-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QivKOuP+yoiJ1a1QDKJlimCTqZ2dEhFLwo1DnkYVWgnGDJ9AUoY4Ygp4+qMn/w4X 4OuS/YP4bCaXfhx1WYjbwQ== 0000950109-95-005362.txt : 19951226 0000950109-95-005362.hdr.sgml : 19951226 ACCESSION NUMBER: 0000950109-95-005362 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960119 FILED AS OF DATE: 19951222 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAIRY MART CONVENIENCE STORES INC CENTRAL INDEX KEY: 0000721675 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CONVENIENCE STORES [5412] IRS NUMBER: 042497894 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-12497 FILM NUMBER: 95604086 BUSINESS ADDRESS: STREET 1: ONE VISION DRIVE CITY: ENFIELD STATE: CT ZIP: 06082 BUSINESS PHONE: 2037414444 DEF 14A 1 NOTICE AND PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the Registrant [X] Filed by a Party other than the Registrant [_] Check the appropriate box: [_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY [X] Definitive Proxy Statement RULE 14C-5(D)(2)) [_] Definitive Additional Materials [_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12 DAIRY MART CONVENIENCE STORES, INC. ------------------------------------------------------------------------ (Name of Registrant as Specified In Its Charter) ------------------------------------------------------------------------ (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. [_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a- 6(i)(3). [_] 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: Notes: DAIRY MART CONVENIENCE STORES, INC. Dear Dairy Mart Stockholder: On October 10, 1995, the Company mailed to its stockholders a proxy card and proxy statement relating to its Annual Meeting of Shareholders that was to be held on October 31, 1995. In that proxy statement the Company described certain litigation and disputes between Charles Nirenberg, Mitchell Kupperman, the Company and certain members of the Board of Directors of the Company. Messrs. Nirenberg and Kupperman were directors and stockholders of the Company. On October 30, 1995, the Company entered into Settlement Agreements with Messrs. Nirenberg and Kupperman pursuant to which they agreed to settle the litigation and disputes between them. The Settlement Agreements were conditioned upon, among other things, the transactions contemplated in the Settlement Agreements being completed before the Company's Annual Meeting of Stockholders. In order for there to be time for the Company to complete these transactions before the Annual Meeting, the Company adjourned its Annual Meeting to a later date. The Company completed the transactions on December 1, 1995 and re-scheduled the Annual Meeting to 10:00 a.m. on January 19, 1996 at the Company's headquarters at One Vision Drive, Enfield, Connecticut. The record date for the Annual Meeting is December 19, 1995. The Proxy Statement enclosed with this letter describes the terms of the Settlement Agreements and includes a new proxy card (or, if you own both Class A Common Stock and Class B Common Stock, a new proxy card for each class of stock). The proxy card enclosed with the proxy statement dated October 10, 1995 will not be voted at the re- scheduled Annual Meeting, so we request that you vote for all items of business, and sign, date and return the enclosed new proxy card (or proxy cards), 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., President, Chief Executive Officer and Chairman of the Board December 26, 1995 DAIRY MART CONVENIENCE STORES, INC. NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JANUARY 19, 1996 NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of DAIRY MART CONVENIENCE STORES, INC. will be held on January 19, 1996 at 10:00 a.m. at the Company's headquarters located at One Vision Drive, Enfield, Connecticut, for the following purposes: (1) To elect a Board of Directors, as described in the Proxy Statement dated December 26, 1995 accompanying this Notice of Annual Meeting; (2) To adopt the Dairy Mart Convenience Stores, Inc. 1995 Stock Option Plan for Outside Directors, as described in the Proxy Statement dated December 26, 1995 accompanying this Notice of Annual Meeting; (3) To adopt the Dairy Mart Convenience Stores, Inc. 1995 Stock Option and Incentive Award Plan, as described in the Proxy Statement dated December 26, 1995 accompanying this Notice of Annual Meeting; (4) To ratify the appointment of Arthur Andersen LLP as independent accountants for the fiscal year ending February 3, 1996; and (5) To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. Only shareholders of record as shown by the transfer books of the Company at the close of business on the 19th day of December, 1995 are entitled to notice of, and to vote at, this Annual Meeting. By Order of the Board of Directors, DAIRY MART CONVENIENCE STORES, INC. Gregory G. Landry, Executive Vice President and Chief Financial Officer December 26, 1995 - -------------------------------------------------------------------------------- All Shareholders are invited to attend this Annual Meeting in person. Those shareholders who are unable to attend in person are respectfully urged to execute and return the enclosed Proxy at their earliest convenience. Shareholders who execute a Proxy may nevertheless attend the meeting and vote their shares in person. - -------------------------------------------------------------------------------- PROXY STATEMENT - -------------------------------------------------------------------------------- ANNUAL MEETING OF SHAREHOLDERS OF DAIRY MART CONVENIENCE STORES, INC. JANUARY 19, 1996 - -------------------------------------------------------------------------------- SOLICITATION OF PROXIES The accompanying proxy is solicited by the Board of Directors of DAIRY MART CONVENIENCE STORES, INC., One Vision Drive, Enfield, Connecticut 06082 (the "Company") for use at the Annual Meeting of Shareholders to be held on January 19, 1996 and at any and all adjournments or postponements thereof. The cost of preparing, assembling and mailing this Proxy Statement and the material enclosed herewith is being borne by the Company. Directors, officers and some regular employees of the Company may solicit proxies personally or by telephone, without additional compensation. This Proxy Statement and the accompanying proxy are being mailed on or about December 26, 1995. Shares of Class A Common Stock ("Class A Common Stock") or Class B Common Stock ("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 (i) the election of the nominees as directors named below, (ii) the adoption of the Dairy Mart Convenience Stores, Inc. 1995 Stock Option Plan for Outside Directors, (iii) the adoption of the Dairy Mart Convenience Stores, Inc. 1995 Stock Option and Incentive Award Plan, and (iv) the ratification of the appointment of Arthur Andersen LLP as independent accountants for the fiscal year ending February 3, 1996. A proxy may be revoked at any time before it is voted at the Annual Meeting by notifying the Chief Financial Officer of the Company in writing at the address set forth above, by submitting a properly executed proxy bearing a later date, or by revoking the proxy at the Annual Meeting. Attendance at the Annual Meeting will not by itself constitute the revocation of a proxy. OUTSTANDING STOCK AND VOTING RIGHTS The Board of Directors has fixed the close of business on December 19, 1995 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 December 14, 1995, 2,801,434 shares of Class A Common Stock (par value $.01 per share) were issued and outstanding and 2,783,060 shares of Class B Common Stock (par value $.01 per share) 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. PRINCIPAL SHAREHOLDERS The following table sets forth certain information concerning beneficial ownership of the Common Stock by each shareholder known by the Company to be the beneficial owner of 5% or more of either class of Common Stock as of December 14, 1995. This information is furnished in accordance with the Securities and Exchange Commission ("SEC") regulations relating to any persons known by the Company to be the beneficial owners of 5% or more of the Common Stock. In preparing the following table, the Company has relied on information filed by such persons with the SEC, and in some cases, other information provided to the Company by such persons.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS - -------------- ----------------------------------- -------------------- ---------- Class B DM Associates Limited Partnership 1,858,743 (1) 66.8% Common Stock One Vision Drive Enfield, Connecticut New DM Management Associates I 1,858,743 (1) 66.8% One Vision Drive Enfield, Connecticut Robert B. Stein, Jr. 1,858,743 (1) 66.8% One Vision Drive Enfield, Connecticut Gregory G. Landry 1,858,743 (1) 66.8% One Vision Drive Enfield, Connecticut Mitchell J. Kupperman 1,873,347 (1) 67.3% c/o First Merchant Group, Inc. 1 Hartfield Blvd, Suite 307 East Windsor, Connecticut - ----------------------------------------------------------------------------------- Class A James Wilen and Wilen Management 337,673 (2) 12.1% Common Stock Corporation 2360 West Joppa Road Suite 226 Lutherville, Maryland Heartland Advisors, Inc. 550,000 (3) 19.6% 790 North Milwaukee Street Milwaukee, Wisconsin Liberty Investment Management, Inc. 206,900 (4) 7.4% 2502 Rocky Point Drive Tampa, Florida The IDS Mutual Fund Group 374,665 (5) 11.8% IDS Tower 10 Minneapolis, Minnesota
2
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS - -------------- --------------------------- -------------------- ---------- SunAmerica Inc. 360,001 (6) 11.4% 1 SunAmerica Center Century City Los Angeles, California Triumph-Connecticut Limited 765,000 (7) 21.4% Partnership 60 State Street, 21st Floor Boston, Massachusetts
- ---------- Notes to Table (1) DM Associates Limited Partnership ("DM Associates") is the owner of record of 1,858,743 shares of Class B Common Stock, representing approximately 66.8% of the issued and outstanding shares of Class B Common Stock, and 60.7% of the total voting power of both classes of the Common Stock. The general partner of DM Associates is New DM Management Associates I ("DM Management I"), which is a general partnership. The general partners of DM Management I are Robert B. Stein, Jr., Gregory G. Landry and Mitchell J. Kupperman, each owning one-third of the partnership interests of DM Management I. As the sole general partner of DM Associates and by virtue of the provisions of the limited partnership agreement of DM Associates, DM Management I has the power to vote and dispose of the 1,858,743 shares owned by DM Associates, subject to the consent of the limited partners of DM Associates being required for any sale of more than 360,000 shares. In addition, the partnership agreement of DM Associates provides that, prior to voting the 1,858,743 shares, DM Management I shall consult with a certain limited partner as to the voting of such shares. If, after consultation with the limited partner, DM Management I votes the shares in a manner with which the limited partner disagrees, the limited partner shall have the right to dissolve DM Associates. In connection with the closing of the transactions contemplated by the Nirenberg Agreement, the partnership agreement of DM Management I was amended to provide that a majority of the partnership interests of DM Management I determines how to vote 638,743 of the shares of Class B Common Stock owned by DM Associates, and that the remaining 1,220,000 shares of Class B Common Stock owned by DM Associates will be voted for or against any stockholder motion or proposal in the same proportion that all other shares of Class B Common Stock are voted for or against such motion or proposal (including the 638,743 shares voted by DM Associates). As the managing general partner of DM Management I, Mr. Stein has sole indirect dispositive power with respect to the 1,858,743 shares owned by DM Associates, and shares voting power with respect to the 1,858,743 shares with Messrs. Landry and Kupperman, as general partners of DM Management I. Mr. Stein and Mr. Landry, as officers and directors of the Company, also share indirect voting and dispositive power with respect to 1,220,000 of the 1,858,743 shares under a stock pledge agreement executed by DM Associates in favor of the Company. See "INFORMATION REGARDING DM ASSOCIATES AND THE NIRENBERG TRANSACTION." The number of shares of Class B Common Stock set forth above for Mr. Kupperman also includes 14,604 additional shares that are beneficially owned by Mr. Kupperman. The number of shares set forth in the table above does not include shares of Class A Common Stock that any of Messrs. Stein, Landry and Kupperman may beneficially own. See "ITEM 1--ELECTION OF DIRECTORS-- Information Concerning Nominees and Certain Executive Officers." 3 Notes to Table--Continued (2) A Schedule 13G was filed with the SEC by Wilen Management Corporation ("Wilen") and James Wilen in his capacity as President and sole owner of Wilen, to report Wilen's beneficial ownership as an investment advisor to various clients, of shares of Class A Common Stock. The 337,673 shares represent approximately 6.1% of the total number of issued and outstanding shares of both classes of the Common Stock, and approximately 1.1% of the total voting power of both classes of the Common Stock. (3) Heartland Advisors, Inc. reported on a Schedule 13G filed with the SEC its beneficial ownership, as an investment advisor, of shares of Class A Common Stock. The 550,000 shares represent approximately 9.9% of the total number of issued and outstanding shares of both classes of the Common Stock and approximately 1.8% of the total voting power of both classes of the Common Stock. (4) The 206,900 shares of Class A Common Stock represent approximately 3.7% of the total number of issued and outstanding shares of both classes of the Common Stock and less than 1% of the total voting power of both classes of the Common Stock. (5) The IDS Mutual Fund Group, through nominees, holds currently exercisable Warrants to purchase an aggregate of 374,665 shares of Class A Common Stock. If the 374,665 shares underlying the Warrants were issued, they would represent approximately 6.2% of the total number of issued and outstanding shares of both classes of Common Stock, and approximately 1.2% of the total voting power of both classes of Common Stock. See "INFORMATION REGARDING DM ASSOCIATES AND THE NIRENBERG TRANSACTION--The Financing of the Nirenberg Transaction," for information relating to the terms of the Warrants. (6) SunAmerica Inc. 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 6.1% of the total number of issued and outstanding shares of both classes of Common Stock, and approximately 1.2% of the total voting power of both classes of Common Stock. See "INFORMATION REGARDING DM ASSOCIATES AND THE NIRENBERG TRANSACTION--The Financing of the Nirenberg Transaction," for information relating to the terms of the Warrants. (7) 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 Noman, Thomas W. Janes, John M. Chapman and Richard J. Williams, reported on a Schedule 13D filed with the SEC their shared beneficial ownership of 765,000 shares of Class A Common Stock. Triumph holds currently exercisable Warrants to purchase such shares. If the 765,000 shares underlying the Warrants were issued, they would represent approximately 12% of the total number of issued and outstanding shares of both classes of Common Stock, and approximately 2.4% of the total voting power of both classes of Common Stock. See "INFORMATION REGARDING DM ASSOCIATES AND THE NIRENBERG TRANSACTION--The Financing of the Nirenberg Transaction," for information relating to the terms of the Warrants. ITEM 1--ELECTION OF DIRECTORS NOMINEES FOR ELECTION AS DIRECTORS A Board of seven (7) directors is to be elected at this Annual Meeting, to hold office until the next Annual Meeting and the election and qualification of their successors. Two (2) of the directors are to be elected by the holders of the Class A Common Stock (the Class A Directors) and five (5) of the directors are to be elected by 4 the holders of the Class B Common Stock (the Class B Directors). The Board of Directors has nominated Thomas W. Janes and Truby G. Proctor, Jr. as Class A Directors and Frank W. Barrett, J. Kermit Birchfield, Jr., John W. Everets, Jr., Gregory G. Landry and Robert B. Stein, Jr. as Class B Directors. All of the nominees are presently serving on the Board with the exception of Messrs. Birchfield and Proctor. It is intended that proxies of the respective classes of Common Stock will be voted in favor of the election 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 December 14, 1995.
