Bidder D.

        In meetings held on August 3 and August 4, 2011, the special committee discussed the possibility that the Gold/Schiffer Family might prefer to roll over a smaller portion of its equity investment than was contemplated in the March 10 proposal. The special committee discussed with Lazard and Morrison & Foerster the potential implications of the Gold/Schiffer Family rolling over a smaller percentage of its equity interests in the Company and authorized its members and advisers to seek clarification of the Gold/Schiffer Family's position in this regard. On August 17, 2011, Lazard reported

28

Table of Contents

to the special committee that Guggenheim had advised Lazard that the Gold/Schiffer Family was now contemplating rolling approximately 25% to 30% of its equity interests.

        On August 15, 2011, Bidder D advised Lazard that it had decided not to proceed with a potential transaction.

        On August 17, 2011, the special committee reviewed with Morrison & Foerster a form of merger agreement to be furnished to prospective bidders. The special committee decided, among other things, not to include a go-shop provision in the merger agreement in view of, among other things, the marketing process which had already been conducted and the length of time elapsed since it was publicly announced that an offer had been made to acquire the Company. The special committee decided to include in the merger agreement a requirement that the merger be approved by holders of a majority of the shares of Company common stock held by persons other than the Gold/Schiffer Family, any acquirer and their respective affiliates, as well as a provision allowing the special committee to consider potentially superior proposals received on an unsolicited basis after execution of the merger agreement. The special committee also discussed with Lazard and Morrison & Foerster alternatives to selling the Company.

        On August 23, 2011, process letters were sent to each of the remaining bidders requesting definitive bids by September 21, 2011. The prospective bidders were requested to submit the details of their proposed debt and equity financing sources as well as a mark-up of the form of merger agreement furnished with the process letter. In addition, the prospective bidders were requested to specify their requirements, if any, for the Gold/Schiffer Family to roll over a portion of its equity investment in the Company. On September 7, 2011, the deadline for bids was changed to September 27, 2011, to allow bidders to substantially complete their diligence.

        During late August of 2011, Ares informed the special committee that it proposed to submit a joint bid with the Canada Pension Plan Investment Board ("CPPIB"). The special committee had no objection to Ares submitting a joint bid with CPPIB. During late August and September of 2011, LGP, Ares, CPPIB and Bidder C all held further diligence meetings with the Company. On September 10, 2011, Lazard, on behalf of the special committee, furnished to each of the prospective bidders a set of rules governing un-chaperoned meetings with members of the Gold/Schiffer Family. The rules limited the topics that could be discussed at any un-chaperoned meetings. LGP subsequently held un-chaperoned meetings with members of the Gold/Schiffer Family and Guggenheim on September 12 and September 26 to discuss the following pre-approved topics: post-acquisition corporate and capital structure, post-acquisition corporate governance arrangements and LGP's track record as an investor in retail businesses. Bidder C held an un-chaperoned meeting with members of the Gold/Schiffer Family and Guggenheim on September 13 to discuss the following pre-approved topics: valuation of the business that Bidder C proposed to combine with the Company, post-acquisition corporate and capital structure, post-acquisition corporate governance arrangements and specific rollover amounts for individual members of the Gold/Schiffer Family. Ares held an un-chaperoned meeting with members of the Gold/Schiffer Family and Guggenheim on September 23 to discuss the following pre-approved topics: post-acquisition corporate and capital structure and post-acquisition corporate governance arrangements. In addition, prior to the September 27 deadline, members of the Gold/Schiffer Family and Guggenheim, on the one hand, and representatives of LGP, Ares and Bidder C, on the other hand, held additional, un-chaperoned conversations to further discuss the pre-approved topics.

        On September 27, LGP submitted a definitive bid to acquire the Company for $20.00 per share in cash. The LGP bid contemplated that the Gold/Schiffer Family would participate by rolling over $150 million of its equity investment in the Company. On that same day, ACOF III/CPPIB submitted a definitive bid to acquire the Company for $21.50 per share in cash. The bid was not dependent upon the Gold/Schiffer Family rolling over any of its equity, although ACOF III/ CPPIB indicated they would be prepared to accept a rollover of up to $100 million. Both the LGP bid and the ACOF III/CPPIB bid were accompanied by financing commitment letters and a mark up of the form of merger agreement furnished by the special committee. Both mark-ups included elimination of the requirement that the merger be approved by a majority of the shareholders who were not affiliated with the Gold/Schiffer Family or any other buyer. Bidder C declined to bid, citing difficulties in financing its proposed structure.

29

        The special committee met on September 28 with Lazard and Morrison & Foerster to review the bids and related documents. The special committee also discussed the possibility of maintaining the Company as an independent public company as well as a possible leveraged dividend. At this meeting, the special committee authorized its advisers to disclose the bids to Guggenheim and Skadden, provided that such advisers agreed that neither they nor any members of the Gold/Schiffer Family would contact either bidder and would permit the special committee to negotiate the transaction for the Company. Later that day, representatives of Lazard and Morrison & Foerster discussed the bids with Skadden and Guggenheim, who agreed that neither they nor any members of the Gold/Schiffer Family would contact either bidder until price negotiations had been completed.

        On September 29, Lazard contacted LGP and ACOF III/CPPIB, requesting each bidder to submit its best and final bid. On September 30, the special committee met again with Lazard and Morrison & Foerster to review the bids received on September 27 and related documents. At this meeting, the special committee also reviewed and discussed with Mr. Kautz the Company's recent operating results through August 2011 and month-to-date sales for the September period and the outlook for the balance of fiscal 2012 and the next several years. Mr. Kautz advised that August results had been strong, and that fiscal year 2012 results to date were better than as forecast under the Company's projections. Accordingly, management anticipated that the Company's results for the full fiscal year 2012 might be modestly better than was forecast in the Company's projections. However, Mr. Kautz stated that a revision of projected results for future years was not warranted, given the short duration of such improved results and the risks in the business in future periods. The special committee, after discussing, with the assistance of Lazard, the Company's recent results and outlook and management's views, and the risks and uncertainties faced by the Company, determined that the Company's projections should continue to be used. The special committee also considered the possibility of a leveraged recapitalization as an alternative transaction. Also during this period, at the request of LGP, Lazard, on behalf of the special committee, authorized LGP and Guggenheim to discuss alternative structures for the LGP proposal with a view to enhancing value to the Company's shareholders.

