<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
DAIRY MART CONVENIENCE STORES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
================================================================================
<PAGE> 2
DAIRY MART CONVENIENCE STORES, INC.
Dear Dairy Mart Shareholder:
You are cordially invited to attend the 1998 Annual Meeting of Shareholders
of Dairy Mart Convenience Stores, Inc. (the "Company") to be held at 10:00 a.m.
(eastern time) on Thursday, June 25, 1998, at Dairy Mart Convenience Stores,
Inc., One Dairy Mart Way, 300 Executive Parkway West, Hudson, Ohio. At the
Annual Meeting, seven persons will be elected to the Board of Directors. The
Company will also ask shareholders to amend the Company's 1995 Stock Option
Plan. 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 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
May 29, 1998
<PAGE> 3
DAIRY MART CONVENIENCE STORES, INC.
------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 25, 1998
------------------------------
Notice is hereby given that the 1998 Annual Meeting of Shareholders of
Dairy Mart Convenience Stores, Inc. (the "Company") will be held at the
Company's offices, One Dairy Mart Way, 300 Executive Parkway West, Hudson, Ohio,
on Thursday, June 25, 1998 at 10:00 A.M., (Eastern time), for the following
purposes:
1. To elect seven members to the Board of Directors;
2. To vote on a proposal to approve the Company's Amended and Restated
1995 Stock Option Plan including an increase in the number of
shares of Common Stock for which awards may be granted from 650,000
shares to 1,150,000 shares; and
3. To conduct such other business as may properly come before the
Annual Meeting.
Only shareholders of record at the close of business on May 15, 1998 are
entitled to notice of and to vote at said meeting or any adjournment or
postponement thereof.
By Order of the Board of Directors
Robert B. Stein, Jr.,
Chairman of the Board, President and
Chief Executive Officer
May 29, 1998
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE 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> 4
DAIRY MART CONVENIENCE STORES, INC.
PROXY STATEMENT
SOLICITATION OF PROXIES
The accompanying proxy is solicited by the Board of Directors of Dairy Mart
Convenience Stores, Inc., One Dairy Mart Way, 300 Executive Parkway West, Hudson
Ohio 44236 (the "Company") for use at the Annual Meeting of Shareholders to be
held on Thursday, June 25, 1998, 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 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 May 29, 1998.
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 named below. 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 operate to revoke a proxy.
OUTSTANDING STOCK AND VOTING RIGHTS
The Board of Directors has fixed the close of business on May 15, 1998 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 May 15, 1998, 3,134,132 shares of Class A Common
Stock were issued and outstanding and 1,528,049 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> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information concerning beneficial
ownership of the Company's 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
May 15, 1998. In preparing the following table, the Company has relied on
information filed by such persons with the Securities and Exchange Commission
("SEC"), and in some cases, other information provided to the Company by such
persons.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- -------------- ------------------------------------ -------------------- ----------
<S> <C> <C> <C>
Class B DM Associates Limited Partnership 638,743(1) 41.8%
Common Stock 300 Executive Parkway West
Hudson, Ohio
New DM Management Associates I 638,743(1) 41.8%
300 Executive Parkway West
Hudson, Ohio
Robert B. Stein, Jr. 638,743(1) 41.8%
300 Executive Parkway West
Hudson, Ohio
Gregory G. Landry 638,743(1) 41.8%
300 Executive Parkway West
Hudson, Ohio
James Wilen and Wilen Management 150,425(2) 9.8%
Corporation
2360 West Joppa Road
Suite 226
Lutherville, Maryland
Frank Colaccino 78,682(3) 5.1%
360 Bloomfield Avenue
Suite 208
Windsor, Connecticut
</TABLE>
2
<PAGE> 6
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- -------------- ------------------------------------ -------------------- ----------
<S> <C> <C> <C>
Class A Triumph-Connecticut Limited 765,000(4) 19.6%
Common Stock Partnership
60 State Street, 21st Floor
Boston, Massachusetts
The IDS Mutual Fund Group 372,999(5) 10.6%
IDS Tower 10
Minneapolis, Minnesota
OKGBD & Co. 360,001(6) 10.3%
c/o Bankers Trust
P.O. Box 704
Church Street Station
New York, New York
James Wilen and Wilen Management 299,373(2) 9.6%
Corporation
2360 West Joppa Road
Suite 226
Lutherville, Maryland
William L. Musser, Jr. and 250,000(7) 8.0%
New Frontier Capital, L.P.
919 Third Avenue
New York, New York
</TABLE>
- ---------------
Notes to Table
(1) DM Associates Limited Partnership ("DM Associates") is the owner of record
of 638,743 shares of Class B Common Stock representing approximately 41.8%
of the issued and outstanding shares of Class B Common Stock, and 34.7% 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 of whom owns 50% of
the partnership interests of DM Management I.
As the sole general partner of DM Associates DM Management I has the power
to vote and dispose of the 638,743 shares of Class B Common Stock owned by
DM Associates, subject to the required consent of a class of limited
partners of DM Associates for sales of more than 360,000 shares. The
partnership agreement of DM Management I provides that a majority of the
partnership interests of DM Management I is required to vote the shares of
Class B Common Stock owned by DM Associates.
As the managing general partner of DM Management I, Mr. Stein has sole
dispositive power with respect to the 638,743 shares owned by DM Associates,
subject to the limitation described above. As general partners of DM
Management I, Mr. Stein and Mr. Landry share voting power with respect to
the 638,743 shares owned by DM Associates.
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 other than in their capacity as general partners of DM
Associates I. See ITEM 1 -- ELECTION OF DIRECTORS -- Information Concerning
Nominees and Certain Executive Officers.
(2) Two Schedules 13G were 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 and Class B Common Stock. The total of
Class A and Class B Common Stock of 449,798
3
<PAGE> 7
shares, represents approximately 9.6% of the total number of issued and
outstanding shares of both classes of the Company's Common Stock, and
approximately 9.8% of the total voting power of both classes of the
Company's Common Stock.
(3) Frank Colaccino reported on a Schedule 13G filed with the SEC his beneficial
ownership, as a private investor, of shares of Class B Common Stock. The
78,682 shares represent approximately 1.7% of the total number of issued and
outstanding shares of both classes of the Company's Common Stock and
approximately 4.3% of the total voting power of both classes of the
Company's Common Stock.
(4) 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 14.1% of the total number of issued and
outstanding shares of both classes of Common Stock, and approximately 4.0%
of the total voting power of both classes of the Company's Common Stock.
(5) The IDS Mutual Fund Group, through nominees, holds currently exercisable
warrants to purchase an aggregate of 372,999 shares of Class A Common Stock.
If the 372,999 shares underlying the warrants were issued, they would
represent approximately 7.4% of the total number of issued and outstanding
shares of both classes of Common Stock, and approximately 2.0% of the total
voting power of both classes of the Company Common Stock.
(6) 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 7.2% of the total number of issued and outstanding shares of
both classes of Common Stock, and approximately 1.9% of the total voting
power of both classes of Common Stock.
(7) New Frontier Capital, L.P., and William L. Musser, Jr., in his capacity as
general partner of Founder Capital, L.P. (the general partner of New
Frontier Capital, L.P.), reported on a Schedule 13D filed with the SEC its
beneficial ownership, of 250,000 shares of Class A Common Stock. The 250,000
shares represent approximately 5.4% of the total number of issued and
outstanding shares of both classes of the Company's Common Stock, and
approximately 1.4% of the total voting power of both classes of the
Company's Common Stock.
4
<PAGE> 8
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS
Seven directors have been nominated for election at the Annual Meeting, to
hold office until the next Annual Meeting and until the election and
qualification of their successors. Pursuant to the Company's Certificate of
Incorporation, two of the directors are to be elected by the holders of Class A
shares (the "Class A Directors") and five of the directors are to be elected by
the holders of Class B shares (the "Class B Directors"). The Board of Directors
has nominated Albert T. Adams and Thomas W. Janes 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 currently
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 May 15, 1998.
<TABLE>
<CAPTION>
SHARES (AND PERCENTAGE) OF COMMON STOCK
BENEFICIALLY OWNED AS OF MAY 15, 1997 PERCENT
---------------------------------------------- OF TOTAL
DIRECTOR CLASS B CLASS A VOTING
NAME (AGE) SINCE COMMON STOCK COMMON STOCK POWER
---------- -------- ------------ ------------ --------
<S> <C> <C> <C> <C>
CLASS B DIRECTORS
Frank W. Barrett (58)....... 1983 1,250(*) 10,375(*)(1) (*)
J. Kermit Birchfield, Jr.
(58)...................... 1996 2,000(*) 9,375(*)(2) (*)
John W. Everets (52)........ 1994 10,000(*) 7,875(*)(3) (*)
Gregory G. Landry (40)...... 1991 638,743(41.8%) 108,375(3.3%)(4)(5) 35.1%
Robert B. Stein, Jr. (40)... 1992 638,743(41.8%) 173,675(5.3%)(4)(6) 35.3%
CLASS A DIRECTORS
Thomas W. Janes (42)........ 1995 0 769,375(19.7%)(7)(8) 4.0%
Albert T. Adams (47)........ 1998 0 5,000(*) (*)
NAMED EXECUTIVE OFFICERS
Scott A. Stein (39)......... N/A 0 15,500(*)(9) (*)
Michael L. Poole (51)....... N/A 0 2,906(*)(10) (*)
Robert J. Pietrick, Jr.
(49)...................... N/A 0 1,875(*)(11) (*)
ALL DIRECTORS AND EXECUTIVE
OFFICERS
AS A GROUP
(19 persons)................ N/A 664,993(43.5%) 1,150,250(27.2%)(12) 40.0%
</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 10,375 shares of Class A Common Stock.
(2) Includes currently exercisable non-qualified stock options granted to Mr.
Birchfield to purchase 4,375 shares of Class A Common Stock.
5
<PAGE> 9
(3) Includes currently exercisable non-qualified stock options granted to Mr.
Everets to purchase 7,875 shares of Class A Common Stock.
(4) Messrs. Stein and Landry are the general 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 Messrs. Stein
and Landry include the shares beneficially owned by them in their capacity
as general partners of DM Management I.
(5) Includes currently exercisable incentive stock options granted to Mr.
Landry to purchase 102,125 shares of Class A Common Stock.
(6) Includes currently exercisable incentive stock options granted to Mr. Stein
to purchase 147,500 shares of Class A Common Stock.
(7) 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. Jane's 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 discernible. Mr. Janes disclaims
beneficial ownership of all shares other than those attributable to him as
a general partner of TCCALP.
(8) Includes currently exercisable non-qualified stock options granted to Mr.
Janes to purchase 4,375 shares of Class A Common Stock.
(9) Includes currently exercisable incentive stock options granted to Mr. Stein
to purchase 15,500 shares of Class A Common Stock.
(10) Includes currently exercisable incentive stock options granted to Mr. Poole
to purchase 2,500 shares of Class A Common Stock.
(11) Includes currently exercisable incentive stock options granted to Mr.
Pietrick to purchase 1,875 shares of Class A Common Stock.
(12) Includes currently exercisable stock options granted to all directors and
executive officers of the Company to purchase 337,438 shares of Class A
Common Stock and currently exercisable Warrants to purchase 765,000 shares
of Class A Common Stock.
NOMINEES FOR ELECTION AS DIRECTORS
The following sets forth certain information concerning the Company's
nominees for election to the Board of Directors at the Annual Meeting.