SHARES (AND PERCENT) OF THE COMMON STOCK NAME AND AGE BENEFICIALLY OWNED AS OF DECEMBER 14, 1995 ------------ -------------------------------------------------------------------------- PERCENT NOMINEES FOR DIRECTOR CLASS B CLASS A OF TOTAL CLASS B DIRECTOR SINCE COMMON STOCK COMMON STOCK VOTING POWER ---------------- -------- --------------- -------------- -------------- Frank W. Barrett (55)... 1983 1,250 (*) 6,000 (*)(1)(2) (*) J. Kermit Birchfield, Jr. (55)............... N/A 0 5,000 (*) (*) John W. Everets, Jr. (49)................... 1994 10,000 (*) 3,500 (*)(2) (*) Gregory G. Landry (37).. 1991 1,858,743 (66.8%) 48,793 (1.7%)(3)(4) (60.7%) Robert B. Stein, Jr. (38)................... 1992 1,858,743 (66.8%) 72,631 (2.5%)(3)(5) (6.08%) NOMINEES FOR CLASS A DIRECTOR ---------------- Thomas W. Janes (40).... 1995 0 765,000 (6) 2.4% Truby G. Proctor, Jr. (60)................... N/A 0 0 0 NAMED EXECUTIVE OFFICERS AND DIRECTORS (7) - ------------------------------------------ Gregg O. Guy (47)....... N/A 0 33,536 (1.2%)(8) (*) Theodore W. Leed........ N/A 1,552 (*) 6,000 (*)(1)(2) (*) Charles Nirenberg....... N/A 500 (*)(9) 500 (*)(9) (*) Mitchell J. Kupperman... N/A 1,873,347 (67.3%) 103,295 (3.6%)(3)(10) (61.3%) Frank Colaccino......... N/A 37,306 (1.3%)(11) 140,000 (4.8%)(11) (1.7%) ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP --------------------------- (14 persons)............ 1,871,545 (67.2%) 987,957 (26.2%)(12) (62.3%)
- -------- (*) 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 each of Messrs. Barrett and Leed to purchase 2,500 shares of Class A Common Stock. Such options were not granted pursuant to any stock option plan of the Company. (2) Includes currently exercisable non-qualified stock options granted to each of Messrs. Barrett, Everets and Leed to purchase 3,500 shares of Class A Common Stock. See "ITEM 2-ADOPTION OF THE DAIRY MART CONVENIENCE STORES, INC. 1995 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS-Eligibility and Options Granted." (3) Messrs. Stein, Landry and Kupperman are each partners of DM Management I (described in footnote 1 to the Principal Shareholders table above). The shares of Class B Common Stock set forth in this table for each of such persons include the shares set forth for each person in the Principal Shareholders table above. 5 (4) Includes currently exercisable incentive stock options granted to Mr. Landry to purchase 48,793 shares of Class A Common Stock. (5) Includes currently exercisable incentive stock options granted to Mr. Stein to purchase 67,361 shares of Class A Common Stock. (6) The shares of Class A Common Stock set forth in this table for Mr. Janes include the shares set forth for Triumph in the Principal Shareholders table above. Mr. Janes's pecuniary interest in the 765,000 shares is based upon his status as a general partner of TCCALP, general partner of Triumph, the entity holding the shares, and is not discernable. Mr. Janes disclaims beneficial ownership of all shares other than those attributable to him as a general partner of TCCALP. (7) These individuals are not nominees. Messrs. Nirenberg, Kupperman and Colaccino are former executive officers. Mr. Leed has not been re- nominated as a director. (8) Includes currently exercisable incentive stock options granted to Mr. Guy to purchase 24,625 shares of Class A Common Stock. (9) Does not include shares of Class B Common Stock and shares of Class A Common Stock owned by Mr. Nirenberg's children, the ownership of which Mr. Nirenberg disclaims. (10) Includes currently exercisable stock options granted to Mr. Kupperman to purchase 97,500 shares of Class A Common Stock. Also includes shares of Common Stock owned by Mr. Kupperman's wife and children. (11) Includes currently exercisable stock options to purchase 140,000 shares of Class A Common Stock and 10,000 shares of Class B Common Stock. (12) Includes currently exercisable stock options granted to all directors and executive officers of the Company to purchase 205,592 shares of Class A Common Stock and currently exercisable Warrants to purchase 765,000 shares of Class A Common Stock. The following current or former executive officers and directors of the Company did not timely file with the SEC, on certain occasions, their reports on Forms 3, 4 or 5 to report changes in their beneficial ownership of the Common Stock: Mr. Everets (one report due upon becoming a director); Gary A. Payne (one report due upon becoming an executive officer and one report for one transaction); Darrell J. Davis, Robert B. Stein, Jr., Mitchell J. Kupperman, Gregory G. Landry, Edward M. Doyle, Gregg O. Guy, Scott A. Stein, Dennis J. Tewell and Daniel W. Wallace (one report each for one transaction each); and Gregory Wozniak (two reports for two transactions). ADDITIONAL INFORMATION CONCERNING NOMINEES AND CERTAIN EXECUTIVE OFFICERS In addition to the executive officers who are listed as being nominees for election as directors of the Company, the Company has other executive officers, including the following, who serve for a one year term:
NAME AND (AGE) TITLE -------------- ----- Gregg O. Guy (47).......... Executive Vice President-Operations and Marketing Darrell J. Davis (37)...... Vice President-Operations (Southeast Region) Edward M. Doyle (42)....... Vice President-Marketing Gary A. Payne (53)......... Vice President-Business Development Scott A. Stein (36)........ Vice President-Management Information Systems Dennis J. Tewell (39)...... Vice President-Operations (Northeast Region) Daniel W. Wallace (46)..... Vice President-Operations (Midwest Region) Gregory Wozniak (48)....... Vice President-Corporate Counsel
Except as noted below, each of the executive officers of the Company has been employed by the Company for more than the last five (5) years, in areas similar to or encompassed by their current responsibilities. 6 Mr. Birchfield is a private investor. From June 1990 to November 1994 he served as Senior Vice President and General Counsel of M/A-COM, Inc., a telecommunications company. From 1983 to 1988 he served as Senior Vice President and General Counsel of Georgia Pacific Corp. Mr. Birchfield is a member of the Board of Directors of HSPC, Inc., a publicly held company that provides financing for the purchase of healthcare equipment, and Intermountain Gas Company, Inc., an Idaho public utility company. Mr. Janes is a Managing Director and a General Partner of Triumph- Connecticut Limited Partnership, an investment management and investment banking firm. Mr. Janes has been with Triumph-Connecticut Limited Partnership since 1990. 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 until he was named Treasurer of the Company in July 1989 and served in this capacity until April 1991. He is a certified public accountant and a member of the American Institute of Public Accountants. Mr. Leed is a professor emeritus of food marketing at the University of Massachusetts and a lecturer, author and consultant to numerous companies on the subject of food merchandising. He holds a doctoral degree in agricultural economics from Ohio State University. Dr. Leed is a principal of Group 7, Inc., a management consulting company. Mr. Proctor is Chairman and Chief Executive Officer of Lee-Moore Oil Company, located in Sanford, North Carolina, a privately held North Carolina based oil jobber. From August 1987 to July 1994, Mr. Proctor served as Chairman and Chief Executive Officer of The Pantry Inc., a privately held 460 store convenience chain headquartered in North Carolina. Mr. Stein was elected President of the Company in September 1994, Chief Executive Officer of the Company in June 1995 and Chairman of the Board of Directors in December 1995. He joined the Company in 1983 and served in various positions including Treasurer, General Manager of the Midwest Region, and Executive Vice President-Operations and Marketing. Mr. Barrett is Executive Vice President of Springfield Institution for Savings. He previously served as Senior Vice President for Bank of Ireland First Holdings, Inc. from September 1990 to December 1993, as Senior Vice President for Connecticut National Bank from May 1990 to September 1990, and as Senior Vice President for Shawmut Bank, N.A. from January 1988 to May 1990. Mr. Barrett also served as President and Chief Executive Officer of Shawmut Home Bank in Hartford, Connecticut from April 1987 to December 1987 and prior to that was Executive Vice President for Shawmut Worcester County Bank in Worcester, Massachusetts since 1982. Mr. Everets has been Chairman of the Board and Chief Executive Officer of HPSC, Inc., a publicly held company that provides financing for health care equipment, since July 1993 and has been a director of HPSC, Inc. since 1983. He was Chairman of the Board of T.O. Richardson Co., Inc., a financial services company, from January 1990 until July 1993. Previously, he was Executive Vice President of Advest, Inc., an investment banking firm, from 1983 to January 1990. Mr. Everets also served as Chairman of the Board of Billings and Co., Inc., a real estate investment banking firm, and Chairman of Advest Credit Corp., both subsidiaries of Advest Group, Inc. He is also a director of Eastern Company, a publicly held company, and serves on the Board of Directors of Crown Northcorp. Mr. Guy was named Executive Vice President-Operations and Marketing in October 1994. He previously served as Vice President- Operations for the Company's Southeast Region since December 1992 and had served 7 as Vice President and General Manager of the Company's Southeast Region since December 1989. He also served as an international consultant for the Company from December 1986 through December 1988. Prior to joining the Company, Mr. Guy had served as Vice President of Operations and Corporate Vice President of Marketing for the CONNA Corporation. Mr. Guy is a member of the Board of Directors of the Kentucky Retail Federation. Mr. Davis was named Vice President-Operations for the Company's Southeast Region in October 1994. He formerly served as Director of Operations from December 1990 until October 1994. Mr. Davis joined the Company in April 1983 as Franchise Coordinator. He has also held the positions of Manager of Franchising, Associate Director of Property Development and International Consultant/Operations Specialist. Mr. Doyle was named Vice President-Marketing in October 1994. Since joining the Company in August 1990, he has served as acting Corporate Director of Marketing and Corporate Director of Food Services and Vice President-Strategic Marketing. Prior to joining the Company, he served as Chief Operating Officer for 6-Twelve Convenient Mart, Inc., and Director of Beverage Programs for the Circle K Corporation. Mr. Payne was named Vice President-Business Development in October 1994. He previously served as Corporate Director of Franchising. Mr. Payne joined the former CONNA Corporation, now the Company's Southeast Region, in 1970. Between 1970 and 1984, he served in various roles including Supervisor, Merchandising Manager, Vice President-Marketing and Vice President-Business Development. Mr. Payne left the CONNA Corporation in September 1984 to operate his own business, and returned to the Company in October 1988 as Vice President- Franchise Sales. Mr. Stein was named Vice President-Management Information Systems in November 1994. He joined the Company in September 1992 as Director of Store Automation, and his role was later expanded to MIS Director. He was promoted to Vice President-Administration and Management Information Systems in April 1994. Prior to joining the Company, Mr. Stein was Director-Client/Server Computing for Technology Investment Strategies Corporation. Mr. Stein also has consulting, training and systems analysis experience through former roles with Orion Group, Inc. and the Hartford Insurance Group. Mr. Stein is the brother of Robert B. Stein, Jr., Chief Executive Officer and President of the Company. Mr. Tewell was named Vice President-Operations for the Company's Northeast Region in September 1992. He previously served as Vice President-Store Operations in the Southeast Region since December 1990. Mr. Tewell has also served in the positions of Director of Operations, Strategic Planning Coordinator and special consultant for the Company's international operations in Europe. Mr. Wallace was named Vice President-Operations for the Company's Midwest Region in December 1992. He had served as Director of Operations since December 1991. Mr. Wallace has also served as Corporate Operations Coordinator for the Company's Point-of-Sale (POS) project, Division Manager, Supervisor and Store Manager. He also spent two years as a special consultant for the Company's international operations. Mr. Wozniak was named Vice President-Corporate Counsel in December 1992. He is an attorney and has served as counsel to the Company since the Company's 1985 acquisition of the Lawson Company. 