BRUNO'S SETS CHAPTER 11 EXIT, NEW CHAIRMAN

ELLIOT ZWIEBACH

BIRMINGHAM, Ala. -- Bruno's here said last week it expects to emerge from Chapter 11 this week, just over 23 months after filing for bankruptcy protection.

The 152-store chain will emerge with a new name, Bruno's Supermarkets, and a new chairman, Terry R. Peets. James A. Demme, formerly chairman, will retain his positions as president and chief executive officer.

Implementation of the company's plan of reorganization will end two years of operating as a debtor-in-possession -- a process one observer said was dragged out "by lots of disagreements and contentiousness, and lots of litigation, among creditors."

The plan was finally confirmed last week by the U.S. Bankruptcy Court for the District of Delaware, with Bruno's telling SN it expects to emerge by the end of the week.

The reorganization will eliminate a debt load of about $1 billion, the company pointed out.

"As a leaner, more efficient company, we are in a position to do even more to improve our competitive position and to create value for our new shareholders," Demme said in a prepared statement.

Peets commended Demme for steering Bruno's through the bankruptcy process, adding that the company's new owners are "optimistic about the future of Bruno's, and we look forward to a new period of profitability and growth."

Marcy Stipp, executive vice president for marketing, told SN Bruno's will have more money available for capital expenditures under the reorganization, with 30 stores scheduled for remodeling later this year. She said the company also plans to open two new stores here during the year, one in May and another in the fourth quarter.

Bruno's refurbished 16 stores last year and acquired three locations, despite operating as a debtor-in-possession, she pointed out.

The company said the reorganization calls for substantially all assets of Bruno's to be transferred to a new corporation called Bruno's Supermarkets, which will be owned by the financial institutions -- more than a dozen of them -- that held the predecessor company's senior debt.

However, no single financial institution will own a controlling share of the successor company, with the largest shareholder, Oaktree Capital Management, Los Angeles, owning 13.75% of the equity, Stipp told SN.

According to Bruno's, the reorganization plan calls for the formation of a new seven-member board of directors. The new directors will be:

Peets, who spent 18 years with Ralphs Grocery Co., Compton, Calif., ending his career there in 1995 as executive vice president for manufacturing, distribution and MIS. He moved over to Vons Cos., Arcadia, Calif., as executive vice president of sales and marketing, procurement, manufacturing and Efficient Consumer Response until Vons' acquisition by Safeway, Pleasanton, Calif.

Peets was subsequently president and CEO of PIA Merchandising Services, a food brokerage based in Irvine, Calif.; when PIA was acquired by Spar Group, Tarrytown, N.Y., in mid-1999, Peets was named president and CEO of Spar.

Demme, who has been with Bruno's since August 1997. He was formerly chairman, president and CEO of Homeland Stores, Oklahoma City, where he oversaw a financial restructuring.

Earlier in his career he spent three years as executive vice president of retail operations at Scrivner, a onetime Oklahoma City-based wholesaler; five years as president and chief operating officer of Shaw's Supermarkets, East Bridgewater, Mass.; and 19 years with A&P, ending his career there as head of the chain's Syracuse division.

Ronald G. Bruno, president of Bruno Capital Management Corp. here, who is the son of one of the chain's founders and a former chairman and CEO of the company. Bruno has been a director of the company since it was sold in mid-1995 to Kohlberg Kravis Roberts & Co., New York-based financial investors; KKR lost its equity stake in the company as a result of the Chapter 11 filing.

The company said Bruno's appointment as a director was made by Demme, who has the authority to appoint one board member.

Robert L. Hockett, managing director of DDJ Capital Management, a Massachusetts-based investment management firm. Hockett was a member of the creditors' committees in the reorganizations of Bruno's and of Penn Traffic Co., Syracuse, N.Y.

Philip L. Maslowe, senior vice president and chief financial officer of the Florida-based Wackenhut Corp. Earlier in his career he held senior management positions at several companies, including Vons.

Richard B. Neff, executive vice president and chief financial officer of DiGiorgio Corp., Somerset, N.J.

Alan J. Reed, a 23-year veteran of Ralphs, who left that company in 1995 as senior vice president of finance and chief financial officer. He served as interim CFO at Bruno's for a few months in 1996; he has also worked with Randall's Food Markets, Houston (now a Safeway division), and Fred Meyer, Inc., Portland, Ore. (now a Kroger division).

Demme and Bruno are the only holdovers from the company's previous board of directors.

Bruno's operates 152 stores in Alabama, Georgia, Florida and Mississippi -- down from 254 units (including stores in Tennessee) in mid-1995, at the time it was acquired by KKR, and down from 197 stores on Feb. 2, 1998, the day it filed for Chapter 11 protection.

The company operates stores in three formats: Bruno's, a combination-store format; Food World and Foodmax, both value-oriented formats; and Food Fair, a neighborhood-store format.

According to observers, Bruno's problems stemmed in part from its heavy leverage, which predated the KKR buyout, and from a shift away from everyday low pricing in favor of high-low promotional pricing, which caused some customer confusion and discontent. The problems apparently began when Bruno's began introducing a frequent-shopper card at some stores in the face of intense competition, "and the company got too high on regular shelf prices and too low on promotional prices," one observer explained.

Bruno's was also said to be experiencing warehouse problems that resulted in out-of-stocks at store level.

When Demme joined the company, he sought to stabilize pricing, remerchandise the stores, eliminate the distribution problem and incentivize employees to boost store morale.

While operating as a debtor-in-possession for the past two years the company has reduced its store count by selling excess properties.

As the number of stores has shrunk, sales have fallen steadily -- from $2.9 billion in 1996 to $2.6 billion in 1997, $1.9 billion in 1998, and an estimated $1.7 billion in 1999. Same-store sales have also suffered, falling 1.2% in 1996, 10% in 1997, and 8.6% in 1998; figures were not available for 1999.

Bruno's achieved a gain in same-store sales of 1.1% for the second quarter ended July 31, though comps for the first three quarters of last year were down 0.5%.

Under terms of the reorganization, the company said all general unsecured creditors will get cash disbursements equal to 30% of the allowed value of their claims; in addition, all distributions that would have been made to holders of the company's senior subordinated notes will be given to senior creditors, while common shareholders will not receive any distributions, the company said.