SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended _________________
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From July 2, 1995 to January 27, 1996
Commission File Number 0-6544
BRUNO'S, INC.
(Exact Name of Registrant as Specified in its Charter)
Alabama 63-0411801
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
800 Lakeshore Parkway, 35211
Birmingham, Alabama (Zip Code)
(Address of principal executive
Office)
(205) 940-9400
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK
$.01 Par Value
Indicate by check mark whether Bruno's Inc. (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
(assuming solely for the purpose of this calculation that directors and
officers are affiliates) of Bruno's, Inc. as of April 24, 1996 was
approximately $47,442,427.
As of April 25, 1996, the number of shares of Bruno's, Inc. Common Stock
outstanding was 25,147,639.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
TABLE OF CONTENTS
Item Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 6
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 8. Financial Statements and Supplementary Data . . . . . . . . . 17
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 38
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . 39
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . 41
Item 12. Security Ownership of Certain Beneficial Owners and Management 47
Item 13. Certain Relationships and Related Transactions . . . . . . . . 48
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
50
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PART I
ITEM 1. BUSINESS
The Company is a leading supermarket operator in the Southeastern United
States and is the largest supermarket operator in the state of Alabama. The
Company operates 254 supermarkets of which 126 are located in Alabama, 86 in
Georgia, 19 in Florida, 11 in Tennessee, 7 in Mississippi and 5 in South
Carolina. Eighty of the store sites are owned directly by the Company or through
joint ventures. The Company also operates two primary distribution facilities,
one in Birmingham, Alabama and one in Vidalia, Georgia, which total 2.1 million
square feet. The Company operates stores under three principal formats, each
addressed to a different market segment: everyday low price ("EDLP") stores
aimed at the value conscious shopper, combo stores targeted to customers seeking
service and selection, and neighborhood stores stressing convenience in a
community setting. Under the EDLP and combo formats, the Company also operates
17 Supercenter stores that offer an expanded mix of higher margin perishables
and general merchandise products as well as various one-stop shopping
conveniences, such as in-store pharmacies, banks, photo development services and
optical centers.
On April 20, 1995, the Company and Crimson Acquisition Corp. ("Crimson")
entered into an Agreement and Plan of Merger (the "Merger Agreement"), which was
amended on May 18, 1995. Crimson was a wholly-owned subsidiary of Crimson
Associates, L.P. ("Crimson Associates"), a partnership organized by Kohlberg
Kravis Roberts & Co. ("KKR"). Pursuant to the Merger Agreement, on August 18,
1995, Crimson was merged with and into the Company (the "Merger"), with the
Company continuing as the surviving corporation. Upon completion of the Merger,
Crimson Associates owned 20,833,333 shares, or approximately 83.33%, of the
Company's Common Stock (the "Common Stock") outstanding after the Merger, and
warrants ("Warrants") to purchase an additional 10,000,000 shares of Common
Stock.
Store Formats
Every Day Low Price ("EDLP") Formats. The Company's two EDLP formats, Food
World and FoodMax, on a combined basis account for 122 of the Company's 254
stores. Both Food World (85 stores) and FoodMax (37 stores) are widely regarded
as low price leaders, and both formats are recognized for the breadth and high
quality of their product offerings. Seven of the EDLP stores are Supercenters.
Food World. Food World stores are typically high volume stores designed to
appeal to a broad spectrum of customers. With a primary emphasis on value,
these stores offer every day low pricing along with an extensive variety of
name-brand merchandise and specialty departments. Food World stores are
promoted through television, newspaper, and radio advertising. The Company's
Food World stores average approximately 44,000 total square feet.
FoodMax. FoodMax stores are large stores with an open design, warehouse-
style ceilings, and expanded perishables departments. These stores emphasize
low prices and an extensive product selection while achieving low overhead
through reduced staffing. These stores enhance their EDLP image through
unadvertised in-store specials. The Company's FoodMax stores average
approximately 51,000 total square feet.
Combo Formats. The Company's combo formats, which operate primarily under
the Bruno's name, account for 44 of the Company's 254 stores. Bruno's stores are
widely regarded as quality, service, and perishables leaders in the markets the
Company serves, and generally have a substantial breadth and depth of product
offerings. These stores typically contain expanded produce, bakery,
delicatessen, and gourmet foods not generally found in conventional
supermarkets, a variety of health and beauty care products normally found in
large drug stores, and a wide range of general merchandise items. Bruno's stores
are generally located in suburban markets. Ten of the combo stores are
Supercenters. The combo stores average approximately 53,000 total square feet.
Neighborhood Formats. The Company has two principal neighborhood formats,
Piggly Wiggly and Food Fair. The neighborhood format, on a combined basis,
accounts for 88 of the Company's 254 stores. Piggly Wiggly (54 stores) and Food
Fair (31 stores) are generally smaller than the Company's other supermarkets and
emphasize friendly service and promotional pricing. For its neighborhood stores,
which are generally located in small to medium-sized towns and suburban
neighborhoods, the Company advertises primarily through direct mail.
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Piggly Wiggly. Piggly Wiggly stores are located in medium to small towns
in central and southern Georgia. Piggly Wiggly stores are promoted primarily
through weekly advertised specials. Piggly Wiggly stores average
approximately 30,000 total square feet.
Food Fair. Food Fair stores, like Piggly Wiggly, are designed to operate
with lower overhead and competitive pricing in suburban neighborhoods and
towns that will not support the volume necessary for a larger supermarket.
Food Fair stores are located in Alabama and average approximately 29,000
total square feet.
Store Development
The Company continuously evaluates its existing markets and potential new
markets for their ability to support new or expanded stores. The Company
combines market research and its in-depth knowledge of the Southeast region in
evaluating market opportunities. In conducting market research for store sites,
the Company evaluates population shifts, zoning changes, traffic patterns, new
construction and the proximity of competitors' stores in an effort to determine
a site's sales potential. The Company has identified numerous sites which are
suitable for new stores and has either acquired such sites or is currently
negotiating to acquire or obtain rights to develop or lease such sites. The
Company also continuously evaluates its store base and has identified certain
stores to be remodeled.
The following table sets forth additional information concerning changes in
the Company's store base for fiscal 1994 through the thirty week period ended
January 27, 1996 (the "Transition Period").
Thirty Week
Fiscal Period
---------------- ---------------
1994 1995 1996
-------- ------- ---------------
Beginning of period . . . . . . . . 257 257 252
Opened . . . . . . . . . . . . . 8 6 3
Closed/Sold . . . . . . . . . . . 8 11 1
--- --- ---
End of period . . . . . . . . . . . 257 252 254
=== === ===
Remodels . . . . . . . . . . . . . 39 15 3
Competition
The Company's competitors include national and regional supermarket chains,
independent and specialty grocers, drug and convenience stores, and the newer
"alternative format" food stores, including warehouse club stores and
supercenters. In addition to food retailers, nontraditional retailers such as
discount stores, drug stores and department stores are increasing their
selection of food products. The supermarket industry is highly competitive and
characterized by narrow profit margins and, accordingly, the Company's earnings
depend primarily on the efficiency of its operations and on its ability to
maintain a large sales volume. Supermarket chains compete based upon convenience
of store location, price, service, cleanliness, store condition, product variety
and product quality. The Company believes that its policies of pricing its
merchandise competitively and providing superior quality and customer service
are important competitive factors. The Company actively monitors its
competitors' prices and adjusts its pricing and marketing strategy as management
deems appropriate in light of existing market conditions.
The Company's principal competitors include Bi-Lo, Delchamps, Kroger, Publix,
WalMart, Food Lion and Winn Dixie. In recent years, supermarket competition in
the Southeast region has intensified as new entrants have opened stores in
certain principal markets of the Company. The Company's traditional competitors
in these markets have enhanced their capabilities in response to the entry of
these new chains. Certain of the Company's competitors have significantly
greater financial resources than the Company.
Advertising and Promotion
The Company's advertising and promotions are specifically tailored to each of
its store formats. For EDLP stores, the Company's promotions emphasize
consistently low prices, and this image is reinforced through television and
radio advertising. The combo format is typically advertised through newspapers
and newspaper inserts, with an emphasis placed
3
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on quality produce and perishables and superior service at competitive prices.
Combo stores also promote new products through in-store demonstrations and
samplings. For its neighborhood stores, which are often located in small to
medium-sized towns and suburban neighborhoods, the Company advertises primarily
through direct mail. In addition, to enhance its name recognition and image, the
Company sponsors a number of regional and local events.
Private Label Program
Through its private label program, the Company offers approximately 1,200
items under the Staff (dry groceries), Four Winds Farm (dairy and perishables),
Pharm (health and beauty care products) and Bay Harbor (frozen seafood) brand
names. Gross margins on private label goods are higher than on national brands.
Private label products are available at each of the Company's different formats,
with a higher concentration in the EDLP and neighborhood stores. Through gradual
replacement of existing private label names with new labels featuring quality
products and contemporary packaging, the Company is currently restructuring its
private label program to increase penetration by and support for this market
segmentation strategy.
Purchasing, Warehousing and Distribution
The Company has traditionally purchased merchandise from a large number of
third party suppliers. The Company has utilized many category management
techniques, including contract buying and most recently, a continuous
replenishment system, which provides for automatic daily product replenishment
for certain products in its distribution centers based on inventory level
changes.
The Company currently operates two primary distribution facilities totaling
2.1 million square feet, located in Birmingham, Alabama and Vidalia, Georgia,
each of which has integrated warehousing and distribution capacity. The Company
owns these facilities subject to arrangements with local industrial development
agencies.
Each store submits orders to the distribution facilities through a centralized
processing system, and merchandise is normally received by the stores on the
next day. Merchandise is delivered from the distribution facilities through a
leased fleet of 144 tractors, 158 refrigerated trailers and 184 dry trailers.
Stores are located within approximately a 300-mile radius of each of the
distribution centers. The Company believes that its existing distribution
capacity will be sufficient to support its store growth strategy over the next
several years.
Employees and Labor Relations
The Company is one of the leading private employers in Alabama and, as of
January 27, 1996, the Company employed approximately 26,200 persons, of whom
approximately 55% were full-time and 45% were part-time employees. Approximately
24,900 were employed in supermarkets, approximately 1,000 were employed in the
warehousing operations and approximately 300 were employed in the Company's
business office. Of these employees, approximately 60% are union-affiliated,
while approximately 6% are salaried. The Company currently employs, on average,
approximately 98 employees in each store.
The Company is currently a party to a number of separate collective bargaining
agreements with affiliates of either the United Food and Commercial Workers
Union or the Retail, Wholesale and Department Store International Union. The
contracts are generally negotiated in three- or four-year cycles. Pursuant to
the collective bargaining agreements, the Company contributes to various union-
sponsored multi-employer pension plans. In general, the Company believes its
relationship with its employees is good.
The Company has an incentive compensation plan covering its key management
staff. Incentive compensation for store operations managers is based upon the
profitability of the operations within the scope of their management
responsibility.
Trade Names, Service Marks, Trademarks and Franchises
The Company uses a variety of trade names, service marks and trademarks.
Except for "Bruno's," "Food World," "FoodMax," "Piggly Wiggly," and "Food Fair,"
the Company does not believe any of such trade names, service marks or
trademarks are material to its business. The Company licenses the "Piggly
Wiggly" trade name and trademark.
The Company's Piggly Wiggly stores are operated pursuant to a franchise
agreement that is restricted to certain areas of central and southern Georgia.
4
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Environmental Matters
The Company is subject to federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes and (ii) impose liability
for costs of cleaning up, and certain damages resulting from, sites of past
spills, disposal or other releases of hazardous materials. The Company believes
that it currently conducts its operations, and in the past has operated its
business, in substantial compliance with applicable environmental laws and
regulations. From time to time, operations of the Company have resulted or may
result in noncompliance with or liability for cleanup pursuant to environmental
laws and regulations. However, the Company believes that any such noncompliance
or liability under current environmental laws and regulations would not have a
material adverse effect on its results of operations and financial condition.
The Company has not incurred material capital expenditures for environmental
controls during the previous three years, nor does the Company anticipate
incurring such expenditures during the current fiscal or the succeeding fiscal
year.
Governmental Regulations
The Company is subject to regulation by a variety of governmental agencies,
including, but not limited to, the United States Food & Drug Administration, the
United States Department of Agriculture, and other federal, state and local
agencies.
ITEM 2. PROPERTIES
The Company operates a total of 254 supermarkets, of which 126 are located in
Alabama, 86 in Georgia, 19 in Florida, 11 in Tennessee, 7 in Mississippi and 5
in South Carolina. In addition, the Company operates nine liquor stores located
adjacent to Food World stores in Florida.
Number of Average
Stores Square Footage
---------- ---------------
EDLP Formats:
Food World . 85 44,000
FoodMax . . . 37 51,000
----
Subtotal . . 122
----
Combo Formats:
Bruno's . . . 43 53,000
Other . . . . 1 32,000
----
Subtotal . . 44
----
Neighborhood Formats:
Piggly Wiggly 54 30,000
Food Fair . . 31 29,000
Other . . . . 3 37,000
----
Subtotal . . 88
----
Total . . 254
====
The Company owns 80 of its 254 food stores. Fourteen of the stores are owned
by a joint venture between the Company and Metropolitan Life Insurance Company,
which leases such stores back to the Company. The Company also owns a number of
sites that can be used for future store and warehouse development, as well as
certain non-operating real estate assets.
The Company leases 174 of its 254 stores under standard commercial leases
which generally obligate the Company to pay its proportionate share of real
estate taxes, common area maintenance charges and insurance costs. In addition,
such leases generally provide for percentage of sales rent when sales from the
store exceed a certain dollar amount. Generally these leases are long-term, with
one or more renewal options. The Company owns the fixtures and equipment in each
leased location and has made various leasehold improvements to the store sites.
The approximately 1,375,000 square foot Birmingham warehouse, distribution
center and office complex is located on a 200-acre site in the Oxmoor West
Industrial Park in Birmingham, Alabama. Approximately 100 acres of the site are
5
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currently undeveloped land. The Company owns the Birmingham facility subject to
certain arrangements with The Industrial Development Board of the City of
Birmingham. The approximately 686,000 square foot Vidalia warehouse and
distribution center is located on a 90-acre site in Vidalia, Georgia and is
owned by the Company subject to a similar industrial development authority
arrangement with respect to a portion of the facility.
ITEM 3. LEGAL PROCEEDINGS
In 1991, the Company received a favorable termination letter with respect to
the termination of the employee pension plan of a supermarket chain acquired by
the Company in 1989. Pursuant to that termination, distributions were made to
all participants of that employee pension plan. After all of the benefit
liabilities were paid, remaining plan assets of approximately $2.7 million were
transferred to the Company as a reversion of excess pension assets. On June 15,
1992, the Company received a letter from the Pension Benefit Guaranty
Corporation ("PBGC") contending that inappropriate actuarial assumptions were
used to determine the value of the employees' benefits distributed and that
additional distributions must be made to numerous former participants of said
plan. In August 1994, the Company filed suit in the U.S. District Court for the
Northern District of Alabama challenging the PBGC's determination. In April
1995, the District Court entered summary judgment against the Company and in
favor of the PBGC; the U.S. Court of Appeals for the Eleventh Circuit affirmed
the ruling of the District Court. As of January 27, 1996, the Company had
provided a $2.7 million liability for this matter in its consolidated financial
statements.
Except for this matter, the Company is not a party to any material pending
legal proceedings, other than ordinary litigation incidental to the conduct of
its business and the ownership of its property.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the shareholders of the Company was held on Friday,
August 18, 1995 to (i) vote upon a proposal to approve and adopt the Merger and
the Merger Agreement ("Proposal 1"), (ii) approve the increase of $1.1 billion
in the bonded indebtedness of the Company to finance the conversion into cash of
approximately 94.7% of the issued and outstanding shares of the Company's common
stock upon consummation of the Merger, to refinance the outstanding indebtedness
of the Company and to provide for working capital requirements ("Proposal 2"),
and (iii) approve and adopt the Amended and Restated Articles of Incorporation,
which amended the Company's Articles of Incorporation to, among other things,
reduce the authorized shares of the Company's common stock from 200,000,000 to
60,000,000 ("Proposal 3"). Proposal 1 was approved by the shareholders by a vote
of 59,893,809 to 1,247,487, with 344,081 abstentions. Proposal 2 was approved by
the shareholders by a vote of 59,633,549 to 1,293,716, with 558,115 abstentions.
Proposal 3 was approved by the shareholders by a vote of 62,173,383 to 1,216,512
with 641,758 abstentions.
6
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Until August 18, 1995, the date of the Merger, the Common Stock traded on
the NASDAQ National Market System under the symbol BRNO. Following the Merger,
the Common Stock was delisted from the NASDAQ National Market System and
thereafter has been traded only in the over-the-counter market. The following
table sets forth, by fiscal quarter, the high and low sales prices, rounded to
the nearest eighth, reported by either the NASDAQ National Market System (with
respect to sales prior to August 18, 1995) or in the over-the-counter "pink
sheet" market (with respect to sales after August 18, 1995), for the periods
indicated.
For Fiscal Year Ended
---------------------------------------
July 2, 1994 July 1, 1995
------------------- -----------------
High Low High Low
--------- -------- ------ ---------
First Quarter 12-1/4 8-7/8 9-1/4 7
Second Quarter 11-3/8 8-1/2 10-1/4 7-7/8
Third Quarter 9-5/8 7-1/8 10-3/16 9-1/4
Fourth Quarter 8-1/2 6-7/8 12-1/4 9-1/4
High Low
--------- ---------
Quarter ended
September 23, 1995 11-3/4 10
Eighteen week
period from
September 24, 1995
to January 27, 1996 11-3/8 10
As of April 23, 1996, there were approximately 4,161 holders of record of
the Common Stock.
The following table sets forth the dividends paid by Bruno's to its
shareholders during the last two fiscal years and for the Transition Period.
After the Merger, the payment of regular quarterly cash dividends on the Common
Stock was discontinued and the Company does not contemplate the declaration of
dividends on the Common Stock. Further, the 10-1/2% Senior Subordinated Notes
due 2005 and the credit facility entered into by the Company in connection with
the Merger restrict any future payment of dividends.
For Fiscal Year Ended: July 2, 1994 July 1, 1995
First Quarter $.06 $.065
Second Quarter $.06 $.065
Third Quarter $.06 $.065
Fourth Quarter $.06 $.065
Quarter ended:
September 23, 1995 None
Eighteen week period from
September 24, 1995 to
January 27, 1996 None
7
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE><CAPTION>
BRUNO'S INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Amounts in Thousands, Except Share and Per Share Amounts)
Period Ended Fiscal Year Ended
----------------------------------- -------------------------------------------------------------
January 28,
January 27, 1995 July 1, July 2, July 3, June 27, June 29,
1996 (30 weeks) 1995 1994 1993 1992 1991
(30 weeks) (unaudited) (52 weeks) (52 weeks) (53 weeks) (52 weeks) (52 weeks)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INCOME
STATEMENT DATA:
Net sales . . . . . . . . . . $1,674,659 $1,653,152 $2,869,569 $2,834,688 $2,872,327 $2,657,846 $2,585,934
Cost and expenses:
Cost of products sold. .. . . 1,291,847 1,263,428 2,196,556 2,185,587 2,242,455 2,067,560 2,012,042
Store operating, selling and
administrative expenses. . . 339,367 301,154 544,936 512,063 489,950 439,713 410,464
Merger expenses. . . . . . . 29,610 0 0 0 0 0 0
Depreciation and
amortization . . . . . . . . 35,453 32,156 54,031 52,343 48,718 44,261 40,758
Interest expense, net. . . . 42,149 11,288 20,784 15,925 17,817 10,777 11,005
Writedown of securities. . . 0 0 0 0 0 3,393 0
Impairment of
long-lived assets. . . . . . 35,411 0 0 0 0 5,000 0
---------- --------- --------- ---------- ---------- ---------- ----------
1,773,837 1,608,026 2,816,307 2,765,918 2,798,940 2,570,704 2,474,269
---------- --------- --------- ---------- ---------- ---------- ----------
Income (loss) from continuing
operations before income taxes
(benefit) and extraordinary
item . . . . . . . . . . . . (99,178) 45,126 53,262 68,770 73,387 87,142 111,665
Provision for income taxes
(benefit) . . . . . . . . . (22,879) 17,148 19,920 28,189 26,493 30,776 40,854
---------- --------- --------- ---------- ---------- ---------- ----------
Income (loss) from continuing
operations before
extraordinary item . . . . (76,299) 27,978 33,342 40,581 46,894 56,366 70,811
---------- --------- --------- ---------- ---------- ---------- ----------
Discontinued operations, net:
Loss on disposal . . . . 0 0 0 0 0 (8,550) 0
Loss from operations . . 0 0 0 0 0 (4,400) (4,085)
---------- --------- --------- ---------- ---------- ---------- ----------
0 0 0 0 0 (12,950) (4,085)
---------- --------- --------- ---------- ---------- ---------- ----------
Extraordinary item, net . . (4,902) 0 0 (3,288) 0 0 0
---------- --------- --------- ---------- ---------- ---------- ----------
Net income (loss) . . . $ (81,201) $ 27,978 $ 33,342 $ 37,293 $ 46,894 $ 43,416 $ 66,726
========== ========== ========== ========== ========== ========== ==========
</TABLE>
8
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<TABLE><CAPTION>
Period Ended FIscal Year Ended
------------------------ -----------------------------------------------------------
January 28,
January 27, 1995 July 1, July 2, July 3, June 27, June 29,
1996 (30 weeks) 1995 1994 1993 1992 1991
(30 weeks) (unaudited) (52 weeks) (52 weeks) (53 weeks) (52 weeks) (52 weeks)
------------ ----------- ---------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) per common share:
Income (loss) from continuing operations
before extraordinary item ............ (2.06) $ 0.36 $0.43 $0.52 $0.60 $0.69 $0.87
Discontinued operations, net ........... 0.00 0.00 0.00 0.00 0.00 (0.16) (0.05)
Extraordinary item, net ............... (0.13) 0.00 0.00 (0.04) 0.00 0.00 0.00
---------- ---------- ---------- ---------- ---------- ---------- ---------
Net income (loss) ................. (2.19) $ 0.36 $0.43 0.48 $0.60 $0.53 $0.82
========== ========== ========== ========== ========== ========== =========
Cash dividends per common share ........ 0.00 $ 0.13 $0.26 $ 0.24 $0.22 $0.20 $0.18
========== ========== ========== ========== ========== ========== =========
Weighted average number of common and
equivalent shares outstanding .......... 37,006,175 77,621,000 77,571,000 78,088,000 78,717,000 81,874,000 81,661,000
========== ========== ========== ========== ========== ========== ==========
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents .............. 57,387 $ 25,916 $ 30,259 20,093 19,507 $15,684
Working Capital ..................... 65,713 141,420 174,392 117,510 110,968 125,286
Property and equipment, net ............ 491,664 516,374 540,139 543,877 467,824 420,113
Total assets ........................ 873,146 895,641 927,208 916,923 834,683 765,696
Long-term debt and capitalized lease
obligations ....................... 852,186 219,561 296,460 269,046 172,190 175,750
Shareholders' investment (deficiency in net
assets) .......................... (281,343) 429,814 421,354 402,667 422,443 390,187
</TABLE>
9
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLAR AMOUNTS 1N THOUSANDS)
RESULTS OF OPERATIONS
The following income statement information for the thirty and eighteen
week periods ended January 27, 1996 and January 28, 1995 is presented in
connection with Management's Discussion and Analysis of Financial Condition
and Results of Operations:
<TABLE><CAPTION>
Thirty Weeks Ended Eighteen Weeks Ended
---------------------------------------------- -----------------------------------------
January 27, 1996 January 28,1995 January 27, 1996 January 28, 1995
(Unaudited) (Unaudited) (Unaudited)
Amount % Amount % Amount % Amount %
------------ -------- ------------ ------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ........................... $1,674,659 100.00% $1,653,152 100.00% 1,019,479 100.00% $999,531 100.00%
Cost of Products Sold ................ 1,291,847 77.14 1,263,428 76.43 783,250 76.83 765,852 76.62
--------- ------ ---------- ------ --------- ------ ------- ------
Gross Profit ........................ 382,812 22.86 389,724 23.57 236,229 23.17 233,679 23.38
Store operating, selling and
adminislrative expense ............. 339,367 20.26 301,154 18.22 219,648 21.55 180,814 18.09
Merger expenses ..................... 29,610 1.77
Depreciation and amortization ........ 35,453 2.12 32,156 1.95 22,556 2.21 19,470 1.95
Interest expense, net ............... 42,149 2.52 11,288 0.68 31,052 3.05 6,868 0.69
Impairment of long-lived assets ...... 35,411 2.11 35,411 3.47
--------- ------ ---------- ------ --------- ------ ------- ------
Income (loss) before income taxes
(benefit) and extraordinary item ..... (99,178) (5.92) 45,126 2.72 (72,438) (7.11) 26,527 2.65
Provision (benefit) for income taxes .. (22,879) (1.37) 17,148 1.04 (18,373) (1.80) 10,081 1.01
Extraordinary item, net ............... (4,902) (0.29) (1,160) (0.11)
--------- ------ ---------- ------ --------- ------ ------- ------
Net income (loss) ....................$ (81,201) (4.84)% $ 27,978 1.68% $ (55,225) (5.42)% $16,446 1.64%
========= ====== ========== ====== ========= ====== ====== ======
</TABLE>
10
<PAGE>
General
As of January 27, 1996 the Company operated a chain of 254 supermarkets and
combination food and drug stores. The Company also operated nine retail liquor
stores located in the Florida panhandle. During the thirty week period ended
January 27, 1996 the Company changed its fiscal year to a 52 or 53 week year
ending on the Saturday closest to January 31 from the Saturday closest to June
30. The consolidated statements of operations include the thirty week period
from July 2, 1995 to January 27, 1996 and the fiscal years ended July 1, 1995,
July 2, 1994 and July 3, 1993. Dollar amounts are in thousands.
COMPARISON OF OPERATIONS FOR THE THIRTY WEEK PERIOD ENDED JANUARY 27, 1996 TO
THE THIRTY WEEK PERIOD ENDED JANUARY 28, 1995 (UNAUDITED)
Net Sales
Net sales increased 1.3% to $1,674,659 in the 1996 period from $1,653,152
for the 1995 period. The increase is principally attributable to an improvement
in same store sales of 1.2%. The Company's store count increased from 252 at
January 28, 1995 to 254 at January 27, 1996.
Gross Profit
Gross profit decreased as a percentage of net sales from 23.57% to 22.86%.
The decline in gross profit in the 1996 period is due in part to a refinement in
the Company's inventory valuation methodology based on additional available
information, the effect of which is included in the unusual charges described in
Loss Before Income Taxes (Benefit) and Extraordinary Item. Gross profit was
also adversely impacted by the Company recognizing a lower level of vendor
allowances in the 1996 period as compared to the 1995 period and by certain non-
recurring product costs.
Store Operating, Selling and Administrative Expenses
Store operating, selling and administrative expenses increased to $339,367
or 20.26% of net sales in the current period from $301,154 or 18.22% of net
sales for the comparable prior period. The increase is primarily attributable
to: (i) the Company increasing its estimated liability for self insurance claims
by $15,000 due to a revised management estimate, (ii) a $5,135 write off of a
deposit made in 1992 for three proposed stores which were not developed and
which the Company has concluded will not be applied to the development of future
stores, (iii) the accrual of $2,700 as a result of the Company recently losing a
court appeal related to a claim by the Pension Benefit Guaranty Corporation
concerning the termination of an employee pension plan in 1989, (iv) an increase
in the accrual related to future lease and other obligations on closed stores of
$3,400 reflecting a change in management's assumptions with respect to
anticipated future lease income plus an additional closed store, (v) a $2,500
write off of leasehold improvements and equipment recently determined to have no
value in stores which have been remodeled, (vi) the write off of a $1,800
deposit made by the Company for medical benefits under a union plan which, upon
execution of the related union contract in November 1995, was determined not to
have benefit beyond the current period, and (vii) miscellaneous charges of
$1,827. Excluding these charges (a total of $32,362), store operating, selling
and administrative expenses would have totaled $307,005 or 18.33% of net sales
for the current period.
Merger Expenses
Expenses of $29,610 were incurred related to the Merger. These expenses
consist primarily of professional and advisory fees and payments of $12,695 to
certain Company officers, other employees and directors pursuant to employment
and stock option agreements.
Depreciation and Amortization
Depreciation and amortization for the 1996 period increased as a percentage
of sales as compared to the 1995 period primarily due to the Company changing
its estimate of the depreciable lives of certain technology equipment, resulting
in an additional charge to depreciation of $3,000.
11
<PAGE>
Interest Expense, Net
Net interest expense increased 273% to $42,149 in the 1996 period as compared
to $11,288 in the 1995 period. The increase is attributable to the increase in
long term debt to $834,223 at January 27, 1996, comprised of a term loan
facility ($434,000), senior subordinated notes ($400,000), and other borrowings
($233), compared to $220,411 at January 28, 1995. The increase in borrowings
relates to the redemption of common stock associated with the Merger.
Impairment of Long-Lived Assets
At January 27, 1996, the Company elected to adopt early the provisions of
Statement of Financial Accounting Standard No. 121, which resulted in a review
of its operating assets for impairment at the individual store level using a
future cash flow and market value approach. For those store level assets where
the remaining net book value exceeded the sum of estimated future operating cash
flows, an impairment loss of $32,052 (of which $19,025 is goodwill) was
recognized for the excess of net book value over estimated fair value. Other
impairment charges of $3,359 were recognized primarily relating to an idle
warehouse facility and certain land held for investment, resulting in a total
impairment charge of $35,411.
Loss Before Income Taxes (Benefit) and Extraordinary Item
In the current period the Company had a loss before income tax benefit and
extraordinary item of $99,178 compared to income before income taxes of $45,126
in the prior year period. The Company considers certain amounts described above
under the headings Gross Profit, Store Operating, Selling and Administrative
Expenses, Depreciation and Amortization, and Impairment of Long-Lived Assets
to be unusual charges to operations. Excluding these items (a total of $78,635)
and merger expenses of $29,610, the Company would have had income before income
taxes and extraordinary item of $9,067. In addition, the Company's operations
were adversely affected by the Company recognizing a lower level of vendor
allowances in the 1996 period as compared to the 1995 period and by certain
non-recurring product costs.
Income Taxes
In the current period, the Company realized a tax benefit of $22,879
(exclusive of tax effect of extraordinary items) compared to a tax provision of
$17,148 in the prior period. The change in tax position relates to the current
period loss before income taxes and extraordinary item of $99,178 compared to
the prior period income before income taxes of $45,126. The effective tax rate
was a 23% benefit in the current period compared to a 38% expense in the prior
period. The difference in the effective tax rates is primarily a result of the
write off of goodwill of $19,025 and Merger related transaction costs of $13,555
which are not deductible for tax purposes.
Extraordinary Item, Net
The Company wrote off debt acquisition costs related to the early
extinguishment of $200,000 of private placement debt and terminated an interest
rate swap agreement with a commercial bank, resulting in a $3,742 loss (net of
tax of $2,294). Additionally, in January 1996 the Company repaid $41,000
principal amount of its $475,000 term loan facility entered into in connection
with the Merger, prior to the scheduled due date. As a result of this
prepayment, the related debt issuance costs of $1,160 (net of tax of $732) were
written off.
12
<PAGE>
COMPARISON OF OPERATIONS FOR THE EIGHTEEN WEEK PERIOD ENDED JANUARY 27, 1996
(UNAUDITED) TO THE EIGHTEEN WEEK PERIOD ENDED JANUARY 28, 1995 (UNAUDITED)
Net Sales
Net sales increased 2.0% to $1,019,479 in the 1996 period from $999,531 in the
1995 period. The increase is principally attributable to an improvement in same
store sales of 1.7%. The Company's store count increased from 252 at January 28,
1995 to 254 at January 27, 1996.
Gross Profit
Gross profit for the current period was $236,229 or 23.17% of net sales
compared to $233,679 or 23.38% of net sales in the prior period. The decline in
gross profit in the 1996 period is due in part to a refinement in the Company's
inventory valuation methodology based on additional available information, the
effect of which is included in the unusual charges described in Loss Before
Income Taxes (Benefit) and Extraordinary Item. Gross profit was also adversely
impacted by the Company recognizing a lower level of vendor allowances in the
1996 period as compared to the 1995 period.
Store Operating, Selling and Administrative Expenses
Store operating, selling and administrative expenses increased to $219,648 or
21.55% of net sales in the current period from $180,814 or 18.09% of net sales
for the comparable prior period. The increase is primarily attributable to: (i)
the Company increasing its estimated liability for self insurance claims by
$15,000 due to a revised management estimate, (ii) a $5,135 write off of a
deposit made in 1992 for three proposed stores which were not developed and
which the Company has concluded will not be applied to the development of future
stores, (iii) the accrual of $2,700 as a result of the Company recently losing a
court appeal related to a claim by the Pension Benefit Guaranty Corporation
concerning the termination of an employee pension plan in 1989, (iv) an increase
in the accrual related to future lease and other obligations on closed stores of
$2,626 reflecting a change in management's assumptions with respect to
anticipated future lease income, (v) a $2,500 write off of leasehold
improvements and equipment recently determined to have no value in stores which
have been remodeled, (vi) the write off of a $1,800 deposit made by the Company
for medical benefits under a union plan which, upon execution of the related
union contract in November 1995, was determined not to have benefit beyond the
current period, and (vii) miscellaneous charges of $1,827. Excluding these
charges (a total of $31,588), store operating, selling and administrative
expenses would have totaled $188,060 or 18.45% of net sales for the current
period.
Depreciation and Amortization
Depreciation and amortization for the 1996 period increased as a percentage of
sales compared to the 1995 period primarily due to the Company changing its
estimate of the depreciable lives of certain technology equipment, resulting in
an additional charge to depreciation of $3,000.
Interest Expense, Net
Net interest expense was $31,052 in the current period compared to $6,868 in
the prior period. The increase is attributable to the increase in long term debt
to $834,223 at January 27, 1996 compared to $220,411 at January 28, 1995. The
increase in borrowings relates to the redemption of common stock associated with
the Merger. At January 27, 1996, long-term debt was comprised of a term loan
facility ($434,000), senior subordinated notes ($400,000) and other borrowings
($233).
Impairment of Long-Lived Assets
As of January 27, 1996, the Company elected to adopt early the provisions of
Statement of Financial Accounting Standard No. 121, which resulted in a review
of its operating assets for impairment at the individual store level using a
future cash flow and market value approach. For those store level assets where
the remaining net book value exceeded the sum of estimated future operating cash
flows, an impairment loss of $32,052 (of which $19,025 is goodwill) was
recognized for the excess of net book value over estimated fair value. Other
impairment charges of $3,359 were recognized primarily relating to an idle
warehouse facility and certain land held for investment, resulting in a total
impairment charge of $35,411.
13
<PAGE>
Loss Before Income Taxes (Benefit) and Extraordinary Item
Loss before income tax benefit and extraordinary item was $72,438 for the
current year period as compared to income before income taxes of $26,527 in the
prior year period. The Company considers certain amounts described above under
the headings Gross Profit, Store Operating, Selling and Administrative Expenses,
Depreciation and Amortization, and Impairment of Long-Lived Assets to be unusual
charges to operations. Excluding these items (a total of $77,861), the Company
would have had income before income taxes and extraordinary item of $5,423. In
addition, the Company's operations were adversely affected by the Company
recognizing a lower level of vendor allowances in the 1996 period as compared
to the 1995 period.
Income Taxes
In the current period, the Company had an income tax benefit of $18,373
(exclusive of tax effect of extraordinary item) compared to a tax provision of
$10,081 in the prior period. The change in tax position relates to the current
period loss before income taxes and extraordinary item of $72,438 compared to
the prior period income before income taxes of $26,527. The effective tax rate
was 25% in the current period compared to 38% in the prior period. The lower
effective rate in the current period is primarily a result of the write off of
goodwill of $19,025.
Extraordinary Item, Net
In January 1996 the Company repaid $41,000 principal amount of its $475,000
term loan facility entered into in connection with the Merger prior to the
scheduled due date. As a result of this prepayment, the related debt issuance
costs of $1,160 (net of tax of $732) were written off.
