Karcher Board Ousts Chairman : Shake-up: Elizabeth Sanders replaces Carl Karcher as battle for control of Anaheim-based Carl's Jr. empire escalates. Founder says he may try to unseat his foes.

TIMES STAFF WRITER

Carl N. Karcher, who founded Carl's Jr. and for years served as its TV pitchman, was ousted Friday as chairman, turning up the heat in a battle for control of the fast-food company.

"I feel like I've been stripped of my office by a bunch of turncoats," Karcher said in a statement released immediately after the company's directors voted him out. He said he may seek shareholder support to replace the board members.

Karcher, one of Orange County's best-known business and charity figures, was immediately replaced by board member Elizabeth A. Sanders, 48, a former Nordstrom Inc. executive. A longtime Karcher acquaintance, Sanders has been on the board of Carl Karcher Enterprises Inc. for 10 years.

The 5-2 decision by directors to remove Karcher as chairman came after an hourlong meeting at the company's Anaheim headquarters. Son Carl L. Karcher voted with his father to keep the 76-year-old founder as chairman.

At the headquarters, the staff seemed harried and well-dressed executives moved quickly through the main reception area.

"It's a very sad day for us," said Rosemary Ryan, a receptionist and employee of the company for 16 years. Of Karcher she said, "I feel bad for him."

A statement issued by the company said Karcher has disrupted its marketing strategy and is "motivated by his personal financial difficulties."

Karcher has lost millions of dollars in soured real estate and other investments, prompting his personal attorney to recommend recently that he consider filing for bankruptcy. Karcher has consistently denied that his financial problems have influenced his fight with the board.

The company said the directors' vote to oust Karcher "was taken with regret, in view of his long history with the company and the directors' personal friendships with him."

The statement added that Karcher "had rejected several proposals from the majority directors for an amicable settlement of a dispute involving board control, management, and the strategic direction of the company."

Though he is no longer at the helm of the enterprise he founded 52 years ago with a single hotdog stand, Karcher remains on the board until his term expires in June, 1994. The board also approved a lifetime retirement salary of $200,000 a year for him.

Karcher, who until recently was the impish straight man in Carl's Jr.'s TV commercials, has been at odds with Chief Executive Donald E. Doyle Jr. and the four outside board members since last month, when Karcher issued a scathing press release challenging the company's new marketing strategy.

He then threatened to replace the board with members who would be more amenable to his ideas, which included selling another company's Mexican-style food at some of Carl's Jr.'s 650 restaurants.

Friday's board action left Karcher in shock, his personal spokesman said. After leaving the meeting with his attorneys immediately after the vote, he went to St. Boniface Catholic Church, where he and his wife, Margaret, were married more than 50 years ago. He had prayed at St. Boniface earlier in the day, before the board meeting.

He later returned to company headquarters but refused to speak with reporters.

"This is a man with hamburger flowing through his veins," Karcher spokesman Steve Fink said. "Now his position has been taken from him by those whom he once considered to be his friends."

Chief Executive Doyle said the board has been struggling for some time to reach a compromise with Karcher. He said the founder "did a lot of good things" but suggested that he has lost touch with the business.

To settle the dispute with Karcher, the board met with him on Wednesday, sent a proposal to him and his advisers late Thursday, then met with him Friday to offer several solutions. All were rejected, Doyle said.

Among the proposals was a draft agreement offering to add an unspecified number of "mutually agreeable" new corporate directors. The board also offered to pay Karcher $16 million for his stake in the company--34% of its shares.

That offer, Doyle said, would have helped Karcher get himself out of debt.

Karcher has defaulted on $30 million in personal bank loans. About two-thirds of his company stock is pledged as security for those loans.

Union Bank has declared that $25.1 million in personal loans to Karcher are now due, while Commercial Center Bank in Santa Ana has told him that he would be in default on $5 million in loans if he did not repay them by Thursday. It was not known Friday if Commercial Center has taken any action to collect the money.

Doyle said the board members "were going into this with a view toward an amicable resolution."

But Karcher forced directors to remove him from the chairmanship Friday, Doyle said: "We were prepared to stay as long as necessary, but as it turned out we didn't have to stay very long."

In his prepared statement, Karcher said that money was not the issue and that the sale of his stock would have meant knuckling under to the board. "They tried to buy my silence, but my integrity is not for sale," Karcher said.

Personal spokesman Fink said that Karcher is now weighing his options, which include filing a lawsuit and trying to rally investor support to oust the board members who voted against him. Karcher may announce his plans in the near future, Fink said.

Securities attorneys said the board's decision to oust Karcher was a gamble.

"Anybody who starts out with 34% can't be ignored," said Paul Tosetti, a lawyer with Latham & Watkins in Los Angeles. "I'm sure the board knows that. It may have just gotten too difficult for everyone there. It's difficult to run a company with that kind of disagreement at the board level."

