10-K

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

For the fiscal year ended December 28, 1998       Commission file number 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 no.)

14255 49Th Street N. ,Bldg. #1, Suite 101
      Clearwater, Florida                                     33762
(Address of principal executive offices)                    (Zip code)

       Registrant's telephone number, including area code: (727) 519-2000

           Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to Section 12(g) of the Act:

                                  COMMON STOCK
                                ----------------
                                (Title of Class)

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                             Yes [X]    No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant on February 22, 1999, was $22,027,329 based upon the reported
closing sale price of such shares on the Nasdaq Stock Market's National Market
for that date. As of February 22, 1999, there were 73,408,047 common shares
outstanding.

     Portions of the Joint Proxy Statement/Prospectus of the Registrant and
Rally's Hamburgers, Inc. for the Registrant's Special Meeting of Stockholders
are incorporated by reference in Part III of this Form 10-K.




                       CHECKERS DRIVE-IN RESTAURANTS, INC.

                          1998 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS

PART I
- ------

ITEM 1.    BUSINESS.........................................................  3

ITEM 2.    PROPERTIES....................................................... 11

ITEM 3.    LEGAL PROCEEDINGS................................................ 11

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 14

PART II
- -------

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
           MATTERS.......................................................... 14

ITEM 6.    SELECTED FINANCIAL DATA.......................................... 15

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS............................................ 16

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....... 24

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................... 24

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE............................................. 49

PART III
- --------

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 49

ITEM 11.   EXECUTIVE COMPENSATION........................................... 49

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT... 49

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 49

PART IV
- -------

ITEM 14.   EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K 50

                                       2


                                     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(R)". 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.

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 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.

     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.

                                       3


     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. The Company
has maintained its listing status through the date of this report.

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.

     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. 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 

                                       4


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."

     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 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.
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.

                                       5


     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 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 the highest 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.


                                       6


     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.
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."

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. 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 


                                       7


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(R) 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
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

                                       8


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

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 not to resume construction of MRP's at its
Champion construction facility. 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 construction facility located in Largo, Florida 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.

     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 


                                       9


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. 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, 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.

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 

                                       10


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.

     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.


                                       11


     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
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 believes the lawsuits initiated against the Company
are without merit, and intends to continue to defend them 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 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 believes
that the lawsuit is without merit and intends to continue to defend it
vigorously. No estimate of possible loss or range of loss resulting from the
lawsuit can be made at this time.


                                       12


     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 believes the causes of action
asserted in the amended Petition against the Company and the individual
defendants are without merit and intends to defend them 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 JIMMIE V. GILES 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-Thru, 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 believes the causes
of action asserted in the Counterclaim against the Company and Mr. Brown are
without merit and intends to defend them 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 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 believes the lawsuit is without
merit and intends to defend it 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 


                                       13


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 believes
the lawsuit is without merit and intends to defend it 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.

                                     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. The Company has maintained its listing status beyond the
February 17, 1999 hearing date and through the date of this report.

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


                                       14


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 consists of four 4-week periods.



(In thousands, except per share data)                                     FISCAL YEAR ENDING
                                                   --------------------------------------------------------------
                                                   DEC 28,       DEC 29,       DEC 30,       JAN 1,        JAN 2,
                                                    1998          1997          1996          1996          1995
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                  $   (0.07)    $   (0.19)    $   (0.89)    $   (0.83)    $   (0.23)
    (pretax) per common share

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         $    --       $    --       $    --       $    --       $    --



                                       15


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).

     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. Throughout the year, the Company's broadcast media
utilized the positioning statement "Fresh, because we just made it" to emphasize
the commitment to serve fresh hot food to every customer. This message was
primarily communicated to consumers via television advertising.

     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.

     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. 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.


                                       16


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
                                                        ------------     ------------   ------------
                                                                               
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)%
                                                           =====           =====           =====

(1)  As a percent of restaurant sales.
(2)  As a percent of Modular restaurant package revenues.




                                       17




                                                                             FISCAL YEAR ENDED
                                                               ----------------------------------------------
                                                               DECEMBER 28,     DECEMBER 29,     DECEMBER 30,
                                                                   1998            1997              1996
                                                               ------------     ------------     ------------
                                                                                        
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
                                                                 ========         ========         ========

(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.

     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.

     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.


                                       18


     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).

     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.

     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

                                       19


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 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.

     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 


                                       20


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

     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.

     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. 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 the 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 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


                                       21


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 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.

     On December 18, 1998, the Company completed a $10.0 million mortgage
financing transaction with FFCA Acquisition Corporation (FFCA) collaterized 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.

     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 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.


                                       22


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
restaurant level and determined such systems to be Year 2000 compliant. Costs of
replacing certain desktop computers and other required modifications at the
corporate office are not expected to exceed $70,000. Rally's will incur a
similar amount of expensive 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 success of our operations. Letters have been
drafted to send to companies that provide financial services, utilities,
inventory preparation and distribution and other key services. This
communication will be initiated during the first quarter of 1999. 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.

     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.


                                       23


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" 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 JUDGMENT 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 SCHEDULES; AND OTHER FACTORS
REFERENCED IN THIS FORM 10-K.

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                                                   25
     Consolidated balance sheets - December 28, 1998 and December 29, 1997          26
     Consolidated statements of operations and comprehensive income-
          Years ended December 28, 1998, December 29, 1997 and December 30, 1996    28
     Consolidated statements of stockholders' equity -
          Years ended December 28, 1998, December 29, 1997 and December 30, 1996    29
     Consolidated statements of cash flows -
          Years ended December 28, 1998, December 29, 1997 and December 30, 1996    30
     Notes to consolidated financial statements -
          Years ended December 28, 1998, December 29, 1997 and December 30, 1996    32



                                       24


                          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.

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


                                       25


                      CHECKERS DRIVE-IN RESTAURANTS, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)



                                     ASSETS

                                                                    DECEMBER 28,     DECEMBER 29,
                                                                        1998             1997
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           10,123           11,520
    and $5,014 in 1997 (notes 1 and 7)
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
                                                                       ========         ========


          See accompanying notes to consolidated financial statements.


                                       26


                     CHECKERS DRIVE-IN RESTAURANTS, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)


                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                                    DECEMBER 28,       DECEMBER 29,
                                                                                       1998                1997
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
                                                                                    =========          =========


          See accompanying notes to consolidated financial statements.


                                       27


                       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
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
                                                           =========          =========          =========



          See accompanying notes to consolidated financial statements.


                                       28



                       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
                                                      ---------   ------   -----------     ---------    --------   -------------
                                                                                                         
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
                                                         ===      ===      =========       ========       =====       ========


       See accompanying notes to consolidated financial statements.


                                       29


                       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
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                        --                 312             7,132
    Provision for bad debt                                                   751             1,013             1,311
    Deferred loan cost amortization                                        2,026             3,650             1,300
    Loss provision                                                         1,196               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)
                                                                        --------          --------          --------


          See accompanying notes to consolidated financial statements.


                                       30


                       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
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
                                                                     ========          ========          =======


          See accompanying notes to consolidated financial statements.


                                       31


               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
                                   ----------  ---------- ---------- ----------
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


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 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.


                                       32


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 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.


                                       33


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 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
                                           ------------       ------------     -----------
                                                                          
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
                                            =========          =========


NOTE 4:  LONG-TERM DEBT

Long-term debt consists of the following:



                                                                                    DECEMBER 28,     DECEMBER 29,
                                                                                        1998            1997
                                                                                    ------------     ------------
                                                                                               
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
                                                                                       =======         =======



                                       34


     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 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

                                       35


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.

     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 to RDG and issued 279,868 shares of
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
                                      ========      =======       ====


                                       36


     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
                                                      ------------     -----------     ------------
                                                                                      
"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
                                                        =======          =======          ========


     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
                                                                                 ------------      ------------
                                                                                             
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                                             $   --            $   --
                                                                                   ========          ========


     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 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

                                       37


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 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 


                                       38


$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.

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.


                                       39



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
                                               -----------------------    -------------------------    ----------------------
                                                                                                     
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            
                                             ===========                 ===========                 ===========             




                                      WEIGHTED-AVERAGE
                          NUMBER         REMAINING        WEIGHTED         NUMBER           WEIGHTED
    RANGE OF           OUTSTANDING      CONTRACTUAL       AVERAGE        EXERCISABLE        AVERAGE
 EXERCISE PRICES         12/28/98        LIFE (YRS)    EXERCISE PRICE    AT 12/28/98     EXERCISE PRICE
- --------------------------------------------------------------------- ---------------- ----------------
                                                                          
$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
================         =========           ===            ====          =========            ====


     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 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:


                                       40


                                        FISCAL YEAR END
                          --------------------------------------------
                          DECEMBER 28,    DECEMBER 29,    DECEMBER 30,
                              1998           1997            1996
                          ------------    ------------    ------------

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)

     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.

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.


                                       41


     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
- --------------------------------------       ----------      ----------       ---------       ----------     -----------
                                                                                               
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
                                              =======        ========         ========         ========         ======


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 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
                                               ======


                                       42


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:

     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
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 believes the lawsuits initiated against the Company
are without merit, and intends to continue to defend them 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 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 


                                       43


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 believes
that the lawsuit is without merit and intends to continue to defend it
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 believes the causes of action
asserted in the amended Petition against the Company and the individual
defendants are without merit and intends to defend them 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 JIMMIE V. GILES 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-Thru, 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, respectfully, 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 believes the causes
of action asserted in the Counterclaim against the Company and Mr. Brown are
without merit and intends to defend them 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 believes the lawsuit is without
merit and intends to defend it 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 (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 common
stock in a "going-private" 

                                       44


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 believes the lawsuit is without merit and
intends to defend it 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.

                                       45


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
                                                                 ----------------------------------------------
                                                                                          
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)


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.

     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 (see
Note 14 for unaudited proforma information).

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



                                       46


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. The pro forma financial information
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.




                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                         CHECKERS      RALLY'S
                                                          DEC 28,      DEC 28,       PRO FORMA
                                                           1998         1998         ADJUSTMENTS     MERGED
                                                         --------     ---------      -----------   ---------
                                                                                             

ASSETS:
Current assets                                           $  12,298    $  11,736      $    --       $  24,034
Property and equipment, net                                 78,390       61,914                      140,304
Investment in affilate, 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
                                                         =========    =========      =========     =========


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.
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.

                                       47



     The following unaudited pro forma condensed consolidated financial data
sets forth certain pro forma financial information giving effect to the Merger,
assuming the Merger had occurred December 30, 1997.


                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                          CHECKERS         RALLY'S
                                                         FISCAL YEAR     FISCAL YEAR
                                                            ENDED            ENDED        PRO FORMA
                                                        DEC. 28, 1998    DEC. 28, 1998    ADJUSTMENTS      MERGED
                                                        -------------    -------------    -----------    ---------
                                                                                                   
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 affilliate                                     --           (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
                                                           =========       =========                     =========


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.

                                       48


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

          None

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this Item is incorporated herein by reference
to the information under the headings "ELECTION OF DIRECTORS," "MANAGEMENT -
Directors and Executive Officers" and "MANAGEMENT -Compliance with Section 16(a)
of the Securities Exchange Act of 1934" in the Company's definitive Proxy
Statement to be used in connection with the Company's Special Meeting of
Stockholders, which will be filed with the Commission on or before April 28,
1999.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by this Item is incorporated herein by reference
to the information under the headings "MANAGEMENT - Compensation of Executive
Officers" in the Company's definitive Proxy Statement to be used in connection
with the Company's Special Meeting of Stockholders, which will be filed with the
commission on or before April 28, 1999.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item is incorporated herein by reference
to the information under the heading "MANAGEMENT - Security Ownership of
Management and Others" in the Company's definitive Proxy Statement to be used in
connection with the Company's Special Meeting of Stockholders, which will be
filed with the Commission on or before April 28, 1999.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item is incorporated herein by reference
to the information under the heading "MANAGEMENT - Certain Transactions" in the
company's definitive Proxy Statement to be used in connection with the Company's
Special Meeting of Stockholders, which will be filed with the Commission on or
before April 28, 1999.


                                       49


                                     PART IV

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

(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.

        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.

                                       50


        10.1   Form of Indemnification Agreement between the Company and its
               directors and certain officers, as filed with the Commission as
               Exhibit 4.4 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.

        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.

        10.21* 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.

        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


                                       51


        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.

        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.

      **21     List of the subsidiaries of the Company.

      **27     Financial Data Schedule

- --------------------------------------

*       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.

(c)     Exhibits:

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

(d)     Financial Statements Schedules:

           None


                                       52



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 March 24, 1999.

                                     CHECKERS DRIVE-IN RESTAURANTS, INC.

                                     By: /s/ JAMES J. GILLESPIE
                                         ----------------------
                                         James J. Gillespie
                                         President and Chief Executive Officer

              Pursuant to requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Company
and in the capacities indicated on March 24, 1999.

SIGNATURE                       TITLE
- ---------                       -----

/s/ WILLIAM P. FOLEY II                        
- --------------------------   
William P. Foley II             Director and Chairman of the Board


/s/ C. THOMAS THOMPSON          
- --------------------------    
C. Thomas Thompson              Director, Vice Chairman of the Board


/s/ JAMES J. GILLESPIE          
- -------------------------    
James J. Gillespie              President, Chief Executive Officer and Director
                                (Principal Executive Officer)


/s/ RICHARD A. PEABODY           
- -------------------------    
Richard A. Peabody              Vice President and Chief Financial Officer
                                (Principal Financial and Accounting Officer)


/s/ TERRY N. CHRISTENSEN        
- -------------------------    
Terry N. Christensen            Director


/s/ CLARENCE V. MCKEE             
- -------------------------    
Clarence V. McKee               Director


/s/ PETER C. O'HARA             
- -------------------------    
Peter C. O'Hara                 Director


/s/ BURT SUGARMAN 
- -------------------------    
Burt Sugarman                   Director



                                       53


                                 1998 FORM 10-K
                       CHECKERS DRIVE-IN RESTAURANTS, INC.
                                  EXHIBIT INDEX

EXHIBIT #                          EXHIBIT DESCRIPTION
- ---------                          -------------------

    2.0       All schedules, are 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.

    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      Form of Indemnification Agreement between the Company and its
              directors and certain officers, as filed with the Commission as
              Exhibit 4.4 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.


                                       54


    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.

    10.21*    Amendment to 1991 Stock Option Plan, as filed with the Commission
              on page __of the company's proxy statement dated May__ , 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.

    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 Checkers and Restaurant Development
              Group, Inc., dated as of August 3, 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 2, 1997, as filed with the Commission as Exhibit 10.36 to
              the 1996 10-K, is hereby incorporated by reference.

                                       55


    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.

    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.

    21**      List of the subsidiaries of the Company.

    27**      Financial Data Schedule

- --------------------------------------

*    Management contract or compensatory plan or arrangement.

**   Filed herewith.

EX-10.18

                          AGREEMENT AND PLAN OF MERGER

                          DATED AS OF JANUARY 28, 1999

                                 BY AND BETWEEN

                      CHECKERS DRIVE-IN RESTAURANTS, INC.,
                             A DELAWARE CORPORATION,

                                       AND

                            RALLY'S HAMBURGERS, INC.,
                             A DELAWARE CORPORATION.





                          AGREEMENT AND PLAN OF MERGER

        THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
January 28, 1999, is by and between Checkers Drive-In Restaurants, Inc., a
Delaware corporation ("Checkers"), and Rally's Hamburgers, Inc., a Delaware
corporation ("Rally's").

