<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
RALLY'S HAMBURGER'S
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
[INSERT LOGO]
Suite 150
10002 Shelbyville Road
Louisville, Kentucky 40223
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 10, 1996
To the Stockholders:
The Annual Meeting of Stockholders (the "Annual Meeting") of Rally's
Hamburgers, Inc. (the "Company") will be held at Marriott Louisville East, 1903
Embassy Square Boulevard, Louisville, Kentucky, on July 10, 1996, at 10:00 a.m.
Eastern Daylight Time for the following purposes:
(1) To elect a Board of eight directors to serve until the next
annual meeting of stockholders;
(2) To consider and vote upon a proposal to amend the Company's
Certificate of Incorporation to authorize Preferred Stock;
(3) To consider and vote upon a proposal to amend the Company's 1990
Stock Option Plan;
(4) To consider and vote upon a proposal to adopt the Company's 1995
Stock Option Plan for Non-Employee Directors, as amended;
(5) To ratify the appointment of Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending December 29,
1996; and
(6) To transact such other business as may properly come before the
meeting or any adjournments thereof.
A Proxy Statement describing matters to be considered at the Annual
Meeting is attached to this Notice. Only stockholders of record at the close
of business on June 12, 1996 are entitled to receive notice of and to vote at
the meeting. A list of such stockholders will be available for examination by
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, at the Company's executive offices, located at 10002
Shelbyville Road, Suite 150, Louisville, Kentucky 40223, for a period of ten
days prior to the meeting date.
By Order of the Board of Directors
Evan G. Hughes
Secretary
Louisville, Kentucky
June 19, 1996
IMPORTANT
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE MARK DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENVELOPE WHICH HAS BEEN PROVIDED.
IN THE EVENT YOU ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR
SHARES IN PERSON.
<PAGE> 3
[INSERT LOGO]
Suite 150
10002 Shelbyville Road
Louisville, Kentucky 40223
_________________________
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 10, 1996
GENERAL INFORMATION
This Proxy Statement and accompanying proxy are being furnished in
connection with the solicitation of proxies by the Board of Directors (the
"Board") of Rally's Hamburgers, Inc., a Delaware corporation (the "Company"),
to be voted at the Annual Meeting of Stockholders (the "Annual Meeting") and
any adjournments thereof. The Annual Meeting will be held at Marriott
Louisville East, 1903 Embassy Square Boulevard, Louisville, Kentucky, on July
10, 1996, at 10:00 a.m. Eastern Daylight Time for the purposes set forth in
this Proxy Statement and the accompanying Notice of Annual Meeting. This Proxy
Statement and accompanying proxy are first being mailed to stockholders on or
about June 19, 1996.
A stockholder signing and returning a proxy has the power to revoke it at
any time before the shares subject to it are voted by: (i) notifying the
Secretary of the Company in writing of such revocation; (ii) filing a duly
executed proxy bearing a later date; or (iii) attending the Annual Meeting and
voting in person. If the proxy is properly signed and returned to the Company
and not revoked, it will be voted in accordance with the instructions contained
therein. Unless contrary instructions are given, the proxy will be voted FOR
the nominees for director named in the Proxy Statement and proposals 2, 3, 4
and 5 set forth in the attached Notice of Annual Meeting of Stockholders and in
the discretion of proxy holders on such other business as may properly come
before the Annual Meeting.
The original solicitation of proxies by mail may be supplemented by
telephone and other means of communication and through personal solicitation by
officers, directors and other employees of the Company, at no compensation.
Proxy materials will also be distributed through brokers, custodians and other
like parties to the beneficial owners of the Company's Common Stock, par value
$.10 per share (the "Common Stock"), and the Company will reimburse such
parties for their reasonable out-of-pocket and clerical expenses incurred in
connection therewith.
<PAGE> 4
RECORD DATE AND VOTING SECURITIES
The Board has fixed the record date (the "Record Date") for the Annual
Meeting as the close of business on June 12, 1996, and all holders of record of
Common Stock on this date are entitled to receive notice of and to vote at the
Annual Meeting and any adjournments thereof. At the Record Date, there were
15,678,335 shares of Common Stock outstanding. For each share of Common Stock
held on the Record Date, a stockholder is entitled to one vote on each matter
to be considered as the Annual Meeting. A majority of the outstanding shares
present in person or by proxy is required to constitute a quorum to transact
business at the meeting.
Votes cast by proxy or in person at the Annual Meeting will be tabulated
by the inspectors of election appointed for the meeting, who also will
determine whether a quorum exists. Abstentions or "withheld" votes will be
treated as present and entitled to vote for purposes of determining a quorum,
but as unvoted for purposes of determining the approval of matters submitted to
the stockholders. Since Delaware law treats only those shares voted "for" a
matter as affirmative votes, abstentions or withheld votes will have the same
effect as negative votes or votes "against" a particular matter. If a broker
indicates that it does not have discretionary authority as to certain shares to
vote on a particular matter, such shares will not be considered as present and
entitled to vote with respect to that matter.
-2-
<PAGE> 5
STOCK OWNERSHIP OF PRINCIPAL HOLDERS AND MANAGEMENT
The following table sets forth as of the Record Date information
concerning each stockholder known by the Company to beneficially own more than
five percent of the outstanding Common Stock of the Company, and information
regarding beneficial ownership of the Company's Common Stock and the common
stock of GIANT GROUP, LTD. ("GIANT") by each director, each executive officer
named in the Summary Compensation Table in this Proxy Statement and all
directors and executive officers as a group. Information is provided with
respect to the ownership of stock in GIANT because GIANT may be deemed to be a
"parent" of the Company as such term is defined in the rules promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
<TABLE>
<CAPTION>
RALLY'S
HAMBURGER, INC. GIANT GROUP, LTD.
--------------- -----------------
Number of Percent of Number of Percent of
Shares (1) Class (2) Shares (1) Class (3)
------ ----- ------ -----
<S> <C> <C> <C> <C>
Wayne M. Albritton . . . . . . . . . . 156,947(4) 1.00% 0 *
Gary J. Beisler . . . . . . . . . . . . 19,692(5) * 0 *
Terry N. Christensen . . . . . . . . . 2,000(6) * 7,167(7) *
Willie D. Davis . . . . . . . . . . . . 20,000(8) * 0 *
Donald E. Doyle . . . . . . . . . . . . 51,000 * 0 *
William P. Foley, II . . . . . . . . . 5,468,667(9) 34.88% 0 *
Michael E. Foss . . . . . . . . . . . . 83,521(10) * 0 *
David Gotterer . . . . . . . . . . . . 44,000(11) * 175,875(12) 4.40%
Evan G. Hughes . . . . . . . . . . . . 15,004(13) * 0 *
C. William Klausman . . . . . . . . . . 8,262(14) * 0 *
Donald C. Moore . . . . . . . . . . . . 1,447(14) * 0 *
Mark A. Noltemeyer . . . . . . . . . . 13,759(15) * 0 *
Jeffrey Rosenthal . . . . . . . . . . . 30,000(16) * 0 *
Burt Sugarman(17) . . . . . . . . . . . 4,442,063(18) 28.10% 2,988,672(19) 54.02%
C. Thomas Thompson . . . . . . . . . . 0(20) * 0 *
All current directors and executive
officers as a group (12 persons, included
above) . . . . . . . . . . . . . . . . 7,839,278(21) 49.09% 3,171,714(22) 56.61%
5% Beneficial Owners
--------------------
GIANT GROUP, LTD. (17) . . . . . . . . 4,312,063 27.50%
Fidelity National Financial, Inc. (23) 3,118,235(24) 19.89%
CKE Restaurants, Inc. (25) . . . . . . 3,525,646(26) 22.49%
</TABLE>
-3-
<PAGE> 6
(1) Based upon information furnished to the Company by the named persons,
and information contained in filings with the Securities and Exchange
Commission (the "Commission"). Under the rules of the Commission, a
person is deemed to beneficially own shares over which the person has or
shares voting or investment power or which the person has the right to
acquire beneficial ownership within 60 days. Unless otherwise
indicated, the named persons have sole voting and investment power with
respect to their respective shares.
(2) Based on 15,678,335 shares outstanding as of June 12, 1996. Shares of
Common Stock subject to options exercisable within 60 days under the
Company's stock option plan are deemed outstanding for computing the
percentage of class of the person holding such options but are not
deemed outstanding for computing the percentage of class for any other
person.
(3) Based on 3,933,255 shares outstanding as of June 6, 1996. Shares of
GIANT common stock subject to options exercisable within 60 days are
deemed outstanding for computing the percentage of class of the person
holding such options, but are not deemed outstanding for computing the
percentage of class for any other person.
(4) Includes 60,757 shares that Mr. Albritton may purchase pursuant to stock
options. Mr. Albritton resigned from all positions held in the Company
in December, 1995.
(5) Includes 19,466 shares that Mr. Beisler may purchase pursuant to stock
options.
(6) Excludes 150,000 shares subject to options granted under the Company's
1995 Stock Option Plan for Non-Employee Directors, as amended, which is
subject to stockholder approval (the "Director Plan").
(7) Includes 6,667 shares underlying presently exercisable stock options,
but excludes 10,000 shares subject to options granted pursuant to
GIANT's 1996 Stock Option Plan for Non-Employee Directors, which is
subject to stockholder approval (the "GIANT Director Plan").
(8) Represents 20,000 shares that Mr. Davis may purchase pursuant to stock
options. Excludes 165,000 shares subject to options granted under the
Director Plan.
(9) Mr. Foley is the Chairman of the Board and Chief Executive Officer of
Fidelity National Financial, Inc. ("Fidelity") and CKE Restaurants, Inc.
("CKE"), and he owns 21.4% of the outstanding shares of common stock of
Fidelity. A limited partnership whose general partner is controlled by
Mr. Foley owns 20.0% of the outstanding common stock of CKE. A
corporation controlled by Mr. Foley owns 1.4% of the outstanding common
stock of CKE, and Fidelity owns 2.7% of the outstanding common stock of
CKE. Mr. Foley may be deemed to be a controlling person of CKE and
Fidelity. These shares are beneficially owned by Fidelity and CKE, as
to which Mr. Foley disclaims beneficial ownership. See Notes (24) and
(26) below. Excludes 172,500 shares subject to options granted pursuant
to the Director Plan.
