Document:

<PAGE>   1
                                                                   Exhibit 10.25

                              EMPLOYMENT AGREEMENT
                              --------------------

         This Agreement is effective January 18, 2000, by and between DAIRY MART
CONVENIENCE STORES, INC., a Delaware corporation with its principal offices at
300 Executive Parkway West, Hudson, Ohio 44236 (the "Company") and WAYNE COLLEY,
with his residence located at 5000 Burnt Store Road, Punta Gorda, Florida 33955
(the "Employee").
                                   WITNESSETH:
                                   -----------

         WHEREAS, the Company desires to secure the services of the Employee in
the capacities set forth herein, and the Employee has agreed to supply his
services in such capacities, upon the terms and conditions set forth in this
Agreement.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter contained, the parties hereby agree as
follows:

         1. DEFINITIONS. For purposes of this Agreement, the following
capitalized terms used herein shall have the respective meanings set forth
below. Other capitalized terms used herein are defined elsewhere in this
Agreement.

         "CAUSE" shall mean (i) the Employee's willful breach of duty in the
course of his employment, or his habitual neglect of his employment duties, (ii)
an act of fraud or theft committed by the Employee against the Company or (iii)
the Employee having been convicted by a court of competent jurisdiction of a
felony. For purposes of this Agreement, no act, or failure to act, on the
Employee's part shall be deemed "willful" unless done, or

<PAGE>   2
2

omitted to be done, by him not in good faith and without reasonable belief that
his action or omission was in the best interests of the Company and its
subsidiaries. Notwithstanding the foregoing, the Employee shall not be deemed to
have been terminated for Cause unless and until there shall have been delivered
to him a copy of a resolution duly adopted by the affirmative vote of the entire
membership of the Company's Board of Directors (the "Board") other than
directors who are employees of the Company at a meeting of the Board called and
held for such purpose (after reasonable notice to the Employee and an
opportunity for him, together with his counsel, to be heard before the Board),
finding that in the good faith opinion of the such membership of the Board, the
Employee was guilty of conduct set forth above in this definition and specifying
the particulars thereof in detail.

         "DATE OF TERMINATION" shall mean (i) if the Employee's employment is
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided that the Employee shall not have returned to the full-time performance
of his duties during such thirty (30) day period), and (ii) if the Employee's
employment is terminated for Cause or Good Reason or for any other reason (other
than Disability or death), the date specified in the Notice of Termination
(which, in the case of a termination for Cause shall not be less than thirty
(30) days, and in the case of a termination for Good Reason shall not be less
than thirty (30) nor more than ninety (90) days, respectively, from the date
such Notice of Termination is given).

         "DISABILITY" shall mean permanent and total disability as such term is
defined under Section 22(e)(3) of the Internal Revenue code of 1986, as amended
(the "Code"). Any questions as to the existence of the Employee's Disability
upon which he and the Company cannot agree shall be determined by a qualified
independent physician selected by the

<PAGE>   3

3

Employee (or, if he is unable to make such selection, such selection shall be
made by any adult member of the Employee's immediate family of his legal
representative), and approved by the Company; said approval not to be
unreasonably withheld. The determination of such physician made in writing to
the Company and to the Employee shall be final and conclusive for all purposes
of this Agreement.

         "GOOD REASON" shall mean the occurrence, without the Employee's express
written consent, of any of the following circumstances:

         (i) the assignment to the Employee of any duties or responsibilities
inconsistent with his status as Executive Vice President and Chief Operating
Officer of the Company, his removal from that position, or a diminution in the
nature or status of his responsibilities from those in effect immediately prior
to the date hereof:

         (ii) a reduction by the Company in the Employee's Base Salary (as
defined in Paragraph 5 hereof) or fringe benefits as in effect on the date
hereof or as the same may be increased from time to time during the Employment
Term (as hereinafter defined in Paragraph 3 hereof);

         (iii) relocation of the Employee's principal place of employment by
more than 60 miles from its location as of the date hereof;

         (iv) a material breach of this Agreement by the Company that remains
uncured for a period of 30 days after Employee has provided the Company's Board
of Directors written notice that specifically identifies, in reasonable detail,
the manner in which the Company materially breached the Agreement; or

         (v) notwithstanding the foregoing, the occurrence of a "Change of
Control" and

<PAGE>   4

4

the further occurrence of any event listed in items (i) through (iii) below
within two years following a Change of Control.

         (i) the assignment to the Employee of any duties or responsibilities
inconsistent with his status as Executive Vice President and Chief Operating
Officer of the Company, his removal from that position, or a diminution in the
nature or status of his responsibilities from those in effect immediately prior
to the date hereof:

         (ii) a reduction by the Company in the Employee's Base Salary (as
defined in Paragraph 5 hereof) or fringe benefits as in effect on the date
hereof or as the same may be increased from time to time during the Employment
Term (as hereinafter defined in Paragraph 3 hereof);

         (iii) a change in the executive officer to whom the Employee reports on
the date hereof and following such change the Employee is subject to, in the
reasonable opinion of the Employee, (x) unreasonable demands regarding his
business time and efforts to be expended on behalf of the company, (y) abusive
or embarrassing treatment or (z) other material adverse changes in his working
environment and conditions from those in effect on the date hereof;

         "CHANGE OF CONTROL" shall mean any one or more of the following:

         (i) If any "person" (as the terms used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the Company's outstanding securities;

         (ii) If the individuals who constitute the Board on the date hereof
(the

<PAGE>   5

5

"Incumbent Board") cease for any reason to constitute at least a majority of the
Board, PROVIDED, HOWEVER, that any person becoming a director subsequent to the
date hereof whose election or nomination for election by the Company's
stockholders, was approved by a vote of at least three-quarters of the directors
then comprising the Incumbent Board shall be considered as though he were a
member of the Incumbent Board, but excluding, for this purpose, any such person
whose initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
person other than the Board;

         (iii) A merger, consolidation, reorganization, sale of all or
substantially all of the assets of the Company or similar transaction occurs in
which the Company is not the resulting entity, other than a transaction
following which (A) at least 51% of the equity ownership interests of the entity
resulting from such transaction are beneficially owned (within the meaning of
Rule 13d-3 promulgated under Exchange Act) in substantially the same relative
proportions by persons who, immediately prior to such transaction, beneficially
owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at
least 51% of the outstanding equity ownership interests in the Company and (B)
at least 51% of the securities entitled to vote generally in the election of
directors of the entity resulting from such transaction are beneficially owned
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who, immediately prior to
such transaction, beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) at least 51% of the securities entitled to
vote generally

<PAGE>   6

6

in the election of directors of the Company; or,

         (iv) A tender offer is completed for 20% or more of the voting
securities of the Company then outstanding.

         "NOTICE OF TERMINATION" shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Employee's employment under the provision so indicated.

         2. EMPLOYMENT. The Company shall employ the Employee, and the Employee
shall serve the Company, upon the terms and conditions hereinafter set forth.

         3. TERM. The employment of the Employee by the Company hereunder
commenced as of January 18, 2000 and, unless sooner terminated on an earlier
date in accordance with the provisions hereinafter provided, shall terminate on
December 31, 2002; PROVIDED, HOWEVER, that commencing on January 1, 2001 and
each January 1 thereafter, the term of this Agreement shall automatically be
extended for one additional year such that the remaining unexpired term shall be
three years unless, not later than December 31 of such calendar year, either the
Company or the Employee shall have given notice to the other party that it or he
does not wish to extend the term of this Agreement. The period commencing on
January 18, 2000 and ending December 31, 2002 or such earlier or later date to
which the term of the Employee's employment hereunder may be shortened or
extended as provided in this Agreement is referred to herein as the "Employment
Term."

         4. DUTIES. During the Employment Term, the Employee shall:

         (i) Serve as Executive Vice President and Chief Operating Officer of
the

<PAGE>   7

7

Company, faithfully and to the best of his ability, subject to the direction and
supervision of the Board;

         (ii) Serve as an officer and/or director of, and shall perform such
services on behalf of, any subsidiary or other affiliate of the Company as may
be designated by the Board, all without further compensation other than that
provided for in this Agreement; and

         (iii) Devote his full business time, energy and skill to such
employment and shall not, without prior written approval of the Board, directly
or indirectly, engage or participate in, or become employed by, or become an
officer or partner of, or render advisory services to or provide other services
in connection with, any business activity other than that of the Company or any
of its subsidiaries or affiliates as provided above; PROVIDED, HOWEVER, that the
Employee shall be permitted to (x) serve as a board member or and render
services to charitable organizations of his choice and (y) personally invest in
any corporation, partnership or other entity, so long as any such investment
does not require or involve the active participation of the Employee in the
management of the business of any such corporation, partnership or other entity
such as to materially interfere with the execution of the Employee's duties
hereunder and does not otherwise violate any provision of this Agreement.

