10-K 1 l88054ae10-k.txt DAIRY MART CONVENIENCE STORES, INC. FORM 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED FEBRUARY 3, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO ____

COMMISSION FILE NUMBER 0-12497 DAIRY MART CONVENIENCE STORES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 04-2497894 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

ONE DAIRY MART WAY, 300 EXECUTIVE PARKWAY WEST, HUDSON, OHIO 44236 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (330) 342-6600 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ] As of April 27, 2001, 5,002,026 shares of Common Stock were outstanding, and the aggregate market value of Common Stock outstanding of DAIRY MART CONVENIENCE STORES, INC., held by nonaffiliates was approximately $15,682,931. 2 PART I ITEM 1. BUSINESS BUSINESS OUTLOOK This Form 10-K contains forward-looking statements within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements relating to the Company's plans and objectives to complete a merger, implement business segmentation and restructuring plans, upgrade and remodel store locations, build new stores and increase gasoline sales, reduce the impact of under-performing stores, sell or lease certain assets, the Company's availability of supplies of gasoline, the estimated costs for environmental remediation, successful implementation of tax planning strategies, and the sufficiency of the Company's liquidity and the availability of capital. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Such factors and uncertainties include, but are not limited to, the availability of financing and additional capital to complete the merger or otherwise pursue the Company's alternative business strategy, each on acceptable terms, if at all, the future profitability of the Company, the availability of desirable store locations, the Company's ability to negotiate and enter into lease, acquisition and supply agreements on acceptable terms, competition and pricing in the Company's market areas, volatility in the wholesale gasoline market due to supply interruptions, modifications of environmental regulatory requirements, detection of unanticipated environmental conditions, the timing of reimbursements from state environmental trust funds, the Company's ability to manage its long-term indebtedness, weather conditions, the favorable resolution of certain pending and future litigation, and general economic conditions. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. GENERAL Dairy Mart Convenience Stores, Inc., and its subsidiaries (the "Company" or "Dairy Mart") operate one of the nation's largest regional convenience store chains. Founded in 1957, the Company operates or franchises 547 stores under the "Dairy Mart" name in seven states located in the Midwest and Southeast, of which 103 stores are franchised. Dairy Mart stores offer a wide range of products and services which cater to the convenience needs of its customers, including gasoline, milk, ice cream, groceries, beverages, snack foods, candy, deli products, publications, health and beauty care aids, tobacco products, select highly consumable general merchandise, lottery tickets, money orders and select customer focused services. The stores are typically located in densely populated, suburban areas on sites which are easily accessible to customers and provide ample parking. Dairy Mart stores are generally free-standing structures which are well-lit and are designed to encourage customers to purchase high profit margin products, such as deli items, coffee, fountain drinks and other fast food items. The Company is incorporated in Delaware and maintains its principal executive offices at One Dairy Mart Way, 300 Executive Parkway West, Hudson, Ohio 44236. The Company's telephone number is (330) 342-6600. During fiscal year 1998, the Company sold 156 convenience store and retail gasoline locations in Connecticut, Rhode Island, Massachusetts and New York to the DB Companies, Inc., a Rhode Island-based convenience store operator and gasoline wholesaler and retailer for approximately $39.1 million. On March 15, 2001, in connection with a previously-disclosed review of the Company's strategic alternatives, including a possible sale, the Company executed a merger agreement (the "Merger Agreement") pursuant to which DM Acquisition Corp. agreed to acquire the Company in a cash merger for $4.50 per share. DM Acquisition Corp. is controlled by Robert B. Stein, Jr., the Chairman, President and Chief Executive Officer of the Company. The Merger Agreement provides that DM Acquisition Corp. will be merged with and into the Company and that each share of the Company's Common Stock outstanding immediately prior to the merger, other than those owned by Mr. Stein and his affiliates, will be converted into the right to receive $4.50 per share in cash. The Company's board of directors, based on the unanimous recommendation of a special committee of 2 3 independent directors, has approved the transaction and recommended that the Company's stockholders approve the transaction. In connection with the merger, the Company will solicit its senior subordinated noteholders to exchange their subordinated notes of the Company and receive, for each $10,000 in principal amount of the old notes, $3,870 in principal amount of new notes of the Company, $6,191.30 in cash and a warrant to purchase Common Stock of the Company that will not become exercisable until after the merger is completed. The Company has entered into an exchange and voting agreement pursuant to which holders of approximately 70% of the senior subordinated notes have agreed to participate in the exchange. The Merger Agreement is subject to customary conditions, including completion of necessary financing arrangements and approval of holders of a majority (excluding those shares held by persons who will have an interest in the buyout entity) of the shares of the Company's Common Stock voting at a special meeting. If the merger is completed, the Company will no longer be a public company. There can be no assurance, however, that the Company or DM Acquisition Corp. will be able to complete the merger. In addition, the Company has reinitiated and modified a previously announced comprehensive program to improve the Company's profitability and reduce debt (the "Business Segmentation Plan"). Under the Business Segmentation Plan, the Company will attempt to sell or otherwise close approximately 200 stores that do not meet internal profitability criteria, reduce corporate and field overhead and apply proceeds from the sale of stores to reduce outstanding borrowings. However, as a result of experiencing further losses from operations, the Company has modified and accelerated the portion of the Business Segmentation Plan that relates to a reduction in corporate overhead. Under this modification, the Company has commenced a business restructuring plan (the "Business Restructuring Plan") pursuant to which certain general and administrative overhead costs have been reduced in advance of those cost reductions which can only be achieved after the underperforming stores are sold or closed. Accordingly, in the first quarter of fiscal year 2002, approximately 30 executive, managerial and administrative positions were eliminated. These staff reductions and associated costs are expected to result in savings of approximately $3.0 million per year. The Company has commenced implementing each of these plans and intends to complete them whether or not the merger is completed. There can be no assurance, however, that either of these plans will be successfully completed as contemplated. STORES The Company's stores are generally located in suburban areas, and are situated close to single-family homes and apartments to attract neighborhood shoppers. Store location, design, lighting and layout are intended to cater to customers' desire for fast and convenient access. 276 locations also sell gasoline, which the Company believes is an important convenience for customers. Shelving and displays, including refrigeration units, deli and other fast food counters and displays, are designed to encourage customers to purchase high profit margin products including impulse purchase items such as candy, fountain drinks and ice cream novelties. All of the Company's stores also offer extended hours for additional convenience, with over one-half of the stores open 24 hours per day. A typical Dairy Mart store ranges between 2,400 and 3,800 square feet and is a free-standing structure. As of February 3, 2001, the Company operated and franchised retail convenience stores in the following states:

3 4 The following table shows the number of Company and franchise stores that were opened or acquired, closed or sold, and transferred between Company operated and franchise operated, during the last three fiscal years:

UPGRADE AND REMODEL OF EXISTING STORE BASE AND CLOSING UNDERPERFORMING STORES The Company has an ongoing program to upgrade and remodel the Company's retail and gasoline locations to cater to the always-changing convenience needs of today's customer. The program includes modernizing and re-imaging the store's appearance, upgrading the gasoline facilities and installing modern environmental protection equipment. The Company evaluates the performance of each of its stores in order to determine its contribution to the Company's overall profitability. Management determines a minimum acceptable level of store performance required for a store to be eligible for on-going capital expenditures and/or lease option renewal or renegotiation. Accordingly, in fiscal year 2001, the Company closed 28 of its retail facilities because of their inability to meet the Company's economic and non-economic criteria for long-term stability and growth. An additional 37 stores were sold to independent operators in fiscal year 2001. Additional stores may be closed during fiscal 2002 as part of the Business Segmentation Plan. NEW STORES A major component of the Company's growth strategy has been to build new stores and increase sales. During the fourth quarter of fiscal year 2000, the Company decided to slow the pace of its new store expansion program in light of current market conditions, which caused, in part, the maturation process for new stores to be longer than originally expected. The Company considers new stores to have reached maturity when they are generating operating results which achieve an acceptable rate of return on invested capital. Accordingly, during fiscal year 2001, the Company opened nine new stores, all of which offer gasoline through modern facilities, including credit card readers in the gasoline dispensers. The Company has put on hold additional new store development pending the outcome of the previously-mentioned merger. 4 5 TECHNOLOGICAL UPGRADE/RETAIL AUTOMATION IMPLEMENTATION The table and discussion below summarizes the Company's plans with respect to technology upgrades and retail automation initiatives:

Phases one, two and three provided a new foundation for store accounting and management reporting. The new host system is driven by the concept of centralized store control. This allows for the collection and distribution of more detailed and timely information from store operations and provides the basis for the formation and implementation of improved merchandising strategies. Phase four, the implementation of a centralized automated pricebook, allows for the definition of market zones and the management of a retail pricing strategy from the corporate office. The implementation of a centralized automated pricebook is expected to improve retail margins through increased accuracy of retail pricing and verification of agreed upon vendor costs. Additionally, the pricebook is expected to save data entry time, reduce data entry errors and provide greater control over store merchandise inventory. Phase five is expected to produce labor savings at both the corporate headquarters and the stores. Item level receiving is expected to allow the Company to receive inventory more timely and accurately and create credit memos in the event of an incorrect vendor cost. Scanning is expected to allow for a reduction in overall inventory levels and better merchandising of the store thereby increasing margins and reducing the overhead needed to price products. Phase six is expected to produce labor savings at the store related to the Shelf Tag Implementation for scanning stores because merchandise will no longer be required to be individually price marked. Scanning in the lower volume stores will achieve the same benefits as mentioned above. The Pricebook Exception system allows for automated credit memos in the event that a vendor's pricebook differs from the Company's. The Item Sales Analysis System will assist the Company in evaluating item level product movement and improve purchasing decisions. GASOLINE OPERATIONS Gasoline sales accounted for approximately 48% of total revenue in fiscal year 2001, 40% in fiscal year 2000 and 35% in fiscal year 1999. As of February 3, 2001, 276 stores sold gasoline. 5 6 The Company's gasoline pricing strategy has historically been designed, in part, to provide value to customers by offering the same quality gasoline offered by major oil companies at prices which are generally below the prices of nationally advertised brands and comparable to the prices of other convenience store chains. The Company obtains its gasoline from major oil company suppliers and believes that there are adequate supplies of fuel available from a number of sources at competitive prices. In an effort to provide name-brand recognition, the Company entered into a long-term agreement with Chevron Products Company in August 1998, to sell branded gasoline at some of its locations in Kentucky and Southern Indiana. The Company finished conversion of these stores during the fourth quarter of fiscal year 1999. As of February 3, 2001, 72 of the Company's locations sell Chevron branded gasoline, primarily in Kentucky. Branding the Company's gasoline assets has improved the overall quality of these assets and is considered important in attracting new customers who prefer to purchase major-oil branded gasoline. Branding also offers the Company access to the credit card base of the branding partner, whose branded customers tend to purchase higher-octane fuels that carry a higher gross profit margin. Gasoline profit margins have a significant impact on the Company's income. These profit margins could be adversely influenced by factors beyond the Company's control, such as volatility in the wholesale gasoline market due to supply interruptions. In addition, gasoline profit margins are continually influenced by competition in each local market area. In fiscal year 2001, the Company's operating results have been adversely impacted by higher wholesale gasoline prices and competitive pressures which prevented the Company from fully recovering these higher wholesale costs in the form of higher retail selling prices. PRODUCT SELECTION All stores generally offer more than 3,000 core food and non-food convenience items featuring well-known national brand names, as well as the Company's private label products. Food items include a wide variety of products, including canned foods and groceries, dairy products, beverages, snack items, candy, baked goods and food service items, such as fountain soft drinks, coffee, cappuccino, hot dogs, deli meats and deli sandwiches and similar foods. Non-food convenience items include gasoline (at 276 stores), cigarettes, health and beauty aids, publications, lottery tickets and money orders. The Company has installed branded food service, which carries a relatively higher gross profit margin, at 37 store locations, including 13 Mr. Heros(R), 13 Taco Bells(R) and eight Subways(R). The Company has entered into an agreement with Restaurants Developers Corporation to develop Mr. Hero(R) quick-serve restaurants in most of Ohio and all of Kentucky. Mr. Hero(R) sandwiches are well-established regional brands with strong consumer recognition in Northeastern Ohio. The Company opened six Mr. Hero(R) locations in fiscal year 2001. These branded food service offerings allow the Company to offer competitive, high-quality food service and increase customer traffic providing ancillary sales opportunities for gasoline and other convenience items. During fiscal year 2001, the Company closed 14 quick-serve restaurants that failed to meet performance criteria. The convenience store and gasoline operations in these 14 locations continue to operate. In recent years, the Company has altered the mix of products and services to emphasize the sale of items carrying higher profit margins. Fast food items carry higher profit margins and tend to lead to the purchase of other high profit margin products and impulse items, including salty-snacks, candy and beverages. Dairy Mart offers a number of private label products such as milk, bakery products, juices, dips and cheeses that generally carry a higher gross profit margin than the Company's average gross profit margin on comparable brand-name products. The Company signed an agreement with Coca-Cola USA Fountain in January 1999, to exclusively sell Coca-Cola fountain products in the store's fountain centers. In March 1999, the Company signed an agreement with Procter & Gamble to exclusively sell Millstone brand coffee blends in Dairy Mart stores through February 2004. Dairy Mart is the only convenience store chain in its markets selling Millstone coffee. In March 1999, the Company entered into a seven-year agreement to provide ATM services at all of its locations. In an effort to build customer traffic and sales, the ATM service was initially priced free to the customer. Effective April 1, 2000, in an effort to improve the Company's overall profitability, the Company began charging $.99 per 6 7 transaction at most locations. Subsequently, the fee was increased to $1.50 per transaction in September 2000. The Company believes that the current fee is competitively priced. FRANCHISE OPERATIONS The Company franchises 103 stores. Franchise stores generally follow the same operating policies as Company stores, and are subject to Company supervision under franchise agreements. Company operated and franchise stores are of the same basic store design and sell substantially the same products. The Company offers two types of franchising arrangements: a "full" franchise and a "limited" franchise. Under a full franchise agreement, the franchisee purchases and owns both the merchandise inventory and the equipment located in the store and leases or subleases the store from the Company. Under a limited franchise agreement, the franchisee owns only the merchandise inventory while the Company retains ownership of the store equipment. Franchise fees are higher for limited franchisees. As of February 3, 2001, there were 38 full franchise locations and 65 limited franchise locations. INTERNATIONAL OPERATIONS The Company conducts business outside the United States as a licensor or as a consultant. The Company's agreements with convenience store operators in South Korea and Malaysia expired during fiscal year 2001 and these agreements were not renewed. In fiscal year 2000, the Company entered into a consulting arrangement with a convenience store operator in Aruba. The Company does not consider the revenue it receives under these agreements to be material to its revenues as a whole. ADVERTISING To promote a uniform image for all stores, the Company designs and coordinates advertising for most stores to complement its marketing strategy, which is derived, in part, from market history and research. In-store, newspaper, direct-mail, special promotions, outdoor billboard and radio advertising focus on food service offerings and also feature certain specially priced items designed to attract today's time-constrained consumers in search of convenience related items, and typically include national brand items for which advertising costs are often supplemented by the national brand vendor partners. Sales promotions are generally established and maintained on a monthly basis. COMPETITION AND OTHER EXTERNAL INFLUENCES The convenience store and retail gasoline industries are highly competitive. The number and type of competitors vary by location. The Company presently competes with other convenience stores, large integrated gasoline service station operators, supermarket chains, neighborhood grocery stores, independent gasoline service stations, fast food operations and other similar retail outlets, some of which are well recognized national or regional retail chains. The Company's competitors generally have greater financial resources than the Company. Key competitive factors include, among others, location, ease of access, store management, product selection, pricing, hours of operation, store safety, cleanliness, product promotions and marketing. Weather conditions have a significant effect on the Company's sales, as convenience store customers are more likely to go to stores to purchase convenience goods and services, particularly higher profit margin items such as fast food items, fountain drinks and other beverages, when weather conditions are favorable. Accordingly, the Company's stores generally experience higher revenues and profit margins during the warmer weather months, which fall within the Company's second and third fiscal quarters. EMPLOYEES As of February 3, 2001, exclusive of franchisees and franchisees' employees, the Company employed, on a full-time or part-time basis, approximately 3,900 employees. The Company has not experienced any work stoppages. There are no collective bargaining agreements between the Company and any of its employees. 7 8 ENVIRONMENTAL COMPLIANCE The Company incurs ongoing costs to comply with federal, state and local environmental laws and regulations, including costs for assessment, compliance, remediation and certain capital expenditures relating to its gasoline operations. These laws and regulations relate primarily to underground storage tanks ("USTs"). The United States Environmental Protection Agency has established standards for, among other things, (i) maintaining leak detection, (ii) upgrading UST systems, (iii) taking corrective action in response to releases, (iv) closing USTs to prevent future releases, (v) keeping appropriate records and (vi) maintaining evidence of financial responsibility for taking corrective action and compensating third parties for bodily injury and property damage resulting from releases. A number of states in which the Company operates also have adopted UST regulatory programs. The Company has retained an outside third party to perform testing and remediation services for those of its stores for which it is primarily responsible for performing environmental compliance and remediation. In the ordinary course of business, the Company periodically detects releases of gasoline or other regulated substances from USTs it owns or operates. As part of its program to manage USTs, the Company is involved in environmental assessment and remediation activities with respect to releases of regulated substances from its existing and previously operated retail gasoline facilities. The Company accrues its estimate of all costs to be incurred for assessment and remediation for known releases. These accruals are adjusted if and when new information becomes known. Additionally, the Company records receivables based upon the estimated reimbursement from various state environmental trust funds which have provisions for sharing or reimbursing certain costs incurred by UST owners or operators based upon compliance with the terms and conditions of such funds. Because of the nature of such releases, the actual costs of assessment and remediation activities may vary significantly from year to year. A more complete discussion of environmental remediation liabilities is included in the Notes to the Consolidated Financial Statements. ITEM 2. PROPERTIES The Company's stores are generally located in suburban areas, and are situated close to single-family homes and apartments to attract neighborhood shoppers. The stores are located in Ohio, Kentucky, Pennsylvania, Michigan, Indiana, Tennessee, and North Carolina. A typical Dairy Mart store ranges between 2,400 and 3,800 square feet and is a free-standing structure. Of the 547 stores in operation as of February 3, 2001, 75 were owned by the Company and 472 were leased. In addition, the Company owns eight locations and is the primary lessee for 27 locations not currently operated as Dairy Mart stores. The Company's policy is to endeavor to lease or sublease these locations to third parties. From time to time, the Company enters into sale-leaseback transactions whereby the Company sells retail locations and leases such locations back from the purchasers. The Company's corporate headquarters, a 47,000 square-foot facility in Hudson, Ohio, is leased from a third party. In addition, the Company leases administrative offices for various regional operations. In fiscal year 2000, the Company sold its former corporate headquarters, a 77,000 square-foot building and a portion of the 88 acres of land on which the building resides and the Company's former Northeast regional operating office building and manufacturing and processing plant located in a 33,000 square foot building. ITEM 3. LEGAL PROCEEDINGS The Company is a defendant in an action brought by a former supplier of certain dairy products to convenience stores formerly owned by the Company in Massachusetts, Rhode Island, Connecticut, and New York ("New England Stores"). The action is entitled New England Dairies, Inc. v. Dairy Mart Convenience Stores, Inc. and Dairy Mart, Inc., Civil Action No. 397CU00894 (U.S. District Court for the State of Connecticut). This action was commenced on April 17, 1997, by New England Dairies, Inc. ("NED") alleging that the Company committed an anticipatory breach of a supply agreement entered into between NED and the Company on April 25, 1995 ("the Agreement"), when the Company entered into a contract with a third party to sell all company-owned and franchised convenience stores in New England, without requiring the third party purchaser to assume the Agreement. NED's complaint alleges lost profits in the amount of $3.7 million. The defendants are contesting the claims and, at this time, the Company is not able to determine what the results of this litigation will 8 9 be. Trial of this case was completed on December 7, 2000, and it is not known when the judge will issue his ruling. The Company has recognized no provision for any possible loss in the accompanying financial statements. The Company was the plaintiff in an action commenced on April 20, 2000, entitled Dairy Mart Convenience Stores, Inc. v. RLI Insurance Group and RLI Insurance Company and RLI Corporation, Civil Action Number 5:00 CV 1043 (U.S. District Court for the Northern District of Ohio, Eastern Division), brought against RLI Insurance Group to recover $3.0 million under the Company's directors and officers excess liability insurance policy for legal fees incurred in the course of defending certain directors and officers of the Company in derivative litigation of Dairy Mart Convenience Stores, Inc. The Company recorded the $3.0 million as a receivable. On November 28, 2000, the Company reached an agreement in principle with RLI Insurance Group to settle the litigation for $1.8 million. Accordingly, a reduction in accounts receivable and other costs related to this settlement was recognized in the amount of $1.3 million during fiscal year 2001 and was included in general and administrative expenses. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET INFORMATION FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company has not paid cash dividends during the last three fiscal years, and pursuant to loan covenants contained in the Company's senior revolving credit facility, as amended, is currently restricted from paying dividends and from repurchasing its capital stock. As of February 9, 2000, the Company's former Class A and Class B Common Stock were reclassified into a new, single class of Common Stock. Under the terms of the reclassification, each share of the Company's former Class A Common Stock was converted into one share of the new Common Stock and each share of the former Class B Common Stock was converted into 1.1 shares of the new Common Stock. The Company's Common Stock trades on the American Stock Exchange under the symbol DMC. The table below sets forth the high and low sales prices per share of the Dairy Mart Common Stock as quoted on the American Stock Exchange during its fiscal year ended February 3, 2001.

