<PAGE>
As filed with the Securities and Exchange Commission on February 28, 1996.
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DAIRY MART CONVENIENCE STORES, INC.
(Exact name of registrant as specified in charter)
DELAWARE 04-2497894
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE VISION DRIVE, ENFIELD, CONNECTICUT 06082 (860) 741-4444
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
COPY TO:
ROBERT B. STEIN, JR. STANFORD N. GOLDMAN, JR., ESQUIRE
CHIEF EXECUTIVE OFFICER, PRESIDENT MINTZ, LEVIN, COHN, FERRIS,
AND CHAIRMAN OF THE BOARD GLOVSKY AND POPEO, P.C.
DAIRY MART CONVENIENCE STORES, INC. ONE FINANCIAL CENTER
ONE VISION DRIVE BOSTON, MA 02111
ENFIELD, CONNECTICUT 06082 (617) 348-1708
(860) 741-4501
(Name, Address, including zip code, and telephone number,
including area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 1(a)(1)
of this Form, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================
TITLE OF EACH PROPOSED PROPOSED
CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, par value
$.01 per share........................... 1,715,000 $ 6.95 $ 11,919,250.00 $ 4,110.00
- -------------------------------------------------------------------------------------------------------------
Class A Common Stock Purchase Warrant.... 1,715,000 (2) (2) (2)
==============================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(g) of the Securities Act of 1933, based upon the
exercise price of the Class A Common Stock Purchase Warrants.
(2) Pursuant to Rule 457(g) under the Securities Act of 1933, no separate fee is
payable for the Class A Common Stock Purchase Warrants.
Also registered hereunder pursuant to Rule 416 are an indeterminate number of
shares of Class A Common Stock which may be issued pursuant to anti-dilution
provisions applicable to the Class A Common Stock Purchase Warrants.
____________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
DAIRY MART CONVENIENCE STORES, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-2
<TABLE>
<CAPTION>
Form S-2 Item and Caption Location in Prospectus
------------------------- ----------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of.Prospectus .. Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus................. Inside Front and Outside Back Cover
Pages; Available Information;
Documents Incorporated by Reference
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Charges.... Risk Factors; The Company
4. Use of Proceeds........................... Not Applicable
5. Determination of Offering Price........... Not Applicable
6. Dilution.................................. Not Applicable
7. Selling Security Holders.................. Selling Stockholders
8. Plan of Distribution...................... Plan of Distribution
9. Description of Securities to be Registered Description of the Class A Common
Stock and Warrants
10. Interests of Named Experts and Counsel.... Certain Legal Matters; Experts
11. Information with Respect to the Registrant Documents Incorporated by Reference
12. Incorporation of Certain Information by
Reference................................. Documents Incorporated by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
</TABLE>
<PAGE>
PROSPECTUS
DAIRY MART CONVENIENCE STORES, INC.
1,715,000 CLASS A COMMON STOCK PURCHASE WARRANTS
1,715,000 SHARES OF CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
----------------------------------
The 1,715,000 Class A Common Stock Purchase Warrants (the "Warrants") and
the 1,715,000 shares of Class A Common Stock (the "Class A Common Stock") of
Dairy Mart Convenience Stores, Inc., a Delaware corporation (the "Company" or
"Dairy Mart"), offered hereby are being sold by the selling stockholders
identified herein (the "Selling Stockholders"). Each Warrant entitles the
registered holder thereof to purchase one share of Class A Common Stock at an
initial exercise price of $6.95 per share, subject to adjustment in certain
circumstances, for a period of six years commencing on December 1, 1995. Offers
and sales of the Warrants and the Class A Common Stock may be made on one or
more exchanges, in the over-the-counter market, or otherwise, at prices and on
terms then prevailing, or at prices related to the then-current market price, or
in negotiated transactions, or by underwriters pursuant to an underwriting
agreement in customary form, or in a combination of any such methods of sale.
The Selling Stockholders may also sell such securities in accordance with Rule
144 under the Securities Act of 1933, as amended (the "1933 Act"). The Selling
Stockholders are identified and certain information with respect to them is
provided under the caption "Selling Stockholders" herein, to which reference is
made. The expenses of the registration of the securities offered hereby,
including fees of counsel for the Company, and one counsel for the Selling
Stockholders, will be paid by the Company. The following expenses will be borne
by the Selling Stockholders: underwriting discounts and selling commissions, if
any, and the fee of additional legal counsel, if any, for the Selling
Stockholders. The filing by the Company of this Prospectus in accordance with
the requirements of Form S-2 is not an admission that any person whose shares
are included herein is an "affiliate" of the Company.
The Selling Stockholders have advised the Company that they have not
engaged any person as an underwriter or selling agent for any of such
securities, but they may in the future elect to do so, and they will be
responsible for paying such a person or persons customary compensation for so
acting. The Selling Stockholders and any broker executing selling orders on
behalf of any Selling Stockholders may be deemed to be "underwriters" within the
meaning of the 1933 Act, in which event commissions received by any such broker
may be deemed to be underwriting commissions under the 1933 Act. The Company
will not receive any of the proceeds from the sale of the securities offered
hereby, other than receipt of the exercise price. The Class A Common Stock is
listed on the Nasdaq Stock Market ("Nasdaq") under the symbol "DMCVA." The
Warrants are not listed, nor does the Company intend to list them, on Nasdaq or
any national securities exchange. On February 23, 1996, the closing sale price
of the Class A Common Stock, as reported by Nasdaq, was $5.94 per share.
----------------------------------
THE WARRANTS AND THE CLASS A COMMON STOCK OFFERED HEREBY
INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 3 OF THIS PROSPECTUS.
----------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION, OR ANY
STATE SECURITIES COMMISSION, PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------------------
The date of this Prospectus is __________ __, 1996.
<PAGE>
FOR CALIFORNIA RESIDENTS ONLY
WITH RESPECT TO SALES OF THE SECURITIES BEING OFFERED HEREBY TO CALIFORNIA
RESIDENTS, SUCH SECURITIES MAY BE SOLD ONLY TO (1) "ACCREDITED INVESTORS" WITHIN
THE MEANING OF REGULATION D UNDER THE 1933 ACT, (2) BANKS, SAVINGS AND LOAN
ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT COMPANIES
REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, PENSION AND PROFIT SHARING
TRUSTS, CORPORATIONS OR OTHER ENTITIES WHICH, TOGETHER WITH THE CORPORATION'S OR
OTHER ENTITY'S AFFILIATES, HAVE A NET WORTH ON A CONSOLIDATED BASIS ACCORDING TO
THEIR MOST RECENT REGULARLY PREPARED FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN
REVIEWED, BUT NOT NECESSARILY AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN
$14,000,000 AND SUBSIDIARIES OF THE FOREGOING, (3) ANY CORPORATION, PARTNERSHIP
OR ORGANIZATION (OTHER THAN A CORPORATION, PARTNERSHIP OR ORGANIZATION FORMED
FOR THE SOLE PURPOSE OF PURCHASING THE SECURITIES OFFERED HEREBY) WHO PURCHASES
AT LEAST $1,000,000 AGGREGATE AMOUNT OF THE SECURITIES OFFERED HEREBY, (4) ANY
NATURAL PERSON WHO (A) HAS INCOME OF $65,000 AND A NET WORTH OF $250,000, OR (B)
HAS A NET WORTH OF $500,000 (IN EACH CASE, EXCLUDING HOME, HOME FURNISHINGS AND
PERSONAL AUTOMOBILES), OR (5) ANY "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
UNDER RULE 144A OF THE 1933 ACT.
AVAILABLE INFORMATION
The Company is subject to certain informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). These reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024 of the
Commission's office at 450 Fifth Street, N.W., Judiciary Plaza, Washington, DC
20549, and at its regional offices located at 7 World Trade Center, Suite 1300,
New York, NY 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, IL 60661. Copies of such reports, proxy statements and other
information can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Judiciary Plaza, Washington, DC 20549 at prescribed
rates. Additional updating information with respect to the securities covered
herein may be provided in the future to purchasers by means of appendices to
this Prospectus.
The Company has filed with the Commission in Washington, DC a registration
statement (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the 1933 Act with respect to the securities
offered or to be offered hereby. This Prospectus does not contain all of the
information included in the Registration Statement, certain items of which are
omitted in accordance with the rules and regulations of the Commission. For
further information about the Company and the securities offered hereby,
reference is made to the Registration Statement and the exhibits thereto.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any document incorporated herein by reference, excluding exhibits. Requests
should be made to Dairy Mart Convenience Stores, Inc., One Vision Drive,
Enfield, Connecticut 06082, telephone (860) 741-4444, Attention: Investor
Relations.
While the Warrants are outstanding, the Company will furnish holders of the
Warrants with annual reports containing audited consolidated financial
statements and quarterly reports containing unaudited interim consolidated
financial statements.
2
<PAGE>
RISK FACTORS
An investment in the shares being offered by this Prospectus involves a
high degree of risk. In addition to the other information contained in this
Prospectus or incorporated herein by reference, prospective investors should
carefully consider the following risk factors before purchasing the shares
offered hereby. This Prospectus contains forward-looking statements which
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to, the
Risk Factors discussed below.
LEVERAGE; DEBT SERVICE
At February 3, 1996, the Company had consolidated long-term indebtedness of
approximately $99.7 million. As of October 28, 1995, the Company had
consolidated long-term indebtedness of approximately $87.9 million and a ratio
of consolidated indebtedness to total stockholders' equity of 3.7 to 1. This
substantial degree of leverage may have adverse consequences on the Company
including: (i) impairment of the Company's ability to obtain additional
financing in the future for working capital, capital expenditures or other
purposes; (ii) required use of a substantial portion of the Company's cash flow
from operations to make interest and principal payments; (iii) an adverse effect
on the Company's ability to compete with other businesses that may be less
leveraged; and (iv) the Company's increased vulnerability in the event of a
downturn in its businesses.
The Credit Agreement will mature on May 31, 1996 and contains numerous
financial and operating covenants and requires periodic repayments of amounts
borrowed thereunder. As of February 3, 1996, the Company had no outstanding
revolving credit loans and outstanding letters of credit in the amount of $13.8
million. There can be no assurance that the Company will be able to obtain new
financing on satisfactory terms or maintain compliance with the financial
covenants that are contained in the Credit Agreement or any new credit facility.
Failure to meet such financial tests or other covenants would result in a
default thereunder. The Company expects to obtain a new credit facility and
generate sufficient cash flow from operations to meet all of its principal and
interest obligations on its and its subsidiaries' indebtedness, including
indebtedness under the Notes (as hereinafter defined), the Credit Agreement and
any new credit agreement. However, the Company's ability to satisfy principal
and interest obligations under its credit facility will depend upon dividends
and other intercompany transfers from its subsidiaries, and will be subject to
the successful implementation of the Company's business strategy and financial,
business and other factors affecting the business and operations of the Company
and its subsidiaries, including factors beyond their control, such as prevailing
economic conditions.
