<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 9, 1999
Commission File Number 0-1532
MARSH SUPERMARKETS, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-0918179
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9800 CROSSPOINT BOULEVARD
INDIANAPOLIS, INDIANA 46256-3350
(Address of principal executive offices) (Zip Code)
(317) 594-2100
(Registrant's telephone number, including area code)
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 twelve
months and (2) has been subject to such filing requirements for at least the
past 90 days.
Number of shares outstanding of each class of the registrant's common
stock as of November 12, 1999:
Class A Common Stock - 4,004,408 shares
Class B Common Stock - 4,502,246 shares
---------
8,506,654 shares
<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARSH SUPERMARKETS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
16 Weeks Ended 28 Weeks Ended
-------------- --------------
October 9, October 10, October 9, October 10,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales and other revenues $534,729 $488,483 $928,995 $849,105
Cost of merchandise sold, including
warehousing and transportation 405,720 367,555 701,737 638,768
-------- -------- -------- --------
Gross profit 129,009 120,928 227,258 210,337
Selling, general and administrative 110,754 104,446 193,542 180,151
Depreciation and amortization 8,033 6,712 13,673 11,609
-------- -------- -------- --------
Operating income 10,222 9,770 20,043 18,577
Interest and debt expense amortization 6,560 6,120 11,431 10,404
-------- -------- -------- --------
Income before income taxes 3,662 3,650 8,612 8,173
Income taxes 1,047 1,194 2,715 2,689
-------- -------- -------- --------
Net income $ 2,615 $ 2,456 $ 5,897 $ 5,484
======== ======== ======== ========
Earnings per common share $ .31 $ .30 $ .71 $ .66
======== ======== ======== ========
Earnings per common share
- assuming dilution $ .30 $ .28 $ .65 $ .61
======== ======== ======== ========
Dividends per share $ .11 $ .11 $ .22 $ .22
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 3
MARSH SUPERMARKETS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
October 9, March 27, October 10,
1999 1999 1998
---- ---- ----
(Unaudited) (Note A) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 28,462 $ 30,520 $ 29,554
Accounts receivable 36,257 36,096 36,013
Inventories, less LIFO reserve: October 9, 1999 - $12,316 118,260 107,336 103,195
March 27, 1999 - $12,141; October 10, 1998 - $15,223
Prepaid expenses 5,086 9,768 3,989
Recoverable income taxes 1,597 308 474
--------- --------- ---------
Total current assets 189,662 184,028 173,225
Property and equipment, less allowances for depreciation 288,545 278,639 273,678
Other assets 53,134 47,016 43,428
--------- --------- ---------
$ 531,341 $ 509,683 $ 490,331
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 19,204 $ -- $ 8,458
Accounts payable 75,420 69,466 67,022
Accrued liabilities 47,902 45,507 45,538
Current maturities of long-term liabilities 2,893 2,990 2,924
--------- --------- ---------
Total current liabilities 145,419 117,963 123,942
Long-term liabilities:
Long-term debt 217,869 228,900 214,650
Capital lease obligations 13,367 12,820 8,939
--------- --------- ---------
Total long-term liabilities 231,236 241,720 223,589
Deferred items:
Income taxes 12,291 11,768 10,413
Other 13,482 13,752 12,758
--------- --------- ---------
Total deferred items 25,773 25,520 23,171
Shareholders' Equity:
Common stock, Classes A and B (Note B) 25,423 25,239 25,172
Retained earnings 112,863 108,841 104,558
Cost of common stock in treasury (6,949) (6,710) (8,053)
Deferred cost - restricted stock (1,963) (2,418) (1,707)
Notes receivable - stock options (461) (472) (341)
--------- --------- ---------
Total shareholders' equity 128,913 124,480 119,629
--------- --------- ---------
$ 531,341 $ 509,683 $ 490,331
========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
MARSH SUPERMARKETS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
28 Weeks Ended
----------------------------
October 9, October 10,
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,897 $ 5,484
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 13,673 11,609
Amortization of other assets 3,228 2,281
Changes in operating assets and liabilities 1,196 1,211
Other operating activities (424) (645)
-------- --------
Net cash provided by operating activities 23,570 19,940
INVESTING ACTIVITIES
Net acquisition of property, equipment and land (25,494) (30,511)
Other investing activities (6,444) (7,891)
-------- --------
Net cash used for investing activities (31,938) (38,402)
FINANCING ACTIVITIES
Proceeds of short-term borrowing 19,204 8,458
Proceeds of long-term borrowing -- 10,000
Repayments of long-term debt and capital leases (11,581) (1,351)
Proceeds from sale/leaseback 1,000 --
Purchase of shares for treasury (540) (1,181)
Stock options exercised 103 395
Cash dividends paid (1,876) (1,851)
-------- --------
Net cash provided by financing activities 6,310 14,470
-------- --------
Net decrease in cash and equivalents (2,058) (3,992)
Cash and equivalents at beginning of period 30,520 33,546
-------- --------
Cash and equivalents at end of period $ 28,462 $ 29,554
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
MARSH SUPERMARKETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts or
as otherwise noted)
OCTOBER 9, 1999
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Marsh
Supermarkets, Inc. and subsidiaries were prepared in accordance with generally
accepted accounting principles for interim financial information and the
instructions to Form 10-Q. Accordingly, they do not include all the information
and footnotes necessary for a fair presentation of financial position, results
of operations, and cash flows in conformity with generally accepted accounting
principles. This report should be read in conjunction with the Company's
Consolidated Financial Statements for the year ended March 27, 1999. The balance
sheet at March 27, 1999, has been derived from the audited financial statements
at that date.
The Company's fiscal year ends on Saturday of the thirteenth week of each
calendar year. All references herein to "2000" and "1999" relate to the fiscal
years ending April 1, 2000 and March 27, 1999, respectively.
The condensed consolidated financial statements for the sixteen and twenty-eight
week periods ended October 9, 1999 and October 10, 1998, respectively, were not
audited by independent auditors. Preparation of the financial statements
requires management to make estimates that affect the reported amounts of
assets, liabilities, revenues and expenses for the reporting periods. In the
opinion of management, the statements reflect all adjustments (consisting of
normal recurring accruals) considered necessary to present fairly the financial
position, results of operations and cash flows for the periods presented.
Certain amounts in the 1999 financial statements were reclassified to conform
with the 2000 presentation.
Operating results, for the twenty-eight week period ended October 9, 1999, are
not necessarily indicative of the results that may be expected for the full
fiscal year ending April 1, 2000.
