<PAGE>
As Filed with the Securities and Exchange Commission on July 3, 1996
Registration No. 333_
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
RALLY'S HAMBURGERS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
62-1210077
- --------------------------------------------------------------------------------
(I.R.S. Employer Identification Number)
10002 Shelbyville Road, Suite 150, Louisville, Kentucky 40223 (502) 245-8900
- --------------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Evan G. Hughes
Rally's Hamburgers, Inc.
10002 Shelbyville Road, Suite 150, Louisville, Kentucky 40223 (502) 245-8900
- --------------------------------------------------------------------------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each Proposed Proposed maximum
class of securities Amount to be maximum aggregate offering Amount of
to be registered registered offering price price registration fee
per unit
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Rights 15,678,780 0
- --------------------------------------------------------------------------------------------------
Units (1) 3,484,173 $3.00 $10,452,519.00 $3,604.32
Common Stock 3,484,173
Warrants 3,484,173
- --------------------------------------------------------------------------------------------------
Common Stock (2) 3,484,173 $3.00 $10,452,519.00 $3,604.32
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) 3,484,173 Units, each consisting of a share of Registrant's common stock,
$.10 par value per share (the "Common Stock") and a warrant to purchase a
share of Common Stock ("Warrants"), are issuable upon exercise of the
Rights.
(2) Issuable upon exercise of the Warrants. Pursuant to Rule 416, this
Registration Statement also covers such indeterminable additional shares as
may become issuable as a result of any future adjustments in accordance
with the terms of the Warrants, as described in the Prospectus.
<PAGE>
PROSPECTUS
[3,484,173] UNITS
RALLY'S HAMBURGERS, INC.
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE COMMON STOCK PURCHASE WARRANT
______________
Rally's Hamburgers, Inc., a Delaware corporation (the "Company"), is
distributing to holders of record of shares of its common stock, par value $.10
per share (the "Common Stock"), as of the close of business on ___________ (the
"Record Date"), transferable subscription rights (the "Rights") to purchase
units ("Units") consisting of one share of Common Stock and one warrant to
purchase an additional share of Common Stock (the "Warrants") (the "Rights
Offering"). Stockholders will receive one Right for each share of Common Stock
held on the Record Date. For each 4.5 Rights held, a holder ("Holder") will
have the right to purchase one Unit (the "Basic Subscription Privilege") for
$3.00 per Unit (the "Subscription Price"). No fractional Units will be sold,
and fractional interests will be rounded down. The Rights will be evidenced by
transferable subscription certificates.
Each Warrant may be exercised to acquire an additional share of Common
Stock at an exercise price of $3.00 per share and expires four years from the
date of issuance. The Warrants are redeemable by the Company at $.01 per
Warrant, at the Company's option, if the closing price for the Company's Common
Stock on the NASDAQ National Market ("NNM") (or such other principal securities
exchange or market on which the Common Stock is then trading) is at or above
$6.00 per share for 20 out of 30 consecutive trading days.
Upon exercise of the Basic Subscription Privilege, a Holder will also be
entitled to purchase at the Subscription Price a pro rata portion of Units which
are not subscribed for pursuant to the Basic Subscription Privilege (the
"Oversubscription Privilege" and collectively with the Basic Subscription
Privilege, referred to herein as the "Subscription Privilege").
The Common Stock is quoted on the NNM under the symbol "RLLY." On
__________________, the last sale price of the Common Stock as reported on the
NNM was _________ per share.
THE RIGHTS WILL EXPIRE AT ____________, LOUISVILLE, KENTUCKY TIME, ON
__________, 1996, unless extended by the Company (such date, as it may be
extended on one or more occasions, is referred to herein as the "Expiration
Date"). In no event will the Expiration Date be extended beyond ___________,
1996. Funds provided in payments of the Subscription Price will be held by
_____________, as subscription agent, until the closing (the "Closing Date"),
which will occur as soon as practicable following the Expiration Date and after
all prorations have been effected. The exercise of Rights is irrevocable once
made, and no interest will be paid to Holders exercising their Rights.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS
IN THE SECURITIES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSIONS OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is ___________, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (together with any amendments
thereto the "Registration Statement"), under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Rights, the Units issuable
upon exercise of the Rights, the Common Stock and Warrants included in the Units
and the Common Stock underlying the Warrants. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in schedules and exhibits to the Registration Statement as permitted
by the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
herein or therein are not necessarily complete, and, in each instance, reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, or incorporated by reference therein for a more
complete description of the matter involved and each such statement shall be
deemed qualified in all respects by such reference. Such additional information
may be obtained from the Commission's principal office in Washington, D.C.
The Company is subject to the informational requirement of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports and other information with the Commission. The
Registration Statement and the exhibits thereto, as well as such reports and
other information, filed by the Company can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the
Commission located at 7 World Trade Center, New York, New York 10048 and
Citicorp Center, 500 Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained upon written request addressed to the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Common Stock is quoted on
the NNM, and reports, proxy statements and other information concerning the
Company may be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(i) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 (the "1995 10-K");
(ii) the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996 (the "March 1996 10-Q");
(iii) the Company's Proxy Statement dated June 19, 1996 with respect to
its Annual Meeting held on July 10, 1996;
(iv) the Company's Current Reports on Form 8-K dated January 29, 1996,
April 16, 1996 and May 3, 1996; and
(v) the description of the Common Stock which is contained in the
Company's Registration Statement on Form 8-A dated September 19,
1989.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act, subsequent to the date of this Prospectus and prior
to the termination of the Rights Offering, shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the respective dates
of the filing thereof. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which is also
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including each
beneficial owner, to whom a copy of this Prospectus is delivered, on the written
or oral request of such person, a copy of any or all documents incorporated by
reference into this Prospectus that are not delivered herewith, except the
exhibits to such documents (unless such exhibits are specifically incorporated
by reference in such documents). Requests for such copies should be directed to
the Company's principal office: Rally's Hamburgers, Inc., 10002 Shelbyville
Road, Suite 150, Louisville, Kentucky 40223, Attention: Evan G. Hughes, (502)
245-8900.
2
<PAGE>
PROSPECTUS SUMMARY
The following material is qualified in its entirety by the information and
the consolidated financial statements and notes thereto appearing elsewhere in
or incorporated by reference into this Prospectus.
THE COMPANY
Rally's Hamburgers, Inc., a Delaware corporation (the "Company" or
"Rally's"), is one of the largest chains of double drive-thru restaurants in the
United States. As of June 28, 1996, the Rally's system included 484 restaurants
in 19 states, primarily in the Midwest and the Sunbelt, comprised of 239
Company-owned and 245 franchised restaurants. The Company's restaurants offer
high quality fast food served quickly and at everyday prices generally below the
regular prices of the four largest hamburger chains. The Company serves the
drive-thru and take-out segments of the quick-service restaurant market. The
Company opened its first restaurant in January, 1985 and began offering
franchises in November, 1986.
During the later part of 1995 and into 1996, the Company has implemented
actions to improve its balance sheet and operating results, including
repurchasing $22 million principal amount (or approximately 25%) of the
Company's outstanding 9-7/8% Senior Notes due 2000 (the "Senior Notes"),
entering into a strategic partnership with the Carl's Jr. restaurant chain,
instituting new marketing initiatives aimed at improving comparable store sales
trends and undertaking actions aimed at improving food, paper and labor costs as
a percentage of sales.
While the Company lost, net of applicable tax benefit, $3.7 million from
operations during the quarter (excluding an extraordinary gain of $4.5 million
related to the repurchase of Senior Notes), the Company reported a 2% growth in
Company-owned same store sales during the quarter. The Company is attempting to
redirect most of its near term focus toward achievement of four specific short
term objectives, i.e., growing same store sales, reducing food and paper costs
as a percent of sales, reducing store labor costs as a percent of sales and
attacking other elements of spending. Management believes that the Company's
focus on achievement of these objectives combined with a gradual increase in
Company new store development should allow the Company to achieve a sustainable
level of profitability in the near future. However, no assurance can be given
that management will be able to carry out such objectives or that achievement of
these objectives will have a positive effect on the Company's profitability. The
Company's principal executive offices are located at 10002 Shelbyville Road,
Suite 150, Louisville, Kentucky 40223, and its telephone number is (502) 245-
8900. See "The Company."
THE RIGHTS OFFERING
<TABLE>
<S> <C>
Rights................................ Each holder of Common Stock will
receive one transferable Right for
each share of Common Stock held of
record on the Record Date. An
aggregate of [15,678,780] Rights will
be distributed pursuant to the Rights
Offering. An aggregate of
[3,484,173] Units, each consisting of
one share of Common Stock and one
Warrant, will be sold if all Rights
are exercised. The exercise of
Rights is irrevocable once made, and
no Units will be issued until the
closing following the Expiration
Date. See "The Rights Offering - The
Rights."
Basic Subscription Holders will be entitled to purchase
Privilege..................... one Unit for each 4.5 Rights held.
See "The Rights Offering -
Subscription Privileges - Basis
Subscription Privilege."
Units................................. Each Unit consists of one share of
Common Stock and one Warrant.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Warrants.............................. Each Warrant may be exercised to
acquire one share of Common Stock for
$3.00. The Warrants will expire on
the fourth anniversary of the Closing
Date, subject to the extension under
certain circumstances. See
"Description of Securities -
Redeemable Warrants."
Optional Redemption of Warrants The Company will have the right, but
By Company.................... not the obligation, to redeem the
Warrants, at $.01 per Warrant, if the
closing price of the Common Stock as
reported on the NNM (or such other
principal securities exchange or
market on which the Common Stock is
then trading) for 20 out of 30
consecutive trading days is equal to
or exceeds $6.00 per share. See
"Description of Securities -
Redeemable Warrants."