NET LOSSES
The Company has incurred substantial net losses in two of its last three
fiscal years. For the fiscal years ended January 25, 1995 and January 30, 1993,
the Company experienced net losses of $11,150,000 and $6,850,000, respectively,
primarily reflecting nonrecurring charges incurred during such fiscal periods.
In fiscal 1994, the Company had net income of $866,000. The Company expects to
incur a substantial net loss for the fiscal year ended February 3, 1996, also
reflecting nonrecurring charges incurred during fiscal 1996. There can be no
assurance that the Company will not experience annual net losses in the future.
MANAGEMENT CONTROL OF THE COMPANY
DM Associates Limited Partnership ("DM Associates") owns 1,858,743 shares
of the Company's Class B Common Stock. Five of the Company's seven directors are
currently elected by the holders of the Company's Class B Common Stock. The
remaining two directors are elected by the holders of the Company's Class A
Common Stock. The Company's management, through its control of the general
partner of DM Associates, is entitled to vote not less than 40.9% of the
Company's Class B Common Stock. Such 40.9% of the Company's Class B Common Stock
constitutes 37.1% of the total voting power of both classes of Common Stock. In
addition, a Change of Control under the Indenture will result (i) if DM
Associates continues to hold all of its shares after
3
<PAGE>
September 13, 1997, or (ii) if the limited partners of DM Associates exercise
their right to require either a sale or distribution to such limited partners of
the Company's Common Stock owned by DM Associates if certain conditions are not
satisfied, which right is exercisable after September 12, 1997. Further, the
limited partnership agreement also requires that the general partner of DM
Associates consult with a certain limited partner of DM Associates before voting
any shares at a meeting of the Company's shareholders or exercising any
consensual rights of such shares. If such general partner votes or exercises
consensual rights of such shares in a manner in which such limited partner does
not agree, the limited partner may dissolve DM Associates. If a Change of
Control were to occur, the Company may be unable to fulfill its obligations to
redeem the Notes and to pay principal and interest due under the Notes.
ENVIRONMENTAL COMPLIANCE
The Company incurs ongoing costs to comply with federal, state and local
environmental laws and regulations, particularly the comprehensive regulatory
programs governing underground storage tanks ("USTs") used in the Company's
gasoline operations. In addition, in the ordinary course of business, the
Company periodically detects releases of gasoline or other regulated substances
from USTs it owns or operates. In the past three fiscal years ended January 28,
1995, the Company recorded expenses which averaged approximately $1.2 million
annually, net of reimbursements from state trust fund programs, for assessment
and remediation activities in connection with releases into the environment of
regulated substances from USTs at the Company's current or former gasoline
facilities. The Company accrues its estimates of all costs to be incurred for
assessment and remediation for releases at the time they become known. These
accruals are adjusted if and when new information becomes known. Due to the
nature of such releases, the actual costs incurred may vary from these
estimates, and the ongoing costs of assessment and remediation activities may
vary significantly from year to year.
In addition, federal and state regulatory programs mandate that all
existing USTs be upgraded or replaced by December 22, 1998 to meet certain
environmental protection requirements. The Company presently estimates that in
addition to the Company's assessment and remediation costs discussed above, it
will make aggregate capital expenditures ranging from approximately $10.0
million to $12.5 million over the next three fiscal years to comply with
upgrading and other UST regulatory requirements. The actual costs incurred may
vary substantially from these estimates.
STORE EXPANSION
A major component in the Company's growth strategy is to continue to build
new stores and increase its level of gasoline sales. The opening of new stores
will be dependent upon a number of factors, including general economic
conditions, anticipated competition in the Company's markets, the availability
of desirable locations, the ability to negotiate and enter into lease,
development or acquisition agreements on acceptable terms and the availability
of financing. The Company's experience has been that new stores contribute
positively to operating income after their first year of operation. There can be
no assurance that the Company will be able to open, operate or acquire new
stores on a timely or profitable basis in accordance with the Company's current
plans.
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.
4
<PAGE>
Gasoline sales are very competitive. The Company competes with both
independent and national brand gasoline stations. Gasoline profit margins have a
significant impact on the Company's earnings. These profit margins are often
influenced by factors beyond the Company's control, such as volatility in the
wholesale gasoline market, and are continually influenced by competition in each
local market area.
EFFECT OF WEATHER ON BUSINESS
The Company believes that weather conditions have a significant effect on
its 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
significantly higher revenues and profit margins during the warmer weather
months, which fall within the Company's second and third fiscal quarters. If
weather conditions are not favorable in the second and third fiscal quarters,
the Company's performance may be adversely affected.
GOVERNMENT REGULATION AND POTENTIAL LEGISLATION
The Company is subject to numerous federal, state and local laws,
regulations and ordinances. In addition, various federal, state and local
legislative and regulatory proposals are made from time to time to, among other
things, increase the minimum wage payable to employees, and increase taxes on,
and regulation of, the retail sale of certain products, such as tobacco products
and alcoholic beverages. Changes to such laws, regulations or ordinances may
adversely affect the Company's performance by increasing the Company's costs or
affecting its sales of certain products.
NO PRIOR MARKET FOR THE WARRANTS
The Company does not intend to apply for the listing of the Warrants on any
securities exchange or on Nasdaq and it is not anticipated that an active
trading market will develop for the Warrants. Accordingly, the purchasers of the
Warrants may not be readily able to liquidate their investments. If a public
trading market develops for the Warrants, future trading prices of such
securities will depend on many factors, including, among other things, the
Company's results of operations and the market for similar securities. Depending
on these and other factors, including the financial condition of the Company,
the market price for the Warrants may be adversely affected.
LITIGATION
The Company is currently involved in a derivative lawsuit in which the
plaintiff alleges, among other things, that in connection with the Company's
purchase of certain interests from Charles Nirenberg, a former stockholder,
director and officer of the Company (the "Nirenberg Transaction"), the Board of
Directors violated their fiduciary duty to the Company and its stockholders,
violated provisions of Delaware corporate law and wasted corporate assets. The
Plaintiff's seek, among other things, a declaration that the current structure
of the general partner of DM Associates is invalid and that certain voting
rights with respect to the Class B Common Stock held by DM Associates should be
vested in the Company. Although the Company is contesting these claims, if the
Company became a general partner of DM Associates, a Change of Control of the
Company under the Indenture could result. If a Change of Control were to occur,
the Company may be unable to fulfill its obligations to redeem the Notes and to
pay principal and interest due under the Notes. In addition, if the plaintiff
pursues this claim, management of the Company could be forced to commit time and
resources to the defense of this action. There can be no assurance that this
claim will not have a material adverse effect on the Company's business,
operating results and financial condition.
5
<PAGE>
THE COMPANY
Dairy Mart was founded in 1957 and operates one of the nation's largest
convenience store chains. As of the fiscal year ended 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 is incorporated in Delaware and maintains its principal
executive offices at One Vision Drive, Enfield, Connecticut 06082. The Company's
telephone number is (860) 741-4444.
SELLING STOCKHOLDERS
The securities offered hereby by the Selling Stockholders consist of
Warrants to purchase 1,715,000 shares of Class A Common Stock and 1,715,000
shares of Class A Common Stock issuable upon exercise of the Warrants. The
Warrants were acquired by the Selling Stockholders (i) in connection with the
issuance and sale by the Company of its 10 1/4% Senior Subordinated Notes
(Series B) due 2004 (the "Series B Notes") and Warrants pursuant to several Note
and Warrant Purchase Agreements dated as of December 1, 1995 between the Company
and the Selling Stockholders (filed as an exhibit to the Registration Statement)
and (ii) the issuance of Warrants to the holders of the Company's 10 1/4% Senior
Subordinated Notes (Series A) due 2004 issued in March 1994 (the "Series A
Notes," and together with the Series B Notes, sometimes collectively the
"Notes"). The following table sets forth information with respect to the
beneficial ownership of the Company's Class A Common Stock as of February 2,
1996 (including shares of Class A Common Stock issuable upon exercise of the
Warrants) and as adjusted to reflect the sale of the Warrants/Class A Common
Stock offered hereby by each Selling Stockholder. None of the Selling
Stockholders has had a material relationship with the Company within the past
three years other than as a result of the ownership of the Warrants and the
Notes.
6
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF
OF CLASS A PERCENT OF WARRANTS/SHARES
COMMON STOCK CLASS A PERCENT OF OF CLASS A
BENEFICIALLY OWNED COMMON STOCK WARRANTS COMMON STOCK
SELLING STOCKHOLDER PRIOR TO OFFERING(1) OUTSTANDING(2) OUTSTANDING(3) BEING OFFERED(4)
- ------------------- --------------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
The IDS Mutual Fund Group(5) 374,665 11.8% 21.8% 374,665
Sun America, Inc.(6) 360,001 11.4% 21.0% 360,001
Triumph-Connecticut Limited
Partnership(7) 765,000 21.5% 44.6% 765,000
Cede & Co. 213,277 7.1% 12.4% 213,277
Jeanne A. Biz 33 * * 33
Charach, Inc. 67 * * 67
Evelyn R. Cross 60 * * 60
Margaret H. Effinger 67 * * 67
Robert O. Effinger 33 * * 33
Roy W. Gividen 67 * * 67
Joseph E. Golder 167 * * 167
Harold Haller 67 * * 67
Deadie Smith 67 * * 67
Dr. A. Kamtar 100 * * 100
Robert J. Lynch 27 * * 27
Vernell B. Markle 67 * * 67
Doris I. Morrison 67 * * 67
Patricia Morrow 67 * * 67
Margaret M. O'Neil 67 * * 67
Agenor C. Rochet 400 * * 400
R. Burns Ross 67 * * 67
Benjamin Schwartz 167 * * 167
Bernard Shapiro 133 * * 133
Linda Shields 167 * * 167
Ruth Wilson 100 * * 100
</TABLE>
___________________________________________________________
*Less than 1% of the outstanding class of the security
(1) Includes shares of Class A Common Stock issuable upon exercise of the
Warrants. The persons named in this table have sole voting and investment
power with respect to all shares of Class A Common Stock shown as
beneficially owned by them, subject to the information contained in the
footnotes to this table.
(2) Rounded to nearest one-tenth of one percent, based on 2,801,434 shares of
Class A Common Stock outstanding on February 2, 1996.
(3) Rounded to nearest one-tenth of one percent.
(4) The Selling Stockholders may offer and sell the Warrants held by them, or
may elect to exercise the Warrants and offer and sell the shares of Class A
Common Stock acquired thereby, or may offer and sell a combination of
Warrants and shares of Class A Common Stock. Therefore, no estimate can be
given as to the amount and percentage of the Class A Common Stock to be
owned by each Selling Stockholder after the completion of the offering.
