BEHIND THE NEWS: Settlement struck in case pitting Marsh vs. Marsh Guidant's big option grants

March 14, 2005

Don Marsh is fighting enough battles in the bloody grocery business without also slugging it out with his own brother.

Perhaps that's why the Marsh Supermarkets Inc. CEO has decided to settle a lawsuit filed in August by C. Alan Marsh, a former vice chairman of the company who charged he was owed some $2 million in benefits stemming from his 1998 resignation.

Attorneys for both the Indianapolisbased grocery chain and C. Alan Marsh confirm they've reached an agreement in principle to settle the dispute. Neither side would disclose terms.

"The parties are delighted this matter is in the process of being amicably resolved," said Daniel Emerson, a partner with Bose McKinney & Evans representing Marsh Supermarkets.

The dispute had thrown into the public spotlight tensions between Don and Alan, sons of company founder Ermal Marsh. Ermal opened his first grocery in Muncie in 1931 and opened nearly two dozen locations before dying in a 1959 plane crash.

Today, Don, 66, serves as CEO and another brother, William, 60, is senior vice president of property development. Alan, now 63 and living in Florida, is a former president of the Village Pantry convenience-store division and was serving as senior vice president of corporate development when he left.

According to Alan's suit, he ended his 41-year career with the company because Don Marsh forced him out. In court papers, however, the company said otherwise. "Alan was not forced out by anyone," one filing said.

The company in November filed a counterclaim against Alan, charging he violated his fiduciary duty to the company by having a benefits-consulting firm calculate his monthly supplemental retirement benefits using Don's bonuses instead of the lesser amounts he earned.

As a result, court papers say, Alan receives $8,330 a month rather than the $6,724 he should be receiving. The counterclaim also named as a defendant the consulting firm, Washington, D.C.-based Watson Wyatt Worldwide, accusing it of breach of contract and negligence.

Investment analysts had viewed all the legal wrangling as an untimely distraction for executives of the company, which is facing withering competition from Cincinnati-based Kroger Co. and Arkansas-based Wal-Mart Stores, and has reported 11 straight quarters of declining same-store sales.

At the heart of the dispute were two life insurance policies Alan contends the company was obligated to transfer to him after a consulting agreement he signed in 1998 expired two years ago.

The policies have a cash surrender value of $930,097, or $792,940 after taking into account a loan outstanding under one of the policies. Alan alleged repaying the loan was the company's responsibility, as was paying the hefty tax due on the insurance proceeds and all other expenses.

Marsh Supermarkets had countered that it might be willing to transfer the policies to him, but only if he paid all expenses himself and reimbursed the company for the thousands of dollars in premiums it paid. In court papers, it called Alan's interpretation of the financial benefits due him "unconscionable."

Unclear last week was whether the settlement will have a meaningful impact on the finances of the company, which reported a profit of $5.6 million on revenue of $1.3 billion in the nine months ending Jan. 1. Company spokeswoman Jodi Marsh, Don's daughter-in-law, did not respond to a request for comment.

In the lawsuit, Alan charged that in early 2004 Don acknowledged the company's obligation to him and "admitted that the reason the company had been dragging its feet" was to push the payments into the next fiscal year.

Flip through Guidant Corp.'s annual filing with the Securities and Exchange Commission, and you'll find no shortage of bone-dry recitations on its various business segments.

But even the most bleary-eyed reader won't overlook the section on stock options held by top executives. All the commas in the numbers would catch anyone's eye.

Take CEO Ron Dollens. He cashed in options worth $3.7 million in 2004 but still has an option stash worth more than $86 million, the Feb. 15 filing shows.

Five other executives cashed in at least $3 million in options. Two of them retain option stockpiles worth more than $20 million; a third has a stockpile worth more than $15 million.

What's driving up the numbers? Big option grants and stellar performance, SEC filings show.

Guidant, which spun out from Eli Lilly and Co. in 1994 and is in the process of being sold to New Jerseybased Johnson & Johnson for $25 billion, doles out options to all 12,000 employees, and for top brass the grants are super-sized. Dollens, for instance, has received options to buy more than 1 million shares since the start of 2000.

The options have swelled in value as Guidant stock has climbed ever higher. Adjusted for splits, the stock debuted in 1994 at $3.63 a share. J&J is paying $76 a share, providing shareholders since day one a return of nearly 2,000 percent.
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