NOTE B - LONG-TERM DEBT AND GUARANTOR SUBSIDIARIES
Other than three inconsequential subsidiaries, all of the Company's subsidiaries
(the "Guarantors") have fully and unconditionally guaranteed on a joint and
several basis the Company's obligations under the $150.0 million of 8 7/8%
Senior Subordinated Notes. The Guarantors are 100% wholly-owned subsidiaries of
the Company. The Guarantors comprise all of the direct and indirect subsidiaries
of the Company (other than three inconsequential subsidiaries). The Company has
not presented separate financial statements and other disclosures concerning
each Guarantor because management believes that such information is not material
to investors. Summarized combined financial information for the Guarantors is
set forth below:
<TABLE>
<CAPTION>
October 9, March 27, October 10,
1999 1999 1998
---- ---- ----
<S> <C> <C> <C>
Current assets $187,953 $178,504 $169,409
Current liabilities 137,948 111,778 117,570
Noncurrent assets 298,193 280,966 269,593
Noncurrent liabilities 61,641 71,249 51,411
</TABLE>
<TABLE>
<CAPTION>
16 Weeks Ended 28 Weeks Ended
--------------------------- ----------------------------
October 9, October 10, October 9, October 10,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenues $534,726 $488,478 $928,988 $849,097
Gross profit 129,007 120,923 227,252 210,329
Net income 6,945 1,844 13,476 13,254
</TABLE>
5
<PAGE> 6
NOTE C - EARNINGS PER SHARE
The following table sets forth the computation of the numerators and
denominators used in the computation of earnings per share and diluted earnings
per share:
<TABLE>
<CAPTION>
16 Weeks Ended 28 Weeks Ended
------------------------ -------------------------
October 9, October 10, October 9, October 10,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for earnings per share $ 2,615 $ 2,456 $ 5,897 $ 5,484
Effect of convertible debentures 307 289 520 505
------- ------- ------- -------
Numerator for diluted earnings per share -
income after assumed conversions $ 2,922 $ 2,745 $ 6,417 $ 5,989
======= ======= ======= =======
Weighted average shares outstanding 8,504 8,412 8,507 8,416
Non-vested restricted shares (170) (142) (173) (146)
------- ------- ------- -------
Denominator for earnings per share 8,334 8,270 8,334 8,270
Effect of dilutive securities:
Non-vested restricted shares 170 142 173 146
Stock options 76 113 51 111
Convertible debentures 1,290 1,290 1,290 1,290
------- ------- ------- -------
Denominator for diluted earnings per share -
adjusted weighted average shares 9,870 9,815 9,848 9,817
======= ======= ======= =======
</TABLE>
NOTE D - BUSINESS SEGMENTS
The Company operates within two business segments: the retail sale of food and
related products through supermarkets, convenience stores and food services, and
the wholesale distribution of food and related products by CSDC, principally to
unaffiliated convenience stores. Segment information is set forth in the
following table:
<TABLE>
<CAPTION>
Retail Wholesale Consolidated
------ --------- ------------
<S> <C> <C> <C>
Sixteen weeks ended October 9, 1999
External revenues $422,585 $112,144 $534,729
Intersegment revenues 10,330 29,310 39,640
Income before income taxes 2,255 1,407 3,662
Sixteen weeks ended October 10, 1998
External revenues 390,275 98,208 488,483
Intersegment sales 9,826 25,731 35,557
Income before income taxes 2,047 1,603 3,650
Twenty-eight weeks ended October 9, 1999
External revenues 737,079 191,916 928,995
Intersegment sales 18,074 50,654 68,728
Income before income taxes 6,599 2,013 8,612
Twenty-eight weeks ended October 10, 1998
External revenues 680,950 168,155 849,105
Intersegment sales 16,937 43,924 60,861
Income before income taxes 5,578 2,595 8,173
</TABLE>
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion includes certain forward-looking statements (statements
other than with respect to historical fact). Actual results could differ
materially from those reflected by the forward-looking statements due to known
and unknown risks and uncertainties which could adversely affect future results,
liquidity and capital resources. The risks and uncertainties include softness in
the general retail food industry, the entry of new competitive stores in the
Company's market, the stability of distribution incentives from suppliers, the
level of discounting by competitors, the timely and on budget completion of
store construction, expansion, conversion and remodeling, uncertainties relating
to tobacco and environmental regulations, the ability of the Company and
significant third parties with whom it does business to effect conversions to
new technological systems, including being Year 2000 compliant, and the level of
margins achievable in the Company's operating divisions and their ability to
minimize operating expenses. The Company undertakes no obligation to update or
revise any forward-looking statements to reflect subsequent events or
circumstances.
Results of operations for interim periods do not necessarily reflect the results
that may be expected for the fiscal year.
The following table sets forth certain income statement components, expressed as
a percentage of sales and other revenues, and the percentage change in such
components:
<TABLE>
<CAPTION>
Second Quarter Year - to - Date
--------------------------------- ----------------------------------
Percent of Revenues Percent Percent of Revenues Percent
2000 1999 Change 2000 1999 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Sales and other revenues 100.0% 100.0% 9.5% 100.0% 100.0% 9.4%
Gross profit 24.1% 24.8% 6.7% 24.5% 24.8% 8.0%
Selling, general and administrative 20.7% 21.4% 6.0% 20.8% 21.2% 7.4%
Depreciation and amortization 1.5% 1.4% 19.7% 1.5% 1.4% 17.8%
Operating income 1.9% 2.0% 4.6% 2.2% 2.2% 7.9%
Interest and debt expense amortization 1.2% 1.3% 7.2% 1.2% 1.2% 9.9%
Income taxes 0.2% 0.2% (12.3%) 0.3% 0.3% 1.0%
Net income 0.5% 0.5% 6.5% 0.6% 0.6% 7.5%
</TABLE>
SALES AND OTHER REVENUES
In the second quarter of 2000, consolidated sales and other revenues of $534.7
million increased $46.2 million, or 9.5%, compared to the same quarter of 1999.
Supermarket revenues increased $19.5 million, Village Pantry revenues increased
$10.8 million, Convenience Store Distributing Company (CSDC) revenues increased
$13.9 million and Crystal Food Service revenues increased $2.0 million. Retail
sales (excluding fuel sales) increased 6.6%. Sales in comparable supermarkets
and convenience stores, including replacement stores and format conversions, but
excluding fuel, increased 4.3% from the second quarter of 1999. Approximately
two-thirds of the increase in supermarket revenues was attributable to same
store sales gains, with the remainder related to the opening of five LoBill
stores since the beginning of the year earlier quarter. Village Pantry increased
inside revenues 8.7%, and increased fuel sales 47.2% primarily due to a 23.5%
improvement in gallons sold combined with average pump prices 18.6 cents per
gallon higher than in 1999. The increase in CSDC revenues was primarily
attributable to higher cigarette manufacturer prices passed on to customers.
For the twenty-eight weeks ended October 9, 1999, consolidated sales and other
revenues of $929.0 million increased $79.9 million, or 9.4%, compared to the
same twenty-eight weeks of the prior year. Supermarket revenues increased $35.6
million, Village Pantry revenues increased $16.7 million, CSDC revenues
increased $23.8 million, and Crystal Food Service revenues increased $3.9
million. Retail sales (excluding fuel sales) increased 6.7%. Sales in comparable
stores, including replacement stores and format conversions, but
7
<PAGE> 8
excluding fuel, increased 4.9% from the prior year. The increase in supermarket
revenues resulted primarily from same store sales gains, combined with the
aforementioned LoBill store additions. Village Pantry increased inside revenues
9.0%, and increased fuel sales 37.3% primarily due to a 21.9% increase in
gallons sold combined with average pump prices 12.5 cents per gallon higher than
the year earlier period. The increase in CSDC revenues is essentially
attributable to higher cigarette manufacturer prices passed on to customers.
GROSS PROFIT
Gross profit was calculated net of warehousing, transportation, and promotional
expenses. In the second quarter of 2000, consolidated gross profit increased
$8.1 million, or 6.7%, from the comparable quarter of 1999. As a percentage of
revenues, consolidated gross profit was 24.1% in the current quarter compared to
24.8% for 1999. Gross profit, as a percentage of revenues, was essentially
unchanged in supermarkets and declined in Village Pantry, CSDC and Crystal Food
Services. Village Pantry gross profit percentage was the same as the year
earlier on inside sales, but declined overall as a result of higher fuel sales
at a gross profit rate significantly lower than that achieved on inside sales.
CSDC gross profit percentage declined due to competitors' cigarette pricing.
For the twenty-eight weeks ended October 9, 1999, consolidated gross profit
increased $16.9 million, or 8.0%, from the comparable year earlier period. As a
percentage of revenues, consolidated gross profit decreased to 24.5% from 24.8%.
Gross profit, as a percentage of revenues, increased in supermarkets, declined
in Crystal Food Service, and also declined in Village Pantry and CSDC due to
those factors cited above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In the second quarter of 2000, consolidated selling, general and administrative
expenses (SG&A) increased $6.3 million, or 6.0%, from the second quarter of
1999. As a percentage of revenues, SG&A expenses decreased to 20.7% from 21.4%
in the comparable year earlier quarter. The higher current quarter expenses were
attributable to increases of $4.5 million in wage and fringe benefit costs, $1.2
million in store occupancy and other store costs and $0.6 million in
advertising. Wage expense in stores open both quarters, excluding supermarket
conversions to the LoBill format, increased 2.0% due to increased labor hours
resulting from same store sales gains and wage rate increases.
For the twenty-eight weeks in 2000, SG&A increased $13.4 million, or 7.4%, from
the comparable twenty-eight weeks of 1999. As a percentage of revenues,
consolidated SG&A expenses decreased to 20.8% from 21.2% in 1999. The increase
is primarily attributable to higher wages and fringe benefit costs of $9.1
million, store occupancy and other store costs of $2.1 million, and advertising
$2.0 million. Additionally, a $0.7 million credit in the prior year from the
reduction of environmental liability reserves did not recur. In identical
stores, wages increased 0.8% from the comparable twenty-eight weeks of the prior
year.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense for the second quarter of 2000 was $8.0
million, compared to $6.7 million for the year earlier quarter. As a percentage
of revenues, depreciation and amortization expense was 1.5% for the second
quarter of 2000, compared to 1.4% for the second quarter of 1999.