COMPARISON OF OPERATIONS FOR THE FIFTY-TWO WEEK PERIOD ENDED JULY 1, 1995 TO
FIFTY-TWO WEEK PERIOD ENDED JULY 2, 1994 AND FIFTY-TWO WEEK PERIOD ENDED JULY 2,
1994 TO FIFTY-THREE WEEK PERIOD ENDED JULY 3, 1993
Net Sales
Net sales increased 1.2% ($34.9 million) from fiscal 1994 to fiscal 1995 while
sales decreased 1.3% ($37.6 million) from fiscal 1993 to fiscal 1994. The net
sales increase from fiscal 1994 to fiscal 1995 was primarily due to the
Company's recent focus on remodeling its existing stores and increasing its
emphasis on customer service. The Company's recent focus on remodeling its
existing stores has resulted in positive same store sales growth despite
competitive pressures. The net sales decrease from fiscal 1993 to fiscal 1994
was primarily due to the additional week of sales included in fiscal 1993.
Excluding the effects of the additional week in fiscal 1993, fiscal 1994 sales
slightly increased over fiscal 1993.
Gross Profit
Gross profit as a percentage of net sales increased 0.6% between fiscal 1994
and 1995 and increased 1.0% between fiscal 1993 and fiscal 1994. The increase in
gross profit is primarily due to an increased sales mix of higher margin
perishable and general merchandise products. This improvement is a direct result
of the Company's continued development and emphasis on its larger format stores
which carry a greater percentage of these products.
Store Operating, Selling, and Administrative Expenses
On May 18, 1995, the Company announced that it had reviewed the methodology it
used to estimate required balance sheet reserves for self-insured workers'
compensation and general liability claims. The Company had historically followed
the guidance in Statement of Financial Accounting Standards ("SFAS") No. 5 and
SFAS No. 112 to account for exposures under its workers' compensation, general
liability and medical self-insurance programs. This guidance requires accrual of
the best estimate of probable liabilities within a range of loss estimates. In
applying this accounting principle, the Company had consistently utilized case
estimates of probable liabilities prepared by experienced parties using all
available claims data as to the extent of losses and related costs. The Company
believes this practice to be consistent with the method used by many other
companies. Because (a) the number of stores and employees had remained flat from
fiscal 1992 through fiscal 1995,
14
<PAGE>
(b) annual cash payments under these plans had only increased approximately 6%
from fiscal 1993 through fiscal 1995 (an average of 3% per year), and (c) the
number of outstanding claims had also remained relatively flat, the Company did
not believe a complete actuarial study was either necessary or cost beneficial.
Consequently, actuarially-based computations were previously not performed.
During May 1995, in connection with the Merger, affiliates of KKR independently
obtained actuarially-based estimates of the Company's liabilities for workers'
compensation and general liability self-insurance exposures which were
substantially higher than the Company's case estimates. After a review of these
estimates and consultation with its advisors, the Company determined that these
actuarial techniques provided better estimates than those which had previously
been used by the Company. The Company then computed new estimated reserve
requirements using actuarial techniques, and, in accordance with its policy and
SFAS No. 5 and SFAS No. 112, recorded an adjustment to increase these
self-insurance reserves by approximately $22.2 million (approximately $13.8
million net of income taxes) as a change in accounting estimate in the third
fiscal quarter ended April 8, 1995. Approximately $19.2 million of the $22.2
million charge relating to this change in accounting estimate is of a
nonrecurring nature.
Excluding the self-insurance reserve adjustment, store operating, selling, and
administrative expenses as a percentage of net sales increased by .1% from
fiscal 1994 to fiscal 1995 and by 1.0% from fiscal 1993 to fiscal 1994. These
increases as a percentage of net sales are primarily due to the higher operating
costs associated with the increasing number of larger format stores. These
larger stores employ additional personnel and have higher operating costs,
particularly in their expanded service-oriented departments.
Depreciation and Amortization
Depreciation and amortization as a percentage of net sales remained relatively
constant during fiscal 1993, 1994 and 1995.
Interest Expense, Net
The increase in net interest expense during fiscal 1995 compared to fiscal
1994 and fiscal 1993, is due to an increase in interest rates which affected the
Company's borrowings, including its net interest position on an $80 million
notional interest rate swap.
Income Taxes
The Company's effective income tax rate decreased from 41% for fiscal 1994 to
37% for fiscal 1995. The higher effective tax rate for fiscal 1994 relates to an
additional tax provision of $2.2 million to retroactively restate income tax
liabilities to reflect the change in federal income tax rates mandated by the
Omnibus Budget Reconciliation Act of 1993.
Extraordinary Item
In the first quarter of fiscal 1994, the Company redeemed its $143.0 million
6.5% Convertible Subordinated Debentures at a conversion price above par value.
The redemption of the Debentures resulted in an extraordinary loss of $3.3
million, net of the applicable income tax benefit of $2.0 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded working capital and capital expenditure
requirements through cash flows from operating activities. Cash flows from
operating activities were $97,932 for the thirty week period ended January 27,
1996 compared to $125,663, $86,866 and $87,824 for fiscal years ended July 1,
1995, July 2, 1994 and July 3, 1993, respectively. Changes in working capital
management have resulted in a reduction in inventory of $34,177 to $215,589 at
January 27, 1996 from $249,766 at July 1, 1995, and an increase in accounts
payable of $52,622 to $167,283 from $114,661. Accounts payable as a percentage
of inventories was 77.59% at January 27, 1996, as compared to 45.91% and 42.62%
at July 1, 1995 and July 2, 1994, respectively. These changes in working capital
management generated additional operating cash flows sufficient to allow the
Company to prepay $41,000 in principal on its term loan facility prior to the
scheduled maturity date during the current period.
15
<PAGE>
The Company believes that operating cash flows will be sufficient to fund
store expansion and working capital needs, however, should the Company need
additional operating cash, it has a $125,000 revolving credit facility
available. There were no borrowings outstanding under this facility during the
thirty week period ended January 27, 1996.
Investing activities utilized $25,526 in cash during the thirty week period
ended January 27, 1996 compared to a net use of $26,033 for the fiscal year
ended July 1, 1995. The current period amount is related to additions of
property and equipment, primarily construction of new stores and renovations to
existing stores. The Company continues to evaluate opportunities to expand
through opening new stores or acquiring existing stores. Should internally
available cash, cash generated from operations and short-term borrowings not be
sufficient to fund future expansion, the Company may need to incur additional
long-term financing for such expansion. There can be no assurances that such
financing will be available to the Company on acceptable terms.
The Company had long-term debt at January 27, 1996 consisting of a $434,000
term loan facility and $400,000 in senior subordinated notes. The term loan
facility consists of $240,000 of Tranche A term loans, $73,000 of Tranche B term
loans, $73,000 of Tranche C term loans and $48,000 of Tranche D term loans. The
term loans mature at various increments through fiscal year ending January 2005,
while the senior subordinated notes mature in total in fiscal year ending
January 2006. Associated with the Merger, Crimson contributed capital of
$250,000. The primary uses of cash during the thirty week period ended January
27, 1996 were the redemption of common stock of the Company in the amount of
$879,956 and the repayment of debt of the Company of $246,079.
UNAUDITED QUARTERLY FINANCIAL DATA
In the opinion of management, the disclosures of unaudited quarterly and
transition period data presented in Item 8 contain all adjustments (consisting
of normal recurring adjustments, except as discussed in "Loss Before Income
Taxes (Benefit) and Extraordinary Item", above), necessary for a fair
presentation of operations of the Company for the interim periods.
16
<PAGE>
<TABLE><CAPTION>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BRUNO'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 27, 1996 , JULY 1, 1995, AND JULY 2, 1994
(Amounts in Thousands, Except Share and Per Share Amounts)
LIABILITIES AND
SHAREHOLDERS'
ASSETS 1996 1995 1994 INVESTMENT 1996 1995 1994
- ------------------- -------- -------- ------- ------------------------ -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
Current maturities
of long-term debt and
Cash and cash capitalized lease
equivalents . . . $57,387 $25,916 $30,259 obligations . . . . . $ 1,938 $1,900 $4,092
Receivables . . . 25,294 30,125 34,770 Accounts payable . 167,283 114,661 108,712
Accrued payroll and
Inventories . . . 215,589 249,766 255,047 related expenses . . 17,975 20,696 18,557
Self-insurance
Prepaid expenses . 11,225 9,527 9,237 reserves . . . . . . 12,711 16,596 5,568
Deferred income Other accrued
taxes . . . . . . 6,733 9,265 1,428 expenses . . . . . . 24,292 15,892 15,237
------ ------- -------
Total Current
Assets . . . . . 316,228 324,599 330,741 Accrued interest . 25,733 12,338 4,183
======= ======= ======= Accrued income taxes 583 1,096 0
------- ------- -------
Total Current
Liabilities . . . 250,515 183,179 156,349
------- ------- -------
NON-CURRENT LIABILITIES:
Long-term debt . . 834,223 200,642 276,015
Capitalized lease
obligations . . . . . 17,963 18,919 20,445
Deferred income
taxes . . . . . . . . 21,082 50,106 51,136
Self-insurance
reserves . . . . . . 29,947 10,673 0
Deferred
compensation . . . . 759 2,308 1,909
------ ------ -------
PROPERTY AND Total Non-Current
EQUIPMENT, NET . . 491,664 516,374 540,139 Liabilities . . . . . 903,974 282,648 349,505
------- ------- ------- ------- ------- -------
COMMITMENTS AND
CONTINGENCIES
SHAREHOLDERS'
INVESTMENT
(DEFICIENCY IN NET
ASSETS):
Common stock, $.01 par
value, 60,000,000 (1996)
and 200,000,000 (1995
and 1994) shares authorized;
25,007,015 (1996),
NONCURRENT ASSETS: 78,098,341 (1995),
and 78,090,441 (1994)
Deferred debt shares issued and
issuance costs . . 36,919 535 575 outstanding . . . . 250 781 781
Goodwill, net . . 11,823 31,425 32,423 Paid-in capital . . . (592,096) 42,008 41,999
Franchise rights,
net . . . . . . . 9,274 9,447 9,747 Retained earnings . . 310,503 391,704 378,574
-------- ------- -------
Investment in joint
venture . . . . . 3,642 3,869 4,279 (281,343) 434,493 421,354
Treasury stock, at
Other, net . . . . 3,596 9,392 9,304 cost (595,020 shares) 0 (4,679) 0
------ ------ ------ -------- -------- -------
Total Shareholders'
Total Noncurrent Investment (Deficiency
Assets . . . . . 65,254 54,668 56,328 in Net Assets). . . (281,343) 429,814 421,354
------ ------ ------ -------- -------- -------
TOTAL LIABILITIES
AND SHAREHOLDERS'
INVESTMENT
(DEFICIENCY IN
TOTAL ASSETS . . $873,146 $895,641 $927,208 NET ASSETS) . . . .$873,146 $895,641 $927,208
======== ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
17
<PAGE>
<TABLE><CAPTION>
BRUNO'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRTY WEEK PERIOD ENDED JANUARY 27, 1996, AND THE FISCAL YEARS ENDED
JULY 1, 1995, JULY 2, 1994, AND JULY 3, 1993
(Amounts in Thousands, Except Share and Per Share Amounts)
1996 1995 1994 1993
(30 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
NET SALES $1,674,659 $ 2,869,569 $2,834,688 $2,872,327
--------- --------- --------- ---------
COST AND EXPENSES:
Cost of products sold . . . . . . . . . . 1,291,847 2,196,556 2,185,587 2,242,455
Store operating, selling, and
administrative expenses . . . . . . . . . 339,367 544,936 512,063 489,950
Merger expenses . . . . . . . . . . . . . 29,610 0 0 0
Depreciation and amortization . . . . . . 35,453 54,031 52,343 48,718
Interest expense, net . . . . . . . . . . 42,149 20,784 15,925 17,817
Impairment of long-lived assets . . . . . 35,411 0 0 0
--------- --------- --------- ---------
1,773,837 2,816,307 2,765,918 2,798,940
--------- --------- --------- ---------
Income (loss) before income taxes
(benefit) and extraordinary item . . . . . (99,178) 53,262 68,770 73,387
PROVISION (BENEFIT) FOR INCOME TAXES (22,879) 19,920 28,189 26,493
--------- --------- --------- ---------
Income (loss) before extraordinary item . (76,299) 33,342 40,581 46,894
EXTRAORDINARY ITEM, net (4,902) 0 (3,288) 0
-------- --------- --------- ---------
NET INCOME (LOSS) $(81,201) $ 33,342 $ 37,293 $ 46,894
======== ========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary item . $ (2.06) $ 0.43 $ 0.52 $ 0.60
Extraordinary item, net . . . . . . . . . (0.13) 0.00 (0.04) 0.00
--------- --------- --------- ---------
Net income (loss) . . . . . . . . . . . . $ (2.19) $ 0.43 $ 0.48 $ 0.60
======== ======= ======= =======
Weighted average number of common and
common equivalent shares outstanding . . . 37,006,175 77,571,000 78,088,000 78,717,000
=========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
18
<PAGE>
<TABLE><CAPTION>
BRUNO'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT (DEFICIENCY IN NET ASSETS)
FOR THE THIRTY WEEK PERIOD ENDED JANUARY 27, 1996, AND THE FISCAL YEARS ENDED
JULY 1, 1995, JULY 2, 1994, AND JULY 3, 1993
(Amounts in Thousands, Except Share and Per Share Amounts)
Common Stock Treasury Stock
-------------------- ------------------
Number Paid-In Retained Deferred Number
of Shares Amount Capital Earnings Compensation of Shares Amount
----------- -------- --------- ---------- ------------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, June 27, 1992 81,890,150 $ 819 $91,806 $330,511 $ (693) 0 $ 0
Net income . . . . . . . 0 0 0 46,894 0 0 0
Repurchase and
cancellation of common
stock . . . . . . . . . (3,943,726) (39) (49,529) 0 0 0 0
Cash dividends ($.22 per
share) . . . . . . . . . 0 0 0 (17,383) 0 0 0
Stock bonus and option
plan activity . . . . . 100,917 0 (205) 0 486 0 0
----------- ----- -------- -------- ------ ----- -----
BALANCE, July 3, 1993 78,047,341 780 42,072 360,022 (207) 0 0
Net income . . . . . . . 0 0 0 37,293 0 0 0
Cash dividends ($.24 per
share) . . . . . . . . . 0 0 0 (18,741) 0 0 0
Stock bonus and option
plan activity . . . . . 43,100 1 (73) 0 207 0 0
----------- ----- ------- ------- ------ ---- ----
BALANCE, July 2, 1994 78,090,441 781 41,999 378,574 $ 0 0 0
=====
Net income . . . . . . . 0 0 0 33,342 0 0
Stock bonus and option
plan activity . . . . . 7,900 0 9 0 0 0
Cash dividends ($.26 per
share) . . . . . . . . . 0 0 0 (20,212) 0 0
Repurchase of common
stock . . . . . . . . . 0 0 0 0 595,020 (4,679)
----------- ----- ------- ------- ------- ------
BALANCE, July 1, 1995 78,098,341 781 42,008 391,704 595,020 (4,679)
----------- ----- ------- ------- ------- ------
Net loss . . . . . . . . 0 0 0 (81,201) 0 0
Redemption of common
stock . . . . . . . . . .(73,329,659) (733) (879,223)
Sale of common stock . . 20,833,333 208 249,792
Retirement of treasury
stock . . . . . . . . . (595,000) (6) (4,673) 0 (595,020) 4,679
----------- ----- ------- ------- ------- ------
BALANCE, January 27, 1996 25,007,015 $ 250 $(592,096) $310,503 0 $ 0
=========== ===== ======== ======== ======= ======
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
<TABLE><CAPTION>
BRUNO'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY WEEK PERIOD ENDED JANUARY 27, 1996, AND THE FISCAL YEARS ENDED
JULY 1, 1995, JULY 2, 1994, AND JULY 3, 1993
(Amounts in Thousands)
1996 1995 1994 1993
(30 Weeks) (52 Weeks) (52 Weeks) (53 Weeks)
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . $(81,201) $ 33,342 $37,293 $46,894
-------- -------- ------- -------
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Extraordinary item, net . . . . . . . . . . 4,902 0 3,288 0
Depreciation and amortization . . . . . . . 35,453 54,031 52,343 48,718
Deferred income taxes . . . . . . . . . . . (26,492) (8,867) 4,132 534
Amortization of deferred compensation . . . 0 0 15 (284)
Provision (credit) to value inventories at
LIFO cost . . . . . . . . . . . . . . . . 1,641 242 (588) (4,748)
Write-off of receivables . . . . . . . . . 7,659 0 0 0
Increase in self-insurance reserve . . . . 15,000 21,701 (212) (1,015)
Increase in closed store accrual . . . . . 3,400 2,996 857 248
(Gain) loss on sale of property, net . . . (727) (2,781) 872 (400)
Impairment of long-lived assets . . . . . . 35,411 0 0 0
(Increase) decrease in assets:
Receivables . . . . . . . . . . . . . . . 2,307 4,645 (9,467) 3,346
Receivable due on sale of discontinued
operations . . . . . . . . . . . . . . . . 0 0 0 9,500
Inventories . . . . . . . . . . . . . . . 32,536 5,039 4,780 (17,742)
Prepaid expenses . . . . . . . . . . . . . (1,698) (290) (1,340) (476)
Other noncurrent assets . . . . . . . . . 3,118 208 (521) 3,022
Increase (decrease) in liabilities:
Accounts payable . . . . . . . . . . . . . 52,622 5,949 (8,040) 6,250
Accrued income taxes . . . . . . . . . . . (513) 1,096 1,462 (7,367)
Accrued payroll and related expenses . . . (2,721) 2,139 536 1,858
Other accrued expenses . . . . . . . . . . 17,235 5,814 1,401 (976)
Deferred compensation . . . . . . . . . . 0 399 55 462
------- ------ ------- ------
Total adjustments . . . . . . . . . . . 179,133 92,321 49,573 40,930
------- ------ ------- ------
Net cash provided by operating
activities . . . . . . . . . . . . . . . 97,932 125,663 86,866 87,824
------- ------ ------- ------
</TABLE>
20
<PAGE>
<TABLE><CAPTION>
1996 1995 1994 1993
(30 Weeks) (52 Weeks) (52 Weeks) (53 Weeks)
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property . . . . . . . 911 28,805 16,079 8,867
Capital expenditures . . . . . . . . . . . . (26,437) (54,838) (63,989) (131,741)
------- ------ ------- --------
Net cash used in investing activities . . (25,526) (26,033) (47,910) (122,874)
------- ------ ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under line of
credit, net . . . . . . . . . . . . . . . . 0 0 (35,000) 5,000
Proceeds from issuance of long-term debt . . 875,000 0 200,000 100,000
Debt issuance costs . . . . . . . . . . . . (39,900) 0 0 0
Reduction of long-term debt and capitalized
lease obligations . . . . . . . . . . . . . (246,079) (79,091) (171,627) (2,978)
Redemption of common stock . . . . . . . . . (879,956) 0 0 0
Sale of common stock . . . . . . . . . . . . 250,000 0 0 0
Payments for early extinguishment of debt . 0 0 (3,542) 0
Proceeds from exercise of stock options . . 0 9 120 565
Dividends paid . . . . . . . . . . . . . . . 0 (20,212) (18,741) (17,383)
Repurchase of common stock . . . . . . . . . 0 (4,679) 0 (49,568)
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . ------- ------ ------- -------
(40,935) (103,973) (28,790) 35,636
------- ------ ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . . . . . 31,471 (4,343) 10,166 586
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD . . . . . . . . . . . . . . . . . . . 25,916 30,259 20,093 19,507
------- ------ ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . $57,387 $25,916 $30,259 $20,093
======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid (received) during the period for:
Interest . . . . . . . . . . . . . . . . . $28,403 $18,993 $19,605 $18,025
Income taxes, net of refunds . . . . . . . (647,922) 27,558 22,595 33,326
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING
Noncash compensation under stock plans . . . $ 0 $ 0 $(192) $(770)
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
BRUNO'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Thirty Week Period Ended January 27, 1996, and the Fiscal Years Ended
July 1, 1995, July 2, 1994, and July 3, 1993
(Amounts in Thousands, Except Share and Per Share Amounts)
1. ORGANIZATION
Bruno's, Inc. and subsidiaries (the "Company") operates a chain of
supermarkets located in Alabama, Florida, Tennessee, Mississippi, South
Carolina, and Georgia. The Company's supermarkets operate under three principal
formats, each addressed to a different market segment; every day low price
stores, combo stores, and neighborhood stores. The company services its
supermarkets through two primary distribution facilities, one in Birmingham,
Alabama and one in Vidalia, Georgia. The Company's corporate headquarters are in
Birmingham, Alabama.
2. MERGER ACTIVITIES
The Company and Crimson Acquisition Corp. ("Crimson"), an Alabama corporation
and a wholly owned subsidiary of Crimson Associates, L.P. ("Crimson
Associates"), which is a partnership organized by Kohlberg Kravis Roberts & Co.
("KKR"), entered into an Agreement and Plan of Merger dated as of April 20,
1995, and amended as of May 18, 1995 (as amended, the "Merger Agreement"). On
August 18, 1995, the Merger Agreement was approved by the Company's shareholders
where upon Crimson merged with and into the Company with the Company continuing
as the surviving corporation (the "Merger"). Each share of the Company's common
stock outstanding immediately prior to the Merger was converted (at the election
of the holder thereof) into either (i) $12.00 in cash or (ii) the right to
retain that share of common stock.
As a result of the Merger, Crimson Associates holds approximately 20.8 million
shares, or approximately 83.33%, of the outstanding common stock, and 10 million
warrants (the "Warrants") to purchase up to an additional 10 million shares of
common stock in the aggregate at an exercise price of $12.00 per share, subject
to certain adjustments. Each Warrant is exercisable in whole or in part for a
the ten year period following the Merger and, upon exercise, may be exchanged,
at the option of the holder, for either (i) such number of shares of Company
common stock for which the Warrant is then exercisable upon payment by the
holder to the Company of the aggregate exercise price or (ii) that number of
shares of Company common stock having a value equal to the difference between
the "fair market value" at the time of exercise of such number of shares of
common stock for which the Warrant is then exercisable and the aggregate
exercise price. If the Warrants had been exercised in full by the payment of the
aggregate cash exercise price immediately after the Merger, Crimson Associates
would hold approximately 88% of the shares of the Company's common stock
outstanding.
The Merger was primarily financed by the proceeds of term loans ($475,000),
debt securities ($400,000), an equity contribution by Crimson Associates
($250,000) and the application of a portion of the Company's cash balances.
These proceeds were applied to redeem common stock ($879,956), repay historical
debt ($200,000) and terminate an interest swap agreement ($5,571), and to pay
debt issuance costs ($39,900) and Merger expenses ($29,610). In accordance with
the Merger Agreement, the Company paid KKR a fee of $15,000 on the closing date.
The Company will also pay KKR an annual fee of $1,000 for management, consulting
and financial services provided to the Company ($538, including expenses, of
which was paid by the Company during the period ended January 27, 1996). Merger
expenses include the settlement by the Company of all outstanding stock options
in cash and the expense associated with the Company's employment continuity and
deferred compensation agreements becoming fully vested as a result of the Merger
($12,695).
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of the Company include its accounts and
the accounts of all wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
22
<PAGE>
Transitional Period Financial Data
In December 1995, the Company elected to change its fiscal year end to January
27, 1996 for the current period, and thereafter to the Saturday closest to
January 31, from the Saturday closest to June 30 to be consistent with the
predominant practice in the Company's industry. The change of fiscal year
resulted in a transition period of thirty weeks beginning July 2, 1995 and
ending January 27, 1996.
Presented below are the unaudited consolidated results of operations for the
comparable thirty week period ended January 28, 1995.
Net Sales . . . . . . . . . . . . . . . . . . . . $1,653,152
Cost of products sold . . . . . . . . . . . . . . 1,263,428
---------
Gross profit . . . . . . . . . . . . . . . . . . . 389,724
Store operating, selling and administrative expenses 301,154
Depreciation and amortization . . . . . . . . . . . 32,156
Interest expense, net . . . . . . . . . . . . . . . 11,288
---------
Income before income taxes . . . . . . . . . . . . 45,126
Provision for income taxes . . . . . . . . . . . . 17,148
---------
Net income . . . . . . . . . . . . . . . . . . . . $27,978
=========
Net income per share . . . . . . . . . . . . . . $ 0.36
=========
Cash Equivalents
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
Inventories
Substantially all inventories are valued at the lower of cost using the last-
in, first-out ("LIFO") method or market. Under the first-in, first-out ("FIFO")
cost method of accounting, inventories would have been $8,905, $7,264 and $7,022
higher than reported at January 27, 1996, July 1, 1995 and July 2, 1994,
respectively.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided on a
straight-line basis over the estimated service lives of depreciable assets (10
to 40 years for buildings and 3 to 10 years for equipment) or, in the case of
leasehold improvements, over 10 to 20 years or the life of the applicable lease,
if shorter. Property and equipment included in the financial statements under
capital leases are amortized over the related lease terms.
During the period ended January 27, 1996, the Company changed its estimate of
the depreciable lives of certain technology equipment from ten to five years,
resulting in a $3,000 additional charge to depreciation expense.
Maintenance and repairs are charged to expense as incurred; expenditures for
renewals and betterments are capitalized. When assets are retired or otherwise
disposed of, the property accounts are relieved of costs and accumulated
depreciation and any resulting gain or loss is credited or charged to income.
Leasehold interests represent the excess of current rental values over the
present value of net minimum lease payments on favorable leases acquired and are
being amortized on a straight-line basis over the remaining lives of the related
leases.
23
<PAGE>
Impairment of Long-Lived Assets
During the period ended January 27, 1996, the Company adopted early the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of. Total impairment losses of $35,411 have been recognized by the Company,
including $32,052 resulting from the adoption of this statement. The impaired
assets primarily consist of real property and leasehold improvements at the
store level and goodwill identified with certain of these store assets
previously acquired in a business combination accounted for under the purchase
method. For these stores, the Company estimated future cash flows on an
undiscounted basis and identified those stores where such cash flows were less
than the carrying value of the stores' assets. The writedown to fair value was
based on management's estimate of the amount that could be realized from the
sale of these assets in a current transaction between willing parties.
$19,025 of the impairment loss recognized under this statement has been
reflected as a reduction of goodwill identified with certain of the impaired
store assets. The remaining impairment loss is reflected as a reduction of the
applicable real property and leasehold improvements. The Company previously
evaluated these operating assets for possible impairment based upon aggregate
asset values by store format.
Other impairment charges totaling $3,359 were recognized based on write-downs
to estimated fair value, primarily relating to an idle warehouse facility and
certain land held for investment.
Intangibles
The Company's intangibles are as follows:
- Franchise rights (which are reflected net of accumulated amortization of
$2,726, $2,553 and $2,253 at January 27, 1996, July 1, 1995 and July 2,
1994, respectively) represent amounts assigned to a franchise with Piggly
Wiggly Corporation and are being amortized on a straight-line basis over 40
years (amortization of $173 for the thirty week period ended January 27,
1996, and $300 for each of the three fiscal years in the period ended July
1, 1995).
- Goodwill (which is reflected net of accumulated amortization of $28,119,
$8,517 and $7,519 at January 27, 1996, July 1, 1995 and July 2, 1994,
respectively) is being amortized on the straight-line basis over 40 years
(amortization of $576 for the thirty week period ended January 27, 1996,
and $988 for each of the three fiscal years in the period ended July, 1,
1995).
- Debt issuance costs (which are reflected net of accumulated amortization of
$3,961, $63 and $23 at January 27, 1996, July 1, 1995 and July 2, 1994,
respectively) represent costs incurred in issuing the Company's current
credit facility and Senior Subordinated Notes (1996) and Private Placement
Loan (1995 and 1994). These costs are being amortized using the interest
method over the respective lives of the debt. Amortization was $2,061 for
the thirty week period ended January 27, 1996 and $23 and $40 for the
fiscal years ended July 1, 1995 and July 2, 1994, respectively.
The Company periodically reviews goodwill and franchise rights to assess
recoverability, and impairments are recognized in operating results if a
permanent diminution in value were to occur.
Investment in Joint Venture
The Company maintains a 50% interest in a joint venture with a major life
insurance company for certain of its store locations. The Company's investment
in this joint venture ($3,642, $3,869 and $4,279 at January 27, 1996, July 1,
1995 and July 2, 1994, respectively) is accounted for on the equity method and
taxable income/loss is allocated directly to the joint venture partners.
Self-Insurance Accruals
The Company is substantially self-insured with respect to general liability,
workers' compensation and nonunion employee medical claims. Stop-loss insurance
coverage is maintained in amounts determined to be adequate by management ($100
per incident for general liability and currently $400 per incident for workers'
compensation). Prior to the third quarter of the fiscal year ended July 1, 1995,
the Company utilized case estimates of probable liabilities prepared by
experienced parties using all available claims data as to the extent of losses
and related costs to estimate required balance sheet reserves
24
<PAGE>
for such claims. As of the third quarter of the fiscal year ended July 1, 1995,
the Company began using actuarial estimation techniques to evaluate its accrual
for such claims and recorded an adjustment to increase these self-insurance
reserves by approximately $22,200 as a change in accounting estimate. During the
thirty week period ended January 27, 1996, management revised its estimate of
the self-insurance reserve and, accordingly, increased this reserve by $15,000.
At January 27, 1996, the self-insurance reserves were discounted at 5%, the
estimated risk free rate to borrow. Although considerable variability is
inherent in such estimates, management believes that the self-insurance reserves
are adequate. The estimates are continually reviewed by management and, as
adjustments to these liabilities become necessary, such adjustments are
reflected in current operations.
A summary of the related amounts charged to expense and claims paid is as
follows:
Expense Claims Paid
---------------- -----------------
Period ended:
January 27, 1996 . . . . . . . . . $33,338 $18,338
July 1, 1995 . . . . . . . . . . . 49,500 27,900
July 2, 1994 . . . . . . . . . . . 26,600 26,800
July 3, 1993 . . . . . . . . . . . 25,300 26,300
Closed Store Expense
Upon the decision to close a store, the Company accrues estimated future
costs, if any, which may include lease payments or other costs of holding the
facility, net of estimated future income. In 1996 the Company revised this
accrual to reflect lower anticipated future income on certain stores based on
the Company's most recent experience. The effect of this change in estimate was
to increase the closed store accrual by approximately $2,626. In addition,
during the period ended January 27, 1996, the Company accrued a charge of $774
for an additional store closed during the period.
Income Taxes
The Company accounts for income taxes using an asset and liability method
which generally requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statements and tax bases of assets and liabilities, using enacted tax rates in
effect for the year in which the differences are expected to reverse. In
addition, the asset and liability method requires the adjustment of previously
deferred income taxes for changes in tax rates.
Earnings (Loss) Per Common Share
Earnings (loss) per common share were computed based on the weighted average
number of common shares outstanding during each period. Outstanding stock
options and warrants are common stock equivalents but were excluded from
earnings (loss) per common share computations as their effect was either not
material or antidilutive.
Disclosures About Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments, the
Company has assumed that the carrying amount approximates fair value for cash
and cash equivalents, receivables, short-term borrowings, accounts payable and
certain accrued expenses because of the short maturities of those instruments,
and for the self-insurance reserves which are presented on a discounted basis.
The fair values of long-term debt instruments and financial derivatives are
based upon quoted market values (if applicable), or the current interest rate
environment and remaining term to maturity.
25
<PAGE>
Derivatives
The Company's only involvement with derivative financial instruments related
to the interest rate swap agreement intended to manage interest rate risk as
discussed in Note 6. Under this interest rate swap, which was terminated in
connection with the Merger, the Company agreed with other parties to exchange,
at specified intervals, the difference between fixed-rate and floating-rate
interest amounts calculated by reference to an agreed notional principal amount.
Amounts receivable and payable under the interest rate swap agreement were
accrued as interest income and interest expense, respectively.
Accounting Standards Not Yet Adopted
In 1995, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
which will be effective for fiscal years beginning after December 15, 1995. The
new standard defines a fair value method of accounting for stock-based
compensation. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
services period, which is usually the vesting period.
Pursuant to the new standard, companies are encouraged, but not required to
adopt the fair value method of accounting for stock-based transactions.
Companies are also permitted to continue to account for such transactions under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB No. 25"), but would be required to disclose in a note to the
financial statements pro forma net income per share as if the company had
applied the new method of accounting.
The accounting requirements of the new method are effective for all employee
awards granted after the beginning of the fiscal year adoption. The Company
currently anticipates that it will continue to account for employee stock-based
transactions under APB No. 25 and will not elect to change to the fair value
method. Adoption of the disclosure provisions of this statement for the year
ending February 1, 1997 will result in only increased disclosures regarding pro
forma net income and net income per share as if the Company had applied the new
method of accounting.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported periods.
Actual results could differ from these estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
period presentation.
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following:
January 27, 1996 July 1, 1995 July 2, 1994
---------------- ------------ ------------
Land . . . . . . . . . . . . . . $60,914 $62,808 $ 65,243
Buildings . . . . . . . . . . . . 218,281 218,988 229,749
Equipment . . . . . . . . . . . . 445,479 435,432 403,722
Construction in progress . . . . 13,816 14,484 16,404
------- -------- --------
738,490 731,712 715,118
Less accumulated depreciation . . 301,805 274,978 234,657
------- ------- -------
436,685 456,734 480,461
Leasehold improvements, net . . . 32,452 35,566 32,711
Investment in property under
capital leases, net . . . . . . . 11,710 12,529 14,102
Leasehold interests, net . . . . 10,817 11,545 12,865
------- ------- -------
$491,664 $516,374 $540,139
======== ======== ========
26
<PAGE>
5. INCOME TAXES
The provisions (benefit) for income taxes are as follows:
<TABLE><CAPTION>
Thirty Week Period Ended Fiscal Year Ended
------------------------ -----------------------------------------------
January 27, 1996 July 1, 1995 July 2, 1994 July 3, 1993
------------------------ ---------------- --------------- --------------
<S> <C> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . $ 1,030 $26,001 $19,896 $23,273
State . . . . . . . . . . . . . . . (511) 2,786 2,146 2,686
------- ------ ------ ------
519 28,787 22,042 25,959
------- ----- ------ ------
Deferred:
Accelerated depreciation . . . . . (7,391) 1,327 2,110 1,979
Effect of change in enacted
federal tax rate . . . . . . . . 0 0 1,874 0
Net operating loss carryforward . . (12,943)
Accrual differences . . . . . . . . (6,382) (10,525) (16) (885)
Other items, net . . . . . . . . . 226 331 164 (560)
------- ------ ---- ---
(26,490) (8,867) 4,132 534
-------- ------ ------ ----
Income tax benefit on
Extraordinary item . . . . . . . . 3,092 0 2,015 0
------- ------ ------ ----
$(22,879) $19,920 $28,189 $26,493
======== ====== ====== ======
</TABLE>
The difference in the federal statutory rate applied to income (loss) before
income taxes and the total provision (benefit) for the thirty week period ended
January 27, 1996 and for each of the three fiscal years ended July 1, 1995 is as
follows:
<TABLE><CAPTION>
Thirty Week
Period
Ended Fiscal Year Ended
------------------------- ------------------------------------------------------------
January 27, 1996 July 1, 1995 July 2, 1994 July 3, 1993
------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amount % Amount % Amount % Amount %
Statutory rate . . . . . . . . . . . $(34,712) (35)% $18,642 35% $24,070 35% $24,952 34%
Effect of:
State income taxes, net of federal
tax benefits . . . . . . . . . . . (2,975) (3) 1,810 3 1,394 2 1,773 2
Goodwill . . . . . . . . . . . . . . 7,448 8
Non-deductible transaction costs . . 5,151 5
Change in enacted tax rate . . . . . 0 0 0 0 2,224 3 0 0
Other, net 2,209 2 (532) (1) 501 1 (232) 0
------ -- ------ -- ------ -- ------ --
Effective rate . . . . . . . . . . . $(22,879) (23)% $19,920 37% $28,189 41% $26,493 36%
====== == ====== == ====== == ====== ==
</TABLE>
The increase in the effective rate for fiscal 1994 is due to the Omnibus
Budget Reconciliation Act of 1993 which increased the maximum corporate federal
income tax rate to 35% retroactively effective to January 1, 1994.
