<PAGE>
As filed with the Securities and Exchange Commission on September 4, 1996,
File No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
RALLY'S HAMBURGERS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
62-1210077
- --------------------------------------------------------------------------------
(I.R.S. Employer Identification Number)
10002 Shelbyville Road, Suite 150, Louisville, Kentucky 40223 (502) 245-8900
- --------------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Evan G. Hughes
Rally's Hamburgers, Inc.
10002 Shelbyville Road, Suite 150, Louisville, Kentucky 40223 (502) 245-8900
- --------------------------------------------------------------------------------
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
-----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
-----------------
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================
Title of each Proposed Proposed maximum
class of securities Amount to be maximum aggregate offering Amount of
to be registered registered(1) offering price price registration fee
per unit
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rights 5,534 0
Units (2) 1,341,731 $2.25 $3,018,895 $1,041
Common Stock 1,341,731
Warrants 1,341,731
Common Stock (3) 1,341,731 $2.25 $3,018,895 $1,041
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Registrant has previously registered 15,678,335 Rights, 3,484,074 Units,
3,484,074 shares of Common Stock, 3,484,074 Warrants and 3,484,074 shares
of Common Stock underlying the Warrants and paid an aggregate filing fee of
$7,208.64 in connection with its Registration Statement on Form S-3, File
No. 333-07609.
(2) An aggregate of 4,825,805 Units, each consisting of a share of Registrant's
common stock, $.10 par value per share (the "Common Stock"), and a warrant
to purchase a share of Common Stock ("Warrants"), are issuable upon
exercise of an aggregate of 15,683,869 Rights. See Note 1 above.
(3) Issuable upon exercise of the Warrants. Pursuant to Rule 416, this
Registration Statement also covers such indeterminable additional shares as
may become issuable as a result of any future adjustments in accordance
with the terms of the Warrants, as described in the Prospectus.
Registrant hereby amends this Registration statement on such date or dates until
the Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
section 8(a), may determine.
The Prospectus contained in this Registration Statement is also the Prospectus
for Registration Statement No. 333-07609 in accordance with Rule 429.
<PAGE>
4,825,805 Units
RALLY'S HAMBURGERS, INC.
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE COMMON STOCK PURCHASE WARRANT
______________
Rally's Hamburgers, Inc., a Delaware corporation (the "Company"), has
distributed to holders of record of shares of its common stock, par value $.10
per share (the "Common Stock"), as of the close of business on July 31, 1996
(the "Record Date"), transferable subscription rights (the "Rights") to purchase
units ("Units") consisting of one share of Common Stock and one warrant to
purchase an additional share of Common Stock (the "Warrants") (the "Rights
Offering"). The Company distributed one Right for each share of Common Stock
held on the Record Date. For each 3.25 Rights held, a holder ("Holder") has the
right to purchase one Unit (the "Basic Subscription Privilege") for $2.25 per
Unit (the "Subscription Price"). No fractional Units will be issued, and
fractional interests will be rounded down. The Rights are evidenced by
transferable subscription certificates.
Each Warrant may be exercised to acquire an additional share of Common
Stock at an exercise price of $2.25 per share and expires four years from the
date of issuance. The Warrants are redeemable by the Company at $.01 per
Warrant, at the Company's option, if the closing price for the Company's Common
Stock on the NASDAQ National Market ("NNM") (or such other principal securities
exchange or market on which the Common Stock is then trading) is at or above
$6.00 per share for 20 out of 30 consecutive trading days.
Upon exercise of the Basic Subscription Privilege, a Holder will also be
entitled to purchase at the Subscription Price a pro rata portion of Units which
are not subscribed for pursuant to the Basic Subscription Privilege (the
"Oversubscription Privilege" and collectively with the Basic Subscription
Privilege, referred to herein as the "Subscription Privileges").
The Common Stock is quoted on the NNM under the symbol "RLLY." On August
30, 1996, the last sale price of the Common Stock as reported on the NNM was
$2 5/8 per share.
THE RIGHTS WILL EXPIRE ON SEPTEMBER 13, 1996, unless extended by the
Company (such date, as it may be extended on one or more occasions, is referred
to herein as the "Expiration Date"). In no event will the Expiration Date be
extended beyond September 30, 1996. Subscriptions for Units, together with full
payment of the Subscription Price, must be received by American Stock Transfer &
Trust Company (the "Subscription Agent") prior to 5:00 p.m., New York City time,
on the Expiration Date, and the Rights will be of no force or effect thereafter.
The exercise of Rights is irrevocable once made, and no interest will be paid to
Holders exercising their Rights.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS
IN THE SECURITIES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _______, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") Registration Statements on Form S-3 (collectively, together with
any amendments thereto, the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the Rights, the
Units issuable upon exercise of the Rights, the Common Stock and Warrants
included in the Units and the Common Stock underlying the Warrants. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in schedules and exhibits to the Registration
Statement as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to herein or therein are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, or incorporated by
reference therein, for a more complete description of the matters involved, and
each such statement shall be deemed qualified in all respects by such reference.
Such additional information may be obtained from the Commission's principal
office in Washington, D.C.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports and other information with the Commission. The
Registration Statement and the exhibits thereto, as well as such reports and
other information filed by the Company, can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the
Commission located at 7 World Trade Center, New York, New York 10048 and
Citicorp Center, 500 Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained upon written request addressed to the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Common Stock is quoted on
NASDAQ, and reports, proxy statements and other information concerning the
Company may be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(i) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 (the "1995 10-K");
(ii) the Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1996 and June 30, 1996 (the "10-Qs");
(iii) the Company's Proxy Statement dated June 19, 1996 with respect to
its Annual Meeting held on July 10, 1996;
(iv) the Company's Current Reports on Form 8-K dated January 29, 1996,
April 16, 1996, May 3, 1996 and July 24, 1996; and
(v) the Company's Preliminary Consent Solicitation Statement filed with
the Commission on August 26, 1996; and
(vi) the description of the Common Stock which is contained in the
Company's Registration Statement on Form 8-A dated September 19,
1989.
2
<PAGE>
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, subsequent to the date of this Prospectus and prior
to the termination of the Rights Offering, shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the respective dates
of the filing thereof. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which is also
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including each
beneficial owner, to whom a copy of this Prospectus is delivered, on the written
or oral request of such person, a copy of any or all documents incorporated by
reference into this Prospectus that are not delivered herewith, except the
exhibits to such documents (unless such exhibits are specifically incorporated
by reference in such documents). Requests for such copies should be directed to
the Company's principal office: Rally's Hamburgers, Inc., 10002 Shelbyville
Road, Suite 150, Louisville, Kentucky 40223, Attention: Evan G. Hughes, (502)
245-8900.
3
<PAGE>
PROSPECTUS SUMMARY
The following material is qualified in its entirety by the information and
the consolidated financial statements and notes thereto appearing elsewhere in
or incorporated by reference into this Prospectus.
THE COMPANY
Rally's Hamburgers, Inc., a Delaware corporation (the "Company" or
"Rally's"), is one of the largest chains of double drive-thru restaurants in the
United States. As of August 30, 1996, the Rally's system included 483
restaurants in 19 states, primarily in the Midwest and the Sunbelt, comprised
of 240 Company-owned and 243 franchised restaurants. The Company's
restaurants offer high quality fast food served quickly and at everyday prices
generally below the regular prices of the four largest hamburger chains. The
Company serves the drive-thru and take-out segments of the quick-service
restaurant market. The Company opened its first restaurant in January, 1985 and
began offering franchises in November, 1986.
During the later part of 1995 and into 1996, the Company has implemented
actions to improve its balance sheet and operating results, including
repurchasing $22 million principal amount (or approximately 25%) of the
Company's outstanding 9-7/8% Senior Notes due 2000 (the "Senior Notes"),
entering into a strategic partnership with the Carl's Jr. restaurant chain,
instituting new marketing initiatives aimed at improving comparable store sales
trends and undertaking actions aimed at improving food, paper and labor costs as
a percentage of sales.
The Company had net income of $111,000 ($.01 per share) for the quarter
ended June 30, 1996, representing a $1.4 million improvement over the comparable
period in the prior year and marking the Company's return to profitability
(excluding extraordinary gains) for the first time since the second quarter of
fiscal 1993. For the six months ended June 30, 1996, the Company recorded
earnings of $949,000 ($.06 per share) compared with a net loss of $4.8 million
($.30 per share) for the prior year period. First quarter and year to date
earnings were favorably impacted by an extraordinary gain, net of tax, of $4.5
million ($.29 per share) from the early extinguishment of debt.
The Company is attempting to redirect most of its near term focus toward
achievement of four specific short term objectives, i.e., growing same store
sales, reducing food and paper costs as a percent of sales, reducing store labor
costs as a percent of sales and attacking other elements of spending.
Management believes that the Company's focus on achievement of these objectives
combined with a gradual increase in Company new store development should allow
the Company to achieve a sustainable level of profitability in the near future.
However, no assurance can be given that management will be able to carry out
such objectives or that achievement of these objectives will have a positive
effect on the Company's profitability. The Company's principal executive
offices are located at 10002 Shelbyville Road, Suite 150, Louisville, Kentucky
40223, and its telephone number is (502) 245-8900. See "The Company."
4
<PAGE>
THE RIGHTS OFFERING
Rights................................ The Company distributed to each
holder of Common Stock one
transferable Right for each share of
Common Stock held of record on the
Record Date. An aggregate of
15,683,869 Rights have been
distributed pursuant to the Rights
Offering. An aggregate of 4,825,805
Units, each consisting of one share
of Common Stock and one Warrant, will
be sold if all Rights are exercised.
The exercise of Rights is irrevocable
once made, and no Units will be
issued until the closing following
the Expiration Date. See "The Rights
Offering - The Rights."
Basic Subscription Holders will be entitled to purchase
Privilege.......................... one Unit for each 3.25 Rights held.
See "The Rights Offering -
Subscription Privileges - Basic
Subscription Privilege."
Units................................. Each Unit consists of one share of
Common Stock and one Warrant.
Warrants.............................. Each Warrant may be exercised to
acquire one share of Common Stock for
$2.25. The Warrants will expire on
the fourth anniversary of the date of
issuance, subject to the extension
under certain circumstances. See
"Description of Securities - Warrants."
Optional Redemption of Warrants The Company will have the right, but
By the Company..................... not the obligation, to redeem the
Warrants, at $.01 per Warrant, if the
closing price of the Common Stock as
reported on the NNM (or such other
principal securities exchange or
market on which the Common Stock is
then trading) for 20 out of 30
consecutive trading days is equal to
or exceeds $6.00 per share. See
"Description of Securities - Warrants."
Oversubscription Each Holder who elects to exercise
Privilege.......................... his or her Basic Subscription
Privilege may also subscribe at the
Subscription Price for Units, if any,
remaining unsold after satisfaction
of all subscriptions pursuant to the
Basic Subscription Privilege. If an
insufficient number of Units is
available to satisfy
5
<PAGE>
fully all elections to exercise the
Oversubscription Privilege, the
available Units will be allocated on
a pro rata basis among Holders who
exercise their Oversubscription
Privilege based on the respective
numbers of Units subscribed for by
such Holders pursuant to the
Oversubscription Privilege. See "The
Rights Offering - Subscription
Privileges - Oversubscription
Privilege."
Subscription Price.................... $2.25 in cash per Unit.
