Stater Suspends 2nd Key Executive : Vice President an Ally of Group Planning Proxy Fight

The struggle between two insider investor groups at the Stater Bros. grocery chain grew more heated Wednesday, when Stater Chairman Bernard R. Garrett announced the suspension of a second high-level executive affiliated with the opposing stockholder faction.

Joseph E. Davis was suspended as vice president of Stater Bros. Inc. and as vice president and chief financial officer of its Stater Bros. Markets subsidiary pending a review of the parent’s financial statements.

Davis said Garrett told him he had been suspended by the board “because I would be obstructing an impartial investigation.” Davis, a former director, called this “a false accusation.”

The move against Davis was quickly denounced by Jack H. Brown, suspended president and chief executive, as “just a continuation of a trumped-up conspiracy to rid the company of any executives who have any concern for the interests of public shareholders.”

Garrett, in turn, said he believes that Brown opened a proxy fight for control of the board in order to terminate an investigation into manipulation of the firm’s books to understate company profits and to end a lawsuit that accuses Brown in the alleged scheme.

The proxy fight is headed for a showdown at the March 20 annual meeting of Colton-based Stater Bros. Inc., which the Garrett and Brown groups jointly took public last November.

Brown disclosed in a telephone interview Wednesday that his group, which includes Davis, has surpassed the 38.7% holding in the company by Garrett’s family.

The combined holdings of Brown’s investor group, including Davis, has increased to 1,652,500 shares, or about 40%, Brown said. Just after stock was sold to the public last November, Brown’s group was reported to hold 1,543,500 shares, or 37.2%.

Filed Suit

Stater filed suit last week against Brown, alleging that he bought at least 88,000 shares after the public stock offering. The suit alleged that the initial public stock price was artificially depressed by Brown’s earlier removal of $600,000 from the firm’s profit figures at his behest. Brown had the same amount of profit put back on the books after the public offering, the suit alleged.

On Tuesday, the company withdrew its previously announced first-quarter results, saying that an initial review by outside auditors indicated that the income figure had been understated.

Brown has denied the lawsuit’s allegations and said they were brought by Garrett in an effort to obtain full control of the company.

The struggle came to a climax Feb. 5, both sides indicated, when Garrett’s faction on the board nominated three outsiders to run for the three board vacancies on the March 20 ballot. Brown and an outside director, lawyer Bruce D. Varner, opposed the nominees on the ground that the three have, or formerly had, business affiliations with Garrett.

The nominees are Daniel Nash, John W. Partridge and Bertram Zweig. Garrett, in an interview, acknowledged that Nash does his personal tax work and that Partridge and he “worked for the same company approximately 10 years ago.” Zweig, a newly appointed director, is a senior partner at the Beverly Hills law firm of Finley, Kumble, Wagner, Heine, Underberg, Manley & Casey, which advised Stater Bros. on its public offering and which filed the suit last week against Brown.

Brown this week disclosed the names of his slate of candidates to oppose management’s nominees. A victory by the Brown slate could give his group a majority on the nine-member Stater board.

Commenting on his own suspension, Davis said his 33-year career as a certified public accountant has been “unblemished.” He said that, before joining Stater Bros. in 1983, he was vice president-finance for 14 years at another supermarket chain, Alpha Beta Co., and before that was employed at Arthur Andersen & Co., a national public accounting firm.

“I strongly object to the false accusation by Bernard Garrett that I would impede an impartial investigation,” Davis added.

Garrett, in response to a question, said Tuesday that the firm’s auditors had recommended that “anyone who could influence the investigation should be set aside so they could not influence it or try to interfere.” He added that the board believed that the alleged manipulation of the financial figures “occurred in (Davis’) area of responsibility” and that it was in the company’s “best interests” that he be suspended.