INFORMATION AS TO NOMINEES FOR ELECTION AS CLASS B DIRECTORS
FRANK W. BARRETT
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.
J. KERMIT BIRCHFIELD, JR.
Mr. Birchfield is Chairman of the Board of Displaytech, Inc., a
manufacturer of high resolution ferite liquid crystal. 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 provider of financing for the purchase of health
care equipment, Intermountain Gas Company, Inc., an Idaho
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<PAGE> 10
public utility company, and the Compass Funds group of MFS, Inc., a wholly-owned
subsidiary of Sun Life of Canada, a registered mutual funds company.
JOHN W. EVERETS
Mr. Everets has been Chairman of the Board and Chief Executive Officer of
HPSC, Inc., a provider of financing for health care equipment, since July 1993
and has been a director of HPSC, Inc. since 1993. He was Chairman of the Board
of T.O. Richardson Co., Inc., a financial services company, from January 1990
until July 1993. Mr. Everets is also a director of Eastern Company, a
manufacturing company and Crown Northcorp, Inc., a real estate holding company.
GREGORY G. LANDRY
Mr. Landry has served as Chief Financial Officer of the Company 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.
ROBERT B. STEIN, JR.
Mr. Stein 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.
INFORMATION AS TO NOMINEES FOR ELECTION AS CLASS A DIRECTORS
ALBERT T. ADAMS
Mr. Adams has been a partner with the law firm of Baker & Hostetler LLP in
Cleveland, Ohio, since 1984, and has been affiliated with the firm since 1977.
Mr. Adams is a graduate of Harvard College, Harvard Business School and Harvard
Law School. He serves as a member of the Board of Trustees of the Greater
Cleveland Roundtable and of the Western Reserve Historical Society and is a Vice
President of the Harvard Business School Club of Northeastern Ohio. Mr. Adams is
a director of Associated Estates Realty Corporation, Boykin Lodging Company, and
Developers Diversified Realty Corporation.
THOMAS W. JANES
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.
7
<PAGE> 11
EXECUTIVE OFFICERS
Listed below are the names, positions and ages of the executive officers of
the Company as of May 15, 1998. Each executive officer will serve until his
successor is selected by the Board of Directors or until his earlier resignation
or removal.
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
Robert B. Stein, Jr. Chairman of the Board, President and Chief Executive
Officer 40
Gregory G. Landry Executive Vice President and Chief Financial Officer 40
Dale W. Fuller Executive Vice President and Chief Administrative
Officer 48
Michael L. Poole Vice President, Construction and Planning 51
Scott A. Stein Vice President Management Information Systems 39
Dennis J. Tewell Vice President Franchise Operations 41
Alice R. Guiney Vice President Human Resources 44
Daniel W. Wallace Vice President Corporate Store Operations 49
Darrell J. Davis Vice President Corporate Store Operations 39
Susan D. Adams Vice President Finance and Treasurer 40
Jay E. Ross Vice President, Marketing and Merchandising 45
Dale R. Valvo Vice President Gasoline Operations 48
</TABLE>
ROBERT B. STEIN, JR.
Mr. Stein 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.
GREGORY G. LANDRY
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.
DALE W. FULLER
Mr. Fuller was named Executive Vice President and Chief Administrative
Officer in January 1998. Mr. Fuller is the former President and CEO of the
Original Cookie Company, Inc. and Hot Sam Companies, Inc. During his 13-year
tenure with these companies, Mr. Fuller also held various finance and management
positions.
MICHAEL L. POOLE
Mr. Poole was named Vice President Construction and Planning in April 1996.
Prior to joining the Company, Mr. Poole was Director of Store Design and
Construction for Crabtree and Evelyn, Ltd., in Woodstock, Connecticut, and
Director of Design and Construction for Edison Brothers Stores, Inc., in St.
Louis, Missouri. Prior to his position with Edison Brothers Stores, Mr. Poole
was owner and President of The Poole Group, an architectural company.
8
<PAGE> 12
SCOTT A. STEIN
Mr. 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.
DENNIS J. TEWELL
Mr. Tewell was named Vice President Franchise Operations in November 1997.
Mr. Tewell joined the former CONNA Corporation in 1985 and has served as Vice
President Business Development, Vice President Store Operations, Director of
Operations, Strategic Planning Coordinator in the Southeast Region, and special
consultant for the Company's international operations in Europe.
ALICE R. GUINEY
Ms. Guiney was named Vice President Human Resources in November 1996. Prior
to joining the Company, Ms. Guiney directed corporate and field operational
disciplines of human resources for Sunglass Hut International in Coral Gables,
Florida. Ms. Guiney also held the positions of Director of Merchandising and
Director of Administration during her tenure with Burdines Department Stores.
DANIEL W. WALLACE
Mr. Wallace was named Vice President Corporate Store Operations in November
1997. During his tenure with the Company, Mr. Wallace has served as head of
Midwest store operations, Director of Operations, Corporate Operations
Coordinator for the Company's point-of-sale project, Division Manager,
Supervisor, and Store Manager. Mr. Wallace was also a special consultant for the
Company's international operations in France.
DARRELL J. DAVIS
Mr. Davis was named Vice President Corporate Store Operations in November
1997. Mr. Davis joined Dairy Mart/CONNA in 1983 as a Regional Coordinator.
During his career, he has been Associate Director of Property Development,
Operations Specialist, Franchising Manager and Director of Operations. In 1994,
he was named as head of operations in the Southeast region.
SUSAN D. ADAMS
Ms. Adams was named Vice President Finance and Treasurer in December 1997.
Prior to joining the Company, Ms. Adams served as Assistant Treasurer for
Doubletree Corporation. She has also served as Assistant Treasurer for Circle K
Corporation.
JAY E. ROSS
Mr. Ross was named Vice President Marketing and Merchandising in November
1997. Prior to joining the Company, Mr. Ross was Vice President of Merchandising
with Revco D.S., Inc. During his 28-year tenure with Revco, Mr. Ross served in
numerous marketing and merchandising capacities.
9
<PAGE> 13
DALE R. VALVO
Mr. Valvo was named Vice President Gasoline Operations in April 1998. Prior
to joining the Company, Mr. Valvo was General Manager Marketing-Southeast
Business Unit for Fina Oil and Chemical Company. Mr. Valvo also served as
President of Harken Marketing Company, a subsidiary of Harken Energy
Corporation.
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 Company's Common Stock:
Robert J. Pietrick (one report for one transaction), Alice R. Guiney (one report
for one transaction), Robert B. Stein (two reports for two transactions), Dennis
J. Tewell (one report for one transaction), Michael L. Poole (one report for one
transaction), Gregory G. Landry (two reports for two transactions); Scott A.
Stein (one report for one transaction); Darrell J. Davis (one report for one
transaction); and Daniel W. Wallace (one report for one transaction).
THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the 1998 fiscal year, the Board of Directors of the Company held six
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 an Audit Committee, a Compensation
and Stock Option Committee and a Nominations Committee. The Audit Committee
currently consists of Messrs. Barrett and Everets 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 for
administering the Company's stock option plans. 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 1998 fiscal year there
were six meetings of the Compensation and Stock Option Committee, one meeting of
the Audit Committee, and one meeting 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
Birchfield. None of these individuals was at any time during fiscal 1998, 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.
10
<PAGE> 14
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, served as the
Company's Chief Executive Officer or in a similar capacity and were the four
most highly compensated executive officers whose total annual salary and bonus
exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION(A) AWARDS (B)
------------------------------------------- ------------
SECURITIES ALL
OTHER ANNUAL UNDERLYING OTHER
NAME AND PRINCIPAL FISCAL COMPENSATION OPTIONS COMPENSATION
POSITION YEAR SALARY BONUS (C) (D) (E)
------------------ ------ -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Stein, Jr., 1998 $331,738 $ 80,000 $43,869 -- $9,126
President, Chief 1997 282,700 22,500 1,412 -- 9,435
Executive Officer and 1996 254,808 162,500 -- 95,555 9,533
Chairman of the Board
Gregory G. Landry, 1998 239,230 40,000 1,846 -- 8,670
Executive Vice President 1997 226,346 18,900 47,795 -- 8,670
and Chief Financial 1996 214,038 131,500 -- 55,332 8,670
Officer
Robert J. Pietrick, Jr.,(f) 1998 150,000 25,000 87 -- --
Former Vice President -- Business 1997 86,538 -- 44 7,500 --
Development 1996 -- -- -- -- --
Scott A. Stein, 1998 124,231 25,000 71,114 10,000 246
Vice President -- Management 1997 113,077 9,000 774 -- 1,216
Information Systems 1996 100,098 15,000 926 5,000 173
Michael L. Poole, 1998 111,346 25,000 14,016 15,000 --
Vice President -- Construction 1997 91,731 -- 1,031 5,000 --
1996 -- -- -- -- --
</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 years 1998, 1997 or 1996.
(c) Other annual compensation for the following named executive officers
includes the following amounts paid on behalf of, or received by, each
officer (i) $42,915 in relocation expense for Mr. Robert Stein in fiscal
year 1998, (ii) $46,488 in relocation expense for Mr. Landry in fiscal year
1997, (iii) $71,098 in relocation expense for Mr. Scott Stein in fiscal year
1998, and (iv) $13,982 in relocation expense for Mr. Poole in fiscal year
1998.
(d) The Company granted options to purchase shares of the Company's common stock
to certain executive officers under the Company's 1995 Stock Option and
Incentive Award Plan in fiscal year 1998. Scott A. Stein and Michael L.
Poole were granted 10,000 and 15,000 options, respectively, to purchase the
Company's Class A Common Stock.
(e) 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 1998, 1997, and 1996 fiscal
years, respectively, included $246, $555 and $645 for Robert B. Stein, Jr.
and $246, $1,216 and $173 for Scott
11
<PAGE> 15
A. Stein. Premiums paid on split-dollar and life insurance for each of the
1998, 1997 and 1996 fiscal years, respectively, included $8,880, $8,880 and
$8,888 for Robert B. Stein, Jr. and $8,670, $8,670 and $8,670 for Gregory G.
Landry.
(f) Mr. Pietrick's employment with the Company was terminated as of March 6,
1998. The Company is making severance payments to Mr. Pietrick in the amount
of six month's salary.
LONG-TERM INCENTIVE AWARDS IN LAST FISCAL YEAR
The table below provides certain information regarding stock awards granted
during the Company's last fiscal year to the executive officers listed in the
Summary Compensation Table above:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------
NUMBER OF SHARES PERIOD UNTIL
NAME (A) MATURATION
---- ------------------- ------------
<S> <C> <C>
3 year
vesting
Robert B. Stein, Jr........................... 100,000 Class A rights
3 year
vesting
100,000 Class B rights
3 year
vesting
Gregory G. Landry............................. 37,500 Class A rights
3 year
vesting
37,500 Class B rights
Robert J. Pietrick, Jr........................ -- --
Scott A. Stein................................ -- --
Michael L. Poole.............................. -- --
</TABLE>
- ---------------
(a) The restricted shares will vest equally over a three-year period following
the grant date, if the closing prices of the Company's Class A and Class B
Common Stock, respectively, as reported on the American Stock Exchange
(AMEX) achieves certain price targets over the stock price on the date of
grant. The first target is the annual compound return (including dividends)
of the Standard & Poor 500 Stock Index for the period commencing January 1,
1970 and ending December 31, 1996, compounded over the balance of the period
during which the restricted shares may vest; the second target is 2/3 of
such return, and the third target is 1/3 of such return. Dividends will not
be paid on unvested restricted stock awards.
