<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No.____)*
CHECKERS DRIVE-IN RESTAURANTS, INC.
-----------------------------------
(NAME OF ISSUER)
COMMON STOCK, PAR VALUE $.001 PER SHARE
---------------------------------------
(TITLE OF CLASS OF SECURITIES)
162809-10-7
-----------
(CUSIP NUMBER)
Janet S. McCloud, Esq.
Christensen, Miller Fink, Jacobs, Glaser, Weil & Shapiro, LLP
2121 Avenue of the Stars, 18th Floor
Los Angeles, CA 90067
(310) 553-3000
--------------
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND
COMMUNICATIONS)
December 18, 1997
-----------------
(DATE OF EVENT WHICH REQUIRES FILING OF THIS STATEMENT)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement [ ].
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE> 2
SCHEDULE 13D
<TABLE>
CUSIP No. 162809-10-7 Pages 2 of 6 Pages
-----------
<S> <C> <C>
- ------------------------------------------------------------------------------------
1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Rally's Hamburgers, Inc., a Delaware corporation
I.R.S. #62-1210077
- ------------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- ------------------------------------------------------------------------------------
3. SEC USE ONLY
- ------------------------------------------------------------------------------------
4. SOURCE OF FUNDS
N/A
- ------------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) or 2(e) [ ]
- ------------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- ------------------------------------------------------------------------------------
7. SOLE VOTING POWER
19,100,620 shares
NUMBER OF ---------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY -0-
OWNED BY
EACH ---------------------------------------------------------
REPORTING 9. SOLE DISPOSITIVE POWER
PERSON 19,100,620 shares
---------------------------------------------------------
10. SHARED DISPOSITIVE POWER
-0-
- ------------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
19,100,620 shares
- ------------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- ------------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
27.2%
- ------------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON*
CO
</TABLE>
<PAGE> 3
ITEM 1. SECURITY AND ISSUER.
The class of equity securities to which this Statement on Schedule 13D
(this "Statement") relates is the Common Stock, par value $.001 per share (the
"Common Stock"), of Checkers Drive-In Restaurants, Inc., a Delaware corporation
("Checkers"), with its principal executive offices located at Barnett Bank
Building, 600 Cleveland Street, Eighth Floor, Clearwater, Florida 34615.
ITEM 2. IDENTITY AND BACKGROUND
This statement is being filed by Rally's Hamburgers, Inc., a Delaware
corporation ("Rally's"), located at 10002 Shelbyville Road, Suite 150,
Louisville, Kentucky 40223. Rally's is one of the largest chains of double
drive-thru restaurants in the United States.
Rally's has not, within the last five years, been (i) convicted in a
criminal proceeding, or (ii) a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
is subject to a judgment, decree or final order enjoining future violations of,
or prohibiting or mandating activities subject to, federal or state securities
laws or finding any violation with respect to such laws.
The names and certain information required by this Item 2 regarding
Rally's executive officers and directors (the "Officers and Directors") is set
forth below:
(a) The names and titles of Rally's executive Officers and Directors are:
<TABLE>
<CAPTION>
Name Title
---- -----
<S> <C>
William P. Foley, II Chairman of the Board
James J. Gillespie President, Chief Executive Officer, Director
Gary Beisler Sr. Vice President of Operations
Joseph N. Stein Vice President and Chief Financial Officer
James T. Holder Vice President
Wendy Beck Treasurer
Terry Christensen Director
Willie Davis Director
David Gotterer Director
Ronald Maggard Director
Andrew Puzder Director
Burt Sugarman Director
C. Thomas Thompson Director
</TABLE>
(b) The business address of: (i) Messrs. Foley and Puzder i 3916 State
Street, Suite 300,
<PAGE> 4
Santa Barbara, CA 93105; (ii) Messrs. Gillespie, Stein and Holder and
Ms. Beck is 600 Cleveland, Eighth Floor, Clearwater, FL 34615; (iii)
Mr. Christensen is 2121 Avenue of the Stars, 1800, Los Angeles, CA
90067; (iv) Mr. Davis is 161 N. La Brea Avenue, Inglewood, CA 90301;
(v) Mr. Gotterer is 400 Park Avenue, 12th Floor, New York, NY 10022;
(vi) Mr. Maggard is 10370 Hemet Street, Suite 240, Riverside, CA 92503;
(vii) Mr. Sugarman is 9000 Sunset Boulevard, 16th Floor, Los Angeles,
CA 90069; and (viii) Mr. Thompson is 1200 N. Harbor Boulevard, Anaheim,
CA 92801.
(c) The principal occupations of the executive Officers and Directors are
as follows: (i) Mr. Foley is Chairman of the Board and Chief Executive
Officer of Fidelity National Financial, Inc., a title insurance
underwriting company, 3916 State Street, Suite 300, Santa Barbara, CA
93105, and also serves as Chairman of the Board and Chief Executive
Officer of CKE Restaurants, Inc. ("CKE"), Rally's, Checkers and
Hardee's Food System, Inc.; (ii) Mr. Gillespie is President, Chief
Executive Officer and a director of Rally's and Chief Executive
Officer and a director of Checkers; (iii) Mr. Beisler is Sr. Vice
President of Operations for Rally's; (iv) Mr. Stein is Executive Vice
President, Chief Administrative Officer and Chief Financial Officer
of Checkers and Vice President, Chief Financial Officer of Rally's;
(v) Mr. Holder is Senior Vice President, General Counsel and Secretary
of Checkers and Vice President of Rally's; (vi) Ms. Beck is Vice
President of Finance of Checkers and Treasurer of Checkers and
Rally's; (vii) Mr. Christensen is a partner of Christensen, Miller,
Fink, Jacobs, Glaser, Weil & Shapiro, LLP, a law firm, located at 2121
Avenue of the Stars, 1800, Los Angeles, CA 90067, and a director of
Rally's, Checkers, MGM Grand, Inc., and GIANT GROUP, LTD.; (viii) Mr.
Davis is President and a director of All-Pro Broadcasting, Inc., a
holding company operating several radio stations, located at 161 N. La
Brea Avenue, Inglewood, CA 90301, and a director of MGM Grand Inc.,
Sara Lee, Corporation, K-Mart Corporation, Dow Chemical Company,
Alliance Bank, WICOR Incorporated, Johnson Controls Incorporated, L.A.
Gear and Strong Fund; (ix) Mr. Gotterer is a partner of Mason &
Company, an accounting firm, located at 400 Park Avenue, 12th Floor,
New York, NY 10022, and a director of Rally's and GIANT GROUP, LTD.;
(x) Mr. Maggard is President of Maggard Enterprises, Inc., owner of 22
franchised Long John Silver restaurants and two franchised Fazoli's
restaurants, located at 10370 Hemet Street, Suite 240, Riverside, CA
92503, (xi) Mr. Puzder is Executive Vice President of Fidelity
National Financial, Inc., located at 17911 Von Karman, Suite 300,
Irvine, CA 92614, and Executive Vice President and General Counsel of
CKE Restaurants, Chief Executive Officer of GB Foods Corporation, and
a director of Rally's; (xii) Mr. Sugarman is Chairman of the Board,
President and Chief Executive Officer of GIANT GROUP, LTD., a New York
Stock Exchange company, located at 9000 Sunset Boulevard, 16th Floor,
Los Angeles, CA 90069, and director of Rally's and Checkers; (xiii)
Mr. Thompson is President and Chief Operating Officer of Carl Karcher
Enterprises, Inc., owner and franchisor of the Carl's Jr. restaurants,
located 1200 N. Harbor Boulevard, Anaheim, CA 92801.
(d)-(e) None of the Officers and Directors has, within the last five years,
been (i) convicted in a criminal proceeding or (ii) a party to a civil
proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding is subject to a
judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state
securities laws or finding any violation with respect
<PAGE> 5
to such laws.
(f) All of the Officers and Directors are United States citizens.
ITEM 3. SOURCE AND AMOUNT OF FUND OR OTHER CONSIDERATION
The consideration paid by Rally's for the 19,100,960 shares of Checkers
Common Stock acquired (the "Acquisition") pursuant to that certain Exchange
Agreement, dated as of December 8, 1997 (the "Exchange Agreement"), between
Rally's and the other parties named therein, including Fidelity, CKE, GIANT
GROUP, LTD., and Messrs. Foley, Christensen, Gotterer, Puzder, Sugarman and
Thompson, was an aggregate of 3,909,336 shares of Rally's common stock, par
value $0.10 per share (the "Rally's Common Stock"), and 45,667 shares of Rally's
Series A Preferred Stock, $0.10 par value per share, the terms of which are set
forth in Exhibit B to the Exchange Agreement, which is attached hereto as
Exhibit A and incorporated herein by this reference.
ITEM 4. PURPOSE OF TRANSACTION
Rally's purpose in acquiring the Checkers Common Stock was for
investment reasons, to further increase the operating efficiencies of both
Rally's and Checkers, and to take advantage of opportunities arising out of the
relationships between the two companies. Rally's will continue to evaluate
Checkers business and prospects and may determine, but currently has no plans
to, acquire additional shares of Common Stock or dispose of all or a portion of
the Common Stock owned by it.
In November 1997, Checkers and Rally's announced a non-binding
agreement to negotiate an arrangement pursuant to which it is anticipated that
Rally's will outsource basic accounting, technology and possibly other services
to Checkers. Rally's believes that efficiencies resulting in reduced corporate
costs can be obtained by consolidating these duplicative routine functions in
one location. The terms of the proposed agreement have not yet been finalized
and are subject to approval by the independent committees of the Boards of
Directors of Checkers and Rally's. Although Checkers may hire additional
employees as a result of the arrangement, it is not anticipated that the
arrangement will have a material impact on the operations of the Checkers.
Effective November 10, 1997, James J. Gillespie became President of
Rally's and was elected Chief Executive Officer of Rally's and Checkers. In
December 1997, Mr. Gillespie was elected to the Boards of Directors of Rally's
and Checkers, and Messrs. Stein and Holder and Ms. Beck were elected to their
present positions with Rally's.
On November 22, 1996, Checkers and an investor group led by CKE, which
included Messrs. Foley, Sugarman and Thompson (the "CKE Group"), executed a
Restated Credit Agreement thereby completing a restructuring of Checkers primary
debt. Pursuant to such Restated Credit Agreement, the term of the debt was
extended by one year, the interest rate was reduced to a fixed rate of 13%,
principal payments were deferred until May 19, 1997, most of the financial
covenants were eliminated or relaxed
<PAGE> 6
and approximately $6 million in restructuring fees and charges were eliminated.
In consideration of the restructuring, Checkers issued to the members of the CKE
Group warrants to acquire an aggregate of 20 million shares of Checkers Common
Stock at an exercise price of $.75 per share. The Company agreed to register
such shares by July 21, 1997. Since such registration has not yet occurred,
Checkers is obligated to pay the warrantholders $4,000 per week. In addition,
Messrs. Folely, Christensen, Sugarman and Thompson hold options to acquire
shares of Checkers Common Stock. See Item 5 hereto, the 1994 Stock Option Plan
for Non-Employee Directors, filed as Exhibit B hereto, the 1991 Stock Option
Plan filed as Exhibit C hereto, and Form of the Warrant filed as Exhibit D
hereto, which are incorporated herein by this reference.
Except as otherwise described in this Statement, Rally's has no plan or
proposal with respect to Checkers which relates to or would result in:
(a) The acquisition by any person of additional securities of Checkers,
or the disposition of securities of Checkers;
(b) An extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving Checkers or any of its subsidiaries;
(c) A sale or transfer of a material amount of assets of Checkers or
any of its subsidiaries;
(d) Any change in the present Board of Directors or management of
Checkers, including any plans or proposals to change the number or term of
directors or to fill any existing vacancies of the Board;
(e) Any material change in the present capitalization or dividend
policy of Checkers;
(f) Any other material change in Checkers' business or corporate
structure;
(g) Changes in Checkers' charter, bylaws or instruments corresponding
thereto or other actions which may impede the acquisition of control of Checkers
by any person;
(h) Causing a class of securities of Checkers to be delisted from a
national securities exchange or to cease to be authorized to be quoted in an
inter-dealer quotation system of a registered national securities association;
(i) A class of equity securities of Checkers becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or
(j) Any action similar to any of those enumerated above.
