SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark one)
X Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended January 28, 1995
Transition Report Pursuant to Section 13 or
15 (d) of the Securities Exchange Act
of 1934
For the Transition Period From to
Commission File Number 0-12497
DAIRY MART CONVENIENCE STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2497894
(State or other juris- (I.R.S. Employer
diction of incorporation Identification No.)
or organization)
ONE VISION DRIVE, ENFIELD, CT 06082
(Address of principal executive offices)
Registrant's telephone number, including area code
(203) 741-4444
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock (Par Value $.01)
Class B Common Stock (Par Value $.01)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of May 8, 1995, 2,782,109 shares of Class A Common Stock and
2,785,665 shares of Class B Common Stock were outstanding, and
the aggregate market value of both classes of Common Stock
outstanding of DAIRY MART CONVENIENCE STORES, INC., held by
nonaffiliates was approximately $17,547,101.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1995 definitive proxy statement to
be filed pursuant to Regulation 14A within 120 days after the end
of Registrant's fiscal year are incorporated by reference in Part
III.
PART I
ITEM 1. BUSINESS
General
Dairy Mart Convenience Stores, Inc., and its subsidiaries
(the "Company" or "Dairy Mart"), was founded in 1957 and operates
one of the nation's largest convenience store chains. As of the
fiscal year ending January 28, 1995, the Company operated or
franchised approximately 960 stores under the "Dairy Mart" name
in 11 states located in the Northeast, Midwest and Southeast, of
which 406 stores sold gasoline and 317 stores were franchised.
Dairy Mart stores offer a wide range of products and
services which cater to the convenience needs of its customers,
including milk, ice cream, groceries, beverages, snack foods,
candy, deli products, publications, health and beauty aids,
tobacco products, lottery tickets and money orders. The stores
are typically located in densely populated, suburban areas on
sites which are easily accessible to customers and provide ample
parking. Dairy Mart stores are generally free standing structures
which are well-lit and are designed to encourage customers to
purchase high profit margin products, such as deli items, coffee,
fountain drinks and other fast food items.
The Company's facilities in Enfield, Connecticut and
Cuyahoga Falls, Ohio manufacture and process milk, fruit juices,
and other non-carbonated beverages which are distributed to
stores in the Northeast and the Midwest regions. The dairy plant
in Ohio manufactures and distributes ice cream to most stores. In
the Southeast region, the Company distributes dairy products,
tobacco products, candy and certain other merchandise to stores
in Kentucky and Indiana. However, subsequent to the end of fiscal
1995, the Company entered into agreements to sell its dairy
manufacturing and distribution operations in both Connecticut and
Ohio and announced its intention to sell its distribution center
in Kentucky (see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Strategic
Initiatives-Dairy Manufacturing & Distribution Operations").
The Company is incorporated in Delaware and maintains its
principal executive offices at One Vision Drive, Enfield,
Connecticut 06082. The Company's telephone number is (203)
741-4444.
<PAGE>
Stores
The Company's stores are generally located in densely
populated suburban areas, and are situated close to single-family
homes and apartments to attract neighborhood shoppers. Store
location, design, lighting and layout are intended to cater to
customers' desire for fast and convenient access. Approximately
400 locations also sell gasoline. Shelving and displays,
including refrigeration units, deli and other fast food counters
and displays, are designed to encourage customers to purchase
high profit margin products including impulse purchase items such
as candy, fountain drinks and ice cream novelties. Stores are
located on sites which are well-lit, easily accessible by
customers and provide ample parking. All of the Company's stores
also offer extended hours for additional convenience, with over
one-half of the stores open 24 hours per day. A typical Dairy
Mart store ranges between 2,400 and 2,700 square feet and is a
free standing structure.
As of January 28, 1995, the Company operated and franchised
retail convenience stores in the following three regions of the
United States:
Number of
Northeast Region Stores
Massachusetts . . . . . . . . . . . . . . . . 64
Connecticut . . . . . . . . . . . . . . . . . 59
New York . . . . . . . . . . . . . . . . . . 37
Rhode Island. . . . . . . . . . . . . . . . . 22
Total Northeast Stores . . . . . . . . . . . 182
Midwest Region
Ohio. . . . . . . . . . . . . . . . . . . . . 498
Michigan. . . . . . . . . . . . . . . . . . . 43
Pennsylvania. . . . . . . . . . . . . . . . . 31
Total Midwest Stores . . . . . . . . . . . . 572
Southeast Region
Kentucky. . . . . . . . . . . . . . . . . . . 160
Indiana . . . . . . . . . . . . . . . . . . . 21
Tennessee . . . . . . . . . . . . . . . . . . 14
North Carolina. . . . . . . . . . . . . . . . 12
Total Southeast Stores . . . . . . . . . . . 207
Total Stores . . . . . . . . . . . . . . 961
<PAGE>
Upgrade and Remodel of Existing Store Base and Closing
Underperforming Stores
Management has implemented a plan to upgrade and remodel the
Company's retail and gasoline locations and to downsize its store
operations through the closing or sale of underperforming
locations. During fiscal 1995, the Company decided to close or
sell 143 retail convenience stores, of which 72 had been closed
or sold as of January 28, 1995. (see "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-
Strategic Initiatives-Upgrade and Remodel of Existing Store Base"
and "-Underperforming Stores").
Gasoline Operations
Gasoline sales enable the Company to significantly increase
a store's total level of sales without a commensurate increase in
overhead. Gasoline sales accounted for approximately 35% of total
revenues of the Company for each of the past three fiscal years.
As of January 28, 1995, 406 stores sold gasoline; however, the
Company plans to close or sell approximately 57 additional
gasoline facilities that do not meet the Company's criteria for
capital investment in fiscal 1996. Financial information related
to the Company's gasoline operations for the last three fiscal
years is set forth in Note 9 to the Consolidated Financial
Statements.
The Company's gasoline pricing strategy is designed, in
part, to provide value to customers by offering the same quality
gasoline offered by major oil companies at prices which are
generally below nationally advertised brands and comparable to
other convenience store chains. The Company obtains its gasoline
from major oil company suppliers, primarily through spot market
purchases, and believes that there are adequate supplies of fuel
available from a number of sources at competitive prices.
Gasoline profit margins have a significant impact on the
Company's income. Such profit margins could be adversely
influenced by factors beyond the Company's control, such as
volatility in the wholesale gasoline market due to supply
interruptions. In addition, gasoline profit margins are
continually influenced by competition in each local market area.
Product Selection
All stores generally offer more than 3,000 food and non-food
items limited to a few, well-known brand names as well as the
Company's private label products. Most of these items would
typically be offered in supermarkets. Food items include a wide
variety of products, including canned foods and groceries, dairy
products, beverages, snack items, candy, baked goods and food
service items, such as fountain soft drinks, coffee, hot dogs,
deli meats and deli sandwiches and similar foods. Non-food
products and services include gasoline, cigarettes, health and
<PAGE>
beauty aids, publications, lottery tickets and money orders. In
addition to selling well-known brand name products, the stores
offer many products that bear the "Dairy Mart" private label,
including milk, bakery products, juices and other non-carbonated
beverages, ice cream and other dairy products such as dips and
cheeses.
In recent years, the Company has been altering the mix of
products to emphasize the sale of items carrying higher profit
margins. Fast food items not only carry higher profit margins but
also tend to lead to the purchase of other high profit margin
products and impulse items, including salty-snacks, candy and
beverages. Dairy Mart has introduced a number of private label
products, which generally carry a higher gross profit margin than
the Company's average gross profit margin on comparable products.
Manufacturing and Distribution Operations
The Company supplied its stores and most franchised stores
through a product distribution system which included the
Company's own manufacturing, distribution and processing
facilities, and other distributors. Through its manufacturing,
processing and distribution facilities in Connecticut and Ohio,
the Company supplied all of the milk and a substantial portion of
the ice cream, juices and non-carbonated beverages for the stores
in the Northeast and the Midwest. Many other products which were
not produced by the Company were, and continue to be, supplied to
the Northeast and Midwest regions by one wholesale distributor
under a ten-year contract entered into in February, 1988. The
Company supplied the Southeast region stores in large part
through its 35,000 square foot distribution facility located in
Louisville, Kentucky. In April, 1995, the Company entered into
agreements to sell its dairy manufacturing and distribution
operations in both Connecticut and Ohio and announced its
intention to sell its distribution center in Kentucky. In
conjunction with these transactions, the Company has entered into
long-term marketing and supply agreements to purchase milk and
dairy products at competitive prices, primarily under the
Company's private label (see "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-
Strategic Initiatives-Dairy Manufacturing & Distribution
Operations").
Franchise Operations
The Company franchises 317 stores throughout its three
geographic regions. Franchise stores generally follow the same
operating policies as Company stores, and are subject to Company
supervision under franchise agreements. Company operated and
franchise stores are of the same basic store design and sell
substantially the same products. In the past, most franchisees
purchased their products from the Company or the suppliers used
by the Company. In the future, since the Company has agreed to
sell its manufacturing and distribution businesses in both
Connecticut and Ohio and announced its intention to sell its
<PAGE>
distribution center in Kentucky, the Company will encourage its
franchisees to purchase their products from the suppliers used by
the Company.
The Company offers two types of franchising arrangements-
the "full" franchise and the "limited" franchise. Under a full
franchise agreement, the franchisee purchases and owns both the
merchandise inventory and the equipment located in the store, and
leases or subleases the store from the Company. Under a limited
franchise agreement, the franchisee owns only the merchandise
inventory while the Company retains ownership of the store
equipment. Franchise fees are higher for limited franchisees. As
of January 28, 1995, there were 146 full franchise locations and
171 limited franchise locations.
The Company's franchising strategy seeks to: (i) improve the
level of retail experience of its new franchisees; and (ii)
increase the level of financial commitment by new franchisees. As
part of this strategy, new franchisees are now required to
undergo more rigorous and thorough interviews and background
checks, receive increased levels of financial and retail
training, and typically make larger initial cash payments.
<TABLE>
The following table sets forth the number of stores, on both
a Company operated and franchise operated basis, that were opened
or acquired, closed or sold, and transferred between Company
operated and franchise operated, during the last three fiscal
years:
<CAPTION>
January 28, 1995 January 29, 1994 January 30, 1993
CompanyFranchise CompanyFranchise CompanyFranchise
OperatedOperated TotalOperatedOperatedTotalOperatedOperatedTotal
<S> <C> <C> <C> <C> <C> <C>
At beginning of period. 687 335 1,022 709 3701,079 685 4491,134
Opened or acquired..... 10 1 11 4 - 4 6 - 6
Closed or sold......... (57) (15) (72) (50) (11) (61) (34) (27)
(61)
Transferred (net)...... 4 (4) -- 24 (24) -- 52 (52) --
At end of period....... 644 317 961 687 335 1,022 709 370
1,079
</TABLE>
International Operations
The Company conducts business outside the United States as a
joint-venturer, licensor or consultant. Currently, the Company is
a party to two agreements with convenience store operators in
South Korea and Mexico. As with the Company's prior international
arrangements, both such agreements require a specified commitment
of Company personnel, but do not require any significant
commitment of capital.
Advertising
To promote a uniform image for all stores, the Company
designs and coordinates advertising for all stores to complement
<PAGE>
its marketing strategy, which is derived, in part, from market
surveys and research. In-store, newspaper, and direct-mail
advertising, special promotions and seasonal radio and television
advertising usually feature certain items which can be purchased
at the stores, and frequently include national brand items for
which advertising costs are often supplemented by the national
brand suppliers. Sales promotions are generally established and
maintained on a bi-weekly or monthly basis.
Competition
The convenience store and retail gasoline industries are
highly competitive. The number and type of competitors vary by
location. The Company presently competes with other convenience
stores, large integrated gasoline service station operators,
super market chains, neighborhood grocery stores, independent
gasoline service stations, fast food operations and other similar
retail outlets, some of which are well recognized national or
regional retail chains. Some of the Company's competitors have
greater financial resources than the Company. Key competitive
factors include, among others, location, ease of access, store
management, product selection, pricing, hours of operation, store
safety, cleanliness, product promotions and marketing.
Seasonality
Weather conditions have a significant effect on the
Company's sales, as convenience store customers are more likely
to go to stores to purchase convenience goods and services,
particularly higher profit margin items such as fast food items,
fountain drinks and other beverages, when weather conditions are
favorable. Accordingly, the Company's stores generally experience
higher revenues and profit margins during the warmer weather
months, which fall within the Company's second and third fiscal
quarters.
Employees
As of January 28, 1995, exclusive of franchisees and
franchisees' employees, the Company employed, on a full-time or
part-time basis, approximately 4,400 employees.
Environmental Compliance
The Company incurs ongoing costs to comply with federal,
state and local environmental laws and regulations, including
costs for assessment, compliance, remediation and certain capital
expenditures relating to its gasoline operations. These laws and
regulations relate primarily to underground storage tanks
("USTs"). The United States Environmental Protection Agency has
established standards for, among other things: (i) maintaining
leak detection; (ii) upgrading UST systems; (iii) taking
corrective action in response to releases; (iv) closing USTs to
<PAGE>
prevent future releases; (v) keeping appropriate records; and
(vi) maintaining evidence of financial responsibility for taking
corrective action and compensating third parties for bodily
injury and property damage resulting from releases. A number of
states in which the Company operates also have adopted UST
regulatory programs.
In the ordinary course of business, the Company periodically
detects releases of gasoline or other regulated substances from
USTs it owns or operates. As part of its program to manage USTs,
the Company is involved in environmental assessment and
remediation activities with respect to releases of regulated
substances from its existing and previously operated retail
gasoline facilities. The Company accrues its estimates of all
costs to be incurred for assessment and remediation for known
releases. These accruals are adjusted if and when new information
becomes known. Additionally, the Company records as receivables
the estimated reimbursements of a portion of the total costs from
various state environmental trust funds which have provisions for
sharing or reimbursing certain costs incurred by UST owners or
operators based upon compliance with the terms and conditions of
such funds. Due to the nature of such releases, the actual costs
of assessment and remediation activities may vary significantly
from year to year. Under current federal and state regulatory
programs, the Company also will be obligated by December 22, 1998
to upgrade or replace most existing USTs it owns or operates to
meet certain corrosion-, overfill- and spill-protection and
leak-detection requirements. The Company currently is evaluating
each site on an individual basis to determine the type of
expenditures required to comply with these and other requirements
under the federal and state UST regulatory programs.
In addition to ongoing assessment and remediation costs, the
Company presently estimates that it will be required to make
capital expenditures, including those requiring upgrading or
replacing of existing USTs, ranging from approximately $12.0 to
$16.0 million in the aggregate over the next four fiscal years to
comply with current federal and state UST regulations, which
capital expenditures could be reduced for locations (especially
low volume locations) which may be closed in lieu of the capital
costs of compliance. During fiscal 1995, the Company decided to
close 81 retail gasoline facilities that do not meet the
Company's criteria for capital investment. The Company had closed
24 of these locations by January 28, 1995 (see "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS-Liquidity and Capital Resources-Environmental
Responsibility").
The Company's estimate of costs to be incurred for
environmental assessment and remediation and for UST upgrading
and other regulatory compliance are based on factors and
assumptions that could change due to modifications of regulatory
requirements, detection of unanticipated environmental
conditions, or other unexpected circumstances. As a result, the
<PAGE>
actual costs incurred may vary significantly from the estimate
noted above.
ITEM 2. PROPERTIES
Of the 961 stores in operation as of January 28, 1995, 121
store locations were owned by the Company and 840 were leased. In
addition, the Company owns 18 locations and is the primary lessee
for 90 locations not currently operated as Dairy Mart stores. The
Company's policy is to endeavor to lease or sublease such
locations to third parties. From time to time the Company enters
into sale-leaseback transactions whereby the Company sells retail
locations and leases such locations back from the purchasers.
The Company owns its corporate headquarters facility in
Enfield, Connecticut. This facility is approximately 77,000
square feet and is located on eighty-eight acres of land. The
Company also owns its Northeast region operating office building
and manufacturing and processing plant located in a 33,000 square
foot building, and its 200,000 square foot Midwest processing
plant and regional administrative office located in Cuyahoga
Falls, Ohio. The Company leases administrative offices for its
Southeast regional offices and leases a warehouse facility in
Louisville, Kentucky. The Company is attempting to sell its
corporate headquarters facility in Enfield, Connecticut, and the
buildings and real estate that formerly comprised its Connecticut
and Ohio manufacturing and distribution facilities (see
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS-Strategic Initiatives-Dairy Manufacturing &
Distribution Operations," "-Non-operating Assets" and Notes 12
and 13 to the Consolidated Financial Statements).
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, the Company is party to
various legal actions which the Company believes are routine in
nature and incidental to the operation of its business. The
Company believes that the outcome of the proceedings to which the
Company currently is party will not have a material adverse
effect upon its results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security
holders during the fourth quarter of fiscal 1995.
<PAGE>
PART II
ITEM 5. MARKET INFORMATION FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company has not paid any cash dividends during the last
two fiscal years and pursuant to loan covenants contained in the
Company's amended senior revolving credit facility, is currently
restricted from paying any dividends and from repurchasing its
capital stock. The Company's Class A Common Stock and Class B
Common Stock are traded on The Nasdaq Stock Market under the
symbols DMCVA and DMCVB. The following table sets forth the high
and low sales prices per share of both classes of the Company's
Common Stock, as quoted on The Nasdaq Stock Market, for the last
two fiscal years.
<TABLE>
<CAPTION>
Class A Class B
Common Common
Stock Stock
High Low High Low
Fiscal Year Ended January 28, 1995:
<S> <C> <C> <C> <C>
First Quarter 7 1/4 5 3/4 8 6 3/4
Second Quarter 6 1/2 3 3/4 6 3/4 4 1/4
Third Quarter 4 1/4 2 1/2 4 3/4 2 1/4
Fourth Quarter 4 2 5/8 4 1/4 2 7/8
<CAPTION>
Fiscal Year Ended January 29, 1994:
<S> <C> <C> <C> <C>
First Quarter 6 4 1/2 6 3/4 4 3/4
Second Quarter 5 7/8 4 3/8 6 3/8 4 11/16
Third Quarter 6 7/8 5 1/2 6 3/4 5 5/8
Fourth Quarter 7 5 3/4 7 1/2 5 3/4
<FN>
There were approximately 2,800 stockholders as of May 8, 1995.
Included in this number are shares held in nominee or street
names.
</FN>
</TABLE>
<PAGE>
ITEM 6.SELECTED FINANCIAL DATA
<TABLE>
Five Year Summary
<CAPTION>
Five Years Ended January 28, 1995 1995(a) 1994(a) 1993(a) 1992 1991
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Results:
Net Sales of the Company, Its Subsidiaries and Franchises............. $ 753,460 $ 761,300 $ 775,013 $ 795,539 $ 808,336
Revenues.............................................................. 596,782 591,500 580,014 572,761 587,734
Earnings Before Interest Expense, Income Taxes,
Depreciation and Amortization (EBITDA)........................... 4,377 23,646 16,323 28,852 28,526
Interest Expense...................................................... 9,219 7,644 7,456 8,260 8,366
Income (Loss) Before Income Taxes, Extraordinary Item
and Cumulative Effect of Accounting Changes...................... (17,319) 3,102 (4,797) 7,021 6,802
Net Income (Loss) .................................................... (11,150) 866 (6,850) 4,092 3,813
Earnings (Loss) Per Share:
Before Extraordinary Item and Cumulative Effect
of Accounting Changes....................................... (1.94) .33 (.53) .75 .72
Net Earnings (Loss) Per Share.................................... (2.01) .16 (1.26) .75 .72
Cash Dividends Paid Per Share......................................... - - - - -
Balance Sheet
Net Property and Equipment............................................ $ 69,563 $ 92,014 $ 90,643 $ 82,974 $ 81,399
Total Assets.......................................................... 172,228 169,442 175,178 165,555 165,068
Long-Term Debt Including Capital Lease Obligations (b)<F1>............ 90,268 77,343 81,035 79,119 78,576
Stockholders' Equity.................................................. 22,817 33,870 32,732 39,100 34,842
<CAPTION>
(a) The results for the years presented include
nonrecurring and unusual items as follows: 1995 1994 1993 1992 1991
(in thousands)
<S> <C> <C> <C> <C> <C>
Nonrecurring Pre-tax Charges:
Regulatory and Financing Fees and Expenses......................... $ 1,216 $ - $ - $ - $ -
Administrative Severance, Settlement and Related Costs............. 2,800 - 5,200 - -
Costs to Divest of Dairy Manufacturing and Distribution Operations. 2,500 - - - -
Writedown of Non-operating Properties to Net Realizable Value...... 3,584 - - - -
Costs of Store Closings............................................ 3,900 - - - -
$ 14,000 - 5,200 - -
Other Unusual Items, Net of Related Income Tax Effect:
Extraordinary Loss on Extinguishment of Debt....................... $ - $ 928 $ - $ - $ -
Loss from Cumulative Effect of Accounting Changes.................. 389 - 3,951 - -
<FN>
<F1>
(b) Long-term debt including capital lease obligations includes the current portion of long-term debt and capital
lease obligations.
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
<TABLE>
Summary Results of Operations
The Company's net loss for fiscal 1995 was $11.2 million as
compared to net income of $866,000 for fiscal 1994 and a net loss
of $6.9 million for fiscal 1993. Each years' results included
nonrecurring or unusual items as follows:
<CAPTION>
Fiscal Years
(in millions) 1995 1994 1993
<S> <C> <C> <C>
Nonrecurring pre-tax charges:
Regulatory and financing fees and expenses$ 1.2 $ -- $ --
Administrative severance, settlement and related costs 2.8 -- 5.2
Costs to divest of dairy manufacturing and distribution operations 2.5 -- --
Writedown of non-operating properties to net realizable value 3.6 -- --
Costs of store closings 3.9 -- --
$14.0 $ -- $5.2
Other unusual items, net of related income tax effect:
Extraordinary loss on extinguishment of debt$ -- $0.9 $ --
Loss from cumulative effect of accounting changes 0.4 -- 4.0
The pre-tax results from fiscal 1995 recurring operations
decreased $6.4 million from the prior fiscal year. Gasoline
results declined $2.1 million in fiscal 1995 compared to fiscal
1994 due to lower gasoline gross margins combined with an
increase in environmental remediation costs. Manufacturing and
distribution results declined by $1.9 million reflecting the
continued underutilization of existing plant capacity and the
impact of competitive pricing pressures at the wholesale and
retail levels. Convenience store results also declined by
$800,000 in fiscal 1995 as compared to fiscal 1994, due primarily
to the benefit received in fiscal 1994 associated with the
substantial reduction in cigarette prices and the corresponding
favorable impact on the Company's last-in, first-out (LIFO)
inventory valuation method. Results in fiscal 1995 as compared to
fiscal 1994 also reflect a higher level of interest expense
associated with the increased level of borrowings subsequent to
the recapitalization of the Company's debt structure.
Strategic Initiatives
In fiscal 1995, management determined it was necessary to
fundamentally reassess the Company's direction. As a result,
management has redefined certain of its strategies and
implemented new corporate initiatives. The overall objective of
these strategies and initiatives is to focus the Company's
capital and management resources on its core retail business of
operating customer friendly, competitively priced convenience
<PAGE>
stores. In order to accomplish its objective, the Company has (1)
recapitalized to reduce the near-term debt obligations and allow
its operating cash flow to be reinvested in the chain; (2)
downsized its store operations through the sale or closing of
underperforming locations; (3) agreed to the divestiture of its
dairy manufacturing and distribution operations; (4) targeted
certain of its non-operating assets for sale; and (5) reduced a
significant portion of its administrative overhead. These actions
allow the Company to expand its retail operations through new
store construction and the upgrading and remodeling of its
existing locations. A more detailed explanation of these
initiatives is as follows:
Capital Structure
The Company issued $75.0 million principal amount of 10.25%
Senior Subordinated Notes (the "Notes"), all of the principal of
which is due March 15, 2004. The net proceeds from the sale of
the Notes were used to repay substantially all of the Company's
outstanding indebtedness and thus reduced the principal repayment
requirements for the next five years by approximately $53
million.
Underperforming Stores
The Company has historically evaluated the performance of
each of its stores in order to determine its contribution to the
Company's overall profitability. In fiscal 1995, management has
raised the acceptable level that a store's performance must meet
in order for the store to be eligible for on-going capital
expenditure support from the Company. Accordingly, the Company
has closed or plans to close 143 of its retail convenience stores
and 81 of its retail gasoline facilities due to their inability
to meet the Company's economic and non-economic criteria for
long-term stability and growth.
Dairy Manufacturing & Distribution Operations
The Company has entered into agreements to sell its dairy
manufacturing and distribution operations in Ohio and Connecticut
and is negotiating the sale of its distribution center in
Kentucky. In conjunction with these transactions, the Company has
entered into long-term marketing and supply agreements to
purchase milk and dairy products at competitive prices, primarily
under the Company's private label. The capital raised from these
transactions, supplemented by the expected profit and cash flow
enhancements, will be used to fund future capital expenditures.
Non-Operating Assets
In an effort to redirect capital from within the business to
enhance overall returns and increase liquidity, management has
identified certain non-operating assets which it has sold or
<PAGE>
intends to sell. Management has established an internal rate of
return criteria to evaluate assets in order to optimize the
return on the Company's capital investment.
Administrative Overhead
The Company has decreased its general and administrative
costs through the downsizing and consolidation of its three
administrative offices into one central location and through
further reduction of its administrative support staff in fiscal
1995. These actions are intended to bring the Company's cost
structure in line with its downsized operations. Further
reductions in all areas of the Company's operating and overhead
expenses are anticipated through on-going reviews of cost
reduction opportunities.
New Stores
A major component in the Company's growth strategy is to
continue to build new stores and increase its level of gasoline
sales. All new store locations have significantly expanded
gasoline retailing capacity and devote a greater amount of
selling space to high profit margin products.
Upgrade and Remodel of Existing Store Base
Management has implemented a plan to upgrade and remodel the
Company's retail and gasoline locations to cater to the always
changing convenience needs of today's customer. The plan includes
modernizing and re-imaging the store's appearance, upgrading the
gasoline facilities and installing the most modern environmental
protection equipment. Remodeled stores will also have more space
devoted to higher profit margin items and certain stores will
introduce "Branded Fast Food" concepts, such as Taco Bell, Subway
and Pizza Hut, to attract customers and enhance performance.
Technological Upgrade
The Company's Information Systems group is currently
evaluating several technological upgrades and procedural
enhancement opportunities to increase the efficiency of the
existing store operations and corporate support functions. These
enhancements will provide more detailed and timely information
regarding store operations, including composition of sales,
inventory levels and product pricing and profit analysis.
<PAGE>
Results of Operations
Revenues
</TABLE>
<TABLE>
Revenues for fiscal 1995 increased $5.3 million from fiscal
1994 and revenues for fiscal 1994 increased $11.5 million from
fiscal 1993. A summary of revenues by operating area for the
three fiscal years is shown below:
<CAPTION>
Fiscal Years
(in millions) 1995 1994 1993
<S> <C> <C> <C>
Convenience store $355.4 $355.8 $347.3
Gasoline 210.5 206.2 202.8
Manufacturing and distribution 28.6 27.1 25.9
Other 2.3 2.4 4.0
Total $596.8 $591.5 $580.0
</TABLE>
Convenience store revenues decreased $400,000, or 0.1%, in
fiscal 1995 as compared to fiscal 1994 due to a net reduction of
61 store locations, offset by a 2.8% increase in comparable store
sales. Although the reduction in store locations had a negative
impact on revenues, they did not have a material adverse effect
on the results from operations, since the majority of stores
closed or sold had been operating at a loss. Convenience store
revenues increased $8.5 million, or 2.4%, in fiscal 1994 as
compared to fiscal 1993 due primarily to a change in the mix of
stores in fiscal 1994 to include more company owned and operated
stores and fewer franchise operated stores, offset by the effect
of a net reduction of 57 store locations. The Company records as
revenue the gross sales of company owned and operated stores
compared with franchise fees which are a percentage of gross
sales of franchise operated stores.
Gasoline revenues increased in fiscal 1995 as compared to
fiscal 1994 due to an increase in the average selling price of
gasoline of 2.1 cents per gallon. Gasoline gallons sold increased
marginally in fiscal 1995 as compared to fiscal 1994 despite the
decrease in gasoline facilities from 419 sites to 406 sites
during fiscal 1995. Gasoline revenues increased in fiscal 1994 as
compared to fiscal 1993 due to an increase in total gasoline sold
of 9.7 million gallons. This gallonage increase was due primarily
to further development of new stores having a major gasoline
presence and the remodeling and expansion of gasoline facilities
at a number of existing locations. Partially offsetting the
impact of the higher gallonage on gasoline revenues in fiscal
1994 was a decrease in the average selling price of gasoline of
3.2 cents per gallon as compared to fiscal 1993.
<PAGE>
Manufacturing and distribution revenues increased both in
fiscal 1995 and fiscal 1994 primarily due to the recognition of
new wholesale business introduced in the second quarter of fiscal
1993, which included selling ice cream products to an
unaffiliated distributor and a new product line marketed in
certain operating regions of the Company. These increases were
partially offset by an overall decline in demand for manufactured
dairy product as a result of the reduced number of store
locations.
Other revenues decreased in fiscal 1994 as compared to
fiscal 1993 due to the recognition of a one-time licensing fee
earned in fiscal 1993 related to the start-up of the Company's
Mexican joint venture operation and reduced interest income
earned in fiscal 1994.
Gross Margins
<TABLE>
Gross margins for fiscal 1995 decreased $4.2 million from
fiscal 1994 and gross margins for fiscal 1994 increased $6.4
million from fiscal 1993. A summary of the gross margins by
operating area for the three fiscal years is shown below:
<CAPTION>
Fiscal Years
(in millions) 1995 1994 1993
<S> <C> <C> <C>
Convenience store $130.0 $130.8 $126.2
Gasoline 24.0 25.4 20.0
Manufacturing and distribution 0.7 2.6 4.6
Other 2.3 2.4 4.0
Total $157.0 $161.2 $154.8
</TABLE>
Convenience store gross margins decreased by $800,000 in
fiscal 1995 as compared to fiscal 1994 due to an increase in
costs associated with the Company's LIFO inventory valuation
method. The fiscal 1995 LIFO provision reflected a normal
inflationary increase, while the fiscal 1994 LIFO provision was
reduced due to a substantial decrease in cigarette prices, which
constitute one of the Company's major product categories.
Convenience store gross margins increased $4.4 million in fiscal
1994 as compared to fiscal 1993 due to improved product gross
margins, higher lottery and money order commissions and the
effect of the reduction in the fiscal 1994 LIFO provision
described above.
Gasoline gross margins decreased by $1.4 million in fiscal
1995 as compared to fiscal 1994 primarily due to a decrease of
0.6 cents in gross margin per gallon. Gasoline gross margins
increased $5.4 million in fiscal 1994 as compared to fiscal 1993
due to the favorable impact of higher gallons sold combined with
an increase of 2.1 cents in gross margin per gallon.
<PAGE>
Manufacturing and distribution gross margins declined in
fiscal 1995 and fiscal 1994 due to the continued underutilization
of existing plant capacity and the impact of competitive product
pricing. These decreases in gross margins were partially offset
by increased profits realized from the new business introduced in
fiscal 1993 as described above.
