SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A NO. 1
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] for the fiscal year ended December 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [ FEE REQUIRED]
For the transition period from ____________ to _________________
Commission file number 0-17980
RALLY'S HAMBURGERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 62-1210077
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10002 Shelbyville Road, Suite 150, Louisville, Kentucky 40223
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 245-8900
The purpose of this amendment is to amend Items 10, 11, 12 and 13 in their
entirety to read as set forth herein.
<PAGE>
Items 10, 11, 12 and 13 are hereby amended to read in their entirety as set
forth below.
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons of the
Registrant.
Directors
Set forth below is a list of the current Board members, together with their
ages, all positions with Rally's Hamburgers, Inc. ("the Company") and offices
currently held by them and the year in which each person joined the Board of
Directors.
Director
Name Age(1) Position or Office Since
- ---- ------ ------------------ --------
Burt Sugarman 58 Chairman of the Board 1989
and Director
Donald E. Doyle 50 President, Chief Executive 1996
Officer and Director
Terry N. Christensen 56 Director 1996
Willie D. Davis 62 Director 1994
William P. Foley, II 52 Director 1996
David Gotterer 68 Director 1989
Ronald B. Maggard 47 Director 1997
C. Thomas Thompson 47 Director 1996
- -------------------
(1) Ages given as of March 31, 1997.
Burt Sugarman. For more than the past five years, Mr. Sugarman has been
Chairman of the Board, President and Chief Executive Officer of GIANT Group,
LTD. ("GIANT"), a New York Stock Exchange company. As of March 31, 1997, GIANT
owned approximately 15.26% of the outstanding Common Stock of the Company. Mr.
Sugarman served as Chief Executive Officer of the Company from 1990 and as its
Chairman of the Board since 1991, resigning from these offices in February 1994.
Mr. Sugarman resumed the position of Chairman of the Board in November 1994.
Donald E. Doyle. On March 18, 1996, the Company named Donald E. Doyle to
the position of President and Chief Executive Officer. Mr. Doyle was also
appointed to the Company's Board of Directors. Prior thereto, since 1994, Mr.
Doyle served as Chief Operating Officer of Hardee's Foodsystems, Inc., an
operator and franchisor of over 3,500 Hardee's quick service restaurants. Mr.
Doyle served from 1992 to 1994 as President and Chief Executive Officer of CKE
Restaurants, Inc. ("CKE"), the parent of the Carl's Jr. hamburger chain. From
1989 to 1992, Mr. Doyle served as President and Chief Executive Officer of the
Greater Louisville Economic Development Partnership. Prior to that date, Mr.
Doyle held a variety of senior positions with KFC, finally serving as President
of KFC-USA from 1984 to 1988.
Terry N. Christensen. For more than the past five years, Mr. Christensen
has been a partner in the law firm of Christensen, Miller, Fink, Jacobs, Glaser,
Weil & Shapiro, LLP, which firm provides legal services to the Company. Mr.
Christensen is a director of GIANT, MGM Grand, Inc. and Checker's Drive-In
Restaurants, Inc.
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<PAGE>
Willie D. Davis. Mr. Davis has been the President and a director of All-Pro
Broadcasting, Inc., a holding company operating several radio stations, for more
than the past five years. Mr. Davis currently serves on the Board of Directors
of Sara Lee Corporation, K-Mart Corporation, Dow Chemical Company, MGM Grand,
Inc., Alliance Bank, WICOR Incorporated, Johnson Controls Incorporated, L.A.
Gear and Strong Fund.
William P. Foley, II. Mr. Foley has served as the Chairman of the Board,
and Chief Executive Officer of Fidelity National Financial, Inc. ("Fidelity")
since its formation in 1984. Mr. Foley was also President of Fidelity from 1984
until December 31, 1994. He has been Chairman of the Board and Chief Executive
Officer of Fidelity National Title Insurance Company since April 1981. Mr. Foley
is also currently serving as Chairman of the Board and Chief Executive Officer
of CKE and is a director of Micro General Corporation.