For the twenty-eight weeks in 2000, depreciation and amortization expense was
$13.7 million, compared to $11.6 million for the prior year period. As a
percentage of revenues, depreciation and amortization expense was 1.5% for the
twenty-eight weeks in 2000, compared to 1.4% for the comparable weeks of the
prior year.
OPERATING INCOME
Operating income (income from continuing operations before interest and taxes)
increased to $10.2 million for the second quarter of 2000 from $9.8 million for
the year earlier quarter. Gains from real estate transactions accounted for $1.0
million and $1.1 million of 2000 and 1999 operating income, respectively.
Operating income, as a percentage of revenues, was 1.9% in 2000, compared to
2.0% for the comparable period in 1999.
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<PAGE> 9
For the twenty-eight weeks in 2000, operating income was $20.0 million, compared
to $18.6 million in 1999. Income from operations increased $1.5 million and
gains on real estate transactions increased $0.6 million. Prior year operating
income included a credit of $0.7 million from the reduction of environmental
liability reserves. Operating income, as a percentage of revenues, was 2.2% in
both years.
INTEREST EXPENSE
Interest expense for the second quarter of 2000 was $6.6 million, compared to
$6.1 million for the second quarter of 1999. For the twenty-eight weeks in 2000,
interest expense was $11.4 million, compared to $10.4 million in 1999. Interest
on capital leases accounted for $0.3 million and $0.6 million of the increase
for the quarter and year to date, respectively.
INCOME TAXES
For the second quarter of 2000, the effective income tax rate was 28.6%,
compared to 32.7% for the comparable quarter in 1999. For the twenty-eight weeks
of 2000, the effective income tax rate was 31.5%, compared to 32.9% for the
comparable weeks of the prior year. The current year effective rate was lower
due primarily to the reduction of $0.1 million of tax liability reserves. It is
expected the effective rate will be 32.1% for the current year.
NET INCOME
Net income for the second quarter of 2000 was $2.6 million, compared to $2.5
million for the second quarter of 1999. Net income, as a percentage of revenues,
was 0.5% in both years.
For the twenty-eight weeks of 2000, net income was $5.9 million, compared to
$5.5 million in 1999. Net income, as a percentage of revenues, was 0.6% in both
years.
9
<PAGE> 10
CAPITAL EXPENDITURES
The Company's capital requirements have traditionally been financed through
internally generated funds, long-term borrowings and lease financings, including
capital and operating leases.
During the first twenty-eight weeks of 2000, the following stores opened or were
under construction:
<TABLE>
<CAPTION>
Square
Store Type Category Feet Location Status
---------- -------- ---- -------- ------
<S> <C> <C> <C> <C>
Supermarket Replacement 64,000 Indianapolis, IN Open
Supermarket New 65,000 Carmel, IN Under construction
Supermarket Replacement 65,000 Brownsburg, IN Under construction
LoBill Conversion 30,000 Indianapolis, IN Open
LoBill Acquired 12,000 Pendleton, IN Open
LoBill Acquired 17,000 Peru, IN Open
LoBill Acquired 32,000 Richmond, IN Open
LoBill Acquired 14,000 Richmond, IN Open
Convenience Acquired 2,600 Indianapolis, IN Open
Convenience Acquired 2,600 Indianapolis, IN Open
Convenience New 2,000 Warsaw, IN Under construction
</TABLE>
Subsequent to the end of the quarter, the Company purchased a convenience store
in Muncie, Indiana and opened the convenience store in Warsaw, Indiana. In
addition to the above projects, the Company plans to open a new LoBill and five
new convenience stores, and to acquire several sites for future development. The
cost of these projects and other capital commitments is estimated to be $80.0
million. Of this amount, the Company plans to fund $15.0 million through
equipment leasing, $40.0 million through sale/leasebacks and mortgages, and
believes it can finance the balance with current cash balances and internally
generated funds. As of October 9, 1999, the Company had expended $25.5 million
for capital expenditures.
The Company's plans with respect to store construction, expansion and remodeling
may be revised in light of changing conditions, such as competitive influences,
its ability to negotiate successfully site acquisitions or leases, zoning
limitations and other governmental regulations. The timing of projects is
subject to normal construction and other delays. It is possible that some of the
projects described above may not commence, others may be added and a portion of
the planned expenditures with respect to projects commenced during the current
fiscal year may carry over to the subsequent fiscal year, and the Company may
use other or different financing arrangements.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in the twenty-eight weeks ended
October 9, 1999 was $23.6 million, compared to $19.9 million for the comparable
period of the prior year. The improvement is due primarily to higher non-cash
charges for depreciation and amortization of property and equipment and other
assets. Working capital decreased $21.8 million from March 27, 1999. Cash and
equivalents decreased $2.1 million and notes payable to banks increased $19.2
million primarily to acquire fixed assets and for other investing activities.
Inventory increased $10.9 million to support seasonal sales volumes, but was
partially funded by a $6.0 million increase in accounts payable. Prepaid
expenses decreased $4.7 million, as $4.1 million funded for the Company group
insurance plan at March 27, 1999 was disbursed during the period.
At October 9, 1999, the Company's bank revolving credit agreements provided
$50.0 million of available financing, of which $25.0 million was utilized.
Commitments from various banks for short-term borrowings provided an additional
$20.0 million available at rates at or below the prime rates of the committed
banks, of which $19.2 million was utilized at October 9, 1999.
The Company believes amounts available under its revolving credit agreements and
notes payable to banks, cash flows from operating activities, and lease
financings will be adequate to meet the Company's working capital needs, debt
service obligations and capital expenditures for the foreseeable future.
10
<PAGE> 11
YEAR 2000 ISSUE
The Company has completed an assessment of its computer and other operating
systems to identify those which could be affected by the "Year 2000" issue. The
assessment included the review of business applications hardware and software
(information technology, or IT), non-IT areas such as microprocessors and
embedded chips, and third parties, including merchandise suppliers and service
providers. The Company is monitoring progress toward Year 2000 compliance
through the phases detailed in the following table:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Project segment Remediation phase Testing phase Implementation phase
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IT areas:
Mainframe and 97% complete 94% complete 90% complete
Central servers Expected completion Nov. 1999 Expected completion Nov. 1999 Expected completion Dec. 1999
Stores 100% complete 97% complete 84% complete
Expected completion Nov. 1999 Expected completion Dec. 1999
Distribution 100% complete 100% complete 95% complete
centers/other Expected completion Dec. 1999
CSD distribution 100% complete 50% complete 0% complete
center Expected completion Dec. 1999 Expected completion Dec. 1999 Expected completion Dec. 1999
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Non-IT areas 100% complete 100% complete 100% complete
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Third parties Expected completion Dec. 1999 Not applicable Not applicable
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The remediation phase includes modification to, or replacement of, software,
hardware or microprocessors, and obtaining assurances from third parties that
they have addressed the Year 2000 issue. Testing includes conducting trials
adequate to ensure compliance prior to the implementation, or installation, of
the compliant solution.
The estimated total costs, excluding internal costs, to complete compliance are
$16.4 million, of which $15.6 million will be capitalized and $0.8 million will
be charged to expense. As of October 9, 1999, the Company had expended $14.4
million, of which $13.7 million was capitalized and $0.7 million was expensed.
The Company does not separately track the internal costs incurred for the Year
2000 project; those costs are principally the payroll and related costs for its
information systems group. The costs of the project have been, and will continue
to be, funded through operating cash flows.
The Company believes it has identified all Year 2000 issues and that all will be
resolved in a timely manner. As indicated above, the Company has not completed
all necessary phases of the Year 2000 project. Year 2000 risks for the Company
include unsuccessful testing of software changes, failed attempts to obtain
vendor software and failure on the part of suppliers and service providers. The
Company believes that under reasonably worst likely scenarios, CSDC would be
unable to order product or to fill customer orders. Such an event could have a
material adverse impact on the Company's operating results and financial
position. A contingency plan to address that risk has been developed and all
phases of the plan will be completed in December 1999. No IT projects have been
delayed as a result of the Year 2000 compliance effort that would have a
material effect on the Company's operating results or financial position.