Shares of Common Stock and Warrants
Outstanding after Rights
Offering........................... Assuming that all Rights are fully
exercised, approximately 20,509,674
shares of Common Stock and 4,825,805
Warrants will be outstanding
immediately after the Rights
Offering, based on 15,683,869 shares
of Common Stock outstanding on the
Record Date. The final number of
shares of Common Stock and Warrants
that will be outstanding after the
Rights Offering is dependent upon the
extent to which Rights are exercised.
Transferability of
Rights............................. The Rights are transferable and will
be quoted on the NNM under the trading
symbol RLLYR until the close of
business on the last trading day prior
to the Expiration Date. Any transfer of
Rights will be deemed a transfer of
both the Basic Subscription Privilege
and the Oversubscription Privilege. The
Subscription Agent will endeavor to
sell Rights for Holders who have so
requested and have delivered one or
more Subscription Certificate(s)
evidencing such Rights, with the
instruction for sale included thereon
properly executed, to the Subscription
Agent by 5:00 p.m., New York City time,
on September 10, 1996 (three business
days prior to the Expiration Date).
There can be no assurance, however,
that any market for Rights will
develop, or that the Subscription Agent
will be able to sell any Rights for
Holders. If less than all sales orders
received by the Subscription Agent can
be filled, sales proceeds will be
prorated among the Holders based upon
the number of Rights each has
instructed the Subscription Agent to
sell during the term of the Rights
Offering, irrespective of when during
such period the instructions are
received by the
6
<PAGE>
Subscription Agent. See "The Rights
Offering-Method of Transferring
Rights."
Record Date........................... July 31, 1996.
Expiration Date....................... September 13, 1996, unless extended
by the Company from time to time,
provided that the Expiration Date
shall not be later than September 30,
1996, unless the Board of Directors
determines that a material event has
occurred which necessitates one or
more further extensions of the Rights
Offering in order to permit adequate
disclosure of information concerning
such event to Holders. See "The
Rights Offering-Expiration Date." If
the Company elects to extend the term
of the Rights, it will issue a press
release to such effect no later than
the first day on which the NNM is
open for trading subsequent to the
most recently announced Expiration
Date. In the event the Company
elects to extend the term of the
Rights Offering by more than 14
calendar days, it will, in addition,
cause written notice of such
extension to be promptly sent to all
Holders of record on the Record Date.
Procedure for Exercising Rights may be exercised by properly
Rights............................. completing the certificate evidencing
such Rights (the "Subscription
Certificate") and forwarding such
Subscription Certificate (or
following the Guaranteed Delivery
Procedures, as defined below) to the
Subscription Agent prior to 5:00
p.m., New York City time, on the
Expiration Date, together with
payment in full of the Subscription
Price for each Unit subscribed for
pursuant to the Subscription
Privileges. If the mail is used to
forward Subscription Certificates, it
is recommended that insured,
registered mail be used. The
exercise of a Right may not be
revoked or amended. If time does not
permit a Holder or transferee of a
Right to deliver a Subscription
Certificate to the Subscription Agent
on or before the Expiration Date,
such Holder or transferee should make
use of the Guaranteed Delivery
Procedures described under "The
Rights Offering-Exercise of Rights."
7
<PAGE>
If paying by uncertified personal
check, please note that the funds
paid thereby may take at least five
business days to clear. Accordingly,
Holders who wish to pay the
Subscription Price by means of
uncertified personal check are urged
to make payment sufficiently in
advance of the Expiration Date to
ensure that such payment is received
and clears by the Expiration Date and
are urged to consider payment by
means of certified or cashier's
check, money order or wire transfer
of funds.
Persons Holding Shares, Persons holding shares of Common
or Wishing to Stock, and receiving the Rights
Exercise Rights distributable with respect thereto,
Through Others..................... through a broker, dealer, commercial
bank, trust company or other nominee,
as well as persons holding
certificates representing Common
Stock in their own name who would
prefer to have such institutions
effect transactions relating to the
Rights on their behalf, should
contact the appropriate institution
or nominee and request it to effect
the transactions for them. See "The
Rights Offering-Exercise of Rights."
Issuance of Certificates representing Common
Common Stock and Warrants........ Stock and Warrants will be delivered
to subscribers as soon as practicable
after the Expiration Date and after
all applicable prorations have been
effected. See "The Rights
Offering-Subscription Privileges."
Funds delivered to the Subscription
Agent for the exercise of
Subscription Privileges will be held
in escrow by the Subscription Agent
until all required prorations have
been effected. No interest will be
paid to Holders on funds received by
the Company or held by the
Subscription Agent. In the case of
Holders exercising Oversubscription
Privileges, any excess funds will be
returned to such Holders as soon as
practicable after the Expiration Date.
Use of Proceeds....................... It is anticipated that the net
proceeds to the Company will be
approximately $10.3 million if all of
the Units are purchased in the Rights
Offering (excluding proceeds to be
received upon the exercise of the
Warrants). If less than all of the
Units are purchased, the proceeds
will be correspondingly reduced.
Such proceeds will be
8
<PAGE>
used to build new restaurants,
refurbish certain existing
restaurants and for other general
corporate purposes, including
possibly reducing outstanding
indebtedness. See "Purpose of the
Rights Offering and Use of Proceeds."
Subscription Agent.................... American Stock Transfer & Trust
Company
NNM Common Stock Trading
Symbol.............................. RLLY
NNM Rights Trading
Symbol.............................. RLLYR
NNM Warrant Trading Symbol............ RLLYW
COMMITMENTS TO EXERCISE RIGHTS
GIANT GROUP, LTD. ("GIANT"), Fidelity National Financial, Inc. ("Fidelity")
and CKE Restaurants, Inc. ("CKE"), which are the owners of 4,312,063, 767,807
and 2,350,432 shares of Common Stock, respectively, have committed to exercise,
or cause to be exercised, their Basic Subscription Privileges.
RISK FACTORS
The purchase of Units, Common Stock and Warrants in the Rights Offering
involves investment risks particular to the Company and risks particular to the
Rights Offering. Investors are urged to read and consider carefully the
information set forth under the heading "Risk Factors," which follows this
Prospectus Summary.
9
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except per share amounts and statistical data)
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
---------------------------------------------------- ---------------------
Dec 29, Jan 3, Jan 2, Jan 1, Dec 31, July 2, June 30,
1991(1) 1993 1994 1995 1995 1995 1996
------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues................................ $ 94,131 $120,648 $174,346 $186,318 $188,859 $ 92,313 $ 89,269
Income(loss)from
operations(2)(3)(4)......................... 10,289 15,057 (7,050) (14,636) (36,470) 212 (956)
Net income (loss)
before income taxes
and extraordinary
item......................................... 9,821 14,260 (13,483) (24,255) (46,380) (4,633) (5,069)
Net income (loss)
before
extraordinary item........................... 6,071 9,279 (8,907) (19,273) (46,919) (4,753) (3,573)
Net income (loss)(5).......................... $ 6,071 $ 9,279 $ (8,907) $(19,273) $(46,919) $ (4,753) $ 949
Net income (loss)
per share before
extraordinary item........................... $0.54 $0.76 $(0.67) $(1.42) $(3.00) $(0.30) $ (0.23)
Extraordinary item
per share(5)................................. -- -- -- -- -- -- 0.29
-------- -------- -------- -------- -------- -------- --------
Net income (loss)
per share(5)................................. $0.54 $0.76 $(0.67) $(1.42) $(3.00) $(0.30) $ 0.06
======== ======== ======== ======== ======== ======== ========
OPERATING DATA:
System-wide sales:
Company-owned.......................... $ 86,822 $112,894 $165,829 $178,476 $181,778 $ 88,595 $ 86,279
Franchised............................. 134,278 183,649 188,837 191,611 173,941 90,546 76,604
-------- -------- -------- -------- -------- -------- --------
Total.......................... $221,100 $296,543 $354,666 $370,087 $355,719 $179,141 $162,883
======== ======== ======== ======== ======== ======== ========
Number of restaurants:
Company-owned.......................... 116 197 252 250 239 254 239
Franchised............................. 217 253 268 292 242 272 246
-------- -------- -------- -------- -------- -------- --------
Total.......................... 333 450 520 542 481 526 485
======== ======== ======== ======== ======== ======== ========
<CAPTION>
At
June 30,
1996
----
<S> <C>
BALANCE SHEET
Working capital deficit....................... $(19,380)
Total Assets.................................. 114,927
Long-term debt and obligations under capital 77,196
leases, including current portion............
Shareholders' equity.......................... 7,649
</TABLE>
- -------------------
(1) Information for period ended December 29, 1991 reflects pro forma
adjustments from treating all non-taxable entities acquired by the Company
as if these acquired entities had been taxed as regular corporations and
able to file a consolidated federal income tax return with the Company.
(2) The fiscal year ended January 2, 1994 includes approximately $12.6 million
charged against operations for a major business restructuring program and
other restaurant closings.
(3) The fiscal year ended January 1, 1995 includes $17.3 million charged against
operations for changes in business strategies.
(4) The fiscal year ended December 31, 1995 includes approximately $17.3 million
charged against operations for changes in business strategies and restaurant
closings. The year also includes approximately $13.7 million related to the
Company's implementation of SFAS 121. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
1995 10-K incorporated herein by reference.
(5) The six months ended June 30, 1996 includes an extraordinary gain, net of
tax, of approximately $4.5 million related to the Company's repurchase of
Senior Notes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in the 10-Qs incorporated
herein by reference.
10
<PAGE>
RISK FACTORS
This Prospectus contains or incorporates by reference forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended. Discussions containing such forward-looking statements may be found in
the material set forth under "Prospectus Summary," "Purpose of the Rights
Offering and Use of Proceeds," as well as within the Prospectus generally
(including the documents incorporated by reference herein). Also, documents
subsequently filed by the Company with the Commission and incorporated herein by
reference will contain forward-looking statements. Actual results could differ
materially from those projected in the forward-looking statements as a result of
the risk factors set forth below and the matters set forth or incorporated by
reference in the Prospectus. The Company cautions the reader, however, that this
list of risk factors may not be exhaustive, particularly with respect to future
filings. Before making a decision to purchase any of the securities described in
this Prospectus, prospective investors should carefully consider the following
factors.
NASDAQ LISTING AND MAINTENANCE REQUIREMENTS
In April 1996, the NASDAQ Stock Market, Inc. informed the Company that it
was reviewing the eligibility of the Company for continued quotation of its
stock on the NNM. There are five criteria that must be substantially met for
continued quotation on the NNM. While the Company currently exceeds the
requirements on four of the five tests, it does not currently meet the test for
net tangible assets, which excludes goodwill. Rule 4450(a)(3) of the National
Association of Securities Dealers, Inc. ("NASD") provides that an issuer of a
NNM security must have net tangible assets (total assets minus liabilities and
goodwill) of at least $4 million if the issuer has sustained losses from
continuing operations and/or net losses in three of its four most recent fiscal
years (the "Net Tangible Asset Test"). The Company has incurred net losses in
its last three fiscal years. As of the end of the 1995 fiscal year, the Company
had net tangible assets in the net negative amount of $4,598,000.