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 REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS FOR OPTION TERM
OPTIONS GRANTED TO EXERCISE PRICE (C)
GRANTED EMPLOYEES IN PER SHARE EXPIRATION ---------------------
NAME (A) FISCAL YEAR (B) DATE 5% 10%
---- ---------- ------------ -------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Stein, Jr......... -- -- $ -- -- $ -- $ --
Gregory G. Landry........... -- -- -- -- -- --
Robert J. Pietrick, Jr...... -- -- -- -- -- --
Scott A. Stein.............. 10,000 8.00% 5.88 July 14, 2007 2,940 5,880
Michael L. Poole............ 15,000 12.00% 5.88 July 14, 2007 4,410 8,820
</TABLE>
(a) The options become fully exercisable over four years, with 25% of the shares
subject to the option becoming exercisable on each anniversary of the option
grant date. 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
12
<PAGE> 16
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 American Stock Exchange (AMEX).
(c) 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 on termination of the options upon termination of the options upon
termination of employment.
FISCAL YEAR-END OPTION VALUES
The table below sets forth information regarding stock options that were
exercised during the past fiscal year, and unexercised stock options held as of
January 31, 1998, by the executive officers listed in the Summary Compensation
Table above:
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS AT OPTIONS AT
SHARES ACQUIRED FY-END FY-END (1)
ON EXERCISE OF VALUE EXERCISABLE (E)/ EXERCISABLE (E)/
NAME OPTIONS REALIZED UNEXERCISABLE(U) UNEXERCISABLE(U)
---- --------------- -------- ---------------- ----------------
<S> <C> <C> <C> <C>
Robert B. Stein, Jr.......................... 2,500 $ 5,625 123,611(E) $133,573(E)
53,889(U) 34,761(U)
Gregory G. Landry............................ 6,250 14,063 88,292(E) 101,364(E)
31,333(U) 20,297(U)
Robert J. Pietrick, Jr....................... -- -- 1,875(E) 0(E)
5,625(U) 0(U)
Scott A. Stein............................... -- -- 14,000(E) 16,693(E)
16,000(U) 6,018(U)
Michael L. Poole............................. -- -- 1,250(E) 0(E)
18,750(U) 0(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 Company's Class A and Class B Common Stock on January 31, 1998, which
amounts were $4.19 and $4.38 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 January 31, 1998. Such options are not "in the money"
and their value is, therefore, not disclosed above.
DIRECTORS' COMPENSATION
Messrs. Barrett, Birchfield, Everets, Janes and Proctor each received
Directors' fees of $17,500 for the fiscal year ended January 31, 1998. The
annual fee for outside Directors for the 1998 fiscal year is $12,000 plus $1,000
for each regular or special meeting of the Board or Committee attended, plus
$500 for telephonic meetings. The remaining Directors, who are employees of the
Company, receive no Directors' fees. In addition to the foregoing fees, on
February 1, 1998, Messrs. Barrett, Birchfield, Everets, Janes, and Proctor each
received an option to purchase 3,000 shares of Class A Common Stock at $4.19 per
share pursuant to the Company's 1995 Stock Option Plan for Outside Directors.
13
<PAGE> 17
EMPLOYMENT AGREEMENTS
In June 1995, the Company entered into employment agreements (the
"Employment Agreements") with Messrs. Stein and Landry. The Employment
Agreements are initially for two (2) year terms, but 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 and Landry receive annual salaries that may be increased, but may not be
decreased. In addition, 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, 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 plus an amount
equal to the highest of the aggregate bonus payments earned by the employee for
any of the last three 12-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, 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 12-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. If any payment in connection with the
termination of the employee's employment under the Employment Agreement 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 the employee incurs as
a result of the employee's receipt of the additional payment.
14
<PAGE> 18
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, Barrett and Birchfield, is responsible
for establishing and administering the Company's executive compensation policies
and the Company's stock option and other employee equity plans. This report
addresses the compensation policies for the fiscal year 1998 for executive
officers and in particular for Mr. Stein in his capacity as President, Chief
Executive Officer and Chairman of the Board.
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
shareholders 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 shareholders 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, including some, but not all, of the companies included in the Peer
Group Index (defined below).
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.
In determining compensation for the Company's executives for fiscal year
1998, the Committee took into account the Company's earnings. Although financial
results for fiscal year 1998 were improved compared to
15
<PAGE> 19
fiscal year 1997, the Company did not return to profitability. The Committee
also considered the need to retain talented executives in a competitive
environment.
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.
ANNUAL INCENTIVE BONUSES
The Committee determines the amount of annual cash bonuses based on
achievement of predetermined financial, operational and strategic objectives.
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.
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
shareholders. 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, who holds the positions of President, Chief Executive Officer
and Chairman of the Board, was paid a base salary of $331,738 and a bonus of
$80,000 during fiscal year 1998. In addition, Mr. Stein was granted 100,000
restricted shares of Class A Common Stock and 100,000 restricted shares of Class
B Common Stock. Mr. Stein's salary was increased from fiscal year 1997 due to
the Company's progress and his leadership during a challenging period of growth
and change.
THE COMPENSATION AND STOCK OPTION COMMITTEE:
John W. Everets, Chairman
Frank W. Barrett
J. Kermit Birchfield, Jr.
16
<PAGE> 20
PERFORMANCE GRAPH
Until September 29, 1996, the Company's Common Stock was traded on the
Nasdaq National Market under the symbols DMCVA and DMCVB. On September 30, 1996,
the Company's Common Stock was listed on the American Stock Exchange under the
symbol DMC.A and DMC.B, and trading of Common stock on the Nasdaq National
Market was discontinued.
The two graphs that follow compare the yearly percentage change in
cumulative shareholder return on the Class A Common Stock over the past five
years with the returns on both the NASDAQ Stock Market and the American Stock
Exchange. The first graph compares the performance of 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 two Nasdaq indices are included in accordance with the Commission's
rules, which require that any indices included in last year's proxy statement be
shown in the Performance Graph. The two Nasdaq indices will not be included in
future proxy statements.
The second graph compares the performance of the Class A Common Stock with
(i) the cumulative total return on the American Stock Exchange Stock Market (the
"AMEX") and (ii) a peer group index consisting of AMEX 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 January 29, 1993, and held through January
30, 1998 (the end of the Company's most recent fiscal year).
17
<PAGE> 21
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR DAIRY MART CONVENIENCE STORES, INC.
<TABLE>
<CAPTION>
NASDAQ
STOCKS (SIC
DAIRY MART NASDAQ STOCK 5400-5499 US
MEASUREMENT PERIOD CONVENIENCE MARKET (US COMPANIES)
(FISCAL YEAR COVERED) STORES, INC. COMPANIES) FOOD STORES
<S> <C> <C> <C>
01/29/93 100 100 100
02/26/93 94.773 96.27 95.53
03/30/93 84.643 98.465 96.171
04/30/93 80.666 94.829 97.356
05/28/93 81.746 100.491 103.049
06/30/93 77.618 100.953 100.594
07/30/93 96.886 101.073 103.531
08/30/93 96.864 105.459 109.654
09/30/93 96.732 109.462 106.515
10/29/93 98.945 111.923 116.482
11/30/93 95.818 108.587 110.461
12/30/93 101.882 110.762 116.429
01/28/94 108.934 114.408 110.426
02/28/94 117.991 113.929 103.533
03/30/94 112.967 107.091 94.53
04/29/94 102.919 105.535 98.468
05/27/94 88.81 105.486 95.971
06/30/94 68.577 101.922 103.373
07/29/94 67.605 104.013 101.391
08/30/94 50.456 110.747 102.262
09/30/94 51.438 110.361 101.332
10/28/94 47.895 112.3 100.855
11/30/94 59.505 108.797 98.5
12/30/94 66.569 109.102 94.801
01/30/95 63.531 109.24 90.593
02/28/95 62.895 115.516 95.848
03/30/95 61.41 118.869 92.467
04/28/95 73.289 122.686 96.475
05/30/95 80.548 124.964 103.214
06/30/95 86.587 136.051 106.278
07/28/95 76.517 146.644 109.464
08/30/95 108.753 147.888 112.137
09/29/95 94.646 152.439 111.578
10/30/95 102.204 152.2 114.854
11/30/95 105.743 155.124 116.946
12/29/95 89.625 154.298 113.224
01/30/96 97.16 153.786 105.86
02/29/96 95.807 160.959 111.892
03/29/96 100.552 161.493 120.031
04/30/96 92.426 174.891 129.658
05/30/96 95.987 181.44 126.512
06/28/96 93.791 174.676 129.131
07/30/96 89.877 157.856 130.21
08/30/96 95.071 168.037 135.595
09/30/96 89.533 180.891 140.863
10/30/96 78.476 176.612 138.682
11/29/96 78.984 189.951 139.59
12/30/96 65.406 189.305 139.249
01/30/97 91.545 201.731 138.734
02/28/97 89.494 192.031 138.955
03/27/97 75.467 183.654 138.151
04/30/97 77.709 185.106 130.979
05/30/97 95.57 206.092 139.3
06/30/97 93.107 212.398 153.816
07/30/97 100.634 233.882 153.186
08/29/97 90.57 234.461 154.453
09/30/97 88.474 248.332 162.103
10/30/97 74.385 231.988 152.35
11/28/97 71.98 236.657 162.976
12/30/97 80.076 232.3 165.543
01/30/98 68.173 240.341 168.929
</TABLE>
18
<PAGE> 22
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR DAIRY MART CONVENIENCE STORES, INC.
