<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1997
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
FLEMING COMPANIES, INC.*
(Exact name of registrant as specified in its charter)
OKLAHOMA 5140 73-1395733
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
6301 WATERFORD BOULEVARD DAVID R. ALMOND, ESQ.
BOX 26647 6301 WATERFORD BOULEVARD, BOX 26647
OKLAHOMA CITY, OKLAHOMA 73126 OKLAHOMA CITY, OKLAHOMA 73126
(405) 840-7200 (405) 840-7200
(Address, including Zip Code, and (Name, address, including Zip Code,
telephone number, including area code, and telephone number, including area
of registrants' principal executive code, of agent for service)
offices)
------------------------------
COPIES TO:
BRICE E. TARZWELL, ESQ.
CONNIE S. STAMETS, ESQ.
MCAFEE & TAFT A PROFESSIONAL CORPORATION
TENTH FLOOR, TWO LEADERSHIP SQUARE
211 NORTH ROBINSON
OKLAHOMA CITY, OKLAHOMA 73102
(405) 235-9621
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------------
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: [ ]
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO MAXIMUM OFFERING MAXIMUM AGGREGATE
TO BE REGISTERED BE REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1)
<S> <C> <C> <C>
10 1/2% Series B Senior Subordinated Notes due
2004............................................. $250,000,000 100% $250,000,000
10 5/8% Series B Senior Subordinated Notes due
2007............................................. $250,000,000 100% $250,000,000
Guarantees of 10 1/2% Series B Senior Subordinated
Notes due 2004................................... -- -- --
Guarantees of 10 5/8% Series B Senior Subordinated
Notes due 2007................................... -- -- --
<CAPTION>
AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES REGISTRATION
TO BE REGISTERED FEE
<S> <C>
10 1/2% Series B Senior Subordinated Notes due
2004............................................. $75,758(1)
10 5/8% Series B Senior Subordinated Notes due
2007............................................. $75,758(1)
Guarantees of 10 1/2% Series B Senior Subordinated
Notes due 2004................................... (2)
Guarantees of 10 5/8% Series B Senior Subordinated
Notes due 2007................................... (2)
</TABLE>
(1) Calculated in accordance with Rule 457(f)(2). For purposes of this
calculation, the Offering Price per Senior Subordinated Note was assumed to
be the stated principal amount of each Senior Subordinated Note which may be
received by the Registrant in the exchange transaction in which the Senior
Subordinated Notes will be offered.
(2) Pursuant to Rule 457(n), no registration fee is required for the Guarantees
of the Senior Subordinated Notes registered hereby.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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* The wholly-owned subsidiaries of Fleming Companies, Inc. will guarantee the
securities being registered hereby and therefore are also registrants.
Information about such additional registrants appears on the following
pages.
<PAGE>
ADDITIONAL REGISTRANTS
<TABLE>
<S> <C> <C>
ABCO MARKETS INC.
(Exact name of registrant as specified in its charter)
ARIZONA 5410 86-0491500
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
--------------------------
ABCO REALTY CORP.
(Exact name of registrant as specified in its charter)
ARIZONA 6511 86-0491499
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
--------------------------
FLEMING FOREIGN SALES CORPORATION
(Exact name of registrant as specified in its charter)
BARBADOS 5140 98-0129721
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
--------------------------
FLEMING INTERNATIONAL LTD.
(Exact name of registrant as specified in its charter)
OKLAHOMA 5140 73-1414701
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
--------------------------
FLEMING SUPERMARKETS OF FLORIDA, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 5410 65-0418543
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
--------------------------
FLEMING TRANSPORTATION SERVICE, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 4200 73-1126039
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
--------------------------
FLEMING WHOLESALE, INC.
(Exact name of registrant as specified in its charter)
NEVADA 5140 93-1175982
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
--------------------------
GATEWAY INSURANCE AGENCY, INC.
(Exact name of registrant as specified in its charter)
WISCONSIN 6411 39-1346803
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
--------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
LAS, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 5140 73-1410261
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
--------------------------
PIGGLY WIGGLY COMPANY
(Exact name of registrant as specified in its charter)
OKLAHOMA 7389 73-1477999
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
--------------------------
PROGRESSIVE REALTY, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 6511 73-1485750
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
--------------------------
RETAIL SUPERMARKETS, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 5140 74-0658440
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
--------------------------
RFS MARKETING SERVICES, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 4890 73-1489627
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
--------------------------
SCRIVNER TRANSPORTATION, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA INACTIVE 73-1288028
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
--------------------------
SMARTRANS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 4723 13-2656567
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
--------------------------
UNIVERSITY FOODS, INC.
(Exact name of registrant as specified in its charter)
UTAH 5410 87-0470281
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
--------------------------
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED SEPTEMBER 16, 1997
[LOGO]
OFFER TO EXCHANGE
10 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2004 FOR
ALL OUTSTANDING 10 1/2% SENIOR SUBORDINATED NOTES DUE 2004
($250,000,000 PRINCIPAL AMOUNT OUTSTANDING)
AND
10 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007 FOR
ALL OUTSTANDING 10 5/8% SENIOR SUBORDINATED NOTES DUE 2007
($250,000,000 PRINCIPAL AMOUNT OUTSTANDING)
------------------------
The Exchange Offer will expire at 5:00 p.m., New York City time, on November
, 1997, unless extended (if and as extended, the "Expiration Date"). Tenders
of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date.
--------------------------
Fleming Companies, Inc., an Oklahoma corporation (the "company" or
"Fleming"), hereby offers (the "Exchange Offer"), upon the terms and subject to
the conditions set forth in this Prospectus and the accompanying Letter of
Transmittal relating to the Exchange Offer (the "Letter of Transmittal"), to
exchange $1,000 principal amount of its 10 1/2% Series B Senior Subordinated
Notes due 2004 ("New Notes due 2004") for each $1,000 principal amount of its
outstanding 10 1/2% Senior Subordinated Notes due 2004 ("Old Notes due 2004")
and to exchange $1,000 principal amount of its 10 5/8% Series B Senior
Subordinated Notes due 2007 ("New Notes due 2007" and, together with its New
Notes due 2004, the "New Notes") for each $1,000 principal amount of its 10 5/8%
Senior Subordinated Notes due 2007 ("Old Notes due 2007" and, together with its
Old Notes due 2004, the "Old Notes"). The New Notes and the Old Notes are
collectively referred to herein as the "Notes."
The form and terms of the New Notes (which will be issued under the same
Indentures as the correlative Old Notes) are identical in all material respects
to the form and terms of the Old Notes except that the New Notes have been
registered under the Securities Act of 1933, as amended (the "Securities Act").
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the rights and preferences and will be
subject to the limitations applicable thereto under the Indentures. Following
consummation of the Exchange Offer, the holders of the Old Notes will continue
to be subject to the existing restrictions upon transfer thereof and the company
will have no further obligation to such holders to provide for the registration
under the Securities Act of the Old Notes held by them.
--------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE NEW NOTES OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
The date of this Prospectus is October , 1997.
<PAGE>
The New Notes due 2004 will mature on December 1, 2004, and the New Notes
due 2007 will mature on July 31, 2007. Interest on the New Notes due 2004 will
be payable semiannually on June 1 and December 1 of each year, commencing
December 1, 1997. Interest on the New Notes due 2007 will be payable
semiannually on January 31 and July 31 of each year, commencing January 30,
1998. The New Notes will be redeemable at the option of the company, in whole or
in part, at any time on or after June 1, 2001 with respect to the New Notes due
2004 and July 31, 2002 with respect to the New Notes due 2007 at the redemption
prices set forth herein, plus accrued and unpaid interest and Liquidated Damages
(as defined herein), if any, to the redemption date. In addition, on or prior to
June 1, 2000 (in the case of the New Notes due 2004) and July 31, 2000 (in the
case of the New Notes due 2007), the company may redeem at any time or from time
to time up to 35% of the aggregate principal amount of each of the Notes due
2004 and the Notes due 2007 originally issued at a redemption price of 110 1/2%
(in the case of the Notes due 2004) and 110 5/8% (in the case of the Notes due
2007) of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the redemption date, with the net proceeds of one
or more Public Equity Offerings (as defined herein); PROVIDED, HOWEVER, that at
least $162.5 million in aggregate principal amount of each tranche of Notes
remains outstanding following each such redemption. Upon the occurrence of a
Change of Control Triggering Event (as defined herein), each holder of Notes
will have the right, to the extent not inconsistent with the company's Bylaws as
in effect on July 25, 1997, to require that the company purchase such holder's
Notes at a purchase price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
repurchase.
The New Notes will be general unsecured obligations of Fleming, subordinated
in right of payment to all existing and future Senior Indebtedness (as defined
herein) of the company, including all obligations of the company under the New
Credit Agreement (as defined herein), and senior to or PARI PASSU with all
existing and future subordinated indebtedness of the company. As of July 12,
1997, after giving PRO FORMA effect to the Recapitalization Program (as defined
herein), Fleming and its subsidiaries had outstanding approximately $1.049
billion of Senior Indebtedness (excluding $90 million of obligations under
undrawn letters of credit), of which $652 million would have been secured
indebtedness. The Indentures permit Fleming and its subsidiaries to incur
additional indebtedness, including Senior Indebtedness, subject to certain
limitations. The payment of principal of, premium, if any, and interest on the
New Notes will be unconditionally guaranteed, jointly and severally, on an
unsecured senior subordinated basis (the "Note Guarantees") by all of the
company's Wholly Owned Restricted Subsidiaries (as defined herein), which
currently comprise substantially all of the company's subsidiaries (the
"Subsidiary Guarantors"). The Note Guarantees will be general unsecured
obligations of the Subsidiary Guarantors, subordinated in right of payment to
all existing and future Senior Indebtedness of the Subsidiary Guarantors
(including their guarantees of indebtedness under the New Credit Agreement and
certain senior notes of the company), and senior to or PARI PASSU with all
existing and future subordinated indebtedness of the Subsidiary Guarantors. As
of July 12, 1997, on the same PRO FORMA basis, the Subsidiary Guarantors had
approximately $577 million of Senior Indebtedness outstanding (including
guarantees of Senior Indebtedness). See "Description of Notes" and "Description
of Other Indebtedness."
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of September , 1997. The company will
not receive any proceeds from this Exchange Offer. No dealer-manager is being
used in connection with this Exchange Offer. See "Plan of Distribution."
The Exchange Offer is being made pursuant to the terms of the registration
rights agreement (the "Registration Rights Agreement") entered into on July 25,
1997 among the company and the Subsidiary Guarantors and Bear, Stearns & Co.
Inc., Chase Securities Inc., BancAmerica Securities, Inc. and Societe Generale
Securities Corporation (the "Initial Purchasers") pursuant to the terms of the
Purchase Agreement dated July 18, 1997 between the company and the Subsidiary
Guarantors and the Initial Purchasers. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer."
2
<PAGE>
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the company believes the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than broker-dealers, as set forth
below, and any holder that is an "affiliate" of the company within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and that
such holder has no arrangement or understanding with any person to participate
in the distribution of such New Notes. Any holder who tenders in the Exchange
Offer with the intention to participate, or for the purpose of participating, in
a distribution of the New Notes or who is an affiliate of the company may not
rely upon such interpretations by the staff of the Commission and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction. Holders of Old Notes wishing to accept the
Exchange Offer must represent to the company in the Letter of Transmittal that
such conditions have been met.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The company has agreed
that, for a period of 180 days, if required, from the date on which the Exchange
Offer is consummated (the "Exchange Date"), it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution." A broker-dealer who is an affiliate of the company may
not rely on such no-action letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction.
------------------------
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
------------------------
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THIS EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
3
<PAGE>
AVAILABLE INFORMATION
The company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term includes all amendments, exhibits,
annexes and schedules thereto) pursuant to the Securities Act, and the rules and
regulations promulgated thereunder, covering the New Notes being offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements made in this Prospectus
as to the contents of any contract, agreement or other document referred to are
not necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
The company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
company may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and at the following regional offices of the Commission:
7 World Trade Center, New York, New York 10048; and 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, at prescribed rates. The company's reports, proxy
statements and other information concerning the company can be inspected and
copied at the offices of the New York Stock Exchange, the Chicago Stock Exchange
and the Pacific Stock Exchange. Such material can also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The company's Annual Report on Form 10-K for the fiscal year ended December
28, 1996, except for the financial statements as of and for the year ended
December 28, 1996 included in Item 8 thereof, the company's Quarterly Reports on
Form 10-Q for the quarters ended April 19 and July 12, 1997, and the company's
Current Reports on Form 8-K dated February 28, March 21, June 16, June 23, and
July 25, 1997 are incorporated by reference in this Prospectus. All documents
subsequently filed by the company pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering described herein shall be deemed to be incorporated
in this Prospectus and to be a part hereof from the date of the filing of such
document. Any statement contained herein, or in a document incorporated or
deemed to be incorporated by reference herein, shall be deemed to be modified or
superseded for all purposes to the extent that a statement contained in this
Prospectus, or in any other subsequently filed document which is also
incorporated or deemed to be incorporated by reference, modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
DAVID R. ALMOND, SENIOR VICE PRESIDENT-- GENERAL COUNSEL AND SECRETARY, FLEMING
COMPANIES, INC., 6301 WATERFORD BOULEVARD, BOX 26647, OKLAHOMA CITY, OKLAHOMA
73126, BY MAIL, AND IF BY TELEPHONE (405) 840-7200. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY , 1997 [FIVE
DAYS PRIOR TO EXPIRATION DATE].
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL DATA, INCLUDING
THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED
ELSEWHERE IN THIS PROSPECTUS. THE TERMS "FLEMING" AND "COMPANY" REFER TO FLEMING
COMPANIES, INC. AND ITS SUBSIDIARIES, UNLESS OTHERWISE STATED OR INDICATED BY
THE CONTEXT. REFERENCES TO A "FISCAL" YEAR REFER TO THE COMPANY'S FISCAL YEAR
WHICH ENDS ON THE LAST SATURDAY IN DECEMBER (E.G., "FISCAL 1996" MEANS THE
COMPANY'S FISCAL YEAR ENDED DECEMBER 28, 1996). THE COMPANY'S EXECUTIVE OFFICES
ARE LOCATED IN OKLAHOMA CITY. ITS MAILING ADDRESS IS 6301 WATERFORD BOULEVARD,
BOX 26647, OKLAHOMA CITY, OKLAHOMA 73126, AND ITS TELEPHONE NUMBER IS (405)
840-7200.
THE COMPANY
Fleming is a recognized leader in the food marketing and distribution
industry, with net sales of $15.9 billion for the 52 weeks ended July 12, 1997.
Fleming's food distribution business is conducted by its Food Distribution
Segment, which is one of the largest food and general merchandise distributors
in the United States. Fleming's retail business is conducted by its Retail Food
Segment through 14 local chains and groups operating under separate banners. At
year-end 1996, the Retail Food Segment was one of the 20 largest retailers in
the United States based on net sales. Fleming's combined businesses generated
net earnings of $42 million, $27 million and $19 million for fiscal 1995 and
1996 and for the 52 weeks ended July 12, 1997, respectively. Additionally, the
company generated cash flows from operations of $399 million, $328 million and
$208 million for the same periods, respectively. The combined businesses
generated $448 million, $435 million and $448 million of Adjusted EBITDA (as
defined on page 15, notes (g) and (h)) for fiscal 1995 and 1996 and for the 52
weeks ended July 12, 1997, respectively.
The company is focused on achieving earnings growth in both its food
distribution and its retail food businesses. In its food distribution business,
Fleming is (i) increasing its sales efforts, particularly by emphasizing the
company's marketing plan alternatives and information technology systems, (ii)
streamlining and strengthening its store brand products ("Fleming Brands") and
its offerings of retail services ("Retail Services") and (iii) broadening its
perishables and foodservice offerings. In its retail food business, Fleming is
making significant investments in new and remodeled stores in its existing
retail chains and will seek selective acquisitions of supermarket groups or
chains which can be integrated into its distribution infrastructure. The company
will continue to implement cost reduction initiatives in both of its business
segments and in its corporate staff operations.
FOOD DISTRIBUTION SEGMENT. Fleming's Food Distribution Segment serves as
the principal source of supply for more than 3,100 supermarkets (including
supermarkets owned by the Retail Food Segment), which represented approximately
10% of all supermarkets in the United States at year-end 1996. Food distribution
operations are conducted through a network of 35 full-line food product supply
centers, six general merchandise and specialty food distribution centers, and
two centers focused primarily on serving convenience stores. The Food
Distribution Segment serves stores of various sizes located in 42 states. Food
Distribution customers operate in a wide variety of formats, including
conventional full-service supermarkets, supercenters, price impact stores,
combination stores and convenience stores.
In 1996, approximately 19% of the Food Distribution Segment's sales were to
the Fleming Retail Food Segment, 30% were to members of Fleming Banner Groups,
and 51% were to other retail chains and independents. Fleming Banner Groups are
retail stores operating under the IGA-Registered Trademark- or Piggly
Wiggly-Registered Trademark- banner or under one of a number of banners
representing a price impact retail format. Fleming Banner Group stores are owned
by customers, most of which license their store banner from Fleming. The company
is working to encourage independents and small chains to join one of the Fleming
Banner Groups to increase marketing strength and procurement benefits from
vendors.
The Food Distribution Segment offers a complete selection of national brand
and Fleming Brand products, including groceries, meat, dairy and delicatessen
products, frozen foods, produce, bakery goods
5
<PAGE>
and a variety of general merchandise and related items. Fleming Brands, which
include both private label products and controlled label products, offer
consumers a quality alternative to national brands at a reasonable price while
generating improved margins (for both the retailer and the Food Distribution
Segment) and reinforcing a retailer's marketing identity. The company is
expanding its line of in-store foodservice products to offer consumers home meal
replacement solutions. The Food Distribution Segment also offers an extensive
menu of individually marketed and priced Retail Services, which draw on
Fleming's broad industry expertise and are designed to enable both Fleming-owned
and Fleming-served retailers to compete more effectively.
Net sales for the Food Distribution Segment were $14.4 billion, including
$2.0 billion of net sales to the Retail Food Segment, for the 52 week period
ended July 12, 1997.
RETAIL FOOD SEGMENT. The Fleming Retail Food Segment owns approximately 270
supermarkets which are operated as 14 local chains and groups under separate
banners. The Retail Food Segment's supermarkets vary in format from conventional
supermarkets to super warehouse stores and serve consumers in the Minneapolis,
Phoenix, Milwaukee, Omaha, Buffalo, Peoria and Salt Lake City markets as well as
important regional areas located in Pennsylvania, Florida, Maryland, Kansas,
Missouri, New York, Arkansas and California. Each Retail Food Segment
supermarket is served by a product supply center operated by the Food
Distribution Segment.
In 1996 and the first half of 1997, the Retail Food Segment improved its
performance by:
- selling or closing 75 stores which were unprofitable or inconsistent with
Fleming's strategy,
- investing in seven new stores and remodeling and upgrading 52 stores,
- implementing customer loyalty programs which have become key marketing
tools to boost sales, and
- installing computer-based training in many Retail Food Segment
supermarkets.
Net sales of the Retail Food Segment were $3.5 billion for the 52 weeks
ended July 12, 1997 compared to $0.7 billion in fiscal 1992. This growth is
attributable primarily to acquisitions, but also to remodeling and new
construction.
COMPETITIVE STRENGTHS
Fleming believes that its position as a leader in the food marketing and
distribution industry is attributable to a number of competitive strengths:
- SIGNIFICANT CUSTOMER BASE: As one of the largest food marketing and
distribution companies in the United States, with 43 product supply
centers and approximately 270 retail stores, the company has access to
millions of consumers who shop at Fleming-supported retail stores.
- STREAMLINED OPERATIONS: During the past three years, the Food Distribution
Segment has significantly enhanced the efficiency of its distribution
network as a result of facilities consolidations, staff reductions
resulting from reorganizations, warehouse space eliminations and
transportation outsourcing. In addition, 29 of the company's full-line
food product supply centers and five general merchandise distribution
centers operate under Fleming's on-line operating distribution system
("FOODS"), an internally developed information technology software system.
- FLEMING RETAIL FOOD SEGMENT: The Retail Food Segment's portfolio of 14
chains and groups operating under 13 distinct retail banners, each with
its own identity, local management and marketing capabilities, provides a
stable sales volume for the Food Distribution Segment and gives Fleming
important first-hand knowledge of consumer preferences and the retail
environment. Retail sales also offer Fleming the opportunity to earn
attractive margins relative to its distribution operations.
6
<PAGE>
- HIGH QUALITY FLEMING BRANDS: Fleming Brand products generally produce
higher margins than national brand products for both the distributor and
the retailer and they increase consumer loyalty. Capitalizing on its
substantial purchasing power and efficient distribution system, the Food
Distribution Segment offers a wide variety of high quality Fleming Brand
products.
- EXPERTISE IN PERISHABLES: The company has developed extensive expertise in
handling, marketing, distributing and retailing higher margin perishable
products. The company derived 40% of net sales in 1996 from the sale of
perishables.
- DIVERSE OPERATIONS: With distribution customers in 42 states and
company-owned supermarkets operating in 23 states, Fleming is
geographically diverse. It also has broad experience in supplying and in
operating retail food stores across the full spectrum of formats and
pricing strategies.
BUSINESS STRATEGY
Fleming's business strategy is to leverage its competitive strengths to
achieve earnings growth in its marketing and distribution business and in its
retail business. As principal elements of its business strategy, Fleming will:
- FOCUS ON DISTRIBUTION EARNINGS GROWTH: The Food Distribution Segment will
continue to pursue profitable sales and the expansion of its customer
base. The company pursues those customers and sales which can be
profitable for the long term, and will manage its costs in accordance with
sales performance. Fleming will strive to be the best-value supplier of
distribution products and retail services. Renewed sales efforts are
emphasizing regaining customers lost since 1994, in part by highlighting
the advantages of Fleming's marketing plan alternatives. Efforts to
educate retailers about the advantages of Fleming Retail Services in
managing their businesses will also be increased. Finally, investments in
and loans to retailers will be made on a selective basis.
- EXPAND RETAIL OPERATIONS: Fleming will seek to increase its ownership of
retail food operations by increasing investments in new and remodeled
stores within the Retail Food Segment and by selective acquisitions of
additional supermarket groups and chains, primarily in the markets already
served by the Food Distribution Segment. Retail sales have the potential
to generate attractive gross margins relative to Fleming's food
distribution business, and management believes that its broad expertise in
meeting consumer needs can be leveraged through a larger retailing
business. The company will seek to improve the Retail Food Segment's
profitability by increasing administrative efficiencies and divesting
unprofitable stores as needed.
- AGGRESSIVELY MARKET FLEMING RETAIL SERVICES: The Food Distribution Segment
will exploit opportunities for growth in Fleming Retail Services. In
conjunction with the development of its new marketing plans, Fleming
"unbundled" the Retail Services offered to its distribution customers,
giving them the opportunity to choose the services they wish to receive.
The company also repriced its Retail Services based on its own market
analyses. A separate business group dedicated to marketing Fleming's
Retail Services seeks to increase penetration with existing customers and
to attract new customers.
- EMPHASIZE PERISHABLES AND FOODSERVICE OFFERINGS: Fleming is increasing its
emphasis on higher margin perishables as consumer demand grows for fresh
and prepared foods, in-store bakeries, delis, and expanded meat and
produce offerings. The company is also developing home meal replacement
concepts under its Chef's Cupboard-TM- banner. Other programs in
development include a signature in-store pizza program, Holiday Dinners
and a line of more than 300 prepared meals.
- STREAMLINE AND STRENGTHEN FLEMING BRANDS: Fleming believes it has a
substantial opportunity to strengthen Fleming Brands, which currently
account for 5% of Food Distribution Segment sales and 6% of Retail Food
Segment grocery, frozen and dairy sales. For many large retailers, store
brand products comprise approximately 15% of sales. Fleming Brands are
targeted to three market
7
<PAGE>
segments: premium products, national quality products and value products.
The company is consolidating its brands to three national quality brands
(BestYet-Registered Trademark-, IGA-Registered Trademark- and Piggly
Wiggly-Registered Trademark-), at least one value brand
(Rainbow-Registered Trademark-), and a multiple-brand group of premium,
upscale products individually tailored to selected market niches. The
number of products offered in each brand will be expanded, and Fleming
will develop new logos, packaging and marketing programs over the next two
years to strengthen sales for each Fleming Brand.
- LEVERAGE INFORMATION TECHNOLOGY SYSTEMS: Fleming will continue to utilize
and to provide its customers with market leading information technology
systems. Initiatives currently underway include two distinct integrated
retail management systems which will combine point-of-sale systems,
inventory management and shrinkage control systems, frequent shopper
programs and labor scheduling systems. The Food Distribution Segment will
continue to promote VISIONET-TM-, the company's proprietary interactive
electronic information network, which allows more efficient information
exchanges among vendors, Fleming and retailers, and facilitates the
company's implementation of Efficient Consumer Response practices.
VISIONET-TM- gives retailers access to inventory information, financial
data, vendor promotions, retail support services and on-line ordering.
Also, vendors compensate the company for access to Fleming's customers
through VISIONET-TM-. It currently covers approximately 1,500 retail
customer locations and will be upgraded during 1997 with the introduction
of a third generation. With this new version, VISIONET-TM- will provide
greater internet capabilities. The company's scale allows it to leverage
investments in information technology more broadly than many of its
competitors.
- INCREASE COST EFFICIENCIES: The company will continue to aggressively
exploit opportunities for further consolidation of its operating units and
support systems, capitalize on staff efficiency initiatives, primarily in
its administrative operations, and pursue additional outsourcing
opportunities, particularly in transportation.
THE RECAPITALIZATION PROGRAM
On July 25, 1997, the company consummated a recapitalization program (the
"Recapitalization Program") consisting of the sale and issuance of $500 million
of Old Notes, establishment of a new bank credit agreement (the "New Credit
Agreement"), the repayment of outstanding indebtedness under and the
extinguishment of its then existing bank credit agreement, and the call for
redemption of $200 million principal amount of the company's outstanding
Floating Rate Senior Notes due 2001 (the "Floating Rate Senior Notes"). The
Floating Rate Senior Notes were redeemed on September 15, 1997. See
"Capitalization" and "Description of Other Indebtedness." Completion of the
Recapitalization Program will provide the company greater flexibility to
redeploy assets in pursuit of its business strategy.
THE EXCHANGE OFFER
<TABLE>
<S> <C>
THE EXCHANGE OFFER................ Pursuant to the Exchange Offer, the company is offering
to exchange (the "Exchange Offer") $1,000 principal
amount of New Notes due 2004 for each $1,000 principal
amount of Old Notes due 2004 validly tendered and not
withdrawn, and to exchange $1,000 principal amount of
New Notes due 2007 for each $1,000 principal amount of
Old Notes due 2007 validly tendered and not withdrawn.
As of the date of this Prospectus, $250,000,000
aggregate principal amount of Old Notes due 2004 was
outstanding, and $250,000,000 aggregate principal amount
of Old Notes due 2007 was outstanding. See "The Exchange
Offer."
CONSEQUENCE OF FAILURE TO
EXCHANGE........................ Holders of Old Notes whose Old Notes are not tendered
and
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
accepted in the Exchange Offer will continue to hold
such Old Notes and will be entitled to all the rights
and preferences and will be subject to the limitations
applicable thereto under the Indentures governing the
Notes. Following consummation of the Exchange Offer, the
holders of Old Notes will continue to be subject to the
existing restrictions upon transfer thereof and the
company will have no further obligation to such holders
(other than Initial Purchasers in certain circumstances)
to provide for registration under the Securities Act of
the Old Notes held by them. Following the completion of
the Exchange Offer, assuming the company has no
registration obligation with respect to any Notes held
by Initial Purchasers, none of the holders of Notes will
be entitled to receive Liquidated Damages.
RESALE............................ Based on interpretations by the staff of the Securities
and Exchange Commission (the "Commission") set forth in
no-action letters issued to third parties, the company
believes the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by any holder
thereof (other than broker-dealers, as set forth below,
and any holder that is an "affiliate" of the company
within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that
such New Notes are acquired in the ordinary course of
such holder's business and that such holder has no
arrangement or understanding with any person to partici-
pate in the distribution of such New Notes. Any holder
who tenders in the Exchange Offer with the intention to
participate, or for the purpose of participating, in a
distribution of the New Notes or who is an affiliate of
the company may not rely upon such interpretations by
the staff of the Commission and, in the absence of an
exemption therefrom, must comply with the registration
and prospectus delivery requirements of the Securities
Act in connection with any secondary resale transaction.
Failure to comply with such requirements in such
instance may result in such holder incurring liabilities
under the Securities Act for which the holder is not
indemnified by the company. Each broker-dealer (other
than an affiliate of the company) that receives New
Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter
of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. The company has agreed
that, for a period of 180 days, if required, after the
Exchange Date, it will make this Prospectus available to
any broker-dealer for use in connection with any such
resale. An affiliate of the company, however, will not
be relieved of its registration obligations. See "Plan
of Distribution."
The Exchange Offer is not being made to, nor will the
company accept surrenders for exchange from, holders of
Old Notes in
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
any jurisdiction in which this Exchange Offer or the
acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
EXPIRATION DATE................... The Exchange Offer will expire at 5:00 p.m., New York
City time, on November , 1997, unless extended, in
which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is
extended. Any extension, if made, will be publicly
announced through a release to the Dow Jones News
Service and as otherwise required by applicable law or
regulations.
CONDITIONS TO THE EXCHANGE
OFFER........................... The Exchange Offer is subject to certain conditions,
which may be waived by the company. See "The Exchange
Offer--Conditions of the Exchange Offer." The Exchange
Offer is not conditioned upon any minimum principal
amount of Old Notes being tendered.
PROCEDURES FOR TENDERING
OLD NOTES....................... Each holder of Old Notes in certificated form wishing to
accept the Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and
therein, and mail or otherwise deliver such Letter of
Transmittal, or a facsimile thereof, together with such
Old Notes and any other required documentation to Manu-
facturers and Traders Trust Company, the Exchange Agent,
at one of the addresses set forth herein and therein. By
executing the Letter of Transmittal, each holder will
represent to the company that, among other things, the
New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the
person receiving such New Notes, whether or not such
person is the holder, that neither the holder nor any
such other person has an arrangement or understanding
with any person to participate in the distribution of
such New Notes and that neither the holder nor any such
other person is an "affiliate" of the company within the
meaning of Rule 405 under the Securities Act. See "The
Exchange Offer--Terms of the Exchange Offer--Procedures
for Tendering Old Notes" and "--Guaranteed Delivery
Procedures."
SPECIAL PROCEDURES FOR BENEFICIAL
OWNERS.......................... Any beneficial owner whose Old Notes are registered in
the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender such
Old Notes in the Exchange Offer should instruct such
registered holder (or, in the case of Old Notes
represented by a Global Note, the participant in The
Depositary Trust Company whose account is credited with
such Old Notes) to tender on such beneficial owner's
behalf by following the procedures described above or
complying with the procedures for book-entry transfer.
If such beneficial owner wishes to tender on its own
behalf, such owner must, prior to completing and
executing the Letter of Transmittal and delivering its
Old Notes, either make appropriate arrangements to
register ownership of the Old Notes in such owner's name
or
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
obtain a properly completed bond power from the
registered holder. The transfer of registered ownership
may take considerable time and may not be able to be
completed prior to the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer--Procedures
for Tendering Old Notes."
GUARANTEED DELIVERY PROCEDURES.... Holders of Old Notes who wish to tender their Old Notes
and whose Old Notes are not immediately available or who
cannot deliver their Old Notes, the Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent prior to the
Expiration Date, must tender their Old Notes according
to the guaranteed delivery procedures set forth in "The
Exchange Offer--Terms of the Exchange Offer-- Guaranteed
Delivery Procedures."
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES........... Subject to certain conditions (as described more fully
in "The Exchange Offer--Conditions of the Exchange
Offer"), the company will accept for exchange any and
all Old Notes which are properly tendered in the
Exchange Offer and not withdrawn, prior to 5:00 p.m.,
New York City time, on the Expiration Date. The New
Notes issued pursuant to the Exchange Offer will be
delivered as promptly as practicable following the
Expiration Date.
WITHDRAWAL RIGHTS................. Except as otherwise provided herein, tenders of Old
Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer--Withdrawal
of Tenders of Old Notes."
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS.................. An exchange of Old Notes for New Notes pursuant to the
Exchange Offer will be treated, for federal income tax
purposes, as a refinancing and will not produce
recognizable gain or loss to either the company or a
holder of an exchanged Old Note. A holder's initial
adjusted tax basis and holding period in a New Note will
be the same as in the exchanged Old Note.
EXCHANGE AGENT.................... Manufacturers and Traders Trust Company is the Exchange
Agent. The address, telephone number and facsimile
number of the Exchange Agent are set forth in "The
Exchange Offer-- Exchange Agent" and on the back cover.
</TABLE>
SUMMARY OF TERMS OF THE NEW NOTES
The Exchange Offer applies to $250,000,000 aggregate principal amount of Old
Notes due 2004, and $250,000,000 aggregate principal amount of Old Notes due
2007. The form and terms of the New Notes will be identical in all material
respects to the form and terms of the respective Old Notes except that (i) the
New Notes will be registered under the Securities Act and, therefore, will not
bear legends restricting the transfer thereof, and (ii) holders of the New Notes
will not be entitled to certain rights of holders of Old Notes under the
Registration Rights Agreement, which will terminate upon consummation of the
Exchange Offer. The New Notes will evidence the same debt as the Old Notes, will
be entitled to the benefits of the respective Indentures and will be treated as
a single class thereunder with any Old Notes that remain outstanding. Following
the Exchange Offer, assuming the company has no registration obligation with
respect to any Notes held by Initial Purchasers, none of the holders of Notes
will be
11
<PAGE>
entitled to receive Liquidated Damages as provided for in the Registration
Rights Agreement in the event of certain Registration Defaults defined therein.
See "Description of Notes."
<TABLE>
<S> <C>
SECURITIES........................ $500 million principal amount of New Notes, consisting
of $250 million principal amount of New Notes due 2004
and $250 million principal amount of New Notes due 2007.
MATURITY DATE..................... The Notes due 2004 mature December 1, 2004 and the Notes
due 2007 mature July 31, 2007.
INTEREST RATE AND PAYMENT DATES... Interest on the New Notes due 2004 will accrue at the
rate of 10 1/2% per annum and interest on the New Notes
due 2007 will accrue at the rate of 10 5/8% per annum,
payable semiannually in arrears on (in the case of the
New Notes due 2004) June 1 and December 1 of each year,
commencing December 1, 1997, and (in the case of the New
Notes due 2007) January 31 and July 31 of each year,
commencing January 30, 1998.
OPTIONAL REDEMPTION............... The New Notes will be redeemable at the option of the
company, in whole or in part, at any time on or after
June 1, 2001 with respect to the New Notes due 2004 and
July 31, 2002 with respect to the New Notes due 2007 at
the redemption prices set forth herein, plus accrued and
unpaid interest and Liquidated Damages, if any, to the
date of redemption. See "Description of Notes--Optional
Redemption." In addition, on or prior to June 1, 2000
(in the case of the New Notes due 2004) and July 31,
2000 (in the case of the New Notes due 2007), the
company may redeem at any time or from time to time up
to 35% of the aggregate principal amount of each of the
Notes due 2004 and the Notes due 2007 originally issued
at a redemption price of 110 1/2% (in the case of the
Notes due 2004) and 110 5/8% (in the case of the Notes
due 2007) of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, to
the redemption date, with the net proceeds of one or
more Public Equity Offerings; PROVIDED, HOWEVER, that at
least $162.5 million in aggregate principal amount of
each tranche of Notes remains outstanding following each
such redemption.
MANDATORY REDEMPTION.............. None.
CHANGE OF CONTROL................. Upon the occurrence of a Change of Control Triggering
Event, each holder of New Notes will have the right, to
the extent not inconsistent with the company's Bylaws as
in effect on July 25, 1997, to require the company to
purchase such holder's New Notes at a purchase price
equal to 101% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if
any, to the date of repurchase. See "Description of
Notes--Certain Covenants--PURCHASE OF NOTES UPON A
CHANGE OF CONTROL TRIGGERING EVENT."
RANKING........................... The New Notes will be general unsecured obligations of
the company, subordinated in right of payment to all
existing and future Senior Indebtedness of the company,
including all obligations of the company under the New
Credit Agreement, and senior to or PARI PASSU with all
existing and future subordinated
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
indebtedness of the company. Subject to certain
restrictions, the company and the Subsidiary Guarantors
may incur additional indebtedness, including Senior
Indebtedness, in the future. As of July 12, 1997, after
giving PRO FORMA effect to the Recapitalization Program,
the company and its subsidiaries would have had
outstanding approximately $1.049 billion of Senior
Indebtedness (excluding $90 million of obligations under
undrawn letters of credit), of which $652 million would
have been secured indebtedness. See "Capitalization" and
"Description of Notes--Subordination."
GUARANTEES........................ The New Notes will be unconditionally guaranteed (the
"Note Guarantees"), jointly and severally, by all of the
Wholly Owned Restricted Subsidiaries (the "Subsidiary
Guarantors"). The Note Guarantees will be general
unsecured obligations of the Subsidiary Guarantors
subordinated in right of payment to all existing and
future Senior Indebtedness of the Subsidiary Guarantors
(including their guarantees of indebtedness under the
New Credit Agreement and certain other Senior
Indebtedness of the company), and senior to or PARI
PASSU with all existing and future subordinated
indebtedness of the Subsidiary Guarantors. As of July
12, 1997, after giving PRO FORMA effect to the
Recapitalization Program, the Subsidiary Guarantors
would have had approximately $577 million of Senior
Indebtedness outstanding (including guarantees of Senior
Indebtedness). See "Description of Notes--Guarantees."
CERTAIN COVENANTS................. A separate indenture governs each of the Notes due 2004
and the Notes due 2007 (the "Indentures"). The
Indentures contain certain covenants which, among other
things, limit the ability of the company and the
Subsidiary Guarantors to incur additional Indebtedness,
pay dividends or make other distributions, repurchase
capital stock or Subordinated Indebtedness, make certain
investments, create certain liens, enter into certain
transactions with affiliates, sell assets or enter into
certain mergers and consolidations. See "Description of
Notes--Certain Covenants."
BOOK ENTRY, DELIVERY AND FORM;
SAME-DAY SETTLEMENT AND
PAYMENT......................... Transfers of Notes between participants in The
Depository Trust Company ("DTC") will be effected in the
ordinary way in accordance with DTC rules and will be
settled in same-day funds. See "Description of
Notes--Book Entry, Delivery and Form" and "--Same-Day
Settlement and Payment."
USE OF PROCEEDS................... The company will not receive any net proceeds from the
issuance of the New Notes pursuant to this Prospectus.
</TABLE>
RISK FACTORS
For a discussion of certain factors which should be considered in evaluating
the company, its business and an investment in the New Notes, see "Risk
Factors."
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<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION
The summary consolidated financial information presented below for, and as
of the end of, each of the fiscal years in the five-year period ended December
28, 1996 is derived from the audited consolidated financial statements of
Fleming. In the opinion of the company, the unaudited financial information
presented for the 28 weeks ended July 13, 1996 and July 12, 1997 contains all
adjustments (consisting only of normal recurring adjustments, except as noted)
necessary to present fairly the financial information included therein. Results
for interim periods are not necessarily indicative of results for the full year.
This summary information should be read in conjunction with the detailed
financial information and consolidated financial statements of the company and
the notes thereto included elsewhere herein. See "Capitalization," "Selected
Financial Information" and "Management's Discussion and Analysis."
<TABLE>
<CAPTION>
YEAR ENDED LAST SATURDAY IN DECEMBER,
---------------------------------------------------------------
1992(a) 1993(a) 1994(b) 1995(c) 1996(d)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
STATEMENT OF EARNINGS DATA:
Net sales.............................................. $ 12,894 $ 13,096 $ 15,724 $ 17,502 $ 16,487
Costs and expenses (income):
Cost of sales........................................ 12,167 12,331 14,601 16,092 15,005
Selling and administrative expense................... 495 554 933 1,189 1,274
Operating earnings................................... 232 211 190 221 208
Interest expense..................................... 81 78 120 175 163
Interest income(f)................................... (59) (59) (57) (58) (49)
Equity investment results............................ 15 12 15 27 18
Litigation charge.................................... -- -- -- -- 21
Facilities consolidation and restructuring........... -- 108 -- (9) --
Earnings before taxes.................................. 195 72 112 86 55
Net earnings after extraordinary items................. 113 35 56 42 27
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital........................................ $ 528 $ 442 $ 496 $ 364 $ 221
Total assets........................................... 3,118 3,103 4,608 4,297 4,055
Total debt, including capitalized leases............... 1,086 1,078 2,121 1,790 1,598
Shareholders' equity................................... 1,060 1,060 1,079 1,083 1,076
OTHER DATA:
EBITDA(g).............................................. $ 385 $ 263 $ 389 $ 457 $ 411
Adjusted EBITDA(h)..................................... 385 371 389 448 435
Depreciation and amortization, net(i).................. 94 101 142 169 175
Capital expenditures................................... 62 53 150 117 129
Ratio of EBITDA to interest expense.................... 4.75x 3.37x 3.24x 2.61x 2.51x
Ratio of Adjusted EBITDA to interest expense........... 4.75x 4.76x 3.24x 2.56x 2.66x
Ratio of earnings to fixed charges(j).................. 2.85x 1.71x 1.76x 1.40x 1.27x
PRO FORMA DATA(k):
Interest expense....................................... $ 178
Ratio of EBITDA to interest expense.................... 2.30x
Ratio of Adjusted EBITDA to interest expense........... 2.44x
Ratio of earnings to fixed charges..................... 1.18x
<CAPTION>
28 WEEKS ENDED
------------------------
JULY 13, JULY 12,
1996(e) 1997(e)
----------- -----------
<S> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales.............................................. $ 8,910 $ 8,303
Costs and expenses (income):
Cost of sales........................................ 8,109 7,540
Selling and administrative expense................... 699 639
Operating earnings................................... 102 124
Interest expense..................................... 90 85
Interest income(f)................................... (27) (25)
Equity investment results............................ 7 7
Litigation charge.................................... 1 19
Facilities consolidation and restructuring........... -- --
Earnings before taxes.................................. 31 38
Net earnings after extraordinary items................. 15 7
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital........................................ $ 293 $ 289
Total assets........................................... 4,078 3,756
Total debt, including capitalized leases............... 1,717 1,520
Shareholders' equity................................... 1,089 1,083
OTHER DATA:
EBITDA(g).............................................. $ 219 $ 224
Adjusted EBITDA(h)..................................... 230 243
Depreciation and amortization, net(i).................. 91 93
Capital expenditures................................... 69 49
Ratio of EBITDA to interest expense.................... 2.44x 2.63x
Ratio of Adjusted EBITDA to interest expense........... 2.56x 2.86x
Ratio of earnings to fixed charges(j).................. 1.28x 1.37x
PRO FORMA DATA(k):
Interest expense....................................... $ 92
Ratio of EBITDA to interest expense.................... 2.42x
Ratio of Adjusted EBITDA to interest expense........... 2.63x
Ratio of earnings to fixed charges..................... 1.28x
</TABLE>
- ------------------------------
(a) In 1992 and 1993, the company recorded an extraordinary after-tax loss of
$5.9 million and $2.3 million, respectively, for early retirement of debt.
The results in 1993 include an after-tax charge of approximately $66 million
for facilities consolidation and restructuring.
(b) The results in 1994 reflect the July 1994 acquisition of Scrivner Inc.
(c) In 1995, management changed its estimates with respect to the general
merchandise portion of the 1993 charge and reversed $4 million, after tax
benefits. See note (a) above.
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(d) Results in 1996 include a $20 million charge related to the agreement to
settle two related lawsuits pending against Fleming and a $650,000 charge
related to the David's litigation (see note (e) below).
(e) Results in the first half of 1996 include a first quarter $7.1 million
charge to establish a reserve related to the jury verdict in the David's
litigation, which was reversed in the second quarter of 1996 and a new
reserve of $650,000 was established. Results in the first half of 1997
include a first quarter charge of $19.2 million reflecting the settlement of
the David's litigation. Results in the first half of 1997 also include an
after-tax charge of $13.3 million for early retirement of debt resulting
from the Recapitalization Program.
(f) Consists primarily of interest earned on notes receivable from customers and
income generated from direct financing leases of retail stores and related
equipment.
(g) EBITDA represents earnings before extraordinary items and accounting change
before taking into consideration interest expense, income taxes,
depreciation and amortization and equity investment results. EBITDA should
not be considered as an alternative measure of the company's net income,
operating performance, cash flow or liquidity. It is included herein to
provide additional information related to the company's ability to service
debt. Amounts presented herein may not be comparable to EBITDA disclosures
of other companies.
(h) Adjusted EBITDA represents EBITDA before taking into consideration one-time
adjustments. One-time adjustments are the litigation charges in 1996 and
1997, the facilities consolidation and restructuring adjustments in 1993 and
1995 and $3 million in other charges in 1996 due primarily to divested
stores.
(i) This excludes amortization related to debt acquisition costs and to
interest rate swaps and caps.
(j) This ratio is determined in accordance with Regulation S-K promulgated by
the Securities and Exchange Commission. For purposes of computing this
ratio, earnings consist of earnings before income taxes and fixed charges.
Fixed charges consist primarily of interest expense, including amortization
of deferred debt issuance costs, and one-third of rental expense (the
portion considered representative of the interest factor).
(k) The pro forma data have been prepared on the basis of the following
assumptions: (i) the offering of the Old Notes was consummated at the
beginning of 1996, (ii) $500 million principal amount of Notes was
outstanding during each period of 1996 and the first two quarters of 1997,
(iii) interest as reported for each period of 1996 and the first two
quarters of 1997 was reduced by the amount of interest recorded for
indebtedness which was repaid prior to the end of each period, (iv) the net
proceeds of the offering of the Old Notes were used to redeem the Floating
Rate Senior Notes and reduce term bank indebtedness at the beginning of
1996, and (v) the interest rate for the Notes due 2004 was 10 1/2% per annum
and the interest rate for the Notes due 2007 was 10 5/8% per annum.
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RISK FACTORS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT, AND SECTION 21E OF THE EXCHANGE ACT. ALL
STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS
PROSPECTUS, INCLUDING, WITHOUT LIMITATION, STATEMENTS UNDER THE CAPTIONS "RISK
FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS" AND "BUSINESS" REGARDING THE
COMPANY'S FINANCIAL POSITION, BUSINESS STRATEGY AND PLANS AND OBJECTIVES OF
MANAGEMENT OF THE COMPANY FOR FUTURE OPERATIONS, CONSTITUTE FORWARD-LOOKING
STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN
SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT
SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. CAUTIONARY STATEMENTS
DESCRIBING IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE COMPANY'S EXPECTATIONS ARE DISCLOSED HEREUNDER AND ELSEWHERE
IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, IN CONJUNCTION WITH THE
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS. ALL SUBSEQUENT WRITTEN
AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS
ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY SUCH
CAUTIONARY STATEMENTS.
Prospective holders of the New Notes offered hereby should consider
carefully the information set forth or incorporated by reference in this
Prospectus and, in particular, should evaluate the following risks:
CHANGING INDUSTRY ENVIRONMENT
The food marketing and distribution industry is undergoing accelerated
change as producers, manufacturers, distributors and retailers seek to lower
costs and increase services in an increasingly competitive environment of
relatively static overall demand. Alternative format food stores (such as
warehouse stores and supercenters) have gained retail food market share at the
expense of traditional supermarket operators, including independent grocers,
many of whom are Fleming customers. Vendors, seeking to ensure that more of
their promotional fees and allowances are used by retailers to increase sales
volume, increasingly direct promotional dollars to large self-distributing
chains. The company believes that these changes have led to reduced sales,
reduced margins and lower profitability among many of its customers and at the
company itself. In response to these changes, the company initiated a
consolidation, reorganization and reengineering plan in 1994 to redesign the way
in which the company markets, distributes and prices its products and services.
See "Business." Failure to develop a successful response to changing market
conditions over the long-term and improve profitability could have a material
adverse effect on the company's business as well as the company's results of
operations and financial condition.
SALES DECLINES
Net sales declined in 1995 compared to 1994 (on a pro forma basis after
giving effect to the acquisition of Scrivner), and continued to decline in 1996
(6% compared to 1995) and through the second quarter of 1997 (8% compared to the
first two quarters of 1996). The company anticipates that net sales for the
balance of 1997 will be lower than for the comparable period in 1996. See
"Management's Discussion and Analysis." The company believes that its
performance has been adversely affected by the combined effects of the changing
industry environment and the events described below.
Fleming was faced with the bankruptcy of a major customer in 1994, the
addition through foreclosure in early 1996 of a 71-store customer in Arizona,
and several litigation developments (including the David's litigation and
disputes with two of the company's largest customers; see "Business--Legal
Proceedings"), and the adverse publicity surrounding these developments, in 1996
and 1997. Moreover, since 1994 the company has imposed stricter credit policies
in making credit extensions to, and investments in, customers. In 1996 and the
first half of 1997, the company closed or sold 75 company-owned retail stores.
Although Fleming is taking steps to reverse sales declines and to enhance its
overall profitability, no assurance can be given that the company will be
successful in these efforts.
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COMPETITION
The food marketing and distribution industry is highly competitive. The
company faces competition from local, regional and national food distributors on
the basis of price, quality and assortment, schedules and reliability of
deliveries and the range and quality of services provided. The company also
competes with retail supermarket chains that provide their own distribution
functions, purchasing directly from producers and distributing products to their
supermarkets for sale to the consumer.
In its retail operations, Fleming competes with other food outlets on the
basis of price, quality and assortment, store location and format, sales
promotions, advertising, availability of parking, hours of operation and store
appeal. Traditional mass merchandisers have gained a growing foothold with
alternative store formats, such as warehouse stores and supercenters, which
depend on concentrated buying power and low-cost distribution technology. Market
share of stores with alternative formats is expected to continue to grow in the
future. To meet the challenges of a rapidly changing and highly competitive
retail environment, the company must maintain operational flexibility and
develop effective strategies across many market segments.
Both the food marketing and distribution and retail food industries have
undergone increased consolidations. Consolidation of distribution operations may
produce even stronger competition for the Food Distribution Segment. Retail
consolidations not only produce stronger competition, but may result in
declining sales if Food Distribution Segment customers are acquired by
self-distributing chains.
In addition, food wholesalers have traditionally competed through their
willingness to invest capital in their customers. Fleming has imposed stricter
credit policies and applied cost/benefit analysis to loans to and investments in
its customers and enters into such arrangements only with customers who have
demonstrated their ability to be successful operators. Fleming's credit
practices have caused and may continue to cause the loss of business to
competitors.
CERTAIN LITIGATION
Fleming is involved in substantial litigation which exposes the company to
material loss contingencies. See "Management's Discussion and
Analysis--General," "--Litigation and Contingencies," "Business-- Legal
Proceedings" and Note 5 to the company's interim financial statements.
POTENTIAL LOSSES FROM INVESTMENTS IN RETAILERS
The company provides subleases and extends loans to and makes investments in
many of its retail customers, often in conjunction with the establishment of
long-term supply contracts with such customers. Loans to customers are generally
not investment grade and, along with equity investments in such customers, are
highly illiquid. In recent years, the company has reduced losses associated with
these activities. Credit loss expenses, including losses from receivables and
investments in customers, decreased to $11 million for the 28 weeks ended July
12, 1997 from $15 million for the comparable 1996 period. At July 12, 1997, the
company's loans to customers and equity investments in customers totaled $222
million. Such amount excludes investments in customers through direct financing
leases, lease guarantees, operating leases, credit extensions for inventory
purchases and the recourse portion of notes sold evidencing such loans. During
fiscal year 1996 and 1995, Fleming sold, with limited recourse, $35 million and
$77 million, respectively, of notes evidencing loans to its customers. See
"Management's Discussion and Analysis," "Business--Capital Invested in
Customers" and Fleming's consolidated financial statements and the notes thereto
included elsewhere in this Prospectus. Although the company has imposed stricter
credit policies and applied cost/benefit analyses to loans to and investments in
customers, there can be no assurance that credit losses from existing or future
investments or commitments will not have a material adverse effect on the
company's results of operations or financial condition. The company also invests
heavily in real estate to assure market access or to secure supply points. See
the Lease Agreements note to the company's consolidated financial statements.
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YEAR 2000 COMPLIANCE
Fleming has numerous computer systems which were developed employing six
digit date structures. Where date logic requires the year 2000 or beyond, such
date structures may produce inaccurate results. Management has implemented a
program to comply with year 2000 requirements on a system-by-system basis.
Fleming's plan includes extensive systems testing and is expected to be
completed by the first quarter of 1999. Each of the systems has a solution that
is potentially unique and often dependent on third-party software providers and
developers. A failure on the part of the company to ensure that its computer
systems are year 2000 compliant could have a material adverse effect on the
company's operations.
LEVERAGE
The company has substantial indebtedness in relation to its shareholders'
equity. As of July 12, 1997, after giving PRO FORMA effect to the
Recapitalization Program, the company would have had approximately $1.549
billion of indebtedness outstanding and approximately $1.083 billion of
shareholders' equity. Also, the company would have had available $483 million of
borrowing capacity under the New Credit Agreement, subject to the maintenance of
certain financial ratios thereunder. See "Capitalization." The degree to which
the company is leveraged could have important consequences to holders of the
Notes, including the following: (i) the company's ability to obtain other
financing in the future may be impaired; (ii) a substantial portion of the
company's cash flow from operations must be dedicated to the payment of
principal and interest on its indebtedness; and (iii) a high degree of leverage
may make the company more vulnerable to economic downturns and may limit its
ability to withstand competitive pressures. Fleming's ability to make scheduled
payments on or, to the extent not restricted pursuant to the terms thereof,
refinance its indebtedness depends on its financial and operating performance,
which may fluctuate significantly from quarter to quarter and is subject to
prevailing economic conditions and to financial, business and other factors
beyond the company's control.
If Fleming is unable to generate sufficient cash flow to meet its debt
obligations, the company may be required to renegotiate the payment terms or
refinance all or a portion of the indebtedness under the New Credit Agreement or
the Notes, to sell assets or to obtain additional financing. If Fleming could
not satisfy its obligations related to such indebtedness, substantially all of
the company's long-term debt could be in default and could be declared
immediately due and payable. There can be no assurance that the company could
repay all such indebtedness in such event.
RESTRICTIVE COVENANTS
The New Credit Agreement, the indentures for certain outstanding Senior
Indebtedness (the "Prior Indentures") and the Indentures for the Notes contain
numerous restrictive covenants which limit the discretion of the company's
management with respect to certain business matters. These covenants place
significant restrictions on, among other things, the ability of the company and
the Subsidiary Guarantors to incur additional indebtedness, to create liens or
other encumbrances, to pay dividends, to make certain payments, investments,
loans and guarantees and to sell or otherwise dispose of a substantial portion
of assets to, or merge or consolidate with, another entity which is not wholly
owned by the company. See "Description of Other Indebtedness" and "Description
of Notes." The New Credit Agreement also contains a number of financial
covenants which require the company to maintain compliance with certain
financial covenants. See "Management's Discussion and Analysis--Liquidity and
Capital Resources" and "Description of Other Indebtedness." A failure to comply
with the obligations contained in the New Credit Agreement, the Prior Indentures
or the Indentures for the Notes, if not cured or waived, could permit
acceleration of the related indebtedness and acceleration of indebtedness under
other instruments which contain cross-acceleration or cross-default provisions.
If the company were obligated to repay all of its debt at one time, there is no
assurance that the company would have sufficient cash to do so or that the
company could successfully refinance such indebtedness. Other indebtedness of
the company and its subsidiaries that may be incurred in the future may contain
financial or other covenants more restrictive than those applicable to the New
Credit Agreement and the Notes.
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ASSET ENCUMBRANCES
The Notes are not secured by any of the company's assets or any of its
subsidiaries' assets. The obligations of the company under the New Credit
Agreement are secured by the capital stock of substantially all of the company's
consolidated subsidiaries and substantially all of the inventory and accounts
receivable of the company and its consolidated subsidiaries. If the company
becomes insolvent or is liquidated, or if payment under the New Credit Agreement
or other secured indebtedness is accelerated, the lenders under the New Credit
Agreement and any other instruments defining the rights of lenders of secured
indebtedness would be entitled to exercise the remedies available to a secured
lender under applicable law so long as such security remains in place.
Accordingly, such lenders may have a prior claim on a substantial portion of the
assets of the company and its subsidiaries. See "Description of Other
Indebtedness."
SUBORDINATION OF NOTES
The payment of principal of, premium, if any, and interest on the Notes is,
to the extent set forth in the Indentures, subordinated in right of payment to
the prior payment in full of all Senior Indebtedness of the company and the
Subsidiary Guarantors, including obligations under the New Credit Agreement. As
of July 12, 1997, after giving PRO FORMA effect to the Recapitalization Program,
the company would have had outstanding Senior Indebtedness of approximately
$1.049 billion (excluding $90 million of obligations under undrawn letters of
credit). Subject to certain limitations, the Indentures permit the company and
the Subsidiary Guarantors to incur additional indebtedness, including Senior
Indebtedness. See "Description of Notes--Certain Covenants--INCURRENCE OF
INDEBTEDNESS." The indebtedness under the New Credit Agreement will also become
due prior to the time the principal obligations under the Notes become due.
During the continuance of any default in the payment of principal, premium,
interest or any other payments due on Senior Indebtedness, and, in certain
circumstances, during the continuance of non-payment defaults, no payment of
principal, interest or Liquidated Damages, if any, on the Notes may be made by
the company or the Subsidiary Guarantors. In addition, upon any liquidation,
dissolution or winding up of the company, the payment of the principal, interest
and Liquidated Damages on the Notes is subordinated to the extent provided in
the Indentures to the prior payment in full of all Senior Indebtedness of the
company or the Subsidiary Guarantors, as the case may be. By reason of their
subordination, in the event of the company's dissolution, holders of Senior
Indebtedness may receive more, ratably, and holders of the Notes may receive
less, ratably, than the other creditors of the company. See "Description of
Notes" and "Description of Other Indebtedness."
REPURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control Triggering Event, each holder
will have the right, to the extent not inconsistent with the company's Bylaws as
in effect on July 25, 1997, to require the company to repurchase such holder's
Notes at a price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, to the date of repurchase.
Certain of the Prior Indentures have similar provisions obligating the company
to make an offer to purchase the debt securities issued thereunder upon the
occurrence of certain events. A Change of Control may result in a default under
the New Credit Agreement and may result in a default under other indebtedness of
the company which may be incurred in the future. A default under the New Credit
Agreement or other Senior Indebtedness could result in an acceleration of such
indebtedness, in which case the subordination provisions of the Notes would
require payment in full (or provision therefor) of such Senior Indebtedness
before the company may repurchase or make other payments in respect of the
Notes. See "Description of Notes--Certain Covenants--PURCHASE OF NOTES UPON A
CHANGE OF CONTROL TRIGGERING EVENT," and "--Subordination" and "Description of
Other Indebtedness." There can be no assurance that the company would have
sufficient financial resources to repurchase the Notes or pay its obligations if
the indebtedness under the New Credit Agreement or other Senior Indebtedness
were accelerated upon the occurrence of a Change of Control or Change of Control
Triggering Event, as the case may be. The inability to repay Senior Indebtedness
of the
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company, if accelerated, and to repurchase all of the tendered Notes would
constitute an event of default under the Indentures.
At the 1997 annual meeting of the shareholders of the company, the
shareholders adopted an amendment to the company's Bylaws (the "Bylaw
Amendment") purporting to limit the company's ability to "adopt or maintain a
poison pill, shareholder rights plan, rights agreement or any other form of
'poison pill' which is designed to or which has the effect of making
acquisitions of large holdings of the Corporation's shares of stock more
difficult or expensive...unless such a plan is first approved by a MAJORITY
shareholder vote." The Bylaw Amendment raises a question as to whether the
provisions of the Indentures described under "Description of Notes--Certain
Covenants--PURCHASE OF NOTES UPON A CHANGE OF CONTROL TRIGGERING EVENT (the
"Change of Control Provisions") constitute a "poison pill, shareholder rights
plan, rights agreement or any other form of 'poison pill' " (collectively, a
"Poison Pill") within the meaning of the Bylaw Amendment. Although the matter is
not free from doubt, the company believes that a court, properly presented with
the facts, should conclude that the Change of Control Provisions of the
Indentures do not constitute a Poison Pill within the meaning of the Bylaw
Amendment, and accordingly are not inconsistent therewith. If the Change of
Control Provisions were found to be inconsistent with the Bylaw Amendment, the
company would not be able to make or consummate the Change of Control Purchase
Offer or pay the Change of Control Purchase Price when due. However, in such
event, the Trustee and the holders of the Notes would have the rights described
under "Description of Notes--Events of Default." No assurance can be given that
the Change of Control Provisions will not be found to be inconsistent with the
Bylaw Amendment.
ABSENCE OF A PUBLIC MARKET
The Notes are a new issue for which there is currently limited trading.
Prior to the exchange of Old Notes for New Notes pursuant to the Exchange Offer,
Old Notes may only be offered and sold pursuant to an exemption from the
registration requirements of the Securities Act and applicable state securities
laws or pursuant to an effective registration statement under the Securities Act
and such state securities laws. The New Notes will not be listed on any national
securities exchange or on the Nasdaq Stock Market. Although the Notes are
eligible for trading in the PORTAL market, the Notes may trade at a discount
from their initial offering price, depending upon prevailing interest rates, the
market for similar securities, the company's performance and other factors. The
company has been advised by the Initial Purchasers that they currently intend to
make a market in the Notes as permitted by applicable law and regulation;
however, the Initial Purchasers are not obligated to do so and any such
market-making activities may be discontinued at any time without notice. In
addition, such market-making activities may be limited during the Exchange Offer
and pendency of any Shelf Registration Statement. Therefore, there can be no
assurance that an active market for any of the Notes will develop, either prior
to or after the Exchange Offer. If a trading market does not develop or is not
maintained, holders of Notes may experience difficulty in reselling the Notes or
may be unable to sell them at all. If a market for the New Notes develops, any
such market may cease to continue at any time.
