CHECKERS DRIVE IN RESTAURANTS INC /DE, 10-K/A, 1999-05-28

CHECKERS DRIVE IN RESTAURANTS INC /DE
10-K/A, 1999-05-28
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K/A

(AMENDMENT NO. 1)

(Mark One)

[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 28, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

FOR THE TRANSITION PERIOD FROM TO .

COMMISSION FILE NO 0-19649

CHECKERS DRIVE-IN RESTAURANTS, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 58-1654960
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

14255 49TH STREET N., 33762
BLDG. #1, SUITE 101 (ZIP CODE)
CLEARWATER, FLORIDA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (727) 519-2000

The purpose of this amendment is to amend all items in their entirety to read as
set forth herein.

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CHECKERS DRIVE-IN RESTAURANTS, INC.
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS

PAGE

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<S> <C> <C>
PART I.

Item 1. Business .................................................................. 3
Item 2. Properties ................................................................ 14
Item 3. Legal Proceedings ......................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders ....................... 18

PART II.
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters ....................................................... 19
Item 6. Selected Financial Data ................................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ..................................................... 21
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ................ 32
Item 8. Financial Statements and Supplementary Data ............................... 33
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure .................................................. 66

PART III.
Item 10. Directors and Executive Officers of the Registrant ........................ 66
Item 11. Executive Compensation .................................................... 69
Item 12. Security Ownership of Certain Beneficial Owners and Management ............ 74
Item 13. Certain Relationships and Related Transactions ............................ 75

PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .......... 75
</TABLE>

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PART I

ITEM 1. BUSINESS.

INTRODUCTION

Unless the context requires otherwise, references in this Report to
"Checkers", the "Company" or the "Registrant" means Checkers Drive-In
Restaurants, Inc., its wholly owned subsidiaries and the 10.55% to 65.83% owned
joint venture partnerships controlled by the Company.

Checkers develops, produces, owns, operates and franchises quick-service
"double drive-thru" restaurants under the name "Checkers/registered trademark/".
The Company commenced operations on August 1, 1987, to operate and franchise
Checkers Double Drive-Thru restaurants. The restaurants are designed to provide
fast and efficient automobile-oriented service incorporating a 1950's diner and
art deco theme with a highly visible, distinctive and uniform look that is
intended to appeal to customers of all ages. The restaurants feature a limited
menu of high quality hamburgers, cheeseburgers and bacon cheeseburgers,
specially seasoned french fries, hot dogs, and chicken sandwiches, as well as
related items such as soft drinks and old fashioned premium milk shakes.

As of December 28, 1998, there were 462 Checkers restaurants operating in
the States of Alabama, Delaware, Florida, Georgia, Illinois, Indiana, Iowa,
Kansas, Louisiana, Maryland, Michigan, Mississippi, Missouri, New Jersey, New
York, North Carolina, Pennsylvania, South Carolina, Tennessee, Texas, Virginia,
West Virginia, Wisconsin, Washington D.C., Puerto Rico and West Bank, in the
Middle East (230 Company-operated (including 12 joint ventured) and 232
franchised).

The Company reports on a fiscal year which will end on the Monday closest
to December 31st. Each quarter consists of three 4-week periods, with the
exception of the fourth quarter which consists of four 4-week periods.

Comparable store sales for the Company were 2.3% above the prior year
representing the first full-year increase in six years. The first quarter of the
year featured the successful introduction of a spicy chicken sandwich that was
somewhat unique to the quick-service segment. Other product innovations during
the year included the transition to a two-patty platform that enabled the
company to utilize a large hamburger patty for a premium sandwich while also
using a smaller hamburger patty for its lower priced menu offerings. Critical to
the success of these and other menu offerings was the operational and marketing
focus on serving fresh food.

RECENT DEVELOPMENTS

On January 29, 1999, the Company and Rally's Hamburgers, Inc. ("Rally's")
announced the signing of a definitive merger agreement pursuant to which Rally's
would be merged into Checkers in an all-stock transaction ("the Merger"). The
merger agreement provides that each outstanding share of Rally's stock will be
exchanged for 1.99 shares of the Company's stock. The approximate 19.1 million
shares of the Checkers common stock which Rally's owns will be retired following
the Merger. Immediately after the Merger, Checkers intends to effect a
one-for-twelve-reverse stock split. Checkers and Rally's have each received
investment bankers' opinions as to the fairness from a financial point of view,
of the exchange ratio in the Merger. The Merger is subject to certain approvals,
including but not limited to approval by the shareholders of Checkers and
Rally's, and is expected to close in the second quarter of fiscal year 1999. At
December 28, 1998, Rally's owned 19,130,930 shares (26.06 percent) of the
outstanding common stock of Checkers and public shareholders owned the remaining
54,277,177 shares of Checkers common stock. Checkers will issue 58,377,134
shares of its common stock to Rally's shareholders in exchange for all the
outstanding common stock of Rally's (29,335,243 outstanding shares). After the
transaction, Rally's shareholders will own 58,377,134 shares (51.8 percent of
the outstanding common stock of the new Checkers) and the remaining 54,277,117
shares (48.2 percent of Checkers common stock) will then

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be held by then current shareholders of Checkers. Immediately following the
Merger, and the one-for-twelve reverse split, there will be approximately
9,387,859 common shares outstanding. In addition, each of Rally's outstanding
stock options (5.6 million at December 28, 1998) will be exchanged for Checkers
options at the exchange rate of 1 to 1.99.

The business combination under the Merger will be accounted for under the
purchase method. The Merger transaction will be accounted for as a reverse
acquisition as the stockholders of Rally's will receive the larger portion
(51.8%) of the voting interests in the combined enterprise. Accordingly, Rally's
is considered the acquirer for accounting purposes and therefore, Checkers'
assets and liabilities will be recorded based upon their fair market value. The
Merger will create a company with nearly 1,000 restaurants systemwide, making
it, management of the Company believes, more competitive in the quick-service
restaurant segment by allowing the crossover of product promotions, menu items,
marketing strategies and restaurant images. This Merger will also allow the
Company and Rally's to make permanent the administrative and operational
efficiencies realized under their current Management Services Agreement.

On December 18, 1998, the Company completed a $10.0 million mortgage
financing transaction with FFCA Acquisition Corporation (FFCA) collateralized by
24 fee-owned properties. The terms of the transaction include a stated interest
rate of 9.5% on the unpaid balance over a 20 year term. The net proceeds of the
mortgage transaction were approximately $9.6 million of which $8.0 million was
utilized to reduce the amount outstanding under the Restated Credit Agreement
and approximately $612,000 was used to retire other debt associated with the
collateral upon closing. Approximately $1.0 million was retained for operational
initiatives of the Company, including but not limited to new menu boards.

At December 28, 1998, a significant portion ($17.4 million) of the
Company's long-term debt relates to the Company's Restated Credit Agreement
which originally was to mature on July 31, 1999. On March 24, 1999, the Company
and Santa Barbara Restaurant Group, Inc. ("SBRG"), a company which is an 8.2%
owner (as of December 31, 1998) of Rally's, executed a letter of intent whereby
SBRG agreed to acquire approximately $1.9 million of debt due to two members of
the lender group. The terms associated with the SBRG debt will be identical to
terms that other participants of the lender group have pursuant to the Restated
Credit Agreement. On March 24, 1999, SBRG and the other remaining members of the
lender group have also agreed to an extension of the maturity date to April 30,
2000. As of December 28, 1998, Fidelity National Financial, Inc. owned 31.1% of
the outstanding common stock of SBRG.

In September 1998, the Company received notice from NASDAQ that delisting
could occur on December 18, 1998 if the Company's common stock failed to
maintain a bid price greater than or equal to $1.00 for ten consecutive trading
days. The Company's common stock price did not meet that criteria and management
requested and was granted an oral hearing to present a plan of action to NASDAQ
to regain compliance with this standard. The plan of action included the Merger
with Rally's and a subsequent one-for-twelve reverse stock split. On May 14,
1999, the Company was notified by NASDAQ that its listing status would be
continued until June 30, 1999. On or before that date, the Company will be
required to evidence a closing bid price of at least $1.00 and must subsequently
sustain this price for a minimum of ten consecutive trading days.

RESTAURANT DEVELOPMENT AND ACQUISITION ACTIVITIES

During 1998, the Company reopened two restaurants and closed two
restaurants, maintaining 230 Company-operated restaurants at December 28, 1998.
Franchisees opened 18 restaurants and closed 35 restaurants for a net decrease
of five franchisee-operated restaurants in 1998. Franchisees operated 232, or
50%, of the total restaurants open at December 28, 1998. Because of the
Company's limited capital resources, it will rely on franchisees for a larger
portion of chain expansion. The inability of franchisees to obtain sufficient
financing capital on a timely basis may have a materially adverse effect on
expansion efforts.

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To the extent permitted by operating cash flow or external financing
sources, Checkers intends to focus future growth primarily in its existing
markets of higher market penetration ("Core Markets") through acquisitions, new
restaurant openings or through other growth opportunities. The Company will
continue to seek to expand through existing and new franchisees. From time to
time, the Company may close or sell additional restaurants or markets when
determined by management and the Board of Directors to be in the best interests
of the Company.

RESTAURANT OPERATIONS

CONCEPT. The Company's operating concept includes: (i) offering a limited
menu to permit the maximum attention to quality and speed of preparation; (ii)
utilizing a distinctive restaurant design that features a "double drive-thru"
concept, projects a uniform image and creates significant curb appeal; (iii)
providing fast service using a "double drive-thru" design for its restaurants
and a computerized point-of-sale system that expedites the ordering and
preparation process; and (iv) great tasting quality food and drinks made fresh
to order at a fair price.

RESTAURANT LOCATIONS. As of December 28, 1998, there were 230 restaurants
owned and operated by the Company in 12 states (including 12 restaurants owned
by partnerships in which the Company has interests ranging from 10.55% to
65.83%) and 232 restaurants operated by the Company's franchisees in 18 States,
the District of Columbia, Puerto Rico and the West Bank, Middle East. The
following table sets forth the locations of such restaurants:

COMPANY-OPERATED
(230 RESTAURANTS)

Florida (135) Illinois (11) New Jersey (4)
Georgia (37) Missouri (5) North Carolina (2)
Pennsylvania (13) Mississippi (4) Kansas (2)
Alabama (12) Tennessee (4) Delaware (1)

FRANCHISED
(232 RESTAURANTS)

Florida (51) Illinois (11) Missouri (2)
Georgia (49) South Carolina (10) West Virginia (2)
Alabama (20) Louisiana (9) Iowa (2)
North Carolina (11) New Jersey (9) Washington, D.C. (2)
Maryland (15) Tennessee (5) Michigan (1)
Puerto Rico (13) Wisconsin (4) Texas (1)
New York (11) Virginia (3) West Bank, Middle East (1)

Of these restaurants, 20 were opened or reopened in 1998 (two
Company-operated and 18 franchised), which included 13 used fully equipped
manufactured modular buildings, "Modular Restaurant Packages" ("MRP's"), either
reopened or relocated from closed sites, five conversions of other restaurant
concepts buildings and two non-traditional locations. The Company currently
expects approximately 20 to 30 additional restaurants to be opened in 1999
primarily by franchisees with a majority of these restaurants to include MRP's
relocated from closed sites. The Company and its franchises have closed a total
of three restaurants during 1999. It is not anticipated that the Company or its
franchisees will experience a significant number of additional restaurant
closures during fiscal 1999. If either the Company or the franchisee(s) are
unable to obtain sufficient capital on a timely basis, the Company's ability to
achieve its 1999 expansion plans may be materially adversely affected. The
Company's continued growth strategy for the next two years is to focus on the
controlled development of additional franchised and Company-operated restaurants
primarily in its existing Core Markets and to further penetrate markets
currently under development by franchisees, including select international
markets. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

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SITE SELECTION. The selection of a site for a restaurant is critical to its
success. Management inspects and approves each potential restaurant site prior
to final selection of the site. In evaluating particular sites, the Company
considers various factors including traffic count, speed of traffic, convenience
of access, size and configuration, demographics and density of population,
visibility and cost. The Company also reviews competition and the sales and
traffic counts of national and regional chain restaurants operating in the area.
Approximately 84% of Company-operated restaurants are located on leased land and
the Company intends to continue to use leased sites where possible. The Company
believes that the use of the MRP provides the Company and its franchisees with
additional flexibility in the size, control and location of sites.

RESTAURANT DESIGN AND SERVICE. The restaurants are built to
Company-approved specifications as to size, interior and exterior decor,
equipment, fixtures, furnishings, signs, parking and site improvements. The
restaurants have a highly visible, distinctive and uniform look that is intended
to appeal to customers of all ages. The restaurants are less than one-fourth the
size of the typical restaurants of the four largest quick-service hamburger
chains (generally 760 to 980 sq. ft.) and require approximately one-third to
one-half the land area (approximately 18,000 to 25,000 square feet).
Substantially all of the restaurants in operation consist of MRP's produced and
installed by the Company.

The Company's standard restaurant is designed around a 1950's diner and art
deco theme with the use of white and black tile in a checkerboard motif, glass
block corners, a protective drive-thru cover on each side of the restaurant
supported by red aluminum columns piped with white neon lights and a wide
stainless steel band piped with red neon lights that wraps around the restaurant
as part of the exterior decor. Most restaurants utilize a "double drive-thru"
concept that permits simultaneous service of two automobiles from opposite sides
of the restaurant. Although a substantial portion of the Company's sales are
made through its drive-thru windows, service is also available through walk-up
windows. While the restaurants normally do not have an interior dining area,
most have parking and a patio for outdoor eating. The patios contain canopy
tables and benches, are well landscaped and have outside music in order to
create an attractive and "fun" eating experience. Although each sandwich is
made-to-order, the Company's objective is to serve customers within 30 seconds
of their arrival at the drive-thru window. Each restaurant has a computerized
point-of-sale system which displays each individual item ordered on a monitor in
front of the food and drink preparers. This enables the preparers to begin
filling an order before the order is completed and totaled and thereby increases
the speed of service to the customer and the opportunity of increasing sales per
hour, provides better inventory and labor costs control and permits the
monitoring of sales volumes and product utilization. The restaurants are
generally open from 12 to 15 hours per day, seven days a week, for lunch, dinner
and late-night snacks and meals.

RESTAURANT DEVELOPMENT COSTS. The Company estimates that the average cost
of opening a Checkers restaurant (exclusive of land costs) utilizing used MRP's
is approximately $375,000 which includes modular building costs, fixtures,
equipment and signage costs, site improvement costs and various soft costs
(e.g., engineering and permit fees). Future costs, after all remaining used
MRP's are relocated, would be higher than this average. During periods when the
Champion construction facility is operating at an efficient production level,
the Company believes that utilization of MRP's generally costs less than
comparably built restaurants using conventional, on-site construction methods.
The Company believes it is even more cost effective to utilize used MRP's when
available. At such time as there are no longer used MRP's available, but demand
for new MRP's is not sufficient to allow the Champion construction facility to
operate at an efficient level, it may become more cost effective to seek other
manufacturers of MRP's or to build restaurants utilizing conventional, on site
construction methods. The Company did not open any restaurants on new sites in
fiscal 1998.

MENU. The menu of a restaurant includes hamburgers, cheeseburgers and bacon
cheeseburgers, chicken sandwiches, grilled chicken, hot dogs and deluxe chili
dogs and specially seasoned french fries, as well as related items such as soft
drinks, old fashioned premium milk

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shakes and apple nuggets. The menu is designed to present a limited number of
selections to permit the greatest attention to quality, taste and speed of
service. The Company is engaged in product development research and seeks to
enhance the variety offered to consumers from time to time without substantially
expanding the limited menu.

SUPPLIES. The Company and its franchisees purchase their food, beverages
and supplies from Company-approved suppliers. All products must meet standards
and specifications set by the Company due primarily to joint purchasing with
Rally's and CKE Restaurants, Inc. Management constantly monitors the quality of
the food, beverages and supplies provided to the restaurants. The Company has
been successful in negotiating price concessions from suppliers for bulk
purchases of food and paper supplies by the restaurants. The Company believes
that its continued efforts over time have achieved cost savings, improved food
quality and consistency and helped decrease volatility of food and supply costs
for the restaurants. All essential food and beverage products are available or,
upon short notice, could be made available from alternate qualified suppliers.
Therefore, management believes that the loss of any one supplier would not have
a material adverse effect on Checkers. Among other factors, the Company's
profitability is dependent upon its ability to anticipate and react to changes
in food costs. Various factors beyond the Company's control, such as climate
changes and adverse weather conditions, may affect food costs.

MANAGEMENT AND EMPLOYEES. Each Company operated restaurant employs an
average of approximately 19 hourly employees, many of whom work part-time on
various shifts. The management staff of a typical restaurant operated by the
Company consists of a general manager, one assistant manager and a shift
manager. The Company has an incentive compensation program for store managers
that provides the store managers with a quarterly bonus based upon the
achievement of certain defined goals. A general manager is generally required to
have prior restaurant management experience, preferably within the quick-service
industry, and reports directly to an area manager. The area manager typically
has responsibility for eight to twelve restaurants.

SUPERVISION AND TRAINING. The Company requires each franchisee and
restaurant manager to attend a comprehensive training program of both classroom
and in-store training. The program was developed by the Company to enhance
consistency of restaurant operations and is considered by management as an
important step in operating a successful restaurant. During this program, the
attendees are taught certain basic elements that the Company believes are vital
to the Company's operations and are provided with a complete operations manual,
together with training aids designed as references to guide and assist in the
day-to-day operations. In addition, hands-on experience is incorporated into the
program by requiring each attendee, prior to completion of the training course,
to work in and eventually manage an existing Company-operated restaurant. After
a restaurant is opened, the Company continues to monitor the operations of both
franchised and Company-operated restaurants to assist in the consistency and
uniformity of operation.

ADVERTISING AND PROMOTION. The Company communicates with its customers by
employing a consistent and enticing approach to advertising and promoting its
products. Using television and radio commercials where efficient and practical,
as well as outdoor billboards and direct mail print advertising in less densely
penetrated markets, the Company informs the public about their brand position
and promotional product opportunities. When the customers arrive at the
restaurant, they are exposed to readerboard messages, pole banners, menuboards,
and value oriented extender cards, all of which work together to present a
simple, unified and coherent selling message at the time they are making their
purchase decisions. As of December 28, 1998, the Company and its franchisees
were working together in seven advertising co-ops covering 247 Checkers
restaurants systemwide. The Company requires franchisees to spend a minimum of
4% of gross sales to promote their restaurants, which includes a combination of
local store marketing and co-op advertising. In addition, each Company and
franchise restaurant contributes to a National Production Fund that provides
broadcast creative and point of purchase material production for each promotion.
Ongoing consumer research is employed to track attitudes, brand awareness and
market share of not only Checkers' customers, but also of its major competitor's
customers as well. In addition, customer focus groups

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and sensory panels are conducted in the Company's core markets to provide both
qualitative and quantitative data. This research data is vital in creating a
better understanding of the Company's short and long term marketing strategies.

BRAND POSITIONING: QUALITY FOCUS: The Company is in the process of
establishing an overall brand positioning as serving the best tasting hamburger
in the quick-service industry at a reasonable price. This position will be
supported by:

A. A limited menu of high quality hamburgers/cheeseburgers, chicken
sandwiches, seasoned french fries, soft drinks and milk shakes, all
deliverable in a double drive through format.

B. A new, creative positioning has been established. "Fresh. Because we
just made it.", allows the Company to take advantage of the consumers'
understanding that their food has been freshly prepared, not retrieved
from under a heat lamp or microwave oven and given to them.

C. Television, radio, outdoor and direct mail print advertising designed to
differentiate the Company from other quick-service hamburger chains and
to target frequent quick-service customers.

The new brand positioning has been developed through extensive research
with the core customer of the Company's products, as well as other quick-service
hamburger users who might be convinced to become a loyal customer. The long
range benefit of such a positioning is believed to help the Company compete more
favorably in an environment where quality and taste is much more difficult to
deliver on a consistent basis by the major quick-service competitors, given the
operating systems of those competitors. Although good value and quick service
are still important to consumers, the competitive environment has remained so
price oriented in the past few years, that the Company's competitive advantage
has been seriously eroded. Further, the over reliance on price has placed
immense pressure on margins, as food, labor and other costs have continued to
rise, while the Company's ability to raise prices in the aforementioned
competitive climate has been restricted.

With a focus on a brand positioning that provides consumers what they say
they want from a quick-service hamburger chain -- quality hamburgers, served
quickly at a reasonable price -- the Company believes it can begin to break the
cycle of low price only promotions, differentiate itself from its competitors
and improve sales and guest count trends over time.

RESTAURANT REPORTING. Each Company-operated restaurant has a computerized
point-of-sale system coupled with a back office computer. With this system,
management is able to monitor sales, labor and food costs, customer counts and
other pertinent information. This information allows management to better
control labor utilization, inventories and operating costs. Each system at
Company-operated restaurants is polled daily by a computer at the principal
offices of the Company.

YEAR 2000 ISSUES. Many computer systems using two-digit fields to store
years must be converted to read four-digit fields before the turn of the century
in order to recognize the difference between the years 1900 and 2000. All major
software systems of the Company are either in compliance with the Year 2000 or
upgraded software packages are scheduled to be installed to meet that
requirement. The Company utilizes accounting software packages such as Lawson
(general ledger/accounts payable) and Cyborg (payroll) that require periodic
upgrades to benefit from the latest modifications to the programs. Typically,
all releases of such upgrades must be implemented, eliminating a company's
ability to move directly to the most recent release. During 1998, the Company
successfully implemented all required releases of both Lawson and Cyborg that
preceded the Year 2000 compliant release. The consulting and training required
for the next Lawson and Cyborg upgrades are underway with targeted
implementation dates during the second quarter of 1999 at a cost to Checkers of
approximately $50,000. The Company has assessed the computer systems utilized at
the restaurant level and determined such systems to be Year 2000 compliant.

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Costs of replacing certain desktop computers and other required modifications at
the corporate office are not expected to exceed $70,000. See Item 7 --
"Management's Discussion and Analysis of Financial Condition and results of
Operations -- Year 2000".

JOINT VENTURE RESTAURANTS. As of December 28, 1998, there were 12
restaurants owned by 10 separate general and limited partnerships in which the
Company owns general and limited partnership interests ranging from 10.55% to
65.83%, with other parties owning the remaining interests (the "Joint Venture
restaurants"), all of which are consolidated in the Company's financial
statements. The Company is the managing partner of 11 of the 12 Joint Venture
restaurants. In the 11 Joint Venture restaurants managed by the Company, it
receives a fee for management services of 1% to 2.5% of gross sales. In
addition, all of the Joint Venture restaurants pay the standard royalty fee of
4% of gross sales. The agreements for four of the Joint Venture restaurants
(excluding Illinois partnerships) in which the Company is the managing partner
are terminable through a procedure whereby the initiating party sets a price for
the interest in the joint venture and the other party must elect either to sell
its interest in the joint venture or purchase the initiating party's interest at
such price. Some, but not all of the partnership agreements also contain the
right of the partnership to acquire a deceased individual partner's interest at
the fair market value thereof based upon a defined formula set forth in the
agreement. None of these partnerships have been granted area development
agreements.

INFLATION. The Company does not believe inflation has had a material impact
on earnings during the past three years. Substantial increases in costs could
have a significant impact on the Company and the industry. If operating expenses
increase, management believes it can recover increased costs by increasing
prices to the extent deemed advisable considering competition.

SEASONALITY. The seasonality of restaurant sales due to consumer spending
habits can be significantly affected by the timing of advertising, competitive
market conditions and weather related events. While restaurant sales for certain
quarters can be stronger, or weaker, there is no predominant pattern.

WORKING CAPITAL

Checkers working capital requirements are generally typical of companies
within the quick-service restaurant industry. Checkers does not normally
require large amounts of working capital to maintain operations since sales are
for cash, purchases are on open accounts and meat and produce inventories are
limited to a two to four day supply to assure freshness. During 1997 and 1998,
Checkers working capital requirements were substantially reduced as a result of
significant slowdowns in new store construction as compared with prior years.
Additionally, sales of certain assets held for sale, net of underlying
encumbrances, provided another source of working capital. Additional working
capital will be required for the second phase of the indoor dining area project.
Checkers also plans to utilize working capital to open a limited number of new
restaurants and to remodel an undetermined number of existing restaurants in
fiscal 1999. See "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

FRANCHISE OPERATIONS

STRATEGY. In addition to the acquisition and development of additional
Company operated restaurants, the Company encourages controlled development of
franchised restaurants in its existing markets as well as in certain additional
states. The primary criteria considered by the Company in the selection, review
and approval of prospective franchisees are the availability of adequate capital
to open and operate the number of restaurants franchised and prior experience in
operating quick-service restaurants. Franchisees operated 232, or 50%, of the
total restaurants open at December 28, 1998. The Company has acquired and sold,
and may in the future acquire or sell, restaurants from and to franchisees when
the Company believes it to be in its best interests to do so.

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In the future, the Company's success will continue to be dependent upon its
franchisees and the manner in which they operate and develop their restaurants
to promote and develop the Checkers concept and its reputation for quality and
speed of service. Although the Company has established criteria to evaluate
prospective franchisees, there can be no assurance that franchisees will have
the business abilities or access to financial resources necessary to open the
number of restaurants the franchisees currently anticipate to be opened in 1999
or that the franchisees will successfully develop or operate restaurants in
their franchise areas in a manner consistent with the Company's concepts and
standards.

As a result of inquiries concerning international development, the Company
may develop a limited number of international markets and has begun the process
of registering its trademarks in various foreign countries. The most likely
format for international development is through the issuance of master franchise
agreements and/or joint venture agreements. The terms and conditions of these
agreements may vary from the standard Area Development Agreement and Franchise
Agreement in order to comply with laws and customs different from those of the
United States. The Company has entered into a master Franchise Agreement for the
Caribbean Basin and has granted a single franchise agreement for the West Bank
in the Middle East.

FRANCHISEE SUPPORT SERVICES. The Company maintains a staff of well-trained
and experienced restaurant operations personnel whose primary responsibilities
are to help train and assist franchisees in opening new restaurants and to
monitor the operations of existing restaurants. These services are provided as
part of the Company's franchise program. Upon the opening of a new franchised
restaurant by a new franchisee, the Company typically sends a team to the
restaurant to assist the franchisee during the first four days that the
restaurant is open. This team monitors compliance with the Company's standards
as to quality of product and speed of service. In addition, the team provides
on-site training to all restaurant personnel. This training is in addition to
the training provided to the franchisee and the franchisee's management team
described under "Restaurant Operations -- Supervision and Training" above. The
Company also employs Franchise Business Consultants ("FBCs"), who have been
fully trained by the Company to assist franchisees in implementing the operating
procedures and policies of the Company once a restaurant is open. As part of
these services, the FBC rates the restaurant's hospitality, food quality, speed
of service, cleanliness and maintenance of facilities. The franchisees receive a
written report of the FBC's findings and, if any deficiencies are noted,
recommended procedures to correct such deficiencies.

The Company also provides site development and construction support
services to its franchisees. All sites and site plans are submitted to the
Company for its review prior to construction. These plans include information
detailing building location, internal traffic patterns and curb cuts, location
of utilities, walkways, driveways, signs and parking lots and a complete
landscape plan. The Company's construction personnel also visit the site at
least once during construction to meet with the franchisee's site contractor and
to review construction standards.

FRANCHISE AGREEMENTS. The Unit Franchise Agreement grants to the franchisee
an exclusive license at a specified location to operate a restaurant in
accordance with the Checkers/registered trademark/ system and to utilize the
Company's trademarks, service marks and other rights of the Company relating to
the sale of its menu items. The term of the current Unit Franchise Agreement is
generally 20 years. Upon expiration of a Unit Franchise Agreement, the
franchisee will generally be entitled to acquire a successor franchise for the
restaurants on the terms and conditions of the Company's then current form of
Unit Franchise Agreement if the franchisee remains in compliance with the Unit
Franchise Agreement throughout its term and if certain other conditions are met,
including the payment of fee equal to 50% of the then current franchise fee.