Oversubscription Each Holder who elects to exercise
Privilege...................... his or her Basic Subscription
Privilege may also subscribe at the
Subscription Price for Units, if any,
remaining unsold after satisfaction
of all subscriptions pursuant to the
Basic Subscription Privilege
("Oversubscription Privilege"). If
an insufficient number of Units is
available to satisfy fully all
elections to exercise the
Oversubscription Privilege, the
available Units will be allocated on
a pro rata basis among Holders who
exercise their Oversubscription
Privilege based on the respective
numbers of Units subscribed for by
such Holders pursuant to the Basic
Subscription Privilege. See "The
Rights Offering - Subscription
Privileges - Oversubscription
Privilege."
Subscription Price.................... $3.00 in cash per Unit.
Shares of Common Stock and Warrants Assuming that all Rights are fully
Outstanding after Rights exercised, [19,162,953] shares of
Offering..................... Common Stock and [3,484,173] Warrants
will be outstanding immediately after
the Rights Offering, based on
[15,678,780] shares of Common Stock
outstanding on the Record Date. The
final number of shares of Common
Stock and Warrants that will be
outstanding after the Rights Offering
is dependent upon the extent to which
Rights are exercised.
Transferability of The Rights are transferable and will
Rights........................ be quoted on the NNM under the
trading symbol RLLYR until the close
of business on the last trading day
prior to the Expiration Date. Any
transfer of Rights will be deemed a
transfer of both the Basic
Subscription Privilege and the
Oversubscription Privilege. The
Subscription Agent will endeavor to
sell Rights for Holders who have so
requested and have delivered one or
more Subscription Certificate(s)
evidencing such Rights, with the
instruction for sale included thereon
properly executed, to the
Subscription Agent by 11:00 a.m.
____________ time on _______ (five
business days prior to the Expiration
Date). There can be no assurance,
however, that any market for Rights
will develop, or that the
Subscription Agent will be able to
sell any Rights for Holders. If less
than all sales orders received by the
Subscription Agent can be filled,
sales
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
proceeds will be prorated among the
Holders based upon the number of
Rights each has instructed the
Subscription Agent to sell during
such period, irrespective of when
during such period the instructions
are received by the Subscription
Agent. See "The Rights
Offering-----Method of Transferring
Rights."
Record Date........................... _______, 1996.
Expiration Date....................... _______, 1996, unless extended by the
Company from time to time, provided
that the Expiration Date shall not be
later than ________, 1996, unless the
Board of Directors determines that a
material event has occurred which
necessitates one or more further
extensions of the Rights Offering in
order to permit adequate disclosure
of information concerning such event
to Holders. See "The Rights
Offering----- Expiration Date." If
the Company elects to extend the term
of the Rights, it will issue a press
release to such effect no later than
the last day on which the NNM is open
for trading prior to the most
recently announced Expiration Date.
In the event the Company elects to
extend the term of the Rights
Offering by more than 14 calendar
days, it will, in addition, cause
written notice of such extension to
be promptly sent to all Holders of
record on the Record Date.
Procedure for Exercising Rights may be exercised by properly
Rights........................ completing the certificate evidencing
such Rights (the "Subscription
Certificate") and forwarding such
Subscription Certificate (or
following the Guaranteed Delivery
Procedures, as defined below) to the
Subscription Agent on or prior to the
Expiration Date, together with
payment in full of the Subscription
Price for each Unit subscribed for
pursuant to the Subscription
Privileges. If the mail is used to
forward Subscription Certificates, it
is recommended that insured,
registered mail be used. The
exercise of a Right may not be
revoked or amended. If time does not
permit a Holder or transferee of a
Right to deliver a Subscription
Certificate to the Subscription Agent
on or before the Expiration Date,
such Holder or transferee should make
use of the Guaranteed Delivery
Procedures described under "The
Rights Offering-----Exercise of
Rights."
If paying by uncertified personal
check, please note that the funds
paid thereby may take at least five
business days to clear. Accordingly,
Holders who wish to pay the
Subscription Price by means of
uncertified personal check are urged
to make payment sufficiently in
advance of the Expiration Date to
ensure that such payment is received
and clears by such date and are urged
to consider payment by means of
certified or cashier's check, money
order or wire transfer of funds.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Persons Holding Shares, Persons holding shares of Common
or Wishing to Stock, and receiving the Rights
Exercise Rights distributable with respect thereto,
Through Others................ through a broker, dealer, commercial
bank, trust company or other nominee,
as well as persons holding
certificates representing Common
Stock in their own name who would
prefer to have such institutions
effect transactions relating to the
Rights on their behalf, should
contact the appropriate institution
or nominee and request it to effect
the transactions for them. See "The
Rights Offering----Exercise of
Rights."
Closing and Issuance of The closing will occur and
Common Stock and Warrants..... certificates representing Common
Stock and Warrants will be delivered
to subscribers as soon as practicable
after the Expiration Date and after
all prorations have been effected.
See "The Rights
Offering-----Subscription
Privileges." No Common Stock or
Warrants will be issued until the
closing. Funds delivered to the
Subscription Agent for the exercise
of Subscription Privileges will be
held in escrow by the Subscription
Agent until the closing. No interest
will be paid to Holders on funds held
by the Subscription Agent. In the
case of Holders exercising
Oversubscription Privileges, any
excess funds will be returned to the
Holders as soon as practicable
following the closing.
Use of Proceeds....................... It is anticipated that the net
proceeds to Company will be
approximately $____ million if all of
the Units are purchased in the Rights
Offering (excluding proceeds received
upon the exercise of the Warrants).
If less than all of the Units are
purchased, the proceeds will be
correspondingly reduced. Such
proceeds will be used to build new
restaurants, refurbish certain
existing restaurants and for other
general corporate purposes, including
possibly reducing outstanding
indebtedness. See "Purpose of the
Rights Offering and Use of Proceeds."
Subscription Agent.................... _______________________________.
NNM Common Stock Trading
Symbol.............................. RLLY
NNM Rights Trading
Symbol.............................. RLLYR
NNM Warrant Trading Symbol RLLYW
</TABLE>
6
<PAGE>
COMMITMENTS TO EXERCISE RIGHTS
GIANT GROUP, LTD. ("GIANT"), Fidelity National Financial, Inc. ("Fidelity")
and CKE Restaurants, Inc. ("CKE"), which are the record owners of 4,312,063,
767,807 and 2,350,432 shares of Common Stock, respectively, have committed to
exercise, or cause to be exercised, their Basic Subscription Privileges.
RISK FACTORS
The purchase of Units, the Common Stock and Warrants in the Rights Offering
involves investment risks particular to the Company, and risks particular to the
Rights Offering. Investors are urged to read and consider carefully the
information set forth under the heading "Risk Factors," which follows this
Prospectus Summary.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except per share amounts and statistical data)
<TABLE>
<CAPTION>
Fiscal Year Ended Quarter Ended
---------------------------------------------------- --------------------
Dec 29, Jan 3, Jan 2, Jan 1, Dec 31, April 2, March
1991(1) 1993 1994 1995 1995 1995 31
------- ---- ---- ---- ---- ---- 1996
----
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues.................. $ 94,131 $120,648 $174,346 $186,318 $188,859 $42,470 $ 41,912
Income(loss)from
operations(2)(3)(4)............. 10,289 15,057 (7,050) (14,636) (36,470) (993) (3,369)
Net income (loss)
before income taxes............. 9,821 14,260 (13,483) (24,255) (46,380) (3,449) (5,366)
Net income (loss)
before extraordinary
item............................ 6,071 9,279 (8,907) (19,273) (46,919) (3,509) (3,684)
Net income (loss)(5)............ $ 6,071 $ 9,279 $ (8,907) $(19,273) $(46,919) $(3,509) $ 838
Net income (loss)
per share before
extraordinary
item.......................... $0.54 $0.76 $(0.67) $(1.42) $(3.00) $(0.22) $ (0.24)
Extraordinary item
per share(5).................. -- -- -- -- -- -- 0.29
-------- -------- -------- -------- -------- ------- --------
Net income (loss)
per share(5).................. $0.54 $0.76 $(0.67) $(1.42) $(3.00) $(0.22) $ 0.05
======== ======== ======== ======== ======== ======= ========
OPERATING DATA:
System-wide sales:
Company-owned................. $ 86,822 $112,894 $165,829 $178,476 $181,778 $40,734 $ 40,508
Franchised.................... 134,278 183,649 188,837 191,611 173,941 41,950 36,070
-------- -------- -------- -------- -------- ------- --------
Total...................... $221,100 $296,543 $354,666 $370,087 $355,719 $82,684 $ 76,578
======== ======== ======== ======== ======== ======= ========
Number of
restaurants:
Company-owned................ 116 197 252 250 239 254 238
Franchised................... 217 253 268 292 242 284 244
-------- -------- -------- -------- -------- ------- --------
Total...................... 333 450 520 542 481 538 482
======== ======== ======== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
At
March 31,
BALANCE SHEET DATA: 1996
--------
<S> <C>
Working capital deficit.......................................................................... (22,541)
Total Assets..................................................................................... 119,423
Long-term debt and obligations under capital leases, including current portion................... 78,681
Shareholders' equity............................................................................. 7,524
</TABLE>
________________________
(1) Information for period ended December 29, 1991 reflects pro forma
adjustments from treating all non-taxable entities acquired by the Company
as if these acquired entities had been taxed as regular corporations and
able to file a consolidated federal income tax return with the Company.