                                    RECITALS

         WHEREAS, the respective Boards of Directors of Checkers and Rally's
have determined that a business combination between Checkers and Rally's is in
the best interests of their respective companies and stockholders and have
adopted resolutions approving this Agreement and the transactions contemplated
hereby and declaring their advisability;

         WHEREAS, Checkers and Rally's desire to make certain representations,
warranties, covenants and agreements in connection with the transactions
contemplated hereby;

         WHEREAS, for federal income tax purposes, it is intended that the
business combination shall qualify as a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code");

         WHEREAS, concurrently with the execution hereof, Rally's, on the one
hand, and CKE Restaurants, Inc. ("CKE"), Santa Barbara Restaurant Group, Inc.
("SBR"), William P. Foley II and GIANT GROUP, LTD. ("GIANT") (collectively, the
"Consenting Rally's Stockholders"), on the other hand, are entering into a
Voting Agreement substantially in the form of Exhibit A hereto (the "Rally's
Voting Agreement") in which each Consenting Rally's Stockholder grants an
irrevocable proxy with respect to the approval and adoption of this Agreement,
and all other matters contemplated hereby or in furtherance hereof, for all
shares of the voting stock of Rally's which each is entitled (i) to vote at a
meeting of Rally's stockholders to consider the Merger (the "Rally's Meeting")
or (ii) to express consent or dissent thereon in writing without a meeting;

         WHEREAS, Rally's is willing in this Agreement to grant to Checkers its
irrevocable proxy with respect to the approval and adoption of this Agreement,
an amendment to Checkers' Certificate of Incorporation to effect a one-for-12
reverse stock split and all other matters contemplated hereby or in furtherance
hereof for all outstanding shares of the voting stock of Checkers of which
Rally's is the record or beneficial owner as of the date hereof and any shares
of the voting stock of Checkers of which Rally's becomes the record or
beneficial owner after the date hereof and prior to the record date for the
meeting of Checkers' stockholders to consider the Merger (the "Checkers
Meeting");

         NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
subject to the terms and conditions set forth herein, Checkers and Rally's
hereby agree as follows:



                                    ARTICLE 1
                       THE MERGER; CLOSING; EFFECTIVE TIME

         1.1 THE MERGER.

         (a) Subject to the terms and conditions contained in this Agreement, at
the Effective Time (as defined in Section 1.3), Rally's shall be merged with and
into Checkers (the "Merger"), and the separate corporate existence of Rally's
shall thereupon cease, in accordance with the applicable provisions of the
Delaware General Corporation Law (the "DGCL"). Following the Merger, Checkers
shall continue as the surviving corporation (sometimes hereinafter referred to
as the "Surviving Corporation"). As used in this Agreement, the term
"Subsidiary" shall mean, with respect to Checkers or Rally's, any corporation or
other legal entity of which such party controls or owns, directly or indirectly,
more than 50% of the stock or other equity interest entitled to vote on the
election of members to the board of directors or similar governing body.

         (b) At the Effective Time, the corporate existence of Checkers, with
all its rights, privileges, powers and franchises, shall continue unaffected and
unimpaired by the Merger. The Merger shall have the effects specified in Section
259 of the DGCL.

         1.2 THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Christensen,
Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP, 2121 Avenue of the Stars,
18th Floor, Los Angeles, California 90067, at 9:00 a.m., local time, as soon as
practicable, but in no event later than the third business day immediately
following the date on which the last of the conditions specified in Article 7 is
satisfied or waived in accordance herewith, or at such other date, time and
place as Checkers and Rally's may agree in writing. The date on which the
Closing occurs is hereinafter referred to as the "Closing Date."

         1.3 EFFECTIVE TIME. Subject to the terms and conditions of this
Agreement, at or as promptly as practicable after the Closing, the parties
hereto shall cause a certificate of merger with respect to the Merger in
appropriate form (the "Certificate of Merger"), executed in accordance with the
relevant provisions of the DGCL, to be filed with the Secretary of State of the
State of Delaware as provided in the DGCL. Upon the effectiveness of such
filing, or at such other time as may be specified in such filings, the Merger
shall become effective in accordance with the DGCL. The time and date at which
the Merger becomes effective is herein referred to as the "Effective Time."

                                       2



                                    ARTICLE 2
                   GOVERNING DOCUMENTS, DIRECTORS AND OFFICERS
                              OF SURVIVING ENTITIES

         2.1 CERTIFICATE OF INCORPORATION. At the Effective Time and without any
further action on the part of Checkers or Rally's, the certificate of
incorporation of Checkers shall be the certificate of incorporation of Checkers
until thereafter amended as provided therein and under applicable law.

         2.2 BY-LAWS. At the Effective Time and without any further action on
the part of Checkers or Rally's, the by-laws of Checkers shall be the by-laws of
Checkers until thereafter amended or repealed in accordance with their terms and
as provided in the certificate of incorporation of Checkers and under applicable
law.

         2.3 DIRECTORS AND OFFICERS. The directors of Checkers and Rally's at
the Effective Time shall, from and after the Effective Time, be the directors of
Checkers, and the officers of Checkers at the Effective Time shall, from and
after the Effective Time, remain the officers of Checkers, until, in each case,
their respective successors shall have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the certificate of incorporation and by-laws of Checkers.

                                    ARTICLE 3
                              CONVERSION OF SHARES

         3.1 CONVERSION OF SHARES.

         (a) At the Effective Time, each share of Rally's Common Stock, $.10 par
value per share (the "Rally's Common Stock"), issued and outstanding immediately
prior to the Effective Time (other than Rally's Common Stock held by Checkers,
by Rally's in its treasury or by any wholly owned Subsidiary of Checkers or
Rally's (collectively, the "Excluded Shares")), shall, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into and
represent, without interest, but subject to Section 3.3, 1.99 shares of Checkers
Common Stock, $.001 par value per share (the "Checkers Common Stock"), (the
"Merger Consideration").

         (b) At the Effective Time, all of Rally's Common Stock issued and
outstanding immediately prior to the Effective Time (other than the Excluded
Shares), by virtue of the Merger and without any action on the part of the
holders thereof, shall no longer be outstanding and shall be canceled and
retired and shall cease to exist, and each registered holder of any such Rally's
Common Stock shall thereafter cease to have any rights with respect to such
Rally's Common Stock, except that each holder (other than holders of Excluded
Shares) will have the right to receive, upon the surrender of the certificate or
certificates, if any, representing such Rally's Common Stock in accordance with
Section 3.2, without interest, the Merger Consideration for such Rally's Common
Stock.

         (c) At the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, each Excluded Share shall no longer
be outstanding, shall be canceled and retired without payment of any
consideration therefor, and each registered holder thereof shall thereafter
cease to have any rights with respect to such Rally's Common Stock.

                                       3


         (d) At the Effective Time, each share of Checkers Common Stock issued
and outstanding immediately prior to the Effective Time shall remain issued and
outstanding and shall not be affected by the Merger, except that each share of
Checkers Common Stock held by Rally's shall, by virtue of the Merger and without
any action on the part of Rally's or Checkers, no longer be outstanding and
shall be canceled and retired, and shall become authorized but unissued shares
of Checkers Common Stock.

         3.2 SURRENDER AND PAYMENT.

         (a) Prior to the Effective Time, Checkers shall appoint an agent (the
"Exchange Agent") for the purpose of exchanging certificates representing
Rally's Common Stock for the Merger Consideration. At the Effective Time,
Checkers will deposit with the Exchange Agent, for the benefit of holders of
shares of Rally's Common Stock, certificates representing shares of Checkers
Common Stock constituting the aggregate Merger Consideration to be paid in
respect of the Rally's Common Stock. Promptly after the Effective Time, Checkers
shall send, or shall cause the Exchange Agent to send, to each holder of record
of a certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Rally's Common Stock a form of letter of
transmittal for use in such exchange (which form shall specify that the delivery
shall be effected, and risk of loss and title shall pass, only upon proper
delivery of the certificates, if any, representing Rally's Common Stock to the
Exchange Agent), advising such holder of the terms of the exchange effected by
the Merger and the procedure for surrendering to the Exchange Agent such
certificate for the Merger Consideration.

         (b) Each holder of Rally's Common Stock that has been converted into
the Merger Consideration, upon surrender to the Exchange Agent of the
certificate or certificates, if any, representing such Rally's Common Stock,
together with a properly completed letter of transmittal covering such Rally's
Common Stock and such other documents as may be reasonably required by Checkers
or the Exchange Agent, will be entitled to receive the Merger Consideration
payable in respect of such Rally's Common Stock, and the certificate so
surrendered shall be canceled. Until so surrendered, each such certificate
shall, after the Effective Time, represent for all purposes only the right to
receive such Merger Consideration.

         (c) If any portion of the Merger Consideration is to be paid to a
person other than the registered holder of the Rally's Common Stock represented
by the certificate or certificates, if any, surrendered in exchange therefor, it
shall be a condition to such payment that the certificate or certificates, if
any, so surrendered shall be properly endorsed or otherwise be in proper form
for transfer and that the person requesting such payment shall pay to the
Exchange Agent any transfer or other taxes required as a result of such payment
to a person other than the registered holder of such Rally's Common Stock or
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable.

         (d) After the Effective Time, there shall be no further registration of
transfers of Rally's Common Stock. If after the Effective Time certificates
representing Rally's Common Stock are presented to either the Surviving
Corporation or, subject to the provisions of Section 3.2(e), the

                                       4


Exchange Agent, they shall be canceled and exchanged for the Merger
Consideration in accordance with the procedures set forth in this Article 3.

         (e) Any portion of the Merger Consideration deposited with the Exchange
Agent pursuant to Section 3.2(a), and any portion of the proceeds from the sale
of fractional shares issuable in connection with the Merger, that remains
unclaimed by the holders of Rally's Common Stock entitled thereto 12 months
after the Effective Time shall be returned by the Exchange Agent to Checkers or
an Affiliate (as defined below) designated by Checkers, and any such holder who
has not exchanged his Rally's Common Stock for the Merger Consideration in
accordance with this Article 3 prior to that time shall thereafter look only to
Checkers for such holder's claim for the Merger Consideration, and the holder's
pro rata share of the aggregate cash received by Checkers upon the sale of
fractional shares otherwise issuable in connection with the Merger and any
dividends or distributions with respect to Checkers Common Stock paid after the
Effective Time. Notwithstanding the foregoing, Checkers shall not be liable to
any holder of Rally's Common Stock for any amount paid to a public authority
pursuant to applicable abandoned property laws. For purposes of this Agreement,
an "Affiliate" of a specified person is a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the person specified.

         (f) No dividends or other distributions with respect to Checkers Common
Stock constituting part of the Merger Consideration shall be paid to the holder
of any unsurrendered certificates representing Rally's Common Stock until such
certificates are surrendered as provided in this Section 3.2. Upon such
surrender, there shall be paid (to the extent due and not yet paid), without
interest, to the person in whose name the certificates representing Checkers
Common Stock into which such Rally's Common Stock were converted are registered,
any dividends and other distributions in respect of Checkers Common Stock that
are payable on a date subsequent to, and the record date for which occurs after,
the Effective Time.

         3.3 FRACTIONAL SHARES. No certificates or scrip representing fractional
shares of Checkers Common Stock shall be issued in the Merger, but in lieu
thereof each holder of Rally's Common Stock otherwise entitled to a fractional
share shall be entitled to receive, from the Exchange Agent in accordance with
the provisions of this Section 3.3, a pro rata portion of the net cash proceeds
received by the Exchange Agent upon the sale of fractional shares issuable in
connection with the Merger. As soon as practicable after the determination of
the amount of cash, if any, to be paid to holders of Rally's Common Stock in
lieu of any fractional share, the Exchange Agent shall promptly pay all such
amounts without interest to all holders of Rally's Common Stock entitled
thereto.

         3.4 NO FURTHER RIGHTS. At and after the Effective Time, each holder of
a certificate or certificates that represented issued and outstanding Rally's
Common Stock (other than Excluded Shares) immediately prior to the Effective
Time shall cease to have any rights as a stockholder of Rally's, except for the
right to receive the Merger Consideration upon surrender of the holder's
certificate or certificates; provided that the rights of holders of options or
warrants to

                                       5


acquire Rally's Common Stock shall be governed by Section 6.11 and Section 3.6
of this Agreement, respectively.

         3.5 CERTAIN ADJUSTMENTS. The exchange ratio set forth in Section 3.1(a)
shall be appropriately adjusted in the event of any changes in the shares of
Checkers Common Stock or Rally's Common Stock by reason of any stock dividend,
reclassification, recapitalization, stock split, combination or exchange of
shares, or any similar event occurring prior to the Effective Time (each, an
"Adjustment Event"), to provide to the holders of Rally's Common Stock the same
economic effect and percentage ownership of Checkers Common Stock as
contemplated by this Agreement prior to such Adjustment Event.

         3.6 WARRANTS. Outstanding warrants to purchase Rally's Common Stock
will, by reason of the Merger, be converted into warrants to purchase the Merger
Consideration upon payment of the applicable warrant exercise price, and in all
other respects such warrants will not be affected by the Merger.

                                    ARTICLE 4
                   REPRESENTATIONS AND WARRANTIES OF CHECKERS

         Checkers represents and warrants to Rally's as follows:

         4.1 ORGANIZATION AND STANDING.

         (a) Checkers is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation and is duly
qualified to do business, and in good standing, in each jurisdiction in which
the character of the properties owned or leased by it or the conduct of its
business requires it to be so qualified, except where the failure to be so
qualified or to be in good standing would not have a Material Adverse Effect on
Checkers. For purposes of this Agreement, the term "Material Adverse Effect"
means, with respect to any person, an effect that is, or would reasonably be
expected to be, materially adverse to the business, assets, liabilities,
financial condition or results of operations of such person and its Subsidiaries
taken as a whole or to the ability of such party to perform its obligations
hereunder; provided, however, that fluctuations in the market price of Rally's
Common Stock or Checkers Common Stock shall not be deemed to have a Material
Adverse Effect on Rally's or Checkers, as the case may be.

         (b) Checkers has furnished to Rally's complete and correct copies of
the organizational documents (each an "Organizational Document") of Checkers and
each of its Subsidiaries, as amended through the date hereof. Such
Organizational Documents are in full force and effect and no other
Organizational Documents are applicable to or binding upon Checkers or any
Subsidiary of Checkers.

                                       6


         4.2 AUTHORIZATION, VALIDITY AND EFFECT.

         (a) Checkers has the requisite corporate power and authority to execute
and deliver this Agreement, a joint purchasing agreement (as contemplated by
Section 7.1(g)) and all other agreements and documents contemplated hereby or
thereby to be executed and delivered by it, and, subject to approval by Checkers
stockholders, to consummate the transactions contemplated hereby and thereby.
Subject to approval and adoption by Checkers' stockholders of this Agreement,
the execution and delivery of this Agreement, the joint purchasing agreement and
such other agreements and documents, and the consummation of the transactions
contemplated herein and therein, have been duly and validly authorized by all
necessary corporate action in respect thereof on the part of Checkers. This
Agreement has been duly and validly executed and delivered by and represents the
legal, valid and binding obligation of Checkers, enforceable against it in
accordance with its terms, except as the enforcement hereof may be limited by
bankruptcy, insolvency or other laws affecting the enforcement of creditor's
rights generally.

         (b) The Board of Directors of Checkers has: (i) approved and adopted,
and declared advisable, this Agreement; (ii) recommended to its stockholders
that they approve and adopt this Agreement; and (iii) duly approved the
transactions contemplated by this Agreement for purposes of Article 9 of
Checkers' Certificate of Incorporation and Section 203 of the DGCL such that the
restrictions on "business combinations" set forth in Article 9 of Checkers'
Certificate of Incorporation and Section 203 of the DGCL will not apply to such
transactions.

         4.3 CAPITALIZATION.

         (a) The authorized capital stock of Checkers consists of: (i)
150,000,000 shares of Checkers Common Stock, of which, as of the date hereof,
73,408,047 shares are issued and outstanding, and 578,904 shares are held in
Checkers' treasury; and (ii) 2,000,000 shares of Preferred Stock, $.001 per
value per share, none of which is outstanding as of the date hereof. As of the
date hereof, Checkers had outstanding options and warrants representing the
right to acquire from Checkers not more than 33,695,815 shares of Checkers
Common Stock. Each such option or warrant, the holder thereof, the grant date,
exercise price, the vesting date and other material terms thereof and the
instrument or plan pursuant to which such option or warrant was issued are
described in SECTION 4.3(B) OF THE DISCLOSURE MEMORANDUM delivered to Rally's
three business days prior to the execution hereof (the "Checkers Disclosure
Memorandum").

         (b) Except as set forth in Section 4.3(a), there are no shares of
capital stock or other equity securities of Checkers outstanding, and except as
set forth in SECTION 4.3(B) OF THE CHECKERS DISCLOSURE MEMORANDUM, no
outstanding options, warrants or rights to subscribe for, securities or rights
convertible into or exchangeable for, or contracts, commitments or arrangements
by which Checkers is or may be required to issue or sell additional shares of
Checkers Common Stock or any other equity interest in Checkers (collectively,
the "Checkers Equity Rights").

         (c) Except as described in SECTION 4.3(C) OF THE CHECKERS DISCLOSURE
MEMORANDUM, since September 7, 1998, Checkers has not (i) issued any shares of
Checkers Common Stock or

                                       7


Checkers Equity Rights, other than pursuant to the exercise of options and
warrants that were issued and outstanding on September 7, 1998, (ii) purchased,
redeemed or otherwise acquired, directly or indirectly through one or more
Subsidiaries, any of Checkers Common Stock or (iii) declared, set aside, made or
paid to the stockholders of Checkers dividends or other distributions on the
outstanding shares of Checkers Common Stock.