David Gotterer. Mr. Gotterer has been a partner in the accounting firm of
Mason & Company, LLP, New York, New York, for more than the past five years. Mr.
Gotterer is a director and Vice Chairman of GIANT.
Ronald B. Maggard. For more than the past five years, Mr. Maggard has been
President of Maggard Enterprises, Newport Beach, which owns 25 franchised Long
John Silver restaurants and a franchised Fazoli's restaurant.
C. Thomas Thompson. Mr. Thompson has been President and Chief Operating
Officer of Carl Karcher Enterprises, Inc. since 1994. Prior thereto, since 1984,
Mr. Thompson was a partner in a partnership which owned and operated 15
restaurants under the Carl's Jr. franchise system. Mr. Thompson is also
currently serving as Chief Executive Officer and Vice Chairman of the Board of
Checker's Drive-In Restaurants, Inc.
On February 13, 1996, a derivative lawsuit naming the members of the
Company's Board of Directors was filed in Delaware Chancery Court by a
shareholder, Harbor Finance Partners. The suit alleges a breach of fiduciary
duty on the part of the Board of Directors in connection with the purchase from
GIANT of the Company's 9.875% Senior Notes due in the year 2000 at an allegedly
inflated price. The Company and its Directors deny all allegations of wrongdoing
made by the plaintiff and intend to defend the suit vigorously. Management does
not believe that this litigation will have a material adverse effect on its
results of operating or financial condition.
Executive Officers
Set forth below are the executive officers of the Company at March 31,
1997, together with their ages, their positions with the Company and the year in
which they first became an officer of the Company:
<TABLE>
<CAPTION>
First Elected
Name Age(1) Position Officer
- --------------------- ------- ---------------------------------------------------- -----------------
<S> <C> <C> <C>
Burt Sugarman 58 Chairman of the Board and Director 1990
Donald E. Doyle 50 President, Chief Executive Officer and Director 1996
Evan G. Hughes 30 Senior Vice President, Chief Administrative
Officer and Secretary 1995
Gary J. Beisler 40 Senior Vice President, Operations 1991
Mark A. Noltemeyer 41 Senior Vice President, Finance 1993
- --------------------------
</TABLE>
(1) Ages given at March 31, 1997.
Mr. Hughes joined the Company as Senior Executive Vice President and Chief
Administrative Officer in March 1995. In December 1995, due to a corporate
reorganization, Mr. Hughes became Senior Vice President, Chief Administrative
Officer and Secretary. He was a trade development consultant in Houston, Texas
and subsequently a business development and marketing manager with AT&T -
Network Systems in Morristown, New Jersey between April 1994 and March 1995. Mr.
Hughes served as Director of Administration for Rally's from March 1993 until
March 1994. Also, Mr. Hughes served as an appointee of the Bush Administration
in
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<PAGE>
Washington, D.C. from December 1988 until November 1992. From late 1989 until
February 1992, he served as Director of Operations at the U.S. Department of
Commerce.
Mr. Beisler joined the Company in 1987 as an Area Franchise Director. Since
then, he has held positions as District Franchise Director, Area Director of
Company Operations and Vice President of Franchise Operations. Currently, as
Senior Vice President of Operations, he is responsible for Company Operations,
Franchise Operations and Real Estate, Development and Construction. Prior to
1987, Mr. Beisler owned and operated his own restaurant and served as Director
of Operations for The Fresher Cooker, a Louisville-based fast food restaurant
chain.
Mr. Noltemeyer joined the Company in 1993 as Chief Accounting Officer and
in January 1994, was promoted to Vice President and Chief Accounting Officer. In
January 1997, Mr. Noltemeyer was promoted to Senior Vice President, Finance.