(2) The fiscal year ended January 2, 1994 includes approximately $12.6 million
charged against operations for a major business restructuring program and
other restaurant closings.
(3) The fiscal year ended January 1, 1995 includes $17.3 million charged against
operations for changes in business strategies.
(4) The fiscal year ended December 31, 1995 includes approximately $17.3 million
charged against operations for changes in business strategies and restaurant
closings. The year also includes approximately $13.7 million related to the
Company's implementation of SFAS 121. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
1995 10-K incorporated herein by reference.
(5) The quarter ended March 31, 1996 includes an extraordinary gain, net of tax,
of approximately $4.5 million related to the Company's repurchase of Senior
Notes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in the March 1996 10-Q incorporated herein
by reference.
8
<PAGE>
RISK FACTORS
This Prospectus contains or incorporates by reference forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended. Discussions containing such forward-looking statements may be found in
the material set forth under "Prospectus Summary," "The Company," "Purpose of
the Rights Offering and Use of Proceeds," as well as within the Prospectus
generally (including the documents incorporated by reference therein). Also,
documents subsequently filed by the Company with the Commission will contain
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors set
forth below and the matters set forth or incorporated by reference in the
Prospectus. The Company cautions the reader, however, that this list of factors
may not be exhaustive, particularly with respect to future filings. Before
making a decision to purchase any of the securities described in this
Prospectus, prospective investors should carefully consider the following
factors.
NASDAQ LISTING AND MAINTENANCE REQUIREMENTS
In April 1996, the NASDAQ Stock Market, Inc. informed the Company that it
was reviewing the eligibility of the Company for continued quotation of its
stock on the NNM. There are five criteria that must be substantially met for
continued quotation on the NNM. While the Company currently exceeds the
requirements on four of the five tests, it does not currently meet the test for
net tangible assets, which excludes goodwill. Rule 4450(a)(3) of the National
Association of Securities Dealers, Inc. ("NASD") provides that an issuer of an
NNM security must have net tangible assets (total assets minus liabilities and
goodwill) of at least $4 million if the issuer has sustained losses from
continuing operations and/or net losses in three of its four most recent fiscal
years (the "Net Tangible Asset Test"). The Company has incurred net losses in
its last three fiscal years. As of the end of the 1995 fiscal year, the Company
had net tangible assets in the net negative amount of $4,598,000.
On June 6, 1996, the Company had a hearing before a Nasdaq Qualifications
hearing panel (the "Panel") with regard to the Company's request for an
exception to the Net Tangible Asset Test. On June 13, 1996, the Panel granted
the Company a conditional exception to the Net Tangible Assets Test based upon
its finding that the Company presented a plan of compliance which is currently
in progress, which has a high likelihood of successful completion, and which can
be completed in a reasonable amount of time. The Panel determined that the
Company must make a public filing with the Commission and NASDAQ on or before
September 30, 1996, which filing must contain a pro forma balance sheet with a
historical basis not older than 45 days and a corresponding statement of
operations and must further evidence compliance with the Net Tangible Asset Test
and with all other requirements for listing on the NNM. The decision by the
Panel is subject to review by the NASDAQ Listing and Hearing Review Committee.
In the event the Company fails to meet the Panel's requirement, the Company's
securities will be subject to delisting from the NNM. Any decision to delist the
Company's securities is subject to appeal by the Company, which will not stay
such decision unless the Board of Governors of the NASD grants such a stay.
The Company plans to remedy its net tangible asset deficiency primarily by
completing the Rights Offering, which is also anticipated to provide additional
working capital for new store construction, refurbishment of some existing
restaurants as well as for other general corporate purposes, including possibly
reducing outstanding indebtedness. No assurance can be given that the Rights
Offering will be fully subscribed. The Rights Offering is expected to increase
the Company's net tangible assets by approximately $__________. No assurance can
be given that such increase will be achieved.
If the Rights Offering is not fully subscribed, or if following the Rights
Offering, the Company, because of negative operating results, fails to satisfy
the criteria for continued listing on the NNM, the Company's securities could be
delisted from the NNM. In such event, the Company would seek to list its Common
Stock and Warrants on NASDAQ's "small cap" system or on another national
securities exchange. No assurance can be made whether such listing can or will
occur.
Among other consequences, if the Company were no longer listed on the NNM,
the holders of Common Stock and/or Warrants could suffer a loss of liquidity as
it becomes more difficult to effect transfers of such securities.
HISTORY OF OPERATING LOSSES; CHANGES IN OPERATIONS
The Company reported losses from operations (before interest and other
income, and provision for income taxes) for the fiscal year ended December 31,
1995 of $36,470,000 and for the thirteen week period ended
9
<PAGE>
March 31, 1996 of $3,369,000. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the 1995 10-K and
the March 1996 10-Q incorporated by reference herein. The Company has not
reported an operating profit in any quarter since June 1993. Faced with
declining same store sales and profitability over the past three years, the
Company has pursued a variety of options, including replacement of senior
management team members, changing advertising agencies and significant use of
outside consultants to formulate plans to stem the decline in same store sales
and return the Company to profitability. The Company has entered into an
operating agreement with CKE pursuant to which 28 Company-owned stores in
California and Arizona are operated by CKE. CKE will pay all operating costs of
the stores. The Company retained ownership of the assets of these stores and
receives a percentage of the stores sales. No assurance can be given that any of
the foregoing will improve the Company's operating results. In addition, the
Company must continually examine, in accordance with Generally Accepted
Accounting Principles, its assets for potential impairment where circumstances
indicate that such impairment may exist. As a retailer, the Company believes
such examination requires the operations and store level economics of individual
restaurants be evaluated for potential impairment. No assurance can be given
that even an overall return to profitability will preclude the writedown of
assets associated with the operation of an individual restaurant or restaurants
in the future. See "The Company."
INDEBTEDNESS
The Company's Senior Notes, with a required sinking fund payment of
approximately $6.2 million due in 1999, are a significant portion of the
capitalization of the Company. As such: (i) the ability of the Company to
obtain additional financing in the future for working capital, capital
expenditures, debt service requirements or other purposes may be impaired; (ii)
a substantial portion of the Company's cash flow from operations will be
required to be dedicated to the Company's interest expense and principal
repayment obligations; and (iii) the Company's level of indebtedness may make it
more vulnerable in the event of a sustained downturn in its business. The
ability of the Company to satisfy its obligations under the Senior Notes will be
dependent on the Company, among other factors, successfully increasing revenues
and returning the Company to operational profitability.
COMPETITION IN THE QUICK-SERVICE RESTAURANT INDUSTRY
The quick-service restaurant industry is highly competitive and can be
significantly affected by many factors, including change in local, regional or
national economic conditions, changes in consumer tastes, consumer concerns
about the nutritional quality of quick-service food and increases in the number
of, and particular locations of, competing quick-service restaurants. Factors
such as inflation, increases in food, labor (including health care) and energy
costs and the availability of an adequate number of hourly-paid employees also
affect the quick-service restaurant industry. Major chains, which have
substantially greater financial resources and longer operating histories than
the Company, dominate the quick-service restaurant industry. In certain markets,
the Company will compete with other quick-service double drive-thru hamburger
chains with operating concepts similar to the Company. Certain of the major
chains have increasingly offered selected food items and combination meals,
including hamburgers, at temporarily or permanently discounted prices. A change
in the pricing or other marketing strategies of one or more of these competitors
could have an adverse impact on the Company's sales and earnings. With respect
to the sale of franchises, the Company competes with many franchisors of
restaurants, including other double drive-thru franchisors, and franchisors of
other business concepts.
DEPENDENCE UPON SENIOR MANAGEMENT
The success of the Company's business will continue to be highly dependent
upon the services of its senior management, including Donald E. Doyle, President
and Chief Executive Officer. The Company's current management team has
substantial experience in the restaurant industry and the loss of one or more
members of senior management could adversely affect the Company's business and
development.
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<PAGE>
CONTROL BY PRINCIPAL STOCKHOLDERS
GIANT, of which Burt Sugarman is the controlling stockholder, Chairman,
President and Chief Executive Officer, owns approximately 27.5% of the
outstanding shares of the Common Stock of the Company. Mr. Sugarman is also
Chairman of the Board of the Company. GIANT entered into an agreement with
Fidelity and CKE (which are the respective record owners of 4.9% and 15.0% of
the outstanding Common Stock) with respect to the election of directors of the
Company. Consequently, GIANT, Fidelity and CKE have, and after completion of the
Rights Offering are likely to continue to have, the practical ability to elect
the Board of Directors. See "The Company - Recent Developments - Relationship
Among GIANT, Fidelity and CKE."
GOVERNMENT REGULATION
The restaurant business is subject to extensive federal, state and local
regulations relating to the development and operation of restaurants including
regulations relating to building and zoning requirements, preparation and sale
of food and laws governing the Company's relationship with its employees,
including minimum wages requirements, overtime and working conditions and
citizenship requirements. The failure to obtain or retain food licenses, or a
substantial increase in the minimum wage rate, could adversely affect the
operations of the Company's restaurants. The Company is also subject to federal
regulation and certain state laws which regulate the offer and sale of
franchises.
AVAILABILITY OF CAPITAL RESOURCES
The Company may be negatively impacted in the future if it is unable to
secure financing at affordable terms from third parties.
POSSIBLE VOLATILITY OF STOCK PRICE
The Common Stock, which is quoted on the NNM, has experienced, and could
experience in the future, significant price and volume fluctuations which could
adversely affect the market price of the Common Stock. In addition, the Company
believes that factors such as quarterly fluctuations in the financial results of
the Company, the overall economy and the financial market could cause the price
of the Common Stock to fluctuate substantially.