(10) Includes 30,188 shares granted to Mr. Foss pursuant to his employment
agreement and 53,333 shares that Mr. Foss may purchase pursuant to stock
options.
-4-
<PAGE> 7
(11) Includes 22,500 shares that Mr. Gotterer may purchase pursuant to
options, but excludes 22,500 shares underlying options held by Mr.
Gotterer, as to which shares he disclaims beneficial ownership since a
business partner is entitled to the beneficial ownership of such shares
upon any exercise of such options. Also excludes 172,500 shares subject
to options granted under the Director Plan.
(12) Includes 63,375 shares that Mr. Gotterer may purchase pursuant to
presently exercisable stock options, but excludes 63,375 shares
underlying options held by Mr. Gotterer, as to which shares he disclaims
beneficial ownership since a business partner is entitled to the
beneficial ownership of such shares upon any exercise of such options.
Also excludes 10,000 shares subject to options granted under the GIANT
Director Plan.
(13) Includes 14,999 shares that Mr. Hughes may purchase pursuant to options.
(14) Messrs. Klausman and Moore resigned from all positions held in the
Company in September, 1995 and August, 1995, respectively.
(15) Includes 10,715 shares that Mr. Noltemeyer may purchase pursuant to
options.
(16) Includes 20,000 shares that Mr. Rosenthal may purchase pursuant to
options. Excludes 165,000 shares subject to options granted under the
Director Plan.
(17) The address of Burt Sugarman and GIANT is 150 El Camino Drive, Beverly
Hills, California 90212.
(18) Includes 130,000 shares that Mr. Sugarman may purchase pursuant to stock
options and 4,312,063 shares owned by GIANT of which Mr. Sugarman may
be deemed to be a controlling person. Mr. Sugarman disclaims beneficial
ownership of the shares owned by GIANT. Excludes 2,000 shares held by
Mr. Sugarman as custodian for his minor child and 61,500 shares
beneficially owned by Mr. Sugarman's spouse (including 30,000 shares
subject to options), as to which shares Mr. Sugarman disclaims
beneficial ownership. Also excludes 150,000 shares subject to options
granted under the Director Plan.
(19) Includes 1,599,202 shares underlying currently exercisable options, but
does not include 20,550 shares owned by Mr. Sugarman's spouse and 2,000
shares held as custodian for his minor child, as to which shares Mr.
Sugarman disclaims beneficial ownership.
(20) Excludes 172,500 shares subject to options granted under the Director
Plan.
(21) Includes 291,013 shares which may be acquired by all directors and
executive officers as a group pursuant to stock options. Excludes
1,147,500 shares subject to options granted pursuant to the Director
Plan.
(22) Includes 1,669,244 shares which may be acquired upon the exercise of
stock options by all directors and executive officers as a group, but
excludes 20,000 shares subject to options granted pursuant to the GIANT
Director Plan.
-5-
<PAGE> 8
(23) The address of Fidelity is 17911 Von Karman Avenue, Irvine, California
92714.
(24) Includes 767,807 shares owned directly, 1,175,214 shares underlying
currently exercisable options held by Fidelity to acquire shares from
GIANT and 1,175,214 shares underlying currently exercisable options held
by CKE to acquire shares from GIANT.
(25) The address of CKE is 1200 North Harbor Boulevard, Anaheim, California
92801.
(26) Includes 2,350,432 shares owned directly and 1,175,214 shares underlying
currently exercisable options held by CKE to acquire shares from GIANT.
1. ELECTION OF DIRECTORS
At the Annual Meeting, eight directors are to be elected to serve
until the next annual meeting of stockholders. The persons named in the
accompanying proxy have advised the Company that they intend to vote the shares
covered by the proxies FOR the election of the nominees named below. Although
it is not anticipated that any of the nominees will decline or be unable to
serve, if that should occur, the proxy holders may, in their discretion, vote
for substitute nominees. Directors are elected by a plurality of the votes
cast.
-6-
<PAGE> 9
NOMINEES FOR ELECTION AS DIRECTORS
Set forth below is a list of nominees for election as Directors at the
Annual Meeting, together with the age of, and all Company positions and offices
currently held by, each of them, and the year in which each joined the Board of
Directors.
<TABLE>
<CAPTION>
Director
Name Age(1) Position or Office Since
---- --- ------------------ -----
<S> <C> <C> <C>
Burt Sugarman 57 Chairman of the Board and Director 1989
Donald E. Doyle 49 President, Chief Executive Officer 1996
and Director
Terry N. Christensen 55 Director 1996
Willie D. Davis 61 Director 1994
William P. Foley, II 51 Director 1996
David Gotterer 67 Director 1989
Jeffrey Rosenthal 38 Director 1994
C. Thomas Thompson 46 Director 1996
- -------------------
</TABLE>
(1) Ages given as of the Record Date.
Burt Sugarman. For more than the past five years, Mr. Sugarman has been
Chairman of the Board, President and Chief Executive Officer of GIANT, a New
York Stock Exchange company. At the Record Date, GIANT owned approximately
27.50% of the outstanding Common Stock of the Company. Mr. Sugarman served as
Chief Executive Officer of the Company from 1990 and as its Chairman of the
Board since 1991, resigning from these offices in February 1994. Mr. Sugarman
resumed the position of Chairman of the Board in November 1994. In July 1991,
without admitting or denying allegations against him, Mr. Sugarman paid a fine
plus interest aggregating $619,855 and consented to the entry of an Order in
the United States District Court, District of Columbia sought by the Commission
permanently enjoining him from violating Section 17(a)(2) of the Securities Act
of 1933. The Order was sought in connection with open market purchases of the
Company's Common Stock by GIANT after the Company's initial public offering in
October 1989. GIANT indemnified Mr. Sugarman for amounts paid by him to the
Commission and for his expenses in connection with this matter.
Donald E. Doyle. On March 18, 1996, the Company named Donald E. Doyle
to the position of President and Chief Executive Officer. Mr. Doyle was also
appointed to the Company's Board of Directors. Prior thereto, since 1994, Mr.
Doyle served as Chief Operating Officer of Hardee's Foodsystems, Inc., an
operator and franchisor of over 3,500 Hardee's quick service restaurants.
Prior thereto, since 1994, Mr. Doyle served from 1992 as President and Chief
Executive Officer of CKE, the parent of the Carl's Jr. hamburger
-7-
<PAGE> 10
chain. From 1989 to 1992, Mr. Doyle served as President and Chief Executive
Officer of the Greater Louisville Economic Development Partnership. Prior to
that date, Mr. Doyle held a variety of senior positions with KFC, finally
serving as President of KFC-USA from 1984 to 1988.
Terry N. Christensen. For more than the past five years, Mr.
Christensen has been a partner in the law firm of Christensen, White, Miller,
Fink, Jacobs, Glaser & Shapiro, LLP, which firm provides legal services to the
Company. Mr. Christensen is a director of GIANT and MGM Grand, Inc.
Willie D. Davis. Mr. Davis has been the President and a director of
All-Pro Broadcasting, Inc., a holding company operating several radio stations,
for more than the past five years. Mr. Davis currently serves on the Board of
Directors of Sara Lee Corporation, K-Mart Corporation, Dow Chemical Company,
MGM Grand, Inc., Alliance Bank, WICOR Incorporated, Johnson Controls
Incorporated and L.A. Gear.
William P. Foley, II. Mr. Foley has served as the Chairman of the
Board, and Chief Executive Officer of Fidelity since its formation in 1984.
Mr. Foley was also President of Fidelity from 1984 until December 31, 1994. He
has been Chairman of the Board and Chief Executive Officer of Fidelity National
Title Insurance Company since April, 1981. Mr. Foley is also currently serving
as Chairman of the Board and Chief Executive Officer of CKE and is a director
of Micro General Corporation.
David Gotterer. Mr. Gotterer has been a partner in the accounting firm
of Mason & Company, LLP, New York, New York, for more than the past five years.
Mr. Gotterer is a director and Vice Chairman of GIANT.
Jeffrey Rosenthal. Since 1984, Mr. Rosenthal has served as Chairman and
Chief Executive Officer of TV Fanfare Publications, Inc., an international
advertising company with offices in 40 cites and four countries.
C. Thomas Thompson. Mr. Thompson has been President and Chief Operating
Officer of Carl Karcher Enterprises, Inc. since 1994. Prior thereto, since
1984, Mr. Thompson was a partner in a partnership which owned and operated 15
restaurants under the Carl's Jr. franchise system.
On February 13, 1996, a derivative lawsuit naming the members of the
Company's Board of Directors was filed in Delaware Chancery Court by a
shareholder, Harbor Finance Partners. The suit alleges a breach of fiduciary
duty on the part of the Board of Directors in connection with the purchase from
GIANT of the Company's 9.875% Senior Notes due in the year 2000 at an allegedly
inflated price. The Company and its Directors deny all allegations of
wrongdoing made by the plaintiff and intend to defend the suit vigorously. See
"Compensation Committee Interlocks and Insider Participation."
-8-
<PAGE> 11
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors met on ten occasions during 1995. Each director
attended at least 75% of the aggregate of the meetings of the Board and its
committees on which such director served during his or her period of service.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Executive Committee, a Compensation
Committee and an Audit Committee. The Board of Directors does not have a
nominating committee or any committee performing a similar function. The
Executive Committee is currently comprised of Messrs. Doyle, Foley, Sugarman
(Chair) and Thompson and meets from time to time as considered necessary by its
members. During 1995, the Executive Committee met on two occasions.
The Audit Committee is responsible for exercising supervisory control
over the internal auditing and accounting procedures, practices and personnel
of the Company and for making recommendations to the Board concerning the
appointment of the Company's independent auditors. The current members of the
Audit Committee are Messrs. Davis, Rosenthal and Thompson (Chair). During
1995, the Audit Committee met on one occasion.