<TABLE>
<CAPTION>
AMEX
STOCKS (SIC
DAIRY MART AMEX STOCK 5400-5499 US
MEASUREMENT PERIOD CONVENIENCE MARKET (US COMPANIES
(FISCAL YEAR COVERED) STORES, INC. COMPANIES) FOOD STORES
<S> <C> <C> <C>
01/29/93 100 100 100
02/26/93 94.773 97.214 99.132
03/30/93 84.643 99.612 106.63
04/30/93 80.666 98.894 116.408
05/28/93 81.746 102.481 119.43
06/30/93 77.618 103.094 117.015
07/30/93 96.886 104.666 121.254
08/30/93 96.864 109.547 112.665
09/30/93 96.732 112.052 109.472
10/29/93 98.945 115.313 112.988
11/30/93 95.818 110.422 108.727
12/30/93 101.882 112.091 118.883
01/28/94 108.934 114.201 113.082
02/28/94 117.991 112.429 123.324
03/30/94 112.967 106.075 110.848
04/29/94 102.919 104.356 111.271
05/27/94 88.81 104.71 104.896
06/30/94 68.577 101.097 97.42
07/29/94 67.605 104.7 98.679
08/30/94 50.456 107.445 106.508
09/30/94 51.438 109.691 109.111
10/28/94 47.895 108.824 113.902
11/30/94 59.505 104.145 110.79
12/30/94 66.569 105.766 106.857
01/30/95 63.531 107.941 111.084
02/28/95 62.895 112.141 117.152
03/30/95 61.41 113.612 117.666
04/28/95 73.289 116.455 131.659
05/30/95 80.548 119.492 140.805
06/30/95 86.587 122.569 140.155
07/28/95 76.517 128.487 154.78
08/30/95 108.753 131.997 152.449
09/29/95 94.646 134.976 156.454
10/30/95 102.204 128.797 158.304
11/30/95 105.743 133.617 162.605
12/29/95 89.625 136.083 158.431
01/30/96 97.16 135.491 163.581
02/29/96 95.807 138.447 166.52
03/29/96 100.552 139.726 167.388
04/30/96 92.426 144.575 161.499
05/30/96 95.987 149.266 175.833
06/28/96 93.791 141.06 182.422
07/30/96 89.877 129.389 174.194
08/30/96 95.071 133.889 172.04
09/30/96 89.533 137.554 174.203
10/30/96 78.476 133.914 170.218
11/29/96 78.984 140.373 172.499
12/30/96 65.406 138.396 178.049
01/30/97 91.545 141.579 172.354
02/28/97 89.494 144.066 167.911
03/27/97 75.467 139.361 166.816
04/30/97 77.709 132.971 165.661
05/30/97 95.57 146.338 170.684
06/30/97 93.107 151.406 169.034
07/30/97 100.634 157.596 171.543
08/29/97 90.57 159.604 169.284
09/30/97 88.474 172.484 169.626
10/30/97 74.385 164.785 159.916
11/28/97 71.98 166.319 176.017
12/30/97 80.076 171.243 177.088
01/30/98 68.173 169.85 169.744
</TABLE>
19
<PAGE> 23
PROPOSAL TWO
PROPOSED AMENDMENTS TO THE COMPANY'S
1995 STOCK OPTION PLAN
GENERAL
The Board has approved amendments (the "Amendments") to the Company's 1995
Stock Option Plan (the "Stock Option Plan") to increase the number of shares for
which options, restricted stock grants and stock appreciation rights may be
granted under the Stock Option Plan by 500,000, or from 650,000 to 1,150,000. In
addition, certain amendments are being proposed so that the plan complies with
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
These amendments confer the final authority to make awards under the stock
option plan in a Compensation Committee comprised of "outside directors," as
defined in the Code, and establishes a maximum of 200,000 awards that can be
granted to an individual in any calendar year.
The Board believe the increase in the number of shares for which options
may be granted under the Stock Option Plan is necessary to have sufficient
options available for grants of awards to officers and other key employees as
determined by the Compensation Committee, as virtually all of the awards
authorized under the plan have been granted. In the event that shareholders do
not ratify the Amended and Restated 1995 Stock Option Plan, the plan and the
grants made thereunder will continue to remain outstanding. However, the Company
may lose certain tax benefits under Section 162(m), including the deductibility
of all or a portion of the value of awards made thereunder to certain executive
officers. A copy of the Stock Option Plan, as amended, is attached as Exhibit A,
and the description of the Stock Option Plan is qualified in its entirety by
reference to Exhibit A.
Although stockholder approval of the Amendments is not otherwise required,
such approval is required under the terms of the Stock Option Plan and is being
sought in order to: (i) allow certain options granted under the terms of the
Stock Option Plan to qualify as incentive stock options under the Code; and (ii)
permit options granted under the Stock Option Plan to qualify as "performance
based compensation" for purposes of Section 162(m) of the Code.
The Compensation Committee (the "Committee") of the Board administers the
Stock Option Plan. Incentive stock options and stock awards may be granted under
the Stock Option Plan at any time until the expiration of the Stock Option Plan
on January 10, 2006. The maximum number of options that may be granted pursuant
to the Stock Option Plan, as amended, is 1,150,000.
STOCK OPTIONS
The Committee may grant Stock Options that either (i) qualify as incentive
stock options ("Incentive Stock Options") under Section 422A of the Code, (ii)
do not so qualify ("Non-Qualified Stock Options"), or (iii) both. To qualify as
an Incentive Stock Option, an option must meet certain requirements set forth in
the Code. Options will be evidenced by the execution of a Stock Option Agreement
in the form approved by the Committee.
The option price per Common Share under a Stock Option will be determined
by the Committee at the time of grant and will be not less than 100% of the fair
market value of the Common Shares at the date of grant, or with respect to
Incentive Stock Options, 110% of the fair market value of the Common Shares at
the date of grant in the case of participant who, at the date of grant, owns
shares possessing more than 10% of the total combined voting power of all
classes of stock of the Company (a "10% owner").
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The term of each Stock Option will be determined by the Committee and may
not exceed ten years from the date the option is granted, or, with respect to
Incentive Stock Options, five years in the case of a 10% owner. No individual
may be granted awards representing more than 200,000 shares in any calendar
year.
The Committee will determine the time or times at which, and the conditions
under which, each Stock Option may be exercised. Generally, options will not be
exercisable prior to six months following the date of grant. No Stock Options
are transferable by optionee (other than transfer to an optionee's family
members in certain circumstances) other than by will or by the laws of descent
and distribution and all Stock Options are exercisable, during the optionee's
lifetime, only by or on behalf of the optionee or permitted transferees.
Unless otherwise determined by the Committee at or after the time of grant,
after any termination of an optionee's employment by reason of disability or
death, a Stock Option held by that optionee will become immediately and
automatically vested and may be exercised for a period of one year from the time
of death or termination due to disability or on such accelerated basis as may be
determined by the Committee. In no event, however, will any stock Option be
exercisable after the expiration of the option period for such Option.
Unless otherwise determined by the Committee at or after the time of grant,
if an optionee's employment terminates for any reason other than death or
disability, a Stock Option held by that optionee, which has previously vested,
may be exercised for a period of three months from the time of termination.
Unless otherwise determined by the Committee at or after the time of grant,
if an optionee's employment terminates due to normal or early retirement, a
Stock Option held by that optionee will become immediately and automatically
vested and may be exercised for a period of one year from the time of
retirement.
No cash consideration will be received by the Company for granting options
under the Stock Option Plan. Options will be granted in consideration of the
services rendered or to be rendered to the Company by the employees receiving
the options.
Options have in the past and the Company anticipates that in the future
options will be granted to certain officers, directors, and other key employees
of the Company or its subsidiaries who are in a position to contribute
substantially to the growth and success of the Company and its subsidiaries. As
of January 31, 1998, options to purchase approximately 200,000 shares had been
granted under the Stock Option Plan, 33,125 of which were currently exercisable.
As of January 31, 1998, 9 executive officers and 12 non-executive officers had
been granted options. Any shares not purchased under an option which has
terminated or lapsed may be used for the further grant of options under the
Stock Option Plan.
INCENTIVE STOCK AWARDS
The Committee may grant Incentive Stock Awards and determine when and to
whom such grants will be made, the number of shares to be awarded, the date or
dates upon which Incentive Stock Awards will vest, the time or times within
which such Awards may be subject to forfeiture, and all other terms and
conditions of such Awards. The Committee may condition Awards of Incentive Stock
Award Shares on the attainment of performance goals or such other factors as the
Committee may determine. If a participant's employment by the Company terminates
by reason of death or disability, the Committee may determine to what extent any
shares held by such participant pursuant to an Incentive Stock Award shall
thereafter vest or any restriction shall lapse. The Committee shall have the
discretion to determine the form in which payment of the Incentive Stock Award
shall be made (i.e., in cash, in shares , or in any combination thereof).
As of January 31, 1998, approximately 407,500 shares had been granted under
the Stock Option Plan pursuant to Incentive Stock Awards, of which none are
currently exercisable. As of January 31, 1998, 9 executive
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officers and 2 current and former employees had been granted Incentive Stock
Awards. Any shares granted pursuant to Incentive Stock Awards which had not
vested under a grant may be used for the further grant of Incentive Stock Awards
or options under the Stock Option Plan.
STOCK APPRECIATION RIGHTS
The Committee shall determine the participants to whom and the time or
times at which grants of Stock Appreciation Rights ("SARs") will be made and the
other terms and conditions thereof. Any SAR granted under the Stock Option Plan
shall be in such form as the Committee may from time to time approve, either in
tandem with an Option or alone. SARs generally entitle the holder to receive an
amount in cash or Common Shares (as determined by the Committee) equal in value
to the excess of the fair market value of a Common Share on the date of exercise
of the SAR over the per share exercise price of the related Stock Option. The
Committee may limit the amount that the participant will be entitled to receive
upon exercise of any SAR. Upon exercise of an SAR and surrender of the related
portion of the underlying Stock Option, the related Stock Option is deemed to
have been exercised. SARs will be exercisable only to the extent that the Stock
Options they relate to are exercisable; provided that an SAR granted to a
participant who is subject to Section 16(b) will not be exercisable at any time
prior to six months and one day from the date of grant, except in the event of
death of the holder. SARs shall be transferable and exercisable to the extent
and under the same conditions as the underlying Stock Option.
As of January 31, 1998, no SARs had been granted.
FEDERAL TAX CONSEQUENCES
With respect to incentive stock options granted with an exercise price not
less than fair market value, in general, for federal income tax purposes under
present law:
(i) Neither the grant nor the exercise of an Incentive Stock Option,
by itself, results in income to the optionee; however, the excess of the
fair market value of the Common Shares at the time of exercise over the
option price is includable in alternative minimum taxable income (unless
there is a disposition of the Common Shares acquired upon exercise of the
Option in the taxable year of exercise) which may, under certain
circumstances, result in an alternative minimum tax liability to the
optionee.
(ii) If the Common Shares acquired upon exercise of an Incentive Stock
Option are disposed of in a taxable transaction after the later of two
years from the date on which the Option is granted or one year from the
date on which such Common Shares are transferred to the optionee, capital
gain or loss will be realized by the optionee in an amount equal to the
difference between the amount realized by the optionee and the optionee's
basis which, except as provided in (v) below, is the exercise price.
(iii) Except as provided in (v) below, if the Common Shares acquired
upon the exercise of an Incentive Stock Option are disposed of within the
two-year period from the date of grant or the one-year period after the
transfer of the Common Shares to the optionee (a "disqualifying
disposition"):
(a) Ordinary income will be realized by the optionee at the time of
such disposition in the amount of the excess, if any, of the fair market
value of the Common Shares at the time of such exercise over the option
price, but not in an amount exceeding the excess, if any, of the amount
realized by the optionee over the option price.
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(b) Short-term, mid-term or long-term capital gain will be realized
by the optionee at the time of any such taxable disposition in an amount
equal to the excess, if any, of the amount realized over the fair market
value of the Common Shares at the time of such exercise.
(c) Short-term, mid-term or long-term capital loss will be realized
by the optionee at the time of any such taxable disposition in an amount
equal to the excess, if any, of the option price over the amount
realized.
(i) No deduction will be allowed to the Company with respect to
Incentive Stock Options granted or Common Shares transferred upon exercise
thereof, except that if a disposition is made by the optionee within the
two-year period or the one-year period referred to above, the Company will
be entitled to a deduction in the taxable year in which the disposition
occurred in an amount equal to the amount of ordinary income realized by
the optionee making the disposition.
(ii) With respect to the exercise of an Incentive Stock Option and the
payment of the option price by the delivery of Common Shares, to the extent
that the number of Common Shares received by the optionee does not exceed
the number of Common Shares surrendered, no taxable income will be realized
by the optionee at that time, the tax basis of the Common Shares received
will be the same as the tax basis of the Common Shares surrendered by the
optionee, and the holding period (except for purposes of the one-year
period referred to in (iii) above) of the optionee in Common Shares
received will include his holding period in the Common Shares surrendered.