LITIGATION
For a description of certain litigation to which the Company is a party,
see "Item 3. Legal Proceedings" of the 1995 10-K and see the March 1996 10-Q
which are incorporated herein by reference.
CERTAIN RIGHTS OFFERING CONSIDERATIONS
No Minimum Size of Rights Offering. Since no minimum amount of proceeds is
required for the Company to consummate the Rights Offering, no assurance can be
given as to the amount of gross proceeds that the Company will realize from the
Rights Offering. However, GIANT, Fidelity and CKE have committed to exercise,
or cause to be exercised, their Basic Subscription Privileges.
Limitations on Fidelity and CKE's Ability to Acquire Common Stock. Pursuant
to the Purchase Agreement so long as the Senior Notes are outstanding, Fidelity
and CKE and their respective affiliates may not, in the aggregate, beneficially
own 35% or more of the combined voting power of the then outstanding voting
stock of the Company without first obtaining (i) approval of the Board of
Directors of the Company and (ii) a waiver from the holders of the Senior Notes
of a provision of the indenture governing the Senior Notes (the "Indenture"),
which provision would require the Company to offer to repurchase the Senior
Notes at 101% of the principal amount thereof, plus accrued and unpaid interest
under such circumstances. To the extent that exercise of options or Warrants by
Fidelity or CKE would increase their percentage interest in the Company to 35%,
CKE and Fidelity may be limited or prohibited
11
<PAGE>
from exercising their options to acquire Common Stock from GIANT or to exercise
Warrants acquired as part of the Units.
Dilution. Holders who do not exercise their Subscription Privileges in
full will realize a dilution in their percentage voting interest and ownership
interest in future net earnings, if any, of the Company to the extent that
Rights are exercised by other Holders. Holders who do not acquire Units and/or
do not exercise the Warrants received pursuant to the Rights Offering will also
realize a further dilution in their percentage voting interest and ownership
interest to the extent that Warrants are exercised by others.
Possible Extension of Expiration Date. The Company has reserved the right
to extend the Expiration Date to as late as _______________. Funds deposited in
payment of the Subscription Price may not be withdrawn and no interest will be
paid thereon to Holders.
THE COMPANY
The Company is one of the largest double drive-thru restaurant chains in
the United States. As of June 28, 1996, the Company's system included 484
restaurants in 19 states, primarily in the Midwest and the Sunbelt, comprised of
239 Company-owned and 245 franchised restaurants. The Company's restaurants
offer high quality fast food served quickly and at everyday prices generally
below the regular prices of the four largest hamburger chains. The Company
opened its first restaurant in January 1985 and began offering franchises in
November 1986.
Excluding significant charges related to the disposal of certain excess
properties and to the adoption of a new accounting standard, the Company still
operated at a significant loss for the 1995 fiscal year. The Company has not
reported an operating profit in any quarter since June 1993.
As the Company entered into 1996, it faced formidable challenges including
a balance sheet weakened by several consecutive quarters of significant
operating losses and a high level of indebtedness, erratic comparable store
sales performance and a decline in the number of open units. During the later
part of 1995 and into 1996, the Company has implemented actions to address these
challenges. These actions include repurchasing of $22 million face value (or
approximately 25%) of the outstanding Senior Notes at a substantial discount
from their face value, entering into a strategic partnership with the Carl's Jr.
restaurant chain, instituting new marketing initiatives aimed at improving
comparable store sales trends, and initiating actions aimed at improving food,
paper and labor costs as a percentage of sales.
Management believes that the Rally's brand has several significant
strengths versus its major competitors. In fact, Rally's has been rated higher
in independent consumer studies than its major competitors in the hamburger fast
food industry in several important attributes in the areas of value, service and
food quality. Management's conclusion from this is that the Rally's concept is
fundamentally very strong. The Company has undertaken actions to improve store
level economics to attain a sustainable level of profitability and growth for
all of its shareholders and employees.
The Company reported 2% growth in Company-owned same store sales during the
first quarter of fiscal 1996. During that quarter, the implementation of several
programs that management believes should significantly improve unit level
profitability began. These programs include new supplier partnerships, non-
portion related changes in foodstuffs and foodstuff preparation, and labor
saving programs related to better daypart resource deployment. The Company
reported its first quarterly positive net income since 1993 in the first quarter
of 1996 due to an extraordinary gain related to the repurchase of $22 million
principal amount of the Senior Notes. The gain was substantially offset by a
loss from operations. See "Management's Discussions and Analysis of Financial
Condition and Results of Operations" contained in the 1995 10-K and the March
1996 10-Q incorporated herein by reference.
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<PAGE>
Management believes that the Company should begin to realize the benefits
from the actions taken at improving store level profitability in ensuing
quarters and that the actions should result in improved food, paper and labor
costs versus the first quarter of fiscal 1996. However, no assurance can be
given that such improvements will occur.
The Company is attempting to redirect most of its near term focus toward
achievement of four specific short term objectives, i.e., growing same store
sales, reducing food and paper costs as a percent of sales, reducing store labor
costs as a percent of sales and attacking other elements of spending.
Management believes that the Company's focus on achievement of these objectives
combined with the gradual increase in Company new store development should allow
the Company to achieve a sustainable level of profitability in the near future.
However, no assurance can be given that management will be able to carry out
such objectives or that achievement of these objectives will have a materially
positive effect on the Company's profitability.
Management believes that the proceeds of this Rights Offering will allow
the Company to increase its working capital and, given significant subscription,
will enable the Company to restore a reasonable level of growth in new store
openings, allow certain refurbishment of the existing store base and fund other
expected corporate requirements. The Company expects a similar increase in new
store development by new and existing franchisees. An increase in working
capital, given significant subscription in the Rights Offering, will allow the
Company to take advantage of what management believes are appealing cash on cash
returns available through productive deployment of certain idle assets on sites
which are currently leased in its core markets and careful acceleration of new
store development. The Company already owns 20 to 30 surplus modular restaurant
buildings and a significant amount of excess used restaurant equipment from the
restaurants that were closed late in 1995. Deployment of such buildings and
equipment would allow the Company to keep the out of pocket costs for developing
and opening a new modular restaurant location relatively low. No assurance can
be given that the Rights Offering will be fully subscribed, that the Company
will be able to effect such goals or that there will be an increase in new store
development by franchisees. See "Risk Factors -History of Operating Losses;
Changes in Operations."
RECENT DEVELOPMENTS
Relationship Among GIANT, Fidelity and CKE. On April 26, 1996, GIANT,
Fidelity and CKE and certain other persons settled certain litigation pursuant
to a Settlement Agreement and Release (the "Settlement Agreement"). Pursuant to
the Settlement Agreement, GIANT, Fidelity and CKE entered into a Purchase and
Standstill Agreement (the "Purchase Agreement"), pursuant to which GIANT
purchased from Fidelity 705,489 shares of the common stock of GIANT for a
purchase price of $8.625 per share, and Fidelity and CKE purchased from GIANT
767,807 shares and 2,350,432 shares, respectively, of the Company's Common Stock
for $1.75 per share. Pursuant to the Purchase Agreement, Fidelity and CKE were
granted options to purchase a total of an additional 2,350,428 shares of the
Company's Common Stock from GIANT. One-half of such options have an exercise
price of $3.00 per share and expire on April 26, 1997 and one-half of such
options have an exercise price of $4.00 per share and expire on April 26, 1998.
The Purchase Agreement provides that if GIANT or its affiliates purchase
additional shares of Rally's Common Stock, Fidelity and CKE will have the right
to purchase shares of Common Stock from GIANT such that the proportional
ownership of Common Stock among GIANT, Fidelity and CKE will be the same as
immediately prior to such purchases (without giving effect to the options
acquired pursuant to the Purchase Agreement). 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 in the event that they propose to dispose of Common
Stock. The parties have also 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, then at each election of the Company's directors, 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. 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 (without
giving effect to the shares which may be purchased upon exercise of the options
granted
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<PAGE>
pursuant to the Purchase Agreement to the extent such options have not been
exercised), at each election of directors the party owning at least 34.0% of the
outstanding Common Stock may nominate up to one-half of the number of directors
to be elected and the other parties will vote all shares of Common Stock owned
by them in favor of such nominees. GIANT, Fidelity and CKE currently are the
record owners of 27.5%, 4.9% and 15.0%, respectively, of the outstanding Common
Stock. The foregoing provisions regarding the voting of shares of Common Stock
will expire on April 26, 2006.
Fidelity and CKE have also agreed that they will not, as long as the Senior
Notes are outstanding, beneficially own in the aggregate 35% or more of the
Common Stock without gaining the consent of the Company's Board of Directors and
a waiver from the holders of the Senior Notes of a provision of the Indenture
which would require the Company to offer to repurchase the Senior Notes at 101%
of the principal amount thereof, plus accrued and unpaid interest, under such
circumstances. GIANT has agreed that it will not be the beneficial owner of 35%
or more of the Common Stock without the consent of Fidelity and CKE.
Operation of California and Arizona Stores by CKE. The Company has entered
into an operating agreement with CKE pursuant to which 28 Company-owned stores
in California and Arizona are operated by CKE. The Company has retained
ownership of the assets of these stores and receives a percentage of the stores'
sales. Under the terms of the operating agreement, CKE is responsible for the
conversion costs associated with transforming any restaurants it elects to be
operated as Carl's Jr., as well as the operating expenses for all of the 28
restaurants. In the event of a sale by the Company of any of the 28 CKE
operated restaurants, the Company and CKE will share in the sales proceeds based
upon the relative value of their respective capital investments in such
restaurant.