        Following further negotiations with Lazard, on October 1, ACOF III/CPPIB raised their bid to $22.00 per share and LGP raised its bid to $21.00 per share. ACOF III/CPPIB proposed to finance the increase in their bid through a larger equity contribution by ACOF III/CPPIB. LGP's increased bid included a proposal for the Gold/Schiffer Family to roll $50 million of its shares of Company common stock into a preferred class of stock of Parent, in addition to the contemplated rollover of $150 million of its shares of Company common stock into common stock of Parent. The special committee held a meeting on the evening of October 1 and discussed the bids presented by ACOF III/CPPIB and LGP. The special committee concluded that the price offered by ACOF III/CPPIB represented an attractive valuation for the Company. Accordingly, the special committee instructed Lazard and Morrison & Foerster to commence negotiations with ACOF III/CPPIB and their legal counsel, Proskauer Rose LLP ("Proskauer") on the merger agreement and related documents with a view towards reaching an agreement for a sale of the Company at $22.00 per share. Pending completion of such negotiations, the special committee directed its advisers to remain open to an improved bid from LGP. The special committee also directed Lazard to inform Guggenheim of the revised bids which had been received and authorized the Gold/Schiffer Family's legal and financial advisers to negotiate the terms of a proposed rollover agreement, voting agreement and other arrangements between ACOF III/CPPIB and members of the Gold/Schiffer Family.

        On the afternoon of October 3, 2011, a representative of Latham contacted Skadden and advised that LGP had flexibility with respect to its proposal. The representative of Latham requested an opportunity to discuss the details with Skadden as legal counsel to the Gold/Schiffer Family. Later in the afternoon on October 3, 2011, Skadden forwarded the request to Morrison & Foerster and sought permission from the special committee to engage in such discussions. Later that day, Morrison & Foerster informed Skadden that it would follow up with Latham on behalf of the special committee

30

and that, until otherwise notified by the special committee, the restrictions on communications with LGP and Latham about the LGP proposal should remain in place.

        On October 4, Morrison & Foerster contacted the representative of Latham, who stated that LGP wanted to have further discussions with members of the Gold/Schiffer Family to see if they could agree on changes to the structure of the Gold/Schiffer Family's participation in LGP's proposal that could potentially enable LGP to raise its bid price. The representative of Latham advised that he could not provide information about any potential structure or the amount by which LGP might raise its bid and suggested that LGP might be able to provide such information. Lazard then contacted LGP. In response to questions from Lazard, LGP did not provide any information as to how its bid might be restructured, but indicated that, depending on the outcome of discussions with the Gold/Schiffer Family, it might be in a position to raise its bid by $0.50 to $1.00 per share. Lazard told LGP that the special committee would consider its request.

        At a meeting later that day, Lazard and Morrison & Foerster described LGP's request to the special committee. The special committee discussed the request and the progress of the negotiations to date with each of LGP and ACOF III/CPPIB, and concluded that, while it remained open to improved bids, LGP's statements were too speculative to risk delaying or disrupting negotiations with ACOF III/CPPIB. In this regard, the special committee noted that LGP had not presented either an improved bid or a specific structure that would enable it to raise its bid and that the upper end of the range suggested by LGP was no better than the offer already made by ACOF III/CPPIB. The special committee also noted that ACOF III/CPPIB had made their $22.00 bid after receiving the same instruction as LGP did to present the best and final offer. The special committee believed that there was a risk that ACOF III/CPPIB would withdraw from the process or demand other concessions if the pending negotiations were disrupted or delayed, and that such risk was not warranted unless a more definitive alternative was presented. Taking into account these considerations, the special committee instructed Lazard to advise LGP that it should submit a more definitive proposal for improving its offer if it wanted the special committee to give it further consideration. Lazard delivered this message to LGP on the morning of October 5, 2011. LGP did not submit a more definitive proposal. On October 6, 2011, representatives of Lazard again called representatives of LGP and advised them that, if LGP was prepared to submit an improved bid, it should do so promptly. LGP did not submit an improved bid and did not respond further.

        From October 2 through October 11, 2011, Lazard and Morrison & Foerster engaged in negotiations with ACOF III/CPPIB and Proskauer with respect to the merger agreement and related documents. Among other things, Lazard and Morrison & Foerster engaged in extensive negotiations with ACOF III/CPPIB and Proskauer with respect to (a) the circumstances under which the merger agreement could be terminated and (b) the fees payable by the Company or ACOF III/CPPIB's acquisition vehicle in connection with the termination of the merger agreement in various circumstances. Negotiations also took place between Skadden and Guggenheim, on the one hand, and ACOF III/CPPIB and Proskauer, on the other hand, regarding the terms of a proposed rollover agreement, voting agreement and other arrangements, including the terms of employment arrangements with several members of the Gold/Schiffer Family and revised lease terms for Company stores occupying premises leased from the Gold/Schiffer Family and certain of their affiliates. Morrison & Foerster and Skadden periodically discussed the progress of their respective negotiations. Morrison & Foerster and Lazard briefed the special committee on the status of their negotiations with ACOF III/CPPIB and Proskauer during teleconference meetings held on October 4, 5 and 6 and also shared with the special committee during these meetings information obtained regarding the progress of the Gold/Schiffer Family's negotiations. Further updates on the progress of negotiations were provided by Morrison & Foerster to members of the special committee on October 7, 9 and 10.