         5. SALARY. During the term of this Agreement, the Company shall pay to
the Employee a salary for his services (the "Base Salary") at a rate not less
than $250,000 per year, payable in accordance with the regular payroll practices
of the Company. The Base Salary shall be subject to annual review by the Board;
PROVIDED, HOWEVER, that such salary may be increased, but not decreased, in the
sole discretion of the Board.

<PAGE>   8

8

         6. BONUS ARRANGEMENTS. In addition to the Base Salary provided for in
Paragraph 5 hereof, the Board, or a duly authorized committee thereof, may
authorize and instruct the Company to pay to the Employee, pursuant to an
incentive compensation plan formally adopted by the Board or a committee thereof
or otherwise, bonus payments ("Discretionary Bonus") dependent upon the
Employee's individual performance and contribution for a given fiscal year, the
Company's financial performance for such fiscal year and/or such other criteria
as the Board, or such designated committee thereof, shall determine. The payment
of any Discretionary Bonus to be made to the Employee shall be in the sole
discretion of the Board, or such designated committee thereof and may be paid in
cash or, if mutually agreeable to the Board (or such designated committee
thereof) and the Employee, in stock, other securities of the Company, or other
assets of the Company and upon such other terms as they may mutually agree.

         7. EXPENSES. It is contemplated that, in connection with his employment
hereunder, the Employee may be required to incur reasonable and necessary
travel, business entertainment and other business expenses. The Company agrees
to reimburse the Employee for all reasonable and necessary travel, business
entertainment and other business expenses incurred or expended by him incident
to the performance of his duties hereunder, upon submission by the Employee to
the Company of vouchers or expense statements (i) satisfactorily evidencing the
incurrence of such expenses and (ii) that would enable the Company to deduct
such expenses from its income under applicable tax laws.

         8. EMPLOYEE BENEFITS, VACATION.

         (a) The Employee shall be fully vested and entitled to participate in
any

<PAGE>   9

9

and all life insurance, medical insurance, disability insurance, pension,
incentive and savings and other employee benefit plans which are available by
the Company during the Employment Term to executives of the Company of the
Employee's rank, to the extent that the Employee qualifies under the eligibility
provisions of such plans.

         (b) The Employee shall be entitled to vacations (taken consecutively or
in segments), aggregating four (4) weeks for each fiscal year of the Company
during the Employment Term, to be taken at times consistent with the effective
discharge of the Employee's duties. Unused vacation time shall not accumulate
from year to year and, in the event any such unused vacation time is remaining
at the end of the fiscal year, the Employee shall not be entitled to be paid for
any such remaining time.

         9. AUTOMOBILE. The Employee shall be entitled to, at the Employee's
option, either (i) a monthly automobile allowance of $500 (as may be adjusted,
from time to time in accordance with the Company's Fleet and Stipend Policies),
or (ii) a "Director/Vice President level" automobile in accordance with the
Company's Fleet and Stipend Policies.

         10. PERMANENT DISABILITY. In the event of the Disability of the
Employee during the Employment Term, the Company shall have the right, following
the sending of a Notice of Termination to the Employee, to terminate his
employment hereunder. Effective on the Date of Termination, the Company shall be
discharged and released from any further obligations under the Agreement
(including, but not limited to, any obligation to pay any bonus in respect of
the fiscal year in which termination occurs, or any fiscal year thereafter),
other than (x) the obligation to continue to make periodic payments to the
Employee of his Base Salary then in effect (reduced by any amounts received by
the Employee pursuant to any temporary

<PAGE>   10

10

disability plan or program maintained by the Company and any federal or state
disability plan or program) for the period, if any, from the commencement of the
period of Disability through and, if necessary, after the Date of Termination
until the time in respect of which full payments to the Employee or his
representatives are commenced under the company's permanent disability plan or
program or (y) pursuant to the next sentence, if applicable. Notwithstanding the
foregoing, if at the time of the Employee's employment hereunder is terminated
in the event of Disability the Company does not maintain a permanent disability
plan or program or if the Employee does not participate in a permanent
disability plan or program offered or sponsored by the Company, then the Company
shall pay to the Employee, within 30 days after the Date of Termination, an
amount equal to (i) 100% of the annual Base Salary in effect at the time of the
Notice of Termination in accordance with the provisions of Paragraph 5 hereof
and (ii) an amount equal to the highest of the aggregate bonus payments
(including Discretionary Bonus payments pursuant to Paragraph 6 hereof) made to
or earned by the Employee in respect of the last three twelve month periods
preceding the Date of Termination. Notwithstanding the foregoing, the Employee
shall have the continuing obligations provided for in Paragraph 13(b) hereof,
but shall be released from any obligations after the Date of Termination
pursuant to Paragraph 13(a) hereof. Disability benefits, if any, due under
applicable plans and programs of the Company shall be determined under the
provisions of such plans and programs.

         11. DEATH. In the event of the death of the Employee during the
Employment Term, the Base Salary to which the Employee is entitled pursuant to
Paragraph 5 hereof shall continue to be paid through the date of death and the
Company shall pay an additional

<PAGE>   11

11

amount equal to the sum of (i) 100% of the annual Base Salary in effect at the
time of death in accordance with the provisions of Paragraph 5 hereof and (ii)
an amount equal to the highest of the aggregate bonus payments (including
Discretionary Bonus payments pursuant to Paragraph 6 hereof) made to or earned
by the Employee in respect of the last three twelve month periods preceding the
date of death. Such additional sum shall be paid in lump sum within 30 days
after the date of death to the last beneficiary designated by the Employee by
written notice to the Company, or, failing such designation, to his estate. The
Employee shall have the right to name, from time to time, any one person as
beneficiary hereunder, or with the consent of the Company to make other forms of
designation of beneficiary or beneficiaries. The Employee's designated
beneficiary or personal representative, as the case may be, shall accept the
payments provided for in this Paragraph 11 in full discharge and release of the
Company of and from any further obligations under this Agreement. Any other
benefits due under applicable plans and programs of the Company shall be
determined under the provisions of such plans and programs.

         12. TERMINATION.

         (a) If the Employee's employment hereunder is terminated by the Company
for Cause or by the Employee other than for Good Reason, the Company shall pay
the Employee his full Base Salary through the Date of Termination and shall pay
any additional amounts to be paid to the Employee pursuant to any compensation
plans or programs then in effect and thereupon the Company shall have no further
obligations under this Agreement (including, but not limited to, any obligation
to pay any bonus in respect of the fiscal year in which termination occurs, or
any fiscal year thereafter), but the Employee

<PAGE>   12

12

shall have the continuing obligations provided for in Paragraph 13(b) hereof,
but shall be released from any obligations after the Date of Termination
pursuant to Paragraph 13(a) hereof.

         (b) If the Employee's employment by the Company shall be terminated by
(x) the Company other than for Cause, his death, or Disability or (y) the
Employee for Good Reason, then the Employee shall be entitled to the benefits
provided below:

                  (i) The company shall pay the Employee his full Base Salary
and annual bonus in effect at the time the Notice of Termination is given
through the Date of Termination, no later than the fifth day following the Date
of Termination, plus all other amounts to which he is entitled under any
compensation plan of the Company applicable to him, at the time such payments
are due. For purposes of this Paragraph 12(b)(i) and (ii) and the other
provisions of this Agreement, the Employee's "annual bonus in effect at the time
the Notice of Termination is given" shall mean the highest of the aggregate
bonus payments (including Discretionary Bonus payments pursuant to Paragraph 6
hereof) made to or earned by the Employee in respect of the last three twelve
month periods preceding the date on which the Notice of Termination is given.