In some instances, the Company grants to the franchisee the right to
develop and open a specified number of restaurants within a limited period of
time and in a defined geographic area (the "Franchised Area") and thereafter to
operate each restaurant in accordance with the terms and conditions of a Unit
Franchise Agreement. In that event, the franchisee ordinarily signs two

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agreements, an Area Development Agreement and a Unit Franchise Agreement. Each
Area Development Agreement establishes the number of restaurants the franchisee
is to construct and open in the Franchised Area during the term of the Area
Development Agreement (normally a maximum of five restaurants) after considering
many factors, including the residential, commercial and industrial
characteristics of the area, geographic factors, population of the area and the
previous experience of the franchisee. The franchisee's development schedule for
the restaurants is set forth in the Area Development Agreement. Of the 232
franchised restaurants at December 28, 1998, 217 were being operated by multiple
unit operators and 15 were being operated by single unit operators. The Company
may terminate the Area Development Agreement of any franchisee that fails to
meet its development schedule.

The Unit Franchise Agreement and Area Development Agreement require that
the franchisee select proposed sites for restaurants within the Franchised Area
and submit information regarding such sites to the Company for its review,
although final site selection is at the discretion of the franchisee. The
Company does not arrange or make any provisions for financing the development of
restaurants by its franchisees. To the extent new or used MRP's are available
for sale, and/or to the extent that the Company deems it feasible to begin
constructing new MRP's again in the Champion construction facility, the Company
will offer the franchisees an opportunity to buy an MRP from the Company in
those geographic areas where the MRP can be installed in compliance with
applicable laws. Each franchisee is required to purchase all fixtures,
equipment, inventory, products, ingredients, materials and other supplies used
in the operation of its restaurants from approved suppliers, all in accordance
with the Company's specifications. The Company provides a training program for
management personnel of its franchisees at its corporate offices. Under the
terms of the Unit Franchise Agreement, the Company has adopted standards of
quality, service and food preparation for franchised restaurants. Each
franchisee is required to comply with all of the standards for restaurant
operations as published from time to time in the Company's operations manual.

The Company may terminate a Unit Franchise Agreement for several reasons
including the franchisee's bankruptcy or insolvency, default in the payment of
indebtedness to the Company or suppliers, failure to maintain standards set
forth in the Unit Franchise Agreement or operations manual, material continued
violation of any safety, health or sanitation law, ordinance or governmental
rule or regulation or cessation of business. In such event, the Company may also
elect to terminate the franchisee's Area Development Agreement.

FRANCHISE FEES AND ROYALTIES. Under the current Unit Franchise Agreement, a
franchisee is generally required to pay application fees, site approval fees and
an initial Franchise Fee together totaling $30,000 for each restaurant opened by
the franchisee. If a franchisee is awarded the right to develop an area pursuant
to an Area Development Agreement, the franchisee typically pays the Company a
$5,000 Development Fee per store which will be applied to the Franchisee Fee as
each restaurant is developed. Each franchisee is also generally required to pay
the Company a semi-monthly royalty of 4% of the restaurant's gross sales (as
defined) and to expend certain amounts for advertising and promotion. Total
franchise fees and royalties recognized as revenues during 1998, 1997 and 1996
were $7.5 million, $7.5 million and $8.4 million, respectively.

MANUFACTURING OPERATIONS

STRATEGY. Although the Company does not believe that the use of MRP's is
critical to the success of any individual restaurant or the Company in general,
the Company believes that the integration of its restaurant operations with its
production of MRP's for use by the Company and sale to its franchisees provides
it with a competitive advantage over other quick-service companies that use
conventional, on-site construction methods. These advantages include more
efficient construction time, direct control of the quality, consistency and
uniformity of the restaurant image as well as having standard restaurant
operating systems. In addition, the Company believes the ability to relocate an
MRP provides greater economies and flexibility than alternative methods. The
cost and construction time efficiencies may be significantly impacted by the
Company's decision whether or

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not to resume construction of MRP's at its Champion construction facility
located in Largo, Florida. Due to the number of MRP's currently available for
relocation from closed restaurant sites, it is not anticipated that any
significant new construction of MRP's will occur during fiscal year 1999. In the
short term, the Company's Champion construction facility will be utilized to
store and refurbish used MRP's for sale to franchisees or others and use by the
Company. The Company is evaluating other options in relation to the future use
of this facility, which could include generating other outside business, leasing
the facility or an eventual sale of the facility. Operation of the construction
facility consists of five personnel, and substantially all of the labor in the
manufacturing and refurbishment process is done through independent contractors,
the number of which may be increased or decreased with demand.

CONSTRUCTION. The Champion construction facility is designed to produce a
complete MRP ready for delivery and installation at a restaurant site. When the
Champion construction is fully operational the MRP's are built and refurbished
using assembly line techniques and a fully integrated and complete production
system. Each MRP consists of a modular building complete with all mechanical,
electrical and plumbing systems (except roof top systems which are installed at
the site), along with all restaurant equipment. The modular building is a
complete operating restaurant when sited, attached to its foundation and all
utilities are connected. All MRP's are constructed in accordance with plans and
specifications approved by the appropriate governmental agencies and are
typically available in approximately eight (8) weeks after an executed
agreement.

CAPACITY. As of December 28, 1998, the Company had five (5) substantially
completed new MRP's in inventory and twenty (20) used MRP's available for
relocation to new sites, twelve (12) of which have been moved to the Champion
production facility for refurbishment, and eight (8) of which are at closed
sites. Although the Company does not require a franchisee to use a MRP, because
of the expected benefits associated therewith, the Company anticipates that
substantially all of the restaurants developed by it or its franchisees in the
immediate future will include MRP's produced by the Company, or relocated from
other sites. MRP's from closed sites are being marketed at various prices
depending upon age and condition. At December 28, 1998, the carrying value of
Champion inventories, which does not include used MRP's but does include new
materials, equipment, and substantially completed new MRP's, was $1.1 million.

TRANSPORTATION AND INSTALLATION OF MRP'S. Once all site work has been
completed to the satisfaction of the Company and all necessary governmental
approvals have been obtained for installation, the MRP is transported to such
site by an independent trucking contractor. All transportation costs are charged
to the customer. Once on the site, the MRP is installed by independent
contractors hired by the Company or franchisee, in accordance with procedures
specified by the Company. The Company's personnel inspect all mechanical,
plumbing and electrical systems to make sure they are in good working order, and
inspect and approve all site improvements on new MRP's sold by the Company. Used
MRP's are typically sold without warranties. Once a MRP has been delivered to a
site, it takes generally three (3) to four (4) weeks before the restaurant is in
full operation.

COMPETITION

The Company's restaurant operations compete in the quick-service industry,
which is highly competitive with respect to price, concept, quality and speed of
service, location, attractiveness of facilities, customer recognition,
convenience and food quality and variety. The industry includes many
quick-service chains, including national chains which have significantly greater
resources than the Company that can be devoted to advertising, product
development and new restaurants such as McDonalds, Wendy's, Burger King and
Hardees. In certain markets, the Company will also compete with other
quick-service double drive-thru hamburger chains with operating concepts similar
to the Company. The quick-service industry is often significantly affected by
many factors, including changes in local, regional or national economic
conditions affecting consumer spending habits,

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demographic trends and traffic patterns, changes in consumer taste, consumer
concerns about the nutritional quality of quick-service food and increases in
the number, type and location of competing quick-service restaurants. The
Company competes primarily on the basis of speed of service, price, value, food
quality and taste. In addition, with respect to selling franchises, the Company
competes with many franchisors of restaurants and other business concepts. All
of the major chains have increasingly offered selected food items and
combination meals, including hamburgers, at temporarily or permanently
discounted prices. This promotional activity has continued at increasing levels,
and management believes that it has had a negative impact on the Company's sales
and earnings. Increased competition, additional discounting and changes in
marketing strategies by one or more of these competitors could have an adverse
effect on the Company's sales and earnings in the affected markets.

With respect to its MRP's, the Company competes primarily on the basis of
price and speed of construction with other modular construction companies as
well as traditional construction companies, many of which have significantly
greater resources than the Company. When the inventory of new and used MRP's is
depleted, there is no assurance that the Company will again initiate new
construction at its Champion construction facility thereby requiring the Company
and its franchisees to purchase MRP's from other modular construction companies
or to utilize conventional construction methods.

In general, there is active competition for management personnel, capital
and attractive commercial real estate sites suitable for restaurant.

EMPLOYEES

Effective November 30, 1997, Checkers entered into a Management Services
Agreement, pursuant to which Rally's is managed and operated predominantly by
the corporate management of Checkers. Rally's, together with its franchisees,
operates approximately 475 double drive-thru hamburger restaurants primarily in
the Midwest and the Sunbelt. In addition, Checkers and Rally's share certain of
their executive officers, including the Chief Executive Officer and the Chief
Operating Officer.

As of December 28, 1998, Checkers employed approximately 4,600 persons in
its restaurant operations, approximately 450 of whom are restaurant management
and supervisory personnel and the remainder of whom are hourly restaurant
personnel. Of the approximately 165 corporate employees, five are involved in
the manufacturing operation, approximately nine are in upper management
positions and the remainder are professional and administrative or office
employees.

The Company considers its employee relations to be good. Most employees,
other than management and corporate personnel, are paid on an hourly basis. The
Company believes that it provides working conditions and wages that compare
favorably with those of its competition. None of the Company's employees are
covered by a collective bargaining agreement.

TRADEMARKS AND SERVICE MARKS

The Company believes its trademarks and service marks have significant
value and are important to its business. The Company has registered certain
trademarks and service marks (including the name "Checkers", "Checkers Burgers
/bullet/ Fries /bullet/ Colas" and "Champ Burger" and the design of the
restaurant building) in the United States Patent and Trademark office. The
Company has also registered the service mark "Checkers" individually and/or with
a rectangular checkerboard logo of contiguous alternating colors to be used with
restaurant services in the states where it presently does, or anticipates doing,
business. The Company has various other trademark and service mark registration
applications pending. It is the Company's policy to pursue registration of its
marks whenever possible and to oppose any infringement of its marks.

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GOVERNMENT REGULATIONS

The restaurant industry generally, and each Company-operated and franchised
restaurant specifically, are subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and those relating to building, zoning, health, accommodations for disabled
members of the public, sanitation, safety, fire, environmental and land use
requirements. The Company and its franchisees are also subject to laws governing
their relationship with employees, including minimum wage requirements,
accommodation for disabilities, overtime, working and safety conditions and
citizenship requirements. The Company is also subject to regulation by the
Federal Trade Commission and certain laws of states and foreign countries which
govern the offer and sale of franchises, several of which are highly
restrictive. Many state franchise laws impose substantive requirements on the
franchise agreement, including limitations on noncompetition provisions and on
provisions concerning the termination or nonrenewal of a franchise. Some states
require that certain materials be registered before franchises can be offered or
sold in that state. The failure to obtain or retain food licenses or approvals
to sell franchises, or an increase in the minimum wage rate, employee benefit
costs (including costs associated with mandated health insurance coverage) or
other costs associated with employees could adversely affect the Company and its
franchisees. A mandated increase in the minimum wage rate was implemented in
both 1997 and 1996.

The Company's construction, transportation and placement of MRP's is
subject to a number of federal, state and local laws governing all aspects of
the manufacturing process, movement, end use and location of the building. Many
states require approval through state agencies set up to govern the modular
construction industry, other states have provisions for approval at the local
level. The transportation of the Company's MRP is subject to state, federal and
local highway use laws and regulations which may prescribe size, weight, road
use limitations and various other requirements. The descriptions and the
substance of the Company's warranties are also subject to a variety of state
laws and regulations.

The Company has no material contracts with the United States government or
any of its agencies.

ITEM 2. PROPERTIES

Of the 230 restaurants which were operated by the Company as of December
28, 1998, the Company held ground leases for 194 restaurants and owned the land
for 36 restaurants. Of the 36 restaurants on owned land, 24 of those parcels are
subject to a mortgage in favor of FFCA Acquisition Corporation and the remainder
secure Checkers's primary debt to the CKE Lender Group (see Item 7, "Liquidity
and Capital Resources"). The Company's leases are generally written for a term
of from five to twenty years with one or more five-year renewal options. Some
leases require the payment of additional rent equal to a percentage of annual
revenues in excess of specified amounts. Leasehold improvements made by the
Company generally become the property of the landlord upon expiration or earlier
termination of the lease; however, in most instances, if the Company is not in
default under the lease, the building, equipment and signs remain the property
of the Company and can be removed from the site upon expiration of the lease. In
the future, the Company intends, whenever practicable, to lease land for its
restaurants. For further information with respect to the Company's restaurants,
see "Restaurant Operations" under Item 1 of this Report.

The Company has seven owned parcels of land and 22 leased parcels of land
which are available for sale or sub-lease. Of these parcels, 21 are related to
restaurant closings as described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations". The other eight parcels
primarily represent surplus land available from multi-user sites where the
Company developed a portion for a restaurant and undeveloped sites which the
Company ultimately decided it would not develop.

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The Company's executive offices are located in approximately 26,500 square
feet of leased office space and 6,000 square feet of adjoining warehouse space
in Clearwater, Florida. The Company lease expires June 30, 2003. The Company
moved to this location in June, 1998 to accommodate additional staffing and on
site storage space needed as a result of the Management Service Agreement (see
Item 1, "BUSINESS. Employees".)

The Company owns an 89,850 square foot facility in Largo, Florida. This
includes a 70,850 square foot fabricated metal building for use in its MRP
manufacturing operations, and two buildings totaling 19,000 square feet for its
office and warehouse operations. See "Manufacturing Operations" under Item 1 of
this Report.

The Company terminated the lease of one regional office effective February
1, 1999. The Company leases approximately 1,504 aggregate square feet in an
unoccupied regional office. This lease will expire July 31, 2000.

ITEM 3. LEGAL PROCEEDINGS

IN RE CHECKERS SECURITIES LITIGATION, Master File No. 93-1749-Civ-T-17A. On
October 13, 1993, a class action complaint was filed in the United States
District Court for the Middle District of Florida, Tampa Division, by a
stockholder against the Company, certain of its officers and directors,
including Herbert G. Brown, Paul C. Campbell, George W. Cook, Jared D. Brown,
Harry S. Cline, James M. Roche, N. John Simmons, Jr. and James F. White, Jr.,
and KPMG LLP, the Company's auditors. The complaint alleges, generally, that the
Company issued materially false and misleading financial statements which were
not prepared in accordance with generally accepted accounting principles, in
violation of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and
Rule 10b-5 thereunder, and Florida common law and statute. The allegations,
including an allegation that the Company inappropriately selected the percentage
of completion method of accounting for sales of modular restaurant buildings,
are primarily directed to certain accounting principles followed by Champion.
The plaintiffs sought to represent a class of all purchasers of the Company's
Common Stock between November 22, 1991 and October 8, 1993, and an unspecified
amount of damages. Although the Company believed this lawsuit was unfounded and
without merit, in order to avoid further expenses of litigation, the parties
reached an agreement in principle for the settlement of this class action. The
agreement for settlement provides for one of the Company's director and officer
liability insurance carriers and another party to contribute to a fund for the
purpose of paying claims on a claims-made basis up to a total of $950,000. The
Company agreed to contribute ten percent (10%) of claims made in excess of
$475,000 for a total potential liability of $47,500. The settlement was approved
by the Court on January 30, 1998. The time period for submission of claims to
the Company has passed and therefore the Company has no further liability in
connection with this matter.

GREENFELDER ET AL. V. WHITE, JR., ET AL. On August 10, 1995, a state court
Complaint was filed in the Circuit Court of the Sixth Judicial Circuit in and
for Pinellas County, Florida, Civil Division, entitled GAIL P. GREENFELDER AND
POWERS BURGERS, INC. V. JAMES F. WHITE, JR., CHECKERS DRIVE-IN RESTAURANTS,
INC., HERBERT G. BROWN, JAMES E. MATTEI, JARED D. BROWN, ROBERT G. BROWN AND
GEORGE W. COOK, Case No. 95-4644-CI-21 (hereinafter the "Power Burgers
Litigation"). The original Complaint alleged, generally, that certain officers
of the Company intentionally inflicted severe emotional distress upon Ms.
Greenfelder, who is the sole stockholder, President and Director of Powers
Burgers, Inc. (hereinafter "Powers Burgers") a Checkers franchisee. The
original Complaint further alleged that Ms. Greenfelder and Powers Burgers were
induced into entering into various agreements and personal guarantees with the
Company based upon misrepresentations by the Company and its officers and that
the Company violated provisions of Florida's Franchise Act and Florida's
Deceptive and Unfair Trade Practices Act. The original Complaint alleged that
the Company is liable for all damages caused to the Plaintiffs. The Plaintiffs
seek damages in an unspecified amount in excess of $2,500,000 in connection
with the claim of intentional infliction of emotional distress, $3,000,000 or
the return of all monies invested by the Plaintiffs in Checkers' franchises in
connection with the

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misrepresentation of claims, punitive damages, attorneys' fees and such other
relief as the court may deem appropriate. The Court has granted, in whole or in
part, three (3) Motions to Dismiss the Plaintiffs' Complaint, as amended,
including an Order entered on February 14, 1997, which dismissed the
Plaintiffs' claim of intentional infliction of emotional distress, with
prejudice, but granted the Plaintiffs leave to file an amended pleading with
respect to the remaining claims set forth in their Amended Complaint. A third
Amended Complaint has been filed and an Answer, Affirmative Defenses, and a
Counterclaim to recover unpaid royalties and advertising fund contributions has
been filed by the Company. In response to the Court's dismissal of certain
claims in the Power Burgers Litigation, on May 21, 1997, a companion action was
filed in the Circuit Court of the Sixth Judicial Circuit in and for Pinellas
County, Florida, Civil Division, entitled GAIL P. GREENFELDER, POWERS BURGERS
OF AVON PARK, INC., AND POWER BURGERS OF SEBRING, INC. V. JAMES F. WHITE, JR.,
CHECKERS DRIVE-IN RESTAURANTS, INC., HERBERT G. BROWN, JAMES E. MATTEI, JARED
D. BROWN, ROBERT G. BROWN AND GEORGE W. COOK, Case No. 97-3565-CI, asserting,
in relevant part, the same causes of action as asserted in the Power Burgers
Litigation. An Answer, Affirmative Defenses, and a Counterclaim to recover
unpaid royalties and advertising fund contributions have been filed by the
Company. On February 4, 1998, the Company terminated Power Burgers, Inc.'s,
Power Burgers of Avon Park, Inc.'s and Power Burgers of Sebring, Inc.'s
franchise agreements and thereafter filed two Complaints in the United States
District Court for the Middle District of Florida, Tampa Division, styled
CHECKERS DRIVE-IN RESTAURANTS, INC. V. POWER BURGERS OF AVON PARK, INC., Case
No. 98-409-CIV-T-17A and CHECKERS DRIVE-IN RESTAURANTS, INC. V. POWERS BURGERS,
INC. Case No. 98-410-CIV-T-26E. The Complaint seeks, INTER ALIA, a temporary
and permanent injunction enjoining Power Burgers, Inc. and Power Burgers of
Avon Park, Inc.'s continued use of Checkers' Marks and trade dress. A Motion to
Stay the foregoing actions pending a resolution of the lawsuits pending in the
Sixth Judicial Circuit in and for Pinellas County, Florida described above has
been granted by the United States District Court. The Company denies all
wrongdoing and intends to continue to defend the lawsuits vigorously. No
estimate of any possible loss or range of loss resulting from the lawsuit can
be made at this time.

CHECKERS DRIVE-IN RESTAURANTS, INC. V. TAMPA CHECKMATE FOOD SERVICES, INC.,
ET AL. On August 10, 1995, a state court Counterclaim and Third Party Complaint
was filed in the Circuit Court of the Thirteenth Judicial Circuit in and for
Hillsborough County, Florida, Civil Division, entitled TAMPA CHECKMATE FOOD
SERVICES, INC., CHECKMATE FOOD SERVICES, INC. AND ROBERT H. GAGNE V. CHECKERS
DRIVE-IN RESTAURANTS, INC., HERBERT G. BROWN, JAMES E. MATTEI, JAMES F. WHITE,
JR., JARED D. BROWN, ROBERT G. BROWN AND GEORGE W. COOK, Case No. 95-3869. In
the original action filed by the Company in July 1995, against Mr. Gagne and
Tampa Checkmate Food Services, Inc., (hereinafter "Tampa Checkmate") a company
controlled by Mr. Gagne, the Company is seeking to collect on a promissory note
and foreclose on a mortgage securing the promissory note issued by Tampa
Checkmate and Mr. Gagne, and obtain declaratory relief regarding the rights of
the respective parties under Tampa Checkmate's franchise agreement with the
Company. The Counterclaim and Third Party Complaint allege, generally, that Mr.
Gagne, Tampa Checkmate and Checkmate Food Services, Inc. (hereinafter
"Checkmate") were induced into entering into various franchise agreements with,
and personal guarantees to, the Company based upon misrepresentations by the
Company. The Counterclaim and Third Party Complaint seek damages in the amount
of $3,000,000 or the return of all monies invested by Checkmate, Tampa Checkmate
and Mr. Gagne in Checkers' franchises, punitive damages, attorneys' fees and
such other relief as the court may deem appropriate. The Counterclaim was
dismissed by the court on January 26, 1996, with the right to amend. On February
12, 1996, the Counterclaimants filed an Amended Counterclaim alleging violations
of Florida's Franchise Act, Florida's Deceptive and Unfair Trade Practices Act,
and breaches of implied duties of "good faith and fair dealings" in connection
with a settlement agreement and franchise agreement between various of the
parties. The Amended Counterclaim seeks a judgment for damages in an unspecified
amount, punitive damages, attorneys' fees and such other relief as the court may
deem appropriate. The Company filed an Answer to the Amended Counterclaim, but
on October 21, 1998, the court dismissed the Amended Counterclaim based on
counterclaimants failure to comply with certain Court rules relating to the
prosecution of the claims. The Court's dismissal is the subject of a pending
Motion for Reconsideration. On or about July 15, 1997, Tampa Checkmate

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filed a Chapter 11 petition in the United States Bankruptcy Court for the Middle
District of Florida, Tampa Division entitled IN RE: TAMPA CHECKMATE FOOD
SERVICES, INC., and numbered as 97-11616-8G-1 on the docket of said Court. On
July 25, 1997, Checkers filed an Adversary Complaint in the Tampa Checkmate
bankruptcy proceedings entitled CHECKERS DRIVE-IN RESTAURANTS, INC. V. TAMPA
CHECKMATE FOOD SERVICES, INC. and numbered as Case No. 97-738. Following a
hearing on Checkers' motion for Preliminary Injunction on July 22, 1998, the
Court entered an order enjoining Tampa Checkmate's continued use of Checkers'
Marks and trade dress notwithstanding the termination of its Franchise Agreement
on April 8, 1997. On December 15, 1998, the court granted the Company's Motion
to Convert Tampa Checkmate's bankruptcy proceedings from a Chapter 11 proceeding
to a Chapter 7 liquidation. Additionally, on February 1, 1999, the bankruptcy
Court granted the Company's Motion to Lift the Automatic Stay imposed by 11
U.S.C Section 362 to allow the Company to proceed with the disposition of the
property which is the subject of its mortgage. The adversary Complaint and
Counterclaim in the bankruptcy proceedings remain pending The Company denies all
wrongdoing and intends to continue to defend the lawsuit vigorously. No estimate
of possible loss or range of loss resulting from the lawsuit can be made at this
time.

TEX-CHEX, INC. ET AL V. CHECKERS DRIVE-IN RESTAURANTS, INC. ET. AL. On
February 4, 1997, a Petition was filed against the Company and two former
officers and directors of the Company in the District Court of Travis County,
Texas 98th Judicial District, entitled TEX-CHEX, INC., BRIAN MOONEY, AND SILVIO
PICCINI V. CHECKERS DRIVE-IN RESTAURANTS, INC., JAMES MATTEI, AND HERBERT G.
BROWN and numbered as Case No. 97-01335 on the docket of said court. The
original Petition generally alleged that Tex-Chex, Inc. and the individual
Plaintiffs were induced into entering into two franchise agreements and related
personal guarantees with the Company based on fraudulent misrepresentations and
omissions made by the Company. On October 2, 1998, the Plaintiffs filed an
Amended Petition realleging the fraudulent misrepresentations and omission
claims set forth in the original Petition and asserting additional causes of
action for violation of Texas' Deceptive Trade Practices Act and violation of
Texas' Business Opportunity Act. The Company denies all wrongdoing and intends
to defend the causes of action asserted in the amended Petition against the
Company and the individual defendants vigorously. The matter is in the pre-trial
stages and no estimate of any possible loss or range of loss resulting from the
lawsuit can be made at this time.

CHECKERS DRIVE-IN RESTAURANTS, INC. V. INTERSTATE DOUBLE DRIVE-THRU, INC.
ET. AL. On May 9, 1998, a Counterclaim was filed against the company and a
former officer and director of the Company, Herbert T. Brown, in the United
States District Court for the Middle District of Florida, Tampa Division,
entitled CHECKERS DRIVE-IN RESTAURANTS, INC. V. INTERSTATE DOUBLE DRIVE-THRU,
INC. AND JIMIME V. GOLES and numbered as Case No. 98-648-CIV-T-23B on the
docket of said court. The original Complaint filed by the Company seeks a
temporary and permanent injunction enjoining Interstate Double Drive-Tru, Inc.
and Mr. Giles' continued use of Checkers' Marks and trade dress notwithstanding
the termination of its Franchise Agreement and to collect unpaid royalty fees
and advertising fund contributions. The Court granted the Company's motion for
a preliminary injunction on July 16, 1998. The Counterclaim generally alleges
that Interstate Double Drive-Thru, Inc. and Mr. Giles were induced into
entering a franchise agreement and a personal guaranty, respectively, with the
Company based on misrepresentations and omissions made by the Company. The
Counterclaim asserts claims for breach of contract, breach of the implied
convenant of good faith and fair dealing, violation of Florida's Deceptive
Trade Practices Act, violation of Florida's Franchise Act, violation of
Mississippi's Franchise Act, fraudulent concealment, fraudulent inducement,
negligent misrepresentation and rescission. The Company has filed a motion to
dismiss seven of the nine causes of action set forth in the Counterclaim which
remain pending. The Company denies all wrongdoing and intends to defend the
causes of action asserted in the Counterclaim against the Company and Mr. Brown
vigorously. The matter is in the pre-trial stages and no estimate of any
possible loss or range of loss resulting from the lawsuit can be made at this
time.

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custodian for the benefit of Nathan Suckman, an alleged stockholder of 500
shares of the Company's common stock. The complaint names the Company and
certain of its current and former officers and directors as defendants including
William P. Foley, II, James J. Gillespie, Harvey Fattig, Joseph N. Stein,
Richard A. Peabody, James T. Holder, Terry N. Christensen, Frederick E. Fisher,
Clarence V. McKee, Burt Sugarman, C. Thomas Thompson and Peter C. O'Hara. The
Complaint also names Rally's Hamburgers, Inc. ("Rally's") and GIANT GROUP, LTD.
("GIANT") as defendants. The complaint arises out of the proposed merger
announced on September 28, 1998 between the Company, Rally's and GIANT (the
"Proposed Merger") and alleges generally, that certain of the defendants engaged
in an unlawful scheme and plan to permit Rally's to acquire the public shares of
the Company's stock in a "going-private" transaction for grossly inadequate
consideration and in breach of the defendants' fiduciary duties. The plaintiff
allegedly initiated the Complaint on behalf of all stockholders of the Company
as of September 28, 1998, and seeks inter alia, certain declaratory and
injunctive relief against the consummation of the Proposed merger, or in the
event the Proposed Merger is consummated, recision of the Proposed Merger and
costs and disbursements incurred in connection with bringing the action,
including attorney's fees, and such other relief as the Court may deem just and
proper. In view of a decision by the Company, GIANT and Rally's not to implement
the transaction that had been announced on September 28, 1998, plaintiffs have
agreed to provide the Company and all other defendants with an open extension of
time to respond to the complaint. Plaintiffs have indicated that they will
likely file an amended complaint in the event of the consummation of a merger
between the Company and Rally's. The Company denies all wrongdoing and intends
to defend the lawsuit vigorously. No estimate of possible loss or range of loss
resulting from the lawsuit can be made at this time.