From 1985 to 1993, Mr. Noltemeyer was employed by KFC in a variety of finance
positions. At the time he left KFC, he was Worldwide Director of Technical
Accounting Services having held such position since 1992. Mr. Noltemeyer is a
Certified Public Accountant.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires that the Company's directors and executive officers,
and persons who own more than 10% of a registered class of the Company's equity
securities, file with the Securities and Exchange Commission and NASDAQ reports
of ownership and changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than 10% stockholders
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on review of the copies of such reports furnished to the
Company or written representations that no other reports were required, the
Company believes that, during the 1996 fiscal year, all filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with except that (i) Messrs. Foley and Thompson each filed their
initial report on Form 3 late; and (ii) one report, covering one transaction,
was filed late by Jeffrey Rosenthal, a former director of the Company.
4
<PAGE>
Item 11. Executive Compensation
Set forth below is information concerning the annual and long-term
compensation of any person who served as the Chief Executive Officer during any
portion of 1996, and the other four most highly compensated executive officers
of the Company as of December 29, 1996, for services in all capacities to the
Company for the last three fiscal years.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation
--------------------------------------------- ----------------------------
Other Annual Stock All Other
Salary Bonus Compensation Options Compensation
Name & Principal Position Year ($) ($)(1) ($) (In Shares) ($)
- ------------------------- ---- -------- ------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Donald E. Doyle 1996 $227,116 (2) $ 0 $18,000 (4) 350,000 $ 0
President and CEO 1995 0 0 0 0 0
1994 0 0 0 0 0
Gary J. Beisler 1996 $161,154 $ 5,400 $ 5,700 54,500 $ 0
Sr. Vice President, 1995 135,687 19,577 0 10,000 0
Operations 1994 115,373 0 5,225 48,400 0
Michael E. Foss (3) 1996 $187,692 $ 0 $36,178 (4) 10,000 $ 0
Former Sr. Vice 1995 72,443 (5) 100,000 0 160,000 0
President, Chief 1994 0 0 0 0 0
Financial Officer
Evan G. Hughes 1996 $138,462 $ 0 $ 0 15,000 $ 0
Sr. Vice President, 1995 97,500 (6) 15,540 1,462 45,000 0
Chief Administrative 1994 13,462 (6) 0 0 0 0
Officer and Secretary
Mark A. Noltemeyer 1996 $116,346 $ 0 $ 0 10,000 $ 0
Senior Vice President , 1995 108,064 5,000 0 10,000 0
Finance 1994 98,269 0 0 22,150 0
- -----------------------------
<FN>
(1) With the exception of the amounts paid to Messrs. Foss and Hughes in
1995 related to recruitment bonuses, the amounts shown in this column
represent payments made under the Company's Officer Bonus Plan,
pursuant to which the executive officers earned cash bonuses based on
individual performance.
(2) Represents partial year payment. Mr. Doyle joined the Company as
President and Chief Executive Officer in March 1996.
(3) Mr. Foss resigned from all positions he held in the Company in January
1997.
(4) With respect to Messrs. Doyle and Foss, the amount in 1996 represents
a reimbursement of relocation expenses incurred.
(5) Represents partial year payment. Mr. Foss joined the Company as Senior
Vice President and Chief Financial Officer in July 1995.
5
<PAGE>
(6) Represents partial year payment. Mr. Hughes rejoined the Company as
Senior Executive Vice President and Chief Administrative Officer in
March 1995. In December 1995, due to a corporate reorganization, Mr.
Hughes became Senior Vice President, Chief Administrative Officer and
Secretary. Mr. Hughes originally joined the Company in March 1993 as
Director of Administration and resigned in March 1994.
</FN>
</TABLE>
Option Grants in Last Fiscal Year
The following table sets forth information regarding options granted to the
named executive officers during the 1996 fiscal year pursuant to the Company's
1990 Stock Option Plan. The Company does not grant stock appreciation rights
("SARs").