On June 6, 1996, the Company had a hearing before a Nasdaq Qualifications
hearing panel (the "Panel") with regard to the Company's request for an
exception to the Net Tangible Asset Test. On June 13, 1996, the Panel granted
the Company a conditional exception to the Net Tangible Assets Test based upon
its finding that the Company presented a plan of compliance which is currently
in progress, which has a high likelihood of successful completion, and which can
be completed in a reasonable amount of time. The Panel determined that the
Company must make a public filing with the Commission and NASDAQ on or before
September 30, 1996, which filing must contain a pro forma balance sheet with a
historical basis not older than 45 days and a corresponding statement of
operations and must further evidence compliance with the Net Tangible Asset
Test, and with all other requirements for listing on the NNM. In the event the
Company fails to meet the Panel's requirement, the Company's securities will be
subject to delisting from the NNM. Any decision to delist the Company's
securities is subject to appeal by the Company, which will not stay such
decision unless the Board of Governors of the NASD grants such a stay.
The Company plans to remedy its net tangible asset deficiency primarily by
completing the Rights Offering, which is also anticipated to provide additional
working capital for new store
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<PAGE>
construction, refurbishment of some existing restaurants as well as for other
general corporate purposes, including reducing outstanding indebtedness. No
assurance can be given that the Rights Offering will be fully subscribed. If the
Rights Offering is fully subscribed, the Company's net tangible assets are
expected to increase by approximately $10.3 million. No assurance can be given
that such increase will be achieved.
If the Rights Offering is not fully subscribed, or if following the Rights
Offering, the Company, because of negative operating results or any other
reason, fails to satisfy the criteria for continued listing on the NNM, the
Company's securities could be delisted from the NNM. In such event, the Company
would seek to list its Common Stock and Warrants on NASDAQ's "small cap" system
or on another national securities exchange. No assurance can be made whether
such listing can or will occur.
Among other consequences, if the Company were no longer listed on the NNM,
the holders of Common Stock and/or Warrants could suffer a loss of liquidity as
it becomes more difficult to effect transfers of such securities.
HISTORY OF OPERATING LOSSES; CHANGES IN OPERATIONS
The Company reported losses from operations (before interest and other
income, and provision for income taxes) for the fiscal year ended December 31,
1995 of $36,470,000 and for the thirteen week period ended March 31, 1996 of
$3,369,000. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in the 1995 10-K and the 10-Qs incorporated by
reference herein. Until the second quarter of fiscal 1996, the Company had not
reported a profit (exclusive of extraordinary items) in any quarter since the
second quarter of fiscal 1993. Faced with declining same store sales and
profitability over the past three years, the Company has pursued a variety of
options, including replacement of senior management team members, changing
advertising agencies and significant use of outside consultants to formulate
plans to stem the decline in same store sales and return the Company to
profitability. The Company has entered into an operating agreement with CKE
pursuant to which 28 Company-owned stores in California and Arizona are operated
by CKE. CKE will pay all operating costs of the stores. The Company retained
ownership of the assets of these stores and receives a percentage of the stores'
sales. No assurance can be given that any of the foregoing will improve the
Company's operating results. In addition, the Company must continually examine,
in accordance with Generally Accepted Accounting Principles, its assets for
potential impairment where circumstances indicate that such impairment may
exist. As a retailer, the Company believes such examination requires the
operations and store level economics of individual restaurants be evaluated for
potential impairment. No assurance can be given that even an overall return to
profitability will preclude the writedown of assets associated with the
operation of an individual restaurant or restaurants in the future. See "The
Company - Recent Developments - Operation of California and Arizona Stores by
CKE."
INDEBTEDNESS
The Company has outstanding approximately $63 million principal amount of
Senior Notes, with a required sinking fund payment of approximately $6.2 million
due in 1999, which
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<PAGE>
is a significant portion of the capitalization of the Company. As such: (i) the
ability of the Company to obtain additional financing in the future for working
capital, capital expenditures, debt service requirements or other purposes may
be impaired; (ii) a substantial portion of the Company's cash flow from
operations will be required to be dedicated to the Company's interest expense
and principal repayment obligations; and (iii) the Company's level of
indebtedness may make it more vulnerable in the event of a sustained downturn in
its business. The ability of the Company to satisfy its obligations under the
Senior Notes will be dependent on the Company, among other factors, successfully
increasing revenues and returning the Company to operational profitability.
COMPETITION IN THE QUICK-SERVICE RESTAURANT INDUSTRY
The quick-service restaurant industry is highly competitive and can be
significantly affected by many factors, including change in local, regional or
national economic conditions, changes in consumer tastes, consumer concerns
about the nutritional quality of quick-service food and increases in the number
of, and particular locations of, competing quick-service restaurants. Factors
such as inflation, increases in food, labor (including increases in the minimum
wage and health care) and energy costs and the availability of an adequate
number of hourly-paid employees also affect the quick-service restaurant
industry. Major chains, which have substantially greater financial resources and
longer operating histories than the Company, dominate the quick-service
restaurant industry. In certain markets, the Company will compete with other
quick-service double drive-thru hamburger chains with operating concepts similar
to the Company. Certain of the major chains have increasingly offered selected
food items and combination meals, including hamburgers, at temporarily or
permanently discounted prices. A change in the pricing or other marketing
strategies of one or more of these competitors could have an adverse impact on
the Company's sales and earnings. With respect to the sale of franchises, the
Company competes with many franchisors of restaurants, including other double
drive-thru franchisors, and franchisors of other business concepts.
DEPENDENCE UPON SENIOR MANAGEMENT
The success of the Company's business will continue to be highly dependent
upon the services of its senior management, including Donald E. Doyle, President
and Chief Executive Officer. The Company's current management team has
substantial experience in the restaurant industry and the loss of one or more
members of senior management could adversely affect the Company's business and
development.
CONTROL BY PRINCIPAL STOCKHOLDERS
GIANT, of which Burt Sugarman is the controlling stockholder, Chairman,
President and Chief Executive Officer, owns approximately 27.5% of the
outstanding shares of the Common Stock of the Company. Mr. Sugarman is also
Chairman of the Board of the Company. GIANT entered into an agreement with
Fidelity and CKE (which are the respective record owners of 4.9% and 15.0% of
the outstanding Common Stock) with respect to the election of directors of the
Company. Consequently, GIANT, Fidelity and CKE have, and after completion of the
Rights Offering are likely to continue to have, the practical ability to elect
the Board of
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<PAGE>
Directors. See "The Company - Recent Developments - Relationship Among GIANT,
Fidelity and CKE."
GOVERNMENT REGULATION
The restaurant business is subject to extensive federal, state and
local regulations relating to the development and operation of restaurants
including regulations relating to building and zoning requirements, preparation
and sale of food and laws governing the Company's relationship with its
employees, including minimum wage requirements, overtime and working conditions
and citizenship requirements. The failure to obtain or retain food licenses, or
a substantial increase in the minimum wage rate, could adversely affect the
operations of the Company's restaurants. The Company is also subject to federal
regulation and certain state laws which regulate the offer and sale of
franchises.
AVAILABILITY OF CAPITAL RESOURCES
The Company may be negatively impacted in the future if it is unable
to secure financing at affordable terms from third parties.
POSSIBLE VOLATILITY OF STOCK PRICE; NO PRIOR MARKET FOR RIGHTS OR WARRANTS
The Common Stock, which is quoted on the NNM, has experienced, and
could experience in the future, significant price and volume fluctuations which
could adversely affect the market price of the Common Stock. In addition, the
Company believes that factors such as quarterly fluctuations in the financial
results of the Company, the overall economy and the financial market could cause
the price of the Common Stock to fluctuate substantially.
While the Rights and the Warrants have been approved for listing on
the NNM, there has been no market for such securities prior to the Rights
Offering. There can be no assurance that a market for either the Rights or the
Warrants will develop or, if a market for either security develops, how liquid a
market it will be. The liquidity of any market for the Rights or the Warrants
will depend upon a number of factors, including the interest of the broker-
dealers in making a market and, with respect to the Warrants, the number of
Rights that are exercised.
LITIGATION
For a description of certain litigation to which the Company is a
party, see "Item 3. Legal Proceedings" of the 1995 10-K and the 10-Qs which are
incorporated herein by reference.
CERTAIN RIGHTS OFFERING CONSIDERATIONS
No Minimum Size of Rights Offering. Since no minimum amount of proceeds is
required for the Company to consummate the Rights Offering, no assurance can be
given as to the amount of gross proceeds that the Company will realize from the
Rights Offering. However, GIANT, Fidelity and CKE have committed to exercise, or
cause to be exercised, their Basic Subscription Privileges.
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<PAGE>
Limitations on Fidelity and CKE's Ability to Acquire Common Stock. Pursuant
to that certain Purchase and Standstill Agreement, dated April 26, 1996 (the
"Purchase Agreement"), among GIANT, Fidelity and CKE, so long as the Senior
Notes are outstanding, Fidelity and CKE and their respective affiliates may not,
in the aggregate, beneficially own 35% or more of the combined voting power of
the then outstanding voting stock of the Company without first obtaining (i)
approval of the Board of Directors of the Company and (ii) a waiver from the
holders of the Senior Notes of a provision of the indenture governing the Senior
Notes (the "Indenture"), which provision would require the Company to offer to
repurchase the Senior Notes at 101% of the principal amount thereof, plus
accrued and unpaid interest under such circumstances. To the extent that
exercise by Fidelity and CKE would increase their percentage interest in the
Company to 35%, CKE and Fidelity may be limited or prohibited from exercising
their options to acquire Common Stock from GIANT or to exercise Warrants
acquired as part of the Units. The Company intends to seek approval by the
holders of the Senior Notes of an amendment to the Indenture, pursuant to which
amendment GIANT, Fidelity and CKE, and their respective affiliates, would be
permitted to acquire 35% or more of the Company's voting securities without
triggering the aforesaid offer to purchase. No assurance can be given that such
approval will be obtained.
Dilution. Holders who do not exercise their Subscription Privileges in full
will realize a dilution in their percentage voting interest and ownership
interest in future net earnings, if any, of the Company to the extent that
Rights are exercised by other Holders. Holders who do not acquire Units and/or
do not exercise the Warrants received pursuant to the Rights Offering will also
realize a further dilution in their percentage voting interest and ownership
interest to the extent that Warrants are exercised by others.
Possible Extension of Expiration Date. The Company has reserved the right
to extend the Expiration Date to as late as September 30, 1996. Funds deposited
in payment of the Subscription Price may not be withdrawn and no interest will
be paid thereon to Holders.
Prior Terms of the Rights Offering. On July 31, 1996, the Company commenced
the Rights Offering pursuant to which each holder of Common Stock received a
transferable subscription right for each share of Common Stock held on the
Record Date, and the holder of such rights could acquire a Unit upon surrender
of 4.5 Rights and payment of $3.00. The Company determined to amend the Rights
Offering as a result of a decline in the market price of the Common Stock during
the initial term of the Rights Offering. No assurance can be given that the
market price of the Common Stock will not further decline.
THE COMPANY
The Company is one of the largest double drive-thru restaurant chains in
the United States. As of August 30, 1996, the Company's system included 483
restaurants in 19 states, primarily in the Midwest and the Sunbelt, comprised of
240 Company-owned and 243 franchised restaurants. The Company's restaurants
offer high quality fast food served quickly and at everyday prices generally
below the regular prices of the four largest hamburger chains. The Company
opened its first restaurant in January, 1985 and began offering franchises in
November, 1986.
