Filed Pursuant to Rule 424(b)(5)
Registration Number 333-86816
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 21, 2002)
$200,000,000
[FLEMING LOGO]
9 1/4% SENIOR NOTES DUE 2010
------------------------
We are offering $200,000,000 aggregate principal amount of our 9 1/4%
Senior Notes due 2010 (the "Notes"). Concurrently with this offering, we are
offering shares of our common stock. We will use the net proceeds from these
offerings to fund our obligations in connection with our pending acquisition of
Core-Mark International, Inc. and to repay debt.
The closing of this offering is conditioned on the closing of the
acquisition of Core-Mark and the other related financings.
The Notes will mature on June 15, 2010. We will pay interest on the Notes
on June 15 and December 15, commencing December 15, 2002.
We may redeem the Notes at any time on or after June 15, 2006. In addition,
until June 15, 2005 we may redeem up to 35% of the Notes with the net proceeds
of one or more public equity offerings (other than the concurrent equity
offering). If we undergo a change of control or sell certain of our assets, we
may be required to offer to purchase Notes from holders.
The Notes will be our unsecured senior obligations and will rank senior to
all our existing and future subordinated debt. The Notes will be effectively
subordinated to any of our secured debt, including under our new credit
facility. Our domestic subsidiaries that guarantee our obligations under our new
credit facility or our existing note indentures will guarantee the Notes with
unconditional guarantees that will be unsecured senior obligations of such
subsidiaries and will rank senior in right of payment to all of such
subsidiaries' existing and future subordinated debt and will be effectively
subordinated to any of such subsidiaries' secured debt, including under our new
credit facility.
This prospectus supplement includes additional information on the terms of
the Notes, including redemption and repurchase prices, covenants and transfer
restrictions.
INVESTING IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS,"
BEGINNING ON PAGE S-9.
------------------------
<Table>
<Caption>
PER NOTE TOTAL
-------- ------------
Price to public(1).......................................... 100.00% $200,000,000
Underwriting discount....................................... 2.50% $ 5,000,000
Proceeds to Fleming......................................... 97.50% $195,000,000
</Table>
- ---------------
(1) Plus accrued interest from June 18, 2002, if settlement occurs after that
date.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
WE EXPECT THAT DELIVERY OF THE NOTES WILL BE MADE IN NEW YORK, NEW YORK ON
OR ABOUT JUNE 18, 2002.
------------------------
DEUTSCHE BANK SECURITIES LEHMAN BROTHERS WACHOVIA SECURITIES
Sole Book-Running Manager
JPMORGAN MORGAN STANLEY
COMERICA SECURITIES
The date of this prospectus supplement is June 13, 2002.
INDUSTRY DATA
In this prospectus supplement and the accompanying prospectus, we rely on
and refer to information regarding market data obtained from internal surveys,
market research, publicly available information and industry publications.
Although we believe the information is reliable, we cannot guarantee the
accuracy or completeness of the information and have not independently verified
it.
ABOUT THIS PROSPECTUS SUPPLEMENT
We provide information to you about this offering in two separate
documents. The accompanying prospectus provides general information, some of
which may not apply to this offering, and this prospectus supplement describes
the specific details regarding this offering. Generally, when we refer to this
"prospectus," we are referring to both documents combined. Additional
information is incorporated by reference in this prospectus. If information in
this prospectus supplement is inconsistent with the accompanying prospectus, you
should rely on this prospectus supplement.
You should rely only upon the information contained or incorporated by
reference in this prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. This prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, any of the securities offered hereby by any person in any
jurisdiction in which it is unlawful for such person to make such an offer or
solicitation. You should assume the information appearing in this prospectus
supplement, the accompanying prospectus and the documents incorporated by
reference is accurate only as of their respective dates. Our business, financial
condition, results of operations and prospects may have changed since those
dates.
Our trademarks, service marks and trade names include "Fleming," "FlexPro,"
"FlexStar," "FlexMate," "Piggly Wiggly," "Sentry," "Super 1 Foods," "Festival
Foods," "Head Distributing Company," "Jubilee Foods," "Jamboree Foods,"
"MEGAMARKET," "Minter-Weisman Co.," "Shop 'N Kart," "American Family," "ABCO
Desert Market," "Big Star," "Big T," "Buy for Less," "County Pride Markets,"
"Rainbow Foods," "Red Fox," "Shop N Bag," "Super Duper," "Super Foods," "Super
Thrift," "Thriftway," "Value King," "PWPETRO," "Piggly Wiggly xpress,"
"yes!LESS," "Big Bear" and "Big Dollar." This prospectus also contains
trademarks, service marks, copyrights and trade names of other companies.
i
PROSPECTUS SUPPLEMENT SUMMARY
In this prospectus supplement, the words "Fleming," "the Company," "our,"
"us" and "we" refer to Fleming Companies, Inc., the issuer of the Notes, and its
subsidiaries. The following summary contains basic information about us and this
offering. It likely does not contain all the information that is important to
you. For a more complete understanding of this offering, we encourage you to
read this entire prospectus supplement, the accompanying prospectus and the
other documents to which we have referred you. Unless otherwise indicated, all
information in this prospectus supplement includes the full exercise of the
underwriters' over-allotment option relating to the concurrent equity offering.
FLEMING COMPANIES, INC.
INTRODUCTION
Fleming is an industry leader in the distribution of consumer package
goods. We believe that our network of "multi-tier" distribution centers offers
retailers of varying size and format a low-cost supply chain alternative to
other distribution competitors or to self-distribution. Multi-tier distribution
allows us to optimize the particular volume, value and velocity characteristics
of each product that we distribute, thereby increasing our efficiency and
lowering our costs.
On April 23, 2002, we signed an agreement to acquire Core-Mark
International, Inc. ("Core-Mark"), a distributor of consumer package goods to
convenience stores and other retailers in the western United States and western
Canada. Following our acquisition of Core-Mark (the "Acquisition"), our
distribution group will serve approximately 50,000 retail locations across the
United States and western Canada, including approximately 3,000 supermarkets,
approximately 40,000 convenience stores and approximately 7,000 supercenters,
discount stores, limited assortment stores, drug stores, specialty stores and
other stores. We believe that the Acquisition will further transform our
distribution group into an efficient, nationwide, multi-tier supply chain for
consumer package goods to retailers of any size and format.
On a pro forma basis after giving effect to the Acquisition, our
distribution group net sales were $16.6 billion for 2001 and $4.8 billion for
the 16 weeks ended April 20, 2002. Our distribution group represented
approximately 87% of our pro forma total net sales in 2001 and for the 16 weeks
ended April 20, 2002. To supply our customers, we currently have a network of 24
high velocity case-pick and flow-through distribution centers, 7 high velocity
piece-pick distribution centers and 5 low velocity case-pick and piece-pick
distribution centers, that have a total of approximately 21 million square feet
of warehouse space. The Acquisition will add 19 high velocity piece-pick
distribution centers that have a total of approximately 1.9 million square feet
of warehouse space to further enhance our ability to supply our customers
nationwide.
Our retail group operates 109 price impact supermarkets that offer everyday
low prices, typically below the prices of market-leading conventional
supermarkets, and that have a focus on high-quality perishables. These stores
typically cost less to build, maintain and operate than conventional
supermarkets. In addition, we operate 17 limited assortment stores under the
yes!LESS(R) banner. Limited assortment stores offer a narrow selection of
low-price, private label food and other consumable goods and general merchandise
at deep-discount prices. Our retail group net sales were $2.4 billion for 2001
and $669 million for the 16 weeks ended April 20, 2002, representing
approximately 13% of our total net sales for each respective period, on a pro
forma basis after giving effect to the Acquisition. Of those amounts,
approximately $2.0 billion and $669 million were attributable to continuing
retail formats for each respective period.
S-1
COMPETITIVE STRENGTHS
Interconnected Network of Multi-Tier, High-Volume, Low-Cost Distribution
Centers: Our network of multi-tier distribution centers optimizes the
particular volume, value and velocity characteristics of each product that we
distribute. We employ case-pick (in which products are selected in case
quantities and aggregated and distributed on pallets), piece-pick (in which
products are selected in single-unit quantities and distributed in totes) and
flow-through (in which products are distributed in full pallet quantities)
distribution methods. Our multi-tier process further segregates products into
high velocity items (which are characterized by fast inventory turns, such as
tobacco products, candy and paper products) and low velocity items (which are
characterized by slower inventory turns, such as health and beauty products,
general merchandise and specialty items). Consequently, we are able to serve
consumer package goods retailers of any size and format. We also believe that
our distribution center volumes are among the highest in the consumer package
goods distribution industry. With high volume comes the opportunity to operate
more efficiently by reducing costs through economies of scale, which enables us
to provide our customers with lower-cost merchandise and services.
National Distribution Capabilities: We believe that, following the
Acquisition, we will be the only distributor of consumer package goods capable
of meeting the growing need for a national supply chain which can serve all
retail formats anywhere in the United States. In addition, we believe we will be
one of only two suppliers capable of distributing consumer package goods to
convenience stores and related convenience-oriented retailers across the United
States and western Canada.
Efficient Centralized Purchasing: We currently make category management
decisions and negotiate with vendors for approximately 84% of our merchandise
procurement from one location, our customer support center near Dallas, Texas.
We believe our customer support center is one of the largest volume-buying
locations of consumable goods in the United States. Centralized purchasing
benefits us and ultimately, our customers, in several ways. It allows us to
lower our cost of goods through aggregated purchasing power, and it lowers our
administrative costs by eliminating the redundancy involved in purchasing
through multiple locations. It also makes it less expensive for our vendors to
serve us, which we believe in turn reduces our cost of goods. We believe that
our centralized purchasing capabilities are valuable to national retailers, as
well as the smaller independent retailers that make up our traditional customer
base.
Diverse Distribution Customer Base: We distribute to approximately 20,000
retail store locations that operate in a wide variety of formats across the
United States. Following the Acquisition, our distribution group will serve an
additional 30,000 convenience stores and other retail locations in the western
United States and western Canada. On a pro forma basis after giving effect to
the Acquisition, other than Kmart, which accounted for 17% of our net sales in
2001, no customer accounted for more than approximately 2% of our fiscal 2001
net sales.
Successful Price Impact Retail Format: Our price impact supermarkets offer
name-brand and private label consumable goods at significantly lower prices than
conventional supermarkets. We keep prices low by leveraging our existing
distribution and procurement capabilities and maintaining a lower cost structure
associated with operating these stores. We believe this format is profitable
because we offer a reduced number of product selections, focus on high-turnover
products and product categories, employ flow-through distribution methods that
reduce product storage and handling expense and minimize store operating costs.
Experienced Management Team: Our management team is led by Mark Hansen,
Chairman and Chief Executive Officer, who has been with Fleming since 1998.
Since Mr. Hansen joined us, we have further strengthened our management team
through the addition of a number of experienced officers across key functional
areas of our organization including information technology, logistics,
merchandising and supply chain management, retail store operations, finance and
human resources. These executives bring substantial experience from leading food
wholesale, supermarket, supercenter and general merchandise retailers.
S-2
BUSINESS STRATEGY
Our business strategy is to use our competitive strengths to achieve sales
and earnings growth in both our distribution group and retail group. As
principal elements of our strategy, we intend to:
Further Grow Sales to New Channel Retailers: We believe that our network
of multi-tier distribution centers strategically positions us to grow our sales
to new channel retailers. In recent years, consumers have been shifting their
purchases of food and other consumable goods away from conventional full-service
grocery stores toward these other retail channels. For this reason, we have
moved beyond our historic focus on conventional full-service grocery stores and
have successfully targeted convenience stores and other convenience-related
retailers, supercenters, discount stores, price impact stores, dollar stores,
ethnic food stores, limited-assortment stores, drug stores, military exchanges
and other specialty retailers.
Grow Sales to Traditional Format Customers: Despite being the largest
distributor in the wholesale grocery industry, we currently account for a small
percentage of sales in this traditional core market, representing substantial
room for additional growth. Many of our potential customers are currently served
by local or regional wholesalers that cannot offer the efficiencies produced by
our nationwide network of multi-tier distribution centers and our centralized
purchasing. Our repositioned distribution group has already enabled us to
increase sales to existing and new customers in this sector, and we expect to be
able to continue this trend.
Grow Sales to Self-Distributing Chain Supermarkets: In addition to
enabling us to grow our sales of consumer package goods and other merchandise to
new channel retailers and our traditional format customers, we believe that we
can employ our network of multi-tier distribution centers to expand our
distribution capabilities to serve large, national chain supermarkets that
currently self-distribute. For example, in March 2002, we entered into an
agreement with Albertson's, Inc. to supply 39 Albertson's stores in Oklahoma and
Nebraska beginning in July 2002 for the next five years. We believe that our
national presence, our multi-tier distribution platform and our centralized
purchasing capabilities will provide national chain supermarkets with a
compelling alternative to self-distribution. We are seeking additional
opportunities to establish similar relationships with other major supermarket
chains.
Continue to Improve Working Capital Management and Reduce Costs: We intend
to improve our working capital management primarily by further developing our
centralized procurement operations, taking advantage of the efficiencies created
by our multi-tier distribution network, and by continuing to develop and
implement our "F-1" supply chain technologies to better integrate our
distribution centers and our central procurement operations.
S-3
THE OFFERING
The summary below describes the principal terms of the Notes. Certain of
the terms and conditions described below are subject to important limitations
and exceptions. The "Description of the Notes" section of this prospectus
supplement contains a more detailed description of the terms and conditions of
the Notes.
Issuer........................ Fleming Companies, Inc.
Securities Offered............ $200,000,000 principal amount of 9 1/4% senior
notes due 2010.
Maturity...................... June 15, 2010.
Interest Rate................. 9 1/4% per year (calculated using a 360-day
year).
Interest Payment Dates........ June 15 and December 15, beginning on December
15, 2002. Interest will accrue from the issue
date of the Notes.
Ranking....................... The Notes will be our unsecured senior
obligations and will rank senior to all our
subordinated debt and pari passu with all our
other senior debt of the Company except to the
extent of collateral. The guarantees by our
subsidiaries will be unsecured senior
obligations of such subsidiaries and will rank
senior to all subordinated debt and pari passu
with all other senior debt of such subsidiaries
except to the extent of collateral. We expect
to enter into a new credit facility in
conjunction with these offerings and the
Acquisition. This new credit facility will
consist of a $425 million term loan and a $550
million revolving facility and will be secured
by accounts receivables, inventory and the
capital stock of certain of our subsidiaries.
As of April 20, 2002, on a pro forma basis
after giving effect to the Acquisition and as
adjusted for this offering, the concurrent
equity offering and anticipated borrowings
under our new credit facility, we estimate that
we and our subsidiaries would have had $1,403
million of senior debt (including the Notes),
of which $855 million would have been secured
indebtedness under our new credit facility and
our capital leases, excluding approximately
$400 million that we expect to have available
to borrow under our credit facility.
Guarantees.................... Our domestic subsidiaries that guarantee our
obligations under our new credit facility and
our existing note indentures will
unconditionally guarantee the Notes unless we
designate the subsidiary as an "unrestricted
subsidiary" under the indenture.
Optional Redemption........... On and after June 15, 2006, we may redeem some
or all of the Notes at the redemption prices
listed in the "Description of the Notes"
section of this prospectus supplement, under
the heading "Optional Redemption," plus accrued
interest.
Optional Redemption After
Public Equity Offerings....... At any time (which may be more than once)
before the third anniversary of the issue date
of the Notes, we can choose to redeem up to 35%
of the outstanding Notes with money that we
raise in one or more public equity offerings
(other than the concurrent equity offering), as
long as:
- we pay 109.25% of the face amount of the
Notes, plus interest;
S-4
- we redeem the Notes within 90 days of
completing the public equity offering; and
- at least 65% of the aggregate principal
amount of Notes issued remains outstanding
afterwards.
Change of Control Offer....... If a change in control of the Company occurs,
we must give holders of the Notes the
opportunity to sell us their Notes at 101% of
their face amount, plus accrued interest.
We might not be able to pay you the required
price for Notes you present to us at the time
of a change of control, because:
- we might not have enough funds at that time;
or
- the terms of our other senior debt may
prevent us from paying; or
- our bylaws may prevent us from paying.
Asset Sale Proceeds........... If we or our subsidiaries engage in asset
sales, we generally must either invest the net
cash proceeds from such sales in our business
within a period of time, prepay the debt under
the credit facility or make an offer to
purchase a principal amount of the Notes equal
to the excess net cash proceeds. The purchase
price of the Notes will be 100% of their
principal amount, plus accrued interest.
Certain Indenture
Provisions.................... The indenture governing the Notes will contain
covenants limiting our (and most or all of our
subsidiaries') ability to, among other things:
- incur additional debt;
- pay dividends or distributions on our
capital stock or repurchase our capital
stock;
- issue stock of subsidiaries;
- make certain investments;
- create liens on our assets to secure debt;
- enter into transactions with affiliates;
- merge or consolidate with another company;
and
These covenants are subject to a number of
important limitations and exceptions.
Use of Proceeds............... We intend to use the net proceeds from this
offering, the concurrent equity offering and
borrowings under our new credit facility to
fund our obligations in connection with our
pending acquisition of Core-Mark International,
Inc. and to repay debt. See "Use of Proceeds."
The closing of this offering is conditioned on
the closing of the Acquisition and the other
related financings.
Risk Factors.................. Investing in the Notes involves substantial
risks. See "Risk Factors" for a description of
certain of the risks you should consider before
investing in the Notes.
S-5
SUMMARY HISTORICAL CONSOLIDATED AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following table displays our summary financial data for the periods
ended and as of the dates indicated. We derived the historical data for the
fiscal years ended December 25, 1999, December 30, 2000 and December 29, 2001
and as of those dates from our audited consolidated financial statements. We
derived the historical data for the 16 weeks ended April 21, 2001 and April 20,
2002 and as of those dates from our unaudited consolidated condensed financial
statements, which include all adjustments that management considers necessary
for a fair presentation of our financial position and results of operation for
those periods. The historical data for the 16 weeks ended April 20, 2002 are not
necessarily indicative of the results that may be expected for any other interim
period or for the full fiscal year ending December 28, 2002. The summary
unaudited pro forma income statement data give effect to the Acquisition and the
use of proceeds from this offering, the concurrent equity offering and our new
credit facility as if each of these transactions had occurred at the beginning
of the period. The summary unaudited pro forma balance sheet data give effect to
these transactions as if each of these transactions had occurred on April 20,
2002. The summary pro forma financial data are not intended to represent our
financial position or results of operations had these transactions been
completed as of such dates or to project our financial position or results of
operations for any future period or date. You should read the information set
forth below together with the other financial information contained or
incorporated by reference in this prospectus supplement and the accompanying
prospectus.
<Table>
<Caption>
HISTORICAL PRO FORMA
------------------------------------------------------------------ ---------
FISCAL YEAR ENDED(1) 16 WEEKS ENDED 52 WEEKS
------------------------------------------ --------------------- ENDED
DECEMBER 25, DECEMBER 30, DECEMBER 29, APRIL 21, APRIL 20, APRIL 20,
1999(2) 2000(3) 2001(4) 2001(5) 2002(6) 2002
------------ ------------ ------------ --------- --------- ---------
INCOME STATEMENT DATA:
Net sales(7)................................. $14,218 $14,369 $15,558 $4,137 $4,686 $19,603
Costs and expenses:
Cost of sales(7)........................... 12,781 13,022 14,367 3,771 4,347 18,302
Selling and administrative................. 1,262 1,187 961 315 255 1,002
Interest expense........................... 165 175 166 58 50 184
Interest income and other.................. (30) (25) (24) (9) (7) (23)
Impairment/restructuring charge (credit)... 103 213 (24) (27) -- 3
Litigation charge (credit)................. -- (2) 49 2 -- 49
------- ------- ------- ------ ------ -------
Total costs and expenses............... 14,281 14,570 15,495 4,110 4,645 19,517
------- ------- ------- ------ ------ -------
Earnings (loss) before taxes................. (63) (201) 63 27 41 86
Taxes on income (loss)....................... (18) (79) 36 11 16 48(8)
------- ------- ------- ------ ------ -------
Earnings (loss) before extraordinary
charge(9).................................. (45) (122) 27 16 25 38
Extraordinary charge from early retirement of
debt (net of taxes)........................ -- -- (4) (4) -- --
------- ------- ------- ------ ------ -------
Net earnings (loss)(9)................. $ (45) $ (122) $ 23 $ 12 $ 25 $ 38(8)
======= ======= ======= ====== ====== =======
Diluted earnings (loss) per share(10)........ $ (1.17) $ (3.15) $ 0.52 $ 0.29 $ 0.52 $ 0.69(8)
BALANCE SHEET DATA: (AT END OF PERIOD)
Cash and cash equivalents.................. $ 7 $ 30 $ 17 $ 27 $ 4 $ 5
Total assets............................... 3,573 3,403 3,655 3,176 3,824 4,443
Total debt (including current maturities
and capital leases)...................... 1,694 1,669 1,811 1,636 1,917 2,203
Shareholders' equity....................... 561 427 498 494 518 687
OTHER FINANCIAL AND OPERATING DATA:
EBITDA(11)................................. $ 281 $ 154 $ 385 $ 137 $ 137 $ 446
Adjusted EBITDA(12)........................ 411 456 476 136 137 538
Depreciation and amortization(13).......... 158 169 166 51 46 184
Capital expenditures....................... 166 151 238 48 61 259
Adjusted EBITDA to interest expense........ 2.92x
Net debt to Adjusted EBITDA(14)............ 4.09x
</Table>
S-6
- ------------
(1) Fiscal 2000 is a 53-week year; all other years are 52 weeks.
(2) The results in 1999 reflect an impairment/restructuring charge with related
costs totaling $137 million ($92 million after-tax) related to our
strategic plan. Such period also reflects unusual items ($31 million charge
to close ten conventional retail stores, income of $22 million from
extinguishing a portion of the self-insured workers' compensation
liability, interest income of $9 million related to refunds in federal
income taxes from prior years, and $6 million in gains from the sale of
distribution facilities) netting to $6 million of income ($3 million
after-tax).
(3) The results in 2000 reflect an impairment/restructuring charge with related
costs totaling $309 million ($183 million after-tax) relating to our
strategic plan. Such period also reflects unusual items ($10 million charge
related primarily to asset impairment on retail stores, income of $2
million relating to litigation settlements, and $9 million in gains from
the sale of distribution facilities) netting to less than $1 million of
income ($1 million loss after-tax).
(4) The results in 2001 reflect an impairment/restructuring credit totaling $24
million ($25 million after-tax reflecting the tax expense impact of
goodwill permanent differences from the sale of certain retail stores)
relating to our strategic plan. Such period also reflects unusual items
($49 million in charges relating to litigation settlements, $20 million in
charges relating to Kmart's bankruptcy reorganization and $2 million due to
early retirement of debt) netting to approximately $70 million in charges
($42 million after-tax).
(5) The results in the first quarter of 2001 reflect an
impairment/restructuring net credit totaling $1 million (less than $1
million after-tax) relating to our strategic plan. Such period also
reflects unusual items ($2 million in charges relating to litigation
settlements and approximately $2 million in charges due to early retirement
of debt) netting to approximately $3 million in charges ($2 million
after-tax).
(6) During the first quarter of 2002 we adopted SFAS No. 142 and ceased
amortizing goodwill cost. No prior period restatements were made. Goodwill
amortization for any of the prior years reported did not exceed $33
million. Also, cash and cash equivalents and total debt amounts exclude
amounts related to the 10 1/2% senior subordinated notes due 2004 and
related transaction fees as these amounts are being held in trust to redeem
the notes in June 2002.
(7) During the first quarter of 2002, we adopted EITF 01-9 and reduced sales
and cost of sales for all prior periods with the impact on any year
reported not exceeding $75 million. The adoption had no effect on gross
margins or earnings.
(8) The pro forma combined effective tax rate of 56% for the 52 weeks ended
April 20, 2002 includes the impact of an unusual tax gain related to our
disposition of non-strategic retail operations and the pro forma
amortization of goodwill from our planned acquisition of Core-Mark, most of
which would not have been tax deductible. Our effective tax rate would have
been approximately 40% absent these two items since we will not amortize
goodwill in accordance with SFAS 142 and do not anticipate another similar
tax gain. This effective tax rate of approximately 40% would have
represented a pro forma combined tax expense of $34.0 million, net income
of $52.1 million and diluted income per share of $0.95.
(9) On December 30, 2001, we adopted SFAS 142, Accounting for Goodwill and
Other Intangible Assets, which eliminated periodic amortization of
goodwill. If we had applied the nonamortization provisions of SFAS 142 for
each of the periods presented, earnings (loss) before extraordinary charge
would have been $(26) million for 1999, $(103) million for 2000, $46
million for 2001, $22 million for the 16 weeks ended April 21, 2001; and
$60 million for the pro forma 52 weeks ended April 20, 2002; and net
earnings (loss) would have been $(26) million for 1999, $(103) million for
2000, $42 million for 2001, $18 million for the 16 weeks ended April 21,
2001, and $60 million for the pro forma 52 weeks ended April 20, 2002.
(10) See note (9). If we had applied the nonamortization provisions of SFAS 142
for all periods presented our diluted earnings (loss) per share would have
been $(0.67) for 1999, $(2.67) for 2000, $0.94 for 2001, $0.42 for the 16
weeks ended April 21, 2001, and $1.08 for the pro forma 52 weeks ended
April 20, 2002.
(11) EBITDA is earnings before extraordinary items, interest expense, income
taxes, depreciation and amortization, equity investment results and LIFO
provision. EBITDA should not be considered as an alternative measure of our
net income, operating performance, cash flow or liquidity. We provide it as
additional information related to our ability to service debt; however,
conditions may require conservation of funds for other uses. Although we
believe EBITDA enhances your understanding of our financial condition, this
measure, when viewed individually, is not necessarily a better indicator of
any trend as compared to measures (e.g., net sales, net earnings, net cash
flows, etc.) conventionally computed in accordance with GAAP. Amounts
presented may not be comparable to similar measures disclosed by other
companies.
S-7
(12) Adjusted EBITDA is EBITDA less unusual adjustments (e.g., strategic plan
charges and specific litigation charges). The following table reconciles
EBITDA to Adjusted EBITDA:
<Table>
<Caption>
HISTORICAL PRO FORMA
------------------------------------------------------------------ ---------
FISCAL YEAR ENDED 16 WEEKS ENDED 52 WEEKS
------------------------------------------ --------------------- ENDED
DECEMBER 25, DECEMBER 30, DECEMBER 29, APRIL 21, APRIL 20, APRIL 20,
1999 2000 2001 2001 2002 2002
------------ ------------ ------------ --------- --------- ---------
EBITDA.......................................... $281 $154 $385 $137 $137 $446
Add back:
Non-cash strategic plan charges................ 78 121 (12) (18) -- 6
Non-cash unusual adjustments................... 14 8 20 -- -- 20
---- ---- ---- ---- ---- ----
EBITDA excluding non-cash strategic plan charges
and unusual adjustments........................ 373 283 393 119 137 472
Add back:
Cash related strategic plan charges............ 58 181 36 17 -- 19
Cash related unusual adjustments............... (20) (8) 47 -- -- 47
---- ---- ---- ---- ---- ----
Adjusted EBITDA................................. $411 $456 $476 $136 $137 $538
==== ==== ==== ==== ==== ====
</Table>
(13) Depreciation and amortization expense includes goodwill amortization, if
any, and excludes amortization of debt cost which is reflected in interest
expense.
(14) Net debt is calculated as total debt (including capital lease obligations)
less cash and cash equivalents.
S-8
RISK FACTORS
This offering involves a high degree of risk. You should consider carefully
the risks described below, together with the other information in or
incorporated by reference into this prospectus supplement and the accompanying
prospectus, before you make a decision to purchase the Notes. If any of the
following risks actually occur, our business, financial condition, operating
results and prospects could be materially adversely affected, which in turn
could adversely affect our ability to repay the Notes.
WE HAVE A SUBSTANTIAL AMOUNT OF DEBT AND DEBT SERVICE OBLIGATIONS, WHICH COULD
ADVERSELY AFFECT OUR FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR
OBLIGATIONS UNDER THE NOTES AND OUR OTHER OUTSTANDING DEBT INSTRUMENTS.
We have a substantial amount of debt outstanding. The following chart shows
certain important credit statistics as of April 20, 2002, on a pro forma basis
after giving effect to the Acquisition and as adjusted for this offering, the
concurrent equity offering and borrowings under our new credit facility.
<Table>
<Caption>
AT APRIL 20, 2002,
AS ADJUSTED
------------------
(IN THOUSANDS)
Total debt (including capital leases)....................... $2,202,719
Shareholders' equity........................................ 687,382
Total capitalization........................................ 2,890,101
Debt to capitalization...................................... 76.2%
</Table>
The amount of our debt could have important consequences to you. For
example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the Notes and our other outstanding debt instruments;
- require us to dedicate a substantial portion of our cash flow to
payments on our debt;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to fund future working capital, capital expenditures
and other general corporate requirements;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate; and
- limit, along with the financial and other restrictive covenants in our
debt, among other things, our ability to borrow additional funds. If we
fail to comply with those covenants, it could result in an event of
default which, if not cured or waived, could have a material adverse
effect on our financial condition.
We and our subsidiaries may be able to incur substantial additional debt in
the future, including secured debt. The terms of the indentures governing our
outstanding debt and our new credit facility do not fully prohibit us or our
subsidiaries from doing so. As of April 20, 2002, on a pro forma basis after
giving effect to the Acquisition and as adjusted for this offering and the
concurrent equity offering, our new credit facility would have permitted
additional borrowings of up to approximately $400 million, all of which would be
secured. If new debt is added to our and our subsidiaries' current debt levels,
the related risks that we and they now face could intensify.
Our ability to make payments on and to refinance our debt will depend on
our 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 our control.
We cannot assure you that our business will generate sufficient cash flow
from operations or that future borrowings will be available to us under our
credit facility in an amount sufficient to enable us to pay our debt, including
the Notes, or to fund our other liquidity needs. We may need to refinance all or
a portion of our debt, including the Notes, on or before maturity. We cannot
assure you that we will be able
S-9
to refinance any of our debt, including our credit facility or the Notes, on
commercially reasonable terms or at all.
WE MAY BE MATERIALLY ADVERSELY AFFECTED BY THE BANKRUPTCY OF KMART
CORPORATION.
Kmart Corporation is our largest customer, accounting for 17% of our net
sales in 2001, on a pro forma basis after giving effect to the Acquisition. We
began shipments under a ten-year agreement in April 2001, with full
implementation in July 2001. On January 22, 2002, Kmart and certain of its
subsidiaries filed voluntary petitions for relief under Chapter 11 of the U.S.