27
<PAGE>
Temporary differences and carryforwards which give rise to deferred tax assets
and liabilities are as follows:
January 27, July 1, July 2,
1996 1995 1994
----------- -------- ----------
Deferred tax assets:
Accruals . . . . . . . . . . . . $21,411 $15,029 $4,504
Capital leases . . . . . . . . . 10,868 10,681 10,580
Capital loss carryover . . . . . 544 428 897
Net operating loss carryforward
12,943
Deferred compensation . . . . . 19 863 713
Other items . . . . . . . . . . 715 495 500
----- ----- ----
Total deferred tax asset . . . 46,500 27,496 17,194
------ ------ ------
Deferred tax liabilities:
Property and equipment . . . . . (51,516) (58,907) (57,292)
Joint venture . . . . . . . . . (2,426) (2,332) (2,418)
Inventories . . . . . . . . . . (2,541) (2,538) (3,197)
Franchise rights . . . . . . . . (3,524) (3,533) (3,643)
Other items . . . . . . . . . . (842) (1,027) (352)
----- ------ ------
Total deferred tax liability . (60,849) (68,337) (66,902)
------- ------ ------
Net deferred tax liability . . . $(14,349) $(40,841) $(49,708)
======= ======= =======
6. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
In connection with the Merger, the Company entered into a Credit Facility (the
"Credit Facility") which provides for a revolving credit facility of $125,000
(the "Revolving Credit Facility") and a term loan facility ("the Term Loan
Facility"). No borrowings occurred during the thirty week period ended January
27, 1996 under the Revolving Credit Facility. Prior to this Revolving Credit
Facility, the Company maintained variable rate unsecured lines of credit which
aggregated $100,000, under which no amounts were outstanding at July 1, 1995.
The maximum and average borrowings outstanding under these lines of credit were
$25,000 and $1,414, respectively, for the year ended July 1, 1995 and during
fiscal 1994 were $50,000 and $8,403, respectively. The weighted average interest
rates were 5.9% and 3.4% during fiscal 1995 and 1994, respectively.
The Company's long-term debt is summarized as follows:
January 27, July 1, July 2,
1996 1995 1994
----------- -------- ----------
Term Loan Facility . . . . . $434,000
Senior Subordinated Notes . . 400,000
Private Placement Loan . . . $200,000 $200,000
Note Payable--Bank Credit
Agreement . . . . . . . . . . 0 75,000
Other borrowings . . . . . . 546 1,016 3,625
----- ----- -----
834,546 201,016 278,625
Less current maturities . . . 323 374 2,610
----- ----- -----
$834,223 $200,642 $276,015
======= ======= =======
The Term Loan Facility consists of a series of tranche term loans bearing
interest at either the prime rate plus 1.50% to 3.00%, or the eurodollar rate
plus 2.50% to 4.00% (depending on the tranche series), as elected by the
Company, at the beginning of an interest rate period (as defined). The interest
rate for the Revolving Credit Facility and the Tranche A series term loan may be
reduced if the Company satisfies certain financial performance criteria as
defined in the agreements. At January 27, 1996, the interest rate on the
individual tranche term loans ranged from 8.125% to 10%. The Term Loan Facility
matures at various dates ranging from February 2001 to February 2005.
The Company incurs commitment fees of 0.5% on the unused portion of the
Revolving Credit Facility.
The Credit Facility contains certain restrictive covenants which, among other
things, require the Company to maintain a consolidated total debt to earnings
before interest, taxes, depreciation and amortization ("EBITDA") ratio of 6.70
to 1.00 or less through October 31, 1996, (such ratio decreases over the term of
the Credit Facility), maintain a consolidated EBITDA to consolidated interest
expense ratio of 1.35 to 1.00 or greater through March 31, 1996 (such ratio
increases over the term
28
<PAGE>
of the Credit Facility) and maintain a consolidated fixed charge coverage ratio
of 1.25 to 1.00 or greater through March 31, 1996 (such ratio increases over the
term of the Credit Facility). In calculating compliance with these covenants,
EBITDA excludes the amount of certain noncash and nonrecuring charges. The
covenants of the Credit Facility also limit capital expenditures, dividends and
certain other debt payments of the Company.
The Senior Subordinated Notes bear interest at 10.5% and are due on August 1,
2005. These Notes are subordinated to the Term Loan Facility and any amounts
outstanding under the Revolving Credit Facility. Interest is payable on February
1 and August 1 of each year. At any time prior to August 1, 1998, at the option
of the Company, up to 40% of the outstanding aggregate face amount of the Senior
Subordinated Notes may be redeemed at a redemption price of 110.50% using the
proceeds of certain equity issuances. Beginning August 1, 2000, the Senior
Subordinated Notes will be subject to redemption at the option of the Company in
whole or in part, with proper notice at the redemption prices set forth below
plus accrued interest.
Twelve month period Percentage of
beginning August 1, Principal Amount
2000 105.25%
2001 103.50
2002 101.75
2003 and thereafter 100.00
The Senior Subordinated Notes contain certain restrictive covenants which,
among other things, limit the Company's ability to incur additional indebtedness
and pay dividends or distributions or make investments.
Future principal payments for long-term debt are as follows:
Fiscal Years ending:
1997 $ 323
1998 196
1999 33,027
2000 43,000
2001 63,000
thereafter 695,000
---------
$ 834,546
=========
In the first quarter of fiscal 1994, the Company redeemed $142,750 of 6.5%
Convertible Subordinated Debentures at 103.9% of face value in accordance with
the terms of the related indenture. The redemption was financed with the
proceeds of a $200,000 private placement loan. This redemption resulted in a
loss of $3,288 (net of the applicable income tax benefit of $2,015) which is
classified as an extraordinary item in the accompanying fiscal 1994 consolidated
statement of income.
In fiscal 1993, the Company entered into an interest rate swap agreement with
a commercial bank which became effective September 1, 1993. Under this
agreement, the Company recorded a receivable at a fixed rate of interest (5.92%)
and recorded a payable at a variable rate of interest (based on LIBOR--6.4%
weighted average rate for fiscal 1995) on $80,000 of notional principal for a
term of ten years. At July 1, 1995, a net interest receivable of $867 is
reflected in receivables in the accompanying consolidated balance sheet.
In connection with the early extinguishment of the historical debt of $200,000
in August 1995, the Company terminated the interest rate swap agreement,
resulting in a $5,571 loss. The Company also wrote off related debt acquisition
costs of $532. These amounts are included in the extraordinary loss, net of
applicable taxes, in the consolidated statement of operations for the thirty
week period ended January 27, 1996.
In January 1996, the Company prepaid $41,000 of principal under the Term Loan
Facility. As a result, $1,892 of related debt issuance costs were written off
due to the early extinguishment of this debt. This amount, net of applicable
taxes, is included in the extraordinary loss in the consolidated statement of
operations for the thirty week period ended January 27, 1996.
29
<PAGE>
At January 27, 1996 the fair value of the Senior Subordinated Notes (as
determined by quoted market price) was $394,000. The fair value of the Term Loan
Facility is estimated to equal its carrying value as the loan periodically
reprices to current market interest rates.
At July 1, 1995 and July 2, 1994 the estimated fair values of the Company's
Private Placement Loan was $181,450 and $259,903, respectively while the
estimated fair value of the interest rate swap off-balance sheet liabilities was
$1,842 and $7,665, respectively.
7. STOCK OPTION AND STOCK BONUS PLANS
Prior to the Merger, the Company maintained both noncompensatory and
compensatory stock option plans whereby options were granted at either a price
equal to the fair market value of the stock at the date of grant
(noncompensatory stock options) or at a price significantly under the fair
market value of the stock at the date of grant (compensatory stock options). For
compensatory stock options, compensation expense was recorded to reflect the
difference in the market value and the option price at the date of grant. In
connection with the Merger, all outstanding stock options were settled by the
Company in cash and these plans were terminated (Note 2).
Information with respect to stock options for each of the three fiscal years
in the period ended July 1, 1995 and for the thirty week period ended January
27, 1996 is summarized as follows:
Shares Subject Option Price
to Option Range Per Share
-------------- ---------------
Balance, July 3, 1993 . . . . . . . . . 473,317 $ 3.25 - $10.00
Canceled or expired . . . . . . . . . (31,400) $ 3.25 - $10.00
Exercised . . . . . . . . . . . . . . (18,100) $ 5.00 - $10.00
Options granted . . . . . . . . . . . 369,800 $ 7.00 - $7.50
Balance, July 2, 1994 . . . . . . . . . 793,617 $ 5.00 - $8.595
Exercised . . . . . . . . . . . . . . (1,400) $ 5.00 - $7.00
Options granted . . . . . . . . . . . 450,700 $ 7.00 - $9.375
-------
Balance, July 1, 1995 . . . . . . . . . 1,242,917 $ 5.00 - $9.375
Exercised . . . . . . . . . . . . . .(1,224,017) $ 5.00 - $9.375
Cancelled or expired . . . . . . . . . (18,900) $ 7.00
-------
Balance, January 27, 1996 . . . . . . . 0
=======
During the period ended January 27, 1996 the Company's Board of Directors
approved the establishment of the 1996 Stock Purchase and Option Plan for Key
Employees of Bruno's Inc. and Subsidiaries (the "1996 Plan"). The 1996 Plan is
scheduled to be approved by the stockholders of the Company at the 1996 annual
meeting. Subsequent to January 27, 1996, the Company granted a total of 421,875
options to purchase shares of common stock at a price of $12 per share to
certain members of management. The options are exercisable at a rate of 20% per
year, subject, with respect to half of such options, to the attainment of
certain annual and cumulative performance goals.
Under the terms of the Company's stock bonus plan, shares of stock were
awarded to officers and key employees. As an estimate of compensation under the
Plan, deferred compensation and a related credit to paid-in capital have been
recorded equal to the current market value of the awarded stock. The deferred
compensation was reflected as a reduction of shareholders' investment and was
amortized over the vesting period (three years). At July 1, 1995, all shares of
stock awarded under this plan had vested and had been issued by the Company.
This plan terminated upon the consummation of the Merger.
8. EMPLOYEE BENEFIT PLANS
All of the Company's union employees are covered by two union-sponsored,
collectively-bargained, multi-employer pension plans. Contributions to these
plans are determined in accordance with the provisions of labor contracts and
generally are based on the number of man hours worked.
The Company maintains a profit sharing retirement plan for nonunion employees.
Matching contributions are made for employee voluntary contributions up to a
specified limit with additional contributions made at the Company's discretion.
30
<PAGE>
The Company had deferred compensation agreements, as amended, with certain of
its former officers whereby these individuals or their beneficiaries were
provided specific amounts of annual retirement benefits for a period of 15 years
following retirement. All benefits payable under these agreements became fully
vested and were substantially paid out in connection with the Merger (Note 2).
The expense applicable to the above plans is as follows:
Profit Sharing
Retirement Plan
-------------------------
Deferred
Union Matching Discretionary Compensation
Plans Contributions Contributions Plan
---------- -------------- -------------- -------------
Period Ended:
January 27, 1996 $2,446 $832 $ 0 $5,072
July 1, 1995 . . 4,308 1,330 0 399
July 2, 1994 . . 4,089 1,494 1,750 55
July 3, 1993 . . 3,685 1,447 0 462
The Company maintains certain incentive compensation plans for store
management, officers, and other key employees which is paid annually based on
achievement of established profit goals.
Prior to the Merger, the Company maintained employment continuity agreements
with certain key employees which provided for benefits to be paid to these
employees in the event employment with the Company is terminated in connection
with a change in control. The Merger resulted in the recognition of the expense
associated with these agreements ($3,097) (Note 2).
At January 27, 1996, approximately 60% of the Company's employees were
affiliated with unions and 12% of these employees were covered by union
contracts which expire within one year.
9. LONG-TERM LEASES
The Company has a number of leases in effect for store properties and delivery
equipment. The initial terms of the real property leases will expire within the
next 25 years; however, most of the leases have options providing for additional
lease terms ranging from 5 to 25 years at terms substantially the same as the
initial terms. It is expected that real property leases will be renewed upon
expiration. The leases for delivery equipment are primarily for a duration of
five to ten years and it is expected that most will be replaced by leases on
similar equipment.
The Company has entered into lease and guaranty agreements with various
Industrial Development Boards in order to fund construction of certain warehouse
and office additions. Upon issuance, each bond issue was purchased in its
entirety by the Company. Thus, the outstanding bonds ($52,695 at January 27,
1996, $55,098 at July 1, 1995 and $59,891 at July 2, 1994) and the related
investment by the Company, together with the related interest expense and
interest income, respectively, are excluded from the accompanying consolidated
financial statements.
In addition to fixed minimum rentals, many of the Company's leases require
contingent rental payments. Contingent rentals for real property are based on a
percentage of sales. Contingent rentals for delivery equipment are based on the
number of miles driven.
31
<PAGE>
Presented below is an analysis of the property under capital leases and the
related lease obligations included in the accompanying consolidated balance
sheets:
January July 1, July 2,
27, 1996 1995 1994
--------- ---------- ----------
Property under capital leases:
Real property . . . . . . . . . . $34,428 $36,590 $34,428
Delivery equipment . . . . . . . . 0 0 2,161
------ ------ ------
34,428 36,590 36,589
Less accumulated amortization . . 22,718 24,061 22,487
------ ------ ------
$11,710 $12,529 $14,102
====== ====== ======
Capitalized lease obligations
(interest at 8% to 18%):
Current . . . . . . . . . . . . . $ 1,615 $ 1,526 $ 1,482
Noncurrent . . . . . . . . . . . . 17,963 18,919 20,445
------ ------ ------
$19,578 $20,445 $21,927
====== ====== ======
A schedule by years of future minimum lease payments required under capital
leases (together with the present value of the lease payments) and operating
leases (net of sublease rentals) having initial or remaining noncancelable lease
terms in excess of one year as of January 27, 1996, is as follows:
Operating Leases
------------------
Delivery Capital
Stores Equipment Leases
------------------ ---------
Fiscal year:
1997 . . . . . . . . . . . . . . . . . . $34,162 $5,869 $4,312
1998 . . . . . . . . . . . . . . . . . . 33,372 5,727 4,230
1999 . . . . . . . . . . . . . . . . . . 32,965 4,282 4,179
2000 . . . . . . . . . . . . . . . . . . 32,403 3,656 4,152
2001 . . . . . . . . . . . . . . . . . . 31,587 2,763 4,116
Subsequent years . . . . . . . . . . . . 279,369 3,677 13,553
------- ----- ------
Total minimum lease payments . . . . . .$443,858 $25,974 34,542
======= ====== ======
Less estimated executory costs included
in total minimum lease payments . . . .
2,160
-----
Net minimum lease payments . . . . . . . 32,382
Less estimated interest . . . . . . . . . 12,804
------
Present value of net future minimum lease
payments . . . . . . . . . . . . . . . . $19,578
======
Contingent rentals for the preceding capital leases and rental expense for the
operating leases are as follows:
Thirty
weeks ended Fiscal Year Ended
----------- ---------------------------------
January 27, July 1, July 2, July 3,
1996 1995 1994 1993
----------- ------- ---------- -----------
Contingent rentals on
capital leases . . . $291 $291 $338 $452
==== ==== ==== ====
Rental expense on
operating leases:
Real property:
Minimum rentals . . $22,197 $39,511 $34,586 $34,682
Contingent rentals 558 625 842 890
Equipment:
Minimum rentals . . 4,463 4,902 5,514 3,912
Contingent rentals 3,218 6,287 5,478 6,165
----- ----- ----- -----
$30,436 $51,325 $46,420 $45,649
====== ====== ====== ======
The capitalized lease obligation of store properties leased under capital
leases from a joint venture in which the Company maintains a 50% ownership
interest was approximately $12,402, $12,868 and $13,586 at January 27, 1996,
July 1, 1995 and July 2, 1994, respectively.
32
<PAGE>
10. REPURCHASE OF COMMON STOCK
On August 13, 1992, the Company entered into stock purchase agreements with
the Estates of Angelo J. Bruno and Lee J. Bruno (former executive officers of
the Company) to purchase an aggregate of 3,600,000 shares of the Company's
common stock at a price of $12.50 per share. The agreements allowed the Estates
to increase the number of shares of common stock to be purchased by the Company
up to an aggregate of 400,000 additional shares. Under this agreement, and other
previously existing stock purchase agreements, the Company purchased 3,943,726
shares of common stock at a total cost of $49,568, including acquisition costs.
11. COMMITMENTS AND CONTINGENCIES
Litigation
In 1991, the Company received a favorable termination letter with respect to
the termination of the employee pension plan of a supermarket chain acquired by
the Company in 1989. Pursuant to that termination, distributions were made to
all participants of that employee pension plan. After all of the benefit
liabilities were paid, remaining plan assets of approximately $2,700 were
transferred to the Company as a reversion of excess pension assets. On June 15,
1992, the Company received a letter from the Pension Benefit Guaranty
Corporation ("PBGC") contending that inappropriate actuarial assumptions were
used to determine the value of the employee's benefits distributed and that
additional distributions must be made to numerous former participants of said
plan. In August 1994, the Company filed suit in the U.S. District Court for the
Northern District of Alabama challenging the PBGC's determination. In April
1995, the District Court entered summary judgment against the Company and in
favor of the PBGC. The Company appealed the District court's ruling to the U.S.
Court of Appeals for the Eleventh Circuit which recently ruled against the
Company. At January 27, 1996, the Company has provided a $2,700 liability for
this matter in its consolidated financial statements.
In addition, the Company is a party to various legal and taxing authority
proceedings incidental to its business. In the opinion of management, the
ultimate liability with respect to these actions is not expected to materially
affect the financial position or results of operations of the Company.
Store Expansion
The Company's store expansion activities are primarily accomplished through
the lease of facilities or the acquisition of sites and self-construction.
Commitments involving facilities under construction at January 27, 1996 were
approximately $17,304.
33
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholder's of Bruno's, Inc.:
We have audited the accompanying consolidated balance sheets of Bruno's, Inc.
and Subsidiaries as of January 27, 1996 and the related consolidated statements
of operations, shareholders' investment (deficiency in net assets), and cash
flows for the thirty week period ended January 27, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bruno's,
Inc. and subsidiaries as of January 27, 1996, and the results of their
operations and their cash flows for the thirty week period ended January 27,
1996 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Birmingham, Alabama
April 12, 1996
34
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Bruno's, Inc.:
We have audited the accompanying consolidated balance sheets of BRUNO'S, INC.
(an Alabama corporation) AND SUBSIDIARIES as of July 1, 1995 and July 2, 1994,
and the related consolidated statements of operations, shareholders' investment
and cash flows for each of the three fiscal years in the period ended July 1,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bruno's, Inc. and subsidiaries
as of July 1, 1995 and July 2, 1994 and the results of their operations and
their cash flows for each of the three fiscal years in the period ended July 1,
1995 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Birmingham, Alabama
August 18, 1995
35
<PAGE>
<TABLE><CAPTION>
BRUNO'S INC. AND SUBSIDIARIES
UNAUDITED QUARTERLY FINANCIAL DATA
FOR THE THIRTY WEEK PERIOD ENDED JANUARY 27, 1996, AND THE FISCAL YEARS ENDED JULY 1, 1995 AND JULY 2, 1994
(Amounts in Thousands. Except Per Share Amounts)
Transitional Period Ended
January 27, 1996 (:30 Weeks)
-------------------------------------------------
First Second
12 Weeks 18 Weeks Total
------------- --------------- -----------
<S> <C> <C> <C>
NET SALES $655,180 $1,019,479 $1,674,659
GROSS PROFIT 146,583 236,229 382,812
NET LOSS BEFORE EXTRAORDINARY ITEM (22,234)(1) (54,065)(2) (76,299)
NET LOSS (25,976)(3) (55,225)(3) (81,201)
LOSS PER COMMON SHARE:
Net loss before extraordinary item $ (0.40)(1) $ (1.66)(2) $ (2.06)
Net loss (0.47)(3) (1.72)(3) (2.19)
<CAPTION>
Fiscal Year Ended Ju1y 1, 1995 (52 Weeks)
-------------------------------------------------------------------
First Second Third Fourth
12 Weeks 14 Weeks 14 Weeks 12 Weeks Total
--------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
NET SALES $653,621 $784,120 $763,274 $668,554 $2,869,569
GROSS PROFIT 156,045 185,126 175,028 156,814 673,013
NET INCOME (LOSS) 11,532 14,070 (4,575)(4) 12,315 33,342
EARNINGS PER COMMON SHARE:
Net income (loss) $ 0.15 $ 0.18 $ (0.06)(4) $0.16 $0.43
</TABLE>
36
<PAGE>
<TABLE><CAPTION>
FISCAL YEAR ENDED JULY 2, 1994 (52 WEEKS)
-----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
12 WEEKS 14 WEEKS 14 WEEKS 12 WEEKS TOTAL
---------- ------------ ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
NET SALES $640,911 $768,244 $764,602 $660,931 $2,834,688
GROSS PROFIT 147,831 172,878 173,359 155,033 649,101
NET INCOME BEFORE EXTRAORDINARY ITEM 9,200(5) 9,321 9,441 12,619 40,581
NET INCOME 5,912(6) 9,321 9,441 12,619 37,293
EARNINGS PER COMMON SHARE:
Net income before extraordinary item $0.12 $0.12 $0.12 $0.16 $0.52
Net income 0.08(6) 0.12 0.12 0.16 0.48
</TABLE>
- --------------
(1) Includes merger expenses of $29,610 ($23,510 net of applicable tax
benefit), which the Company believes represent unusual charges to
operations. In addition, the Company's operations were adversely
affected by the Company recognizing a lower level of vendor allowances
in the 1996 period as compared to the 1995 period and by certain non-
recurring product costs.
(2) Includes the effect of certain amounts which the Company considers to
be unusual charges to operations, including (i) a refinement in the
Company's inventory valuation methodology based on additional
available information, (ii) the Company increasing its estimated
liability for self insurance claims by $15,000 due to a revised
management estimate, (iii) a $5,135 write off of a deposit made in
1992 for three proposed stores which were not developed and which the
Company has concluded will not be applied to the development of
future stores, (iv) the accrual of $2,700 as a result of the Company
recently losing a court appeal related to a claim by the Pension
Benefit Guaranty Corporation concerning the termination of an
employee pension plan in 1989, (v) an increase in the accrual related
to future lease and other obligations on closed stores of $2,626
reflecting a change in management's assumptions with respect to
anticipated future lease income, (vi) a $2,500 write off of leasehold
improvements and equipment recently determined to have no value in
stores which have been remodeled, (vii) the write off of a $1,800
deposit made by the Company for medical benefits under a union plan
which, upon execution of the related union contract in November 1995,
was determined not to have benefit beyond the current period, (viii)
a $3,000 charge to depreciation related to a change in estimated
depreciable lives of certain technology equipment, (ix) an impairment
loss of $35,411 related to the early adoption of Statement of
Financial Accounting Standard No. 121 and other impairment charges,
and (x) miscellaneous charges of $1,827. These charges total $77,861.
In addition, the Company's operations were adversely affected by the
Company recognizing a lower level of vendor allowances in the 1996
period as compared to the 1995 period.
(3) During the 12 week and 18 week periods of the transitional period ended
January 27, 1996, the Company recognized extraordinary losses on the
early extinguishment of debt of $3,742 ($.07 per share) and $1,160 ($.06
per share), net of the applicable tax benefits.
(4) In the third quarter of the fiscal year ended July 1, 1995, the
Company completed an actuarially based evaluation of self insurance
reserves for workers' compensation and general liability claims.
Based on this evaluation, an adjustment to increase recorded reserves
by $22,178 ($13,750 net of income taxes) was recorded as a change in
accounting estimate.
(5) In the first quarter of the fiscal year ended July 2, 1994 the
Company recorded an additional tax provision of $2,224 to
retroactively restate the current and deferred income tax liabilities
to reflect the change in federal income tax rates from 34.0% to 35.0%
in connection with the Omnibus Budget Reconciliation Act of 1993.
(6) In the first quarter of the fiscal year ended July 2, 1994 the
Company redeemed $142,750 of its Convertible Subordinated Debentures.
The early extinguishment of this debt resulted in an extraordinary
loss of $3,288 ($.04 per share), net of the applicable tax benefit.
37
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On September 28, 1995, the Company dismissed Arthur Andersen LLP as its
independent accountants. The reports of Arthur Andersen LLP on the financial
statements for the past two years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle. The Company's Audit Committee participated in and approved
the decision to change independent accountants.
In connection with its audit for the two most recent fiscal years and through
September 28, 1995, there have been no disagreements with Arthur Andersen LLP on
any matter of accounting principle or practice, financial statements disclosure,
or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Arthur Andersen LLP, would have caused them to make reference in
their report on the financial statements for such years.
The Company has requested that Arthur Andersen LLP furnish it with a letter
addressed to the SEC stating whether or not it agrees with the above statements.
A copy of such letter, dated September 29, 1995, is filed as Exhibit 16 to this
Form 10-K.
The Company engaged Deloitte & Touche LLP as its new independent accountants
and tax advisors as of September 28, 1995. During the two most recent years and
through September 28, 1995, the Company has not consulted with Deloitte & Touche
LLP on items which (1) were or should have been subject to SAS 50 or (2)
concerned the subject matter of a disagreement or reportable event with the
former auditor (as described in Regulation SK Item 304(a)(2)).
38
<PAGE>
PART III
<TABLE><CAPTION>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Positions Held During Previous Five Years
- ---- --- -----------------------------------------
<S> <C> <C>
William J. Bolton 49 Chairman of the Board of Directors and Chief
Executive Officer of the Company since August
1995. President of Jewel Food Stores from 1991 to
August 1995 and Chief Operating Officer-Markets
of American Stores Company from April 1995 to
August 1995.
Henry R. Kravis 52 Director of the Company since August 1995.
Founding Partner, KKR. Member of the Board of
Directors of American Re Corporation, AutoZone,
Inc., Borden, Inc., Duracell International Inc.,
Flagstar Companies, Inc., Flagstar Corporation,
IDEX Corporation, K-III Communications Corp.,
Merit Behavioral Care Corporation, Newsquest
Capital plc, Owens-Illinois, Inc., Owens-Illinois
Group, Inc., Safeway Inc., The Stop & Shop
Companies, Inc., Union Texas Petroleum Holdings,
Inc., Walter Industries, Inc. and World Color
Press, Inc.
George R. Roberts 52 Director of the Company since August 1995.
Founding Partner, KKR. Member of the Board of
Directors of AutoZone, Inc., Borden, Inc.,
Duracell International Inc., Flagstar Companies,
Inc., Flagstar Corporation, IDEX Corporation, K-
III Communications Corp., Merit Behavioral Care
Corporation, Newsquest Capital plc, Owens-
Illinois, Inc., Owens-Illinois Group, Inc., Red
Lion Properties, Inc., Safeway Inc., The Stop &
Shop Companies, Inc., Union Texas Petroleum
Holdings, Inc., Walter Industries, Inc. and World
Color Press, Inc.
Paul E. Raether 49 Director of the Company since August 1995.
General Partner, KKR. Member of the Board of
Directors of Duracell International Inc.,
Flagstar Companies, Inc., Flagstar Corporation,
Fred Meyer, Inc., IDEX Corporation, and The Stop
& Shop Companies, Inc.
James H. Greene, Jr. 45 Director of the Company since August 1995.
General Partner, KKR. Member of the Board of
Directors of Owens-Illinois, Inc., Owens-Illinois
Group, Inc., Safeway Inc., The Stop & Shop
Companies, Inc., Union Texas Petroleum Holdings,
Inc. and The Vons Companies, Inc.
Robert G. Tobin 57 Director of the Company since September 1995.
Chairman of the Board of Directors, Chief
Executive Officer and President of The Stop &
Shop Companies, Inc. Member of the Board of
Directors of First Brands Corporation.
Ronald G. Bruno 43 Director of the Company since 1983. Chairman of
the Board from December 1991 to August 1995,
Chief Executive Officer of the Company from
October 1990 to August 1995 and President of the
Company from 1986 to 1994. Member of the Board of
Directors of SouthTrust Bank of Alabama, Books-A-
Million, Inc. and Russell Corp.
Nils P. Brous 31 Director of the Company since August 1995.
Executive of KKR since November 1992. Prior
thereto, Associate, Goldman, Sachs & Co. Member
of the Board of Directors of Canadian General
Insurance Group Limited and Granum
Communications, Inc.
David B. Clark 43 Senior Vice President - Operations since November
1995. Executive Vice President - Merchandising
39
<PAGE>
and Operations, Cub Food Stores/Super Valu, Inc.
from 1992 to November 1995. Executive Vice
President, Jewel Osco Southwest Division of
American Stores, Inc. from 1991-1992. Prior
thereto, Senior Vice President - Marketing,
Skaggs Alpha Beta (predecessor to Jewel Osco
Southwest Division).
W. David Walters 47 Vice President, Controller and Acting Chief
Financial Officer since March 1996. Chief
Financial Officer, ABCO Markets, Inc. from 1992
to March 1996. Prior thereto, Vice President and
Controller, Jewel Osco Southwest Division of
American Stores, Inc.
Michael F. Heintzman 42
Senior Vice President - Merchandising since
October 1995. Vice President - Merchandising, The
Kroger Co. (Michigan marketing area) from 1993 to
October 1995. Director Perishable Merchandising,
Kroger Food Stores and The Kroger Co. from 1991
to 1993. Prior thereto, Manager-Perishable
Merchandising, The Kroger Co. (Atlanta Division).
Lisa R. Kranc 42 Senior Vice President - Marketing since January
1996. Vice President -Marketing, Giant Eagle,
Inc. from 1992 to January 1996. Prior thereto,
Brand Management - Alberto Culver, Inc.
R. Michael Conley 44 Secretary since July 1992, Corporate Counsel
since July 1989 and Assistant Secretary from 1988
to July 1992.
Directors shall be elected by the shareholders at each annual meeting
(except directors may be elected at special meetings, such as the one held to
approve the Merger on August 18, 1995) and shall hold office until the next
annual meeting of shareholders. The Company's officers serve at the pleasure of
the Board of Directors.
Ronald G. Bruno has agreed to serve as a Director until August 18, 1998,
subject to the customary right of a director to resign, pursuant to a
Stockholders Agreement executed in connection with the Merger Agreement.
Messrs. Kravis and Roberts are first cousins.
40
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or accrued by the
Company during the Transition Period and the previous two fiscal years for (i)
William J. Bolton, the Chief Executive Officer and Chairman of the Board of
Directors, and the other four most highly compensated executive officers of
the Company as of the end of the Transition Period, (ii) Ronald G. Bruno, who
was succeeded as Chief Executive Officer and Chairman of the Board of Directors
by Mr. Bolton and (iii) Paul F. Garrison and Glenn J. Griffin, each of whom
resigned as executive officers of the Company during the Transition Period.
</TABLE>
<TABLE><CAPTION>
Long-Term
Compensation
Transition Period Compensation Awards
----------------------------------------- ----------
Other Options by
Compensation Number
Name/Position Year Salary (1) Bonus (2) (3) of shares
- ---------------------------------------- ------------------ --------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
William J. Bolton Transition 1996 $ 169,200 $300,000 $-0- -0-
Chairman of the Board and CEO
David Clark Transition 1996 $ 47,439 $ 30,000 $-0- -0-
Senior Vice President - Operations
Michael F. Heintzman Transition 1996 $ 53,644 $ 25,000 $-0- -0-
Senior Vice President -
Merchandising
Lisa R. Kranc Transition 1996 $ 6,731 $ -0- $-0- -0-
Senior Vice President -
Marketing
R. Michael Conley Transition 1996 $ 107,700 $ 12,150 $ 49,898 -0-
Secretary Fiscal 1995 135,000 67,500 -0- 17,500
Fiscal 1994 110,000 16,500 -0- 17,500
Fiscal 1993 90,000 13,500 -0- 17,500
Ronald G. Bruno, Transition 1996 $ 118,800 $ -0- $172,945 -0-
Former Chairman of the Board and CEO Fiscal 1995 325,000 162,500 -0- 50,000
Fiscal 1994 300,000 45,000 -0- 50,000
Fiscal 1993 305,769 45,000 -0- 50,000
Paul F. Garrison, Transition 1996 $ 164,500 -0- $ 79,017 -0-
Former President & Chief Operating Officer Fiscal 1995 290,000 $145,000 -0- 25,000
Fiscal 1994 260,381 39,250 -0- 25,000
Fiscal 1993 259,904 38,250 -0- 25,000
Glenn J. Griffin, Transition 1996 $ 144,700 -0- $ 79,017 -0-
Former Executive Vice President, Fiscal 1995 255,000 $127,500 -0- 25,000
CFO and Treasurer Fiscal 1994 235,000 35,250 -0- 25,000
Fiscal 1993 239,520 35,250 -0- 25,000
<CAPTION>
All other Compensation
------------------------------
Deferred Employment Profit
Compensation Continuity Sharing
Name/Position (4) (5) (6)
- ---------------------------------------- --------- -------- -------
<S> <C> <C> <C>
William J. Bolton N/A -0- N/A
Chairman of the Board and CEO
David Clark N/A -0- N/A
Senior Vice President - Operations
Michael F. Heintzman N/A -0- N/A
Senior Vice President -
Merchandising
Lisa R. Kranc N/A -0- N/A
Senior Vice President -
Marketing
R. Michael Conley $730,900 $404,983 $2,200
Secretary 5,377 -0- 3,000
4,725 -0- 5,060
17,153 -0- 2,070
Ronald G. Bruno, $1,700,300 $895,005 $2,400
Former Chairman of the Board and CEO -0- -0- 3,000
-0- -0- 11,617
51,607 -0- 7,015
Paul F. Garrison, $ 390,700 $818,052 $3,000
Former President & Chief Operating Officer 358,998 -0- 3,000
38,624 -0- 10,709
235,841 -0- 5,963
Glenn J. Griffin, $1,184,000 $722,052 $2,900
Former Executive Vice President, CFO and 29,028 -0- 3,000
Treasuer 7,838 -0- 10,122
70,077 -0- 5,495
</TABLE>
(1) The amounts listed in this column reflect the services provided during the
Transition Period (i) by William J. Bolton beginning August 21, 1995, David
Clark beginning November 13, 1995, Michael F. Heintzman beginning October
22, 1995 and Lisa R. Kranc beginning January 8, 1996, (ii) by R. Michael
Conley throughout the Transition Period, (iii) by Ronald G. Bruno from July
2, 1995 through August 20, 1995, (iv) by Paul F. Garrison from July 2, 1995
through November 18, 1995 and (v) by Glenn J. Griffin from July 2, 1995
through November 18, 1995.
(2) The amounts listed in this column with respect to Messrs. Bolton, Clark and
Heintzman represent payments of signing bonuses to each such executive upon
the signing of their respective employment contracts. See "Employment
Contracts with Executive Officers", below.
(3) The amounts listed in this column with respect to Messrs. Bruno, Conley,
Garrison and Griffin represent payments by the Company for reimbursement of
tax obligations incurred pursuant to the exercise of Company stock options
in connection with the Merger.
(4) The amounts listed in this column represent the amounts accrued by the
Company under Employment and Deferred Compensation Agreements to provide
for deferred compensation benefits for its executives in connection with
the Merger.
(5) The amounts listed in this column represent the amounts accrued by the
Company under Employment Continuity Agreements to provide for compensation
benefits to certain executives and employees in connection with the "change
of control" precipitated by the Merger.
(6) The amounts listed in this column represent the Company's contributions
under its Profit Sharing Plan.
41
<PAGE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Company, whose members are listed below,
is composed entirely of non-employee Directors. The Committee reviews and
approves all compensation arrangements for executive officers and, in that
regard, has developed compensation policies for the executives which seek to
enhance the profitability of the Company with an appropriate balance between
long-term and short-term profitability goals and to assure the ability of the
Company to attract and retain executive employees with competitive compensation.
Actions by the Committee are reported to the Board and, in appropriate cases,
ratified by the Board prior to implementation.
The compensation program of the Company seeks specifically to motivate the
executives of the Company to achieve objectives which benefit the Company within
their respective areas of responsibility, with particular emphasis on continued
growth in revenues, expense control, operating efficiency, and the ultimate
realization of profits for the Company, approximately equal weight being given
to each of these criteria in evaluating performance.