Excluding significant charges related to the disposal of certain excess
properties and to the adoption of a new accounting standard, the Company still
operated at a significant loss for the 1995 fiscal year. During the first
quarter of fiscal 1996, operating losses continued,
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<PAGE>
although a gain on early extinguishment of debt produced net income for the
quarter. The second quarter of fiscal 1996 is the first quarter the Company has
reported a profit (exclusive of extraordinary items) since the second quarter of
1993.
As the Company entered into 1996, it faced formidable challenges including
a balance sheet weakened by several consecutive quarters of significant
operating losses and a high level of indebtedness, erratic comparable store
sales performance and a decline in the number of open units. During the later
part of 1995 and into 1996, the Company has implemented actions to address these
challenges. These actions include repurchasing of $22 million face value (or
approximately 25%) of the outstanding Senior Notes at a substantial discount
from their face value, entering into a strategic partnership with the Carl's Jr.
restaurant chain, instituting new marketing initiatives aimed at improving
comparable store sales trends, and initiating actions aimed at improving food,
paper and labor costs as a percentage of sales.
Management believes that the Rally's brand has several significant
strengths versus its major competitors. In fact, Rally's has been rated higher
in independent consumer studies than its major competitors in the hamburger fast
food industry in several important attributes in the areas of value, service and
food quality. Management's conclusion from this is that the Rally's concept is
fundamentally very strong. The Company has undertaken actions to improve store
level economics to attain a sustainable level of profitability and growth for
all of its shareholders and employees.
During the first quarter of fiscal 1996, the implementation of several
programs that management believes should significantly improve unit level
profitability began. These programs include new supplier partnerships, non-
portion related changes in foodstuffs and foodstuff preparation, and labor
saving programs related to better daypart resource deployment. The Company
reported its first quarterly positive net income since 1993 in the first quarter
of 1996 due to an extraordinary gain related to the repurchase of $22 million
principal amount of the Senior Notes. The gain was substantially offset by a
loss from operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in the 1995 10-K and the 10-Qs
incorporated herein by reference. Although same-store sales declined 1% for
Company units and 5% systemwide, the Company reported a profit in the second
quarter of fiscal 1996. For the six months ended June 30, 1996, the Company
recorded earnings of $949,000 ($.06 per share) compared with a net loss of $4.8
million ($.30 per share) for the prior year period. First quarter and year to
date earnings were favorably impacted by an extraordinary gain, net of tax, of
$4.5 million ($.29 per share) from the early extinguishment of debt. Management
expects comparable same store sales performance to weaken substantially during
its third quarter as compared to the strong revenue performance obtained
during its $.99 promotion of its 1/3 pound double cheeseburger (the Big
Buford(TM)) in the prior year. However, management does not expect the weakened
same store sales to have a direct correlation on the Company's results of
operations because the prior year $.99 price point did not allow the Company
sufficient margin to return to profitability.
Management believes that the Company has begun to realize certain benefits
from the actions taken at improving store level profitability and that such
benefits should continue in ensuing quarters. However, no assurance can be given
that such improvements will continue or that they will not be offset by
increases in labor or commodity costs.
The Company is attempting to redirect most of its near term focus toward
achievement of four specific short term objectives, i.e., growing same store
sales, reducing food and paper costs as a percent of sales, reducing store labor
costs as a percent of sales and attacking other
16
<PAGE>
elements of spending. Management believes that the Company's focus on
achievement of these objectives combined with the gradual increase in Company
new store development should allow the Company to achieve a sustainable level of
profitability in the near future. However, no assurance can be given that
management will be able to carry out such objectives or that achievement of
these objectives will have a materially positive effect on the Company's
profitability.
Management believes that the proceeds of this Rights Offering will allow
the Company to increase its working capital and, given significant subscription,
will enable the Company to restore a reasonable level of growth in new store
openings, allow certain refurbishment of the existing store base and fund other
expected corporate requirements. The Company expects a similar increase in new
store development by new and existing franchisees. An increase in working
capital, given significant subscription in the Rights Offering, will allow the
Company to take advantage of what management believes are appealing cash returns
available through productive deployment of certain idle assets on sites in its
core markets. The Company already owns 20 to 30 surplus modular restaurant
buildings and a significant amount of excess used restaurant equipment from the
restaurants that were closed late in 1995. Deployment of such buildings and
equipment would allow the Company to keep the out of pocket costs for developing
and opening a new modular restaurant location relatively low. No assurance can
be given that the Rights Offering will be fully subscribed, that the Company
will be able to effect such goals or that there will be an increase in new store
development by franchisees. See "Risk Factors - History of Operating Losses;
Changes in Operations."
RECENT DEVELOPMENTS
Relationship Among GIANT, Fidelity and CKE. On April 26, 1996, GIANT,
Fidelity and CKE and certain other persons settled certain litigation pursuant
to a Settlement Agreement and Release (the "Settlement Agreement"). Pursuant to
the Settlement Agreement, GIANT, Fidelity and CKE entered into the Purchase
Agreement, pursuant to which GIANT purchased from Fidelity 705,489 shares of the
common stock of GIANT for a purchase price of $8.625 per share, and Fidelity and
CKE purchased from GIANT 767,807 shares and 2,350,432 shares, respectively, of
the Company's Common Stock for $1.75 per share. Pursuant to the Purchase
Agreement, Fidelity and CKE were granted options to purchase a total of an
additional 2,350,428 shares of the Company's Common Stock from GIANT. One-half
of such options have an exercise price of $3.00 per share and expire on April
26, 1997 and one-half of such options have an exercise price of $4.00 per share
and expire on April 26, 1998.
The Purchase Agreement provides that if GIANT or its affiliates purchase
additional shares of Rally's Common Stock, Fidelity and CKE will have the right
to purchase shares of Common Stock from GIANT such that the proportional
ownership of Common Stock among GIANT, Fidelity and CKE will be the same as
immediately prior to such purchases (without giving effect to the options
acquired pursuant to the Purchase Agreement). In addition, GIANT, on the one
hand, and Fidelity and CKE on the other hand, have agreed to provide the other
with rights of first refusal in the event that they propose to dispose of Common
Stock. The parties have also agreed that if GIANT, on the one hand, and Fidelity
and CKE, on the other hand, each own at least 34.0% of the outstanding Common
Stock, then at each election of the
17
<PAGE>
Company's directors, GIANT may nominate up to one-half of the number of
directors to be elected and Fidelity and CKE may nominate up to one-half of the
number of directors to be elected, and the parties will vote all their shares in
favor of the other parties' nominees. If one, but not both of GIANT, on the one
hand, and Fidelity and CKE, on the other hand, own at least 34.0% of the
outstanding Common Stock (without giving effect to the shares which may be
purchased upon exercise of the options granted pursuant to the Purchase
Agreement to the extent such options have not been exercised), at each election
of directors the party owning at least 34.0% of the outstanding Common Stock may
nominate up to one-half of the number of directors to be elected and the other
parties will vote all shares of Common Stock owned by them in favor of such
nominees. GIANT, Fidelity and CKE currently are the record owners of 27.5%,
4.9% and 15.0%, respectively, of the outstanding Common Stock. The foregoing
provisions regarding the voting of shares of Common Stock will expire on April
26, 2006.
Fidelity and CKE have also agreed that they will not, as long as the Senior
Notes are outstanding, beneficially own in the aggregate 35% or more of the
Common Stock without gaining the consent of the Company's Board of Directors and
a waiver from the holders of the Senior Notes of a provision of the Indenture
which would require the Company to offer to repurchase the Senior Notes at 101%
of the principal amount thereof, plus accrued and unpaid interest, under such
circumstances. The Company intends to seek approval by the holders of the Senior
Notes of an amendment to the Indenture, pursuant to which amendment GIANT,
Fidelity and CKE, and their respective affiliates, would be permitted to acquire
35% or more of the Company's voting securities without triggering the aforesaid
offer to purchase. No assurance can be given that such approval will be
obtained. GIANT has agreed that it will not be the beneficial owner of 35% or
more of the Common Stock without the consent of Fidelity and CKE.
Operation of California and Arizona Stores by CKE. The Company has entered
into an operating agreement with CKE pursuant to which 28 Company-owned stores
in California and Arizona are operated by CKE. The Company has retained
ownership of the assets of these stores and receives a percentage of the stores'
sales. Under the terms of the operating agreement, CKE is responsible for the
conversion costs associated with transforming any restaurants it elects to be
operated as Carl's Jr., as well as the operating expenses for all of the 28
restaurants. In the event of a sale by the Company of any of the 28 CKE operated
restaurants, the Company and CKE will share in the sales proceeds based upon the
relative value of their respective capital investments in such restaurant.
PURPOSE OF THE RIGHTS OFFERING
AND USE OF PROCEEDS
It is anticipated that the net proceeds to the Company will be
approximately $10.3 million if all of the Units are purchased in the Rights
Offering (not including proceeds from the exercise of the Warrants). If less
than all of the Units are purchased, the proceeds will be correspondingly
reduced. The purpose of the Rights Offering is to raise additional capital for
the Company. The net proceeds of the Rights Offering will be used for new store
construction, refurbishment of some existing restaurants and for other general
corporate purposes, including reducing outstanding indebtedness. No assurance
can be given that the Rights Offering will be fully subscribed.
Management believes that the proceeds of this Rights Offering will allow
the Company to increase its working capital and, given significant subscription,
will enable the Company to restore a reasonable level of growth in new store
openings, allow certain refurbishment of the
18
<PAGE>
existing store base and fund other corporate requirements. The Company expects
a similar increase in new store development by new and existing franchisees. An
increase in working capital, given significant subscription in the Rights
Offering, will allow the Company to take advantage of what management believes
are appealing cash returns available through productive deployment of certain
idle assets on sites in its core markets. The Company already owns 20 to 30
surplus modular restaurant buildings and a significant amount of excess used
restaurant equipment from the restaurants that were closed late in 1995.
Deployment of such buildings and equipment would allow the Company to keep the
out of pocket costs for developing and opening a new modular restaurant location
relatively low. No assurance can be given that the Rights Offering will be
fully subscribed, that the Company will be able to effect such goals or that
there will be an increase in new store development by franchisees. See "Risk
Factors - History of Operating Losses; Changes in Operations."
The additional working capital resulting from the Rights Offering will also
enhance the Company's ability to meet the NNM requirements for continued listing
on the NNM. The Company must substantially meet five tests, including the Net
Tangible Asset Test, to remain on the NNM. Under this test, the Company is
currently required to maintain a net minimum tangible asset value of not less
than $4 million, but, as of the end of the 1995 fiscal year, the Company's net
tangible assets were in the negative amount of $4,598,000. If the Rights
Offering is fully subscribed, the Company's net tangible assets should be
increased to above the level required by the Net Tangible Asset Test, assuming
the Company's net operating results do not result in further losses. If such
losses continue, the Company may not be able to continue to meet the Net
Tangible Asset Test even if the Rights Offering is fully subscribed. See "Risk
Factors - NASDAQ Listing and Maintenance Requirements."
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<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is quoted on NNM under the symbol "RLLY." As of
July 31, 1996, there were approximately 1,684 record holders of the Common
Stock. The table below sets forth the high and low sales prices of the Common
Stock reported on the NNM for each quarter during the Company's last two years.