                  (ii) The Company shall pay the Employee, on a date that is no
later than the fifth day following the Date of Termination, as severance pay and
in consideration of the Employee's continued obligations provided for in
Paragraph 13(a) and (b) hereof, a payment equal to 100% of the sum of (x) his
full Base Salary and (y) annual bonus, in each case in effect at the time the
Notice of Termination is given. The payment to be made to the Employee pursuant
to this Paragraph 12(b)(ii) shall not be reduced by the amount of any

<PAGE>   13

13

other payment or the value of any benefit received or to be received by him in
connection with his termination of employment (whether payable pursuant to the
terms of this Agreement or any other agreement, plan or arrangement with the
Company or an affiliate, predecessor or successor of the Company).

                  (iii) In the event that any payment or benefit received or to
be received by the Employee pursuant to the terms of this Agreement (the
"Contract Payments") or in connection with his termination of employment
pursuant to any plan or arrangement or other agreement with the Company (or any
affiliate) ("Other Payments" and, together with the Contract Payments, the
"Payments") would be subject to the excise tax (the "Excise Tax") imposed by
Section 4999 of the Code, as determined below, the Company shall pay to the
Employee, at the time specified in Paragraph 12(b)(iv) below, an additional
amount (the "Gross-Up Payment") such that the net amount retained by the
Employee, after deduction of the Excise Tax on Contract Payments and Other
Payments and any federal, state and local income tax and Excise Tax upon the
payment provided for by this Paragraph 12(b)(iii), and any interest, penalties
or additions to tax payable by him with respect thereto, shall be equal to the
total present value of the Contract Payments and Other Payments at the time such
Payments are to be made. For purposes of determining whether any of the Payments
will be subject to the Excise Tax and the amounts of such Excise Tax, (1) the
total amount of Payments shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of Section 280G(b)(1) of the Code shall be treated as subject
to the Excise Tax, except to the extent that, in the opinion of independent tax
counsel selected by the Company's independent auditors

<PAGE>   14

14

and reasonably acceptable to the Employee ("Tax Counsel"), a Payment (in whole
or in part) does not constitute a "parachute payment" within the meaning of
Section 280(b)(2) of the Code, or such "excess parachute payments" (in which or
in part) are not subject to the Excise Tax, (2) the amount of the Payments that
shall be treated as subject to the Excise Tax shall be equal to the lesser of
(A) the total amount of the Payments of (B) the amount of "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code (after applying
clause (1) hereof), and (3) the value of any noncash benefits or any deferred
payment or benefit shall be determined by Tax Counsel in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Employee shall be deemed to
pay federal income tax at the highest marginal rates of federal income taxation
applicable to individuals in the calendar year in which the Gross-Up Payment is
to be made and state and local income taxes at the highest marginal rates of
taxation applicable to individuals as are in effect in the state and locality of
his residence in the calendar year in which the Gross-Up Payment is to be made,
net of the maximum reduction in federal income taxes that can be obtained from
deduction of such state and local taxes, taking into account any limitations
applicable to individuals subject to federal income tax at the highest marginal
rates.

                  (iv) The Gross-Up Payments provided for in Paragraph
12(b)(iii) hereof shall be made upon the earlier of (A) the payment to the
Employee of any Contract Payment or other Payment or (B) the imposition upon him
or payment by him of any Excise Tax.

                  (v) If it is established pursuant to a final determination of
a court or

<PAGE>   15

15

an Internal Revenue Service proceeding or the opinion of the Tax Counsel that
the Excise Tax is less than the amount taken in to account under Paragraph
12(b)(iii) hereof, the Employee shall repay to the Company within five days of
his receipt of notice of such final determination or opinion the portion of the
Gross-Up Payment attributable to such reduction (plus the portion of the
Gross-Up Payment attributable to the Excise Tax and federal, state and local
income tax imposed on the Gross-Up Payment being repaid by him if such repayment
results in a reduction in Excise Tax or a federal, state and local income tax
deduction) plus any interest received by him on the amount of such repayment. If
it is established pursuant to a final determination of a court or an Internal
Revenue Service proceeding or the opinion of Tax Counsel that the Excise Tax
exceeds the amount taken into account hereunder (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Company shall make an additional Gross-Up Payment in
respect of such excess within five days of the Company's receipt of notice of
such final determination or opinion.

                  (vi) For the period of time from the Date of Termination
through the earlier of three years thereafter or the date on which the Employee
and his dependents become eligible for substantially equivalent coverage
provided by a subsequent employer, the Company shall provide the Employee and
his eligible dependents with continued coverage under all health, medical,
dental and hospitalization plans maintained by the Company or its successor
during such time period on the same terms and conditions applicable to executive
officers of the Company.

                  (vii) Upon the Date of Termination all options to purchase
stock and

<PAGE>   16

16

other rights to purchase or own stock (including grants of stock) held by the
Employee that are not vested shall immediately vest and become exercisable and
all options to purchase stock and other rights to purchase or own stock
(including grants of stock) then held by him shall remain in effect and, in the
case of rights to purchase stock, be exercisable for 18 months after the Date of
Termination, notwithstanding any other provisions that otherwise would be
applicable.

                  (viii) Upon the Date of Termination, the Company shall assign
and transfer to the Employee, or his designee, all of its right, title and
interest in and to the life insurance policies covering the Employee's life that
were held by the Company as of such date for the benefit of the Employee. From
and after the Date of Termination, the Employee shall, at his election, assume
and pay any and all premiums and other costs associated with the continuation of
such policies. The Company shall execute and deliver any and all appropriate
instruments necessary to evidence the foregoing assignment and transfer as
promptly as practicable after the Date of Termination. For avoidance of doubt,
the Company will not assign any life insurance policy it owns for its own
benefit insuring Employee's life or any cash surrender value relating thereto.

                  (ix) The Employee shall not be required to mitigate the amount
of any payment provided for in this Paragraph 12(b) by seeking other employment
or otherwise, nor, except as otherwise specifically provided herein, shall the
amount of any payment or benefit provided for in the Paragraph 12(b) be reduced
by any compensation or benefit earned by the Employee as the result of
employment by another employer after the Date of Termination or otherwise.

<PAGE>   17

17

         The Employee shall accept the payments and other benefits provided for
in the Paragraph 12(b) in full discharge and release of the Company of and from
any further obligations under this Agreement but the Employee shall have the
continuing obligations provided for in Paragraphs 13(a) and 13(b) hereof.

         (c) In the event that the Company elects to terminate the Employee's
Employment Term hereunder pursuant to the proviso in the first sentence of
Paragraph 3 hereof, the Employee shall be entitled to all of the payments and
benefits provided for in Paragraphs 12(b)(i) - (viii) hereof, except that the
payment and consideration provided for in Paragraph 12(b)(ii) hereof to which
the Employee will be entitled will be equal to the sum of (x) his full Base
Salary in effect for the last fiscal year of the Company completed during the
Employment Term and (y) the highest of the aggregate bonus payments (including
Discretionary Bonus payments pursuant to Paragraph 6 hereof) made to or earned
by the Employee in respect of the last three twelve month periods completed
during the Employment Term. All references in Paragraph 12(b) to the date of the
"Notice of Termination" or "Date of Termination" shall for purposes of this
Paragraph 12(c) be deemed to be references to the last day of the employment
Term. The Employee shall accept the payments and other benefits provided for in
this Paragraph 12(c) in full discharge and release of the Company of and from
any further obligations under this Agreement but the Employee shall have the
continuing obligations provided for in Paragraphs 13(a) and 13(b) hereof.

         13. RESTRICTIVE COVENANTS AND CONFIDENTIALITY: INJUNCTIVE RELIEF.

                  (a) The Employee agrees, as a condition to the performance by
the Company of its obligation hereunder, that during the Employment Term and,
except if the

<PAGE>   18

18

Employee's employment is terminated by the Company for Disability or for Cause
or by the Employee other than for Good Reason, during the further period of one
(1) year after the end of such Employment Term, the Employee shall not, without
the prior written approval of the Company, directly or indirectly through any
other person, firm, or corporation, (i) engage or participate or make any
financial investment in or become employed by or render advisory or other
services to or for any person, firm or corporation, or in connection with any
business enterprise, whether for compensation or otherwise, which is in
competition with any of the business operations or activities of the Company and
its subsidiaries then existing in all geographical places where the Company and
its subsidiaries does or did business during the Employment term, or (ii)
solicit, raid, entice or induce any person who on the Date of Termination of
employment of the Employee is, or within the last twelve (12) months of the
Employee's employment by the Company was, an employee of the Company or any of
its subsidiaries, to become employed by any person, firm or corporation, and the
Employee shall not approach any such employee for such purpose or authorize or
knowingly approve the taking of such actions by any other person, or (iii)
solicit any person or entity who on the Date of Termination is a vendor of the
Company to terminate its relationship with the Company. Nothing herein
contained, however, shall restrict the Employee from making any investments in
any company, partnership or other entity, so long as such investment does not
require or involve the active participation of the Employee in the management of
any business or enterprise which is in competition with any of the business
operations or activities of the Company.