<PAGE> 7
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a)-(b) Checker's had 70,132,472 shares of Common Stock outstanding as
of October 15, 1997, as stated on its Quarterly Report on Form 10 Q for the
quarterly period ended September 8, 1997. As a result of the Acquisition,
Rally's beneficially owns 19,100,960 shares or approximately 27.2 percent of
Checkers' Common Stock.
<PAGE> 8
The following table sets forth information as to the beneficial
ownership of Checkers' Common Stock by Rally's and the Officers and Directors
listed in Item 2:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
NAME NUMBER OF SHARES(1) PERCENT OF CLASS(2)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Rally's Hamburgers, Inc. 19100960 27.2
--------------------------------------------------- ---------------------------------------- -----------------------------
William P. Foley, II 1156500(3) 1.65
--------------------------------------------------- ---------------------------------------- -----------------------------
James J. Gillespie -0- --
--------------------------------------------------- ---------------------------------------- -----------------------------
Joseph N. Stein 5000 (*)
--------------------------------------------------- ---------------------------------------- -----------------------------
James T. Holder 123291(4) (*)
--------------------------------------------------- ---------------------------------------- -----------------------------
Wendy Beck 29561 (5) --
--------------------------------------------------- ---------------------------------------- -----------------------------
Terry Christensen 357735(6) (*)
--------------------------------------------------- ---------------------------------------- -----------------------------
Willie Davis -- --
--------------------------------------------------- ---------------------------------------- -----------------------------
David Gotterer -- --
--------------------------------------------------- ---------------------------------------- -----------------------------
Ronald Maggard -- --
--------------------------------------------------- ---------------------------------------- -----------------------------
Andrew Puzder 28490 (7) --
--------------------------------------------------- ---------------------------------------- -----------------------------
Burt Sugarman 1125689(6) 1.60
--------------------------------------------------- ---------------------------------------- -----------------------------
C. Thomas Thompson 236243 (4) (*)
--------------------------------------------------- ---------------------------------------- -----------------------------
Gary Beisler -- --
--------------------------------------------------- ---------------------------------------- -----------------------------
</TABLE>
(*) Less than 1%
Footnotes:
1. Based upon information furnished to Rally's by the named persons and
information contained in filings with the Securities and Exchange
Commission (the "Commission"). Under the rules of the Commission, a
person is deemed to beneficially own shares over which the person has
or shares voting or investment power or which the person has the right
to acquire beneficial ownership within 60 days. Unless otherwise
indicated, the named persons have sole voting and investment power with
respect to their respective shares.
2. Based on 70,132,472 shares of Common Stock outstanding as of October
15, 1997, as stated on its Quarterly Report on Form 10Q for the
quarterly period ended September 8, 1997. Shares of Common Stock
subject to options and warrants exercisable within 60 days are deemed
outstanding for computing the percentage of class of the persons
holding such options or warrants but are not deemed outstanding for
computing the percentage of class for any other person.
3. Shares of Common Stock subject to options and warrants exercisable
within 60 days.
4. Shares subject to options exercisable within 60 days.
5. Includes 4,561 shares of Common Stock subject to options
exercisable within 60 days.
6. Shares of Common Stock subject to options and warrants
exercisable within 60 days.
7. Shares subject to warrants exercisable within 60 days.
(c) Pursuant to the Exchange Agreement, which is attached hereto as
Exhibit A and incorporated herein by this reference, Rally's acquired on
December 18, 1997, in a private transaction, 19, 100,960 shares of Checkers
Common Stock in exchange for 3,909,336 shares of Rally's Common Stock and 45,667
shares of Rally's Series A Preferred Stock. The number of shares of Rally's
Common Stock and Series A Preferred Stock issued in the exchange for the
Checkers Common Stock bought and sold pursuant to the Exchange Agreement was
based on a ratio of .44375 shares of Rally's Common Stock for each share of
Checkers Common Stock. The price of the shares was determined by taking the
average closing sales price of the Rally's Common Stock and the Checkers Common
Stock on the NASDAQ National Market System for the five trading days ended on
September 19, 1997, the last trading day prior to the public announcement of the
transactions provided for in the Exchange Agreement.
(d) Not Applicable
<PAGE> 9
(e) Not Applicable
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS
WITH RESPECT TO THE SECURITIES OF THE ISSUER.
Items 3, 4 and 5 are incorporated herein by this reference.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
Exhibit A The Exchange Agreement dated as of December 8, 1997, among
Rally's and CKE, Fidelity National Financial, GIANT GROUP,
LTD., and the other persons listed on Exhibit A thereto.
Exhibit B Form of Option Agreement pursuant to the Checkers Non
Employee Director Stock Option Plan, incorporated by reference
to Exhibit 10.32 to Checkers Form 10-K for the year ended
January 2, 1995.
Exhibit C Form of Option Agreement pursuant to the Checkers 1991
Employee Stock Option Plan, incorporated by reference to
Exhibit 4 to Checkers Registration Statement on Form S-8
filed on June 15, 1996 (File No. 33-80236).
Exhibit D Form of Warrant, incorporated by reference to
Exhibit 4.3 to Checkers Report on Form 8-K dated
November 22, 1996 (the "8-K").
<PAGE> 10
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
12/29/97 /s/ James T. Holder
- -------------------- ------------------------------
Date: James T. Holder
Vice President
<PAGE> 1
EXHIBIT A
EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT (the "Agreement"), dated as of December 8,
1997, is made by and between RALLY'S HAMBURGERS, INC., a Delaware corporation
(the "Company" or "Rally's"), on the one hand, and CKE RESTAURANTS, INC., a
Delaware corporation ("CKE"), FIDELITY NATIONAL FINANCIAL, INC., a Delaware
corporation ("FNF"), GIANT GROUP, LTD., a Delaware corporation ("GIANT") and
the other parties set forth on Exhibit A attached hereto (referred to
collectively herein as the "Sellers," and individually as a "Seller"), on the
other hand, with reference to the following facts:
A. Sellers are the owners of record, as of September 19,
1997, of an aggregate of 19,100,960 shares of Common Stock, par value $0.001
per share (the "Checkers Common Stock"), of Checkers Drive-In Restaurants,
Inc., a Delaware corporation ("Checkers").
B. Each Seller desires to sell, and the Company desires to
buy, the shares of Checkers Common Stock owned by such Seller as set forth on
Exhibit A hereto on the terms and conditions set forth herein.
C. As consideration for the shares of Checkers Common Stock
acquired by the Company pursuant hereto, the Company will issue an aggregate of
up to 3,909,336 shares of the Company's common stock, par value $0.10 per share
(the "Rally's Common Stock"), and will authorize and issue an aggregate of up
to 45,667 shares of the Company's Series A Preferred Stock, $0.10 par value per
share (the "Series A Stock"), on the terms set forth in the form of Certificate
of Designation attached hereto as Exhibit B (the "Certificate of Designation").
D. The number of shares of Rally's Common Stock and Series A
Stock issued in exchange for the Checkers Common Stock bought and sold pursuant
to this Agreement will be based on the ratio of 0.44375 shares of Rally's
Common Stock for each share of Checkers Common Stock.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1. Purchase and Sale. Subject to the provisions of this
Agreement, on the Closing Date (as defined herein), the Sellers will sell and
transfer to the Company, and the Company will purchase from the Sellers, the
number of shares of Checkers Common Stock set forth opposite the respective
Seller's name on Exhibit A hereto (collectively, the "Checkers Shares").
1.2. Consideration; Exchange of Stock. In exchange for the
Checkers Shares transferred by each of the Sellers, the Company will issue and
cause to be delivered to each Seller
<PAGE> 2
the number of shares of Rally's Common Stock and Series A Stock set forth
opposite the respective Seller's name on Exhibit A hereto (collectively, the
"Rally's Shares").
1.3. Closing; Closing Date. The purchase and sale of the
Checkers Shares pursuant to Section 1.1 (the "Closing") shall take place at the
offices of Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP, 2121
Avenue of the Stars, 18th Floor, Los Angeles, California 90067, or at such
other place as may be agreed upon by the Company and Sellers, at 10:00 a.m.
local time on the third business day after the later of termination or
expiration of all waiting periods required for consummation of this Agreement
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
("HSR"), or receipt of the fairness opinion referred to in Section 5.1 hereof,
or at such other time as may be mutually agreed upon by the Company and the
Sellers (the "Closing Date").
1.4. Transactions at Closing. At the Closing,
(a) The Company shall deliver to each Seller or
such Seller's representative:
(i) A duly executed Compliance
Certificate, substantially in the form of Exhibit C hereto;
(ii) A duly executed Certificate of
Designation, stamped to show that it has been filed with the Secretary of State
of the State of Delaware;
(iii) Certificates registered in the
names of the Seller representing the number of Rally's Shares to be issued to
such Seller pursuant to Section 1.2 hereof;
(iv) A copy of the Notification of
Listing of Additional Shares to be delivered to the NASDAQ National Market with
respect to the Rally's Shares; and
(v) Such other documents and
instruments as the Sellers and their counsel may reasonably request relating to
the consummation of this Agreement.
(b) Each Seller shall deliver to the Company:
(i) A duly executed Compliance
Certificate, substantially in the form of Exhibit D hereto;
(ii) Certificate(s) representing the
Checkers Shares being delivered by such Seller pursuant to Section 1.1 hereof,
duly endorsed for transfer or together with a stock power duly executed in
blank, together with any opinions of counsel required by the transfer agent for
the Checkers Common Stock in connection with the transfer of the Checkers
Shares to the Company; and
2
<PAGE> 3
(iii) Such other documents and
instruments as the Company may reasonably request relating to the consummation
of this Agreement.
(c) The conditions set forth in Articles 5 and 6
hereof shall have been satisfied or waived as provided therein.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants that:
2.1. Organization, Standing and Qualification. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has full corporate power and authority to
own, lease and operate its property and assets and to conduct its business as
presently and proposed to be conducted by it. The Company is in good standing
under the laws of all jurisdictions in which the Company is required to qualify
to do business, except where the failure to so qualify would not result in a
Company Material Adverse Effect (as hereinafter defined).
2.2. Capitalization.
(a) Authorized Capital Stock. Immediately prior to
the Closing, the authorized capital stock of the Company will consist of:
(i) Common Stock. 50,000,000 shares of
Common Stock, par value $0.10 per share (the "Common Stock"), of which (A)
20,649,454 shares are issued and outstanding as of the date of this Agreement;
and (B) 10,989,282 shares are initially reserved for issuance upon exercise of
the warrants and options listed in Schedule 2.2(a)(i) hereto. The Company has
reserved a sufficient number of shares of unissued Common Stock to enable it to
issue the Common Stock being issued pursuant to this Agreement, both at Closing
and upon conversion of the Series A Stock into Common Stock.
(ii) Preferred Stock. 5,000,000 shares
of Preferred Stock, $0.10 par value per share, of which 45,632 shares have been
designated as Series A Stock pursuant to the Certificate of Designation and
none of which will be issued and outstanding prior to the Closing Date.
(b) Warrants, Options and Other Subscription
Rights. Except as set forth in Schedule 2.2(a)(i) hereto and as contemplated
herein, there are (i) no outstanding warrants, options, convertible securities
or rights to subscribe for or purchase any capital stock or other securities
from the Company, (ii) to the best knowledge of the Company, no voting trusts
or voting agreements among, or irrevocable proxies executed by, stockholders of
the Company, (iii) no existing rights of stockholders to require the Company to
register any securities of the Company or to participate with the Company in
any registration by the Company of its securities,
3
<PAGE> 4
(iv) to the best knowledge of the Company, no agreements among stockholders
providing for the purchase or sale of the Company's capital stock and (v) no
obligations (contingent or otherwise) of the Company to purchase, redeem or
otherwise acquire any shares of its capital stock or any interest therein or to
pay any dividend or make any other distribution in respect thereof.