To the extent that the number of Common Shares received exceeds the number
of Common Shares surrendered, no taxable income will be realized by the
optionee at that time; such excess Common Shares will be considered
Incentive Stock Option stock with a zero basis; and the holding period of
the optionee in such Common Shares will begin on the date such Common
Shares are transferred to the optionee. If the Common Shares surrendered
were acquired as the result of the exercise of an Incentive Stock Option
and the surrender takes place within two years from the date the Option
relating to the surrendered Common Shares was granted or within one year
from the date of such exercise, the surrender will result in a
disqualifying disposition and the optionee will realize ordinary income at
that time in the amount of the excess, if any, of the fair market value at
the time of exercise of the Common Shares surrendered over the basis of
such Common Shares. If any of the Common Shares received are disposed of in
a disqualifying disposition, the optionee will be treated as first
disposing of the Common Shares with a zero basis.
With respect to Nonqualified Stock Options, in general, for federal income
tax purposes under present law:
(i) The grant of a Nonqualified Stock Option, by itself, does not
result in income to the optionee.
(ii) Except as provided in (v) below, the exercise of a Nonqualified
Stock Option (in whole or in part, according to its terms) results in
ordinary income to the optionee at that time in an amount equal to the
excess (if any) of the fair market value of the Common Shares on the date
of exercise over the option price.
(iii) Except as provided in (v) below, the tax basis of the Common
Shares acquired upon exercise of a Nonqualified Stock Option, which is used
to determine the amount of any capital gain or loss on a future taxable
disposition of such shares, is the fair market value of the Common Shares
on the date of exercise.
(iv) No deduction is allowable to the Company upon the grant of a
Nonqualified Stock Option but, upon the exercise of a Nonqualified Stock
Option, a deduction is allowable to the Company at that time in an amount
equal to the amount of ordinary income realized by the optionee exercising
such Option if the Company deducts and withholds appropriate federal
withholding tax.
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(v) With respect to the exercise of a Nonqualified Stock Option and
the payment of the option price by the delivery of Common Shares, to the
extent that the number of Common Shares received does not exceed the number
of Common Shares surrendered, no taxable income will be realized by the
optionee at that time, the tax basis of the Common Shares received will be
the same as the tax basis of the Common Shares surrendered, and the holding
period of the optionee in the Common Shares received will include his
holding period in the Common Shares surrendered. To the extent that the
number of Common Shares received exceeds the number of Common Shares
surrendered, ordinary income will be realized by the optionee at that time
in the amount of the fair market value of such excess Common Shares; the
tax basis of such excess Common Shares will be equal to the fair market
value of such Common Shares at the time of exercise; and the holding period
of the optionee in such Common Shares will begin on the date such Common
Shares are transferred to the optionee.
The Company is no longer entitled to deduct annual remuneration in excess of $1
million (the "Deduction Limitation") paid to certain of its employees unless
such remuneration satisfies an exception to the Deduction Limitation, including
an exception for performance-based compensation. Thus, unless options granted
under the Award Plan satisfy an exception to the Deduction Limitation, the
Company's deduction with respect to Nonqualified Stock Options and Incentive
Stock Options with respect to which the holding periods set forth above are not
satisfied will be subject to the Deduction Limitation.
Under Treasury Regulations, compensation attributable to a stock option is
deemed to satisfy the performance-based compensation exception if:
the grant is made by the compensation committee; the plan
under which the option is granted states the maximum number of
shares which respect to which options may be granted during a
specified period to any employee; and, under the terms of the
option, the amount of compensation the employee could receive
is based solely on an increase in the value of the stock after
the date of grant.
With respect to SARs, no income will be realized by an optionee in
connection with the grant of an SAR. When the SAR is exercised, the optionee
will generally be required to recognize as ordinary income in the year of
exercise an amount equal to the sum of the cash and the fair market value of any
shares received. The optionee's employer will be entitled to a deduction at the
time in an amount equal to the amount included in such optionee's ordinary
income by reason of the exercise, provided applicable withholding and reporting
requirements are satisfied. If the optionee receives shares upon the exercise of
an SAR, the post-exercise appreciation (or depreciation) will be treated as a
capital gain (or loss) in the same manner as discussed above with respect to
Nonqualified Stock Options.
A recipient of a Restricted Stock Award generally will recognize ordinary
income in an amount equal to the excess of the fair market value of the
Restricted Stock at the time such shares are transferable or not subject to a
substantial risk of forfeiture over the consideration, if any, paid for the
stock. However, within thirty days of the date of grant, a recipient may elect
under Section 83(b) of the Code to recognize taxable ordinary income on the date
of grant equal to the excess of the fair market value of the shares of
Restricted Stock on such date (determined without regard to any restrictions
other than restrictions which will never lapse) over the consideration paid for
such Restricted Stock. With respect to the sale of shares after they have become
transferable or no longer subject to a substantial risk of forfeiture, unless
the recipient makes an election under Section 83(b), the holding period to
determine whether the recipient has long-term, mid-term or short-term capital
gain or loss generally begins when the shares are transferable or no longer
subject to a substantial risk of forfeiture, and the tax basis for such shares
generally will be equal to the fair market value of the shares on such
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date (determined without regard to the restrictions). If the recipient makes an
election under Section 83(b) of the Code, the holding period will begin on the
date the shares are received and the tax basis will be equal to the fair market
value of the shares on such date. The recipient's employer generally will be
entitled to a deduction equal to the amount that is taxable as ordinary income
to the recipient, provided applicable withholding and reporting requirements are
satisfied.
If Proposal Two is approved by the shareholders and a compensation
committee comprised solely of two or more "outside directors" within the meaning
of Section 162(m) of the Code makes the grants, the Company's deduction with
respect to options granted under the Award Plan would not be subject to the
Deduction Limitation.
The federal income tax information presented herein is only a general
summary of the applicable provisions of the Code and regulations promulgated
thereunder as in effect on the date of this Proxy Statement. The actual federal,
state, local, and foreign tax consequences to the optionee may vary depending
upon his particular circumstances.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the outstanding Common Stock is
required for approval of this proposal.
The Board recommends that the stockholders vote FOR this proposal to amend
the 1995 Stock Option Plan.
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CERTAIN TRANSACTIONS
STOCK OWNED BY DM ASSOCIATES
DM Associates Limited Partnership ("DM Associates") is the owner of record
of 638,743 shares of Class B Common Stock of the Company, representing
approximately 41.8% of the issued and outstanding shares of Class B Common
Stock, and 34.7% of the total voting power of both classes of the Common Stock.
The general partner of DM Associates is New DM Management I, which is a general
partnership. The general partners of New 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 was secured by DM Associates' collateral pledge of
1,220,000 shares of the Class B Common Stock owned by DM Associates. In
September 1994, FCN Properties Corporation, a corporation owned and controlled
by Charles Nirenberg, a former shareholder, 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 Loan became due
and payable in full on July 31, 1997. DM Associates failed to pay the Limited
Partnership Loan and in accordance with the loan agreement, the Company took
possession and title to the 1,220,000 shares of Class B Common Stock, without
waiving any deficiency. At the same time, the Company made demand upon DM
Associates for all assets other than the non-recourse assets (defined below).
Upon the Company taking title to and possession of the 1,220,000 shares of Class
B Common Stock, such shares became treasury shares. DM Associates continues to
hold 638,743 shares of Class B Common Stock, which, together with any proceeds
therefrom, are defined under the agreements governing the Limited Partnership
Loans as non-recourse assets and not available to the Company to satisfy DM
Associates' obligation under the Limited Partnership Loan.
On December 12, 1997, the partners in DM Associates entered into a third
amendment to the partnership agreement (the "Amendment"). The Amendment was
executed by New DM Management I, HNB Investment Corp., the Class A limited
partner of DM Associates (the "Class A Limited Partner"), and the Company, as
the Class B limited partner of DM Associates.
The Amendment extends the term of DM Associates to December 12, 2002,
subject to earlier dissolution pursuant to the terms of the partnership
agreement of DM Associates, as amended through the date of the Amendment. The
Amendment also provides the Class A Limited Partner with the right during
specified periods to cause the securities held by DM Associates to be valued by
an independent investment banking firm and, in the discretion of the Class A
Limited Partner, sold at such appraised value or at such other amount as the
Class A Limited Partner may determine, with the Company (or its designee) and
New DM Management I (or its designee) and Mr. Stein and Mr. Landry (or their
designees) having a first right to purchase the shares at their appraised value
or such lower amount that may be offered by a third-party unaffiliated buyer.
The Amendment also provides that for a one-year period following any dissolution
of DM Associates and the resulting distribution of the securities held by DM
Associates to the Class A Limited Partner (or its designee), New DM Management I
will have a right of first refusal with respect to any sale of such shares by
the Class A Limited Partner (or its designee). The Company also amended its
Preferred Stock Purchase Plan (the "Plan") to provide that none of the Class A
Limited Partner, any purchaser of the shares held by DM Associates in accordance
with the terms of the Amendment, or any transferee of the Class A Limited
Partner or any such purchaser will be deemed to be an
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"Acquiring Person" as defined in the Plan. The Company also agreed in the
Amendment not to further amend the Plan or adopt any successor plan or amendment
to its certificate of incorporation or by-laws that would (i) impair or restrict
the ability of DM Associates to sell its securities pursuant to the Amendment,
(ii) dilute or adversely affect the voting rights of the securities held by DM
Associates or (iii) otherwise frustrate the terms of the Amendment.
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. 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 a plurality of the Common Stock of the applicable class
present in person or by proxy is necessary. 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 1999 Annual Meeting of the Shareholders of the
Company, such shareholder must submit such proposal in writing to: Dairy Mart
Convenience Stores, Inc., One Dairy Mart Way, 300 Executive Parkway West,
Hudson, Ohio 44236, Attention: Gregory G. Landry, Executive Vice President and
Chief Financial Officer, within a reasonable time prior to next year's Annual
Meeting, which is currently planned for June 1999.
GENERAL
The Company's Annual Report to Shareholders contains financial statements
for the fiscal year ended January 31, 1998, as well as other information
concerning the operations of the Company.
The Company is not aware 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 will be voted thereon in accordance with the best judgment of the person
or persons voting such proxies.
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DAIRY MART CONVENIENCE STORES, INC.
AMENDED AND RESTATED
1995 STOCK OPTION AND INCENTIVE AWARD PLAN
Dairy Mart Convenience Stores, Inc., a Delaware corporation (the "Company")
sets forth herein the terms of this Amended and Restated 1995 Stock Option and
Incentive Award Plan (the "Plan") as follows:
1. PURPOSE
The Plan is intended to advance the interests of the Company by providing
eligible individuals (as designated pursuant to Section 4 below) with an
opportunity to acquire or increase a proprietary interest in the Company, which
thereby will create a stronger incentive to expend maximum effort for the growth
and success of the Company and its subsidiaries, and will encourage such
eligible individuals to remain in the employ or service of the Company or its
subsidiaries. Each stock option granted under the Plan (an "Option") is intended
to be an "incentive stock option" ("Incentive Stock Option") within the meaning
of Section 422 of the Internal Revenue Code of 1986, or the corresponding
provision of any subsequently enacted tax statute, as amended from time to time
(the "Code"), except (i) to the extent that any such Option would exceed the
limitations set forth in Section 7 below: and (ii) for Options specifically
designated at the time of grant as not being Incentive Stock Options
("Non-Qualified Options"). Options granted to eligible individuals may be
accompanied by stock appreciation rights ("SARs"), as defined in Section 11,
below.