The principal duties of the Compensation Committee are to review the
compensation of directors and officers of the Company and to prepare
recommendations and periodic reports to the Board concerning such matters. The
Compensation Committee also administers the Company's employee stock option
plan and recommends to the Board of Directors the award of bonuses to executive
officers. The current members of the Compensation Committee are Messrs.
Christensen (Chair), Foley and Gotterer. Michael Fleishman, who was formerly a
director, served on the Compensation Committee until May, 1996. Burt Sugarman,
Chairman of the Board of the Company, served on the Compensation Committee
until March, 1996. The Compensation Committee met on two occasions during
1995.
COMPENSATION OF DIRECTORS
Directors not employed by the Company are compensated at a rate of $10,000 per
annum, paid quarterly, plus $500 for each Board meeting attended. Non-employee
directors also receive $500 for each committee meeting attended on a date other
than a date on which a Board meeting is held, and are eligible to participate
in the Company's proposed 1995 Stock Option Plan for Non-Employee Directors.
EXECUTIVE COMPENSATION
Set forth below is information concerning the annual and long-term
compensation of any person who served as the Chief Executive Officer during any
portion of 1995, and the other four most highly compensated executive officers
of the Company as of December 31, 1995, and two officers who would have been
among the four most highly compensated executive officers of the Company as of
December 31, 1995, but for their resignation prior to that date, for services
in all capacities to the Company for the last three fiscal years.
-9-
<PAGE> 12
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------------------------------- ------------------------------
Other Annual Stock All Other
Salary Bonus Compensation Options Compensation
Name & Principal Position Year ($) ($)(1) ($)(2) (In Shares) ($)
------------------------- ---- ------- -------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Wayne M. Albritton 1995 $296,432(3) $ $ 38,562 10,000 $ 0
Former President and 1994 320,156 0 42,399 255,000 0
Chief Executive Officer 1993 325,000 0 49,885 0 0
0
Gary J. Beisler 1995 $135,687 $ 19,577 $ 0 10,000 $ 0
Sr. Vice President, 1994 115,373 0 5,225 48,400 0
Operations 1993 91,909 0 5,700 0 0
Michael E. Foss 1995 $72,443(4) $100,000 $ 0 160,000 $ 0
Sr. Vice President, 1994 0 0 0 0 0
Chief Financial Officer 1993 0 0 0 0 0
Evan G. Hughes 1995 $97,500(5) $ 15,540 $ 1,462 45,000 $ 0
Sr. Vice President, 1994 13,462(5) 0 0 0
Chief Administrative 1993 63,846(5) 0 0 0 0
Officer and Secretary 0
C. William Klausman 1995 $131,077(6) $ 0 $ 0 10,000 $ 0
Former Sr. Vice 1994 139,423 0 0 32,500 0
President, General 1993 125,000 34,500 0 0 0
Counsel and Secretary
Donald C. Moore 1995 $140,278(7) $ 0 $ 0 10,000 $ 34,795(8)
Former Executive Vice 1994 134,038 0 0 42,500 0
President and Chief 1993 130,000 36,000 0 0 0
Financial Officer
Mark A. Noltemeyer 1995 $108,064 $ 5,000 $ 0 10,000 $ 0
Vice President and 1994 98,269 0 0 22,150
Chief Accounting 1993 65,926(9) 17,000 0 0 0
Officer 0
</TABLE>
_____________________________
(1) With the exception of the amounts paid to Messrs. Foss and Hughes in
1995 and Mr. Noltemeyer in 1993, the amounts shown in this column
represent payments made under the Company's Officer Bonus Plan, pursuant
to which the executive officers earned cash bonuses based on individual
performance.
(2) With respect to Mr. Albritton, includes $37,595, $40,541 and $47,276 in
1995, 1994, and 1993, respectively, representing forgiveness by the
Company of principal and interest payments under a loan made by the
Company to Mr. Albritton in 1990 in exchange for cancellation of all
rights under his former severance protection agreement. The loan, which
had the original principal amount of $173,250 and which bore interest at
8 1/2% per annum was forgiven by the Company in equal annual
installments through the end of 1995 contingent upon Mr. Albritton's
continued employment with the Company during such period. The value of
perquisites and other personal benefits received by the other named
executive officers during each of the indicated years did not exceed the
lesser of $50,000 or 10% of total annual salary and bonus for the
officer during the respective year.
-10-
<PAGE> 13
(3) Mr. Albritton resigned from all positions he held in the Company in
December, 1995.
(4) Represents partial year payment. Mr. Foss joined the Company as Senior
Vice President and Chief Financial Officer in July, 1995.
(5) Represents partial year payment. Mr. Hughes rejoined the Company as
Senior Executive Vice President and Chief Administrative Officer in
March, 1995. In December, 1995, due to a corporate reorganization, Mr.
Hughes became Senior Vice President, Chief Administrative Officer and
Secretary. Mr. Hughes originally joined the Company in March, 1993 as
Director of Administration and resigned in March, 1994.
(6) Mr. Klausman resigned from all positions he held in the Company in
September, 1995.
(7) Mr. Moore resigned from all positions he held in the Company in August,
1995.
(8) The $34,795 represents a retainer paid to Mr. Moore for his consulting
services after his resignation.
(9) Represents partial year payment. Mr. Noltemeyer joined the Company as
Chief Accounting Officer in March, 1993.
-11-
<PAGE> 14
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding options granted to
the named executive officers during the 1995 fiscal year pursuant to the
Company's 1990 Stock Option Plan. The Company does not grant stock
appreciation rights ("SARs").
<TABLE>
<CAPTION>
Number of Percentage of
Securities Total Options
Underlying Granted to Exercise of Grant Date
Options Employees in Base Price Expiration Present
Name Granted(#) Fiscal 1995 ($/Share) Date Value ($)(2)
---- ---------- ----------- --------- ---- ------------
<S> <C> <C> <C> <C> <C>
Wayne M. Albritton 10,000(1) 1.5% $2.87 N/A N/A
Gary J. Beisler 10,000 1.5% $2.87 04/24/05 $ 17,333
Michael E. Foss 160,000 23.7% $3.25 07/31/00 200,737
Evan G. Hughes 35,000 5.2% $2.75 03/27/05 58,933
Evan G. Hughes 10,000 1.5% $2.87 04/24/05 17,333
C. William Klausman 10,000(1) 1.5% $2.87 N/A N/A
Donald C. Moore 10,000(1) 1.5% $2.87 N/A N/A
Mark A. Noltemeyer 10,000 1.5% $2.87 04/24/05 17,333
</TABLE>
_____________________
(1) These options terminated upon Messrs. Albritton, Klausman and Moore's
resignations from the Company and became available for future grants
under the Company's 1990 Stock Option plan.
(2) The Company used the Cox-Ross-Rubinstein Binomial Model, which is a
variation of the Black-Scholes model of option valuation to determine
grant date present value. The present value calculation is based on,
among other things, the following assumptions: (a) interest of 7.15% for
March 27, 1995 grant, 7.01% for April 24, 1995 grant, and 6.46% for July
31, 1995 grant, based on the then quoted yield of Treasury Bills
maturing in eight to ten years; (b) Dividend yield of 0% per share based
on the Company's history of no dividend payments; and (c) stock price
volatility of 58.41% based upon the monthly stock closing prices for the
entire public history of the Company. The present value calculation was
based on a 13% Weighted Average Cost of Capital. The Company does not
advocate or necessarily agree that the Cox-Ross-Rubinstein Binomial
Model can properly determine the value of an option. There is no
assurance that the value, if any, realized by the option holder will be
at or near the value estimated under the Cox-Ross-Rubinstein Binomial
Model.
-12-
<PAGE> 15
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Set forth below is information with respect to options exercised by the
named executive officers during the 1995 fiscal year, and the number and value
of unexercised stock options held by the named executive officers at the end of
the fiscal year. There were no SARs outstanding at the 1995 fiscal year end.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options Held At Fiscal The-Money Options at
Year End Fiscal Year End(1)
Shares Acquired Value Realized -------------------------- --------------------------
Name on Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Wayne M. Albritton 0 N/A 182,499 0 $0 $0
Gary J. Beisler 0 N/A 43,433 42,267 0 0
Michael E. Foss 0 N/A 0 160,000 0 0
Evan G. Hughes 0 N/A 0 45,000 0 0
C. William Klausman 0 N/A 0 0 0 0
Donald C. Moore 0 N/A 22,500 0 0 0
Mark A. Noltemeyer 0 N/A 7,382 24,768 0 0
</TABLE>
_____________________
(1) Based on the difference between the option exercise price and closing
price of the Company's Common Stock on the NASDAQ National Market system
on December 29, 1995 ($.969).
-13-
<PAGE> 16
EMPLOYMENT AND SEVERANCE AGREEMENTS
In April, 1992, the Company and Wayne Albritton entered into an
Employment Agreement pursuant to which Mr. Albritton served as President and
Chief Operating Officer of the Company for a renewable one-year term at an
annual salary of not less that $225,000. Under the Agreement, Mr. Albritton
agreed not to compete with the Company in the double drive-thru hamburger
business for a period of three years after the termination of his employment
with the Company. If Mr. Albritton's employment was terminated without cause
during the term of the Agreement, he was entitled to a lump sum payment of
$360,000. On December 31, 1995, Mr. Albritton resigned from all of his
positions with the Company. Concurrent with his resignation, Mr. Albritton
entered into a Management Contract and Development Agreement with the Company.
For a description of such Agreement, see "Certain Relationships And Related
Transactions."
In April, 1995, the Company and Evan Hughes entered into an Employment
Agreement pursuant to which Mr. Hughes serves as Senior Executive Vice
President and Chief Administrative Officer for a term of 30 months beginning on
March 28, 1995 at an annual salary of not less than $130,000. Mr. Hughes is
eligible to participate in the Company's incentive bonus programs. Pursuant to
the terms and conditions of the Company's 1990 Stock Option Plan, Mr. Hughes
was granted an option to purchase 35,000 shares of the Company's Common Stock
at $2.75 per share. Upon joining the Company, Mr. Hughes was awarded a signing
bonus of $10,000 after federal, state and local tax deductions. Under the
Agreement, Mr. Hughes has agreed not to compete with the Company in the double
drive-thru hamburger business for a period of 18 months after the termination
of his employment with the Company.
