<PAGE>
DAIRY MART CONVENIENCE STORES, INC.
Dear Dairy Mart Shareholder:
You are cordially invited to attend the 1996 Annual Meeting of Shareholders
of Dairy Mart Convenience Stores, Inc. (the "Company") to be held at 10:00
a.m. (eastern time) on Wednesday, October 30, 1996, at the Renaissance Hotel,
24 Public Square, Cleveland, Ohio.
At the Annual Meeting, seven persons will be elected to the Board of
Directors. The Company will also ask the shareholders to ratify the
appointment of Arthur Andersen LLP as the Company's independent accountants.
The Board of Directors recommends approval of each of these proposals. Such
other business will be transacted as may properly come before the Annual
Meeting.
We hope that you will be able to attend the Annual Meeting. Whether you plan
to attend the Annual Meeting or not, it is important that your shares are
represented. Therefore, we request that you vote for all items of business,
and sign, date and return the enclosed proxy card, even if you plan to attend
the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
Sincerely yours,
Dairy Mart Convenience Stores, Inc.
Robert B. Stein, Jr.,
Chairman of the Board, President and
Chief Executive Officer
September 30, 1996
<PAGE>
DAIRY MART CONVENIENCE STORES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 30, 1996
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of DAIRY MART
CONVENIENCE STORES, INC. will be held on Wednesday, October 30, 1996, at 10:00
a.m. (eastern time) at the Renaissance Hotel, 24 Public Square, Cleveland,
Ohio for the following purposes:
(1) To elect seven members to the Board of Directors, as described in the
Proxy Statement accompanying this Notice of Annual Meeting;
(2) To ratify the appointment of Arthur Andersen LLP as independent
accountants for the fiscal year ending February 1, 1997; and
(3) To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
Only shareholders of record as shown by the transfer books of the Company at
the close of business on September 23, 1996 are entitled to notice of, and to
vote at, this Annual Meeting.
By Order of the Board of Directors
Dairy Mart Convenience Stores, Inc.
Gregory G. Landry,
Executive Vice President and Chief
Financial Officer
September 30, 1996
ALL SHAREHOLDERS ARE INVITED TO ATTEND THIS ANNUAL MEETING IN PERSON.
THOSE SHAREHOLDERS WHO ARE UNABLE TO ATTEND IN PERSON ARE RESPECTFULLY
URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY AT THEIR EARLIEST
CONVENIENCE. SHAREHOLDERS WHO EXECUTE A PROXY MAY NEVERTHELESS ATTEND THE
MEETING AND VOTE THEIR SHARES IN PERSON.
<PAGE>
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
OF DAIRY MART CONVENIENCE STORES, INC.
OCTOBER 30, 1996
SOLICITATION OF PROXIES
The accompanying proxy is solicited by the Board of Directors of DAIRY MART
CONVENIENCE STORES, INC., One Vision Drive, Enfield, Connecticut 06082 (the
"Company") for use at the Annual Meeting of Shareholders to be held on
Wednesday, October 30, 1996, and at any and all adjournments or postponements
thereof. The cost of preparing, assembling and mailing this Proxy Statement
and the material enclosed herewith is being borne by the Company. Directors,
officers and some regular employees of the Company may solicit proxies
personally or by telephone, without additional compensation. This Proxy
Statement and the accompanying proxy are being mailed to shareholders on or
about September 30, 1996.
Shares of Class A Common Stock, par value $.01 per share ("Class A Common
Stock"), or Class B Common Stock, par value $.01 per share ("Class B Common
Stock," and together with the Class A Common Stock, "Common Stock"), of the
Company represented by properly executed proxies will be voted as directed on
the proxy. Properly executed proxies containing no voting directions to the
contrary will be voted for the election of the nominees as directors named
below and the ratification of the appointment of Arthur Andersen LLP as
independent accountants for the fiscal year ending February 1, 1997. A proxy
may be revoked at any time before it is voted at the Annual Meeting by
notifying the Chief Financial Officer of the Company in writing at the address
set forth above, by submitting a properly executed proxy bearing a later date,
or by revoking the proxy at the Annual Meeting. Attendance at the Annual
Meeting will not by itself constitute the revocation of a proxy.
OUTSTANDING STOCK AND VOTING RIGHTS
The Board of Directors has fixed the close of business on September 23, 1996
as the record date for the determination of shareholders entitled to notice of
this Annual Meeting, and only shareholders of record on that date will be
entitled to vote at the meeting. As of September 20, 1996, 2,954,651 shares of
Class A Common Stock were issued and outstanding and 2,764,460 shares of Class
B Common Stock were issued and outstanding. Except with respect to the
election of directors, holders of both classes of Common Stock vote or consent
as a single class on all matters, with each share of Class B Common Stock
having one vote per share and each share of Class A Common Stock having one-
tenth of a vote per share. With respect to the election of directors, holders
of Class A Common Stock are entitled to elect 25% of the Board of Directors
(rounded up to the nearest whole number) to be 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. The holders of the Class B Common Stock have the
right to elect the remaining directors to be elected by the holders of Common
Stock, so long as the number of outstanding shares of Class B Common Stock is
at least 12.5% of the total number of outstanding shares of both classes of
Common Stock.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information concerning beneficial
ownership of the Common Stock by each shareholder known by the Company to be
the beneficial owner of 5% or more of either class of Common Stock as of
September 10, 1996. This information is furnished in accordance with the
Securities and Exchange Commission ("SEC") regulations relating to any persons
known by the Company to be the beneficial owners of 5% or more of Common
Stock. In preparing the following table, the Company has relied on information
filed by such persons with the SEC, and in some cases, other information
provided to the Company by such persons.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS
-------------- ------------------------------------ -------------------- ----------
<C> <S> <C> <C>
Class B DM Associates Limited 1,858,743(1) 67.2%
Common Stock Partnership
One Vision Drive
Enfield, Connecticut
New DM Management Associates I 1,858,743(1) 67.2%
One Vision Drive
Enfield, Connecticut
Robert B. Stein, Jr. 1,858,743(1) 67.2%
One Vision Drive
Enfield, Connecticut
Gregory G. Landry 1,858,743(1) 67.2%
One Vision Drive
Enfield, Connecticut
- --------------------------------------------------------------------------------------
Class A James Wilen and Wilen 277,625(2) 9.4%
Common Stock Management Corporation 2360
West Joppa Road
Suite 226
Lutherville, Maryland
Heartland Advisors, Inc. 520,000(3) 17.6%
790 North Milwaukee Street
Milwaukee, Wisconsin
The IDS Mutual Fund Group 374,665(4) 11.3%
IDS Tower 10
Minneapolis, Minnesota
OKGBD & Co. 360,001(5) 10.9%
c/o Bankers Trust
P.O. Box 704
Church Street Station
New York, New York
Triumph-Connecticut Limited 765,000(6) 20.8%
Partnership
60 State Street, 21st Floor
Boston, Massachusetts
</TABLE>
2
<PAGE>
Notes to Table
(1) DM Associates Limited Partnership ("DM Associates") is the owner of
record of 1,858,743 shares of Class B Common Stock of the Company,
representing approximately 67.2% of the issued and outstanding shares of Class
B Common Stock, and 60.7% of the total voting power of both classes of the
Common Stock. The general partner of DM Associates is New DM Management
Associates I ("DM Management I"), which is a general partnership. The general
partners of DM Management I are Robert B. Stein, Jr. and Gregory G. Landry,
each owning one half of the partnership interest of DM Management I.