The high and low sales price per share on Common Stock A from January 30, 2000 through February 9, 2000 was 3 3/8 and 3 1/4 respectively. The high and low sales price per share on Common Stock B from January 30, 2000 through February 9, 2000 was 3 1/2 and 3 1/8 respectively. The table below sets forth the high and low sales prices per share of the former Class A and Class B Common Stock, as quoted on the American Stock Exchange for its fiscal year ended January 29, 2000.

9 10 There were approximately 2,200 holders of the Company's Common Stock as of April 27, 2001. Included in this number are shares held in nominee or street names. ITEM 6. SELECTED FINANCIAL DATA FIVE FISCAL YEARS ENDED FEBRUARY 3, 2001 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

--------------- (a) Long-term obligations include the current portion of long-term obligations. (b) EBITDA is significant to the Company's calculations of its financial covenants and is defined as earnings before interest expense, income taxes and depreciation and amortization. EBITDA should not be viewed as a substitute for, or in isolation from, Generally Accepted Accounting Principles (GAAP) measurements such as net income (loss) or cash flow from operations. 10 11 FINANCIAL HIGHLIGHTS FOR THE FISCAL YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30, 1999 (IN THOUSANDS, EXCEPT NUMBER OF LOCATIONS, GROSS PROFIT PER GALLON AND PER SHARE DATA)

--------------- (1) The calculation of average sales per store, average gross profit per store, average franchise fees per store and gasoline gallons per store is based on a weighted-average number of stores open during fiscal years 2001, 2000 and 1999, respectively. (2) The calculation uses total outstanding shares including the dilutive effect of stock options, stock grants and stock warrants as of February 3, 2001, January 29, 2000 and January 30,1999, respectively. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RECENT DEVELOPMENTS Since the end of the Company's fiscal year 2001, the Company has entered into the Merger Agreement and commenced the initiation of a Business Restructuring Plan and a Business Segmentation Plan. For a more 11 12 complete discussion of the Merger Agreement, the Business Restructuring Plan and the Business Segmentation Plan, see Item 1. Business--General. CONSOLIDATED STATEMENTS OF OPERATIONS (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) FOR THE FISCAL YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30, 1999

FISCAL YEAR 2001 RESULTS COMPARED TO FISCAL YEAR 2000 RESULTS: Revenues Revenues for fiscal year 2001 increased $135.2 million compared to fiscal year 2000. The Company's fiscal year ends on the Saturday closest to January 31. There were 53 weeks included in the fiscal year ended February 3, 2001 and 52 weeks in the fiscal year ended January 29, 2000. A summary of revenues by functional area is shown below:

Convenience store revenues increased $21.6 million, or 6.1%, in fiscal year 2001 compared to fiscal year 2000. This increase is the result of the inclusion of 53 weeks in fiscal year 2001, as described above, a 2.8% increase in comparable Company-operated store sales and the opening of nine new stores during fiscal year 2001, partially offset by the closure or sale of 65 under-performing stores. Gasoline revenues increased $113.8 million in fiscal year 2001 compared to fiscal year 2000 as a result of the inclusion of 53 weeks in fiscal year 2001, an increase in the average selling price of gasoline of 30.7 cents per gallon and an increase in total gallons sold of 35.4 million, or 17.5%. The increase in gallons sold is primarily a result of opening 27 convenience stores during fiscal years 2000 and 2001, all of which have expanded gasoline facilities resulting in substantially higher average gasoline sales than the Company's older, less modern convenience stores that sell gasoline. Gallons of gasoline sold for comparable stores that sell gasoline decreased 2.3% from fiscal year 2000 to fiscal year 2001. 12 13 Gross Profit Gross profit increased $2.7 million from fiscal year 2000 to fiscal year 2001. A summary of gross profit by functional area is shown below:

Convenience store gross profits increased by $3.3 million in fiscal year 2001 compared to fiscal year 2000. The increase in store gross profit was a result of the increase in convenience store sales, as described above, partially offset by a decrease in overall convenience store gross profit margin. Convenience store gross profit margin decreased from 34.3% in fiscal year 2000 to 33.2% in fiscal year 2001. Convenience store gross profit margins decreased primarily because cigarette sales increased relative to total sales and cigarette sales carry a lower gross profit margin than merchandise sales in total. In addition, the gross profit margin on cigarette sales decreased as a result of increases in wholesale cigarette costs during fiscal year 2001. Gasoline gross profits decreased $0.4 million in fiscal year 2001 compared to fiscal year 2000. This decrease was primarily attributable to a 1.7 cent per gallon decrease in gasoline gross profit partially offset by the increase in gasoline gallons sold, described above. Gasoline gross profit was 9.4 cents per gallon in fiscal year 2001 compared to 11.1 cents per gallon in fiscal year 2000. Average product cost per gallon increased 31% in fiscal year 2001 compared to fiscal year 2000 as a result of increases in crude oil prices and wholesale gasoline costs during fiscal year 2001. However, competitive pressures in the Company's major market areas held the increase in the average retail price per gallon to 27%. In addition, credit card fees paid by the Company increased $1.8 million, or 83%, during fiscal year 2001 as a result of the higher average retail price of gasoline and the higher relative proportion of gasoline purchases made using credit cards. Operating and Administrative Expenses Operating and administrative expenses increased $20.4 million in fiscal year 2001 compared to fiscal year 2000. A summary of operating and administrative expenses is shown below:

Convenience store revenues increased $46.5 million, or 15.1%, in fiscal year 2000 compared to fiscal year 1999. This increase is the result of an 11.5% increase in comparable Company-operated store sales and the opening of 18 new stores during fiscal year 2000, partially offset by the closure or sale of 33 under-performing stores. Although the reduction in stores had a negative impact on revenues, it did not have a material adverse effect on results of operations. Gasoline revenues increased $63.3 million in fiscal year 2000 compared to fiscal year 1999 as a result of an increase in total gallons sold of 32.7 million, or 19.3%, and an increase in the average selling price of gasoline of 14.5 cents per gallon. The increase in gallons sold is primarily a result of opening 18 convenience stores during fiscal year 2000 all of which have expanded gasoline facilities resulting in substantially higher average gasoline sales than the Company's older, less modern convenience stores that sell gasoline. Gallons of gasoline sold for comparable stores increased 4.9% from fiscal year 1999 to fiscal year 2000. Gross Profit Gross profit increased $7.5 million from fiscal year 1999 to fiscal year 2000 A summary of gross profit by functional area is shown below:

14 15 Convenience store gross profit increased by $7.9 million in fiscal year 2000 compared to fiscal year 1999. The increase in store gross profit was a result of the increase in convenience store sales, as described above, partially offset by a decrease in overall convenience store gross profit margin. Convenience store gross profit margin decreased from 36.9% in fiscal year 1999 to 34.3% in fiscal year 2000. The decrease in margin was primarily the result of lower cigarette margins due to increases in the wholesale cost of cigarettes. Additionally, higher retail cigarette prices have increased carton sales, which are less profitable than sales of individual packs. Gasoline gross profit increased $2.5 million in fiscal year 2000 compared to fiscal year 1999. This increase was primarily attributable to the increase in gasoline gallons sold, as described above, partially offset by lower gross profit per gallon. Gasoline gross profit was 11.4 cents per gallon in fiscal year 2000 compared to 11.8 cents per gallon in fiscal year 1999. Gasoline gross profit was negatively impacted by increases in crude oil prices and wholesale gasoline costs in the fourth quarter of fiscal year 2000, and was substantially lower than the gross profit experienced in the previous three quarters and fiscal year when wholesale prices were considerably lower. Other revenues and gross profit decreased $2.9 million in fiscal year 2000 compared to fiscal year 1999 primarily as a result of a $3.0 million one-time fee recognized through the termination of a long-term ATM (automated teller machine) agreement earned in fiscal year 1999. The Company's former partner in the agreement agreed to the termination fee in lieu of its on-going payment obligations under the agreement, which were approximately $130,000 per month. Operating and Administrative Expenses Operating and administrative expenses increased $10.6 million in fiscal year 2000 compared to fiscal year 1999. A summary of operating and administrative expenses is shown below:

The increase in operating expenses was primarily the result of an increase in store wages, employee benefits, payroll taxes, advertising expense, depreciation and store occupancy costs. Store labor costs have increased as a result of wage rate increases required to attract store associates in a low unemployment environment and highly competitive labor market. Advertising expenses were increased to promote the Company's food service offerings. Depreciation and store occupancy costs increased as a result of the Company's new store expansion program and additional capital expenditures to implement food service programs and upgrade gasoline facilities. The decrease in general and administrative expenses was primarily the result of lower salary and wage costs and a net gain on the disposition of properties in fiscal year 2000 compared to a net loss in fiscal year 1999 partially offset by (1) $0.9 million of non-recurring expenses in fiscal year 2000 incurred in a derivative litigation settlement and the reclassification of the Company's former two classes of Common Stock into a new, single class of stock and (2) $0.5 million of expenses in fiscal year 2000 related to costs incurred relative to the Company's pursuit of a long-term gasoline supply and branding relationship for its Ohio and Michigan markets. Liquidity and Capital Resources The Company has a $30.0 million senior revolving credit facility (the "Credit Facility"). The Company can issue up to $15.0 million of letters of credit under the facility. The facility is due and payable on September 15, 2002. As of February 3, 2001, the Company had $24.3 million in outstanding revolving credit loans and $5.2 million in outstanding letters of credit under the facility. On October 28, 2000, the terms of the Credit Facility were amended to change certain financial covenants for the fiscal third quarter and to require the Company to (1) make a prepayment of $20.0 million of the outstanding revolving loan amounts on or before March 15, 2001 and (2) to reduce annually the outstanding revolving loan amounts to zero for 30 consecutive days during the period from July 1 through September 30. The Company paid 15 16 the participating lenders $300,000 in connection with entering into this amendment to the Credit Facility. On March 14, 2001, the terms of the Credit Facility were further amended to eliminate the requirement that the Company prepay $20 million of the outstanding revolving loan amounts on or before March 15, 2001. The Company paid the participating lenders $500,000 in connection with entering into this amendment to the Credit Facility. On May 7, 2001, the terms of the Credit Facility were further amended to (1) waive any default or event of default under the Credit Facility arising from any failure to comply with financial ratio covenants; (2) amend financial ratio covenants for the four quarters of fiscal year 2002; (3) eliminate the requirement to reduce annually the outstanding revolving loan amounts to zero for 30 consecutive days during the period from July 1 through September 30; and (4) change the maturity date from April 30, 2003 to September 15, 2002. The Company paid the participating lenders $750,000 in connection with entering into this amendment to the Credit Facility and will be obligated to pay those lenders an additional $250,000 on September 1, 2001, if the merger is not completed by that date. The ability of the Company to be in compliance with certain financial ratio covenants in the future is dependent upon the Company realizing improved operating results from those reported for the fiscal year ended February 3, 2001. Accordingly, the Company has commenced implementing the Business Restructuring Plan and the Business Segmentation Plan. The Company is also seeking alternative sources of financing to repay its outstanding obligations under the Credit Facility. These sources include the execution of long-term vendor supply agreements that would involve the receipt by the Company of monies due upon the execution of such agreements. During the first quarter of fiscal year 2002, the Company executed a long-term vendor supply agreement and received $8.7 million in cash in connection therewith. These proceeds were used to reduce outstanding borrowings under the Credit Facility. And, as further discussed in Item 1. Business--General, the Company is also seeking to consummate the merger that would result in the sale of the Company in its entirety and a refinancing of the Credit Facility. However, because the Merger Agreement is subject to certain conditions, including completion of necessary financing arrangements and stockholder approval, no assurances can be given that the merger will be consummated. If the merger is not completed and the Company is unable to successfully implement the Business Restructuring Plan, the Business Segmentation Plan and otherwise realize an improvement in operating results during fiscal year 2002, the Company may not be in compliance with certain amended financial ratio covenants as required by the Credit Facility. If the Company is not in compliance with these certain financial ratio covenant requirements in the future and the Credit Facility lenders do not waive these requirements or otherwise amend the Credit Facility, the Company would be in default and the Credit Facility lenders could cause repayment of the Credit Facility to be accelerated in which case amounts outstanding under the Credit Facility would become immediately due and payable. In addition, certain other indebtedness and obligations of the Company, including the senior subordinated notes, certain mortgage notes payable and certain operating leases, material to the Company's operations, would become immediately due and payable upon an acceleration of the Company's Credit Facility. The Company is not currently in default under any of these arrangements. Management anticipates that the cash flow from operations, the proceeds from the sale of certain assets and the execution of long-term vendor supply agreements will provide the Company with adequate liquidity to fund operations and meet its ongoing debt service requirements. Cash Provided By Operating Activities During fiscal year 2001, net cash provided by operating activities was $0.3 million compared to $6.8 million in fiscal year 2000. The decrease in net cash provided by operating activities for fiscal year 2001 compared to fiscal year 2000 was primarily the result of an increase in net loss and a decrease in accounts payable, partially offset by a decrease in accounts receivable and store inventory. The decrease in store inventory is the result of fewer stores in operation and the Company's effort to reduce cigarette inventory on hand and increase cigarette inventory turnover. Accounts receivable decreased primarily as a result of the receipt of insurance related proceeds and the partial write-off of insurance related accounts receivable in connection with a derivative litigation settlement, the timing of receipt of rebates due from trade vendors and a reduction in the number of franchise stores in operation and corresponding accounts receivable from franchisees. The decrease in accounts payable is a result of lower 16 17 trade vendor payables in connection with reduced levels of inventory and lower money order payables in connection with fewer stores in operation. Capital Expenditures The Company's capital expenditures, net of the proceeds from the sale of property, equipment and assets held for sale, were $7.6 million lower in fiscal year 2001 than in fiscal year 2000. In fiscal year 2001, the Company purchased $17.4 million of property and equipment, primarily for the construction of nine new stores that opened in fiscal year 2001. The Company has suspended its new store expansion program and the related capital expenditures pending its ability to consummate the merger. Management estimates that capital expenditures will be required in the range of $2.0 million to $3.0 million annually to replace existing property, plant and equipment that becomes obsolete and worn out in the ordinary course of business. Environmental Responsibility The Company's financial statements are prepared in conformity with the American Institute of Certified Public Accountants' Statement of Position ("SOP") No. 96-1, "Environmental Remediation Liabilities," that provides guidance on specific accounting issues that are present in the recognition, measurement and disclosure of environmental remediation liabilities. The Company accrues its estimate of all costs to be incurred for assessment and remediation with respect to release of regulated substances from existing and previously operated retail gasoline facilities. For a related discussion on environmental liabilities, see the Notes to the Consolidated Financial Statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE MARKET RISK The Company does not have any instruments that it believes would be materially affected by any future interest rate changes. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements of the Company and its subsidiaries and notes thereto, appear on pages F1 through F28 of this Form 10-K. The required Supplementary Data appears on page F30 of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 17 18 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Listed below are the names, positions and ages of the directors and executive officers of the Company as of April 27, 2001. Each executive officer will serve until a successor is selected by the Board of Directors or until the earlier of their resignation or removal.

