FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended November 2, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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 (I.R.S. Employer
incorporation or organization) Identification No.)
One Vision Drive, Enfield, CT 06082
(Address of principal executive offices)
Registrant's telephone number, including area code (860) 741-4444
_______________________
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
_______________________
APPLICABLE ONLY TO CORPORATE ISSUERS:
Shares of Class A Common Stock outstanding November 2, 1996 - 2,953,154
Shares of Class B Common Stock outstanding November 2, 1996 - 2,783,060
<PAGE>
PART I. FINANCIAL INFORMATION
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
---------------------- ----------------------
<S> <C> <C> <C> <C>
November 2, October 28, November 2, October 28,
1996 1995 1996 1995
Revenues..................... $ 147,344 $ 143,492 $ 444,804 $ 428,194
--------- ---------- --------- ---------
Cost of goods sold and
expenses:
Cost of goods sold......... 106,354 102,878 325,892 309,649
Operating and administrative
expenses.................. 37,980 38,929 107,324 108,829
Interest expense............ 2,683 2,359 8,187 6,982
--------- ---------- --------- ---------
147,017 144,166 441,403 425,460
--------- ---------- --------- ---------
Income (loss) before income
taxes..................... 327 (674) 3,401 2,734
(Provision for) benefit from
income taxes................. (134) 269 (1,367) (1,231)
--------- ---------- --------- ---------
Net income (loss)....... $ 193 $ (405) $ 2,034 $ 1,503
- ------------------------------------------------------------------------------
Weighted average shares
outstanding................. 4,705 5,582 4,703 5,823
Earnings (loss) per share.... $ 0.04 $ (0.07) $ 0.43 $ 0.26
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Dairy Mart Convenience Stores, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
November 2, February 3,
1996 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................... $ 6,401 $ 12,654
Short-term investment..................... 1,514 -
Accounts and notes receivable............. 12,713 9,752
Inventory................................. 20,004 20,928
Prepaid expenses and other current assets. 3,181 3,454
Deferred income taxes..................... 2,585 2,669
---------- ----------
Total current assets................... 46,398 49,457
---------- ----------
Assets Held For Sale.......................... 8,685 8,685
---------- ----------
Property and Equipment, net................... 87,543 80,387
---------- ----------
Intangible Assets, net........................ 17,220 17,277
---------- ----------
Other Assets, net............................. 9,377 9,132
---------- ----------
Total assets.................................. $ 169,223 $ 164,938
- ------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term obligations $ 1,461 $ 1,430
Accounts payable........................... 31,579 30,803
Accrued expenses........................... 14,031 14,437
Accrued interest........................... 1,323 3,355
---------- ----------
Total current liabilities............... 48,394 50,025
---------- ----------
Long-Term Obligations, less current portion
above........................................ 99,156 99,451
---------- ----------
Other Liabilities............................. 9,943 6,254
---------- ----------
Stockholders' Equity:
Preferred Stock (serial)................... - -
Class A Common Stock....................... 35 33
Class B Common Stock....................... 30 30
Paid-in capital............................ 30,457 29,971
Retained earnings (deficit)................ (3,787) (5,821)
Treasury stock, at cost.................... (5,005) (5,005)
Note receivable from DM Associates......... (10,000) (10,000)
---------- ----------
Total stockholders' equity........... 11,730 9,208
---------- ----------
Total liabilities and stockholders' equity.... $ 169,223 $ 164,938
- ------------------------------------------------------------------------------
</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
-----------------------------------
November 2, October 28,
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income..................................... $ 2,034 $ 1,503
Adjustments to reconcile net income to net
cash provided by operating activities:
Cash flow effect of corporate governance
issues and restructuring initiatives and
other operating costs...................... (1,350) (2,310)
Depreciation and amortization................ 8,850 9,060
Amortization of original issue discount...... 146 -
Change in deferred income taxes.............. (751) 3,142
Loss on other disposition of properties, net. 115 54
Net change in assets and liabilities:
Accounts and notes receivable........... (2,961) 1,401
Inventory............................... 924 6,224
Accounts payable........................ 776 997
Accrued interest........................ (2,032) (1,990)
Other assets and liabilities............. 4,906 (5,378)
- -------------------------------------------------------------------------------
Net cash provided by operating activities........ 10,657 12,703
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of and increase in short-term
investments.................................. (1,514) (78)
Purchase of property and equipment............. (17,763) (13,820)
Proceeds from sale of property, equipment and
assets held for sale........................ 2,839 13,817
Increase in long-term notes receivable......... (1,427) (701)
Proceeds from collection of long-term notes
receivable................................... 1,261 729
Increase in intangibles and other assets....... (384) (69)
- -------------------------------------------------------------------------------
Net cash used in investing activities............ (16,988) (122)
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in long-term obligations.............. 650 -
Repayment of long-term obligations............. (1,060) (1,520)
Issuance of common stock....................... 488 93
- -------------------------------------------------------------------------------
Net cash provided (used) by financing activities. 78 (1,427)
- -------------------------------------------------------------------------------
(Decrease) increase in cash...................... (6,253) 11,154
Cash at beginning of fiscal year................. 12,654 4,512
- -------------------------------------------------------------------------------
Cash at end of third fiscal quarter.............. $ 6,401 $ 15,666
- -------------------------------------------------------------------------------
</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
NOVEMBER 2, 1996
(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/A Amendment No. 2, filed with the
Securities and Exchange Commission on August 23, 1996.
1. Accounting Policies
-------------------
The financial statements included herein have been prepared in
accordance with the accounting policies described in Note 1 to the
February 3, 1996 audited consolidated financial statements included in
the Company's Form 10-K/A Amendment No. 2. Certain prior year amounts
have been reclassified to conform to the presentation used for the
current year.
2. Changes in Capital Accounts
---------------------------
An analysis of the capital stock accounts for the first three
fiscal quarters ended November 2, 1996 follows:
<TABLE>
<CAPTION>
Common Stock
---------------------------------------------------
Class A Class B
Shares Shares Paid-in
issued at issued at Capital
$.01 $.01 in excess of
par value par value Amount par value
---------------------------------------------------
<S> <C> <C> <C> <C>
Balance February 3, 1996 3,326,296 2,959,017 $ 62,854 $ 29,970,606
Employee stock purchase
plan 7,608 - 76 35,638
Stock options exercised 140,875 - 1,409 450,348
--------- --------- --------- -------------
Balance November 2, 1996 3,474,779 2,959,017 $ 64,339 $ 30,456,592
--------- --------- --------- -------------
</TABLE>
As of November 2, 1996, 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 2,953,154 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. The Company's note receivable from DM
Associates Limited Partnership is secured by 1,220,000 shares of the
Company's Class B Common Stock, which shares are being treated similar to
treasury stock for earnings (loss) per share purposes.
<PAGE>
4. Seasonality
The results of operations for the first three fiscal quarters ended
November 2, 1996 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. Supplemental Consolidating Financial Information (unaudited)
------------------------------------------------------------
The Company's payment obligations under the Series A and Series B
Senior Subordinated Notes are guaranteed by certain of the Company's
subsidiaries ("Guarantor Subsidiaries"). The Notes are fully and
unconditionally guaranteed on an unsecured, senior subordinated, joint
and several basis by each of the Guarantor Subsidiaries. The following
supplemental financial information sets forth, on an unconsolidated
basis, statement of operations, balance sheet, and cash flows information
for the Company ("Parent Company Only"), for the Guarantor Subsidiaries
and for Financial Opportunities Inc. ("FINOP"), the Company's non-
guarantor subsidiary. Separate complete financial statements of the
respective Guarantor Subsidiaries would not provide additional
information which would be useful in assessing the financial condition of
the Guarantor Subsidiaries, and are accordingly omitted.