        On the evening of October 10, 2011, a special meeting of the Company's Board of Directors was convened, attended by all of the members of the Board and representatives of Munger Tolles,

31

Morrison & Foerster and Lazard. The Interested Directors, together with a representative of Skadden in its role as counsel to the Gold/Schiffer Family, described the Gold/Schiffer Family's proposed rollover agreement, voting agreement and other arrangements with ACOF III/CPPIB, including the terms under which new leases would be negotiated for stores occupying premises owned by the Gold/Schiffer Family and certain of their affiliates, proposed employment terms for Messrs. Schiffer, J. Gold and H. Gold, and proposed consulting agreement terms for Mr. D. Gold. They also stated that, together with their spouses and affiliated persons and entities, they intended to roll over shares of Company common stock held by them with an implied value of $100 million, based on the per share amount of the merger consideration. The Interested Directors confirmed that there were no other agreements between such directors or their families and ACOF III/CPPIB and that they had no other material interests in the proposed transaction. After answering questions posed by members of the Board, each of the Interested Directors recused themselves and left the meeting, as did Skadden.

        Munger Tolles then reviewed with the independent Board members their fiduciary duties to the Company and its shareholders. Morrison & Foerster then reviewed the terms of the proposed merger agreement and related documents, including the voting agreement and other agreements to be entered into by members of the Gold/Schiffer Family, and the process by which the agreements had been negotiated. Lazard then reviewed the process it, at the instruction of the special committee, had undertaken to solicit bidders to acquire the Company and to investigate possible alternatives and the results with various potential bidders. Mr. Kautz then joined the meeting via teleconference and reported on the Company's recent operating performance and anticipated performance for the balance of fiscal 2012. Mr. Kautz discussed the Company's prospects for the next several years, and Mr. Kautz and the special committee reviewed the Company's projections. Lazard then presented to the Board its valuation analyses (described in "— Opinion of Financial Advisor to our Special Committee and Board of Directors "). Lazard also reviewed with the Board, for its information, a leveraged recapitalization analysis, including the potential impact of a leveraged dividend.

        The Board meeting then recessed, and a meeting of the special committee was convened, attended by representatives of Morrison & Foerster and Lazard. The special committee discussed the information that had been presented during the Board meeting. Lazard then rendered to the special committee an oral opinion, which was confirmed by delivery of a written opinion dated October 11, 2011, to the effect that, as of that date and based upon and subject to the assumptions, procedures, factors, qualifications and other matters and limitations set forth in its opinion, the merger consideration to be paid to holders of the Company's common stock (other than the Rollover Investors, the Company, Parent, Merger Sub and holders who are entitled to and properly demand an appraisal of their shares) in the merger was fair, from a financial point of view, to such holders. The special committee discussed the process they had undertaken to solicit bids for the Company, the negotiations leading to the proposed merger agreement and the terms of the proposed merger, and reviewed the merits and risks of continuing the Company as a stand-alone business. After considering these alternatives, the proposed terms of the merger agreement and the other transaction documents and the presentations by Morrison & Foerster and Lazard, including Lazard's opinion, and after taking into account the other factors described below under the heading " —Purpose and Reasons for the Merger; Recommendation of Our Special Committee and Board of Directors; Fairness of the Merger ," the special committee unanimously determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement were advisable and fair to and in the best interests of the Company and its shareholders (other than the Rollover Investors and Parent and Parent's affiliates to the extent any of them own any shares of Company common stock), and just and reasonable as to the Company, and recommended that the Board adopt a resolution approving and declaring the advisability of the merger agreement, the merger and the other transactions contemplated by the merger agreement and recommending that the shareholders of the Company approve and adopt the merger agreement.

32

        Following the special committee meeting, the meeting of the Board was reconvened. The Interested Directors were not present and did not participate in the re-convened meeting. The special committee presented its recommendation to the Board and reviewed with the Board the factors that it had considered in making its recommendation. Lazard then rendered to the Board the same oral opinion described above. After considering the proposed terms of the merger agreement and the other transaction documents and the presentations by Munger Tolles, Morrison & Foerster and Lazard, including Lazard's opinion, and after taking into account the other factors described below under the heading " —Purpose and Reasons for the Merger; Recommendation of Our Special Committee and Board of Directors; Fairness of the Merger ," the Board of Directors, with the Interested Directors not present and abstaining from the vote, by unanimous vote of the directors (other than the Interested Directors), approved and declared advisable the merger agreement and the transactions contemplated thereby, including the merger, and, subject to the conditions in the merger agreement, recommended that the shareholders of the Company approve and adopt the merger agreement, including the principal terms thereof, the statutory merger agreement and the merger.

        In the early hours of October 11, 2011, the merger agreement and related documents were finalized and executed by the Company and the affiliates of Ares and CPPIB established to implement the merger. Concurrently, the rollover agreement and voting agreement were executed by the Rollover Investors and the affiliates of Ares and CPPIB.

        On the morning of October 11, 2011, the Company, Ares and CPPIB issued a joint press release announcing the execution of such documents.

Purpose and Reasons for the Merger; Recommendation of Our Special Committee and Board of Directors; Fairness of the Merger

        The purpose of the merger is to enable the Company's shareholders to realize the value of their investment in the Company through their receipt of the $22.00 per share merger consideration in cash.

The Special Committee

        At a meeting on October 10, 2011, the special committee unanimously (a) determined that the merger agreement, the terms thereof, and the transactions contemplated thereby, including the merger, are advisable, fair to and in the best interests of the Company and its unaffiliated shareholders and just and reasonable as to the Company, and (b) recommended that the Board approve, adopt, and declare advisable the merger agreement and the transactions contemplated thereby, including the merger, and, subject to certain provisions in the merger agreement, recommend to the Company's shareholders that they approve and adopt the merger agreement, including the principal terms thereof, the statutory merger agreement and the merger. The special committee believes that the merger is fair, both substantively and procedurally, to our unaffiliated shareholders.