(5) Includes Warrants held of record: (i) by VAR & Co. as nominee for IDS Bond
Fund, Inc. and IDS Extra Income Fund, Inc.; (ii) by Wrap Four & Co. as
nominee for IDS Life Special Income Fund, Inc. and (iii) by ABCDS & Co. as
nominee for American Express Trust Company, as trustee for Total Portfolio
Management Trust.
(6) Includes Warrants held of record by OKGBD & Co. as nominee for SunAmerica,
Inc. and affiliates and formerly held of record by SunAmerica, Inc.,
SunAmerica Life Insurance Company, and First SunAmerica Life Insurance
Company.
(7) Triumph-Connecticut Limited Partnership ("Tri-Conn") has shared voting and
investment power with respect to all shares of Class A Common Stock shown as
beneficially owned by them. The sole general partner of Tri-Conn is Triumph-
Connecticut Capital Advisors Limited Partnership, the managing general
partner of which is Frederick W. McCarthy. Thomas W. Janes, an affiliate of
Tri-Conn, is a director of the Company.
<PAGE>
PLAN OF DISTRIBUTION
The 1,715,000 Warrants and the 1,715,000 shares of Class A Common Stock of
the Company offered hereby may be offered and sold from time to time by the
Selling Stockholders, or by pledgees, donees, transferees or other successors in
interest. Such offers and sales may be made from time to time on one or more
exchanges or in the over-the-counter market, or otherwise, at prices and on
terms then prevailing or at prices related to the then-current market price, or
in negotiated transactions. The Warrants and the shares of Class A Common Stock
may be sold by one or more of the following: (a) a block trade in which the
broker or dealer so engaged will attempt to sell such securities as agent but
may position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account; (c) an exchange distribution in accordance
with the rules of such exchange; (d) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; (e) privately negotiated
transactions; and (f) a combination of any such methods of sale. In effecting
sales, brokers or dealers engaged by the Selling Stockholders may arrange for
other brokers or dealers to participate. Brokers or dealers may receive
commissions or discounts from Selling Stockholders or from the purchasers in
amounts to be negotiated immediately prior to the sale. The Selling Stockholders
may also sell such securities in accordance with Rule 144 under the 1933 Act.
The Company has agreed to use its best efforts to maintain the
effectiveness of the registration of the shares being offered hereunder for a
period of at least three years or such shorter period which will terminate when
all of the Warrants and the shares of Class A Common Stock offered hereby have
been sold hereunder.
The Selling Stockholders and any brokers participating in such sales may be
deemed to be underwriters within the meaning of the 1933 Act. There can be no
assurance that the Selling Stockholders will sell any or all of the Warrants and
the shares of Class A Common Stock offered hereunder.
All proceeds from any such sales will be the property of the Selling
Stockholders, who will bear the expense of underwriting discounts and selling
commissions, if any.
DESCRIPTION OF CLASS A COMMON STOCK AND WARRANTS
The authorized capital stock of the Company consists of 20,000,000 shares
of Class A Common Stock, par value $.01 per share (the "Class A Common Stock"),
10,000,000 shares of Class B Common Stock, par value $.01 per share (the "Class
B Common Stock" and, together with the Class A Common Stock, the "Common Stock")
and 1,000,000 shares of Serial Preferred Stock, par value $.01 per share (the
"Serial Preferred Stock").
VOTING RIGHTS--COMMON STOCK
As of February 2, 1996, there were 2,801,434 shares of Class A Common Stock
issued and outstanding held of record by approximately 620 stockholders and
2,783,060 shares of Class B Common Stock issued and outstanding held of record
by approximately 415 stockholders.
Holders of Class A Common Stock are entitled to elect 25% of the Board of
Directors (rounded up to the nearest whole number) elected by the holders of
Common Stock so long as the number of outstanding shares of Class A Common Stock
is at least 10% of the total number of outstanding shares of both classes of
Common Stock. Currently, the holders of Class A Common Stock are entitled, as a
class, to elect two directors of the Company, and the holders of the Class B
Common Stock are entitled, as a class, to elect the remaining five directors.
The holders of a majority of the Class B Common Stock can and will continue to
be able to elect a majority of the directors elected by the holders of Common
Stock, so long as the number of outstanding shares of Class B Common
8
<PAGE>
Stock is at least 12.5% of the number of outstanding shares of both classes of
Common Stock. If the number of outstanding shares of Class B Common Stock falls
below that percentage, directors not elected by the holders of Class A Common
Stock will be elected by the holders of both classes of Common Stock, with
holders of Class A Common Stock having one-tenth vote per share and holders of
Class B Common Stock having one vote per share.
Directors may be removed, with or without cause, by the holders of the
class or classes of Common Stock that elected them. Vacancies in a directorship
may be filled by the vote of the class of shares that had previously filled that
vacancy, or by the remaining directors of that class; however, if there are no
such directors, the vacancy may be filled by the remaining directors.
After the exercise of the Warrants and the issuance and sale of the Class A
Common Stock offered by this Prospectus, the outstanding shares of that class
will be 62% (assuming no conversions of Class B Common Stock and no additional
issuances of Common Stock prior to the exercise of the Warrants) of the total
number of shares of both classes outstanding. If the number of outstanding
shares of Class A Common Stock should become less than 10% of the total number
of outstanding shares of both classes of Common Stock, the holders of Class A
Common Stock would not have the right to elect 25% of the Board of Directors
elected by the holders of Common Stock. Directors would then be elected by all
stockholders voting as one class, except holders of Class A Common Stock would
have one-tenth vote per share and holders of Class B Common Stock would have one
vote per share. The holders of Class A Common Stock and Class B Common Stock
must vote together as a single class in order to amend the Company's Certificate
of Incorporation to increase or decrease the aggregate number of authorized
shares of any class or classes of stock.
Except for the election or removal of directors as described above and
except for class votes as required by law, holders of both classes of Common
Stock vote or consent as a single class on all matters, with each share of Class
A Common Stock having one-tenth vote per share and each share of Class B Common
Stock having one vote per share. The present holders of Class B Common Stock
will have approximately 38% (assuming no conversions of Class B Common Stock and
no additional issuances of Common Stock prior to the exercise of the Warrants)
of the combined voting power of both classes of Common Stock after the
conversion of the Warrants and the issuance and sale of the Class A Common Stock
offered by this Prospectus.
DIVIDENDS--COMMON STOCK
Cash or property dividends can be declared and paid on the Class A Common
Stock without being declared and paid on the Class B Common Stock. No cash or
property dividend may be paid on the Class B Common Stock unless a dividend at
least equal in amount per share is paid concurrently on the Class A Common
Stock.
Dividends paid on shares of Class A Common Stock or Class B Common Stock
may be paid only as follows:
(i) shares of Class A Common Stock may be paid only to holders of
shares of Class A Common Stock unless there is no Class A Common Stock
outstanding, and shares of Class B Common Stock may be paid only to holders
of Class B Common Stock; and
(ii) the same number of shares shall be paid in respect of each
outstanding share of Class A and Class B Common Stock. For example, if a
stock dividend of two shares of Class A Common Stock were paid for each
share of Class A Common Stock held, a stock dividend of two shares of Class
B Common Stock would simultaneously be paid for each share of Class B
Common Stock held.
The Company has not paid any cash dividends during the last two fiscal
years and pursuant to loan covenants contained in the Credit Agreement, is
currently restricted from paying any dividends on its capital stock.
9
<PAGE>
CONVERSION--COMMON STOCK
At the option of the holder of record, each share of Class B Common Stock
is convertible at any time into one share of Class A Common Stock. Conversion of
a significant number of shares of Class B Common Stock into Class A Common Stock
could put control of the entire Board of Directors into the hands of the current
holders of the Class B Common Stock.
OTHER RIGHTS--COMMON STOCK
Shareholders of the Company have no preemptive or other rights to subscribe
for additional shares. On liquidation, dissolution or winding up of the Company,
all shareholders, regardless of class, are entitled to share ratably in any
assets available for distribution to holders of shares of Common Stock. No
shares of either class are subject to redemption. All outstanding shares are,
and all shares of Class A Common Stock offered by this Prospectus will be, when
sold, legally issued, fully paid and nonassessable. The Company may not
subdivide or combine shares of either class without at the same time
proportionally subdividing or combining shares of the other class.
TRANSFER AGENT
The transfer agent and registrar for shares of the Class A Common Stock and
Class B Common Stock is the American Stock Transfer Company.
SERIAL PREFERRED STOCK
The Board of Directors may, without action of the shareholders of the
Company, issue Preferred Stock from time to time in one or more series with
distinctive serial designations.
The Board of Directors is authorized to determine, among other things, with
respect to each series which may be issued: (i) the dividend rate and conditions
and the dividend preferences, if any; (ii) whether dividends would be cumulative
and, if so, the date from which dividends on such series would accumulate; (iii)
whether, and to what extent, the holders of such series would enjoy voting
rights, if any, in addition to those prescribed by law; (iv) whether, and upon
what terms, such series would be convertible into or exchangeable for shares of
any other class of capital stock or other series of Preferred Stock; (v)
whether, and upon what terms, such series would be redeemable; (vi) whether or
not a sinking fund would be provided for the redemption of such series and, if
so, the terms and conditions thereof; and (vii) the preference, if any, to which
such series would be entitled in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Company. With regard to dividends,
redemption and liquidation preference, any particular series of Preferred Stock
may rank junior to, on a parity with or senior to any other series of Preferred
Stock and any class of the Common Stock.
It is not possible to state the actual effect of the authorization of the
Preferred Stock upon the rights of holders of the Common Stock, either Class A
or Class B, until the Board of Directors determines the specific rights of the
holders of a series of the Preferred Stock. However, such effects might include
(a) restrictions on dividends on the Common Stock if dividends on Preferred
Stock have not been paid; (b) dilution of the voting power of the Common Stock
to the extent that the Preferred Stock has voting rights; (c) dilution of the
equity interest of the Common Stock to the extent that the Preferred Stock is
converted into Common Stock; or (d) the Common Stock not being entitled to share
in the Company's assets upon liquidation until satisfaction of any liquidation
preference granted the holders of the Preferred Stock. Issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could make it more difficult for a
third party to acquire a majority of the
10
<PAGE>
outstanding voting stock. Accordingly, the issuance of Preferred Stock may be
used as an "anti-takeover" device without further action on the part of the
shareholders of the Company. The Company has no present plans to issue any
shares of Preferred Stock.
WARRANTS
As of February 2, 1996, there were Warrants to purchase 1,715,000 shares of
Series A Common Stock issued and outstanding, held of record by 25 holders.