8 THE BOARD OF DIRECTORS AND ITS COMMITTEES During the 1995 fiscal year, the Board of Directors of the Company held eight meetings. None of the directors attended fewer than 75% of the total number of meetings of the Board of Directors and committees of which they were members. The Board of Directors has established certain committees, including an Audit Committee and a Compensation and Stock Option Committee. The Company did not have a Nomination Committee during the 1995 fiscal year, but on April 20, 1995, a Nomination Committee was appointed by the Board of Directors. The Audit Committee currently consists of Messrs. Barrett, Everets and Leed, 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 also currently consists of Messrs. Barrett, Everets and Leed, and is responsible for recommending the compensation to be paid to the Company's executive officers, and the persons to whom and the amount in which stock options should be granted by the Company. The Nomination Committee also currently consists of Messrs. Barrett, Everets and Leed, 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 1995 fiscal year there were four meetings of the Compensation and Stock Option Committee and two meetings of the Audit 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 ofthe Board of Directors, must be made pursuant to timely notice in writing to the Secretary of the Company. To be timely, a shareholder's notice must be delivered to, or mailed and received at, the principal executive offices of the Company not less than 14 days nor more than 60 days prior to the meeting of shareholders called for the election of directors; provided, however, that if fewer than 21 days notice of the date of the meeting is given to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the tenth day following the day on which notice of the meeting was mailed to shareholders. A shareholder's notice must set forth as to each person whom the shareholder proposes to nominate for election or re-election as a director: (i) the name, age, business address, and, if known, residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of stock of the Company that are beneficially owned by such person, and (iv) any other information reasonably requested by the Company. All such shareholder nominations may be made only at a meeting of shareholders called for the election of directors at which such shareholder is present in person or by proxy. 9 COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS EXECUTIVE OFFICERS' COMPENSATION The following table provides certain information for the Company's past three fiscal years regarding the cash and other compensation paid to, earned by, or awarded to those persons who, during the last fiscal year, (i) served as the Company's Chief Executive Officer or in a similar capacity, and (ii) were the four most highly compensated executive officers whose total annual salary and bonus exceeded $100,000: SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION -------------------------------- ---------------------- AWARDS ---------------------- TOTAL SECURITIES SALARY UNDERLYING ALL OTHER NAME AND PRINCIPAL FISCAL AND OPTIONS/SARS COMPENSATION POSITION YEAR SALARY BONUS BONUS (#)(A) (B) - ------------------ ------ -------- ------- -------- ---------------------- ------------ Robert B. Stein, Jr., 1995 $199,808 $35,000 $234,808 96,945 $ 11,588 Chairman, Chief Ex- ecutive Officer 1994 175,000 12,500 187,500 7,500 11,633 and Presi- dent (c) 1993 160,481 0 160,481 -- 6,657 Gregory G. Landry, 1995 179,041 35,000 214,041 70,543 9,118 Executive Vice Pres- ident 1994 160,000 12,500 172,500 6,500 8,758 and Chief Financial Officer 1993 143,654 0 143,654 -- 4,923 Gregg O. Guy, 1995 131,860 20,000 151,860 50,000 1,263 Executive Vice Pres- ident-- 1994 120,000 10,000 130,000 3,500 1,046 Operations and Mar- keting 1993 119,545 0 119,545 -- 349 Charles Nirenberg, 1995 500,000 0 500,000 -- -- Chairman of the Com- pany (d) 1994 500,000 0 500,000 -- -- 1993 500,000 0 500,000 -- 567 Mitchell J. Kupperman, 1995 208,655 25,000 233,655 87,500 14,213 Executive Vice Pres- ident-- 1994 205,000 7,500 212,500 5,000 12,794 Human Re- sources (e) 1993 215,000 0 215,000 -- 6,899 Frank Colaccino, 1995 187,311 70,000 257,311 150,000 149,901 President and Chief 1994 300,000 25,000 325,000 10,000 27,828 Executive Officer (f) 1993 286,442 0 286,442 -- 13,942
- -------- (a) The options to purchase shares of Common Stock granted to Messrs. Stein, Landry, Guy and Kupperman in the last fiscal year were granted to replace existing options, except for new options to purchase 24,445 shares, 14,688 shares, 31,500 shares and 10,000 shares that were granted to Messrs. Stein, Landry, Guy and Kupperman, respectively, that were granted for the first time. The options to purchase 150,000 shares granted to Mr. Colaccino were granted to replace options previously granted to him that expired after the termination of his employment described in footnote (f) below. (b) 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 fiscal years. Company contributions to the qualified profit sharing plan for each of the 1995, 1994 and 1993 fiscal years, respectively, included $1,984, $650 and $467 for Robert B. Stein, Jr.; $448, $88 and $358 for Gregory G. Landry; $1,263, $1,046 and $349 for Gregg O. Guy; $0, $0 and $567 for Charles Nirenberg; $2,080, $661 and $531 for Mitchell J. Kupperman; and $1,093, $2,263 and $567 for Frank Colaccino. Premiums paid on split-dollar and life insurance for each of the 1995, 1994 and 1993 fiscal years, respectively, included $9,604, $10,983 and $6,190 for Robert B. Stein, Jr.; $8,670, $8,670 and $4,565 for Gregory G. Landry; $12,133, $12,133 and $6,368 for Mitchell J. Kupperman; and $0, $25,565 and $13,375 for Frank Colaccino. 10 (c) Mr. Stein was elected President of the Company in September 1994, Chief Executive Officer of the Company in June 1995 and Chairman of the Board of Directors in December 1995. He previously served as Executive Vice President--Operations and Marketing since April 1992. (d) Mr. Nirenberg had an employment agreement with the Company pursuant to which Mr. Nirenberg was employed as Chairman of the Company for a five year term that began on February 1, 1992 and was to end on January 31, 1997, unless terminated earlier. Under the employment agreement, Mr. Nirenberg received an annual salary of $500,000, payable in installments according to the Company's normal compensation policy, plus customary fringe benefits. If Mr. Nirenberg died during the term of the employment agreement, his designated beneficiary was entitled to receive his salary for the remainder of the term. The Company had purchased insurance insuring the life of Mr. Nirenberg and had designated itself as beneficiary. In connection with the Nirenberg Litigation, effective August 10, 1995, the Board of Directors of the Company removed Mr. Nirenberg from his positions as Chairman of the Board and Chairman of the Company and terminated his employment agreement. Pursuant to a settlement agreement between the Company and Mr. Nirenberg, the Company paid certain amounts to Mr. Nirenberg, including amounts paid in consideration of Mr. Nirenberg's agreement not to compete with the Company. See "INFORMATION REGARDING DM ASSOCIATES AND THE NIRENBERG TRANSACTION--The Nirenberg Transaction," for a discussion of the settlement with Mr. Nirenberg. The Company is no longer paying Mr. Nirenberg's salary and has cancelled the life insurance policy insuring the life of Mr. Nirenberg. (e) Effective December 1, 1995, Mr. Kupperman resigned from his position as Executive Vice President--Human Resources. See "INFORMATION REGARDING DM ASSOCIATES AND THE NIRENBERG TRANSACTION--The Nirenberg Transaction," for a discussion of the termination of Mr. Kupperman's employment and of the payments made to him in connection therewith. (f) Mr. Colaccino served as President and Chief Executive Officer of the Company from March 12, 1992 until August 25, 1994. Prior to March 12, 1992, he had served as President of the Company since January 1, 1989. On August 25, 1994, Mr. Colaccino's employment as President and Chief Executive Officer was terminated. In order to settle certain disagreements with Mr. Colaccino concerning the termination of his employment, the Company entered into an agreement with Mr. Colaccino that provides for certain payments and other benefits to him. Under the agreement, the Company agreed to pay to Mr. Colaccino $365,000 per year for three years commencing August 25, 1994. The amount set forth above under "All Other Compensation" for Mr. Colaccino includes $148,808 of such payments made to him after his termination of employment through January 28, 1995. The Company also agreed to pay Mr. Colaccino $306,032 to cover certain expenses. The Company will also provide certain health insurance benefits and has granted certain stock options described in footnote (a) above. 11 OPTION/SAR 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:
INDIVIDUAL GRANTS -------------------------------------------------------- NUMBER OF POTENTIAL REALIZABLE SECURITIES VALUE AT ASSUMED UNDERLYING % OF TOTAL ANNUAL RATES OF STOCK OPTIONS/SARS OPTIONS/SARS EXERCISE OR PRICE APPRECIATION GRANTED GRANTED TO BASE PRICE EXPIRATION FOR OPTION TERM (#) EMPLOYEES IN PER SHARE DATE ---------------------- NAME (A) FISCAL YEAR (B) (A) 5% 10% ---- ------------ ------------ ----------- ------------------ ---------- ----------- Robert B. Stein, Jr. ... 12,500 1.9% $ 2.75 December 17, 1996 $ 3,838 $ 7,913 12,500 1.9% 2.75 October 31, 1999 9,497 20,986 22,500 3.4% 2.75 January 27, 2002 26,278 61,716 7,500 1.1% 2.75 February 23, 2003 10,355 25,059 2,500 0.4% 2.75 May 6, 1997 926 1,929 7,500 1.1% 2.75 September 11, 2000 6,904 15,638 24,445 3.7% 2.88 November 1, 2004 44,198 112,007 7,500 1.1% 2.75 January 27, 2002 8,759 20,572 Gregory G. Landry....... 8,438 1.3% $ 2.88 November 1, 2004 $ 15,257 $ 38,663 7,500 1.1% 2.75 January 27, 2002 8,759 20,572 6,250 0.9% 2.75 May 6, 1997 2,315 4,822 22,500 3.4% 2.75 January 27, 2002 26,278 61,716 5,000 0.7% 2.75 September 11, 2000 4,603 10,425 6,500 1.0% 2.75 February 23, 2003 8,974 21,718 6,230 0.9% 2.88 November 1, 2004 11,264 28,546 8,125 1.2% 2.75 October 31, 1999 6,173 13,641 Gregg O. Guy............ 31,500 4.7% $ 2.88 November 1, 2004 $ 56,954 $ 144,333 2,500 0.4% 2.75 April 8, 1997 894 1,860 12,500 1.9% 2.75 October 31, 1999 9,497 20,986 3,500 0.5% 2.75 February 23, 2003 4,832 11,694 Charles Nirenberg....... -- -- -- -- -- -- Mitchell J. Kupperman... 26,250 3.9% $ 2.75 October 31, 1999 $ 19,944 $ 44,071 30,000 4.5% 2.75 January 27, 2002 35,037 82,288 10,000 1.5% 2.75 September 11, 2000 9,205 20,850 5,000 0.7% 2.75 February 23, 2003 6,903 16,706 10,000 1.5% 2.88 November 1, 2004 18,081 45,820 6,250 0.9% 2.75 May 6, 1997 2,315 4,822 Frank Colaccino......... 15,000 2.2% $ 4.60 July 26, 1996 $ 5,261 $ 10,695 10,000 1.5% 5.25 July 26, 1996 4,003 8,138 60,000 9.0% 7.25 July 26, 1996 33,169 67,425 48,750 7.3% 6.20 July 26, 1996 23,047 46,849 6,250 0.9% 6.60 July 26, 1996 3,145 6,394 10,000 1.5% 5.50 July 26, 1996 4,194 8,525
- -------- (a) All options granted in the last fiscal year to Messrs. Stein, Landry, Guy and Kupperman, were granted to replace options previously granted (the "Repriced Options") except for the options whose exercise price is $2.88, which options were granted for the first time. The Repriced Options continued the vesting schedules contained in the options that were replaced. The options granted to Mr. Colaccino were granted in connection with the termination of his employment and replaced previous options that expired after his 12 employment terminated. Except for the Repriced Options and Mr. Colaccino's options, each option becomes fully exercisable over four years, with 25% of the shares subject to the option becoming exercisable on each anniversary of the option grant date. Except for the Repriced Options and Mr. Colaccino's options, all options expire ten years from the date of grant, unless sooner terminated by, for example, the failure to exercise an option, to the extent it is then exercisable, before three months after termination of employment, except for termination in the case of death, in which case, the option is exercisable within one year from the date of death by the optionee's executor, administrator or personal representative, to the extent it is then exercisable. (b) All options were granted at an exercise price per share equal to the fair market value of the applicable class of the Common Stock on the date of grant, as quoted on the NASDAQ Stock Market, except for Mr. Colaccino's options, which were granted at the same exercise price per share as those that they replaced. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES The table below sets forth information regarding stock options that were exercised, if any, during the past fiscal year, and unexercised stock options held as of January 28, 1995, by the executive officers listed in the Summary Compensation Table above:
NUMBER OF VALUE OF SHARES UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT OPTIONS/SARS AT FY-END (#) FY-END (1) ----------------- ---------------- SHARES ACQUIRED ON EXERCISE OF EXERCISABLE(E)/ EXERCISABLE(E)/ NAME OPTIONS (#) VALUE REALIZED UNEXERCISABLE(U) UNEXERCISABLE(U) ---- --------------- -------------- ----------------- ---------------- Robert B. Stein, Jr. ... -- -- 60,125 (E) $52,250 (E) 37,570 (U) 30,006 (U) Gregory G. Landry....... -- -- 43,500 (E) 38,280 (E) 27,043 (U) 21,964 (U) Gregg O. Guy............ -- -- 15,875 (E) 13,970 (E) 34,125 (U) 26,092 (U) Charles Nirenberg....... -- -- -- -- -- -- Mitchell J. Kupperman... -- -- 70,000 (E) 58,300 (E) 21,250 (U) 17,450 (U) Frank Colaccino......... -- -- 150,000 (E) -0- (E) -0- (U) -0- (U)
- -------- (1) Values are calculated for options "in the money" by subtracting the exercise price per share from the closing price per share of the applicable class of the Common Stock on January 28, 1995, which amounts were $3.63 and $3.63 per share, respectively. Certain of the executive officers have options to purchase shares of Common Stock at exercise prices greater than the fair market value of the applicable class of Common Stock as of January 28, 1995. Such options are not "in the money" and their value is, therefore, not disclosed above. 13 TEN-YEAR OPTION/SAR REPRICINGS The table below sets forth information regarding the repricing of stock options or SARs during the past ten fiscal years, by the executive officers listed in the Summary Compensation Table above:
NUMBER OF MARKET LENGTH OF SECURITIES PRICE OF EXERCISE ORIGINAL UNDERLYING STOCK AT PRICE AT OPTION TERM OPTIONS/ TIME OF TIME OF REMAINING SARS REPRICING OR REPRICING OR NEW AT DATE OF REPRICED OR AMENDMENT AMENDMENT EXERCISE REPRICING OR NAME DATE AMENDED (#) ($) ($) PRICE ($) AMENDMENT ---- -------- ----------- ------------ ------------ --------- --------------- Robert B. Stein, Jr., 10/20/94 12,500 $2.75 $8.20 $2.75 2 yrs, 58 days Chairman, Chief Execu- tive 10/20/94 12,500 2.75 6.20 2.75 5 yrs, 11 days Officer and President 10/20/94 22,500 2.75 7.25 2.75 7 yrs, 99 days 10/20/94 7,500 2.75 5.25 2.75 8 yrs, 126 days 10/20/94 2,500 2.75 6.60 2.75 2 yrs, 198 days 10/20/94 7,500 2.75 4.60 2.75 5 yrs, 326 days 10/20/94 7,500 2.75 7.25 2.75 7 yrs, 99 days Gregory G. Landry, 10/20/94 7,500 2.75 7.25 2.75 7 yrs, 99 days Executive Vice 10/20/94 6,250 2.75 6.60 2.75 2 yrs, 198 days President and Chief 10/20/94 22,500 2.75 7.25 2.75 7 yrs, 99 days Financial Officer 10/20/94 5,000 2.75 4.60 2.75 5 yrs, 326 days 10/20/94 6,500 2.75 5.25 2.75 8 yrs, 126 days 10/20/94 8,125 2.75 6.20 2.75 5 yrs, 11 days Gregg O. Guy, 10/20/94 2,500 2.75 6.60 2.75 2 yrs, 170 days Executive Vice 10/20/94 12,500 2.75 6.60 2.75 5 yrs, 11 days President--Operations 10/20/94 3,500 2.75 5.25 2.75 8 yrs, 126 days and Marketing Edward M. Doyle 10/20/94 3,750 2.75 4.60 2.75 5 yrs, 326 days Vice President--Market- ing 10/20/94 4,000 2.75 5.25 2.75 8 yrs, 126 days Gary A. Payne 10/20/94 4,375 2.75 6.20 2.75 5 yrs, 11 days Vice President-- 10/20/94 750 2.75 5.25 2.75 8 yrs, 126 days Business Development Scott A. Stein 10/20/94 1,000 2.75 5.25 2.75 8 yrs, 126 days Vice President-- 10/20/94 1,000 2.75 5.25 2.75 9 yrs, 126 days Management Information Systems Dennis J. Tewell 10/20/94 2,000 2.75 5.25 2.75 8 yrs, 126 days Vice President--Opera- tions 10/20/94 5,000 2.75 6.00 2.75 8 yrs, 52 days (Northeast Region) Daniel W. Wallace 10/20/94 1,250 2.75 6.60 2.75 2 yrs, 198 days Vice President--Opera- tions 10/20/94 3,000 2.75 5.25 2.75 8 yrs, 126 days (Midwest Region) Gregory Wozniak 10/20/94 4,000 2.75 5.25 2.75 8 yrs, 126 days Vice President-- 10/20/94 3,750 2.75 4.60 2.75 5 yrs, 326 days Corporate Counsel 10/20/94 6,250 2.75 6.20 2.75 5 yrs, 11 days Mitchell J. Kupperman, 10/20/94 26,250 2.75 6.20 2.75 5 yrs, 11 days Former Executive Vice 10/20/94 30,000 2.75 7.25 2.75 7 yrs, 99 days President--Human 10/20/94 10,000 2.75 4.60 2.75 5 yrs, 326 days Resources 10/20/94 5,000 2.75 5.25 2.75 8 yrs, 126 days 10/20/94 6,250 2.75 6.60 2.75 2 yrs, 198 days
14 DIRECTORS' COMPENSATION Messrs. Everets, Leed and Barrett received directors' fees of $17,000, $21,000 and $21,000, respectively, for the fiscal year ended January 28, 1995. The annual fee for outside directors for the 1996 fiscal year is $12,000, plus $1,000 for each regular or special meeting of the Board attended. The remaining directors, who are employees of the Company, receive no directors' fees. RECENT AGREEMENTS WITH EXECUTIVE OFFICERS In June 1995, the Company entered into employment agreements (the "Employment Agreements") with Messrs. Stein, Landry and Guy. 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 that it or he does not desire to have the term extended before February 28th of each year. Under the Employment Agreements, Messrs. Stein, Landry and Guy receive annual salaries that may be increased, but may not be decreased. The Employment Agreements of Mr. Stein and Mr. Landry provide for special bonuses that were earned and paid in September 1995. The special bonuses were payable if the Company's Income Before Income Taxes and Cumulative Effect of Accounting Changes was greater than $2,610,000 for the six month fiscal period ending July 29, 1995. In addition, all of the Employment Agreements provide that the Board of Directors, or a committee thereof, may award each employee annual bonuses if performance criteria to be determine 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 and an amount equal to the highest of the aggregate bonus payments earned by the employee for any of the last three twelve month periods prior to the date of termination. The Employment Agreements provide that if the employee's termination is by the Company without cause or by the employee for good reason, and not as a result of the employee's death or disability, then the employee will receive his full salary and bonus through the date of termination. The amount of the employee's bonus will be the highest of the aggregate bonus payments earned by the employee for any of the last three twelve month periods prior to the date of termination. The Agreements also provide that after such termination each of Messrs. Stein and Landry will also receive a severance payment equal to two (2) times the sum of his full base salary and annual bonus, and Mr. Guy will receive a severance payment equal to one and one-half (1 1/2) times the sum of his full base salary and annual bonus. With respect to Messrs. Stein and Landry, if any payment in connection with the termination of the employee's employment under the Employment Agreements would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then the Company will pay the employee an additional payment equal to the amount of any excise tax assessed under Section 4999 of the Code and the amount of all income taxes and excise taxes assessed against the employee as a result of the employee's receipt of the additional payment. Under Mr. Guy's Employment Agreement, any payment due pursuant to his Employment Agreement that is subject to excise tax will be reduced to an amount that will not be subject to the excise tax, but the Company will reimburse Mr. Guy for any excise 15 tax resulting from any payment due pursuant to any other agreements between the Company and Mr. Guy or pursuant to any Company plans. The Company also is a party to severance agreements with Messrs. Colaccino and Kupperman. Mr. Colaccino's agreement is described in footnote (f) of the Summary Compensation Table and Mr. Kupperman's agreement is described in "THE NIRENBERG TRANSACTION AND RELATED MATTERS." COMPENSATION AND STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation and Stock Option Committee of the Company's Board of Directors (the "Compensation Committee") is responsible for recommending to the Executive Committee the compensation to be paid to the Company's principal executive officers, including the Chief Executive Officer and President. The Compensation Committee also has the authority to grant to all employees options to purchase the Common Stock under the Company's various stock option plans. Theodore W. Leed and Frank W. Barrett were members of the Compensation Committee for the entire 1995 fiscal year, and John W. Everets, Jr. was a member of the Compensation Committee commencing in July 1994. None of the members of the Compensation Committee is an employee of the Company or has a material interest in or relationship with the Company, other than as directors and shareholders. Prior to July 1994, the Executive Committee was comprised of Messrs. Barrett, Leed and Colaccino. In August 1994, Mr. Colaccino resigned from the Executive Committee, and in July 1994 and September 1994 Messrs. Everets and Nirenberg were elected to the Executive Committee. Set forth below is a report submitted by the Compensation Committee regarding the compensation policies for the fiscal year ended January 28, 1995, as they related to the Company's principal executive officers, including the President. COMPENSATION POLICIES The Compensation Committee reviews proposed annual salaries and bonuses for principal executive officers, as submitted by the Company's management. In determining whether to recommend management's proposed salaries and bonuses or whether to recommend different salaries and bonuses, the Compensation Committee considers a number of factors, some of which are subjective and qualitative, and some of which are objective and quantitative, including, but not limited to, the following: (i) the Company's financial performance for the prior fiscal year, including whether the Company had a net profit or loss, the amount thereof, the reasons for such performance, and whether such performance was primarily as a result of the executive officers' performance, or whether the performance might have related to unforeseen events or events not in the executive officers' control; and (ii) the extent to which an executive officer achieved certain objectives in his or her area of primary responsibility that might have been set in the prior fiscal year, or otherwise made a significant contribution to the Company that positively impacted, or is likely to impact, growth and earnings of the Company. In considering the grant of stock options to employees, including the Company's principal executive officers, the Compensation Committee consults with the Company's President, reviews the performance of principal executive officers, and reviews the long-term objectives of management and the Board. FISCAL YEAR 1995 EXECUTIVE COMPENSATION Based upon the compensation review factors described above, the Compensation Committee approved in April 1994 management's salary and bonus recommendations for the fiscal year ended January 28, 1995. The 16 Compensation Committee noted in particular that in the fiscal year ended January 29, 1994 management had achieved or initiated procedures to achieve a number of long-term objectives. In fiscal 1994, management consolidated the Company's administrative operations in Enfield, Connecticut, and substantially completed the recapitalization of its balance sheet with the issuance in fiscal 1995 of $75,000,000 senior subordinated notes and the concurrent completion of a new senior bank credit facility. In addition, management initiated programs to enhance the Company's level of gasoline sales, upgrade and remodel existing stores and sell or close underperforming stores. The Compensation Committee also considered that the Company had achieved net income of $866,000 or $.16 per share for the 1994 fiscal year. The Compensation Committee noted that in pursuing many of the Company's long-term goals during the 1994 fiscal year, the Company incurred significant short-term costs, but that the Compensation Committee and management believed that these costs would be offset by mid-term and long-term gains. Messrs. Stein and Landry's salaries were increased in October 1994 in recognition of Messrs. Stein and Landry's increased responsibilities. During the 1995 fiscal year, the Compensation Committee also granted stock options under the Company's various stock option plans and repriced most outstanding stock options to serve as a further incentive to the principal executive officers, as well as to numerous other employees. All of such options, including the repriced options, were granted at an exercise price equal to the fair market value per share on the date on which the options were granted. The Compensation Committee did not review the compensation of Charles Nirenberg, the former Chairman of the Company, whose annual salary and certain other benefits were provided for in an employment agreement entered into between Mr. Nirenberg and the Company in February 1992. FISCAL YEAR 1995 PRESIDENT COMPENSATION In September 1994, Mr. Stein became the President of the Company and, effective October 31, 1994, his salary was increased from $190,000 to $250,000. The Compensation Committee recognized that as a result of the Board's promotion of Mr. Stein, Mr. Stein would have more responsibilities as President of the Company than he had had as an Executive Vice President of the Company and, accordingly, was entitled to a higher compensation level. Mr. Colaccino served as the Company's President until August 1994. In recommending Mr. Colaccino's salary and bonus for the 1995 fiscal year to the Executive Committee, the Compensation Committee reviewed the same factors that it utilized in recommending the compensation for the Company's other principal executive officers as described above. The Compensation and Stock Option Committee, Frank W. Barrett Theodore W. Leed John W. Everets 17 PERFORMANCE GRAPH The following graph compares the yearly percentage change in cumulative shareholder return on the Class A Common Stock over the past five years with (i) the cumulative total return on the NASDAQ Stock Market Index (U.S. Companies) and (ii) a peer group index consisting of NASDAQ Stocks Standard Industry codes 5400-5499 (food stores) ("Peer Group"). The figures presented below assume the reinvestment of all dividends into shares of Class A Common Stock on the dividend payment date and that $100 was invested in Class A Common Stock and in the NASDAQ Stock Market Index (U.S. Companies) and Peer Group Index on February 1, 1990, and held through January 28, 1995 (the end of the Company's most recent fiscal year). [GRAPH APPEARS HERE]
02/02/90 02/01/91 01/31/92 01/29/93 01/28/94 01/27/95 -------- -------- -------- -------- -------- -------- Dairy Mart Convenience Stores, Inc. $100.00 $ 89.4 $114.5 $ 97.1 $105.8 $ 60.7 CRSP Index for NASDAQ Stock Market (U.S. Companies) 100.00 102.5 155.6 175.9 201.3 194.0 CRSP Index for NASDAQ Stocks (SIC 5400-5499) 100.00 126.9 187.0 125.6 138.7 115.6