In July, 1995, the Company and Michael Foss entered into an Employment
Agreement pursuant to which Mr. Foss serves as the Company's Senior Vice
President and Chief Financial Officer for a term commencing on August 1, 1995,
and expiring on January 31, 1997, at an annual salary of $175,000. Mr. Foss is
eligible to participate in the Company's incentive bonus programs. Pursuant to
the terms and conditions of the Company's 1990 Stock Option Plan, Mr. Foss was
granted an option to purchase 160,000 shares of the Company's Common Stock at
$3.25 per share. On joining the Company, Mr. Foss was awarded a signing bonus
of $100,000 in cash and 30,188 shares of Common Stock having a value of
$100,000 as an inducement for Mr. Foss to terminate his previous employment.
Mr. Foss has agreed, during the term of his Employment Agreement and for three
years thereafter, not to disclose, other than to employees of the Company or to
persons to whom disclosure is reasonably necessary or appropriate in connection
with the performance of his duties thereunder, any material, confidential
information relating to certain of the operations of the Company, the
disclosure of which would be materially damaging to the Company.
In March, 1996, the Company and Donald E. Doyle entered into an
Employment Agreement pursuant to which Mr. Doyle serves as President and Chief
Executive Officer of the Company for a term commencing March 18, 1996 and
expiring March 17, 1998, at an annual base salary of $295,000, subject to
annual review. This agreement is renewable on an annual basis for a new
two-year term at the discretion of the Board. Mr. Doyle is eligible to
participate in the Company's incentive and bonus programs. Pursuant to the
terms and conditions of the Company's 1990 Stock Option Plan, Mr. Doyle was
granted an option to purchase 350,000 shares of the Company's Common Stock at
$1.75 a share, the market price
-14-
<PAGE> 17
on the date of Mr. Doyle's employment by the Company. Under the Agreement, Mr.
Doyle has agreed not to compete with the Company in the double drive-thru
hamburger business for a period of two years after the termination of his
employment with the Company. In addition, Mr. Doyle has agreed, during the
term of his Employment Agreement and for three years thereafter, not to
disclose, other than to employees of the Company or to persons to whom
disclosure is reasonably necessary or appropriate in connection with the
performance of this his duties thereunder, any material confidential
information relating to certain of the operations of the Company, the
disclosure of which would be materially damaging to the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION POLICIES
The Compensation Committee of the Board of Directors was comprised of
Michael M. Fleishman (Chair), David Gotterer and Burt Sugarman during 1995.
Messrs. Fleishman and Gotterer are not employees of the Company. During 1995,
the Compensation Committee was responsible for advising the Board of Directors
on matters relating to the compensation of the Company's executive officers and
administering the Company's Amended and Restated Non-Qualified Stock Option
Plan (which has expired by its terms) and the 1990 Stock Option Plan. Set
forth below is a report submitted by the Compensation Committee describing its
compensation policies and the Committee's decisions relating to compensation of
executive officers in 1995.
The Compensation Committee's policies concerning the compensation of the
Company's executive officers are summarized as follows:
- Compensation awarded by the Company should be effective in
attracting, motivating and retaining key executives;
- Executive officers should receive incentive compensation which
relates to the Company's performance and the executives'
contribution to such performance; and
- The Company's compensation programs should give the executives a
financial interest in the Company similar to the interests of the
Company's stockholders.
The Compensation Committee believes that the performance of the Company,
including profitability, return on equity and cash flow, as well as the
Company's performance in relation to the performance of other companies engaged
in the quick-service restaurant industry is important in determining the
compensation to be awarded to the Company's executive officers.
The Company's executive officers are compensated through a combination
of salary, annual bonuses (where appropriate) and grants of stock options under
the 1990 Stock Option Plan. The annual salaries of the Company's executives
are reviewed from time to time by the Compensation Committee. The Compensation
Committee recommends to the Board of Directors that adjustments be made where
necessary in order for the annual salaries of the
-15-
<PAGE> 18
Company's executives to be competitive with the salaries paid by other
companies in the industry.
Annual bonuses, where appropriate, may be awarded by the Board of
Directors based on recommendations of the Compensation Committee. No bonuses
were awarded in 1995 to the Company's named executive officers except as
reflected in the Summary Compensation Table in this Proxy Statement.
The Compensation Committee periodically grants stock options under the
1990 Stock Option Plan in order to provide executive officers and other
employees with an interest in the Company. The Compensation Committee believes
that stock options are a valuable tool in encouraging executive officers to
align their interests with the interests of the stockholders and to manage the
Company for the long-term. No stock options were granted in 1995 to the
Company's named executive officers other than as reflected in the Option Grant
Table in this Proxy Statement.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Albritton served as the Chief Executive Officer of the Company until
December 31, 1995. In determining the compensation paid to him in 1995, the
Compensation Committee applied the policies described above. Mr. Albritton was
eligible to participate in the same executive compensation plans available to
the Company's other executive officers. Mr. Albritton, the President and Chief
Executive Officer of the Company, was paid a base salary of $296,432. No bonus
was awarded to Mr. Albritton under the Company's Bonus Plan in 1995. Mr.
Albritton was granted options to purchase 10,000 shares under the Company's
Option Plans. Mr. Albritton also received $37,595 representing forgiveness by
the Company of principal and interest payments under a loan made by the Company
to Mr. Albritton in 1990 in cancellation of all rights under his former
severance protection agreement. The loan, which was in the original principal
amount of $173,250 with interest at 8 1/2% per annum, was forgiven by the
Company, in annual installments through the end of 1995, contingent upon Mr.
Albritton's continued employment with the Company during such period.
OBRA DEDUCTIBILITY LIMITATION
Under the Omnibus Budget Reconciliation Act of 1993 ("OBRA"), subject to
certain exceptions and transition provisions, the allowable deduction for
compensation paid or accrued with respect to the chief executive officer and
each of the four most highly compensated executive officers of a publicly held
corporation, is limited to $1 million per year, per executive officer. The
Company has determined not to take any actions at this time with respect to its
compensation plans which might be necessary to exempt compensation under such
plans from the OBRA deductibility limitation.
Michael M. Fleishman (Chair)
David Gotterer
Burt Sugarman
-16-
<PAGE> 19
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is responsible for
executive compensation decisions as described above. The Committee was
comprised of Messrs. Fleishman, Gotterer and Sugarman during 1995. The current
members of the Compensation Committee are Messrs. Christensen, Foley and
Gotterer. Mr. Fleishman is a member in a law firm which provided legal
services to the Company during 1995 and which will provide legal services to
the Company in the future. Mr. Sugarman is a director of the Company and
serves as Chairman of the Board. Mr. Sugarman also serves as the Chairman of
the Board, President and Chief Executive Officer of GIANT, which as of the
Record Date owned approximately 27.50% of the outstanding Common Stock of the
Company. Mr. Gotterer, a director of the Company, serves as a director and
Vice Chairman of the Board of GIANT. Mr. Gotterer also serves on the
Compensation Committee of GIANT. Mr. Christensen is a partner in a law firm
which provided legal services to the Company during 1995 and which will provide
legal services to the Company in the future. Mr. Foley is Chairman of the
Board and Chief Executive Officer of Fidelity and CKE, which, as of the Record
Date, in the aggregate beneficially owned approximately 34.88% of the
outstanding shares of Common Stock.
On January 29, 1996, the Company repurchased from GIANT, in two
transactions, at a price of $678.75 per $1,000 principal amount, $22 million
face value of its 9.875% Senior Notes due in the year 2000. The price paid in
each transaction represented the market closing price of the notes on January
26, 1996. The first transaction involved the repurchase of $16 million face
value of the notes for $11.1 million in cash. The second transaction involved
the purchase of $6 million face value of notes in exchange for a $4.1 million
short-term note due in three installments of principal and interest issued by
Rally's to GIANT bearing interest at the highest publicly announced referenced
rate of interest maintained by a large banking institution for commercial loans
of short-term maturities to its most credit-worthy large corporate borrowers.
The purchases were approved by a majority of the independent Directors of the
Company, all of whom were unaffiliated with GIANT. Prior to the purchases, the
Company's independent Directors had received an opinion as to the fairness of
the transactions, from a financial point of view, from an investment banking
firm of national standing. GIANT purchased the notes for $11.4 million during
the last two years.
In early February 1996, GIANT entered into a one-year credit facility
with the Company. Such credit facility is evidenced by a note payable to GIANT
for up to $2 million. Any monies advanced under said Note Agreement shall bear
interest at the highest publicly announced referenced rate of interest
maintained by a large banking institution for commercial loans of short-term
maturities to its most credit-worthy large corporate borrowers. Interest is
payable monthly. The facility is renewable for one or more years at the
discretion of GIANT. GIANT is not obligated to make any advances under this
Agreement. As of June 12, 1996, there were no outstanding amounts under this
facility. In addition, GIANT has issued certain irrevocable letters of credit
to secure the obligation of the Company under its high deductible workers'
compensation insurance program and to secure certain surety bonds previously
issued by the Company. In total, as of June 12, 1996, such letters of credit
amount to approximately $800,000. Such letters of credit replaced similar
letters of credit previously issued by the Company which had been secured by
-17-
<PAGE> 20
certificates of deposit. Such certificates were liquidated to improve the
overall liquidity of the Company.
COMPARISON OF FIVE-YEAR CUMULATIVE STOCKHOLDER RETURN
The following graph compares the cumulative return experienced by
holders of the Company's Common Stock to the returns of the NASDAQ Stock Market
(U.S. Companies) and to the peer group indices during the period from December
29, 1990 through the end of the Company's 1995 fiscal year. The peer group
consists of the following publicly-held restaurant companies: CKE Restaurants,
Inc. (Carl Karcher Enterprises); Checkers Drive-In Restaurants; Flagstar
Companies, Inc.; Foodmaker, Inc.; Krystal Company; and Sonic Corp. The graphs
assume the investment of $100 on December 29, 1990 in the Company's Common
Stock and each of the indices. Total return calculations assume the
reinvestment of all dividends. The Company has never paid a cash dividend.