        In reaching its determinations, the special committee consulted with and received the advice of its financial advisor and legal counsel, and discussed issues regarding the Company and its outlook with the Company's senior management team as well as the Company's outside corporate counsel. The special committee considered a number of factors that it believed supported its determinations, including the following factors:

•

the fact that the $22.00 price per share of Company common stock represents a premium of approximately 32% over the closing price of the Company's common stock on March 10, 2011, the day before the Company announced that it had received a proposal from members of the Gold/Schiffer Family and LGP, and 33.6% and 33.2% premiums over the 1-week and 1-month average trading price prior to such announcement;

33

•

the current and historical market prices for the Company's common stock, including those set forth in " Important Information Regarding the Company—Market Price of Common Stock and Dividend Information ", which price has not closed over $22.00 since April 2004 and which closing price ranged from a high of $18.88 to a low of $5.85 during the five year period ending on March 10, 2011, the day before the Company announced it had received a proposal from members of the Gold/Schiffer Family and LGP;



•

the merger allows the Company's shareholders to monetize their investment in the Company in the near future, providing shareholders with the value certainty and liquidity of cash, while avoiding risks and uncertainties, including those relating to the following:



•

competition from discount and deep-discount stores, dollar stores, single price point merchandisers, mass merchandisers, food markets, drug store chains, club stores and other retailers, who are currently operating in or may enter the Company's traditional markets, and who may possess substantially greater financial resources, buying power, name recognition and organization than the Company;



•

the significant logistical and business issues and related increase in risk associated with the Company's expansion outside of its core market in Southern California, and the fact that the Company has not thus far demonstrated a sustained ability to replicate the level of profitability and value creation achieved in Southern California in any other market;



•

the Company's need to expand its management resources and improve its information technology and logistics infrastructure in order to achieve its growth objectives;



•

uncertainty regarding the Company's ability to continue acquiring inventory at favorable prices and providing merchandise for profitable resale primarily at a price point of 99.99¢, $1.00 or less, which may be adversely affected by future inflation, merchandise price increases and other economic factors, as well as competition;



•

difficulties the Company may encounter pricing selected merchandise above a price point of 99.99¢ or $1.00 in order to increase gross margins, and the impact of any such practice on the Company's relationships with its customers, suppliers and vendors, and on the value of the Company's name and brand; and



•

the Company's ability to continue to lease or purchase retail real estate sites at favorable prices;



•

the special committee's belief that the merger was desirable at this time, as compared with other times in the Company's operating history, because, among other factors, the Company is substantially smaller than certain other dollar store chains, competition from national dollar store chains and other discount retailers is expected to increase in the Company's principal markets, the Company's ability to grow is subject to the risks and uncertainties described immediately above and the special committee's belief that addressing these challenges increases risk to the Company's ability to increase shareholder value in the long-term;



•

the special committee had engaged in a comprehensive auction process, including contacts by Lazard at the instruction of the special committee with 33 potential strategic buyers and 18 potential private equity acquirors, following public disclosures by the Company on March 11, 2011, that it had received the March 10, 2011 proposal from members of the Gold/Schiffer Family and LGP, and on April 11, 2011, that the Board had formed the special committee to, among other things, consider the proposal from members of the Gold/Schiffer Family and LGP and other proposals and strategic alternatives, and that the special committee had retained independent financial and legal advisors to assist in this process;

34

•

the $22.00 per share merger consideration is the result of multiple negotiated increases from the initial bids received by the special committee, including increases provided by each of LGP and ACOF III/CPPIB following price negotiations led by Lazard after they were requested to submit their best and final bids pursuant to the special committee's bidding instructions;



•

the financial analyses presented to the special committee by Lazard, and the opinion of Lazard to the effect that, as of October 11, 2011, and based upon and subject to the assumptions, procedures, factors, qualifications and other matters and limitations set forth in its opinion, the merger consideration to be paid to holders of the Company common stock (other than the Rollover Investors, the Company, Parent, Merger Sub and holders who are entitled to and properly demand an appraisal of their shares) in the merger was fair, from a financial point of view, to such holders, as more fully described below in " —Opinion of Financial Advisor to Our Special Committee and Board of Directors " (the full text of the written opinion of Lazard is attached as Annex B to this proxy statement), and such financial analyses and opinion of Lazard were adopted by the special committee as its own (The special committee noted that Lazard's opinion refers to holders of the Company's common stock other than the Rollover Investors, the Company, Parent and Merger Sub and thus includes all unaffiliated shareholders and certain affiliated shareholders, such as certain officers and directors of the Company and Au Zone Investments #2, L.P. The special committee interpreted Lazard's opinion as providing that the merger consideration is fair, from a financial point of view, to all unaffiliated shareholders because both the unaffiliated shareholders and the affiliated shareholders (other than the Rollover Investors, the Company, Parent and Merger Sub) are to be paid the same $22.00 per share merger consideration on the terms set forth in the merger agreement. Further, the special committee interpreted the Lazard opinion's exclusion of holders who are entitled to and properly demand an appraisal of their shares as acknowledging that such holders of the Company's common stock will not receive the merger consideration, and will instead receive an amount in an appraisal proceeding that may be more than, less than or the same as the merger consideration. Lazard did not offer an opinion as to the fairness of the hypothetical consideration such holders may receive by virtue of the merger. Accordingly, the exclusions from Lazard's opinion did not affect the view of the special committee as to the fairness of the merger consideration offered under the merger agreement to all unaffiliated shareholders);



•

that possible strategic alternatives to the proposed merger, including continuing as a standalone company, a sale to or merger with other parties, and returning capital to shareholders through a dividend or stock repurchase, were evaluated by the special committee with the assistance of Lazard and Morrison & Foerster, and the special committee determined such alternatives were less favorable to the Company's shareholders than the merger given the potential risks, rewards and uncertainties associated with those alternatives;



•

that members of the Gold/Schiffer Family have agreed to convert approximately 18,691,000 of their shares of the Company's common stock (representing approximately 80% of their aggregate holdings of the Company's common stock) in the merger for the cash merger consideration, while agreeing to roll over approximately 4,545,000 of their shares of the Company's common stock;



•

the likelihood that the merger would be completed, based on, among other things:



•

the absence of a financing condition in the merger agreement, the fact that Parent and Merger Sub had obtained committed debt and equity financing for the transaction, the number and nature of the conditions to the debt and equity financing, the reputation of the financing sources and the obligation of Parent to use its reasonable best efforts to obtain the debt financing;

35

•

the absence of significant required regulatory approvals, other than those relating to the HSR Act;



•

that the merger agreement provides that, in the event of a failure of the merger to be consummated under certain circumstances, Parent will pay the Company a $94.5 million termination fee, without the Company having to establish any damages; and