Selling and General and Administrative Expenses
<TABLE>
Selling expenses for fiscal 1995 increased $700,000 from
fiscal 1994 and selling expenses for fiscal 1994 increased $3.3
million from fiscal 1993. A summary of selling expenses by
operating area and general and administrative expenses for the
three fiscal years is shown below:
<CAPTION>
Fiscal Years
(in millions) 1995 1994 1993
Selling expenses:
<S> <C> <C> <C>
Convenience store $104.3 $104.3 $101.8
Gasoline 11.9 11.2 10.4
116.2 115.5 112.2
General and administrative expenses 34.0 34.5 34.3
Total $150.2 $150.0 $146.5
</TABLE>
Convenience store selling expenses remained constant in
fiscal 1995 as compared to fiscal 1994. Higher store labor and
rent costs were offset by the reduction in the number of store
locations as described above. Convenience store selling expenses
increased $2.5 million in fiscal 1994 as compared to fiscal 1993
due to the change in store mix to include more company owned and
operated stores and fewer franchise operated stores and higher
advertising and store maintenance expenses. The Company is
obligated to pay for only certain selling expenses associated
with franchise operated stores versus all of the selling expenses
associated with company owned and operated stores. This increase
was partially offset by the reduction in the number of store
locations described above.
Gasoline selling expenses increased $700,000 in fiscal 1995
as compared to fiscal 1994 primarily due to increased
environmental expenses associated with the remediation of
gasoline locations after considering expected reimbursements from
various state environmental trust funds. Gasoline selling
expenses increased $800,000 in fiscal 1994 as compared to fiscal
1993 due to increased gallons sold described above, partially
offset by a decrease in environmental remediation costs.
General and administrative expenses decreased in fiscal 1995
as compared to fiscal 1994 due to reduced administrative staff.
General and administrative expenses increased in fiscal 1994 as
compared to fiscal 1993 due to higher personnel related costs,
partially offset by a decrease in administrative staff resulting
<PAGE>
from the consolidation of regional corporate offices (see
"Strategic Initiatives-Administrative Overhead").
Interest Expense, Inflation and Taxes
Interest expense increased in fiscal 1995 as compared to
fiscal 1994 and fiscal 1993, due to an increased level of
borrowings associated with the issuance of the Notes (see
"Strategic Initiatives-Capital Structure") and to a lesser extent
the overall increase in current interest rates on variable rate
borrowings.
Inflation did not have a material effect on the Company's
revenues, gross margins, selling and general and administrative
expenses in fiscal 1995, fiscal 1994 and fiscal 1993,
respectively, other than the effect of cigarette price reductions
discussed above.
The effective tax rate for the Company was a benefit of 38%
and 40% for fiscal years 1995 and 1993, respectively, and a
provision of 42% for fiscal 1994 (see Note 6 to the Consolidated
Financial Statements).
Liquidity and Capital Resources
The Company generates substantial operating cash flow since
most of its revenues are received in cash. The amount of cash
generated from operations significantly exceeded the current debt
service requirements of the Company's long-term debt and capital
lease obligations after giving effect to the Company's
recapitalization of its outstanding debt during the first quarter
of fiscal 1995 (see "Cash Provided by Financing Activities"). The
fiscal 1995 capital expenditures of the Company were primarily
funded by the excess proceeds from the debt recapitalization,
after retirement of substantially all of the Company's previously
existing debt obligations, and by excess operating cash flow
after debt service. In addition, the Company has a revolving line
of credit available, although not utilized during the last twelve
months, to address the timing of certain working capital
disbursements in the future. Management believes that the cash
flow from operations and the sale of certain underperforming and
non-operating assets will provide the Company with ample
liquidity and the capital necessary to achieve its expansion
initiatives in its retail operations (see "Strategic Initiatives-
New Stores" and "-Upgrade and Remodel of Existing Store Base").
Cash Provided by Operating Activities
During fiscal 1995, net cash generated by operations was $7.6
million lower than prior fiscal year. This decrease was primarily
due to the unfavorable results of recurring operations in fiscal
<PAGE>
1995 as compared to fiscal 1994 (see "Summary Results of
Operations"), and the cash outflows related to certain
nonrecurring charges recorded in fiscal 1995 (see Note 12 to the
Consolidated Financial Statements).
During fiscal 1995, the Company paid its trade payables in
an average of 24 days, which compares to 24 days and 23 days for
fiscal 1994 and fiscal 1993, respectively. The cash flow of the
Company is also favorably impacted by the Company's use of funds
from the sale of money orders, pending weekly remittance of such
funds to the issuer of the money orders. As of January 28, 1995
and January 29, 1994, the amounts due the issuer were $5.3
million and $6.2 million, respectively. The Company's remittance
obligation to the issuer of the money orders is primarily secured
by an outstanding letter of credit in the amount of $6.5 million.
Cash Provided by Financing Activities
Net cash provided by financing activities increased by $14.1
million from the prior fiscal year as a result of the
recapitalization of the Company's debt structure through the
issuance of $75.0 million of 10.25% Senior Subordinated Notes
(the "Notes"), all of the principal of which is due March 15,
2004 (see Note 4 to the Consolidated Financial Statements). The
proceeds from the issuance of the Notes, net of $2.3 million of
offering costs, were used to repay a previously existing bank
term loan and bank revolving loan and redeem in full the
Company's 14.25% subordinated debentures. The excess proceeds
from the issuance of the Notes were primarily used to fund
capital expenditures in fiscal 1995.
<TABLE>
The recapitalization of the Company's debt structure has
been integral toward accomplishing management's overall objective
of redirecting the Company's capital for purposes of expanding
its retail operations. As a result of the recapitalization, the
Company significantly reduced its near-term debt service
requirements thus improving the Company's financial and operating
flexibility. Maturities of the Company's long-term debt
obligations before and immediately following the issuance of the
Notes are as follows through fiscal 1999:
<CAPTION>
Maturities of Long-Term Debt Obligations
Fiscal Year Pre-issuance Post-issuance
(in millions)
<S> <C> <C>
1995 $ 8.1 $ 3.1
1996 18.0 1.7
1997 22.1 0.8
1998 6.0 0.8
1999 6.9 1.6
$61.1 $ 8.0
</TABLE>
<PAGE>
In connection with the issuance of the Notes, the Company
entered into a senior revolving credit facility which provided
for the availability of up to $30.0 million in revolving credit
loans reduced by outstanding letters of credit not to exceed
$15.0 million in the aggregate. As of January 28, 1995, the
Company had no outstanding revolving credit loans under the
credit facility, but did have $13.1 million of letters of credit
outstanding thereunder, including, as discussed above, the letter
of credit issued to secure the Company's remittance obligation to
the issuer of money orders.
Subsequent to fiscal 1995, management finalized an amendment
to the senior revolving credit facility. Under the terms of the
amended senior revolving credit facility, the Company has
temporarily reduced the total availability to $20.0 million with
$15.0 million available for the issuance of letters of credit. As
of the date of the amendment, the Company had no outstanding
revolving credit loans under the credit facility, but did have
$12.9 million of letters of credit outstanding thereunder. The
Company may utilize the amended credit facility as needed for
working capital and general corporate purposes (see Note 4 to the
Consolidated Financial Statements).
Cash Used by Investing Activities
Net cash used by investing activities increased by $8.8
million from the prior fiscal year, primarily due to an increased
level of capital expenditures associated with new store
construction and the upgrading of existing stores. Consistent
with certain strategic initiatives described above, the Company
strengthened its investment in its retail operations by adding 11
new store locations and by upgrading a majority of store
locations with new fountain soda equipment which offers an
expanded variety of high margin products. In addition, the
Company's investing activities were increased in the current
fiscal year due to the short-term investment of $3.9 million in
U.S. Treasury Bills partially offset by the sale of $1.9 million
of such investments.
Capital Expenditures
The Company anticipates spending approximately $22 million
for capital expenditures in fiscal 1996 by purchasing store and
gasoline equipment for new store locations, remodeling
approximately 15% of its existing stores, introducing the
"Branded Fast Food" concept in a number of stores, and
significantly upgrading certain gasoline locations to provide
credit card readers at the pump, improve outdoor lighting and to
meet current environmental standards (see "Environmental
Responsibility"). These capital expenditures will be funded
primarily by cash generated from operations and from cash
received on the disposition of underperforming and non-operating
<PAGE>
assets held for sale as of January 28, 1995. Subsequent to fiscal
1995, the Company also sold and leased back 16 of its existing
store properties (see Note 13 to the Consolidated Financial
Statements) and intends to lease the real estate for the majority
of new store locations.
Environmental Responsibility
The Company accrues its estimate of all costs to be incurred
for assessment and remediation with respect to releases of
regulated substances from existing and previously operated retail
gasoline facilities. As of January 28, 1995, the Company had
recorded an accrual of $2,302,000 for such costs, the majority of
which are anticipated to be spent over the next 3 to 5 years.
The Company is entitled to reimbursement of a portion of the
above costs from various state environmental trust funds based
upon compliance with the terms and conditions of such trust
funds. As of January 28, 1995, the Company had recorded a net
state trust fund reimbursement receivable of $1,031,000
(representing a gross receivable of $1,432,000 less an allowance
of $401,000). Although there are no assurances as to the timing,
the Company anticipates receiving reimbursements from the state
environmental trust funds within one to four years from the
payment of the reimbursable assessment and remediation expenses.
In addition, the Company estimates that future capital
expenditure requirements to comply with federal and state
underground gasoline storage tank regulations will be
approximately $12.0 to $16.0 million in the aggregate through
December 1998. These costs could be reduced for low volume
locations closed in lieu of the capital cost of compliance.
The Company's estimate of costs to be incurred for
environmental assessment and remediation and for required
underground storage tank upgrading and other regulatory
compliance are based on factors and assumptions that could change
due to modifications of regulatory requirements or detection of
unanticipated environmental conditions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated financial statements of the Company and its
subsidiaries and notes thereto, appear on Pages F-1 through F-15
of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None.
<PAGE>
PART III
Information required by Items 10, 11 and 12 (DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANT, EXECUTIVE COMPENSATION AND
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT)
is incorporated herein by reference from the sections entitled
"ITEM 1-ELECTION OF DIRECTORS-Nominees for Election As
Directors," "INFORMATION CONCERNING DIRECTORS AND EXECUTIVE
OFFICERS," "THE BOARD OF DIRECTORS AND ITS COMMITTEES,"
"OUTSTANDING STOCK AND VOTING RIGHTS," "PRINCIPAL SHAREHOLDERS,"
AND "COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS" of the
Company's definitive proxy statement to be filed pursuant to
Regulation 14A within 120 days after the close of its 1995 fiscal
year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is set forth under
"CERTAIN TRANSACTIONS" in the Company's definitive proxy
statement, and is incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.
(a) The following are filed as part of this Form 10-K:
(1) Financial Statements:
For a listing of financial statements which are filed
as part of this Form 10-K, see Page F-1.
(2) Financial Statement Schedules: Page
Report of Independent Public Accountants on
Schedules 29
Schedule II - Valuation Accounts 30
All other schedules are omitted because they are not
applicable, or not required, or because the required information
is included in the consolidated financial statements or notes
thereto.
(3) Exhibits:
Exhibit Number:
(3) Articles of Incorporation and Bylaws.
(3.1) The Company's Restated Certificate of
Incorporation, as amended, was filed as Exhibit
3.1 to the Company's Form 10-K for the fiscal year
ended February 1, 1992 and is incorporated herein
by reference.
(3.2) The Company's Amended and Restated Bylaws are
filed as Exhibit 3.2 attached hereto.
(4) Instruments defining the rights of security
holders, including indentures.
(4.1) The instruments defining the rights of the holders
of the Company's Common Stock include the
Company's Restated Certificate of Incorporation
and Amended and Restated Bylaws, filed as Exhibits
3.1 and 3.2 hereto, and those instruments filed as
Exhibit 4.1 of the Company's Registration
Statement on Form S-1 (Registration No. 33-639)
dated November 5, 1985, which are incorporated
herein by reference.
<PAGE>
(4.2) The instrument defining the rights of the holders
of the Company's 10.25% Senior Subordinated Notes
due 2004 is the Indenture dated March 3, 1994,
among the Company, Society National Bank, as
trustee, and certain other parties, which was
filed as Exhibit 4.1 to the Company's Form 10-K
for the fiscal year ended January 29, 1994, and is
incorporated herein by reference.
(10) Material Contracts.
(10.1) Amended Credit Agreement dated as of May 12, 1995,
among the Company, Fleet Bank, National
Association and Society National Bank is filed as
Exhibit 10.1 attached hereto.
(10.2) 1985 Incentive Stock Option Plan, as amended, and
form of Incentive Stock Option Agreement, were
filed as Exhibit 10.4 to the Company's annual
report on Form 10-K for the fiscal year ended
January 30, 1988, and are incorporated herein by
reference.
(10.3) 1983 Incentive Stock Option Plan and form of
Incentive Stock Option Agreement thereunder were
filed as Exhibits 4.1 and 4.2, respectively, to
the Company's Registration Statement on Form S-8
(File No. 33-8209) filed on August 26, 1986, and
are incorporated herein by reference.
(10.4) 1990 Stock Option Plan and forms of qualified and
non-qualified stock option agreements thereunder
were filed as Exhibit 10.4 to the Company's Form
10-K for the fiscal year ended February 2, 1991,
and are incorporated herein by reference.
(10.5) Employment Agreement between the Company and
Charles Nirenberg, dated December 5, 1991, was
filed as Exhibit 10.5 to the Company's annual
report on Form 10-K for the fiscal year ended
February 1, 1992, and is incorporated herein by
reference.
(10.6) 1995 Stock Option Plan for Outside Directors is
filed as Exhibit 10.6 attached hereto.
(10.7) Agreement regarding employment matters dated
September 16, 1994 between the Company and Gregory
G. Landry is filed as Exhibit 10.7 attached
hereto.
(10.8) Agreement regarding employment matters dated
September 16, 1994 between the Company and Robert
B. Stein, Jr. is filed as Exhibit 10.8 attached
hereto.
<PAGE>
(10.9) Agreement regarding employment matters dated
September 16, 1994 between the Company and
Mitchell J. Kupperman is filed as Exhibit 10.9
attached hereto.
(10.10) Settlement agreement dated January 27, 1995
between the Company and Frank Colaccino is filed
as Exhibit 10.10 attached hereto.
(21) Subsidiaries of the Registrant is attached hereto
as Exhibit 21.
(23) Consent of Arthur Andersen LLP to the
incorporation of their reports included in this
Form 10-K, into the Company's previously field
Registration Statements on Forms S-8, is attached
hereto as Exhibit 23.
(27) Financial Data Schedule is filed as Exhibit 27
attached hereto.
<PAGE>
(b) Reports on Form 8-K
None filed during the Company's fourth quarter.
(c) See (3) above.
(d) See (2) above.
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: May 15, 1995
DAIRY MART CONVENIENCE STORES, INC.
By /s/ Robert B. Stein, Jr.
Robert B. Stein, Jr.
President
By /s/ Gregory G. Landry
Gregory G. Landry
Executive Vice President, Chief
Financial Officer, Chief
Accounting Officer and Director
<PAGE>
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities
and on the date indicated.
Dated: May 15, 1995 /s/ Robert B. Stein, Jr.
Robert B. Stein, Jr.
President and Director
Dated: May 15, 1995 /s/ Gregory G. Landry
Gregory G. Landry
Executive Vice President, Chief
Financial Officer, Chief Accounting
Officer and Director
Dated: May 15, 1995 /s/ Mitchell J. Kupperman
Mitchell J. Kupperman
Executive Vice President
Director
Dated: May 15, 1995 /s/ Charles Nirenberg
Charles Nirenberg
Chairman of the Board and Director
Dated: May 15, 1995 /s/ Frank W. Barrett
Frank W. Barrett
Director
Dated: May 15, 1995 /s/ John W. Everets, Jr.
John W. Everets, Jr.
Director
Dated: May 15, 1995 /s/ Theodore W. Leed
Theodore W. Leed
Director
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Dairy Mart Convenience Stores, Inc.
We have audited in accordance with generally accepted
auditing standards, the consolidated financial statements of
Dairy Mart Convenience Stores, Inc. and subsidiaries (the
Company) included in this Form 10-K, and have issued our report
thereon dated May 15, 1995. Our audits were made for the purpose
of forming an opinion on the basic financial statements taken as
a whole. The schedule listed in the accompanying index is the
responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
May 15, 1995
<PAGE>
<TABLE>
SCHEDULE II
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
VALUATION ACCOUNTS
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance at Charge to Deductions Balance at
Beginning Costs and Other and Accounts End of
Description of Period Expenses Recoveries Written off Period
<S> <C> <C> <C> <C> <C>
Reserve for Doubtful Accounts:
Fiscal Year End January 30, 1993$ 1,183,423$ 955,220$ --$ (485,519)$ 1,653,124
Fiscal Year End January 29, 1994 1,653,124 958,336 -- (787,283) 1,824,177
Fiscal Year End January 28, 1995 1,824,177 1,053,818 14,057(1,163,810) 1,728,242
</TABLE>
<PAGE>
<TABLE>
DAIRY MART CONVENIENCE STORES, INC.
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
Form 10-K
Page
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Statements of Operations and Retained
Earnings for the Fiscal Years Ended January 28, 1995,
January 29, 1994 and January 30, 1993. F-3
Consolidated Balance Sheets as of January 28, 1995 and
January 29, 1994 F-4
Consolidated Statements of Cash Flows for the Fiscal Years
Ended January 28, 1995, January 29, 1994 and
January 30, 1993 F-5
Notes to Consolidated Financial Statements for the
Fiscal Years Ended January 28, 1995, January 29, 1994 and
January 30, 1993 F-6 to 15
F-1
</TABLE>
<AUDIT-REPORT>
Report of Independent Public Accountants
To the Stockholders and the Board of Directors of
Dairy Mart Convenience Stores, Inc.:
We have audited the accompanying consolidated balance sheets of Dairy Mart
Convenience Stores, Inc. (a Delaware corporation) and subsidiaries as of
January 28, 1995 and January 29, 1994, and the related consolidated
statements of operations and retained earnings and cash flows for each of
the three years in the period ended January 28, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dairy Mart Convenience
Stores, Inc. and subsidiaries as of January 28, 1995 and January 29, 1994,
and the results of their operations and their cash flows for each of the
three years in the period ended January 28, 1995, in conformity with
generally accepted accounting principles.
Hartford, Connecticut Arthur Andersen LLP
May 15, 1995
F-2
</AUDIT-REPORT>
<TABLE>
Consolidated Statements of Operations and Retained Earnings
<CAPTION>
For the Years Ended January 28, 1995, January 29, 1994 and January 30, 1993 1995 1994 1993
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net Sales of the Company, Its Subsidiaries and Franchises......................... $ 753,460 $ 761,300 $ 775,013
Revenues.......................................................................... $ 596,782 $ 591,500 $ 580,014
Cost of goods sold and expenses:
Cost of goods sold........................................................... 439,757 430,254 425,180
Selling, general and administrative expenses................................. 150,245 150,006 146,542
Interest expense............................................................. 9,219 7,644 7,456
Loss on disposition of properties, net....................................... 880 494 433
Nonrecurring charges......................................................... 14,000 - 5,200
614,101 588,398 584,811
Income (loss) before income taxes, extraordinary item and
cumulative effect of accounting changes.............................. (17,319) 3,102 (4,797)
(Provision for) benefit from income taxes......................................... 6,558 (1,308) 1,898
Income (loss) before extraordinary item and cumulative effect
of accounting changes................................................ (10,761) 1,794 (2,899)
Extraordinary loss on extinguishment of debt (net of income tax benefit of $677).. - (928) -
Income (loss) before cumulative effect of accounting changes............ (10,761) 866 (2,899)
Cumulative effect of accounting changes........................................... (389) - (3,951)
Net income (loss)....................................................... $ (11,150) $ 866 $ (6,850)
Earnings (loss) per share:
Before extraordinary item and cumulative effect of accounting changes......... $ (1.94) $ .33 $ (.53)
Extraordinary loss on extinguishment of debt.................................. - (.17) -
Cumulative effect of accounting changes ...................................... (.07) - (.73)
Earnings (loss) per share......................................................... $ (2.01) $ .16 $ (1.26)
Retained earnings, beginning of year.............................................. $ 11,329 $ 10,463 $ 17,313
Net income (loss)................................................................. (11,150) 866 (6,850)
Retained earnings, end of year.................................................... $ 179 $ 11,329 $ 10,463
<FN>
Note: Excise taxes approximating $36,332,000, $29,209,000 and $23,855,000 collected from customers on retail gasoline sales
are included in Revenues and Cost of goods sold for fiscal years 1995, 1994 and 1993, respectively.
The accompanying notes are an integral part of these financial statements.
F-3
</FN>
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheets
<CAPTION>
January 28, 1995 and January 29, 1994 1995 1994
(in thousands, except
share amounts)
Assets
<S> <C> <C>
Current Assets:
Cash.................................................................................... $ 4,512 $ 6,632
Short-term investment................................................................... 2,053 --
Accounts and notes receivable........................................................... 12,398 11,770
Inventory............................................................................... 26,044 26,269
Prepaid expenses and other current assets............................................... 1,945 2,013
Deferred income taxes................................................................... 3,537 2,098
Total current assets................................................................. 50,489 48,782
Net Book Value of Property and Equipment Held For Sale ................................. 23,378 --
Property and Equipment:
Land and improvements................................................................... 9,180 15,199
Buildings and leaseholds................................................................ 31,370 54,231
Equipment............................................................................... 59,358 75,418
99,908 144,848
Less - Accumulated depreciation......................................................... 30,345 52,834
Net property and equipment........................................................... 69,563 92,014
Property Under Capital Leases, net of accumulated amortization of $1,617 and $5,145......... 1,015 1,760
Other Assets:
Goodwill, net of accumulated amortization of $3,218 and $2,864.......................... 10,647 10,961
Franchise and operating rights, net of accumulated amortization of $2,830 and $2,488.... 7,314 7,656
Notes receivable........................................................................ 2,494 2,267
Other................................................................................... 7,328 6,002
Total other assets................................................................... 27,783 26,886
Total assets............................................................................... $ 172,228 $ 169,442
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C> <C>
Current Liabilities:
Current portion of long-term debt........................................................ $ 1,285 $ 3,071
Current portion of capital lease obligations............................................. 285 1,038
Accounts payable......................................................................... 28,942 29,461
Accrued expenses......................................................................... 17,214 14,632
Accrued interest......................................................................... 3,052 1,095
Total current liabilities............................................................ 50,778 49,297
Long-Term Debt, less current portion above................................................. 87,324 71,604
Capital Lease Obligations, less current portion above..................................... 1,374 1,630
Other Liabilities and Deferred Credits...................................................... 6,837 6,222
Deferred Income Taxes....................................................................... 3,098 6,819
Commitments and Contingencies (Note 11)
Stockholders' Equity:
Class A Common Stock, par value $.01, 20,000,000 shares authorized,
3,290,460 and 3,268,729 issued........................................................ 33 33
Class B Common Stock, par value $.01, 10,000,000 shares authorized,
2,961,953 and 2,956,015 issued........................................................ 30 30
Paid-in capital in excess of par value................................................... 27,580 27,483
Retained earnings........................................................................ 179 11,329
Treasury stock, at cost.................................................................. (5,005) (5,005)
Total stockholders' equity........................................................... 22,817 33,870
Total liabilities and stockholders' equity................................................. $ 172,228 $ 169,442
<FN>
The accompanying notes are an integral part of these financial statements.
F-4
</FN>
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
For the Years Ended January 28, 1995, January 29, 1994 and January 30, 1993 1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ...................................................................... $ (11,150) $ 866 $ (6,850)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Cumulative effect of accounting changes............................................. 389 -- 3,951
Extraordinary loss on extinguishment of debt........................................ -- 928 --
Cash flow effect of nonrecurring items.............................................. 9,953 (4,833) 5,200
Depreciation and amortization....................................................... 12,477 12,900 13,664
Change in deferred income taxes..................................................... (5,160) (95) (3,647)
Loss on other disposition of properties, net........................................ 880 494 433
(Increase) decrease in accounts and notes receivable................................ (628) (152) 1,438
Decrease (increase) in inventory.................................................... 225 588 (2,726)
Increase in accounts payable........................................................ 242 932 2,286
Decrease (increase) in other current assets and liabilities, net.................... (28) 1,787 1,090
(Decrease) increase in other noncurrent liabilities and deferred credits............ (508) 870 1,147
Net cash provided by operating activities................................................. 6,692 14,285 15,986
Cash flows from investing activities:
Purchase of short-term investments...................................................... (3,953) -- --
Proceeds from sale of short-term investments............................................ 1,900 -- --
Purchase of property and equipment...................................................... (17,772) (13,749) (17,992)
Proceeds from sale of property and equipment............................................ 1,120 1,925 1,603
Increase in long-term notes receivable.................................................. (1,621) (291) (1,057)
Proceeds from long-term notes receivable................................................ 1,394 1,631 2,074
(Increase) decrease in intangibles and other assets, net................................ (334) 15 (1,383)
Net cash used by investing activities..................................................... (19,266) (10,469) (16,755)
Cash flows from financing activities:
Issuance of senior subordinated notes, net of offering costs............................ 72,702 - -
Repayment of term debt.................................................................. (22,000) (7,000) (4,000)
Retirement of subordinated debentures................................................... (27,944) - -
(Decrease) increase in revolving loan, net.............................................. (12,100) 300 5,400
Additional long-term debt .............................................................. 1,362 4,915 2,327
Repayment of other long-term debt and capital lease obligations......................... (1,663) (2,154) (1,811)
Increases in common stock and paid-in capital........................................... 97 272 482
Net cash provided by (used in) financing activities....................................... 10,454 (3,667) 2,398
(Decrease) increase in cash............................................................... (2,120) 149 1,629
Cash at beginning of year................................................................. 6,632 6,483 4,854
Cash at end of year....................................................................... $ 4,512 $ 6,632 $ 6,483
Supplemental disclosures:
Cash paid during the year -
Interest................................................................................ $ 8,293 $ 7,700 $ 7,191
Income taxes............................................................................ 879 1,199 1,535
Noncash investing and financing activities -
Capital lease obligations............................................................... - 330 -
Investment in Mexican Joint Venture..................................................... - - 500
<FN>
The accompanying notes are an integral part of these financial statements.
F-5
</FN>
</TABLE>
<PAGE>
<TABLE>
Notes To Consolidated Financial Statements
January 28, 1995, January 29, 1994 and January 30, 1993
1. Significant Accounting Policies:
Corporate organization and consolidation - The accompanying financial statements include the accounts of Dairy Mart
Convenience Stores, Inc. and its subsidiaries (the Company). All intercompany transactions have been eliminated.
Nature of the business - The Company owns, operates and franchises convenience retail stores, a number of which also sell
gasoline. The Company also manufactured and distributed certain dairy and other products for sale at the majority of these
locations, which operations were discontinued subsequent to January 28, 1995 (see Note 13).
Fiscal year - The Company's fiscal year ends on the Saturday closest to January 31.
Short-term investment - The Company's short-term investment consists of a U.S. Treasury Bill with a maturity of less than one
year. The Company is accounting for this investment as being available for sale in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities". As of January 28, 1995, the
fair market value of the U.S. Treasury Bill approximated its cost.
Inventory - Store and manufacturing and distribution inventory is stated primarily at the lower of last-in, first-out (LIFO)
cost or market. Gasoline inventory is stated at the lower of first-in, first-out (FIFO) cost or market.
Net book value of property and equipment held for sale - Property and equipment held for sale represents operating and
non-operating assets which the Company intends to sell. The Company reduced the carrying value of certain of these assets
to their estimated net realizable value by taking a nonrecurring charge to earnings in the current fiscal year (see Note 12).
<CAPTION>
Property and equipment - Property and equipment are stated at cost and depreciated on the straight-line basis for financial
reporting purposes over the following estimated useful lives:
<S> <C>
Buildings 30-40 years
Equipment 5-20 years
<FN>
Leaseholds are depreciated primarily over 10 years or the life of the lease, if shorter.
Goodwill and franchise and operating rights - Goodwill represents the excess of cost over fair value of net assets purchased
and is being amortized on a straight-line basis over a period of 40 years. Franchise and operating rights represent the value
of franchise relationships purchased in connection with acquisitions and are being amortized on a straight-line basis over 40
years. The Company assesses the recoverability of these intangibles by determining whether the amortization of the goodwill and
franchise and operating rights over the remaining lives can be recovered through projected future operating results. The
Company's management anticipates a return to profitability in fiscal 1996. Therefore, management believes that no impairment of
goodwill and franchise and operating rights has or will occur.
Income taxes - Effective February 2, 1992, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes", which requires recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or tax returns. The cumulative effect of this
change in accounting method resulted in a charge in fiscal 1993 of $3,951,000. Prior to the implementation of SFAS No. 109,
the Company accounted for income taxes using the deferral method as required by Accounting Principles Board Opinion No. 11.
Self insurance reserves - The Company is self-insured for certain property and liability, and accident and health insurance
risks and establishes reserves for estimated outstanding claims based on its historical claims experience and reviews by
third-party loss reserve specialists. The Company has purchased insurance coverage for losses that may occur above certain
levels. As of January 28, 1995 and January 29, 1994, the Company had established reserves for these risks of $8,702,000 and
$6,696,000, respectively, which are recorded on a present value basis. The Company historically has recorded its self
insurance reserves using a discount rate based upon the Company's incremental borrowing rate which was 8% as of January 29,
1994. As of January 30, 1994, the Company changed its method of accounting to discount its self insurance reserves at a
risk free rate of return. The cumulative effect of this change in accounting method was a charge to income of $389,000,
net of the applicable income tax benefit of $271,000.
Fair value of financial instruments - In accordance with Statement of Financial Accounting Standards No. 107 "Disclosures
about Fair Value of Financial Instruments", as amended, the Company has disclosed the fair value, related carrying value
and method for determining fair value for the following financial instruments in the accompanying footnotes as referenced:
short-term investments (see Note 1), accounts and notes receivable (see Note 2) and long-term debt (see Note 4).
Revenue recognition - The Company recognizes revenues as earned, including franchise revenues and interest income. Franchise
revenues represent a percentage of franchise store sales remitted to the Company on a weekly or monthly basis, as well as
revenues derived from initial fees and the gain on sale of store assets to franchisees. Net Sales of the Company, its
Subsidiaries and Franchises is comprised of the Company's revenues plus store sales of franchise locations and excludes
related franchise fees.
Store preopening and closing costs - Expenditures of a non-capital nature associated with opening a new store are expensed as
incurred. At the time the decision is made to close a store, estimated unrecoverable costs are charged to expense. Such costs
include the net book value of abandoned fixtures, equipment, leasehold improvements and a provision for the present value
of future lease obligations, less estimated sub-rental income.
Earnings per share - Earnings per share have been calculated based on the weighted average number of Class A and Class B shares
outstanding and the effect of stock options, if dilutive, during each period. The number of shares used in the calculations
for earnings per share were 5,540,874, 5,532,201 and 5,422,971 for the years ended January 28, 1995, January 29, 1994 and
January 30, 1993, respectively.
Reclassifications - Certain prior year amounts in the Consolidated Financial Statements have been reclassified to conform
to the presentation used for the current year.