Bankruptcy Code. Shortly thereafter, we and Kmart entered into a critical vendor
agreement under the terms of which Kmart paid us $76 million of indebtedness and
we agreed to supply Kmart for two years. We will assert a prepetition claim in
the bankruptcy proceeding for obligations under our ten-year distribution
agreement. A material portion of this claim may not be paid by Kmart.
The terms of our distribution agreement provide that Kmart can terminate
if, among other things, the volume of Kmart's purchases decline by certain
amounts, if we materially breach our obligations, including a failure to
maintain specified service levels, or if we experience certain types of changes
of control. Kmart can also elect to terminate the distribution agreement on
12-months written notice given after the fifth anniversary of its effective
date, with the termination to take place at the end of a transition period of up
to an additional 12 months at Kmart's discretion.
Subject to the effect of the critical vendor agreement, Kmart has the right
to assume or reject the distribution agreement with us. If Kmart rejects it, a
breach by Kmart will result, effective immediately prior to the bankruptcy
filing date, but we may still have to supply Kmart for a 12-month transition
period. If Kmart assumes the distribution agreement, it would be required to
cure all defaults, including payment of our prepetition claim. Because Kmart is
a substantial portion of our business, negative information about Kmart's
performance, financial condition, business prospects and progress through its
bankruptcy may adversely affect the market for and prices of the Notes.
We cannot predict what effect this bankruptcy will have on us, but Kmart's
announced plan to close 283 stores will result in the elimination of sales to
those stores. Further, a failure by Kmart to successfully reorganize or to
continue as a going concern would have a material adverse effect on us. Also,
although no material litigation is currently outstanding, we may be involved in
litigation related to the Kmart bankruptcy.
NOT ALL OF OUR SUBSIDIARIES WILL GUARANTEE THE NOTES, AND YOUR RIGHT TO
RECEIVE PAYMENTS ON THE NOTES COULD BE ADVERSELY AFFECTED IF ANY OF OUR
NON-GUARANTOR SUBSIDIARIES DECLARE BANKRUPTCY, LIQUIDATE OR REORGANIZE.
Not all of our subsidiaries will guarantee the Notes. In the event any of
our non-guarantor subsidiaries becomes insolvent, liquidates, reorganizes,
dissolves or otherwise winds up, holders of their indebtedness and their trade
creditors will generally be entitled to payment on their claims from the assets
of those subsidiaries before any of those assets are made available to us.
Consequently, your claims in respect of the Notes will be effectively
subordinated to all of the liabilities of our non-guarantor subsidiaries.
THE INDENTURE GOVERNING THE NOTES, OUR NEW CREDIT FACILITY AND OUR OTHER
EXISTING INDEBTEDNESS CONTAIN PROVISIONS THAT COULD MATERIALLY RESTRICT OUR
BUSINESS.
The indenture governing the Notes, our new credit facility and our other
existing indebtedness contain a number of significant covenants that, among
other things, restrict our ability to:
- dispose of assets;
- incur additional debt;
- guarantee third-party obligations;
S-10
- repay other debt or amend other debt instruments;
- create liens on assets;
- enter into capital leases;
- make investments, loans or advances;
- make acquisitions or engage in mergers or consolidations;
- make capital expenditures; and
- engage in certain transactions with our subsidiaries and affiliates.
In addition, under our new credit facility, we are required to meet a
number of financial ratios and tests.
Our ability to comply with these covenants may be affected by events beyond
our control. If we breach any of these covenants or restrictions, it could
result in an event of default under our credit facility and the documents
governing our other existing indebtedness, which would permit our lenders to
declare all amounts borrowed thereunder to be due and payable, together with
accrued and unpaid interest, and our senior lenders could terminate their
commitments to make further extensions of credit under our credit facility. If
we were unable to repay debt to our secured lenders, they could proceed against
the collateral securing the debt.
IF THE CUSTOMERS TO WHOM WE LEND MONEY OR FOR WHOM WE GUARANTEE STORE LEASE
OBLIGATIONS FAIL TO REPAY US, IT COULD HARM OUR FINANCIAL RESULTS.
We provide subleases, extend loans to and make investments in many of our
retail store customers, often in conjunction with the establishment of long-term
supply contracts. As of December 29, 2001, on a pro forma basis after giving
effect to the Acquisition, we had an aggregate of $119 million in outstanding
loans to our customers. Our loans to our customers are generally not investment
grade and are highly illiquid. We also have investments in customers through
direct financing leases of real property and equipment, lease guarantees,
operating leases or credit extensions for inventory purchases.
Although we have strict credit policies and apply cost/benefit analyses to
these investment decisions, we face the risk that credit losses from existing or
future investments or commitments could adversely affect our financial results.
On a pro forma basis after giving effect to the Acquisition, our credit loss
expense from receivables as well as from investments in customers was $40
million in 2001 (including a $17 million charge relating to the Kmart
bankruptcy) and $1 million for the 16 weeks ended April 20, 2002.
VARIOUS CHANGES IN THE DISTRIBUTION AND RETAIL MARKETS IN WHICH WE OPERATE
HAVE LED AND MAY CONTINUE TO LEAD TO REDUCED SALES AND MARGINS FOR US AND LOWER
PROFITABILITY FOR OUR CUSTOMERS.
The distribution and retail markets in which we operate are undergoing
accelerated change as distributors and retailers seek to lower costs and provide
additional services in an increasingly competitive environment. An example of
this is the growing trend of large self-distributing chains consolidating to
reduce costs and gain efficiencies. Eating away from home and alternative format
food stores, such as warehouse stores and supercenters, have taken market share
from traditional supermarket operators, including independent grocers, many of
whom are our 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. We
believe that these changes have led to reduced sales, reduced margins and lower
profitability among many of our customers and, consequently, for us. If the
strategies we have developed in response to these changing market conditions are
not successful, it could harm our financial condition and business prospects.
S-11
CONSUMABLE GOODS DISTRIBUTION IS A LOW-MARGIN BUSINESS AND IS SENSITIVE TO
ECONOMIC CONDITIONS.
We derive most of our revenues from the consumable goods distribution
industry. This industry is characterized by a high volume of sales with
relatively low profit margins. A significant portion of our sales are at prices
that are based on product cost plus a percentage markup. Consequently, our
results of operations may be negatively impacted when consumable goods prices go
down, even though our percentage markup may remain constant. The consumable
goods industry is also sensitive to national and regional economic conditions,
and the demand for our consumable goods has been adversely affected from time to
time by economic downturns.
WE FACE COMPETITION IN BOTH OUR DISTRIBUTION AND RETAIL MARKETS, AND IF WE ARE
UNABLE TO COMPETE EFFECTIVELY IN THESE MARKETS, IT COULD HARM OUR BUSINESS.
Our distribution group operates in a highly competitive market. We face
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. We also compete with retail supermarket
chains that self-distribute, purchasing directly from vendors and distributing
products to their supermarkets for sale to the consumer. Consolidation of
self-distributing chains may produce even stronger competition for our
distribution group.
Our retail group 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 in food marketing
and distribution with alternative store formats, such as warehouse stores and
supercenters, which depend on concentrated buying power and low-cost
distribution technology. We expect that stores with alternative formats will
continue to increase their market share in the future. Retail consolidations not
only produce stronger competition for our retail group, but may also result in
declining sales in our distribution group if our existing customers are acquired
by self-distributing chains.
Some of our competitors have greater financial and other resources than we
do. In addition, consolidation in the industry, heightened competition among our
vendors and new entrants could create additional competitive pressures that
reduce our margins and adversely affect our business. If we fail to successfully
respond to these competitive pressures or to implement our strategies
effectively, it could have a material adverse effect on our financial condition
and business prospects.
BECAUSE WE OWN AND OPERATE REAL ESTATE, WE FACE THE RISK OF BEING HELD LIABLE
FOR ENVIRONMENTAL DAMAGES THAT MAY OCCUR ON OUR PROPERTIES.
Our 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 certain materials. In conformity with
these provisions, we have a comprehensive program for testing, removal,
replacement or repair of our underground fuel storage tanks and for site
remediation where necessary. Although we have established reserves that we
believe will be sufficient to satisfy the anticipated costs of all known
remediation requirements, we cannot assure you that these reserves will be
sufficient.
We and others have been designated by the U.S. Environmental Protection
Agency and by similar state agencies as potentially responsible parties under
the Comprehensive Environmental Response, Compensation and Liability Act, or
CERCLA, or similar state laws, as applicable, with respect to EPA-designated
Superfund sites. While liability under CERCLA for remediation at these sites is
generally joint and several with other responsible parties, we believe that, to
the extent we are ultimately determined to be liable for the expense of
remediation at any site, such liability will not result in a material adverse
effect on our consolidated financial position or results of operations.
S-12
WE ARE A PARTY TO OR THREATENED WITH VARIOUS LITIGATION AND CONTINGENT LOSS
SITUATIONS ARISING IN THE ORDINARY COURSE OF OUR BUSINESS AND CORE-MARK'S
BUSINESS. IF ANY PROCEEDING IS RESOLVED AGAINST US, IT COULD HARM OUR FINANCIAL
CONDITION AND BUSINESS PROSPECTS.
We are a party to or threatened with various other litigation and
contingent loss situations arising in the ordinary course of our business
including:
- disputes with customers and vendors;
- disputes with owners or creditors of financially troubled or failed
customers;
- disputes with employees;
- disputes with insurance carriers;
- disputes with landlords and lessees;
- disputes with tax authorities;
- litigation involving health and other effects of cigarette smoking and
other uses of tobacco; and
- litigation by the U.S. Department of Justice to recover federal Medicare
costs allegedly connected to smoking;
some of which may be for substantial amounts. We incur the costs of defending
any such litigation whether or not a claim has merit. We intend to vigorously
defend against all lawsuits, but we cannot predict the outcome of any case. An
unfavorable outcome in any case could harm our business and financial results.
BECAUSE WE SELL FOOD AND OTHER PRODUCTS, WE ARE SUBJECT TO PRODUCT LIABILITY
CLAIMS.
Like any other seller of food and other consumer products, we face the risk
of exposure to product liability claims in the event that people who purchase
products we sell become injured or experience illness from those products. We
believe that we have sufficient primary and excess umbrella liability insurance
to protect us against any product liability claims that may arise. However, this
insurance may not continue to be available at a reasonable cost, or, even if it
is available, it may not be adequate to cover our liabilities. We generally seek
contractual indemnification and insurance coverage from parties supplying our
products, but this indemnification or insurance coverage is limited, as a
practical matter, to the creditworthiness of the indemnifying party and the
policy limits of any insurance provided by suppliers. If we do not have adequate
insurance or contractual indemnification to cover our liabilities, product
liability claims could materially reduce our earnings.
OUR CURRENT STRATEGY INVOLVES GROWTH THROUGH ACQUISITIONS, WHICH REQUIRES US
TO INCUR SUBSTANTIAL COSTS AND POTENTIAL LIABILITIES FOR WHICH WE MAY NEVER
REALIZE THE ANTICIPATED BENEFITS.
As part of our growth strategy for our distribution group, we intend to
continue to seek strategic acquisitions of other distributors on a selective
basis. In addition, our retail group intends to continue to selectively acquire
stores operated by others on a strategic basis. Since the beginning of 2001, we
have acquired several businesses.
On April 23, 2002, we signed a merger agreement to acquire Core-Mark
International, Inc., a distributor of consumer package goods to nearly 30,000
convenience stores and other retailers in the western United States and western
Canada from its network of 19 distribution centers. Also in April 2002, we
acquired Head Distributing Company, a wholesale distributor that operates two
piece-pick distribution centers and serves approximately 3,000 retail locations
in six southeastern states. In March 2002, we signed an agreement with
Albertson's, Inc. to acquire Albertson's distribution center in Tulsa, Oklahoma
and to supply 39 Albertson's stores in Oklahoma and Nebraska for the next five
years. We expect that shipments under this arrangement, which is subject to
customary closing conditions, will commence in July 2002. In September 2001, we
purchased certain assets and inventory of Miller & Hartman South, LLC, a
S-13
wholesale distributor serving over 1,800 convenience stores in Kentucky and
surrounding states. In April 2001, we acquired Minter-Weisman Co., a wholesale
distribution company serving over 800 convenience stores in Minnesota, Wisconsin
and surrounding states.
In May 2002, we purchased seven stores located in the Dallas, Texas
metropolitan area, which we operate under our price impact format. In September
2001, we purchased five Smith's Food & Drug Stores located in New Mexico and
Texas from Kroger Co. which we operate under our price impact format. In April
2001, we also purchased seven Food 4 Less stores located in Central California
from Whitco Foods, Inc. which we continue to operate as price impact stores
under the Food 4 Less banner.
We cannot assure you that we will be able to continue to implement our
growth strategy, or that this strategy will ultimately be successful. We
regularly engage in evaluations of potential acquisitions and are in various
stages of discussion regarding possible acquisitions, certain of which, if
consummated, could be significant to us, including the Acquisition. Any
potential acquisitions may result in significant transaction expenses, increased
interest and amortization expense, increased capital expenditures, increased
depreciation expense and increased operating expense, any of which could have a
material adverse effect on our operating results.
Achieving the benefits of these acquisitions will depend in part on our
ability to integrate those businesses with our business in an efficient manner.
We cannot assure you that this will happen or that it will happen in an
efficient manner. Our consolidation of operations following these acquisitions
may require substantial attention from our management. The diversion of
management attention and any difficulties encountered in the transition and
integration process could have a material adverse effect on our ability to
achieve expected net sales, operating expenses and operating results for these
acquired businesses. We cannot assure you that we will realize any of the
anticipated benefits of any acquisition, and if we fail to realize these
anticipated benefits, our operating performance could suffer.
Furthermore, we may not be able to identify suitable acquisition candidates
in the future, obtain acceptable financing or consummate any future
acquisitions.
WE OPERATE IN A COMPETITIVE LABOR MARKET, AND A SUBSTANTIAL NUMBER OF OUR
EMPLOYEES ARE COVERED BY COLLECTIVE BARGAINING AGREEMENTS.
Our continued success will depend on our ability to attract and retain
qualified personnel in both our distribution and retail groups. We compete with
other businesses in our markets with respect to attracting and retaining
qualified employees. A shortage of qualified employees would require us to
enhance our wage and benefits packages in order to compete effectively in the
hiring and retention of qualified employees or to hire more expensive temporary
employees. In addition, approximately 44%, or approximately 9,200, of our
employees are covered by collective bargaining agreements, most of which expire
at various times over the course of the next five years. In addition, Core-Mark
is a party to a number of local collective bargaining agreements. These
agreements, most of which expire at various times over the course of the next
five years, cover an aggregate of approximately 9%, or approximately 260, of
Core-Mark's employees.
We cannot assure you that we or Core-Mark will be able to renew our
respective collective bargaining agreements, that our labor costs will not
increase, that we will be able to recover any increases through increased prices
charged to customers or that we will not suffer business interruptions as a
result of strikes or other work stoppages. If we fail to attract and retain
qualified employees, to control our labor costs, or to recover any increased
labor costs through increased prices charged to our customers, it could harm our
business.
UNDER CERTAIN CIRCUMSTANCES, FEDERAL AND STATE LAWS MAY ALLOW COURTS TO VOID
THE GUARANTEES OF THE NOTES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS THEY
RECEIVE FROM OUR SUBSIDIARY GUARANTORS.
Under the federal Bankruptcy Code and comparable provisions of state
fraudulent transfer laws, a court could void the guarantees or subordinate
claims in respect of the guarantees to all of a Subsidiary
S-14
Guarantor's other debts if, among other things, any Subsidiary Guarantor, at the
time it incurred the indebtedness evidenced by its guarantee:
- received less than reasonably equivalent value or fair consideration for
the incurrence of such guarantee; and
- was insolvent or rendered insolvent by reason of the incurrence; or
- was engaged in a business or transaction for which its remaining assets
constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay as they became due.
In addition, a court could void any payment by a Subsidiary Guarantor or
require a noteholder to return the payment to a Subsidiary Guarantor, or to a
fund for the benefit of its creditors.
The measure of insolvency for purposes of fraudulent transfer laws varies
depending upon the law applied in any proceeding. Generally, however, a
Subsidiary Guarantor would be considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater than
the fair saleable value of its assets; or
- the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they become due.
On the basis of our historical financial information, recent operating
history and other factors, we believe that after giving effect to the issuance
of the guarantees, none of the Subsidiary Guarantors will be insolvent, have
unreasonably small capital for the respective businesses in which they are
engaged or have incurred debts beyond their respective abilities to pay as they
mature. However, we cannot assure you that a court making these determinations
would agree with our conclusions in this regard.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
OF CONTROL OFFER REQUIRED BY THE INDENTURE GOVERNING THE NOTES AND OUR OTHER
EXISTING INDEBTEDNESS. IN ADDITION, OUR BYLAWS MAY NOT PERMIT US TO MAKE THE
CHANGE OF CONTROL PAYMENT EVEN IF WE DO HAVE THE FUNDS.
Upon the occurrence of a change of control of our company, we will be
required to offer to repurchase all outstanding Notes and other outstanding
debt. If a change of control were to occur, we cannot assure you that we would
have sufficient funds to pay the repurchase price for all the Notes tendered by
the holders. Our new credit facility will contain, our other indentures contain,
and any future other agreements relating to other indebtedness to which we
become a party may contain, restrictions or prohibitions on our ability to
repurchase Notes or may provide that an occurrence of a change of control
constitutes an event of default under, or otherwise requires payment of amounts
borrowed under those agreements. If a change of control occurs at a time when we
are prohibited from repurchasing the Notes, we could seek the consent of our
then existing lenders and noteholders to the repurchase of the Notes or attempt
to refinance the borrowings that contain the prohibition. If we were unable to
obtain such a consent or repay the borrowings, we would remain prohibited from
repurchasing the Notes. In that case, our failure to repurchase tendered Notes
would constitute an event of default under the indenture governing the Notes and
may constitute a default under the terms of other indebtedness that we may enter
into from time to time. In addition, our bylaws contain a provision that
prohibits us from adopting a shareholder rights plan or any other form of
"poison pill" without the prior approval of holders of at least a majority of
the shares of our outstanding capital stock. It is unclear whether this
provision of our bylaws would prohibit us from repurchasing the Notes in the
event of a change of control. If a court concluded that the change of control
provisions of the indenture governing the Notes were inconsistent with or
prohibited by our bylaws, we may not be able to repurchase the Notes.
S-15
For more details, see the section "Description of Notes" in this prospectus
supplement under the heading "Purchase of Notes Upon a Change of Control."
VOLATILE TRADING PRICES MAY REQUIRE YOU TO BEAR THE FINANCIAL RISK OF AN
INVESTMENT IN THE NOTES FOR AN INDEFINITE PERIOD OF TIME.
If a market develops for the Notes, the Notes might trade at prices higher
or lower than their initial debt offering price. The trading price would depend
on many factors, such as prevailing interest rates, the market for similar
securities, general economic conditions, and our financial condition,
performance and business prospects. Historically, the market for non-investment
grade debt has been subject to disruptions that have caused substantial
fluctuation in the prices of these securities. The market for the Notes may be
subject to such disruptions, which could have an adverse effect on the price of
the Notes. You should be aware that you may be required to bear the financial
risk of an investment in the Notes for an indefinite period of time.
In addition, because we depend on Kmart for a substantial portion of our
business, negative information about Kmart's performance, financial condition
and business prospects may adversely affect the market for and prices of the
Notes.
TERRORIST ATTACKS AND OTHER ACTS OF VIOLENCE OR WAR MAY AFFECT THE MARKETS ON
WHICH THE NOTES TRADE, THE MARKETS IN WHICH WE OPERATE, OUR OPERATIONS AND OUR
PROFITABILITY.
Terrorist attacks may negatively affect our operations and your investment.
There can be no assurance that there will not be further terrorist attacks
against the United States or U.S. businesses. These attacks or armed conflicts
may directly impact our physical facilities or those of our suppliers or
customers. Furthermore, these attacks may make travel and the transportation of
our supplies and products more difficult and more expensive and ultimately
affect our sales.
Also as a result of terrorism, the United States has entered into an armed
conflict which could have a further impact on our sales, our supply chain, and
our ability to deliver product to our customers. Political and economic
instability in some regions of the world may also result and could negatively
impact our business. The consequences of any armed conflict are unpredictable,
and we may not be able to foresee events that could have an adverse effect on
our business or your investment.
More generally, any of these events could cause consumer confidence and
spending to decrease or result in increased volatility in the United States and
worldwide financial markets and economy. They also could result in a worsening
of economic conditions in the United States or abroad. Any of these occurrences
could have a significant impact on our operating results, revenues and costs and
may result in the volatility of the market price for our securities and on the
future price of our securities.
S-16
CONCURRENT OFFERING
Concurrently with this offering, we are offering 9,200,000 shares of our
common stock (including the underwriters' over-allotment option). The closing of
this offering is conditioned on the closing of the Acquisition and the other
related financings.
USE OF PROCEEDS
Our net proceeds from this offering and the concurrent equity offering
(including the full exercise of the underwriters' over-allotment option) will be
approximately $365 million, after deducting underwriting discounts and estimated
offering expenses. We intend to use the net proceeds from this offering and the
concurrent equity offering, together with initial borrowings under our new
credit facility and cash on hand, to fund the Acquisition, to repay the
outstanding indebtedness under our existing credit facility and other
indebtedness and to pay related fees and expenses.
The following table summarizes the estimated sources and uses of funds from
this offering, the concurrent equity offering and our new credit facility. The
actual amounts may differ from those shown below on the closing date of these
transactions.
<Table>
<Caption>
SOURCES OF FUNDS
(IN MILLIONS)
- ----------------
New Fleming revolving credit facility(1).................... $118
New Fleming term loan(1).................................... 425
9 1/4% Senior Notes due 2010................................ 200
Common Stock................................................ 178
Available cash from Core-Mark............................... 35
----
Total Sources..................................... $956
====
</Table>
<Table>
<Caption>
USES OF FUNDS
(IN MILLIONS)
- -------------
Purchase of Core-Mark equity(2)............................. $295
Repay existing Fleming revolving credit facility(3)......... 381
Repay existing Fleming term loan(3)......................... 109
Repay Core-Mark receivables securitization facility(4)...... 55
Repay Core-Mark 11 3/8% Senior Subordinated Notes due
2003(5)................................................... 75
Fees and expenses of the transactions(6).................... 41
----
Total Uses........................................ $956
====
</Table>
- ------------
(1) Our new credit facility will consist of a $550 million revolving facility
and a $425 million term loan.
(2) If the Acquisition is not consummated on or before June 30, 2002 we will pay
an additional $7 million in cash to purchase the Core-Mark equity.
(3) The stated interest rate on borrowings under our existing credit facility is
equal to a referenced index rate, normally the London interbank offered
interest rate, or LIBOR, plus a margin. The level of the margin is dependent
upon credit ratings on our senior secured bank debt. Our existing revolving
credit facility matures on July 25, 2003. Our existing term loan matures on
July 25, 2004.
(4) Core-Mark's obligations under its receivables securitization facility
currently bear interest at either LIBOR or the commercial paper rate plus a
margin and mature in January 2003. This facility will be repaid as soon as
practicable following the closing of the Acquisition.
(5) We intend to call Core-Mark's 11 3/8% Senior Subordinated Notes due 2003 for
redemption upon consummation of the Acquisition at a redemption price of
102.844% of the aggregate outstanding principal amount thereof, plus accrued
and unpaid interest to the redemption date.
(6) Includes the redemption premium for Core-Mark's 11 3/8% Senior Subordinated
Notes due 2003 and the accrued and unpaid interest thereon to the redemption
date.
S-17
CAPITALIZATION
The following table sets forth (a) our current maturities of long-term debt
and capital leases and our consolidated capitalization at April 20, 2002 and (b)
our current maturities of long-term debt and capital leases and our consolidated
capitalization at April 20, 2002 as adjusted to give effect to the Acquisition,
this offering, the concurrent equity offering (including the full exercise of
the underwriters' over-allotment option) and our new credit facility, after
deducting underwriting discounts and commissions and estimated offering expenses
and our application of the net proceeds therefrom.
<Table>
<Caption>
AT APRIL 20, 2002
---------------------------
ACTUAL(1) AS ADJUSTED(2)
---------- --------------
(IN THOUSANDS)
Current maturities of long-term debt and capital leases.... $ 61,498 $ 26,001
Long-term debt:
New revolving credit facility............................ -- 79,667
New term loan facility................................... -- 420,750
Existing revolving credit facility....................... 310,000 --
Existing term loan facility.............................. 69,010 --
Long-term obligations under capital leases............... 328,295 328,295
10 1/8% senior notes due 2008............................ 348,225 348,225
9 1/4% senior notes due 2010............................. -- 200,000
10 5/8% senior subordinated notes due 2007............... 400,000 400,000
9 7/8% senior subordinated notes due 2012................ 260,260 260,260
5 1/4% convertible senior subordinated notes due 2009.... 150,000 150,000
Other debt (including discounts)......................... (10,479) (10,479)
---------- ----------
Total long-term debt (including current maturities)... 1,916,809 2,202,719
Total shareholders' equity............................ 517,909 687,382
---------- ----------
Total capitalization (including current maturities)... $2,434,718 $2,890,101
========== ==========
</Table>
- ------------
(1) Does not include our $250 million of 10 1/2% Senior Subordinated Notes due
2004 outstanding at April 20, 2002, which we redeemed on June 1, 2002.
(2) The "As Adjusted" column gives effect to our repayment of certain
indebtedness of Core-Mark in connection with the Acquisition. As of March
31, 2002, Core-Mark had $76 million outstanding under its receivables
securitization facility and $75 million aggregate principal amount of its
11 3/8% Senior Subordinated Notes due 2003 outstanding. We intend to repay
Core-Mark's obligations under its receivables securitization facility, which
currently bears interest at either LIBOR or the commercial paper rate, plus
a margin and mature in January 2003, as soon as practicable following the
consummation of the Acquisition. We intend to call Core-Mark's 11 3/8%
Senior Subordinated Notes due 2003 for redemption upon consummation of the
Acquisition at a redemption price of 102.844% of the aggregate outstanding
principal amount thereof, plus accrued and unpaid interest to the redemption
date.
S-18
SELECTED CONSOLIDATED FINANCIAL DATA OF FLEMING
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The information presented below for, and as of the end of, each of the
fiscal years in the five-year period ended December 29, 2001 is derived from our
audited consolidated financial statements. The information presented below for,
and as of the end of, the 16 weeks ended April 21, 2001 and April 20, 2002 is
derived from our unaudited consolidated condensed financial statements, which
include all adjustments that management considers necessary for a fair
presentation of our financial position and results of operations for those
periods. The information for, and as of the end of, the 16 weeks ended April 20,
2002 is not necessarily indicative of the results that may be expected for any
other interim period or for the full fiscal year ending December 28, 2002. You
should read the information set forth below together with the other financial
information contained or incorporated by reference in this prospectus supplement
and the accompanying prospectus.
<Table>
<Caption>
FISCAL YEAR ENDED(1) 16 WEEKS ENDED
------------------------------------------------------------------------ ---------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25, DECEMBER 30, DECEMBER 29, APRIL 21, APRIL 20,
1997(2) 1998(3) 1999(4) 2000(5) 2001(6) 2001(7) 2002(8)
------------ ------------ ------------ ------------ ------------ --------- ---------
INCOME STATEMENT DATA:
Net sales(9)................... $14,916 $14,629 $14,218 $14,369 $15,558 $4,137 $4,686
Costs and expenses:
Cost of sales(9).............. 13,508 13,179 12,781 13,022 14,367 3,771 4,347
Selling and administrative.... 1,172 1,251 1,262 1,187 961 315 255
Interest expense.............. 163 161 165 175 166 58 50
Interest income and other..... (30) (25) (30) (25) (24) (9) (7)
Impairment/restructuring
charge (credit)............. -- 653 103 213 (24) (27) --
Litigation charge (credit).... 21 8 -- (2) 49 2 0
------- ------- ------- ------- ------- ------ ------
Total costs and expenses.... 14,834 15,227 14,281 14,570 15,495 4,110 4,645
------- ------- ------- ------- ------- ------ ------
Earnings(loss) before taxes.... 82 (598) (63) (201) 63 27 41
Taxes on income(loss).......... 44 (87) (18) (79) 36 11 16
------- ------- ------- ------- ------- ------ ------
Earnings(loss) before
extraordinary charge(10)...... 38 (511) (45) (122) 27 16 25
Extraordinary charge from early
retirement of debt (net of
taxes)........................ (13) -- -- -- (4) (4) --
------- ------- ------- ------- ------- ------ ------
Net earnings(loss)(10)...... $ 25 $ (511) $ (45) $ (122) $ 23 $ 12 $ 25
======= ======= ======= ======= ======= ====== ======
Diluted earnings(loss) per
share(11)..................... $ 0.67 $(13.48) $ (1.17) $ (3.15) $ 0.52 $ 0.29 $ 0.52
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents..... $ 30 $ 6 $ 7 $ 30 $ 17 $ 27 $ 4
Total assets.................. 3,924 3,491 3,573 3,403 3,655 3,176 3,824
Total debt (including current
maturities and capital
leases)..................... 1,563 1,566 1,694 1,669 1,811 1,636 1,917
Shareholders' equity.......... 1,090 570 561 427 498 494 518
OTHER FINANCIAL AND OPERATING
DATA:
Cash flows provided by (used
in) operating activities.... $ 113 $ 141 $ 118 $ 127 $ (32) $ (116) $ (43)
Cash flows provided by (used
in) investing activities.... (54) (163) (213) (48) (190) 84 (49)
Cash flows provided by (used
in) financing activities.... (92) (2) 96 (55) 209 29 342
EBITDA(12).................... 441 (237) 281 154 385 137 137
Adjusted EBITDA(13)........... 460 431 411 456 476 136 137
Depreciation and
amortization(14)............ 173 180 158 169 166 51 46
Capital expenditures.......... 129 200 166 151 238 48 61
Ratio of earnings to fixed
charges(15)................. 1.41x -- -- -- 1.29x 1.43x 1.65x
</Table>
- ------------
(1) Fiscal 2000 is a 53-week year; all other years are 52 weeks.
(2) The results in 1997 reflect a charge of $19 million ($9 million after-tax)
related to the settlement of a lawsuit against us. Such period also
reflects an extraordinary charge of $22 million ($13 million after-tax)
related to a recapitalization.
(3) The results in 1998 reflect an impairment/restructuring charge with related
costs totaling $668 million ($543 million after-tax) related to the
strategic plan.
(4) The results in 1999 reflect an impairment/restructuring charge with related
costs totaling $137 million ($92 million after-tax) related to our
strategic plan. Such period also reflects unusual items ($31 million charge
to close 10 conventional retail stores, income of $22 million from
extinguishing a portion of the self-insured workers' compensation
liability, interest income of $9 million related to refunds in federal
income taxes from prior years, and $6 million in gains from the sale of
distribution facilities) netting to $6 million of income ($3 million
after-tax).