•

the reputation and financial capacity of ACOF III and CPPIB and their ability to complete large acquisition transactions;



•

the other terms of the merger agreement and related agreements, including:



•

the Company's ability to, under certain circumstances, provide information to, and participate in discussions and negotiations with, third parties regarding unsolicited acquisition proposals, if the special committee or the Board has determined in good faith following procedures specified in the merger agreement that the failure to take such action would be inconsistent with its fiduciary duties to the Company's shareholders;



•

the ability of the Board (acting upon the recommendation of the special committee) or the special committee to accept a Superior Company Proposal and terminate the merger agreement, subject to certain conditions (including the Company's obligation to negotiate with Parent regarding any revisions to the terms of the merger agreement proposed by Parent prior to such termination), if the Company pays a $47.25 million termination fee; and



•

the ability of the Board (acting upon the recommendation of the special committee) or the special committee, under certain circumstances, following procedures specified in the merger agreement, to withdraw, qualify or modify its recommendation that the Company's shareholders vote to approve and adopt the merger agreement; and



•

the availability of statutory dissenters' rights to the shareholders who are entitled to demand and have properly demanded such rights and have complied with all of the other required procedures under California law for exercising dissenters' rights, which require the Company to purchase at their fair market value the shares of the Company's common stock owned by such holders of dissenting shares, as described in " Dissenters' Rights " (so long as dissenters' demands have been filed with respect to at least five percent of the outstanding shares of the Company's common stock).

        The special committee believed that sufficient procedural safeguards were and are present to provide assurance of the fairness of the proposed merger to the Company's unaffiliated shareholders and that the proposed merger is procedurally fair to the Company's unaffiliated shareholders. These procedural safeguards include:

•

that the special committee is composed of three independent directors who are not affiliated with the Rollover Investors, ACOF III or CPPIB or any entity affiliated with ACOF III or CPPIB, are not employees of the Company, and other than their receipt of Board and special committee fees (which are not contingent upon the consummation of the merger or the special committee's or Board's recommendation of the merger) and their interests described under " —Interests of the Company's Directors and Executive Officers in the Merger ," have no interests in the merger different from, or in addition to, those of the Company's unaffiliated shareholders;



•

that while the special committee and the Company did not retain a representative to act solely on behalf of the unaffiliated shareholders, the special committee retained and was advised by Morrison & Foerster, as its independent legal counsel, and Lazard, as its independent financial advisor;

36

Table of Contents

•

that the special committee met more than 50 times between March 11, 2011, and October 10, 2011, actively set strategy for and oversaw the auction process and the negotiation of pricing and other terms with ACOF III/CPPIB and made all material decisions relating to the Company's strategic alternatives beginning on March 11, 2011;



•

the recognition by the special committee that it had the authority not to recommend the approval of the merger or any other transaction as well as the recognition that it had the authority to pursue other transactions and strategic alternatives;



•

that discussions had been held with, and feedback received from, multiple strategic and private equity companies as part of the process of exploring the possibility of a transaction;



•

the special committee's extensive arm's-length negotiations with ACOF III/CPPIB, which, among other things, resulted in better contractual terms than those initially proposed by ACOF III/CPPIB, including a larger termination fee payable by Parent under certain circumstances and the inclusion of "fiduciary out" provisions described in " Merger Agreement—Restrictions on Solicitation of Other Offers " and " Merger Agreement—Termination in Connection with a Superior Company Proposal "; and



•

while, pursuant to the voting agreement, the Rollover Investors and Au Zone Investments #2, L.P. (which is affiliated with the Rollover Investors) have committed to vote in favor of approving the merger agreement and the merger, such commitment terminates automatically upon termination of the merger agreement by the Company to accept a Superior Company Proposal and in other circumstances specified in the voting agreement, except that in such other circumstances they will continue to have an obligation to vote against certain third party takeover proposals until the earlier to occur of (a) the 12 month anniversary after termination of the voting agreement and (b) Parent's receipt of the $47.25 million termination fee from the Company, among other conditions.

        The special committee noted that the merger does not require approval by holders of at least a majority of the shares of Company common stock held by the Company's unaffiliated shareholders. The special committee did not believe that such approval was required to protect the interests of the unaffiliated shareholders because the Rollover Investors, who are entitled to vote at the special meeting, are proposing to dispose of approximately 80% of the shares of Company common stock owned by the Rollover Investors and their affiliates in the merger for the same consideration as will be received by the unaffiliated shareholders in the merger. Accordingly, the special committee concluded that the interests of the Rollover Investors would be substantially aligned with the interests of the unaffiliated shareholders with respect to the merger vote. The special committee also noted that the approval of the merger agreement would still require the approval of approximately 25% of our unaffiliated shareholders.

        In the course of its deliberations, the special committee also considered a variety of risks and other countervailing factors related to entering into the merger agreement and the proposed merger, including:

•

that the shareholders of the Company (other than the Rollover Investors) will not participate in any future earnings or growth of the Company's business and will not benefit from any potential sale to a third party in the future, or from any appreciation in the Company's value, including any appreciation resulting from steps that may be taken to open new stores, increase same store sales, become a nationwide extreme value retailer, price selected merchandise above a price point of 99.99¢ or $1.00 per item, or otherwise, at a point when, given unstable economic conditions, the extreme value retail industry may be growing as a whole;

37

Table of Contents

•

the risk that the proposed merger might not be completed in a timely manner or at all, including the risk that the proposed merger will not occur if sufficient debt and equity financing is not obtained;



•

the Company's inability to seek specific performance to require Parent or Merger Sub to complete the merger and the fact that the Company's sole remedy in connection with Parent's failure to close the merger generally would be limited to a $94.5 million termination fee and up to $10 million for reimbursement of out-of-pocket costs and expenses, payable only in the circumstances specified in the merger agreement, which is guaranteed by ACOF III and CPPIB, severally and not jointly;



•

that Parent and Merger Sub are newly formed corporations with essentially no assets other than the equity commitments of ACOF III and CPPIB;