F-6
</FN>
</TABLE>
<PAGE>
<TABLE>
2. Accounts and Notes Receivable:
A summary of accounts and notes receivable as of January 28, 1995 and January 29, 1994 is as follows:
<CAPTION>
1995 1994
(in thousands)
<S> <C> <C>
Franchise accounts receivable....................................................................... $ 5,067 $ 5,017
Franchise notes receivable.......................................................................... 3,010 2,476
Marketing allowances and other...................................................................... 8,543 8,368
16,620 15,861
Less allowance for doubtful accounts and notes...................................................... 1,728 1,824
Net accounts and notes receivable................................................................... 14,892 14,037
Less noncurrent notes receivable.................................................................... 2,494 2,267
Current accounts and notes receivable............................................................... $ 12,398 $ 11,770
<FN>
The carrying amount of current accounts and notes receivable approximates fair value because of
the short maturity of those receivables. The fair value of the Company's noncurrent notes receivable
is estimated by discounting the future cash flows using the rates at which similar loans would
be made to borrowers with similar credit ratings and for the same remaining maturities. As of
January 28, 1995, the fair value of the noncurrent notes receivable exceeds the carrying value of
$2,494,000 by approximately $140,000. As of January 29, 1994, the fair value of the noncurrent
notes receivable exceeds the carrying value of $2,267,000 by approximately $400,000.
</FN>
</TABLE>
<PAGE>
<TABLE>
3. Inventory:
A summary of inventory as of January 28, 1995, January 29, 1994 and January 30, 1993 is as follows:
<CAPTION>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Inventory valued at FIFO cost..................................................................... $30,800 $30,852 $32,265
LIFO reserve...................................................................................... (4,756) (4,583) (5,408)
Inventory primarily valued at LIFO cost........................................................... $26,044 $26,269 $26,857
<FN>
The LIFO reserve reflects the difference between stating the inventory at historical LIFO cost and the more
current FIFO cost. Had the FIFO method been used, cost of goods sold would have decreased by
$173,000 and $758,000 in 1995 and 1993, respectively, and increased by $825,000 in 1994. Loss per share
would have been reduced by $.02 and $.08 in 1995 and 1993, respectively. Earnings per share would have
decreased by $.09 in 1994, had the FIFO method been used.
During 1995 and 1993, the Company liquidated certain LIFO inventory that was carried at lower costs
prevailing in prior years. The effect of the liquidation decreased the net loss by approximately
$56,000 ($.01 per share) in 1995, and by approximately $60,000 ($.01 per share) in 1993. During 1994,
the Company liquidated certain LIFO inventory that was carried at higher costs prevailing in prior years.
The effect of the liquidation was to decrease net income by approximately $45,000 ($.01 per share).
F-7
</FN>
</TABLE>
<PAGE>
<TABLE>
4. Long-Term Debt:
The Company had the following long-term debt as of January 28, 1995:
<CAPTION>
Interest Maturity January 28, 1995
Rate (Fiscal Year) Current Long-Term Total
(in thousands)
<S> <C> <C> <C> <C> <C>
Senior Subordinated Notes........................................ 10.25% 2005 $ -- $75,000 $75,000
Bank revolving loan.............................................. Prime 1998 -- -- --
Real estate mortgage notes payable............................... 6.25%-12.0% 1996-2012 262 5,677 5,939
Small Business Administration debentures......................... 7.9%-10.7% 1999-2006 -- 4,220 4,220
Equipment financing.............................................. Various 1996-2000 1,023 2,427 3,450
$ 1,285 $87,324 $88,609
<FN>
In March 1994, the Company issued $75,000,000 principal amount of 10.25% senior subordinated
notes (the "Notes") due March 15, 2004. The proceeds received from the sale of the Notes, net of offering
costs of $2,298,000, were used to repay the entire outstanding indebtedness under the previous bank term
loan and bank revolving loan and to redeem in full the Company's 14.25% subordinated debentures due
November, 2000. In connection with this transaction, the Company paid a premium of 2.8%, or $761,000,
related to the redemption of the 14.25% subordinated debentures and recorded a charge of $844,000 representing
the write-off of the remaining deferred financing costs related to the indebtedness repaid.
The Company accounted for the total of the premium paid and the charge for deferred financing costs as an
extraordinary loss of $928,000, net of related income tax benefit of $677,000, in the fiscal year ended January 29,1994.
The Notes are redeemable, at the option of the Company, after March 15, 1999 at rates starting at 104.75% of principal
amount reduced annually through March 15, 2002 at which time they become redeemable at 100% of principal
amount. The terms of the Notes may restrict, among other things, the payment of dividends and other distributions,
investments, the repurchase of capital stock and the making of certain other restricted payments by the Company
and its subsidiaries, the incurrence of additional indebtedness and new operating lease obligations by the Company
or any of its subsidiaries, and certain mergers, consolidations and dispositions of assets. Additionally, according
to the terms of the Notes, if a change of control occurs, as defined, each holder of Notes will have the right to
require the Company to repurchase such holder's Notes at 101% of the principal amount thereof.
In connection with the sale of the Notes and the repayment of the indebtedness referred to above, the Company entered
into a senior revolving credit facility (the "Facility") with a group of banks which provided for the availability of up to
$30,000,000 in revolving credit loans reduced by outstanding letters of credit not to exceed $15,000,000 in the aggregate.
As of January 28, 1995, the Company had no outstanding revolving credit loans under the Facility, but did have $13.1 million
of letters of credit outstanding thereunder. Subsequent to January 28, 1995, management finalized an amendment to the
Facility. Under the terms of the amended Facility, the Company has temporarily reduced the total availability to $20.0
million with $15.0 million available for the issuance of letters of credit. As of the date of the amendment, the Company
had no outstanding revolving credit loans under the Facility, but did have $12.9 million of letters of credit outstanding
thereunder. The outstanding balance of any revolving credit loans is due and payable on May 31, 1996. Revolving credit
loans under the amended Facility bear interest at prime and the Company must also pay a commitment fee of 1/2% on any
unused portion of the amended Facility. Among other restrictions, the amended Facility contains financial covenants
relating to specified levels of: earnings before interest expense, rent and taxes to interest expense and rent; cash
flows from operations and proceeds from sales of assets and equity offerings, as defined, to interest expense, capital
expenditures and current maturities of long-term debt; indebtedness to earnings before interest expense, taxes,
depreciation and amortization; as well as the maintenance of a minimum net worth. In connection with the amended
Facility, the Company pledged as collateral the capital stock of and any loans to certain subsidiary corporations of
the Company and, may upon the occurrence of certain events, pledge as collateral additional assets of the Company and
its subsidiary corporations. The Company is restricted from paying any dividends and from repurchasing its capital
stock by applicable covenants contained in the amended Facility.
As of January 28, 1995 and January 29, 1994, the fair value of the bank revolving loan, real estate mortgage notes
payable and Small Business Administration debentures approximated the carrying amount. As of January 28, 1995, the
fair value of the Notes was approximately $56,250,000.
</FN>
<CAPTION>
As of January 28, 1995, maturities on long-term debt for the next five years are as follows:
January 28,
Fiscal Year 1995
(in thousands)
<S> <C>
1996 .......................................................................... $1,285
1997 .......................................................................... 1,059
1998 .......................................................................... 1,066
1999 .......................................................................... 1,928
2000 .......................................................................... 3,922
F-8
</TABLE>
<PAGE>
<TABLE>
5. Leases:
The Company leases operating properties, including store locations and office space, under various lease agreements expiring
through 2015. Certain of these locations are sublet to the Company's franchisees. Subsequent to fiscal 1995, the Company
entered into sale and leaseback transactions for the real estate of sixteen store locations. The future minimum lease
payments related to these properties (see Note 13) are not included in the following summary.
A summary of future minimum lease payments and sublease receipts as of January 28, 1995 is as follows:
<CAPTION>
Net
Capital Operating Operating Operating
Payable/Receivable in Fiscal Year Ending Leases Leases Subleases Leases
(in thousands)
<S> <C> <C> <C> <C>
1996........................................................................ $452 $13,913 $2,758 $11,155
1997........................................................................ 417 11,273 1,911 9,362
1998........................................................................ 364 8,487 1,373 7,114
1999........................................................................ 261 5,978 746 5,232
2000........................................................................ 226 4,008 168 3,840
Thereafter.................................................................. 583 9,403 129 9,274
Total minimum............................................................... 2,303 $53,062 $7,085 $45,977
Less amounts representing interest and executory costs...................... 644
Present value of minimum lease payments..................................... $1,659
<CAPTION>
Rental expense for all operating leases was as follows:
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Leases...................................................................... $15,321 $14,803 $15,573
Less subleases.............................................................. 4,631 4,396 4,659
Net......................................................................... $10,690 $10,407 $10,914
F-9
</TABLE>
<PAGE>
<TABLE>
6. Federal and State Income Taxes:
The Company adopted the provisions of SFAS No. 109 effective February 2, 1992 and recorded a charge in
fiscal 1993 of $3,951,000 which decreased earnings per share by $.73 for the cumulative effect of this change
in accounting principle. The Company also adjusted the carrying value of certain assets and recorded additional
depreciation and amortization expense of $452,000 in fiscal 1993 as a result of this change.
The (benefit from) provision for income taxes for the fiscal years ended January 28, 1995, January 29, 1994 and
January 30, 1993 was as follows:
<CAPTION>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Current (benefit) provision
Federal................................................................................... $ (2,015) $ 188 $ 1,309
State and local........................................................................... 346 447 440
Total current (benefit) provision....................................................... (1,669) 635 1,749
Deferred (benefit) provision
Federal................................................................................... (3,423) (115) (3,118)
State and local........................................................................... (1,737) 111 (529)
Total deferred (benefit) provision...................................................... (5,160) (4) (3,647)
Total (benefit) provision .................................................................. $ (6,829) $ 631 $ (1,898)
<FN>
The Company is subject to minimum state taxes in excess of statutory state income taxes in many of the
states in which it operates. These minimum taxes are included in the current provision for state and local income
taxes. In addition, the Company records a reduction in the provision for income taxes for the benefit to be
realized from targeted jobs credits in the year in which they arise. A reconciliation of the difference between
the statutory federal income tax rate and the effective income tax rate follows:
</FN>
<CAPTION>
Percent of Pretax Income
1995 1994 1993
<S> <C> <C> <C>
Statutory federal income tax rate........................................................... (34)% 34 % (34)%
Increase (decrease) from:
State income tax (benefit) provision, net of federal tax effect........................... (5) 24 (1)
Nondeductible depreciation and amortization of acquired assets............................ 1 8 2
Targeted jobs credit...................................................................... (2) (27) (7)
Regulatory audit settlement............................................................... 2 - -
Other..................................................................................... - 3 -
Effective income tax rate................................................................... (38)% 42 % (40)%
F-10
<FN>
In November 1994, the Company reached agreement with the Internal Revenue Service to settle certain
disputed items, primarily related to the deductibility of certain intangible assets associated with prior
acquisitions. As a result of the settlement, the Company was required to pay $906,000 of federal and state
income taxes and $681,000 of related pre-tax interest charges, and to reduce the deductibility of the remaining
basis of certain intangible assets by $3,300,000. The Company has reflected the income tax impact of this
settlement through the current year tax provision and adjusted deferred tax assets and liabilities accordingly.
Deferred tax assets and liabilities are determined based on the difference between the financial statement and
tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are
expected to reverse. Significant deferred tax assets (liabilities) as of January 28, 1995 and January 29, 1994
were as follows:
</FN>
<CAPTION>
1995 1994
(in thousands)
<S> <C> <C>
Capitalized leases.................................................................................. $ 182 $ 269
Depreciation and amortization....................................................................... (13,337) (12,142)
Vacation accrual.................................................................................... 310 314
Inventory (LIFO).................................................................................... (1,582) (1,622)
Reserve for asset valuations........................................................................ 744 982
Insurance reserves not deductible for tax purposes.................................................. 2,091 1,245
Income deferred for financial statement purposes.................................................... 127 955
Reserve for closed stores and renovations........................................................... 1,649 613
Accrued restructuring and severance reserves........................................................ 607 149
Loss on extinguishment of debt...................................................................... -- 677
Financial statement expenses deferred for tax purposes.............................................. 477 --
Writedown of non-operating properties............................................................... 1,455 --
Divestiture of dairy manufacturing and distribution operations...................................... 997 --
Tax credits and net operating loss carryforwards.................................................... 6,272 3,581
Other............................................................................................... 447 258
Net deferred tax asset (liability).................................................................. $ 439 $ (4,721)
<FN>
As of January 28, 1995, the Company had alternative minimum tax credits aggregating $1,292,000 which
carryforward indefinitely for federal income tax purposes. These credits can be used in the future to the extent
that the Company's regular tax liability exceeds its liability calculated under the alternative minimum tax method.
In addition, the Company had $1,794,000 of targeted jobs credit carryforwards that expire from fiscal 2007 to 2010
and $411,000 of foreign tax credit carryforwards that expire in fiscal 1997 to 2000. The Company and its subsidiaries
file a consolidated federal income tax return but generally file separate state income tax returns. As of January 28,
1995, the Company had regular federal income tax net operating loss carryforwards of $5,057,000 which expire,
if unused, from fiscal 2009 to 2010 and net operating loss carryforwards for state income tax purposes of
$15,994,000 which expire, if unused, from fiscal 1997 to 2010. No valuation allowance for deferred tax assets was
provided as of January 28, 1995 and January 29, 1994.
F-11
</FN>
</TABLE>
<PAGE>
<TABLE>
7. Capital Stock:
An analysis of the capital stock accounts is as follows:
<CAPTION>
Common Stock
Class A shares Class B shares Paid-in capital
issued at $.01 issued at $.01 in excess of
par value par value Amount par value
<S> <C> <C> <C> <C>
Balance February 1, 1992....................................... 3,085,459 2,973,693 $60,593 $26,730,616
Employee stock options exercised............................... 70,313 -- 703 389,518
Employee stock purchase plan................................... 15,655 -- 157 91,672
Exchange of Class B shares for Class A shares.................. 2,375 (2,375) - --
Balance January 30, 1993....................................... 3,173,802 2,971,318 61,453 27,211,806
Employee stock options exercised............................... 2,812 49,697 525 149,053
Employee stock purchase plan................................... 27,115 -- 271 122,190
Exchange of Class B shares for Class A shares.................. 65,000 (65,000) - --
Balance January 29, 1994....................................... 3,268,729 2,956,015 62,249 27,483,049
Employee stock options exercised............................... 750 6,000 68 27,870
Employee stock purchase plan................................... 20,919 -- 209 68,797
Exchange of Class B shares for Class A shares.................. 62 (62) - --
Balance January 28, 1995....................................... 3,290,460 2,961,953 $62,526 $27,579,716
<FN>
Dividends may be declared and paid on Class A Common Stock without being paid on Class B Common Stock.
No dividend may be paid on Class B Common Stock without equal amounts paid concurrently on Class A Common
Stock. Holders of Class A Common Stock have one-tenth vote per share and are entitled to elect 25% of the
Board of Directors so long as the number of outstanding shares of Class A Common Stock is at least 10% of
the total of all shares of Common Stock outstanding. Holders of Class B Common Stock have one vote per
share. Holders of Class B Common Stock have the right to convert their shares at any time for an equivalent
number of shares of Class A Common Stock.
In June 1986, the stockholders approved an Employee Stock Purchase Plan. The plan, as amended in June,
1992, provides that employees may purchase quarterly, through payroll deductions, up to 250 shares of Class A
Common Stock at 85% of the market value. Of the original 1,250,000 shares provided for under this plan,
1,068,886 shares remained available for issuance as of January 28, 1995.
As of January 28, 1995, January 29, 1994 and January 30, 1993, the Company held 521,625 shares of Class A
Common Stock and 175,957 shares of Class B Common Stock as treasury shares.
F-12
</FN>
</TABLE>
<PAGE>
<TABLE>
8. Stock Option Plans:
The Company adopted Stock Option Plans in 1983, 1985 and 1990 providing for the granting of options to employees of
up to an aggregate of 226,875 shares of Class B Common Stock and 750,000 shares of Class A Common Stock.
The Company granted incentive stock options pursuant to these Plans totalling 158,363, 100,500 and 10,000
in fiscal 1995, 1994 and 1993, respectively. At January 28, 1995, the Company had available for grant under these
Plans options to purchase 174,875 shares of Class A Common Stock, after considering the lapse of options
previously granted and the expiration of the 1983 Plan. In addition to the incentive stock options granted under
the above Plans, the Company has granted non-qualified stock options, including 160,500 in fiscal 1995, which
are not part of a specific plan. A summary of activity for all stock options during the fiscal year ended January 28,
1995 is as follows:
<CAPTION>
Options Net Options Options Options
Outstanding Options Exercised Outstanding Exercisable
Plan or Fiscal Stock Option January 29, Granted During January 28, January 28,
Year Type Price 1994 (Lapsed) Fiscal 1995 1995 1995
<S> <S> <S> <C> <C> <C> <C> <C>
Incentive Stock Options:
1983 Plan ....... Class B $5.50 37,800 (32,550) -- 5,250 5,250
1985 Plan ....... Class A $2.75 to $2.88 359,750 25,125 (750) 384,125 185,113
1990 Plan ....... Class A $2.75 to $2.88 213,125 (79,062) -- 134,063 101,875
Total Incentive Stock Options 610,675 (86,487) (750) 523,438 292,238
Non-qualified Stock Options:
1986 ............ Class B $ 4.00 12,750 -- (6,000) 6,750 6,750
1987 ............ Class A $ 8.80 10,000 -- -- 10,000 10,000
1991 ............ Class A $ 4.60 5,000 -- -- 5,000 5,000
1995 ............ Class B $ 5.50 -- 10,000 -- 10,000 10,000
1995 ............ Class A $4.00 to $7.25 -- 150,500 -- 150,500 140,000
Total Non-qualified Stock Options 27,750 160,500 (6,000) 182,250 171,750
Total Stock Options 638,425 74,013 (6,750) 705,688 463,988
</TABLE>
<PAGE>
<TABLE>
9. Gasoline Operations:
A summary of gasoline operations for the years ended January 28, 1995, January 29, 1994 and January 30, 1993 is as follows:
<CAPTION>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Gasoline gallons sold.......................................................... 206,441 206,365 196,703
Gasoline revenues.............................................................. $210,541 $206,155 $202,751
Cost of gasoline sold.......................................................... 186,462 180,835 182,774
Depreciation................................................................... 2,091 2,025 1,916
Capital expenditures........................................................... 3,702 952 2,128
Net book value of gasoline equipment........................................... 13,068 11,300 12,373
<PAGE>
10. Employee Benefit Plans:
The Company provides benefits to qualified employees through a defined contribution profit sharing plan. Contributions under this
plan are made annually in amounts determined by the Company's Board of Directors. The Company recorded a provision for contributions
under this plan of $-0-, $100,000 and $100,000 for fiscal 1995, 1994 and 1993, respectively.
Effective January 1, 1993, the profit sharing plan was amended pursuant to section 401(k) of the Internal Revenue Code enabling
eligible employees to contribute up to 15% of their annual compensation to the plan, with the Company matching 25% of such
contributions up to 6% of the employees' annual compensation. Matching contributions from the Company for fiscal 1995 and fiscal
1994 were $163,000 and $181,000, respectively. The Company does not offer any additional postretirement and postemployment benefits
to its employees.
F-13
<PAGE>
11. Commitments & Contingencies:
As of January 28, 1995, the Company is contingently liable for outstanding letters of credit amounting to $13,074,000. The Company
is also contingently liable as guarantor on certain loans obtained by convenience store operators to finance the purchase of
equipment and initial inventory in the approximate amount of $470,000 as of January 28, 1995. In consideration of these guarantees,
the Company participates with the lending institutions in the interest paid on these obligations which are secured by inventory and
equipment owned by the convenience store operators.
The Company has certain environmental contingencies related to the ongoing costs to comply with federal, state and local
environmental laws and regulations, including costs for assessment, compliance, remediation and certain capital expenditures related
to its gasoline operations. In the ordinary course of business, the Company is involved in environmental assessment and remediation
activities with respect to releases of regulating substances from existing and previously operated retail gasoline facilities. The
Company accrues its estimate of all costs to be incurred for assessment and remediation for known releases. These accruals are
adjusted if and when new information becomes known. Due to the nature of such releases, the actual costs of assessment and
remediation may vary significantly from year to year. As of January 28, 1995, the Company had recorded an accrual of $2,302,000 for
such costs. The Company is entitled to reimbursements of a portion of the above costs from various state environmental trust funds
based upon compliance with the terms and conditions of such funds. As of January 28, 1995, the Company had recorded a reimbursement
receivable of $1,031,000. Additionally, under current federal and state regulatory programs, the Company will be obligated by
December, 1998 to upgrade or replace most of its existing underground storage tanks ("USTs"). The Company presently estimates that
it will be required to make capital expenditures related to the upgrading or replacing of USTs ranging from approximately $12.0 to
$16.0 million in the aggregate through December, 1998, which capital expenditures could be reduced for locations which may be closed
in lieu of the capital costs of compliance. The Company's estimate of costs to be incurred for environmental assessment and
remediation and for UST upgrading and other regulatory compliance are based on factors and assumptions that could change due to
modifications of regulatory requirements, detection of unanticipated environmental conditions or other unexpected circumstances.
In fiscal 1989, the Company entered into agreements for the wholesale supply of various grocery items to its Northeast and Midwest
region stores. Under the supply agreement, the Company is obligated to annually purchase a minimum amount of merchandise for a
period of ten years. The level of purchases was achieved during the first seven years of the agreement and management believes it
is readily achievable for the balance of the agreement. Prices to be charged by the supplier must be competitive.
The Company is party to an employment agreement with the Chairman of the Board of the Company for a five year term that began on
February 2, 1992 and ends on January 31, 1997, unless terminated earlier. Under the employment agreement, the Chairman receives an
annual salary of $500,000, payable in installments according to the Company's normal compensation policy, plus customary fringe
benefits. Certain of the Company's officers have agreements with the Company that provide for severance payments under certain
circumstances.
The Company is party to a number of lawsuits which have arisen in the ordinary course of business. Management, based upon
consultation with legal counsel, does not believe the outcome of this litigation will have a material impact on the Company's future
results of operations or financial position.
F-14
</TABLE>
<PAGE>
<TABLE>
12. Nonrecurring Charges:
A summary of nonrecurring charges for fiscal years ended January 28, 1995, January 29, 1994 and January 30, 1993 is as follows:
<CAPTION>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Regulatory and financing fees and expenses.............................................. $ 1,216 $ - $ -
Administrative severance, settlement and related costs.................................. 2,800 - 5,200
Costs to divest of dairy manufacturing and distribution operations...................... 2,500 - -
Writedown of non-operating properties to net realizable value........................... 3,584 - -
Costs of store closings................................................................. 3,900 - -
Total nonrecurring charges......................................................... $ 14,000 $ - $ 5,200
<FN>
During fiscal 1995, the Company incurred $535,000 in nonrecurring duplicative interest expense and in financing fees
associated with the Company's financing activities. Interest expense, net of interest income, and fees were increased due to
the issuance of the Company's 10.25% senior subordinated notes on March 3, 1994, the retirement of
the Company's 14.25% subordinated debentures on April 4, 1994 and a subsequent amendment of the
Company's senior revolving credit facility (see Note 4). In addition, the Company reached agreement with the
Internal Revenue Service to settle certain disputed items. The terms of the settlement required the Company to pay
$681,000 of interest charges (see Note 6).
During fiscal 1995, the Company recorded nonrecurring charges of $2,800,000 for costs, including legal expenses,
associated with the removal of the Company's former President and Chief Executive Officer by the Board of Directors,
and the settlement of legal disputes arising therefrom and severance and other personnel related costs associated
with a reduction in other administrative support positions by the Company.
During fiscal 1993, the Company recorded a nonrecurring charge of $5,200,000 relating to severance, relocation and
other personnel related costs associated with the downsizing and consolidation of the Company's three administrative
offices into its Corporate headquarters facility in Enfield, Connecticut.
During fiscal 1995, the Company recorded a nonrecurring charge of $2,500,000 for severance and other disposal
related costs associated with the sale and subsequent closing of its dairy manufacturing and distribution operations
(see Note 13).
During fiscal 1995, the Company recorded a nonrecurring charge of $3,584,000 for the writedown of non-operating
office and plant facilities to net realizable value in conjunction with the anticipated sale of these properties.
During fiscal 1995, the Company recorded a nonrecurring charge of $3,900,000 for costs associated with the sale
or closing of 143 of its retail convenience stores and the closing of 81 of its retail gasoline facilities. The decision to
close these stores resulted from a reevaluation of the Company's existing store base and exceeded the level of store
closings normally incurred by the Company. Such costs relate, in part, to disposal of equipment, inventory and leases
associated with closed stores, costs associated with the termination of certain franchise agreements and the removal of
underground storage tanks associated with the closed gasoline facilities.
</FN>
<PAGE>
13. Subsequent Events:
In March 1995, the Company entered into a sale and leaseback of the real estate at sixteen convenience store locations operated or
franchised by the Company. The sale transaction generated net cash proceeds of approximately $7,800,000, net of closing costs,
which approximates the net book value of the properties as held for sale as of January 28, 1995. The leaseback transaction requires
monthly base rental payments of approximately $79,000, beginning in April 1995, for a fifteen year term. Over the lease term, the
monthly base rental payment may be adjusted at the beginning of the fourth, eighth and twelfth year, based on increases in the
Consumer Price Index, but limited to a maximum increase of 6%, 8% and 8% at each adjustment period, respectively. In addition, the
lease agreement contains three five-year options, exercisable by the Company. The Company retired a $200,000 real estate mortgage
note, included in long-term debt as of January 28, 1995, in order to complete the sale and leaseback transaction.
Also, in March 1995, the Company finalized the sale of a former administrative office building located in Enfield, Connecticut, for
$381,000. During fiscal 1995, the carrying value of the building was reduced by $665,000 to reflect the net realizable value of the
property (See Note 12).
In April 1995, the Company entered into agreements to sell its dairy manufacturing and distribution operations in Cuyahoga Falls,
Ohio, and Enfield, Connecticut. In conjunction with these agreements, the Company has entered into long-term marketing and supply
agreements to purchase milk and dairy products, using the Company's private label, at competitive prices. As part of the
divestiture of the dairy manufacturing and distribution operations, the Company recorded nonrecurring charges in fiscal 1995 as
follows: $2,500,000 for disposal of equipment and employee severance and other personnel related costs and $2,919,000 for the
writedown of non-operating office and plant facilities to net realizable value (See Note 12). The Company will retire a $252,000
equipment financing note, of which $178,000 was included in long-term debt as of January 28, 1995, in order to complete the
transaction.
F-15
</TABLE>
<PAGE>
EXHIBITS TO FORM 10-K
DAIRY MART CONVENIENCE STORES, INC.
FOR THE FISCAL YEAR ENDED JANUARY 28, 1995
<PAGE>
EXHIBITS INDEX
Exhibit Number:
(3) Articles of Incorporation and Bylaws.
(3.1) The Company's Restated Certificate of
Incorporation, as amended, was filed as
Exhibit 3.1 to the Company's Form 10-K for
the fiscal year ended February 1, 1992 and
is incorporated herein by reference.
(3.2) The Company's Amended and Restated Bylaws are
filed as Exhibit 3.2 attached hereto.
(4) Instruments defining the rights of security
holders, including indentures.
(4.1) The instruments defining the rights of the
holders of the Company's Common Stock include
the Company's Restated Certificate of
Incorporation and Amended and Restated Bylaws,
filed as Exhibits 3.1 and 3.2 hereto, and those
instruments filed as Exhibit 4.1 of the
Company's Registration Statement on Form S-1
(Registration No. 33-639) dated November 5,
1985, which are incorporated herein by
reference.
(4.2) The instrument defining the rights of the holders
of the Company's 10.25% Senior Subordinated Notes
due 2004 is the Indenture dated March 3, 1994,
among the Company, Society National Bank, as
trustee, and certain other parties, which was
filed as Exhibit 4.1 to the Company's Form 10-K
for the fiscal year ended January 29, 1994, and is
incorporated herein by reference.
(10) Material Contracts.
(10.1) Amended Credit Agreement dated as of May 12, 1995
among the Company, Fleet Bank, National
Association and Society National Bank is filed as
Exhibit 10.1 attached hereto.
(10.2) 1985 Incentive Stock Option Plan, as amended, and
form of Incentive Stock Option Agreement, were
filed as Exhibit 10.4 to the Company's annual
report on Form 10-K for the fiscal year ended
January 30, 1988, and are incorporated herein by
reference.
<PAGE>
(10.3) 1983 Incentive Stock Option Plan and form of
Incentive Stock Option Agreement thereunder were
filed as Exhibits 4.1 and 4.2, respectively, to
the Company's Registration Statement on Form S-8
(File No. 33-8209) filed on August 26, 1986, and
are incorporated herein by reference.
(10.4) 1990 Stock Option Plan and forms of qualified and
non-qualified stock option agreements thereunder
were filed as Exhibit 10.4 to the Company's Form
10-K for the fiscal year ended February 2, 1991,
and are incorporated herein by reference.
(10.5) Employment Agreement between the Company and
Charles Nirenberg, dated December 5, 1991, was
filed as Exhibit 10.5 to the Company's annual
report on Form 10-K for the fiscal year ended
February 1, 1992, and is incorporated herein by
reference.
(10.6) 1995 Stock Option Plan for Outside Directors is
filed as Exhibit 10.6 attached hereto.
(10.7) Agreement regarding employment matters dated
September 16, 1994 between the Company and Gregory
G. Landry is filed as Exhibit 10.7 attached
hereto.
(10.8) Agreement regarding employment matters dated
September 16, 1994 between the Company and Robert
B. Stein, Jr. is filed as Exhibit 10.8 attached
hereto.
(10.9) Agreement regarding employment matters dated
September 16, 1994 between the Company and
Mitchell J. Kupperman is filed as Exhibit 10.9
attached hereto.
(10.10) Settlement agreement dated January 27, 1995
between the Company and Frank Colaccino is filed
as Exhibit 10.10 attached hereto.
(21) Subsidiaries of the Registrant is attached hereto
as Exhibit 21.
(23) Consent of Arthur Andersen & Co. to the
incorporation of their reports included in this
Form 10-K, into the Company's previously field
Registration Statements on Forms S-8, is attached
hereto as Exhibit 23.
(27) Financial Data Schedule is filed as Exhibit 27
attached hereto.
<PAGE>
<PAGE>
EXHIBIT (3.2)
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
DAIRY MART CONVENIENCE STORES, INC.
(A Delaware Corporation)
ARTICLE I
Offices
Section 1. Principal Office in Connecticut. The
principal office of DAIRY MART CONVENIENCE STORES, INC. (the
"Corporation") in the State of Connecticut shall be in the Town
of Enfield, County of Hartford.
Section 2. Registered Office in Delaware. The
Corporation shall have and maintain a registered office in the
State of Delaware as required by Delaware law.
Section 3. Other Offices. The Corporation may have a
principal or other office at such other place or places, either
within or without the State of Connecticut or Delaware, as the
Board of Directors may from time to time determine or as shall be
necessary or appropriate for the conduct of the business of the
Corporation.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meetings. All annual and special
meetings of stockholders shall be held at such place or places,
within or without the State of Delaware, as may from time to time
be called and fixed solely by the Board of Directors in
accordance with these Bylaws, or as shall be specified in the
respective notices or waivers of notice thereof.
Section 2. Annual Meetings. Each annual meeting of
stockholders for the election of directors and the transaction of
other business shall be held on the second Thursday of June, in
each year, and shall be called solely by order of the Board of
Directors. If this date shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At
each annual meeting the stockholders entitled to vote shall elect
a Board of Directors and may transact such other corporate
business as may be brought before the meeting.
If the election of directors shall not be held on the day
designated herein for the annual meeting, or at any adjournment
thereof, the Board of Directors shall cause a special meeting of
the stockholders for the election of directors to be held as soon
thereafter as may be convenient. At such special meeting the
stockholders may elect directors and transact other business with
<PAGE>
the same force and effect as at an annual meeting of the
stockholders duly called and held.