Doyle, a former Kentucky Fried Chicken executive, was hired by Karcher Enterprises with the founder's blessing in January to replace Karcher as chief executive officer.

Over Karcher's objections, Carl's Jr.--under Doyle's direction--has been following the lead of other fast-food companies, offering low-cost items and revamping menus and advertising to attract diners and reverse a revenue slump.

But the chain's prices are still higher than competitors', a key issue for consumers in a sluggish economy.

Consumers are telling Carl's Jr. that "the food is really good, but it's not worth the pricing," Doyle said during the company's annual meeting in an attempt to explain the firm's recent poor performance.

Karcher Enterprises lost $5.5 million for its latest fiscal year. For the second quarter of the current year, the company's earnings were down 29%.

Karcher Enterprises' stock has been falling steadily. In Friday's Nasdaq trading it closed at $8.625 a share--compared to more than $11 a year ago.

The financial community was divided over Friday's events.

One Wall Street analyst said that, while Karcher may have hurt the company financially recently, he has given his life to the enterprise.

"I like Carl personally. My heart goes out to the guy," said the analyst, who asked not to be identified. "In the twilight of his career, he should be enjoying the fruits of his labor. But he's fighting for financial well-being. It's very sad. The last thing he needs is to be kicked when he's down."

But Doug Christopher, an analyst with the brokerage Crowell, Weedon & Co. in Los Angeles, said the founder had become a hindrance to the operation of the company at a critical point in its history.

"This is almost a story for the National Enquirer," Christopher said. "It's so ridiculous that it came to this."

Christopher also said that the founder appears to have become irrational about his Mexican food plan. Karcher has insisted that Carl's Jr. could boost its sagging sales by adding items from Green Burrito, a restaurant chain owned by GB Foods in Anaheim.

Laurie Lively Smith of the brokerage Seidler Amdec in Los Angeles said anything that either side does to resolve the conflict would be a positive move. She noted, though, that a large group of shareholders continues to support Karcher.

One of those is Bob Martin, a broker with Kemper Securities in St. Louis and also a Karcher Enterprises investor. He blasted Doyle and the outside board members Friday and insisted that the founder's Green Burrito plan is brilliant.

Martin said he would like to see Karcher seek shareholder support to replace the board.

"I think the vote was despicable," Martin said. "Here is a kind, wonderful gentleman who is well respected, and they trashed him."

Karcher and his wife have for years been deeply involved in local charities. In fact, working on a United Way drive in Orange County was how Karcher met the woman who now replaces him as head of Carl Karcher Enterprises.

Sanders, who lives in Sutter Creek near Sacramento, rose quickly through the ranks of the Nordstrom department store chain and was the executive who helped oversee the company's opening in 1978 of a store at South Coast Plaza in Costa Mesa, its first in the Southern California.

Before she left the company in 1990, she had helped to open 12 more Nordstrom stores across the Southland as well as four Nordstrom Rack discount centers.

Like Karcher, Sanders served as head of the local United Way. She has also been a member of the Los Angeles Area Chamber of Commerce's executive committee, a director of the Cal State University Foundation and has been honored by the YMCA and the Constitutional Rights Foundation in Los Angeles for her charity work.

She is now a business consultant and serves on the boards of H.F. Ahmanson, Vons Cos., Sport Chalet and Wal-Mart Stores.

Times staff writers Susan Christian, James S. Granelli and Debora Vrana contributed to this report.

* THE CERTAIN WINNERS: Proxy fight would be boon for legal and financial types. A12

* TRADING PLACES: Profiles of fired chairman and the woman who got the job. D1

Shake-Up at Carl's Jr.

After a bitter public fight, Carl N. Karcher was ousted Friday as chairman of the company he started 52 years ago. Directors elected board member Elizabeth A. Sanders as chairwoman of Carl Karcher Enterprises. Though he is no longer at the helm, Karcher remains on the board until his term expires in June.

IN

Elizabeth A. Sanders

Experience: Management consultant, former Nordstrom executive, Karcher board member since 1983.

Age: 48

Challenge: Leading Carl's without Carl.

Quote: "It's only natural for a founder-entrepreneur . . . to feel very personal about the ownership of that company," she said recently. "It's hard for him not to say, 'Doggone it, my name is on the door.' "

OUT

Carl N. Karcher

Experience: Company founder and owner of 34% of company stock.

Age: 76

Challenge: Deciding how he wants to fight back.

Quote: "I feel like I've been stripped of my office by a bunch of turncoats," he said Friday. "After 52 years, I'm on the outside looking in."

At a Glance

Chief executive: Donald E. Doyle Jr.

Headquarters: Anaheim

Founded: 1941

Employees: 14,000

Outlets: 650

1993* sales: $502.6 million, down 7% from 1992

1993* net income: $5.5-million loss ($13-million profit in 1992)

* Fiscal year ended January 28

Source: Los Angeles Times

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