Investment in subsidiaries are accounted for by the Parent Company
on the equity method for purposes of the supplemental consolidating
presentation. Earnings of the subsidiaries are, therefore, reflected in
the Parent Company's investment accounts and earnings. The principle
elimination entries eliminate the Parent Company's investment in
subsidiaries and intercompany balances and transactions.
Supplemental Consolidating Statement of Operations
for the Three Fiscal Quarters Ended November 2, 1996
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries FINOP Eliminations Consolidated
------- ------------ ------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues............................ $ 1,027 $443,377 $ 400 $ - $444,804
------- -------- ------ -------- --------
Cost of goods sold and expenses:
Cost of goods sold................ - 325,892 - - 325,892
Operating and administrative
expenses......................... 208 107,116 - - 107,324
Interest expense.................. 7,540 380 267 - 8,187
------- -------- ------ -------- --------
7,748 433,388 267 - 441,403
------- -------- ------ -------- --------
Income (loss) before income taxes
and equity in income (loss)
of consolidated subsidiaries..... (6,721) 9,989 133 - 3,401
Benefit from (provision for)
income taxes....................... 2,967 (4,316) (18) - (1,367)
------- -------- ------ -------- --------
Income (loss) before equity in
income (loss) of consolidated
subsidiaries..................... (3,754) 5,673 115 - 2,034
Equity in income (loss) of
consolidated subsidiaries.......... 5,788 115 - (5,903) -
------- -------- ------ -------- --------
Net income (loss)................ $ 2,034 $ 5,788 $ 115 $ (5,903) $ 2,034
======= ======== ====== ======== ========
</TABLE>
<PAGE>
Supplemental Consolidating Balance Sheets
as of November 2, 1996
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries FINOP Eliminations Consolidated
------- ------------ ------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash............................. $ 3,271 $ 2,072 $ 1,058 $ - $ 6,401
Short-term investment............ - - 1,514 - 1,514
Accounts and notes receivable.... - 11,996 717 - 12,713
Inventory........................ - 20,004 - - 20,004
Prepaid expenses and
other current assets............ 81 3,100 - - 3,181
Deferred income taxes............ 923 1,662 - - 2,585
-------- -------- ------- --------- --------
Total current assets.......... 4,275 38,834 3,289 - 46,398
-------- -------- ------- --------- --------
Assets Held For Sale................ - 8,685 - - 8,685
Property and Equipment, net......... - 87,543 - - 87,543
Intangible Assets, net.............. - 17,220 - - 17,220
Other Assets, net................... 3,320 3,609 2,448 - 9,377
Investment in and advances to
subsidiaries...................... 114,402 1,371 669 (116,442) -
-------- -------- ------- --------- --------
Total assets........................ $121,997 $157,262 $ 6,406 $(116,442) $169,223
- -----------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of
long-term obligations.......... $ 1,145 $ 316 $ - $ - $ 1,461
Accounts payable................. 15,045 16,534 - - 31,579
Accrued expenses................. 639 13,384 8 - 14,031
Accrued interest................. 1,236 - 87 - 1,323
-------- -------- ------- --------- --------
Total current liabilities..... 18,065 30,234 95 - 48,394
-------- -------- ------- --------- --------
Long-Term Obligations,
less current portion above......... 92,117 2,809 4,230 - 99,156
Other Liabilities................... 85 9,817 41 - 9,943
Stockholders' Equity................ 11,730 114,402 2,040 (116,442) 11,730
-------- -------- ------- --------- --------
Total liabilities and
stockholders' equity.............. $121,997 $157,262 $ 6,406 $(116,442) $169,223
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Supplemental Consolidating Statement of Cash Flows
for the Three Fiscal Quarters ended November 2, 1996
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries FINOP Eliminations Consolidated
------- ------------ ----- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities............................. $(9,377) $19,994 $ 40 $ - $10,657
------- ------- ------- ------- -------
Cash flow from investing activities:
Purchase of and increase in short-term
investments........................... - - (1,514) - (1,514)
Purchase of property and equipment..... - (17,763) - - (17,763)
Proceeds from sale of property,
equipment and assets held for sale.... - 2,839 - - 2,839
Investment in and advances to
subsidiaries.......................... 10,810 (10,416) (394) - -
Increase in long-term notes receivable. - (120) (1,307) - (1,427)
Proceeds from collection of
long-term receivables................. - 70 1,191 - 1,261
Increase in intangibles
and other assets...................... - (390) 6 - (384)
------- ------- ------- ------- -------
Net cash provided by (used in) investing
activities............................. 10,810 (25,780) (2,018) - (16,988)
------- ------- ------- ------- -------
Cash flows from financing activities:
Increase in revolving loan, net........ 300 350 - - 650
Repayment of long-term obligations..... (689) (363) (8) - (1,060)
Increase in common stock and paid-in
capital............................... 488 - - - 488
------- ------- ------- ------- -------
Net cash provided (used) by financing
activities.............................. 99 (13) (8) - 78
------- ------- ------- ------- -------
Increase (decrease) in cash.............. 1,532 (5,799) (1,986) - (6,253)
Cash at beginning of year................ 1,739 7,871 3,044 - 12,654
------- ------- ------- ------- -------
Cash at end of third fiscal quarter...... $ 3,271 $ 2,072 $ 1,058 $ - $ 6,401
======= ======= ======= ======= =======
</TABLE>
<PAGE>
Supplemental Consolidating Statement of Operations
for the Three Fiscal Quarters ended October 28, 1995
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries FINOP Eliminations Consolidated
------- ------------ ------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues............................ $ 557 $427,260 $ 377 $ - $428,194
------- -------- ------ -------- --------
Cost of goods sold and expenses:
Cost of goods sold................ - 309,649 - - 309,649
Operating and administrative
expenses......................... 298 108,531 - - 108,829
Interest expense.................. 5,946 767 269 - 6,982
------- -------- ------ -------- --------
6,244 418,947 269 - 425,460
------- -------- ------ -------- --------
Income (loss) before income taxes
and equity in income (loss)
of consolidated subsidiaries..... (5,687) 8,313 108 - 2,734
Benefit from (provision for)
income taxes....................... 2,510 (3,722) (19) - (1,231)
------- -------- ------ -------- --------
Income (loss) before equity in
income (loss) of consolidated
subsidiaries..................... (3,177) 4,591 89 - 1,503
Equity in income (loss) of
consolidated subsidiaries.......... 4,680 89 - (4,769) -
------- -------- ------ -------- --------
Net income (loss)................ $ 1,503 $ 4,680 $ 89 $ (4,769) $ 1,503
======= ======== ====== ======== ========
</TABLE>
<PAGE>
Supplemental Consolidating Balance Sheets
as of February 3, 1996
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries FINOP Eliminations Consolidated
------- ------------ ------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash............................. $ 1,739 $ 7,871 $3,044 $ - $ 12,654
Accounts and notes receivable.... - 9,081 671 - 9,752
Inventory........................ - 20,928 - - 20,928
Prepaid expenses and
other current assets............ 60 3,394 - - 3,454
Deferred income taxes............ 859 1,810 - - 2,669
-------- -------- ------ -------- --------
Total current assets.......... 2,658 43,084 3,715 - 49,457
-------- -------- ------ -------- --------
Assets Held For Sale................ - 8,685 - - 8,685
Property and Equipment, net......... - 80,387 - - 80,387
Intangible Assets, net.............. - 17,277 - - 17,277
Other Assets, net................... 2,442 4,352 2,338 - 9,132
Investment in and advances to
subsidiaries...................... 119,309 1,650 275 (121,234) -
-------- -------- ------ -------- --------
Total assets........................ $124,409 $155,435 $6,328 $(121,234) $164,938