                  (b) Recognizing that the knowledge, information and
relationship with

<PAGE>   19

19

customers, suppliers, and agents, and the knowledge of the Company's and its
subsidiary companies' business methods, systems, plans and policies which he
shall hereafter establish, receive or obtain as an employee of the Company or
its subsidiary companies, are valuable and unique assets of the respective
businesses of the Company and its subsidiary companies, the Employee agrees
that, during and after the Employment Term he shall not (otherwise than pursuant
to his duties hereunder) disclose, publish, or furnish to any person, firm or
corporation (other than to representatives of the Company and its affiliates in
furtherance of the performance of the Employee's services hereunder) any
confidential or propriety information, systems, programs, know how or trade
secrets or any other knowledge, information, documents or materials, the
confidentiality of which the Company and its affiliates take reasonable measures
to protect, acquired by the Employee during the term of this Agreement as a
result of the performance of his services hereunder.

                  (c) The Employee represents and acknowledges that, in light of
the payments to be made by the Company to the Employee hereunder and for other
good and valid reasons, the restrictions stated in Paragraphs 13(a) and 13(b) on
the activities in which he may engage upon termination of his employment with
the Company are reasonable, the locations designated above are reasonable
because they are limited to the locations in which the Company and its
subsidiaries did business during the Employment Term, and the period of time
designated above is reasonable because it extends only for 12 months following
the termination of his employment with the Company.

                  (d) The Employee acknowledges that the services to be rendered
by him are of a special, unique and extraordinary character and, in connection
with such services, he

<PAGE>   20

20

will have access to confidential information vital to the Company's and its
subsidiary companies' businesses. By reason of this, the Employee consents and
agrees that if he violates any of the provisions of Paragraphs 13(a) or 13(b)
the Company and its subsidiary companies would sustain irreparable harm and,
therefore, in addition to any other remedies which the Company may have under
this Agreement or otherwise, the Company shall be entitled to apply to any court
of competent jurisdiction for an injunction restraining the employee from
committing or continuing any such violation of this Agreement, and the Employee
shall not object to any such application.

         14. DEDUCTIONS AND WITHHOLDING. The employee agrees that the Company
shall withhold from any and all payments required to be made to the Employee
pursuant to this agreement, all federal, state, local and/or other taxes which
the Company determines are required to be withheld in accordance with applicable
statutes and/or regulations from time to time in effect.

         15. ATTORNEY'S FEES. The Company shall pay to the Employee all legal
fees and expenses reasonably incurred by him in connection with this Agreement
(including all such fees and expenses, if any, incurred in contesting or
disputing in good faith the nature of any such termination for purposes of this
Agreement or in seeking to obtain or enforce any right or benefit provided by
this Agreement).

         16. NOTICES. All notices or other documents to be given hereunder by
either party hereto to the other shall be in writing and delivered personally or
sent postage prepaid by registered or certified mail, return receipt requested.
Notices shall be deemed to have been received on the date of delivery, or if
sent by certified or registered mail, return receipt

<PAGE>   21

21

requested, shall be deemed to be delivered on the third business day after the
date of mailing. The postal receipt specifying a mailing date shall be
sufficient proof of the date of notice. Notices shall be sent to the following
addresses until a notice of change of address by like notice has been duly
provided:

To the Employee:   Mr. Wayne Colley
---------------    5000 Burnt Store Rd.
                   Punta Gorda, Florida 33955

To the Company:    Dairy Mart Convenience Stores, Inc.
---------------    300 Executive Parkway West
                   Hudson, Ohio  44236
                   Attn:  Robert B. Stein, Jr.

         17. ASSIGNABILITY, BINDING EFFECT AND SURVIVAL. This Agreement shall
inure to the benefit of and shall be binding upon the heirs, executors,
administrators, successors and legal representatives of the Employee, and shall
inure to the benefit of and be binding upon the Company and its successors and
assigns. Notwithstanding the foregoing, the obligations of the Employee may not
be delegated and, except as expressly provided in Paragraph 11 hereof relating
to the designation of beneficiaries, the employee may not assign, pledge,
encumber, hypothecate or otherwise dispose of this Agreement, or any of his
rights hereunder, and any such attempted delegation or disposition shall be null
and void and without effect. The provisions of Paragraphs 10, 11, 12, 13 and 15
hereof shall survive termination of this Agreement. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, within 10 days of becoming successor, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company is

<PAGE>   22

22

required to perform it if no such succession had taken place.

         18. COMPLETE UNDERSTANDING; AMENDMENT. This Agreement constitutes the
complete understanding between the parties with respect to the employment of the
Employee hereunder, and no statement, representation, warranty or covenant has
been made by either party with respect thereto except as expressly set forth
herein and this Agreement supersedes all prior oral and written agreements with
respect to the subject matter hereof. This Agreement shall not be altered,
modified, amended or terminated except by written instrument signed by each of
the parties hereto. Waiver by either party hereto of any breach hereunder by the
other party shall not operate as a waiver of any other breach, whether similar
to or different from the breech waived.

         19. GOVERNING LAW. This Agreement shall be governed by the laws of the
state of Ohio without reference to the conflicts of laws principles thereof.

         20. PARAGRAPH HEADINGS. The paragraph headings contained in this
Agreement are for reference purposes only and shall not effect in any way the
meaning or interpretation of this Agreement.

         21. SEVERABILITY. If any provision of this Agreement or the application
of any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid and unenforceable, the remainder
of this Agreement shall not be affected thereby, and each remaining provision
hereof shall be validated and shall be enforced to the fullest extent permitted
by law.

         IN WITNESS HEREOF, the parties hereto set their hands as of the day and
year first above written.

<PAGE>   23

23

                                      DAIRY MART CONVENIENCE STORES, INC.

                                      By: /s/  ROBERT B. STEIN, JR.
                                          -------------------------------
                                          Robert B. Stein, Jr., President

                                      And By:/s/ JOHN W. EVERETS
                                             ----------------------------
                                             John W. Everets, Chairman of the
                                             Compensation Committee

Agreed to as of this18th day of
January, 2000

/s/ WAYNE COLLEY
    ------------
    Wayne Colley<PAGE>   1

                                                               Exhibit 10.26

                       DAIRY MART CONVENIENCE STORES, INC.

                     NONQUALIFIED DEFERRED COMPENSATION PLAN

                        (EFFECTIVE AS OF JANUARY 1, 2000)

<PAGE>   2

                       DAIRY MART CONVENIENCE STORES, INC.
                     NONQUALIFIED DEFERRED COMPENSATION PLAN

                                TABLE OF CONTENTS
                                -----------------

<TABLE>
<CAPTION>

                                                                                                       PAGE
                                                                                                       ----
<S>                                                                                                   <C>
ARTICLE I                  ESTABLISHMENT

    1.1               Establishment......................................................................1
    1.2               Purpose............................................................................1

ARTICLE II                 DEFINITIONS

                      "Accounting Period"................................................................1
    2.2               "Beneficiary"......................................................................1
    2.3               "Change in Control"................................................................1
    2.4               "Code".............................................................................2
    2.5               "Committee"........................................................................2
    2.6               "Company"..........................................................................2
    2.7               "Compensation".....................................................................2
    2.8               "Deferred Compensation Account"....................................................2
    2.9               "Deferred Compensation Award"......................................................2
    2.10              "Deferred Compensation Election"...................................................2
    2.11              "401(k) Plan"......................................................................2
    2.12              "Investment Earnings"..............................................................2
    2.13              "Matching Account" ................................................................2
    2.14              "Matching Award"...................................................................2
    2.15              "Normal Retirement Date"...........................................................2
    2.16              "Participant"......................................................................3
    2.17              "Plan Year"........................................................................3
    2.18              "Pour-Over Adjustment" ............................................................3
    2.19              "Pour-Over Election" ..............................................................3
    2.20              "Termination of Employment"........................................................3
    2.21              "Valuation Date"...................................................................3