As the sole general partner of DM Associates and by virtue of the provisions
of the limited partnership agreement of DM Associates, DM Management I has the
power to vote and dispose of such 1,858,743 shares owned by DM Associates,
subject to the consent of the limited partners of DM Associates being required
for any sale of more than 360,000 shares. In addition, the partnership
agreement of DM Associates provides that, prior to voting the 1,858,743
shares, DM Management I shall consult with a certain limited partner as to the
voting of such shares. If, after consultation with the limited partner, DM
Management I votes the shares in a manner with which the limited partner
disagrees, the limited partner shall have the right to dissolve DM Associates.
The partnership agreement of DM Management I provides that a majority of the
partnership interests of DM Management I determine how to vote 638,743 of the
shares of Class B Common Stock owned by DM Associates, and that the remaining
1,220,000 shares of Class B Common Stock owned by DM Associates will be voted
for or against any stockholder motion or proposal in the same proportion that
all other shares of Class B Common Stock are voted for or against such motion
or proposal (including 638,743 shares voted by DM Associates).
As the managing general partner of DM Management I, Mr. Stein has sole
indirect dispositive power with respect to the 1,858,743 shares owned by DM
Associates, and shares voting power with respect to the 1,858,743 shares with
Mr. Landry, as general partners of DM Management I. Mr. Stein and Mr. Landry,
as officers and directors of the Company, also share indirect voting and
dispositive power with respect to 1,220,000 of the 1,858,743 shares under a
stock pledge agreement executed by DM Associates in favor of the Company.
The number of shares set forth in the table above does not include shares of
Class A Common Stock that either of Messrs. Stein and Landry may beneficially
own. See "ITEM 1--ELECTION OF DIRECTORS--Information Concerning Nominees and
Certain Executive Officers."
(2) A Schedule 13G was filed with the SEC by Wilen Management Corporation
("Wilen") and James Wilen in his capacity as President and sole owner of
Wilen, to report Wilen's beneficial ownership as an investment advisor to
various clients, of shares of Class A Common Stock. The 277,625 shares
represent approximately 4.9% of the total number of issued and outstanding
shares of both classes of the Common Stock, and approximately 0.9% of the
total voting power of both classes of the Common Stock.
(3) Heartland Advisors, Inc. reported on a Schedule 13G filed with the SEC
its beneficial ownership, as an investment advisor, of shares of Class A
Common Stock. The 520,000 shares represent approximately 9.1% of the total
number of issued and outstanding shares of both classes of the Common Stock
and approximately 1.7% of the total voting power of both classes of the Common
Stock.
(4) The IDS Mutual Fund Group, through nominees, holds currently exercisable
Warrants to purchase an aggregate of 374,665 shares of Class A Common Stock.
If the 374,665 shares underlying the Warrants were
3
<PAGE>
Notes to Table continued
issued, they would represent approximately 6.1% of the total number of issued
and outstanding shares of both classes of Common Stock, and approximately 1.2%
of the total voting power of both classes of Common Stock.
(5) OKGBD & Co. and its affiliates hold currently exercisable Warrants to
purchase an aggregate of 360,001 shares of Class A Common Stock. If the
360,001 shares underlying the Warrants were issued, they would represent
approximately 5.9% of the total number of issued and outstanding shares of
both classes of Common Stock, and approximately 1.2% of the total voting power
of both classes of Common Stock.
(6) Triumph-Connecticut Limited Partnership ("Triumph"), Triumph's general
partner, Triumph-Connecticut Capital Advisors, Limited Partnership ("TCCALP"),
and TCCALP's general partners, Triumph-Capital Group, Inc., Fredrick W.
McCarthy, Fredrick S. Moseley, IV, E. Mark Norman, Thomas W. Janes, John M.
Chapman and Richard J. Williams, reported on a Schedule 13D filed with the SEC
their shared beneficial ownership of currently exercisable Warrants to
purchase an aggregate of 765,000 shares of Class A Common Stock. If the
765,000 shares underlying the Warrants were issued, they would represent
approximately 11.8% of the total number of issued and outstanding shares of
both classes of Common Stock, and approximately 2.4% of the total voting power
of both classes of Common Stock.
ITEM 1--ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS
A Board of seven (7) directors is to be elected at this Annual Meeting, to
hold office until the next Annual Meeting and the election and qualification
of their successors. Two (2) of the directors are to be elected by the holders
of Class A shares (the Class A Directors) and five (5) of the directors are to
be elected by the holders of Class B shares (the Class B Directors). The Board
of Directors has nominated Thomas W. Janes and Truby G. Proctor, Jr. as Class
A Directors and Frank W. Barrett, J. Kermit Birchfield, Jr., John W. Everets,
Jr., Gregory G. Landry and Robert B. Stein, Jr. as Class B Directors. All of
the nominees are presently serving on the Board. It is intended that proxies
of the respective classes of shares will be voted in favor of all of these
persons.
INFORMATION CONCERNING NOMINEES AND CERTAIN EXECUTIVE OFFICERS
The following table sets forth certain information concerning the ownership
of the Common Stock and other matters with respect to the nominees, the
executive officers listed in the Summary Compensation Table and all directors
and executive officers as a group, as of September 10, 1996.
<TABLE>
<CAPTION>
SHARES (AND PERCENT) OF COMMON STOCK
NAME AND AGE BENEFICIALLY OWNED AS OF SEPTEMBER 10, 1996
------------ --------------------------------------------------------------------
PERCENT
NOMINEES FOR DIRECTOR CLASS B CLASS A OF TOTAL
CLASS B DIRECTOR SINCE COMMON STOCK COMMON STOCK VOTING POWER
---------------- -------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Frank W. Barrett (56)... 1983 1,250 (*) 6,000 (*)(1) (*)
J. Kermit Birchfield,
Jr. (56)............... 1996 2,000 (*) 5,000 (*) (*)
John W. Everets, Jr.
(50)................... 1994 10,000 (*) 3,500 (*)(2) (*)
Gregory G. Landry (38).. 1991 1,858,743 (67.2%) 75,417 (2.5%)(3)(4) (60.8%)
Robert B. Stein, Jr.
(38)................... 1992 1,858,743 (67.2%) 112,699 (3.7%)(3)(5) (60.9%)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SHARES (AND PERCENT) OF COMMON STOCK
NAME AND AGE BENEFICIALLY OWNED AS OF SEPTEMBER 10, 1996
------------ --------------------------------------------------------------------
PERCENT
NOMINEES FOR DIRECTOR CLASS B CLASS A OF TOTAL
CLASS A DIRECTOR SINCE COMMON STOCK COMMON STOCK VOTING POWER
---------------- -------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Thomas W. Janes (40).... 1995 0 765,000 (11.8%)(6) (2.4%)
Truby G. Proctor, Jr.
(60)................... 1996 13,000 (*) 0 (*)
NAMED EXECUTIVE OFFICERS
- ------------------------
Gregg O. Guy (48)....... N/A 0 42,890 (1.4%)(7) (*)
Gary Payne (53)......... N/A 0 14,938 (*)(8) (*)
Gregory Wozniak (49).... N/A 0 15,813 (*)(9) (*)
All Directors and Execu-
tive Officers as a
Group (16 persons)..... 1,884,993(68.2%) 1,078,377 (26.9%)(10) (63.0%)
</TABLE>
- --------
(*) Owns less than 1% of the issued and outstanding class of Common Stock or
of the total voting power.
(1) Includes currently exercisable non-qualified stock options granted to Mr.
Barrett to purchase 6,000 shares of Class A Common Stock.
(2) Includes currently exercisable non-qualified stock options granted to Mr.
Everets to purchase 3,500 shares of Class A Common Stock.
