-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CWYGmqhX9iOUTm8RziKU7gPjBKtKioFKnpSGyx7K22wxy/1+CraDV0Kxm238kT2/ bZIpwd7qT6CowFjS+lwJYw== 0000944209-96-000187.txt : 19960801 0000944209-96-000187.hdr.sgml : 19960801 ACCESSION NUMBER: 0000944209-96-000187 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19960731 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RALLYS HAMBURGERS INC CENTRAL INDEX KEY: 0000854873 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 621210077 STATE OF INCORPORATION: DE FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-07609 FILM NUMBER: 96601421 BUSINESS ADDRESS: STREET 1: 10002 SHELBYVILLE RD STE 150 CITY: LOUISVILLE STATE: KY ZIP: 40223 BUSINESS PHONE: 5022458900 MAIL ADDRESS: STREET 1: 10002 SHELBYVILLE RD STREET 2: STE 150 CITY: LOUISVILLE STATE: KY ZIP: 40223 FORMER COMPANY: FORMER CONFORMED NAME: RALLYS INC DATE OF NAME CHANGE: 19920703 S-3/A 1 AMENDMENT NO.1 TO FORM S-3 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 RALLY'S HAMBURGERS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE - -------------------------------------------------------------------------------- (State or other jurisdiction of incorporation or organization) 62-1210077 - -------------------------------------------------------------------------------- (I.R.S. Employer Identification Number) 10002 Shelbyville Road, Suite 150, Louisville, Kentucky 40223 (502) 245-8900 - -------------------------------------------------------------------------------- (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Evan G. Hughes Rally's Hamburgers, Inc. 10002 Shelbyville Road, Suite 150, Louisville, Kentucky 40223 (502) 245-8900 - -------------------------------------------------------------------------------- (Name, address, including zipcode, and telephone number, including area code, of agent for service) ----------------------------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. ----------------------------------------- If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: [_] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: [X] CALCULATION OF REGISTRATION FEE
========================================================================================== Title of each Proposed Proposed maximum class of securities Amount to be maximum aggregate offering Amount of to be registered registered offering price price registration fee per unit - ------------------------------------------------------------------------------------------ Rights 15,678,335 0 - ------------------------------------------------------------------------------------------ Units (1) 3,484,074 $3.00 $10,452,222.00 $3,604.21 (3) Common Stock 3,484,074 Warrants 3,484,074 - ------------------------------------------------------------------------------------------ Common Stock (2) 3,484,074 $3.00 $10,452,222.00 $3,604.21 (3) - ------------------------------------------------------------------------------------------
(1) 3,484,074 Units, each consisting of a share of Registrant's common stock, $.10 par value per share (the "Common Stock") and a warrant to purchase a share of Common Stock ("Warrants"), are issuable upon exercise of the Rights. (2) Issuable upon exercise of the Warrants. Pursuant to Rule 416, this Registration Statement also covers such indeterminable additional shares as may become issuable as a result of any future adjustments in accordance with the terms of the Warrants, as described in the Prospectus. (3) The filing fee was previously paid. RIGHTS OFFERING PROSPECTUS 3,484,074 UNITS RALLY'S HAMBURGERS, INC. EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE COMMON STOCK PURCHASE WARRANT ______________ Rally's Hamburgers, Inc., a Delaware corporation (the "Company"), is distributing to holders of record of shares of its common stock, par value $.10 per share (the "Common Stock"), as of the close of business on July 31, 1996 (the "Record Date"), transferable subscription rights (the "Rights") to purchase units ("Units") consisting of one share of Common Stock and one warrant to purchase an additional share of Common Stock (the "Warrants") (the "Rights Offering"). Stockholders will receive one Right for each share of Common Stock held on the Record Date. For each 4.5 Rights held, a holder ("Holder") will have the right to purchase one Unit (the "Basic Subscription Privilege") for $3.00 per Unit (the "Subscription Price"). No fractional Units will be sold, and fractional interests will be rounded down. The Rights will be evidenced by transferable subscription certificates. Each Warrant may be exercised to acquire an additional share of Common Stock at an exercise price of $3.00 per share and expires four years from the date of issuance. The Warrants are redeemable by the Company at $.01 per Warrant, at the Company's option, if the closing price for the Company's Common Stock on the NASDAQ National Market ("NNM") (or such other principal securities exchange or market on which the Common Stock is then trading) is at or above $6.00 per share for 20 out of 30 consecutive trading days. Upon exercise of the Basic Subscription Privilege, a Holder will also be entitled to purchase at the Subscription Price a pro rata portion of Units which are not subscribed for pursuant to the Basic Subscription Privilege (the "Oversubscription Privilege" and collectively with the Basic Subscription Privilege, referred to herein as the "Subscription Privileges"). The Common Stock is quoted on the NNM under the symbol "RLLY." On July 30, 1996, the last sale price of the Common Stock as reported on the NNM was $2 15/16 per share. THE RIGHTS WILL EXPIRE ON AUGUST 30, 1996, unless extended by the Company (such date, as it may be extended on one or more occasions, is referred to herein as the "Expiration Date"). In no event will the Expiration Date be extended beyond September 30, 1996. Subscriptions for Units, together with full payment of the Subscription Price, must be received by American Stock Transfer & Trust Company (the "Subscription Agent") prior to 5:00 p.m., New York City time, on the Expiration Date, and the Rights will be of no force or effect thereafter. The exercise of Rights is irrevocable once made, and no interest will be paid to Holders exercising their Rights. SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE SECURITIES OFFERED HEREBY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSIONS OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is July 31, 1996. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-3 (together with any amendments thereto, the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Rights, the Units issuable upon exercise of the Rights, the Common Stock and Warrants included in the Units and the Common Stock underlying the Warrants. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain items of which are contained in schedules and exhibits to the Registration Statement as permitted by the rules and regulations of the Commission. Statements contained in this Prospectus as to the contents of any contract or other document referred to herein or therein are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, or incorporated by reference therein for a more complete description of the matter involved and each such statement shall be deemed qualified in all respects by such reference. Such additional information may be obtained from the Commission's principal office in Washington, D.C. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files periodic reports and other information with the Commission. The Registration Statement and the exhibits thereto, as well as such reports and other information, filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the Commission located at 7 World Trade Center, New York, New York 10048 and Citicorp Center, 500 Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained upon written request addressed to the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Common Stock is quoted on NASDAQ, and reports, proxy statements and other information concerning the Company may be inspected at the offices of the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. DOCUMENTS INCORPORATED BY REFERENCE The following documents filed by the Company with the Commission are incorporated herein by reference: (i) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (the "1995 10-K"); (ii) the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996 (the "March 1996 10-Q"); (iii) the Company's Proxy Statement dated June 19, 1996 with respect to its Annual Meeting held on July 10, 1996; (iv) the Company's Current Reports on Form 8-K dated January 29, 1996, April 16, 1996, May 3, 1996 and July 29, 1996; and -- (v) the description of the Common Stock which is contained in the Company's Registration Statement on Form 8-A dated September 19, 1989. 2 All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, subsequent to the date of this Prospectus and prior to the termination of the Rights Offering, shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the respective dates of the filing thereof. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which is also deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person, including each beneficial owner, to whom a copy of this Prospectus is delivered, on the written or oral request of such person, a copy of any or all documents incorporated by reference into this Prospectus that are not delivered herewith, except the exhibits to such documents (unless such exhibits are specifically incorporated by reference in such documents). Requests for such copies should be directed to the Company's principal office: Rally's Hamburgers, Inc., 10002 Shelbyville Road, Suite 150, Louisville, Kentucky 40223, Attention: Evan G. Hughes, (502) 245-8900. 3 PROSPECTUS SUMMARY The following material is qualified in its entirety by the information and the consolidated financial statements and notes thereto appearing elsewhere in or incorporated by reference into this Prospectus. THE COMPANY Rally's Hamburgers, Inc., a Delaware corporation (the "Company" or "Rally's"), is one of the largest chains of double drive-thru restaurants in the United States. As of July 23, 1996, the Rally's system included 482 restaurants in 19 states, primarily in the Midwest and the Sunbelt, comprised of 239 Company-owned and 243 franchised restaurants. The Company's restaurants offer high quality fast food served quickly and at everyday prices generally below the regular prices of the four largest hamburger chains. The Company serves the drive-thru and take-out segments of the quick-service restaurant market. The Company opened its first restaurant in January, 1985 and began offering franchises in November, 1986. During the later part of 1995 and into 1996, the Company has implemented actions to improve its balance sheet and operating results, including repurchasing $22 million principal amount (or approximately 25%) of the Company's outstanding 9-7/8% Senior Notes due 2000 (the "Senior Notes"), entering into a strategic partnership with the Carl's Jr. restaurant chain, instituting new marketing initiatives aimed at improving comparable store sales trends and undertaking actions aimed at improving food, paper and labor costs as a percentage of sales. The Company had net income of $111,000 ($.01 per share) for the quarter ended June 30, 1996, representing a $1.4 million improvement over the comparable period in the prior year and marking the Company's return to profitability (excluding extraordinary gains) for the first time since the second quarter of fiscal 1993. For the six months ended June 30, 1996, the Company recorded earnings of $949,000 ($.06 per share) compared with a net loss of $4.8 million ($.30 per share) for the prior year period. First quarter and year to date earnings were favorably impacted by a extraordinary gain, net of tax, of $4.5 million ($.29 per share) from the early extinguishment of debt. The Company is attempting to redirect most of its near term focus toward achievement of four specific short term objectives, i.e., growing same store sales, reducing food and paper costs as a percent of sales, reducing store labor costs as a percent of sales and attacking other elements of spending. Management believes that the Company's focus on achievement of these objectives combined with a gradual increase in Company new store development should allow the Company to achieve a sustainable level of profitability in the near future. However, no assurance can be given that management will be able to carry out such objectives or that achievement of these objectives will have a positive effect on the Company's profitability. The Company's principal executive offices are located at 10002 Shelbyville Road, Suite 150, Louisville, Kentucky 40223, and its telephone number is (502) 245-8900. See "The Company." 4 THE RIGHTS OFFERING Rights................................ Each holder of Common Stock will receive one transferable Right for each share of Common Stock held of record on the Record Date. An aggregate of 15,678,335 Rights will be distributed pursuant to the Rights Offering. An aggregate of 3,484,074 Units, each consisting of one share of Common Stock and one Warrant, will be sold if all Rights are exercised. The exercise of Rights is irrevocable once made, and no Units will be issued until the closing following the Expiration Date. See "The Rights Offering - The Rights." Basic Subscription Holders will be entitled to purchase Privilege.......................... one Unit for each 4.5 Rights held. See "The Rights Offering - Subscription Privileges - Basic Subscription Privilege." Units................................. Each Unit consists of one share of Common Stock and one Warrant. Warrants.............................. Each Warrant may be exercised to acquire one share of Common Stock for $3.00. The Warrants will expire on the fourth anniversary of the date of issuance, subject to the extension under certain circumstances. See "Description of Securities - Warrants." Optional Redemption of Warrants The Company will have the right, but By the Company..................... not the obligation, to redeem the Warrants, at $.01 per Warrant, if the closing price of the Common Stock as reported on the NNM (or such other principal securities exchange or market on which the Common Stock is then trading) for 20 out of 30 consecutive trading days is equal to or exceeds $6.00 per share. See "Description of Securities - Warrants." Oversubscription Each Holder who elects to exercise his Privilege.......................... or her Basic Subscription Privilege may also subscribe at the Subscription Price for Units, if any, remaining unsold after satisfaction of all subscriptions pursuant to the Basic Subscription Privilege. If an insufficient number of Units is available to satisfy fully all elections to exercise the Oversubscription 5 Privilege, the available Units will be allocated on a pro rata basis among Holders who exercise their Oversubscription Privilege based on the respective numbers of Units subscribed for by such Holders pursuant to the oversubscription Privilege. See "The Rights Offering - Subscription Privileges - Oversubscription Privilege." Subscription Price.................... $3.00 in cash per Unit. Shares of Common Stock and Warrants Assuming that all Rights are fully Outstanding after Rights exercised, 19,162,409 shares of Offering........................... Common Stock and 3,484,074 Warrants will be outstanding immediately after the Rights Offering, based on 15,678,335 shares of Common Stock outstanding on the Record Date. The final number of shares of Common Stock and Warrants that will be outstanding after the Rights Offering is dependent upon the extent to which Rights are exercised. Transferability of The Rights are transferable and will Rights............................. be quoted on the NNM under the trading symbol RLLYR until the close of business on the last trading day prior to the Expiration Date. Any transfer of Rights will be deemed a transfer of both the Basic Subscription Privilege and the Oversubscription Privilege. The Subscription Agent will endeavor to sell Rights for Holders who have so requested and have delivered one or more Subscription Certificate(s) evidencing such Rights, with the instruction for sale included thereon properly executed, to the Subscription Agent by 11:00 a.m., New York City time, on August 23, 1996 (five business days prior to the Expiration Date). There can be no assurance, however, that any market for Rights will develop, or that the Subscription Agent will be able to sell any Rights for Holders. If less than all sales orders received by the Subscription Agent can be filled, sales proceeds will be prorated among the Holders based upon the number of Rights each has instructed the Subscription Agent to sell during such period, irrespective of when during such period the instructions are received by the Subscription Agent. See "The Rights Offering-Method of Transferring Rights." 6 Record Date........................... July 31, 1996. Expiration Date....................... August 30, 1996, unless extended by the Company from time to time, provided that the Expiration Date shall not be later than September 30, 1996, unless the Board of Directors determines that a material event has occurred which necessitates one or more further extensions of the Rights Offering in order to permit adequate disclosure of information concerning such event to Holders. See "The Rights Offering- Expiration Date." If the Company elects to extend the term of the Rights, it will issue a press release to such effect no later than the last day on which the NNM is open for trading prior to the most recently announced Expiration Date. In the event the Company elects to extend the term of the Rights Offering by more than 14 calendar days, it will, in addition, cause written notice of such extension to be promptly sent to all Holders of record on the Record Date. Procedure for Exercising Rights may be exercised by properly Rights............................. completing the certificate evidencing such Rights (the "Subscription Certificate") and forwarding such Subscription Certificate (or following the Guaranteed Delivery Procedures, as defined below) to the Subscription Agent prior to 5:00 p.m., New York City time, on the Expiration Date, together with payment in full of the Subscription Price for each Unit subscribed for pursuant to the Subscription Privileges. If the mail is used to forward Subscription Certificates, it is recommended that insured, registered mail be used. The exercise of a Right may not be revoked or amended. If time does not permit a Holder or transferee of a Right to deliver a Subscription Certificate to the Subscription Agent on or before the Expiration Date, such Holder or transferee should make use of the Guaranteed Delivery Procedures described under "The Rights Offering-Exercise of Rights." If paying by uncertified personal check, please note that the funds paid thereby may take at least five business days to clear. Accordingly, Holders who wish to pay the Subscription Price by means 7 of uncertified personal check are urged to make payment sufficiently in advance of the Expiration Date to ensure that such payment is received and clears by the Expiration Date and are urged to consider payment by means of certified or cashier's check, money order or wire transfer of funds. Persons Holding Shares, Persons holding shares of Common or Wishing to Stock, and receiving the Rights Exercise Rights distributable with respect thereto, Through Others................... through a broker, dealer, commercial bank, trust company or other nominee, as well as persons holding certificates representing Common Stock in their own name who would prefer to have such institutions effect transactions relating to the Rights on their behalf, should contact the appropriate institution or nominee and request it to effect the transactions for them. See "The Rights Offering-Exercise of Rights." Issuance of Certificates representing Common Common Stock and Warrants........ Stock and Warrants will be delivered to subscribers as soon as practicable after the Expiration Date and after all applicable prorations have been effected. See "The Rights Offering- Subscription Privileges." Funds delivered to the Subscription Agent for the exercise of Subscription Privileges will be held in escrow by the Subscription Agent until all required prorations have been effected. No interest will be paid to Holders on funds received by the Company or held by the Subscription Agent. In the case of Holders exercising Oversubscription Privileges, any excess funds will be returned to such Holders as soon as practicable after the Expiration Date. Use of Proceeds....................... It is anticipated that the net proceeds to Company will be approximately $10.1 million if all of the Units are purchased in the Rights Offering (excluding proceeds to be received upon the exercise of the Warrants). If less than all of the Units are purchased, the proceeds will be correspondingly reduced. Such proceeds will be used to build new restaurants, refurbish certain 8 existing restaurants and for other general corporate purposes, including possibly reducing outstanding indebtedness. See "Purpose of the Rights Offering and Use of Proceeds." Subscription Agent.................... American Stock Transfer & Trust Company NNM Common Stock Trading Symbol.............................. RLLY NNM Rights Symbol.............................. RLLYR NNM Warrant Trading Symbol............ RLLYW COMMITMENTS TO EXERCISE RIGHTS GIANT GROUP, LTD. ("GIANT"), Fidelity National Financial, Inc. ("Fidelity") and CKE Restaurants, Inc. ("CKE"), which are the owners of 4,312,063, 767,807 and 2,350,432 shares of Common Stock, respectively, have committed to exercise, or cause to be exercised, their Basic Subscription Privileges. RISK FACTORS The purchase of Units, Common Stock and Warrants in the Rights Offering involves investment risks particular to the Company and risks particular to the Rights Offering. Investors are urged to read and consider carefully the information set forth under the heading "Risk Factors," which follows this Prospectus Summary. 9 SUMMARY CONSOLIDATED FINANCIAL INFORMATION (In thousands, except per share amounts and statistical data)
Fiscal Year Ended Six Months Ended ------------------------------------------------------- -------------------- Dec 29, Jan 3, Jan 2, Jan 1, Dec 31, July 2, June 30, 1991(1) 1993 1994 1995 1995 1995 1996 ------- ---- ---- ---- ---- ---- ---- Total revenues............ $ 94,131 $120,648 $174,346 $186,318 $188,859 $ 92,313 $ 89,269 Income(loss)from operations(2)(3)(4)..... 10,289 15,057 (7,050) (14,636) (36,470) 212 (956) Net income (loss) before income taxes and extraordinary item..................... 9,821 14,260 (13,483) (24,255) (46,380) (4,633) (5,069) Net income (loss) before extraordinary item....... 6,071 9,279 (8,907) (19,273) (46,919) (4,753) (3,573) Net income (loss)(5)...... $ 6,071 $ 9,279 $ (8,907) $(19,273) $(46,919) $ (4,753) $ 949 Net income (loss) per share before extraordinary item....... $0.54 $0.76 $(0.67) $(1.42) $(3.00) $(0.30) $(0.23) Extraordinary item per share(5)............. -- -- -- -- -- -- 0.29 -------- -------- -------- -------- -------- -------- -------- Net income (loss) per share(5)............. $0.54 $0.76 $(0.67) $(1.42) $(3.00) $(0.30) $ 0.06 ======== ======== ======== ======== ======== ======== ======== OPERATING DATA: System-wide sales: Company-owned...... $ 86,822 $112,894 $165,829 $178,476 $181,778 $ 88,595 $ 86,279 Franchised......... 134,278 183,649 188,837 191,611 173,941 90,546 76,604 -------- -------- -------- -------- -------- -------- -------- Total.............. $221,100 $296,543 $354,666 $370,087 $355,719 $179,141 $162,883 ======== ======== ======== ======== ======== ======== ======== Number of restaurants: Company-owned...... 116 197 252 250 239 254 239 Franchised......... 217 253 268 292 242 272 246 -------- -------- -------- -------- -------- -------- -------- Total.............. 333 450 520 542 481 526 485 ======== ======== ======== ======== ======== ======== ======== At June 30, BALANCE SHEET DATA: 1996 -------- Working capital deficit........................................................................ $(19,380) Total Assets................................................................................... 114,927 Long-term debt and obligations under capital leases, including current portion................. 77,196 Shareholders' equity........................................................................... 7,649