- ----------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of
long-term obligations.......... $ 932 $ 490 $ 8 $ - $ 1,430
Accounts payable................. 15,919 14,875 9 - 30,803
Accrued expenses................. 2,211 12,221 5 - 14,437
Accrued interest................. 3,236 - 119 - 3,355
-------- -------- ------ -------- --------
Total current liabilities..... 22,298 27,586 141 - 50,025
-------- -------- ------ -------- --------
Long-Term Obligations,
less current portion above......... 92,573 2,648 4,230 - 99,451
Other Liabilities................... 330 5,892 32 - 6,254
Stockholders' Equity................ 9,208 119,309 1,925 (121,234) 9,208
-------- -------- ------ -------- --------
Total liabilities and
stockholders' equity.............. $124,409 $155,435 $6,328 $(121,234) $164,938
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Supplemental Consolidating Statement of Cash Flows
for the Three Quarters ended October 28, 1995
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries FINOP Eliminations Consolidated
------- ------------ ----- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net cash (used in) provided by operating
activities............................. $(7,871) $20,205 $ 369 $ - $12,703
------- ------- ------- ------- -------
Cash flow from investing activities:
Purchase of and increase in short-term
investments........................... - - (78) - (78)
Purchase of property and equipment..... - (13,820) - - (13,820)
Proceeds from sale of property,
equipment and assets held for sale.... - 13,817 - - 13,817
Investment in and advances to
subsidiaries.......................... 13,989 (14,076) 87 - -
Increase in long-term notes receivable. - - (701) - (701)
Proceeds from collection of
long-term receivables................. - 86 643 - 729
Increase in intangibles
and other assets...................... 710 (783) 4 - (69)
------- ------- ------- ------- -------
Net cash provided by (used in)
investing activities.................. 14,699 (14,776) (45) - (122)
------- ------- ------- ------- -------
Cash flows from financing activities:
Repayment of long-term obligations..... 541 (2,061) - - (1,520)
Increase in common stock and paid-in
capital............................... 93 - - - 93
------- ------- ------- ------- -------
Net cash used in financing activities.... 634 (2,061) - - (1,427)
------- ------- ------- ------- -------
Increase (decrease) in cash.............. 7,462 3,368 324 - 11,154
Cash at beginning of year................ - 3,418 1,094 - 4,512
------- ------- ------- ------- -------
Cash at end of third fiscal quarter...... $ 7,462 $ 6,786 $ 1,418 $ - $15,666
======= ======= ======= ======= =======
</TABLE>
<PAGE>
Dairy Mart Convenience Stores, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues
Revenues for the current year first three fiscal quarters increased
by $16.6 million from the prior year first three fiscal quarters, and
revenues for the third fiscal quarter increased by $3.8 million from the
prior year third fiscal quarter. A summary of revenues by functional
area for the comparative third fiscal quarter and the first three fiscal
quarters is as follows:
<TABLE>
<CAPTION>
FOR THE THIRD FISCAL FOR THE THREE FISCAL
QUARTER ENDED QUARTERS ENDED
--------------------- --------------------
Nov 2, Oct 28, Nov 2, Oct 28,
(in millions) 1996 1995 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Convenience store $ 85.6 $ 87.3 $257.3 $256.8
Gasoline 59.7 55.5 183.9 169.1
Other 2.0 0.7 3.6 2.3
------------------- -------------------
Total $147.3 $143.5 $444.8 $428.2
=================== ===================
</TABLE>
Convenience store revenues increased $0.5 million, or 0.2%, in the
current year first three fiscal quarters primarily due to a 1.9% increase
in comparable store sales, mostly offset by a reduction of approximately
70 underperforming stores in the current year first three fiscal
quarters. For the third fiscal quarter alone, convenience store revenues
decreased by $1.7 million or 1.95%, primarily due to a reduction of
approximately 60 underperforming stores, partially offset by a 0.8%
increase in comparable store sales. Although the reduction in stores had
a negative impact on revenues, they did not have a material adverse
effect on results of operations, since the majority of stores closed or
sold had been operating at a loss.
Gasoline revenues increased $14.8 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
8.3 cents per gallon, combined with an increase in total gasoline gallons
sold of 0.9 million. For the current year third fiscal quarter alone,
gasoline revenues increased $4.2 million due to an increase in the
average selling price of gasoline of 10.8 cents per gallon, partially
offset by a decrease in gasoline gallons sold of 1.3 million. On a per
location basis, average gallons sold increased by 6.6% and 1.8% in the
current year first three fiscal quarters and third fiscal quarter,
respectively, as compared to the corresponding periods of the prior year.
The increase in the average store gallons sold was due to the 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.
<PAGE>
Gross Profits
Gross profits for the current year first three fiscal quarters and
for the current year third fiscal quarter increased by $0.4 million from
the corresponding periods of the prior year. A summary of the gross
profits by functional area for the comparative third fiscal quarter and
the first three fiscal quarters is as follows:
<TABLE>
<CAPTION>
FOR THE THIRD FISCAL FOR THE THREE FISCAL
QUARTER ENDED QUARTERS ENDED
--------------------- --------------------
Nov 2, Oct 28, Nov 2, Oct 28,
(in millions) 1996 1995 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Convenience store $ 31.7 $ 33.5 $ 95.9 $ 97.9
Gasoline 7.3 6.4 19.4 18.3
Other 2.0 0.7 3.6 2.3
------------------- -------------------
Total $ 41.0 $ 40.6 $118.9 $118.5
=================== ===================
</TABLE>
Convenience store gross profits decreased by $2.0 million in the
current year first three fiscal quarters as compared to the prior year
first three fiscal quarters, and convenience store gross profits for the
current year third fiscal quarter decreased by $1.8 million as compared
to the prior year third fiscal quarter. These decreases were primarily
due to lower product gross margins and due to the overall reduction in
the average number of stores, as described above, partially offset by
increased marketing allowances and an increase in comparable store sales,
as described above.
Gasoline gross profits increased by $1.1 million in the current
year first three fiscal quarters as compared to the prior year first
three fiscal quarters and gasoline gross profits in the current year
third fiscal quarter increased by $0.9 million as compared to the prior
year third fiscal quarter. These increases were due to a gasoline excise
tax rebate due the Company of $1.2 million from the state of Kentucky
since the Kentucky Supreme Court ruled that these taxes were improperly
assessed and collected. Excluding the excise tax rebate discussed above,
gasoline gross profits for the current year first three fiscal quarters
and the third fiscal quarter decreased by $0.1 million and $0.3 million,
respectively, as compared to the corresponding periods of the prior year.
The decrease in the current year first three fiscal quarters as compared
to the corresponding period of the prior year was due to a decrease of
0.13 cents in gross profit per gallon, partially offset by an increase in
gasoline gallons sold, as described above. The decrease in the current
year third fiscal quarter as compared to the corresponding period of the
prior year was due to a decrease of 0.3 cents in gross profit per gallon,
combined with a decrease in gasoline gallons sold, as described above.
Other gross profits increased by $1.3 million in the current year
first three fiscal quarters and for the current year third fiscal quarter
as compared to the corresponding periods of the prior year. These
increases were due to the recognition of a $0.4 million one-time license
fee earned upon the start up of a foreign consulting agreement and
approximately $0.8 million in interest income associated with the excise
tax rebate discussed above.