         4.4 CHECKERS SUBSIDIARIES.

         (a) SECTION 4.4(A) OF THE CHECKERS DISCLOSURE MEMORANDUM lists all
Subsidiaries of Checkers. All of the outstanding shares of capital stock of each
Subsidiary of Checkers are duly and validly issued, fully paid and
non-assessable and are owned by Checkers either directly or indirectly through
another wholly owned Subsidiary of Checkers free and clear of all claims, liens,
charges, encumbrances, defaults or equities of whatever character ("Liens"). No
equity securities of any Subsidiary of Checkers may be required to be issued
(other than to Checkers) by reason of any (i) option, warrant or right to
subscribe therefor, (ii) convertible security or securities or rights
exchangeable therefor or (iii) contracts, commitments, understandings or
arrangements. There are no contracts, commitments, understandings or
arrangements by which Checkers or any Subsidiary of Checkers is or may be
obligated to sell, vote or otherwise transfer any shares of the capital stock of
any Subsidiary.

         (b) Each Subsidiary of Checkers is duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is incorporated
or organized, has the corporate power and authority necessary for it to own or
lease its properties and assets and to carry on its business as it is now being
conducted, and is duly qualified to do business and in good standing in the
jurisdictions in which the ownership of its property or the conduct of its
business requires it to be so qualified, except for such jurisdictions in which
the failure to be so qualified and in good standing would not have a Material
Adverse Effect on Checkers.

         (c) Other than as set forth in SECTION 4.4(C) OF THE CHECKERS
DISCLOSURE MEMORANDUM and except for interests in Subsidiaries, neither Checkers
nor any Subsidiary thereof owns, directly or indirectly, any interest or
investment (whether equity or debt) in any corporation, limited liability
company, partnership, joint venture, business trust or other legal entity.

         4.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.

         (a) None of the execution and delivery by Checkers of this Agreement or
any other agreement contemplated herein, nor the consummation by Checkers of the
transactions contemplated herein or therein, nor compliance by Checkers with any
of the provisions hereof or thereof, will: (i) conflict with or result in a
breach of any provision of the Organizational Documents of Checkers or any
Subsidiary thereof; (ii) constitute or result in the breach of any term,
condition or provision of, or constitute a default under, or give rise to any
right of termination, cancellation or acceleration with respect to, or result in
the creation of any Lien upon, any property or assets of Checkers or any
Subsidiary thereof pursuant to any note, bond, mortgage, indenture, license,
agreement, lease or other instrument or obligation to which any of them is a
party

                                       8


or by which any of them or their respective properties or assets may be subject,
and that would, in any such event, have a Material Adverse Effect on Checkers;
or (iii) subject to receipt of the requisite approvals referred to in Section
4.5(b), violate any order, writ, injunction, decree, statute, rule or regulation
of any governmental, quasi-governmental, judicial, quasi-judicial or regulatory
authority with jurisdiction, domestic or foreign (each, a "Governmental
Authority") applicable to Checkers, any Subsidiary thereof, or any of their
respective properties or assets where such violation would have a Material
Adverse Effect on Checkers.

         (b) Other than (i) in connection or compliance with the provisions of
applicable state and federal securities laws and the rules and regulations of
the Securities and Exchange Commission (the "Commission") thereunder, (ii)
notices and completion of the applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (iii) filings with the Secretary of State of the State of Delaware
required to effect the Merger, (iv) in connection or compliance with the
applicable requirements of the Code and state, local and foreign tax laws, (v)
as set forth in SECTION 4.5(B) OF THE CHECKERS DISCLOSURE MEMORANDUM and (vi)
where the failure to give such notice, make such filing or receive such order,
authorization, exemption, consent or approval would not have a Material Adverse
Effect on Checkers, no notice to, filing with, authorization of, exemption by or
consent or approval of any Governmental Authority is necessary for the
consummation by Checkers of the transactions contemplated in this Agreement or
the joint purchasing agreement.

         4.6 CHECKERS REPORTS; FINANCIAL STATEMENTS.

         (a) Checkers has filed all forms, reports and documents required to be
filed by it with the Commission since January 3, 1995 (collectively, the
"Checkers Reports") pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
promulgated thereunder. As of their respective dates as subsequently amended
prior to the date of this Agreement, the Checkers Reports (i) complied as to
form in all material respects with the applicable requirements of the Exchange
Act and the rules and regulations promulgated thereunder and (ii) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading.

         (b) Each of the audited consolidated financial statements and unaudited
consolidated interim financial statements of Checkers (including any related
notes and schedules) included (or incorporated by reference) in its Annual
Report on Form 10-K for the fiscal year ended December 29, 1997, as amended (the
"Checkers Form 10-K"), and its Quarterly Report on Form 10-Q for the period
ended September 7, 1998 (the "Checkers Form 10-Q"), copies of which have been
provided to Rally's (collectively, the "Checkers Financial Statements"), have
been prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis (except as disclosed therein)
and fairly present, in all material respects, the consolidated financial
position and the consolidated results of operations, changes in stockholders'
equity and cash flows of Checkers and its consolidated Subsidiaries as of the
dates and for the periods indicated (subject to normal year-end adjustments in
the case of the interim unaudited financial statements).

                                       9


         (c) As of the date of this Agreement, except as set forth in Checkers
Reports or SECTION 4.6(C) OF THE CHECKERS DISCLOSURE MEMORANDUM: (i) no event
has occurred since December 29, 1997 (y) which if such event had occurred prior
to December 29, 1997 would have been required to be disclosed in Checkers Form
10-K or (z) which could have a Material Adverse Effect on Checkers; (ii)
Checkers has not engaged in any transaction with any of its affiliates; and
(iii) neither Checkers nor any Subsidiary of Checkers has any material
outstanding claims against it, liabilities or indebtedness, contingent or
otherwise, nor does there exist any condition, fact or circumstances which
Checkers reasonably anticipates will create such claim or liability, other than
claims or liabilities incurred subsequent to December 29, 1997 in the ordinary
course of business, consistent with past practices, and which individually and
in the aggregate do not have and are not reasonably anticipated to have a
Material Adverse Effect on Checkers.

         (d) Since December 29, 1997 and except as disclosed in SECTION 4.6(D)
OF THE CHECKERS DISCLOSURE MEMORANDUM or Checkers Reports, Checkers and its
Subsidiaries have conducted their respective businesses only in the ordinary
course and consistent with past practices.

         (e) Since December 29, 1997, except as disclosed in SECTION 4.6(E) OF
THE CHECKERS DISCLOSURE MEMORANDUM and Checkers Reports, there has been no event
or condition that has caused or is reasonably anticipated to cause a Material
Adverse Effect on Checkers.

         4.7 TAX AND ACCOUNTING MATTERS.

         (a) For purposes of this Section 4.7: (i) the term "Taxes" shall
include all federal, state, county, local or foreign taxes, charges, levies,
imposts or other assessments of any nature whatsoever, including corporate
income tax, corporate franchise tax, payroll tax, sales tax, use tax, property
tax, excise tax, withholding tax, and environmental tax, together with any
interest thereon and any penalties or additions to tax relating thereto imposed
by any governmental taxing authority for which Checkers or any other member of
the Checkers Group (as defined below in this Section 4.7(a)) may be directly or
contingently liable in its own right, as collection agent for taxes imposed on
another person, as a result of any guaranty or election, or as a transferee of
the assets of, or as successor to, any person, or pursuant to any applicable
law; (ii) the term the "Checkers Group" shall mean, individually and
collectively, Checkers, any Subsidiary of Checkers, and any individual, trust,
corporation, partnership, limited liability company or other entity as to which
Checkers may be liable for Taxes for which Checkers or such individual or entity
may be directly or contingently liable in its own right, as a result of any
guaranty or election, or as a transferee of the assets of, or as successor to,
any person, or pursuant to any applicable law; and (iii) the term "Returns"
shall mean all returns, reports, estimates, declarations of estimated tax,
information statements and other filings relating to, or required to be filed in
connection with, any Taxes, including, without limitation, information returns
or reports with respect to backup or employee withholding and other payments to
third parties.

         (b) Except as indicated in SECTION 4.7(B) OF THE CHECKERS DISCLOSURE
MEMORANDUM: (i) all Returns required to be filed by or on behalf of any member
of the Checkers Group have been duly filed on a timely basis and all such
Returns are true, correct and complete in all material

                                       10


respects; (ii) all Taxes that have been shown as due and payable on the Returns
that have been filed by or on behalf of each member of the Checkers Group have
been timely paid, and no other Taxes are payable by any member of the Checkers
Group with respect to items or periods covered by such Returns (whether or not
shown on or reportable on such Returns); (iii) the amounts set forth as
provisions for current and deferred taxes and/or accrued liabilities in the
Checkers Financial Statements are sufficient for the payment of all unpaid Taxes
accrued for or applicable to all periods ended on the respective dates of the
Checkers Financial Statements and all years and periods prior thereto, and each
of the amounts set forth on the Checkers Financial Statements in respect of
current Taxes and deferred Taxes has been correctly determined in accordance
with GAAP; (iv) no member of the Checkers Group is delinquent in the payment of
any Taxes or has requested any extension of time within which to file any
Return, which Return has not since been filed, accompanied by payment of all
Taxes shown as due and payable thereon; (v) there is no dispute or claim
concerning any Tax liability of any member of the Checkers Group either (A)
claimed or raised by any governmental taxing authority in writing or (B) as to
which any director or officer of any member of the Checkers Group (or employees
responsible for Taxes of any such member of the Checkers Group) has knowledge
based upon personal contact with any agent of such authority, other than those
Taxes, identified in SECTION 4.7(B) OF THE CHECKERS DISCLOSURE MEMORANDUM, being
contested in good faith by appropriate proceedings; (vi) no member of the
Checkers Group has waived any statute of limitations in respect of Taxes or
granted any extension of the limitations period applicable to any claim for
Taxes; (vii) Checkers is not liable for the Taxes of any person, including,
without limitation, as a result of the application of United States Treasury
Regulation Section 1.1502-6, any analogous provision of state, local or foreign
law (including, without limitation, principles of unitary taxation), or as a
result of any contractual arrangement, whether with any third party or with any
taxing authority; (viii) Checkers is not nor has it ever been a party to any tax
sharing agreement with any corporation or limited liability company which is not
currently a member of the Checkers Group; (ix) no claim has ever been made by
any governmental taxing authority in any jurisdiction where any member of the
Checkers Group does not file Returns that it is or may be subject to taxation by
such jurisdiction; (x) there are no Liens on any of the assets of any member of
the Checkers Group that arose in connection with any failure (or alleged
failure) to pay any Taxes; (xi) each member of the Checkers Group has withheld
and paid over all Taxes required to have been withheld and paid over and
complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party; (xii) no director or officer of any member of
the Checkers Group (or employees responsible for Taxes of such member) expects
any governmental taxing authority to assess any additional Taxes for any period
for which Returns have been filed; (xiii) SECTION 4.7(B) OF THE CHECKERS
DISCLOSURE MEMORANDUM lists all Returns (relating to any type of Tax and to any
taxable period) filed with respect to Checkers that have been audited and
indicates those Returns that currently are the subject of audit; (xiv) Checkers
has delivered or made available to Rally's correct and complete copies of all
federal, state, local and foreign income and franchise Tax Returns filed with
respect to Checkers for all taxable periods for which the applicable statute of
limitations for the assessment of any Tax has not yet expired, and has provided
representatives of Rally's access to all Returns (relating to any type of Tax
and to any taxable period) filed with respect to Checkers; (xv) Checkers has
delivered to Rally's all examination reports and statements of deficiency
assessed

                                       11


against or agreed to by each member of the Checkers Group since January 1, 1995;
(xvi) Checkers is not and has never been a "United States real property holding
corporation" within the meaning of Section 897(c) of the Code; (xvii) no member
of the Checkers Group is a "consenting corporation" under Section 341(f) of the
Code; (xviii) no member of the Checkers Group has entered into any compensatory
agreement with respect to the performance of services as to which payment or
vesting thereunder (including payment or vesting as a result of the transactions
contemplated hereunder) would result in a nondeductible expense to the Checkers
Group pursuant to Section 280G of the Code or an excise tax to the recipient of
such payment pursuant to Section 4999 of the Code; (xix) Checkers has not
agreed, nor is it required, to make any adjustment under Section 481(a) of the
Code by reason of a change in accounting method or otherwise that would require
the recognition of income pursuant to such adjustment in any post-closing
period; (xx) SECTION 4.7(B) OF THE CHECKERS DISCLOSURE MEMORANDUM sets forth a
list of each joint venture, limited liability company, partnership or other
arrangement or contract which is treated as a partnership for federal income tax
purposes in which Checkers holds a direct or indirect ownership interest as of
the date hereof or during any taxable period as to which the statute of
limitations on the assessment of income or franchise tax has not yet expired;
and (xxi) any past due property taxes for which Checkers or any Subsidiary of
Checkers is liable do not exceed $100,000.

         4.8 PROPERTIES. Except as disclosed or reserved against in the Checkers
Financial Statements and except for circumstances that would not have a Material
Adverse Effect on Checkers, Checkers and each Subsidiary thereof has good title
to all of the material properties and assets, tangible or intangible, reflected
in Checkers Financial Statements as being owned by Checkers and its Subsidiaries
as of the dates thereof, free and clear of all Liens, except such imperfections
or irregularities of title as do not affect the use thereof in any material
respect and statutory liens securing payments not yet delinquent. All leased
buildings and all leased fixtures, equipment and other property and assets that
are material to the business of Checkers on a consolidated basis are held under
leases or subleases that are valid instruments enforceable in accordance with
their respective terms. All leases to which Checkers or any Subsidiary thereof
is a party were entered into in the ordinary course of business. None of such
leases is with an Affiliate or contains any material terms or conditions which
make any such lease unreasonably onerous or commercially unreasonable.

         4.9 COMPLIANCE WITH LAWS. Except as disclosed in the Checkers Reports
and except for environmental matters, which shall be covered by Section 4.16 and
which shall not be covered by this Section 4.9, Checkers and each Subsidiary
thereof: (i) is in compliance with all laws, regulations, reporting and
licensing requirements and orders applicable to its business or employees
conducting its business, the breach or violation of which would have a Material
Adverse Effect on Checkers; and (ii) has received no notification or
communication from any Governmental Authority (y) asserting that it or any of
its Subsidiaries is not in compliance with any of the statutes, regulations or
ordinances that such Governmental Authority enforces, which noncompliance would
have a Material Adverse Effect on Checkers or (z) threatening to revoke any
license, franchise, permit or authorization of any Governmental Authority, which
revocation would have a Material Adverse Effect on Checkers.

                                       12


         4.10 EMPLOYEE BENEFIT PLANS.

         (a) Except as listed in SECTION 4.10 OF THE CHECKERS DISCLOSURE
MEMORANDUM, none of Checkers, any of the Subsidiaries of Checkers or any of
their respective ERISA Affiliates (as defined below) maintains, is a party to,
participates in or has any liability or contingent liability with respect to:

               (i) any "employee welfare benefit plan" or "employee pension
benefit plan" (as those terms are defined in Sections 3(l) and 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
respectively); or

               (ii) any retirement or deferred compensation plan, incentive
compensation plan, stock plan, unemployment compensation plan, vacation pay,
severance pay, bonus or benefit arrangement, insurance or hospitalization
program or any other fringe benefit arrangements for any current or former
employee, director, consultant or agent, whether pursuant to contract,
arrangement, custom or informal understanding, which does not constitute an
employee benefit plan (as defined in Section 3(3) of ERISA).

         For purposes of this Agreement, the term "ERISA Affiliate" means, with
respect to any person, any corporation, trade or business which, together with
such person, is a member of a controlled group of corporations or a group of
trades or businesses under common control within the meaning of sections 414(b),
(c), (m) or (o) of the Code.

        (b) A true and correct copy of each of the plans, arrangements and
agreements listed in SECTION 4.10 OF THE CHECKERS DISCLOSURE MEMORANDUM
(referred to collectively as "Checkers Employee Benefit Plans"), and all
contracts relating thereto, or to the funding thereof, including, without
limitation, all trust agreements, insurance contracts, administration contracts,
investment management agreements, subscription and participation agreements, and
record keeping agreements, each as in effect on the date hereof, has been
supplied or made available to Rally's. In the case of any Checkers Employee
Benefit Plan which is not in written form, Rally's has been supplied with an
accurate description of such Checkers Employee Benefit Plan as in effect on the
date hereof. A true and correct copy of the most recent annual report, actuarial
report, accountant's opinion relating to the plan's financial statements,
summary plan description and Internal Revenue Service determination letter with
respect to each Checkers Employee Benefit Plan, to the extent applicable, and a
current schedule of assets (and the fair market value thereof assuming
liquidation of any asset which is not readily tradable) held with respect to any
funded Checkers Employee Benefit Plan has been supplied or made available to
Rally's, and there have been no material changes in the financial condition of
the respective plans from that stated in the annual reports and actuarial
reports supplied.