DAVID J. STEINBERG AND CHAILE B. STEINBERG, INDIVIDUALLY AND ON BEHALF OF
THOSE SIMILARLY SITUATED V. CHECKERS DRIVE-IN RESTAURANTS, INC., ET AL. Case No.
16680. This putative class action was filed on October 2, 1998, in the Delaware
Chancery Court in and for New Castle County, Delaware by David J. Steinberg and
Chaile B. Steinberg, alleged stockholders of an unspecified number of shares of
the Company's common stock. The complaint names the Company and certain of its
current officers and directors as defendants including William P. Foley, II,
James J. Gillespie, Harvey Fattig, Joseph N. Stein, Richard A. Peabody, James T.
Holder, Terry N. Christensen, Frederick E. Fisher, Clarence V. McKee, Burt
Sugarman, C. Thomas Thompson and Peter C. O'Hara. The Complaint also names
Rally's and GIANT as defendants. As with the First Albany complaint described
above, this complaint arises out of the Proposed Merger announced on September
28, 1998 between the Company, Rally's and GIANT and alleges generally, that
certain of the defendants engaged in an unlawful scheme and plan to permit
Rally's to acquire the public shares of the Company's common stock in a
"going-private" transaction for grossly inadequate consideration and in
breach of the defendant's fiduciary duties. The plaintiffs allegedly initiated
the Complaint on behalf of all stockholders of the Company as of September 28,
1998, and seeks INTER ALIA, certain declaratory and injunctive relief against
the consummation of the Proposed Merger, or in the event the Proposed Merger is
consummated, recision of the Proposed Merger and costs and disbursements
incurred in connection with bringing the action, including attorneys' fees, and
such other relief as the Court may deem just and proper. For the reasons stated
above in the description of the FIRST ALBANY action, plaintiffs have agreed to
provide the Company and all other defendants with an open extension of time to
respond to the complaint. Plaintiffs have indicated that they will likely file
an amended complaint in the event of the consummation of a merger between the
Company and Rally's. The Company denies all wrongdoing and intends to defend the
lawsuit vigorously. No estimate of possible loss or range of loss resulting from
the lawsuit can be made at this time.

The Company is involved in other litigation matters incidental to its
business. With respect to such other suits, management does not believe the
litigation in which it is involved will have a material effect upon its results
of operation or financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

18
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

The Common Stock of the Company began trading publicly in the
over-the-counter market on the NASDAQ National Market on November 15, 1991,
under the symbol CHKR. The following table sets forth the high and low closing
sale price of Checkers Common Stock as reported on the Nasdaq National Market
for the periods indicated:

HIGH LOW
---------- ----------
1998
First Quarter .......... $ 1.06 $ 0.81
Second Quarter ......... $ 1.53 $ 0.87
Third Quarter .......... $ 1.28 $ 0.66
Fourth Quarter ......... $ 0.68 $ 0.31

1997
First Quarter .......... $ 3.00 $ 1.69
Second Quarter ......... $ 1.84 $ 1.09
Third Quarter .......... $ 1.69 $ 1.09
Fourth Quarter ......... $ 1.59 $ 0.81

NASDAQ MINIMUM REQUIREMENTS -- SHARE PRICE UNDER $1.00

In September 1998, the Company received notice from NASDAQ that delisting
could occur on December 18, 1998 if the Company's common stock failed to
maintain a bid price greater than or equal to $1.00 for ten consecutive trading
days during the next ninety days. The Company's common stock price did not meet
that criteria and management requested and was granted an oral hearing to
present a plan of action to NASDAQ to regain compliance with this standard. The
plan of action included the Merger with Rally's and a subsequent one-for-twelve
reverse stock split. On May 14, 1999, the Company was notified by NASDAQ that
its listing status would be continued until June 30, 1999. On or before that
date, the Company will be required to evidence a closing bid price of at least
$1.00 and must subsequently sustain this price for a minimum of ten consecutive
trading days.

HOLDERS

At February 22, 1999, the Company had approximately 6,877 stockholders of
record.

DIVIDENDS

Dividends are prohibited under the terms of the Company's major debt
agreement. The Company has not paid or declared cash distributions or dividends
(other than the payment of cash in lieu of fractional shares in connection with
its stock splits). Any future cash dividends will be determined by the Board of
Directors based on the Company's earnings, financial condition, capital
requirements, debt covenants and other relevant factors.

RECENT UNREGISTERED SALES

None

19
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The selected historical consolidated statement of operations data presented
for each of the fiscal years in the three-year period ended December 28, 1998
and balance sheet data as of December 28, 1998, and as of December 29, 1997,
were derived from, and should be read in conjunction with, the audited
consolidated financial statements and related notes of Checkers Drive-In
Restaurants, Inc. and subsidiaries included elsewhere herein. The statement of
operations data for the years ended January 1, 1996 and January 2, 1995 and
balance sheet data as of December 30, 1996, January 1, 1996, and January 2, 1995
were derived from audited financial statements not included herein.

The Company reports on a fiscal year which ends on the Monday closest to
December 31st. Each quarter consists of three 4-week periods, with the exception
of the fourth quarter which generally consists of four 4-week periods.

FISCAL YEAR ENDING
------------------------------------------------------------------
DEC. 28, DEC. 29, DEC. 30, JAN. 1, JAN. 2,
1998 1997 1996 1996 1995
------------ ------------ ------------ ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net operating revenue ........................ $145,708 $ 143,894 $ 164,961 $ 190,305 $ 215,115
Restaurant operating costs ................... 126,337 126,921 156,548 167,836 173,087
Cost of MRP revenues ......................... 516 618 1,704 4,854 10,485
Other depreciation and amortization .......... 2,275 2,263 4,326 4,044 2,796
General and administrative expense ........... 13,309 17,042 20,690 24,215 21,875
SFAS 121 impairment and other
loss provisions ............................ 2,953 1,027 23,905 26,572 14,771
Interest expense ............................. 6,007 8,650 6,233 5,724 3,564
Interest income .............................. 272 375 678 674 326
Minority interests in income (loss) .......... (73) (66) (1,509) (192) 185
Loss from continuing operations (pretax) ..... $ (5,344) $ (12,186) $ (46,258) $ (42,074) $ (11,324)
Loss from continuing operations
(pretax) per common share .................. $ (0.07) $ (0.19) $ (0.89) $ (0.83) $ (0.23)
BALANCE SHEETS:
Total assets ................................. $102,099 $ 115,401 $ 136,110 $ 166,819 $ 196,770
Long-term obligations and redeemable
Preferred stock ............................ $ 29,654 $ 29,401 $ 39,906 $ 38,090 $ 38,341
Cash dividends declared per
common share ............................... $ -- $ -- $ -- $ -- $ --
</TABLE>

20
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

INTRODUCTION

The Company commenced operations on August 1, 1987, to operate and
franchise Checkers Double Drive-Thru restaurants. As of December 28, 1998, the
Company had an ownership interest in 230 Company operated restaurants and an
additional 232 restaurants were operated by franchisees. The Company's ownership
interest in the Company operated restaurants is in one of two forms: (i) the
Company owns 100% of the restaurant (as of December 28, 1998, there were 218
such restaurants) and (ii) the Company owns a 10.55% or 65.83% interest in a
partnership which owns the restaurant (a "Joint Venture Restaurant"). As of
December 28, 1998, there were 12 such Joint Venture Restaurants whose operations
are consolidated in the financial statements of the Company (See "BUSINESS. --
Restaurant Operations -- Joint Venture Restaurants" in Item 1 of this Report).

During fiscal 1998, the Company, along with its franchisees, experienced a
net decrease of 17 operating restaurants. In fiscal 1998, the Company opened 2
restaurants and closed 2 and franchisees opened 18 restaurants and closed 35.
The franchise group as a whole continues to experience higher average per store
sales than Company stores.

On November 30, 1997, a Management Services Agreement was established
between the Company and Rally's Hamburgers, Inc, ("Rally's") pursuant to which
the Company is providing accounting, information technology and other management
services to Rally's. At approximately the same time, a new management team was
put into place to provide the operational and functional expertise necessary to
explore the opportunities and potential synergies available to both companies.
Total fees charged to Rally's under this agreement were $5.6 million in 1998 and
$95,000 in 1997.

The relationship between the Company and Rally's provided reductions in
general and administrative expenses for both companies. The Rally's corporate
office in Louisville, Kentucky was closed, as well as various regional offices
of both companies. The Management Services Agreement also provided for the
supervision of both Checkers and Rally's operations by a single Regional Vice
President, within each region, which increased spans of control with fewer
personnel. The number of markets that contain both Checkers and Rally's units is
limited and no market in which either company utilizes broadcast media is
shared. Therefore, the companies combined their advertising creative and media
buying with one agency in August of 1998 which resulted in similar commercials
running for both companies with reductions of agency fees and production costs.
In relation to food and paper costs, although both companies had already
benefited greatly by participating in the purchasing cooperative with CKE
Restaurants, Inc., further savings were realized during the year as product
specifications were matched where possible.

The Company receives revenues from restaurant sales, franchise fees,
royalties and sales of fully-equipped manufactured MRP's. Cost of restaurant
sales relates to food and paper costs. Other restaurant expenses include labor
and all other restaurant costs for Company operated restaurants.

21
<PAGE>

Cost of MRP's relates to all restaurant equipment and building materials, labor
and other direct and indirect costs of production. Other expenses, such as
depreciation and amortization, and selling, general and administrative expenses,
relate both to Company operated restaurant operations and MRP revenues as well
as the Company's franchise sales and support functions. The Company's revenues
and expenses are affected by the number and timing of additional restaurant
openings and the sales volumes of both existing and new restaurants. MRP
revenues are directly affected by the number of new franchise restaurant
openings and the number of new MRP's produced or used MRP's refurbished for sale
in connection with those openings.

RESULTS OF OPERATIONS. The following table sets forth the percentage
relationship to total revenues of the listed items included in the Company's
Consolidated Statements of Operations. Certain items are shown as a percentage
of restaurant sales and MRP revenue. The table also sets forth certain selected
restaurant operating data.

FISCAL YEAR ENDED
-----------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
1998 1997 1996
-------------- -------------- -------------
<S> <C> <C> <C>
REVENUES
Restaurant sales .................................... 94.7% 94.3% 94.2%
Royalties ........................................... 4.8% 4.9% 4.5%
Franchise fees ...................................... 0.3% 0.3% 0.6%
Modular restaurant packages ......................... 0.2% 0.5% 0.7%
----- ----- -----
Total revenues ..................................... 100.0% 100.0% 100.0%
----- ----- -----
COST AND EXPENSES
Restaurant food and paper costs(1) .................. 31.3% 32.1% 35.2%
Restaurant labor costs(1) ........................... 31.8% 32.4% 36.9%
Restaurant occupancy expense(1) ..................... 7.8% 8.0% 8.3%
Restaurant depreciation and amortization(1) ......... 5.6% 6.1% 5.7%
Other restaurant operating expense(1) ............... 10.1% 9.9% 9.9%
Advertising expense(1) .............................. 5.0% 5.0% 4.8%
Costs of MRP revenues(2) ............................ 215.0% 87.0% 141.8%
Other depreciation and amortization ................. 1.6% 1.6% 2.6%
General and administrative expense .................. 9.1% 11.8% 12.5%
Impairment of long-lived assets ..................... 1.2% 0.4% 9.0%
Losses on assets to be disposed of .................. 0.8% 0.2% 4.3%
Loss provisions ..................................... 0.0% 0.1% 1.2%
----- ----- -----
Operating income (loss) ............................. 0.2% (2.8)% (25.6)%
----- ----- -----
OTHER INCOME (EXPENSE)
Interest income ..................................... 0.2% 0.3% 0.4%
Interest expense .................................... ( 4.1)% ( 6.0)% ( 3.8)%
Minority interests in losses ........................ ( 0.1)% 0.0% ( 0.9)%
----- ----- -----
Loss before income tax expense ...................... ( 3.7)% ( 8.5)% (28.0)%
Income tax expense .................................. 0.0% 0.0% 0.1%
----- ----- -----
Net loss ............................................. ( 3.7)% ( 8.5)% (28.1)%
===== ===== =====
Net loss to common shareholders ...................... ( 3.7)% ( 9.0)% (28.1)%
===== ===== =====
</TABLE>
- ----------------
(1) As a percent of restaurant sales.
(2) As a percent of Modular restaurant package revenues.

22
<PAGE>

FISCAL YEAR ENDED
-----------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
1998 1997 1996
-------------- -------------- -------------
<S> <C> <C> <C>
Operating data:
System-wide restaurant sales (in 000's):
Company operated ........................... $137,965 $135,710 $155,392
Franchised ................................. 180,648 174,600 172,566
-------- -------- --------
Total ..................................... $318,613 $310,310 $327,958
======== ======== ========
Average annual sales per restaurant open for a
full year (in 000's)(3):
Company operated ........................... $ 606 $ 586 $ 651
Franchised ................................. $ 750 $ 737 $ 755
System-wide ................................ $ 677 $ 661 $ 699
-------- -------- --------
Number of restaurants(4):
Company operated ........................... 230 230 232
Franchised ................................. 232 249 246
-------- -------- --------
Total ..................................... 462 479 478
======== ======== ========
</TABLE>
- ----------------
(3) Includes sales for restaurants open continuously during the year.
(4) Number of restaurants open at end of period.

COMPARISON OF HISTORICAL RESULTS -- FISCAL YEARS 1998 AND 1997

REVENUES. Total revenues increased 1.3% to $145.7 million in 1998 compared
to $143.9 million in 1997. Company operated restaurant sales increased 1.7% to
$138.0 million in 1998 from $135.7 million in 1997. Comparable Company operated
restaurant sales for the year ended December 28, 1998, increased 2.3% as
compared to the year ended December 29, 1997. Comparable Company-owned
restaurants are those continuously open during both reporting periods. The
increase in restaurant sales is primarily attributable to the successful
introduction of the spicy chicken sandwich during the first quarter of fiscal
1998 and the brand positioning advertising featuring the "Fresh, because we just
made it" tag line that focuses on the quality of the Company's products.
Franchise revenues and fees remained constant at $7.5 million in 1998 and 1997.

Franchise revenues and fees remained constant at $7.5 million in 1998 and
1997.

MRP revenues decreased 66.2% to $240,000 compared with $710,000 in 1997 due
to decreased sales volume of MRP's to the Company's franchisees which is a
result of franchisees sales of used MRP's and the Company's efforts to refurbish
and sell its inventory of used MRP's from previously closed sites. These efforts
have been successful, however, these sales have negatively impacted the new
building revenues.

COSTS AND EXPENSES. Restaurant food and paper costs totaled $43.2 million
or 31.3% of restaurant sales compared with $43.6 million or 32.1% of restaurant
sales for 1997. The decrease in these costs as a percentage of restaurant sales
was due to new purchasing contracts negotiated in 1997 and 1998.

Restaurant labor costs, which includes restaurant employees' salaries,
wages, benefits, bonuses and related taxes, totaled $43.8 million or 31.8% of
restaurant sales for 1998 compared with $43.9 million or 32.4% of restaurant
sales for 1997. The decrease in restaurant labor costs as a percentage of
restaurant sales was due primarily to efficiencies gained at higher sales level
and a $66,000 reduction in workers' compensation expense, partially offset by a
$594,000 increase in group insurance costs.

23
<PAGE>

Restaurant occupancy expense, which includes rent, property taxes, licenses
and insurance, totaled $10.8 million or 7.8% of restaurant sales for 1998,
consistent with $10.8 million or 8.0% of restaurant sales for 1997.

Restaurant depreciation and amortization decreased 6.7% to $7.8 million for
1998, from $8.3 million for 1997, due to certain assets becoming fully
depreciated during 1998. These expenses decreased to 5.6% in 1998 from 6.1% in
1997 due to the increase in average restaurant sales.

Advertising expense remained constant at $6.9 million or 5.0% of restaurant
sales in 1998 and $6.8 million or 5.0% of restaurant sales for 1997.

Other restaurant expenses includes all other restaurant level operating
expenses other than food and paper costs, labor and benefits, rent and other
occupancy costs and specifically includes utilities, maintenance and other
costs. These expenses totaled $13.9 million or 10.1% of restaurant sales for
1998 compared to $13.4 million or 9.9% of restaurant sales for 1997. The
increase in this expense is due primarily to increased repair and maintenance
expenditures.

Costs of MRP revenues totaled $516,000 or 215.0% of MRP revenue for 1998
compared with $618,000 or 87.0% of MRP revenues for 1997. The increase in these
expenses as a percentage of MRP revenues was attributable to the fixed and
semi-variable nature of these costs.

General and administrative expenses decreased to $13.3 million or 9.1% of
total revenues in 1998 from $17.0 million or 11.8% of total revenues in 1997.
The reductions in 1998 are due primarily to the Management Services Agreement
with Rally's, reductions in legal expenses, the reversal of $500,000 of
previously accrued state sales tax audit provisions due to the successful
completion of certain state sales tax audits and a fourth quarter 1997 accrual
for severance and relocations of $314,000 associated with the recruitment of six
new members of executive management.

ACCOUNTING CHARGES AND LOSS PROVISIONS. During 1998 the Company recorded
accounting charges and loss provisions of $3.0 million in accordance with SFAS
121, including impairment charges related to seven stores ($1.8 million), the
expenses necessary to adjust the net realizable value of assets held for sale
($551,000) and store closure expense ($645,000) which primarily includes
provisions for carrying costs of restaurants closed in prior years that have not
been disposed of and similar costs for two restaurants closed in 1998.
Comparatively, during 1997, the Company recorded accounting charges and loss
provisions totalling $1.0 million, including impairment charges to write off
goodwill associated with one under-performing store ($565,000), to provide for
additional losses on assets to be disposed due to certain sublease properties
being converted to surplus ($312,000), and a provision to write down Champion
inventories to fair value ($150,000).

24
<PAGE>

A summary of the accounting charges and loss provisions for 1998 and 1997
is as follows:

SUPPLEMENTAL SCHEDULE OF
ACCOUNTING CHARGES AND LOSS PROVISIONS
-----------------------------------------------------------------------
BALANCE AT ADDITIONS
BEGINNING CHARGED TO CASH NON-CASH BALANCE AT
DESCRIPTION OF YEAR EXPENSE OUTLAYS DEDUCTIONS END OF YEAR
- ----------------------------------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Year ended December 28, 1998:
Impairment of long-lived
assets ....................... $ -- $1,757 $ -- $ (1,757) $ --
Losses on assets to be
disposed of .................. 2,740 1,196 (1,635) (236) 2,065
Other loss provisions ......... 1,290 -- (85) -- 1,205
------ ------ -------- -------- ------
$4,030 $2,953 $ (1,720) $ (1,993) $3,270
====== ====== ======== ======== ======
Year ended December 29, 1997:
Impairment of long-lived
assets ....................... $ -- $ 565 $ -- $ (565) $ --
Losses on assets to be
disposed of .................. 3,800 312 (1,695) 323 2,740
Other loss provisions ......... 2,357 150 (76) (1,141) 1,290
------ ------ -------- -------- ------
$6,157 $1,027 $ (1,771) $ (1,383) $4,030
====== ====== ======== ======== ======
</TABLE>

The ending balance each year in the reserves for restaurant relocations and
abandoned sites consists of the Company's estimates for the ongoing carrying
costs of each location which has been closed or was never developed. These costs
include rents, property taxes, insurance, maintenance, utilities and in some
cases the cost to relocate the modular restaurant to a storage facility. The
cash outlays for these costs have been estimated for various terms ranging from
five months to three years.

INTEREST EXPENSE. Interest expense other than loan cost amortization
decreased to $4.0 million or 2.7% of total revenues in 1998 from $5.0 million or
3.5% of total revenues in 1997. This decrease was due to a reduction in the
weighted average balance of debt outstanding during the respective periods. Loan
cost amortization decreased by $1.7 million from $3.7 million in 1997 to $2.0
million in 1998 due primarily to the lower weighted average debt balances in
1998 versus 1997 and the accelerated amortization of deferred loan costs
recognized upon unscheduled principal payments of $8.0 million in 1998 and $9.7
million in 1997.

INCOME TAX EXPENSE (BENEFIT). During 1998, the Company recorded income tax
benefit of $2.0 million or 38.0% of the net loss before income taxes, which was
offset by the recording of deferred income tax valuation allowances of $2.0
million for the year ended December 28, 1998, as compared to an income tax
benefit of $4.6 million or 38.0% of earnings before income taxes offset by
deferred income tax valuation allowances of $4.6 million for the year ended
December 29, 1997. The effective tax rates differ from the expected federal tax
rate of 34.0% due to state income taxes and job tax credits.

COMPARISON OF HISTORICAL RESULTS -- FISCAL YEARS 1997 AND 1996

REVENUES. Total revenues decreased 12.8% to $143.9 million in 1997 compared
to $165.0 million in 1996. Company-operated restaurant sales decreased 12.7% to
$135.7 million in 1997 from $155.4 million in 1996. The decrease resulted
partially from a net reduction of 2 Company operated restaurants since December
30, 1996. Comparable Company operated restaurant sales for the year ended
December 29, 1997, decreased 9.9% as compared to the year ended December 30,
1996, which includes those restaurants open at least 26 periods. These decreases
in restaurant sales and comparable restaurant sales is primarily attributable to
a highly competitive environment during 1997 and the Company's focus on cutting
costs while developing a new marketing strategy.

25
<PAGE>

Franchise revenues and fees decreased 10.7% to approximately $7.5 million
in 1997 from approximately $8.4 million in 1996. An actual decrease of $503,000
was a direct result of one fewer franchised restaurant opening as well as a
decline in comparable franchise restaurant sales of 5.9% during 1997, and a
decline in the weighted average royalty rate charge due to openings in Puerto
Rico, as well as certain discounting of fees on non-standard restaurant
openings. The remaining decrease of $390,000 is due to the recording of revenue
from terminations of Area Development Agreements during the year ended December
30, 1996. The Company recognizes franchise fees as revenues when the Company has
substantially completed its obligations under the franchise agreement, usually
at the opening of the franchised restaurant.

MRP revenues decreased 40.9% to $710,000 in 1997 compared to $1.2 million
in 1996 due to decreased sales volume of MRP's to the Company's franchisees
which is a result of franchisees sales of used MRP's and the Company's efforts
to refurbish and sell its inventory of used MRP's from previously closed sites.
These efforts have been successful, however, these sales have negatively
impacted the new building revenues.

COSTS AND EXPENSES. Restaurant food ($40.6 million) and paper ($3.0
million) costs totaled $43.6 million or 32.1% of restaurant sales for 1997,
compared to $54.7 million ($49.5 million food costs; $5.2 million, paper costs)
or 35.2% of restaurant sales for 1996. The dollar decrease in food and paper
costs was due primarily to the decrease in restaurant sales while the decrease
in these costs as a percentage of restaurant sales was due to new purchasing
contracts negotiated in early 1997.

Restaurant labor costs, which includes restaurant employees' salaries,
wages, benefits and related taxes, totaled $43.9 million or 32.4% of restaurant
sales for 1997, compared to $57.3 million or 36.9% of restaurant sales for 1996.
The decrease in restaurant labor costs as a percentage of restaurant sales was
due primarily to various restaurant level initiatives implemented in the first
quarter of 1997 and a decrease of $2.3 million in workers' compensation expense,
partially offset by a minimum wage increase in 1997.

Restaurant occupancy expense, which includes rent, property taxes, licenses
and insurance, totaled $10.8 million or 8.0% of restaurant sales for 1997,
compared to $12.9 million or 8.3% of restaurant sales for 1996.

Restaurant depreciation and amortization decreased 6.0% to $8.3 million for
1997, from $8.8 million for 1996, due primarily to 1996 impairments recorded
under Statement of Financial Accounting Standards No. 121 and the impact of
restaurant closures during late 1996 and early 1997. However, as a percentage of
restaurant sales, these expenses increased to 6.1% in 1997 from 5.7% in 1996 due
to the decline in average restaurant sales.

Advertising expense decreased to $6.8 million or 5.0% of restaurant sales
for 1997 which did not materially differ from the $7.4 million or 4.8% of
Restaurant sales spent for advertising in 1996.

Other restaurant expenses includes all other restaurant level operating
expenses other than food and paper costs, labor and benefits, rent and other
costs which includes utilities, maintenance and other costs. These expenses
which declined consistently with sales declines, totaled $13.5 million or 9.9%
of restaurant sales for 1997 compared to $15.3 million or 9.9% of restaurant
sales for 1996, resulting primarily from restaurant closures in late 1996 and
early 1997.

Costs of MRP revenues totaled $618,000 or 87.0% of MRP revenues for 1997,
compared to $1.7 million or 141.8% of such revenues for 1996. The decrease in
these expenses as a percentage of MRP revenues was attributable to the
elimination of various excess fixed costs in the first quarter of 1997.

General and administrative expenses decreased to $17.0 million or 11.8% of
total revenues in 1997 from $20.7 million or 12.5% of total revenues in 1996.
The 1997 general and administrative

26
<PAGE>

expenses included charges of $314,000 for severance and relocations associated
with the recruitment of six new members of executive management. The 1996
general and administrative expenses included $1.1 million in unusual bad debt
expenses and other, $750,000 provisions for state sales tax audits, $925,000 for
severance and relocation and a $845,000 write-off of existing loan costs
incurred in connection with the Company's previous lending arrangements with its
bank group. Excluding the above charges, recurring general and administrative
expenses decreased $372,000 primarily attributable to a reduction in corporate
staffing early in 1997.

ACCOUNTING CHARGES AND LOSS PROVISIONS. During the fourth quarter of 1997,
the Company recorded accounting charges and loss provisions totalling $1.0
million, including charges to write off goodwill associated with one
under-performing store ($565,000), to provide for additional losses on assets to
be disposed due to certain sublease properties being converted to surplus
($312,000) and a provision to write down Champion inventories to fair value
($150,000).

The Company recorded accounting charges and loss provisions totalling $14.7
million during the third quarter of 1996 and $9.2 million during the fourth
quarter of 1996. Third quarter provisions under SFAS 121 of $14.2 million to
close 27 restaurants, relocate 22 of them ($4.2 million), settle 16 leases on
real property underlying these stores ($1.2 million) and sell land underlying
the other 11 restaurants ($307,000), and impairment charges related to an
additional 28 under-performing restaurants ($8.5 million) were recorded. A loss
provision of $500,000 was also recorded to reserve for Champion's finished
buildings inventory as an adjustment to fair market value. Fourth quarter
provisions under SFAS 121 totaling $7.7 million, including $1.4 million for
additional losses on assets to be disposed of, $5.9 million for impairment
charges related to nine under-performing restaurants received by the Company
through a July 1996 franchisee bankruptcy action and $393,000 for other
impairment charges were also recorded. Additionally, in the fourth quarter of
1996, a provision of $351,000 was recorded for legal settlements, and a $1.1
million provision for loss was recorded for the disposal of the L.A. Mex product
line.

A summary of the accounting charges and loss provisions for 1997 and 1996
is as follows:

SUPPLEMENTAL SCHEDULE OF
ACCOUNTING CHARGES AND LOSS PROVISIONS
-----------------------------------------------------------------------
BALANCE AT ADDITIONS
BEGINNING CHARGED TO CASH NON-CASH BALANCE AT
DESCRIPTION OF YEAR EXPENSE OUTLAYS DEDUCTIONS END OF YEAR
- ----------------------------------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Year ended December 29, 1997:
Impairment of long-lived
assets ....................... $ -- $ 565 $ -- $ (565) $ --
Losses on assets to be
disposed of .................. 3,800 312 (1,695) 323 2,740
Other loss provisions ......... 2,357 150 (76) (1,141) 1,290
------ ------- -------- --------- ------
$6,157 $ 1,027 $ (1,771) $ (1,383) $4,030
====== ======= ======== ========= ======
Year ended December 30, 1996:
Impairment of long-lived
assets ....................... $ -- $14,782 $ -- $ (14,782) $ --
Losses on assets to be
disposed of .................. 2,124 7,131 (943) (4,512) 3,800
Other loss provisions ......... 1,004 1,992 -- (639) 2,357
------ ------- -------- --------- ------
$3,128 $23,905 $ (943) $ (19,933) $6,157
====== ======= ======== ========= ======
</TABLE>

27
<PAGE>

utilities and in some cases the cost to relocate the modular restaurant to a
storage facility. The cash outlays for these costs have been estimated for
various terms ranging from five months to three years.

INTEREST EXPENSE. Interest expense other than loan cost amortization
decreased to $5.0 million or 3.5% of total revenues in 1997 from $6.1 million or
3.7% of total revenues in 1996. This decrease was due to a reduction in the
weighted average balance of debt outstanding during the respective periods,
partially offset by an increase in the Company's effective interest rates since
the second quarter of 1996. Loan cost amortization increased by $3.5 million
from $159,000 in 1996 to $3.7 million in 1997 due to the November 22, 1996
capitalization of deferred loan costs and $9.7 million in unscheduled principal
reductions in early 1997.

INCOME TAX EXPENSE (BENEFIT). There were no net taxes after valuation
allowances for 1997. Due to the loss for 1996, the Company recorded an income
tax benefit of $18.0 million or 38.9% of the loss before income taxes and
recorded a deferred income tax valuation allowance of $18.1 million, resulting
in a net tax expense of $151,000 for 1996. The effective tax rates differ from
the expected federal tax rate of 35.0% due primarily to state income taxes.