<PAGE>
Operating and Administrative Expenses
Operating and administrative expenses for the current year first
three fiscal quarters decreased $1.5 million from the prior year first
three fiscal quarters, and operating and administrative expenses for the
third fiscal quarter decreased by $0.9 million from the prior year third
fiscal quarter. A summary of expenses by functional area for the
comparative third fiscal quarter and the first three fiscal quarters is
as follows:
<TABLE>
<CAPTION>
FOR THE THIRD FISCAL FOR THE THREE FISCAL
QUARTER ENDED QUARTERS ENDED
--------------------- --------------------
Nov 2, Oct 28, Nov 2, Oct 28,
(in millions) 1996 1995 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Convenience store $ 25.0 $ 25.0 $ 74.6 $ 74.0
Gasoline 3.4 3.2 10.4 9.6
Administrative and other 9.6 10.7 22.3 25.2
------ ------ ------ ------
Total $ 38.0 $ 38.9 $107.3 $108.8
======= ====== ====== ======
</TABLE>
Convenience store operating expenses increased by $0.6 million in
the current year first three fiscal quarters, and convenience store
operating expenses remained constant in the current year third fiscal
quarter as compared to the corresponding periods of the prior year due to
higher labor, rent and depreciation costs on a per store basis, partially
offset by the closure or sale of underperforming stores as described
above.
Gasoline operating expenses increased by $0.8 million in the
current year first three fiscal quarters as compared to the prior year
first three fiscal quarters, and gasoline operating expenses increased by
$0.2 million in the current year third fiscal quarter as compared to the prior
year third fiscal quarter. These increases were due to the operation of
higher volume new or remodelled and expanded facilities, as described
above combined with an increase in environmental expenses associated with
the remediation of gasoline locations after considering probable
reimbursements from various state environmental trust funds.
Administrative and other expenses decreased by $2.9 million in the
current year first three fiscal quarters, and administrative and other
expenses decreased by $1.1 million in the current year third fiscal
quarter as compared to the corresponding periods of the prior year. Both
the current year first three fiscal quarters and third fiscal quarter
were favorably impacted by a reduction of $1.8 million and $1.5 million,
respectively, of costs and expenses associated with corporate governance
issues, restructuring initiatives and other operating costs. In
addition, administrative and other expenses decreased in the current year
first three fiscal quarters as compared to the corresponding period of
the prior year primarily due to lower professional fees and reduced
administrative support costs. The decrease in professional fees was due
to a $0.6 million payment to the Company from the settlement of
previously pending litigation.
Interest Expense and Taxes
Interest expense increased in the current year first three fiscal
quarters and the third fiscal quarter as compared to the corresponding
periods of the prior year due to an increased level of borrowing
associated with the issuance of $13.5 million principal amount of 10.25%
senior subordinated notes (Series B) in December 1995.
The effective tax rate for the Company was a provision of 40% for
both the current year first three fiscal quarters and the current year
third fiscal quarter as compared to a provision of 40% for the prior year
first three fiscal quarters and a benefit of 40% 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
obligations. The capital expenditures of the Company are primarily
funded by the excess operating cash flow and by the cash generated from
the sale of certain assets. In addition, the Company has a revolving line
of credit available to address the timing of certain working capital and
capital expenditure disbursements. Management believes that the cash
flow from operations and the proceeds from the sale of certain assets,
supplemented by the availability of a revolving line of credit, will
provide the Company with adequate liquidity and the capital necessary to
achieve its expansion initiatives in its retail operations (see Capital
Expenditures).
Cash Provided by Operating Activities
During the current year first three fiscal quarters, net cash
generated by operations was $2 million lower than the prior year first
three fiscal quarters. This decrease was primarily due to a net
unfavorable change in accounts and notes receivable and inventory,
partially offset by a net favorable change in other assets and
liabilities, net of the change in deferred income taxes, improved results
of operations in the current year first three fiscal quarters (see
Results of Operations) and reduced cash outflows in the current fiscal
year related to certain costs and expenses associated with corporate
governance issues, restructuring initiatives and other operating costs.
The net unfavorable change in accounts and notes receivable was due to a
reduction in accounts and notes receivable in the prior year as compared
to an increase in the current year from a gasoline excise tax rebate due
the Company (see Results of Operations). The net unfavorable change
associated with inventory was due to a reduced amount of inventory
liquidations in the current year associated with store closures or sales
of underperforming stores. The net unfavorable change in other assets
and liabilities, net of the change in deferred income taxes, was due to
the receipt of marketing allowances from a grocery wholesaler under the
terms of a new supply agreement which expires in fiscal 2006. The
Company is deferring these marketing allowances over the life of the
agreement.
During the current year first three fiscal quarters, the Company
paid its trade payables in an average of 26 days, compared to 27 days for
both the fiscal year ended February 3, 1996 and 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 November 2, 1996 and February 3, 1996, the amounts due the issuer were
$7.9 million and $7.6 million, respectively.
Cash Used by Financing Activities
Cash provided by financing activities increased by $1.5 million in
the current year first three fiscal quarters as compared to the
corresponding period of the prior year primarily due to lower debt
service requirements and due to an increase in the Company's long-term
obligations.
During the current year first three fiscal quarters, the Company
entered into a new $30.0 million senior revolving credit facility with
$15.0 million available for the issuance of letters of credit. The
Company may utilize the new revolving credit facility as needed for
working capital and general corporate purposes. As of November 2, 1996
the Company had no outstanding revolving credit loans and had $5.6
million in outstanding letters of credit.
Cash Used by Investing Activities
Net cash used by investing activities increased by $16.9 million in
the current year first three fiscal quarters as compared to the
corresponding period of the prior year due to reduced cash flows
generated from the sale of certain assets. In addition, the Company
increased its capital expenditures with respect to new store construction
and remodeling of existing store locations. Finally, the Company's
investing activities included the purchase in the current year first
fiscal quarter of a U.S. Treasury Bill.
<PAGE>
Capital Expenditures
The Company anticipates spending approximately $20 to $25 million
for capital expenditures in fiscal 1997 by purchasing store and gasoline
equipment for new stores, remodeling a certain number of existing stores,
installing fast food concepts, such as Taco Bell , Subway and Pizza Hut
in the new and remodeled stores, installing store automation in a number
of locations, significantly upgrading certain gasoline locations to
provide credit card readers at the pump, improve outdoor lighting and to
meet current environmental standards (see Environmental Responsibility).
These capital expenditures will be funded primarily by the Company's
available cash, cash generated from operations and by cash generated from
the disposition of assets held for sale, supplemented by the availability
of the Company's senior revolving line of credit. The Company intends to
lease the real estate for the majority of new store locations.
Other Liquidity Item
During fiscal 1996, the Company acquired a $10,000,000 note
receivable (Note) from DM Associates Limited Partnership (DM Associates)
collateralized by 1,220,000 shares of the Company's Class B Common Stock
(Pledged Shares). This Note is due and payable in September 1997 and if
collected, would favorably impact the liquidity of the Company. The
Company does not, however, currently anticipate collection of this Note
and may therefore take direct ownership and control of the Pledged Shares
in full satisfaction of the Note. If the Pledged Shares are acquired
from DM Associates, it is the current intention of the Company to retire
such shares.
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 November 2, 1996, the Company had recorded an accrual
of $1,868,000 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 November 2,
1996, the Company has recorded a net state trust fund reimbursement
receivable of $1,381,000 (representing a gross receivable of $2,141,000
less an allowance of $760,000). Although there are no assurances as to
the timing, the Company believes that it is probable that reimbursements
from state environmental trust funds will be received 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 $10.0 to $12.0 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 6. Exhibits and Reports on Form 8-K.