______________________________ (1) Information for period ended December 29, 1991 reflects pro forma adjustments from treating all non-taxable entities acquired by the Company as if these acquired entities had been taxed as regular corporations and able to file a consolidated federal income tax return with the Company. (2) The fiscal year ended January 2, 1994 includes approximately $12.6 million charged against operations for a major business restructuring program and other restaurant closings. (3) The fiscal year ended January 1, 1995 includes $17.3 million charged against operations for changes in business strategies. (4) The fiscal year ended December 31, 1995 includes approximately $17.3 million charged against operations for changes in business strategies and restaurant closings. The year also includes approximately $13.7 million related to the Company's implementation of SFAS 121. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the 1995 10-K incorporated herein by reference. (5) The six months ended June 30, 1996 includes an extraordinary gain, net of tax, of approximately $4.5 million related to the Company's repurchase of Senior Notes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the March 1996 10-Q incorporated herein by reference. 10 RISK FACTORS This Prospectus contains or incorporates by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. Discussions containing such forward-looking statements may be found in the material set forth under "Prospectus Summary," "Purpose of the Rights Offering and Use of Proceeds," as well as within the Prospectus generally (including the documents incorporated by reference herein). Also, documents subsequently filed by the Company with the Commission and incorporated herein by reference will contain forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of the risk factors set forth below and the matters set forth or incorporated by reference in the Prospectus. The Company cautions the reader, however, that this list of risk factors may not be exhaustive, particularly with respect to future filings. Before making a decision to purchase any of the securities described in this Prospectus, prospective investors should carefully consider the following factors. NASDAQ LISTING AND MAINTENANCE REQUIREMENTS In April 1996, the NASDAQ Stock Market, Inc. informed the Company that it was reviewing the eligibility of the Company for continued quotation of its stock on the NNM. There are five criteria that must be substantially met for continued quotation on the NNM. While the Company currently exceeds the requirements on four of the five tests, it does not currently meet the test for net tangible assets, which excludes goodwill. Rule 4450(a)(3) of the National Association of Securities Dealers, Inc. ("NASD") provides that an issuer of a NNM security must have net tangible assets (total assets minus liabilities and goodwill) of at least $4 million if the issuer has sustained losses from continuing operations and/or net losses in three of its four most recent fiscal years (the "Net Tangible Asset Test"). The Company has incurred net losses in its last three fiscal years. As of the end of the 1995 fiscal year, the Company had net tangible assets in the net negative amount of $4,598,000. On June 6, 1996, the Company had a hearing before a Nasdaq Qualifications hearing panel (the "Panel") with regard to the Company's request for an exception to the Net Tangible Asset Test. On June 13, 1996, the Panel granted the Company a conditional exception to the Net Tangible Assets Test based upon its finding that the Company presented a plan of compliance which is currently in progress, which has a high likelihood of successful completion, and which can be completed in a reasonable amount of time. The Panel determined that the Company must make a public filing with the Commission and NASDAQ on or before September 30, 1996, which filing must contain a pro forma balance sheet with a historical basis not older than 45 days and a corresponding statement of operations and must further evidence compliance with the Net Tangible Asset Test, and with all other requirements for listing on the NNM. In the event the Company fails to meet the Panel's requirement, the Company's securities will be subject to delisting from the NNM. Any decision to delist the Company's securities is subject to appeal by the Company, which will not stay such decision unless the Board of Governors of the NASD grants such a stay. The Company plans to remedy its net tangible asset deficiency primarily by completing the Rights Offering, which is also anticipated to provide additional working capital for new store 11 construction, refurbishment of some existing restaurants as well as for other general corporate purposes, including possibly reducing outstanding indebtedness. No assurance can be given that the Rights Offering will be fully subscribed. If the Rights Offering is fully subscribed, the Company's net tangible assets are expected to increase by approximately $10.1 million. No assurance can be given that such increase will be achieved. If the Rights Offering is not fully subscribed, or if following the Rights Offering, the Company, because of negative operating results or any other reason, fails to satisfy the criteria for continued listing on the NNM, the Company's securities could be delisted from the NNM. In such event, the Company would seek to list its Common Stock and Warrants on NASDAQ's "small cap" system or on another national securities exchange. No assurance can be made whether such listing can or will occur. Among other consequences, if the Company were no longer listed on the NNM, the holders of Common Stock and/or Warrants could suffer a loss of liquidity as it becomes more difficult to effect transfers of such securities. HISTORY OF OPERATING LOSSES; CHANGES IN OPERATIONS The Company reported losses from operations (before interest and other income, and provision for income taxes) for the fiscal year ended December 31, 1995 of $36,470,000 and for the thirteen week period ended March 31, 1996 of $3,369,000. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the 1995 10-K and the March 1996 10-Q incorporated by reference herein. Until the second quarter of fiscal 1996, the Company had not reported a profit (exclusive of extraordinary item) in any quarter since June 1993. Faced with declining same store sales and profitability over the past three years, the Company has pursued a variety of options, including replacement of senior management team members, changing advertising agencies and significant use of outside consultants to formulate plans to stem the decline in same store sales and return the Company to profitability. The Company has entered into an operating agreement with CKE pursuant to which 28 Company-owned stores in California and Arizona are operated by CKE. CKE will pay all operating costs of the stores. The Company retained ownership of the assets of these stores and receives a percentage of the stores sales. No assurance can be given that any of the foregoing will improve the Company's operating results. In addition, the Company must continually examine, in accordance with Generally Accepted Accounting Principles, its assets for potential impairment where circumstances indicate that such impairment may exist. As a retailer, the Company believes such examination requires the operations and store level economics of individual restaurants be evaluated for potential impairment. No assurance can be given that even an overall return to profitability will preclude the writedown of assets associated with the operation of an individual restaurant or restaurants in the future. See "The Company - Recent Developments - - Operation of California and Arizona Stores by CKE." INDEBTEDNESS The Company has outstanding approximately $63 million principal amount of Senior Notes, with a required sinking fund payment of approximately $6.2 million due in 1999, which 12 is a significant portion of the capitalization of the Company. As such: (i) the ability of the Company to obtain additional financing in the future for working capital, capital expenditures, debt service requirements or other purposes may be impaired; (ii) a substantial portion of the Company's cash flow from operations will be required to be dedicated to the Company's interest expense and principal repayment obligations; and (iii) the Company's level of indebtedness may make it more vulnerable in the event of a sustained downturn in its business. The ability of the Company to satisfy its obligations under the Senior Notes will be dependent on the Company, among other factors, successfully increasing revenues and returning the Company to operational profitability. COMPETITION IN THE QUICK-SERVICE RESTAURANT INDUSTRY The quick-service restaurant industry is highly competitive and can be significantly affected by many factors, including change in local, regional or national economic conditions, changes in consumer tastes, consumer concerns about the nutritional quality of quick-service food and increases in the number of, and particular locations of, competing quick-service restaurants. Factors such as inflation, increases in food, labor (including health care) and energy costs and the availability of an adequate number of hourly-paid employees also affect the quick-service restaurant industry. Major chains, which have substantially greater financial resources and longer operating histories than the Company, dominate the quick-service restaurant industry. In certain markets, the Company will compete with other quick-service double drive-thru hamburger chains with operating concepts similar to the Company. Certain of the major chains have increasingly offered selected food items and combination meals, including hamburgers, at temporarily or permanently discounted prices. A change in the pricing or other marketing strategies of one or more of these competitors could have an adverse impact on the Company's sales and earnings. With respect to the sale of franchises, the Company competes with many franchisors of restaurants, including other double drive-thru franchisors, and franchisors of other business concepts. DEPENDENCE UPON SENIOR MANAGEMENT The success of the Company's business will continue to be highly dependent upon the services of its senior management, including Donald E. Doyle, President and Chief Executive Officer. The Company's current management team has substantial experience in the restaurant industry and the loss of one or more members of senior management could adversely affect the Company's business and development. CONTROL BY PRINCIPAL STOCKHOLDERS GIANT, of which Burt Sugarman is the controlling stockholder, Chairman, President and Chief Executive Officer, owns approximately 27.5% of the outstanding shares of the Common Stock of the Company. Mr. Sugarman is also Chairman of the Board of the Company. GIANT entered into an agreement with Fidelity and CKE (which are the respective record owners of 4.9% and 15.0% of the outstanding Common Stock) with respect to the election of directors of the Company. Consequently, GIANT, Fidelity and CKE have, and after completion of the Rights Offering are likely to continue to have, the practical ability to elect the Board of 13 Directors. See "The Company - Recent Developments - Relationship Among GIANT, Fidelity and CKE." GOVERNMENT REGULATION The restaurant business is subject to extensive federal, state and local regulations relating to the development and operation of restaurants including regulations relating to building and zoning requirements, preparation and sale of food and laws governing the Company's relationship with its employees, including minimum wage requirements, overtime and working conditions and citizenship requirements. The failure to obtain or retain food licenses, or a substantial increase in the minimum wage rate, could adversely affect the operations of the Company's restaurants. The Company is also subject to federal regulation and certain state laws which regulate the offer and sale of franchises. AVAILABILITY OF CAPITAL RESOURCES The Company may be negatively impacted in the future if it is unable to secure financing at affordable terms from third parties. POSSIBLE VOLATILITY OF STOCK PRICE; NO PRIOR MARKET FOR RIGHTS OR WARRANTS The Common Stock, which is quoted on the NNM, has experienced, and could experience in the future, significant price and volume fluctuations which could adversely affect the market price of the Common Stock. In addition, the Company believes that factors such as quarterly fluctuations in the financial results of the Company, the overall economy and the financial market could cause the price of the Common Stock to fluctuate substantially. While the Rights and the Warrants have been approved for listing on the NNM, there has been no market for such securities prior to the Rights Offering. There can be no assurance that a market for either the Rights or the Warrants will develop or, if a market for either security develops, how liquid a market it will be. The liquidity of any market for the Rights or the Warrants will depend upon a number of factors, including the interest of the broker-dealers in making a market and, with respect to the Warrants, the number of Rights that are exercised. LITIGATION For a description of certain litigation to which the Company is a party, see "Item 3. Legal Proceedings" of the 1995 10-K and the March 1996 10-Q which are incorporated herein by reference. 14 CERTAIN RIGHTS OFFERING CONSIDERATIONS No Minimum Size of Rights Offering. Since no minimum amount of proceeds is required for the Company to consummate the Rights Offering, no assurance can be given as to the amount of gross proceeds that the Company will realize from the Rights Offering. However, GIANT, Fidelity and CKE have committed to exercise, or cause to be exercised, their Basic Subscription Privileges. Limitations on Fidelity and CKE's Ability to Acquire Common Stock. Pursuant to that certain Purchase and Standstill Agreement, dated April 26, 1996 (the "Purchase Agreement"), among GIANT, Fidelity and CKE, so long as the Senior Notes are outstanding, Fidelity and CKE and their respective affiliates may not, in the aggregate, beneficially own 35% or more of the combined voting power of the then outstanding voting stock of the Company without first obtaining (i) approval of the Board of Directors of the Company and (ii) a waiver from the holders of the Senior Notes of a provision of the indenture governing the Senior Notes (the "Indenture"), which provision would require the Company to offer to repurchase the Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest under such circumstances. To the extent that exercise by Fidelity and CKE would increase their percentage interest in the Company to 35%, CKE and Fidelity may be limited or prohibited from exercising their options to acquire Common Stock from GIANT or to exercise Warrants acquired as part of the Units. Dilution. Holders who do not exercise their Subscription Privileges in full will realize a dilution in their percentage voting interest and ownership interest in future net earnings, if any, of the Company to the extent that Rights are exercised by other Holders. Holders who do not acquire Units and/or do not exercise the Warrants received pursuant to the Rights Offering will also realize a further dilution in their percentage voting interest and ownership interest to the extent that Warrants are exercised by others. Possible Extension of Expiration Date. The Company has reserved the right to extend the Expiration Date to as late as September 30, 1996. Funds deposited in payment of the Subscription Price may not be withdrawn and no interest will be paid thereon to Holders. THE COMPANY The Company is one of the largest double drive-thru restaurant chains in the United States. As of July 23, 1996, the Company's system included 482 restaurants in 19 states, primarily in the Midwest and the Sunbelt, comprised of 239 Company-owned and 243 franchised restaurants. The Company's restaurants offer high quality fast food served quickly and at everyday prices generally below the regular prices of the four largest hamburger chains. The Company opened its first restaurant in January, 1985 and began offering franchises in November, 1986. Excluding significant charges related to the disposal of certain excess properties and to the adoption of a new accounting standard, the Company still operated at a significant loss for 15 the 1995 fiscal year. During the first quarter of fiscal 1996, operating losses continued, although a gain on early extinguishment of debt produced net income for the quarter. The second quarter of fiscal 1996 is the first quarter the Company has reported a profit (exclusive of extraordinary item) since the second quarter of 1993. As the Company entered into 1996, it faced formidable challenges including a balance sheet weakened by several consecutive quarters of significant operating losses and a high level of indebtedness, erratic comparable store sales performance and a decline in the number of open units. During the later part of 1995 and into 1996, the Company has implemented actions to address these challenges. These actions include repurchasing of $22 million face value (or approximately 25%) of the outstanding Senior Notes at a substantial discount from their face value, entering into a strategic partnership with the Carl's Jr. restaurant chain, instituting new marketing initiatives aimed at improving comparable store sales trends, and initiating actions aimed at improving food, paper and labor costs as a percentage of sales. Management believes that the Rally's brand has several significant strengths versus its major competitors. In fact, Rally's has been rated higher in independent consumer studies than its major competitors in the hamburger fast food industry in several important attributes in the areas of value, service and food quality. Management's conclusion from this is that the Rally's concept is fundamentally very strong. The Company has undertaken actions to improve store level economics to attain a sustainable level of profitability and growth for all of its shareholders and employees. During the first quarter of fiscal 1996, the implementation of several programs that management believes should significantly improve unit level profitability began. These programs include new supplier partnerships, non- portion related changes in foodstuffs and foodstuff preparation, and labor saving programs related to better daypart resource deployment. The Company reported its first quarterly positive net income since 1993 in the first quarter of 1996 due to an extraordinary gain related to the repurchase of $22 million principal amount of the Senior Notes. The gain was substantially offset by a loss from operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the 1995 10-K and March 1996 10-Q incorporated herein by reference. Although same-store sales declined 1% for Company units and 5% systemwide, the Company reported a profit in the second quarter of fiscal 1996. For the six months ended June 30, 1996, the Company recorded earnings of $949,000 ($.06 per share) compared with a net loss of $4.8 million ($.30 per share) for the prior year period. First quarter and year to date earnings were favorably impacted by an extraordinary gain, net of tax, of $4.5 million ($.29 per share) from the early extinguishment of debt. Management believes that the Company has begun to realize certain benefits from the actions taken at improving store level profitability and that such benefits should continue in ensuing quarters. However, no assurance can be given that such improvements will continue or that they will not be offset by increases in labor or commodity costs. The Company is attempting to redirect most of its near term focus toward achievement of four specific short term objectives, i.e., growing same store sales, reducing food and paper costs as a percent of sales, reducing store labor costs as a percent of sales and attacking other elements of spending. Management believes that the Company's focus on achievement of these objectives combined with the gradual increase in Company new store development should allow the Company to achieve a sustainable level of profitability in the near future. However, no assurance can be given that management will be able to carry out such objectives or that achievement of these objectives will have a materially positive effect on the Company's profitability. 16 Management believes that the proceeds of this Rights Offering will allow the Company to increase its working capital and, given significant subscription, will enable the Company to restore a reasonable level of growth in new store openings, allow certain refurbishment of the existing store base and fund other expected corporate requirements. The Company expects a similar increase in new store development by new and existing franchisees. An increase in working capital, given significant subscription in the Rights Offering, will allow the Company to take advantage of what management believes are appealing cash on cash returns available through productive deployment of certain idle assets on sites in its core markets. The Company already owns 20 to 30 surplus modular restaurant buildings and a significant amount of excess used restaurant equipment from the restaurants that were closed late in 1995. Deployment of such buildings and equipment would allow the Company to keep the out of pocket costs for developing and opening a new modular restaurant location relatively low. No assurance can be given that the Rights Offering will be fully subscribed, that the Company will be able to effect such goals or that there will be an increase in new store development by franchisees. See "Risk Factors - History of Operating Losses; Changes in Operations." RECENT DEVELOPMENTS Relationship Among GIANT, Fidelity and CKE. On April 26, 1996, GIANT, Fidelity and CKE and certain other persons settled certain litigation pursuant to a Settlement Agreement and Release (the "Settlement Agreement"). Pursuant to the Settlement Agreement, GIANT, Fidelity and CKE entered into the Purchase Agreement, pursuant to which GIANT purchased from Fidelity 705,489 shares of the common stock of GIANT for a purchase price of $8.625 per share, and Fidelity and CKE purchased from GIANT 767,807 shares and 2,350,432 shares, respectively, of the Company's Common Stock for $1.75 per share. Pursuant to the Purchase Agreement, Fidelity and CKE were granted options to purchase a total of an additional 2,350,428 shares of the Company's Common Stock from GIANT. One-half of such options have an exercise price of $3.00 per share and expire on April 26, 1997 and one-half of such options have an exercise price of $4.00 per share and expire on April 26, 1998. The Purchase Agreement provides that if GIANT or its affiliates purchase additional shares of Rally's Common Stock, Fidelity and CKE will have the right to purchase shares of Common Stock from GIANT such that the proportional ownership of Common Stock among GIANT, Fidelity and CKE will be the same as immediately prior to such purchases (without giving effect to the options acquired pursuant to the Purchase Agreement). In addition, GIANT, on the one hand, and Fidelity and CKE on the other hand, have agreed to provide the other with rights of first refusal in the event that they propose to dispose of Common Stock. The parties have also agreed that if GIANT, on the one hand, and Fidelity and CKE, on the other hand, each own at least 34.0% of the outstanding Common Stock, then at each election of the Company's directors, GIANT may nominate up to one-half of the number of directors to be elected and Fidelity and CKE may nominate up to one-half of the number of directors to be elected, and the parties will vote all their shares in favor of the other parties' nominees. If one, but not both of GIANT, on the one hand, and Fidelity and CKE, on the other hand, own at least 34.0% of the outstanding Common Stock (without giving effect to the shares which may be purchased upon exercise of the options granted pursuant to the Purchase Agreement to the extent such options have not been exercised), at each election of directors the party owning at least 17 34.0% of the outstanding Common Stock may nominate up to one-half of the number of directors to be elected and the other parties will vote all shares of Common Stock owned by them in favor of such nominees. GIANT, Fidelity and CKE currently are the record owners of 27.5%, 4.9% and 15.0%, respectively, of the outstanding Common Stock. The foregoing provisions regarding the voting of shares of Common Stock will expire on April 26, 2006. Fidelity and CKE have also agreed that they will not, as long as the Senior Notes are outstanding, beneficially own in the aggregate 35% or more of the Common Stock without gaining the consent of the Company's Board of Directors and a waiver from the holders of the Senior Notes of a provision of the Indenture which would require the Company to offer to repurchase the Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest, under such circumstances. GIANT has agreed that it will not be the beneficial owner of 35% or more of the Common Stock without the consent of Fidelity and CKE. Operation of California and Arizona Stores by CKE. The Company has entered into an operating agreement with CKE pursuant to which 28 Company-owned stores in California and Arizona are operated by CKE. The Company has retained ownership of the assets of these stores and receives a percentage of the stores' sales. Under the terms of the operating agreement, CKE is responsible for the conversion costs associated with transforming any restaurants it elects to be operated as Carl's Jr., as well as the operating expenses for all of the 28 restaurants. In the event of a sale by the Company of any of the 28 CKE operated restaurants, the Company and CKE will share in the sales proceeds based upon the relative value of their respective capital investments in such restaurant. PURPOSE OF THE RIGHTS OFFERING AND USE OF PROCEEDS It is anticipated that the net proceeds to the Company will be approximately $10.1 million if all of the Units are purchased in the Rights Offering (not including proceeds from the exercise of the Warrants). If less than all of the Units are purchased, the proceeds will be correspondingly reduced. The purpose of the Rights Offering is to raise additional capital for the Company. The net proceeds of the Rights Offering will be used for new store construction, refurbishment of some existing restaurants and for other general corporate purposes, including possibly reducing outstanding indebtedness. No assurance can be given that the Rights Offering will be fully subscribed. Management believes that the proceeds of this Rights Offering will allow the Company to increase its working capital and, such increase, given significant subscription, will enable the Company to restore a reasonable level of growth in new store openings, allow certain refurbishment of the existing store base and fund other corporate requirements. The Company expects a similar increase in new store development by new and existing franchises. An increase in working capital, given significant subscription in the Rights Offering, will allow the Company to take advantage of what management believes are appealing cash on cash returns available through productive deployment of certain idle assets on sites in its core markets. The Company already owns 20 to 30 surplus modular restaurant buildings and a significant amount of excess used restaurant equipment from the restaurants that were closed late in 1995. Deployment of 18 such buildings and equipment would allow the Company to keep the out of pocket costs for developing and opening a new modular restaurant location relatively low. No assurance can be given that the Rights Offering will be fully subscribed, that the Company will be able to effect such goals or that there will be an increase in new store development by franchisees. See "Risk Factors - History of Operating Losses; Changes in Operations." The additional working capital resulting from the Rights Offering will also enhance the Company's ability to meet the NNM requirements for continued listing on the NNM. The Company must substantially meet five tests, including the Net Tangible Asset Test, to remain on the NNM. Under this test, the Company is currently required to maintain a net minimum tangible asset value of not less than $4 million, but, as of the end of the 1995 fiscal year, the Company's net tangible assets were in the negative amount of $4,598,000. If the Rights Offering is fully subscribed, the Company's net tangible assets should be increased to above the level required by the Net Tangible Asset Test, assuming the Company's net operating results do not result in further losses. If such losses continue, the Company may not be able to continue to meet the Net Tangible Asset Test even if the Rights Offering is fully subscribed. See "Risk Factors - NASDAQ Listing and Maintenance Requirements." 19 PRICE RANGE OF COMMON STOCK The Company's Common Stock is quoted on NNM under the symbol "RLLY." As of July 31, 1996, there were approximately 1,684 record holders of the Common Stock. The table below sets forth the high and low sales prices of the Common Stock reported on the NNM for each quarter during the Company's last two years.