(c) Validity of Securities. Subject only to
approval by the Company's stockholders of the matters set forth in Section 2 of
the Certificate of Designation, the Rally's Shares, when issued, sold and
delivered in accordance with the terms of this Agreement, and the Rally's
Common Stock issuable upon conversion of the Series A Stock, when issued and
delivered in accordance with the Certificate of Designation, will be duly
authorized, validly issued, fully paid and non-assessable. When the Rally's
Shares are sold in accordance with this Agreement, each Seller will have good
title to the Rally's Shares sold to such Seller, free and clear of any liens,
pledges, claims, options, restrictions or other encumbrances or rights of third
parties ("Liens"), other than Liens resulting from the actions of Sellers and
restrictions on transfer imposed by the Securities Act of 1933, as amended (the
"Securities Act"), applicable state securities laws or this Agreement. The
Series A Stock, when issued, sold and delivered in accordance with the terms of
this Agreement, will have the rights, preferences and privileges specified in
the Certificate of Designation. Holders of shares of the Company's capital
stock have no preemptive rights.
2.3. Investment Representations.
(a) The Company is acquiring the Checkers Shares
for its own account, for investment purposes and not with a view to, or for
sale in connection with, any distribution of the Checkers Shares in violation
of the Securities Act or any applicable state securities law.
(b) The Company acknowledges that the certificates
representing Checkers Shares to be issued to the Company will bear Checker's
standard restrictive legend for unregistered sales of securities.
2.4. Authorization; Enforceability. The Company has all
requisite corporate power and authority to enter into and perform its
obligations under this Agreement and to carry out the transactions contemplated
by this Agreement. All corporate action on the part of the Company necessary
for the authorization, execution, delivery and performance of all of its
obligations under this Agreement, including the approval and authorization of
this Agreement by a committee of Rally's Board of Directors comprised of
persons unaffiliated with any of the Sellers (the "Independent Committee"), has
been taken; provided, that the approval of the Independent Committee is subject
to receipt of a written opinion of L.H. Friend, Weinress, Frankson & Presson,
Inc. ("L.H. Friend") provided for in Section 5.1 hereof. This Agreement had
been duly executed and delivered by the Company and constitutes the valid and
legally binding obligation of the Company, except as the enforcement hereof may
be limited by bankruptcy, insolvency or other laws affecting the enforcement of
creditors' rights generally.
4
<PAGE> 5
2.5. Filing of SEC Reports. The Company has filed with the
Securities and Exchange Commission (the "Commission") all reports and
registration statements (the "Company SEC Reports") required under the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder, except
to the extent that the failure to file any Company SEC Report will not have a
Company Material Adverse Effect (as hereinafter defined). As of their
respective dates, the Company SEC Reports did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein not misleading.
2.6. No Material Adverse Effects. Except as disclosed in a
Company SEC Report or other publicly released announcement, no events have
occurred since the end of the Company's last fiscal year that, singly or in the
aggregate, would reasonably be expected to result in a material adverse change
in the condition (financial or otherwise), net assets, business or prospects of
the Company and its subsidiaries taken as a whole (a "Company Material Adverse
Effect").
2.7. Consents and Approvals. Except as set forth on Schedule
2.7 hereto, the execution and delivery by the Company of this Agreement and any
related documents and instruments, the offer, issuance and delivery of the
Rally's Shares, and the performance by the Company of its obligations under
this Agreement and any related documents and instruments do not require the
consent of any person or entity under any material agreement to which the
Company is a party or otherwise binding on the Company.
2.8. No Conflict with Documents and Instruments. The execution
and delivery by the Company of this Agreement and any related documents and
instruments do not, and the performance by the Company of its obligations
hereunder and thereunder will not, contravene or constitute a default under (a)
the charter or by-laws of the Company, (b) any applicable law or regulation or
(c) any agreement, judgment, injunction, order, decree or other instrument to
which the Company is a party or by which the Company and its assets are
otherwise bound, which in the case of (b) or (c) would constitute a Company
Material Adverse Effect.
2.9. Full Disclosure. Neither this Agreement, nor any
certificates delivered in connection herewith by the Company contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements herein or therein not misleading, in view of the
circumstances in which they were made.
2.10. Brokers and Finders. No person or entity has or will have
any valid claim against the Seller as a result of the transactions contemplated
herein for any commission, fee or other compensation as a broker or finder or
in any similar capacity arising out of any act of the Company.
5
<PAGE> 6
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS.
Each Seller represents and warrants as to such Seller that:
3.1. Organization, Standing and Qualification.
(a) If a corporation or other entity, such Seller
is duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization and is in good standing under the laws of all
jurisdictions in which such Seller is required to qualify to do business,
except where the failure to so qualify would not result in a Seller Material
Adverse Effect (as hereinafter defined).
(b) To Seller's knowledge, Checkers is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is in good standing under the laws of all jurisdictions in which
Checkers is required to qualify to do business, except where the failure to so
qualify would not result in a Checkers Material Adverse Effect (as hereinafter
defined).
3.2. Validity of Checkers Shares. The Checkers Shares held by
Seller are duly authorized and validly issued in accordance with applicable
law, fully paid and nonassessable and, when sold in accordance with this
Agreement, the Company will have good title to the Checkers Shares, free and
clear of any Liens, other than Liens resulting from the actions of the Company
and restrictions on transfer imposed by the Securities Act, applicable state
securities laws or this Agreement.
3.3. Investment Representations.
(a) Seller is acquiring the Rally's Shares for
Seller's own account, for investment purposes and not with a view to, or for
sale in connection with, any distribution of the Rally's Shares in violation of
the Securities Act or any applicable state securities law.
(b) Seller acknowledges that the Rally's Shares,
including the shares of Rally's Common Stock issuable upon conversion of the
Series A Stock, will bear the Company's standard restrictive legend for
unregistered sales of securities.
3.4. Authorization; Enforceability. If a corporation or other
entity, such Seller has all requisite power and authority to enter into and
perform its obligations under this Agreement and to carry out the transactions
contemplated by this Agreement. If an individual, such Seller has full legal
capacity to enter into this Agreement and to perform his or her obligations
under this Agreement. All action on the part of Seller necessary for the
authorization, execution, delivery and performance of all of its, his or her
obligations under this Agreement has been taken. This Agreement has been duly
executed and delivered by Seller and constitutes the valid and legally
6
<PAGE> 7
binding obligation of Seller, except as the enforcement hereof may be limited
by bankruptcy, insolvency or other laws affecting the enforcement of creditors'
rights generally.
3.5. Filing of SEC Reports. To Seller's knowledge, Checkers
has filed with the Commision all reports and registration statements (the
"Checkers SEC Reports") required under the Securities Act and the Exchange Act
and the rules and regulations promulgated thereunder, except to the extent that
the failure to file any Checkers SEC Report will not have a Checkers Material
Adverse Effect (as hereinafter defined). To Seller's knowledge, as of their
respective dates, the Checkers SEC Reports did not contain any untrue statement
of a material fact or omit to state a fact required to be stated therein or
necessary to make the statements made therein not misleading.
3.6. No Material Adverse Effects. To Seller's knowledge,
except as disclosed in a Company SEC Report or other publicly released
announcement, no events have occurred since the end of Checkers' last fiscal
year that, singly or in the aggregate, would reasonably be expected to result
in a material adverse change in the condition (financial or otherwise), net
assets, business or prospects of Checkers and its subsidiaries taken as a whole
(a "Checkers Material Adverse Effect") or a material adverse effect on the
ability of the Sellers to perform their obligations under this Agreement (a
"Seller Material Adverse Effect").
3.7. Consents and Approvals. Except as set forth on Schedule
3.7 hereto, the execution and delivery by the Seller of this Agreement and any
related documents and instruments, the sale and delivery of the Checkers
Shares, and the performance by the Seller of Seller's obligations under this
Agreement and any related documents and instruments do not require the consent
of any person or entity under any material agreement to which such Seller is a
party or which is otherwise binding on such Seller.
3.8. No Conflict with Documents and Instruments. The execution
and delivery by the Seller of this Agreement and any related documents and
instruments do not, and the performance by the Seller of Seller's obligations
hereunder and thereunder will not, contravene or constitute a default under (a)
the charter or by-laws of the Seller, if any, or, to the knowledge of Seller,
of Checkers, (b) any applicable law or regulation or (c) any agreement,
judgment, injunction, order, decree or other instrument to which the Seller or,
to the knowledge of Seller, Checkers is a party or by which the Seller and its
assets or, to the knowledge of Seller, Checkers and its assets are otherwise
bound, which in the case of (b) or (c) would constitute a Checkers Material
Adverse Effect or a Seller Material Adverse Effect.
3.9. Full Disclosure. Neither this Agreement, nor any
certificates delivered in connection herewith by the Seller contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements herein or therein not misleading, in view of the
circumstances in which they were made, as to such Seller.
7
<PAGE> 8
3.10. Brokers and Finders. No person or entity has or will have
any valid claim against the Company as a result of the transactions
contemplated herein for any commission, fee or other compensation as a broker
or finder or in any similar capacity arising out of any act of the Seller.
ARTICLE 4
PRE-CLOSING COVENANTS.
4.1. Mutual Covenants. Each of the parties hereby covenants
and agrees that such party will (a) proceed forthwith, but no later than five
business days from the date hereof, to file, to the extent not already filed,
all notices and documents required under HSR to consummate this Agreement, and
(b) take all action reasonably within its power and authority to duly and
timely carry out all of its, his or her obligations hereunder, to perform and
comply with all of its, his or her covenants, agreements, representations and
warranties hereunder and to cause all conditions to the obligations of the
other parties to complete the transactions provided for herein to be satisfied
as promptly as possible.
4.2. Covenants of Sellers.
(a) Each Seller hereby undertakes and agrees that, between
the effective date of this Agreement and the Closing Date, each will use its,
his or her commercially reasonable best efforts to cause Checkers to:
(i) do nothing to materially and adversely affect
the prospects or continued viability of Checker's business;
(ii) pay no extraordinary compensation to any of
Checker's officers, directors or stockholders and not incur any additional debt
other than in the ordinary course of business;
(iii) except in order to satisfy outstanding options
and/or warrants and/or other commitments, not issue or sell any of its
securities or any securities of any of its subsidiaries, or any rights to
acquire such securities;
(iv) not pay any dividends, redeem any securities
or otherwise cause any asset to be distributed to its stockholders in their
capacities as such;
(v) promptly inform the Company of any offer or
proposal, directly or indirectly, with respect to the sale or transfer of all
or any material part of Checker's stock or assets, and shall furnish such
information with respect thereto as the Company may request; provided that
nothing herein shall preclude Checkers or its Board of Directors from acting in
good faith to comply with the Board's fiduciary obligations under applicable
law;
8
<PAGE> 9
(vi) use its best efforts to preserve intact
Checker's business organization, its goodwill and its customers, suppliers, and
others having business relations with it; and
(vii) file, to the extent not already filed, all
notices and documents required under HSR to consummate this Agreement.
(b) Each Seller hereby undertakes and agrees to vote its
shares of Rally's Common Stock in favor of the conversion provision contained
in Section 9 of the Certificate of Designation.
4.3. Covenants of the Company. The Company undertakes and
agrees that, between the effective date of this Agreement and the Closing Date,
it will:
(a) do nothing to materially and adversely affect
the prospects or continued viability of the Company's business;
(b) pay no extraordinary compensation to any of
its officers, directors or stockholders and shall not incur any additional debt
other than in the ordinary course of business;
(c) except in order to satisfy outstanding options
and/or warrants and/or other commitments, not issue or sell any of its
securities or any securities of any of its subsidiaries, or any rights to
acquire such securities;
(d) not pay any dividends, redeem any securities
or otherwise cause any asset to be distributed to its stockholders in their
capacities as such;
(e) promptly inform Sellers of any offer or
proposal, directly or indirectly, with respect to the sale or transfer of all
or any material part of the Company's stock or assets, and shall furnish such
information with respect thereto as any Seller may request; provided that
nothing herein shall preclude the Company or its Board of Directors from acting
in good faith to comply with the Board's fiduciary obligations under applicable
law; and
(f) use its best efforts to preserve intact the
Company's business organization, its goodwill and its customers, suppliers, and
others having business relations with it.
ARTICLE 5
CONDITIONS TO CLOSING OF SELLERS.