Base salary levels for the Company's executive officers, including the Chief
Executive Officer, are set so that the overall cash compensation package for
executive officers, including bonus opportunity, compares favorably to companies
with which the Company competes for executive talent. In determining salaries,
the Compensation Committee also takes into account a number of factors, which
primarily include individual experience and performance, the officer's level of
responsibility, the cost of living and historical salary levels. The measures of
individual performance considered include, to the extent applicable to an
individual executive officer, a number of quantitative and qualitative factors
such as the Company's historical and recent financial performance, the
individual's achievement of particular nonfinancial goals within his or her
responsibility, and other contributions made by the officer to the Company's
success. The Compensation Committee has not found it practicable to, and has not
attempted to, assign relative weights to the specific factors considered in
determining base salary levels, since the specific factors used may vary among
officers. As is typical for most companies, payment of base salary amounts
generally is not conditioned upon the achievement of any specific, pre-
determined performance targets.
In addition to base salary, each executive, including the Chief Executive
Officer, may earn an incentive of up to 100% of such executive's base pay. The
compensation policies of the Company are general and subjective both as to
salary and as to the other components of the compensation program.
The Company's compensation program also includes benefits typically offered
to executives of similar businesses to promote management stability, consisting
of a profit sharing plan, deferred compensation agreements and control change
agreements.
The Transition Period compensation of William J. Bolton, the Company's Chief
Executive Officer and the Transition Period compensation of Ronald G. Bruno, the
Company's former Chief Executive Officer, was based on factors applicable to the
Company's executive officers, discussed above, as well as certain subjective
factors, including the leadership provided by each of them in their role as
Chief Executive Officer. The salaries of all of the executives are set based on
a review of salaries paid by other retail supermarket chains of a similar size
to that of the Company for executives of similar experience and skills. The
Company uses compensation surveys of supermarket retailers as a competitive
reference but does not determine its compensation practices according to survey
salaries.
Legislation enacted in 1993 imposes certain limits on the tax deductibility
of executive compensation. The Committee's policy is to maximize the tax
deductibility of executive compensation to the extent consistent with its
responsibility to effectively compensate executives based on performance.
Compensation Committee
Following the Merger, the Board of Directors of the Company approved the
appointment of a Compensation Committee composed of Paul E. Raether, James H.
Greene, Jr. and Nils P. Brous. Prior to the Merger, the Compensation Committee
was comprised of Richard Cohn, Bart Starr and Judy Merritt, each a director of
the Company at such time.
42
<PAGE>
Compensation Committee Interlocks and Insider Participation
Kohlberg Kravis Roberts & Co ("KKR"), which is an affiliate of KKR
Associates, may receive investment banking fees for services rendered to the
Company in connection with certain transactions. During the Transition Period,
KKR received a fee of $15 million from the Company for arranging the Merger
and the financing therefor. In addition, KKR renders management,
consulting and financial services to the Company for an annual fee of $1 million
plus expenses; $537,667, including expenses, was paid to KKR during the
Transition Period. Messrs. Raether and Greene are general partners of KKR and
Mr. Brous is an executive of KKR.
Limited partnerships affiliated with KKR (the "Common Stock Partnerships")
hold an aggregate of 20,833,333 million shares of Common Stock as well as
Warrants to acquire 10 million additional shares to be issued upon exercise of
the Warrants. These shares of Common Stock and the Warrants were acquired
pursuant to the Merger in exchange for the stock of Crimson Acquisition Corp.
owned by the Common Stock Partnerships. The Warrants are exercisable at a price
of $12.00 per share, subject to adjustment. The general partner of the Common
Stock Partnerships is KKR Associates, a New York limited partnership of which
Paul E. Raether, and James H. Greene, Jr. are among the general partners. Mr.
Brous is a limited partner of KKR Associates. KKR Associates has sole voting and
investment power with respect to such shares.
The Common Stock Partnerships have the right, under certain circumstances
and subject to certain conditions, to require the Company to register under the
Securities Act of 1933, as amended, shares of Common Stock and Warrants held by
them. The Common Stock Partnerships have both demand and "piggyback"
registration rights. Under the agreements providing for registration rights, the
Company will pay all expenses in connection with any such registration.
Stock Option Plans
Prior to the Merger, the Company maintained an Employee Incentive Stock
Option Plan (the "Pre-Merger Employee Plan") for its employees and a Non-
Employee Director Stock Option Plan (the "Pre-Merger Director Plan" and,
together with the Pre-Merger Employee Plan, the "Pre-Merger Plans"). No options
were granted under the Pre-Merger Plans during the Transition Period. In
connection with the Merger, all options granted under the Pre-Merger Plans
vested and the Pre-Merger Plans were terminated. During the Transition Period,
the Board of Directors approved the establishment of the 1996 Stock Purchase and
Option Plan for Key Employees of Bruno's, Inc. and Subsidiaries (the "1996
Plan"). No options were awarded under the 1996 Plan during the Transition
Period. Following the Transition Period, in connection with the 1996 Plan the
Company and each of William J. Bolton, David Clark, Michael F. Heintzman and
Lisa R. Kranc executed Non-Qualified Stock Option Agreements, pursuant to which
Mr. Bolton, Mr. Clark, Mr. Heintzman and Ms. Kranc were granted options to
purchase, at a price of $12.00 per share, up to 250,000 shares, 62,500 shares,
62,500 shares and 46,875 shares of Common Stock, respectively, which options
shall become exercisable at a rate of 20% per year, subject, with respect to
half of such options, to the attainment of certain annual and cumulative
performance goals.
Aggregated Option Exercises and Option Values
The following table shows information concerning the exercise of stock
options granted pursuant to the Pre-Merger Option Plan during the Transition
Period by each of the named executive officers. Immediately prior to the Merger,
Messrs. Bruno, Garrison, Griffin and Conley exercised options granted to them
pursuant to the Pre-Merger Option Plan. The following table shows information
concerning such the exercise of such options during the Transition Period.
43
<PAGE>
Aggregated Option Exercises During Transition Period and Transition Period-End
Option Values
Shares Number of
Acquired Value Options at
on Exercise Realized Transition
Name (Number) (Dollars) (1) Period-End (2)
--------------- --------------- ------------------------------
William J. Bolton 0 $ 0 0
David Clark 0 0 0
Michael F. Heintzman 0 0 0
Lisa R. Kranc 0 0 0
R. Michael Conley 52,500 138,219 0
Ronald Bruno 150,000 364,550 0
Paul F. Garrison 75,000 189,731 0
Glenn J. Griffin 75,000 189,731 0
(1) The amounts listed in this column represent the dollar value received by
each named executive officer upon exercise of his stock option in exchange
for Common Stock and the subsequent conversion of each share of such Common
Stock into $11.66 cash and 0.28336 shares of Common Stock pursuant to the
terms of the Merger Agreement.
(2) With regard to options awarded and held following the Transition Period,
see "Item 13. Certain Relationships and Related Transactions," below.
Profit Sharing and 401(k) Retirement Plan
The Company maintains a profit sharing and deferred retirement plan pursuant
to Section 401(k) of the Internal Revenue Code of 1986, as amended. All
employees who are not eligible to participate in a union-sponsored or co-
sponsored qualified retirement plan will participate after one year of service
and attainment of age 21.
A separate salary reduction account and matching employer contribution
account are maintained for each plan participant. Participants make
contributions to their salary reduction account on a payroll deduction basis.
The Company makes matching contributions, on a dollar-for-dollar basis, up to
two percent (2%) of compensation, to the employee's matching employer
contribution account. The Company may also make contributions to the employees'
discretionary contribution account on a discretionary basis in an amount
determined annually by the Board of Directors.
All contributions are paid to AmSouth Bank of Alabama, N.A., as Trustee, to
hold, invest and reinvest the funds. All accounts are vested at death,
retirement or disability. Upon termination of service, discretionary accounts
are not vested until the fifth year of service. Subject to certain time and
amount restrictions and tax penalties, participants may make early withdrawals
from their salary reduction accounts. The total of employer and employee
contributions for each participant, annually, cannot exceed the lesser of 25% of
compensation or $30,000.
A participant will be entitled to receive a distribution of his vested
accounts upon termination of employment, including retirement, disability or
death. Payment will be made in the form of either a lump sum or installments
paid over a period of 15 years. A participant's interest in the Company's
discretionary contributions begins to vest in the fourth year and becomes 100%
vested after the participant completes five (5) years of service or upon death,
disability or normal retirement. All other contributions (whether made by the
Company or the participant) are fully vested at all times.
Employment Contracts with Executive Officers
On August 21, 1995, William J. Bolton succeeded Ronald G. Bruno as the
Company's Chairman and Chief Executive Officer. The Company and Mr. Bolton have
entered into an employment agreement pursuant to which Mr. Bolton, among other
things, (i) received a signing bonus of $300,000, (ii) will receive an annual
base salary of $400,000 for three years commencing on September 1, 1995, (iii)
will receive an annual bonus, subject to the attainment of certain performance
goals, in an amount not to exceed 100% of his base salary, (iv) purchased
$1,000,000 of Common Stock at $12.00 per share, which purchase was partially
funded by a loan from the Company, (v) will participate in incentive
compensation plans of the Company, (vi) received relocation expenses and (vii)
will receive the greater of eighteen month's base salary plus 150% of
44
<PAGE>
his target bonus or his base salary for the remainder of his employment
agreement if he quits for good reason or if the Company terminates his
employment without cause.
During the Transition Period, the Company also entered into employment
agreements with each of David Clark, Senior Vice President-Operations, Michael
F. Heintzman, Senior Vice President-Merchandising, and Lisa R. Kranc, Senior
Vice President-Marketing (together, the "New Senior Executives"). Pursuant to
these employment agreements, the New Senior Executives, among other things, (i)
received, with respect to Mr. Clark, a signing bonus of $30,000, and with
respect to Mr. Heintzman, a signing bonus of $25,000, (ii) will receive an
annual base salary of $225,000 for Mr. Clark, $200,000 for Mr. Heintzman and
$175,000 for Ms. Kranc, commencing on January 1, 1996 for Messrs. Clark and
Heintzman (although Mr. Clark and Mr. Heintzman commenced their employment with
the Company prior to such date) and on January 8, 1996 for Ms. Kranc, and
continuing for a period of three years, (iii) will receive an annual bonus,
subject to the attainment of certain performance goals, in an amount not to
exceed 100% of such base salary, (iv) purchased $250,000, $250,000, and $187,500
of Common Stock, respectively, at $12.00 per share, which purchases were
partially funded by a loan from the Company, (v) will participate in incentive
compensation plans of the Company, (vi) received relocation expenses and (vii)
will receive twelve month's base salary if he or she quits for good reason or if
the Company terminates his or her employment without cause.
Other Agreements with Officers and Directors
At the time of the Merger, five current or former executive officers of the
Company, Ronald G. Bruno, Paul F. Garrison, Glenn J. Griffin, Kenneth J. Bruno,
and R. Michael Conley (the "Pre-Merger Executive Officers"), along with 14 other
current or former employees of the Company, were parties to Employment
Continuity Agreements (the "Employment Continuity Agreements") with the Company
which provide for lump sum cash payments equal to three times, in the case of
Ronald G. Bruno, two times, in the case of the other Pre-Merger Executive
Officers, and one time, in the case of the other employees, the sum of his
annual base salary at the time of termination, plus his incentive compensation
bonus for the year preceding termination. Benefits under the Employment
Continuity Agreements were payable if a covered employee's employment is
terminated by the employee for "good reason" or by the Company without "cause"
within one year following a "change of control."
At the time of the Merger, the Pre-Merger Executive Officers were also
parties to Employment and Deferred Compensation Agreements (the "Deferred
Compensation Agreements") with the Company. The Deferred Compensation Agreements
provided for monthly payments of retirement benefits to such persons equal to 5%
of the average annual compensation for the three fiscal years ended immediately
prior to the initial payment date for a period of 180 months upon the earlier of
retirement after age 65, retirement after 25 years of service, disability, death
or the occurrence of an event which would entitle the employee to receive
benefits under his Employment Continuity Agreement. In connection with its
approval of the Merger, the Board of Directors of the Company approved the
payment to the Pre-Merger Executive Officers of a lump sum payment, on
termination of employment, of the benefits payable under the Deferred
Compensation Agreements based on a discount rate of 8% per annum.
Ronald G. Bruno remained as an officer of the Company after the Merger until
the appointment of William J. Bolton as Chief Executive Officer. Kenneth J.
Bruno resigned in late September 1995, Paul F. Garrison resigned in late
November 1995 and Glenn J. Griffin resigned in late November 1995. R. Michael
Conley has continued in the employ of the Company following the Merger in order
to accomplish in an orderly fashion the transition of ownership of the Company
contemplated by the Merger Agreement. In general, if Mr. Conley remains in the
employ of the Company for at least one year following August 18, 1995 (or such
shorter period as may be determined by the Board of Directors of the Company, as
was the case with respect to Messrs. Ronald Bruno, Garrison, Griffin and Kenneth
Bruno), he will be entitled to receive, on the earlier of (i) the thirtieth day
after his replacement has commenced employment and (ii) August 18, 1996 (the
"Date of Payment"), and each of Messrs Ronald Bruno, Garrison, Griffin and
Kenneth Bruno have received, any amounts that would have been payable to him
under the terms of his Employment Continuity Agreement as of the end of the
fiscal year ending on July 1, 1995 if he had been terminated by the Company
without Good Cause (as defined in the Employment Continuity Agreement) together
with the retirement benefit that would have been payable to him under the terms
of the relevant Deferred Compensation Agreement; provided that commencing on
August 18, 1995 and continuing during the post-Merger employment period, Mr.
Conley shall receive from the Company a monthly salary based on 13 pay periods
equal to his total base salary and bonus for the fiscal year ended July 1, 1995,
divided by 13 (provided that no further bonus or incentive compensation shall be
payable for such periods).
45
<PAGE>
Shares of Common Stock held by officers and Directors of the Company on the
date of the Merger were converted into the right to receive the same
consideration as shares of Common Stock held by other shareholders. Company
stock options held by officers and Directors of the Company were treated in the
same manner as Company stock options held by other shareholders, except that no
such officer or Director was entitled to a direct cash payment of the excess of
$12.00 over the exercise price per share of such Company stock option. See
"Aggregated Option Exercises and Option Values", above.
Company stock options held by five former non-employee Directors of the
Company at the time of the Merger (Benny M. LaRussa, Jr., Richard Cohn, Judy M.
Merritt, J. Mason Davis, Jr. and Bart Starr), which had not as yet vested,
vested as a result of the Merger, providing a benefit above the exercise price
of those options of approximately $77,500 to each of such non-employee Directors
for an aggregate gain of approximately $387,500.
Pursuant to the Merger Agreement, the Company has agreed to indemnify all
former Directors and officers of the Company and its subsidiaries and, subject
to certain limitations, to maintain the directors' and officers' insurance and
indemnification policy in effect on the date of the Merger, for six years
following the date of the Merger.
Compensation of Directors
Each member of the Board of Directors at the end of the Transition Period
was paid a director's fee of $12,500 for his services from the date of the
Merger through the end of the Transition Period. In addition, the Company paid
$3,000 to each of Benny M. LaRussa Jr., Richard Cohn, Judy M. Merritt, J. Mason
Davis and Bart Starr for their services as Directors of the Company from the
beginning of the Transition Period through the date of the Merger. The Executive
Committee, Audit Committee and the Compensation Committee are the only
committees of the Board of Directors.
Shareholder Return
The following graph provides a comparison of the five-year cumulative total
return for the Company, the Standard & Poor's 500 Index, and a peer group of
23 companies(1). The comparison covers the period from the last trading day
prior to the end of Bruno's fiscal year ended June 30, 1990 to the last trading
day prior to the end of the Transition Period and assumes that $100 was invested
at the beginning of such time span. The returns of each company have been
weighted according to the companies' respective stock market capitalization.
(1) The selected peer group consists of the following companies: Albertson's,
Inc., American Stores Co., Buttery Food and Drug Co., Delchamps, Inc.,
Eagle Food Centers, Food Lion, Inc., Giant Food, Inc., Great Atlantic and
Pacific Tea Co., Hannaford Brothers Company, Ingles Markets, Kroger Co.,
Marsh Supermarkets, Ruddick Corp., Safeway, Inc., Seaway Food Town,
Smith's Food & Drug Centers, Inc., Southland Corp., The Stop & Shop
Companies, Inc., Supervalu, Inc., Village Supermarkets, Inc., Vons
Companies, Weis Markets, Inc, and Winn Dixie Stores, Inc.
[Graph]
June 30, June 29, June 27, July 3, July 2, July 1, January 27,
1990 1991 1992 1993 1994 1995 1996
-------- -------- -------- ------- ------- ------- ----------
Bruno's $100 $125.55 $ 89.25 $ 63.16 $ 50.16 $ 82.58 $ 73.70
S&P 500 100 107.40 121.80 138.40 140.35 176.94 209.40
Peer Group 100 113.51 103.41 119.27 121.24 137.98 156.26
46
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of March 1, 1996 by (i) each director, (ii) the
Chief Executive Officer and each of the other four most highly compensated
executive officers of the Company during the Transition Period, (iii) all
executive officers and directors as a group and (iv) the Company's principal
stockholders. Other than as set forth in the table below, there are no persons
known to the Company to beneficially own more than 5% of the Common Stock.
Amount &
Nature of
Name and Address Beneficial Percentage of
of Beneficial Owner Ownership Common Stock
---------------------------------------- ------------- -------------
Common Stock
------------
KKR Associates . . . . . . . . . . . . 30,833,333 (1)(2) 88%
9 West 57th Street
New York, NY 10019
William J. Bolton . . . . . . . . . . . 83,333(3) *
P.O. Box 2486
Birmingham, AL 35201
Henry R. Kravis . . . . . . . . . . . . ----- -----
9 West 57th Street
New York, NY 10019
George R. Roberts . . . . . . . . . . . ----- -----
2800 Sand Hill Road
Suite 200
Menlo Park, CA 94025
Paul E. Raether . . . . . . . . . . . . ----- -----
9 West 57th Street
New York, NY 10019
James H. Greene, Jr. . . . . . . . . . ----- -----
2800 Sand Hill Road
Suite 200
Menlo Park, CA 94025
Ronald G. Bruno . . . . . . . . . . . . 85,118(4) *
Two Perimeter Park South
Suite 300 East
Birmingham, AL 35243
Robert G. Tobin . . . . . . . . . . . . ----- -----
1385 Hancock Street
Quincy, MA 02169
Nils P. Brous . . . . . . . . . . . . . ----- -----
9 West 57th Street
New York, NY 10019
47
<PAGE>
David Clark . . . . . . . . . . . . . . 20,833(3) *
P.O. Box 2486
Birmingham, AL 35201
Michael F. Heintzman . . . . . . . . . 20,833(3) *
P.O. Box 2486
Birmingham, AL 35201
Lisa R. Kranc . . . . . . . . . . . . . 15,625(3) *
P.O. Box 2486
Birmingham, AL 35201
R. Michael Conley . . . . . . . . . . . 1,710 *
P.O. Box 2486
Birmingham, AL 35201
W. David Walters . . . . . . . . . . . ----- -----
P.O. Box 2486
Birmingham, AL 35201
All executive officers and 233,237 *
directors as a group (15
persons) (5) . . . . . . . . . . . .
___________________
* Owns less than 1% of the total outstanding Common Stock.
(1) Shares of Common Stock shown as owned by KKR Associates are owned of record
by limited partnerships affiliated with KKR (the "Common Stock
Partnerships") of which KKR Associates is the sole general partner and as
to which it possesses sole voting and investment power. Messrs. Kravis,
Roberts, Raether and Greene (all of whom are directors of the Company) and
Robert I. MacDonnell, Michael W. Michelson, Saul A. Fox, Michael T. Tokarz,
Perry Golkin, Clifton S. Robbins, Scott M. Stuart and Edward A. Gilhuly, as
the general partners of KKR Associates, may be deemed to share beneficial
ownership of such shares. Nils Brous is a limited partner of KKR
Associates. Each of these individuals disclaims beneficial ownership of any
shares owned by KKR Associates. Robert G. Tobin is a limited partner of one
of the Common Stock Partnerships.
(2) Includes 10 million shares that will be issued by the Company upon exercise
of the Warrants.
(3) See "Employment Contracts with Executive Officers", above.
(4) Includes 33,024 shares owned directly by Ronald G. Bruno, 283 shares owned
jointly with his wife, 176 shares owned by his wife, 1,325 shares held as a
Trustee for his minor son and 50,310 shares held as co-trustee for various
family members.
(5) Includes shares owned by the above-named executive officers and directors,
as well as those owned by Paul F. Garrison and Glenn J. Griffin, each a
former officer and director of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Following the Transition Period, in connection with the 1996 Plan the
Company and each of William J. Bolton, David Clark, Michael F. Heintzman and
Lisa R. Kranc executed (i) Management Stockholder's Agreements, pursuant to
which, among other things, such officers purchased 83,333, 20,833, 20,833 and
15,625 shares of Common Stock (the "Management Shares") at a purchase price of
$12.00 per share and received certain registration rights with respect to such
Common Stock
48
<PAGE>
and (ii) Non-Qualified Stock Option Agreements, pursuant to which Mr. Bolton,
Mr. Clark, Mr. Heintzman and Ms. Kranc were granted options to purchase, at a
price of $12.00 per share, up to 250,000 shares, 62,500 shares, 62,500 shares
and 46,875 shares of Common Stock, respectively, which options shall become
exercisable at a rate of 20% per year, subject, with respect to half of such
options, to the attainment of certain annual and cumulative performance goals.
In connection with their purchases of the Management Shares pursuant to the
1996 Plan, the Company extended loans on February 15, 1996 to Mr. Bolton, Mr.
Heintzman and Ms. Kranc, and on March 13, 1996 to Mr. Clark, in the amounts of
$443,253, $125,000, $93,750 and $125,000, respectively. Each loan accrues
interest at 5.65%, is payable upon the disposition of any of the Management
Shares by each such executive and is secured by the Common Stock held by each
such executive.
KKR, which is an affiliate of KKR Associates, may receive investment
banking fees for services rendered to the Company in connection with certain
transactions. During the Transition Period, KKR received a fee of $15 million
from the Company for arranging the Merger and the financing therefor. In
addition, KKR renders management, consulting and financial services to the
Company for an annual fee of $1 million plus expenses; $537,667, including
expenses, was paid to KKR during the Transition Period. Messrs. Raether and
Greene are general partners of KKR and Mr. Brous is an executive of KKR.
The Common Stock Partnerships hold an aggregate of 20,833,333 million shares
of Common Stock as well as Warrants to acquire 10 million additional shares to
be issued upon exercise of the Warrants. These shares of Common Stock and the
Warrants were acquired pursuant to the Merger in exchange for the stock of
Crimson Acquisition Corp. owned by the Common Stock Partnerships. The Warrants
are exercisable at a price of $12.00 per share, subject to adjustment. The
general partner of the Common Stock Partnerships is KKR Associates, a New York
limited partnership of which Henry R. Kravis, George R. Roberts, Paul E.
Raether, Robert I. MacDonnell, Michael W. Michelson, Saul A. Fox, James H.
Greene, Jr., Michael T. Tokarz, Perry Golkin, Clifton S. Robbins, Scott M.
Stuart and Edward A. Gilhuly are the general partners. KKR Associates has sole
voting and investment power with respect to such shares.
The Common Stock Partnerships have the right, under certain circumstances
and subject to certain conditions, to require the Company to register under the
Securities Act of 1933, as amended, shares of Common Stock and Warrants held by
them. The Common Stock Partnerships have both demand and "piggyback"
registration rights. Under the agreements providing for registration rights, the
Company will pay all expenses in connection with any such registration. The
Common Stock Partnership have informed the Company that they have no present
intention of exercising their registration rights.
Prior to becoming a Director of the Company, Robert G. Tobin received a fee
of $200,000 from the Company for services rendered in connection with the
Merger.
During the Transition Period, the Company purchased $133,622.12 of inventory
from C&M Food Distributors, Inc., a corporation which is owned by Benny M.
LaRussa, Jr., a former director of the Company, and his children.
49
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following is an index of the financial statements, schedules and
exhibits included in this Report or Incorporated herein by reference:
(a) 1. Financial Statements:
Consolidated Balance Sheets as of January 27, 1996, July 1, 1995 and July
2, 1994.
Consolidated Statements of Operations for the Transition Period Ended
January 27, 1996 and the Fiscal Years Ended July 1, 1995, July 2, 1994 and
July 3, 1993.
Consolidated Statements of Shareholders' Investment (Deficiency in Net
Assets) for the Transition Period Ended January 27, 1996 and the Fiscal
Years Ended July 1, 1995, July 2, 1994 and July 3, 1993.
Consolidated Statements of Cash Flows for the Transition Period Ended
January 27, 1996 and the Fiscal Years Ended July 1, 1995, July 2, 1994 and
July 3, 1993.
Notes to Consolidated Financial Statements
Reports of Independent Public Accountants
Management's Report
Unaudited Quarterly Financial Data
2. Schedules to Financial Statements
None
3. Exhibits
The following is an index of the exhibits included in this Annual Report on
Form 10-K or incorporated herein by reference:
2 Agreement and Plan of Merger dated as of April 20, 1995 between Crimson
Acquisition Corp. and Bruno's, Inc. (the "Company"), as amended on
May 18, 1995 (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K dated April 27, 1995 and Exhibit 10.1 to the Current
Report on Form 8-K/A dated May 18, 1995).
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's Annual
Report on Form 10-K, dated July 1, 1995).
3.2 By-Laws of the Company (incorporated by reference to Exhibit 3.2 to
the Company's Annual Report on Form 10-K, dated July 1, 1995).
4.1 Indenture, dated as of August 18, 1995, between the Company and Marine
Midland Bank, as Trustee (incorporated by reference to Exhibit 4.2 to
the Current Report on Form 8-K/A dated August 24, 1995).
4.2 First Supplemental Indenture, dated as of August 18, 1995, between the
Issuer and Marine Midland Bank, as Trustee, relating to the issuance
and sale of $400,000,000 aggregate principal amount of 10-1/2% Senior
Subordinated Notes due 2005 (incorporated by reference to Exhibit 4.7
to the Current Report on Form 8-K/A dated August 24, 1995).
4.3 Warrant, dated August 18, 1995, to purchase 9,917,400 shares of Common
Stock of the Company (incorporated by reference to Exhibit 4.3 to the
Company's Annual Report on Form 10-K, dated July 1, 1995).
50
<PAGE>
4.4 Warrant, dated August 18, 1995, to purchase 82,600 shares of Common
Stock of the Company (incorporated by reference to Exhibit 4.4 to the
Company's Annual Report on Form 10-K, dated July 1, 1995).
4.5 Registration Rights Agreement, dated August 18, 1995, among Crimson
Acquisition Corp., Crimson Associates, L.P. ("Crimson Associates")
and KKR Partners II, L.P. ("KKR Partners II") (incorporated by
reference to Exhibit 4.5 to the Company's Annual Report on Form 10-K,
dated July 1, 1995).
10.1 Credit Agreement, dated as of August 18, 1995, among the Issuer, the
several lenders from time to time parties thereto and Chemical Bank,
as Administrative Agent (incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K/A dated August 24, 1995).
10.2 Amended and Restated Group Term Life Insurance Plan of Bruno's, Inc.,
dated March 15, 1984 (incorporated by reference to Exhibit 10(h) of
the Company's Annual Report on Form 10-K, dated August 27, 1985).
10.3 Second Amended and Restated Bruno's, Inc. Employee Stock Option Plan
dated October 20, 1989 (incorporated by reference to Exhibit 28 of
Amendment No. 2 to the Form S-8 Registration Statement (No. 2-81642)
of the Company).
10.4 Bruno's, Inc. Profit Sharing Retirement Plan (incorporated by
reference to Exhibit 10(h) of the Company's Annual Report on Form 10-
K, dated August 9, 1989).
10.5 Form of Restricted Stock Bonus Plan of Bruno's, Inc. (incorporated by
reference to Exhibit 10(o) of the Company's Annual Report on Form 10-
K, dated September 30, 1988).
10.6 Joint Venture Agreement for PM Associates between SSS Enterprises,
Inc. and Metropolitan Life Insurance Company (incorporated by
reference to Exhibit 10.2 to Form S-1 (No. 33-12239) of Piggly Wiggly
Southern, Inc.).
10.7 Bruno's Inc. Employee Incentive Stock Option Plan, approved by the
Company's Board of Directors on May 6, 1993 (incorporated by
reference to Exhibit 10(s) to the Company's Annual Report on Form 10-
K, dated September 29, 1993).
10.8 Employment and Deferred Compensation Agreement, dated July 22, 1994,
between the Company and Ronald G. Bruno (incorporated by reference to
Exhibit 10(h) to the Company's Annual Report on Form 10-K, dated
September 29, 1994).
10.9 Employment and Deferred Compensation Agreement, dated July 22, 1994,
between the Company and Paul F. Garrison (incorporated by reference
to Exhibit 10(i) to the Company's Annual Report on Form 10-K, dated
September 29, 1994).
10.10 Employment and Deferred Compensation Agreement, dated July 22, 1994,
between the Company and Glenn J. Griffin (incorporated by reference
to Exhibit 10(j) to the Company's Annual Report on Form 10-K, dated
September 29, 1994).
10.11 Employment and Deferred Compensation Agreement, dated July 22, 1994,
between the Company and Kenneth J. Bruno (incorporated by reference
to Exhibit 10(k) to the Company's Annual Report on Form 10-K, dated
September 29, 1994).
10.12 Employment and Deferred Compensation Agreement, dated July 22, 1994,
between the Company and R. Michael Conley (incorporated by reference
to Exhibit 10(l) to the Company's Annual Report on Form 10-K, dated
September 29, 1994).
10.13 Employment Continuity Agreement, dated July 22, 1994, between the
Company and Ronald G. Bruno (incorporated by reference to Exhibit
10(m) to the Company's Annual Report on Form 10-K, dated September
29, 1994).
10.14 Employment Continuity Agreement, dated July 22, 1994, between the
Company and Paul F. Garrison (incorporated by reference to Exhibit
10(n) to the Company's Annual Report on Form 10-K, dated September
29, 1994).
<PAGE>
51
10.15 Employment Continuity Agreement, dated July 22, 1994, between the
Company and Glenn J. Griffin (incorporated by reference to Exhibit
10(o) to the Company's Annual Report on Form 10-K, dated September
29, 1994).
10.16 Employment Continuity Agreement, dated July 22, 1994, between the
Company and Kenneth J. Bruno (incorporated by reference to Exhibit
10(p) to the Company's Annual Report on Form 10-K, dated September
29, 1994).
10.17 Employment Continuity Agreement, dated July 22, 1994, between the
Company and R. Michael Conley (incorporated by reference to Exhibit
10(q) to the Company's Annual Report on Form 10-K, dated September
29, 1994).
10.18 Amendment to 1994 Employment and Deferred Compensation Agreement
dated June 9, 1995, by and between the Company and Ronald G. Bruno
(incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K dated June 22, 1995).
10.19 Amendment to 1994 Employment and Deferred Compensation Agreement
dated June 9, 1995, by and between the Company and Paul F. Garrison
(incorporated by reference to Exhibit 10.2 to the Current Report on
Form 8-K dated June 22, 1995).
10.20 Amendment to 1994 Employment and Deferred Compensation Agreement
dated June 9, 1995, by and between the Company and Glenn J. Griffin
(incorporated by reference to Exhibit 10.3 to the Current Report on
Form 8-K dated June 22, 1995).
10.21 Amendment to 1994 Employment and Deferred Compensation Agreement
dated June 9, 1995, by and between the Company and Kenneth J. Bruno
(incorporated by reference to Exhibit 10.4 to the Current Report on
Form 8-K dated June 22, 1995).
10.22 Amendment to 1994 Employment and Deferred Compensation Agreement,
dated June 9, 1995, by and between the Company and R. Michael Conley
(incorporated by reference to Exhibit 10.5 to the Current Report on
Form 8-K dated June 22, 1995).
10.23 Amendment to Employment Continuity Agreement, dated June 9, 1995, by
and between the Company and Ronald G. Bruno (incorporated by
reference to Exhibit 10.6 to the Current Report on Form 8-K dated
June 22, 1995).
10.24 Amendment to Employment Continuity Agreement, dated June 9, 1995, by
and between the Company and Paul F. Garrison (incorporated by
reference to Exhibit 10.7 to the Current Report on Form 8-K dated
June 22, 1995).
10.25 Amendment to Employment Continuity Agreement, dated June 9, 1995, by
and between the Company and Glenn J. Griffin (incorporated by
reference to Exhibit 10.8 to the Current Report on Form 8-K dated
June 22, 1995).
10.26 Amendment to Employment Continuity Agreement, dated June 9, 1995, by
and between the Company and Kenneth J. Bruno (incorporated by
reference to Exhibit 10.9 to the Current Report on Form 8-K dated
June 22, 1995).
10.27 Amendment to Employment Continuity Agreement, dated June 9, 1995, by
and between the Company and R. Michael Conley (incorporated by
reference to Exhibit 10.10 to the Current Report on Form 8-K dated
June 22, 1995).
10.28 Employment Agreement, dated August 21, 1995, between the Company and
William J. Bolton (incorporated by reference to Exhibit 10.29 to the
Company's Annual Report on Form 10-K, dated July 1, 1995).
10.29 Employment Agreement, dated February 6, 1996, between the Company and
David Clark.
10.30 Employment Agreement, dated January 20, 1996, between the Company
and Michael F. Heintzman.
10.31 Employment Agreement, dated December 18, 1995, between the Company
and Lisa R. Kranc.
52
<PAGE>
10.32 1996 Stock Purchase and Option Plan for Key Employees of Bruno's,
Inc. and Subsidiaries.
10.33 Management Stockholder's Agreement, dated as of February 15, 1996,
between the Company and William J. Bolton.
10.34 Non-Qualified Stock Option Agreement, dated as of February 15, 1996,
between the Company and William J. Bolton.
10.35 Schedule of Terms of Management Stockholder's Agreements and Non-
Qualified Stock Option Agreements executed by each of David Clark,
Michael F. Heintzman and Lisa R. Kranc.
16 Letter re change in certifying accountant.
22 List of Subsidiaries (incorporated by reference to Exhibit 22 to the
Company's Annual Report on Form 10-K, dated July 1, 1995).
24.1 Consent of Deloitte & Touche LLP.
24.2 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
53
<PAGE>
(b) Reports on Form 8-K:
During the period from September 23, 1995 until January 27, 1996, the
following reports on Form 8-K were filed by the Company:
Current Report on Form 8-K dated September 29, 1995 (change in Company's
certifying accountant)
Current Report on Form 8-K dated December 21, 1995 (change in Company's
fiscal year)
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Bruno's, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BRUNO'S, INC.
(Registrant)
By /s/ WILLIAM J. BOLTON
--------------------------------
William J. Bolton,
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By /s/ WILLIAM D. WALTERS
--------------------------------
William D. Walters
Vice President, Acting Chief
Financial Officer and Controller
(Principal Financial Officer and
Controller)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Signature Capacity Date
------------- ------------ ------
/s/ WILLIAM J. BOLTON Director, Chairman April 25, 1996
------------------------ of the Board and
(William J. Bolton) Chief Executive
Officer
(Principal
Executive Officer)
/s/ HENRY R. KRAVIS Director April 25, 1996
------------------------
(Henry R. Kravis)
/s/ GEORGE R. ROBERTS Director April 25, 1996
------------------------
(George R. Roberts)
/s/ PAUL E. RAETHER Director April 25, 1996
------------------------
(Paul E. Raether)
/s/ JAMES H. GREENE, JR. Director April 25, 1996
---------------------
(James H. Greene, Jr.)