ALBERT T. ADAMS Mr. Adams, a director since 1998, has been a partner with the law firm of Baker & Hostetler LLP in Cleveland, Ohio, since 1984, and has been affiliated with the firm since 1977. Mr. Adams is a director of American Industrial Properties REIT, Associated Estates Realty Corporation, Boykin Lodging Company, Captec Net Lease Realty, Inc. and Developers Diversified Realty Corporation. FRANK W. BARRETT Mr. Barrett, a director since 1983, has been Executive Vice President of Family Bank, FSB, a subsidiary of Peoples Heritage Financial Group since 1994. Mr. Barrett is a director of the Providence and Worcester Railroad, which provides freight rail service in Connecticut, Massachusetts and Rhode Island. J. KERMIT BIRCHFIELD, JR. Mr. Birchfield, a director since 1996, has been the Chairman of the Board of Displaytech, Inc., a manufacturer of high resolution miniature ferro-electric liquid crystal displays since 1995. Mr. Birchfield is a director of HPSC, Inc., company that provides financing for the purchase of health care equipment, Intermountain Gas Company, Inc., an Idaho public utility company, and the Compass Group of Mutual Funds of MFS, Inc., a wholly owned subsidiary of Sun Life of Canada, a registered mutual funds company. JOHN W. EVERETS Mr. Everets, a director since 1994, has been Chairman of the Board and Chief Executive Officer of HPSC, Inc., a company that provides financing for health care equipment since July 1993 and has been a director of HPSC, Inc. since 1983. Mr. Everets is also a director of Eastern Company, a manufacturing company. WILLIAM A. FOLEY Mr. Foley, a director since 1999, has been the Chairman, President, Chief Executive Officer and a director of LESCO, Inc., a manufacturer and direct marketer of turf care products and equipment, since July 1993. Mr. Foley is also a director of Libbey, Inc., a producer of glass products. 18 19 ROBERT B. STEIN, JR. Mr. Stein, a director since 1992, was elected President of the Company in September 1994, Chief Executive Officer in June 1995 and Chairman of the Board of Directors in December 1995. He joined the Company in 1983 and served in various positions including Treasurer, General Manager of the Midwest Region, and Executive Vice President-Operations and Marketing. Mr. Stein is also a director of LESCO, Inc., a manufacturer and direct marketer of turf care products and equipment. GREGORY G. LANDRY Mr. Landry, a director since 1991, has served as Chief Financial Officer of the Company since August 1990, was named Executive Vice President of the Company in April 1992, and Vice Chairman in April 2000. Mr. Landry joined the Company in October 1985 and served in various financial positions, including Treasurer. ALICE R. GUINEY Ms. Guiney was named Vice President Human Resources in November 1996. From June 1992 through November 1996, Ms. Guiney directed corporate and field operational disciplines of human resources for Sunglass Hut International, a retailer of sunglasses. SUSAN D. ADAMS Ms. Adams was named Vice President Finance and Treasurer in November 1997. From May 1997 through November 1997, Ms. Adams served as Assistant Treasurer for DoubleTree Corporation, an owner and operator of hotels. From February 1986 through May 1997, she held various positions, including Assistant Treasurer, with The Circle K Corporation, a convenience store operator and franchisor. DALE R. VALVO Mr. Valvo was named Vice President Gasoline and Store Development in February 1999. He joined the Company in April 1998 as Vice President Gasoline Operations. From July 1990 through October 1998, Mr. Valvo was General Manager Marketing-Southeast Business Unit for Fina Oil and Chemical Company, a diversified oil company. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Based on the Company's review of Forms 3, 4 and 5, all transactions occurring during fiscal year 2001 which required the reporting of changes in beneficial ownership of the Company's Common Stock were timely filed for all of the Company's executive officers and directors, except the Forms 5 that were inadvertently not filed by Messrs. Adams, Everets, and Foley in connection with their election to defer the payment of their directors' fees in an account that values that deferred compensation as if it were invested in the Common Stock of the Company. 19 20 ITEM 11. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS EXECUTIVE OFFICERS' COMPENSATION The following table summarizes the compensation earned by or paid to the Company's Chief Executive Officer and the Company's other five most highly compensated executive officers who served during the 2001 fiscal year. SUMMARY COMPENSATION TABLE

--------------- (a) The Company did not grant any stock appreciation rights nor make any long-term incentive plan payments during fiscal years 2001, 2000 or 1999. (b) Includes 25,000 shares and 18,000 shares granted to Mr. Stein and Mr. Landry, respectively, on April 6, 2000, at fair market value of $2.75 per share on that date. (c) Other annual compensation for the following named executive officers includes the following amounts paid on behalf of, or received by, each officer: (i) In fiscal year 2001, Mr. Stein received $68,750 in tax reimbursement relating to the award of 25,000 shares of Common Stock granted to Mr. Stein. In fiscal year 2000, Mr. Stein received $894 for relocation expense and $717 in tax reimbursement. In fiscal year 1999, Mr. Stein received $27,731 for relocation expense and $18,252 in tax reimbursement; (ii) In fiscal year 2001, Mr. Landry received $49,500 in tax reimbursement relating to the award of 18,000 shares of Common Stock granted to Mr. Landry; (iii) In fiscal year 2001, Mr. Colley received $25,231 in tax reimbursement and $561 in automobile allowance. Mr. Colley's employment with the Company began January 18, 2000; (iv) For Mr. Valvo the amounts represent automobile allowances. Mr. Valvo has been employed by the Company since April 1, 1998; (v) For Ms. Guiney the amounts represent automobile allowances; (vi) In fiscal year 2001, Ms. Adams received $6,000 in automobile allowance. In fiscal year 2000, Ms. Adams received $6,000 in automobile allowance. In fiscal year 1999, Ms. Adams received $24,100 for relocation expense, $14,093 in tax reimbursement, and $7,000 in automobile allowance. (d) Includes amounts contributed for the benefit of the Company's executive officers to the Company's Non-Qualified deferred compensation plan, qualified profit sharing plan and premiums paid by the Company for split-dollar and life insurance for the benefit of certain executive officers during the applicable years. Company contributions to the Non-Qualified deferred compensation plan for fiscal year 2001 included $4,231 for Mr. Stein, $3,385 for Mr. Landry, $4,076 for Mr. Valvo and $3,808 for Ms. Guiney, and $3,799 20 21 for Ms. Adams. Company contributions to the qualified profit sharing plan for each of the 2001, 2000, and 1999 fiscal years, respectively, included $462, $550 and $388 for Mr. Stein, $0, $550 and $388, for Mr. Landry, $260, $550 and $865 for Mr. Valvo, $243, $550 and $338 for Ms. Guiney, and $0, $550 and $536 for Ms. Adams. Premiums paid on split-dollar and life insurance for each of the 2001, 2000, and 1999 fiscal years, respectively, included $2,606, $8,880 and $9,882 for Mr. Stein, and $2,303, $8,670 and $9,621 for Mr. Landry. LONG-TERM INCENTIVE AWARDS IN LAST FISCAL YEAR The Company did not grant long-term incentive awards during the 2001 fiscal year to any of the named executive officers listed in the Summary Compensation Table. OPTIONS GRANTED IN LAST FISCAL YEAR The table below provides certain information regarding stock options granted during the Company's last fiscal year to the named executive officers listed in the Summary Compensation Table above.

--------------- (a) The options become fully exercisable over four years, with 25% of the options vesting on each anniversary of the option grant date. All options expire ten years from the date of grant, unless sooner terminated by, for example, the failure to exercise an option, to the extent it is then exercisable, before three months after termination of the optionee's 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. If the merger is completed, these options will become immediately exercisable. Messrs. Stein and Landry were also awarded 25,000 and 18,000 shares of stock, respectively, on the date the options were granted. (b) All options were granted at the exercise price per share equal to the fair market value of the Company's Common Stock on the date of grant, as quoted on the American Stock Exchange (AMEX). (c) These amounts are based on hypothetical appreciation rates of 5% and 10% and are not intended to forecast the actual future appreciation of the Company's common shares. No gain to optionees is possible without an actual increase in the price of the Company's common shares, which would benefit all of the Company's stockholders. All calculations are based on a ten-year option period compounding annually. 21 22 AGGREGATED OPTION EXERCISES DURING 2001 FISCAL YEAR AND FISCAL YEAR 2001 YEAR END OPTION 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 February 3, 2001, by the executive officers listed in the Summary Compensation Table above.