The obligation of Sellers on the Closing Date to purchase the
Rally's Shares under this Agreement shall be subject to each of the following
conditions precedent, any one or more of which may be waived by each Seller as
to itself, himself or herself:
5.1 Fairness Opinion. The Independent Committee shall have
received from L.H. Friend a written opinion, satisfactory in form and substance
to the Independent Committee, to the
9
<PAGE> 10
effect that the transactions provided for herein and the terms and conditions
of this Agreement are fair the Company and to the stockholders of the Company
(other than the Sellers), from a financial point of view (the "Fairness
Opinion").
5.2 Representations and Warranties. The representations and
warranties made by the Company herein shall be true and accurate on and as of
the Closing Date as if made on such Closing Date.
5.3 Performance. The Company shall have performed and
complied with all agreements and conditions contained herein or in other
ancillary documents incident to the transactions contemplated by this Agreement
required to be performed or complied with by it prior to or at the Closing.
5.4 Consents.
(a) The Company and Sellers shall have secured all
permits, consents and authorizations that shall be necessary to consummate this
Agreement.
(b) Any applicable waiting period under HSR, and
the rules and regulations promulgated thereunder, shall have expired or been
terminated.
(c) The Certificate of Designation shall have been
duly filed with the Secretary of State of the State of Delaware.
5.5 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to Sellers and their respective
counsel, and Sellers and their counsel shall have received all such counterpart
originals or certified or other copies of such documents as any Seller or its
counsel may reasonably request.
ARTICLE 6
CONDITIONS TO CLOSING OF COMPANY.
The obligation of the Company on the Closing Date to issue and sell
the Rally's Shares to be purchased under this Agreement shall be subject each
of the following conditions precedent, any one or more of which may be waived
by the Company:
6.1. Fairness Opinion. The Independent Committee shall have
received the Fairness Opinion.
6.2 Representations and Warranties. The representations and
warranties made by each Seller herein shall be true and accurate as to such
Seller on and as of the Closing Date as if made on such Closing Date.
10
<PAGE> 11
6.3 Performance. Each Seller shall have performed and
complied with all agreements and conditions contained herein or in other
ancillary documents incident to the transactions contemplated by this Agreement
required to be performed or complied with by such Seller prior to or at the
Closing.
6.4 Consents.
(a) The Company and Sellers shall have secured all
permits, consents and authorizations that shall be necessary to consummate this
Agreement.
(b) Any applicable waiting period under HSR, and
the rules and regulations promulgated thereunder, shall have expired or been
terminated.
(c) The Certificate of Designation shall have been
duly filed with the Secretary of State of the State of Delaware.
6.5 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Company and its counsel,
and the Company and its counsel shall have received all such counterpart
originals or certified or other copies of such documents as the Company or its
counsel may reasonably request.
6.6 Minimum Sale. The aggregate amount of Checkers Shares
delivered at the Closing pursuant to Sections 1.1 and 1.4(b)(ii) of this
Agreement shall be no less than 15,500,000 shares.
ARTICLE 7
POST CLOSING COVENANTS.
7.1. Proxy Statement. At the next annual or special meeting of
the Company's stockholders or other action of its stockholders, the Company
shall include a proposal in its proxy statement or consent solicitation
statement, as the case may be, to approve conversion of the Series A Stock to
Common Stock in accordance with the terms of the Certificate of Designation and
a recommendation for the approval thereof. The date of the stockholder approval
of such proposal is referred to as the "Approval Date." Notwithstanding the
foregoing, the Company shall not submit such proposal to its stockholders until
the expiration of 90 days after the Closing Date.
7.2. Reservation of Rally's Common Stock. From and after the
effective date of this Agreement, the Company shall continuously maintain in
reserve a number of shares of Common Stock equal to the Common Stock issuable
upon the Closing of the Agreement and upon conversion of the Series A Stock.
11
<PAGE> 12
ARTICLE 8
REGISTRATION OF RALLY'S SHARES
The following provisions govern the registration of the Rally's
Common Stock to be issued at the Closing and Common Stock issuable upon
conversion of the Series A Stock to be issued at the Closing:
8.1. Definitions. As used in this Article, the following terms
have the following meanings:
Form S-3: The form so designated, promulgated by the
Commission for registration of securities under the
Securities Act, and any forms succeeding to the functions
of such form, whether or not bearing the same designation.
Holder: A holder of Registrable Securities, provided that
anyone who acquires any Registrable Securities in a
distribution pursuant to a registration statement filed by
the Company under the Securities Act or in a transaction
under Rule 144 under the Securities Act shall not thereby
be deemed to be a "Holder."
Register, registered and registration: A registration
effected by filing a registration statement in compliance
with the Securities Act and the declaration or ordering by
the Commission of effectiveness of such registration
statement.
Registrable Securities: All shares of Rally's Common Stock
sold hereunder or issuable upon conversion of, or payment
of any dividends in shares of Common Stock on, the Series
A Stock and held by the Sellers upon consummation of the
transactions contemplated herein.
8.2. Shelf Registration.
(a) Filing; Effectiveness.
(i) As soon as practicable, but in no
event more than 45 days after the date of this Agreement, the Company shall
prepare and file with the Commission a "shelf" registration statement (the
"Shelf Registration Statement") on the appropriate form for an offering by
Sellers to be made on a continuous or extended basis pursuant to Rule 415 under
the Securities Act, or such successor rule or similar provision then in effect
("Rule 415"), covering all of the Registrable Securities issuable at the
Closing Date.
(ii) As soon as practicable, but in no
event more than 45 days after the Approval Date or the date of a Dividend paid
in Common Stock, the Company shall prepare and file with the Commission a shelf
registration statment (a "Subsequent Shelf Registration Statement" and,
together with the Shelf Registration Statement, the "Registration
12
<PAGE> 13
Statements") on the appropriate form for an offering by the Sellers to be made
on a continuous or extended basis pursuant to Rule 415 covering all of the
Registrable Securities issued upon conversion of the Series A Stock or payment
of such Dividend, as the case may be.
(iii) The Company shall use its
commercially reasonable best efforts to have the Registration Statements
declared effective within 90 days after their respective filings are made and
to keep such Registration Statements continuously effective for the period
beginning on such date and ending on the earlier of (A) the date on which the
Holders no longer hold any Registrable Securities and (ii) the date that is two
years after the effective date of the respective Registration Statement.
(b) Effective Registration. A registration will
not be deemed to have been effective unless the Registration Statement with
respect thereto has been declared effective by the Commission and the Company
has complied in all material respects with its obligations under this Agreement
with respect thereto; provided, however, that if after it has been declared
effective, the offering of Registrable Securities pursuant to a Registration
Statement is interfered with by any stop order, injunction or other order or
requirement of the Commission or any other governmental agency or court, such
Registration Statement will be deemed not to have become effective during the
period of such interference until the offering of Registrable Securities
pursuant to such Registration Statement may legally resume. If a registration
made pursuant to this Section 8.2 is deemed not to have been effected, then the
Company shall continue to be obligated to effect a registration pursuant to
this Section 8.2.
(c) Form Used for Registration. In the event that
Form S-3 is not available for use by the Company for a Registration Statement
pursuant to this Section 8.2, the Company shall prepare and file a registration
statement on such form as shall be available for use by the Company at the time
the Company is obliged to prepare and file a registration statement hereunder.
In the event that Form S-3 thereafter becomes available for use by the Company,
the Company may prepare and file such Form S-3 in order to comply with its
obligations hereunder.
8.3. Demand Registration.
(a) Request for Registration. Subject to Section
8.7 hereof, from time to time after the Shelf Registration Statement or the
Subsequent Shelf Registration Statement, as the case may be, ceases to be
effective, one or more of the Holders may make written demand that the Company
file a registration statement (a "Demand Registration Statement") under the
Securities Act with the Commission to register shares of Registrable Securities
formerly covered by the Shelf Registration Statement or the Subsequent Shelf
Registration Statement, with an aggregate market value of at least $1,000,000,
which demand shall specify the number of Registrable Securities intended to be
disposed of by each such Holder and the intended method of distribution
thereof. Within 10 days after receipt of such request, the Company shall give
written notice of such registration request to all other Holders. Any Holder
electing to participate in such Demand Registration Statement shall deliver a
written request, which request shall specify the number of Registrable
Securities intended to be disposed of by such Holder and the intended
13
<PAGE> 14
method of distribution thereof, within 15 days after the receipt by the
applicable Holders of the notice from the Company of a request for Demand
Registration Statement. Thereupon, the Company shall prepare and file such
Demand Registration Statement and shall include therein all Registrable
Securities with respect to which the Company has received written demand or
request for registration. The Company shall use commercially reasonable efforts
to have the Demand Registration Statement declared effective on or before the
date which is 120 days after receipt by the Company of the applicable request
for filing of a Demand Registration Statement (a "Demand Registration Filing
Date").
(b) Effective Registration. The Company's
obligations with respect to a Demand Registration Statement will not be deemed
to have been satisfied unless the applicable Demand Registration Statement has
been declared effective by the Commission and the Company has complied in all
material respects with its obligations under this Agreement with respect
thereto; provided, however, that if after it has been declared effective, the
offering of Registrable Securities pursuant to a Demand Registration Statement
is interfered with by any stop order, injunction or other order or requirement
of the Commission or any other governmental agency or court, such Demand
Registration Statement will be deemed not to have become effective during the
period of such interference until the offering of Registrable Securities
pursuant to such Demand Registration Statement may legally resume. If a
registration requested pursuant to this Section 8.3 is deemed not to have been
effected, then the Company shall continue to be obligated to effect a
registration pursuant to this Section 8.3.
(c) Selection of Underwriter. If the Holders elect
to conduct an offering pursuant to a Demand Registration Statement in the form
of an underwritten offering, a majority in interest of the requesting the
Holders participating in such Demand Registration Statement shall have the
right to designate and to select one or more nationally recognized firms of
investment bankers reasonably acceptable to the Company to act as the
book-running managing underwriter or underwriters in connection with such
offering and shall select any additional investment bankers and managers
reasonably acceptable to the Company to be used in connection with the
offering.
8.4. Piggy-Back Registration.
(a) Request for Registration. At any time from and
after the termination of effectiveness of the Registration Statements, each
time the Company proposes to file a registration statement under the Securities
Act with respect to an offering by the Company for its own account or for the
account of its security holders of any class of equity security (other than a
registration statement (A) on Form S-4 or S-8 (or any substitute form that is
adopted by the Commission), (B) filed in connection with an exchange offer or
offering of securities solely to the Company's existing security holders) or
(C) filed in connection with an acquisition, merger or similar transaction, the
Company shall give written notice of such proposed filing to the Holders of
Registrable Securities as soon as practicable (but in no event less than ten
business days before the anticipated filing date), and such notice shall offer
such Holders the opportunity to register such number of shares of Registrable
Securities as each such Holder may request (which request shall specify the
Registrable Securities intended to be disposed of by such Holder and the
intended
14
<PAGE> 15
method of distribution thereof) (a "Piggy-Back Registration"). The Company
shall use commercially reasonable best efforts to cause the managing
underwriter or underwriters of a proposed underwritten offering to permit the
Registrable Securities requested to be included in a Piggy-Back Registration to
be included on the same terms and conditions as any other similar securities of
the Company or any other security holder included therein and to permit the
sale or other disposition of such Registrable Securities in accordance with the
intended method of distribution thereof. Any Holder shall have the right to
withdraw its request for inclusion of its Registrable Securities in any
registration statement pursuant to this Section 8.4(a) by giving written notice
to the Company of such withdrawal. The Company, in its sole discretion, may
withdraw a Piggy-Back Registration at any time prior to the time it becomes
effective, provided that the Company shall give immediate notice of such
withdrawal to the Holders of Registrable Securities requested to be included in
such Piggy-Back Registration.