(5) The results in 2000 reflect an impairment/restructuring charge with related
costs totaling $309 million ($183 million after-tax) relating to our
strategic plan. Such period also reflects unusual items ($10 million charge
related primarily to asset impairment on retail stores, income of $2
million relating to litigation settlements, and $9 million in gains from
the sale of distribution facilities) netting to less than $1 million of
income ($1 million loss after-tax).
S-19
(6) The results in 2001 reflect an impairment/restructuring credit totaling $24
million ($25 million after-tax reflecting the tax expense impact of
goodwill permanent differences from the sale of certain retail stores)
relating to our strategic plan. Such period also reflects unusual items
($49 million in charges relating to litigation settlements, $20 million in
charges relating to Kmart's bankruptcy reorganization and $2 million due to
early retirement of debt) netting to approximately $70 million in charges
($42 million after-tax).
(7) The results in the first quarter of 2001 reflect an
impairment/restructuring net credit totaling $1 million (less than $1
million after-tax) relating to our strategic plan. Such period also
reflects unusual items ($2 million in charges relating to litigation
settlements and approximately $2 million in charges due to early retirement
of debt) netting to approximately $3 million in charges ($2 million
after-tax).
(8) During the first quarter of 2002, we adopted SFAS No. 142 and ceased
amortizing goodwill cost. No prior period restatements were made. Goodwill
amortization for any of the prior years reported did not exceed $33
million. Also, cash and cash equivalents and total debt amounts exclude
amounts related to the 10 1/2% senior subordinated notes due 2004 and
related transaction fees as these amounts are being held in trust to redeem
the notes in June, 2002.
(9) During the first quarter of 2002, we adopted EITF 01-9 and reduced sales
and cost of sales for all prior periods with the impact on any year
reported not exceeding $75 million. The adoption had no effect on gross
margins or earnings.
(10) On December 30, 2001, we adopted SFAS 142, Accounting for Goodwill and
Other Intangible Assets, which eliminated periodic amortization of
goodwill. If we had applied the nonamortization provisions of SFAS 142 for
each of the periods presented, earnings (loss) before extraordinary charge
would have been $70 million for 1997, $(480) million for 1998, $(26)
million for 1999, $(103) million for 2000, $46 million for 2001, $22
million for the 16 weeks ended April 21, 2001; and net earnings (loss)
would have been $57 million for 1997, $(480) million for 1998, $(26)
million for 1999, $(103) million for 2000, $42 million for 2001, and $18
million for the 16 weeks ended April 21, 2001.
(11) See Note (10). If we had applied the nonamortization provisions of SFAS 142
for all periods presented our diluted earnings (loss) per share would have
been $1.50 for 1997, $(12.67) for 1998, $(0.67) for 1999, $(2.67) for 2000,
$0.94 for 2001, and $0.42 for the 16 weeks ended April 21, 2001.
(12) EBITDA is earnings before extraordinary items, interest expense, income
taxes, depreciation and amortization, equity investment results and LIFO
provision. EBITDA should not be considered as an alternative measure of our
net income, operating performance, cash flow or liquidity. We provide it as
additional information related to our ability to service debt; however,
conditions may require conservation of funds for other uses. Although we
believe EBITDA enhances your understanding of our financial condition, this
measure, when viewed individually, is not necessarily a better indicator of
any trend as compared to conventionally computed measures (e.g., net sales,
net earnings, net cash flows, etc.). Amounts presented may not be
comparable to similar measures disclosed by other companies.
(13) Adjusted EBITDA is EBITDA less unusual adjustments (e.g., strategic plan
charges and specific litigation charges). The following table reconciles
EBITDA to Adjusted EBITDA:
<Table>
<Caption>
HISTORICAL
------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED 16 WEEKS ENDED
------------------------------------------------------------------------ ---------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25, DECEMBER 30, DECEMBER 29, APRIL 21, APRIL 20,
1997 1998 1999 2000 2001 2001 2002
------------ ------------ ------------ ------------ ------------ --------- ---------
EBITDA......................... $441 $(237) $281 $154 $385 $137 $137
Add back:
Non-cash strategic plan
charges..................... -- 594 78 121 (12) (18) --
Non-cash unusual
adjustments................. -- -- 14 8 20 -- --
---- ----- ---- ---- ---- ---- ----
EBITDA excluding non-cash
strategic plan charges and
unusual adjustments........... 441 357 373 283 393 119 137
Add back:
Cash related strategic plan
charges..................... -- 74 58 181 36 17 --
Cash related unusual
adjustments................. 19 -- (20) (8) 47 -- --
---- ----- ---- ---- ---- ---- ----
Adjusted EBITDA................ $460 $ 431 $411 $456 $476 $136 $137
==== ===== ==== ==== ==== ==== ====
</Table>
(14) Depreciation and amortization expense includes goodwill amortization, if
any, and excludes amortization of debt cost which is reflected in interest
expense.
(15) 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). Earnings were insufficient to cover fixed charges by $598
million, $63 million and $202 million for the fiscal years ended December
26, 1998, December 25, 1999 and December 30, 2000, respectively.
S-20
SELECTED CONSOLIDATED FINANCIAL DATA OF CORE-MARK
The following table sets forth selected historical consolidated financial
and other data for Core-Mark International, Inc. The historical financial data
as of the end of and for each year in the five-year period ended December 31,
2001 have been derived from Core-Mark's audited consolidated financial
statements. The information presented below for, and as of the end of, the
three-month period ended March 31, 2001 and 2002 is derived from Core-Mark's
unaudited condensed consolidated financial statements, which include all
adjustments that Core-Mark's management considers necessary for a fair
presentation of Core-Mark's financial position and results of operations for
those periods. The information for, and as of the end of, the three months ended
March 31, 2002 is not necessarily indicative of the results that may be expected
for any other interim period or for the full fiscal year ended December 31,
2002. You should read the information set forth below together with the other
financial information contained or incorporated by reference in this prospectus
supplement and the accompanying prospectus.
<Table>
<Caption>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- -------------------
1997 1998 1999 2000 2001 2001 2002
---------- ---------- ---------- ---------- ---------- -------- --------
(IN THOUSANDS)
STATEMENT OF INCOME DATA:
Net sales................................ $2,395,867 $2,476,376 $2,838,107 $3,035,379 $3,425,024 $754,266 $825,153
Costs of goods sold(1)................... 2,216,162 2,295,659 2,643,069 2,840,334 3,211,160 705,121 774,297
---------- ---------- ---------- ---------- ---------- -------- --------
Gross profit(1).......................... 179,705 180,717 195,038 195,045 213,864 49,145 50,856
Operating and administrative expenses.... 148,902 150,977 155,128 160,143 169,691 42,150 41,463
---------- ---------- ---------- ---------- ---------- -------- --------
Operating income(1)...................... 30,803 29,740 39,910 34,902 44,173 6,995 9,393
Interest expense, net.................... 18,181 15,402 12,696 12,852 11,121 3,042 2,488
Amortization of debt refinancing
costs(2)............................... 1,498 2,204 1,274 1,274 1,274 318 318
---------- ---------- ---------- ---------- ---------- -------- --------
Income before income taxes............... 11,124 12,134 25,940 20,776 31,778 3,635 6,587
Income tax expense(3).................... 4,834 4,925 5,740 9,721 14,268 1,633 2,832
---------- ---------- ---------- ---------- ---------- -------- --------
Net income(4)............................ $ 6,290 $ 7,209 $ 20,200 $ 11,055 $ 17,510 $ 2,002 $ 3,755
========== ========== ========== ========== ========== ======== ========
OTHER DATA:
EBITDAL(5)............................... $ 41,597 $ 56,419 $ 53,493 $ 50,129 $ 59,446 $ 9,867 $ 11,664
Cash provided by (used in):
Operating activities................... 17,547 5,933 40,781 (1,925) 28,211 48,867 11,964
Investing activities................... (30,739) (5,311) (6,575) (7,620) (7,916) (517) (152)
Financing activities................... 3,549 9,533 (42,789) 21,282 (23,150) (56,617) (12,467)
Depreciation and amortization(6)......... 7,528 8,065 7,912 8,911 9,678 2,475 2,052
LIFO expense(1).......................... 3,266 18,614 5,671 6,316 5,595 397 219
Capital expenditures..................... 9,378 5,311 6,575 7,620 7,916 517 152
</Table>
<Table>
<Caption>
AS OF DECEMBER 31, AS OF
---------------------------------------------------- MARCH 31,
1997 1998 1999 2000 2001 2002
-------- -------- -------- -------- -------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA:
Total assets.............................................. $336,580 $359,390 $350,068 $374,876 $390,141 $376,465
Total debt, including current maturities.................. 197,012 208,124 165,335 186,617 163,467 151,000
</Table>
- ------------
(1) Core-Mark's U.S. inventories are valued at the lower of cost or market.
Cost of goods sold is determined on a last-in, first-out (LIFO) basis.
During periods of rising prices, the LIFO method of costing inventories
generally results in higher costs being charged against income compared to
the FIFO method ("LIFO expense") while lower costs are retained in
inventories. Conversely, during periods of declining prices or a decrease
of Core-Mark's inventory quantities, the LIFO method of costing inventories
generally results in lower costs being charged against income compared to
the FIFO method ("LIFO income"). During the year ended December 31, 1998,
Core-Mark recognized LIFO expense of $18.6 million, primarily due to
several very large increases in domestic cigarette wholesale prices during
1998. However, the LIFO expense in 1998 was more than offset by profits
resulting from such price increases.
(2) Amortization of debt refinancing costs reflects the amortization of all
costs associated with issuing, restructuring and refinancing debt.
(3) Prior to 1999, Core-Mark had a significant valuation allowance that reduced
certain deferred tax assets, based upon management's assessment that it was
more likely than not that these deferred tax assets would not be realized.
However, as a result of Core-Mark's earnings history, in 1999 Core-Mark's
management concluded that the tax benefits related to future deductions,
including net operating loss carryforwards, were more likely than not to be
realized. Therefore, in 1999, Core-Mark
S-21
recorded a $6.2 million decrease in its valuation allowance, which resulted
in a one-time reduction of its tax rate of approximately 24%.
(4) On January 1, 2002, Core-Mark adopted SFAS 142, Accounting for Goodwill and
Other Intangibles. If Core-Mark had applied the nonamortization provisions
of SFAS 142 to all periods presented, net income would have been $8 million
for 1997, $9 million for 1998, $22 million for 1999, $13 million for 2000,
$20 million for 2001, and $2.5 million for the three months ended March 31,
2001.
(5) EBITDAL represents operating income before depreciation, amortization and
LIFO expense, each as defined herein. EBITDAL should not be considered in
isolation or as a substitute for net income, operating income, cash flows
or other consolidated income or cash flow data prepared in accordance with
generally accepted accounting principles, or as a measure of a company's
profitability or liquidity. EBITDAL is included because it is one measure
used by certain investors to determine a company's ability to service its
indebtedness.
(6) Depreciation and amortization includes depreciation on property and
equipment, amortization of goodwill and other non-cash charges, and
excludes amortization of debt refinancing costs.
S-22
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following pro forma consolidated information has been derived by the
application of pro forma adjustments to the consolidated financial statements of
(i) Fleming as of April 20, 2002 and Core-Mark as of March 31, 2002; (ii)
Fleming for the 52 weeks ended December 29, 2001 and Core-Mark for the 12 months
ended December 31, 2001; (iii) Fleming for the 16 weeks ended April 20, 2002 and
Core-Mark for the three months ended March 31, 2002; and (iv) Fleming for the 52
weeks ended April 20, 2002 and Core-Mark for the 12 months ended March 31, 2002.
The pro forma consolidated balance sheet gives effect to Fleming's proposed
acquisition of Core-Mark (the "Acquisition") for approximately $295 million in
cash, plus Fleming's assumption of all of Core-Mark's net debt outstanding as of
the closing of the Acquisition (which we currently expect to be approximately
$95 million at the time of the closing, which is currently expected to occur in
mid-June 2002, for a total purchase price of approximately $390 million) and the
related financing transactions (together with the Acquisition, the
"Transactions") as if they had occurred as of April 20, 2002. The pro forma
consolidated statements of income give effect to the Acquisition and the related
financing transactions as if they had occurred (i) on December 31, 2000, with
respect to the pro forma consolidated statement of income for the 52 weeks ended
December 29, 2001; (ii) on December 30, 2001, with respect to the pro forma
consolidated statement of income for the 16 weeks ended April 20, 2002; and
(iii) on April 22, 2001, with respect to the pro forma consolidated statement of
income for the 52 weeks ended April 20, 2002. The adjustments necessary to
fairly present this pro forma consolidated financial information have been made
based on available information and in the opinion of Fleming's management are
reasonable and are described in the accompanying notes. This pro forma
information reflects our assumption that the Acquisition will be financed by a
combination of borrowings under a new credit facility and public offerings of
debt and equity. The pro forma consolidated financial information should not be
considered indicative of actual results that would have been achieved had the
Acquisition and the related financing transactions been consummated on the
respective dates indicated and do not purport to indicate balance sheet data or
income statement data as of any future date or for any future period. We cannot
assure you that the assumptions used in the preparation of the pro forma
consolidated financial information will prove to be correct.
The pro forma adjustments were applied to the historical consolidated
financial statements to reflect and account for the Acquisition and the related
financing transactions. As a result, these adjustments have no impact on the
historical basis of the assets and liabilities. Our purchase of Core-Mark is not
complete. We expect to complete the Acquisition in June 2002. Our allocation of
the agreed-upon purchase price will depend on the fair values of the assets and
liabilities at the date of the Acquisition. Our final allocation of purchase
price may differ from this presentation due to potential changes in working
capital, our fair value analysis of leases, and the appraisal results for
identifiable intangibles.
S-23
PRO FORMA COMBINING BALANCE SHEET INFORMATION
AS OF APRIL 20, 2002
(IN THOUSANDS)
<Table>
<Caption>
PRO FORMA
FLEMING CORE-MARK ADJUSTMENTS PRO FORMA
---------- --------- ----------- ----------
ASSETS
Current Assets:
Cash and cash equivalents.......................... $ 3,974 $ 23,542 $ (23,000)(a) $ 4,516
Cash held by Trustee for refinancing............... 263,125 263,125
Receivables, net................................... 588,321 130,902 -- 719,223
Inventories........................................ 954,174 118,278 52,133(b) 1,124,585
Assets held for sale............................... 28,666 -- -- 28,666
Other current assets............................... 76,169 8,610 (27,804)(c) 56,975
---------- -------- --------- ----------
Total current assets.......................... 1,914,429 281,332 1,329 2,197,090
Investments and notes receivable, net.................. 102,073 -- -- 102,073
Investment in direct financing leases.................. 76,941 -- -- 76,941
Property and equipment................................. 1,676,372 77,970 (46,555)(d) 1,707,787
Less accumulated depreciation and amortization......... (734,388) (46,555) 46,555(d) (734,388)
---------- -------- --------- ----------
Net property and equipment.................... 941,984 31,415 -- 973,399
Other assets........................................... 233,693 6,034 75,385(e) 315,112
Goodwill, net.......................................... 554,388 57,684 166,122(f) 778,194
---------- -------- --------- ----------
Total assets.................................. $3,823,508 $376,465 242,836 $4,442,809
========== ======== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 835,205 $114,972 $ -- $ 950,177
Current maturities of long-term debt............... 39,747 76,000 (111,497)(g) 4,250
Current obligations under capital leases........... 21,751 -- -- 21,751
Debt to be refinanced.............................. 263,125 -- -- 263,125
Other current liabilities.......................... 183,711 43,622 (4,869)(h) 222,464
---------- -------- --------- ----------
Total current liabilities..................... 1,343,539 234,594 (116,366) 1,461,767
Long-term debt......................................... 1,527,016 75,000 246,407(i) 1,848,423
Long-term obligations under capital leases............. 328,295 -- -- 328,295
Other liabilities...................................... 106,749 12,527 (2,334)(j) 116,942
Shareholders' equity:
Common stock....................................... 111,661 55 22,945(k) 134,661
Capital in excess of par value..................... 562,235 26,121 120,352(k) 708,708
Reinvested earnings (deficit)...................... (96,551) 37,443 (37,443)(k) (96,551)
Accumulated other comprehensive income --
Cumulative currency translation adjustments... -- (5,447) 5,447(k) --
Additional minimum pension liability.......... (59,436) (3,828) 3,828(k) (59,436)
---------- -------- --------- ----------
Total shareholders' equity................ 517,909 54,344 115,129 687,382
---------- -------- --------- ----------
Total liabilities and shareholders' equity.... $3,823,508 $376,465 $ 242,836 $4,442,809
========== ======== ========= ==========
</Table>
S-24
NOTES TO UNAUDITED PRO FORMA COMBINING BALANCE SHEET
(DOLLARS IN THOUSANDS)
For the purpose of determining the pro forma effect of the transactions on
Fleming's Consolidated Balance Sheet as of April 20, 2002, the following pro
forma adjustments have been made:
<Table>
(a) Cash and cash equivalents --
Reflect Core-Mark cash used to reduce debt.................. $ (23,000)
=========
(b) Inventories:
Eliminate Core-Mark LIFO inventory reserve -- offset to
deferred tax.......................................... $ 20,853
Eliminate Core-Mark LIFO inventory reserve -- offset to
goodwill.............................................. 31,280
---------
$ 52,133
=========
(c) Other current assets:
Reclass Core-Mark current deferred tax liability to
Fleming current deferred tax asset.................... $ (4,869)
Eliminate Core-Mark LIFO inventory reserve (see note
(b)).................................................. (20,853)
Eliminate Core-Mark prepaid pension amount............. (2,082)
---------
$ (27,804)
=========
(d) Property and equipment:
Offset Core-Mark accumulated depreciation and
amortization against cost of property and equipment
with our initial assumption that net book value
approximates fair value............................... $ (46,555)
Eliminate Core-Mark accumulated depreciation and
amortization.......................................... 46,555
---------
$ --
=========
(e) Other assets:
Reclass Core-Mark long-term deferred tax liability to
Fleming long-term deferred tax asset.................. $ (3,005)
Eliminate existing Core-Mark deferred financing costs
due to early debt retirement.......................... (1,501)
Reflect estimated financing costs from the debt portion
of the transaction.................................... 24,875
Reflect deferred tax adjustment on Core-Mark pension
liability............................................. (936)
Reflect estimate of other intangibles acquired as a
result of this transaction............................ 55,952
---------
$ 75,385
=========
(f) Goodwill, net:
Eliminate existing Core-Mark net goodwill.............. $ (57,684)
Reflect goodwill from this transaction................. 223,806
---------
$ 166,122
=========
(g) Current maturities of long-term debt:
Reflect payment of existing Core-Mark debt............. $ (76,000)
Reflect current maturity of new term loan.............. 4,250
Repay existing term loan............................... (39,747)
---------
$(111,497)
=========
(h) Other current liabilities --
Reclass Core-Mark current deferred tax liability to
Fleming current deferred tax asset (see note (c))..... $ (4,869)
=========
(i) Long-term debt:
Payment of existing Core-Mark debt..................... $ (75,000)
Reflect redemption premium on existing Core-Mark
debt.................................................. 2,133
</Table>
S-25
NOTES TO UNAUDITED PRO FORMA COMBINING BALANCE SHEET -- CONTINUED
(DOLLARS IN THOUSANDS)
<Table>
Reflect new financing to fund the transaction.......... 659,027
Repay existing term loan and credit facility........... (379,010)
Reflect estimated transaction fees:
Debt (see note (e))............................... 24,875
Equity (see note (k))............................. 9,007
Merger and acquisition............................ 5,375
---------
$ 246,407
=========
(j) Other liabilities:
Reclass Core-Mark long-term deferred tax liability to
Fleming long-term deferred tax asset (see note (e))... $ (3,005)
Adjust Core-Mark post-retirement liability............. 671
---------
$ (2,334)
=========
(k) Shareholders' equity:
Eliminate Core-Mark common stock....................... $ (55)
Issue Fleming common stock ($2.50 par value, 9,200
shares)............................................... 23,000
---------
22,945
Eliminate Core-Mark common stock -- excess capital
impact................................................ (26,121)
Issue Fleming common stock -- excess capital impact
($19.40 per share less par value, 9,200 shares)....... 155,480
Reflect equity transaction fees........................ (9,007)
---------
120,352
Eliminate Core-Mark retained earnings.................. (37,443)
Eliminate Core-Mark currency translation adjustments... 5,447
Eliminate Core-Mark additional minimum pension
liability............................................. 3,828
---------
$ 115,129
=========
</Table>
S-26
PRO FORMA COMBINING INCOME STATEMENT INFORMATION
52 WEEKS ENDED DECEMBER 29, 2001
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
PRO FORMA
FLEMING CORE-MARK ADJUSTMENTS PRO FORMA
----------- ---------- ----------- -----------
Net sales...................................... $15,558,102 $3,425,024 $ -- $18,983,126
Costs and expenses (income):
Cost of sales.............................. 14,368,199 3,211,160 76,680(a) 17,656,039
Selling and administrative................. 960,590 169,691 (61,978)(b) 1,068,303
Interest expense........................... 165,534 12,395 13,194(c) 191,123
Interest income and other.................. (24,053) -- (834)(d) (24,887)
Impairment/restructuring credit............ (23,595) -- -- (23,595)
Litigation charge.......................... 48,628 -- -- 48,628
----------- ---------- --------- -----------
Total costs and expenses.............. 15,495,303 3,393,246 27,062 18,915,611
----------- ---------- --------- -----------
Income before taxes............................ 62,799 31,778 (27,062) 67,515
Taxes on income(f)............................. 36,022 14,268 (7,905)(e) 42,385
----------- ---------- --------- -----------
Income before extraordinary charge(g).......... 26,777 17,510 (19,157) 25,130
Extraordinary charge from early retirement of
debt (net of taxes).......................... (3,469) -- -- (3,469)
----------- ---------- --------- -----------
Net income(g)......................... $ 23,308 $ 17,510 $ (19,157) $ 21,661
=========== ========== ========= ===========
Basic income per share:
Income before extraordinary charge(f)(h)... $ 0.63 $ 0.49
Extraordinary charge from early retirement
of debt (net of taxes)................... (0.08) (0.07)
----------- -----------
Net income(f)(h)...................... $ 0.55 $ 0.42
=========== ===========
Diluted income per share:
Income before extraordinary charge(f)(i)... $ 0.60 $ 0.46
Extraordinary charge from early retirement
of debt (net of taxes)................... (0.08) (0.06)
----------- -----------
Net income(f)(i)...................... $ 0.52 $ 0.40
=========== ===========
Weighted average shares outstanding:
Basic...................................... 42,588 9,200(j) 51,788
Diluted(i)................................. 44,924 9,200(k) 54,124
</Table>
S-27
PRO FORMA COMBINING INCOME STATEMENT INFORMATION
16 WEEKS ENDED APRIL 20, 2002
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
PRO FORMA
FLEMING CORE-MARK ADJUSTMENTS PRO FORMA
---------- --------- ----------- ----------
Net sales......................................... $4,686,139 $825,153 $ -- $5,511,292
Costs and expenses (income):
Cost of sales................................. 4,346,460 774,297 18,711(a) 5,139,468
Selling and administrative.................... 255,012 41,463 (17,312)(b) 279,163
Interest expense.............................. 50,413 2,806 5,068(c) 58,287
Interest income and other..................... (6,966) -- (141)(d) (7,107)
---------- -------- ----------- ----------
Total costs and expenses................. 4,644,919 818,566 6,326 5,469,811
---------- -------- ----------- ----------
Income before taxes............................... 41,220 6,587 (6,326) 41,481
Taxes on income................................... 16,611 2,832 (2,728)(e) 16,715
---------- -------- ----------- ----------
Net income............................... $ 24,609 $ 3,755 $ (3,598) $ 24,766
========== ======== =========== ==========
Basic income per share............................ $ 0.56 $ 0.46
========== ==========
Diluted income per share.......................... $ 0.52 $ 0.44
========== ==========
Weighted average shares outstanding:
Basic......................................... 44,175 9,200(j) 53,375
Diluted....................................... 50,601 9,200(k) 59,801
</Table>
S-28
PRO FORMA COMBINING INCOME STATEMENT INFORMATION
52 WEEKS ENDED APRIL 20, 2002
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
PRO FORMA
FLEMING CORE-MARK ADJUSTMENTS PRO FORMA
----------- ---------- ----------- -----------
Net sales...................................... $16,106,882 $3,495,911 $ -- $19,602,793
Costs and expenses (income):
Cost of sales.............................. 14,943,544 3,280,336 77,425(a) 18,301,305
Selling and administrative................. 898,289 169,004 (65,000)(b) 1,002,293
Interest expense........................... 158,445 11,841 13,748(c) 184,034
Interest income and other.................. (22,098) -- (736)(d) (22,834)
Impairment/restructuring charge............ 3,264 -- -- 3,264
Litigation charge.......................... 48,628 -- -- 48,628
----------- ---------- ----------- -----------
Total costs and expenses.............. 16,030,072 3,461,181 25,437 19,516,690
----------- ---------- ----------- -----------
Income before taxes............................ 76,810 34,730 (25,437) 86,103
Taxes on income(f)............................. 40,890 15,467 (8,393)(e) 47,964
----------- ---------- ----------- -----------
Net income(g)......................... $ 35,920 $ 19,263 $ (17,044) $ 38,139
=========== ========== =========== ===========
Basic income per share(f)(h)................... $ 0.82 $ 0.72
=========== ===========
Diluted income per share(f)(i)................. $ 0.79 $ 0.69
=========== ===========
Weighted average shares outstanding:
Basic...................................... 43,813 9,200(j) 53,013
Diluted(i)................................. 50,866 4,245(k) 55,111
</Table>
S-29
NOTES TO UNAUDITED PRO FORMA COMBINING INCOME STATEMENTS
(DOLLARS IN THOUSANDS)
Fleming's Financial Statements for the 52 weeks ended December 29, 2001
reflect the retroactive reclassification to decrease net sales and cost of sales
by approximately $70 million with no effect on gross margin due to the adoption
of EITF 01-9. Core-Mark early adopted EITF 01-9 in 2001.
For the purpose of determining the pro forma effect of the transactions on
Fleming's Consolidated Income Statement for the 52 weeks ended April 20, 2002,
the Consolidated Income Statement information for Fleming's 16 weeks ended April
20, 2002 was combined with the Consolidated Income Statement information for
Fleming's 52 weeks ended December 29, 2001, and the Consolidated Income
Statement information for Fleming's 16 weeks ended April 21, 2001 was
subtracted. Fleming has presented information for the 52 weeks ended April 20,
2002 because Fleming's first quarter of 2001 includes results related to our
disposition of conventional retail operations.
For the purpose of determining the pro forma effect of the transactions on
Fleming's Consolidated Income Statements for the 52 weeks ended December 29,
2001, the 16 weeks ended April 20, 2002 and the 52 weeks ended April 20, 2002,
the following pro forma adjustments have been made:
<Table>
(a) The adjustment to cost of sales reflects the following:
</Table>
<Table>
<Caption>
52 WEEKS 16 WEEKS 52 WEEKS
ENDED ENDED ENDED
DECEMBER 29, APRIL 20, APRIL 20,
2001 2002 2002
------------ --------- ---------
Reclass Core-Mark distribution and
warehouse expense from selling and
administrative (see note (b))......... $ 76,680 $ 18,711 $ 77,425
======== ======== ========
</Table>
<Table>
(b) The adjustment to selling and administrative reflects the following:
</Table>
<Table>
<Caption>
52 WEEKS 16 WEEKS 52 WEEKS
ENDED ENDED ENDED
DECEMBER 29, APRIL 20, APRIL 20,
2001 2002 2002
------------ --------- ---------
Reclass Core-Mark distribution and
warehouse expense to cost of sales
(see note (a))........................ $(76,680) $(18,711) $(77,425)
Eliminate Core-Mark goodwill
amortization.......................... (2,083) -- (1,562)
Amortize goodwill acquired as a result
of the transaction (estimate of 20
years)................................ 11,190 -- 8,392
Amortize other intangible assets
acquired as a result of the
transaction (estimate of 10 years).... 5,595 1,399 5,595
-------- -------- --------
$(61,978) $(17,312) $(65,000)
======== ======== ========
</Table>
S-30
NOTES TO UNAUDITED PRO FORMA COMBINING INCOME STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
<Table>
(c) The adjustment for interest expense reflects the following:
</Table>
<Table>
<Caption>
52 WEEKS 16 WEEKS 52 WEEKS
ENDED ENDED ENDED
DECEMBER 29, APRIL 20, APRIL 20,
2001 2002 2002
------------ --------- ---------
Reclassify Core-Mark interest income
from interest expense (see note
(d)).................................. $ 834 $ 141 $ 736
Eliminate Core-Mark interest expense to
reflect debt repayment................ (13,229) (2,947) (12,577)
Reflect Fleming interest expense on new
financing to fund the transaction..... 25,589 7,874 25,589
-------- -------- --------
$ 13,194 $ 5,068 $ 13,748
======== ======== ========
</Table>
<Table>
(d) The adjustment for interest income and other reflects the following:
</Table>
<Table>
<Caption>
52 WEEKS 16 WEEKS 52 WEEKS
ENDED ENDED ENDED
DECEMBER 29, APRIL 20, APRIL 20,
2001 2002 2002
------------ --------- ---------
Reclassify Core-Mark interest income
from interest expense (see note
(c)).................................. $ (834) $ (141) $ (736)
======== ======== ========
</Table>
<Table>
(e) The adjustment for taxes on income reflects the following:
</Table>
<Table>
<Caption>
52 WEEKS 16 WEEKS 52 WEEKS
ENDED ENDED ENDED
DECEMBER 29, APRIL 20, APRIL 20,
2001 2002 2002
------------ --------- ---------
Eliminate Core-Mark taxes on income..... $(14,268) $ (2,832) $(15,467)
Reflect tax provision on Core-Mark
results of operations net of pro forma
adjustments........................... 6,363 104 7,074
-------- -------- --------
$ (7,905) $ (2,728) $ (8,393)
======== ======== ========
</Table>
<Table>
(f) The pro forma combined effective tax rates of 63% for the 52 weeks ended December
29, 2001 and 56% for the 52 weeks ended April 20, 2002 include the impact of an
unusual tax gain related to our disposition of non-strategic retail operations and
the pro forma amortization of goodwill from our planned acquisition of Core-Mark,
most of which would not have been tax deductible. Our effective tax rate for both
periods would have been approximately 40% absent these two items since we will not
amortize goodwill in accordance with SFAS 142 and do not anticipate another similar
tax gain. For the 52 weeks ended December 29, 2001, our effective tax rate of
approximately 40% would have represented a pro forma combined tax expense of $27.3
million, net income before extraordinary item of $40.2 million, net income of $36.8
million, basic income per share before extraordinary item of $0.78, basic income per
share of $0.71, diluted income per share before extraordinary item of $0.74 and
diluted income per share of $0.67. For the 52 weeks ended April 20, 2002, our
effective tax rate of approximately 40% would have represented a pro forma combined
tax expense of $34.0 million, net income of $52.1 million, basic income per share of
$0.98 and diluted income per share of $0.95.