11
<PAGE> 12
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES OR RIGHTS OF HOLDERS THEREOF
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on August 3, 1999
(the "Annual Meeting"). At the Annual Meeting, shareholders voted on
the following proposals: 1. To elect four directors for terms of three
years each and until their successors are duly elected and qualified;
and 2. To consider and approve the 1999 Outside Directors' Stock Option
Plan. The table below sets forth the number of votes cast for, against
or withheld with respect to each of such proposals:
<TABLE>
<CAPTION>
For Against Withheld/Abstain
--- ------- ----------------
<S> <C> <C> <C>
1. Election of Directors
Nominees:
Charles R. Clark 3,521,091 N.A. 26,487-
James K. Risk, III 3,522,112 N.A. 25,466-
J. Michael Blakley 3,522,071 N.A. 25,507-
P. Lawrence Butt 3,522,563 N.A. 25,015-
2. 1999 Outside Directors' Stock Option Plan 2,946,524 433,766 38,753
</TABLE>
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
Exhibit 10 (a) Form of Employment Agreement, dated as of August
3, 1999.
Exhibit 10 (b) Senior Executive Supplemental Retirement Plan, dated
as of August 3, 1999.
Exhibit 27 Financial Data Schedule for the quarter for which this
report is filed.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is filed.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements 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.
MARSH SUPERMARKETS, INC.
November 22, 1999 By: /s/ Douglas W. Dougherty
----------------------------------------
Douglas W. Dougherty
Senior Vice President, Chief Financial
Officer and Treasurer
November 22, 1999 By: /s/ Mark A. Varner
---------------------------------------
Mark A. Varner
Chief Accounting Officer,
Vice President - Corporate Controller
13
<PAGE> 14
Exhibit Index
Exhibit 10 (a) Form of Employment Agreement, dated as of August 3, 1999.
Exhibit 10 (b) Senior Executive Supplemental Retirement Plan, dated as of August
3, 1999.
Exhibit 27 Financial Data Schedule for the quarter for which this report is
filed (for SEC use only).
14
<PAGE> 1
Exhibit 10(a)
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of this 3rd day of August, 1999 by and between MARSH SUPERMARKETS, INC., an
Indiana corporation having its address at 9800 Crosspoint Boulevard,
Indianapolis, Indiana 46256-3350 (the "Company"), and ___________, an individual
having an address at _______________________ (the "Executive").
WHEREAS, the Executive and the Company are parties to an amended and
restated employment agreement dated December 31, 1992 (the "Prior Agreement");
and
WHEREAS, the parties desire to secure the continued employment of the
Executive on the terms and conditions of this Agreement, which replaces the
Prior Agreement in its entirety.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements of the parties set forth in this Agreement, the parties
agree as follows:
1. EMPLOYMENT
The Company hereby employs the Executive, and the Executive hereby
accepts employment on the terms and conditions set forth herein.
2. TERM
This Agreement shall become effective on August 3, 1999, and shall end
on December 31, 2004. The term shall be extended automatically for one (1) year
on each January 1 ("Anniversary Date") beginning January 1, 2001, unless either
party hereto gives written notice to the other party not more than two hundred
ten (210) days and not less than one hundred eighty (180) days prior to an
Anniversary Date, in which case no further automatic extension shall occur and
the term of this Agreement shall end five (5) years subsequent to the
Anniversary Date immediately following such written notice (such term, including
any extension is referred to as the "Term"). Notwithstanding the foregoing, the
Term shall end on the date of Executive's voluntary retirement from the Company.
3. DUTIES
The Executive is engaged by the Company in a senior executive capacity
as its chief executive officer. Unless otherwise consented to by the Executive,
the Executive's positions with the Company shall be as its
_________________________________. The Executive shall have all the powers and
agrees to perform all of the duties associated with those positions, subject to
the direction of the Board of Directors of the Company, and to the provisions of
the Articles of Incorporation and Bylaws of the Company. The Executive shall
have general ____________ of the Company with all such powers as may be
reasonably incident to such responsibilities; and he shall have such other
powers and duties as designated in accordance with the Company's Bylaws and as
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<PAGE> 2
may be assigned to him from time to time by the Board of Directors. The
Executive shall report directly to the Company's _______________ and any
executive committee of the Board. The Company agrees to provide the Executive
with such accommodations as are suitable to the character of his positions with
the Company and adequate for the performance of his duties.
4. EXTENT OF SERVICES
During the Term, the Executive agrees to devote substantially his full
time, attention and energies to the Company's business. This Agreement shall not
be construed as preventing the Executive from investing assets in such form or
manner as will not require his services in the daily operations of the affairs
of the companies in which such investments are made. This Agreement shall also
not be construed as preventing the Executive from serving as an outside director
of up to five other for-profit companies (and such additional companies as the
Board of Directors may hereafter approve) or from participating in charitable or
other not-for-profit activities as long as such activities do not materially
interfere with his work for the Company.
5. COMPENSATION
As remuneration for all services to be rendered by the Executive, and
as consideration for complying with the covenants herein, the Company shall pay
and provide to the Executive during the Term the following:
5.1 BASE SALARY. The Company shall pay the Executive a base salary (the
"Base Salary") in an amount which shall be established from time to time by the
Board of Directors of the Company or the Board's designee, but such amount shall
not be less than the Base Salary for 1999. The Base Salary for 1999 shall be
_________________________dollars ($_______) on an annualized basis. The Board of
Directors of the Company or its Compensation Committee shall review the Base
Salary at least annually during the Term to determine whether the Base Salary
should be increased and, if so, the amount of such increase and the time at
which the increase should take effect. The Base Salary shall be paid to the
Executive consistent with the normal payroll practices of the Company, but not
less frequently than once each month.
5.2 BONUS COMPENSATION. The Executive shall be entitled to participate
in the Company's Management Incentive Plan and any additional or replacement
cash incentive programs which the Company may adopt and implement from time to
time hereafter (the "Bonus Plan"). The Executive's participation in the Bonus
Plan shall be at a level commensurate with his positions with the Company and
generally consistent with his participation in the Bonus Plan in prior years.
5.3 STOCK AWARDS. The Executive shall be entitled to receive awards of
options to purchase shares of the Company's common stock and restricted stock
under the Company's 1998 Stock Incentive Plan and any additional or replacement
stock-based incentive programs which the Company may adopt and implement from
time to time hereafter (the "Stock Plan"). The Executive's
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<PAGE> 3
participation in the Stock Plan shall be at a level commensurate with his
positions with the Company and generally consistent with his participation in
prior years.
5.4 SERP. The Executive shall be vested and entitled to participate in
the 1999 Senior Executive Supplemental Retirement Plan of the Company.
5.5 OTHER EMPLOYEE BENEFITS. The Executive shall be entitled to receive
all other benefits to which other senior executives of the Company are entitled
to receive. Such benefits shall include, but are not limited to, life insurance,
health insurance, dental insurance, accidental death and dismemberment
insurance, short-term and long-term disability and deferred compensation plans.
The Executive shall be entitled to four (4) weeks of paid vacation in each
calendar year during the Term. Executive's absence from the Company's offices by
reason of or in connection with attending any meeting, conference or similar
event which in any way, directly or indirectly, relates to the Company's
business specifically or business generally shall not be deemed vacation for
purposes of the immediately preceding sentence.
5.6 SPLIT-DOLLAR LIFE INSURANCE. During the Term of this Agreement, the
Company shall keep in effect the current split-dollar life insurance policy or
policies on the life of the Executive in the face amount aggregating
$__________. The Company shall pay all premiums on the policies or reimburse
Executive for any portion of the premiums paid by him. In addition, the Company
shall pay to Executive a grossed up bonus to reimburse Executive for any taxes
payable by him with respect to his portion of the premiums (whether paid
directly or reimbursed to him by the Company) and the bonus.
5.7 PERQUISITES.
(a) The Company shall provide the Executive with the use of an
automobile of his choosing, together with a mobile telephone and other
reasonable appurtenances.
(b) The Company shall pay the costs of Executive's membership
in each organization in which Executive has participated at any time
during the immediately preceding five (5) years, as evidenced by the
Company's records, unless Executive elects otherwise.