[COMPARISON GRAPH]
<TABLE>
<CAPTION>
CRSP TOTAL RETURNS INDEX FOR: 12/31/90 12/27/91 12/31/92 12/31/93 12/30/94 12/29/95
<S> <C> <C> <C> <C> <C> <C>
Rally's Hamburgers, Inc. 100.0 209.4 325.8 161.7 56.3 18.2
Nasdaq Stock Market
(US Companies) 100.0 154.9 186.9 214.4 209.7 296.6
Self-Determined Peer Group 100.0 133.6 203.3 141.9 72.2 74.7
</TABLE>
-18-
<PAGE> 21
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires that the Company's directors
and executive officers, and persons who own more than 10% of a registered class
of the Company's equity securities, file with the Securities and Exchange
Commission and NASDAQ reports of ownership and changes in ownership of Common
Stock and other equity securities of the Company. Officers, directors and
greater than 10% stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such reports furnished to the
Company or written representations that no other reports were required, the
Company believes that, during the 1995 and 1994 fiscal years, all filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with except that (i) three reports, covering an
aggregate of six option grants, were filed late by Wayne M. Albritton; (ii) one
report, covering an aggregate of one option grant, was filed late by Michael E.
Foss; (iii) two reports, covering an aggregate of two option grants, were filed
late by Evan G. Hughes; (iv) three reports, covering an aggregate of five
option grants, were filed late by C. William Klausman; (v) two reports,
covering an aggregate of three option grants, were filed late by Bruce M. Ley;
(vi) three reports, covering an aggregate of four option grants, were filed
late by Donald C. Moore; (vii) three reports, covering an aggregate of four
option grants, were filed late by Gena L. Morris; (viii) three reports,
covering an aggregate of four option grants, were filed late by Mark A.
Noltemeyer; and (ix) two reports, covering an aggregate of three option grants,
were filed late by Burt Sugarman.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of January 1, 1996, Wayne Albritton entered into a one-year
Management Contract to operate Rally's Hamburgers restaurants in the Cincinnati
area for the Company. Mr. Albritton will be an outside consultant with a base
compensation of $12,500 per month. Mr. Albritton will also be eligible for a
performance bonus based upon improvement in the net income of the Cincinnati
market for calendar year 1996 over calendar year 1995, on a comparable basis.
Mr. Albritton has also been granted a Development Agreement for the Southern
Indiana portion of the Louisville Area of Dominant Influence. Pursuant to this
Development Agreement, Mr. Albritton has obligated himself to develop three
restaurant sites in that area by January 1, 1998.
The Company and CKE plan to have 28 Company-owned restaurants in
California and Arizona operated by Carl's Jr. Carl's Jr. would be responsible
for conversion costs associated with transforming any of the restaurants which
it elects to operate as Carl's Jr., as well as operating expenses for all 28
restaurants. The Company would retain ownership of all 28 restaurants and be
entitled to receive a percentage of gross revenues generated by each
restaurant. In the event of a sale of any of these restaurants, the Company
and Carl's Jr. would share in the sales proceeds based upon the relative value
of their respective capital investments in such restaurant.
-19-
<PAGE> 22
2. APPROVAL OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO AUTHORIZE
PREFERRED STOCK
The Board of Directors has unanimously approved and declared advisable
an amendment to the Company's Certificate of Incorporation, as amended, which
would authorize 5,000,000 shares of Preferred Stock, $.10 par value per share
(the "Preferred Stock"). The proposed amendment would amend Article 5 of the
Company's Certificate of Incorporation to read in its entirety as follows:
"5. Authorized Shares.
i) The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 55,000,000 shares, of
which 5,000,000 shares are to be Preferred Stock, $.10 par value per
share "Preferred Stock"), and 50,000,000 shares are to be Common Stock,
$.10 par value per share ("Common Stock"). Holders of Common Stock
shall have the right to cast one vote for each share held of record on
all matters submitted to a vote of the holders of Common Stock.
ii) The Preferred Stock may be created and issued from time to
time in one or more series with such designations, preferences,
limitations, conversion rights, cumulative, relative, participating,
optional or other rights, including voting rights, qualifications,
limitations or restrictions thereof as determined by the Board of
Directors, or the Executive Committee thereof, and shall be set forth in
duly adopted resolutions in accordance with the Delaware General
Corporation Law, as amended."
Although the Company has no present plans or commitments for any of the
proposed Preferred Stock, the Board of Directors believes that the issuance of
such shares may prove to be advisable in the future, and the availability of
shares of Preferred Stock will provide flexibility in connection with future
corporate transactions, including recapitalization, acquisitions, financings,
stock dividends, employee benefit plans or other corporate purposes. The
Preferred Stock will have such voting, dividend, liquidation or other rights or
preferences determined by the Board of Directors or the Executive Committee.
Stockholders have no preemptive rights to purchase any of such authorized but
unissued shares of Preferred Stock which may be issued, and their respective
interests in the Company could be diluted by such issuance.
Although the Board of Directors has no present intention of doing so,
the issuance of Preferred Stock could be used to create voting impediments and
to make it more difficult for persons seeking to effect a merger or otherwise
gain control of the Company. The holders of Preferred Stock could be
authorized to vote either separately as a class or with the holders of the
Common Stock on any merger, sale or exchange of assets or any other
extraordinary corporate transaction. The existence of the additional
authorized shares could have the effect of discouraging unsolicited takeover
attempts. Neither the Board nor management is aware of any present effort to
accumulate the securities for the purpose of gaining control of the Company.
In addition, the authorization and issuance of a series of Preferred Stock
could have certain effects on the rights of holders of Common Stock. Such
effects might include (a) restrictions on dividends on Common Stock if
dividends on the Preferred Stock are in arrears, (b) possible dilution of the
voting power of the Common Stock to the extent that the Preferred Stock has
voting rights and (c) holders of the Common Stock not being entitled to
-20-
<PAGE> 23
share in the company's assets upon liquidation until satisfaction of any
liquidation preference granted to the Preferred Stock.
The affirmative vote of holders of a majority of all outstanding shares
of Common Stock entitled to vote at the meeting is required to adopt the
proposed amendment of the Certificate of Incorporation authorizing the
Preferred Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR AUTHORIZATION AND APPROVAL
OF THE PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
3. APPROVAL OF AMENDMENT TO 1990 STOCK OPTION PLAN
The Company's 1990 Stock Option Plan, as amended (the "1990 Plan"), was
originally adopted by the Board of Directors in August 1990 and approved by the
stockholders at their 1991 annual meeting. The Board believes that the
issuance of options under the 1990 Plan has been of substantial value in
facilitating the efforts of the Company to attract and retain key employees.
By providing key employees with an opportunity to acquire an ownership interest
in the Company, the 1990 Plan has also accomplished the purpose of more closely
aligning the interests of management and stockholders. The proposed amendment
to the 1990 Plan permits the Committee, in its discretion, to vary the terms of
the 1990 Plan providing for termination of any option granted thereunder upon
the death or disability of the optionee or termination of the optionee's
employment (normally such option would terminate six months thereafter or three
months in the case of an incentive stock option), provided such variation does
not extend the expiration date of such option.
The 1990 Plan reserves 3,250,000 shares of the Company's Common Stock
for issuance pursuant to the exercise of options granted thereunder. The 1990
Plan is administered by a committee (the "Committee") comprised of at least two
non-employee directors who are ineligible to receive options under the Plan,
and is currently comprised of Messrs. Christensen (Chair), Foley and Gotterer.
Officers and other key personnel of the Company, as determined by the
Committee, are eligible to receive options under the Plan. Non-employee
directors of the Company are not eligible to receive options under the 1990
Plan. At present, approximately 6,800 employees are eligible to receive
options under the 1990 Plan, and 125 employees hold options granted under the
1990 Plan.
The Committee has sole discretion to determine the employees to receive
options under the 1990 Plan and the timing and amount of options granted under
the 1990 Plan. The Committee may grant options pursuant to the 1990 Plan which
are intended to meet the requirements of incentive stock options ("ISOs") as
defined in Section 422 of the Internal Revenue Code of 1986, as amended
("Internal Revenue Code"), or options not intended to be ISOs ("Non-Qualified
Options"). The Committee has the discretion to determine the exercise price of
any option, although in the case of an ISO the price may not be less than 100%
of the fair market value of the Common Stock at the time of grant, as
determined by the closing price of the Common stock on the NASDAQ National
Market on such date. The method or time when the option may be exercised in
whole or in part is determined by the Committee, except that in no event may an
option be exercisable within six months of the date of grant in the case of an
optionee subject to Section 16(b) of the Exchange Act ("Section 16(b)").
-21-
<PAGE> 24
Shares subject to, but not delivered under, an option terminating or expiring
for any reason prior to its exercise in full are available for the grant of
future options under the 1990 Plan.
The 1990 Plan does not state a maximum or minimum number of options that
may be granted to an individual under the 1990 Plan except that, as to ISOs,
the Internal Revenue Code limited to $100,000 the fair market value (as of the
date of grant) of stock for which ISO's may become exercisable in any one year.
No ISO may be granted to an employee who immediately after the granting of such
ISO would own more than 10% of the issued and outstanding Common Stock ("10%
Stockholder"), unless such ISO is granted at 110% of the value of the Common
Stock at the time of such grant. The term of an option is determined by the
Committee, but may not exceed ten years from the date on which the option is
granted. In the case of ISOs granted to a 10% Stockholder, the term may not
exceed five years.
In the event any change is made in the Company's capitalization that
results from a stock dividend, recapitalization, reorganization, merger,
consolidation, split-up, combination or exchange of shares or any similar
change affecting the Common Stock, appropriate adjustment, as determined by the
Committee, will be made in the exercise price and in the number and class of
shares subject to the option.
In the event of a sale of all or substantially all of the assets of the
Company or the merger of the Company with or into another corporation, holders
of outstanding options will have the right to receive, upon exercise of the
option and payment of the exercise price, the same consideration which the
stockholders of the Company received pursuant to such transaction.