(b) Reduction of Offering. In connection with an
underwritten offering where Piggy-Back Registration has been requested as
provided in Section 9.4(a), the Company shall use commercially reasonable
efforts to cause all Registrable Securities requested to be included in such
Piggy-Back Registration to be included as provided in Section 9.4(a). If the
managing underwriter or underwriters of any such underwritten offering have
given written notice to the Holders of Registrable Securities requesting
inclusion in such offering that it is their opinion that the total number of
shares which the Company, Holders of Registrable Securities and any other
persons participating in such registration intend to include in such offering
is such as to materially and adversely affect the success of such offering,
then (i) the number of shares to be offered for the account of all other
persons (other than the Company and the Holders) participating in such
registration other than pursuant to demand registration rights shall be reduced
or limited (to zero if necessary) pro rata in proportion to the respective
number of shares requested to be registered by such persons to the extent
necessary to reduce the total number of shares requested to be included in such
offering to the number of shares, if any, recommended by the managing
underwriter or underwriters and (ii) if such managing underwriter or
underwriters recommend a further reduction in the number of shares in the
offering, then the number of shares to be offered for the account of the
Holders shall be reduced or limited (to zero if necessary) pro rata in
proportion to the respective number of shares requested to be registered by
such Holders to the extent necessary to reduce the total number of shares
requested to be include in such offering to the number of shares, if any,
recommended by such managing underwriter or underwriters.
(c) In the case of any registration initiated by
the Company, the Company shall have the right to designate the managing
underwriter in any underwritten offering.
8.5. Registration Procedures. In connection with the
obligations of the Company to effect or cause the registration of any
Registrable Securities pursuant to the terms and conditions of this Agreement,
the Company shall use its commercially reasonable best efforts to effect the
registration and sale of such Registrable Securities in accordance with the
intended method of distribution, and in connection therewith, the Company will:
15
<PAGE> 16
(i) prepare and file with the Commission a
registration statement with respect to such shares and use commercially
reasonable efforts to cause such registration statement to become and remain
effective as provided herein;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and current and to comply with the provisions of the
Securities Act with respect to the disposition of all shares covered by such
registration statement, including such amendments and supplements as may be
necessary to reflect the intended method of disposition from time to time of
the prospective seller or sellers of such shares;
(iii) furnish to each prospective seller such number
of copies of a prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other documents, as such
seller or the managing underwriter may reasonably request in order to
facilitate the public sale or other disposition of the shares owned by such
seller;
(iv) use commercially reasonable best efforts to
register or qualify the shares covered by such registration statement under
such other securities or blue sky or other applicable laws of such jurisdiction
within the United States as each prospective seller shall reasonably request,
to enable such seller to consummate the public sale or other disposition in
such jurisdictions of the shares owned by such seller; provided, however, that
in no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not at the time so qualified or to take any action
which would subject it to service of process in suits other than those arising
out of the offer or sale of the Registrable Securities covered by such
registration statement in any jurisdiction where it is not at the time so
subject;
(v) furnish to each prospective seller a signed
counterpart, addressed to the prospective sellers, of an opinion of counsel for
the Company, dated the effective date of the registration statement, covering
substantially the same matters with respect to the registration statement (and
the prospectus included therein) as are customarily covered (at the time of
such registration) in opinions of issuer's counsel delivered to the
underwriters in underwritten public offerings of securities;
(vi) in the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering; each Holder participating in such underwriting shall also enter into
and perform its obligations under such an agreement;
(vii) notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act or the happening
of any event as a result of which the prospectus included
16
<PAGE> 17
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing;
(viii) apply for listing and use its commercially
reasonable best efforts to list the Registrable Securities being registered on
any national securities exchange on which a class of the Company's equity
securities are listed or, if the Company does not have a class of equity
securities listed on a national securities exchange, apply for qualification
and use its commercially reasonable best efforts to qualify the Registrable
Securities being registered for inclusion on the automated quotation system of
the National Association of Securities Dealers, Inc. or on a national
securities exchange; and
(ix) Provide a transfer agent and registrar for all
Registrable Securities registered hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
8.6. Information by Holder
(a) Each Holder of Registrable Securities and each
underwriter designated by a majority in interest of the requesting Holders,
will furnish to the Company such information as the Company may reasonably
require from such seller or underwriter in connection with the registration
statement (and the prospectus included therein).
(b) Failure of a prospective seller of Registrable
Securities to furnish the information and agreements described in this Section
8.6 shall not affect the obligations of the Company under this Article 8 to
Holders who furnish such information and agreements, unless such failure
impairs or may impair the viability of the offering or the legality of the
registration statement or the underlying offering.
8.7. Limitations on Required Registrations
(a) The Company shall not be required to effect
more than one registration in any twelve-month period, or more than an
aggregate of three registrations, pursuant to Section 8.3 hereof for all
Holders on a combined basis.
(b) If at the time of any demand to register
Registrable Securities pursuant to Section 8.3 hereof, the Company is engaged,
or has fixed plans to engage within 90 days of the time of the request, in a
registered public offering as to which the Holders may include such Stock
pursuant to Section 8.4 hereof or is engaged in any other activity that, in the
good faith determination of the Company's Board of Directors, would be
adversely affected by the demanded registration to the material detriment of
the Company, then the Company may at its option direct that such demand be
delayed for a period not in excess of six months from the effective date of
such offering, or the date or commencement of such other material activity, as
the case may be,
-17-
<PAGE> 18
such right to delay a demand to be exercised by the Company not more than once
in each 12 month period while the rights set forth in Section 8.3 are in
effect.
(c) Notwithstanding anything to the contrary in
this Agreement, the obligation of the Company pursuant to Section 8.3 hereof
shall expire on the seventh anniversary of the Closing.
8.8. Expenses of Registration. All expenses incurred in
effecting any registration pursuant to Sections 8.2, 8.3 and 8.4 including,
without limitation, all registration and filing fees, printing expenses,
expenses of compliance with blue sky laws, fees and disbursements of counsel
for the Company, and expenses of any audits incidental to or required by any
such registration, shall be borne by the Company, except:
(a) all expenses, fees and disbursements of any
counsel retained by the Holders, and all underwriting discounts and commissions
shall be borne by the Holders of the securities registered pursuant to such
registration, pro rata according to the quantity of their securities so
registered;
(b) the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 8.3 if
the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be registered pursuant
thereto (in which case all participating Holders shall bear such expenses); and
(c) a Holder who withdraws from an underwritten
registration pursuant to Section 8.3 shall be required to pay the percentage of
the expenses of such registration which is equal to the percentage that the
number of shares such Holder requested to be registered bears to the total
number of shares to be registered.
8.9. Indemnification
(a) Indemnification by Company. To the extent
permitted by law, the Company will indemnify each Holder requesting or joining
in a registration, each agent, officer and director of such Holder, each person
controlling such Holder and each underwriter and selling broker of the
securities so registered (each, an "Indemnitee" and collectively,
"Indemnitees") against all claims, losses, damages and liabilities, or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering,
circular or other document incident to any registration, qualification or
compliance (or in any related registration statement, notification or the like)
or any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act, the Exchange
Act, or state securities laws or any rule or regulation promulgated under the
Securities Act, the Exchange Act or a state securities law, in each case
applicable to the Company, and will reimburse each Indemnitee for any legal and
any other fees and expenses reasonably incurred in
-18-
<PAGE> 19
connection with investigating or defending any such claim, loss, damage,
liability or action, provided however, that the Company will not be liable to
any Indemnitee in any such case to the extent that any such claim, loss, damage
or liability is caused by any untrue statement or omission based upon written
information furnished to the Company by an instrument duly executed by such
Indemnitee for use therein and except that the foregoing indemnity agreement is
subject to the condition that, insofar as it relates to any such untrue
statement (or alleged untrue statement) or omission (or alleged omission) made
in the preliminary prospectus but eliminated or remedied in the amended
prospectus on file with the Commission at the time the registration statement
becomes effective or in the amended prospectus filed with the Commission
pursuant to Rule 424(b) (the "Final Prospectus"), such indemnity agreement
shall not inure to the benefit of any underwriter or any Indemnitee if there is
no underwriter, if a copy of the Final Prospectus was not furnished by such
underwriter of Indemnitee to the person or entity asserting the loss,
liability, claim or damage at or prior to the time such furnishing is required
by the Securities Act and such underwriter or Indemnitee was required under the
Securities Act to furnish such Final Prospectus; provided further, that this
indemnity shall not be deemed to relieve any underwriter of any of its due
diligence obligations; provided, further, that the indemnity agreement
contained in this Section 8.9(a) shall not apply to amounts paid in settlement
of any such claim, loss, damage, liability or action if such settlement is
effected without the consent of the Company, which consent shall not be
unreasonably withheld.
(b) Indemnification by Holders. To the extent
permitted by law, each Holder (severally and not jointly) requesting or joining
in a registration and each underwriter and selling broker of the securities so
registered will indemnify the Company and its officers and directors and each
person, if any, who controls any thereof within the meaning of Section 15 of
the Securities Act, and their respective successors against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other documents incident to
any registration, qualification or compliance (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein a material fact required to be so stated therein or necessary to
make the statements therein not misleading and will reimburse the Company and
each other person indemnified pursuant to this paragraph (b) for any legal and
any other fees and expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action,
provided, however, that this paragraph (b) shall apply only if (and only to the
extent that) such statement or omission was made in reliance upon and in strict
conformity with written information (including, without limitation, written
negative responses to inquiries) furnished to the Company by an instrument duly
executed by such Holder, underwriter or selling broker and stated to be
specifically for use in such prospectus, offering circular or other document
(or related registration statement, notification or the like) or any amendment
or supplement thereto; provided, that the indemnity agreement contained in this
Section 8.9(b) shall not apply to amounts paid in settlement or any such claim,
loss, damage, liability or action if such settlement is effected without the
consent of the Holder or underwriter, as the case may be, which consent shall
not be unreasonably withheld and provided, further, that the obligation of any
such Holder shall be limited to an amount equal to the net proceeds received by
such Holder from the sale of the Registered Securities in such offering
-19-
<PAGE> 20
contemplated herein, unless such claim, loss, damage, liability or action
resulted from such Holder's fraudulent misconduct.
(c) Each party entitled to indemnification
hereunder (the "Indemnified Party") shall give notice to the party required to
provide the indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party (at its expense) to assume
the defense of any claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, shall conduct the defense of such claim or
litigation, shall be reasonably satisfactory to he Indemnified Party and the
Indemnified Party may participate in such defense at such party's expense, and
provided further that the omission by any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 8.9 except to the extent that the omission results in a
failure of actual notice to the Indemnifying Party and such Indemnifying Party
is damaged solely as a result of the failure to give notice. The Indemnified
Party may retain separate counsel; provided that the fees and expenses of such
separate counsel shall be paid by the Indemnifying Party only if the
Indemnified Party reasonably concludes that there may be defenses available to
it, him or her which are different from or additional to those available to the
Indemnifying Party and the Indemnifying Party approves such conclusion, which
approval shall not be unreasonably withheld. No Indemnifying Party, in the
defense of any such claim or litigation, shall consent, except with the consent
of each Indemnified Party, to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
(d) If the indemnification provided for in this
Section 8.9 is held by a court of competent jurisdiction to be unavailable to
an Indemnified Party with respect to any loss, liability, claim, damage or
expense referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such loss, liability,
claim, damage or expenses in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party on the one hand and of the Indemnified
Party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage or expense as well as any other relevant
equitable considerations. This relative fault of the Indemnifying Party and of
the Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative
intent, knowledge, access to information, and opportunity to correct or prevent
such statement or omission.
(e) Notwithstanding the foregoing, to the extent
that the provisions on indemnification and contribution in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
-20-
<PAGE> 21
(f) The reimbursement required by this Section 8.9
shall be made by periodic payments during the course of the investigation or
defense, as and when bills are received or expenses incurred.
(g) The obligations of the Company under this
Section 8.9 shall survive the conversion, if any, of the Series A Stock, the
completion of any offering of Registrable Securities in a registration
statement under this Section 8, or otherwise.
8.10. Transfer of Registration Rights. The registration rights
granted to Holders under this Article 8 may be transferred but only to (i) a
transferee who shall acquire not less than the greater of 6,000 shares of
Registrable Securities or 50% of the Registrable Securities held by any Holder
and (ii) affiliates of any Holder. Any such transfer shall become effective
only after receipt by the Company of (i) a written notice of the transfer,
including the name, address and tax payer identification number of the
transferee and the number of Registrable Securities transferred, and (ii) an
agreement executed by the transferee to be bound by the terms of this
Agreement.