PURPOSE OF THE RIGHTS OFFERING
AND USE OF PROCEEDS
It is anticipated that the net proceeds to the Company will be
approximately $____ million if all of the Units are purchased in the Rights
Offering (not including proceeds from the exercise of the Warrants). If less
than all of the Units are purchased, the proceeds will be correspondingly
reduced. The purpose of the Rights Offering is to raise additional capital for
the Company. The net proceeds of the Rights Offering will be used for new store
construction, refurbishment of some existing restaurants and for other general
corporate purposes, including possibly reducing outstanding indebtedness. No
assurance can be given that the Rights Offering will be fully subscribed.
Management believes that the proceeds of this Rights Offering will allow
the Company to increase its working capital and, given significant subscription,
will enable the Company to restore a reasonable level of growth in new store
openings, allow certain refurbishment of the existing store base and fund other
expected corporate requirements. The Company expects a similar increase in new
store development by new and existing franchisees. An increase in working
capital, given significant subscription in the Rights Offering, will allow the
Company to take advantage of what management believes are appealing cash on cash
returns available through productive deployment of certain idle assets on sites
which are currently leased in its core markets and careful acceleration of new
store development. The Company already owns 20 to 30 surplus modular restaurant
buildings and a significant amount of excess used restaurant equipment from the
restaurants that were closed late in 1995. Deployment of such buildings and
equipment would allow the Company to keep the out of pocket costs for developing
and opening a new modular restaurant location relatively low. No assurance can
be given that the Rights Offering will be fully subscribed, that the Company
will be able to effect such goals or that there will be an increase in new store
development by franchisees. See "Risk Factors -History of Operating Losses;
Changes in Operations."
The additional working capital resulting from the Rights Offering will also
enhance the Company's ability to meet the NNM requirements for continued listing
on the NNM. A Company must substantially meet five tests, including the Net
Tangible Asset Test, to remain on the NNM. Under this test, the Company is
currently required to maintain a net minimum tangible asset value of not less
than $4 million, but, as of the end of the 1995 fiscal year, the Company's net
tangible assets were in the negative amount of $4,598,000. If the Rights
Offering is fully subscribed, the Company's net tangible assets should be
increased to above the level required by the Net Tangible
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<PAGE>
Asset Test, assuming the Company's net operating results do not result in
further losses. If such losses continue, the Company may not be able to
continue to meet the Net Tangible Asset Test even if the Rights Offering is
fully subscribed. See "Risk Factors-NASDAQ Listing and Maintenance
Requirements."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is quoted on NNM under the symbol "RLLY".
As of _______, 1996, there were approximately ______ record holders of the
Common Stock. The table below sets forth the high and low sales prices of the
Common Stock reported on the NNM for each quarter during the Company's last two
years.
<TABLE>
<CAPTION>
LOW HIGH
--- ----
<S> <C> <C>
Fiscal 1994
First Quarter $8 $12 3/4
Second Quarter 5 1/16 9
Third Quarter 3 1/8 5 3/4
Fourth Quarter 2 3/4 5
Fiscal 1995
First Quarter $2 1/2 $4
Second Quarter 2 1/4 4
Third Quarter 2 1/4 3 5/8
Fourth Quarter 15/16 2 11/16
Fiscal 1996
First Quarter $1 1/32 $2 1/4
Second Quarter 1 1/2 4 5/16
Third Quarter (1)
</TABLE>
_____________________
(1) Through _________________, 1996.
DIVIDEND POLICY
The Company has not paid any dividends to date and does not expect to
pay dividends in the foreseeable future. The Indenture currently prohibits the
payment of any dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1996 and on an as adjusted basis to give effect to the
sale of 50% and 100% of the 3,484,173 Units offered pursuant to the Rights
Offering at the Subscription Price of $3.00 per Unit. It is not possible to
predict the exact percentage of Units that may be purchased in the Rights
Offering. To the extent that the actual percentage purchased differs from the
assumed percentages, the as adjusted capitalization will differ from that shown
below.
<TABLE>
<CAPTION>
As Adjusted for the Rights Offering (1)
------------------------------------
100% 50%
Historical Exercised Exercised
---------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Cash and cash equivalents $ 2,768 $ $
===== ====== ======
Current maturities of long-term debt and
obligations under capital leases $ 5,124 $ $
===== ====== ======
Long term debt and obligations under capital
leases (less current maturities):
Senior Notes $ 62,456
Other 11,101 $ $
-------- ------ ------
Total long-term debt and obligations
under capital leases $ 73,557 $ $
-------- ------ ------
Shareholder's equity:
Common stock, $.10 par value;
50,000,000 shares authorized 1,594
Additional paid-in capital 60,817
Less: 273,000 treasury shares (2,108)
Retained earnings (deficit) (52,779)
-------- ------ ------
Total shareholders' equity $ 7,524 $ $
------ ------ ------
Total capitalization $ 81,081 $ $
====== ====== ======
Shares issued:
Common Stock 15,663 19,147 17,405
Warrants - 3,484 1,742
</TABLE>
(1) As adjusted data assumes receipt of $______ million and $______
million in net proceeds from the Rights Offering, respectively, and no
exercise of the Warrants.
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<PAGE>
THE RIGHTS OFFERING
THE RIGHTS
The Company is distributing, to the record holders of its outstanding
Common Stock as of _______, 1996 (the "Record Date") transferable Rights to
purchase Units (the "Basic Subscription Privilege") at a price of $3.00 per Unit
(the "Subscription Price"). The Company will distribute at no cost to such
Holders one Right for each share of Common Stock held on the Record Date. For
each 4.5 Rights held, a Holder will have a Basic Subscription Privilege to
purchase one Unit. The Rights will be evidenced by transferable subscription
certificates (the "Subscription Certificates").
Each Unit consists of one share of Common Stock and one Warrant to
purchase an additional share of Common Stock for $3.00 per share. An aggregate
of [3,484,173] Units, representing [3,484,173] shares of Common Stock and
[3,484,173] Warrants will be sold if all of the Rights are exercised.
No fractional Units, or cash in lieu thereof, will be issued or paid.
The number of Units distributed to each Holder will be rounded down to the
nearest whole unit in connection with the exercise of Subscription Privileges.
SUBSCRIPTION PRIVILEGES
BASIC SUBSCRIPTION PRIVILEGE. Four and one-half Rights will entitle
the Holder thereof to receive, upon payment of the Subscription Price, one Unit
consisting of one share of Common Stock and one Warrant. Certificates
representing shares of Common Stock and Warrants purchased pursuant to the Basic
Subscription Privilege will be delivered to subscribers as soon as practicable
after the Expiration Date, irrespective of whether the Subscription Privilege is
exercised immediately prior to the Expiration Date or earlier. Holders
exercising their Subscription Privilege will not be stockholders of record with
respect to the shares issuable pursuant to such Subscription Privilege until the
closing, which is anticipated to occur as soon as practicable after the
Expiration Date.
OVERSUBSCRIPTION PRIVILEGE. Subject to the allocation described
below, each Right also carries the right to subscribe at the Subscription Price
for any Units not subscribed for through the exercise of Basic Subscription
Privileges by other Holders (the "Excess Units"). If the Excess Units are not
sufficient to satisfy all subscriptions pursuant to the Oversubscription
Privilege, such Excess Units will be allocated pro rata (subject to the
elimination of fractional shares) among those Holders exercising the
Oversubscription Privilege, in proportion, not to the number of shares requested
pursuant to the Oversubscription Privilege, but to the number of shares each
Holder exercising the Oversubscription Privilege subscribed for pursuant to the
Basic Subscription Privilege. Only beneficial holders who exercise the Basic
Subscription Privilege in full will be entitled to exercise the Oversubscription
Privilege. Certificates representing the Common Stock and Warrants purchased
pursuant to the Oversubscription Privilege will be delivered to subscribers as
soon as practicable after the Expiration Date and after all prorations have been
effected.
EXPIRATION DATE
The Rights will expire at _________, Louisville, Kentucky time, on
_____________, unless extended by the Company from time to time. Notwithstanding
the foregoing, the Expiration Date in no event shall be later than
______________, except that the Company reserves the right to extend the
exercise period on one or more occasions if the Board of Directors determines
that the occurrence of a material event necessitates an amendment of the
Registration Statement or recirculation of the Prospectus that forms a part
thereof in order to permit time for the distribution of such information. After
the Expiration Date, unexercised Rights will be null and void. The
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<PAGE>
Company will not be obligated to honor any purported exercise of Rights received
by the Subscription Agent after the Expiration Date, regardless of when the
documents relating to such exercise were sent, except pursuant to the Guaranteed
Delivery Procedures described below.
EXERCISE OF RIGHTS
Rights may be exercised by delivering to the Subscription Agent, on or
prior to _________, Louisville, Kentucky time, on the Expiration Date, the
properly completed and executed Subscription Certificate evidencing such Rights
with any required signatures guaranteed, together with payment in full of the
Subscription Price for each of the Units subscribed for pursuant to the
Subscription Privileges (except as permitted pursuant to clause (iii) of the
next sentence). Such payment in full must be by: (i) check or bank draft drawn
upon a U.S. bank or postal, telegraphic or express money order payable to
_______________________________, as Subscription Agent; or (ii) wire transfer of
funds to the account maintained by the Subscription Agent for such purpose at
__________________ Bank; or (iii) in such other manner as Company may approve in
writing in the case of persons acquiring Units at an aggregate Subscription
Price of $500,000 or more, provided in each case that the full amount of such
Subscription Price is received by the Subscription Agent in currently available
funds within three NNM trading days following the Expiration Date (the payment
method under (iii) being an "Approved Payment Method"). Payment of the
Subscription Price will be deemed to have been received by the Subscription
Agent only upon (a) clearance of any uncertified check, (b) receipt by the
Subscription Agent of any certified check or bank draft drawn upon a United
States bank or of any postal, telegraphic or express money order, (c) receipt of
good funds in the Subscription Agent's account designated above, or (d) receipt
of funds by the Subscription Agent through an Approved Payment Method.