(3) Messrs. Stein and Landry are each partners of DM Management I (described
in footnote 1 to the Principal Shareholders table above). The shares of
Class B Common Stock set forth in this table for each of such persons
include the shares set forth for each person in the Principal
Shareholders table above.
(4) Includes currently exercisable incentive stock options granted to Mr.
Landry to purchase 75,417 shares of Class A Common Stock.
(5) Includes currently exercisable incentive stock options granted to Mr.
Stein to purchase 106,736 shares of Class A Common Stock.
(6) The shares of Class A Common Stock set forth in this table for Mr. Janes
include the shares set forth for Triumph in the Principal Shareholders
table above. Mr. Janes' pecuniary interest in the 765,000 shares is based
upon his status as general partner of TCCALP, general partner of Triumph,
the entity holding the shares, and is not discernable. Mr. Janes
disclaims beneficial ownership of all shares other than those
attributable to him as a general partner of TCCALP.
(7) Includes currently exercisable incentive stock options granted to Mr. Guy
to purchase 33,375 shares of Class A Common Stock.
(8) Includes currently exercisable incentive stock options granted to Mr.
Payne to purchase 14,938 shares of Class A Common Stock.
(9) Includes currently exercisable incentive stock options granted to Mr.
Wozniak to purchase 15,813 shares of Class A Common Stock.
(10) Includes currently exercisable stock options granted to all directors and
executive officers of the Company to purchase 290,404 shares of Class A
Common Stock and currently exercisable Warrants to purchase 765,000
shares of Class A Common Stock.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The following executive officers and directors of the Company did not timely
file with the SEC, on certain occasions, their reports on Forms 3, 4 or 5 to
report changes in their beneficial ownership of the Common Stock: Gary A.
Payne (one report due upon becoming an executive officer); and Darrell J.
Davis (one report for one transaction).
5
<PAGE>
ADDITIONAL INFORMATION CONCERNING NOMINEES AND CERTAIN EXECUTIVE OFFICERS
In addition to the executive officers who are listed as being nominees for
election as directors of the Company, the Company has other executive
officers, including the following, who serve for a one year term:
<TABLE>
<CAPTION>
NAME AND (AGE) TITLE
-------------- -----
<S> <C>
Gregg O. Guy (48)....... Executive Vice President--Operations
Darrell J. Davis (37)... Vice President--Operations (Southeast Region)
Gary A. Payne (53)...... Vice President--Business Development
Robert J. Pietrick, Jr.
(48)................... Senior Vice President--Marketing and Gasoline Retailing
Michael A. Poole (49)... Vice President--Construction and Planning
Scott A. Stein (37)..... Vice President--Management Information Systems
Dennis J. Tewell (40)... Vice President--Operations (Northeast Region)
Daniel W. Wallace (47).. Vice President--Operations (Midwest Region)
Gregory Wozniak (49).... Vice President--Corporate Counsel
</TABLE>
Except as noted below, each of the executive officers of the Company has
been employed by the Company for more than the last five (5) years, in areas
similar to or encompassed by their current responsibilities.
Mr. Barrett is Executive Vice President of Springfield Institution for
Savings. He previously served as Senior Vice President for Bank of Ireland
First Holdings, Inc. from September 1990 to December 1993, as Senior Vice
President for Connecticut National Bank from May 1990 to September 1990, and
as Senior Vice President for Shawmut Bank, N.A. from January 1988 to May 1990.
Mr. Birchfield has been Chairman of Displaytech Inc., a privately held high
technology company, since June 1996. From June 1990 to November 1994 he served
as Senior Vice President and General Counsel of M/A-COM, Inc., a
telecommunications company. Mr. Birchfield is a member of the Board of
Directors of HPSC, Inc., a publicly held company that provides financing for
the purchase of healthcare equipment, and Intermountain Gas Company, Inc., an
Idaho public utility company.
Mr. Everets has been Chairman of the Board and Chief Executive Officer of
HPSC, Inc., a publicly held company that provides financing for the purchase
of health care equipment, since July 1993 and has been a director of HPSC,
Inc. since 1983. He was Chairman of the Board of T.O. Richardson Co., Inc., a
financial services company, from January 1990 until July 1993. He is also a
director of Eastern Company, a publicly held manufacturing company, and Crown
Northcorp, a publicly held company that holds real estate.
Mr. Janes has been a Managing Director since 1990 of Triumph Capital Group,
Inc., a firm engaged in investment banking and investment management. He is
also a general partner of Triumph-Connecticut Capital Advisors, Limited
Partnership, the general partner of Triumph-Connecticut Limited Partnership,
and a limited partner of Triumph-California Advisors, L.P., the general
partner of Triumph-California Limited Partnership.
Mr. Landry has served as Chief Financial Officer since August 1990 and was
named Executive Vice President of the Company in April 1992. Mr. Landry joined
the Company in October 1985 and served in various financial positions,
including Treasurer. He is a certified public accountant and a member of the
American Institute of Public Accountants.
6
<PAGE>
Mr. Proctor is Chairman and Chief Executive Officer of Lee-Moore Oil
Company, located in Sanford, North Carolina, a privately held North Carolina
based oil jobber. From August 1987 to July 1994, Mr. Proctor served as
Chairman and Chief Executive Officer of The Pantry Inc., a privately held 460
store convenience chain headquartered in North Carolina. Mr. Proctor is a
director of Yadkin Valley Bank.
Mr. Robert B. Stein, Jr. was elected President of the Company in September
1994, Chief Executive Officer in June 1995 and Chairman of the Board of
Directors in December 1995. He joined the Company in 1983 and served in
various positions including Treasurer, General Manager of the Midwest Region,
and Executive Vice President-Operations and Marketing.
Mr. Guy was named Executive Vice President-Operations in December 1995. He
previously served as Executive Vice President-Operations and Marketing since
October 1994, as Vice President-Operations for the Company's Southeast Region
since December 1992 and as Vice President and General Manager of the Company's
Southeast Region since December 1989.
Mr. Davis was named Vice President-Operations for the Company's Southeast
Region in October 1994. Mr. Davis joined the Company in April 1983 as
Franchise Coordinator. He has also held the positions of Manager of
Franchising, Associate Director of Property Development and International
Consultant/Operations Specialist.
Mr. Payne was named Vice President-Business Development in October 1994. He
previously served as Corporate Director of Franchising. Mr. Payne joined the
former CONNA Corporation, now the Company's Southeast Region, in 1970. Between
1970 and 1984, he served in various roles including Supervisor, Merchandising
Manager, Vice President-Marketing and Vice President-Business Development. Mr.
Payne left the CONNA Corporation in September 1984 to operate his own
business, and returned to the Company in October 1988 as Vice President-
Franchise Sales.
Mr. Pietrick was named Senior Vice President of Marketing and Gasoline
Retailing in July 1996. Prior to joining the Company, Mr. Pietrick served as
Manager of Merchandising and Business Development for British Petroleum from
October 1995 to July 1996. During his 26 year tenure at British Petroleum,
formerly Standard Oil (Ohio), Mr. Pietrick served in various retail management
and strategic planning positions including Manager, BP Express Development and
Retail Manager for Singapore and Malaysia.
Mr. Poole was named Vice President-Construction and Planning in April 1996.
Prior to joining the Company and since August 1995, Mr. Poole was Director of
Store Design and Construction for Crabtree and Evelyn, Ltd., in Woodstock
Connecticut, and was Director of Design and Construction for Edison Brothers
Stores, Inc., in St. Louis, Missouri from August 1992 to July 1995. Prior to
August 1992, Mr. Poole was owner and President of The Poole Group, an
architectural company.