8.11. "Stand Off" Agreement. In consideration for the Company
performing its obligations under this Section 8, Holders agree that for a
period of time (not to exceed 120 days) from the effective date of any
registration of an underwritten public offering of securities of the Company
(upon request of the Company or of the underwriters managing such underwritten
offering), Holder shall not sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
or any other stock of the Company held by Holder, other than shares of
Registrable Securities included in the registration without the prior written
consent of the Company or such underwriters, as the case may be.
8.12. Delay of Registration. A Holder shall have no right to
take any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation
or implementation of this Article.
8.13. Reports Under the Securities Act and the Exchange Act.
With a view to making available to the Holders the benefits of any rule or
regulation of the Commission that may at any time permit a Holder to sell
securities of the Company to the public pursuant to a registration on Form S-3,
the Company agrees to file with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act.
8.14. Affiliate Status of Holder. At any time after the second
anniversary of the issuance of any Registrable Securities, if a Holder is not,
and has not been for at least the prior three months, an affiliate of the
Company for purposes of Rule 144 under the Securities Act and delivers to the
Company an opinion to that effect from counsel reasonably acceptable to the
Company, such Holder may request the Company to remove any related restrictive
legend on such Holder's certificates representing shares of Rally's Common
Stock, which request the Company agrees to honor promptly in the normal course
of business. After such removal, the owner of any
-21-
<PAGE> 22
such shares no longer shall be a Holder and such shares no longer shall be
Registrable Securities subject to this Article 8.
ARTICLE 9
MISCELLANEOUS
9.1. Expenses. Each party to this Agreement shall bear its own
expenses relating to the preparation, execution, delivery and performance of
this Agreement and all transactions contemplated thereby.
9.2. Survival of Agreements. All agreements, presentations and
warranties and covenants contained herein or made in writing by or on behalf of
any party in connection with the transactions contemplated hereby shall survive
the execution and delivery of this Agreement (despite any investigation at any
time made by any other party or on its behalf). All statements contained in any
certificate or other instrument executed and delivered by any party or its duly
authorized officers or representatives pursuant hereto in connection with the
transactions contemplated hereby shall be deemed representations by the that
party hereunder.
9.3. Sellers' Obligations Several. Each Seller's obligations
under this Agreement are several, and no Seller is jointly obligated hereunder
to render the performance of any other Seller, nor excused from performance
hereunder by reason of any other Seller's nonperformance.
9.4. Notices. All notices, requests, consents and other
communications herein shall be in writing and shall be deemed to be delivered
(i) on the date delivered, if personally delivered or transmitted via facsimile
with return confirmation of such transmission; (ii) on the business day after
the date sent, if sent by recognized overnight courier service and (iii) on the
fifth day after the date sent, if mailed by first-class certified mail, postage
prepaid and return receipt requested, as follows:
If to the Company: Rally's Hamburgers, Inc.
10002 Shelbyville Road, Suite 150
Louisville, Kentucky 40223
Attention: James J. Gillespie
Facsimile No: (502) 245-3619
Telephone No: (502) 245-8900
with copies to: Greenebaum Doll & McDonald, PLLC
3300 First National Tower
Louisville, Kentucky 40202
Attention: Patrick Welsh, Esq.
Facsimile No.: (502) 587-3695
Telephone No.: (502) 589-4200
-22-
<PAGE> 23
Christensen, Miller, Fink, Jacobs, Glaser,
Weil & Shapiro, LLP
2121 Avenue of the Stars, Eighteenth Floor
Los Angeles, California 90067
Attention: Janet S. McCloud, Esq.
Facsimile No: (310) 556-2920
Telephone No.: (310) 553-3000
If to Sellers: To the parties at such addresses as are
listed on Exhibit A attached hereto
or other such addresses as each of the parties hereto may provide from time to
time in writing to the other parties.
9.5. Modifications; Waiver. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally or in
writing, except that any provision of this Agreement may be amended and the
observance of any such provision may be waived (either generally or in a
particular instance and either retroactively or prospectively) with (but only
with) the written consent of the Company and each of the Sellers.
9.6 Entire Agreement. This Agreement, together with the
schedules and exhibits attached hereto and made a part hereof, contains the
entire agreement between the parties with respect to the transactions
contemplated hereby, and supersedes all negations, agreements, representations,
warranties, commitments, whether in writing or oral, prior to the date hereof.
9.7 Successors and Assigns. Except as otherwise expressly
provided in this Agreement, all of the terms of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective
successors and transferees of the parties hereto.
9.8 Enforcement.
(a) Remedies at Law or in Equity. If any party
hereto shall default in any of its obligations under this Agreement or if any
representation or warranty made by or on behalf of it in this Agreement or in
any certificate, report or other instrument delivered by it under or pursuant
to any term hereof shall be untrue or misleading in any material respect as of
the date of this Agreement or as of the Closing Date or as of the date it was
made, furnished or delivered, any other party may proceed to protect and
enforce its rights by suit in equity or action at law, whether for the specific
performance of any term contained in this Agreement, injunction against the
breach of any such term or in furtherance of the exercise of any power granted
in this Agreement, or to enforce any other legal or equitable right of such
party or to take any one of more of such actions. In the event any party brings
such an action against another, the prevailing party in such dispute, as
determined by a final non-appealable order, shall be entitled to recover from
the losing party all fees, costs and expenses enforcing any right of such
prevailing party under or with respect to
-23-
<PAGE> 24
this Agreement, including without limitation such reasonable fees and expenses
of attorneys and accountants, which shall include, without limitation, all
fees, costs and expenses of appeals.
(b) Remedies Cumulative; Waiver. No remedy
referred to herein is intended to be exclusive, but each shall be cumulative
and in addition to any other remedy referred to above or otherwise available at
law or in equity. No express or implied waiver by any party of any default
shall be a waiver of any future or subsequent default. The failure or delay of
any party in exercising any rights granted hereunder shall not constitute a
waiver of any such right and any single or partial exercise of any particular
right by any party shall not exhaust the same or constitute a waiver of any
other right provided herein.
9.9 Execution and Counterparts; Facsimile Execution. This
Agreement may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed an original, and all such counterparts
together shall constitute one instrument. In addition, to the extent that
receipt is confirmed, this Agreement may be executed and sent by telecopy with
the original to follow by a nationally recognized overnight delivery service.
9.10 Governing Law; Jurisdiction; and Severability. This
Agreement shall be governed by the internal laws of the State of Delaware,
without regard to principles of conflicts of law. Each party hereto consents to
the jurisdiction of any federal court located in the State of California,
County of Los Angeles for the purpose of any action, suit or proceeding arising
out of or based on this Agreement or any provision hereof. In the event any
provision of this agreement of the application of any such provision to any
party shall be held by a court of competent jurisdiction to be contrary to law,
the remaining provisions of this agreement shall remain in full force and
effect.
9.11 Headings. The descriptive headings of the Sections hereof
and the Schedules and Exhibits hereto are inserted only and do not constitute a
part of this Agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
-24-
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
by their duly authorized officers as of the date first written above.
THE COMPANY:
RALLY'S HAMBURGERS, INC.
By:
-------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
SELLERS:
CKE RESTAURANTS, INC.
By:
-------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
FIDELITY NATIONAL FINANCIAL, INC.
By:
-------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
GIANT GROUP, LTD.
By:
-------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
----------------------------------------------
DAVID GOTTERER
----------------------------------------------
BURT SUGARMAN
-25-
<PAGE> 26
-------------------------------------------
MARY HART SUGARMAN
AJ SUGARMAN
By:
----------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
-------------------------------------------
DAVID MALCOLM
-------------------------------------------
TERRY CHRISTENSEN
-------------------------------------------
TERRY CHRISTENSEN, AS
TRUSTEE FOR THE RETIRE-
MENT PLAN FOR THE EMPLOY-
EES OF TERRY CHRISTENSEN, A
PROF. CORP.
-------------------------------------------
AL SUGARMAN
THE TRAVELERS INDEMNITY COMPANY
By:
----------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
-26-
<PAGE> 27
-------------------------------------------
WILLIAM P. FOLEY II
-------------------------------------------
FRANK WILLEY
-------------------------------------------
CARL STRUNK
-------------------------------------------
ANDREW PUZDER
WEDBUSH MORGAN, AS CUSTODIAN
FOR THE PATRICK F. STONE IRA,
ACCOUNT # 78785255
By:
----------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
-------------------------------------------
WILLIAM IMPARATO
-------------------------------------------
DANIEL D. LANE
-------------------------------------------
DANNY LANE
-27-
<PAGE> 28
-----------------------------------------
CARY H. THOMPSON
-----------------------------------------
STEPHEN C. MAHOOD
-----------------------------------------
CARL L. KARCHER
-----------------------------------------
CARL N. KARCHER
-----------------------------------------
W. HOWARD LESTER
-----------------------------------------
C. THOMAS THOMPSON
BYRON E. AND SHARON K. ALLUMBAUGH,
TRUSTEES OF THE BYRON AND SHARON
ALLUMBAUGH REVOCABLE TRUST
DTD 1/2/91
By:
--------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
-28-
<PAGE> 29
MERRILL LYNCH, AS TRUSTEE FOR
THE ERNIE SMITH IRA, ACCOUNT
#223-86756
By:
----------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
-------------------------------------------
RON MAUDSLEY
MERRILL LYNCH, AS TRUSTEE FOR THE
PAUL DEFALCO IRA, ACCOUNT #223-8301
By:
----------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
-29-
<PAGE> 30
EXHIBIT A
<TABLE>
<CAPTION>
Rally's
Checker's -----------------------
Common Shares Common Preferred
to be Shares Shares
Converted Issued Issued
------------- --------- ---------
<S> <C> <C> <C>
CKE Restaurants, Inc. 12,754,885 2,798,080 28,619
Fidelity National Financial, Inc. 1,680,616 368,673 3,771
GIANT GROUP, LTD. 200,045 43,869 449
David Gotterer 113,438 24,838 255
Burt Sugarman 113,438 24,838 255
Mary Hart Sugarman 272,230 59,702 611
A J Sugarman 27,168 5,955 61
David Malcolm 272,230 59,702 611
Terry Christenson 55,353 12,162 124
Al Sugarman 45,353 9,925 102
Travelers 1,270,769 -- 5,639
William P. Foley II 453,754 99,553 1,018
Frank Willey 226,877 49,776 509
Carl Strunk 64,353 14,156 144
Andrew Puzder 45,353 9,925 102
Pat Stone 45,353 9,925 102
William Imparato 226,877 49,776 509
Daniel D. Lane 181,522 39,850 407
Danny Lane 45,353 9,925 102
Cary H. Thompson 45,353 9,925 102
Stephen C. Mahood 90,707 19,851 204
Carl L. Karcher 226,877 49,776 509
Carl N. Karcher 90,707 19,851 204
C. Howard Lester 272,230 59,702 611
C. Thomas Thompson 45,353 9,925 102
Byron Allumbaugh 90,707 19,851 204
Ernie Smith 45,353 9,925 102
Ron Maudsley 45,353 9,925 102
Paul De Falco 53,353 9,975 137
---------- --------- ------
Total 19,100,960 3,909,336 45,667
========== ========= ======
</TABLE>
<PAGE> 31
CKE Restaurants
1200 N. Harbor Boulevard
Anaheim, CA 92803
Fidelity National Financial, Inc.
17911 Von Karman Avenue
Suite 300
Irvine, CA 92614
GIANT GROUP, LTD.
9000 Sunset Boulevard
16th Floor
Los Angeles, CA 90069
David Gotterer
425 E. 58th Street
New York, NY 10022
Burt Sugarman
c/o GIANT GROUP, LTD.
9000 Sunset Boulevard
16th Floor
Los Angeles, CA 90069
Mary Hart Sugarman
c/o GIANT GROUP, LTD.
9000 Sunset Boulevard
16th Floor
Los Angeles, CA 90069
A J Sugarman
c/o GIANT GROUP, LTD.