ARTICLE III                PARTICIPATION

    3.1               Eligibility........................................................................3
    3.2               Duration of Participation..........................................................3
    3.3               Reemployment.......................................................................3
</TABLE>

<PAGE>   3

<TABLE>
<CAPTION>
<S>                                                                                                     <C>

ARTICLE IV                 DEFERRED COMPENSATION AND MATCHING AWARDS

    4.1               Deferred Compensation Awards.......................................................4
    4.2               Matching Awards....................................................................4

ARTICLE V                  POUR-OVER ELECTIONS

    5.1               Pour-Over Election.................................................................4
    5.2               Pour-Over Amounts..................................................................5
    5.3               Pour-Over Adjustments..............................................................5

ARTICLE VI                 PLAN ACCOUNTS

    6.1               Accounts...........................................................................5
    6.2               Credits to Accounts................................................................6
    6.3               Charges to Accounts................................................................6
    6.4               Investment Earnings................................................................6
    6.5               Investment Preference Elections....................................................7

ARTICLE VII                DISTRIBUTION OF BENEFITS

    7.1               Entitlement to Benefit.............................................................7
    7.2               Time and Manner of Payment.........................................................7
    7.3               Beneficiary Designations...........................................................8
    7.4               Vesting............................................................................8
    7.5               Effect of Termination of Employment on Pour-Over Election..........................8
    7.6               Forfeitures........................................................................9
    7.7               Source of Payments.................................................................9
    7.8               Maintenance of Accounts............................................................9

ARTICLE VIII               ADMINISTRATION

    8.1               Administration.....................................................................9
    8.2               General Creditor...................................................................9
    8.3               Facility of Payment................................................................9
    8.4               Non-Alienation of Benefits.........................................................10
    8.5               Withholding for Taxes..............................................................10
    8.6               No Employment Rights...............................................................10
    8.7               Committee Determinations Final.....................................................10
    8.8               Amendment or Termination...........................................................10
    8.9               Establishment of Trust Permitted...................................................10
    8.10              Indemnification....................................................................10
</TABLE>

                                      -3-
<PAGE>   4

<TABLE>
<CAPTION>

<S>                                                                                                      <C>
ARTICLE IX                 CLAIMS PROCEDURE

    9.1               Initial Claim for Payment..........................................................11
    9.2               Review of Claim Denial.............................................................11

ARTICLE X                  MISCELLANEOUS

    10.1              Gender and Number..................................................................11
    10.2              Successors.........................................................................12
    10.3              Controlling Law....................................................................12
    10.4              Limitation on Liability............................................................12
</TABLE>

                                      -4-
<PAGE>   5

                       DAIRY MART CONVENIENCE STORES, INC.
                     NONQUALIFIED DEFERRED COMPENSATION PLAN

                            EFFECTIVE JANUARY 1, 2000

                                    ARTICLE I
                                  ESTABLISHMENT
                                  -------------

         1.1 ESTABLISHMENT. Dairy Mart Convenience Stores, Inc. ("Company")
hereby establishes the Dairy Mart Convenience Stores, Inc. Nonqualified Deferred
Compensation Plan ("Plan") effective as of January 1, 2000.

         1.2 PURPOSE. The purpose of the Plan is to provide supplemental
retirement benefits to selected management level and/or highly compensated
employees. The Plan is intended to be an unfunded "top-hat" plan which is exempt
from most of the requirements of the Employee Retirement Income Security Act of
1974 ("ERISA").

                                   ARTICLE II

                                   DEFINITIONS
                                   -----------

         The following Sections of this Article II provide definitions of terms
used throughout this Plan, and whenever used herein in a capitalized form,
except as otherwise expressly provided, the terms shall be deemed to have the
following meanings:

         2.1 "ACCOUNTING PERIOD" means each calendar quarter.

         2.2 "BENEFICIARY" means any person (including any trust, estate or
other entity) designated by a Participant in accordance with Section 7.3 to
receive any benefit payable under the Plan in the event of the Participant's
death.

         2.3 "CHANGE IN CONTROL" means the purchase or other acquisition by any
person, entity or group of persons, within the meaning of section 13(d) or 14(d)
of the Securities Exchange Act of 1934 ("Act"), or any comparable successor
provisions, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Act) of 30 percent or more of either the outstanding
shares of common stock or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally, or the approval by the
stockholders of the Company of a reorganization, merger, or consolidation, in
each case, with respect to which persons who were stockholders of the Company
immediately prior to such reorganization, merger or consolidation do not,
immediately thereafter, own more than 50 percent of the combined voting power
entitled to vote generally in the election of directors of the reorganized,
merged or consolidated Company's then outstanding securities, or a liquidation
or dissolution of

<PAGE>   6

the Company or of the sale of all or substantially all of the Company's assets.

         2.4 "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.

         2.5 "COMMITTEE" means the committee appointed by the Compensation
Committee of the board of directors of the Company to administer the Plan or, if
no such committee is appointed, the Committee shall be the Compensation
Committee of the board of directors of the Company.

         2.6 "COMPANY" means Dairy Mart Convenience Stores, Inc., or any
successor corporation, partnership or other entity by merger, consolidation,
purchase or otherwise.

         2.7 "COMPENSATION" means the cash compensation payable to a Participant
by the Company or a subsidiary during a Plan Year, which is payable in the form
of a salary or bonus.

         2.8 "DEFERRED COMPENSATION ACCOUNT" means the bookkeeping record
established and maintained on behalf of each Participant to record Deferred
Compensation Awards, Investment Earnings and other amounts credited to the
Participant, and distributions and other amounts charged to the Participant,
pursuant to the terms of the Plan. Each Deferred Compensation Account represents
an unfunded commitment of the Company to pay in the future the amounts credited
thereunder, subject to all of the terms and conditions of the Plan.

         2.9 "DEFERRED COMPENSATION AWARD" means an amount to be credited to a
Participant's Deferred Compensation Account pursuant to Section 4.1.

         2.10 "DEFERRED COMPENSATION ELECTION" means the election made by a
Participant in accordance with Section 4.1 to reduce his Compensation by a
specific amount, and to have such amount credited to the Plan as a Deferred
Compensation Award, pursuant to Article IV.

         2.11 "401(K) PLAN" means the Dairy Mart Convenience Stores, Inc. 401(k)
Savings and Profit Sharing Plan, as may be amended from time to time.

         2.12 "INVESTMENT EARNINGS" means the amounts credited to a
Participant's Deferred Compensation Account and/or Matching Account from time to
time pursuant to Section 6.4.

         2.13 "MATCHING ACCOUNT" means the bookkeeping record established and
maintained on behalf of each Participant to record Matching Awards, Investment
Earnings and other amounts credited to the Participant, and distributions and
other amounts charged to the Participant, pursuant to the terms of the Plan.
Each Matching Account represents an unfunded commitment of the Company to pay in
the future the amounts credited thereunder, subject to all of the terms and
conditions of the Plan.

         2.14 "MATCHING AWARD" means an amount to be credited to a Participant's
Matching Account pursuant to Section 4.2.

                                      -6-
<PAGE>   7

         2.15 "NORMAL RETIREMENT DATE" means the date on which a Participant
attains age 65.

         2.16 "PARTICIPANT" means any employee of the Company or a subsidiary
who is participating in the Plan as provided in Article III.

         2.17 "PLAN YEAR" means the twelve consecutive month period beginning
  each January 1 and ending the following December 31.

         2.18 "POUR-OVER ADJUSTMENT" means an amount by which a Participant's
Deferred Compensation Account or Matching Account is reduced in accordance with
Section 5.3 in connection with a Pour-Over Election.

         2.19 "POUR-OVER ELECTION" means an election made by a Participant in
accordance with Section 5.1 to have amounts deducted from his Deferred
Compensation and/or Matching Accounts under this Plan, in connection with (i) a
corresponding employer contribution of equal amounts to the 401(k) Plan for
benefit of such Participant, or (ii) a corresponding employer payment of equal
amounts to the Participant in cash.