The Warrants were issued pursuant to several (Series B) Note and Warrant
Purchase Agreements between the Company and certain purchasers dated as of
December 1, 1995 (the "Series B Purchase Agreements") and the Amended and
Restated Indenture, dated as of December 1, 1995, among the Company, certain
guarantors and First National Bank, as trustee (the "Indenture"), pursuant to
which the Series A Notes were issued. The following statements are subject to
the detailed provisions of the Series B Purchase Agreements, the Indenture and
the Warrants and are qualified in their entirety by reference to the Series B
Purchase Agreements, the Indenture and the Warrants, copies of the form of which
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
At any time until December 1, 2001, each Warrant entitles the registered
holder to purchase the number of shares of the Company's Class A Common Stock
specified in such Warrant at an initial exercise price of $6.95 per share. The
exercise price shall be adjusted on the first anniversary date of the Warrants
to the lower of (x) the initial exercise price and (y) 110% of the average
closing price of Class A Common Stock during the 30 trading days immediately
preceding the first anniversary date of the Warrants. The Warrants may be
exercised by surrendering to the Company or its designated agent the Warrants
and the payment of the exercise price (i) by wire transfer, cash, check or money
order, payable in United States funds, (ii) by delivering the Series A Notes and
Series B Notes, (iii) to the extent permitted by the Indenture and the Amended
and Restated Credit Agreement (the "Credit Agreement"), dated as of February 25,
1994, among the Company and Society National Bank, by authorizing the Company to
withhold from such issuance of shares of Common Stock upon exercise of the
Warrant a number of Shares of Common Stock determined by dividing the warrant
exercise price by the closing Class A Common Stock price on the date immediately
preceding the exercise date or (iv) any combination thereof. No fractional
shares of Class A Common Stock will be issued in connection with the exercise of
Warrants. If the holder would otherwise be entitled to receive a fractional
share of Class A Common Stock, the number of shares issuable upon exercise will
be rounded up to the next larger whole share. The Company is required to keep
available a sufficient number of authorized shares of Class A Common Stock for
issuance to permit exercise of the Warrants. The Warrants are not redeemable by
the Company.
The Warrants will expire at 5:00 pm., New York time on December 1, 2001. In
the event a holder of Warrants fails to exercise the Warrants prior to their
expiration, the Warrants will expire and the holder thereof will have no further
rights with respect to the Warrants. A holder of Warrants does not have any
rights, privileges or liabilities as a stockholder of the Company.
The exercise price of the Warrants and the number of shares issuable upon
exercise of the Warrants are subject to adjustment to protect against dilution
in the event of stock dividends, stock splits, combinations, subdivisions,
reclassifications, purchases or redemptions of Class B Common Stock at a price
greater than the Class A Common Stock, or issuances of Class A Common Stock (or
convertible securities, options, grants or other rights to purchase Class A
Common Stock, excluding shares issuable upon exercise of currently outstanding
options and up to 650,000 shares issuable for future grants under the Company's
option plans) at a price less than the greater of the market price or warrant
price of Class A Common Stock. The adjustments to the exercise price and number
of shares
11
<PAGE>
issuable upon exercise of the Warrants occurs at the time of issuance of a
convertible security, option or right, and in the event such convertible
securities, options or rights later expire or terminate, the exercise price of
the Warrants may be increased and the number of shares issuable upon exercise of
the Warrants may be decreased. No assurance can be given that the market price
of the Company's Class A Common Stock will exceed the exercise price of the
Warrants at any time during the exercise period.
Holders of the Warrants have the right to exercise the Warrants to purchase
shares of Class A Common Stock whether or not a current prospectus relating to
such shares is then in effect and whether or not the shares are qualified for
sale under the securities laws of the jurisdictions in which the various holders
of the Warrants reside. In the event the holders of the Warrants exercise the
Warrants in the absence of a current prospectus relating to such shares and
qualification for sale under the securities laws of the various jurisdictions,
the Warrants and the shares issued upon exercise of the Warrants will be
"restricted securities" as that term is defined under the Securities Act. As
such, the shares will not be transferable in the absence of an effective
registration statement or an opinion from counsel that an exemption therefrom
exists, and the value of the warrants and the shares may be materially affected.
The Company generally must be notified prior to the transfer of such restricted
securities, although certain transfers of such "restricted securities" to
institutional accredited investors may be effected without prior notice to the
Company. The Company has undertaken to maintain the effectiveness of the
Registration Statement of which this Prospectus is a part or to file and
maintain the effectiveness of another registration statement so as to permit the
purchase of the Class A Common Stock underlying the Warrants, but there can be
no assurance that the Company will be able to do so. The Warrants may be
deprived of any value if this Prospectus or another prospectus covering the
shares issuable upon the exercise thereof is not kept effective or if such Class
A Common Stock is not qualified or exempt from qualification in the
jurisdictions in which the holders of the Warrants reside.
For the life of the Warrants, a holder thereof is given the opportunity to
profit from a rise in the market price of the Class A Common Stock that may
result in a dilution of the interest of other stockholders. In addition, the
Company may find it more difficult to raise equity capital if it should be
needed for the business of the Company while the Warrants are outstanding. At
any time when the holders of Warrants might be expected to exercise them, the
Company would, in all likelihood, be able to obtain additional equity capital on
terms more favorable than those provided in the Warrants.
CERTAIN LEGAL MATTERS
The validity of the issuance of the Warrants and the shares of Class A
Common Stock offered hereby is being passed upon for the Company by Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts.
EXPERTS
The Consolidated Financial Statements and schedules of the Company for each
of the three years in the period ended January 28, 1995, incorporated by
reference into this Prospectus, have been audited by Arthur Andersen LLP,
Independent Public Accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
12
<PAGE>
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
January 28, 1995, as amended by Amendment No. 1 on Form 10-K/A.
(b) The Company's Current Report on Form 8-K for the January 27, 1995
event.
(c) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 29, 1995.
(d) The Company's Current Report on Form 8-K for the August 10, 1995
event.
(e) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended July 29, 1995.
(f) The Company's Current Report on Form 8-K for the September 28, 1995
event.
(g) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended October 28, 1995.
(h) The Company's Current Report on Form 8-K for the October 30, 1995
event, as amended by Amendment No. 1 on Form 8-K/A.
(i) The Company's Current Report on Form 8-K for the January 19, 1996
event.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein modifies or supersedes such
statement. Any statement modified or superseded shall not be deemed, except as
modified or superseded, to constitute part of this Prospectus.
This Prospectus is accompanied by the Company's Form 10-K and Form 10-K/A-1
for the fiscal year ended January 28, 1995 and Form 10-Q for the quarter ended
October 28, 1995. The Company will provide to each person to whom this
Prospectus is delivered, including any beneficial owner of Warrants, upon
written or oral request of such person, a copy of the documents incorporated by
reference into this Prospectus (not including exhibits to such documents unless
the exhibits are specifically incorporated by reference into the documents which
this Prospectus incorporates). Requests for such documents should be directed to
the Company at Dairy Mart Convenience Stores, Inc., One Vision Drive, Enfield,
Connecticut 06082; Attention: Investor Relations, telephone number (860) 741-
4444.
13
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy to any person in any jurisdiction in which such offer or solicitation would
be unlawful. Neither the delivery of this Prospectus nor any offer or sale
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company or that the information contained
herein is correct as of any date subsequent to the date hereof.
________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information...................................................... 2
Risk Factors............................................................... 3
The Company................................................................ 6
Selling Stockholders....................................................... 6
Plan of Distribution....................................................... 7
Description of Class A Common Stock and Warrants........................... 8
Certain Legal Matters...................................................... 12
Experts.................................................................... 12
Documents Incorporated by Reference........................................ 12
</TABLE>
DIARY MART CONVENIENCE
STORES, INC.
1,715,000
CLASS A COMMON STOCK
PURCHASE WARRANTS AND
1,715,000 SHARES OF CLASS
A COMMON STOCK
___________________
P R O S P E C T U S
___________________
__________________
________, 1996
================================================================================
14
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
--------------------------------------
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses incurred in connection with the sale of the
securities being registered will be borne by the Registrant. Other than the
registration fee, the amounts stated are estimates.
<TABLE>
<S> <C>
Registration Fee $ 4,110.00
Legal Fees and Expenses 15,000.00
Accounting Fees and Expenses 10,000.00
----------
Miscellaneous 2,000.00
----------
TOTAL $31,110.00
=========
</TABLE>
No portion of the above-listed fee will be borne by the Selling
Stockholders. In connection with the sale of the securities being registered,
the Selling Stockholders will pay underwriting discounts and selling
commissions, if any, and the fees of additional legal counsel, if any, for the
Selling Stockholders.
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the General Corporation Law of the State of Delaware
("DGCL") provides that a corporation has the power to indemnify its officers and
directors against the expenses, including attorney's fees, judgments, fines or
settlement amounts, actually and reasonably incurred by them in connection with
the defense of any action by reason of being or have been directors or officers,
if such person shall have acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation,
except that if such action shall be in the right of the corporation, no such
indemnification shall be provided as to any claim, issue or matter as to which
such person shall have been judged to have been liable to the corporation unless
and to the extent that the Court of Chancery of the State of Delaware, or
another court in which the suit was brought, shall determine upon application
that, in view of all of the circumstances of the case, such person is fairly and
reasonably entitled to indemnity. The Registrant's certificate of incorporation
provides for indemnification of its directors and officers to the fullest extent
permitted by the DGCL.
As permitted by Section 102 of the DGCL, the Registrant's certificate
of incorporation provides that no director shall be liable to the Registrant or
its stockholders for monetary damages for breach of fiduciary duty as a director
other than: (i) for breaches of the director's duty of loyalty to the Registrant
or its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) for the
unlawful payment of dividends or unlawful stock purchases or redemptions under
Section 174 of the DGCL; and (iv) for any transaction from which the director
derived an improper personal benefit.
The Registrant has purchased a liability insurance policy which
insures: (i) the Registrant, under certain circumstances, in the event it
indemnifies a director or officer of the Registrant or the subsidiary pursuant
to the foregoing provisions of the certificate of incorporation or by-laws of
the Registrant or otherwise; and (ii) directors and officers, under certain
circumstances, against liability and costs (including the cost of defending any
action) incurred by directors or officers in their capacity as such.