<TABLE>
<CAPTION>
Number of Percentage of
Securities Total Options
Underlying Granted to Exercise of Grant Date
Options Employees in Base Price Expiration Present
Name Granted(#) Fiscal 1996 ($/Share) Date Value ($)(1)
- ---- ---------- ----------- --------- ---- ------------
<S> <C> <C> <C> <C> <C>
Donald E. Doyle 350,000 13.90% $1.75 03/17/01 $360,325
Gary J. Beisler 40,000 1.59% $1.625 02/26/06 $ 40,224
Gary J. Beisler 14,500 0.58% $2.94 06/21/06 $ 26,405
Michael E. Foss 10,000 (2) 0.40% $1.625 02/26/06 $ 10,056
Evan G. Hughes 15,000 0.60% $1.625 02/26/06 $ 15,084
Mark A. Noltemeyer 10,000 0.40% $1.625 02/26/06 $ 10,056
- ---------------------
<FN>
(1) The Company used the Black-Scholes model of option valuation to
determine grant date present value. The present value calculation is
based on, among other things, the following assumptions: (a) interest
of 6.81% for the February 26, 1996 and March 18, 1996 grants, and
6.84% for the June 21, 1996 grant, based on the then quoted yield of
Treasury Bills maturing in eight years; (b) dividend yield of 0% per
share based on the Company's history of no dividend payments; and (c)
stock price expected future volatility of 45.7% determined based upon
the monthly stock closing prices for the past four to five years of
companies included in the Company's peer group. The Company does not
advocate or necessarily agree that the Black-Scholes model can
properly determine the value of an option. There is no assurance that
the value, if any, realized by the option holder will be at or near
the value estimated under the Black-Scholes model.
(2) These options terminated upon Mr. Foss' resignation from the Company
and became available for future grants under the Company's 1990 Stock
Option plan.
</FN>
</TABLE>
6
<PAGE>
Aggregated Option Exercises In Last Fiscal Year And Fiscal Year End Option
Values
Set forth below is information with respect to options exercised by the
named executive officers during the 1996 fiscal year, and the number and value
of unexercised stock options held by the named executive officers at the end of
the fiscal year. There were no SARs outstanding at the 1996 fiscal year end.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options Held At Fiscal The-Money Options at
Year End Fiscal Year End(1)
Shares Acquired Value Realized
Name on Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald E. Doyle 0 N/A 0 350,000 $ 0 $ 920,499
Gary J. Beisler 0 N/A 35,599 77,301 13,259 145,260
Michael E. Foss 0 N/A 53,333 116,667 60,265 148,081
Evan G. Hughes 0 N/A 14,999 45,001 24,047 89,426
Mark A. Noltemeyer 0 N/A 18,098 24,052 8,795 39,499
- ---------------------
<FN>
(1) Based on the difference between the option exercise price and closing
price of the Company's Common Stock on the NASDAQ National Market
system on December 29, 1996 ($4.375).
</FN>
</TABLE>
Compensation of Directors
Directors not employed by the Company are compensated at a rate of $10,000
per annum, paid quarterly, plus $500 for each Board meeting attended.
Non-employee directors also receive $500 for each committee meeting attended on
a date other than a date on which a Board meeting is held, and are eligible to
participate in the Company's 1995 Stock Option Plan for Non-Employee Directors.
Employment and Severance Agreements
In April 1995, the Company and Evan Hughes entered into an Employment
Agreement pursuant to which Mr. Hughes was to serve as Senior Executive Vice
President and Chief Administrative Officer for a term of 30 months beginning on
March 28, 1995 at an annual salary of not less than $130,000. Mr. Hughes is
eligible to participate in the Company's incentive bonus programs. Pursuant to
the terms and conditions of the Company's 1990 Stock Option Plan, Mr. Hughes was
granted an option to purchase 35,000 shares of the Company's Common Stock at
$2.75 per share. Upon joining the Company, Mr. Hughes was awarded a signing
bonus of $10,000 after federal, state and local tax deductions. Under the
Agreement, Mr. Hughes has agreed not to compete with the Company in the double
drive-thru hamburger business for a period of 18 months after the termination of
his employment with the Company.