         2.20 "TERMINATION OF EMPLOYMENT" means the date a person ceases to be a
common-law employee of the Company or a subsidiary for any reason. A transfer of
employment from one division or affiliate of the Company to another division or
affiliate of the Company will not constitute a Termination of Employment for
purposes of this Plan.

         2.21 "VALUATION DATE" means each business day in the Plan Year.

                                   ARTICLE III

                                  PARTICIPATION
                                  -------------

         3.1 ELIGIBILITY. The Committee, in its sole discretion, shall designate
in writing the employees of the Company or its subsidiaries who shall become
Participants in the Plan, and the effective date of their participation.
Participation must be prospective and not retroactive. The Committee shall limit
its selections so that the Plan primarily covers a select group of management
level and/or highly compensated employees.

         3.2 DURATION OF PARTICIPATION. A Participant shall cease to be a
Participant on the date the balance of his Deferred Compensation and Matching
Accounts is reduced to zero.

         3.3 REEMPLOYMENT. The reemployment of a former Participant by the
Company or a subsidiary shall not entitle such individual to become a
Participant hereunder. Such individual shall not become a Participant until the
individual is again designated as such in accordance with Section 3.1.

                                      -7-
<PAGE>   8

                                   ARTICLE IV

                    DEFERRED COMPENSATION AND MATCHING AWARDS
                    -----------------------------------------

         4.1 DEFERRED COMPENSATION AWARDS. Each Participant may elect to defer
all or a portion of his Compensation for any Plan Year. Each election hereunder
shall (a) be made in writing prior to the first day of the Plan Year in which
the Compensation will be earned, (b) specify the amount to be deferred from each
paycheck, either as a fixed dollar amount or as a percentage of the
Participant's Compensation, and (c) be irrevocable. Separate deferral elections
may be made with respect to the salary and bonus portions of a Participant's
Compensation. Notwithstanding the foregoing, a new Participant may make a
mid-year deferral election with respect to Compensation to be earned after the
effective date of such election, but only with respect to his first Plan Year of
participation hereunder. Amounts deferred from the salary and bonus portions of
a Participant's Compensation shall be Deferred Compensation Awards hereunder,
effective as of the date of each paycheck and/or bonus check from which an
amount is deferred. All Deferred Compensation Awards shall be credited to the
Participant's Deferred Compensation Account in accordance with Section 6.2.

         4.2 MATCHING AWARDS. For each pay period and bonus check, the Committee
shall award an amount to each Participant based on the Participant's Deferred
Compensation Award for such pay period or bonus check. Such an award, if any,
shall be known as a Matching Award and shall be determined pursuant to a
matching formula established by the Committee, in its sole discretion. For the
2000 Plan Year and until changed by the Plan Committee, each Matching Award
shall be equal to 50% of the Participant's Deferred Compensation Award, provided
said Deferred Compensation Award does not exceed 6% of the Participant's
Compensation for such pay period or bonus check, and that Compensation will be
limited to $170,000 (or as adjusted under Code Section 401(a)(17)) for this
purpose. The 6% of Compensation cap for any pay period or bonus check shall be
reduced by the amount of any compensation which is recognized under the 401(k)
Plan to produce a matching contribution under that plan for the same pay period
or bonus check. The Committee shall have the right to change the matching
formula from time to time, but the formula shall be applied uniformly to all
Participants, and any decrease in the matching formula will not be effective
until the first day of the next Plan Year after such change is determined by the
Committee and communicated to the Participants in writing. All Matching Awards
shall be credited to the Participant's Matching Account in accordance with
Section 6.2. Notwithstanding the foregoing, no Matching Award shall be credited
with respect to a Deferred Compensation Award which is distributable to the
Participant in cash at the end of a Plan Year pursuant to the Participant's
Pour-Over Election.

                                    ARTICLE V

                               POUR-OVER ELECTIONS
                               -------------------

         5.1 POUR-OVER ELECTION. Each Participant who is also a participant in
the 401(k) Plan may elect to have a portion of his Deferred Compensation and
Matching Awards deducted from

                                      -8-
<PAGE>   9

his Accounts at the end of any Plan Year, in exchange for (i) an employer
contribution of an equal amount to the Participant's corresponding accounts
under the 401(k) Plan, or (ii) a distribution of an equal amount to the
Participant by the employer in cash. An annual election under this Section 5.1
shall be made at the same time and in the same manner as the Participant's
Deferred Compensation Election under Section 4.1. The amount to be exchanged
under a Pour-Over Election shall be determined under Section 5.2. All Pour-Over
Elections are subject to Section 7.5.

         5.2 POUR-OVER AMOUNTS. The amount which shall be subject to a Pour-Over
Election for any Participant for any Plan Year shall be known as the Pour-Over
Amount and shall be equal to the sum of (1) the Participant's Deferred
Compensation Pour-Over Amount for such Plan Year, and (2) the Participant's
Matching Pour-Over Amount for such Plan Year.

         A Participant's Deferred Compensation Pour-Over Amount for any Plan
Year shall be the lesser of (i) his total Deferred Compensation Award for the
Plan Year, (ii) $10,500 (or such higher amount as applies to the 401(k) Plan
under Code Section 402(g) for such Plan Year), (iii) the maximum dollar amount
that could be allocated to his Participant Elective Deferrals Account under the
401(k) Plan without causing the 401(k) Plan to fail the nondiscrimination
limitations of Code Section 401(k) for such Plan Year, or (iv) zero, if the
Participant received a financial hardship withdrawal under the 401(k) Plan
during the Plan Year.

         A Participant's Matching Pour-Over Amount for any Plan Year shall be
lesser of (i) the Matching Award attributable to his Deferred Compensation
Pour-Over Amount, or (ii) the maximum dollar amount that could be allocated to
his Company Matching Contributions Account under the 401(k) Plan without causing
the 401(k) Plan to fail the nondiscrimination limitations of Code Section 401(m)
for such Plan Year.

         The foregoing amounts shall be determined by the Committee, in its sole
discretion, based on information available to the Committee under this Plan and
information provided to the Committee by the Company and its subsidiaries with
respect to the 401(k) Plan. The Committee shall not be responsible for
investigating or verifying the accuracy of information provided to it by the
Company and its subsidiaries in this regard.

         5.3 POUR-OVER ADJUSTMENTS. Subject to Section 7.5, the Pour-Over Amount
of each Participant who makes a Pour-Over Election under Section 5.1 shall be
charged to his Accounts as of the last day of the Plan Year to which such
election relates. The portion of the adjustment which relates to the Deferred
Compensation Pour-Over Amount shall be made to the Deferred Compensation Account
and the portion which relates to the Matching Pour-Over Amount shall be made to
the Matching Account.

                                   ARTICLE VI

                                  PLAN ACCOUNTS
                                  -------------

         6.1 ACCOUNTS. The Committee shall establish and maintain a Deferred
Compensation

                                      -9-
<PAGE>   10

Account for each Participant who has made a Deferred Compensation Election
pursuant to Section 4.1, to which Deferred Compensation Awards, Investment
Earnings, and other amounts shall be credited as set forth in Section 6.2 and
against which distributions and other amounts shall be charged as set forth in
Section 6.3. The Committee shall also establish and maintain a Matching Account
for each Participant to which Matching Awards, Investment Earnings and other
amounts shall be credited as set forth in Section 6.2 and against which
distributions and other amounts shall be charged as set forth in Section 6.3.

         6.2 CREDITS TO PLAN ACCOUNTS.

                  (a) DEFERRED COMPENSATION ACCOUNT. As of each payroll period
and distribution of bonus checks, each Participant's Deferred Compensation
Account shall be credited with the amount of their Deferred Compensation Award
for such payroll period and/or bonus check, respectively. As of each Valuation
Date, each Participant's Deferred Compensation Account shall be credited with
(i) an amount of Investment Earnings as determined by the Committee in
accordance with Section 6.4, and (ii) any other amount which the Committee
reasonably determines should be credited, such as corrective additions for
amounts not previously credited by mistake.