Section 3. Special Meetings. A special meeting of the
stockholders (or of any class thereof entitled to vote at a
special meeting) for any purpose or purposes may be called at any
time solely by order of the Board of Directors. No stockholder,
in its, his, or her capacity as a stockholder, may call a special
meeting of the stockholders. The record date for any special
meeting of the stockholders shall be set solely by order of the
Board of Directors.
Section 4. Notice of Meetings. Except as otherwise
expressly required by law, notice of each meeting of
stockholders, whether annual or special, shall be given at least
ten (10) days before the date on which the meeting is to be held
to each stockholder of record entitled to vote thereat by
delivering a notice thereof to him personally or by mailing such
notice in a postage prepaid envelope directed to him at his
address as it appears on the stock ledger of the Corporation,
unless he shall have filed with the Secretary of the Corporation
a written request that notices intended for him be directed to
another address, in which case such notice shall be directed to
him at the address designated in such request. Every notice of a
special meeting of the stockholders, besides stating the time and
place of the meeting, shall state briefly the objects or purposes
thereof. Notices of any meeting of stockholders shall not be
required to be given to any stockholder who shall attend such
meeting in person or by proxy; and, if any stockholder shall, in
person or by attorney thereunto authorized, in writing or by
telegraph, cable or wireless, waive notice of any meeting of the
stockholders, whether prior to or after such meeting, notice
thereof need not be given to him. Notice of any adjourned meeting
of the stockholders shall not be required to be given, except as
expressly required by law.
Section 5. List of Stockholders. It shall be the duty of
the Secretary or other officer of the Corporation who shall have
charge of the stock ledger to prepare and make, at least ten (10)
days' before every election of directors, a complete list of the
stockholders entitled to vote thereat, arranged in alphabetical
order, and showing the address of each stockholder and the number
of shares registered in his name. Such list shall be open for ten
(10) days' at the place where said election is to be held or at
some other specified place within the Town of Enfield, State of
Connecticut to the examination of any stockholder during ordinary
business hours and shall be produced and kept at the time and
place of the election during the whole time thereof and subject
to the inspection of any stockholder who may be present. The
original or duplicate stock ledger shall be the only evidence as
to who are the stockholders entitled to examine such list or the
<PAGE>
books of the Corporation or to vote in person or by proxy at such
election.
Section 6. Quorum. At each meeting of the stockholders,
the holders of record of (i) a majority of the voting power of
the issued and outstanding stock of all classes of the
Corporation entitled to vote at such meeting, present in person
or by proxy, shall constitute a quorum for the transaction of
business, with respect to those matters as to which all classes
of stock vote together, and (ii) one-third (1/3) of the issued
and outstanding stock of any class of stock of the Corporation
entitled to vote at such meeting, present in person or by proxy,
shall constitute a quorum for the transaction of business with
respect to those matters as to which such class is entitled (by
law, the Certificate of Incorporation or these Bylaws) to vote
separately from all other classes, except where otherwise
provided by law, the Certificate of Incorporation or these
Bylaws. In the absence of a quorum, any officer entitled to
preside at, or act as Secretary of, such meeting shall have the
power to adjourn the meeting from time to time until a quorum
shall be constituted. At any such adjourned meeting at which a
quorum shall be present any business may be transacted which
might have been transacted at the meeting as originally called,
but only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment
or adjournments thereof.
Section 7. Voting. Except as otherwise provided in the
Certificate of Incorporation, at every meeting of stockholders
each holder of record of the issued and outstanding stock of the
Corporation entitled to vote at such meeting shall be entitled to
one vote in person or by proxy for each such share of stock
entitled to vote held by such stockholder, but no proxy shall be
voted after three (3) years from its date unless the proxy
provides for a longer period, and, except where the transfer
books of the Corporation shall have been closed or a date shall
have been fixed as the record date for the determination of
stockholders entitled to vote, no share of stock shall be voted
on at any election for directors which shall have been
transferred on the books of the Corporation within twenty (20)
days next preceding such election of directors. Shares of its own
capital stock belonging to the Corporation directly or indirectly
shall not be voted upon directly or indirectly. At all meetings
of the stockholders, a quorum being present, all matters shall be
decided by majority vote of the shares of stock entitled to vote
held by stockholders present in person or by proxy, except as
otherwise required by the laws of the State of Delaware. Unless
demanded by a stockholder of the Corporation present in person or
by proxy at any meeting of the stockholders and entitled to vote
thereat or so directed by the Chairman of the meeting or required
by the laws of the State of Delaware, the vote thereat on any
question need not be by ballot. Unless otherwise provided in the
<PAGE>
Certificate of Incorporation, all elections of directors shall be
by ballot. On a vote by ballot, each ballot shall be signed by
the stockholder voting, or in his name by his proxy, if there be
such proxy, and shall state the number of shares voted by him and
the number of votes to which each share is entitled.
Unless otherwise provided in the Certificate of
Incorporation, any action required or permitted to be taken at
any annual or special meeting of the stockholders of the
Corporation may be taken without a meeting, without prior notice
and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of the
minimum number of shares of outstanding stock that would be
necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Such
consent or consents shall be delivered to the Corporation by
delivery to its registered office in Delaware, its principal
place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered
mail, return receipt requested. Prompt notice of the taking of
corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not
consented in writing.
Section 8. Advance Notice of Stockholder Business. At an
annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting.
To be properly brought before an annual meeting, business must be
(a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors,
(b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly
brought before the meeting by a stockholder of record. For
business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the Corporation,
not less than sixty (60) days nor more than ninety (90) days
prior to the meeting; provided, however, that if both (i) fewer
than seventy (70) days Advance Notice of the meeting is given to
stockholders, and (ii) such meeting is held more than thirty (30)
days before or after the corresponding date of the annual meeting
held in the preceding year, then such written notice shall be
received not later than the close of the tenth day following the
day on which notice of the meeting was mailed to stockholders. As
used in this Section 8, "Advance Notice" to the stockholders
shall be deemed to have been given on the date of any quarterly
report of the Corporation, letter to stockholders, press release
<PAGE>
or other communication to stockholders disclosing the date of the
next annual meeting and provided that the annual meeting is in
fact held on such date or within thirty (30) days after such
date. Any such Advance Notice would be in addition to, but not in
substitution for, the Notice of Meeting provided for in Section 4
above.
A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the
annual meeting: (a) a brief description of the business desired
to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (b) the name and
address, as they appear on the Corporation's books, of the
stockholder proposing such business, (c) the class and number of
shares of stock of the Corporation of which the stockholder is
the Beneficial Owner (as that term is defined in the Certificate
of Incorporation of the Corporation), and (d) any material
interest of the stockholder in such business. Notwithstanding
anything in the By-Laws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the
procedures set forth in this Section 8. The Chairman of the
annual meeting shall, if the facts warrant, determine and declare
to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 8, and
if he should so determine, he shall so declare to the meeting and
any such business not properly brought before the meeting shall
not be transacted.
Notwithstanding the provisions of this Section 8, notice of
stockholder nominations of persons for election as directors
shall be as set forth in the Certificate of Incorporation.
ARTICLE III
Board of Directors
Section 1. General Powers. The property, business and
affairs of the Corporation shall be managed by the Board of
Directors.
Section 2. Number and Term of Office. The number of
directors shall be fixed from time to time by resolution of the
Board of Directors but shall not be less than three (3).
Directors need not be stockholders. Each director shall hold
office until the annual meeting of the stockholders next
following his election and until his successors shall have been
elected and shall qualify, or until his death, resignation or
removal.
Section 3. Quorum and Manner of Acting. Unless otherwise
provided by law, the presence of one-third (1/3) of the whole
Board of Directors, and in any case not less than two (2)
directors, shall be necessary to constitute a quorum for the
transaction of business. In the absence of a quorum, a majority
<PAGE>
of the directors present may adjourn the meeting from time to
time until a quorum shall be present. Notice of any adjourned
meeting need not be given. At all meetings of the directors, a
quorum being present, all matters shall be decided by the
affirmative vote of a majority of the directors present, except
as otherwise required by the laws of the State of Delaware, and
except for the calling of any annual or special meeting of the
stockholders by the Board of Directors which shall require the
affirmative vote of a majority of the whole Board of Directors.
Section 4. Place of Meetings, Books and Records. The
Board of Directors may hold its meetings and keep the books and
records of the Corporation, at such place or places within or
without the State of Delaware, as the Board may from time to time
determine.
Section 5. Annual Meeting. As promptly as practicable
after each annual meeting of stockholders for the election of
directors, the Board of Directors shall meet for the purpose of
organization, the election of officers and the transaction of
other business. Notice of such meeting need not be given unless
at such meeting the Board of Directors shall or may consider the
calling of an annual or special meeting of the stockholders, in
which case, notice of the meeting of the Board of Directors shall
be given in accordance with Section 7 of this Article III. Such
meeting of the Board of Directors may be held at any other time
or place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors or in a
waiver of notice thereof signed by all the directors.
Section 6. Regular Meetings. Regular meetings of the
Board of Directors may be held at such time and place, within or
without the State of Delaware, as shall from time to time be
determined by the Board of Directors. After there has been such
determination, and notice thereof has been given to each member
of the Board of Directors, regular meetings may be held without
further notice being given, unless at any such meeting the Board
of Directors shall or may consider the calling of an annual or
special meeting of the stockholders, in which case, notice of the
meeting of the Board of Directors shall be given in accordance
with Section 7 of this Article III.
Section 7. Special Meetings and Notice Thereof. Special
meetings of the Board of Directors shall be held whenever called
by the Chairman of the Board, the President or by a majority of
the directors. Notice of each such meeting shall be mailed to
each director, addressed to him at his residence or usual place
of business, at least two (2) days before the date on which the
meeting is to be held, or shall be sent to him at such place by
telegraph, cable, radio or wireless, or be delivered personally
or by telephone, not later than the day before the day on which
<PAGE>
such meeting is to be held; provided, however, that notice of any
meeting shall be provided to each director as provided above not
less than ten (10) days before any meeting at which the calling
of any annual or special meeting of the stockholders shall or may
be considered. Each such notice shall state the time and place
of the meeting and the purpose thereof. In lieu of the notice to
be given as set forth above, a waiver thereof in writing, signed
by the director or directors entitled to said notice, whether
before or after the time stated therein, shall be deemed
equivalent thereto for purposes of this Section 7. No notice to
or waiver by any director with respect to any special meeting
shall be required if such director shall be present at said
meeting.
Section 8. Resignation. Any director of the Corporation
may resign at any time by giving written notice thereof to the
Chairman of the Board, the President or the Secretary of the
Corporation. The resignation of any director shall take effect
upon receipt of notice thereof or at such later time as shall be
specified in such notice; and, unless otherwise specified
therein, the acceptance of such resignation shall not be
necessary to make it effective. When one or more directors shall
resign from the Board, effective at a future date, a majority of
the directors then in office including those who have so resigned
shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations
shall become effective.
Section 9. Vacancies. Vacancies and newly created
directorships resulting form any increase in the authorized
number of directors may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole
remaining director, unless otherwise provided by the Certificate
of Incorporation or the laws of the State of Delaware.
Section 10. Removal. As provided in the Certificate of
Incorporation, any director, or the entire Board of Directors of
the Corporation, may be removed at any time, with or without
cause, only by the affirmative vote by the holders of two-thirds
(2/3) or more of the voting shares of the class or classes of
stock that elected the director to be removed; provided, however,
that such vote shall be taken at a meeting of the shareholders
called for the purpose of removing directors and such vote may
not be taken by the written consent of shareholders in lieu of a
meeting or otherwise than at a meeting.
Section 11. Compensation of Directors. Directors, as
such, shall not receive any stated salary for their services,
but, by resolution of the Board, a specific sum fixed by the
Board plus experience may be allowed for attendance at each
regular or special meeting of the Board or any committee thereof;
provided that nothing herein contained shall be construed to
<PAGE>
preclude any director from serving the Corporation or any
subsidiary thereof in any other capacity and receiving
compensation therefor.
Section 12. Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one
or more committees, each committee to consist of two or more
directors of the Corporation, which, to the extent provided in
the resolution or in these Bylaws, shall have and may exercise
such powers of the Board in the management of the business and
affairs of the Corporation (including the power to authorize the
seal of the Corporation to be affixed to all papers which may
require it), as the Board may by resolution determine and specify
in the respective resolutions appointing them, subject to such
restrictions as may be contained in the Certificate of Incorpor-
ation. Such committee or committees shall have such name or names
as may be determined from time to time by resolution adopted by
the Board of Directors. The committees shall keep regular minutes
of their proceedings and report the same to the Board when
required. A majority of all the members of any such committee may
fix its rules of procedure, determine its action and fix the time
and place, whether within or without the State of Connecticut, of
its meetings and specify what notice thereof, if any, shall be
given, unless the Board of Directors shall otherwise by resolu-
tion provide. The Board of Directors shall have power to change
the membership of any such committee at any time, to fill
vacancies thereon and to discharge any such committee, either
with or without cause, at any time. Each member of any such
committee shall be paid such fee, if any, as shall be fixed by
the Board of Directors for each meeting of such committee which
he shall attend and, in addition, such transportation and other
expenses actually incurred by him in going to the meeting of such
committee and returning therefrom as the Board of Directors shall
approve.
Section 13. Action Without Meeting. Any action required
or permitted to be taken at any meeting of the Board of Directors
or of any committee thereof may be taken without a meeting if
prior to such action a written consent thereto is signed by all
members of the Board or of such committee, as the case may be,
and such written consent is filed with the minutes or proceedings
of the Board or committee.
ARTICLE IV
Officers
Section 1. Number. The principal officers of the
Corporation shall be a Chairman of the Board, a President, one or
more Vice Presidents, a Treasurer and a Secretary. The
Corporation may also have, at the discretion of the Board of
Directors, such other officers as may be appointed in accordance
with the provisions of these Bylaws. One person may hold the
<PAGE>
offices and perform the duties of any two or more of said
offices, except the offices and duties of President and
Secretary.
Section 2. Election or Appointment and Term of Office.
The principal officers of the Corporation shall be chosen
annually by the Board of Directors at the annual meeting thereof.
Each such officer shall hold office until his successor shall
have been duly chosen and shall qualify, or until his death or
until he shall resign or shall have been removed in the manner
hereinafter provided.
Section 3. Subordinate Officers. In addition to the
principal officers enumerated in Section 1 of this Article IV,
the Corporation may have one or more Assistant Treasurers, one or
more Assistant Secretaries and such other officers, agents and
employees as the Board of Directors may deem necessary, each of
whom shall hold office for such period, have such authority, and
perform such duties as the Chairman of the Board, the President,
or the Board of Directors may from time to time determine. The
Board of Directors may delegate to any principal officer the
power to appoint and to remove any such subordinate officers,
agents or employees.
Section 4. Removal. Any officer may be removed, either
with or without cause, at any time, by resolution adopted by the
Board of Directors at any regular meeting of the Board or at any
special meeting of the Board called for that purpose at which a
quorum is present.
Section 5. Resignations. Any officer may resign at any
time by giving written notice to the Chairman of the Board or to
the Board of Directors or to the President or to the Secretary.
Any such resignation shall take effect upon receipt of such
notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 6. Vacancies. A vacancy in any office may be
filled for the unexpired portion of the term in the manner
prescribed in these Bylaws for election or appointment to such
office for such term.
Section 7. Chairman of the Board. The Chairman of the
Board shall preside at all meetings of stockholders and at all
meetings of the Board of Directors. He shall perform such other
duties and have such other powers as the Board of Directors may
from time to time prescribe.
Section 8. President. The President shall be the chief
executive officer of the Corporation and as such shall have
general supervision of the affairs of the Corporation, subject to
<PAGE>
the control of the Board of Directors. He shall be ex officio a
member of all standing committees. In the absence of the Chairman
of the Board the President shall preside at all meetings of
stockholders and at all meetings of the Board of Directors.
Subject to the control and discretion of the Board of Directors,
the President may enter into any contract or execute and deliver
any instrument in the name and on behalf of the Corporation. In
general, he shall perform all duties incident to the office of
President, as herein defined, and all such other duties as from
time to time may be assigned to him by the Board of Directors.
Section 9. Vice Presidents. The Vice Presidents in the
order of their seniority, unless otherwise determined by the
Board of Directors, shall, in the absence or disability of the
President, perform the duties and exercise the powers of the
President. They shall perform such other duties and have such
other powers as the Chairman of the Board, the President or the
Board of Directors may from time to time prescribe.
Section 10. Treasurer. The Treasurer shall have charge
and custody of, and be responsible for, all funds and securities
of the Corporation and shall deposit all such funds in the name
of the Corporation in such banks or other depositories as shall
be selected by the Board of Directors. He shall exhibit at all
reasonable times his books of account and records to any of the
directors of the Corporation upon application during business
hours at the office of the Corporation where such books and
records shall be kept; when requested by the Board of Directors,
he shall render a statement of the condition of the finances of
the Corporation at any meeting of the Board or at the annual
meeting of stockholders; he shall receive, and give receipt for,
moneys due and payable to the Corporation from any source
whatsoever; and in general, he shall perform all the duties
incident to the office of Treasurer and such other duties as from
time to time may be assigned to him by the Chairman of the Board,
the President or the Board of Directors. The Treasurer shall give
such bond, if any, for the faithful discharge of his duties as
the Board of Directors may require.
Section 11. Secretary. The Secretary, if present, shall
act as secretary at all meetings of the Board of Directors and of
the stockholders and keep the minutes thereof in a book or books
to be provided for that purpose; he shall see that all notices
required to be given by the Corporation are duly given and
served; he shall have charge of the stock records of the
Corporation; he shall see that all reports, statements and other
documents required by law are properly kept and filed; and in
general, he shall perform all the duties incident to the office
of Secretary and such other duties as from time to time may be
assigned to him by the Chairman of the Board, the President or
the Board of Directors.
<PAGE>
Section 12. Salaries. The salaries of the principal
officers shall be fixed from time to time by the Board of
Directors, and the salaries of any other officers may be fixed by
the Chairman of the Board or the President.
ARTICLE V
Shares and Their Transfer
Section 1. Certificate for Stock. Every stockholder of
the Corporation shall be entitled to a certificate or
certificates, to be in such form as the Board of Directors shall
prescribe, certifying the number of shares of the capital stock
of the Corporation owned by him.
Section 2. Stock Certificates. Any stock certificate
which certifies the number of shares owned by any holder of stock
of the Corporation shall be numbered in the order in which it
shall be issued and shall be signed by the Chairman of the Board
or the President or any Vice President, and by the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary
of the Corporation and shall have the seal of the Corporation
affixed thereto; provided, however, that, where any such
certificate is signed (i) by a transfer agent or an assistant
transfer agent or (ii) by a transfer clerk acting on behalf of
the Corporation and a registrar, if the Board shall by resolution
so authorize, the signature of such Chairman of the Board,
President, Vice President, Treasurer, Secretary, Assistant
Treasurer or Assistant Secretary and the seal of the Corporation
may be facsimiles thereof. In case any officer or officers of the
Corporation who shall have signed, or whose facsimile signature
or signatures shall have been used on, any such certificate shall
cease to be such officer or officers, whether by reason of death,
resignation or otherwise, before such certificate shall have been
delivered by the Corporation, such certificate may nevertheless
be adopted by the Corporation and be issued and delivered as
though the person or persons who signed such certificate, or
whose facsimile signature or signatures shall have been affixed
thereto, had not ceased to be such officer or officers.
Section 3. Stock Ledger. A record shall be kept by the
Secretary, transfer agent or by any other officer, employee or
agent designated by the Board of Directors of the name of the
person, firm or corporation holding the stock represented by such
certificate, the number of shares represented by such
certificate, and the date thereof, and in case of cancellation,
the date of cancellation.
Section 4. Cancellation. Every certificate surrendered
to the Corporation for exchange or transfer shall be cancelled,
and no new certificate or certificates shall be issued in
<PAGE>
exchanged for any existing certificate until such existing
certificate shall have been so cancelled, except in cases
provided for in Section 7 of this Article V.
Section 5. Transfers of Stock. Transfers of shares of
the capital stock of the Corporation shall be made only on the
books of the Corporation by the registered holder thereof, or by
his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the Corporation or with
a transfer clerk or a transfer agent appointed as in Section 6 of
this Article V provided, and on surrender of the certificate or
certificates for such shares properly endorsed and the payment of
all taxes thereon. The person in whose name shares of stock stand
on the books of the Corporation shall be deemed the owner thereof
for all purposes as regards the Corporation; provided, however,
that whenever any transfer of shares shall be made for collateral
security, and not absolutely, such fact, if known to the
Secretary of the Corporation, shall be so expressed in the entry
of transfer.
Section 6. Regulations. The Board of Directors may make
such rules and regulations as it may deem expedient, not
inconsistent with the Certificate of Incorporation or these
Bylaws, concerning the issue, transfer and registration of
certificates for shares of the stock of the Corporation. It may
appoint, or authorize any principal officer or officers to
appoint, one or more transfer clerks or one or more transfer
agents and one or more registrars, and may require all
certificates of stock to bear the signature or signatures of any
of them.
Section 7. Lost, Stolen, Mutilated or Destroyed Certifi-
cates. As a condition to the issue of a new certificate of stock
in the place of any certificate theretofore issued and alleged to
have been lost, stolen, mutilated or destroyed, the Board of
Directors, in its discretion, may require the owner of any such
certificate, or his legal representatives, to give the
Corporation a bond in such sum and in such form as it may direct
to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss, theft, mutilation or
destruction of any such certificate or the issuance of such new
certificate. Proper evidence of such loss, theft, mutilation or
destruction shall be procured for the Board of Directors, if
required. The Board of Directors, in its discretion, may
authorize the issuance of such new certificate without any bond
when in its judgment it is proper to do so.
Section 8. Record Date. The Board may fix a date in
advance of not exceeding sixty (60) days' preceding, the date of
any meeting of stockholders (nor less than ten (10) days' before
the date of such meeting), or the date for the payment of any
dividend, or the date for the allotment of rights, or the date
<PAGE>
when any change or conversion or exchange of capital stock shall
go into effect or a date in connection with obtaining any written
consent to corporate action without a meeting, as a record date
for the determination of the stockholders entitled to notice of,
and to vote at, such meeting, and any adjournment thereof, or to
receive payment of any dividend, or to receive any such allotment
of rights, or to exercise the rights in respect of any such
change, conversion, or exchange of capital stock or to give such
written consent, as the case may be, notwithstanding any transfer
of any stock on the books of the Corporation after any record
date so fixed.
ARTICLE VI
Miscellaneous Provisions
Section 1. Corporate Seal. The Board of Directors shall
provide a corporate seal, which shall be in the form of a circle
and shall bear the name of the Corporation and words and figures
showing that it was incorporated in the State of Delaware. The
Secretary shall be the custodian of the seal. The Board of
Directors may authorize a duplicate seal to be kept and used by
any other officer.
Section 2. Fiscal Year. The fiscal year of the
Corporation shall be as specified by the Board of Directors.
Section 3. Voting of Stocks Owned by the Corporation.
The Board of Directors may authorize any person in behalf of the
Corporation to attend, vote and grant proxies to be used at any
meeting of stockholders of any corporation (except this
Corporation) in which the Corporation may hold stock.
Section 4. Dividends. Subject to the provisions of the
Certificate of Incorporation, the Board of Directors may, out of
funds legally available therefor, at any regular or special
meeting declare dividends upon the capital stock of the
Corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the
Corporation available for dividends such sum or sums as the
directors from time to time in their discretion may deem proper
for working capital or as a reserve fund to meet contingencies or
for equalizing dividends or for such other purposes as the
directors may deem conducive to the interests of the Corporation.
ARTICLE VII
Amendments
Section 1. The Bylaws of the Corporation may be adopted,
altered, amended or repealed or new bylaws may be adopted by the
Board of Directors at any regular or special meeting upon the
<PAGE>
affirmative vote of both sixty-seven (67%) percent of the Whole
Board of Directors and majority (but in any event not less than
four) of the Continuing Directors as defined in the Certificate
of Incorporation of the Corporation. The Bylaws of the
Corporation may also be adopted, altered, amended or repealed or
new bylaws may be adopted by the shareholders only upon the
affirmative vote as to all stock held (1) by the holders of not
less than sixty-seven (67%) percent of the Outstanding Voting
Shares and (2) by an Independent Majority of Shareholders, as
defined in the Certificate of Incorporation of the Corporation.
Such a vote may be taken at any annual or special meeting of the
shareholders if notice of such alteration, amendment, repeal or
adoption of the new bylaws shall be contained in the notice of
such annual or special meeting. No change of the time or place of
the meeting for the election of directors shall be made within
sixty (60) days' next before the day on which such a meeting is
to be held, and, in case of any change of such time or place,
notice thereof shall be given to each stockholder in person or by
letter mailed to his last known post-office address at least
twenty (20) days before the meeting is held. Bylaws, whether made
or altered by the stockholders or by the Board of Directors,
shall be subject to alteration or repeal by the stockholders as
in this Article VII above provided.
EXHIBIT (10.1)
<PAGE>
SECOND AMENDMENT AGREEMENT
Second Amendment Agreement, effective as of the 12th day of
May, 1995, by and among DAIRY MART CONVENIENCE STORES, INC., a
Delaware corporation (the "Company"), the banks and other
financial institutions listed on Schedule I attached hereto and
made a part hereof (hereinafter sometimes collectively called the
"Banks" and individually "Bank") and SOCIETY NATIONAL BANK, a
national banking association organized under the laws of the
United States of America, as successor agent for the Banks under
the Credit Agreement, as hereinafter defined (in such capacity,
the "Agent").
WHEREAS, the Company, the Agent and the Banks are parties to
a certain credit agreement dated as of February 25, 1994, which
provides, among other things, for a revolving credit aggregating
Thirty Million Dollars until March 1, 1997, all upon certain
terms and conditions (the "Credit Agreement");
WHEREAS, the Company, the Agent and the Banks desire to
amend the Credit Agreement by temporarily decreasing the amount
of the revolving credit and by making various other amendments
thereto;
WHEREAS, each term used herein shall be defined in
accordance with the Credit Agreement, unless otherwise defined
herein;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein and for other valuable considerations,
the Company, the Agent and the Banks agree as follows:
1. The "Aggregate Outstanding Extensions of Credit"
definition on page 1 of the Credit Agreement is hereby deleted in
its entirety with the following to be inserted in place thereof:
"Aggregate Outstanding Extensions of Credit": as to any
Bank at any time, an amount equal to the sum of (a) the aggregate
principal amount of all Working Capital Loans made by such Bank
then outstanding, and (b) the product of such Bank's L/C
Commitment Percentage times the L/C Obligations then outstanding.
2. The "Available Revolving Credit Commitment" definition
on page 2 of the Credit Agreement is hereby deleted in its
entirety with the following to be inserted in place thereof:
"Available Revolving Credit Commitment": as to any
Bank at any time, an amount equal to the excess, if
any, of (a) the amount of such Bank's Revolving Credit
Commitment over (b) such Bank's Aggregate Outstanding
Extensions of Credit.
3. The "Business Day" definition on page 2 of the Credit
Agreement is hereby amended to delete the words "Hartford,
<PAGE>
Connecticut" and insert in place thereof the words "Cleveland,
Ohio".
4. The "Capital Expenditures" definition on page 2 of the
Credit Agreement is hereby deleted in its entirety with the
following to be inserted in place thereof:
"Capital Expenditures": the amount as determined
in accordance with GAAP.
5. The "Change in Control" definition on page 3 of the
Credit Agreement is hereby amended to add a new subpart (vi) as
follows:
or (vi) the senior management of the Company shall
cease to be comprised of at least two of the following
officers: Gregory Landry, Mitchell Kupperman, Robert
Stein.
6. The "Collateral" definition on page 3 of the Credit
Agreement is hereby deleted in its entirety with the following to
be inserted in place thereof:
"Collateral": the collective reference to the
Collateral, as such term is defined in each of the
Company Security Agreement, the Company Pledge
Agreement, the Subsidiary Pledge Agreement, the Company
Security Agreement Regarding Inventory and Other
Collateral (executed and delivered by the Company to
the Agent as of May 12, 1995) and each Security
Agreement of Subsidiary Guarantor Regarding Inventory
and Other Collateral (executed and delivered by the
Subsidiaries to the Agent as of May 12, 1995), as such
documents may from time to time be amended, modified or
supplemented.
7. The "Commitment Percentage" definition on page 4 of the
Credit Agreement is hereby deleted in its entirety with the
following to be inserted in place thereof:
"Commitment Percentage": as to any Bank at any
time, such Bank's percentage of the relevant commitment
as set forth on Schedule I of this Agreement, provided
that when such term is used in the "Required Banks"
definition, such term shall refer to such Bank's
percentage of the Revolving Credit Commitment.
8. The "Commitments" definition on page 4 of the Credit
Agreement is hereby deleted in its entirety with the following to
be inserted in place thereof:
<PAGE>
"Commitments": the Revolving Credit Commitments or
the collective reference to the Working Capital Loan
Commitments and the L/C Commitments.
9. The "Consolidated EBIRT" definition on page 4 of the
Credit Agreement is hereby deleted in its entirety with the
following to be inserted in place thereof:
"Consolidated EBIRT": for any period, Consolidated
Net Income for such period plus the aggregate amounts
deducted in determining such Consolidated Net Income in
respect of (a) income taxes for such period, (b)
Consolidated Interest Expense for such period,
(c) Consolidated Rent Expense for such period and (d)
extraordinary or unusual gains or losses, gains or
losses from discontinuance of operations, gains or
losses arising from the sale or disposition by the
Company or any Subsidiary of any asset (including,
without limitation, the issuance of any debt or equity
securities, but excluding the sale or disposition of
any Franchise Asset or any inventory of the Company or
any Subsidiary) and other non-recurring gains or losses
during such period.
10. The "Consolidated EBITDA" definition on page 4 of the
Credit Agreement is hereby deleted in its entirety with the
following to be inserted in place thereof:
"Consolidated EBITDA": for any period,
Consolidated Net Income for such period plus the
aggregate amounts deducted in determining such
Consolidated Net Income in respect of (a) income taxes,
(b) Consolidated Interest Expense, (c) depreciation
expense, (d) the expense associated with amortization
of intangible and other assets, and (e) extraordinary
or unusual gains or losses, gains or losses from
discontinuance of operations, gains or losses arising
from the sale or disposition by the Company or any
Subsidiary of any asset (including, without limitation,
the issuance of any debt or equity securities, but
excluding the sale or disposition of any Franchise
Asset or any inventory of the Company or any
Subsidiary) and other non-recurring gains or losses
during such period.
11. The "Consolidated Interest Expense" definition on page
4 of the Credit Agreement is hereby deleted in its entirety with
the following to be inserted in place thereof:
"Consolidated Interest Expense": for any period,
interest expense of the Company and its Subsidiaries
<PAGE>
for such period, determined on a consolidated basis in
accordance with GAAP, excluding any non-recurring interest.
12. The "Consolidated Net Income" definition on page 4 of
the Credit Agreement is hereby deleted in its entirety with the
following to be inserted in place thereof:
"Consolidated Net Income": for any period, the
consolidated net income (or loss) of the Company and
its Subsidiaries for such period determined in
accordance with GAAP.
13. The "Extension" definition on page 6 of the Credit
Agreement is hereby amended to delete the reference to
"subsection 2.15" and insert in place thereof the reference to
"subsection 2.12".
14. The "L/C Commitment" definition on page 8 of the Credit
Agreement is hereby deleted in its entirety with the following to
be inserted in place thereof:
"L/C Commitment": as to any Bank, the obligation
of such Bank to participate in the issuance of Letters
of Credit hereunder in an aggregate principal amount at
any one time outstanding not to exceed the amount set
forth opposite such Bank's name in the L/C Commitment
Amount column on Schedule I of this Agreement.