LIQUIDITY AND CAPITAL RESOURCES

Checkers cash and cash equivalents increased approximately $742,000 to $4.7
million in 1998. Strong sales and improved cost controls resulted in cash flow
from operating activities of $3.1 million in 1998 compared to a negative cash
flow of $4.0 million in 1997.

Investing activities provided an additional $494,000 of cash in 1998.
Proceeds from the sale of assets generated $2.0 million of cash. Capital
expenditures of $1.5 million were for the replacement of store equipment,
$964,000; construction of a side dining unit, $171,000; and the upgrade and
expansion of corporate computer systems, $365,000.

Financing activities for the year included a $10 million mortgage
transaction, $8.6 million of which was utilized to reduce long term debt.
Additional long term debt of $3.7 million was repaid during the year utilizing
the proceeds from asset sales and funds generated from operations.

On November 14, 1996, the Company's debt under its loan agreement and
credit line was acquired from its previous lenders by a group of entities and
individuals, most of whom are engaged in the quick-service restaurant business.
This investor group (the "CKE Group") was led by CKE Restaurants, Inc. ("CKE")
the parent of Carl Karcher Enterprises, Inc., Hardee's Food System, Inc., Taco
Bueno Restaurants, Inc., and Summit Family Restaurants, Inc. Also participating
were most members of the DDJ Group, Fidelity National Financial, Inc.
("Fidelity") and KCC Delaware Company, a wholly-owned subsidiary of GIANT GROUP,
LTD. ("GIANT"). CKE, GIANT and an affiliate of Fidelity (Santa Barbara
Restaurant Group, Inc.) are the largest stockholders of Rally's Hamburgers, Inc.

28
<PAGE>

for the restructuring, the Restated Credit Agreement required the Company to
issue to the members of the CKE Group warrants to purchase an aggregate of 20
million shares of the Company's common stock at an exercise price of $.75 per
share, which was the approximate market price of the common stock prior to the
announcement of the debt transfer. Since November 22, 1996, the Company has
reduced the principal balance under the Restated Credit Agreement by $18.4
million and has repaid the Secondary Credit Line in full. A portion of the funds
utilized to make these principal reduction payments were obtained by the Company
from the sale of certain closed restaurant sites to third parties. Additionally,
the Company utilized $10.5 million of the proceeds from the February 21, 1997,
private placement and $8.0 million of the proceeds of a $10.0 million mortgage
financing transaction completed on December 18, 1998 for these principal
reductions, both which are described later in this section. Pursuant to the
Restated Credit Agreement, the prepayments of principal made in 1996 and early
in 1997 relieved the Company of the requirement to make any of the regularly
scheduled principal payments under the Restated Credit Agreement which would
have otherwise become due in fiscal year 1998 through maturity. The Amended and
Restated Credit Agreement provides however, that 50% of any future asset sales
must be utilized to prepay principal.

At December 28, 1998, a significant portion ($17.4 million) of the
Company's long-term debt relates to the Company's Restated Credit Agreement
which originally was to mature on July 31, 1999. On March 24, 1999, the Company
and Santa Barbara Restaurant Group, Inc. ("SBRG"), a company which is an 8.2%
owner (as of December 31, 1998) of Rally's, executed a letter of intent whereby
SBRG agreed to acquire approximately $1.9 million of debt due to two members of
the lender group. The terms associated with the SBRG debt will be identical to
terms that other participants of the lender group have pursuant to the Restated
Credit Agreement. On March 24, 1999, SBRG and the remaining members of the
lender group have also agreed to an extension of the maturity date to April 30,
2000. As of December 28, 1998, Fidelity National Financial, Inc. owned 31.1% of
the outstanding common stock of SBRG.

The Company's Restated Credit Agreement with the CKE Group contains
restrictive covenants which include the consolidated EBITDA covenant as defined.
As of December 28, 1998 and during a majority of 1998, the Company was in
violation of the consolidated EBITDA covenant. The Company received a waiver for
periods 11 through 13 of fiscal 1998, and for all periods remaining through the
earlier of July 12, 1999 or the effective date of the Merger with Rally's.

On February 21, 1997, the Company completed a private placement (the
"Private Placement") of 8,981,453 shares of the Company's common stock, $.001
par value, and 87,719 shares of the Company's Series A preferred stock, $.001
par value (the "Preferred Stock"). CKE Restaurants, Inc. purchased 6,162,299 of
the Company's common stock and 61,623 of the Preferred Stock and other qualified
investors, including other members of the CKE Group of lenders under the
Restated Credit Agreement and Raymond James and Associates, Inc., also
participated in the Private Placement. The Company received approximately $19.5
million in net proceeds after $500,000 of issuance costs from the Private
Placement. The Company used $8 million of the Private Placement proceeds to
reduce the principal balance due under the Restated Credit Agreement; $2.5
million was utilized to repay the Secondary Credit Line; $2.3 million was
utilized to pay outstanding balances to various key food and paper distributors;
and the remaining amount was used primarily to pay down outstanding balances due
certain other vendors. The reduction of the debt under the Restated Credit
Agreement and the Secondary Credit Line, both of which carried a 13% interest
rate reduced the Company's interest payments by more than $1.3 million on an
annualized basis. Raymond James and Associates, Inc. received 209,524 shares of
the common stock for services related to the Private Placement. Under the
purchase price protection provisions of these 209,524 shares, Raymond James and
Associates, Inc. was paid $170,000 as of December 28, 1998 and will be paid a
remaining total of approximately $252,000 during 1999.

On August 6, 1997, the 87,719 shares of preferred stock were converted into
8,771,900 shares of the Company's common stock valued at $10 million. In
accordance with the agreement underlying the Private Placement (the "Private
Placement Agreement"), the Company also issued 610,524

29
<PAGE>

shares of common stock as a dividend pursuant to the liquidation preference
provisions of the Private Placement Agreement, valued at $696,000 to the holders
of the preferred stock issued in the Private Placement. At November 13, 1997,
the effective date of the Company's Registration Statements on Forms S-4, the
Company had outstanding promissory notes in the aggregate principal amount of
approximately $3.2 million (the "Notes") payable to Rall-Folks, Inc.
("Rall-Folks"), Restaurant Development Group, Inc. ("RDG") and Nashville Twin
Drive-Through Partners, L.P. ("N.T.D.T."). The Company agreed to acquire the
Notes issued to Rall-Folks and RDG in consideration of the issuance of an
aggregate of approximately 1.9 million shares of Common Stock and the Note
issued to NTDT in exchange for a series of convertible notes in the same
aggregate principal amount and convertible into approximately 614,000 shares of
Common Stock pursuant to agreements entered into in 1995 and subsequently
amended. All three of the parties received varying degrees of protection on the
purchase price of the promissory notes. Accordingly, the actual number of shares
to be issued was to be determined by the market price of the Company's stock.
Consummation of the Rall-Folks, RDG, and NTDT purchases occurred on November 24,
and December 5, and November 24, 1997, respectively.

During December 1997, the Company issued an aggregate of 2,622,559 shares
of common stock in payment of $2.9 million of principal and accrued interest
relating to the Notes. After these issuance's, the remaining amount owed in
relation to these Notes was $322,000, payable to NTDT. During 1998, the Company
issued an additional 359,129 shares of common stock and paid $121,000 in cash to
NTDT, issued 12,064 shares of common stock and paid $29,000 in cash to RDG and
issued 279,868 shares of common stock and paid $86,000 in cash to Rall-Folks in
full settlement of all remaining amounts owed in relation to debt principal,
accrued interest and purchase price protection under the Notes.

On December 1, 1998, the Company entered into two lease agreements, which
have been recorded as obligations under capital lease, with Granite Financial,
Inc. (a wholly owned subsidiary of Fidelity), whereby the Company leased
$659,000 of security equipment for its restaurants in the aggregate. The first
lease agreement is payable monthly at approximately $13,000 including effective
interest at 13.08%. The second lease is payable at approximately $9,000,
including effective interest at 10.90%. Both of these leases have terms of three
years.

In 1999, the franchise community has indicated an intent to open 20 to 30
new units and the Company intends to close fewer restaurants focusing on
improving restaurant margins.

The Company has a working capital deficit of $6.3 million at December 28,
1998. It is anticipated that the Company will continue to have a working capital
deficit since approximately 88% of the Company's assets are long-term (primarily
property, equipment, and intangibles), and since primarily all operating trade
payables, accrued expenses, and property and equipment payables are current
liabilities of the Company.

On January 29, 1999, Checkers and Rally's announced the signing of a Merger
agreement pursuant to which Rally's will merge into Checkers in a stock for
stock transaction, (the "Merger"). The Merger agreement provides that each
outstanding share of Rally's will be exchanged for 1.99 shares of Checkers
common stock. Rally's currently owns approximately 26.06% of Checkers common
stock and these shares will be retired following the Merger. Checkers plans to
execute a

30
<PAGE>

one-for-twelve reverse stock split immediately following the Merger to reduce
the number of shares then outstanding. The Merger transaction is subject to
certain approvals, including but not limited to the approval by the shareholders
of Checkers and Rally's and potentially the holders of Rally's senior notes (see
Note 13 to the Consolidated Financial Statements). The transaction is expected
to close in the second quarter of calendar year 1999. Although operating under
the guidelines of the Management Services Agreement has enabled both companies
to realize expense reductions and other synergies during 1998, management
anticipates that the Merger will lead to further expense reductions when
completed.

YEAR 2000

The Year 2000 problem arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize a year that begins with "20" instead of "19". The
Company has completed an assessment of all known internal Information Technology
(IT) systems to document its state of readiness.

The Company utilizes accounting software packages such as Lawson (general
ledger/accounts payable) and Cyborg (payroll) that require periodic upgrades to
benefit from the latest modifications to the programs. Typically, all releases
of such upgrades must be implemented, eliminating a company's ability to move
directly to the most recent release. During 1998, the Company successfully
implemented all required releases of both Lawson and Cyborg that preceded the
Year 2000 compliant release. The consulting and training required for the next
Lawson and Cyborg upgrades are underway with targeted implementation dates
during the second quarter of 1999 at a cost to Checkers of approximately
$50,000. The Company has assessed the computer systems utilized at the Checkers
restaurant level and determined such systems to be 100% Year 2000 compliant.
Costs of replacing certain desktop computers and other required modifications at
the corporate office are not expected to exceed $70,000. The upgrade of
corporate office systems is approximately 75% complete and should be finalized
by August 31, 1999. Rally's will incur a similar amount of expense related to
these upgrades.

Pursuant to the Management Services Agreement that exists between the
Company and Rally's, the Company is also responsible for the testing for and
implementation of Year 2000 computer systems for Rally's. In addition, as
administrative functions of Rally's such as payroll and accounting are handled
by Checkers employees, initiatives previously discussed will also impact the
operations of Rally's. The Company's information technology department is also
responsible for the store level computer systems utilized by Rally's. While the
cash registers that are used by Rally's for each transaction are Year 2000
compliant, the back-office computer and related software is not. The back-office
computer is utilized for capturing and controlling such items as payroll and
food cost and is required to sustain communication of this and other data to the
corporate office. New computer systems will be purchased by Rally's and the
software currently utilized by the Checkers restaurants will be installed. Final
testing of this software will be complete during the first quarter of 1999 and
completion of the rollout is expected by August 31, 1999. The costs of
compliance of shared systems is allocated between the two companies, whereas
additional hardware costs at the restaurants are not shared.

The Company is continuing to identify third parties that must be Year 2000
compliant to ensure the continued sucess of our operations. Letters requesting
written verification of compliance have been sent to companies that provide
financial services, utilities, inventory preparation and distribution and other
key services. The Company has not been notified of any anticipated Year 2000
related failures by these third parties but it can not be assured that all such
entities will be operable on January 1, 2000. The distribution centers that
deliver products to the restaurants maintain an adequate inventory to supply
items for approximately three weeks. If suppliers are unable to deliver product
to the distribution centers due to Year 2000 or other plant malfunctions,
alternative suppliers are currently identified that could deliver product that
matches the Company's specifications. If the

31
<PAGE>

Company is unable to obtain verification of Year 2000 compliance from its
primary distributor by September 1, 1999, an alternative distributor will be
selected to ensure the continued delivery of inventory to the restaurants.
Although not negotiated at this time, it is probable that the resulting delivery
costs of the inventory would be higher resulting in higher food and paper costs
for the Company. If documentation of Year 2000 compliance is not received from
financial institutions by November 1, 1999, the Company will transfer its
banking relationships to other banks at an incremental cost not expected to
exceed $100,000. No contingency plans are available if the utility services for
the restaurants are interrupted due to Year 2000 failures.

Although the Company's systems are not currently fully Year 2000 compliant,
management feels that the Company's risk in this area is minimal. If the Company
is unable to implement the upgrade to the payroll system, it would be able to
utilize a third party to process payroll at a cost of approximately $125,000 per
year. Contingency plans related to the accounting software package are still
under development.

Overall, the Company believes many of the fundamental steps have been taken
to improve the Company's initiative toward profitability, but there can be no
assurance that it will be able to do so. Management believes that cash flows
generated from operations, and asset sales should allow the Company to continue
to meet its financial obligations and to pay operating expenses.

ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS

CERTAIN STATEMENTS IN THIS FORM 10-K UNDER "ITEM 1. BUSINESS," "ITEM 3.
LEGAL PROCEEDINGS," "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS FORM 10-K CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WHICH WE BELIEVE ARE WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934. SUCH FORWARD-
LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES, AND OTHER
FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE, OR ACHIEVEMENTS OF
CHECKERS DRIVE-IN RESTAURANTS, INC. (INDIVIDUALLY AND COLLECTIVELY WITH THE
SUBSIDIARIES AND VARIOUS JOINT VENTURE PARTNERSHIPS IT CONTROLS "CHECKERS",
CONTROLLED BY CHECKERS, THE "COMPANY") TO BE MATERIALLY DIFFERENT FROM ANY
FUTURE RESULTS, PERFORMANCE, OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING:
GENERAL ECONOMIC AND BUSINESS CONDITIONS; THE IMPACT OF COMPETITIVE PRODUCTS AND
PRICING; SUCCESS OF OPERATING INITIATIVES; DEVELOPMENT AND OPERATING COSTS;
ADVERTISING AND PROMOTIONAL EFFORTS; ADVERSE PUBLICITY; ACCEPTANCE OF NEW
PRODUCT OFFERINGS; CONSUMER TRIAL AND FREQUENCY; AVAILABILITY, LOCATIONS, AND
TERMS OF SITES FOR RESTAURANT DEVELOPMENT; CHANGES IN BUSINESS STRATEGY OR
DEVELOPMENT PLANS; QUALITY OF MANAGEMENT; AVAILABILITY, TERMS AND DEPLOYMENT OF
CAPITAL; THE RESULTS OF FINANCING EFFORTS; BUSINESS ABILITIES AND JUDGEMENT OF
PERSONNEL; AVAILABILITY OF QUALIFIED PERSONNEL; FOOD, LABOR AND EMPLOYEE BENEFIT
COSTS; CHANGES IN, OR THE FAILURE TO COMPLY WITH, GOVERNMENT REGULATIONS; IMPACT
OF YEAR 2000; CONTINUED NASDAQ LISTING; WEATHER CONDITIONS; CONSTRUCTION
SHEDULES; AND OTHER FACTORS REFERENCED IN THIS FORM 10-K.

32
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

(1) FINANCIAL STATEMENTS. The Company's Financial Statements included in
Item 8 hereof, as required, consist of the following:

PAGE
----
Independent Auditors' Report .................................... 34

Consolidated balance sheets --
December 28, 1998 and December 29, 1997 ....................... 35

Consolidated statements of operations and comprehensive income --
Years ended December 28, 1998, December 29, 1997 and
December 30, 1996 ............................................. 37

Consolidated statements of stockholders' equity --
Years ended December 28, 1998, December 29, 1997 and
December 30, 1996 ............................................. 38

Consolidated statements of cash flows --
Years ended December 28, 1998, December 29, 1997 and
December 30, 1996 ............................................. 39

Notes to consolidated financial statements --
Years ended December 28, 1998, December 29, 1997 and
December 30, 1996 ............................................. 41

33
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Checkers Drive-In Restaurants, Inc. and Subsidiaries:

We have audited the consolidated financial statements of Checkers Drive-In
Restaurants, Inc. and subsidiaries as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Checkers
Drive-In Restaurants, Inc. and subsidiaries as of December 28, 1998 and December
29, 1997, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 28, 1998, in conformity with
generally accepted accounting principles.

KPMG LLP

Tampa, Florida
February 26, 1999, except as to Note 2, which is as of March 24, 1999

34
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

ASSETS

DECEMBER 28, DECEMBER 29,
1998 1997
-------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents:
Restricted ................................................ $ 1,738 $ 2,555
Unrestricted .............................................. 2,925 1,366
Accounts receivable, net ................................... 1,327 1,175
Notes receivable, net -- current portion ................... 224 265
Inventory .................................................. 2,068 2,222
Property and equipment held for sale ....................... 2,755 4,332
Deferred loan costs -- current portion ..................... 793 1,648
Prepaid expenses and other current assets .................. 468 309
-------- --------
Total current assets ..................................... 12,298 13,872
Property and equipment, net (Note 3) ....................... 78,390 87,889
Intangibles, net of accumulated amortization of
$5,607 in 1998 and $5,014 in 1997 (Notes 1 and 7)......... 10,123 11,520
Deferred loan costs -- less current portion ................ 378 1,099
Notes receivable, net -- less current portion .............. 252 381
Deposits and other non-current assets ...................... 658 640
-------- --------
$102,099 $115,401
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

35
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

LIABILITIES AND STOCKHOLDERS' EQUITY

DECEMBER 28, DECEMBER 29,
1998 1997
-------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt and capital
lease obligations (Notes 4 and 11) .............................. $ 1,381 $ 3,484
Accounts payable .................................................. 5,896 8,186
Accrued wages, salaries and benefits .............................. 2,360 2,528
Reserves for restaurant relocations and abandoned
sites (Note 10) ................................................. 1,635 2,159
Other accrued liabilities ......................................... 7,133 11,408
Deferred income-current portion ................................... 203 260
--------- ---------
Total current liabilities ....................................... 18,608 28,025
Long-term debt, less current maturities (Note 4) .................. 28,645 28,645
Obligations under capital leases, less current maturities ......... 1,009 756
Straight-line rent accruals ....................................... 4,070 3,624
Deferred income, less current portion ............................. 848 346
Long-term reserves for restaurant relocations and
abandoned sites (Note 10) ....................................... 430 581
Minority interests in joint ventures (Note 1a) .................... 802 966
Other noncurrent liabilities ...................................... 3,079 2,086
--------- ---------
Total liabilities ............................................... 57,491 65,029
STOCKHOLDERS' EQUITY (Note 8):
Preferred stock, $.001 par value, authorized 2,000,000
shares, no shares outstanding ................................... -- --
Common stock, $.001 par value, authorized
150,000,000 shares, issued and outstanding
73,408,047 at December 28, 1998 and
72,755,031 at December 29, 1997 ................................. 73 73
Additional paid-in capital (Notes 8 and 9) ........................ 121,579 121,999
Retained deficit .................................................. (76,644) (71,300)
--------- ---------
45,008 50,772
Less treasury stock, at cost, 578,904 shares ...................... 400 400
--------- ---------
Net stockholders' equity ........................................ 44,608 50,372
--------- ---------
$ 102,099 $ 115,401
========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

36
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

FISCAL YEAR ENDED
-----------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
1998 1997 1996
-------------- -------------- -------------
<S> <C> <C> <C>

REVENUES:
Restaurant sales ........................................... $137,965 $ 135,710 $ 155,392
Franchise revenues and fees ................................ 7,503 7,474 8,367
Modular restaurant packages ................................ 240 710 1,202
-------- --------- ---------
Total revenues ........................................... $145,708 $ 143,894 $ 164,961
COSTS AND EXPENSES:
Restaurant food and paper costs ............................ 43,186 43,625 54,707
Restaurant labor costs ..................................... 43,805 43,919 57,302
Restaurant occupancy expense ............................... 10,763 10,797 12,926
Restaurant depreciation and amortization ................... 7,759 8,313 8,848
Other restaurant operating expense ......................... 13,903 13,447 15,345
Advertising expense ........................................ 6,921 6,820 7,420
Cost of modular restaurant package revenues ................ 516 618 1,704
Other depreciation and amortization ........................ 2,275 2,263 4,326
General and administrative expenses ........................ 13,309 17,042 20,690
Impairment of long-lived assets (Note 10) .................. 1,757 565 14,782
Losses on assets to be disposed of (Note 10) ............... 1,196 312 7,131
Other loss provisions (Note 10) ............................ -- 150 1,992
-------- --------- ---------
Total costs and expenses ................................. 145,390 147,871 207,173
-------- --------- ---------
Operating income (loss) .................................. 318 (3,977) (42,212)
OTHER INCOME (EXPENSE):
Interest income ............................................ 272 375 678
Interest expense ........................................... (3,981) (5,000) (6,074)
Interest -- loan cost amortization ......................... (2,026) (3,650) (159)
-------- --------- ---------
Loss before minority interests and income
tax expense ............................................ (5,417) (12,252) (47,767)
Minority interests in operations of joint ventures ......... (73) (66) (1,509)
-------- --------- ---------
Loss before income taxes (Note 5) ......................... (5,344) (12,186) (46,258)
Income taxes ............................................... -- -- 151
-------- --------- ---------
Net loss ................................................. $ (5,344) $ (12,186) $ (46,409)
Preferred dividends ........................................ $ -- $ 696 $ --
-------- --------- ---------
Net loss to common shareholders ............................ $ (5,344) $ (12,882) $ (46,409)
======== ========= =========
Comprehensive loss ......................................... $ (5,344) $ (12,882) $ (46,409)
======== ========= =========
Net loss per common share -- (basic and diluted) ........... $ (0.07) $ (0.20) $ (0.90)
======== ========= =========
Weighted average number of common shares
(basic and diluted) ....................................... 73,388 63,390 51,698
======== ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

37
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 28, 1998, DECEMBER 29, 1997 AND DECEMBER 30, 1996

(DOLLARS IN THOUSANDS)

ADDITIONAL NET
PREFERRED COMMON PAID-IN RETAINED TREASURY STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT STOCK EQUITY
----------- -------- --------------- ------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 ......................... $ -- $52 $93,029 $ (12,705) $ (400) $ 79,976
Issuance of 200,000 shares of common stock
at $1.14 as payment on long-term debt............. -- -- 222 -- -- 222
Issuance of 40,000 shares of common stock
at $1.19 per share to pay consulting fees......... -- -- 47 -- -- 47
Warrants issued to investor group .................. -- -- 6,463 -- -- 6,463
Employee stock options vested
upon severance ................................... -- -- 41 -- -- 41
Net loss ........................................... -- -- -- (46,409) -- (46,409)
---- --- --------- --------- ------ --------
Balance at December 30, 1996 ....................... -- 52 99,802 (59,114) (400) 40,340
Private placement of 8,981,453 shares of
common stock and 87,719 shares of
preferred stock .................................. 0 9 19,373 -- -- 19,382
Exercise of employee stock option for 125
shares of common stock ........................... -- 0 0 -- -- 0
Conversion of preferred stock to
common stock ..................................... -- 9 (9) -- -- --
Issuance of 1,116,376 shares of
common stock in payment of
long-term debt ................................... -- 1 1,271 -- -- 1,272
Issuance of 192,308 shares of common stock
in payment of long-term debt ..................... -- 0 196 -- -- 196
Issuance of 1,093,124 shares of
common stock in payment of
long-term debt and accrued interest .............. -- 1 1,174 -- -- 1,175
Issuance of 220,751 shares of common stock
in payment of long-term debt and
accrued interest.................................. -- 0 192 -- -- 192
Net loss ........................................... -- -- -- (12,186) -- (12,186)
---- --- --------- --------- ------ --------
Balance at December 29, 1997 ....................... -- $73 $121,999 $ (71,300) $ (400) $ 50,372
Issuance of 651,061 shares of common stock
in payment of long-term debt and
accrued interest, net of payments for
purchase price protection ........................ -- 0 (2) -- -- (2)
Exercise of 5,000 employee stock options ........... -- 0 4 -- -- 4
Additional payments for purchase price
protection related to 1997 private
placement (note 3) ............................... -- -- (422) -- -- (422)
Net loss ........................................... -- -- -- (5,344) -- (5,344)
---- --- --------- --------- ------ ----------
Balance at December 28, 1998 ....................... $ -- $73 $121,579 $ (76,644) $ (400) $ 44,608
==== === ========= ========= ====== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

38
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

FISCAL YEAR ENDED
-----------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
1998 1997 1996
-------------- -------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................... $ (5,344) $ (12,186) $ (46,409)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization .............................. 10,034 10,576 13,173
Impairment of long-lived assets ............................ 1,757 565 15,282
Provision for losses on assets to be disposed of ........... 1,196 312 7,132
Provision for bad debt ..................................... 751 1,013 1,311
Deferred loan cost amortization ............................ 2,026 3,650 1,300
Loss provision ............................................. -- 150 1,991
Gain on debt extinguishment ................................ (141) (359) --
Loss (gain) on disposal of property & equipment ............ 219 243 (75)
Minority interests in operations of joint ventures ......... (73) (66) (1,509)
Changes in assets and liabilities:
Increase in accounts receivable ............................ (754) (1,501) (474)
Decrease in notes receivable ............................... 29 133 3,012
Decrease in inventory ...................................... 154 170 346
Decrease (increase) in income taxes receivable ............. -- 3,514 (242)
Decrease in deferred income tax assets ..................... -- -- 3,358
Increase in prepaid expenses and other
current assets .......................................... (202) (105) (90)
(Increase) decrease in deposits and other
noncurrent assets ....................................... (17) 142 (309)
(Decrease) increase in accounts payable .................... (2,257) (6,608) 4,273
(Decrease) increase in accrued liabilities ................. (4,467) (3,452) 2,525
Decrease in deferred income taxes liabilities .............. -- (197) (261)
Increase in deferred income ................................ 176 -- --
-------- --------- ---------
Net cash provided by (used in)
operating activities .................................... 3,087 (4,006) 4,334
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................................... (1,525) (1,671) (4,240)
Proceeds from sale of assets ............................... 2,019 4,166 1,813
Acquisitions of restaurants ................................ -- (282) (204)
-------- --------- ---------
Net cash provided by (used in)
investing activities .................................... $ 494 $ 2,213 $ (2,631)
-------- --------- ---------
</TABLE>

See accompanying notes to consolidated financial statements.

39
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

FISCAL YEAR ENDED
-----------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
1998 1997 1996
-------------- -------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt .............. $ 10,000 $ -- $ --
Deferred loan costs incurred .......................... (431) -- --
Proceeds from (payments of) issuance of
short-term debt, net ................................ -- (2,500) 1,500
Principal payments on long-term debt .................. (12,317) (14,183) (3,584)
Net proceeds from sale of stock ....................... -- 19,414 --
Proceeds from investment by minority interest ......... -- -- 285
Distributions to minority interests ................... (90) (73) (212)
--------- --------- --------
Net cash (used in) provided by
financing activities ............................. (2,838) 2,658 (2,011)
--------- --------- --------
Net increase (decrease) in cash ..................... 742 865 (308)
CASH AT BEGINNING OF PERIOD ........................... 3,921 3,056 3,364
--------- --------- --------
CASH AT END OF PERIOD ................................. $ 4,663 $ 3,921 $ 3,056
========= ========= ========
Supplemental disclosures of cash flow information:
Interest paid ....................................... $ 3,972 $ 5,399 $ 5,842
========= ========= ========
Income taxes paid ................................... $ -- $ -- $ --
========= ========= ========
SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Note received on sale of assets ..................... $ -- $ 179 $ --
========= ========= ========
Capital lease obligations incurred .................. $ 659 $ 491 $ 225
========= ========= ========
Acquisitions of restaurants:
Fair value of assets acquired ...................... $ -- $ 1,360 $ 9,906
Receivables forgiven ............................... -- (114) (5,429)
Reversal of deferred gain .......................... -- -- 1,422
Liabilities assumed ................................ -- (898) (5,695)
Assets distributed ................................. -- (438) --
Reduction of minority interest ..................... -- 372 --
--------- --------- --------
Total cash paid for the net
assets acquired .............................. $ -- $ 282 $ 204
========= ========= ========
Stock issued for repayment of debt and
accrued interest .................................... $ 113 $ 2,901 $ 228
========= ========= ========
Stock issued for payment of consulting fees ........... $ -- $ 229 $ 47
========= ========= ========
</TABLE>

See accompanying notes to consolidated financial statements.