LOW HIGH --- ---- Fiscal 1994 First Quarter $8 $12 3/4 Second Quarter 5 1/16 9 Third Quarter 3 1/8 5 3/4 Third Quarter 2 3/4 5 Fiscal 1995 First Quarter $2 1/2 $ 4 Second Quarter 2 1/4 4 Third Quarter 2 1/4 3 5/8 Fourth Quarter 15/16 2 11/16 Fiscal 1996 First Quarter $1 1/32 $ 2 1/4 Second Quarter 1 1/2 4 5/16 Third Quarter (1) 2 1/2 3 3/8
_________________________ (1) Through July 30, 1996. DIVIDEND POLICY The Company has not paid any dividends to date and does not expect to pay dividends in the foreseeable future. The Indenture currently prohibits the payment of any dividends. 20 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company as of June 30, 1996 and on an as adjusted basis to give effect to the sale of 50% and 100% of the 3,484,074 Units offered pursuant to the Rights Offering at the Subscription Price of $3.00 per Unit. It is not possible to predict the exact percentage of Units that may be purchased in the Rights Offering. To the extent that the actual percentage purchased differs from the assumed percentages, the actual capitalization will differ from that shown below.
As Adjusted for the Rights Offering (1) 100% 50% Historical Exercised Exercised ---------- --------- --------- (In Thousands) Cash and cash equivalents $ 2,005 $ 12,057 $ 6,831 ======== ======== ======== Current maturities of long-term debt and obligations under capital leases $ 3,970 $ 3,970 $ 3,970 ======== ======== ======== Long term debt and obligations under capital leases (less current maturities): Senior Notes $ 62,484 $ 62,484 $ 62,484 Other 10,742 10,742 10,742 -------- -------- -------- Total long-term debt and obligations under capital leases 77,196 77,196 77,196 -------- -------- -------- Shareholder's equity: Common stock, $.10 par value; 50,000,000 shares authorized 1,593 1,942 1,768 Additional paid-in capital 60,831 70,535 65,483 Less: 273,000 treasury shares (2,108) (2,108) (2,108) Retained earnings (deficit) (52,668) (52,668) (52,668) -------- -------- -------- Total shareholders' equity 7,649 17,701 12,475 -------- -------- -------- Total capitalization $ 84,845 $ 94,897 $ 89,671 ======== ======== ======== Shares issued: Common Stock 15,668 19,152 17,410 Warrants - 3,484 1,742
(1) As adjusted data assumes receipt of approximately $10.1 million and $4.8 million in proceeds, in each case net of expenses estimated at $400,000, from the Rights Offering, respectively, and no exercise of the Warrants. 21 THE RIGHTS OFFERING THE RIGHTS The Company is distributing, to the record holders of its outstanding Common Stock as of July 31, 1996 (the "Record Date"), transferable Rights to purchase Units (the "Basic Subscription Privilege") at a price of $3.00 per Unit (the "Subscription Price"). The Company will distribute at no cost to such Holders one Right for each share of Common Stock held on the Record Date. For each 4.5 Rights held, a Holder will have a Basic Subscription Privilege to purchase one Unit. The Rights will be evidenced by transferable Subscription Certificates. Each Unit consists of one share of Common Stock and one Warrant to purchase an additional share of Common Stock for $3.00 per share. An aggregate of 3,484,074 Units, representing 3,484,074 shares of Common Stock and 3,484,074 Warrants will be sold if all of the Rights are exercised. No fractional Units, or cash in lieu thereof, will be issued or paid. The number of Units distributed to each Holder will be rounded down to the nearest whole unit in connection with the exercise of the Basic Subscription Privilege. SUBSCRIPTION PRIVILEGES BASIC SUBSCRIPTION PRIVILEGE. Four and one-half Rights will entitle the Holder thereof to receive, upon payment of the Subscription Price, one Unit consisting of one share of Common Stock and one Warrant. Certificates representing shares of Common Stock and Warrants purchased pursuant to the Basic Subscription Privilege will be delivered to subscribers as soon as practicable after the Expiration Date, irrespective of whether the Subscription Privilege is exercised immediately prior to the Expiration Date or earlier. Holders exercising their Subscription Privilege will not be stockholders of record with respect to the shares issuable pursuant to such Subscription Privilege until the closing, which is anticipated to occur as soon as practicable after the Expiration Date. OVERSUBSCRIPTION PRIVILEGE. Subject to the allocation described below, each Right also carries the right to subscribe at the Subscription Price for any Units not subscribed for through the exercise of Basic Subscription Privileges by other Holders (the "Excess Units"). If the Excess Units are not sufficient to satisfy all subscriptions pursuant to the Oversubscription Privilege, such Excess Units will be allocated pro rata (subject to the elimination of fractional shares) among those Holders exercising the Oversubscription Privilege, in proportion to the number of shares requested pursuant to the Oversubscription Privilege. Only holders who exercise the Basic Subscription Privilege in full with respect to their Subscripton Certificate(s) will be entitled to exercise the Oversubscription Privilege. Certificates representing the Common Stock and Warrants purchased pursuant to the Oversubscription Privilege will be delivered to subscribers as soon as practicable after the Expiration Date and after all prorations have been effected. 22 EXPIRATION DATE The Rights will expire at 5:00 p.m., New York City time, on August 30, 1996 unless extended by the Company from time to time. Notwithstanding the foregoing, the Expiration Date in no event shall be later than September 30, 1996, except that the Company reserves the right to extend the exercise period on one or more occasions if the Board of Directors determines that the occurrence of a material event necessitates an amendment of the Registration Statement or recirculation of the Prospectus that forms a part thereof in order to permit time for the distribution of such information. After the Expiration Date, unexercised Rights will be null and void. The Company will not be obligated to honor any purported exercise of Rights received by the Subscription Agent after the Expiration Date, regardless of when the documents relating to such exercise were sent, except pursuant to the Guaranteed Delivery Procedures described below. EXERCISE OF RIGHTS Rights may be exercised by delivering to the Subscription Agent, on or prior to 5:00 p.m., New York City time, on the Expiration Date, the properly completed and executed Subscription Certificate evidencing such Rights with any required signatures guaranteed, together with payment in full of the Subscription Price for each of the Units subscribed for pursuant to the Subscription Privileges (except as permitted pursuant to clause (iii) of the next sentence). Such payment in full must be by: (i) check or bank draft drawn upon a U.S. bank or postal, telegraphic or express money order payable to American Stock Transfer & Trust Company as Subscription Agent; or (ii) wire transfer of funds to the account maintained by the Subscription Agent for such purpose at Chase Manhattan Bank, 55 Water Street, New York, New York, Account #323 053 718, ABA# 021000021; or (iii) in such other manner as Company may approve in writing in the case of persons acquiring Units at an aggregate Subscription Price of $500,000 or more, provided in the case of (iii) above that the full amount of such Subscription Price is received by the Subscription Agent in currently available funds within three NNM trading days following the Expiration Date (the payment method under (iii) being an "Approved Payment Method"). Payment of the Subscription Price will be deemed to have been received by the Subscription Agent only upon (a) clearance of any uncertified check, (b) receipt by the Subscription Agent of any certified check or bank draft drawn upon a United States bank or of any postal, telegraphic or express money order, (c) receipt of good funds in the Subscription Agent's account designated above, or (d) receipt of funds by the Subscription Agent through an Approved Payment Method. If paying by uncertified personal check, please note that the funds paid thereby may take at least five business days to clear. Accordingly, Holders who wish to pay the Subscription Price by means of uncertified personal check are urged to make payment sufficiently in advance of the Expiration Date to ensure that such payment is received and clears by such date and are urged to consider payment by means of certified or cashier's check, money order or wire transfer of funds. 23 The address to which the Subscription Certificates and payment of the Subscription Price should be delivered is: American Stock Transfer & Trust Company 40 Wall Street, 46th Floor New York, New York 10005 If a Holder wishes to exercise Rights, but time will not permit such Holder to cause the Subscription Certificate or Subscription Certificates evidencing such Rights to reach the Subscription Agent on or prior to the Expiration Date, such Rights may nevertheless be exercised if all of the following conditions (the "Guaranteed Delivery Procedures") are met: (i) such Holder has caused payment in full of the Subscription Price for each Unit being subscribed for pursuant to the Subscription Privileges to be received (in the manner set forth above) by the Subscription Agent on or prior to the Expiration Date; (ii) the Subscription Agent receives, on or prior to the Expiration Date, a guaranteed notice (a "Notice of Guaranteed Delivery"), substantially in the form provided with the Instructions as to Use of Rally's Hamburgers, Inc. Subscription Certificates (the "Instructions") distributed with the Subscription Certificates, from a member firm of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc., or from a commercial bank or trust company having an office or correspondent in the United States (each, an "Eligible Institution"), stating the name of the exercising Holder, the number of Rights represented by the Subscription Certificate(s) held by such exercising Holder, the number of Units being subscribed for pursuant to the Subscription Privileges and guaranteeing the delivery to the Subscription Agent of any Subscription Certificate(s) evidencing such Rights within three NNM trading days following the date of the Notice of Guaranteed Delivery; and (iii) the properly completed Subscription Certificate(s), with any required signatures guaranteed, is received by the Subscription Agent within three NNM trading days following the date of the Notice of Guaranteed Delivery relating thereto. The Notice of Guaranteed Delivery may be delivered to the Subscription Agent in the same manner as Subscription Certificates at the addresses set forth above, or may be transmitted to the Subscription Agent by facsimile transmission, telecopy number (718) 234-5001. Additional copies of the form of Notice of Guaranteed Delivery are available upon request from the Subscription Agent, whose address and telephone number are set forth under "Subscription Agent" below, or from the Information Agent, whose address and telephone number are set forth under "Information Agent" below. Funds received in payment of the Subscription Price will be held in a segregated account pending issuance of such Excess Units. If a Holder exercising the Oversubscription Privilege is allocated less than all of the Excess Units that such Holder wished to subscribe for pursuant to the Oversubscription Privilege, the excess funds paid by such Holder in respect of the Subscription Price for shares 24 not issued shall be returned by mail without interest or deduction as soon as practicable after the Expiration Date. A Holder who holds shares of Common Stock for the account of others, such as a broker, a trustee or a depositary for securities, should notify the respective beneficial owners of such shares as soon as possible to ascertain such beneficial owner's intentions and to obtain instructions with respect to the Rights. If the beneficial owner so instructs, the record holder of such Rights should complete the Subscription Certificate and submit it to the Subscription Agent with the proper payment. In addition, the beneficial owner of Common Stock or Rights held through such a holder of record should contact the Holder and request the Holder to effect transactions in accordance with the beneficial owner's instructions. Unless a Subscription Certificate (i) provides that the shares of Common Stock to be issued pursuant to the exercise of Rights represented thereby are to be delivered to the Holder or (ii) is submitted for the account of an Eligible Institution, signatures on such Subscription Certificate must be guaranteed by an Eligible Institution. If either the number of Units being subscribed for pursuant to the Basic Subscription Privilege is not specified on the Subscription Certificate, or the amount delivered is not enough to pay the Subscription Price for all Units stated to be subscribed for, the number of Units subscribed for will be assumed to be the maximum amount that could be subscribed for upon payment of such amount, after allowance for the Subscription Price of any specified Units. If the number of Units being subscribed for is not specified, or payment of the Subscription Price for the indicated number of Rights that are being exercised exceeds the required Subscription Price, the payment will be applied, until depleted, to subscribe for Units in the following order: (i) to subscribe for the number of Units indicated, if any, pursuant to the Basic Subscription Privilege; (ii) to subscribe for Units until the Basic Subscription Privilege has been fully exercised with respect to all of the Rights represented by the Subscription Certificate; and (iii) to subscribe for additional Units pursuant to the Oversubscription Privilege (subject to any applicable proration). The Instructions accompanying the Subscription Certificates should be read carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE COMPANY. THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF THE RIGHTS HOLDER, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, THE RIGHTS HOLDER IS STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIERS CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS. 25 Certain employees of the Company may solicit responses from Holders to the Rights Offering, but such employees will not receive any commissions or compensation for such services other than their normal employment compensation. All questions concerning the timeliness, validity, form and eligibility of any exercise of Rights will be determined by the Company, whose determinations will be final and binding. The Company, in its sole discretion, may waive any defect or irregularity, or permit a defect or irregularity to be corrected within such time as it may determine, or reject the purported exercise of any Right. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such time as the Company determines in its sole discretion. Neither the Company nor the Subscription Agent will be under any duty to give notification of any defect or irregularity in connection with the submission of Subscription Certificates or incur any liability for failure to give such notification. Any questions or requests for assistance concerning the method of exercising Rights or requests for additional copies of this Prospectus or the Instructions or the Notice of Guaranteed Delivery should be directed to the Information Agent, telephone number (800) 662-5200 or the Subscription Agent, telephone number (800) 937-5449. NO REVOCATION ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE OR THE OVERSUBSCRIPTION PRIVILEGE SUCH EXERCISE MAY NOT BE REVOKED. METHOD OF TRANSFERRING RIGHTS The Rights will be quoted on the NNM under the trading symbol RLLYR and may be purchased or sold through usual investment channels, including banks and brokers. Trading in Rights will cease on the close of business on the NNM trading day preceding the Expiration Date. The Rights evidenced by a single Subscription Certificate may be transferred in whole by endorsing the Subscription Certificate for transfer in accordance with the accompanying instructions. A portion of the Rights evidenced by a single Subscription Certificate may be transferred by delivering to the Subscription Agent a Subscription Certificate properly endorsed for transfer, with instructions to register such portion of the Rights evidenced thereby in the name of the transferee (and to issue a new Subscription Certificate to the transferee evidencing such transferred Rights). In such event, a new Subscription Certificate evidencing the balance of the Rights will be issued to the Holder or, if the Holder so instructs, to an additional transferee. The Rights evidenced by a Subscription Certificate also may be sold, in whole or in part, through the Subscription Agent by delivering to the Subscription Agent such Subscription Certificate properly executed for sale by the Subscription Agent. If only a portion of the Rights evidenced by a single Subscription Certificate is to be sold by the Subscription Agent, such 26 Subscription Certificate must be accompanied by instructions setting forth the action to be taken with respect to the Rights that are not to be sold. Promptly following the Expiration Date, the Subscription Agent will send the Holder a check for the net proceeds from the sale of such Rights. If the Rights can be sold, sales of such Rights will be deemed to have been effected at the weighted average price received by the Subscription Agent for all Rights sold by it at the request of Holders, less any applicable brokerage commissions, taxes and other direct expenses of sale. The Company will pay the fees charged by the Subscription Agent for effecting such sales. Orders to sell Rights must be received by the Subscription Agent prior to 5:00 p.m., New York City time, on the third business day preceding the Expiration Date. If less than all sales orders received by the Subscription Agent can be filled, sales proceeds will be prorated among the Holders based upon the number of Rights each has instructed the Subscription Agent to sell during such period, irrespective of when during such period the instructions are received by the Subscription Agent. The Subscription Agent's obligation to execute orders for the sale of Rights is subject to its ability to find buyers. Holders wishing to transfer all or a portion of their Rights should allow a sufficient amount of time prior to the Expiration Date for (i) the transfer instructions to be received and processed by the Subscription Agent, (ii) a new Subscription Certificate to be issued and transmitted to the transferee or transferees with respect to transferred Rights, and to the transferor with respect to retained Rights, if any, and (iii) the Rights evidenced by such new Subscription Certificates to be exercised or sold by the recipients thereof. If time does not permit a transferee of a Right who wishes to exercise its Right to deliver its Subscription Certificate to the Subscription Agent on or before the Expiration Date, such transferee should make use of the Guaranteed Delivery Procedure described under "The Rights Offering-Exercise of Rights." Neither the Company nor the Subscription Agent shall have any liability to a transferee or transferor of Rights if Subscription Certificates or new Subscription Certificates are not received in time for exercise or sale prior to the Expiration Date. Except for the fees charged by the Subscription Agent (which will be paid by the Company as described above), all commissions, fees and other expenses (including brokerage commissions and transfer taxes) incurred in connection with the purchase, sale or exercise of Rights will be for the account of the transferor of the Rights, and none of such commissions, fees or expenses will be paid by the Company or the Subscription Agent. The Company anticipates that the Rights will be eligible for transfer through, and that the exercise of the Subscription Privileges may be effected through, the facilities of Depository Trust Company ("DTC"; Rights exercised through DTC are referred to as "DTC Exercised Rights"). The holder of a DTC Exercised Right may exercise the Oversubscription Privilege in respect of such DTC Exercised Right by properly executing and delivering to the Subscription Agent at or prior to 5:00 p.m., New York City time, on the Expiration Date, a DTC Participant Oversubscription Exercise Form, together with payment of the appropriate Subscription Price for the number of Units for which the Oversubscription Privilege is to be exercised. Copies of the DTC Participant Oversubscription Exercise Form may be obtained from the Subscription Agent. 