CONSEQUENCES OF THE EXCHANGE OFFER ON NON-TENDERING HOLDERS OF OLD NOTES
In the event the Exchange Offer is consummated, the company will not be
required to register any Old Notes not tendered and accepted in the Exchange
Offer (other than, in certain circumstances, Old Notes held by Initial
Purchasers). In such event, holders of Old Notes seeking liquidity in their
investment would have to rely on exemptions to the registration requirements
under the securities laws, including the Securities Act. Following the Exchange
Offer, assuming the Company and the Subsidiary Guarantors have no registration
obligation with respect to any Notes held by Initial Purchasers, none of the
holders of Notes will be entitled to receive Liquidated Damages. See "The
Exchange Offer--Purpose and Effect of The Exchange Offer."
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by Fleming on July 25, 1997 to Bear, Stearns & Co.
Inc., Chase Securities Inc., BancAmerica Securities, Inc. and Societe Generale
Securities Corporation (the "Initial Purchasers") in reliance on Section 4(2) of
the Securities Act. The Initial Purchasers offered and sold the Old Notes only
to "qualified institutional buyers" (as defined in Rule 144A) in compliance with
Rule 144A and, outside the United States, to persons other than U.S. Persons,
which term includes dealers or other professional fiduciaries in the United
States acting on a discretionary basis for foreign beneficial owners (other than
an estate or trust), in reliance upon Regulation S under the Securities Act.
In connection with the sale of the Old Notes, the company, the Subsidiary
Guarantors and the Initial Purchasers entered into a Registration Rights
Agreement dated as of July 25, 1997 (the "Registration Rights Agreement"), which
requires the company and the Subsidiary Guarantors (i) to cause the Old Notes to
be registered under the Securities Act, or (ii) to file with the Commission a
registration statement under the Securities Act with respect to an issue of new
notes of the company identical in all material respects to the Old Notes and use
its best efforts to cause such registration statement to become effective under
the Securities Act and, upon the effectiveness of that registration statement,
to offer to the holders of the Old Notes the opportunity to exchange their Old
Notes for a like principal amount of New Notes, which will be issued without a
restrictive legend and which may be reoffered and resold by the holder without
restrictions or limitations under the Securities Act. The Registration Rights
Agreement is an exhibit to the Registration Statement of which this Prospectus
is a part. The Exchange Offer is being made pursuant to the Registration Rights
Agreement to satisfy the company's obligations thereunder. If any Initial
Purchaser notifies the company that it is prohibited from participating in the
Exchange Offer, the company and the Subsidiary Guarantors are also required by
the Registration Rights Agreement to cause Notes held by such Initial Purchasers
to be registered under the Securities Act. The term "holder" with respect to the
Exchange Offer means any person in whose name Old Notes are registered on the
Trustee's books or any other person who has obtained a properly completed bond
power from the registered holder, or any person whose Old Notes are held of
record by The Depository Trust Company ("DTC") who desires to deliver such Old
Notes by book-entry transfer at DTC.
The company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Based on interpretations by the staff of the Commission set
forth in no-action letters issued to third parties, the company believes the New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any holder thereof
(other than broker-dealers, as set forth below, and any such holder that is an
"affiliate" of the company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such Old Notes are acquired in the ordinary
course of such holder's business and that such holder has no arrangement or
understanding with any person to participate in the distribution of such New
Notes. Any holder who tenders in the Exchange Offer with the intention to
participate, or for the purpose of participating, in a distribution of the New
Notes or who is an affiliate of the company may not rely upon such
interpretations by the staff of the Commission and, in the absence of an
exemption therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Failure to comply with such requirements in such instance may
result in such holder incurring liabilities under the Securities Act for which
the holder is not indemnified by the company. Each broker-dealer that receives
New Notes for its own account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such New Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. The company has agreed that, for a period of 180 days, if
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required, from the Exchange Date, it will make the Prospectus available to any
broker-dealer for use in connection with any such resale. Affiliates of the
company who exchange Old Notes for New Notes, if any, will not be relieved of
their registration obligations upon a subsequent sale of the New Notes. See
"Plan of Distribution."
The Exchange Offer is not being made to, nor will the company accept
surrenders for exchange from, holders of Old Notes in any jurisdiction in which
this Exchange Offer or the acceptance thereof would not be in compliance with
the securities or blue sky laws of such jurisdiction.
By tendering in the Exchange Offer, each holder of Old Notes will represent
to the company that, among other things, (i) the New Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the holder, (ii)
neither the holder of Old Notes nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Notes, (iii) if the holder is not a broker-dealer, or is a broker-dealer but
will not receive New Notes for its own account in exchange for Old Notes,
neither the holder nor any such other person is engaged in or intends to
participate in the distribution of such New Notes, and (iv) neither the holder
nor any such other person is an "affiliate" of the company within the meaning of
Rule 405 under the Securities Act or, if such holder is an "affiliate," that
such holder will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
Each holder, by tendering, also acknowledges and agrees that any holder
using the Exchange Offer to participate in a distribution of the New Notes (a)
could not rely on the position of the Commission enunciated in MORGAN STANLEY
AND CO., INC. (available June 5, 1991) and EXXON CAPITAL HOLDINGS CORPORATION
(available May 13, 1988), as interpreted in the Commission's letter to SHEARMAN
& STERLING (available July 2, 1993), and similar no-action letters, and (b) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction and that such a
secondary resale transaction should be covered by an effective registration
statement containing the selling security holder information required by Item
507 or 508, as applicable, of Regulation S-K if the resales are of New Notes
obtained by such holder in exchange for Old Notes acquired by such holder
directly from the company.
Following the consummation of the Exchange Offer and assuming the company
and the Subsidiary Guarantors have no registration obligations with respect to
any Notes held by Initial Purchasers, none of the Notes will be entitled to
Liquidated Damages provided for in the Registration Rights Agreement. Following
the consummation of the Exchange Offer, holders of Notes, other than the Initial
Purchasers in certain circumstances, will not have any further registration
rights, and the Old Notes will continue to be subject to certain restrictions on
transfer. See "--Consequences of Failure to Exchange." Accordingly, the
liquidity of the market for the Old Notes could be adversely affected. See "Risk
Factors--Consequences of the Exchange Offer on Non-Tendering Holders of Old
Notes."
TERMS OF THE EXCHANGE OFFER
GENERAL. Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the company will accept any and all
Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. Subject to the minimum denomination requirements
of the New Notes, the company will issue (a) $1,000 principal amount of New
Notes due 2004 in exchange for each $1,000 principal amount of outstanding Old
Notes due 2004 accepted in the Exchange Offer, and (b) $1,000 principal amount
of New Notes due 2007 in exchange for each $1,000 principal amount of
outstanding Old Notes due 2007 accepted in the Exchange Offer. Holders may
tender some or all of their Old Notes pursuant to the Exchange Offer. However,
Old Notes may be tendered only in amounts that are integral multiples of $1,000
principal amount.
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes except that (i) the New Notes
will be registered under the Securities Act and, therefore,
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will not bear legends restricting the transfer thereof, and (ii) holders of the
New Notes will not be entitled to certain rights of holders of Old Notes under
the Registration Rights Agreement, which will terminate upon consummation of the
Exchange Offer. The New Notes will evidence the same debt as the Old Notes, will
be entitled to the benefits of the respective Indentures and will be treated as
a single class thereunder with any respective Old Notes that remain outstanding.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
As of the date of this Prospectus, $250,000,000 aggregate principal amount
of Old Notes due 2004 was outstanding and $250,000,000 aggregate principal
amount of Old Notes due 2007 was outstanding. This Prospectus, together with the
Letter of Transmittal, is being sent to the registered holders of Old Notes as
of , 1997.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Oklahoma General Corporation Act or the Indentures in connection with the
Exchange Offer. The company intends to conduct the Exchange Offer in accordance
with the provisions of the Registration Rights Agreement and the applicable
requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder. Old Notes which are not tendered for exchange in the
Exchange Offer will remain outstanding and interest thereon will continue to
accrue, but holders of such Old Notes (other than the Initial Purchasers in
certain circumstances) will not be entitled to any rights or benefits under the
Registration Rights Agreement.
The company will be deemed to have accepted validly tendered Old Notes when,
as and if the company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purposes of receiving the New Notes from the company. If any tendered Old Notes
are not accepted for exchange because of an invalid tender, the occurrence of
certain other events set forth herein or otherwise, certificates for any such
unaccepted Old Notes will be returned, without expense, to the tendering holder
thereof as promptly as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The company will pay all charges and expenses,
other than certain applicable taxes described below, in connection with the
Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS. The term "Expiration Date" shall
mean 5:00 p.m., New York City time, on , 1997, unless the company, in
its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended. Although the company has no current intention to extend the
Exchange Offer, the company reserves the right to extend the Exchange Offer at
any time and from time to time by giving oral or written notice to the Exchange
Agent and by timely public announcement communicated, unless otherwise required
by applicable law or regulation, by making a release to the Dow Jones News
Service. During any extension of the Exchange Offer, all Old Notes previously
tendered pursuant to the Exchange Offer and not withdrawn will remain subject to
the Exchange Offer. The date of the exchange of the New Notes for Old Notes will
be the third New York Stock Exchange trading day following the Expiration Date.
The company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under
"--Conditions of the Exchange Offer" shall not have been satisfied, by giving
oral or written notice of such delay, extension or termination to the Exchange
Agent, or (ii) to amend the terms of the Exchange Offer in any manner. Any such
delay in acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice thereof to the registered
holders. If the Exchange Offer is amended in any manner determined by the
company to constitute a material change, the company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders, and the company will extend the Exchange Offer for a period
of time, depending upon
23
<PAGE>
the significance of the amendment and the manner of disclosure to the registered
holders, if the Exchange Offer would otherwise expire during such period.
In all cases, issuance of the New Notes for Old Notes accepted for exchange
pursuant to the Exchange Offer will be made only after timely receipt by the
Exchange Agent of a properly completed and duly executed Letter of Transmittal
and all other required documents or compliance with the procedures for
book-entry transfer described below; provided, however, that the company
reserves the absolute right to waive any conditions of the Exchange Offer or
defects or irregularities in the tender of Old Notes. If any tendered Old Notes
are not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount than
the holder desires to exchange, such unaccepted or non-exchanged Old Notes or
substitute Old Notes evidencing the unaccepted portion, as appropriate, will be
returned without expense to the tendering holder, unless otherwise provided in
the Letter of Transmittal, as promptly as practicable after the expiration or
termination of the Exchange Offer.
INTEREST ON THE NEW NOTES. Holders of Old Notes that are accepted for
exchange will not receive accrued interest thereon at the time of exchange.
However, each New Note will bear interest from the most recent date to which
interest has been paid on the Old Notes or New Notes or, if no interest has been
paid on the Old Notes or New Notes, from July 25, 1997.
PROCEDURES FOR TENDERING OLD NOTES. The tender to the company of Old Notes
by a holder thereof pursuant to one of the procedures set forth below will
constitute an agreement between such holder and the company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal. A holder of Old Notes may tender such Old Notes by (i) properly
completing and signing a Letter of Transmittal or a facsimile thereof (all
references in this Prospectus to a Letter of Transmittal shall be deemed to
include a facsimile thereof) and delivering the same, together with any
corresponding certificate or certificates representing the Old Notes being
tendered (if in certificated form) and any required signature guarantees, to the
Exchange Agent at its address set forth in the Letter of Transmittal on or prior
to the Expiration Date (or complying with the procedure for book-entry transfer
described below), or (ii) complying with the guaranteed delivery procedures
described below.
If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the New Notes to be issued in exchange therefor are to be
issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in DTC (also referred to as a book-entry facility) whose name
appears on a security listing as the owner of Old Notes), the signature of such
signer need not be guaranteed. In any other case, the tendered Old Notes must be
endorsed or accompanied by written instruments of transfer in form satisfactory
to the company and duly executed by the registered holder and the signature on
the endorsement or instrument of transfer must be guaranteed by an eligible
guarantor institution which is a member of one of the following recognized
signature guarantee programs (an "Eligible Institution"): (i) The Securities
Transfer Agents Medallion Program (STAMP), (ii) The New York Stock Exchange
Medallion Signature Program (MSF), or (iii) The Stock Exchange Medallion Program
(SEMP). If the New Notes or Old Notes not exchanged are to be delivered to an
address other than that of the registered holder appearing on the note register
for the Old Notes, the signature in the Letter of Transmittal must be guaranteed
by an Eligible Institution.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT
TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
24
<PAGE>
The company understands that the Exchange Agent has confirmed with DTC that
any financial institution that is a participant in DTC's system may utilize
DTC's Automated Tender Offer Program ("ATOP") to tender Old Notes. The company
further understands that the Exchange Agent will request within two business
days after the date the Exchange Offer commences, that DTC establish an account
with respect to the Old Notes for the purpose of facilitating the Exchange
Offer, and any participant may make book-entry delivery of Old Notes by causing
DTC to transfer such Old Notes into the Exchange Agent's account in accordance
with DTC's ATOP procedures for transfer. However, the exchange of the Old Notes
so tendered will only be made after timely confirmation (a "Book-Entry
Confirmation") of such book-entry transfer and timely receipt by the Exchange
Agent of an Agent's Message (as defined in the next sentence), and any other
documents required by the Letter of Transmittal. The term "Agent's Message"
means a message, transmitted by DTC and received by the Exchange Agent and
forming part of Book-Entry Confirmation, which states that DTC has received an
express acknowledgment from a participant tendering Old Notes which are the
subject of such Book-Entry Confirmation and that such participant has received
and agrees to be bound by the terms of the Letter of Transmittal and that the
company may enforce such agreement against such participant.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at DTC), is received by the Exchange
Agent, or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided below) from an Eligible Institution
is received by the Exchange Agent. Issuances of New Notes in exchange for Old
Notes tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram
or facsimile transmission to similar effect (as provided below) by an Eligible
Institution will be made only against submission of a duly signed Letter of
Transmittal (and any other required documents) and deposit of the tendered Old
Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the company, whose determination will be final and binding. The
company reserves the absolute right to reject any or all tenders not in proper
form or the acceptance for exchange of which may, in the opinion of the
company's counsel, be unlawful. The company also reserves the absolute right to
waive any of the conditions of the Exchange Offer or any defect or irregularity
in the tender of any Old Notes. None of the company, the Exchange Agent or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification. Any Old Notes received by the Exchange Agent that are not validly
tendered and as to which the defects or irregularities have not been cured or
waived or, if Old Notes are submitted in principal amount greater than the
principal amount of Old Notes being tendered by such tendering holder, such
unaccepted or non-exchanged Old Notes will be returned by the Exchange Agent to
the tendering holder, unless otherwise provided in the Letter of Transmittal, as
soon as practicable following the Expiration Date.
In addition, the company reserves the right in its sole discretion (a) to
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date, and (b) to the extent permitted by applicable law, to
purchase Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers will differ from the terms
of the Exchange Offer.
GUARANTEED DELIVERY PROCEDURES. If a holder desires to accept the Exchange
Offer and time will not permit a Letter of Transmittal or Old Notes to reach the
Exchange Agent before the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if the
Exchange Agent has received at its office, on or prior to the Expiration Date, a
letter, telegram or facsimile transmission from an Eligible Institution setting
forth the name and address of the tendering holder, the name(s) in which the Old
Notes are registered, the principal amount being tendered and (if available) the
certificate number(s) of the Old Notes to be tendered, and stating that the
tender is being made thereby and guaranteeing that, within three New York Stock
Exchange trading days after the date of
25
<PAGE>
execution of such letter, telegram or facsimile transmission by the Eligible
Institution, such Old Notes, in proper form for transfer (or a confirmation of
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC),
will be delivered by such Eligible Institution together with a properly
completed and duly executed Letter of Transmittal (and any other required
documents). Unless Old Notes being tendered by the above-described method are
deposited with the Exchange Agent within the time period set forth above
(accompanied or preceded by a properly competed Letter of Transmittal and any
other required documents), the company may, at its option, reject the tender.
Copies of a Notice of Guaranteed Delivery which may be used by Eligible
Institutions for the purposes described in this paragraph are available from the
Exchange Agent.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL. The Letter of
Transmittal contains, among other things, the following terms and conditions,
which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the company and irrevocably constitutes
and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact
to cause the Old Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Old Notes and to acquire New Notes issuable
upon the exchange of such tendered Old Notes, and that, when the same are
accepted for exchange, the company will acquire good and unencumbered title to
the tendered Old Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also warrants
that it will, upon request, execute and deliver any additional documents deemed
by the company to be necessary or desirable to complete the exchange, assignment
and transfer of tendered Old Notes or to transfer ownership of such Old Notes on
the account books maintained by DTC. All authority conferred by the Transferor
will survive the death, bankruptcy or incapacity of the Transferor and every
obligation of the Transferor shall be binding upon the heirs, personal
representatives, executors, administrators, successors, assigns, trustees in
bankruptcy and other legal representatives of such Transferor.
By executing a Letter of Transmittal, each holder will make to the company
the representations set forth above under the heading "--Purpose and Effect of
the Exchange Offer."
WITHDRAWAL OF TENDERS OF OLD NOTES. Except as otherwise provided herein,
tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) contain a statement that
such holder is withdrawing its election to have such Old Notes exchanged, (iv)
be signed by the holder in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Old Notes register the
transfer of such Old Notes in the name of the person withdrawing the tender, and
(v) specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor. If Old Notes have been tendered pursuant
to the procedure for book-entry transfer, any notice of withdrawal must specify
the name and number of the account at the book-entry transfer facility. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the company, whose determination shall be
final and binding on all parties. Any Old Notes so withdrawn will be deemed not
to have been validly tendered for purposes of the Exchange Offer and no New
Notes will be issued with respect thereto unless the Old Notes so withdrawn are
validly retendered. Any Old Notes which have been tendered but which are not
accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange
26
<PAGE>
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "--Procedures for Tendering Old Notes" at any
time prior to the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, or any extension of
the Exchange Offer, the company shall not be required to accept for exchange, or
exchange New Notes for, any Old Notes, and may terminate the Exchange Offer as
provided herein before the acceptance of such Old Notes, if:
(a) any statute, rule or regulation shall have been enacted, or any action
shall have been taken by any court or governmental authority which, in
the reasonable judgment of the company, would prohibit, restrict or
otherwise render illegal consummation of the Exchange Offer; or
(b) any change, or any development involving a prospective change, in the
business or financial affairs of the company or any of its subsidiaries
has occurred which, in the sole judgment of the company, might materially
impair the ability of the company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
company; or
(c) there shall occur a change in the current interpretations by the staff
of the Commission which, in the company's reasonable judgment, might
materially impair the company's ability to proceed with the Exchange
Offer.
If the company determines in its sole discretion that any of the above
conditions are not satisfied, the company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration Date,
subject, however, to the right of holders to withdraw such Old Notes (see
"--Terms of the Exchange Offer--Withdrawal of Tenders of Old Notes"), or (iii)
waive such unsatisfied conditions with respect to the Exchange Offer and accept
all validly tendered Old Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the company will promptly
disclose such waiver by means of a Prospectus supplement that will be
distributed to the registered holders, and the company will extend the Exchange
Offer for a period of time, depending upon the significance of the waiver and
the manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such period.
EXCHANGE AGENT
Manufacturers and Traders Trust Company has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
Manufacturers and Traders Manufacturers and Traders Manufacturers and Traders
Trust Company Trust Company Trust Company
P. O. Box 1377 One M&T Plaza, 7th Floor 50 Broadway, 7th Floor
Buffalo, NY 14240 Buffalo, NY 14203 New York, NY 10004
(registered or certified Attn: Russell T. Whitley Attn: Corporate Trust
mail Services
recommended)
By Facsimile:
(716) 842-4474
(For Eligible Institutions Only)
Confirm by Telephone:
(716) 842-5602
</TABLE>
27
<PAGE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telecopy, telephone or in person by officers and regular
employees of the company and its affiliates. No additional compensation will be
paid to any such officers and employees who engage in soliciting tenders.
The company has not retained any dealer-manager or other soliciting agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptance of the Exchange Offer. The company,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith. The company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, the Letter of
Transmittal and related documents to the beneficial owners of the Old Notes and
in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the company. Such expenses include fees and expenses of the Exchange
Agent and transfer agent and registrar, accounting and legal fees and printing
costs, among others.
The company will pay all transfer taxes, if any, applicable to the exchange
of the Old Notes pursuant to the Exchange Offer. If, however, New Notes, or Old
Notes for principal amounts not tendered or accepted for exchange, are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of the Old Notes tendered or if a transfer tax is imposed for
any reason other than the exchange of the Old Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities within the meaning of Rule 144 of the
Securities Act. Accordingly, such Old Notes may be offered, resold, pledged or
otherwise transferred only (1)(a) to a person who the transferor reasonably
believes is a qualified institutional buyer (as defined in Rule 144A under the
Securities Act) in a transaction meeting the requirements of Rule 144A, (b) in a
transaction meeting the requirements of Rule 144 under the Securities Act, (c)
outside the United States to a person that is not a U.S. person (as defined in
Rule 902 under the Securities Act) in a transaction meeting the requirements of
Rule 904 under the Securities Act, or (d) in accordance with another exemption
from the registration requirements of the Securities Act (in the case of (b),
(c) or (d), upon an opinion of counsel if the company or Trustee so requests),
(2) to the company or (3) pursuant to an effective registration statement under
the Securities Act and, in each case, in accordance with any applicable
securities laws of any state or other jurisdiction. The liquidity of the Old
Notes most likely will be adversely affected by the Exchange Offer. Following
the consummation of the Exchange Offer, holders of the Old Notes (other than
Initial Purchasers in certain circumstances) will have no further registration
rights under the Registration Rights Agreement and will not be entitled to
receive Liquidated Damages provided for in the Old Notes.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the company's accounting records on the Exchange Date.
Accordingly, no gain or loss for accounting purposes will be recognized by the
company. The costs of the Exchange Offer and the unamortized expenses related to
the issuance of the Old Notes will be amortized over the term of the New Notes.
28
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and total consolidated
capitalization of Fleming and its subsidiaries at July 12, 1997 and as adjusted
to give PRO FORMA effect to the Recapitalization Program. This table should be
read in conjunction with the company's consolidated financial statements and the
related notes and other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JULY 12, 1997
--------------------------
ACTUAL AS ADJUSTED(a)
--------- ---------------
<S> <C> <C>
(IN MILLIONS)
<CAPTION>
<S> <C> <C>
Short-term debt(b)............................................................. $ 58 $ 58
--------- ------
--------- ------
Long-term debt, less current maturities:
Revolving bank credit(c)..................................................... 40 27
Term bank loans(c)........................................................... 479 225
Floating Rate Senior Notes due 2001.......................................... 200 --
Fixed Rate Senior Notes due 2001............................................. 300 300
Medium-Term Notes............................................................ 89 89
Senior Subordinated Notes due 2004........................................... -- 250
Senior Subordinated Notes due 2007........................................... -- 250
Long-term obligations under capital leases................................... 351 351
Other (including unamortized original issue discount)........................ 2 (1)
--------- ------
Total long-term debt....................................................... 1,461 1,491
--------- ------
Shareholders' equity:
Common Stock................................................................. 95 95
Capital in excess of par value............................................... 504 504
Reinvested earnings(c)....................................................... 520 520
Cumulative currency translation adjustment................................... (5) (5)
LESS:
ESOP note.................................................................. (6) (6)
Additional minimum pension liabilities..................................... (25) (25)
--------- ------
Total shareholders' equity............................................... 1,083 1,083
--------- ------
Total capitalization..................................................... $ 2,544 $ 2,574
--------- ------
--------- ------
</TABLE>
- ------------------------
(a) Gives effect as of July 12, 1997 to the issuance of the Old Notes and the
closing of the New Credit Agreement and the application of the net proceeds
from the sale of the Old Notes and funding under the New Credit Agreement to
redeem the Floating Rate Senior Notes and to repay indebtedness under the
previous credit agreement. See "Management's Discussion and
Analysis--Results of Operations--28 WEEKS ENDED JULY 12, 1997 AND JULY 13,
1996."
(b) Consists of current maturities of long-term debt and current obligations
under capital leases.
(c) The revolving and term bank debt under the previous credit agreement was
repaid and the credit agreement was terminated as part of the
Recapitalization Program. In addition, the Floating Rate Senior Notes were
repaid on September 15, 1997. The Recapitalization Program resulted in an
extraordinary charge of approximately $13.3 million net of income tax
effect. The New Credit Agreement established as part of the Recapitalization
Program consists of a $600 million revolving credit facility and a $250
million term loan. See "Description of Other Indebtedness."
29
<PAGE>
SELECTED FINANCIAL INFORMATION
The information presented below for, and as of the end of, each of the
fiscal years in the five-year period ended December 28, 1996 is derived from the
audited consolidated financial statements of Fleming. In the opinion of the
company, the unaudited financial information presented for the 28 weeks ended
July 13, 1996 and July 12, 1997 contains all adjustments (consisting only of
normal recurring adjustments, except as noted) necessary to present fairly the
financial information included therein. Results for interim periods are not
necessarily indicative of results for the full year. This summary should be read
in conjunction with the detailed information and consolidated financial
statements of Fleming, including the notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
28 WEEKS ENDED
YEAR ENDED LAST SATURDAY IN DECEMBER, --------------------------------
----------------------------------------------------- JULY 13, JULY 12,
1992(a) 1993(a) 1994(b) 1995(c) 1996(d) 1996(e) 1997(e)
--------- --------- --------- --------- --------- --------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales............................... $ 12,894 $ 13,096 $ 15,724 $ 17,502 $ 16,487 $ 8,910 $ 8,303
Costs and expenses (income):
Cost of sales......................... 12,167 12,331 14,601 16,092 15,005 8,109 7,540
Selling and administrative expense.... 495 554 933 1,189 1,274 699 639
Operating earnings.................... 232 211 190 221 208 102 124
Interest expense...................... 81 78 120 175 163 90 85
Interest income(f).................... (59) (59) (57) (58) (49) (27) (25)
Equity investment results............. 15 12 15 27 18 7 7
Litigation charge..................... -- -- -- -- 21 1 19
Facilities consolidation and
restructuring....................... -- 108 -- (9) -- -- --
Earnings before taxes................... 195 72 112 86 55 31 38
Net earnings after extraordinary items.. 113 35 56 42 27 15 7
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital......................... $ 528 $ 442 $ 496 $ 364 $ 221 $ 293 $ 289
Total assets............................ 3,118 3,103 4,608 4,297 4,055 4,078 3,756
Total debt, including capitalized
leases................................ 1,086 1,078 2,121 1,790 1,598 1,717 1,520
Shareholders' equity.................... 1,060 1,060 1,079 1,083 1,076 1,089 1,083
OTHER DATA:
EBITDA(g)............................... $ 385 $ 263 $ 389 $ 457 $ 411 $ 219 $ 224
Adjusted EBITDA(h)...................... 385 371 389 448 435 230 243
Depreciation and amortization, net(i)... 94 101 142 169 175 91 93
Capital expenditures.................... 62 53 150 117 129 69 49
Ratio of EBITDA to interest expense..... 4.75x 3.37x 3.24x 2.61x 2.51x 2.44x 2.63x
Ratio of Adjusted EBITDA to interest
expense............................... 4.75x 4.76x 3.24x 2.56x 2.66x 2.56x 2.86x
Ratio of earnings to fixed charges(j)... 2.85x 1.71x 1.76x 1.40x 1.27x 1.28x 1.37x
</TABLE>
- --------------------------
(a) In 1992 and 1993, the company recorded an extraordinary after-tax loss of
$5.9 million and $2.3 million, respectively, for early retirement of debt.
The results in 1993 include an after-tax charge of approximately $66 million
for facilities consolidation and restructuring.
(b) The results in 1994 reflect the July 1994 acquisition of Scrivner Inc.
(c) In 1995, management changed its estimates with respect to the general
merchandise portion of the 1993 charge and reversed $4 million, after tax
benefits. See note (a) above.
(d) Results in 1996 include a $20 million charge related to the agreement to
settle two related lawsuits pending against Fleming and a $650,000 charge
related to the David's litigation (see note (e) below).
(e) Results in the first half of 1996 include a first quarter $7.1 million
charge to establish a reserve related to the jury verdict in the David's
litigation, which was reversed in the second quarter of 1996 and a new
reserve of $650,000 was established. Results in the first half of 1997
include a first quarter charge of $19.2 million reflecting the settlement of
the David's litigation. Results in the first half of 1997 also include an
after-tax charge of $13.3 million for early retirement of debt resulting
from the Recapitalization Program.
30
<PAGE>
(f) Consists primarily of interest earned on notes receivable from customers and
income generated from direct financing leases of retail stores and related
equipment.
(g) EBITDA represents earnings before extraordinary items and accounting change
before taking into consideration interest expense, income taxes,
depreciation and amortization and equity investment results. EBITDA should
not be considered as an alternative measure of the company's net income,
operating performance, cash flow or liquidity. It is included herein to
provide additional information related to the company's ability to service
debt. Amounts presented herein may not be comparable to EBITDA disclosures
of other companies.
(h) Adjusted EBITDA represents EBITDA before taking into consideration one-time
adjustments. One-time adjustments are the litigation charges in 1996 and
1997, the facilities consolidation and restructuring adjustments in 1993 and
1995 and $3 million in other charges in 1996 due primarily to divested
stores.
(i) This excludes amortization related to debt acquisition costs and to interest
rate swaps and caps.
(j) This ratio is determined in accordance with Regulation S-K promulgated by
the Securities and Exchange Commission. For purposes of computing this
ratio, earnings consist of earnings before income taxes and fixed charges.
Fixed charges consist primarily of interest expense, including amortization
of deferred debt issuance costs, and one-third of rental expense (the
portion considered representative of the interest factor).
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
Several events have shaped Fleming's results of operations and capital and
liquidity position during each of the past three fiscal years and the first half
of 1997. In January 1994, the company announced a strategic plan to transform
its operations to better serve its customers and achieve higher profitability.
As part of this plan, the company consolidated food distribution facilities,
reorganized its management group and reengineered the way it prices and sells
grocery, frozen and dairy products and retail services. In July 1994, the
company acquired Scrivner Inc. ("Scrivner"), adding $6 billion in annual food
distribution sales and more than 175 retail stores. The company also dealt with
business and litigation challenges during this period: the bankruptcy of a major
customer in 1994, the addition by foreclosure in early 1996 of a 71-store
customer in Arizona and several litigation developments in 1996 and 1997. Each
of these events is discussed in more detail below.
CONSOLIDATIONS, REORGANIZATION AND REENGINEERING. Throughout 1994 and
1995, the company consolidated into other operations 13 food distribution
centers, including nine centers acquired in the Scrivner acquisition.
Smaller, less efficiently located facilities were closed and their
operations transferred to larger facilities seeking economies of scale in
operations. These consolidations were costly and resulted in loss of
sales because of reluctance by certain customers to change and increased
distances from new centers.
In 1994, the company eliminated its regional food distribution
organization, centralizing these staff functions and several others. It
also established the Retail Food Segment following the acquisition of
Scrivner and its significant retail food operations.
The design of reengineering, which includes several programs, began in
1994 and implementation commenced in 1995. The most significant of these
programs was the introduction of an innovative marketing plan which
altered the way food products and distribution services are marketed to
customers. Activity-based costing analyses and marketing research are
used to establish prices of grocery, frozen and dairy products and
charges for handling, storage and delivery services. Other significant
reengineering programs include the development and implementation of
VISIONET-TM-, a proprietary interactive electronic communication network
for retail customers, transportation outsourcing and the installation of
FOODS, a standard food distribution computer operating system.
SCRIVNER. In July 1994, Fleming purchased Scrivner for approximately $390
million in cash and the assumption of $670 million of indebtedness while
refinancing approximately $340 million of its own debt. To finance the
transaction, the company entered into a $2.2 billion bank credit
agreement, $500 million of which was refinanced with fixed and floating
rate senior notes prior to the end of 1994. On July 25, 1996, as part of
the Recapitalization Program, the company replaced its Credit Agreement
with the New Credit Agreement in the aggregate principal amount of $850
million and called for redemption of all $200 million of the Floating
Rate Senior Notes placed in 1994. The Floating Rate Senior Notes were
redeemed on September 15, 1997.
Because the company quickly integrated Scrivner's operations, it is
difficult to estimate the impact Scrivner had on sales, gross margins or
earnings. However, Scrivner's significant retail food presence
substantially increased Fleming's corporate-owned retail stores from 139
before the acquisition to approximately 345 (including 283 supermarkets)
immediately following the acquisition. This substantial increase in
retail food operations not only added to total sales, but also raised
both gross margin and selling and administrative expenses as retail food
operations typically operate at higher levels in these areas than do food
distribution operations. Interest expense increased as a result of
increased borrowing levels due to the acquisition and to higher interest
rates attributable in substantial part to lower credit ratings for the
company's long-term
32
<PAGE>
debt. Interest expense rose from $78 million in 1993 to $120 million in
1994 and $175 million in 1995 before falling to $163 million in 1996.
Goodwill amortization was $23.1 million in 1994, $30.1 million in 1995
and $32.0 million in 1996; the increase from 1994 was principally due to
Scrivner.
MEGAFOODS. In August 1994, Megafoods, Inc. and certain of its affiliates
("Megafoods" or the "debtor"), filed Chapter 11 bankruptcy proceedings in
Phoenix, Arizona. The company estimates that prior to bankruptcy,
annualized sales to Megafoods approximated $335 million. By 1995, sales
to Megafoods were approximately $87 million and by 1996, there were no
sales. The company filed claims for indebtedness for goods sold on open
account, equipment leases and secured loans totaling approximately $28
million and for substantial contingent claims for store subleases and
lease guarantees extended by the company for the debtor's benefit.
Megafoods brought an adversary proceeding seeking, among other things,
damages against the company. The company recorded losses resulting from
deteriorating collateral values of $6.5 million in 1994 and $3.5 million
in 1995, and in 1996 recorded $5.8 million to reflect continuing
deterioration and the effects of a proposed settlement of the company's
claim and the debtor's allegations.
ABCO. At year-end 1994, the company was the largest single shareholder
(approximately 48% of stock outstanding), the major supplier and the
second largest creditor of ABCO Markets, Inc. ("ABCO"), a supermarket
chain located in Arizona. By the fall of 1995, the company's investments
in, and loans to, ABCO totaled approximately $39 million. In September
1995, ABCO defaulted on both its bank debt and its debt to the company.
The company exercised a stock warrant to gain an additional 3% of ABCO's
capital stock and purchased the bank's preferred position for $21
million. In January 1996, the company foreclosed and acquired all of
ABCO's assets consisting of approximately 71 stores at the time of
foreclosure. Certain of ABCO's minority shareholders have challenged this
action and are seeking rescission and/or damages.
LITIGATION. In March 1996, a jury in central Texas returned verdicts in
David's Supermarkets, Inc. v. Fleming ("David's") which resulted in a
judgment of $211 million against Fleming. In response, the company
established a reserve of $7.1 million and amended its Credit Agreement to
facilitate posting a partially collateralized supersedeas bond. Pursuant
to the amendment, pricing for borrowing under the Credit Agreement was
increased. The judgment was vacated in June 1996, and the company's
reserve was reduced to $650,000. During the first quarter of 1997,
Fleming entered into court-sanctioned mediation and, as a result of a
settlement reached with the plaintiff, paid $19.9 million to settle the
litigation.
During the third quarter of 1996, the company recorded a charge of $20
million to reflect an announced settlement agreement reached in an
unrelated lawsuit involving a failed grocery diverter, Premium Sales
Corporation. In February 1997, the company's largest customer filed suit
against it alleging product overcharges and in July 1997, another large
customer commenced arbitration proceedings against the company also
alleging product overcharges. See "--Litigation and Contingencies,"
"Business--Legal Proceedings" and Note 5 to the company's interim
financial statements for a further discussion of certain litigation and
contingent liability issues.
CREDIT POLICIES. In 1995, Fleming began imposing stricter credit policies
and applying cost/benefit analyses to loans to and investments made in
its distribution customers. Traditionally, food distributors have used
availability of financial assistance as a competitive tool. Fleming
believes that its stricter credit policies have resulted in decreased
sales.
Management believes that the combination of these events, together with
changes occurring in the industry, has negatively affected the company's
financial performance during the past three years and the first half of 1997.
Lower sales, operating losses in certain company-owned retail stores and legal
fees and expenses related to litigation are likely to continue to negatively
impact results for the near term. See "Risk Factors--Changing Industry
Environment" and "--Sales Declines."
33
<PAGE>
However, management also believes that the company's ultimate success will
depend on its ability to continue to cut costs while expanding profitable
operations. The company has revised its marketing plans and is taking other
steps to reverse sales declines. The Recapitalization Program will provide the
company with greater financial flexibility to redeploy assets and seek to
increase the more profitable facets of both its Food Distribution and Retail
Food Segments. These initiatives include increased marketing emphasis and
expanded offerings of Fleming Retail Services, streamlining and expanding
Fleming Brands, developing and marketing of additional foodservice products and
growth of retail food operations through remodels, new store development and
selective acquisitions. While the company believes considerable progress has
been made to date, no assurance can be given that the company will be successful
in continuing to cut costs, in reversing sales declines or in increasing higher
margin activities.
After taking into consideration one-time adjustments (recapitalization
charge in 1997, litigation charges in 1996 and 1997, a facilities consolidation
and restructuring adjustment in 1995 and $3 million in other charges in 1996 due
primarily to divested stores), Adjusted EBITDA for the past ten quarters was as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
First quarter......................................................... $ 146 $ 126 $ 137
Second quarter........................................................ 113 104 106
Third quarter......................................................... 92 100
Fourth quarter........................................................ 97 105
--------- ---------
$ 448 $ 435
--------- ---------
--------- ---------
</TABLE>
RECAPITALIZATION PROGRAM
On July 25, 1997, the company consummated the Recapitalization Program. On
that date, the company entered into the New Credit Agreement, consisting of a
$250 million term loan and a $600 million revolving facility, sold $500 million
of senior subordinated notes (the Old Notes which are the subject of this
Exchange Offer), repaid all obligations outstanding under its former bank credit
agreement and called $200 million of Floating Rate Senior Notes (which were
subsequently redeemed on September 15, 1997). The Recapitalization Program
reduced the company's bank debt, reduced annual scheduled debt maturities and
extended the average life of the company's debt portfolio. The New Credit
Agreement and the Indentures pursuant to which the Notes were issued provide the
company with greater financial flexibility to redeploy assets and to make
investments to expand the company's business.
Management recorded an extraordinary charge to earnings in the second
quarter of 1997 of $13.3 million on an after-tax basis in connection with the
termination of the previous credit agreement and the anticipated repayment of
the Floating Rate Senior Notes. The charge consists primarily of the non-cash
write-down of unamortized financing costs. Interest expense will be higher in
future years as the result of the replacement of bank debt with the Notes.
34
<PAGE>
RESULTS OF OPERATIONS
Set forth in the following table is information regarding the company's net
sales and certain components of earnings expressed as a percent of net sales
which are referred to in the accompanying discussion:
<TABLE>
<CAPTION>
YEAR ENDED LAST SATURDAY IN
DECEMBER 28 WEEKS ENDED
---------------------------------- ----------------------------
1994 1995 1996 JULY 13, 1996 JULY 12, 1997
---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales.................................... 100.00% 100.00% 100.00% 100.00% 100.00%
Gross margin................................. 7.14 8.06 8.99 9.00 9.19
Less:
Selling and administrative................. 5.93 6.79 7.73 7.85 7.69
Interest expense........................... .77 1.00 .99 1.01 1.02
Interest income............................ (.36) (.33) (.29) (.30) (.30)
Equity investment results.................. .09 .16 .11 .08 .09
Litigation charge.......................... -- -- .12 .01 .23
Facilities consolidation................... -- (.05) -- -- --
---------- ---------- ---------- ------ ------
Total expenses........................... 6.43 7.57 8.66 8.65 8.73
---------- ---------- ---------- ------ ------
Earnings before taxes........................ .71 .49 .33 .35 .46
Taxes on income.............................. .35 .25 .17 .18 .22
---------- ---------- ---------- ------ ------
Earnings before extraordinary charge......... .36 .24 .16 .17 .24
Extraordinary charge from early retirement of
debt....................................... -- -- -- -- .16
---------- ---------- ---------- ------ ------
Net earnings................................. .36% .24% .16% .17% .08%
---------- ---------- ---------- ------ ------
---------- ---------- ---------- ------ ------
</TABLE>
- ------------------------------
Note: 1994 was a 53-week year. The results of Scrivner are included beginning
with the third quarter of 1994 and the consolidated results of ABCO are included
beginning in December 1995.
28 WEEKS ENDED JULY 12, 1997 AND JULY 13, 1996
NET SALES. Sales for the first half (28 weeks) of 1997 decreased by $.6
billion, or 7%, to $8.3 billion from $8.9 billion for the first 28 weeks of
1996. Several trends and events adversely impacting sales are described above
under "--General." Additionally, the closing or sale of certain company-owned
retail stores also negatively impacted sales.
Retail sales generated by the same stores for the year-to-date period in
1997 compared to the same period in 1996 decreased 2.5%. The decrease was
attributable, in part, to certain promotions absent in the current period, to
triple coupons offered by certain competitors, and to new stores opened by
competitors in some markets, all of which negatively affected sales.
Fleming measures inflation using data derived from the average cost of a ton
of product sold by the company. Food price inflation year-to-date 1997 was 1.2%
compared to 2.3% for the same period in 1996.
GROSS MARGIN. Gross margin for the first half of 1997 decreased by $39
million, or 5%, to $763 million from $802 million, but increased as a percentage
of net sales to 9.19% from 9.00% for the same period in 1996. The increase in
gross margin percentage was primarily due to improved gross margins at company-
owned retail stores. Food price inflation resulted in a LIFO charge in 1997 of
$4.1 million year to date compared to charges of $1.5 million year to date in
1996.
SELLING AND ADMINISTRATIVE EXPENSES. Year to date, selling and
administrative expenses decreased by $61 million, or 9%, to $639 million from
$699 million for the same period in 1996 and decreased as a percentage of net
sales to 7.69% for 1997 from 7.85% in 1996. The percentage decrease was
principally due to reduced operating expenses of company-owned retail stores and
to reduced corporate expenses in the information technology area. The decrease
was partially offset by an increase in incentive compensation expense in 1997
compared to 1996.
35
<PAGE>
The company has a significant amount of credit extended to its customers
through various methods. These methods include customary and extended credit
terms for inventory purchases, secured loans with terms generally up to ten
years, and equity investments in and secured and unsecured loans to certain
customers. In addition, the company guarantees debt and lease obligations of
certain customers. For further information, see "Business--Capital Invested in
Customers."
Credit loss expense is included in selling and administrative expenses. Year
to date, credit loss expense was $11 million in 1997 compared to $15 million in
1996 for a decrease of $4 million. Since 1994, tighter credit practices and
reduced emphasis on credit extensions to and investments in customers have
resulted in less exposure and a decrease in credit loss expense. However,
further material reductions are not expected.
INTEREST EXPENSE. Interest expense for the 28 weeks ended July 12, 1997
decreased to $85 million from $90 million in 1996. Lower average borrowing
levels in 1997 compared to 1996 primarily accounted for the improvement. If
current levels of debt and interest rates prevail in the future, interest
expense will increase because the interest rates on the new senior subordinated
notes are higher than the rates on debt which was repaid. See Note 4 to the
company's interim financial statements.
The stated interest rate on the company's floating rate indebtedness is
equal to the London interbank offered interest rate ("LIBOR") plus a margin. The
company employs interest rate swaps and caps from time to time to manage
exposure to changing interest rates and interest expense. In the second quarter
of 1997, interest rate swaps and caps covering $650 million aggregate principal
amount of floating rate indebtedness were employed. Year to date, interest rate
hedge agreements contributed $4.4 million of net interest expense in 1997
compared to $4.9 million in 1996.
In conjunction with its Recapitalization Program (see "--Liquidity and
Capital Resources"), the company terminated interest rate swaps and caps
covering $400 million aggregate principal amount of floating rate indebtedness.
The extraordinary charge from the early retirement of debt of $13.3 million
recorded in the second quarter of 1997 included $1.2 million after-tax in hedge
termination costs for interest rate swaps and caps covering $200 million of debt
to be retired with the proceeds from the recapitalization program. The cost to
terminate the interest rate swaps and caps covering the remaining $200 million
of debt was immaterial.
INTEREST INCOME. Interest income for the first half of 1997 decreased to
$25 million from $27 million in 1996. The decrease is primarily due to the
company's sale in the third quarter of 1996 of $35 million of notes receivable
with limited recourse. The decrease is partly offset by new notes funded since
the note sale.
EQUITY INVESTMENT RESULTS. The company's portion of operating losses from
equity investments for the first half of 1997 were relatively unchanged from $7
million in 1996.
LITIGATION CHARGE. In the first quarter of 1997, the company paid $19.9
million in complete settlement of the David's litigation. In the first quarter
of 1996, the company accrued $7.1 million as the result of a jury verdict
regarding the case. In the second quarter of 1996, the accrual was reversed
following the vacation of the judgment and a new accrual for $650,000 was
established. See Note 5 to the company's interim financial statements.
TAXES ON INCOME. The effective tax rate for 1997 is presently estimated at
58.0%. This rate was used in calculating the year-to-date income tax amounts.
The presentation of the tax is split by reflecting a tax benefit at the
statutory rate of 40% for the extraordinary charge and reflecting the balance of
the tax amount on the taxes on income line. The rate used for the first half of
1996 was 51.1%. The increase is primarily due to lower earnings in 1997 compared
to 1996 (primarily due to the litigation charge and the write-off of costs
associated with the early retirement of debt) with basically no change in
nondeductible dollar amounts (permanent differences) from 1996.
36
<PAGE>
1996 AND 1995
NET SALES. Sales for 1996 decreased by $1.01 billion, or 6%, to $16.49
billion from $17.50 billion for 1995. See "--General" above and "Risk
Factors--Changing Industry Environment" and "--Sales Declines" for a discussion
of trends and events adversely affecting sales.
The company measures inflation using data derived from the average cost of a
ton of product sold by the company. For 1996, food price inflation was 2.3%,
compared to 1.3% in 1995.
GROSS MARGIN. Gross margin for 1996 increased by $71 million, or 5%, to
$1.48 billion from $1.41 billion for 1995 and increased as a percentage of net
sales to 8.99% from 8.06% for 1995. The increase in gross margin was principally
due to new retail operations, primarily the addition of ABCO. Retail operations
typically have a higher gross margin and higher selling and administrative
expenses than food distribution operations. During 1996, the company also
implemented increases in certain charges to its customers and vendors,
increasing gross margin compared to 1995. Product handling expenses, consisting
of warehouse, transportation and building expenses, were lower as a percentage
of net sales in 1996 compared to 1995, reflecting the cost controls and the
benefits of the company's facility consolidations and transportation outsourcing
efforts in 1995 and 1994. The company also achieved food distribution
productivity increases during 1996 of 2.6%. Food price inflation resulted in a
LIFO charge in 1996 of $6.0 million compared to a charge of $2.9 million for
1995.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
for 1996 increased by $85 million, or 7%, to $1.27 billion from $1.19 billion
for 1995 and increased as a percentage of net sales to 7.73% for 1996 from 6.79%
in 1995. The increase was principally due to: higher retail expenses resulting
from additional retail operations; a $12 million charge related to the
divestiture of retail stores; and higher legal expense in 1996 compared to 1995.
During 1996, a $1.6 million gain from the sale of certain notes receivable was
recorded; a similar gain of $3.9 million was recorded in 1995. The increase in
corporate expenses under Operating Earnings shown in "--Segment Information"
below and in the notes to the company's consolidated financial statements
includes the aforementioned increase in legal expense, a write-down of certain
international equity investments and increased incentive compensation expense.
Credit loss expense is included in selling and administrative expenses and
for 1996 decreased by $4 million to $27 million from $31 million for 1995. Since
1994, tighter credit practices and reduced emphasis on credit extensions to and
investments in customers have resulted in less exposure and a decrease in credit
loss expense. See "Business--Capital Invested in Customers." Offsetting the
decreases in 1996 from 1995 was $3.8 million of credit losses related to the
bankruptcy of Megafoods, reflecting the estimated deterioration in the company's
collateral. An additional $2.0 million was recorded to selling and
administrative expense, but not credit loss, during the third quarter of 1996
for the expected loss on the proposed Megafoods settlement. See "--Litigation
and Contingencies."
INTEREST EXPENSE. Interest expense for 1996 decreased $12 million to $163
million from $175 million for 1995. Lower average borrowing levels offset in
part by higher borrowing costs for bank debt in 1996 compared to 1995 primarily
accounted for the improvement. In February and April 1996, the company amended
its bank credit agreement first to provide greater financing flexibility and
subsequently to increase the company's capacity for letters of credit in order
to partially secure a supersedeas bond in connection with the David's
litigation. These amendments effectively increased the company's bank debt
borrowing margin by almost .5%. In August 1996, Moody's Investors Service
("Moody's") lowered its credit ratings on the company's senior unsecured debt to
Ba3 from Ba1. The downgrade resulted in a .25% increase in the company's bank
debt borrowing margin which increased interest expense on borrowing under the
bank credit agreement at an estimated annualized cost of $2 million. In
September 1996, Standard & Poor's Ratings Group ("Standard & Poor's") lowered
its credit ratings on the company to BB from BB+, and on the company's senior
unsecured debt to B+ from BB-. The downgrade did not result in an additional
increase in the company's bank debt borrowing margin.
37
<PAGE>
For 1996, interest rate hedge agreements contributed $10 million of interest
expense, compared to $7 million in 1995, due to lower average floating interest
rates. In 1996, the company had in place interest rate swaps and caps covering
$850 million aggregate principal amount of floating rate indebtedness. The
company's hedged position exceeded the hedge requirements set forth in the
Credit Agreement.
The stated interest rate on the company's floating rate indebtedness is
equal to LIBOR plus a margin. The average fixed interest rate paid by the
company on the interest rate swaps was 6.95%, covering $600 million of floating
rate indebtedness. The interest rate swap agreements, which were implemented
through six counterparty banks and at year-end 1996 had an average remaining
life of two years, provide for the company to receive substantially the same
LIBOR that the company pays on its floating rate indebtedness. For the remaining
$250 million, the company has purchased interest rate cap agreements from two
counterparty banks. The agreements cap LIBOR at 7.33% over the next 2 years.
Payments made or received under interest rate swap and cap agreements are
included in interest expense.
INTEREST INCOME. Interest income for 1996 was $49 million compared to $58
million in 1995. In 1996, the company sold (with limited recourse) $35 million
of notes receivable late in the third quarter. In 1995, $77 million of notes
receivable were sold with limited recourse in the second quarter. Both of these
sales reduced the amount of notes receivable available to produce interest
income.
EQUITY INVESTMENT RESULTS. The company's portion of operating losses from
equity investments for 1996 decreased by $9 million to $18 million from $27
million for 1995. The results of operations of ABCO, accounted for under the
equity method during most of 1995, are not included in 1996 equity investment
results due to the acquisition of ABCO. This resulted in an improvement in
equity investment results in 1996 compared to 1995. The remainder of the
improvement is due to improved results of operations in certain of the
underlying equity investment entities.
FACILITIES CONSOLIDATION. In the first quarter of 1995, management changed
its estimates of costs for facilities consolidation with respect to the general
merchandising operations portion of the consolidation, reorganization and
reengineering plan. The revised estimate reflected reduced expense and cash
outflow. Accordingly, during the first quarter of 1995, the company reversed $9
million of the provision for facilities consolidation. No changes were made to
the estimates in 1996.
In 1993, the company recorded a $108 million facilities consolidation and
restructuring charge. During 1996, $3 million of restructuring and consolidation
costs was charged to the related reserve, compared to $24 million in 1995,
reflecting the lower level of consolidation activity occurring in 1996.
Additional charges to the $18 million of remaining reserves are anticipated in
1997, although the amount is not yet known.
TAXES ON INCOME. The effective tax rate for both 1996 and 1995 was 51.1%.
1995 AND 1994
NET SALES. Net sales for 1995 increased by $1.78 billion, or 11%, to $17.50
billion from $15.72 billion for 1994. Notwithstanding the positive effects of
the Scrivner acquisition in the third quarter of 1994, net sales in 1995 were
adversely impacted by the combined effects of the organizational and operational
changes introduced in 1995. See "--General" above and "Risk Factors--Changing
Industry Environment" and "--Sales Declines." In addition, other factors
adversely affected sales in 1995 including the loss of business from Megafoods
following the commencement of its bankruptcy proceeding and the expiration of a
temporary sales agreement with Albertson's Inc. as its Florida distribution
center came on line.
Food price inflation was 1.3% in 1995 compared to a negligible rate in 1994.
GROSS MARGIN. Gross margin for 1995 increased by $288 million, or 26%, to
$1.41 billion from $1.12 billion for 1994 and increased as a percentage of net
sales to 8.06% for 1995 from 7.14% for 1994. The primary reason for the increase
was additional retail operations principally related to the Scrivner
38
<PAGE>
acquisition. Retail operations typically have a higher gross margin than food
distribution operations. Product handling expenses, which consist of warehouse,
truck and building expenses, were approximately the same as a percentage of net
sales in 1995 as in 1994. In food distribution, reduced vendor income due to the
accelerated trend to Every Day Low Costing negatively impacted gross margin and
certain other margin items that are passed through to customers under the
company's marketing plan. This gross margin impact was only partially offset by
increases in related charges to customers.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense for
1995 increased by $257 million, or 28%, to $1.19 billion from $933 million for
1994 and increased as a percentage of net sales to 6.79% for 1995 from 5.93% in
1994. Retail operations typically have higher selling and administrative
expenses than food distribution operations and the full year of retail acquired
from Scrivner was the primary reason for the increase. Goodwill amortization
also increased as a result of the acquisition. In addition, the
technology-related aspects of the various reengineering initiatives resulted in
an increase in expense. The increase in corporate expenses under Operating
Earnings shown in "--Segment Information" below and in the notes to the
company's consolidated financial statements is the result of these reengineering
initiatives.
Credit loss expense included in selling and administrative expenses
decreased in 1995 by $30 million to $31 million from $61 million for 1994.
Tighter credit practices and reduced emphasis on credit extensions to and
investments in customers resulted in less exposure and a decrease in credit loss
expense.
INTEREST EXPENSE. Interest expense for 1995 increased $55 million to $175
million from $120 million for 1994. The increase was due principally to higher
borrowing due to the Scrivner acquisition, higher interest rates in the capital
and credit markets, and an increase in the interest rates for the company
resulting from changes in the company's credit rating brought about by increased
leverage due to the acquisition of Scrivner and subsequent disappointing
performance. Interest rates are fixed on the majority of the company's debt as a
result of hedges.
For 1995, the interest rate hedge agreements contributed $7 million of
interest expense, compared to $6 million in 1994.
INTEREST INCOME. Interest income for 1995 increased by $1 million to $58
million from $57 million for 1994. Increases in interest income resulting from
earnings on the notes receivable acquired in the Scrivner loan portfolio were
nearly offset by the loss of interest income on $77 million of notes receivable
sold by the company in June 1995 with limited recourse. The sale reduced the
amount of notes receivable available to produce interest income during 1995.
EQUITY INVESTMENT RESULTS. The company's portion of operating losses from
equity investments for 1995 increased by $12 million to $27 million from $15
million for 1994. Certain of the strategic multi-store customers in which the
company has made equity investments under its joint venture program experienced
increased losses when compared to 1994. Additionally, losses from retail stores
which are part of the company's equity store program and are accounted for under
the equity method also increased.
At the end of 1995 with the acquisition of a majority equity position in
ABCO, the company began to consolidate the results of operations and the
financial position of ABCO. In early 1996, the company acquired all the assets
of ABCO through foreclosure in cancellation of $66 million of ABCO indebtedness
to the company.
FACILITIES CONSOLIDATION. In the first quarter of 1995, management changed
its cost estimates with respect to the general merchandising operations portion
of the reengineering plan. The revised estimate reflects reduced expense and
cash outflow. Accordingly, during the first quarter the company reversed $9
million of the related provision.
39
<PAGE>
TAXES ON INCOME. The company's effective tax rate for 1995 increased to
51.1% from 50.0% for 1994. The increase was primarily due to increased goodwill
amortization with no related tax deduction, operations in states with higher tax
rates and the significance of certain other nondeductible expenses to pretax
earnings.
SEGMENT INFORMATION
The following table sets forth the composition of the company's net sales,
operating earnings, depreciation and amortization, capital expenditures and
identifiable assets in 1994, 1995 and 1996. Food distribution includes food and
general merchandise distribution.
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
NET SALES
Food distribution...................................................... $ 15,543 $ 16,665 $ 14,904
Less sales elimination................................................. (1,953) (2,529) (2,123)
--------- --------- ---------
Net food distribution.................................................. 13,590 14,136 12,781
Retail food............................................................ 2,134 3,366 3,706
--------- --------- ---------
Total................................................................ $ 15,724 $ 17,502 $ 16,487
--------- --------- ---------
--------- --------- ---------
OPERATING EARNINGS
Food distribution...................................................... $ 263 $ 288 $ 299
Retail food............................................................ 27 46 47
Corporate expense...................................................... (100) (119) (139)
--------- --------- ---------
Total operating earnings............................................... 190 215 207
Interest expense....................................................... (120) (175) (163)
Interest income........................................................ 57 58 49
Equity investment results.............................................. (15) (21) (18)
Litigation settlement.................................................. -- -- (20)
Facilities consolidation............................................... -- 9 --
--------- --------- ---------
Earnings before taxes.................................................. $ 112 $ 86 $ 55
--------- --------- ---------
--------- --------- ---------
DEPRECIATION AND AMORTIZATION
Food distribution...................................................... $ 99 $ 117 $ 107
Retail food............................................................ 33 43 56
Corporate.............................................................. 14 21 25
--------- --------- ---------
Total................................................................ $ 146 $ 181 $ 188
--------- --------- ---------
--------- --------- ---------
CAPITAL EXPENDITURES
Food distribution...................................................... $ 107 $ 70 $ 59
Retail food............................................................ 26 30 50
Corporate.............................................................. 7 14 20
--------- --------- ---------
Total................................................................ $ 140 $ 114 $ 129
--------- --------- ---------
--------- --------- ---------
IDENTIFIABLE ASSETS
Food distribution...................................................... $ 3,262 $ 3,021 $ 2,647
Retail food............................................................ 547 588 647
Corporate.............................................................. 799 688 761
--------- --------- ---------
Total................................................................ $ 4,608 $ 4,297 $ 4,055
--------- --------- ---------
--------- --------- ---------
</TABLE>
40
<PAGE>
Certain reclassifications have been made to the 1995 information. Equity
investment results representing a joint venture in 1995 have been reclassified
to retail operating earnings to compare to the 1996 consolidation of that joint
venture.
Sales and operating earnings for the company's food distribution and retail
food segments in the first half of 1996 and 1997 are presented below.
<TABLE>
<CAPTION>
28 WEEKS ENDED
--------------------
JULY 13, JULY 12,
1996 1997
--------- ---------
(IN MILLIONS)
<S> <C> <C>
SALES
Food distribution.................................................................... $ 6,873 $ 6,449
Retail food.......................................................................... 2,038 1,854
--------- ---------
Total.............................................................................. $ 8,911 $ 8,303
--------- ---------
--------- ---------
OPERATING EARNINGS
Food distribution.................................................................... $ 162 $ 149
Retail food.......................................................................... 20 47
Corporate expense.................................................................... (79) (71)
--------- ---------
Total.............................................................................. $ 103 $ 125
--------- ---------
--------- ---------
</TABLE>
Operating earnings for industry segments consist of net sales less related
operating expenses. Operating expenses exclude interest expense, interest
income, equity investment results, litigation charge and taxes on income.
General corporate expenses are not allocated to the Food Distribution and
Retail Food Segments. The transfer pricing between segments is at cost. 1996
corporate expense has been restated to exclude litigation charges which is a
separate line on the consolidated statements of earnings.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the company continued to reduce debt incurred in connection
with the 1994 acquisition of Scrivner, reducing debt by $186 million. This level
of prepayment exceeded required repayments by $132 million. Set forth below is
certain information regarding the company's capital structure at the end of
1995, 1996 and the first half of 1997.
<TABLE>
<CAPTION>
DECEMBER 30, 1995 DECEMBER 28, 1996 JULY 12, 1997
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
Long-term debt(a)......................... $ 1,402 48.8% $ 1,216 45.5% $ 1,148 44.1%
Capital lease obligations(a).............. 388 13.5 381 14.2 371 14.3
--------- ----- --------- ----- --------- -----
Total debt (a)............................ 1,790 62.3 1,597 59.7 1,519 58.4
Shareholders' equity...................... 1,083 37.7 1,076 40.3 1,083 41.6
--------- ----- --------- ----- --------- -----
Total capital............................. $ 2,873 100.0% $ 2,673 100.0% $ 2,602 100.0%
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
</TABLE>
- ------------------------
(a) Includes current maturities.
Operating activities generated positive net cash flows of $55 million for
the 28 weeks ended July 12, 1997 compared to positive net cash flows of $175
million for the same period in 1996. The variance is explained primarily by a
lower reduction in inventories and higher decrease in accounts payable coupled
with payment of the David's settlement, offset in part by higher deferred income
taxes, higher earnings before the extraordinary charge, and a higher decrease in
accounts receivable. Working capital was
41
<PAGE>
$289 million at the end of the first half of 1997, an increase from $221 million
at year-end 1996. The current ratio increased to 1.27 to 1 at the end of the
first half of 1997 from 1.16 to 1 at year-end 1996.
Capital expenditures were $49 million for the 28 weeks ended July 12, 1997
compared to $69 million for the same period in 1996. Management expects total
capital expenditures for 1997, excluding acquisitions, will approximate $145
million compared to $129 million actual expenditures in 1996. Completion of the
company's Recapitalization Program permits the company to increase its total
investment spending for capital expenditures and acquisitions. The company
intends to increase its retail food segment operations by increasing investments
in new and remodeled stores in the company's existing retail chains and by
making selective acquisitions of supermarket chains or groups as opportunities
arise.
The debt-to-capital ratio at the end of the first half of 1997 was 58.4%,
down from 59.7% at year-end 1996. The company's long-term target ratio is
between 50% and 55%.
On July 29, 1997, the board of directors approved a quarterly cash dividend
of $.02 per share for the third quarter of 1997 payable September 10, 1997. For
the previous five fiscal quarters the board of directors has approved a $.02 per
share quarterly dividend.