40
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 28, 1998, DECEMBER 29, 1997 AND DECEMBER 30, 1996
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

a) PURPOSE AND ORGANIZATION -- The principal business of Checkers Drive-In
Restaurants, Inc. ("Checkers") and (the "Company") is the operation and
franchising of Checkers restaurants. At December 28, 1998 there were 462
Checkers restaurants operating in 22 different states, the District of Columbia,
Puerto Rico and West Bank in the Middle East. Of those restaurants, 230 were
Company-operated (including twelve restaurants owned by general and limited
partnerships, "the joint ventures") and 232 were operated by franchisees. The
accounts of the joint ventures have been included with those of the Company in
these consolidated financial statements. The consolidated financial statements
also include the accounts of all of the Company's 100% owned subsidiaries and
one limited partnership which has ceased operations of its sole restaurant.
Intercompany balances and transactions have been eliminated in consolidation and
minority interests have been established for the outside partners' interests.
The Company reports on a fiscal year which will end on the Monday closest to
December 31st. Each quarter consists of three 4-week periods, with the exception
of the fourth quarter which consists of four 4-week periods.

b) CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid
instruments purchased with a maturity of less than three months to be cash
equivalents. Restricted Cash consists of cash on deposit with various financial
institutions as collateral to support the Company's obligations to certain
states for potential workers' compensation claims. This cash is not available
for the Company's use until such time that the respective states permit its
release.

c) RECEIVABLES -- Receivables consist primarily of royalties and notes due
from franchisees, notes and accounts receivable from the sale of MRP's. A
rollforward of the total allowances for doubtful receivables is as follows:

BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO END OF
DESCRIPTION OF PERIOD EXPENSE DEDUCTIONS PERIOD
- ----------------------------------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Year ended December 30, 1996 ......... $1,358 $1,311 $ 452 $2,217
Year ended December 29, 1997 ......... $2,217 $1,013 $1,095 $2,135
Year ended December 28, 1998 ......... $2,135 $ 751 $ 537 $2,349
</TABLE>

d) INVENTORIES -- Inventories, which consist principally of food and
supplies, are stated at the lower of cost, first-in, first-out (FIFO) method or
market.

e) PRE-OPENING COSTS -- Pre-opening costs are expensed as incurred.

f) DEFERRED LOAN COSTS -- Deferred loan costs of $6.9 million incurred in
connection with the Company's November 22, 1996 restructure of its primary
credit facility (see Notes 4 and 9) are being amortized using the effective
interest method. During 1998 and 1997, the Company expensed an additional
$222,000 and $1.2 million, respectively, of deferred loan costs due to
unscheduled principal reductions made during those years.

g) PROPERTY AND EQUIPMENT -- Property and equipment (P & E) are stated at
cost except for P & E that have been impaired, for which the carrying amount is
reduced to estimated fair value. P & E under capital leases are stated at their
fair value at the inception of the lease. Depreciation

41
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES--(CONTINUED)

and amortization are computed on straight-line method over the estimated useful
lives of the assets. Property held for sale includes various excess restaurant
facilities and land. The aggregate carrying value of property and equipment held
for sale is periodically reviewed and adjusted downward to market value, when
appropriate.

h) INTANGIBLES -- Goodwill and other intangibles are being amortized over
20 years and 3 to 7 years, respectively, on a straight-line basis (SFAS 121
impairments of goodwill were $390,000 in 1998, $565,000 in 1997 and $4.6 million
in 1996). Amortization expense related to intangibles in 1998, 1997 and 1996 was
$1.0 million, $1.0 million and $1.8 million, respectively.

i) REVENUE RECOGNITION -- Franchise fees and area development franchise
fees are generated from the sale of rights to develop, own and operate Checkers
restaurants. Area development franchise fees are based on the number of
potential restaurants in a specific area which the franchisee agrees to develop
pursuant to the terms of the Area Development Agreement between the Company and
the franchisee and are recognized as income on a pro-rata basis when
substantially all of the Company's obligations per location are satisfied
(generally at the opening of a restaurant). Both franchise fees and area
development franchise fees are non-refundable. Franchise fees and area
development franchises fees received prior to the substantial completion of the
Company's obligations are deferred. The Company receives royalty fees from
franchisees, generally in the amount of 4% of each restaurant's revenues.
Royalty fees are recognized as earned. The Champion Modular Restaurant division
recognizes revenues on the percentage-of-completion method, measured by the
percentage of costs incurred to the estimated total costs of the contract.

j) INCOME TAXES -- The Company accounts for income taxes under the
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). Under the asset or liability method of SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.

k) EARNINGS PER SHARE -- The Company calculates basic and diluted earning
(loss) per share in accordance with the Statement of Financial Accounting
Standard No. 128, "Earnings per Share", which is effective for periods ending
after December 15, 1997.

l) STOCK OPTIONS -- As discussed in Note 8, the Company utilizes the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123 (SFAS 123), "Accounting for Stock-Based Compensation".

m) IMPAIRMENT OF LONG-LIVED ASSETS -- The Company accounts for long-lived
assets under the Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of" (SFAS 121) which requires the write-down of certain intangibles and
tangible property associated with under-performing sites. In applying SFAS No.
121 the Company reviewed all stores that recorded losses in the applicable
fiscal years and performed a discounted cash flow analysis where indicated for
each store based upon such

42
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES--(CONTINUED)

results projected over a ten or fifteen year period. This period of time was
selected based upon the lease term and the age of the building, which the
Company believes is appropriate based upon its operating history and the
estimated useful life of its restaurants. Impairments were recorded to adjust
the asset values to the amount recoverable under the discounted cash flow
analysis in the cases where the undiscounted cash flows were not sufficient for
full asset recovery, in accordance with SFAS No. 121. The effect of applying
SFAS No. 121 resulted in a reduction of property and equipment and goodwill of
$1.8 million in 1998, $565,000 in 1997 and $14.8 million in 1996.

n) DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS -- The balance
sheets as of December 28, 1998, and December 29, 1997, reflect the fair value
amounts which have been determined, using available market information and
appropriate valuation methodologies. However, considerable judgement is
necessarily required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The carrying amounts of cash and equivalents, receivables, accounts payable, and
long-term debt which are a reasonable estimate of their fair value. Interest
rates that are currently available to the Company for issuance of debt with
similar terms and remaining maturities are used to estimate fair value for debt
issues that are not quoted on an exchange.

o) SEGMENT REPORTING -- SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" (Statement 131) changes the way public
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information in
their quarterly reports issued to shareholders. It also requires entity-wide
disclosures about the products, services an entity provides, the material
countries in which it holds assets and reports revenues, and its major
customers. Statement 131 is effective for fiscal years beginning after December
15, 1997. The Company operates primarily in the quick-service restaurant
industry. The Company's Champion Modular Restaurants division does not have a
material effect upon the company's financial statements.

p) USE OF ESTIMATES -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.

q) RECLASSIFICATIONS -- Certain amounts in the 1997 and 1996 financial
statements have been reclassified to conform to the 1998 presentation.

NOTE 2: LIQUIDITY

The Company has a working capital deficit of $6.3 million at December 28,
1998. It is anticipated that the Company will continue to have a working capital
deficit since approximately 88% of the Company's assets are long-term (primarily
property, equipment, and intangibles), and since all operating trade payables,
accrued expenses, and property and equipment payables are current liabilities of
the Company. At December 28, 1998, a significant portion ($17.4 million) of the
Company's long-term debt relates to the Company's Restated Credit Agreement
which originally was

43
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 2: LIQUIDITY--(CONTINUED)

to mature on July 31, 1999. On March 24, 1999, the Company and Santa Barbara
Restaurant Group, Inc. ("SBRG"), a company which is an 8.2% owner (as of
December 31, 1998) of Rally's, executed a letter of intent whereby SBRG agreed
to acquire approximately $1.9 million of debt due to two members of the lender
group. The terms associated with the SBRG debt will be identical to terms that
other participants of the lender group have pursuant to the Restated Credit
Agreement. On March 24, 1999, SBRG and the other remaining members of the lender
group have also agreed to an extension of the maturity date to April 30, 2000.
As of December 28, 1998, Fidelity National Financial, Inc. owned 31.1% of the
outstanding common stock of SBRG (see Note 4).

NOTE 3: PROPERTY AND EQUIPMENT

Property and Equipment consists of the following:

DECEMBER 28, DECEMBER 29, USEFUL LIFE
1998 1997 IN YEARS
-------------- -------------- ------------
<S> <C> <C> <C>
Land and improvements ....................... $ 53,334 $ 55,583 0-15
Buildings ................................... 28,748 28,671 20-31.5
Equipment, furniture and fixtures ........... 45,048 45,141 5-10
--------- --------- --------
127,130 129,395
Less accumulated depreciation ............... (50,055) (42,234)
--------- ---------
77,075 87,161
--------- ---------
Properties held under capital lease ......... 1,464 787
Less accumulated amortization ............... (149) (59)
--------- ---------
1,315 728
--------- ---------
Net property and equipment .................. $ 78,390 $ 87,889
========= =========
</TABLE>

NOTE 4: LONG-TERM DEBT

Long-term debt consists of the following:

DECEMBER 28, DECEMBER 29,
1998 1997
-------------- -------------
<S> <C> <C>
Note payable under Restated Credit Agreement at 13%
interest due each 28 day period, originally maturing
July 31, 1999, subsequently extended to April 30, 2000
(see Note 2) ............................................... $17,432 $26,077
Notes payable due at various dates secured by building
and equipment with interest rates primarily ranging from
9.0% to 11.32%, payable monthly ............................ 1,214 4,530
Mortgages payable to FFCA Acquisition Corporation
secured by 24 Company owned restaurants, payable in
aggregate monthly installments of $93,213, including
interest at 9.5% ........................................... 10,000 --
Other, at interest rates ranging from 7.0% to 10.0% ......... 997 1,367
------- -------
Total long-term debt ........................................ 29,643 31,974
Less current installments ................................... 998 3,329
------- -------
Long-term debt, less current maturities ..................... $28,645 $28,645
======= =======
</TABLE>

44
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 4: LONG-TERM DEBT--(CONTINUED)

Aggregate maturities under the existing term of the long-term debt
agreements for each of the succeeding five years are as follows:

1999 ............... $ 998
2000 ............... 18,475
2001 ............... 321
2002 ............... 310
2003 ............... 340
Thereafter ......... 9,199
-------
$29,643
=======

On November 14, 1996, and prior to consummation of a formal debt
restructuring with an investor group led by an affiliate of Capital Management,
LLC (collectively, "DDJ") the debt under the Company's then outstanding loan
agreement and credit line was acquired from DDJ by a group of entities and
individuals, most of whom are engaged in the quick-service restaurant business.
This investor group (the "CKE Group") was led by CKE Restaurants, Inc. ("CKE"),
the parent of Carl Karcher Enterprises, Inc., Hardees Food Systems, Inc., Taco
Bueno Restaurants, Inc., and Summit Family Restaurants, Inc. Also participating
were most members of the DDJ Group, Fidelity National Financial, Inc,
("Fidelity") and KCC Delaware, a wholly-owned subsidiary of GIANT GROUP, LTD.
("GIANT"). CKE, GIANT and an affiliate of Fidelity (Santa Barbara Restaurant
Group, Inc.) are the largest stockholders of Rally's.

On November 22, 1996, the Company and the CKE Group executed an Amended and
Restated Credit Agreement (the "Restated Credit Agreement") thereby completing a
restructuring of the debt under the loan agreement and credit line. The Restated
Credit Agreement consolidated all of the debt under the loan agreement and the
credit line into a single obligation. At the time of the restructuring, the
outstanding principal balance under the loan agreement and credit line was $35.8
million. Pursuant to the terms of the Restated Credit Agreement, the term of the
debt was extended by one (1) year until July 31, 1999, and the interest rate on
the indebtedness was reduced to a fixed rate of 13%. In addition, all principal
payments were deferred until May 19, 1997, and the CKE Group agreed to eliminate
certain financial covenants, to relax others and to eliminate approximately $4.3
million in restructuring fees and charges. The Restated Credit Agreement also
provided that certain members of the CKE Group agreed to provide to the Company
a short term revolving line of credit of up to $2.5 million, also at a fixed
interest rate of 13% (the "Secondary Credit Line). In consideration for the
restructuring, the Restated Credit Agreement required the Company to issue to
the members of the CKE Group warrants to purchase an aggregate of 20 million
shares of the Company's common stock at an exercise price of $.75 per share,
which was the approximate market price of the common stock prior to the
announcement of the debt transfer. Since November 22, 1996, the Company has
reduced the principal balance under the Restated Credit Agreement by $18.4
million and has repaid the Secondary Credit Line in full. A portion of the funds
utilized to make these principal reduction payments were obtained by the Company
from the sale of certain closed restaurant sites to third parties. Additionally,
the Company utilized $10.5 million of the proceeds from the February 21, 1997,
private placement and $8.0 million of the proceeds of a $10.0 million mortgage
financing transaction completed on December 18, 1998 for these principal
reductions, both which are described later in this section. Pursuant to the
Restated Credit Agreement, the prepayments of principal made in 1996 and early
in 1997 relieved the Company of the requirement to make any of the regularly
scheduled principal payments under the Restated Credit Agreement which would
have otherwise become due in

45
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 4: LONG-TERM DEBT--(CONTINUED)

fiscal year 1998 through maturity. The Amended and Restated Credit Agreement
provides however, that 50% of any future asset sales must be utilized to prepay
principal. See Note 2: "Liquidity", for additional information occurring
subsequent to December 28, 1998 regarding the extension of the maturity date of
the Restated Credit Agreement.

On February 21, 1997, the Company completed a private placement (the
"Private Placement") of 8,981,453 shares of the Company's common stock, $.001
par value, and 87,719 shares of the Company's Series A preferred stock, $114 par
value (the "Preferred Stock"). CKE purchased 6,162,299 of the Company's common
stock and 61,623 of the Preferred Stock and other qualified investors, including
other members of the CKE Group of lenders under the Restated Credit Agreement
and Raymond James and Associates, Inc. also participated in the Private
Placement. The Company received approximately $19.5 million in net proceeds
after $500,000 of issuance costs from the Private Placement. The Company used $8
million of the Private Placement proceeds to reduce the principal balance due
under the Restated Credit Agreement; $2.5 million was utilized to repay the
Secondary Credit Line; $2.3 million was utilized to pay outstanding balances to
various key food and paper distributors; and the remaining amount was used
primarily to pay down outstanding balances due certain other vendors. Raymond
James and Associates, Inc. received 209,524 shares of the common stock for
services related to the Private Placement. Under the purchase price protection
provisions of these 209,524 shares, the Company paid Raymond James and
Associates, Inc. $170,000 and has accrued an additional $252,000 at December 28,
1998.

On August 6, 1997, the 87,719 shares of preferred stock issued in
connection with the Private Placement were converted into 8,771,900 shares of
the Company's common stock valued at $10 million. In accordance with the
agreement underlying the Private Placement, the Company also issued 610,524
shares of common stock as a dividend pursuant to the liquidation preference
provisions of the Private Placement Agreement, valued at $696,000 to the holders
of the preferred stock issued in the Private Placement. This dividend was
charged to additional paid-in capital due to the retained deficit position of
the Company.

At November 13, 1997 the effective date of the registration statements
filed on Forms S-4 the Company had outstanding promissory notes in the aggregate
principal amount of approximately $3.2 million, (the "Notes") payable to
Rall-Folks, Inc. ("Rall-Folks"), Restaurant Development Group, Inc. ("RDG") and
Nashville Twin Drive-Through Partners, L.P. ("N.T.D.T."). The Company agreed to
acquire the Notes issued to Rall-Folks and RDG in consideration of the issuance
of an aggregate of approximately 1.9 million shares of Common Stock and the Note
issued to NTDT in exchange for a convertible note in the same principal amount
and convertible into approximately 614,000 shares of Common Stock pursuant to
agreements entered into in 1995 and subsequently amended. All three of the
parties received varying degrees of protection on the purchase price of the
promissory notes. Accordingly, the actual number of shares to be issued was to
be determined by the market price of the Company's stock. Consummation of the
Rall-Folks, RDG, and NTDT purchases occurred on November 24, December 5, and
November 24, 1997, respectively.

46
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 4: LONG-TERM DEBT--(CONTINUED)

common stock and paid $86,000 in cash to Rall-Folks and paid $29,000 in cash in
full settlement of all remaining amounts owed in relation to debt principal,
accrued interest, and purchase price protection under the Notes.

On December 18, 1998, the Company completed a mortgage financing agreement
with FFCA Acquisition Corporation ("FFCA") whereby the Company received $10.0
million, which is collateralized by 24 restaurants. Of the net proceeds from
FFCA of approximately $9.6 million, the Company used $8.0 million to pay down
the Restated Credit Agreement, resulting in the expensing of an additional
$222,000 of deferred financing costs related to the Restated Credit Agreement.
Additionally, the Company utilized approximately $612,000 to retire other debts
associated with the collateral upon closing. This mortgage financing is payable
monthly at $93,000, including interest at 9.5% and has a term of 20 years.

The Company's Restated Credit Agreement with the CKE Group contains
restrictive covenants which include the consolidated EBITDA covenant as defined.
As of December 28, 1998, the Company was in violation of the consolidated EBITDA
covenant. The Company received a waiver for periods 11 through 13 of fiscal
1998, and for all periods remaining through the earlier of July 12, 1999 or the
effective date of the Merger with Rally's (See Note 13).

NOTE 5: INCOME TAXES

Income tax expense (benefit) from continuing operations in fiscal years
1998, 1997 and 1996 Amounted to $-0-, $-0- and $151,000, respectively.

Income tax expense (benefit) consists of:

CURRENT DEFERRED TOTAL
------------ ---------- ------
1998
Federal ......... $ -- $ -- $ --
State ........... -- -- --
-------- ------ ----
$ -- $ -- $ --
======== ====== ====
1997
Federal ......... $ -- $ -- $ --
State ........... -- -- --
-------- ------ ----
$ -- $ -- $ --
======== ====== ====
1996
Federal ......... $ (3,397) $3,397 $ --
State ........... 190 (39) 151
-------- ------ ----
$ (3,207) $3,358 $151
======== ====== ====

47
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 5: INCOME TAXES--(CONTINUED)

Actual income tax expense differs from the amount computed by applying the
U.S. Federal income tax rate of 35% to earnings before income taxes as follows
is:

FISCAL YEAR ENDED
-----------------------------------------------
DECEMBER 28, DECEMBER 28, DECEMBER 30,
1998 1997 1996
-------------- -------------- -------------
<S> <C> <C> <C>
"Expected" tax benefit ...................... $ (1,817) $ (4,265) $ (16,190)
State taxes, net of federal benefit ......... (210) (474) (1,802)
Change in valuation allowance for
deferred tax asset allocated to
income tax expense ......................... 2,010 4,624 18,125
Other, net .................................. 17 115 18
-------- -------- ---------
Actual tax expense .......................... $ -- $ -- $ 151
======== ======== =========
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities, are presented
below:

DECEMBER 28, DECEMBER 29,
1998 1997
-------------- -------------
<S> <C> <C>
Deferred tax assets:
Impairment of long-lived assets under SFAS 121 ............... $ 16,428 $ 15,885
Accrued expenses and provisions for restructuring
and restaurant relocations and abandoned sites,
principally due to deferral for income tax purpose ......... 7,761 8,121
Federal net operating losses and credits ...................... 22,798 19,583
State net operating losses and credits ........................ 3,400 3,032
Deferral of franchise income and costs associated with
franchise openings in progress ............................... 92 76
Other ......................................................... -- 680
--------- ---------
Total gross deferred tax assets ............................. 50,479 47,377
Valuation allowance ........................................... (32,375) (30,365)
--------- ---------
Deferred tax assets ......................................... $ 18,104 17,012
--------- ---------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation ................................ 17,935 16,899
Other ........................................................ 169 113
--------- ---------
Total gross deferred tax liabilities ......................... 18,104 17,012
Net deferred tax assets .................................... $ -- $ --
========= =========
</TABLE>

The net change in the valuation allowance in the years ended December 28,
1998 and December 29, 1997 was an increase of $2.0 million and $4.6 million,
respectively. The Company has provided the valuation allowance of $32.4 million
since management can not determine that it is more likely than not that the
deferred tax assets will be realized.

As of December 28, 1998 the Company had net operating loss carry forwards
for Federal income tax purposes of $61.6 million of which $54.4 million expires
in various amounts from 2010 to 2012 and $7.2 million expires in 2017. The
Company also has alternative minimum tax credit carry forwards of approximately
$1.3 million which are available to reduce future regular income taxes, if

48
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 5: INCOME TAXES--(CONTINUED)

any, over an indefinite period. The Targeted Jobs Tax credit carry forwards in
the amount of $446,000 expire in various amounts from 2006 to 2009.

Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended,
the utilization of the Company's net operating loss carryforwards to offset
future taxable income may be limited if the Company experiences a change in
ownership of more than 50 percentage points within a three year period. As of
December 28, 1998, the Company had not experienced an ownership change that
would subject its net operating loss carryforwards or tax credit carryforwards
to be limited in offsetting future taxable income and tax, respectively.
However, on January 29, 1999, the Company and Rally's announced the signing of a
definitive merger agreement pursuant to which Rally's will merge into Checkers
in an all stock transaction, "the Merger" (see Note 13). The Company believes
that the Merger would cause it to experience an ownership change. In the event
of the Merger, the Company would be significantly limited in utilizing its net
operating loss carryforwards and tax credit carryforwards arising before the
ownership change to offset future taxable income and tax, respectively. It is
anticipated that a significant amount of the Company's net operating loss
carryforwards and tax credit carryforwards could expire before becoming
available under Section 382.

NOTE 6: RELATED PARTIES

Effective November 10, 1997, Checkers and Rally's entered into an
employment agreement with James J. Gillespie, pursuant to which he is to serve
as Chief Executive Officer of both Checkers and Rally's. Mr. Gillespie is also
to serve as a director of Checkers and Rally's. The term of employment is for
two years, subject to automatic renewal by Checkers and Rally's for one-year
periods thereafter, at an annual base salary of $283,000. Mr. Gillespie is also
entitled to participate in the incentive bonus plans of Checkers and Rally's.
Upon execution of the employment agreement, Mr. Gillespie was granted an option
to purchase 300,000 shares of Rally's common stock, $.10 par value per share,
and received a signing bonus of $50,000. The options vest in three equal annual
installments commencing on November 10, 1998; provided that if the term of the
agreement is not extended to November 10, 2000, the option shall become fully
vested on November 10, 1999. Mr. Gillespie is entitled to choose to participate
in either Checkers or Rally's employee benefit plans and programs and is
entitled to reimbursement of his reasonable moving expenses and a relocation fee
of $5,000. The agreement may be terminated at any time for cause. If Mr.
Gillespie is terminated without cause, he will be entitled to receive his base
annual salary, and any earned unpaid bonus, through the unexpired term of the
agreement, payable in a lump sum or as directed by Mr. Gillespie. Mr. Gillespie
has agreed to keep confidential all non-public information about Checkers and
Rally's during the term of his employment and for a two-year period thereafter.
In addition, Mr. Gillespie has agreed that he will not, during his employment,
engage in any business, which is competitive with either Checkers or Rally's.
Checkers and Rally's will share the costs associated with his agreement,
pursuant to that certain Management Services Agreement dated November 30, 1997.

Effective November 30, 1997 the Company entered into a Management Services
Agreement with Rally's, whereby Checkers is providing accounting, technology,
and other functional and management services to predominantly all of the
operations of Rally's. The Management Services Agreement carries a term of seven
years, terminable upon the mutual consent of the parties. The Company will
receive fees from Rally's relative to the shared departmental costs times the
respective store ratio. Checkers increased its corporate and regional staff in
late 1997 and 1998 in order to meet the

49
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 6: RELATED PARTIES--(CONTINUED)

demands of the agreement, but management believes the income generated by this
agreement has enabled Checkers to attract the management staff with expertise
necessary to more successfully manage and operate both companies at
significantly reduced costs to both entities. During 1998 and 1997, the Company
charged Rally's $5.6 million and $95,000, respectively in accordance with the
Management Service Agreement. Overall, the Company believes many of the
fundamental steps have been taken to improve the Company's initiative toward
profitability, but there can be no assurance that it will be able to do so.
Management believes that cash flows generated from operations, and asset sales
should allow the Company to continue to meet its financial obligations and to
pay operating expenses. On January 29, 1999, Checkers and Rally's announced the
signing of a definitive merger agreement pursuant to which Rally's will merge
into Checkers in an all stock transaction (See Note 13).

During 1998 and in 1997, the Company incurred $87,000 and $539,000,
respectively, in legal fees from a law firm in which a current Director of the
Company is a partner.

Also during 1998, the Company purchased $226,000 of equipment from Hardees
Equipment Division, a wholly-owned subsidiary of CKE Restaurants, Inc.

In addition, during 1998, the Company entered into two capital lease
agreements with Granite, a wholly-owned subsidiary of Fidelity (See Note 11:a).

NOTE 7: ACQUISITIONS AND DISPOSITIONS

On July 1, 1996, the Company acquired certain general and limited
partnership interests in nine Checkers restaurants in the Chicago area, three
wholly-owned Checkers restaurants and other assets and liabilities as a result
of the bankruptcy of Chicago Double-Drive Thru, Inc. ("CDDT"). These assets were
received in lieu of past due royalties, notes receivable and accrued interest,
from CDDT which totaled, net of reserves, $3.3 million. Assets of $8.9 million
($7.0 million tangible and $1.9 million intangible) and liabilities of
approximately $3.0 million were consolidated into the balance sheet of the
Company as of the acquisition date. Long-term debt of $1.6 million was assumed
as a result of the acquisition of the assets of CDDT, including an obligation to
the Internal Revenue Service of $545,000 and an obligation to the State of
Illinois Department of Revenue of $155,000, each subject to interest at 9.125%
per year and notes payable of $922,000 to a bank and other parties with interest
at rates ranging from 8.11% to 10.139%. In addition non-interest bearing notes,
certain accounts payable and accrued liabilities totalling $1.4 million related
to this acquisition were assumed by the Company.

During 1997, the Company acquired the minority share of one joint-venture
restaurant, the operations and certain of the equipment including one MRP
associated with five operating franchise restaurants and one closed franchise
restaurant having an aggregate fair value of $1.4 million, for a total net cash
disbursement of $282,000. As a result of these acquisitions, the Company assumed
indebtedness of $898,000, including long-term debt and capital lease obligation
of $803,000 and other accruals of $95,000. As a result of these transactions,
minority interests of $372,000 were eliminated, receivables of $114,000 were
forgiven, property of $438,000 was distributed and goodwill of $831,000 was
recorded.

The operations of the 1996 and 1997 acquisitions are included in these
financial statements from the date of purchase. The impact of these acquisitions
on the consolidated results of operations for the period prior to acquisitions
is immaterial.

50
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 8: STOCK OPTION PLANS

In August 1991, the Company adopted the 1991 Stock Option Plan (the "1991
Stock Option Plan"), as amended for employees whereby incentive stock options,
nonqualified stock options, stock appreciation rights and restrictive shares can
be granted to eligible salaried individuals. The plan was amended on August 6,
1997 to increase the number of shares subject to the Plan from 3,500,000 to
5,000,000.

In 1994, the Company adopted a Stock Option Plan for Non-Employee
Directors, as amended (The "Directors Plan"). The Directors Plan was amended on
August 6, 1997 by the approval of the Company's stockholders to increase the
number of shares subject to the Directors Plan from 200,000 to 5,000,000 and
provides for the automatic grant to each non-employee director upon election to
the Board of Directors a non-qualified, ten-year option to acquire shares of the
Company's common stock, with the subsequent automatic grant on the first day of
each fiscal year thereafter during the time such person is serving as a
non-employee director of a non-qualified ten-year option to acquire additional
shares of common stock. One-fifth of the shares of common stock subject to each
initial option grant become exercisable on a cumulative basis on each of the
first five anniversaries of the grant of such option. One-third of the shares of
common stock subject to each subsequent option grant become exercisable on a
cumulative basis on each of the first three anniversaries of the date of the
grant of such option. Each Non-Employee Director serving on the Board as of July
26, 1994 received options to purchase 12,000 shares. Each new Non-Employee
Director elected or appointed subsequent to that date also received options to
purchase 12,000 shares. Each Non-Employee Director previously received
additional options to purchase 3,000 shares of Common Stock on the first day of
each fiscal year. On August 6, 1997 the Directors Plan was amended to provide:
(i) an increase in the option grant to new Non-Employee Directors to 100,000
shares, (ii) an increase in the annual options grant to 20,000 shares and (iii)
the grant of an option to purchase 300,000 shares to each Non-Employee Director
who was a Director both immediately prior to and following the effective date of
the amendment. Options granted to Non-Employee Directors on or after August 6,
1997 are exercisable immediately upon grant.

