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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): May 3, 1996
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RALLY'S HAMBURGERS, INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware 0-17980 62-1210077
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(State or Other Jurisdiction (Commission (IRS Employer
or Incorporation) File Number) Identification No.)
10002 Shelbyville Road, Louisville, Kentucky 40223
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (502) 245-8900
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 1. CHANGE IN CONTROL
The following information is based substantially on the Schedule 13D
filed by GIANT GROUP, LTD. and KCC Delaware Company on April 26, 1996 (the
"GIANT 13D").
On April 26, 1996, GIANT GROUP, LTD. ("GIANT"), Fidelity National
Financial, Inc. ("Fidelity"), CKE Restaurants, Inc. ("CKE"), and certain other
persons entered into a Settlement Agreement and Release (the "Settlement
Agreement"), a copy of which is attached as an exhibit to the GIANT 13D,
pursuant to which all litigation among the parties to the Settlement Agreement
was settled.
In accordance with the Settlement Agreement, on April 26, 1996, GIANT,
Fidelity and CKE entered into a Purchase and Standstill Agreement (the "Purchase
Agreement"), a copy of which is attached to the GIANT 13D. Pursuant to the
Purchase Agreement, on May 3, 1996, GIANT acquired from Fidelity 705,489 shares
of GIANT common stock for cash. Fidelity acquired from GIANT or KCC Delaware
Company, a wholly owned subsidiary of GIANT ("KCC") 767,807 shares of the common
stock of Rally's Hamburgers, Inc. (the "Company") for cash and CKE acquired from
GIANT or KCC 2,350,432 shares of the Company's common stock for cash. Fidelity
and CKE each received options to buy 1,175,214 shares of the Company's common
stock from GIANT (the "Option Shares") or an aggregate of 2,350,428 shares of
the common stock of the Company. One-half of the Option Shares held by each of
CKE and Fidelity have an exercise price of $3.00 per share and expire on April
26, 1997, and one-half of such Option Shares have an exercise price of $4.00
per share and expire on April 26, 1998.
The Purchase Agreement further provides that if GIANT or its affiliates
purchase additional shares of the Company's common stock, Fidelity and CKE will
have rights to purchase shares of the Company's common stock from GIANT at the
average price at which GIANT acquired such additional shares such that the
proportional ownership of the Company's common stock among GIANT, Fidelity and
CKE will be the same as immediately prior to such purchases (without giving
effect to shares which may be purchased upon exercise of the options granted
pursuant to the Purchase Agreement to the extent such options have not been
exercised). In addition, GIANT, on the one hand, and Fidelity and CKE, on the
other hand, have agreed to provide the other with rights of first refusal for
four business days in the event that they propose to dispose of shares of the
Company's common stock. The parties further agreed that if GIANT, on the one
hand, and Fidelity and CKE, on the other hand, each own at least 34.0% of the
outstanding common stock of the Company (without giving effect to shares which
may be acquired upon exercise of the options granted pursuant to the Purchase
Agreement to the extent such options have not been exercised), then at each
election of directors of the Company, GIANT may nominate up to one-half of the
number of directors to be elected and Fidelity and CKE may nominate up to
one-half of the number of directors to be elected and the parties will vote all
their shares in favor of the other parties' nominees. Also, if one, but not
both of GIANT, on the one hand, and Fidelity and CKE, on the other hand, own at
least 34.0% of the outstanding common stock of the Company (without giving
effect to the shares which may be purchased upon exercise of
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the options granted pursuant to the Purchase Agreement to the extent such
options have not been exercised), the parties agreed that at each election of
directors, the party owning at least 34.0% of the outstanding common stock of
the Company may nominate up to one-half of the number of directors to be elected
and the other party will vote all shares of the Company's common stock owned by
him in favor of such nominees. The foregoing provisions regarding the voting of
shares of the Company's common stock will expire on April 26, 2006.
Also related to the Purchase Agreement, C. Thomas Thompson, President of
Carl's Jr., a wholly owned subsidiary of CKE, and William P. Foley II, Chairman
and Chief Executive Officer of Fidelity and Carl's Jr., have been appointed to
the Board of Directors of the Company. Michael M. Fleishman, Mary Hart,
Patricia L. Glaser, and John A. Roschman have resigned from the Company's Board
of Directors. Terry Christensen, a partner in the law firm of Christensen,
White, Miller, Fink, Jacobs, Glaser & Shapiro, LLP has also been appointed to be
a director of the Company. Also, the Company's Board of Directors has approved
CKE as an Interested Stockholder (as defined in Section 203 of the General
Corporation Law of the State of Delaware).
William P. Foley II is the beneficial owner of 4,343,752 shares or 23.9%
of the outstanding common stock of CKE and 3,364,916 shares or 23.5% of the
outstanding common stock of Fidelity. Mr. Foley is, in partnership with others,
the single largest shareholder of both CKE and Fidelity.