If paying by uncertified personal check, please note that the funds paid
thereby may take at least five business days to clear. Accordingly, Holders who
wish to pay the Subscription Price by means of uncertified personal check are
urged to make payment sufficiently in advance of the Expiration Date to ensure
that such payment is received and clears by such date and are urged to consider
payment by means of certified or cashier's check, money order or wire transfer
of funds.
The address to which the Subscription Certificates and payment of the
Subscription Price should be delivered is:
_______________________________
_______________________________
_______________________________
If a Holder wishes to exercise Rights, but time will not permit such Holder
to cause the Subscription Certificate or Subscription Certificates evidencing
such Rights to reach the Subscription Agent on or prior to the Expiration Date,
such Rights may nevertheless be exercised if all of the following conditions
(the "Guaranteed Delivery Procedures") are met:
(i) such Holder has caused payment in full of the Subscription Price
for each Unit being subscribed for pursuant to the Subscription Privileges
to be received (in the manner set forth above) by the Subscription Agent on
or prior to the Expiration Date;
(ii) the Subscription Agent receives, on or prior to the Expiration
Date, a guaranteed notice (a "Notice of Guaranteed Delivery"),
substantially in the form provided with the Instructions as to Use of
Rally's Hamburgers, Inc. Subscription Certificates (the "Instructions")
distributed with the Subscription Certificates, from a member firm of a
registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., or from a commercial bank or trust
company having an office or correspondent in the United States (each, an
"Eligible Institution"), stating the name of the exercising Holder, the
number of Rights represented by the Subscription Certificate(s) held by
such exercising Holder, the number of Units being subscribed for pursuant
to the Subscription Privileges and guaranteeing the
18
<PAGE>
delivery to the Subscription Agent of any Subscription Certificate(s)
evidencing such Rights within three NNM trading days following the date of
the Notice of Guaranteed Delivery; and
(iii) the properly completed Subscription Certificate(s), with any
required signatures guaranteed, is received by the Subscription Agent
within three NNM trading days following the date of the Notice of
Guaranteed Delivery relating thereto. The Notice of Guaranteed Delivery may
be delivered to the Subscription Agent in the same manner as Subscription
Certificates at the addresses set forth above, or may be transmitted to the
Subscription Agent by facsimile transmission, telecopy number
_______________. Additional copies of the form of Notice of Guaranteed
Delivery are available upon request from the Subscription Agent, whose
address and telephone number are set forth under "Subscription Agent"
below.
Funds received in payment of the Subscription Price for Excess Units
subscribed for pursuant to the Oversubscription Privilege will be held in a
segregated account pending issuance of such Excess Units. If a Holder exercising
the Oversubscription Privilege is allocated less than all of the Excess Units
that such Holder wished to subscribe for pursuant to the Oversubscription
Privilege, the excess funds paid by such Holder in respect of the Subscription
Price for shares not issued shall be returned by mail without interest or
deduction as soon as practicable after the Expiration Date.
A Holder who holds shares of Common Stock for the account of others, such
as a broker, a trustee or a depositary for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owner's intentions and to obtain instructions with respect to
the Rights. If the beneficial owner so instructs, the record holder of such
Rights should complete the Subscription Certificate and submit it to the
Subscription Agent with the proper payment. In addition, the beneficial owner of
Common Stock or Rights held through such a holder of record should contact the
Holder and request the Holder to effect transactions in accordance with the
beneficial owner's instructions.
Unless a Subscription Certificate (i) provides that the shares of Common
Stock to be issued pursuant to the exercise of Rights represented thereby are to
be delivered to the Holder or (ii) is submitted for the account of an Eligible
Institution, signatures on such Subscription Certificate must be guaranteed by
an Eligible Institution.
If either the number of Units being subscribed for pursuant to the Basic
Subscription Privilege is not specified on the Subscription Certificate, or the
amount delivered is not enough to pay the Subscription Price for all Units
stated to be subscribed for, the number of Units subscribed for will be assumed
to be the maximum amount that could be subscribed for upon payment of such
amount, after allowance for the Subscription Price of any specified Units. If
the number of Units being subscribed for is not specified, or payment of the
Subscription Price for the indicated number of Rights that are being exercised
exceeds the required Subscription Price, the payment will be applied, until
depleted, to subscribe for Units in the following order: (i) to subscribe for
the number of Units indicated, if any, pursuant to the Basic Subscription
Privilege; (ii) to subscribe for Units until the Basic Subscription Privilege
has been fully exercised with respect to all of the Rights represented by the
Subscription Certificate; and (iii) to subscribe for additional Units pursuant
to the Oversubscription Privilege (subject to any applicable proration).
The Instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE
COMPANY.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDER, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO _________, LOUISVILLE
TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT
19
<PAGE>
LEAST FIVE BUSINESS DAYS TO CLEAR, THE RIGHTS HOLDER IS STRONGLY URGED TO PAY,
OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIERS CHECK, MONEY ORDER OR
WIRE TRANSFER OF FUNDS.
Certain employees of Company may solicit responses from Holders to the
Rights Offering, but such employees will not receive any commissions or
compensation for such services other than their normal employment compensation.
All questions concerning the timeliness, validity, form and eligibility of any
exercise of Rights will be determined by the Company, whose determinations will
be final and binding. The Company, in its sole discretion, may waive any defect
or irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Company
determines in its sole discretion. Neither the Company nor the Subscription
Agent will be under any duty to give notification of any defect or irregularity
in connection with the submission of Subscription Certificates or incur any
liability for failure to give such notification.
Any questions or requests for assistance concerning the method of
exercising Rights or requests for additional copies of this Prospectus or the
Instructions or the Notice of Guaranteed Delivery should be directed to the
Subscription Agent, telephone number _______________.
NO REVOCATION
ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE OR
THE OVERSUBSCRIPTION PRIVILEGE SUCH EXERCISE MAY NOT BE REVOKED.
METHOD OF TRANSFERRING RIGHTS
The Rights will be quoted on the NNM under the trading symbol RLLYR and
may be purchased or sold through usual investment channels, including banks and
brokers. Trading in Rights will cease on the close of business on the NNM
trading day preceding the Expiration Date.
The Rights evidenced by a single Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the accompanying instructions. A portion of the Rights evidenced
by a single Subscription Certificate may be transferred by delivering to the
Subscription Agent a Subscription Certificate properly endorsed for transfer,
with instructions to register such portion of the Rights evidenced thereby in
the name of the transferee (and to issue a new Subscription Certificate to the
transferee evidencing such transferred Rights). In such event, a new
Subscription Certificate evidencing the balance of the Rights will be issued to
the Holder or, if the Holder so instructs, to an additional transferee.
The Rights evidenced by a Subscription Certificate also may be sold, in
whole or in part, through the Subscription Agent by delivering to the
Subscription Agent such Subscription Certificate properly executed for sale by
the Subscription Agent. If only a portion of the Rights evidenced by a single
Subscription Certificate is to be sold by the Subscription Agent, such
Subscription Certificate must be accompanied by instructions setting forth the
action to be taken with respect to the Rights that are not to be sold.
Promptly following the Expiration Date, the Subscription Agent will send
the Holder a check for the net proceeds from the sale of such Rights. If the
Rights can be sold, sales of such Rights will be deemed to have been effected at
the weighted average price received by the Subscription Agent for all Rights
sold by it at the request of Holders, less any applicable brokerage commissions,
taxes and other direct expenses of sale. The Company will pay the fees charged
by the Subscription Agent for effecting such sales. Orders to sell Rights must
be received by the Subscription Agent prior to __________, Louisville, Kentucky
time, on the fifth business day preceding the Expiration Date. If less than all
sales orders received by the Subscription Agent can be filled, sales proceeds
will be prorated among the Holders based upon the number of Rights each has
instructed the Subscription Agent to sell during such
20
<PAGE>
period, irrespective of when during such period the instructions are received by
the Subscription Agent. The Subscription Agent's obligation to execute orders
for the sale of Rights is subject to its ability to find buyers.
Holders wishing to transfer all or a portion of their Rights should allow a
sufficient amount of time prior to the Expiration Date for (i) the transfer
instructions to be received and processed by the Subscription Agent, (ii) a new
Subscription Certificate to be issued and transmitted to the transferee or
transferees with respect to transferred Rights, and to the transferor with
respect to retained Rights, if any, and (iii) the Rights evidenced by such new
Subscription Certificates to be exercised or sold by the recipients thereof. If
time does not permit a transferee of a Right who wishes to exercise its Right to
deliver its Subscription Certificate to the Subscription Agent on or before the
Expiration Date, such transferee should make use of the Guaranteed Delivery
Procedure described under "The Rights Offering-Exercise of Rights." Neither the
Company nor the Subscription Agent shall have any liability to a transferee or
transferor of Rights if Subscription Certificates or new Subscription
Certificates are not received in time for exercise or sale prior to the
Expiration Date.
Except for the fees charged by the Subscription Agent (which will be paid
by the Company as described above), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection with
the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of such commissions, fees or expenses will be
paid by the Company or the Subscription Agent.