--------------- (1) Values are calculated for options "in the money" by subtracting the exercise price per share from the closing price per share of the Company's Common Stock on February 3, 2001, which was $3.00. Certain of the executive officers have options to purchase shares of Common Stock at exercise prices greater than the fair market value of the applicable class of Common Stock as of February 3, 2001. Such options are not "in the money" and, therefore, their value is not disclosed above. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN In March 1998, the Company adopted a Supplemental Executive Retirement Plan (the "SERP") to provide additional retirement benefits, payable in a lump sum, to certain executive officers. Currently, only Messrs. Stein and Landry participate in the SERP. The SERP is an unfunded plan; however, the Company intends to use the cash surrender value of key life insurance policies purchased by the Company on the lives of Messrs. Stein and Landry to fund its obligations under the Plan. Messrs. Stein and Landry have no claim or right to the proceeds of the cash surrender value of the insurance policies that are payable upon their death. To the extent they have an accrued vested benefit under the SERP, they will only have a claim against the general assets of the Company. Messrs. Stein and Landry are each 100% vested as of the end of fiscal year 2001. The benefits under the SERP are payable in a lump sum, which reflects the annual life benefit determined under the SERP, discounted to its present value. The lump sum benefit is based on providing the participant the present value of an annual annuity commencing at age 65 and payable through participant's death equal to (a) 50% of the average of participant's three greatest years of compensation during participant's last five years of service with the Company multiplied by a percentage equal to the actual years of service credited through retirement divided by the years of service the participant could have been credited with through the age of 65, less (b) the actuarial equivalent value, as determined under the SERP, of (i) half the participant's Social Security benefits and (ii) all Company contributions or allocations on the participant's behalf to or under any other deferred compensation or retirement-type plans, such as the Company 401(k) matching contribution, plus deemed interest equal to seven percent compounded annually, on such contributions or allocations. Stock option grants and incentive stock awards are not considered under the SERP as Company contributions or allocations under a retirement plan. The 22 23 portion of the benefit that is based on the percentage of years of service credited to the participant will accelerate to 100% upon (a) a change of control that is not approved by two-thirds of the Board of Directors or (b) the Company terminating the participant without "good cause." The compensation covered under the SERP is generally the same compensation that is covered in the Summary Compensation Table for Messrs. Stein and Landry, except that compensation under the SERP does not include the Company 401(k) match or compensation from any equity based compensation plan including stock options and incentive stock awards. If Messrs. Stein and Landry retired at age 65 and they both received annual increases in their compensation each year through age 65, they would be entitled to an accrued lump sum benefit of approximately $3,810,000 and $2,590,000 respectively, at age 65. If any excise taxes are due on such payments, the payments will be grossed up to cover such taxes. DIRECTORS' COMPENSATION Each non-employee director is compensated at the rate of $12,000 per year plus $1,000 for attendance at each meeting of the Board of Directors and for each meeting of any committee, including the special committee formed in connection with the merger, on which he serves, but non-employee directors are paid only $500 for attending telephonic meetings (except for meetings of the special committee, which remain at $1,000). Under the Directors' Deferred Compensation Plan that was adopted in fiscal year 1999, a director's compensation is credited to the director's account and, as elected by these directors, valued thereafter as if the director had invested the deferred amount in the Company's Common Stock. Messrs. Adams, Everets, and Foley deferred $17,000, $45,500 and $47,000, respectively, in directors' fees pursuant to the plan during fiscal year 2001. In February 2001, Messrs. Barrett, Everets, Birchfield, Foley and Adams each received an automatic grant of options to purchase 3,500 shares of the Company's Common Stock at $2.60 per share pursuant to the stock option plan for outside directors. The Company's employees and officers who are also directors are not paid any directors' fees. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The members of the Compensation Committee of the Company's Board of Directors during the last fiscal year were Messrs. Adams, Barrett, Everets and Foley. Mr. Adams is a partner of Baker & Hostetler LLP, which acts as the Company's general outside legal counsel on a variety of matters. No member of the Compensation Committee was at any time during fiscal year 2001, or at any other time, an officer or employee of the Company. Mr. Foley is the Chairman, President, Chief Executive Officer and Director of LESCO, Inc. Mr. Stein also serves as a director of LESCO, Inc. No other executive officer of the Company serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Company's Board of Directors or Compensation Committee. EMPLOYMENT AND SEVERANCE AGREEMENTS In January 2000, the Company entered into employment agreements with Messrs. Stein, Landry and Colley. The employment agreements for Messrs. Stein and Landry commenced on January 1, 2000, and are initially for three (3) year terms. The employment agreement for Mr. Colley commenced on January 18, 2000, and is initially for a term which shall terminate on December 31, 2002. Each of the employment agreements provide that commencing on January 1, 2001, and each January 1 thereafter, each term is automatically extended one additional year such that the remaining unexpired term shall be three (3) years unless the Company or the employee gives notice before December 31st of each year that it or he does not desire to have the term extended. Under the employment agreements, Messrs. Stein, Landry and Colley receive annual salaries that may be increased, but may not be decreased. In addition, the employment agreements provide that the Board of Directors, or a committee thereof, may award each employee annual bonuses if performance criteria to be determined by the Board are met. Under the employment agreements, if the employee's employment is terminated for any reason, other than by the Company without cause or by the employee for good reason, or as a result of death or disability, then the employee will receive his salary and bonus through the date of termination. If the employee dies or is disabled, he 23 24 will also receive any additional benefits that are provided under the Company's death and disability programs in effect at the time of death or disability. In addition, if an employee is disabled and there is no disability program in effect or if an employee dies, then the employee's beneficiary will receive 100% of the employee's annual salary plus an amount equal to the highest of the aggregate bonus payments earned by the employee for any of the last three 12-month periods prior to the date of termination. The employment agreements provide that if the employee's termination is by the Company without cause or by the employee for good reason, and not as a result of the employee's death or disability, the employee will receive his full salary and bonus through the date of termination. The amount of the employee's bonus will be the highest of the aggregate bonus payments earned by the employee for any of the last three 12-month periods prior to the date of termination. The agreement for Mr. Colley also provides that after such termination, Mr. Colley will receive a severance payment equal to 100% of the sum of his then current full base salary and annual bonus. The agreements for Messrs. Stein and Landry also provide that after such termination, each of Messrs. Stein and Landry will receive a severance payment equal to three times the sum of his then current full base salary and annual bonus. If any payment in connection with the termination of the employee's employment under the employment agreement would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then the Company will pay the employee an additional payment equal to the amount of any excise tax the employee incurs as a result of the employee's receipt of the additional payment. Prior to the execution of the Merger Agreement, Mr. Landry indicated to Mr. Stein that he intended to terminate his employment with the Company after the merger. Based on these events and in connection with entering into the Merger Agreement, Mr. Landry and the Company entered into a severance agreement, dated March 15, 2001, to agree upon the obligations that will be due Mr. Landry pursuant to the terms of his employment agreement and benefit plans when he terminates his employment if the merger is consummated. Under the terms of the severance agreement, Mr. Landry will be entitled to receive his accrued and unpaid base salary through his termination date; an annual bonus of $136,500, prorated from February 4, 2001 through his termination date; a cash payment of $1,234,500 comprising three times the sum of his base salary of $275,000 plus his bonus of $136,500; a possible cash payment estimated to be approximately $998,000, representing a gross-up payment to cover excise taxes (and the income tax resulting from the gross-up on the excise taxes) due and payable by him as a result of the benefits being provided to him in connection with the severance agreement and the merger; a cash payment of $354,375 if the merger is not completed by July 13, 2001, and if he does not receive 78,750 shares of Dairy Mart common stock immediately prior to the merger; title to the automobile that he currently uses for commuting to and from work; health insurance benefits for himself and his dependents until he becomes eligible for substantially equivalent benefits from a subsequent employer for a period not to exceed three years; two life insurance policies with an aggregate face value of $500,000 and an aggregate accumulated cash surrender value of approximately $62,000; the personal computer of Dairy Mart that he currently uses at his home; vested retirement benefits of approximately $66,000 to which he is entitled under the supplemental employment retirement plan of Dairy Mart; and legal fees he incurred in connection with negotiating and preparing the severance agreement that are estimated to be approximately $40,000. Mr. Colley's employment was terminated effective March 30, 2001, in connection with the Business Restructuring Plan. In connection with this plan, Mr. Colley will receive severance payments totaling, in the aggregate, $250,000 to be paid in equal biweekly installments through July 2001, then he will receive the balance in a lump sum. In addition, options to purchase 100,000 shares of Common Stock have become immediately exercisable. 24 25 COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION OVERVIEW The Compensation Committee of the Board of Directors (the "Compensation Committee") is composed entirely of outside directors. The Compensation Committee, which consists of Messrs. Everets (Chairman), Adams, Barrett, and Foley, is responsible for establishing and administering the Company's executive compensation policies and the Company's stock option and other employee equity plans. This report addresses the Company's compensation policies for the fiscal year 2001 for executive officers and in particular for Mr. Stein in his capacity as Chairman of the Board, President and Chief Executive Officer. GENERAL COMPENSATION POLICY The objectives of the Company's executive compensation program are to: - Provide a competitive compensation package that will attract and retain superior talent and reward performance; - Support the achievement of desired Company performance; and - Align the interests of executives with the long-term interests of stockholders through award opportunities that can result in ownership of shares of the Company's Common Stock, thereby encouraging the achievement of superior results over an extended period. EXECUTIVE OFFICER COMPENSATION PROGRAM The Company's executive officer compensation program is composed primarily of: (i) base salary, which is set on an annual basis; (ii) annual incentive bonuses, which are based on the achievement of predetermined financial objectives of the Company and individual objectives; (iii) discretionary bonuses, which are granted under special circumstances; (iv) supplemental executive retirement plan benefits; and (v) long-term incentive compensation in the form of periodic stock option and restricted stock grants, with the objective of aligning the executive officers' long-term interests with those of the stockholders and encouraging the achievement of superior results over an extended period. The Compensation Committee performs annual reviews of executive compensation, during which the Compensation Committee reviews executive compensation packages of the Company compared with available information on other national and regional convenience store chains. In considering compensation of the Company's executives, one of the factors the Compensation Committee takes into account is the anticipated tax treatment to the Company of various components of compensation. The Company does not believe Section 162(m) of the Internal Revenue Code of 1986, as amended, which generally disallows a tax deduction for certain compensation in excess of $1 million to any of the executive officers appearing in the Summary Compensation Table above, will have an effect on the Company. The Compensation Committee has considered the requirements of Section 162(m) of the Code and its related regulations. It is the Company's present policy to take reasonable measures to preserve the full deductibility of substantially all executive compensation, to the extent consistent with its other compensation objectives. BASE SALARY The Compensation Committee reviews base salary levels for the Company's executive officers on an annual basis. In determining salaries, the Compensation Committee takes into consideration individual experience and performance and comparable compensation data available on other national and regional convenience store chains. The Company seeks to set base salaries to be competitive with compensation paid by comparable companies to persons with similar experience. 25 26 ANNUAL INCENTIVE BONUSES The Compensation Committee determines the amount of annual cash bonuses based on achievement of predetermined financial, operational and strategic objectives. Giving greatest weight to the attainment of financial targets, specifically pre-tax earnings and cash flow, the Company also awards bonuses based on various operational and strategic objectives geared to specific management groups (i.e., financial, management, information systems, construction and marketing), and for Mr. Stein individually. LONG-TERM INCENTIVE COMPENSATION Long-term incentive compensation, in the form of stock options and restricted stock grants, allows the executive officers to share in any appreciation in the value of the Company's Common Stock. The Compensation Committee believes that an enhanced market value for the Company's shares of Common Stock should be a primary objective of senior management, and that stock option and restricted stock grant participation align executive officers' interests with those of the stockholders. The amounts of the awards are designed to reward past performance and create incentives to meet long-term objectives. In determining the amount of each grant, the Compensation Committee takes into account the number of shares held by the executive prior to the grant. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("SERP") The Company adopted the SERP to provide additional retirement benefits to certain key executives. It is intended to attract and retain these executives. The benefits primarily accrue under the SERP based on compensation paid to the executive and the years of service the executive provides to the Company. Currently only Messrs. Stein and Landry participate in the SERP. The Company believes that these benefits are reasonable in relation to the executive compensation practices of other companies. NON-QUALIFIED COMPENSATION PLAN In fiscal year 2000, the Company adopted a non-qualified compensation plan for its "highly compensated employees," a group of which includes, but is not limited to, the executive officers set forth in the Executive Officer's Compensation table. Under the Company's 401(k) Savings and Profit Sharing Plan, "highly compensated employees" are not able to receive the same tax deferred savings and company match as the "non-highly compensated employees" are able to receive. A purpose of the non-qualified plan is to permit the "highly compensated employees" to receive the same level of Company match received by the non-highly compensated employees under the Company's 401(k) plan. Another purpose of the non-qualified plan is to permit the "highly compensated employees" to increase their tax deferred savings above what they would otherwise be permitted under the Company's 401(k) plan. There are certain risks inherent in the non-qualified plan which are not present in the 401(k) plan. Distributions under the plan, including deferral amounts, company match and earnings are paid from the general assets of the Company and are required to be distributed to the employee upon a termination of service prior to normal retirement. Thus, the non-qualified plan participant might be forced to receive deferred income earlier than anticipated, creating negative tax consequences. In addition, non-qualified plan participants are general creditors of the Company and are not secured in the same way as the 401(k) participant. CHIEF EXECUTIVE OFFICER COMPENSATION Mr. Stein, who holds the positions of Chairman of the Board, President and Chief Executive Officer, was paid a base salary of $415,385 during the 53-week fiscal year of 2001, which was based on the $400,000 base salary set by the Compensation Committee in fiscal year 2000. During fiscal year 2000, in consultation with outside consultants, the Compensation Committee re-evaluated Mr. Stein's total compensation package. In connection with this reevaluation, the Compensation Committee increased Mr. Stein's base salary to $400,000 per year to a level comparable with compensation paid to executives with similar responsibilities and by companies of similar size. Additionally, in connection with that revaluation, the Company awarded Mr. Stein a discretionary cash bonus of $50,000 that was paid to him in fiscal year 2000. Finally, in connection with that revaluation, the Compensation Committee also recommended that Mr. Stein should receive stock options to purchase 125,000 shares and receive a stock grant of 25,000 shares, together with a tax reimbursement payment to cover the federal 26 27 and local income taxes of the stock grant, but because of the significance of these awards, the Compensation Committee did not approve these awards. Instead, the Compensation Committee chose to submit a recommendation for the approval of these awards to the entire board of directors. These stock-based incentives were not approved by the entire board, however, until April 2000 (which is part of the Company's fiscal year 2001), but related to modifying Mr. Stein's entire compensation package during fiscal year 2000. In setting Mr. Stein's discretionary bonus and in making its recommendation with respect to the stock based compensation, the Compensation Committee considered the following factors, among others: comparable store sales increased, gallons of gasoline increased based on comparable stores, store expansion continued at appropriate levels, improved profitability for fiscal year 1999 and the Company was selected as the number one convenience store chain in the country by Convenience Store Decisions magazine. Other than the stock-based compensation that related to fiscal year 2000, the Compensation Committee did not award Mr. Stein any bonuses or long-term compensation in fiscal year 2001. THE COMPENSATION COMMITTEE: John W. Everets, Chairman Albert T. Adams Frank W. Barrett William A. Foley ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table shows the amount of the Company's common shares beneficially owned as of April 27, 2001, by: (i) the Company's directors; (ii) each other person who is known by the Company to own beneficially more than 5% of the Company's outstanding common shares; (iii) the named executive officers listed in the Summary Compensation Table; and (iv) all directors and executive officers as a group. This information is furnished in accordance with the SEC regulations relating to any persons known by the Company to be the beneficial owners of 5% or more of Common Stock. In preparing the following table, the Company has relied on information filed by such persons with the SEC, and in some cases, other information provided to the Company by such persons.

27 28

--------------- (*) Owns less than 1% of the issued and outstanding shares of Common Stock. (1) DM Associates Limited Partnership ("DM Associates") is the owner of record of 702,617 shares of Common Stock of the Company, representing approximately 14.1% of the issued and outstanding shares of Common Stock. The general partner of DM Associates is New DM Management Associates I ("DM 28 29 Management I"), which is a general partnership. The general partners of DM Management I are Robert B. Stein, Jr. and Gregory G. Landry, each of whom owns 50% of the partnership interest of DM Management I. As the sole general partner of DM Associates, DM Management I has the power to vote and dispose of the 702,617 shares of Common Stock owned by DM Associates, subject to the required consent of a class of limited partners of DM Associates for sales of more than 396,000 shares. The partnership agreement of DM Management I provides that a majority of the partnership interests of DM Management I is required to vote the shares of Common Stock owned by DM Associates. As the managing general partner of DM Management I, Mr. Stein has sole dispositive power with respect to the 702,617 shares owned by DM Associates, subject to the limitation described above. As general partners of DM Management I, Messrs. Stein and Landry share voting power with respect to the 702,617 shares owned by DM Associates. (2) 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 Noonan, Thomas W. Janes, John M. Chapman and Richard J. Williams, reported on a Schedule 13D filed with the SEC their shared beneficial ownership of currently exercisable warrants to purchase an aggregate of 826,221 shares of Common Stock. (3) The IDS Mutual Fund Group, through nominees, holds currently exercisable warrants to purchase an aggregate of 378,903 shares of Common Stock. If the 378,903 shares underlying the warrants were issued, they would represent approximately 7.0% of the total number of issued and outstanding shares of the Company's Common Stock. (4) American International Group, Inc. and its affiliates hold currently exercisable warrants to purchase an aggregate of 388,811 shares of Common Stock. If the 388,811 shares underlying the warrants were issued, they would represent approximately 7.2% of the total number of issued and outstanding shares of the Company's Common Stock. (5) New Frontier Capital, L.P., and William L. Musser, Jr., in his capacity as General Partner, reported on a Form 13F filed with the SEC its beneficial ownership, as an investment advisor, of 327,550 shares of Common Stock. (6) Includes 280,625 shares of Common Stock issuable to Mr. Stein within 60 days of April 27, 2001, pursuant to employee stock options and grants. Mr. Stein also has the power to dispose of 4,001 shares held in his 401(k) account that are included above. (7) Includes 175,500 shares of Common Stock issuable to Mr. Landry within 60 days of April 27, 2001, pursuant to employee stock options and grants. (8) Includes 8,750 shares of Common Stock that Mr. Adams is, or within 60 days of April 27, 2001, will be, entitled to purchase upon the exercise of stock options. (9) Includes 23,125 shares of Common Stock that Mr. Barrett is, or within 60 days of April 27, 2001, will be, entitled to purchase upon the exercise of stock options. (10) Includes 17,125 shares of Common Stock that Mr. Birchfield is, or within 60 days of April 27, 2001, will be, entitled to purchase upon the exercise of stock options. (11) Includes 20,625 shares of Common Stock that Mr. Everets is, or within 60 days of April 27, 2001, will be, entitled to purchase upon the exercise of stock options. (12) Includes 1,750 shares of Common Stock that Mr. Foley is, or within 60 days of April 27, 2001, will be, entitled to purchase upon the exercise of stock options. (13) Includes 100,000 shares of Common Stock that Mr. Colley is, or within 60 days of April 27, 2001, will be, entitled to purchase upon the exercise of stock options. (14) Includes 18,750 shares of Common Stock that Mr. Valvo is, or within 60 days of April 27, 2001, will be, entitled to purchase upon the exercise of stock options. (15) Includes 20,000 shares of Common Stock that Ms. Guiney is, or within 60 days of April 27, 2001, will be, entitled to purchase upon the exercise of stock options. 29 30 (16) Includes 18,750 shares of Common Stock that Ms. Adams is, or within 60 days of April 27, 2001, will be, entitled to purchase upon the exercise of stock options. (17) Includes exercisable, within 60 days of April 27, 2001, stock options granted to all directors and executive officers of the Company to purchase 610,000 shares of Common Stock. ARRANGEMENTS INVOLVING CHANGES IN CONTROL If the merger is consummated, Mr. Stein will control the Company. The Company's existing stockholders, except Mr. Stein and his affiliates, will receive $4.50 per share in cash. In connection with entering into the Merger Agreement, Mr. Stein, DM Associates, DM Management I and DM Acquisition Corp. entered into a voting agreement pursuant to which they agreed to vote any shares of Dairy Mart Common Stock that they beneficially owned in favor of the merger and the Merger Agreement and agreed to refrain from voting in favor of any other proposals to sell Dairy Mart. 30 31 PERFORMANCE GRAPH The Performance Graph set forth below compares the performance of the Common Stock over the past five years with (i) the cumulative total return on the American Stock Exchange Stock Market (the "AMEX") and (ii) a peer group index consisting of AMEX Stocks Standard Industry Codes 5410-5419 (grocery stores) ("Peer Group Index"). The figures presented assume the reinvestment of all dividends into shares of Common Stock on the dividend payment date and that $100 was invested in Common Stock and in the AMEX Stock Market Index (U.S. Companies) and Peer Group Index on February 2, 1996, and held through February 2, 2001 (the end of the Company's most recent fiscal year). COMPARISON OF FIVE--YEAR CUMULATIVE TOTAL RETURNS PERFORMANCE GRAPH FOR DAIRY MART CONVENIENCE STORES, INC. PRODUCED ON 04/05/2001 INCLUDING DATA TO 02/02/2001