<TABLE>
<CAPTION>
LOW HIGH
------- --------
<S> <C> <C>
Fiscal 1994
First Quarter $8 $12 3/4
Second Quarter 5 1/16 9
Third Quarter 3 1/8 5 3/4
Fourth Quarter 2 3/4 5
Fiscal 1995
First Quarter $2 1/2 $ 4
Second Quarter 2 1/4 4
Third Quarter 2 1/4 3 5/8
Fourth Quarter 15/16 2 11/16
Fiscal 1996
First Quarter 1 1/32 $ 2 1/4
Second Quarter 1 1/2 4 5/16
Third Quarter (1) 2 1/8 3 3/8
</TABLE>
- ---------------------
(1) Through August 30, 1996.
DIVIDEND POLICY
The Company has not paid any dividends to date and does not expect to pay
dividends in the foreseeable future. The Indenture currently prohibits the
payment of any dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1996 and on an as adjusted basis to give effect to the
sale of 50% and 100% of the 4,825,805 Units offered pursuant to the Rights
Offering at the Subscription Price of $2.25 per Unit. It is not possible to
predict the exact percentage of Units that may be purchased in the Rights
Offering. To the extent that the actual percentage purchased differs from the
assumed percentages, the actual capitalization will differ from that shown
below.
<TABLE>
<CAPTION>
As Adjusted for the Rights
Offering (1)
---------------------------
100% 50%
Historical Exercised Exercised
---------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Cash and cash equivalents $ 2,005 $ 12,313 $ 6,884
======== ======== ========
Current maturities of long-term debt and obligations under $ 3,970 $ 3,970 $ 3,970
capital leases ======== ======== ========
Long term debt and obligations under capital leases (less
current maturities):
Senior Notes $ 62,484 $ 62,484 $ 62,484
Other 10,742 10,742 10,742
-------- -------- --------
Total long-term debt and obligations under 73,226 73,226 73,226
capital leases -------- -------- --------
Shareholder's equity:
Common stock, $.10 par value; 50,000,000 shares 1,594 2,077 1,835
authorized
Additional paid-in capital 60,831 70,656 65,469
Less: 273,000 treasury shares (2,108) (2,108) (2,108)
Retained earnings (deficit) (52,668) (52,668) (52,668)
-------- -------- --------
Total shareholders' equity 7,649 17,957 12,626
-------- -------- --------
Total capitalization $ 80,875 $ 91,183 $ 85,852
======== ======== ========
Shares issued:
Common Stock 15,668 20,494 18,081
Warrants ___ 4,826 2,413
</TABLE>
(1) As adjusted data assumes receipt of approximately $10.3 million and $4.9
million in proceeds, net of estimated expenses in each case of $550,000,
from the Rights Offering, respectively, and no exercise of the Warrants.
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<PAGE>
THE RIGHTS OFFERING
THE RIGHTS
The Company has distributed, to the record holders of its outstanding
Common Stock as of July 31, 1996 (the "Record Date"), transferable Rights to
purchase Units (the "Basic Subscription Privilege") at a current price of $2.25
per Unit (the "Subscription Price"). The Company has distributed at no cost to
such Holders one Right for each share of Common Stock held on the Record Date.
For each 3.25 Rights held, a Holder will have a Basic Subscription Privilege to
purchase one Unit. The Rights are evidenced by transferable Subscription
Certificates.
Each Unit consists of one share of Common Stock and one Warrant to purchase
an additional share of Common Stock for $2.25 per share. An aggregate of
4,825,805 Units, representing 4,825,805 shares of Common Stock and 4,825,805
Warrants will be sold if all of the Rights are exercised.
No fractional Units, or cash in lieu thereof, will be issued or paid. The
number of Units distributed to each Holder will be rounded down to the nearest
whole Unit in connection with the exercise of the Basic Subscription Privilege.
SUBSCRIPTION PRIVILEGES
BASIC SUBSCRIPTION PRIVILEGE. Three and one-quarter Rights will entitle the
Holder thereof to receive, upon payment of the Subscription Price, one Unit
consisting of one share of Common Stock and one Warrant. Certificates
representing shares of Common Stock and Warrants purchased pursuant to the Basic
Subscription Privilege will be delivered to subscribers as soon as practicable
after the Expiration Date, irrespective of whether the Subscription Privilege is
exercised immediately prior to the Expiration Date or earlier. Holders
exercising their Subscription Privilege will not be stockholders of record with
respect to the shares issuable pursuant to such Subscription Privilege until the
closing, which is anticipated to occur as soon as practicable after the
Expiration Date.
OVERSUBSCRIPTION PRIVILEGE. Subject to the allocation described below, each
Right also carries the right to subscribe at the Subscription Price for any
Units not subscribed for through the exercise of Basic Subscription Privileges
by other Holders (the "Excess Units"). If the Excess Units are not sufficient to
satisfy all subscriptions pursuant to the Oversubscription Privilege, such
Excess Units will be allocated pro rata (subject to the elimination of
fractional shares) among those Holders exercising the Oversubscription Privilege
in proportion to the number of shares requested pursuant to the Oversubscription
Privilege. Only holders who exercise the Basic Subscription Privilege in full
with respect to their Subscription Certificate(s) will be entitled to exercise
the Oversubscription Privilege. Certificates representing the Common Stock and
Warrants purchased pursuant to the Oversubscription Privilege will be delivered
to subscribers as soon as practicable after the Expiration Date and after all
prorations have been effected.
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<PAGE>
PROCEDURE FOR RIGHTS HOLDERS WHO HAVE EXERCISED RIGHTS
Certain Rights Holders exercised their Basic Subscription Privilege and/or
Over-Subscription Privilege before the terms of the Rights Offering were
amended. Such Holders will be permitted to withdraw and/or resubmit their
subscriptions. However, upon resubmission, a subscription will be irrevocable.
If no contrary instruction is received by the Expiration Date, it will be
assumed that the Holder has subscribed for that number of Units for which
payment has been received by the Subscription Agent, subject to proration in the
case of the Oversubscription Privilege. Copies of instructions for any such
withdrawal and/or resubscription are available from the Information Agent at 909
Third Avenue, New York, New York 10022-4799, telephone (800) 566-9061 or (800)
662-5200.
EXPIRATION DATE
The Rights will expire at 5:00 p.m., New York City time, on September 13,
1996 unless extended by the Company from time to time. Notwithstanding the
foregoing, the Expiration Date in no event shall be later than September 30,
1996, except that the Company reserves the right to extend the exercise period
on one or more occasions if the Board of Directors determines that the
occurrence of a material event necessitates an amendment of the Registration
Statement or recirculation of the Prospectus that forms a part thereof in order
to permit time for the distribution of such information. After the Expiration
Date, unexercised Rights will be null and void. The Company will not be
obligated to honor any purported exercise of Rights received by the Subscription
Agent after the Expiration Date, regardless of when the documents relating to
such exercise were sent, except pursuant to the Guaranteed Delivery Procedures
described below.
EXERCISE OF RIGHTS
Rights may be exercised by delivering to the Subscription Agent, on or
prior to 5:00 p.m., New York City time, on the Expiration Date, the properly
completed and executed Subscription Certificate evidencing such Rights with any
required signatures guaranteed, together with payment in full of the
Subscription Price for each of the Units subscribed for pursuant to the
Subscription Privileges (except as permitted pursuant to clause (iii) of the
first sentence of the next paragraph). Holders should complete their
Subscription Certificates based upon the amended terms of the Rights Offering,
i.e., one Unit for each 3.25 Rights held and payment of $2.25 per Unit. Copies
of instructions for completing the Subscription Certificate based upon the
amended terms of the Rights Offering are available from the Information Agent at
909 Third Avenue, New York, New York 10022-4799, telephone (800) 566-9061 or
(800) 662-5200.
Payment in full must be by: (i) check or bank draft drawn upon a U.S. bank
or postal, telegraphic or express money order payable to American Stock Transfer
& Trust Company as Subscription Agent; or (ii) wire transfer of funds to the
account maintained by the Subscription Agent for such purpose at Chase Manhattan
Bank, 55 Water Street, New York, New York, Account # 323 053 718, ABA #
021000021; or (iii) in such other manner as the Company may approve in writing
in the case of persons acquiring Units at an aggregate Subscription Price of
$500,000 or more, provided in the case of (iii) above that the full amount of
such Subscription Price is received by the Subscription Agent in currently
available funds within three NNM trading days following the Expiration Date (the
payment method under (iii) being an "Approved Payment Method"). Payment of the
Subscription Price will be deemed to have been received
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by the Subscription Agent only upon (a) clearance of any uncertified check, (b)
receipt by the Subscription Agent of any certified check or bank draft drawn
upon a United States bank or of any postal, telegraphic or express money order,
(c) receipt of good funds in the Subscription Agent's account designated above,
or (d) receipt of funds by the Subscription Agent through an Approved Payment
Method.
If paying by uncertified personal check, please note that the funds paid
thereby may take at least five business days to clear. Accordingly, Holders who
wish to pay the Subscription Price by means of uncertified personal check are
urged to make payment sufficiently in advance of the Expiration Date to ensure
that such payment is received and clears by such date and are urged to consider
payment by means of certified or cashier's check, money order or wire transfer
of funds.
The address to which the Subscription Certificates and payment of the
Subscription Price should be delivered is:
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
If a Holder wishes to exercise Rights, but time will not permit such Holder
to cause the Subscription Certificate or Subscription Certificates evidencing
such Rights to reach the Subscription Agent on or prior to the Expiration Date,
such Rights may nevertheless be exercised if all of the following conditions
(the "Guaranteed Delivery Procedures") are met:
(i) such Holder has caused payment in full of the Subscription
Price for each Unit being subscribed for pursuant to the Subscription
Privileges to be received (in the manner set forth above) by the
Subscription Agent on or prior to the Expiration Date;
(ii) the Subscription Agent receives, on or prior to the Expiration
Date, a guaranteed notice (a "Notice of Guaranteed Delivery"),
substantially in the form provided with the Instructions as to Use of
Rally's Hamburgers, Inc. Subscription Certificates (the "Instructions")
distributed with the Subscription Certificates, from a member firm of a
registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., or from a financial institution
having an office or correspondent in the United States, stating the name of
the exercising Holder, the number of Rights represented by the Subscription
Certificate(s) held by such exercising Holder, the number of Units being
subscribed for pursuant to the Subscription Privileges and guaranteeing the
delivery to the Subscription Agent of any Subscription Certificate(s)
evidencing such Rights within three NNM trading days following the date of
the Notice of Guaranteed Delivery; and
(iii) the properly completed Subscription Certificate(s), with any
required signatures guaranteed, is received by the Subscription Agent
within three NNM trading days following the date of the Notice of
Guaranteed Delivery relating thereto. The Notice of Guaranteed Delivery
may be delivered to the Subscription Agent in the same
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manner as Subscription Certificates at the address set forth above, or may
be transmitted to the Subscription Agent by facsimile transmission,
telecopy number (718) 234-5001. Additional copies of the form of Notice of
Guaranteed Delivery are available upon request from the Subscription Agent,
whose address and telephone number are set forth under "Subscription Agent"
below, or from the Information Agent, whose address and telephone number
are set forth under "Information Agent" below.
Funds received in payment of the Subscription Price will be held in a
segregated account pending issuance of such Excess Units. If a Holder exercising
the Oversubscription Privilege is allocated less than all of the Excess Units
that such Holder wished to subscribe for pursuant to the Oversubscription
Privilege, the excess funds paid by such Holder in respect of the Subscription
Price for shares not issued shall be returned by mail without interest or
deduction as soon as practicable after the Expiration Date.