18 INFORMATION REGARDING DM ASSOCIATES AND THE NIRENBERG TRANSACTION STOCK OWNED BY DM ASSOCIATES DM Associates Limited Partnership ("DM Associates") is the owner of record of 1,858,743 shares of Class B Common Stock, representing approximately 66.8% of the issued and outstanding shares of Class B Common Stock, and 60.7% of the total voting power of both classes of the Common Stock. The general partner of DM Associates is New DM Management Associates I ("DM Management I"), which is a general partnership. The general partners of DM Management I are Robert B. Stein, Jr., Gregory G. Landry and Mitchell J. Kupperman. Pursuant to the partnership agreement of DM Associates, DM Management I has the right to vote all of the shares of Class B Common Stock owned by DM Associates. In connection with the closing of the transactions contemplated by the Nirenberg Agreement described below, the partnership agreement of DM Management I was amended to provide that a majority of the partnership interests of DM Management I determines how to vote 638,743 of the shares of Class B Common Stock owned by DM Associates, and that the remaining 1,220,000 shares of Class B Common Stock owned by DM Associates will be voted for or against any stockholder motion or proposal in the same proportion that all other shares of Class B Common Stock are voted for or against any such stockholder motion or proposal (including the 638,743 shares voted by DM Associates). In March 1992, DM Associates financed part of the purchase of its 1,858,743 shares of Class B Common Stock by obtaining a $7,100,000 loan (the "Limited Partnership Loan") from the Connecticut Development Authority ("CDA"). The Limited Partnership Loan is secured by DM Associates' pledge of 1,220,000 shares of the Class B Common Stock owned by DM Associates, representing 43.8% of the issued and outstanding shares of Class B Common Stock and 39.8% of the total voting power of both classes of Common Stock as of December 14, 1995. On September 30, 1994, FCN Properties Corporation, a corporation owned and controlled by Charles Nirenberg, purchased all of the CDA's right, title and interest in and to the Limited Partnership Loan. The limited partnership agreement of DM Associates provides that if the term of the limited partnership is extended beyond September 12, 1997, any limited partner whose percentage interest in DM Associates is greater than 30% may sell all or a portion of his or its interest, subject to DM Associates right of first refusal to purchase such interest. If DM Associates and such limited partner do not agree on the terms of acquiring such limited partner's interest, and there is not a third party purchaser, such limited partner has the right to: (i) demand the dissolution of DM Associates and the distribution of its assets to its partners; or (ii) cause such assets to be sold. The limited partnership agreement also requires DM Management I to consult with a certain limited partner of DM Associates before voting any shares at a meeting of the Company's shareholders or exercising any consensual rights of such shares. If DM Management I votes or exercises consensual rights of such shares in a manner in which such limited partner does not agree, the limited partner may dissolve DM Associates. As DM Associates' principal asset is its 1,858,743 shares of Class B Common Stock, if such a dissolution or sale occurs, a change in control of the Company could result. THE NIRENBERG LITIGATION On August 8, 1995, Charles Nirenberg and Mitchell Kupperman, both directors of the Company at that time, commenced an action against the Company and the Company's other directors entitled Nirenberg v. Stein, Delaware Chancery Court, New Castle County, C.A. No. 14462 (the "Nirenberg Litigation"). 19 At the time the Nirenberg Litigation was commenced, Mr. Stein, Mr. Landry, Mr. Nirenberg and Mr. Kupperman, were partners of (i) DM Management I, and (ii) New DM Management Associates II ("DM Management II"). Frank Colaccino was also a partner of DM Management II. DM Management I and DM Management II were the general partners of DM Associates. In the Nirenberg Litigation, Messrs. Nirenberg and Kupperman sought, among other things, a ruling of the Court that Messrs. Nirenberg and Kupperman, allegedly acting on behalf of DM Management I and DM Associates, had replaced by written shareholder consent two of the Company's seven current directors, Mr. Stein and John W. Everets, Jr., with two persons chosen by them. On September 13, 1995, the Court ruled that the Consent did not relate to a sufficient number of shares to remove directors, resulting in the Board of Directors of the Company continuing to be comprised of the persons who were directors prior to the execution of the Consent. In connection with the Annual Meeting that was scheduled to be held on October 31, 1995, Mr. Nirenberg nominated five Class B Directors to be elected at the Company's annual meeting of the stockholders. Mr. Nirenberg, together with Mr. Kupperman, would have been able, by virtue of holding a majority of the partnership interests of DM Management I, to elect Mr. Nirenberg's nominees at the Company's annual meeting. Mr. Nirenberg's nominees, if elected, would have constituted a majority of the Company's seven member Board of Directors. THE NIRENBERG TRANSACTION On October 30, 1995, Mr. Nirenberg, and certain of his affiliates (collectively, "Nirenberg"), entered into an Agreement, as amended on December 1, 1995 (the "Nirenberg Agreement"), with the Company, Mr. Stein and Mr. Landry, for purposes of settling the dispute between Mr. Nirenberg and the Company's management with respect to control of the Company. Pursuant to the Nirenberg Agreement, among other things, the Company purchased for $10 million (i) all of Nirenberg's limited partnership interests in DM Associates, and (ii) the promissory note of DM Associates evidencing the Limited Partnership Loan, which note is secured by a pledge of 1,220,000 shares of the Class B Common Stock owned by DM Associates. Pursuant to the Nirenberg Agreement, the Company also paid to Nirenberg $2.3 million in consideration of certain matters, including, Nirenberg's waiver of certain alleged claims against the Company, Nirenberg allowing the Company to use his name and likeness in advertising materials and Nirenberg's agreement that he will not for a period of five years compete with the Company, solicit employment of any employee of the Company, or interfere in a material manner with any material business relationship between the Company and any third party. The Company also agreed to reimburse Nirenberg for up to $850,000 of previously unreimbursed fees and expenses incurred in connection with the activities relating to the Company. Under the terms of the Nirenberg Agreement, Mr. Nirenberg withdrew as a partner of DM Management I and DM Management II. As a result, the remaining partners of DM Management I are Messrs. Stein, Landry and Kupperman, each of whom owns one-third of the partnership interests of DM Management I. The remaining partners of DM Management II dissolved DM Management II, and DM Management I is therefore the sole remaining general partner of DM Associates. Mr. Kupperman's employment with the Company was terminated on December 1, 1995. In connection with the termination of Mr. Kupperman's employment and Mr. Kupperman's waiver of certain alleged claims against the Company, the Company paid $1,036,412 to Mr. Kupperman. 20 Effective December 1, 1995, Mr. Nirenberg and Mr. Kupperman each resigned as officers and directors of the Company, and M. Howard Jacobsen and Thomas O'Brien, temporary directors appointed by the Company pursuant to the Nirenberg Agreement, also resigned as directors. Thomas W. Janes, a principal of Triumph-Connecticut Limited Partnership, a holder of the Series B Notes and Series B Warrants, as defined below, was appointed a director to fill the vacancy created by Mr. Kupperman's resignation. The Company has agreed to indemnify Nirenberg against any liability or expense incurred by them as a result of or in connection with the transactions consummated pursuant to the Nirenberg Agreement. THE FINANCING OF THE NIRENBERG TRANSACTION On December 1, 1995, the Company issued $13.5 million aggregate principal amount of its 10 1/4% Senior Subordinated Notes (Series B) due 2004 (the "Series B Notes"). The proceeds of the Series B Notes were primarily used to fund the obligations of the Company under the Nirenberg Agreement. The Series B Notes have substantially the same terms and conditions as the Company's current $75,000,000 10 1/4% Senior Subordinated Notes (Series A) due 2004 (the "Series A Notes"). The Indenture pursuant to which the Company issued the Series A Notes has been amended and restated so as to also apply to the Series B Notes. In conjunction with the issuance of the Series B Notes, the Company issued to the purchasers of the Series B Notes warrants to purchase 1,215,000 shares of the Class A Common Stock (the "Series B Warrants"). The Series B Warrants may be exercised at any time during the next 6 years. The initial exercise price of the Series B Warrants is $6.95 per share, but the exercise price may be adjusted to 110% of the market price of the Class A Common Stock one year after the issuance of the Series B Warrants, if such adjustment results in a decrease of the exercise price. The exercise price will also be adjusted upon the occurrence of various events, including stock dividends and issuances of Common Stock by the Company for a per share price less than the exercise price of the Series B Warrants or less than the then current market value of the Class A Common Stock. The Company has also agreed to register the Series B Warrants and the underlying Class A Common Stock for sale with the Securities and Exchange Commission, at the Company's expense. Failure to so register the Series B Warrants and underlying Class A Common Stock may cause the interest rate of the Series B Notes to increase in increments to a maximum rate of 11 3/4%. In addition to the Series B Warrants issued in connection with the sale of the Series B Notes, the Company issued warrants to purchase 500,000 shares of Class A Common Stock to the holders of the Series A Notes (the "Series A Warrants," and together with the Series B Warrants, the "Warrants"), in consideration of their waiving any rights that they may have had as a result of any Change of Control, as defined in the Indenture, that may have occurred, and in consideration of their agreement to certain amendments of the Indenture. The Series A Warrants have substantially the same provisions as the Series B Warrants. Contemporaneously with the consummation of the Nirenberg Agreement and the issuance of the Series B Notes, the Company's principal Credit Agreement was amended and restated. The Credit Agreement provides that the issuance of the Series B Notes and the transactions provided for in the Nirenberg Agreement will not constitute defaults under the Credit Agreement. The financial covenants in the Credit Agreement have also been amended so as to reflect the anticipated effect on the Company of the transactions provided for in the Nirenberg Agreement. 21 ITEM 2--ADOPTION OF THE DAIRY MART CONVENIENCE STORES, INC. 1995 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS At the Annual Meeting, shareholders will vote on the adoption of the Dairy Mart Convenience Stores, Inc. 1995 Stock Option Plan for Outside Directors (the "1995 Outside Directors Plan"). The purpose of the 1995 Outside Directors Plan is enable the Company to attract and retain the services of non-employee directors of the Company and to encourage such directors to acquire shares. The Board of Directors approved the 1995 Outside Directors Plan on January 20, 1995, and if the Plan is adopted by the shareholders, it will become effective as of January 20, 1995. The stock options granted under the Plan will be non-qualified stock options for purposes of tax treatment under the Code. See "ITEM 3--ADOPTION OF THE DAIRY MART CONVENIENCE STORES, INC. 1995 STOCK OPTION AND INCENTIVE AWARD PLAN--Federal Income Tax Consequences," for a discussion of the federal income tax consequences of non-qualified stock options. A maximum of 50,000 shares of Class A Common Stock are available for grant under the 1995 Outside Directors Plan. Authorized and unissued shares or treasury shares or both, will be available for grant under the 1995 Outside Directors Plan. As of December 14, 1995, the market value of the Class A Common Stock, based on the closing price of such Common Stock as quoted on the Nasdaq Stock Market, was $6.50 per share. ADMINISTRATION OF THE PLAN The 1995 Outside Directors Plan will be administered by the Board of Directors. Subject to the provisions of the 1995 Outside Directors Plan, the Board of Directors may make interpretations and prescribe, amend and rescind rules and regulations and make all of the determinations for the administration of the 1995 Outside Directors Plan. However, as described below, stock option grants will be automatic and therefore, the Board of Directors will have no discretion to determine the directors who may receive stock options or any of the terms of the stock option grants. ELIGIBILITY AND OPTIONS GRANTED Stock options will be granted under the 1995 Outside Directors Plan only to directors of the Company who are not employees. As of date of this Proxy Statement, there are four non-employee directors, Messrs. Barrett, Everets, Janes and Leed. On January 20, 1995, the date on which the Board approved the 1995 Outside Directors Plan, each of Messrs. Barrett, Everets and Leed received an option to purchase 3,500 shares under the 1995 Outside Directors Plan (the "Initial Option"). The exercise price for each share of Class A Common Stock under the Initial Options is $4.00, the fair market value of a share of Class A Common Stock on the date preceding the date of grant. Each grant of an Initial Option is conditioned upon (i) subsequent shareholder approval of the 1995 Outside Directors Plan at the Annual Meeting, and (ii) the optionee not disposing of the shares underlying the Initial Option on or before May 1, 1996. If the 1995 Outside Directors Plan is not approved by the shareholders at the Annual Meeting, then the Initial Options shall be void. The Initial Options will be exercisable upon stockholder approval of the 1995 Outside Directors Plan. OPTIONS Each non-employee director will also receive additional automatic grants of options to purchase 3,500 shares on February 1 of each year, beginning February 1, 1996. The exercise price of each option under the Plan will be equal to the fair market value of a share of Class A Common Stock on the date of grant. Each option will have a term of ten years from the date of grant. If any of the Series A and Series B Warrants are outstanding on the date of grant of the additional automatic options and if the fair market value of a share of Class A Common Stock on 22 the date of grant is less than the "base price," as defined in the Warrants, then the additional automatic options will vest ratably