The Board of Directors may amend or terminate the 1990 Plan from time to
time in such respects as the Board may deem advisable; provided that the Board
may not (i) increase the number of shares subject to the 1990 Plan without
stockholder approval, (ii) permit the grant of an option with an exercise price
that is less than the fair market value of the Common Stock, (iii) permit the
grant of an option with a term beyond that provided in the 1990 Plan or (iv)
make a material change in the class of eligible employees.
An optionee who is granted an incentive stock option generally will not
recognize taxable income either upon the grant or the exercise of an incentive
option, although the exercise may be subject to the alternative minimum tax.
No deduction will ordinarily be available to the Company as a result of the
grant or exercise of incentive options. Upon the sale or exchange of the
shares underlying an incentive option more than two years after the date of
grant and one year after the date of exercise, any gain or loss will be treated
as long-term capital gain or loss. If these holding periods are not satisfied,
the optionee will recognize ordinary income at the time of sale or exchange
equal to the difference between the exercise price and the lower of (i) the
fair market value of the shares of the date of exercise or (ii) the sale price
of the shares. Any gain recognized on such a premature disposition of shares
in excess of the amount treated as ordinary income will be characterized as
long-term or short-term capital gain, depending on the holding period.
An optionee granted nonqualified stock options will not recognize any
taxable income at the grant of the option, but will generally realize ordinary
income for federal income tax purposes at the time of exercise of such options
equal to the difference between the fair
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<PAGE> 25
market value of the Common Stock on the date of exercise and the exercise
price. Any taxable income recognized in connection with an option exercised by
an optionee who is an employee of the Company will be subject to tax
withholding by the Company. Upon resale of such shares by the optionee, any
difference between the sale price and the optionee's exercise price, to the
extent not recognized as taxable income as described above, will be treated as
long-term or short-term capital gain or loss, depending upon on the holding
period. The Company will be entitled to a tax deduction in the same amount as
the ordinary income recognized by the optionee with respect to shares acquired
upon exercise of a nonstatutory option.
The foregoing is only a summary of certain effects of federal income
taxation upon the optionee and the Company with respect to the grant and
exercise of options under the 1990 Plan, does not purport to be complete and
does not discuss the tax consequences of the optionee's death or the income tax
laws of any local, state or foreign jurisdiction in which any optionee may
reside.
At the Annual Meeting, stockholders will be asked to approve the
following resolution, previously adopted by the Board of Directors. (New
material is in italics and deleted material is marked by a "#.")
RESOLVED, that Sections 5 and 10 of the 1990 Plan are hereby amended to
read as follows:
"5. TERMS AND CONDITIONS OF OPTIONS. All Options granted hereunder
shall be subject to the following terms and conditions:
(a) TO WHOM OPTIONS MAY BE GRANTED. Options shall be granted
only to Employees. In the case of Incentive Options, Options shall not be
granted to any Employee who immediately after the granting of an Incentive
Option under the Plan owns more than 10% of the issued and outstanding Common
Stock unless such Incentive Option is granted at 110% of the Value of the
Common Stock at the time of the grant of the Incentive Option. For the purpose
of this Section 5(a) (and Section 6(d)), consistent with the provisions of
section 425(d) of the Code, an Employee is considered as owning all of the
Common Stock owned by his brothers, sisters, spouse, ancestors and lineal
descendants and his pro rata share of all Common stock owned by corporations,
partnerships, estates and trusts in which he has an interest.
(b) NON-TRANSFERABILITY OF OPTION. The Option shall not be
transferable by the Optionee otherwise than by bequest or the laws of descent
and distribution, and shall be exercisable during the Optionee's lifetime only
by the Optionee.
(c) TERMINATION OF OPTION UPON TERMINATION OF EMPLOYMENT. (i)
Subject to Section 5(c)(ii), if the Optionee's employment by the Corporation
shall terminate for any reason other than death, Disability or termination for
cause, the Option shall terminate six months (three months in the case of an
Incentive Option) after the Optionee's employment terminates (unless the
Optionee dies during such period), or on the Option's expiration date, if
earlier, and shall be exercisable during such period after termination of
employment only with respect to the number of shares which the Optionee was
entitled to purchase on the day preceding the termination of the Optionee's
employment, except that the Committee may, in
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<PAGE> 26
specific cases, and in its sole discretion, permit exercise by an Optionee of
all, or a part of, the unexercised Option within the period referred to above
after the Optionee's employment terminates. If the Optionee's employment shall
terminate because of discharge for cause, the Option shall terminate on the
date of the Optionee's discharge.
(ii) Notwithstanding Section 5(c)(i), the Committee may,
in its discretion, vary the foregoing provisions with respect to a particular
Optionee or particular Options granted to such Optionee to make the termination
provisions applicable to such Optionee more favorable to such Optionee so long
as such variation does not extend the expiration date of such Options. Any
such variation shall be set forth in the applicable Option Agreement or an
amendment thereto.
(d) TERMINATION OF OPTION UPON DEATH OR DISABILITY. In the
event of the Optionee's death or Disability while in the employ of the
Corporation, or Optionee's death within six months (three months in case of an
Incentive Option) after the termination of the Optionee's employment (other
than by reason of discharge for cause), the Option shall terminate upon the
earliest to occur of (i) 12 months after the date of the Optionee's death or
Disability or such other date as shall be specified in the Option Agreement, or
(ii) the Option's expiration date.^ The Option shall be exercisable during such
period after the Optionee's death or Disability with respect of the number of
shares as to which the Option shall have been exercisable on the date preceding
the Optionee's death or Disability, as the case may be.
(e) LIMITATION ON INCENTIVE OPTION. If the aggregate value
(determined at the time the Option is granted) with respect to which Options
are exercisable for the first time by an Optionee during any calendar year
under the Plan or any other plan of the Corporation exceeds $100,000, then
notwithstanding anything contained herein, such Option shall be treated as a
Non-Qualified Option to the extent of the excess."
"10. AMENDMENT AND DISCONTINUANCE. The Board may discontinue, amend,
alter or suspend the Plan; provided, however, that nay amendment requiring
stockholder approval under Rule 16b-3, as in effect from time to time, shall
not be made without obtaining such approval. Unless amended in accordance with
the amended Plan with the consent of the Optionee, any Option which is
outstanding under the Plan at the time of its amendment or termination shall
remain in effect in accordance with its terms and conditions and those of the
Plan as in effect which the Option was granted."
Approval of the amendment to the 1990 Plan requires the affirmative vote
of the holders of a majority of the outstanding shares of the Company's Common
Stock present, in person or by proxy, and entitled to vote at the Annual
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE AMENDMENT
TO THE COMPANY'S 1990 STOCK OPTION PLAN.
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<PAGE> 27
4. APPROVAL OF 1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The Board of Directors has determined that the 1995 Stock Option Plan
for Non-Employee Directors (the "Director Plan") will benefit the Company by
helping to attract and retain qualified persons to serve as directors and by
providing an additional incentive to those directors to improve the Company's
long-term performance as a result of aligning their financial interests with
those of the Company and its stockholders. Exhibit A to this Proxy Statement
contains a copy of the Director Plan. The following summary of the principal
features of the Director Plan is qualified in its entirety by reference to
Exhibit A.
SHARES OF STOCK SUBJECT TO THE PLAN. There will be 2,000,000 shares of
Common Stock authorized for the grant of options under the Director Plan. This
number is subject to adjustment for subsequent stock splits, stock dividends,
recapitalization, reorganization, merger consolidation or similar events. The
shares will be authorized but unissued shares of Common Stock and may include
treasury shares. Shares subject to options which expire or are cancelled will
be available for future grants under the Director Plan.
ADMINISTRATION OF THE PLAN. The Director Plan shall be administered by
the Board of Directors or a Committee thereof consisting of at least three
members selected by, and serving the pleasure of the Board (in either case, the
"Committee"). The Committee will have the discretion to adopt rules and
regulations and to impose conditions upon the exercise of the options which it
deems appropriate to administer the Director Plan and which will not be
inconsistent with the Director Plan.
ELIGIBILITY FOR PARTICIPATION. "Non-Employee Directors" (including
employees of the Company or its subsidiaries receiving compensation in that
capacity of less than $30,000 per calendar year) will automatically
participate in the Director Plan. There are currently seven Non-Employee
Directors.
TERM OF THE PLAN. The term of the Director Plan is ten years,
commencing September 15, 1995. No options may be granted after September 15,
2005, but the exercise periods of previously granted options may extend beyond
that date.
DESCRIPTION OF OPTIONS. From September 15, 1995 to May 11, 1996 (the
"Amendment Date"), the vesting of such initial grant being subject to
stockholder approval of the Director Plan, each Non-Employee Director was
automatically granted an option to purchase 15,000 shares of Common Stock.
Each Non-Employee Director as of the Amendment Date was granted an option to
purchase 150,000 shares of Common Stock. In addition, the Director Plan
provided from September 15, 1995 to May 11, 1996, that each Non-Employee
Director who was a member of the Executive Committee be granted an additional
option to purchase 7,500 shares of Common Stock, and the Chairman of the
Executive Committee, if a Non- Employee Director, be granted a third option to
purchase 20,000 shares of Common Stock. If a new Non-Employee Director is
elected or appointed, or if a Non-Employee Director becomes a member of the
Executive Committee (or Chairman thereof), subsequent to the Amendment Date, he
shall be granted initial options identical to those he would have received had
he been serving on September 15, 1995. Each Non-Employee Director shall
automatically be granted an additional option to purchase 15,000 shares of
Common Stock (and an additional option to purchase 7,500 shares of Common
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<PAGE> 28
Stock in the case of the Member of the Executive Committee, plus a third option
to purchase 20,000 shares of Common Stock in the case of a Chairman of the
Executive Committee) on the anniversary of the Amendment Date, or in the case
of a Non-Employee Director elected after the Amendment Date, on each
Anniversary date of such Non-Employee Director's initial grant, subject to
availability of shares for grant thereunder. The exercise price of each option
will be not less than 100% of the fair market value of the underlying Common
Stock on the date of the grant. The fair market value shall be the closing
price of the Common Stock in the reported consolidated trading of the NASDAQ
national market system or other established securities exchange on the date of
the grant.