9000 Sunset Boulevard
16th Floor
Los Angeles, CA 90069
David Malcolm
509 Beacon Place
Chula Vista, CA 91910
A-1
<PAGE> 32
Terry N. Christensen
2121 Avenue of the Stars, 1800
Los Angeles, CA 90067
Terry N. Christensen, as Trustee for the
Retirement Plan for the Employees of
Terry Christensen, a Prof. Corp.
2121 Avenue of the Stars, 1800
Los Angeles, CA 90067
Al Sugarman
c/o GIANT GROUP, LTD.
9000 Sunset Boulevard
16th Floor
Los Angeles, CA 90069
The Travelers Indemnity Company
388 Greenwich Street
36th Floor
New York, NY 10013
William P. Foley II
3916 State Street
Suite 300
Santa Barbara, CA 93105
Frank P. Willey
3916 State Street
Suite 300
Santa Barbara, CA 93105
Carl A. Strunk
3916 State Street
Suite 300
Santa Barbara, CA 93105
Andrew F. Puzder
3916 State Street
Suite 300
Santa Barbara, CA 93105
Wedbush Morgan, as Custodian for the
Patrick F. Stone IRA, Account #78785255
A-2
<PAGE> 33
3916 State Street
Suite 300
Santa Barbara, CA 93105
William A. Imparato
1515 East Missouri
Building A
Phoenix, AZ 85015
Daniel D. Lane
14 Corporate Plaza
Newport Beach, CA 92660
Danny Lane
14 Corporate Plaza
Newport Beach, cA 92660
Cary H. Thompson
c/o Aames Financial
350 So. Grand
52nd Floor
Los Angeles, CA 90070
Stephen C. Mahood
500 Crescent Court
Suite 270
Dallas, TX 75201
Carl L. Karcher
72-875 Fred Waring Drive
Suite C
Palm Desert, CA 92660
Carl Nicholas Karcher
1200 N. Harbor Blvd.
Anaheim, CA 92803
C. Howard Lester
3250 Van Ness
San Francisco, CA 94109
A-3
<PAGE> 34
C. Thomas Thompson
1200 N. Harbor Blvd.
Anaheim, CA 92803
Byron E. and Sharon K. Allumbaugh, Trustees of the
Byron and Sharon Allumbaugh Revocable Trust DTD 1/2/91
33 Ridgeline Drive
Newport Beach, CA 92660
Merrill Lynch, as Trustee for the Ernie Smith IRA, Account #223-86756
3916 State Street
Suite 300
Santa Barbara, CA 93105
Ron Maudsley
3916 State Street
Suite 300
Santa Barbara, CA 93105
Merrill Lynch, as Trustee for the Paul De Falco IRA, Account #223-83014
3916 State Street
Suite 300
Santa Barbara, CA 93105
A-4
<PAGE> 35
CERTIFICATE OF DESIGNATION
of
SERIES A PARTICIPATING PREFERRED STOCK
of
RALLY'S HAMBURGERS, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
RALLY'S HAMBURGERS, INC., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), in
accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors in
accordance with the provisions of the Corporation's Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), the said Board
of Directors on December 8, 1997, adopted the following resolution creating a
series of 45,667 shares of Preferred Stock designated as "Series A Participating
Preferred Stock":
RESOLVED, that pursuant to the authority vested in the Board
of Directors of this Corporation in accordance with the provisions of
the Certificate of Incorporation, Series A of Preferred Stock, par
value $.10 per share, of the Corporation be and hereby is created, and
that the designation and number of shares thereof and the voting and
other powers, preferences and relative, participating, optional or
other rights of the shares of such series and the qualifications,
limitations and restrictions thereof are as follows:
SERIES A PARTICIPATING PREFERRED STOCK
1. Designation and Amount. There shall be a series of Preferred
Stock that shall be designated as "Series A Participating Preferred Stock"
(hereinafter referred to as the "Series A Preferred"), and the number of shares
constituting such series shall be 45,667. Such number of shares may be decreased
by resolution of the Board of Directors; provided, however, that no decrease
shall reduce the number of shares of Series A Preferred to less than the number
of shares then issued and outstanding.
1
<PAGE> 36
2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Preferred with respect to dividends and distributions (other
than payments on liquidation, dissolution or winding up to which Section 6
hereof is applicable) (hereinafter "Dividends"), each share of Series A
Preferred at that time issued and outstanding, in preference to shares of any
class or series of stock of the Corporation ranking junior to the Series A
Preferred with respect to Dividends, shall be entitled to receive, out of funds
or property legally available for the purpose, a Dividend accruing from the date
hereof and equal, on a per share basis, to $43.50 per annum; provided, that such
Dividends shall accrue from the closing date for the sale of the Series A
Preferred only if either (i) the conversion of the Series A Preferred pursuant
to Section 9 hereof and any change in the number of authorized or outstanding
shares of the Corporation's common stock, $.10 par value per share, or such
other stock of the Corporation into which the common stock may be converted (the
"Common Stock"), needed to enable the Corporation to fulfill its obligations
hereunder are not approved at the first action by the Corporation's stockholders
occurring after the date hereof (the "Stockholder Approval") or (ii) the Series
A Preferred is not converted into Common Stock prior to August 15, 1998. Such
Dividends shall be payable (i) in cash, (ii) in shares of Common Stock having an
aggregate fair market value (determined in accordance with Section 10 hereof)
equal to the amount of such Dividend, or (iii) in cash and shares of Common
Stock having an aggregate market price equal to the amount of such Dividend, as
determined by the Board of Directors, in its sole discretion. Such Dividends
shall be payable in arrears, commencing on August 31, 1998, and quarterly
thereafter, on the last day of November, February, May and August, to holders of
record of the Series A Preferred on such dates as the Board of Directors (or any
authorized Committee thereof) may from time to time determine, but only when and
as declared by the Board of Directors (or such Committee). Such Dividends shall
be payable before any Dividends shall be declared or paid upon, or set apart
for, the issued and outstanding Common Stock and shall be cumulative, so that if
at any time any Dividends upon the outstanding shares of Series A Preferred
shall have not been paid thereon, or declared and set apart therefor, with
respect to all preceding dividend periods, the amount of the deficiency shall be
fully paid, or declared and funds or property set apart for payment, but without
interest, before any Dividend shall be paid upon, or declared and funds or
property set apart for, the Common Stock.
(B) If at any time any cash Dividend on any other class or
series of Preferred Stock of the Corporation having cumulative Dividend rights
shall be in default, in whole or in part, no cash Dividend shall be paid, or
declared and set apart for payment, on the Series A Preferred unless
concurrently therewith, there shall be paid, or declared and set apart for
payment, without interest, all Dividends for all prior dividend periods on any
other class or series of cumulative Preferred Stock of the Corporation which may
hereafter be created having with respect to Dividend rights priority over or
parity with the Series A Preferred; provided, however, in the event such default
in Dividend payments is with respect only to the Series A Preferred and any
other class or any series of cumulative Preferred Stock of the Corporation which
may hereafter be created having with respect to Dividend rights parity with the
Series A Preferred, Dividends
2
<PAGE> 37
may be paid or declared and set apart for payment, without interest, on the
Series A Preferred and such other class or series of cumulative Preferred Stock
in amount proportional to the amounts by which such Dividends are in default for
the Series A Preferred and such other class or series of cumulative Preferred
Stock.
(C) Dividends paid on the Series A Preferred in an amount less
than the total amount of Dividends at the time accrued and payable shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred entitled to receive payment of a
Dividend declared thereon, which record date shall be no more than 60 days prior
to the date fixed for the payment thereof.
(D) Any reference to "Dividends" contained in this Certificate
of Designation shall not be deemed to include any Dividend on any class or
series of stock ranking junior to the Series A Preferred which is payable in
capital stock of the Corporation, or in rights or warrants to acquire capital
stock of the Corporation, nor shall any such reference to "Dividends" in
relation to issued and outstanding shares be deemed to limit, curtail, or divest
the authority of the Board of Directors to make any proper distributions,
including distributions of authorized but unissued Common Stock, if any.
3. Voting Rights. The holders of shares of Series A Preferred
shall have no voting rights except as expressly provided herein:
(A) If the Corporation fails to declare and pay two Dividends,
which holders of Series A Preferred are entitled to receive pursuant to Section
2 hereof, whether or not such failure is for consecutive periods, then and in
such event, the number of directors constituting the Corporation's Board of
Directors shall be increased by two, and the holders of the Series A Preferred
(voting as a separate class) shall be entitled at any annual meeting of the
stockholders to elect two directors of the Corporation; provided, however, that
the holders of Series A Preferred may, through the written consent of holders of
Series A Preferred representing a majority of the issued and outstanding shares
thereof, elect two directors to serve as directors of the Corporation until
their successors are elected at the next annual meeting of stockholders. The
presence in person or by proxy of the persons entitled to vote a majority of the
shares of the Series A Preferred at any such meeting shall constitute a quorum
for the purpose of electing directors as hereinabove provided. Such right of the
holders of the Series A Preferred to elect directors may be exercised until the
stockholders of the Corporation approve the conversion of the Series A Preferred
into Common Stock pursuant to Section 9 hereof, and if and when such conversion
is so approved, the right of the holders of Series A Preferred to elect any
directors shall cease. The directors so elected shall serve until their
respective successors shall be elected and qualified; provided, however, that
whenever the holders of the Series A Preferred shall cease to have the special
rights to elect directors as above provided, the terms of office of all persons
elected as directors by the holders of the Series A Preferred, or elected to
fill any vacancies or directors so elected by the holders of the Series A
Preferred, shall thereupon automatically terminate.
3
<PAGE> 38
If, during any interval between annual meetings of stockholders for
the election of directors, and while the holders of the Series A Preferred shall
be entitled to elect directors pursuant to this Paragraph (A) of Section 3, the
number of directors who have been elected by the holders of the Series A
Preferred shall, by reason of death, resignation or removal, be less than two,
the vacancy or vacancies in the directors elected by the holders of the Series A
Preferred may be filled by the written consent of holders of Series A Preferred
representing a majority of the issued and outstanding shares thereof.
(B) The approval of the holders of two-thirds (2/3) of the
outstanding shares of Series A Preferred (voting as a separate class) shall be
required for an amendment of the Certificate of Incorporation which would
materially alter or change the powers, preferences or special rights of the
Series A Preferred so as to affect them adversely.
(C) Except as required by law, holders of the Series A
Preferred shall have no other voting rights and their consent shall not be
required for taking any corporate action.
4. Certain Restrictions.
(A) Whenever Dividends payable on the Series A Preferred as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid Dividends, whether or not declared, on shares of Series A Preferred
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay Dividends on, or redeem or purchase
or otherwise acquire for consideration any shares of stock ranking with respect
to Dividends junior (either as to Dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred;
(ii) declare or pay any Dividends on any shares of stock
ranking with respect to Dividends on a parity (either as to Dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred and all such
parity stock on which Dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled; or
(iii) purchase or otherwise acquire for consideration any
shares of Series A Preferred, or any shares ranking with respect to Dividends on
a parity with the Series A Preferred, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors) to
all holders of Series A Preferred, or to such holders and holders of any such
shares ranking on a parity therewith, upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other relative
rights and preferences of the respective series and classes, shall determine in
good faith will result in fair and equitable treatment among the respective
series or classes.
4
<PAGE> 39
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of the
Corporation unless the Corporation could, under Paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
5. Reacquired Shares. Any shares of Series A Preferred purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired promptly after the acquisition thereof. All such shares shall upon their
retirement become authorized but unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock to be created by resolution
or resolutions of the Board of Directors, subject to any conditions and
restrictions on issuance set forth herein.
6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution
or winding up of the Corporation, no distribution shall be made to the holders
of shares of stock ranking junior (upon liquidation, dissolution or winding up)
to the Series A Preferred unless, prior thereto, the holders of shares of Series
A Preferred shall have received an amount per share equal to $300.00 plus
accrued unpaid Dividends, based upon the number of days elapsed and a 360-day
year (the "Liquidation Preference").
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Liquidation Preference and the
liquidation preferences of all other series of Preferred Stock, if any, ranking
(upon liquidation, dissolution or winding up) on a parity with the Series A
Preferred, then such remaining assets shall be distributed ratably to the
holders of such parity shares in proportion to their respective liquidation
preferences.