The company's principal sources of liquidity and capital have been cash
flows from operating activities, borrowings under its credit facility and the
public and private debt capital markets.
On July 25, 1997, the company entered into a new $850 million senior secured
credit facility and sold $500 million of Senior Subordinated Notes. Proceeds
from the initial borrowings under the new credit facility and the sale of the
Senior Subordinated Notes were used to repay all outstanding bank debt under the
previous credit facility and the balance, together with available cash and
additional revolver borrowings, was used to redeem the company's $200 million
Floating Rate Senior Notes on September 15, 1997. The Recapitalization Program
provides the company with increased flexibility to re-deploy assets and pursue
new business investment, such as the expansion of the company's retail food
operations, strengthens Fleming's capital structure by reducing senior secured
bank loans and repaying the Floating Rate Senior Notes, extends the average life
of total debt outstanding and reduces annual scheduled debt maturities.
The new $850 million senior secured credit facility consists of a $600
million revolving credit facility, with a final maturity of July 25, 2003, and a
$250 million amortizing term loan, with a maturity of July 25, 2004. Up to $300
million of the revolving credit portion may be used for issuing letters of
credit. Borrowings and letters of credit issued under the New Credit Agreement
may be used for general corporate purposes and are secured by a first priority
security interest in the accounts receivable and inventories of the company and
its subsidiaries and in the capital stock or other equity interests owned by the
company in its subsidiaries. In addition, the New Credit Agreement is guaranteed
by substantially all company subsidiaries (see Note 6 to the company's interim
financial statements). The stated interest rate on borrowings under the New
Credit Agreement is equal to the London interbank offered interest rate
("LIBOR") plus a margin. The level of the margin is dependent on credit ratings
on the company's senior secured bank debt.
At the end of the first half of 1997, borrowings under the previous bank
credit facility totaled $504 million in term loans and $40 million of revolver
borrowings and $90 million of letters of credit had been issued. At July 25,
1997, borrowings under the new $850 million credit facility totaled $250 million
in term loans, no borrowings under the revolving facility and $90 million of
letters of credit were outstanding (reducing the capacity of the $600 million
revolver on a dollar-for-dollar basis).
42
<PAGE>
The company's total debt outstanding at the end of the first half of 1997
and as adjusted to give PRO FORMA effect to the Recapitalization Program was as
follows (in millions).
<TABLE>
<CAPTION>
JULY 12, 1997
--------------------------
ACTUAL AS ADJUSTED(a)
--------- ---------------
<S> <C> <C>
Previous credit agreement:
Revolving credit............................................................ $ 40 $ --
Term loans.................................................................. 504 --
Fixed Rate Senior Notes due 2001.............................................. 300 300
Floating Rate Senior Notes due 2001(b)........................................ 200 --
Medium-Term Notes............................................................. 99 99
Other debt.................................................................... 5 2
New Credit Agreement:
Revolving credit............................................................ -- 27
Term loans.................................................................. -- 250
10 1/2% Subordinated Notes due 2004........................................... -- 250
10 5/8% Subordinated Notes due 2007........................................... -- 250
--------- ------
Total long-term funded debt................................................. 1,148 1,178
Capitalized lease obligations................................................. 371 371
--------- ------
Total debt.................................................................. 1,519 1,549
Less current maturities, long-term debt....................................... 38 38
Less current maturities, capital leases....................................... 20 20
--------- ------
Total debt, net............................................................. $ 1,461 $ 1,491
--------- ------
--------- ------
</TABLE>
- ------------------------
(a) Current maturities of long-term funded debt have been presented here and on
the balance sheet at the end of the first half of 1997 based on the
scheduled debt maturities resulting from the recapitalization. The company's
annual scheduled amortization for long-term funded debt obligations now
requires principal reductions of approximately $48 million in 1998, $44
million in 1999, $72 million in 2000, $339 million in 2001, and $51 million
in 2002.
(b) From July 25, 1997 until September 15, 1997, $145 million of the proceeds
from the Recapitalization Program were held in escrow until they were used,
together with available cash and additional revolver borrowings, to redeem
all $200 million outstanding Floating Rate Senior Notes.
The composite interest rate for total debt before the effect of interest
rate hedges was 8.8% at July 12, 1997, versus 8.9% at July 13, 1996. Including
the effect of the interest rate hedges, the composite interest rate was 9.2% and
9.4% at the respective period ends.
The New Credit Agreement and the indentures under which other company debt
instruments were issued contain customary covenants associated with similar
facilities. The New Credit Agreement currently contains the following more
significant financial covenants: maintenance of a fixed charge coverage ratio of
at least 1.7 to 1, based on earnings before interest, taxes, depreciation and
amortization and net rent expense; maintenance of a ratio of
inventory-plus-accounts receivable to funded-bank-debt (including letters of
credit) of at least 1.4 to 1; and a limitation on restricted payments, including
dividends. Covenants contained in the company's indentures are generally less
restrictive than those of the New Credit Agreement.
The New Credit Agreement may be terminated in the event of a defined change
of control. Under the company's indentures, noteholders may require the company
to repurchase notes in the event of a defined change of control coupled with a
defined decline in credit ratings.
At July 12, 1997, the company had $470 million of unused borrowing capacity
under the revolving credit facility contained in the New Credit Agreement based
on the actual borrowings and letters of credits outstanding. Under the company's
most restrictive borrowing covenant, which is the fixed charges coverage ratio
contained in the New Credit Agreement, $36 million of additional fixed charges
could have been
43
<PAGE>
incurred based on actual borrowings outstanding. After giving pro forma effect
to the Recapitalization Program as if it had occurred on July 12, 1997, the
company could have incurred an additional $23 million of fixed charges. The
company is in compliance with all financial covenants under the New Credit
Agreement and its indentures.
On June 27, 1997, Moody's Investors Service (Moody's) announced it had
revised its credit ratings for Fleming. Moody's downgraded its rating for the
company's senior secured credit facility with banks and other lenders to Ba3
from Ba2, senior unsecured notes to B1 from Ba3, and counterparty ratings to B1
from Ba3. Moody's assigned a Ba3 rating to the company's new $850 million credit
agreement, and a B3 rating for the new $500 million of senior subordinated
notes.
On June 30, 1997, Standard & Poor's Rating Group (S&P) announced it had
revised its outlook on Fleming to stable from negative and had affirmed the
company's BB corporate credit rating. Additionally, S&P raised its rating on the
company's senior unsecured notes to BB- from B+. It also assigned a B+ rating to
the company's new $500 million senior subordinated notes. On July 2, 1997, S&P
announced it had assigned a BB+ rating to the company's new $850 million credit
facility.
At the end of the first half of 1997, the company had a total of $90 million
of contingent obligations outstanding under undrawn letters of credit, primarily
related to insurance reserves associated with the company's normal risk
management activities. To the extent that any of these letters of credit would
be drawn, payments would be financed by borrowings under the credit agreement.
During the first half of 1997, the company employed interest rate swaps and
hedges covering a total of $650 million of floating rate indebtedness (see
"Results of Operations--Interest expense"). On July 25, 1997, the company
terminated interest rate swaps and caps covering $400 million of floating rate
indebtedness. The company now has outstanding interest rate swaps covering $250
million of its floating rate indebtedness, with an average fixed interest rate
of 7.2% and an average remaining term of 2.8 years. Payments made or received
under interest rate swaps are included in interest expense.
Management believes that the cash flows from operating activities and the
company's ability to borrow under the New Credit Agreement (which will be the
company's principal sources of liquidity and capital for the foreseeable future)
will be adequate to meet working capital needs, capital expenditures (including
expenditures for acquisitions, if any) and other cash needs for the next twelve
months.
LITIGATION AND CONTINGENCIES
From time to time the company faces litigation or other contingent loss
situations resulting from owning and operating its assets, conducting its
business or complying (or allegedly failing to comply) with federal, state and
local laws, rules and regulations which may subject the company to material
contingent liabilities. In accordance with applicable accounting standards, the
company records as a liability amounts reflecting such exposure when a material
loss is deemed by management to be both "probable" and "quantifiable" or
"reasonably estimable." During 1994, 1995, 1996 and the first half of 1997,
certain losses associated with litigation matters (excluding legal fees and
other costs) were recorded as follows (see "Business--Legal Proceedings" and
Note 5 to the company's interim financial statements):
PREMIUM. In the third quarter of 1996, an agreement was reached to
settle two related lawsuits pending against the company, and others, in the
U.S. District Court in Miami related to a failed grocery diverter, Premium
Sales Corporation. Under the agreement, all claims will be dismissed in
exchange for a payment of $19.5 million plus $500,000 for costs and
expenses. The company recorded a charge of $20 million during the third
quarter of 1996 in anticipation of the settlement and deposited that amount
into an escrow account in December pending finalization. The settlement is
subject to, among other conditions, receipt by the company of releases from
investors, including those who might not be bound by the settlement.
Plaintiffs have failed to timely deliver to the company releases sufficient
to meet the requirements of the settlement agreement. If no satisfactory
resolution is reached, the company will be entitled to terminate the
settlement and withdraw its escrow deposit. In the event a settlement is not
consummated, the company expects the litigation will resume.
44
<PAGE>
DAVID'S. Based on the vacation of the judgment entered against the
company in the David's litigation, the charge recorded during the first
quarter of 1996 of approximately $7 million was reduced during the second
quarter to $650,000 (which included approximately $200,000 of disputed
overcharges and approximately $450,000 of interest, fees and other sums).
During the third and fourth quarters, an additional $14,000 per quarter was
recorded as additional interest. In mid-March 1997, the company entered into
court-sanctioned mediation and, as a result of a settlement reached with the
plaintiff, paid $19.9 million in April 1997 in exchange for dismissal of all
claims against the company, with prejudice, resulting in a charge to
earnings of $19.2 million.
Since the announcement of the initial judgment in the David's
litigation, other customers involved in disputes with the company have made
allegations of overcharges purporting to be similar to those made in the
David's case and such allegations may be made by others in the future.
Management is unable to predict the potential range of monetary exposure to
the company from such allegations, if any. However, if the plaintiff in any
such cases were to be successful in these assertions, the outcome could have
a material adverse effect on the company.
MEGAFOODS. In August 1996, the court approved a settlement of both the
debtor's adversary proceeding against the company and the company's disputed
claims in the bankruptcy proceedings of a former customer and certain of its
affiliates ("Megafoods"). The settlement is subject to approval by the
creditors of a revised plan which will encompass the settlement. Under the
terms of the settlement, the company will retain a $12 million working
capital deposit, relinquish its secured and unsecured claims in exchange for
the right to receive 10% of distributions, if any, made to the unsecured
creditors and pay the debtor $2.5 million in exchange for the furniture,
fixtures and equipment from 17 of its stores (located primarily in Texas)
and two Texas storage facilities. The company agreed to lease to the
reorganized debtor the furniture, fixtures and equipment in 14 of the stores
for nine years (or until, in each case, the expiration of the store lease)
at an annual rental of $18,000 per store.
During the fourth quarter of 1996, the debtor sold its Phoenix stores;
no distributions were made to the unsecured creditors. In January 1997, the
debtor filed a joint liquidating plan which incorporates the settlement
agreement. The hearing on confirmation of the debtor's plan was set for June
30, 1997, but has been postponed and not rescheduled. During the second
quarter of 1997, the debtor sold its Texas assets and the purchaser agreed
to assume the debtor's obligation to lease furniture, fixtures and equipment
from the company. The debtor has now disposed of substantially all of its
physical assets. The company has not received any distribution from the
debtor's estate.
The company recorded charges of $6.5 million in 1994, $3.5 million in
1995 and $5.8 million in 1996. If the settlement is consummated, the company
will make an additional payment of $2.5 million to the debtor's estate. Net
assets recorded related to Megafoods at the end of the first half of 1997
approximate $3.1 million.
In addition, the company discloses material loss contingencies in the notes
to its financial statements when the likelihood of a material loss has been
determined to be greater than "remote" but less than "probable." In February
1997, the company's largest customer brought suit against the company for
damages and seeking to terminate its supply contract. In July 1997, another
large customer instigated arbitration proceedings alleging that the company had
overcharged it for products. These and other such contingent matters are
discussed in Note 5 to the company's interim financial statements, which appear
elsewhere herein. Also see "Business--Legal Proceedings." An adverse outcome
experienced in one or more of such matters, or an increase in the likelihood of
such an outcome, could have a material adverse effect on the company's business,
results of operations, cash flow, capital, access to capital or financial
condition.
Fleming has numerous computer systems which were developed employing six
digit date structures (i.e., two digits each for month, day and year). Where
date logic requires the year 2000 or beyond, such date structures may produce
inaccurate results. Management has implemented a program to comply with
45
<PAGE>
year 2000 requirements on a system-by-system basis. Fleming's plan includes
extensive systems testing and is expected to be completed by the first quarter
of 1999. The solution for each system is potentially unique and may be dependent
on third-party software providers and developers. A failure on the part of the
company to ensure that its computer systems are year 2000-compliant could have a
material adverse effect on the company's operations.
FORWARD-LOOKING INFORMATION
This Prospectus contains forward-looking statements of expected future
developments. The company wishes to ensure that such statements are accompanied
by meaningful cautionary statements pursuant to the safe harbor established in
the Private Securities Litigation Reform Act of 1995. The forward-looking
statements herein refer to, among other matters, the company's ability to
implement measures to reverse sales declines, cut costs and improve earnings;
the company's assessment of the probability and materiality of losses associated
with litigation and other contingent liabilities; the company's ability to
develop and implement year-2000 systems solution; the company's ability to
expand portions of its business or enter new facets of its business which it
believes will be more profitable than its food distribution business; the
company's expectations regarding the adequacy of capital and liquidity; and the
receptiveness of the company's customers to its alternative marketing plans. See
"Risk Factors." These forward-looking statements reflect management's
expectations and are based upon currently available data; however, actual
results are subject to future events and uncertainties which could materially
impact actual performance.
The company's future performance also involves a number of risks and
uncertainties. Among the factors that can cause actual performance to differ
materially are: the continuation of changes in the food distribution industry
which have increased competitive pressures and reduced operating margins in both
food distribution and retail food operations; the potential negative effects of
the company's substantial indebtedness; limitations on management's discretion
with respect to certain business matters imposed by restrictive covenants
contained in the company's credit facility and indentured debt instruments;
failure of the company to successfully implement its alternative marketing
plans; an inability to achieve cost savings due to unexpected developments,
changed plans regarding capital expenditures; potential adverse developments
with respect to litigation and contingency matters; general economic conditions
and the impact of such conditions, or any of the factors listed above, on
consumer spending.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128--Earnings Per
Share, which is effective for the company's fiscal year ending December 27,
1997. The statement establishes standards for computing and presenting earnings
per share. Adoption of SFAS No. 128 is not expected to have a material impact on
earnings per share.
Also in February 1997, the FASB issued SFAS No. 129--Disclosure of
Information about Capital Structure, which is effective for the company's fiscal
year ending December 27, 1997. The statement establishes standards for
disclosing information about a reporting company's capital structure. Adoption
of SFAS No. 129 relates to disclosure within the financial statements and will
not have a material effect on the company's financial statements.
In June 1997, the FASB issued SFAS No. 130--Reporting Comprehensive income
which is effective for the company's fiscal year ending December 26, 1998. The
statement addresses the reporting and displaying of comprehensive income and its
components. Earnings per share will only be reported for net income and not for
comprehensive income. The company has not had adequate time to determine the
differences between comprehensive income and net income.
Also in June 1997, the FASB issued SFAS No. 131--Disclosure about Segments
of an Enterprise and Related Information. SFAS No. 131 modifies current segment
reporting requirements and establishes, for public companies, criteria for
reporting disclosures about a company's products and services, geographic areas
and major customers in annual and interim financial statements. The company will
adopt SFAS No. 131 for the fiscal year ending December 26, 1998.
46
<PAGE>
BUSINESS
Fleming began operations as a food wholesaler in 1915 and today is a
recognized leader in the food marketing and distribution industry. Fleming's
food distribution business is conducted by its Food Distribution Segment, which
is one of the largest food and general merchandise distributors in the United
States. Fleming's retail business is conducted by its Retail Food Segment
through 14 local chains and groups operating under separate banners. At year-end
1996, the Retail Food Segment was one of the 20 largest retailers in the United
States based on net sales. Fleming's businesses generated net earnings of $42
million, $27 million and $19 million for fiscal 1995 and 1996 and for the 52
weeks ended July 12, 1997, respectively. Additionally, the company generated
cash flows from operations of $399 million, $328 million and $208 million for
the same periods, respectively. The combined businesses generated $448 million,
$435 million and $448 million of Adjusted EBITDA for fiscal 1995 and 1996 and
for the 52 weeks ended July 12, 1997, respectively.
Fleming is focused on achieving earnings growth in both its distribution and
retail food businesses. In its food distribution business, the company is (i)
increasing its sales efforts, particularly by emphasizing the company's
marketing plan alternatives and information technology systems, (ii)
streamlining and strengthening Fleming Brands and its offerings of Retail
Services and (iii) broadening its perishables and foodservice offerings. In its
retail food business, Fleming is making significant investments in new and
remodeled stores in its existing retail chains and will seek selective
acquisitions of supermarket groups or chains which can be integrated into
Fleming's distribution infrastructure. The company will continue to implement
cost reduction initiatives in both of its business segments and in its corporate
staff operations.
OPERATING SEGMENTS
FOOD DISTRIBUTION SEGMENT. At year-end 1996, Fleming's Food Distribution
Segment served as the principal source of supply for more than 3,100
supermarkets (including supermarkets owned by Fleming's Retail Food Segment),
which represented approximately 10% of all supermarkets in the United States.
Distribution operations are conducted through a network of 35 full-line food
product supply centers, six general merchandise and specialty food distribution
centers, and two centers focused primarily on serving convenience stores. The
Food Distribution Segment serves stores of various sizes located in 42 states.
Distribution customers operate in a wide variety of formats including
conventional full-service supermarkets, supercenters, price impact stores,
combination stores and convenience stores. Net sales for the Food Distribution
Segment were $14.4 billion, including $2.0 billion of net sales to the Retail
Food Segment, for the 52 weeks ended July 12, 1997.
In 1996, approximately 19% of Food Distribution Segment sales were to the
Fleming Retail Food Segment, 30% were to members of Fleming Banner Groups, and
51% were to other retail chains and independents. Fleming Banner Groups are
retail stores operating under the IGA-Registered Trademark- or Piggly
Wiggly-Registered Trademark-banner or under one of a number of banners
representing a price impact retail format. Fleming Banner Group stores are owned
by customers, most of which license their store banner from Fleming. The company
is working to encourage independents and small chains to join one of the Fleming
Banner Groups to increase marketing strength and procurement benefits from
vendors. In accordance with customary industry definitions, 11 or more stores
are referred to as a "chain" and operations of 10 or fewer stores are referred
to as "independents."
The Food Distribution Segment offers a complete selection of national brand
and Fleming Brand products, including groceries, meat, dairy and delicatessen
products, frozen foods, produce, bakery goods and a variety of general
merchandise and related items. Fleming Brands, which include both private label
products and controlled label products, offer consumers a quality alternative to
national brands at a reasonable price while generating improved margins (for
both the retailer and the Food Distribution Segment) and reinforcing a
retailer's marketing identity. The company is expanding its line of in-store
foodservice products to offer consumers more home meal replacement solutions.
The Food Distribution
47
<PAGE>
Segment also offers an extensive menu of individually marketed and priced Retail
Services, which draw on Fleming's broad industry expertise and are designed to
enable both Fleming-owned and Fleming-served retailers to compete more
effectively.
In 1994, the Food Distribution Segment initiated a substantial cost
reduction effort. Through July 12, 1997, the Food Distribution Segment has
consolidated 13 distribution centers into larger, more efficient facilities,
eliminated a substantial number of full and part-time positions (see
"--Employees"), eliminated over 3 million square feet of warehouse space and
eliminated 24 information technology data centers. In addition, since 1994 the
Food Distribution Segment has developed the FlexPro-TM- and FlexStar-TM-
marketing plans for grocery, frozen and dairy products sold in certain locations
and expects to introduce a third marketing plan, FlexMate-TM-, before the end of
1997. See "--Pricing."
RETAIL FOOD SEGMENT. The Fleming Retail Food Segment owns approximately 270
supermarkets which are operated as 14 local chains and groups under separate
banners. At July 12, 1997, 13 additional stores were under construction. The
Retail Food Segment's supermarkets vary in format from conventional supermarkets
to super warehouse stores and serve consumers in the Minneapolis, Phoenix,
Milwaukee, Omaha, Buffalo, Peoria and Salt Lake City markets as well as
important regional areas located in Pennsylvania, Florida, Maryland, Kansas,
Missouri, Arkansas and California. Each Retail Food Segment supermarket is
served by a product supply center operated by the Food Distribution Segment.
In 1996 and the first half of 1997, the Retail Food Segment improved its
performance by:
- selling or closing 75 stores which were unprofitable or inconsistent with
Fleming's strategy,
- investing in seven new stores and remodeling and upgrading 52 stores,
- implementing customer loyalty programs which have become key marketing
tools to boost sales, and
- installing computer-based training in many Retail Food Segment
supermarkets.
Net sales of the Retail Food Segment were $3.5 billion in the 52 weeks ended
July 12, 1997 compared to $0.7 billion in fiscal 1992. This growth is
attributable primarily to acquisitions, but also to remodeled stores and newly
constructed stores. Since year-end 1994, total employment for the Retail Food
Segment has increased by 1,200 full and part-time positions (see "--Employees").
COMPETITIVE STRENGTHS
Fleming believes that its position as a leader in the food marketing and
distribution industry is attributable to a number of competitive strengths:
- SIGNIFICANT CUSTOMER BASE: As one of the largest food marketing and
distribution companies in the United States, with 43 product supply
centers and approximately 270 retail stores, the company has access to
millions of consumers who shop at Fleming-supported retail stores.
- STREAMLINED OPERATIONS: During the past three years, the Food Distribution
Segment has significantly enhanced the efficiency of its distribution
network as a result of facilities consolidations, staff reductions
resulting from reorganizations, warehouse space eliminations and
transportation outsourcing. In addition, 29 of the company's full-line
food product supply centers and five general merchandise distribution
centers operate under Fleming's on-line operating distribution system
("FOODS"), an internally developed information technology software system.
- FLEMING RETAIL FOOD SEGMENT: The Retail Food Segment's portfolio of 14
chains and groups operating under 13 distinct retail banners, each with
its own identity, local management and marketing capabilities, provides a
stable sales volume for the Food Distribution Segment and gives Fleming
important first-hand knowledge of consumer preferences and the retail
environment.
48
<PAGE>
Retail sales also offer Fleming the opportunity to earn attractive margins
relative to its distribution operations.
- HIGH QUALITY FLEMING BRANDS: Fleming Brand products generally produce
higher margins than national brands for retailers and the Food
Distribution Segment, and increase consumer loyalty. Capitalizing on its
substantial purchasing power and efficient distribution system, the Food
Distribution Segment offers a wide range of high quality Fleming Brand
products.
- EXPERTISE IN PERISHABLES: The company has developed extensive expertise in
handling, marketing, distributing and retailing higher margin perishable
products. The company derived 40% of net sales in 1996 from the sale of
perishables.
- DIVERSE OPERATIONS: With distribution customers in 42 states and
supermarkets operating in 23 states, Fleming is geographically diverse. It
also has broad experience in supplying and in operating retail food stores
across a full spectrum of formats and pricing strategies.
BUSINESS STRATEGY
Fleming's business strategy is to leverage its competitive strengths to
achieve earnings growth in its marketing and distribution business and in its
retail business. As principal elements of its business strategy, Fleming will:
- FOCUS ON DISTRIBUTION EARNINGS GROWTH: The Food Distribution Segment will
continue to pursue profitable sales and the expansion of its customer
base. The company pursues those customers and sales which can be
profitable for the long term, and will manage its costs in accordance with
sales performance. Fleming will strive to be the best-value supplier of
distribution products and retail services. Renewed sales efforts are
emphasizing regaining customers lost since 1994, in part by highlighting
the advantages of Fleming's marketing plan alternatives. The company will
continue to use activity-based costing in order to rationalize its pricing
and direct its marketing efforts to value-added services and products.
Efforts to educate retailers about the advantages of Fleming Retail
Services in managing their businesses will also be increased. Finally,
investments in and loans to retailers will be made on a selective basis.
- EXPAND RETAIL OPERATIONS: Fleming will seek to increase its ownership of
retail food operations by increasing investments in new and remodeled
stores within the Retail Food Segment and by selective acquisitions of
additional groups and chains, primarily in the markets already served by
the Food Distribution Segment. Retail sales have the potential to generate
attractive gross margins relative to Fleming's food distribution business,
and management believes that its broad expertise in meeting consumer needs
can be leveraged through a larger retailing business. The company will
seek to improve the Retail Food Segment's profitability by increasing
administrative efficiencies and divesting unprofitable stores as needed.
- AGGRESSIVELY MARKET FLEMING RETAIL SERVICES: The Food Distribution
Segment will exploit opportunities for growth in Fleming Retail Services.
In conjunction with the development of new marketing plans, Fleming
"unbundled" the Retail Services offered to its distribution customers,
giving them the opportunity to choose the services they wish to receive.
The company has also repriced its Retail Services based on market analyses
it conducted. A separate business group dedicated to marketing Fleming's
Retail Services seeks to increase penetration with existing customers and
to attract new customers. A major component of this effort is
VISIONET-TM-, the company's proprietary interactive electronic information
network.
- EMPHASIZE PERISHABLES AND FOODSERVICE OFFERINGS: Fleming is increasing
its emphasis on higher margin perishables as consumer demand grows for
fresh and prepared foods, in-store bakeries, delis, and expanded meat and
produce offerings. The company is also developing home meal replacement
concepts under its Chef's Cupboard-TM- banner. Twenty-seven modular units
were
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installed in 1996, and the company plans to install 90 in 1997. At
September 1, 1997, the company had installed 45 of the expected 1997
total. Other programs in development include a signature in-store pizza
program, Holiday Dinners and a line of more than 300 prepared meals.
- STREAMLINE AND STRENGTHEN FLEMING BRANDS: Fleming believes it has a
substantial opportunity to strengthen Fleming Brands, which currently
account for approximately 5% of Food Distribution Segment sales and
approximately 6% of Retail Food Segment grocery, frozen and dairy sales.
For many large retailers, store brand products comprise approximately 15%
of sales. Fleming Brands are targeted to three market segments: premium
products, national quality products and value products. The company is
consolidating its brands to three national quality brands
(BestYet-Registered Trademark-, IGA-Registered Trademark-and Piggly
Wiggly-Registered Trademark-), at least one value brand
(Rainbow-Registered Trademark-), and a multiple-brand group of premium,
upscale products individually tailored to selected market niches. The
increase in purchasing power and marketing strength expected to result
from fewer brands should benefit Fleming's food distribution customers by
further increasing margins, brand recognition and consumer loyalty.
Additionally, the number of products offered in each brand will be
expanded, and Fleming will develop new logos, packaging and marketing
programs over the next two years to strengthen sales for each Fleming
Brand.
- LEVERAGE INFORMATION TECHNOLOGY SYSTEMS: Fleming will continue to utilize
and to provide its customers with market leading information technology
systems. Initiatives currently underway include two distinct integrated
retail management systems which will combine point-of-sale systems,
inventory management and shrinkage control systems, frequent shopper
programs and labor scheduling systems. The Food Distribution Segment will
continue to promote VISIONET-TM- to attract and retain retailers, to more
efficiently network information exchanges among vendors, Fleming and
retailers, and to facilitate the company's implementation of Efficient
Consumer Response practices. VISIONET-TM- gives retailers access to
inventory information, financial data, vendor promotions, retail support
services and on-line ordering. Also, vendors compensate the company for
access to Fleming's customers through VISIONET-TM-. It currently covers
approximately 1,500 retail customer locations and will be upgraded during
1997 with the introduction of a third generation. With this new version,
VISIONET-TM- will provide greater internet capabilities. The company's
scale allows it to leverage investments in information technology more
broadly than many of its competitors. Fleming will continue to incorporate
state-of-the-art information technology systems in its own operations to
advance its administrative efficiencies.
- INCREASE COST EFFICIENCIES: The company will continue to aggressively
exploit opportunities for further consolidation of its operating units and
support systems, capitalize on staff efficiency initiatives, primarily in
its administrative operations, and pursue additional outsourcing
opportunities, particularly in transportation.
PRODUCTS
The Food Distribution Segment supplies its customers (including the Retail
Food Segment's supermarkets) with a full line of national brand and Fleming
Brand products, including groceries, meat, dairy and delicatessen products,
frozen foods, produce, bakery goods and a variety of general merchandise and
related items. Full-line food product supply centers carry approximately 14,000
stock keeping units (or SKUs), including approximately 4,500 perishable
products. General merchandise and specialty food distribution centers offer more
than 70,000 different items throughout the year.
FLEMING BRANDS. Fleming Brands are store brands which include both private
labels and controlled labels. Private labels are offered only in stores
operating under specific banners (which may or may not be controlled by
Fleming). Controlled labels are Fleming-owned brands which are offered to all
food distribution customers. Fleming Brands are targeted to three market
segments: premium, national quality and value. Each Fleming Brand offers
consumers high quality products within each pricing tier. Fleming-
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controlled labels include Divino-Registered Trademark- and Marquee-Registered
Trademark-, which are premium brands, Best Yet-Registered Trademark-, which is a
national quality brand, and Rainbow-Registered Trademark-, Fleming's value
brand. Fleming offers two private labels, IGA-Registered Trademark- and Piggly
Wiggly-Registered Trademark-, which are national quality brands. Fleming shares
the benefit of reduced acquisition costs of store brand products with its
customers, permitting both the Food Distribution Segment and the retailer to
earn higher margins from the sale of Fleming Brand products.
PERISHABLES. Certain categories of perishables offer both the Food
Distribution Segment and the retailer opportunities for improved margins as
consumers are generally willing to pay relatively higher prices for high quality
produce, bakery goods and frozen foods. Fleming is encouraging its perishables
providers to emphasize more "ready-to-use" packaging alternatives to support
consumer demands. The company believes retailers compete for business by
emphasizing perishables and store brand products. The competitive emphasis is on
fresh and prepared foods through in-store bakeries, delis, expanded meat and
produce offerings, in-store home meal replacement offerings, and ready-to-cook
or heat-and-serve offerings.
The company is utilizing its perishables expertise to develop fresh food
in-store meal replacement concepts under its Chef's Cupboard-TM- banner.
Twenty-seven modular units were installed during 1996 and by September 1, 1997,
45 of the 90 modules planned for 1997 were being or had been installed. These
in-store shops are offered as turn-key operations and allow retailers to
effectively compete for the rapidly growing foodservice dollar. Five concepts
are currently being licensed under Chef's Cupboard-TM-:
- CAPTAIN SUBMAN SOUP 'R SANDWICH-TM-, which offers deli-style sandwiches,
soups and salads;
- BAKER'S BLVD.-REGISTERED TRADEMARK-, with an assortment of premium baked
goods;
- CINNAMON ISLAND-TM-, serving coffee and cinnamon rolls;
- CHICKEN STORE AND MORE-TM-, offering baked chicken and side dishes; and
- S'ITALIAN SPECIALTIES-TM-, an Italian specialty food shop.
Other programs in development include ready-to-cook and heat-and-serve meal
items, three prototype produce kiosks, a repackaging and repositioning of
fresh-cut produce items and a line of Meal Time Solutions-TM- for bakery/deli
departments. These include a signature in-store pizza program, Holiday Dinners
and a line of more than 300 prepared meals. Each program will be accompanied by
comprehensive promotions, store format recommendations and educational seminars
to help retailers successfully meet consumer desire for a variety of convenient
meal solutions. Although foodservice is increasingly prominent in supermarkets,
there is not yet a clear indication that foodservice offerings, either singly or
in the aggregate, will be significant or profitable for the Food Distribution
Segment or its retail customers.
The company's product mix as a percentage of 1996 sales was 55% groceries,
40% perishables and 5% general merchandise.
RETAIL SERVICES
Retail Services have been unbundled since 1995 and are being separately
marketed, priced and delivered. Retail Services sales personnel look for
opportunities to cross-sell additional Retail Services as well as other Food
Distribution Segment products to their customers. The company offers consulting,
administrative and information technology services to its Food Distribution
Segment customers (including Retail Food Segment supermarkets) and
non-customers.
CONSULTING SERVICES: Retailers may call upon Fleming consultants to provide
professional advice regarding most facets of retail operations. Consulting
services available include the following:
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ADVERTISING. Fleming believes its advertising service group is one of the
largest retail food advertising agencies in the United States, offering full
service advertising production, media buying services, assistance in
promotion development and execution, and marketing consultation.
STORE DEVELOPMENT. This Retail Service uses the latest technology in market
analysis, surveys and store development techniques to assist retailers in
finding new locations as well as gaining operations productivity in existing
physical plants.
PRICING. Fleming consultants involve retailers directly in pricing their
own products through pricing strategy development programs that utilize
market surveys and new technology.
STORE OPERATIONS. Consultants offer assistance in perishables quality
control and standards monitoring, audit training, general supermarket
management, store operations analysis, shrink control and supervision task
outsourcing.
FRANCHISING. Fleming assists retailers in selecting the most suitable
franchising operating format.
INSURANCE. Professional consultants are available for reviewing, pricing
and coordinating retail insurance portfolios, which may or may not be a part
of Fleming's own insurance program.
ADMINISTRATIVE SERVICES: A retailer may use administrative services
provided by Fleming, listed below, to outsource functions being performed
internally or to install new programs which are not feasible for the retailer to
develop:
EDUCATION. Fleming operates retail food education facilities for both
hands-on and classroom training. Among the retail education services
provided are training for all levels of store managers and employees,
including selling skills, general management and perishables department
training, and strategic planning.
FINANCIAL. Fleming helps retailers track their financial performance by
providing full accounting services, operating statements, payroll and
accounts payable systems and tax return preparation. Additionally, it
assists retailers in establishing and managing money order programs,
pre-paid phone card programs and coupon redemption programs.
RETAIL INVENTORY MANAGEMENT (RIM). New inventory control programs are
currently being tested to more effectively manage product selection, and to
provide instant planogram, perpetual inventory and computer-assisted
ordering capability.
PROMOTION. Numerous promotional tools are offered to assist retail
operators in improving store traffic, such as frequent shopper programs,
kiosk use and instant savings programs; continuity programs such as games,
premium catalogs, etc.; and controlled markdown programs.
INFORMATION TECHNOLOGY SYSTEMS: Fleming has invested heavily in creating
new information technology products that will give retailers a competitive
systems edge:
RETAIL MANAGEMENT SYSTEMS. These services include POS equipment purchasing
and leasing, including programs with the three largest vendors of scanning
equipment; electronic payment systems; credit/debit/EBT; direct store
delivery and receiving systems; electronic shelf labels; in-store file
managers; and total store technology solutions.
VISIONET-TM-. VISIONET-TM-, the company's proprietary interactive
electronic information network, gives retailers access to inventory
information, financial data, vendor promotions, retail support services and
on-line ordering. VISIONET-TM- is an especially powerful tool for the small
independent retailer.
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PRICING
The Food Distribution Segment uses marketing research and cost analyses as a
basis for pricing its products and services. In all locations, Retail Services
are individually priced based on their estimated fair values. In 26 product
supply center locations, covering 56% of the Food Distribution Segment's sales
base for the 28 weeks ended July 12, 1997, all products are sold under various
selling plan programs; a percentage of product price is added for various
product categories as a distribution fee; and for some programs, freight charges
are added to offset in whole or in part the cost of delivery services provided.
Any cash discounts, certain allowances, and service income earned from vendors
may be retained by the Food Distribution Segment. This has been referred to
generally as the traditional pricing method.
At the remaining product supply centers, covering approximately 44% of its
sales base at July 12, 1997, the Food Distribution Segment uses
FlexPro-Registered Trademark- and FlexStar-Registered Trademark- to market its
grocery, frozen and dairy products and distribution services. Under
FlexPro-Registered Trademark-, grocery, frozen and dairy products are listed at
a price generally comparable to the net cash price paid by the Food Distribution
Segment. Under FlexPro-Registered Trademark-, service charges are established
using the principles of activity-based costing and marketing research. Charges
are added for the itemized storage, handling and delivery services provided to
each customer. A fee is also charged for administrative services provided to
arrange and manage certain allowances and service income offered by vendors and
earned by the Food Distribution Segment and its customers. In these locations,
the traditional pricing method is still applied for meat, produce, bakery goods,
delicatessen products, tobacco supplies, and general merchandise products.
FlexPro-Registered Trademark- is an enhanced version of the original
flexible marketing plan implemented in 1995. FlexStar-Registered Trademark- is
very similar to FlexPro-Registered Trademark- but generally uses a less complex
presentation for distribution service charges. In late 1997, the Food
Distribution Segment expects to introduce FlexMate-TM-, a marketing plan which
has a presentation to customers comparable to the traditional pricing method but
which operates from the same information technology system as FlexPro-Registered
Trademark- and FlexStar-Registered Trademark-.
Fleming uses activity-based costing to support pricing decisions for all
locations using the FlexPro-Registered Trademark-and FlexStar-Registered
Trademark- marketing plans. The company expects that it will have offered its
alternative marketing plans to all customers in all locations by the end of 1998
replacing traditional marketing plans for grocery, frozen and dairy products.
FACILITIES AND TRANSPORTATION
The Food Distribution Segment currently operates 35 full-line food product
supply centers which are responsible for the distribution of national brand and
Fleming Brand products, including groceries, meat, dairy and delicatessen
products, frozen foods, produce, bakery goods and a variety of related food and
non-food items. Six general merchandise and specialty food distribution centers
distribute health and beauty care items and other items of general merchandise
and specialty foods. Two distribution centers serve convenience stores.
Twenty-nine full-line food product supply centers and five general merchandise
distribution centers operate under Fleming's internally developed on-line
operating distribution system. All facilities are equipped with modern material
handling equipment for receiving, storing and shipping large quantities of
merchandise.
The Food Distribution Segment's food and general merchandise distribution
facilities comprise more than 20 million square feet of warehouse space.
Additionally, the Food Distribution Segment rents, on a short-term basis,
approximately 5 million square feet of off-site temporary storage space.
Since the beginning of 1994, the company has closed thirteen distribution
centers and has removed more than 3 million square feet of warehouse space from
its distribution system.
Transportation arrangements and operations vary by distribution center and
at times by customer. Some customers prefer to handle product delivery
themselves, others prefer the company to deliver products, and still others ask
the company to coordinate delivery with a third party. Accordingly, many
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distribution centers operate a truck fleet to deliver products to customers, and
several centers also engage dedicated contract carriers to deliver products. The
company increases the utilization of its truck fleet by backhauling products
from many suppliers, thereby reducing the number of empty miles traveled. To
further increase its fleet utilization, the company has made its truck fleet
available to other firms on a for-hire carriage basis.
FOOD DISTRIBUTION SEGMENT CUSTOMERS
The Food Distribution Segment serves retail stores that vary in size,
format, organization, sales level and location. The size of retail stores served
is very diverse ranging from small convenience outlets (4,000 square feet) to
large supercenters (200,000 square feet). The company estimates the aggregate
square feet of retail stores served is in excess of 90 million.
The format of retail stores served is a function of size and marketing
approach. The Food Distribution Segment serves customers operating in several
formats: conventional supermarkets (averaging approximately 23,000 total square
feet), superstores (supermarkets of 30,000 square feet or more), supercenters (a
combination of a discount store and a supermarket encompassing 110,000 square
feet or more), warehouse stores ("no-frills" operations of various large sizes
and sometimes referred to as "price impact stores"), combination stores (which
have a high percentage of non-food offerings) and convenience stores (generally
under 3,000 square feet and offering only a limited assortment of products and
sizes).
The retail stores served consist of several organization types: single
stores, multiple stores and chain stores. At year-end 1996, the company served
approximately 940 supermarkets organized as chains, including approximately 270
Retail Food Segment stores.
The sales level of retail stores served is diverse. More than 3,100 of the
retail stores served by the company average more than $2 million in sales per
year and are considered "supermarkets" under industry standards. Supermarkets
generally carry a wide variety of grocery, meat, produce, frozen food and dairy
products and also handle an assortment of non-food items, including health and
beauty care products and general merchandise such as housewares, soft goods and
stationery. Most supermarkets also operate one or more specialty departments
such as in-store bakeries, delicatessens, seafood departments or floral
departments.
The location of retail stores served by Fleming is national in perspective
with stores in 42 states.
The company also licenses or grants franchises to retailers to use certain
registered trade names such as IGA-Registered Trademark-, Piggly
Wiggly-Registered Trademark-, Food 4 Less-TM-, Sentry-Registered Trademark-
Foods, Super 1 Foods-Registered Trademark-, Festival Foods-Registered
Trademark-, Jubilee Foods-Registered Trademark-, Jamboree Foods-Registered
Trademark-, MEGAMARKET-Registered Trademark-, Shop 'N Kart-Registered
Trademark-, American Family-Registered Trademark-, BestYet-Registered
Trademark-, Big Star-Registered Trademark-, Big T-Registered Trademark-, Buy for
Less-Registered Trademark-, Country Pride-TM-, Buy Way-Registered Trademark-,
Pic-Pac-Registered Trademark-, Rainbow Foods-Registered Trademark-, Shop N
Bag-Registered Trademark-, Super Duper-Registered Trademark-, Super
Foods-Registered Trademark-, Super Thrift-Registered Trademark-,
Thriftway-Registered Trademark-, and Value King-Registered Trademark-. There are
approximately 1,700 food stores operating under Fleming franchises or licenses.
In 1996, approximately 19% of Food Distribution Segment sales were to the
Fleming Retail Food Segment, 30% were to members of the Fleming Banner Groups,
and 51% were to other retail chains and independents. The Fleming Banner Groups
are retail stores operating under the IGA-Registered Trademark- or Piggly
Wiggly-Registered Trademark-banner or under one of a number of banners
representing a price impact retail format. Fleming Select Banner Group stores
are owned by customers, most of which license their store banner from Fleming.
The company is working to encourage independents and small chains to join one of
the Fleming Banner Groups to receive many of the same marketing and procurement
efficiencies available to larger chains.
The company's three largest customers (excluding the Retail Food Segment)
accounted for 8.9%, and its top 10 customers accounted for 16.5%, of net sales
during 1996. No single customer represented more than 3.5% of net sales. In
February 1997, Furr's, the company's largest customer (in which the company also
owns a 35% equity interest), brought suit against the company alleging it had
been overcharged for
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products. In July 1997, Randall's, the company's second largest customer,
initiated arbitration proceedings against the company alleging it had been
overcharged for products. See "--Legal Proceedings."
RETAIL FOOD SEGMENT
Retail Food Segment supermarkets are operated as 14 distinct local chains or
groups, under 13 banners, each with local management and localized marketing
skills. Retail Food Segment supermarkets also share certain common
administrative and support systems which are centrally monitored and
administered for increased efficiencies. At July 12, 1997, the Retail Food
Segment owned and operated approximately 270 supermarkets with an aggregate of
approximately 10 million square feet of retail space, and 13 additional
supermarkets were under construction. The Retail Food Segment's supermarkets are
located in 23 states and are all served by Food Distribution Segment product
supply centers. Net sales of the Retail Food Segment were $3.5 billion in the 52
weeks ended July 12, 1997 compared to $0.7 billion in fiscal 1992. This growth
is attributable primarily to acquisitions, but also to remodeled and new stores.
Formats of Retail Food Segment stores vary from super warehouse stores to
conventional supermarkets. All Retail Food Segment supermarkets are designed and
equipped to offer a broad selection of both national brands as well as Fleming
Brand products at attractive prices while maintaining high levels of service.
Most supermarket formats have extensive produce sections and complete meat
departments, together with one or more specialty departments such as in-store
bakeries, delicatessens, seafood departments or floral departments. Specialty
departments generally produce higher gross margins per selling square foot than
general grocery sections.
The Retail Food Segment's supermarkets are operated through the following
local trade names:
ABCO FOODS-TM-. Located in Phoenix, ABCO was acquired in January 1996
through foreclosure. Previously, ABCO had been a Food Distribution Segment
customer in which Fleming held an equity position. ABCO operates 54 "desert
market" format conventional supermarkets, averaging 33,700 square feet.
BAKER'S-TM-. Located in Omaha, Nebraska, Baker's operates 18 stores which
are primarily superstores in format with a value pricing strategy. Baker's
stores average 52,000 square feet in size.
BOOGAARTS-REGISTERED TRADEMARK- FOOD STORES. There are 22 Boogaarts stores,
20 in Kansas and 2 in Nebraska, with an average size of 15,600 square feet. They
are conventional supermarkets with a competitive pricing strategy.
CONSUMERS FOOD & DRUG-TM-. Headquartered in Springfield, Missouri,
Consumers operates 20 combination stores in Missouri, Arkansas and Kansas, with
an average of 43,200 square feet. Consumer's employs a competitive pricing
strategy.
HYDE PARK MARKET-TM-. Located in south Florida, primarily in Miami, there
are now 13 Hyde Park Markets with an average size of 26,000 square feet. The
stores are operated as conventional supermarkets with a value priced pricing
strategy.
NEW YORK RETAIL. This group includes 16 Jubilee-Registered Trademark- Foods
stores and 17 Market Basket-TM- stores, operating in western New York and
Pennsylvania. These stores are conventional supermarkets with a competitive
pricing strategy. The Jubilee-Registered Trademark- Foods stores average 33,600
square feet and the Market Basket-TM- stores average 14,500 square feet in size.
PENN RETAIL. This group is made up of 16 conventional supermarkets with a
competitive pricing strategy. It includes Festival Foods-Registered Trademark-
and Jubilee-Registered Trademark- Foods operating primarily in Pennsylvania with
several located in Maryland. The average size is approximately 45,000 square
feet.
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RAINBOW FOODS-REGISTERED TRADEMARK-. With 35 stores in Minnesota, primarily
Minneapolis, and Wisconsin, Rainbow Foods operates in a large combination
format, with a price impact pricing strategy. Average store size is 54,200
square feet.
RICHMAR. Fleming owns a 90% equity interest in RichMar, which operates 5
Food-4 Less supermarkets in California. They are operated as price impact stores
and average 56,000 square feet per store.
SENTRY-REGISTERED TRADEMARK- FOODS/SUPERSAVER-TM-. Located in Wisconsin,
this group includes 19 Sentry-Registered Trademark- Foods stores, which are
conventional format supermarkets with an average size of 35,000 square feet, and
18 SuPeRSaVeR-TM- stores, which are price impact stores with a
lowest-in-the-area pricing strategy. SuPeRSaVeR-TM- stores average over 50,000
square feet.
THOMPSON FOOD BASKET-REGISTERED TRADEMARK-. Located in Peoria, Illinois,
these 12 stores average 26,100 square feet and are operated as conventional
supermarkets with a competitive pricing strategy.
UNIVERSITY FOODS. University Foods is a group of 5 Food-4 Less supermarkets
in the Salt Lake City area, with an average size of 56,400 square feet. The
supermarkets use a price impact pricing strategy. Fleming owned a majority
interest in this group for a number of years, and in early 1997 acquired the
remaining interest.
Fleming Retail Food Segment stores provide added purchasing power as they
enable Fleming to commit to certain promotional efforts at the retail level. The
company, through its owned stores, is able to retain many of the promotional
savings offered by vendors in exchange for volume increases.
SUPPLIERS
Fleming purchases its products from numerous vendors and growers. As the
largest single customer of many of its suppliers, Fleming is able to secure
favorable terms and volume discounts on many of its purchases, leading to lower
unit costs. In addition, the company's practice of passing through vendor
promotional fees and allowances enhances Fleming's competitiveness and
strengthens its retail customers. The company purchases products from a diverse
group of suppliers and believes it has adequate sources of supply for
substantially all of its products.
CAPITAL INVESTED IN CUSTOMERS
As part of its services to retailers, the company provides capital to
certain customers in several ways. In making credit and investment decisions,
Fleming considers many factors, including estimated return on capital, risk and
the benefits to be derived. Loans are approved by the company's business
development committee following written approval standards.
The company provides capital to certain customers by extending credit for
inventory purchases, by becoming primarily or secondarily liable for store
leases, by leasing equipment to retailers, by guaranteeing loans and making
secured loans and by making equity investments in customers.
- EXTENSION OF CREDIT FOR INVENTORY PURCHASES: Customary trade credit terms
are usually the day following statement date for customers on
FlexPro-Registered Trademark- or FlexStar-Registered Trademark- and up to
seven days for other marketing plan customers; the company has extended
credit for additional periods under certain circumstances.
- STORE AND EQUIPMENT LEASES: The company leases stores for sublease to
certain customers. As of December 28, 1996, the company was the primary
lessee of more than 800 retail store locations subleased to and operated
by customers. In certain circumstances, the company also guarantees the
lease obligations of certain customers. Fleming also leases a substantial
amount of equipment to retailers.
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- GUARANTEES AND SECURED LOANS: The company makes loans to customers
primarily for store expansions or improvements. These loans are typically
secured by inventory and store fixtures, bear interest at rates at or
above the prime rate, and are for terms of up to 10 years. During fiscal
year 1995 and 1996, the company sold, with limited recourse, $77 million
and $35 million, respectively, of notes evidencing such loans. The company
may sell additional notes this year. The company believes its loans to
customers are illiquid and would not be investment grade if rated. From
time to time, the company also guarantees the obligations of certain of
its customers.
- EQUITY INVESTMENTS: The company has made equity investments in strategic
multi-store customers, which it refers to as Joint Ventures, and in
smaller operators, referred to as Equity Stores. Equity Store participants
typically retain the right to purchase the company's investment over a
five- to ten-year period. Many of the customers in which the company has
made equity investments are highly leveraged, and the company believes its
equity investments are highly illiquid.
The following table sets forth the components of Fleming's portfolio of
loans to and investments in customers at year-end 1995 and 1996 and at the end
of the first half of 1997.
<TABLE>
<CAPTION>
CUSTOMERS
BUSINESS WITH NO
DEVELOPMENT EQUITY STORES HELD EQUITY
VENTURES STORES FOR RESALE SUB-TOTAL INVESTMENT TOTAL
----------- ------ ----------- --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
DECEMBER 30, 1995
Loans(a).................................................... $ 27 $ 34 -$- $ 61 $177 $ 238
Equity investments.......................................... 28 (2) 23 49 -- 49
----- ------ ----- --------- ----- -----
Total................................................... $ 55 $ 32 $ 23 $110 $177 $ 287
----- ------ ----- --------- ----- -----
----- ------ ----- --------- ----- -----
DECEMBER 28, 1996
Loans(a).................................................... $ 16 $ 39 $ 1 $ 56 $133 $ 189
Equity investments.......................................... (2) (1) 27 24 -- 24
----- ------ ----- --------- ----- -----
Total................................................... $ 14 $ 38 $ 28 $ 80 $133 $ 213
----- ------ ----- --------- ----- -----
----- ------ ----- --------- ----- -----
JULY 12, 1997
Loans(a).................................................... $ 16 $ 25 $ 1 $ 42 $128 $ 170
Equity investments.......................................... (3) (2) 27 22 -- 22
----- ------ ----- --------- ----- -----
Total................................................... $ 13 $ 23 $ 28 $ 64 $128 $ 192
----- ------ ----- --------- ----- -----
----- ------ ----- --------- ----- -----
</TABLE>
- ------------------------
(a) Includes current portion of loans, which amounts are included in receivables
on the company's balance sheet. See notes to consolidated financial
statements.
The table does not include the company's investments in customers through
direct financing leases, lease guarantees, operating leases, loan guarantees or
credit extensions for inventory purchases. The present value of the company's
obligations under direct financing leases and lease guarantees were $214 million
and $82 million, respectively, at December 28, 1996. Since 1994, stricter credit
policies and cost/benefit analyses applied to credit extensions to and
investments in customers have resulted in less exposure and a decrease in credit
losses. Fleming's credit loss expense, including from receivables as well as
from investments in customers, was $61 million in 1994, $31 million in 1995, $27
million in 1996 and $11 million in the first half of 1997.
COMPETITION
Competition in the food marketing and distribution industry is intense. The
company's primary competitors are regional and local food distributors, national
chains which perform their own distribution (such as The Kroger Co. and
Albertson's, Inc.), and national food distributors (such as SUPERVALU Inc.). The
principal competitive factors include price, quality and assortment of product
lines, schedules and reliability of delivery, and the range and quality of
customer services.
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The primary competitors of Retail Food Segment supermarkets and Food
Distribution Segment customers are national, regional and local chains, as well
as independent supermarkets and convenience stores. Principal competitive
factors include product price, quality and assortment, store location and
format, sales promotions, advertising, availability of parking, hours of
operation and store appeal.
EMPLOYEES
At July 12, 1997, the company had approximately 39,100 full-time and
part-time positions, with approximately 13,500 employed by the Food Distribution
Segment, approximately 23,700 by the Retail Food Segment and approximately 1,900
employed in corporate and other functions. Since year-end 1994, the company's
total employment has been reduced by approximately 4,700 positions on a net
basis. The number of associates employed by the Food Distribution Segment was
reduced by 5,800 positions, from approximately 19,300 at year-end 1994 to
approximately 13,500 at July 12, 1997, through facilities consolidation,
elimination of management layers and outsourcing of transportation and other
functions, and due to decreases in sales. The Retail Food Segment employment has
increased on a net basis by approximately 1,200 full and part-time positions,
due primarily to acquisitions. Corporate staff and other operations have reduced
employment by approximately 100 positions on a net basis.
Approximately half of the company's associates are covered by collective
bargaining agreements with the International Brotherhood of Teamsters;
Chauffeurs, Warehousemen and Helpers of America; the United Food and Commercial
Workers; the International Longshoremen's and Warehousemen's Union; and the
Retail Warehouse and Department Store Union. Most of such agreements expire at
various times throughout the next five years. The company believes it has
satisfactory relationships with its unions.
PROPERTIES
The following table sets forth information with respect to Fleming's major
distribution facilities at year-end 1996:
<TABLE>
<CAPTION>
SIZE, IN
THOUSANDS OF
LOCATION SQUARE FEET OWNED OR LEASED
- ---------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
FOOD DISTRIBUTION(1)
Altoona, PA................................................................. 172 Owned
Buffalo, NY................................................................. 417 Leased
El Paso, TX(2).............................................................. 465 Leased
Ewa Beach, HI............................................................... 196 Leased
Fresno, CA(3)............................................................... 380 Owned
Garland, TX................................................................. 1,180 Owned
Geneva, AL.................................................................. 345 Leased
Houston, TX................................................................. 662 Leased
Huntingdon, PA(4)........................................................... 246 Owned
Johnson City, TN(5)......................................................... 298 Owned
Kansas City, KS............................................................. 886 Leased
La Crosse, WI............................................................... 907 Owned
Lafayette, LA............................................................... 432 Owned
Laurens, IA................................................................. 368 Owned
Lincoln, NE................................................................. 300 Leased
Lubbock, TX(2).............................................................. 378 Owned
Marshfield, WI.............................................................. 157 Owned
Massillon, OH(4)............................................................ 808 Owned
Memphis, TN................................................................. 780 Owned
Miami, FL................................................................... 763 Owned
Milwaukee, WI............................................................... 600 Owned
Minneapolis, MN(6).......................................................... 480 Owned
Nashville, TN(5)............................................................ 734 Leased
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
SIZE, IN
THOUSANDS OF
LOCATION SQUARE FEET OWNED OR LEASED
- ---------------------------------------------------------------------------- ----------------- -----------------
North East, MD(7)........................................................... 109 Owned
<S> <C> <C>
Oklahoma City, OK(8)........................................................ 454 Owned
Oklahoma City, OK(8)........................................................ 410 Leased
Peoria, IL.................................................................. 325 Owned
Philadelphia, PA(7)......................................................... 830 Leased
Phoenix, AZ................................................................. 912 Owned
Portland, OR................................................................ 324 Owned
Sacramento, CA(3)........................................................... 681 Owned
Salt Lake City, UT.......................................................... 433 Owned
San Antonio, TX............................................................. 514 Leased
Sikeston, MO................................................................ 481 Owned
Superior, WI(6)............................................................. 371 Owned
Warsaw, NC.................................................................. 334 Owned/Leased
York, PA.................................................................... 450 Owned
------
18,582
GENERAL MERCHANDISE GROUP
Dallas, TX.................................................................. 262 Owned/Leased
King of Prussia, PA......................................................... 377 Leased
La Crosse, WI............................................................... 163 Owned
Memphis, TN................................................................. 339 Owned/Leased
Sacramento, CA.............................................................. 294 Leased
Topeka, KS.................................................................. 179 Leased
------
1,614
OUTSIDE STORAGE
Outside storage facilities-typically rented on a short-term basis........... 4,762
------
Total square feet....................................................... 24,958
</TABLE>
- ------------------------
(1) Food distribution includes two convenience store divisions.
(2) Comprise the Lubbock distribution operation.
(3) Comprise the Sacramento distribution operation.
(4) Comprise the Massillon distribution operation.
(5) Comprise the Nashville distribution operation.
(6) Comprise the Minneapolis distribution operation.
(7) Comprise the Philadelphia distribution operation.
(8) The company operates two distribution operations in Oklahoma City. The
administrative functions of these two distribution operations are
consolidated.
At the end of 1996, Fleming operated a delivery fleet consisting of
approximately 1,400 power units and 3,100 trailers. Most of this equipment is
owned by the company.
Retail Food Segment supermarkets are located in 23 states and occupy
approximately 10 million square feet, most of which is leased.
LEGAL PROCEEDINGS
The following describes various pending legal proceedings to which Fleming
is subject. For additional information, see "Management's Discussion and
Analysis--Litigation and Contingencies" and Note 5 to the company's interim
financial statements appearing elsewhere herein.
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<PAGE>
PREMIUM. The company and several other defendants were named in two suits
filed in the U.S. District Court in Miami, Florida in 1993. The suits
involved an allegedly fraudulent scheme conducted by a failed grocery
diverter ("Premium") and others in which large losses occurred to the
detriment of a class of investors which brought one of the suits. The other
suit is by the receiver/trustee of the estates of Premium and certain of its
affiliated entities (the "Trustee"). Plaintiffs sought actual damages of
approximately $300 million, treble damages, punitive damages, attorneys'
fees, costs, expenses and other appropriate relief.
Fleming entered into a settlement agreement with respect to the Premium
cases in December 1996. Under the agreement, the Trustee, the class of
investors (excluding opt-outs and non-releasing investors) and all other
claimants will dismiss their actions against the company in exchange for a
$19.5 million payment plus $500,000 for costs and expenses, and all related
claims involving Fleming will be dismissed. The company recorded a charge of
$20 million during the third quarter of 1996 in anticipation of the
settlement and deposited that amount into an escrow account in December
pending finalization. The settlement is subject to, among other conditions,
receipt by Fleming of releases from investors, including those who might not
be barred by the settlement. Plaintiffs have failed to timely deliver to
Fleming releases sufficient to meet the requirements of the settlement
agreement. If no satisfactory resolution is reached, Fleming will be
entitled to terminate the settlement and withdraw its escrow deposit. If a
settlement is not consummated, the company expects that the litigation will
resume. In that event, while management is unable to predict the potential
range of monetary exposure to the company, if any, an unfavorable outcome
could have a material adverse effect on the company and its financial
statements.
FURR'S. Furr's Supermarkets, Inc. ("Furr's") filed suit in February 1997 in
the Second Judicial District Court of Bernalillo County, New Mexico naming
as defendants the company, certain company officers and an employee. Furr's
claims it was overcharged for products under its supply contract with the
company, making allegations similar to those made in the David's litigation
(see "Management's Discussion and Analysis--Litigation and Contingencies"),
and alleges various causes of action including breach of contract,
misrepresentation, fraud and violation of certain of New Mexico's trade
practices statutes. Furr's seeks an unspecified monetary award of actual,
consequential, incidental and punitive damages, treble damages, interest,
attorneys' fees and court costs. The company has removed the case to the
U.S. District Court for New Mexico and has petitioned the court to submit
the entire case to binding arbitration. Furr's has sought court approval to
amend its complaint against Fleming. The complaint, if amended, would
contain allegations of violations of the federal Racketeer Influenced and
Corrupt Organizations Act ("RICO") and other claims seeking damages in
excess of $75 million. Two collective bargaining units which represented
employees of Furr's predecessor have sought the court's permission to
intervene as plaintiffs alleging, among other causes of action, that
overcharges by Fleming caused their members to lose more than $2 million in
performance-based bonuses during 1991 and 1992. The plaintiffs seek actual,
punitive and treble damages.
Prior to filing the lawsuit, Furr's sought to exercise the supply
agreement's competitiveness clause and was seeking to audit the company's
pricing. Furr's submitted what it asserts is a "qualified competing bid" as
defined in the supply contract. If a qualified bid is submitted and found to
be competitive (as defined in the supply contract), Fleming may either match
the bid (within an established range) or permit Furr's to accept the
competitor's bid. Fleming has rejected the bid as not qualifying under the
contract and invoked the arbitration clause. Issues concerning the
competitiveness clause are currently pending in arbitration in New Mexico.
Management is unable to predict the potential range of monetary exposure, if
any, to the company. However, the effect of an unfavorable outcome or the
loss of the Furr's business, for any reason, could have a material adverse
effect on the company and its financial statements.
MEGAFOODS. Megafoods Stores, Inc. ("Megafoods" or the debtor) and certain
of its affiliates filed Chapter 11 bankruptcy proceedings in Arizona in
August 1994. The company filed claims, including a
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<PAGE>
claim for indebtedness for goods sold on open account, equipment leases and
secured loans, totaling approximately $28 million (including claims for
future payments and other non-recorded assets). Additionally, the debtor is
liable or contingently liable to Fleming under store subleases and lease
guarantees extended by the company for the debtor's benefit. The debtor
objected to Fleming's claims and filed an adversary proceeding against the
company seeking subordination of the company's claims, return of an
approximate $12 million deposit and affirmative relief for damages which was
subsequently amended to include allegations of overcharges for products
similar to those made in the David's litigation.
