updated 7/28/2005 7:57:50 AM ET 2005-07-28T11:57:50

Wal-Mart Stores Inc. sued former vice chairman Tom Coughlin on Wednesday, seeking to void his multimillion-dollar retirement package amid company allegations that he misspent the company’s money for seven years before resigning from its board.

The world’s largest retailer had previously disclosed in a Securities and Exchange Commission filing that it was terminating Coughlin retroactively for “gross misconduct.” The lawsuit, filed in Wal-Mart’s headquarters of Bentonville, seeks to formally sever the pact.

Coughlin was Wal-Mart’s second-in-command before his retirement last year and left as a director when the company disclosed in March that it was handing documents over to the Justice Department showing that $500,000 had been misspent.

A federal grand jury is now investigating.

Coughlin’s lawyer on Wednesday called the lawsuit an attempt to discredit Coughlin, who has said his use of corporate money and property was “reimbursement” for “union activity.” The United Food and Commercial Workers has accused Wal-Mart of paying for information about organization efforts; the company has denied the claims, saying no one, including Coughlin, was authorized to make such payments.

“Mr. Coughlin did not seek or obtain any improper reimbursements,” Coughlin lawyer William W. Taylor III said. “He will not try his case in the press and looks forward to presenting his defense at the appropriate time in the appropriate forum.”

Wal-Mart declined comment on the lawsuit, but the document’s 124 pages attempt to counter some of Coughlin’s previous claims.

The company says in the complaint that $10,000 allegedly used for “union activity” was actually used to buy a $10,180.51 custom-built hunting vehicle and that telephone calling cards for “the union people” were used to make calls to cities where Coughlin’s children attended college.

The lawsuit says the scheme unraveled after a Wal-Mart worker noticed Coughlin used a gift card to buy contact lenses. Internal investigators tracked his spending.

The lawsuit, filed in Benton County Circuit Court, outlines numerous instances in which Coughlin allegedly misused company gift cards on items such as watches, Bloody Mary mix, headphones, sunflower seeds, underwear and a karaoke machine. Fake expense accounts also covered the purchase of snake boots, an XM satellite radio, truck accessories and airplane tickets, according to the suit.

Wal-Mart said in June it wanted Coughlin to forfeit all outstanding stock awards and all incentive payments under his retirement pact. It also said in an SEC filing that interest credited to Coughlin’s own deferrals to the deferred compensation-plan account is to be reduced by 50 percent. His supplemental executive retirement account will be recalculated as if no employer contributions were credited on or after Jan. 31, 1996, the filing said.

In April, Wal-Mart said it had frozen millions of dollars in benefits for Coughlin.

According to the SEC filing, Wal-Mart suspended Coughlin’s vesting of 186,407 shares of restricted stock, worth $9.77 million at the end of the company’s last fiscal year, and 302,503 stock options exercisable within 60 days pending further investigation into Coughlin’s actions.

Between Feb. 1, 2003, and Jan. 31, 2005, Coughlin received a base salary totaling more than $2 million, with bonuses, equity awards and other benefits adding $12.1 million, Wal-Mart’s lawsuit says. In an incentive plan, he received $5.7 million over the same two-year period.

In the lawsuit, Wal-Mart said that company policy allows it to seek forfeiture of retirement plan benefits for employees who engage in gross misconduct.

Taylor said that, because of the grand jury investigation, Coughlin’s public response must be limited and Wal-Mart was putting him in an unfair position.

“Wal-Mart has used its unlimited resources to mount an attack on Mr. Coughlin while denying him any meaningful opportunity to defend himself,” Taylor said in a statement. “After (ensuring) that Mr. Coughlin had one hand tied behind his back, Wal-Mart has pummeled him in the press and by postings on its Web site.”

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