         (c) As to all Checkers Employee Benefit Plans:

               (i) Such Plans comply and have been administered in form and in
operation in all material respects with all applicable requirements of law, and
no event has occurred which will or could cause any such Checkers Employee
Benefit Plan to fail to comply with such requirements

                                       13


and no notice has been issued by any governmental authority questioning or
challenging such compliance.

               (ii) Such Plans which are employee pension benefit plans comply
in form and in operation with all applicable requirements of Sections 401(a) and
501(a) of the Code; there have been no amendments to such Plans which are not
the subject of a favorable determination letter issued with respect thereto by
the Internal Revenue Service; and no event has occurred which will or could give
rise to disqualification of any such Plan under such sections or to a tax under
Section 511 of the Code.

               (iii) None of the assets of any such Plan (other than Checkers
401(k) plan and employee stock purchase plan) are invested in employer
securities or employer real property.

               (iv) There have been no "prohibited transactions" (as described
in Section 406 of ERISA or Section 4975 of the Code) with respect to any such
Plan and none of Checkers, any of its Subsidiaries or any of their respective
ERISA Affiliates has engaged in any prohibited transaction.

               (v) There have been no acts or omissions by Checkers, any of its
Subsidiaries or any of their respective ERISA Affiliates which have given rise
to or may give rise to fines, penalties, taxes or related charges under section
502 of ERISA or Chapters 43, 47 or 68 of the Code for which Checkers or any of
its Subsidiaries may be liable.

               (vi) None of the payments contemplated by such Plans would, in
the aggregate, constitute excess parachute payments (as defined in section 280G
of the Code) and neither the execution of this Agreement nor the consummation of
the transactions contemplated by this Agreement would accelerate the payment,
vesting or funding of benefits under any of such Plans.

               (vii) There are no actions, suits or claims (other than routine
claims for benefits) pending or, to the actual knowledge of Checkers' President
and Chief Executive Officer or Chief Financial Officer ("Checkers' Knowledge"),
threatened involving any such Plan or the assets thereof and no facts exist
which could give rise to any such actions, suits or claims (other than routine
claims for benefits).

               (viii) No such Plan is subject to Title IV of ERISA and no such
Plan is a multi-employer plan (within the meaning of Section 3(37)) of ERISA.

               (ix) None of Checkers or any of its Subsidiaries has any
liability or contingent liability for providing, under any such Plan or
otherwise, any post-retirement medical or life insurance benefits, other than
statutory liability for providing group health plan continuation coverage under
Part 6 of Title I of ERISA and Section 4980B of the Code.

               (x) Accruals for all obligations under such Plans are reflected
in the financial statements of Checkers in accordance with GAAP.

               (xi) To Checkers' Knowledge, there has been no act or omission
that would impair the ability of Checkers or any of its Subsidiaries (or any
successor thereto) to unilaterally amend or terminate any Employee Benefit Plan.

                                       14


         4.11 MATERIAL CONTRACTS.

         (a) Set forth in SECTION 4.11 OF THE CHECKERS DISCLOSURE MEMORANDUM is
a list, as of the date hereof, of the following agreements:

               (i) each agreement pursuant to which Checkers or any of its
Subsidiaries is entitled to receive amounts in excess of $100,000 (or the fair
market equivalent thereof in goods or services) on an annual or annualized
basis; each agreement pursuant to which Checkers or any of its Subsidiaries is
obligated to pay an amount in excess of $100,000 (or the fair market equivalent
thereof in goods or services) on an annual or annualized basis; and each
agreement, the term of which exceeds two years and which may not be canceled by
Checkers or any of its Subsidiaries without penalty on one year or less notice,
and pursuant to which Checkers or any of its Subsidiaries is entitled to receive
(in cash, services or property) or will be obligated to pay, during the
unexpired term thereof, an amount in excess of $100,000 (or the fair market
equivalent thereof in goods or services);

               (ii) each franchise, partnership, limited liability company,
joint venture or trust agreement to which Checkers or any of its Subsidiaries is
a party;

               (iii) each agreement limiting the right of Checkers or any of its
Subsidiaries to engage in or compete with any person in any business or
geographical area;

               (iv) each agreement or other arrangement of or involving Checkers
or any of its Subsidiaries with respect to indebtedness for money borrowed,
including letters of credit, guaranties, indentures, swaps and similar
agreements;

               (v) each management, consulting, employment, severance or similar
agreement requiring the payment of compensation in excess of $ 100,000 annually,
to which Checkers or any of its Subsidiaries is a party and which may not be
terminated by Checkers or such Subsidiary without penalty on 90 days (or less)
notice;

               (vi) each lease or other agreement with respect to real property
leased by Checkers or any of its Subsidiaries and which: requires Checkers or
any of its Subsidiaries to pay an amount or amounts in excess of $100,000 on
annual or annualized basis; or has an unexpired term which exceeds two years and
may not be canceled by Checkers or any of its Subsidiaries without penalty on
one year or less notice and which requires Checkers or any of its Subsidiaries
to pay, during the unexpired term, an amount in excess of $100,000;

               (vii) each collective bargaining agreement to which Checkers or
any of its Subsidiaries is a party;

                                       15


               (viii) each agreement with any Affiliate of Checkers (other than
employment agreements and agreements between Checkers and any Subsidiary
thereof) to which Checkers or any of its Subsidiaries is a party which involves
total payments or liabilities to or from Checkers or any of its Subsidiaries in
excess of $60,000;

               (ix) each guaranty or indemnification (other than for money
borrowed) or other similar agreement to which Checkers or any of its
Subsidiaries is a party; and

               (x) each stockholder agreement, voting trust agreement, share
purchase agreement, registration rights agreement or other similar agreement to
which Checkers is a party or other agreement granting rights to one or more of
the stockholders of Checkers, restricting the voting or transferability of
Checkers Common Stock or otherwise pertaining to Checkers Common Stock or any
interest (economic or voting) therein.

         (b) Except for such matters as would not, individually or in the
aggregate, have a Material Adverse Effect on Checkers, each contract identified
in SECTION 4.11 OF THE CHECKERS DISCLOSURE MEMORANDUM (the "Checkers Contracts")
is in full force and effect and is a legal, valid and binding contract or
agreement of Checkers, and there is no default or breach or, to Checkers'
Knowledge, any event that, with the giving of notice or lapse of time or both,
would result in a material default or breach) by Checkers, any of its
Subsidiaries or, to Checkers' Knowledge, any other party in the timely
performance of any obligation to be performed or paid thereunder or any other
material provision thereof. To Checkers' Knowledge, none of its franchisees or
suppliers will terminate or reduce any of their agreements with Checkers, which
termination or reduction would have a Material Adverse Effect on Checkers.

         (c) Except for such matters as would not, individually or in the
aggregate, have a Material Adverse Effect on Checkers, none of Checkers
Contracts will terminate, become terminable by the other party thereto, or have
the terms thereof become amended or amendable by the other party thereto without
the consent of Checkers, as a result of the execution and delivery of this
Agreement, the joint purchasing agreement or any of the other agreements or
documents contemplated hereby or thereby or the consummation of the transactions
contemplated hereby or thereby.

         4.12 LEGAL PROCEEDINGS. Except as set forth in SECTION 4.12 OF THE
CHECKERS DISCLOSURE MEMORANDUM, there are no actions, suits or proceedings
instituted or pending or, to Checkers' Knowledge, threatened, against Checkers
or any of its Subsidiaries or against any property, asset, interest or right of
any of them, that involve more than $100,000 in controversy, whether or not
covered by insurance, or that seek relief other than money damages from Checkers
or any of its subsidiaries, or that would have, either individually or in the
aggregate, a Material Adverse Effect on Checkers if adversely decided. Neither
Checkers nor any of its Subsidiaries is subject to any judgment, order, writ,
injunction or decree that would have a Material Adverse Effect on Checkers.

                                       16


         4.13 CERTAIN INFORMATION.

         (a) When the Registration Statement (as defined in Section 6.4) to be
filed with the Commission by Checkers pursuant to Section 6.4 or any
post-effective amendment thereto shall become effective, and at all times
subsequent thereto up to and including the Effective Time, such Registration
Statement and all amendments or supplements thereto, with respect to all
information set forth therein furnished by Checkers relating to Checkers or its
Subsidiaries, shall comply as to form in all material respects with the
provisions of all applicable securities laws. Any written information supplied
or to be supplied by Checkers specifically for inclusion in the Joint Proxy
Statement/Prospectus, at the time it is sent to Checkers stockholders, or the
Registration Statement at the time it is filed with the Commission and when it
is declared effective by the Commission, will not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were made
not misleading.

         (b) If at any time prior to the Effective Time, any event occurs of
which Checkers has knowledge and which is required to be described in the
Registration Statement or any supplement or amendment thereto, Checkers will
file and disseminate, as required, a supplement or amendment which complies as
to form in all material respects with the provisions of all applicable
securities laws. Prior to its filing with the Commission, the Registration
Statement and each amendment or supplement thereto shall be delivered to Rally's
and its counsel.

         (c) All documents that Checkers is responsible for filing with the
Commission or any other Governmental Authority in connection with the
transactions contemplated hereby shall comply as to form in all material
respects with the provisions of applicable law and the applicable rules and
regulations thereunder.

         4.14 NO BROKERS. Checkers has not entered into a contract, arrangement
or understanding with any person or firm that may result in the obligation of
Checkers or any of its Subsidiaries to pay any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement, or the consummation of the transactions contemplated
hereby or thereby, except that Checkers has retained Credit Suisse First Boston
Corporation as its financial advisor.

         4.15 OPINION OF FINANCIAL ADVISOR. The Independent Committee of the
Board of Directors of Checkers has received the opinion (the "Checkers Opinion")
of Credit Suisse First Boston Corporation (the "Checkers Financial Advisor") to
the effect that, as of the date hereof and based upon and subject to certain
matters stated in such opinion, the 1.99 exchange ratio set forth in Section
3.1(a) is fair to Checkers from a financial point of view. A copy of such
written opinion and any amendments or supplements thereto shall be delivered to
Rally's as promptly as practicable after receipt thereof by Checkers.

         4.16 ENVIRONMENTAL. Except as disclosed in SECTION 4.16 OF THE CHECKERS
DISCLOSURE MEMORANDUM and except insofar as inaccuracies in the following
statements would not

                                       17


have a Material Adverse Effect on Checkers (and with respect to properties
formerly owned or leased by Checkers or any of its Subsidiaries, only with
respect to such period of ownership or lease): (i) the properties owned or
leased by Checkers or any of its Subsidiaries and properties formerly owned or
leased by Checkers or any of its Subsidiaries for which Checkers has contractual
liability (the "Checkers Properties") are or were, as the case may be, in
compliance in all material respects with all applicable federal, state and local
environmental and hazardous waste laws and regulations; (ii) no enforcement
actions are pending or threatened against Checkers or any of its Subsidiaries
and no notice of potential liability or administrative or judicial proceedings
(including notices regarding clean up of off-site third party hazardous waste
sites) has been received by Checkers or such Subsidiary; (iii) there does not
now exist on any Checkers Properties currently owned or leased by Checkers, and
there has not occurred on, from or under Checkers Properties, a material
disposal or release of, Hazardous Substances, Hazardous Wastes or Contaminants
(as such terms are defined in SECTION 4.16 OF THE CHECKERS DISCLOSURE
MEMORANDUM; (iv) Checkers Properties contain no unregistered underground storage
tanks; (v) neither Checkers nor any of its Subsidiaries nor any of their
respective predecessors has any contingent liability in connection with the
release of any Hazardous Substances, Hazardous Wastes or Contaminants into the
environment; and (vi) neither Checkers or any of its Subsidiaries nor any of
their respective predecessors has (A) given any release or waiver of liability
that would waive or impair any claim based on Hazardous Substances, Hazardous
Wastes or Contaminants to any current or prior tenant or owner of any real
property owned or leased at any time by either Checkers or any of its
Subsidiaries or to any party who may be potentially responsible for the presence
of Hazardous Substances, Hazardous Wastes or Contaminants on any such real
property; or (B) made any promise of indemnification to any party regarding
Hazardous Substances, Hazardous Wastes or Contaminants that may be located on
any real property owned or leased at any time by either Checkers or any
Subsidiary or any of their respective predecessors. SECTION 4.16 OF THE CHECKERS
DISCLOSURE MEMORANDUM contains a description of environmental indemnities of
which either Checkers or any of its Subsidiaries is a beneficiary.

         4.17 PERSONNEL. Except as set forth in SECTION 4.17 OF THE CHECKERS
DISCLOSURE Memorandum, there is no outstanding liability for arrears of wages,
payroll taxes or failure to comply with applicable employment laws and there are
no labor disputes existing, or to Checkers' Knowledge, threatened, involving
strikes, work stoppages, slow downs or lockouts. There are no grievance
proceedings or claims of unfair labor practices filed or, to Checkers'
Knowledge, threatened to be filed with the National Labor Relations Board
against Checkers or any of its Subsidiaries. To Checkers' Knowledge, there is no
union representation or organizing effort pending or threatened against Checkers
or any Subsidiary. Neither Checkers nor any Subsidiary has agreed to recognize
any union or other collective bargaining unit except those governed by the terms
of the agreements listed in SECTION 4.11 OF THE CHECKERS DISCLOSURE MEMORANDUM.

         4.18 TAKEOVER STATUTES. Except for Article 9 of Checkers' Certificate
of Incorporation, Sections 607.0901--607.0903 of the Florida 1989 Business
Corporation Act and Section 203 of the DGCL, no "fair price," "moratorium,"
"control share acquisition" or other anti-takeover statute or regulation enacted
under any federal or state or foreign law, applicable to Checkers is applicable
to the Merger or the other transactions contemplated hereby.

                                       18


         4.19 INTELLECTUAL PROPERTY. Except as set forth in SECTION 4.19 OF THE
CHECKERS DISCLOSURE MEMORANDUM: (i) Checkers and each of its Subsidiaries owns
or possesses or has all Intellectual Property necessary to conduct its business
as conducted; (ii) neither Checkers nor any of its Subsidiaries has received any
unresolved notice of, or is aware of any fact or circumstance that would give
any third party a right to assert, infringement or misappropriation of, or
conflict with, asserted rights of others or invalidity or unenforceability of
any Intellectual Property owned by Checkers or any of its Subsidiaries; (iii)
the use of such Intellectual Property to conduct the business and operations of
Checkers and its Subsidiaries as conducted does not infringe on the rights of
any person; (iv) no person is challenging or infringing on or otherwise
violating any right of Checkers or any of its Subsidiaries with respect to any
Intellectual Property owned by and/or licensed to Checkers or any of its
Subsidiaries; (v) neither the execution of this Agreement nor the consummation
of the transactions contemplated hereby will result in a loss or limitation in
(x) the rights and licenses of Checkers or any of its Subsidiaries to use or
enjoy the benefit of any Intellectual Property employed by them in connection
with their business as conducted (y) the amount of any royalties or other
benefits received by Checkers or any of its Subsidiaries from Intellectual
Property owned by it.

         4.20 INSURANCE. Checkers and its Subsidiaries maintain, with reputable
insurers, insurance in such amounts, including deductible arrangements, and of
such a character as is usually maintained by reasonably prudent managers of
companies engaged in the same or similar business.

         4.21 YEAR 2000 COMPLIANCE. Except as set forth in SECTION 4.21 OF THE
CHECKERS DISCLOSURE MEMORANDUM, Checkers' information systems are designed to be
used prior to, during and after the calendar year 2000 A.D., and its information
systems will accurately receive, provide and process date/time data (including
but not limited to calculating, comparing and sequencing) from, into and between
the twentieth and twenty-first centuries, including the years 1999 and 2000, and
leap year calculations, and will not malfunction, cease to function, or provide
invalid or incorrect results as a result of time/date data.

         4.22 VOTING REQUIREMENTS. The affirmative vote of the holders of a
majority of the outstanding shares of Checkers Common Stock is the only vote of
the holders of any class or series of Checkers capital stock necessary to
approve and adopt this Agreement, the Merger and the other transactions
contemplated hereby.