(C) Upon any liquidation (voluntary or otherwise), dissolution
or winding up of the Corporation, and after payment in full of the Liquidation
Preference to holders of the Series A Preferred and after holders of the Common
Stock shall have received an amount per share equal to the Liquidation
Preference, then the remaining assets of the Corporation shall be distributed
ratably to the holders of the Series A Preferred and the Common Stock.
(D) In case the Corporation shall (a) pay a Dividend on its
Common Stock in shares of its capital stock, (b) subdivided its outstanding
Common Stock into a greater number of shares, (c) combine the shares of its
outstanding Common Stock into a smaller number of shares, or (d) issue by
reclassification of its Common Stock any shares of its capital stock, then the
amount of any distribution to which the Series A Preferred shall be entitled
pursuant to paragraph (C) of this Section 6 shall be adjusted by multiplying the
amount of the distribution to which the Series A Preferred would have theretofor
been entitled by a freaction the denominator of which is the number of shares of
Common Stock outstanding immediately prior to any such event and
5
<PAGE> 40
the numerator of which is the number of shares of Common Stock outstanding
immediately after any of the foregoing events.
(E) Neither the merger or consolidation of the Corporation
into or with another corporation nor the merger or consolidation of any other
corporation into or with the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
6.
7. Consolidation, Merger, Etc.
(A) In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the Common
Stock is to be exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case each share of Series A
Preferred shall at the same time be similarly exchanged or changed in an amount
per share equal to the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be (but not as to any voting
rights) into which or for which each share of Common Stock is changed or
exchanged.
(B) In case (i) a tender or exchange offer for 25% of the
outstanding shares of Common Stock is successfully completed, (iii) the
Corporation shall sell all or substantially all of the Corporation's assets, or
(iv) any other event, other than as described in Section 7(A), occurring after a
failure by the Company to obtain the Stockholder Approval at the first action by
the Corporation's stockholders occurring after the date hereof which results in
a change of control of the Corporation, then in any such case, each share of
Series A Preferred shall at the same time be automatically redeemed for the then
current Liquidation Preference.
8. Redemption. The Series A Preferred shall be redeemed for the
then current Liquidation Preference on or prior to the third anniversary of the
date hereof. If the Corporation does not redeem the Series A Preferred as
required by this Section 8, then: (i) the Dividend which holders of the Series A
Preferred are entitled to receive hereunder shall increase to $54.00 per share
per annum; and (ii) if the holders of the Series A Preferred are not otherwise
entitled to elect two directors, the number of directors constituting the Board
of Directors shall be increased by two, and the holders of the Series A
Preferred (voting as a separate class) shall be entitled to elect two directors
of the Corporation in accordance with the terms and procedures set forth in
Section 3 hereof; provided that the Company may, at any time thereafter, redeem
the Series A Preferred at the Liquidation Preference in effect on the date of
such redemption.
9. Conversion.
(A) The provisions of this Section 9 are expressly conditioned
upon, and shall not take effect until, approval by the Corporation's
stockholders. The Corporation shall not submit this Section 9 for approval by
the Corporation's stockholders until the expiration of 90 days after the initial
issuance of the Series A Preferred.
6
<PAGE> 41
(B) Upon the date of the Stockholder Approval (the "Conversion
Date"), the Series A Preferred shall be automatically converted into the Common
Stock and such other capital stock of the Corporation as hereinafter provided.
The Corporation shall cause a notice of such stockholder approval to be mailed,
as soon as practicable thereafter, to the holders of record of the outstanding
Series A Preferred on the date of such approval, and to the transfer agent, if
any, for the Series A Preferred. Upon the Conversion Date, the holders of the
Series A Preferred shall be deemed to be holders of the number of shares of the
Common Stock into which their shares of Series A Preferred have been converted,
and shall have no rights with respect to the Series A Preferred except to
exchange the certificate(s) representing the holder's shares of Series A
Preferred for certificates representing Common Stock.
(C) Each share of Series A Preferred shall be convertible at
the office of the transfer agent for the Series A Preferred, if any, or at such
other office or offices, as the Board of Directors of the Corporation may
designate, into the number of fully paid and nonassessable shares of Common
Stock of the Corporation (calculated as to each conversion to the nearest
1/100th of a share) obtained by dividing the then current Liquidation Preference
attributable to a share of Series A Preferred by $3.00, subject to adjustment as
provided in Paragraph (F) of this Section 9 (the "Conversion Rate").
Notwithstanding any other provision of this Section 9, no change in the
Conversion Rate shall actually be made until the cumulative effect of the
adjustments called for by this Section 9 since the date of the last change in
the Conversion Rate would change the Conversion Rate by more than two percent
(2%). However, once the cumulative effect would result in a two percent (2%)
change, then the conversion rate shall be changed to reflect all adjustments
called for by this paragraph and not previously made.
(D) No fractional shares of Common Stock shall be issued upon
conversion of Series A Preferred but, in lieu of any fraction of a share of
Common Stock which would otherwise be issuable in respect of the aggregate
number of shares surrendered for conversion at one time by the same holder, the
Corporation shall pay in cash an amount equal to the product of the then current
Liquidation Preference multiplied by a number equal to such fraction of a share.
(E) The Conversion Rate shall be subject to adjustment from
time to time in certain cases as follows:
(i) In case the Corporation shall (a) pay a dividend on
its Common Stock in shares of its capital stock, (b) subdivide its outstanding
Common Stock into a greater number of shares, (c) combine the shares of its
outstanding Common Stock into a smaller number of shares, or (d) issue by
reclassification of its Common Stock (including any such reclassification in
connection with a consolidation or merger in which the Corporation is the
continuing corporation) any shares of its capital stock, the Conversion Rate in
effect immediately prior thereto shall be proportionately adjusted so that the
holder of any Series A Preferred thereafter surrendered for conversion shall be
entitled to receive, to the extent permitted by applicable law, the number and
kind of shares of capital stock of the Corporation which he would have owned or
have been entitled to receive after the happening of such event had such Series
A Preferred been
7
<PAGE> 42
converted immediately prior to the happening of such event. Such adjustment
shall be made whenever any of such events shall occur. An adjustment made
pursuant to this Paragraph (F)(i) of Section 9 shall become effective,
retroactively, immediately after the record date in the case of a stock dividend
and shall become effective immediately after the effective date in the in case
of subdivision, combination or reclassification.
(ii) In case the Corporation shall issue rights or
warrants to all holders of its Common Stock entitling them (for a period
expiring within forty-five (45) days after the record date mentioned below) to
subscribe for or purchase Common Stock at a price per share less than the fair
market value per share of the Common Stock (as defined above) at the record date
mentioned below, the Conversion Rate then in effect shall be adjusted by
multiplying it by the ratio which (a) the number of shares of Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares so
offered would purchase at such current market price bears to (b) the number of
shares of Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of additional Common Shares offered for subscription or
purchase. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective, retroactively, immediately after the record
date for the determination of shareholders entitled to receive such rights or
warrants.
(iii) In case the Corporation shall distribute to all
holders of its Common Stock (including any such distribution made in connection
with a consolidation or merger in which the Corporation is the continuing
corporation) evidences of its indebtedness or assets, then in such case the
Conversion Rate then in effect shall be adjusted by multiplying it by the ratio
which (a) the fair market value per share of the Common Stock (as defined in
Section 10) less the fair market value (as determined in good faith by the Board
of Directors of the Corporation, based upon the opinion of an independent
investment banking firm), whose determination shall be conclusive) of the
portion of such evidences of indebtedness so distributed applicable to one share
of Common Stock bears to (b) such fair market value per share of the Common
Stock (as defined in Section 10) at the date of such distribution. Such
adjustment shall be made whenever any such distribution is made, and shall
become effective, retroactively, immediately after the record date for the
determination of shareholders entitled to receive such distribution.
(iv) All calculations hereunder shall be made to the
nearest cent or to the nearest one-hundredth (1/100) of a share, as the case may
be.
(v) In the event that at any time, as a result of an
adjustment made pursuant to Paragraph (E)(i) above, the holder of any Series A
Preferred thereafter converted shall become entitled to receive any shares of
capital stock of the Corporation other than its Common Stock, thereafter the
number of such other shares so receivable upon conversion shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
Paragraphs (E)(i) to (iv), inclusive, above.
8
<PAGE> 43
Except as otherwise provided for in this Paragraph (E) of Section 9, no
adjustment shall be made on any conversion for share distributions, dividends,
including, without limitation, dividends in property distributions, theretofore
declared and paid or payable on the Common Stock.
Whenever the Conversion Rate is adjusted as herein provided, the
Corporation shall send to the transfer agent, if any, for the Series A Preferred
and to the record holders of the Series A Preferred a statement executed by the
President as to the new Conversion Rate.
(G) Upon obtaining the Stockholder Approval, the Corporation
shall at all times reserve and keep available, out of its authorized and
unissued stock, solely for the purpose of effecting the conversion of the Series
A Preferred, such number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all shares of Series A Preferred from
time to time outstanding.
10. Computation of Fair Market Value. For the purposes of any
computation pursuant to this Certificate of Designation, the fair market value
of the Corporation's Common Stock shall be deemed to be the average of the daily
closing prices (the "Average Price") of the Corporation's Common Stock for the
thirty (30) consecutive business days commencing forty-five (45) business days
before the date of the relevant event, e.g., the regular payment date of a
Dividend payable in shares of Common Stock. For purposes of this Section 10, the
closing price for each day shall be the last sale price of the Corporation's
Common Stock on the NASDAQ National Market, or if the Corporation's Common Stock
is not traded on the NASDAQ National Market, the average of the bid and asked
prices as furnished by any New York Stock Exchange member firm selected from
time to time by the Corporation for such purpose, or if no such bid and asked
prices can be obtained from any such firm, the fair market value of one share of
the Common Stock on such day as determined in good faith by the Board of
Directors of the Corporation.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.]
9
<PAGE> 44
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
___ day of December, 1997.
RALLY'S HAMBURGERS, INC.
By:
------------------------------------
James J. Gillespie
President & Chief Executive Officer
10
<PAGE> 45
EXHIBIT C
RALLY'S HAMBURGERS, INC.
COMPLIANCE CERTIFICATE
The undersigned hereby certifies that he is the Chief Executive Officer
of Rally's Hamburgers, Inc., a Delaware corporation (the "Company"), and, in
connection with that certain Exchange Agreement, dated December __, 1997 (the
"Exchange Agreement") between the Company and each of the Sellers named on
Exhibit A thereto, hereby further certifies that:
1. All of the representations, warranties of the Company
contained in the Exchange Agreement are true and accurate on and as of the date
hereof as if made on such date.
2. The Company has complied with all agreements and satisfied all
conditions and obligations on its part to be performed or satisfied under the
Exchange Agreement at or prior to the date hereof.
3. Other than as disclosed in writing to and waived by the
Sellers, no event or condition has occurred or is continuing which constitutes,
or upon execution of the Exchange Agreement would constitute, a breach or
violation of, or default under, the Exchange Agreement.
Capitalized terms not otherwise defined herein shall have the meanings
assigned to them in the Exchange Agreement.
Dated: December , 1997
---- -----------------------------------
James J. Gillespie
Chief Executive Officer
Rally's Hamburgers, Inc.
<PAGE> 46
EXHIBIT D
COMPLIANCE CERTIFICATE
The undersigned ___________________ (the "Seller") hereby certifies
that, in connection with that certain Exchange Agreement, dated as of December
8, 1997 (the "Exchange Agreement") between the Company and each of the Sellers
named on Exhibit A thereto:
1. All of the representations, warranties of the Seller contained
in the Exchange Agreement are true and accurate on and as of the date hereof as
if made on such date.
2. The Seller has complied with all agreements and satisfied all
conditions and obligations on its, his or her part to be performed or satisfied
under the Exchange Agreement at or prior to the date hereof.
3. Other than as disclosed in writing to and waived by the
Company, no event or condition has occurred or is continuing which constitutes,
or upon execution of the Exchange Agreement would constitute, a breach or
violation of, or default under, the Exchange Agreement.
Capitalized terms not otherwise defined herein shall have the meanings
assigned to them in the Exchange Agreement.
Dated: December , 1997
---- -------------------------------