15. The "Letter of Credit Rate" definition on page 8 of the
Credit Agreement is hereby deleted in its entirety with the
following to be inserted in place thereof:
"Letter of Credit Rate": for each Letter of
Credit, at any time, a rate per annum equal to 2-1/2 %.
16. The "Minimum Consolidated Net Worth" definition on page
9 of the Credit Agreement is hereby deleted in its entirety with
the following to be inserted in place thereof:
"Minimum Consolidated Net Worth": commencing at
FYED 1995, a Consolidated Net Worth equal to the
current minimum amount required, which current minimum
amount required shall be $21,633,000 from FYED 1995
through the end of the first FQED of FYED 1996, with
such current minimum amount required to be increased by
the Increase Amount on the first day of the second
FQED of FYED 1996 and by an additional increase amount
on the first day of each successive FQED thereafter.
As used herein, "Increase Amount" shall mean an amount
<PAGE>
equal to fifty percent (50%) of positive Consolidated Net
Income for the previous fiscal quarter.
17. The "Notes" definition on page 10 of the Credit
Agreement is hereby deleted in its entirety with the following to
be inserted in place thereof:
"Notes": the collective reference to the Working
Capital Loan Notes.
18. The "Permitted Holders" definition on page 10 of the
Credit Agreement is hereby deleted in its entirety with the
following inserted in place thereof:
"Permitted Holders": the collective reference to
any of Charles Nirenberg, Gregory Landry, Mitchell
Kupperman or Robert Stein, and their respective
Related Parties.
19. The "Prime Rate" definition on page 11 of the Credit
Agreement is hereby deleted in its entirety with the following
to be inserted in place thereof:
"Prime Rate": the interest rate established from
time to time by the Agent as Agent's prime rate,
whether or not such rate is publicly announced; the
Prime Rate may not be the lowest rate charged by the
Agent for commercial or other extensions of credit. Any
change in the Prime Rate shall be effective as of the
opening of business on the effective day of such change
in the Prime Rate.
20. The "Reimbursing Bank" definition on page 11 of the
Credit Agreement is hereby amended to delete the reference to
"subsection 2.14(a)" and insert in place thereof the reference to
"subsection 2.11(a)".
21. The "Revolving Credit Commitment" definition on page 12
of the Credit Agreement is hereby deleted in its entirety with
the following to be inserted in place thereof:
"Revolving Credit Commitment": the collective
reference to the Working Capital Loan Commitments and
the L/C Commitments.
22. The "Revolving Credit Note" definition on page 12 of
the Credit Agreement is hereby deleted in its entirety with the
following to be inserted in place thereof:
"Working Capital Loan Note": as defined in
subsection 2.5.
<PAGE>
23. The "Security Documents" definition on page 12 of the
Credit Agreement is hereby deleted in its entirety with the
following to be inserted in place thereof:
"Security Documents": the Pledge Agreements, the
Company Security Agreement, the Company Security
Agreement Regarding Inventory and Other Collateral
(executed and delivered by the Company to the Agent as
of May 12, 1995) and each Security Agreement of
Subsidiary Guarantor Regarding Inventory and Other
Collateral (executed and delivered by the Subsidiaries
to the Agent as of May 12, 1995), as such documents may
from time to time be amended, modified or supplemented.
24. The "Termination Date" definition on page 13 of the
Credit Agreement is hereby deleted in its entirety with the
following to be inserted in place thereof:
"Termination Date": May 31, 1996, or such later
date to which the Termination Date may be extended in
accordance with subsection 2.12.
25. The following new definitions are added to Subsection
1.1 of the Credit Agreement:
"Available L/C Commitment": as to any Bank at any
time, an amount equal to the excess, if any, of (a) the
amount of such Bank's L/C Commitment over (b) the
product of such Bank's L/C Commitment Percentage times
the L/C Obligations then outstanding.
"Available Working Capital Loan Commitment": as to
any Bank at any time, an amount equal to the excess, if
any, of (a) the amount of such Bank's Working Capital
Loan Commitment over (b) the aggregate principal amount
of all Working Capital Loans made by such Bank then
outstanding.
"Compliance Certificate": a certificate of a
Responsible Officer which shall certify that, to the
best of such Officer's knowledge, each of the Company
and its Subsidiaries during such period has observed or
performed all of its covenants and other agreements,
and satisfied every condition, contained in this
Agreement, the Notes and the other Loan Documents to
which it is a party to be observed, performed or
satisfied by it, and that such Officer has obtained no
knowledge of any Default or Event of Default except as
specified in such certificate.
<PAGE>
"Consolidated EBIDA": for any period, Consolidated
Net Income for such period plus the aggregate amounts
deducted (in the cases of (d) and (e) below, whether or
not so deducted) in determining such Consolidated Net
Income in respect of (a) Consolidated Interest Expense,
(b) depreciation expense, (c) the expense associated
with amortization of intangible and other assets, (d)
the proceeds from either the sale of assets or a
Sale/Leaseback Transaction, as defined in subsection
7.12, (e) the net cash proceeds from the issuance of
any equity security, and (f) that portion of the
provision for income taxes, determined in accordance
with GAAP, that has not been paid or received.
"L/C Commitment Percentage": as to any Bank at any
time, the percentage set forth opposite such Bank's
name in the L/C Commitment Percentage column on
Schedule I of this Agreement.
"Revolving Credit Commitment": as to any Bank, the
obligation of such Bank to extend credit to the Company
hereunder in an aggregate principal amount at any one
time outstanding not to exceed the amount set forth
opposite such Bank's name in the Revolving Credit
Commitment Amount column on Schedule I of this
Agreement.
"Working Capital Loan Commitment": as to any Bank,
the obligation of such Bank to make Working Capital
Loans to the Company hereunder in an aggregate
principal amount at any one time outstanding not to
exceed the amount set forth opposite such Bank's name
in the Working Capital Loan Commitment Amount column on
Schedule 1 of this Agreement.
"Working Capital Loan Commitment Percentage": as
to any Bank at any time, the percentage set forth
opposite such Bank's name in the Working Capital Loan
Commitment Percentage column on Schedule 1 of this
Agreement.
"Working Capital Loans": Any loans, advances or
other disbursements by the Agent, or any or all of the
Banks to or for the account of the Company under the
Working Capital Loan Commitments or, in the discretion
of the Agent, in respect of any amounts due and not
paid by the Company in accordance with subsection 10.5.
26. The following definitions are deleted in their entirety
from Subsection 1.1 of the Credit Agreement: "Clean-Down Period",
"LIBOR Base Rate", "LIBOR Interest Period", "LIBOR Reserve
Requirements", "LIBOR Loans", "LIBOR Rate", "Tranche", and
"Type".
<PAGE>
27. Section 2. of the Credit Agreement is hereby deleted in
its entirety with the following being inserted in place thereof:
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Revolving Credit Commitments. Subject to the
terms and conditions hereof, and provided that no
Default or Event of Default shall have occurred and be
continuing, each Bank severally agrees to make Working
Capital Loans to the Company and to participate in the
issuance of Letters of Credit, from time to time on or
after the date each of the conditions precedent set
forth in subsection 5.1 has been satisfied or waived by
the Required Banks (the "Initial Funding Date") and
continuing throughout the Commitment Period, in an
aggregate principal amount at any one time outstanding
not to exceed the amount of such Bank's Available
Revolving Credit Commitment.
2.2 Working Capital Loan Commitments. Subject to
the terms and conditions hereof, and provided that no
Default or Event of Default shall have occurred and be
continuing, each Bank severally agrees to make Working
Capital Loans to the Company, from time to time after
the Initial Funding Date and continuing throughout the
Commitment Period, in an aggregate principal amount at
any one time outstanding not to exceed the amount of
such Bank's Available Working Capital Loan Commitment.
From and after the Initial Funding Date and continuing
throughout the Commitment Period, the Company may use
the Working Capital Loan Commitments by borrowing,
prepaying the Working Capital Loans in whole or in
part, and reborrowing in accordance with the terms and
conditions hereof.
2.3 Interest Rate and Payment Dates.
(a) Each Working Capital Loan shall bear interest for
so long as it is outstanding and unpaid at a rate per annum
equal to the Prime Rate from time to time in effect.
(b) If all or a portion of the principal amount
of any Loan, any interest payable thereon, any
Reimbursement Obligation or any fee required to be paid
under this Agreement shall not be paid when due
(whether at the stated maturity, by acceleration or
otherwise), such overdue amount shall bear interest at
a rate per annum (the "Default Rate") which is equal to
3% in excess of the Prime Rate, from time to time in
effect, from the date of such non-payment until such
<PAGE>
amount is paid in full (as well after as before judgment).
(c) Interest shall be payable in arrears on each
Interest Payment Date; provided that interest accruing
at the Default Rate pursuant to subsection 2.3(b) shall
be payable on demand.
(d) In the event that the total amount of any
payment of principal or interest or amounts due in
respect of any Reimbursement Obligation or of any fee
required to be paid under this Agreement is not
received by the Agent or the Issuing Bank, as the case
may be, within ten (10) days following the due date of
such payment, the Company shall, in addition to and
together with such payment, pay to Agent or Issuing
Bank, as the case may be, a late charge equal to five
percent (5%) of the total amount of such payment or
amount due.
2.4 Procedure for Borrowing. The Company may
borrow under the Working Capital Loan Commitments on or
after the Initial Funding Date during the Commitment
Period on any Business Day by giving the Agent
irrevocable notice (which notice must be received by
the Agent prior to 1:00 P.M., Eastern time, on the
requested Borrowing Date), specifying (i) the amount to
be borrowed, and (ii) the requested Borrowing Date.
Each borrowing under the Working Capital Loan
Commitments shall be in an amount equal to $100,000 or
a whole multiple thereof (or, if the then Available
Working Capital Loan Commitments are less than
$100,000, such lesser amount). With each request for a
borrowing hereunder, the Company shall deliver a
Compliance Certificate to the Agent. Upon receipt of
any such notice from the Company, the Agent shall
promptly notify each Bank thereof. Each Bank will make
the amount of its pro rata share (based on its
Commitment Percentage) of each borrowing available to
the Agent for the account of the Company at the office
of the Agent specified in subsection 10.2 prior to 2:00
P.M., Eastern time, on the Borrowing Date requested by
the Company in funds immediately available to the
Agent. Such borrowing will then be made available to
the Company by the Agent by crediting the account of
the Company on the books of such office with the
aggregate of the amounts made available to the Agent by
the Banks and in like funds as received by the Agent.
2.5 Working Capital Loan Notes. The Working
Capital Loans made by each Bank shall be evidenced by a
promissory note of the Company, substantially in the
<PAGE>
form of Exhibit A with appropriate insertions as to payee,
date and principal amount (a "Revolving Credit Note"),
payable to the order of such Bank and in a principal amount
equal to the amount of the Working Capital Loan Commitment
of such Bank. Each Bank is hereby authorized to record the
date and amount of each Working Capital Loan made by such
Bank, and the date and amount of each payment or prepayment
of principal thereof on the Working Capital Loan Note, and
any such recordation shall constitute prima facie evidence
of the accuracy of the information so recorded. Each Working
Capital Loan Note shall (i) be dated the Closing Date, (ii)
be stated to mature on the Termination Date and (iii)
provide for the payment of interest in accordance with
subsection 2.3.
2.6 Fees. The Company agrees to pay to the Agent
for the account of each Bank a commitment fee for the
period from and including the date hereof to the
termination Date, computed at the rate of 1/2 of 1% per
annum on the average daily amount of the Available
Revolving Credit Commitment of such Bank during the
period for which payment is made, payable quarterly in
arrears on the last day of each March, June, September
and December and on the Termination Date or such
earlier date as the Commitments shall terminate as
provided herein, commencing on the first of such dates
to occur after the date hereof. In addition, the
Company shall pay such other fees as may from time to
time be agreed to by the Company and the Agent or by
the Company and any Bank, as the case may be.
2.7 Termination or Reduction of Commitments.
(a) The Company shall have the right, upon not
less than three Business Days notice to the Agent, to
terminate the Commitments or, from time to time, to
reduce the amount of the Commitments; provided that no
such termination or reduction shall be permitted if,
after giving effect thereto and to any prepayments of
the Working Capital Loans made on the effective date
thereof, the aggregate principal amount of the Working
Capital Loans then outstanding, when added to such
Bank's Commitment Percentage of the L/C Obligations,
would exceed the Commitments then in effect. Any such
reduction shall be in an amount not less than $250,000
and shall reduce permanently the Commitments then in
effect.
(b) Simultaneously with any required prepayment
of the Working Capital Loans pursuant to subsection
<PAGE>
2.9(a) or (b), the Commitments shall automatically be
reduced by an amount equal to the amount of such required
prepayment. Simultaneously with the occurrence of any event
requiring prepayment pursuant to subsection 2.9(c), the
Commitments shall automatically terminate.
2.8 Optional Prepayments. The Company may at any
time and from time to time, prepay the Working Capital
Loans, in whole or in part, without premium or penalty,
upon irrevocable notice (which notice must be received
by 1:00 P.M., Eastern time, on or before the proposed
date of prepayment) to the Agent, specifying the date
and amount of prepayment. Upon receipt of any such
notice the Agent shall promptly give notice thereof to
each Bank. If any such notice is given by the Company,
the amount specified in such notice shall be due and
payable on the date specified therein. Partial
prepayments of the Working Capital Loans shall be in an
aggregate principal amount of $100,000 or a whole
multiple thereof.
2.9 Mandatory Payments; Cash Collateralization.
(a) Immediately upon the occurrence of any public
issuance or private placement of any debt securities of
the Company or any Subsidiary (other than Indebtedness
incurred pursuant to subsection 7.2(d) and other than
renewals or refinancings of the indebtedness evidenced
by the Senior Subordinated Notes or of Indebtedness
evidenced by debt securities issued and outstanding as
of the date hereof so long as the outstanding principal
amount of such Indebtedness is not increased by such
renewal or refinancing) the Company shall make or cause
to be made a prepayment on the Working Capital Loans
equal to 100% of the Net Cash Proceeds received
therefor.
(b) If, at any time or from time to time, the
Company makes an "Asset Disposition" (as defined in the
Senior Subordinated Indenture), the Company shall,
within 210 days from the date of such Asset Disposition
(or such longer period permitted under the Senior
Subordinated Indenture), apply all of the Net Cash
Proceeds from such Asset Disposition to either or both
(in the sole discretion of the Company) of (i) the
prepayment of the Loans or (ii) an investment in "fixed
assets" (as defined under GAAP) in the same or
substantially similar line of business as defined in
the Indenture as the assets that were the subject of
such Asset Disposition, provided that, notwithstanding
the foregoing, (A) up to $1,000,000 of the Net Cash
Proceeds received in any fiscal year from any such
Asset Dispositions shall not be subject to this
subsection 2.9(b) and (B) no application of the Net
<PAGE>
Cash Proceeds resulting from any such Asset Dispositions
shall be subject to this paragraph until the aggregate
amount of such Net Cash Proceeds received after the date
hereof (above the aforesaid $1,000,000) equals or exceeds
$5,000,000. Without limiting the generality of the
foregoing, no repayments by the Company of outstanding
Working Capital Loans shall be considered mandatory
prepayments under this subsection unless and until the
Company shall have designated such repayments as such.
(c) Amounts prepaid on account of Working Capital
Loans pursuant to this subsection 2.9 shall be
allocated to the outstanding principal amount of the
Working Capital Loans, together with a corresponding
permanent reduction of the Working Capital Loan
Commitments; provided that, if the amount of such
prepayment (the "Prepayment Amount") exceeds the then
outstanding Working Capital Loans or is made at a time
when no Working Capital Loans are outstanding, then the
Company shall deposit such Prepayment Amount as
collateral for the then outstanding L/C Obligations in
a cash collateral account maintained by the Agent
pursuant to its customary documentation for such
purposes, which deposit shall be made on the payment
date specified in the notice of prepayment.
2.10 Computation of Interest and Fees. Interest
on the Loans, Letter of Credit commissions and
commitment fees shall each be calculated on the basis
of a 360-day year for the actual number of days
elapsed. Any change in the interest rate on a Loan
resulting from a change in the Prime Rate shall become
effective as of the opening of business on the day on
which such change becomes effective. The Agent shall
notify the Company and the Banks as soon as practicable
of the effective date and the amount of each such
change in interest rate. Each determination of an
interest rate by the Agent pursuant to any provision of
this Agreement shall be conclusive and binding on the
Company and the Banks in the absence of manifest error.
2.11 Pro Rata Treatment and Payments.
(a) Unless the Agent shall have been notified in
writing by any Bank prior to a Borrowing Date that such
Bank will not make the amount that would constitute its
Commitment Percentage of the borrowing on such date
<PAGE>
available to the Agent, the Agent may assume that such Bank
(a "Reimbursing Bank") has made such amount available to the
Agent on such Borrowing Date, and the Agent or any Bank may
(but shall not be obligated), in reliance upon such
assumption, make available to the Company a corresponding
amount. If such amount is made available to the Agent on a
date after such Borrowing Date, the Reimbursing Bank shall
pay to the Agent on demand an amount equal to the product of
(i) the daily average Federal Funds Effective Rate during
such period a quoted by the Agent, times (ii) the amount of
such Reimbursing Bank's Commitment Percentage of such
borrowing, times (iii) a fraction (A) the numerator of which
is the number of days that elapse from and including such
Borrowing Date to the date on which such Reimbursing Bank's
Commitment Percentage of such borrowing shall have become
immediately available to the Agent and (B) the denominator
of which is 360. A certificate of the Agent submitted to any
Reimbursing Bank with respect to any amounts owing under
this subsection shall be conclusive in the absence of
manifest error. If a Reimbursing Bank's Commitment
Percentage of such borrowing is not in fact made available
to the Agent by such Reimbursing Bank within three Business
Days of such Borrowing Date, the Agent shall be entitled to
recover such amount, with interest thereon at the rate per
annum applicable to Working Capital Loans hereunder, on
demand, from such Reimbursing Bank or the Company in such
order and manner as Agent may determine in its discretion.
(b) Each borrowing of Working Capital Loans by
the Company from the Banks hereunder shall be made by
the Banks pro rata in accordance with the respective
Working Capital Loan Commitment Percentage of such
Banks. Each payment by the Company on account of the
principal of and interest on the Working Capital Loans,
any commitment fee hereunder and any reduction of the
Commitments of the Banks shall be payable to the Banks
pro rata in accordance with the respective Commitment
Percentages of the Banks; provided that in the event
the Agent or any Bank pursuant to subsection 2.11(a)
makes available to the Company a Reimbursing Bank's
Commitment Percentage of a requested borrowing, the
Agent or such Bank providing such funding shall be
entitled to receive all payments that would otherwise
be payable to such Reimbursing Bank until such time as
the Agent or such Bank, as the case may be, shall have
received an amount equal to the amount so funded on
behalf of such Reimbursing Bank, together with interest
thereon as provided in subsection 2.11(a). All payments
(including prepayments) to be made by the Company
hereunder and under the Notes, whether on account of
principal, interest, fees or otherwise, shall be made
<PAGE>
without set off or counterclaim and shall be made prior to
1:00 P.M., Eastern time, on the due date thereof to the
Agent, for the account of the Banks, at the Agent's office
specified in subsection 10.2, in Dollars and in immediately
available funds. The Agent shall distribute such payments to
the Banks promptly upon receipt in like funds as received.
If any payment hereunder becomes due and payable on a day
other than a Business Day, such payment shall be extended to
the next succeeding Business Day, and, with respect to
payments of principal, interest thereon shall be payable at
the then applicable rate during such extension.
2.12 Extension of Termination Date. By the date
which is 60 days prior to the initial Termination Date
(and, if the initial Termination Date has been extended
pursuant to this subsection, by the date which is one
year and 60 days prior to the Termination Date as so
extended by the first Extension), the Company may
notify the Agent of its desire to extend the
Termination Date, each such Extension consisting of one
additional year (each, an "Extension"), and its request
that the Banks approve such Extension, whereupon the
Agent shall promptly notify the Banks of such request.
The Agent shall notify the Company of the decision of
the Banks (to be made in the Banks' sole discretion)
with respect thereto not later than 30 days after the
Agent's receipt of the request for such Extension. If
all of the Banks agree to the requested Extension, the
Termination Date shall be so extended.
2.13 Clean-Down of Working Capital Loans. For a
period of at least five consecutive Business Days of
each calendar month, the aggregate principal amount of
Working Capital Loans outstanding shall be reduced to
zero. In addition, after each Borrowing Period, the
aggregate principal amount of Working Capital Loans
outstanding shall be reduced to zero for at least two
consecutive Business Days. As used herein, "Borrowing
Period" shall mean a period of one or more days, not to
exceed five consecutive Business Days, on which the
Company requests a Working Capital Loan.
2.14 Requirements of Law. If any Bank shall have
determined that the adoption of or any change in any
Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by
such Bank or any corporation controlling such Bank with
any request or directive regarding capital adequacy
(whether having the force of law or not) from any
<PAGE>
Governmental Authority made subsequent to the date hereof
does or shall have the effect of reducing the rate of return
on such Bank's or such corporation's capital as a
consequence of its obligations hereunder to a level below
that which such Bank or such corporation could have achieved
but for such change or compliance (taking into consideration
such Bank's or such corporation's policies with respect to
capital adequacy) by an amount deemed by such Bank to be
material, then from time to time, after submission by such
Bank to the Company (with a copy to the Agent) of a written
request therefore, the Company shall pay to such Bank such
additional amount or amounts as will compensate such Bank
for such reduction.
2.15 Taxes.
(a) All payments made by the Company under this
Agreement and the Notes shall be made free and clear
of, and without deduction or withholding for or on
account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees,
deductions or withholdings, now or hereafter imposed,
levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and
franchise taxes (imposed in lieu of net income taxes)
imposed on the Agent or any Bank as a result of a
present or former connection between the Agent or such
Bank and the jurisdiction of the Governmental Authority
imposing such tax or any political subdivision or
taxing authority thereof or therein (other than any
such connection arising solely from the Agent or such
Bank having executed, delivered or performed its
obligations or received a payment under, or enforced,
this Agreement or the Notes). If any such non-excluded
taxes, levies, imposts, duties, charges, fees
deductions or withholdings ("Non-Excluded Taxes") are
required to be withheld from any amounts payable to the
Agent or any Bank hereunder or under the Notes, the
amounts so payable to the Agent or such Bank shall be
increased to the extent necessary to yield to the Agent
or such Bank (after payment of all Non-Excluded Taxes)
interest or any such other amounts payable hereunder at
the rates or in the amounts specified in this Agreement
and the Notes; provided, however, that the Company
shall not be required to increase any such amounts
payable to any Bank that is not organized under the
laws of the United States of America or a state thereof
if such Bank fails to comply with the requirements of
<PAGE>
paragraph (b) of this subsection. Whenever any Non-Excluded
Taxes are payable by the Company, as promptly as possible
thereafter the Company shall send to the Agent for its own
account or for the account of such Bank, as the case may be,
a certified copy of an original official receipt received by
the Company showing payment thereof. If the Company fails to
pay any Non-Excluded Taxes when due to the appropriate
taxing authority or fails to remit to the Agent the required
receipts or other required documentary evidence, the Company
shall indemnify the Agent and the Banks for any incremental
taxes, interest or penalties that may become payable by the
Agent or any Bank as a result of any such failure. The
agreements in this subsection shall survive the termination
of this Agreement and the payment of the Notes and all other
amounts payable hereunder.
(b) Each Bank that is not incorporated under the
laws of the United States of America or a state thereof
shall:
(i) deliver to the Company and the Agent (A)
two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224, or successor
applicable form, as the case may be, and (B) an
Internal Revenue Service Form W-8 or W-9, or successor
applicable form, as the case may be;
(ii) deliver to the Company and the Agent two
further copies of any such form or certification on or
before the date that any such form or certification
expires or becomes obsolete and after the occurrence of
any event requiring a change in the most recent form
previously delivered by it to the Company; and
(iii) obtain such extensions of time for
filing and complete such forms or certifications as may
reasonably be requested by the Company or the Agent;
unless in any such case an event (including, without
limitation, any change in treaty, law or regulation)
has occurred prior to the date on which any such
delivery would otherwise be required which renders all
such forms inapplicable or which would prevent such
Bank from duly completing and delivering any such form
with respect to it and such Bank so advises the Company
and the Agent. Such Bank shall certify (i) in the case
of a Form 1001 or 4224, that it is entitled to receive
payments under this Agreement without deduction or
withholding of any United States federal income taxes
and (ii) in the case of a Form W-8 or W-9, that it is
entitled to an exemption from United States backup
withholding tax. Each Person that shall become a Bank
<PAGE>
or a Participant pursuant to subsection 10.6 shall,
upon the effectiveness of the related transfer, be
required to provide all of the forms and statements
required pursuant to this subsection, provided that, in
the case of a Participant, such Participant shall
furnish all such required forms and statements to the
Bank from which the related participation shall have
been purchased.
28. Subsection 3.1 of the Credit Agreement is hereby
deleted in its entirety with the following being inserted in
place thereof:
3.1 L/C Commitment.
(a) Prior to the date hereof, the Issuing Bank
issued various letters of credit on behalf of the
Company. Subject to the terms and conditions hereof,
the Issuing Bank, in reliance on the agreements of the
other Banks set forth in subsection 3.5(a), agrees to
issue standby letters of credit for the account of the
Company and its Designated Subsidiaries on any Business
Day on or after the Initial Funding Date until the date
which is five Business Days prior to the end of the
Commitment Period in such form as may be approved from
time to time by the Issuing Bank (all such letters of
credit outstanding on the date hereof and all letters
of credit to be issued hereunder, together with all
extensions, renewals and replacements thereof, are
herein collectively referred to as the "Letters of
Credit"); provided that the Issuing Bank shall have no
obligation to issue any Letter of Credit if at the time
of such issuance a Default exists or an Event of
Default has occurred and is continuing or if, after
giving effect to such issuance, (i) the L/C Obligations
would exceed the L/C Commitment or (ii) the Available
Revolving Credit Commitment would be less than zero.
Each Letter of Credit shall (i) be denominated in
Dollars, (ii) expire no later than the Termination Date
and (iii) expire no later than a date one year after
its issuance. Each Letter of Credit (except for
previously issued Letters of Credit) shall be issued as
credit support for (x) insurance and vendor financial
obligations, (y) performance bonds issued on behalf of
the Company or any Designated Subsidiary in its
ordinary course of business or (z) other similar
financial support for obligations of the Company.
29. Subsection 3.2 of the Credit Agreement is hereby
amended to add the following sentence between the first and
second sentences:
With each request for the issuance of a Letter of
<PAGE>
Credit hereunder, the Company shall deliver a Compliance
Certificate to the Issuing Bank.
30. Paragraph (a) of Subsection 3.3 of the Credit Agreement
is hereby deleted in its entirety with the following being
inserted in place thereof:
(a) The Company shall pay to the Agent a letter
of credit facility fee (the "L/C Fee"), upon issuance
of a Letter of Credit, in an amount equal to the
product of (i) the face amount of such Letter of
Credit, times (ii) the applicable Letter of Credit
Rate, times (iii) the term of such Letter of Credit,
expressed as a fraction equal to the number of days of
such term divided by three hundred sixty (360). In the
event any Letter of Credit is terminated or the
available credit thereunder is permanently reduced
prior to the stated expiry date thereof, the Company
shall be entitled to a rebate of that portion of the
L/C Fee paid with respect to such Letter of Credit
which is allocable pro rata to the portion of the
Letter of Credit that has been terminated or reduced,
as the case may be, as determined by the Issuing Bank.
Each L/C Fee payable under this subsection 3.3 shall be
shared ratably among the Banks in accordance with their
respective L/C Commitment Percentages.
31. Subsection 3.4 of the Credit Agreement is hereby
deleted in its entirety with the following being inserted in
place thereof:
3.4 Reimbursement Obligation of the Company. The
Company agrees to reimburse the Issuing Bank on each
date on which the Issuing Bank notifies the Company of
the date and amount of a draft presented under any
Letter of Credit and paid by the Issuing Bank for the
amount of (a) such draft so paid and (b) any taxes
(other than income taxes), fees, charges or other costs
or expenses incurred by the Issuing Bank in connection
with such payment. Each such payment shall be made to
the Issuing Bank at its address for notices specified
herein in Dollars and in immediately available funds.
Interest shall be payable on any and all amounts
remaining unpaid by the Company under this subsection
from the date such amounts become payable (whether at
stated maturity, by acceleration or otherwise) until
payment in full at the Default Rate, as defined in
subsection 2.3.
32. Subsection 4.8 of the Credit Agreement is hereby
deleted in its entirety with the following being inserted in
place thereof:
<PAGE>
4.8 Ownership of Property; Liens. (a) Each of
the Company and each Designated Subsidiary has good
record and marketable title in fee simple to, or a
valid leasehold interest in, all its real property, and
good title to all its other property except for any
defect (other than with respect to the Collateral) in
title thereto or leasehold interest therein which would
not in the aggregate have a Material Adverse Effect;
(b) none of the property (other than Collateral) owned
or leased by the Company or any Designated Subsidiary
is subject to any Lien except as permitted by
subsection 7.3 or which, in the aggregate, would not
have a Material Adverse Effect; and (c) none of the
Collateral is subject to any Lien except as permitted
by subsection 7.3 or any Lien granted in favor of the
Agent.
33. The last sentence of Subsection 5.1 of the Credit
Agreement is hereby deleted in its entirety with the following
being inserted in place thereof:
Each borrowing by and Letter of Credit issued on behalf
of the Company or any of its Designated Subsidiaries
hereunder shall constitute a representation and
warranty by the Company as of the date of such Loan or
Letter of Credit that the conditions contained in this
subsection 5.2 have been satisfied.
34. Paragraph (b) of Subsection 6.2 of the Credit Agreement
is hereby amended to delete the reference to "subsection 2.11"
and insert in place thereof the reference to "subsection 2.9".
35. Subsection 6.9 is hereby amended to add the following
at the end thereof:
Furthermore, upon the request of the Required Banks,
the Company shall deliver to the Agent for the benefit
of the Banks, the guarantee of any Subsidiary whose
guarantee is so requested, other than Financial
Opportunities, Inc. Such guarantee shall be in the
form and substance of the Subsidiary Guarantee, as it
may be from time to time amended.
36. The introduction to and paragraph (a) of Subsection 7.1
of the Credit Agreement are hereby deleted in its entirety with
the following being inserted in place thereof:
7.1 Financial Condition Covenants. Effective at
FYED 1995 and thereafter,
(a) EBIRT to Interest and Rent. For any period of
four consecutive fiscal quarters ending on any FQED,
<PAGE>
permit the ratio of (i) Consolidated EBIRT for the
applicable period to (ii) the sum of Consolidated Interest
Expense and Consolidated Rent Expense for such period to be
less than (a) .86 to 1.00 at FYED 1995, (b) .87 to 1.00 at
first FQED 1996, (c) 1.00 to 1.00 at second FQED 1996, (d)
1.10 to 1.00 at third FQED 1996, and (e) 1.10 to 1.00 at
each FQED thereafter.