                  (b) MATCHING ACCOUNT. As of each payroll period and
distribution of bonus checks, each Participant's Matching Account shall be
credited with the amount of their Matching Award for such payroll period and/or
bonus check, respectively. As of each Valuation Date, each Participant's
Matching Account shall be credited with (i) an amount of Investment Earnings as
determined by the Committee in accordance with Section 6.4, and (ii) any other
amount which the Committee reasonably determines should be credited, such as
corrective additions for amounts not previously credited by mistake.

         6.3 CHARGES TO ACCOUNTS.

                  (a) DEFERRED COMPENSATION ACCOUNT. As of each Valuation
Date, each Participant's Deferred Compensation Account shall be charged with (i)
the amount of any distribution to the Participant (or his Beneficiary), (ii) the
amount of any Pour-Over Adjustment required under Section 5.3, (iii) the amount
of any negative Investment Earnings as determined by the Committee in accordance
with Section 6.4, and (iv) any other amount which the Committee reasonably
determines should be charged, such as corrective subtractions for amounts not
previously charged by mistake or certain administrative or other expenses.

                  (b) MATCHING ACCOUNT. As of each Valuation Date, each
Participant's Matching Account shall be charged with (i) the amount of any
distribution to the Participant (or his Beneficiary), (ii) the amount of any
Pour-Over Adjustment required under Section 5.3, (iii) the amount of any
negative Investment Earnings as determined by the Committee in accordance with
Section 6.4, and (iv) any other amount which the Committee reasonably determines
should be charged, such as corrective subtractions for amounts not previously
charged by mistake or certain administrative or other expenses.

                                      -10-
<PAGE>   11

         6.4 INVESTMENT EARNINGS. As of each Valuation Date, the Committee shall
determine an amount to be credited or charged to each Participant's Accounts,
which shall be deemed Investment Earnings. The Investment Earnings shall be
based on the balance of the Participant's Accounts as of the preceding Valuation
Date, increased by any credits and reduced by any charges to the Participant's
Accounts since such date, and the investment rates of return established by the
Committee for the period since the preceding Valuation Date. The separate
investment rates of return for each hypothetical investment fund shall be
established by the Committee as of each Valuation Date and shall be uniformly
applied to all Participants. The investment rate of return for each hypothetical
investment fund shall be determined by the Committee, in its sole and absolute
discretion, and shall be based on the market rates of return of the investment
category upon which the hypothetical investment fund is based, and such other
factors as the Committee deems relevant. If a Participant fails to elect
investment fund preferences under Section 6.5, the Committee shall apply the
investment rate of return of the most conservative hypothetical investment fund
choice.

         6.5 INVESTMENT PREFERENCE ELECTIONS. Each Participant may file an
Investment Preference Election form with the Committee to express his investment
category preferences under the Plan. A Participant's election will affect the
amount of Investment Earnings to be credited or charged to the Participant's
Accounts under Sections 6.2 and 6.3, but such election will have no legal effect
on the actual investment of the Company's general assets or on the actual
investment of any assets held by a trust which is established under Section 8.9.
A Participant's Investment Preference Election will be effective on the next
Valuation Date after it is received, acknowledged and processed by the Committee
and shall remain in effect until the next Valuation Date after a new Investment
Preference Election is properly filed with, acknowledged and processed by the
Committee. The Committee shall establish such other rules and procedures as it
deems necessary or appropriate with respect to Participant investment preference
elections hereunder.

                                   ARTICLE VII

                            DISTRIBUTION OF BENEFITS
                            ------------------------

         7.1 ENTITLEMENT TO BENEFIT. Each Participant shall be entitled to a
benefit hereunder upon incurring a Termination of Employment for any reason. The
amount of such benefit shall be equal to the sum of (i) the entire balance of
the Participant's Deferred Compensation Account, and (ii) the vested balance of
the Participant's Matching Account (as determined under Section 7.4 below).

         7.2 TIME AND MANNER OF PAYMENT. Except as otherwise provided below, a
Participant's benefit shall be paid in a single sum within sixty (60) days after
his Termination of Employment. Notwithstanding the foregoing, a Participant may
file an advance election with the Committee to (i) receive his vested benefit in
substantially equal annual installments over 3, 5 or 10 years, and/or (ii) to
defer the payment of a lump sum or the commencement of annual installment
payments to the later of his Termination of Employment or attaining a specified
age.

                                      -11-
<PAGE>   12

An election to receive annual installments and/or defer the payment date, shall
only apply to benefits accruing after the date of such election. Such an
election must be made on a distribution election form provided by the Committee
for that purpose, and such election shall not be effective until acknowledged in
writing by the Plan Committee. A Participant may change his distribution
election at any time, provided that the change will (i) be limited to the form
and time of payment options offered in this section, (ii) be effective
prospectively only, and (iii) have no effect on amounts accrued under the Plan
prior to the effective date of such new election. If a Participant incurs a
Termination of Employment by reason of death or dies after his Termination of
Employment but before his entire vested benefit has been distributed to him, his
vested benefit or the remainder of his vested benefit shall be distributed to
his designated Beneficiary in a single sum as soon as administratively
practicable after the date of death.

         7.3 BENEFICIARY DESIGNATIONS. Each Participant may designate a
Beneficiary (or Beneficiaries) on a beneficiary designation form provided by the
Committee for that purpose. The Participant may change such designation of
Beneficiary at any time by filing a new beneficiary designation form with the
Committee. No designation of Beneficiary or change of Beneficiary shall be
effective until filed with and acknowledged by the Committee in writing. If more
than one primary or contingent Beneficiary shall be designated, the multiple
Beneficiaries in such class shall share equally, unless different percentages or
amounts are clearly specified on the beneficiary designation form which is in
effect on the Participant's date of death. If the Participant shall fail to file
a valid beneficiary designation form, or if all persons designated shall have
predeceased the Participant, the Company shall distribute the benefit payable
under the Plan in a single sum to the Participant's estate.

         7.4 VESTING. A Participant's Deferred Compensation Account should be
fully (100%) vested at all times. A Participant's Matching Account shall become
vested under the following schedule:

           YEARS OF VESTING SERVICE                VESTED PERCENTAGE
           ------------------------                -----------------
     Less than 1 year                                      0%
     1 year but less than 2 years                         20%
     2 years but less than 3 years                        40%
     3 years but less than 4 years                        60%
     4 years but less than 5 years                        80%
     5 years or more                                     100%

         For purposes of this Section 7.4, Years of Vesting Service shall be
equal to the Participant's years of vesting service under the 401(k) Plan.
Notwithstanding the foregoing, a Participant shall be fully (100%) vested in his
Matching Account in the event (i) he terminates employment from the Company or a
subsidiary due to death, permanent disability or after reaching age 65, or (ii)
of a Change in Control of the Company as defined in Section 2.3. The existence
of a "permanent disability" shall be determined by the Committee, in its sole
and reasonable discretion, based on such evidence as it deems necessary and
appropriate to make such determination.

                                      -12-
<PAGE>   13

         7.5 EFFECT OF TERMINATION OF EMPLOYMENT ON POUR-OVER ELECTION. If a
Participant who made a Pour-Over Election in accordance with Section 5.1 incurs
a Termination of Employment from the Company or a subsidiary during the Plan
Year to which such election relates, the Pour-Over Election shall be null and
void and of no effect. Any Deferred Compensation and Matching Awards with
respect to such Participant during the Plan Year and prior to such Termination
of Employment shall be credited to his Accounts in accordance with Article VI
and no Pour-Over Amount or Pour-Over Adjustment shall occur with respect to such
Participant for such Plan Year.

         7.6 FORFEITURES. The portion of a Participant's Matching Account which
is not vested upon a Participant's Termination of Employment under Section 7.4
above, shall be forfeited and the Participant's Matching Account shall
automatically be reduced by the amount of such forfeiture effective as of the
date of such Termination of Employment.

         7.7 SOURCE OF PAYMENTS. The amount of any benefit payable under this
Article VII shall be distributed from the general assets of the Company or a
subsidiary, to the extent not paid from a trust established pursuant to Section
8.9. No Participant or Beneficiary shall have any right or claim to any
insurance contract maintained by the Company or any trust established under
Section 8.9, or to the proceeds thereof, with respect to benefits payable
hereunder.

         7.8 MAINTENANCE OF ACCOUNTS. A Participant's Accounts shall continue to
be maintained until all amounts credited thereto (including earnings thereon)
have been distributed or forfeited.