                                    ARTICLE 5
                    REPRESENTATIONS AND WARRANTIES OF RALLY'S

         Rally's represents and warrants to Checkers as follows:

         5.1 ORGANIZATION AND STANDING.

         (a) Rally's is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation and is duly
qualified to do business, and is in good standing, 

                                       19


in each jurisdiction in which the character of the properties owned or leased by
it or the conduct of its business requires it to be so qualified, except where
the failure to be so qualified or to be in good standing would not have a
Material Adverse Effect on Rally's.

         (b) Rally's has furnished to Checkers complete and correct copies of
its Certificate of Incorporation and By-laws and of the Certificate of
Incorporation and By-laws or similar Organizational Documents of each of its
Subsidiaries, as amended through the date hereof. Such Organizational Documents
are in full force and effect and no other organizational documents are
applicable to or binding upon Rally's or any Subsidiary of Rally's.

         5.2 AUTHORIZATION, VALIDITY AND EFFECT.

         (a) Rally's has the requisite corporate power and authority to execute
and deliver this Agreement, the Rally's Voting Agreement and all other
agreements and documents contemplated hereby or thereby to be executed and
delivered by it, and, subject to stockholder approval, to consummate the
transactions contemplated hereby and thereby. Subject to approval and adoption
by Rally's stockholders of this Agreement, the execution and delivery of this
Agreement, the Rally's Voting Agreement and such other agreements and documents,
and the consummation of the transactions, contemplated herein and therein, have
been duly and validly authorized by all necessary corporate action in respect
thereof on the part of Rally's. This Agreement has been duly and validly
executed and delivered by Rally's and represent the legal, valid and binding
obligation of Rally's enforceable against it in accordance with their respective
terms, except as the enforcement hereof may be limited by bankruptcy, insolvency
or other laws affecting the enforcement of creditor's rights generally.

         (b) The Board of Directors of Rally's has duly approved the
transactions contemplated by this Agreement for the purposes of Section 203 of
the DGCL, such that the restrictions on "business combinations" set forth in
Section 203 of the DGCL will not apply to such transactions.

         5.3 CAPITALIZATION.

         (a) The authorized capital stock of Rally's consists of: (i) 50,000,000
shares of Rally's Common Stock, of which, as of the date hereof, 29,335,243
shares are issued and outstanding and 273,445 shares are held in Rally's
treasury; and (ii) 5,000,000 shares of Preferred Stock, $.10 per value per share
(the "Rally's Preferred Stock"), none of which is outstanding as of the date
hereof. All of the outstanding shares of Rally's Common Stock are duly and
validly issued and outstanding and are fully paid and non-assessable. As of the
date hereof, Rally's had outstanding options and warrants representing the right
to acquire from Rally's not more than 11,740,544 shares of Rally's Common Stock,
subject to adjustment. Each such option or warrant, the holder thereof, the
grant date, exercise price, the vesting date and other material terms thereof
and the instrument or plan pursuant to which such option or warrant was issued
are described in SECTION 5.3(B) OF THE DISCLOSURE MEMORANDUM delivered to
Checkers three business days prior to the execution hereof (the "Rally's
Disclosure Memorandum").

                                       20


         (b) Except as set forth in Section 5.3(a), there are no shares of
capital stock or other equity securities of Rally's outstanding, and except as
set forth in SECTION 5.3(B) OF THE RALLY'S DISCLOSURE MEMORANDUM, no outstanding
options, warrants or rights to subscribe for, securities or rights convertible
into or exchangeable for, or contracts, commitments or arrangements by which
Rally's is or may be required to issue or sell additional Rally's Common Stock
or any other equity interest in Rally's (collectively, "Rally's Equity Rights").

         (c) Except as described in SECTION 5.3(C) OF THE RALLY'S DISCLOSURE
MEMORANDUM, since September 6, 1998, Rally's has not (i) issued any Rally's
Common Stock or Rally's Equity Rights, other than pursuant to the exercise of
options and warrants that were issued and outstanding on September 6, 1998, (ii)
purchased, redeemed or otherwise acquired, directly or indirectly through one or
more Subsidiaries, any Rally's Common Stock or (iii) declared, set aside, made
or paid to the stockholders of Rally's dividends or other distributions on the
outstanding Rally's Common Stock.

         5.4 RALLY'S SUBSIDIARIES.

         (a) SECTION 5.4(A) OF THE RALLY'S DISCLOSURE MEMORANDUM lists all
Subsidiaries of Rally's. All of the outstanding shares of capital stock of each
Subsidiary of Rally's are duly and validly issued, fully paid and non-assessable
and are owned by Rally's either directly or indirectly through another wholly
owned Subsidiary of Rally's free and clear of all Liens. No equity securities of
any Subsidiary may be required to be issued (other than to Rally's) by reason of
any (i) option, warrant or right to subscribe therefor, (ii)convertible security
or securities or rights exchangeable therefor, or (iii) contracts, commitments,
understandings or arrangements. There are no contracts, commitments,
understandings or arrangements by which Rally's or any Subsidiary of Rally's is
or may be obligated to sell, vote or otherwise transfer any shares of the
capital stock of any Subsidiary of Rally's.

         (b) Each Subsidiary of Rally's is duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is incorporated
or organized, has the corporate power and authority necessary for it to own or
lease its properties and assets and to carry on its business as it is now being
conducted, and is duly qualified to do business and in good standing in the
jurisdictions in which the ownership of its property or the conduct of its
business requires it to be so qualified, except for such jurisdictions in which
the failure to be so qualified and in good standing would not have a Material
Adverse Effect on Rally's.

         (c) Other than as set forth in SECTION 5.4(C) OF THE RALLY'S DISCLOSURE
MEMORANDUM and except for interests in Subsidiaries, neither Rally's nor any
Subsidiary thereof owns, directly or indirectly, any interest or investment
(whether equity or debt) in any corporation, limited liability company,
partnership, joint venture, business, trust or other legal entity.

         5.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.

         (a) Neither the execution and delivery by Rally's of this Agreement,
the Rally's Voting Agreement or any other agreement contemplated herein or
therein to which it is a party nor the

                                       21


consummation by Rally's of the transactions contemplated herein or therein, nor
compliance by Rally's with any of the provisions hereof or thereof will: (i)
conflict with or result in a breach of any provision of the Organizational
Documents of Rally's or any Subsidiary thereof; (ii) constitute or result in the
breach of any term, condition or provision of, or constitute a default under, or
give rise to any right of termination, cancellation or acceleration with respect
to, or result in the creation of any Lien upon, any property or assets of
Rally's or any Subsidiary thereof pursuant to, any note, bond, mortgage,
indenture, license, agreement, lease or other instrument or obligation to which
any of them is a party or by which any of them or any of their properties or
assets may be subject, and that would, in any such event, have a Material
Adverse Effect on Rally's; or (iii) subject to receipt of the requisite
approvals referred to in Section 5.5(b), violate any order, writ, injunction,
decree, statute, rule or regulation of any Governmental Authority, applicable to
Rally's or any Subsidiary thereof or any of their respective properties or
assets which violation would have a Material Adverse Effect on Rally's; or (iv)
constitute or result in a Change of Control, as that term is used and defined in
the Indenture, dated as of March 1, 1993, by and among Rally's, as issuer,
certain of its subsidiaries, as subsidiary guarantors, and Chase Manhattan Trust
Company, N.A., as successor trustee (the "Indenture"), or require Rally's,
Checkers or any other person to make a Change of Control Offer pursuant to
Section 4.14 of the Indenture, or otherwise give rise to any obligation to offer
to purchase the securities issued pursuant to the Indenture.

         (b) Other than (i) in connection or compliance with the provisions of
applicable state and federal securities laws, and the rules and regulations of
the Commission thereunder, (ii) notices and completion of the applicable waiting
period under the HSR Act, (iii) filings with the Secretary of State of the State
of Delaware required to effect the Merger, (iv) in connection or compliance with
the applicable requirements of the Code, and state, local and foreign tax laws,
(v) as set forth in SECTION 5.5(B) OF THE RALLY'S DISCLOSURE MEMORANDUM and (vi)
where the failure to give such notice, make such filing or receive such order,
authorization, exemption, consent or approval would not have a Material Adverse
Effect on Rally's, no notice to, filing with, authorization of, exemption by or
consent or approval of any Governmental Authority is necessary for the
consummation by Rally's of the transactions contemplated in this Agreement or
the Rally's Voting Agreement.

         5.6 RALLY'S REPORTS; FINANCIAL STATEMENTS.

         (a) Rally's has filed all forms, reports and documents required to be
filed by it with the Commission since January 2, 1995 (collectively, the
"Rally's Reports") pursuant to Section 13 or 15(d) of the Exchange Act, and the
rules and regulations promulgated thereunder. As of their respective dates as
subsequently amended prior to the date of this Agreement, the Rally's Reports
(i) complied as to form in all material respects with the applicable
requirements of the Exchange Act and the rules and regulations promulgated
thereunder and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they were
made, not misleading.

         (b) Each of the audited consolidated financial statements and unaudited
consolidated interim financial statements of Rally's (including any related
notes and schedules) included (or

                                       22


incorporated by reference) in its Annual Report on Form 10-K for the fiscal year
ended December 28, 1997, as amended (the "Rally's Form 10-K"), and its Quarterly
Report on Form 10-Q for the period ended September 6, 1998 (the "Rally's Form
10-Q"), copies of which have been provided to Checkers (collectively, the
"Rally's Financial Statements"), have been prepared in accordance with GAAP
applied on a consistent basis (except as disclosed therein) and fairly present,
in all material respects, the consolidated financial position and the
consolidated results of operations, changes in stockholders' equity and cash
flows of Rally's and its consolidated Subsidiaries as of the dates and for the
periods indicated (subject to normal year-end adjustments in the case of the
interim unaudited financial statements).

         (c) As of the date of this Agreement, except set forth in the Rally's
Reports or SECTION 5.6(C) OF THE RALLY'S DISCLOSURE MEMORANDUM: (i) no event has
occurred since December 28, 1997 (y) which if such event had occurred prior to
December 28, 1997 would have been required to be disclosed in the Rally's Form
10-K or (z) which could have a Material Adverse Effect on Rally's; (ii) Rally's
has not engaged in any transaction with any of its affiliates and (iii) neither
Rally's nor any Subsidiary of Rally's has any material outstanding claims
against it, liabilities or indebtedness, contingent or otherwise, nor does there
exist any condition, fact or circumstances which Rally's reasonably anticipates
will create such claim or liability, other than claims or liabilities incurred
subsequent to December 28, 1997 in the ordinary course of business, consistent
with past practices, and which individually and in the aggregate do not have and
are not reasonably anticipated to have a Material Adverse Effect on Rally's.

         (d) Since December 28, 1997 and except as disclosed in SECTION 5.6(D)
OF THE RALLY'S DISCLOSURE MEMORANDUM or the Rally's Reports, Rally's and its
Subsidiaries have conducted their respective businesses only in the ordinary
course and consistent with past practices.

         (e) Since December 28, 1997, except as disclosed in SECTION 5.6(E) OF
THE RALLY'S DISCLOSURE MEMORANDUM and the Rally's Reports, there has been no
event or condition that has caused or is reasonably anticipated to cause a
Material Adverse Effect on Rally's.

         5.7 TAX AND ACCOUNTING MATTERS.

         (a) For purposes of this Section 5.7: (i) the term "Taxes" shall
include all federal, state, county, local or foreign taxes, charges, levies,
imposts or other assessments of any nature whatsoever, including corporate
income tax, corporate franchise tax, payroll tax, sales tax, use tax, property
tax, excise tax, withholding tax, and environmental tax, together with any
interest thereon and any penalties or additions to tax relating thereto imposed
by any governmental taxing authority for which Rally's or any other member of
the Rally's Group (as defined below in this Section 5.7(a)) may be directly or
contingently liable in its own right, as collection agent for taxes imposed on
another person, as a result of any guaranty or election, or as a transferee of
the assets of, or as successor to, any person, or pursuant to any applicable
law; (ii) the term the "Rally's Group" shall mean, individually and
collectively, Rally's, any Subsidiary of Rally's, and any individual, trust,
corporation, partnership, limited liability company or other entity as to which
Rally's may be liable for Taxes for which Rally's or such individual or entity
may be directly or contingently liable in its 

                                       23


own right, as a result of any guaranty or election, or as a transferee of the
assets of, or as successor to, any person, or pursuant to any applicable law;
and (iii) the term "Returns" shall mean all returns, reports, estimates,
declarations of estimated tax, information statements and other filings relating
to, or required to be filed in connection with, any Taxes, including, without
limitation, information returns or reports with respect to backup or employee
withholding and other payments to third parties.

         (b) Except as indicated in SECTION 5.7(B) OF THE RALLY'S DISCLOSURE
MEMORANDUM: (i) all Returns required to be filed by or on behalf of any member
of the Rally's Group have been duly filed on a timely basis and all such Returns
are true, correct and complete in all material respects; (ii) all Taxes that
have been shown as due and payable on the Returns that have been filed by or on
behalf of each member of the Rally's Group have been timely paid, and no other
Taxes are payable by any member of the Rally's Group with respect to items or
periods covered by such Returns (whether or not shown on or reportable on such
Returns); (iii) the amounts set forth as provisions for current and deferred
taxes and/or accrued liabilities in the Rally's Financial Statements are
sufficient for the payment of all unpaid Taxes accrued for or applicable to all
periods ended on the respective dates of the Rally's Financial Statements and
all years and periods prior thereto, and each of the amounts set forth on the
Rally's Financial Statements in respect of current Taxes and deferred Taxes has
been correctly determined in accordance with GAAP; (iv) no member of the Rally's
Group is delinquent in the payment of any Taxes or has requested any extension
of time within which to file any Return, which Return has not since been filed,
accompanied by payment of all Taxes shown as due and payable thereon; (v) there
is no dispute or claim concerning any Tax liability of any member of the Rally's
Group either (A) claimed or raised by any governmental taxing authority in
writing or (B) as to which any director or officer of any member of the Rally's
Group (or employees responsible for Taxes of any such member of the Rally's
Group) has knowledge based upon personal contact with any agent of such
authority, other than those Taxes, identified in SECTION 5.7(B) OF THE RALLY'S
DISCLOSURE MEMORANDUM, being contested in good faith by appropriate proceedings;
(vi) no member of the Rally's Group has waived any statute of limitations in
respect of Taxes or granted any extension of the limitations period applicable
to any claim for Taxes; (vii) Rally's is not liable for the Taxes of any person,
including, without limitation, as a result of the application of United States
Treasury Regulation Section 1.1502-6, any analogous provision of state, local or
foreign law (including, without limitation, principles of unitary taxation), or
as a result of any contractual arrangement, whether with any third party or with
any taxing authority; (viii) Rally's is not nor has it ever been a party to any
tax sharing agreement with any corporation or limited liability company which is
not currently a member of the Rally's Group; (ix) no claim has ever been made by
any governmental taxing authority in any jurisdiction where any member of the
Rally's Group does not file Returns that it is or may be subject to taxation by
such jurisdiction; (x) there are no Liens on any of the assets of any member of
the Rally's Group that arose in connection with any failure (or alleged failure)
to pay any Taxes; (xi) each member of the Rally's Group has withheld and paid
over all Taxes required to have been withheld and paid over and complied with
all information reporting and backup withholding requirements, including
maintenance of required records with respect thereto, in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder, or
other third party; (xii) no director or officer of any member of the Rally's
Group (or 

                                       24


employees responsible for Taxes of such member) expects any governmental taxing
authority to assess any additional Taxes for any period for which Returns have
been filed; (xiii) SECTION 5.7(B) OF THE RALLY'S DISCLOSURE MEMORANDUM lists all
Returns (relating to any type of Tax and to any taxable period) filed with
respect to Rally's that have been audited and indicates those Returns that
currently are the subject of audit; (xiv) Rally's has delivered or made
available to Checkers correct and complete copies of all federal, state, local
and foreign income and franchise Tax Returns filed with respect to Rally's for
all taxable periods for which the applicable statute of limitations for the
assessment of any Tax has not yet expired, and has provided representatives of
Checkers access to all Returns (relating to any type of Tax and to any taxable
period) filed with respect to Rally's; (xv) Rally's has delivered to Checkers
all examination reports and statements of deficiency assessed against or agreed
to by each member of the Rally's Group since January 2, 1995; (xvi) Rally's is
not and has never been a "United States real property holding corporation"
within the meaning of Section 897(c) of the Code; (xvii) no member of the
Rally's Group is a "consenting corporation" under Section 341(f) of the Code;
(xviii) no member of the Rally's Group has entered into any compensatory
agreement with respect to the performance of services as to which payment or
vesting thereunder (including payment or vesting as a result of the transactions
contemplated hereunder) would result in a nondeductible expense to the Rally's
Group pursuant to Section 280G of the Code or an excise tax to the recipient of
such payment pursuant to Section 4999 of the Code; (xix) Rally's has not agreed,
nor is it required, to make any adjustment under Section 481(a) of the Code by
reason of a change in accounting method or otherwise that would require the
recognition of income pursuant to such adjustment in any post-closing period;
(xx) SECTION 5.7(B) OF THE RALLY'S DISCLOSURE MEMORANDUM sets forth a list of
each joint venture, limited liability company, partnership or other arrangement
or contract which is treated as a partnership for federal income tax purposes in
which Rally's holds a direct or indirect ownership interest as of the date
hereof or during any taxable period as to which the statute of limitations on
the assessment of income or franchise tax has not yet expired; and (xxi) any
past due property taxes for which Rally's or any Subsidiary of Rally's is liable
do not exceed $100,000.

