Karcher Battle Escalates on Two Fronts : Keyword: Two shareholders allege founder put ‘personal interests first’ as board restates its opposition to his strategy.
Two shareholders in Carl Karcher Enterprises Inc. have jumped into the fray over control of the fast-food chain, filing a lawsuit against the founder and his son.
Meanwhile, top executives on Tuesday escalated the war of words that has held the company’s operations hostage for the past few weeks.
The shareholders, in a class action filed in Orange County Superior Court, accuse company Chairman Carl N. Karcher of “attempting to advance his own personal financial interests” at the expense of other shareholders.
The suit, filed Friday by Sempad Terzian and Gary Goldberg on behalf of all shareholders in the Anaheim-based company, seeks a court order stopping the financially strapped Karcher from trying to push through a proposal to test-market another company’s Mexican-style food at Carl’s Jr. restaurants.
Karcher is flexing his 34% ownership interest, the suit asserts, in an improper attempt to cause the company “to pursue an ill-conceived strategy, all in an effort to bail himself out of personal financial difficulty while at the same time jeopardizing the company’s future.”
Carl L. Karcher, also a director, is named only for siding with his father.
The lawsuit, however, may be premature because the board already has voted 5-2 against the proposal. Karcher has threatened a proxy fight to oust the majority and install new directors who favor his plan.
The lawsuit seeks damages if Karcher takes such action and succeeds. It also seeks court costs and attorney fees for Santa Monica lawyer Lionel Z. Glancy and three New York law firms that are part of the group of plaintiffs’ securities lawyers.
Neither the shareholders nor the lawyers could be reached for comment late Tuesday.
Roger Pondell, a spokesman for the company, called the suit unusual because it seeks to halt an action the board has already rejected. He would not comment further on the suit because the company has not been served with it yet.
Meantime, the majority--four outside directors and company President Donald E. Doyle--sent shareholders a letter restating their opposition to Karcher’s controversial marketing plan.
The plan would benefit the cash-strapped founder but “harm the interests” of other shareholders, the five board members wrote.
The directors maintain that Karcher’s bid to ally Carl’s Jr. with Anaheim-based GB Foods is predicated on “a series of financial transactions” between Karcher and GB Foods Chairman William Theisen. The letter repeats the board members’ position: that Karcher views a deal with GB Foods, which operates Green Burrito restaurants, as necessary to solving his personal financial problems.
Spokesmen for Karcher, who controls 34% of the company’s outstanding shares, deny that the proposed deal would benefit the 76-year-old executive at the expense of other shareholders. “It doesn’t make any difference how often they say it,” said Andrew F. Puzder, Karcher’s personal attorney. “It won’t make it true.”
According to the board members, however, Karcher has on several occasions asked the company to “help solve his personal financial difficulties.” Those problems include soured real estate deals and defaults on bank loans.
Board members considered but rejected a “substantial loan” to Karcher in late 1992. They also agreed to spend $10 million to buy back stock controlled by Karcher, a deal that was never completed. And, according to the letter, board members considered “several other transactions . . . in the attempt to solve Mr. Karcher’s personal financial problems.”
In each case, according to the letter, board members “made it clear . . . that they cannot approve any transaction to assist Mr. Karcher if it would harm the interests” of other shareholders.
The letter was signed by Doyle, former Vons executive Kenneth Olsen, retail consultant Elizabeth A. Sanders, lawyer Daniel W. Holden and Furon Co. executive Peter Churm. The letter was not signed by Karcher or his son.