(c) The Company shall, upon periodic presentation of
satisfactory evidence and up to a maximum of Ten Thousand Dollars
($10,000) per calendar year, reimburse the Executive for reasonable
professional expenses incurred by the Executive for personal and estate
tax and financial planning services.
(d) Executive shall have the option to purchase for $500 the
portrait of his father hanging in the lobby of the corporate offices if
the Company decides to remove it from such location, unless the Company
removes it to another location of prominence acceptable to Executive.
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<PAGE> 4
5.8 RIGHT TO CHANGE PLANS. Nothing contained in the Agreement shall
obligate the Company to institute, maintain or refrain from changing, amending
or discontinuing any bonus, incentive, or benefit plan or perquisite, so long as
such changes are similarly applicable to senior executives generally; provided,
however, no such change, amendment or discontinuance shall adversely affect any
vested right of the Executive thereunder.
6. BUSINESS EXPENSES
The Company shall pay or reimburse the Executive for all ordinary and
necessary business expenses, in a reasonable amount, which the Executive incurs
in performing his duties under this Agreement. Such expenses shall be paid or
reimbursed in accordance with the expense reimbursement policies of the Company
in effect from time to time.
7. TERMINATION OF EMPLOYMENT
7.1 TERMINATION DUE TO DEATH. If the Executive dies during the Term,
this Agreement shall terminate as of the date of the Executive's death and the
Executive's benefits shall be determined in accordance with the survivor's
benefits, insurance and other applicable programs of the Company then in effect.
Within fifteen (15) days of the Executive's death, the Company shall pay the
Executive's designee or his estate (a) that portion of his Base Salary which
shall have been earned through the termination date and (b) a bonus in an amount
determined by multiplying the bonus or other incentive or conditional cash
compensation received by the Executive with respect to or during the Company's
last completed fiscal year by a fraction, the numerator of which is the number
of days elapsed in the Company's current fiscal year through the termination
date and the denominator of which is 365. In addition, the Company shall pay to
the Executive's estate or his designee the Salary Continuation Benefit (as
defined in Section 8.7) for a period equal to five (5) years from the
termination date. If the Executive is survived by his spouse, the Company shall
also provide the spouse with Lifetime Medical Benefits (as defined in Section
8.4).
7.2 TERMINATION DUE TO DISABILITY. If the Executive suffers a
Disability (as defined in Section 8.2) during the Term, the Company shall have
the right to terminate this Agreement by giving the Executive Notice of
Termination to which has attached to it a copy of the medical opinion that forms
the basis of the determination of Disability. The Executive's employment shall
terminate at the close of business on the last day of the Notice Period (as
defined in Section 8.6).
Upon the termination of this Agreement because of Disability, the
Company shall pay the Executive within fifteen (15) business days of the
termination date (a) that portion of his Base Salary, at the rate then in effect
as provided, which shall have been earned through the termination date and (b) a
bonus in an amount determined by multiplying the bonus or other incentive or
conditional cash compensation received by the Executive with respect to or
during the Company's last completed fiscal year by a fraction, the numerator of
which is the number of days elapsed in the Company's current fiscal year through
the termination date and the denominator of which is 365. In addition,
-4-
<PAGE> 5
the Company shall pay to the Executive the Salary Continuation Benefit for a
period equal to five (5) years from the termination date. The Company shall also
provide the Executive and his spouse with Lifetime Medical Benefits. The
Executive shall also be entitled to receive any applicable disability insurance
benefits resulting from any insurance or other employee benefit programs of the
Company.
7.3 TERMINATION BY THE COMPANY FOR "CAUSE" OR BY THE EXECUTIVE WITHOUT
"GOOD REASON." At any time during the Term, the Company may terminate this
Agreement for "Cause" as defined in Section 8.1 by giving the Executive a Notice
of Termination, which has attached to it copies of the Board determination that
forms the basis of the Company's action. The Executive's employment shall
terminate at the close of business on the last day of the Notice Period.
At any time during the Term, the Executive may terminate this Agreement
without "Good Reason" as defined in Section 8.3 hereof by giving the Board of
Directors of the Company a Notice of Termination. The Executive's employment by
the Company shall terminate at the close of business on the last day of the
Notice Period.
Within fifteen (15) business days after such termination date, the
Company shall pay the Executive (a) that portion of his Base Salary, which shall
have been earned through the termination date and (b) a bonus in an amount
determined by multiplying the bonus or other incentive or conditional cash
compensation received by the Executive with respect to or during the Company's
last completed fiscal year by a fraction, the numerator of which is the number
of days elapsed in the Company's current fiscal year through the termination
date and the denominator of which is 365.
7.4 TERMINATION BY THE COMPANY WITHOUT "CAUSE" OR BY THE EXECUTIVE FOR
"GOOD REASON." At any time during the Term, the Board of Directors of the
Company may terminate this Agreement without Cause by giving the Executive a
Notice of Termination, and the Executive's employment by the Company shall
terminate at the close of business on the last day of the Notice Period.
At any time during the Term, the Executive may terminate this Agreement
with "Good Reason" by giving the Company a Notice of Termination which describes
the actions, events or beliefs that form the basis of the Executive's action.
The Executive's employment shall terminate at the close of business on the last
day of the Notice Period.
Within five (5) business days after such termination date, the Company
shall pay to the Executive (a) that portion of his Base Salary which shall have
been earned through the termination date and (b) a bonus in an amount determined
by multiplying the bonus or other incentive or conditional cash compensation
received by the Executive with respect to or during the Company's last completed
fiscal year by a fraction, the numerator of which is the number of days elapsed
in the Company's current fiscal year through the termination date and the
denominator of which is 365. The Company shall pay to the Executive the Salary
Continuation Benefit for a period equal to five (5) years from the termination
date. The Company shall provide the Executive with life, medical,
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<PAGE> 6
dental, accident and disability insurance coverage for the period of time that
the Salary Continuation Benefit is in place at the same coverage levels that are
in effect as of the termination date. In lieu of the foregoing insurance
coverage benefits, the Company may pay the Executive an amount equal to the
Executive's cost of obtaining comparable coverage. The Company shall also
provide the Executive and his spouse with Lifetime Medical Benefits. The Company
shall continue to pay all premiums due on the split-dollar life insurance
policies in effect on the life of the Executive for five years from the
termination date after which time the Company shall distribute such policies to
the Executive without requiring the Executive to repay any premiums paid by the
Company. The Company shall also pay to Executive for each of such five years a
grossed up bonus to reimburse Executive for any taxes payable by him with
respect to his portion of the premiums and bonus. The Company shall also
transfer to the Executive, free of any encumbrance, the automobile and all
appurtenances thereto referred to in Section 5.7(a) for no consideration;
provided that the Executive pays any transfer taxes and agrees to be solely
responsible for insurance and the cost of insurance after the date of transfer.
7.5 TERMINATION BY THE EXECUTIVE UPON RETIREMENT. At any time during
the Term. The Executive may terminate this Agreement by giving the Company
Notice of Termination advising the Company that he intends to voluntarily retire
in accordance with the Company's retirement policies on a date specified in the
Notice of Termination. The Executive's employment shall terminate on the date
specified in the Notice of Termination.
Within fifteen (15) business days after such termination date, the
Company shall pay the Executive (a) that portion of his base salary which shall
have been earned through the termination date and (b) a bonus in an amount
determined by multiplying the bonus or other incentive or conditional cash
compensation received by the Executive with respect to or during the Company's
last completed fiscal year by a fraction, the numerator of which is the number
of days elapsed in the Company's current fiscal year through the termination
date and the denominator of which is 365. The Company shall also provide the
Executive and his spouse with Lifetime Medical Benefits. In addition, the
Company shall continue to pay all premiums due on the split-dollar life
insurance policies in effect on the life of the Executive for five years from
the termination date and pay to Executive for each of such five (5) years a
grossed up bonus to reimburse Executive for any taxes payable by him with
respect to his portion of the premiums and the bonus.
