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 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MARSH SUPERMARKETS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share amounts) (Unaudited) 16 Weeks Ended 28 Weeks Ended -------------- -------------- October 9, October 10, October 9, October 10, 1999 1998 1999 1998 ---- ---- ---- ---- 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 ======== ======== ======== ======== See notes to condensed consolidated financial statements. 2 MARSH SUPERMARKETS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) October 9, March 27, October 10, 1999 1999 1998 ---- ---- ---- (Unaudited) (Note A) (Unaudited) 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 ========= ========= ========= See notes to condensed consolidated financial statements. 3 MARSH SUPERMARKETS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) 28 Weeks Ended ---------------------------- October 9, October 10, 1999 1998 ---- ---- 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 ======== ======== See notes to condensed consolidated financial statements. 4 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: October 9, March 27, October 10, 1999 1999 1998 ---- ---- ---- 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 16 Weeks Ended 28 Weeks Ended --------------------------- ---------------------------- October 9, October 10, October 9, October 10, 1999 1998 1999 1998 ---- ---- ---- ---- 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 5 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: 16 Weeks Ended 28 Weeks Ended ------------------------ ------------------------- October 9, October 10, October 9, October 10, 1999 1998 1999 1998 ---- ---- ---- ---- 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 ======= ======= ======= ======= 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: Retail Wholesale Consolidated ------ --------- ------------ 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 6 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: Second Quarter Year - to - Date --------------------------------- ---------------------------------- Percent of Revenues Percent Percent of Revenues Percent 2000 1999 Change 2000 1999 Change ---- ---- ------ ---- ---- ------ 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% 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 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. 8 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 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: Square Store Type Category Feet Location Status ---------- -------- ---- -------- ------ 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 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 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: - ----------------------------------------------------------------------------------------------------------------------------- Project segment Remediation phase Testing phase Implementation phase - ----------------------------------------------------------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------------------------------------------------------- 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 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: For Against Withheld/Abstain --- ------- ---------------- 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 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 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 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 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 -1- 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 -2- 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. -3- 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- 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, -5- 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. -6- 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. -7- 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. -8- 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. -9- 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 -10- 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: ------------------- ------------------- ------------------- 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- 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- 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- 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. (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- 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- 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- 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- 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- 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. S-X) and (ii) $193,542 of Selling, General and Administrative Expenses (Item 5-03(b)4 of Regulation S-X). -----END PRIVAC