Pursuant to the Directors' Plan, the Company issued options to purchase
1,400,000 shares at an exercise price of $0.9375 to the existing Directors of
the Company on February 12, 1998 and issued options to purchase 100,000 shares
at an exercise price of $1.375 to a new Director on June 11, 1998. Additionally,
on April 27, 1998, pursuant to the 1991 Stock Option Plan, the Company issued
options to purchase 3,024,250 shares at an exercise price of $1.00 and issued
300,000 shares at an exercise price of $0.84375 on August 18, 1998.

Both the 1991 Stock Option Plan and the Directors Plan provide that the
shares granted come from the Company's authorized but unissued or reacquired
common stock. The exercise price of the options granted pursuant to these Plans
will not be less than 100 percent of the fair market value of the shares on the
date of grant. An option may vest and be exercisable immediately as of the date
of the grant and no option will be exercisable, and will expire, after ten years
from the date granted.

51
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 8: STOCK OPTION PLANS--(CONTINUED)

The following is a summary of stock option activity for the last three
years:

1998 1997 1996
-------------------------- ----------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------------- ---------- ------------ ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the beginning
of the year ............... 5,238,430 $ 1.86 3,344,230 $ 3.94 2,631,084 $ 4.75
Granted (exercise price
equals market) ............ 9,802,174 0.67 2,737,000 1.40 96,100 1.00
Granted (exercise price
exceeds market) ........... -- -- -- -- 953,056 1.54
Exercised .................. -- -- (125) 1.53 -- --
Forfeited .................. (6,978,416) 1.37 (842,675) 6.25 (336,010) 2.07
---------- --------- ---------
Outstanding at the end
of the year ............... 8,062,188 $ 0.80 5,238,430 $ 2.21 3,344,230 $ 3.94
========== ========= =========
Options Exercisable at
year end .................. 4,684,718 4,511,768 2,165,934
========== ========= =========
Weighted-average fair values
of options granted during
the year .................. $ 0.41 $ 0.78 $ 0.39
============ ========== ==========
</TABLE>

WEIGHTED-AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES 12/28/1998 LIFE (YRS.) PRICE AT 12/28/98 PRICE
- --------------------- ------------- ------------------ ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
$0.375 to $2.00 7,728,552 8.8 0.66 4,360,690 0.84
$2.01 to $3.00 163,790 1.4 2.62 161,382 2.62
$3.01 to $4.00 12,900 5.9 3.27 8,100 3.28
$4.01 to $5.00 -- -- -- -- --
$5.01 to $6.00 156,946 1.5 5.25 154,546 5.24
- --------------------- --------- --- ---- --------- ----
$0.375 to $20.00 8,062,188 8.5 0.80 4,684,718 1.05
===================== ========= === ==== ========= ====
</TABLE>

In February 1996, employees (excluding executive officers) who were granted
options in 1993 and 1994 with exercise prices in excess of $2.75 were offered
the opportunity to exchange for a new option grant for a lesser number of shares
at an exercise price of $1.95, which represented a 25% premium over the market
price of the Company's common stock on the date the plan was approved. Existing
options with an exercise price in excess of $11.49 could be cancelled in
exchange for new options on a three to one basis. The offer to employees expired
April 30, 1996 and, as a result of this offer, options for 49,028 shares were
forfeited in return for options for 15,877 shares at the $1.95 exercise price.
These changes are reflected in the tables above.

On December 15, 1998, the Company repriced options granted under the 1991
Stock Option Plan and options issued outside of a plan. The new option price is
$0.375, the closing market price at December 15, 1998. As a result of this
transaction, 3,727,924 options in the 1991 Stock Option Plan

52
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 8: STOCK OPTION PLANS--(CONTINUED)

and 1,250,000 issued outside of a plan were cancelled and reissued at the new
price. These changes are reflected in the table above.

The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost for the Company's stock option plan
for employees been determined based on the fair value at the grant date for
awards in fiscal 1998, 1997, and 1996 consistent with the provisions of SFAS No.
123, the Company's net earnings and earnings per share would have been reduced
to the pro forma amounts indicated below:

FISCAL YEAR END
--------------------------------------------------------------
DECEMBER 29, 1998 DECEMBER 29, 1997 DECEMBER 30, 1996
------------------- ------------------- ------------------
<S> <C> <C> <C>
As Reported ......... $ (5,344) $ (12,882) $ (46,409)
Pro Forma ........... $ (6,891) $ (14,896) $ (47,829)
As Reported ......... $ (0.07) $ (0.20) $ (0.90)
Pro Forma ........... $ (0.09) $ (0.23) $ (0.93)
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996, respectively: dividend yield
of zero percent for all years; expected volatility of 90, 60 and 64 percent,
risk-free interest rates of 5.5, 6.2 and 6.5 percent, and expected lives of 4.0,
5.1 and 3.5 years. The compensation cost disclosed above may not be
representative of the effects on reported income in future years, for example,
because options in many cases vest over several years and additional awards are
made each year.

NOTE 9: WARRANTS

As partial consideration for the transfer of the RDG promissory note of the
Company (the "Note") back to the Company in 1997, the Company issued a warrant
(the "Warrant") for the purchase of 120,000 shares of common stock. In
connection with the satisfaction of the Company's obligations to RDG with
respect to the sale of the Company's common stock issued to RDG, the Company
acquired the Warrant from RDG in August, 1998 for $2,600 and the Warrant was
cancelled.

Pursuant to a November 22, 1996 settlement the Company issued warrants for
the purchase of 5,100,000 shares of the Company's common stock. These warrants,
valued at $3.0 million, were issued in settlement of certain litigation, are
exercisable at $1.375 during the period beginning November 22, 2000 and ending
on December 22, 2000.

On November 22, 1996, the Company issued warrants to purchase 20 million
shares of common stock of the Company to the members of the new lender group
(See Note 4) at an exercise price of $0.75 per share which was the approximate
market price of the common stock prior to the announcement of the transfer of
the debt. These warrants were valued at $6.5 million, the value of the
concessions given as consideration for the warrants. The warrants are
exercisable at any time until November 22, 2002. Checkers is obligated to
register the common stock issuable under the warrants within six months and to
maintain such registration for the life of the warrants. The holders of the
warrants also have other registration rights relating to the common stock to be
issued under the warrants. The warrants contain customary anti-dilution
provisions.

53
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 10: ACCOUNTING CHARGES AND LOSS PROVISIONS

During 1998 the Company recorded accounting charges and loss provisions of
$3.0 million under SFAS 121, including impairment charges related to seven
stores ($1.8 million), the expenses necessary to adjust the net realizable value
of assets held for sale ($551,000), store closure expense ($645,000) which
primarily includes provisions for ongoing carrying costs of restaurants closed
in prior years that have not been disposed of and similar costs for two
restaurants closed in 1998.

During 1997, the Company recorded accounting charges and loss provisions
totalling $1.0 million, including impairment charges to write off goodwill
associated with one under-performing store ($565,000), to provide for additional
losses on assets to be disposed due to certain sublease properties being
converted to surplus ($312,000), and a provision to write down Champion
inventories to fair value ($150,000).

The Company recorded accounting charges and loss provisions totalling $14.7
million during the third quarter of 1996 and $9.2 million during the fourth
quarter of 1996. Third quarter 1996 provisions under SFAS 121 of $14.2 million
to close 27 restaurants and relocate 22 of them ($4.2 million), settle 16 leases
on real property underlying these stores ($1.2 million) and sell land underlying
the other 11 restaurants ($307,000), and impairment charges related to an
additional 28 under-performing restaurants ($8.5 million) were recorded. A
provision of $500,000 was also recorded for Champion's finished buildings
inventory as an adjustment to fair market value. Fourth quarter provisions under
SFAS 121 of $7.7 million including $1.4 million for additional losses on assets
to be disposed of, $5.9 million for impairment charges related to 9
under-performing restaurants received by the Company as a result of the CDDT
bankruptcy in July 1996 and $393,000 for other impairment charges were also
recorded. Additionally, in the fourth quarter of 1996, a provision of $351,000
was recorded for legal settlements, and a $1.1 million provision was recorded
for the disposal of the L.A. Mex product line.

54
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 10: ACCOUNTING CHARGES AND LOSS PROVISIONS--(CONTINUED)

A summary of the accounting charges and loss provisions for 1998, 1997 and
1996 is as follows:

SUPPLEMENTAL SCHEDULE OF
ACCOUNTING CHARGES AND LOSS PROVISIONS
-----------------------------------------------------------------------
BALANCE AT ADDITIONS
BEGINNING CHARGED TO CASH NON-CASH BALANCE AT
DESCRIPTION OF YEAR EXPENSE OUTLAYS DEDUCTIONS END OF YEAR
- ----------------------------------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Year ended December 28, 1998:
Impairment of long-lived
assets ....................... $ -- $ 1,757 $ -- $ (1,757) $ --
Losses on assets to be
disposed of .................. 2,740 1,196 (1,635) (236) 2,065
Other loss provisions ......... 1,290 -- (85) -- 1,205
------ ------- -------- --------- ------
$4,030 $ 2,953 $ (1,720) $ (1,993) $3,270
====== ======= ======== ========= ======
Year ended December 29, 1997:
Impairment of long-lived
assets ....................... $ -- $ 565 $ -- $ (565) $ --
Losses on assets to be
disposed of .................. 3,800 312 (1,695) 323 2,740
Other loss provisions ......... 2,357 150 (76) (1,141) 1,290
------ ------- -------- --------- ------
$6,157 $ 1,027 $ (1,771) $ (1,383) $4,030
====== ======= ======== ========= ======
Year ended December 30, 1996:
Impairment of long-lived
assets ....................... $ -- $14,782 $ -- $ (14,782) $ --
Losses on assets to be
disposed of .................. 2,124 7,131 (943) (4,512) 3,800
Other loss provisions ......... 1,004 1,992 -- (639) 2,357
------ ------- -------- --------- ------
$3,128 $23,905 $ (943) $ (19,933) $6,157
====== ======= ======== ========= ======
</TABLE>

NOTE 11: COMMITMENTS AND CONTINGENCIES

a) LEASE COMMITMENTS -- The Company leases restaurant properties and office
space under operating lease agreements. These operating leases generally have
five to ten-year terms with options to renew. Base rent expense on these
properties was approximately $7.9 million in 1998, $9.1 million in 1997, and
$8.0 million in 1996. On December 1, 1998, the Company entered into two lease
agreements, which have been recorded as obligations under capital lease, with
Granite Financial Inc., a wholly-owned subsidiary of Fidelity, whereby the
Company leased security equipment for its restaurants costing $659,000. The
first lease agreement is payable monthly at approximately $13,000 including
effective interest at 13.08%. The second lease is payable at approximately
$9,000, including effective interest at 10.90%. Both of these leases have terms
of

55
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 11: COMMITMENTS AND CONTINGENCIES--(CONTINUED)

three years. Additionally, the Company leases various restaurant facilities
which are recorded as capital leases with effective interest rates ranging from
11.3% to 15.8%.

Future minimum lease payments under capital leases and operating leases as
of December 28, 1998 are approximately as follows:

CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
- -------------------------------------------------------- --------- ----------
1999 ................................................ $ 544 $ 8,412
2000 ................................................ 564 8,549
2001 ................................................ 471 8,204
2002 ................................................ 110 7,045
2003 ................................................ 35 6,005
Thereafter .......................................... -- 42,936
------ -------
Total minimum lease commitments ..................... $1,724 $81,151
Less amounts representing interest, rates ranging
from 10.9% to 15.8% ................................ (332)
------
Present value of minimum lease payments ............. 1,392
Current portion of capital lease obligations ........ (383)
------
Long-term obligations under capital lease ........... $1,009
======

b) SELF INSURANCE -- The Company is self-insured for most workers'
compensation, general liability and automotive liability losses subject to per
occurrence and aggregate annual liability limitations. The Company is also
self-insured for health care claims for eligible participating employees subject
to certain deductibles and limitations. The Company determines its liability for
claims incurred but not reported on an actuarial basis.

c) LITIGATION -- Except as described below, the Company is not a party to
any material litigation and is not aware of any threatened material litigation:

56
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 11: COMMITMENTS AND CONTINGENCIES--(CONTINUED)

the Plaintiffs' claim of intentional infliction of emotional distress, with
prejudice, but granted the Plaintiffs leave to file an amended pleading with
respect to the remaining claims set forth in their Amended Complaint. A third
Amended Complaint has been filed and an Answer, Affirmative Defenses, and a
Counterclaim to recover unpaid royalties and advertising fund contributions has
been filed by the Company. In response to the Court's dismissal of certain
claims in the Power Burgers Litigation, on May 21, 1997, a companion action was
filed in the Circuit Court of the Sixth Judicial Circuit in and for Pinellas
County, Florida, Civil Division, entitled GAIL P. GREENFELDER, POWERS BURGERS
OF AVON PARK, INC., AND POWER BURGERS OF SEBRING, INC. V. JAMES F. WHITE, JR.,
CHECKERS DRIVE-IN RESTAURANTS, INC., HERBERT G. BROWN, JAMES E. MATTEI, JARED
D. BROWN, ROBERT G. BROWN AND GEORGE W. COOK, Case No. 97-3565-CI, asserting,
in relevant part, the same causes of action as asserted in the Power Burgers
Litigation. An Answer, Affirmative Defenses, and a Counterclaim to recover
unpaid royalties and advertising fund contributions have been filed by the
Company. On February 4, 1998, the Company terminated Power Burgers, Inc.'s,
Power Burgers of Avon Park, Inc.'s and Power Burgers of Sebring, Inc.'s
franchise agreements and thereafter filed two Complaints in the United States
District Court for the Middle District of Florida, Tampa Division, styled
CHECKERS DRIVE-IN RESTAURANTS, INC. V. POWER BURGERS OF AVON PARK, INC., Case
No. 98-409-CIV-T-17A and CHECKERS DRIVE-IN RESTAURANTS, INC. V. POWERS BURGERS,
INC. Case No. 98-410-CIV-T-26E. The Complaint seeks, inter alia, a temporary
and permanent injunction enjoining Power Burgers, Inc. and Power Burgers of
Avon Park, Inc.'s continued use of Checkers' Marks and trade dress. A Motion to
Stay the foregoing actions pending a resolution of the lawsuits pending in the
Sixth Judicial Circuit in and for Pinellas County, Florida described above has
been granted by the United States District Court. The Company denies all
wrongdoing and intends to continue to defend the lawsuits vigorously. No
estimate of any possible loss or range of loss resulting from the lawsuit can
be made at this time.

CHECKERS DRIVE-IN RESTAURANTS, INC. V. TAMPA CHECKMATE FOOD SERVICES,
INC., ET AL. On August 10, 1995, a state court Counterclaim and Third Party
Complaint was filed in the Circuit Court of the Thirteenth Judicial Circuit in
and for Hillsborough County, Florida, Civil Division, entitled TAMPA CHECKMATE
FOOD SERVICES, INC., CHECKMATE FOOD SERVICES, INC. AND ROBERT H. GAGNE V.
CHECKERS DRIVE-IN RESTAURANTS, INC., HERBERT G. BROWN, JAMES E. MATTEI, JAMES
F. WHITE, JR., JARED D. BROWN, ROBERT G. BROWN AND GEORGE W. COOK, Case No.
95-3869. In the original action filed by the Company in July 1995, against Mr.
Gagne and Tampa Checkmate Food Services, Inc., (hereinafter "Tampa Checkmate")
a company controlled by Mr. Gagne, the Company is seeking to collect on a
promissory note and foreclose on a mortgage securing the promissory note issued
by Tampa Checkmate and Mr. Gagne, and obtain declaratory relief regarding the
rights of the respective parties under Tampa Checkmate's franchise agreement
with the Company. The Counterclaim and Third Party Complaint allege, generally,
that Mr. Gagne, Tampa Checkmate and Checkmate Food Services, Inc. (hereinafter
"Checkmate") were induced into entering into various franchise agreements with,
and personal guarantees to, the Company based upon misrepresentations by the
Company. The Counterclaim and Third Party Complaint seek damages in the amount
of $3,000,000 or the return of all monies invested by Checkmate, Tampa
Checkmate and Mr. Gagne in Checkers' franchises, punitive damages, attorneys'
fees and such other relief as the court may deem appropriate. The Counterclaim
was dismissed by the court on January 26, 1996, with the right to amend. On
February 12, 1996, the Counterclaimants filed an Amended Counterclaim alleging
violations of Florida's Franchise Act, Florida's Deceptive and Unfair Trade
Practices Act, and breaches of implied duties of "good faith and fair dealings"
in connection with a settlement agreement and franchise agreement between
various of the parties. The Amended Counterclaim seeks a judgment for damages
in an unspecified amount, punitive damages, attorneys' fees and such other
relief as the court may deem

57
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 11: COMMITMENTS AND CONTINGENCIES--(CONTINUED)

appropriate. The Company filed an Answer to the Amended Counterclaim, but on
October 21, 1998, the court dismissed the Amended Counterclaim based on
Counterclaimants failure to comply with certain Court rules relating to the
prosecution of the claims. The Court's dismissal is the subject of a pending
Motion for Reconsideration. On or about July 15, 1997, Tampa Checkmate filed a
Chapter 11 petition in the United States Bankruptcy Court for the Middle
District of Florida, Tampa Division entitled IN RE: TAMPA CHECKMATE FOOD
SERVICES, INC., and numbered as 97-11616-8G-1 on the docket of said Court. On
July 25, 1997, Checkers filed an Adversary Complaint in the Tampa Checkmate
bankruptcy proceedings entitled CHECKERS DRIVE-IN RESTAURANTS, INC. V. TAMPA
CHECKMATE FOOD SERVICES, INC. and numbered as Case No. 97-738. Following a
hearing on Checkers' motion for Preliminary Injunction on July 22, 1998, the
Court entered an order enjoining Tampa Checkmate's continued use of Checkers'
Marks and trade dress notwithstanding the termination of its Franchise Agreement
on April 8, 1997. On December 15, 1998, the court granted the Company's Motion
to Convert Tampa Checkmate's bankruptcy proceedings from a Chapter 11 proceeding
to a Chapter 7 liquidation. Additionally, on February 1, 1999, the bankruptcy
Court granted the Company's Motion to Lift the Automatic Stay imposed by 11
U.S.C Section 362 to allow the Company to proceed with the disposition of the
property which is the subject of its mortgage. The adversary Complaint and
Counterclaim in the bankruptcy proceedings remain pending. The Company denies
all wrongdoing and intends to continue to defend the lawsuit vigorously. No
estimate of possible loss or range of loss resulting from the lawsuit can be
made at this time.

TEX-CHEX. INC. ET AL V. CHECKERS DRIVE-IN RESTAURANTS, INC. ET. AL. On
February 4, 1997, a Petition was filed against the Company and two former
officers and directors of the Company in the District Court of Travis County,
Texas 98th Judicial District, ENTITLED TEX-CHEX, INC., BRIAN MOONEY, AND SILVIO
PICCINI V. CHECKERS DRIVE-IN RESTAURANTS, INC., JAMES MATTEI, AND HERBERT G.
BROWN and numbered as Case No. 97-01335 on the docket of said court. The
original Petition generally alleged that Tex-Chex, Inc. and the individual
Plaintiffs were induced into entering into two franchise agreements and related
personal guarantees with the Company based on fraudulent misrepresentations and
omissions made by the Company. On October 2, 1998, the Plaintiffs filed an
Amended Petition realleging the fraudulent misrepresentations and omission
claims set forth in the original Petition and asserting additional causes of
action for violation of Texas' Deceptive Trade Practices Act and violation of
Texas' Business Opportunity Act. The Company denies all wrongdoing and intends
to defend the causes of action asserted in the amended Petition against the
Company and the individual defendants vigorously. The matter is in the pre-trial
stages and no estimate of any possible loss or range of loss resulting from the
lawsuit can be made at this time.

58
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 11: COMMITMENTS AND CONTINGENCIES--(CONTINUED)

Florida's Deceptive Trade Practices Act, violation of Florida's Franchise Act,
violation of Mississippi's Franchise Act, fraudulent concealment, fraudulent
inducement, negligent misrepresentation and rescission. The Company has filed a
motion to dismiss seven of the nine causes of action set forth in the
Counterclaim which remain pending. The Company denies all wrongdoing and intends
to defend the causes of action asserted in the Counterclaim against the Company
and Mr. Brown vigorously. The matter is in the pre-trial stages and no estimate
of any possible loss or range of loss resulting from the lawsuit can be made at
this time.

FIRST ALBANY CORP., AS CUSTODIAN FOR THE BENEFIT OF NATHAN SUCKMAN V.
CHECKERS DRIVE-IN RESTAURANTS, INC. ET AL. Case No. 16667. This putative class
action was filed on September 29, 1998, in the Delaware Chancery Court in and
for New Castle County, Delaware by First Albany Corp., as custodian for the
benefit of Nathan Suckman, an alleged stockholder of 500 shares of the
Company's common stock. The complaint names the Company and certain of its
current and former officers and directors as defendants including William P.
Foley, II, James J. Gillespie, Harvey Fattig, Joseph N. Stein, Richard A.
Peabody, James T. Holder, Terry N. Christensen, Frederick E. Fisher, Clarence
V. McKee, Burt Sugarman, C. Thomas Thompson and Peter C. O'Hara. The Complaint
also names Rally's Hamburgers, Inc. ("Rally's") and GIANT GROUP, LTD. ("GIANT")
as defendants. The complaint arises out of the proposed merger announced on
September 28, 1998 between the Company, Rally's and GIANT (the "Proposed
Merger") and alleges generally, that certain of the defendants engaged in an
unlawful scheme and plan to permit Rally's to acquire the public shares of the
Company's stock in a "going-private" transaction for grossly inadequate
consideration and in breach of the defendants' fiduciary duties. The plaintiff
allegedly initiated the Complaint on behalf of all stockholders of the Company
as of September 28, 1998, and seeks INTER ALIA, certain declaratory and
injunctive relief against the consummation of the Proposed merger, or in the
event the Proposed Merger is consummated, recision of the Proposed Merger and
costs and disbursements incurred in connection with bringing the action,
including attorney's fees, and such other relief as the Court may deem just and
proper. In view of a decision by the Company, GIANT and Rally's not to
implement the transaction that had been announced on September 28, 1998,
plaintiffs have agreed to provide the Company and all other defendants with an
open extension of time to respond to the compliant. Plaintiffs have indicated
that they will likely file an amended complaint in the event of the
consummation of a merger between the Company and Rally's. The Company denies
all wrongdoing and intends to defend the lawsuit vigorously. No estimate of
possible loss or range of loss resulting from the lawsuit can be made at this
time.

59
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 11: COMMITMENTS AND CONTINGENCIES--(CONTINUED)

stockholders of the Company as of September 28, 1998, and seeks INTER ALIA,
certain declaratory and injunctive relief against the consummation of the
Proposed merger, or in the event the Proposed Merger is consummated, recision of
the Proposed Merger and costs and disbursements incurred in connection with
bringing the action, including attorneys' fees, and such other relief as the
Court may deem just and proper. For the reasons stated above in the description
of the FIRST ALBANY action, plaintiffs have agreed to provide the Company and
all other defendants with an open extension of time to respond to the complaint.
Plaintiffs have indicated that they will likely file an amended complaint in the
event of the consummation of a merger between the Company and Rally's. The
Company denies all wrongdoing and intends to defend the lawsuit vigorously. No
estimate of possible loss or range of loss resulting from the lawsuit can be
made at this time.

The Company is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.

d) PURCHASE COMMITMENTS -- The Checkers Drive-In Restaurant chain, which
includes both the Company and franchisee-owned stores together, has purchase
agreements with various suppliers extending beyond one year. Subject to the
suppliers' quality and performance, the purchases covered by these agreements
aggregate approximately $66.9 million in 1999 and a total of $83.3 million for
the years 2000 through 2004.

60
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 12: QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table represents selected quarterly financial data for the
periods indicated (in 000's, except per share data):

FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
1998
Net revenues ............................... $ 37,003 $ 34,826 $ 32,585 $ 41,294
Impairment of long-lived assets ............ -- -- -- 1,757
Losses on assets to be disposed of ......... 63 63 251 819
Income (loss) from operations .............. 1,624 1,064 (246) (2,124)
Net income (loss) .......................... 394 (207) (1,469) (4,062)
Net income (loss) per common share
(basic and diluted) ....................... $ 0.01 $ -- $ (0.02) $ (0.07)

1997
Net revenues ............................... $ 34,157 $ 33,713 $ 32,733 $ 43,290
Impairment of long-lived assets ............ -- -- -- 565
Losses on assets to be disposed of ......... -- -- -- 312
Loss provisions ............................ -- -- -- 150
(Loss) income from operations .............. (1,818) 102 (304) (1,958)
Net loss ................................... (5,181) (1,469) (1,738) (3,798)
Preferred dividends ........................ -- -- 696 --
Net loss to common shareholders ............ (5,181) (1,469) (2,434) (3,798)
Net loss per common share
(basic and diluted) ....................... $ (0.09) $ (0.02) $ (0.04) $ (0.05)
</TABLE>

NOTE 13: SUBSEQUENT EVENTS

On January 29, 1999, Checkers and Rally's announced the signing of a
definitive merger agreement pursuant to which Rally's will merge into Checkers
in an all stock transaction. The merger agreement provides that each outstanding
share of the Rally's stock will be exchanged for 1.99 shares of Checkers stock.
The approximate 19.1 million shares of Checkers common stock which the Rally's
owns will be retired as a result of the Merger. Checkers and Rally's have each
received investment bankers' opinions as to the fairness of the exchange rate
used in the Merger. The Merger transaction is subject to certain approvals,
including but not limited to approval by the shareholders of Checkers and
Rally's and potentially the holders of Rally's Senior Notes and is expected to
close in the second quarter of fiscal year 1999.

At December 28, 1998, Rally's owned 19,130,930 shares (26.06 percent) of
the outstanding common stock of Checkers and public shareholders owned the
remaining 54,277,177 shares of Checkers common stock. Checkers will issue
58,377,134 shares of its common stock to Rally's shareholders in exchange for
all the outstanding common stock of Rally's (29,335,243 outstanding shares) at a
1 to 1.99 exchange ratio. After the transaction, Rally's shareholders will own
58,377,134 shares (51.8 percent of the outstanding common stock of the new
Checkers) and the remaining 54,277,117 shares (48.2 percent of Checker common
stock) will then be held by then current shareholders of Checkers. Immediately
following the Merger and the one-for-twelve reverse split, there will be
approximately 9,387,859 common shares outstanding. In addition, each of Rally's
outstanding stock options (5.6 million as of December 28, 1998) will be
exchanged for options at the exchange rate of 1 to 1.99 of Checkers.

61
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 13: SUBSEQUENT EVENTS--(CONTINUED)

The business combination under the Merger will be accounted for under the
purchase method. The Merger transaction will be accounted for as a reverse
acquisition as the stockholders of Rally's will receive the larger portion
(51.8%) of the voting interests in the combined enterprise. For purposes of
computing the resulting voting interests, exercisable options and warrants with
exercise prices that exceed the market value of the common stock of the
respective company have been excluded. Accordingly, Rally's is considered the
acquirer for accounting purposes and therefore, Checkers' assets and liabilities
will be recorded based upon their fair market value (See Note 14 for unaudited
proforma information).

See Note 2: "Liquidity", for additional information on events occurring
subsequent to December 28, 1998.

NOTE 14: PRO FORMA INFORMATION (UNAUDITED)

The following unaudited pro forma condensed consolidated financial data
sets forth certain pro forma financial information giving effect to the Merger.
The pro forma financial information is based on, and should be read in
conjunction with the historical consolidated financial statements of each of the
companies and the notes related thereto.