NOTES: A. The lines represent monthly index levels derived from compounded daily returns that include all dividends. B. The indexes are reweighted daily using the market capitalization on the previous trading day. C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used. D. The index level for all series was set to $100.0 on 02/02/1996. 31 32 1/2/98 84.473 126.997 107.04 1/5/98 84.473 126.754 108.298 1/6/98 83.048 126.182 105.838 1/7/98 81.27 126.284 106.456 1/8/98 84.121 125.269 107.279 1/9/98 83.399 121.827 102.324 1/12/98 82.696 121.578 104.962 1/13/98 80.205 123.599 105.347 1/14/98 81.27 124.095 105.588 1/15/98 80.214 123.559 105.029 1/16/98 80.918 124.865 107.088 1/20/98 80.918 126.753 107.255 1/21/98 82.344 125.876 106.598 1/22/98 80.566 125.304 106.577 1/23/98 80.918 124.435 105.817 1/26/98 80.918 124.171 107.066 1/27/98 78.076 124.848 105.873 1/28/98 77.715 124.973 104.961 1/29/98 73.104 125.611 105.643 1/30/98 72.391 125.253 102.733 2/2/98 73.808 125.727 105.824 2/3/98 73.808 125.743 104.911 2/4/98 72.391 126.394 104.206 2/5/98 74.53 126.928 104.223 2/6/98 74.53 127.597 105.974 2/9/98 75.233 127.736 105.592 2/10/98 76.659 128.846 108.274 2/11/98 78.789 128.559 110.479 2/12/98 78.437 128.913 108.93 2/13/98 73.808 129.383 110.401 2/17/98 74.53 129.214 110.042 2/18/98 75.956 129.363 113 2/19/98 75.956 129.336 112.667 2/20/98 73.104 129.564 112.775 2/23/98 66.697 129.764 113.705 2/24/98 65.994 129.384 113.098 2/25/98 68.123 130.33 115.225 2/26/98 73.104 131.938 114.18 2/27/98 74.53 132.978 115.315 3/2/98 75.956 133.803 116.469 3/3/98 73.826 133.655 119.455 3/4/98 73.826 133.807 118.165 3/5/98 73.826 132.661 116.195 3/6/98 73.826 134.481 118.531 3/9/98 72.4 133.635 118.086 3/10/98 74.178 134.642 120.078 3/11/98 76.307 134.926 121.456 3/12/98 77.02 134.998 122.778 3/13/98 75.956 135.461 123.37 3/16/98 75.243 136.276 123.331 3/17/98 73.474 136.483 121.918 3/18/98 73.826 137.437 123.011 3/19/98 74.548 138.278 121.22 3/20/98 73.122 138.423 120.25 3/23/98 71.697 139.344 121.695 3/24/98 70.271 140.193 122.576 3/25/98 73.122 139.635 120.778 3/26/98 73.113 139.914 122.246 3/27/98 72.049 139.66 121.058 3/30/98 73.104 139.49 121.209 3/31/98 74.53 140.754 123.147 4/1/98 75.233 141.331 124.816 4/2/98 74.521 142.242 126.121 4/3/98 73.808 142.151 126.801 4/6/98 72.382 141.249 124.561 4/7/98 72.4 139.864 122.191 4/8/98 72.4 140.243 122.706 4/9/98 71.688 141.089 122.805 4/13/98 68.845 140.666 123.701 4/14/98 68.845 140.973 123.41 4/15/98 68.845 141.54 124.561 4/16/98 69.549 140.711 123.18 4/17/98 69.549 141.804 125.34 4/20/98 67.419 142.655 123.235 4/21/98 66.716 143.065 120.058 4/22/98 65.29 143.666 118.765 4/23/98 65.994 142.205 117.051 4/24/98 65.994 141.107 114.813 4/27/98 63.864 138.524 113.186 4/28/98 65.994 139.62 113.151 4/29/98 65.994 141.679 116.179 4/30/98 65.994 142.589 119.022 5/1/98 65.308 143.293 119.248 5/4/98 65.66 142.974 119.064 5/5/98 65.308 142.381 119.611 5/6/98 65.308 141.911 119.837 5/7/98 65.308 141.769 119.952 5/8/98 63.883 142.048 121.664 5/11/98 64.957 141.849 121.857 5/12/98 65.308 141.663 122.46 5/13/98 68.845 141.875 122.412 5/14/98 70.993 141.553 122.975 5/15/98 70.271 140.89 121.044 5/18/98 73.474 139.938 121.229 5/19/98 72.4 140.129 136.422 5/20/98 73.465 140.201 136.49 5/21/98 74.53 140.235 136.97 5/22/98 74.53 139.39 137.367 5/26/98 76.307 137.418 137.159 5/27/98 74.53 135.247 136.895 5/28/98 71.678 136.183 136.912 5/29/98 73.104 136.494 137.511 6/1/98 71.672 135.448 137.491 6/2/98 70.59 135.182 137.392 6/3/98 68.827 134.95 137.536 6/4/98 68.111 135.938 137.324 6/5/98 68.46 136.751 137.767 6/8/98 68.827 136.882 137.837 6/9/98 69.543 137.131 137.313 6/10/98 68.129 136.195 137.434 6/11/98 70.276 134.847 137.601 6/12/98 70.276 134.307 137.434 6/15/98 69.561 132.075 137.443 6/16/98 68.147 133.162 137.265 6/17/98 68.147 134.175 137.301 6/18/98 68.147 133.57 137.664 6/19/98 68.496 134.239 137.542 6/22/98 66.715 134.136 137.75 6/23/98 66.366 134.918 137.574 6/24/98 69.579 137.078 137.889 6/25/98 70.974 138.08 137.13 6/26/98 68.129 139.021 137.29 6/29/98 67.413 139.668 136.861 6/30/98 68.827 140.101 136.874 7/1/98 68.845 140.353 136.876 7/2/98 68.845 140.08 137.196 7/6/98 68.845 140.685 137.371 7/7/98 69.525 141.126 137.126 7/8/98 68.809 141.484 137.389 7/9/98 69.543 141.485 137.516 7/10/98 68.827 142.264 137.447 7/13/98 67.413 142.379 137.337 7/14/98 68.845 142.571 137.295 7/15/98 65.999 142.2 136.806 7/16/98 66.733 142.369 136.606 7/17/98 67.082 143.071 137.552 7/20/98 67.082 143.957 137.119 7/21/98 68.147 142.904 137.045 7/22/98 68.147 143.035 137.026 7/23/98 70.276 140.315 136.994 7/24/98 67.413 140.012 136.927 7/27/98 66.715 139.249 136.941 7/28/98 66.715 137.775 136.819 7/29/98 66.715 138.219 137.639 7/30/98 66.715 139.611 137.595 7/31/98 64.55 138.11 137.005 8/3/98 65.284 136.458 137.416 8/4/98 62.456 132.495 136.927 8/5/98 62.456 131.192 137.224 8/6/98 59.593 132.877 137.25 8/7/98 62.456 134.048 137.17 8/10/98 62.456 133.358 136.99 8/11/98 59.593 129.461 137.245 8/12/98 65.319 131.209 137.138 8/13/98 65.319 131.123 137.425 8/14/98 66.751 130.003 137.749 8/17/98 66.733 130.246 137.749 8/18/98 66.751 131.602 137.261 8/19/98 66.035 130.512 136.723 8/20/98 66.035 130.071 136.653 8/21/98 66.035 127.765 136.055 8/24/98 63.888 127.323 136.43 8/25/98 63.888 126.765 136.369 8/26/98 64.621 124.396 136.313 8/27/98 60.327 120.086 135.598 8/28/98 61.042 118.761 135.807 8/31/98 56.801 110.833 135.124 9/1/98 56.801 116.786 135.836 9/2/98 55.369 117.707 135.478 9/3/98 53.24 116.134 134.697 9/4/98 52.506 115.909 134.87 9/8/98 56.801 120.651 136.214 9/9/98 56.085 118.439 135.595 9/10/98 54.671 116.791 135.794 9/11/98 53.973 118.27 135.726 9/14/98 56.103 119.44 135.473 9/15/98 63.19 120.482 135.935 9/16/98 64.621 121.734 136.06 9/17/98 62.492 120.286 136.44 9/18/98 60.344 121.72 135.849 9/21/98 60.344 121.907 135.988 9/22/98 61.776 122.741 136.237 9/23/98 61.06 124.904 136.604 9/24/98 61.776 123.493 136.696 9/25/98 62.125 123.101 136.89 9/28/98 62.841 123.112 136.689 9/29/98 63.19 120.16 136.74 9/30/98 63.19 119.156 136.562 10/1/98 59.279 116.729 136.841 10/2/98 59.627 116.623 136.655 10/5/98 60.364 113.347 136.232 10/6/98 57.497 113.47 136.338 10/7/98 53.975 111.429 136.107 10/8/98 52.542 107.217 136.038 10/9/98 53.975 109.695 136.22 10/12/98 53.975 110.994 136.412 10/13/98 48.283 110.361 136.387 10/14/98 52.542 111.754 136.45 10/15/98 53.975 114.911 136.273 10/16/98 53.975 116.061 136.527 10/19/98 53.975 116.673 136.829 10/20/98 55.408 118.781 137.013 10/21/98 56.125 119.569 136.985 10/22/98 53.975 121.446 137.307 10/23/98 54.692 121.347 137.296 10/26/98 54.672 122.678 137.549 10/27/98 54.672 121.931 137.153 10/28/98 56.105 122.312 137.198 10/29/98 57.538 123.251 137.237 10/30/98 60.364 124.777 137.275 11/2/98 58.951 126.977 136.237 11/3/98 58.234 128.33 136.93 11/4/98 59.668 128.393 136.852 11/5/98 61.06 128.632 137.503 11/6/98 59.627 129.369 137.77 11/9/98 62.493 128.297 138.501 11/10/98 62.493 127.997 139.516 11/11/98 61.06 127.751 139.973 11/12/98 61.06 128.241 142.479 11/13/98 66.016 128.731 142.799 11/16/98 63.19 128.931 139.762 11/17/98 65.36 129.086 141.182 11/18/98 64.623 129.305 142.567 11/19/98 64.971 130.446 139.274 11/20/98 67.101 130.902 140.95 11/23/98 64.623 130.575 140.192 11/24/98 66.056 129.603 140.942 11/25/98 69.619 130.465 141.54 11/27/98 73.141 130.835 144.162 11/30/98 73.837 129.275 143.415 12/1/98 74.186 129.148 140.122 12/2/98 72.056 128.998 139.126 12/3/98 67.449 127.543 133.97 12/4/98 66.384 128.749 137.406 12/7/98 67.449 130.063 135.927 12/8/98 67.449 130.573 136.107 12/9/98 66.752 130.795 132.36 12/10/98 65.319 130.33 141.221 12/11/98 67.449 129.27 135.194 12/14/98 66.016 126.946 133.034 12/15/98 63.538 126.685 133.108 12/16/98 63.19 127.331 131.343 12/17/98 61.06 127.674 131.975 12/18/98 58.931 128.044 134.79 12/21/98 66.036 128.822 135.5 12/22/98 65.319 129.509 136.89 12/23/98 58.931 131.69 137.159 12/24/98 58.931 132.105 134.47 12/28/98 62.493 131.847 134.077 12/29/98 63.906 133.288 134.458 12/30/98 58.89 133.657 132.506 12/31/98 60.364 136.813 134.007 1/4/99 60.364 135.83 134.342 1/5/99 59.674 137.477 139.347 1/6/99 58.985 139.025 141.025 1/7/99 60.364 139.313 138.101 1/8/99 58.924 139.729 138.87 1/11/99 60.364 139.396 138.476 1/12/99 63.933 137.924 135.783 1/13/99 62.493 138.403 136.682 1/14/99 61.053 138.349 136.146 1/15/99 58.985 140.46 133.303 1/19/99 60.334 140.572 135.848 1/20/99 61.053 141.941 135.811 1/21/99 57.485 139.974 133.405 1/22/99 56.045 140.262 134.211 1/25/99 59.614 140.649 136.583 1/26/99 59.614 140.676 136.73 1/27/99 58.924 140.736 132.926 1/28/99 59.614 142.461 134.216 1/29/99 59.614 142.844 135.006 2/1/99 58.174 142.115 132.885 2/2/99 59.269 141.883 134.732 2/3/99 57.485 142.69 132.199 2/4/99 57.485 141.037 130.434 2/5/99 58.924 140.679 130.825 2/8/99 60.334 140.157 129.346 2/9/99 66.751 138.13 131.929 2/10/99 65.342 137.208 132.84 2/11/99 64.967 139.361 131.293 2/12/99 60.303 138.514 128.774 2/16/99 60.303 138.551 129.211 2/17/99 60.303 137.17 130.098 2/18/99 60.303 137.387 130.925 2/19/99 60.303 138.303 132.232 2/22/99 60.648 140.141 130.931 2/23/99 60.303 140.392 130.278 2/24/99 60.303 139.243 129.494 2/25/99 58.864 139.023 128.821 2/26/99 58.864 139.742 125.713 3/1/99 57.424 139.652 125.599 3/2/99 58.144 139.635 126.431 3/3/99 58.113 138.735 126.888 3/4/99 59.898 139.518 127.561 3/5/99 58.113 140.689 124.373 3/8/99 53.916 141.654 125.421 3/9/99 53.571 141.575 125.827 3/10/99 52.476 142.061 126.187 3/11/99 51.787 143.398 125.682 3/12/99 51.787 142.965 124.054 3/15/99 51.097 143.051 125.392 3/16/99 51.097 142.138 124.986 3/17/99 51.097 141.504 126.003 3/18/99 51.097 141.504 125.77 3/19/99 50.753 140.285 125.677 3/22/99 55.416 140.952 125.692 3/23/99 56.106 137.943 125.733 3/24/99 56.106 138.259 127.825 3/25/99 60.364 140.084 129.342 3/26/99 62.179 141.378 124.546 3/29/99 61.803 141.74 124.909 3/30/99 61.084 140.731 123.964 3/31/99 48.968 140.034 118.268 4/1/99 54.666 140.362 115.963 4/5/99 49.719 142.4 114.581 4/6/99 52.537 141.641 114.132 4/7/99 49.313 142.368 113.249 4/8/99 49.313 143.372 111.863 4/9/99 51.097 144.199 108.816 4/12/99 46.839 145.676 107.55 4/13/99 50.408 145.769 109.079 4/14/99 49.719 145.271 109.53 4/15/99 49.719 145.38 111.202 4/16/99 49.688 145.955 110.721 4/19/99 51.848 143.567 110.928 4/20/99 50.408 144.333 106.439 4/21/99 51.128 147.241 112.472 4/22/99 49.343 148.91 107.909 4/23/99 49.688 150.998 111.005 4/26/99 50.408 151.878 110.124 4/27/99 58.864 152.076 108.567 4/28/99 59.614 151.79 110.441 4/29/99 60.364 151.572 109.85 4/30/99 61.773 151.683 109.567 5/3/99 60.303 153.304 109.015 5/4/99 61.398 153.006 108.81 5/5/99 61.743 153.064 110.235 5/6/99 59.958 152.951 110.086 5/7/99 59.614 153.28 107.39 5/10/99 59.614 153.404 110.266 5/11/99 58.174 154.428 113.502 5/12/99 57.485 156.596 114.058 5/13/99 65.251 156.955 115.739 5/14/99 63.466 154.672 112.921 5/17/99 60.993 153.977 111.937 5/18/99 62.493 153.819 110.952 5/19/99 63.182 154.647 112.762 5/20/99 64.592 155.352 113.417 5/21/99 62.432 155.832 112.277 5/24/99 60.648 154.119 115.406 5/25/99 63.872 152.665 116.045 5/26/99 63.152 153.469 117.663 5/27/99 63.182 152.077 115.061 5/28/99 64.622 153.467 114.384 6/1/99 66.079 152.835 113.29 6/2/99 64.622 151.789 112.336 6/3/99 62.437 152.536 111.698 6/4/99 63.836 153.765 110.73 6/7/99 65.293 153.561 112.484 6/8/99 63.836 152.677 110.885 6/9/99 61.651 152.985 110.339 6/10/99 63.165 151.83 112.688 6/11/99 64.508 150.749 113.326 6/14/99 65.293 149.855 112.609 6/15/99 65.964 150.122 110.977 6/16/99 64.172 150.664 113.035 6/17/99 64.508 151.585 113.399 6/18/99 63.779 151.679 113.053 6/21/99 61.594 151.495 112.221 6/22/99 60.923 151.222 112.547 6/23/99 60.587 152.279 108.064 6/24/99 60.309 151.569 105.856 6/25/99 62.494 151.539 111.034 6/28/99 61.709 152.456 109.783 6/29/99 63.165 153.571 111.108 6/30/99 63.165 157.754 111.992 7/1/99 62.031 157.126 110.578 7/2/99 64.962 158.408 111.14 7/6/99 63.024 158.724 108.566 7/7/99 64.49 158.114 110.355 7/8/99 67.42 159.342 113.369 7/9/99 65.955 160.294 115.047 7/12/99 66.688 160.8 112.936 7/13/99 67.089 161.248 112.811 7/14/99 66.357 161.04 113.393 7/15/99 65.624 162.554 111.757 7/16/99 66.758 161.828 112.818 7/19/99 66.758 161.641 109.425 7/20/99 60.235 158.949 118.945 7/21/99 63.165 159.759 122.74 7/22/99 63.165 158.049 126.897 7/23/99 63.165 157.459 128.402 7/26/99 61.7 155.804 130.548 7/27/99 62.397 156.475 129.956 7/28/99 61.7 156.013 129.509 7/29/99 62.693 154.764 130.053 7/30/99 62.764 155.11 130.454 8/2/99 60.305 154.457 124.369 8/3/99 62.433 153.39 129.2 8/4/99 62.101 152.132 133.501 8/5/99 62.834 152.289 136.021 8/6/99 62.362 152.273 134.376 8/9/99 63.828 152.095 138.93 8/10/99 63.828 150.472 142.603 8/11/99 68.083 151.6 142.828 8/12/99 66.286 152.128 138.12 8/13/99 65.955 153.206 140.625 8/16/99 72.338 152.702 144.913 8/17/99 74.465 153.082 143.67 8/18/99 76.593 152.908 144.049 8/19/99 78.39 152.998 141.845 8/20/99 84.11 153.299 138.459 8/23/99 91.486 154.691 137.666 8/24/99 83.307 154.329 136.279 8/25/99 88.696 154.058 134.953 8/26/99 90.683 153.357 132.242 8/27/99 90.824 152.844 133.438 8/30/99 90.824 151.4 132.867 8/31/99 89.027 151.408 133.184 9/1/99 87.562 152.761 133.561 9/2/99 85.766 152.097 134.388 9/3/99 86.097 154.441 134.329 9/7/99 86.428 155.555 133.995 9/8/99 86.498 155.247 134.288 9/9/99 85.836 157.393 134.803 9/10/99 84.3 157.965 134.073 9/13/99 83.638 157.346 137.141 9/14/99 82.976 156.669 137.24 9/15/99 82.976 155.64 133.367 9/16/99 83.307 154.569 133.789 9/17/99 81.51 155.645 131.594 9/20/99 79.383 155.537 131.485 9/21/99 79.383 153.877 130.828 9/22/99 77.255 153.929 131.342 9/23/99 72.197 152.128 130.324 9/24/99 68.745 151.418 126.581 9/27/99 70.21 152.157 127.213 9/28/99 68.745 151.149 128.687 9/29/99 64.49 152.077 122.987 9/30/99 57.445 153.601 105.876 10/1/99 59.572 153.354 114.535 10/4/99 64.975 154.202 118.473 10/5/99 65.796 153.254 117.302 10/6/99 64.891 154.317 119.448 10/7/99 66.039 153.605 116.697 10/8/99 65.955 153.362 115.79 10/11/99 65.302 155.331 117.193 10/12/99 64.565 154.825 115.719 10/13/99 63.828 153.422 116.866 10/14/99 62.027 152.727 116.187 10/15/99 62.353 150.475 117.987 10/18/99 64.565 148.815 118.081 10/19/99 64.238 149.562 118.456 10/20/99 63.911 151.652 115.956 10/21/99 63.174 151.62 113.25 10/22/99 61.373 153.026 111.825 10/25/99 60.553 152.806 109.582 10/26/99 58.425 151.969 109.004 10/27/99 58.752 151.836 106.361 10/28/99 59.489 153.835 105.768 10/29/99 56.624 154.98 106.811 11/1/99 59.899 155.114 103.663 11/2/99 63.174 154.803 109.513 11/3/99 61.863 155.273 110.237 11/4/99 67.429 156.491 105.566 11/5/99 67.429 156.862 105.142 11/8/99 70.21 158.122 107.702 11/9/99 67.429 158.299 105.207 11/10/99 67.429 159.862 105.042 11/11/99 66.692 160.529 101.154 11/12/99 68.736 161.911 103.101 11/15/99 68.82 164.009 100.883 11/16/99 68.531 164.218 101.462 11/17/99 67.999 163.957 100.018 11/18/99 68.409 165.014 99.569 11/19/99 70.864 165.848 101.862 11/22/99 74.465 165.98 103.133 11/23/99 74.465 163.863 104.692 11/24/99 73.812 165.238 101.126 11/26/99 74.139 166.216 108.552 11/29/99 73.812 166.576 105.735 11/30/99 71.684 165.858 104.528 12/1/99 73.645 166.76 106.595 12/2/99 69.39 167.291 103.087 12/3/99 67.915 168.271 102.739 12/6/99 65.871 168.013 102.528 12/7/99 59.238 167.472 101.857 12/8/99 60.385 167.258 100.64 12/9/99 62.186 166.13 100.765 12/10/99 63.007 166.311 101.299 12/13/99 62.027 166.921 99.407 12/14/99 62.68 166.305 99.266 12/15/99 63.417 168.086 100.547 12/16/99 60.226 168.105 98.749 12/17/99 58.752 167.755 99.407 12/20/99 54.329 168.761 99.871 12/21/99 58.425 170.633 101.138 12/22/99 59.899 170.651 101.543 12/23/99 63.501 171.592 101.93 12/27/99 61.373 171.333 102.313 12/28/99 58.919 171.783 100.24 12/29/99 57.445 175.645 98.064 12/30/99 57.118 176.954 97.234 12/31/99 57.771 179.86 97.278

