Tax Indemnification Agreement

FORM OF
INDEMNIFICATION AGREEMENT


This INDEMNIFICATION AGREEMENT (this "Agreement") made this ___ day of ___, 1996 between 99CENTS Only Stores, a California corporation (the "Company"), and David Gold, Sherry Gold, Howard M. Gold, Karen R. Schiffer (also known as Karen R. Gold), and Jeffrey J. Gold (collectively, the "Shareholders") (the Company and the Shareholders are hereinafter referred to individually as a "party" and collectively as the "parties").


WHEREAS, the Company contemplates a public offering of its stock in order to provide liquidity for its Shareholders and to raise additional equity capital for the expansion of the Company's business operations (the "Public Offering");


WHEREAS, the Company and the Shareholders have entered into this Agreement as a condition to the closing (the "Closing") of the contemplated Public Offering;


WHEREAS, from its inception through April 30, 1996 the Company was an S corporation as defined in Section 1361 of the Internal Revenue Code of 1986, as amended (the "Code") after which it became a C corporation under the Code (and under the corresponding provisions of state income tax law);


WHEREAS, on April 30, 1996, the Company elected under Section 1362(e)(3) of the Code to have the rules of Section 1362(e)(3) not apply for its S Termination Year (as hereinafter defined); and


WHEREAS, the Company and the Shareholders wish to provide for a tax indemnification agreement in connection with the Company's termination as an S corporation.


NOW, THEREFORE, the parties agree as follows:


ARTICLE I


DEFINITIONS


1.1 DEFINITIONS. The following terms, as used herein, have the following meanings:


"C Corporation Taxable Year" means any taxable year or portion thereof during which the Company is taxable as a C Corporation.


"C Short Year" means that portion of the S Termination Year of the Company defined in Section 1362(e)(1)(B) of the Code.


"S Corporation Taxable Year" means any taxable year or portion thereof during which the Company is taxable as an S corporation.


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"S Short Year" means that portion of the S Termination Year of the Company defined in Section 1362(e)(1)(A) of the Code.


"S Termination Year" shall have the meaning set forth in Section 1362(e)(4) of the Code.


ARTICLE II


TAXES


2.1 LIABILITY FOR TAXES INCURRED DURING S SHORT YEAR. The Shareholders, jointly and severally, represent, covenant and agree that: (i) the Shareholders have duly included, or shall duly include, in their own federal and state income tax returns all items of income, gain, loss, deduction, or credit attributable to the S Short Year of the Company or any prior period (or that portion of any period) during which the Company was an S corporation as required by applicable law; (ii) such returns have included, or shall include, their allocable share of taxable income of the Company from all sources through and including the close of business on the last day of the S Short Year of the Company ("S Corporation Taxable Income"), and (iii) the Shareholders have paid, or shall pay, any and all taxes they are required to pay with respect to such S Corporation Taxable Income for all taxable periods (or that portion of any period) during which the Company was an S corporation.


2.2 LIABILITY FOR TAX INCURRED DURING S SHORT YEAR AND C SHORT YEAR. The Company represents, covenants and agrees that: (i) the Company is and shall be responsible for and has effected, or shall effect, the filing of all federal, state, foreign and local returns for the Company with respect to any and all taxable periods; (ii) such Company returns have included, or shall include, the Company's income from all sources for all periods covered by the returns; and (iii) the Company has paid, or shall pay, any and all taxes required to be paid by the Company for all periods covered by the returns as required by applicable law.


2.3 COMPANY'S INDEMNIFICATION FOR TAX LIABILITIES. The Company hereby indemnifies and agrees to hold each Shareholder harmless from, against and in respect of any federal and state income tax liability (including interest and penalties) but reduced by the benefit received from the deduction for state income taxes paid against taxable income for federal income tax purposes), if any, incurred by such Shareholder resulting from a final determination of an adjustment (by reason of an amended return, claim for refund, audit or otherwise) to the Company's taxable income resulting in a decrease in the Company's taxable income and a corresponding increase in the federal or state, as th ...