27 DESCRIPTION OF SECURITIES The Company has authorized 50,000,000 shares of Common Stock, $.10 par value and 5,000,000 shares of preferred stock, $.10 par value ("Preferred Stock"), with preferences and rights which will be set by the Company's Board of Directors (or an executive committee thereof). No shares of Preferred Stock are currently outstanding, and 15,678,335 shares of Common Stock are currently outstanding. UNITS The Common Stock and Warrants which are offered hereby are being offered and will be sold only in Units, each Unit consisting of one share of Common Stock and one Warrant. Upon the exercise of Warrants, the holder thereof will be eligible to receive one share of Common Stock for each Warrant so exercised. The Common Stock and the Warrants included in the Units will be immediately separable. COMMON STOCK Subject to the preferential rights of holders of Preferred Stock, if any, and the Company's loan agreements and indentures, if any, holders of Common Stock are entitled to share ratably in dividends when and as declared by the Board of Directors (or an authorized committee) out of funds' legally available therefor. Holders of Common Stock have one vote per share upon all matters on which Common Stock votes and vote as a class on charter amendments affecting Common Stock. Upon liquidation, holders of Common Stock are entitled to share ratably in the net assets of the Company after payment of any amounts due to creditors and holders of any class of Preferred Stock. Holders of Common Stock have no redemption, subscription or conversion rights and are not entitled to any preemptive rights. The Common Stock is not liable for further calls or assessments by the Company, and there are no sinking fund provisions relating to such stock. All outstanding shares of Common Stock and all shares to be issued by the Company in the offering will be fully paid and non-assessable. Holders of the shares of Common Stock, voting as a class, have non- cumulative voting rights, which means that the holders of more than 50% of the shares voting for the election of directors can elect 100% of the directors if they choose to do so, and, in such event, the holders of the remaining shares will not be able to elect any directors. GIANT, Fidelity and CKE beneficially own at least 47% of the outstanding Common Stock and will, as a practical matter, have the ability to elect the entire Board of Directors. See "Risk Factors Principal Stockholders." WARRANTS The Warrants will be issued in registered form pursuant to the terms of a Warrant Agreement (the "Warrant Agreement") between the Company and American Stock Transfer & Trust Company, as Warrant Agent. The following description is a brief summary of certain provisions of the Warrant Agreement. Reference is made to the Warrant Agreement (which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part) for a 28 complete description of its terms and conditions, and the description which follows is qualified in its entirety by the reference to the Warrant Agreement. The Company has authorized the issuance of up to 3,484,074 Warrants to purchase an aggregate of 3,484,074 shares of Common Stock and will reserve that number of shares of Common Stock required for issuance upon exercise of the Warrants issued in the Rights Offering. None of the Warrants are currently issued and outstanding. Each Warrant entitles the registered holder thereof to purchase one share of Common Stock from the Company at a price of $3.00 per share, subject to adjustment in certain circumstances, at any time until four years from the Closing Date. The Company may redeem the Warrants, at $.01 per Warrant, upon 30 days' prior written notice in the event the closing price of the Common Stock equals or exceeds $6.00 per share for 20 out of 30 consecutive trading days ending not more than 30 days preceding the date of the notice of redemption. The closing bid price of the Common Stock shall be the closing bid price as reported by NNM or on the principal stock exchange on which it is listed. All of the Warrants must be redeemed if any are redeemed. The exercise prices and number of shares of Common Stock or other securities issuable on exercise of the Warrants are subject to adjustment in certain circumstances, including in the event of a stock dividend, stock split, recapitalization, reorganization, merger or consolidation of the Company and certain sales by the Company of Common Stock below the then market price of the Common Stock. However, the Warrants are not subject to adjustment for issuances of Common Stock at a price below the exercise price of the Warrants or pursuant to the 1990 Stock Option Plan or the Non-Employee Directors' Plan, or upon exercise of any of the Warrants. The Warrants may be exercised upon surrender of the Warrant certificate on or prior to the expiration date at the offices of the Warrant Agent, with the exercise form on the reverse side of the Warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (in cash or by certified check or bank draft payable in United States currency to the order of Warrant Agent) to the Warrant Agent for the number of Warrants being exercised. Holders of the Warrants do not have the rights or privileges of holders of Common Stock. No fractional shares will be issued upon exercise of the Warrants. However, if a warrantholder exercises all Warrants then owned of record by such warrantholder, the Company will pay to such warrantholder, in lieu of the issuance of any fractional share which is otherwise issuable, an amount in cash based on the market value of the Common Stock on the last trading day prior to the exercise date. The Warrants to be issued hereunder are part of the Units to be sold in this Rights Offering. To the extent that the Warrants are exercised, the proportionate equity ownership of holders of Common Stock who do not exercise Warrants will decrease. See "Risk Factors - Certain Rights Offering Considerations - Dilution." 29 Warrants are generally more speculative than shares of common stock which are purchasable upon the exercise thereof. Historically, the percentage increase or decrease in the market price of a warrant has tended to be greater than the percentage increase or decrease in the market price of the underlying common stock. A warrant may become valueless, or of reduced value, if the market price of the underlying common stock decreases, or increases only modestly, over the term of the warrant. TRANSFER AGENT, REGISTRAR AND WARRANT AGENT The Transfer Agent, Registrar and Warrant Agent for the Common Stock and Warrants is American Stock Transfer & Trust Company, New York, New York. CERTAIN FEDERAL INCOME TAX CONSEQUENCES In the opinion of Christensen, White, Miller, Fink, Jacobs, Glaser & Shapiro, LLP, counsel to the Company, the following is an accurate discussion of the material federal income tax consequences of the Rights Offering to the holders of Common Stock upon the distribution (the "Distribution") of Rights, the exercise of the Rights and the exercise of the Warrants. See "Legal Matters." This discussion is based on the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations promulgated thereunder, judicial authority, and current administrative rulings and practice, all of which are subject to change on a prospective or retroactive basis. The tax consequences under state, local and foreign law are not discussed. Moreover, special considerations not described herein may apply to certain taxpayers, such as financial institutions, broker-dealers, life insurance companies, and tax exempt organizations. The discussion is limited to those who have held the Common Stock, and will hold the Rights and any Common Stock or Warrants acquired upon the exercise of Rights as capital assets (generally, property held for investment) within the meaning of Section 1221 of the Code. DISTRIBUTION OF THE RIGHTS. Holders of Common Stock will not recognize taxable income for federal income tax purposes in connection with the receipt of the Rights. STOCKHOLDER BASIS AND HOLDING PERIOD OF THE RIGHTS. Except as provided in the following sentence, the basis of the Rights received by a stockholder as a distribution with respect to such stockholder's Common Stock will be zero. If, however, either (i) the fair market value of the Rights on the date of Distribution is 15% or more of the fair market value (on the date of Distribution) of the Common Stock with respect to which they are received or (ii) the stockholder properly elects, in his or her federal income tax return for the taxable year in which the Rights are received, to allocate part of the basis of such Common Stock to the Rights, then upon exercise or sale of the Rights, the stockholder's basis in such Common Stock will be allocated between the Common Stock and the Rights in proportion to the fair market values of each on the date of Distribution. No such allocation shall be made with respect to Rights which lapse. 30 The holding period of a stockholder with respect to the Rights received as a distribution on such stockholder's Common Stock will include the stockholder's holding period for the Common Stock with respect to which the Rights were issued. In the case of a stockholder who purchases Rights, the tax basis of such Rights will be equal to the purchase price paid therefor, and the holding period for such Rights will commence on the day following the date of the purchase. SALE OF THE RIGHTS. A stockholder who sells the Rights received in the Distribution prior to exercise will recognize gain or loss equal to the difference between the amount realized on the sale and such stockholder's adjusted basis (if any) in the Rights sold. Such gain or loss will be capital gain or loss if gain or loss from a sale of Common Stock held by such stockholder would be characterized as capital gain or loss at the time of such sale. Any gain or loss recognized on a sale of Rights acquired by purchase will be capital gain or loss if Common Stock would be a capital asset in the hands of the stockholder. Capital gain or loss will be classified as short-term if the stockholder's holding period in the Rights is one year or less and long-term if the stockholder's holding period in the Rights is more than one year. LAPSE OF THE RIGHTS. Stockholders who allow the Rights received by them at the distribution to lapse will not recognize any gain or loss, and no adjustment will be made to the basis of the Common Stock, if any, owned by such stockholders. Purchasers of the Rights will be entitled to a loss equal to their adjusted tax basis in the Rights if such Rights expire unexercised. Because by their terms the Rights will expire on or prior to September 30, 1996, any loss recognized on the expiration of the Rights acquired by purchase will be a short- term capital loss if Common Stock would be a capital asset in the hands of the purchaser. EXERCISE OF THE RIGHTS, BASIS OF THE COMMON STOCK AND WARRANTS. If the Rights are exercised, no gain or loss is recognized and both the basis allocated to the Rights, if any, and the Subscription Price must be allocated between the Common Stock and the Warrants received. The basis allocated to the Rights will be apportioned between the Common Stock and the Warrants in proportion to their relative fair market values on the date of the distribution of the Rights. The Subscription Price will increase basis and will be apportioned to the Common Stock and the Warrants in proportion to their relative fair market values on the date of the exercise of the Rights. EXERCISE, SALE AND EXPIRATION OF THE WARRANTS. No gain or loss will be recognized by the holder of a Warrant upon the exercise of a Warrant. The cost basis of the Common Stock so acquired will be the cost basis of the Warrant plus any additional amount paid upon the exercise of the Warrant. Gain or loss will be recognized upon the subsequent sale, exchange or other disposition of the Common Stock acquired by the exercise of the Warrant, measured by the difference between the amount realized upon sale or exchange and the stockholder's cost basis in the Common Stock. 31 If a Warrant is not exercised, but is sold or exchanged, gain or loss will be recognized upon such event, measured by the difference between the amount realized by the holder of the Warrant as a result of the sale, exchange or redemption and the cost basis of the Warrant. If a Warrant is not exercised and is allowed to expire, the Warrant will be deemed to be sold or exchanged on the date of expiration. In such event, the holder of the Warrant will recognize a loss to the extent of the cost basis of the Warrant. SALE OF COMMON STOCK. If the Common Stock acquired as part of the Unit is sold or exchanged, gain or loss will be recognized, measured by the difference between the amount realized from such sale or exchange and the cost basis of the Common Stock sold or exchanged. CHARACTERIZATION OF GAIN OR LOSS. Generally, any gain or loss recognized as a result of the foregoing will be a capital gain or loss and will either be long-term or short-term depending upon the period of time that the Common Stock which was sold or exchanged or the Warrant which was sold, exchanged, redeemed, or allowed to expire, as the case may be, was held. A holding period of more than one year results in long-term capital gain or loss treatment. If a Warrant is exercised, the holding period of the Common Stock so acquired will not include the period during which the Warrant was held. Under Section 305 of the Code and regulations promulgated under the Code, there is no assurance that a subsequent adjustment in the exercise price of the Warrants or the number of shares purchasable upon exercise, attributable to the anti-dilution provisions applicable to the Warrants, will not be deemed a taxable distribution to the holders of the Warrants. THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. ACCORDINGLY, EACH HOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE RIGHTS OFFERING APPLICABLE TO HIS OR HER OWN PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER TAX LAWS. SUBSCRIPTION AGENT The Company has appointed American Stock Transfer & Trust Company as Subscription Agent for the Rights Offering. The Company will pay the fees and expenses of the Subscription Agent, and has also agreed to indemnify it from any liability which it may incur in connection with the Rights Offering. The Subscription Agent's address, which is the address to which the Subscription Certificates and payment of the Subscription Price should be delivered, as well as the address to which Notice of Guaranteed Delivery must be delivered, and the Subscription Agent's telephone number and facsimile number, are: American Stock Transfer & Trust Company 40 Wall Street, 46th Street New York, New York 10005 Telephone: (800) 937-5449 Facsimile: (718) 234-5001 32 INFORMATION AGENT The Company has appointed Morrow & Co., Inc. as Information Agent for the Rights Offering. Any questions regarding or requests for additional copies of this Prospectus, the Instructions, or the Notice of Guaranteed Delivery may be directed to the Information Agent at the telephone number and address set forth below. Morrow & Co., Inc. 909 Third Avenue New York, New York 10022-4799 Telephone: (800) 566-9061 or (800) 662-5200 LEGAL MATTERS The validity of the authorization and issuance of the securities offered hereby and the tax matters discussed under "Certain Federal Income Tax Consequences" are being passed upon for Company by Christensen, White, Miller, Fink, Jacobs, Glaser & Shapiro, LLP, Los Angeles, California. Said law firm has from time to time performed and may in the future perform legal services for the Company and for certain stockholders of the Company, including GIANT and its affiliates. Terry Christensen, a partner of Christensen, White, Miller, Fink, Jacobs, Glaser & Shapiro, LLP, is a member of the Board of Directors of both GIANT and the Company. EXPERTS The financial statements and schedule incorporated by reference in this Prospectus and elsewhere in the Registration Statement, to the extent and for the periods indicated in their reports, have been audited by Arthur Andersen LLP, independent public accountants, and are included herein in reliance upon the authority of said firm as experts in giving said reports. 33 NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. __________ TABLE OF CONTENTS
Page ---- Available Information...................................................... 2 Documents Incorporated by Reference........................................ 2 Prospectus Summary......................................................... 4 Risk Factors............................................................... 11 The Company................................................................ 15 Purpose of the Rights Offering and Use of Proceeds......................... 18 Price Range of Common Stock................................................ 20 Dividend Policy............................................................ 20 Capitalization............................................................. 21 The Rights Offering........................................................ 22 Description of Securities.................................................. 28 Certain Federal Income Tax Consequences.................................... 30 Subscription Agent......................................................... 32 Information Agent.......................................................... 33 Legal Matters.............................................................. 33 Experts.................................................................... 33
3,484,074 UNITS RALLY'S HAMBURGERS, INC. EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE COMMON STOCK PURCHASE WARRANT ________________________ RIGHTS OFFERING PROSPECTUS ________________________ JULY 31, 1996 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 14. OTHER EXPENSES The following is a statement of estimated expenses to be paid by the Registrant in connection with the issuance and distribution of the securities being registered: SEC Registration Fee............. $ 7,209 Legal Fees....................... 100,000 Accountants' Fees................ 25,000 Blue Sky Qualification Fees and Expenses....................... 105,000 Printing and Shipping............ 12,500 Subscription, Information and Warrant Agents' Fees....... 17,500 Miscellaneous.................... 32,741 -------- Total ........................... $400,000 ========
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS Section 145 of the Delaware Corporation Law provides that a Delaware corporation may indemnify any person against expenses, judgements, fines and settlements actually and reasonably incurred by any such person in connection with a threatened, pending or completed action, suit or proceeding in which he is involved by reason of the fact that he is or was a director, officer, employee or agent of such corporation, provided that (i) he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and (ii) with respect to any criminal action or proceeding he had no reasonable cause to believe his conduct was unlawful. If the action or suit is by or in the name of the corporation, the corporation may indemnify any such person against expenses actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect to any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation, unless and only to the extent that the Delaware Court of Chancery or the court in which the action or suit is brought determines upon application that, despite the adjudication of liability but in light of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expense as the court deems proper. Section 51 of the Registrant's By-Laws provides for indemnification of persons to the extent permitted by the Delaware Corporation Law. In accordance with the Delaware General Corporation Law, the Registrant's Certificate of Incorporation, as amended, limits the personal lability of its directors for violations of their II-1 fiduciary duty. The Certificate of Incorporation eliminates each director's liability to the Registrant or its stockholders for monetary damage except (i) for any breach of the director's duty or loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under the section of the Delaware law providing for liability of directors for unlawful payment of dividends of unlawful stock purchases or redemptions, or (iv) for any transaction from which a director derived an improper personal benefit. The effect of this provision is to eliminate the personal liability of directors for monetary damages for actions involving a breach of their fiduciary duty of care, including any such actions involving gross negligence. This provision does not, however, limit in any way the ability of directors for violations of the federal securities laws. The Registrant carries directors and officers liability insurance with a limit of $5,000,000. Such insurance expires on April 1, 1997. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following is a list of exhibits filed herewith as a part of this Registration Statement:
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 4(a) Form of Subscription Certificate 4(b) Form of Warrant Agreement between Rally's Hamburgers, Inc. and American Stock Transfer & Trust Company, as Warrant Agent, including form of Warrant Certificate. 5 Opinion of Christensen, White, Miller, Fink, Jacobs, Glaser & Shapiro, LLP, including the consent of such firm 23 Consent of Arthur Andersen LLP 24 Power of Attorney (see page II-4) 99 Form of Subscription Agent Agreement dated as of July 31, 1996 between Rally's Hamburgers, Inc. and American Stock Transfer and Trust Company, as Subscription Agent.