/s/ NILS P. BROUS Director April 25, 1996
------------------------
(Nils P. Brous)
<PAGE>
/s/ RONALD G. BRUNO Director April 25, 1996
------------------------
(Ronald G. Bruno)
/s/ ROBERT G. TOBIN Director April 25, 1996
------------------------
(Robert G. Tobin)
/s/ WILLIAM D. WALTERS Vice President, April 25, 1996
------------------------- Acting Chief
(William D. Walters) Financial Officer
and Controller
(Principal
Financial and
Controller)
56
<PAGE>
EXHIBIT INDEX
Index No. Description
- --------- -----------
2 Agreement and Plan of Merger dated as of April 20, 1995 between Crimson
Acquisition Corp. and Bruno's, Inc. (the "Company"), as amended on
May 18, 1995 (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K dated April 27, 1995 and Exhibit 10.1 to the Current
Report on Form 8-K/A dated May 18, 1995).
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's Annual
Report on Form 10-K, dated July 1, 1995).
3.2 By-Laws of the Company (incorporated by reference to Exhibit 3.2 to
the Company's Annual Report on Form 10-K, dated July 1, 1995).
4.1 Indenture, dated as of August 18, 1995, between the Company and Marine
Midland Bank, as Trustee (incorporated by reference to Exhibit 4.2 to
the Current Report on Form 8-K/A dated August 24, 1995).
4.2 First Supplemental Indenture, dated as of August 18, 1995, between the
Issuer and Marine Midland Bank, as Trustee, relating to the issuance
and sale of $400,000,000 aggregate principal amount of 10-1/2% Senior
Subordinated Notes due 2005 (incorporated by reference to Exhibit 4.7
to the Current Report on Form 8-K/A dated August 24, 1995).
4.3 Warrant, dated August 18, 1995, to purchase 9,917,400 shares of Common
Stock of the Company (incorporated by reference to Exhibit 4.3 to the
Company's Annual Report on Form 10-K, dated July 1, 1995).
57
<PAGE>
4.4 Warrant, dated August 18, 1995, to purchase 82,600 shares of Common
Stock of the Company (incorporated by reference to Exhibit 4.4 to the
Company's Annual Report on Form 10-K, dated July 1, 1995).
4.5 Registration Rights Agreement, dated August 18, 1995, among Crimson
Acquisition Corp., Crimson Associates, L.P. ("Crimson Associates")
and KKR Partners II, L.P. ("KKR Partners II") (incorporated by
reference to Exhibit 4.5 to the Company's Annual Report on Form 10-K,
dated July 1, 1995).
10.1 Credit Agreement, dated as of August 18, 1995, among the Issuer, the
several lenders from time to time parties thereto and Chemical Bank,
as Administrative Agent (incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K/A dated August 24, 1995).
10.2 Amended and Restated Group Term Life Insurance Plan of Bruno's, Inc.,
dated March 15, 1984 (incorporated by reference to Exhibit 10(h) of
the Company's Annual Report on Form 10-K, dated August 27, 1985).
10.3 Second Amended and Restated Bruno's, Inc. Employee Stock Option Plan
dated October 20, 1989 (incorporated by reference to Exhibit 28 of
Amendment No. 2 to the Form S-8 Registration Statement (No. 2-81642)
of the Company).
10.4 Bruno's, Inc. Profit Sharing Retirement Plan (incorporated by
reference to Exhibit 10(h) of the Company's Annual Report on Form 10-
K, dated August 9, 1989).
10.5 Form of Restricted Stock Bonus Plan of Bruno's, Inc. (incorporated by
reference to Exhibit 10(o) of the Company's Annual Report on Form 10-
K, dated September 30, 1988).
10.6 Joint Venture Agreement for PM Associates between SSS Enterprises,
Inc. and Metropolitan Life Insurance Company (incorporated by
reference to Exhibit 10.2 to Form S-1 (No. 33-12239) of Piggly Wiggly
Southern, Inc.).
10.7 Bruno's Inc. Employee Incentive Stock Option Plan, approved by the
Company's Board of Directors on May 6, 1993 (incorporated by
reference to Exhibit 10(s) to the Company's Annual Report on Form 10-
K, dated September 29, 1993).
10.8 Employment and Deferred Compensation Agreement, dated July 22, 1994,
between the Company and Ronald G. Bruno (incorporated by reference to
Exhibit 10(h) to the Company's Annual Report on Form 10-K, dated
September 29, 1994).
10.9 Employment and Deferred Compensation Agreement, dated July 22, 1994,
between the Company and Paul F. Garrison (incorporated by reference
to Exhibit 10(i) to the Company's Annual Report on Form 10-K, dated
September 29, 1994).
10.10 Employment and Deferred Compensation Agreement, dated July 22, 1994,
between the Company and Glenn J. Griffin (incorporated by reference
to Exhibit 10(j) to the Company's Annual Report on Form 10-K, dated
September 29, 1994).
10.11 Employment and Deferred Compensation Agreement, dated July 22, 1994,
between the Company and Kenneth J. Bruno (incorporated by reference
to Exhibit 10(k) to the Company's Annual Report on Form 10-K, dated
September 29, 1994).
10.12 Employment and Deferred Compensation Agreement, dated July 22, 1994,
between the Company and R. Michael Conley (incorporated by reference
to Exhibit 10(l) to the Company's Annual Report on Form 10-K, dated
September 29, 1994).
10.13 Employment Continuity Agreement, dated July 22, 1994, between the
Company and Ronald G. Bruno (incorporated by reference to Exhibit
10(m) to the Company's Annual Report on Form 10-K, dated September
29, 1994).
10.14 Employment Continuity Agreement, dated July 22, 1994, between the
Company and Paul F. Garrison (incorporated by reference to Exhibit
10(n) to the Company's Annual Report on Form 10-K, dated September
29, 1994).
<PAGE>
58
10.15 Employment Continuity Agreement, dated July 22, 1994, between the
Company and Glenn J. Griffin (incorporated by reference to Exhibit
10(o) to the Company's Annual Report on Form 10-K, dated September
29, 1994).
10.16 Employment Continuity Agreement, dated July 22, 1994, between the
Company and Kenneth J. Bruno (incorporated by reference to Exhibit
10(p) to the Company's Annual Report on Form 10-K, dated September
29, 1994).
10.17 Employment Continuity Agreement, dated July 22, 1994, between the
Company and R. Michael Conley (incorporated by reference to Exhibit
10(q) to the Company's Annual Report on Form 10-K, dated September
29, 1994).
10.18 Amendment to 1994 Employment and Deferred Compensation Agreement
dated June 9, 1995, by and between the Company and Ronald G. Bruno
(incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K dated June 22, 1995).
10.19 Amendment to 1994 Employment and Deferred Compensation Agreement
dated June 9, 1995, by and between the Company and Paul F. Garrison
(incorporated by reference to Exhibit 10.2 to the Current Report on
Form 8-K dated June 22, 1995).
10.20 Amendment to 1994 Employment and Deferred Compensation Agreement
dated June 9, 1995, by and between the Company and Glenn J. Griffin
(incorporated by reference to Exhibit 10.3 to the Current Report on
Form 8-K dated June 22, 1995).
10.21 Amendment to 1994 Employment and Deferred Compensation Agreement
dated June 9, 1995, by and between the Company and Kenneth J. Bruno
(incorporated by reference to Exhibit 10.4 to the Current Report on
Form 8-K dated June 22, 1995).
10.22 Amendment to 1994 Employment and Deferred Compensation Agreement,
dated June 9, 1995, by and between the Company and R. Michael Conley
(incorporated by reference to Exhibit 10.5 to the Current Report on
Form 8-K dated June 22, 1995).
10.23 Amendment to Employment Continuity Agreement, dated June 9, 1995, by
and between the Company and Ronald G. Bruno (incorporated by
reference to Exhibit 10.6 to the Current Report on Form 8-K dated
June 22, 1995).
10.24 Amendment to Employment Continuity Agreement, dated June 9, 1995, by
and between the Company and Paul F. Garrison (incorporated by
reference to Exhibit 10.7 to the Current Report on Form 8-K dated
June 22, 1995).
10.25 Amendment to Employment Continuity Agreement, dated June 9, 1995, by
and between the Company and Glenn J. Griffin (incorporated by
reference to Exhibit 10.8 to the Current Report on Form 8-K dated
June 22, 1995).
10.26 Amendment to Employment Continuity Agreement, dated June 9, 1995, by
and between the Company and Kenneth J. Bruno (incorporated by
reference to Exhibit 10.9 to the Current Report on Form 8-K dated
June 22, 1995).
10.27 Amendment to Employment Continuity Agreement, dated June 9, 1995, by
and between the Company and R. Michael Conley (incorporated by
reference to Exhibit 10.10 to the Current Report on Form 8-K dated
June 22, 1995).
10.28 Employment Agreement, dated August 21, 1995, between the Company and
William J. Bolton (incorporated by reference to Exhibit 10.29 to the
Company's Annual Report on Form 10-K, dated July 1, 1995).
10.29 Employment Agreement, dated February 6, 1996, between the Company and
David Clark.
10.30 Employment Agreement, dated January 20, 1996, between the Company
and Michael F. Heintzman.
10.31 Employment Agreement, dated December 18, 1995, between the Company
and Lisa R. Kranc.
59
<PAGE>
10.32 1996 Stock Purchase and Option Plan for Key Employees of Bruno's,
Inc. and Subsidiaries.
10.33 Management Stockholder's Agreement, dated as of February 15, 1996,
between the Company and William J. Bolton.
10.34 Non-Qualified Stock Option Agreement, dated as of February 15, 1996,
between the Company and William J. Bolton.
10.35 Schedule of Terms of Management Stockholder's Agreements and Non-
Qualified Stock Option Agreements executed by each of David Clark,
Michael F. Heintzman and Lisa R. Kranc.
16 Letter re change in certifying accountant.
22 List of Subsidiaries (incorporated by reference to Exhibit 22 to the
Company's Annual Report on Form 10-K, dated July 1, 1995).
24.1 Consent of Deloitte & Touche LLP.
24.2 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
Exhibit 10.29
-------------
EMPLOYMENT AGREEMENT
AGREEMENT, made February 6, 1996, by and between BRUNO'S INC., a
Delaware corporation (the "Company") and DAVE CLARK ("Executive").
RECITALS
--------
In order to induce Executive to serve as an executive officer of the
Company, the Company desires to provide Executive with compensation and other
benefits on the terms and conditions set forth in this Agreement.
Executive is willing to accept such employment and perform services
for the Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as follows:
1. Employment.
----------
1.1 Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive during the term hereof as its Senior Vice
President - Operations for the Company.
1.2 Subject to the terms and conditions of this Agreement, Executive
hereby accepts employment as a Senior Vice President of the Company and agrees
to devote his full working time and efforts, to the best of his ability,
experience and talent, to the performance of services, duties and
responsibilities in connection therewith.
<PAGE>
2
2. Term of Employment. Executive's term of employment under this
------------------
Agreement shall commence on January 1, 1996 and, subject to the terms hereof,
shall terminate on the earlier of (i) December 31, 1998 (the "Termination Date")
or (ii) termination of Executive's employment pursuant to this Agreement
(alternatively, the "Term"); provided, however, that any termination of
--------- -------
employment by Executive (other than for death or Permanent Disability) may only
be made upon 30 days prior written notice to the Company.
3. Compensation.
------------
3.1 Salary. During the Term, the Company shall pay Executive a base
------
salary ("Base Salary") at the rate of $225,000 per annum. Base Salary shall be
payable in accordance with the ordinary payroll practices of the Company, but no
less frequently than semi-monthly. Any increase in Base Salary shall be in the
reasonable discretion of the Company and, as so increased, shall constitute
"Base Salary" hereunder.
3.2 Annual Bonus. In addition to his Base Salary, Executive shall be
------------
paid an annual bonus (the "Bonus") during the term of his employment hereunder
with a target amount equal to 50% of Base Salary (the "Target Bonus") and a
maximum amount equal to 100% of Base salary based on performance criteria
determined by the Company in its reasonable discretion.
3.3 Compensation Plans and Programs. Executive shall be eligible to
-------------------------------
participate in any compensation plan or program maintained by the Company in
which other senior executives of the
<PAGE>
3
Company participate on terms comparable to those applicable to such other senior
executives.
3.4 Payment of Relocation Expenses. To assist the Executive with his
------------------------------
relocation to the Birmingham, Alabama area, the Company agrees to either
reimburse the Executive for or pay directly the expenses set forth on Schedule A
hereto to the extent actually incurred by Executive in relocating from the
location of his current (if other than the Birmingham area) to the Birmingham
area.
3.5 Payment of Signing Bonus. In order to induce Executive to enter
------------------------
into this Agreement, Executive shall receive a one-time payment of $30,000 upon
execution of this Agreement.
4. Employee Benefits.
-----------------
4.1 Employee Benefit Programs, Plans and Practices. The Company
----------------------------------------------
shall provide Executive during the term of his employment hereunder with
coverage under all employee pension and welfare benefit programs, plans and
practices (commensurate with his positions in the Company and to the extent
permitted under any employee benefit plan) in accordance with the terms thereof,
which the Company makes available to its senior executives.
4.2 Vacation and Fringe Benefits. Executive shall be entitled to
----------------------------
twenty (20) business days paid vacation in each calendar year, which shall be
taken at such times as are consistent with Executive's responsibilities
hereunder. Unless otherwise approved by the Company, any vacation days not
taken in any calendar year shall be forfeited without payment therefor. In
addition, Executive shall be entitled to the perquisites
<PAGE>
4
and other fringe benefits, including, without limitation, a Company automobile,
made available to senior executives of the Company, commensurate with his
position with the Company.
5. Expenses. Executive is authorized to incur reasonable expenses in
--------
carrying out his duties and responsibilities under this Agreement, including,
without limitation, expenses for travel and similar items related to such duties
and responsibilities. The Company will reimburse Executive for all such
expenses upon presentation by Executive from time to time of appropriately
itemized and approved (consistent with the Company's policy) accounts of such
expenditures.
6. Termination of Employment. The Company may terminate Executive's
-------------------------
employment at any time for any reason.
6.1 Termination Not for Cause or for Good Reason. (a) If
--------------------------------------------
Executive's employment is terminated (i) by the Company other than for Cause (as
defined in this Section 6.1) or (ii) by Executive for Good Reason (as defined in
this Section 6.1) prior to the Termination Date, Executive shall receive, a
severance payment equal to twelve month's Base Salary, as in effect immediately
prior to the event giving rise to such termination, payable in accordance with
the ordinary payroll practices of the Company, but no less frequently than semi-
monthly following such termination of employment. In addition, the Company
shall pay to Executive any earned but unpaid bonus of Executive with respect to
the year preceding his termination.
<PAGE>
5
(b) For purposes of this Agreement, "Good Reason" shall mean any of
the following (without Executive's express prior written consent):
(i) Any material breach by the Company of any provision of this
Agreement, including a demotion by the Company in Executive's position
or the assignment to executive of duties or responsibilities which are
materially inconsistent (except, in either case, in connection with
the termination of Executive's employment for Cause, as a result of
Permanent Disability, as a result of Executive's death or by Executive
other than for Good Reason); or
(ii) A reduction by the Company in Executive's Base Salary, other than
a reduction which is part of a general salary reduction program affecting
senior executives of the Company and which reduction is not, on average,
greater than the salary reduction (as a percentage of Base Salary) of other
senior executives of the Company.
(c) For purposes of this Agreement, "Cause" mean any of the following:
(i) willful malfeasance or willful misconduct by Executive in
connection with his employment;
(ii) continuing refusal by Executive to perform his duties hereunder
or any lawful direction of the Chief Executive Officer of the Company
("CEO"), within 10 days after notice of any such refusal to perform such
duties or direction was given to Executive;
(iii) any breach of the provisions of Section 13 of this Agreement by
Executive or any other material breach of this Agreement by Executive; or
(iv) the commission by Executive of (A) any felony or (B) a
misdemeanor involving moral turpitude.
(d) For purposes of this Agreement, "Permanent Disability" shall mean
a disability that would entitle Executive to receive benefits under the
Company's long-term disability plan applicable to senior executive officers as
in effect from time to time, which prevents the Executive from performing his
duties hereunder for 180 consecutive days or more.
<PAGE>
6
6.2 Voluntary Termination by Executive; Discharge for Cause; Death or
-----------------------------------------------------------------
Disability. (a) In the event that Executive's employment is terminated (i) by
- ----------
the Company for Cause; (ii) by Executive other than for Good Reason or (iii) as
a result of the Executive's Permanent Disability or death, prior to the
Termination Date, Executive shall only be entitled to receive the amounts
already earned and accrued, including Base Salary through the date of
termination and any earned but unpaid bonus of Executive with respect to the
year preceding his termination, based on Executive's employment with the Company
prior to such termination. Executive shall not be entitled, among other things,
to the payment of any Bonus in respect of all or any portion of the fiscal year
in which such termination occurs. After the termination of Executive's
employment under this Section 6.2 and payment of all amounts due to Executive
under the terms of this Agreement in the event of the termination of Executive's
employment under this Section 6.2, the obligations of the Company under this
Agreement to make any further payments, or provide any benefits specified herein
(other than benefits required to be provided by applicable law or under the
terms of any employee benefit of the Company in which the Executive was a
participant), to Executive shall thereupon cease and terminate. Termination of
Executive pursuant to this Section 6.2 shall be made by delivery to Executive of
a notice from the CEO setting forth in reasonable detail the reasons for such
termination.
7. Stock Arrangements. The Company shall provide Executive with the
------------------
opportunity to purchase the number of shares
<PAGE>
7
of common stock, par value $.01 per share, of the Company ("Common Stock") equal
in value to $250,000 at the time of purchase. Executive and the Company shall
enter into the Common Stock Subscription Agreement (the "Stock Agreement"),
substantially in the form attached hereto as Exhibit B, with such changes as the
Company shall deem necessary or desirable. In respect of the Common Stock to be
purchased pursuant to the Stock Agreement (the "Purchase Stock"), the Company
shall lend to Executive half of such purchase price at an interest rate equal to
the applicable Federal rate as determined under Section 1274(d) of the Internal
Revenue Code of 1986, as amended, at the time such loan is made (the "Loan").
The Loan shall be due upon the earliest of (i) one year following termination of
Executive's employment by the Company without Cause or by the Executive for Good
Reason or immediately upon the termination of Executive's employment for any
other reason, (ii) the disposition of the Purchase Stock by Executive or (iii)
seven years from the date of the purchase of the Purchase Stock. The Loan shall
be secured by the entire amount of the Purchase Stock and the Company shall have
full recourse thereto in the event of Executive's default on the Loan.
Executive and the Company shall enter into written arrangements necessary to
effect the foregoing, including, without limitation, a loan agreement, note and
pledge agreement, upon such terms and conditions as the parties shall agree.
8. Mitigation of Damages. Executive shall not be required to
---------------------
mitigate damages or the amount of any payment provided for under this Agreement
by seeking other employment or
<PAGE>
8
otherwise after the termination of his employment hereunder, and no amounts
earned by Executive, whether from self-employment, as a common-law employee or
otherwise, shall reduce the amount of any Termination Amount otherwise payable
to her.
9. Notices. All notices or communications hereunder shall be in
-------
writing, addressed as follows:
To the Company:
William J. Bolton
Bruno's Inc.
800 Lakeshore Parkway
Birmingham, Alabama 35211
with a copy to:
Alvin H. Brown, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
To Executive:
Dave Clark
Any such notice or communication shall be delivered by hand or by courier or
sent certified or registered mail, return receipt requested, postage prepaid,
addressed as above (or to such other address as such party may designate in a
notice duly delivered as described above), and the third business day after the
actual date of mailing shall constitute the time at which notice was given.
10. Separability; Legal Fees. If any provision of this Agreement
------------------------
shall be declared to be invalid or unenforceable, in whole or in part, such
invalidity or unenforceability shall not affect the remaining provisions hereof
which shall remain in
<PAGE>
9
full force and effect. The Company shall pay the reasonable fees and
disbursements (not in excess of $7,500) of Executive's legal counsel in
connection with the negotiation and execution of this Agreement and the other
documents contemplated hereby. Other than as provided in the foregoing
sentence, each party shall bear the costs of any legal fees and other fees and
expenses which may be incurred in respect of negotiating or enforcing its
respective rights under this Agreement.
11. Assignment. This contract shall be binding upon and inure to the
----------
benefit of the heirs and representatives of Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights or
obligations hereunder shall be assignable or otherwise subject to hypothecation
by Executive (except by will or by operation of the laws of intestate
succession) or by the Company, except that the Company may assign this Agreement
to any successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock, assets or businesses of the Company, if such
successor expressly agrees to assume the obligations of the Company hereunder.
12. Amendment. This Agreement may only be amended by written
---------
agreement of the parties hereto.
13. Nondisclosure of Confidential Information; Non-Competition. (a)
----------------------------------------------------------
Executive shall not, without the prior written consent of the Company, use,
divulge, disclose or make accessible to any other person, firm, partnership,
corporation or other entity any Confidential Information pertaining to the
business of the Company or any of its affiliates, except (i) while employed
<PAGE>
10
by the Company, in the business of and for the benefit of the Company, or
(ii) when required to do so by a court of competent jurisdiction, by any
governmental agency having supervisory authority over the business of the
Company, or by any administrative body or legislative body (including a
committee thereof) with jurisdiction to order Executive to divulge, disclose or
make accessible such information. For purposes of this Section 13(a),
"Confidential Information" shall mean non-public information concerning the
financial data, strategic business plans, product development (or other
proprietary product data), customer lists, marketing plans and other non-public,
proprietary and confidential information of the Company, Kohlberg Kravis Roberts
& Co. or their respective affiliates (the "Restricted Group") or customers,
that, in any case, is not otherwise available to the public (other than by
Executive's breach of the terms hereof).
(b) During the period of his employment hereunder and for one year
thereafter, Executive agrees that, without the prior written consent of the
Company, (A) he will not, directly or indirectly, either as principal, manager,
agent, consultant, officer, stockholder, partner, investor, lender or employee
or in any other capacity, carry on, be engaged in or have any financial interest
in, any business which is in competition with the business of the Company and
(B) he shall not, on his own behalf or on behalf of any person, firm or company,
directly or indirectly, solicit or offer employment to any person who has
<PAGE>
11
been employed by the Restricted Group at any time during the 12 months
immediately preceding such solicitation.
(c) For purposes of this Section 13, a business shall be deemed to be
in competition with the Company if it is principally involved in the purchase,
sale or other dealing in any property or the rendering of any service purchased,
sold, dealt in or rendered by the Company as a material part of the business of
the Company within the same geographic area in which the Company effects such
purchases, sales or dealings or renders such services. Nothing in this Section
13 shall be construed so as to preclude Executive from investing in any publicly
or privately held company, provided Executive's beneficial ownership of any
class of such company's securities does not exceed 1% of the outstanding
securities of such class.
(d) Executive and the Company agree that this covenant not to compete
is a reasonable covenant under the circumstances, and further agree that if in
the opinion of any court of competent jurisdiction such restraint is not
reasonable in any respect, such court shall have the right, power and authority
to excise or modify such provision or provisions of this covenant as to the
court shall appear not reasonable and to enforce the remainder of the covenant
as so amended. Executive agrees that any breach of the covenants contained in
this Section 13 would irreparably injure the Company. Accordingly, Executive
agrees that the Company may, in addition to pursuing any other remedies it may
have in law or in equity, cease making any payments otherwise required by this
Agreement and obtain an injunction
<PAGE>
12
against Executive from any court having jurisdiction over the matter restraining
any further violation of this Agreement by Executive.
14. Beneficiaries; References. Executive shall be entitled to select
-------------------------
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
15. Survivorship. The respective rights and obligations of the
------------
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. The
provisions of this Section 15 are in addition to the survivorship provisions of
any other section of this Agreement.
16. Governing Law. This Agreement shall be construed, interpreted
-------------
and governed in accordance with the laws of the State of Alabama, without
reference to rules relating to conflicts of law.
17. Effect on Prior Agreements. This Agreement contains the entire
--------------------------
understanding between the parties hereto and supersedes in all respects any
prior agreement or understanding
<PAGE>
13
between the Company or any affiliate of the Company and Executive as to
employment matters other than the Common Stock Subscription Agreement referred
to in Section 7 hereof.
18. Withholding. The Company shall be entitled to withhold from
-----------
payment any amount of withholding required by law.
19. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which will be deemed an original.
BRUNO'S, INC.
By /s/ William J. Bolton
---------------------------
Name: William J. Bolton
Title: President and Chief
Executive Officer
/s/ David Clark
-----------------------------
Executive
<PAGE>
14
EXHIBIT A
---------
In connection with Executive's relocation to the Birmingham, Alabama
area, the Company shall reimburse Executive for the following expenses, subject
to reasonable substantiation thereof:
1. Reasonable travel costs, including airfare and lodging, associated
with locating a residence in the Birmingham area.
2. The reasonable costs of moving company fees incurred in moving
Executive's household to the Birmingham area and of local moving (from
temporary housing and storage to permanent housing).
3. The reasonable costs of temporary housing and storage in the
Birmingham area for a period not to exceed six months.
<PAGE>
15
EXHIBIT B
---------
FORM OF STOCK SUBSCRIPTION AGREEMENT
[See Management Stockholder's Agreement]
EXHIBIT 10.30
EMPLOYMENT AGREEMENT
AGREEMENT, made January 20, 1996, by and between BRUNO'S INC., a
Delaware corporation (the "Company") and MICHAEL HEINTZMAN ("Executive").
RECITALS
--------
In order to induce Executive to serve as an executive officer of the
Company, the Company desires to provide Executive with compensation and other
benefits on the terms and conditions set forth in this Agreement.
Executive is willing to accept such employment and perform services
for the Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as follows:
1. Employment.
----------
1.1 Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive during the term hereof as its Senior Vice
President - Merchandising for the Company.
1.2 Subject to the terms and conditions of this Agreement, Executive
hereby accepts employment as a Senior Vice President of the Company and agrees
to devote his full working time and efforts, to the best of his ability,
experience and talent, to the performance of services, duties and
responsibilities in connection therewith.
<PAGE>
2
2. Term of Employment. Executive's term of employment under this
------------------
Agreement shall commence on January 1, 1996 and, subject to the terms hereof,
shall terminate on the earlier of (i) December 31, 1998 (the "Termination Date")
or (ii) termination of Executive's employment pursuant to this Agreement
(alternatively, the "Term"); provided, however, that any termination of
--------- -------
employment by Executive (other than for death or Permanent Disability) may only
be made upon 30 days prior written notice to the Company.
3. Compensation.
------------
3.1 Salary. During the Term, the Company shall pay Executive a base
------
salary ("Base Salary") at the rate of $200,000 per annum. Base Salary shall be
payable in accordance with the ordinary payroll practices of the Company, but no
less frequently than semi-monthly. Any increase in Base Salary shall be in the
reasonable discretion of the Company and, as so increased, shall constitute
"Base Salary" hereunder.
3.2 Annual Bonus. In addition to his Base Salary, Executive shall be
------------
paid an annual bonus (the "Bonus") during the term of his employment hereunder
with a target amount equal to 50% of Base Salary (the "Target Bonus") and a
maximum amount equal to 100% of Base salary based on performance criteria
determined by the Company in its reasonable discretion.
3.3 Compensation Plans and Programs. Executive shall be eligible to
-------------------------------
participate in any compensation plan or program maintained by the Company in
which other senior executives of the
<PAGE>
3
Company participate on terms comparable to those applicable to such other senior
executives.
3.4 Payment of Relocation Expenses. To assist the Executive with his
------------------------------
relocation to the Birmingham, Alabama area, the Company agrees to either
reimburse the Executive for or pay directly the expenses set forth on Schedule A
hereto to the extent actually incurred by Executive in relocating from the
location of his current (if other than the Birmingham area) to the Birmingham
area.
3.5 Payment of Signing Bonus. In order to induce Executive to enter
------------------------
into this Agreement, Executive shall receive a one-time payment of $25,000 upon
execution of this Agreement.
4. Employee Benefits.
-----------------
4.1 Employee Benefit Programs, Plans and Practices. The Company
----------------------------------------------
shall provide Executive during the term of his employment hereunder with
coverage under all employee pension and welfare benefit programs, plans and
practices (commensurate with his positions in the Company and to the extent
permitted under any employee benefit plan) in accordance with the terms thereof,
which the Company makes available to its senior executives.
4.2 Vacation and Fringe Benefits. Executive shall be entitled to
----------------------------
twenty (20) business days paid vacation in each calendar year, which shall be
taken at such times as are consistent with Executive's responsibilities
hereunder. Unless otherwise approved by the Company, any vacation days not
taken in any calendar year shall be forfeited without payment therefor. In
addition, Executive shall be entitled to the perquisites and
<PAGE>
4
other fringe benefits, including, without limitation, a Company automobile, made
available to senior executives of the Company, commensurate with his position
with the Company.
5. Expenses. Executive is authorized to incur reasonable expenses in
--------
carrying out his duties and responsibilities under this Agreement, including,
without limitation, expenses for travel and similar items related to such duties
and responsibilities. The Company will reimburse Executive for all such
expenses upon presentation by Executive from time to time of appropriately
itemized and approved (consistent with the Company's policy) accounts of such
expenditures.
6. Termination of Employment. The Company may terminate Executive's
-------------------------
employment at any time for any reason.
6.1 Termination Not for Cause or for Good Reason. (a) If
--------------------------------------------
Executive's employment is terminated (i) by the Company other than for Cause (as
defined in this Section 6.1) or (ii) by Executive for Good Reason (as defined in
this Section 6.1) prior to the Termination Date, Executive shall receive, a
severance payment equal to twelve month's Base Salary, as in effect immediately
prior to the event giving rise to such termination, payable in accordance with
the ordinary payroll practices of the Company, but no less frequently than semi-
monthly following such termination of employment. In addition, the Company
shall pay to Executive any earned but unpaid bonus of Executive with respect to
the year preceding his termination.
<PAGE>
5
(b) For purposes of this Agreement, "Good Reason" shall mean any of
the following (without Executive's express prior written consent):
(i) Any material breach by the Company of any provision of this
Agreement, including a demotion by the Company in Executive's position
or the assignment to executive of duties or responsibilities which are
materially inconsistent (except, in either case, in connection with
the termination of Executive's employment for Cause, as a result of
Permanent Disability, as a result of Executive's death or by Executive
other than for Good Reason); or
(ii) A reduction by the Company in Executive's Base Salary, other than
a reduction which is part of a general salary reduction program affecting
senior executives of the Company and which reduction is not, on average,
greater than the salary reduction (as a percentage of Base Salary) of other
senior executives of the Company.
(c) For purposes of this Agreement, "Cause" mean any of the following:
(i) willful malfeasance or willful misconduct by Executive in
connection with his employment;
(ii) continuing refusal by Executive to perform his duties hereunder
or any lawful direction of the Chief Executive Officer of the Company
("CEO"), within 10 days after notice of any such refusal to perform such
duties or direction was given to Executive;
(iii) any breach of the provisions of Section 13 of this Agreement by
Executive or any other material breach of this Agreement by Executive; or
(iv) the commission by Executive of (A) any felony or (B) a
misdemeanor involving moral turpitude.
(d) For purposes of this Agreement, "Permanent Disability" shall mean
a disability that would entitle Executive to receive benefits under the
Company's long-term disability plan applicable to senior executive officers as
in effect from time to time, which prevents the Executive from performing his
duties hereunder for 180 consecutive days or more.
<PAGE>
6
6.2 Voluntary Termination by Executive; Discharge for Cause; Death or
-----------------------------------------------------------------
Disability. (a) In the event that Executive's employment is terminated (i) by
- ----------
the Company for Cause; (ii) by Executive other than for Good Reason or (iii) as
a result of the Executive's Permanent Disability or death, prior to the
Termination Date, Executive shall only be entitled to receive the amounts
already earned and accrued, including Base Salary through the date of
termination and any earned but unpaid bonus of Executive with respect to the
year preceding his termination, based on Executive's employment with the Company
prior to such termination. Executive shall not be entitled, among other things,
to the payment of any Bonus in respect of all or any portion of the fiscal year
in which such termination occurs. After the termination of Executive's
employment under this Section 6.2 and payment of all amounts due to Executive
under the terms of this Agreement in the event of the termination of Executive's
employment under this Section 6.2, the obligations of the Company under this
Agreement to make any further payments, or provide any benefits specified herein
(other than benefits required to be provided by applicable law or under the
terms of any employee benefit of the Company in which the Executive was a
participant), to Executive shall thereupon cease and terminate. Termination of
Executive pursuant to this Section 6.2 shall be made by delivery to Executive of
a notice from the CEO setting forth in reasonable detail the reasons for such
termination.
7. Stock Arrangements. The Company shall provide Executive with the
------------------
opportunity to purchase the number of shares
<PAGE>
7
of common stock, par value $.01 per share, of the Company ("Common
Stock") equal in value to $250,000 at the time of purchase. Executive and the
Company shall enter into the Common Stock Subscription Agreement (the "Stock
Agreement"), substantially in the form attached hereto as Exhibit B, with such
changes as the Company shall deem necessary or desirable. In respect of the
Common Stock to be purchased pursuant to the Stock Agreement (the "Purchase
Stock"), the Company shall lend to Executive half of such purchase price at an
interest rate equal to the applicable Federal rate as determined under Section
1274(d) of the Internal Revenue Code of 1986, as amended, at the time such loan
is made (the "Loan"). The Loan shall be due upon the earliest of (i) one year
following termination of Executive's employment by the Company without Cause or
by the Executive for Good Reason or immediately upon the termination of
Executive's employment for any other reason, (ii) the disposition of the
Purchase Stock by Executive or (iii) seven years from the date of the purchase
of the Purchase Stock. The Loan shall be secured by the entire amount of the
Purchase Stock and the Company shall have full recourse thereto in the event of
Executive's default on the Loan. Executive and the Company shall enter into
written arrangements necessary to effect the foregoing, including, without
limitation, a loan agreement, note and pledge agreement, upon such terms and
conditions as the parties shall agree.
8. Mitigation of Damages. Executive shall not be required to
---------------------
mitigate damages or the amount of any payment provided for under this Agreement
by seeking other employment or
<PAGE>
8
otherwise after the termination of his employment hereunder, and no amounts
earned by Executive, whether from self-employment, as a common-law employee or
otherwise, shall reduce the amount of any Termination Amount otherwise payable
to her.
9. Notices. All notices or communications hereunder shall be in
-------
writing, addressed as follows:
To the Company:
William J. Bolton
Bruno's Inc.
800 Lakeshore Parkway
Birmingham, Alabama 35211
with a copy to:
Alvin H. Brown, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
To Executive:
Michael Heintzman
Any such notice or communication shall be delivered by hand or by courier or
sent certified or registered mail, return receipt requested, postage prepaid,
addressed as above (or to such other address as such party may designate in a
notice duly delivered as described above), and the third business day after the
actual date of mailing shall constitute the time at which notice was given.
10. Separability; Legal Fees. If any provision of this Agreement
------------------------
shall be declared to be invalid or unenforceable, in whole or in part, such
invalidity or unenforceability shall not affect the remaining provisions hereof
which shall remain in
<PAGE>
9
full force and effect. The Company shall pay the reasonable fees and
disbursements (not in excess of $7,500) of Executive's legal counsel in
connection with the negotiation and execution of this Agreement and the other
documents contemplated hereby. Other than as provided in the foregoing
sentence, each party shall bear the costs of any legal fees and other fees and
expenses which may be incurred in respect of negotiating or enforcing its
respective rights under this Agreement.
11. Assignment. This contract shall be binding upon and inure to the
----------
benefit of the heirs and representatives of Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights or
obligations hereunder shall be assignable or otherwise subject to hypothecation
by Executive (except by will or by operation of the laws of intestate
succession) or by the Company, except that the Company may assign this Agreement
to any successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock, assets or businesses of the Company, if such
successor expressly agrees to assume the obligations of the Company hereunder.
12. Amendment. This Agreement may only be amended by written
---------
agreement of the parties hereto.
13. Nondisclosure of Confidential Information; Non-Competition. (a)
----------------------------------------------------------
Executive shall not, without the prior written consent of the Company, use,
divulge, disclose or make accessible to any other person, firm, partnership,
corporation or other entity any Confidential Information pertaining to the
business of the Company or any of its affiliates, except (i) while employed
<PAGE>
10
by the Company, in the business of and for the benefit of the Company, or
(ii) when required to do so by a court of competent jurisdiction, by any
governmental agency having supervisory authority over the business of the
Company, or by any administrative body or legislative body (including a
committee thereof) with jurisdiction to order Executive to divulge, disclose or
make accessible such information. For purposes of this Section 13(a),
"Confidential Information" shall mean non-public information concerning the
financial data, strategic business plans, product development (or other
proprietary product data), customer lists, marketing plans and other non-public,
proprietary and confidential information of the Company, Kohlberg Kravis Roberts
& Co. or their respective affiliates (the "Restricted Group") or customers,
that, in any case, is not otherwise available to the public (other than by
Executive's breach of the terms hereof).