2. ADMINISTRATION
(a) Committee. The Plan shall be administered by a committee (the
"Committee") of the Board of Directors of the Company (the "Board"), consisting
of not less than two members of the Board, none of whom shall be an officer or
other salaried employee of the Company or any of its subsidiaries, and each of
whom shall quality in all respects as a "non-employee director" as defined in
Rule 16b-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") with respect to this Plan
and an "outside director" under the Code. The Committee shall have the full
power and authority to take all actions, and to make all determinations required
or provided for under the Plan or under any Option, SAR or incentive stock award
(collectively, "Award") granted or Option Agreement (as defined in Section 8
below) entered into hereunder and all such other actions and determinations not
inconsistent with the specific terms and provisions of the Plan deemed by the
Committee to be necessary or appropriate to the administration of the Plan or
any Award granted or Option Agreement entered into hereunder. The interpretation
and construction by the Committee of any provision of the plan or of any Award
granted or Option Agreement entered into hereunder shall be final and
conclusive. The Board may remove members, add members, and fill vacancies on the
Committee from time to time, all in accordance with the Company's Certificate of
Incorporation and By-Laws, and with applicable law. The functions of the
Committee specified in the Plan shall be exercised by the Board if and to the
extent that no Committee exists which has the authority to so administer the
Plan.
(b) No Liability. No member of the Board or of the Committee shall be
liable for any action or determination made in good faith with respect to the
plan or any Award granted or Option Agreement entered into hereunder.
(c) Action by the Board. The Board may act under the Plan with respect to
any Award granted to or Option Agreement entered into with an officer, director
or shareholder of the Company who is subject to Section 16 of the Exchange Act
other than by, or in accordance with the recommendations of, the Committee,
constituted as set
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forth in Section 2(b) above, only if all of the members of the Board are
"disinterested persons" as defined in Rule 16b-3 of the Securities and "outside
directors" as defined by the Code.
3. STOCK SUBJECT TO PLAN
The stock that may be issued pursuant to Awards granted under the Plan
shall be shares of Class A Common Stock or Class B Common Stock, par value $0.01
per share, of the Company (the "Stock"), which shares may be treasury shares or
authorized by unissued shares. The number of shares of Stock that may be issued
pursuant to Awards granted under the Plan shall not exceed in the aggregate
1,150,000 shares. The foregoing numbers of shares are subject to adjustment as
provided in Section 19 below. If any Award expires, terminates or is terminated
or canceled for any reason prior to exercise (in the case of Options or SARs) in
full, or if shares of Stock are not ultimately issued pursuant to an award for
any reason, the shares of Stock that were subject to the unexercised portion of
such Option or SAR, or the unissued shares that were subject to the award, shall
be available for future Awards granted under the Plan and such number of shares
shall be restored to the number of shares available for issuance under Awards
granted, except that such shares shall not be so available whenever an Option
has been surrendered as a result of the exercise of the related SAR.
4. ELIGIBILITY
(a) Employees. Awards may be granted under the Plan to any employee of the
Company or an "subsidiary" (as such term is defined in Section 424(f) of the
Code, "Subsidiary"), including any such employee who is an officer or director
of the Company or any subsidiary, as the Committee shall determine and designate
from time to time prior to expiration or termination of the Plan.
(b) Multiple Grants. An individual may hold more than one Option or SAR,
subject to such restrictions as are provided herein.
(c) Maximum Grant. An individual may not receive a grant of more than
200,000 options, restricted shares, or SARs, or any combination thereof, during
any calendar year.
5. EFFECTIVE DATE AND TERM OF THE PLAN
(a) Effective Date. The Plan shall be effective as of the date of adoptions
by the Board (the "Effective Date"), subject to approval of the Plan within one
year of the Effective Date by the holders of a majority of the voting power of
the Class A and Class B Common Stock of the Company, present in person or by
proxy and entitled to vote at a duly held meeting of the shareholders of the
Company at which a quorum is present; provided, however, that upon approval of
the Plan by the shareholders of the Company as set forth above, all Awards
granted under the Plan on or after the Effective Date shall be fully effective
as if the shareholders of the Company had approved the Plan on the Effective
Date. If the shareholders fail to approve the Plan within one year of the
Effective Date, any Awards granted hereunder shall be null and void and of no
effect.
(b) Term. The Plan shall terminate on the date that is ten years from the
Effective Date.
6. GRANT OF OPTIONS
Subject to the terms and conditions of the Plan, the Company may, at any
time and from time to time, prior to the date of termination of the Plan, grant
to such eligible individuals as the Committee may determine ("Optionees"),
Options to purchase such number of shares of the Stock on such terms and
conditions as the
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Committee may determine, including any terms or conditions which may be
necessary to qualify such Options as "incentive stock options" under Section 422
of the Code. The date on which the Committee approves the grant of an Option (or
such later date as is specified by the Committee) shall be considered the date
on which such Option is granted.
7. LIMITATION ON INCENTIVE STOCK OPTIONS
An Option (other than a Non-Qualified Option) shall constitute an Incentive
Stock Option to the extent that the aggregate fair market value (determined at
the time the option is granted) of the stock with respect to which Incentive
Stock Options are exercisable for the first time by any Optionee during any
calendar year (under the Plan and all other plans of the Optionee's employer
corporation and its parent and subsidiary corporations within the meaning of
Section 422(d) of the Code) does not exceed $100,000. This limitation shall be
applied by taking Options into account in the order in which they were granted.
8. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by written
agreements ("Option Agreements"), to be executed by the Company and by the
Optionee, in such form or forms as the Committee shall from time to time
determine. Option Agreements covering Options granted from time to time or at
the same time need not contain similar provisions; provided, however, that all
such Option Agreements shall comply with all terms of the Plan.
9. OPTION PRICE
The purchase price of each share of the Stock subject to an Option (the
"Option Price") shall be fixed by the Committee and stated in each Option
Agreement. The Option Price for Incentive Stock Options be not less than the
greater of par value or 100 percent of the fair market value of a share of the
applicable class of Stock on the date the Option is granted (as determined in
good faith by the Committee); provided, however, that if the Optionee would
otherwise be ineligible to receive an Incentive Stock Option by reason of the
provisions of Sections 422(b)(6) and 424(d) of the Code (relating to stock
ownership of more than ten percent), the Option Price of an Option that is
intended to be an Incentive Stock Option for any such Optionee shall be not less
than the greater of par value or 110 percent of the fair market value of a share
of the applicable class of Stock on the date such Option is granted. The Option
Price for Non-Qualified Options may be set by the Committee at not less than 85
percent of the fair market value of the applicable class of Stock on the Date of
grant. If the applicable class of Stock is listed on an established national or
regional stock exchange, is admitted to quotation on the National Association of
Securities Dealers Automated Quotation System, or is publicly traded on an
established securities market, in determining the fair market value of the
applicable class of Stock, the Committee shall use the closing price of the
applicable class of Stock on such exchange or system or in such market (the
highest such closing price if there is more than one such exchange or market) on
the trading day immediately before the Option is granted (or, if there is not
such closing price, then the Committee shall use the mean between the high and
low prices on such date), or, if no sale of the applicable class of Stock had
been made on such day, on the next preceding day on which any such sale shall
have been made.
10. TERM AND EXERCISE OF OPTIONS
(a) Term. Each Option granted under the Plan shall terminate and all rights
to purchase shares thereunder shall cease upon the expiration of ten years from
the date such Option is granted; provided, however, that if the Optionee would
otherwise be ineligible to receive an Incentive Stock Option by reason of the
provisions of
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Sections 422(b)(6) and 424(d) of the Code (relating to stock ownership of more
than ten percent), an Option granted to such Optionee that is intended to be an
Incentive Stock Option shall in no event be exercisable after the expiration of
five years from the date it is granted.
(b) Option Period and Limitations on Exercise. Each Option granted to
persons shall be exercisable, in whole or in part, at any time and from time to
time, over a period commencing on or after the date of grant and ending upon the
expiration or termination of the Option, as the Committee shall determine and
set forth in the Option Agreement relating to such Option. Without limiting the
foregoing, the Committee, subject to the terms and conditions of the Plan, may
in its sole discretion provide that an Option may not be exercised in whole or
in part for any period or periods of time during which such Option is
outstanding; provided, however, that any such limitation on the exercise of an
Option contained in any Option Agreement may be rescinded, modified or waived by
the Committee, in its sole discretion, at any time and from time to time after
the date of grant of such Option, so as to accelerate the time at which the
Option may be exercised. Notwithstanding any other provision of the Plan, no
Option granted to an Optionee under the Plan shall be exercisable in whole or in
part prior to the date the Plan is approved by the shareholders of the Company
as provided in Section 5 above.
(c) Method of Exercise. An Option that is exercisable hereunder may be
exercised by delivery to the Company on any business day, at its principal
office, addressed to the attention of the Committee, of written notice of
exercise, which notice shall specify the number of shares and class with respect
to which the Option is being exercised. The minimum number of shares of Stock
with respect to which an Option may be exercised, in whole or in part, at any
time shall be the lesser of 100 shares or the maximum number of shares available
for purchase under the Option at the time of exercise. Except as provided in the
next following sentence, payment in full of the Option Price of the shares for
which the Option is being exercised shall accompany the written notice of
exercise of the Option and shall be made either (i) in cash; (ii) through the
tender to the Company of shares of the Company's Class A or Class B Common
Stock, which shares shall be valued, for purposes of determining the extent to
which the Option Price has been paid thereby, at their fair market value
(determined in the manner described in Section 9 above) on the date of exercise;
(iii) the delivery to the Company of a written statement of an election to make
a cashless exercise, in which case the number of shares to be transferred to the
holder pursuant to the exercise of the Option shall be reduced by a number of
shares having a fair market value (determined in the manner described in Section
9 above) equal to the exercise price of the Option or portion thereof being
exercised; or (iv) by a combination of the methods described in (i) and (ii);
provided, however, that the Committee may in its discretion impose and set forth
in the Option Agreement pertaining to an Option such limitations or prohibitions
on the use of shares of Stock to exercise Options as it deems appropriate.
Unless the Committee shall provide otherwise in an Option Agreement, payment in
full of the Option Price need not accompany the written notice of exercise,
provided the notice of exercise directs that the Stock certificate or
certificates for the shares for which the Option is exercised be delivered to a
licensed broker acceptable to the Company as the agent for the individual
exercising the Option and, at the time such Stock certificate or certificates
are delivered, the broker tenders to the Company cash (or cash equivalents
acceptable to the Company) equal to the Option Price for the shares of Stock
purchased pursuant to the exercise of the Option plus the amount (if any) of
federal and other taxes which the Company may, in its judgment, be required to
withhold with respect to the exercise of the Option. An attempt to exercise any
Option granted hereunder other than as set forth above shall be invalid and of
no effect. Promptly after the exercise of an Option and Payment in full of the
Option Price for the shares covered, the individual shall be entitled to the
issuance of a Stock certificate or certificates evidencing his ownership of such
shares. A separate Stock certificate or certificates shall be issued for any
shares purchased pursuant to the exercise of an Option which is an Incentive
Stock Option, which certificate or certificates shall not include any shares
which were purchase pursuant to the exercise of an Option which is not an
Incentive Stock Option. An individual holding or exercising an Option shall have
none of the rights of a
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shareholder until the shares of Stock covered thereby are fully paid and issued
to him and, except as provided in Section 19 below, no adjustment shall be made
for dividends or other rights for which the record date is prior to the date of
such issuance.
