Carl’s Jr. Founder’s Defaults Could Give Control to 2 Banks
Two banks could end up controlling the single largest stake in Carl Karcher Enterprises if the firm’s founder and chairman defaults on loans secured by his family trust’s shares in the parent company of the Carl’s Jr. restaurant chain.
According to federal Securities and Exchange Commission filings made Friday by Carl N. Karcher, the banks are threatening to take control of 23% of the shares in the company--most of the stock held by the Carl N. and Margaret M. Karcher Trust.
The Karcher Trust’s 6.1 million shares is a 34% stake in the company, but two-thirds of those shares have been pledged as security for bank loans, according to the filing.
Union Bank has declared that $25.1 million in loans and interest are now due and must be paid, according to the SEC document. The debt was secured by 3.5 million shares of Karcher Enterprises.
And Santa Ana-based Commercial Center Bank has advised Karcher that its nearly $5 million in outstanding loans and interest would be considered in default even before the Sept. 30 due date if the hamburger chain’s founder defaults on the Union Bank loan. The Commercial Center Bank loan is secured by 998,712 shares of company stock.
Union Bank has notified Karcher that it now has the option to “exercise voting rights” on the shares. However, the bank hasn’t told Karcher that it will exercise the option. Similarly, Commercial Center Bank said it could acquire voting rights to the nearly 1 million shares tied to its loan.
But Karcher doesn’t anticipate that the banks will step in and start voting the stock, a family spokesman said.
The 76-year-old Karcher is threatening to oust the board of directors to restore his own and the company’s fortunes.
In what may come as a shock to shareholders, the normally ebullient Karcher claimed in his SEC filing that Karcher Enterprises is in a “stagnant, if not deteriorating, position,” because it lacks “decisive and forward-thinking leadership” since he was eased out less than a year ago.
Karcher is well-known because of his commercials for the 648-location Carl’s Jr. chain, but he is an intensely private man when it comes to his personal business dealings. The unusual amount of detail about his debts and squabbles with his board is being made public as part of his bid to regain control over Karcher Enterprises.
Karcher said on Tuesday that he would try to oust board members who remain opposed to his vision.
Company officials have declined to comment on the feud.
However, Karcher Enterprises President and Chief Executive Donald E. Doyle has said in the past that the Anaheim-based company can boost its anemic profits by cutting costs, bolstering advertising and giving customers better value. Industry analysts generally commend Doyle’s direction.
But Karcher, who turned day-to-day control over to Doyle late last year, maintains that the company must take bolder steps that clash with Doyle’s plans.