If Fidelity and CKE were to exercise their options, they would have the
power to vote an aggregate 5,468,663 shares or 34.9% of the outstanding common
stock of the Company. After such an exercise GIANT would beneficially own only
12.5% of the outstanding common stock of the Company. Also, pursuant to the
Purchase Agreement, Fidelity and CKE would have the right to nominate at least
one-half of the Company's Board of Directors and GIANT would be obligated to
vote its shares for the election of such nominees. GIANT would have no such
rights to nominate directors.
Based on the foregoing, Fidelity and CKE may be deemed to have the
ability to control the Company, as defined in the Securities Exchange Act of
1934 and the Rules promulgated thereunder.
ITEM 5. OTHER EVENTS.
On May 9, 1996, the Company instituted an appeal of the decision of the
Nasdaq Stock Market, Inc. to discontinue the listing of the Company's common
stock on the National Market. Nasdaq maintains that the net tangible assets of
the Company are insufficient to meet National Market listing qualifications.
The Company will continue to be listed on the Nasdaq National Market pending the
outcome of the appeal.
ITEM 7. EXHIBITS.
99.1 Press Release dated May 10, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RALLY'S HAMBURGERS, INC.
(Registrant)
Date: May 17, 1996 By: /s/ Evan G. Hughes
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Evan G. Hughes
Senior Vice President
Chief Administrative Officer,
Secretary
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EXHIBIT 99.1
RALLY'S REPORTS FIRST QUARTER NET INCOME
LOUISVILLE, Ky., May 10 /PRNewswire/ -- Rally's Hamburgers, Inc. (Nasdaq:
RLLY) announced net income of $838,000 or $.05 per share for the first quarter
ended March 31, 1996 attributable to an extraordinary gain, net of tax, of $4.5
million or $.29 per share from the early extinguishment of debt during the
quarter. This gain was offset by a net operating loss of $3.7 million or $.24
per share in the quarter. During the comparable quarter of the prior year the
Company lost $3.5 million or $.22 per share.
Company units recorded a same store sales increase of 2%, their first
full quarter increase since the first quarter of 1994. This represents the
fourth consecutive quarter of improving trends in Company-owned same store
sales. Systemwide same store sales were essentially flat for the quarter.
Overall, total Company revenues declined slightly in the quarter due to a
reduction in systemwide units in operation during the quarter versus the prior
year period. For the month of April, 1996, Company and franchised same store
sales were up 2.5% and down 4.8%, respectively.
Donald E. Doyle, newly appointed President and Chief Executive Officer,
stated "The challenge of returning Rally's to profitability is achievable. I am
encouraged by the improvement we're seeing in same store sales trends. To
translate improved sales into improved bottom line performance, we have
initiated several important changes designed to improve store level margins.
These changes, principally in the areas of food cost and labor cost, are being
pursued aggressively. Our focus is on achieving improvements in store level
economics while maintaining the positive sales momentum we are now experiencing.
I'm confident that our delivery of high quality food, fast friendly service, and
exceptional value will continue to attract new customers. Our challenge is an
internal one, and that is restructuring the Rally's profit formula to take full
advantage of our concept strengths."
Doyle added "This quarter's 25% reduction in our bond debt is a
significant first step in de-leveraging the Company. Additionally, we welcome
the investment by CKE Restaurants and Fidelity National Financial, as well as
the proven talents of their representatives on our Board, Bill Foley and Tom
Thompson. Their significant experiences in turnarounds within our industry
segment should prove invaluable to me as I guide our progress."
The Company's extraordinary gain resulted from the January 29, 1996
repurchase of 22.0 million face value of its 9 7/8% Senior Notes for $15.2
million. This repurchase reduces the Company's annual interest expense by more
than $2 million and reduces the Company's remaining 1999 sinking fund indenture
requirement of one third of the $85 million original face value to less than $7
million of face value.
While same store sales improved during the quarter, the improvement did
not increase the seasonally low sales volumes enough to sufficiently leverage
fixed costs, contributing to the operating loss. Historically, the Company's
lowest sales volumes occur during its first quarter. Additionally, increases in
labor and other store operating costs, such
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as repairs and utilities, were not sufficiently offset by the attained volumes.
The Company ended the quarter with cash and investment balances of
$2.8 million, after the outlays in the quarter for its 25% reduction in bond
debt and its use of cash in operating activities. Additionally, as
anticipated, the Company closed on sales of certain nonproductive assets,
receiving $2.5 million in proceeds during the quarter. The Company is actively
reviewing liquidity enhancing alternatives, but expects existing cash balances,
operating cash flows and proceeds from the sale of additional assets to be
sufficient to fund its obligations until selection of appropriate financing
alternatives is completed and implemented.
The Company has appealed the decision of NASDAQ to discontinue the
listing of Rally's on the NASDAQ national market system due to a deficiency in
net tangible assets. This was caused by the impact of the early implementation
of SFAS 121, the new accounting standard regarding impairment of long-lived
assets. Rally's will continue to be listed on the NASDAQ pending the outcome
of the appeal.
The Company closed one unit during the quarter and franchisees opened
six and closed four restaurants. As of May 8, 1996, there were 484 Rally's
Hamburgers restaurants operating in 19 states.
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/CONTACT: Don Doyle, President and Chief Executive Officer of
Rally's, 502-254-8900/
(RLLY)