(d) Notice of Restrictions on Transfer of Stock. The Option Agreement to be
delivered in connection with an Option grant hereunder will contain language (i)
in the event the Option is an Incentive Stock Option, regarding the applicable
holding periods for the stock subject to the Option in order to qualify as an
Incentive Stock Option under the Code and (ii) that if an Option is exercised
prior to the date that is six months from the later of (A) the date of grant of
the Option or (B) the date of shareholder approval of the Plan, and the
individual exercising the Option is a reporting person under Section 16(a) of
the Exchange Act, then in order to qualify for exemptive treatment under Section
16(a), the holder may not transfer the stock received pursuant to the exercise
of such Option until the expiration of six months from the later of the date
specified in clause (A) above or the date specified in clause (B) above.
11. STOCK APPRECIATION RIGHTS (SARS)
(a) In General. Subject to the terms and conditions of the Plan, the
Committee may, in its sole and absolute discretion, grant to an Optionee rights
(SARs) to surrender to the Company, in whole or in part, either in tandem with
an Option or alone and unrelated to an Option, and to receive in exchange
therefor payment by the Company of an amount equal to the excess of the fair
market value of the shares of the applicable class of Stock (i) subject to such
Option if in tandem with an Option or (ii) set forth in the agreement evidencing
the SAR, or portion thereof, so surrendered (determined in the manner described
in Section 9 above as of the date the SARs are exercised) over the Option Price
of such shares or the exercise price set forth in the SAR Agreement. Such
payment may be made, as determined by the Committee in accordance with Sections
11(d) and 11(e) below and set forth in the Option Agreement, either in shares of
Stock or in cash or in any combination thereof, if the SAR is in tandem with an
Option, or in cash if the SAR is not in tandem with an Option. All SARs granted
in tandem with an Option shall be evidenced by provisions in the Option
Agreement pertaining to the related Option, which provisions shall comply with
and be subject to the terms and conditions set forth in this Section 11. SARs
not in tandem with Options will be evidenced by an SAR Agreement which shall
comply with and be subject to the terms and conditions set forth in this Section
11.
(b) Grant. Each SAR granted in tandem with an Option shall relate to a
specific Option granted under the Plan and shall be awarded to the Optionee
concurrently with the grant of such Option pursuant to Section 6 above. SARs not
in tandem with an Option shall be separately granted and evidenced by an SAR
Agreement. The number of SARs granted to an Optionee shall be equal to the
number of shares of Stock which such Optionee is entitled to purchase pursuant
to the related Option or as set forth in the SAR Agreement. The number of SARs
held by an Optionee shall be reduced by (i) the number of SARs exercised for
Stock or cash under the provisions of the Option Agreement pertaining to the
related Option or the SAR Agreement, and (ii) the number of shares of Stock
purchased pursuant to the exercise of the related Option, if applicable.
(c) Exercise. SARs that are exercisable hereunder and under the Option
Agreement may be exercised by delivering to the Company on any business day, at
its principal office, addressed to the attention of the Committee, written
notice of exercise, which notice shall specify the number of SARs being
exercised. The date upon which such written notice is received by the Company
shall be the exercise date of the SARs. Except to the extent that SARs are
exercised for cash as provided in Section 11(e) below, the individual exercising
SARs shall receive, without payment therefor to the Company, the number of
shares of Stock determined under Section 11(d) below. Promptly after the
exercise of SARs, the individual exercising the SARs shall be entitled to the
issuance of
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a Stock certificate or certificates evidencing ownership of such shares. An
individual holding or exercising SARs shall have none of the rights of a
shareholder with respect to any shares of Stock covered by the SARs until shares
of Stock are issued to him or her, and, except as provided in Section 19 below,
no adjustment shall be made for dividends or other rights for which the record
date is prior to the date of such issuance.
(d) Number of Shares. The number of shares of Stock which shall be issued
pursuant to the exercise of SARs shall be determined by dividing (i) the total
number of SARs being exercised, multiplied by the amount by which the fair
market value (determined in the manner described in Section 9 above) of a share
of the applicable class of Stock on the exercise date exceeds the Option Price
of the related Option, by (ii) the fair market value (determined in the manner
described in Section 9 above) of a share of the applicable class of Stock on the
exercise date of the SARs; provided, however, that no fractional share shall be
issued on exercise of SARs, and that cash shall be paid by the Company to the
individual exercising SARs in lieu of any such fractional share.
(e) Exercise of SARs for Cash. All SARs granted no in tandem with Options
shall be settled in cash. The Committee shall have sole discretion to determine
whether, and shall set forth in the Option Agreement pertaining to the related
Option the circumstances under which, payment in respect of SARs in tandem with
Options granted to any Optionee shall be made in shares of Stock, or in cash, or
in a combination thereof. Promptly after the exercise of an SAR for cash, the
individual exercising the SAR shall receive in respect of said SAR an amount of
money equal to the difference between the fair market value (determined in the
manner described in Section 9 above) of a share of the applicable class of Stock
on the exercise date and the Option Price of the related Option.
(f) Limitations. SARs shall be exercisable at such times and under such
terms and conditions as of the Committee, in its sole and absolute discretion,
shall determine and set forth in the Option Agreements pertaining to the related
Options or the SAR Agreement; provided, however, that an SAR granted in tandem
with an Option may be exercised only at such times and by such individuals as
the related Option under the Plan and the Option Agreement may be exercised; and
provided, further, that an SAR may be exercised only at such times as the fair
market value (determined in the manner described in Section 9 above) of a share
of the applicable class of Stock on the exercise date exceeds the Option Price
of the related Option. Adjustments in the number, kind or Option Price of shares
of Stock for which Options are granted pursuant to Section 19 below shall also
be made as necessary to the related SARs held by each Optionee. Any amendment,
suspension or termination of the Plan pursuant to Section 18 below shall be
deemed an amendment, suspension or termination of SARs to the same extent.
12. TRANSFERABILITY OF OPTIONS OR SARS
During the lifetime of an Optionee to whom an Option is granted, only such
Optionee (or in the event of legal incapacity or incompetency, the Optionee's
guardian or legal representative) may exercise the Option or SAR. No Option or
SAR shall be assignable or transferable by the Optionee to whom it is granted,
other than by will or the laws of descent and distribution.
13. TERMINATION OF EMPLOYMENT
Employees. Upon the termination of the employment of an Optionee with the
Company or a Subsidiary, other than by reason of the death or "permanent and
total disability (within the meaning of Section 22(e)(3) of the Code) of such
Optionee, any Option or SAR granted to an optionee pursuant to the Plan shall
terminate three months after the date of such termination of employment, unless
earlier terminated pursuant to Section 10(a)
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above, and such Optionee shall have no further right to purchase shares of Stock
pursuant to such Option; provided, however, that the Committee may provide, by
inclusion of appropriate language in any Option Agreement,that the Optionee may
(subject to the general limitations on exercise set forth in Section 10(b) and
Section 11(f) above), in the event of termination of service or employment of
the Optionee with the Company or a Subsidiary, exercise an Option or SAR, in
whole or in part, at any time subsequent to such termination of service or
employment and prior to termination of the Option pursuant to Section 10(a)
above, either subject to or without regard to any installment limitation on
exercise imposed pursuant to Section 10(b) above. Whether a leave of absence or
leave on military or government service shall constitute a termination of
service or employment for purposes of the Plan shall be determined by the
Committee, which determination shall be final and conclusive. For purposes of
the Plan, a termination of employment with the Company or a Subsidiary shall not
be deemed to occur if the Optionee is immediately thereafter employed with or in
the service of the Company or any Subsidiary.
14. RIGHTS IN THE EVENT OF DEATH OR DISABILITY
(a) Death of an Employee. If an Optionee dies while in the employ or
service of the Company or a Subsidiary or within the period following the
termination of employment or service during which the Option or SAR is
exercisable under Section 13 above or Section 14(b) below, the executors or
administrators or legatees or distributees of such Optionee's estate shall have
the right (subject to the general limitations on exercise set forth in Section
10(b) and Section 11(f) above), at any time within one year after the date of
such Optionee's death and prior to termination of the Option pursuant to Section
10(a) above, to exercise any Option or SAR held by such Optionee at the date of
such Optionee's death, whether or not such Option or SAR was exercisable
immediately prior to such Optionee's death; provided, however, that the
Committee may provide by inclusion of appropriate language in any Option
Agreement, that, in the event of the death of the Optionee, the executors or
administrators or legatees or distributees of such Optionee's estate may
exercise an Option or SAR (subject to the general limitations on exercise set
forth in Section 10(b) and Section 11(f) above), in whole or in part, at any
time subsequent to such Optionee's death and prior to termination of the Option
pursuant to Section 10(a) above, either subject to or without regard to any
installment limitation or exercise imposed pursuant to Section 10(b) above.
(b) Disability of an Employee. If an Optionee's employment or service with
the Company or a Subsidiary is terminated by reason of the "permanent and total
disability" (within the meaning of Section 22(e)(3) of the Code) of such
Optionee, then such Optionee shall have the right (subject to the general
limitations on exercise set forth in Section 10(b) or Section 11(f) above), at
any time within one year after such termination of service or employment and
prior to termination of the Option pursuant to Section 10(a) above, to exercise
in whole or in part, any Option or SAR held by such Optionee at the date of such
termination of service or employment, whether or not such Option or SAR was
exercisable immediately prior to such termination of service or employment;
provided, however, that the Committee may provide, by inclusion of appropriate
language in any Option Agreement, that the Optionee may (subject to the general
limitations on exercise set forth in Section 10(b) and Section 11(f) above), in
the event of the termination of service or employment of the Optionee with the
Company or a Subsidiary by reason of the "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code) of such Optionee, exercise
an Option or SAR, in whole or in part, at any time subsequent to such
termination of service or employment and prior to termination of the Option
pursuant to Section 10(a) above, either subject to or without regard to any
installment limitation or exercise imposed pursuant to Section 10(b) above.
Whether a termination of service or employment is to be considered by reason of
"permanent and total disability" for purposes of this Plan shall be determined
by the Committee, which determination shall be final and conclusive.
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15. INCENTIVE STOCK AWARDS
(a) Grant of Incentive Stock Awards. Subject to the provisions of this
Section 15, the Committee may form time to time determine those individuals
eligible pursuant to Section 4 above to whom incentive stock awards ("Incentive
Stock Awards") shall be granted and the amount and terms and conditions of such
Incentive Stock Awards.
(b) Terms and Conditions of Incentive Stock Awards. Each grant of an
Incentive Stock Award shall be evidenced by a written agreement (an "Incentive
Stock Award Agreement") which shall be in such form as the Committee shall from
time to time approve, and which shall comply with and be subject to the
following terms and conditions:
(1) Amount of Award. Each Incentive Stock Award Agreement shall state
the number and class of shares of Common Stock covered by the agreement
which become payable if the vesting provisions and/or performance criteria
specified in the Incentive Stock Award Agreement are achieved (in the event
the Committee decides to establish performance criteria).
(2) Performance Criteria. Each time the Committee approves the
granting of Incentive Stock Awards, it may, but is not obligated to,
establish corporate performance goals to be attained by the Company or
individual recipients, or both, and the date or dates ("earn-out dates") by
which such goals must be achieved for the participant to be entitled to
payment of an Incentive Stock Award. Such goals may be subject to
subsequent modification by the Committee, as appropriate, based on changes
in business conditions. To the extent that a performance goal is either not
achieved or is exceeded by the applicable earn-out date or dates specified
in the Agreement, the amounts of the Incentive Stock Award to be earned
shall be determined by the Committee.