37. Paragraph (b) of Subsection 7.1 of the Credit Agreement
is hereby deleted in its entirety with the following being
inserted in place thereof:
(b) EBIDA to Interest, Capital Expenditures and
Current Maturities. Commencing at the first FQED 1996,
permit the ratio of (i) Consolidated EBIDA for the
applicable period to (ii) the sum, for the Company and
its Subsidiaries, for such period, of (a) Consolidated
Interest Expense, (b) Capital Expenditures and (c)
current maturities of long-term debt, to be less than
1.00 to 1.00 during any fiscal quarter, based upon the
Company's financial statements for the fiscal year to
date period at the end of such quarter; provided that,
for fiscal quarters subsequent to FYED 1996, such ratio
shall be tested based upon a period of four consecutive
fiscal quarters ending on any FQED.
38. Paragraph (c) of Subsection 7.1 of the Credit Agreement
is hereby deleted in its entirety with the following being
inserted in place thereof:
(c) Consolidated Indebtedness to Consolidated
EBITDA. For any period of four consecutive fiscal
quarters ending on any FQED to occur during any "Test
Period" set forth below, permit the ratio of (i)
Consolidated Indebtedness at the end of such period to
(ii) Consolidated EBITDA for such period to be more
than the ratio set forth opposite such period below:
<PAGE>
Test Period Ratio
At FYED 1995 through 4.75 to 1.00
First FQED 1996
First day of Second FQED 4.00 to 1.00
1996 through the Fourth
Fiscal Quarter of FYED 1996
First day of First FQED 1997 3.75 to 1.00
and during each Fiscal Quarter
thereafter
39. Paragraph (g) of Subsection 7.1 of the Credit Agreement
is hereby amended to add a new subpart (v) before the semi-colon
before the last word of such paragraph:
and (v) there shall be no Liens on any of the following
types of collateral, as those terms are defined in
Chapter 1309 of the Ohio Revised Code: inventory,
accounts or general intangibles (except Liens on
general intangibles that result from the granting of a
mortgage, equipment lease financing or other equipment
financing arrangement); and
40. Subpart (i) of paragraph (c) of Subsection 7.5 of the
Credit Agreement is hereby deleted in its entirety, with the
following to be inserted in place thereof:
(i) may be merged or consolidated with or into
any other Subsidiary (provided that if it is merged or
consolidated with a Designated Subsidiary, the
continuing or surviving entity must be the Designated
Subsidiary)
41. Paragraph (c) of Subsection 7.6 of the Credit Agreement
is hereby amended to delete the reference to "subsection 2.11(b)"
and insert in place thereof the reference to "subsection 2.9(b)".
42. Subsection 7.7 of the Credit Agreement is hereby
deleted in its entirety with the following being inserted in
place thereof:
7.7 Limitation on Dividends. Declare or pay any
dividend on, or make any payment on account of, or set
apart assets for a sinking or other analogous fund for,
the purchase, redemption, defeasance, retirement or
other acquisition of, any shares of any class of
Capital Stock of the Company or any Subsidiary or any
warrants or options to purchase any such Stock, whether
now or hereafter outstanding, or make any other
<PAGE>
distribution in respect thereof, either directly or
indirectly, whether in cash or property or in obligations of
the Company or any Subsidiary (other than (i) dividends
payable solely in common stock of a Subsidiary so long as
any such common stock dividend is pledged by the stockholder
pursuant to the Pledge Agreement to which such stockholder
is a party, (ii) dividends payable solely to the Company or
a Subsidiary which has executed and delivered to the Agent a
Subsidiary Guarantee, or (iii) dividends payable solely in
the common stock of the Company to stockholders of the
Company).
43. Subsection 7.8 of the Credit Agreement is hereby
deleted in its entirety with the following being inserted in
place thereof:
7.8 Limitation on Capital Expenditures. Make or
commit to make (by way of the acquisition of securities
of a Person or otherwise) any Capital Expenditures more
than an aggregate amount equal to $22,850,000, in the
aggregate for the Company and its Subsidiaries, during
any fiscal year of the Company.
44. Subsection 7.12 of the Credit Agreement is hereby
amended to delete the references to "subsection 2.11" and insert
in place thereof references to "subsection 2.9".
45. Subsection 7.13 of the Credit Agreement is hereby
deleted in its entirety with the following being inserted in
place thereof:
7.13 Corporate Documents/Corporate Names/Location
of Assets. (a) Amend its Certificate of Incorporation
(except to increase the number of authorized shares of
common stock); or, (b) do any of the following, unless,
in each case, it shall provide the Agent with at least
30 days prior written notice of such action: (i) change
its corporate name; (ii) change the location of its
inventory or equipment; (iii) change the location of
the office where its maintains its records pertaining
to its accounts; (iv) change the location of its
existing places of business or open any new places of
business; or (v) change the location of its chief
executive office; provided, however, that anything
herein to the contrary notwithstanding, (A) in the
alternative, with respect to store openings and
closings, the Company may satisfy the requirement of
this subsection with respect to such stores, by
submitting to the Agent, on a monthly basis, a list of
all stores opened and closed, and (B) with respect to
moving inventory from store to store, no notice need be
provided pursuant to this subsection so long as the
<PAGE>
Company, or a Subsidiary, as the case may be, has executed
and delivered to the Agent a UCC financing statement
appropriate for filing to perfect the Agent's security
interest in the inventory in its new location. As used
herein, "inventory", "equipment" and "accounts" have the
respective meanings ascribed to them in Chapter 1309 of the
Ohio Revised Code.
46. Subsection 10.2 of the Credit Agreement is hereby
amended to (i) delete the name, address and telecopy number of
the Agent and insert in place thereof the following: Society
National Bank, 127 Public Square, Cleveland, Ohio 44114,
Attention: David A. Haverback, Vice President, Telecopy:
(216)689-4981; and (ii) delete the reference to "subsections 2.4,
2.5, 2.9, 2.14 and 2.15" and insert in place thereof the
reference to "subsections 2.4, 2.7, 2.11 and 2.12" .
47. Subsection 10.6 of the Credit Agreement is hereby
amended to delete the words "Revolving Credit Note" wherever they
appear and to insert in place thereof the words "Working Capital
Loan Note".
48. Paragraph (b) of Subsection 10.6 of the Credit
Agreement is hereby amended to delete the reference to
"subsections 2.16, 2.17, 2.18 and 2.19" and insert in place
thereof the reference to "subsections 2.13, 2.14 and 2.15".
49. Paragraph (a) of Subsection 10.7 of the Credit
Agreement is hereby amended to delete the reference to
"subsection 2.14(b)" and insert in place thereof the reference to
"subsection 2.11".
50. Subsections 10.11, 10.12, 10.13, 10.14 and 10.15 of the
Credit Agreement are hereby deleted in their entirety, with the
following to be inserted in place thereof:
10.11 Governing Law. This Agreement and the
Notes and the rights and obligations of the parties
under this Agreement and the Notes shall be governed
by, and construed and interpreted in accordance with,
the laws of the state of Ohio.
10.12 Submission To Jurisdiction; Waivers. The
Company hereby irrevocably and unconditionally:
(a) submits for itself and its property in
any legal action or proceeding relating to this
Agreement and the other Loan Documents to which it is a
party, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive
general jurisdiction of the Courts of the State of
<PAGE>
Ohio, the courts of the United States of America for
the Northern District of Ohio, and appellate courts
from any thereof;
(b) consents that any such action or
proceeding may be brought in such courts and waives any
objection that it may now or hereafter have to the
venue of any such action or proceeding in any such
court or that such action or proceeding was brought in
an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any
such action or proceeding may be effected by mailing a
copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid,
to the Company at its address set forth in subsection
10.2 or at such other address of which the Agent shall
have been notified pursuant thereto;
(d) agrees that nothing herein shall affect
the right to effect service of process in any other
manner permitted by law or shall limit the right to sue
in any other jurisdiction; and
(e) waives, to the maximum extent not
prohibited by law, any right it may have to claim or
recover in any legal action or proceeding referred to
in this subsection any special, exemplary, punitive or
consequential damages.
10.13 Acknowledgements. The Company hereby
acknowledges that:
(a) it has been advised by counsel in the
negotiation, execution and delivery of this Agreement,
the Notes and the other Loan Documents;
(b) neither the Agent nor any Bank has any
fiduciary relationship to the Company, and the
relationship between Agent and Banks, on one hand, and
Company, on the other hand, is solely that of debtor
and creditor; and
(c) no joint venture exists among the Banks
or among the Company and the Banks.
10.14 Warrant of Attorney. The Company
authorizes any attorney at law at any time or times
after the maturity hereof (whether maturity occurs by
lapse of time or by acceleration) to appear in any
state or federal court of record in the United States
<PAGE>
of America, to waive the issuance and service of process, to
admit the maturity of this note and the nonpayment thereof
when due, to confess judgment against the Company in favor
of the holder of this note for the amount then appearing
due, together with interest and costs of suit, and thereupon
to release all errors and to waive all rights of appeal and
stay of execution. The foregoing warrant of attorney shall
survive any judgment, and if any judgment be vacated for any
reason, the holder hereof nevertheless may thereafter use
the foregoing warrant of attorney to obtain an additional
judgment or judgments against the Company. The Company
agrees that the Agent or the Banks' attorney may confess
judgment pursuant to the foregoing warrant of attorney. The
Company further agrees that the attorney confessing judgment
pursuant to the foregoing warrant of attorney may receive a
legal fee or other compensation from the Agent or the Banks.
10.15 JURY TRIAL WAIVER. THE COMPANY, THE
AGENT AND EACH OF THE BANKS WAIVE ANY RIGHT TO HAVE A
JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG THE
COMPANY, THE AGENT AND THE BANKS, OR ANY THEREOF,
ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM
IN CONNECTION WITH THIS CREDIT AGREEMENT OR ANY NOTE OR
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS
RELATED THERETO. THIS WAIVER SHALL NOT IN ANY WAY
AFFECT, WAIVE, LIMIT, AMEND OR MODIFY ANY BANK'S
ABILITY TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION
OF JUDGMENT OR COGNOVIT PROVISION CONTAINED IN ANY NOTE
OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT AMONG THE
COMPANY, THE AGENT AND THE BANKS, OR ANY
THEREOF.WAIVERS OF JURY TRIAL.
51. The Company and each of the Banks hereby consent to the
appointment of Society National Bank as Successor Agent.
52. The Credit Agreement is hereby amended by deleting
Schedules I, II, III, IV, V, VI, VII, VIII, IX, X, XI and XII and
Exhibits A and B in their entirety and by substituting in place
thereof, Amended Schedules I, II, III, IV, V, VI, VII, VIII, IX,
X, XI and XII, respectively, and new Exhibits A and B in the form
of Amended Schedules I, II, III, IV, V, VI, VII, VIII, IX, X, XI
and XII, and Exhibits A and B, respectively, attached hereto.
53. Concurrently with the execution of this Amendment
Agreement, the Company shall execute and deliver to each Bank a
Working Capital Loan Note dated May 12, 1995 and being in form
and substance substantially in the form of Exhibit A attached
<PAGE>
hereto with the blanks appropriately filled. After receipt of
such Working Capital Loan Note, Bank will mark the Revolving
Credit Note being replaced hereby, "Replaced" and return the same
to the Company.
54. With respect to the financial condition of the Company
and its Subsidiaries, the Company hereby represents and warrants
to the Agent and the Banks that:
(a) The consolidated balance sheet of the Company
and its consolidated Subsidiaries as at January 28,
1995 and the related consolidated statements of
operations and retained earnings and of cash flows for
the fiscal year ended on such date, reported on, in
draft form, by Arthur Andersen LLP, copies of which
have heretofore been furnished by the Company to each
Bank, are complete and correct and present fairly the
consolidated financial condition of the Company and its
consolidated Subsidiaries as at such date, and the
consolidated results of their operations and their
consolidated cash flows for the fiscal year then ended.
All such financial statements, including the related
schedules and notes thereto, have been prepared in
accordance with GAAP applied consistently throughout
the periods involved (except as approved by such
accountants or Responsible Officer, as the case may be,
and as disclosed therein).
(b) Except a set forth on Schedule II, as
amended, neither the Company nor any of its
consolidated Subsidiaries had, at the date of the most
recent balance sheet referred to in subsection 4.1(a),
any material Guarantee Obligation, contingent liability
or liability for taxes, or any long-term lease or
unusual forward or long-term commitment, including,
without limitation, any interest rate or foreign
currency swap or exchange transaction, which is not
reflected in the financial statements referred to in
subsection 4.1(a) or in the notes thereto.
(c) Except as set forth on Schedule III, as
amended, during the period from January 28, 1995 to and
including May 11, 1995, there has been no sale,
transfer or other disposition by the Company or any of
its consolidated Subsidiaries of any material part of
its business or property and no purchase or other
acquisition of any business or property (including any
capital stock of any other Person) material in relation
to the consolidated financial condition of the Company
and its consolidated Subsidiaries at January 28, 1995.
<PAGE>
55. The Company hereby further represents and warrants to
the Agent and the Banks that (a) the Company has the legal power
and authority to execute and deliver this Amendment Agreement;
(b) the officials executing this Amendment Agreement have been
duly authorized to execute and deliver the same and bind the
Company with respect to the provisions hereof; (c) the execution
and delivery hereof by the Company and the performance and
observance by the Company of the provisions hereof do not violate
or conflict with the organizational agreements of the Company or
any law applicable to the Company or result in a breach of any
provision of or constitute a default under any other agreement,
instrument or document binding upon or enforceable against the
Company; (d) the assets owned by the Designated Subsidiaries on
the date of this Amendment Agreement represent, in the aggregate,
at least 90% of the total assets of the Company and it
Subsidiaries; (e) the revenues of the Designated Subsidiaries
represent in the aggregate at least 90% of the revenues of the
Company and its Subsidiaries; (f) after giving effect to the
transactions contemplated hereby, no Default exists under the
Credit Agreement, nor will any occur immediately after the
execution and delivery of this Amendment Agreement or by the
performance or observance of any provision hereof; (g) the
Company has no claims or offsets against, or defenses or
counterclaims to, any of the Company's obligations or liabilities
under the Credit Agreement, as amended, or any Loan Document and
the Company hereby waives and releases the Agent and the Banks
from any and all such claims, offsets, defenses and counterclaims
of which the Company is aware, such waiver and release being with
full knowledge and understanding of the circumstances and effect
thereof and after having consulted legal counsel with respect
thereto; and (h) this Amendment Agreement constitutes a valid and
binding obligation of the Company in every respect, enforceable
in accordance with its terms.
56. Each reference to the Credit Agreement that is made in
the Credit Agreement or any other writing shall hereafter be
construed as a reference to the Credit Agreement as amended
hereby. Except as herein otherwise specifically provided, all
provisions of the Credit Agreement shall remain in full force and
effect and be unaffected hereby.
57. The rights and obligations of all parties hereto shall
be governed by the laws of the State of Ohio.
58. The Company has requested, on behalf of itself and the
Designated Subsidiaries, that Agent and the other Banks complete,
approve and execute this Second Amendment Agreement as quickly as
possible and in the shortest feasible time. Agent and Banks have
agreed to this request and, accordingly, have exerted every
effort to close on this Second Amendment Agreement in the
shortest possible time, foregoing the careful and extensive (and
<PAGE>
therefore time-consuming) review of the documentation that is
their normal practice in order to accommodate the needs of the
Company and the Designated Subsidiaries. Further, this Second
Amendment Agreement and the related Loan Documents have been the
subject of extensive negotiations and numerous revisions at the
request of all parties. Accordingly, the parties agree that any
ambiguity in any of the Loan Documents shall be construed in
favor of the Agent and the Banks, Further, the Company agrees
that the Agent, notwithstanding that such document has already
been executed by all the parties, may correct any obvious error
and complete any blank in any Loan Document, and the Agent shall
not be liable to the Company or any Designated Subsidiary for any
such action unless in taking such action the Agent acts in bad
faith or gross negligence or with a wilful disregard for the
interests of the Company or such Designated Subsidiary.
<PAGE>
59. JURY TRIAL WAIVER. TO THE EXTENT PERMITTED BY LAW, THE
COMPANY, THE AGENT AND EACH OF THE BANKS WAIVE ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE, AMONG THE COMPANY, THE AGENT AND THE
BANKS, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH,
RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG
THEM IN CONNECTION WITH THIS AMENDMENT AGREEMENT OR ANY NOTE OR
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. THIS
WAIVER SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY
ANY BANK'S ABILITY TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION
OF JUDGMENT OR COGNOVIT PROVISION CONTAINED IN ANY NOTE OR OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT AMONG THE COMPANY, THE AGENT
AND THE BANKS, OR ANY THEREOF.
DAIRY MART CONVENIENCE STORES, INC.
By:/s/Gregory Wozniak
Gregory Wozniak, Vice President
and Corporate Counsel
SOCIETY NATIONAL BANK, individually
and as Agent
By:/s/Robert A. Montgomery
Robert A. Montgomery, Senior
Vice President
FLEET BANK, NATIONAL ASSOCIATION
By:/s/William Theriault
William Theriault, Vice
President
<PAGE>
<TABLE>
SCHEDULE 1
Commitments; Addresses
<CAPTION>
L/C L/C Working CapitalWorking CapitalRevolving Credit
Commitment CommitmentLoan CommitmentLoan Commitment Commitment
Percentage Amount Percentage Amount Amount
<S> <C> <C> <C> <C> <C>
Society National Bank 55% $ 8,300,000 100% $5,000,000<F1>$13,300,000
127 Public Square
Cleveland, OH 44114
Attention: David A. Haverback
Telecopy No: 216/689-4981
Fleet Bank, National Association 45%$ 6,700,000 0% $0 $ 6,700,000
40 Westminster Street
P.O. Box 366, Mail Stop RI-OP-TO-5A
Providence, RI 02901-0366
Attention: William Theriault
Telecopy No: 401-459-4964
TOTAL 100% $15,000,000 100% $5,000,000 $20,000,000
<FN>
<F1>
The amount of the Working Capital Loan Commitment portion of the Revolving Credit Commitment has been temporarily reduced to
$5,000,000 and shall be increased to $30,000,000 upon the occurrence of all of the following conditions described in (I) or the
condition described in (II) and provided that the L/C Commitment shall then become, by further amendment of the Credit Agreement, a
sublimit of the overall credit facility of $30,000,000: (I)(a) The Company shall have recorded a Consolidated Net Income (excluding
any income from sale of capital assets and nonrecurring gains) of not less than $19,500,000 on a rolling four quarter basis at the
end of any fiscal quarter, as confirmed (in the discretion of the Agent) by an audit report of the Company's independent public
accountant; (b) the payment of fees satisfactory to the Agent; and (c) no Default shall exist; or (II) The Agent and the Banks
otherwise agree to increase the Working Capital Loan Commitment.
</FN>
</TABLE>
<PAGE>
EXHIBIT (10.6)
<PAGE>
DAIRY MART CONVENIENCE STORES, INC.
1995 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
1. Purpose.
The purpose of this 1995 Stock Option Plan For Outside
Directors (the "Plan") is to attract and retain the continued
services of non-employee directors of Dairy Mart Convenience
Stores, Inc. (the "Company") with the requisite qualifications
and to encourage such directors to secure or increase on
reasonable terms their stock ownership in the Company. The Board
of Directors of the Company (the "Board") believes that the
granting of options (the "Options") under the Plan will promote
continuity of management and increased personal interest in the
welfare of the Company by those who are responsible for shaping
and carrying out the long-range plans of the Company and securing
its continued growth and financial success.
2. Effective Date of the Plan.
The Plan shall become effective upon its approval by the
Board of Directors; provided, however, that if the Plan is not
approved by the shareholders of the Company at the 1995 annual
meeting of the shareholders of the Company, then the Plan shall
terminate.
3. Stock Subject to Plan.
50,000 of the authorized but unissued shares, or treasury
shares, of the Company's class A common stock, par value $.01 per
share (the "Shares"), are hereby reserved for issuance upon the
exercise of Options. If any Option expires or terminates for any
reason without having been exercised in full, the unpurchased
Shares subject thereto shall again be available for the grant of
Options hereunder.
4. Administration.
The Plan shall be administered by the Board of Directors of
the Company (the "Board"). Subject to the provisions of the Plan,
the Board of Directors shall have complete authority in its
discretion to interpret the Plan, to prescribe, amend and rescind
rules and regulations relating to it and to make all other
determinations necessary or advisable for the administration of
the Plan; provided, however, that the Board of Directors shall
have no discretion to determine the non-employee directors who
will receive Options, the number of Shares subject to Options,
the terms upon which, the times at which, or the periods within
which, Shares may be acquired or the Options may be acquired and
exercised.
<PAGE>
5. Eligibility.
An Option may be granted only to members of the Board who
are not otherwise employees of the Company or any of its
subsidiaries on the date of grant and have not been employees of
the Company or any of its subsidiaries at any time since the
beginning of the one year period preceding service on the Board
(the "Participants").
6. Grant of Options and Option Price.
(a) Initial Grant. On the date on which the Plan is
approved by the Board of Directors, each Participant shall
receive an automatic grant of an Option to purchase 3,500 Shares
(the "Initial Option"). Individuals who become Participants after
the date on which the Plan is approved by the Board of Directors
shall not receive an Initial Option.
Each grant of an Initial Option is conditioned upon (i)
subsequent approval of the Plan by the shareholders of the
Company at the 1995 annual meeting of shareholders, and (ii) the
Participant not selling, transferring or otherwise disposing of
the Shares underlying the Initial Option on or before the date
which is six months after the date on which shareholder approval
of the Plan is obtained (the "Six Month Date"). If the Plan is
not approved by the shareholders of the Company at the 1995
annual meeting, then the Initial Options shall be void ab initio.
Initial Options may not be exercised until after this Plan is
approved by the Shareholders.
(b) Annual Grants to Directors. On February 1 of each
year, beginning on February 1, 1996, each Participant shall
receive an automatic, annual grant of an Option to purchase 3,500
Shares (the "Annual Option"); provided, however that the number
of Shares subject to future grant under the Plan is sufficient to
make the automatic grants required to be made pursuant to the
Plan on such date.
(c) Exercise Price. The per Share price to be paid by a
Participant upon the exercise of an Option shall be equal to the
fair market value of a Share on the day preceding the date of
grant. For the purposes hereof, the fair market value of a Share
on any date shall be equal to the closing price per Share on such
date (or if no such price was established on such date, then on
the next preceding date on which a price was established), as
shall be quoted on the National Association of Securities Dealers
Automated Quotation System, or on such other securities quotation
system or exchange as the Shares may be listed.
<PAGE>
7. Option Period.
Participants shall be granted Options which are exercisable
from the date that they are granted for a period of ten years
from the date of the granting thereof, provided, however, that
the Initial Options may not be exercised until after the approval
of this plan by the shareholders.
8. Exercise of Option.
Subject to Section 10, an Option may be exercised in whole
or in part at any time on or after the date it becomes
exercisable by the Participant's delivering to the Company on any
business day, at its principal executive offices, a written
notice of exercise, which notice shall specify the number of
Shares as to which the Option is being exercised, in whole or in
part. Payment in full of the Option exercise price shall
accompany such written notice as set forth below. After the
exercise of an Option and payment in full of the exercise price,
the Optionee shall be entitled to receive a stock certificate or
certificates evidencing his or her ownership of Shares acquired
upon such exercise.
The purchase price shall be paid as follows: (i) in cash,
certified or bank cashier's or teller's check; (ii) by surrender
of Shares then owned by the Optionee; or (iii) partially in
accordance with (i) and partially in accordance with (ii) of this
Section. Shares surrendered in accordance with (ii) or (iii)
shall be valued at their fair market value at the date of
exercise. If the Shares are listed on a securities exchange or
are quoted on the NASDAQ market the fair market value of the
Shares shall be the closing price of the Shares as of the close
of business on the date immediately preceding the date such
shares are tendered to the Company for exercise of an Option.
Surrender of such Shares shall be evidenced by the delivery of
certificate(s) representing such Shares in such manner, and
endorsed in such form, or accompanied by stock powers endorsed in
such form, as the Board may determine.
9. Transferability.
No Option shall be assignable or transferable, except by
will and/or by the laws of descent and distribution. During the
life of any Participant, each Option granted to the Participant
may be exercised only by the Participant, or if he or she is
disabled or incapacitated, by his or her legal representative.
<PAGE>
10. Ceasing to be a Director.
If a Participant terminates service as a director for any
reason including termination by reason of death of a Participant,
any outstanding Option held by the Participant shall terminate on
the earlier of (i) the date on which such Option would otherwise
expire, or (ii) nine (9) months after such termination.
11. Duration of Plan.
Unless sooner terminated, the Plan shall remain in effect
until all Shares have been issued upon the exercise of Options,
and shall thereafter terminate. No Option may be granted after
the termination of this Plan; provided, however, that, except for
termination pursuant to Paragraph 2 above, termination of the
Plan shall not affect any Option previously granted, and such
Option shall remain in effect until exercised, surrendered or
cancelled, or until it shall have expired, all in accordance with
its terms.
12. Changes in Capital Structure, etc.
In the event of changes in the outstanding common stock of
the Company by reason of stock dividends, stock splits,
recapitalizations, mergers, consolidations, combinations or
exchange of shares, reorganizations, or liquidations, the number
of Shares available under the Plan in the aggregate and the
number of Shares as to which Options may be granted to any
Participant shall be correspondingly adjusted by the Board. In
addition, the Board shall make appropriate adjustments in the
number of Shares as to which outstanding Options, or portions
thereof then unexercised, shall relate, to the end that the
Participant's proportionate interest shall be maintained as
before the occurrence of such events (or, in the case of mergers
and consolidations to the end that the Option shall be for the
same number of Shares or other securities as a holder of the
number of Shares underlying the Option prior to the merger or
consolidation would have received as a result of the merger of
consolidation); such adjustment shall be made without change in
the total price applicable to the unexercised portion of Options
and with a corresponding adjustment in the option price per
Share.
13. Rights as Shareholder.
A Participant entitled to Shares as a result of the exercise
of an Option shall not be deemed for any purpose to be, or have
rights as, a shareholder of the Company by virtue of such
exercise, except to the extent a stock certificate is issued
therefor and then only from the date such certificate is issued.
No adjustments shall be made for dividends or distributions or
other rights for
<PAGE>
which the record date is prior to the date such stock certificate
is issued.
14. Expenses.
The expenses of this Plan shall be paid by the Company.
15. Compliance with Applicable Law.
Notwithstanding anything herein to the contrary, the Company
shall not be obligated to cause to be issued or delivered any
certificates evidencing Shares pursuant to the exercise of an
Option, unless and until the Company is advised by its counsel
that the issuance and delivery of such certificates is in
compliance with all applicable laws and regulations of
governmental authority. The Company shall in no event be
obligated to register any securities pursuant to the Securities
Act of 1933 (as now in effect or as hereafter amended) or to take
any other action in order to cause the issuance and delivery of
such certificates to comply with any such law or regulation. The
Board may require, as a condition of the issuance and delivery of
such certificates and in order to ensure compliance with such
laws and regulations, that the Participant make such covenants,
agreements and representations as the Board, in its sole
discretion, deems necessary or desirable.
If any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.")
withholdings or other amounts are required by applicable law or
governmental regulation to be withheld from the Participant's
salary, wages, renumeration or otherwise in connection with the
exercise of an Option, the Participant shall advance in cash to
the Company the amount of such withholdings unless a different
withholding arrangement, including the use of Shares, is
authorized by the Board (and permitted by law); provided,
however, that with respect to persons subject to Section 16 of
the Securities Exchange Act of 1934 (the "1934 Act), any such
withholding arrangement shall be in compliance with any
applicable provisions of Rule 16b-3 promulgated under Section 16
of the 1934 Act, or such other similar rules as may apply to such
persons. For purposes hereof, the value of the Shares withheld
for purposes of payroll withholding shall be the fair market
value of the Shares, as set forth in Section 8. If the fair
market value of the Shares withheld is less than the amount of
withholdings required, the Participant may be required to advance
the difference in cash to the Company. The Board in its
discretion may condition the exercise of an Option on the
Participant's payment of such additional withholding.
<PAGE>
16. Acceleration and Termination of Options.
Notwithstanding any other provision of this Plan, a
dissolution or liquidation of the Company, or a merger or
consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with an
affiliate of the Company), or a Change of Control of the Company
(as defined below) shall cause any unexercised portion of an
Option to terminate, except for any outstanding unexercised
Option as to which the Company or another corporation makes
appropriate provision for the protection of the value thereof and
either assumes the Option, or substitutes another Option, with
substantially similar terms; provided, however, a Participant
shall have the right immediately prior to such dissolution,
liquidation, merger, consolidation, or Change of Control, to
exercise the unexercised portion of the Option, in whole or in
part. The Participant shall have until the close of business on
the day preceding the effective date of any such dissolution,
merger consolidation, or Change of Control, or preceding the
commencement of any such liquidation, to exercise the Option.
Such effective date or commencement date shall be the date
designated in a written notice from the Board to the Optionee,
which notice shall be given not less than fourteen (14) days
prior to such designated effective date or commencement date,
provided that for the purposes of this Section, the effective
date shall be the date designated, whether or not the
dissolution, merger, consolidation or Change of Control actually
becomes effective on such date. If such dissolution, liquidation,
merger, consolidation, or Change of Control is not consummated
within thirty (30) days after such effective date, and if the
Participant has not exercised the Option in full, then the Option
or (or any part of such Option which has not yet been exercised)
shall continue in full force and effect as if no such notice had
been given.
For purposes hereof, a "Change of Control" shall mean the
consummation of a transaction in which the beneficial ownership
or control of the Company is or may be changed such that one or
more persons or entities (other than persons or entities who
beneficially owned more than ten percent (10%) of the Shares on
the date the Option was granted and other than persons who are
directors of the Company on the date the Option has granted (or
entities controlled by such persons)) obtain beneficial ownership
or control of more than fifty percent (50%) of the assets or
outstanding voting securities or equity interests of the Company.
Such transactions include, without limitation, sales of
substantially all of the assets of the Company, acquisitions of
ownership or control by tender offer, and acquisitions of such
ownership or control through the issuance of authorized but
unissued capital stock of the Company.
<PAGE>
17. Application of Funds.
Any cash proceeds received by the Company from the sale of
Shares pursuant to Options will be used for general corporate
purposes.
18. Amendment of the Plan.
The Board may from time to time suspend or discontinue this
Plan or revise or amend it in any respect whatsoever except that,
without the approval of the shareholders, no such revision or
amendment shall (a)increase the number of Shares subject to this
Plan, (b) modify the requirements as to eligibility for a grant
of an Option, (c) materially increase the benefits accruing to
the Participants under this Plan, or (d) be of a nature that
requires shareholder approval in order to ensure the compliance
of the Plan with Rule 16b-3 promulgated under the 1934 Act, or
such similar rule as may apply to the Plan. No such suspension,
discontinuance, revision or amendment shall in any manner affect
any Option theretofore granted without the consent of the
Participant or the transferee of the Participant, unless
necessary to comply with applicable law.
19. Governing Law.
This Plan shall be construed and enforced in accordance with
the law of the State of Connecticut.
<PAGE>
EXHIBIT (10.7)
<PAGE>
September 16, 1994
Gregory G. Landry
Dairy Mart Convenience Stores, Inc.
One Vision Drive
Enfield, CT 06082
Dear Mr. Landry:
Dairy Mart Convenience Stores, Inc. (the "Company")
considers it essential to the best interests of its stockholders
to foster the continuous employment of key management personnel.
Accordingly, the Board of Directors of the Company believes that
steps should be taken to reinforce and encourage the continued
attention and dedication of certain members of the Company's
senior management, yourself included, arising out of recent
changes in the Company's senior management and shifts in the
beneficial ownership of a significant number of shares of the
Company's outstanding voting stock.
In order to induce you to remain in the employ of the
Company, the Company agrees that you shall receive the severance
benefits set forth in this letter agreement (the "Agreement") in
the event your employment with the Company is terminated under
the circumstances described below.