In addition, the Registration Rights Agreement dated as of December 1,
1995, filed as Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended October 28, 1995, incorporated herein by reference,
provides for indemnification by the Registrant of the Selling Stockholders
against certain liabilities under the 1933 Act, the 1934 Act, state securities
laws or otherwise, and provides for indemnification by the Selling
II-1
<PAGE>
Stockholders of the Registrant and its directors, its officers and certain
control persons against certain liabilities under the 1933 Act, the 1934 Act,
state securities laws, or otherwise.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
4.1 The Registrant's Restated Certificate of Incorporation and
Amended and Restated Bylaws (incorporated by reference to
Exhibits 3.1 and 3.2 to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 28, 1995, File No. 0-
12497)
4.2 Instruments defining the rights of the holders of the
Registrant's Common Stock (incorporated by reference to Exhibit
4.1 to the Registrant's Registration Statement on Form S-1
(Registration No. 33-639)) dated November 5, 1985
4.3 Form of Stock Purchase Warrant to Subscribe for and Purchase
Shares of Class A Common Stock of the Registrant (Initially
Exercisable for an Aggregate of 1,215,000 Shares of Class A
Common Stock (incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended October 28, 1995)
4.4 Form of Stock Purchase Warrant to Subscribe for and Purchase
Shares of Class A Common Stock of the Registrant (Initially
Exercisable for an Aggregate of 500,000 Shares of Class A Common
Stock (incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended October 28, 1995))
5* Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,
with respect to the legality of the securities being registered
13 Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended October 28, 1995
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(see Exhibit 5)
24 Power of Attorney (filed in Part II of this Registration
Statement)
99.1 Note Purchase Agreement, dated as of December 1, 1995, by and
between the Registrant and the Purchasers Listed in the Schedule
of Purchasers therein, relating to 10 1/4% Senior Subordinated
Notes (Series B) due March 15, 2004 (incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended October 28, 1995)
99.2 Registration Rights Agreement, dated as of December 1, 1995, by
and among the Registrant and the Holders of (i) 10 1/4% Senior
Subordinated Notes (Series B) of the Registrant, due March 15,
2004, and (ii) Warrants to Purchase 1,715,000 shares of Class A
Common Stock, par value $.01 per share, of the Registrant
(incorporated by reference
</TABLE>
II-2
<PAGE>
to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended October 28, 1995)
_____________________
*To be filed by amendment.
ITEM 17. UNDERTAKINGS.
A. Rule 415 Offering
-----------------
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the 1933 Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) ((S)
230.424(b) of this chapter) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not
apply if this Registration Statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the 1934 Act that are incorporated by reference
in this Registration Statement.
(2) That, for the purpose of determining any liability under the 1933
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
B. Filings Incorporating Subsequent 1934 Act Documents by Reference
----------------------------------------------------------------
The Registrant hereby undertakes that, for purposes of determining any
liability under the 1933 Act, each filing of the Registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the 1934 Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the 1934 Act) that
II-3
<PAGE>
is incorporated by reference in this Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
C. Request for Acceleration of Effective Date or Filing of
-------------------------------------------------------
Registration Statement on Form S-8
----------------------------------
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Enfield, Connecticut, on February 28, 1996.
DAIRY MART CONVENIENCE STORES, INC.
By:/s/ Robert B. Stein, Jr.
-------------------------------
Robert B. Stein, Jr.
President, Chief Executive Officer
and Chairman of the Board
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert B. Stein, Jr. and Gregory G.
Landry, or any of them, his attorney-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any and all amendments
to this registration statement (including post-effective amendments), and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as full to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them or their or his substitutes may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Robert B. Stein, Jr. President, Chief Executive February 28, 1996
- ---------------------------
Robert B. Stein, Jr. Officer and Chairman of
the Board
(principal executive officer)
/s/ Gregory G. Landry Executive Vice President, February 28, 1996
- ---------------------------
Gregory G. Landry Chief Financial Officer,
Chief Accounting Officer
and Director (principal
financial and accounting
officer)
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Frank W. Barrett Director February 28, 1996
- -------------------------------
Frank W. Barrett
/s/ J. Kermit Birchfield, Jr. Director February 28, 1996
- -------------------------------
J. Kermit Birchfield, Jr.
/s/ John W. Everets, Jr. Director February 28, 1996
- -------------------------------
John W. Everets, Jr.
/s/ Thomas W. Janes Director February 28, 1996
- -------------------------------
Thomas W. Janes
/s/ Truby G. Proctor, Jr. Director February 28, 1996
- -------------------------------
Truby G. Proctor, Jr.
</TABLE>
II-6
<PAGE>
DAIRY MART CONVENIENCE, INC.
----------------------------
INDEX TO EXHIBITS FILED WITH
FORM S-2 REGISTRATION STATEMENT
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page No.
- ------- ----------- ----------
<S> <C> <C>
4.1 The Registrant's Restated Certificate of Incorporation and Amended and
Restated Bylaws (incorporated by reference to Exhibits 3.1 and 3.2 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
January 28, 1995, file No. 0-12497)
4.2 Instruments defining the rights of the holders of the Registrant's
Common Stock (incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-1 (Registration No. 33-
639)) dated November 5, 1985
4.3 Form of Stock Purchase Warrant to Subscribe for and Purchase Shares of
Class A Common Stock of the Registrant (Initially Exercisable for an
Aggregate of 1,215,000 Shares of Class A Common Stock (incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended October 28, 1995)
4.4 Form of Stock Purchase Warrant to Subscribe for and Purchase Shares of
Class A Common Stock of the Registrant (Initially Exercisable for an
Aggregate of 500,000 Shares of Class A Common Stock (incorporated by
reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended October 28, 1995))
5* Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., with
respect to the legality of the securities being registered
13 Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended October 28, 1995
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see
Exhibit 5)
24 Power of Attorney (filed in Part II of this Registration Statement)
99.1 Note Purchase Agreement, dated as of December 1, 1995, by and between
the Registrant and the Purchasers Listed in the Schedule of Purchasers
therein, relating to 10 1/4% Senior Subordinated Notes (Series B) due
March 15, 2004 (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended October 28, 1995)
99.2 Registration Rights Agreement, dated as of December 1, 1995, by and
among the Registrant and the Holders of (i) 10 1/4% Senior
Subordinated Notes (Series B) of the Registrant, due March 15, 2004,
and (ii) Warrants to Purchase 1,715,000 shares of Class A Common
Stock, par value $.01 per share, of the Registrant (incorporated by
reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended October 28, 1995)
</TABLE>
____________________________
* To be filed by amendment.
II-4
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
- ---
X Quarterly Report Pursuant to Section 13 or
- ---
15(d) of the Securities Exchange Act
of 1934
For the Quarterly Period Ended October 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 Jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
ONE VISION DRIVE, ENFIELD, CT 06082
-----------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (203) 741-4444
--------------
N/A
-------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report.)
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 ___
---
Shares of Class A Common Stock outstanding October 28, 1995 - 2,800,934
Shares of Class B Common Stock outstanding October 28, 1995 - 2,783,060
PART I. FINANCIAL INFORMATION
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE THIRD FISCAL FOR THE THREE FISCAL
QUARTER ENDED QUARTERS ENDED
------------------------ ------------------------
OCTOBER 28, OCTOBER 29, OCTOBER 28, OCTOBER 29,
1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales of the Company,
Its Subsidiaries and Franchises................. $ 181,935 $ 197,543 $ 542,928 $ 581,139
- ---------------------------------------------------------------------------------------------------------
Revenues......................................... $ 143,492 $ 157,067 $ 428,194 $ 460,135
----------- ----------- ---------- ----------
Cost of goods sold and expenses:
Cost of goods sold.............................. 102,878 114,620 309,649 340,580
Selling, general and administrative
expenses....................................... 36,770 38,415 106,325 113,186
Interest expense................................ 2,359 2,361 6,982 6,995
Loss (gain) on disposition of
properties, net................................ (38) 297 54 643
Nonrecurring charges............................ 2,197 750 2,450 3,953
----------- ----------- ---------- ----------
144,166 156,443 425,460 465,357
----------- ----------- ---------- ----------
Income (loss) before income taxes
and cumulative effect of
accounting change............................ (674) 624 2,734 (5,222)
Benefit (provision) from income taxes............ 269 (256) (1,231) 2,110
----------- ----------- ---------- ----------
Income (loss) before cumulative
effect of accounting change.................. (405) 368 1,503 (3,112)
Cumulative effect of accounting change
(net of income tax benefit of $271)........... - - - (389)
----------- ----------- ---------- ----------
Net income (loss)............................. $ (405) $ 368 $ 1,503 $ (3,501)
- ---------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 5,582 5,545 5,823 5,538
----------- ----------- ---------- ----------
Earnings (loss) per share:
Before cumulative effect of
accounting change.............................. $ (0.07) $ 0.07 $ 0.26 $ (0.56)
Cumulative effect of accounting change.......... - - - (0.07)
----------- ----------- ---------- ----------
Earnings (loss) per share........................ $ (0.07) $ 0.07 $ 0.26 $ (0.63)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
OCTOBER 28, 1995 JANUARY 28, 1995
- -----------------------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash................................................. $ 15,666 $ 4,512
Short-term investment................................ 2,131 2,053
Accounts and notes receivable........................ 10,997 12,398
Inventory............................................ 19,820 26,044
Prepaid expenses and other current assets............ 2,516 1,945
Deferred income taxes................................ 2,051 3,537
------------ ------------
Total current assets.............................. 53,181 50,489
------------ ------------
NET BOOK VALUE OF PROPERTY AND EQUIPMENT HELD FOR SALE.... 9,874 23,378
------------ ------------
PROPERTY AND EQUIPMENT:
Land and improvements................................ 9,178 9,180
Buildings and leaseholds............................. 31,913 31,370
Equipment............................................ 70,307 59,358
------------ ------------
111,398 99,908
Less - Accumulated depreciation...................... 35,733 30,345
------------ ------------
Net property and equipment........................ 75,665 69,563
------------ ------------
PROPERTY UNDER CAPITAL LEASES, NET........................ 1,545 1,015
------------ ------------
OTHER ASSETS:
Goodwill, net........................................ 10,393 10,647
Franchise and operating rights, net.................. 7,059 7,314
Notes receivable..................................... 2,466 2,494
Other................................................ 6,496 7,328
------------ ------------
Total other assets................................ 26,414 27,783
------------ ------------
TOTAL ASSETS.............................................. $ 166,679 $ 172,228
- -----------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.................... $ 1,285 $ 1,285
Current portion of capital lease obligations......... 418 285
Accounts payable..................................... 29,939 28,942
Accrued expenses..................................... 11,198 17,214
Accrued interest..................................... 1,062 3,052
------------ ------------
Total current liabilities......................... 43,902 50,778
------------ ------------
LONG-TERM DEBT, LESS CURRENT PORTION ABOVE................ 86,125 87,324
------------ ------------
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION ABOVE..... 1,749 1,374
------------ ------------
OTHER LIABILITIES AND DEFERRED CREDITS.................... 5,736 6,837
------------ ------------
DEFERRED INCOME TAXES..................................... 4,754 3,098
------------ ------------
STOCKHOLDERS' EQUITY:
Class A Common Stock................................. 33 33
Class B Common Stock................................. 30 30
Paid-in capital in excess of par value............... 27,673 27,580
Retained earnings.................................... 1,682 179
Treasury stock, at cost.............................. (5,005) (5,005)
------------ ------------
Total stockholders' equity........................ 24,413 22,817
------------ ------------
Total liabilities and stockholder's equity................ $ 166,679 $ 172,228
- -----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
FOR THE THREE FISCAL QUARTERS ENDED
-----------------------------------
OCTOBER 28, 1995 OCTOBER 29, 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................ $ 1,503 $ (3,501)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cash flow effect of nonrecurring items......................... (2,310) 3,258
Cumulative effect of accounting change......................... - 389
Depreciation and amortization.................................. 9,060 9,336
Change in deferred income taxes................................ 3,142 (2,100)
Loss on other disposition of properties, net................... 54 643
Decrease (increase) in accounts and notes receivable........... 1,401 (467)
Decrease (increase) in inventory............................... 6,224 (756)
Increase in accounts payable................................... 997 1,485
(Decrease) increase in accrued interest........................ (1,990) 115
Increase in other current assets and liabilities, net.......... (4,565) (2,986)
(Decrease) increase in other noncurrent liabilities
and deferred credits......................................... (813) 496
---------- ----------
Net cash provided by operating activities.......................... 12,703 5,912
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short-term investment................................ (78) (2,031)
Purchase of property and equipment............................... (13,820) (12,766)
Proceeds from sale of property and equipment..................... 13,817 638
Proceeds from long-term notes receivable......................... 729 972
Increase in long-term notes receivable........................... (701) (1,400)
(Increase) decrease in intangibles and other assets, net......... (69) 185
---------- ----------
Net cash used by investing activities.............................. (122) (14,402)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of senior subordinated notes, net of offering costs..... - 72,653
Repayment of term debt........................................... - (22,000)
Retirement of subordinated debentures............................ - (27,944)
Decrease in revolving loan, net.................................. - (12,100)
Additional long-term debt........................................ - 1,362
Repayment of other long-term debt and capital lease obligations.. (1,520) (1,300)
Increases in common stock and paid-in capital.................... 93 81
---------- ----------
Net cash (used) provided by financing activities................... (1,427) 10,752
---------- ----------
Increase in cash................................................... 11,154 2,262
Cash at beginning of fiscal year................................... 4,512 6,632
---------- ----------
CASH AT END OF THIRD FISCAL QUARTER................................ $ 15,666 $ 8,894
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 28, 1995
(Unaudited)
The unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. The information furnished reflects all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented, and which are of a
normal, recurring nature. It is suggested that these financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Company's Form 10-K, filed with the Securities and Exchange Commission on
May 15, 1995.