A Holder who holds shares of Common Stock for the account of others, such
as a broker, a trustee or a depositary for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owner's intentions and to obtain instructions with respect to
the Rights. If the beneficial owner so instructs, the record holder of such
Rights should complete the Subscription Certificate and submit it to the
Subscription Agent with the proper payment. In addition, the beneficial owner of
Common Stock or Rights held through such a holder of record should contact the
Holder and request the Holder to effect transactions in accordance with the
beneficial owner's instructions.
Unless a Subscription Certificate (i) provides that the shares of Common
Stock and the Warrants to be issued pursuant to the exercise of Rights
represented thereby are to be delivered to the registered Holder or (ii) is
submitted for the account of an Eligible Institution (as defined in Rule 17Ad-15
under the Exchange Act), signatures on such Subscription Certificate must be
guaranteed by an Eligible Institution.
If either the number of Units being subscribed for pursuant to the Basic
Subscription Privilege is not specified on the Subscription Certificate, or the
amount delivered is not enough to pay the Subscription Price for all Units
stated to be subscribed for, the number of Units subscribed for will be assumed
to be the maximum amount that could be subscribed for upon payment of such
amount, after allowance for the Subscription Price of any specified Units. If
the number of Units being subscribed for is not specified, or payment of the
Subscription Price for the indicated number of Rights that are being exercised
exceeds the required Subscription Price, the payment will be applied, until
depleted, to subscribe for Units in the following order: (i) to subscribe for
the number of Units indicated, if any, pursuant to the Basic Subscription
Privilege; (ii) to subscribe for Units until the Basic Subscription Privilege
has been fully exercised with respect to all of the Rights represented by the
Subscription Certificate; and (iii) to subscribe for additional Units pursuant
to the Oversubscription Privilege (subject to any applicable proration).
The Instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE
COMPANY.
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THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDER, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE
AT LEAST FIVE BUSINESS DAYS TO CLEAR, THE RIGHTS HOLDER IS STRONGLY URGED TO
PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIERS CHECK, MONEY
ORDER OR WIRE TRANSFER OF FUNDS.
Certain employees of the Company may solicit responses from Holders to the
Rights Offering, but such employees will not receive any commissions or
compensation for such services other than their normal employment compensation.
All questions concerning the timeliness, validity, form and eligibility of any
exercise of Rights will be determined by the Company, whose determinations will
be final and binding. The Company, in its sole discretion, may waive any defect
or irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Company
determines in its sole discretion. Neither the Company nor the Subscription
Agent will be under any duty to give notification of any defect or irregularity
in connection with the submission of Subscription Certificates or incur any
liability for failure to give such notification.
Any questions or requests for assistance concerning the method of
exercising Rights or requests for additional copies of this Prospectus or the
Instructions or the Notice of Guaranteed Delivery should be directed to the
Information Agent, telephone number (800) 662-5200, or the Subscription Agent,
telephone number (800) 937-5449.
NO REVOCATION
ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE OR
THE OVERSUBSCRIPTION PRIVILEGE SUCH EXERCISE MAY NOT BE REVOKED.
METHOD OF TRANSFERRING RIGHTS
The Rights will be quoted on the NNM under the trading symbol RLLYR and
may be purchased or sold through usual investment channels, including banks and
brokers. Trading in Rights will cease on the close of business on the NNM
trading day preceding the Expiration Date.
The Rights evidenced by a single Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the accompanying
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instructions. A portion of the Rights evidenced by a single Subscription
Certificate may be transferred by delivering to the Subscription Agent a
Subscription Certificate properly endorsed for transfer, with instructions to
register such portion of the Rights evidenced thereby in the name of the
transferee (and to issue a new Subscription Certificate to the transferee
evidencing such transferred Rights). In such event, a new Subscription
Certificate evidencing the balance of the Rights will be issued to the Holder
or, if the Holder so instructs, to an additional transferee.
The Rights evidenced by a Subscription Certificate also may be sold, in
whole or in part, through the Subscription Agent by delivering to the
Subscription Agent such Subscription Certificate properly executed for sale by
the Subscription Agent. If only a portion of the Rights evidenced by a single
Subscription Certificate is to be sold by the Subscription Agent, such
Subscription Certificate must be accompanied by instructions setting forth the
action to be taken with respect to the Rights that are not to be sold.
Promptly following the Expiration Date, the Subscription Agent will send
the Holder a check for the net proceeds from the sale of such Rights. If the
Rights can be sold, sales of such Rights will be deemed to have been effected at
the weighted average price received by the Subscription Agent for all Rights
sold by it at the request of Holders, less any applicable brokerage commissions,
taxes and other direct expenses of sale. The Company will pay the fees charged
by the Subscription Agent for effecting such sales. Orders to sell Rights must
be received by the Subscription Agent prior to 5:00 p.m., New York City time, on
the third business day preceding the Expiration Date. If less than all sales
orders received by the Subscription Agent can be filled, sales proceeds will be
prorated among the Holders based upon the number of Rights each has instructed
the Subscription Agent to sell during such period, irrespective of when during
such period the instructions are received by the Subscription Agent. The
Subscription Agent's obligation to execute orders for the sale of Rights is
subject to its ability to find buyers.
Holders wishing to transfer all or a portion of their Rights should allow a
sufficient amount of time prior to the Expiration Date for (i) the transfer
instructions to be received and processed by the Subscription Agent, (ii) a new
Subscription Certificate to be issued and transmitted to the transferee or
transferees with respect to transferred Rights, and to the transferor with
respect to retained Rights, if any, and (iii) the Rights evidenced by such new
Subscription Certificates to be exercised or sold by the recipients thereof. If
time does not permit a transferee of a Right who wishes to exercise its Right to
deliver its Subscription Certificate to the Subscription Agent on or before the
Expiration Date, such transferee should make use of the Guaranteed Delivery
Procedure described under "The Rights Offering-Exercise of Rights." Neither the
Company nor the Subscription Agent shall have any liability to a transferee or
transferor of Rights if Subscription Certificates or new Subscription
Certificates are not received in time for exercise or sale prior to the
Expiration Date.
Except for the fees charged by the Subscription Agent (which will be paid
by the Company as described above), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection with
the purchase, sale or exercise of
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Rights will be for the account of the transferor of the Rights, and none of such
commissions, fees or expenses will be paid by the Company or the Subscription
Agent.
The Company anticipates that the Rights will be eligible for transfer
through, and that the exercise of the Subscription Privileges may be effected
through, the facilities of Depository Trust Company ("DTC"; Rights exercised
through DTC are referred to as "DTC Exercised Rights"). The holder of a DTC
Exercised Right may exercise the Oversubscription Privilege in respect of such
DTC Exercised Right by properly executing and delivering to the Subscription
Agent at or prior to 5:00 p.m., New York City time, on the Expiration Date, a
DTC Participant Oversubscription Exercise Form, together with payment of the
appropriate Subscription Price for the number of Units for which the
Oversubscription Privilege is to be exercised. Copies of the DTC Participant
Oversubscription Exercise Form may be obtained from the Subscription Agent.
DESCRIPTION OF SECURITIES
The Company has authorized 50,000,000 shares of Common Stock, $.10 par
value and 5,000,000 shares of preferred stock, $.10 par value ("Preferred
Stock"), with preferences and rights which will be set by the Company's Board of
Directors (or an executive committee thereof). No shares of Preferred Stock are
currently outstanding, and 15,683,869 shares of Common Stock are currently
outstanding.
UNITS
The Common Stock and Warrants which are offered hereby are being offered
and will be sold only in Units, each Unit consisting of one share of Common
Stock and one Warrant. Upon the exercise of Warrants, the holder thereof will
be eligible to receive one share of Common Stock for each Warrant so exercised.
The Common Stock and the Warrants included in the Units will be immediately
separable.
COMMON STOCK
Subject to the preferential rights of holders of Preferred Stock, if any,
and the Company's loan agreements and indentures, if any, holders of Common
Stock are entitled to share ratably in dividends when and as declared by the
Board of Directors (or an authorized committee) out of funds' legally available
therefor. Holders of Common Stock have one vote per share upon all matters on
which Common Stock votes and vote as a class on charter amendments affecting
Common Stock. Upon liquidation, holders of Common Stock are entitled to share
ratably in the net assets of the Company after payment of any amounts due to
creditors and holders of any class of Preferred Stock. Holders of Common Stock
have no redemption, subscription or conversion rights and are not entitled to
any preemptive rights. The Common Stock is not liable for further calls or
assessments by the Company, and there are no sinking fund provisions relating to
such stock. All outstanding shares of Common Stock and all shares to be issued
by the Company in the offering will be fully paid and non-assessable.
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Holders of the shares of Common Stock, voting as a class, have non-
cumulative voting rights, which means that the holders of more than 50% of the
shares voting for the election of directors can elect 100% of the directors if
they choose to do so, and, in such event, the holders of the remaining shares
will not be able to elect any directors. GIANT, Fidelity and CKE beneficially
own at least 47% of the outstanding Common Stock and will, as a practical
matter, have the ability to elect the entire Board of Directors. See "Risk
Factors - Control by Principal Stockholders."
WARRANTS
The Warrants will be issued in registered form pursuant to the terms of a
Warrant Agreement (the "Warrant Agreement") between the Company and American
Stock Transfer & Trust Company, as Warrant Agent. The following description is
a brief summary of certain provisions of the Warrant Agreement. Reference is
made to the Warrant Agreement (which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part) for a complete
description of its terms and conditions, and the description which follows is
qualified in its entirety by the reference to the Warrant Agreement.
The Company has authorized the issuance of up to 4,825,805 Warrants to
purchase an aggregate of 4,825,805 shares of Common Stock and will reserve that
number of shares of Common Stock required for issuance upon exercise of the
Warrants issued in the Rights Offering. None of the Warrants are currently
issued and outstanding.
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock from the Company at a price of $2.25 per share, subject to
adjustment in certain circumstances, at any time until four years from the
Closing Date.
The Company may redeem the Warrants, at $.01 per Warrant, upon 30 days'
prior written notice in the event the closing price of the Common Stock equals
or exceeds $6.00 per share for 20 out of 30 consecutive trading days ending not
more than 30 days preceding the date of the notice of redemption. The closing
bid price of the Common Stock shall be the closing bid price as reported by NNM
or on the principal stock exchange on which it is listed. All of the Warrants
must be redeemed if any are redeemed.
The exercise prices and number of shares of Common Stock or other
securities issuable on exercise of the Warrants are subject to adjustment in
certain circumstances, including in the event of a stock dividend, stock split,
recapitalization, reorganization, merger or consolidation of the Company and
certain sales by the Company of Common Stock below the then market price of the
Common Stock. However, the Warrants are not subject to adjustment for issuances
of Common Stock at a price below the exercise price of the Warrants or pursuant
to the 1990 Stock Option Plan or the 1995 Stock Option Plan for Non-Employee
Directors, or upon exercise of any of the Warrants.
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date at the offices of the Warrant Agent, with the
exercise form on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by full
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payment of the exercise price (in cash or by certified check or bank draft
payable in United States currency to the order of Warrant Agent) to the Warrant
Agent for the number of Warrants being exercised. Holders of the Warrants do
not have the rights or privileges of holders of Common Stock.