</Table>
S-31
NOTES TO UNAUDITED PRO FORMA COMBINING INCOME STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
<Table>
(g) On December 30, 2001 we adopted SFAS 142, Accounting for Goodwill and Other
Intangible Assets. If we had applied the nonamortization provisions of SFAS 142 to
all periods presented, our pro forma combined income before extraordinary charge for
the 52 weeks ended December 29, 2001, would have been $56 million and our pro forma
combined net income would have been $52 million for the 52 weeks ended December 29,
2001, and $60 million for the 52 weeks ended April 20, 2002. Our historical numbers
include goodwill amortization of $21 million for the year ended December 29, 2001
and $15 million for the 52 weeks ended April 20, 2002. If we had applied the
nonamortization provisions of SFAS 142 to our historical amounts, our income before
extraordinary item for the year ended December 29, 2001 would have been $46 million
($1.01 per diluted share) and our net income would have been $42 million ($0.94 per
diluted share) for the year ended December 29, 2001 and $49 million ($1.06 per
diluted share) for the 52 weeks ended April 20, 2002.
(h) See note (g). If we had applied the nonamortization provisions of SFAS 142 to all
periods presented, our pro forma combined basic earnings per share before
extraordinary charge for the 52 weeks ended December 29, 2001, would have been $1.07
per share, our pro forma combined basic earnings per share would have been $1.00 for
the 52 weeks ended December 29, 2001 and $1.13 for the 52 weeks ended April 20,
2002.
(i) See note (g). If we had applied the nonamortization provisions of SFAS 142 to all
periods presented, our pro forma combined diluted earnings per share before
extraordinary charge for the 52 weeks ended December 29, 2001, would have been $1.02
and our pro forma combined diluted earnings per share would have been $0.96 for the
52 weeks ended December 29, 2001, and $1.08 for the 52 weeks ended April 20, 2002.
Our 5 1/4% convertible notes would be dilutive for all periods presented. The
diluted weighted average shares would have been 58,072,000 shares for the 52 weeks
ended December 29, 2001 and 60,066,000 shares for the 52 weeks ended April 20, 2002.
(j) The adjustment for basic weighted average shares outstanding reflects the following:
</Table>
<Table>
<Caption>
52 WEEKS 16 WEEKS 52 WEEKS
ENDED ENDED ENDED
DECEMBER 29, APRIL 20, APRIL 20,
2001 2002 2002
------------ --------- ---------
Reflect Fleming common shares issued to
partially fund the transaction
(including the exercise of the
underwriters' over-allotment
option)............................... 9,200 9,200 9,200
======== ======== ========
</Table>
<Table>
(k) The adjustment for diluted weighted average shares outstanding reflects the
following:
</Table>
<Table>
<Caption>
52 WEEKS 16 WEEKS 52 WEEKS
ENDED ENDED ENDED
DECEMBER 29, APRIL 20, APRIL 20,
2001 2002 2002
------------ --------- ---------
Reflect Fleming common shares issued to
partially fund the transaction
(including the exercise of the
underwriters' over-allotment
option)............................... 9,200 9,200 9,200
Reflect adjustment to Fleming's diluted
weighted average shares outstanding
due to the impact of Fleming's 5 1/4%
convertible notes (anti-dilutive for
the 52 weeks ended April 20, 2002).... -- -- (4,955)
-------- -------- --------
9,200 9,200 4,245
======== ======== ========
</Table>
S-32
BUSINESS
INTRODUCTION
Fleming is an industry leader in the distribution of consumer package
goods. We believe that our network of "multi-tier" distribution centers offers
retailers of varying size and format a low-cost supply chain alternative to
other distribution competitors or to self-distribution. Multi-tier distribution
allows us to optimize the particular volume, value and velocity characteristics
of each product that we distribute, thereby increasing our efficiency and
lowering our costs.
On April 23, 2002, we signed an agreement to acquire Core-Mark
International, Inc. ("Core-Mark"), a distributor of consumer package goods to
convenience stores and other retailers in the western United States and western
Canada. Following our acquisition of Core-Mark (the "Acquisition"), our
distribution group will serve approximately 50,000 retail locations across the
United States and western Canada, including approximately 3,000 supermarkets,
approximately 40,000 convenience stores and approximately 7,000 supercenters,
discount stores, limited assortment stores, drug stores, specialty stores and
other stores. We believe that the Acquisition will further transform our
distribution group into an efficient, nationwide, multi-tier supply chain for
consumer package goods to retailers of any size and format.
On a pro forma basis after giving effect to the Acquisition, our
distribution group net sales were $16.6 billion for 2001 and $4.8 billion for
the 16 weeks ended April 20, 2002. Our distribution group represented
approximately 87% of our pro forma total net sales in 2001 and for the 16 weeks
ended April 20, 2002. To supply our customers, we currently have a network of 24
high velocity case-pick and flow-through distribution centers, 7 high velocity
piece-pick distribution centers and 5 low velocity case-pick and piece-pick
distribution centers, that have a total of approximately 21 million square feet
of warehouse space. The Acquisition will add 19 high velocity piece-pick
distribution centers that have a total of approximately 1.9 million square feet
of warehouse space to further enhance our ability to supply our customers
nationwide.
Our retail group operates 109 price impact supermarkets that offer everyday
low prices, typically below the prices of market-leading conventional
supermarkets, and that have a focus on high-quality perishables. These stores
typically cost less to build, maintain and operate than conventional
supermarkets. In addition, we operate 17 limited assortment stores under the
yes!LESS(R) banner. Limited assortment stores offer a narrow selection of
low-price, private label food and other consumable goods and general merchandise
at deep-discount prices. Our retail group net sales were $2.4 billion for 2001
and $669 million for the 16 weeks ended April 20, 2002, representing
approximately 13% of our total net sales for each respective period, on a pro
forma basis after giving effect to the Acquisition. Of those amounts,
approximately $2.0 billion and $669 million were attributable to continuing
retail formats for each respective period.
COMPETITIVE STRENGTHS
Interconnected Network of Multi-Tier, High-Volume, Low-Cost Distribution
Centers: Our network of multi-tier distribution centers optimizes the
particular volume, value and velocity characteristics of each product that we
distribute. We employ case-pick (in which products are selected in case
quantities and aggregated and distributed on pallets), piece-pick (in which
products are selected in single-unit quantities and distributed in totes) and
flow-through (in which products are distributed in full pallet quantities)
distribution methods. Our multi-tier process further segregates products into
high velocity items (which are characterized by fast inventory turns, such as
tobacco products, candy and paper products) and low velocity items (which are
characterized by slower inventory turns, such as health and beauty products,
general merchandise and specialty items). Consequently, we are able to serve
consumer package goods retailers of any size and format. We also believe that
our distribution center volumes are among the highest in the consumer package
goods distribution industry. With high volume comes the opportunity to operate
more efficiently by reducing costs through economies of scale, which enables us
to provide our customers with lower-cost merchandise and services.
S-33
National Distribution Capabilities: We believe that, following the
Acquisition, we will be the only distributor of consumer package goods capable
of meeting the growing need for a national supply chain which can serve all
retail formats anywhere in the United States. In addition, we believe we will be
one of only two suppliers capable of distributing consumer package goods to
convenience stores and related convenience-oriented retailers across the United
States and western Canada.
Efficient Centralized Purchasing: We currently make category management
decisions and negotiate with vendors for approximately 84% of our merchandise
procurement from one location, our customer support center near Dallas, Texas.
We believe our customer support center is one of the largest volume-buying
locations of consumable goods in the United States. Centralized purchasing
benefits us and ultimately, our customers, in several ways. It allows us to
lower our cost of goods through aggregated purchasing power, and it lowers our
administrative costs by eliminating the redundancy involved in purchasing
through multiple locations. It also makes it less expensive for our vendors to
serve us, which we believe in turn reduces our cost of goods. We believe that
our centralized purchasing capabilities are valuable to national retailers, as
well as the smaller independent retailers that make up our traditional customer
base.
Diverse Distribution Customer Base: We distribute to approximately 20,000
retail store locations that operate in a wide variety of formats across the
United States. Following the Acquisition, our distribution group will serve an
additional 30,000 convenience stores and other retail locations in the western
United States and western Canada. On a pro forma basis after giving effect to
the Acquisition, other than Kmart, which accounted for 17% of our net sales in
2001, no customer accounted for more than approximately 2% of our fiscal 2001
net sales.
Successful Price Impact Retail Format: Our price impact supermarkets offer
name-brand and private label consumable goods at significantly lower prices than
conventional supermarkets. We keep prices low by leveraging our existing
distribution and procurement capabilities and maintaining a lower cost structure
associated with operating these stores. We believe this format is profitable
because we offer a reduced number of product selections, focus on high-turnover
products and product categories, employ flow-through distribution methods that
reduce product storage and handling expense and minimize store operating costs.
Experienced Management Team: Our management team is led by Mark Hansen,
Chairman and Chief Executive Officer, who has been with Fleming since 1998.
Since Mr. Hansen joined us, we have further strengthened our management team
through the addition of a number of experienced officers across key functional
areas of our organization including information technology, logistics,
merchandising and supply chain management, retail store operations, finance and
human resources. These executives bring substantial experience from leading food
wholesale, supermarket, supercenter and general merchandise retailers.
BUSINESS STRATEGY
Our business strategy is to use our competitive strengths to achieve sales
and earnings growth in both our distribution group and retail group. As
principal elements of our strategy, we intend to:
Further Grow Sales to New Channel Retailers: We believe that our network
of multi-tier distribution centers strategically positions us to grow our sales
to new channel retailers. In recent years, consumers have been shifting their
purchases of food and other consumable goods away from conventional full-service
grocery stores toward these other retail channels. For this reason, we have
moved beyond our historic focus on conventional full-service grocery stores and
have successfully targeted convenience stores and other convenience-related
retailers, supercenters, discount stores, price impact stores, dollar stores,
ethnic food stores, limited-assortment stores, drug stores, military exchanges
and other specialty retailers.
Grow Sales to Traditional Format Customers: Despite being the largest
distributor in the wholesale grocery industry, we currently account for a small
percentage of sales in this traditional core market, representing substantial
room for additional growth. Many of our potential customers are currently served
by local or regional wholesalers that cannot offer the efficiencies produced by
our nationwide network of
S-34
multi-tier distribution centers and our centralized purchasing. Our repositioned
distribution group has already enabled us to increase sales to existing and new
customers in this sector, and we expect to be able to continue this trend.
Grow Sales to Self-Distributing Chain Supermarkets: In addition to
enabling us to grow our sales of consumer package goods and other merchandise to
new channel retailers and our traditional format customers, we believe that we
can employ our network of multi-tier distribution centers to expand our
distribution capabilities to serve large, national chain supermarkets that
currently self-distribute. For example, in March 2002, we entered into an
agreement with Albertson's, Inc. to supply 39 Albertson's stores in Oklahoma and
Nebraska beginning in July 2002 for the next five years. We believe that our
national presence, our multi-tier distribution platform and our centralized
purchasing capabilities will provide national chain supermarkets with a
compelling alternative to self-distribution. We are seeking additional
opportunities to establish similar relationships with other major supermarket
chains.
Continue to Improve Working Capital Management and Reduce Costs: We intend
to improve our working capital management primarily by further developing our
centralized procurement operations, taking advantage of the efficiencies created
by our multi-tier distribution network, and by continuing to develop and
implement our "F-1" supply chain technologies to better integrate our
distribution centers and our central procurement operations.
OUR DISTRIBUTION GROUP
Our distribution group sells food and non-food products to supermarkets,
convenience stores, supercenters, discount stores, limited assortment stores,
drug stores, specialty stores and other stores across the United States. On a
pro forma basis after giving effect to the Acquisition, our distribution group
net sales were $16.6 billion for fiscal 2001 and $4.8 billion for the 16 weeks
ended April 20, 2002, excluding sales to our own retail stores. Sales to our own
retail stores totaled $1.2 billion during fiscal 2001 and $372 million for the
16 weeks ended April 20, 2002.
Following the Acquisition, we will have a nationwide network of multi-tier
distribution centers that employ piece-pick, case-pick and flow-through
distribution methods. We believe that our network of multi-tier distribution
centers offers retailers of varying size and format a low-cost alternative to
other distribution competitors or to self-distribution, partly because our
network allows us to address the particular volume, value and velocity
characteristics of each product that we distribute. In particular, we believe
there is an increasing demand for a national network of distribution facilities
that can uniformly meet the piece-pick needs of large-scale retail chains.
S-35
The following map displays the location of our distribution centers, on a
pro forma basis after giving effect to the Acquisition.
[MAP OF DISTRIBUTION CENTERS]
We employ the high velocity case-pick method to distribute items that turn
over quickly, such as fast-moving grocery items. This method allows us to select
products in case quantities and then aggregate and distribute them on pallets.
We use flow-through distribution methods to distribute items that move rapidly
through the distribution center, such as bulk paper, water and promotional
grocery items, in full pallet quantities. We have 24 high velocity case-pick and
flow-through distribution centers. We use the high velocity piece-pick method to
distribute high-turn consumer goods such as tobacco, candy, snacks, fast food
and beverages to convenience-oriented retailers. This method selects products in
single-unit quantities and distributes them in totes. On a pro forma basis after
giving effect to the Acquisition, we will have 26 high velocity piece-pick
distribution centers. We use low velocity case-pick and piece-pick distribution
methods to distribute products that turn the least often, such as health and
beauty aids, general merchandise and specialty and slow-moving grocery items. We
have 5 low velocity case-pick and piece-pick distribution centers.
Cross-docking of product between facilities allows us to maximize the
efficiency of our truck fleet, reduce costly truck miles and, consequently,
lower our costs.
Customers Served. Our distribution group serves a wide variety of retail
operations located in all 50 states and the Caribbean including supermarkets,
convenience stores, supercenters, discount stores, limited assortment stores,
drug stores, specialty stores and other stores.
On a pro forma basis after giving effect to the Acquisition, our top ten
customers accounted for approximately 26% of our total net sales during 2001 and
approximately 28% of our total net sales for the 16 weeks ended April 20, 2002.
On a pro forma basis after giving effect to the Acquisition, Kmart Corporation,
our largest customer, represented approximately 17% of our total net sales in
2001 and 19% of our total net sales for the 16 weeks ended April 20, 2002. On a
pro forma basis after giving effect to the Acquisition, no other single customer
represented more than approximately 2% of our net sales for fiscal 2001 or the
16 weeks ended April 20, 2002.
S-36
Pricing. Our distribution segment uses market research and cost analyses
as a basis for pricing its products and services. We have three basic marketing
programs for our distribution business: FlexMate, FlexPro and FlexStar.
The FlexMate marketing program prices product to customers at a quoted sell
price, a selling price established by us that might include a mark-up. Under the
FlexPro and FlexStar programs, grocery, frozen and dairy products are priced at
their net acquisition value, which is generally comparable to the net cash price
paid by the distribution segment. Customers pay fees for specific activities
related to the selection and distribution of products. Certain vendor allowances
and service income are passed through to the customer under the FlexPro and
FlexStar programs, but service charges are different between the two programs.
Private Label. Fleming's private label brands are Fleming-owned brands
that we offer exclusively to our customers. Our predominant brand is BestYet,
and we also offer a growing number of products under two additional private
brands: Exceptional Value, our opening price-point brand, and Comida Sabrosa,
our line of Hispanic food products. We recently introduced BestYet meat and a
re-formatted BestYet health and beauty care line. Private label lines are
designed to offer quality products that are equal or superior in quality to
comparable nationally advertised brands and value brand products at more
competitive prices. We believe our private label brands generate higher margins
for us and for our customers than nationally advertised brands and other value
brand products because we are able to acquire them at lower costs.
We offer two controlled labels, IGA and Piggly Wiggly brands, which are
national quality brands. Controlled labels are brands to which we have exclusive
distribution rights to a particular customer or in a specific region and are
offered only in stores operating under specific banners, which we may or may not
control.
Procurement. We currently make category management decisions and negotiate
with vendors for approximately 84% of our merchandise procurement from one
location, our customer support center near Dallas, Texas. This makes more
efficient use of our procurement staff, improves buying efficiency and reduces
the cost of goods. We believe our customer support center is one of the largest
buying locations of consumable goods in the United States. We believe that our
centralized purchasing capabilities and the volume discount pricing we have
achieved are valuable to our customers. We make a small percentage of our
procurement decisions at the distribution center level where local market needs
and trends can best be addressed, such as decisions regarding ethnic products,
and where transportation costs may be minimized.
Facilities and Transportation. Our distribution group operates a network
of 24 high-velocity case-pick and flow-through distribution centers, 7
high-velocity piece-pick distribution centers and 5 low-velocity case-pick and
piece-pick distribution centers that are responsible for the distribution of
national brands and private label Fleming brands, including groceries, meat,
dairy and delicatessen products, frozen foods, produce, bakery goods and a
variety of related food and non-food items. All facilities are equipped with
modern material handling equipment for receiving, storing and shipping large
quantities of merchandise. Our distribution centers comprise approximately 21
million square feet of warehouse space. Additionally, the distribution group
rents, on a short-term basis, approximately 904,000 square feet of off-site
temporary storage space. The Acquisition will add 19 high-velocity piece-pick
distribution centers that have a total of approximately 1.9 million square feet
of warehouse space.
Transportation arrangements and operations vary by distribution center and
may vary by customer. Some customers prefer to handle product delivery
themselves, others prefer us to deliver products, and still others ask us to
coordinate delivery with a third party. Accordingly, many of our distribution
centers maintain a truck fleet to deliver products to customers, and several of
our distribution centers also engage dedicated contract carriers to deliver
products. We increase the utilization of our truck fleet by back-hauling
products from suppliers and others, thereby reducing the number of empty miles
traveled. To further increase our fleet utilization, we have made our truck
fleet available to other firms on a for-hire carriage basis.
S-37
Capital Invested in Customers. As part of our services to retailers, we
provide capital to certain customers by extending credit for inventory
purchases, by becoming primarily or secondarily liable for store leases, by
leasing equipment to retailers and by making secured loans to customers. At
April 20, 2002, on a pro forma basis after giving effect to the Acquisition, we
were the primary lessee of approximately 600 retail store locations subleased to
and operated by customers. In making credit and investment decisions, we
consider many factors, including estimated return on capital, assumed risks and
benefits (including our ability to secure long-term supply contracts with these
customers).
At December 29, 2001, on a pro forma basis after giving effect to the
Acquisition, we had loans outstanding to customers totaling $119 million. We
also have investments in customers through direct financing leases of real
property and equipment, lease guarantees, operating leases or credit extensions
for inventory purchases. On a pro forma basis after giving effect to the
Acquisition, our credit loss expense from receivables as well as from
investments in customers was $40 million in 2001 (including a $17 million charge
relating to the Kmart bankruptcy) and $1 million for the 16 weeks ended April
20, 2002.
Cost-Reduction Initiatives. To strengthen our position as a low-cost
supplier to our retail customers and increase our profitability, we instituted a
"culture of thrift" among our employees and developed initiatives to reduce our
expenses. This program focuses on five areas: merchandising and procurement,
logistics and distribution, shared services and finance, retail operations and
customer relations. In the merchandising and procurement functions, we have
lowered cost of goods and administrative costs by centralizing most of our
procurement functions, which were conducted in individual distribution centers,
into one national procurement center near Dallas, which we believe is one of the
largest buyer locations of consumable goods in the United States. The logistics
and distribution functions have removed costs associated with back-haul,
in-bound transportation and other logistics functions. In addition, we
established a new shared services center in Oklahoma City where we have
centralized the management of our accounting, human resources, information
technology and other support services. We have also achieved progress in the
rollout of our "F1" supply chain technologies that we are currently developing
and implementing to better integrate our distribution centers and our central
procurement operations. These new technologies will include transportation,
warehouse management and procurement software applications. The transportation
management software and processes will provide us with the ability to track all
freight movement, whether it is inbound, outbound or inter-facility, resulting
in more efficient and effective routing and fleet management. In the first
quarter of 2002, we installed transportation management software in our Geneva,
Northeast, Warsaw, Memphis, Garland, Kansas City, Lincoln and Massillon
divisions. Retail operations have taken steps to reduce labor costs and reduce
store operating costs, and certain administrative functions have also been
centralized for retail operations. Finally, customer relations has established a
single point of contact for each customer to eliminate many paper-based
processes and improve customer communications.
Core-Mark's Distribution Group. Core-Mark maintains 19 primary
distribution facilities, of which 15 are located in the western United States
and four are located in western Canada. In addition, Core-Mark operates a
significant facility for one of its customers, which is 100% dedicated to
servicing that customer's convenience retail locations. Each of Core-Mark's
distribution facilities is outfitted with modern equipment (including freezers
and coolers as required) for receiving, stocking, order selection and loading a
large volume of customer orders on trucks for delivery. Each facility provides
warehouse, distribution, sales and support functions for its geographic area
under the supervision of a division manager.
OUR RETAIL GROUP
At May 15, 2002, our retail group operated 109 price impact supermarkets
primarily under the Food 4 Less and Rainbow Foods banners. In addition, at May
15, 2002, we operated 17 limited assortment stores under the yes!LESS(R) banner,
11 of which we opened in 2001.
S-38
As part of our strategic plan, we sold or closed 238 of our conventional
format supermarkets in order to focus resources on growing our price impact
stores and improving financial results. The following chart illustrates the
number of supermarkets and limited assortment stores we operated as of the dates
indicated:
<Table>
<Caption>
DECEMBER 25, DECEMBER 30, DECEMBER 29, MAY 15,
1999 2000 2001 2002
------------ ------------ ------------ -------
CONTINUING STORES
Price Impact........................... 71 74 99 109
Limited Assortment..................... -- 6 17 17
--- --- --- ---
Subtotal............................. 71 80 116 126
NON-STRATEGIC STORES................... 171 107 -- --
--- --- --- ---
TOTAL................................ 242 187 116 126
=== === === ===
</Table>
Price Impact Supermarkets. At May 15, 2002, our retail group operated 109
price impact supermarkets, of which 42 are located in Minnesota, 26 in Northern
California, 13 in Wisconsin, seven in the Salt Lake City, Utah area, 13 in
Texas, seven in the Phoenix, Arizona area, and one in Las Cruces, New Mexico.
These stores average approximately 45,000 square feet and offer deep-discount,
everyday low prices well below those offered by conventional supermarkets and
carry prices for grocery products that are also generally lower than
supercenters. Our price impact supermarkets are also known for their quality
meat and produce offerings. Our price impact supermarkets that have been open at
least one year generated average weekly sales of approximately $450,000 per
store for the year ended December 29, 2001.
Our price impact supermarkets serve price-sensitive middle-income consumers
who often have larger-than-average families. These stores have a wider trade
area than conventional supermarkets yet are generally more convenient to shop
than supercenters. Our price impact supermarkets offer name-brand food and
consumable goods at significantly lower prices than conventional format retail
store operators because of the many low-cost features of our stores. These
features include: offering a reduced number of product selections, focusing on
popular, name-brand products and product categories, employing flow-through
distribution methods which reduce product storage and handling expense and
minimizing store operating costs.
These stores do not cost as much as conventional stores to construct and
maintain, as price impact stores typically feature cement floors, cinder block
walls, exposed ceiling and walk-in freezers and coolers which combine the
typically separate storage and display areas. In addition, price impact stores
produce lower operating expenses, primarily as a result of less labor content
due to pallet or case-loading display racks, fewer product categories offered
due to focusing on the more popular items, self bagging, and elimination of
staffed service departments.
We believe price-sensitive consumers are underserved on a nationwide basis.
Because price impact stores cost less to build and maintain than conventional
supermarkets, we expect to be able to grow our price impact supermarket
operations while incurring lower capital expenditures. We believe the success of
our price impact stores is based on an underserved trade area and does not
require significant market share. As a result, we spend less on advertising and
marketing for these stores compared to conventional format stores.
Limited Assortment Stores. In 2000, we began to develop our limited
assortment retail concept operating under the yes!LESS(R) trade name, operating
stores averaging 12,000 to 15,000 square feet of selling space. Our yes!LESS(R)
concept is designed to appeal to a needs-based consumer, primarily with low
price private label food and other consumables and an attractive selection of
general merchandise products at opening price points. With 11 stores opened in
2001, as of May 15, 2002, there were 17 yes!LESS(R) retail stores open, 16 in
Texas and one in Louisiana.
S-39
PRODUCTS
We supply a full line of national brands and Fleming brands, including
groceries, meat, dairy and delicatessen products, frozen foods, produce, bakery
goods and a variety of general merchandise, health and beauty care and other
related items. During 2001, the total number of SKUs carried in our distribution
centers was approximately 42,000. During 2001, our product mix as a percentage
of sales was approximately 61% groceries, 33% perishables and 6% general
merchandise.
Core-Mark's Products. Core-Mark distributes a full line of national brands
and Core-Mark brands, including cigarettes and other tobacco products, food
products such as candy, fast food, snacks, groceries, non-alcoholic beverages,
and non-food products such as film, batteries and other sundries and health and
beauty care products, a total of approximately 31,000 SKUs. During 2001,
cigarette net sales constituted approximately 72% of Core-Mark's total net
sales.
SUPPLIERS
We purchase our products from numerous vendors and growers. As a large
customer with centralized procurement, we are able to secure favorable terms and
volume discounts on many of our purchases, leading to lower unit costs. We
purchase products from a diverse group of suppliers and believe we have adequate
sources of supply for substantially all of our products.
COMPETITION
Our distribution group operates in a competitive market. Our primary
competitors are national, regional and local food and consumer package goods
distributors and national chains that perform their own distribution. The
convenience retail distribution business is comprised of one other national
distributor in the United States (McLane, a subsidiary of Wal-Mart) and a number
of large, multi-regional and smaller local distributors. The principal factors
on which we compete include price, quality and assortment of product lines,
schedules and reliability of delivery and the range and quality of customer
services.
The primary competitors of our retail group supermarkets are national,
regional and local grocery chains, as well as supercenters, independent
supermarkets, convenience stores, drug stores, restaurants and fast food
outlets. Principal competitive factors include price, quality and assortment,
store location and format, sales promotions, advertising, availability of
parking, hours of operation and store appeal.
INTELLECTUAL PROPERTY
We or our subsidiaries use many trade names registered either by us or by
third parties from whom we license the rights to use such trade names at either
the federal or state level or a combination of both, such as Piggly Wiggly,
PWPETRO, Piggly Wiggly xpress, Super 1 Foods, Festival Foods, Jubilee Foods,
Jamboree Foods, MEGAMARKET, Shop 'N Kart, ABCO Desert Market, American Family,
Big Star, Big T, Big Bear, Big Dollar, Buy for Less, County Pride Markets,
Rainbow Foods, Red Fox, Sentry, Shop N Bag, Super Duper, Super Foods, Super
Thrift, Thriftway, Value King and yes!LESS.
We license the Food 4 Less service mark and trade name from Ralphs Grocery
Company, a subsidiary of Kroger Co., and have the exclusive right to use and
sublicense the name in certain areas of California. We also have the exclusive
license to use and sublicense the name in all other states, excluding certain
areas of Southern California and certain areas in various other states
previously licensed to others by Ralphs or its predecessors. Additionally,
should the rights to such a previously licensed area terminate, we would
automatically obtain the exclusive license for that area. The Food 4 Less
license agreement generally provides for protected trade area status for five
years after the date that we, our franchisees or Ralphs commit to entering a new
market area under the Food 4 Less banner. However, we are not prohibited by the
licensing agreement from opening stores under a different trade name in any of
these areas.
S-40
EMPLOYEES
At April 20, 2002, we had approximately 21,000 full-time and part-time
employees, with 10,000 employed by the distribution group, 9,000 by the retail
group and 2,000 employed in shared services, customer support and other
functions.
Approximately 44% of our employees 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; the Retail, Wholesale and
Department Store Union; and the International Union of Operating Engineers. Most
of these agreements expire at various times throughout the next five years. We
consider our employee relations in general to be satisfactory.
Core-Mark's Employees. At December 31, 2001, Core-Mark had 2,916
employees. Core-Mark is a party to local collective bargaining agreements with
the International Brotherhood of Teamsters, United Food Commercial Workers and
the Industrial Wood and Allied Workers of Canada. Core-Mark is currently in
negotiations with the union in Victoria. These agreements, most of which expire
at various times over the course of the next five years, cover an aggregate of
approximately 9%, or approximately 260, of Core-Mark's employees. In addition,
in April 2002, 13 of 21 of Core-Mark's drivers in Denver, Colorado filed a
petition with the National Labor Relations Board seeking an election to
determine whether they may be represented by Teamsters Local Union No. 961 for
collective bargaining purposes under Section 7 of the National Labor Relations
Act. In May 2002, Core-Mark's drivers in Tacoma, Washington filed a petition
with the National Labor Relations Board seeking an election to determine whether
they may be represented by Teamsters Local Union No. 313 for collective
bargaining purposes under Section 7 of the National Labor Relations Act. In June
2002, Core-Mark's drivers in Flagstaff, Arizona filed a petition with the
National Labor Relations Board seeking an election to determine whether they may
be represented by Teamsters Local Union No. 17 for collective bargaining
purposes under Section 7 of the National Labor Relations Act.
S-41
PROPERTIES
The following chart displays our distribution group facilities, on a pro
forma basis after giving effect to the Acquisition. Except as otherwise
indicated in the table below, we lease all of our properties.