1. Term of Agreement. This Agreement shall commence on the
date hereof and shall continue in effect through the second
anniversary of the date hereof.
2. Effect of Termination. You shall be entitled to the
benefits provided in Section 3(iv) hereof upon the termination of
your employment with the Company during the term of this
Agreement, unless such termination is (A) a result of your death,
or (B) by you for other than Good Reason, or (C) by the Company
for Disability or for Cause.
(i) Disability. For purposes of this Agreement,
"Disability" shall mean permanent and total disability as such
term is defined under Section 22(e)(3) of the Internal Revenue
Code of 1986, as amended (the "Code"). Any question as to the
existence of your Disability upon which you and the Company
cannot agree shall be determined by a qualified independent
physician selected by you (or, if you are unable to make such
selection, such selection shall be made by any adult member of
your immediate family or your legal
<PAGE>
representative), and approved by the Company, said approval not
to be unreasonably withheld. The determination of such physician
made in writing to the Company and to you shall be final and
conclusive for all purposes of this Agreement.
(ii) Cause. For purposes of this Agreement, "Cause"
shall mean your willful breach of duty in the course of your
employment, or your habitual neglect of your employment duties.
For purposes of this Section 2(ii), no act, or failure to act, on
your part shall be deemed "willful" unless done, or omitted to be
done, by you not in good faith and without reasonable belief that
your action or omission was in the best interest of the Company
and its subsidiaries. Notwithstanding the foregoing, you shall
not be deemed to have been terminated for Cause unless and until
there shall have been delivered to you a copy of a resolution
duly adopted by the affirmative vote of not less than three-
quarters (3/4) of the entire membership of the Company's Board of
Directors (the "Board") at a meeting of the Board called and held
for such purpose (after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard
before the Board), finding that in the good faith opinion of the
Board you were guilty of conduct set forth above in this Section
2(ii) and specifying the particulars thereof in detail.
(iii) Good Reason. You shall be entitled to
terminate your employment for Good Reason. For the purpose of
this Agreement, "Good Reason" shall mean the occurrence, without
your express written consent, of any of the following
circumstances:
(A) the assignment to you of any duties
inconsistent with your status as Executive Vice
President and Chief Financial Officer of the Company,
your removal from that position, or a diminution in the
nature or status of your responsibilities from those in
effect immediately prior to the date hereof;
(B) a reduction by the Company in your annual
base salary, annual bonus or fringe benefits as in
effect on the date hereof or as the same may be
increased from time to time; or
(C) any failure by the Board to renominate you
for election as a director of the Company, except in
connection with your death or the termination of your
employment (x) by you for other than Good Reason or (y)
by the Company for Disability or for Cause.
<PAGE>
Your continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstances constituting
Good Reason hereunder.
(iv) Notice of Termination. Any purported termination
of your employment by the Company and its subsidiaries or by you
shall be communicated by written Notice of Termination to the
other party hereto in accordance with Section 5 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean
a notice which shall indicate the specific termination provision
in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
(v) Date of Termination, Etc. "Date of Termination"
shall mean (A) if your employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided
that you shall not have returned to the full-time performance of
your duties during such thirty (30) day period), and (B) if your
employment is terminated pursuant to Section 2(ii) or (iii) above
or for any reason (other than Disability), the date specified in
the Notice of Termination (which, in the case of a termination
pursuant to Section 2(ii) above shall not be less than thirty
(30) days, and in the case of a termination pursuant to Section
2(iii) above shall not be less than ninety (90) nor more than one
hundred twenty (120) days, respectively, from the date such
Notice of Termination is given).
3. Compensation Upon Termination or During Disability.
Upon termination of your employment or during a period of
Disability you shall be entitled to the following benefits,
provided that such period of Disability or Notice of Termination
occurs during the term of this Agreement:
(i) During any period that you fail to perform your
full-time duties with the Company as a result of your Disability,
you shall continue to receive an amount equal to your base salary
and bonus at the rate in effect at the commencement of any such
period through the Date of Termination for Disability.
Thereafter, your benefits shall be determined in accordance with
the insurance programs of the Company and its subsidiaries then
in effect.
(ii) If your employment shall be terminated by the
Company for Cause or by you other than for Good Reason, the
Company shall pay you your full base salary and bonus through the
Date of Termination at the rate in effect at the time Notice of
Termination is given and shall pay any amounts to be paid to you
pursuant to any other compensation plans, programs or employment
agreements
<PAGE>
then in effect, and the Company shall have no further obligations
to you under this Agreement.
(iii) If your employment shall be terminated by
reason of your death, your benefits shall be determined in
accordance with the programs of the Company then in effect.
(iv) If your employment by the Company shall be
terminated by (a) the Company other than for Cause, your death,
or Disability at any time during the term of this Agreement, or
(b) you for Good Reason at any time between the first anniversary
and the second anniversary of the date hereof, then you shall be
entitled to the benefits provided below:
(A) The Company shall pay you your full base
salary and annual bonus accrued through the Date of
Termination at the rate in effect at the time the
Notice of Termination is given, no later than the fifth
day following the Date of Termination, plus all other
amounts to which you are entitled under any
compensation plan of the Company applicable to you, at
the time such payments are due. For purposes of this
Section 3(iv)(A) and the other provisions of this
Agreement, your annual bonus "in effect at the time the
Notice of Termination is given" shall mean the greater
of the amount of the annual bonus paid to you in
respect of any of the three years immediately prior to
the year in which the Notice of Termination is given.
(B) The Company shall pay you, on a date that is
no later than the fifth day following the Date of
Termination, as severance pay to you a severance
payment equal to 2 times the sum of (x) your full base
salary and (y) annual bonus, in each case in effect at
the time the Notice of Termination is given.
The payment to be made to you pursuant to this
Section 3(iv)(B) shall not be reduced by the amount of
any other payment or the value of any benefit received
or to be received by you in connection with your
termination of employment (whether payable pursuant to
the terms of this Agreement or any other agreement,
plan or arrangement with the Company or an affiliate,
predecessor or successor of the Company).
(C) In the event that any payment or benefit
received or to be received by you pursuant to the terms
of this Agreement (the "Contract Payments") or in
connection with your termination of employment pursuant
<PAGE>
to any plan or arrangement or other agreement with the
Company (or any affiliate) ("Other Payments" and,
together with the Contract Payments, the "Payments")
would be subject to the excise tax (the "Excise Tax")
imposed by Section 4999 of the Code, as determined as
provided below, the Company shall pay to you, at the
time specified in Section 3(iv)(D) below, an additional
amount (the "Gross-Up Payment") such that the net
amount retained by you, after deduction of the Excise
Tax on Contract Payments and Other Payments and any
federal, state and local income tax and Excise Tax upon
the payment provided for by this Section 3(iv)(C), and
any interest, penalties or additions to tax payable by
you with respect thereto, shall be equal to the total
present value of the Contract Payments and Other
Payments at the time such Payments are to be made. For
purposes of determining whether any of the Payments
will be subject to the Excise Tax and the amounts of
such Excise Tax, (1) the total amount of the Payments
shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of
Section 280G(b)(1) of the Code shall be treated as
subject to the Excise Tax, except to the extent that,
in the opinion of independent tax counsel selected by
the Company's independent auditors and reasonably
acceptable to you ("Tax Counsel"), a Payment (in whole
or in part) does not constitute a "parachute payment"
within the meaning of Section 280G(b)(2) of the Code,
or such "excess parachute payments" (in whole or in
part) are not subject to the Excise Tax, (2) the amount
of the Payments that shall be treated as subject to the
Excise Tax shall be equal to the lesser of (A) the
total amount of the Payments or (B) the amount of
"excess parachute payments" within the meaning of
Section 280G(b)(i) of the Code (after applying clause
(1) hereof), and (3) the value of any noncash benefits
or any deferred payment or benefit shall be determined
by Tax Counsel in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. For purposes
of determining the amount of the Gross-Up Payment, you
shall be deemed to pay federal income tax at the
highest marginal rates of federal income taxation
applicable to individuals in the calendar year in which
the Gross-Up Payment is to be made and state and local
income taxes at the highest marginal rates of taxation
applicable to individuals as are in effect in the state
and locality of your residence in the calendar year in
which the Gross-Up Payment is to be made, net of the
maximum reduction in federal income taxes that can be
<PAGE>
obtained from deduction of such state and local taxes,
taking into account any limitations applicable to
individuals subject to federal income tax at the
highest marginal rates.
(D) The Gross-Up Payments provided for in Section
3(iv)(C) hereof shall be made upon the earlier of (i)
the payment to you of any Contract Payment or Other
Payment or (ii) the imposition upon you or payment by
you of any Excise Tax.
(E) If it is established pursuant to a final
determination of a court or an Internal Revenue Service
proceeding or the opinion of Tax Counsel that the
Excise Tax is less than the amount taken into account
under Section 3(iv)(C) hereof, you shall repay to the
Company within five days of your receipt of notice of
such final determination or opinion the portion of the
Gross-Up Payment attributable to such reduction (plus
the portion of the Gross-Up Payment attributable to the
Excise Tax and federal, state and local income tax
imposed on the Gross-Up Payment being repaid by you if
such repayment results in a reduction in Excise Tax or
a federal, state and local income tax deduction) plus
any interest received by you on the amount of such
repayment. If it is established pursuant to a final
determination of a court or an Internal Revenue Service
proceeding or the opinion of Tax Counsel that the
Excise Tax exceeds the amount taken into account
hereunder (including by reason of any payment the
existence or amount of which cannot be determined at
the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such
excess within five days of the Company's receipt of
notice of such final determination or opinion.
(F) The Company shall also pay to you all legal
fees and expenses reasonably incurred by you in
connection with this Agreement (including all such fees
and expenses, if any, incurred in contesting or
disputing in good faith the nature of any such
termination for purposes of this Agreement or in
seeking to obtain or enforce any right or benefit
provided by this Agreement).
(G) On the Date of Termination, the Company shall
at its sole cost and expense transfer unrestricted
ownership and legal title to the automobile made
available by the Company for your use as of the Notice
of Termination.
<PAGE>
(H) For the period of time from the Date of
Termination through the earlier of two years thereafter
or the date on which you and your dependents become
eligible for substantially equivalent coverage provided
by a subsequent employer, the Company shall provide you
and your eligible dependents with continued coverage
under all health, medical, dental and hospitalization
plans maintained by the Company during such time period
on the same terms and conditions applicable to
executive officers of the Company.
(I) Upon the Date of Termination all options to
purchase stock held by you that are not vested shall
immediately vest and become exercisable and all options
to purchase stock then held by you shall remain in
effect and be exercisable for 18 months after the Date
of Termination, notwithstanding any other provisions
that otherwise would be applicable.
(J) Upon the Date of Termination, the Company
shall assign and transfer to you, or your designee, all
of its right, title and interest in and to the life
insurance policies covering your life that were held by
the Company as of the Termination Date. From and after
the Termination Date, you shall, at your election,
assume and pay any and all premiums and other costs
associated with the continuation of such policies. The
Company shall execute and deliver any and all
appropriate instruments necessary to evidence the
foregoing assignment and transfer as promptly as
practicable after the Termination Date.
(K) You shall not be required to mitigate the
amount of any payment provided for in this Section 3 by
seeking other employment or otherwise, nor, except as
otherwise specifically provided herein, shall the
amount of any payment or benefit provided for in this
Section 3 be reduced by any compensation or benefit
earned by you as the result of employment by another
employer after the Date of Termination or otherwise.
4. Successors; Binding Agreement.
(i) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the
Company is required to perform it. Failure of the Company to
obtain
<PAGE>
such assumption and agreement prior to the effectiveness of any
such succession shall be a breach of the Agreement and shall
entitle you to compensation from the Company in the same amount
and on the same terms as you would be entitled hereunder if you
had terminated your employment for Good Reason following a change
in control, except that for purposes of implementing the
foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in
this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and
be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount would
still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to your devisee,
legatees or other designee or, it there is no such designee, to
your estate.
5. Notice. For the purpose of this Agreement, notices and
all other communications provided for in this Agreement shall be
in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to the address set
forth on the first page of this Agreement with respect to the
Company and on the signature page with respect to you, provided
that all notices to the Company shall be directed to the
attention of the Chairman and President of the Company, or to
such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
6, Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by you and such
officer as may be specifically designated by the Board. No wavier
by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any conditions or provision
of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The
validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of
Connecticut. All
<PAGE>
references to sections of the Code shall be deemed also to refer
to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law. The
obligations of the Company under Section 3 shall survive the
expiration of the term of this Agreement.
7. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
8. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but
all of which together will constitute one and the same
instrument.
9. Arbitration. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively
by arbitration in accordance with the rules of the American
Arbitration Association then in effect. Judgement may be entered
on the arbitrator's award in any court having jurisdiction;
provided, however, that you shall be entitled to seek specific
performance of your right to be paid until the Date of
Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
<PAGE>
If this letter sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed
copy of this letter which will then constitute our agreement on
this subject.
Sincerely,
Dairy Mart Convenience Stores, Inc.
By: /s/ Charles Nirenberg
Name: Charles Nirenberg
Title: Chairman of the Board
Agreed to this 16th day of
September, 1994.
/s/ Gregory G. Landry
Address for notices:
86 Ethan Road
<PAGE>
EXHIBIT (10.8)
<PAGE> September 16, 1994
Robert B. Stein, Jr.
Dairy Mart Convenience Stores, Inc.
One Vision Drive
Enfield, CT 06082
Dear Mr. Stein:
Dairy Mart Convenience Stores, Inc. (the "Company")
considers it essential to the best interests of its stockholders
to foster the continuous employment of key management personnel.
Accordingly, the Board of Directors of the Company believes that
steps should be taken to reinforce and encourage the continued
attention and dedication of certain members of the Company's
senior management, yourself included, arising out of recent
changes in the Company's senior management and shifts in the
beneficial ownership of a significant number of shares of the
Company's outstanding voting stock.
In order to induce you to remain in the employ of the
Company, the Company agrees that you shall receive the severance
benefits set forth in this letter agreement (the "Agreement") in
the event your employment with the Company is terminated under
the circumstances described below.
1. Term of Agreement. This Agreement shall commence on the
date hereof and shall continue in effect through the second
anniversary of the date hereof.
2. Effect of Termination. You shall be entitled to the
benefits provided in Section 3(iv) hereof upon the termination of
your employment with the Company during the term of this
Agreement, unless such termination is (A) a result of your death,
or (B) by you for other than Good Reason, or (C) by the Company
for Disability or for Cause.
(i) Disability. For purposes of this Agreement,
"Disability" shall mean permanent and total disability as such
term is defined under Section 22(e)(3) of the Internal Revenue
Code of 1986, as amended (the "Code"). Any question as to the
existence of your Disability upon which you and the Company
cannot agree shall be determined by a qualified independent
physician selected by you (or, if you are unable to make such
selection, such selection shall be made by any adult member of
your immediate family or your legal representative), and approved
by the Company, said approval not to
e unreasonably withheld. The determination of such physician made
<PAGE>
in writing to the Company and to you shall be final and
conclusive for all purposes of this Agreement.
(ii) Cause. For purposes of this Agreement, "Cause"
shall mean your willful breach of duty in the course of your
employment, or your habitual neglect of your employment duties.
For purposes of this Section 2(ii), no act, or failure to act, on
your part shall be deemed "willful" unless done, or omitted to be
done, by you not in good faith and without reasonable belief that
your action or omission was in the best interest of the Company
and its subsidiaries. Notwithstanding the foregoing, you shall
not be deemed to have been terminated for Cause unless and until
there shall have been delivered to you a copy of a resolution
duly adopted by the affirmative vote of not less than three-
quarters (3/4) of the entire membership of the Company's Board of
Directors (the "Board") at a meeting of the Board called and held
for such purpose (after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard
before the Board), finding that in the good faith opinion of the
Board you were guilty of conduct set forth above in this Section
2(ii) and specifying the particulars thereof in detail.
(iii) Good Reason. You shall be entitled to
terminate your employment for Good Reason. For the purpose of
this Agreement, "Good Reason" shall mean the occurrence, without
your express written consent, of any of the following
circumstances:
(A) the assignment to you of any duties
inconsistent with your status as President of the
Company, your removal from that position, or a
diminution in the nature or status of your
responsibilities from those in effect immediately prior
to the date hereof;
(B) a reduction by the Company in your annual
base salary, annual bonus or fringe benefits as in
effect on the date hereof or as the same may be
increased from time to time; or
(C) any failure by the Board to renominate you
for election as a director of the Company, except in
connection with your death or the termination of your
employment (x) by you for other than Good Reason or (y)
by the Company for Disability or for Cause.
Your continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstances constituting
Good Reason hereunder.
<PAGE>
(iv) Notice of Termination. Any purported termination
of your employment by the Company and its subsidiaries or by you
shall be communicated by written Notice of Termination to the
other party hereto in accordance with Section 5 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean
a notice which shall indicate the specific termination provision
in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
(v) Date of Termination, Etc. "Date of Termination"
shall mean (A) if your employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided
that you shall not have returned to the full-time performance of
your duties during such thirty (30) day period), and (B) if your
employment is terminated pursuant to Section 2(ii) or (iii) above
or for any reason (other than Disability), the date specified in
the Notice of Termination (which, in the case of a termination
pursuant to Section 2(ii) above shall not be less than thirty
(30) days, and in the case of a termination pursuant to Section
2(iii) above shall not be less than ninety (90) nor more than one
hundred twenty (120) days, respectively, from the date such
Notice of Termination is given).
3. Compensation Upon Termination or During Disability.
Upon termination of your employment or during a period of
Disability you shall be entitled to the following benefits,
provided that such period of Disability or Notice of Termination
occurs during the term of this Agreement:
(i) During any period that you fail to perform your
full-time duties with the Company as a result of your Disability,
you shall continue to receive an amount equal to your base salary
and bonus at the rate in effect at the commencement of any such
period through the Date of Termination for Disability.
Thereafter, your benefits shall be determined in accordance with
the insurance programs of the Company and its subsidiaries then
in effect.
(ii) If your employment shall be terminated by the
Company for Cause or by you other than for Good Reason, the
Company shall pay you your full base salary and bonus through the
Date of Termination at the rate in effect at the time Notice of
Termination is given and shall pay any amounts to be paid to you
pursuant to any other compensation plans, programs or employment
agreements then in effect, and the Company shall have no further
obligations to you under this Agreement.
<PAGE>
(iv) If your employment shall be terminated by reason
of your death, your benefits shall be determined in accordance
with the programs of the Company then in effect.
(v) If your employment by the Company shall be
terminated by (a) the Company other than for Cause, your death,
or Disability at any time during the term of this Agreement, or
(b) you for Good Reason at any time between the first anniversary
and the second anniversary of the date hereof, then you shall be
entitled to the benefits provided below:
(A) The Company shall pay you your full base
salary and annual bonus accrued through the Date of
Termination at the rate in effect at the time the
Notice of Termination is given, no later than the fifth
day following the Date of Termination, plus all other
amounts to which you are entitled under any
compensation plan of the Company applicable to you, at
the time such payments are due. For purposes of this
Section 3(iv)(A) and the other provisions of this
Agreement, your annual bonus "in effect at the time the
Notice of Termination is given" shall mean the greater
of the amount of the annual bonus paid to you in
respect of any of the three years immediately prior to
the year in which the Notice of Termination is given.
(B) The Company shall pay you, on a date that is
no later than the fifth day following the Date of
Termination, as severance pay to you a severance
payment equal to 2 times the sum of (x) your full base
salary and (y) annual bonus, in each case in effect at
the time the Notice of Termination is given.
The payment to be made to you pursuant to this
Section 3(iv)(B) shall not be reduced by the amount of
any other payment or the value of any benefit received
or to be received by you in connection with your
termination of employment (whether payable pursuant to
the terms of this Agreement or any other agreement,
plan or arrangement with the Company or an affiliate,
predecessor or successor of the Company).
(C) In the event that any payment or benefit
received or to be received by you pursuant to the terms
of this Agreement (the "Contract Payments") or in
connection with your termination of employment pursuant
to any plan or arrangement or other agreement with the
Company (or any affiliate) ("Other Payments" and,
together with the Contract Payments, the "Payments")
<PAGE>
would be subject to the excise tax (the "Excise Tax")
imposed by Section 4999 of the Code, as determined as
provided below, the Company shall pay to you, at the
time specified in Section 3(iv)(D) below, an additional
amount (the "Gross-Up Payment") such that the net
amount retained by you, after deduction of the Excise
Tax on Contract Payments and Other Payments and any
federal, state and local income tax and Excise Tax upon
the payment provided for by this Section 3(iv)(C), and
any interest, penalties or additions to tax payable by
you with respect thereto, shall be equal to the total
present value of the Contract Payments and Other
Payments at the time such Payments are to be made. For
purposes of determining whether any of the Payments
will be subject to the Excise Tax and the amounts of
such Excise Tax, (1) the total amount of the Payments
shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of
Section 280G(b)(1) of the Code shall be treated as
subject to the Excise Tax, except to the extent that,
in the opinion of independent tax counsel selected by
the Company's independent auditors and reasonably
acceptable to you ("Tax Counsel"), a Payment (in whole
or in part) does not constitute a "parachute payment"
within the meaning of Section 280G(b)(2) of the Code,
or such "excess parachute payments" (in whole or in
part) are not subject to the Excise Tax, (2) the amount
of the Payments that shall be treated as subject to the
Excise Tax shall be equal to the lesser of (A) the
total amount of the Payments or (B) the amount of
"excess parachute payments" within the meaning of
Section 280G(b)(i) of the Code (after applying clause
(1) hereof), and (3) the value of any noncash benefits
or any deferred payment or benefit shall be determined
by Tax Counsel in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. For purposes
of determining the amount of the Gross-Up Payment, you
shall be deemed to pay federal income tax at the
highest marginal rates of federal income taxation
applicable to individuals in the calendar year in which
the Gross-Up Payment is to be made and state and local
income taxes at the highest marginal rates of taxation
applicable to individuals as are in effect in the state
and locality of your residence in the calendar year in
which the Gross-Up Payment is to be made, net of the
maximum reduction in federal income taxes that can be
obtained from deduction of such state and local taxes,
taking into account any limitations applicable to
<PAGE>
individuals subject to federal income tax at the
highest marginal rates.
(D) The Gross-Up Payments provided for in Section
3(iv)(C) hereof shall be made upon the earlier of (i)
the payment to you of any Contract Payment or Other
Payment or (ii) the imposition upon you or payment by
you of any Excise Tax.
(E) If it is established pursuant to a final
determination of a court or an Internal Revenue Service
proceeding or the opinion of Tax Counsel that the
Excise Tax is less than the amount taken into account
under Section 3(iv)(C) hereof, you shall repay to the
Company within five days of your receipt of notice of
such final determination or opinion the portion of the
Gross-Up Payment attributable to such reduction (plus
the portion of the Gross-Up Payment attributable to the
Excise Tax and federal, state and local income tax
imposed on the Gross-Up Payment being repaid by you if
such repayment results in a reduction in Excise Tax or
a federal, state and local income tax deduction) plus
any interest received by you on the amount of such
repayment. If it is established pursuant to a final
determination of a court or an Internal Revenue Service
proceeding or the opinion of Tax Counsel that the
Excise Tax exceeds the amount taken into account
hereunder (including by reason of any payment the
existence or amount of which cannot be determined at
the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such
excess within five days of the Company's receipt of
notice of such final determination or opinion.
(F) The Company shall also pay to you all legal
fees and expenses reasonably incurred by you in
connection with this Agreement (including all such fees
and expenses, if any, incurred in contesting or
disputing in good faith the nature of any such
termination for purposes of this Agreement or in
seeking to obtain or enforce any right or benefit
provided by this Agreement).
(G) On the Date of Termination, the Company shall
at its sole cost and expense transfer unrestricted
ownership and legal title to the automobile made
available by the Company for your use as of the Notice
of Termination.
(H) For the period of time from the Date of
Termination through the earlier of two years thereafter
<PAGE>
or the date on which you and your dependents become
eligible for substantially equivalent coverage provided
by a subsequent employer, the Company shall provide you
and your eligible dependents with continued coverage
under all health, medical, dental and hospitalization
plans maintained by the Company during such time period
on the same terms and conditions applicable to
executive officers of the Company.
(I) Upon the Date of Termination all options to
purchase stock held by you that are not vested shall
immediately vest and become exercisable and all options
to purchase stock then held by you shall remain in
effect and be exercisable for 18 months after the Date
of Termination, notwithstanding any other provisions
that otherwise would be applicable.
(J) Upon the Date of Termination, the Company
shall assign and transfer to you, or your designee, all
of its right, title and interest in and to the life
insurance policies covering your life that were held by
the Company as of the Termination Date. From and after
the Termination Date, you shall, at your election,
assume and pay any and all premiums and other costs
associated with the continuation of such policies. The
Company shall execute and deliver any and all
appropriate instruments necessary to evidence the
foregoing assignment and transfer as promptly as
practicable after the Termination Date.
(K) You shall not be required to mitigate the
amount of any payment provided for in this Section 3 by
seeking other employment or otherwise, nor, except as
otherwise specifically provided herein, shall the
amount of any payment or benefit provided for in this
Section 3 be reduced by any compensation or benefit
earned by you as the result of employment by another
employer after the Date of Termination or otherwise.
4. Successors; Binding Agreement.
(i) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the
Company is required to perform it. Failure of the Company to
obtain such assumption and agreement prior to the effectiveness
of any such succession shall be a breach of the Agreement and
shall
<PAGE>
entitle you to compensation from the Company in the same amount
and on the same terms as you would be entitled hereunder if you
had terminated your employment for Good Reason following a change
in control, except that for purposes of implementing the
foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in
this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and
be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount would
still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to your devisee,
legatees or other designee or, it there is no such designee, to
your estate.
5. Notice. For the purpose of this Agreement, notices and
all other communications provided for in this Agreement shall be
in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to the address set
forth on the first page of this Agreement with respect to the
Company and on the signature page with respect to you, provided
that all notices to the Company shall be directed to the
attention of the Chairman and President of the Company, or to
such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
6. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by you and such
officer as may be specifically designated by the Board. No wavier
by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any conditions or provision
of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The
validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of
Connecticut. All references to sections of the Code shall be
deemed also to refer to any successor provisions to such
sections. Any payments provided
<PAGE>
for hereunder shall be paid net of any applicable withholding
required under federal, state or local law. The obligations of
the Company under Section 3 shall survive the expiration of the
term of this Agreement.
7. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
8. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but
all of which together will constitute one and the same
instrument.
9. Arbitration. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively
by arbitration in accordance with the rules of the American
Arbitration Association then in effect. Judgement may be entered
on the arbitrator's award in any court having jurisdiction;
provided, however, that you shall be entitled to seek specific
performance of your right to be paid until the Date of
Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
If this letter sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed
copy of this letter which will then constitute our agreement on
this subject.
Sincerely,
Dairy Mart Convenience Stores, Inc.
By: /s/ Charles Nirenberg
Name: Charles Nirenberg
Title: Chairman of the Board
Agreed to this 16th day of
September, 1994.
/s/ Robert B. Stein, Jr.
Address for notices:
161 Great Pond Road
So. Glastonbury, CT 06073
Windsor, CT 06095
<PAGE>
EXHIBIT (10.9)
<PAGE>
September 16, 1994
Mitchell J. Kupperman
Dairy Mart Convenience Stores, Inc.
One Vision Drive
Enfield, CT 06082
Dear Dr. Kupperman:
Dairy Mart Convenience Stores, Inc. (the "Company")
considers it essential to the best interests of its stockholders
to foster the continuous employment of key management personnel.
Accordingly, the Board of Directors of the Company believes that
steps should be taken to reinforce and encourage the continued
attention and dedication of certain members of the Company's
senior management, yourself included, arising out of recent
changes in the Company's senior management and shifts in the
beneficial ownership of a significant number of shares of the
Company's outstanding voting stock.
In order to induce you to remain in the employ of the
Company, the Company agrees that you shall receive the severance
benefits set forth in this letter agreement (the "Agreement") in
the event your employment with the Company is terminated under
the circumstances described below.
1. Term of Agreement. This Agreement shall commence on the
date hereof and shall continue in effect through the second
anniversary of the date hereof.
2. Effect of Termination. You shall be entitled to the
benefits provided in Section 3(iv) hereof upon the termination of
your employment with the Company during the term of this
Agreement, unless such termination is (A) a result of your death,
or (B) by you for other than Good Reason, or (C) by the Company
for Disability or for Cause.
(i) Disability. For purposes of this Agreement,
"Disability" shall mean permanent and total disability as such
term is defined under Section 22(e)(3) of the Internal Revenue
Code of 1986, as amended (the "Code"). Any question as to the
existence of your Disability upon which you and the Company
cannot agree shall be determined by a qualified independent
physician selected by you (or, if you are unable to make such
selection, such selection shall be made by any adult member of
your immediate family or your legal representative), and approved
by the Company, said approval not to
<PAGE>
be unreasonably withheld. The determination of such physician
made in writing to the Company and to you shall be final and
conclusive for all purposes of this Agreement.
(ii) Cause. For purposes of this Agreement, "Cause"
shall mean your willful breach of duty in the course of your
employment, or your habitual neglect of your employment duties.
For purposes of this Section 2(ii), no act, or failure to act, on
your part shall be deemed "willful" unless done, or omitted to be
done, by you not in good faith and without reasonable belief that
your action or omission was in the best interest of the Company
and its subsidiaries. Notwithstanding the foregoing, you shall
not be deemed to have been terminated for Cause unless and until
there shall have been delivered to you a copy of a resolution
duly adopted by the affirmative vote of not less than three-
quarters (3/4) of the entire membership of the Company's Board of
Directors (the "Board") at a meeting of the Board called and held
for such purpose (after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard
before the Board), finding that in the good faith opinion of the
Board you were guilty of conduct set forth above in this Section
2(ii) and specifying the particulars thereof in detail.
(iii) Good Reason. You shall be entitled to
terminate your employment for Good Reason. For the purpose of
this Agreement, "Good Reason" shall mean the occurrence, without
your express written consent, of any of the following
circumstances:
(A) the assignment to you of any duties
inconsistent with your status as Executive Vice
President-Human Resources of the Company, your removal
from that position, or a diminution in the nature or
status of your responsibilities from those in effect
immediately prior to the date hereof;
(B) a reduction by the Company in your annual
base salary, annual bonus or fringe benefits as in
effect on the date hereof or as the same may be
increased from time to time; or
(C) any failure by the Board to renominate you
for election as a director of the Company, except in
connection with your death or the termination of your
employment (x) by you for other than Good Reason or (y)
by the Company for Disability or for Cause.
Your continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstances constituting
Good Reason hereunder.
<PAGE>
(iv) Notice of Termination. Any purported termination
of your employment by the Company and its subsidiaries or by you
shall be communicated by written Notice of Termination to the
other party hereto in accordance with Section 5 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean
a notice which shall indicate the specific termination provision
in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
(v) Date of Termination, Etc. "Date of Termination"
shall mean (A) if your employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided
that you shall not have returned to the full-time performance of
your duties during such thirty (30) day period), and (B) if your
employment is terminated pursuant to Section 2(ii) or (iii) above
or for any reason (other than Disability), the date specified in
the Notice of Termination (which, in the case of a termination
pursuant to Section 2(ii) above shall not be less than thirty
(30) days, and in the case of a termination pursuant to Section
2(iii) above shall not be less than ninety (90) nor more than one
hundred twenty (120) days, respectively, from the date such
Notice of Termination is given).