33 1/3/00 61.059 177.604 97.767 1/4/00 57.771 170.953 97.804 1/5/00 58.19 171.074 97.483 1/6/00 60.413 169.57 99.948 1/7/00 61.19 173.61 99.705 1/10/00 62.027 177.491 100.312 1/11/00 60.222 173.992 99.085 1/12/00 60.545 171.762 99.718 1/13/00 59.576 175.009 101.026 1/14/00 60.64 176.085 99.706 1/18/00 58.835 179.217 98.473 1/19/00 58.094 180.687 98.777 1/20/00 56.612 181.644 100.08 1/21/00 59.576 184.085 99.649 1/24/00 58.835 182.037 103.518 1/25/00 56.612 182.866 102.571 1/26/00 55.966 182.057 103.389 1/27/00 55.321 176.716 102.609 1/28/00 55.321 173.792 102.798 1/31/00 54.676 174.586 99.607 2/1/00 55.966 176.244 103.212 2/2/00 56.707 177.09 100.395 2/3/00 56.612 179.462 102.284 2/4/00 55.5 179.659 102.133 2/7/00 58.094 180.882 104.878 2/8/00 57.449 183.372 105.067 2/9/00 57.449 181.065 105.777 2/10/00 57.449 183.896 105.433 2/11/00 57.449 182.328 104.742 2/14/00 55.321 183.161 104.176 2/15/00 55.321 183.764 104.866 2/16/00 55.321 185.288 105.152 2/17/00 51.065 188.338 104.328 2/18/00 54.257 185.317 103.877 2/22/00 53.193 185.648 103.679 2/23/00 52.129 188.186 100.635 2/24/00 52.129 189.176 104.69 2/25/00 52.129 188.413 104.863 2/28/00 51.065 188.978 105.125 2/29/00 48.938 192.324 102.926 3/1/00 53.193 196.334 105.526 3/2/00 53.193 197.737 102.74 3/3/00 51.065 200.456 107.672 3/6/00 51.065 201.246 102.429 3/7/00 48.938 200.425 103.15 3/8/00 44.682 200.609 102.169 3/9/00 42.555 203.003 100.336 3/10/00 45.746 203.571 102.143 3/13/00 45.746 200.98 97.789 3/14/00 44.682 197.196 97.979 3/15/00 44.682 194.743 97.481 3/16/00 42.555 199.646 97.24 3/17/00 42.555 200.804 100.549 3/20/00 41.491 198.048 104.937 3/21/00 42.555 198.733 110.662 3/22/00 47.874 200.933 108.031 3/23/00 46.81 202.924 111.382 3/24/00 48.938 203.029 115.223 3/27/00 51.065 201.419 115.397 3/28/00 50.002 199.913 113.772 3/29/00 50.002 197.694 107.23 3/30/00 48.938 195.377 110.023 3/31/00 48.938 198.554 109.64 4/3/00 46.81 195.046 107.21 4/4/00 46.81 189.589 108.605 4/5/00 46.81 190.018 108.102 4/6/00 44.682 193.43 106.12 4/7/00 46.81 195.688 111.545 4/10/00 45.746 191.175 112.889 4/11/00 46.81 189.09 113.589 4/12/00 46.81 184.049 116.316 4/13/00 47.874 181.745 118.433 4/14/00 36.171 171.016 106.745 4/17/00 31.916 171.409 105.974 4/18/00 34.044 177.525 107.587 4/19/00 34.044 178.333 106.44 4/20/00 44.682 178.346 111.35 4/24/00 38.299 175.11 103.98 4/25/00 40.427 180.009 109.67 4/26/00 41.491 179.523 110.186 4/27/00 53.193 180.543 115.666 4/28/00 48.938 182.932 114.949 5/1/00 42.555 185.923 113.631 5/2/00 46.81 182.972 114.679 5/3/00 46.81 179.885 115.13 5/4/00 44.682 182.025 114.546 5/5/00 40.427 184.471 113.76 5/8/00 38.299 182.347 112.858 5/9/00 38.299 181.641 111.392 5/10/00 38.299 176.692 115.586 5/11/00 42.555 180.07 113.904 5/12/00 63.832 181.473 124.673 5/15/00 72.343 183.833 127.404 5/16/00 70.215 185.024 127.901 5/17/00 71.279 184.685 128.101 5/18/00 65.96 183.076 131.113 5/19/00 65.96 179.438 131.679 5/22/00 78.726 176.521 134.876 5/23/00 72.343 174.099 126.819 5/24/00 69.151 175.442 124.388 5/25/00 73.407 173.574 127.151 5/26/00 75.534 173.505 128.434 5/30/00 74.47 178.571 127.219 5/31/00 72.343 179.731 123.063 6/1/00 81.918 182.087 128.316 6/2/00 82.981 185.321 131.595 6/5/00 85.109 184.68 132.913 6/6/00 81.918 185.024 131.033 6/7/00 85.109 185.592 133.173 6/8/00 85.109 186.395 130.26 6/9/00 82.981 187.355 127.97 6/12/00 80.854 185.734 127.879 6/13/00 78.726 187.432 126.039 6/14/00 77.662 186.772 124.766 6/15/00 79.79 186.902 125.424 6/16/00 84.045 186.692 127.938 6/19/00 80.854 188.297 126.821 6/20/00 80.854 187.886 129.118 6/21/00 74.47 187.896 127.051 6/22/00 68.087 185.769 125.942 6/23/00 74.47 184.78 128.979 6/26/00 76.598 185.904 128.585 6/27/00 74.47 185.63 127.781 6/28/00 76.598 186.371 127.119 6/29/00 78.726 186.974 129.31 6/30/00 72.343 186.386 127.55 7/3/00 70.215 188.467 127.181 7/5/00 76.598 184.861 127.181 7/6/00 76.598 186.625 126.497 7/7/00 76.598 188.725 127.646 7/10/00 76.598 188.4 126.583 7/11/00 78.726 191.108 133.827 7/12/00 79.79 192.458 133.868 7/13/00 85.109 192.013 131.3 7/14/00 82.981 193.449 132.809 7/17/00 85.109 193.035 134.452 7/18/00 85.109 192.144 131.955 7/19/00 87.237 190.321 133.89 7/20/00 89.365 192.495 134.078 7/21/00 86.173 189.964 135.264 7/24/00 85.109 187.176 135.177 7/25/00 87.237 186.279 136.927 7/26/00 86.173 187.499 135.035 7/27/00 86.173 185.813 135.143 7/28/00 86.173 182.599 134.415 7/31/00 87.237 184.656 133.396 8/1/00 93.62 185.839 136.293 8/2/00 93.62 186.179 134.973 8/3/00 98.939 186.314 134.988 8/4/00 97.875 186.23 128.325 8/7/00 95.748 187.112 125.613 8/8/00 95.748 187.658 125.571 8/9/00 95.748 186.115 125.142 8/10/00 92.556 185.908 124.583 8/11/00 89.365 187.836 126.333 8/14/00 90.428 189.769 125.935 8/15/00 97.875 186.542 126.086 8/16/00 93.62 185.689 127.558 8/17/00 92.556 187.646 124.968 8/18/00 90.428 187.558 124.823 8/21/00 89.365 188.064 122.19 8/22/00 87.237 188.293 123.501 8/23/00 89.365 188.511 121.349 8/24/00 89.365 189.903 121.705 8/25/00 92.556 190.448 120.977 8/28/00 88.301 190.72 119.618 8/29/00 87.237 191.036 124.608 8/30/00 89.365 191.467 125.362 8/31/00 91.492 194.092 124.841 9/1/00 91.492 195.403 126.631 9/5/00 89.365 193.945 123.851 9/6/00 86.173 194.762 120.247 9/7/00 91.492 195.954 122.364 9/8/00 89.365 194.651 121.149 9/11/00 85.109 194.291 119.274 9/12/00 87.237 193.946 120.995 9/13/00 89.365 193.767 121.91 9/14/00 86.173 194.601 119.603 9/15/00 86.173 194.294 117.342 9/18/00 86.173 190.752 117.772 9/19/00 85.109 190.564 116.586 9/20/00 88.301 188.258 118.643 9/21/00 89.365 186.255 118.908 9/22/00 89.365 187.318 122.018 9/25/00 91.492 187.608 119.022 9/26/00 86.173 186.579 117.547 9/27/00 88.301 187.257 117.441 9/28/00 86.173 190.692 116.933 9/29/00 85.109 190.227 114.778 10/2/00 87.237 187.916 112.244 10/3/00 89.365 185.474 116.781 10/4/00 91.492 186.163 117.559 10/5/00 90.428 186.162 115.911 10/6/00 89.365 183.39 116.901 10/9/00 92.556 183.061 117.417 10/10/00 89.365 181.252 114.522 10/11/00 86.173 179.09 113.535 10/12/00 89.365 176.124 115.036 10/13/00 87.237 179.611 115.362 10/16/00 85.109 179.375 114.703 10/17/00 65.96 175.913 107.932 10/18/00 74.47 175.988 110.905 10/19/00 78.726 180.493 114.149 10/20/00 76.598 182.12 111.307 10/23/00 74.47 182.313 109.33 10/24/00 72.343 179.987 108.266 10/25/00 70.215 175.621 109.44 10/26/00 63.832 176.834 106.952 10/27/00 68.087 177.131 108.313 10/30/00 76.598 177.406 108.489 10/31/00 72.343 180.873 105.424 11/1/00 70.215 180.796 107.586 11/2/00 71.279 181.891 102.973 11/3/00 76.598 182.564 101.487 11/6/00 84.045 182.111 103.32 11/7/00 85.109 183.199 105.952 11/8/00 85.109 180.929 106.766 11/9/00 85.109 179.412 106.338 11/10/00 80.854 175.655 105.021 11/13/00 80.854 172.304 104.775 11/14/00 76.598 176.347 101.821 11/15/00 76.598 177.743 103.106 11/16/00 80.854 174.611 103.489 11/17/00 80.854 173.007 103.574 11/20/00 72.343 169.482 99.573 11/21/00 74.47 170.026 102.242 11/22/00 72.343 166.194 100.428 11/24/00 74.47 169.993 102.2 11/27/00 74.47 170.561 103.484 11/28/00 67.023 168.13 100.709 11/29/00 62.768 166.107 99.092 11/30/00 67.023 163.18 95.251 12/1/00 69.151 164.4 96.586 12/4/00 64.896 164.015 93.856 12/5/00 61.704 168.894 92.645 12/6/00 57.449 167.267 91.456 12/7/00 67.023 165.923 92.242 12/8/00 68.087 169.53 94.232 12/11/00 65.96 174.482 94.045 12/12/00 64.896 172.417 95.507 12/13/00 57.449 171.003 90.934 12/14/00 61.704 167.703 97.158 12/15/00 60.64 165.373 95.156 12/18/00 57.449 167.57 94.127 12/19/00 53.193 165.522 89.23 12/20/00 48.938 159.577 84.803 12/21/00 35.108 159.548 77.156 12/22/00 34.044 163.468 77.497 12/26/00 34.044 165.387 81.591 12/27/00 34.044 166.277 82.575 12/28/00 36.171 168.718 82.72 12/29/00 59.576 168.629 88.59 1/2/01 55.321 164.247 85.994 1/3/01 59.576 168.941 88.908 1/4/01 57.449 167.581 87.266 1/5/01 59.576 164.273 89.289 1/8/01 59.576 164.51 88.565 1/9/01 57.449 165.237 88.579 1/10/01 59.576 168.99 88.309 1/11/01 57.449 171.169 87.171 1/12/01 56.385 172.085 90.497 1/16/01 59.576 174.329 91.33 1/17/01 55.321 174.076 88.713 1/18/01 51.065 173.992 86.649 1/19/01 52.129 172.86 87.304 1/22/01 51.065 173.304 87.119 1/23/01 51.065 175.724 87.48 1/24/01 51.065 176.963 88.484 1/25/01 46.81 177.053 90.347 1/26/01 48.938 177.812 91.869 1/29/01 46.81 179.545 92.963 1/30/01 37.448 180.442 87.694 1/31/01 44.257 178.746 90.114 2/1/01 45.959 178.635 89.854 2/2/01 51.065 175.811 92.121