In July 1995, the Company and Michael Foss entered into an Employment
Agreement pursuant to which Mr. Foss served as the Company's Senior Vice
President and Chief Financial Officer for a term commenced on August 1, 1995,
and expired on January 31, 1997, at an annual salary of not less than $175,000.
Mr. Foss was eligible to participate during his employment in the Company's
incentive bonus programs. Pursuant to the terms and conditions of the Company's
1990 Stock Option Plan, Mr. Foss was granted an option to purchase 160,000
shares of the Company's Common Stock at $3.25 per share. On joining the Company,
Mr. Foss was awarded a signing bonus of $100,000 in cash and 30,188 shares of
Common Stock having a value of $100,000 as an inducement for Mr. Foss to
terminate his previous employment. Mr. Foss agreed, during the term of his
Employment Agreement and for three years thereafter, not to disclose, other than
to employees of the Company or to persons to whom disclosure is reasonably
necessary or appropriate in connection with the performance of his duties
thereunder, any material, confidential information relating to certain of the
operations of the Company, the
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<PAGE>
disclosure of which would be materially damaging to the Company. Mr. Foss
resigned all positions held with the Company effective January 31, 1997.
In March 1996, the Company and Donald E. Doyle entered into an Employment
Agreement pursuant to which Mr. Doyle serves as President and Chief Executive
Officer of the Company for a term commencing March 18, 1996 and expiring March
17, 1998, at an annual base salary of $295,000, subject to annual review. This
agreement is renewable on an annual basis for a new two-year term at the
discretion of the Board. Mr. Doyle is eligible to participate in the Company's
incentive and bonus programs. Pursuant to the terms and conditions of the
Company's 1990 Stock Option Plan, Mr. Doyle was granted an option to purchase
350,000 shares of the Company's Common Stock at $1.75 a share, the market price
on the date of Mr. Doyle's employment by the Company. Under the Agreement, Mr.
Doyle has agreed not to compete with the Company in the double drive-thru
hamburger business for a period of two years after the termination of his
employment with the Company. In addition, Mr. Doyle has agreed, during the term
of his Employment Agreement and for three years thereafter, not to disclose,
other than to employees of the Company or to persons to whom disclosure is
reasonably necessary or appropriate in connection with the performance of his
duties thereunder, any material confidential information relating to certain of
the operations of the Company, the disclosure of which would be materially
damaging to the Company. In February 1997, the Company and Mr. Doyle entered
into a Supplemental Agreement pursuant to which the Employment Agreement was
modified to state that Mr. Doyle's employment will be on an "at will" basis. In
addition, the Supplemental Agreement provides for the acceleration of the
vesting of 57,142 of the options granted to Mr. Doyle upon occurrence of certain
changes in Mr. Doyle's employment status prior to the normal vesting date for
these options.
Compensation Committee Interlocks And Insider Participation
The Compensation Committee of the Board of Directors is responsible for
executive compensation decisions as described above. The Committee was comprised
of Messrs. Christensen, Foley and Gotterer since May 1996. Prior to May 1996,
the Committee was comprised of Messrs. Fleishman, Gotterer and Sugarman (the
latter only until March 1996). Mr. Christensen is a partner in a law firm which
provided legal services to the Company during 1996 and which will provide legal
services to the Company in the future. Mr. Foley is Chairman of the Board and
Chief Executive Officer of Fidelity and CKE, which, as of March 31, 1997,
beneficially owned approximately 9.62% and 21.23%, respectively, of the
outstanding shares of Common Stock of the Company. Mr. Fleishman is a member in
a law firm which provided legal services to the Company during 1996 and which
will provide legal services to the Company in the future. Mr. Sugarman is a
director of the Company and serves as Chairman of the Board. Mr. Sugarman also
serves as the Chairman of the Board, President and Chief Executive Officer of
GIANT, which as of the Record Date owned approximately 15.26% of the outstanding
Common Stock of the Company. Mr. Gotterer, a director of the Company, serves as
a director and Vice Chairman of the Board of GIANT. Mr. Gotterer also serves on
the Compensation Committee of GIANT.