II-2 ITEM 17. (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the Registration Statement. (2) That for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plans' annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in item 15 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements of filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Louisville, State of Kentucky, respectively, on the 30th day of July, 1996. RALLY'S HAMBURGERS, INC. By:* ----------------------- Burt Sugarman Chairman of the Board By:* ----------------------- Donald E. Doyle President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- * - ------------------------------ Burt Sugarman Chairman of the July 30, 1996 Board and Director * - ------------------------------ President, Chief July 30, 1996 Donald E. Doyle Executive Officer and Director
II-4 * Sr. Vice July 30, 1996 - -------------------------- President and Michael E. Foss Chief Financial Officer (Principal Financial and Accounting Officer) * Director July 30, 1996 - -------------------------- Terry N. Christensen * Director July 30, 1996 - -------------------------- Willie D. Davis * Director July 30,1996 - -------------------------- William P. Foley, II * Director July 30, 1996 - -------------------------- David Gotterer * Director July 30, 1996 - -------------------------- Jeffrey Rosenthal * Director July 30, 1996 - -------------------------- C. Thomas Thompson *By: /s/ Evan G. Hughes --------------------- Evan G. Hughes Attorney-in-fact
II-5 Exhibit 24 Consent of Independent Public Accountant ---------------------------------------- As independent public accountants, we hereby consent to the incorporation by reference in this Registration Statement of our reports dated March 6, 1996 included in Rally's Hamburgers, Inc.'s Form 10-K for the year ended December 31, 1995 and to all references to our Firm included in this Registration Statement. Louisville, Kentucky ARTHUR ANDERSEN LLP July 25, 1996 II-6
EX-4.A 2 FORM 8-A SUBSCRIPTION CERTIFICATE NUMBER OF SUBSCRIPTION RIGHTS RIGHTS CUSIP NO. 75 1203 118 CERTIFICATE NO. VOID AND VALUELESS IF NOT RECEIVED BY SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00 P.M. NEW YORK CITY TIME ON AUGUST 30, 1996. SUBSCRIPTION PRICE: $3.00 for each Unit EXPIRATION TIME: 5:00 p.m. New York City Time on August 30, 1996 The registered holder named below or assigns is entitled to subscribe for one Unit for each 4.5 Rights held. Each Unit consists of one share of Common Stock, par value $.10 per share, and one warrant to purchase an additional share of Common Stock of Rally's Hamburgers, Inc. upon the terms and conditions set forth in the Prospectus, dated July 31, 1996 and the instructions relating thereto. All capitalized terms used herein have the same meaning as are given to them in the Prospectus, which is available from the Information Agent. 4.5 Rights and $3.00 are need to subscribe for one Unit. RALLY'S HAMBURGERS,INC. By ____________________________________ DONALD E. DOYLE President and Chief Executive Officer ____________________________________ EVAN G. HUGHES Secretary Countersigned and Registered THE SUBSCRIPTION AGENT, AMERICAN STOCK TRANSFER & TRUST COMPANY By __________________________ THIS OFFERING MAY BE WITHDRAWN UNDER CERTAIN CIRCUMSTANCES. Subscribers are advised to review the instructions and the Prospectus, copies of which are available from Morrow & Co., Inc., Information Agent, 909 Third Avenue, New York, New York 10022, telephone: (800) 556-9061, before subscribing for units. FORM 1-SUBSCRIPTION: The undersigned hereby irrevocably subscribes for full Units as indicated below, on the terms specified in the Prospectus dated July 31, 1996, receipt of which is hereby acknowledged. Number of Units subscribed for pursuant to the Basic Subscription Privilege (4.5 Rights needed to subscribe for each Unit) ______ Number of Units subscribed for pursuant to the Oversubscription Privilege ______ Cost (total Units subscribed for times $3.00) $_____ CHECK, BANK DRAFT OR MONEY ORDER PAYABLE TO AMERICAN STOCK TRANSFER & TRUST COMPANY MUST BE ENCLOSED HEREWITH. _______________________________ Subscriber(s) Signature(s) (See Instructions 4 and 5 as to Signature Guarantee) Telephone No. ( ) ___-____. PLEASE READ BEFORE SIGNING: Signature(s) must correspond with the name(s) of the registered holder of the subscription certificate. If a joint account, each must sign. Persons signing in a representative or fiduciary capacity must indicate capacity when signing. FORM 2-TO TRANSFER YOUR RIGHTS: For value received (insert number) Rights represented by this Subscription Certificate are hereby assigned to (please print name and address and Social Security no. of transferee in full): ______________________________________________ ______________________________________________ ______________________________________________ Social Security Number ______________________________________________ Signature(s) of Transferor(s) (See Instructions 4 and 5 as to Signature Guarantee) FORM 3-DELIVERY INSTRUCTIONS. Address for delivery of stock if other than shown on the reverse side hereof of in Form 2 ______________________________________________ ______________________________________________ Signature(s) guaranteed by: ______________________________________________ (See Instructions 4 and 5) INSTRUCTIONS AS TO USE OF RALLY'S HAMBURGERS, INC. SUBSCRIPTION CERTIFICATE ___________________ CONSULT THE INFORMATION AGENT, THE SUBSCRIPTION AGENT, YOUR BANK OR BROKER AS TO ANY QUESTIONS The following relates to a rights offering by Rally's Hamburgers, Inc. (the "Company") to the holders of its outstanding Common Stock, $0.10 par value per share (the "Common Stock") (the "Rights Offering"). Holders of record at the close of business on July 31, 1996 (the "Record Date") are receiving one right ("Right") for each share of Common Stock held on the Record Date. Rights holders may purchase one Unit (a "Unit") consisting of one share of Common Stock and one warrant to purchase an additional share of Common Stock for each 4.5 Rights held ("Basic Subscription Privilege") at the subscription price of $3.00 (the "Subscription Price"). No fractional Units will be sold, and fractional interests will be rounded down. There will be no adjustment to the Rights upon any dividend to or on changes in the outstanding shares of Common Stock. Subscriptions, once exercised, are irrevocable. Each stockholder of the Company who subscribes in full for Units pursuant to the Basic Subscription Privilege will be entitled to purchase any unsubscribed Units at the Subscription Price ("Oversubscription Privilege"). However, if the total number of Units subscribed for pursuant to the Basic Subscription Privilege and the Oversubscription Privilege exceeds the total number of Units underlying Rights issued to stockholders, the number of Units available for subscription pursuant to the Oversubscription Privilege will be allocated, to the nearest whole Unit, among those stockholders oversubscribing on the basis of their relative subscriptions pursuant to the Basic Subscription Privilege. The number of Rights to which you are entitled is printed on the face of your subscription certificate. You should indicate the use you wish to make of your Rights by completing the appropriate form or forms on the back of your subscription certificate and returning the certificate to the Subscription Agent in the envelope provided. YOUR SUBSCRIPTION CERTIFICATE AND THE RELATED PAYMENT MUST BE RECEIVED BY THE SUBSCRIPTION AGENT ON OR BEFORE 5:00 P.M., NEW YORK CITY TIME, ON AUGUST 30, 1996, SUBJECT TO EXTENSION BY THE COMPANY ("EXPIRATION DATE"). AFTER THE EXPIRATION DATE, THE COMPANY'S OFFER WILL NO LONGER BE EFFECTIVE, AND THE RIGHTS WILL BE VOID AND VALUELESS. THE COMPANY IS NOT OBLIGATED TO HONOR ANY SUBSCRIPTIONS RECEIVED BY THE SUBSCRIPTION AGENT AFTER THE EXPIRATION DATE, REGARDLESS OF WHEN SUCH SUBSCRIPTIONS WERE SENT. THE RISK OF DELIVERY OF THE SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE SUBSCRIPTION PRICE IS ON SUBSCRIBERS, NOT THE COMPANY OR THE SUBSCRIPTION AGENT. 1. SUBSCRIPTION. Complete and execute Form 1, have your signature guaranteed, if required (see paragraph 5(c) below), and send your subscription certificate, together with payment of the total Subscription Price, to the Subscription Agent. DO NOT SEND SUBSCRIPTION CERTIFICATES OR PAYMENTS TO THE COMPANY. Payment of the Subscription Price should be made in U.S. dollars by (i) check or bank draft drawn upon a U.S. Bank or postal, telegraphic or express money order payable to American Stock Transfer & Trust Company, Subscription Agent, for the full number of Units subscribed for, Subscription Agent, for the full units in place of shares or (ii) wire transfer of funds to the account maintained by the Subscription Agent for such purpose at _____________________ Bank; or (iii) in such other manner as Company may approve in writing in the case of persons acquiring Units at an aggregate Subscription Price of $500,000 or more, provided in each case that the full amount of such Subscription Price is received by the Subscription Agent in currently available funds within three NASDAQ National Market ("NNM") trading days following the Expiration Date (the payment method under (iii) being an "Approved Payment Method"). Payment of the Subscription Price will be deemed to have been received by the Subscription Agent only upon (a) clearance of any uncertified check, (b) receipt by the Subscription Agent of any certified check or bank draft drawn upon a United States bank or of any postal, telegraphic or express money order, (c) receipt of good funds in the Subscription Agent's account designated above, or (d) receipt of funds by the Subscription Agent through an Approved Payment Method. If paying by uncertified personal check, please note that the funds paid thereby may take at least five business days to clear. Accordingly, Holders who wish to pay the Subscription Price by means of uncertified personal check are urged to make payment sufficiently in advance of the Expiration Date to ensure that such payment is received and clears by such date and are urged to consider payment by means of certified or cashier's check, money order or wire transfer of funds. The Subscription Agent is American Stock Transfer & Trust Company. The address and telephone number of the Subscription Agent are as follows: IF BY HAND OR BY MAIL: American Stock Transfer & Trust Company 40 Wall Street, 46th Floor New York, New York 10005 TELEPHONE: (800) 937-5009 Facsimile: (718) 234-5001 If you subscribe for a number of Units requiring a lesser number of Rights than are evidenced by your subscription certificate, the Subscription Agent will, if practicable, sell such 2 excess Rights and will remit the net proceeds, if any, to the subscriber, provided appropriate instructions are received. 2. DELIVERY OF STOCK CERTIFICATES, ETC. Certificates representing the share(s) of Common Stock and the Warrant(s) comprising the Unit(s) will be mailed to subscribers as soon as practicable after a subscription has been accepted by the Subscription Agent. 3. TO PURCHASE, SELL OR TRANSFER THE RIGHTS. Rights may be purchased or sold through normal investment channels, including brokers. To sell or transfer all or a portion of the Rights evidenced by a subscription certificate, other than through the Subscription Agent, you must complete and execute Form 2 in its entirety and have your signature guaranteed (see paragraph 5(c) below). If you are transferring Rights through a bank or broker, deliver the executed subscription certificate and a completed form W-9, as described in paragraph 6 below, to you bank or broker. If you transfer less than all of the Rights evidenced by your subscription certificate, the Subscription Agent will issue a new subscription certificate evidencing the remaining Right(s) to you. The Rights are traded on the NNM and in the over-the-counter market, but trading on the NNM will be discontinued at the close of business on the trading day preceding the Expiration Date. The Rights will trade under the symbol "RLLYRt." 4. TO HAVE SUBSCRIPTION CERTIFICATE DIVIDED INTO SMALLER DENOMINATIONS. Send you subscription certificate, together with complete separate instructions (including specification of the denominations into which you wish your Rights to be divided) signed by you, to the Subscription Agent allowing for a sufficient amount of time for new subscription certificates to be issued and returned so that they can be used prior to the Expiration Date. Your signature must be guaranteed, as described in paragraph 5(c) below, if any of the new subscription certificates are to be issued in a name other than that in which the old subscription certificate was issued. 5. EXECUTION. (A) EXECUTION BY REGISTERED HOLDER. The signature on the subscription certificate must correspond with the name as it appears in the register for the Rights maintained by the Subscription Agent in every particular without alteration or any change whatsoever. Persons who sign the subscription certificate in a representative or fiduciary capacity must indicate their capacity when signing and, unless waived by the Subscription Agent in its sole and absolute discretion, must present to the Subscription Agent satisfactory evidence of their authority to so act. 3 (B) EXECUTION BY PERSON OTHER THAN REGISTERED HOLDER. If the subscription certificate is executed by a person other than the registered holder, proper evidence of authority of the person executing the subscription certificate must accompany the same unless the Subscription Agent, in its sole and absolute discretion, dispenses with proof of authority. (C) SIGNATURE GUARANTEE. Holders of record may exercise, divide or combine their Rights without a signature guarantee, if the securities issued as a result of such exercise, division or combination are to be registered in such record holder's name and returned to such record holder. ALL OTHER EXERCISES, TRANSFERS, DIVISIONS OR COMBINATIONS OF RIGHTS REQUIRE A SIGNATURE GUARANTEE OF AN ELIGIBLE INSTITUTION OF THE SIGNATURE OF THE PERSON SEEKING TO TAKE SUCH ACTION. An Eligible Institution means a firm or other entity identified in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, including (as such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal securities dealer, municipal securities broker, government securities dealer or government securities broker; (iii) a credit union; (iv) a national securities exchange, registered securities association or clearing agency; or (v) a savings association. A verification by a Notary Public is not acceptable. 6. FORM W-9 AND TAXPAYER IDENTIFICATION NUMBER. Federal income tax law requires that a holder of Rights who sells or transfers such Rights through a broker or bank must provide the bank or broker with his or her correct taxpayer identification number ("TIN") by completing the enclosed Form W-9. In the case of a holder of Rights who is an individual, the TIN is his or her social security number. If such bank or broker, as the case may be, is not provided with the TIN, the holder of Rights may be subject to backup withholding. Backup withholding may also result if an incorrect TIN is so provided. If backup withholding results in an overpayment of taxes, a refund may be obtained. To prevent backup withholding, each holder who sells Rights must provide his or her correct TIN by completing the enclosed Form W-9, certifying that the TIN provided is correct (or that such holder is awaiting a TIN). 7. METHOD OF DELIVERY. The method of delivery of subscription certificates and payment of the Subscription Price to the Subscription Agent will be at the election and risk of the Rights holder, but if sent by mail, it is recommended that they be sent by registered mail, properly insured, with return receipt requested, and that a sufficient number of days be allowed to ensure delivery to the Subscription Agent prior to 5:00 p.m., New York City time, on the Expiration Date. 8. LATE DELIVERY OF SUBSCRIPTION CERTIFICATE. If, prior to 5:00 p.m. on the Expiration Date, the Subscription Agent has received full payment for the total number of Units subscribed for 4 by a Rights holder, together with an executed Notice of Guaranteed Delivery (in the form provided with the Rights certificate and available from the Subscription Agent) from a commercial bank, a trust company having an office in the United States or a member firm of any registered national securities exchange or the National Association of Securities Dealers, Inc. stating the name of the subscriber, the number of Rights represented by the Rights certificate and the number of Units subscribed for and guaranteeing that the subscription certificate and the number of Units subscribed for and guaranteeing that the subscription certificate will be delivered within three NNM trading days after the Expiration Date to the Subscription Agent, such subscription will be accepted. The certificates representing the shares of Common Stock and the Warrants comprising the Units will be withheld by the Subscription Agent until receipt of the duly completed and executed subscription certificate. THE RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON AUGUST 30, 1996, AND WILL BE VALUELESS THEREAFTER. 5 EX-4.B 3 WARRANT AGREEMENT Exhibit 4.(b) ================================================================================ RALLY'S HAMBURGERS, INC. WARRANT AGREEMENT BETWEEN RALLY'S HAMBURGERS, INC. AND AMERICAN STOCK TRANSFER & TRUST COMPANY AS WARRANT AGENT Dated as of , 1996 ================================================================================ RALLY'S HAMBURGERS, INC. WARRANT AGREEMENT THIS WARRANT AGREEMENT (the "Agreement"), dated as of 1996, is made and entered into by and between RALLY'S HAMBURGERS, INC., a Delaware corporation (the "Company"), and American Stock Transfer & Trust Company, as warrant agent (the "Warrant Agent") WHEREAS, in connection with a rights offering (the "Rights Offering") pursuant to which the shareholders of the Company ("Shareholders") may purchase up to 3,484,074 units (the "Units"), each Unit consisting of one share of the Company's common stock, $.10 par value (the "Common Stock"), and one redeemable common stock purchase warrant (the "Warrant"), the Company will issue up to 3,484,074 Warrants evidencing the right to purchase an aggregate of 3,484,074 shares of Common Stock as constituted on the date hereof; and WHEREAS, the Company desires the Warrant Agent act on behalf of the Company, and the Warrant Agent is willing so to act, in connection with the issuance, registration, transfer, exchange, exercise and redemption of the Warrants; NOW, THEREFORE, in consideration of the promises and the mutual agreements herein set forth, the parties agree as follows: SECTION 1. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints the Warrant Agent to act as agent of the Company for the Warrants, and the Warrant Agent hereby accepts such appointment and agrees to perform the same in accordance with the terms and conditions set forth in this Agreement. SECTION 2. WARRANTS AND FORM OF WARRANT CERTIFICATES. (A) Each Warrant shall entitle the registered holder of the certificate representing such Warrant to purchase upon the exercise thereof, one share of Common Stock, subject to the adjustments provided for in Section 9 hereof, at any time until 5:00 p.m, Eastern time, on _________________, 2000 ("Expiration Date") unless earlier redeemed pursuant to Section 11 hereof. (B) The Warrant certificates shall be in registered form only. The text of the Warrant certificate and the form of election to exercise a Warrant on the reverse side thereof shall be substantially in the form of Exhibit A attached hereto. Each Warrant certificate shall be dated as of the date of issuance thereof by the Warrant Agent (whether upon initial issuance or upon transfer or exchange) and shall be executed on behalf of the Company by the manual or facsimile signature of its President or a Vice President, under its corporate seal, affixed or in facsimile, and attested to by the manual or facsimile signature - 2- of its Secretary or an Assistant Secretary. In case any officer of the Company who shall have signed any Warrant certificate shall cease to be such officer of the Company prior to the issuance thereof, such Warrant certificate may nevertheless be issued and delivered with the same force and effect as though the person who signed the same had not ceased to be such officer of the Company. Any such Warrant certificate may be signed on behalf of the Company by persons who, at the actual date of execution of such Warrant certificate, are the proper officers of the Company, although at the nominal date of such Warrant certificate any such person shall not have been such officer of the Company. SECTION 3. EXERCISE OF WARRANTS AND WARRANT PRICE. Subject to the provisions of this Agreement, each registered holder of one or more Warrant certificates shall have the right, which may be exercised as in such Warrant certificates expressed, to purchase from the Company (and the Company shall issue and sell to such registered holder) the number of shares of Common Stock to which the Warrants represented by such certificates are at the time entitled hereunder. Each Warrant not exercised by its expiration date shall become void, and all rights thereunder and all rights in respect thereof under this Agreement shall cease on such date. A Warrant may be exercised by the surrender of the certificate representing such Warrant to the Company, at the office of the Warrant Agent, or at the office of a successor to the Warrant Agent, with the subscription form set forth on the reverse thereof duly executed and properly endorsed with the signatures properly guaranteed, and upon payment in full to the Warrant Agent for the account of the Company of the Warrant Price (as hereinafter defined) for the number of shares of Common Stock as to which the Warrant is exercised. Such Warrant Price shall be paid in full in cash, or by certified check or bank draft payable in United States currency to the order of the Warrant Agent. The price per share of Common Stock at which the Warrants may be exercised (the "Warrant Price") shall be $3.00 (adjusted in accordance with Section 9 hereof, taking into account prior adjustments). At any time, or from time to time the Company may reduce either or both of the Warrant Prices or extend the expiration date for such period or periods of time as it may determine. Notice of any such reduction in the Warrant Prices or extension of the expiration date shall be promptly provided to the Warrant Agent. Subject to the further provisions of this Section 3 and of Section 6 hereof, upon such surrender of Warrant certificates and payment of the applicable Warrant Price as aforesaid, the Company shall issue and cause to be delivered, with all reasonable - 3- dispatch to or upon the written order of the registered holder of such Warrants and in such name or names as such registered holder may designate, a certificate or certificates for the number of securities so purchased upon the exercise of such Warrants, together with cash, as provided in Section 10 of this Agreement, in respect of any fraction of a share or security otherwise issuable upon such surrender. All shares of Common Stock issued upon the exercise of a Warrant shall be validly issued, fully paid and nonassessable and shall be listed on any and all national securities exchanges upon which any other shares of the Common Stock or securities otherwise issuable are then listed. Certificates representing such securities shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of record of such securities as of the date of the surrender of such Warrants and payment of the Warrant Price as aforesaid; provided, however, that if, at the date of surrender of such Warrants and payment of the applicable Warrant Price, the transfer books for the Common Stock or other securities purchasable upon the exercise of such Warrants shall be closed, the certificates for the securities in respect of which such Warrants are then exercised shall be issuable as of the date on which such books shall next