1. Accounting Policies
-------------------
The financial statements included herein have been prepared in accordance
with the accounting policies described in Note 1 to the January 28, 1995 audited
consolidated financial statements included in the Company's Form 10-K. Certain
prior year amounts have been reclassified to conform to the presentation used
for the current year.
<PAGE>
2. Changes in Capital Accounts
---------------------------
An analysis of the capital stock accounts for the first three fiscal
quarters ended October 28, 1995 follows:
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES PAID-IN-CAPITAL
ISSUED AT ISSUED AT IN EXCESS OF
$.01 PAR VALUE $.01 PAR VALUE AMOUNT PAR VALUE
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance January 28, 1995 3,290,460 2,961,953 $ 62,526 $ 27,579,716
Employee stock purchase plan 13,038 - 129 48,914
Stock options exercised 16,125 - 161 44,182
Exchange of Class B shares
for Class A shares
2,936 (2,936) - -
Balance October 28, 1995 ----------- ----------- ---------- --------------
3,322,559 2,959,017 $ 62,816 $ 27,672,812
----------- ----------- ---------- --------------
</TABLE>
As of October 28, 1995, there were 521,625 shares of Class A Common Stock
and 175,957 shares of Class B Common Stock held as treasury stock at an
aggregate cost of $5,004,847, leaving 2,800,934 Class A shares and 2,783,060
Class B shares outstanding.
3. Earnings (Loss) Per Share
-------------------------
Earnings (loss) per share is based on the weighted average number of
shares outstanding, including the dilutive effect of stock options, if
appropriate, during each period.
4. Seasonality
-----------
The results of operations for the third fiscal quarter ended October 28,
1995 are not necessarily indicative of results to be expected for the full
fiscal year. The convenience store industry in the Company's marketing areas
experiences a higher percentage of revenues and profit margins during the summer
months than during the winter months. Historically, the Company has achieved
more favorable financial results in its second and third fiscal quarters, as
compared to its first and fourth fiscal quarters.
<PAGE>
5. Nonrecurring Charges
--------------------
A summary of nonrecurring charges for the third fiscal quarter and the
three fiscal quarters ended October 28, 1995 and October 29, 1994 is as follows:
<TABLE>
<CAPTION>
FOR THE THIRD FISCAL FOR THE THREE FISCAL
QUARTER ENDED QUARTERS ENDED
--------------------- ---------------------
OCT 28, OCT 29, OCT 28, OCT 29,
1995 1994 1995 1994
- --------------------------------------------------------------- ---------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Expenses associated with purchase
of majority shareholder's interest.. $ 945 $ - $ 945 $ -
Costs of store closings................ 500 - 740 518
Costs to divest of dairy
manufacturing and distribution
operations.......................... 752 - 765 -
Regulatory and financing fees
and expenses........................ - - - 285
Administrative severance,
settlement and related costs........ - 750 - 2,550
Writedown of non-operating
properties to net realizable
value............................... - - - 600
--------------------- ---------------------
Total $ 2,197 $ 750 $ 2,450 $ 3,953
===================== =====================
</TABLE>
During the current year third fiscal quarter, the Company incurred
$945,000 in legal and professional fees associated with the purchase of a former
majority shareholder's interest in the Company (see Note 6). The further effects
of such purchase will be reflected in the fourth fiscal quarter financial
statements of the Company.
In the prior fiscal year, the Company recorded a nonrecurring charge 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. During the
current year three fiscal quarters, the Company has incurred $740,000 of costs
in excess of the previously recorded estimate to close or sell such stores. Such
costs relate, in part, to disposal of equipment, inventory and leases associated
with closed stores and the removal of underground storage tanks associated with
the closed gasoline facilities.
In the prior fiscal year, the Company recorded a nonrecurring charge for
costs associated with the discontinuance and sale of its dairy manufacturing and
distribution operations. During the current year three fiscal quarters, the
Company has incurred $765,000 of costs in excess of the previously recorded
estimate to close and sell such operations.
In the prior fiscal year, the Company incurred $285,000 in nonrecurring
<PAGE>
duplicative interest expense, net of interest income, due to the issuance of the
Company's 10.25% senior subordinated notes on March 3, 1994 and the subsequent
retirement of the Company's 14.25% subordinated debentures on April 4, 1994.
In the prior year three fiscal quarters, the Company recorded
nonrecurring charges of $2,550,000 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.
6. Subsequent Events
-----------------
Subsequent to the end of the current year third fiscal quarter, the
Company consummated the purchase of the interests of Charles Nirenberg and
certain of his affiliates (collectively, "Nirenberg") in DM Associates Limited
Partnership (the "Nirenberg Transaction"). Nirenberg's interests in the limited
partnership included limited partnership interests and a promissory note secured
by 1,220,000 shares of the Company's Class B Common Stock.
The aggregate cash consideration paid by the Company to Nirenberg for
their interests in the limited partnership, including the note, was $10,000,000.
In addition, Dairy Mart agreed to pay Nirenberg $2,300,000 in consideration of
certain matters, including Nirenberg waiving certain claims against the Company,
Nirenberg executing a non-compete agreement and Nirenberg allowing Dairy Mart to
use his name and likeness in advertising and marketing materials. Dairy Mart
also agreed to reimburse Nirenberg for up to $850,000 of previously unreimbursed
fees and expenses incurred in connection with activities relating to Dairy Mart.
In order to finance the transaction, the Company issued $13,500,000
aggregate principal amount of its 10-1/4% Senior Subordinated Notes (Series B)
due 2004 (the "Series B Notes"). The Series B Notes have substantially the same
terms and conditions as the Company's current $75,000,000 10-1/4% Senior
Subordinated Notes (Series A) due 2004 (the "Series A Notes"). The Indenture
pursuant to which the Company issued the Series A Notes has been amended and
restated so as to also apply to the Series B Notes. The Series B noteholders
also acquired warrants (the "Warrants") with a six year maturity to purchase
1,215,000 shares of the Company's Class A Common Stock at $6.95 per share. The
exercise price may be adjusted to 110% of the market price of the Company's
Class A Common Stock one year after the issuance of the Warrants, if such
adjustment results in a decrease of the exercise price.
The Company has also agreed to register the Warrants and the underlying
Class A Common Stock for sale with the Securities and Exchange Commission at the
Company's expense. Failure to so register the Warrants and underlying Class A
Common Stock may cause the interest rate on the Series B Notes to increase in
increments to a maximum rate of 11-3/4%.
The Company also obtained from the holders of a majority of the Company's
Series A Notes
<PAGE>
a consent to the Nirenberg Transaction and a waiver of certain alleged events
of default. For such consent and waiver, the Company issued to all of the
holders of the Series A Notes, Warrants with a six year maturity to purchase
500,000 shares of the Company's Class A Common Stock at $6.95 per share. Such
Warrants to purchase 500,000 shares of Class A Common Stock have substantially
the same provisions as the Warrants to purchase 1,215,000 shares of Class A
Common Stock.
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SUMMARY RESULTS OF OPERATIONS
The Company's net income for the first three fiscal quarters ended
October 28, 1995 was $1.5 million as compared to a net loss of $3.1 million in
the first three fiscal quarters of the prior year. The three fiscal quarters and
third fiscal quarter of both years included nonrecurring charges as follows:
<TABLE>
<CAPTION>
FOR THE THIRD FISCAL FOR THE THREE FISCAL
QUARTER ENDED QUARTERS ENDED
--------------------- ---------------------
OCT 28, OCT 29, OCT 28, OCT 29,
(IN MILLIONS) 1995 1994 1995 1994
- ---------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C>
Expenses associated with
purchase of majority
shareholder's interest $ 0.9 $ - $ 0.9 $ -
Costs of store closings 0.5 - 0.7 0.5
Costs to divest of dairy
manufacturing and
distribution operations 0.8 - 0.8 -
Regulatory and financing fees
and expenses - - - 0.3
Administrative severance,
settlement and related costs - 0.8 - 2.6
Writedown of non-operating
properties to net realizable
value - - - 0.6
-------------------- --------------------
Total $ 2.2 $ 0.8 $ 2.4 $ 4.0
==================== =====================
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
REVENUES
Revenues for the current year first three fiscal quarters decreased by
$31.9 million from the prior year first three fiscal quarters and revenues for
the current year third fiscal quarter decreased by $13.6 million from the prior
year third fiscal quarter. A summary of revenues by operating area for the
comparative third fiscal quarter and the three fiscal quarters is as follows:
<TABLE>
<CAPTION>
FOR THE THIRD FISCAL FOR THE THREE FISCAL
QUARTER ENDED QUARTERS ENDED
--------------------- ---------------------
OCT 28, OCT 29, OCT 28, OCT 29,
(IN MILLIONS) 1995 1994 1995 1994
- -------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C>
Convenience store $ 87.3 $ 93.3 $256.8 $277.2
Gasoline 55.5 55.9 169.1 159.5
Manufacturing and distribution - 7.5 - 21.8
Other .7 .4 2.3 1.6
-------------------- ---------------------
Total $143.5 $157.1 $428.2 $460.1
==================== =====================
</TABLE>
Convenience store revenues decreased $20.4 million, or 7.4%, in the
current year first three fiscal quarters as compared to the prior year first
three fiscal quarters, and convenience store revenues for the current year third
fiscal quarter decreased by $6.0 million as compared to the prior year third
fiscal quarter. These decreases are primarily due to the closing or sale of
approximately 120 underperforming stores. Although such closures had a negative
impact on revenues, they did have a material favorable effect on the results
from operations, since the majority of stores closed or sold had been operating
at a loss.