(a.) Exhibits:
1. Exhibit (3.ii)- Amended and Restated By-Laws.
2. Exhibit (11)- Statement re Computation of Per-Share
Earnings.
3. Exhibit (27) - Financial Data Schedule.
Submitted in electronic format only.
(b.) 8-K Reports:
During the third quarter of fiscal 1997, the Company filed no
reports on Form 8-K.
<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 17, 1996 /s/ Gregory G. Landry
Gregory G. Landry
Executive Vice President
Chief Financial Officer
<PAGE>
Exhibit 11
Dairy Mart Convenience Stores, Inc. and Subsidiaries
STATEMENT RE COMPUTATIONS OF PER-SHARE EARNINGS
(in thousands, except per share amounts)
CALCULATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
FOR THE THIRD FISCAL FOR THE THREE FISCAL
QUARTER ENDED QUARTERS ENDED
----------------------- ----------------------
November 2, October 28, November 2, October 28,
1996 1995 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income.................... $ 193 $ (405) $ 2,034 $ 1,503
--------- --------- --------- ---------
Weighted average shares....... 5,692 5,582 5,628 5,574
Dilutive options.............. 233 - 295 249
Effect of DM Associates stock. (1,220) - (1,220) -
--------- --------- --------- ---------
Total shares for EPS purposes. $ 4,705 $ 5,582 $ 4,703 $ 5,823
- ------------------------------------------------------------------------------
Net income per share........ $ 0.04 $ (0.07) $ 0.43 $ 0.26
==============================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Consolidated
Statements of Operations and Consolidated Balance Sheets and is qualified in its
entirety be reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> NOV-02-1996
<CASH> 6401
<SECURITIES> 1514
<RECEIVABLES> 14204
<ALLOWANCES> 1491
<INVENTORY> 20044
<CURRENT-ASSETS> 46398
<PP&E> 126880
<DEPRECIATION> 40584
<TOTAL-ASSETS> 169223
<CURRENT-LIABILITIES> 48394
<BONDS> 99156
0
0
<COMMON> 65
<OTHER-SE> 11730
<TOTAL-LIABILITY-AND-EQUITY> 169223
<SALES> 0
<TOTAL-REVENUES> 444804
<CGS> 325892
<TOTAL-COSTS> 433216
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 834
<INTEREST-EXPENSE> 8187
<INCOME-PRETAX> 3401
<INCOME-TAX> (1367)
<INCOME-CONTINUING> 2034
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2034
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
DAIRY MART CONVENIENCE STORES, INC.
(A Delaware Corporation)
ARTICLE I
Offices
Section 1. Principal Office in Connecticut. The principal
office of DAIRY MART CONVENIENCE STORES, INC. (the "Corporation")
in the State of Connecticut shall be in the Town of Enfield,
County of Hartford.
Section 2. Registered Office in Delaware. The Corporation
shall have and maintain a registered office in the State of
Delaware as required by Delaware law.
Section 3. Other Offices. The Corporation may have a
principal or other office at such other place or places, either
within or without the State of Connecticut or Delaware, as the
Board of Directors may from time to time determine or as shall be
necessary or appropriate for the conduct of the business of the
Corporation.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meetings. All annual and special
meetings of stockholders shall be held at such place or places,
within or without the State of Delaware, as may from time to time
be called and fixed solely by the Board of Directors in accordance
with these bylaws, or as shall be specified in the respective notices
or waivers of notice thereof.
Section 2. Annual Meetings. Each annual meeting of
stockholders for the election of directors and the transaction of
other business shall be held on the second Thursday of June, in
each year, and shall be called solely by order of the Board of
Directors. If this date shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At
each annual meeting the stockholders entitled to vote shall elect a
Board of Directors and may transact such other corporate business
as may be brought before the meeting. If the election of directors
shall not be held on the day designated herein for the annual meeting,
or at any adjournment thereof, the Board of Directors shall cause a
special meeting of the stockholders for the election of directors to
be held as soon thereafter as may be convenient. At such special
meeting the stockholders may elect directors and transact other
business with the same force and effect as at an annual meeting of the
stockholders duly called and held.
Section 3. Special Meetings. A special meeting of the
stockholders (or of any class thereof entitled to vote at a
special meeting) for any purpose or purposes may be called at any time
solely by order of the Board of Directors. No stockholder, in
its, his, or her capacity as a stockholder, may call a special meeting
of the stockholders. The record date for any special meeting of
the stockholders shall be set solely by order of the Board of
Directors.
Section 4. Notice of Meetings. Except as otherwise expressly
required by law, notice of each meeting of stockholders, whether
annual or special, shall be given at least ten (10) days before
the date on which the meeting is to be held to each stockholder of
record entitled to vote thereat by delivering a notice thereof to
him personally or by mailing such notice in a postage prepaid
envelope directed to him at his address as it appears on the
stock ledger of the Corporation, unless he shall have filed with the
Secretary of the Corporation a written request that notices
intended for him be directed to another address, in which case
such notice shall be directed to him at the address designated in such
request. Every notice of a special meeting of the stockholders,
besides stating the time and place of the meeting, shall state
briefly the objects or purposes thereof. Notices of any meeting
of stockholders shall not be required to be given to any stockholder
who shall attend such meeting in person or by proxy; and, if any
stockholder shall, in person or by attorney thereunto authorized,
in writing or by telegraph, cable or wireless, waive notice of
any meeting of the stockholders, whether prior to or after such
meeting, notice thereof need not be given to him. Notice of any
adjourned meeting of the stockholders shall not be required to be
given, except as expressly required by law.
Section 5. List of Stockholders. It shall be the duty of the
Secretary or other officer of the Corporation who shall have
charge of the stock ledger to prepare and make, at least ten (10) days'
before every election of directors, a complete list of the
stockholders entitled to vote thereat, arranged in alphabetical
order, and showing the address of each stockholder and the number
of shares registered in his name. Such list shall be open for ten
(10) days' at the place where said election is to be held or at
some other specified place within the Town of Enfield, State of
Connecticut to the examination of any stockholder during ordinary
business hours and shall be produced and kept at the time and
place of the election during the whole time thereof and subject to the
inspection of any stockholder who may be present. The original or
duplicate stock ledger shall be the only evidence as to who are
the stockholders entitled to examine such list or the books of the
Corporation or to vote in person or by proxy at such election.
Section 6. Quorum. At each meeting of the stockholders, the
holders of record of (i) a majority of the voting power of the
issued and outstanding stock of all classes of the Corporation
entitled to vote at such meeting, present in person or by proxy,
shall constitute a quorum for the transaction of business, with
respect to those matters as to which all classes of stock vote
together, and (ii) one-third (1/3) of the issued and outstanding
stock of any class of stock of the Corporation entitled to vote
at such meeting, present in person or by proxy, shall constitute a
quorum for the transaction of business with respect to those
matters as to which such class is entitled (by law, the
Certificate of Incorporation or these Bylaws) to vote separately from
all other classes, except where otherwise provided by law, the
Certificate of Incorporation or these Bylaws. In the absence of a
quorum, any officer entitled to preside at, or act as Secretary of, such
meeting shall have the power to adjourn the meeting from time to
time until a quorum shall be constituted. At any such adjourned
meeting at which a quorum shall be present any business may be
transacted which might have been transacted at the meeting as
originally called, but only those stockholders entitled to vote
at the meeting as originally noticed shall be entitled to vote at
any adjournment or adjournments thereof.