Mr. Scott A. Stein was named Vice President-Management Information Systems
("MIS") in November 1994. Since joining the Company in September 1992, Mr.
Stein has served as Director of Store Automation, MIS Director, and Vice
President-Administration and MIS. From February 1989 to August 1992, Mr. Stein
was Director of Open Systems Distributed Computing for Technology Investment
Strategies Corporation, an information technology consulting company. Mr.
Stein is the brother of Robert B. Stein, Jr., President, Chief Executive
Officer and Chairman of the Board.
Mr. Tewell was named Vice President-Operations for the Company's Northeast
Region in September 1992. Mr. Tewell joined the former CONNA Corporation, now
the Company's Southeast Region, in 1985. He
7
<PAGE>
previously served as Vice President-Store Operations, Director of Operations,
and Strategic Planning Coordinator in the Southeast Region and special
consultant for the Company's international operations in Europe.
Mr. Wallace was named Vice President-Operations for the Company's Midwest
Region in December 1992. Mr. Wallace joined the former Lawson Company, now the
Company's Midwest Region, in 1986. He previously served as Director of
Operations, Corporate Operations Coordinator for the Company's Point-of-Sale
(POS) project, Division Manager, Supervisor and Store Manager. He also spent
two years as a special consultant for the Company's international operations.
Mr. Wozniak was named Vice President-Corporate Counsel in December 1992. He
is an attorney and has served as counsel to the Company since the Company's
1985 acquisition of the Lawson Company.
8
<PAGE>
THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the 1996 fiscal year, the Board of Directors of the Company held
twelve meetings. None of the directors attended fewer than 75% of the total
number of meetings of the Board of Directors and committees of which they were
members.
The Board of Directors has established certain committees, including an
Audit Committee, a Compensation and Stock Option Committee and a Nominations
Committee. The Audit Committee currently consists of Messrs. Barrett, Everets,
and Proctor and is responsible for recommending the appointment of independent
accountants and for reviewing the reports and expenses of the audits conducted
by the Company's independent accountants. The Compensation and Stock Option
Committee currently consists of Messrs. Barrett, Birchfield, and Everets, and
is responsible for recommending the compensation to be paid to the Company's
executive officers, and the persons to whom and the amount in which stock
options should be granted by the Company. The Nominations Committee currently
consists of Messrs. Birchfield, Everets and Janes, and is responsible for
receiving and recommending to the Board of Directors the nominees for persons
to serve as directors of the Company. During the 1996 fiscal year there were
six meetings of the Compensation and Stock Option Committee, one meeting of
the Audit Committee, and no meetings of the Nominations Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Company's Board of
Directors during the last fiscal year were Messrs. Barrett, Everets and Leed.
None of these individuals was at any time during fiscal 1996, or at any other
time, an officer or employee of the Company. No executive officer of the
Company serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of
the Company's Board of Directors or Compensation Committee.
SHAREHOLDER NOMINATIONS OF DIRECTORS
In addition to the right of the Board of Directors of the Company to make
nominations of persons for election as directors, nominations may be made at a
meeting of shareholders by any shareholder of the Company entitled to vote for
the election of directors at the meeting who complies with certain notice
procedures set forth in the Company's Certificate of Incorporation. Such
nominations, other than those made by or at the direction of the Board of
Directors, must be made pursuant to timely notice in writing to the Secretary
of the Company.
To be timely, a shareholder's notice must be delivered to, or mailed and
received at, the principal executive offices of the Company not less than 14
days nor more than 60 days prior to the meeting of shareholders called for the
election of directors; provided, however, that if fewer than 21 days notice of
the date of the meeting is given to shareholders, notice by the shareholder to
be timely must be so received not later than the close of business on the
tenth day following the day on which notice of the meeting was mailed to
shareholders. A shareholder's notice must set forth as to each person whom the
shareholder proposes to nominate for election or re-election as a director:
(i) the name, age, business address, and, if known, residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of stock of the Company that are beneficially owned
by such person, and (iv) any other information reasonably requested by the
Company. All such shareholder nominations may be made only at a meeting of
shareholders called for the election of directors at which such shareholder is
present in person or by proxy.
9
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
EXECUTIVE OFFICERS' COMPENSATION
The following table provides certain information for the Company's past
three fiscal years regarding the cash and other compensation paid to, earned
by, or awarded to those persons who, during the last fiscal year, (i) served
as the Company's Chief Executive Officer or in a similar capacity, (ii) were
the four most highly compensated executive officers whose total annual salary
and bonus exceeded $100,000, and (iii) two additional individuals for whom
disclosure would have been provided had they been serving as executive
officers of the Company as of February 3, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (A) LONG TERM COMPENSATION
----------------------------------------- -------------------------
AWARDS (B)
-------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL FISCAL COMPENSATION($) AWARDS($) OPTIONS COMPENSATION($)
POSITION YEAR SALARY($) BONUS($) (C) (D) (#)(E) (F)
- ------------------------ ------ --------- -------- --------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert B. Stein, Jr., 1996 $254,808 $162,500 $ -- $ 230,000 95,555 $ 9,533
President, Chief 1995 199,808 35,000 -- -- 96,945 11,588
Executive Officer and 1994 175,000 12,000 67,290 -- 7,500 11,633
Chairman of the Board
Gregory G. Landry, 1996 214,038 131,500 -- 115,000 55,332 8,670
Executive Vice President 1995 179,041 35,000 -- -- 70,543 9,118
and 1994 160,000 12,500 -- -- 6,500 8,758
Chief Financial Officer
Gregg O. Guy, 1996 152,885 22,500 37,554 86,250 -- 645
Executive Vice 1995 131,860 20,000 -- -- 50,000 1,263
President-- 1994 120,000 10,000 -- -- 3,500 1,046
Operations
Gregory Wozniak, 1996 112,122 16,500 -- 57,500 6,250 528
Vice President-- 1995 108,754 15,000 20,033 -- 2,500 592
Corporate 1994 105,000 3,500 -- -- 4,000 1,083
Counsel
Gary A. Payne, 1996 101,923 15,000 13,755 -- -- 460
Vice President--Business 1995 84,682 7,000 -- -- 20,000 435
Development 1994 78,500 0 -- -- 750 578
Charles Nirenberg, 1996 267,311 0 -- -- -- --
Former Chairman 1995 500,000 0 -- -- -- --
of the Board (g) 1994 500,000 0 -- -- -- --
Mitchell J. Kupperman, 1996 177,694 153,500 -- -- 97,500 514,334
Former Executive 1995 208,655 25,000 -- -- 87,500 14,213
Vice President--Human 1994 205,000 7,500 -- -- 5,000 12,794
Resources (h)
</TABLE>
- --------
(a) Annual compensation does not include non-cash compensation that in the
aggregate does not exceed the lesser of $50,000 or 10% of the total annual
salary and bonus of each named executive officer.
(b) The Company did not grant any stock appreciation rights and make any long-
term incentive plan payments during fiscal 1996, 1995, or 1994.
(c) Other annual compensation for the following named executive officers
includes the following amounts paid on behalf of, or received by, each
officer (i) $28,801 in relocation expense for Mr. Guy in fiscal 1996,
(ii) $6,705 in relocation expense and $6,626 for automobile expenses for
Mr. Payne in fiscal 1996, (iii) a $11,250 gain related to an exercised
stock option to purchase 6,000 shares of Common Stock and $5,771
10
<PAGE>
for automobile expenses for Mr. Wozniak in fiscal 1995, and (iv) $58,375 in
relocation expenses for Mr. Stein in fiscal 1994.