62
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 14: PRO FORMA INFORMATION (UNAUDITED)--(CONTINUED)

The pro forma condensed consolidating balance sheet gives effect to the
issuance of 58,377,134 shares of the Checkers common stock in exchange for
29,335,243 shares of Rally's common stock, based upon the per share price of the
Checkers common shares at $0.531 and a one-for-twelve reverse split, assuming
the Merger had occurred December 28, 1998:

CHECKERS RALLY'S
DECEMBER 28, DECEMBER 28, PRO FORMA
1998 1998 ADJUSTMENTS MERGED
-------------- ------------------ ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>

ASSETS:
Current assets ................................ $ 12,298 $ 11,736 $ -- $ 24,034
Property and equipment, net ................... 78,390 61,914 140,304
Investment in affiliate, including net
goodwill of $11,861, net of
accumulated amortization ..................... -- 23,001 A) (23,001) --
Intangibles, net of accumulated
amortization ................................. 10,123 23,880 G) 18,714 52,717
Other assets, net of accumulated
amortization ................................. 1,288 2,775 -- 4,063
--------- ------------- --------- ---------
$ 102,099 $123,306 $ (4,287) $ 221,118
========= ============= ========= =========
LIABILITIES:
Current liabilities ........................... 18,608 15,865 1,500 35,973
Senior notes, net of discount, less
current maturities ........................... -- 55,768 -- 55,768
Long-term debt and capital lease
obligations, less current maturities ......... 29,654 13,049 -- 42,703
Minority interests in joint ventures .......... 802 -- -- 802
Other long-term liabilities ................... 8,427 4,105 -- 12,532
--------- ------------- --------- ---------
Total liabilities ............................ 57,491 88,787 1,500 147,778
STOCKHOLDERS' EQUITY:
Preferred stock ............................... -- -- -- --
Common stock .................................. 73 2,961 C) (3,025) 9
Additional paid-in capital .................... 121,579 97,346 D) (81,914) 137,011
Retained deficit .............................. (76,644) (63,680)E) 76,644 (63,680)
--------- ------------- --------- --------
45,008 36,627 (8,295) 73,340
Less treasury stock, at cost .................. (400) (2,108)F) 2,508 --
--------- ------------- --------- --------
Net stockholders'equity ...................... 44,608 34,519 (5,787) 73,340
--------- ------------- --------- --------
$ 102,099 $123,306 $ (4,287) $ 221,118
========= ============= ========= =========
</TABLE>

- ----------------
A) Pro forma adjustment to record the elimination of Rally's original investment
of $11,140 in Checkers common stock, and the reclassification to intangibles of
$11,861 of goodwill associated with Rally's investment in Checkers.

63
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 14: PRO FORMA INFORMATION (UNAUDITED)--(CONTINUED)

B) Pro forma adjustment to accrue estimated transaction costs related to the
Merger.

C) Pro forma adjustment to record the issuance of 58,377 shares of Checkers
common stock in exchange for Rally's outstanding shares, $58; to eliminate
the previous common stock account of Rally's, ($2,961); to eliminate the par
value associated with Rally's investment in Checkers common stock, ($19) and
to effect a one-for-twelve reverse split, ($103).

D) Pro forma adjustments, in accordance with reverse acquisition accounting, to
record the fair value of the outstanding 54,277 shares of common stock of
Checkers valued at $0.531 per share, $28,767 which is net of related par
value, eliminate the previous treasury stock of Rally's, ($2,108); eliminate
the previous additional paid-in capital account of Checkers, ($121,579); to
reduce additional paid in capital for the par value of the 58,377 shares
issued to Rally's shareholders, ($58); to eliminate the previous common stock
account of Rally's, $2,961; to attribute a $10,000 estimated fair value to
the outstanding Checkers stock options and warrants, and effect a
one-for-twelve reverse split, $103.

E) Pro forma adjustments to record the elimination of the retained deficit
account of Checkers.

F) Pro forma adjustment to eliminate the previous treasury stock of Checkers,
$400; as well as the treasury stock of Rally's, $2,108 which is cancelled as
a result of the Merger.

G) Pro forma adjustment to record goodwill of $6,853 associated with the Merger
and the reclassification of $11,861 of goodwill associated with Rally's
original investment in Checkers (see A).

NOTES: The final adjustments to value the outstanding Checkers options and
warrants as well as final adjustments to the fair value of assets and
liabilities as a result of the Merger will not be known until the merger
is formally completed.

64
<PAGE>

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 14: PRO FORMA INFORMATION (UNAUDITED)--(CONTINUED)

The following unaudited pro forma condensed consolidating statement of
operations sets forth certain pro forma financial information giving effect to
the Merger, assuming the Merger had occurred December 29, 1997:

CHECKERS RALLY'S
FISCAL YEAR FISCAL YEAR
ENDED ENDED PRO FORMA
DECEMBER 28, 1998 DECEMBER 28, 1998 ADJUSTMENTS MERGED
------------------- ------------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
TOTAL REVENUES ......................... $145,708 $144,952 $ 290,660
-------- -------- ---------
COSTS AND EXPENSES:
Restaurant operating costs ............. 119,416 113,782 233,198
Advertising expense .................... 6,921 9,853 16,774
Other expenses ......................... 516 647 1,163
Other depreciation and amortization..... 2,275 2,503 H) 842 5,620
General and administrative
expense ............................... 13,309 13,404 I) (380) 26,333
SFAS 121 provisions .................... 2,953 3,362 -- 6,315
-------- -------- ---- ---------
Total cost and expenses .............. 145,390 143,551 462 289,403
-------- -------- ---- ---------
Operating income (loss) .............. 318 1,401 (462) 1,257
-------- -------- ---- ---------
Other income (expense):
Interest expense ..................... (6,007) (7,145) (13,152)
Loss (income) net of
amortization on investment in
affiliate .......................... -- (2,019) J) 2,019 --
Interest income ...................... 272 480 -- 752
-------- ------- ----- ---------
Loss before minority interest and
income tax expense (benefit) .......... (5,417) (7,283) 1,557 (11,143)
Minority interests in operations of
joint ventures ........................ (73) -- -- (73)
-------- ------- ----- ---------
Loss before income tax
expense (benefit) ..................... (5,344) (7,283) 1,557 (11,070)
Income tax expense (benefit) ........... -- 252 -- 252
-------- ------- ----- ---------
Net (loss) earnings .................... (5,344) (7,535) 1,557 (11,322)
======== ======= ===== =========
Comprehensive (loss) earnings .......... $ (5,344) $(7,535) $1,557 $ (11,322)
======== ======= ===== =========
Net loss per common share (basic
and diluted) .......................... $ (0.07) $ (0.28) $ (1.21)
======== ======= =========
Weighted average number
of common shares (basic
and diluted) .......................... 73,388 27,170 K) 9,388
======== ======= =========
</TABLE>

- ----------------
H) Pro forma adjustment to increase the amortization of goodwill associated with
the Merger.

I) Pro forma adjustment to eliminate excess public company expenses
recorded on Rally's.

J) Pro forma adjustment to eliminate loss from Rally's equity investment in
Checkers.

K) The merged weighted average number of common shares outstanding consists of
112,654 shares immediately following the Merger, effected for the
one-for-twelve reverse split.

65
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

DISCLOSURE

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the names and ages of the Directors and executive
officers of Checkers Drive-In Restaurants, Inc. (the "Company") and the
positions they hold. Executive officers serve at the pleasure of the Board of
Directors.

NAME AGE POSITION
- ---------------------- ----- -----------------------------------------------------------------
<S> <C> <C>
William P. Foley, II 54 Chairman of the Board of Directors (term expiring in 1999);
Nominee for Director with term expiring in 2002
James J. Gillespie 48 President, Chief Executive Officer and Director (term expiring
in 2001)
Harvey Fattig 58 Executive Vice President and Chief Operating Officer
Joseph N. Stein (1) 38 Executive Vice President and Chief Administrative Officer
Richard A. Peabody 38 Senior Vice President and Chief Financial Officer
James T. Holder 40 Senior Vice President, General Counsel and Secretary
Terry N. Christensen 58 Director (term expiring in 2001);
Clarence V. McKee 56 Director (term expiring in 1999); Nominee for Director with term
expiring in 2002
Peter C. O'Hara 43 Director (term expiring in 2001)
Burt Sugarman 60 Director (term expiring in 2000)
C.Thomas Thompson 49 Director (term expiring in 1999); Nominee for Director with term
expiring in 2002
</TABLE>
- ----------------
(1) Mr. Stein resigned as an officer of Checkers and Rally's effective April 8,
1999.

William P. Foley, II has served as a director of Checkers since November
1996 and as Chairman of the Board since June 1997. Mr. Foley has been the
Chairman of the Board of Santa Barbara Restaurant Group, Inc. since July 1997.
He has been the Chairman of the Board and Chief Executive Officer of Fidelity
National Financial, Inc., which through its subsidiaries is a title insurance
underwriting company ("Fidelity"), since its formation in 1984. Mr. Foley was
also President of Fidelity from 1984 until December 31, 1994. He has been
Chairman of the Board and Chief Executive Officer of Fidelity National Title
Insurance Company since April 1981. Mr. Foley is also currently serving as
Chairman of the Board of Directors and Chief Executive Officer of CKE
Restaurants, Inc., owner, operator and franchisor of quick-service restaurants,
primarily under the Carl's Jr. and Hardee's brand names, and as Chairman of the
Board of Rally's and is a director of Micro General Corporation, Miravant
Medical Technologies and Fresh Foods, Inc.

James J. Gillespie has served as Chief Executive Officer of Checkers, and
as President and Chief Executive Officer of Rally's, since November 1997 and as
a director of Checkers and Rally's

66
<PAGE>

since December 1997. Mr. Gillespie has served as President of Checkers since
February 1998. He served as President of the Applebee's Division of Apple South,
Inc., franchisee of 254 Applebee restaurants from January to October 1997. Prior
thereto, Mr. Gillespie served since 1976 in various capacities with Long John
Silver's, Inc., operator and franchisor of Long John Silver's restaurants,
including as Senior Vice President-Franchise Operations and, prior to that
position, as Divisional Vice President, Southwest Division. Checkers and Rally's
share the costs related to the employment of Mr. Gillespie and other shared
executive officers. See "-- Executive Compensation" and "Compensation Committee
Interlocks and Insider Participation".

Harvey Fattig has served as Chief Operating Officer of Checkers and
Rally's since March 1998. Mr. Fattig served as Regional Vice President of Long
John Silver's, Inc. from March 1990 through February 1998.

Joseph N. Stein served as Executive Vice President and Chief Administrative
Officer of Checkers from January 1997 to April 1999 and as Executive Vice
President and Chief Financial Officer of Rally's from December 1997 to April
1999. He served as Chief Financial Officer of Checkers from January 1997 to
January 1998. From May 1995 through December 1996, Mr. Stein was Senior Vice
President and Chief Financial Officer for Carl Karcher Enterprises, Inc. For
more than five years prior to his employment with Carl Karcher Enterprises,
Inc., Mr. Stein was Senior Vice President, Director, National Agency Operation
at Fidelity National Title Company.

Richard A. Peabody has served as Vice President and Chief Financial Officer
of Checkers since January 1998 and was appointed Senior Vice President and Chief
Financial Officer of Checkers and Rally's on April 8, 1999. From December 1996
to December 1997, Mr. Peabody was Chief Administrative Officer of Taco Bueno
Restaurants, Inc., a subsidiary of CKE. For more than five years prior to his
employment with Taco Bueno Restaurants, Inc., Mr. Peabody was Division
Controller at Black-eyed Pea Management Corp.

James T. Holder has served as a Senior Vice President and General Counsel
of Checkers since January 1997 and as Senior Vice President, General Counsel and
Secretary of Rally's since December 1997. He served as Chief Financial Officer
of Checkers from May to December 1996 and has served as Secretary of Checkers
since October 1995. Mr. Holder served as Vice President and General Counsel of
Checkers from September 1995 to June 1996, as senior legal counsel for Checkers
from December 1994 through April 1995 and corporate counsel from November 1993
through November 1994. Mr. Holder was engaged in the private practice of law
from January 1991 to November 1993, in Tampa, Florida.

Terry N. Christensen has served as a director of Checkers since November
1996. Mr. Christensen has been a partner in the law firm of Christensen, Miller,
Fink, Jacobs, Glaser, Weil & Shapiro, LLP since May 1988. Mr. Christensen is a
director of GIANT GROUP, LTD., Rally's and MGM Grand, Inc. Christensen, Miller,
Fink, Jacobs, Glaser, Weil & Shapiro, LLP has performed legal services for
Checkers and Rally's during 1998 and will perform legal services for Checkers in
1999. Such services have related to litigation, compliance with securities laws
and other business matters.

Clarence V. McKee has served as a director of Checkers since June 1996. Mr.
McKee has been the President and Chief Executive Officer of McKee
Communications, Inc., a Tampa, Florida based company engaged in the acquisition
and management of communications companies, since October 1992. From 1987 to
October 1992, Mr. McKee was the co-owner, Chairman and Chief Executive Officer
of WTVT-Inc., the licensee of television channel 13 in Tampa, Florida. Mr. McKee
is a member of the boards of directors of the Florida Progress Corporation and
its subsidiary, Florida Power Corporation. He is a former chairman of the
Florida Association of Broadcasters.

Burt Sugarman has served as a director of Checkers since June 1997. Mr.
Sugarman has been the Chairman of the Board, President and Chief Executive
Officer of GIANT for more than the past five years and served as the Chief
Executive Officer of Rally's from 1990 and as the Chairman of the

67
<PAGE>

Board of Directors of Rally's from 1991, resigning from these offices in
February 1994. Mr. Sugarman resumed the position of Chairman of the Board of
Directors of Rally's in November 1994 and resigned such office in October 1997.
Mr. Sugarman is a Director of GIANT, Rally's, and Santa Barbara Restaurant
Group, Inc.

C. Thomas Thompson has served as a director of Checkers since November 1996
and as Vice Chairman of the Board of Directors since December 1996. He also
served as Chief Executive Officer of Checkers from December 1996 to November
1997. Mr. Thompson has been President and Chief Operating Officer of Carl
Karcher Enterprises, Inc., a wholly owned subsidiary of CKE, since October 1994
and as President of CKE since December 1984. Since 1984, Mr. Thompson has been a
partner in a partnership which owns and operates 15 restaurants under the Carl's
Jr. franchise system. Mr. Thompson is a director of Santa Barbara Restaurant
Group and Rally's.

Peter C. O'Hara has served as a director of Checkers since June 1998. He
has served as president of Capital Management of L. I., N.Y., Inc., a Checkers
franchise area developer for Long Island, New York, since March 1994. Prior
thereto, from June 1990 to April 1994, Mr. O'Hara served as Chief Operating
Officer and a director of Pudgie's Famous Chicken, Ltd., owner, operator and
franchisor, primarily in New York state, of quick service restaurants featuring
skinless fried chicken.

No family relationships exist between any of the directors of Checkers, the
persons who are currently Rally's directors but not Checkers directors and the
executive officers of Checkers. There are no arrangements or understandings
between any director and any other person concerning service or nomination as a
director.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Checkers' directors, officers and holders of more than 10% of Checkers common
stock to file with the Securities and Exchange Commission initial reports of
ownership and reports of changes in ownership of Checkers common stock and any
other equity securities of Checkers. To Checkers' knowledge, based solely upon a
review of the forms, reports and certificates filed with Checkers by such
persons, all such Section 16(a) filing requirements were complied with by such
persons in 1998, except as follows: Richard A. Peabody filed one Form 3 late and
Burt Sugarman, James T. Holder, Clarence V. McKee and Wendy A. Beck each filed
one Form 5 late.

68
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

The following table is a summary of the compensation paid or accrued by
Checkers for the last three fiscal years for services in all capacities to each
of the persons who qualified as a "named executive officer" under Item 402(b) of
Regulation S-K. The amounts shown below are the total compensation received for
services to both Checkers and Rally's. Based upon the management services
agreement, Checkers and Rally's paid 50.1% and 49.9% of the 1998 compensation,
excluding bonuses and relocation expenses which were incurred only by Checkers.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------------------- -------------
CHECKERS
OTHER SECURITIES
ANNUAL UNDERLYING
SALARY BONUS COMPENSATION OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (1) (#) (2) COMPENSATION
- ----------------------------- ------ ----------- ----------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
James J. Gillespie(3) 1998 $282,500 $ -- $ 45,304(4) 600,000 $
Chief Executive Officer 1997 45,067 50,000 -- --
Harvey Fattig(5) 1998 $147,404 $ -- $ -- 588,000 $
Executive Vice President
and Chief Operating Officer
Joseph N. Stein(6) 1998 $200,000 $ 150,000(7) $ -- 538,000 $
Executive Vice President 1997 189,230 -- 108,441(8) 250,000 --
and Chief Administrative
Officer
James T. Holder 1998 $180,000 $ 144,000(7) $ -- 380,000 $ --
Senior Vice President, 1997 179,231 -- -- 100,000 --
General Counsel and 1996 140,350 23,077 -- 90,500 --
Secretary
Richard A. Peabody(9) 1998 $124,259 $ -- $ 36,839(10) 308,000 $ --
Senior Vice President and
Chief Financial Officer
Richard E. Fortman(11) 1998 $ 35,384 $ 200,000(7) $ -- -- $ --
1997 189,230 -- -- 250,000 --
</TABLE>
- ----------------

(1) Certain other perquisites were provided to certain of the executives named
above, but in no event did the value of the perquisites provided in any
year exceed 10% of the amount of the executive's salary for that year.

(2) With the exception of the Checkers options granted to Mr. Stein and Mr.
Fortman in 1997, the Checkers options listed were granted pursuant to
Checkers' 1991 stock option plan. In December 1998, outstanding options
under Checkers plans, including options granted earlier in 1998, as well as
the option granted to Mr. Stein in 1997, were cancelled and reissued. See
"Management -- Executive Compensation -- Option Grants in Last Fiscal Year"
on page .

(3) Mr. Gillespie was appointed Chief Executive Officer of Checkers and Rally's
in November 1997.

(4) Includes relocation expenses ($9,809) and travel ($34,194).

(5) Mr. Fattig was appointed Executive Vice President and Chief Operating
Officer in March 1998.

(6) Mr. Stein was appointed Executive Vice President and Chief Administrative
Officer of Checkers in January 1997 and subsequently assumed the Chief
Financial Officer position. He relinquished his position as Checkers Chief
Financial Officer in January 1998. He was appointed Executive Vice
President and Chief Financial Officer of Rally's in December 1997. He
resigned as an officer of Checkers and Rally's effective April 8, 1999.

(7) Bonuses paid to Messrs. Stein, Holder and Fortman in 1998 were based on
1997 results but paid in 1998.

(8) Consists of relocation expenses ($108,221).

(9) Mr. Peabody was appointed Vice President and Chief Financial Officer in
January 1998.

(10) Includes relocation expenses ($36,718).

(11) Mr. Fortman was appointed President and Chief Operating Officer of Checkers
in January 1997. He resigned from Checkers in February 1998.

69
<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

The following tables set forth information regarding options granted to the
Named Executive Officers during fiscal 1998.

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS (1) FOR OPTION TERM (2)
----------------------------------------------------------- -----------------------
NUMBER OF % OF
SECURITIES TOTAL
UNDERLYING OPTIONS EXERCISE
OPTIONS GRANTED TO OR BASE
GRANTED EMPLOYEES PRICE EXPIRATION
NAME (#) IN FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ---------------------------- ---------------- ---------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
James J. Gillespie ......... 300,000(3) 4.1% $ 0.84375 4/27/08 $159,189 $403,416
300,000(4) 4.1% 0.375 4/27/08 65,226 162,359
--------- ---
600,000 8.2%
========= ===
Harvey Fattig .............. 294,000(3) 4.0% $ 1.000 4/27/08 $184,895 $468,560
294,000(4) 4.0% 0.375 4/27/08 63,922 159,112
--------- ---
588,000 8.1%
========= ===
Richard A. Peabody ......... 154,000(3) 2.1% $ 1.000 4/27/08 $ 96,850 $245,436
154,000(4) 2.1% 0.375 4/27/08 33,483 83,344
--------- ---
308,000 4.2%
========= ===
Joseph N. Stein ............ 144,000(3) 2.0% $ 1.000 4/27/08 $ 90,561 $229,499
144,000(4) 2.0% 0.375 4/27/08 31,309 77,932
250,000(4) 3.4% 0.375 1/6/07 45,207 108,475
--------- ---
538,000 7.4%
========= ===
James T. Holder ............ 90,000(3) 1.2% $ 1.000 4/27/08 $ 56,601 $143,437
1,000(4) 0.0% 0.375 12/31/03 105 232
1,000(4) 0.0% 0.375 8/1/04 119 266
7,500(4) 0.1% 0.375 12/21/04 961 2,180
90,500(4) 1.2% 0.375 7/12/06 15,182 35,943
100,000(4) 1.4% 0.375 1/6/07 18,083 43,390
90,000(4) 1.2% 0.375 4/27/08 19,568 48,708
--------- ---
380,000 5.2%
========= ===
</TABLE>

- ----------------
(1) All options were granted pursuant to the 1991 Stock Option Plan.

(2) The 5% and 10% assumed annual rates of stock price appreciation are provided
in compliance with Regulation S-K under the Exchange Act. Checkers does not
necessarily believe that these appreciation calculations are indicative of
actual future stock option values or that the price of Checkers common stock
will appreciate at such rates.

(3) Options for Mr. Gillespie were issued on August 18, 1998 while options for
other executives were issued on April 27, 1998. These options were cancelled
on December 15 pursuant to the issuance of repriced options.

(4) Represents reissuance of repriced options on December 15, 1998.

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<PAGE>

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES

Set forth below is information with respect to Checkers options exercised
by the executives named in the Summary Compensation table during fiscal 1998 and
the number and value of unexercised stock options held by such executives at the
end of the fiscal year.

<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FY-END (#) AT FY-END ($) (1)
--------------------------- --------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------ ----------------- -------------- --------------------------- --------------------------
<S> <C> <C> <C> <C>
James J. Gillespie ..... -0- -0- -0-/300,000 -0-/-0-
Harvey Fattig .......... -0- -0- -0-/294,000 -0-/-0-
Joseph N. Stein ........ -0- -0- 250,000/144,000 -0-/-0-
James T. Holder ........ -0- -0- 174,875/115,125 -0-/-0-
Richard A. Peabody ..... -0- -0- -0-/154,000 -0-/-0-
Richard E. Fortman .....
</TABLE>
- ----------------
(1) Based upon the difference between the exercise price and the closing price
of Checkers common stock ($.3125) as reported on the NASDAQ National Market
on December 28, 1998.

COMPENSATION OF DIRECTORS

Directors who are not employees are compensated on the basis of $1,000 plus
out-of-pocket expenses for each Board and committee meeting attended.
Non-employee Directors also participate in the 1994 Stock Option Plan for
Non-Employee Directors, which provides for the automatic grant to each
non-employee Director, upon election to the Board of Directors, of a
non-qualified, ten-year option to acquire 100,000 shares of the Company's Common
Stock, with the subsequent automatic grant on the first day of each first day of
each fiscal year thereafter during the time such person is serving as a
non-employee Director of a non-qualified, ten-year option to acquire an
additional 20,000 shares of Common Stock. All such options have an exercise
price equal to the closing sale price of the Common Stock on the date of grant.
One-fifth of each initial option granted pursuant to such Plan prior to August
6, 1997 become exercisable on a cumulative basis on each of the first five
anniversaries of the date of the grant of such option. One-third of each annual
option granted pursuant to such Plan prior to August 6, 1997 becomes exercisable
on a cumulative basis on each of the first three anniversaries of the date of
the grant of such option. All options granted pursuant to this Plan on or after
August 6, 1997 are exercisable immediately upon grant. Options are exercisable
whether or not the Non-Employee Directors, at the time of exercise, an eligible
member of the Board of Directors, unless the Director is removed for cause.
Directors who are employees of the Company receive no extra compensation for
their services as Directors.

EMPLOYMENT AGREEMENTS

Effective November 10, 1997, the Company, Rally's and James J. Gillespie
entered into an employment agreement, pursuant to which Mr. Gillipsie serves as
the Chief Executive Officer and a Director of the Company and President, Chief
Executive Officer and a Director of Rally's. The term of employment is for two
years, subject to automatic renewal by the Company and Rally's for one-year
periods thereafter, at an annual base salary of $282,500. Mr. Gillespie is also
entitled to participate in the incentive bonus plans of the Company and Rallys'.
Upon execution of the employment agreement, Mr. Gillespie was granted an option
to purchase 300,000 shares of Rally's common stock, $.10 per value per share
("Rally's Common Stock"), and became entitled to receive a signing bonus of
$50,000. The option vests in three equal annual installments commencing on
November 10, 1998; provided, that if the term of the agreement is not extended
to November 10, 2000, the option becomes fully vested on November 10, 1999.
Mr.Gillespie is entitled to choose to participate in either

71
<PAGE>

the Company's or Rally's employee benefit plans and programs and is entitled to
reimbursement of his reasonable moving expenses and a relocation fee of $5,000.
The agreement may be terminated at any time for cause. If Mr. Gillespie is
terminated without cause, he will be entitled to receive his base annual salary,
and any earned unpaid bonus, through the unexpired terms of the agreement,
payable in a lump sum or as directed by Mr. Gillespie. Cause is defined as (i) a
material default or breach under the agreement, (ii) the willful and habitual
failure to perform duties under the agreement or corporate policies, or (iii)
misconduct, dihonesty, insubordination or other act that has a direct
substantial and adverse effect on the reputation of the Company or Rally's or
their relationships with their customers or employees. Mr.Gillespie has agreed
too keep confidential all nonpublic information about the Company and Rally's
during the term of his employment and for a two-year period thereafter. In
addition, Mr. Gillespie has agreed that he will not during his employment,
engage in, any business which is competitive with either the Company or Rally's.
The Company and Rally's intend to share the costs associated with this
agreement. See "Compensation Committee Interlocks and Insider Participation."

In February 1998, the Company, Rally's and Harvey Fattig entered into a
letter agreement pursuant to which Mr. Fattig is employed. Pursuant to the
agreement, Mr. Fattig serves as Executive Vice President and Chief Operating
Officer of the Company and Rally's and is paid by Checkers at an annual rate of
$175,000. Mr. Fattig is entitled to be considered for an annual bonus and
received options to purchase 108,000 shares of the Company's Common Stock and
42,000 shares of Rally's Common Stock. The options vest in equal annual
installments over a three-year period. Mr. Fattig is entitled to reimbursement
of his relocation expenses and to six months' severance pay if terminated
without cause prior to the third anniversary of his employment.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Board of Directors is responsible for
executive compensation decisions as described above. The Committee has been
comprised of Messrs. Foley and McKee during 1997. Mr. Foley is Chairman of the
Board and Chief Executive Officer of Fidelity and CKE, which, as of April 23,
1998, beneficially owned approximately 30.9% and 12.2% respectively, of the
outstanding shares of Rally's Common Stock. Rally's holds approximately 26.1% of
the outstanding Checkers Common Stock.

On November 22, 1996, the Company entered into an Amended and Restated
Credit Agreement (the "Restated Credit Agreement") with CKE, as agent of the
various lenders named therein (the "Lenders"). The Lenders include CKE,
Fidelity, C. Thomas Thompson, William P. Foley, Burt Sugarman and KCC Delaware
Company, a wholly owned subsidiary of GIANT. Pursuant to the Restated Credit
Agreement, the Company's primary debt aggregating approximately $35.8 million
principal amount, which had been acquired by the Lenders on November 14, 1996,
was restructured by, among other things, extending its maturity by one year to
July 31, 1999, fixing the interest rate at 13.0% per annum, eliminating or
relaxing certain covenants, delaying scheduled principal payments until May 19,
1997 and eliminating $6.0 million in restructuring fees and charges. In
connection with the restructuring, the Company issued to the Lenders warrants to
purchase an aggregate of 20 million shares of Common Stock at an exercise price
of $0.75 per share, the approximate market price of the Common Stock on the day
prior to the announcement of the acquisition of the Company's debt by the
Lenders. The Lenders specified above received warrants in the following amounts:
CKE, 7,350,428; Fidelity, 2,108,262; C. Thomas Thompson, 28,490; William P.
Foley, II, 854,700; Burt Sugarman, 712,250; and KCC Delaware Company, 2,849,002.
The Lenders also received certain piggyback and demand registration rights with
respect to the shares of Common Stock underlying their warrants.