(b) During the period of his employment hereunder and for one year
thereafter, Executive agrees that, without the prior written consent of the
Company, (A) he will not, directly or indirectly, either as principal, manager,
agent, consultant, officer, stockholder, partner, investor, lender or employee
or in any other capacity, carry on, be engaged in or have any financial interest
in, any business which is in competition with the business of the Company and
(B) he shall not, on his own behalf or on behalf of any person, firm or company,
directly or indirectly, solicit or offer employment to any person who has
<PAGE>
11
been employed by the Restricted Group at any time during the 12 months
immediately preceding such solicitation.
(c) For purposes of this Section 13, a business shall be deemed to be
in competition with the Company if it is principally involved in the purchase,
sale or other dealing in any property or the rendering of any service purchased,
sold, dealt in or rendered by the Company as a material part of the business of
the Company within the same geographic area in which the Company effects such
purchases, sales or dealings or renders such services. Nothing in this Section
13 shall be construed so as to preclude Executive from investing in any publicly
or privately held company, provided Executive's beneficial ownership of any
class of such company's securities does not exceed 1% of the outstanding
securities of such class.
(d) Executive and the Company agree that this covenant not to compete
is a reasonable covenant under the circumstances, and further agree that if in
the opinion of any court of competent jurisdiction such restraint is not
reasonable in any respect, such court shall have the right, power and authority
to excise or modify such provision or provisions of this covenant as to the
court shall appear not reasonable and to enforce the remainder of the covenant
as so amended. Executive agrees that any breach of the covenants contained in
this Section 13 would irreparably injure the Company. Accordingly, Executive
agrees that the Company may, in addition to pursuing any other remedies it may
have in law or in equity, cease making any payments otherwise required by this
Agreement and obtain an injunction
<PAGE>
12
against Executive from any court having jurisdiction over the matter restraining
any further violation of this Agreement by Executive.
14. Beneficiaries; References. Executive shall be entitled to select
-------------------------
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
15. Survivorship. The respective rights and obligations of the
------------
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. The
provisions of this Section 15 are in addition to the survivorship provisions of
any other section of this Agreement.
16. Governing Law. This Agreement shall be construed, interpreted
-------------
and governed in accordance with the laws of the State of Alabama, without
reference to rules relating to conflicts of law.
17. Effect on Prior Agreements. This Agreement contains the entire
--------------------------
understanding between the parties hereto and supersedes in all respects any
prior agreement or understanding
<PAGE>
13
between the Company or any affiliate of the Company and Executive as to
employment matters other than the Common Stock Subscription Agreement referred
to in Section 7 hereof.
18. Withholding. The Company shall be entitled to withhold from
-----------
payment any amount of withholding required by law.
19. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which will be deemed an original.
BRUNO'S, INC.
By /s/ William J. Bolton
---------------------------
Name: William J. Bolton
Title: President and Chief
Executive Officer
/s/ Michael F. Heintzman
------------------------------
Executive
<PAGE>
14
EXHIBIT A
---------
In connection with Executive's relocation to the Birmingham, Alabama
area, the Company shall reimburse Executive for the following expenses, subject
to reasonable substantiation thereof:
1. Reasonable travel costs, including airfare and lodging, associated
with locating a residence in the Birmingham area.
2. The reasonable costs of moving company fees incurred in moving
Executive's household to the Birmingham area and of local moving (from
temporary housing and storage to permanent housing).
3. The reasonable costs of temporary housing and storage in the
Birmingham area for a period not to exceed six months.
<PAGE>
15
EXHIBIT B
---------
FORM OF STOCK SUBSCRIPTION AGREEMENT
[See Management Stockholder's Agreement]
Exhibit 10.31
-------------
EMPLOYMENT AGREEMENT
AGREEMENT, made December 18, 1995, by and between BRUNO'S INC., a
Delaware corporation (the "Company") and LISA KRANC ("Executive").
RECITALS
--------
In order to induce Executive to serve as an executive officer of the
Company, the Company desires to provide Executive with compensation and other
benefits on the terms and conditions set forth in this Agreement.
Executive is willing to accept such employment and perform services
for the Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as follows:
1. Employment.
----------
1.1 Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive during the term hereof as its Senior Vice
President - Marketing for the Company.
1.2 Subject to the terms and conditions of this Agreement, Executive
hereby accepts employment as a Senior Vice President of the Company and agrees
to devote her full working time and efforts, to the best of her ability,
experience and talent, to the performance of services, duties and
responsibilities in connection therewith.
<PAGE>
2
2. Term of Employment. Executive's term of employment under this
------------------
Agreement shall commence as soon as possible after the date hereof but in any
event no later than January 8, 1996 and, subject to the terms hereof, shall
terminate on the earlier of (i) January 8, 1999 (the "Termination Date") or (ii)
termination of Executive's employment pursuant to this Agreement (alternatively,
the "Term"); provided, however, that any termination of employment by Executive
--------- -------
(other than for death or Permanent Disability) may only be made upon 30 days
prior written notice to the Company.
3. Compensation.
------------
3.1 Salary. During the Term, the Company shall pay Executive a base
------
salary ("Base Salary") at the rate of $175,000 per annum. Base Salary shall be
payable in accordance with the ordinary payroll practices of the Company, but no
less frequently than semi-monthly. Any increase in Base Salary shall be in the
reasonable discretion of the Company and, as so increased, shall constitute
"Base Salary" hereunder.
3.2 Annual Bonus. In addition to her Base Salary, Executive shall be
------------
paid an annual bonus (the "Bonus") during the term of her employment hereunder
with a target amount equal to 50% of Base Salary (the "Target Bonus") and a
maximum amount equal to 100% of Base salary based on performance criteria
determined by the Company in its reasonable discretion.
3.3 Compensation Plans and Programs. Executive shall be eligible to
-------------------------------
participate in any compensation plan or program maintained by the Company in
which other senior executives of the
<PAGE>
3
Company participate on terms comparable to those applicable to such other senior
executives.
3.4 Payment of Relocation Expenses. To assist the Executive with her
------------------------------
relocation to the Birmingham, Alabama area, the Company agrees to either
reimburse the Executive for or pay directly the expenses set forth on Schedule A
hereto to the extent actually incurred by Executive in relocating from the
location of her current (if other than the Birmingham area) to the Birmingham
area.
4. Employee Benefits.
-----------------
4.1 Employee Benefit Programs, Plans and Practices. The Company
----------------------------------------------
shall provide Executive during the term of her employment hereunder with
coverage under all employee pension and welfare benefit programs, plans and
practices (commensurate with her positions in the Company and to the extent
permitted under any employee benefit plan) in accordance with the terms thereof,
which the Company makes available to its senior executives.
4.2 Vacation and Fringe Benefits. Executive shall be entitled to
----------------------------
twenty (20) business days paid vacation in each calendar year, which shall be
taken at such times as are consistent with Executive's responsibilities
hereunder. Unless otherwise approved by the Company, any vacation days not
taken in any calendar year shall be forfeited without payment therefor. In
addition, Executive shall be entitled to the perquisites and other fringe
benefits, including, without limitation, a Company automobile, made available to
senior executives of the Company, commensurate with her position with the
Company.
<PAGE>
4
5. Expenses. Executive is authorized to incur reasonable expenses in
--------
carrying out her duties and responsibilities under this Agreement, including,
without limitation, expenses for travel and similar items related to such duties
and responsibilities. The Company will reimburse Executive for all such
expenses upon presentation by Executive from time to time of appropriately
itemized and approved (consistent with the Company's policy) accounts of such
expenditures.
6. Termination of Employment. The Company may terminate Executive's
-------------------------
employment at any time for any reason.
6.1 Termination Not for Cause or for Good Reason. (a) If
--------------------------------------------
Executive's employment is terminated (i) by the Company other than for Cause (as
defined in this Section 6.1) or (ii) by Executive for Good Reason (as defined in
this Section 6.1) prior to the Termination Date, Executive shall receive, a
severance payment equal to twelve month's Base Salary, as in effect immediately
prior to the event giving rise to such termination, payable in accordance with
the ordinary payroll practices of the Company, but no less frequently than semi-
monthly following such termination of employment. In addition, the Company
shall pay to Executive any earned but unpaid bonus of Executive with respect to
the year preceding her termination.
(b) For purposes of this Agreement, "Good Reason" shall mean any of
the following (without Executive's express prior written consent):
(i) Any material breach by the Company of any provision of this
Agreement, including a demotion by
<PAGE>
5
the Company in Executive's position or the assignment to executive of
duties or responsibilities which are materially inconsistent (except, in
either case, in connection with the termination of Executive's employment
for Cause, as a result of Permanent Disability, as a result of Executive's
death or by Executive other than for Good Reason); or
(ii) A reduction by the Company in Executive's Base Salary, other than
a reduction which is part of a general salary reduction program affecting
senior executives of the Company and which reduction is not, on average,
greater than the salary reduction (as a percentage of Base Salary) of other
senior executives of the Company.
(c) For purposes of this Agreement, "Cause" mean any of the following:
(i) willful malfeasance or willful misconduct by Executive in
connection with her employment;
(ii) continuing refusal by Executive to perform her duties hereunder
or any lawful direction of the Chief Executive Officer of the Company
("CEO"), within 10 days after notice of any such refusal to perform such
duties or direction was given to Executive;
(iii) any breach of the provisions of Section 13 of this Agreement by
Executive or any other material breach of this Agreement by Executive; or
(iv) the commission by Executive of (A) any felony or (B) a
misdemeanor involving moral turpitude.
(d) For purposes of this Agreement, "Permanent Disability" shall mean
a disability that would entitle Executive to receive benefits under the
Company's long-term disability plan applicable to senior executive officers as
in effect from time to time, which prevents the Executive from performing her
duties hereunder for 180 consecutive days or more.
6.2 Voluntary Termination by Executive; Discharge for Cause; Death or
-----------------------------------------------------------------
Disability. (a) In the event that Executive's employment is terminated (i) by
- ----------
the Company for Cause; (ii) by Executive other than for Good Reason or (iii) as
a result of the
<PAGE>
6
Executive's Permanent Disability or death, prior to the Termination Date,
Executive shall only be entitled to receive the amounts already earned and
accrued, including Base Salary through the date of termination and any earned
but unpaid bonus of Executive with respect to the year preceding her
termination, based on Executive's employment with the Company prior to such
termination. Executive shall not be entitled, among other things, to the
payment of any Bonus in respect of all or any portion of the fiscal year in
which such termination occurs. After the termination of Executive's employment
under this Section 6.2 and payment of all amounts due to Executive under the
terms of this Agreement in the event of the termination of Executive's
employment under this Section 6.2, the obligations of the Company under this
Agreement to make any further payments, or provide any benefits specified herein
(other than benefits required to be provided by applicable law or under the
terms of any employee benefit of the Company in which the Executive was a
participant), to Executive shall thereupon cease and terminate. Termination of
Executive pursuant to this Section 6.2 shall be made by delivery to Executive of
a notice from the CEO setting forth in reasonable detail the reasons for such
termination.
7. Stock Arrangements. The Company shall provide Executive with the
------------------
opportunity to purchase the number of shares of common stock, par value $.01 per
share, of the Company ("Common Stock") equal in value to $187,500 at the time of
purchase. Executive and the Company shall enter into the Common Stock
Subscription Agreement (the "Stock Agreement"),
<PAGE>
7
substantially in the form attached hereto as Exhibit B, with such changes as the
Company shall deem necessary or desirable. In respect of the Common Stock to be
purchased pursuant to the Stock Agreement (the "Purchase Stock"), the Company
shall lend to Executive half of such purchase price at an interest rate equal to
the applicable Federal rate as determined under Section 1274(d) of the Internal
Revenue Code of 1986, as amended, at the time such loan is made (the "Loan").
The Loan shall be due upon the earliest of (i) one year following termination of
Executive's employment by the Company without Cause or by the Executive for Good
Reason or immediately upon the termination of Executive's employment for any
other reason, (ii) the disposition of the Purchase Stock by Executive or (iii)
seven years from the date of the purchase of the Purchase Stock. The Loan shall
be secured by the entire amount of the Purchase Stock and the Company shall have
full recourse thereto in the event of Executive's default on the Loan.
Executive and the Company shall enter into written arrangements necessary to
effect the foregoing, including, without limitation, a loan agreement, note and
pledge agreement, upon such terms and conditions as the parties shall agree.
8. Mitigation of Damages. Executive shall not be required to
---------------------
mitigate damages or the amount of any payment provided for under this Agreement
by seeking other employment or otherwise after the termination of her employment
hereunder, and no amounts earned by Executive, whether from self-employment, as
a common-law employee or otherwise, shall reduce the amount of any Termination
Amount otherwise payable to her.
<PAGE>
8
9. Notices. All notices or communications hereunder shall be in
-------
writing, addressed as follows:
To the Company:
William J. Bolton
Bruno's Inc.
800 Lakeshore Parkway
Birmingham, Alabama 35211
with a copy to:
Alvin H. Brown, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
To Executive:
Lisa Kranc
6004 Crowne Falls Parkway
Birmingham, Alabama 35244
with a copy to:
Mark Wojciechowski, Esq.
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019-5820
Any such notice or communication shall be delivered by hand or by courier or
sent certified or registered mail, return receipt requested, postage prepaid,
addressed as above (or to such other address as such party may designate in a
notice duly delivered as described above), and the third business day after the
actual date of mailing shall constitute the time at which notice was given.
10. Separability; Legal Fees. If any provision of this Agreement
------------------------
shall be declared to be invalid or unenforceable, in whole or in part, such
invalidity or unenforceability shall not affect the remaining provisions hereof
which shall remain in
<PAGE>
9
full force and effect. The Company shall pay the reasonable fees and
disbursements (not in excess of $7,500) of Executive's legal counsel in
connection with the negotiation and execution of this Agreement and the other
documents contemplated hereby. Other than as provided in the foregoing
sentence, each party shall bear the costs of any legal fees and other fees and
expenses which may be incurred in respect of negotiating or enforcing its
respective rights under this Agreement.
11. Assignment. This contract shall be binding upon and inure to the
----------
benefit of the heirs and representatives of Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights or
obligations hereunder shall be assignable or otherwise subject to hypothecation
by Executive (except by will or by operation of the laws of intestate
succession) or by the Company, except that the Company may assign this Agreement
to any successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock, assets or businesses of the Company, if such
successor expressly agrees to assume the obligations of the Company hereunder.
12. Amendment. This Agreement may only be amended by written
---------
agreement of the parties hereto.
13. Nondisclosure of Confidential Information; Non-Competition. (a)
----------------------------------------------------------
Executive shall not, without the prior written consent of the Company, use,
divulge, disclose or make accessible to any other person, firm, partnership,
corporation or other entity any Confidential Information pertaining to the
business of the Company or any of its affiliates, except (i) while employed
<PAGE>
10
by the Company, in the business of and for the benefit of the Company, or
(ii) when required to do so by a court of competent jurisdiction, by any
governmental agency having supervisory authority over the business of the
Company, or by any administrative body or legislative body (including a
committee thereof) with jurisdiction to order Executive to divulge, disclose or
make accessible such information. For purposes of this Section 13(a),
"Confidential Information" shall mean non-public information concerning the
financial data, strategic business plans, product development (or other
proprietary product data), customer lists, marketing plans and other non-public,
proprietary and confidential information of the Company, Kohlberg Kravis Roberts
& Co. or their respective affiliates (the "Restricted Group") or customers,
that, in any case, is not otherwise available to the public (other than by
Executive's breach of the terms hereof).
(b) During the period of her employment hereunder and for one year
thereafter, Executive agrees that, without the prior written consent of the
Company, (A) she will not, directly or indirectly, either as principal, manager,
agent, consultant, officer, stockholder, partner, investor, lender or employee
or in any other capacity, carry on, be engaged in or have any financial interest
in, any business which is in competition with the business of the Company and
(B) she shall not, on her own behalf or on behalf of any person, firm or
company, directly or indirectly, solicit or offer employment to any person who
has
<PAGE>
11
been employed by the Restricted Group at any time during the 12 months
immediately preceding such solicitation.
(c) For purposes of this Section 13, a business shall be deemed to be
in competition with the Company if it is principally involved in the purchase,
sale or other dealing in any property or the rendering of any service purchased,
sold, dealt in or rendered by the Company as a material part of the business of
the Company within the same geographic area in which the Company effects such
purchases, sales or dealings or renders such services. Nothing in this Section
13 shall be construed so as to preclude Executive from investing in any publicly
or privately held company, provided Executive's beneficial ownership of any
class of such company's securities does not exceed 1% of the outstanding
securities of such class.
(d) Executive and the Company agree that this covenant not to compete
is a reasonable covenant under the circumstances, and further agree that if in
the opinion of any court of competent jurisdiction such restraint is not
reasonable in any respect, such court shall have the right, power and authority
to excise or modify such provision or provisions of this covenant as to the
court shall appear not reasonable and to enforce the remainder of the covenant
as so amended. Executive agrees that any breach of the covenants contained in
this Section 13 would irreparably injure the Company. Accordingly, Executive
agrees that the Company may, in addition to pursuing any other remedies it may
have in law or in equity, cease making any payments otherwise required by this
Agreement and obtain an injunction
<PAGE>
12
against Executive from any court having jurisdiction over the matter restraining
any further violation of this Agreement by Executive.
14. Beneficiaries; References. Executive shall be entitled to select
-------------------------
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of her incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to her beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
15. Survivorship. The respective rights and obligations of the
------------
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. The
provisions of this Section 15 are in addition to the survivorship provisions of
any other section of this Agreement.
16. Governing Law. This Agreement shall be construed, interpreted
-------------
and governed in accordance with the laws of the State of Alabama, without
reference to rules relating to conflicts of law.
17. Effect on Prior Agreements. This Agreement contains the entire
--------------------------
understanding between the parties hereto and supersedes in all respects any
prior agreement or understanding
<PAGE>
13
between the Company or any affiliate of the Company and Executive as to
employment matters other than the Common Stock Subscription Agreement referred
to in Section 7 hereof.
18. Withholding. The Company shall be entitled to withhold from
-----------
payment any amount of withholding required by law.
19. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which will be deemed an original.
BRUNO'S, INC.
By /s/ William J. Bolton
---------------------------
Name: William J. Bolton
Title: President and Chief
Executive Officer
/s/ Lisa R. Kranc
-----------------------------
Executive
<PAGE>
14
EXHIBIT A
---------
In connection with Executive's relocation to the Birmingham, Alabama
area, the Company shall reimburse Executive for the following expenses, subject
to reasonable substantiation thereof:
1. Reasonable travel costs, including airfare and lodging, associated
with locating a residence in the Birmingham area.
2. The reasonable costs of moving company fees incurred in moving
Executive's household to the Birmingham area and of local moving (from
temporary housing and storage to permanent housing).
3. The reasonable costs of temporary housing and storage in the
Birmingham area for a period not to exceed six months.
<PAGE>
15
EXHIBIT B
---------
FORM OF STOCK SUBSCRIPTION AGREEMENT
[See Management Stockholder's Agreement]
Exhibit 10.32
-------------
PLAN DOCUMENT
-------------
FORM OF
1996 STOCK PURCHASE AND OPTION PLAN
FOR KEY EMPLOYEES OF
BRUNO'S, INC. AND SUBSIDIARIES
1. Purpose of Plan
---------------
The 1996 Stock Purchase and Option Plan for Key Employees of Bruno's, Inc.
and Subsidiaries (the "Plan") is designed:
(a) to promote the long term financial interests and growth of Bruno's,
Inc. (the "Corporation") and its subsidiaries by attracting and retaining
management personnel with the training, experience and ability to enable them to
make a substantial contribution to the success of the Corporation's business;
(b) to motivate management personnel by means of growth-related incentives
to achieve long range goals; and
(c) to further the identity of interests of participants with those of the
stockholders of the Corporation through opportunities for increased stock, or
stock-based, ownership in the Corporation.
2. Definitions
-----------
As used in the Plan, the following words shall have the following meanings:
(a) "Grant" means an award made to a Participant pursuant to the Plan and
described in Paragraph 5, including, without limitation, an award of an
Incentive Stock Option, Stock Option, Stock Appreciation Right, Dividend
Equivalent Right, Restricted Stock, Purchase Stock, Performance Units,
Performance Shares or Other Stock Based Grant or any combination of the
foregoing.
(b) "Grant Agreement" means an agreement between the Corporation and a
Participant that sets forth the terms, conditions and limitations applicable to
a Grant.
(c) "Board of Directors" means the Board of Directors of the Corporation.
(d) "Committee" means the Compensation Committee of the Board of
Directors.
(e) "Common Stock" or "Share" means common stock of the Corporation which
may be authorized but unissued, or issued and reacquired.
<PAGE>
2
(f) "Employee" means a person, including an officer, in the regular full-
time employment of the Corporation or one of its Subsidiaries who, in the
opinion of the Committee, is, or is expected, to be primarily responsible for
the management, growth or protection of some part or all of the business of the
Corporation.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(h) "Fair Market Value" means such value of a Share as reported for stock
exchange transactions and/or determined in accordance with any applicable
resolutions or regulations of the Committee in effect at the relevant time.
(i) "Participant" means an Employee, or other person having a unique
relationship with the Corporation or one of its Subsidiaries, to whom one or
more Grants have been made and such Grants have not all been forfeited or
terminated under the Plan; provided, however, a non-employee director of the
Corporation or one of its Subsidiaries may not be a Participant.
(j) "Stock-Based Grants" means the collective reference to the grant of
Stock Appreciation Rights, Dividend Equivalent Rights, Restricted Stocks,
Performance Units, Performance Shares and Other Stock Based Grants.
(k) "Stock Options" means the collective reference to "Incentive Stock
Options" and "Other Stock Options".
(l) "Subsidiary" means any corporation other than the Corporation in an
unbroken chain of corporations beginning with the Corporation if each of the
corporations other than the last corporation in the unbroken chain owns 50% or
more of the voting stock in one of the other corporations in such chain.
3. Administration of Plan
----------------------
(a) The Plan shall be administered by the Committee. None of the members
of the Committee shall be eligible to be selected for Grants under the Plan, or
have been so eligible for selection within one year prior thereto; provided,
however, that the members of the Committee shall qualify to administer the Plan
for purposes of Rule 16b-3 (and any other applicable rule) promulgated under
Section 16(b) of the Exchange Act to the extent that the Corporation is subject
to such rule. The Committee may adopt its own rules of procedure, and the
action of a majority of the Committee, taken at a meeting or taken without a
meeting by a writing signed by such majority, shall constitute action by the
Committee. The Committee shall have the power and authority to administer,
construe and interpret the Plan, to make rules for carrying it out and to make
changes in such rules. Any such interpretations, rules, and administration
shall be consistent with the basic purposes of the Plan.
<PAGE>
3
(b) The Committee may delegate to the Chief Executive Officer and to other
senior officers of the Corporation its duties under the Plan subject to such
conditions and limitations as the Committee shall prescribe except that only the
Committee may designate and make Grants to Participants who are subject to
Section 16 of the Exchange Act.
(c) The Committee may employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Corporation, and the
officers and directors of the Corporation shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon all Participants, the Corporation and all other
interested persons. No member of the Committee shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan or the Grants, and all members of the Committee shall be fully
protected by the Corporation with respect to any such action, determination or
interpretation.
4. Eligibility
-----------
The Committee may from time to time make Grants under the Plan to such
Employees, or other persons having a unique relationship with Corporation or any
of its Subsidiaries, and in such form and having such terms, conditions and
limitations as the Committee may determine. No Grants may be made under this
Plan to non-employee directors of Corporation or any of its Subsidiaries.
Grants may be granted singly, in combination or in tandem. The terms,
conditions and limitations of each Grant under the Plan shall be set forth in a
Grant Agreement, in a form approved by the Committee, consistent, however, with
the terms of the Plan; provided, however, such Grant Agreement shall contain
provisions dealing with the treatment of Grants in the event of the termination,
death or disability of a Participant, and may also include provisions concerning
the treatment of Grants in the event of a change of control of Corporation.
5. Grants
------
From time to time, the Committee will determine the forms and amounts of
Grants for Participants. Such Grants may take the following forms in the
Committee's sole discretion:
(a) Incentive Stock Options - These are stock options within the meaning
-----------------------
of Section 422 of the Internal Revenue Code of 1986, as amended ("Code"), to
purchase Common Stock. In addition to other restrictions contained in the Plan,
an option granted under this Paragraph 5(a), (i) may not be exercised more than
10 years after the date it is granted, (ii) may not have an option price less
than the Fair Market Value of Common Stock on the date the option is granted,
(iii) must otherwise comply with Code Section 422, and (iv) must be designated
as an "Incentive Stock
<PAGE>
4
Option" by the Committee. The maximum aggregate Fair Market Value of Common
Stock (determined at the time of each Grant) with respect to which any
Participant may first exercise Incentive Stock Options under this Plan and any
Incentive Stock Options granted to the Participant for such year under any plans
of the Corporation or any Subsidiary in any calendar year is $100,000. Payment
of the option price shall be made in cash or in shares of Common Stock, or a
combination thereof, in accordance with the terms of the Plan, the Grant
Agreement, and of any applicable guidelines of the Committee in effect at the
time.
(b) Other Stock Options - These are options to purchase Common Stock which
-------------------
are not designated by the Committee as "Incentive Stock Options". At the time
of the Grant the Committee shall determine, and shall have contained in the
Grant Agreement or other Plan rules, the option exercise period, the option
price, and such other conditions or restrictions on the grant or exercise of the
option as the Committee deems appropriate, which may include the requirement
that the grant of options is predicated on the acquisition of Purchase Shares
under Paragraph 5(e) by the Optionee. In addition to other restrictions
contained in the Plan, an option granted under this Paragraph 5(b), (i) may not
be exercised more than 10 years after the date it is granted and (ii) may not
have an option exercise price less than 50% of the Fair Market Value of Common
Stock on the date the option is granted. Payment of the option price shall be
made in cash or in shares of Common Stock, or a combination thereof, in
accordance with the terms of the Plan and of any applicable guidelines of the
Committee in effect at the time.
(c) Stock Appreciation Rights - These are rights that on exercise entitle
-------------------------
the holder to receive the excess of (i) the Fair Market Value of a share of
Common Stock on the date of exercise over (ii) the Fair Market Value on the date
of Grant (the "base value") multiplied by (iii) the number of rights exercised
as determined by the Committee. Stock Appreciation Rights granted under the
Plan may, but need not be, granted in conjunction with an Option under Paragraph
5(a) or 5(b). The Committee, in the Grant Agreement or by other Plan rules, may
impose such conditions or restrictions on the exercise of Stock Appreciation
Rights as it deems appropriate, and may terminate, amend, or suspend such Stock
Appreciation Rights at any time. No Stock Appreciation Right granted under this
Plan may be exercised less than 6 months or more than 10 years after the date it
is granted except in the event of death or disability of a Participant. To the
extent that any Stock Appreciation Right that shall have become exercisable, but
shall not have been exercised or cancelled or, by reason of any termination of
employment, shall have become non-exercisable, it shall be deemed to have been
exercised automatically, without any notice of exercise, on the last day of
which it is exercisable, provided that any conditions or limitations on its
exercise are satisfied (other than (i) notice of exercise and (ii) exercise or
election to exercise
<PAGE>
5
during the period prescribed) and the Stock Appreciation Right shall then have
value. Such exercise shall be deemed to specify that the holder elects to
receive cash and that such exercise of a Stock Appreciation Right shall be
effective as of the time of automatic exercise.
(d) Restricted Stock - Restricted Stock is Common Stock delivered to a
----------------
Participant with or without payment of consideration with restrictions or
conditions on the Participant's right to transfer or sell such stock; provided
that the price of any Restricted Stock delivered for consideration and not as
bonus stock may not be less than 50% of the Fair Market Value of Common Stock on
the date such Restricted Stock is granted or the price of such Restricted Stock
may be the par value. If a Participant irrevocably elects in writing in the
calendar year preceding a Grant of Restricted Stock, dividends paid on the
Restricted Stock granted may be paid in shares of Restricted Stock equal to the
cash dividend paid on Common Stock. The number of shares of Restricted Stock
and the restrictions or conditions on such shares shall be as the Committee
determines, in the Grant Agreement or by other Plan rules, and the certificate
for the Restricted Stock shall bear evidence of the restrictions or conditions.
No Restricted Stock may have a restriction period of less than 6 months, other
than in the case of death or disability.
(e) Purchase Stock - Purchase Stock are shares of Common Stock offered to
--------------
a Participant at such price as determined by the Committee, the acquisition of
which will make him eligible to receive under the Plan, including, but not
limited to, Other Stock Options; provided, however, that the price of such
Purchase Shares may not be less than 50% of the Fair Market Value of the Common
Stock on the date such shares of Purchase Stock are offered.
(f) Dividend Equivalent Rights - These are rights to receive cash payments
--------------------------
from the Corporation at the same time and in the same amount as any cash
dividends paid on an equal number of shares of Common Stock to shareholders of
record during the period such rights are effective. The Committee, in the Grant
Agreement or by other Plan rules, may impose such restrictions and conditions on
the Dividend Equivalent Rights, including the date such rights will terminate,
as it deems appropriate, and may terminate, amend, or suspend such Dividend
Equivalent Rights at any time.
(g) Performance Units - These are rights to receive at a specified future
-----------------
date, payment in cash of an amount equal to all or a portion of the value of a
unit granted by the Committee. At the time of the Grant, in the Grant Agreement
or by other Plan rules, the Committee must determine the base value of the unit,
the performance factors applicable to the determination of the ultimate payment
value of the unit and the period over which Corporation performance will be
measured. These factors must
<PAGE>
6
include a minimum performance standard for the Corporation below which no
payment will be made and a maximum performance level above which no increased
payment will be made. The term over which Corporation performance will be
measured shall be not less than six months.
(h) Performance Shares - These are rights to receive at a specified future
------------------
date, payment in cash or Common Stock, as determined by the Committee, of an
amount equal to all or a portion of the Fair Market Value for all days that the
Common Stock is traded during the last forty-five (45) days of the specified
period of performance of a specified number of shares of Common Stock at the end
of a specified period based on Corporation performance during the period. At
the time of the Grant, the Committee, in the Grant Agreement or by Plan rules,
will determine the factors which will govern the portion of the rights so
payable and the period over which Corporation performance will be measured. The
factors will be based on Corporation performance and must include a minimum
performance standard for the Corporation below which no payment will be made and
a maximum performance level above which no increased payment will be made. The
term over which Corporation performance will be measured shall be not less than
six months. Performance Shares will be granted for no consideration.
(i) Other Stock-Based Grants - The Committee may make other Grants under
------------------------
the Plan pursuant to which shares of Common Stock (which may, but need not, be
shares of Restricted Stock pursuant to Paragraph 5(d)), are or may in the future
be acquired, or Grants denominated in stock units, including ones valued using
measures other than market value. Other Stock-Based Grants may be granted with
or without consideration; provided, however, that the price of any such Grant
made for consideration that provides for the acquisition of shares of Common
Stock or other equity securities of the Corporation may not be less than 50% of
the Fair Market Value of the Common Stock or such other equity securities on the
date of grant of such Grant. Such Other Stock-Based Grants may be made alone,
in addition to or in tandem with any Grant of any type made under the Plan and
must be consistent with the purposes of the Plan.
6. Limitations and Conditions
--------------------------
(a) The number of Shares available for Grants under this Plan shall be
2,050,000 shares of the authorized Common Stock as of the effective date of the
Plan. The number of Shares subject to Grants under this Plan to any one
Participant shall not be more than 456,530 million shares. Unless restricted by
applicable law, Shares related to Grants that are forfeited, terminated,
cancelled or expire unexercised, shall immediately become available for Grants.
(b) No Grants shall be made under the Plan beyond ten years after the
effective date of the Plan, but the terms of Grants
<PAGE>
7
made on or before the expiration thereof may extend beyond such expiration. At
the time a Grant is made or amended or the terms or conditions of a Grant are
changed, the Committee may provide for limitations or conditions on such Grant.
(c) Nothing contained herein shall affect the right of the Corporation to
terminate any Participant's employment at any time or for any reason.
(d) Deferrals of Grant payouts may be provided for, at the sole discretion
of the Committee, in the Grant Agreements.
(e) Except as otherwise prescribed by the Committee, the amounts of the
Grants for any employee of a Subsidiary, along with interest, dividend, and
other expenses accrued on deferred Grants shall be charged to the Participant's
employer during the period for which the Grant is made. If the Participant is
employed by more than one Subsidiary or by both the Corporation and a Subsidiary
during the period for which the Grant is made, the Participant's Grant and
related expenses will be allocated between the companies employing the
Participant in a manner prescribed by the Committee.
(f) Other than as specifically provided with regard to the death of a
Participant, no benefit under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or
charge, and any attempt to do so shall be void. No such benefit shall, prior to
receipt thereof by the Participant, be in any manner liable for or subject to
the debts, contracts, liabilities, engagements, or torts of the Participant.
(g) Participants shall not be, and shall not have any of the rights or
privileges of, stockholders of the Corporation in respect of any Shares
purchasable in connection with any Grant unless and until certificates
representing any such Shares have been issued by the Corporation to such
Participants.
(h) No election as to benefits or exercise of Stock Options, Stock
Appreciation Rights, or other rights may be made during a Participant's lifetime
by anyone other than the Participant except by a legal representative appointed
for or by the Participant.
(i) Absent express provisions to the contrary, any grant under this Plan
shall not be deemed compensation for purposes of computing benefits or
contributions under any retirement plan of the Corporation or its Subsidiaries
and shall not affect any benefits under any other benefit plan of any kind or
subsequently in effect under which the availability or amount of benefits is
related to level of compensation. This Plan is not a "Retirement Plan" or
"Welfare Plan" under the Employee Retirement Income Security Act of 1974, as
amended.
<PAGE>
8
(j) Unless the Committee determines otherwise, no benefit or promise under
the Plan shall be secured by any specific assets of the Corporation or any of
its Subsidiaries, nor shall any assets of the Corporation or any of its
Subsidiaries be designated as attributable or allocated to the satisfaction of
the Corporation's obligations under the Plan.
7. Transfers and Leaves of Absence
-------------------------------
For purposes of the Plan, unless the Committee determines otherwise: (a)
a transfer of a Participant's employment without an intervening period of
separation among the Corporation and any Subsidiary shall not be deemed a
termination of employment, and (b) a Participant who is granted in writing a
leave of absence shall be deemed to have remained in the employ of the
Corporation during such leave of absence.
8. Adjustments
-----------
In the event of any change in the outstanding Common Stock by reason of a
stock split, spin-off, stock dividend, stock combination or reclassification,
recapitalization or merger, change of control, or similar event, the Committee
may adjust appropriately the number of Shares subject to the Plan and available
for or covered by Grants and Share prices related to outstanding Grants and make
such other revisions to outstanding Grants as it deems are equitably required.
9. Merger, Consolidation, Exchange,
Acquisition, Liquidation or Dissolution
---------------------------------------
In its absolute discretion, and on such terms and conditions as it deems
appropriate, coincident with or after the grant of any Stock Option or any
Stock-Based Grant, the Committee may provide that such Stock Option or Stock-
Based Grant cannot be exercised after the merger or consolidation of the
Corporation into another corporation, the exchange of all or substantially all
of the assets of the Corporation for the securities of another corporation, the
acquisition by another corporation of 80% or more of the Corporation's then
outstanding shares of voting stock or the recapitalization, reclassification,
liquidation or dissolution of the Corporation, and if the Committee so provides,
it shall, on such terms and conditions as it deems appropriate in its absolute
discretion, also provide, either by the terms of such Stock Option or Stock-
Based Grant or by a resolution adopted prior to the occurrence of such merger,
consolidation, exchange, acquisition, recapitalization, reclassification,
liquidation or dissolution, that, for some period of time prior to such event,
such Stock Option or Stock-Based Grant shall be exercisable as to all shares
subject thereto, notwithstanding anything to the contrary herein (but subject to
the provisions of Paragraph 6(b)) and that, upon the occurrence of such event,
such Stock Option or Stock-Based Grant shall terminate and be of no further
force or effect; provided,
<PAGE>
9
however, that the Committee may also provide, in its absolute discretion, that
even if the Stock Option or Stock-Based Grant shall remain exercisable after any
such event, from and after such event, any such Stock Option or Stock-Based
Grant shall be exercisable only for the kind and amount of securities and/or
other property, or the cash equivalent thereof, receivable as a result of such
event by the holder of a number of shares of stock for which such Stock Option
or Stock-Based Grant could have been exercised immediately prior to such event.