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<PAGE> 7
8. DEFINITIONS
8.1 "Cause" means (a) the willful and continued failure of the
Executive to perform substantially the Executive's duties owed to the Company
after a written demand for substantial performance is delivered to the Executive
which specifically identifies the nature of such non-performance, (b) the
willful engaging by the Executive in gross misconduct significantly and
demonstrably injurious to the Company, or (c) conduct by the Executive in the
course of his or her employment which is a felony or fraud that results in
material harm to the Company. No act or omission on the part of the Executive
shall be considered "willful" unless it is done or omitted in bad faith or
without reasonable belief that the action or omission was in the best interests
of the Company. Notwithstanding the foregoing, the Executive shall not be deemed
to have been terminated for Cause without (i) reasonable notice to the Executive
setting forth the reasons for the Company's intention to terminate for Cause,
(ii) an opportunity for the Executive, together with his counsel, to be heard
before the Board of Directors, and (iii) delivery to the Executive of a Notice
of Termination from the Board of Directors finding that in the good faith
opinion of three-quarters (3/4) of the Board of Directors the Executive was
guilty of conduct set forth in clause (a), (b) or (c) above and specifying the
particulars thereof in detail.
8.2 "Disability" means the inability, in the written opinion of a
licensed physician chosen by the Board of Directors, of the Executive, because
of injury, illness, disease or bodily or mental infirmity to perform a
substantial portion of his ordinary duties and that this condition has existed
for a least six months and will more probably than not extend for an additional
six months into the future.
8.3 "Good Reason" means:
(a) without the Executive's express written consent and
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive, (i)
the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position, authority, duties or
responsibilities as contemplated by Section 3, (ii) any other action by
the Company which results in a significant diminution in such position,
authority, duties or responsibilities, or (iii) any failure by the
Company to comply with any of the provisions of Section 5;
(b) any requirement for the Executive to relocate outside of
the metropolitan area of his current residence or any relocation of the
principal executive office of the Company outside of Indianapolis,
Indiana;
(c) any failure of the Company to comply with and satisfy
Section 10.1 hereof; or
(d) any breach of any other material provision of this
Agreement.
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<PAGE> 8
8.4 "Lifetime Medical Benefits" refers to the coverage for the
Executive and/or his spouse for their lifetime under the Company's group medical
plan, at no expense to the Executive, as if the Executive had continued as an
employee, provided that such continued participation is possible under the terms
and provisions of the group medical plan. Any future increases in benefits
available to employees of the Company generally shall also be provided to
Executive and his spouse. In the event that participation by the Executive as a
former employee, or by his spouse, in the group medical plan is barred, or if
the benefits to the Executive and his spouse (after taking into account Medicare
benefits provided by Title XVIII of the Social Security Act) are reduced to a
level below what they were on the date of his termination, or if the Executive
or his spouse elects at any time by notice in writing to the Company, the
Company shall arrange to provide both the Executive and his spouse with benefits
substantially similar to those which they were receiving under such group
medical plan immediately prior to the date of his termination, such benefits to
be provided at the Company's expense by means of individual insurance policies,
or if such policies cannot be obtained, from the Company's assets. These
benefits shall continue after the death of the Executive to his spouse, if she
survives him, for her lifetime. If at any time after termination of his
employment, the Executive should accept employment with another employer and if
either the Executive or his spouse, or both, should become covered under that
employer's medical benefit plan, then effective on the date that such coverage
commences, the obligation of the Company to provide any medical benefits to
whoever of the Executive or his spouse, or both, is covered under the medical
benefit plan of the other employer shall terminate. The medical benefits
provided to the Executive and his spouse after the date of the Executive's
termination of employment are intended by the parties to be in lieu of the
rights of the Executive and his spouse to continuation coverage (commonly known
as "COBRA") under Section 601 et seq. of the Employee Retirement Income Security
Act of 1974 (ERISA), and Section 4908B of the Internal Revenue Code of 1986, as
amended (the "Code"), as either of the foregoing statutes may be amended. In
addition, "Lifetime Medical Benefits" shall include the requirement that, if any
medical benefits provided to the Executive (or his spouse) are subject to
federal and/or state income taxes, including the alternative minimum tax, the
Company will pay to the Executive (or his spouse) the full amount of such taxes,
plus such additional amount as may be necessary so that the net payment after
taxes is sufficient to reimburse the Executive (or his spouse) for all taxes
imposed on the provision of medical benefits.
8.5 "Notice of Termination" means a written notice delivered by one
party notifying the other party of the notifying party's intention to terminate
the Executive's employment pursuant to this Agreement. A Notice of Termination
shall not be effective unless (a) it specifies the specific provision of Section
7 which forms the basis of the proposed termination; (b) sets forth a proposed
termination date not less than fifteen (15) calendar days from the sending of
the Notice of Termination, and (c) otherwise complies with the requirements of
this Agreement.
8.6 "Notice Period" means the period between the sending of the Notice
of Termination and the proposed termination date set forth in such Notice.
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<PAGE> 9
8.7 "Salary Continuation Benefit" means an annual amount equal to the
sum of: (a) the highest annualized Base Salary of the Executive in effect at any
time within five (5) years prior to the date of termination; plus (b) the
largest of the annual bonuses paid to the Executive for the ten (10) years
preceding the termination date. An amount equal to one-twelfth of the Salary
Continuation Benefit shall be paid to the Executive or his designee on the first
day of each calendar month.
9. EXCESS PARACHUTE PAYMENT PROVISIONS
9.1 ADDITIONAL PAYMENTS. Anything in this Agreement to the contrary
notwithstanding, in the event that it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise) (a "Payment") would be subject to the excise tax imposed
by Sections 280G and 4999 of the Code, or that any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, being hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (the "Gross-Up Payment") in an amount equal to
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes and Excise Tax) imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments.
9.2 OTHER PROVISIONS. Notwithstanding the provisions of Section 11.1,
all determinations required to be made under this Section 9, including whether
and when the Gross-Up Payment is required and the amount of such Gross-Up
Payment including any determination of the parachute payments under Code Section
280G(b)(2), and the assumptions to be utilized in arriving at such
determinations shall be made by a nationally recognized certified public
accounting firm that is mutually selected by the Executive and the Company (the
"Accounting Firm") which shall provide detailed supporting calculations both to
the Company and the Executive within 15 business days of the receipt of notice
from the Executive that there has been a Payment, or such earlier time as is
requested by the Company. All fees and expenses of the Accounting Firm shall be
borne solely by the Company. Any Gross-Up Payment shall be paid by the Company
to the Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that the Gross-Up Payment made will
have been an amount less than the Company should have paid pursuant to this
Section 9 (the "Underpayment"). In the event that the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive. The
obligations of the parties under this Section 9 shall indefinitely survive the
termination of the Executive's employment with the Company and the termination
of this Agreement.
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<PAGE> 10
10. ASSIGNMENT
10.1 ASSIGNMENT BY COMPANY. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the capital stock, business and/or assets of the
Company, by agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled
hereunder if the Executive terminated his employment for Good Reason, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the termination date. As used in
this Agreement, "Company" shall mean the Company and any successor to its
business and/or assets which executes and delivers the agreement provided for in
this Section 10.1 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
10.2 ASSIGNMENT BY EXECUTIVE. The services to be provided by the
Executive to the Company hereunder are personal to the Executive, and the
Executive's duties may not be assigned by the Executive; provided, however that
this Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, and administrators,
successors, heirs, distributees, devisees and legatees. If the Executive dies
while any amounts payable to the Executive hereunder remain outstanding, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, in the absence of such designee, to the Executive's estate.
11. DISPUTE RESOLUTION AND NOTICE
11.1 DISPUTE RESOLUTION. The Executive shall have the right and option
to elect to have any good faith dispute or controversy arising under or in
connection with this Agreement settled by litigation or by binding arbitration.
If arbitration is selected, such proceeding shall be conducted before
an arbitrator selected by mutual agreement of the Executive and the Company and
shall be governed by the Employment Dispute Resolution Rules of the American
Arbitration Association then in effect. If the parties are unable to select an
arbitrator by mutual agreement within thirty (30) days, the arbitrator shall be
selected in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association then in effect. Such arbitration shall take
place in Indianapolis, Indiana. Judgment may be entered on the award of the
arbitrator in any court having competent jurisdiction; provided, however, that
the Executive shall be entitled to seek specific performance of his right to any
payments or benefits to be provided until the date of termination of his
employment during the pendency of any dispute or controversy arising under or in
connection with this Agreement. All of the Executive's costs and expenses of
litigation or arbitration, including attorney's fees, shall be borne
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<PAGE> 11
by the Company and paid as incurred, whether or not the Executive prevails in
the litigation or arbitration.