over a four year period. If none of the Warrants remain outstanding or if the fair market value of a share of Class A Common Stock on the date of grant is greater than or equal to the "base price," then the additional automatic options will be exercisable immediately. A director may exercise an option granted under the 1995 Outside Directors Plan only while serving as a director of the Company or for up to nine months after his or her termination of service as a director. The 1995 Outside Directors Plan provides that the date on which an option may be exercised may be accelerated in the event of (a) a dissolution or liquidation of the Company, (b) a merger or consolidation in which the Company is not the surviving company, or (c) a transaction in which the beneficial ownership or control of the Company is or may be changed such that one or more persons or entities (other than persons or entities who beneficially owned more than ten percent (10%) of the outstanding shares of any class of common stock of the Company on the date the option in question was granted and other than persons who are directors on the date the option was granted) obtain beneficial ownership or control of more than fifty percent (50%) of the assets or outstanding voting securities or equity interests of the Company. TERM AND AMENDMENT OF THE 1995 OUTSIDE DIRECTORS PLAN Unless sooner terminated, the 1995 Outside Directors Plan will remain in effect until all shares have been issued upon the exercise of stock options. After termination, no additional options may be granted, but options previously granted will not be affected by any plan termination. The Board of Directors may, from time to time, suspend, discontinue, revise or amend the 1995 Outside Directors Plan. However, without the prior approval of the shareholders, no such revision or amendment may increase the number of shares available for grant of stock options, modify the requirements as to eligibility for participation, materially increase the benefits accruing to participants, or affect the 1995 Outside Directors Plan such that shareholder approval would be required in order to ensure compliance with Rule 16b-3 of the Securities and Exchange Commission. ITEM 3--ADOPTION OF THE DAIRY MART CONVENIENCE STORES, INC. 1995 STOCK OPTION AND INCENTIVE AWARD PLAN At the Annual Meeting, shareholders will also vote on the adoption of the Dairy Mart Convenience Stores, Inc. 1995 Stock Option and Incentive Award Plan (the "1995 Employee Plan"). The purpose of the 1995 Employee Plan is to provide employees with an opportunity to acquire shares in the Company, which thereby will create a stronger incentive to expend maximum effort for the growth and success of the Company, and to encourage such employees to remain in the employ or service of the Company. The Board of Directors approved the 1995 Employee Plan on June 8, 1995, and if the Plan is adopted by the shareholders, it will become effective as of June 8, 1995. The 1995 Employee Plan provides for the grant of: (i) stock options that are intended to qualify as incentive stock options ("Incentive Stock Options") under Section 422 of the Code, as well as non-qualified stock options ("Non- Qualified Stock Options") that are not intended to qualify as Incentive Stock Options under the Code (collectively "Options"); (ii) stock appreciation rights ("SARs"); and (iii) incentive stock awards ("Incentive Stock Awards") (Options, SARs and Incentive Stock Awards are collectively referred to as "Awards"). A maximum of 650,000 shares of Class A or Class B Common Stock are available for grant under the 1995 Employee Plan. Authorized and unissued shares or treasury shares or both, will be available for grant under the 1995 Employee Plan. As of December 14, 1995, the market value of the Class A and Class B Common Stock, based on the closing prices of such Common Stock as quoted on the Nasdaq Stock Market, was $6.50 and $5.75 per share, respectively. 23 ADMINISTRATION OF THE PLAN The 1995 Employee Plan will be administered by the Board of Directors or by a committee whose members will be appointed from time to time by the Board of Directors, which will have the same authority as the Board of Directors. Subject to the provisions of the 1995 Employee Plan, the Board of Directors has sole and complete authority (a) to determine, in its discretion, the individuals to whom and the times at which, Awards will be granted (such individuals being referred to as "Grantees"), the number of shares subject to each Award and the provisions of the agreements evidencing such Awards, (b) to interpret the terms and provisions of the 1995 Employee Plan, and (c) to make all other determinations necessary or advisable for administration of the 1995 Employee Plan. ELIGIBILITY Awards will be granted under the 1995 Employee Plan to any employee of the Company, including officers or directors of the Company, selected by the Board. All of the approximately 4,280 employees of the Company are presently eligible to participate in the 1995 Employee Plan. Notwithstanding the foregoing, no member of any committee administering the 1995 Employee Plan may be granted Awards. As of date of this Proxy Statement, no Awards have been granted and no person has been designated to receive any Award. OPTIONS Except as described below, the exercise price of Incentive Stock Options granted under the 1995 Employee Plan must be at least equal to or greater than the fair market value of the applicable class of Common Stock on the date the Option is granted. Non-Qualified Stock Options may be granted at an exercise price of not less than 85% of the fair market value of the applicable class of Common Stock on the date of grant. A Grantee may pay the exercise price of an Option by delivering to the Company cash, shares, or a combination of cash and shares. Options granted under the 1995 Employee Plan will have a term not to exceed ten years from the date of grant, except as described below, and will become exercisable as provided in the applicable Option agreement. No Option will be transferable by a Grantee other than by will or the laws of descent and distribution, and, during the Grantee's lifetime, an Option will be exercisable only by the Grantee or, if the Grantee is legally incapacitated, by the Grantee's duly appointed guardian or legal representative. An Option may be exercised only while the Grantee is employed by the Company; provided, however (a) if a Grantee's employment terminates for any reason, except by reason of death or disability, the Grantee will have three months after such termination within which to exercise the Option to the extent it was exercisable at the date of such termination, or (b) if termination is due to death or disability, the Option may be exercised within one year from the date of death or disability to the extent the Grantee was entitled to exercise at the date of such termination. If a Grantee dies within three months after termination of employment (other than termination by disability), such Grantee's legal representative will have one year from the date of the Grantee's death to exercise the Option to the extent the Grantee was entitled to exercise at the date of termination. If a Grantee's employment terminates as a result of disability and the Grantee dies within one year after such termination, the Grantee's legal representative may exercise the Grantee's Option, to the extent the Grantee was entitled at the date of such termination, within one year from the date of death. Notwithstanding any of the foregoing, in no event will an Option be exercisable, in whole or in part, after the termination date provided in the applicable Option agreement. The 1995 Employee Plan provides that the date on which a Grantee may exercise an Option may be accelerated in the event of (a) a dissolution or liquidation of the Company, (b) a merger or consolidation in which the Company is not the surviving company, (c) a sale of all or substantially all of the assets of the Company to 24 another entity, or (d) upon any transaction (including, without limitation, a merger or reorganization in which the Company is the surviving corporation) approved by the Board which results in any person or entity (or persons 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 maximum fair market value of the shares subject to Incentive Stock Options under the 1995 Employee Plan that are exercisable for the first time by any employee in any calendar year may not exceed $100,000. No Incentive Stock Option may be granted under the 1995 Employee Plan to any employee owning, or deemed to own by reason of certain attribution rules, more than ten percent (10%) of the combined voting power of all outstanding classes of stock of the Company or any subsidiary, unless (i) the per share Option price is at least one hundred ten percent (110%) of the fair market value of the shares subject to the Option at the date of grant, and (ii) such Option, by its terms, is not exercisable after five years from the date the Option is granted. STOCK APPRECIATION RIGHTS SARs may be granted in conjunction with all or any part of the grant of any Option or alone and unrelated to an Option. SARs entitle the Grantee of an SAR to surrender to the Company, in whole or in part, either in tandem with an Option or alone and unrelated to an Option such SAR, and to receive in exchange therefor the amount by which the fair market value of the shares underlying the surrendered SAR is exercised exceeds the exercise price of the SAR. Upon exercise of an SAR, the Board of Directors has the discretion to pay the Grantee in cash, shares, or any combination of cash and shares. An SAR is not transferable or assignable by the Grantee other than by will or the laws of descent and distribution and may not be transferred other than together with the Option to which it relates. A Grantee may exercise an SAR only during his or her lifetime or, if the Grantee has a disability, by the Grantee's representative. An SAR's exercise may be accelerated upon the occurrence of certain events as described above in the section entitled "Options". INCENTIVE STOCK AWARDS Each Incentive Stock Award must state the number and class of shares that may become payable if certain specified performance or other criteria are achieved. Incentive Stock Award payments may be made in shares, cash, or a combination of shares and cash. Incentive Stock Awards may not be paid for any period after the termination of the Grantee's employment; however, if a Grantee's employment is terminated by disability or death, then the Board of Directors may determine the extent to which any shares covered by an Incentive Stock Award, which are not yet payable, may become payable. TERM AND AMENDMENT OF THE 1995 EMPLOYEE PLAN Unless sooner terminated, the 1995 Employee Plan will terminate June 8, 2005. After termination, no additional Awards may be granted, but Awards previously granted will not be affected by any plan termination. The Board of Directors may, from time to time, revise, amend, suspend or terminate the 1995 Employee Plan. However, any amendment by the Board shall require the approval by the holders of a majority of the voting power of the 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 ByLaws of the Company, to the extent that such shareholder approval is required by Rule 16b-3 of the Securities and 25 Exchange Commission, or is required by the Code in order to preserve the status of Options as Incentive Stock Options. FEDERAL INCOME TAX CONSEQUENCES The following discussion of Federal income tax consequences relates to the 1995 Employee Plan. The discussion of the tax effects of non-qualified stock options also applies to the 1995 Outside Directors Plan described above, as only non-qualified stock options may be granted under the 1995 Outside Directors Plan. The grant of a non-qualified stock option is not a taxable event to the grantee. The difference between the exercise price and the fair market value of the shares on the date of exercise of a non-qualified stock option is taxable as ordinary income to the grantee at the time of exercise. Such amount is subject to withholding of federal income tax. If, however, the grantee is subject to Section 16(b) of the Securities Exchange Act of 1934, such amount will normally be measured and taxed to the grantee at a date six months following the date of exercise unless the grantee elects to be taxed at the time of exercise. Gain or loss on the subsequent sale of shares acquired upon exercise of a non-qualified stock option will be eligible for capital gain or loss treatment (long-term or short-term, as the case may be). For this purpose, such stock has a basis equal to the option exercise price plus the amount, if any, included in income by the grantee. In general, the Company will be entitled to an income tax deduction in the same amount and at the same date as the grantee recognizes ordinary income. If a grantee pays all or part of the exercise price by surrendering previously acquired shares, the foregoing tax consequences may be modified. The grant of an incentive stock option results in no taxable income to the grantee. Upon the exercise of an incentive stock option, the Company will not be entitled to any deduction and no ordinary income will be recognized by the grantee. However, the grantee's alternative minimum taxable income may have to be adjusted for purposes of computing the grantee's alternative minimum tax liability. If the shares acquired by the grantee upon exercise of an incentive stock option are held for a period of more than (a) two years from the date of the granting of the option, and (b) one year after the date of actual acquisition of the shares, any gain on the subsequent sale of the shares will be taxed to the grantee as a long-term capital gain. If shares acquired upon exercise of any incentive stock option are disposed of before the expiration of either the two-year or one-year period set forth above, the grantee will recognize ordinary compensation income at the time of such disposition equal to the difference, if any, between the fair market value of the shares at the time the option was exercised (or at a date six months later in the case of a grantee subject to Section 16(b) of the Securities Exchange Act of 1934 unless the grantee otherwise elects) and the exercise price, and such amount will be allowed as a deduction to the Company. Any excess of the amount realized upon such disposition over the basis of the shares (which is generally the exercise price and any additional compensation income recognized) will be treated as capital gain (long-term or short-term, as the case may be), and will not be allowed as a deduction to the Company. The grant of an SAR or incentive stock award is not a taxable event to the grantee. If cash is distributed upon the exercise of the SAR or pursuant to an incentive stock award, the grantee will be currently taxed upon receipt. If the grantee is given shares upon the exercise of an SAR or pursuant to an incentive stock award, the grantee will be currently taxed on the fair market value of the shares unless such shares are subject to forfeiture or certain restrictions. In general, shares subject to certain restrictions or forfeiture will not be included in the grantee's taxable income until those restrictions lapse or the shares become substantially vested (unless the grantee otherwise elects). The Company will be allowed a corresponding deduction in the taxable year in which the grantee recognizes income. 