FLEMING SEEKS CREDIT, PLANS TO APPEAL AS $200 MILLION-PLUS JUDGMENT LOOMS

JANIN FRIEND

CLEBURNE, Texas (FNS) -- Fleming Cos. could be faced Tuesday with a final judgment of more than $200 million in the fraud and breach of contract case brought by David's Supermarkets.

The wholesaler is racing to line up credit for the bond required to appeal despite mounting pressure to push for an out-of-court settlement.

"We are continuing to work with bankers on the requirements for the bond," Fleming spokeswoman Nancy Del Regno said. "We will appeal."

State court Judge C.C. "Kit" Cooke is expected to rule here tomorrow on the final judgment amount against Fleming and set the bond that must be posted before the nation's largest wholesaler can appeal the case. One of David's attorneys, Bill Sims, said the bond could total $253 million if the judge agrees with the plaintiff's motion for a $211 million judgment, plus 10% interest for the two years the case could take during appeal.

The judge's ruling would follow the Cleburne, Texas, jury verdict that found Fleming and retired Fleming regional executive Jim Stuard guilty of fraud, deceptive trade practice and breach of contract and ordered Fleming to pay actual and punitive damage awards in excess of $200 million. Grandview, Texas-based David's had argued that Fleming inflated manufacturers' prices and overcharged the supermarket chain for grocery products, almost driving its more than 20 stores into bankruptcy.

Since the damage verdicts were announced March 14 and 15, Fleming has been talking with its 50-member banking syndicate, led by J.P. Morgan & Co., and holders of some $500 million in junk bonds, primarily used to finance its acquisition of Scrivner in 1994. Observers said meetings were held in New York City March 20 and Chicago March 28 to discuss issues.

Among the issues were the amount of long-term debt held by Fleming, potential violations of covenants in note holder and credit agreements and the ability of Fleming to pay debt.

Analysts and bankers are concerned that payment of a large damage award could stretch finances for Fleming, which earned $42 million in 1995 and had about $1.3 billion in long-term debt and $4.4 million in cash or cash equivalents at the end of 1995. Some are encouraging the Oklahoma City-based wholesaler to settle the case for under $50 million and let its insurance companies pick up some of the tab.

"It would make all the sense in the world to settle the lawsuit," said Frederick Taylor, director of corporate bond research for Salomon Bros., New York. "An out-of-court settlement would be for a much lower amount."

However, David's attorney Sims said he did not anticipate a settlement, and his client, David Waldrip, said he plans to continue the battle in court. "We have been fighting this case for three

years. If it takes two to three more years, fine. We are building our company, and we will let the court work through these issues," he said.

Pressure to settle stems partly from potential violations in both bond and credit agreements, and if those are broken, the banks can refuse a line of credit or the bondholders can demand accelerated payment of the $500 million in junk bonds, which are due in 2001.

Fleming spokeswoman Del Regno said the company is not currently in default on the bond or credit agreement covenants. But some observers said the company would be as soon as Cooke enters the final judgment. The credit agreement would appear to be violated if the company has an award in excess of $7.5 million and the bond agreement would appear to be violated if the award is in excess of $50 million, observers said.

"It is open to some legal interpretation," said Ron Buck, a director at Standard & Poor's, which is reviewing Fleming's bonds for possible downgrade. "Nothing is clear until the judge rules."

Once the judge signs the final judgment, Fleming has 30 days to file an appeal and get the money to post the bond unless it requests a new trial or settles the case.

Observers said they expect the banking group to give Fleming the line of credit for the bond if the case is not settled. They said negotiations between the bankers and bondholders, which include large insurance companies, are currently being held to hammer out an agreement that would be equitable to interested parties.

Some of the biggest concerns center on whether Fleming will be faced with copycat lawsuits. Fleming has called the David's case an isolated verdict and said similar suits centering on overcharging have not been filed. Fleming officials would not speculate on future suits.

But David's attorney Sims said he has received many phone calls from retail grocers and their attorneys, who are considering pressing suit against the wholesaler on alleged overcharging or alleged improper practices when acquiring retail stores.

In the David's suit, Fleming was found guilty of violating a three-year contract with David's that had called for the supermarket chain to purchase more than $100 million in products from Fleming at cost plus an agreed markup of from 3.45% to 7.65%.

In the suit, plaintiffs maintained that Fleming regularly marked up its true costs by paper transfers and failed to give David's Supermarkets the benefit of rebates and promotional discounts.

Also last week, Fleming said it would cut its regular quarterly dividend to 2 cents from 30 cents. Robert Stauth, chairman and chief executive officer, said "this action will allow Fleming to continue to implement its strategic plan and also meet its banks' requirements for an appeal bond in the David's Supermarkets lawsuit."