(d) In January 1996, the Company awarded restricted stock to certain executive
officers under the Company's 1995 Stock Option and Incentive Award Plan.
Robert B. Stein, Jr., Gregory G. Landry, Gregg O. Guy, and Gregory Wozniak
were awarded 40,000, 20,000, 15,000 and 10,000 shares of Class A Common
Stock, respectively. The restricted shares will vest equally over a three
year period following the grant date, if the closing price of the
Company's Class A Common Stock as reported on the American Stock Exchange
achieves price targets, in each case for a consecutive ten day period, of
$9.00, $11.00, and $13.00, respectively, during the first, second and
third years from the date of the grant. Dividends will not be paid on
unvested restricted stock awards. These named executive officers have not
received any other restricted stock awards.
(e) The options to purchase 97,500 shares of common stock were granted to Mr.
Kupperman to replace options previously granted to him that expired after
the termination of his employment.
(f) Includes amounts contributed for the benefit of the Company's executive
officers to the Company's qualified profit sharing plan and premiums paid
by the Company for split-dollar and life insurance for the benefit of
certain executive officers during the applicable years. Company
contributions to the qualified profit sharing plan for each of the 1996,
1995, and 1994 fiscal years, respectively, included $645, $1,984 and $650
for Robert B. Stein, Jr.; $0, $448, and $88 for Gregory G. Landry; $645,
$1,263, and $1,046 for Gregg O. Guy; $528, $592 and $1,083 for Gregory
Wozniak; $460, $435 and $578 for Gary A. Payne; and $645, $2,080 and $661
for Mitchell J. Kupperman. Premiums paid on split-dollar and life
insurance for each of the 1996, 1995 and 1994 fiscal years, respectively,
included $8,888, $9,604 and $10,983 for Robert B. Stein, Jr.; $8,670,
$8,670, and $8,670 for Gregory G. Landry; and $12,133, $12,133 and $12,133
for Mitchell J. Kupperman.
(g) Mr. Nirenberg had an employment agreement with the Company pursuant to
which Mr. Nirenberg was employed as Chairman of the Company for a five
year term that began on February 1, 1992 and was to end on January 31,
1997, unless terminated earlier. Under the employment agreement, Mr.
Nirenberg received an annual salary of $500,000, payable in installments
according to the Company's normal compensation policy, plus customary
fringe benefits. On August 10, 1995, the Board of Directors of the Company
removed Mr. Nirenberg from his positions as Chairman of the Board and
Chairman of the Company and terminated his employment agreement. Pursuant
to a Settlement Agreement between the Company, Mr. Nirenberg, and others,
the Company paid certain amounts to Mr. Nirenberg, including amounts paid
in consideration of Mr. Nirenberg's agreement not to compete with the
Company (see "Information Regarding DM Associates and the Settlement
Agreement").
(h) Effective December 1, 1995, Mr. Kupperman resigned from his position as
Executive Vice President-- Human Resources. In connection with the
termination of Mr. Kupperman's employment, the Company agreed to pay a
lump sum severance of $501,556. The Company also agreed to pay Mr.
Kupperman $709,773 in consideration of, among other things, Mr.
Kupperman's agreement not to compete with the Company and Mr. Kupperman's
waiver of certain alleged claims against the Company. (See "Information
Regarding DM Associates and the Settlement Agreement").
11
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The table below provides certain information regarding stock options granted
during the Company's last fiscal year to the executive officers listed in the
Summary Compensation Table above:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZED
------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED TO EXERCISE FOR OPTION TERM
GRANTED (#) EMPLOYEES IN PRICE ($/SH) EXPIRATION DATE ----------------------
NAME (A) FISCAL YEAR (B) (A) 5%($) 10%($)
---- ------------------ ------------- ------------ --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Stein, Jr. ... 95,555 25.5% $3.63 April 18, 2005 $ 217,841 $ 552,051
Gregory G. Landry....... 55,332 14.7% 3.63 April 18, 2005 126,143 319,670
Gregg O. Guy............ -- -- -- -- -- --
Gregory Wozniak......... 6,250 1.7% 3.63 April 18, 2005 14,248 36,108
Gary A. Payne........... -- -- -- -- -- --
Charles Nirenberg....... -- -- -- -- -- --
Mitchell J. Kupperman... 20,000 5.3% 2.88 May 31, 1997 36,162 91,640
77,500 20.6% 2.75 May 31, 1997 134,033 339,667
</TABLE>
- --------
(a) The options granted to Mr. Kupperman were granted in connection with the
termination of his employment and replaced previous options that expired
after his employment terminated. Mr. Kupperman's options vested December
1, 1995 and expire May 31, 1997. Except for Mr. Kupperman's options, each
option becomes fully exercisable over four years, with 25% of the shares
subject to the option becoming exercisable on each anniversary of the
option grant date. Except for Mr. Kupperman's options, all options expire
ten years from the date of grant, unless sooner terminated by, for
example, the failure to exercise an option, to the extent it is then
exercisable, before three months after termination of employment, except
for termination in the case of death, in which case, the option is
exercisable within one year from the date of death by the optionee's
executor, administrator or personal representative, to the extent it is
then exercisable.
(b) All options were granted at an exercise price per share equal to the fair
market value of the Class A Common Stock on the date of grant, as quoted
on the Nasdaq National Market, except for Mr. Kupperman's options, which
were granted at the same exercise price per share as those that they
replaced. The fair market value of the Class A Common Stock on the date
that Mr. Kupperman's options were granted was $6.625 and the potential
realizable value of these options on the date of grant was $375,213. The
amounts shown as potential realizable value illustrate what might be
realizable upon exercise immediately prior to expiration of the option
term using the 5% and 10% appreciation rates established in regulations of
the Securities and Exchange Commission, compounded annually. The potential
realizable value is not intended to predict future appreciation of the
Company's stock. The values shown do not consider nontransferability,
vesting or termination of the options upon termination of employment.
12
<PAGE>
FISCAL YEAR-END OPTION VALUES
The table below sets forth information regarding unexercised stock options
held as of February 3, 1996, by the persons listed in the Summary Compensation
Table above, none of whom exercised options during the Company's fiscal year:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SHARES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END (#) FY-END (#)(1)
----------------- ----------------
EXERCISABLE(E)/ EXERCISABLE(E)/
NAME UNEXERCISABLE(U) UNEXERCISABLE(U)
---- ----------------- ----------------
<S> <C> <C>
Robert B. Stein, Jr.......................... 74,861 (E) $214,462 (E)
117,639 (U) 251,831 (U)
Gregory G. Landry............................ 56,292 (E) 161,381 (E)
69,583 (U) 149,984 (U)
Gregg O. Guy................................. 24,625 (E) 69,813 (E)
25,375 (U) 70,000 (U)
Gregory Wozniak.............................. 12,625 (E) 36,219 (E)
10,125 (U) 23,375 (U)
Gary A. Payne................................ 9,750 (E) 27,406 (E)
15,375 (U) 42,328 (U)
Charles Nirenberg............................ -- --
-- --
Mitchell J. Kupperman........................ 97,500 (E) 277,813 (E)
-- (U) -- (U)
</TABLE>
- --------
(1) Values are calculated for options "in the money" by subtracting the
exercise price per share from the closing price per share of the
applicable class of the Common Stock on February 3, 1996, which amounts
were $5.625 and $6.375 per share, respectively. Certain of the executive
officers have options to purchase shares of Common Stock at exercise
prices greater than the fair market value of the applicable class of
Common Stock as of February 3, 1996. Such options are not "in the money"
and their value is, therefore, not disclosed above.