         5.8 PROPERTIES. Except as disclosed or reserved against in the Rally's
Financial Statements and except for circumstances that would not have a Material
Adverse Effect on Rally's, Rally's and each Subsidiary thereof has good title to
all of the material properties and assets, tangible or intangible, reflected in
the Rally's Financial Statements as being owned by Rally's and its Subsidiaries
as of the dates thereof, free and clear of all Liens, except such imperfections
or irregularities of title as do not affect the use thereof in any material
respect and statutory liens securing payments not yet delinquent. All leased
buildings and all leased fixtures, equipment and other property and assets that
are material to the business of Rally's on a consolidated basis are held under
leases or subleases that are valid instruments enforceable in accordance with
their respective terms. All leases to which Rally's or any Subsidiary thereof is
a party were entered into in the ordinary course of business. None of such
leases is with an Affiliate or contains any material terms or conditions which
make any such lease unreasonably onerous or commercially unreasonable.

         5.9 COMPLIANCE WITH LAWS. Except as disclosed in the Rally's Reports
and except for environmental matters, which shall be covered by Section 5.16
hereof and which shall not be covered by this Section 5.9, Rally's and each
Subsidiary thereof: (i) is in compliance with all 

                                       25


laws, regulations, reporting and licensing requirements and orders applicable to
its business or employees conducting its business, the breach or violation of
which would have a Material Adverse Effect on Rally's; and (ii) has received no
notification or communication from any Governmental Authority (y) asserting that
it or any of its Subsidiaries is not in compliance with any of the statutes,
regulations or ordinances that such Governmental Authority enforces, which
noncompliance would have a Material Adverse Effect on Rally's or (z) threatening
to revoke any license, franchise, permit or authorization of any Governmental
Authority, which revocation would have a Material Adverse Effect on Rally's.

         5.10 EMPLOYEE BENEFIT PLANS.

         (a) Except as listed in SECTION 5.10 OF THE RALLY'S DISCLOSURE
MEMORANDUM, none of Rally's, any of the Subsidiaries of Rally's or any of their
respective ERISA Affiliates maintains, is a party to, participates in or has any
liability or contingent liability with respect to:

                (i) any "employee welfare benefit plan" or "employee pension
benefit plan" (as those terms are defined in Sections 3(l) and 3(2) of ERISA
respectively); or

                (ii) any retirement or deferred compensation plan, incentive
compensation plan, stock plan, unemployment compensation plan, vacation pay,
severance pay, bonus or benefit arrangement, insurance or hospitalization
program or any other fringe benefit arrangements for any current or former
employee, director, consultant or agent, whether pursuant to contract,
arrangement, custom or informal understanding, which does not constitute an
employee benefit plan (as defined in Section 3(3) of ERISA).

         (b) A true and correct copy of each of the plans, arrangements, and
agreements listed in SECTION 5.10 OF THE RALLY'S DISCLOSURE MEMORANDUM (referred
to collectively as "Rally's Employee Benefit Plans"), and all contracts relating
thereto, or to the funding thereof, including, without limitation, all trust
agreements, insurance contracts, administration contracts, investment management
agreements, subscription and participation agreements, and record keeping
agreements, each as in effect on the date hereof, has been supplied or made
available to Checkers. In the case of any Rally's Employee Benefit Plan which is
not in written form, Checkers has been supplied with an accurate description of
such Rally's Employee Benefit Plan as in effect on the date hereof. A true and
correct copy of the most recent annual report, actuarial report, accountant's
opinion relating to of the plan's financial statements, summary plan description
and Internal Revenue Service determination letter with respect to each Rally's
Employee Benefit Plan, to the extent applicable, and a current schedule of
assets (and the fair market value thereof assuming liquidation of any asset
which is not readily tradable) held with respect to any funded Rally's Employee
Benefit Plan has been supplied or made available to Checkers, and there have
been no material changes in the financial condition of the respective plans from
that stated in the annual reports and actuarial reports supplied.

         (c) As to all Rally's Employee Benefit Plans:

                                       26


               (i) Such Plans comply and have been administered in form and in
operation in all material respects with all applicable requirements of law, and
no event has occurred which will or could cause any such Rally's Employee
Benefit Plan to fail to comply with such requirements and no notice has been
issued by any governmental authority questioning or challenging such compliance.

               (ii) Such Plans which are employee pension benefit plans comply
in form and in operation with all applicable requirements of Sections 401(a) and
501(a) of the Code; there have been no amendments to such Plans which are not
the subject of a favorable determination letter issued with respect thereto by
the Internal Revenue Service; and no event has occurred which will or could give
rise to disqualification of any such Plan under such sections or to a tax under
Section 511 of the Code.

               (iii) None of the assets of any such Plan (other than Rally's
employee stock purchase plan) are invested in employer securities or employer
real property.

               (iv) There have been no "prohibited transactions" (as described
in Section 406 of ERISA or Section 4975 of the Code) with respect to any such
Plan and none of Rally's, any of its Subsidiaries or any of their respective
ERISA Affiliates has engaged in any prohibited transaction.

               (v) There have been no acts or omissions by Rally's, any of its
Subsidiaries or any of their respective ERISA Affiliates which have given rise
to or may give rise to fines, penalties, taxes or related charges under section
502 of ERISA or Chapters 43, 47 or 68 of the Code for which Rally's or any of
its Subsidiaries may be liable.

               (vi) None of the payments contemplated by such Plans would, in
the aggregate, constitute excess parachute payments (as defined in section 280G
of the Code) and neither the execution of this Agreement nor the consummation of
the transactions contemplated by this Agreement would accelerate the payment,
vesting or funding of benefits under any of such Plans.

               (vii) There are no actions, suits or claims (other than routine
claims for benefits) pending or, to the actual knowledge of Rally's President
and Chief Executive Officer or Chief Financial Officer ("Rally's Knowledge"),
threatened involving any such Plan or the assets thereof and no facts exist
which could give rise to any such actions, suits or claims (other than routine
claims for benefits).

               (viii) No such Plan is subject to Title IV of ERISA and no such
Plan is a multi-employer plan (within the meaning of Section 3(37)) of ERISA.

               (ix) None of Rally's or any of its Subsidiaries has any liability
or contingent liability for providing, under any such Plan or otherwise, any
post-retirement medical or life insurance benefits, other than statutory
liability for providing group health plan continuation coverage under Part 6 of
Title I of ERISA and Section 4980B of the Code.

                                       27


               (x) Accruals for all obligations under such Plans are reflected
in the financial statements of Rally's in accordance with GAAP.

               (xi) To Rally's Knowledge, there has been no act or omission that
would impair the ability of Rally's or any of its Subsidiaries (or any successor
thereto) to unilaterally amend or terminate any Employee Benefit Plan.

         5.11 MATERIAL CONTRACTS.

         (a) Set forth in SECTION 5.11 OF THE RALLY'S DISCLOSURE MEMORANDUM is a
list, as of the date hereof, of the following agreements:

               (i) each agreement pursuant to which Rally's or any of its
Subsidiaries is entitled to receive amounts in excess of $100,000 (or the fair
market equivalent thereof in goods or services) on an annual or annualized
basis; each agreement pursuant to which Rally's or any of its Subsidiaries is
obligated to pay an amount in excess of $100,000 (or the fair market equivalent
thereof in goods or services) on an annual or annualized basis; and each
agreement, the term of which exceeds two years and which may not be canceled by
Rally's or any of its Subsidiaries without penalty on one year or less notice,
and pursuant to which Rally's or any of its Subsidiaries is entitled to receive
(in cash, services or property) or will be obligated to pay, during the
unexpired term thereof, an amount in excess of $100,000 (or the fair market
equivalent thereof in goods or services);

               (ii) each franchise, partnership, limited liability company,
joint venture or trust agreement to which Rally's or any of its Subsidiaries is
a party;

               (iii) each agreement limiting the right of Rally's or any of its
Subsidiaries to engage in or compete with any person in any business or
geographical area;

               (iv) each agreement or other arrangement of or involving Rally's
or any of its Subsidiaries with respect to indebtedness for money borrowed,
including letters of credit, guaranties, indentures, swaps and similar
agreements;

               (v) each management, consulting, employment, severance or similar
agreement requiring the payment of compensation in excess of $100,000 annually,
to which Rally's or any of its Subsidiaries is a party and which may not be
terminated by Rally's or such Subsidiary without penalty on 90 days (or less)
notice;

               (vi) each lease or other agreement with respect to real property
leased by Rally's or any of its Subsidiaries and which: requires Rally's or any
of its Subsidiaries to pay an amount or amounts in excess of $100,000 on annual
or annualized basis; or has an unexpired term which exceeds two years and may
not be canceled by Rally's or any of its Subsidiaries without penalty on one
year or less notice and which requires Rally's or any of its Subsidiaries to
pay, during the unexpired term, an amount in excess of $100,000;

                                       28


               (vii) each collective bargaining agreement to which Rally's or
any of its Subsidiaries is a party;

               (viii) each agreement with any Affiliate of Rally's (other than
employment agreements and agreements between Rally's and any Subsidiary thereof)
to which Rally's or any of its Subsidiaries is a party which involves total
payments or liabilities to or from Rally's or any of its Subsidiaries in excess
of $60,000;

               (ix) each guaranty or indemnification (other than for money
borrowed) or other similar agreement to which Rally's or any of its Subsidiaries
is a party; and

               (x) each stockholder agreement, voting trust agreement, share
purchase agreement, registration rights agreement or other similar agreement to
which Rally's is a party or other agreement granting rights to one or more of
the stockholders of Rally's, restricting the voting or transferability of
Rally's Common Stock or otherwise pertaining to Rally's Common Stock or any
interest (economic or voting) therein.

         (b) Except for such matters as would not, individually or in the
aggregate, have a Material Adverse Effect on Rally's, each contract identified
in SECTION 5.11 OF THE RALLY'S DISCLOSURE Memorandum (the "Rally's Contracts")
is in full force and effect and is a legal, valid and binding contract or
agreement of Rally's, and there is no default or breach or, to Rally's
Knowledge, any event that, with the giving of notice or lapse of time or both,
would result in a material default or breach by Rally's, any of its Subsidiaries
or, to Rally's Knowledge, any other party in the timely performance of any
obligation to be performed or paid thereunder or any other material provision
thereof. To Rally's Knowledge none of its franchisees or suppliers will
terminate or reduce any of their agreements with Rally's, which termination
would have a Material Adverse Effect on Rally's.

         (c) Except for such matters as would not, individually or in the
aggregate, have a Material Adverse Effect on Rally's, none of the Rally's
Contracts will terminate, become terminable by the other party thereto, or have
the terms thereof become amended or amendable by the other party thereto without
the consent of Rally's, as a result of the execution and delivery of this
Agreement or any of the other agreements or documents contemplated hereby or
thereby to which Rally's is a party or the consummation of the transactions
contemplated hereby or thereby.

         5.12 LEGAL PROCEEDINGS. Except as disclosed in SECTION 5.12 OF THE
RALLY'S DISCLOSURE MEMORANDUM, there are no actions, suits, investigations or
proceedings instituted, pending or, to Rally's Knowledge, threatened, against
Rally's or any of its Subsidiaries, or against any property, asset, interest or
right of any of them, that involve more than $100,000 in controversy, whether or
not covered by insurance, or that seek relief other than money damages from
Rally's or any of its Subsidiaries, or that would have, either individually or
in the aggregate, a Material Adverse Effect on Rally's if adversely decided.
Neither Rally's nor any of its Subsidiaries is subject to any judgment, order,
writ, injunction or decree that would have a Material Adverse Effect on Rally's.

                                       29


         5.13 CERTAIN INFORMATION.

         (a) When the Registration Statement (as defined in Section 6.4) to be
filed with the Commission by Checkers pursuant to Section 6.4 or any
post-effective amendment thereto shall become effective, and at all times
subsequent to such effectiveness up to and including the Effective Time, such
Registration Statement and all amendments or supplements thereto, with respect
to all information set forth therein furnished by Rally's relating to Rally's or
any of its Subsidiaries, shall, if Rally's has approved the contents and
presentation of such information, comply as to form in all material respects
with the provisions of all applicable securities laws. Any written information
supplied or to be supplied by Rally's specifically for inclusion in the Joint
Proxy Statement/Prospectus, at the time it is sent to Rally's stockholders, or
the Registration Statement, at the time it is filed with the Commission and when
it is declared effective by the Commission, will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.

         (b) If at any time prior to the Effective Time, any event occurs of
which Rally's has knowledge and which is required to be described in the
Registration Statement or any supplement or amendment thereto, Rally's will
provide Checkers with sufficient supplemental written information to enable
Checkers to file and disseminate, as required, a supplement or amendment to the
Registration Statement.

         (c) All documents that Rally's is responsible for filing with the
Commission or any other Governmental Authority in connection with the
transactions contemplated hereby shall comply as to form in all material
respects with the provisions of applicable law and the applicable rules and
regulations thereunder.

         5.14 NO BROKERS. Except as disclosed in SECTION 5.14 OF THE RALLY'S
DISCLOSURE MEMORANDUM, Rally's has not entered into any contract, arrangement or
understanding with any person or firm that may result in the obligation of
Rally's, any of its Subsidiaries or Checkers to pay any finder's fees, brokerage
or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby, or thereby except that Rally's has retained Schroder & Co.
Inc. as its financial advisor.

         5.15 OPINION OF FINANCIAL ADVISOR. Rally's has received the opinion
(the "Rally's Opinion") of Schroder & Co. Inc. (the "Rally's Financial Advisor")
to the effect that, as of the date hereof, the 1.99 exchange ratio set forth in
Section 3.1(a) is fair, from a financial point of view, to the stockholders of
Rally's who are not affiliated with eitherCheckers or Rally's. A copy of such
written opinion and any amendments or supplements thereto shall be delivered to
Checkers as promptly as practicable after receipt thereof by Rally's.

         5.16 ENVIRONMENTAL. Except as disclosed in SECTION 5.16 OF THE RALLY'S
DISCLOSURE MEMORANDUM and except insofar as inaccuracies in the following
statements would not have a Material Adverse Effect on Rally's (and with respect
to properties formerly owned or leased 

                                       30


by Rally's or any of its Subsidiaries, only with respect to such period of
ownership or lease): (i) the properties owned or leased by Rally's or any of its
Subsidiaries and properties formerly owned or leased by Rally's or any of its
Subsidiaries for which Rally's has contractual liability (the "Rally's
Properties") are or were, as the case may be, in compliance in all material
respects with all applicable federal, state and local environmental and
hazardous waste laws and regulations; (ii) no enforcement actions are pending or
threatened against Rally's or any of its Subsidiaries and no notice of potential
liability or administrative or judicial proceedings (including notices regarding
clean up of off-site third party hazardous waste sites) has been received by
Rally's or such Subsidiary; (iii) there does not now exist on any Rally's
Properties currently owned or leased by Rally's, and there has not occurred on,
from or under Rally's Properties, a material disposal or release of, Hazardous
Substances, Hazardous Wastes or Contaminants (as such terms are defined in
SECTION 5.16 OF THE RALLY'S DISCLOSURE MEMORANDUM); (iv) Rally's Properties
contain no unregistered underground storage tanks; (v) neither Rally's nor any
of its Subsidiaries nor any of their respective predecessors has any contingent
liability in connection with the release of any Hazardous Substances, Hazardous
Wastes or Contaminants into the environment; and (vi) neither Rally's or any of
its Subsidiaries nor any of their respective predecessors has (A) given any
release or waiver of liability that would waive or impair any claim based on
Hazardous Substances, Hazardous Wastes or Contaminants to any current or prior
tenant or owner of any real property owned or leased at any time by either
Rally's or any of its Subsidiaries or to any party who may be potentially
responsible for the presence of Hazardous Substances, Hazardous Wastes or
Contaminants on any such real property; or (B) made any promise of
indemnification to any party regarding Hazardous Substances, Hazardous Wastes or
Contaminants that may be located on any real property owned or leased at any
time by either Rally's or any Subsidiary or any of their respective
predecessors. SECTION 5.16 OF THE RALLY'S DISCLOSURE MEMORANDUM contains a
description of environmental indemnities of which either Rally's or any of its
Subsidiaries is a beneficiary.

