Denny's board re-elected

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Despite some shareholder complaints, leadership remains

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Shareholders supported Denny's Corp. management and existing board in a nasty and costly proxy war over a challenge to three key directors of the Spartanburg restaurant chain.

A group of dissident shareholders, who acquired 7 percent of Denny's stock between September and April, sought unsuccessfully to oust board Chairwoman Debra Smithart-Oglesby, President and CEO Nelson J. Marchioli and past chairman Robert E. Marks.

They were re-elected with roughly 52 percent of votes cast, or 43.4 million.  Five other directors, Brenda J. Lauderback, Louis P. Neeb, Donald C. Robinson, Donald R. Shepherd and Laysha Ward, were re-elected without opposition.

Only one nominee of the dissidents, Jonathan Dash of Dash Acquisitions, who lead the proxy war against management, came close with 41.7 million shareholder votes.  The other two nominees of the dissidents, David Makula and Patrick H. Arbor, had 30.2 million and 27.7 million shareholder votes respectively.

The outcome was a clear demonstration that the dissidents failed to attract sufficient support of other institutional shareholders to prevail. Eighty percent of Denny's 99.2 million outstanding shares are held by institutions.

The proxy war proved costly to shareholders.

Mark Wolfinger, chief financial officer, told a conference call of analysts that the company expensed $500,000 in proxy expenses in the first quarter and expected to add $1 million to $1.5 million more in the second quarter.

Smithart-Oglesby said the vote the board appreciated "the support and confidence our stockholders have placed in our board.

"We take this responsibility very seriously and are firmly committed to maximizing stockholder value. We look forward to applying our full energy and focus towards building on the progress we have made at Denny's and implementing our plans to accelerate that progress going forward."

The vote for directors technically was completed by the company's annual shareholder meeting in Spartanburg May 19 but not counted and certified until a filing with the Securities and Exchange Commission on Tuesday.

The annual meeting itself was perfunctory, lasting only 30 minutes.

The proxy fight was launched by a group of investment firms led by Oak Street Capital Management and Dash Acquisitions.

In dueling letters to shareholders soliciting proxy votes, the two sides engaged in an ugly accusatory battle, at times getting personal.

The Committee for Enhancement of Denny's, as they were called, said management and the board had undermined shareholder, ignored franchisee owners, lost market share to IHOP, failed to halt a decline in guest traffic, paid Marchioli extravagantly and misspent money on ill-conceived marketing and remodeling.

The board defended its record, citing a reduction in debt, new economy meal plans, a reduction in low-performing stores, an increase in franchisees, and a contract to serve Pilot and Flying J truck stops. The board accused the dissidents if being corporate raiders intent on enriching themselves.

Commenting on the loss, Dash said the dissidents "are hopeful that we have sent a strong message to the board members that shareholders will hold each of them accountable if shareholder value continues to deteriorate."

He said management and board must reverse "the continuous decline in same store sales and guest traffic" if it hopes to turn the company around.

Denny's, which had its start as a donut shop in California in 1953, grew into the nation's largest family restaurant chain, fell onto hard times in the 1990s and is fighting to hold onto market share against "especially intense" competition.

As of the first of the year, Denny's had 1,551 restaurants, 85 percent of which were owned by franchisees.  The company has embarked on a plan to increase the number of franchisee holders to 90 percent.

Denny's reported net income of $41.5 million in 2009, up from $12.7 million in 2008.  In the first quarter of 2010, the company reported net income of $4.6 million, slightly higher than in the first quarter of 2009.

The company said same store sales declined 5.5 percent at company restaurants and 6.3 percent at franchise-owned stores. "This represents an improvement in trend to the last six months of 2009 despite the negative impact of weather in the first quarter," the company said