34 ITEM 13. CERTAIN TRANSACTIONS Stock Owned by DM Associates DM Associates Limited Partnership ("DM Associates") is the owner of record of 702,617 shares of Common Stock of the Company, representing approximately 14.4% of the issued and outstanding shares of Common Stock. The general partner of DM Associates is New DM Management Associates I, which is a general partnership. The general partners of New DM Management Associates I are Robert B. Stein, Jr., a Director and the Chairman of the Board, Chief Executive Officer and President of the Company, and Gregory G. Landry, a Director and the Vice Chairman and Chief Financial Officer of the Company. As the sole general partner of DM Associates, DM Management I has the power to vote and dispose of the 702,617 shares of Common Stock owned by DM Associates, subject to the required consent of a class of limited partners of DM Associates for sales of more than 396,000 shares. The partnership agreement of DM Management I provides that a majority of the partnership interests of DM Management I is required to vote the shares of Common Stock owned by DM Associates. As the managing general partner of DM Management I, Mr. Stein has sole dispositive power with respect to the 702,617 shares owned by DM Associates, subject to the limitation described above. As general partners of DM Management I, Messrs. Stein and Landry share voting power with respect to the 702,617 shares owned by DM Associates. OUTSIDE COUNSEL Albert T. Adams, one of the Company's directors, is a partner of Baker & Hostetler LLP, which acts as the Company's general outside legal counsel on a variety of matters. The Company expects that Baker & Hostetler will continue to provide legal services in that capacity in fiscal year 2002. IT SERVICES AGREEMENT On May 1, 2001, the Company renewed an IT Services Agreement with EmpowerWare, Inc. EmpowerWare, Inc. is a Connecticut-based company specializing in financial and retail accounting software. It is owned by Scott Stein, the former Vice President Management Information Systems of the Company and the brother of Mr. Stein. For a monthly fee of approximately $49,875 (plus expenses) EmpowerWare, Inc. provides relationship management, project management and administration, software upgrades, production support and other services. The term of the Agreement is from May 1, 2001 to April 30, 2004, unless otherwise terminated or extended in accordance with its terms. The Company believes that the fees payable to EmpowerWare, Inc. are on terms no less favorable than would be available in an arm's-length transaction with any other vendor. MERGER AGREEMENT If the merger, contemplated by the Merger Agreement, is consummated, Mr. Stein and his affiliates will control the Company. The Company's existing stockholders, except Mr. Stein and his affiliates, including DM Associates, will receive $4.50 per share in cash. In connection with entering into the Merger Agreement, Mr. Stein, DM Associates, DM Management I and DM Acquisition Corp. entered into a voting agreement pursuant to which they agreed to vote any shares of the Company's Common Stock that they beneficially owned in favor of the merger and the Merger Agreement and agreed to refrain from voting in favor of any other proposals to sell the Company. SEVERANCE AGREEMENTS AND OTHER PAYMENTS Ms. Adams and Mr. Valvo's employment with the Company will be terminated effective May 11, 2001 and May 25, 2001, respectively, in connection with the Business Restructuring Plan. In connection with the Business Restructuring Plan, Ms. Adams, Vice President Finance of the Company, and Mr. Valvo, Vice President Gasoline and Store Development of the Company, will receive severance payments of $140,000 and $150,000, respectively, which will be payable as a salary continuation. In addition, Ms. Adams and Mr. Valvo will be entitled to exercise their options until August 31, 2001. 32 35 NEGOTIATIONS TO PURCHASE CERTAIN STORES Pursuant to the Business Segmentation Plan, Mr. Stein and Ms. Adams have had preliminary discussions concerning the possibility of Ms. Adams purchasing stores from the Company that have been identified as stores to be sold pursuant to the Business Segmentation Plan. If an agreement were reached, the terms would be negotiated by the Company's financial advisor retained to sell stores that do not fit within Dairy Mart's existing portfolio structure. Furthermore, the stores would only be sold to Ms. Adams if the Company believed it was receiving the same amount of consideration for those stores that it could receive in an arm's-length transaction. 33 36 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) The following are filed as part of this Form 10-K: (1) Financial Statements: For a listing of financial statements, which are filed as part of this Form 10-K, see Page [46]. (2) Financial Statement Schedules: Report of Independent Public Accountants Consolidated Statements of Operations for the three years ended February 3, 2001, January 29, 2000 and January 30, 1999. Consolidated Balance Sheets as of February 3, 2001 and January 29, 2000. Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended February 3, 2001, January 29, 2000 and January 30, 1999. Consolidated Statements of Cash Flows for the Fiscal Years Ended February 3, 2001, January 29, 2000 and January 30, 1999. Notes to Consolidated Financial Statements for the Fiscal Years Ended February 3, 2001, January 29, 2000 and January 30, 1999. Schedule II--Valuation Accounts All other schedules are omitted because they are not applicable, not required, or because the required information is included in the Consolidated Financial Statements or notes thereto. (3) Exhibits:

34 37

35 38

36 39

37 40

(b) Reports on Form 8-K: NONE. No Financial Statements were filed with any of the Current Reports. (c) See (a)(3) above. (d) See (a)(2) above. 38 41 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Dated: May 7, 2001 DAIRY MART CONVENIENCE STORES, INC. By /s/ ROBERT B. STEIN, JR. ------------------------------------ Robert B. Stein, Jr. President, Chief Executive Officer and Chairman of the Board of Directors By /s/ GREGORY G. LANDRY ------------------------------------ Gregory G. Landry Vice Chairman and Chief Financial Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.

39 42 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1 43 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and the Board of Directors of Dairy Mart Convenience Stores, Inc.: We have audited the accompanying consolidated balance sheets of Dairy Mart Convenience Stores, Inc. (a Delaware corporation) and Subsidiaries as of February 3, 2001 and January 29, 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended February 3, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dairy Mart Convenience Stores, Inc. and Subsidiaries as of February 3, 2001, and January 29, 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 3, 2001, in conformity with accounting principles generally accepted in the United States. /s/ ARTHUR ANDERSEN LLP -------------------------------------- ARTHUR ANDERSEN LLP Cleveland, Ohio, May 7, 2001 F-2 44 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE FISCAL YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30, 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The accompanying notes are an integral part of these consolidated financial statements. F-3 45 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS FEBRUARY 3, 2001 AND JANUARY 29, 2000 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The accompanying notes are an integral part of these consolidated balance sheets. F-4 46 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE FISCAL YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30, 1999 (IN THOUSANDS)

The accompanying notes are an integral part of these consolidate financial statements. F-5 47 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30, 1999 (IN THOUSANDS)

The accompanying notes are an integral part of these consolidated financial statements. F-6 48 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30,1999 1. SIGNIFICANT ACCOUNTING POLICIES: Corporate Organization and Consolidation -- The accompanying financial statements include the accounts of Dairy Mart Convenience Stores, Inc. and its Subsidiaries (the Company). All intercompany transactions have been eliminated. Nature of the Business -- The Company owns, operates and franchises convenience retail stores, a number of which also sell gasoline. The convenience stores are primarily located in 7 states in the Midwest and the Southeast United States. The stores offer a wide range of products including gasoline, groceries, dairy products, snack foods, tobacco products, lottery tickets, beverages, general merchandise, health and beauty aids and deli products. Fiscal Year -- The Company's fiscal year ends on the Saturday closest to January 31. There were 53 weeks included in the fiscal year ended February 3, 2001 and 52 weeks in the fiscal years ended January 29, 2000 and January 30,1999. Use of Estimates in the Preparation of Financial Statements -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Short-term Investments -- As of February 3, 2001, the Company's short-term investments consisted of U.S. Treasury Bills having original maturities of less than one year. As of January 29, 2000, the Company's short-term investments consisted of over-night investment securities. As of February 3, 2001 and January 29, 2000, the fair values of the short-term investments approximated cost. Inventory -- The Company's inventory is stated at the lower of first-in, first-out (FIFO) cost or market. Property, Equipment, and Depreciation -- Property is stated at cost and is depreciated on the straight-line basis for financial reporting purposes over the following estimated useful lives: Buildings................................................... 30-40 years Equipment................................................... 5-30 years Leasehold improvements...................................... 31 years.

Repair and maintenance costs are expensed as incurred. Long-lived Assets -- Impairment of long-lived assets is recognized when events or changes in circumstances indicate that the carrying amount of the asset, or related group of assets, may not be recoverable. Measurement of the amount of the impairment may be based on market values of similar assets or estimated discounted future cash flows resulting from use and ultimate disposition of the asset. Management has determined that there has been no material impairment to any long-lived assets as of February 3, 2001. Self Insurance Reserves -- The Company is self-insured for certain property, liability, accident and health insurance risks, and establishes reserves for estimated outstanding claims based on its historical claims experience and reviews by third-party loss reserves specialists. The Company has purchased insurance coverage for losses that may occur above certain levels. As of February 3, 2001 and January 29, 2000, the Company had established reserves for these risks of $1,604,000 and $1,843,000, respectively, which are recorded on a present value basis using a risk-free rate of return to discount the liability. The ultimate amount of these liabilities could differ from these estimates. At February 3, 2001 and January 29, 2000, the risk-free rates of return were 5.19% and 6.65%, respectively. F-7 49 Fair Value of Financial Instruments -- The Company has disclosed the fair value, related carrying value and method of determining fair value for the following financial instruments in the accompanying notes as referenced: short-term investments (see Note 1), accounts and notes receivable (see Note 2) and long-term obligations (see Note 6). Revenue Recognition -- The Company recognizes revenues as earned, including franchise revenues and interest income. Franchise revenues represent a percentage of franchise store sales remitted to the Company on a weekly or monthly basis in exchange for the Company providing merchandising, advertising, store audit, and other operating and administrative support services, as well as revenues derived from initial fees and the gain on sale of store assets to franchisees. Franchise revenues were $9,085,000, $9,678,000 and $10,255,000 for the fiscal years ended February 3, 2001, January 29, 2000 and January 30, 1999, respectively. Store Preopening and Closing Costs -- Consistent with the requirements of the American Institute of Certified Public Accountants' Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities," expenditures of a non-capital nature associated with opening a new store are expensed as incurred. At the time the decision is made to close a store, estimated unrecoverable costs are charged to expense. Such costs include the net book value of abandoned fixtures, equipment, leasehold improvements and a provision for the present value of future lease obligations, less the present value of estimated future sub-rental income. Earnings (Loss) per Share -- Earnings (loss) per share have been calculated based on the weighted average number of shares of Common Stock outstanding and the effect of stock options, if dilutive, during each year. The weighted-average number of shares used in the calculation of basic earnings (loss) per share is 4,945,207, 4,868,664 and 4,823,154 for the fiscal years ended February 3, 2001, January 29, 2000 and January 30, 1999, respectively. Dilutive earnings per share has not been presented as the Company's basic and dilutive earnings per share are equal for fiscal years 2001, 2000 and 1999. New Authoritative Accounting Pronouncements -- In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS 138. This Statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires companies to recognize all derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for as either other comprehensive income or in current period income depending on the use of the derivative and whether it qualifies for hedge accounting. The Company adopted this Statement on February 4, 2001 and it did not have any effect on the Company's financial statements. Reclassifications -- Certain amounts in the prior periods' Consolidated Financial Statements have been reclassified to conform to the presentation used for the current period. 2. ACCOUNTS AND NOTES RECEIVABLE: A summary of accounts and notes receivable as of February 3, 2001 and January 29, 2000 is as follows:

F-8 50 The carrying amount of current accounts and notes receivable approximates fair value because of the short maturity of those receivables. The fair value of the Company's noncurrent notes receivable is estimated by discounting the future cash flows using the rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. As of February 3, 2001 and January 29, 2000, management has determined the fair values of the noncurrent notes receivable approximate their carrying values. 3. PROPERTY AND EQUIPMENT: A summary of property and equipment as of February 3, 2001 and January 29, 2000 is as follows:

4. INTANGIBLE ASSETS: A summary of intangibles as of February 3, 2001 and January 29, 2000 is as follows:

Goodwill represents the excess of cost over fair value of net assets purchased and is being amortized on a straight-line basis over a period of 40 years. Franchise and operating rights represent the value of franchise relationships purchased in connection with past acquisitions and are being amortized on a straight-line basis over 30 years. The Company assesses the recoverability of these intangibles by determining whether the amortization of the goodwill and franchise and operating rights over the remaining lives can be recovered through projected future cash flows on an undiscounted basis. Management has determined that there has been no material impairment to goodwill or franchise and operating rights as of February 3, 2001. 5. ACCRUED EXPENSES: A summary of accrued expenses as of February 3, 2001 and January 29, 2000 is as follows:

F-9 51 6. LONG-TERM OBLIGATIONS: The Company had the following long-term obligations as of February 3, 2001 and January 29, 2000:

In March 1994, the Company issued $75,000,000 principal amount of 10.25% senior subordinated notes (the "Series A Notes") due March 15, 2004. The proceeds received from the sale of the Series A Notes, net of offering costs of $2,298,000, were used to repay the entire outstanding indebtedness under the then existing bank term loan and bank revolving loan and to redeem in full the Company's 14.25% subordinated debentures due November, 2000. In December 1995, the Company issued an additional $13,500,000 principal amount of 10.25% senior subordinated notes (the "Series B Notes") due March 15, 2004. 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 Common Stock of the Company. In addition, the Company issued to the holders of the Series A Notes warrants to purchase 500,000 shares of Common Stock of the Company. The warrants may be exercised any time until December 1, 2001. The initial exercise price of the warrants was $6.95 per share, which was adjusted in December 1996, to $5.45 per share. Due to the anti-dilution provisions of the warrants and the Company's reclassification of former Class A and Class B Common Stock into a new, single class of Common Stock, the number of warrants increased to 1,852,249 and the exercise price of the warrants was adjusted to $5.05 per share. The exercise price may be adjusted further based upon the occurrence of various events, including stock dividends and issuance of Common Stock by the Company for a per share price less than the exercise price of the warrants or less than the current market value of the Company's Common Stock. The Series A and Series B Notes (collectively, the "Notes") are redeemable, at the option of the Company, beginning March 15, 1999 at rates starting at 104.75% of the principal amount reduced annually through March 15, 2002, at which time they become redeemable at 100% of the principal amount. The terms of the Notes may restrict, among other things, the payment of dividends and other distributions, investments, the repurchase of capital stock and the making of certain other restricted payments by the Company and its subsidiaries, the incurrence of additional indebtedness and new operating lease obligations by the Company or any of its subsidiaries, and certain mergers, consolidations and dispositions of assets. Additionally, according to the terms of the Notes, if a change of control occurs, as defined, each holder of the Notes will have the right to require the Company to repurchase such holder's Notes at 101% of the principal amount thereof. The original issue discount amortization related to the Series B Notes of $230,080, $160,980 and $153,904 is included in interest expense for the fiscal years ended February 3, 2001, January 29, 2000 and January 30, 1999, respectively. The Company is party to a $30,000,000 secured revolving credit facility (the "Credit Facility"), of which up to $15,000,000 may be available for the issuance of letters of credit. The outstanding balance is due and payable on September 15, 2002. Interest on revolving credit loans is computed at an applicable margin over the agent bank's base rate or the LIBOR rate, at the option of the Company. The applicable margin, if any, is based upon the ratio of consolidated indebtedness to consolidated EBITDA, as defined below. The credit agreement also provides for a commitment fee of 1/2% on any unused portion of the Credit Facility. Among other restrictions, the credit agreement contains financial covenants relating to specified levels of: indebtedness (reduced by an amount equal to cash and store properties held for sale/leaseback as defined in the credit agreement) to earnings before interest F-10 52 expense, taxes, depreciation and amortization (EBITDA); EBITDA to interest expense; EBITDA plus rent, less taxes paid in cash to interest expense, rent expense and principal payments required to be made on indebtedness. The Credit Facility was further amended on May 7, 2001 amended to (1) waive any default or event of default under the Credit Facility arising from any failure to comply with financial covenants as of February 3, 2001 and (2) amend the financial covenants for the four quarters of fiscal year 2002. The ability of the Company to be in compliance with certain financial covenants in the future is dependent upon the Company realizing improved operating results from those reported for the fiscal year ended February 3, 2001. In connection with the Credit Facility, the Company granted a security interest in substantially all of its non-real estate assets and pledged as collateral the shares of capital stock of certain subsidiary corporations of the Company. The Company is limited in the amount of cash dividends that it may pay and the amount of capital stock and subordinated indebtedness that it may repurchase by applicable covenants contained in the Credit Facility and Notes. As of February 3, 2001, taking into account such limitations, the Company would not have been able to pay cash dividends. In fiscal year 2001, the Company entered into capital lease agreements of $3.7 million for equipment and $2.2 million in real estate mortgages that were used to support new store development. In fiscal year 2000, the Company entered into capital lease agreements of $9.8 million for equipment and $5.0 million in real estate mortgages that were used to support new store development. As of February 3, 2001 and January 29, 2000, respectively, management has determined that the fair values of the real estate mortgage notes payable, Small Business Administration debentures, equipment financing and capital leases, approximated their respective carrying amounts. Fair values of obligations are based on rates available to the Company for debt with similar terms and maturities. As of February 3, 2001 and January 29, 2000 the fair value of the Series A and Series B Notes, approximated 47% and 80%, respectively, of their carrying amount. The fair value of the Notes was based on quoted market prices as of February 3, 2001 and January 29, 2000, respectively. The revolving Credit Facility is a variable rate loan, and thus, the fair value approximates the carrying amount as of February 3, 2001. As of February 3, 2001, maturities on long-term obligations, shown gross of original issue discount of $772 for the next five years and thereafter, are as follows:

7. OPERATING LEASES: The Company leases operating properties, including store locations and office space, under various lease agreements expiring through fiscal year 2020. Certain of these locations are sublet to the Company's franchisees. The future minimum lease payments related to these properties are included in the following summary. F-11 53 A summary of future minimum lease payments net of subleases as of February 3, 2001 is as follows:

Rental expense for all operating leases was as follows:

8. FEDERAL AND STATE INCOME TAXES: The (provision) benefit from income taxes for the fiscal years ended February 3, 2001, January 29, 2000 and January 30,1999 was as follows:

The Company is subject to minimum state taxes in excess of statutory state income taxes in many of the states in which it operates. A reconciliation of the difference between the statutory federal income tax rate and the effective income tax rate follows:

F-12 54 The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred taxes for which it does not consider realization of such assets to be more likely than not. Significant deferred tax assets (liabilities) as of February 3, 2001 and January 29, 2000 were as follows:

At February 3, 2001, the Company's net deferred tax assets are fully offset by a valuation allowance. For financial reporting purposes in fiscal year 2001, the Company recorded a valuation allowance because of the uncertainty of realizing certain tax credits and loss carryforwards in the future. Realization of the net operating loss carryforwards and tax credits as of January 29, 2000 were dependent on the successful implementation of tax-planning strategies prior to the expiration of the operating loss carryforwards. Although realization was not assured, management believed it was more likely than not that the deferred tax asset would be realized at January 29, 2000. As of February 3, 2001, the Company had alternative minimum tax credits aggregating $256,000 which carryforward indefinitely. For federal income tax purposes, these credits can be used in the future to the extent that the Company's regular tax liability exceeds its liability calculated under the alternative minimum tax method. In addition, the Company had $1,914,000 of targeted jobs credit carryforwards that expire, if unused, during fiscal years 2007 to 2011 and $338,000 of foreign tax credit carryforwards that expire, if unused, in fiscal years 2002 to 2006. The Company and its subsidiaries file a consolidated federal income tax return but generally file separate state income tax returns. As of February 3, 2001, the Company had a capital loss carryforward of $1,610,000 that will expire in fiscal year 2003. As of February 3, 2001, the Company had regular federal income tax net operating loss carryforwards of $57,007,000 which expire, if unused, during fiscal years 2011 to 2020 and net operating loss carryforwards for state income tax purposes of $68,897,000 which expire, if unused, during fiscal years 2002 to 2015. 9. CAPITAL STOCK: In January 1996, a Stock Rights Plan ("SRP") was adopted by the Company. Under the SRP, each holder of Common Stock received a dividend of one Preferred Stock Purchase Right (the "Rights"). The Rights are to purchase one one-hundredth (1/100) of a share of Series A Junior Preferred Stock at a price of $30 subject to certain adjustments. The Rights are exercisable under certain circumstances, and expire on January 19, 2006. In June 1986, the stockholders approved an Employee Stock Purchase Plan. The plan, as amended in September, 1996, provides that employees may purchase quarterly, through payroll deductions, up to 1,000 shares of Common Stock at 85% of the market value. Of the original 1,250,000 shares provided for under this plan, 963,005 shares remained available for issuance as of February 3, 2001. As of February 3, 2001, January 29, 2000 and January 30,1999, the Company held 2,058,000 shares of Common Stock as treasury stock. F-13 55 10. STOCK OPTION PLANS AND GRANTS In general, the Company's stock option plans provide for the granting of options to purchase the Company's shares at the market price of such shares as of the option grant date. The options generally have a ten year term and vest and become exercisable on a pro rata basis over four years. In fiscal year 1996, and subsequently amended in fiscal year 1998, the Company adopted a Stock Option and Incentive Award Plan ("Award Plan") and a non-qualified Stock Option Plan for Outside Directors ("Outside Directors Plan"). The Award Plan provides for the granting of stock awards and options to employees up to a total of 1,150,000 shares of Common Stock. In fiscal years 2001, 2000 and 1999, the Company granted incentive stock options of 191,000, 246,000, and 271,844, respectively. As of February 3, 2001, the Company had available for grant under the Award Plan options to purchase 185,531 shares of Common Stock after considering the lapse of options previously granted. The Outside Directors Plan provides for the initial grant of an option to purchase 3,500 shares of the Company's Common Stock to each non-employee director and an annual grant of an option to purchase 3,500 shares. The maximum number of shares reserved for issuance under this plan, as amended, is 150,000. The Company granted 21,000 and 24,500 non-qualified stock options in fiscal years 2001 and 2000, respectively. As of February 3, 2001 the Company had available for grant under the Outside Directors Plan options to purchase 24,000 shares of Common Stock, after considering lapses. During fiscal year 2001 the Company awarded, pursuant to the Award Plan, stock grants consisting of an aggregate of 43,000 shares of the Company's Common Stock. Compensation expense in the amount of $236,500 was recorded with respect to the shares awarded in fiscal year 2001. No shares were awarded in fiscal year 2000 or 1999. The Company adopted Stock Option Plans in 1985 and 1990 providing for the granting of options to employees up to an aggregate of 226,875 shares of the former Class B Common Stock and 750,000 shares of the former Class A Common Stock. The Company granted incentive stock options pursuant to these Plans totaling 61,906 in fiscal year 1999. No options were granted from these plans in fiscal year 2001 or 2000. As of February 3, 2001 no further options are available for grant under either plan. In addition to the stock options granted under the above plans, the Company granted 15,000 non-qualified stock options in fiscal year 1999, which are not part of a specific plan. The Company did not grant any stock options that are not part of a specific plan in fiscal years 2001 and 2000. Pro forma information regarding net loss and loss per share required by SFAS No. 123, "Accounting for Stock-Based Compensation," has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

For the purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information is as follows:

F-14 56 The pro forma effect on net loss for fiscal years 2001, 2000 and 1999 is not representative of the pro forma effect on net income (loss) in future years because it does not take into consideration pro forma compensation expense related to grants made prior to fiscal year 1996. A summary of the Company's stock option activity and related information for the fiscal years ended February 3, 2001, January 29, 2000 and January 30, 1999, is as follows:

The weighted-average fair values of stock options granted during fiscal years 2001, 2000 and 1999 were $1.76, $1.93 and $4.20, respectively The following table summarizes information about the Company's stock options outstanding as of February 3, 2001:

11. EMPLOYEE BENEFIT PLANS: The Company provides benefits to qualified employees through a defined contribution profit sharing plan. Contributions under this plan are made annually in amounts determined by the Company's Board of Directors. No discretionary contributions to this plan were made in fiscal years 2001, 2000 and 1999. Effective January 1, 1993, the profit sharing plan was amended pursuant to section 401(k) of the Internal Revenue Code enabling eligible employees to contribute up to 15% of their annual compensation to the plan, with the Company matching 50% of such contributions during fiscal years 2001 and 2000 and 25% during fiscal year 1999, up to 6% of the employees' annual compensation. Matching contributions from the Company for fiscal years 2001, 2000 and 1999 were $311,000, $320,000 and $252,000, respectively. The Company does not offer any additional post retirement and post-employment benefits to its employees. In March 1998, the Company adopted a Supplemental Executive Retirement Plan (the "SERP") to provide additional retirement benefits, payable in a lump sum, to certain executive officers. The SERP is an unfunded plan; however, the Company intends to use the cash surrender value of key life insurance policies purchased by the Company to fund its obligations under the plan. As of February 3, 2001 and January 29, 2000, cash surrender F-15 57 values of $431,203 and $284,847, respectively, were recorded as assets on the accompanying Consolidated Balance Sheets. As of February 3, 2001 and January 29, 2000 plan obligations of $232,882 and $182,590, respectively, were recorded as liabilities on the accompanying Consolidated Balance Sheets. 12. COMMITMENTS AND CONTINGENCIES: As of February 3, 2001, the Company was contingently liable for outstanding letters of credit amounting to $5,227,650. The Company has certain environmental contingencies related to the ongoing costs to comply with federal, state and local environmental laws and regulations, including costs for assessment, compliance, remediation and certain capital expenditures related to its gasoline operations. In the ordinary course of business, the Company is involved in environmental assessment and remediation activities with respect to releases of regulated substances from existing and previously operated retail gasoline facilities. The Company accrues its estimate of all costs to be incurred for assessment and remediation for known releases. In February 1997, the Company adopted SOP No. 96-1, "Environmental Remediation Liabilities," which provides guidance on specific accounting issues related to the recognition, measurement and disclosure of environmental remediation liabilities. These accruals are adjusted if and when new information becomes known. Due to the nature of such releases, the actual costs of assessment and remediation may vary significantly from year to year. As of February 3, 2001 and January 29, 2000, the Company had recorded an accrual of $8,707,000 and $6,045,000, respectively, for such costs. The Company is entitled to reimbursement of a portion of the above costs from various state environmental trust funds based upon compliance with the terms and conditions of such funds. As of February 3, 2001 and January 29, 2000, the Company had recorded a reimbursement receivable of $10,575,000 and $7,286,000, respectively. For the fiscal years ended February 3, 2001, January 29, 2000 and January 30, 1999, the Company recorded a provision for environmental expenses of $656,000, $474,000, and $98,000, respectively. At 14 locations, the Company either sold the location or removed the UST's at the unsold locations during fiscal year 2000. The Company remains responsible for specific known remediation requirements at these locations. These locations are included in the Company's remediation accrual as of February 3, 2001. The Company is party to an agreement, through September 2005, which provides for the wholesale supply of various grocery items. Under the supply agreement, the Company is obligated to purchase annually a minimum amount of merchandise. Management believes that the annual purchase level is readily achievable over the term of the agreement. Prices to be charged by the supplier must be competitive. In fiscal year 1999, the Company entered into a long-term supply and branding agreement with Chevron Products Company to brand certain high-volume retail gasoline locations. The agreement obligates the Company to purchase a minimum volume of gasoline over a ten-year period. Management believes that the purchase volume is readily achievable over the term of the agreement. In addition, the agreement provides for the Company to be reimbursed for costs incurred in the conversion of equipment and display facilities. In January 1999, the Company entered into an agreement with Coca-Cola USA Fountain to exclusively sell Coca-Cola fountain products in the Company's fountain centers. The agreement requires the purchase of a minimum quantity of fountain syrups. Management expects to meet the required level of purchases. In March 1999, the Company signed an agreement with Procter & Gamble. The agreement calls for the Company to exclusively sell Millstone brand coffee blends through February 2004. The agreement requires the purchase of a minimum quantity of coffee. Management expects to meet the required level of purchases. The Company is a defendant in an action brought by a former supplier of certain dairy products to convenience stores formerly owned by the Company in Massachusetts, Rhode Island, Connecticut, and New York ("New England Stores"). The action is entitled New England Dairies, Inc. v. Dairy Mart Convenience Stores, Inc. and Dairy Mart, Inc., Civil Action No. 397CU00894 (U.S. District Court for the State of Connecticut). This action was commenced on April 17, 1997, by New England Dairies, Inc. ("NED") alleging that the Company committed an anticipatory breach of a supply agreement entered into between NED and the Company on April 25, 1995 ("the Agreement"), when the Company entered into a contract with a third party to sell all company-owned and franchised convenience stores in New England, without requiring the third party purchaser F-16 58 to assume the Agreement. NED's complaint alleges lost profits in the amount of $3.7 million. The defendants are contesting the claims and, at this time, the Company is not able to determine what the results of this litigation will be. Trial of this case was completed on December 7, 2000, and it is not known when the judge will issue his ruling. The Company has recognized no provision for any possible loss in the accompanying financial statements. The Company was the plaintiff in an action commenced on April 20, 2000 entitled Dairy Mart Convenience Stores, Inc. v. RLI Insurance Group and RLI Insurance Company and RLI Corporation, Civil Action Number 5:00 CV 1043 (U.S. District Court for the Northern District of Ohio, Eastern Division), brought against RLI Insurance Group to recover $3.0 million under the Company's directors and officers excess liability insurance policy for legal fees incurred in the course of defending certain directors and officers of the Company in derivative litigation of Dairy Mart Convenience Stores, Inc.. The Company previously recorded the $3.0 million as a receivable. On November 28, 2000, the Company reached an agreement in principle with RLI Insurance Group to settle the litigation for $1.8 million. Accordingly, a reduction in accounts receivable and other costs related to this settlement was recognized in the amount of $1.3 million during fiscal year 2001 and was included in general and administrative expenses. In the ordinary course of business, the Company is party to various other actions which the Company believes are routine in nature and incidental to the operation of its business. The Company believes that the outcome of the proceedings to which the Company currently is party will not have a material adverse effect upon its future results of operations or financial condition. 13. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION: The Company's payment obligations under the Notes are guaranteed by certain of the Company's subsidiaries ("Guarantor Subsidiaries"). The Notes are fully and unconditionally guaranteed on an unsecured, senior subordinated, joint and several basis by each of the Guarantor Subsidiaries. The following supplemental financial information sets forth, on a consolidating basis, statements of operations, balance sheets and statements of cash flows for the Company ("Parent Company"), for the Guarantor Subsidiaries and for Financial Opportunities, Inc. ("FINOP"), the Company's non-guarantor subsidiary. Separate complete financial statements of the respective Guarantor Subsidiaries would not provide additional information which would be useful in assessing the financial condition of the Guarantor Subsidiaries and are omitted accordingly. Investment in subsidiaries is accounted for by the Parent Company on the equity method for purposes of the supplemental consolidating presentation. Earnings of the subsidiaries are, therefore, reflected in the Parent Company's investment accounts and earnings. The principal elimination entries eliminate the Parent Company's investments in subsidiaries and intercompany balances and transactions. F-17 59 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED FEBRUARY 3, 2001 (IN THOUSANDS)

F-18 60 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING BALANCE SHEET AS OF FEBRUARY 3, 2001 (IN THOUSANDS)

F-19 61 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED FEBRUARY 3, 2001 (IN THOUSANDS)

F-20 62 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED JANUARY 29, 2000 (IN THOUSANDS)

F-21 63 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING BALANCE SHEET AS OF JANUARY 29, 2000 (IN THOUSANDS)

F-22 64 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JANUARY 29, 2000 (IN THOUSANDS)

F-23 65 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED JANUARY 30, 1999 (IN THOUSANDS)

F-24 66 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING BALANCE SHEET AS OF JANUARY 30, 1999 (IN THOUSANDS)

F-25 67 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JANUARY 30, 1999 (IN THOUSANDS)

F-26 68 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES 14. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED): Quarterly financial information is as follows:

--------------- (1) Earnings per share amounts for each quarter are required to be computed independently. As a result, their sum does not equal the total year earnings per share for diluted earnings per share in fiscal years 2001 and 2000. 15. OPERATING SEGMENT The Company operates in one segment based on the criteria established by SFAS 131. That segment is the operating and franchising of convenience food stores. Revenues from external customers are derived primarily from three major categories -- merchandise, gasoline and food service. The Company's merchandise sales are comprised of groceries, beverages, beer/wine, tobacco products, dairy products, candy/snacks, non-food merchandise and services. Services include lottery, ATMs and money orders. Food service sales are comprised of fountain, coffee, fresh made sandwiches, deli products and branded quick serve restaurant sales such as Mr. Hero(R), Taco Bell(R), and Subway(R). The Company does not rely on any major customers as a source of revenue. Excluding license royalties, the Company's operations are concentrated in seven states in the Midwest and Southeastern part of the United States. 16. SUBSEQUENT EVENTS On March 15, 2001, the Company executed a merger agreement (the "Merger Agreement") pursuant to which DM Acquisition Corp. agreed to acquire the Company in a cash merger for $4.50 per share. DM Acquisition Corp. is controlled by Robert B. Stein, Jr., the Chairman, President and Chief Executive Officer of the Company. The Merger Agreement provides that DM Acquisition Corp. will be merged with and into the Company and that each share of the Company's Common Stock outstanding immediately prior to the merger, other than those owned by Mr. Stein and his affiliates, will be converted into the right to receive $4.50 per share in cash. The Company's board of directors, based on the unanimous recommendation of a special committee of independent directors, has approved the transaction and recommended that the Company's stockholders approve the transaction. In connection with the merger, the Company will solicit its senior subordinated noteholders to F-27 69 exchange their subordinated notes of the Company and receive, for each $10,000 in principal amount of the old notes, $3,870 in principal amount of new notes of the Company, $6,191.30 in cash and a warrant to purchase Common Stock of the Company, which will not be exercisable until after the completion of the merger. The Company has entered into an exchange and voting agreement pursuant to which holders of approximately 70% of the senior subordinated notes have agreed to participate in the exchange. The Merger Agreement is subject to customary conditions, including completion of necessary financing arrangements and approval of holders of a majority (excluding those shares held by persons who will have an interest in the buyout entity) of the shares of the Company's Common Stock voting at a special meeting. If the merger is completed, the Company will no longer be a public company. There can be no assurance, however, that the Company or DM Acquisition Corp. will be able to complete the merger. F-28 70 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and the Board of Directors of Dairy Mart Convenience Stores, Inc.: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of Dairy Mart Convenience Stores, Inc. and subsidiaries (the Company) included in this Form 10-K and have issued our report thereon dated May 3, 2001. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the accompanying index is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP ------------------------------------------- ARTHUR ANDERSEN LLP Cleveland, Ohio May 7, 2001 F-29 71 SCHEDULE II DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES VALUATION ACCOUNTS

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DAIRY MART CONVENIENCE STORES INC 10-K