         5.17 PERSONNEL. Except as set forth in SECTION 5.17 OF THE RALLY'S
DISCLOSURE MEMORANDUM, there is no outstanding liability for arrears of wages,
payroll taxes or failure to comply with applicable employment laws and there are
no labor disputes existing, or to Rally's Knowledge, threatened, involving
strikes, work stoppages, slow downs or lockouts. There are no grievance
proceedings or claims of unfair labor practices filed or, to Rally's Knowledge,
threatened to be filed with the National Labor Relations Board against Rally's
or any of its Subsidiaries. To Rally's Knowledge, there is no union
representation or organizing effort pending or threatened against Rally's or any
Subsidiary. Neither Rally's nor any Subsidiary has agreed to recognize any union
or other collective bargaining unit except those governed by the terms of the
agreements listed in SECTION 5.11 OF THE RALLY'S DISCLOSURE MEMORANDUM.

         5.18 TAKEOVER STATUTES. Except for Section 203 of the DGCL, no "fair
price," "moratorium," "control share acquisition" or other similar anti-takeover
statute or regulation enacted under any federal, state or other law applicable
to Rally's is applicable to the Merger or the other transactions contemplated
hereby.

         5.19 INTELLECTUAL PROPERTY. Except as set forth in SECTION 5.19 OF THE
RALLY'S DISCLOSURE MEMORANDUM: (i) Rally's and each of its Subsidiaries owns or
possesses or has 

                                       31


all rights and licenses in, all patents, patent rights, licenses, inventions
(whether or not patentable or reduced to practice), copyrights (whether
registered or unregistered), know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), registered and unregistered trademarks, service marks and trade
names and other intellectual property rights (collectively, "Intellectual
Property") necessary to conduct its business as conducted; (ii) neither Rally's
nor any of its Subsidiaries has received any unresolved notice of, or is aware
of any fact or circumstance that would give any third party a right to assert,
infringement or misappropriation of, or conflict with, asserted rights of others
or invalidity or unenforceability of any Intellectual Property owned by Rally's
or any of its Subsidiaries; (iii) the use of such Intellectual Property to
conduct the business and operations of Rally's and its Subsidiaries as conducted
does not infringe on the rights of any person; (iv) no person is challenging or
infringing on or otherwise violating any right of Rally's or any of its
Subsidiaries with respect to any Intellectual Property owned by and/or licensed
to Rally's or any of its Subsidiaries; (v) neither the execution of this
Agreement nor the consummation of the transactions contemplated hereby will
result in a loss or limitation in (x) the rights and licenses of Rally's or any
of its Subsidiaries to use or enjoy the benefit of any Intellectual Property
employed by them in connection with their business as conducted or (y) the
amount of any royalties or other benefits received by Rally's or any of its
Subsidiaries from Intellectual Property owned by it.

         5.20 INSURANCE. Rally's and its Subsidiaries maintain, with reputable
insurers, insurance in such amounts, including deductible arrangements, and of
such a character as is usually maintained by reasonably prudent managers of
companies engaged in the same or similar business.

         5.21 YEAR 2000 COMPLIANCE. Except as disclosed in SECTION 5.21 OF THE
RALLY'S DISCLOSURE MEMORANDUM, Rally's information systems are designed to be
used prior to, during and after the calendar year 2000 A.D., and its information
systems will accurately receive, provide and process date/time data (including
but not limited to calculating, comparing and sequencing) from, into and between
the twentieth and twenty-first centuries, including the years 1999 and 2000, and
leap year calculations, and will not malfunction, cease to function, or provide
invalid or incorrect results as a result of time/date data.

         5.22 VOTING REQUIREMENTS. The affirmative vote of the holders of a
majority of the outstanding shares of Rally's Common Stock is the only vote of
the holders of any class or series of Rally's capital stock necessary to approve
and adopt this Agreement, the Merger and the other transactions contemplated
hereby.

                                    ARTICLE 6
                            COVENANTS AND AGREEMENTS

         6.1 INTERIM OPERATIONS OF CHECKERS. Prior to the earlier of the
Effective Time or the termination of this Agreement, except as contemplated by
any other provision of this Agreement, unless Rally's has previously consented
in writing thereto (which consent shall not be unreasonably withheld or
delayed), Checkers and its Subsidiaries will each

                                       32


conduct its operations according to its ordinary course of business consistent
with past practice and will each use its reasonable best efforts to preserve
intact its business organization, to keep available the services of its officers
and employees and to maintain existing relationships with licensors, licensees,
suppliers, contractors, distributors, customers and others having business
relationships with it to the end that its goodwill and ongoing business will not
be impaired in any material respect at the Effective Time. Without limiting the
generality of the foregoing, Checkers shall not, and shall not permit any
Subsidiary thereof to:

         (a) grant any general increase in compensation or benefits to its
employees or to its officers, except in the ordinary course consistent with past
practice or as required by law; pay any bonus compensation except in the
ordinary course consistent with past practice or in accordance with the
provisions of any applicable program or plan adopted by the Checkers Board or
any Subsidiary of Checkers prior to the date hereof; enter into or amend the
terms of any severance agreements with its officers; or effect any change in
retirement benefits for any class of its employees or officers (unless such
change is required by applicable law) that would materially increase the
retirement benefit liabilities of Checkers and its Subsidiaries on a
consolidated basis;

         (b) amend, alter or revise any existing employment contract,
understanding, arrangement or agreement with any person receiving compensation
(including salary and bonus) in excess of $100,000 per year (unless such
amendment is required by law) to increase the compensation (including bonus) or
benefits payable thereunder or pursuant thereto or enter into any new employment
contract, understanding, arrangement or agreement with any person having a
salary thereunder in excess of $100,000 that Checkers or such Subsidiary does
not have the unconditional right to terminate without liability (other than
liability for services already rendered) at any time on or after the Effective
Time;

         (c) adopt any new employee benefit plan or make any change in or to any
existing Checkers Employee Benefit Plan other than any such change that (i) is
required by law, (ii) in the opinion of counsel is necessary or advisable to
maintain the tax qualified status of any such, plan, or (iii) would not
materially increase, in the aggregate, the employee benefit plan liabilities of
Checkers and its Subsidiaries, taken as a whole;

         (d) except as disclosed in SECTION 6.1(D) OF THE CHECKERS DISCLOSURE
MEMORANDUM, sell, lease or otherwise dispose of any of its assets (including
capital stock of its Subsidiaries) or acquire any business or assets in a single
transaction or a series of similar transactions, except in the ordinary course
of business for an amount not exceeding $100,000 in the aggregate;

         (e) except as disclosed in SECTION 6.1(E) OF THE CHECKERS DISCLOSURE
MEMORANDUM, incur any indebtedness for borrowed money or make any loans,
advances or capital contributions to, or investments (other than non-controlling
investments in the ordinary course of business) in, any other person other than
a Subsidiary, or issue or sell any debt securities, other than borrowings in
connection with acquisitions permitted by subsection 6.1(d);

                                       33


         (f) except as disclosed in SECTION 6.1(F) OF THE CHECKERS DISCLOSURE
MEMORANDUM, authorize, commit to or make capital expenditures in an amount
exceeding $100,000 in the aggregate;

         (g) mortgage or otherwise encumber or subject to any Lien any material
amount of properties or assets owned by Checkers or any Subsidiary thereof as of
the date of this Agreement except for such of the foregoing as are in the normal
course of business;

         (h) make any material change to its accounting (including tax
accounting) methods, principles or practices, except as may be required by GAAP;

         (i) amend or propose to amend its Organizational Documents;

         (j) declare or pay any dividend or distribution with respect to its
capital stock;

         (k) other than pursuant to options or warrants or other securities or
commitments outstanding as of the date hereof and listed in SECTION 4.3(B) OF
THE CHECKERS DISCLOSURE MEMORANDUM, issue, sell, deliver or agree to issue,
sell, deliver (whether through issuance or granting of options, warrants,
commitments, subscriptions or rights to purchase) any capital stock or split,
combine, reclassify or subdivide the capital stock;

         (1) make any tax election or settle or compromise any material tax
liability for an aggregate amount greater than reflected on Checkers Financial
Statements;

         (m) directly or indirectly redeem, purchase or otherwise acquire any
shares of its capital stock or other securities or any capital stock of Rally's;

         (n) enter into any new lines of business or otherwise make material
changes to the operation of its business;

         (o) except as to liabilities accrued as of the date of this Agreement,
pay or agree to pay in settlement or compromise of any suits or claims of
liability against Checkers, its directors, officers, employees or agents, more
than an aggregate of $100,000 for all such suits and claims; provided, however,
in the event Checkers does not effect such settlement or compromise because
Rally's has declined to consent thereto, and this Agreement is subsequently
terminated by Checkers pursuant to Section 8.1 hereof, Rally's shall indemnify
and hold Checkers harmless against all liabilities and expenses reasonably
incurred in connection with such matter to the extent in excess of the amount
for which Checkers could have settled or compromised such matter if Rally's had
granted such consent;

         (p) enter into any agreement providing for the acceleration of any
party's rights or payment or performance or other consequence as a result of a
change in control of Checkers;

                                       34


         (q) take any action or agree, in writing or otherwise, to take any of
the foregoing actions or any action which would make any representation or
warranty in Article 4 hereof materially untrue or incorrect; or

         (r) commit to any of the foregoing.

         6.2 INTERIM OPERATIONS OF RALLY'S. Prior to the earlier of the
Effective Time or the termination of this Agreement, except as contemplated by
any other provision of this Agreement, unless Checkers has previously consented
in writing thereto (which consent shall not be unreasonably withheld or
delayed), Rally's and its Subsidiaries will each conduct its operations
according to its ordinary course of business consistent with past practice and
will each use its reasonable best efforts to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain existing relationships with licensors, licensees, suppliers,
contractors, distributors, customers and others having business relationships
with it to the end that its goodwill and ongoing business will not be impaired
in any material respect at the Effective Time. Without limiting the generality
of the foregoing, Rally's shall not, and shall not permit any of its
Subsidiaries to:

         (a) grant any general increase in compensation or benefits to its
employees or to its officers, except in the ordinary course consistent with past
practice or as required by law; pay any bonus compensation except in the
ordinary course consistent with past practice or in accordance with the
provisions of any applicable program or plan adopted by the Rally's Board or any
Subsidiary of Rally's prior to the date hereof; enter into or amend the terms of
any severance agreements with its officers; or effect any change in retirement
benefits for any class of its employees or officers (unless such change is
required by applicable law) that would materially increase the retirement
benefit liabilities of Rally's and its Subsidiaries on a consolidated basis;

         (b) amend, alter or revise any existing employment contract,
understanding, arrangement or agreement with any person receiving compensation
(including salary and bonus) in excess of $100,000 per year (unless such
amendment is required by law) to increase the compensation (including bonus) or
benefits payable thereunder or pursuant thereto or enter into any new employment
contract, understanding, arrangement or agreement with any person having a
salary thereunder in excess of $100,000 that Rally's or such Subsidiary does not
have the unconditional right to terminate without liability (other than
liability for services already rendered) at any time on or after the Effective
Time;

         (c) adopt any new employee benefit plan or make any change in or to any
existing Rally's Employee Benefit Plan other than any such change that (i) is
required by law, (ii) in the opinion of counsel is necessary or advisable to
maintain the tax qualified status of any such, plan, or (iii) would not
materially increase, in the aggregate, the employee benefit plan liabilities of
Rally's and its Subsidiaries, taken as a whole;

         (d) except as disclosed in SECTION 6.2(D) OF THE RALLY'S DISCLOSURE
MEMORANDUM, sell, lease or otherwise dispose of any of its assets (including
capital stock of its Subsidiaries) or acquire

                                       35


any business or assets in a single transaction or in a series of similar
transactions, except in the ordinary course of business for an amount not
exceeding $100,000 in the aggregate;

         (e) except as disclosed in SECTION 6.2(E) OF THE RALLY'S DISCLOSURE
MEMORANDUM, incur any indebtedness for borrowed money or make any loans,
advances or capital contributions to, or investments (other than non-controlling
investments in the ordinary course of business) in, any other person other than
a Subsidiary, or issue or sell any debt securities, other than borrowings in
connection with acquisitions permitted by subsection 6.2(d);

         (f) except as disclosed in SECTION 6.2(F) OF THE RALLY'S DISCLOSURE
MEMORANDUM, authorize, commit to or make capital expenditures in an amount
exceeding $100,000 in the aggregate;

         (g) mortgage or otherwise encumber or subject to any Lien any material
amount of properties or assets owned by Rally's or any Subsidiary thereof as of
the date of this Agreement except for such of the foregoing as are in the normal
course of business;

         (h) make any material change to its accounting (including tax
accounting) methods, principles or practices, except as may be required by GAAP;

         (i) amend or propose to amend its Organizational Documents;

         (j) declare or pay any dividend or distribution with respect to its
capital stock;

         (k) other than pursuant to options or warrants or other securities
commitments outstanding as of the date hereof and listed in SECTION 5.3(B) OF
THE RALLY'S DISCLOSURE MEMORANDUM, issue, sell, deliver or agree to issue, sell,
deliver (whether through issuance or granting of options, warrants, commitments,
subscriptions or rights to purchase) any capital stock or split, combine,
reclassify or subdivide the capital stock;

         (1) make any tax election or settle or compromise any material tax
liability for an aggregate amount greater than reflected on the Rally's
Financial Statements;

         (m) directly or indirectly redeem, purchase or otherwise acquire any
shares of its capital stock or other securities or any capital stock of
Checkers;

         (n) enter into any new lines of business or otherwise make material
changes to the operation of its business;

         (o) except as to liabilities accrued as of the date of this Agreement,
pay or agree to pay in settlement or compromise of any suits or claims of
liability against Rally's, its directors, officers, employees or agents, more
than an aggregate of $100,000 for all such suits and claims; provided, however,
in the event Rally's does not effect such settlement or compromise because
Checkers has 

                                       36


declined to consent thereto, and this Agreement is subsequently terminated by
Rally's pursuant to Section 8.1, Checkers shall indemnify and hold Rally's
harmless against all liabilities and expenses reasonably incurred in connection
with such matter to the extent in excess of the amount for which Rally's could
have settled or compromised such matter if Checkers had granted such consent;

         (p) enter into any agreement providing for the acceleration of any
party's rights or payment or performance or other consequence as a result of a
change in control of Rally's;

         (q) take any action or agree, in writing or otherwise, to take any of
the foregoing actions or any action which would make any representation or
warranty in Article 5 hereof materially untrue or incorrect; or

         (r) commit to any of the foregoing.

         6.3 INVESTIGATION AND CONFIDENTIALITY.

         (a) Prior to the earlier of the Effective Time and the termination of
this Agreement, Checkers and Rally's shall keep each other advised of all
material developments relevant to the transactions contemplated hereby and may
make or cause to be made such investigation, if any, of the business and
properties of the other and of their respective financial and legal condition as
Checkers or Rally's may reasonably deem necessary or advisable to familiarize
itself and its advisors with such business, properties and other matters;
provided, however, that such investigation shall be reasonably related to the
transactions contemplated hereby and shall not interfere unnecessarily with
normal operations. Checkers and Rally's each agree to furnish the other and
their respective advisors with such financial and operating data and other
information with respect to its businesses, properties and employees as Checkers
or Rally's, as applicable, shall from time to time reasonably request.

        (b) Checkers and Rally's acknowledge that in the course of such
investigation, each will be providing the other and its representatives with
information which is proprietary and confidential. Checkers and Rally's each, on
behalf of itself and its representatives, agrees that it will treat as
confidential all information provided to it by the other which the other
designate as such in writing ("Confidential Information"), and that it will use
such Confidential Information solely in connection with the Merger and the other
transactions contemplated by this Agreement. In the event the Agreement is
terminated, Checkers and Rally's will return and/or destroy without retaining
any copies thereof, as requested by the party which provided the Confidential
Information to it, all such Confidential Information. The foregoing restrictions
shall not apply to any information which: (a) has not been designated as
Confidential Information; (b) which the recipient has obtained from sources
other than the other party hereto, which sources, to the best of the recipient's
knowledge and belief, are not subject to any confidentiality undertaking and did
not acquire such information from sources which are subject to such an
undertaking; or (c) has become known to the public other than through a
violation of this Section 6.3(b). The parties acknowledge that the foregoing
provisions shall not apply to information received by directors of Checkers or
Rally's who 

                                       37


receive such information in their capacity as a directors of the other, all of
which information is subject to customary standards of confidentiality.