Gasoline revenues increased $9.6 million in the current year first three
fiscal quarters as compared to the prior year first three fiscal quarters due to
an increase in the average selling price of gasoline of 5.8 cents per gallon
combined with an increase in total gasoline gallons sold of 630,000. The
increase in gasoline gallons sold was due to further development of new stores
having a major gasoline presence and the remodeling and expansion of gasoline
facilities at certain existing locations offset by the closure of certain low
volume gasoline locations. Gasoline revenues decreased $400,000 in the current
year third fiscal quarter as compared to the prior year third fiscal quarter due
to a decrease in
<PAGE>
the average selling price of 0.5 cents per gallon combined with a decrease in
total gasoline gallons sold of 94,000 resulting from the closure of low volume
gasoline locations described above.
Manufacturing and distribution revenues are not reflected in the current
year first three fiscal quarters and the current year third fiscal quarter as
compared to the corresponding periods of the prior fiscal year due to the
closing and divestiture of the Company's dairy manufacturing and distribution
operations in the current fiscal year.
GROSS MARGINS
Gross margins for the current year first three fiscal quarters decreased
$1.1 million from the prior year first three fiscal quarters and gross margins
for the current year third fiscal quarter decreased $1.8 million from the prior
year third fiscal quarter. A summary of the gross margins by operating area for
the comparative third fiscal quarter and the three fiscal quarters is as
follows:
<TABLE>
<CAPTION>
FOR THE THIRD FISCAL FOR THE THREE FISCAL
QUARTER ENDED QUARTERS ENDED
--------------------- ----------------------
OCT 28, OCT 29, OCT 28, OCT 29,
(IN MILLIONS) 1995 1994 1995 1994
- -------------------------------------------------------- ----------------------
<S> <C> <C> <C> <C>
$ 33.5 $ 34.5 $ 97.9 $ 99.8
Convenience store
Gasoline 6.4 7.3 18.3 17.5
Manufacturing and distribution - .2 - .7
Other .7 .4 2.3 1.6
---------------------- ----------------------
Total $ 40.6 $ 42.4 $ 118.5 $119.6
====================== ======================
</TABLE>
Convenience store gross margins decreased by $1.9 million in the current
year first three fiscal quarters as compared to the prior year first three
fiscal quarters, and convenience store gross margins for the current year third
fiscal quarter decreased $1.0 million as compared to the prior year third fiscal
quarter. These decreases were due to the reduction in the number of stores
described above, offset by improved product gross margins and higher lottery
commissions.
Gasoline gross margins increased by $800,000 in the current year first
three fiscal quarters as compared to the prior year first three fiscal quarters
and gasoline gross margins decreased by $900,000 in the current year third
fiscal quarter as compared to the prior year third fiscal quarter. The increase
for the current year first three fiscal quarters is primarily due to an increase
of 0.5
<PAGE>
cents in gross margin per gallon. The decrease for the current year third fiscal
quarter is due to a decrease of 1.6 cents in gross margin per gallon combined
with the decrease in gasoline gallons sold as described above.
SELLING AND GENERAL AND ADMINISTRATIVE EXPENSES
Selling expenses for the current year first three fiscal quarters
decreased $4.3 million from the prior year first three fiscal quarters. General
and administrative expenses for the current year first three fiscal quarters
decreased $2.6 million from the prior year first three fiscal quarters. For the
current year third fiscal quarter alone, selling expenses decreased $1.3 million
and general and administrative expenses decreased $300,000 as compared to the
corresponding period of the prior year. A summary of selling expenses by
operating area and general and administrative expenses for the comparative third
fiscal quarter and the three fiscal quarters is as follows:
<TABLE>
<CAPTION>
FOR THE THIRD FISCAL FOR THE THREE FISCAL
QUARTER ENDED QUARTERS ENDED
-------------------- --------------------
OCT 28, OCT 29, OCT 28, OCT 29,
(IN MILLIONS) 1995 1994 1995 1994
- --------------------------------------------------- --------------------
<S> <C> <C> <C> <C>
Convenience store $ 25.1 $ 26.6 $ 74.1 $ 79.0
Gasoline 3.2 3.0 9.6 9.0
-------------------- --------------------
28.3 29.6 83.7 88.0
General and
administrative expenses 8.5 8.8 22.6 25.2
-------------------- --------------------
Total $ 36.8 $ 38.4 $106.3 $113.2
==================== ====================
</TABLE>
Convenience store selling expenses decreased $4.9 million in the current
year first three fiscal quarters as compared to the prior year first three
fiscal quarters, and convenience store selling expenses decreased $1.5 million
for the current year third fiscal quarter as compared to the prior year third
fiscal quarter. These decreases were due to the closure or sale of
underperforming stores as described above, partially offset by higher labor and
rent costs on a per store basis.
Gasoline selling expenses increased $600,000 in the current year first
three fiscal quarters as compared to the prior year first three fiscal quarters
and gasoline selling expenses increased $200,000 in the current year third
fiscal
<PAGE>
quarter as compared to the prior year third fiscal quarter. These increases were
primarily due to the operation of new or remodeled expanded facilities as
described above combined with increased environmental expenses associated with
the remediation of gasoline locations after considering expected reimbursements
from various state environmental trust funds.
General and administrative expenses decreased in the current year first
three fiscal quarters and the current year third fiscal quarter as compared to
the corresponding periods of the prior year primarily due to a reduced level of
administrative support staff.
INTEREST EXPENSE AND TAXES
Interest expense remained relatively constant in the current year first
three fiscal quarters as compared to the prior year first three fiscal quarters.
The effective tax rate for the Company was a provision of 45% for the
current year first three fiscal quarters as compared to a benefit of 40% for
prior year first three fiscal quarters, and a benefit of 40% for the current
year third fiscal quarter as compared to a provision of 41% for the prior year
third fiscal quarter. The Company provides for income taxes at the effective
rate expected to be incurred for the entire fiscal year.
<PAGE>
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 in
the current year first three fiscal quarters significantly exceeded the current
debt service requirements of the Company's long-term debt and capital lease
obligations. Additional cash flow was generated in the current fiscal year from
the sale of certain assets, including the sale and leaseback of 17 existing
store properties. In addition, the Company has a revolving line of credit
available, although not currently utilized, to address the timing of certain
working capital disbursements. 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
the anticipated expansion in its retail operations (see Capital Expenditures).
For information with respect to the issuance of $13,500,000 aggregate principal
amount of the Company's 10-1/4% Senior Subordinated Notes (Series B) due 2004,
see Part II - OTHER INFORMATION.
CASH PROVIDED BY OPERATING ACTIVITIES
During the current year first three fiscal quarters, net cash generated by
operations was $6.8 million higher than the prior year first three fiscal
quarters. This increase was primarily due to the improved results of operations
in the current year first three fiscal quarters as compared to the prior year
first three fiscal quarters (see RESULTS OF OPERATIONS) and to cash provided
from working capital through the collection of certain accounts receivable and
the liquidation of certain inventories associated with asset divestitures.
During the current year first three fiscal quarters, the Company paid its
trade payables in an average of 25 days, which compares to 24 days for the
fiscal year ended January 28, 1995 and 25 days for the prior year first three
fiscal quarters. The cash flow of the Company is also favorably impacted by the
Company's use of funds from the sale of money orders, pending remittance of such
funds to the issuer of the money orders. As of October 28, 1995 and January 28,
1995, the amounts due the issuer of the money orders were $6.7 million and $5.3
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 $7.5 million.
<PAGE>
CASH PROVIDED BY FINANCING ACTIVITIES
During the current year first three fiscal quarters, net cash of $1.4
million was used primarily to repay long-term debt and capital lease
obligations. During the prior year first three fiscal quarters, net cash of
$10.8 million was provided from the issuance of the Notes and the subsequent
repayment of the indebtedness under a bank term loan and bank revolving loan and
to redeem in full the Company's 14.25% subordinated debentures.
During the current year first fiscal quarter, management finalized an
amendment of the Company's senior credit facility temporarily reducing the total
availability to $20.0 million with $15.0 million available for the issuance of
letters of credit. As of October 28, 1995, the Company had no outstanding
revolving credit loans under the amended credit facility, but did have $13.8
million of letters of credit outstanding thereunder. The Company may utilize the
amended credit facility as needed for working capital and general corporate
purposes.
CASH USED BY INVESTING ACTIVITIES
During the current year first three fiscal quarters, net cash of $122,000
was used by investing activities. The receipt of $13.8 million in proceeds from
the sale of certain assets, as described above, offset the use of $13.8 million
to fund the Company's capital expenditures. Consistent with the Company's
overall objective to strengthen its investment in retail operations, proceeds
from the sale of assets and cash generated from operations will be used to fund
future capital expenditures of the Company including the development of new
stores and the upgrading and remodeling of existing stores.
CAPITAL EXPENDITURES
The Company anticipates spending approximately $18 million for capital
expenditures in the current fiscal year ending February 3, 1996 by purchasing
store and gasoline equipment for new store locations, remodeling a limited
number of its existing stores, introducing certain branded fast food concepts in
a
<PAGE>
number of stores, and significantly upgrading certain gasoline locations to
include the installation of credit card readers at the pump, to improve outdoor
lighting and to meet current environmental standards (see Environmental
Responsibility).
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 October 28,
1995, the Company had recorded an accrual of $2,086,000 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 October 28, 1995, the Company
has recorded a net state trust fund reimbursement receivable of $1,066,000
(representing a gross receivable of $1,244,000 less an allowance of $178,000).
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.
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
- ---------------------------
a. ISSUANCE OF $13.5 MILLION OF NOTES. On December 1, 1995, the Company
-----------------------------------
issued $13.5 million aggregate principal amount of its 10-1/4% Senior
Subordinated Notes (Series B) due 2004 (the "Series B Notes"). The Series B
Notes have substantially the same terms and conditions as the Company's current
$75,000,000 10-1/4% Senior Subordinated Notes (Series A) due 2004 (the "Series A
Notes"). The Indenture pursuant to which the Company issued the Series A Notes
has been amended and restated so as to also apply to the Series B Notes.