On July 1, 1996, the Company entered into a ten-year Operating Agreement
with Carl Karcher Enterprises, Inc., a subsidiary of CKE which is the operator
of the Carl's Jr. restaurant chain. Pursuant to the agreement, 28 Rally's owned
restaurants located in California and Arizona are being operated by CKE. Such
agreement is cancelable after an initial five-year period, at the discretion of
CKE. A portion of these restaurants, at the discretion of CKE, may be converted
to the Carl's Jr. format. To date, one restaurant has been converted. The
agreement was approved by a majority of the independent Directors of the
Company. Prior to the agreement, the Company's independent Directors had
received an opinion as to the fairness of the agreement, from a financial point
of view, from an investment banking firm of national standing.
Under the terms of the Operating Agreement, CKE is responsible for
conversion costs associated with transforming the restaurants to the Carl's Jr.
format, as well as the operating expenses of all the restaurants. Rally's
retains ownership of all 28 restaurants and is entitled to receive a percentage
of gross revenues generated by each restaurant. Subsequent to the agreement, the
Company's revenues have been, and will, until the first anniversary of the
agreement, continue to be, reduced by the absence of the restaurants' sales,
somewhat offset by the fee paid to the Company by CKE. The Company anticipates
that the agreement will continue to positively impact both net income and cash
flow. While the overall impact of the agreement is not expected to be material
to the financial statements, it will allow management to concentrate its efforts
in more fully developed Rally's markets. The agreement will also allow the
Company to take advantage of any improvements in restaurant operations attained
by
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CKE by implementing these improvements in Company stores. In the event of a sale
by Rally's of any of the 28 restaurants, Rally's and CKE would share in the
proceeds based upon the relative value of their respective capital investments
in such restaurant.
On December 20, 1996, the Company issued warrants (the "Warrants") to
purchase an aggregate of 1,500,000 restricted shares of its Common Stock equally
to CKE and Fidelity National Financial, Inc. The Warrants were granted as an
incentive to CKE and Fidelity to continue to participate in the identification
and exploitation of synergistic opportunities with the Company. The Warrants
have a three-year term and are not exercisable until December 20, 1997. The
exercise price is $4.375 per share, the closing price of the Common Stock on
December 20, 1996. The underlying shares of Common Stock have not been
registered with the Securities and Exchange Commission and, therefore, are not
freely tradable. Upon exercise, the Warrants would provide approximately $6.6
million in additional capital to the Company. The Company obtained a valuation
analysis from an investment banking firm of national standing. Such analysis
estimated the value of the Warrants to be approximately $960,000 which will be
expensed by the Company over the one-year vesting period.
Rally's has entered into a marketing-sharing agreement with CKE restaurants
covering the use of advertising created by the Company's advertising agency,
Mendelsohn/Zien Advertising, for the benefit of the Company and its franchisees,
based on a successful advertising campaign originally developed for the
California-based Carl's Jr. chain. The agreement is for a one-year period
beginning December 1, 1996, renewable for additional successive one-year terms,
and calls for the reimbursement per commercial to CKE for 30% of its production
costs (not to exceed $100,000).
In addition, the Company entered into a Consulting Agreement with CKE in
October 1996 to assist and advise the Company in connection with its operation
of the business. The Consulting Agreement expired February 28, 1997, but has
been extended until February 28, 1998. Payments under the Consulting Agreement
are $3,000 per month plus ordinary expenses.