In August 1996, the court approved a settlement of both the debtor's
adversary proceeding against the company and the company's disputed claims
in the bankruptcy. The settlement, which is subject to approval by the
creditors of a revised plan which will encompass the settlement, provides
that the company will retain the $12 million deposit, relinquish its secured
and unsecured claims in exchange for the right to receive 10% of
distributions, if any, made to the unsecured creditors and pay the debtor
$2.5 million in exchange for the furniture, fixtures and equipment from 17
Megafoods stores (located primarily in Texas) and two Texas storage
facilities. Fleming agreed to lease the furniture, fixtures and equipment in
14 of the stores to the reorganized debtor or its successor for nine years
(or until, in each case, the expiration of the store lease) at an annual
rental of $18,000 per store.
During the fourth quarter of 1996, the debtor sold its Phoenix stores to a
local retail grocery chain. In January 1997, Megafoods filed a joint
liquidating plan which incorporated the settlement. The hearing for
confirmation of the debtor's plan of liquidation was set for June 30, 1997,
but has been postponed and not rescheduled. During the second quarter of
1997, the debtor sold all of its Texas assets and the purchaser agreed to
assume the debtor's obligation to lease certain property from the company.
Upon consummation of this sale, the debtor had disposed of substantially all
of its physical assets. The company did not receive any distribution from
the sale of debtor's assets.
The company recorded charges relating to Megafoods of approximately $6.5
million in 1994, $3.5 million in 1995 and $5.8 million in 1996. As of July
12, 1997, approximately $3.1 million of recorded net assets relating to
Megafoods remained on the company's books.
RANDALL'S. On July 30, 1997, Randall's Food Markets, Inc. ("Randall's")
initiated arbitration proceedings against Fleming before the American
Arbitration Association in Dallas, Texas. Randall's alleges that Fleming
conspired with a group of manufacturers and vendors to defraud Randall's by
cooperating to inflate prices charged to Randall's. Randall's alleges breach
of contract, fraud and RICO violations, and seeks actual, punitive and
treble damages under RICO, termination of its supply agreement and
attorneys' fees and court costs. The contract on which Randall's bases its
claim prohibits either party from recovering any amount other than actual
damages; recovery of consequential damages, punitive damages and all similar
forms of damages are expressly prohibited. Randall's asserts that such
provision is contrary to public policy and therefore not binding on it.
Randall's has been a Fleming customer for over 30 years. In 1996 Randall's
purchased approximately $485 million of products from Fleming under an
eight-year supply agreement entered into in 1993 in connection with
Fleming's purchase of certain distribution assets from Randall's. Prior to
initiating the arbitration proceeding and making allegations against Fleming
for overcharges, Randall's had sought unsuccessfully to terminate its supply
agreement.
The company believes it has complied with its obligations to Randall's in
good faith and that punitive and consequential damages are not recoverable
under the supply agreement. The company will vigorously defend its interests
in the arbitration. While management is unable to predict the potential
range of monetary exposure to Randall's, if any, the effect of an
unfavorable outcome or the loss of the Randall's business could have a
material adverse effect on the company.
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<PAGE>
CLASS ACTION SUITS. In March and April 1996, the company and certain of its
present and former officers and directors, including the chief executive
officer, were named as defendants in nine purported class action lawsuits
filed by certain of its stockholders and one purported class action lawsuit
filed by a noteholder, each in the U.S. District Court for the Western
District of Oklahoma, alleging the company failed to properly disclose and
account for the risk associated with the David's litigation (subsequently
settled; see "Management's Discussion and Analysis--Litigation and
Contingencies"). The plaintiffs in five of the stockholder cases also claim
the company failed to disclose that it was engaged in a deceptive course of
business with its customers that exposed it to substantial liability which
would severely impair the financial condition, performance and value of the
company. The plaintiffs seek undetermined but significant damages.
In April 1997, the court consolidated all nine stockholder cases and, for
pre-trial purposes only, the noteholder case. A consolidated complaint has
been filed alleging liability based upon the company's failure to properly
account for and disclose (i) the contingent liability created by the
pendency of the David's litigation and (ii) the company's "deceptive
business practices" which led to the David's litigation and to material
liability to others, caused the company to change its manner of conducting
business at great cost and loss of profits, and materially inflated the
trading prices of the company's common stock. The company denies all of the
plaintiffs' allegations.
The plaintiffs seek undetermined but significant damages. Management is
unable to predict the ultimate outcome of these cases or a potential range
of monetary exposure, if any, to the company. However, an unfavorable
outcome in this litigation could have a material adverse effect on the
company and its financial statements.
The company is a party to various other litigation and contingent loss
situations arising in the ordinary course of its business including: disputes
with customers and former customers; disputes with owners and former owners of
troubled or failed customers; disputes with employees regarding wages, workers'
compensation and alleged discrimination; tax assessment and other matters, some
of which are for substantial amounts. The ultimate effects of such actions,
including the matters described below, cannot be predicted with certainty.
Although the resolution of any of these matters may have a material adverse
impact on interim or annual results of operations, the company expects that the
outcome of these matters will not result in a material adverse effect on
liquidity or consolidated financial position.
ROCCO COSTA. The plaintiffs, Rocco Costa, Inc. and certain of its
affiliates, owned a retail grocery store in Kingwood, Texas, which was
acquired by the company in June 1994 in satisfaction of a portion of
indebtedness owed to the company (approximately $300,000) and forgiveness of
the balance (approximately $700,000). The individual plaintiffs were
guarantors of the indebtedness who, along with the corporate plaintiff,
executed a full release of the company, its officers, directors, etc., in
connection with the acquisition of the store by the company.
Notwithstanding the release, the plaintiffs sued the company and an
individual executive in July 1996 in the 164th Judicial District, District
Court, Harris County, Texas, alleging that the company and the individual
made false representations to the plaintiffs to induce them to enter into
the transactions which included the release. Furthermore, plaintiffs claim
that in connection with the operation of the store, the company overcharged
the plaintiffs for goods and services (making allegations similar to those
in the David's litigation), misled and deceived them about the cost of such
goods and services and manipulated the prices charged. Plaintiffs seek
actual damages, both economic damages and damages for mental anguish,
additional damages and punitive damages of unstated amounts.
RED APPLE. In November 1994, Red Apple, Inc. filed an action in the Supreme
Court of New York, New York County, seeking declaratory relief from the
payment of the $2.3 million balance of a $5 million promissory note to the
company (the "Red Apple Note") until the company agreed to release its
security interest in Red Apple's collateral. Red Apple also filed a claim
seeking in excess of $600,000 in damages for the company's alleged wrongful
failure to release the collateral and seeking
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<PAGE>
an accounting to determine if the company failed to provide it with promised
allowances (alleged to exceed $1 million). The company filed a counterclaim
seeking, among other things, payment of principal and interest due under the
Red Apple Note and replevin of the collateral securing the note. The company
also filed a third-party action against Di Giorgio Corporation (to which it
partially assigned its security interest in connection with the company's
sale of its perishable business in Woodbridge, New Jersey, under an Asset
Purchase Agreement dated April 1, 1994) seeking indemnification for any
losses it may suffer as a result of Red Apple's claims.
The trial court granted the company's motion for partial summary judgment
and entered judgment for the company on its claim under the Red Apple Note
in 1995. The company has received payment in full under the Red Apple Note
and is seeking attorney's fees and costs.
Red Apple's action to obtain an accounting regarding the disputed allowances
and for damage resulting from the alleged failure to release collateral was
dismissed in 1996. However, Red Apple sought leave to file an amended
complaint alleging causes of action for breach of contract for the company's
alleged failure to provide the allowances and for allegedly overcharging Red
Apple, making allegations similar to those in the David's litigation. The
company's motion to dismiss the amended complaint was denied in part and
granted in part, and Red Apple was allowed to file a third amended complaint
citing causes of action for the alleged failure to provide allowances and
for alleged overcharges, seeking damages of an unspecified amount in excess
of $750,000 and $1 million, respectively.
On February 4, 1997, Di Giorgio made demand on the company for
indemnification under the Asset Purchase Agreement for allegations made in
Red Apple's third amended complaint although no claim has been made by Red
Apple against Di Giorgio to date. The company has rejected the demand of Di
Giorgio at this time as no loss (as defined in the Asset Purchase Agreement)
has been sustained which would entitle Di Giorgio to indemnification under
the Asset Purchase Agreement.
CENTURY. Century Shopping Center Fund I ("Century Fund I") commenced an
action in November 1988 in the Milwaukee County Circuit Court, State of
Wisconsin, seeking injunctive relief and monetary damages of an unspecified
amount against a subsidiary which was subsequently merged into the company.
The plaintiff originally obtained a temporary restraining order preventing
the subsidiary from closing a store at the Howell Plaza Shopping Center, for
which the plaintiff was the landlord, and from opening a new store at a
competing shopping center located nearby. Shortly thereafter, the order was
dissolved by the court and the stores opened and closed as scheduled.
Following the closure of the store, a number of shopping center tenants and
the center itself experienced financial difficulty ultimately resulting in
bankruptcy.
In November 1993, the court granted Century Fund I leave to amend its
complaint to allege breach of contract, tortious interference with contract,
tortious interference to business, defamation, attempted monopolization,
conspiracy to monopolize, conspiracy to restrain trade, and monopolization.
Plaintiff claims that defendant and defendant's new landlord conspired to
force the Howell Plaza Shopping Center out of business.
In June 1993, three former tenants of the Howell Plaza Shopping Center filed
another case in the same court and in September 1993, the trustee in
bankruptcy for Howell Plaza, Inc. (the predecessor to Century Fund I and its
successor as defendant's landlord) filed a third case. The allegations of
these cases are very similar to the allegations made in the Century Fund I
case.
In June 1994, the trial court granted defendant's motion to dismiss all
three cases. That decision was reversed in August 1995 by the Wisconsin
Court of Appeals. The matter was remanded to the trial court. The cases have
been consolidated but are not currently set for trial.
Plaintiffs seek actual damages, consequential damages, treble damages,
punitive damages, attorneys' fees, court costs and other appropriate relief.
In March 1997, plaintiffs supplied the company with an
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<PAGE>
analysis of damages; alleged actual damages, after trebling but excluding
any estimated punitive damages, amounted to approximately $18 million.
In July 1997, the trial court granted plaintiffs' motion for summary
judgment with respect to its breach of contract claim against Fleming (as to
liability only, not as to damages). The company will petition the Wisconsin
Court of Appeals for a certification of an interlocutory appeal of that
decision. Plaintiffs have alleged $1.7 million of actual damages resulted
from the breach of contract.
TOBACCO CASES. In August 1996, Richard E. Ieyoub, the Attorney General of
the State of Louisiana, brought an action in the 14th Judicial District
Court of Louisiana against numerous defendants including the company. In
January 1997, a purported class action was brought in the 10th Judicial
District Court of Louisiana against numerous defendants (Morgan v. U.S.
Tobacco Co., et al.), including the company. Since then eleven individual
plaintiffs (Joseph Aezen; Najiyya El-Haddi; Victoria Lynn Katz; Robert R.
Applebaum; Carla Boyce; Robert J. Ruiz; Rosalind K. Orr; Florence Ferguson;
Ella Daly; Janet Anes; and Kym Glasser) have commenced litigation against
the company (or one of its predecessors) in the Court of Common Pleas,
Philadelphia County, Pennsylvania; one individual (Doyle Smith) and his
spouse commenced an action in the Court of Common Pleas, Dauphin County,
Pennsylvania; and one individual (Olanda Carter) has commenced action
against the company in Circuit Court for Shelby County, Tennessee. Each of
these cases involves substantial monetary liability on the part of the
company for the company's part in the distribution of tobacco products.
The company is being indemnified by substantial third parties with respect
to these cases. Additionally, the United States Congress is currently
working toward a global settlement of tobacco related issues which could
include a complete bar to future litigation against intermediate
distributors such as the company. No assurance, however, can be given that
such a global settlement will be successfully achieved.
In addition the company is involved in the following litigation matters
which, while significant, do not expose the company to material monetary
liability:
DERIVATIVE SUITS. In October 1996, certain of the company's present and
former officers and directors, including the chief executive officer, were
named as defendants in a purported shareholder's derivative suit in the U.S.
District Court for the Western District of Oklahoma. Plaintiff's complaint
contains allegations that the defendants breached their respective fiduciary
duties to the company and are variably responsible for causing the company
to (i) become "involved with" Premium Sales and its illegal course of
business resulting in the Premium litigation and the $20 million settlement
agreement discussed above; (ii) "systematically" misrepresent and overstate
the cost of company products sold to its customers in violation of its sale
agreements, resulting in the David's litigation and ultimately leading to
the class action suits discussed above; and (iii) fail to meet its
disclosure obligations under the Securities Exchange Act of 1934, as
amended, resulting in the class action lawsuits discussed above and
increased borrowing costs, loss of customers and loss of market value.
Plaintiff seeks damages from the defendants on behalf of the company in
excess of $50,000, forfeiture by the defendants of their salaries and other
compensation for the period in which they breached their fiduciary duties,
and seeks to have all monies held by the company as deferred compensation or
otherwise on behalf of the defendants remain in constructive trust for the
benefit of the company, and attorney's fees and costs.
In another purported shareholder derivative action filed in October 1996 in
the U.S. District Court for the Western District of Oklahoma, the plaintiff
sued the same and additional officers and directors. In this case, the
plaintiff has alleged the defendants caused the company to (i) violate
certain sale agreements with David's Supermarkets resulting in the David's
litigation, (ii) fail to disclose to the investing public the risks
associated with the David's litigation, (iii) violate certain sale
agreements
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<PAGE>
with Megafoods in a manner similar to that alleged by David's in the David's
litigation, and (iv) defraud persons who invested in the Premium-related
entities resulting in the Premium litigation. Money damages in favor of
Fleming are sought for all losses suffered as the result of the wrongful
acts of the defendants, punitive damages, treble damages, attorneys' fees
and costs.
POISON PILL BYLAW AMENDMENT. In September 1996, the International
Brotherhood of Teamsters General Fund ("Teamsters") brought suit against
Fleming in the U.S. District Court for the Western District of Oklahoma to
require the company to include in its 1997 Proxy Statement a proposed
resolution to amend the company's Bylaws. The Bylaw provision purports to
(i) limit the company's ability to adopt or maintain "a poison pill,
shareholder share rights plan, rights agreement or any other form of 'poison
pill' . . . unless such a plan is first approved by a MAJORITY shareholder
vote" (emphasis in original, without definition), (ii) direct the company to
redeem any existing share rights plan and (iii) prohibit the amendment,
alteration, deletion or modification of such Bylaw by the Board of Directors
without prior shareholder approval. On January 24, 1997, the trial judge
entered judgment in favor of the Teamsters. Fleming believes such action by
shareholders is contrary to the General Corporation Act of the State of
Oklahoma and has appealed the judgment. The company's shareholders approved
the bylaw amendment at its annual meeting on April 30, 1997. Oral arguments
were heard in the 10th Circuit Court of Appeals on September 9, 1997.
The company supplies goods and services to some of its customers
(particularly to its large customers) pursuant to supply contracts containing a
"competitiveness" clause. Under this clause, the customer may submit to the
company a qualified bid from another supplier to provide a comparable range of
goods and services at prices lower than those charged by the company by more
than an agreed percentage. The company has the right to lower its prices to come
within the agreed percentage; if it chooses not to, the customer may accept the
competitor's bid. In many contracts, the customer has the right to examine
Fleming's billing practices under its contract and customers sometimes avail
themselves of this right. The competitiveness clause is not exercised frequently
and disputes regarding the clause must generally be submitted to binding
arbitration. Additionally, the company believes that most supply contracts
prohibit recovery of both punitive and consequential damages if any litigation
ever arises. From time to time, customers of the company may seek to renegotiate
the terms of their supply contracts, or exercise the competitiveness clause of
such agreements or otherwise alter the terms of their contractual obligations to
the company to obtain financial concessions. The company does not believe such
efforts have had a material adverse effect on its operations or financial
condition.
The company's facilities are subject to various laws and regulations
regarding the discharge of materials into the environment. In conformity with
these provisions, the company has a comprehensive program for testing and
removal, replacement or repair of its underground fuel storage tanks and for
site remediation where necessary. The company has established reserves that it
believes will be sufficient to satisfy anticipated costs of all known
remediation requirements. In addition, the company is addressing several other
environmental cleanup matters involving its properties, all of which the company
believes are immaterial.
The company has been designated by the U.S. Environmental Protection Agency
("EPA") as a potentially responsible party under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") with others, with respect to
EPA-designated Superfund sites. While liability under CERCLA for remediation at
such sites is joint and several with other responsible parties, the company
believes that, to the extent it is ultimately determined to be liable for clean
up at any site, such liability will not result in a material adverse effect on
its consolidated financial position or results of operations. The company is
committed to maintaining the environment and protecting natural resources and to
achieving full compliance with all applicable laws and regulations.
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MANAGEMENT
The following table sets forth certain information concerning selected
officers and management of Fleming as of March 1, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Robert E. Stauth.................... 52 Chairman and Chief Executive Officer
William J. Dowd..................... 54 President and Chief Operating Officer
E. Stephen Davis.................... 56 Executive Vice President--Operations
Harry L. Winn, Jr................... 52 Executive Vice President and Chief Financial Officer
David R. Almond..................... 57 Senior Vice President--General Counsel and Secretary
Ronald C. Anderson.................. 54 Senior Vice President--General Merchandise
Mark K. Batenic..................... 48 Senior Vice President--Retail Sales and Marketing
William M. Lawson, Jr............... 46 Senior Vice President--Corporate Development/International Operations
Dixon E. Simpson.................... 54 Senior Vice President--Fleming Retail Services
Larry A. Wagner..................... 50 Senior Vice President--Human Resources
Thomas L. Zaricki................... 52 Senior Vice President--Retail Operations
Nancy E. Del Regno.................. 44 Vice President--Communications and Public Affairs
John M. Thompson.................... 55 Vice President--Treasurer and Assistant Secretary
Kevin J. Twomey..................... 46 Vice President--Corporate Controller
</TABLE>
MR. STAUTH was elected Chairman in April 1994. From 1993 until being named
Chairman, Mr. Stauth served as President and Chief Operating Officer of the
company. He originally joined Fleming in 1966. From 1970 to 1977, he served in
management positions for two successful non-Fleming supermarket retail chains,
gaining retail experience. Mr. Stauth has served Fleming in a variety of other
management capacities since rejoining the company in 1977.
MR. DOWD joined the company in his present position in July 1995. From 1994
until joining the company, he was Senior Vice President--Operations at Cott
Corporation, a producer of retailer-branded soft drinks. From 1989 to 1994, Mr.
Dowd served in a variety of positions for Kraft Foods, most recently as
executive vice president for Kraft General Foods' KGF Service Company. From 1985
to 1988, Mr. Dowd worked for Mrs. Paul's Kitchen, a subsidiary of Campbell
Foods. His last position was as President and Chief Executive Officer. Prior to
that, Mr. Dowd served in various capacities at R.J. Reynolds/Heublein, Inc.
MR. DAVIS serves as Executive Vice President--Operations of the company and
oversees all ten Operating Group Presidents who manage all 35 full-line food
product supply center locations. Mr. Davis has been with Fleming for more than
35 years and has served in various management capacities.
MR. WINN joined the company in his present position in May 1994. He was with
UtiliCorp United in Kansas City, a utility company, where he was Managing Senior
Vice President and Chief Financial Officer from 1990 to 1993. Prior to that, Mr.
Winn served as Vice President and Treasurer of Squibb Corporation. Prior to
Squibb, he was Vice President and Treasurer of Baxter International.
MR. ALMOND was named Corporate Secretary in 1992, having served as Fleming's
General Counsel since joining the company in 1989. Prior to joining Fleming, Mr.
Almond was Senior Vice President--General Counsel and Administration of Wilson
Foods Corp. Prior to that, Mr. Almond served as Associate General Counsel for
Boise Cascade Corp. after practicing law for four years with Reid & Priest.
MR. ANDERSON joined the company as Vice President--General Merchandise in
July 1993. In March 1995, he was named Senior Vice President--General
Merchandise. Since 1986, until joining the company, he was Vice President of
McKesson Corporation, a distributor of pharmaceutical and related products,
where he was responsible for its service merchandising division.
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MR. BATENIC joined Fleming in 1973. He has served in a variety of capacities
at the company, including as president of three different divisions, and is
currently Senior Vice President--Retail Sales and Marketing.
MR. LAWSON joined the company in his present position in June 1994. Prior to
that, Mr. Lawson was a practicing attorney in Phoenix for 18 years. His areas of
concentration included general business planning; corporate, partnership, and
limited liability company formation and planning; commercial financing and
leasing, and real estate development.
MR. SIMPSON was named to his current position in 1993. He originally joined
Fleming in 1987 as manager of retail services in Phoenix. After that, Mr.
Simpson served as sales manager and operations manager before being named
president of the Phoenix operation. Prior to joining Fleming, Mr. Simpson served
for 20 years with another large food wholesale distributor.
MR. WAGNER joined the company in 1976 and has served in various Human
Resources capacities. He was named Senior Vice President--Human Resources in
1991.
MR. ZARICKI joined the company in his present position in October 1993. From
1987, until joining the company, Mr. Zaricki was President of Arizona
Supermarkets, Inc., a regional supermarket chain headquartered in Phoenix. Mr.
Zaricki's previous experience includes service as a management consultant
specializing in the retail industry and real estate development.
MS. DEL REGNO joined the company in her present position in February 1995.
Previously, she was with PepsiCo Food Systems where she was Senior
Communications Manager from 1988 to 1995.
MR. THOMPSON was named Vice President and Treasurer in 1991. He has served
as Treasurer for Fleming since 1988. Mr. Thompson joined Fleming in 1979 as
Director of Finance. Prior to joining Fleming, he spent five years with Coastal
Corporation in a variety of financial positions.
MR. TWOMEY was named to his current position in 1995. Prior to that, Mr.
Twomey served as operations controller. He joined Fleming in 1989 as
Director--Planning and Analysis. Prior to joining Fleming, Mr. Twomey was an
audit partner with Deloitte & Touche LLP.
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DESCRIPTION OF OTHER INDEBTEDNESS
THE NEW CREDIT AGREEMENT
On July 25, 1997, Fleming entered into a new senior secured credit facility
(the "Bank Facility") in an aggregate principal amount of $850 million
consisting of a six-year revolving credit facility (the "Revolving Facility") in
a principal amount up to $600 million and a seven-year term loan facility (the
"Term Facility") in a principal amount up to $250 million. The Chase Manhattan
Bank ("Chase Manhattan") serves as the Administrative Agent, BancAmerica
Securities, Inc. serves as Syndication Agent, and Societe Generale serves as
Documentation Agent. The following summary of the credit agreement establishing
the Bank Facility (the "New Credit Agreement") does not purport to be complete
and is qualified in its entirety by reference to the New Credit Agreement, a
copy of which has been filed as an exhibit to the Registration Statement.
Capitalized terms that are used but not defined in this section have the
meanings that are given such terms in the New Credit Agreement.
GUARANTEES. The company's obligations under the New Credit Agreement are
guaranteed by all wholly owned subsidiaries which, together with Fleming, must
account for at least 95% of the consolidated assets of Fleming. In any event,
the Bank Facility is guaranteed by all the subsidiaries which guarantee
subordinated indebtedness of Fleming, including the Subsidiary Guarantors.
COLLATERAL. The Bank Facility is secured by security interests in the
inventory and accounts receivable of Fleming and its subsidiaries accounting for
at least 95% of the consolidated inventory and accounts receivable of Fleming on
a consolidated basis; PROVIDED, that Fleming is not required to secure the Bank
Facility with inventory and accounts receivable of "joint ventures" (as defined
in the New Credit Agreement). Obligations under the New Credit Agreement are
also secured by a pledge of the capital stock owned by Fleming in all its direct
or indirect subsidiaries.
AMORTIZATION OF TERM FACILITY. The New Credit Agreement provides for
quarterly payments of principal equal to one-fourth of the following annual
amounts: years 1 and 2, $25 million; years 3 and 4, $35 million; years 5 and 6,
$40 million; and year 7, $50 million.
MANDATORY PREPAYMENTS OF TERM FACILITY. Mandatory prepayments of the Term
Facility will be required in respect of 50% of the net cash proceeds of asset
sales; PROVIDED, that no prepayment will be required if the proceeds thereof are
held for reinvestment and reinvested in other capital assets within 12 months of
such sale or if used to permanently redeem existing senior term debt maturing
prior to the final maturity of the Bank Facility. Mandatory prepayments will
also be required in respect of 100% of the net cash proceeds of certain debt
financings; PROVIDED, that Fleming may instead, at its election, apply such
proceeds to permanently redeem the Senior Notes or other senior term debt
permitted to be redeemed by the New Credit Agreement.
INTEREST RATE. Under the New Credit Agreement, the interest rate payable on
outstanding loans will be based on LIBOR, NIBOR or ABR, as selected by Fleming
from time to time, plus a borrowing margin. The borrowing margins applicable to
LIBOR and NIBOR loans will vary depending upon the ratings of the company's
senior secured long-term debt and the percentage of the total commitment that is
utilized on the day the interest rate is calculated. The margin applicable to
ABR loans will equal the greater of zero and the LIBOR/NIBOR margin on the date
calculated minus 1%. "LIBOR" means the one-, two-, three-, or six-month (or, if
available from all lenders under the New Credit Agreement, nine- or twelve-
month) London interbank offered rate for U.S. dollars, adjusted for statutory
reserves; "NIBOR" means the seven-day interbank offered rate for U.S. dollars at
the Eurodollar lending office where Chase Manhattan's Eurodollar funding
operations are customarily conducted, adjusted for statutory reserves; and
"ABR," or alternate base rate, means the higher of (i) Chase Manhattan's Prime
Rate, and (ii) the Federal Funds Effective Rate plus one-half of 1%.
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COVENANTS. The New Credit Agreement contains customary covenants associated
with similar facilities, including, without limitation, limitations on liens;
mergers, reorganizations, consolidations and sales of assets; incurrence of
indebtedness; redemption and repurchase of certain indebtedness; dividends and
other restricted payments (comparable to those benefitting the Notes);
transactions with affiliates; acquisitions and investments; and payment
restrictions affecting subsidiaries. In addition, the New Credit Agreement
requires the company to maintain a ratio of EBITDAR (as defined) to interest,
rents and dividends paid on preferred stock which is not less than 1.7 to 1 and
a ratio of consolidated inventory and accounts receivable to funded bank debt
which is not less than 1.4 to 1. At July 12, 1997, after giving PRO FORMA effect
to the Recapitalization Program, the company's ratios under these two financial
covenants would have been 1.84 to 1 and 3.22 to 1, respectively, and the company
would have been allowed to incur an additional $23 million of fixed charges.
EVENTS OF DEFAULT. The New Credit Agreement contains Events of Default,
including, but not limited to, a material breach of representations and
warranties; non-payment of principal, interest or other amounts (with a five-day
grace period in the case of interest and other amounts); breach of covenants;
cross-default and cross-acceleration; certain bankruptcy or insolvency events;
certain ERISA events; certain undischarged judgments; a change in control; and
invalidity of guarantees or security interests.
THE PRIOR INDENTURES
The following summaries of the Prior Indentures do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
the applicable Prior Indentures, copies of which have been filed as exhibits to
the Registration Statement. Capitalized terms used herein but not defined have
the meanings assigned to such terms in the applicable Prior Indenture.
FIXED RATE SENIOR NOTES
GENERAL. The company presently has outstanding $300 million in aggregate
principal amount of 10 5/8% senior notes which mature December 15, 2001 (the
"Fixed Rate Senior Notes"). The Fixed Rate Senior Notes were issued pursuant to
an indenture dated December 15, 1994 (the "Fixed Rate Senior Note Indenture").
The Fixed Rate Senior Notes bear interest at an annual rate of 10 5/8%, payable
semiannually on June 15 and December 15 of each year.
RANKING; SECURITY; GUARANTEES. The Fixed Rate Senior Notes are senior
unsecured obligations of the company and rank PARI PASSU in right of payment
with all existing and future Senior Indebtedness of the company and rank senior
in right of payment to all existing and future subordinated indebtedness of the
company. The Fixed Rate Senior Notes are fully and unconditionally guaranteed,
jointly and severally, by substantially all of the company's subsidiaries. The
terms of the Fixed Rate Senior Notes (and the Floating Rate Senior Notes
described below) contain a negative pledge obligating the company to equally and
ratably secure the holders of such notes in the event the company secures any
debt by placing a lien or other encumbrance upon certain properties or the
shares of stock or indebtedness of its subsidiaries. Since the consummation of
the Recapitalization Program, holders of the Fixed Rate and Floating Rate Senior
Notes have shared a second lien (with certain counterparty issuers of Interest
Rate Agreements and Currency Agreements) in the stock of the company's
subsidiaries.
OPTIONAL REDEMPTION. The company may, at its option, redeem all or any
portion of the Fixed Rate Senior Notes at any time from December 15, 1999 to
December 14, 2000 at 103.0% and thereafter at 101.5% of principal amount plus,
in each case, accrued interest thereon to the applicable redemption date.
Additionally, the company may redeem up to 20% of the initial aggregate
principal amount of the Fixed Rate Senior Notes, at any time on or prior to
December 15, 1997 and within 180 days of a Public Equity Offering, with the net
proceeds of such offering, at a redemption price equal to 110% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the date
of redemption; PROVIDED that,
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after having given effect to such redemption, at least $200 million of the Fixed
Rate Senior Notes remains outstanding.
CHANGE OF CONTROL. The Fixed Rate Senior Note Indenture provides that,
following the occurrence of any Change of Control Triggering Event, the company
must offer to purchase all outstanding Fixed Rate Senior Notes at a purchase
price equal to 101% of the aggregate principal amount of the Fixed Rate Senior
Notes, plus accrued and unpaid interest to the date of purchase. See "Risk
Factors--Repurchase of Notes Upon Change of Control."
RESTRICTIVE COVENANTS. The Fixed Rate Senior Note Indenture contains
restrictive covenants that limit the company and its subsidiaries with respect
to certain matters, including (i) limitations on restricted payments; (ii)
limitations on liens; (iii) requirements for additional guarantees; and (iv)
restrictions on consolidations, mergers and sale of substantially all assets. In
addition, the company and its subsidiaries are prohibited from incurring
additional Indebtedness (other than Permitted Indebtedness) if after such
incurrence the Consolidated Fixed Charge Coverage Ratio (as defined in the Fixed
Rate Senior Note Indenture) for the immediately preceding four fiscal quarters,
calculated on a PRO FORMA basis, does not meet or exceed 1.75 to 1.
EVENTS OF DEFAULT. The Fixed Rate Senior Note Indenture contains Events of
Default, including, but not limited to, non-payment of principal, interest or
other amounts (with a 30-day grace period in the case of interest); breach of
covenants; cross-default and cross-acceleration; invalidity of guarantees or
security interest; certain undischarged judgments; and certain bankruptcy or
insolvency events.
FLOATING RATE SENIOR NOTES
On September 15, 1997, the Floating Rate Senior Notes were redeemed.
MEDIUM-TERM NOTES
GENERAL. Pursuant to an indenture dated December 1, 1989 (the "MTN
Indenture"), the company has issued an aggregate of $275 million of fixed rate
medium-term notes in three series (the "Medium-Term Notes"). As of July 12,
1997, approximately $99 million in aggregate principal amount of Medium-Term
Notes was outstanding. The Medium-Term Notes bear interest at a weighted average
annual rate of 7.09%, payable semiannually on June 15 and December 15 of each
year. The Medium-Term Notes outstanding mature from 1997 to 2001 and are not
subject to redemption prior to maturity.
RANKING; SECURITY. The Medium-Term Notes rank PARI PASSU in right of
payment with all existing and future Senior Indebtedness of the company and rank
senior in right of payment to all existing and future subordinated indebtedness
of the company. The Medium-Term Notes are unsecured obligations of the company;
however, the terms of the MTN Indenture include a negative pledge obligating the
company to equally and ratably secure the holders of the Medium-Term Notes in
the event the company secures any debt by placing a lien or other encumbrance
upon certain properties or the shares of stock or indebtedness of its Domestic
Subsidiaries (as defined). As of the date of this Prospectus, the company has no
Domestic Subsidiaries.
REPURCHASE EVENTS. The first series of Medium-Term Notes contains a
provision requiring the company to offer to purchase such notes (at par plus
accrued but unpaid interest) upon the occurrence of certain "repurchase events."
None of the other series of Medium-Term Notes contains a similar provision.
RESTRICTIVE COVENANTS. The MTN Indenture contains restrictive covenants
that limit the company and its Domestic Subsidiaries with respect to certain
matters, including (i) limitations on liens, (ii) restrictions on sale and
lease-back transactions and (iii) restrictions on consolidations and mergers.
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EVENTS OF DEFAULT. The MTN Indenture contains Events of Default, including,
but not limited to, non-payment of principal, interest or other amounts (with a
30-day grace period in the case of interest and other amounts); default in the
making of any required sinking fund payment; breach of covenants (with a 60-day
grace period); cross-acceleration; certain bankruptcy or insolvency events; and
any specific Event of Default with respect to a particular series of Medium-Term
Notes.
SALE OF CERTAIN SECURED LOANS
From time to time the company sells notes evidencing certain secured loans
made to retailers. See "Business--Capital Invested in Customers." Such notes are
typically sold, with limited recourse, directly to a grantor trust, with
financial institutions purchasing trust certificates representing an interest in
a pool of notes. At July 12, 1997, the outstanding balance under all notes sold
by the company was $78 million, of which the company was contingently liable for
$14 million should all the notes become uncollectible.
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DESCRIPTION OF NOTES
The New Notes due 2004 offered hereby will be issued under an indenture
dated as of July 25, 1997 (the "Notes due 2004 Indenture"), among Fleming, as
issuer, each of the Subsidiary Guarantors, as guarantors, and Manufacturers and
Traders Trust Company, as trustee (the "Trustee"). The New Notes due 2007
offered hereby will be issued under an indenture dated as of July 25, 1997 (the
"Notes due 2007 Indenture" and, together with the Notes due 2004 Indenture, the
"Indentures"), among the company, as issuer, each of the Subsidiary Guarantors,
as guarantors, and the Trustee, as trustee.
Copies of the forms of the Indentures are available as set forth under
"Incorporation of Certain Documents by Reference." Upon the issuance of the New
Notes, the Indentures will be subject to and governed by the Trust Indenture
Act. The following summaries of the material provisions of the Indentures do not
purport to be complete and are subject to, and qualified in their entirety by
reference to, all of the provisions of the Indentures, including the definitions
of certain terms contained therein and those terms made a part of the Indentures
by the Trust Indenture Act. For definitions of certain capitalized terms used in
the following summary, see "--Certain Definitions." Citations to section numbers
below refer to sections of the Indentures.
The Notes due 2004 and the Notes due 2007 (collectively, the "Notes") are
identical except as indicated below.
GENERAL
Principal of, premium, if any, and interest on the Notes and Liquidated
Damages, if any, will be payable, and the Notes will be exchangeable and
transferable, at the office or agency of the Paying Agent in The City of New
York maintained for such purposes (which initially will be the office of the
Trustee maintained at 50 Broadway--7th Floor, New York, New York 10004);
PROVIDED, HOWEVER, that payment of interest may be made, at the option of the
company, by check mailed to the Person entitled thereto as shown on the security
register. (Sections 301, 305 and 307) The Notes will be issued only in fully
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. (Section 302) No service charge will be made for any
registration of transfer, exchange or redemption of Notes or, except in certain
circumstances, for any tax or other governmental charge that may be imposed in
connection therewith. (Section 305)
MATURITY, INTEREST AND PRINCIPAL
The Notes due 2004 will mature on December 1, 2004, and are unsecured senior
subordinated obligations of the company in the aggregate principal amount of
$250,000,000. The Notes due 2004 bear interest at an annual rate of 10 1/2% from
July 25, 1997 or from the most recent interest payment date to which interest
has been paid, payable semiannually on June 1 and December 1 of each year
commencing December 1, 1997, to the Person in whose name the Notes due 2004 were
registered at the close of business on the May 15 or November 15 next preceding
such interest payment date. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months. (Sections 301, 307 and 310 of the Notes
due 2004 Indenture)
The Notes due 2007 will mature on July 31, 2007, and are unsecured senior
subordinated obligations of the company in the aggregate principal amount of
$250,000,000. The Notes due 2007 bear interest at an annual rate of 10 5/8% from
July 25, 1997 or from the most recent interest payment date to which interest
has been paid, payable semiannually on January 31 and July 31 of each year
commencing January 30, 1998, to the Person in whose name the Notes due 2007 were
registered at the close of business on January 15 or July 15 next preceding such
interest payment date. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. (Sections 301, 307 and 310 of the Notes due
2007 Indenture)
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OPTIONAL REDEMPTION
The Notes due 2004 may be redeemed at the option of the company, in whole or
in part, at any time on or after June 1, 2001 at the redemption prices
(expressed as percentages of principal amount) set forth below, together with
accrued and unpaid interest, if any, to the date of redemption, if redeemed
during the 12-month period beginning on June 1 of the years indicated below
(subject to the right of holders of record on relevant record dates to receive
interest due on an interest payment date):
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- -------------------------------------------------------------------------------------- ----------------
<S> <C>
2001.................................................................................. 105.250%
2002.................................................................................. 102.625%
2003 and thereafter................................................................... 100.000%
</TABLE>
In addition, up to 35% of the initial aggregate principal amount of the
Notes due 2004 may be redeemed on or prior to June 1, 2000, at the option of the
company, within 180 days of a Public Equity Offering with the net proceeds of
such offering at a redemption price equal to 110 1/2% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
redemption (subject to the right of holders of record on relevant record dates
to receive interest due on relevant interest payment dates); PROVIDED, that
after giving effect to such redemption at least $162.5 million aggregate
principal amount of the Notes due 2004 remains outstanding.
The Notes due 2007 may be redeemed at the option of the company, in whole or
in part, at any time on or after July 31, 2002, at the redemption prices
(expressed as percentages of principal amount) set forth below, together with
accrued and unpaid interest, if any, to the date of redemption, if redeemed
during the 12-month period beginning on July 31 of the years indicated below
(subject to the right of holders of record on relevant record dates to receive
interest due on an interest payment date):
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- -------------------------------------------------------------------------------------- ----------------
<S> <C>
2002.................................................................................. 105.313%
2003.................................................................................. 103.542%
2004.................................................................................. 101.771%
2005 and thereafter................................................................... 100.000%
</TABLE>
In addition, up to 35% of the initial aggregate principal amount of the
Notes due 2007 may be redeemed on or prior to July 31, 2000, at the option of
the company, within 180 days of a Public Equity Offering with the net proceeds
of such offering at a redemption price equal to 110 5/8% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
redemption (subject to the right of holders of record on relevant record dates
to receive interest due on relevant interest payment dates); PROVIDED, that
after giving effect to such redemption at least $162.5 million aggregate
principal amount of the Notes due 2007 remains outstanding.
SELECTION AND NOTICE. In the event that less than all of the Notes due 2004
or Notes due 2007, respectively, are to be redeemed at any time, selection of
the Notes due 2004 for redemption will be made by the Trustee on a PRO RATA
BASIS, by lot or by such other method as the Trustee shall deem fair and
appropriate and selection of the New Notes due 2007 for redemption will be made
by the Trustee on a pro rata basis, by lot or by such other method as the
Trustee shall deem fair and appropriate; PROVIDED, HOWEVER, that no Note of a
principal amount of $1,000 or less shall be redeemed in part. Notice of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of Notes due 2004 or Notes due
2007 to be redeemed at its registered address. If any Note is to be redeemed in
part only, the notice of redemption that relates to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in a
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original Note. On
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or after the redemption date, interest will cease to accrue on Notes or portions
thereof called for redemption and accepted for payment. (Sections 1104, 1105,
1107 and 1108)
SINKING FUND
Neither the Notes due 2004 nor the Notes due 2007 are entitled to the
benefit of any sinking fund.
GUARANTEES
Payment of the principal of, premium, if any, interest on and any Liquidated
Damages in respect of the Notes, when and as the same become due and payable
(whether at Stated Maturity or on a redemption date, or pursuant to a Change of
Control Purchase Offer or an Asset Sale Offer, and whether by declaration of
acceleration, call for redemption, purchase or otherwise), will be guaranteed,
jointly and severally, on a senior subordinated basis by all of the Wholly Owned
Restricted Subsidiaries of the company (the "Subsidiary Guarantors"). (Section
1201)
Upon the sale or disposition (whether by merger, stock purchase, asset sale
or otherwise) of a Subsidiary Guarantor or all or substantially all of its
assets to an entity which is not a Subsidiary Guarantor (and a Restricted
Subsidiary) or the designation of a Restricted Subsidiary to become an
Unrestricted Subsidiary, which transaction is otherwise in compliance with the
Indentures (including, without limitation, the provisions of "--Certain
Covenants--LIMITATION ON SALE OF ASSETS" and "--LIMITATION ON ISSUANCES AND
SALES OF CAPITAL STOCK OF SUBSIDIARIES"), such Subsidiary Guarantor will be
deemed released from its obligations under its Note Guarantee; PROVIDED,
HOWEVER, that any such termination shall occur only to the extent that all
obligations of such Subsidiary Guarantor under all of its guarantees of, and
under all of its pledges of assets or other security interests which secure, any
Indebtedness of the company or any other Restricted Subsidiary shall also
terminate upon such release, sale or transfer. In addition, any Subsidiary
Guarantor shall automatically be released from and relieved of its obligations
under its Note Guarantee upon the sale or transfer of the Capital Stock of such
Subsidiary Guarantor pursuant to or in lieu of foreclosure of any lien on the
Capital Stock of such Subsidiary Guarantor existing in favor of any holder of
Senior Indebtedness and, upon the request of any holder of Senior Indebtedness
(or of any purchaser or transferee pursuant to or in lieu of such foreclosure),
the Trustee shall execute any documents reasonably required to evidence the
release of such Subsidiary Guarantor. (Section 1206)
SUBORDINATION
The payment (by set-off or otherwise) of principal of, premium, if any,
interest and Liquidated Damages, if any, on the Notes (including with respect to
any repurchases of the Notes) will be subordinated in right of payment, as set
forth in the Indentures, to the prior payment in full in cash or, at the option
of the holders of Senior Indebtedness, in Temporary Cash Investments, of all
Obligations in respect of Senior Indebtedness, whether outstanding on the date
of the Indentures or thereafter incurred. (Section 1401)
Upon any distribution to creditors of the company or any Subsidiary
Guarantor upon any total or partial liquidation, dissolution or winding up of
the company or such Subsidiary Guarantor or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the company or such
Subsidiary Guarantor or its property, whether voluntary or involuntary, an
assignment for the benefit of creditors or any marshalling of the company's or
such Subsidiary Guarantor's assets and liabilities, the holders of Senior
Indebtedness of the company or such Subsidiary Guarantor will be entitled to
receive payment in full in cash, or at the option of the holders of such Senior
Indebtedness, in Temporary Cash Investments, of all Obligations due or to become
due in respect of such Senior Indebtedness (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness) before the Holders of Notes will be entitled to receive any
payment of any kind or character with respect to the Notes, and until all
Obligations with respect to such Senior Indebtedness are paid in full
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in cash, or at the option of the holders of such Senior Indebtedness, in
Temporary Cash Investments, any distribution of any kind or character to which
the Holders of Notes would be entitled shall be made to the holders of such
Senior Indebtedness (except that Holders of Notes may receive Permitted Junior
Securities and payments made from the trust described under "--Defeasance or
Covenant Defeasance of Indentures"). (Section 1402)
Neither the company nor any Subsidiary Guarantor shall make, directly or
indirectly, (x) any payment upon or in respect of the Notes (except in Permitted
Junior Securities or from the trust described under "--Defeasance or Covenant
Defeasance of Indentures") or (y) acquire any of the Notes for cash or property
or otherwise or make any other distribution with respect to the Notes if (i) any
default occurs and is continuing in the payment when due, whether at maturity,
upon any redemption, by declaration or otherwise, of any amount of any
Designated Senior Indebtedness (a "Payment Default") or (ii) any other default
occurs and is continuing with respect to Designated Senior Indebtedness (a
"Non-Payment Default") that permits holders of, or the trustee or agent on
behalf of the holders of, the Designated Senior Indebtedness as to which such
default relates to accelerate its maturity and the Trustee receives a notice of
such default (a "Payment Blockage Notice") from the trustee or agent on behalf
of holders of any Designated Senior Indebtedness. Payments on the Notes may and
shall be resumed (a) in the case of a Payment Default, upon the date on which
such default is cured or waived and (b) in case of a Non-Payment Default, the
earlier of the date on which such Non-Payment Default is cured or waived or 179
days after the date on which the applicable Payment Blockage Notice is received,
unless a Payment Default has occurred and is continuing, including as a result
of the acceleration of the maturity of any Designated Senior Indebtedness. After
a Payment Blockage Notice is given for a Non-Payment Default, no new period of
payment blockage for a Non-Payment Default may be commenced unless and until (i)
360 days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice and (ii) all scheduled payments of principal, premium, if any,
and interest and Liquidated Damages, if any, on the Notes that have come due
have been paid in full in cash. No Non-Payment Default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Trustee
shall be, or be made, the basis for a subsequent Payment Blockage Notice unless
such Non-Payment Default shall have been cured or waived for a period of not
less than 90 days (it being acknowledged that any subsequent action, or any
breach of any financial covenants for a period commencing after the date of
delivery of any Payment Blockage Notice which, in either case, would give rise
to a default pursuant to any provision under which a default previously existed
or was continuing shall constitute a new default for this purpose). Each Holder
by its acceptance of a Note irrevocably agrees that if any payment or payments
shall be made pursuant to the Indentures by the company or a Subsidiary
Guarantor and the amount or total amount of such payment or payments exceeds the
amount, if any, that such Holder would be entitled to receive upon the proper
application of the subordination provisions of the Indentures, the payment of
such excess amount shall be deemed null and void, and the Holder agrees that it
will be obligated to return the amount of the excess payment to the Trustee, as
instructed in a written notice of such excess payment, within ten days of
receiving such notice. Section 1403)
The Indentures further require that the company promptly notify holders of
Senior Indebtedness if payment of the Notes is accelerated because of an Event
of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the company or a Subsidiary Guarantor who are holders of Senior
Indebtedness. On a PRO FORMA basis, the principal amount of consolidated Senior
Indebtedness outstanding at July 12, 1997 would have been approximately $1.049
billion (excluding $90 million of obligations under undrawn letters of credit),
of which $652 million would have been secured indebtedness. In addition, at July
12, 1997 the company had outstanding Capital Lease Obligations of approximately
$371 million. The Indentures will limit through certain financial tests the
amount of additional Indebtedness, including Senior Indebtedness, that the
company and its Subsidiary Guarantors can incur. See "--Certain
Covenants--LIMITATION ON INDEBTEDNESS."
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"DESIGNATED SENIOR INDEBTEDNESS" means (i) any Senior Indebtedness
outstanding under the New Credit Agreement; (ii) any Senior Indebtedness in
respect of the Fixed Rate Senior Notes, the Floating Rate Senior Notes, the
9 1/2% Debentures and the Medium-Term Notes; and (iii) any other Senior
Indebtedness, the principal amount of which is $50 million or more and that has
been designated by the company as "Designated Senior Indebtedness."
"PERMITTED JUNIOR SECURITIES" means Equity Interests in the company or debt
securities that are subordinated to all Senior Indebtedness (and any debt
securities issued in exchange for Senior Indebtedness) to substantially the same
extent as, or to a greater extent than, the Notes are subordinated to Senior
Indebtedness.
"SENIOR INDEBTEDNESS" of the company or any Subsidiary Guarantor means (i)
all Indebtedness of the company or such Subsidiary Guarantor under the New
Credit Agreement or any related loan documentation, including, without
limitation, obligations to pay principal and interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law), premium, if any,
reimbursement obligations under letters of credit, fees, expenses and
indemnities, and all obligations under Interest Rate Agreements or Currency
Agreements with respect thereto, whether outstanding on the date of the
Indentures or thereafter incurred, (ii) the principal of, premium, if any, and
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on, and all other Obligations with respect to, any other Indebtedness of the
company or such Subsidiary Guarantor permitted to be incurred by the company or
such Subsidiary Guarantor under the terms of the Indentures, whether outstanding
on the date of the Indentures or thereafter incurred, unless the instrument
under which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes and (iii) all
Obligations of the company or such Subsidiary Guarantor with respect to the
foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness will not include (w) any liability for federal, state, local or
other taxes owed or owing by the company or any Subsidiary Guarantor, (x) any
Indebtedness of the company or any Subsidiary Guarantor to any of its Restricted
Subsidiaries or other Affiliates, (y) any trade payables or (z) any Indebtedness
that is incurred in violation of the Indentures.
CERTAIN COVENANTS
The Indentures contain the following covenants, among others:
LIMITATION ON INDEBTEDNESS. The company will not, and will not permit any
of its Restricted Subsidiaries to, create, assume, or directly or indirectly
guarantee or in any other manner become directly or indirectly liable for the
payment of, or otherwise incur (collectively, "incur"), any Indebtedness
(including any Acquired Indebtedness) other than Permitted Indebtedness.
Notwithstanding the foregoing, the company and the Subsidiary Guarantors may
incur Indebtedness if, at the time of such event (and after giving effect on a
PRO FORMA basis to (i) the incurrence of such Indebtedness and (if applicable)
the application of the proceeds therefrom, including to refinance other
Indebtedness; (ii) the incurrence, repayment or retirement of any other
Indebtedness by the company or its Restricted Subsidiaries since the first day
of such four-quarter period as if such Indebtedness was incurred, repaid or
retired at the beginning of such four-quarter period; and (iii) the acquisition
(whether by purchase, merger or otherwise) or disposition (whether by sale,
merger or otherwise) of any company, entity or business acquired or disposed of
by the company or its Restricted Subsidiaries, as the case may be, since the
first day of such four-quarter period as if such acquisition or disposition had
occurred at the beginning of such four-quarter period), the Consolidated Fixed
Charge Coverage Ratio of the company for the four full fiscal quarters
immediately preceding such event, taken as one period and calculated on the
assumption that such Indebtedness had been incurred on the first day of such
four-quarter period and, in the case of Acquired Indebtedness, on the assumption
that the related acquisition (whether by means of purchase, merger or
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otherwise) also had occurred on such date, with such PRO FORMA adjustments as
may be determined in accordance with GAAP and the rules, regulations and
guidelines of the Commission (including without limitation Article 11 of
Regulation S-X), would have been at least equal to 2.0 to 1 through July 31,
1999 and 2.25 to 1 thereafter. (Section 1010)
LIMITATION ON RESTRICTED PAYMENTS. (a) The company will not, and will not
permit any Restricted Subsidiary of the company to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to, the holders
of, any Capital Stock of the company or of any Restricted Subsidiary
(other than dividends or distributions payable (x) solely in shares of
Qualified Capital Stock of the company or such Restricted Subsidiary or
in options, warrants or other rights to purchase such Qualified Capital
Stock or (y) by a Restricted Subsidiary to the company or any Wholly
Owned Restricted Subsidiary);
(ii) purchase, redeem or otherwise acquire or retire for value, directly or
indirectly, any Capital Stock of the company or any Restricted
Subsidiary or any options, warrants or other rights to acquire such
Capital Stock held by any Person (other than the company or any Wholly
Owned Restricted Subsidiary of the company);
(iii) make any principal payment on, or redeem, repurchase, defease or
otherwise acquire or retire for value, prior to any scheduled
repayment, sinking fund payment or maturity, any Subordinated
Indebtedness or PARI PASSUIndebtedness of the company or any Subsidiary
Guarantor; or
(iv) make any Investment (other than any Permitted Investment) in any Person
(such payments described in clauses (i) through (iv) and not excepted therefrom
are collectively referred to herein as "Restricted Payments") unless at the time
of and immediately after giving effect to the proposed Restricted Payment (the
amount of any such Restricted Payment, if other than cash, as determined by the
Board of Directors of the company, whose determination shall be conclusive and
evidenced by a Board Resolution), (1) no Default or Event of Default shall have
occurred and be continuing, (2) the company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in accordance with the
provisions described under "--Certain Covenants--LIMITATION ON INDEBTEDNESS" and
(3) such Restricted Payment, together with the aggregate of all other Restricted
Payments made by the company and its Restricted Subsidiaries on or after the
date of the Indentures, is less than the sum of (a) 50% of the aggregate
cumulative Consolidated Net Income of the company for the period (taken as one
accounting period) from the first day of the quarter beginning after the date of
the Indentures to the end of the company's most recently ended fiscal quarter
for which financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (b) 100% of the aggregate net cash proceeds received
by the company as capital contributions or from the issue or sale since the date
of the Indentures of Equity Interests of the company or of debt securities of
the company that have been converted into such Equity Interests (other than
Equity Interests (or convertible debt securities) sold to a Restricted
Subsidiary of the company and other than Redeemable Capital Stock or debt
securities that have been converted into Redeemable Capital Stock), plus (c) any
cash received by the company after the date of initial issuance of the Notes as
a dividend or distribution from any of its Unrestricted Subsidiaries less the
cost of disposition and taxes, if any (but in each case excluding any such
amounts included in Consolidated Net Income); plus (d) $50 million.
(b) Notwithstanding paragraph (a) above, the company and its Restricted
Subsidiaries may take the following actions so long as (with respect to clauses
(ii), (iii), (iv) and (vi) below) at the time of and immediately after giving
effect thereto no Default or Event of Default shall have occurred and be
continuing:
(i) the payment of any dividend within 60 days after the date of declaration
thereof, if at such declaration date such declaration complied with the
provisions of paragraph (a) above;
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(ii) the purchase, redemption or other acquisition or retirement for value
of any shares of Capital Stock of the company, in exchange for, or out
of the net cash proceeds of, a substantially concurrent issuance and
sale (other than to a Restricted Subsidiary) of shares of Capital Stock
of the company (other than Redeemable Capital Stock, unless the
redemption provisions of such Redeemable Capital Stock prohibit the
redemption thereof prior to the date on which the Capital Stock to be
acquired or retired was, by its terms, required to be redeemed);
(iii) the purchase, redemption, defeasance or other acquisition or retirement
for value of any PARI PASSU Indebtedness or Subordinated Indebtedness
(other than Redeemable Capital Stock) in exchange for or out of the net
cash proceeds of a substantially concurrent issuance and sale (other
than to a Restricted Subsidiary) of shares of Capital Stock of the
company (other than Redeemable Capital Stock, unless the redemption
provisions of such Redeemable Capital Stock prohibit the redemption
thereof prior to the Stated Maturity of the Subordinated Indebtedness
to be acquired or retired);
(iv) the purchase, redemption, defeasance or other acquisition or retirement
for value of any PARI PASSU Indebtedness or Subordinated Indebtedness
(other than Redeemable Capital Stock) in exchange for, or out of the
net cash proceeds of a substantially concurrent incurrence or sale
(other than to a Restricted Subsidiary) of, new PARI PASSU Indebtedness
or Subordinated Indebtedness of the company so long as (A) the
principal amount of such new PARI PASSU Indebtedness or Subordinated
Indebtedness does not exceed the principal amount (or, if such PARI
PASSU Indebtedness or Subordinated Indebtedness being refinanced
provides for an amount less than the principal amount thereof to be due
and payable upon a declaration of acceleration thereof, such lesser
amount as of the date of determination) of the PARI PASSU Indebtedness
or Subordinated Indebtedness being so purchased, redeemed, defeased,
acquired or retired, PLUS the amount of any premium required to be paid
in connection with such refinancing pursuant to the terms of the PARI
PASSU Indebtedness or Subordinated Indebtedness refinanced or the
amount of any premium reasonably determined by the company as necessary
to accomplish such refinancing, plus the amount of reasonable expenses
of the company incurred in connection with such refinancing, (B) such
new PARI PASSU Indebtedness or Subordinated Indebtedness is PARI PASSU
or subordinated to the Notes to the same extent as such PARI PASSU
Indebtedness or Subordinated Indebtedness so purchased, redeemed,
defeased, acquired or retired and (C) such new PARI PASSU Indebtedness
or Subordinated Indebtedness has an Average Life longer than the
Average Life of the Notes and a final Stated Maturity of principal
later than the final Stated Maturity of principal of the Notes;
(v) the payment of a dividend on the company's Capital Stock (other than
Redeemable Capital Stock) of up to $0.08 per quarter per share (or up to
$0.32 per annum per share, PROVIDED that dividend payments may not be
cumulated for more than four consecutive quarters); and
(vi) the purchase, redemption or other acquisition or retirement for value
of shares of Common Stock of the company issued pursuant to
non-qualified options granted under stock option plans of the company,
in order to pay withholding taxes due as a result of income recognized
upon the exercise of such options; PROVIDED that (1) the company is
permitted, by the terms of such plans, to effect such purchase,
redemption or other acquisition or retirement for value of such shares
and (2) the aggregate consideration paid by the company for such shares
so purchased, redeemed or otherwise acquired or retired for value does
not exceed $2 million during any fiscal year of the company.
The actions described in clauses (ii), (iii), (v) and (vi) of this paragraph
(b) shall be Restricted Payments that shall be permitted to be taken in
accordance with this paragraph (b) but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph
(a). (Section 1011)
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LIMITATION ON LAYERING INDEBTEDNESS. The Indentures provide that neither
the company nor any of its Restricted Subsidiaries will incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Indebtedness of the
company or such Restricted Subsidiary, as the case may be, and senior in any
respect in right of payment to the Notes or such Restricted Subsidiary's Note
Guarantee. (Section 1012)
LIMITATION ON LIENS SECURING PARI PASSU INDEBTEDNESS OR SUBORDINATED
INDEBTEDNESS. (a) The company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Lien (other than Permitted Liens) securing PARI PASSU Indebtedness or
Subordinated Indebtedness of the company on or with respect to any of its
property or assets, including any shares of stock or indebtedness of any
Restricted Subsidiary, whether owned at the date of the Indentures or thereafter
acquired, or any income, profits or proceeds therefrom, or assign or otherwise
convey any right to receive income thereon, unless (x) in the case of any Lien
securing PARI PASSU Indebtedness of the company, the Notes are secured by a Lien
on such property, assets or proceeds that is senior in priority to or PARI PASSU
with such Lien and (y) in the case of any Lien securing Subordinated
Indebtedness of the company, the Notes are secured by a Lien on such property,
assets or proceeds that is senior in priority to such Lien.
(b) The company will not permit any Restricted Subsidiary to, directly or
indirectly, create, incur, assume or suffer to exist any Lien (other than
Permitted Liens) securing Indebtedness of such Restricted Subsidiary that is
PARI PASSU or subordinate in right of payment to the Note Guarantee of such
Restricted Subsidiary, on or with respect to any such Restricted Subsidiary's
properties or assets, including any shares of stock or Indebtedness of any
Subsidiary of such Restricted Subsidiary, whether owned at the date of the
Indentures or thereafter acquired, or any income, profits or proceeds therefrom,
or assign or otherwise convey any right to receive income thereon, unless (x) in
the case of any Lien securing Indebtedness of the Restricted Subsidiary that is
PARI PASSU in right of payment to the Note Guarantee of such Restricted
Subsidiary, such Note Guarantee is secured by a Lien on such property, assets or
proceeds that is senior in priority to or PARI PASSU with such Lien and (y) in
the case of any Lien securing Indebtedness of the Restricted Subsidiary that is
subordinate in right of payment to the Note Guarantee of such Restricted
Subsidiary, such Note Guarantee is secured by a Lien on such property, assets or
proceeds that is senior in priority to such Lien. (Section 1014)
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Indentures provide that the
company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (other than the company, a Wholly Owned Restricted Subsidiary or (in
connection with a Qualified TIPS Transaction) a Qualified Finance Subsidiary)
(each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate
Transaction is on terms that are no less favorable to the company or the
relevant Restricted Subsidiary than those that could have been obtained in a
comparable transaction with an unrelated Person and (ii) the company delivers to
the Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5
million, an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (i) above and that such Affiliate Transaction has been
approved by a majority of the Disinterested Directors and (b) with respect to
any Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10 million, both an Officers' Certificate
referred to in clause (a) and an opinion as to the fairness of such Affiliate
Transaction to the company or the relevant Restricted Subsidiary from a
financial point of view issued by an investment banking firm of national
standing with total assets in excess of $1.0 billion; PROVIDED, HOWEVER, that
this covenant shall not apply to (i) fees, compensation and employee benefits,
including bonuses, retirement plans and stock options, paid to or established
for directors and officers of the company or any Restricted Subsidiary in the
ordinary course of business and approved by a majority of the Disinterested
Directors and (ii) the performance by
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the company or any Restricted Subsidiary of its obligations under certain leases
of real property outstanding on the date of the Indentures from PDM, Inc.
covering 10 supermarket sites and a storage facility in Omaha, Nebraska.
(Section 1013)
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Indentures provide that the company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends
or make any other distributions to the company or any of its Restricted
Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest
or participation in, or measured by, its profits, or (b) pay any indebtedness
owed to the company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the company or any of its Restricted Subsidiaries, (iii) transfer
any of its properties or assets to the company or any of its Restricted
Subsidiaries, (iv) grant Liens in favor of Holders of Notes or (v) guarantee the
Notes, except in each case for such encumbrances or restrictions existing under
or by reason of (a) Indebtedness of the company or any Restricted Subsidiary
outstanding on the date of the Indentures and listed on a schedule thereto, (b)
the New Credit Agreement as in effect as of the date of the Indentures, and any
amendments, modifications, restatements, renewals, increase, supplements,
refunding, replacements or refinancings thereof, PROVIDED that such amendments,
modifications, restatements, renewals, increase, supplements, refundings,
replacements or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the New Credit
Agreement in effect on the date of the Indentures, (c) the Indentures and the
Notes, (d) applicable law, (e) any instrument governing Indebtedness or Capital
Stock of a Person acquired by the company or any of its Restricted Subsidiaries
as in effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the property or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, (f) by reason of customary non-assignment
provisions in existing and future leases entered into in the ordinary course of
business and consistent with past practices, (g) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature described in clause (iii) above on the property so acquired and (h)
restrictions incurred by the company or any Restricted Subsidiary in connection
with any Permitted Receivables Financing. (Section 1015)
PURCHASE OF NOTES UPON A CHANGE OF CONTROL TRIGGERING EVENT. If a Change of
Control Triggering Event shall occur at any time, then each Holder of Notes
shall have the right, to the extent not inconsistent with the company's Bylaws
as in effect on the date of the Indentures, to require the company to purchase
such Holder's Notes in whole or in part in integral multiples of $1,000 at a
purchase price (the "Change of Control Purchase Price") in cash in an amount
equal to 101% of the principal amount of such Notes, plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Purchase
Date"), pursuant to the offer described below (the "Change of Control Purchase
Offer") and the other procedures set forth in the Indentures. The Medium-Term
Notes Indenture, the Fixed Rate Senior Note Indenture and the Floating Rate
Senior Note Indenture have similar provisions obligating the company to make an
offer to purchase the Medium-Term Notes, the Fixed Rate Senior Notes and the
Floating Rate Senior Notes, respectively, in the event of a defined change of
control. Reference is made to "--Certain Definitions" for the definitions of
"Change of Control," "Change of Control Triggering Event," "Rating Agencies,"
"Rating Decline" and "Investment Grade." The foregoing rights under the Notes
are triggered only upon the occurrence of both a Change of Control and a Rating
Decline.