Section 7. Voting. Except as otherwise provided in the
Certificate of Incorporation, at every meeting of stockholders
each holder of record of the issued and outstanding stock of the
Corporation entitled to vote at such meeting shall be entitled to
one vote in person or by proxy for each such share of stock
entitled to vote held by such stockholder, but no proxy shall be
voted after three (3) years from its date unless the proxy
provides for a longer period, and, except where the transfer books of
the Corporation shall have been closed or a date shall have been
fixed as the record date for the determination of stockholders entitled
to vote, no share of stock shall be voted on at any election for
directors which shall have been transferred on the books of the
Corporation within twenty (20) days next preceding such election
of directors. Shares of its own capital stock belonging to the
Corporation directly or indirectly shall not be voted upon
directly or indirectly. At all meetings of the stockholders, a quorum
being present, all matters shall be decided by majority vote of the
shares of stock entitled to vote held by stockholders present in
person or by proxy, except as otherwise required by the laws of
the State of Delaware. Unless demanded by a stockholder of the
Corporation present in person or by proxy at any meeting of the
stockholders and entitled to vote thereat or so directed by the
Chairman of the meeting or required by the laws of the State of
Delaware, the vote thereat on any question need not be by ballot.
Unless otherwise provided in the Certificate of Incorporation,
all elections of directors shall be by ballot. On a vote by ballot,
each ballot shall be signed by the stockholder voting, or in his
name by his proxy, if there be such proxy, and shall state the
number of shares voted by him and the number of votes to which
each share is entitled.
Unless otherwise provided in the Certificate of
Incorporation, any action required or permitted to be taken at any
annual or special meeting of the stockholders of the Corporation may
be taken without a meeting, without prior notice and without a vote,
if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of the minimum number of shares
of outstanding stock that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon
were present and voted. Such consent or consents shall be
delivered to the Corporation by delivery to its registered office
in Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. Prompt
notice of the taking of corporate action without a meeting by
less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
Section 8. Advance Notice of Stockholder Business. At an
annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting.
To be properly brought before an annual meeting, business must be
(a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors,
(b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly
brought before the meeting by a stockholder of record. For
business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the Corporation, not less than
sixty (60) days nor more than ninety (90) days prior to the meeting;
provided, however, that if both (i) fewer than seventy (70) days
Advance Notice of the meeting is given to stockholders, and (ii) such
meeting is held more than thirty (30) days before or after the
corresponding date of the annual meeting held in the preceding
year, then such written notice shall be received not later than
the close of the tenth day following the day on which notice of the
meeting was mailed to stockholders. As used in this Section 8,
"Advance Notice" to the stockholders shall be deemed to have been
given on the date of any quarterly report of the Corporation,
letter to stockholders, press release or other communication to
stockholders disclosing the date of the next annual meeting and
provided that the annual meeting is in fact held on such date or
within thirty (30) days after such date. Any such Advance Notice
would be in addition to, but not in substitution for, the Notice
of Meeting provided for in Section 4 above.
A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the annual
meeting: (a) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (b) the name and address, as
they appear on the Corporation's books, of the stockholder
proposing such business, (c) the class and number of shares of
stock of the Corporation of which the stockholder is the
Beneficial Owner (as that term is defined in the Certificate of
Incorporation of the Corporation), and (d) any material interest of the
stockholder in such business. Notwithstanding anything in the By-
Laws to the contrary, no business shall be conducted at any
annual meeting except in accordance with the procedures set forth in
this Section 8. The Chairman of the annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was
not properly brought before the meeting in accordance with the
provisions of this Section 8, and if he should so determine, he
shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
Notwithstanding the provisions of this Section 8, notice of
stockholder nominations of persons for election as directors
shall be as set forth in the Certificate of Incorporation.
ARTICLE III
Board of Directors
Section 1. General Powers. The property, business and
affairs of the Corporation shall be managed by the Board of Directors.
Section 2. Number and Term of Office. The number of
directors shall be fixed from time to time by resolution of the Board
of Directors but shall not be less than three (3). Directors need
not be stockholders. Each director shall hold office until the annual
meeting of the stockholders next following his election and until
his successors shall have been elected and shall qualify, or
until his death, resignation or removal.
Section 3. Quorum and Manner of Acting. Unless otherwise
provided by law, the presence of one-third (1/3) of the whole
Board of Directors, and in any case not less than two (2) directors,
shall be necessary to constitute a quorum for the transaction of
business. In the absence of a quorum, a majority of the directors
present may adjourn the meeting from time to time until a quorum
shall be present. Notice of any adjourned meeting need not be
given. At all meetings of the directors, a quorum being present,
all matters shall be decided by the affirmative vote of a
majority of the directors present, except as otherwise required by
the laws of the State of Delaware, and except for the calling of any
annual or special meeting of the stockholders by the Board of
Directors which shall require the affirmative vote of a majority of
the whole Board of Directors.
Section 4. Place of Meetings, Books and Records. The Board
of Directors may hold its meetings and keep the books and records of
the Corporation, at such place or places within or without the
State of Delaware, as the Board may from time to time determine.
Section 5. Annual Meeting. As promptly as practicable after
each annual meeting of stockholders for the election of
directors, the Board of Directors shall meet for the purpose of
organization, the election of officers and the transaction of other
business. Notice of such meeting need not be given. Such meeting
of the Board of Directors may be held at any other time or place as
shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors or in a waiver of notice
thereof signed by all the directors.
Section 6. Regular Meetings. Regular meetings of the Board
of Directors may be held at such time and place, within or without
the State of Delaware, as shall from time to time be determined by
the Board of Directors. After there has been such determination, and
notice thereof has been given to each member of the Board of
Directors, regular meetings may be held without further notice
being given.
Section 7. Special Meetings and Notice Thereof. Special
meetings of the Board of Directors shall be held whenever called
by the Chairman of the Board, the President or by a majority of the
directors. Notice of each such meeting shall be mailed to each
director, addressed to him at his residence or usual place of
business, at least two (2) days before the date on which the
meeting is to be held, or shall be sent to him at such place by
telegraph, cable, radio or wireless, or be delivered personally
or by telephone, not later than the day before the day on which such
meeting is to be held. Each such notice shall state the time and
place of the meeting and the purpose thereof. In lieu of the
notice to be given as set forth above, a waiver thereof in writing,
signed by the director or directors entitled to said notice, whether
before or after the time stated therein, shall be deemed
equivalent thereto for purposes of this Section 7. No notice to or
waiver by any director with respect to any special meeting shall be
required if such director shall be present at said meeting.
Section 8. Resignation. Any director of the Corporation may
resign at any time by giving written notice thereof to the
Chairman of the Board, the President or the Secretary of the Corporation.
The resignation of any director shall take effect upon receipt of
notice thereof or at such later time as shall be specified in
such notice; and, unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
When one or more directors shall resign from the Board, effective at a
future date, a majority of the directors then in office including
those who have so resigned shall have power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation
or resignations shall become effective.
Section 9. Vacancies. Vacancies and newly created
directorships resulting form any increase in the authorized
number of directors may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining
director, unless otherwise provided by the Certificate of
Incorporation or the laws of the State of Delaware.
Section 10. Removal. As provided in the Certificate of
Incorporation, any director, or the entire Board of Directors of
the Corporation, may be removed at any time, with or without
cause, only by the affirmative vote by the holders of two-thirds
(2/3) or more of the voting shares of the class or classes of stock
that elected the director to be removed; provided, however, that such
vote shall be taken at a meeting of the shareholders called for
the purpose of removing directors and such vote may not be taken by
the written consent of shareholders in lieu of a meeting or otherwise
than at a meeting.