EXERCISE PERIOD. Options granted under the Director Plan prior to the
Amendment Date vest with respect to one-half of the shares subject thereto six
months after the date of grant and vest with respect to the remainder of the
shares subject thereto 12 months after the date of grant. Options granted on
or after the Amendment Date may be exercised in whole or in part from and after
the date of grant with respect to all of the shares subject to the option. All
options are exercisable whether or not such Non-Employee Director is a Director
at the time of exercise and, in the event of the death of the Non-Employee
Director, may be exercised by his or her estate. The option expires five years
after the date of the grant.
PAYMENT FOR OPTIONS. The purchase price for all options will be payable
in full upon exercise. The prices may be paid in cash or in Common Stock or in
a combination of cash and Common Stock, at the optionee's election.
TRANSFERABILITY. Options may not be transferred or assigned except
upon the death of the optionee.
AMENDMENTS TO THE PLAN. The Board may discontinue, amend, alter or
suspend the Director Plan at any time, except that stockholder approval is
required for any amendment required to be approved by Rule 16b-3 under the
Exchange Act. In addition, provisions of the Director Plan related to
eligibility and participation may not be amended more than once every six
months, except to comport with changes in the Internal Revenue Code or the
regulations promulgated thereunder.
FEDERAL INCOME TAX CONSEQUENCES. An optionee does not realize taxable
income when he receives a grant of options and the Company may not claim a tax
deduction in connection with such grants. When an optionee exercises an
option, he will be deemed to have received taxable income in an amount equal to
the difference between the market value of the underlying Common Stock on the
date of exercise and the exercise price. The income realized will be subject
to withholding, and the Company may claim a tax deduction with respect thereto.
When an optionee sells stock acquired by the exercise of an option and held for
more than one year following the date of exercise, the gain or loss (equal to
the difference between the sale price and the market value on the date of
exercise) will be taxed at long term capital gain or loss rates. If the stock
was held for one year or less, the gain or loss will be treated as short term
capital gain or loss. If and to the extent that the exercise price is paid
with shares of Common Stock, the optionee will not realize any income as a
result, but his unrealized appreciation in the stock tendered will be excluded
from his basis in the stock acquired.
-26-
<PAGE> 29
BENEFITS UNDER THE DIRECTOR PLAN. All grants of options under the
Director Plan are subject to approval of the Director Plan by the stockholders
at the 1996 annual meeting.
VOTE REQUIRED. The approval of the adoption of the Director Plan
requires the affirmative vote of a majority of the votes cast at the meeting
provided that a quorum is present. As indicated above, abstentions will be
considered as votes cast for purposes of determining whether the proposal to
adopt the Plan receives a sufficient number of affirmative votes and,
therefore, will have the same effect as votes against approval of the Director
Plan.
<TABLE>
<CAPTION>
Director Plan Benefits
Number of Shares
Underlying Options Value of Options at June 12, 1996(1)
------------------ ---------------------------------
<S> <C> <C>
Terry N. Christensen 150,000 $84,375
Willie D. Davis 165,000 $86,250
William P. Foley, II 172,500 $98,906
David Gotterer 172,500 $87,188
Jeffrey Rosenthal 165,000 $86,250
Burt Sugarman 150,000 $84,375
C. Thomas Thompson 172,500 $98,906
All Current Non-Employee Directors Group 1,147,500 $626,250
</TABLE>
____________________________
(1) Values of Options are based on the closing prices on the NASDAQ National
Market system of the Company's Common Stock on June 12, 1996 ($2.75 per
share) and the dates on which the options were granted, which represents
the maximum potential value of these options on June 12, 1996.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE COMPANY'S
1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS.
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<PAGE> 30
5. RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has appointed Arthur Andersen LLP as independent
auditors of the Company for the 1996 fiscal year ending December 29, 1996.
Arthur Andersen has acted as independent auditors for the Company since 1987.
Representatives of Arthur Andersen are expected to be present at the Annual
Meeting where they will have an opportunity to make a statement, if they desire
to do so, and to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF ARTHUR
ANDERSEN LLP AS INDEPENDENT AUDITORS FOR THE 1996 FISCAL YEAR.
OTHER BUSINESS
The Board of Directors is not aware of any other matters to be presented
at the Annual Meeting other than those set forth in the Notice of Annual
Meeting and routine matters incident to the conduct of the meeting. If any
other matters should properly come before the Annual Meeting or any adjournment
or postponement thereof, the persons named in the proxy, or their substitutes,
intend to vote on such matters in accordance with their best judgment.
STOCKHOLDER PROPOSALS
Any stockholder proposal intended to be presented at the 1997 Annual
Meeting of Stockholders must be received by the Company by February 19, 1997 in
order to be considered for inclusion in the Company's proxy materials for such
meeting.
ANNUAL AND QUARTERLY REPORTS
The Company's 1995 Annual Report to Stockholders (which includes its
Annual Report on Form 10-K for the period ending December 31, 1995) and its
Quarterly Report on Form 10-Q for the period ending March 31, 1996 accompany
this Proxy Statement.
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<PAGE> 31
The Company's 1995 Annual Report on Form 10-K (including the financial
statements and schedules thereto) and Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1996 will be provided without charge to each
stockholder upon written request. Each request must set forth a good faith
representation that, as of June 12, 1996, the record date for the Annual
Meeting, the person making the request was the beneficial owner of shares of
Common Stock of the Company. The request should be directed to: Evan G.
Hughes, Secretary, Rally's Hamburgers, Inc., 10002 Shelbyville Road, Suite 150,
Louisville, Kentucky 40223, telephone (502) 245-8900.
By Order of the Board of Directors
EVAN G. HUGHES
Secretary
Louisville, Kentucky
June 19, 1996
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<PAGE> 32
EXHIBIT A
RALLY'S HAMBURGERS, INC.
1995 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. Purpose of Plan. The purpose of this 1995 Stock Option Plan for
Non-Employee Directors is to promote the interests of Rally's Hamburgers, Inc.,
its subsidiaries and stockholders, by encouraging non-employee directors of the
Corporation to acquire a proprietary interest in the Corporation. Such
investments should increase the personal interest and the special effort of
such persons in providing for the success and progress of the business of the
Corporation and should enhance the Corporation's efforts to attract and retain
competent non-employee directors.
2. Definitions. The following terms when used herein shall have the
meanings set forth below, unless a different meaning is plainly required by the
context:
(a) Adoption Date. September 15, 1995.
(b) Amendment Date. May 11, 1996.
(c) Board. The Board of Directors of the Corporation.
(d) Committee. The Committee provided for in Section 6.
(e) Common Stock. Shares of the Corporation's common stock,
par value $.10 per share.
(f) Corporation. Rally's Hamburgers, Inc., a Delaware
corporation.
(g) Employee. An employee of the Corporation or any of its
subsidiaries who receives compensation in that capacity in excess of $30,000
per calendar year from the Corporation and/or any of its subsidiaries (not
including compensation received in his or her capacity as a member of the Board
or any committee of the Board).
(h) Fair Market Value. The fair market value of a share of
Common Stock on a given date, as determined by the Committee; provided,
however, that if the Common Stock on such date is (i) traded on the NASDAQ
National Market system, the Fair Market Value shall be the closing price of the
Common Stock on such system; or (ii) traded on an established securities
exchange, the Fair Market Value shall be the closing price of the Common Stock
in the reported consolidated trading of such exchange. If there are no Common
Stock transactions reported for such date, the determination shall be made as
of the last immediately preceding date on which the Common Stock transactions
were reported. If there shall be any material alteration in the present system
of reporting sales prices of the Common Stock, or if the Common Stock shall no
longer be traded or listed as set forth above, the Fair Market Value of the
Common Stock as of a particular date shall be determined under such method as
shall be determined by the Committee.
(i) Non-Employee Director. A member of the Board who is not an
Employee of the Corporation or any of its subsidiaries.
A - 1
<PAGE> 33
(j) Option. An option granted to an Optionee pursuant to the
Plan.
(k) Option Agreement. A written agreement between the
Corporation and an Optionee evidencing the grant of an Option and containing
terms and conditions concerning the exercise of the Option.
(l) Option Price. The price to be paid for shares to be
purchased pursuant to the exercise of an Option.
(m) Optionee. A Non-Employee Director who has been granted an
Option or the personal representative, heir or legatee of an Optionee who has
the right to exercise the Option under the death of the Optionee.
(n) Plan. This 1995 Stock Option Plan for Non-Employee
Directors, as it may be amended from time to time.
3. Eligibility and Participation.
(a) (i) Each Non-Employee Director as of the Adoption Date
shall be granted on the date hereof an Option to purchase 15,000 shares of
Common Stock.
(ii) In addition to the Options provided for in other
subsections of Section 3(a), a Non-Employee Director who is a member of the
Executive Committee shall be granted on the Adoption Date an Option to purchase
7,500 shares of Common Stock.
(iii) In addition to the Options provided for in other
subsections of Section 3(a), the Chairman of the Executive Committee, if a
Non-Employee Director, shall be granted on the Adoption Date an Option to
purchase 20,000 shares of Common Stock.
(iv) In addition to the Options provided for in other
subsections of Section 3(a), each Non-Employee Director as of the Amendment
Date shall be granted on the Amendment Date an Option to purchase 150,000
shares of Common Stock.
(b) (i) Each new Non-Employee Director who is elected
subsequent to the Amendment Date shall automatically be granted an Option to
purchase 15,000 shares of Common Stock upon the initial date of election to the
Board, provided the number of shares of Common Stock available for grant under
the Plan is sufficient to permit such automatic grant.
(ii) Each new member of the Executive Committee who is a
Non-Employee Director and who is appointed subsequent to the Adoption Date
shall automatically be granted an Option to purchase (in addition to any other
Options to which such Non-Employee Director may be entitled under Section
3(a)(i) or 3(b)(i)) 7,500 shares of Common Stock provided the number of shares
of Common Stock available for grant under the Plan is sufficient to permit such
automatic grant.