Upon the occurrence of a Change of Control Triggering Event and prior to the
mailing of the notice to Holders provided for in the Indentures, the company
covenants to either (x) repay in full all Indebtedness under the New Credit
Agreement or offer to repay in full all such Indebtedness and to repay the
Indebtedness of each of the Banks that has accepted such offer or (y) obtain any
requisite consent under the New Credit Agreement to permit the purchase of the
Notes pursuant to a Change of Control Purchase Offer as provided for in the
Indentures or take any other action as may be required under the
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New Credit Agreement to permit such purchase. The company shall first comply
with such covenants before it shall be required to purchase the Notes pursuant
to the Indentures. (Section 1009)
Within 30 days following the occurrence of any Change of Control Triggering
Event, the company shall notify the Trustee and give written notice of such
Change of Control Triggering Event to each Holder of Notes, by first-class mail,
postage prepaid, at the address appearing in the security register, stating,
among other things, the Change of Control Purchase Price and the Change of
Control Purchase Date, which shall be a Business Day no earlier than 30 days nor
later than 60 days from the date such notice is mailed, or such later date as is
necessary to comply with requirements under the Exchange Act; that any Note not
tendered will continue to accrue interest; that, unless the company defaults in
the payment of the Change of Control Purchase Price, any Notes accepted for
payment of the Change of Control Purchase Price pursuant to the Change of
Control Purchase Offer shall cease to accrue interest after the Change of
Control Purchase Date; and certain other procedures that a Holder of Notes must
follow to accept a Change of Control Purchase Offer or to withdraw such
acceptance.
The New Credit Agreement prohibits the company from incurring any
Indebtedness which grants to holders thereof the option of requiring the company
to repurchase such debt prior to the retirement of all amounts outstanding
thereunder. Upon the occurrence of a Change of Control Triggering Event, the
company is obligated to retire all amounts then outstanding under the New Credit
Agreement or to obtain a waiver of such prohibition for the benefit of the
Holders of the Notes. Upon such retirement or waiver following a Change of
Control Triggering Event, each Holder of the Notes will have the right, to the
extent not inconsistent with the company's Bylaws as in effect on the date of
the Indentures, to require the company to purchase all of such Holder's Notes at
a redemption price equal to 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of purchase. Failure by the
company to retire all obligations then outstanding under the New Credit
Agreement or to obtain a waiver upon the occurrence of a Change of Control
Triggering Event would constitute a default by the company under the Indentures
and would entitle the requisite Holders to accelerate the obligations due under
the Notes (although without a premium). Each of the New Credit Agreement and
certain of the Prior Indentures requires the company to repay the Indebtedness
under the New Credit Agreement $277 million on a PRO FORMA basis as of July 12,
1997) and repurchase the outstanding Indebtedness under such Prior Indentures
(approximately $401 million on a PRO FORMA basis as of July 12, 1997) in the
event of a change of control (or, in the case of the Fixed Rate Senior Note
Indenture, a Change of Control Triggering Event). If a purchase of the Notes,
repayment of the Indebtedness under the New Credit Agreement and purchase of the
outstanding Indebtedness under such Prior Indentures were all triggered at the
same time, it is possible the company would be unable to satisfy these
obligations. If a Change of Control Triggering Event occurs, there can be no
assurance that the company will have available funds sufficient to pay the
Change of Control Purchase Price for all of the Notes that might be delivered by
Holders of the Notes seeking to accept the Change of Control Purchase Offer and,
accordingly, none of the Holders of the Notes may receive the Change of Control
Purchase Price for their Notes in the event of a Change of Control Triggering
Event. The failure of the company to make or consummate the Change of Control
Purchase Offer or pay the Change of Control Purchase Price when due for any
reason, including the inconsistency of such covenant with the company's Bylaws
as in effect on the date of the Indentures, as discussed below, will give the
Trustee and the Holders of the Notes the rights described under "--Events of
Default."
In September 1996, the International Brotherhood of Teamsters General Fund
("Teamsters") brought suit against the company in the U.S. District Court for
the Western District of Oklahoma to require the company to include in its 1997
Proxy Statement a proposed resolution to amend the company's Bylaws. The
resolution purported to (i) limit the company's ability to "adopt or maintain a
poison pill, shareholder rights plan, rights agreement or any other form of
'poison pill' " which is designed to or which has the effect of making
acquisitions of large holdings of the Corporation's shares of stock more
difficult or expensive . . . unless such a plan is first approved by a MAJORITY
shareholder vote" (emphasis in original, without definition), (ii) direct the
company to redeem the existing share rights and (iii) prohibit
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the amendment, alteration, deletion or modification of such Bylaw by the Board
of Directors without prior shareholder approval. The company believes such
action by the shareholders is contrary to the General Corporation Act of the
State of Oklahoma. Nevertheless, on January 24, 1997, the trial judge entered
judgment in favor of the Teamsters. The company has appealed the judgment. The
company's shareholders approved the Bylaw amendment at its annual meeting on
April 30, 1997 (the "Bylaw Amendment"). See "Business--Legal Proceedings--Poison
Pill Bylaw Amendment." The Bylaw Amendment raises a question as to whether the
provisions of the Indentures described above (the "Change of Control
Provisions") constitute a 'poison pill,' " shareholder rights plan, rights
agreement or any other form of 'poison pill' "
(collectively, a "Poison Pill") within the meaning of the Bylaw Amendment.
Although the matter is not free from doubt, the company believes that a court,
properly presented with the facts, should conclude that the Change of Control
Provisions of the Indentures do not constitute a Poison Pill within the meaning
of the Bylaw Amendment, and accordingly are not inconsistent therewith. If the
Change of Control Provisions were found to be inconsistent with the Bylaw
Amendment, the company would not be able to make or consummate the Change of
Control Purchase Offer or pay the Change of Control Purchase Price when due.
However, in such event, the Trustee and the Holders of the Notes would have the
rights described under "--Events of Default."
One of the events which constitutes a Change of Control under the Indentures
is the disposition of "all or substantially all" of the company's assets. This
term has not been interpreted under New York law (which is the governing law of
the Indentures) to represent a specific quantitative test. As a consequence, in
the event Holders of the Notes elect to require the company to purchase the
Notes and the company elects to contest such election, there can be no assurance
as to how a court interpreting New York law would interpret the phrase.
In addition to the obligations of the company under the Indentures with
respect to the Notes in the event of a "Change of Control Triggering Event," the
New Credit Agreement contains a provision designating as an event of default a
change in control as described therein which obligates the company to repay
amounts outstanding under the New Credit Agreement upon an acceleration of the
indebtedness issued thereunder.
The company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Purchase Offer. (Section
1009)
LIMITATION ON SALE OF ASSETS. The Indentures provide that the company will
not, and will not permit any of its Restricted Subsidiaries to, engage in an
Asset Sale unless the company or such Restricted Subsidiary, as the case may be,
receives Permitted Consideration at the time of such Asset Sale at least equal
to the Fair Market Value (as evidenced by a resolution of the Board of Directors
set forth in an Officers' Certificate delivered to the Trustee) of the assets or
Equity Interests issued or sold or otherwise disposed of.
Within 370 days after the receipt of any Net Proceeds from an Asset Sale,
the company or such Restricted Subsidiary must apply such Net Proceeds (i) to
permanently reduce Senior Indebtedness of the company or one or more Restricted
Subsidiaries (and to correspondingly reduce commitments with respect thereto) or
(ii) to make capital expenditures or acquire long-term assets used or useful in
its businesses or in businesses similar or related to the businesses of the
company immediately prior to the date of the Indentures. Pending the final
application of any such Net Proceeds, the company may temporarily reduce Senior
Indebtedness or otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indentures. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $15 million, the company will be required to make an offer to
all Holders of Notes (an "Asset Sale Offer"), on a PRO RATA basis between the
Notes due 2004 and the Notes due 2007, to purchase the maximum principal amount
of Notes that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to 100% of the principal amount thereof, plus accrued
and unpaid
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interest and Liquidated Damages, if any, thereon to the date of purchase, in
accordance with the procedures set forth in the Indentures. To the extent that
the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, the company may use any remaining Excess Proceeds for
general corporate purposes (subject to the restrictions of the Indentures). If
the aggregate principal amount of Notes surrendered by Holders thereof exceeds
the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a PRO RATA basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
Notwithstanding the foregoing provisions of the prior paragraph, the company
and its Restricted Subsidiaries may sell or dispose of property, whether in the
form of assets or capital stock of a Restricted Subsidiary, in the aggregate
amount not exceeding $15 million in any year and any notes received by the
company or its Restricted Subsidiaries as consideration in any disposition made
pursuant to such $15 million exclusion from the provisions of this covenant
shall not be taken into account in determining whether the $75 million
limitation set forth in the definition of "Permitted Consideration" has been
met. (Section 1016)
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF SUBSIDIARIES. The
Indentures provide that the company will not, and will not permit any of its
Restricted Subsidiaries to, transfer, convey, sell or otherwise dispose of any
Capital Stock of any Restricted Subsidiary of the company to any Person (other
than the company or a Wholly Owned Restricted Subsidiary of the company), unless
(a) such transfer, conveyance, sale or other disposition is of all of the
Capital Stock of such Restricted Subsidiary owned by the company and its
Restricted Subsidiaries and (b) such transaction is made in accordance with the
provisions of "--Certain Covenants--LIMITATION ON SALE OF ASSETS," PROVIDED that
85% of the proceeds from such a sale of Capital Stock of any Restricted
Subsidiary that is a Significant Subsidiary shall consist of cash or Temporary
Cash Investments. Notwithstanding the foregoing or the provisions of any other
covenant, the company or any Restricted Subsidiary may sell Qualified Capital
Stock of any Restricted Subsidiary in a Public Equity Offering, PROVIDED that
(i) 100% of the Net Proceeds from such Public Equity Offering shall be in cash
and shall be applied as provided in the provisions of "Certain
Covenants--LIMITATION ON SALE OF ASSETS" and (ii) the Tangible Assets of such
Restricted Subsidiary do not exceed 10% of the Consolidated Tangible Assets of
the company, determined as of the last day of the quarter ending immediately
before the commencement of such Public Equity Offering. (Section 1017)
ADDITIONAL GUARANTEES. If (x) the company or any of its Restricted
Subsidiaries shall acquire or form a Restricted Subsidiary or (y) any existing
majority-owned Restricted Subsidiary shall, after the date of the Indentures,
guarantee any PARI PASSU Indebtedness or Subordinated Indebtedness of the
company or any Subsidiary Guarantor, the company will cause any such Restricted
Subsidiary (other than an Investee Store or Joint Venture, provided that such
Investee Store or Joint Venture does not guarantee the PARI PASSU Indebtedness
of any other Person) that is or becomes a Wholly Owned Restricted Subsidiary or
that guarantees any PARI PASSU Indebtedness or Subordinated Indebtedness of the
company or any Subsidiary Guarantor to (i) execute and deliver to the applicable
Trustee a supplemental indenture in form and substance reasonably satisfactory
to such Trustee pursuant to which such Restricted Subsidiary shall guarantee all
of the obligations of the company with respect to the Notes issued under such
Indenture on a senior subordinated basis and (ii) deliver to such Trustee an
Opinion of Counsel reasonably satisfactory to such Trustee to the effect that a
supplemental indenture has been duly executed and delivered by such Restricted
Subsidiary and is in compliance with the terms of the applicable Indenture.
(Section 1018)
RULE 144A INFORMATION REQUIREMENT. The company has agreed to furnish to the
Holders or beneficial Holders of Notes and prospective purchasers of Notes
designated by the Holders of Notes, upon their request, the information required
to be delivered pursuant to Rule 144A (d) (4) under the Securities Act
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until such time as the company either exchanges all of the Old Notes for the New
Notes or has registered all of the Old Notes for resale under the Securities
Act. (Section 1019)
REPORTS. The Indentures provide that whether or not required by the rules
and regulations of the Commission, including the reporting requirements of
Section 13 or 15(d) of the Exchange Act, so long as any Notes are outstanding,
the company will furnish to the Holders of Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results of
operations of the company and its Subsidiaries and, with respect to the annual
information only, a report on the consolidated financial statements required by
Form 10-K by the company's independent certified public accountants and (ii) all
reports that would be required to be filed with the Commission on Form 8-K if
the company were required to file such reports. In addition, whether or not
required by the rules and regulations of the Commission, the company will file a
copy of all such information with the Commission for public availability (unless
the Commission will not accept such a filing) and make such information
available to investors or prospective investors who request it in writing.
(Section 1019)
PAYMENTS FOR CONSENT. The Indentures prohibit the company and any of its
Restricted Subsidiaries from, directly or indirectly, paying or causing to be
paid any consideration, whether by way of interest, fee or otherwise, to any
Holder of any Notes for or as an inducement to any consent, waiver or amendment
of any terms or provisions of the Notes unless such consideration is offered to
be paid or agreed to be paid to all Holders of the Notes which so consent, waive
or agree to amend in the time frame set forth in solicitation documents relating
to such consent, waiver or agreement. (Section 1020)
TERMINATION OF CERTAIN COVENANTS IN EVENT OF INVESTMENT GRADE RATING. In
the event that each of the Rating Categories assigned to the Notes of the
company by the Rating Agencies is Investment Grade, the provisions of
"--LIMITATION ON INDEBTEDNESS," "--LIMITATION ON RESTRICTED PAYMENTS,"
"--LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF SUBSIDIARIES,"
"--LIMITATION ON TRANSACTIONS WITH AFFILIATES" and
"--LIMITATION ON SALE OF ASSETS" and the net worth requirement set forth in
clause (iii) of "--Consolidation, Merger, Sale of Assets" shall cease to apply
to the company and its Restricted Subsidiaries from and after the date on which
the second of the Rating Agencies notifies the company of the assignment of such
Rating Category. Notwithstanding the foregoing, if the Rating Category assigned
by either Rating Agency to the Notes should subsequently decline below
Investment Grade, the foregoing covenants and such maintenance of net worth
requirement shall be reinstituted as and from the date of such rating decline.
(Section 1021)
CONSOLIDATION, MERGER, SALE OF ASSETS
The company shall not, in a single transaction or a series of related
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer or lease or otherwise dispose of all or substantially
all of its properties and assets to any Person or group of affiliated Persons,
or permit any of its Restricted Subsidiaries to enter into any such transaction
or transactions if such transaction or transactions, in the aggregate, would
result in a sale, assignment, transfer, lease or disposal of all or
substantially all of the properties and assets of the company and its Restricted
Subsidiaries on a Consolidated basis to any other Person or group of affiliated
Persons, unless at the time and after giving effect thereto (i) either (A) the
company shall be the surviving or continuing corporation, or (B) the Person (if
other than the company) formed by such consolidation or into which the company
is merged or the Person which acquires by sale, assignment, conveyance,
transfer, lease or disposition the properties and assets of the company
substantially as an entirety (the "Surviving Entity") shall be a corporation
duly organized and validly existing under the laws of the United States, any
state thereof or the District of Columbia and shall, in any case, expressly
assume, by a supplemental indenture, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the company, under the
Notes and the Indentures, and the
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Indentures shall remain in full force and effect; (ii) immediately before and
immediately after giving effect to such transaction on a PRO FORMA basis (and
treating any Indebtedness not previously an obligation of the company or any of
its Restricted Subsidiaries which becomes an obligation of the company or any of
its Restricted Subsidiaries in connection with or as a result of such
transaction as having been incurred at the time of such transaction), no Default
or Event of Default shall have occurred and be continuing; (iii) immediately
after giving effect to such transaction, except in the case of a merger of the
company with or into a Wholly Owned Restricted Subsidiary, the company (or the
Surviving Entity if the company is not the continuing obligor under the
Indentures) will have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the company immediately preceding the transaction;
(iv) immediately after giving effect to such transaction on a PRO FORMA basis
(on the assumption that the transaction occurred on the first day of the
four-quarter period immediately prior to the consummation of such transaction
with the appropriate adjustments with respect to the transaction being included
in such PRO FORMA calculation), the company (or the Surviving Entity if the
company is not the continuing obligor under the Indentures) could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the provisions
of
"--Certain Covenants--LIMITATION ON INDEBTEDNESS" above; (v) each Subsidiary
Guarantor, unless it is the other party to the transactions described above,
shall have confirmed, by supplemental indenture to each of the Indentures, that
its respective Note Guarantees with respect to the Notes shall apply to such
Person's obligations under the Indentures and the Notes; (vi) if any of the
property or assets of the company or any of its Restricted Subsidiaries would
thereupon become subject to any Lien, the provisions of "--Certain
Covenants--LIMITATION ON LIENS SECURING PARI PASSU INDEBTEDNESS OR SUBORDINATED
INDEBTEDNESS" are complied with; and (vii) the company shall have delivered, or
caused to be delivered, to the Trustee with respect to the Indentures, in form
and substance satisfactory to such Trustee, an Officers' Certificate and an
opinion of counsel, each to the effect that such consolidation, merger, sale,
assignment, conveyance, transfer, lease or other transaction and the
supplemental indenture in respect thereto, if required, comply with the
provisions in clauses (i) through (vii) of this paragraph and that all
conditions precedent herein provided for relating to such transaction have been
complied with.
In the event of any consolidation, merger, sale, assignment, conveyance,
transfer, lease or other transaction described in, and complying with, the
conditions listed in the immediately preceding paragraph in which the company is
not the continuing corporation, the successor Person formed or remaining shall
succeed to, and be substituted for, and may exercise every right and power of,
the company, as the case may be, and the company shall be discharged from all
obligations and covenants under the Indentures and the Notes; PROVIDED that, in
the case of a transfer by lease, the predecessor shall not be released from its
obligations with respect to the payment of principal (premium, if any) and
interest on the Notes. (Sections 801 and 802)
EVENTS OF DEFAULT
An Event of Default will occur under the Indenture pursuant to which a
tranche of Notes was issued if any of the following events occurs with respect
to such Indenture:
(i) there shall be a default in the payment of any interest on the Notes
issued under such Indenture when such interest becomes due and payable, and
continuance of such default for a period of 30 days;
(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) any Notes issued under such Indenture at its Maturity;
(iii) (A) there shall be a default in the performance, or breach, of any
covenant or agreement of the company or any Subsidiary Guarantor under such
Indenture (other than a default in the performance, or breach, of a covenant
or agreement which is specifically dealt with in the immediately preceding
clauses (i) or (ii) or in clauses (B) or (C) of this clause (iii)), and such
default or breach shall continue for a period of 60 days after written
notice has been given, by certified mail, (x) to the
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company by the applicable Trustee or (y) to the company and the applicable
Trustee by the holders of at least 25% in aggregate principal amount of the
outstanding Notes; (B) there shall be a default in the performance or breach
of the provisions described in "--Consolidation, Merger, Sale of Assets" or
"--Certain Covenants--LIMITATION ON ASSET SALES"; or (C) the company shall
have failed to comply with the provisions of "--Certain Covenants--PURCHASE
OF NOTES UPON A CHANGE OF CONTROL TRIGGERING EVENT" for any reason,
including the inconsistency of such covenant with the company's Bylaws as in
effect on the date of the Indentures;
(iv) (A) any default in the payment of the principal of any Indebtedness
shall have occurred under any agreements, indentures (including, with
respect to any Notes issued under the Notes due 2004 Indenture, any such
default under the Notes due 2007 Indenture, and, with respect to the Notes
due 2007, any such default under the Notes due 2004 Indenture) or
instruments under which the company or any Restricted Subsidiary of the
company then has outstanding Indebtedness in excess of $50 million when the
same shall become due and payable in full and such default shall have
continued after any applicable grace period and shall not have been cured or
waived or (B) an event of default as defined in any of the agreements,
indentures or instruments described in clause (A) of this clause (iv) shall
have occurred and the Indebtedness thereunder, if not already matured at its
final maturity in accordance with its terms, shall have been accelerated;
(v) any Person entitled to take the actions described below in this
clause (v), after the occurrence of any event of default on Indebtedness in
excess of $50 million in the aggregate of the company or any Restricted
Subsidiary, shall notify the Trustee of the intended sale or disposition of
any assets of the company or any Restricted Subsidiary that have been
pledged to or for the benefit of such Person to secure such Indebtedness or
shall commence proceedings, or take any action (including by way of set-off)
to retain in satisfaction of any Indebtedness, or to collect on, seize,
dispose of or apply, any such assets of the company or any Restricted
Subsidiary (including funds on deposit or held pursuant to lock-box and
other similar arrangements), pursuant to the terms of such Indebtedness or
in accordance with applicable law;
(vi) any Note Guarantee of any Significant Subsidiary individually or
any other Subsidiaries if such Restricted Subsidiaries in the aggregate
represent 15% or more of the assets of the company and its Restricted
Subsidiaries on a consolidated basis with respect to such Notes shall for
any reason cease to be, or be asserted in writing by the company, any
Subsidiary Guarantor or any other Restricted Subsidiary of the company, as
applicable, not to be, in full force and effect, enforceable in accordance
with its terms, except pursuant to the release of any such Note Guarantee in
accordance with the applicable Indenture;
(vii) one or more judgments, orders or decrees for the payment of money
in excess of $50 million (net of amounts covered by insurance, bond or
similar instrument), either individually or in the aggregate, shall be
entered against the company or any Restricted Subsidiary of the company or
any of their respective properties and shall not be discharged and either
(A) any creditor shall have commenced an enforcement proceeding upon such
judgment, order or decree or (B) there shall have been a period of 60
consecutive days during which a stay of enforcement of such judgment or
order, by reason of an appeal or otherwise, shall not be in effect;
(viii) there shall have been the entry by a court of competent
jurisdiction of (A) a decree or order for relief in respect of the company
or any Significant Subsidiary in an involuntary case or proceeding under any
applicable Bankruptcy Law or (B) a decree or order adjudging the company or
any Significant Subsidiary bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment or composition of or in respect of the company or
any Significant Subsidiary under any applicable federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the company or any Significant
Subsidiary or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and any such decree or order for
relief shall
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continue to be in effect, or any such other decree or order shall be
unstayed and in effect, for a period of 60 consecutive days; or
(ix) (A) the company or any Significant Subsidiary commences a voluntary
case or proceeding under any applicable Bankruptcy Law or any other case or
proceeding to be adjudicated bankrupt or insolvent, (B) the company or any
Significant Subsidiary consents to the entry of a decree or order for relief
in respect of the company or such Significant Subsidiary in an involuntary
case or proceeding under any applicable Bankruptcy Law or to the
commencement of any bankruptcy or insolvency case or proceeding against it,
(C) the company or any Significant Subsidiary files a petition or answer or
consent seeking reorganization or relief under any applicable federal or
state law, (D) the company or any Significant Subsidiary (x) consents to the
filing of such petition or the appointment of, or taking possession by, a
custodian, receiver, liquidator, assignee, trustee, sequestrator or similar
official of the company or such Significant Subsidiary or of any substantial
part of its property, (y) makes an assignment for the benefit of creditors
or (z) admits in writing its inability to pay its debts generally as they
become due or (E) the company or any Significant Subsidiary takes any
corporate action in furtherance of any such actions in this clause (ix).
If an Event of Default (other than as specified in clauses (viii) or (ix) of
the immediately preceding paragraph) shall occur and be continuing with respect
to any tranche of the Notes, the Trustee, by notice to the company, or the
holders of at least 25% in aggregate principal amount then outstanding of such
Notes, by notice to the Trustee and to the company, may declare such Notes due
and payable immediately. Upon such declaration, all amounts payable in respect
of such Notes shall be immediately due and payable. If an Event of Default
specified in clause (viii) or (ix) of the immediately preceding paragraph occurs
and is continuing, then all of the outstanding Notes under each of the
Indentures shall IPSO FACTO become and be immediately due and payable without
any declaration or other act on the part of the Trustee thereunder or any Holder
of such Notes.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the applicable Trustee, the
Holders of a majority in aggregate principal amount outstanding of any tranche
of Notes, by written notice to the company and such Trustee, may annul such
declaration if (a) the company has paid or deposited with such Trustee a sum
sufficient to pay (i) all sums paid or advanced by such Trustee under the Notes
due 2004 Indenture, or the Notes due 2007 Indenture, as the case may be, and the
reasonable compensation, expenses, disbursements, and advances of such Trustee,
its agents and counsel, (ii) all overdue interest on all of the Notes of such
tranche, and (iii) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Notes of such tranche;
and (b) all Events of Default, other than the non-payment of principal of such
Notes which have become due solely by such declaration of acceleration, have
been cured or waived. (Section 502)
The Holders of a majority in aggregate principal amount of the Notes due
2004 and the Notes due 2007 outstanding, respectively, may, on behalf of the
Holders of all of such Notes, waive any past defaults under the Notes due 2004
Indenture, or the Notes due 2007 Indenture, as the case may be, except a default
in the payment of the principal of, premium, if any, or interest on any such
Note, or in respect of a covenant or provision which under such Indenture cannot
be modified or amended without the consent of the Holder of each such
outstanding Note due 2004 or Note due 2007. (Section 513)
The company is also required to notify the Trustee within ten days of the
occurrence of any Default. (Section 515)
The Trust Indenture Act contains limitations on the rights of the Trustee,
acting as trustee with respect to the Notes, should it become a creditor of the
company or any Subsidiary Guarantor, to obtain payment of claims in certain
cases or to realize on certain property received by it in respect of any such
claims, as security or otherwise. Such Trustee is permitted to engage in other
transactions, PROVIDED that if it acquires
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any conflicting interest, it must eliminate such conflict upon the occurrence of
an Event of Default or else resign.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURES
The company may, at its option and at any time, elect to have the
obligations of the company and any Subsidiary Guarantor discharged with respect
to any Notes issued under either Indenture ("defeasance"). (Section 1301) Such
defeasance means that the company shall be deemed to have paid and discharged
all obligations represented by such Notes, except for (i) the rights of Holders
of such outstanding Notes to receive payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due or on the
redemption date with respect to such Notes, as the case may be, (ii) the
company's obligations with respect to such Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes, and
the maintenance of an office or agency for payment and money for Note payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
applicable Trustee, and (iv) the defeasance provisions of the applicable
Indenture. (Section 1302) In addition, the company may, at its option and at any
time, elect to have the obligations of the company released with respect to
certain covenants that are described in the Indentures ("covenant defeasance")
and thereafter any omission to comply with such obligations shall not constitute
a Default or an Event of Default with respect to such Notes. In the event
covenant defeasance occurs, certain events (not including non-payment,
enforceability of any Note Guarantee, bankruptcy and insolvency events)
described under "--Events of Default" will no longer constitute an Event of
Default with respect to such Notes. (Sections 1303 and 1304)
In order to exercise either defeasance or covenant defeasance with respect
to the Notes under the Notes due 2004 Indenture or the Notes due 2007 Indenture,
as the case may be, (i) the company must irrevocably deposit with the Trustee,
in trust, for the benefit of the Holders of such Notes, cash in United States
dollars, U.S. Government Obligations (as defined in the Indentures), or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay and
discharge the principal of, premium, if any, and interest on the Notes
outstanding on the Stated Maturity thereof or on an optional redemption date
(such date being referred to as the "Defeasance Redemption Date"), as the case
may be, if in the case of a Defeasance Redemption Date prior to electing to
exercise either defeasance or covenant defeasance, the company has delivered to
the Trustee an irrevocable notice to redeem all of the outstanding Notes on such
Defeasance Redemption Date; (ii) in the case of defeasance, the company shall
have delivered to the Trustee an opinion of independent counsel in the United
States stating that (A) the company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date of the
Indentures, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel in the
United States shall confirm that, the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred; (iii) in the case of covenant defeasance, the
company shall have delivered to the Trustee an opinion of independent counsel in
the United States to the effect that the Holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such covenant defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such covenant defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit or
insofar as clause (viii) and (ix) under the first paragraph under "--Events of
Default" are concerned, at any time during the period ending on the 91st day
after the date of deposit; (v) such defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a Default under, the
Indentures or any other material agreement or instrument to which the company or
any Subsidiary Guarantor is a party or by which it is bound; (vi) the company
shall have delivered to the Trustee an Officers' Certificate stating that the
deposit was not made by the company with the intent of
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preferring the Holders of the Notes or any Subsidiary Guarantor over the other
creditors of the company or any Subsidiary Guarantor or with the intent of
defeating, hindering, delaying or defrauding creditors of the company, any
Subsidiary Guarantor or others; and (vii) the company shall have delivered to
the Trustee an Officers' Certificate stating that all conditions precedent
provided for relating to either the defeasance or the covenant defeasance, as
the case may be, have been complied with. (Section 1304)
SATISFACTION AND DISCHARGE
Each of the Indentures shall cease to be of further effect (except for
surviving rights of registration of transfer or exchange of the Notes issued
thereunder, as expressly provided for in each such Indenture) as to all
outstanding Notes issued thereunder when (i) either (A) all Notes issued under
the Notes due 2004 Indenture or the Notes due 2007 Indenture, as the case may
be, and theretofore authenticated and delivered (except lost, stolen or
destroyed Notes of such tranche which have been replaced or paid and Notes for
whose payment funds have been deposited in trust by the company and thereafter
repaid to the company or discharged from such trust) have been delivered to the
Trustee for cancellation or (B) all Notes issued under the Notes due 2004
Indenture or the Notes due 2007 Indenture, as the case may be, and not
theretofore delivered to the applicable Trustee for cancellation (x) have become
due and payable or (y) will become due and payable at their Stated Maturity
within one year, and either the company or any Subsidiary Guarantor has
irrevocably deposited or caused to be deposited with such Trustee funds in an
amount sufficient to pay and discharge the entire Indebtedness in respect of
such Notes, for principal of, premium and Liquidated Damages, if any, and
interest to the date of deposit; (ii) the company or any Subsidiary Guarantor
has paid all other sums payable by the company and any Subsidiary Guarantor
under the applicable Indenture; and (iii) the company has delivered to the
Trustee an Officers' Certificate and an opinion of counsel each stating that all
conditions precedent to the satisfaction and discharge of such Indenture, as
specified therein, have been complied with and that such satisfaction and
discharge will not result in a breach or violation of, or constitute a default
under, such Indenture or any other material agreement or instrument to which the
company or any Subsidiary Guarantor is a party or by which it is bound. (Section
401)
MODIFICATION AND AMENDMENTS
Modifications and amendments of the Indentures may be made by the company,
the Subsidiary Guarantors and the applicable Trustee with the consent of the
Holders of a majority in aggregate outstanding principal amount of the Notes
issued thereunder; PROVIDED, HOWEVER, that no such modification or amendment
may, without the consent of the holder of each outstanding Note of each series
affected thereby (i) change the Stated Maturity or the principal of, or any
installment of interest on, any Note issued thereunder or reduce the principal
amount thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which any Note or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment after the Stated Maturity thereof;
(ii) amend, change or modify the obligation of the company to make and
consummate a Change of Control Purchase Offer in the event of a Change of
Control Triggering Event or modify any of the provisions or definitions with
respect thereto; (iii) reduce the percentage in principal amount of outstanding
Notes thereunder, the consent of whose Holders is required for any modification
or amendment to such Indenture, or the consent of whose Holders is required for
any waiver thereof; (iv) modify any of the provisions relating to supplemental
indentures requiring the consent of Holders or relating to the waiver of past
defaults or relating to the waiver of certain covenants, except to increase the
percentage of outstanding Notes issued thereunder required for such actions or
to provide that certain other provisions of such Indenture cannot be modified or
waived without the consent of the Holder of each Note affected thereby; (v)
except as otherwise permitted under "--Consolidation, Merger, Sale of Assets,"
consent to the assignment or transfer by the company or any Subsidiary Guarantor
of any of its rights and obligations under such Indenture; or (vi) amend or
modify any of the provisions of such Indenture in any manner which subordinates
the Notes issued thereunder in right of payment to other
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Indebtedness of the company or which subordinates any Note Guarantee in right of
payment to other Indebtedness of the Subsidiary Guarantor issuing such Note
Guarantee. (Sections 901 and 902)
The Holders of a majority in aggregate principal amount of the Notes issued
under an Indenture and outstanding may waive compliance with certain restrictive
covenants and provisions of such Indenture. (Section 1015)
BOOK-ENTRY, DELIVERY AND FORM
The certificates representing each of the New Notes due 2004 and the New
Notes due 2007 will be represented initially by one or more permanent global
Notes in definitive, fully registered form without interest coupons (each a
"Global Note") and will be deposited with the Trustee as custodian for, and
registered in the name of, Cede & Co., as nominee of The Depositary Trust
Company (the "Depositary") (such nominee being referred to herein as the "Global
Note Holder"). Except in the limited circumstances described below under
"Certificated Securities," owners of beneficial interests in a Global Note will
not be entitled to receive physical delivery of Certificated Securities (as
defined below).
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers, banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants" or the
"Depositary's Indirect Participants") that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. Persons who are
not Participants may beneficially own securities held by or on behalf of the
Depositary only through the Depositary's Participants or the Depositary's
Indirect Participants.
The company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants designated by the Exchange Agent with portions of the
principal amount of the Global Notes and (ii) ownership of a series of Notes
evidenced by a Global Note will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants. The laws
of some states require that certain persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer Notes
evidenced by a Global Note will be limited to such extent.
With respect to a tranche of Notes, so long as the Global Note Holder is the
registered owner of any Notes of such tranche, the Global Note Holder will be
considered the sole Holder under the applicable Indenture of any Notes evidenced
by the Global Note. Beneficial owners of Notes evidenced by a Global Note will
not be considered the owners or Holders thereof under the applicable Indentures
for any purpose, including with respect to the giving of any directions,
instructions or approvals to the Trustee thereunder. Neither the company nor the
Trustee will have any responsibility or liability for any aspect of the records
of the Depositary or for maintaining, supervising or reviewing any records of
the Depositary relating to the Notes.
Payments in respect of the principal of and premium, interest and Liquidated
Damages, if any, on any Notes of a tranche registered in the name of the Global
Note Holder for such tranche on the applicable record date will be payable by
the Trustee to or at the direction of the Global Note Holder in its capacity as
the registered Holder under the applicable Indenture. Under the terms of the
Indentures, the company and the Trustee may treat the persons in whose names
Notes of a tranche, including the Global Note for such tranche, are registered
as the owners thereof for the purpose of receiving such payments. Consequently,
neither the company nor the Trustee has or will have any responsibility or
liability for the payment of such amounts to beneficial owners of Notes of such
tranche. The company believes, however, that it is
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currently the policy of the Depositary to immediately credit the accounts of the
relevant Participants with such payments, in amounts proportionate to their
respective holdings of beneficial interests in the relevant security as shown on
the records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in a
Global Note for a tranche of Notes may, upon request to the Trustee, exchange
such beneficial interest for Notes in the form of certificated securities
("Certificated Securities"). Upon any such issuance, the Trustee is required to
register such Certificated Securities in the names of, and cause the same to be
delivered to, such person or persons (or the nominee of any thereof). In
addition, if (i) the company notifies the Trustee in writing that the Depositary
is no longer willing or able to act as a depositary and the company is unable to
locate a qualified successor within 90 days or (ii) the company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
the form of Certificated Securities under the Indenture for such tranche, then,
upon surrender by the Global Note Holder of its Global Note for such tranche,
Notes in such form will be issued to each person that the Global Note Holder and
the Depositary identify as being the beneficial owner of the related Notes.
Neither the company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indentures require that payments in respect of the Notes represented by
the Global Notes (including principal, premium, interest and Liquidated Damages,
if any) be made by wire transfer of immediately available funds to the accounts
specified by the Global Note Holder. With respect to Certificated Securities,
the company will make all payments of principal, premium, interest and
Liquidated Damages, if any, by wire transfer of immediately available funds to
the accounts specified by the Holders thereof or, if no such account is
specified, by mailing a check to each such Holder's registered address. The
Notes represented by the Global Notes are eligible to trade in the Depositary's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such Notes will, therefore, be required by the Depositary to be
settled in immediately available funds. The company expects that secondary
trading in the Certificated Securities will also be settled in immediately
available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The company, the Subsidiary Guarantors and the Initial Purchasers entered
into the Registration Rights Agreement on July 25, 1997. The Registration Rights
Agreement provides that (i) the company and the Subsidiary Guarantors will file
an Exchange Offer Registration Statement with the Commission no later than
September 23, 1997, (ii) the company and the Subsidiary Guarantors will use
their best efforts to have the Exchange Offer Registration Statement declared
effective by the Commission no later than December 22, 1997, (iii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the company and the Subsidiary Guarantors will use their best efforts to
consummate the Exchange Offer no later than the earlier of January 21, 1998 or
45 days after the Exchange Offer Registration Statement has been declared
effective and (iv) if obligated to file the Shelf Registration Statement, the
company and the Subsidiary Guarantors will use their best efforts to (a) file
the Shelf Registration Statement with the Commission on or prior to 60 days
after such filing obligation arises (and in any event by January 21, 1998) and
(b) cause the Shelf Registration Statement to be declared effective
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by the Commission on or prior to 90 days after such obligation arises. The
company shall use its reasonable best efforts to keep such Shelf Registration
Statement continuously effective, supplemented and amended until July 25, 1999
or such shorter period that will terminate when all the securities covered by
the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement. If (a) the company and the Subsidiary Guarantors fail to
file any of the Registration Statements required by the Registration Rights
Agreement on or before the date specified for such filing, (b) any of such
Registration Statements is not declared effective by the Commission on or prior
to the date specified for such effectiveness (the "Effectiveness Target Date"),
(c) the company fails to consummate the Exchange Offer by the earlier of January
21, 1998 or 45 days after the Effectiveness Target Date with respect to the
Exchange Offer Registration Statement or (d) the Shelf Registration Statement or
the Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective or usable during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the company will pay to each
Holder of Notes, with respect to the first 90-day period, or any portion
thereof, following a Registration Default, Liquidated Damages in an amount equal
to .25% per annum of the principal amount of Notes held by such Holder. The
amount of the Liquidated Damages will increase by an additional .25% per annum
of the principal amount of Notes for each subsequent 90-day period, or any
portion thereof, until all Registration Defaults have been cured, up to a
maximum amount of 1% per annum of the principal amount of Notes. All accrued
Liquidated Damages will be paid by the company on each Damages Payment Date (as
defined in the Indentures) to the Global Note Holder by wire transfer of
immediately available funds or by federal funds check and to Holders of
Certificated Securities by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Restricted Subsidiary of the company or (ii) assumed
in connection with the acquisition of assets from such Person, in each case,
other than Indebtedness incurred in connection with, or in contemplation of,
such Person becoming a Restricted Subsidiary of the company or such acquisition.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (ii) any other Person that
owns, directly or indirectly, 5% or more of such Person's Capital Stock or any
executive officer or director of any such specified Person. For the purposes of
this definition, "control," when used with respect to any specified Person,
means the power to direct the management and policies of such Person, directly
or indirectly, whether through ownership of Voting Stock, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback),
other than sales of inventory in the ordinary course of business consistent with
past practices (provided that the sale, lease, conveyance or other disposition
of all or substantially all of the assets of the company and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
Indentures described above under the caption "Certain Covenants-- PURCHASE OF
NOTES UPON A CHANGE OF CONTROL TRIGGERING EVENT" and/or the provisions described
above under the caption "Certain Covenants--CONSOLIDATION, MERGER OR SALE OF
ASSETS" and not by the provisions of
"--Certain Covenants--LIMITATION ON SALE OF ASSETS"), and (ii) the issue or sale
by the company or any of its Restricted Subsidiaries of Equity Interests of any
of the company's Restricted Subsidiaries, whether in a single transaction or a
series of related transactions, in either case, (a) that have a fair market
value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing, a transfer of assets by the company to a
Wholly Owned Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to
the company or to another Wholly Owned Restricted Subsidiary, or by a
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Restricted Subsidiary to any other Restricted Subsidiary in which the company
holds a larger proportionate Equity Interest, will not be deemed to be an Asset
Sale.
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the sum
of the products of (A) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (B) the amount of each such principal payment by (ii)
the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
"Banks" means the banks and other financial institutions from time to time
that are lenders under the New Credit Agreement.
"Borrowing Base Amount" means, as to the company, 90% of Net Property and
Equipment, determined on a consolidated basis in accordance with GAAP.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in the City of New York are
authorized or obligated by law or executive order to close.
"Capital Lease Obligation" of any Person means any obligation of such Person
and its Subsidiaries on a Consolidated basis under any capital lease of real or
personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interest,
partnership interests, participations or other equivalents (however designated)
of such Person's capital stock whether now outstanding or issued after the date
of the Indentures, including, without limitation, all common stock and preferred
stock.
"Change of Control" means the occurrence of any of the following events: (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to
have beneficial ownership of all shares that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total outstanding
Voting Stock of the company; (ii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of the company (together with any new directors whose election to such
Board of Directors, or whose nomination for election by the stockholders of the
company, was approved by a vote of 66 2/3% of the directors then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of such Board of Directors then in office; (iii) the
company consolidates with or merges with or into any Person or conveys,
transfers, leases or otherwise disposes of all or substantially all of its
assets to any Person, or any Person consolidates with or merges into or with the
company, in any such event pursuant to a transaction in which the outstanding
Voting Stock of the company is changed into or exchanged for cash, securities or
other property, other than any such transaction where the outstanding Voting
Stock of the company is not changed or exchanged at all (except to the extent
necessary to reflect a change in the jurisdiction of incorporation of the
company) or where (A) the outstanding Voting Stock of the company is changed
into or exchanged for (x) Voting Stock of the surviving corporation which is not
Redeemable Capital Stock or (y) cash, securities or other property (other than
Capital Stock of the surviving corporation) in an amount which could be paid by
the company as a Restricted Payment as described under "--Certain Covenants--
LIMITATION ON RESTRICTED PAYMENTS" (and such amount shall be treated as a
Restricted Payment subject to
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the provisions in the Indentures described under "--Certain
Covenants--LIMITATION ON RESTRICTED PAYMENTS") and (B) immediately after such
transaction, no "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) is the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to
have beneficial ownership of all shares that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total outstanding
Voting Stock of the surviving corporation; or (iv) the company is liquidated or
dissolved or adopts a plan of liquidation or dissolution other than in a
transaction which complies with the provisions described under "--Consolidation,
Merger, Sale of Assets."
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Decline.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of the Indentures such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Consolidated" means, with respect to any Person, the consolidation of the
accounts of such Person and each of its subsidiaries if and to the extent the
accounts of such Person and each of its subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP consistently
applied.
"Consolidated Fixed Charge Coverage Ratio" of the company means, for any
period, the ratio of (a) Consolidated Net Income, plus, without duplication,
Consolidated Interest Expense, Consolidated Income Tax Expense, Consolidated
Non-Cash Charges and Excluded Non-Cash Charges (less the amount of all cash
payments made by the company or any of its Restricted Subsidiaries during such
period to the extent such payments relate to Excluded Non-Cash Charges that were
added back in determining the sum contemplated by this clause (a) for such
period or any prior period) deducted in computing Consolidated Net Income, in
each case, for such period, of the company and its Restricted Subsidiaries on a
Consolidated basis, all determined in accordance with GAAP to (b) Consolidated
Interest Expense for such period; PROVIDED that (i) in making such computation,
the Consolidated Interest Expense attributable to interest on any Indebtedness
computed on a PRO FORMA basis and (A) bearing a floating interest rate shall be
computed as if the rate in effect on the date of computation had been the
applicable rate for the entire period and (B) which was not outstanding during
the period for which the computation is being made but which bears, at the
option of the company, a fixed or floating rate of interest, shall be computed
by applying, at the option of the company, either the fixed or floating rate and
(ii) in making such computation, Consolidated Interest Expense attributable to
interest on any Indebtedness under a revolving credit facility computed on a PRO
FORMA basis shall be computed based upon the average daily balance of such
Indebtedness during the applicable period.
"Consolidated Income Tax Expense" means for any period the provision for
federal, state, local and foreign income taxes of the company and its Restricted
Subsidiaries for such period as determined on a Consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means, without duplication, for any period,
the sum of (A) the interest expense of the company and its Restricted
Subsidiaries for such period, as determined on a Consolidated basis in
accordance with GAAP including, without limitation, (i) amortization of debt
discount, (ii) the net cost under Interest Rate Agreements (including
amortization of discount), (iii) the interest portion of any deferred payment
obligation and (iv) accrued interest, plus (B) the aggregate amount for such
period of dividends on any Redeemable Capital Stock or Preferred Stock of the
company and its Restricted Subsidiaries, (C) the interest component of the
Capital Lease Obligations paid, accrued and/or scheduled to be paid, or accrued
by such Person during such period and (D) all capitalized interest
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of the company and its Restricted Subsidiaries in each case under each of (A)
through (D) determined on a Consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the Consolidated net income
(or loss) of the company and its Restricted Subsidiaries for such period as
determined on a Consolidated basis in accordance with GAAP, adjusted, to the
extent included in calculating such net income (loss), by excluding, without
duplication, (i) any net after-tax extraordinary gains or losses (less all fees
and expenses relating thereto), (ii) up to $20 million of any charges taken with
respect to the "Premium Sales" litigation matters, which are described under (4)
in Item 3 (Legal Proceedings) of the company's Annual Report on Form 10-K for
fiscal year 1996 plus up to an additional $2,500,000 with respect to fees and
expenses of the company's counsel in connection with such litigation matters,
(iii) Excluded Non-Cash Charges (less the amount of all cash payments made by
the company or any of its Restricted Subsidiaries during such period to the
extent such payments relate to Excluded Non-Cash Charges that were added back in
determining the sum contemplated by clause (A) of the definition of
"Consolidated Fixed Charge Coverage Ratio"), (iv) the portion of net income (or
loss) of the company and its Restricted Subsidiaries determined on a
Consolidated basis allocable to minority interests in unconsolidated Persons to
the extent that cash dividends or distributions have not actually been received
by the company or any Restricted Subsidiary; (v) net income (or loss) of any
Person combined with the company or any Restricted Subsidiary on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(vi) net gains or losses (less all fees and expenses relating thereto) in
respect of dispositions of assets other than in the ordinary course of business
and (vii) the net income of any Restricted Subsidiary to the extent that the
declaration of dividends or similar distributions by that Restricted Subsidiary
of that income is not at the time permitted, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its shareholders.
"Consolidated Net Sales" means, for any period, the consolidated net sales
of the company and its Restricted Subsidiaries for such period, as determined in
accordance with GAAP.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common equity holders of such
Person and its Restricted Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Redeemable Capital Stock) that by its
terms is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (a) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indentures in the book value of
any asset owned by such Person or a consolidated Restricted Subsidiary of such
Person, (b) all investments as of such date in unconsolidated Restricted
Subsidiaries and in Persons that are not Subsidiaries (except, in each case,
Permitted Investments), and (c) all unamortized debt discount and expense and
unamortized deferred charges as of such date, all of the foregoing determined in
accordance with GAAP.
"Consolidated Non-Cash Charges" means, for any period, the aggregate
depreciation, amortization and other non-cash charges of the company and its
Restricted Subsidiaries for such period, as determined on a Consolidated basis
in accordance with GAAP (excluding any non-cash charges which require an accrual
or reserve for any future period and any Excluded Non-Cash Charges).
"Consolidated Tangible Assets" means the total of all the assets appearing
on the Consolidated balance sheet of the company and its majority-owned or
Wholly Owned Restricted Subsidiaries less (i) intangible assets including,
without limitation, items such as goodwill, trademarks, trade names, patents
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and unamortized debt discount and (ii) appropriate adjustments on account of
minority interests of other persons holding stock in any majority-owned
Restricted Subsidiary of the company.
"Consolidated Total Assets" means, with respect to the company, the total of
all assets appearing on the Consolidated balance sheet of the company and its
majority-owned or Wholly Owned Restricted Subsidiaries, as determined on a
Consolidated basis in accordance with GAAP.
"Currency Agreements" means any spot or forward foreign exchange agreements
and currency swap, currency option or other similar financial agreements or
arrangements entered into by the company or any of its Restricted Subsidiaries
in the ordinary course of business and designed to protect against or manage
exposure to fluctuations in foreign currency exchange rates.
"Default" means any event which is, or after notice or passage of any time
or both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series of
transactions in respect of which the Board of Directors is required to deliver a
resolution of the Board of Directors under the Indentures, a member of the Board
of Directors who does not have any material direct or indirect financial
interest in or with respect to such transaction or series of transactions.
"Equity Interest" of any Person means any shares, interests, participations
or other equivalents (however designated) in such Person's equity, and shall in
any event include any Capital Stock issued by, or partnership or membership
interests in, such Person.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Non-Cash Charges" means all non-cash charges with respect to (A)
write-downs of the carrying value in the company's financial statements of
certain retail and distribution facilities and related assets in connection with
the proposed or actual disposition of such facilities or discontinuance of
operations at such facilities or (B) other consolidation and restructuring of
facilities and operations.
"Fair Market Value" means, with respect to any asset or property, a price
which could be negotiated in an arm's length transaction, for cash, between a
willing seller and a willing buyer, neither of whom is under undue pressure to
complete the transaction. Fair Market Value shall be determined by the Board of
Directors of the company acting in good faith and shall be evidenced by a Board
Resolution.
"Fixed Rate Senior Note Indenture" means the Indenture dated as of December
15, 1994 among the company, as issuer, each of the subsidiary guarantors named
therein as guarantors, and Texas Commerce Bank, National Association, as
trustee.
"Fixed Rate Senior Notes" means the 10 5/8% Senior Notes due 2001 of the
company.
"Floating Rate Senior Note Indenture" means the Indenture dated as of
December 15, 1994 among the company, as issuer, each of the subsidiary
guarantors named therein as guarantors, and Texas Commerce Bank, National
Association, as trustee.
"Floating Rate Senior Notes" means the Floating Rate Senior Notes due 2001
of the company.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, as in effect on the date of
the Indentures.
"Guaranteed Debt" means, with respect to any Person, without duplication,
all Indebtedness of any other Person referred to in the definition of
Indebtedness contained herein guaranteed directly or indirectly in any manner by
such Person, or in effect guaranteed directly or indirectly by such Person
through an agreement (i) to pay or purchase such Indebtedness or to advance or
supply funds for the payment or purchase of such Indebtedness, (ii) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to
supply funds to, or in any
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other manner invest in, the debtor (including any agreement to pay for property
or services without requiring that such property be received or such services be
rendered), (iv) to maintain working capital or equity capital of the debtor, or
otherwise to maintain the net worth, solvency or other financial condition of
the debtor or (v) otherwise to assure a creditor against loss, PROVIDED that the
term "guarantee" shall not include endorsements for collection or deposit, in
either case in the ordinary course of business.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all liabilities of such Person for borrowed money (including overdrafts) or for
the deferred purchase price of property or services, excluding any trade
payables and other accrued current liabilities arising in the ordinary course of
business, but including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of credit and
acceptances issued under letter of credit facilities, acceptance facilities or
other similar facilities, (ii) all obligations of such Person evidenced by
bonds, notes, debentures or other similar instruments, (iii) all indebtedness of
such Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade payables arising in the ordinary course of business, (iv) all
Capital Lease Obligations of such Person, (v) all obligations under Interest
Rate Agreements or Currency Agreements of such Person, (vi) Indebtedness
referred to in clauses (i) through (v) above of other Persons, and all dividends
of other Persons the payment of which is secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien, upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness, (vii) all
Guaranteed Debt of such Person (other than guarantees of preferred trust
securities or similar securities issued by a Qualified Finance Subsidiary),
(viii) all Redeemable Capital Stock valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends,
(ix) Qualified Subordinated Indebtedness and (x) any amendment, supplement,
modification, deferral, renewal, extension, refunding or refinancing of any
liability of the types referred to in clauses (i) through (ix) above. For
purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital
Stock which does not have a fixed repurchase price shall be calculated in
accordance with terms of such Redeemable Capital Stock as if such Redeemable
Capital Stock were purchased on any date on which Indebtedness shall be required
to be determined pursuant to the Indentures, and if such price is based upon, or
measured by, the Fair Market Value of such Redeemable Capital Stock, such Fair
Market Value is to be determined in good faith by the Board of Directors of the
issuer of such Redeemable Capital Stock.
"Interest Rate Agreements" means any interest rate protection agreements and
other types of interest rate hedging agreements (including, without limitation,
interest rate swaps, caps, floors, collars and similar agreements) designed to
protect against or manage exposure to fluctuations in interest rates in respect
of Indebtedness.
"Investee Store" means a Person in which the company or any of its
Restricted Subsidiaries has invested equity capital, to which it has made loans
or for which it has guaranteed loans, in accordance with the business practice
of the company and its Restricted Subsidiaries of making equity investments in,
making loans to or guaranteeing loans made to Persons for the purpose of
assisting any such Person in acquiring, remodeling, refurbishing, expanding or
operating one or more retail grocery stores.
"Investment" means, with respect to any Person, directly or indirectly, any
advance (other than advances to customers in the ordinary course of business,
which are recorded as accounts receivable on the balance sheet of the company
and its Restricted Subsidiaries), loan or other extension of credit (including
by way of guarantee) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase, acquisitions or ownership by such
Person of any Capital Stock, bonds, notes, debentures or other securities or
assets issued or owned by any other Person. The company shall be deemed to make
an Investment in an amount equal to the greater of the book value (as determined
in accordance with GAAP) and Fair Market
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Value of the net assets of any Restricted Subsidiary (or, if neither the company
nor any of its Restricted Subsidiaries has theretofore made an Investment in
such Restricted Subsidiary, in an amount equal to the Investments being made) at
the time such Restricted Subsidiary is designated an Unrestricted Subsidiary,
and any property transferred to an Unrestricted Subsidiary from the company or
any Restricted Subsidiary shall be deemed an Investment valued at the greater of
its book value (as determined in accordance with GAAP) and its Fair Market Value
at the time of such transfer.
"Investment Grade" means BBB or higher by S&P or Baa3 or higher by Moody's
or the equivalent of such ratings by S&P or Moody's or in the event S&P or
Moody's shall cease rating the Notes and the company shall select any other
Rating Agency, the equivalent of such ratings by such other Rating Agency.
"Joint Venture" means any Person in which the company or any of its
Restricted Subsidiaries owns 30% or more of the Voting Stock (other than as a
result of a Public Equity Offering).
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"Maturity" when used with respect to the Notes means the date on which the
principal of the Notes becomes due and payable as therein provided or as
provided in the Indenture pursuant to which such Notes were issued, whether at
Stated Maturity or on a redemption date or pursuant to a Change of Control
Purchase Offer or an Asset Sale Offer, and whether by declaration of
acceleration, call for redemption, purchase or otherwise.
"Medium-Term Notes" means the Medium-Term Notes, due 1997 to 2003, of the
company.
"Medium-Term Notes Indenture" means the Indenture dated as of December 1,
1989 between the company and First Trust of New York National Association, as
trustee.
"Moody's" means Moody's Investors Service, Inc. or any successor rating
agency.
"Net Proceeds" means the aggregate cash proceeds received by the company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions), any relocation expenses
incurred as a result thereof, any taxes paid or payable by the company or any of
its Restricted Subsidiaries as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), amounts
required to be applied to the repayment of Indebtedness secured by a Lien on the
assets or assets that were the subject of such Asset Sale and any reserve for
adjustment or indemnity in respect of the sale price of such asset or assets in
each case established in accordance with GAAP.
"Net Property and Equipment" means, with respect to the company, the
Consolidated property and equipment of the company, net of accumulated
depreciation, determined in accordance with GAAP.
"New Credit Agreement" means the credit agreement entered into among the
company, the Banks, the Agents listed therein and The Chase Manhattan Bank, as
Administrative Agent, as such agreement may be amended, renewed, extended,
substituted, refinanced, restructured, replaced, supplemented or otherwise
modified from time to time (including, without limitation, any successive
renewals, extensions, substitutions, refinancings, restructurings, replacements,
supplementations or other modifications of the foregoing).
"9 1/2% Debentures" means the 9 1/2% Debentures due 2016 of the company.
"9 1/2% Debentures Indenture" means the Indenture dated March 15, 1986
between the company and First Trust of New York National Association, as
trustee.
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"Non-Recourse Debt" means Indebtedness (i) as to which neither the company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender, (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness (other than the Notes being
offered hereby) of the company or any of its Restricted Subsidiaries to declare
a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of the company or any of its Restricted Subsidiaries.
"Note Guarantee" means any guarantee by a Subsidiary Guarantor of the
company's obligations under the Notes due 2004 Indenture or the Notes due 2007
Indenture.
"Obligations" means any principal, premium, interest (including
post-petition interest), penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation governing any
Indebtedness.
"PARI PASSU Indebtedness" means (a) with respect to the Notes, Indebtedness
which ranks PARI PASSU in right of payment to the Notes, and (b) with respect to
any Note Guarantee, Indebtedness which ranks PARI PASSU in right of payment to
such Note Guarantee.
"Permitted Consideration" means consideration consisting of any combination
of the following: (i) cash or Temporary Cash Investments, (ii) assets used or
intended for use in the company's business as conducted on the date of the
Indentures, (iii) any liabilities (as shown on the company's or such Restricted
Subsidiary's most recent balance sheet), of the company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Notes or any guarantee thereof) that are assumed by
the transferee of any such assets pursuant to a customary novation agreement
that releases the company or such Restricted Subsidiary from further liability
and (iv) any securities, notes or other obligations received by the company or
any such Restricted Subsidiary from such transferee that are immediately
converted by the company or such Restricted Subsidiary into cash (to the extent
of the cash received); PROVIDED that the aggregate amount of such notes or other
obligations received by the company and its Restricted Subsidiaries pursuant to
(ii) through (iv) above after the date of the Indentures and held or carried at
any date of determination shall not exceed $75 million.
"Permitted Indebtedness" means any of the following Indebtedness of the
company or any Restricted Subsidiary, as the case may be:
(i) Indebtedness of the company and guarantees of the Subsidiary Guarantors
under the New Credit Agreement in an aggregate principal amount at any
one time outstanding not to exceed the greater of (x) $850 million
(after giving PRO FORMA effect to the use of proceeds of the Offering)
less mandatory repayments actually made in respect of any term
Indebtedness thereunder (other than amounts refinanced as permitted
under the definition of the New Credit Agreement) or (y) the Borrowing
Base Amount less mandatory repayments (other than amounts refinanced as
permitted under the definition of the New Credit Agreement) actually
made in respect of any term Indebtedness thereunder;
(ii) Indebtedness of the company under uncommitted bank lines of credit;
provided, however, that the aggregate principal amount of Indebtedness
incurred pursuant to clauses (i), (ii) and (xv) of this definition of
"Permitted Indebtedness" does not exceed the greater of (x) $850
million (after giving PRO FORMA effect to the use of proceeds of the
Offering) less mandatory repayments actually made in respect of any
term Indebtedness under the New Credit Agreement (other than amounts
refinanced as permitted under clause (xviii) hereof) or (y) the
Borrowing Base Amount less
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mandatory repayments actually made in respect of any term Indebtedness
under the New Credit Agreement (other than amounts refinanced as
permitted under clause (xviii) hereof);
(iii) Indebtedness of the company evidenced by the Fixed Rate Senior Notes
and the Senior Note Guarantees with respect thereto under the Fixed
Rate Senior Note Indenture;
(iv) Indebtedness of the company evidenced by the Floating Rate Senior Notes
and the Senior Note Guarantees with respect thereto under the Floating
Rate Senior Note Indenture;
(v) Indebtedness of the company evidenced by the Medium-Term Notes under the
Medium-Term Notes Indenture;
(vi) Indebtedness of the company evidenced by the 9 1/2% Debentures under
the 9 1/2% Debentures Indenture;
(vii) Indebtedness of the company evidenced by the Notes due 2004 and the
Note Guarantees with respect thereto under the Notes due 2004
Indenture;
(viii) Indebtedness of the company evidenced by the Notes due 2007 and the
Note Guarantees with respect thereto under the Notes due 2007
Indenture;
(ix) Indebtedness of the company or any Restricted Subsidiary outstanding on
the date of the Indentures and listed on a schedule thereto;
(x) obligations of the company or any Restricted Subsidiary entered into in
the ordinary course of business (a) pursuant to Interest Rate Agreements
designed to protect against or manage exposure to fluctuations in
interest rates in respect of Indebtedness or retailer notes receivables,
which, if related to Indebtedness or such retailer notes receivables, do
not exceed the aggregate notional principal amount of such Indebtedness
to which such Interest Rate Agreements relate, or (b) under any Currency
Agreements in the ordinary course of business and designed to protect
against or manage exposure to fluctuations in foreign currency exchange
rates which, if related to Indebtedness, do not increase the amount of
such Indebtedness other than as a result of foreign exchange
fluctuations;
(xi) Indebtedness of the company owing to a Wholly Owned Restricted
Subsidiary or of any Restricted Subsidiary owing to the company or any
Wholly Owned Restricted Subsidiary; PROVIDED that any disposition,
pledge or transfer of any such Indebtedness to a Person (other than the
company or another Wholly Owned Restricted Subsidiary) shall be deemed
to be an incurrence of such Indebtedness by the company or Restricted
Subsidiary, as the case may be, not permitted by this clause (xi);
(xii) Indebtedness in respect of letters of credit, surety bonds and
performance bonds provided in the ordinary course of business;
(xiii) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently drawn
against insufficient funds in the ordinary course of business; PROVIDED
that such Indebtedness is extinguished within ten business days of its
incurrence;
(xiv) Indebtedness of the company or any Restricted Subsidiary consisting of
guarantees, indemnities or obligations in respect of purchase price
adjustments in connection with the acquisition or disposition of
assets;
(xv) Indebtedness of the company evidenced by commercial paper issued by the
company; PROVIDED, HOWEVER, that the aggregate principal amount of
Indebtedness incurred pursuant to clauses (i), (ii) and (xv) of this
definition of "Permitted Indebtedness" does not exceed the greater of
(x) $850 million (after giving PRO FORMA effect to the use of proceeds
of the Offering) less
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mandatory repayments actually made in respect of any term Indebtedness
under the New Credit Agreement (other than amounts refinanced as
permitted under clause (xviii) hereof) or (y) the Borrowing Base Amount
less mandatory repayments actually made in respect of any term
Indebtedness under the New Credit Agreement (other than amounts
refinanced as permitted under clause (xviii) hereof);
(xvi) Indebtedness of the company pursuant to guarantees by the company or
any Subsidiary Guarantor in connection with any Permitted Receivables
Financing; PROVIDED, HOWEVER, that such Indebtedness shall not exceed
20% of the book value of the Transferred Receivables or in the case of
receivables arising from direct financing leases, 30% of the book value
thereof;
(xvii) Indebtedness of the company and its Subsidiaries in addition to that
described in clauses (i) through (xvi) of this definition of "Permitted
Indebtedness," together with any other outstanding Indebtedness
incurred pursuant to this clause (xvii), not to exceed $100 million at
any time outstanding in the aggregate; and
(xviii) any renewals, extensions, substitutions, refunding, refinancings or
replacements (each, a "refinancing") of any Indebtedness described in
clauses (ii), (iii), (v), (vi), (vii), (viii), (ix) and (xv) of this
definition of "Permitted Indebtedness," including any successive
refinancings, so long as (A) the aggregate principal amount of
Indebtedness represented thereby is not increased by such refinancing
to an amount greater than such principal amount plus the lesser of (x)
the stated amount of any premium or other payment required to be paid
in connection with such a refinancing pursuant to the terms of the
Indebtedness being refinanced or (y) the amount of premium or other
payment actually paid at such time to refinance the Indebtedness,
plus, in either case, the amount of reasonable expenses of the company
or any Subsidiary, as the case may be, incurred in connection with
such refinancing, (B) in the case of any refinancing of PARI PASSU
Indebtedness or Subordinated Indebtedness, such new Indebtedness is
made PARI PASSU with or subordinated to the Notes to the same extent
as the Indebtedness being refinanced and (C) such refinancing does not
reduce the Average Life to Stated Maturity or the Stated Maturity of
such Indebtedness; PROVIDED that with respect to the Medium-Term
Notes, a refinancing shall be deemed to include a repayment of any
such Medium-Term Notes and subsequent incurrence of Indebtedness so
long as (I), after giving effect to such repayment and subsequent
incurrence of new Indebtedness, the aggregate principal amount of
Medium-Term Notes and such new Indebtedness does not exceed the
principal amount of Medium-Term Notes outstanding on the date of the
Indentures and (II) clauses (A) through (C) of this subsection (xviii)
are complied with.