DIRECTORS' COMPENSATION
Messrs. Barrett, Birchfield, Everets, Janes and Proctor received directors'
fees of $27,000, $4,000, $25,000, $23,000, and $4,000, respectively, for the
fiscal year ended February 3, 1996. The annual fee for outside directors for
the 1997 fiscal year is $12,000 plus $1,000 for each regular or special
meeting of the Board attended. The remaining directors, who are employees of
the Company, receive no directors' fees. In addition to the foregoing fees, on
February 1, 1996, Messrs. Barrett, Birchfield, Everets, Janes, and Proctor
each received an option to purchase 3,500 shares of Class A Common Stock at
$5.75 per share pursuant to the Company's 1995 Stock Option Plan for Outside
Directors.
EMPLOYMENT AGREEMENTS
In June 1995, the Company entered into employment agreements (the
"Employment Agreements") with Messrs. Stein, Landry, Guy, and Payne. The
Employment Agreements are initially for two (2) year terms, but
13
<PAGE>
such terms are automatically extended each year for an additional year unless
the Company or the employee gives notice before February 28th of each year
that it or he does not desire to have the term extended.
Under the Employment Agreements, Messrs. Stein, Landry, Guy, and Payne
receive annual salaries that may be increased, but may not be decreased. The
Employment Agreements of Mr. Stein and Mr. Landry provide for special bonuses
that were earned and paid in September 1995. The special bonuses were payable
if the Company's Income Before Income Taxes and Cumulative Effect of
Accounting Changes was greater than $2,610,000 for the six month fiscal period
ending July 29, 1995. In addition, all of the Employment Agreements provide
that the Board of Directors, or a committee thereof, may award each employee
annual bonuses if performance criteria to be determined by the Board are met.
Under the Employment Agreements, if the employee's employment is terminated
for any reason, other than by the Company without cause or by the employee for
good reason, or as a result of death or disability, then the employee will
receive his salary and bonus through the date of termination. If the employee
dies or is disabled, he will also receive any additional benefits that are
provided under the Company's death and disability programs in effect at the
time of death or disability. In addition, under the Employment Agreements, if
an employee is disabled and there is no disability program in effect or if an
employee dies, then the employee's beneficiary will receive 100% of the
employee's annual salary and an amount equal to the highest of the aggregate
bonus payments earned by the employee for any of the last three twelve month
periods prior to the date of termination.
The Employment Agreements provide that if the employee's termination is by
the Company without cause or by the employee for good reason, and not as a
result of the employee's death or disability, then the employee will receive
his full salary and bonus through the date of termination. The amount of the
employee's bonus will be the highest of the aggregate bonus payments earned by
the employee for any of the last three twelve month periods prior to the date
of termination. The Agreements also provide that after such termination each
of Messrs. Stein and Landry will also receive a severance payment equal to two
(2) times the sum of his full base salary and annual bonus, and Messrs. Guy
and Payne will receive a severance payment equal to one and one-half (1 1/2)
times the sum of his full base salary and annual bonus. With respect to
Messrs. Stein and Landry, if any payment in connection with the termination of
the employee's employment under the Employment Agreements would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), then the Company will pay the employee an additional
payment equal to the amount of any excise tax assessed under Section 4999 of
the Code and the amount of all income taxes and excise taxes assessed against
the employee as a result of the employee's receipt of the additional payment.
Under Mr. Guy's and Mr. Payne's Employment Agreements, any payment due
pursuant to his Employment Agreements that is subject to excise tax will be
reduced to an amount that will not be subject to the excise tax, but the
Company will reimburse Messrs. Guy and Payne for any excise tax resulting from
any payment due pursuant to any other agreements between the Company and
Messrs. Guy and Payne or pursuant to any Company plans.
COMPENSATION AND STOCK OPTION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
OVERVIEW
The Stock Option and Compensation Committee of the Board of Directors (the
"Committee") is composed entirely of outside directors. The Committee, which
consists of Messrs. Everets, Chairman, Mr. Barrett and Mr. Birchfeld, is
responsible for establishing and administering the Company's executive
compensation policies and the Company's stock option and other employee equity
plans. Mr. Birchfield was appointed to the Committee on
14
<PAGE>
January 19, 1996, replacing Theodore W. Leed, who did not seek re-election as
a director. This report addresses the compensation policies for the fiscal
year 1996 for executive officers and in particular for Mr. Stein in his
capacity as President and Chief Executive Officer.
GENERAL COMPENSATION POLICY
The objectives of the Company's executive compensation program are to:
-- Provide a competitive compensation package that will attract and retain
superior talent and reward performance;
-- Support the achievement of desired Company performance; and
-- Align the interests of executives with the long-term interests of
stockholders through award opportunities that can result in ownership of
shares of the Company's Common Stock, thereby encouraging the
achievement of superior results over an extended period.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The Company's executive officer compensation program is comprised of: (i)
base salary, which is set on an annual basis; (ii) annual incentive bonuses,
which are based on the achievement of predetermined financial objectives of
the Company and individual objectives; (iii) discretionary bonuses, which are
granted under special circumstances; and (iv) long-term incentive compensation
in the form of periodic stock option and restricted stock grants, with the
objective of aligning the executive officers' long-term interests with those
of the stockholders and encouraging the achievement of superior results over
an extended period.
The Committee performs annual reviews of executive compensation, during
which the Committee reviews executive compensation packages of the Company
compared with available information on other national and regional convenience
store chains.
In considering compensation of the Company's executives, one of the factors
the Committee takes into account is the anticipated tax treatment to the
Company of various components of compensation. The Company does not believe
Section 162(m) of the Internal Revenue Code of 1986, as amended, which
generally disallows a tax deduction for certain compensation in excess of $1
million to any of the executive officers appearing in the Summary Compensation
Table above, will have an effect on the Company. The Committee has considered
the requirements of Section 162(m) of the Code and its related regulations. It
is the Company's present policy to take reasonable measures to preserve the
full deductibility of substantially all executive compensation, to the extent
consistent with its other compensation objectives.
BASE SALARY
The Committee reviews base salary levels for the Company's executive
officers on an annual basis. In determining salaries, the Committee takes into
consideration individual experience and performance, and comparable
compensation data available on other national and regional convenience store
chains. The Company seeks to set base salaries to be competitive with
compensation paid by comparable companies to persons with similar experience.
15
<PAGE>
ANNUAL INCENTIVE BONUSES
The Committee determines the amount of annual cash bonuses based on
achievement of predetermined financial, operational and strategic objectives.
In fiscal 1996 the Committee determined the amount of cash bonuses based on
the achievement of predetermined financial objectives, and commencing for the
1997 fiscal year, on operational and strategic objectives as well. Giving
greatest weight to the attainment of financial targets, specifically pre-tax
earnings and cash flow, the Company also awards bonuses based on various
operational and strategic objectives geared to specific management groups
(i.e., financial, management, information systems, construction, and
marketing), and for Mr. Stein, individually.
During fiscal 1996, recognizing the attainment of specific interim financial
goals during a period negatively influenced by the difficulties, strains, and
uncertainties caused by an extended period of control disputes, the Committee
awarded one-time discretionary bonuses to members of senior management in the
amount of $225,000. Non-discretionary bonuses are awarded on an annual basis.