26 Grantees are advised to consult with their personal tax advisors regarding the federal, state and local, and foreign tax consequences of the receipt of incentive stock awards, the exercise of options and SARs, and the sale of shares. ITEM 4--RATIFICATION OF THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS The Audit Committee of the Board of Directors has selected Arthur Andersen LLP as the Company's independent accountants for the fiscal year ending February 3, 1996. At the Annual Meeting, shareholders will be requested to ratify such appointment. A representative of Arthur Andersen LLP is expected to attend the Annual Meeting with the opportunity to make a statement if he or she so desires and to respond to questions. REQUIRED VOTES OF SHAREHOLDERS Under Delaware law and pursuant to the Company's Bylaws, the presence in person or by proxy of the holders of a majority of the voting power of both classes of Common Stock entitled to vote at the Annual Meeting is necessary for a quorum to transact business for matters as to which both classes of Common Stock vote together, including the adoption of the Dairy Mart Convenience Stores, Inc. 1995 Stock Option Plan for Outside Directors, the adoption of the Dairy Mart Convenience Stores, Inc. 1995 Stock Option and Incentive Award Plan and the ratification of the appointment of Arthur Andersen LLP as independent accountants. With respect to matters as to which each class of Common Stock is entitled to vote separately, including the election of directors by the respective classes, the presence in person or by proxy of the holders of one-third of the shares of Common Stock of the applicable class is necessary for a quorum to transact such business. In order for the nominees to be elected as directors by the shareholders of their respective classes of Common Stock, the affirmative vote of the holders of a majority of the Common Stock of the applicable class present in person or by proxy is necessary. In order for the adoption of the 1995 Stock Option Plan for Outside Directors, the adoption of the 1995 Stock Option and Incentive Award Plan, and the appointment of Arthur Andersen LLP to be ratified, the affirmative vote of the holders of a majority of the combined voting power of both classes of Common Stock present in person or by proxy is necessary. Abstentions, broker non-votes and other non-votes will not be counted as votes against the election of the nominees as directors, the adoption of the 1995 Stock Option Plan for Outside Directors, the adoption of the 1995 Stock Option and Incentive Award Plan or against the ratification of the appointment of Arthur Andersen LLP, but they will have the effect of a negative vote in determining whether the requisite vote of the holders of a majority of the shares of Common Stock of each class present at the meeting has been obtained for the election of the nominees as directors, and whether the requisite vote of the holders of a majority of the combined voting power of both classes of Common Stock present in person or by proxy has been obtained with respect to the adoption of the 1995 Stock Option Plan for Outside Directors, the adoption of the 1995 Stock Option and Incentive Award Plan and the ratification of the appointment of Arthur Andersen LLP. The Company intends to appoint an independent person to act as an inspector of elections at the Annual Meeting who will be responsible for counting the votes. SHAREHOLDER PROPOSALS If a shareholder desires to present a proposal for inclusion in next year's Proxy Statement relating to the next Annual Meeting of the Shareholders of the Company, such shareholder must submit such proposal in writing to: Dairy Mart Convenience Stores, Inc., One Vision Drive, Enfield, Connecticut, 06082, Attention: Gregory G. Landry, Executive Vice President and Chief Financial Officer, not later than August 28, 1996. 27 CLASS A PROXY DAIRY MART CONVENIENCE STORES, INC. ANNUAL MEETING OF SHAREHOLDERS JANUARY 19, 1996 THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Robert B. Stein, Jr., Gregory G. Landry and Frank W. Barrett, and each or any of them, with full power of substitution, the proxies of the undersigned to vote all of the shares of Class A Common Stock of Dairy Mart Convenience Stores, Inc. ("Dairy Mart") which the undersigned is entitled to vote at the Annual Meeting of Shareholders of Dairy Mart to be held at Dairy Mart's headquarters located at One Vision Drive, Enfield, Connecticut on the 19th day of January, 1996 at 10:00 a.m., and at any adjournment or postponement thereof, with all the powers the undersigned would possess if personally present upon: (TO BE SIGNED ON REVERSE SIDE) SEE REVERSE SIDE [X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE. FOR WITHHELD 1. Election of [_] [_] Directors: For, except vote withheld from the following nominees: (To withhold authority for any individual nominee write that nominee's name in the space provided below) - --------------- NOMINEES: Thomas W. Janes and Truby G. Proctor, Jr. FOR AGAINST ABSTAIN 2. Adoption of the Dairy Mart Convenience [_] [_] [_] Stores, Inc. 1995 Stock Option Plan for Outside Directors. 3. Adoption of the Dairy Mart Convenience [_] [_] [_] Stores, Inc. 1995 Stock Option and Incentive Award Plan. 4. Ratification of the appointment of Arthur [_] [_] [_] Andersen LLP as independent accountants for the fiscal year ending February 3, 1996. 5. In their discretion such other matters as [_] [_] [_] may properly come before the meeting. UNLESS A CONTRARY DIRECTION IS INDICATED, THE SHARES REPRESENTED BY THIS PROXY SHALL BE VOTED FOR THE ELECTION OF THE NOMINEES AS DIRECTORS, FOR THE ADOPTION OF THE DAIRY MART CONVENIENCE STORES, INC. 1995 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS, FOR THE ADOPTION OF THE DAIRY MART CONVENIENCE STORES, INC. 1995 STOCK OPTION AND INCENTIVE AWARD PLAN AND FOR THE RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDING FEBRUARY 3, 1996 AND IN THE DISCRETION OF THE PROXIES AS TO OTHER MATTERS. SIGNATURE(S) ___________________________________________________ DATE___________ NOTE: Please sign exactly as your name appears on this proxy. If signing for estates, trusts, or corporations, title or capacity should be stated. If shares are held jointly, each holder should sign. CLASS B PROXY DAIRY MART CONVENIENCE STORES, INC. ANNUAL MEETING OF SHAREHOLDERS JANUARY 19, 1996 THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Robert B. Stein, Jr., Gregory G. Landry and Frank W. Barrett, and each or any of them, with full power of substitution, the proxies of the undersigned to vote all of the shares of Class B Common Stock of Dairy Mart Convenience Stores, Inc. ("Dairy Mart") which the undersigned is entitled to vote at the Annual Meeting of Shareholders of Dairy Mart to be held at Dairy Mart's headquarters located at One Vision Drive, Enfield, Connecticut on the 19th day of January, 1996 at 10:00 a.m., and at any adjournment or postponement thereof, with all the powers the undersigned would possess if personally present upon: (TO BE SIGNED ON REVERSE SIDE) SEE REVERSE SIDE [X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE. FOR WITHHELD 1. Election of [_] [_] Directors: For, except vote withheld from the following nominees: (To withhold authority for any individual nominee write that nominee's name in the space provided below). - ------------ NOMINEES: Frank W. Barrett, J. Kermit Birchfield, Jr., John W. Everets, Jr., Gregory G. Landry, and Robert B. Stein, Jr. FOR AGAINST ABSTAIN 2. Adoption of the Dairy Mart Convenience [_] [_] [_] Stores, Inc. 1995 Stock Option Plan for Outside Directors. 3. Adoption of the Dairy Mart Convenience [_] [_] [_] Stores, Inc. 1995 Stock Option and Incentive Award Plan. 4. Ratification of the appointment of [_] [_] [_] Arthur Andersen LLP as independent accountants for the fiscal year ending February 3, 1996. 5. In their discretion such other matters [_] [_] [_] as may properly come before the meeting. UNLESS A CONTRARY DIRECTION IS INDICATED, THE SHARES REPRESENTED BY THIS PROXY SHALL BE VOTED FOR THE ELECTION OF THE NOMINEES AS DIRECTORS, FOR THE ADOPTION OF THE DAIRY MART CONVENIENCE STORES, INC. 1995 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS, FOR THE ADOPTION OF THE DAIRY MART CONVENIENCE STORES, INC. 1995 STOCK OPTION AND INCENTIVE AWARD PLAN AND FOR THE RATIFICATION OF THE AP- POINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDING FEBRUARY 3, 1996 AND IN THE DISCRETION OF THE PROXIES AS TO OTHER MAT- TERS. SIGNATURE(S) __________________________________________ DATE _________________ NOTE: Please sign exactly as your name appears on this proxy. If signing for estates, trusts, or corporations, title or capacity should be stated. If shares are held jointly, each holder should sign. APPENDIX 3 ---------- DAIRY MART CONVENIENCE STORES, INC. ----------------------------------- 1995 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS -------------------------------------------- 1. Purpose. ------- The purpose of this 1995 Stock Option Plan For Outside Directors (the "Plan") is to attract and retain the continued services of non-employee directors of Dairy Mart Convenience Stores, Inc. (the "Company") with the requisite qualifications and to encourage such directors to secure or increase on reasonable terms their stock ownership in the Company. The Board of Directors of the Company (the "Board") believes that the granting of options (the "Options") under the Plan will promote continuity of management and increased personal interest in the welfare of the Company by those who are responsible for shaping and carrying out the long-range plans of the Company and securing its continued growth and financial success. 2. Effective Date of the Plan. -------------------------- The Plan shall become effective upon its approval by the Board of Directors; provided, however, that if the Plan is not approved by the shareholders of the Company at the 1995 annual meeting of the shareholders of the Company, then the Plan shall terminate. 3. Stock Subject to Plan. --------------------- 50,000 of the authorized but unissued shares, or treasury shares, of the Company's class A common stock, par value $.01 per share (the "Shares"), are hereby reserved for issuance upon the exercise of Options. If any Option expires or terminates for any reason without having been exercised in full, the unpurchased Shares subject thereto shall again be available for the grant of Options hereunder. 4. Administration. -------------- The Plan shall be administered by the Board of Directors of the Company (the "Board"). Subject to the provisions of the Plan, the Board of Directors shall have complete authority in its discretion to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it and to make all other determinations necessary or advisable for the administration of the Plan; provided, however, that the Board of Directors shall have no discretion to determine the non-employee directors who will receive Options, the number of Shares subject to Options, the terms upon which, the times at which, or the periods within which, Shares may be acquired or the Options may be acquired and exercised. -2- 5. Eligibility. ----------- An Option may be granted only to members of the Board who are not otherwise employees of the Company or any of its subsidiaries on the date of grant and have not been employees of the Company or any of its subsidiaries at any time since the beginning of the one year period preceding service on the Board (the "Participants"). 