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Carl's Jr. Proxy Fight Would Be Bitter Affair : Corporate control: The founder's fight to regain helm of the company is certain to split loyalties.


ANAHEIM — No matter which side wins a threatened power struggle at Carl Karcher Enterprises, there will certainly be casualties.

That's because a messy turf battle for control of the Carl's Jr. restaurant chain would force the Anaheim-based company's shareholders, managers and employees to take sides in a potentially bitter feud.

Chairman Carl N. Karcher's move to regain control comes at an inopportune time: The company is readying new marketing strategies designed to boost revenue hurt by fierce competition and the stalled California economy.

Company President Donald E. Doyle's damage control plan includes a plea that employees "keep selling hamburgers" despite the increasingly public feud. But Karcher, the 76-year-old founder who still reports to headquarters for work, felt strongly enough about the challenge to take his case directly to employees in a lengthy memo.

The memo was an early indication of how divisive a proxy fight would be. There will be additional confrontations, observers suggest, if Karcher starts to solicit proxies: the right to vote shares held by other stockholders.

Already some shareholders are grumbling that a potentially expensive proxy fight is not in the company's best interest.

"If they can't settle it amicably, then remove him from his office and responsibility," said Morton Simpson, who directs investments for New York-based Bellmore Asset Management, which represents clients who hold 65,000 shares of company stock. "The chairman is elected and nominated by the board and the board members could vote to remove him."

At first blush, the Karcher bid to regain control of the company he founded 52 years ago would appear to be a sure thing.

Karcher holds 6.2 million, or 34%, of Carl Karcher Enterprises' outstanding shares. Family members are believed to control as many as a million additional shares. And, if a proxy fight were to begin, the charismatic businessman and civic leader would be free to contact hundreds of investors whom he counts as friends.

Karcher will not speculate directly about the likely outcome of a proxy fight, which he originally threatened in a Sept. 1 letter to the board. But Andrew F. Puzder, Karcher's personal attorney, maintains that his client has a strong lead over management: "Ask yourself how many shares Carl controls. . . . Then ask yourself how many shares management controls."

Puzder said that company bylaws would give Karcher a proxy victory if he secured a simple majority of shares represented in person or by proxy at a special shareholders meeting. The fewer shares voted, the stronger Karcher's position, Puzder said.

Company executives, however, insist that Karcher faces a much tougher challenge.

"Our advisers indicate very clearly that to win you need a majority of all (18 million) shares outstanding," said Loren Pannier, the company's chief financial officer. "That's an important consideration."

Other observers question whether Karcher has the wherewithal to complete his highly publicized attempt to regain control. "The two things Carl doesn't have are time and money," said a former company executive who asked not to be identified. "If he had them, he wouldn't be in this position."

Karcher's personal finances have dramatically eroded in recent months. Like many Southern Californians, he has been buffeted by ill-advised investments and the lackluster real estate market.

The fast-food magnate recently defaulted on $30 million in personal loans, jeopardizing his right to vote nearly 4.5 million shares of stock that he used as collateral to secure the loans. Karcher would retain voting rights to just 11% of the company's shares if Union Bank and Santa Ana-based Commercial Center Bank exercised their right to vote those shares backing the loans.

Karcher is confident, however, that the banks would stay out of the fray, Puzder said.

But if there is a proxy fight, "you can be sure that senior management is going to get their points across to the banks," said John W. Cornwell, an executive with D.F. King & Co., a New York company that specializes in proxy solicitations.

Banks won't be the only target.

Karcher and company management would also court individual investors, who hold about a third of the company's stock; and institutional investors, whose large blocks of stock represent the rest of Carl Karcher Enterprises' shares.

Investment banks, retirement funds, insurance companies and the like, which collectively hold more than 30% of the company's stock, would be the major targets. Though many individual investors ignore proxy fights, institutional shareholders almost always vote their shares, said Anne Hansen, deputy director of the Council of Institutional Investors in Washington.

"Senior management is going to visit those (institutional) decision-makers, not just send them a letter," Cornwell said.

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