<Table>
<Caption>
APPROXIMATE
LOCATION SQUARE FEET
- -------- -----------
(IN THOUSANDS)
HIGH VELOCITY CASE-PICK (24 FACILITIES):
Ewa Beach, HI....................... 361
Ft. Wayne, IN....................... 1,043
Fresno, CA**........................ 828
Garland, TX*........................ 1,175
Geneva, AL.......................... 793
Kansas City, KS..................... 937
La Crosse, WI*...................... 907
Lafayette, LA*...................... 443
Lincoln, NE......................... 516
Lubbock, TX**....................... 762
Massillon, OH*...................... 874
Memphis, TN**....................... 1,071
Miami, FL*.......................... 764
Milwaukee, WI*...................... 600
Minneapolis, MN*.................... 480
Nashville, TN....................... 941
North East, MD**.................... 591
Phoenix, AZ**....................... 1,033
Sacramento, CA**.................... 787
Salt Lake City, UT**................ 555
South Brunswick, NJ................. 526
Superior, WI*....................... 371
Tulsa, OK(2)........................ 748
Warsaw, NC**........................ 672
------
Total........................ 17,778
LOW VELOCITY CASE-PICK AND PIECE-PICK (5 FACILITIES):
King of Prussia, PA................. 377
La Crosse, WI*...................... 163
Memphis, TN**....................... 495
Sacramento, CA...................... 439
Topeka, KS.......................... 223
------
Total........................ 1,697
</Table>
<Table>
<Caption>
APPROXIMATE
LOCATION SQUARE FEET
- -------- -----------
(IN THOUSANDS)
HIGH VELOCITY PIECE-PICK (26 FACILITIES):
Adel, GA............................ 79
Albuquerque, NM(3).................. 96
Altoona, PA*........................ 172
Denver, CO(3)....................... 91
Bakersfield, CA(3).................. 70
Corona, CA(3)....................... 201
Corona, CA (AMI Consolidation
Facility)(3)...................... 57
Ft. Worth, TX(3).................... 113
Grants Pass, OR(3).................. 43
Hayward, CA(3)...................... 130
Las Vegas, NV(3).................... 100
Leitchfield, KY**................... 169
Los Angeles, CA(3).................. 194
Marshfield, WI*..................... 157
Plymouth, MN........................ 239
Portland, OR(3)..................... 112
Romeoville, IL...................... 125
Sacramento, CA(3)................... 187
Sacramento, CA (Arctic Cascade
Consolidation Facility)(3)........ 22
Salt Lake City, UT(3)............... 109
Smyrna, GA.......................... 125
Spokane, WA(3)...................... 78
Calgary, Alberta(3)................. 76
Vancouver, BC(3).................... 70
Victoria, BC(3)..................... 48
Winnipeg, Manitoba(3)............... 55
------
Total........................ 2,918
TEMPORARY STORAGE FACILITIES:
Typically rented on a short-term
basis............................... 904
------
Total Distribution Square
Footage.................... 22,393
======
</Table>
- ---------------
* Owned
** Owned and leased
(1) We expect to close our high velocity case-pick facility in Oklahoma City,
Oklahoma and our low velocity case-pick and piece-pick facility in Dallas,
Texas this fall. These facilities are not reflected in the table above.
(2) We expect to occupy and operate these facilities in July 2002 upon closing
the transactions contemplated by our agreement with Albertson's.
(3) We expect to occupy and operate this facility upon consummation of the
Acquisition.
In addition, we have closed five other facilities in various states, which
we are actively marketing.
As of May 15, 2002, our retail group operated 126 supermarkets in a variety
of formats in Arizona, California, Minnesota, New Mexico, Louisiana, Texas, Utah
and Wisconsin. Our continuing chains
S-42
included 109 price impact supermarkets and 17 limited assortment stores. For
more information, see the subsection "Our Retail Group."
Our shared service center office is located in Oklahoma City, Oklahoma. The
shared service center occupies leased office space totaling approximately
229,000 square feet. Our customer support center near Dallas, Texas occupies
leased office space totaling approximately 153,000 square feet.
We own and lease other significant assets, such as inventories, fixtures
and equipment and capital leases.
Core-Mark's Properties. Core-Mark does not own any real property.
Core-Mark's principal executive offices are located in South San Francisco,
California, and consist of approximately 22,000 square feet of leased office
space. In addition, Core-Mark leases approximately 13,000 square feet in
Vancouver, British Columbia for its tax and information technology departments
and eight small offices for use by sales personnel in certain parts of the
United States and Canada. Core-Mark also leases its 19 primary distribution
facilities, 15 of which are located in the western United States and four in
western Canada, which are shown in the table above. Each distribution facility
is equipped with modern equipment (including freezers and coolers at 18
facilities) for receiving, stocking, order selection and shipping a large volume
of customer orders.
LEGAL PROCEEDINGS
We are a party to or threatened with various litigation and contingent loss
situations arising in the ordinary course of our business including disputes
with customers and vendors, owners or creditors of financially troubled or
failed customers, suppliers, landlords, employees regarding labor conditions,
wages, workers' compensation matters and alleged discriminatory practices,
insurance carriers and tax authorities. In this regard, we are currently in
binding arbitration with one of our convenience store customers, Clark Retail
Enterprises, Inc., regarding the required mix of annual minimum purchases under
a supply agreement and related product service charges. We seek to rescind the
supply agreement and to recover our damages, and Clark seeks to terminate the
supply agreement and recover its damages. The parties are currently in
settlement discussions. The outcome of this matter could have an effect on our
financial results.
Our 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 certain materials. In conformity with
these provisions, we have a comprehensive program for testing, removal,
replacement or repair of our underground fuel storage tanks and for site
remediation where necessary. We have established reserves that we believe will
be sufficient to satisfy the anticipated costs of all known remediation
requirements.
We and others have been designated by the U.S. Environmental Protection
Agency and by similar state agencies as potentially responsible parties under
the Comprehensive Environmental Response, Compensation and Liability Act, or
CERCLA, or similar state laws, as applicable, with respect to EPA-designated
Superfund sites. While liability under CERCLA for remediation at these sites is
generally joint and several with other responsible parties, we believe that, to
the extent we are ultimately determined to be liable for the expense of
remediation at any site, such liability will not result in a material adverse
effect on our consolidated financial position or results of operations. We are
committed to maintaining the environment and protecting natural resources and
human health and to achieving full compliance with all applicable laws,
regulations and orders.
We have received notice from a distributor in the State of Washington
alleging that Fleming's operation of Core-Mark subsequent to consummation of the
Acquisition would violate an existing noncompetition agreement in the states of
Washington and Oregon. Fleming does not believe that its future operation of
Core-Mark's existing distribution centers in these jurisdictions is precluded by
this agreement.
S-43
LEGAL PROCEEDINGS AFFECTING CORE-MARK
Manufacturers and distributors of cigarettes and other tobacco products are
currently facing a number of significant issues that affect the business
environment in which they operate including: proposed additional governmental
regulation; actual and proposed excise tax increases; increased litigation
involving health and other effects of cigarette smoking and other uses of
tobacco; and litigation by the U.S. Department of Justice to recover federal
Medicare costs allegedly connected to smoking.
Legislation has been introduced in Congress that would grant the FDA
authority to regulate tobacco products. Although no such legislation passed
during the year 2001, the prospects for similar legislation in the future are
uncertain. If such legislation is passed, we cannot assure you that the FDA
would not promulgate regulations that would result in a material reduction in
the consumption of tobacco products in the United States.
In November 1998, 46 states, five territories and the District of Columbia
entered into a settlement of approximately $250 billion with four major tobacco
companies to resolve litigation over smoking-related costs incurred by state
Medicaid programs.
Included in the terms of the settlement are conditions that tobacco
companies participating in the settlement may not: target youth in the
advertising, promotion or marketing of tobacco products (including the use of
cartoons in such promotion); use tobacco brand names to sponsor concerts,
athletic events or other events in which a significant percentage of the
audience is under 18 years of age; advertise products in conspicuous places
outdoors (such as billboards) or on transit vehicles; merchandise a tobacco
brand name through the marketing, distribution or sale of apparel or other
merchandise; provide free samples of tobacco products in any area except an
adults-only facility; distribute or sell cigarettes in pack sizes of less than
20; or lobby state legislatures on certain anti-tobacco initiatives (such as
limitations on youth access to vending machines).
S-44
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors are as follows:
<Table>
<Caption>
NAME AGE PRESENT POSITION
- ---- --- ----------------
EXECUTIVE OFFICERS:
Mark S. Hansen........................ 47 Chairman and Chief Executive Officer
Robert A. Allen(1).................... 53 Executive Vice President and
President, Convenience Stores
J.R. Campbell......................... 58 Executive Vice President,
Merchandising and Supply
Thomas G. Dahlen...................... 48 Executive Vice President and
President, Retail and Corporate
Marketing
E. Stephen Davis...................... 61 Executive Vice President and
President, Wholesale
Ronald B. Griffin..................... 48 Executive Vice President and Chief
Information Officer
William H. Marquard................... 42 Executive Vice President, Business
Development
Scott M. Northcutt.................... 40 Executive Vice President, Human
Resources
Neal J. Rider......................... 40 Executive Vice President and Chief
Financial Officer
Michael J. Carey...................... 55 Senior Vice President, Western
Operations
Charles L. Hall....................... 51 Senior Vice President, Real Estate and
Store Development
Carlos M. Hernandez................... 47 Senior Vice President, General Counsel
and Secretary
Matthew H. Hildreth................... 37 Senior Vice President, Finance and
Treasurer
Timothy R. LaBeau..................... 47 Senior Vice President, Operations
William A. Merrigan................... 57 Senior Vice President, Logistics
Philip B. Murphy...................... 53 Senior Vice President, Procurement
Mark D. Shapiro....................... 42 Senior Vice President, Finance and
Operations Control
Thomas A. Zatina...................... 50 Senior Vice President, Northern
Operations
DIRECTORS:
Mark S. Hansen........................ 47 Chairman and Chief Executive Officer
Herbert M. Baum....................... 65 Director
Kenneth M. Duberstein................. 58 Director
Archie R. Dykes....................... 71 Director
Carol B. Hallett...................... 64 Director
Robert S. Hamada...................... 64 Director
Alice M. Peterson..................... 49 Director
</Table>
- ------------
(1) Mr. Allen will be appointed our Executive Vice President and President,
Convenience Stores immediately following the consummation of the
Acquisition.
EXECUTIVE OFFICERS
Mark S. Hansen joined us as Chairman and Chief Executive Officer in
November 1998. Prior to joining us, Mr. Hansen served as President and Chief
Executive Officer of SAM's Club, a division of Wal-
S-45
Mart Stores, Inc., from 1997 through 1998. Prior to joining Wal-Mart, Mr. Hansen
served in multiple capacities at PETsMART, Inc., a retailer of pet food, pet
supplies and related products, including as President and Chief Executive
Officer from 1989 to 1997. Prior to 1989, Mr. Hansen served in various
management capacities in the supermarket industry. He serves as an executive
advisory board member of Swander Pace Capital and is a director of Applebee's
Restaurants and Amazon.com.
Robert A. Allen has been Chief Executive Officer of Core-Mark since January
1998 and President of Core-Mark since January 1996. Mr. Allen served as Chief
Operating Officer of Core-Mark from January 1996 to December 1997. Prior to
1996, he served as Senior Vice President, Distribution of Core-Mark from 1992
through 1995. Mr. Allen has been a director of Core-Mark since 1994.
J.R. Campbell joined us as our Executive Vice President, Merchandising and
Supply in January 2002. Prior to joining us, Mr. Campbell served for over 20
years in various capacities at Wal-Mart Stores, Inc., including Senior Vice
President and General Merchandise Manager of Wal-Mart Stores, Senior Vice
President of Merchandising for Sam's Club, and most recently as President,
Global Sourcing Division of Wal-Mart Stores.
Thomas G. Dahlen joined us as our Executive Vice President and President,
Retail and Corporate Marketing in April 2001. From 1999 until joining us, Mr.
Dahlen served as President and Chief Executive Officer of Furrs Supermarkets,
Inc. and was its President and Chief Executive Officer when it filed for Chapter
11 bankruptcy protection in February 2001. From 1994 until 1999, Mr. Dahlen
served in multiple capacities at Ralphs Supermarkets Division of the Yucaipa
Companies, including Executive Vice President from 1998 to 1999, and Senior Vice
President, Sales and Marketing from 1994 to 1998.
E. Stephen Davis joined us in 1960 and has served as our Executive Vice
President and President, Wholesale since February 2000. Prior to that, Mr. Davis
has served us in various positions, including Executive Vice President, Food
Distribution from 1998 to February 2000, Executive Vice President, Operations
from 1997 to 1998, Executive Vice President, Food Operations from 1996 to 1997
and Executive Vice President, Distribution from 1995 to 1996.
Ronald B. Griffin joined us as Executive Vice President and Chief
Information Officer in January 2002. Prior to joining us, Mr. Griffin served for
over 10 years in various capacities at The Home Depot, Inc., including most
recently as Senior Vice President and Chief Information Officer.
William H. Marquard joined us as Executive Vice President, Business
Development and Chief Knowledge Officer in June 1999. From 1991 until joining
us, Mr. Marquard was a partner in the consulting practice of Ernst & Young.
Scott M. Northcutt joined us as Senior Vice President, Human Resources in
January 1999 and he became Executive Vice President, Human Resources in February
2000. From 1997 until joining us, Mr. Northcutt was Vice President-People Group
at SAM's Club, a division of Wal-Mart Stores, Inc. From 1988 to 1995, he served
as Vice President-Human Resources and from 1995 to 1996, he served as Vice
President-Store Operations at Dollar General Corporation.
Neal J. Rider joined us as Executive Vice President and Chief Financial
Officer in January 2000. From 1999 until joining us, Mr. Rider was Executive
Vice President and Chief Financial Officer at Regal Cinemas, Inc. From 1980 to
1999, Mr. Rider served in multiple capacities at American Stores Company,
including Treasurer and Controller responsibilities from 1994 to 1997 before
becoming Chief Financial Officer in 1998.
Michael J. Carey joined us in 1983 and has served as our Senior Vice
President, Western Operations since June 2000. Prior to that, Mr. Carey served
as our Operating Group President from 1998 to June 2000, our President, LaCrosse
Division from 1996 to 1998, and our Director of IGA Marketing from 1994 to 1996.
Charles L. Hall joined us as Senior Vice President, Real Estate and Store
Development in June 1999. From 1998 until joining us, he was Senior Vice
President-Real Estate and Store Development at Eagle
S-46
Hardware and Garden, Inc. From 1992 to 1998, he served as Vice President of Real
Estate Development at PETsMART, Inc.
Carlos M. Hernandez joined us in March 2000 as Associate General Counsel
and Assistant Secretary and has served as our Senior Vice President, General
Counsel and Secretary since February 2001. Prior to joining us, Mr. Hernandez
was employed in various capacities at Armco Inc. from 1981 to 1999, and then as
an attorney at AK Steel Holding Corporation from October to December 1999.
Matthew H. Hildreth joined us as Senior Vice President, Finance and
Treasurer in May 2001. Prior to joining us, Mr. Hildreth served in various
positions at JPMorgan since 1989, including most recently as Vice President and
Sector Head of North American Trucking for JPMorgan's Transportation and
Logistics Group.
Timothy R. LaBeau joined us in January 2002 as Senior Vice President of
Operations. Prior to joining us, Mr. LaBeau served as President and Chief
Executive Officer of American Sales Company, a subsidiary of Royal Ahold, from
1998 to December 2001. Prior to that, Mr. LaBeau served as Executive Vice
President of Merchandising and Procurement for Ahold USA from 1994 to 1998.
William A. Merrigan joined us in November 2000 and has served as our Senior
Vice President, Logistics since May 2001. Prior to joining us, Mr. Merrigan
served as Senior Vice President of Logistics at Nash Finch Company from 1998 to
November 2000. Prior to that, Mr. Merrigan served in various senior positions at
Wakefern Food Corporation from 1986 to 1998, including most recently as Vice
President of Logistics and Transportation.
Philip B. Murphy joined us in October 2000 as Vice President of Grocery,
and has served as our Senior Vice President, Procurement since May 2001. Prior
to that, Mr. Murphy served as Senior Vice President and General Manager of
Services at PETsMART, Inc. from 1995 to 2000.
Mark D. Shapiro joined us in June 2001 as Senior Vice President, Finance.
Prior to joining us, Mr. Shapiro served in various positions at Big Lots, Inc.
since 1992, including most recently as Senior Vice President and Chief Financial
Officer.
Thomas A. Zatina joined us in June 2001 as Senior Vice President, Northern
Operations. Prior to joining us, Mr. Zatina served in various positions at
Bozzuto's, Inc., a Connecticut-based wholesale distributor, since 1986,
including most recently as Executive Vice President and Chief Operating Officer.
DIRECTORS
Herbert M. Baum joined us as a director in 1998. He is Chairman, president
and chief executive officer of The Dial Corporation (a consumer products
company). Prior to joining The Dial Corporation in August 2000, Mr. Baum served
as president and chief operating officer of Hasbro, Inc. from January 1999. From
1993 to 1998, Mr. Baum served as chairman and chief executive officer of Quaker
State Corporation. From 1978 to 1993, Mr. Baum served in a variety of positions
for Campbell Soup Company where his last position held was President Campbell
North and South America. Mr. Baum is a director of Grocery Manufacturers of
America, The Dial Corporation, Midas, Inc., Meredith Corporation, PepsiAmerica,
Inc. (formerly Whitman Corporation), and Action Performance Companies, Inc.
Kenneth M. Duberstein joined us as a director in May 2001. He is chairman
and Chief Executive Officer of The Duberstein Group, Inc., an independent
strategic planning and consulting company. Prior to that, Mr. Duberstein served
President Reagan in various capacities, including Chief of Staff from 1988 to
1989, Deputy Chief of Staff from 1987 to 1988 and Assistant and Deputy Assistant
to the President for Legislative Affairs from 1981 to 1983. Mr. Duberstein is a
director of The Boeing Company, Conoco, Inc., Fannie Mae, GVG, The St. Paul
Companies, Inc., and serves on the Board of Governors for the American Stock
Exchange and the National Association of Securities Dealers. He also serves as
Vice Chairman of the Kennedy Center for Performing Arts, Chairman of Ethics
Oversight Committee for the U.S. Olympics Committee, Trustee of Franklin &
Marshall College and Johns Hopkins University, and serves on the
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Council on Foreign Relations, the Institute of Politics at the John F. Kennedy
School of Government at Harvard University and the National Alliance to End
Homelessness.
Archie R. Dykes joined us as a director in 1981. He is chairman and chief
executive officer of Capital City Holdings, Inc. (a venture capital
organization). He is senior chairman and a director of PepsiAmerica, Inc.
(formerly Whitman Corporation), Midas, Inc. and the Employment Corporation. A
former chancellor of the University of Kansas and of the University of
Tennessee, Mr. Dykes also serves as a trustee of the Kansas University Endowment
Association and of the William Allen White Foundation.
Carol B. Hallett joined us as a director in 1993. She is president and
chief executive officer of the Air Transport Association of America, Washington,
D.C. (the nation's oldest and largest airline trade organization). Prior to
joining the Air Transport Association in April 1995, Mrs. Hallett served as
senior government relations advisor with Collier, Shannon, Rill & Scott from
February 1993 to March 1995. From November 1989 through January 1993, Mrs.
Hallett served as the Commissioner of the United States Customs Service. From
September 1986 to May 1989, she served as the U.S. Ambassador to The
Commonwealth of the Bahamas. From July 1983 to August 1986, Mrs. Hallett served
as the national vice chairman and field director of Citizens for America. Mrs.
Hallett also served three terms in the California legislature and as minority
leader in the State Assembly. Mrs. Hallett is a director of Mutual of Omaha
Insurance Company. She is a trustee for the Junior Statesmen of America. Mrs.
Hallett also serves on the President's Cabinet of California Polytechnic State
University.
Robert S. Hamada joined us as a director in February 2001. He has been the
Chief Executive Officer of Merchant's Exchange since July 2001. An
internationally known authority in finance, Mr. Hamada was a member of the
faculty of the University of Chicago from 1966 until 2001, during which time he
served as Dean from 1993 to June 2001, as the Edward Eagle Brown Distinguished
Service Professor of Finance at the Graduate School of Business, as director of
the Center for International Business and Research from 1992 to 1993, as deputy
dean for the faculty at the Graduate School of Business from 1985 to 1990, and
as director of the Center for Research in Security Prices from 1980 to 1985. Mr.
Hamada is a director of Northern Trust Corporation, A.M. Castle & Co., Flying
Food Fare, Window to the World Communications, Inc., Merchant's Exchange, Terra
Foundation for the Arts, and the National Bureau of Economic Research.
Alice M. Peterson joined us as a director in 1998. She is the President of
Loretto Group, a finance strategy and consulting firm. She served as President
of RIM Finance, LLC (a wholly-owned subsidiary of the Canadian company, Research
In Motion Limited, the maker of BlackBerry wireless handheld devices), from
December 2000 to September 2001. From April 2000 to September 2000, Ms. Peterson
served as Chief Executive Officer of GuidanceResources.com (an Internet-based
service that employers provide as a value-added benefit to enhance employee
productivity). From October 1998 to February 2000, Ms. Peterson served as vice
president and general manager of Sears Online, the unit of Sears, Roebuck and
Co. where all business-to-consumer Internet activities are conducted, including
interactive marketing. Ms. Peterson was vice president and treasurer of Sears,
Roebuck and Co. from 1993 to 1998. She joined that company in 1989 as corporate
director of finance, became managing director -- corporate finance in 1992, and
vice president -- treasurer in 1993. Prior to joining Sears, Ms. Peterson served
as assistant treasurer of Kraft, Inc. from 1988 to 1989. From 1984 to 1988, Ms.
Peterson served in a variety of financial positions for PepsiCo, Inc. where her
last position held was director of capital markets. Ms. Peterson is a director
of RIM Finance, LLC and she serves on the Ravinia Festival Board of Trustees.
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DESCRIPTION OF OTHER INDEBTEDNESS
SENIOR SECURED CREDIT FACILITY
Concurrently with the closing of this offering, we will enter into a new
senior secured credit facility consisting of a $550 million revolving credit
facility (which includes a $225 million letter of credit subfacility), with a
final maturity of five years from closing, and a $425 million amortizing term
loan with a maturity of six years from closing. In addition, incremental term
loans may be extended under the new credit facility by lenders agreeing to
provide same up to $250 million aggregate principal amount, provided that the
loans are permitted under the terms of our existing indebtedness. After
consummation of the Acquisition, borrowings under the revolving credit facility
may be used for general corporate purposes. Letters of credit may also be used
for general corporate purposes and are needed primarily for insurance reserves
associated with our normal risk management activities. To the extent that any of
these letters of credit would be drawn, payments would be financed by borrowings
under our revolving credit facility. Incremental term loans, if extended, may be
used only to finance acquisitions and to repay or redeem indebtedness, including
loans under the revolving credit facility. The stated interest rate on
borrowings under our credit facility will be equal to a referenced index
interest rate, normally the London interbank offered interest rate, or LIBOR,
plus a margin. The level of the margin for borrowings under our revolving credit
facility will be dependent upon our total leverage ratio and the average
utilization of our revolving credit facility.
The new credit facility (and related interest rate protection agreements,
foreign currency exchange agreements, commodity price hedging agreements and
certain overdraft facilities) will be guaranteed by substantially all of our
subsidiaries. In addition, our obligations under the new credit facility (and
related interest rate protection agreements, foreign currency exchange
agreements, commodity price hedging agreements and certain overdraft facilities)
and the obligations of our subsidiaries under the guarantees will be secured by
a first priority security interest in substantially all our accounts and
inventories and those of our subsidiaries that are guarantors, and in
substantially all the capital stock or other equity interests owned by us or our
subsidiaries that are guarantors.
Our new credit facility will contain customary covenants associated with
similar facilities, including but not limited to the following more significant
covenants:
- maintenance of a total leverage ratio;
- maintenance of a minimum fixed charge coverage ratio and a minimum
adjusted fixed charge coverage ratio;
- maintenance of a minimum asset coverage ratio;
- a limitation on capital expenditures;
- a limitation on acquisitions and investments, including, while any
revolving loans are outstanding, the amount of cash and cash equivalents;
- a limitation on restricted payments, including dividends; and
- a limitation on incurrence of indebtedness and liens.
The closing of our new credit facility is conditioned upon, among other things,
the closing of this offering, the Acquisition and the other related financings.
The commitments under our new credit facility will be terminated in the
event of a defined change of control.
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10 1/8% SENIOR NOTES DUE 2008
Our $355 million of 10 1/8% Senior Notes due 2008 are general unsecured
obligations, equal in right of payment to all of our existing and future senior
indebtedness and are guaranteed on a senior unsecured basis by each guarantor of
the Notes.
10 5/8% SENIOR SUBORDINATED NOTES DUE 2007
Our $400 million of 10 5/8% Senior Subordinated Notes due 2007 are general
unsecured obligations, subordinated in right of payment to all of our existing
and future senior indebtedness and are guaranteed on a senior subordinated basis
by each guarantor of the Notes.
9 7/8% SENIOR SUBORDINATED NOTES DUE 2012
Our $260 million of 9 7/8% Senior Subordinated Notes due 2012 are general
unsecured obligations, subordinated in right of payment to all of our existing
and future senior indebtedness and are guaranteed on a senior subordinated basis
by each guarantor of the Notes.
5 1/4% CONVERTIBLE SENIOR SUBORDINATED NOTES DUE 2009
Our $150 million of 5 1/4% Convertible Senior Subordinated Notes due 2009
are general unsecured obligations, subordinated in right of payment to all of
our existing and future senior indebtedness and are guaranteed on a senior
subordinated basis by each guarantor of the Notes.
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DESCRIPTION OF NOTES
The terms of our 9 1/4% Senior Notes due 2010 (the "Notes") are described
below. Our debt securities are described generally in the accompanying
prospectus. The following description of the particular terms of the Notes
supplements, and to the extent inconsistent replaces, the description of the
general terms and provisions of our debt securities set forth in the
accompanying prospectus. You can find definitions of certain capitalized terms
used in this description under "-- Certain Definitions." For purposes of this
section, references to the "Company" include only Fleming Companies, Inc. and
not its Subsidiaries.
The Company will issue the Notes under an indenture, dated as of June 18,
2002 (the "Existing Indenture"), among itself and Manufacturers and Traders
Trust Company, as Trustee (the "Trustee"), and under a first supplemental
indenture (the "Supplemental Indenture" and, together with the Existing
Indenture, the "Indenture") to be entered into by the Company, the Subsidiary
Guarantors and the Trustee relating to the Notes. We have filed a copy of the
Existing Indenture as an exhibit to the registration statement of which this
prospectus supplement and the accompanying prospectus form a part. A copy of the
Supplemental Indenture will be filed as an exhibit to a Form 8-K incorporated by
reference into the registration statement of which this prospectus supplement
and the accompanying prospectus form a part. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (the "TIA"). We urge you to read
the Indenture because it, and not this description, defines your rights as
holders of the Notes.
The Notes will be issued as a separate series of debt securities under the
Indenture, and accordingly will vote as a separate series from other series of
debt securities on matters under the Indenture.
GENERAL
The Notes will be unsecured obligations of the Company, ranking pari passu
in right of payment with all other senior unsecured obligations of the Company.
Principal of, premium, if any, and interest on the Notes, 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.
The Company may change any Paying Agent without notice to holders of the Notes
(the "Holders"). The Notes will be issued only in fully registered form without
coupons in denominations of $1,000 and any integral multiple thereof. 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.
MATURITY, INTEREST AND PRINCIPAL
The Existing Indenture does not limit the aggregate principal amount of
debt securities which may be issued thereunder. We may issue additional debt
securities under the Existing Indenture from time to time after this offering.
The Supplemental Indenture authorizes us to issue up to $200.0 million in
aggregate principal amount of Notes in this offering. We may issue additional
Notes from time to time after this offering under the Indenture in an unlimited
principal amount. The Notes and any additional Notes subsequently issued under
the Supplemental Indenture will be treated as a single class for all purposes
under the Indenture, including, without limitation, waivers, amendments,
redemptions and offers to purchase. Any offering of additional Notes or other
debt securities is subject to the covenant described below under the caption
"-- Certain Covenants -- Limitation on Indebtedness."
The Notes will mature on June 15, 2010. The Notes will bear interest at an
annual rate of 9 1/4% from the original date of issuance or from the most recent
interest payment date to which interest has been paid, payable semiannually on
June 15 and December 15 of each year commencing December 15, 2002, to the Person
in whose name the Notes were registered at the close of business on the June 1
or December 1 next preceding such interest payment date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
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The Notes will not be entitled to the benefit of any sinking fund.
GUARANTEES
Payment of the principal of, premium, if any, and interest on 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
basis by all of the Restricted Subsidiaries that guarantee the Credit Agreement
or any of the Existing Notes (the "Subsidiary Guarantors").
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
Indenture (including, without limitation, the provisions of "-- Certain
Covenants -- Limitation on Sale of Assets" and "-- Certain
Covenants -- 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.
REDEMPTION
Optional Redemption. Except as described below, the Notes are not
redeemable before June 15, 2006. Thereafter, the Company may redeem the Notes at
its option, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the following redemption prices (expressed as percentages of the
principal amount thereof) if redeemed during the twelve-month period commencing
on June 15 of the year set forth below.
<Table>
<Caption>
YEAR PERCENTAGE
- ---- ----------
2006........................................................ 104.6250%
2007........................................................ 102.3125%
2008 and thereafter......................................... 100.0000%
</Table>
In addition, the Company must pay all accrued and unpaid interest on the
Notes redeemed.
Optional Redemption upon Equity Offerings. In addition, up to 35% of the
initial aggregate principal amount of the Notes may be redeemed on or prior to
June 15, 2005, at the option of the Company, within 90 days of an Equity
Offering with the net proceeds of such offering at a redemption price equal to
109.25% 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
65% of the Notes originally issued under the Indenture remain outstanding.
As used in the preceding paragraph, "Equity Offering" means a public or
private offering of Qualified Capital Stock of the Company generating gross
proceeds to the Company of at least $50 million (other than the concurrent
equity offering).
SELECTION AND NOTICE
In the event that less than all of the Notes are to be redeemed at any
time, selection of the Notes 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
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more than 60 days before the redemption date to each Holder of Notes 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 or after the redemption date,
interest will cease to accrue on Notes or portions thereof called for redemption
and accepted for payment.
PURCHASE OF NOTES UPON A CHANGE OF CONTROL
If a Change of Control 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 Issue Date, 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 Indenture.
Within 30 days following the occurrence of any Change of Control, the
Company shall notify the Trustee and give written notice of such Change of
Control 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 Company will not be required to make a Change of Control Purchase Offer
upon a Change of Control if a third party makes the Change of Control Purchase
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the Indenture applicable to a Change of Control
Purchase Offer made by the Company and purchases all Notes properly tendered and
not withdrawn under the Change of Control Purchase Offer.
If a Change of Control were to occur, we cannot assure you that the Company
would have sufficient funds to pay the Change of Control Purchase Price for all
the Notes tendered by the Holders. The Company's existing credit agreement and
indentures contain, and any future other agreements relating to other
indebtedness to which we become a party may contain, restrictions or
prohibitions on the Company's ability to repurchase Notes or may provide that an
occurrence of a Change of Control constitutes an event of default under, or
otherwise requires payment of amounts borrowed under those agreements. If a
Change of Control occurs at a time when the Company is prohibited from
repurchasing the Notes, we could seek the consent of our then existing lenders
and note holders to the repurchase of the Notes or could attempt to refinance
the borrowings that contain the prohibition. If the Company does not obtain such
a consent or repay the borrowings, it would remain prohibited from repurchasing
the Notes. In that case, failure to repurchase tendered Notes would constitute
an Event of Default under the Indenture and may constitute a default under the
terms of other indebtedness that we may enter into from time to time.