•

the restrictions on the conduct of the Company's business prior to the completion of the proposed merger, which may delay or prevent the Company from undertaking business opportunities that may arise and certain other actions it might otherwise take with respect to the operations of the Company pending completion of the proposed merger;



•

the potential negative effect that the pendency of the merger, or a failure to complete the merger, could have on the Company's business and relationships with its employees, vendors, landlords and customers;



•

the Company and its subsidiaries are restricted from soliciting, initiating, or encouraging the submission of alternative acquisition proposals from third parties or the making of any inquiry, proposal or offer that would reasonably be expected to lead to an alternative acquisition proposal;



•

the possibility that the amounts that may be payable by the Company upon the termination of the merger agreement, including a termination fee of $47.25 million and up to $10 million in out-of-pocket costs and expenses payable to the extent specified in the merger agreement in connection with Parent's enforcement of its rights to such termination fee, and the processes required to terminate the merger agreement, including the opportunity for Parent to make revisions to its merger proposal, could discourage other potential acquirors from making a competing bid to acquire the Company;



•

the fact that the $47.25 million termination fee is payable to Parent if the shareholders of the Company fail to approve the merger; and



•

the fact that an all cash transaction would be taxable to the Company's shareholders that are U.S. holders for U.S. federal income tax purposes.

        In addition, the special committee was aware of and considered that the Company's directors and executive officers have interests with respect to the merger that differ from, or are in addition to, their interests as shareholders of the Company, as described in "— Interests of the Company's Directors and Executive Officers in the Merger " and "— Golden Parachute Compensation." In this regard, the special committee noted that the merger was negotiated by the special committee and unanimously approved by the special committee, as well as by all of the independent members of the Board, that the only interest such persons have in the merger are based upon their ownership of stock or stock options and that the consideration to be received by such persons is the same as will be received by our unaffiliated shareholders and by unaffiliated persons holding comparably priced options. In addition, the special committee believed that such different or additional benefits as may be available to other directors and Company officers (in addition to the rollover of shares of Company common stock contemplated by the Interested Directors) are in significant part attributable to services provided or to be provided by such directors and executive officers, are customary and/or determined on an arm's-length basis, and were

38

Table of Contents

either not offered in contemplation of the merger or, if offered in contemplation of the merger, were negotiated after the merger consideration had been agreed by the special committee.

        The special committee did not consider the Company's net book value, which is an accounting concept, to be a factor in determining the fairness of the transaction because it believed that net book value is not a material indicator of the value of the Company's equity but rather an indicator of historical costs. The special committee did not consider the liquidation value of the Company's assets to be a factor in determining the fairness of the transaction because they believed that the Company was a viable, going concern where value is derived from cash flow generated from its continuing operations. Based upon their business judgment and their knowledge of the Company and its assets and business, the special committee believed that the value that might be realized in a liquidation would be significantly less than its value as a going concern. In this regard, the special committee noted that the book value of the Company's assets as of April 2, 2011 was approximately $824 million, of which approximately $200 million was cash and a substantial portion of the balance consisted of inventory which would likely be disposed of at a loss in a liquidation. Accordingly, the special committee concluded that a formal liquidation analysis was not necessary in order to determine the fairness of the transaction. The special committee also did not consider the prices paid by the Company for past purchases of the Company's common stock because no such purchases have been made during the last two years other than in connection with the payment by holders of performance stock units of taxes associated with the vesting of the performance stock units. The special committee was not aware of any firm offers during the prior two years by any person for (a) the merger or consolidation of the Company with another company, (b) the sale or transfer of all or substantially all of the Company's assets or (c) a purchase of the Company's securities that would enable the holder to exercise control of the Company, except the offer by members of the Gold/Schiffer Family and LGP as described in "— Background of the Merger ."

        The foregoing discussion of the information and factors considered by the special committee is not intended to be exhaustive, but includes material factors considered by the special committee. In view of the wide variety of factors considered by the special committee and the complexity of these matters, the special committee did not find it practicable, and did not attempt, to quantify, rank or otherwise assign relative weights to the foregoing factors in reaching its determination, and did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determination of the special committee. In addition, individual members of the special committee may have given different weights to different factors and may have viewed some factors more positively or negatively than others. The special committee's determinations and recommendations described above were based upon the totality of the information considered.

The Board of Directors

        The Board believes that the merger agreement, the terms thereof, and the transactions contemplated thereby, including the merger, are fair to and in the best interests of the Company and its unaffiliated shareholders. The Board adopted the analyses and determinations of the special committee in its evaluation of the fairness of the merger agreement and the merger as its own. In determining the reasonableness of the special committee's analysis and the fairness of the merger agreement and the merger, the Board considered and relied upon the following factors, among others:

•

the special committee's unanimous determination that the merger agreement, the terms thereof, and the transactions contemplated thereby, including the merger, are advisable, fair to and in the best interests of the Company and its unaffiliated shareholders and its recommendation that the Board approve, adopt and declare advisable the merger agreement and the transactions contemplated thereby, including the merger;

39

Table of Contents

•

that no member of the special committee has an interest in the merger different from, or in addition to, that of the Company's unaffiliated shareholders, other than the receipt of Board and special committee fees (which are not contingent upon the consummation of the merger or the special committee's or Board's recommendation of the merger) and any interests described under " —Interests of the Company's Directors and Executive Officers in the Merger ";



•

the opinion of Lazard received by the special committee and the Board to the effect that, as of October 11, 2011, and based upon and subject to the assumptions, procedures, factors, qualifications and other matters and limitations set forth in its opinion, the merger consideration to be paid to holders of the Company common stock (other than the Rollover Investors, the Company, Parent, Merger Sub and holders who are entitled to and properly demand an appraisal of their shares) in the merger was fair, from a financial point of view, to such holders, as more fully described below in " —Opinion of Financial Advisor to Our Special Committee and Board of Directors " (the full text of the written opinion of Lazard is attached as Annex B to this proxy statement);



•

the process undertaken by the special committee and its independent financial and legal advisors in connection with evaluating, negotiating and approving the proposed merger, as described in " —Background of the Merger "; and



•

the availability of statutory dissenters' rights to the shareholders who are entitled to demand and have properly demanded such rights and have complied with all of the other required procedures under California law for exercising dissenters' rights, which require the Company to purchase at their fair market value the shares of the Company's common stock owned by such holders of dissenting shares, as described in " Dissenters' Rights " (so long as dissenters' demands have been filed with respect to at least five percent of the outstanding shares of the Company's common stock).