10. Amendment and Termination
-------------------------
The Committee shall have the authority to make such amendments to any terms
and conditions applicable to outstanding Grants as are consistent with this Plan
provided that, except for adjustments under Paragraph 8 or 9 hereof, no such
action shall modify such Grant in a manner adverse to the Participant without
the Participant's consent except as such modification is provided for or
contemplated in the terms of the Grant.
The Board of Directors may amend, suspend or terminate the Plan except that
no such action, other than an action under Paragraph 8 or 9 hereof, may be taken
which would, without shareholder approval, increase the aggregate number of
Shares available for Grants under the Plan, decrease the price of outstanding
Options or Stock Appreciation Rights, change the requirements relating to the
Committee or extend the term of the Plan.
11. Foreign Options and Rights
--------------------------
The Committee may make Grants to Employees who are subject to the laws
of nations other than the United States, which Grants may have terms and
conditions that differ from the terms thereof as provided elsewhere in the Plan
for the purpose of complying with foreign laws.
12. Withholding Taxes
-----------------
The Corporation shall have the right to deduct from any cash payment made
under the Plan any federal, state or local income or other taxes required by law
to be withheld with respect to such payment. It shall be a condition to the
obligation of the Corporation to deliver shares upon the exercise of an Option
or Stock Appreciation Right, upon payment of Performance units or shares, upon
delivery of Restricted Stock or upon exercise, settlement or payment of any
Other Stock-Based Grant that the Participant pay to the Corporation such amount
as may be requested by the Corporation for the purpose of satisfying any
liability for such withholding taxes. Any Grant Agreement may provide that the
Participant may elect, in accordance with any conditions set forth in such Grant
Agreement, to pay a portion or all of such withholding taxes in shares of Common
Stock.
<PAGE>
10
13. Effective Date and Termination Dates
------------------------------------
The Plan shall be effective on and as of the date of its approval by the
stockholders of the Corporation and shall terminate ten years later, subject to
earlier termination by the Board of Directors pursuant to Paragraph 10.
EXHIBIT 10.33
MANAGEMENT STOCKHOLDER'S AGREEMENT
----------------------------------
This Management Stockholder's Agreement (this "Agreement") is entered
into as of February 15, 1996 between BRUNO'S, INC., an Alabama corporation (the
"Company") and William J. Bolton (the "Purchaser") (the Company and the
Purchaser being hereinafter collectively referred to as the "Parties").
RECITALS
--------
Crimson Acquisition Corp., an Alabama corporation ("Crimson"), was
recently incorporated and will be merged with and into the Company (the
"Merger"), pursuant to an Agreement and Plan of Merger, dated as of April 20,
1995 and amended as of May 18, 1995, between Crimson and the Company (the
"Merger Agreement"). In connection with the Merger, the Company has sold and
proposes to sell shares of its Common Stock, par value $.01 per share (the
"Common Stock"), to a limited number of investors for $12 per share of Common
Stock.
This Agreement is one of several agreements ("Other Purchasers'
Agreements") which have been, or which in the future will be, entered into
between the Company and other individuals who are or will be key employees of
the Company or one of its subsidiaries (collectively, the "Other Purchasers").
In addition, the Company has entered into agreements (the "Investors'
Agreements") with other purchasers (collectively, the "Investors") pursuant to
which the Investors purchased or will purchase shares of Common Stock.
The Company has agreed to sell 83,333 shares of Common Stock to
Purchaser so that Purchaser shall receive, in the aggregate, 83,333 shares of
Common Stock (the "Purchase Stock"). In addition, the Company will grant to
Purchaser an option or options to purchase Common Stock ("Options") at an
exercise price of $12 per share of Common Stock pursuant to the terms of the
1996 Stock Purchase and Option Plan for Key Employees of Bruno's, Inc. and
Subsidiaries (the "Option Plan") and the "Non-Qualified Stock Option Agreement"
attached hereto as Exhibit A. The Options may be granted as Time Options or
Performance Options (each as defined in the Non-Qualified Stock Option
Agreement).
AGREEMENT
---------
To implement the foregoing and in consideration of the mutual
agreements contained herein, the Parties agree as follows:
<PAGE>
2
1. Purchase of Stock; Issuance of Options.
--------------------------------------
(a) On February 15, 1996 (the "Purchase Date"), the Company will
deliver the Purchase Stock and grant the Options described above to the
Purchaser in accordance with, and subject to the terms and conditions contained
in the Option Plan and the Non-Qualified Stock Option Agreement.
(b) The Parties shall execute and deliver to each other copies of the
Non-Qualified Stock Option Agreement concurrently with the issuance of the
Options.
2. Purchaser's Representations, Warranties and Agreements.
------------------------------------------------------
(a) The Purchaser hereby represents and warrants that he is acquiring
the Purchase Stock and, at the time of exercise, the Common Stock issuable upon
exercise of the Options (collectively, the "Stock") for investment for his own
account and not with a view to, or for resale in connection with, the
distribution or other disposition thereof. The Purchaser agrees and
acknowledges that he will not, directly or indirectly, offer, transfer, sell,
assign, pledge, hypothecate or otherwise dispose of any shares of the Stock
unless such transfer, sale, assignment, pledge, hypothecation or other
disposition complies with Section 3 of this Agreement and (i) the transfer,
sale, assignment, pledge, hypothecation or other disposition is pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
or the rules and regulations in effect thereunder (the "Act") or (ii) counsel
for the Purchaser (which shall be Kirkland or such other counsel acceptable to
the Company) shall have furnished the Company with an opinion, satisfactory in
form and substance to the Company, that no such registration is required because
of the availability of an exemption from registration under the Act.
Notwithstanding the foregoing, the Company acknowledges and agrees that any of
the following transfers are deemed to be in compliance with the Act and this
Agreement and no opinion of counsel is required in connection therewith: (x) a
transfer made pursuant to Section 4, 5 or 6 hereof, (y) a transfer upon the
death of the Purchaser to his executors, administrators, testamentary trustees,
legatees or beneficiaries (the "Purchaser's Estate") or a transfer to the
executors, administrators, testamentary trustees, legatees or beneficiaries of a
person who has become a holder of Stock in accordance with the terms of this
Agreement, provided that it is expressly understood that any such transferee
shall be bound by the provisions of this Agreement and (z) a transfer made after
the Purchase Date in compliance with the federal securities laws to a trust or
custodianship the beneficiaries of which may include only the Purchaser, his
spouse or his lineal descendants (a "Purchaser's Trust") or a transfer made
after the third anniversary of the Purchase Date to such a trust by a person who
has become a holder of Stock in accordance with the terms of this Agreement,
provided that such transfer is made expressly subject
<PAGE>
3
to this Agreement and that the transferee agrees in writing to be bound by the
terms and conditions hereof.
(b) The certificate (or certificates) representing the Stock shall
bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS
OF THE MANAGEMENT STOCKHOLDER'S AGREEMENT DATED AS OF FEBRUARY
15, 1996 BETWEEN BRUNO'S, INC. ("THE COMPANY") AND THE PURCHASER
NAMED ON THE FACE HEREOF (A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY). EXCEPT AS OTHERWISE PROVIDED IN SUCH
AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION
OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR (B) IF (I) THE COMPANY HAS BEEN FURNISHED
WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH
TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT
OR THE RULES AND REGULATIONS IN EFFECT THEREUNDER, AND IN
COMPLIANCE WITH APPLICABLE PROVISIONS OF STATE SECURITIES LAWS,
AND (II) IF THE HOLDER IS A CITIZEN OR RESIDENT OF ANY COUNTRY
OTHER THAN THE UNITED STATES, OR THE HOLDER DESIRES TO EFFECT ANY
SUCH TRANSACTION IN ANY SUCH COUNTRY, THE COMPANY HAS BEEN
FURNISHED WITH A SATISFACTORY OPINION OR OTHER ADVICE OF COUNSEL
FOR THE HOLDER THAT SUCH TRANSACTION WILL NOT VIOLATE THE LAWS OF
SUCH COUNTRY."
(c) The Purchaser acknowledges that he has been advised that (i) the
Stock has not been registered under the Act, (ii) the Stock must be held
indefinitely and the Purchaser must continue to bear the economic risk of the
investment in the Stock unless it is subsequently registered under the Act or an
exemption from such registration is available, (iii) it is not anticipated that
there will be any public market for the Stock, (iv) Rule 144 promulgated under
the Act is not currently available with respect to the sales of any securities
of the Company, and the Company has made no covenant to make such Rule available
(except as provided in Section 10(b) hereof), (v) when and if shares of the
Stock may be disposed of without registration in reliance on Rule 144, such
disposition can be made only in limited amounts in accordance with the terms and
conditions of such Rule, (vi) if the Rule 144 exemption is not available, public
sale without registration will require
<PAGE>
4
compliance with Regulation A or some other exemption under the Act, (vii) a
restrictive legend in the form heretofore set forth shall be placed on the
certificates representing the Stock and (viii) a notation shall be made in the
appropriate records of the Company indicating that the Stock is subject to
restriction on transfer and, if the Company should at some time in the future
engage the services of a stock transfer agent, appropriate stop transfer
restrictions will be issued to such transfer agent with respect to the Stock.
(d) If any shares of the Stock are to be disposed of in accordance
with Rule 144 under the Act or otherwise, the Purchaser shall promptly notify
the Company of such intended disposition and shall deliver to the Company at or
prior to the time of such disposition such documentation as the Company may
reasonably request in connection with such sale and, in the case of a
disposition pursuant to Rule 144, shall deliver to the Company an executed copy
of any notice on Form 144 required to be filed with the Securities and Exchange
Commission.
(e) The Purchaser agrees that, if any shares of the capital stock of
the Company are offered to the public pursuant to an effective registration
statement under the Act (other than registration of securities issued under an
employee plan), the Purchaser will not effect any public sale or distribution of
any shares of the Stock not covered by such registration statement within 7 days
prior to, or within 180 days after, the effective date of such registration
statement, unless otherwise agreed to in writing by the Company.
(f) The Purchaser represents and warrants that (i) he has received
and reviewed a Private Placement Memorandum (the "Private Placement Memorandum")
relating to the Stock and the documents referred to therein, certain of which
documents set forth the rights, preferences and restrictions relating to the
Stock and (ii) he has been given the opportunity to obtain any additional
information or documents and to ask questions and receive answers about such
documents, the Company and the business and prospects of the Company which he
deems necessary to evaluate the merits and risks related to his investment in
the Stock and to verify the information contained in the Private Placement
Memorandum and the information received as indicated in this Section 2(f)(ii),
and he has relied solely on such information.
(g) The Purchaser further represents and warrants that (i) his
financial condition is such that he can afford to bear the economic risk of
holding the Stock for an indefinite period of time and has adequate means for
providing for his current needs and personal contingencies, (ii) he can afford
to suffer a complete loss of his investment in the Stock, (iii) all information
which he has provided to the Company concerning himself and his financial
position is correct and complete as of the date of this Agreement, (iv) he
understands and has taken
<PAGE>
5
cognizance of all risk factors related to the purchase of the Stock, including
those set forth in the Private Placement Memorandum referred to above, and (v)
his knowledge and experience in financial and business matters are such that he
is capable of evaluating the merits and risks of his purchase of the Stock as
contemplated by this Agreement.
3. Restriction on Transfer.
-----------------------
Except for transfers permitted by clauses (x), (y) and (z) of Section
2(a) or a sale of shares of Stock pursuant to an effective registration
statement under the Act filed by the Company or pursuant to the Sale
Participation Agreement (as defined below), the Purchaser agrees that he will
not transfer, sell, assign, pledge, hypothecate or otherwise dispose of any
shares of the Stock at any time prior to the fifth anniversary of the Purchase
Date. No transfer of any such shares in violation hereof shall be made or
recorded on the books of the Company and any such transfer shall be void and of
no effect.
4. Right of First Refusal.
----------------------
If a Public Offering has not occurred on or prior to the fifth
anniversary of the Purchase Date, then, at any time after the fifth anniversary
of the Purchase Date and prior to a Public Offering (as defined below), the
Purchaser receives a bona fide offer to purchase any or all of his shares of
Stock (the "Offer") from a third party (the "Offeror") which the Purchaser
wishes to accept, the Purchaser shall cause the Offer to be reduced to writing
and shall notify the Company in writing of his wish to accept the Offer. The
Purchaser's notice shall contain an irrevocable offer to sell such shares of
Stock to the Company, (in the manner set forth below) at a purchase price equal
to the price contained in, and on the same terms and conditions of, the Offer,
and shall be accompanied by a true copy of the Offer (which shall identify the
Offerer). At any time within 30 days after the date of the receipt by the
Company of the Purchaser's notice, the Company shall have the right and option
to purchase, or to arrange for a third party to purchase, all of the shares of
Stock covered by the Offer either (i) at the same price and on the same terms
and conditions as the Offer or (ii) if the Offer includes any consideration
other than cash, then at the sole option of the Company, at the equivalent all
cash price, determined in good faith by the Company's Board of Directors, by
delivering a certified bank check or checks in the appropriate amount to the
Purchaser at the principal office of the Company against delivery of
certificates or other instruments representing the shares of the Stock so
purchased, appropriately endorsed by the Purchaser. If at the end of such 30
day period, the Company has not tendered the purchase price for such shares in
the manner set forth above, the Purchaser may during the succeeding 30 day
period sell not less than all of the shares of Stock covered by the Offer to the
Offerer at a price and on terms no less favorable to the Purchaser than those
contained in the
<PAGE>
6
Offer. Promptly after such sale, the Purchaser shall notify the Company of the
consummation thereof and shall furnish such evidence of the completion and time
of completion of such sale and of the terms thereof as may reasonably be
requested by the Company. If, at the end of 30 days following the expiration of
the 30 day period for the Company to purchase the Stock, the Purchaser has not
completed the sale of such shares of the Stock as aforesaid, all the
restrictions on sale, transfer or assignment contained in this Agreement shall
again be in effect with respect to such shares of the Stock.
5. Purchaser's Resale of Stock and Options to the
Company Upon The Purchaser's Death or Disability.
------------------------------------------------
(a) Except as otherwise provided herein, if at any time prior to a
Public Offering (i) the Purchaser is still in the employ of the Company or any
subsidiary of the Company, or had retired from the Company and its subsidiaries
at age 62 or over (or such other age as may be approved by the Board of
Directors of the Company) after having been employed by the Company or any
subsidiary for at least three years after the Purchase Date, and (ii) the
Purchaser either dies or becomes permanently disabled, then the Purchaser, the
Purchaser's Estate or a Purchaser's Trust, as the case may be, shall have the
right, for six months following the date of death or permanent disability, to
(A) sell to the Company, and the Company shall be required to purchase, on one
occasion, all or any portion of the shares of Stock then held by the Purchaser,
the Purchaser's Trust and/or the Purchaser's Estate, as the case may be, at the
Section 5 Repurchase Price, as determined in accordance with Section 7, and (B)
require the Company to pay to the Purchaser or the Purchaser's Estate, as the
case may be, an additional amount equal to the Option Excess Price determined on
the basis of a Section 5 Repurchase Price as provided in Section 8 with respect
to the termination of outstanding Options held by the Purchaser. The Purchaser,
the Purchaser's Estate and/or the Purchaser's Trust, as the case may be, shall
send written notice to the Company of its intention to sell shares of Stock and
to terminate such Options in exchange for the payment referred to in the
preceding sentence (the "Redemption Notice"). The completion of the purchase
shall take place at the principal office of the Company on the tenth business
day after the giving of the Redemption Notice. The Section 5 Repurchase Price
and any payment with respect to the Options as described above shall be paid by
delivery to the Purchaser, the Purchaser's Estate of the Purchaser's Trust, as
the case may be, of a certified bank check or checks in the appropriate amount
payable to the order of the Purchaser, the Purchaser's Estate or the Purchaser's
Trust, as the case may be, against delivery of certificates or other instruments
representing the Stock so purchased and appropriate documents cancelling the
Options so terminated appropriately endorsed or executed by the Purchaser, the
Purchaser's Estate or the Purchaser's Trust, or his or its duly authorized
representative. For purposes of this Agreement, Purchaser shall be deemed to
have
<PAGE>
7
a "permanent disability" when the majority of the Board of Directors of the
Company shall, in good faith, so determine.
(b) Notwithstanding anything in Section 5(a) to the contrary and
subject to Section 11, if there exists and is continuing a default or an event
of default on the part of the Company or any subsidiary of the Company under any
loan, guarantee or other agreement under which the Company or any subsidiary of
the Company has borrowed money or such repurchase would result in a default or
an event of default on the part of the Company or any subsidiary of the Company
under any such agreement or if a repurchase would not be permitted under Section
10-2B-6.31 of the Alabama Business Corporation Act (or if the Company
reincorporates, of that state) or would otherwise violate the General
Corporation Law of the State of Alabama (of if the Company reincorporates, of
that state) (each such occurrence being an "Event"), the Company shall not be
obligated to repurchase any of the Stock or the Options from the Purchaser, the
Purchaser's Estate, or the Purchaser's Trust, as the case may be, until the
first business day which is 10 calendar days after all of the foregoing Events
have ceased to exist (the "Repurchase Eligibility Date"); provided, however,
-------- -------
that (i) the number of shares of Stock subject to repurchase under this Section
5(b) shall be that number of shares of Stock, and (ii) the number of Exercisable
Option Shares (as defined in Section 8) for purposes of calculating the Option
Excess Price payable under this Section 5(b) shall be the number of Exercisable
Option Shares, held by the Purchaser, the Purchaser's Estate or a Purchaser's
Trust, as the case may be, at the time of delivery of a Redemption Notice in
accordance with Section 5(a) hereof; provided, further, that the Repurchase
-------- -------
Calculation Date shall be determined in accordance with Section 7 as of the
Repurchase Eligibility Date (unless the Section 5 Repurchase Price would be
greater if the Repurchase Calculation Date had been determined as if no Event
had occurred in which case, solely for purposes of this proviso, the Repurchase
-------
Calculation Date shall be determined as if no Event had occurred). All Options
exercisable as of the date of a Redemption Notice shall continue to be
exercisable until the repurchase pursuant to such Redemption Notice.
(c) Notwithstanding any other provision of this Section 5 to the
contrary and subject to Section 11, the Purchaser, the Purchaser's Estate or the
Purchaser's Trust, as the case may be, shall have the right to withdraw any
Redemption Notice which has been pending for 60 or more days and which has
remained unsatisfied because of the provisions of Section 5(b).
6. The Company's Option to Repurchase Stock
----------------------------------------
and Options of Purchaser.
------------------------
(a) If, on or prior to the fifth anniversary of the Purchase Date, (i)
the Purchaser's active employment with the Company (and/or, if applicable, its
subsidiaries) is voluntarily or involuntarily terminated for any reason
whatsoever, with or
<PAGE>
8
without cause, (ii) the beneficiaries of a Purchaser's Trust shall include any
person or entity other than the Purchaser, his spouse or his lineal descendants,
or (iii) the Purchaser shall effect a transfer of any of the Stock other than as
permitted in this Agreement (alternatively, a "Call Event"), the Company shall
have the right to purchase all, but not less than all, of the shares of the
Stock then held by the Purchaser or a Purchaser's Trust at the Section 6
Repurchase Price determined in accordance with Section 7 hereof; provided,
--------
however, that if the termination of employment results from (A) the death or
- -------
permanent disability of the Purchaser or (B) the retirement of the Purchaser
from the Company or any of its subsidiaries at age 62 or over (or such other age
as may be approved by the Board of Directors of the Company) after having been
employed by the Company or its subsidiaries for at least three years after the
Purchase Date, the Company shall have the right to purchase all, but not less
than all, of the shares of the Stock then held by the Purchaser or a Purchaser's
Trust but the Repurchase Price shall be the Section 5 Repurchase Price. The
Company shall have a period of 75 days from the date of a Call Event in which to
give notice in writing to the Purchaser of the exercise of such election ("Call
Notice"). In the event that the Company exercises its right to repurchase
shares of the Stock pursuant to this Section 6, the Company shall also pay the
Purchaser an amount equal to the Option Excess Price determined on the basis of
the Section 6 Repurchase Price or the Section 5 Repurchase Price, as the case
may be, as provided in Section 8, with respect to the termination of outstanding
Options held by the Purchaser.
(b) The completion of the purchases pursuant to the foregoing shall
take place at the principal office of the Company on the tenth business day
after the giving of notice of the exercise of the option to purchase. The
Section 5 Repurchase Price or the Section 6 Repurchase Price, as the case may
be, and any payment with respect to the Options as described above shall be paid
by delivery to the Purchaser of a certified bank check or checks in the
appropriate amount payable to the order of the Purchaser against delivery of
certificates or other instruments representing the Stock so purchased and
appropriate documents cancelling the Options so terminated, appropriately
endorsed or executed by the Purchaser, the Purchaser's Trust or his or its
authorized representative.
(c) Notwithstanding any other provision of this Section 6 to the
contrary and subject to Section 11, if there exists and is continuing any Event,
the Company shall delay the repurchase of any of the Stock or the Options
(pursuant to a Call Notice timely given in accordance with Section 6(a) hereof)
from the Purchaser, the Purchaser's Estate, or the Purchaser's Trust, as the
case may be, until the Repurchase Eligibility Date; provided, however, that (i)
-------- -------
the number of shares of Stock subject to repurchase under this Section 6(c)
shall be that number of shares of Stock and (ii) the number of Exercisable
Option Shares for purposes of calculating the Option Excess Price payable under
<PAGE>
9
this Section 6(c) shall be the number of Exercisable Option Shares held by the
Purchaser, the Purchaser's Estate or a Purchaser's Trust, as the case may be, at
the time of delivery of a Call Notice in accordance with Section 6(a) hereof;
provided, further, that the Repurchase Calculation Date shall be determined in
- -------- -------
accordance with Section 7 based on the Repurchase Eligibility Date (unless the
applicable Repurchase Price would be greater if the Repurchase Calculation Date
had been determined as if no Event had occurred, in which case, solely for
purposes of this proviso, the Repurchase Calculation Date shall be determined as
-------
if no Event had occurred). All Options exercisable as of the date of a Call
Notice shall continue to be exercisable until the repurchase pursuant to such
Call Notice.
7. Determination of Repurchase Price.
---------------------------------
(a) The Section 5 Repurchase Price and the Section 6 Repurchase Price
are hereinafter collectively referred to as the "Repurchase Price." The
Repurchase Price shall be calculated on the basis of the unaudited financial
statements of the Company or the Market Price Per Share (as defined in Section
7(f)) as of the last day of the month preceding the later of (i) the month in
which the event giving rise to the repurchase occurs and (ii) the month in which
the Repurchase Eligibility Date occurs (hereinafter called the "Repurchase
Calculation Date"). The event giving rise to the repurchase shall be the death,
permanent disability, retirement or termination of employment, as the case may
be, of the Purchaser, not the giving of any notice required pursuant to Section
5 or 6.
(b) Prior to a Public Offering (as hereinafter defined) the Section 5
Repurchase Price shall be a per share Repurchase Price equal to $12 plus the
amount, if any, by which the Book Value Per Share (as defined in Section 7(d))
as of the Repurchase Calculation Date exceeds $12. After a Public Offering, the
Section 5 Repurchase Price shall be a per share Repurchase Price equal to $12
plus the amount, if any, by which the Market Price Per Share as of the
Repurchase Calculation Date exceeds $12.
(c) Prior to a Public Offering, the Section 6 Repurchase Price shall
be a per share Repurchase Price equal to the lesser of (i) the Book Value Per
Share or (ii) $12 plus (x) the Percentage (as defined below) multiplied by (y)
the amount, if any, by which the Book Value Per Share as of the Repurchase
Calculation Date exceeds $12. After a Public Offering, the Section 6 Repurchase
Price shall be a per share Repurchase Price equal to the lesser of (i) Market
Price Per Share or (ii) $12 plus (a) the Percentage multiplied by (b) the
amount, if any, by which the Market Price Per Share as of the Repurchase
Calculation Date exceeds $12; provided, however, that in the event of
-------- -------
Purchaser's termination without Cause by the Company (and/or, if applicable, its
subsidiaries) or with Good Reason by the Purchaser, the Section 6 Repurchase
Price shall be the Book Value
<PAGE>
10
Per Share or Market Price Per Share, as the case may be. For purposes of this
Agreement the following definitions shall apply: "Cause" shall mean (i) the
Purchaser's willful and continued failure to perform Purchaser's duties with
respect to the Company or its subsidiaries which continues beyond ten days after
a written demand for substantial performance is delivered to Purchaser by the
Company or (ii) misconduct by Purchaser involving (x) dishonesty or breach of
trust in connection with Purchaser's employment or (y) conduct which would be a
reasonable basis for an indictment of Purchaser for a felony or for a
misdemeanor involving moral turpitude; and "Good Reason" shall mean (i) a
reduction in Purchaser's base salary or (ii) a substantial reduction in
Purchaser's duties and responsibilities other than as approved by the Chief
Executive Officer of the Company. Notwithstanding the immediately preceding
sentence, the definitions in any employment agreement in effect on the date
hereof between the Company and Purchaser of "Cause" and "Good Reason" shall
supersede and replace the definitions of "Cause" and "Good Reason" in the
immediately preceding sentence and shall be deemed incorporated by reference in
this Agreement in their entirety.
The "Percentage" shall be determined as follows:
Repurchase Calculation Date Percentage
--------------------------- ----------
Purchase Date through and including the 0%
first anniversary of the Purchase Date
After the first anniversary of the Purchase 20%
Date through and including the second
anniversary of the Purchase Date
After the second anniversary of the 40%
Purchase Date through and including the
third anniversary of the Purchase Date
After the third anniversary of the Purchase 60%
Date through and including the fourth
anniversary of the Purchase Date
After the fourth anniversary of the 80%
Purchase Date through and including the
fifth anniversary of the Purchase Date
After the fifth anniversary of the Purchase 100%
Date
(d) For purposes of this Agreement, Book Value Per Share shall be the
quotient of (a) (i) $300 million plus (ii) the aggregate net income of the
----
Company from and after the date of the Merger (as decreased by any net losses
from and after the date of the Merger) plus (iii) the aggregate dollar amount
----
contributed to the Company after the date of the Merger as equity by the
shareholders of the Company minus (iv) the aggregate
-----
<PAGE>
11
dollar amount of any dividends paid by the Company after the date of the Merger
divided by (b) the sum of the number of shares of Common Stock then outstanding
and the number of shares of Common Stock issuable upon the exercise of all
outstanding stock options and other rights to acquire Common Stock and the
conversion of all securities convertible into shares of Common Stock. The
calculations set forth in clauses (a)(ii), (a)(iii) and (a)(iv) of the
immediately preceding sentence shall be determined in accordance with generally
accepted accounting principles applied on a basis consistent with any prior
periods as reflected in the consolidated financial statements of the Company.
(e) As used herein the term "Public Offering" shall mean the sale of
shares of Common Stock to the public subsequent to the date hereof pursuant to a
registration statement under the Act which has been declared effective by the
Securities and Exchange Commission (other than a registration statement on Form
S-8 or any other similar form) which results in an active trading market in the
Common Stock. A "Qualified Public Offering" shall mean a Public Offering
pursuant to an effective registration statement relating to the sale of shares
of the Company Stock held by any and all of KKR Partners II, L.P. and Crimson
Associates, L.P., a Delaware limited partnership; provided, however, that a
-------- -------
"Qualified Public Offering" shall be deemed to have occurred if there has been a
Public Offering and there exists an active trading market in 40% or more of the
Common Stock.
(f) As used herein the term "Market Price Per Share" shall mean the
price per share equal to the average of the last sale price of the Common Stock
on the Repurchase Calculation Date on each exchange on which the Common Stock
may at the time be listed or, if there shall have been no sales on any of such
exchanges on the Repurchase Calculation Date, the average of the closing bid and
asked prices on each such exchange at the end of the Repurchase Calculation Date
or if there is no such bid and asked price on the Repurchase Calculation Date on
the next preceding date when such bid and asked price occurred or, if the Common
Stock shall not be so listed, the average of the closing sales prices as
reported by NASDAQ at the end of the Repurchase Calculation Date in the over-
the-counter market. If the Common Stock is not so listed or reported by NASDAQ,
then the Market Price Per Share shall be the Book Value Per Share.
(g) In determining the Repurchase Price, appropriate adjustments
shall be made for any future issuances of rights to acquire and securities
convertible into Common Stock and any stock dividends, splits, combinations,
recapitalizations or any other adjustment in the number of shares of outstanding
shares of Common Stock.
<PAGE>
12
8. Stock Issued to Purchaser Upon Exercise of Stock
------------------------------------------------
Options; Termination of Options.
-------------------------------
(a) The Company may from time to time grant to the Purchaser, in
addition to the Options, options under the Option Plan to purchase shares of
Common Stock at $12 per share or at a different option exercise price. The term
"Stock" as used in this Agreement shall include all shares of Common Stock of
the Company purchased by the Purchaser pursuant to this Agreement and issued to
the Purchaser by the Company upon exercise of the Options and of any other stock
options held by the Purchaser and any other Common Stock otherwise acquired by
the Purchaser at any time when this Agreement is in effect.
(b) All outstanding Options granted to the Purchaser under the Option
Plan or otherwise, whether or not then exercisable, will be automatically
terminated upon the payment by the Company to the Purchaser, pursuant to the
provisions of Sections 5 or 6 of this Agreement, of an amount equal to the
Option Excess Price. If the Option Excess Price is zero or a negative number,
all outstanding stock options granted to the Purchaser under the Option Plan or
otherwise, whether or not then exercisable, shall be automatically terminated
upon the repurchase of Stock as provided in Sections 5 or 6. The Option Excess
Price is the excess, if any, of the Section 5 Repurchase Price or the Section 6
Repurchase Price, depending on which Repurchase Price is being used to
repurchase the remainder of the Stock, over the Option Price (as defined in the
Option Plan) multiplied by the number of Exercisable Option Shares. For
purposes hereof, "Exercisable Option Shares" shall mean the shares of Common
Stock which, at the time of determination of the Option Excess Price, could be
purchased by the Purchaser upon exercise of his outstanding options.
9. The Company's Representations and Warranties.
--------------------------------------------
(a) The Company represents and warrants to the Purchaser that (i)
this Agreement has been duly authorized, executed and delivered by the Company
and (ii) the Stock, when issued and delivered in accordance with the terms
hereof, will be duly and validly issued, fully paid and nonassessable.
(b) If the Company shall have engaged in a Public Offering, (i) the
Company shall use reasonable efforts to register the Options and the Stock to be
acquired on exercise thereof on a Form S-8 Registration Statement or any
successor to Form S-8 to the extent that such registration is then available
with respect to such Options and Stock and (ii) the Company will file the
reports required to be filed by it under the Act and the Exchange Act and the
rules and regulations adopted by the Securities and Exchange Commission ("SEC")
thereunder, to the extent required from time to time to enable the Purchaser to
sell shares of Stock without registration under the Act within the
<PAGE>
13
limitations of the exemptions provided by (A) Rule 144 under the Act, as such
Rule may be amended from time to time, or (B) any similar rule or regulation
hereafter adopted by the SEC. Notwithstanding anything contained in this
Section 10(b), the Company may deregister under Section 12 of the Exchange Act
if it is then permitted to do so pursuant to the Exchange Act and the rules and
regulations thereunder. Nothing in this Section 9(b) shall be deemed to limit
in any manner the restrictions on sales of Stock contained in this Agreement.
10. "Piggyback" Registration Rights.
-------------------------------
(a) Until the later of the first occurrence of a Qualified Public
Offering or the fifth anniversary of the Purchase Date, the Purchaser hereby
agrees to be bound by all of the terms, conditions and obligations of the
Registration Rights Agreement dated as of August 18, 1995, among the Company (as
successor by Merger to Crimson Acquisition Corp.) and certain of the Investors
(the "Registration Rights Agreement") and, in the case of a Qualified Public
Offering and subject to the limitations set forth in this Section 10, shall have
all of the rights and privileges of the Registration Rights Agreement, in each
case as if the Purchaser were an original party (other than the Company)
thereto; provided, however, that the Purchaser shall not have any rights to
-------- -------
request registration under Section 3 of the Registration Rights Agreement; and
provided further, that the Purchaser shall not be bound by any amendments to the
Registration Rights Agreement unless Purchaser consents thereto.
Notwithstanding anything to the contrary contained in the Registration Rights
Agreement, the Purchaser's rights and obligations under the Registration Rights
Agreement shall be subject to the limitations and additional obligations set
forth in this Section 10. All shares of Stock purchased by the Purchaser
pursuant to this Agreement and held by the Purchaser, the Purchaser's Trust or
the Purchaser's Estate, including shares purchased upon the exercise of Options,
shall be deemed to be Registrable Securities as defined in the Registration
Rights Agreement.
(b) The Company will promptly notify the Purchaser in writing (a
"Notice") of any proposed registration (a "Proposed Registration") in connection
with a Qualified Public Offering. If within 15 days of the receipt by the
Purchaser of such Notice, the Company receives from the Purchaser, the
Purchaser's Trust or the Purchaser's Estate a written request (a "Request") to
register shares of Stock held by the Purchaser, the Purchaser's Estate or the
Purchaser's Trust (which Request will be irrevocable unless otherwise mutually
agreed to in writing by the Purchaser and the Company), shares of Stock will be
so registered as provided in this Section 10; provided, however, that for each
-------- -------
such registration statement only one Request, which shall be executed by the
Purchaser, the Purchaser's Trust or the Purchaser's Estate, as the case may be,
may be submitted for all
<PAGE>
14
Registrable Securities held by the Purchaser, the Purchaser's Estate and the
Purchaser's Trust.
(c) The maximum number of shares of Stock which will be registered
pursuant to a Request will be the lowest of (i) the number of shares of Stock
then held by the Purchaser (which for purposes of this subparagraph (c) shall
include shares held by the Purchaser's Estate or a Purchaser's Trust), including
all shares of Stock which the Purchaser is then entitled to acquire under an
unexercised Option to the extent then exercisable or (ii) the maximum number of
shares of Stock which the Company can register in the Proposed Registration
without adverse effect on the offering in the view of the managing underwriters
(reduced pro rata with all Other Purchasers) as more fully described in
subsection (d) of this Section 10 or (iii) the maximum number of shares which
the Purchaser (pro rata based upon the aggregate number of shares of Common
Stock the Purchaser and all Other Purchasers have requested be registered) and
all Other Purchasers are permitted to register under the Registration Rights
Agreement.
(d) If a Proposed Registration involves an underwritten offering and
the managing underwriter advises the Company in writing that, in its opinion,
the number of shares of Stock requested to be included in the Proposed
Registration exceeds the number which can be sold in such offering, so as to be
likely to have an adverse effect on the price, timing or distribution of the
shares of Stock offered in such Qualified Public Offering as contemplated by the
Company, then the Company will include in the Proposed Registration (i) first,
100% of the shares of Stock the Company proposes to sell and (ii) second, to the
extent of the number of shares of Stock requested to be included in such
registration which, in the opinion of such managing underwriter, can be sold
without having the adverse effect referred to above, the number of shares of
Stock which the "Holders" (as defined in the Registration Rights Agreement),
including, without limitation, the Purchaser and Other Purchasers have requested
to be included in the Proposed Registration, such amount to be allocated pro
rata among all requesting Holders on the basis of the relative number of shares
of Stock then held by each such Holder (provided that any shares thereby
allocated to any such Holder that exceed such Holder's request will be
reallocated among the remaining requesting Holders in like manner).