No fractional shares will be issued upon exercise of the Warrants.
However, if a warrantholder exercises all Warrants then owned of record by such
warrantholder, the Company will pay to such warrantholder, in lieu of the
issuance of any fractional share which is otherwise issuable, an amount in cash
based on the market value of the Common Stock on the last trading day prior to
the exercise date.
The Warrants to be issued hereunder are part of the Units to be sold in
this Rights Offering. To the extent that the Warrants are exercised, the
proportionate equity ownership of holders of Common Stock who do not exercise
Warrants will decrease. See "Risk Factors - Certain Rights Offering
Considerations - Dilution."
Warrants are generally more speculative than shares of common stock which
are purchasable upon the exercise thereof. Historically, the percentage
increase or decrease in the market price of a warrant has tended to be greater
than the percentage increase or decrease in the market price of the underlying
common stock. A warrant may become valueless, or of reduced value, if the
market price of the underlying common stock decreases, or increases only
modestly, over the term of the warrant.
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
The Transfer Agent, Registrar and Warrant Agent for the Common Stock and
Warrants is American Stock Transfer & Trust Company, New York, New York.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Christensen, White, Miller, Fink, Jacobs, Glaser &
Shapiro, LLP, counsel to the Company, the following is an accurate discussion of
the material federal income tax consequences of the Rights Offering to the
holders of Common Stock upon the distribution (the "Distribution") of Rights,
the exercise of the Rights and the exercise of the Warrants. See "Legal
Matters."
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), the Treasury Regulations promulgated thereunder, judicial
authority, and current administrative rulings and practice, all of which are
subject to change on a prospective or retroactive basis. The tax consequences
under state, local and foreign law are not discussed. Moreover, special
considerations not described herein may apply to certain taxpayers, such as
financial institutions, broker-dealers, life insurance companies, and tax exempt
organizations. The discussion is limited to those who have held the Common
Stock, and will hold the Rights and any Common Stock or Warrants acquired upon
the exercise of Rights as capital assets (generally, property held for
investment) within the meaning of Section 1221 of the Code.
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DISTRIBUTION OF THE RIGHTS. Holders of Common Stock will not recognize
taxable income for federal income tax purposes in connection with the receipt of
the Rights.
STOCKHOLDER BASIS AND HOLDING PERIOD OF THE RIGHTS. Except as provided in
the following sentence, the basis of the Rights received by a stockholder as a
distribution with respect to such stockholder's Common Stock will be zero. If,
however, either (i) the fair market value of the Rights on the date of
Distribution is 15% or more of the fair market value (on the date of
Distribution) of the Common Stock with respect to which they are received or
(ii) the stockholder properly elects, in his or her federal income tax return
for the taxable year in which the Rights are received, to allocate part of the
basis of such Common Stock to the Rights, then upon exercise or sale of the
Rights, the stockholder's basis in such Common Stock will be allocated between
the Common Stock and the Rights in proportion to the fair market values of each
on the date of Distribution. No such allocation shall be made with respect to
Rights which lapse.
The holding period of a stockholder with respect to the Rights received as
a distribution on such stockholder's Common Stock will include the stockholder's
holding period for the Common Stock with respect to which the Rights were
issued.
In the case of a stockholder who purchases Rights, the tax basis of such
Rights will be equal to the purchase price paid therefor, and the holding period
for such Rights will commence on the day following the date of the purchase.
SALE OF THE RIGHTS. A stockholder who sells the Rights received in the
Distribution prior to exercise will recognize gain or loss equal to the
difference between the amount realized on the sale and such stockholder's
adjusted basis (if any) in the Rights sold. Such gain or loss will be capital
gain or loss if gain or loss from a sale of Common Stock held by such
stockholder would be characterized as capital gain or loss at the time of such
sale. Any gain or loss recognized on a sale of Rights acquired by purchase will
be capital gain or loss if Common Stock would be a capital asset in the hands of
the stockholder. Capital gain or loss will be classified as short-term if the
stockholder's holding period in the Rights is one year or less and long-term if
the stockholder's holding period in the Rights is more than one year.
LAPSE OF THE RIGHTS. Stockholders who allow the Rights received by them at
the distribution to lapse will not recognize any gain or loss, and no adjustment
will be made to the basis of the Common Stock, if any, owned by such
stockholders.
Purchasers of the Rights will be entitled to a loss equal to their adjusted
tax basis in the Rights if such Rights expire unexercised. Because by their
terms the Rights will expire on or prior to September 30, 1996, any loss
recognized on the expiration of the Rights acquired by purchase will be a short-
term capital loss if Common Stock would be a capital asset in the hands of the
purchaser.
EXERCISE OF THE RIGHTS, BASIS OF THE COMMON STOCK AND WARRANTS. If the
Rights are exercised, no gain or loss is recognized and both the basis allocated
to the Rights, if any, and the Subscription Price must be allocated between the
Common Stock and the Warrants received.
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The basis allocated to the Rights will be apportioned between the Common Stock
and the Warrants in proportion to their relative fair market values on the date
of the distribution of the Rights. The Subscription Price will increase basis
and will be apportioned to the Common Stock and the Warrants in proportion to
their relative fair market values on the date of the exercise of the Rights.
EXERCISE, SALE AND EXPIRATION OF THE WARRANTS. No gain or loss will be
recognized by the holder of a Warrant upon the exercise of a Warrant. The cost
basis of the Common Stock so acquired will be the cost basis of the Warrant plus
any additional amount paid upon the exercise of the Warrant. Gain or loss will
be recognized upon the subsequent sale, exchange or other disposition of the
Common Stock acquired by the exercise of the Warrant, measured by the difference
between the amount realized upon sale or exchange and the stockholder's cost
basis in the Common Stock.
If a Warrant is not exercised, but is sold or exchanged, gain or loss will
be recognized upon such event, measured by the difference between the amount
realized by the holder of the Warrant as a result of the sale, exchange or
redemption and the cost basis of the Warrant.
If a Warrant is not exercised and is allowed to expire, the Warrant will be
deemed to be sold or exchanged on the date of expiration. In such event, the
holder of the Warrant will recognize a loss to the extent of the cost basis of
the Warrant.
SALE OF COMMON STOCK. If the Common Stock acquired as part of the Unit is
sold or exchanged, gain or loss will be recognized, measured by the difference
between the amount realized from such sale or exchange and the cost basis of the
Common Stock sold or exchanged.
CHARACTERIZATION OF GAIN OR LOSS. Generally, any gain or loss recognized
as a result of the foregoing will be a capital gain or loss and will either be
long-term or short-term depending upon the period of time that the Common Stock
which was sold or exchanged or the Warrant which was sold, exchanged, redeemed,
or allowed to expire, as the case may be, was held. A holding period of more
than one year results in long-term capital gain or loss treatment. If a Warrant
is exercised, the holding period of the Common Stock so acquired will not
include the period during which the Warrant was held.
Under Section 305 of the Code and regulations promulgated under the Code,
there is no assurance that a subsequent adjustment in the exercise price of the
Warrants or the number of shares purchasable upon exercise, attributable to the
anti-dilution provisions applicable to the Warrants, will not be deemed a
taxable distribution to the holders of the Warrants.
THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, EACH HOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR
WITH RESPECT TO THE TAX CONSEQUENCES OF THE RIGHTS OFFERING APPLICABLE TO HIS OR
HER OWN PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF STATE
AND LOCAL INCOME AND OTHER TAX LAWS.
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SUBSCRIPTION AGENT
The Company has appointed American Stock Transfer & Trust Company as
Subscription Agent for the Rights Offering. The Company will pay the fees and
expenses of the Subscription Agent, and has also agreed to indemnify it from any
liability which it may incur in connection with the Rights Offering. The
Subscription Agent's address, which is the address to which the Subscription
Certificates and payment of the Subscription Price should be delivered, as well
as the address to which Notice of Guaranteed Delivery must be delivered, and the
Subscription Agent's telephone number and facsimile number, are:
American Stock Transfer & Trust Company
40 Wall Street, 46th Street
New York, New York 10005
Telephone: (800) 937-5449
Facsimile: (718) 234-5001
INFORMATION AGENT
The Company has appointed Morrow & Co., Inc. as Information Agent for the
Rights Offering. Any questions regarding or requests for additional copies of
this Prospectus, the Instructions, or the Notice of Guaranteed Delivery may be
directed to the Information Agent at the telephone number and address set forth
below.
Morrow & Co., Inc.
909 Third Avenue
New York, New York 10022-4799
Telephone: (800) 566-9061 or (800) 662-5200
LEGAL MATTERS
The validity of the authorization and issuance of the securities offered
hereby and the tax matters discussed under "Certain Federal Income Tax
Consequences" are being passed upon for the Company by Christensen, White,
Miller, Fink, Jacobs, Glaser & Shapiro, LLP, Los Angeles, California. Said law
firm has from time to time performed and may in the future perform legal
services for the Company and for certain stockholders of the Company, including
GIANT and its affiliates. Terry Christensen, a partner of Christensen, White,
Miller, Fink, Jacobs, Glaser & Shapiro, LLP, is a member of the Board of
Directors of both GIANT and the Company.
EXPERTS
The financial statements and schedule incorporated by reference in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been audited by Arthur Andersen
LLP, independent public accountants, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
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<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH
INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
__________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information................. 2
Documents Incorporated by Reference... 2
Prospectus Summary.................... 4
Risk Factors.......................... 11
The Company........................... 15
Purpose of the Rights Offering and
Use of Proceeds..................... 18
Price Range of Common Stock........... 20
Dividend Policy....................... 20
Capitalization........................ 21
The Rights Offering................... 22
Description of Securities............. 28
Certain Federal Income Tax
Consequences........................ 30
Subscription Agent.................... 33
Information Agent..................... 33
Legal Matters......................... 33
Experts............................... 33
</TABLE>
4,825,805 Units
RALLY'S HAMBURGERS,
INC.
Each Unit Consisting of
One Share of Common
Stock and One Common
Stock Purchase Warrant
__________________________
RIGHTS OFFERING PROSPECTUS
___________________________
_______, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES
The following is a statement of estimated expenses to be paid by the
Registrant in connection with the issuance and distribution of the securities
being registered:
<TABLE>
<S> <C>
SEC Registration Fee................. $ 9,291
Legal Fees........................... 125,000
Accountants' Fees.................... 38,000
Blue Sky Qualification Fees and
Expenses........................... 155,000
Printing and Shipping................ 25,000
Subscription, Information
and Warrant Agents' Fees........... 17,500
Miscellaneous........................ 180,209
--------
Total................................ $550,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware Corporation Law provides that a Delaware
corporation may indemnify any person against expenses, judgements, fines and
settlements actually and reasonably incurred by any such person in connection
with a threatened, pending or completed action, suit or proceeding in which he
is involved by reason of the fact that he is or was a director, officer,
employee or agent of such corporation, provided that (i) he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and (ii) with respect to any criminal action or
proceeding he had no reasonable cause to believe his conduct was unlawful. If
the action or suit is by or in the name of the corporation, the corporation may
indemnify any such person against expenses actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
may be made in respect to any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation, unless and only to the extent that
the Delaware Court of Chancery or the court in which the action or suit is
brought determines upon application that, despite the adjudication of liability
but in light of the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expense as the court deems proper.