Our bylaws contain a provision which limits 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" and prohibits the amendment, alteration, deletion or
modification of such bylaw by the Board of Directors without prior shareholder
approval. This bylaw provision raises a question as to whether the provisions of
the Indenture described above (the "Change of Control Provisions") constitute a
"poison pill," "shareholder rights plan,
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rights agreement or any other form of 'poison pill"' (collectively, a "Poison
Pill") within the meaning of this provision. See "Risk Factors -- We may not
have the ability to raise funds necessary to finance the change of control offer
required by the indenture governing the Notes and our other existing
indebtedness. In addition, our bylaws may not permit us to make the change of
control payment even if we do have the funds." 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 Indenture do
not constitute a Poison Pill within the meaning of the bylaw provision, and
accordingly are not inconsistent therewith. If the Change of Control Provisions
were found to be inconsistent with the bylaw provision, 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.
One of the events which constitutes a Change of Control under the Indenture
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 Indenture) 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.
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.
CERTAIN COVENANTS
The Indenture will contain the following covenants, among others:
Limitation on Indebtedness. (a) 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 sentence, 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:
(1) the incurrence of such Indebtedness and (if applicable) the
application of the proceeds therefrom, including to refinance other
Indebtedness;
(2) 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
(3) 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 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 2.25 to 1.
(b) The Company will not, and will not permit any Subsidiary Guarantor to,
directly or indirectly, incur any Indebtedness which by its terms (or by the
terms of any agreement governing such Indebtedness) is subordinated to any other
Indebtedness of the Company or such Subsidiary Guarantor, as the case may be,
unless such Indebtedness is also by its terms (or by the terms of any agreement
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governing such Indebtedness) made expressly subordinate to the Notes or the Note
Guarantee of such Subsidiary Guarantor to the same extent and in the same manner
as such Indebtedness is subordinated to other Indebtedness of the Company or
such Subsidiary Guarantor, as the case may be.
(c) The Company will not, and will not permit any of its Restricted
Subsidiaries to, incur any Indebtedness (other than Subordinated Indebtedness),
whether pursuant to clause (a) above or pursuant to one or more items of
Permitted Indebtedness, the proceeds of which will be used to repay in whole or
in part any Subordinated Notes. Notwithstanding the foregoing sentence, the
Company and the Restricted Subsidiaries (to the extent the Company and/or such
Restricted Subsidiary is permitted to incur such Indebtedness pursuant to clause
(a) above or pursuant to one or more items of Permitted Indebtedness) may incur
such Indebtedness if, at the time of such event (and after giving effect on a
pro forma basis to:
(1) the incurrence of such Indebtedness and the application of the
proceeds therefrom, including to refinance the Subordinated Notes; and
(2) 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 the four-quarter
period referred to in the definition of "Consolidated Senior Debt Leverage
Ratio" as if such acquisition or disposition had occurred at the beginning
of such four-quarter period),
the Consolidated Senior Debt Leverage Ratio of the Company would have been less
than 2.75 to 1.
Limitation on Restricted Payments. The Company will not, and will not
permit any Restricted Subsidiary of the Company to, directly or indirectly:
(1) 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 (a) 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 (b) by a Restricted Subsidiary to the Company or
any Wholly Owned Restricted Subsidiary);
(2) 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);
(3) 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
(4) make any Investment (other than any Permitted Investment) in any
Person (such payments described in clauses (1) through (4) 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, being the Fair Market Value thereof as determined by the Board of
Directors of the Company, whose determination shall be conclusive and evidenced
by a Board Resolution):
(i) no Default or Event of Default shall have occurred and be
continuing;
(ii) 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
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(iii) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries on or after the Issue Date, is less than the sum of, without
duplication:
(w) 50% of the aggregate cumulative Consolidated Net Income of the
Company for the period (taken as one accounting period) from April 21,
2002 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
(x) 100% of the aggregate net cash proceeds received by the Company
as capital contributions or from the issue or sale after the Issue Date
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
(y) 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
(z) $62 million.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may take the following actions so long as (with respect to clauses (2), (3), (4)
and (6) below) at the time of and immediately after giving effect thereto no
Default or Event of Default shall have occurred and be continuing:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if such dividend would have been permitted on the date
of declaration;
(2) 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);
(3) the purchase, redemption, defeasance or other acquisition or
retirement for value of any 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);
(4) the purchase, redemption, defeasance or other acquisition or
retirement for value of any 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 Subordinated Indebtedness of the Company or
a Subsidiary Guarantor, as the case may be, so long as:
(a) the principal amount of such new Subordinated Indebtedness does
not exceed, for more than 60 days following the issuance thereof, the
principal amount (or, if such 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 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 Subordinated Indebtedness
refinanced or the amount of
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any premium reasonably determined by the Company as necessary to
accomplish such refinancing, plus the amount of reasonable expenses of
the Company or such Subsidiary Guarantor, as the case may be, incurred
in connection with such refinancing;
(b) such new Subordinated Indebtedness is subordinated to the Notes
or the Note Guarantee of such Subsidiary Guarantor, as the case may be,
at least to the same extent as such Subordinated Indebtedness so
purchased, redeemed, defeased, acquired or retired; and
(c) such new 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;
(5) 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);
(6) the purchase, redemption or other acquisition or retirement for
value of shares of Capital Stock of the Company issued pursuant to 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:
(a) 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
(b) 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;
(7) the repurchases of Capital Stock of the Company deemed to occur
upon the exercise of stock options if such Capital Stock represents a
portion of the exercise price thereof; and
(8) in addition to clause (4) above, the purchase, redemption,
defeasance or other acquisition or retirement for value of the Subordinated
Notes in exchange for, or out of the net cash proceeds of a substantially
concurrent incurrence or sale (other than to a Restricted Subsidiary) of,
Indebtedness of the Company or a Restricted Subsidiary, as the case may be,
so long as such Indebtedness is incurred in accordance with the provisions
described in clause (c) under "-- Limitation on Indebtedness."
The actions described in clauses (2), (3), (5) and (6) of this paragraph
shall be Restricted Payments that shall be permitted to be taken in accordance
with this paragraph but shall reduce the amount that would otherwise be
available for Restricted Payments under clause (iii) of the preceding paragraph.
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Lien of any nature whatsoever against any asset of
the Company or any Restricted Subsidiary (including Capital Stock of a
Restricted Subsidiary), whether owned at the Issue Date or thereafter acquired,
or any proceeds therefrom, or assign or otherwise convey any right to receive
income or profits therefrom, except for Permitted Liens, unless
contemporaneously therewith:
(1) in the case of any Lien securing Subordinated Indebtedness,
effective provision is made to secure the Notes or such Note Guarantee, as
the case may be, with a Lien on the same collateral that is senior in
priority to the Lien securing such Subordinated Indebtedness; and
(2) in all other cases, the Notes or such Note Guarantee, as the case
may be, are secured on an equal and ratable basis.
Limitation on Transactions With Affiliates. 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,
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any Affiliate (other than the Company, a Wholly Owned Restricted Subsidiary or a
Restricted Subsidiary that is a Subsidiary Guarantor) (each of the foregoing, an
"Affiliate Transaction"), unless:
(1) 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
(2) 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 (1) 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) transactions in the ordinary
course of business with customers, vendors and suppliers, the terms of which
have been approved in good faith by an officer of the Company.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. 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:
(1) (a) pay dividends or make any other distributions to the Company
or any of its Restricted Subsidiaries (x) on its Capital Stock or (y) 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;
(2) make loans or advances to the Company or any of its Restricted
Subsidiaries;
(3) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries;
(4) grant Liens in favor of Holders of Notes; or
(5) 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 Issue Date;
(b) the Credit Agreement as in effect as of the Issue Date, 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 Credit Agreement in effect on the Issue
Date;
(c) the Indenture and the Notes;
(d) applicable law;
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(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 (3) above on the property so acquired; and
(h) restrictions incurred by the Company or any Restricted
Subsidiary in connection with any Permitted Receivables Financing.
Limitation on Sale of Assets. 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 of the assets or Equity Interests issued or sold or otherwise disposed of.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or such Restricted Subsidiary must apply such Net Proceeds:
(1) to permanently reduce Indebtedness of the Company or one or more
Restricted Subsidiaries under the Credit Agreement (and to correspondingly
reduce commitments with respect thereto);
(2) to offer to repurchase and repurchase the Existing Senior Notes to
the extent required by the indenture governing the Existing Senior Notes;
or
(3) 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 Issue Date.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce the revolving credit portion of the Credit Agreement or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
Indenture. 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
and holders of other Pari Passu Indebtedness containing provisions similar to
those set forth in the Indenture with respect to offers to purchase or redeem
with the proceeds of sales of assets (an "Asset Sale Offer") to purchase the
maximum principal amount of Notes and such other Pari Passu Indebtedness that
may be purchased out of the Excess Proceeds (on a pro rata basis if the amount
available for such repayment, purchase or redemption is less than the aggregate
amount of (x) the principal amount of the Notes tendered in such Asset Sale
Offer and (y) the principal amount of such Pari Passu Indebtedness), at an offer
price in cash in an amount equal to 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, thereon to the date of purchase, in
accordance with the procedures set forth in the Indenture. To the extent that
any Excess Proceeds remain after consummation of an Asset Sale Offer, the
Company may use any remaining Excess Proceeds for general corporate purposes
(subject to the restrictions of the Indenture). 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.
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Limitation on Issuances and Sales of Capital Stock of Subsidiaries. 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:
(1) 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
(2) 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:
(1) 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
(2) 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.
Additional Guarantees. If any existing or future Restricted Subsidiary
shall, after the Issue Date, guarantee the Credit Agreement or any of the
Existing Notes, the Company will cause any such Restricted Subsidiary to:
(1) execute and deliver to the Trustee a supplemental indenture in
form and substance reasonably satisfactory to the Trustee pursuant to which
such Restricted Subsidiary shall guarantee all of the obligations of the
Company with respect to the Notes on a senior basis; and
(2) deliver to the Trustee an Opinion of Counsel reasonably
satisfactory to the 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 Indenture.
Reports. 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:
(1) 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
(2) 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.
Payments for Consent. The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, pay or cause 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.
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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
"-- Certain Covenants -- Limitation on Indebtedness ," "-- Certain Covenants --
Limitation on Restricted Payments," "-- Certain Covenants -- Limitation on
Issuances and Sales of Capital Stock of Subsidiaries," "-- Certain
Covenants -- Limitation on Transactions With Affiliates" and "-- Certain
Covenants -- Limitation on Sale of Assets" and the Consolidated Net Worth
requirement set forth in clause (3) 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 Consolidated Net Worth requirement shall be reinstituted as and from the
date of such rating decline.
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:
(1) 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 Indenture, and the Indenture shall remain in full
force and effect;
(2) 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;
(3) 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 Indenture) will have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction;
(4) 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
Indenture) could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the provisions of "-- Certain
Covenants -- Limitation on Indebtedness" above;
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(5) each Subsidiary Guarantor, unless it is the other party to the
transactions described above, shall have confirmed, by supplemental
indenture to the Indenture, that its respective Note Guarantees with
respect to the Notes shall apply to such Person's obligations under the
Indenture and the Notes;
(6) 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" are complied
with; and
(7) the Company shall have delivered, or caused to be delivered, to
the Trustee, in form and substance satisfactory to the 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 (1) through (6) of this
paragraph and that all conditions precedent herein provided for relating to
such transaction have been complied with.
The foregoing shall not prohibit a merger of any Restricted Subsidiary of the
Company with and into the Company or a merger effected solely for the purpose of
reincorporating the Company in another jurisdiction. 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 Indenture 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.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(1) there shall be a default in the payment of any interest on the
Notes when such interest becomes due and payable, and continuance of such
default for a period of 30 days;
(2) there shall be a default in the payment of the principal of (or
premium, if any, on) any Notes at Maturity;
(3) (a) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company or any Subsidiary Guarantor under the
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 (1) or (2) or in clauses (b) or (c) of this clause (3)),
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 Company by the Trustee; or
(y) to the Company and the 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 Sale of Assets"; or
(c) the Company shall have failed to comply with the provisions of
"-- Purchase of Notes upon a Change of Control" for any reason,
including the inconsistency of such covenant with the Company's Bylaws
as in effect on the Issue Date;
(4) (a) any default in the payment of the principal of any
Indebtedness shall have occurred under any agreements, indentures or
instruments under which the Company or any Restricted Subsidiary of the
Company then has outstanding Indebtedness in excess of $50 million when the
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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 (4)
shall have occurred and the Indebtedness thereunder, if not already
matured at its final maturity in accordance with its terms, shall have
been accelerated;
(5) any Note Guarantee of any Significant Subsidiary individually or
any other Subsidiaries if such Restricted Subsidiaries in the aggregate
represent 15% or more of Consolidated Total Assets with respect to the
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 Indenture;
(6) 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;
(7) 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 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
(8) (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;
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(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 (8).
If an Event of Default (other than as specified in clause (7) or (8) of the
immediately preceding paragraph) shall occur and be continuing with respect to
the Notes, the Trustee, by notice in writing 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
(7) or (8) of the immediately preceding paragraph occurs and is continuing, then
all of the outstanding Notes under each of the Indenture 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 Notes, by
written notice to the Company and such Trustee, may annul such declaration if:
(1) the Company has paid or deposited with such Trustee a sum
sufficient to pay:
(a) all sums paid or advanced by the Trustee under the Notes and
the reasonable compensation, expenses, disbursements, and advances of
the Trustee, its agents and counsel;
(b) all overdue interest on all of the Notes; and
(c) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate borne by the Notes; and
(2) 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.
The Holders of a majority in aggregate principal amount of the Notes
outstanding may, on behalf of the Holders of all of such Notes, waive any past
defaults under the Indenture 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 the Indenture cannot be modified or amended without the
consent of the Holder of each such outstanding Note.
The Company is also required to notify the Trustee within ten days of the
occurrence of any Default.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
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 the Indenture ("defeasance"). Such defeasance means
that the Company shall be deemed to have paid and discharged all obligations
represented by the Notes, except for:
(1) the rights of Holders of such outstanding Notes to receive
payments in respect of the principal of, premium, if any, and interest on
the Notes when such payments are due or on the redemption date;
(2) the Company's obligations with respect to the 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;
(3) the rights, powers, trusts, duties and immunities of the
applicable Trustee; and
(4) the defeasance provisions of the Indenture.
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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 Indenture ("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.
In order to exercise either defeasance or covenant defeasance with respect
to the Notes:
(1) 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 Indenture), 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;
(2) 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 Issue Date, 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;
(3) 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;
(4) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a Default under, the 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;
(5) 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 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
(6) the Company shall have delivered to the Trustee an Officers'
Certificate stating that all conditions precedent relating to either the
defeasance or the covenant defeasance, as the case may be, have been
complied with.
Notwithstanding the foregoing, the opinion of counsel required by clause
(2) above with respect to a defeasance need not be delivered if all Notes not
theretofore delivered to the Trustee for cancellation (1) have become due and
payable or (2) will become due and payable on the maturity date within one
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year under arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Company.
SATISFACTION AND DISCHARGE
The Indenture shall cease to be of further effect (except for surviving
rights of registration of transfer or exchange of the Notes) as to all
outstanding Notes when:
(1) either
(a) all Notes issued under the Indenture and theretofore
authenticated and delivered (except lost, stolen or destroyed Notes
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 Indenture and not theretofore
delivered to the Trustee for cancellation
(x) have become due and payable or
(y) will become due and payable at their Stated Maturity or
pursuant to an optional redemption within one year, and either the
Company or any Subsidiary Guarantor has irrevocably deposited or
caused to be deposited with the Trustee funds in an amount sufficient
to pay and discharge the entire Indebtedness in respect of the Notes,
for principal of, premium, if any, and interest to the date of
redemption or Stated Maturity, as the case may be;
(2) the Company or any Subsidiary Guarantor has paid all other sums
payable by the Company and any Subsidiary Guarantor under the Indenture;
and
(3) 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 the 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, the 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.
MODIFICATION AND AMENDMENTS
From time to time, the Company, the Subsidiary Guarantors and the Trustee,
without the consent of the Holders, may amend the Indenture for certain
specified purposes, including curing ambiguities, defects or inconsistencies, so
long as such change does not adversely affect the rights of any of the Holders
in any material respect. Other modifications and amendments of the Indenture may
be made by the Company, the Subsidiary Guarantors and the Trustee with the
consent of the Holders of a majority in aggregate outstanding principal amount
of the Notes; provided, however, that no such modification or amendment may,
without the consent of the Holder of each outstanding Note:
(1) change the Stated Maturity or the principal of, or any installment
of interest on, any Note 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;
(2) after a Change of Control has occurred, amend, change or modify
the obligation of the Company to make and consummate a Change of Control
Purchase Offer with respect to such Change of Control or modify any of the
provisions or definitions with respect thereto;
(3) reduce the percentage in principal amount of outstanding Notes,
the consent of whose Holders is required for any modification or amendment
to the Indenture, or the consent of whose Holders is required for any
waiver thereof;
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(4) 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 required for such actions or to provide
that certain other provisions of the Indenture cannot be modified or waived
without the consent of each Holder; or
(5) 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 the
Indenture.
The Holders of a majority in aggregate principal amount of the Notes issued
and outstanding may waive compliance with certain restrictive covenants and
provisions of such Indenture.
GOVERNING LAW
The Indenture will provide that it, the Notes and the Note Guarantees will
be governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the law of another jurisdiction would be
required thereby.
THE TRUSTEE
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the Trustee
will exercise such rights and powers vested in it by the Indenture, and use the
same degree of care and skill in its exercise as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person:
(1) existing at the time such Person becomes a Restricted Subsidiary
of the Company; or
(2) 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 any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with 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:
(1) 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
Indenture described above under the caption "-- Purchase of Notes upon a
Change of Control" and/or the provisions described above under the caption
"-- Consolida-
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tion, Merger, Sale of Assets" and not by the provisions of "-- Certain
Covenants -- Limitation on Sale of Assets"); and
(2) 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 $2.5 million; or
(b) for net proceeds in excess of $2.5 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 non-Wholly
Owned Restricted Subsidiary to any other Restricted Subsidiary 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:
(1) 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
(2) 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 Credit Agreement.
"Borrowing Base Amount" means, as of any date, an amount equal to the sum
of:
(1) 85% of the aggregate book value of all accounts receivable of the
Company and its Restricted Subsidiaries; and
(2) 60% of the aggregate book value of all inventory owned by the
Company and its Restricted Subsidiaries,
all calculated on a consolidated basis and in accordance with GAAP.
To the extent the information is not available as to the amount of accounts
receivable or inventory as of a specific date, the Company shall use the most
recent available information for purposes of calculating the Borrowing Base.
"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 Issue
Date, including, without limitation, all common stock and Preferred Stock.
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"Change of Control" means the occurrence of any of the following events:
(1) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) 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;
(2) 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;
(3) a "Change of Control" has occurred under:
(a) clause (c) of the definition thereof under the indenture for
either the Existing Senior Notes or the Subordinated Notes due 2012; or
(b) clause (iii) of the definition thereof under the indenture for
the Subordinated Notes due 2007; or
(4) 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."
"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 Indenture 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 EBITDA" means, with respect to the Company and its Restricted
Subsidiaries on a Consolidated basis for any period all determined in accordance
with GAAP, the sum of, without duplication:
(1) Consolidated Net Income, plus;
(2) Consolidated Interest Expense, to the extent deducted in computing
such Consolidated Net Income, plus;
(3) Consolidated Income Tax Expense, to the extent deducted in
computing such Consolidated Net Income, plus;
(4) Consolidated Non-Cash Charges, to the extent deducted in computing
such Consolidated Net Income, minus;
(5) non-cash items increasing such Consolidated Net Income (other than
such non-cash items in the ordinary course of business).
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"Consolidated Fixed Charge Coverage Ratio" of the Company means, for any
period, the ratio of:
(1) Consolidated EBITDA for such period to:
(2) Consolidated Interest Expense for such period; provided that:
(a) in making such computation, the Consolidated Interest Expense
attributable to interest on any Indebtedness computed on a pro forma
basis; and
(x) 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
(y) 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
(b) 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:
(1) 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:
(a) amortization of debt discount;
(b) the net cost under Interest Rate Agreements (including
amortization of discount);
(c) the interest portion of any deferred payment obligation; and
(d) accrued interest; plus
(2) the aggregate amount for such period of dividends on any
Redeemable Capital Stock or Preferred Stock of the Company and its
Restricted Subsidiaries;
(3) 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
(4) all capitalized interest of the Company and its Restricted
Subsidiaries in each case under each of (1) through (4) 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:
(1) any net after-tax extraordinary gains or losses (less all fees and
expenses relating thereto);
(2) 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;
(3) 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;
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(4) 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
(5) 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 Worth" means, with respect to any Person as of any date,
the sum of:
(1) the consolidated equity of the common equity holders of such
Person and its Restricted Subsidiaries as of such date; plus
(2) 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 Issue Date 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).
"Consolidated Senior Debt Leverage Ratio" of the Company means the ratio of
(1) Consolidated Indebtedness of the Company and its Restricted Subsidiaries
(other than Subordinated Indebtedness) as of the date of the transaction giving
rise to the need to calculate such Consolidated Senior Debt Leverage Ratio to
(2) Consolidated EBITDA for the four full fiscal quarters immediately preceding
the date of the transaction giving rise to the need to calculate such
Consolidated Senior Debt Leverage Ratio, taken as one period.
"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:
(1) intangible assets including, without limitation, items such as
goodwill, trademarks, trade names, patents and unamortized debt discount;
and
(2) 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.
"Credit Agreement" means the credit agreement to be dated as of June 18,
2002 among the Company, the Banks, the agents listed therein and Deutsche Bank
Trust Company Americas, 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
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limitation, any successive renewals, extensions, substitutions, refinancings,
restructurings, replacements, supplementations or other modifications of the
foregoing).
"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.
"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 Indenture, 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.
"Existing Notes" means, collectively, the Existing Senior Notes and the
Subordinated Notes.
"Existing Senior Notes" means the Company's 10 1/8% Senior Notes due 2008.
"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 officers of
the Company acting in good faith, provided, that any transaction that results in
a price in excess of $10.0 million shall be determined by the Board of Directors
of the Company acting in good faith and shall be evidenced by a Board Resolution
attached to an Officers' Certificate delivered to the Trustee.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, as in effect on the Issue
Date.
"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:
(1) to pay or purchase such Indebtedness or to advance or supply funds
for the payment or purchase of such Indebtedness;
(2) 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;
(3) to supply funds to, or in any 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);
(4) to maintain working capital of the debtor, or otherwise to
maintain the net worth, solvency or other financial condition of the
debtor; or
(5) 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.
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"Indebtedness" means, with respect to any Person, without duplication:
(1) 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;
(2) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments;
(3) 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;
(4) all Capital Lease Obligations of such Person;
(5) all obligations under Interest Rate Agreements or Currency
Agreements of such Person;
(6) Indebtedness referred to in clauses (1) through (5) above 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;
(7) all Guaranteed Debt of such Person;
(8) all Redeemable Capital Stock valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and
unpaid dividends; and
(9) any amendment, supplement, modification, deferral, renewal,
extension, refunding or refinancing of any liability of the types referred
to in clauses (1) through (8) 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 the 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 Indenture, 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).
"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:
(1) any advance (other than advances to customers in the ordinary
course of business, which are recorded as accounts receivable on the
Consolidated balance sheet of the Company and its Restricted Subsidiaries),
loan or other extension of credit (including by way of guarantee); or
(2) 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
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(3) any purchase, acquisition 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 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.
"Issue Date" means June 18, 2002, the date of original issuance of the
Notes.
"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, 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.
"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 permanent 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.
"Non-Recourse Debt" means Indebtedness:
(1) 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;
(2) 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
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(3) 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 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:
(1) cash or Temporary Cash Investments;
(2) assets used or intended for use in the Company's business as
conducted on the Issue Date;
(3) 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
(4) any securities, notes or other obligations received by the Company
or any such Restricted Subsidiary; provided that the aggregate amount of
such securities, notes or other obligations received by the Company and its
Restricted Subsidiaries pursuant to this clause (4) after the Issue Date
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:
(1) Indebtedness of the Company and guarantees of the Subsidiary
Guarantors under the Credit Agreement in an aggregate principal amount at
any one time outstanding not to exceed the greater of:
(a) $1.0 billion, less
(x) the amount of mandatory repayments actually made by the
Company or any such Restricted Subsidiary since the Issue Date with
Net Proceeds of an Asset Sale in respect of term Indebtedness under
the Credit Agreement; and
(y) further reduced by the amount of mandatory repayments of
revolving credit Indebtedness thereunder (accompanied by a
corresponding commitment reduction thereunder) actually made by the
Company or any such Restricted Subsidiary since the Issue Date with
Net Proceeds of an Asset Sale; or
(b) the Borrowing Base Amount.
(2) Indebtedness of the Company and guarantees of the Subsidiary
Guarantors under uncommitted bank lines of credit (including any
refinancings of such Indebtedness); provided, however, that the aggregate
principal amount of Indebtedness incurred pursuant to clauses (1), (2) and
(10) of this definition does not exceed the maximum amount of Indebtedness
permitted under clause (1) of this definition;
(3) Indebtedness of the Company and the Subsidiary Guarantors
evidenced by the Notes and the Note Guarantees with respect thereto under
the Indenture;
(4) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the Issue Date;
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(5) 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;
(6) 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 (6);
(7) Indebtedness in respect of letters of credit, surety bonds and
performance bonds provided in the ordinary course of business;
(8) 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;
(9) 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;
(10) Indebtedness of the Company evidenced by commercial paper issued
by the Company (including any refinancings of such Indebtedness); provided,
however, that the aggregate principal amount of Indebtedness incurred
pursuant to clauses (1), (2) and (10) of this definition does not exceed
the maximum amount of Indebtedness permitted under clause (1) of this
definition;
(11) 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 at the time such
Transferred Receivables are sold or in the case of receivables arising from
direct financing leases, 30% of the book value thereof;
(12) Indebtedness of the Company and its Restricted Subsidiaries in
addition to that described in clauses (1) through (11) of this definition
of "Permitted Indebtedness," together with any other outstanding
Indebtedness incurred pursuant to this clause (12) (including any
refinancings of such Indebtedness), not to exceed $100 million at any time
outstanding in the aggregate; and
(13) any renewals, extensions, substitutions, refunding, refinancings
or replacements (each, a "refinancing") of any Indebtedness described in
clauses (3) and (4) 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, for more than 60 days
following the issuance thereof, 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
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of the Company or any Restricted Subsidiary, as the case may be,
incurred in connection with such refinancing;
(b) in the case of any refinancing of Subordinated Indebtedness,
such new Indebtedness is subordinated to the Notes or the applicable
Note Guarantee, as the case may be, at least 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.
For purposes of determining compliance with the "-- Certain
Covenants -- Limitation on Indebtedness" covenant, in the event that an item of
Indebtedness meets the criteria of more than one of the categories of Permitted
Indebtedness described in clauses (1) through (13) above or is permitted to be
incurred pursuant to the Consolidated Fixed Charge Coverage Ratio provisions of
such covenant, the Company shall, in its sole discretion, classify (or later
reclassify) such item of Indebtedness in any manner that complies with such
covenant. Accrual of interest, accretion or amortization of original issue
discount and the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms will not be deemed to be an
incurrence of Indebtedness for purposes of the "-- Certain
Covenants -- Limitation on Indebtedness" covenant.
"Permitted Investment" means
(1) Investments in any Wholly Owned Restricted Subsidiary or any
Restricted Subsidiary that is a Subsidiary Guarantor or any Investment in
any Person by the Company or any Restricted Subsidiary as a result of which
such Person becomes a Wholly Owned Restricted Subsidiary or a Restricted
Subsidiary that is a Subsidiary Guarantor or any Investment in the Company
by a Restricted Subsidiary;
(2) intercompany Indebtedness to the extent permitted under clause (6)
of the definition of "Permitted Indebtedness" and Indebtedness in
connection with a Permitted Receivables Financing permitted under clause
(11) of the definition of "Permitted Indebtedness";
(3) Temporary Cash Investments;
(4) 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;
(5) 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;
(6) Investments in Joint Ventures related to the Company's operations,
not to exceed $50 million at any one time outstanding;
(7) 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 (7) any Investments made pursuant to clause (5)), 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;
(8) Investments as a result of non-cash consideration received by the
Company or a Restricted Subsidiary in connection with an Asset Sale made in
compliance with the "-- Certain Covenants -- Limitation on Sale of Assets"
covenant;
(9) other Investments, in addition to those permitted under (1)
through (8) above, in an aggregate amount not to exceed $25 million; and
(10) any substitutions or replacements of any Investment so long as
the aggregate amount of such Investment is not increased by such
substitution or replacement.
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"Permitted Liens" means, with respect to any Person:
(1) Liens existing as of the Issue Date;
(2) Liens securing Indebtedness permitted to be incurred pursuant to
clauses (1), (2) and (10) of the definition of "Permitted Indebtedness";
(3) Liens securing the Notes and the Note Guarantees;
(4) any Lien arising by reason of:
(a) 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;
(b) taxes, assessments, governmental charges or levies not yet
delinquent or which are being contested in good faith;
(c) security for payment of workers' compensation or other
insurance;
(d) 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);
(e) 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;
(f) deposits to secure public or statutory obligations;
(g) 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;
(h) 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
(i) security for surety or appeal bonds;
(5) any Lien on any property or assets of a Restricted Subsidiary in
favor of the Company or any Wholly Owned Restricted Subsidiary;
(6) 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;
(7) 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;
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(8) any Lien securing any Interest Rate Agreements or Currency
Agreements permitted to be incurred pursuant to clause (5) of the
definition of "Permitted Indebtedness" or any collateral for the
Indebtedness to which such Interest Rate Agreements or Currency Agreements
relate;
(9) 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 asset; provided that
such Lien covers only such asset and attaches concurrently or within 180
days after the acquisition or completion of construction thereof;
(10) 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:
(a) to the extent that the Company or such Restricted Subsidiary
has entered into (and not terminated), or has a binding commitment for,
subleases on terms which, to the Company or such Restricted Subsidiary,
are at least as favorable, on a current basis, as the terms of the
corresponding capital lease; or
(b) under which the aggregate principal component of the annual
rent payable does not exceed $5 million;
(11) any Lien on a Transferred Receivable or other receivable that is
transferred in a Permitted Receivables Financing;
(12) 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:
(a) such Restricted Subsidiary is a Subsidiary Guarantor; and
(b) the principal amount pledged does not exceed the Indebtedness
secured by such pledge;
(13) Liens securing Indebtedness which is incurred to refinance any
Indebtedness which has been secured by a Lien permitted under the Indenture
and which has been incurred in accordance with the provisions of the
Indenture; provided, however, that such Liens:
(a) are no less favorable to the Holders and are not more favorable
to the lienholders with respect to such Liens than the Liens in respect
of the Indebtedness being refinanced; and
(b) do not extend to or cover any property or assets of the Company
or any of the Restricted Subsidiaries not securing the Indebtedness so
refinanced; and
(14) any extension, renewal, substitution or replacement, in whole or
in part, of any Lien described in the foregoing clauses (4) through (12);
provided, that the Lien so extended, renewed, substituted or replaced does
not extend to any additional property or assets.