"Permitted Investment" means (i) Investment in any Wholly Owned Restricted
Subsidiary or any Investment in any Person by the company or any Wholly Owned
Restricted Subsidiary as a result of which such Person becomes a Wholly Owned
Restricted Subsidiary or any Investment in the company by a Wholly Owned
Restricted Subsidiary; (ii) intercompany Indebtedness to the extent permitted
under clause (xi) of the definition of "Permitted Indebtedness"; (iii) Temporary
Cash Investments; (iv) sales of goods and services on trade credit terms
consistent with the company's past practices or otherwise consistent with trade
credit terms in common use in the industry; (v) Investments in direct financing
leases for equipment and real estate owned or leased by the company and leased
to its customers in the ordinary course of business consistent with past
practice; (vi) Investments in Joint Ventures related to the company's expansion
of its retail operations, not to exceed $50 million at any one time outstanding;
(vii) Investments in Investee Stores either in the form of equity, loans or
other extensions of credit; PROVIDED that any such Investment may only be made
if the amount thereof, when added to the aggregate outstanding amount of
Permitted Investments in Investee Stores (excluding for purposes of this clause
(vii) any Investments made pursuant to clause (v)), after giving effect to any
loan repayments or returns of capital in respect of any Permitted Investment in
Investee Stores, does not exceed 12.5% of Consolidated Total Assets at the time
of determination; (viii) Investments in a Qualified Finance Subsidiary in
connection with a Qualified TIPS Transaction; (ix) other Investments, in
addition to those permitted under
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(i) through (viii) above, in an aggregate amount not to exceed $10 million and
(x) any substitutions or replacements of any Investment so long as the aggregate
amount of such Investment is not increased by such substitution or replacement.
"Permitted Liens" means, with respect to any Person:
(a) any Lien existing as of the date of the Indentures;
(b) any Lien arising by reason of (1) any judgment, decree or order of
any court, so long as such Lien is adequately bonded and any appropriate
legal proceedings which may have been duly initiated for the review of such
judgment, decree or order shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have
expired; (2) taxes, assessments, governmental charges or levies not yet
delinquent or which are being contested in good faith; (3) security for
payment of workers' compensation or other insurance; (4) security for the
performance of tenders, leases (including, without limitation, statutory and
common law landlord's liens) and contracts (other than contracts for the
payment of money); (5) zoning restrictions, easements, licenses,
reservations, title defects, rights of others for rights of way, utilities,
sewers, electric lines, telephone or telegraph lines, and other similar
purposes, provisions, covenants, conditions, waivers and restrictions on the
use of property or minor irregularities of title (and, with respect to
leasehold interests, mortgages, obligations, liens and other encumbrances
incurred, created, assumed or permitted to exist and arising by, through or
under a landlord or owner of the leased property, with or without consent of
the lessee), none of which materially impairs the use of any parcel of
property material to the operation of the business of the company or any
Restricted Subsidiary or the value of such property for the purpose of such
business; (6) deposits to secure public or statutory obligations; (7)
operation of law in favor of growers, dealers and suppliers of fresh fruits
and vegetables, carriers, mechanics, materialmen, laborers, employees or
suppliers, incurred in the ordinary course of business for sums which are
not yet delinquent or are being contested in good faith by negotiations or
by appropriate proceedings which suspend the collection thereof; (8) the
grant by the company to licensees, pursuant to security agreements, of
security interests in trademarks and goodwill, patents and trade secrets of
the company to secure the damages, if any, of such licensees, resulting from
the rejection of the license of such licensees in a bankruptcy,
reorganization or similar proceeding with respect to the company; or (9)
security for surety or appeal bonds;
(c) any Lien on any property or assets of a Restricted Subsidiary in
favor of the company or any Wholly Owned Restricted Subsidiary;
(d) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of such
Indebtedness by the company or any Restricted Subsidiary; PROVIDED that such
Lien does not extend to any assets of the company or any Restricted
Subsidiary other than the assets acquired in the transaction resulting in
such Acquired Indebtedness being incurred by the company or Restricted
Subsidiary, as the case may be;
(e) any Lien to secure the performance of bids, trade contracts, letters
of credit and other obligations of a like nature and incurred in the
ordinary course of business of the company or any Restricted Subsidiary;
(f) any Lien securing any Interest Rate Agreements or Currency
Agreements permitted to be incurred pursuant to clause (x) of the definition
of "Permitted Indebtedness" or any collateral for the Indebtedness to which
such Interest Rate Agreements or Currency Agreements relate;
(g) any Lien securing the Notes;
(h) any Lien on an asset securing Indebtedness (including Capital Lease
Obligations) incurred or assumed for the purpose of financing all or any
part of the cost of acquiring or constructing such
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asset; PROVIDED that such Lien covers only such asset and attaches
concurrently or within 180 days after the acquisition or completion of
construction thereof;
(i) any Lien on real or personal property securing Capital Lease
Obligations of the company or any Restricted Subsidiary as lessee with
respect to such real or personal property to the extent such Indebtedness
can be incurred pursuant to "Certain Covenants--LIMITATION ON INDEBTEDNESS"
other than as Permitted Indebtedness;
(j) any Lien on a Financing Receivable or other receivable that is
transferred in a Permitted Receivables Financing;
(k) any Lien consisting of any pledge to any Person of Indebtedness owed
by any Restricted Subsidiary to the company or to any Wholly Owned
Restricted Subsidiary; PROVIDED, that (i) such Restricted Subsidiary is a
Subsidiary Guarantor and (ii) the principal amount pledged does not exceed
the Indebtedness secured by such pledge;
(l) any extension, renewal, refinancing or replacement, in whole or in
part, of any Lien described in the foregoing clause (a) so long as no
additional collateral is granted as security thereby.
"Permitted Receivables Financing" means any transaction involving the
transfer (by way of sale, pledge or otherwise) by the company or any of its
Restricted Subsidiaries of receivables to any other Person, PROVIDED that after
giving effect to such transaction the sum of (i) the aggregate uncollected
balances of the receivables so transferred ("Transferred Receivables") PLUS (ii)
the aggregate amount of all collections on Transferred Receivables theretofore
received by the seller but not yet remitted to the purchaser, in each case at
the date of determination, would not exceed $600 million.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred stock whether now outstanding, or issued after the date of
the Indenture, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
"Prior Indentures" means the 9 1/2% Debentures Indenture, the Medium-Term
Notes Indenture, the Fixed Rate Senior Note Indenture and the Floating Rate
Senior Note Indenture.
"Public Equity Offering" means (i) with respect to the provisions of the
Indentures permitting redemption of up to 35% of the respective Notes at the
option of the company within 180 days of a Public Equity Offering, a primary
public offering of equity securities of the company, and (ii) with respect to
the last sentence of "Certain Covenants--LIMITATION ON ISSUANCES AND SALES OF
CAPITAL STOCK OF SUBSIDIARIES," a primary or secondary public offering of equity
securities of any Restricted Subsidiary of the company, in each case pursuant to
an effective registration statement under the Securities Act with net cash
proceeds of at least $50 million.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Qualified Finance Subsidiary" means a Subsidiary of the company
constituting a "finance subsidiary," within the meaning of Rule 3a-5 under the
Investment Company Act of 1940, as amended, formed for the purpose of engaging
in a Qualified TIPS Transaction.
"Qualified TIPS Transaction" means an issuance by a Qualified Finance
Subsidiary of preferred trust securities or similar securities in respect of
which any dividends, liquidation preference or other obligations under such
securities are guaranteed by the company to the extent required by the
Investment Company Act of 1940, as amended, or customary transactions of such
type.
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"Qualified Subordinated Indebtedness" means Subordinated Indebtedness of the
company to a Qualified Finance Subsidiary incurred in connection with a
Qualified TIPS Transaction.
"Rating Agency" means any of (i) S&P, (ii) Moody's or (iii) if S&P or
Moody's or both shall not make a rating of the Notes publicly available, a
security rating agency or agencies, as the case may be, nationally recognized in
the United States, selected by the company, which shall be substituted for S&P
or Moody's or both, as the case may be, and, in each case, any successors
thereto.
"Rating Category" means (i) with respect to S&P, any of the following
categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor
categories); (ii) with respect to Moody's, any of the following categories: Aaa,
Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories); and
(iii) the equivalent of any such category of S&P or Moody's used by another
Rating Agency. In determining whether the rating of the Notes has decreased by
one or more gradation, gradations within Rating Categories (+ and - for S&P; 1,
2 and 3 for Moody's; or the equivalent gradations for another Rating Agency)
shall be taken into account (e.g., with respect to S&P, a decline in rating from
BB+ to BB, as well as from BB- to B+, will constitute a decrease of one
gradation).
"Rating Decline" means the occurrence on, or within 90 days after, the date
of public notice of the occurrence of a Change of Control or of the intention of
the company or Persons controlling the company to effect a Change of Control
(which period shall be extended so long as the rating of the Notes is under
publicly announced consideration for possible downgrade by any of the Rating
Agencies) of the following: (i) if the Notes are rated by either Rating Agency
as Investment Grade immediately prior to the beginning of such period, the
rating of the Notes by both Rating Agencies shall be below Investment Grade; or
(ii) if the Notes are rated below Investment Grade by both Rating Agencies
immediately prior to the beginning of such period, the rating of the Notes by
either Rating Agency shall be decreased by one or more gradations (including
gradations within Rating Categories as well as between Rating Categories).
"Redeemable Capital Stock" means any Capital Stock that, either by its terms
or by the terms of any security into which it is convertible or exchangeable or
otherwise, is, or upon the happening of an event or passage of time would be,
required to be redeemed prior to any Stated Maturity of the principal of the
Notes or is redeemable at the option of the holder thereof at any time prior to
any such Stated Maturity, or is convertible into or exchangeable for debt
securities at any time prior to any such Stated Maturity at the option of the
holder thereof.
"Restricted Subsidiary" means any Subsidiary of the company that is not (x)
an Unrestricted Subsidiary or (y) a Qualified Finance Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" has the meaning set forth under the caption
"--Subordination."
"Significant Subsidiary" of the company means any Subsidiary of the company
that is a "significant subsidiary" as defined in Rule 1.02(w) of Regulation S-X
under the Securities Act.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill Inc.,
a New York corporation, or any successor rating agency.
"Stated Maturity" when used with respect to any Indebtedness or any
installment of interest thereon means the dates specified in such Indebtedness
as the fixed date on which the principal of or premiums on such Indebtedness or
such installment of interest is due and payable.
"Subordinated Indebtedness" means Indebtedness of the company subordinated
in right of payment to the Notes.
"Subsidiary" means any Person a majority of the equity ownership or the
Voting Stock of which is at the time owned, directly or indirectly, by the
company or by one or more other Restricted Subsidiaries, or by the company and
one or more other Restricted Subsidiaries.
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"Subsidiary Guarantor" means, in each case as applicable, each Wholly Owned
Restricted Subsidiary of the company and each such subsidiary's Wholly Owned
Restricted Subsidiaries as of the date of the Indentures and any Wholly Owned
Restricted Subsidiary that is required pursuant to the "Additional Guarantees"
covenant, on or after the date of the applicable Indenture, to execute a Note
Guarantee of the Notes due 2004 pursuant to the Notes due 2004 Indenture or a
Note Guarantee of the Notes due 2007 pursuant to the Notes due 2007 Indenture,
as the case may be, until a successor replaces any such party pursuant to the
applicable provisions of the applicable Indenture and, thereafter, shall mean
such successor.
"Tangible Assets" means the total of all the assets appearing on the
Consolidated balance sheet of a majority-owned or Wholly Owned Restricted
Subsidiary of the company less the following: (1) intangible assets including,
without limitation, items such as goodwill, trademarks, trade names, patents and
unamortized debt discount and expense; and (2) appropriate adjustments on
account of minority interests of other Persons holding stock in any such
majority-owned Restricted Subsidiary of the company.
"Temporary Cash Investments" means (i) any evidence of Indebtedness issued
by the United States, or an instrumentality or agency thereof, and guaranteed
fully as to principal, premium, if any, and interest by the United States; (ii)
any certificate of deposit issued by, or time deposit of, a financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500 million, whose
debt has a rating, at the time of which any investment therein is made, of "A"
(or higher) according to Moody's or "A" (or higher) according to S&P; (iii)
commercial paper issued by a corporation (other than an Affiliate or Restricted
Subsidiary of the company) organized and existing under the laws of the United
States with a rating, at the time as of which any investment therein is made, of
"P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P;
(iv) any money market deposit accounts issued or offered by a financial
institution that is a member of the Federal Reserve System having capital and
surplus in excess of $500 million; (v) short term tax-exempt bonds with a
rating, at the time as of which any investment is made therein, of "Aa3" (or
higher) according to Moody's or "AA-" (or higher) according to S&P, (vi) shares
in a mutual fund, the investment objectives and policies of which require it to
invest substantially in the investments of the type described in clause (i)
through (v); and (vii) repurchase and reverse repurchase obligations with the
term of not more than seven days for underlying securities of the types
described in clauses (i) and (ii) entered into with any financial institution
meeting the qualifications specified in clause (ii); PROVIDED that in the case
of clauses (i), (ii), (iii) and (v), such investment matures within one year
from the date of acquisition thereof.
"Transferred Receivables" has the meaning specified in the definition of
"Permitted Receivables Financing" set forth herein.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution,
but only to the extent that such Subsidiary (i) has no Indebtedness other than
Non-Recourse Debt; (ii) is not party to any agreement, contract, arrangement or
understanding with the company or any of its Restricted Subsidiaries unless the
terms of any such agreement, contract, arrangement or understanding are no less
favorable to the company or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of the company; (iii)
is a Person with respect to which neither the company nor any of its Restricted
Subsidiaries has any direct or indirect obligation (a) to subscribe for
additional Equity Interests or (b) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; (iv) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the company or any of its
Restricted Subsidiaries; (v) has at least one member of its board of directors
who is not a director or executive officer of the company or any of its
Restricted Subsidiaries and has at least one executive officer who is not a
director or executive officer of the company or any of its Restricted
Subsidiaries; and (vi) does not directly or through any of its
105
<PAGE>
Subsidiaries own any Capital Stock of, or own or hold any Lien on any property
of, the company or any of its Restricted Subsidiaries. Any such designation by
the Board of Directors shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by the covenant
described above under the caption "Certain Covenants--LIMITATIONS ON RESTRICTED
PAYMENTS." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indentures and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under the
caption "Certain Covenants--LIMITATIONS ON INDEBTEDNESS," the company shall be
in default of such covenant). The Board of Directors may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary, PROVIDED that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under the covenant described under the caption "Certain Covenants--
LIMITATION ON INDEBTEDNESS" and (ii) no Default or Event of Default would be in
existence following such designation.
"Voting Stock" means stock or securities of the class or classes pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of a Person (irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency).
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary all the
Capital Stock (other than directors' qualifying shares) of which is owned by the
company or another Wholly Owned Restricted Subsidiary.
106
<PAGE>
PLAN OF DISTRIBUTION
There has previously been only a limited secondary market and no public
market for the Old Notes. The company does not intend to apply for the listing
of the Notes on a national securities exchange or for their quotation through
The Nasdaq Stock Market. The Notes are eligible for trading in the PORTAL
market. The company has been advised by the Initial Purchasers that the Initial
Purchasers currently intend to make a market in the Notes; however, no Initial
Purchaser is obligated to do so and any market making may be discontinued by any
Initial Purchaser at any time. In addition, such market making activity may be
limited during the Exchange Offer. Therefore, there can be no assurance that an
active market for the Old Notes or the New Notes will develop. If a trading
market does not develop or is not maintained, holders of Notes may experience
difficulty in reselling Notes. If a trading market develops for the Notes,
future trading prices of such securities will depend on many factors, including,
among other things, prevailing interest rates, the company's results of
operations and the market for similar securities. Depending on such factors,
such securities may trade at a discount from their offering price.
With respect to resale of New Notes, based on an interpretation by the staff
of the Commission set forth in no-action letters issued to third parties, the
company believes that a holder (other than a person that is an affiliate of the
company within the meaning of Rule 405 under the Securities Act or a "broker" or
"dealer" registered under the Exchange Act) who exchanges Old Notes for New
Notes in the ordinary course of business and who is not participating, does not
intend to participate, and has no arrangement or understanding with any person
to participate, in the distribution of the New Notes, will be allowed to resell
the New Notes to the public without further registration under the Securities
Act and without delivering to the purchasers of the New Notes a prospectus that
satisfies the requirements of Section 10 thereof. However, if any holder
acquires New Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the New Notes, such holder cannot rely on the
position of the staff of the Commission enunciated in EXXON CAPITAL HOLDINGS
CORPORATION (available May 13, 1988) or similar no-action letters or any similar
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction, unless an exemption from registration is otherwise
available.
As contemplated by the no-action letters mentioned above and the
Registration Rights Agreement, each holder accepting the Exchange Offer is
required to represent to the company in the Letter of Transmittal that (i) the
New Notes are to be acquired by the holder in the ordinary course of business,
(ii) the holder is not engaging and does not intend to engage in the
distribution of the New Notes, and (iii) the holder acknowledges that, if such
holder participates in the Exchange Offer for the purpose of distributing the
New Notes, such holder must comply with the registration and prospectus delivery
requirements of the Securities Act and cannot rely on the above no-action
letters.
Any broker or dealer registered under the Exchange Act (each a
"Broker-Dealer") who holds Old Notes that were acquired for its own account as a
result of market-making activities or other trading activities (other than Old
Notes acquired directly from the company or an affiliate of the company) may
exchange such Old Notes for New Notes pursuant to the Exchange Offer; however,
such Broker-Dealer may be deemed an underwriter within the meaning of the
Securities Act and, therefore, must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of the New
Notes received by it in the Exchange Offer, which prospectus delivery
requirement may be satisfied by the delivery by such Broker-Dealer of this
Prospectus. The company and the Subsidiary Guarantors have agreed to cause the
Exchange Offer Registration Statement, of which this Prospectus is a part, to
remain continuously effective for a period of 180 days, if required, from the
Exchange Date, and to make this Prospectus, as amended or supplemented,
available to any such Broker-Dealer for use in connection with resales. Any
Broker-Dealer participating in the Exchange Offer will be required to
acknowledge that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of New Notes received by it in the
Exchange Offer. The delivery by a Broker-Dealer of a prospectus in connection
with resales of New Notes shall not be deemed to be an admission by such
Broker-Dealer that it is an
107
<PAGE>
underwriter within the meaning of the Securities Act. The company will not
receive any proceeds from any sale of New Notes by a Broker-Dealer.
New Notes received by Broker-Dealers for their own account pursuant to the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Broker-Dealer and/or the
purchasers of any such New Notes.
LEGAL MATTERS
Certain legal matters with respect to the validity of the New Notes are
being passed upon for the company by McAfee & Taft A Professional Corporation,
Oklahoma City, Oklahoma.
EXPERTS
The consolidated financial statements at December 28, 1996 and December 30,
1995 and for each of the three fiscal years in the period ended December 28,
1996 appearing in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report thereon appearing herein.
108
<PAGE>
FLEMING COMPANIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Consolidated Condensed Statements of Earnings for the 28 weeks ended July
12, 1997, and July 13, 1996........................................................ F-2
Unaudited Consolidated Condensed Balance Sheets as of July 12, 1997, and
December 28, 1996.................................................................. F-3
Unaudited Consolidated Condensed Statements of Cash Flows for 28 weeks ended July 12,
1997, and July 13, 1996............................................................ F-4
Notes to Unaudited Consolidated Condensed Financial Statements....................... F-5
Independent Auditors' Report......................................................... F-12
Consolidated Statements of Earnings for the three years in the period
ended December 28, 1996............................................................ F-13
Consolidated Balance Sheets as of December 28, 1996 and December 30, 1995............ F-14
Consolidated Statements of Shareholders' Equity for the three years in the period
ended December 28, 1996............................................................ F-15
Consolidated Statements of Cash Flows for the three years in the period
ended December 28, 1996............................................................ F-16
Notes to Consolidated Financial Statements........................................... F-17
Quarterly Financial Information for the years ended December 28, 1996 and
December 30, 1995 (unaudited)...................................................... F-41
</TABLE>
F-1
<PAGE>
FLEMING COMPANIES, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE 28 WEEKS ENDED JULY 12, 1997, AND JULY 13, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net sales............................................................................. $ 8,302,685 $ 8,910,565
Costs and expenses:
Cost of sales....................................................................... 7,539,338 8,108,623
Selling and administrative.......................................................... 638,594 699,275
Interest expense.................................................................... 85,045 90,090
Interest income..................................................................... (25,294) (26,725)
Equity investment results........................................................... 7,317 7,264
Litigation charge................................................................... 19,218 650
------------ ------------
Total costs and expenses.......................................................... 8,264,218 8,879,177
------------ ------------
Earnings before taxes................................................................. 38,467 31,388
Taxes on income....................................................................... 18,316 16,039
------------ ------------
Earnings before extraordinary charge.................................................. 20,151 15,349
Extraordinary charge from early retirement of debt (net of taxes)..................... 13,330 --
------------ ------------
Net earnings.......................................................................... $ 6,821 $ 15,349
------------ ------------
------------ ------------
Net earnings per share:
Earnings before extraordinary charge................................................ $ .53 $ .41
Extraordinary charge................................................................ .35 --
------------ ------------
Net earnings........................................................................ $ .18 $ .41
------------ ------------
------------ ------------
Dividends paid per share.............................................................. $ .04 $ .32
------------ ------------
------------ ------------
Weighted average shares outstanding................................................... 37,802 37,760
------------ ------------
------------ ------------
</TABLE>
See notes to unaudited consolidated condensed financial statements.
F-2
<PAGE>
FLEMING COMPANIES, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JULY 12, DECEMBER 28,
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................................... $ 3,888 $ 63,667
Receivables........................................................................ 323,531 329,505
Inventories........................................................................ 930,368 1,051,313
Other current assets............................................................... 84,623 119,123
------------ ------------
Total current assets............................................................. 1,342,410 1,563,608
Investments and notes receivable..................................................... 182,501 205,683
Investment in direct financing leases................................................ 204,779 212,202
Property and equipment............................................................... 1,578,707 1,562,382
Less accumulated depreciation and amortization..................................... (659,232) (603,241)
------------ ------------
Net property and equipment........................................................... 919,475 959,141
Other assets......................................................................... 124,949 118,096
Goodwill............................................................................. 982,303 996,446
------------ ------------
Total assets......................................................................... $ 3,756,417 $4,055,176
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... $ 758,365 $ 952,769
Current maturities of long-term debt............................................... 38,043 124,613
Current obligations under capital leases........................................... 20,465 19,715
Other current liabilities.......................................................... 236,227 245,774
------------ ------------
Total current liabilities........................................................ 1,053,100 1,342,871
Long-term debt....................................................................... 1,110,415 1,091,606
Long-term obligations under capital leases........................................... 350,584 361,685
Deferred income taxes................................................................ 26,683 37,729
Other liabilities.................................................................... 132,902 145,327
Commitments and contingencies
Shareholders' equity:
Common stock, $2.50 par value per share............................................ 94,510 94,494
Capital in excess of par value..................................................... 503,886 503,595
Reinvested earnings................................................................ 519,726 514,408
Cumulative currency translation adjustment......................................... (4,700) (4,700)
------------ ------------
1,113,422 1,107,797
Less ESOP note..................................................................... (5,792) (6,942)
Less additional minimum pension liabilities........................................ (24,897) (24,897)
------------ ------------
Total shareholders' equity..................................................... 1,082,733 1,075,958
------------ ------------
Total liabilities and shareholders' equity........................................... $ 3,756,417 $4,055,176
------------ ------------
------------ ------------
</TABLE>
See notes to unaudited consolidated condensed financial statements.
F-3
<PAGE>
FLEMING COMPANIES, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE 28 WEEKS ENDED JULY 12, 1997, AND JULY 13, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.......................................................................... $ 6,821 $ 15,349
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization....................................................... 98,625 97,681
Credit losses....................................................................... 11,235 14,953
Deferred income taxes............................................................... 14,644 (4,277)
Equity investment results........................................................... 7,317 7,264
Gain on sale of businesses.......................................................... (1,023) (3,578)
Cost of early debt retirement....................................................... 22,227 --
Consolidation and reserve payments.................................................. (14,630) (8,704)
Change in assets and liabilities, excluding effect of acquisitions:
Receivables....................................................................... 5,300 (2,950)
Inventories....................................................................... 120,583 190,034
Accounts payable.................................................................. (192,448) (137,943)
Other assets and liabilities...................................................... (22,153) 8,898
Other adjustments, net.............................................................. (1,197) (1,779)
----------- -----------
Net cash provided by operating activities......................................... 55,301 174,948
----------- -----------
Cash flows from investing activities:
Collections on notes receivable....................................................... 32,536 37,385
Notes receivable funded............................................................... (24,859) (35,158)
Purchase of property and equipment.................................................... (49,405) (69,408)
Proceeds from sale of property and equipment.......................................... 8,665 8,985
Investments in customers.............................................................. (1,405) (156)
Proceeds from sale of investment...................................................... 2,196 1,665
Businesses acquired................................................................... (9,572) --
Proceeds from sale of businesses...................................................... 1,811 9,244
Other investing activities............................................................ 4,378 4,315
----------- -----------
Net cash used in investing activities............................................. (35,655) (43,128)
----------- -----------
Cash flows from financing activities:
Proceeds from long-term borrowings.................................................... 110,000 128,000
Principal payments on long-term debt.................................................. (177,493) (191,641)
Principal payments on capital lease obligations....................................... (10,697) (10,879)
Sale of common stock under incentive stock and stock ownership plans.................. 301 1,808
Dividends paid........................................................................ (1,505) (11,876)
Other financing activities............................................................ (31) (5,221)
----------- -----------
Net cash used in financing activities............................................. (79,425) (89,809)
----------- -----------
Net increase (decrease) in cash and cash equivalents.................................... (59,779) 42,011
Cash and cash equivalents, beginning of period.......................................... 63,667 4,426
----------- -----------
Cash and cash equivalents, end of period................................................ $ 3,888 $ 46,437
----------- -----------
----------- -----------
Supplemental information:
Cash paid for interest................................................................ $ 82,145 $ 84,626
Cash paid for taxes................................................................... $ 24,817 $ 22,112
----------- -----------
----------- -----------
</TABLE>
See notes to unaudited consolidated condensed financial statements.
F-4
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The consolidated condensed balance sheet as of July 12, 1997, and the
consolidated condensed statements of earnings and cash flows for the 28-week
period ended July 12, 1997, and for the 28-week period ended July 13, 1996, have
been prepared by the company, without audit. In the opinion of management, all
adjustments necessary to present fairly the company's financial position at July
12, 1997, and the results of operations and cash flows for the periods presented
have been made. All such adjustments are of a normal, recurring nature except as
disclosed. Earnings per share disclosures are computed using weighted average
shares outstanding. The impact of common stock options on earnings per share is
immaterial. Certain reclassifications have been made to the prior year amounts
to conform to the current year's classification.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These consolidated condensed
financial statements should be read in conjunction with the consolidated
financial statements and related notes included in the company's 1996 annual
report on Form 10-K.
3. The LIFO method of inventory valuation is used for determining the cost
of most grocery and certain perishable inventories. The excess of current cost
of LIFO inventories over their stated value was $32 million at July 12, 1997,
and $28 million at December 28, 1996.
4. During the first and second quarters of 1997, the company undertook
various activities and received a series of commitments which culminated in the
implementation of an $850 million senior secured credit facility and the sale of
$500 million of privately placed senior subordinated notes on July 25, 1997.
Proceeds from the senior subordinated notes plus initial borrowings under the
senior secured credit facility were used to repay all outstanding bank debt
(which totaled approximately $550 million) and the balance, together with
additional revolver borrowings, will be used to redeem the company's $200
million of floating rate senior notes which have been irrevocably called for
redemption on September 15, 1997.
The recapitalization resulted in an extraordinary charge of $13.3 million,
after income tax benefits of $8.9 million, or $.35 per share, in the company's
second quarter ended July 12, 1997. Most of the charge represents a non-cash
write-off of unamortized financing costs related to the debt which has been
prepaid. Balance sheet classifications for current maturities have been
determined based on the scheduled debt maturities resulting from the
recapitalization.
The new $850 million senior secured credit facility consists of a $600
million revolving credit facility with a maturity date of July 25, 2003, and a
$250 million amortizing term loan with a maturity date of July 25, 2004. The new
credit facility is secured by the inventory and accounts receivable of the
company and its subsidiaries and is guaranteed by substantially all of the
company's subsidiaries. The stated interest rate on borrowings under the new
credit agreement is equal to the London interbank offered interest rate
("LIBOR") plus a margin. The level of the margin is dependent on credit ratings
on the company's senior secured bank debt.
The $500 million of privately placed senior subordinated notes ("Notes")
consists of two issues: $250 million of 10 1/2% Notes due December 1, 2004 and
$250 million of 10 5/8% Notes due July 31, 2007. The Notes are general unsecured
obligations of the company, subordinated in right of payment to all existing and
future senior indebtedness of the company, and senior to or pari passu with all
future
F-5
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
subordinated indebtedness of the company (the company currently has no other
subordinated indebtedness outstanding). The payment of principal, interest and
premium, if any, payable on the Notes is guaranteed by substantially all of the
company's subsidiaries. See Note 6.
5. In accordance with applicable accounting standards, the company records
a charge reflecting contingent liabilities (including those associated with
litigation matters) when management determines that a material loss is
"probable" and either "quantifiable" or "reasonably estimable". Additionally,
the company discloses material loss contingencies when the likelihood of a
material loss is deemed to be greater than "remote" but less than "probable".
Set forth below is information regarding certain material loss contingencies:
PREMIUM
The company and several other defendants were named in two suits filed in
U.S. District Court in Miami, Florida in 1993. The suits involved an allegedly
fraudulent scheme conducted by a failed grocery diverter--Premium Sales
Corporation ("Premium")--and others in which large losses in the Premium-related
entities occurred to the detriment of a class of investors which brought one of
the suits. The other suit was brought by the receiver/trustee of the estates of
Premium and certain of its affiliated entities (the "Trustee"). Plaintiffs
sought actual damages of approximately $300 million, treble damages, punitive
damages, attorneys' fees, costs, expenses and other appropriate relief.
The company denied plaintiffs' accusations; however, to avoid future expense
and eliminate uncertainty, the company entered into a settlement agreement in
December 1996. Under the agreement, the plaintiffs will dismiss their actions
against the company, with prejudice, in exchange for a $19.5 million payment
plus $500,000 for costs and expenses.
The company recorded a charge of $20 million during the third quarter of
1996 in anticipation of the settlement and deposited that amount into an escrow
account in December 1996 pending finalization of the settlement. The settlement
remains subject to, among other conditions, receipt by the company of releases
from Premium investors, including those who might not be bound by the
settlement.
Plaintiffs failed to deliver to the company releases sufficient to meet the
requirements of the settlement agreement in a timely manner. If no satisfactory
resolution is reached, the company will be entitled to terminate the settlement
and withdraw its $20 million deposit. If a settlement is not consummated, the
company expects the litigation will resume. In that event, while management is
unable to predict the potential range of monetary exposure to the company, an
unfavorable outcome could have a material adverse effect on the company.
DAVID'S
The company and certain of its affiliates were named in a lawsuit filed by
David's Supermarkets, Inc. ("David's") in the District Court of Johnson County,
Texas in 1993 alleging product overcharges during a three year period. In April
1996, judgment in excess of $210 million was entered against the company and the
company recorded a $7.1 million liability. During the second quarter of 1996,
the judgment was vacated, a new trial granted and the accrual was reduced to
$650,000.
The company denied the plaintiff's allegations; however, to eliminate the
uncertainty and expense of protracted litigation, the company paid $19.9 million
to the plaintiff in April 1997 in exchange for dismissal, with prejudice, of all
of plaintiff's claims against the company, resulting in a charge to first
quarter earnings of $19.2 million.
F-6
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
FURR'S
Furr's Supermarkets, Inc. ("Furr's"), which purchased approximately $545
million of products from the company in 1996 under a supply agreement expiring
in 2001, filed a lawsuit in the District Court of Bernalillo County, New Mexico,
in February 1997 naming as defendants the company, certain company officers and
a company employee. Furr's claims it has been overcharged for products under the
supply agreement and alleges various causes of action including breach of
contract, misrepresentation, fraud and violation of certain of New Mexico's
trade practices statutes. Furr's seeks an award of actual, consequential,
incidental and punitive damages, treble damages, interest, attorneys' fees and
court costs. The company has removed the case to the United States District
Court for New Mexico. In June 1997, Furr's sought court approval to amend its
complaint against Fleming; the complaint, if amended, will contain allegations
of violations of the federal Racketeering Influenced and Corrupt Organizations
Act ("RICO"), and other claims, and seek damages in excess of $75 million under
RICO, prior to trebling. The company believes it has substantially complied with
its obligations to Furr's in good faith.
Prior to filing the lawsuit, Furr's sought to exercise the supply
agreement's competitiveness clause and was seeking to audit the company's
pricing under the contract. Furr's submitted what it asserted is a "qualified
competitive bid" as defined in the supply agreement. If a qualifying bid is
submitted and found to be competitive (as defined in the supply agreement)
Fleming may either match the bid (within an established range) or Furr's may
accept the competitor's bid. Fleming has rejected the bid as not qualifying
under the contract and invoked the arbitration clause of the supply agreement.
All issues regarding the competitiveness clause are pending in arbitration in
New Mexico.
Management is unable to predict the potential range of monetary exposure to
the company resulting from this litigation. However, the effect of an
unfavorable outcome or the loss of Furr's business, for any reason, could have a
material adverse effect on the company.
MEGAFOODS
In August 1994, a former customer, Megafoods Stores, Inc. ("Megafoods" or
the "debtor"), and certain of its affiliates filed chapter 11 bankruptcy
proceedings in Arizona. The company filed claims, including a claim for
indebtedness for goods sold on open account, equipment leases and secured loans,
totaling approximately $28 million (including claims for future payments and
other non-recorded assets). Additionally, the debtor was liable or contingently
liable to the company under store subleases and lease guarantees extended by the
company for the debtor's benefit. The debtor objected to the company's claims
and filed an adversary proceeding against the company seeking subordination of
the company's claims, return of an approximate $12 million deposit and
affirmative relief for damages which was subsequently amended to include
allegations of overcharges for products.
In August 1996, the court approved a settlement of both the debtor's
adversary proceeding against the company and the company's disputed claims in
the bankruptcy. The settlement, which is subject to approval by the creditors of
a revised plan which encompasses the settlement, provides that the company will
retain the $12 million deposit, relinquish its secured and unsecured claims in
exchange for the right to receive 10% of distributions, if any, made to the
unsecured creditors and pay the debtor $2.5 million in exchange for the
furniture, fixtures and equipment from 17 stores and two storage facilities. The
company agreed to lease to the reorganized debtor the furniture, fixtures and
equipment in fourteen of the stores for nine years (or until, in each case, the
expiration of the store lease) at an annual rental of $18 thousand per store.
F-7
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
During the fourth quarter of 1996, the debtor sold its 16 Phoenix stores; no
distribution was made to the unsecured creditors. In January 1997, the debtor
filed a joint liquidating plan which incorporates the settlement agreement. The
confirmation hearing for the debtor's plan has been postponed and no new date
set. During the second quarter of 1997, the debtor sold its Texas assets and the
purchaser agreed to assume the debtor's obligation to lease furniture, fixtures
and equipment from the company. The consummation of this sale resulted in the
disposition of substantially all of the debtor's remaining physical assets. The
company did not receive any distribution from the sale of the debtor's Texas
assets.
The company recorded charges relating to Megafoods of approximately $6.5
million in 1994, $3.5 million in 1995, $5.8 million in 1996 and has not recorded
any charges in 1997. At July 12, 1997, approximately $3.1 million of recorded
net assets relating to Megafoods remained on the company's books.
RANDALL'S
On July 30, 1997, Randall's Food Markets, Inc. ("Randall's") initiated
arbitration proceedings against Fleming before the American Arbitration
Association in Dallas, Texas. Randall's alleges that Fleming conspired with a
group of manufacturers and vendors to defraud Randall's by cooperating to
inflate prices charged to Randall's. Randall's alleges breach of contract, fraud
and RICO violations, and seeks actual damages, punitive damages, treble damages
under RICO, termination of its supply agreement and attorneys' fees and court
costs. The contract on which Randall's bases its claim prohibits either party
from recovering any amount other than actual damages; recovery of consequential
damages, punitive damages and all similar forms of damages are expressly
prohibited. Randall's asserts that such provision is contrary to public policy
and therefore not binding on it.
Randall's has been a Fleming customer for over 30 years. In 1996 Randall's
purchased approximately $485 million of products from Fleming under an eight
year supply agreement entered into in 1993 in connection with Fleming's purchase
of certain distribution assets from Randall's. Prior to initiating the
arbitration proceeding and making allegations against Fleming for overcharges,
Randall's had sought unsuccessfully to terminate the supply agreement.
The company believes it has complied with its obligations to Randall's in
good faith and that punitive and consequential damages are not recoverable under
the supply agreement; the company will vigorously defend its interests in the
arbitration. While management is unable to predict the potential range of
monetary exposure to Randall's, if any, the effect of an unfavorable outcome or
the loss of Randall's business could have a material adverse effect on the
company.
CLASS ACTION SUITS
In 1996, the company and certain of its present and former officers and
directors, including the chief executive officer, were named as defendants in
nine purported class action lawsuits filed by certain stockholders and one
purported class action lawsuit filed by a noteholder. In April 1997, the court
consolidated the nine stockholder cases as City of Philadelphia, et al. v.
Fleming Companies, Inc., et al.; the noteholder case was also consolidated, but
only for pre-trial purposes. A complaint has been filed in the consolidated
cases alleging liability for the company's failure to properly account for and
disclose the contingent liability created by the David's litigation and the
company's "deceptive business practices" which allegedly led to the David's
litigation and to other material contingent liabilities, caused the company to
change its manner of doing business at great cost and loss of profit, and
materially inflated the trading price of the company's common stock. The company
denies each of these allegations.
F-8
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Plaintiffs seek undetermined but significant damages. Management is unable
to predict the ultimate outcome of these cases or the potential range of
monetary exposure, if any, to the company. However, an unfavorable outcome in
this litigation could have a material adverse effect on the company.
OTHER
The company supplies goods and services to some of its customers
(particularly to its large customers) pursuant to supply agreements containing a
"competitiveness" clause. Under this clause, a customer may submit a "qualified
bid" from a third-party supplier to provide the customer with a range of goods
and services comparable to those goods and services offered by Fleming. If the
prices to be charged under the qualifying bid are lower than those charged by
the company by more than an agreed percentage, the company may lower its prices
to come within the agreed percentage or, if the company chooses not to lower its
prices, the customer may accept the competitor's bid. The competitiveness clause
is not exercised frequently and disputes regarding the clause must generally be
submitted to binding arbitration. Additionally, the company believes that most
of its supply agreements prohibit recovery of both punitive and consequential
damages if any dispute ever arises.
From time to time, customers may seek to renegotiate the terms of their
supply agreements, or exercise the competitiveness clause of such agreements or
otherwise alter the terms of their contractual obligations to the company to
obtain financial concessions. The company does not believe such efforts have had
a material adverse effect on its operations or financial condition to date.
The company utilizes numerous computer systems which were developed
employing six digit date structures (i.e., two digits each for the month, day
and year). Where date logic requires the year 2000 or beyond, such date
structures may produce inaccurate results. Management has implemented a program
to comply with year 2000 requirements on a system-by-system basis. Fleming's
plan includes extensive systems testing and is expected to be completed by the
first quarter of 1999. The solution for each system is potentially unique and
may be dependent on third-party software providers and developers. A failure on
the part of the company to ensure that its computer systems are year 2000
compliant could have a material adverse effect on the company's operations.
The company has purchased insurance to secure its obligations to indemnify
its officers and directors against certain liabilities which may result from
actions taken on behalf of the company. The company believes this insurance
covers some of the allegations made in the David's litigation, as well as
allegations made in other lawsuits. The company is pursuing a declaratory
judgment action against certain of its insurance carriers to resolve certain
coverage issues. While the company intends to vigorously assert its rights under
the policies, there can be no assurance as to the amount of coverage which may
ultimately be available.
The company's facilities and operations are subject to various laws,
regulations and judicial and administrative orders concerning protection of the
environment and human health, including provisions regarding the transportation,
storage, distribution, disposal or discharge of materials. In conformity with
these provisions, the company has a comprehensive program for testing and
removal, replacement or repair of its underground fuel storage tanks and for
site remediation where necessary. The company has established reserves that it
believes will be sufficient to satisfy anticipated costs of all known
remediation requirements. In addition, the company is addressing several other
environmental cleanup matters involving its properties, all of which the company
believes are immaterial.
The company and others have been designated by the U.S. Environmental
Protection Agency ("EPA") and by similar state agencies as potentially
responsible parties under the Comprehensive Environmental
F-9
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Response, Compensation and Liability Act ("CERCLA") or similar state laws, as
applicable, with respect to EPA or state-designated Superfund sites. While
liability under such laws for remediation at such sites is generally joint and
several with other potential responsible parties, the company believes that, to
the extent it is ultimately determined to be liable for the expense of
remediation at any site, such liability will not result in a material adverse
effect on its consolidated financial position or results of operations. The
company is committed to maintaining the environment and protecting natural
resources and human health and to achieving full compliance with all applicable
laws, regulations and orders.
The company is a party to various other litigation and contingent loss
situations arising in the ordinary course of its business including: disputes
with customers; disputes with employees regarding wages, workers' compensation
and alleged discrimination; tax assessments and other matters. The ultimate
effect of such actions, some of which are for substantial amounts, cannot be
predicted with certainty. Although the resolution of any of these matters may
have a material adverse impact on interim or annual results of operations, the
company expects that the outcome of these matters will not result in a material
adverse effect on the company's liquidity or consolidated financial position.
6. Certain company indebtedness is guaranteed by all direct and indirect
subsidiaries of the company (except for certain inconsequential subsidiaries),
all of which are wholly owned. The guarantees are joint and several, full,
complete and unconditional. There are no restrictions on the ability of the
subsidiary guarantors to transfer funds to the company in the form of cash
dividends, loans or advances. Full financial statements for the subsidiary
guarantors are not presented herein because management does not believe such
information would be material.
The following summarized financial information, which includes allocations
of material corporate-related expenses, for the combined subsidiary guarantors
may not necessarily be indicative of the results of operations or financial
position had the subsidiary guarantors been operated as independent entities.
<TABLE>
<CAPTION>
JULY 12, JULY 13,
1997 1996
----------- -----------
<S> <C> <C>
(IN MILLIONS)
Current assets............................................................. $ 20 $ 25
Noncurrent assets.......................................................... $ 55 $ 50
Current liabilities........................................................ $ 13 $ 10
Noncurrent liabilities..................................................... $ 6 $ 9
<CAPTION>
28 WEEKS ENDED
------------------------
JULY 12, JULY 13,
1997 1996
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Net sales.................................................................. $ 179 $ 183
Costs and expenses......................................................... $ 181 $ 187
Net earnings (loss)........................................................ -- $ (2)
</TABLE>
During the last three years, a significant number of subsidiary guarantors
have been merged into the parent company, resulting in a substantial reduction
in the amounts appearing in the summarized financial information.
F-10
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
7. The accompanying earnings statements include the following:
<TABLE>
<CAPTION>
28 WEEKS 12 WEEKS
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Depreciation and amortization (includes amortized costs in
interest expense)......................................... $ 98,625 $ 97,681 $ 42,053 $ 42,030
Amortized costs in interest expense......................... $ 5,497 $ 6,927 $ 2,452 $ 3,044
</TABLE>
F-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Fleming Companies, Inc.
We have audited the accompanying consolidated balance sheets of Fleming
Companies, Inc. and subsidiaries (the "Company") as of December 28, 1996 and
December 30, 1995, and the related consolidated statements of earnings,
shareholders' equity, and cash flows for each of the three years in the period
ended December 28, 1996. Our audits also included the financial statement
schedule listed in Item 21(b) incorporated by reference from the Company's
annual report on Form 10-K for the year ended December 28, 1996. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Fleming Companies,
Inc. and subsidiaries at December 28, 1996 and December 30, 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 28, 1996, in conformity with generally accepted
accounting principles. Also in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
March 4, 1997
(March 26, 1997 as to the second
paragraph of the Subsequent Events note)
F-12
<PAGE>
FLEMING COMPANIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net sales........................................................... $ 16,486,739 $ 17,501,572 $ 15,723,691
Costs and expenses (income):
Cost of sales..................................................... 15,004,715 16,091,039 14,601,050
Selling and administrative........................................ 1,274,649 1,189,199 932,588
Interest expense.................................................. 163,466 175,390 120,071
Interest income................................................... (49,122) (58,206) (57,148)
Equity investment results......................................... 18,458 27,240 14,793
Litigation settlement............................................. 20,000 -- --
Facilities consolidation.......................................... -- (8,982) --
------------- ------------- -------------
Total costs and expenses........................................ 16,432,166 17,415,680 15,611,354
------------- ------------- -------------
Earnings before taxes............................................... 54,573 85,892 112,337
Taxes on income..................................................... 27,887 43,891 56,168
------------- ------------- -------------
Net earnings........................................................ $ 26,686 $ 42,001 $ 56,169
------------- ------------- -------------
------------- ------------- -------------
Net earnings per share.............................................. $ .71 $ 1.12 $ 1.51
Weighted average shares outstanding................................. 37,774 37,577 37,254
</TABLE>
Sales to customers accounted for under the equity method were approximately
$1.0 billion, $1.5 billion and $1.6 billion in 1996, 1995 and 1994,
respectively.
See notes to consolidated financial statements.
F-13
<PAGE>
FLEMING COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 28, 1996, AND DECEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................ $ 63,667 $ 4,426
Receivables.......................................................................... 329,505 340,215
Inventories.......................................................................... 1,051,313 1,207,329
Other current assets................................................................. 119,123 98,801
----------- -----------
Total current assets............................................................. 1,563,608 1,650,771
Investments and notes receivable....................................................... 205,683 271,763
Investment in direct financing leases.................................................. 212,202 225,552
Property and equipment:
Land................................................................................. 60,867 59,364
Buildings............................................................................ 416,188 406,302
Fixtures and equipment............................................................... 661,654 667,087
Leasehold improvements............................................................... 220,182 202,751
Leased assets under capital leases................................................... 203,491 192,022
----------- -----------
1,562,382 1,527,526
Less accumulated depreciation and amortization..................................... (603,241) (532,364)
----------- -----------
Net property and equipment....................................................... 959,141 995,162
Other assets........................................................................... 118,096 132,338
Goodwill, net.......................................................................... 996,446 1,021,099
----------- -----------
Total assets........................................................................... $ 4,055,176 $ 4,296,685
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................................... $ 952,769 $ 1,001,123
Current maturities of long-term debt................................................. 124,613 53,917
Current obligations under capital leases............................................. 19,715 19,452
Other current liabilities............................................................ 245,774 211,863
----------- -----------
Total current liabilities........................................................ 1,342,871 1,286,355
Long-term debt......................................................................... 1,091,606 1,347,987
Long-term obligations under capital leases............................................. 361,685 368,876
Deferred income taxes.................................................................. 37,729 40,179
Other liabilities...................................................................... 145,327 169,966
Commitments and contingencies
Shareholders' equity:
Common stock, $2.50 par value, authorized--100,000 shares, issued and
outstanding--37,798 and 37,716 shares.............................................. 94,494 94,291
Capital in excess of par value....................................................... 503,595 501,474
Reinvested earnings.................................................................. 514,408 501,214
Cumulative currency translation adjustment........................................... (4,700) (4,549)
----------- -----------
1,107,797 1,092,430
Less ESOP note..................................................................... (6,942) (9,108)
Less additional minimum pension liability.......................................... (24,897) --
----------- -----------
Total shareholders' equity....................................................... 1,075,958 1,083,322
----------- -----------
Total liabilities and shareholders' equity............................................. $ 4,055,176 $ 4,296,685
----------- -----------
----------- -----------
</TABLE>
Receivables include $27 million and $34 million in 1996 and 1995, respectively,
due from customers accounted for under the equity method.
See notes to consolidated financial statements.
F-14
<PAGE>
FLEMING COMPANIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Common stock:
Beginning of year....................... 37,716 $ 94,291 37,480 $ 93,705 36,940 $ 92,350
Incentive stock and stock ownership
plans................................. 82 203 236 586 540 1,355
--------- ------------ --------- ------------ --------- ------------
End of year............................. 37,798 94,494 37,716 94,291 37,480 93,705
--------- ------------ --------- ------------ --------- ------------
--------- --------- ---------
Capital in excess of par value:
Beginning of year....................... 501,474 494,966 489,044
Incentive stock and stock ownership
plans................................. 2,121 6,508 5,922
------------ ------------ ------------
End of year............................. 503,595 501,474 494,966
------------ ------------ ------------
Reinvested earnings:
Beginning of year....................... 501,214 503,962 492,250
Net earnings............................ 26,686 42,001 56,169
Cash dividends, $.36 per share in 1996,
$1.20 per share in 1995 and 1994...... (13,492) (44,749) (44,457)
------------ ------------ ------------
End of year............................. 514,408 501,214 503,962
------------ ------------ ------------
Cumulative currency translation
adjustment:
Beginning of year....................... (4,549) (2,972) (288)
Currency translation adjustment......... (151) (1,577) (2,684)
------------ ------------ ------------
End of year............................. (4,700) (4,549) (2,972)
------------ ------------ ------------
ESOP note:
Beginning of year....................... (9,108) (11,106) (12,950)
Payments................................ 2,166 1,998 1,844
------------ ------------ ------------
End of year............................. (6,942) (9,108) (11,106)
------------ ------------ ------------
Additional minimum pension liability:
Beginning of year....................... --
Additional minimum liability
recognized............................ (24,897)
------------
End of year............................. (24,897)
------------
Total shareholders' equity, end of year... $ 1,075,958 $ 1,083,322 $ 1,078,555
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-15
<PAGE>
FLEMING COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings........................................................... $ 26,686 $ 42,001 $ 56,169
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization........................................ 187,617 180,796 145,910
Credit losses........................................................ 26,921 30,513 61,218
Deferred income taxes................................................ (5,451) 12,052 30,430
Equity investment results............................................ 18,458 27,240 14,793
Consolidation and reserve activities, net............................ (18,042) (44,375) (29,304)
Change in assets and liabilities, excluding effect of acquisitions:
Receivables........................................................ (13,955) 7,156 1,964
Inventories........................................................ 150,524 149,676 57,689
Accounts payable................................................... (45,666) 6,390 30,691
Other assets and liabilities....................................... (191) (7,494) (36,737)
Other adjustments, net............................................... 612 (4,956) 39
----------- ----------- -------------
Net cash provided by operating activities............................ 327,513 398,999 332,862
----------- ----------- -------------
Cash flows from investing activities:
Collections on notes receivable........................................ 64,028 88,441 111,149
Notes receivable funded................................................ (66,298) (103,771) (122,206)
Notes receivable sold.................................................. 34,980 77,063 --
Businesses acquired.................................................... -- (10,654) (387,488)
Proceeds from sale of businesses....................................... 13,300 -- 6,682
Purchase of property and equipment..................................... (128,552) (116,769) (150,057)
Proceeds from sale of property and equipment........................... 15,796 29,907 14,917
Investments in customers............................................... (365) (11,298) (12,764)
Proceeds from sale of investments...................................... 15,020 17,649 4,933
Other investing activities............................................. (4,479) (4,169) (2,793)
----------- ----------- -------------
Net cash used in investing activities................................ (56,570) (33,601) (537,627)
----------- ----------- -------------
Cash flows from financing activities:
Proceeds from long-term borrowings..................................... 171,000 93,000 2,225,751
Principal payments on long-term debt................................... (356,685) (452,690) (1,912,717)
Principal payments on capital lease obligations........................ (19,622) (17,269) (13,990)
Sale of common stock under incentive stock and stock ownership plans... 2,195 7,094 7,277
Dividends paid......................................................... (13,447) (44,749) (44,457)
Other financing activities............................................. 4,857 25,290 (30,381)
----------- ----------- -------------
Net cash provided by (used in) financing activities.................. (211,702) (389,324) 231,483
----------- ----------- -------------
Net increase (decrease) in cash and cash equivalents..................... 59,241 (23,926) 26,718
Cash and cash equivalents, beginning of year............................. 4,426 28,352 1,634
----------- ----------- -------------
Cash and cash equivalents, end of year................................... $ 63,667 $ 4,426 $ 28,352
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
See notes to consolidated financial statements.
F-16
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The company markets food and related products and offers retail services to
supermarkets in 42 states and several other countries. The company also operates
approximately 270 company-owned retail food stores in several geographic areas.
The company's activities encompass two major businesses: food distribution and
company-owned retail food operations.
FISCAL YEAR
The company's fiscal year ends on the last Saturday in December. Fiscal
years 1996 and 1995 were 52 weeks; 1994 was 53 weeks. The impact of the
additional week in 1994 is not material to the results of operations or
financial position.
BASIS OF PRESENTATION
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include all material subsidiaries.
Material intercompany items have been eliminated. The equity method of
accounting is usually used for investments in certain entities in which the
company has an investment in common stock of between 20% and 50%. Under the
equity method, original investments are recorded at cost and adjusted by the
company's share of earnings or losses of these entities and for declines in
estimated realizable values deemed to be other than temporary.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of liquid investments readily convertible to cash
with an original maturity of three months or less. The carrying amount for cash
equivalents is a reasonable estimate of fair value.
RECEIVABLES
Receivables include the current portion of customer notes receivable of $34
million in 1996 and $42 million in 1995. Receivables are shown net of allowance
for doubtful accounts of $25 million in 1996 and $35 million in 1995. The
company extends credit to its retail customers located over a broad geographic
base. Regional concentrations of credit risk are limited. Interest income on
impaired loans is recognized only when payments are received.
INVENTORIES
Inventories are valued at the lower of cost or market. Most grocery and
certain perishable inventories, aggregating approximately 70% and 80% of total
inventories in 1996 and 1995, respectively, are valued on
F-17
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
a last-in, first-out (LIFO) method. The cost for the remaining inventories is
determined by the first-in, first-out (FIFO) method. Current replacement cost of
LIFO inventories was greater than the carrying amounts by approximately $28
million and $22 million at year-end 1996 and 1995, respectively.
LONG-LIVED ASSETS
Asset impairments are recorded when events or changes in circumstances
indicate that the carrying amount of assets may not be recoverable. In 1996, the
company adopted SFAS No. 121--Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of. The adoption did not have a material
impact on the company's financial position or results of operations.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost or, for leased assets under
capital leases, at the present value of minimum lease payments. Depreciation, as
well as amortization of assets under capital leases, are based on the estimated
useful asset lives using the straight-line method. The estimated useful lives
used in computing depreciation and amortization are: buildings and major
improvements--20 to 40 years; warehouse, transportation and other equipment--3
to 10 years; and data processing equipment and software-- 5 to 7 years.
GOODWILL
The excess of purchase price over the value of net assets of businesses
acquired is amortized on the straight-line method over periods not exceeding 40
years. Goodwill is shown net of accumulated amortization of $159 million and
$127 million in 1996 and 1995, respectively.
FINANCIAL INSTRUMENTS
Interest rate hedge transactions and other financial instruments are
utilized to manage interest rate exposure. The methods and assumptions used to
estimate the fair value of significant financial instruments are discussed in
the Investments and Notes Receivable and Long-Term Debt notes.
TAXES ON INCOME
Deferred income taxes arise from temporary differences between financial and
tax bases of certain assets and liabilities.
FOREIGN CURRENCY TRANSLATION
Adjustments resulting from the translation of assets and liabilities of an
international investment are included in shareholders' equity.
NET EARNINGS PER SHARE
Earnings per share are computed based on net earnings divided by the
weighted average shares outstanding. The impact of common stock options on
earnings per share is immaterial.
F-18
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
SIGNIFICANT ACQUISITIONS
In July 1994, the company acquired all the outstanding stock of Haniel
Corporation, the parent of Scrivner Inc. ("Scrivner"). The company paid $388
million in cash and refinanced substantially all of Scrivner's existing $670
million indebtedness.
The acquisition was accounted for as a purchase and the results of
operations of Scrivner are included in the consolidated financial statements
since the beginning of the third quarter of 1994. The purchase price was
allocated based on estimated fair values of assets acquired and liabilities
assumed at the date of the acquisition. The excess of purchase price over the
fair value of net assets acquired of $583 million is being amortized on a
straight-line basis over 40 years.
Unaudited pro forma information for 1994 summarizing consolidated results of
operations of the company and Scrivner as if the acquisition had occurred at the
beginning of 1994, with pro forma adjustments to give effect to amortization of
goodwill, interest expense on acquisition debt and certain other adjustments,
together with related income tax effects, is as follows: net sales--$18.9
billion; net earnings--$43 million; net earnings per share--$1.15.
INVESTMENTS AND NOTES RECEIVABLE
Investments and notes receivable consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Investments in and advances to customers.............................. $ 72,246 $ 103,941
Notes receivable from customers....................................... 107,811 142,015
Other investments and receivables..................................... 25,626 25,807
---------- ----------
Investments and notes receivable...................................... $ 205,683 $ 271,763
---------- ----------
---------- ----------
</TABLE>
Investments and notes receivable are shown net of reserves of $24 million
and $18 million in 1996 and 1995, respectively.
The company extends long-term credit to certain retail customers. Loans are
primarily collateralized by inventory and fixtures. Interest rates are above
prime with terms up to 10 years. The carrying amount of notes receivable
approximates fair value because of the variable interest rates charged on the
notes.
Components of the company's recorded investment in notes receivable are as
follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
(IN MILLIONS)
Impaired notes, including current portion............................... $ 21 $ 28
Credit loss allowance on impaired notes................................. $ 6 $ 17
</TABLE>
F-19
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
Activity in the allowance for credit losses is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
Balance, beginning of year................................... $ 53 $ 49 $ 63
Charged to costs and expenses................................ 27 31 61
Uncollectible accounts written off, net of recoveries........ (36) (27) (101)
Asset impairment............................................. 5 -- --
Acquired reserves............................................ -- -- 26
--------- --------- ---------
Balance, end of year......................................... $ 49 $ 53 $ 49
--------- --------- ---------
--------- --------- ---------
</TABLE>
The company has sold certain notes receivable at face value with limited
recourse. The outstanding balance at year-end 1996 on all notes sold is $102
million, of which the company is contingently liable for $18 million should all
the notes become uncollectible.
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
(IN THOUSANDS)
Term bank loans, due 1997 to 2000, average interest rates of 7.3% and
6.7%...................................................................... $ 591,253 $ 659,497
10.625% senior notes due 2001............................................... 300,000 300,000
Floating rate senior notes due 2001, annual payments of $1,000 in 1999 and
2000, interest rates of 7.9% and 8.1%..................................... 200,000 200,000
Medium-term notes, due 1997 to 2003, average interest rates of 7.1% for both
years..................................................................... 99,000 99,000
Revolving bank credit, average interest rate of 6.5% and 6.6%............... 20,000 76,000
Uncommitted credit lines, average interest rate of 6.4% in 1995............. -- 50,000
Mortgaged real estate notes and other debt, net of asset sale proceeds
escrow, varying interest rates from 4% to 14.4%, due 1997 to 2003......... 5,966 17,407
------------ ------------
1,216,219 1,401,904
Less current maturities..................................................... (124,613) (53,917)
------------ ------------
Long-term debt.............................................................. $ 1,091,606 $ 1,347,987
------------ ------------
------------ ------------
</TABLE>
FIVE-YEAR MATURITIES
Aggregate maturities of long-term debt for the next five years are as
follows: 1997-$125 million; 1998-$175 million; 1999-$233 million; 2000-$175
million and 2001-$501 million.