LONG-TERM INCENTIVE COMPENSATION
Long-term incentive compensation, in the form of stock options and
restricted stock grants, allows the executive officers to share in any
appreciation in the value of the Company's Common Stock. The Committee
believes that an enhanced market value for the Company's shares of Common
Stock should be a primary objective of senior management, and that stock
option and restricted stock grant participation align executive officers'
interests with those of the stockholders. The amounts of the awards are
designed to reward past performance and create incentives to meet long-term
objectives. In determining the amount of each grant, the Committee takes into
account the number of shares held by the executive prior to the grant.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Stein was appointed to the position of President in September 1994, to
the position of Chairman in August 1995, and to the position of Chief
Executive Officer in December 1995. In fiscal year 1996, Mr. Stein's base
salary of $250,000 remained unchanged. In addition, in fiscal year 1996 Mr.
Stein was granted 95,555 stock options and 40,000 shares of restricted stock
in recognition of his leadership efforts during a difficult period, and as an
incentive to maximize the Company's Common Stock performance. The Committee
believes Mr. Stein has managed the Company well in a challenging business
climate, and has assisted in defining and moving the Company towards its long-
term strategic objectives.
THE COMPENSATION AND STOCK OPTION COMMITTEE:
John W. Everets, Chairman
Frank W. Barrett
J. Kermit Birchfeld, Jr.
16
<PAGE>
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in cumulative
shareholder return on the Class A Common Stock over the past five years with
(i) the cumulative total return on the Nasdaq Stock Market Index (U.S.
Companies) and (ii) a peer group index consisting of Nasdaq Stocks Standard
Industry Codes 5400-5499 (food stores) ("Peer Group Index"). The figures
presented below assume the reinvestment of all dividends into shares of Class A
Common Stock on the dividend payment date and that $100 was invested in Class A
Common Stock and in the Nasdaq Stock Market Index (U.S. Companies) and Peer
Group Index on February 2, 1991, and held through February 3, 1996 (the end of
the Company's most recent fiscal year).
[LINE GRAPH COMPARING THE YEARLY PERCENTAGE CHANGE IN CUMULATIVE
SHAREHOLDER RETURN ON THE CLASS A COMMON STOCK OVER THE PAST FIVE YEARS WITH
(I) THE CUMULATIVE TOTAL RETURN ON THE NASDAQ STOCK MARKET INDEX (U.S.
COMPANIES) AND (II) A PEER GROUP INDEX CONSISTING OF NASDAQ STOCKS STANDARD
INDUSTRY CODES 5400-5499 (FOOD STORES) ("PEER GROUP INDEX") APPEARS HERE]
<TABLE>
<CAPTION>
02/01/91 01/31/92 01/29/93 01/28/94 01/27/95 02/02/96
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Dairy Mart Convenience Stores, Inc. $100.0 $128.1 $108.7 $118.4 $68.0 $102.9
CRSP Index for NASDAQ Stock Market (U.S. Companies) 100.0 151.7 171.6 196.3 189.2 268.8
CRSP Index for NASDAQ Stocks (SIC 5400-54990) 100.0 147.3 98.9 109.3 91.1 106.3
</TABLE>
17
<PAGE>
INFORMATION REGARDING DM ASSOCIATES
AND THE SETTLEMENT AGREEMENT
STOCK OWNED BY DM ASSOCIATES
DM Associates Limited Partnership ("DM Associates") is the owner of record
of 1,858,743 shares of Class B Common Stock of the Company, representing
approximately 67.2% of the issued and outstanding shares of Class B Common
Stock, and 60.7% of the total voting power of both classes of the Common
Stock. The general partner of DM Associates is New DM Management Associates I
("DM Management I"), which is a general partnership. The general partners of
DM Management I are Robert B. Stein, Jr., a Director and the Chairman of the
Board, Chief Executive Officer and President of the Company, and Gregory G.
Landry, a Director and the Executive Vice President and Chief Financial
Officer of the Company.
In March 1992, DM Associates financed part of the purchase of its 1,858,743
shares of Class B Common Stock by obtaining a $7,100,000 loan (the "Limited
Partnership Loan") from the Connecticut Development Authority ("CDA"). The
Limited Partnership Loan is secured by DM Associates' collateral pledge of
1,220,000 shares of the Class B Common Stock owned by DM Associates,
representing 44.1% of the issued and outstanding shares of Class B Common
Stock and 39.9% of the total voting power of both classes of Common Stock as
of September 10, 1996. In September 1994, FCN Properties Corporation, a
corporation owned and controlled by Charles Nirenberg, a former stockholder,
Director and executive officer of the Company, purchased all of the CDA's
right, title and interest in and to the Limited Partnership Loan. In December
1995, FCN Properties Corporation sold the Limited Partnership Loan to the
Company.
The limited partnership agreement of DM Associates provides that if the term
of the limited partnership is extended beyond September 12, 1997, any limited
partner whose percentage interest in DM Associates is greater than 30% may
sell all or a portion of his or its interest, subject to DM Associates right
of first refusal to purchase such interest. If DM Associates and such limited
partner do not agree on the terms of acquiring such limited partner's
interest, and there is not a third party purchaser, such limited partner has
the right to: (i) demand the dissolution of DM Associates and the distribution
of its assets to its partners; or (ii) cause such assets to be sold. The
limited partnership agreement also requires DM Management I to 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 DM Management I 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. As DM Associates' principal asset is its 1,858,743
shares of Class B Common Stock, if such a dissolution or sale occurs, a change
in control of the Company could result.
THE SETTLEMENT AGREEMENT
On October 30, 1995, Mr. Nirenberg, and certain of his affiliates
(collectively, "Nirenberg") entered into an Agreement, as amended on December
1, 1995 (the "Settlement Agreement"), with the Company, Mr. Stein and Mr.
Landry, for purposes of settling the dispute between Mr. Nirenberg and the
Company's management with respect to control of the Company.
Pursuant to the Settlement Agreement, among other things, the Company
purchased for $10 million all of Nirenberg's limited partnership interests in
DM Associates, and the promissory note of DM Associates evidencing the Limited
Partnership Loan.
Pursuant to the Settlement 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
18
<PAGE>
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 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.
Mitchell J. Kupperman's employment with the Company was terminated on
December 1, 1995. Mr. Kupperman is a former stockholder, Director and
executive officer of the Company. In connection with the termination of Mr.
Kupperman's employment, Mr. Kupperman's waiver of certain alleged claims
against the Company, and Mr. Kupperman's agreement not to compete with the
Company, the Company paid $1,211,329 to Mr. Kupperman.
Mr. Nirenberg and Mr. Kupperman had been partners of DM Management I and New
DM Management Associates II ("DM Management II"), a former general partner of
DM Associates. Under the terms of the Settlement Agreement, Mr. Nirenberg
withdrew as a partner of DM Management I and DM Management II. The remaining
partners of DM Management II dissolved DM Management II, and DM Management I
is therefore the sole remaining general partner of DM Associates. As a result
of the termination of Mr. Kupperman's employment, pursuant to the partnership
agreement of DM Management I, DM Management I repurchased Mr. Kupperman's
partnership interest in DM Management I for nominal consideration.
Accordingly, the remaining partners of DM Management I are Messrs. Stein and
Landry, each of whom owns one-half of the partnership interests of DM
Management I.
The Company has agreed to indemnify Nirenberg and Mr. Kupperman against any
liability or expense incurred by them as a result of or in connection with the
transactions consummated pursuant to the Settlement Agreement and the
termination of Mr. Kupperman's employment.
ITEM 2--RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT ACCOUNTANTS
The Audit Committee of the Board of Directors has selected Arthur Andersen
LLP as the Company's independent accountants for the fiscal year ending
February 1, 1997. At the Annual Meeting, shareholders will be requested to
ratify such appointment. A representative of Arthur Andersen LLP is expected
to attend the Annual Meeting with the opportunity to make a statement if he or
she so desires and to respond to questions.