be opened and until such date the Company shall be under no duty to deliver any certificate for such securities. The rights of purchase represented by each Warrant certificate shall be exercisable, at the election of the registered holders thereof, either as an entirety or from time to time for part of the number of securities specified therein and, in the event that any Warrant certificate is exercised in respect of less than all of the securities specified therein at any time prior to the expiration date of the Warrant certificate, a new Warrant certificate or certificates will be issued to such registered holder for the remaining number of securities specified in the Warrant certificate so surrendered. SECTION 4. COUNTERSIGNATURE AND REGISTRATION. The Warrant Agent shall maintain books (the "Warrant Register") for the registration and the registration of transfer of the Warrants. The Warrant certificates shall be countersigned manually or by facsimile by the Warrant Agent (or by any successor to the Warrant Agent then acting as such under this Agreement) and shall not be valid for any purpose unless so countersigned. Warrant certificates may be so countersigned, however, by the Warrant Agent and delivered by the Warrant Agent notwithstanding that the persons whose manual or facsimile signatures appear thereon as proper officers of the Company shall have ceased to be such officers at the time of such countersignature or delivery. Prior to due presentment for registration of transfer of any Warrant certificate, the Company and the Warrant Agent may deem and treat the person in whose name such Warrant certificate shall - 4 - be registered upon the Warrant Register (the "registered holder") as the absolute owner of such Warrant certificate and of each Warrant represented thereby (notwithstanding any notation of ownership or other writing on the Warrant certificate made by anyone other than the Company or the Warrant Agent), for the purpose of any exercise thereof, of any distribution or notice to the holder thereof, and for all other purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. SECTION 5. TRANSFER AND EXCHANGE OF WARRANTS. The Warrant Agent shall register the transfer, from time to time, any outstanding Warrant upon the Warrant Register, upon surrender of the certificate evidencing such Warrant for transfer, properly endorsed with signatures properly guaranteed and accompanied by appropriate instructions for transfer. Upon any such transfer, a new Warrant certificate representing an equal aggregate number of Warrants shall be issued to the transferee and the surrendered Warrant certificate shall be canceled by the Warrant Agent. The Warrant certificates so canceled shall be delivered by the Warrant Agent to the Company from time to time upon request. Warrant certificates may be surrendered to the Warrant Agent, together with a written request for exchange, and thereupon the Warrant Agent shall issue in exchange therefor one or more new Warrant certificates as requested by the registered holder of the Warrant certificate or certificates so surrendered, representing an equal aggregate number of Warrants. The Warrant Agent shall not be required to effect any registration of transfer or exchange which will result in the issuance of a Warrant certificate for a fraction of a warrant. No service charge shall be made for any exchange or registration of transfer of Warrant certificates. The Warrant Agent is hereby authorized to countersign and to deliver, in accordance with the terms of this Agreement, the new Warrant certificates required to be issued pursuant to the provisions hereof, and the Company, whenever required by the Warrant Agent, will supply the Warrant Agent with Warrant certificates duly executed on behalf of the Company for such purpose. SECTION 6. PAYMENT OF TAXES. The Company will pay any documentary stamp taxes attributable to the initial issuance of the shares of Common Stock issuable upon the exercise of Warrants; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates for shares of Common Stock in a name other than that of the registered holder of Warrants in respect of which such shares are issued, and in such case neither the Company nor the - 5 - Warrant Agent shall be required to issue or deliver any certificate for shares of Common Stock or any Warrant certificate until the person requesting the same has paid to the Company the amount of such tax or has established to the Company's satisfaction that such tax has been paid. SECTION 7. MUTILATED OR MISSING WARRANTS. In case any of the Warrant certificates shall be mutilated, lost, stolen or destroyed, the Company may in its discretion issue, and the Warrant Agent shall countersign and deliver in exchange and substitution for and upon cancellation of the mutilated Warrant certificate, or in lieu of and substitution for the Warrant certificate lost, stolen or destroyed, a new Warrant certificate representing an equal aggregate number of Warrants, but only upon receipt of evidence satisfactory to the Company and the Warrant Agent of such loss, theft or destruction of such Warrant certificate and reasonable indemnity, if requested, also satisfactory to them. Applicants for such substitute Warrant certificates shall also comply with such other reasonable conditions and pay such reasonable charges as the Company or the Warrant Agent may prescribe. SECTION 8. RESERVATION OF COMMON STOCK. There have been reserved, and the Company shall at all times keep reserved, out of the authorized and unissued shares of Common Stock, a number of shares sufficient to provide for the exercise of the rights of purchase represented by the Warrants then outstanding, and the transfer agent for the Common Stock and every subsequent transfer agent for any shares of the Company's capital stock issuable upon the exercise of any of the rights of purchase aforesaid are hereby irrevocably authorized and directed at all times to reserve such number of authorized and unissued shares as shall be requisite for such purpose. Prior to the issuance of any shares of Common Stock upon exercise of the Warrants, the Company shall secure the listing of such shares on any and all national securities exchanges upon which any of the other shares of the Common Stock are then listed. So long as any unexpired Warrants remain outstanding, the Company will file such post-effective amendments to the Registration Statement or supplements to the Prospectus filed pursuant to the Securities Act of 1933, as amended (the "Act"), with respect to the Warrants (or such other registration statements or post-effective amendments or supplements) as may be necessary to permit trading in the Warrants and to permit the Company to deliver to each person exercising a Warrant a Prospectus meeting the requirements of Section 10(a)(3) of the Act, and otherwise complying therewith; and the Company will, from time to time, furnish the Warrant Agent with such Prospectuses in sufficient quantity to permit the Warrant Agent to deliver such a Prospectus to each holder of a Warrant upon the exercise thereof. The Company will keep a copy of this Agreement on file with the transfer agent for the Common Stock and with - 6 - every subsequent transfer agent for any shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by the Warrants. The Warrant Agent is hereby irrevocably authorized to requisition from time to time from such transfer agent stock certificates required to honor outstanding Warrants. The Company will supply such transfer agent with duly executed certificates for such purpose and will itself provide or otherwise make available any cash as provided in Section 10 of this Agreement. All Warrant certificates surrendered in the exercise of the rights thereby evidenced shall be canceled by the Warrant Agent and shall thereafter be delivered to the Company, and such canceled Warrant certificates shall constitute sufficient evidence of the number of shares of Common Stock which have been issued upon the exercise of such Warrants. Promptly after the expiration date of the Warrants, the Warrant Agent shall certify to the Company the aggregate number of such Warrants which expired unexercised, and after the expiration date of the Warrants, no shares of Common Stock shall be subject to reservation in respect of such Warrants. SECTION 9. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES OF COMMON STOCK. The number and kind of securities purchasable upon the exercise of the Warrants and the applicable Warrant Price shall be subject to adjustment from time to time upon the happening of certain events, as follows: 9.1 ADJUSTMENTS. The number of shares of Common Stock purchasable upon the exercise of each Warrant and the applicable Warrant Price shall be subject to adjustment as follows: (a) In case the Company shall (i) pay a dividend in Common Stock or make a distribution in Common Stock, (ii) subdivide its outstanding Common Stock, (iii) combine its outstanding Common Stock into a smaller number of shares of Common Stock, or (iv) issue, by reclassification of its Common Stock, other securities of the Company, the number of shares of Common Stock purchasable upon exercise of a Warrant immediately prior thereto shall be adjusted so that the holder of a Warrant shall be entitled to receive the kind and number of shares of Common Stock or other securities of the Company which such holder would have owned or would have been entitled to receive immediately after the happening of any of the events described above, had the Warrant been exercised immediately prior to the happening of such event or any record date with respect thereto. Any adjustment made pursuant to this subsection 9.1(a) shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. - 7- (b) In case the Company shall issue rights, options, warrants or convertible securities to all or substantially all holders of its Common Stock, without any charge to such holders, entitling them to subscribe for or purchase Common Stock at a price per share which is lower at the record date mentioned below than the then Current Market Price (as defined in Section 10 hereof), the number of shares of Common Stock thereafter purchasable upon the exercise of each Warrant shall be determined by multiplying the number of shares of Common Stock theretofore purchasable upon exercise of a Warrant by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such rights, options, warrants or convertible securities plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such rights, options, warrants or convertible securities plus the number of shares which the aggregate offering price of the total number of shares offered would purchase at such Current Market Price. Such adjustment shall be made whenever such rights options, warrants or convertible securities are issued and shall become effective immediately and retroactive to the record date for the determination of shareholders entitled to receive such rights, options, warrants or convertible securities. (c) In case the Company shall distribute to all or substantially all holders of its Common Stock, evidences of its indebtedness or assets (excluding cash dividends or distributions out of earnings) or rights, options, warrants or convertible securities containing the right to subscribe for or purchase Common Stock (excluding those referred to in subsection 9.1 (b) above), then in each case the number of shares of Common Stock thereafter purchasable upon the exercise of each Warrant shall be determined by multiplying the number of shares of Common Stock theretofore purchasable upon exercise of such Warrant by a fraction, of which the numerator shall be the then Current Market Price on the date of such distribution, and of which the denominator shall be such Current Market Price on such date minus the then fair value (as determined by the Board of Directors, which determination, if reasonable and based upon the Board of Directors' good faith business judgment, shall be binding upon the registered holders) of the portion of the assets or evidences of indebtedness so distributed or of such subscription rights, options, warrants or convertible securities applicable to one share. Such adjustment shall be made whenever any such distribution is made and shall become effective on the date of distribution retroactive to the record date for the determination of shareholders entitled to receive such distribution. - 8 - (d) No adjustment in the number of shares of Common Stock purchasable pursuant to the Warrants shall be required unless such adjustment would require an increase or decrease of at least one percent in the number of shares of Common Stock then purchasable upon the exercise of the Warrants; provided, however that any adjustments which by reason of this subsection 9.1(d) are not required to be made immediately shall be carried forward and taken into account in any subsequent adjustment. (e) Whenever the number of shares of Common Stock purchasable upon the exercise of a Warrant is adjusted as herein provided, the applicable Warrant Price payable upon exercise of the Warrant shall be adjusted by multiplying such Warrant Price immediately prior to such adjustment by the fraction, of which the numerator shall be the number of shares of Common Stock purchasable upon the exercise of such Warrant immediately prior to such adjustment, and of which the denominator shall be the number of shares of Common Stock so purchasable immediately thereafter. (f) To the extent not covered by subsections 9.1 (b) or (c) hereof, in case the Company shall sell or issue Common Stock or rights, options, warrants or convertible securities containing the right to subscribe for or purchase shares of Common Stock at a price per share (determined, in the case of such rights, options, warrants or convertible securities, by dividing (i) the total amount received or receivable by the Company in consideration of the sale or issuance of such rights, options, warrants or convertible securities, plus the total consideration payable to the Company upon exercise or conversion thereof, by (ii) the total number of shares covered by such rights, options, warrants or convertible securities) lower than the then Current Market Price in effect immediately prior to such sale or issuance, then the number of Shares thereafter purchasable upon the exercise of the Warrants shall be determined by multiplying the number of Shares theretofore purchasable upon exercise of the Warrants by a fraction, of which the numerator shall be the applicable Warrant Price and the denominator shall be that price calculated to the nearest cent) determined by dividing (I) an amount equal to the sum of (A) the number of shares of Common Stock outstanding immediately prior to such sale or issuance multiplied by the applicable Warrant Price, plus (B) the consideration received by the Company upon such sale or issuance, by (II) the total number of shares of Common Stock outstanding immediately after such sale or issuance. For the purpose of such adjustments, the Common Stock which the holders of any such rights, options, warrants or convertible securities shall be entitled to subscribe for or purchase shall be deemed issued and outstanding as of the date of such sale or issuance and the consideration received by the - 9 - Company therefor shall be deemed to be the consideration received by the Company for such rights, options, warrants or convertible securities, plus the consideration or premiums stated in such rights, options, warrants or convertible securities to be paid for the Common Stock covered thereby In case the Company shall sell or issue Common Stock or rights, options, warrants or convertible securities containing the right to subscribe for or purchase Common Stock for a consideration consisting, in whole or in part, of property other than cash or its equivalent, then in determining the "price per share" of Common Stock and the "consideration received by the Company" for purpose of the first sentence of this subsection 9.1(f), the Board of Directors shall determine the fair value of said property, and such determination, if reasonable and based upon the Board of Directors' good faith business judgment, shall be binding upon the Warrantholder. In determining the "price per share" of Common Stock, any underwriting discounts or commissions shall not be deducted from the price received by the Company for sales of securities registered under the Act. (g) Whenever the number of shares of Common Stock purchasable upon the exercise of a Warrant or the Warrant Price is adjusted as herein provided, the Company shall cause to be promptly mailed to the Warrant Agent and each registered holder of a Warrant by first class mail, postage prepaid, notice of such adjustment or adjustments and, with regard to the Warrant Agent only, a certificate of the chief financial officer of the Company setting forth the number of shares of Common Stock purchasable upon the exercise of a Warrant and the applicable Warrant Price after such adjustment, a brief statement of the facts requiring such adjustment and the computation by which such adjustment was made. (h) For the purpose of this Section 9, the term "Common Stock" shall mean (i) the class of stock designated as the Common Stock of the Company at the date of this Agreement, or (ii) any other class of stock resulting from successive changes or reclassification of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. In the event that at any time, as a result of an adjustment made pursuant to this Section 9, a registered holder shall become entitled to purchase any securities of the Company other than Common Stock, (i) if the registered holder's right to purchase is on any other basis than that available to all holders of the Company's Common Stock, the Company shall obtain an opinion of an investment banking firm valuing such other securities and (ii) thereafter the number of such other securities so purchasable upon exercise of a Warrant and the applicable Warrant Price of such securities shall be - 10 - 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 this Section 9. (i) Upon the expiration of any rights, options, warrants or conversion privileges, if such shall not have been exercised, the number of shares of Common Stock purchasable upon exercise of a Warrant and the applicable Warrant Price, to the extent a Warrant has not then been exercised shall, upon such expiration, be readjusted and shall thereafter be such as they would have been had they been originally adjusted (or had the original adjustment not been required, as the case may be) on the basis of (A) the fact that the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion privileges, and (B) the fact that such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise plus the consideration, if any, actually received by the Company for the issuance, sale or grant of all such privileges, options, warrants or conversion privileges whether or not exercised; provided, however, that no such readjustment shall have the effect of increasing the applicable Warrant Price by an amount in excess of the amount of the adjustment initially made in respect of the issuance, sale or grant of such rights, options, warrants or conversion privileges. 9.2 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Section 9.1 hereof, no adjustment in respect of any dividends or distributions out of earnings shall be made during the term of a Warrant or upon the exercise of a Warrant. 9.3 NO ADJUSTMENT IN CERTAIN CASES. No adjustments shall be made pursuant to Section 9 hereof in connection with the issuance of the Rights, the Units (or the shares of Common Stock included therein) or the Warrants (or the underlying shares of Common Stock). No adjustments shall be made pursuant to Section 9 hereof in connection with the grant or exercise of presently authorized or outstanding options to purchase, or the issuance of shares of Common Stock on the exercise thereof under the Company's 1990 Stock Option Plan and 1995 Stock Option Plan for Non-Employee Directors or other options described in the Prospectus, or incorporated by reference, dated July 31, 1996, as supplemented, pursuant to which the Warrants were offered and sold. 9.4 PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION, CONSOLIDATION, ETC. In case of any consolidation of the Company with or merger of the Company into another corporation or in case of any sale or conveyance to another corporation of the property, assets or business of the Company as an entirety or substantially - 11 - as an entirety, the Company or such successor or purchasing corporation, as the case may be, shall execute with the Warrant Agent an agreement that the registered holders of the Warrants shall have the right thereafter, upon payment of the Warrant Price in effect immediately prior to such action, to purchase, upon exercise of each Warrant, the kind and amount of shares and other securities and property which it would have owned or have been entitled to receive after the happening of such consolidation, merger, sale or conveyance had each Warrant been exercised immediately prior to such action. In the event of a merger described in Section 368(a)(2)(E) of the Internal Revenue Code of 1986, as amended, in which the Company is the surviving corporation, the right to purchase shares of Common Stock under the Warrants shall terminate on the date of such merger and thereupon the Warrants shall become null and void, but only if the controlling corporation shall agree to substitute for the Warrants its warrants which entitle the holders thereof to purchase upon their exercise the kind and amount of shares and other securities and property which they would have owned or been entitled to receive had the Warrants been exercised immediately prior to such merger. Any such agreements referred to in this subsection 9.4 shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in Section 9 hereof. The provisions of this subsection 9.4 shall similarly apply to successive consolidations, mergers, sales or conveyances. 9.5 PAR VALUE OF SHARES OF COMMON STOCK. Before taking any action which would cause an adjustment reducing the applicable Warrant Price below the then par value of the Common Stock issuable upon exercise of the Warrants, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable Common Stock at such adjusted applicable Warrant Price. 9.6 INDEPENDENT PUBLIC ACCOUNTANTS. The Company may retain a firm of independent public accountants of recognized national standing (which may be any such firm regularly employed by the Company) to make any computation required under this Section 9.0 and a certificate signed by such firm shall be conclusive evidence of the correctness of any computation made under this Section 9. 9.7 STATEMENT ON WARRANT CERTIFICATES. Irrespective of any adjustments in the applicable Warrant Price or the number of securities issuable upon exercise of Warrants, Warrant certificates theretofore or thereafter issued may continue to express the same price and number of securities as are stated in the similar Warrant certificates initially issuable pursuant to this Agreement. However, the Company may, at any time in its sole discretion (which shall be conclusive), make any change in the form of Warrant certificate that it may deem appropriate and - 12 - that does not affect the substance thereof; and any Warrant certificate thereafter issued, whether upon registration of transfer of, or in exchange or substitution for, an outstanding Warrant certificate, may be in the form so changed. 9.8 NO RIGHTS AS SHAREHOLDER; NOTICES TO HOLDERS OF WARRANTS. If, at any time prior to the expiration of a Warrant and prior to its exercise, any one or more of the following events shall occur: (a) any action which would require an adjustment pursuant to subsection 9.1 or 9.4 hereof, or (b) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation, merger or sale of its property, assets and business as an entirety or substantially as an entirety) shall be proposed: then the Company shall give notice in writing of such event to the registered holders of the Warrants, as provided in Section 18 hereof, at least 20 days prior (and pursuant to the provisions of subsection 9.1(e) with respect to adjustments pursuant to subsection 9.1(f) and 9.1(i)) to the date fixed as a record date or the date of closing the transfer books for the determination of the shareholders entitled to any relevant dividend, distribution, subscription rights or other rights or for the determination of shareholders entitled to vote on such proposed dissolution, liquidation or winding up. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to mail or receive such notice or any defect therein shall not affect the validity of any action taken with respect thereto. Section 10. FRACTIONAL INTERESTS. The Company shall not be required to issue fractional shares of Common Stock on the exercise of a Warrant. If any fraction of a share of Common Stock would, except for the provisions of this Section 10, be issuable on the exercise of a Warrant (or specified portion thereof), the Company shall in lieu thereof pay an amount in cash equal to the then Current Market Price multiplied by such fraction. For purposes of this Agreement, the term "Current Market Price" shall mean (i) if the Common Stock is traded in the over-the-counter market and not in the NASDAQ National Market System nor on any national securities exchange, the average of the per share closing bid prices of the Common Stock on the 30 consecutive trading days immediately preceding the date in question, as reported by NASDAQ or an equivalent generally accepted reporting service, or (ii) if the Common Stock is traded in the NASDAQ National Market System or on a national securities exchange, the average for the 30 consecutive trading days immediately preceding the date in question of the daily per share closing prices of the Common Stock in the NASDAQ National Market System or on the principal stock exchange on which it is listed, as the case may be. For purposes of clause (i) above, if trading in the Common Stock is not reported by NASDAQ, the bid price referred to in said clause shall be the lowest bid price as - 13 - reported in the "pink sheets" published by National Quotation Bureau, Incorporated. The closing price referred to in clause (ii) above shall be the last reported sale price or, in the case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case in the NASDAQ National Market System or on the national securities exchange on which the Common Stock is then listed. SECTION 11. REDEMPTION. (A) The then outstanding Warrants may be redeemed, at the option of the Company, at $.01 per share of Common Stock purchasable upon exercise of such Warrants, at any time after the Daily Market Price per share of the Common Stock for a period of 20 out of 30 consecutive trading days ending not more than 30 days prior to the date of the notice given pursuant to Section 11(B) hereof has equaled or exceeded $6.00, as adjusted from time to time as provided in Section 9 hereof, and prior to expiration of the Warrants. The Daily Market Price of the Common Stock shall be determined by the Company in the manner set forth in Section 11(E) as of the end of each trading day (or, if no trading in the Common Stock occurred on such day, as of the end of the immediately preceding trading day in which trading occurred) and verified to the Warrant Agent before the Company may give notice of redemption. All outstanding Warrants must be redeemed if any are redeemed, and any right to exercise an outstanding Warrant shall terminate at 5:00 p.m. (New York City Time) on the business day immediately preceding the date fixed for redemption. A trading day shall mean a day in which trading of securities occurred on the New York Stock Exchange. (B) The Company may exercise its right to redeem the Warrants only by giving the notice set forth in the following sentence by the end of the thirtieth (30th) trading day after the provisions of Section 11(A) have been satisfied. In case the Company shall exercise its right to redeem, it shall give notice to the Warrant Agent and the registered holders of the outstanding Warrants, by mailing to such registered holders a notice of redemption, first class, postage prepaid, at their addresses as they shall appear on the records of the Warrant Agent. Any notice mailed in the manner provided herein shall be conclusively presumed to have been duly given whether or not the registered holder actually receives such notice. (C) The notice of redemption shall specify the redemption price, the date fixed for redemption (which shall be between the thirtieth (30th) and forty-fifth (45th) day after such notice is mailed), the place where the Warrant certificates shall be delivered and the redemption price shall be paid, and that the right to exercise the Warrant shall terminate at 5:00 p.m. (New York City Time) on the business day immediately preceding the date fixed for redemption. - 14 - (D) Appropriate adjustment shall be made to the redemption price and to the minimum Daily Market Price prerequisite to redemption set forth in Section II(A) hereof, in each case on the same basis as provided in Section 9 hereof with respect to adjustment of the Warrant Price. (E) For purposes of this Agreement, the term "Daily Market Price" shall mean (i) if the Common Stock is traded in the over-the-counter market and not in the NASDAQ National Market System nor on any national securities exchange, the closing bid price of the Common Stock on the trading day in question, as reported by NASDAQ or an equivalent generally accepted reporting service, or (ii) if the Common Stock is traded in the NASDAQ National Market System or on a national securities exchange, the daily per share closing price of the Common Stock in the NASDAQ National Market System or on the principal stock exchange on which it is listed on the trading day in question, as the case may be. For purposes of clause (i) above, if trading in the Common Stock is not reported by NASDAQ, the bid price referred to in said clause shall be the lowest bid price as reported in the "pink sheets" published by National Quotation Bureau, Incorporated. The closing price referred to in clause (ii) above shall be the last reported sale price or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case in the NASDAQ National Market System or on the national securities exchange on which the Common Stock is then listed. SECTION 12. RIGHTS AS WARRANTHOLDERS. Nothing contained in this Agreement or in any of the Warrants shall be construed as conferring upon the holders thereof, as such, any of the rights of shareholders of the Company, including without limitation, the right to receive dividends or other distributions, to exercise any preemptive rights, to vote or to consent or to receive notice as shareholders in respect of the meetings of shareholders or the election of directors or the Company or any other matter. Anything herein to the contrary notwithstanding, the Company shall cause copies of all financial statements and reports, proxy statements and other documents as it shall send to its shareholders to be sent by the same class mail as sent to its shareholders, postage prepaid, on the date of the mailing to such shareholders, to each registered holder of Warrants at his address appearing on the Warrant Register as of the record date for the determination of the shareholders entitled to such documents. SECTION 13. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS. The Warrant Agent shall account promptly to the Company with respect to Warrants exercised, and shall promptly pay to the Company all monies received by it upon the exercise of such Warrants, and shall keep copies of this Agreement available for inspection by holders of Warrants during normal business hours - 15 - SECTION 14. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT. Any corporation into which the Warrant Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Warrant Agent shall be a party, or any corporation succeeding to the corporate trust business of the Warrant Agent, shall be the successor to the Warrant Agent hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto provided that such corporation would be eligible for appointment as a successor Warrant Agent under the provisions of Section 16 of this Agreement. In case at the time such successor to the Warrant Agent shall succeed to the agency created by this Agreement and any of the Warrant certificates shall have been countersigned but not delivered, any such successor to the Warrant Agent may adopt the countersignature of the original Warrant Agent and deliver such Warrant certificates so countersigned, and in case at that time any of the Warrant certificates shall not have been countersigned, any successor to the Warrant Agent may countersign such Warrant certificates either in the name of the predecessor Warrant Agent or in the name of the successor Warrant Agent, and in all such cases the Warrants represented by such Warrant certificates shall have the full force provided in the Warrant certificates and in this Agreement. Any such successor Warrant Agent shall promptly give notice of its succession as Warrant Agent to the Company and to the registered holder of each Warrant certificate. In case at any time the name of the Warrant Agent shall be changed and at such time any of the Warrant certificates shall have been countersigned but not delivered, the Warrant Agent may adopt the countersignature under its prior name and deliver Warrant certificates so countersigned, and, in case at that time any of the Warrant certificates shall not have been countersigned, the Warrant Agent may countersign such Warrant certificates either in its prior name or in its changed name, and, in all such cases, the Warrants represented by such Warrant certificates shall have the full force provided in the Warrant certificates and in this Agreement. SECTION 15. DUTIES OF WARRANT AGENT. The Warrant Agent hereby undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, all of which shall bind the Company and the holders of Warrants by their acceptance thereof. (A) The statements of fact and recitals contained herein and in the Warrants shall be taken as statements of the Company and the Warrant Agent assumes no responsibility for the correctness of any of the same except such as describe the Warrant Agent or action taken or to be taken by it. The Warrant Agent assumes no responsibility with respect to the distribution of the Warrants except as herein expressly provided. - 16 - (B) The Warrant Agent shall not be responsible for any failure of the Company to comply with any of the covenants contained in this Agreement or in the Warrants to be complied with by the Company. (C) The Warrant Agent may consult at any time with counsel satisfactory to it (who may be counsel for the Company) and the Warrant Agent shall incur no liability or responsibility to the Company or to any holder of any Warrant in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the opinion or the advice of such counsel. (D) The Warrant Agent shall incur no liability or responsibility to the Company or to any holder of any Warrant for any action taken in reliance on any notice, resolution, waiver, consent, order, certificate or other paper, document or instrument believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. (E) The Company agrees to pay to the Warrant Agent reasonable compensation for all services rendered by the Warrant Agent in the execution of this Agreement, to reimburse the Warrant Agent for all expenses, taxes and governmental charges and other charges incurred by the Warrant Agent in the execution of this Agreement and to indemnify the Warrant Agent and save it harmless against any and all liabilities, including judgments, costs and reasonable counsel fees, for anything done or omitted by the Warrant Agent in the execution of this Agreement, except as a result of the Warrant Agent's negligence, willful misconduct or bad faith. (F) The Warrant Agent shall be under no obligation to institute any action, suit or legal proceeding or to take any other action on behalf of the Company or any registered holder, but this provision shall not affect the power of the Warrant Agent to take such action as the Warrant Agent may consider proper. All rights of action under this Agreement or under any of the Warrants may be enforced by the Warrant Agent without the possession of any of the Warrants or the production thereof at any trial or other proceeding relative thereto, and any such action, suit or proceeding instituted by the Warrant Agent shall be brought in its name as Warrant Agent, and any recovery of judgment shall be for the ratable benefit of all the registered holders of the Warrants, as their respective rights or interests may appear. (G) The Warrant Agent and any shareholder, director, officer, or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Warrant Agent under this Agreement. Nothing herein shall - 17 - preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. (H) The Warrant Agent shall act hereunder solely as agent and not in a ministerial capacity, and its duties shall be determined solely by the provisions hereof. The Warrant Agent shall not be liable for anything which it may do or refrain from doing in connection with this Agreement, except for its own negligence, willful misconduct or bad faith. (I) Any request, direction, election, order or demand of the Company shall be sufficient if evidenced by an instrument signed in the name of the Company by its President, a Vice President or chief financial officer (unless other evidence in respect thereof is therein specifically prescribed); and any resolution of the Board of Directors may be evidenced to the Warrant Agent by a copy thereof certified by the Secretary or an Assistant Secretary of the Company. SECTION 16. CHANGE OF WARRANT AGENT. The Warrant Agent may resign and be discharged from its duties under this Agreement by giving the Company at least 30 days' prior notice in writing, and by mailing notice in writing to the registered holders at their addresses appearing on the Warrant Register, of such resignation, specifying a date when such resignation shall take effect. The Warrant Agent may be removed by like notice to the Warrant Agent from the Company and by like mailing of notice to the registered holders of the Warrants. If the Warrant Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Warrant Agent. If the Company shall fail to make such appointment within 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Warrant Agent or by the registered holder of a Warrant (who shall, with such notice, submit his Warrant certificate for inspection by the Company), then the registered holder of any Warrant may apply to any court of competent jurisdiction for the appointment of a successor to the Warrant Agent. Any successor Warrant Agent, whether appointed by the Company or by such a court, shall be registered and otherwise authorized to serve as a transfer agent pursuant to the Securities Exchange Act of 1934, as amended. If at any time the Warrant Agent shall cease to be eligible in accordance with the provisions of this Section 16, it shall resign immediately in the manner and with the effect specified in this Section 16. After acceptance in writing of the appointment, the successor Warrant Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Warrant Agent without further act or deed; but the former Warrant Agent shall deliver and transfer to the successor Warrant Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Upon request of any successor Warrant Agent, - 18 - the Company shall make, execute, acknowledge and deliver any and all instruments in writing for more fully and effectually vesting in and confirming to such successor Warrant Agent all such powers, rights, duties and responsibilities. Failure to file or mail any notice provided in this Section 16, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Warrant Agent or the appointment of the successor Warrant Agent, as the case may be. SECTION 17. IDENTITY OF TRANSFER AGENT. Forthwith upon the appointment of any transfer agent for the Common Stock or of any subsequent transfer agent for shares of the Common Stock or other shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by the Warrants, the Company will file with the Warrant Agent a statement setting forth the name and address of such transfer agent. SECTION 18. NOTICES. All notices, requests and other communications pursuant to this Agreement shall be in writing and shall be sufficiently given or made when delivered or three business days after deposit in the U.S. mail, by first class mail, postage prepaid, addressed as follows: (a) if to the Company, to (until another address is filed in writing by the Company with the Warrant Agent): Rally's Hamburgers, Inc. 10002 Shelbyville Road, Suite 150 Louisville, Kentucky 40223 Attention: President (b) if to the Warrant Agent, to (until another address is filed in writing by the Warrant Agent with the Company): American Stock Transfer & Trust Company 40 Wall Street, 46th Floor New York, New York 10005 Attention: George Karfunkel (c) if to the registered holder of a Warrant, to the address of such holder as shown in the Warrant Register. SECTION 19. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Agent may from time to time supplement or amend this Agreement without the approval of any holders of Warrants in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Warrant Agent may deem necessary or desirable and which shall not be inconsistent with the provisions of the Warrants, or which shall not adversely affect the interests of - 19 - the holders of Warrants (including reducing the Warrant Price or extending the redemption or expiration date). SECTION 20. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Warrant Agent or the registered holders of the Warrants shall bind and inure to the benefit of their respective successors and assigns hereunder. SECTION 21. GOVERNING LAW. This Agreement shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be construed in accordance with the laws of said State. SECTION 22. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company, the Warrant Agent and the registered holders of the Warrants any legal or equitable right, remedy or claim under this Agreement. This Agreement shall be for the sole and exclusive benefit of the Company, the Warrant Agent and the registered holders of the Warrants. SECTION 23. COUNTERPARTS. This Agreement may be executed in counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. SECTION 24. DESCRIPTIVE HEADINGS. The descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed, as of the day and year first above written. RALLY'S HAMBURGERS, INC. By:________________________________ Its:_______________________________ AMERICAN STOCK TRANSFER & TRUST COMPANY By:___________________________ Its:__________________________ - 20 - EXHIBIT A WARRANT CERTIFICATE NO. ______ _____ WARRANTS CUSIP 75 1203126 WARRANT TO PURCHASE SHARES OF COMMON STOCK VOID AFTER _________, PACIFIC TIME, ON _________________ RALLY'S HAMBURGERS, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE This certifies that, for value received, __________________________________________, the registered holder hereof or assigns (the "Holder"), is entitled to purchase from Rally's Hamburgers, Inc., a Delaware corporation (the "Company"), at any time before 5:00 p.m., New York City Time, on _________________, at the purchase price per share of $3.00 (the "Warrant Price"), the number of shares of Common Stock of the Company set forth above (the "Shares"). The number of Shares purchasable upon exercise of each Warrant evidenced hereby and the Warrant Price per Share shall be subject to adjustment from time to time as set forth in the Warrant Agreement referred to below. This Warrant is subject to redemption by the Company, at $.01 per Share of Common Stock purchasable upon exercise hereof, upon not less than 30 nor more than 45 days' notice, at any time after the Daily Market Price (determined pursuant to the Warrant Agreement) per share of Common Stock has equaled or exceeded $6.00 for a period of at least 20 out of 30 consecutive trading days during the 30 trading days prior to the date of the notice of redemption, and prior to expiration of the Warrants. The Warrant redemption price and the Daily Market Price referred to above shall be subject to adjustment from time to time as set forth in the Warrant Agreement. The Warrants evidenced hereby may be exercised in whole or in part by presentation of this Warrant certificate with the Purchase Form attached hereto duly executed (with a signature guarantee as provided thereon) and simultaneous payment of the Warrant Price (subject to adjustment) at the principal office in American Stock Transfer & Trust Company, 40 Wall Street, 46th Floor, New York, New York 10005 (the "Warrant Agent"). Payment of such price shall be made at the option of the Holder in cash or by certified check or bank draft payable to the Warrant Agent, all as provided in the Warrant Agreement. The Warrants evidenced hereby are part of a duly authorized issue of Common Stock Purchase Warrants with rights to purchase an aggregate of up to 3,484,074 Shares of Common Stock of the - 1 - Company and are issued under and in accordance with a Warrant Agreement dated as of ____________, 1996, between the Company and the Warrant Agent and are subject to the terms and provisions contained in such Warrant Agreement, to all of which the Holder of this Warrant certificate by acceptance hereof consents. A copy of the Warrant Agreement may be obtained for inspection by the Holder hereof upon written request to the Warrant Agent. Upon any partial exercise of the Warrants evidenced hereby, there shall be countersigned and issued to the Holder a new Warrant certificate in respect of the Shares as to which the Warrants evidenced hereby have not been exercised. This Warrant certificate may be exchanged at the office of the Warrant Agent by surrender of this Warrant certificate properly endorsed (with a signature guarantee) either separately or in combination with one or more other Warrants or one or more new Warrants to purchase the same aggregate number of Shares as here evidenced by the Warrant or Warrants exchanged. No fractional Shares will be issued upon the exercise of rights to purchase hereunder, but the Company shall pay the cash value of any fraction upon the exercise of one or more Warrants. The Warrants evidenced hereby are transferable at the office of the Warrant Agent in the manner and subject to the limitations set forth in the Warrant Agreement. The Holder hereof may be treated by the Company, the Warrant Agent and all other persons dealing with this Warrant certificate as the absolute owner hereof for all purposes and as the person entitled to exercise the rights represented hereby, any notice to the contrary notwithstanding, and until such transfer is entered on such books, the Company may treat the Holder hereof as the owner for all purposes. This Warrant certificate does not entitle the Holder hereof to any of the rights of a stockholder of the Company. This Warrant certificate shall not be valid or obligatory for any purpose until it has been countersigned by the Warrant Agent. Dated: ___________, 1996 RALLY'S HAMBURGERS, INC. By:________________________________ ____________________ ATTEST: ___________________________ ___________________________ Countersigned: - 2 - ___________________________ Warrant Agent By:_________________________ Authorized Signatory - 3 - [Reverse side of Warrant Certificate] RALLY'S HAMBURGERS, INC. PURCHASE FORM Mailing Address: Rally's Hamburger, Inc. _____________________________ _____________________________ _____________________________ The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant for and to purchase thereunder, _________ Shares of Common Stock provided for therein, and requests that certificates for such Shares be issued in the name of: _________________________________________________________________ (Please Print or Type Name, Address and Social Security number) _________________________________________________________________ and if said number of Shares shall not be all the Shares purchasable hereunder that a new Warrant