F-20
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
REVOLVING CREDIT AND TERM LOAN AGREEMENT
The company has a $1.19 billion committed revolving credit and term loan
agreement with a group of banks. The bank credit agreement carries an annual
facility fee on the total revolving credit portion and a commitment fee on the
unused amount of the revolving credit portion. Interest rates are based on
various money market rate options selected by the company at the time of
borrowing. Borrowings and commitments by the bank under the revolving credit
portion of the bank credit agreement mature in 1999 and the amortizing term bank
loan matures in 2000.
The bank credit agreement and the indentures for the senior notes contain
certain financial covenants. The bank credit agreement currently contains the
following more significant financial covenants: maintenance of a consolidated
debt-to-net worth ratio of not more than 2.25 to 1; maintenance of a minimum
consolidated net worth of at least $903 million; maintenance of a fixed charge
coverage ratio of at least 1.1 to 1; a limitation on dividend payments of $.08
per share, per quarter; and limitations on capital expenditures. Covenants
associated with the senior notes are generally less restrictive than those of
the bank credit agreement.
At year-end 1996, the company would have been allowed to borrow an
additional $484 million under the company's revolving credit facility contained
in the bank credit agreement.
Under the company's most restrictive borrowing covenant, which is the fixed
charge coverage ratio, $55 million of additional fixed charges could have been
incurred. The company is currently in compliance with all financial covenants
under the bank credit agreement and senior notes.
The bank credit agreement and the senior note indentures also place
significant restrictions on the company's ability to incur additional
indebtedness, to create liens or other encumbrances, to make certain payments,
investments, loans and guarantees and to sell or otherwise dispose of a
substantial portion of assets to, or merge or consolidate with, an unaffiliated
entity.
The bank credit agreement contains a provision that, in the event of a
defined change of control, the agreement may be terminated. The indentures for
the senior notes provide an option for the note holders to require the company
to repurchase the notes in the event of a defined change of control and defined
decline in credit ratings.
MEDIUM-TERM NOTES
The company has registered $565 million in medium-term notes. Of this, $290
million may be issued from time to time, at fixed or floating rates, as
determined at the time of issuance. Under the bank credit agreement, new issues
of certain kinds of debt must have a maturity after December 2000. The security
provisions for the bank credit agreement required the company to equitably and
ratably secure the medium-term notes. Security for the medium-term notes
consists of a pledge of intercompany receivables.
F-21
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
INTEREST EXPENSE
Components of interest expense are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Interest costs incurred:
Long-term debt......................................... $ 122,859 $ 135,254 $ 83,748
Capital lease obligations.............................. 35,656 36,132 33,718
Other.................................................. 5,055 4,712 2,969
---------- ---------- ----------
Total incurred......................................... 163,570 176,098 120,435
Less interest capitalized................................ (104) (708) (364)
---------- ---------- ----------
Interest expense......................................... $ 163,466 $ 175,390 $ 120,071
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
DERIVATIVES
The company enters into interest rate hedge agreements with the objective of
managing interest costs and exposure to changing interest rates. The classes of
derivative financial instruments used include interest rate swaps and caps. The
company's policy regarding derivatives is to engage in a financial risk
management process to manage its defined exposures to uncertain future changes
in interest rates which impact net earnings. The primary purpose of the
financial risk management process is to control and limit the potential impact
on net earnings, according to pre-established targets, of rate changes in a
manner which does not incur unreasonable or unmanageable additional risks or
expense.
The bank credit agreement requires the company to provide interest rate
protection on a substantial portion of the related outstanding indebtedness.
Strategies for achieving the company's objectives have resulted in the company
maintaining interest rate swaps and caps covering $850 million aggregate
principal amount of floating rate indebtedness at year-end 1996 and 1995. These
amounts exceed the requirements set forth in the bank credit agreement. The
maturities for hedge agreements range from 1997 to 2000. The counterparties to
these agreements are major national and international financial institutions.
The interest rate employed on most of the company's floating rate
indebtedness is equal to the London interbank offered rate ("LIBOR") plus a
margin. The average fixed interest rate paid by the company on the interest rate
swaps is 6.95%, covering $600 million of floating rate indebtedness. The
interest rate swap agreements, which were implemented through six counterparty
banks, and which have an average remaining life of two years, provide for the
company to receive substantially the same LIBOR that the company pays on its
floating rate indebtedness. The company has purchased interest rate cap
agreements from two counterparty banks for an additional $250 million of its
floating rate indebtedness. The agreements cap LIBOR at 7.33% over the next two
years.
The notional amounts of interest rate swaps and caps do not represent
amounts exchanged by the parties and are not a measure of the company's exposure
to credit or market risks. The amounts exchanged are calculated on the basis of
the notional amounts and the other terms of the hedge agreements. Notional
amounts are not included in the consolidated balance sheet.
The company believes its exposure to potential loss due to counterparty
nonperformance is minimized primarily due to the relatively strong credit
ratings of the counterparty banks for their unsecured long-term
F-22
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
debt (A- or higher from Standard & Poor's Ratings Group or A2 or higher from
Moody's Investor Service, Inc.) and the size and diversity of the counterparty
banks.
Derivative financial instruments are reported in the balance sheet where the
company has made a cash payment upon entering into or terminating the
transaction. The carrying amount is amortized over the initial life of the hedge
agreement. The company had a financial basis of $3 million and $5 million in the
interest rate cap agreements at year-end 1996 and 1995, respectively. In
addition, accrued interest payable or receivable for the interest rate
agreements is included in the balance sheet. Payments made or received under
interest rate swap or cap agreements are included in interest expense.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of long-term debt was determined using valuation techniques
that considered cash flows discounted at current market rates and management's
best estimate for instruments without quoted market prices. At year-end 1996 and
1995, the carrying value of debt exceeded the fair value by $30 million and $38
million, respectively.
For derivatives, the fair value was estimated using termination cash values.
At year-end 1996, interest rate hedge agreement values would represent an
obligation of $20 million, and at year-end 1995, an obligation of $27 million.
SUBSIDIARY GUARANTEE OF SENIOR NOTES
The senior notes are guaranteed by all direct and indirect subsidiaries of
the company (except for certain inconsequential subsidiaries), all of which are
wholly owned. The guarantees are joint and several, full, complete and
unconditional. There are currently no restrictions on the ability of the
subsidiary guarantors to transfer funds to the company in the form of cash
dividends, loans or advances. Financial statements for the subsidiary guarantors
are not presented herein because the operations and financial position of such
subsidiaries are not material.
The summarized financial information, which includes allocations of material
corporate-related expenses, for the combined subsidiary guarantors may not
necessarily be indicative of the results of operations or financial position had
the subsidiary guarantors been operated as independent entities.
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
Current assets..................................................... $ 25 $ 251
Noncurrent assets.................................................. $ 57 $ 487
Current liabilities................................................ $ 8 $ 104
Noncurrent liabilities............................................. $ 1 $ 1
<CAPTION>
1996 1995 1994
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Net sales.......................................................... $ 298 $ 2,842 $ 3,318
Costs and expenses................................................. $ 314 $ 2,787 $ 3,341
Net earnings (loss)................................................ $ (8) $ 27 $ (12)
</TABLE>
A significant number of subsidiaries have been merged into the parent
company beginning in 1994, resulting in a substantial reduction in the amounts
appearing in the summarized financial information.
F-23
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
LEASE AGREEMENTS
CAPITAL AND OPERATING LEASES
The company leases certain distribution facilities with terms generally
ranging from 20 to 25 years, while lease terms for other operating facilities
range from 1 to 15 years. The leases normally provide for minimum annual rentals
plus executory costs and usually include provisions for one to five renewal
options of five years.
The company leases company-owned retail store facilities with terms
generally ranging from 15 to 20 years. These agreements normally provide for
contingent rentals based on sales performance in excess of specified minimums.
The leases usually include provisions for one to four renewal options of two to
five years. Certain equipment is leased under agreements ranging from two to
eight years with no renewal options.
Accumulated amortization related to leased assets under capital leases was
$64 million and $53 million at year-end 1996 and 1995, respectively.
Future minimum lease payment obligations for leased assets under capital
leases as of year-end 1996 are set forth below:
<TABLE>
<CAPTION>
YEARS
- ------------------------------------------------------------------------------ LEASE
OBLIGATIONS
--------------
(IN THOUSANDS)
<S> <C>
1997.......................................................................... $ 25,298
1998.......................................................................... 24,821
1999.......................................................................... 24,611
2000.......................................................................... 23,427
2001.......................................................................... 22,628
Later......................................................................... 185,129
--------------
Total minimum lease payments.................................................. 305,914
Less estimated executory costs................................................ (161)
--------------
Net minimum lease payments.................................................... 305,753
Less interest................................................................. (137,891)
--------------
Present value of net minimum lease payments................................... 167,862
Less current obligations...................................................... (8,866)
--------------
Long-term obligations......................................................... $ 158,996
--------------
--------------
</TABLE>
F-24
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
Future minimum lease payments required at year-end 1996 under operating
leases that have initial noncancelable lease terms exceeding one year are
presented in the following table:
<TABLE>
<CAPTION>
FACILITY FACILITIES EQUIPMENT EQUIPMENT NET
YEARS RENTALS SUBLEASED RENTALS SUBLEASED RENTALS
- ----------------------------- ------------ ----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1997......................... $ 160,097 $ (70,905) $ 22,625 $ (2,328) $ 109,489
1998......................... 148,825 (63,283) 15,320 (1,546) 99,316
1999......................... 133,388 (51,822) 8,795 (839) 89,522
2000......................... 120,259 (41,993) 3,456 (570) 81,152
2001......................... 110,891 (34,329) 363 (62) 76,863
Later........................ 683,862 (142,122) 63 -- 541,803
------------ ----------- ----------- ----------- ----------
Total lease payments......... $ 1,357,322 $ (404,454) $ 50,622 $ (5,345) $ 998,145
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
</TABLE>
The following table shows the composition of total annual rental expense
under noncancelable operating leases and subleases with initial terms of one
year or greater:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Minimum rentals.......................................... $ 208,250 $ 199,834 $ 160,065
Contingent rentals....................................... 1,874 1,654 866
Less sublease income..................................... (88,014) (92,108) (77,684)
---------- ---------- ----------
Rental expense........................................... $ 122,110 $ 109,380 $ 83,247
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
DIRECT FINANCING LEASES
The company leases retail store facilities for sublease to customers with
terms generally ranging from 15 to 20 years. Most leases provide for a
contingent rental based on sales performance in excess of specified minimums.
The leases and subleases usually contain provisions for one to four renewal
options of two to five years.
F-25
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
The following table shows the future minimum rentals receivable under direct
financing leases and future minimum lease payment obligations under capital
leases in effect at year-end 1996:
<TABLE>
<CAPTION>
LEASE RENTALS LEASE
YEARS RECEIVABLE OBLIGATIONS
- ------------------------------------------------------------------ ------------- -----------
(IN THOUSANDS)
<S> <C> <C>
1997.............................................................. $ 36,854 $ 30,950
1998.............................................................. 34,399 30,934
1999.............................................................. 32,232 30,863
2000.............................................................. 30,996 29,624
2001.............................................................. 30,582 28,443
Later............................................................. 238,046 220,551
------------- -----------
Total minimum lease payments...................................... 403,109 371,365
Less estimated executory costs.................................... (1,341) (1,334)
------------- -----------
Net minimum lease payments........................................ 401,768 370,031
Less interest..................................................... (172,392) (156,493)
------------- -----------
Present value of net minimum lease payments....................... 229,376 213,538
Less current portion.............................................. (17,174) (10,849)
------------- -----------
Long-term portion................................................. $ 212,202 $ 202,689
------------- -----------
------------- -----------
</TABLE>
Contingent rental income and contingent rental expense are not material.
FACILITIES CONSOLIDATION AND RESTRUCTURING
In 1993 the company recorded a charge of $108 million for facilities
consolidations, reengineering, impairment of retail-related assets and
elimination of regional operations. Components of the charge provided for
severance costs, impaired property and equipment, product handling and damage,
and impaired other assets. Four distribution centers have been closed and one
additional facility will be closed as part of the facilities consolidation plan.
Reengineering has occurred with respect to approximately 40% of its food
distribution sales base, or 17 of its 35 operating units. Most impaired
retail-related assets have been disposed or subleased. Regional operations have
been eliminated. In 1995 management changed its estimates with respect to the
general merchandising operations portion of the reengineering plan and reversed
$9 million of the related provision.
F-26
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
Facilities consolidation and restructuring reserve activities are:
<TABLE>
<CAPTION>
REENGINEERING/ CONSOLIDATION
SEVERANCE COSTS/ASSET
TOTAL COSTS IMPAIRMENTS
---------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, year-end 1993............................. $ 85,521 $ 25,136 $ 60,385
Expenditures and write-offs........................ (31,142) (2,686) (28,456)
---------- ------------- -------------
Balance, year-end 1994............................. 54,379 22,450 31,929
Credited to income................................. (8,982) -- (8,982)
Expenditures and write-offs........................ (24,080) (6,690) (17,390)
---------- ------------- -------------
Balance, year-end 1995............................. 21,317 15,760 5,557
Expenditures and write-offs........................ (2,865) (2,642) (223)
---------- ------------- -------------
Balance, year-end 1996............................. $ 18,452 $ 13,118 $ 5,334
---------- ------------- -------------
---------- ------------- -------------
</TABLE>
TAXES ON INCOME
Components of taxes on income (tax benefit) are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Current:
Federal.................................................... $ 24,729 $ 24,817 $ 18,536
State...................................................... 8,609 7,022 7,202
--------- --------- ---------
Total current................................................ 33,338 31,839 25,738
--------- --------- ---------
Deferred:
Federal.................................................... (4,388) 9,850 22,188
State...................................................... (1,063) 2,202 8,242
--------- --------- ---------
Total deferred............................................... (5,451) 12,052 30,430
--------- --------- ---------
Taxes on income.............................................. $ 27,887 $ 43,891 $ 56,168
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-27
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
Deferred tax expense (benefit) relating to temporary differences includes
the following components:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Depreciation and amortization.............................. $ (12,561) $ (23,398) $ (4,967)
Inventory.................................................. (6,586) (2,113) 382
Capital losses............................................. (2,494) (854) --
Asset valuations and reserves.............................. 13,567 26,040 20,396
Equity investment results.................................. 526 (312) 6,255
Credit losses.............................................. 3,995 2,897 11,728
Lease transactions......................................... (1,298) (1,170) (1,448)
Associate benefits......................................... (478) 2,249 (4,215)
Note sales................................................. 315 (144) (2,547)
Acquired loss carryforwards................................ 1,616 4,422 1,616
Other...................................................... (2,053) 4,435 3,230
---------- ---------- ---------
Deferred tax expense (benefit)............................. $ (5,451) $ 12,052 $ 30,430
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
F-28
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
Temporary differences that give rise to deferred tax assets and liabilities
as of year-end 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Depreciation and amortization......................................... $ 9,187 $ 8,709
Asset valuations and reserve activities............................... 60,008 75,215
Associate benefits.................................................... 83,408 68,783
Credit losses......................................................... 19,891 23,885
Equity investment results............................................. 9,202 9,440
Lease transactions.................................................... 13,308 11,840
Inventory............................................................. 16,013 15,954
Acquired loss carryforwards........................................... 4,581 6,198
Capital losses........................................................ 3,354 860
Other................................................................. 20,926 18,323
---------- ----------
Gross deferred tax assets............................................. 239,878 239,207
Less valuation allowance.............................................. (4,514) (4,514)
---------- ----------
Total deferred tax assets............................................. 235,364 234,693
---------- ----------
Deferred tax liabilities:
Depreciation and amortization......................................... 116,842 128,924
Equity investment results............................................. 2,455 2,166
Lease transactions.................................................... 1,995 1,825
Inventory............................................................. 52,586 59,113
Associate benefits.................................................... 20,931 23,402
Asset valuations and reserve activities............................... 535 8,025
Note sales............................................................ 3,754 3,495
Prepaid expenses...................................................... 3,162 3,578
Other................................................................. 18,644 17,620
---------- ----------
Total deferred tax liabilities........................................ 220,904 248,148
---------- ----------
Net deferred tax asset (liability).................................... $ 14,460 $ (13,455)
---------- ----------
---------- ----------
</TABLE>
The change in net deferred asset/liability from 1995 to 1996 is allocated
$5.4 million to deferred income tax benefit, $16.6 million to stockholders'
equity, and $5.8 million to purchase price allocations.
The valuation allowance relates to $4 million of acquired loss carryforwards
that, if utilized, will be reversed to goodwill in future years. Management
believes it is more likely than not that all other deferred tax assets will be
realized.
F-29
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
The effective income tax rates are different from the statutory federal
income tax rates for the following reasons:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Statutory rate....................................... 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit....... 9.0 7.0 8.9
Acquisition-related differences...................... 6.1 8.4 6.9
Other................................................ 1.0 .7 (.8)
--------- --------- ---------
Effective rate....................................... 51.1% 51.1% 50.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
SEGMENT INFORMATION
The following table sets forth the composition of the company's net sales,
operating earnings, depreciation and amortization, capital expenditures and
identifiable assets. Food distribution includes food and general merchandise
distribution.
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
<CAPTION>
<S> <C> <C> <C>
NET SALES
Food distribution............................................ $ 14,904 $ 16,665 $ 15,543
Less sales elimination....................................... (2,123) (2,529) (1,953)
--------- --------- ---------
Net food distribution........................................ 12,781 14,136 13,590
Retail food.................................................. 3,706 3,366 2,134
--------- --------- ---------
Total........................................................ $ 16,487 $ 17,502 $ 15,724
--------- --------- ---------
--------- --------- ---------
OPERATING EARNINGS
Food distribution............................................ $ 299 $ 288 $ 263
Retail food.................................................. 47 46 27
Corporate.................................................... (139) (119) (100)
--------- --------- ---------
Total operating earnings..................................... 207 215 190
Interest expense............................................. (163) (175) (120)
Interest income.............................................. 49 58 57
Equity investment results.................................... (18) (21) (15)
Litigation settlement........................................ (20) -- --
Facilities consolidation..................................... -- 9 --
--------- --------- ---------
Earnings before taxes........................................ $ 55 $ 86 $ 112
--------- --------- ---------
--------- --------- ---------
DEPRECIATION AND AMORTIZATION
Food distribution............................................ $ 107 $ 117 $ 99
Retail food.................................................. 56 43 33
Corporate.................................................... 25 21 14
--------- --------- ---------
Total........................................................ $ 188 $ 181 $ 146
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-30
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
CAPITAL EXPENDITURES
Food distribution............................................ $ 59 $ 70 $ 107
Retail food.................................................. 50 30 26
Corporate.................................................... 20 14 7
--------- --------- ---------
Total........................................................ $ 129 $ 114 $ 140
--------- --------- ---------
--------- --------- ---------
IDENTIFIABLE ASSETS
Food distribution............................................ $ 2,647 $ 3,021 $ 3,262
Retail food.................................................. 647 588 547
Corporate.................................................... 761 688 799
--------- --------- ---------
Total........................................................ $ 4,055 $ 4,297 $ 4,608
--------- --------- ---------
--------- --------- ---------
</TABLE>
Certain reclassifications have been made to the 1995 information. Equity
investment results representing a joint venture in 1995 have been reclassified
to retail operating earnings to compare to the 1996 consolidation of that joint
venture.
SHAREHOLDERS' EQUITY
The company offers a Dividend Reinvestment and Stock Purchase Plan which
offers shareholders the opportunity to automatically reinvest their dividends in
common stock at a 5% discount from market value. Shareholders also may purchase
shares at market value by making cash payments up to $5,000 per calendar
quarter. Such programs resulted in issuing 125,000 and 283,000 new shares in
1996 and 1995, respectively.
The company has a rights plan designed to protect stockholders should the
company become the target of coercive and unfair takeover tactics. Stockholders
have one right for each share of common stock held. In the event of certain
defined events that constitute a change of control, each right entitles
stockholders (other than any defined acquiror) to purchase 1/100 of a share of
new preferred stock at an exercise price of $75 (the "Exercise Price") or to
exchange the right upon the payment of the Exercise Price for that number of
shares of company common stock determined by dividing twice the Exercise Price
($150) by the then current market price of the common stock. Furthermore, if the
company is involved in a merger or other business combination or sale of a
specified percentage of assets or earning power, the rights (other than those
held by the acquiror) may be used to purchase, for the Exercise Price, that
number of shares of the acquiror's common stock determined by dividing twice the
Exercise Price by the then current market price of the acquiror's common stock.
The rights expire on July 6, 2006. The company is currently involved in
litigation regarding a shareholder proposed bylaw amendment which would require
that any rights plan be first approved by shareholders and that the current
rights plan be terminated.
The company has severance agreements with certain management associates. The
agreements generally provide two years' salary to these associates if the
associate's employment terminates within two years after a change of control. In
the event of a change of control, a supplemental trust will be funded to provide
for these salary obligations.
The company's employee stock ownership plan (ESOP) established in 1990
allows substantially all associates to participate. In 1990, the ESOP entered
into a note with a bank to finance purchase of the shares. In 1994, the company
paid off the note and entered into a note from the ESOP. The ESOP will
F-31
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
repay to the company the remaining loan balance with proceeds from company
contributions. The receivable from the ESOP is presented as a reduction of
shareholders' equity.
The company makes contributions to the ESOP based on fixed debt service
requirements of the ESOP note. Such contributions were approximately $2 million
per year in 1996, 1995 and 1994. Dividends used by the ESOP for debt service and
interest and compensation expense recognized by the company were not material.
In 1996 and 1995, options with SARs were exercisable for 7,000 and 14,000
shares, respectively. At year-end 1996, there were 210,000 shares available for
grant under the unrestricted stock option plans.
The company has a stock incentive plan that allows awards to key associates
of up to 760,000 restricted shares of common stock and phantom stock units. At
year-end 1996, 684,000 shares were available for grant under the stock incentive
plan. Shares granted are recorded at the market value when issued and amortized
to expense as earned. The unamortized portion was $3 million at year-end 1996
and is netted against capital in excess of par value within shareholders'
equity.
Stock option and stock incentive transactions are as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE PRICE RANGE
----------- ----------------- ----------------
(SHARES IN THOUSANDS)
<S> <C> <C> <C>
Outstanding, year-end 1993....................... 983 $ 35.16 $ 4.72 - 42.13
Granted........................................ 1,782 $ 25.57 $ 24.81 - 29.75
Exercised...................................... (7) $ 19.50 $ 4.72 - 25.19
Canceled and forfeited......................... (288) $ 32.83 $ 24.94 - 42.13
----- ------ ----------------
Outstanding, year-end 1994....................... 2,470 $ 28.56 $ 10.29 - 42.13
Granted........................................ 118 $ 25.52 $ 19.44 - 26.44
Exercised...................................... (10) $ 18.09 $ 10.29 - 24.94
Canceled and forfeited......................... (457) $ 30.31 $ 24.81 - 42.13
----- ------ ----------------
Outstanding, year-end 1995....................... 2,121 $ 28.06 $ 19.44 - 42.13
Granted........................................ 1,005 $ 16.67 $ 16.38 - 19.75
Canceled and forfeited......................... (290) $ 29.07 $ 24.81 - 42.13
----- ------ ----------------
Outstanding, year-end 1996....................... 2,836 $ 23.93 $ 16.38 - 42.13
-----
-----
</TABLE>
F-32
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
Information regarding options outstanding at year-end 1996 is as follows:
<TABLE>
<CAPTION>
ALL OUTSTANDING OPTIONS CURRENTLY
OPTIONS EXERCISABLE
--------------- -----------------
(SHARES IN THOUSANDS)
<S> <C> <C>
Option price $37.06 - $42.13:
Number of options....................................... 297 297
Weighted average exercise price......................... $ 38.51 $ 38.51
Weighted average remaining life in years................ 3
Option price $24.81 - $32.90:
Number of options....................................... 1,519 393
Weighted average exercise price......................... $ 25.91 $ 26.78
Weighted average remaining life in years................ 7
Option price $16.38 - $19.44:
Number of options....................................... 1,020 1
Weighted average exercise price......................... $ 16.71 $ 19.44
Weighted average remaining life in years................ 10
</TABLE>
In the event of a change of control, the company may accelerate the vesting
and payment of any award or make a payment in lieu of an award.
The company applies APB Opinion No. 25 -- Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its plans. Accordingly,
no compensation cost has been recognized for the plans. If compensation cost had
been recognized for the stock-based compensation plans based on fair values of
the awards at the grant dates consistent with the method of SFAS No. 123 --
Accounting for Stock-Based Compensation, there would have been no material
effect on reported net earnings and earnings per share.
Significant assumptions used to estimate the fair values of awards using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for 1996 and 1995 are: risk-free interest rate -- approximately 7%;
expected lives of options -- 10 years; expected volatility -- 35% to 50%; and
expected dividend yield of .5% to 6%.
ASSOCIATE RETIREMENT PLANS
The company sponsors retirement and profit sharing plans for substantially
all non-union and some union associates.
Benefit calculations for the company's defined benefit retirement plans are
primarily a function of years of service and final average earnings at the time
of retirement. Final average earnings are the average of the highest five years
of compensation during the last 10 years of employment. The company funds these
plans by contributing the actuarially computed amounts that meet funding
requirements.
The following table sets forth the company's major qualified defined benefit
retirement plans' funded status and the amounts recognized in the statements of
earnings. Substantially all the plans' assets are invested in listed stocks,
short-term investments and bonds. The significant actuarial assumptions used in
F-33
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
the calculation of funded status for 1996 and 1995, respectively are: discount
rate -- 7.75% and 7.25%; compensation increases -- 4.5% and 4.0%; and return on
assets -- 9.5% for both years.
<TABLE>
<CAPTION>
1996
----------------------------
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS 1995
------------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Vested.......................................... $ 5,440 $ 238,154 $ 207,731
------------- ------------- ----------
------------- ------------- ----------
Total........................................... $ 5,590 $ 245,014 $ 213,390
------------- ------------- ----------
------------- ------------- ----------
Projected benefit obligations..................... $ 5,590 $ 274,494 $ 229,649
Plan assets at fair value......................... 8,457 228,679 222,434
------------- ------------- ----------
Projected benefit obligation in excess of (less
than) plan assets............................... (2,867) 45,815 7,215
Unrecognized net loss............................. (282) (63,583) (37,330)
Unrecognized prior service cost................... (2) (434) (1,039)
Unrecognized net asset............................ 83 1,041 1,391
Additional liability.............................. -- 33,497 --
------------- ------------- ----------
Accrued (prepaid) pension cost.................... $ (3,068) $ 16,336 $ (29,763)
------------- ------------- ----------
------------- ------------- ----------
</TABLE>
Net pension expense includes the following components:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost.............................................. $ 10,802 $ 11,348 $ 7,288
Interest cost............................................. 19,764 16,367 15,258
Actual (return) loss on plan assets....................... (22,986) (45,217) 5,064
---------- ---------- ----------
Net amortization and deferral............................. 10,265 29,807 (17,036)
---------- ---------- ----------
Net pension expense....................................... $ 17,845 $ 12,305 $ 10,574
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The company also has nonqualified supplemental retirement plans for selected
associates. These plans are unfunded with a projected benefit obligation of $24
million and $23 million; and unrecognized prior service and actuarial losses of
$9 million and $11 million at year-end 1996 and 1995, respectively, based on
actuarial assumptions consistent with the funded plans. The net pension expense
for the unfunded plans was $3 million each year in 1996 and 1995, and $2 million
for 1994.
At year-end 1996, the consolidated balance sheet reflects a $42 million
additional minimum liability relating to unfunded accumulated benefit
obligations for all of the company's defined benefit plans, a $.9 million
related intangible asset, and a $25 million reduction of shareholders' equity,
net of future tax benefits.
Contributory profit sharing plans maintained by the company are for
associates who meet certain types of employment and length of service
requirements. Company contributions under these defined
F-34
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
contribution plans are made at the discretion of the board of directors.
Expenses for these plans were $3 million each year in 1996 and 1995, and $6
million in 1994.
Certain associates have pension and health care benefits provided under
collectively bargained multiemployer agreements. Expenses for these benefits
were $84 million, $75 million and $56 million for 1996, 1995 and 1994,
respectively.
ASSOCIATE POSTRETIREMENT HEALTH CARE BENEFITS
The company offers a comprehensive major medical plan to eligible retired
associates who meet certain age and years of service requirements. This unfunded
defined benefit plan generally provides medical benefits until Medicare
insurance commences.
Components of postretirement benefits expense are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost..................................................... $ 147 $ 137 $ 223
Interest cost.................................................... 1,443 1,642 1,542
Amortization of net loss......................................... -- 141 196
--------- --------- ---------
Postretirement expense........................................... $ 1,590 $ 1,920 $ 1,961
--------- --------- ---------
--------- --------- ---------
</TABLE>
The composition of the accumulated postretirement benefit obligation (APBO)
and the amounts recognized in the balance sheets are presented below.
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Retirees................................................................ $ 15,843 $ 17,197
Fully eligible actives.................................................. 689 811
Others.................................................................. 1,767 2,216
--------- ---------
APBO.................................................................... 18,299 20,224
Unrecognized net (gain) loss............................................ 100 (587)
--------- ---------
Accrued postretirement benefit cost..................................... $ 18,399 $ 19,637
--------- ---------
--------- ---------
</TABLE>
The weighted average discount rate used in determining the APBO was 7.75%
and 7.25% for 1996 and 1995, respectively. For measurement purposes in 1996 and
1995, a 9% and 12%, respectively, annual rate of increase in the per capita cost
of covered medical care benefits was assumed. The rate was assumed to decrease
to 5% and 6.5% in 1996 and 1995, respectively, by the year 2003, then remain
level. If the assumed health care cost increased by 1% for each future year, the
current cost and the APBO would have increased by approximately 5% to 6% for all
periods presented.
The company also provides other benefits for certain inactive associates.
Expenses related to these benefits are immaterial.
F-35
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
SUPPLEMENTAL CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Acquisitions:
Fair value of assets acquired........................ $ 142,458 $ 1,575,323
Less:
Liabilities assumed or created....................... 63,873 1,198,050
Existing company investment.......................... 51,126 (15,281)
Cash acquired........................................ 16,805 5,066
---------- -------------
Cash paid, net of cash acquired...................... $ 10,654 $ 387,488
---------- -------------
---------- -------------
Cash paid during the year for:
Interest, net of amounts capitalized................. $ 152,846 $ 171,141 $ 98,254
Income taxes, net of refunds......................... $ 32,291 $ (9,593) $ 40,414
Direct financing leases and related obligations........ $ 17,062 $ 28,568 $ 15,640
Property and equipment additions by capital leases..... $ 11,111 $ 8,840 $ 30,606
</TABLE>
LITIGATION AND CONTINGENCIES
PREMIUM
The company and several other defendants were named in two suits filed in
U.S. District Court in Miami, Florida, in 1993. The suits involved an allegedly
fraudulent scheme conducted by a failed grocery diverter -- Premium Sales
Corporation ("Premium") and others in which large losses in the Premium-related
entities occurred to the detriment of a class of investors which brought one of
the suits. The other suit is by the receiver/trustee of the estates of Premium
and certain of its affiliated entities (the "Trustee"). Plaintiffs sought actual
damages of approximately $300 million, treble damages, punitive damages,
attorneys' fees, costs, expenses and other appropriate relief.
The company denies plaintiffs' accusations and allegations, and denies all
wrongdoing, liability, fault or responsibility for loss, if any, with respect to
the claims made against it in the Premium litigation. However, to avoid future
costs and eliminate uncertainty, the company entered into a settlement agreement
with respect to the Premium cases in December 1996. Under the agreement, the
plaintiffs (excluding class member opt-outs and non-releasing investors) and all
other claimants will dismiss their actions against the company in exchange for a
$19.5 million payment plus $500,000 for costs and expenses, and all related
claims involving the company will be dismissed.
The company recorded a charge of $20 million, or $.26 per share, during the
third quarter of 1996 in anticipation of the settlement and deposited that
amount into an escrow account in December pending finalization. The settlement
is subject to, among other conditions, court approval and receipt by the company
of releases from investors, including those who might not be bound by the
settlement. The company has the right to withdraw the escrowed funds and
terminate the settlement if such conditions are not met. As of the date of these
financial statements, non-released claims held by investors who would not
otherwise be bound by the settlement were estimated to be substantial. In the
event the settlement is not consummated, the company expects the litigation will
resume. In that event, while management is unable
F-36
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
to predict the potential range of monetary exposure to the company, if any, an
unfavorable outcome could have a material adverse effect on the company and its
financial statements.
DAVID'S
The company, a former subsidiary subsequently merged with the company, and a
retired executive officer were named in a lawsuit filed by David's Supermarkets,
Inc. in the District Court of Johnson County, Texas in 1993 ("David's") alleging
product overcharges during a three year period. A jury trial was held in
February and March 1996, and on April 12, 1996, judgment was entered against the
company in the amount of $207.5 million for violation of the Texas Deceptive
Trade Practice Act ("DTPA") plus pre-judgment interest of $3.7 million and
post-judgment interest at the rate of 10% per annum. Judgment jointly and
severally against the executive was entered for $72.6 million plus pre-judgment
and post-judgment interest.
The company posted a supersedeas bond, commenced appeal of the judgment, and
filed a motion for a new trial and recusal of the trial judge on grounds
unrelated to the merits. Subsequently, the trial judge recused himself and a new
judge was assigned to the case who vacated the judgment and granted a new trial,
currently scheduled for May 1997. As a result, letters of credit which had
partially secured the supersedeas bond were canceled, thereby restoring $135
million to the company's bank facility.
Plaintiff continues to allege liability on the part of the company (and its
co-defendant) as the result of breach of contract, fraud, conspiracy and
violation of the DTPA, and seeks substantial actual damages, treble damages,
exemplary damages, attorneys' fees, interest and costs, totaling hundreds of
millions of dollars. Management is unable to predict the potential range of
additional monetary exposure, if any, to the company. However, based upon the
large recovery sought and the unexpected result of the first trial, an
unfavorable outcome resulting from the new trial could have a material adverse
effect on the company and its financial statements.
Since the announcement of the initial judgment in the David's litigation,
other customers involved in disputes with the company have added allegations of
overcharges purporting to be similar to those made in the David's case. Such
allegations may also be made by others. Management is unable to predict the
potential range of monetary exposure to the company from such allegations, if
any. However, if the plaintiff in any of such cases were to be successful in
these assertions, the outcome could have a material adverse effect on the
company and its financial statements.
MEGAFOODS
In August 1994, a former customer, Megafoods Stores, Inc. ("Megafoods" or
"debtor"), and certain of its affiliates filed chapter 11 bankruptcy proceedings
in Arizona. The company filed claims, including a claim for indebtedness for
goods sold on open account, equipment leases and secured loans, totaling
approximately $28 million (including claims for future payments and other
non-recorded assets). Additionally, the debtor is liable or contingently liable
to the company under store subleases and lease guarantees extended by the
company for the debtor's benefit. The debtor objected to the company's claims
and filed an adversary proceeding against the company seeking subordination of
the company's claims, return of an approximate $12 million deposit and
affirmative relief for damages which was subsequently amended to include
allegations purporting to be similar to those made in the David's litigation.
F-37
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
In August 1996, the court approved a settlement of both the debtor's
adversary proceeding against the company and the company's disputed claims in
the bankruptcy. The settlement, which is subject to approval by the creditors of
a revised plan which will encompass the settlement, provides that the company
will retain the $12 million deposit, relinquish its secured and unsecured claims
in exchange for the right to receive 10% of distributions, if any, made to the
unsecured creditors and pay the debtor $2.5 million in exchange for the
furniture, fixtures and equipment from 17 of its stores (located primarily in
Texas) and two Texas warehouses. The company agreed to lease to the reorganized
debtor the furniture, fixtures and equipment in fourteen of the stores for nine
years (or until, in each case, the expiration of the store lease) at an annual
rental of $18 thousand per store.
In October 1996, the debtor announced an agreement to sell its 16 Phoenix
stores to a local retail grocery chain for net proceeds of approximately $22
million. In January 1997, the debtor filed a joint liquidating plan which
incorporates the settlement. While there are apparent inconsistencies between
the liquidating plan and the settlement agreement, the company expects that the
economics of the settlement will remain essentially unchanged.
The company recorded charges of approximately $6.5 million in 1994, $3.5
million in 1995 and $5.8 million in 1996, and at year-end 1996 had approximately
$2.8 million of recorded net assets relating to Megafoods. If the settlement is
consummated, the company will make the $2.5 million payment as provided for in
the settlement agreement. The company remains contingently liable for stores
subleased by the company to Megafoods and for certain leasehold guarantees
extended by the company to third parties on Megafoods' behalf.
CLASS ACTION SUITS
The company and certain of its present and former officers and directors,
including the chief executive officer, have been named as defendants in nine
purported class action lawsuits filed by certain of its stockholders and one
purported class action lawsuit filed by a noteholder, alleging the company
failed to properly disclose and account for the risk associated with the David's
litigation. The plaintiffs in five of the stockholder cases also claim the
company failed to disclose that it was engaged in an allegedly "deceptive course
of business" with its customers that exposed the company to substantial
liability which would severely impair the financial condition, performance and
value of the company. The plaintiffs seek undetermined but significant damages.
Management is unable to predict the ultimate outcome or a potential range of
monetary exposure, if any, to the company from these actions. However, an
unfavorable outcome in any of them could have a material adverse effect on the
company and its financial statements.
FURR'S
Furr's Supermarkets, Inc. ("Furr's"), who purchased $546 million of products
in 1996 under a supply agreement expiring in 2001, filed a lawsuit in the
District Court of Bernalillo County, New Mexico in February 1997 naming as
defendants the company, certain company officers and an employee. Furr's claims
it has been overcharged for products under the agreement and alleges various
causes of action, among them breach of contract, misrepresentation, fraud and
violation of certain of New Mexico's trade practices statutes. Furr's seeks an
unspecified monetary award of actual, consequential, incidental and punitive
damages, treble damages, interest, attorneys' fees and court costs, and also
seeks a declaratory judgment terminating the supply agreement. Prior to filing
the lawsuit, Furr's was seeking to exercise the agreement's competitiveness
clause and was examining the company's pricing under the agreement. The
F-38
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
company believes it has substantially complied with its obligations to Furr's in
good faith. Furr's has submitted what it asserts is a qualified competitive bid;
the company is examining the submission and, as of the date of these financial
statements, had not yet reached any conclusion as to competitiveness. Management
is unable to predict the potential range of monetary exposure, if any, to the
company. However, the effect of an unfavorable outcome or the loss of the
customer's business for any reason could have a material adverse effect on the
company and its financial statements.
OTHER
The company supplies goods and services to some of its customers
(particularly to its large customers) pursuant to supply agreements containing a
"competitiveness" clause. Under this clause, the customer may submit to the
company a qualified bid from another supplier to provide a comparable range of
goods and services at prices lower than those charged by the company by more
than an agreed percentage. The company has the right to lower its prices to come
within the agreed percentage; if it chooses not to, the customer may accept the
competitor's bid. The competitiveness clause is not exercised frequently and
disputes regarding the clause must generally be submitted to binding
arbitration. Additionally, the company believes that most supply agreements
prohibit recovery of both punitive and consequential damages if any litigation
ever arises. From time to time, customers of the company may seek to renegotiate
the terms of their supply agreements, or exercise the competitiveness clause of
such agreements or otherwise alter the terms of their contractual obligations to
the company to obtain financial concessions. The company does not believe such
efforts have had a material adverse effect on its operations or financial
condition.
The company has purchased insurance to secure its obligation to indemnify
its officers and directors against certain liabilities which may result from
actions taken on behalf of the company. The company believes this insurance
covers potential exposure arising from some of the allegations made in the
David's litigation, as well as allegations made in other lawsuits. The company
is pursuing a declaratory judgment action against certain of its insurance
carriers to resolve certain coverage issues. While the company intends to
vigorously assert its rights under the policies, there can be no assurance as to
the amount of coverage which may ultimately be available.
The company's facilities are subject to various laws and regulations
regarding the discharge of materials into the environment. In conformity with
these provisions, the company has a comprehensive program for testing and
removal, replacement or repair of its underground fuel storage tanks and for
site remediation where necessary. The company has established reserves that it
believes will be sufficient to satisfy anticipated costs of all known
remediation requirements. In addition, the company is addressing several other
environmental cleanup matters involving its properties, all of which the company
believes are immaterial.
The company has been designated by the U.S. Environmental Protection Agency
("EPA") as a potentially responsible party under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") with others, with respect to
EPA-designated Superfund sites. While liability under CERCLA for remediation at
such sites is joint and several with other responsible parties, the company
believes that, to the extent it is ultimately determined to be liable for clean
up at any site, such liability will not result in a material adverse effect on
its consolidated financial position or results of operations. The company is
committed to maintaining the environment and protecting natural resources and to
achieving full compliance with all applicable laws and regulations.
F-39
<PAGE>
FLEMING COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
At year-end 1996, the company has aggregate contingent liabilities for
future minimum rental commitments made on behalf of customers with a present
value of approximately $82 million.
The company is a party to various other litigation, tax assessments and
other matters, some of which are for substantial amounts, arising in the
ordinary course of business. The ultimate effect of such actions cannot be
predicted with certainty. Although the settlement of any of these matters may
have a material adverse impact on interim or annual results of operations, the
company expects that the outcome of these matters will not result in a material
adverse effect on liquidity or consolidated financial position.
SUBSEQUENT EVENTS
The company has terminated its share rights plan to be effective on the date
the company holds its 1997 annual meeting of shareholders.
On March 21, 1997, the company agreed to pay David's $19.9 million in
complete settlement of the David's lawsuit against the company, of which
approximately $700,000 was accrued in 1996 and the remainder will be reflected
in the company's results of operations in the first quarter of 1997. The company
has also agreed to release David's and its founder from the company's recently
filed defamation suit.
F-40
<PAGE>
FLEMING COMPANIES, INC.
QUARTERLY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 FIRST SECOND THIRD FOURTH YEAR
- ------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Net sales............................................. $ 5,168,234 $ 3,742,331 $ 3,705,970 $ 3,870,204 $ 16,486,739
Costs and expenses (income):
Cost of sales....................................... 4,711,114 3,397,509 3,373,525 3,522,567 15,004,715
Selling and administrative.......................... 401,523 298,402 281,316 293,408 1,274,649
Interest expense.................................... 55,760 34,330 34,955 38,421 163,466
Interest income..................................... (15,424) (11,301) (11,610) (10,787) (49,122)
Equity investment results........................... 3,165 4,099 5,708 5,486 18,458
Litigation settlement............................... -- -- 20,000 -- 20,000
------------ ------------ ------------ ------------ -------------
Total costs and expenses.......................... 5,156,138 3,723,039 3,703,894 3,849,095 16,432,166
------------ ------------ ------------ ------------ -------------
Earnings before taxes................................. 12,096 19,292 2,076 21,109 54,573
Taxes on income....................................... 6,181 9,858 1,061 10,787 27,887
------------ ------------ ------------ ------------ -------------
Net earnings.......................................... $ 5,915 $ 9,434 $ 1,015 $ 10,322 $ 26,686
------------ ------------ ------------ ------------ -------------
Net earnings per share................................ $ .16 $ .25 $ .03 $ .27 $ .71
Dividends paid per share.............................. $ .30 $ .02 $ .02 $ .02 $ .36
Weighted average shares outstanding................... 37,739 37,788 37,788 37,794 37,774
<CAPTION>
1995 FIRST SECOND THIRD FOURTH YEAR
- ------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Net sales............................................. $ 5,458,982 $ 4,000,070 $ 3,898,361 $ 4,144,159 $ 17,501,572
Costs and expenses (income):
Cost of sales....................................... 5,020,518 3,676,391 3,599,252 3,794,878 16,091,039
Selling and administrative.......................... 364,081 264,817 258,020 302,281 1,189,199
Interest expense.................................... 56,397 40,046 38,603 40,344 175,390
Interest income..................................... (19,481) (14,393) (11,673) (12,659) (58,206)
Equity investment results........................... 6,473 3,074 6,658 11,035 27,240
Facilities consolidation............................ (8,982) -- -- -- (8,982)
------------ ------------ ------------ ------------ -------------
Total costs and expenses.......................... 5,419,006 3,969,935 3,890,860 4,135,879 17,415,680
------------ ------------ ------------ ------------ -------------
Earnings before taxes................................. 39,976 30,135 7,501 8,280 85,892
Taxes on income....................................... 20,428 15,399 3,833 4,231 43,891
------------ ------------ ------------ ------------ -------------
Net earnings.......................................... $ 19,548 $ 14,736 $ 3,668 $ 4,049 $ 42,001
------------ ------------ ------------ ------------ -------------
Net earnings per share................................ $ .52 $ .39 $ .10 $ .11 $ 1.12
Dividends paid per share.............................. $ .30 $ .30 $ .30 $ .30 $ 1.20
Weighted average shares outstanding................... 37,497 37,546 37,619 37,675 37,577
</TABLE>
The first quarter of 1996 includes a $7 million charge related to a judgment
in the David's litigation. The charge was classified as follows: $4 million as
selling and administrative expenses and $3 million as interest expense. During
the second quarter of 1996, this judgment was set aside and vacated, and the
charge was reversed. A new charge of $650,000 was recorded. The fourth quarter
of 1996 includes a $5 million impairment charge, classified as selling and
administrative expense, related to an international investment.
The first quarter of both years consists of 16 weeks; all other quarters are
12 weeks.
F-41
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL
NOR BOTH TOGETHER CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH THE PROSPECTUS RELATES OR
AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS OR THE LETTER OF TRANSMITTAL OR BOTH TOGETHER NOR
ANY EXCHANGE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREIN OR THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
--------------------------
All tendered Old Notes, executed Letters of Transmittal and other related
documents should be directed to the Exchange Agent. Questions and requests for
assistance and requests for additional copies of the Prospectus, the Letter of
Transmittal and other related documents should be addressed to the Exchange
Agent as follows:
BY REGISTERED OR CERTIFIED MAIL
Manufacturers and Traders Trust Company
P.O. Box 1377
Buffalo, New York 14240
BY HAND
Manufacturers and Traders Trust Company
50 Broadway, 7th Floor
New York, New York 10004
Attention: Corporate Trust Services
BY OVERNIGHT COURIER
Manufacturers and Traders Trust Company
One M&T Plaza, 7th Floor
Buffalo, New York 14203
Attention: Russell T. Whitley
BY FACSIMILE
Manufacturers and Traders Trust Company
(716) 842-4474
Confirm by Telephone: (716) 842-5602
(Originals of all documents submitted by facsimile should be sent promptly by
hand, overnight delivery, or registered or certified mail.)
$250,000,000
10 1/2% SERIES B SENIOR SUBORDINATED
NOTES DUE 2004
AND
$250,000,000
10 5/8% SERIES B SENIOR SUBORDINATED
NOTES DUE 2007
FLEMING COMPANIES, INC.
---------------------
PROSPECTUS
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information.......................... 4
Incorporation of Certain Documents by
Reference.................................... 4
Prospectus Summary............................. 5
Risk Factors................................... 16
The Exchange Offer............................. 21
Capitalization................................. 29
Selected Financial Information................. 30
Management's Discussion and Analysis........... 32
Business....................................... 47
Management..................................... 66
Description of Other Indebtedness.............. 68
Description of Notes........................... 72
Plan of Distribution........................... 107
Legal Matters.................................. 108
Experts........................................ 108
Index to Financial Statements.................. F-1
</TABLE>
--------------------------
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Oklahoma General Corporation Act under which the Company
is incorporated, the Company's Certificate of Incorporation provides for
indemnification of each of the Company's officers and directors against (a)
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with any
action, suit or proceeding brought by reason of his being or having been a
director, officer, employee or agent of the Company, or of any other
corporation, partnership, joint venture, or other enterprise at the request of
the Company, other than an action by or in the right of the Company, provided
that he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interest of the Company, and with respect to any
criminal action, he had no reasonable cause to believe that his conduct was
unlawful and (b) expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of any action or
suit by or in the right of the Company brought by reason of his being or having
been a director, officer, employee or agent of the Company, or any other
corporation, partnership, joint venture, or other enterprise at the request of
the Company, provided that he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the Company, except
that no indemnification shall be made in respect of any claim, issue or matter
as to which he shall have been adjudged liable to the Company, unless and only
to the extent that the court in which such action was decided has determined
that the person is fairly and reasonably entitled to indemnity for such expenses
which the court deems proper. The Company's bylaws provide for similar
indemnification. These provisions may be sufficiently broad to indemnify such
persons for liabilities arising under the Securities Act of 1933, as amended.
The Company also provides liability insurance for each of its directors and
executive officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER OR INCORPORATION BY
NUMBER REFERENCE TO
- ----------- ---------------------------------------
<C> <S> <C>
4.10 Indenture, dated as of December 1, 1989, between Fleming Exhibit 4 to Registration Statement No.
Companies, Inc. and First Trust of New York National 33-29633
Association (successor to Morgan Guaranty Trust
Company), as Trustee, regarding Medium Term Notes
4.11 Indenture, dated as of December 15, 1994, among Fleming Exhibit 4.9 to Form 10-K for year ended
Companies, Inc., the Subsidiary Guarantors named therein December 31, 1994
and Texas Commerce Bank National Association, as
Trustee, regarding 10 5/8% Senior Notes
4.12 Indenture, dated as of December 15, 1994, among Fleming Exhibit 4.10 to Form 10-K for year
Companies, Inc., the Subsidiary Guarantors named therein ended December 31, 1994
and Texas Commerce Bank National Association, as
Trustee, regarding Floating Rate Senior Notes
4.15 Agreement to furnish copies of other long-term debt Exhibit 4.15 to Form 10-K for year
instruments ended December 28, 1996
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER OR INCORPORATION BY
NUMBER REFERENCE TO
- ----------- ---------------------------------------
<C> <S> <C>
4.16 Credit Agreement, dated as of July 25, 1997, among Fleming Exhibit 4.16 to Form 10-Q for quarter
Companies, Inc., the Lenders party thereto, BancAmerica ended July 12, 1997
Securities, Inc., as syndication agent, Societe
Generale, as documentation agent and The Chase Manhattan
Bank, as administrative agent
4.17 Security Agreement dated as of July 25, 1997, between Exhibit 4.17 to Form 10-Q for quarter
Fleming Companies, Inc., the company subsidiaries party ended July 12, 1997
thereto and The Chase Manhattan Bank, as collateral
agent
4.18 Pledge Agreement, dated as of July 25, 1997, among Fleming Exhibit 4.18 to Form 10-Q for quarter
Companies, Inc., the company subsidiaries party thereto ended July 12, 1997
and The Chase Manhattan Bank, as collateral agent
4.19 Guarantee Agreement among the company subsidiaries party Exhibit 4.19 to Form 10-Q for quarter
thereto and The Chase Manhattan Bank, as collateral ended July 12, 1997
agent
4.20 Indenture, dated as of July 25, 1997, among Fleming Exhibit 4.20 to Form 10-Q for quarter
Companies, Inc., the Subsidiary Guarantors named therein ended July 12, 1997
and Manufacturers and Traders Trust Company, as Trustee,
regarding 10 5/8% Senior Subordinated Notes due 2007
4.21 Indenture, dated as of July 25, 1997, among Fleming Exhibit 4.21 to Form 10-Q for quarter
Companies, Inc., the Subsidiary Guarantors named therein ended July 12, 1997
and Manufacturers and Traders Trust Company regarding
10 1/2% Senior Subordinated Notes due 2004
4.22 Registration Rights Agreement, dated as of July 25, 1997, Exhibit 4.22 to Form 10-Q for quarter
among Fleming Companies, Inc., the Subsidiary Guarantors ended July 12, 1997
named therein and Bear, Stearns & Co. Inc. and the other
Initial Purchasers named therein
5 Opinion of McAfee & Taft A Professional Corporation
12 Computation of Ratio of Earnings to Fixed Charges Exhibit 12 to Form 10-K for year ended
December 28, 1996 and to Form 10-Q for
quarter ended July 12, 1997.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of McAfee & Taft A Professional Corporation
(included as part of its opinion filed as Exhibit 5)
24 Powers of Attorney
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER OR INCORPORATION BY
NUMBER REFERENCE TO
- ----------- ---------------------------------------
<C> <S> <C>
25 Statement of Eligibility of Trustee on Form T-1 with
respect to 10 1/2% Senior Subordinated Notes due 2004
and 10 5/8% Senior Subordinated Notes due 2007
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to brokers, etc. from Fleming Companies,
Inc.
99.4 Form of Letter of registered holder to beneficial owner
and instruction of beneficial owner
99.5 Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9
</TABLE>
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) above do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is
II-3
<PAGE>
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oklahoma City, State of
Oklahoma, on the 16th day of September, 1997.
FLEMING COMPANIES, INC.
By /s/ JOHN M. THOMPSON
------------------------------------
John M. Thompson,
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on September 16, 1997.
/s/ ROBERT E. STAUTH* /s/ CAROL B. HALLETT*
- ----------------------------------- -------------------------
Robert E. Stauth, Chairman and Carol B. Hallett,
Chief Executive Officer (principal Director
executive officer)
/s/ HARRY L. WINN, JR.* /s/ EDWARD C. JOULLIAN
- ----------------------------------- III*
Harry L. Winn, Jr., Executive Vice -------------------------
President and Chief Financial Edward C. Joullian III,
Officer (principal financial Director
officer)
/s/ KEVIN J. TWOMEY* /s/ HOWARD H. LEACH*
- ----------------------------------- -------------------------
Kevin J. Twomey, Vice Howard H. Leach, Director
President--Controller (principal
accounting officer)
/s/ JACK W. BAKER* /s/ JOHN A. MCMILLAN*
- ----------------------------------- -------------------------
Jack W. Baker, Director John A. McMillan,
Director
/s/ ARCHIE R. DYKES* /s/ GUY A. OSBORN*
- ----------------------------------- -------------------------
Archie R. Dykes, Director Guy A. Osborn, Director
*By /s/ DAVID R. ALMOND
- -----------------------------------
David R. Almond
ATTORNEY-IN-FACT
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrants have duly caused this registration statement to be signed on their
behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma
City, State of Oklahoma, on the 16th day of September, 1997.
ABCO REALTY CORP.
FLEMING WHOLESALE, INC.
GATEWAY INSURANCE AGENCY, INC.
PROGRESSIVE REALTY, INC.
RFS MARKETING SERVICES, INC.
SCRIVNER TRANSPORTATION, INC.
SMARTRANS, INC.
UNIVERSITY FOODS, INC.
By /s/ JOHN M. THOMPSON
------------------------------------
John M. Thompson,
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on September 16, 1997.
/s/ HARRY L. WINN, JR.* /s/ DAVID R. ALMOND
- ----------------------------------- -------------------------
Harry L. Winn, Jr., Director and David R. Almond, Director
President and Vice
(principal executive and financial President--Secretary
officer)
/s/ KEVIN J. TWOMEY*
- -----------------------------------
Kevin J. Twomey, Director and Vice
President (principal accounting
officer)
*By /s/ DAVID R. ALMOND
- -----------------------------------
David R. Almond
ATTORNEY-IN-FACT
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma
City, State of Oklahoma, on the 16th day of September, 1997.
ABCO MARKETS, INC.
By /s/ JOHN M. THOMPSON
------------------------------------
John M. Thompson,
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on September 16, 1997.
/s/ THOMAS W. FIELD, JR.* /s/ HARRY L. WINN*
- ----------------------------------- -------------------------
Thomas W. Field, Jr., Chairman Harry L. Winn, Jr., Vice
(principal executive officer) President
(principal financial
officer)
/s/ EDWARD A. GAST*
- ----------------------------------- -------------------------
Edward G. Hill, Jr., Director and Edward A. Gast, Senior
President Vice President,
Secretary and Treasurer
(principal accounting
officer)
*By /s/ DAVID R. ALMOND
- -----------------------------------
David R. Almond
ATTORNEY-IN-FACT
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma
City, State of Oklahoma, on the 16th day of September, 1997.
FLEMING FOREIGN SALES CORPORATION
By /s/ JOHN M. THOMPSON
------------------------------------
John M. Thompson,
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on September 16, 1997.
/s/ MARK O. NEUMEISTER* /s/ JOHN M. THOMPSON
- ----------------------------------- -------------------------
Mark O. Neumeister, Director and John M. Thompson, Vice
President President--Treasurer
(principal executive officer) (principal financial
officer)
/s/ KEVIN J. TWOMEY* /s/ DAVID R. ALMOND
- ----------------------------------- -------------------------
Kevin J. Twomey, Director and Vice David R. Almond, Director
President and Vice
(principal accounting officer) President--Secretary
*By /s/ DAVID R. ALMOND
- -----------------------------------
David R. Almond
ATTORNEY-IN-FACT
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma
City, State of Oklahoma, on the 16th day of September, 1997.
FLEMING INTERNATIONAL, INC.
By /s/ JOHN M. THOMPSON
------------------------------------
John M. Thompson,
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on September 16, 1997.
/s/ WAYNE EPPERSON* /s/ JOHN M. THOMPSON
- ----------------------------------- -------------------------
Wayne Epperson, President John M. Thompson, Vice
(principal executive officer) President--Treasurer
(principal financial
officer)
/s/ HARRY L. WINN, JR.* /s/ DAVID R. ALMOND
- ----------------------------------- -------------------------
Harry L. Winn, Jr., Director David R. Almond, Director
and Vice
President--Secretary
/s/ KEVIN J. TWOMEY*
- -----------------------------------
Kevin J. Twomey, Vice President
(principal accounting officer)
*By /s/ DAVID R. ALMOND
- -----------------------------------
David R. Almond
ATTORNEY-IN-FACT
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma
City, State of Oklahoma, on the 16th day of September, 1997.
FLEMING SUPERMARKETS
OF FLORIDA, INC.
By /s/ JOHN M. THOMPSON
------------------------------------
John M. Thompson,
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on September 16, 1997.
/s/ DAVID R. ALMOND
- ----------------------------------- -------------------------
David R. Almond, Director and Vice Steven A. Lehto,
President--Secretary President
(principal executive
officer)
/s/ HARRY L. WINN, JR.* /s/ LOUIS F. MOORE, JR.*
- ----------------------------------- -------------------------
Harry L. Winn, Jr., Director Louis F. Moore, Jr., Vice
(principal financial officer) President--Controller
(principal accounting
officer)
*By /s/ DAVID R. ALMOND
- -----------------------------------
David R. Almond
ATTORNEY-IN-FACT
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma
City, State of Oklahoma, on the 16th day of September, 1997.
FLEMING TRANSPORTATION SERVICE, INC.
By /s/ JOHN M. THOMPSON
------------------------------------
John M. Thompson,
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on September 16, 1997.
/s/ E. STEPHEN DAVIS* /s/ JOHN M. THOMPSON
- ----------------------------------- -------------------------
E. Stephen Davis, Director and John M. Thompson, Vice
President President--Treasurer
(principal executive officer) (principal financial
officer)
/s/ KEVIN J. TWOMEY* /s/ DAVID R. ALMOND
- ----------------------------------- -------------------------
Kevin J. Twomey, Director and Vice David R. Almond, Director
President and Vice
(principal accounting officer) President--Secretary
*By /s/ DAVID R. ALMOND
- -----------------------------------
David R. Almond
ATTORNEY-IN-FACT
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma
City, State of Oklahoma, on the 16th day of September, 1997.
LAS, INC.
By /s/ JOHN M. THOMPSON
------------------------------------
John M. Thompson,
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on September 16, 1997.
/s/ JOHN S. RUNYAN* /s/ JOHN M. THOMPSON
- ----------------------------------- -------------------------
John S. Runyan, Director and John M. Thompson, Vice
President President--Treasurer
(principal executive officer) (principal financial
officer)
/s/ KEVIN J. TWOMEY* /s/ DAVID R. ALMOND
- ----------------------------------- -------------------------
Kevin J. Twomey, Director and Vice David R. Almond, Director
President and Vice
(principal accounting officer) President--Secretary
*By /s/ DAVID R. ALMOND
- -----------------------------------
David R. Almond
ATTORNEY-IN-FACT
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma
City, State of Oklahoma, on the 16th day of September, 1997.
PIGGLY WIGGLY COMPANY
By /s/ JOHN M. THOMPSON
------------------------------------
John M. Thompson,
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on September 16, 1997.
/s/ LARRY G. WRIGHT* /s/ JOHN M. THOMPSON
- ----------------------------------- -------------------------
Larry G. Wright, Director and John M. Thompson, Vice
President President--Treasurer
(principal executive officer) (principal financial
officer)
/s/ HARRY L. WINN, JR.* /s/ KEVIN J. TWOMEY*
- ----------------------------------- -------------------------
Harry L. Winn, Jr., Director Kevin J. Twomey, Vice
President
(principal accounting
officer)
/s/ DAVID R. ALMOND
- -----------------------------------
David R. Almond, Director
*By /s/ DAVID R. ALMOND
- -----------------------------------
David R. Almond
ATTORNEY-IN-FACT
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma
City, State of Oklahoma, on the 16th day of September, 1997.
RETAIL SUPERMARKETS, INC.
By /s/ CARROLL L. MCLARTY*
------------------------------------
Carroll L. McLarty,
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on September 16, 1997.
/s/ CARROLL L. MCLARTY* /s/ JAMES S. GRIFFIN*
- ----------------------------------- -------------------------
Carroll L. McLarty, Director and James S. Griffin,
President Director and
(principal executive officer) Vice President--Treasurer
(principal financial and
accounting officer)
*By /s/ DAVID R. ALMOND
- -----------------------------------
David R. Almond
ATTORNEY-IN-FACT
II-14
<PAGE>
LAW OFFICES
MCAFEE & TAFT
A PROFESSIONAL CORPORATION
TENTH FLOOR, TWO LEADERSHIP SQUARE
211 NORTH ROBINSON
OKLAHOMA CITY, OKLAHOMA 73102-7101
(405) 235-9621
FAX (405) 235-0439
September 16, 1997
Fleming Companies, Inc.