REQUIRED VOTES OF SHAREHOLDERS
Under Delaware law and pursuant to the Company's Bylaws, the presence in
person or by proxy of the holders of a majority of the voting power of both
classes of Common Stock entitled to vote at the Annual Meeting is necessary
for a quorum to transact business for matters as to which both classes of
Common Stock vote together, including the ratification of the appointment of
Arthur Andersen LLP as independent accountants. With respect to matters as to
which each class of Common Stock is entitled to vote separately, including the
election of directors by the respective classes, the presence in person or by
proxy of the holders of one-third of the shares of Common Stock of the
applicable class is necessary for a quorum to transact such business. In order
for the nominees to be elected as directors by the shareholders of their
respective classes of Common Stock, the affirmative vote of the holders of a
majority of the Common Stock of the applicable class present in person or by
proxy is necessary. In order for the appointment of Arthur Andersen LLP to be
ratified, the affirmative vote of
19
<PAGE>
the holders of a majority of the combined voting power of both classes of
Common Stock present in person or by proxy is necessary. Abstentions, broker
non-votes and other non-votes will not be counted as votes against the
election of the nominees as directors or against the ratification of the
appointment of Arthur Andersen LLP, but they will have the effect of a
negative vote in determining whether the requisite vote of the holders of a
majority of the shares of Common Stock of each class present at the meeting
has been obtained for the election of the nominees as directors, and whether
the requisite vote of the holders of a majority of the combined voting power
of both classes of Common Stock present in person or by proxy has been
obtained with respect to the ratification of the appointment of Arthur
Andersen LLP. The Company intends to appoint an independent person to act as
an inspector of elections at the Annual Meeting who will be responsible for
counting the votes.
SHAREHOLDER PROPOSALS
If a shareholder desires to present a proposal for inclusion in next year's
Proxy Statement relating to the 1997 Annual Meeting of the Shareholders of the
Company, such shareholder must submit such proposal in writing to: Dairy Mart
Convenience Stores, Inc., One Vision Drive, Enfield, Connecticut, 06082,
Attention: Gregory G. Landry, Executive Vice President and Chief Financial
Officer, not later than April 30, 1997.
GENERAL
The Company's Annual Report to Shareholders that contains financial
statements for the fiscal year ended February 3, 1996, as well as other
information concerning the operations of the Company, was previously sent to
shareholders.
THE COMPANY FILES WITH THE SECURITIES AND EXCHANGE COMMISSION AN ANNUAL
REPORT ON FORM 10-K. A COPY OF THE REPORT FOR FISCAL 1996 WILL BE FURNISHED
(WITHOUT EXHIBITS) WITHOUT CHARGE TO ANY SHAREHOLDER SENDING A WRITTEN REQUEST
THEREFOR TO GREGORY G. LANDRY, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER, DAIRY MART CONVENIENCE STORES, INC., ONE VISION DRIVE, ENFIELD,
CONNECTICUT, 06082. The Company has no knowledge of any matters other than
those set forth in this Proxy Statement or referred to in the accompanying
Notice of Annual Meeting of Shareholders, which will be presented at the
Annual Meeting. However, if any other matters should properly come before the
meeting, it is intended that proxies shall be voted thereon in accordance with
the best judgment of the person or persons voting such proxies.
20
<PAGE>
CLASS A PROXY
DAIRY MART CONVENIENCE STORES, INC.
ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 30, 1996
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert B. Stein, Jr., Gregory G. Landry and
Frank W. Barrett, and each or any of them, with full power of substitution,
the proxies of the undersigned to vote all of the shares of Class A Common
Stock of Dairy Mart Convenience Stores, Inc. ("Dairy Mart") which the
undersigned is entitled to vote at the Annual Meeting of Shareholders of Dairy
Mart to be held at the Renaissance Hotel, 24 Public Square, Cleveland, Ohio on
the 30th day of October, 1996 at 10:00 a.m. (eastern time), and at any
adjournment or postponement thereof, with all the powers the undersigned would
possess if personally present upon:
(TO BE SIGNED ON REVERSE SIDE)
-----------
SEE REVERSE
SIDE
-----------
<PAGE>
----- PLEASE MARK YOUR
X VOTES WITH
----- AN "X".
FOR WITHHELD
1. Election of ----- ----- Nominees:
Directors:
Thomas W. Janes and
----- ----- Truby G. Proctor, Jr.
For, except
vote withheld from the following nominees: (To withhold
authority for any individual nominee write that nominee's
name in the space provided below)
- ---------------------------------------------------------
FOR AGAINST WITHHELD
2. Ratification of the appointment of Arthur Andersen ----- ----- -----
LLP as independent accountants for the fiscal year
ending February 1, 1997
----- ----- -----
3. In their discretion such other matters as may
properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THE SHARES REPRESENTED BY THIS
PROXY SHALL BE VOTED FOR THE ELECTION OF THE NOMINEES AS DIRECTORS AND FOR THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT
ACCOUNTANTS FOR THE FISCAL YEAR ENDING FEBRUARY 1, 1997 AND IN THE DISCRETION OF
THE PROXIES AS TO OTHER MATTERS.
SIGNATURE(S): DATE:
-------------------------------------------- -----------
NOTE: Please sign exactly as your name appears on this proxy. If signing
for estates, trusts, or corporations, title or capacity should be
stated. If shares are held jointly, each holder should sign.
<PAGE>
CLASS B PROXY
DAIRY MART CONVENIENCE STORES, INC.
ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 30, 1996
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert B. Stein, Jr., Gregory G. Landry and
Frank W. Barrett, and each or any of them, with full power of substitution,
the proxies of the undersigned to vote all of the shares of Class B Common
Stock of Dairy Mart Convenience Stores, Inc. ("Dairy Mart") which the
undersigned is entitled to vote at the Annual Meeting of Shareholders of Dairy
Mart to be held at the Renaissance Hotel, 24 Public Square, Cleveland, Ohio on
the 30th day of October, 1996 at 10:00 a.m. (eastern time), and at any
adjournment or postponement thereof, with all the powers the undersigned would
possess if personally present upon:
(TO BE SIGNED ON REVERSE SIDE)
-----------
SEE REVERSE
SIDE
-----------
<PAGE>
----- PLEASE MARK YOUR
X VOTES WITH
----- AN "X".
FOR WITHHELD
1. Election of ----- ----- Nominees:
Directors:
Frank W. Barrett, J. Kermit Birchfield,
----- ----- Jr., John W. Everets, Jr., Gregory G.
Landry and Robert B. Stein, Jr.
For, except
vote withheld from the following nominees: (To withhold
authority for any individual nominee write that nominee's
name in the space provided below)
- ---------------------------------------------------------
FOR AGAINST WITHHELD
2. Ratification of the appointment of Arthur Andersen ----- ----- -----
LLP as independent accountants for the fiscal year
ending February 1, 1997
----- ----- -----
3. In their discretion such other matters as may
properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THE SHARES REPRESENTED BY THIS
PROXY SHALL BE VOTED FOR THE ELECTION OF THE NOMINEES AS DIRECTORS AND FOR THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT
ACCOUNTANTS FOR THE FISCAL YEAR ENDING FEBRUARY 1, 1997 AND IN THE DISCRETION OF
THE PROXIES AS TO OTHER MATTERS.
SIGNATURE(S): DATE:
-------------------------------------------- -----------
NOTE: Please sign exactly as your name appears on this proxy. If signing
for estates, trusts, or corporations, title or capacity should be
stated. If shares are held jointly, each holder should sign.
