MEGAFOODS STORES FILES PLAN FOR REORGANIZATION

ELLIOT ZWIEBACH

MESA, Ariz. -- Megafoods Stores here said last week it has filed a reorganization plan with the U.S. Bankruptcy Court in Phoenix that would enable it to emerge from Chapter 11 bankruptcy protection proceedings sometime next spring. Enactment of the plan would lay the groundwork for Megafoods to shore up its position in existing markets and undertake a long-range unit expansion program, the company said.

The reorganization plan covers 40 stores: 17 price-impact Megafoods units in Arizona and 23 conventional Handy Andy stores in San Antonio. The company said it anticipates filing a disclosure statement in mid-January that would accompany the ballots sent to creditors, who would have several weeks to decide whether to vote for or against the reorganization plan. If creditors approve the

plan, it would have to be confirmed by the court before Megafoods could emerge from Chapter 11. Court approval would most likely take place in April or May, the company said.

"We are absolutely confident the plan will position Megafoods and Handy Andy to compete and grow in the markets we serve," said Greg Anderson, Megafoods chairman.

Once the plan is in place, Anderson said, Megafoods plans to embark on a program of controlled strategic growth over the next five years that will include annual construction of up to three stores in Arizona and two in Texas. The company filed for protection from creditors under Chapter 11 in August 1994 following a dispute with Fleming Cos., Oklahoma City, its major supplier. Jonathan Ziegler, a securities analyst with Salomon Bros., New York, told SN that Megafoods' basic price-impact format was a good one, "but the company ran into trouble from a very tenacious H.E. Butt in San Antonio when it tried to convert" a group of former Krogers there into price-impact stores.

When Megafoods subsequently acquired the conventional Handy Andy chain and switched the former Kroger Co. stores back to a conventional format, Ziegler said, the company found it lacked management depth and expertise to operate that format, which he said led to the Chapter 11 filing. Since the filing, Megafoods said, it has restructured its operations by concentrating on the Arizona and San Antonio markets. In the process it sold or closed 31 stores, including 13 in Texas, eight in California, six in Arizona and four in Nevada. Under the reorganization plan, the company said, it would retain the management team headed by Anderson that has led it through the Chapter 11 process. In addition, a combination of cash payments, new notes and returned collateral would be provided to secured creditors, while unsecured creditors would receive shares of a new common stock. The company said it believes the reorganization plan has the support of the unsecured creditors who would become its new stockholders. The company also said it expects to continue buying products for its Arizona stores from Certified Grocers of California, Los Angeles, and for its Texas stores from Grocers Supply Co., Houston.