(3) Disability or Death. No Incentive Stock Award shall be paid for
any period after the termination of the individual's employment; provided,
however that if an individual's employment is terminated by Disability or
death, then the Committee shall determine the extent to which any shares
covered by an Incentive Stock Award Agreement, which are not yet payable,
shall become payable.
(4) Form of Payment. The Committee shall have the sole discretion to
determine the form in which payment of the Incentive Stock Award shall be
made (i.e., in cash, in shares, or in any combination thereof). Instead of
distributing the number of shares covered by the Incentive Stock Award
Agreement as of the applicable earn-out date, the Committee may distribute
the cash equivalent determined on the basis of the Fair Market Value of a
share at such earn-out date for all or a portion of such shares.
16. USE OF PROCEEDS
The proceeds received by the Company from the sale of Stock pursuant to
Options granted under the Plan shall constitute general funds of the Company.
17. REQUIREMENTS OF LAW
The Company shall not be required to sell or issue any shares of Stock
under any Award if the sale or issuance of such shares would constitute a
violation by the individual or the Company of any provisions of any law or
regulation of any governmental authority, including without limitation any
federal or state securities laws or regulations. Specifically in connection with
the Securities Act of 1933 (as now in effect or as hereafter
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amended), upon exercise of any Option or SAR, unless a registration statement
under such Act is in effect with respect to the shares of Stock covered by such
Option or SAR, the Company shall not be required to sell or issue such shares
unless the Committee has receive evidence satisfactory to it that the holder of
such Option or SAR may acquire such shares pursuant to an exemption from
registration under such Act. Any determination in this connection by the
Committee shall be final, binding and conclusive. The Company may, but shall in
no event be obligated to, register any securities covered hereby pursuant to the
Securities Act of 1933 (as now in effect or as hereafter amended). The Company
shall not be obligated to take any affirmative action in order to cause the
exercise of an Option or SAR or the issuance of shares pursuant thereto to
comply with any law or regulation of any governmental authority. As to any
jurisdiction that expressly imposes the requirement that an Option or SAR shall
not be exercisable unless and until the shares of Stock covered by such Option
or SAR are registered or are subject to an available exemption from
registration, the exercise of such Option or SAR (under circumstances in which
the laws of such jurisdiction apply) shall be deemed conditioned upon the
effectiveness of such registration or the availability of such an exemption.
18. AMENDMENT AND TERMINATION OF THE PLAN
The Committee may, at any time and from time to time, amend, suspend or
terminate the Plan as to any shares of Stock as to which Options or SARs have
not been granted. However, any amendment by the Committee shall require the
approval by the holders of a majority of the voting power of the Company's Class
A and Class B Common Stock, present in person or by proxy and entitled to vote
at a duly held meeting of the shareholders of the Company at which a quorum is
present and voting on the amendment, or by written consent in accordance with
applicable state law and the Certificate of Incorporation and By-Laws of the
Company, to the extent that such shareholder approval is required by Rule 16b-3
of the Securities and Exchange Commission, or is required under Section 162(m)
of the Code, or is otherwise required by the Code in order to preserve the
status of Options as Incentive Stock Options. Except as permitted under Section
19 hereof, no amendment, suspension or termination of the Plan shall, without
the consent of the holder of the Option or SAR, alter or impair rights or
obligations under any Option or SAR theretofore granted under the Plan.
19. EFFECT OF CHANGES IN CAPITALIZATION
(a) Changes in Stock. If the outstanding shares of the class for which an
Option or SAR has been granted are increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of any recapitalization, reclassification, stock split,
reverse split, combination of shares, exchange of shares, stock dividend or
other distribution payable in capital stock, or other increase or decrease in
such shares effected without receipt of consideration by the Company, occurring
after the effective date of the Plan, the number and kinds of shares for the
purchase of which Awards may be granted under the Plan shall be adjusted
proportionately and accordingly by the Company. In addition, the number and kind
of shares for which Awards are outstanding shall be adjusted proportionately and
accordingly so that the proportionate interest of the holder of the Award
immediately following such event shall, to the extent practicable, be the same
as immediately prior to such event. Any such adjustment in outstanding Options
or SARs shall not change the aggregate Option Price payable with respect to
shares subject to the unexercised portion of the Option or SAR outstanding but
shall include a corresponding proportionate adjustment in the Option Price per
share.
(b) Reorganization in Which the Company is the Surviving
Corporation. Subject to Subsection (c) hereof, if the Company shall be the
surviving corporation in any reorganization, merger or consolidation of the
Company with one or more other corporations, any Award theretofore granted
pursuant to the Plan shall pertain to and apply to the securities to which a
holder of the number of shares of the applicable class of Stock subject to such
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Award would have been entitled immediately following such reorganization, merger
or consolidation, with a corresponding proportionate adjustment of the Option
Price per share so that the aggregate Option Price thereafter shall be the same
as the aggregate Option Price of the shares remaining subject to the Option or
SAR immediately prior to such reorganization, merger or consolidation.
(c) Reorganization in Which the Company is Not the Surviving Corporation or
Sale of Assets or Stock. Upon the dissolution or liquidation of the Company, or
upon a merger, consolidation, reorganization or other business combination of
the Company with one or more other entities in which the Company is not the
surviving entity, or upon a sale of all or substantially all of the assets of
the Company to another entity, or upon any transaction (including, without
limitation, a merger or reorganization in which the Company is the surviving
corporation) approved by the Committee which results in any person or entity (or
person or entities acting as a group or otherwise in concert) owning 80 percent
or more of the combined voting power of all classes of stock of the Company, the
Plan and all Awards outstanding hereunder shall terminate, except to the extent
provision is made in writing in connection with such transaction for the
continuation of the Plan and/or the assumption of the Awards theretofore
granted, or for the substitution for such Awards of new options or stock
appreciation rights covering the stock of a successor entity, or parent or
subsidiary thereof, with appropriate adjustments as to the number and kinds of
shares and exercise prices, in which event the Plan and Awards theretofore
granted shall continue in the manner and under the terms so provided. In the
event of any such termination of the Plan, each individual holding an Award
(subject to the general limitations on exercise set forth in Section 10(b) and
Section 11(f) above and except as otherwise specifically provided in the
agreement relating to such Award), immediately prior to the occurrence of such
termination and during such period occurring prior to such termination as the
Committee in its sole discretion shall determine and designate, shall have the
right to exercise such Option or SAR in whole or in part, whether or not such
Option or SAR was otherwise exercisable at the time such termination occurs and
without regard to any installment limitation on exercise imposed pursuant to
Section 10(b) above. The Committee shall send written notice of an event that
will result in such a termination to all individuals who hold Options or SARs
not later than the time at which the Company gives notice thereof to its
shareholders.
(d) Adjustments. Adjustments under this Section 19 related to stock or
securities of the Company shall be made by the Committee, whose determination in
that respect shall be final, binding and conclusive. No fractional shares of
Stock or units of other securities shall be issued pursuant to any such
adjustment, and any fractions resulting from any such adjustment shall be
eliminated in each case by rounding downward to the nearest whole share or unit.
(e) No Limitations on Company. The grant of an Award pursuant to the Plan
shall not affect or limit in any way the right or power of the Company to make
adjustments, reclassification, reorganizations or change of its capital or
business structure or to merge, consolidate, dissolve or liquidate, or to sell
or transfer all or any part of its business or assets.
20. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Award granted or agreement entered into
pursuant to the Plan shall be construed to confer upon any individual the right
to remain in the employ or service of the Company or any Subsidiary, or to
interfere in any way with the right and authority of the Company or any
Subsidiary either to increase or decrease the compensation of any individual at
any time, or to terminate any employment or other relationship between any
individual and the Company or any Subsidiary.
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21. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the
shareholders of the Company for approval shall be construed as creating any
limitations upon the right and authority of the Committee to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or individuals) as the Committee in its discretion determines
desirable, including, without limitation, the granting of stock options or stock
appreciation rights otherwise than under the Plan.
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CLASS A PROXY
DAIRY MART CONVENIENCE STORES, INC.
ANNUAL MEETING OF SHAREHOLDERS
JUNE 25, 1998
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 Dairy Mart Convenience Stores, Inc., One Dairy Mart Way, 300 Executive
Parkway West, Hudson, Ohio on the 25th day of June, 1998 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)
<PAGE> 43
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
DAIRY MART CONVENIENCE STORES, INC.
CLASS A PROXY
JUNE 25, 1998
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
____
| | PLEASE MARK YOUR |
| X | VOTES AS IN THIS |
|____| EXAMPLE. |_____
<TABLE>
<S> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
____ ____ ____ ____ ____
1. Election of | | | | NOMINEES: 2. Amendment to the | | | | | |
Directors | | | | Thomas W. Janes Company's 1995 | | | | | |
|____| |____| Albert T. Adams Stock Option Plan. |____| |____| |____|
3. In their discretion such other matters as may properly
come before the meeting.
For, except vote withheld from the UNLESS A CONTRARY DIRECTION IS INDICATED, THE SHARES
following nominees (To withhold REPRESENTED BY THIS PROXY SHALL BE VOTED FOR THE ELECTION OF
authority for any individual nominee THE NOMINEES AS DIRECTORS, FOR THE AMENDMENT TO THE COMPANY'S
write that nominee's name in the space 1995 STOCK OPTION PLAN AND IN THE DISCRETION OF THE PROXIES
provided below.) AS TO OTHER MATTERS.
_____________________________
</TABLE>
SIGNATURE(S)________________________________________________ DATE:_____________
Note: Please sign above exactly as the shares are issued. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the president or other
authorized officer. If partnership, please sign in partnership name by an
authorized person.
<PAGE> 44
CLASS B PROXY
DAIRY MART CONVENIENCE STORES, INC.
ANNUAL MEETING OF SHAREHOLDERS
JUNE 25, 1998
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 Dairy Mart Convenience Stores, Inc., One Dairy Mart Way, 300 Executive
Parkway West, Hudson, Ohio on the 25th day of June, 1998 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)
<PAGE> 45
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
DAIRY MART CONVENIENCE STORES, INC.
CLASS B PROXY
JUNE 25, 1998
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
____
| | PLEASE MARK YOUR |
| X | VOTES AS IN THIS |
|____| EXAMPLE. |_____
<TABLE>
<S> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
____ ____ ____ ____ ____
1. Election of | | | | NOMINEES: 2. Amendment to the | | | | | |
Directors | | | | Frank W. Barrett Company's 1995 | | | | | |
|____| |____| J. Kermit Birchfield, Jr. Stock Option Plan. |____| |____| |____|
John W. Everets, Jr.
Gregory G. Landry 3. In their discretion such other matters as may properly
Robert B. Stein, Jr. come before the meeting.
For, except vote withheld from the
following nominees (To withhold UNLESS A CONTRARY DIRECTION IS INDICATED, THE SHARES
authority for any individual nominee REPRESENTED BY THIS PROXY SHALL BE VOTED FOR THE ELECTION OF
write that nominee's name in the space THE NOMINEES AS DIRECTORS, FOR THE AMENDMENT TO THE COMPANY'S
provided below.) 1995 STOCK OPTION PLAN AND IN THE DISCRETION OF THE PROXIES
AS TO OTHER MATTERS.
_________________________
</TABLE>
SIGNATURE(S)________________________________________________ DATE:_____________
Note: Please sign above exactly as the shares are issued. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the president or other
authorized officer. If partnership, please sign in partnership name by an
authorized person.