On February 20, 1997, the Company received $19.5 million in consideration
for issuing an aggregate of 8,771,929 shares of Common Stock and 87,719 shares
of the Company's Series A Preferred in a private placement. The per share
purchase price for the Common Stock was $1.14,

72
<PAGE>

based upon the closing price ($1.34) of the Common Stock on December 16, 1996,
the day prior to the approval of the transaction by the Board of Directors, less
a discount for the fact that such shares are not freely transferable for a
one-year period. The purchasers in the private placement included: CKE
(6,162,299 shares of Common Stock and 61,636 shares of Series A Preferred
Stock); Fidelity (438,5965 shares of Common Stock and 4,385 shares of Series A
Preferred Stock); C. Thomas Thompson (21,929 shares of Common Stock and 219
shares of Series A Preferred Stock); William P. Foley, II (219, 298 shares of
Common Stock an 2,192 shares of Series A Preferred Stock). The purchasers in the
private placement also received certain piggyback and demand registration rights
and agreed not to sell any shares of Common Stock received in the private
placement in the open market for a one-year period. The Series A Preferred Stock
was converted into an aggregate of 9,383,118 shares of Common Stock upon
approval of such conversion by the Company's stockholders on August 6, 1997.

Effective November 30, 1997, the Company and Rally's entered into a
management services agreement (the "Management Services Agreement") pursuant to
which the Company is providing key services to Rally's, including executive
management, financial planning and accounting, franchise, purchasing and human
resource. In addition, the Company and Rally's share certain of their executive
officers, including the Chief Executive Officer and the Chief Operating Officer.
Management believes that entering into the Management Services Agreement and
sharing certain executive officers will enable the Company and Rally's to take
advantage of cost savings opportunities by facilitating the combination of
administrative and operational functions. The total cost of the services
provided by the Company in 1998 and 1997 was $5.6 million and $95,000,
respectively.

73
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.

The following table sets forth, as of May 12, 1999, information as to the
beneficial ownership of Checkers common stock by: (i) each person serving
Checkers as a director on such date, each nominee for director and each Rally's
director who will become a Checkers director after the merger; (ii) each person
who qualifies as a "named executive officer" as defined in Item 402(a)(3) of
Regulation S-K under the Exchange Act; (iii) all of the current directors and
executive officers of Checkers as a group; and (iv) each person known to
Checkers as having beneficial ownership of more than 5% of Checkers common
stock.

<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENT OF
NAME OWNED (1) CLASS (2)
- -------------------------------------------- -------------------- -----------
<S> <C> <C>
William P. Foley, II ....................... 1,401,500(3) 1.9%
James J. Gillespie ......................... -- *
Harvey Fattig .............................. 98,000(4) *
Joseph N. Stein ............................ 318,000(5) *
James T. Holder ............................ 227,500(4) *
Richard A. Peabody ......................... 62,333(6) *
Richard E. Fortman .........................
Terry N. Christensen ....................... 546,800(4) *
Clarence V. McKee .......................... 549,200(4) *
Peter O'Hara ............................... 145,000(7) *
Burt Sugarman .............................. 1,257,050(8) 1.7%
C. Thomas Thompson ......................... 733,290(9) *
All current Directors and executive officers
as a group (11 persons) .................. 5,338,673 7.3%
Rally's Hamburgers, Inc. ................... 19,130,930 26.1%
14255 49th Street North
Building I
Clearwater, Florida 33762
CKE Restaurants, Inc. ...................... 7,350,428(11) 9.1%
401 W. Carl Karcher Way
Anaheim, CA 92801

</TABLE>
- ----------------
* Less than 1%

(1) Based upon information furnished to Checkers by the named persons and
information contained in filings with the Securities and Exchange
Commission. Under the rules of the Commission, a person is deemed to
beneficially own shares over which the person has or shares voting or
investment power or which the person has the right to acquire beneficial
ownership within 60 days. Unless otherwise indicated, the named persons
have sole voting and investment power with respect to their shares.

(2) Based on 73,408,047 Checkers common shares outstanding as of May 12, 1999.
Shares subject to options or warrants exercisable within 60 days are deemed
outstanding for computing the percentage of class of the persons holding
options or warrants but are not deemed outstanding for computing the
percentage of class for any other person.

(3) Includes 1,401,500 shares subject to options and warrants. Excludes
2,108,262 shares subject to warrants held by Fidelity and 7,350,428 shares
subject to warrants held by CKE, as to which Mr. Foley disclaims beneficial
ownership. Mr. Foley is the Chairman of the Board and Chief Executive
Officer of CKE and Fidelity. Mr. Foley may be deemed to be a controlling
person of such entities.

(4) Represents shares underlying options.

(5) Includes 298,000 shares subject to options.

(6) Includes 51,333 shares subject to options.

74
<PAGE>

(7) Includes 120,000 shares subject to options. Excludes 2,000 shares held by
Mr. O'Hara's mother, as to which he disclaims beneficial ownership.

(8) Includes 1,257,050 shares subject to options and warrants. Excludes
2,849,002 shares subject to warrants held by KCC Delaware Company, a wholly
owned subsidiary of GIANT, of which Mr. Sugarman is Chairman of the Board,
President and Chief Executive Officer, as to which Mr. Sugarman disclaims
beneficial ownership.

(9) Includes 733,290 shares subject to options and warrants.

(10) Includes 5,068,583 shares subject to options and warrants.

(11) Includes 7,350,428 shares subject to warrants.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

"Item 10. Executive Compensation - Compensation Interlocks and Insider
Participation" is incorporated herein by reference. Christensen, Miller, Fink,
Jacobs, Glaser, Weil & Shapiro, LLP has performed legal services for the Company
during 1998 and will perform legal servies for the Company in 1999. Such
services have related to compliance with securities laws and other business
matters.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

EXHIBIT
NO. DESCRIPTION
- -------- ------------------------------------------------------------------
(a) 1.0 The following Financial Statements of the Registrant are
included in Part II, Item 8: Independent Auditors' Report
Consolidated balance sheets -- December 28, 1998 and December 29,
1997 Consolidated statements of operations -- years ended December
28, 1998, December 29, 1997 and December 30, 1996. Consolidated
statements of stockholders' equity -- years ended December 28,
1998, December 29, 1997 and December 30, 1996. Consolidated
statements of cash flows -- years ended December 28, 1998, December
29, 1997 and December 30, 1996. Notes to consolidated financial
statements -- years ended December 28, 1998, December 29, 1997 and
December 30, 1996.

2.0 All schedules have been omitted because of the absence of the
conditions under which they are required or because the required
information is included in the consolidated financial statements or
the notes thereto.

3.1 Restated Certificate of Incorporation of the Company, as filed with
the Commission as Exhibit 3.1 to the Company's Registration
Statement on Form S-1 filed on September 26, 1991 (File No.
33-42996), is hereby incorporated herein by reference.

3.2 Certificate of Amendment to Restated Certificate of Incorporation
of the Company, as filed with the Commission as Exhibit 3 to the
Company's Form 10-Q for the quarter ended June 30, 1993, is hereby
incorporated herein by reference.

3.3 By-laws, as amended through February 16, 1995, of the Registrant,
as filed with the Commission as Exhibit 3.3 to the Company's Form
10-Q for the quarter ended March 27, 1995, is hereby incorporated
herein by reference.

75
<PAGE>

EXHIBIT
NO. DESCRIPTION
- -------- ------------------------------------------------------------------

3.4 Certificate of Designation of Series A Preferred Stock of the
Company dated February 12, 1997, as filed with the Commission as
Exhibit 3.1 to the Company's Form 8-K, dated February 19, 1997, is
hereby incorporated by reference.

4.1 Collateral Assignment of Trademarks as Security from Borrower,
dated April 12, 1995, between the Company and each of the banks
party to the Amended and Restated Credit Agreement, dated as of
April 12, 1995, as filed with the Commission as Exhibit 3 to the
Company's Form 8-K dated April 12, 1995, is hereby incorporated by
reference.

4.2 Amended and Restated Credit Agreement, dated as of November 22,
1996, between the Company, CKE Restaurants, Inc., as Agent, and the
lenders listed therein, as filed with the Commission as Exhibit 4.1
on the Company's Form 8-K, dated November 22, 1996, is hereby
incorporated by reference.

4.3 Second Amended and Restated Security Agreement, dated as of
November 22, 1996, between the Company and CKE Restaurants, Inc.,
as Agent, and the lenders listed therein, as filed with the
Commission as Exhibit 4.2 on the Company's Form 8-K, dated November
22, 1996, is hereby incorporated by reference.

4.4 Form of Warrant issued to lenders under the Amended and Restated
Credit Agreement, dated November 22, 1996, between the Company and
CKE Restaurants, Inc., as Agent, and the lenders listed therein, as
filed with the Commission as Exhibit 4.3 on the Company's Form 8-K,
dated November 22, 1996, is hereby incorporated by reference.

4.5 The Company agrees to furnish the Commission upon its request a
copy of any instrument which defines the rights of holders of
long-term debt of the Company and which authorizes a total amount
of securities not in excess of 10% of the total assets of the
Company and its subsidiaries on a consolidated basis.

10.1 Indemnification Agreement between the Company and James F. White,
Jr. dated January 12, 1993.**

10.1.1 List of officers and directors with whom the Company has entered
into indemnity agreements.**

10.2 1991 Stock Option Plan of the Company, as amended on May 10, 1994,
as filed with the Commission as Exhibit 4 to the Company's
Registration Statement on Form S-8 filed on June 15, 1994 (File No.
33-80236), is hereby incorporated herein by reference.*

10.2.1 Amendment to 1991 Stock Option Plan, as filed with the Commission
on page 18 of the Company's proxy statement dated May 15, 1998 is
incorporated herein by reference.*

10.3 1994 Stock Option Plan for Non-Employee Directors, as filed with
the Commission as Exhibit 10.32 to the Company's form 10-K for the
year ended January 2, 1995, is hereby incorporated by reference.*

10.4 Purchase Agreement between the Company and Restaurant Development
Group, Inc., dated as of August 3, 1995, as filed with the
Commission as Exhibit 1 to the Company's Form 8-K dated July 31,
1995, is herein incorporated by reference.

76
<PAGE>

EXHIBIT
NO. DESCRIPTION
- -------- ------------------------------------------------------------------

10.5 Amendment No. 1, dated as of October 20, 1995, to that certain
Purchase Agreement between Checkers and Restaurant Development
Group, Inc., dated as of August 3, 1995, as filed with the
Commission as Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended September 11, 1995, is hereby incorporated by
reference.

10.6 Amendment No. 2, dated as of April 11, 1996, to that certain
Purchase Agreement between Checkers and Restaurant Development
Group, Inc., dated as of August 3, 1995, as filed with the
Commission as Exhibit 10.32 to the Company's Form 10-K for the year
ended January 1, 1996, is hereby incorporated by reference.

10.7 Purchase Agreement between the Company and Rall-Folks, Inc., dated
as of August 2, 1995, as filed with the Commission as Exhibit 2 to
the Company's Form 8-K dated July 31, 1995, is herein incorporated
by reference.

10.8 Amendment No. 1, dated as of October 20, 1995, to that certain
Purchase Agreement between Checkers and Rall-Folks, Inc., dated as
of August 2, 1995, as filed with the Commission as Exhibit 10.2 to
the Company's Form 10-Q for the quarter ended September 11, 1995,
is hereby incorporated by reference.

10.9 Amendment No. 2, dated as of April 11, 1996 to that certain
Purchase Agreement between the Company and Rall-Folks, Inc., dated
as of August 2, 1995, as filed with the Commission as Exhibit 10.35
to the Company's Form 10-K for the year ended January 1, 1996, is
hereby incorporated by reference.

10.10 Note Repayment Agreement dated as of April 12, 1996 between the
Company and Nashville Twin Drive-Thru Partners, L.P., as filed with
the Commission as Exhibit 10.36 to the Company's Form 10-K for the
year ended January 1, 1996, is hereby incorporated by reference.

10.11 Employment Agreement between the Company and Michael T. Welch,
dated July 26, 1996, as filed with the Commission as Exhibit 10.52
to the Company's Form 10-Q for the quarter ended June 17, 1996, is
hereby incorporated by reference.*

10.12 Purchase Agreement dated February 19, 1997, as filed with the
Commission as Exhibit 10.1 to the Company's Form 8-K, dated March
5, 1997, is hereby incorporated by reference.

10.13 Employment Agreement between the Company and David Miller, dated
July 29, 1996, as filed with the Commission as Exhibit 10.35 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 30, 1996 (the "1996 10-K"), is hereby incorporated by
reference.*

10.14 Employment Agreement between the Company and James T. Holder, dated
November 22, 1996, as filed with the Commission as Exhibit 10.36 to
the 1996 10-K, is hereby incorporated by reference.*

10.15 Warrant Agreement dated March 11, 1997, between the Company and
Chasemellon Shareholder Services, L.L.C, as filed with the
Commission as Exhibit 10.38 to the 1996 10-K, is hereby
incorporated by reference

10.16 Employment Agreement dated November 10, 1997, between the Company,
Rally's Hamburgers, Inc. and Jay Gillespie, as filed with the
Commission as Exhibit 10.16 to the Company's 1997 Annual Report
Form 10-K, is hereby incorporated by reference.*

77
<PAGE>

EXHIBIT
NO. DESCRIPTION
- -------- ------------------------------------------------------------------

10.17 Management Services Agreement dated November 30, 1997, between the
Company and Rally's Hamburgers, Inc. as filed with the Commission
as Exhibit 10.17 to the Company's 1997 Annual Report Form 10-K, is
hereby incorporated by reference.*

10.18 Agreement and Plan of Merger dated January 28, 1999, between the
Company and Rally's Hamburgers, Inc., as filed with the Commission
as Exhibit 10.18 to the Company's Form 10-K for the year ended
December 28, 1998, is hereby incorporated by reference.

21 List of the subsidiaries of the Company, as filed with the
Commission as Exhibit 21 to the Company's Form 10-K for the year
ended December 28, 1998, is hereby incorporated by reference.

27 Financial Data Schedule, as filed with the Commission as Exhibit 27
to the Company's Form 10-K for the year ended December 28, 1998, is
hereby incorporated by reference.

- ----------------
* Management contract or compensatory plan or arrangement.
** Filed herewith.

(b) Reports on Form 8-K:

During the last quarter of the year ended December 28, 1998, the following
reports on Form 8-K were filed by the Company:

On September 25, 1998, the Company filed a report on Form 8-K under Item
5 announcing the signing of a letter of intent between the Company,
Rally's Hamburgers, Inc., and GIANT GROUP, LTD whereby the three
companies would merge in an all-stock transaction.

On November 2, 1998, the Company filed a report on Form 8-K under Item 5
announcing the termination of the proposed merger between the Company,
Rally's Hamburgers, Inc. and GIANT GROUP, LTD.

The exhibits listed under Item 14(a) are filed as part of this Report.

(d) Financial Statements Schedules:

None.

78
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Clearwater, State of Florida on May 28, 1999.

CHECKERS DRIVE-IN RESTAURANTS, INC.

BY: /s/ RICHARD A. PEABODY
---------------------------------------------
Richard A. Peabody
Senior Vice President and Chief Financial Officer

79
<PAGE>

EXHIBIT INDEX

EXHIBIT NUMBER DESCRIPTION
- -------------- -----------

10.1 Indemnification Agreement between the Company and James F. White,
Jr. dated January 12, 1993.

10.1.1 List of officers and directors with whom the Company has entered
into indemnity agreements.

EXHIBIT 10.1
INDEMNIFICATION AGREEMENT

This INDEMNIFICATION AGREEMENT (the "Indemnification Agreement") is
made and entered into as of the 12th day of January, 1993 by and between
CHECKERS DRIVE-IN RESTAURANTS, INC., a Delaware corporation (the "Company"), and
James F. White, Jr., an individual (the "Indemnitee").

WHEREAS, it is essential to the Company to retain and attract as
directors and officers the most capable persons available;

WHEREAS, Indemnitee is, or will be, a director and/or officer of the
Company;

WHEREAS, both the Company and Indemnitee recognize the increased
risk of litigation and other claims being asserted against directors and
officers of public companies in today's environment;

WHEREAS, the By-laws of the Company require the Company to indemnify
and advance expenses to its directors and officers to the full extent permitted
by law, and the Indemnitee has agreed to serve as a director and/or officer of
the Company in part in reliance of such By-laws; and,

WHEREAS, in recognition of Indemnitee's need for substantial
protection against personal liability in order to enhance Indemnitee's service
to the Company in an effective manner and Indemnitee's reliance on the aforesaid
By-laws, and in part to provide Indemnitee with specific contractual assurance
that the protection promised by such By-laws will be available to Indemnitee
(regardless of, among other things, any amendment to or revocation of such
By-laws or any changes in the composition of the Company's Board of Directors or
acquisition transaction relating to the Company), the Company wishes to provide
in this Indemnification Agreement for the indemnification of and the advancing
of expenses to Indemnitee to the fullest extent (whether partial or complete)
permitted by law and as set forth in this Indemnification Agreement and, to the
extent insurance is obtained, for the continued coverage of Indemnitee under the
Company's directors' and officers' liability insurance policies.

NOW, THEREFORE, in consideration of the premises, the mutual
promises, covenants and conditions herein contained and in the Employment
Agreement dated as of the date hereof between the Company and Indemnitee,
Indemnitee continuing to serve the Company directly, or at its request, another
enterprise and for other good and valuable considerations, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto intending to be
legally bound hereby agree as follows:

<PAGE>

1. CERTAIN DEFINITIONS. In addition to the words and terms elsewhere
defined in this Indemnification Agreement, certain capitalized words and terms
used in this Indemnification Agreement shall have the meanings given to them by
the definitions and descriptions in this Section 1 unless the context or use
indicates another or different meaning or intent, and such definitions shall be
equally applicable to both the singular and plural forms of any of the
capitalized words and terms herein defined. The following words and terms are
defined terms under this Indemnification Agreement:

1.1 CHANGE IN CONTROL. "Change in Control" shall be deemed to have
occurred if (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended), other than a
trustee or other fiduciary holding securities under an employee benefit
plan of the Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the "beneficial owner"
(as defined in Rule 13-d-3 under said Act), directly or indirectly, of
securities of the Company representing 20% or more of the total voting
power represented by the Company's then outstanding Voting Securities;
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company
and any new director whose election by the Board of Directors or
nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in
the Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least 80% of
the total voting power represented by the Voting Securities of the Company
or such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of (in one transaction or a series of
transactions) all or substantially all the Company's assets.

1.2 CLAIM. "Claim" shall mean any threatened,
<PAGE>

pending or completed action, suit or proceeding, or any inquiry or
investigation, whether instituted by the Company or any other party, that
Indemnitee in good faith believes might lead to the institution of any
such action, suit or proceeding, whether civil, criminal, administrative,
investigative or other.

1.3 EXPENSES. "Expenses" shall mean attorneys' fees and all other
costs, expenses and obligations paid or incurred in connection with
investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or
participate in any Claim relating to any Indemnifiable Event.

1.4 INDEMNIFIABLE EVENT. "Indemnifiable Event" shall mean any event
or occurrence related to the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, employee, trustee, agent or
fiduciary of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, or by reason of any anything done
or not done by Indemnitee in any such capacity.

1.5 INDEPENDENT LEGAL COUNSEL. "Independent Legal Counsel" shall
mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 3, who shall not have otherwise been retained by or
performed services for the Company or Indemnitee within the last five
years (other than with respect to matters concerning the rights of
Indemnitee under this Indemnification Agreement or of other indemnities
under similar indemnity agreements).

1.6 REVIEWING PARTY. "Reviewing Party" shall mean (i) the Board of
Directors of the Company by a quorum consisting of directors who were not
parties to such Claim or (ii) if such a quorum is not obtainable, or, even
if obtainable, a quorum of disinterested directors so directs, by
Independent Legal Counsel.

1.7 VOTING SECURITIES. "Voting Securities" shall mean
any securities of the Company which vote generally in the
election of directors.

2. BASIC INDEMNIFICATION ARRANGEMENT. In the event Indemnitee was,
is or becomes a party to or witness or other participant in, or is threatened to
be made a party to or witness or other participant in, a Claim by reason of (or
arising in part out of) an Indemnifiable Event, the Company shall indemnify
Indemnitee to the fullest extent permitted by law as soon as practicable but in
any event no later than thirty days after

<PAGE>

written demand is presented to the Company, against any and all Expenses,
judgments, fines, penalties and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Expenses, judgments, fines, penalties or amounts paid in
settlement) of such Claim. If so requested by Indemnitee, the Company shall
advance (within two business days of such request) any and all Expenses to
Indemnitee (an "Expense Advance"). Notwithstanding the foregoing, (i) the
obligations of the Company under this Section 2 shall be subject to the
condition that the Reviewing Party shall not have determined (in a written
opinion in any case in which the Independent Legal Counsel is involved) that
Indemnitee would not be permitted to be indemnified under applicable law and
(ii) the obligation of the Company to make an Expense Advance pursuant to this
Section 2 shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that Indemnitee would not be permitted to be
so indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all
such amounts theretofore paid; PROVIDED, HOWEVER, that if Indemnitee has
commenced or thereafter commences legal proceedings in a court of competent
jurisdiction to secure a determination that, Indemnitee should be indemnified
under applicable law, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding and Indemnitee shall not be required to reimburse the Company for
any Expense Advance until a final judicial determination is made with respect
thereto (as to which all rights of appeal therefrom have been exhausted or
lapsed). If there has not be a Change in Control, the Reviewing Party shall be
selected by the Board of Directors and if there has been such a Change in
Control (other than a Change in Control which has been approved by a majority of
the Company's Board of Directors who were directors immediately prior to such
Change in Control), the Reviewing Party shall be the Independent Legal Counsel
referred to in Section 3 hereof. If there has been no determination by the
Reviewing Party or if the Reviewing Party determines that Indemnitee
substantively would not be permitted to be indemnified in whole or in part under
applicable law, Indemnitee shall have the right to commence litigation in any
court in the State of Florida or Delaware having subject matter jurisdiction
thereof and in which venue is proper seeking an initial determination by the
court or challenging any such determination by the Reviewing Party or any aspect
thereof, including the legal or factual bases therefor, and the Company hereby
consents to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party otherwise shall be conclusive and binding
on the Company and Indemnitee.

3. CHANGE IN CONTROL. The Company agrees that if there is a Change
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then with respect to all matters
thereafter

<PAGE>

arising concerning the rights of Indemnitee to indemnity payments and Expense
Advances under this Agreement or any other agreement or Company By-law now or
hereafter in effect relating to Claims for Indemnifiable Events, the Company
shall seek legal advice only from Independent Legal Counsel selected by
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld). Such counsel, among other things, shall render its written opinion to
the Company and Indemnitee as to whether and to what extent the Indemnitee would
be permitted to be indemnified under applicable law. The Company agrees to pay
the reasonable fees of the Independent Legal Counsel referred to above and to
fully indemnify such counsel against any and all expenses (including attorneys'
fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.

4. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall
indemnify Indemnitee against any and all expenses (including attorneys' fees)
and, if requested by Indemnitee, shall (within two business days of such
request) advance such expenses to Indemnitee which are incurred by Indemnitee in
connection with any action brought by Indemnitee for (i) indemnification or
advance payment of Expenses by the Company under this Indemnification Agreement
or any other agreement or the Company's By-laws now or hereafter in effect
relating to Claims for Indemnifiable Events and/or (ii) recovery under any
directors' and officers' liability insurance policies maintained by the Company
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.

5. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any
provision of this Indemnification Agreement to indemnification by the Company
for some or a portion of the Expenses, judgments, fines, penalties and amounts
paid in settlement of a Claim but not, however, for all of the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion
thereof to which Indemnitee is entitled. Moreover, notwithstanding any other
provision of this Indemnification Agreement, to the extent that Indemnitee has
been successful on the merits or otherwise in defense of any or all Claims
relating in whole or in part to an Indemnifiable Event or in defense of any
issue or matter therein, including dismissal without prejudice, Indemnitee shall
be indemnified against all Expenses incurred in connection therewith.

6. BURDEN OF PROOF. In connection with any determination by the
Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.

7. NO PRESUMPTIONS. For purposes of this

<PAGE>

Indemnification Agreement, the termination of any claim, action, suit or
proceeding, by judgment, order, settlement (whether with or without court
approval) or conviction, or upon a plea of nolo contendere, or its equivalent,
shall not create a presumption that Indemnitee did not meet any particular
standard of conduct or have any particular belief or that a court has determined
that indemnification is not permitted by applicable law. In addition, neither
the failure of the Reviewing Party to have made a determination as to whether
Indemnitee has met any particular standard of conduct or had any particular
belief, nor an actual determination by the Reviewing Party that Indemnitee has
not met such standard of conduct or did not have such belief, prior to the
commencement of legal proceedings by Indemnitee to secure a judicial
determination that Indemnitee should be indemnified under applicable law shall
be a defense to Indemnitee's claim or create a presumption that Indemnitee has
not met any particular standard of conduct or did not have any particular
belief.

8. NONEXCLUSIVITY, ETC. The rights of the Indemnitee hereunder shall
be in addition to any other rights Indemnitee may have under the Company's
By-laws or the Delaware General Corporation Law or otherwise. To the extent that
a change in the Delaware General Corporation Law (whether by statute or judicial
decision) permits greater indemnification by agreement than would be afforded
currently under the Company's By-laws and this Indemnification Agreement, it is
the intent of the parties hereto that Indemnitee shall enjoy by this
Indemnification Agreement the greater benefits so afforded by such change.

9. LIABILITY INSURANCE. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
Company director or officer.

10. PERIOD OF LIMITATIONS. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee or Indemnitee's spouse, heirs, executors or personal or legal
representatives after the expiration of two (2) years from the date of accrual
of such cause of action, and any claim or cause of action of the Company shall
be extinguished and deemed released unless asserted by the timely filing of a
legal action within such two (2) year period; PROVIDED, HOWEVER, that if any
shorter period of limitations is otherwise applicable to any such cause of
action, such shorter period shall govern.

11. AMENDMENTS, ETC. No supplement, modification or amendment of
this Indemnification Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this
Indemnification Agreement shall be deemed or shall constitute a waiver of any
other

<PAGE>

provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.

12. SUBROGATION. In the event of payment under this Indemnification
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of Indemnitee, who shall execute all papers required
and shall do everything that may be necessary to secure such rights, including
the execution of such documents necessary to enable the Company effectively to
bring suit to enforce such rights.

13. NO DUPLICATION OF PAYMENTS. The Company shall not be liable
under this Indemnification Agreement to make any payment in connection with any
Claim made against Indemnitee to the extent Indemnitee has otherwise actually
received payment (under any insurance policy, the Company's By-laws or
otherwise) of the amounts otherwise indemnifiable hereunder.

14. BINDING EFFECT, ETC. This Indemnification Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors; assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company; spouses; heirs;
executors and personal and legal representatives. This Indemnification Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
an officer or director of the Company or of any other enterprise at the
Company's request.

15. SEVERABILITY. The provisions of this Indemnification Agreement
shall be severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) is held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable in any
respect, and the validity and enforceability of any such provision in every
other respect and of the remaining provisions hereof shall not be in any way
impaired and shall remain enforceable to the fullest extent permitted by law.

16. GOVERNING LAW. This Indemnification Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of
Delaware applicable to contracts made and to be performed in such state without
giving effect to the principles of conflicts of laws.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.

CHECKERS DRIVE-IN RESTAURANT, INC.

By /s/ JAMES E. MATTEI
-------------------------------
James E. Mattei, President
And Chief Executive Officer

/s/ JAMES F. WHITE, JR.
-------------------------------
James F. White, Jr.

EXHIBIT 10.1.1
CHECKERS DRIVE-IN RESTAURANTS, INC.
OFFICERS AND DIRECTORS WITH WHOM THE COMPANY
HAS ENTERED INTO INDEMNITY AGREEMENTS

Austin, Anthony L. Gillespie, James J. O'Hara, Peter J.
Beck, Wendy A. Hawkins, LaVan Peabody, Richard A.
Brown, Herbert G. Hellriegel, John E. Postle, Richard C.
Brown, Jared D. Hines, Andrew F., Jr. Roche, James M.
Brown, Robert G. Holder, James T. Saunders, Wayne A.
Campbell, Paul C. Kinsey, Keith J. Simmons, N. John
Christensen, Terry N. Mattei, James E. Sonntag, Andrew
Cline, Harry S. McKee, Clarence V. Stein, Joseph N.
deCelle, Gregory T. McMahon, Brian N. Sugarman, Burt
Dimarco, Albert J. Mears, H. Michael Thompson, C. Thomas
Fattig, Harvey Miller, David D. Ulgenalp, David N.
Fisher, Frederick E. Monzo, Anthony J. Welch, Michael T.
Foley, William P. Naftzger, Dale A. White, James F., Jr.
Fortman, Richard E. Nash, Thomas M. Wittner, Jean Giles