Section 11. Compensation of Directors. Directors, as such,
shall not receive any stated salary for their services, but, by
resolution of the Board, a specific sum fixed by the Board plus
experience may be allowed for attendance at each regular or
special meeting of the Board or any committee thereof; provided that
nothing herein contained shall be construed to preclude any
director from serving the Corporation or any subsidiary thereof
in any other capacity and receiving compensation therefor.
Section 12. Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one
or more committees, including an Executive Committee, each
committee to consist of two or more directors of the Corporation,
which, to the extent provided in the resolution or in these
Bylaws, shall have and may exercise such powers of the Board in the
management of the business and affairs of the Corporation
(including the power to authorize the seal of the Corporation to
be affixed to all papers which may require it), as the Board may by
resolution determine and specify in the respective resolutions
appointing them, subject to such restrictions as may be contained
in the Certificate of Incorporation. Unless specifically limited
by resolution approved by the Board, the Executive Committee
shall have and may exercise the powers of the Board to appoint
officers of the Corporation, provided, however, the Executive Committee
shall have no power to appoint the Chairman of the Board,
President, any Executive Vice President, Chief Executive Officer
and the Chief Financial Officer of the Corporation; to approve or
otherwise authorize the incurrence of funded debt, including
guarantees of funded debt of one or more of the Corporation's
subsidiaries, provided, however, the proceeds of such funded debt
shall be specifically designated and used for the purchase or
refinancing of identified real or personal property, and further
provided, however, the amount of such funded debt shall not, in
any one or series of transactions, exceed the sum of five million
dollars unless and until the Executive Committee has presented a
report on the funded debt so incurred to the Board of Directors
at any regular or special meeting; to approve or otherwise authorize
the leasing by the Corporation, including guarantees of lease
obligations of one or more of the Corporation's subsidiaries, of
real or personal property, and further provided, however, that
with respect to leases other than for retail store premises and
equipment, the amount of annual rental payments and similar
charges committed to be paid by the Corporation with respect to such
leases shall not, in any one or series of transactions, exceed the sum
of five hundred thousand dollars unless and until the Executive
Committee has presented a report on the lease commitments so
incurred to the Board of Directors at any regular or special
meeting; and to approve or otherwise authorize the execution of
agreements pertaining to the purchase or sale of inventory or
services offered for sale by the Corporation or one or more of
its subsidiaries. Such committee or committees shall have such name
or names as may be determined from time to time by resolution
adopted by the Board of Directors. The committees shall keep regular
minutes of their proceedings and report the same to the Board
when required. A majority of all the members of any such committee
may fix its rules of procedure, determine its action and fix the time
and place of its meetings and specify what notice thereof, if
any, shall be given, unless the Board of Directors shall otherwise by
resolution provide. The Board of Directors shall have power to
change the membership of any such committee at any time, to fill
vacancies thereon and to discharge any such committee, either
with or without cause, at any time. Each member of any such committee
shall be paid such fee, if any, as shall be fixed by the Board of
Directors for each meeting of such committee which he shall
attend and, in addition, such transportation and other expenses actually
incurred by him in going to the meeting of such committee and
returning therefrom as the Board of Directors shall approve.
Section 13. Action Without Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting if prior
to such action a written consent thereto is signed by all members of
the Board or of such committee, as the case may be, and such
written consent is filed with the minutes or proceedings of the
Board or committee.
ARTICLE IV
Officers
Section 1. Number. The principal officers of the Corporation
shall be a Chairman of the Board, a President, one or more Vice
Presidents, a Treasurer and a Secretary. The Corporation may also
have, at the discretion of the Board of Directors, such other
officers as may be appointed in accordance with the provisions of
these Bylaws. One person may hold the offices and perform the
duties of any two or more of said offices, except the offices and
duties of President and Secretary.
Section 2. Election or Appointment and Term of Office. The
principal officers of the Corporation shall be chosen annually by
the Board of Directors at the annual meeting thereof. Each such
officer shall hold office until his successor shall have been
duly chosen and shall qualify, or until his death or until he shall
resign or shall have been removed in the manner hereinafter
provided.
Section 3. Subordinate Officers. In addition to the
principal officers enumerated in Section 1 of this Article IV, the
Corporation may have one or more Assistant Treasurers, one or
more Assistant Secretaries and such other officers, agents and
employees as the Board of Directors may deem necessary, each of whom
shall hold office for such period, have such authority, and perform
such duties as the Chairman of the Board, the President, or the Board
of Directors may from time to time determine. The Board of Directors
may delegate to any principal officer the power to appoint and to
remove any such subordinate officers, agents or employees.
Section 4. Removal. Any officer may be removed, either with
or without cause, at any time, by resolution adopted by the Board of
Directors at any regular meeting of the Board or at any special
meeting of the Board called for that purpose at which a quorum is
present.
Section 5. Resignations. Any officer may resign at any time
by giving written notice to the Chairman of the Board or to the
Board of Directors or to the President or to the Secretary. Any such
resignation shall take effect upon receipt of such notice or at
any later time specified therein; and, unless otherwise specified
therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 6. Vacancies. A vacancy in any office may be filled
for the unexpired portion of the term in the manner prescribed in
these Bylaws for election or appointment to such office for such
term.
Section 7. Chairman of the Board. The Chairman of the Board
shall preside at all meetings of stockholders and at all meetings
of the Board of Directors. He shall perform such other duties and
have such other powers as the Board of Directors may from time to
time prescribe.
Section 8. President. The President shall be the chief
executive officer of the Corporation and as such shall have
general supervision of the affairs of the Corporation, subject to the
control of the Board of Directors. He shall be ex officio a
member of all standing committees. In the absence of the Chairman of
the Board the President shall preside at all meetings of stockholders
and at all meetings of the Board of Directors. Subject to the
control and discretion of the Board of Directors, the President
may enter into any contract or execute and deliver any instrument in
the name and on behalf of the Corporation. In general, he shall
perform all duties incident to the office of President, as herein
defined, and all such other duties as from time to time may be
assigned to him by the Board of Directors.
Section 9. Vice Presidents. The Vice Presidents in the order
of their seniority, unless otherwise determined by the Board of
Directors, shall, in the absence or disability of the President,
perform the duties and exercise the powers of the President. They
shall perform such other duties and have such other powers as the
Chairman of the Board, the President or the Board of Directors
may from time to time prescribe.
Section 10. Treasurer. The Treasurer shall have charge and
custody of, and be responsible for, all funds and securities of
the Corporation and shall deposit all such funds in the name of the
Corporation in such banks or other depositories as shall be
selected by the Board of Directors. He shall exhibit at all
reasonable times his books of account and records to any of the
directors of the Corporation upon application during business
hours at the office of the Corporation where such books and records
shall be kept; when requested by the Board of Directors, he shall
render a statement of the condition of the finances of the Corporation
at any meeting of the Board or at the annual meeting of
stockholders; he shall receive, and give receipt for, moneys due and
payable to the Corporation from any source whatsoever; and in general,
he shall perform all the duties incident to the office of Treasurer
and such other duties as from time to time may be assigned to him
by the Chairman of the Board, the President or the Board of
Directors. The Treasurer shall give such bond, if any, for the
faithful discharge of his duties as the Board of Directors may
require.
Section 11. Secretary. The Secretary, if present, shall act
as secretary at all meetings of the Board of Directors and of the
stockholders and keep the minutes thereof in a book or books to
be provided for that purpose; he shall see that all notices required
to be given by the Corporation are duly given and served; he
shall have charge of the stock records of the Corporation; he shall
see that all reports, statements and other documents required by law
are properly kept and filed; and in general, he shall perform all
the duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the
Chairman of the Board, the President or the Board of Directors.