11.2 NOTICE. Any notices, requests, demands or other communications
provided for by this Agreement shall be sufficient if in writing and if: (a)
delivered by hand delivery; (b) sent by facsimile communication with appropriate
confirmation of delivery, (c) sent by registered or certified United States
mail, return receipt requested, with all postage prepaid, or (d) sent by
recognized international commercial express courier service, with all delivery
charges prepaid, addressed as follows:
If to the Company or its Board of Directors:
Marsh Supermarkets, Inc.
9800 Crosspoint Blvd.
Indianapolis, Indiana 46256-3350
Attention: Corporate Secretary
Facsimile: (317) 594-2704
If to the Executive:
-------------------
-------------------
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12. MISCELLANEOUS
12.1 ENTIRE AGREEMENT. This Agreement supersedes any prior agreements
or understandings, oral or written, between the parties hereto, with respect to
the subject matter hereof, and constitutes the entire agreement of the parties
with respect thereto.
12.2 MODIFICATION. This Agreement shall not be varied, altered,
modified, canceled, changed, or in any way amended except by mutual agreement of
the parties in a written instrument executed by the parties hereto or their
legal representatives.
12.3 SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect.
12.4 COUNTERPARTS. This Agreement may be executed in one (1) or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
-11-
<PAGE> 12
12.5 TAX WITHHOLDING. The Company may withhold from any benefits
payable under this Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
12.6 BENEFICIARIES. The Executive may designate one or more persons or
entities as the primary and/or contingent beneficiaries of any amounts to be
received under this Agreement. Such designation must be in the form of a signed
writing acceptable to the Board of Directors of the Company or to the Board's
designee. The Executive may make or change such designation at any time in the
manner specified herein.
12.7 PAYMENT OBLIGATION ABSOLUTE. The Company's obligation to make the
payments and the arrangements and benefits provided for or referred to herein
shall be absolute and unconditional, and shall not be affected by any
circumstances, including, without limitation, any offset, counterclaim,
recoupment, defense or other right which the Company may have against the
Executive or anyone else. All amounts payable by the Company hereunder shall be
paid without notice or demand. Each and every payment made hereunder by the
Company shall be final, and the Company shall not seek to recover all or any
part of such payment from the Executive or from whosoever may be entitled
thereto, for any reasons whatsoever.
The Executive shall not be obligated to seek other employment in
mitigation of the amounts payable or arrangements made under any provision of
this Agreement, and the obtaining of any such other employment shall in no event
effect any reduction of the Company's obligations to make the payments and
arrangements required to be made under this Agreement.
12.8 CONTRACTUAL RIGHTS TO BENEFITS. Nothing herein contained shall
require or be deemed to require, or prohibit or be deemed to prohibit, the
Company to segregate, earmark or otherwise set aside any funds or other assets,
in trust or otherwise, to provide for any payments to be made or required
hereunder.
13. GOVERNING LAW
To the extent not preempted by federal law, the provisions of this
Agreement shall be construed and enforced in accordance with the laws of the
State of Indiana, notwithstanding any state's choice-of-law or conflicts-of-law
rules to the contrary.
14. INDEMNIFICATION
The Company shall indemnify the Executive as an officer, employee
and/or director of the Company to the maximum extent permitted by law. This
obligation shall indefinitely survive the termination of the Executive's
employment with the Company and the termination of this Agreement. This
provision shall in no way limit the Company's obligation to indemnify the
Executive under any other agreement or pursuant to the Company's articles of
incorporation or bylaws.
-12-
<PAGE> 13
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement as of the date specified above.
MARSH SUPERMARKETS, INC.
By:
----------------------------------- ----------------------------
Don E. Marsh
President and Chief Executive
Officer
Attest:
-------------------------------
P. Lawrence Butt, Secretary
Approved:
-----------------------------
Stephen M. Huse, Chairman
Compensation Committee
-13-
<PAGE> 1
Exhibit 10(b)
MARSH SUPERMARKETS, INC.
1999 SENIOR EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
ARTICLE I
PURPOSE
1.1 Purpose. The 1999 Senior Executive Supplemental Retirement Plan is
established by Marsh Supermarkets, Inc., as an unfunded, nonqualified plan
designed to provide to certain senior executive employees retirement
benefits in excess of the benefits payable under the Employees' Pension
Plan of Marsh Supermarkets, Inc. and Subsidiaries, as amended or restated
from time to time.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions. The following words and phrases, when capitalized, have the
following meanings:
(a) Accrued Pension: the actuarial equivalent, as determined under the
Retirement Plan, of the Participant's monthly accrued benefit under
the Retirement Plan (as adjusted for qualified pre-retirement survivor
annuity coverage) commencing at his Normal Retirement Date in the form
of a joint and 100% survivor annuity.
(b) Board of Directors: The Board of Directors of the Company.
(c) Cause: A felony conviction or a failure to contest prosecution of a
felony, or willful misconduct or dishonesty, any of which is directly
and materially harmful to the business and reputation of the Company.
(d) Company: Marsh Supermarkets, Inc.
(e) Final Average Incentive Compensation: An amount equal to the quotient
resulting from dividing the largest Incentive Compensation received by
the Participant during any calendar year within the 5-year period
immediately preceding the Participant's date of termination of
employment, divided by 12.
(f) Final Monthly Compensation: The sum of a Participant's (i) highest
annual rate of base salary in the 5-year period prior to the
Participant's date of termination of employment divided by 12; and
(ii) Final Average Incentive Compensation.
<PAGE> 2
(g) Incentive Compensation: The aggregate of incentive compensation and
executive bonus received by the Participant from the Company during a
calendar year. Any bonus or other compensation which could have been
received in cash during a particular calendar year but was deferred
and subsequently received in cash in a succeeding calendar year shall
be included as incentive compensation hereunder for the year in which
it is earned.
(h) Normal Retirement Date: The same definition as contained in the
Retirement Plan.
(i) Participant: A management or highly compensated employee of the
Company who has been designated by the Board of Directors to
participate in the Plan.
(j) Plan: The 1999 Senior Executive Supplemental Retirement Plan, as it
may be amended from time to time.
(k) Retirement Committee: The Retirement Committee of the Retirement Plan.
(l) Retirement Plan: The Employees' Pension Plan of Marsh Supermarkets,
Inc. and Subsidiaries, as amended and restated as of April 1, 1994,
and all amendments and restatements now or hereafter applicable
thereto.
(m) Supplemental Retirement Benefit: A monthly benefit payable to the
Participant for life and, upon the Participant's death, to the
Participant's spouse, for life, pursuant to Article IV.
2.2 Construction and Governing Law.
(a) Singular words shall include the plural and masculine words shall
include the feminine, unless the context indicates a distinction.
(b) The Plan shall be construed, enforced and administered and the
validity determined in accordance with the laws of the State of
Indiana.
ARTICLE III
PARTICIPATION
3.1 Designation of Participants. The Company shall designate each employee
who is to become a Participant in the Plan by resolution of the Board of
Directors and by identifying the employee as a Participant on the attached
Appendix.
-2-
<PAGE> 3
3.2 Benefits In Lieu of Other Supplemental Benefits. This Plan is intended to
supersede the Supplemental Retirement Plan of Marsh Supermarkets, Inc. and
Subsidiaries, As Amended and Restated as of January 1, 1997 (the "1997
Plan") with respect to the Participant's in the Plan. Any benefits payable
under this Plan shall be in lieu of any benefits to which the Participant
or the Participant's spouse may otherwise be entitled to under the 1997
Plan. To the extent a Participant or a Participant's spouse receives any
benefits under the 1997 Plan, he or she shall not be entitled to receive
any benefits under this Plan.
ARTICLE IV
SUPPLEMENTAL RETIREMENT BENEFIT
4.1 Vesting and Commencement of Benefits. Except as provided in Section 7.4, an
eligible Participant shall be entitled to receive the Supplemental
Retirement Benefit commencing upon termination of employment with the
Company for any reason other than Cause on or after the later of (a) the
date Participant attains age 55 or (b) the date the Participant has five
(5) years of "vesting service," as that term is defined in the Retirement
Plan. Notwithstanding the foregoing, no Supplemental Retirement Benefit
shall be payable to a Participant during any month in which such
Participant is receiving a "Salary Continuation Benefit" as defined in and
pursuant to an Employment Agreement between the Company and such
Participant.
