INDIANAPOLIS -- Marsh Supermarkets Inc. reported to the Securities & Exchange Commission (SEC) that its board has taken several actions to reduce the company's future compensation obligations to executives.
In late November, Marsh reported its financial results for the second fiscal quarter ended Oct. 15, 2005, a net loss of $3.4 million compared to net income of $1.3 million for the same period the previous year. The company also announced that it has retained Merrill Lynch & Co. to explore strategic alternatives for the enhancement of shareholder [image-nocss] value, including a possible sale. As reported in CSP Daily News, a suitor for the whole company could be Giant Eagle Inc., and Alimentation Couche-Tard was rumored to possibly be interested in Marsh's 160 Village Pantry convenience stores.
Don E. Marsh, chairman and CEO, said the actions include terminating the company's supplemental executive retirement plans (SERPs), effective Dec. 30, 2005; eliminating the company's option to pay out SERP benefits in a lump sum following a change in control; providing participants with a one-time election to receive in installments a reduced benefit under the SERPs; amending the employment agreements of certain executive officers to reduce the company's obligations to continue salary or pay severance; and terminating severance benefits agreements.
All of the SERP participants have exercised the one-time election. As a result, the company will pay three $6.3 million installments to the SERP participants on January 2006, June 2006, and January 2007. The amount payable is the amount the company had accrued for the SERPs as of Dec. 30, 2005. The amount to be paid in SERP benefits is approximately $5.4 million less than the company's estimated liability to the SERP participants as of Dec. 30, 2005. The SERP liability would have increased by more than $13 million in the event that a change in control of the company would have occurred while the SERPs were still in effect. The reduced payment to participants in the SERPs will reduce the company's under-funded pension liability as of the end of the last fiscal year by approximately $23.3 million.
Three of the executive officers of the company who are SERP participants, Don E. Marsh, P. Lawrence Butt and William L. Marsh, have amended their employment agreements. The effect of the amendments is to change the term of the agreements from five to three years and to limit further the amounts payable to the executives following a change in control to an amount that does not result in a denial of deduction under Section 280G of the Internal Revenue Code or trigger any excise taxes under Section 4999.
Two other executive officers who participate in the SERPs, Jack J. Bayt and Douglas W. Dougherty, have employment agreements that do not provide for payments in excess of the Section 280G and Section 4999 maximum.
The company had also reported that it terminated its Deferred Compensation Plan in accordance with recent changes to federal tax law.
Marsh said, These actions are part of the company's announced plans to pursue strategic alternatives. The company estimates that as a result of all of the actionsthe total after-tax cost of amounts payable to executives in the event of a change in control of the company was reduced by approximately $28 million. The company plans additional steps to reduce further compensation and other operating expenses in the coming year. All of these reductions should enhance shareholder value.
Marsh is a regional food retailer operating 70 Marsh supermarkets, 38 LoBill Foods stores, 8 O'Malia Food Markets, 160 Village Pantry c-stores, 2 Arthur's Fresh Market stores and 1 Savin$ in Indiana, Illinois and western Ohio. It also operates Crystal Food Services, which provides catering, business cafeteria management, office coffee, coffee roasting, vending and concessions, and Primo Banquet Catering and Conference Centers; Floral Fashions, McNamara Florist and EnfloraFlowers for Business.
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