The Company anticipates that the Rights will be eligible for transfer
through, and that the exercise of the Basic Subscription Privilege (but not the
Oversubscription Privilege) may be effected through, the facilities of
Depository Trust Company ("DTC"; Rights exercised through DTC are referred to as
"DTC Exercised Rights"). The holder of a DTC Exercised Right may exercise the
Oversubscription Privilege in respect of such DTC Exercised Right by properly
executing and delivering to the Subscription Agent at or prior to 5:00 p.m.,
Louisville time, on the Expiration Date, a DTC Participant Oversubscription
Exercise Form, together with payment of the appropriate Subscription Price for
the number of Units for which the Oversubscription Privilege is to be exercised.
Copies of the DTC Participant Oversubscription Exercise Form may be obtained
from the Subscription Agent.
DESCRIPTION OF SECURITIES
The Company has authorized 50,000,000 shares of Common Stock, $.10 par
value and 5,000,000 shares of preferred stock, $.10 par value ("Preferred
Stock"), with preferences and rights which will be set by the Company's Board of
Directors (or an executive committee thereof). No shares of Preferred Stock are
currently outstanding, and ______ shares of Common Stock are currently
outstanding.
UNITS
The Common Stock and Warrants which are offered hereby are being offered
and will be sold only in Units, each Unit consisting of one share of Common
Stock and one Warrant. Upon the exercise of Warrants, the holder thereof will be
eligible to receive one share of Common Stock for each Warrant so exercised. The
Common Stock and the Warrants included in the Units will be immediately
separable.
COMMON STOCK
Subject to the preferential rights of holders of Preferred Stock, if any,
and the Company's loan agreements and indentures, if any, holders of Common
Stock are entitled to share ratably in dividends when and as declared by the
Board of Directors (or an authorized committee) out of funds' legally available
therefor. Holders of Common Stock have one vote per share upon all matters on
which Common Stock votes and vote as a class on charter amendments affecting
Common Stock. Upon liquidation, holders of Common Stock are entitled to share
ratably in the net assets of the Company after payment of any amounts due to
creditors and holders of any class of Preferred Stock. Holders of Common Stock
have no redemption, subscription or conversion rights and are not entitled to
any preemptive rights. The Common Stock is not liable for further calls or
assessments by the Company,
21
<PAGE>
and there are no sinking fund provisions relating to such stock. All
outstanding shares of Common Stock and all shares to be issued by the Company in
the offering will be fully paid and non-assessable.
Holders of the shares of Common Stock, voting as a class, have non-
cumulative voting rights, which means that the holders of more than 50% of the
shares voting for the election of directors can elect 100% of the directors if
they choose to do so, and, in such event, the holders of the remaining shares
will not be able to elect any directors. GIANT, Fidelity and CKE beneficially
own at least 47% of the outstanding Common Stock and will, as a practical
matter, have the ability to elect the entire Board of Directors. See "Risk
Factors Principal Stockholders" and "The Company - Recent Developments -
Relationship among GIANT, fidelity and CKE."
REDEEMABLE WARRANTS
The Warrants will be issued in registered form pursuant to the terms of a
Warrant Agreement (the "Warrant Agreement") between the Company and
_______________________________________, as Warrant Agent. The following
description is a brief summary of certain provisions of the Warrant Agreement.
Reference is made to the Warrant Agreement (which has been filed as an exhibit
to the registration statement of which this Prospectus is a part) for a complete
description of its terms and conditions, and the description which follows is
qualified in its entirety by the reference to the Warrant Agreement.
The Company has authorized the issuance of up to 3,484,173 Warrants to
purchase an aggregate of 3,484,173 shares of Common Stock and has reserved an
equivalent number of shares of Common Stock for issuance upon exercise of such
Warrants. None of the Warrants are currently issued and outstanding.
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock from the Company at a price of $3.00 per share, subject to
adjustment in certain circumstances, at any time until four years from the
Closing Date.
The Company may redeem the Warrants, at $0.01 per Warrant, upon 30 days
prior written notice in the event the closing price of the Common Stock equals
or exceeds $6.00 per share for 20 out of 30 consecutive trading days ending not
more than 30 days preceding the date of the notice of redemption. The closing
bid price of the Common Stock shall be the closing bid price as reported by NNM
or on the principal stock exchange on which it is listed. All of the Warrants
must be redeemed if any are redeemed.
The exercise prices and number of shares of Common Stock or other
securities issuable on exercise of the Warrants are subject to adjustment in
certain circumstances, including in the event of a stock dividend, stock split,
recapitalization, reorganization, merger or consolidation of the Company and
certain sales by the Company of Common Stock below the then market price of the
Common Stock. However, the Warrants are not subject to adjustment for issuances
of Common Stock at a price below the exercise price of the Warrants or pursuant
to the 1990 Stock Option Plan or the Non-Employee Directors' Plan, or upon
exercise of any of the Warrants.
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date at the offices of the Warrant Agent, with the
exercise form on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price (by
check payable to the Company) to the Warrant Agent for the number of Warrants
being exercised. Holders of the Warrants do not have the rights or privileges of
holders of Common Stock.
No fractional shares will be issued upon exercise of the Warrants.
However, if a warrantholder exercises all Warrants then owned of record by such
warrantholder, the Company will pay to such warrantholder, in lieu of
22
<PAGE>
the issuance of any fractional share which is otherwise issuable, an amount in
cash based on the market value of the Common Stock on the last trading day prior
to the exercise date.
The Warrants to be issued hereunder are part of the Units to be sold in
this offering. The Company's present stockholders have not received any Warrants
to purchase additional Common Stock and, to the extent that the Warrants are
exercised, the proportionate equity ownership of the present stockholders will
decrease and that of the holders of Common Stock included in the Units will
increase.
Warrants are generally more speculative than shares of common stock which
are purchasable upon the exercise thereof. Historically, the percentage increase
or decrease in the market price of a warrant has tended to be greater than the
percentage increase or decrease in the market price of the underlying common
stock. A warrant may become valueless, or of reduced value, if the market price
of the common stock decreases, or increases only modestly, over the term of the
warrant.
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
The Transfer Agent, Registrar and Warrant Agent for the Common Stock and
Warrants is American Stock Transfer and Trust Company, New York, New York.
23
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Christensen, White, Miller, Fink, Jacobs, Glaser &
Shapiro, LLP, counsel to the Company, the following is an accurate discussion of
the material federal income tax consequences of the Rights Offering to the
holders of Common Stock upon the distribution (the "Distribution") of Rights,
the exercise of the Rights and the exercise of the Warrants. See "Legal
Matters."
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), the Treasury Regulations promulgated thereunder, judicial
authority, and current administrative rulings and practice, all of which are
subject to change on a prospective or retroactive basis. The tax consequences
under state, local and foreign law are not discussed. Moreover, special
considerations not described herein may apply to certain taxpayers, such as
financial institutions, broker-dealers, life insurance companies, and tax exempt
organizations. The discussion is limited to those who have held the Common
Stock, and will hold the Rights and any Common Stock or Warrants acquired upon
the exercise of Rights as capital assets (generally, property held for
investment) within the meaning of Section 1221 of the Code.
DISTRIBUTION OF THE RIGHTS. Holders of Common Stock will not recognize
taxable income for federal income tax purposes in connection with the receipt of
the Rights.
STOCKHOLDER BASIS AND HOLDING PERIOD OF THE RIGHTS. Except as provided in
the following sentence, the basis of the Rights received by a stockholder as a
distribution with respect to such stockholder's Common Stock will be zero. If,
however, either (i) the fair market value of the Rights on the date of
Distribution is 15% or more of the fair market value (on the date of
Distribution) of the Common Stock with respect to which they are received or
(ii) the stockholder properly elects, in his or her federal income tax return
for the taxable year in which the Rights are received, to allocate part of the
basis of such Common Stock to the Rights, then upon exercise or sale of the
Rights, the stockholder's basis in such Common Stock will be allocated between
the Common Stock and the Rights in proportion to the fair market values of each
on the date of Distribution. No such allocation shall be made with respect to
Rights which lapse.
The holding period of a stockholder with respect to the Rights received as
a distribution on such stockholder's Common Stock will include the stockholder's
holding period for the Common Stock with respect to which the Rights were
issued.
In the case of a stockholder who purchases Rights, the tax basis of such
Rights will be equal to the purchase price paid therefor, and the holding period
for such Rights will commence on the day following the date of the purchase.
SALE OF THE RIGHTS. A stockholder who sells the Rights received in the
Distribution prior to exercise will recognize gain or loss equal to the
difference between the amount realized on the sale and such stockholder's
adjusted basis (if any) in the Rights sold. Such gain or loss will be capital
gain or loss if gain or loss from a sale of Common Stock held by such
stockholder would be characterized as capital gain or loss at the time of such
sale. Any gain or loss recognized on a sale of Rights acquired by purchase will
be capital gain or loss if Common Stock would be a capital asset in the hands of
the stockholder. Capital gain or loss will be classified as short-term if the
stockholder's holding period in the Rights is one year or less and long-term if
the stockholder's holding period in the Rights is more than one year.
LAPSE OF THE RIGHTS. Stockholders who allow the Rights received by them at
the distribution to lapse will not recognize any gain or loss, and no adjustment
will be made to the basis of the Common Stock, if any, owned by such
stockholders.
Purchasers of the Rights will be entitled to a loss equal to their adjusted
tax basis in the Rights if such Rights expire unexercised. Because by their
terms the Rights will expire on or prior to _______, 1996, any loss
24
<PAGE>
recognized on the expiration of the Rights acquired by purchase will be a short-
term capital loss if Common Stock would be a capital asset in the hands of the
purchaser.