6301 Waterford Boulevard
Post Office Box 26647
Oklahoma City, Oklahoma 73126
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
Reference is made to the above-captioned registration statement (the
"Registration Statement") which is being filed concurrently with the Securities
and Exchange Commission by Fleming Companies, Inc. (the "Company") and certain
of its subsidiaries (the "Subsidiary Guarantors") with respect to (a) $250
million principal amount of 10 1/2% Series B Senior Subordinated Notes due 2004
("New Notes due 2004") of the Company to be offered in exchange for $250 million
principal amount of its outstanding 10 1/2% Senior Subordinated Notes due 2004
("Old Notes due 2004") and (b) $250 million principal amount of 10 5/8% Series B
Senior Subordinated Notes due 2007 ("New Notes due 2007") of the Company to be
offered in exchange for $250 million principal amount of its outstanding 10 5/8%
Senior Subordinated Notes due 2007 ("Old Notes due 2007"). The Old Notes due
2004 were, and the New Notes due 2004 will be, issued pursuant to the Indenture
dated as of July 25, 1997 among the Company, as issuer, the Subsidiary
Guarantors, as guarantors, and Manufacturers and Traders Trust Company
("M&T"), as trustee (the "Notes due 2004 Indenture"), which will be filed as
Exhibit 4.21 to the Registration Statement. The Old Notes due 2007 were, and
the New Notes due 2007 will be, issued pursuant to the Indenture dated as of
July 25, 1997 among the Company, as issuer, the Subsidiary Guarantors, as
guarantors, and M&T, as trustee (the "Notes due 2007 Indenture"), which will
be filed as Exhibit 4.20 to the Registration Statement. The New Notes due
2004 and the New Notes due 2007 are referred to, collectively, as the "New
Notes," and the Notes due 2004 Indenture and the Notes due 2007 Indenture are
referred to, together, as the "Indentures."
We have examined the Indentures, the forms of certificate which will
evidence the New Notes (the "Certificates"), and certain corporate records of
the Company and the Subsidiary Guarantors, and
<PAGE>
we have made such other investigations as we have deemed appropriate in order
to express the opinion set forth herein.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing under
the laws of the State of Oklahoma; and
2. The Indentures, the New Notes, and the guarantees of the New Notes by
the Subsidiary Guarantors (the "Guarantees") have been duly and validly
authorized, and the New Notes and Guarantees, when issued in accordance with
the terms of the respective Indentures, will constitute binding obligations
of the Company and the Subsidiary Guarantors, enforceable against the Company
and the Subsidiary Guarantors in accordance with the terms of the Indentures
and the Certificates, except as enforcement thereof may be limited by
bankruptcy, insolvency (including without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or similar laws affecting
enforcement of creditors' rights generally and except as rights of
acceleration, if applicable, and the availability of equitable remedies may
be limited by equitable principles of general applicability (regardless of
whether enforcement is considered in a proceeding in equity or at law).
While each of the Indentures provides that it will be governed by the
substantive laws of the State of New York, we have assumed, for purposes of our
opinion, that the Indentures will be governed by the laws of the State of
Oklahoma.
We hereby consent to the inclusion of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus which is a part of the Registration Statement.
Very truly yours,
McAFEE & TAFT A PROFESSIONAL CORPORATION
McAfee & Taft A Professional Corporation
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Fleming Companies,
Inc. and subsidiaries on Form S-4 of our report on the consolidated financial
statements of Fleming Companies, Inc. and subsidiaries dated March 4, 1997
(March 26, 1997 as to the second paragraph of the Subsequent Events note)
appearing in this Prospectus, which is a part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
September 15, 1997
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
(Senior Subordinated Notes)
We, the undersigned officers and directors of Fleming Companies, Inc.
(hereinafter, the "Company"), hereby severally constitute Robert E. Stauth,
William J. Dowd, Harry L. Winn, Jr., David R. Almond and John M. Thompson and
each of them, severally, our true and lawful attorneys-in-fact with full power
to them and each of them to sign for us, and in our names as officers or
directors, or both, of the Company, one or more Registration Statements on Form
S-4, and any amendments thereto (including post-effective amendments), for the
purpose of registering under the Securities Act of 1933 senior subordinated debt
securities of the Company and guarantees thereof by subsidiaries of the Company,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and to perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, may lawfully do or cause
to be done by virtue hereof.
DATED this 16th day of September, 1997.
<TABLE>
<S> <C>
/s/ ROBERT E. STAUTH /s/ CAROL B. HALLETT
- -------------------------------------------- --------------------------------------------
Robert E. Stauth, Chairman and Chief Carol B. Hallett, Director
Executive Officer (principal executive
officer)
/s/ HARRY L. WINN, JR. /s/ EDWARD C. JOULLIAN III
- -------------------------------------------- --------------------------------------------
Harry L. Winn, Jr., Executive Vice President Edward C. Joullian III, Director
and Chief Financial Officer
(principal financial officer)
/s/ KEVIN J. TWOMEY /s/ HOWARD H. LEACH
- -------------------------------------------- --------------------------------------------
Kevin J. Twomey, Vice President--Controller Howard H. Leach, Director
(principal accounting officer)
/s/ JACK W. BAKER /s/ JOHN A. MCMILLAN
- -------------------------------------------- --------------------------------------------
Jack W. Baker, Director John A. McMillan, Director
/s/ ARCHIE R. DYKES /s/ GUY A. OSBORN
- -------------------------------------------- --------------------------------------------
Archie R. Dykes, Director Guy A. Osborn, Director
</TABLE>
1
<PAGE>
POWER OF ATTORNEY
(Senior Subordinated Notes)
ABCO REALTY CORP.
FLEMING WHOLESALE, INC.
GATEWAY INSURANCE AGENCY, INC.
PROGRESSIVE REALTY, INC.
RFS MARKETING SERVICES, INC.
SCRIVNER TRANSPORTATION, INC.
SMARTRANS, INC.
UNIVERSITY FOODS, INC.
We, the undersigned officers and directors of the above listed subsidiaries
of Fleming Companies, Inc. (hereinafter, the "Subsidiaries"), hereby severally
constitute Robert E. Stauth, William J. Dowd, Harry L. Winn, Jr., David R.
Almond and John M. Thompson and each of them, severally, our true and lawful
attorneys-in-fact with full power to them and each of them to sign for us, and
in our names as officers or directors, or both, of the Subsidiaries, one or more
Registration Statements on Form S-4, and any amendments thereto (including
post-effective amendments), for the purpose of registering under the Securities
Act of 1933 senior subordinated debt securities of Fleming Companies, Inc. and
guarantees thereof by the Subsidiaries, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and to perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
DATED this 16th day of September, 1997.
<TABLE>
<S> <C>
/s/ HARRY L. WINN, JR. /s/ DAVID R. ALMOND
- -------------------------------------------- --------------------------------------------
Harry L. Winn, Jr., Director and President David R. Almond, Director, Vice
(principal executive and financial officer) President and Secretary
/s/ KEVIN J. TWOMEY
- --------------------------------------------
Kevin J. Twomey, Director and Vice President
(principal accounting officer)
</TABLE>
2
<PAGE>
POWER OF ATTORNEY
(Senior Subordinated Notes)
ABCO MARKETS INC.
We, the undersigned officers and directors of the above listed subsidiary of
Fleming Companies, Inc. (hereinafter, the "Subsidiary"), hereby severally
constitute Robert E. Stauth, William J. Dowd, Harry L. Winn, Jr., David R.
Almond and John M. Thompson and each of them, severally, our true and lawful
attorneys-in-fact with full power to them and each of them to sign for us, and
in our names as officers or directors, or both, of the Subsidiary, one or more
Registration Statements on Form S-4, and any amendments thereto (including
post-effective amendments), for the purpose of registering under the Securities
Act of 1933 senior subordinated debt securities of Fleming Companies, Inc. and
guarantees thereof by the Subsidiary, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and to perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
DATED this 16th day of September, 1997.
<TABLE>
<S> <C>
/s/ THOMAS W. FIELD, JR. /s/ HARRY L. WINN, JR., VICE PRESIDENT
- -------------------------------------------- --------------------------------------------
Thomas W. Field, Jr., Chairman (principal financial officer)
(principal executive officer)
/s/ EDWARD A. GAST
- -------------------------------------------- --------------------------------------------
Edward G. Hill, Jr., Director and President Edward A. Gast, Senior Vice President,
Secretary and Treasurer (principal accounting
officer)
</TABLE>
3
<PAGE>
POWER OF ATTORNEY
(Senior Subordinated Notes)
FLEMING FOREIGN SALES CORPORATION
We, the undersigned officers and directors of the above listed subsidiary of
Fleming Companies, Inc. (hereinafter, the "Subsidiary"), hereby severally
constitute Robert E. Stauth, William J. Dowd, Harry L. Winn, Jr., David R.
Almond and John M. Thompson and each of them, severally, our true and lawful
attorneys-in-fact with full power to them and each of them to sign for us, and
in our names as officers or directors, or both, of the Subsidiary, one or more
Registration Statements on Form S-4, and any amendments thereto (including
post-effective amendments), for the purpose of registering under the Securities
Act of 1933 senior subordinated debt securities of Fleming Companies, Inc. and
guarantees thereof by the Subsidiary, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and to perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
DATED this 16th day of September, 1997.
<TABLE>
<S> <C>
/s/ MARK O. NEUMEISTER /s/ JOHN M. THOMPSON
- -------------------------------------------- --------------------------------------------
Mark O. Neumeister, Director and President John M. Thompson, Vice President--Treasurer
(principal executive officer) (principal financial officer)
/s/ KEVIN J. TWOMEY /s/ DAVID R. ALMOND
- -------------------------------------------- --------------------------------------------
Kevin J. Twomey, Director and Vice President David R. Almond, Director and
(principal accounting officer) Vice President and Secretary
</TABLE>
4
<PAGE>
POWER OF ATTORNEY
(Senior Subordinated Notes)
FLEMING INTERNATIONAL LTD.
We, the undersigned officers and directors of the above listed subsidiary of
Fleming Companies, Inc. (hereinafter, the "Subsidiary"), hereby severally
constitute Robert E. Stauth, William J. Dowd, Harry L. Winn, Jr., David R.
Almond and John M. Thompson and each of them, severally, our true and lawful
attorneys-in-fact with full power to them and each of them to sign for us, and
in our names as officers or directors, or both, of the Subsidiary, one or more
Registration Statements on Form S-4, and any amendments thereto (including
post-effective amendments), for the purpose of registering under the Securities
Act of 1933 senior subordinated debt securities of Fleming Companies, Inc. and
guarantees thereof by the Subsidiary, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and to perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
DATED this 16th day of September, 1997.
<TABLE>
<S> <C>
/s/ WAYNE EPPERSON /s/ JOHN M. THOMPSON
- -------------------------------------------- --------------------------------------------
Wayne Epperson, President John M. Thompson, Vice President--Treasurer
(principal executive officer) (principal financial officer)
/s/ HARRY L. WINN, JR. /s/ DAVID R. ALMOND
- -------------------------------------------- --------------------------------------------
Harry L. Winn, Jr., Director David R. Almond, Director and
Vice President--Secretary
/s/ KEVIN J. TWOMEY
- --------------------------------------------
Kevin J. Twomey, Vice President
(principal accounting officer)
</TABLE>
5
<PAGE>
POWER OF ATTORNEY
(Senior Subordinated Notes)
FLEMING SUPERMARKETS OF FLORIDA, INC.
We, the undersigned officers and directors of the above listed subsidiary of
Fleming Companies, Inc. (hereinafter, the "Subsidiary"), hereby severally
constitute Robert E. Stauth, William J. Dowd, Harry L. Winn, Jr., David R.
Almond and John M. Thompson and each of them, severally, our true and lawful
attorneys-in-fact with full power to them and each of them to sign for us, and
in our names as officers or directors, or both, of the Subsidiary, one or more
Registration Statements on Form S-4, and any amendments thereto (including
post-effective amendments), for the purpose of registering under the Securities
Act of 1933 senior subordinated debt securities of Fleming Companies, Inc. and
guarantees thereof by the Subsidiary, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and to perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
DATED this 16th day of September, 1997.
<TABLE>
<S> <C>
/s/ DAVID R. ALMOND
- -------------------------------------------- --------------------------------------------
David R. Almond, Director and Steven A. Lehto, President
Vice President--Secretary (principal executive officer)
/s/ HARRY L. WINN, JR. /s/ LOUIS F. MOORE, JR.
- -------------------------------------------- --------------------------------------------
Harry L. Winn, Jr., Director Louis F. Moore, Jr., Vice
(principal financial officer) President--Controller
(principal accounting officer)
</TABLE>
6
<PAGE>
POWER OF ATTORNEY
(Senior Subordinated Notes)
FLEMING TRANSPORTATION SERVICE, INC.
We, the undersigned officers and directors of the above listed subsidiary of
Fleming Companies, Inc. (hereinafter, the "Subsidiary"), hereby severally
constitute Robert E. Stauth, William J. Dowd, Harry L. Winn, Jr., David R.
Almond and John M. Thompson and each of them, severally, our true and lawful
attorneys-in-fact with full power to them and each of them to sign for us, and
in our names as officers or directors, or both, of the Subsidiary, one or more
Registration Statements on Form S-4, and any amendments thereto (including
post-effective amendments), for the purpose of registering under the Securities
Act of 1933 senior subordinated debt securities of Fleming Companies, Inc. and
guarantees thereof by the Subsidiary, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and to perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
DATED this 16th day of September, 1997.
<TABLE>
<S> <C>
/s/ E. STEPHEN DAVIS /s/ JOHN M. THOMPSON
- -------------------------------------------- --------------------------------------------
E. Stephen Davis, Director and President John M. Thompson, Vice President--Treasurer
(principal executive officer) (principal financial officer)
/s/ KEVIN J. TWOMEY
- --------------------------------------------
Kevin J. Twomey, Director and Vice President
(principal accounting officer)
</TABLE>
7
<PAGE>
POWER OF ATTORNEY
(Senior Subordinated Notes)
LAS, INC.
We, the undersigned officers and directors of the above listed subsidiary of
Fleming Companies, Inc. (hereinafter, the "Subsidiary"), hereby severally
constitute Robert E. Stauth, William J. Dowd, Harry L. Winn, Jr., David R.
Almond and John M. Thompson and each of them, severally, our true and lawful
attorneys-in-fact with full power to them and each of them to sign for us, and
in our names as officers or directors, or both, of the Subsidiary, one or more
Registration Statements on Form S-4, and any amendments thereto (including
post-effective amendments), for the purpose of registering under the Securities
Act of 1933 senior subordinated debt securities of Fleming Companies, Inc. and
guarantees thereof by the Subsidiary, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and to perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
DATED this 16th day of September, 1997.
<TABLE>
<S> <C>
/s/ JOHN S. RUNYAN /s/ JOHN M. THOMPSON
- -------------------------------------------- --------------------------------------------
John S. Runyan, Director and President John M. Thompson, Vice President--Treasurer
(principal executive officer) (principal financial officer)
/s/ KEVIN J. TWOMEY /s/ DAVID R. ALMOND
- -------------------------------------------- --------------------------------------------
Kevin J. Twomey, Director and Vice President David R. Almond, Director and Vice
(principal accounting officer) President-- Secretary
</TABLE>
8
<PAGE>
POWER OF ATTORNEY
(Senior Subordinated Notes)
PIGGLY WIGGLY COMPANY
We, the undersigned officers and directors of the above listed subsidiary of
Fleming Companies, Inc. (hereinafter, the "Subsidiary"), hereby severally
constitute Robert E. Stauth, William J. Dowd, Harry L. Winn, Jr., David R.
Almond and John M. Thompson and each of them, severally, our true and lawful
attorneys-in-fact with full power to them and each of them to sign for us, and
in our names as officers or directors, or both, of the Subsidiary, one or more
Registration Statements on Form S-4, and any amendments thereto (including
post-effective amendments), for the purpose of registering under the Securities
Act of 1933 senior subordinated debt securities of Fleming Companies, Inc. and
guarantees thereof by the Subsidiary, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and to perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
DATED this 16th day of September, 1997.
<TABLE>
<S> <C>
/s/ LARRY G. WRIGHT /s/ JOHN M. THOMPSON
- -------------------------------------------- --------------------------------------------
Larry G. Wright, Director and President John M. Thompson, Vice President--Treasurer
(principal executive officer) (principal financial officer)
/s/ HARRY L. WINN, JR. /s/ KEVIN J. TWOMEY
- -------------------------------------------- --------------------------------------------
Harry L. Winn, Jr., Director Kevin J. Twomey, Vice President
(principal accounting officer)
</TABLE>
9
<PAGE>
POWER OF ATTORNEY
(Senior Subordinated Notes)
RETAIL SUPERMARKETS, INC.
We, the undersigned officers and directors of the above listed subsidiary of
Fleming Companies, Inc. (hereinafter, the "Subsidiary"), hereby severally
constitute Robert E. Stauth, William J. Dowd, Harry L. Winn, Jr., David R.
Almond and John M. Thompson and each of them, severally, our true and lawful
attorneys-in-fact with full power to them and each of them to sign for us, and
in our names as officers or directors, or both, of the Subsidiary, one or more
Registration Statements on Form S-4, and any amendments thereto (including
post-effective amendments), for the purpose of registering under the Securities
Act of 1933 senior subordinated debt securities of Fleming Companies, Inc. and
guarantees thereof by the Subsidiary, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and to perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
DATED this 16th day of September, 1997.
<TABLE>
<S> <C>
/s/ CARROLL L. MCLARTY /s/ JAMES S. GRIFFIN
- -------------------------------------------- --------------------------------------------
Carroll L. McLarty, Director and President James S. Griffin, Director and Vice
(principal executive officer) President-- Treasurer (principal financial
and accounting officer)
</TABLE>
10
<PAGE>
Registration No.
-----------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM T-1
Statement of Eligibility under the Trust Indenture Act
of 1939 of a Corporation Designated to act as Trustee
Check if an application to determine eligibility of a Trustee
pursuant to Section 305(b)(2)
------
---------------------
Manufacturers and Traders Trust Company
(Exact name of trustee as specified in its charter)
NEW YORK 16-0538020
(Jurisdiction of incorporation (I.R.S. employer
or organization if not a national bank) identification No.)
One M&T Plaza
Buffalo, New York 14240-2399
(Address of principal executive offices) (Zip Code)
---------------------
FLEMING COMPANIES, INC.
(Exact name of obligor as specified in its charter)
OKLAHOMA 73-1395733
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
6301 Waterford Boulevard Box 26647 73126
Oklahoma City, Oklahoma (Zip Code)
(Address of principal executive offices)
---------------------
---------------------
10 1/2% SENIOR SUBORDINATED NOTES DUE 2004
10 5/8% SENIOR SUBORDINATED NOTES DUE 2007
(Title of indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Item 1. General Information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Superintendent of Banks of the State of New York, 2 World Trade
Center, New York, NY 10047 and Albany, NY 12203
<PAGE>
Federal Reserve Bank of New York, 33 Liberty Street, New York, NY
10045
Federal Deposit Insurance Corporation, Washington, D.C. 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
[Items 3 through 15 omitted pursuant to General Instruction B to Form T-1]
Item 16. List of Exhibits
Exhibit A. Organization Certificate of the Trustee as now in
effect (incorporated herein by reference to Exhibit 1,
Form T-1, Registration Statement No. 33-7309).
Exhibit B. Certificate of Authority of the Trustee to commence
business (incorporated herein by reference to Exhibit
2, Form T-1, Registration Statement No. 33-7309).
Exhibit C. Authorization of the Trustee to exercise corporate
trust powers (incorporated herein by reference to
Exhibit 3, Form T-1, Registration Statement No.
33-7309).
Exhibit D. Existing By-Laws of the Trustee (incorporated herein by
reference to Exhibit 4, Form T-1, Registration
Statement No. 33-7309).
Exhibit E. Not Applicable.
Exhibit F. Consent of the Trustee (incorporated herein by
reference to Exhibit 6, Form T-1, Registration
Statement No. 33-7309).
Exhibit G. Report of Condition of the Trustee.*
Exhibit H. Not Applicable
Exhibit I. Not Applicable
- --------------------------------------
*Filed Herewith
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, Manufacturers and Traders Trust Company, a banking corporation
organized and existing under the laws of the State of New York, has duly
caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Buffalo, and State of New York, on the ____ day of September, 1997.
MANUFACTURERS AND TRADERS TRUST COMPANY
By: /s/ RUSSELL T. WHITLEY
Russell T. Whitley
Assistant Vice President
<PAGE>
EXHIBIT G
Manufacturers and Traders Trust Company
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
June 30
Dollars in Thousands 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Assets Cash and due from banks $ 399,075
Money-market assets 214,889
Investment securities
Available for sale (cost:$1,453,571 on 1,446,481
June 30, 1997)
Held to maturity (market value: $89,502 on 89,010
June 30, 1997
Other (market value $56,965 on June 30, 1997) 56,965
---------------------------------------------------------------------
Total investment securities 1,592,456
---------------------------------------------------------------------
Loans and leases, net of unearned discount 10,504,602
Allowance for possible credit losses (267,340)
---------------------------------------------------------------------
Loans and leases, net 10,237,262
Other assets 426,345
---------------------------------------------------------------------
Total assets 12,870,027
- ---------------------------------------------------------------------------------------------
Liabilities Deposits
Noninterest-bearing 1,455,790
Interest bearing 9,374,417
---------------------------------------------------------------------
Total Deposits 10,830,207
Short-term borrowings 727,946
Accrued interest and other liabilities 212,018
Long-term borrowings 177,919
---------------------------------------------------------------------
Total liabilities 11,948,090
- ---------------------------------------------------------------------------------------------
Stockholder's equity 921,937
---------------------------------------------------------------------
Total liabilities and stockholder's equity $12,870,027
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LETTER OF TRANSMITTAL
FOR
TENDER OF ALL OUTSTANDING
[10 1/2% SENIOR SUBORDINATED NOTES DUE 2004]
[10 5/8% SENIOR SUBORDINATED NOTES DUE 2007]
IN EXCHANGE FOR
[10 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2004]
[10 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007]
OF
FLEMING COMPANIES, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997 (THE "EXPIRATION DATE"),
UNLESS EXTENDED BY FLEMING COMPANIES, INC.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
MANUFACTURERS AND TRADERS TRUST COMPANY
<TABLE>
<CAPTION>
BY MAIL: BY OVERNIGHT COURIER: BY HAND: BY FACSIMILE:
<S> <C> <C> <C>
Manufacturers and Manufacturers and Manufacturers and (716) 842-4474
Traders Traders Traders (For Eligible
Trust Company Trust Company Trust Company 50 Institutions
P.O. Box 1377 One M&T Plaza, 7th Broadway, 7th Floor Only)
Buffalo, NY 14240 Floor New York, NY10004 CONFIRM BY TELEPHONE:
(registered or Buffalo, NY14203 Attention: Corporate (716) 842-5602
certified mail Attention: Russell T. Trust Services
recommended) Whitley
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A NUMBER
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated ,
1997 (the "Prospectus") of Fleming Companies, Inc. ("Fleming") which, together
with this Letter of Transmittal (the "Letter of Transmittal"), constitutes
Fleming's offer (the "Exchange Offer") to exchange $1,000 in principal amount of
a new series of [10 1/2% Series B Senior Subordinated Notes due 2004][10 5/8%
Series B Senior Subordinated Notes due 2007] (the "New Notes") of Fleming for
each $1,000 in principal amount of outstanding [10 1/2% Senior Subordinated
Notes due 2004][10 5/8% Senior Subordinated Notes due 2007] (the "Old Notes") of
Fleming. The terms of the New Notes are identical in all material respects
(including principal amount, interest rate and maturity) to the terms of the Old
Notes for which they may be exchanged pursuant to the Exchange Offer, except
that the New Notes will have been registered under the Securities Act of 1933,
as amended, and, therefore, will not bear legends restricting the transfer
thereof.
The Exchange Offer is being made pursuant to the Registration Rights
Agreement dated as of July 25, 1997 (the "Registration Rights Agreement"), and
all Old Notes validly tendered will be accepted for exchange. Any Old Notes not
tendered will remain outstanding and continue to accrue interest, but will not
retain any rights under the Registration Rights Agreement. Holders electing to
have Old Notes exchanged pursuant to the Exchange Offer will be required to
surrender such Old Notes, together with the Letter of Transmittal, to the
Exchange Agent at the address specified herein prior to the close of business on
the Expiration Date. Holders will be entitled to withdraw their election, at any
time prior to 5:00 p.m., New York City time, on the Expiration Date, by sending
to the Exchange Agent at one of the addresses specified herein a facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Old Notes delivered for exchange and a statement that such Holder is
withdrawing this election to have such Old Notes exchanged.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
<PAGE>
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Notes to which this Letter of Transmittal relates. If the
space provided below is inadequate, the Certificate Numbers and Principal
Amounts should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Name(s) and Certificate Aggregate Aggregate Aggregate
Address(es) of Number(s)* Principal Principal Principal
Registered Holder(s) Amount Amount Amount
(Please fill in) Represented by Tendered** Tendered in
Old Notes Exchange for
Certificated
New Notes***
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Total
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* Need not be completed by book-entry holder.
** Unless otherwise indicated, the holder will be deemed to have tendered the full
aggregate principal amount represented
by Old Notes. See Instruction 2.
*** Unless otherwise indicated, the holder will be deemed to have tendered Old Notes in
exchange for a beneficial interest
in one or more fully registered global notes, which will be deposited with, or on
behalf of The Depository Trust Company
(DTC) and registered in the name of Cede & Co., its nominee.
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</TABLE>
This Letter of Transmittal is to be used if certificates for Old Notes are
to be forwarded herewith.
Unless the context requires otherwise, the term "Holder" for purposes of
this Letter of Transmittal means any person in whose name Old Notes are
registered or any other person who has obtained a properly completed bond power
from the registered holder.
The undersigned has completed the appropriate boxes above and below and
signed this Letter of Transmittal to indicate the action the undersigned desires
to take with respect to the Exchange Offer.
This Letter of Transmittal is to be used either if certificates of Old Notes
are to be forwarded herewith or if delivery of Old Notes is to be made by
book-entry transfer to an account maintained by the Exchange Agent at DTC,
pursuant to the procedures set forth in "The Exchange Offer--Terms of the
Exchange Offer Procedures for Tendering Old Notes" in the Prospectus. Delivery
of this Letter of Transmittal and any other required documents should be made to
the Exchange Agent. Delivery of documents to a book-entry transfer facility does
not constitute delivery to the Exchange Agent.
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other documents required hereby to the Exchange Agent on
or prior to the Expiration Date must tender their Old Notes according to the
guaranteed delivery procedure set forth in the Prospectus under the caption "The
Exchange Offer--Terms of the Exchange Offer Procedures for Tendering Old Notes."
See Instruction 1. Holders of Old Notes that are tendering by book-entry
transfer to the Exchange Agent's account at DTC can execute the tender through
the DTC Automated Tender Offer Program ("ATOP") for which the transaction will
be eligible. DTC participants should transmit their acceptance to DTC, which
will verify the acceptance and execute a book-entry delivery to the Exchange
Agent's account at DTC. DTC will then send an Agent's Message (as defined in the
Prospectus) to the Exchange Agent for its
2
<PAGE>
acceptance. DTC participants may also accept the Exchange Offer by submitting a
notice of guaranteed delivery through ATOP.
The undersigned must complete the appropriate boxes above and below and sign
this Letter of Transmittal to indicate the action the undersigned desires to
take with respect to the Exchange Offer.
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED TO THE EXCHANGE AGENT
IN EXCHANGE FOR CERTIFICATED NEW NOTES.
Unless the undersigned (i) has provided information in the last column of
the table above entitled "Description of Old Notes Tendered" and (ii) has
checked the box above, the undersigned will be deemed to have tendered Old Notes
in exchange for a beneficial interest in one or more fully registered global
certificates, which will be deposited with, or on behalf of, DTC and registered
in the name of Cede & Co., its nominee. Beneficial interests in such registered
global certificates will be shown on, and transfers thereof will be effected
only through, records maintained by DTC and its participants. See "Description
of Notes--Book-Entry, Delivery and Form" as set forth in the Prospectus.
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution / / The Depository Trust Company
-----------------------------
Account Number
------------------------------------------------------------------------
Transaction Code Number
----------------------------------------------------------------
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other documents required hereby to the Exchange Agent on
or prior to the Expiration Date may tender their Old Notes according to the
guaranteed delivery procedure set forth in the Prospectus under the captions
"The Exchange Offer--Terms of the Exchange Offer--Procedures for Tendering Old
Notes" and "The Exchange Offer--Terms of the Exchange Offer--Guaranteed Delivery
Procedures."
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s):
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Name of Eligible Institution that Guaranteed Delivery:
---------------------------------------
Window Ticket Number (if any):
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Date of Execution of Notice of Guaranteed Delivery:
----------------------------------------
If delivered by book-entry transfer:
Account Number Transaction Code Number
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3
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PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to Fleming the above-described principal amount of
Old Notes. Subject to, and effective upon, the acceptance for exchange of the
Old Notes tendered herewith, the undersigned hereby exchanges, assigns and
transfers to, or upon the order of, Fleming all right, title and interest in and
to such Old Notes. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as the true and lawful agent and attorney-in-fact of the
undersigned (with full knowledge that said Exchange Agent acts as the agent of
the undersigned in connection with the Exchange Offer) to cause the Old Notes to
be assigned, transferred and exchanged. The undersigned represents and warrants
that it has full power and authority to tender, exchange, assign and transfer
the Old Notes and to acquire New Notes issuable upon the exchange of such
tendered Old Notes, and that, when the same are accepted for exchange, Fleming
will acquire good and unencumbered title to the tendered Old Notes, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim. The undersigned also warrants that it will, upon request,
execute and deliver any additional documents deemed by Fleming to be necessary
or desirable to complete the exchange, assignment and transfer of tendered Old
Notes or to transfer ownership of such Old Notes on the account books maintained
by The Depository Trust Company.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer--Conditions of the Exchange
Offer." The undersigned recognizes that as a result of these conditions (which
may be waived, in whole or in part, by Fleming) as more particularly set forth
in the Prospectus, Fleming may not be required to exchange any of the Old Notes
tendered hereby and, in such event, the Old Notes not exchanged will be returned
to the undersigned at the address shown below the signature of the undersigned.
By tendering, each Holder of Old Notes represents to Fleming that (i) the
New Notes acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such New Notes, whether or
not such person is such Holder, (ii) neither the Holder of Old Notes nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes, (iii) if the Holder is not a
broker-dealer or is a broker-dealer but will not receive New Notes for its own
account in exchange for Old Notes, neither the Holder nor any such other person
is engaged in or intends to participate in a distribution of the New Notes and
(iv) neither the Holder nor any such other person is an "affiliate" of Fleming
within the meaning of Rule 405 under the Securities Act of 1933, as amended (the
"Securities Act") or, if such Holder is an "affiliate," that such Holder will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
If the tendering Holder is a broker-dealer (whether or not it is also an
"affiliate" of Fleming within the meaning of Rule 405 under the Securities Act)
that will receive New Notes for its own account in exchange for Old Notes
acquired as a result of market-making or other trading activities (other than
Old Notes acquired directly from Fleming or an affiliate of Fleming), it
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes and will promptly
notify Fleming when it has disposed of all such New Notes. By acknowledging that
it will deliver and by delivering a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes, the undersigned
is not deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
/ / CHECK HERE IF YOU ARE A BROKER-DEALER SUBJECT TO A PROSPECTUS DELIVERY
REQUIREMENT, AND
/ / CHECK HERE IF YOU WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS
AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO
4
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Broker-Dealer Name:
------------------------------------------------------------------------
Address:
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Each Holder, by tendering, also acknowledges and agrees that any Holder
using the Exchange Offer to participate in a distribution of the New Notes to be
acquired in the Exchange offer (a) could not rely on the position of the
Commission enunciated in MORGAN STANLEY AND CO., INC. (available June 5, 1991)
and EXXON CAPITAL HOLDINGS CORPORATION (available May 13, 1988), as interpreted
in the Commission's letter to SHEARMAN & STERLING (available July 2, 1993), and
similar no-action letters, and (b) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction and that such a secondary resale transaction should
be covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable, of
Regulation S-K if the resales are of New Notes obtained by such holder in
exchange for Old Notes acquired by such Holder directly from Fleming.
All authority herein conferred or agreed to be conferred shall survive the
death, bankruptcy or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and other
legal representatives of the undersigned. Tendered Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
Certificates for all New Notes delivered in exchange for tendered Old Notes
and any Old Notes delivered herewith but not exchanged, in each case registered
in the name of the undersigned, shall be delivered to the undersigned at the
address shown below the signature of the undersigned.
The undersigned recognizes that unless the holder of Old Notes (i) provides
information in the last column of the table above entitled "Description of Old
Notes Tendered" and (ii) checks the box entitled "Check here if tendered shares
of Old Notes are being delivered to the Exchange Agent in exchange for
certificated New Notes" above, such holder, when tendering such Old Notes, will
be deemed to have tendered such Old Notes in exchange for a beneficial interest
in one or more fully registered global certificates, which will be deposited
with, or on behalf of, DTC and registered in the name of Cede & Co., its
nominee. Beneficial interests in such registered global certificates will be
shown on, and transfers thereof will be effected only through, records
maintained by DTC and its participants. See, "Description of Notes--Book-Entry;
Delivery and Form" in the Prospectus.
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<PAGE>
TENDERING HOLDER(S) SIGN HERE
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Signature(s) of Holder(s)
Date: , 1997
(Must be signed by registered Holder(s) exactly as name(s) appear(s) on
certificate(s) for Old Notes or by any person(s) authorized to become registered
Holder(s) by endorsements and documents transmitted herewith. If signature by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
please set forth the full title of such person.) See Instruction 3.
Name(s):
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(Please Print)
Capacity (full title):
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Address:
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(Including Zip Code)
Area Code and Telephone No.:
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Tax Identification No.:
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<PAGE>
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTION 3)
Authorized Signature:
------------------------------------------------------------------------
Name:
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Title:
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Address:
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Name of Firm:
------------------------------------------------------------------------------
Area Code and Telephone No.:
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Dated: , 1997
<TABLE>
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PAYOR'S NAME: FLEMING COMPANIES, INC.
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Name (If joint names, list first and circle the name of the person or
entity whose number you enter in Part I below.)
SUBSTITUTE
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Address
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FORM W-9
City, state and Zip Code
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Part I - PLEASE PROVIDE YOUR TAXPAYER Social Security
IDENTIFICATION NUMBER (TIN) IN THE BOX AT number or Employer
RIGHT AND CERTIFY BY SIGNING AND DATING BELOW Identification
Number
- ------------------------------------------------------------------------------------------------
Department of the
Treasury
Internal Revenue
Service
Part II - If exempt from backup withholding, check the box to the
right. / /
Also provide your TIN in Part I and sign and date this form in Part
III.
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Payor's Request for
Taxpayer Part III - Under penalties of perjury, I certify that:
Identification
Number (TIN) and 1. The number shown on this form is my correct taxpayer identification
Certification number (or I am waiting for a number to be issued to me), and
2. I am not subject to backup withholding: (a) I am exempt from backup
withholding; or (b) I have not been notified by the Internal Revenue
Service that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS. You must cross out item 2 above if you
have been notified by the IRS that you are currently subject to backup
withholding because of underreporting interest or dividends on your
tax return.
Signature
---------------------------------------------------------- Date
----------------------
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</TABLE>
Note: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED
DELIVERY PROCEDURE. The Letter of Transmittal is to be used to forward, and
must accompany, all certificates representing Old Notes tendered pursuant to the
Exchange Offer. Certificates representing the Old Notes in proper form for
transfer (or a confirmation of book-entry transfer of such Old Notes in the
Exchange Agent's account at the book-entry transfer facility) as well as a
properly completed and duly executed copy of this Letter of Transmittal and all
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date.
THE METHOD OF DELIVERY OF OLD NOTES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER AND, EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. INSTEAD OF
DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND
DELIVERY SERVICE.
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes (or a confirmation of book-entry transfer of Old Notes into the
Exchange Agent's account at the book-entry facility) and all other required
documents to the Exchange Agent on or prior to the Expiration Date may tender
their Old Notes pursuant to the guaranteed delivery procedure set forth in the
Prospectus under "The Exchange Offer--Terms of the Exchange Offer--Guaranteed
Delivery Procedures." Pursuant to such procedure: (i) such tender must be made
by or through an Eligible Institution (as defined in the Prospectus); (ii) on or
prior to the Expiration Date, the Exchange Agent must have received from such
Eligible Institution a letter, telegram or facsimile transmission substantially
in the form of the Notice of Guaranteed Delivery available from the Exchange
Agent, or an Agent's Message with respect to guaranteed delivery that is
accepted by the Exchange Agent, setting forth the name and address of the
tendering Holder, the name(s) in which such Old Notes are registered, the
principal amount being tendered and (if available) the certificate number(s) of
the Old Notes to be tendered; and (iii) all tendered Old Notes (or a
confirmation of book-entry transfer of such Old Notes into the Agent's account
at DTC) as well as this Letter of Transmittal and all other documents required
by this Letter of Transmittal must be received by the Exchange Agent within
three New York Stock Exchange trading days after the date of execution of such
letter, telegram or facsimile transmission, all as provided in the Prospectus
under the caption "The Exchange Offer--Terms of the Exchange Offer--Guaranteed
Delivery Procedures."
A tender will be deemed to have been received as of the date when the
tendering Holder's duly signed Letter of Transmittal accompanied by Old Notes
(or a timely confirmation of a book-entry transfer of Old Notes into the
Exchange Agent's account at the book-entry transfer facility) or a Notice of
Guaranteed Delivery from an Eligible Institution is received by the Exchange
Agent.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Old Notes for exchange.
2. PARTIAL TENDERS; WITHDRAWALS. Tenders of Old Notes will be accepted in
denominations of $1,000 and integral multiples in excess thereof. If less than
the entire principal amount of Old Notes evidenced by a submitted certificate is
tendered, the tendering Holder must fill in the principal amount tendered in the
column entitled "Aggregate Principal Amount Tendered." A newly issued
certificate for the principal amount of Old Notes submitted but not tendered
will be sent to such Holder as soon as practicable after the Expiration Date.
All Old Notes delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated. To withdraw a tender of Old Notes in the
Exchange Offer, a written or facsimile transmission notice of withdrawal must be
received by the Exchange Agent at its address set
8
<PAGE>
forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Old Notes), (iii) contain a statement that such holder is
withdrawing its election to have such Old Notes exchanged, (iv) be signed by the
Holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Old Notes register the transfer of such Old Notes in
the name of the person withdrawing the tender and (v) specify the name in which
any such Old Notes are to be registered, if different from that of the
Depositor. If Old Notes have been tendered pursuant to the procedure for
book-entry transfer, any notice of withdrawal must specify the name and number
of the account at the book-entry transfer facility from which the Old Notes were
tendered, identify the principal amount of tendered Old Notes to be withdrawn,
and specify the name and number of the account at the book-entry transfer
facility to be credited with the withdrawn Old Notes and otherwise comply with
DTC's procedures. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by Fleming, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no New Notes will be issued with respect thereto unless the
Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the Holder
thereof without cost to such Holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn Old
Notes may be retendered by following one of the procedures described herein at
any time prior to the business day prior to the Expiration Date.
3. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed
by the registered Holder(s) of the Old Notes tendered hereby, the signature must
correspond with the name(s) as written on the face of certificates without
alteration, enlargement or any change whatsoever.
If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the New Notes to be issued in exchange therefor are to be
issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (including any participant in The Depository Trust Company
(also referred to as a book-entry facility) whose name appears on a security
listing as the owner of Old Notes), the signature of such signer need not be
guaranteed. In any other case, the tendered Old Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to Fleming
and duly executed by the registered holder and the signature on the endorsement
or instrument of transfer must be guaranteed by an eligible guarantor
institution which is a member of one of the following recognized signature
guarantee programs (an "Eligible Institution"): (i) The Securities Transfer
Agents Medallion Program (STAMP), (ii) The New York Stock Exchange Medallion
Signature Program (MSF), or (iii) The Stock Exchange Medallion Program (SEMP).
If the New Notes or Old Notes not exchanged are to be delivered to an
address other than that of the registered holder appearing on the note register
for the Old Notes, the signature in the Letter of Transmittal must be guaranteed
by an Eligible Institution.
Endorsements on certificates or signatures on separate written instruments
of transfer or exchange required by this Instruction 3 must be guaranteed by an
Eligible Institution.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If a number of Old Notes registered in different names are tendered, it will
be necessary to complete, sign and submit as many separate copies of this Letter
of Transmittal as there are different registrations of Old Notes.
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<PAGE>
When this Letter of Transmittal is signed by the registered Holder or
Holders of Old Notes listed and tendered hereby, no endorsements of certificates
or separate written instruments of transfer or exchange are required.
If this Letter of Transmittal is signed by a person other than the
registered Holder or Holders of the Old Notes listed, such Old Notes must be
endorsed or accompanied by separate written instruments of transfer or exchange
in form satisfactory to Fleming and duly executed by the registered Holder or
Holders, in either case signed exactly as the name or names of the registered
Holder or Holders appear(s) on the Old Notes.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by Fleming, proper evidence
satisfactory to Fleming of their authority so to act must be submitted.
4. TRANSFER TAXES. Fleming shall pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing New Notes, or Old Notes for principal amounts
not tendered or accepted for exchange, are to be delivered to, or are to be
issued in the name of, any person other than the registered Holder of the Old
Notes tendered hereby, or if a transfer tax is imposed for any reason other than
the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered Holder or any other
person) will be payable by the tendering Holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes will be billed directly to such tendering Holder.
Except as provided in this Instruction 4, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
5. WAIVER OF CONDITIONS. Fleming reserves the absolute right to waive, in
whole or in part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
6. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any Holder whose Old Notes
have been mutilated, lost, stolen or destroyed should contact the Exchange Agent
at the address indicated above for further instructions.
7. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering and other questions relating to the Exchange Offer, as
well as requests for assistance or additional copies of the Prospectus and this
Letter of Transmittal, may be directed to the Exchange Agent at the address and
telephone number set forth above and in the Prospectus.
8. IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt), and acceptance of Letters of Transmittal or Old
Notes will be resolved by Fleming, whose determination will be final and
binding. Fleming reserves the absolute right to reject any or all Letters of
Transmittal or tenders that are not in proper form or the acceptance of which
would, in the opinion of Fleming's counsel, be unlawful. Fleming also reserves
the right to waive any irregularities or conditions of tender as to the
particular Old Notes covered by any Letter of Transmittal or tendered pursuant
to such Letter of Transmittal. None of Fleming, the Exchange Agent or any other
person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification. Fleming's interpretation of the terms and conditions of the
Exchange Offer shall be final and binding.
9. DEFINITIONS. Capitalized terms used in this Letter of Transmittal and
not otherwise defined have the meanings given in the Prospectus.
10
<PAGE>
10. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
holder of any Old Notes which are accepted for exchange must provide Fleming (as
payor) with its correct taxpayer identification number ("TIN"), which, in the
case of a holder who is an individual, is his or her social security number. If
Fleming is not provided with the correct TIN, the holder may be subject to a $50
penalty imposed by the Internal Revenue Service. (If withholding results in an
over-payment of taxes, a refund may be obtained.) Certain holders (including,
among others, all corporations and certain foreign individuals) are not subject
to these backup withholding and reporting requirements; however, these holders
still must submit the Substitute Form W-9. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of failure
to report all interest or dividends or (ii) the Internal Revenue Service has
notified the holder that such holder is no longer subject to backup withholding.
The Form must be signed, even if the holder is exempt from backup withholding.
If the Old Notes are registered in more than one name or are not in the name of
the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for information on which TIN to
report.
Fleming reserves the right in its sole discretion to take whatever steps are
necessary to comply with its obligation regarding backup withholding.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER WITH
CERTIFICATES FOR OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
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<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF ALL OUTSTANDING
[10 1/2% SENIOR SUBORDINATED NOTES DUE 2004]
[10 5/8% SENIOR SUBORDINATED NOTES DUE 2007]
IN EXCHANGE FOR
[10 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2004]
[10 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007]
OF
FLEMING COMPANIES, INC.
Registered holders of outstanding [10 1/2% Senior Subordinated Notes due
2004] [10 5/8% Senior Subordinated Notes due 2007](the "Old Notes") of Fleming
Companies, Inc. ("Fleming") who wish to tender their Old Notes in exchange for a
like principal amount of [10 1/2% Series B Senior Subordinated Notes due 2004]
[10 5/8% Series B Senior Subordinated Notes due 2007] (the "New Notes") of
Fleming and, in each case, whose Old Notes are not immediately available or who
cannot deliver their Old Notes and Letter of Transmittal (and any other
documents required by the Letter of Transmittal) to Manufacturers and Traders
Trust Company (the "Exchange Agent"), prior to the Expiration Date, may use this
Notice of Guaranteed Delivery or one substantially equivalent hereto. This
Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile
transmission (receipt confirmed by telephone and an original delivered by
guaranteed overnight delivery) or mail to the Exchange Agent. See "The Exchange
Offer-- Terms of the Exchange Offer--Guaranteed Delivery Procedures" in the
Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
MANUFACTURERS AND TRADERS TRUST COMPANY
<TABLE>
<CAPTION>
BY MAIL: BY OVERNIGHT COURIER: BY HAND: BY FACSIMILE:
<S> <C> <C> <C>
Manufacturers and Manufacturers and Manufacturers and (716) 842-4474
Traders Traders Traders (For Eligible
Trust Company Trust Company Trust Company Institutions
P.O. Box 1377 Corporate Trust 50 Broadway, 7th Only)
Buffalo, NY 14240 Operations Floor CONFIRM BY
(registered or Department New York, NY 10004 TELEPHONE:
certified mail One M&T Plaza, 7th Attention: Corporate (716) 842-5602
recommended) Floor Trust Services
Buffalo, NY 14203
Attention: Russell T.
Whitley
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO
A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution, such signature guarantee must appear in
the applicable space provided on the Letter of Transmittal for Guarantee of
Signatures.
<PAGE>
Ladies & Gentlemen:
The undersigned hereby tender(s) to Fleming upon the terms and subject to
the conditions set forth in the Prospectus for the Exchange Offer and the Letter
of Transmittal, receipt of which are hereby acknowledged, the aggregate
principal amount of Old Notes set forth below pursuant to the guaranteed
delivery procedures set forth in the Prospectus.
The undersigned understands that tenders of Old Notes will be accepted only
in principal amounts equal to $1,000 or integral multiples thereof. The
undersigned understands that tenders of Old Notes pursuant to the Exchange Offer
may not be withdrawn after 5:00 p.m., New York City time, on the Expiration
Date. Tenders of Old Notes may also be withdrawn if the Exchange Offer is
terminated without any such Old Notes being exchanged thereunder or as otherwise
provided in the Prospectus.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death, bankruptcy or incapacity of the
undersigned and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and other
legal representatives of the undersigned.
PLEASE SIGN AND COMPLETE
<TABLE>
<S> <C>
Signature(s) of Registered Owner(s) or Name(s) of Registered Holder(s):
Authorized Signatory: -------------------------------------------
------------------------
- ------------------------------------------- -------------------------------------------
- ------------------------------------------- -------------------------------------------
Principal Amount of Old Notes Tendered: Address:
-----------------------------------
- ------------------------------------------- -------------------------------------------
Certificate No(s). of Old Notes (if Area Code and Telephone No.:
available):
- ------------------------------------------- -------------------------------------------
- ------------------------------------------- Date:
--------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
This Notice of Guaranteed Delivery must be signed by the registered holder(s) of Old
Notes exactly as its (their) name(s) appear on certificates for Old Notes or on a
security position listing the owners of Old Notes, or by person(s) authorized to become
registered Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or representative
capacity, such person must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Capacity:
------------------------------------------------------------------------------
Address(es):
---------------------------------------------------------------------------
--------------------------------------------------------------------------------------
DO NOT SEND OLD NOTES WITH THIS FORM. OLD NOTES SHOULD BE SENT TO THE EXCHANGE AGENT
TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL.
</TABLE>
<TABLE>
<S> <C> <C> <C>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, an eligible guarantor institution which is a member of one of the
following signature guarantee programs (an "Eligible Institution"): (i) The
Securities Transfer Agents Medallion Program (STAMP), (ii) The New York Stock
Exchange Medallion Signature Program (MSF), or (iii) The Stock Exchange Medallion
Program (SEMP), hereby (a) represents that each holder of Old Notes on whose behalf
this tender is being made "own(s)" the Old Notes covered hereby within the meaning
of Rule 14e-4 under the Securities Exchange Act of 1934, as amended, (b) represents
that such tender of Old Notes complies with such Rule 14e-4, and (c) guarantees
that, within three New York Stock Exchange trading days from the date of this Notice
of Guaranteed Delivery, a properly completed and duly executed Letter of Transmittal
(or a facsimile thereof), together with certificates representing the Old Notes
covered hereby in proper form for transfer and required documents will be deposited
by the undersigned with the Exchange Agent.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL AND OLD
NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME SET FORTH ABOVE AND THAT
FAILURE TO DO SO COULD RESULT IN FINANCIAL LOSS TO THE UNDERSIGNED.
Name of Firm: Authorized Signature:
---------------------------
Address:
---------------------------------
---------------------------------------- Name:
-----------------------------------
Area Code and Telephone No.: Title:
------------- ------------------------------------
---------------------------------------- Date:
------------------------------------
</TABLE>
3
<PAGE>
FLEMING COMPANIES, INC.
OFFER TO EXCHANGE
ITS
[10 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2004]
[10 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007]
FOR ANY AND ALL OF ITS OUTSTANDING
[10 1/2% SENIOR SUBORDINATED NOTES DUE 2004]
[10 5/8% SENIOR SUBORDINATED NOTES DUE 2007]
TO: BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES:
Fleming Companies, Inc. (the "Company") is offering to exchange (the
"Exchange Offer"), upon and subject to the terms and conditions set forth in the
Prospectus, dated , 1997 (the "Prospectus"), and the enclosed Letter
of Transmittal (the "Letter of Transmittal"), its registered [10 1/2% Series B
Senior Subordinated Notes due 2004] [10 5/8% Series B Senior Subordinated Notes
due 2007] (the "New Notes") for any and all of its outstanding [10 1/2% Senior
Subordinated Notes Due 2004] [10 5/8% Senior Subordinated Notes due 2007] (the
"Old Notes"). The Exchange Offer is being made in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement dated
as of July 25, 1997, among the Company and the other signatories thereto.
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated , 1997;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer
if certificates for Old Notes are not immediately available or time will not
permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below) or if the procedure for book-entry transfer
cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account you
hold Old Notes registered in your name or the name of your nominee, with space
provided for obtaining such clients' instructions with regard to the Exchange
Offer; and
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON , 1997 (THE "EXPIRATION DATE"), UNLESS
EXTENDED BY THE COMPANY. THE OLD NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER
MAY BE WITHDRAWN AT ANY TIME BEFORE 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
To participate in the Exchange Offer, a duly executed and properly completed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, should be sent to the Exchange
Agent and certificates representing the Old Notes should be delivered to the
Exchange Agent, all in accordance with the instructions set forth in the Letter
of Transmittal and Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the Exchange
Offer or to comply with the book-entry transfer procedures on a timely basis, a
tender may be effected by following the guaranteed delivery procedures described
in the Prospectus under "The Exchange Offer--Terms of the Exchange
Offer--Guaranteed Delivery Procedures."
<PAGE>
The Company will, upon request, reimburse brokers, dealers, commercial banks
and trust companies for reasonable and necessary costs and expenses incurred by
them in forwarding the Prospectus and the related documents to the beneficial
owners of Old Notes held by them as nominee or in a fiduciary capacity. The
Company will pay or cause to be paid all stock transfer taxes applicable to the
exchange of Old Notes pursuant to the Exchange Offer, except as set forth in
Instruction 4 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to the
Exchange Agent for the Old Notes, at one of its addresses or its telephone
number set forth on the front of the Letter of Transmittal.
Very truly yours,
Fleming Companies, Inc.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
OTHER PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU
OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF
EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS
EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
<PAGE>
FLEMING COMPANIES, INC.
OFFER TO EXCHANGE
ITS
[10 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2004]
[10 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007]
FOR ANY AND ALL OF ITS OUTSTANDING
[10 1/2% SENIOR SUBORDINATED NOTES DUE 2004]
[10 5/8% SENIOR SUBORDINATED NOTES DUE 2007]
To Our Clients:
Enclosed for your consideration are the Prospectus, dated , 1997
(the "Prospectus") and the related Letter of Transmittal (which together with
the Prospectus constitute the "Exchange Offer") in connection with the offer by
Fleming Companies, Inc., an Oklahoma corporation (the "Company"), to exchange
its [10 1/2% Series B Senior Subordinated Notes due 2004] [10 5/8% Series B
Senior Subordinated Notes due 2007] (the "New Notes") for any and all of the
outstanding [10 1/2% Senior Subordinated Notes due 2004] [10 5/8% Senior
Subordinated Notes due 2007] (the "Old Notes"), upon the terms and subject to
the conditions set forth in the Exchange offer.
We are the Registered Holder of Old Notes held for your account. An exchange
of the Old Notes can be made only by us as the Registered Holder and pursuant to
your instructions. The Letter of Transmittal is furnished to you for your
information only and cannot be used by you to exchange the Old Notes held by us
for your account. The Exchange Offer provides a procedure for holders to tender
by means of guaranteed delivery.
We request information as to whether you wish us to exchange any or all of
the Old Notes held by us for your account upon the terms and subject to the
conditions of the Exchange Offer.
Your attention is directed to the following:
1. The New Notes will be exchanged for the Old Notes at the rate of
$1,000 principal amount of New Notes for each $1,000 principal amount of Old
Notes. The New Notes will bear interest (as do the Old Notes) at a rate
equal to [10 1/2%] [10 5/8%] per annum from their date of issuance. Interest
on the New Notes is payable semi-annually on [June 1 and December 1,
commencing December 1, 1997] [January 31 and July 31, commencing January 30,
1998]. Holders of Old Notes that are accepted for exchange will receive, in
cash, accrued interest thereon to, but not including, the date of issuance
of the New Notes. Such interest will be paid with the first interest payment
on the New Notes. Interest on the Old Notes accepted for exchange will cease
to accrue on the day prior to the issuance of the New Notes. The form and
terms of the New Notes are the same in all material respects as the form and
terms of the Old Notes (which they replace) except that the New Notes have
been registered under the Securities Act of 1933, as amended (the
"Securities Act").
2. Based on interpretations by the staff of the Securities and Exchange
Commission (the "SEC") set forth in no-action letters, New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by holders thereof (other than any
such holder which is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act or a "broker" or "dealer" registered under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the
ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such New
Notes.
3. The Exchange Offer is not conditioned on any minimum principal
amount of Old Notes being tendered.
4. Notwithstanding any other term of the Exchange Offer, the Company
will not be required to accept for exchange, or exchange New Notes for, any
Old Notes not theretofore accepted for
<PAGE>
exchange, and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Old Notes, if any of the conditions described
in the Prospectus under "The Exchange Offer-- Conditions of the Exchange
Offer" exist.
5. Tendered Old Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on , 1997, if such Old Notes have not
previously been accepted for exchange pursuant to the Exchange Offer.
6. Any transfer taxes applicable to the exchange of the Old Notes
pursuant to the Exchange Offer will be paid by the Company, except as
otherwise provided in Instruction 4 of the Letter of Transmittal.
If you wish to have us tender any or all of your Old Notes, please so
instruct us by completing, detaching and returning to us the instruction form
attached hereto. An envelope to return your instructions is enclosed. If you
authorize a tender of your Old Notes, the entire principal amount of Old Notes
held for your account will be tendered unless otherwise specified on the
instruction form. Your instructions should be forwarded to us in ample time to
permit us to submit a tender on your behalf by the Expiration Date.
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, holders of the Old Notes in any jurisdiction in which the
making of the Exchange Offer or acceptance thereof would not be in compliance
with the laws of such jurisdiction or would otherwise not be in compliance with
any provision of any applicable securities law.
<PAGE>
FLEMING COMPANIES, INC.
OFFER TO EXCHANGE
ITS
[10 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2004]
[10 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007]
FOR ANY AND ALL OF ITS OUTSTANDING
[10 1/2% SENIOR SUBORDINATED NOTES DUE 2004]
[10 5/8% SENIOR SUBORDINATED NOTES DUE 2007]
INSTRUCTION TO REGISTERED HOLDER FROM BENEFICIAL OWNER
The undersigned acknowledge(s) receipt of your letter and the enclosed
Prospectus and the related Letter of Transmittal, in connection with the
Exchange Offer by the Company to exchange New Notes for Old Notes.
This will instruct you to tender the principal amount of Old Notes indicated
below held by you for the account of the undersigned, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal.
The undersigned represents that (i) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of its business, (ii)
it is not participating, does not intend to participate, and has no arrangement
or understanding with any person to participate, in the distribution of such New
Notes, and (iii) it is not an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company or, if it is an affiliate, that it will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable.
If the undersigned is a "broker" or "dealer" registered under the Exchange
Act that acquired Old Notes for its own account pursuant to its market-making or
other trading activities (other than Old Notes acquired directly from the
Company), the undersigned understands and acknowledges that it may be deemed to
be an "underwriter" within the meaning of the Securities Act and, therefore,
must deliver a prospectus relating to the New Notes meeting the requirements of
the Securities Act in connection with any resales by it of New Notes acquired
for its own account in the Exchange Offer. Notwithstanding the foregoing, the
undersigned does not thereby admit that it is an "underwriter" within the
meaning of the Securities Act.
You are hereby instructed to tender all Old Notes held for the account of
the undersigned unless otherwise indicated below:
/ / Do not tender any Old Notes
/ / Tender Old Notes in the principal amount of
SIGNATURE:
--------------------------------------
Name of Beneficial Owner (please
print)
By
--------------------------------------
Signature
--------------------------------------
Address
--------------------------------------
Zip Code
--------------------------------------
Area Code and Telephone Number
Dated: , 1997
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF-- FOR THIS TYPE OF ACCOUNT:
- --------------------------------------------- ---------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C>
1. An individual's account The individual 9. A valid trust, estate, or pension
trust
2. Two or more individuals (joint The actual owner of the account 10. Corporate account
account) or, if combined funds, any one of
the individuals(1)
3. Husband and wife (joint account) The actual owner of the account 11. Religious, charitable, or
or, if joint funds, either educational organization account
person(1)
4. Custodian account of a minor The minor(2) 12. Partnership account held in the
(Uniform Gift to Minors Act) name of the business
5. Adult and minor (joint account) The adult or, if the minor is the 13. Association, club or other
only contributor, the minor(1) tax-exempt organization
6. Account in the name of guardian or The ward, minor, or incompetent 14. A broker or registered nominee
committee for a designated ward, person(3)
minor, or incompetent person
7. a. The usual revocable savings The grantor-trustee(1) 15. Account with the Department of
trust account (grantor is also Agriculture in the name of a
trustee) public entity (such as a State or
local
government, school district, or
b. So-called trust account that is The actual owner(1)
not a legal or valid trust under prison) that receives agricultural
State law program payments
8. Sole proprietorship account The owner(4)
<CAPTION>
GIVE THE EMPLOYER
IDENTIFICATION
NUMBER OF--
- --------- ----------------------------------
<S> <C>
1. The legal entity (Do not furnish
the identifying number of the
personal representative or
trustee unless the legal entity
itself is not designated in the
account title.)(5)
2. The corporation
3. The organization
4. The partnership
5. The organization
6. The broker or nominee
7. The public entity
8.
</TABLE>
- ------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate or pension trust.
Note: If no name is circled when there is more than one name, the number
will be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
<TABLE>
<S> <C>
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you
don't know your number, obtain Form SS-5, Application for A
Social Security Number Card, or Form SS-4, Application for
Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service
and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL
payments include the following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section
501(a), or an individual retirement plan.
- - The United States or any agency or instrumentality
thereof.
- - A State, the District of Columbia, a possession of
the United States, or any subdivision or
instrumentality thereof.
- - A foreign government, a political subdivision of a
foreign government, or any agency or
instrumentality thereof.
- - An international organization or any agency or
instrumentality thereof.
- - A dealer in securities or commodities required to
register in the U.S. or a possession of the U.S.
- - A real estate investment trust.
- - A common trust fund operated by a bank under
section 584(a).
- - An exempt charitable remainder trust, or a
non-exempt trust described in section 4947(a)(1).
- - An entity registered at all times under the
Investment Company Act of 1940.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends not generally
subject to backup withholding include the following:
- - Payments to nonresident aliens subject to
withholding under section 1441.
- - Payments to partnerships not engaged in a trade or
business in the U.S. and which have at least one
nonresident partner.
- - Payments of patronage dividends where the amount
renewed is not paid in money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Payments of interest not generally subject to backup
withholding include the following:
- - Payments of interest on obligations issued by
individuals. Note: You may be subject to backup
withholding if this interest is $600 or more and
is paid in the course of the payer's trade or
business and you have not provided your correct
taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt-
interest dividends under section 852).
- - Payments described in section 6049(b)(5) to
non-resident aliens.
- - Payments on tax-free covenant bonds under section
1451.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Exempt payees described above must still complete the
Substitute Form W-9 enclosed herewith to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER,
FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE EXEMPT ON
THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE
PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments, other than interest, dividends and patronage
dividends, that are not subject to information reporting are
also not subject to backup withholding. For details, see the
regulations under sections 6041, 6041A(a), 6042, 6044, 6045,
6049, 6050A and 6050N.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of
dividend, interest, or other payments to give taxpayer
identification numbers to payers who must report the payments
to IRS. IRS uses the numbers for identification purposes and
to help verify the accuracy of the recipient's tax return.
Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold
31% of taxable interest, dividend, and certain other payments
to a payee who does not furnish a taxpayer identification
number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION
NUMBER.--If you fail to furnish your taxpayer identification
number to a payer, you are subject to a penalty of $50 for
each such failure which is due to reasonable cause and not to
willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO
WITHHOLDING.--If you make a false statement with no reasonable
basis which results in no imposition of backup withholding,
you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying
certifications or affirmations may subject you to criminal
penalties including fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE
INTERNAL REVENUE SERVICE.
</TABLE>
-2-