3. Compensation Upon Termination or During Disability.
Upon termination of your employment or during a period of
Disability you shall be entitled to the following benefits,
provided that such period of Disability or Notice of Termination
occurs during the term of this Agreement:
(i) During any period that you fail to perform your
full-time duties with the Company as a result of your Disability,
you shall continue to receive an amount equal to your base salary
and bonus at the rate in effect at the commencement of any such
period through the Date of Termination for Disability.
Thereafter, your benefits shall be determined in accordance with
the insurance programs of the Company and its subsidiaries then
in effect.
(ii) If your employment shall be terminated by the
Company for Cause or by you other than for Good Reason, the
Company shall pay you your full base salary and bonus through the
Date of Termination at the rate in effect at the time Notice of
Termination is given and shall pay any amounts to be paid to you
pursuant to any other compensation plans, programs or employment
agreements then in effect, and the Company shall have no further
obligations to you under this Agreement.
<PAGE>
(iii) If your employment shall be terminated by
reason of your death, your benefits shall be determined in
accordance with the programs of the Company then in effect.
(iv) If your employment by the Company shall be
terminated by (a) the Company other than for Cause, your death,
or Disability at any time during the term of this Agreement, or
(b) you for Good Reason at any time between the first anniversary
and the second anniversary of the date hereof, then you shall be
entitled to the benefits provided below:
(A) The Company shall pay you your full base
salary and annual bonus accrued through the Date of
Termination at the rate in effect at the time the
Notice of Termination is given, no later than the fifth
day following the Date of Termination, plus all other
amounts to which you are entitled under any
compensation plan of the Company applicable to you, at
the time such payments are due. For purposes of this
Section 3(iv)(A) and the other provisions of this
Agreement, your annual bonus "in effect at the time the
Notice of Termination is given" shall mean the greater
of the amount of the annual bonus paid to you in
respect of any of the three years immediately prior to
the year in which the Notice of Termination is given.
(B) The Company shall pay you, on a date that is
no later than the fifth day following the Date of
Termination, as severance pay to you a severance
payment equal to 2 times the sum of (x) your full base
salary and (y) annual bonus, in each case in effect at
the time the Notice of Termination is given.
The payment to be made to you pursuant to this
Section 3(iv)(B) shall not be reduced by the amount of
any other payment or the value of any benefit received
or to be received by you in connection with your
termination of employment (whether payable pursuant to
the terms of this Agreement or any other agreement,
plan or arrangement with the Company or an affiliate,
predecessor or successor of the Company).
(C) In the event that any payment or benefit
received or to be received by you pursuant to the terms
of this Agreement (the "Contract Payments") or in
connection with your termination of employment pursuant
to any plan or arrangement or other agreement with the
Company (or any affiliate) ("Other Payments" and,
together with the Contract Payments, the "Payments")
<PAGE>
would be subject to the excise tax (the "Excise Tax")
imposed by Section 4999 of the Code, as determined as
provided below, the Company shall pay to you, at the
time specified in Section 3(iv)(D) below, an additional
amount (the "Gross-Up Payment") such that the net
amount retained by you, after deduction of the Excise
Tax on Contract Payments and Other Payments and any
federal, state and local income tax and Excise Tax upon
the payment provided for by this Section 3(iv)(C), and
any interest, penalties or additions to tax payable by
you with respect thereto, shall be equal to the total
present value of the Contract Payments and Other
Payments at the time such Payments are to be made. For
purposes of determining whether any of the Payments
will be subject to the Excise Tax and the amounts of
such Excise Tax, (1) the total amount of the Payments
shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of
Section 280G(b)(1) of the Code shall be treated as
subject to the Excise Tax, except to the extent that,
in the opinion of independent tax counsel selected by
the Company's independent auditors and reasonably
acceptable to you ("Tax Counsel"), a Payment (in whole
or in part) does not constitute a "parachute payment"
within the meaning of Section 280G(b)(2) of the Code,
or such "excess parachute payments" (in whole or in
part) are not subject to the Excise Tax, (2) the amount
of the Payments that shall be treated as subject to the
Excise Tax shall be equal to the lesser of (A) the
total amount of the Payments or (B) the amount of
"excess parachute payments" within the meaning of
Section 280G(b)(i) of the Code (after applying clause
(1) hereof), and (3) the value of any noncash benefits
or any deferred payment or benefit shall be determined
by Tax Counsel in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. For purposes
of determining the amount of the Gross-Up Payment, you
shall be deemed to pay federal income tax at the
highest marginal rates of federal income taxation
applicable to individuals in the calendar year in which
the Gross-Up Payment is to be made and state and local
income taxes at the highest marginal rates of taxation
applicable to individuals as are in effect in the state
and locality of your residence in the calendar year in
which the Gross-Up Payment is to be made, net of the
maximum reduction in federal income taxes that can be
obtained from deduction of such state and local taxes,
taking into account any limitations applicable to
<PAGE>
individuals subject to federal income tax at the
highest marginal rates.
(D) The Gross-Up Payments provided for in Section
3(iv)(C) hereof shall be made upon the earlier of (i)
the payment to you of any Contract Payment or Other
Payment or (ii) the imposition upon you or payment by
you of any Excise Tax.
(E) If it is established pursuant to a final
determination of a court or an Internal Revenue Service
proceeding or the opinion of Tax Counsel that the
Excise Tax is less than the amount taken into account
under Section 3(iv)(C) hereof, you shall repay to the
Company within five days of your receipt of notice of
such final determination or opinion the portion of the
Gross-Up Payment attributable to such reduction (plus
the portion of the Gross-Up Payment attributable to the
Excise Tax and federal, state and local income tax
imposed on the Gross-Up Payment being repaid by you if
such repayment results in a reduction in Excise Tax or
a federal, state and local income tax deduction) plus
any interest received by you on the amount of such
repayment. If it is established pursuant to a final
determination of a court or an Internal Revenue Service
proceeding or the opinion of Tax Counsel that the
Excise Tax exceeds the amount taken into account
hereunder (including by reason of any payment the
existence or amount of which cannot be determined at
the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such
excess within five days of the Company's receipt of
notice of such final determination or opinion.
(F) The Company shall also pay to you all legal
fees and expenses reasonably incurred by you in
connection with this Agreement (including all such fees
and expenses, if any, incurred in contesting or
disputing in good faith the nature of any such
termination for purposes of this Agreement or in
seeking to obtain or enforce any right or benefit
provided by this Agreement).
(G) On the Date of Termination, the Company shall
at its sole cost and expense transfer unrestricted
ownership and legal title to the automobile made
available by the Company for your use as of the Notice
of Termination.
(H) For the period of time from the Date of
Termination through the earlier of two years thereafter
<PAGE>
or the date on which you and your dependents become
eligible for substantially equivalent coverage provided
by a subsequent employer, the Company shall provide you
and your eligible dependents with continued coverage
under all health, medical, dental and hospitalization
plans maintained by the Company during such time period
on the same terms and conditions applicable to
executive officers of the Company.
(I) Upon the Date of Termination all options to
purchase stock held by you that are not vested shall
immediately vest and become exercisable and all options
to purchase stock then held by you shall remain in
effect and be exercisable for 18 months after the Date
of Termination, notwithstanding any other provisions
that otherwise would be applicable.
(J) Upon the Date of Termination, the Company
shall assign and transfer to you, or your designee, all
of its right, title and interest in and to the life
insurance policies covering your life that were held by
the Company as of the Termination Date. From and after
the Termination Date, you shall, at your election,
assume and pay any and all premiums and other costs
associated with the continuation of such policies. The
Company shall execute and deliver any and all
appropriate instruments necessary to evidence the
foregoing assignment and transfer as promptly as
practicable after the Termination Date.
(K) You shall not be required to mitigate the
amount of any payment provided for in this Section 3 by
seeking other employment or otherwise, nor, except as
otherwise specifically provided herein, shall the
amount of any payment or benefit provided for in this
Section 3 be reduced by any compensation or benefit
earned by you as the result of employment by another
employer after the Date of Termination or otherwise.
4. Successors; Binding Agreement.
(i) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the
Company is required to perform it. Failure of the Company to
obtain such assumption and agreement prior to the effectiveness
of any such succession shall be a breach of the Agreement and
shall
<PAGE>
entitle you to compensation from the Company in the same amount
and on the same terms as you would be entitled hereunder if you
had terminated your employment for Good Reason following a change
in control, except that for purposes of implementing the
foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in
this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and
be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount would
still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to your devisee,
legatees or other designee or, it there is no such designee, to
your estate.
5. Notice. For the purpose of this Agreement, notices and
all other communications provided for in this Agreement shall be
in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to the address set
forth on the first page of this Agreement with respect to the
Company and on the signature page with respect to you, provided
that all notices to the Company shall be directed to the
attention of the Chairman and President of the Company, or to
such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
6. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by you and such
officer as may be specifically designated by the Board. No wavier
by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any conditions or provision
of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The
validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of
Connecticut. All references to sections of the Code shall be
deemed also to refer to any successor provisions to such
sections. Any payments provided
<PAGE>
for hereunder shall be paid net of any applicable withholding
required under federal, state or local law. The obligations of
the Company under Section 3 shall survive the expiration of the
term of this Agreement.
7. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
8. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but
all of which together will constitute one and the same
instrument.
9. Arbitration. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively
by arbitration in accordance with the rules of the American
Arbitration Association then in effect. Judgement may be entered
on the arbitrator's award in any court having jurisdiction;
provided, however, that you shall be entitled to seek specific
performance of your right to be paid until the Date of
Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
If this letter sets forth our agreement on the subject
matter hereof, kindly sagn and return to the Company the enclosed
copy of this letter which will then constitute our agreement on
this subject.
Sincerely,
Dairy Mart Convenience Stores,
Inc.
By: /s/ Charles Nirenberg
Name: Charles Nirenberg
Title: Chairman of the Board
Agreed to this 16th day of
September, 1994.
/s/ Mitchell J. Kupperman
Address for notices:
115 Quinnehtuk Road
Longmeadow, MA 01106
<PAGE>
EXHIBIT (10.10)
<PAGE>
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT is made this 27th day of January,
1995, by and between Dairy Mart Convenience Stores, Inc., a
Delaware corporation (the "Company"), and Frank Colaccino
("Colaccino").
W I T N E S S E T H:
WHEREAS, on August 25, 1994 (the "Termination Date"),
Colaccino's employment with the Company as its President and
Chief Executive Officer was terminated by the Company's Board of
Directors; and
WHEREAS, Colaccino believes that the meeting of the
Company's Board of Directors at which such termination was
effected was improperly called and noticed and that the Company's
directors wrongfully terminated his employment; and
WHEREAS, to settle any possible claims for wrongful
termination of employment, the Company and Colaccino have
determined that the interests of all concerned would be best
served by settling their differences regarding the termination of
Colaccino's employment on the terms hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements hereinafter set forth, the parties, intending
to be legally bound hereby, hereby agree as follows:
1. Severance Payments and Benefits. In connection with the
termination of Colaccino's employment as the President and Chief
Executive Officer of the Company and in consideration of the
other provisions of this Agreement, including, without
limitation, those set forth in Section 7 hereof (but excluding
Colaccino's agreements in Section 4, the consideration for which
is set forth in Section 4(d) hereof), the Company hereby agrees
to pay and make available to Colaccino the amounts and benefits
set forth in this Section 1.
(a) For the period of time from the Termination Date
through August 25, 1997, the Company shall make severance
payments to colaccino amounting to $245,000 for each 12-month
period, such payments totalling $735,000. The severance payments
provided for in this Section 1(a) shall be made in equal
installments on a periodic basis in accordance with the Company's
customary payroll practices applicable to its executive officers.
(b) As promptly as practicable after the date hereof,
the Company shall transfer to Colaccino unrestricted ownership
and legal title, free and clear of all liens and encumbrances, to
the automobile made available by the Company for Colaccino's use
as of the Termination Date. Thereafter, all costs and expenses
associated
<PAGE>
with the use and ownership of such automobile shall be borne by
Colaccino.
(c) The Company hereby assigns and transfers to
Colaccino or his designee all of its right, title and interest in
and to the life insurance policies (policy nos. 8912927 and
898540 issued by Massachusetts Mutual Insurance Company) covering
the life of Colaccino that were held by it as of the Termination
Date. Colaccino shall, at his election, assume and pay any and
all premiums and other costs associated with the continuation of
such policies as they become due after the Termination Date, and
after such date the Company shall have no continuing payment
obligations with respect to such policies. The Company shall
execute and deliver any and all appropriate instruments necessary
to evidence the foregoing assignment and transfer as promptly as
practicable after the date hereof.
(d) The Company hereby assigns and transfers to
Colaccino all of its right, title and interest in and to the
computer hardware, software and related systems and assets that
were installed by the Company at Colaccino's residence for his
use on behalf of the Company, free and clear of all liens and
encumbrances. The foregoing assets are assigned and transferred
to Colaccino as they exist on the date hereof and the Company
makes no representations or warranties whatsoever regarding such
assets.
(e) For the period of time from the Termination Date
through the earlier of August 25, 1996 or the date on which
Colaccino and his dependents become eligible for substantially
equivalent coverage provided by a subsequent employer, the
Company shall provide Colaccino and his eligible dependents with
continued coverage under all health, dental, medical and
hospitalization plans maintained by the Company during such time
period at the same cost and on the other terms and conditions
applicable to executive officers of the Company.
(f) Commencing in respect of September 30, 1994 and
continuing thereafter until the earlier of September 30, 1996 or
the date on which Colaccino first becomes employed on a full-time
basis by a subsequent employer, the Company shall make a monthly
payment to Colaccino on the 30th day of each such month (or, if
such day is not a business day, on the next succeeding business
day) in the amount of $2,000 to defray the costs and expenses of
office space and secretarial services (representing a maximum of
25 payments), without the need for Colaccino to account for such
expenses to the Company.
(g) Colaccino represents to the Company that he has
incurred at least $215,000 of out-of-pocket expenses in
connection with various matters relating to the Company. The
Company hereby
<PAGE>
agrees to promptly pay Colaccino $215,000 as reimbursement for
such expenses.
(h) Notwithstanding the terms of the Company's stock
option plans or any agreements previously made by the parties
pursuant thereto, the Company hereby agrees that the options
currently held by Colaccino to purchase shares of the Company's
common stock (or options issued in replacement thereof for the
same number of shares at the same exercise price) shall, to the
extent unvested, immediately vest as of the date hereof and all
such options currently held by Colaccino (or options issued in
replacement thereof for the same number of shares at the same
exercise price) shall be exercisable for a period of time ending
18 months after the date hereof. Schedule A attached hereto sets
forth certain information regarding the options currently held by
Colaccino to purchase shares of the Company's common stock.
2. Resignation as a Director. Colaccino hereby resigns as
a director of the Company and from the Board of Directors of any
subsidiary or affiliate of the Company on which he serves as of
the date hereof, effective with the execution of this Agreement.
3. Other Matters. (a) Colaccino hereby withdraws the
notice and call of a special meeting of the Company's
stockholders executed by him as President of the Company and
delivered to the Company on August 25, 1994 and agrees that he
will not challenge any withdrawal by the successor general
partner of DM Associated Limited Partnership ("DM Associates") of
the request for the call of a special meeting of stockholders
previously executed by him on behalf of DM Associates. Colaccino
and the Company acknowledge and agree that the stockholders
meeting referred to in such notice and call and request will not
be called by the Company or held. Colaccino further withdraws his
request, dated August 30, 1994, to examine the Company's
stockholder list and related materials.
(b) Colaccino agrees that he will not challenge any
withdrawal by the successor general partner of DM Associates of
the written consent of stockholders, dated August 29, 1994,
executed by him in his individual capacity and on behalf of DM
Associates and agrees that such written consent of stockholders
is null and void ab initio.
(c) As promptly as practicable following the execution
of this Agreement, but in no event later than ten days after the
date hereof, the parties to the following lawsuits will take all
steps necessary to dismiss with prejudice and without cost or
expense to any opposing party, except as set forth in Section
1(g) hereof, all claims against the defendants in such lawsuits:
Dairy Mart Convenience Stores, Inc., et. al. v. Colaccino, C.A.
No. 13713 and Colaccino, et. al. v. Kupperman, et. al., C.A. No.
13718, each
<PAGE>
pending in the Delaware Chancery Court, and Colaccino v. Landry,
et. al., Return Date Sept. 20, 1994, and Landry, et. al. v.
Colaccino, Order to Show Cause No. 705347, Return Date Sept. 20,
1994, each pending in Superior Court of the State of Connecticut,
Judicial District of Hartford at Hartford.
4. Non-Competition; Non-Solicitation. (a) Colaccino agrees
and covenants that for the period of time beginning on September
15, 1994 and ending on June 15, 1995, he will not, directly or
indirectly: (i) for his own account or as an employee, officer,
director, partner, joint venturer, shareholder, investor,
consultant or otherwise (except as an investor in a corporation
whose stock is publicly traded and in which Colaccino holds less
than 5% of the outstanding voting shares), engage in the business
of owning, managing or operating convenience stores in
Massachusetts, Connecticut, Hudson Valley in New York State,
Rhode Island, Ohio, Southern and Middle Michigan, Kentucky,
Southern Indiana or Western Pennsylvania (the "Covered Areas"),
such geographical areas constituting places in which the company
conducts business as of the date hereof; (ii) solicit the
employment of any current employee of the Company or any employee
who first enters the employ of the Company during the nine-month
period beginning on September 15, 1994; (iii) induce or encourage
any current employee of the Company or any employee who first
enters the employ of the Company during the nine-month period
beginning on September 15, 1994 to leave the employ of the
Company; or (iv) interfere in a material manner with any material
business relationship in any Covered Area between the Company and
any third party.
(b) The Company and Colaccino acknowledge and agree
that the provisions of Section 4(a) hereof are reasonable because
the scope thereof encompasses only the business of the Company as
conducted on the date hereof and they are limited to the
locations in which the Company does business as of the date
hereof.
(c) Notwithstanding anything contained in this Section
4 to the contrary, if the period of time or the geographical
areas specified in Section 4(a) hereof is determined to be
unreasonable in any proceeding before any court or agency legally
empowered to enforce the provisions of this Section 4, then the
period of time and area of the restriction shall be reduced so
that this Agreement may be enforced in such area and during such
period of time as shall be determined to be reasonable; provided,
however, that such reduction shall not extend to any jurisdiction
where such reduction is unnecessary to make the period of time or
the geographical area specified in Section 4(a) enforceable
therein.
(d) In consideration of Colaccino's agreements in this
Section 4, during the period of time from the Termination Date
<PAGE>
through August 25, 1997, the Company shall make payments to
Colaccino amounting to $120,000 for each 12-month period, such
payments totalling $360,000. The payments provided for in this
Section 4(d) shall be made in equal installments on a periodic
basis in accordance with the Company's customary payroll
practices applicable to its executive officers.
5. Non-Disclosure. Colaccino shall not at any time use or
disclose to any person, firm or corporation any trade secrets,
confidential or proprietary information of the Company that is
not publicly available, and which was acquired by him prior to
the Termination Date.
6. Return of Property; Access to Former Office. (a) Except
as provided in Sections 1(b) and 1(d) hereof, within five (5)
business days after the date hereof, Colaccino will return to the
Company all property of the Company in his possession or control
(whether maintained at his former office, home or elsewhere),
including, without limitation, all lists, books and records of
the Company (and all copies thereof), all data or other
information concerning the Company recorded, stored, maintained
or operated by electronic, mechanical or photographic process,
whether computerized or not, all copies of all management
studies, business or strategic plans, budgets, notebooks and all
other printed, typed or written materials, documents and data of
or relating to the Company or any of its affiliates. Colaccino
also shall within such time period direct his attorneys to
certify in writing to the Company that they have destroyed all
copies of any of the property of the Company described in this
Section 6 previously in their possession.
(b) The Company shall within ten days after the date
hereof allow Colaccino to have access to his former office for
the purpose of retrieving his personal property and documents.
Colaccino shall have such access after business hours and with
the accompaniment of a representative of the Company.
7. Release and Waiver. (a) Colaccino hereby accepts the
consideration set forth in this Agreement and agrees to waive all
claims against the Company, its subsidiaries and their respective
former, current and future officers, directors, employees,
stockholders, agents, attorneys, and other representatives
(collectively, "Affiliates") and hereby releases and discharges
the Company and its Affiliates from any and all actions, causes
of action, suits, debts, dues, sums of money, accounts,
covenants, contracts, controversies, agreements, promises,
judgments, demands, liabilities, claims and damages whatsoever,
in law or equity, that Colaccino ever had, now has, or hereafter
can, shall or may have, for, upon or by reason of his former
employment with, service as a director of, or in any other
capacity relating to the company, and
<PAGE>
the termination of the foregoing relationships, including, but
not limited to, any claims arising under any federal, state or
local law or ordinance, tort, employment contract (express or
implied), public policy, or any other obligation, including,
without limitation, any claims arising under Title VII of the
Civil Rights Act of 1964, as amended, the Age Discrimination in
Employment Act, as amended, and all claims for wrongful
discharge, workers' compensation, wages, monetary or equitable
relief, vacation, compensation in lieu of vacation, disability,
other employee fringe benefits, benefit plans, medical plans, or
attorneys' fees; provided, however, that notwithstanding the
foregoing, Colaccino reserves (i) any rights accrued through the
Termination Date that he may have pursuant to the Company's
401(k) and profit sharing plans, (ii) his ability to seek and
obtain indemnification by the Company to the extent he is
entitled to be indemnified by the Company pursuant to this
Agreement and the Company's Restated Certificate of
Incorporation, (iii) all claims relating to the performance of
the Company's obligations under this Agreement, including,
without limitation, those set forth in Section 1 hereof, and (iv)
his ability to assert claims for contribution or other
appropriate relief against one or more of the Company's
Affiliates in any action in which he is a defendant commenced by
any third party, including but not limited to one or more
stockholders of the Company seeking to act on behalf of the
Company.
(b) The Company hereby agrees to waive all claims
against Colaccino and his affiliates and their respective former,
current and future officers, directors, employees, stockholders,
agents, attorneys and other representatives and hereby releases
and discharges Colaccino, his affiliates and such other persons
from any and all actions, causes of action, suits, debts, dues,
sums of money, accounts, covenants, contracts, controversies,
agreements, promises, judgments, demands, liability, claims and
damages whatsoever, in law or equity, that the Company ever had,
now has, or hereafter can, shall or may have, for, upon or by
reason of Colaccino's former employment with, service as a
director of, or in any other capacity relating to the Company,
including, but not limited to, any claims arising under any
federal, state or local law or ordinance, tort, employment
contract (express or implied), public policy, or any other
obligation, other than (i) those relating to the performance of
Colaccino's obligations under this Agreement and (ii) claims by
one or more stockholders of the Company seeking to act on behalf
of the Company.
8. Indemnification. (a) The Company agrees to
indemnify and hold Colaccino harmless from and against any costs,
expenses (including, without limitation, reasonable legal fees
and expenses), judgments, fines, penalties and amounts paid in
settlement which he may incur or to which he may become subject
on
<PAGE>
or after the date hereof by reason of his prior service as a
director and employee of the Company to the fullest extent
permitted under, and in accordance with, the provisions of the
Company's Restated Certificate of Incorporation and Delaware law.
(b) Colaccino agrees to indemnify and hold the Company
and its Affiliates harmless from and against any costs, expenses
(including, without limitation, reasonable legal fees and
expenses), judgments and amounts paid in settlement (but
excluding any fines or penalties) that they may incur or to which
they may become subject on or after the date hereof by reason of
any failure on the part of the Company to withhold properly any
amounts in accordance with the provisions of Section 14 hereof
from the payments made to Colaccino pursuant to this Agreement.
9. Equitable Relief. Each of Colaccino, on the one hand,
and the Company, on the other hand, hereby expressly covenants
and agrees that the other party will suffer irreparable damage in
the event any of the provisions of Sections 4, 5 and 6 hereof are
not performed or are otherwise breached and that the other party
shall be entitled as a matter of right (without the need to prove
actual damages) to an injunction or injunctions and other relief
to prevent a breach or violation by the other party and to secure
its enforcement of such provisions. Resort to such equitable
relief, however, shall not constitute a waiver of any other
rights or remedies which the party seeking such relief may have.
10. Representations and Warranties. (a) Colaccino
represents and warrants to the Company as follows: (i) he has
full legal right, power and authority to enter into and perform
all of his obligations under this Agreement; (ii) the execution
and delivery of this Agreement by him will not violate any other
agreement to which he is a party; (iii) no consent of any third
party is required for the execution and performance of this
Agreement by him; and (iv) this Agreement has been duly executed
and delivered by him and constitutes a legal, valid and binding
agreement of him, enforceable in accordance with the terms,
subject to bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws, now or hereafter in
effect, affecting creditors' rights and remedies generally and to
general principals of equity.
(b) The Company represents and warrants to Colaccino
as follows: (i) the Company has all requisite corporate power
and authority to enter into this Agreement and to consummate the
transactions contemplated hereby; (ii) the execution, delivery
and performance of this Agreement has been duly authorized and
approved by all required corporate action on the part of the
Company, including approval by its Board of Directors; (iii) this
Agreement has been duly executed and delivered by the Company and
is a legal,
<PAGE>
valid and binding obligation of the Company, enforceable against
it in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws, now or hereafter in effect, affecting creditors'
rights and remedies generally and to general principals of
equity; (iv) the execution and delivery of this Agreement by the
Company will not constitute a breach under (with or without
notice or the passage of time or both) or violate the Company's
Restated Certificate of Incorporation or by-laws, any agreement
to which the Company is a party or any law, regulation, rule or
ordinance to which the Company is subject and (v) no consent of
any third party is required for the execution and performance of
this Agreement by the Company.
11. Notice. All notices, requests and other communications
to any party hereunder shall be given or made in writing and
mailed (by registered or certified mail or by overnight courier)
or delivered by hand as follows:
(a) if to the Company, to it at:
One Vision Drive
Enfield, CT 06082
Attention: Gregory G. Landry
with a copy to:
Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Attention: Dennis J. Block, Esq.
(b) if to Colaccino, to him at:
57 Thistledown
Suffield, CT 06078
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1333 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attention: Bruce S. Mendelsohn, P.C.
or such address as such party may hereafter specify for the
purpose of notice to the other party hereto. Each such notice,
request or other communication shall be effective when, if
delivered by hand, received by the party to which it is addressed
or, if mailed in the manner described above, on the third
business day after the date of mailing.
<PAGE>
12. Successors and Assigns. The rights and obligations of
the Company under this Agreement shall inure to the benefit and
be binding upon its successors and assigns and any entity to
which its assets and business may be transferred by operation of
law or otherwise. This Agreement is personal to Colaccino, and
Colaccino shall not, without the written consent of the Company,
assign his rights or obligations hereunder other than by will or
the laws of descent and distribution, but the provisions hereof
shall inure to the benefit of and be enforceable by Colaccino's
heirs and legal representatives. The parties agree that the
Company's obligations pursuant to Sections 1(a), 1(e), 1(f) and
4(d) hereof shall survive Colaccino's death and shall be
performed in accordance with the terms hereof (with payments to
be made at the direction of the executor or executrix of
Colaccino's estate or other appropriate representative).
13. Governing Law. This Agreement shall be construed in
accordance with and governed by the substantive laws of the State
of Connecticut, without regard to the choice of law rules
thereof.
14. Withholding. The Company shall have the right to
withhold from the payments to be made to Colaccino hereunder and
account for amounts which it reasonably determines may be subject
to applicable withholding taxes and social security.
15. Press Release. Colaccino and the Company shall agree
on the text of a press release announcing the execution of this
Agreement.
16. Attorneys' Fees for Enforcement. Each of Colaccino, on
the one hand, and the Company, on the other hand, hereby
expressly agrees to reimburse and indemnify the other party for
any costs and expenses (including, without limitation, reasonable
legal fees and expenses) incurred by the other party to the
extent such other party successfully obtains relief from a court
of competent jurisdiction to enforce the terms and provisions of
this Agreement.
17. Complete Understanding. This Agreement supersedes any
prior contracts, understandings, discussions and agreements
between Colaccino and the Company and constitutes the complete
understanding between the parties with respect to the subject
matter hereof. No statement, representation, warranty or
covenant has been made by either party with respect hereto except
as expressly set forth therein.
18. Modification; Waiver. (a) This Agreement may be
amended or waived if, and only if, such amendment or waiver is in
writing and signed, in the case of an amendment, by the Company
and
<PAGE>
Colaccino or in the case of a waiver, by the party against whom
the waiver is to be effective.
(b) No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein
provided shall be cumulative and shall not be exclusive of any
rights or remedies provided by law or at equity.
19. Headings. The section headings in this Agreement are
for convenience of reference only and shall not control or affect
the meaning or construction of this Agreement.
20. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement shall become effective when
each party hereto shall have received counterparts hereof signed
by the other party hereto.
21. No Reductions. Except as otherwise provided for
herein, the amount of any payment or benefit provided for in this
Agreement shall not be reduced by any compensation earned by
Colaccino as a result of employment by a subsequent employer or
otherwise or any benefits received by him after the date hereof
from a subsequent employer or otherwise.
22. Further Assurances. At any time or from time to time
after the date hereof, either party shall, at the request of the
other party, execute and deliver any further instruments or
documents and take all such further action (including the
execution by Colaccino of stock powers as requested by the
Company in respect of any shares of capital stock of any
subsidiary of the Company held of record as of the date hereof by
Colaccino that were previously issued in his name to satisfy
applicable local ownership rules and regulations) as such party
reasonably may request in order to consummate and make effective
the foregoing provisions of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed in its corporate name by one of its officers
duly authorized to enter into and execute this Agreement, and
Colaccino has manually signed his name hereto, as of the date
first written above.
/s/ Frank Colaccino
Frank Colaccino
DAIRY MART CONVENIENCE STORES, INC.
By /s/ Gregory G. Landry
Name: Gregory G. Landry
Title: Executive Vice President
and Chief Financial Officer
<PAGE>
Schedule A
Options Held By Colaccino
Number of Shares Grant Exercise Price Original
Subject to Option Date Per Share Expiration Date
10,000 (Class B) 07/15/85 $5.50 07/15/95
6,250 (Class A) 05/07/87 $6.60 05/07/97
48,750 (Class A) 11/01/89 $6.20 11/01/99
10,000 (Class A) 2/24/93 $5.25 02/24/03
15,000 (Class A) 09/12/90 $4.60 09/12/00
60,000 (Class A) 01/28/92 $7.25 01/28/02
<PAGE>
EXHIBIT 21
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Dairy Mart, Inc. (a Massachusetts corporation)
Dairy Mart Farms, Inc. (a Connecticut corporation)
Dairy Mart East, Inc. (a Rhode Island corporation)
The Lawson Company (a Delaware corporation)
CONNA Corporation (a Kentucky corporation)
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to
the incorporation of our reports included in this Form 10-K,
into the Company's previously filed Registration Statements
on Forms S-8, file No. 33-8209 and File No. 33-47893.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
May 15, 1995
<PAGE>
EXHIBIT 27
<PAGE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from Consolidated Statements of Operations and
Consolidated Balance Sheets and is qualified in its
entirety to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-START> JAN-30-1994
<PERIOD-END> JAN-28-1995
<CASH> 4,512,000
<SECURITIES> 2,053,000
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<COMMON> 63,000
0
0
<OTHER-SE> 22,754,000
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<INCOME-PRETAX> (17,319,000)
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<INCOME-CONTINUING> (10,761,000)
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<CHANGES> (389,000)
<NET-INCOME> (11,150,000)
<EPS-PRIMARY> (2.01)
<EPS-DILUTED> (2.01)
</TABLE>