On January 29, 1996, the Company repurchased from GIANT, in two
transactions, at a price of $678.75 per $1,000 principal amount, $22 million
face value of its 9.875% Senior Notes due in the year 2000. The price paid in
each transaction represented the market closing price of the notes on January
26, 1996. The first transaction involved the repurchase of $16 million face
value of the notes for $11.1 million in cash. The second transaction involved
the purchase of $6 million face value of notes in exchange for a $4.1 million
short-term note due in three installments of principal and interest issued by
Rally's to GIANT bearing interest at the highest publicly announced referenced
rate of interest maintained by a large banking institution for commercial loans
of short-term maturities to its most credit-worthy large corporate borrowers.
The purchases were approved by a majority of the independent Directors of the
Company, all of whom were unaffiliated with GIANT. Prior to the purchases, the
Company's independent Directors had received an opinion as to the fairness of
the transactions, from a financial point of view, from an investment banking
firm of national standing. GIANT purchased the notes for $11.4 million during
the last two years.
In early February 1996, GIANT entered into a one-year credit facility with
the Company. Such credit facility was evidenced by a note payable to GIANT for
up to $2 million. Any monies advanced under said Note Agreement bore interest at
the highest publicly announced referenced rate of interest maintained by a large
banking institution for commercial loans of short-term maturities to its most
credit-worthy large corporate borrowers. Interest was payable monthly. The
facility was terminated upon the Company's completion of its Shareholders Rights
Offering. In addition, during 1996 GIANT issued certain irrevocable letters of
credit to secure the obligation of the Company under its high deductible
workers' compensation insurance program and to secure certain surety bonds
previously issued by the Company. Such letters of credit were replaced by the
Company during 1996 with irrevocable Letters of Credit issued by the Company
which are secured by Certificates of Deposit purchased by the Company.
9
<PAGE>
Item 12. Stock Ownership of Principal Holders and Management.
The following table sets forth as of March 31, 1997 information concerning
each stockholder known by the Company to beneficially own more than five percent
of the outstanding Common Stock of the Company and by each director, each
executive officer named in the Summary Compensation Table in Item 11 and all
directors and executive officers as a group.
Number of Percent of
Shares (1) Class (2)
---------- ----------
Gary J. Beisler........................ 54,212 (3) *
Terry N. Christensen................... 168,230 (4) *
Willie D. Davis........................ 245,000 (5) 1.18%
Donald E. Doyle........................ 201,146 (6) *
William P. Foley, II (16).............. 222,500 (7) 1.07%
Michael E. Foss........................ 102,409 (8) *
David Gotterer......................... 279,730 (9) 1.34%
Evan G. Hughes......................... 35,798 (10) *
Ronald B. Maggard ..................... 30,000 *
Mark A. Noltemeyer..................... 30,882 (11) *
Burt Sugarman (15)..................... 485,833 (12) 2.31%
C. Thomas Thompson..................... 222,500 (13) 1.07%
All current directors and
executive officers as a group
(12 persons, included above)......... 2,078,240 (14) 9.26%
5% Beneficial Owners
- --------------------
GIANT GROUP, LTD. (15)................. 3,136,849 15.26%
Fidelity National Financial, Inc. (16). 2,009,788 (17) 9.62%
CKE Restaurants, Inc. (18)............. 4,528,015 (19) 21.23%
Travelers Group, Inc. (20)............. 2,263,974 (21) 10.50%
*Represents less than 1% of class.
(1) Based upon information furnished to the Company by the named persons,
and information contained in filings with the Securities and Exchange
Commission (the "Commission"). Under the rules of the Commission, a
person is deemed to beneficially own shares over which the person has
or shares voting or investment power or which the person has the right
to acquire beneficial ownership of within 60 days. Unless otherwise
indicated, the named persons have sole voting and investment power
with respect to their respective shares.
(2) Based on 20,552,404 shares outstanding as of March 31, 1997. Shares of
Common Stock subject to options exercisable within 60 days under the
Company's stock option plan are deemed outstanding for computing the
percentage of class of the person holding such options but are not
deemed outstanding for computing the percentage of class for any other
person.