"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:
(1) the aggregate uncollected balances of the receivables so
transferred ("Transferred Receivables"); plus
(2) 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
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issued after the Issue Date, and including, without limitation, all classes and
series of preferred or preference stock of such Person.
"Public Equity Offering" means 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 pursuant to an effective registration
statement under the Securities Act.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Rating Agency" means any of:
(1) S&P;
(2) Moody's; or
(3) 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:
(1) 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);
(2) 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
(3) 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).
"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 an
Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" of the Company means any Subsidiary of the Company
that is a "significant subsidiary" as defined in Regulation S-X under the
Exchange 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 or the
Subsidiary Guarantors that is subordinate or junior in right of payment to the
Notes or the Note Guarantees, as the case may be.
"Subordinated Notes due 2007" means the Company's 10 5/8% Senior
Subordinated Notes due 2007.
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"Subordinated Notes due 2012" means the Company's 9 7/8% Senior
Subordinated Notes due 2012.
"Subordinated Notes" means, collectively the Subordinated Notes due 2007
and the Subordinated Notes due 2012.
"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.
"Subsidiary Guarantor" means each Restricted Subsidiary of the Company and
each such Subsidiary's Restricted Subsidiaries that have executed the Indenture
on the Issue Date and any Restricted Subsidiary that is required pursuant to the
"Additional Guarantees" covenant, on or after the Issue Date, to execute a Note
Guarantee pursuant to the Indenture until a successor replaces any such party
pursuant to the applicable provisions of the 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:
(1) 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;
(2) 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;
(3) 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;
(4) 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;
(5) 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;
(6) 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 clauses (1) through (5); and
(7) repurchase and reverse repurchase obligations with the term of not
more than seven days for underlying securities of the types described in
clauses (1) and (2) entered into with any financial institution meeting the
qualifications specified in clause (2); provided that in the case of
clauses (1), (2), (3) and (5), 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.
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"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:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) 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;
(3) 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;
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Company or any of its Restricted
Subsidiaries; and
(5) does not directly or through any of its 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 -- Limitation
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 Indenture
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 -- Limitation 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:
(1) such Indebtedness is permitted under the covenant described under
the caption "-- Certain Covenants -- Limitation on Indebtedness"; and
(2) 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.
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BOOK-ENTRY SYSTEM
The Notes will be issued in the form of one or more fully registered global
securities ("Global Securities") that will be deposited with, or on behalf of
DTC, and registered in the name of DTC's nominee, Cede & Co. Except under the
circumstance described below, the Notes will not be issuable in definitive form.
Unless and until it is exchanged in whole or in part for the individual Notes
represented thereby, a Global Security may not be transferred except as a whole
by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of
DTC or by DTC or any nominee of DTC to a successor depository or any nominee of
such successor.
DTC has advised the Company of the following information regarding DTC: DTC
is a limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act of 1934, as
amended (the "Exchange Act"). DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among its
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in its
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants of DTC ("Direct Participants")
include securities brokers and dealers (including the Underwriters), banks,
trust companies, clearing corporations, and certain other organizations. DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange LLC and the National Association of Securities
Dealers, Inc. Access to the DTC System is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a Direct Participant of DTC, either
directly or indirectly ("Indirect Participants"). The Rules applicable to DTC
and its Participants are on file with the Commission.
Purchases of Global Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Global
Securities on DTC's records. The ownership interest of each actual purchaser of
each Global Security ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchase, but Beneficial Owners are
expected to receive written confirmations providing details of the transaction,
as well as periodic statements of their holdings, from the Direct or Indirect
Participant through which the Beneficial Owner entered into the transaction.
Transfers of ownership interests in the Global Securities are to be accomplished
by entries made on the books of Participants acting on behalf of Beneficial
Owners. Beneficial Owners will not receive certificates representing their
ownership interests in Global Securities, except in the event that use of the
book-entry system for the Global Securities is discontinued.
To facilitate subsequent transfers, all Global Securities deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Global Securities with DTC and their registration in
the name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Global Securities; DTC's
records reflect only the identity of the Direct Participants to whose accounts
such Global Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the Global
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to the
Company as soon as possible after the record date. The Omnibus Proxy assigns
Cede & Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Global Securities are credited on the record date (identified in a
listing attached to the
S-83
Omnibus Proxy). Principal and interest payments on the Global Securities will be
made to Cede & Co., as nominee of DTC. DTC's practice is to credit Direct
Participants' accounts, upon DTC's receipt of funds and corresponding detail
information from the Company or the Trustee, on payable date in accordance with
their respective holdings shown on DTC's records. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name," and responsibility of such
Participant and not of DTC, the Trustee or the Company, subject to any statutory
or regulatory requirements as may be in effect from time to time. Payment of
principal and interest to Cede & Co. is the responsibility of the Company or the
Trustee, disbursements of such payments to Direct Participants shall be the
responsibility of DTC, and the disbursement of such payments to the Beneficial
Owners shall be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Global Securities at any time by giving reasonable notice to the
Company or the Trustee. Under such circumstances, in the event that a successor
securities depository is not obtained, Global Security certificates are required
to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Global Security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the underwriters in immediately
available funds. All payments of principal and interest in respect of the Notes
will be made by the Company in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing house or next-day funds. In contrast, the Notes
will trade in DTC's Same-Day Funds Settlement System until maturity or until the
Notes are issued in certificated form, and secondary market trading activity in
the Notes will therefore be required by DTC to settle in immediately available
funds. No assurance can be given as to the effect, if any, of settlement in
immediately available funds on trading activity in the Notes.
S-84
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
among the Underwriters, the Underwriters named below have agreed to purchase
from us, severally and not jointly, the following respective principal amounts
of Notes offered by this prospectus supplement at the public offering price less
the underwriting discounts and commissions set forth on the cover page of this
prospectus supplement:
<Table>
<Caption>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
- ----------- ----------------
Deutsche Bank Securities Inc. .............................. $ 78,000,000
Lehman Brothers Inc. ....................................... 40,000,000
First Union Securities, Inc. ............................... 30,000,000
J.P. Morgan Securities Inc. ................................ 30,000,000
Morgan Stanley & Co. Incorporated........................... 15,000,000
Fortis Investment Services LLC.............................. 5,000,000
Comerica Securities, Inc. .................................. 2,000,000
------------
Total.................................................. $200,000,000
============
</Table>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent.
We have been advised by the Underwriters that the Underwriters propose to
offer the Notes to the public at the public offering price set forth on the
cover page of this prospectus supplement. After commencement of the offering,
the offering price and other selling terms may be changed by the Underwriters.
The Notes are not listed on any securities exchange. The Underwriters have
advised us that they will act as market-makers for the Notes. However, the
Underwriters are not obligated to do so and may discontinue any market-making at
any time without notice. No assurance can be given as to the liquidity of the
trading market for the Notes.
We have agreed to indemnify the Underwriters and certain controlling
persons against certain liabilities, including liabilities under the Securities
Act.
The Underwriters have advised us that, pursuant to Regulation M under the
Securities Exchange Act of 1934, as amended, certain persons participating in
the offering may engage in transactions, including over-allotment, stabilizing
bids, syndicate covering transactions or the imposition of penalty bids, which
may have the effect of stabilizing or maintaining the market price of the Notes
at a level above that which might otherwise prevail in the open market.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. A stabilizing bid is a bid for the purchase
of Notes on behalf of the Underwriters for the purpose of fixing or maintaining
the price of the Notes. A syndicate covering transaction is the bid for or the
purchase of Notes on behalf of the Underwriters to reduce a short position
incurred by the Underwriters in connection with the offering. A penalty bid is
an arrangement permitting the Underwriters to reclaim the selling concession
otherwise accruing to a syndicate member in connection with the offering if the
Notes originally sold by such syndicate member are purchased in a syndicate
covering transaction and therefore have not been effectively placed by such
syndicate member. The Underwriters are not obligated to engage in these
activities and, if commenced, any of the activities may be discontinued at any
time.
Certain of the Underwriters or their respective affiliates from time to
time have provided in the past and may provide in the future investment banking,
commercial lending and financial advisory services to us in the ordinary course
of business. Affiliates of Deutsche Bank Securities Inc., J.P. Morgan Securities
Inc., First Union Securities, Inc., Fortis Investment Services LLC and Comerica
Securities, Inc. are lenders under our existing credit facility. Additionally,
we expect that affiliates of each of the Underwriters will be lenders under our
new credit facility.
S-85
First Union Securities, Inc. is a subsidiary of Wachovia Corporation and
conducts its investment banking, institutional and capital markets businesses
under the trade name of Wachovia Securities. Any references to "Wachovia
Securities" in this prospectus supplement, however, do not include Wachovia
Securities, Inc., a separate broker-dealer subsidiary of Wachovia Corporation
and an affiliate of First Union Securities, Inc.
UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income and estate tax
considerations relating to the purchase, ownership and disposition of the notes
by holders thereof, but does not purport to be a complete analysis of all the
potential tax considerations relating thereto. This summary is based upon the
provisions of the Internal Revenue Code of 1986, as amended, Treasury
Regulations promulgated under the Internal Revenue Code, administrative rulings
and judicial decisions as of the date hereof. These authorities may be changed,
perhaps retroactively, so as to result in U.S. federal income and estate tax
consequences different from those set forth below. We have not sought any ruling
from the Internal Revenue Service or an opinion of counsel with respect to the
statements made and the conclusions reached in the following summary, and there
can be no assurance that the Internal Revenue Service will agree with such
statements and conclusions.
This summary assumes that the notes are held as capital assets and holders
purchase the notes upon their initial issuance pursuant to this prospectus
supplement and the accompanying prospectus at the notes' initial offering price.
This summary also does not address the tax considerations arising under the laws
of any foreign, state or local jurisdiction. In addition, this discussion does
not address all tax considerations that may be applicable to a holder's
particular circumstances or to holders that may be subject to special tax rules,
including, without limitation:
- holders subject to the alternative minimum tax;
- banks, insurance companies, or other financial institutions;
- tax-exempt organizations;
- dealers in securities or commodities;
- traders in securities that elect to use a mark-to-market method of
accounting for their securities holdings;
- U.S. holders (as defined below) whose "functional currency" is not the
U.S. dollar;
- persons that will hold the notes as a position in a hedging transaction,
"straddle," "conversion transaction" or other risk reduction
transaction; or
- persons deemed to sell the notes under the constructive sale provisions
of the Internal Revenue Code.
If a partnership holds notes, the tax treatment of a partner in the
partnership will generally depend upon the status of the partner and the
activities of the partnership. If you are a partner of a partnership holding our
notes, you should consult your tax advisor regarding the tax consequences of the
ownership and disposition of the notes.
THIS SUMMARY OF CERTAIN U.S. FEDERAL TAX CONSIDERATIONS IS FOR GENERAL
INFORMATION ONLY AND IS NOT TAX ADVICE. YOU ARE URGED TO CONSULT YOUR TAX
ADVISOR WITH RESPECT TO THE APPLICATION OF U.S. FEDERAL INCOME TAX LAWS TO YOUR
PARTICULAR SITUATION AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE U.S.
FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL, FOREIGN
OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
S-86
CONSEQUENCES TO U.S. HOLDERS
The following is a summary of the U.S. federal income tax consequences that
will apply to you if you are a U.S. holder of the notes. Certain consequences to
"non-U.S. holders" of the notes are described under "-- Consequences to Non-U.S.
Holders" below. "U.S. holder" means a beneficial owner of a note that is:
- a citizen or resident of the U.S. as determined for federal income tax
purposes;
- a corporation or partnership created or organized in or under the laws
of the U.S. or any political subdivision of the U.S.;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust that (1) is subject to the supervision of a court within the
U.S. and the control of one or more U.S. persons or (2) has a valid
election in effect under applicable Treasury Regulations to be treated
as a U.S. person.
PAYMENTS OF INTEREST
Stated interest on the notes will generally be taxable to you as ordinary
income from domestic sources at the time it is paid or accrues in accordance
with your method of accounting for tax purposes.
SALE, EXCHANGE OR OTHER TAXABLE DISPOSITION OF NOTES
You will generally recognize gain or loss upon the sale, exchange,
retirement or other taxable disposition of a note equal to the difference
between the amount realized upon the sale, exchange or other disposition (less
any amount attributable to any accrued stated interest not previously included
in income, which will be taxable as interest income) and your adjusted tax basis
in the note. Your adjusted tax basis in a note will generally equal the amount
you paid for the note. Any gain or loss recognized on a disposition of the note
will be capital gain or loss. If you are an individual and have held the note
for more than one year, such capital gain will generally be subject to tax at a
maximum rate of 20%. Your ability to deduct capital losses may be limited.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of interest and principal on the notes and the proceeds received
upon the sale or other disposition of such notes may be subject to information
reporting and backup withholding tax. Payments to certain holders (including,
among others, corporations and certain tax-exempt organizations) are generally
not subject to information reporting or backup withholding. Payments to a U.S.
holder will be subject to information reporting and backup withholding tax if
such holder:
- fails to furnish its taxpayer identification number ("TIN"), which, for
an individual, is ordinarily his or her social security number;
- furnishes an incorrect TIN;
- is notified by the Internal Revenue Service that it has failed to
properly report payments of interest or dividends; or
- fails to certify, under penalties of perjury, that it has furnished a
correct TIN and that the Internal Revenue Service has not notified the
U.S. holder that it is subject to backup withholding.
The amount of any reportable payments, including interest, made to a U.S.
holder (other than to holders which are exempt recipients) and the amount of tax
withheld, if any, with respect to such payments will be reported to such U.S.
holder and to the Internal Revenue Service for each calendar year.
A U.S. holder should consult its tax advisor regarding its qualification
for an exemption from backup withholding and information reporting and the
procedures for obtaining such an exemption, if applicable.
S-87
The backup withholding tax is not an additional tax, and taxpayers may use
amounts withheld as a credit against their U.S. federal income tax liability or
may claim a refund as long as they timely provide certain information to the
Internal Revenue Service.
CONSEQUENCES TO NON-U.S. HOLDERS
The following is a summary of the U.S. federal tax consequences that will
apply to you if you are a non-U.S. holder of notes. The term "non-U.S. holder"
means a beneficial owner of a note that is not a U.S. holder.
Special rules may apply to certain non-U.S. holders such as "controlled
foreign corporations," "passive foreign investment companies" and "foreign
personal holding companies." Such entities should consult their tax advisors to
determine the U.S. federal, state, local and other tax consequences that may be
relevant to them.
PAYMENT OF INTEREST
The 30% U.S. federal withholding tax will not apply to any payment to you
of interest on a note provided that:
- you do not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock that are entitled to
vote within the meaning of Section 871(h)(3) of the Internal Revenue
Code;
- you are not a controlled foreign corporation that is related to us
through stock ownership;
- you are not a bank whose receipt of interest on a note is described in
section 881(c)(3)(A) of the Internal Revenue Code; and
- (a) you provide your name and address, and certify, under penalties of
perjury, that you are not a U.S. person (which certification may be made
on an Internal Revenue Service Form W-8BEN (or a successor form)) or (b)
a securities clearing organization, bank, or other financial institution
that holds customers' securities in the ordinary course of its business
holds the note on your behalf and certifies, under penalties of perjury,
that it has received Internal Revenue Service Form W-8BEN from you or
from another qualifying financial institution intermediary, and, in
certain circumstances, provides a copy of the Internal Revenue Service
Form W-8BEN. If the notes are held by or through certain foreign
intermediaries or certain foreign partnerships, such foreign
intermediaries or partnerships must also satisfy the certification
requirements of applicable Treasury Regulations.
If you cannot satisfy the requirements described above, payments of
interest will be subject to the 30% U.S. federal withholding tax, unless you
provide us with a properly executed (1) Internal Revenue Service Form W-8BEN
claiming an exemption from or reduction in withholding under the benefit of an
applicable tax treaty or (2) Internal Revenue Service Form W-8ECI stating that
interest paid on the note is not subject to withholding tax because it is
effectively connected with your conduct of a trade or business in the U.S.
Alternative documentation may be applicable in certain circumstances.
If you are engaged in a trade or business in the U.S. and interest on a
note is effectively connected with the conduct of that trade or business, you
will be required to pay U.S. federal income tax on that interest on a net income
basis (although exempt from the 30% withholding tax provided the certification
requirement described above is met) in the same manner as if you were a U.S.
person as defined under the Internal Revenue Code, except as otherwise provided
by applicable tax treaty. In addition, if you are a foreign corporation, you may
be subject to a branch profits tax equal to 30% (or lower applicable treaty
rate) of your effectively connected earnings and profits for the taxable year,
subject to adjustments, that are effectively connected with your conduct of a
trade or business in the U.S. For this purpose, interest will be included in the
earnings and profits of such foreign corporation.
S-88
SALE, EXCHANGE OR OTHER TAXABLE DISPOSITION OF NOTES
Any gain realized upon the sale, exchange or other taxable disposition of a
note (except with respect to accrued and unpaid interest, which would be taxable
as described above) generally will not be subject to U.S. federal income tax
unless:
- that gain is effectively connected with your conduct of a trade or
business in the U.S.;
- you are an individual who is present in the U.S. for 183 days or more in
the taxable year of that disposition, and certain other conditions are
met; or
- you are subject to Internal Revenue Code provisions applicable to
certain U.S. expatriates.
A holder described in the first bullet point above will be required to pay
U.S. federal income tax on the net gain derived from the sale of a note, except
as otherwise required by an applicable tax treaty. If such holder is a foreign
corporation, it may also be required to pay a branch profits tax at a 30% rate
or a lower rate if so specified by an applicable income tax treaty. A holder
described in the second bullet point above will be required to pay a 30% U.S.
federal income tax on the gain derived from the sale, which may be offset by
U.S. source capital losses, even though the holder is not considered a resident
of the U.S. A holder described in the third bullet point above should consult
its tax advisor to determine the U.S. federal, state, local and other tax
consequences that may be relevant to such holder.
U.S. FEDERAL ESTATE TAX
The U.S. federal estate tax will not apply to the notes owned by you at the
time of your death, provided that (1) you do not own actually or constructively
10% or more of the total combined voting power of all classes of our voting
stock (within the meaning of the Internal Revenue Code and the Treasury
Regulations) and (2) interest on the note would not have been, if received at
the time of your death, effectively connected with your conduct of a trade or
business in the U.S.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Backup withholding will likely not apply to payments made by us or our
paying agents, in their capacities as such, to a non-U.S. holder of a note if
the holder has provided the required certification that it is not a U.S. person
as described above. However, certain information reporting may still apply with
respect to interest payments even if certification is provided. Payments of the
proceeds of a disposition of a note by a non-U.S. holder made to or through a
foreign office of a broker will not be subject to information reporting or
backup withholding, unless the broker is:
- a U.S. person;
- a controlled foreign corporation for U.S. federal income tax purposes;
- a foreign person 50% or more of whose gross income is effectively
connected with a U.S. trade or business for a specified three-year
period; or
- a foreign partnership, if at any time during its tax year, one or more
of its partners are U.S. persons, as defined in Treasury Regulations,
who in the aggregate hold more than 50% of the income or capital
interest in the partnership or if, at any time during its tax year, the
foreign partnership is engaged in a U.S. trade or business.
You will be subject to information reporting, but not backup withholding,
with respect to any payment of the proceeds of a sale of a note effected outside
the United States by a foreign office of such broker unless such broker has
documentary evidence in its records that you are not a United States person and
certain other conditions are met, or you otherwise establish an exemption. You
will be subject to backup withholding and information reporting with respect to
any payment of the proceeds of a sale of a note effected by the United States
office of a broker unless you properly certify under penalties of perjury as to
your foreign status and certain other conditions are met or you otherwise
establish an exemption.
S-89
Currently applicable Treasury Regulations establish reliance standards with
regard to the certification requirements described above.
A non-U.S. holder should consult its tax advisor regarding application of
withholding and backup withholding in its particular circumstance and the
availability of and procedure for obtaining an exemption from withholding and
backup withholding under current Treasury Regulations. In this regard, the
current Treasury Regulations provide that a certification may not be relied on
if we or our agent (or other payor) knows or has reasons to know that the
certification may be false. Any amounts withheld under the backup withholding
rules from a payment to a non-U.S. holder will be allowed as a credit against
the holder's U.S. federal income tax liability or such holder may claim a
refund, provided the required information is furnished timely to the Internal
Revenue Service.
LEGAL MATTERS
Certain legal matters in connection with the Notes offered hereby will be
passed upon for us by Latham & Watkins, San Francisco, California and for the
Underwriters by Cahill Gordon & Reindel, New York, New York.
INDEPENDENT AUDITORS
Our consolidated financial statements as of December 29, 2001 and December
30, 2000 and for each of the three years in the period ended December 29, 2001
incorporated by reference in this prospectus supplement and the accompanying
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report incorporated by reference herein. Core-Mark's
consolidated financial statements as of December 31, 2001 and December 31, 2000
and for each of the three years in the period ended December 31, 2001
incorporated by reference in this prospectus supplement and the accompanying
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report incorporated by reference herein.
S-90
$600,000,000
FLEMING COMPANIES, INC.
DEBT SECURITIES AND COMMON STOCK
---------------------
We may from time to time sell up to $600,000,000 aggregate initial offering
price of our debt securities, our common stock, $2.50 par value per share, or
any combination of our debt securities and our common stock.
These debt securities may consist of notes, debentures or other types of
debt. We will provide specific terms of these debt securities in supplements to
this prospectus. Our payment obligations under any series of debt securities may
be guaranteed by one or more of our subsidiaries which are co-registrants. You
should read this prospectus and any prospectus supplement carefully before you
invest.
This prospectus provides a general description of the securities we may
offer. The specific terms of the securities offered by this prospectus will be
set forth in a supplement to this prospectus and will include:
- in the case of common stock, the number of shares, purchase price and
terms of the offering and sale thereof; and
- in the case of debt securities, the specific designation, aggregate
principal amount, purchase price, maturity, interest rate, time of
payment of interest, terms (if any) for the subordination or redemption
thereof, and any other specific terms of the debt securities.
Our common stock is traded on the New York Stock Exchange under the symbol
"FLM". On May 17, 2002, the last reported sale price for our common stock on the
New York Stock Exchange was $24.44 per share.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAVE THESE
ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this prospectus is May 21, 2002.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND ANY ACCOMPANYING PROSPECTUS SUPPLEMENT. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT. WE ARE
OFFERING TO SELL THE SECURITIES, AND SEEKING OFFERS TO BUY THE SECURITIES, ONLY
IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED
IN THIS PROSPECTUS AND ANY ACCOMPANYING PROSPECTUS SUPPLEMENT IS ACCURATE ONLY
AS OF THE DATE OF THIS PROSPECTUS AND THE DATE OF ANY ACCOMPANYING PROSPECTUS
SUPPLEMENT, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS AND ANY
ACCOMPANYING PROSPECTUS SUPPLEMENT OR ANY SALES OF THE SECURITIES. WHEN WE
DELIVER THIS PROSPECTUS AND ANY ACCOMPANYING PROSPECTUS SUPPLEMENT, WE ARE NOT
IMPLYING THAT THE INFORMATION IS CURRENT AS OF THE DATE OF THE DELIVERY OR SALE.
IN THIS PROSPECTUS AND ANY ACCOMPANYING PROSPECTUS SUPPLEMENT, UNLESS OTHERWISE
INDICATED, THE "COMPANY", "WE", "US" AND "OUR" REFER TO FLEMING COMPANIES, INC.
AND ITS CONSOLIDATED SUBSIDIARIES.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
About this Prospectus....................................... 1
Where You Can Find More Information......................... 1
Special Note Regarding Forward-Looking Statements........... 2
The Company................................................. 3
Use of Proceeds............................................. 3
Ratio of Earnings to Fixed Charges.......................... 4
Description of Debt Securities.............................. 4
Plan of Distribution........................................ 12
Legal Matters............................................... 13
Experts..................................................... 13
</Table>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that Fleming Companies,
Inc. and the co-registrants (together, the "registrants") filed with the
Securities and Exchange Commission utilizing a "shelf" registration process.
Under this shelf registration process, the registrants may sell any combination
of the securities described in this prospectus in one or more offerings up to a
total dollar amount of $600,000,000. This prospectus provides you with a general
description of the securities the registrants may offer. Each time the
registrants sell securities, the registrants will provide a prospectus
supplement that will contain specific information about the terms of that
offering. The prospectus supplement may also add, update or change information
contained in this prospectus. You should read both this prospectus and any
prospectus supplement together with additional information described under the
next heading "Where You Can Find More Information".
WHERE YOU CAN FIND MORE INFORMATION
Fleming Companies, Inc. files annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You can inspect and copy these reports, proxy statements and other information
at the public reference facilities of the Securities and Exchange Commission in
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the public reference room. The Securities and Exchange Commission also maintains
a web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with it
(http://www.sec.gov). Information contained in our web site is not part of this
prospectus. You can inspect reports and other information we file at the office
of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
The registrants have filed a registration statement and related exhibits
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended. The registration statement contains additional information about us and
the securities. You may inspect the registration statement and exhibits without
charge at the office of the Securities and Exchange Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and you may obtain copies from the
Securities and Exchange Commission at prescribed rates.
The Securities and Exchange Commission allows us to "incorporate by
reference" the information Fleming Companies, Inc. files with it, which means
that we can disclose important information to you by referring to those
documents. The information incorporated by reference is an important part of
this prospectus, and information that Fleming Companies, Inc. files later with
the Securities and Exchange Commission will automatically update and supersede
that information. The registrants incorporate by reference the following
documents Fleming Companies, Inc. filed with the Securities and Exchange
Commission pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended (Securities and Exchange Commission file number 001-08140) (other than
information in such documents that is deemed not to be filed):
- Our Annual Report on Form 10-K for the year ended December 29, 2001
(including information specifically incorporated by reference into our
Form 10-K from our Proxy Statement for our 2002 Annual Meeting of
Shareholders);
- Our Quarterly Report on Form 10-Q for the quarter ended April 20, 2002;
- Our Current Reports on Form 8-K filed with the Securities and Exchange
Commission on April 2, 2002, April 16, 2002, April 24, 2002 (other than
the information furnished pursuant to Item 9 of such report, which
information is deemed not to be filed) and May 20, 2002;
- Description of Fleming Companies, Inc.'s common stock contained in our
registration statement on Form 8-A filed with the Securities and Exchange
Commission on April 19, 1983, including any amendments or reports filed
for the purpose of updating such description; and
1
- all documents filed by Fleming Companies, Inc. with the Securities and
Exchange Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this prospectus and before we stop
offering the securities (other than those portions of such documents
described in paragraphs (i), (k), and (l) of Item 402 of Regulation S-K
promulgated by the Securities and Exchange Commission and other than
information in such documents that is deemed not to be filed).
You may request a copy of these filings at no cost, by writing us at the
following address or telephoning us at the following number:
Fleming Companies, Inc.
1945 Lakepointe Drive, Box 299013
Lewisville, Texas 75029
Attention: Investor Relations
(972) 906-8000
You should rely only on the information incorporated by reference or
provided in this prospectus and any prospectus supplement. The registrants have
not authorized anyone else to provide you with different information.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included or
incorporated by reference in this prospectus, including, without limitation,
statements regarding our future financial position, business strategy and our
management's plans and objectives for future operations, are forward-looking
statements. Forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may", "will", "expect", "intend",
"estimate", "anticipate", "believe" or "continue" or the negative thereof or
variations thereon or similar terminology. Although we believe that the
expectations reflected in these forward-looking statements are reasonable, these
expectations may not prove to be correct. These forward-looking statements and
our business and prospects are subject to a number of factors that could cause
actual results to differ materially, including:
- our ability to obtain capital or obtain it on acceptable terms;
- unanticipated problems with product procurement;
- adverse effects of the changing industry environment and increased and
intense competition;
- sales declines and loss of customers;
- negative effects of Kmart Corporation's bankruptcy reorganization;
- exposure to litigation and other contingent losses;
- failure to achieve the expected results of our growth plans;
- the inability to integrate acquired companies and to achieve operating
improvements at those companies;
- increases in labor costs and disruptions in labor relations with union
bargaining units representing our employees;
- negative effects of our substantial indebtedness and the limitations
imposed by restrictive covenants contained in our debt instruments; and
- goodwill impairment due to changes in markets.
These and other risk factors are described in our Securities and Exchange
Commission reports, including but not limited to the Annual Report on Form 10-K
for the fiscal year ended December 29, 2001. All subsequent written and oral
forward-looking statements attributable to us, or persons acting on
2
our behalf, are expressly qualified in their entirety by the cautionary
statements. We undertake no obligation to update forward-looking statements to
reflect developments or information obtained after the date on the cover page of
this prospectus.
THE COMPANY
We are an industry leader in the distribution of consumer package goods.
Through our distribution group, we distribute products to customers that operate
approximately 3,000 supermarkets, approximately 10,000 convenience stores and
over 2,000 supercenters, discount stores, limited assortment stores, drug
stores, specialty stores and other stores across the United States.
As of May 15, 2002, our retail group operated 126 stores, predominantly
supermarkets that focus on low prices and high quality perishables, comprised of
109 price impact supermarkets that offer everyday low prices typically below the
prices of market-leading conventional supermarkets and 17 limited assortment
stores under the yes!LESS(R) banner that offer a narrow selection of low-price,
private label food and other consumable goods and general merchandise at
deep-discount prices.
Our principal executive offices are located at 1945 Lakepointe Drive,
Lewisville, Texas 75057. Our telephone number at that location is (972)
906-8000.
RECENT DEVELOPMENTS
Core-Mark Acquisition. On April 23, 2002, we signed a merger agreement to
acquire Core-Mark International, Inc. ("Core-Mark"), a distributor of consumer
package goods to convenience stores and other retailers in the western United
States and western Canada. We will pay approximately $295 million in cash to
acquire Core-Mark. In addition, we will assume all of Core-Mark's outstanding
debt as of the closing of the merger, which we estimate to be approximately $95
million. Core-Mark distributes consumer package goods to nearly 30,000
convenience stores and other retailers from its network of 19 distribution
centers and had fiscal 2001 sales of approximately $3.4 billion.
Our acquisition of Core-Mark is subject to a number of customary closing
conditions. Although we cannot assure you that any or all of these conditions
will be satisfied, we believe that we will complete the acquisition during our
second fiscal quarter of 2002.
We intend to finance our acquisition of Core-Mark with a combination of
available cash, borrowings under a new credit facility and the net proceeds from
public offerings of debt and/or equity securities.