(iii) Each new Chairman of the Executive Committee who is
a Non-Employee Director and who is appointed subsequent to the Adoption Date
shall automatically be granted an Option to purchase (in addition to any other
Options to which such Non-
A - 2
<PAGE> 34
Employee Director may be entitled under Sections 3(a) or (b)) 20,000 shares of
Common Stock, provided the number of shares of Common Stock available for
grant under the Plan is sufficient to permit such automatic grant.
(c) On each anniversary of the Amendment Date, or in the case
of a Non-Employee Director who is elected subsequent to the Amendment Date,
each anniversary date of the grant of an Option pursuant to Section 3(b)
hereof, each Non-Employee Director shall automatically be granted an Option to
purchase 15,000 (plus an additional 7,500 in the case of a member of the
Executive Committee plus an additional 20,000 in the case of the Chairman of
the Executive Committee) shares of Common Stock, provided they hold such
position(s) on that date and the number of shares of Common Stock available for
grant under the Plan is sufficient to permit such automatic grant.
4. Shares Subject to the Plan. The stock to be offered under the
Plan shall be shares of Common Stock, which shares may be unissued shares or
treasury shares. Subject to the adjustments provided for in Section 7, the
aggregate number of shares to be delivered upon exercise of all Options granted
under the Plan shall not exceed 2,000,000 shares. Shares of Common Stock
subject to, but not delivered under, an Option terminating or expiring for any
reason prior to its exercise in full shall be deemed available for Options to
be granted thereafter during the term of the Plan.
5. Terms and Conditions of Options. All Options granted hereunder
shall be subject to the following terms and conditions which shall be set forth
in the Option Agreement for all Options to the extent applicable:
(a) To Whom Options May Be Granted. Options shall be granted
only to Non-Employee Directors.
(b) Non-Transferability of Option. Options shall not be
transferable by the Optionee otherwise than by bequest or the laws of descent
and distribution, and shall be exercisable during the Optionee's lifetime only
by the Optionee.
(c) Termination of Option. The Option shall terminate five (5)
years from the date of grant, and shall be exercisable whether or not such
Non-Employee Director is at the time of exercise a member of the Board, and, in
the event of the death of the Non-Employee Director, may be exercised by his or
her estate.
(d) Number of Shares of Common Stock. The number of shares of
Common Stock to which the Option pertains.
(e) Exercise Price. The exercise price of the Option, which
shall not be less than 100% of the Fair Market Value of the Common Stock at the
time of the grant of the Option.
(f) The Term of Option. The term of the Option, which shall be
five (5) years.
(g) How Exercised. The method or time when the Option may be
exercised in whole or in part. All Options granted prior to the Amendment Date
shall vest with respect
A - 3
<PAGE> 35
to one-half of the shares subject thereto six months after the date of grant
and vest with respect to the remainder of the shares subject thereto 12 months
after the date of grant. All Options granted from and after the Amendment Date
shall be exercisable in whole or in part at any time or times from and after
the date of grant through and including the last day of the term of the Option.
Notwithstanding anything to the contrary contained herein, to the extent the
exercise of the Option would result in a "Change of Control," as such term is
defined in Section 4.14 of the Indenture dated as of March 1, 1993 between the
Corporation and PCN Bank, Kentucky, Inc. with respect to the Corporation's 9
7/8% Senior Notes due June 15, 2000 (the "Indenture"), exercisability of the
Option shall be suspended until the earlier of (i) discharge of the Indenture;
or (ii) a Change of Control otherwise occurs.
The Option Price shall be paid in cash or check at the time of exercise,
except that in lieu of all or part of such payment, the Optionee may tender to
the Corporation Common Stock owned by the Optionee having a Fair Market Value
equal to the exercise price, less any amount paid by cash or check. The Fair
Market Value of such tendered shares of Common Stock shall be determined as of
the close of the business day immediately preceding the day on which the Option
is exercised.
6. Administration. The Plan shall be administered by the Board or a
Committee consisting of at least three members selected by, and serving at the
pleasure of, the Board (in either case, the "Committee"). The Committee shall
meet at such times and places as it determines and may meet through a telephone
conference call. A majority of its members shall constitute a quorum, and the
decision of the majority of those present at any meeting at which a quorum is
present shall constitute the decision of the Committee. Any decision reduced
to writing and signed by a majority of the members of the Committee shall be
fully effective as if it had been made by a majority at a meeting duly held.
No discretion concerning decisions under the Plan shall be afforded to a person
who is not a disinterested person. All decisions, determinations and
selections made by the Committee pursuant to the provisions of the Plan shall
be final. Each Option granted shall be evidenced by an Option Agreement
containing such terms and conditions as may be approved by the Committee and
which shall not be inconsistent with the Plan.
7. Adjustments Upon Changes in Capitalization. Notwithstanding the
limitations set forth in Section 4, in the event of a merger, consolidation,
reorganization, stock dividend, stock split or other change in corporate
structure or capitalization affecting the Common Stock, the Committee shall
make an appropriate adjustment in the maximum number of shares available under
the Plan or to any one individual and in the number, kind and Option Price of
Common Stock subject to Options granted under the Plan.
8. Amendment and Discontinuance. The Board may discontinue, amend,
alter or suspend the Plan; provided, that any amendment requiring stockholder
approval under Rule 16b-3 promulgated pursuant to the Securities Exchange Act
of 1934, as amended, as in effect from time to time, shall not be made without
obtaining such approval. Section 3 shall not be amended more than once every
six months, other than to comply with changes in the Internal Revenue Code or
the regulations thereunder. Any Option which is outstanding under the Plan at
the time of its amendment or termination shall remain in effect in accordance
with its terms and conditions and those of the Plan as in effect when the
Option was granted.
A - 4
<PAGE> 36
9. Merger, Consolidation, Etc.
(a) Conversion on Merger. In the event the Corporation merges
or consolidates with another corporation, or all or substantially all of the
Corporation's capital stock or assets are acquired by another corporation, and
the surviving or acquiring corporation issues shares of its stock to the
Corporation's shareholders in connection with the merger, consolidation or
acquisition, the surviving or acquiring corporation shall adopt the Plan and,
upon the exercise of an Option, the Optionee shall, at no additional cost
(other than the Option Price), be entitled to receive, in lieu of the number of
shares of Common Stock to which such Option is then exercisable, the number and
class of shares of stock or other securities to which the Optionee would have
been entitled pursuant to the terms of the merger, consolidation or
acquisition, if immediately prior thereto the Optionee had been the holder of
record of the number of shares of Common Stock equal to the number of shares of
Common Stock as to which the Option shall then be exercisable.
(b) No Conversion on Certain Mergers. In the event that the
Corporation merges or consolidates with another corporation, or all or
substantially all of the Corporation's capital stock or assets are acquired by
another corporation, and the surviving or acquiring corporation does not issue
shares of its stock to the Corporation's shareholders in connection with the
merger, consolidation or acquisition, then, notwithstanding any other provision
of the Plan to the contrary, no Option may be exercised after the effective
date of the merger, consolidation or acquisition.
10. Effectiveness and Termination of the Plan.
(a) The Plan shall become effective upon adoption by the Board.
The Plan shall be rescinded and all Options granted hereunder shall be null and
void unless within 12 months from the date of the adoption of the Plan by the
Board it shall have been approved by the holders of a majority of the
outstanding Common Stock present or represented and entitled to vote on the
Plan at a stockholder's meeting
(b) Termination Date. The Plan shall terminate on the earliest
to occur of (i) the dates when all the Common Stock available under the Plan
shall have been acquired through the exercise of Options granted under the
Plan; (ii) 10 years after the date of adoption of the Plan by the Board; or
(iii) such other date as the Board may determine.
11. Governing Law. The provisions of the Plan shall be construed,
administered and enforced according to the laws of the Commonwealth of
Kentucky.
DATED: September 15, 1995,
as amended May 11, 1996
RALLY'S HAMBURGERS, INC.
By: s/ Burt Sugarman
-----------------------------------
Chairman of the Board
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<PAGE> 37
PROXY
RALLY'S HAMBURGERS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS -- JULY 10, 1996
The undersigned hereby appoints Michael E. Foss and Evan G. Hughes, and
each of them, proxies with full power of substitution, for and in the name of
the undersigned to vote all shares of Common Stock of Rally's Hamburgers, Inc.,
a Delaware corporation (the "Company"), that the undersigned would be entitled
to vote at the Company's 1996 Annual Meeting of Stockholders to be held on July
10, 1996 (the "Meeting"), and at any adjournments thereof, upon the matters set
forth in the Notice of the Meeting as stated hereon, hereby revoking any proxy
heretofore given. In their discretion, the proxies are further authorized to
vote upon such other business as may properly come before the Meeting or any
adjournments thereof.
The undersigned acknowledges receipt of the Notice of the Meeting and
the accompanying Proxy Statement, Annual Report and Form 10-Q.
(PLEASE DATE AND SIGN ON REVERSE SIDE)
- --------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
<PAGE> 38
THE BOARD RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2, 3, 4 AND 5.
Please mark your vote as in this example: /X/
FOR WITHHELD
1. Election of Directors at right. / / / /
Nominees:
Terry Christensen, Willie D. Davis, Donald E. Doyle, William
P. Foley, II, David Gotterer, Jeffrey Rosenthal, Burt
Sugarman and C. Thomas Thompson
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------------------------------
FOR WITHHELD ABSTAIN
2. Approve an amendment to the / / / / / /
Certificate of Incorporation
which would authorize Preferred
Stock
3. Adoption of an amendment to / / / / / /
the Company's 1990 Stock Option
Plan.
4. Adoption of the Company's 1995 / / / / / /
Stock Option Plan for Non-Employee
Directors, as amended.
5. Ratification of the appointment / / / / / /
of Arthur Andersen LLP as
independent Auditors.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTORS LISTED ABOVE, FOR
ADOPTION OF AN AMENDMENT TO THE COMPANY'S 1990 STOCK OPTION PLAN, FOR ADOPTION
OF THE COMPANY'S 1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS, AS AMENDED,
AND AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION WHICH WOULD AUTHORIZE
PREFERRED STOCK, FOR RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS
INDEPENDENT AUDITORS AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS
MAY COME BEFORE THE MEETING.
SIGNATURE SIGNATURE
------------------- -------------------
Date: Date:
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NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