        The Board also was aware of and considered that the Company's directors and executive officers have interests with respect to the merger that differ from, or are in addition to, their interests as shareholders of the Company, as described in " —Interests of the Company's Directors and Executive Officers in the Merger " and " —Golden Parachute Compensation. " In this regard, the Board noted that the merger was negotiated by the special committee and unanimously approved by the special committee, as well as by all of the independent members of the Board, that the only interest such persons have in the merger are based upon their ownership of stock or stock options and that the consideration to be received by such persons is the same as will be received by our unaffiliated shareholders and by unaffiliated persons holding comparably priced options. In addition, the Board believed that such different or additional benefits as may be available to other directors and Company officers (in addition to the rollover of shares of Company common stock contemplated by the Interested Directors) are in significant part attributable to services provided or to be provided by such directors and executive officers, are customary and/or determined on an arm's-length basis, and were either not offered in contemplation of the merger or, if offered in contemplation of the merger, were negotiated after the merger consideration had been agreed by the special committee.

        The foregoing discussion of the information and factors considered by the Board is not intended to be exhaustive, but includes material factors considered by the Board, including the factors considered by the special committee discussed above. In view of the wide variety of factors considered by the Board and the complexity of these matters, the Board did not find it practicable, and did not attempt, to quantify, rank or otherwise assign relative weights to the foregoing factors in reaching its determination, and did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determination of the Board. In addition, individual members of the Board may have given different weights to different factors and may have viewed some factors more positively or negatively than

40

Table of Contents

others. The Board approves and declares advisable the merger agreement and the transactions contemplated thereby and, subject to certain provisions in the merger agreement, recommends that the Company's shareholders approve and adopt the merger agreement, including the principal terms thereof, the statutory merger agreement and the merger, based upon the totality of the information considered.

        Other than as described in this proxy statement, the Board is not aware of any firm offers by any other person during the past two years for a merger or consolidation of the Company with or into another company, the sale or other transfer of all or any substantial part of the Company's assets or a purchase of the Company's securities that would enable the holder to exercise control of the Company.

        Our Board recommends that you vote " FOR " the proposal to approve the merger agreement.

Opinion of Financial Advisor to Our Special Committee and Board of Directors

        The special committee retained Lazard to act as its financial advisor, including in connection with the merger. In connection with Lazard's engagement, the special committee requested that Lazard evaluate the fairness, from a financial point of view, of the merger consideration to be paid to holders of the Company's common stock (other than the Rollover Investors, the Company, Parent, Merger Sub and holders who are entitled to and properly demand an appraisal of their shares). On October 10, 2011, at a meeting of the special committee and the Board held to evaluate the merger, Lazard rendered to the special committee and the Board an oral opinion, which was confirmed by delivery of a written opinion dated October 11, 2011, to the effect that, as of that date and based upon and subject to the assumptions, procedures, factors, qualifications and other matters and limitations set forth in its opinion, the merger consideration to be paid to holders of the Company's common stock (other than the Rollover Investors, the Company, Parent, Merger Sub and holders who are entitled to and properly demand an appraisal of their shares) in the merger was fair, from a financial point of view, to such holders.

        The full text of Lazard's written opinion, dated October 11, 2011, to the special committee and the Board, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Lazard in connection with its opinion, is attached to this proxy statement as Annex B and is incorporated into this proxy statement by reference. The description of Lazard's opinion set forth in this document is qualified in its entirety by reference to the full text of Lazard's opinion. Lazard's opinion was addressed to the special committee and the Board (each in its capacity as such) in connection with their evaluation of the merger. The opinion addresses only the fairness of the merger consideration from a financial point of view, does not address any other aspect of the merger and does not constitute a recommendation to any shareholder as to how such shareholder should vote or act with respect to the merger or any related matter. You are encouraged to read Lazard's opinion and this section carefully and in their entirety.

        In connection with its opinion, Lazard:

•

reviewed the financial terms and conditions of the merger agreement;



•

reviewed certain publicly available historical business and financial information relating to the Company;



•

reviewed various financial forecasts and other data provided to Lazard by the Company relating to the Company's business (which financial forecasts are included in " —Certain Projections ");



•

held discussions with members of the Company's senior management with respect to its business and prospects;



•

reviewed public information with respect to certain companies in lines of business Lazard believed to be generally relevant in evaluating the Company's business;

41

Table of Contents

•

reviewed the financial terms of certain business combinations involving companies in lines of business Lazard believed to be generally relevant in evaluating the business of the Company;



•

reviewed historical stock prices and trading volumes of the Company's common stock; and



•

conducted other financial studies, analyses and investigations as Lazard deemed appropriate.

        Lazard assumed and relied on the accuracy and completeness of the foregoing information without independent verification of such information. Lazard did not conduct any independent valuation or appraisal of any assets or liabilities (contingent or otherwise) of the Company or concerning the solvency or fair value of the Company, and Lazard was not furnished with any such valuation or appraisal. With respect to the financial forecasts utilized in Lazard's analysis, Lazard assumed, with the special committee's consent, that they were reasonably prepared on bases reflecting the best currently available estimates and judgments as to the Company's future financial performance. Lazard assumed no responsibility for and expressed no view as to any forecasts or the assumptions on which they were based.

        Further, Lazard's opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Lazard as of, the date of its opinion. Lazard assumed no responsibility for updating or revising its opinion based on circumstances or events occurring after the date of its opinion. Lazard did not express any opinion as to the prices at which shares of the Company's common stock might trade at any time subsequent to the announcement of the merger. Lazard's opinion did not address the relative merits of the merger as compared to any other transaction or business strategy in which the Company might engage or the merits of the underlying decision by the Company to engage in the merger.