EXERCISE OF THE RIGHTS, BASIS OF THE COMMON STOCK AND WARRANTS. If the
Rights are exercised, no gain or loss is recognized and both the basis allocated
to the Rights, if any, and the Subscription Price must be allocated between the
Common Stock and the Warrants received. The basis allocated to the Rights will
be apportioned between the Common Stock and the Warrants in proportion to their
relative fair market values on the date of the distribution of the Rights. The
Subscription Price will increase basis and will be apportioned to the Common
Stock and the Warrants in proportion to their relative fair market values on the
date of the exercise of the Rights.
EXERCISE, SALE AND EXPIRATION OF THE WARRANTS. No gain or loss will be
recognized by the holder of a Warrant upon the exercise of a Warrant. The cost
basis of the Common Stock so acquired will be the cost basis of the Warrant plus
any additional amount paid upon the exercise of the Warrant. Gain or loss will
be recognized upon the subsequent sale, exchange or other disposition of the
Common Stock acquired by the exercise of the Warrant, measured by the difference
between the amount realized upon sale or exchange or the stockholder's cost
basis in the Common Stock.
If a Warrant is not exercised, but is sold or exchanged, gain or loss will
be recognized upon such event, measured by the difference between the amount
realized by the holder of the Warrant as a result of the sale, exchange or
redemption and the cost basis of the Warrant.
If a Warrant is not exercised and is allowed to expire, the Warrant will be
deemed to be sold or exchanged on the date of expiration. In such event, the
holder of the Warrant will recognize a loss to the extent of the cost basis of
the Warrant.
SALE OF COMMON STOCK. If the Common Stock acquired as part of the Unit is
sold or exchanged, gain or loss will be recognized, measured by the difference
between the amount realized from such sale or exchange and the cost basis of the
Common Stock sold or exchanged.
CHARACTERIZATION OF GAIN OR LOSS. Generally, any gain or loss recognized
as a result of the foregoing will be a capital gain or loss and will either be
long-term or short-term depending upon the period of time that the Common Stock
which was sold or exchanged or the Warrant which was sold, exchanged, redeemed,
or allowed to expire, as the case may be, was held. A holding period of more
than one year results in long-term capital gain or loss treatment. If a Warrant
is exercised, the holding period of the Common Stock so acquired will not
include the period during which the Warrant was held.
Under Section 305 of the Code and regulations promulgated under the Code,
there is no assurance that a subsequent adjustment in the exercise price of the
Warrants or the number of shares purchasable upon exercise, attributable to the
anti-dilution provisions applicable to the Warrants, will not be deemed a
taxable distribution to the holders of the Warrants.
THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, EACH HOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR
WITH RESPECT TO THE TAX CONSEQUENCES OF THE RIGHTS OFFERING APPLICABLE TO HIS OR
HER OWN PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF STATE
AND LOCAL INCOME AND OTHER TAX LAWS.
25
<PAGE>
SUBSCRIPTION AGENT
The Company has appointed __________________________________ Subscription
Agent for the Rights Offering. The Subscription Agent's address, which is the
address to which the Subscription Certificates and payment of the Subscription
Price should be delivered, as well as the address to which Notice of Guaranteed
Delivery must be delivered, and the Subscription Agent's telephone number and
facsimile number, are:
_____________________
_____________________
_____________________
______________________
The Company will pay the fees and expenses of the Subscription Agent, and
has also agreed to indemnify it from any liability which it may incur in
connection with the Rights Offering.
Any questions regarding or requests for additional copies of this
Prospectus, the Instructions or the Notice of Guaranteed Delivery may be
directed to the Subscription Agent at the telephone number and address set forth
above.
LEGAL MATTERS
The validity of the authorization and issuance of the securities offered
hereby and the tax matters discussed under "Certain Federal Income Tax
Consequences" are being passed upon for Company by Christensen, White, Miller,
Fink, Jacobs, Glaser & Shapiro, LLP, Los Angeles, California. Said law firm has
from time to time performed and may in the future perform legal services for the
Company and for certain stockholders of the Company, including GIANT and its
affiliates. Terry Christensen, a partner of Christensen, White, Miller, Fink,
Jacobs, Glaser & Shapiro, LLP, is a member of the Board of Directors of both
GIANT and the Company.
EXPERTS
The financial statements and schedule incorporated by reference in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been audited by Arthur Andersen
LLP, independent public accountants, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
26
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH
INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
__________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page 3,484,173 UNITS
----
<S> <C>
Available Information................. 2 RALLY'S HAMBURGERS,
Documents Incorporated by Reference... 2 INC.
Prospectus Summary.................... 3
Risk Factors.......................... 9
The Company........................... 12 EACH UNIT CONSISTING OF
Purpose of the Rights Offering and ONE SHARE OF COMMON
Use of Proceeds.................. 14 STOCK AND ONE COMMON
Price Range of Common Stock........... 15 STOCK PURCHASE WARRANT
Dividend Policy....................... 15
Capitalization........................ 16
The Rights Offering................... 17 ____________
Description of Securities............. 21
Certain Federal Income Tax PROSPECTUS
Consequences..................... 24 ____________
Subscription Agent.................... 26
Legal Matters......................... 26 ________, 1996
Experts............................... 26
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES
The following is a statement of estimated expenses to be paid by the
Registrant in connection with the issuance and distribution of the securities
being registered:
<TABLE>
<S> <C>
SEC Registration Fee..................... $7,208.64
Legal Fees............................... _________
Accountant's Fees........................ _________
Printing and Shipping.................... _________
Trustees' and Transfer Agents Fees....... _________
Miscellaneous............................ _________
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware Corporation Law provides that a Delaware
corporation may indemnify any person against expenses, judgements, fines and
settlements actually and reasonably incurred by any such person in connection
with a threatened, pending or completed action, suit or proceeding in which he
is involved by reason of the fact that he is or was a director, officer,
employee or agent of such corporation, provided that (i) he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and (ii) with respect to any criminal action or
proceeding he had no reasonable cause to believe his conduct was unlawful. If
the action or suit is by or in the name of the corporation, the corporation may
indemnify any such person against expenses actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
may be made in respect to any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation, unless and only to the extent that
the Delaware Court of Chancery or the court in which the action or suit is
brought determines upon application that, despite the adjudication of liability
but in light of the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expense as the court deems proper.
Section 51 of the Registrant's By-Laws provides for indemnification of
persons to the extent permitted by the Delaware Corporation Law.
In accordance with the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation, as amended, limits the personal liability of its
directors for violations of their fiduciary duty. The Certificate of
Incorporation eliminates each director's liability to the Registrant or its
stockholders for monetary damage except (i) for any breach of the director's
duty or loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under the section of the Delaware law providing for
liability of directors for unlawful payment of dividends of unlawful stock
purchases or redemptions, or (iv) for any transaction from which a director
derived an improper personal benefit. The effect of this provision is to
eliminate the personal liability of directors for monetary damages for actions
involving a breach of their fiduciary duty of care, including any such actions
involving gross negligence. This provision does not, however, limit in any way
the liability of directors for violations of the federal securities laws.
The Registrant carries directors and officers liability insurance with a
limit of _____________. Such insurance expires on __________________.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a list of exhibits filed herewith as a part of this
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
*4(a) Form of Subscription Certificate, together
with instructions
*4(b) Form of Warrant Agreement, including form of
Warrant Certificate.
*5 Opinion of Christensen, White, Miller, Fink,
Jacobs, Glaser & Shapiro, LLP, including the
consent of such firm.
23 Consent of Arthur Andersen LLP
24 Power of Attorney (see page II-4)
</TABLE>
_______
*To be supplied by amendment.
ITEM 17.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to include
any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change
to such information in the Registration Statement.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plans' annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in item 15 above,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it
II-2
<PAGE>
is against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements of filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Whitefish, State of Montana and the City of
Louisville, State of Kentucky, respectively, on the 1st day of July, 1996.
RALLY'S HAMBURGERS, INC.
By: /s/BURT SUGARMAN
----------------
Burt Sugarman
Chairman of the Board
By: /s/DONALD E. DOYLE
------------------
Donald E. Doyle
President and Chief
Executive Officer
Each person whose signature appears below constitutes and appoints Michael
E. Foss and Evan G. Hughes his true lawful attorneys-in-fact and agents, each
acting alone, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agent, each acting alone, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, each acting alone, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/BURT SUGARMAN Chairman of the July 1, 1996
- ---------------
Burt Sugarman Board and Director
/s/DONALD E. DOYLE President, Chief July 1, 1996
- ------------------
Donald E. Doyle Executive Officer
and Director
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C>
/s/ MICHAEL E. FOSS Sr. Vice President July 1, 1996
- ------------------------ and Chief Financial
Michael E. Foss Officer (Principal
Financial and Accounting
Officer)
/s/ TERRY N. CHRISTENSEN Director July 1, 1996
- ------------------------
Terry N. Christensen
/s/ WILLIE D. DAVIS Director July 1, 1996
- ------------------------
Willie D. Davis
/s/ WILLIAM P. FOLEY, II Director July 1, 1996
- ------------------------
William P. Foley, II
/s/ DAVID GOTTERER Director July 1, 1996
- ------------------------
David Gotterer
/s/ JEFFREY ROSENTHAL Director July 1, 1996
- ------------------------
Jeffrey Rosenthal
/s/ C. THOMAS THOMPSON Director July 1, 1996
- ------------------------
C. Thomas Thompson
</TABLE>
II-5
<PAGE>
Exhibit 23
Consent of Independent Public Accountant
----------------------------------------
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement of our reports dated March 6, 1996
included in Rally's Hamburgers, Inc.'s Form 10-K for the year ended December 31,
1995 and to all references to our Firm included in this Registration Statement.
Louisville, Kentucky ARTHUR ANDERSEN LLP
July 1, 1996