In conjunction with the issuance of the Series B Notes, the Company issued
to the purchasers of the Series B Notes, warrants to purchase 1,215,000 shares
of the Class A Common Stock of the Company (the "Warrants"). The Warrants may be
exercised at any time during the next 6 years. The initial exercise price of the
Warrants is $6.95 per share, but the exercise price may be adjusted to 110% of
the market price of the Company's Class A Common Stock one year after the
issuance of the Warrants, if such adjustment results in a decrease of the
exercise price. The exercise price will also be adjusted upon the occurrence of
various events, including stock dividends and issuances of Common Stock by the
Company for a per share price less than the exercise price of the Warrants or
less than the then current market value of the Company's Class A Common Stock.
The Company has also agreed to register the Warrants and the underlying
Class A Common Stock for sale with the Securities and Exchange Commission, at
the Company's expense. Failure to so register the Warrants and underlying Class
A Common Stock may cause the interest rate to increase in increments to a
maximum rate of 11-3/4%.
b. PURCHASE BY THE COMPANY OF INTERESTS IN DM ASSOCIATES. The proceeds
------------------------------------------------------
of the Series B Notes were primarily used to fund the obligations of the Company
under an Agreement dated October 30, 1995, as amended December 1, 1995 (the
"Nirenberg Agreement"), by and among the Company, Charles Nirenberg, and certain
of his affiliates (collectively, "Nirenberg"),
<PAGE>
pursuant to which, among other things, the Company purchased for $10 million (i)
all of Nirenberg's limited partnership interests in DM Associates Limited
Partnership ("DM Associates"), and (ii) a promissory note of DM Associates
payable to Nirenberg in the principal amount of $7.1 million, which note is
secured by a pledge of 1,220,000 shares of Class B Common Stock of the
Company owned by DM Associates. DM Associates owns 1,858,743 shares, or 60.7%,
of the Class B Common Stock of the Company.
Pursuant to the Nirenberg Agreement, the Company also paid to Nirenberg
$2.3 million in consideration of certain matters, including, Nirenberg's waiver
of certain alleged claims against the Company, Nirenberg allowing the Company to
use his name and likeness in advertising materials and Nirenberg's agreement
that he will not for a period of five years compete with the Company, solicit
employment of any employee of the Company, or interfere in a material manner
with any material business relationship between the Company and any third party.
The Company has also agreed to reimburse Nirenberg for up to $850,000 of
previously unreimbursed fees and expenses incurred in connection with the
activities relating to the Company.
Under the terms of the Nirenberg Agreement, Nirenberg withdrew as a
partner of New DM Management Associates I ("DM Management I") and New DM
Management Associates II ("DM Management II"), which were the general partners
of DM Associates. As a result, the remaining partners of DM Management I are
Robert B. Stein, Jr., the President and a director of the Company; Gregory G.
Landry, the Executive Vice President and a director of the Company; and Mitchell
J. Kupperman, a former officer and director of the Company, each of whom owns
one-third of the partnership interest of DM Management I. The remaining partners
of DM Management II dissolved DM Management II and therefore DM Management I is
the sole remaining general partner of DM Associates.
Mr. Kupperman's employment with the Company was terminated on December 1,
1995. In connection with the termination of Mr. Kupperman's employment and
Mr. Kupperman's waiver of certain alleged claims against the Company, the
Company paid $1,036,412 to Mr. Kupperman.
Effective December 1, 1995, Mr. Nirenberg and Mr. Kupperman each resigned
as officers and directors of the Company, and M. Harold Jacobsen and Thomas
O'Brien, temporary directors appointed by the Company pursuant to the Nirenberg
Agreement, also resigned as directors. Thomas W. Janes, a principal of Triumph
Capital Group, Inc., a holder of the Series B Notes, was appointed a director to
fill the vacancy created by Mr. Kupperman's registration.
Pursuant to the Partnership Agreement of DM Associates, DM Management I
has the right to vote all of the shares of Class B Common Stock owned by DM
Associates. Pursuant to the Partnership Agreement of DM Management I, the
holders of a majority of the partnership interest of DM Management I determines
how to vote 638,743 of the shares owned by DM Associates, and the remaining
1,220,000 shares will be voted for or against any motion or proposal in the same
proportion that the other Class B shares (including the 638,743 of DM
Associates) are voted.
The Company has agreed to indemnify Nirenberg against any liability or
expense incurred by them as a result of or in connection with the
<PAGE>
transactions consummated pursuant to the Nirenberg Agreement.
c. ISSUANCE OF ADDITIONAL WARRANTS TO NOTEHOLDERS. In addition to the
-----------------------------------------------
Warrants to purchase 1,215,000 shares of Class A Common Stock issued in
connection with the sale of the Series B Notes, as described above, the Company
issued Warrants to purchase 500,000 shares of Class A Common Stock to the
holders of the Series A Notes, in consideration of their waiving any rights that
they may have had as a result of any Change of Control, as defined in the
Indenture, that they may have occurred, and in consideration of their agreement
to certain amendments of the Indenture. Such Warrants to purchase 500,000 shares
of Class A Common Stock have substantially the same provisions as the Warrants
to purchase 1,215,000 shares of Class A Common Stock discussed above.
d. AMENDED CREDIT AGREEMENT. Contemporaneously with the consummation of
-------------------------
the Nirenberg Agreement and the issuance of the Series B Notes, the Credit
Agreement among the Company, Society National Bank, and Fleet Bank, N.A. was
amended and restated. The Credit Agreement provides that the issuance of the
Series B Notes and the transactions provided for in the Nirenberg Agreement will
not constitute defaults under the Credit Agreement. The financial covenants in
the Credit Agreement have also been amended so as to reflect the anticipated
effect of the Company of the transactions provided for the Nirenberg Agreement.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
The following exhibits are filed as part of this report pursuant to Item
601 of Regulation S-K:
(a) EXHIBITS:
(4.1) Amended and Restated Indenture, dated as of December 1, 1995, by
and among the Company, Certain Subsidiaries of the Company, as
Guarantors, and First Bank National Association, as Trustee, is
filed as Exhibit 4.1 attached hereto.
(10.1) Note Purchase Agreement, dated as of December 1, 1995, between
the Company and the Purchasers Listed in the Schedule of
Purchasers therein, relating to 10-1/4% Senior Subordinated Notes
(Series B) due March 15, 2004, is filed as Exhibit 10-1 attached
hereto.
(10.2) Form of Stock Purchase Warrant to Subscribe for and Purchase
Shares of Class A Common Stock of the Company (Initially
Exercisable for an Aggregate of 1,215,000 Shares of Class A
Common Stock) is filed as Exhibit 10.2 attached hereto.
(10.3) Form of Stock Purchase Warrant to Subscribe for and Purchase
Shares of Class A Common Stock of the Company (Initially
Exercisable for an Aggregate of 500,000 Shares of Class A Common
Stock) is filed as Exhibit 10.3 attached hereto.
(10.4) Registration Rights Agreement, dated December 1, 1995, by and
among the Company and the Holders of (i) 10-1/4% Senior
Subordinated Notes (Series B) of the Company, due March 15, 2004,
and (ii) Warrants to Purchase 1,715,000 shares of Class A Common
Stock, par value $.01 per share, of the Company is filed as
Exhibit 10.4 attached hereto.
(10.5) Credit Agreement, dated as of February 25, 1994, Amending and
Restating the Credit Agreement, dated as of February 25, 1994, as
Amended to Date, by and among the Company, Society National Bank,
the Banks and Other Financial Institutions Listed on Schedule I
therein, and Society National Bank, as Successor Trustee, is
filed as Exhibit 10.5 attached hereto.
(10.6) Modification Agreement, dated as of December 1, 1995, by and
among the Company, Charles Nirenberg, FCN Properties Corporation,
The Nirenberg Foundation, Inc., formerly known as The Nirenberg
Family Charitable Foundation, Inc., Robert B.
Stein, Jr., and Gregory G. Landry is filed as Exhibit 10.6
attached hereto.
(10.7) Amended and Restated Letter Agreement, dated December 1, 1995, to
Mitchell J. Kupperman from the Company, Robert B. Stein, Jr., and
Gregory G. Landry is filed as Exhibit 10.7 attached hereto.
(10.8) DM Associates Limited Partnership Agreement, dated March 12,
1992. Incorporated herein by reference to Exhibit E of the
Schedule 13D, dated March 12, 1992, filed by DM Associates
Limited Partnership, DM Management Associates and Frank
Colaccino.
(10.9) First Amendment to Partnership Agreement of DM Associates Limited
Partnership, dated as of September 8, 1994. Incorporated herein
by reference to Exhibit F of the Schedule 13D, Amendment No. 4,
dated January 27, 1995, filed by DM Associates Limited
Partnership, New DM Management Associates I, New DM Management
Associates II, Charles Nirenberg, Robert B. Stein, Jr., Gregory
G. Landry, Mitchell J. Kupperman and Frank Colaccino.
(10.10) First Amendment to Partnership Agreement of New DM Management
Associates I, dated as of December 1, 1995, between Robert B.
Stein, Jr., Gregory G. Landry and Mitchell J. Kupperman is filed
as Exhibit 10.10 attached hereto.
(10.11) Partnership Agreement of New DM Management Associates I, dated
as of September 8, 1994. Incorporated herein by reference to
Exhibit G of the Schedule 13D, Amendment No. 4, dated January 27,
1995, filed by DM Associates Limited Partnership, New DM
Management Associates I, New DM Management Associates II, Charles
Nirenberg, Robert B. Stein, Jr., Gregory G. Landry, Mitchell J.
Kupperman and Frank Colaccino.
(27) Financial Data Schedule is filed as Exhibit 27 attached hereto.
(b) REPORTS ON FORM 8-K:
On August 28, 1995, the Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission (the "SEC") in which the Company reported
certain matters related to litigation commenced by Charles Nirenberg and
Mitchell J. Kupperman against the Company and the Company's other directors in
the Delaware Chancery Court.
On September 29, 1995, the Company filed a Current Report on Form 8-K with
the SEC in which the Company reported that it had received notices from holders
of a majority of the outstanding principal amount of its 10 1/4% Senior
Subordinated Notes due 2004, stating that such holders believed a change of
control of the Company and a consequent event of default had occurred under the
indenture governing such Notes.
On October 31, 1995, the Company filed a Current Report on Form 8-K with
the SEC in which the Company reported that the Company, Charles Nirenberg, the
former Chairman of the Board of Directors and a Director of the Company, and
certain other parties executed Agreements settling certain disputes and
litigation between the parties.
No financial statements were filed with any of the Current Reports.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAIRY MART CONVENIENCE STORES, INC.
Date: December 12, 1995 /s/ Gregory G. Landry
---------------------------------------------
Gregory G. Landry
Executive Vice President
Chief Financial Officer
<PAGE>
ARTHUR ANDERSEN LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated May 15, 1995
included in Dairy Mart Convenience Stores, Inc.'s Form 10-K for the year ended
January 28, 1995 and to all references to our Firm included in this registration
statement.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 28, 1995