4.2 Amount of Benefit. The Supplemental Retirement Benefit shall be a monthly
benefit equal to 60% of the Participant's Final Monthly Compensation
reduced by the Participant's Accrued Pension, determined as of the date of
termination of the Participant's employment. If payment of the Supplemental
Retirement Benefit payable to a Participant under this Plan commences prior
to the Participant's attaining the age of 60, the amount of the
Supplemental Retirement Benefit shall be reduced by .0025 times the number
of months that the Participant is less than age 60 at the time payments
commence.
4.3 Death Benefit. If the Participant dies after payment of the Supplemental
Retirement Benefit has commenced, the Supplemental Retirement Benefit shall
continue to be paid to the Participant's spouse for life. If the
Participant dies prior to the commencement of the payment of the
Supplemental Retirement Benefit and at the time of his death was eligible
to receive a Supplemental Retirement Benefit if his employment with the
Company were terminated, the Supplemental Retirement Benefit shall be paid
to the Participant's spouse, for life, in the amount determined pursuant to
Section 4.2 as if the Participant had retired on the date of the
Participant's death. If the Participant dies after termination of
employment with the Company, but prior to the commencement of payment of
the Supplemental Retirement Benefit because the Participant is receiving a
Salary Continuation Benefit, the Supplemental Retirement Benefit shall be
paid to the
-3-
<PAGE> 4
Participant's spouse for life, commencing on termination of the Salary
Continuation Benefit.
ARTICLE V
ADMINISTRATION
5.1 Administrator and Powers. The Company shall delegate responsibility for the
day-today administration of the Plan to the Retirement Committee. The
Retirement Committee shall have all of the power, right, and authority of
the Retirement Committee under the Retirement Plan with the same effect as
if set forth in full herein with respect to this Plan. Any determination or
decision of the Retirement Committee shall be final and conclusive and
binding on all persons at any time having or claiming to have any interest
whatever under this Plan.
5.2 Claims Procedure. The Retirement Committee shall make all determinations as
to the right of any person to a benefit under the Plan. Any denial by the
Retirement Committee of a claim for benefits under the Plan by a
Participant or the Participant's spouse shall be stated in writing by the
Retirement Committee and delivered or mailed to the Participant at the last
known address of such persons and such notice shall set forth the specific
reasons for the denial, written to the best of the Retirement Committee's
ability in a manner that may be understood without legal or actuarial
counsel. In addition, the Retirement Committee shall afford a reasonable
opportunity to any person whose claim for benefits has been denied for a
review of the decision denying the claim.
ARTICLE VI
FUNDING
6.1 No Requirement to Fund. Except as specifically provided otherwise in this
Article, Supplemental Retirement Benefits shall be payable only out of the
general assets of the Company, and the Company shall not be required to
reserve, or otherwise set aside, funds for the payment of any of the
obligations hereunder. In all events, any eligible Participant, or his
spouse, shall be deemed a general creditor of the Company.
6.2 In the event of a Change in Control as defined below, the Company shall
immediately establish an irrevocable grantor trust, commonly known as a
"rabbi trust," for the deposit of funds to be used for the exclusive
purpose of paying benefits accrued under the Plan, subject to the claims of
the Company's general creditors (the "Trust"). The Trust shall be created
pursuant to a written document that conforms to the model form of rabbi
trust agreement approved by the Internal Revenue Service in Revenue
Procedure 92-64 (as amended from time to time. Within 30 days after the
Change in Control, the Company shall contribute to the Trust an amount
sufficient to fund the Company's accrued liability
-4-
<PAGE> 5
under the Plan as of the date of the Change in Control, as determined by an
actuary and based on the mortality table and interest rate assumption
specified in the Retirement Plan for determining the Participant's Accrued
Pension.
6.3 Definition of Change in Control. For purposes of this Article, "Change in
Control" means any one of the following events:
(a) The Company shall cease to be a publicly-owned corporation having its
outstanding common stock traded in the over-the-counter market or
other national exchange; or
(b) Any person or entity, including a "group" (as defined in section
13(d)(3) of the Securities Exchange Act of 1934), other than the
Company or any benefit plan of the Company, is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 35% or more of the combined voting power of the Company's
then outstanding securities that may be cast for the election of
directors of Company; or
(c) During any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board of Directors cease for
any reason to constitute at least a majority thereof, unless the
election, or the nomination for election by the Company's
shareholders, of each director of the Company first elected during
such period was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of
any such period; or
(d) The shareholders of the Company approve (i) any merger, consolidation
or other business combination of the Company with an other "person",
as defined in the Securities Exchange Act of 1934, or any affiliate
thereof, other than a merger or consolidation that would result in the
outstanding Class A Common Stock of the Company immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into common stock of the surviving entity) at least
sixty percent (60%) of the outstanding Class A Common Stock of the
Company or such surviving entity outstanding immediately after such
merger or consolidation; (ii) a plan of complete liquidation of the
Company; or (iii) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions) of all, or substantially all,
of the assets of Company.
ARTICLE VII
MISCELLANEOUS
7.1 Amendment and Termination. The Company reserves the right to amend or
terminate this Plan at any time and from time to time by resolution of the
Board of Directors; provided, however, that any amendment or termination of
this Plan shall not operate
-5-
<PAGE> 6
retroactively so as to affect adversely any vested rights to which a
Participant is entitled under the Plan prior to any such action.
7.2 No Alienation of Benefits. A Participant or the Participant's spouse shall
not have the right to assign, alienate or otherwise encumber any benefit
payable under the Plan. All benefits payable to an eligible Participant, or
the Participant's spouse, under the Plan shall be exempt from the claims of
creditors of the Participant or the Participant's spouse.
7.3 No Enlargement of Employment Rights. Nothing contained in the Plan shall be
construed as (a) a contract of employment between the Company and any
Participant, (b) creating any right of a Participant to continue in the
employment of the Company, or (c) limitation of the right of the Company to
discharge any Participant, with or without Cause.
7.4 Forfeitures. A Supplemental Retirement Benefit shall not be due or payable
in the event an eligible Participant (a) terminates employment with the
Company for the purpose of becoming employed by another business which is
then engaged in the supermarket or convenience food store business in the
State of Indiana, or (b) is terminated from employment with the Company for
Cause.
7.5 General. Any benefit payable under the Retirement Plan shall be paid solely
in accordance with the terms and provisions of the Retirement Plan, and
nothing in the Plan shall operate or be construed in any way to modify,
amend or affect the terms and provisions of the Retirement Plan.
Dated as of the 3rd day of August, 1999.
MARSH SUPERMARKETS, INC.
By: /s/ Don E. Marsh
---------------------------------------
Don E. Marsh, President and Chief
Executive Officer
ATTEST: /s/ P. Lawrence Butt
---------------------------------
P. Lawrence Butt, Secretary
-6-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 10-Q FOR THE PERIOD ENDED OCTOBER 9, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-1-2000
<PERIOD-START> MAR-28-1999
<PERIOD-END> OCT-09-1999
<CASH> 28,462
<SECURITIES> 0
<RECEIVABLES> 36,257
<ALLOWANCES> 0
<INVENTORY> 118,260
<CURRENT-ASSETS> 189,662
<PP&E> 456,759
<DEPRECIATION> 168,214
<TOTAL-ASSETS> 531,341
<CURRENT-LIABILITIES> 145,419
<BONDS> 231,236
0
0
<COMMON> 8,505,491<F1>
<OTHER-SE> 103,490
<TOTAL-LIABILITY-AND-EQUITY> 531,341
<SALES> 928,995
<TOTAL-REVENUES> 928,995
<CGS> 701,737
<TOTAL-COSTS> 895,279<F2>
<OTHER-EXPENSES> 13,673
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,431
<INCOME-PRETAX> 8,612
<INCOME-TAX> 2,715
<INCOME-CONTINUING> 5,897
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,897
<EPS-BASIC> 0.71<F3>
<EPS-DILUTED> 0.65<F3>
<FN>
<F1>Number of Class A and Class B shares outstanding, Multiplier is 1.
<F2>Includes (i) $701,737 of Cost of Goods Sold (Item 5-03(b)2(a) of Regulation
S-X) and (ii) $193,542 of Selling, General and Administrative Expenses (Item
5-03(b)4 of Regulation S-X).
<F3>Multiplier is 1 for per share data.
</FN>
</TABLE>