Section 51 of the Registrant's By-Laws provides for indemnification of
persons to the extent permitted by the Delaware Corporation Law.
In accordance with the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation, as amended, limits the personal lability of its
directors for violations of their
II-1
<PAGE>
fiduciary duty. The Certificate of Incorporation eliminates each director's
liability to the Registrant or its stockholders for monetary damage except (i)
for any breach of the director's duty or loyalty to the Registrant or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under the section of
the Delaware law providing for liability of directors for unlawful payment of
dividends of unlawful stock purchases or redemptions, or (iv) for any
transaction from which a director derived an improper personal benefit. The
effect of this provision is to eliminate the personal liability of directors for
monetary damages for actions involving a breach of their fiduciary duty of care,
including any such actions involving gross negligence. This provision does not,
however, limit in any way the ability of directors for violations of the federal
securities laws.
The Registrant carries directors and officers liability insurance with a
limit of $5,000,000. Such insurance expires on April 30, 1997.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a list of exhibits filed herewith as a part of this
Registration Statement:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
4(a) Form of Subscription Certificate (incorporated by
reference to Exhibit 4(a) to Registration Statement
No. 333-07609).
4(b) Form of Warrant Agreement between Rally's
Hamburgers, Inc. and American Stock Transfer &
Trust Company, as Warrant Agent, including form of
Warrant Certificate (incorporated by reference to
Exhibit 4(b) to Registration Statement No. 333-
07609).
4(c) Form of Supplementary Instructions for the
Subscription Certificate.
5 Opinion of Christensen, White, Miller, Fink,
Jacobs, Glaser & Shapiro, LLP, including the
consent of such firm
23 Consent of Arthur Andersen LLP
24 Power of Attorney (see page II-5)
99 Form of Subscription Agent Agreement dated as of
July 31, 1996 between Rally's Hamburgers, Inc. and
American Stock Transfer and Trust Company, as
II-2
<PAGE>
Subscription Agent (incorporated by reference to
Exhibit 99 to Registration Statement No. 333-
07609).
ITEM 17.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to include
any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the Registration Statement.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plans' annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in item 15 above,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements of filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Beverly Hills, State of California, and the City of
Louisville, State of Kentucky, respectively, on the 3rd day of September, 1996.
RALLY'S HAMBURGERS, INC.
By: /s/ Burt Sugarman
----------------------
Burt Sugarman
Chairman of the Board
By: /s/ Donald E. Doyle
----------------------
Donald E. Doyle
President and Chief
Executive Officer
II-4
<PAGE>
Each person whose signature appears below constitutes and appoints Michael
E. Foss and Evan G. Hughes his true lawful attorneys-in-fact and agents, each
acting alone, with full power of substitution and resubstitution, for him and in
his name place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agent, each acting alone, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, each acting alone, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Burt Sugarman
- -------------------------- Chairman of the September 3, 1996
Burt Sugarman Board and Director
/s/ Donald E. Doyle
- -------------------------- President, Chief September 3, 1996
Donald E. Doyle Executive Officer
and Director
/s/ Michael E. Foss
- -------------------------- Sr. Vice September 3, 1996
Michael E. Foss President and
Chief Financial
Officer (Principal
Financial and
Accounting
Officer)
/s/ Terry N. Christensen
- -------------------------- Director September 3, 1996
Terry N. Christensen
- -------------------------- Director , 1996
Willie D. Davis
II-5
<PAGE>
- -------------------------- Director , 1996
William P. Foley, II
/s/ David Gotterer
- -------------------------- Director September 3, 1996
David Gotterer
/s/ Jeffrey Rosenthal
- -------------------------- Director September 3, 1996
Jeffrey Rosenthal
/s/ C. Thomas Thompson
- -------------------------- Director September 3, 1996
C. Thomas Thompson
II-6
<PAGE>
EXHIBIT 4.(c)
SUPPLEMENTAL INSTRUCTIONS
AS TO USE OF
RALLY'S HAMBURGERS, INC.
SUBSCRIPTION CERTIFICATE
---------------------
CONSULT THE INFORMATION AGENT, THE SUBSCRIPTION AGENT,
YOUR BANK OR BROKER AS TO ANY QUESTIONS
The following relates to a rights offering by Rally's Hamburgers, Inc. (the
"Company") to the holders of its outstanding Common Stock, $0.10 par value per
share (the "Common Stock") (the "Rights Offering"). Holders of record at the
close of business on July 31, 1996 (the "Record Date") received one right
("Right") for each share of Common Stock held on the Record Date. The Rights
Offering has been amended as follows: Rights holders may purchase one Unit (a
"Unit") consisting of one share of Common Stock and one warrant to purchase an
additional share of Common Stock for each 3.25 Rights held ("Basic Subscription
Privilege") at the subscription price of $2.25 (the "Subscription Price") per
Unit. The cost of a Unit purchased pursuant to the Oversubscription Privilege
has also been reduced to $2.25 per Unit. To reflect these changes, Form 1-
Subscription on the reverse of the Rally's Hamburgers, Inc. subscription
certificate shall be deemed to be amended in the following manner: (i) the
parenthetical "(4.5 Rights needed to subscribe for each Unit)" shall be replaced
with "(3.25 Rights needed to subscribe for each Unit)" and (ii) the
parenthetical "(total Units subscribed for times $3.00)" shall be replaced with
"(total Units subscribed for times $2.25)".
Rights holders who exercised their Basic Subscription Privilege and/or
Oversubscription Privilege on or before August 30, 1996 shall be permitted to
withdraw their subscriptions in whole by completing "Form 5-Withdrawal" which is
set forth below and submitting it to the Subscription Agent on or before 5:00
p.m., New York City time, on September 13, 1996 or any extension thereof (the
"Expiration Date"). IF FORM 5-WITHDRAWAL IS NOT RECEIVED BY THE EXPIRATION DATE,
IT WILL BE ASSUMED THAT THE HOLDER HAS SUBSCRIBED FOR THAT NUMBER OF UNITS FOR
WHICH PAYMENT HAS BEEN RECEIVED BY THE SUBSCRIPTION AGENT, SUBJECT TO PRORATION
IN THE CASE OF THE OVERSUBSCRIPTION PRIVILEGE.
Any Rights holder withdrawing pursuant hereto may resubscribe by completing
"Form 6-RESUBSCRIPTION," which is set forth below, and submitting it to the
Subscription Agent on or before 5:00 p.m., New York City time, on the Expiration
Date.
Persons holding Rights through a broker, commercial bank, trustee,
depositary for securities or other nominee should notify such nominee as soon as
possible in order to request that such nominee cause Rights to be exercised in
accordance such beneficial owner's instructions.
<PAGE>
FORM 5-WITHDRAWAL: The undersigned hereby revokes the subscription for
Units as indicated below.
Subscription Certificate Number
pursuant to which Subscription
Rights were exercised
-------------------------------
Number of Units Subscribed for
-------------------------------
Amount Tendered
-------------------------------
FORM 6-RESUBSCRIPTION: The undersigned hereby irrevocably subscribes for
full Units as indicated below, on the terms specified below.
Number of Units subscribed for
pursuant to the Basic Subscription
Privilege (3.25 Rights needed to
subscribe for each Unit)
-------------------------------
Number of Units subscribed for
pursuant to the Oversubscription
Privilege
-------------------------------
Cost (total Units subscribed for
times $2.25)
-------------------------------
CHECK, BANK DRAFT OR MONEY ORDER MADE OUT TO AMERICAN STOCK TRANSFER & TRUST
COMPANY MUST BE ENCLOSED.
------------------------------
Subscriber(s) Signature(s)
Telephone No. ( ) -
--- ----
PLEASE READ BEFORE SIGNING
Signature(s) must correspond with the name(s) of the registered holder on
the subscription certificate. If a joint account, each must sign. Persons
signing in a representative or fiduciary capacity must indicate capacity when
signing.
SUBSCRIPTION AGENT
American Stock Transfer & Trust Company
40 Wall Street, 46th Street
New York, New York 10005
Telephone: (800) 937-5449
Facsimile: (718) 234-5001
INFORMATION AGENT
Morrow & Co., Inc.
909 Third Avenue
New York, New York 10022-4799
Telephone: (800) 566-9061 or (800) 662-5200
<PAGE>
September 3, 1996
Rally's Hamburgers, Inc.
10002 Shelbyville Road
Louisville, Kentucky 40233
Gentlemen:
You have requested our opinion as counsel for Rally's Hamburgers, Inc., a
Delaware corporation (the "Company"), in connection with the offer and sale (the
"Offering") by the Company of additional securities in connection with the
Company's Rights Offering, as follows: 5,534 Rights, 1,341,731 Units, 1,341,731
shares of Common Stock, 1,341,731 Warrants and 1,341,731 shares of Common Stock
underlying the Warrants (the "Additional Rights," the "Additional Shares," the
"Additional Warrants" and the "Additional Warrant Shares," respectively) in
accordance with the Company's Registration Statement on Form S-3 to which this
opinion is being filed as Exhibit 5 (the "Registration Statement").
In rendering our opinion herein, we have assumed, with your permission: the
genuineness and authenticity of all signatures on original documents submitted
to us; the authenticity of all documents submitted to us as originals; the
conformity to originals of all documents submitted to us as copies or
facsimiles; the continued accuracy of all certificates and other documents from
public officials dated earlier than the date of this letter; the Registration
Statement being declared effective by the Securities and Exchange Commission;
the issuance by any necessary regulatory agencies of appropriate permits,
consents, approvals, authorizations and orders relating to the Offering; the due
execution and delivery of the proposed form of warrant agreement filed as
Exhibit 4(b) to the Registration Statement; the distribution of the Rights and
the offer and sale of the Additional Units in the manner set forth in the
Registration Statement and pursuant to said permits, consents approvals,
authorizations and orders; due adoption of resolutions by the Company's Board of
Directors or the Executive Committee thereof
<PAGE>
approving the Registration Statement and the offer and sale of the Additional
Units; and the receipt by the Company of full and valid consideration for the
Units; and the exercise of the Additional Warrants in accordance with the terms
of the Warrant Agreement and the continued existence of a current prospectus
satisfying the requirements of Section 10(a)(3) of the Securities Act of 1933,
as amended, so long as any of the Additional Warrants are outstanding and
exercisable. In rendering our opinion herein, we are relying as to certain
factual matters solely upon an Officer's Certificate given to us by the Company.
Based upon the foregoing, it is our opinion that, when issued, the
Additional Rights, the Additional Units, the Additional Shares, the Additional
Warrants and the Additional Warrant Shares will be legally issued, fully paid
and non-assessable.
This opinion is addressed solely to the Company, and no one else has the
right to rely upon it, nor may anyone release it, quote from it, or employ it in
any transaction other than those discussed herein without our written consent;
however, we hereby consent to the filing of this opinion as an exhibit to, and
the references to this firm contained in, the Registration Statement.
Respectfully submitted,
CHRISTENSEN, WHITE, MILLER, FINK,
JACOBS GLASER & SHAPIRO, LLP
<PAGE>
Exhibit 23
Consent of Independent Public Accountant
----------------------------------------
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement of our reports dated March 6, 1996
included in Rally's Hamburgers, Inc.'s Form 10-K for the year ended December 31,
1995 and to all references to our Firm included in this Registration Statement.
Louisville, Kentucky ARTHUR ANDERSEN LLP
September 3, 1996