Section 12. Salaries. The salaries of the principal officers
shall be fixed from time to time by the Board of Directors, and
the salaries of any other officers may be fixed by the Chairman of
the Board or the President.
ARTICLE V
Shares and Their Transfer
Section 1. Certificate for Stock. Every stockholder of the
Corporation shall be entitled to a certificate or certificates,
to be in such form as the Board of Directors shall prescribe,
certifying the number of shares of the capital stock of the
Corporation owned by him.
Section 2. Stock Certificates. Any stock certificate which
certifies the number of shares owned by any holder of stock of
the Corporation shall be numbered in the order in which it shall be
issued and shall be signed by the Chairman of the Board or the
President or any Vice President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of
the Corporation and shall have the seal of the Corporation
affixed thereto; provided, however, that, where any such certificate
is signed (1) by a transfer agent or an assistant transfer agent or
(2) by a transfer clerk acting on behalf of the Corporation and a
registrar, if the Board shall by resolution so authorize, the
signature of such Chairman of the Board, President, Vice
President, Treasurer, Secretary, Assistant Treasurer or Assistant
Secretary and the seal of the Corporation may be facsimiles thereof.
In case any officer or officers of the Corporation who shall have
signed, or whose facsimile signature or signatures shall have been
used on, any such certificate shall cease to be such officer or
officers, whether by reason of death, resignation or otherwise,
before such certificate shall have been delivered by the Corporation,
such certificate may nevertheless be adopted by the Corporation and be
issued and delivered as though the person or persons who signed
such certificate, or whose facsimile signature or signatures
shall have been affixed thereto, had not ceased to be such officer or
officers.
Section 3. Stock Ledger. A record shall be kept by the
Secretary, transfer agent or by any other officer, employee or
agent designated by the Board of Directors of the name of the
person, firm or corporation holding the stock represented by such
certificate, the number of shares represented by such
certificate, and the date thereof, and in case of cancellation, the
date of cancellation.
Section 4. Cancellation. Every certificate surrendered to
the Corporation for exchange or transfer shall be cancelled, and no
new certificate or certificates shall be issued in exchanged for any
existing certificate until such existing certificate shall have
been so cancelled, except in cases provided for in Section 7 of
this Article V.
Section 5. Transfers of Stock. Transfers of shares of the
capital stock of the Corporation shall be made only on the books
of the Corporation by the registered holder thereof, or by his
attorney thereunto authorized by power of attorney duly executed
and filed with the Secretary of the Corporation or with a
transfer clerk or a transfer agent appointed as in Section 6 of this
Article V provided, and on surrender of the certificate or certificates
for such shares properly endorsed and the payment of all taxes
thereon. The person in whose name shares of stock stand on the books of
the Corporation shall be deemed the owner thereof for all purposes as
regards the Corporation; provided, however, that whenever any
transfer of shares shall be made for collateral security, and not
absolutely, such fact, if known to the Secretary of the
Corporation, shall be so expressed in the entry of transfer.
Section 6. Regulations. The Board of Directors may make such
rules and regulations as it may deem expedient, not inconsistent
with the Certificate of Incorporation or these Bylaws, concerning
the issue, transfer and registration of certificates for shares
of the stock of the Corporation. It may appoint, or authorize any
principal officer or officers to appoint, one or more transfer
clerks or one or more transfer agents and one or more registrars,
and may require all certificates of stock to bear the signature
or signatures of any of them.
Section 7. Lost, Stolen, Mutilated or Destroyed Certificates.
As a condition to the issue of a new certificate of stock in the
place of any certificate theretofore issued and alleged to have
been lost, stolen, mutilated or destroyed, the Board of Directors,
in its discretion, may require the owner of any such certificate,
or his legal representatives, to give the Corporation a bond in
such sum and in such form as it may direct to indemnify the
Corporation against any claim that may be made against it on
account of the alleged loss, theft, mutilation or destruction of
any such certificate or the issuance of such new certificate.
Proper evidence of such loss, theft, mutilation or destruction
shall be procured for the Board of Directors, if required. The
Board of Directors, in its discretion, may authorize the issuance
of such new certificate without any bond when in its judgment it
is proper to do so.
Section 8. Record Date. The Board may fix a date in advance
of not exceeding sixty (60) days' preceding, the date of any meeting
of stockholders (nor less than ten (10) days' before the date of
such meeting), or the date for the payment of any dividend, or
the date for the allotment of rights, or the date when any change or
conversion or exchange of capital stock shall go into effect or a
date in connection with obtaining any written consent to
corporate action without a meeting, as a record date for the determination
of the stockholders entitled to notice of, and to vote at, such
meeting, and any adjournment thereof, or to receive payment of
any dividend, or to receive any such allotment of rights, or to
exercise the rights in respect of any such change, conversion, or
exchange of capital stock or to give such written consent, as the
case may be, notwithstanding any transfer of any stock on the
books of the Corporation after any record date so fixed.
ARTICLE VI
Miscellaneous Provisions
Section 1. Corporate Seal. The Board of Directors shall
provide a corporate seal, which shall be in the form of a circle
and shall bear the name of the Corporation and words and figures
showing that it was incorporated in the State of Delaware. The
Secretary shall be the custodian of the seal. The Board of
Directors may authorize a duplicate seal to be kept and used by
any other officer.
Section 2. Fiscal Year. The fiscal year of the Corporation
shall be as specified by the Board of Directors.
Section 3. Voting of Stocks Owned by the Corporation. The
Board of Directors may authorize any person in behalf of the
Corporation to attend, vote and grant proxies to be used at any
meeting of stockholders of any corporation (except this
Corporation) in which the Corporation may hold stock.
Section 4. Dividends. Subject to the provisions of the
Certificate of Incorporation, the Board of Directors may, out of
funds legally available therefor, at any regular or special
meeting declare dividends upon the capital stock of the Corporation as
and when they deem expedient. Before declaring any dividend there may
be set apart out of any funds of the Corporation available for
dividends such sum or sums as the directors from time to time in
their discretion may deem proper for working capital or as a
reserve fund to meet contingencies or for equalizing dividends or
for such other purposes as the directors may deem conducive to
the interests of the Corporation.
ARTICLE VII
Amendments
Section 1. The Bylaws of the Corporation may be adopted,
altered, amended or repealed or new bylaws may be adopted by the
Board of Directors at any regular or special meeting upon the
affirmative vote of both sixty-seven (67%) percent of the Whole
Board of Directors and majority (but in any event not less than
four) of the Continuing Directors as defined in the Certificate
of Incorporation of the Corporation. The Bylaws of the Corporation
may also be adopted, altered, amended or repealed or new bylaws may
be adopted by the shareholders only upon the affirmative vote as to
all stock held (i) by the holders of not less than sixty-seven
(67%) percent of the Outstanding Voting Shares and (ii) by an
Independent Majority of Shareholders, as defined in the
Certificate of Incorporation of the Corporation. Such a vote may be
taken at any annual or special meeting of the shareholders if notice
of such alteration, amendment, repeal or adoption of the new bylaws
shall be contained in the notice of such annual or special meeting.
No change of the time or place of the meeting for the election of
directors shall be made within sixty (60) days' next before the
day on which such a meeting is to be held, and, in case of any change
of such time or place, notice thereof shall be given to each
stockholder in person or by letter mailed to his last known post-
office address at least twenty (20) days before the meeting is
held. Bylaws, whether made or altered by the stockholders or by
the Board of Directors, shall be subject to alteration or repeal by
the stockholders as in this Article VII above provided.
DAIRY MART CONVENIENCE STORES, INC.
Proposed Amendment to Article III, Section 12
of the By-Laws