(e) Upon delivering a Request the Purchaser will, if requested by the
Company, execute and deliver a custody agreement and power of attorney in form
and substance satisfactory to the Company with respect to the shares of Stock to
be registered pursuant to this Section 10 (a "Custody Agreement and Power of
Attorney"). The Custody Agreement and Power of Attorney will provide, among
other things, that the Purchaser will deliver to and deposit in custody with the
custodian and attorney-in-fact named therein a certificate or certificates
representing such
<PAGE>
15
shares of Stock (duly endorsed in blank by the registered owner or owners
thereof or accompanied by duly executed stock powers in blank) and irrevocably
appoint said custodian and attorney-in-fact as the Purchaser's agent and
attorney-in-fact with full power and authority to act under the Custody
Agreement and Power of Attorney on the Purchaser's behalf with respect to the
matters specified therein.
(f) The Purchaser agrees that he will execute such other agreements
as the Company may reasonably request to further evidence the provision of this
Section 10.
11. Pro Rata Repurchases.
--------------------
Notwithstanding anything to the contrary contained in Sections 5, 6 or
7, if at any time consummation of all purchases and payments to be made by the
Company pursuant to this Agreement and the Other Purchasers' Agreements would
result in an Event, then the Company shall make purchases from, and payments to,
the Purchaser and Other Purchasers pro rata (on the basis of the proportion of
the number of shares of Stock and the number of Options each such Purchaser and
all Other Purchasers have elected or are required to sell to the Company) for
the maximum number of shares of Stock and shall pay the Option Excess Price for
the maximum number of Options permitted without resulting in an Event (the
"Maximum Repurchase Amount"). The provisions of Section 5(b) and 6(c) shall
apply in their entirety to payments and repurchases with respect to Options and
shares of Stock which may not be made due to the limits imposed by the Maximum
Repurchase Amount under this Section 11. Until all of such Stock and Options
are purchased and paid for by the Company, the Purchaser and the Other
Purchasers whose Stock and Options are not purchased in accordance with this
Section 11 shall have priority, on a pro rata basis, over other purchases of
Common Stock and Options by the Company pursuant to this Agreement and Other
Purchasers' Agreements.
12. Rights to Negotiate Repurchase Price.
------------------------------------
Nothing in this Agreement shall be deemed to restrict or prohibit the
Company from purchasing shares of Stock or Options from the Purchaser, at any
time, upon such terms and conditions, and for such price, as may be mutually
agreed upon between the Parties, whether or not at the time of such purchase
circumstances exist which specifically grant the Company the right to purchase,
or the Purchaser the right to sell, shares of Stock or the Company has the right
to pay, or the Purchaser has the right to receive, the Option Excess Price under
the terms of this Agreement.
<PAGE>
16
13. Covenant Regarding 83(b) Election.
---------------------------------
Except as the Company may otherwise agree in writing, the Purchaser
hereby covenants and agrees that he will make an election provided pursuant to
Treasury Regulation 1.83-2 with respect to the Stock, including without
limitation, the Stock to be acquired pursuant to Section 1 and the Stock to be
acquired upon each exercise of the Purchaser's Options; and Purchaser further
covenants and agrees that he will furnish the Company with copies of the forms
of election the Purchaser files within 30 days after the date hereof, and within
30 days after each exercise of Purchaser's Non-Qualified Options and with
evidence that each such election has been filed in a timely manner.
14. Notice of Change of Beneficiary.
-------------------------------
Immediately prior to any transfer of Stock to a Purchaser's Trust, the
Purchaser shall provide the Company with
a copy of the instruments creating the Purchaser's Trust and with the identity
of the beneficiaries of the Purchaser's Trust. The Purchaser shall notify the
Company immediately prior to any change in the identity of any beneficiary of
the Purchaser's Trust.
15. Expiration of Certain Provisions.
--------------------------------
The provisions contained in Sections 4, 5 and 6 of this Agreement and
the portion of any other provision of this Agreement which incorporates the
provisions of Sections 4, 5 and 6, shall terminate and be of no further force or
effect with respect to any shares of Stock sold by the Purchaser (i) pursuant to
an effective registration statement filed by the Company pursuant to Section 10
hereof or (ii) pursuant to the terms of the Sale Participation Agreement of even
date herewith, among the Purchaser, KKR Partners II, L.P. and Crimson
Associates, L.P.
The provisions contained in Section 2(e), 3, 4, 5, 6 and 13 of this
Agreement, and the portion of any other provisions of this Agreement which
incorporate the provisions of such Sections, shall terminate and be of no
further force or effect upon the consummation of a merger, reorganization,
business combination or liquidation of the Company, or a sale of Common Stock
owned by the Investors, but only if such merger, reorganization, business
combination, liquidation or sale of Common Stock results in KKR Associates, a
New York limited partnership, or any affiliate thereof, no longer having the
power (i) to elect a majority of the Board of Directors of the Company or such
other corporation which succeeds to the Company's rights and obligations
pursuant to such merger, reorganization, business combination, liquidation or
stock sale, or (ii) if the resulting entity of such merger, reorganization,
business combination, liquidation or stock sale is not a corporation, to select
the general partner(s) or other persons or entities controlling the operations
and business of the resulting entity.
<PAGE>
17
16. Recapitalizations, etc.
-----------------------
The provisions of this Agreement shall apply, to the full extent set
forth herein with respect to the Stock or the Options, to any and all shares of
capital stock of the Company or any capital stock, partnership units or any
other security evidencing ownership interests in any successor or assign of the
Company (whether by merger, consolidation, sale of assets or otherwise) which
may be issued in respect of, in exchange for, or substitution of the Stock or
the Options, by reason of any stock dividend, split, reverse split, combination,
recapitalization, liquidation, reclassification, merger, consolidation or
otherwise.
17. Purchaser's Employment by the Company.
-------------------------------------
Nothing contained in this Agreement or in any other agreement entered
into by the Company and the Purchaser contemporaneously with the execution of
this Agreement (i) obligates the Company or any subsidiary of the Company to
employ the Purchaser in any capacity whatsoever or (ii) prohibits or restricts
the Company (or any such subsidiary) from terminating the employment, if any, of
the Purchaser at any time or for any reason whatsoever, with or without cause,
and the Purchaser hereby acknowledges and agrees that neither the Company nor
any other person has made any representations or promises whatsoever to the
Purchaser concerning the Purchaser's employment or continued employment by the
Company.
18. State Securities Laws.
---------------------
The Company hereby agrees to use its best efforts to comply with all
state securities or "blue sky" laws which might be applicable to the sale of the
Stock and the issuance of the Options to the Purchaser.
19. Binding Effect.
--------------
The provisions of this Agreement shall be binding upon and accrue to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns. In the case of a transferee permitted
under Section 2(a) hereof, such transferee shall be deemed the Purchaser
hereunder; provided, however, that no transferee (including without limitation,
transferees referred to in Section 2(a) hereof) shall derive any rights under
this Agreement unless and until such transferee has delivered to the Company a
valid undertaking and becomes bound by the terms of this Agreement.
20. Amendment.
---------
This Agreement may be amended only by a written instrument signed by
the Parties hereto.
<PAGE>
18
21. Closing.
-------
Except as otherwise provided herein, the closing of each purchase and
sale of shares of Stock and the payment of the Option Excess Price, if any,
pursuant to this Agreement shall take place at the principal office of the
Company on the tenth business day following delivery of the notice by either
Party to the other of its exercise of the right to purchase or sell such Stock
hereunder or to cause the payment of the Option Excess Price, if any.
22. Applicable Law.
--------------
The laws of the state of Alabama (or if the Company reincorporates in
another state, of that state) shall govern the interpretation, validity and
performance of the terms of this Agreement, regardless of the law that might be
applied under principles of conflicts of law. Any suit, action or proceeding
against the Purchaser, with respect to this Agreement, or any judgment entered
by any court in respect of any thereof, may be brought in any court of competent
jurisdiction in the State of Alabama (or if the Company reincorporates in
another state, in that state) or New York, as the Company may elect in its sole
discretion, and the Purchaser hereby submits to the non-exclusive jurisdiction
of such courts for the purpose of any such suit, action, proceeding or judgment.
By the execution and delivery of this Agreement, the Purchaser appoints The
Corporation Trust Company, at its office in New York, New York or Montgomery,
Alabama (or if the Company reincorporates in another state, an office in that
state), as the case may be, as his agent upon which process may be served in any
such suit, action or proceeding. Service of process upon such agent, together
with notice of such service given to the Purchaser in the manner provided in
Section 25 hereof, shall be deemed in every respect effective service of process
upon him in any suit, action or proceeding. Nothing herein shall in any way be
deemed to limit the ability of the Company to serve any such writs, process or
summonses in any other manner permitted by applicable law or to obtain
jurisdiction over the Purchaser, in such other jurisdictions and in such manner,
as may be permitted by applicable law. The Purchaser hereby irrevocably waives
any objections which he may now or hereafter have to the laying of the venue of
any suit, action or proceeding arising out of or relating to this Agreement
brought in any court of competent jurisdiction in the State of Alabama (or if
the Company reincorporates in another state, in that state) or New York, and
hereby further irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in any inconvenient forum.
No suit, action or proceeding against the Company with respect to this Agreement
may be brought in any court, domestic or foreign, or before any similar domestic
or foreign authority other than in a court of competent jurisdiction in the
State of Alabama (or if the Company reincorporates in another state, in that
state) or New York, and the Purchaser
<PAGE>
19
hereby irrevocably waives any right which he may otherwise have had to bring
such an action in any other court, domestic or foreign, or before any similar
domestic or foreign authority. The Company hereby submits to the jurisdiction
of such courts for the purpose of any such suit, action or proceeding.
23. Assignability of Certain Rights by the Company.
----------------------------------------------
The Company shall have the right to assign any or all of its rights or
obligations to purchase shares of Stock pursuant to Sections 4, 5 and 6 hereof;
provided, however, that the Company shall remain obligated to perform its
obligations notwithstanding such assignment in the event that such assignee
fails to perform the obligations so assigned to it.
24. Miscellaneous.
-------------
In this Agreement (i) all references to "dollars" or "$" are to United
States dollars and (ii) the word "or" is not exclusive. If any provision of
this Agreement shall be declared illegal, void or unenforceable by any court of
competent jurisdiction, the other provisions shall not be affected, but shall
remain in full force and effect.
25. Notices.
-------
All notices and other communications provided for herein shall be in
writing and shall be deemed to have been duly given if delivered by hand
(whether by overnight courier or otherwise) or sent by registered or certified
mail, return receipt requested, postage prepaid, to the Party to whom it is
directed:
(a) If to the Company, to it at the following address:
c/o Kohlberg Kravis Roberts & Co.
2800 Sand Hill Road
Suite 200
Menlo Park, California 94025
Attn: James H. Greene, Jr.
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3909
Attn: David J. Sorkin, Esq.
(b) If to the Purchaser, to him at the address set forth below under
his signature;
<PAGE>
20
or at such other address as either party shall have specified by
notice in writing to the other.
26. Covenant Not to Compete; Confidential Information.
-------------------------------------------------
(a) In consideration of the Company entering into this Agreement with
the Purchaser, the Purchaser hereby agrees effective as of the Purchase Date,
for so long as the Purchaser is employed by the Company or one of its
subsidiaries and for a period of one year thereafter (the "Noncompete Period"),
the Purchaser shall not, directly or indirectly, engage in the production, sale
or distribution of any product produced, sold or distributed by the Company or
its subsidiaries on the date hereof or during the Noncompete Period anywhere in
the world in which the Company or its subsidiaries is doing business other than
through the Purchaser's employment with the Company or any of its subsidiaries.
At the Company's option, the Noncompete Period may be extended for an additional
one year period if (i) within nine months of the termination of the Purchaser's
employment, the Company gives the Purchaser notice of such extension and (ii)
beginning with the first anniversary of such termination, the Company pays the
Purchaser an amount equal to the Purchaser's base salary on the date of the
termination of his employment. Such amount shall be paid in installments in a
manner consistent with the then current salary payment policies of the Company.
For purposes of this Agreement, the phrase "directly or indirectly engage in"
shall include any direct or indirect ownership or profit participation interest
in such enterprise, whether as an owner, stockholder, partner, joint venturer of
otherwise, and shall include any direct or indirect participation in such
enterprise as a consultant, licensor of technology or otherwise.
(b) The Purchaser will not disclose or use at any time, any
Confidential information (as defined below) of which the Purchaser is or becomes
aware, whether or not such information is developed by him, except to the extent
that such disclosure or use is directly related to and required by the
Purchaser's performance of duties, if any, assigned to the Purchaser by the
Company. As used in this Agreement, the term "Confidential Information" means
information that is not generally known to the public and that is used,
developed or obtained by the Company or its subsidiaries in connection with its
business, including but not limited to (i) products or services, (ii) fees,
costs and pricing structures, (iii) designs, (iv) computer software, including
operating systems, applications and program listings, (v) flow charts, manuals
and documentation, (vi) data bases, (vii) accounting and business methods,
(viii) inventions, devices, new developments, methods and processes, whether
patentable or unpatentable and whether or not reduced to practice, (ix)
customers and clients and customer or client lists, (x) other copyrightable
works, (xi) all technology and trade secrets, and (xii) all similar and related
information in whatever form. Confidential Information will not include any
<PAGE>
21
information that has been published in a form generally available to the public
prior to the date the Purchaser proposes to disclose or use such information.
The Purchaser acknowledges and agrees that all copyrights, works, inventions,
innovations, improvements, developments, patents, trademarks and all similar or
related information which relate to the actual or anticipated business of the
Company and its subsidiaries (including its predecessors) and conceived,
developed or made by the Purchaser while employed by the Company or its
subsidiaries belong to the Company. The Purchaser will perform all actions
reasonably requested by the Company (whether during or after the Noncompete
Period) to establish and confirm such ownership at the Company's expense
(including without limitation assignments, consents, powers of attorney and
other instruments).
<PAGE>
22
(c) Notwithstanding clauses (a) and (b) above, if at any time a court
holds that the restrictions stated in such clauses (a) and (b) are unreasonable
or otherwise unenforceable under circumstances then existing, the parties hereto
agree that the maximum period, scope or geographic area determined to be
reasonable under such circumstances by such court will be substituted for the
stated period, scope or area. Because the Purchaser's services are unique and
because the Purchaser has had access to Confidential Information, the parties
hereto agree that money damages will be an inadequate remedy for any breach of
this Agreement. In the event a breach or threatened breach of this Agreement,
the Company or its successors or assigns may, in addition to other rights and
remedies existing in their favor, apply to any court of competent jurisdiction
for specific performance and/or injunctive relief in order to enforce, or
prevent any violations of, the provisions hereof (without the posting of a bond
or other security).
(d) Notwithstanding the foregoing paragraphs (a), (b) and (c), the
provisions of any employment agreement in effect on the date hereof between the
Company and Purchaser which contains covenants relating to confidentiality and
competition shall supersede and replace the provisions of paragraphs (a), (b)
and (c) and shall be deemed incorporated by reference in this Agreement in their
entirety.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
BRUNO'S, INC.
By /s/ William J. Bolton
_______________________________
Name: William J. Bolton
Title: Chief Executive Officer
/s/ William J. Bolton
_______________________________
William J. Bolton,
Purchaser
800 Lakeshore Parkway
___________________________________
Birmingham, AL 35211
___________________________________
Address of Purchaser
<PAGE>
EXHIBIT A
---------
Form of Non-Qualified Stock Option Agreement
Exhibit 10.34
-------------
NON-QUALIFIED STOCK OPTION AGREEMENT
------------------------------------
THIS AGREEMENT, dated as of February 15, 1996 is made by and between
Bruno's, Inc., an Alabama corporation hereinafter referred to as the "Company",
and William J. Bolton, an employee of the Company or a Subsidiary (as defined
below) or Affiliate (as defined below) of the Company, hereinafter referred to
as "Optionee".
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock ("Common Stock");
WHEREAS, the Company wishes to carry out the Plan (as hereinafter
defined), the terms of which are hereby incorporated by reference and made a
part of this Agreement; and
WHEREAS, the Committee (as hereinafter defined), appointed to
administer the Plan, has determined that it would be to the advantage and best
interest of the Company and its stockholders to grant the Non-Qualified Options
provided for herein to the Optionee as an incentive for increased efforts during
his term of office with the Company or its Subsidiaries or Affiliates, and has
advised the Company thereof and instructed the undersigned officers to issue
said Options;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement, they shall
have the meaning specified in the Plan or below unless the context clearly
indicates to the contrary.
Section 1.1 - Affiliate
- ----------- ---------
"Affiliate" shall mean, with respect to the Company, any corporation
directly or indirectly controlling, controlled by, or under common control with,
the Company or any other entity designated by the Board of Directors of the
Company in which the Company or an Affiliate has an interest.
<PAGE>
2
Section 1.2 - Cause
- ----------- -----
"Cause" shall mean, except as otherwise provided in an employment
agreement between the Company and the Optionee, (i) misconduct by the Optionee
involving dishonesty or breach of trust in connection with Optionee's employment
or (ii) conduct which (A) would be a reasonable basis for an indictment of a
felony or a misdemeanor involving moral turpitude and (B) is reasonably likely
to be injurious to the Company.
Section 1.3 - Code
- ----------- ----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.4 - Committee
- ----------- ---------
"Committee" shall mean the Compensation Committee of the Company.
Section 1.5 - Grant Date
- ----------- ----------
"Grant Date" shall mean the date on which the Options provided for in
this Agreement were granted.
Section 1.6 - Management Stockholder's Agreement
- ----------- ----------------------------------
"Management Stockholder's Agreement" shall mean that certain
Management Stockholder's Agreement dated as of February 15, 1996 between the
Optionee and the Company.
Section 1.7 - Options
- ----------- -------
"Options" shall mean the non-qualified options, which may include a
Time Option and/or a Performance Option, to purchase Common Stock granted under
this Agreement.
Section 1.8 - Performance Option
- ----------- ------------------
"Performance Option" shall mean an Option with respect to which the
commencement of exercisability is governed by Section 3.1(c) hereof.
Section 1.9 - Permanent Disability
- ----------- --------------------
The Optionee shall be deemed to have a "Permanent Disability" if the
Optionee is unable to engage in the activities required by the Optionee's job by
reason of any medically determined physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months.
<PAGE>
3
Section 1.10 - Plan
- ------------ ----
"Plan" shall mean the 1996 Stock Purchase and Option Plan for Key
Employees of Bruno's, Inc. and Subsidiaries.
Section 1.11 - Pronouns
- ------------ --------
The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.12 - Purchase Date
- ------------ -------------
"Purchase Date" shall mean the date hereof.
Section 1.13 - Retirement
- ------------ ----------
"Retirement" shall mean retirement at age 62 or over (or such other
age as may be approved by the Board of Directors of the Company) after having
been employed by the Company or a Subsidiary for at least three years after the
Purchase Date.
Section 1.14 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.15 - Subsidiary
- ------------ ----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations, or group of
commonly controlled corporations, other than the last corporation in the
unbroken chain then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
Section 1.16 - Time Option
- ------------ -----------
"Time Option" shall mean an Option with respect to which the
commencement of exercisability is governed by Section 3.1(a) hereof.
Section 1.17 - Trigger Date
- ------------ ------------
"Trigger Date" shall mean the date hereof.
<PAGE>
4
ARTICLE II
GRANT OF OPTIONS
----------------
Section 2.1 - Grant of Options
- ----------- ----------------
For good and valuable consideration, on and as of the date hereof the
Company irrevocably grants to the Optionee a Time Option and/or a Performance
Option to purchase any part or all of an aggregate of the number of shares set
forth with respect to each such Option on the signature page hereof of its $.01
par value Common Stock upon the terms and conditions set forth in this
Agreement.
Section 2.2 - Exercise Price
- ----------- --------------
The exercise price of the shares of stock covered by the Options shall
be $12 per share without commission or other charge.
Section 2.3 - Consideration to the Company
- ----------- ----------------------------
In consideration of the granting of these Options by the Company, the
Optionee agrees to render faithful and efficient services to the Company or a
Subsidiary or Affiliate, with such duties and responsibilities as the Company
shall from time to time prescribe. Nothing in this Agreement or in the Plan
shall confer upon the Optionee any right to continue in the employ of the
Company or any Subsidiary or Affiliate or shall interfere with or restrict in
any way the rights of the Company and its Subsidiaries or Affiliates, which are
hereby expressly reserved, to terminate the employment of the Optionee at any
time for any reason whatsoever, with or without cause.
Section 2.4 - Adjustments in Options
- ----------- ----------------------
Subject to Section 9 of the Plan, in the event that the outstanding
shares of the stock subject to an Option are, from time to time, changed into or
exchanged for a different number or kind of shares of the Company or other
securities of the Company by reason of a merger, consolidation,
recapitalization, reclassification, stock split, stock dividend, combination of
shares, or otherwise, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares or other consideration as to which
such Option, or portions thereof then unexercised, shall be exercisable. Any
such adjustment made by the Committee shall be final and binding upon the
Optionee, the Company and all other interested persons.
<PAGE>
5
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) Time Options shall become exercisable as follows:
Percentage of Time Option
Date Time Option Shares Granted As to Which
Becomes Exercisable Time Option Is Exercisable
- ------------------- ---------------------------
After the first anniversary
of the Trigger Date 20%
After the second anniversary
of the Trigger Date 40%
After the third anniversary
of the Trigger Date 60%
After the fourth anniversary
of the Trigger Date 80%
After the fifth anniversary
of the Trigger Date 100%
Notwithstanding the foregoing, the Time Option shall become
immediately exercisable as to 100% of the shares of Common Stock subject to such
Option immediately prior to a Change of Control (but only to the extent such
Option has not otherwise terminated or become exercisable). A "Change of
Control" means (i) a sale of all or substantially all of the assets of the
Company to a Person who is not an Affiliate of Kohlberg Kravis Roberts & Co.,
L.P. ("KKR"), (ii) a sale by KKR or any of its Affiliates resulting in more than
50% of the voting stock of the Company being held by a Person or Group that does
not include KKR or any of its Affiliates or (iii) a merger or consolidation of
the Company into another Person which is not an Affiliate of KKR. "Person"
means an individual, partnership, corporation, business trust, joint stock
company, trust, unincorporated association, joint venture, governmental
authority or other entity of whatever nature. "Group" means two or more Persons
acting together as a partnership, limited partnership, syndicate or other group
for the purpose of acquiring, holding or disposing of securities of the Company.
(c) The Performance Option shall become exercisable with respect to
20% of the shares of Common Stock subject to such Option on each Vesting Date
following a Determination Date that the Company's Cumulative EBITDA equals or
exceeds the Cumulative EBITDA Target as of such Determination Date and the
actual EBITDA
<PAGE>
6
for that year equals or exceeds the EBITDA Target for that year. If the
Company's EBITDA for a Plan Year is less than 100% of the EBITDA Target for such
Plan Year (a "Missed Year"), no such Performance Option shall become exercisable
with respect to any additional shares of Common Stock on the Vesting Date for
such Plan Year. If, for any Plan Year subsequent to a Missed Year, EBITDA
exceeds the EBITDA Target and Cumulative EBITDA exceeds the Cumulative EBITDA
---
Targets, then any prior percentage of Performance Options in respect of prior
Missed Years shall become exercisable (but only to the extent such Option has
not otherwise terminated or become exercisable).
Notwithstanding the foregoing, the Performance Option shall become
exercisable as to 100% of the shares of Common Stock subject to such Option
after seven years after the Trigger Date (but only to the extent such Option has
not otherwise terminated or become exercisable).
(d) For purposes of Section 3.1(c):
(i) "Cumulative EBITDA" means with respect to any Performance Option,
the sum of the EBITDA for the Company and its consolidated subsidiaries
during the period commencing on July 2, 1995 and ending on the last day of
the Plan Year preceding the Determination Date.
(ii) "Cumulative EBITDA Targets" means with respect to any
Performance Option, the sum of the EBITDA Targets for the period commencing
on July 2, 1995 and ending on the last day of the Plan Year preceding the
Determination Date.
(iii) "Determination Date" means February 15 of each calendar year.
(iv) "EBITDA" shall mean, with respect to the Company and its
consolidated subsidiaries, net income before net interest expense, income
taxes, depreciation and amortization, writedown of property and securities,
extraordinary loss on extinguishment of debt, loss on disposal of
discontinued operations and loss from operation of discontinued operations.
(v) "EBITDA Target" shall have the meaning ascribed to
such term in Schedule I hereto for Plan Years 1996 through 2000 and such
other targets as are established by the Committee with respect to
subsequent Plan Years; provided, that to the extent that the Company or any
--------
of its subsidiaries disposes or acquires assets out of the ordinary course
of business the Committee will decrease or increase, as the case may be,
the EBITDA Target for such dispositions or acquisitions.
<PAGE>
7
(vi) "Plan Year" means (i) the period from July 2, 1995 to January
27, 1996 with respect to Plan Year 1996 and (ii) thereafter, the period
commencing on the day immediately succeeding the close of the prior Plan
Year until the Saturday closest to each January 31st.
(vi) "Vesting Date" means August 18th of each calendar year.
(e) Notwithstanding the foregoing, no Option shall become exercisable
as to any additional shares of Common Stock following the termination of
employment of the Optionee for any reason other than a termination of employment
because of death, Permanent Disability or Retirement of the Optionee and any
Option (other than an as provided in the next succeeding sentence) which is non-
exercisable as of the Optionee's termination of employment shall be immediately
cancelled. In the event of a termination of employment because of such death,
Permanent Disability or Retirement, the Time Options (but not the Performance
Options) shall immediately become exercisable as to all shares of Common Stock
subject thereto.
Section 3.2 - Expiration of Options
- ----------- ---------------------
Except as otherwise provided in Section 5 or 6 of the Management
Stockholder's Agreement, the Options may not be exercised to any extent by
Optionee after the first to occur of the following events:
(a) The tenth anniversary of the Grant Date; or
(b) The first anniversary of the date of the Optionee's termination
of employment by reason of death, Permanent Disability or Retirement; or
(c) The first business day which is fifteen calendar days after the
earlier of (i) 75 days after termination of employment of the Optionee for
any reason other than for Cause, death, Permanent Disability or Retirement
or (ii) the delivery of notice by the Company that it does not intend to
exercise its call right under Section 6 of the Management Stockholder's
Agreement; provided, however, that in any event the Options shall remain
-------- -------
exercisable under this subsection 3.2(c) until at least 45 days after
termination of employment of the Optionee for any reason other than for
death, Permanent Disability or Retirement; or
(d) The date the Option is terminated pursuant to Section 5, 6 or
8(b) of the Management Stockholder's Agreement;
(e) The date of an Optionee's termination of employment by the
Company for Cause; or
<PAGE>
8
(f) If the Committee so determines pursuant to Section 9 of the Plan,
the effective date of either the merger or consolidation of the Company
into another Person, or the exchange or acquisition by another Person of
all or substantially all of the Company's assets or 80% or more of its then
outstanding voting stock, or the recapitalization, reclassification,
liquidation or dissolution of the Company. At least ten (10) days prior to
the effective date of such merger, consolidation, exchange, acquisition,
recapitalization, reclassification, liquidation or dissolution, the
Committee shall give the Optionee notice of such event if the Option has
then neither been fully exercised nor become unexercisable under this
Section 3.2.
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Optionee, only he may exercise an Option or
any portion thereof. After the death of the Optionee, any exercisable portion
of an Option may, prior to the time when an Option becomes unexercisable under
Section 3.2, be exercised by his personal representative or by any person
empowered to do so under the Optionee's will or under the then applicable laws
of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of an Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.2; provided, however, that any partial exercise shall be for whole shares of
Common Stock only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
An Option, or any exercisable portion thereof, may be exercised solely
by delivering to the Secretary or his office all of the following prior to the
time when the Option or such portion becomes unexercisable under Section 3.2:
(a) Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or portion thereof, stating that the Option
or portion thereof is thereby exercised, such notice complying with all
applicable rules established by the Committee;
<PAGE>
9
(b) Full payment (in cash, by check or by a combination thereof) for
the shares with respect to which such Option or portion thereof is
exercised;
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee, signed by the Optionee or other person then
entitled to exercise such Option or portion thereof, stating that the
shares of stock are being acquired for his own account, for investment and
without any present intention of distributing or reselling said shares or
any of them except as may be permitted under the Securities Act of 1933, as
amended (the "Act"), and then applicable rules and regulations thereunder,
and that the Optionee or other person then entitled to exercise such Option
or portion thereof will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the
Company if any sale or distribution of the shares by such person is
contrary to the representation and agreement referred to above; provided,
however, that the Committee may, in its absolute discretion, take whatever
additional actions it deems appropriate to ensure the observance and
performance of such representation and agreement and to effect compliance
with the Act and any other federal or state securities laws or regulations;
(d) Full payment to the Company of all amounts which, under federal,
state or local law, it is required to withhold upon exercise of the Option;
and
(e) In the event the Option or portion thereof shall be exercised
pursuant to Section 4.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the
option.
Without limiting the generality of the foregoing, the Committee may require an
opinion of counsel acceptable to it to the effect that any subsequent transfer
of shares acquired on exercise of an Option does not violate the Act, and may
issue stop-transfer orders covering such shares. Share certificates evidencing
stock issued on exercise of this Option shall bear an appropriate legend
referring to the provisions of subsection (c) above and the agreements herein.
The written representation and agreement referred to in subsection (c) above
shall, however, not be required if the shares to be issued pursuant to such
exercise have been registered under the Act, and such registration is then
effective in respect of such shares.
Section 4.4 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of an Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
<PAGE>
10
deliver any certificate or certificates for shares of stock purchased upon the
exercise of an Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The obtaining of approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(b) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish for
reasons of administrative convenience.
Section 4.5 - Rights as Stockholder
- ----------- ---------------------
The holder of an Option shall not be, nor have any of the rights or
privileges of, a stockholder of the Company in respect of any shares purchasable
upon the exercise of the Option or any portion thereof unless and until
certificates representing such shares shall have been issued by the Company to
such holder.
ARTICLE V
MISCELLANEOUS
-------------
Section 5.1 - Administration
- ----------- --------------
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee shall be final and binding upon the Optionee, the Company
and all other interested persons. No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or the Options. In its absolute discretion, the
Board of Directors may at any time and from time to time exercise any and all
rights and duties of the Committee under the Plan and this Agreement.
Section 5.2 - Options Not Transferable
- ----------- ------------------------
Except as provided in the Management Stockholder's Agreement, neither
the Options nor any interest or right therein or part thereof shall be liable
for the debts, contracts or engagements of the Optionee or his successors in
interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy),
<PAGE>
11
and any attempted disposition thereof shall be null and void and of no effect;
provided, however, that this Section 5.2 shall not prevent transfers by will or
by the applicable laws of descent and distribution.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Options reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall,
if the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall
have been deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, deposited (with postage prepaid) in a post
office or branch post office regularly maintained by the United States Postal
Service.
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6 - Applicability
of Plan and Management Stockholder's Agreement
- ----------------------------------------------
The Options and the shares of Common Stock issued to the Optionee upon
exercise of the Options shall be subject to all of the terms and provisions of
the Plan and the Management Stockholder's Agreement, to the extent applicable to
the Options and such shares. In the event of any conflict between this
Agreement and the Plan, the terms of the Plan shall control. In the event of
any conflict between this Agreement or the Plan and the Management Stockholder's
Agreement, the terms of the Management Stockholder's Agreement shall control.
Section 5.7 - Amendment
- ----------- ---------
This Agreement may be amended only by a writing executed by the
parties hereto which specifically states that it is amending this Agreement.
<PAGE>
12
Section 5.8 - Governing Law
- ----------- -------------
The laws of the State of Alabama (or if the Company reincorporates in
another state, the law of that state) shall govern the interpretation, validity
and performance of the terms of this Agreement regardless of the law that might
be applied under principles of conflicts of laws.
Section 5.9 - Jurisdiction
- ----------- ------------
Any suit, action or proceeding against the Optionee with respect to
this Agreement, or any judgment entered by any court in respect of any thereof,
may be brought in any court of competent jurisdiction in the State of Alabama
(or if the Company reincorporates, in that state) or New York, as the Company
may elect in its sole discretion, and the Optionee hereby submits to the
non-exclusive jurisdiction of such courts for the purpose of any such suit,
action, proceeding or judgment. The Optionee hereby irrevocably waives any
objections which he may now or hereafter have to the laying of the venue of any
suit, action or proceeding arising out of or relating to this Agreement brought
in any court of competent jurisdiction in the State of Alabama (or if the
Company reincorporates, in that state) or New York, and hereby further
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in any inconvenient forum. No suit, action or
proceeding against the Company with respect to this Agreement may be brought in
any court, domestic or foreign, or before any similar domestic or foreign
authority other than in a court of competent jurisdiction in the State of
Alabama (or if the Company reincorporates, in that state) or New York, and the
Optionee hereby irrevocably waives any right which he may otherwise have had to
bring such an action in any other court, domestic or foreign, or before any
similar domestic or foreign authority. The Company hereby submits to the
jurisdiction of such courts for the purpose of any such suit, action or
proceeding.
<PAGE>
13
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
BRUNO'S, INC.
By /s/ William J. Bolton
-----------------------------
Name: William J. Bolton
Title: Chief Executive Officer
/s/ William J. Bolton Aggregate number of shares of
Common Stock for which the Time
-----------------------------
William J. Bolton Option granted hereunder is
Optionee exercisable (50% of total
number of shares):
125,000
Aggregate number of shares
of Common Stock for which the
Performance Option granted
800 Lakeshore Parkway hereunder is exercisable (50%
-----------------------------
of total number of shares):
125,000
Birmingham, AL 35211
-----------------------------
Address
Optionee's Taxpayer
Identification Number:
-----------------------------
EXHIBIT 10.35
Schedule of Terms of
Management Stockholder's Agreements
and
Non-Qualified Stock Option Agreements
of
David Clark, Michael F. Heintzman and
Lisa R. Kranc
Transaction Shares Time Options Performance Options
Date Purchased Awarded Awarded
---- --------- ------------ -------------------
David Clark 3/13/96 20,833 31,250.0 31,250.0
Michael F. 2/15/96 20,833 31,250.0 31,250.0
Heintzman
Lisa R. Kranc 2/15/96 15,625 23,437.5 23,437.5
EXHIBIT 16
September 29, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Dear Sirs:
We have read Item 4 of Bruno's, Inc.'s Form 8-K dated September 29, 1995
and are in agreement with the statements contained in the first two
paragraphs of Item 4.
Yours very truly,
/s/ Arthur Andersen LLP
EXHIBIT 24.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement of
Bruno's, Inc. on Form S-3 of our report dated April 12, 1996, appearing in the
Annual Report on Form 10-K of Bruno's, Inc. for the period from July 2, 1995 to
January 27, 1996.
/s/ Deloitte & Touche LLP
Birmingham, Alabama
April 24, 1996
EXHIBIT 24.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated August 18, 1995, included in this Form 10-K, into the Company's
previously filed Registration Statement File No. 33-60161.
/s/ Arthur Andersen LLP
Birmingham, Alabama
April 24, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FINANCIAL STATEMENTS OF BRUNOS, INC. FOR THE TRANSITION PERIOD
ENDED JANUARY 27, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1000
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> JAN-27-1996
<PERIOD-START> JUL-02-1995
<PERIOD-END> JAN-27-1996
<CASH> 57,387
<SECURITIES> 0
<RECEIVABLES> 25,294
<ALLOWANCES> 0
<INVENTORY> 215,589
<CURRENT-ASSETS> 316,228
<PP&E> 793,469
<DEPRECIATION> 301,805
<TOTAL-ASSETS> 873,146
<CURRENT-LIABILITIES> 250,215
<BONDS> 400,000
0
0
<COMMON> 250
<OTHER-SE> (281,593)
<TOTAL-LIABILITY-AND-EQUITY> 873,146
<SALES> 1,674,659
<TOTAL-REVENUES> 1,674,659
<CGS> 1,291,847
<TOTAL-COSTS> 1,291,847
<OTHER-EXPENSES> 142,623
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,149
<INCOME-PRETAX> (99,178)
<INCOME-TAX> (22,879)
<INCOME-CONTINUING> (81,201)
<DISCONTINUED> 0
<EXTRAORDINARY> (4,902)
<CHANGES> 0
<NET-INCOME> 81,201
<EPS-PRIMARY> (2.19)
<EPS-DILUTED> (2.19)
</TABLE>