Head Distributing Acquisition. On April 23, 2002, we acquired Head
Distributing Company ("Head Distributing") for approximately $40 million in
cash, which amount is subject to potential future de minimus adjustment as
provided in an agreement among us and Head Distributing's stockholders. Head
Distributing operates two piece-pick distribution facilities and serves
approximately 3,000 retail locations in six southeastern states and had fiscal
2001 sales of approximately $350 million.
During the first quarter of 2002, we adopted EITF 01-9 and restated sales
and cost of sales for all prior periods. This adoption reduced sales and cost of
sales by $70 million for 2001 and by a lesser amount for each of the prior
years. The adoption had no effect on gross margins or earnings.
USE OF PROCEEDS
Unless we indicate otherwise in the applicable prospectus supplement, we
intend to use the net proceeds from the sale of the securities for general
corporate purposes, which may include, but are not limited to, funding our
obligations in the acquisition of Core-Mark, including repaying the debt we will
assume from Core-Mark in connection with the acquisition, and for working
capital, capital expenditures and other potential acquisitions. We will set
forth in the applicable prospectus supplement our intended use for the net
proceeds received from our sale of any securities.
3
RATIO OF EARNINGS TO FIXED CHARGES
Our ratios of earnings to fixed charges for the periods indicated are as
follows:
<Table>
<Caption>
FISCAL YEAR ENDED 16 WEEKS
------------------------------------------------------------------------ ENDED
DECEMBER 27, DECEMBER 26, DECEMBER 25, DECEMBER 30, DECEMBER 29, APRIL 20,
1997 1998 1999 2000 2001 2002
------------ ------------ ------------ ------------ ------------ ---------
Ratio of earnings to fixed
charges(1).............. 1.41x -- -- -- 1.29x 1.65x
</Table>
- ---------------
(1) 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). Earnings were insufficient to cover fixed charges by $598
million, $63 million and $202 million for the fiscal years ended December
26, 1998, December 25, 1999 and December 30, 2000, respectively.
DESCRIPTION OF DEBT SECURITIES
This prospectus describes certain general terms and provisions of our debt
securities. When we offer to sell a particular series of debt securities, we
will describe the specific terms of the series in a supplement to this
prospectus. We will also indicate in the supplement whether the general terms
and provisions described in this prospectus apply to a particular series of debt
securities.
We may offer under this prospectus up to $600,000,000 aggregate principal
amount of debt securities, or if debt securities are issued at a discount, or in
a foreign currency or composite currency, such principal amount as may be sold
for an initial public offering price of up to $600,000,000. The debt securities
will represent our direct obligations and will rank equally with all of our
other unsubordinated indebtedness, unless otherwise specified in the applicable
prospectus supplement. Any series of debt securities may be guaranteed by one or
more of our subsidiaries which are co-registrants.
The debt securities offered hereby will be issued under an indenture
between us and a trustee. We have summarized select portions of the indenture
below. The summary is not complete. We have filed a copy of the indenture as an
exhibit to the registration statement and you should read the indenture for
provisions that may be important to you. Capitalized terms used in the summary
below have the meanings specified in the indenture.
When we refer to "we", "our", "us" and the "company" in this section, we
mean Fleming Companies, Inc. excluding, unless the context otherwise requires or
as otherwise expressly stated, our subsidiaries.
GENERAL
The terms of each series of debt securities will be established by or
pursuant to a resolution of our board of directors and detailed or determined in
the manner provided in an officers' certificate or by a supplemental indenture.
The particular terms of each series of debt securities will be described in a
prospectus supplement relating to the series, including any pricing supplement.
We can issue an unlimited amount of debt securities under the indenture
that may be in one or more series with the same or various maturities, at par,
at a premium, or at a discount. We will set forth in a prospectus supplement
(including any pricing supplement) relating to any series of debt securities
being
4
offered, the initial offering price, the aggregate principal amount and the
following terms of the debt securities, if applicable:
- the title of the debt securities;
- the price or prices (expressed as a percentage of the aggregate principal
amount) at which we will sell the debt securities;
- any limit on the aggregate principal amount of the debt securities;
- the date or dates on which we will pay the principal on the debt
securities;
- the rate or rates (which may be fixed or variable) per annum or the
method used to determine the rate or rates (including any commodity,
commodity index, stock exchange index or financial index) at which the
debt securities will bear interest, the date or dates from which interest
will accrue, the date or dates on which interest will commence and be
payable and any regular record date for the interest payable on any
interest payment date;
- the place or places where principal of, premium, and interest on the debt
securities will be payable;
- whether the debt securities rank as senior subordinated debt securities
or subordinated debt securities;
- the terms of any guarantee of any debt securities;
- the terms and conditions upon which we may redeem the debt securities;
- any obligation we have to redeem or purchase the debt securities pursuant
to any sinking fund or analogous provisions or at the option of a holder
of debt securities;
- the dates on which and the price or prices at which we will repurchase
the debt securities at the option of the holders of debt securities and
other detailed terms and provisions of these repurchase obligations;
- the denominations in which the debt securities will be issued, if other
than denominations of $1,000 and any integral multiple thereof;
- whether the debt securities will be issued in the form of certificated
debt securities or global debt securities;
- the portion of principal amount of the debt securities payable upon
declaration of acceleration of the maturity date, if other than the
principal amount;
- the currency of denomination of the debt securities;
- the designation of the currency, currencies or currency units in which
payment of principal of, premium and interest on the debt securities will
be made;
- if payments of principal of, premium or interest on the debt securities
will be made in one or more currencies or currency units other than that
or those in which the debt securities are denominated, the manner in
which the exchange rate with respect to these payments will be
determined;
- the manner in which the amounts of payment of principal of, premium or
interest on the debt securities will be determined, if these amounts may
be determined by reference to an index based on a currency or currencies
other than that in which the debt securities are denominated or
designated to be payable or by reference to a commodity, commodity index,
stock exchange index or financial index;
- whether, the ratio at which and the terms and conditions upon which, if
any, the debt securities will be convertible into or exchangeable for our
common stock or our other securities or securities of another person;
- any provisions relating to any security provided for the debt securities;
5
- any addition to or change in the Events of Default described in this
prospectus or in the indenture with respect to the debt securities and
any change in the acceleration provisions described in this prospectus or
in the indenture with respect to the debt securities;
- any addition to or change in the covenants described in this prospectus
or in the indenture with respect to the debt securities;
- any other terms of the debt securities, which may modify or delete any
provision of the indenture as it applies to that series; and
- any depositaries, interest rate calculation agents, exchange rate
calculation agents or other agents with respect to the debt securities.
In addition, the indenture does not limit our ability to issue subordinated
debt securities. Any subordination provisions of a particular series of debt
securities will be set forth in the officers' certificate or supplemental
indenture related to that series of debt securities and will be described in the
relevant prospectus supplement.
We may issue debt securities that provide for an amount less than their
stated principal amount to be due and payable upon declaration of acceleration
of their maturity pursuant to the terms of the indenture. We will provide you
with information on the federal income tax considerations and other special
considerations applicable to any of these debt securities in the applicable
prospectus supplement.
If we denominate the purchase price of any of the debt securities in a
foreign currency or currencies or a foreign currency unit or units, or if the
principal of and any premium and interest on any series of debt securities is
payable in a foreign currency or currencies or a foreign currency unit or units,
we will provide you with information on the restrictions, elections, general tax
considerations, specific terms and other information with respect to that issue
of debt securities and such foreign currency or currencies or foreign currency
unit or units in the applicable prospectus supplement.
TRANSFER AND EXCHANGE
Each debt security will be represented by either one or more global
securities registered in the name of The Depository Trust Company, as Depositary
(the "Depositary"), or a nominee of the Depositary (we will refer to any debt
security represented by a global debt security as a "book-entry debt security"),
or a certificate issued in definitive registered form (we will refer to any debt
security represented by a certificated security as a "certificated debt
security"), as described in the applicable prospectus supplement. Except as
described under "Global Debt Securities and Book-Entry System" below, book-
entry debt securities will not be issuable in certificated form.
Certificated Debt Securities. You may transfer or exchange certificated
debt securities at any office we maintain for this purpose in accordance with
the terms of the indenture. No service charge will be made for any transfer or
exchange of certificated debt securities, but we may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
with a transfer or exchange.
You may transfer certificated debt securities and the right to receive the
principal of, premium and interest on certificated debt securities only by
surrendering the old certificate representing those certificated debt
securities, and either we or the trustee will reissue the old certificate to the
new holder or we or the trustee will issue a new certificate to the new holder.
Global Debt Securities and Book-Entry System. Each global debt security
representing book-entry debt securities will be deposited with, or on behalf of,
the Depositary, and registered in the name of the Depositary or a nominee of the
Depositary.
The Depositary has indicated it intends to follow the following procedures
with respect to book-entry debt securities.
Ownership of beneficial interests in book-entry debt securities will be
limited to persons that have accounts with the Depositary for the related global
debt security ("participants") or persons that may hold
6
interests through participants. Upon the issuance of a global debt security, the
Depositary will credit, on its book-entry registration and transfer system, the
participants' accounts with the respective principal amounts of the book-entry
debt securities represented by the global debt security beneficially owned by
such participants. The accounts to be credited will be designated by any
dealers, underwriters or agents participating in the distribution of the
book-entry debt securities. Ownership of book-entry debt securities will be
shown on, and the transfer of the ownership interests will be effected only
through, records maintained by the Depositary for the related global debt
security (with respect to interests of participants) and on the records of
participants (with respect to interests of persons holding through
participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. These
laws may impair the ability to own, transfer or pledge beneficial interests in
book-entry debt securities.
So long as the Depositary for a global debt security, or its nominee, is
the registered owner of that global debt security, the Depositary or its
nominee, as the case may be, will be considered the sole owner or holder of the
book-entry debt securities represented by such global debt security for all
purposes under the indenture. Except as described herein, beneficial owners of
book-entry debt securities will not be entitled to have securities registered in
their names, will not receive or be entitled to receive physical delivery of a
certificate in definitive form representing securities and will not be
considered the owners or holders of those securities under the indenture.
Accordingly, to exercise any rights of a holder under the indenture, each person
beneficially owning book-entry debt securities must rely on the procedures of
the Depositary for the related global debt security and, if that person is not a
participant, on the procedures of the participant through which that person owns
its interest.
We understand, however, that under existing industry practice, the
Depositary will authorize the persons on whose behalf it holds a global debt
security to exercise certain rights of holders of debt securities, and the
indenture provides that we, the trustee and our respective agents will treat as
the holder of a debt security the persons specified in a written statement of
the Depositary with respect to that global debt security for purposes of
obtaining any consents or directions required to be given by holders of the debt
securities pursuant to the indenture.
We will make payments of principal of, and premium and interest on
book-entry debt securities to the Depositary or its nominee, as the case may be,
as the registered holder of the related global debt security. We, the trustee
and any other agent of ours or agent of the trustee will not have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a global debt
security or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
We expect that the Depositary, upon receipt of any payment of principal of,
premium or interest on a global debt security, will immediately credit
participants' accounts with payments in amounts proportionate to the respective
amounts of book-entry debt securities held by each participant as shown on the
records of the Depositary. We also expect that payments by participants to
owners of beneficial interests in book-entry debt securities held through those
participants will be governed by standing customer instructions and customary
practices, as is now the case with the securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of those participants.
We will issue certificated debt securities in exchange for each global debt
security if the Depositary is at any time unwilling or unable to continue as
Depositary or ceases to be a clearing agency registered under the Exchange Act,
and a successor Depositary registered as a clearing agency under the Exchange
Act is not appointed by us within 120 days. In addition, we may at any time and
in our sole discretion determine not to have any of the book-entry debt
securities of any series represented by one or more global debt securities and,
in that event, we will issue certificated debt securities in exchange for the
global debt securities of that series. Any certificated debt securities issued
in exchange for a global debt security will be registered in such name or names
as the Depositary shall instruct the trustee. We expect that such instructions
will be based upon directions received by the Depositary from participants with
respect to ownership of book-entry debt securities relating to such global debt
security.
7
We have obtained the foregoing information in this section concerning the
Depositary and the Depositary's book-entry system from sources we believe to be
reliable, but we take no responsibility for the accuracy of this information.
NO PROTECTION IN THE EVENT OF A CHANGE OF CONTROL
Unless we state otherwise in the applicable prospectus supplement, the debt
securities will not contain any provisions which may afford holders of the debt
securities protection in the event we have a change in control or in the event
of a highly leveraged transaction (whether or not such transaction results in a
change in control).
COVENANTS
Unless we state otherwise in the applicable prospectus supplement and in a
supplement to the indenture, the debt securities will not contain any
restrictive covenants, including covenants restricting us or any of our
subsidiaries from incurring, issuing, assuming or guarantying any indebtedness
secured by a lien on any of our or our subsidiaries' property or capital stock,
or restricting us or any of our subsidiaries from entering into any sale and
leaseback transactions.
CONSOLIDATION, MERGER AND SALE OF ASSETS
We may 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 our
properties and assets to any person or group of affiliated persons if such
transaction or transactions, in the aggregate, would result in a sale,
assignment, conveyance, transfer, lease or disposal of all or substantially all
of our properties and assets on a consolidated basis to any other person or
group of affiliated persons, unless at the time and after giving effect thereto:
- either:
- we are the surviving or continuing corporation; or
- the person (if other than us) formed by such consolidation or into which
we are merged or the person which acquires by sale, assignment,
conveyance, transfer, lease or disposition our properties and assets
substantially as an entirety is a corporation duly organized and validly
existing under the laws of the United States, any state thereof or the
District of Columbia and, in any case, expressly assumes, by a
supplemental indenture, executed and delivered to the trustee, in form
satisfactory to the trustee, all of our obligations under the debt
securities and the indenture, and the indenture remains in full force
and effect;
- immediately before and immediately after giving effect to the transaction
on a pro forma basis (and treating any debt not previously an obligation
of ours which becomes an obligation of ours in connection with or as a
result of the transaction as having been incurred at the time of the
transaction), no Default or Event of Default (as defined below) has
occurred and is continuing; and
- we deliver, or caused to be delivered, to the trustee, in form and
substance satisfactory to the trustee, an officers' certificate and an
opinion of counsel, each to the effect that the consolidation, merger,
sale, assignment, conveyance, transfer, lease or other transaction and
the supplemental indenture in respect thereto, if required, comply with
the provisions set forth in the preceding bullet points and that all
conditions precedent provided for in the indenture relating to the
transaction have been complied with.
EVENTS OF DEFAULT
"Event of Default" means with respect to any series of debt securities, any
of the following:
- default in the payment of any interest upon any debt security of that
series when it becomes due and payable, and continuance of that default
for a period of 30 days;
8
- default in the payment of principal of or premium on any debt security of
that series when due and payable;
- default in the deposit of any sinking fund payment, when and as due in
respect of any debt security of that series;
- default in the performance, or breach, of any other covenant or agreement
by us in the indenture (other than a default in the performance, or
breach, of a covenant or agreement that is specifically dealt with in the
immediately preceding bullet points or that has been included in the
indenture solely for the benefit of a series of debt securities other
than that series), which default continues uncured for a period of 60
days after we receive written notice from the trustee or we and the
trustee receive written notice from the holders of at least 25% in
aggregate principal amount of the then outstanding debt securities of
that series as provided in the indenture;
- a default in the payment of the principal of any debt of ours (including
a default with respect to debt securities of any series other than that
series) or any of our subsidiaries shall have occurred under any
agreements, indentures or instruments under which we or any of our
subsidiaries then has outstanding debt 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 an event of default as defined in any of these agreements,
indentures or instruments shall have occurred and the debt thereunder, if
not already matured at its final maturity in accordance with its terms,
shall have been accelerated;
- certain events of bankruptcy, insolvency or reorganization; and
- any other Event of Default provided with respect to debt securities of
that series that is described in the applicable prospectus supplement
accompanying this prospectus.
No Event of Default with respect to a particular series of debt securities
(except as to certain events of bankruptcy, insolvency or reorganization)
necessarily constitutes an Event of Default with respect to any other series of
debt securities. An Event of Default may also be an event of default under our
bank credit agreements in existence from time to time and under certain
guaranties by us of any subsidiary indebtedness. In addition, certain Events of
Default or an acceleration under the indenture may also be an event of default
under some of our other indebtedness outstanding from time to time.
If an Event of Default with respect to debt securities of any series at the
time outstanding occurs and is continuing, then the trustee or the holders of
not less than 25% in aggregate principal amount of the then outstanding debt
securities of that series may, by written notice to us (and to the trustee if
given by the holders), declare to be due and payable immediately the principal
(or, if the debt securities of that series are discount securities, that portion
of the principal amount as may be specified in the terms of that series) and
premium of all debt securities of that series. In the case of an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization, the principal (or such specified amount) and premium of all
outstanding debt securities will become and be immediately due and payable
without any declaration or other act by the trustee or any holder of outstanding
debt securities. At any time after a declaration of acceleration with respect to
debt securities of any series has been made, but before the trustee has obtained
a judgment or decree for payment of the money due, the holders of a majority in
aggregate principal amount of the then outstanding debt securities of that
series may, subject to our having paid or deposited with the trustee a sum
sufficient to pay overdue interest and principal which has become due other than
by acceleration and certain other conditions, rescind and annul such
acceleration if all Events of Default, other than the non-payment of accelerated
principal and premium with respect to debt securities of that series, have been
cured or waived as provided in the indenture. For information as to waiver of
defaults see the discussion under "-- Modification and Waiver" below. We refer
you to the prospectus supplement relating to any series of debt securities that
are discount securities for the particular provisions relating to acceleration
of a portion of the principal amount of the discount securities upon the
occurrence of an Event of Default and the continuation of an Event of Default.
9
The indenture provides that the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
holder of outstanding debt securities, unless the trustee receives indemnity
satisfactory to it against any loss, liability or expense. Subject to certain
rights of the trustee, the holders of a majority in aggregate principal amount
of the then outstanding debt securities of any series shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee or exercising any trust or power conferred on the
trustee with respect to the debt securities of that series.
No holder of any debt security of any series will have any right to
institute any proceeding, judicial or otherwise, with respect to the indenture
or for the appointment of a receiver or trustee, or for any remedy under the
indenture, unless:
- that holder has previously given to the trustee written notice of a
continuing Event of Default with respect to debt securities of that
series; and
- the holders of at least 25% in aggregate principal amount of the then
outstanding debt securities of that series have made written request, and
offered reasonable indemnity, to the trustee to institute such proceeding
as trustee, and the trustee shall not have received from the holders of a
majority in aggregate principal amount of the then outstanding debt
securities of that series a direction inconsistent with that request and
has failed to institute the proceeding within 60 days.
Notwithstanding the foregoing, the holder of any debt security will have an
absolute and unconditional right to receive payment of the principal of, premium
and any interest on that debt security on or after the due dates expressed in
that debt security and to institute suit for the enforcement of payment.
The indenture requires us, within 90 days after the end of our fiscal year,
to furnish to the trustee a statement as to compliance with the indenture. The
indenture provides that the trustee may withhold notice to the holders of debt
securities of any series of any Default or Event of Default (except in payment
on any debt securities of that series) with respect to debt securities of that
series if it in good faith determines that withholding notice is in the interest
of the holders of those debt securities.
MODIFICATION AND WAIVER
We and the trustee may modify and amend the indenture with the consent of
the holders of at least a majority in aggregate principal amount of the then
outstanding debt securities of each series affected by the modifications or
amendments. We and the trustee may not make any modification or amendment
without the consent of the holder of each affected debt security then
outstanding if that amendment will:
- change the amount of debt securities whose holders must consent to an
amendment or waiver;
- reduce the rate of or extend the time for payment of interest (including
default interest) on any debt security;
- reduce the principal of or premium on or change the fixed maturity of any
debt security or reduce the amount of, or postpone the date fixed for,
the payment of any sinking fund or analogous obligation with respect to
any series of debt securities;
- reduce the principal amount of discount securities payable upon
acceleration of maturity;
- waive a default in the payment of the principal of, premium or interest
on any debt security (except a rescission of acceleration of the debt
securities of any series by the holders of at least a majority in
aggregate principal amount of the then outstanding debt securities of
that series and a waiver of the payment default that resulted from that
acceleration);
- make the principal of or premium or interest on any debt security payable
in currency other than that stated in the debt security;
- make any change to certain provisions of the indenture relating to, among
other things, the right of holders of debt securities to receive payment
of the principal of, premium and interest on those
10
debt securities and to institute suit for the enforcement of any payment
and to waivers or amendments; or
- waive a redemption payment with respect to any debt security or change
any of the provisions with respect to the redemption of any debt
securities.
Except for certain specified provisions, the holders of at least a majority
in aggregate principal amount of the then outstanding debt securities of any
series may on behalf of the holders of all debt securities of that series waive
our compliance with provisions of the indenture. The holders of a majority in
aggregate principal amount of the then outstanding debt securities of any series
may on behalf of the holders of all the debt securities of that series waive any
past default under the indenture with respect to that series and its
consequences, except a default in the payment of the principal of, premium or
any interest on any debt security of that series; provided, however, that the
holders of a majority in aggregate principal amount of the then outstanding debt
securities of any series may rescind an acceleration and its consequences,
including any related payment default that resulted from the acceleration.
DEFEASANCE OF DEBT SECURITIES AND CERTAIN COVENANTS IN CERTAIN CIRCUMSTANCES
Legal Defeasance. The indenture provides that, unless otherwise provided
by the terms of the applicable series of debt securities, we may be discharged
from any and all obligations in respect of the debt securities of any series
(except for certain obligations to register the transfer or exchange of debt
securities of the series, to replace stolen, lost or mutilated debt securities
of the series, and to maintain paying agencies and certain provisions relating
to the treatment of funds held by paying agents). We will be so discharged upon
the deposit with the trustee, in trust, of money and/or U.S. Government
Obligations or, in the case of debt securities denominated in a single currency
other than U.S. dollars, Foreign Government Obligations (as defined below),
that, through the payment of interest and principal in accordance with their
terms, will provide money in an amount sufficient in the opinion of a nationally
recognized firm of independent public accountants to pay and discharge each
installment of principal, premium and interest on and any mandatory sinking fund
payments in respect of the debt securities of that series on the stated maturity
of such payments in accordance with the terms of the indenture and those debt
securities.
This discharge may occur only if, among other things, we have delivered to
the trustee an officers' certificate and an opinion of counsel stating that we
have received from, or there has been published by, the United States Internal
Revenue Service a ruling or, since the date of execution of the indenture, there
has been a change in the applicable United States federal income tax law, in
either case to the effect that holders of the debt securities of such series
will not recognize income, gain or loss for United States federal income tax
purposes as a result of the deposit, defeasance and discharge and will be
subject to United States federal income tax on the same amount and in the same
manner and at the same times as would have been the case if the deposit,
defeasance and discharge had not occurred.
Defeasance of Certain Covenants. The indenture provides that, unless
otherwise provided by the terms of the applicable series of debt securities,
upon compliance with certain conditions:
- we may omit to comply with the restrictive covenants contained in
Sections 4.2 through 4.6 and Section 5.1 of the indenture, as well as any
additional covenants contained in a supplement to the indenture, a board
resolution or an officers' certificate delivered pursuant to the
indenture; and
- Events of Default under Section 6.1(e) of the indenture will not
constitute a Default or an Event of Default with respect to the debt
securities of that series.
The conditions include:
- depositing with the trustee money and/or U.S. Government Obligations or,
in the case of debt securities denominated in a single currency other
than U.S. dollars, Foreign Government Obligations, that, through the
payment of interest and principal in accordance with their terms, will
provide money in an amount sufficient in the opinion of a nationally
recognized firm of independent
11
public accountants to pay principal, premium and interest on and any
mandatory sinking fund payments in respect of the debt securities of that
series on the stated maturity of those payments in accordance with the
terms of the indenture and those debt securities; and
- delivering to the trustee an opinion of counsel to the effect that the
holders of the debt securities of that series will not recognize income,
gain or loss for United States federal income tax purposes as a result of
the deposit and related covenant defeasance and will be subject to United
States federal income tax in the same amount and in the same manner and
at the same times as would have been the case if the deposit and related
covenant defeasance had not occurred.
Covenant Defeasance and Events of Default. In the event we exercise our
option not to comply with certain covenants of the indenture with respect to any
series of debt securities and the debt securities of that series are declared
due and payable because of the occurrence of any Event of Default, the amount of
money and/or U.S. Government Obligations or Foreign Government Obligations on
deposit with the trustee will be sufficient to pay amounts due on the debt
securities of that series at the time of their stated maturity but may not be
sufficient to pay amounts due on the debt securities of that series at the time
of the acceleration resulting from the Event of Default. However, we will remain
liable for those payments.
"Foreign Government Obligations" means, with respect to debt securities of
any series that are denominated in a currency other than U.S. dollars:
- direct obligations of the government that issued or caused to be issued
such currency for the payment of which obligations its full faith and
credit is pledged, which are not callable or redeemable at the option of
the issuer thereof; or
- obligations of a person controlled or supervised by or acting as an
agency or instrumentality of that government the timely payment of which
is unconditionally guaranteed as a full faith and credit obligation by
that government, which are not callable or redeemable at the option of
the issuer thereof.
GOVERNING LAW
The indenture and the debt securities will be governed by, and construed in
accordance with, the internal laws of the State of New York.
PLAN OF DISTRIBUTION
We may sell securities to or through underwriters and also may sell
securities directly to purchasers or through agents. We will name any
underwriter or agent involved in the offer and sale of securities in the
applicable prospectus supplement.
We may distribute the securities from time to time in one or more
transactions:
- at a fixed price or prices, which may be changed;
- at market prices prevailing at the time of sale;
- at prices related to such prevailing market prices; or
- at negotiated prices.
We may also, from time to time, authorize dealers, acting as our agents, to
offer and sell securities upon the terms and conditions set forth in the
applicable prospectus supplement. In connection with the sale of securities, we,
or the purchasers of securities for whom the underwriters may act as agents, may
compensate underwriters in the form of discounts, concessions or commissions.
Underwriters may sell the securities to or through dealers, and those dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agent. Underwriters, dealers and agents participating in the distribution
of securities may be deemed to be underwriters under the Securities Act, and any
discounts or commissions they receive from
12
us and any profit they realize on resale of the securities may be deemed to be
underwriting discounts and commissions under the Securities Act. We will
describe in the applicable prospectus supplement any compensation we pay to
underwriters or agents in connection with the offering of securities, and any
discounts, concessions or commissions allowed by underwriters to participating
dealers.
We may enter into agreements to indemnify underwriters, dealers and agents
who participate in the distribution of securities against certain liabilities,
including liabilities under the Securities Act.
To facilitate the offering of securities, certain persons participating in
the offering may engage in transactions that stabilize, maintain or otherwise
affect the price of the securities. This may include over-allotments or short
sales of the securities, which involve the sale by persons participating in the
offering of more securities than we sold to them. In these circumstances, these
persons would cover such over-allotments or short positions by making purchases
in the open market or by exercising their over-allotment option, if any. In
addition, these persons may stabilize or maintain the price of the securities by
bidding for or purchasing securities in the open market or by imposing penalty
bids, whereby selling concessions allowed to dealers participating in the
offering may be reclaimed if securities sold by them are repurchased in
connection with stabilization transactions. The effect of these transactions may
be to stabilize or maintain the market price of the securities at a level above
that which might otherwise prevail in the open market. These transactions may be
discontinued at any time.
Certain of the underwriters, dealers or agents and their associates may
engage in transactions with and perform services for us in the ordinary course
of our business.
LEGAL MATTERS
Latham & Watkins of San Francisco, California, and McAfee & Taft of
Oklahoma City, Oklahoma, each will issue an opinion about certain legal matters
with respect to the securities for us. Any underwriters will be advised about
the other issues relating to any offering by their own legal counsel.
EXPERTS
Our consolidated financial statements incorporated in this prospectus by
reference to our Annual Report on Form 10-K for the fiscal year ended December
29, 2001 and Core-Mark's consolidated financial statements as of December 31,
2001 and 2000, and for each of the three years in the period ended December 31,
2001 incorporated in this prospectus by reference to our Current Report on Form
8-K filed with the Securities and Exchange Commission on May 20, 2002 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are also incorporated in this prospectus by reference, and have
been so incorporated in reliance upon such report given upon the authority of
said firm as experts in auditing and accounting.
13
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WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING TO YOU OTHER THAN THE INFORMATION CONTAINED IN
THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. YOU MUST NOT RELY ON
UNAUTHORIZED INFORMATION OR REPRESENTATIONS.
THIS PROSPECTUS SUPPLEMENT DOES NOT OFFER TO SELL OR ASK FOR OFFERS TO BUY
ANY OF THE SECURITIES IN ANY JURISDICTION WHERE IT IS UNLAWFUL, WHERE THE PERSON
MAKING THE OFFER IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON WHO CANNOT LEGALLY
BE OFFERED THE SECURITIES.
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS CURRENT ONLY AS OF THE
DATE ON ITS COVER, AND MAY CHANGE AFTER THAT DATE. FOR ANY TIME AFTER THE COVER
DATE OF THIS PROSPECTUS SUPPLEMENT, WE DO NOT REPRESENT THAT OUR AFFAIRS ARE THE
SAME AS DESCRIBED OR THAT THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS
CORRECT, NOR DO WE IMPLY THOSE THINGS BY DELIVERING THIS PROSPECTUS SUPPLEMENT
OR SELLING SECURITIES TO YOU.
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TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary......... S-1
Risk Factors.......................... S-9
Concurrent Offering................... S-17
Use of Proceeds....................... S-17
Capitalization........................ S-18
Selected Consolidated Financial Data
of Fleming.......................... S-19
Selected Consolidated Financial Data
of Core-Mark........................ S-21
Unaudited Pro Forma Condensed
Consolidated Financial
Information......................... S-23
Business.............................. S-33
Management............................ S-45
Description of Other Indebtedness..... S-49
Description of Notes.................. S-51
Book-Entry System..................... S-83
Same-Day Settlement and Payment....... S-84
Underwriting.......................... S-85
United States Federal Tax
Considerations...................... S-86
Legal Matters......................... S-90
Independent Auditors.................. S-90
PROSPECTUS
About This Prospectus................. 1
Where You Can Find More Information... 1
Special Note Regarding Forward-Looking
Statements.......................... 2
The Company........................... 3
Use of Proceeds....................... 3
Ratio of Earnings to Fixed Charges.... 4
Description of Debt Securities........ 4
Plan of Distribution.................. 12
Legal Matters......................... 13
Experts............................... 13
</Table>
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[FLEMING LOGO]
$200,000,000
9 1/4% SENIOR NOTES
DUE 2010
DEUTSCHE BANK SECURITIES
LEHMAN BROTHERS
WACHOVIA SECURITIES
JPMORGAN
MORGAN STANLEY
COMERICA SECURITIES
PROSPECTUS SUPPLEMENT
JUNE 13, 2002
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