                                  ARTICLE VIII

                                 ADMINISTRATION
                                 --------------

         8.1 ADMINISTRATION. Full power and authority to construe, interpret and
administer the Plan shall be vested in the Committee. The Committee shall make
each determination provided for under the Plan and promulgate such rules and
regulations as it considers necessary and appropriate for the implementation and
management of the Plan.

         8.2 GENERAL CREDITOR. Notwithstanding any provision of the Plan to the
contrary, the Participant's benefits hereunder shall at all times be reflected
on the Company's books as a general unsecured and unfunded obligation of the
Company, and the Plan shall not give any person any right or security interest
in any asset of the Company nor shall it imply any trust or segregation of
assets by the Company, other than as described in Section 8.9. Each Participant
is solely an unsecured creditor of the Company with respect to any amounts
payable to such Participant hereunder.

         8.3 FACILITY OF PAYMENT. If the Participant or his Beneficiary is
entitled to payments under the Plan, and in the Committee's opinion such person
becomes in any way incapacitated so as to be unable to manage his financial
affairs, the Committee may authorize the Company or a

                                      -13-
<PAGE>   14

subsidiary to make payments to the Participant's or Beneficiary's legal
representative, or to one or more of the Participant's or Beneficiary's
relatives by blood, adoption or marriage for such person's benefit, or the
Committee may authorize the Company or a subsidiary to make payments for the
benefit of the Participant or Beneficiary in any manner that it considers
advisable. Any payment made in accordance with the preceding sentence shall be a
full and complete discharge of any liability for such payment hereunder.

         8.4 NON-ALIENATION OF BENEFITS. All rights and benefits under the Plan
are personal to the Participant and no right or interest of a Participant or any
other person arising under the Plan is subject to voluntary or involuntary
alienation, sale, transfer or assignment, prior to the distribution of such
benefit hereunder.

         8.5 WITHHOLDING FOR TAXES. Notwithstanding any contrary provision of
the Plan, the Company, a subsidiary or trustee of a trust described in Section
8.9 may withhold from any payment made by it with respect to the Plan, such
amount or amounts as may be required for purposes of complying with the tax
withholding provisions of the Code or any state or local income tax act or for
purposes of paying any estate, inheritance or other tax attributable to any
amounts payable hereunder. In the event a benefit is paid in the form of
property distributed in kind, the Company or a subsidiary may condition the
payment of the benefit upon satisfaction of applicable withholding obligations
by any reasonable method, including payment by the Participant of the amount
required to be withheld.

         8.6 NO EMPLOYMENT RIGHTS. The Plan is not a contract of employment, and
participation in the Plan will not give any Participant the right to be retained
in the employ of the Company or a subsidiary, nor any right or claim to any
benefit under the Plan, unless the right or claim has specifically accrued and
vested under the Plan.

         8.7 COMMITTEE DETERMINATIONS FINAL. Each determination provided for in
the Plan shall be made by the Committee under such procedures as it may from
time to time prescribe and shall be made in the sole and reasonable discretion
of the Committee. Any such determination shall be final and conclusive on all
persons.

         8.8 AMENDMENT OR TERMINATION. The Company may, through written
resolution of the Compensation Committee of its board of directors, in its sole
and reasonable discretion, terminate or amend the Plan from time to time. No
such termination or amendment shall alter a Participant's right to receive a
distribution of amounts previously credited to his Accounts which are vested
under Article VII; provided, however, that if the Company is liquidated, it
shall have the exclusive right to determine the value of each Participant's
Accounts, as of a date established by the Company, and to pay any unpaid
distribution in any manner which the Company determines to be just and
equitable.

         8.9 ESTABLISHMENT OF TRUST PERMITTED. The Company may, in its sole
discretion, establish a grantor trust, as described under Section 671 of the
Code, which is subject to the claims of the general creditors of the Company and
its subsidiaries, for purposes of accumulating assets to provide benefits
hereunder. The establishment of such a trust shall not affect the

                                      -14-
<PAGE>   15

Company's liability to pay benefits hereunder, except that the Company's
liability shall be offset by any payments actually made to a Participant or
Beneficiary under such a trust.

         8.10 INDEMNIFICATION. The Company shall indemnify and hold harmless
each member of the Committee and each officer and employee of the Company to
whom are delegated duties, responsibilities, and authority with respect to the
Plan against all claims, liabilities, fines and penalties, and all expenses
reasonably incurred by or imposed upon such delegate or agent (including but not
limited to reasonable attorney fees) which arise as a result of actions or
failure to act in connection with the operation and administration of the Plan
to the extent lawfully allowable and to the extent that such claim, liability,
fine, penalty or expense is not paid for by liability insurance purchased or
paid for by the Company. Notwithstanding the foregoing, the Company shall not
indemnify any person for any such amount incurred through any settlement or
compromise of any action unless the Company consents in writing to such
settlement or compromise.

                                   ARTICLE IX

                                CLAIMS PROCEDURE
                                ----------------

         9.1 INITIAL CLAIM FOR PAYMENT. Each Participant or Beneficiary shall
submit a claim for payment to the Committee (or to such other person as may be
designated by the Committee) in such manner as is prescribed by the Committee. A
Participant shall have no right to seek review of a denial of payment or to
bring any action in any court to enforce a claim for payment prior to filing a
claim for payment and exhausting the rights to review delineated under Section
9.2.

         9.2 REVIEW OF CLAIM DENIAL. If a claim is denied, in whole or in part,
the claimant shall have the right to request that the Committee review the
denial, provided that the claimant files a written request for review with the
Committee within sixty (60) days after the date on which the claimant received
written notification of the denial. A claimant (or a claimant's duly authorized
representative) may review pertinent documents and submit issues and comments in
writing to the Committee. Within sixty (60) days after a request for review is
received, the review shall be made and the claimant shall be advised in writing
of the decision on review, unless special circumstances require an extension of
time for processing the review, in which case the claimant shall be given a
written notification within such initial sixty (60) day period specifying the
reasons for the extension and when such review shall be completed (provided that
such review shall be completed within one hundred and twenty (120) days after
the date on which the request for review was filed). The decision on review
shall be forwarded to the claimant in writing and shall include specific reasons
for the decision and references to Plan provisions upon which the decision is
based. A decision on review shall be final and binding on all persons for all
purposes. If a claimant shall fail to file a request for review in accordance
with the procedures herein outlined, such claimant shall have no rights to
review and shall have no right to bring action in any court and the denial of
the claim shall become final and binding on all persons for all purposes. The
foregoing claim procedures, although similar to claim procedures

                                      -15-
<PAGE>   16

used by employee pension benefit plans covered by ERISA, shall not be construed
to render this Plan covered by ERISA.

                                    ARTICLE X

                                  MISCELLANEOUS
                                  -------------

         10.1 GENDER AND NUMBER. Where the context permits, words denoting men
include women, the plural includes the singular, and the singular includes the
plural.

         10.2 SUCCESSORS. Any successor to the Company, by merger,
consolidation, purchase or otherwise, shall be substituted hereunder for the
Company, and the Plan shall be binding upon all successors to and assigns of the
Company, and the Company will require any successor or assign (whether direct or
indirect, by merger, consolidation, purchase or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in form
satisfactory to the Committee, expressly, absolutely and unconditionally to
assume and agree to perform the obligations under this Plan in the same manner
and to the same extent that the Company would be required to perform if no such
succession or assignment had taken place.

         10.3 CONTROLLING LAW. The Plan shall be construed in accordance with
the laws of the State of Ohio.

         10.4 LIMITATION ON LIABILITY. Neither the Company nor any employee,
officer or director of the Company in any manner guarantees the payments to be
made under this Plan against loss or depreciation, and to the extent not
prohibited by federal or state law, none of them shall be liable (except for his
own gross negligence or willful misconduct), for any act or failure to act, done
or omitted in good faith, with respect to the Plan. The Company shall not be
responsible for any act or failure to act of any agent appointed to administer
the Plan.

         Executed this 29th day of December, 1999, but effective as of January
1, 2000.

                                   DAIRY MART CONVENIENCE STORES, INC.

                                   By:  /s/ ROBERT B. STEIN, JR.
                                        ------------------------

                                      -16-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00008-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00008-of-00352.parquet"}]]