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A bitter harvest?

Rumors Vs. Reputation: Conflict-Of-Interest Allegations Follow Resignation Of Harvest Foods CEO


That was the business community's reaction to the Sept. 26 resignation of Donald B. Pennington as chairman and chief executive officer of Little Rock's Harvest Foods Inc.

Corporate executives resign every day.

But the timing of Pennington's resignation, with the grocery chain in the midst of a $155 million recapitalization plan, has had central Arkansas business leaders buzzing for two months.

Stories of a kickback scheme gone bad -- a scheme allegedly involving Pennington and possibly other Harvest Foods employees -- began making the rounds soon after Pennington was replaced by Harry Janson.

Janson, a New Jersey native, came to Harvest Foods in March as president and the company's first chief operating officer.

The details surrounding Pennington's sudden departure remain sketchy.

However, two highly placed sources in the food brokerage business -- the middlemen between grocery chains and producers -- alleged in interviews with Arkansas Business that Pennington was forced out after the discovery of a scheme involving the Harvest Foods CEO and two business partners in another firm.

Pennington refused to respond despite repeated attempts by Arkansas Business to contact him.

Sam Perroni of Little Rock, Pennington's attorney, said his client was a partner in TSP Inc., a North Little Rock produce company. The company's role was to sell items to brokers, Perroni said.

A secretary at the telephone number listed for TSP said the firm went out of business in November.

A Thorn In The Side

The alleged conflict of interest, reportedly discovered during a routine spot check made by Harvest Foods auditors, has been a thorn in the side of the chain.

Janson has attempted to concentrate on the restructuring plan, but the rumors swirling about the company increase daily in number and intensity.

Like Pennington, Janson will neither confirm nor deny the kickback allegations.

"It's not appropriate for us to speak about why people are not with us," Janson says.

There have been other personnel changes at Harvest Foods.

Pennington's resignation roughly coincided with the resignations of three others Harvest Foods officials. There is no evidence to suggest those officials were in any way connected with a kickback scheme.

The officials who resigned are:

* Joel Tumbleson, the produce merchandising manager and a 30-year veteran of the grocery business.

* Bill Mathis, the meat merchandising manager.

* Jim Owens, who headed Harvest's deli-bakery department operations.

All have since been replaced.

Janson says there is no connection between Pennington's resignation and the other departures.

"They weren't the same thing," he says. "They're not related. Some people leave because they're doing a bad job."

Ron Shernak has assumed the meat merchandising position.

Dennis Baker now heads the produce division.

Jeff Ruple and Kathy McDade have taken the bakery and deli jobs, respectively.

Ruple and McDade were promoted to their positions.

Shernak and Baker were hired from outside the chain.

There also have been numerous changes at the management level in Harvest stores across the state.

Personal tragedies have haunted Pennington. They include his recent divorce from Betty Bryant, the sister of Attorney General Winston Bryant, and the death of his former mother-in-law in October.

Pennington, a native of Friendship in Hot Spring County and a graduate of Ouachita Baptist University at Arkadelphia, headed Harvest Foods' predecessor, the Arkansas division of Safeway Stores Inc.

Pennington still lives in Little Rock but has stayed underground since his resignation.

"Don worked here a lot of years, and we wish him well," says Janson.

Food brokers have seen little difference in the day-to-day operations of the chain since the change of command.

Most are hesitant to discuss their dealings with Harvest Foods, though. The grocery business traditionally is a private one.

One broker's "no comment" was accompanied by an immediate threat to cancel his firm's subscription to Arkansas Business.

"I can't see any change," says Bill Cooper of the Allis-Cooper Company Inc. of Little Rock, whose firm has sold to Harvest Foods and its predecessor for the past 20 years.

Cooper says he has seen no more than the usual amount of turnover as a result of the new administration.

"We're trying to get down to our fighting weight," Janson says. "Anything that's excess baggage, we take care of. If we don't, what do we do? We have to raise prices."

Near Completion

The company is only days away from completing a restructuring plan designed to improve cash flow.

Any attention to the company would not be well-received by the Securities and Exchange Commission.

The restructuring of Harvest Food's $155 million debt load, involving the sale and leaseback of some store properties, can't be completed too soon for Janson.

"We should be closed the first week of December," he says. "But it's like anything else. You have bondholders, the bank |Bank of Boston~ and Acadia |Markets Corp. of New York, Harvest Foods' parent firm~. We're happy to see it come to a conclusion."

A sale and leaseback is a form of lease arrangement in which a company sells an asset to another party -- usually an insurance or finance company, a leasing company, a limited partnership or an institutional investor -- in exchange for cash. The company then contracts to lease the asset for a specified term.

A company generally opts for a sale and leaseback as an alternative to straight financing when the rate it would have to pay a lender is higher than the cost of rental or when it wishes to show less debt on its balance sheet.

Industry observers say Janson appears to be meeting financial targets.

Although he won't address the cloud surrounding Pennington's departure, Janson wastes no time in challenging reports of the chain's impending sale.

Winn-Dixie Stores Inc. of Jacksonville, Fla., and Malone & Hyde Inc. of Memphis, Tenn., are the potential buyers most often mentioned by Arkansas brokers and distributors.

"Honestly, we've had no conversations with either one," Janson says in attempt to allay employee fears as the holiday season approaches. "I don't see how that |a sale~ could happen.

"We are not for sale, we are not being bought out by anybody and that's a fact."
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Title Annotation:allegations of conflict of interest amidst the resignation of Harvest Foods Inc.'s chairman and chief executive officer Donald B. Pennington
Author:Taylor, Tim
Publication:Arkansas Business
Date:Dec 2, 1991
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