6. Grant of Options and Option Price. --------------------------------- (a) Initial Grant. On the date on which the Plan is approved by the Board -------------- of Directors, each Participant shall receive an automatic grant of an Option to purchase 3,500 Shares (the "Initial Option"). Individuals who become Participants after the date on which the Plan is approved by the Board of Directors shall not receive an Initial Option. Each grant of an Initial Option is conditioned upon (i) subsequent approval of the Plan by the shareholders of the Company at the 1995 annual meeting of shareholders, and (ii) the Participant not selling, transferring or otherwise disposing of the Shares underlying the Initial Option on or before the date which is six months after the date on which shareholder approval of the Plan is obtained (the "Six Month Date"). If the Plan is not approved by the shareholders of the Company at the 1995 annual meeting, then the Initial Options shall be void ab initio. Initial Options may not be exercised until after this Plan is approved by the Shareholders. (b) Annual Grants to Directors. On February 1 of each year, beginning on --------------------------- February 1, 1996, each Participant shall receive an automatic, annual grant of an Option to purchase 3,500 Shares (the "Annual Option"); provided, however that the number of Shares subject to future grant under the Plan is sufficient to make the automatic grants required to be made pursuant to the Plan on such date. So long as any of the Company's Stock Purchase Warrants dated December 1, 1995 (the "Warrants") are outstanding, if the exercise price, determined in accordance with Section 6(c) hereof, of any Annual Option is less than the "Base Price", as defined in the Warrants, then the Annual Option shall vest ratably over a period of four (4) years. If none of the Warrants remain outstanding or if the exercise price is equal to or greater than the Base Price, then the Annual Option shall be fully vested on the date of grant. (c) Exercise Price. The per Share price to be paid by a Participant upon --------------- the exercise of an Option shall be determined on the date of grant and shall be equal to (i) the last reported sales price of Class A common stock on the National Market System of NASDAQ or any similar system of automated quotation of securities prices then in common use, if so quoted for such date, or (ii) if not so quoted as described in clause (i) for any such date, the mean of the high and low bid quotations for the Class A common stock as reported by the National Quotation Bureau Incorporated if at least two securities dealers have inserted bid quotations for such class of stock on at least five (5) of the ten (10) trading days preceding the day in question, or (iii) if not so quoted as described in clauses (i) and (ii) above, for any such date if the Class A common stock is not listed or admitted for trading on any national securities exchange, the closing bid price of the Class A common stock on the principal securities exchange on which such class of stock is listed. If none of the conditions set forth in the preceding sentence is met, the exercise price on the date of grant shall be the fair market value of the Class A common stock as determined by a member of the New York Stock Exchange, Inc. of nationally recognized stature selected by the Company. -3- 7. Option Period. ------------- Participants shall be granted Options which are exercisable from the date that they are granted, subject to any vesting requirements set forth in Section 6(c), for a period of ten years from the date of the granting thereof, provided, however, that the Initial Options may not be exercised until after the approval of this plan by the shareholders. 8. Exercise of Option. ------------------ Subject to Section 10, an Option may be exercised in whole or in part at any time on or after the date it becomes exercisable by the Participant's delivering to the Company on any business day, at its principal executive offices, a written notice of exercise, which notice shall specify the number of Shares as to which the Option is being exercised, in whole or in part. Payment in full of the Option exercise price shall accompany such written notice as set forth below. After the exercise of an Option and payment in full of the exercise price, the Optionee shall be entitled to receive a stock certificate or certificates evidencing his or her ownership of Shares acquired upon such exercise. The purchase price shall be paid as follows: (i) in cash, certified or bank cashier's or teller's check; (ii) by surrender of Shares then owned by the Optionee; or (iii) partially in accordance with (i) and partially in accordance with (ii) of this Section. Shares surrendered in accordance with (ii) or (iii) shall be valued at their fair market value at the date of exercise. If the Shares are listed on a securities exchange or are quoted on the NASDAQ market the fair market value of the Shares shall be the closing price of the Shares as of the close of business on the date immediately preceding the date such shares are tendered to the Company for exercise of an Option. Surrender of such Shares shall be evidenced by the delivery of certificate(s) representing such Shares in such manner, and endorsed in such form, or accompanied by stock powers endorsed in such form, as the Board may determine. 9. Transferability. --------------- No Option shall be assignable or transferable, except by will and/or by the laws of descent and distribution. During the life of any Participant, each Option granted to the Participant may be exercised only by the Participant, or if he or she is disabled or incapacitated, by his or her legal representative. -4- 10. Ceasing to be a Director. ------------------------ If a Participant terminates service as a director for any reason including termination by reason of death of a Participant, any outstanding Option held by the Participant shall terminate on the earlier of (i) the date on which such Option would otherwise expire, or (ii) nine (9) months after such termination. 11. Duration of Plan. ---------------- Unless sooner terminated, the Plan shall remain in effect until all Shares have been issued upon the exercise of Options, and shall thereafter terminate. No Option may be granted after the termination of this Plan; provided, however, that, except for termination pursuant to Paragraph 2 above, termination of the Plan shall not affect any Option previously granted, and such Option shall remain in effect until exercised, surrendered or cancelled, or until it shall have expired, all in accordance with its terms. 12. Changes in Capital Structure, etc. ---------------------------------- In the event of changes in the outstanding common stock of the Company by reason of stock dividends, stock splits, recapitali zations, mergers, consolidations, combinations or exchange of shares, reorganizations, or liquidations, the number of Shares available under the Plan in the aggregate and the number of Shares as to which Options may be granted to any Participant shall be correspondingly adjusted by the Board. In addition, the Board shall make appropriate adjustments in the number of Shares as to which outstanding Options, or portions thereof then unexercised, shall relate, to the end that the Participant's proportionate interest shall be maintained as before the occurrence of such events (or, in the case of mergers and consolidations to the end that the Option shall be for the same number of Shares or other securities as a holder of the number of Shares underlying the Option prior to the merger or consolidation would have received as a result of the merger of consolidation); such adjustment shall be made without change in the total price applicable to the unexercised portion of Options and with a corresponding adjustment in the option price per Share. 13. Rights as Shareholder. --------------------- A Participant entitled to Shares as a result of the exercise of an Option shall not be deemed for any purpose to be, or have rights as, a shareholder of the Company by virtue of such exercise, except to the extent a stock certificate is issued therefor and then only from the date such certificate is issued. No adjustments shall be made for dividends or distributions or other rights for -5- which the record date is prior to the date such stock certificate is issued. 14. Expenses. -------- The expenses of this Plan shall be paid by the Company. 15. Compliance with Applicable Law. ------------------------------ Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause to be issued or delivered any certificates evidencing Shares pursuant to the exercise of an Option, unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws and regulations of governmental authority. The Company shall in no event be obligated to register any securities pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended) or to take any other action in order to cause the issuance and delivery of such certificates to comply with any such law or regulation. The Board may require, as a condition of the issuance and delivery of such certificates and in order to ensure compliance with such laws and regulations, that the Participant make such covenants, agreements and representations as the Board, in its sole discretion, deems necessary or desirable. If any federal, state, or local income taxes, employment taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other amounts are required by applicable law or governmental regulation to be withheld from the Participant's salary, wages, renumeration or otherwise in connection with the exercise of an Option, the Participant shall advance in cash to the Company the amount of such withholdings unless a different withholding arrangement, including the use of Shares, is authorized by the Board (and permitted by law); provided, however, that with respect to persons subject to Section 16 of the Securities Exchange Act of 1934 (the "1934 Act), any such withholding arrangement shall be in compliance with any applicable provisions of Rule 16b-3 promulgated under Section 16 of the 1934 Act, or such other similar rules as may apply to such persons. For purposes hereof, the value of the Shares withheld for purposes of payroll withholding shall be the fair market value of the Shares, as set forth in Section 8. If the fair market value of the Shares withheld is less than the amount of withholdings required, the Participant may be required to advance the difference in cash to the Company. The Board in its discretion may condition the exercise of an Option on the Participant's payment of such additional withholding. -6- 16. Acceleration and Termination of Options. ---------------------------------------- Notwithstanding any other provision of this Plan, a dissolution or liquidation of the Company, or a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with an affiliate of the Company), or a Change of Control of the Company (as defined below) shall cause any unexercised portion of an Option to terminate, except for any outstanding unexercised Option as to which the Company or another corporation makes appropriate provision for the protection of the value thereof and either assumes the Option, or substitutes another Option, with substantially similar terms; provided, however, a Participant shall have the right immediately -------- ------- prior to such dissolution, liquidation, merger, consolidation, or Change of Control, to exercise the unexercised portion of the Option, in whole or in part. The Participant shall have until the close of business on the day preceding the effective date of any such dissolution, merger consolidation, or Change of Control, or preceding the commencement of any such liquidation, to exercise the Option. Such effective date or commencement date shall be the date designated in a written notice from the Board to the Optionee, which notice shall be given not less than fourteen (14) days prior to such designated effective date or commencement date, provided that for the purposes of this Section, the effective date shall be the date designated, whether or not the dissolution, merger, consolidation or Change of Control actually becomes effective on such date. If such dissolution, liquidation, merger, consolidation, or Change of Control is not consummated within thirty (30) days after such effective date, and if the Participant has not exercised the Option in full, then the Option or (or any part of such Option which has not yet been exercised) shall continue in full force and effect as if no such notice had been given. For purposes hereof, a "Change of Control" shall mean the consummation of a transaction in which the beneficial ownership or control of the Company is or may be changed such that one or more persons or entities (other than persons or entities who beneficially owned more than ten percent (10%) of the Shares on the date the Option was granted and other than persons who are directors of the Company on the date the Option has granted (or entities controlled by such persons)) obtain beneficial ownership or control of more than fifty percent (50%) of the assets or outstanding voting securities or equity interests of the Company. Such transactions include, without limitation, sales of substantially all of the assets of the Company, acquisitions of ownership or control by tender offer, and acquisitions of such ownership or control through the issuance of authorized but unissued capital stock of the Company. -7- 17. Application of Funds. -------------------- Any cash proceeds received by the Company from the sale of Shares pursuant to Options will be used for general corporate purposes. 18. Amendment of the Plan. --------------------- The Board may from time to time suspend or discontinue this Plan or revise or amend it in any respect whatsoever except that, without the approval of the shareholders, no such revision or amendment shall (a) increase the number of Shares subject to this Plan, (b) modify the requirements as to eligibility for a grant of an Option, (c) materially increase the benefits accruing to the Participants under this Plan, or (d) be of a nature that requires shareholder approval in order to ensure the compliance of the Plan with Rule 16b-3 promulgated under the 1934 Act, or such similar rule as may apply to the Plan. No such suspension, discontinuance, revision or amendment shall in any manner affect any Option theretofore granted without the consent of the Participant or the transferee of the Participant, unless necessary to comply with applicable law. 19. Governing Law. -------------- This Plan shall be construed and enforced in accordance with the law of the State of Connecticut. -----END PRIVACY-ENHANCED MESSAGE-----