        In rendering its opinion, Lazard assumed, with the special committee's consent, that the merger would be consummated on the terms described in the merger agreement, without any waiver or modification of any material terms or conditions. Lazard also assumed, with the special committee's consent, that obtaining the necessary governmental, regulatory or third party approvals and consents for the merger would not have an adverse effect on the Company or the merger. Lazard did not express any opinion as to any tax or other consequences that might result from the merger, nor did Lazard's opinion address any legal, tax, regulatory or accounting matters, as to which Lazard understood that the Company obtained such advice as it deemed necessary from qualified professionals. Lazard expressed no view or opinion as to any terms or other aspects of the merger (other than the merger consideration to the extent expressly specified in Lazard's opinion), including, without limitation, the form or structure of the merger, the rollover investment or the Rollover Letter, the financing letters, the voting agreement or any other agreements or arrangements entered into in connection with, or contemplated by, the merger. In addition, Lazard expressed no view or opinion as to the fairness of the amount or nature of, or any other aspects relating to, the compensation to any officers, directors or employees of any parties to the merger, or class of such persons, relative to the merger consideration or otherwise. The issuance of Lazard's opinion was approved by Lazard's opinion committee.

        In preparing its opinion to the special committee and the Board, Lazard performed a variety of financial and comparative analyses. The following is a brief summary of the material financial and comparative analyses that Lazard deemed to be appropriate for this type of transaction and that were reviewed with the special committee and the Board by Lazard in connection with rendering its opinion. The summary of Lazard's analyses described below is not a complete description of the analyses underlying Lazard's opinion. The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, is not readily susceptible to partial or summary description. In arriving at its opinion, Lazard considered the results of all of the analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis considered by it. Rather, Lazard made its determination as to fairness on the basis of its experience and professional judgment

42

Table of Contents

after considering the results of all of the analyses. Accordingly, Lazard believes that its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying its analyses and opinion.

Summary of Financial Analyses of Lazard

        In its analyses, Lazard considered industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company. No company or business used in Lazard's analyses is identical to the Company, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading or other values of the companies analyzed. The estimates contained in Lazard's analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Lazard's analyses are inherently subject to substantial uncertainty.

        The merger consideration was determined through negotiations between the special committee, ACOF III and CPPIB, and was approved by the special committee and the Board. Lazard was not requested to, and it did not, recommend the specific merger consideration payable in the proposed merger or that any given merger consideration constituted the only appropriate consideration for the merger. The decision to enter into the merger agreement was solely that of the special committee and the Board and the opinion of Lazard was only one of many factors taken into consideration by the special committee and the Board in their evaluation of the merger. Consequently, the analyses described below should not be viewed as determinative of the views of the special committee, the Board or management with respect to the merger or merger consideration.

        The financial analyses summarized below include information presented in tabular format. In order to fully understand Lazard's financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Lazard's financial analyses.

        The following is a summary of the material financial and comparative analyses that Lazard deemed to be appropriate in connection with rendering its opinion.

Public Trading Analysis

        Lazard performed the following selected public companies analyses. Financial data of both the selected companies and the Company were based on publicly available research analysts' estimates, public filings and other publicly available information.

        Lazard reviewed certain financial and stock market information of the Company and the following six selected publicly traded companies in the discount retail industry, which is the industry in which the Company operates:

•

Dollar General Corp.



•

Dollar Tree, Inc.

43

Table of Contents

•

Family Dollar Stores, Inc.



•

Dollarama Inc.



•

Big Lots, Inc.



•

Fred's, Inc.

        Although none of the selected companies is directly comparable to the Company, the companies included are publicly traded companies with operations and/or other criteria, such as lines of business, markets, business risks and size and scale of business, which Lazard considered similar to the Company for purposes of analysis.

        Lazard calculated and compared various financial multiples and ratios of the above referenced companies, including, among other things, (i) the enterprise value of each company as a multiple of its earnings before interest, taxes, depreciation and amortization ("EBITDA") for the last twelve months ("LTM") and its projected EBITDA for calendar years 2011 and 2012 and (ii) the ratio of each company's October 7, 2011, closing share price to its calendar year 2011 and 2012 estimated earnings per share ("EPS"). The calendar year 2011 and 2012 estimated EPS for each of the reference companies used by Lazard in its analysis were based on I/B/E/S, which represents publicly available consensus estimates. The following table summarizes the results of this review:

        Based on an analysis of the mean, median and range of the multiples summarized above and Lazard's professional judgment, Lazard selected a reference range of:

•

7.0x to 8.5x for enterprise value to LTM EBITDA;



•

6.5x to 8.0x for enterprise value to 2011 estimated EBITDA;



•

6.0x to 7.5x for enterprise value to 2012 estimated EBITDA;



•

14.0x to 17.0x for share price to 2011 estimated EPS; and



•

12.0x to 15.0x for share price to 2012 estimated EPS.

        Lazard applied each such range of enterprise value to EBITDA multiples and share price to earnings per share multiples for the selected companies to the LTM EBITDA, estimated EBITDA and estimated EPS of the Company, as reflected in the financial forecasts for the Company prepared by the management of the Company and included in "—Certain Projections ."

44

Table of Contents

        From this analysis, Lazard estimated an implied price per share range for shares of the Company's common stock as follows, as compared to the $22.00 merger consideration per share provided in the merger agreement:

Selected Precedent Transactions Analysis

        Lazard reviewed and analyzed certain publicly available financial information of target companies in selected precedent merger and acquisition transactions since January 1, 2009 involving control acquisitions of U.S. based retail corporations it viewed as relevant. Other transactions were considered but were not deemed to be relevant based on a variety of factors, including, among other things, transaction size and transaction terms. In performing these analyses, Lazard analyzed certain financial information and transaction multiples relating to the target companies involved in the selected transactions and compared such information to the corresponding information for the Company.

        Although none of the selected precedent transactions or the target companies party to such transactions is directly comparable to the merger or to the Company, all of the transactions were chosen because they involve transactions that, for purposes of analysis, may be considered similar to the merger and/or involve targets that, for purposes of analysis, may be considered similar to the Company.

        The transactions reviewed were:

45

Table of Contents