certificate for the balance of the Shares purchasable under the within Warrant certificate be registered in the name of the undersigned Holder or his Assignee as below indicated and delivered to the address stated below. Dated:________________________ Name of Holder or Assignee: ______________________________ (Please Print) Address: _______________________________________________________ _______________________________________________________ Signature: _______________________________________________________ Note: The above signature must correspond with the name as it appears upon the face of the within Warrant certificate in every particular, without alteration or enlargement or any change whatever, unless these Warrants have been assigned. Signature Guaranteed: _______________________________________________________ - 4 - (Signature must be guaranteed by a bank or trust company having an office or correspondent in the United States or by a member firm of a registered securities exchange or the National Association of Securities Dealers, Inc.) - 5 - ASSIGNMENT (To be signed only upon assignment of Warrant) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _________________________________________________________________ (Name and Address of Assignee Must Be Printed or Typewritten) _________________________________________________________________ the within Warrant, hereby irrevocably constituting and appointing ____________________ Attorney to transfer said Warrant on the books of the Company, with full power of substitution in the premises. Dated:____________________________ ___________________________________ Signature of Registered Holder Note: The signature on this assignment must correspond with the name as it appears upon the face of the within Warrant certificate in every particular, without alteration or enlargement or any change whatever. Signature Guaranteed: _____________________________ (Signature must be guaranteed by a bank or trust company having an office or correspondent in the United States or by a member firm of a registered securities exchange or the National Association of Securities Dealers, Inc.) - 6 - EX-5 4 OPINION OF CHRISTENSEN, WHITE, MILLER, FINK, JACOB [LETTER HEAD OF CHRISTENSEN, WHITE, MILLER, FINK, JACOBS, GLASER & SHAPIRO, LLP] July 29, 1996 Rally's Hamburgers, Inc. 10002 Shelbyville Road Suite 150 Louisville, Kentucky 40223 Re: Rally's Hamburgers, Inc. Registration Statement on Form S-3 ---------------------------------- Gentlemen: You have requested our opinion as counsel for Rally's Hamburgers, Inc., a Delaware corporation (the "Company"), in connection with the distribution by the Company to the holders of its outstanding Common Stock, $.10 par value per share (the "Common Stock"), of 3,484,074 transferable subscription rights (the "Rights") to purchase units (the "Units"), each consisting of (i) one share of Common Stock and (ii) a Warrant to purchase an additional share of Common Stock (the "Warrants") (the "Rights Offering") in accordance with the Company's Registration Statement on Form S-3 (File No. 333-07609), as amended (the "Registration Statement"). In rendering our opinion herein, we have assumed the satisfaction of the following conditions: the genuineness of all signatures on original documents submitted to us; the authenticity of all documents submitted to us as copies or facsimiles; the continued accurancy of all certificates and other documents from public officials dated earlier than the date of this letter; the issuance by the appropriate regulatory agencies of any necessary permits, consents, approvals, authorizations and orders relating to the Rights Offering in their respective jurisdictions; the Registration Statement being declared effective; the due execution and delivery of the proposed form of warrant agreement filed as Exhibit (4) (b) to the Registration Statement, between the Company and American Stock Transfer & Trust Company, as Warrant Agent (the "Warrant Agreement"); the distribution of the Rights and the offer and sale of the Units in the manner set forth in the Registration Statement and pursuant to said permits, consents, approvals, authorizations and orders; the receipt of the Company of the Rally's Hamburgers, Inc. July 29, 1996 page 2 consideration for the Units as described in the Registration Statement; and the exercise of the Warrant in accordance with the terms of the Warrant Agreement and the continued existence of a current prospectus satisfying the requirements of Section 10(a)(3) of the Securities Act of 1933 so long as any of the Warrants are outstanding and exercisable. In rendering our opinion herein, we are relying as to certain factual matters solely upon (and have ourselves performed no examination or investigation) an Officer's Certificate given to us by the Company. Based upon the foregoing, it is our opinion that when issued, the Rights, Units, Warrants and the shares of Common Stock which are a part of the Units and which underlie the Warrants will be legally issued, fully paid and nonassessable. This opinion is addressed solely to the Company, and no one else has the right to rely upon it, nor may anyone release it, quote from it, or employ it in any transaction other than those discussed herein without our written consent; however, we hereby consent to the filing of this opinion as an exhibit to, and the references to this firm contained in, the Registration Statement. Respectfully submitted, CHRISTENSEN, WHITE, MILLER, FINK, JACOBS, GLASER & SHAPIRO, LLP EX-23 5 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT Exhibit 23 Consent of Independent Public Accountant ---------------------------------------- As independent public accountants, we hereby consent to the incorporation by reference in this Registration Statement of our reports dated March 6, 1996 included in Rally's Hamburgers, Inc.'s Form 10-K for the year ended December 31, 1995 and to all references to our Firm included in this Registration Statement. Louisville, Kentucky ARTHUR ANDERSEN LLP July 1, 1996 EX-99 6 SUBSCRIPTION AGENT AGREEMENT Exhibit 99 [Subscription Agent Agreement] July 31, 1996 American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 Gentlemen: In connection with your appointment as Subscription Agent in the transaction described herein, Rally's Hamburgers, Inc. (the "Company"), a Delaware corporation, hereby confirms its arrangements with you as follows: 1. RIGHTS OFFERING. The Company is offering (the "Rights Offering") to --------------- the holders of shares of its Common Stock, par value $.10 per share ("Common Stock"), on July 31, 1996 (the "Record Date"), the right ("Rights") to subscribe for Units ("Units"), each Unit consisting of one share Common Stock ("Common Share") and a warrant to purchase an additional Common Share. Except as set forth under Paragraphs 8 and 9 below, Rights shall cease to be exercisable at 5:00 p.m., New York City time, on August 30, 1996 or such later date of which the Company notifies you orally and confirms in writing (the "Expiration Date"). One Right is being issued for each Common Share held on the Record Date. Four and one-half Rights and payment in full of the subscription price of $3.00 (the "Subscription Price") are required to subscribe for one Unit. Rights are evidenced by transferable subscription certificates in registered form ("Subscription Certificates"). Each holder of Subscription Certificate(s) who exercises the holder's right to subscribe for all Units that can be subscribed for with the Rights evidenced by such Subscription Certificate(s) (the "Basic Subscription Right") will have the right to subscribe for additional Units, if any, available as a result of any unexercised Rights (such additional subscription right being referred to hereafter as the "Additional Subscription Privilege"). The Rights Offering will be conducted in the manner and upon the terms set forth in the Company's Prospectus dated July 31, 1996 (the "Prospectus"), which is incorporated herein by reference and made a part hereof as if set forth in full herein. 2. APPOINTMENT OF SUBSCRIPTION AGENT. You are hereby appointed as --------------------------------- Subscription Agent to effect the Rights Offering in accordance with the Prospectus. Each reference to you in this letter is to you in your capacity as Subscription Agent unless the context indicates otherwise. American Stock Transfer & Trust Company July 31, 1996 Page 2 3. DELIVERY OF DOCUMENTS. Enclosed herewith are the following, the --------------------- receipt of which you acknowledge by your execution hereof: (a) a copy of the Prospectus; (b) the form of Subscription Certificate (with instructions); (c) resolutions adopted by the Board of Directors of the Company in connection with the Rights Offering, certified by the Secretary of the Company; and (d) Notice of Guaranteed Delivery. On or before August 5, 1996, you shall mail or cause to be mailed to each holder of Common Shares at the close of business on the Record Date a Subscription Certificate evidencing the Rights to which such holder is entitled, a Notice of Guaranteed Delivery, a Prospectus and an envelope addressed to you. Prior to mailing, the Company will provide you with blank Subscription Certificates which you will prepare and issue in the names of holders of Common Shares of record at the close of business on the Record Date and for the number of Rights to which they are entitled. The Company will also provide you with a sufficient number of copies of each of the documents to be mailed with the Subscription Certificates. Immediately after the Subscription Certificates are mailed, you shall execute and deliver to the Company a certificate in the form of Exhibit A hereto. 4. SUBSCRIPTION PROCEDURE. ---------------------- (a) Upon your receipt prior to 5:00 p.m., New York City time, on the Expiration Date (by mail or delivery), as Subscription Agent, of (i) any Subscription Certificate completed and endorsed for exercise, as provided on the reverse side of the Subscription Certificate (except as provided in paragraph 8 hereof), and (ii) payment in full of the Subscription Price in U.S. funds by check, bank draft or money order payable at par (without deduction for bank service charges or otherwise) to the order of American Stock Transfer & Trust Company, you shall as soon as practicable after the Expiration Date, but after performing the procedures described in subparagraphs (b) and (c), below (which is anticipated to be the fifth business day thereafter) mail to the subscriber's registered address on the books of the Company certificates representing one Common Share American Stock Transfer & Trust Company July 31, 1996 Page 3 and one Warrant for each Unit duly subscribed for (pursuant to the Basic Subscription Right and the Additional Subscription Privilege) and furnish a list of all such information to the Company. (b) As soon as practicable after the Expiration Date you shall calculate the number of Units to which each subscriber is entitled pursuant to the Additional Subscription Privilege. The Additional Subscription Privilege may only be exercised by holders who subscribe to all the Units that can be subscribed for under the Basic Subscription Right. The Units available for additional subscriptions will be those that have not been subscribed and paid for pursuant to the Basic Subscription Right (the "Remaining Units"). Where there are sufficient Remaining Units to satisfy all additional subscriptions by holders exercising their rights under the Additional Subscription Privilege, each holder shall be allotted the number of additional Units subscribed for. If the aggregate number of Units subscribed for under the Additional Subscription Privilege exceeds the number of Remaining Units, the number of Remaining Units allotted to each participant in the Additional Subscription Privilege shall be the product (disregarding fractions) obtained by multiplying the number of Remaining Units by a fraction of which the numerator is the number of Units subscribed for by that participant under the Additional Subscription Privilege and the denominator is the aggregate number of Remaining Units. Any fractional Unit to which persons exercising their Additional Subscription Privilege would otherwise be entitled pursuant to such allocation shall be rounded down to the next whole Unit. (c) Upon calculating the number of Units to which each subscriber is entitled pursuant to the Additional Subscription Privilege and the amount overpaid, if any, by each subscriber, you shall, as soon as practicable, (i) furnish a list of all such information to the Company and (ii) inform holders of Subscription Certificates who participated in the Additional Subscription Privilege of the number of additional Units, if any, allotted to them. American Stock Transfer & Trust Company July 31, 1996 Page 4 (d) Upon calculating the number of Units to which each subscriber is entitled pursuant to the Additional Subscription Privilege and assuming payment for the additional Units subscribed for has been delivered, you shall mail, as contemplated in subparagraph (a) above, certificates representing the additional Common Shares and Warrants the subscriber has been allotted. If a lesser number of Units is allotted to a subscriber under the Additional Subscription Privilege than the subscriber has tendered payment for, you shall remit the difference to the subscriber without interest or deduction at the same time as certificates representing the Common Shares and Warrants allotted pursuant to the Additional Subscription Privilege are mailed. (e) Funds received by you pursuant to the Basic Subscription Right and the Additional Subscription Privilege shall be held by you in a segregated interest-bearing account. Upon mailing certificates representing the Common Shares and the Warrants and refunding subscribers for additional Units subscribed for but not allocated, if any, you shall promptly remit to the Company all funds received in payment of the Subscription Price for Units sold in the Rights Offering. 5. PURCHASE, SALE OR TRANSFER OF RIGHTS. Until 5:00 p.m., New York City ------------------------------------ time, on the 5th business day prior to the Expiration Date, you shall facilitate purchases, sales or transfers of Subscription Certificates by issuing new Subscription Certificates in accordance with the instructions set forth on the reverse side of the Subscription Certificates. 6. DIVIDING OR COMBINING SUBSCRIPTION CERTIFICATES. Until 5:00 p.m., New ----------------------------------------------- York City time, on the 5th business day prior to the Expiration Date, a Subscription Certificate may be exchanged for two or more new Subscription Certificates and two or more Subscription Certificates may be exchanged for a new Subscription Certificate representing in each case a number of Rights aggregating the same numbers of Rights evidenced by the original Subscription Certificate or Subscription Certificates by completing and signing the appropriate form on the reverse side of such Subscription Certificate and surrendering them to you. 7. DEFECTIVE EXERCISE OF RIGHTS; LOST SUBSCRIPTION CERTIFICATES. The ------------------------------------------------------------ Company shall have the absolute right to American Stock Transfer & Trust Company July 31, 1996 Page 5 reject any defective exercise of Rights or to waive any defect in exercise. Unless requested to do so by the Company, you shall not be under any duty to give notification to holders of Subscription Certificates of any defects or irregularities in subscriptions. Subscriptions will not be deemed to have been made until any such defects or irregularities have been cured or waived within such time as the company shall determine. You shall as soon as practicable return Subscription Certificates with the defects or irregularities which have not been cured or waived to the holder of the Rights. If any Subscription Certificate is alleged to have been lost, stolen or destroyed, you should follow the same procedures followed for lost stock certificates representing Common Shares you use in your capacity as transfer agent for the Company's Common Shares. 8. LATE DELIVERY. If prior to 5:00 p.m., New York City time, on the ------------- Expiration Date you receive (i) payment in full of the Subscription Price for the Units being subscribed for and (ii) a guarantee notice substantially in the form of the Notice of Guaranteed Delivery delivered with the Subscription Certificate, from a financial institution having an office or correspondent in the United States, or a member firm of any registered United States national securities exchange or of the National Association of Securities Dealers, Inc. stating the certificate number of the Subscription Certificate relating to the Rights, the name and address of the exercising shareholder, the number of Rights represented by the Subscription Certificate held by such exercising shareholder, the number of Units being subscribed for pursuant to the Rights and guaranteeing the delivery to you of the Subscription Certificate evidencing such Rights within three NASDAQ National Market ("NNM") trading days following the date of the Notice of Guaranteed Delivery, then the Rights may be exercised even though the Subscription Certificate was not delivered to you prior to 5:00 p.m., New York City time, on the Expiration Date, provided that within three NNM trading days following the date of the Notice of Guaranteed Delivery you receive the properly completed Subscription Certificate evidencing the Rights being exercised, with signatures guaranteed if required. 9. DELIVERY. You shall deliver to the Company the exercised Subscription -------- Certificates in accordance with written directions received from the Company and shall deliver to the subscribers who have duly exercised Rights at their registered addresses certificates representing Common Shares and Warrants as instructed on the reverse side of the Subscription Certificates. American Stock Transfer & Trust Company July 31, 1996 Page 6 10. REPORTS. You shall notify the Company by telephone on or before the ------- close of business on each business day during the period commencing with the mailing of the Rights and ending at the Expiration Date (and in the case of guaranteed deliveries ending three NNM trading days after the Expiration Date) (a "daily notice"), which notice shall thereafter be confirmed in writing, of (i) the number of Rights exercised on the day covered by such daily notice, (ii) the number of Rights subject to guaranteed exercises on the day covered by such daily notice, (iii) the number of Rights for which defective exercises have been received on the day covered by such daily notice, and (iv) the cumulative total of the information set forth in clauses (i) through (iii) above, all without regard to the Additional Subscription Privilege. At or before 5:00 p.m., New York City time, on the first NNM trading day following the Expiration Date you shall certify in writing to the Company the cumulative total through the Expiration Date of all the information set forth in clauses (i) through (iii) above. At or before 10:00 a.m., New York City time, on the fifth NNM trading day following the Expiration Date you will execute and deliver to the Company a certificate setting forth the number of Rights exercised pursuant to a Notice of Guaranteed Delivery and as to which Subscription Certificates have been timely received. You shall also maintain and update a listing of holders who have fully or partially exercised their Rights, holders who have transferred their Rights and their transferrees, and holders who have not exercised their Rights. You shall provide the Company or its designees with such information compiled by you pursuant to this paragraph 10 as any of them shall request. 11. FUTURE INSTRUCTIONS. With respect to notices or instructions to be ------------------- provided by the Company hereunder, you may rely and act on any written instruction signed by any one or more of the following authorized officers or employees of the Company: Mr. Michael Foss, Mr. Evan Hughes or Mr. Mark Noltemeyer. 12. PAYMENT OF EXPENSES. The Company will pay you compensation for acting ------------------- in your capacity as Subscription Agent hereunder in the amount of $12,500. 13. COUNSEL. You may consult with counsel satisfactory to you, which may ------- be counsel to the Company, and the written advice or opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by you hereunder in good faith and in accordance with such advice or opinion of such counsel. American Stock Transfer & Trust Company July 31, 1996 Page 7 14. INDEMNIFICATION. The Company covenants and agrees to indemnify and --------------- hold you harmless against any costs, expenses (including reasonable fees or legal counsel), losses or damages, which may be paid, incurred or suffered by or to which you may become subject, arising from or out of, directly or indirectly, any claim or liability resulting from your actions as Subscription Agent pursuant hereto; provided that such covenant and agreement does not extend to -------- such costs, expenses, losses and damages incurred or suffered by you as a result of, or arising out of, your own negligence, misconduct or bad faith or that of any employees, agents or independent contractors used by you in connection with performance of your duties as Subscription Agent hereunder. 15. NOTICES. Unless otherwise provided herein, all reports, notices and ------- other communications required or permitted to be given hereunder shall be in writing and delivered by hand or confirmed telecopy or by first class U. S. mail, postage prepaid, shall be deemed given if by hand or telecopy, upon receipt or if by mail, three business days after deposit in the U.S. mail and shall be addressed as follows: (a) If to the Company, to: RALLY'S HAMBURGERS, INC. 10002 Shelbyville Road, Suite 150 Louisville, Kentucky 40223 Attention: Donald E. Doyle, President and Chief Executive Officer Telephone: (502) 245-8900 Telecopy: (502) 245-8680 (b) If to you, to: American Stock Transfer & Trust Company 40 Wall Street New York, N.Y. 10005 Attention: George Karfunkel Telephone: (718) 921-8200 Telecopy: (718) 236-4588 American Stock Transfer & Trust Company July 31, 1996 Page 8 If the foregoing is in accordance with your understanding of our arrangements, please sign and return the enclosed duplicate of this letter. Very truly yours, By: ____________________________________ Mr. Donald E. Doyle President and Chief Executive Officer American Stock Transfer & Trust Company July 31, 1996 Page 9 The foregoing is in accordance with our understanding and is hereby confirmed and accepted. AMERICAN STOCK TRANSFER & TRUST COMPANY By: ___________________________________ Name: Title: Dated: July 31, 1996 EXHIBIT A --------- CERTIFICATE OF SUBSCRIPTION AGENT American Stock Transfer & Trust Company (the "Subscription Agent") does hereby certify that: 1. The Subscription Agent has been duly appointed and authorized to act as Subscription Agent in connection with the issuance of rights (the "Rights") to subscribe for the purchase of Units ("Units"), each Unit consisting of a share of the common stock (par value $.10 per share) (the "Common Share"), and a warrant to purchase an additional Common Share of Rally's Hamburgers, Inc., a Delaware corporation (the "Company"). 2. As of the close of business on July 31, 1996 there were 15,678,335 Common Shares issued and outstanding. 3. As such Subscription Agent, it has this date issued, countersigned and mailed Subscription Certificates evidencing 15,678,335 Rights pursuant to the written order of the Company. 4. Said Subscription Certificates were signed by duly authorized offices of the Company their facsimile signatures and countersigned on behalf of the Subscription Agent by authorized officers of the Subscription Agent who were at the time of affixing their signatures and still are duly authorized to countersign such Subscription Certificates. Dated: _________________, 1996 AMERICAN STOCK TRANSFER & TRUST COMPANY By: ___________________________________ Authorized Officer
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