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(3) Includes 52,474 shares that Mr. Beisler may purchase pursuant to stock
options and warrants.
(4) Includes 165,615 shares that Mr. Christensen may purchase pursuant to
stock options and warrants.
(5) Represents 245,000 shares that Mr. Davis may purchase pursuant to
stock options.
(6) Includes 133,406 shares that Mr. Doyle may purchase pursuant to stock
options and warrants.
(7) Represents 222,500 shares that Mr. Foley may purchase pursuant to
stock options. Excludes 6,760,303 shares which are beneficially owned
by Fidelity and CKE, as to which Mr. Foley disclaims beneficial
ownership. See Notes (17) and (19) below. Mr. Foley is the Chairman of
the Board and Chief Executive Officer of Fidelity and CKE, and he owns
20.3% of the outstanding shares of common stock of Fidelity. A limited
partnership whose general partner is controlled by Mr. Foley owns
15.8% of the outstanding common stock of CKE. Fidelity owns 2.2% of
the outstanding common stock of CKE. Mr. Foley may be deemed to be a
controlling person of CKE and Fidelity.
(8) Includes 62,777 shares that Mr. Foss may purchase pursuant to stock
options and warrants. Mr. Foss resigned from all positions held in the
Company in January 1997.
(9) Includes 251,615 shares that Mr. Gotterer may purchase pursuant to
options and warrants, but excludes 22,500 shares underlying options
held by Mr. Gotterer, as to which shares he disclaims beneficial
ownership since a business partner is entitled to the beneficial
ownership of such shares upon any exercise of such options.
(10) Includes 35,072 shares that Mr. Hughes may purchase pursuant to
options and warrants.
(11) Includes 25,864 shares that Mr. Noltemeyer may purchase pursuant to
options and warrants.
(12) Represents 485,833 shares that Mr. Sugarman may purchase pursuant to
stock options. Excludes 3,136,849 shares owned by GIANT of which Mr.
Sugarman may be deemed to be a controlling person. Mr. Sugarman
disclaims beneficial ownership of the shares owned by GIANT. Also
excludes 2,615 shares held by Mr. Sugarman as custodian for his minor
child and 145,884 shares beneficially owned by Mr. Sugarman's spouse
(including 104,692 shares subject to options and warrants), as to
which shares Mr. Sugarman disclaims beneficial ownership. Mr. Sugarman
is the Chairman of the Board, President & Chief Executive Officer of
GIANT, and, as of March 14, 1997, he owned 55.2% of the outstanding
common stock of GIANT.
(13) Represents 222,500 shares that Mr. Thompson may purchase pursuant to
options.
(14) Includes 1,902,656 shares which may be acquired by all directors and
executive officers as a group pursuant to stock options and warrants.
(15) The address of Burt Sugarman and GIANT is 9000 Sunset Boulevard, Los
Angeles, California 90069.
(16) The address of Mr. Foley and Fidelity is 17911 Von Karman Avenue,
Irvine, California 92714.
(17) Includes 1,663,101 shares owned directly and 346,687 shares underlying
currently exercisable warrants.
(18) The address of CKE is 1200 North Harbor Boulevard, Anaheim, California
92801.
(19) Includes 3,752,527 shares owned directly and 775,488 shares underlying
currently exercisable warrants.
(20) The address of Travelers Group, Inc. is 388 Greenwich Street, New
York, New York 10013.
(21) Includes 1,016,787 shares underlying currently exercisable warrants.
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Item 13. Certain Relationships and Related Transactions
"Item 10. Executive Compensation - Compensation Committee Interlocks and
Insider Participation" is incorporated herein by reference.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RALLY'S HAMBURGERS, INC.
Date: April 28, 1997
By: /s/ Mark A. Noltemeyer
--------------------------------------
Mark A. Noltemeyer
Senior Vice President, Finance
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