         6.4 STOCKHOLDERS' MEETINGS; JOINT PROXY STATEMENT/PROSPECTUS;
REGISTRATION STATEMENT.

         (a) Checkers and Rally's, acting through their respective Boards of
Directors, shall, in accordance with applicable law and their respective
Certificates of Incorporation and By-Laws, promptly and duly give notice of
Meetings of their respective stockholders (the "Stockholders' Meetings") to
consider and act upon this Agreement, the Rally's Voting Agreement and the
transactions and other documents contemplated herein and therein and, as soon as
practicable following the date upon which Checkers Registration Statement on
Form S-4 required to be filed with the Commission in connection with the
issuance of Checkers Common Stock pursuant to the Merger (the "Registration
Statement") becomes effective, mail to their respective stockholders the Joint
Proxy Statement/Prospectus contained in the Registration Statement and relating
to the Stockholders' Meetings (the "Joint Proxy Statement/Prospectus") in
accordance with the requirements of the DGCL, the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations thereunder and
Regulation 14A under the Exchange Act. The Joint Proxy Statement/Prospectus
shall contain the recommendation of Checkers' Board of Directors and Rally's
Board of Directors to their respective stockholders that they vote in favor of
the approval and adoption of this Agreement.

         (b) As soon as practicable following the date hereof, Checkers and
Rally's shall prepare and file with the Commission, pursuant to Regulation 14A
of the Exchange Act, a Joint Proxy Statement/Prospectus with respect to: at the
Stockholders' Meetings, the Merger and all matters required to be submitted to
their respective stockholders in order to consummate the transactions
contemplated hereby; and at the Checkers Meeting, (i) an amendment top Checkers'
Certificate of Incorporation to increase in the number of authorized shares of
Checkers Common Stock, (ii) an amendment to Checkers' Certificate of
Incorporation to effect a one-for-12 reverse stock split (the "Reverse Split"),
(iii) adoption of Checkers' 1999 Stock Option Plan and approval of amendments to
Checkers' 1994 Stock Option Plan for Non-Employee Directors, and (iv) such other
matters as Checkers, with the approval of Rally's (such approval not to be
unreasonably withheld or delayed), determines to be appropriate to bring before
the Checkers stockholders. Rally's shall cooperate with Checkers in preparing
the Joint Proxy Statement/Prospectus and shall provide Checkers with all
information about Rally's that is required to be included in the Joint Proxy
Statement/Prospectus under the rules and regulations of the Commission under the
Securities Act and the Exchange Act, as the case may be.

         (c) As soon as practicable following receipt of final comments from the
staff of the Commission on the Joint Proxy Statement/Prospectus (or advice that
such staff will not review such filing), Checkers shall use its reasonable best
efforts to file the Registration Statement, to have the Registration Statement
declared effective by the Commission and to maintain the effectiveness of such
Registration Statement until the Effective Date.

                                       38


         (d) The parties shall cooperate in taking any action reasonably
necessary to allow the Joint Proxy Statement/Prospectus to also serve as a
prospectus for the Registration Statement. Promptly after the effectiveness of
the Registration Statement, Checkers and Rally's shall mail the Joint Proxy
Statement/Prospectus to all of their respective stockholders. Checkers and
Rally's shall cooperate with each other in the preparation of the Joint Proxy
Statement/Prospectus and the Registration Statement and shall advise the other
in writing if, at any time prior to the date(s) of the Stockholders' Meetings,
any such party shall obtain knowledge of any facts that might make it necessary
or appropriate to amend or supplement the Joint Proxy Statement/Prospectus or
the Registration Statement in order to make the statements contained or
incorporated by reference therein not misleading or to comply with applicable
law. Notwithstanding the foregoing, each party shall be responsible for the
information and disclosures which it makes or incorporates by reference in all
regulatory filings, the Joint Proxy Statement/Prospectus and the Registration
Statement.

         6.5 NOTIFICATION. Checkers and Rally's shall, after obtaining knowledge
of the occurrence, non-occurrence or threatened occurrence or non-occurrence of
any fact or event that would cause or constitute a material breach or failure of
any of the representations and warranties, covenants or conditions set forth
herein, or that would constitute or result in a Material Adverse Effect to such
party, notify the other parties in writing thereof with reasonable promptness.

         6.6 ACQUISITION PROPOSAL.

         (a) From the date hereof until the Effective Time or the termination
hereof, Checkers and Rally's and their respective Subsidiaries will not, and
will not authorize, permit or cause their respective officers, directors,
employees or other agents to, directly or indirectly, (i) take any action to
solicit, initiate or encourage any Acquisition Proposal (as hereinafter
defined), (ii) waive any provision of any standstill or similar agreements
entered into by Rally's or Checkers or any of them with respect to Rally's or
Checkers, (iii) engage in negotiations regarding or disclose any nonpublic
information relating to any other party, respectively, or (iv) afford access to
their respective properties, books or records to any person that may be
considering making, or has made, an Acquisition Proposal. Nothing contained in
this Section 6.6 shall prohibit Rally's or Checkers and their respective Boards
of Directors from (i) taking and disclosing a position with respect to a tender
offer by a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated by the
Commission under the Exchange Act, or (ii) furnishing information to, or
entering into negotiations with, any person or entity that makes an unsolicited
bona fide proposal to acquire such party pursuant to a merger, consolidation,
share exchange, purchase of a substantial portion of the assets, business
combination or other similar transaction, if, and only to the extent that, (A)
such Board of Directors determines in the good faith exercise of its informed
business judgment and after receiving the advice and recommendation of its
special committee of the Board of Directors that the Acquisition Proposal is or
could be more advantageous to their respective stockholders than the
transactions contemplated by this Agreement (a "Superior Proposal"), (B) prior
to furnishing such information to, or entering into discussions or negotiations
with, such person or entity, such party provides written notice to the other
parties hereto to the effect that it is furnishing information to, or entering
into discussions or negotiations with, such person or entity, and (C) subject to
any confidentiality agreement with such person or entity (which such party
determined in good faith was required to be executed in order for

                                       39


the Board of Directors to comply with its fiduciary duties to its stockholders
imposed by law) such party keeps the other parties hereto informed of the status
of any such negotiations or discussions.

         (b) The term "Acquisition Proposal" as used herein means any offer or
proposal for, or any indication of interest in, a merger or other business
combination involving Rally's or Checkers, or any of their respective
Subsidiaries, or the acquisition of any equity interest in, or a substantial
portion of the assets of, any such party, other than the transactions
contemplated by this Agreement.

         6.7 FILINGS; OTHER ACTION. Subject to the terms and conditions herein
provided, the parties hereto shall (a) within ten business days hereof, make
their respective filings and use their reasonable best efforts to cause any
required third party filings to be made, and thereafter make any other required
submissions, under the HSR Act; (b) use their reasonable best efforts to
cooperate with each other in (i) determining which filings are required to be
made prior to the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from,
Governmental Authorities in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and (ii)
timely making all such filings and timely seeking all such consents, approvals,
permits or authorizations; and (c) use their reasonable best efforts to take, or
cause to be taken, all other action and do, or cause to be done, all other
things necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement and satisfy the conditions to the
transactions contemplated hereby. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement, subject to the remaining provisions hereof, the officers and
directors of the parties shall promptly take all such necessary action.

         6.8 INDEMNIFICATION AND INSURANCE.

         (a) Checkers shall: (i) indemnify and hold harmless each present
employee, agent, director or officer of Rally's and its Subsidiaries and anyone
who becomes an employee, agent, director or officer of Rally's after the date
hereof and prior to the Effective Time ("Indemnified Parties") from and against
any and all claims arising out of or in connection with activities in such
capacity, or on behalf of, or at the request of, Rally's or any of its
Subsidiaries, and shall advance expenses incurred with respect to the foregoing,
as they are incurred, to the fullest extent permitted under applicable law; and
(ii) assume any indemnification agreements to which Rally's or any of its
Subsidiaries is a party.

         (b) Checkers shall keep in effect provisions substantially similar to
the provisions in Rally's Certificate of Incorporation and by-laws providing for
exculpation of director and officer liability and its indemnification of or
advancement of expenses to the Indemnified Parties to the fullest extent
permitted under the DGCL, which provisions shall not be amended except as
required by applicable law or except to make changes permitted by law that would
enhance the Indemnified Parties right to indemnification or advancement of
expenses.

                                       40


         (c) If, after the Effective Time, Checkers or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers all or substantially all of its property and assets to
any person, then, in each such case, proper provision shall be made so that the
successors and assigns of Checkers assume all of the obligations set forth in
this Section 6.8. The provisions of this Section 6.8 are intended to be for the
benefit of and to grant third party rights to, and shall be enforceable by, each
person who is now or who becomes prior to the Effective Time an employee, agent,
director or officer of Rally's or any of its Subsidiaries (and his or her heirs
and representatives).

         (d) Checkers will cause to be maintained for a period of not less than
four years from the Effective Time directors and officers liability insurance
("D&O Insurance"), to the extent commercially available, on terms and conditions
no less advantageous to the Indemnified Parties than Rally's existing D&O
Insurance, as the case may be. Notwithstanding the foregoing: (i) in satisfying
its obligation under this Section 6.8(d), Checkers shall not be obligated to pay
premiums in excess of 125% of the premium paid or to be paid by Rally's for
1997, which amounts are disclosed in SECTIONS 6.8(D)OF THE RALLY'S DISCLOSURE
MEMORANDUM, but provided further that Rally's shall nevertheless be obligated to
provide such coverage as may be obtained for 125% of the premium to be paid by
Rally's for such insurance for 1997; and (ii) this provision shall be deemed
satisfied as long as Checkers maintains under its own D&O Insurance coverage
meeting the requirements of the first sentence of this Section 6.8(d) with
separate coverage limits applicable to Rally's officers and directors with
respect to acts and occurrences prior to the Effective Time.

         6.9 PUBLICITY. Checkers and Rally's shall, subject to their respective
legal obligations (including requirements of national securities exchanges and
other similar regulatory bodies), consult with each other regarding the text of
any press release regarding the transactions contemplated hereby before issuing
any such press release and in making any filings with any Governmental Authority
or with any national securities exchange with respect thereto.

         6.10 TAXES. Checkers shall pay any and all transfer taxes (including,
without limitation, any real estate transfer taxes) incurred in connection with
the Merger, whether such taxes are imposed on Checkers, Rally's, their
respective Subsidiaries or their stockholders, except transfer taxes in
connection with the registration of Checkers Common Stock in a name other than
the name of the holder of Rally's Common Stock in respect of which Checkers
Common Stock is to be issued. Checkers and Rally's each agree to treat the
Merger as a reorganization within Section 368(a)(1) of the Code.

         6.11 OPTIONS.

         (a) Checkers shall, prior to the Effective Time, adopt a new stock
option plan (the "1999 Option Plan") with terms substantially similar to those
of Checkers 1991 Stock Option Plan, as amended. In addition, Checkers shall,
prior to the Effective Time, amend its 1994 Stock Option Plan for Non-Employee
Directors (the "Director Option Plan" and together with the 1999 Option

                                       41


Plan, the "Option Plans") and shall submit the Option Plans to Checkers
stockholders for their approval at the Checkers Meeting.

         (b) Each outstanding option to acquire Rally's Common Stock ("Rally's
Options") shall at the Effective Time be converted into and become an option
("Roll-Over Options") to purchase that number of shares of Checkers Common Stock
determined by multiplying the number of shares subject to the Rally's Options by
the exchange ratio set forth in Section 3.1. The vesting and term of the
Roll-Over Options shall be that of the Rally's Options it replaces.

         (c) Outstanding options to acquire Checkers Common Stock will remain
unchanged.

         6.12 NASDAQ. As promptly as practicable after the date hereof, Checkers
shall make all required filings with NASDAQ and shall use all commercially
reasonable efforts to cause the shares of Checkers Common Stock issuable as a
result of the Merger to be quoted on the NASDAQ National Market immediately
following the Effective Time. Checkers and Rally's shall fully cooperate with
each other and take all commercially reasonable steps as may be required in
order to maintain trading of Checkers Common Stock on the NASDAQ National Market
after the Effective Time.

         6.13 ANCILLARY AND OTHER AGREEMENTS. Each of Rally's and Checkers shall
use its best efforts to cause, respectively:

         (a) The Rally's Voting Agreement to be implemented in accordance with
its terms; and

         (b) The joint purchasing agreement (as such term is hereinafter
defined), the execution and delivery of which are conditions to the consummation
of the Merger, to be executed and delivered as promptly as practicable, and in
any event at or prior to Closing, to be effective as of the Effective Time.

         6.14 AFFILIATES. At least ten (10) days prior to the Closing, Rally's
shall identify to Checkers all persons who would be deemed to be affiliates of
Rallys for purposes of Rule 145 under the Securities Act (the "Rule 145
Affiliates"), and Checkers shall have received an agreement substantially in the
form of Exhibit B to this Agreement from each Rule 145 Affiliate.

         6.15 CHECKERS MANAGEMENT. Checkers shall have duly taken all requisite
corporate action so that, effective at the Effective Time:

         (a) The Checkers Board shall consist of the members of the respective
Board of Directors of Rally's and Checkers immediately prior to the Effective
Time.

         (b) The Chairman of the Checkers Board shall be William P. Foley, II.

         (c) The other officers of Checkers shall remain the officers of
Checkers immediately prior to the Effective Time and their titles shall remain
the same.

                                       42


         6.16 PROXY FOR CHECKERS SHARES HELD BY RALLY'S.

                (a) Rally's hereby appoints Checkers, with full power of
substitution and resubstitution, as Rally's irrevocable attorney-in-fact and
proxy (Checkers together with its substitutes are referred to collectively as
the "Proxy") for and in the name of Rally's to vote, in the Proxy's absolute,
sole and binding discretion, all shares of Checkers Common Stock (y) that
Rally's is entitled to vote at the Checkers Meeting, and at any adjournments
thereof, or (z) as to which Rally's is entitled to express consent or dissent to
corporate action in writing without a meeting upon the Merger, the Merger
Agreement and all other matters contemplated by the Merger Agreement, revoking
any proxy heretofore given. The Proxy is further authorized to vote, in the
Proxy's absolute, sole and binding discretion, upon such other business as may
properly come before the Checkers Meeting or be presented to the Checkers
stockholders for their consent or dissent. Rally's intends this Proxy to be
irrevocable and coupled with an interest and will take such further action and
execute such other instruments as may be necessary to effectuate the intent of
this agreement.

                (b) If for any reason the proxy granted pursuant to Section
6.16(a) of this Agreement shall be determined invalid, unenforceable or
ineffective with respect to any or all of its Checkers Common Stock, Rally's
agrees:

         (i) to vote all of its Checkers Common Stock on all matters as to which
Rally's is entitled to vote at the Checkers Meeting in the manner specified in
writing by the Proxy, which manner shall be determined in its absolute, sole and
binding discretion, provided, however, that Rally's shall not be obligated to
vote any of its Checkers Common Stock in a manner prohibited by the terms of an
injunction issued by any court having jurisdiction;

         (ii) to express consent or dissent to corporate action in writing
without a meeting on all of its Checkers Common Stock in the manner specified in
writing by the Proxy, which manner shall be determined in the Proxy's absolute,
sole and binding discretion, provided, however, that Rally's shall not be
obligated to vote any of its Checkers Common Stock in a manner prohibited by the
terms of an injunction issued by any court having jurisdiction;

         (iii) notice by the Proxy of action to be taken pursuant to paragraphs
(a) and (b) of this Section 6.16 shall be delivered to Rally's on or prior to
the date and time on which such votes, consents or dissents are to be cast;

         (iv) Rally's agrees to refrain from granting any proxy or authorization
to any person with respect to the voting of its Checkers Common Stock, except
pursuant to this Agreement, or taking any action contrary to or in any manner
inconsistent with the terms of this Agreement; and

         (v) Rally's further agrees to execute all additional writings, consents
and authorizations as may be reasonably requested by Checkers to evidence the
agreements contained in this Section 6.16.

                                       43


                                    ARTICLE 7
                    CONDITIONS TO CONSUMMATION OF THE MERGER

         7.1 CONDITIONS TO OBLIGATIONS OF THE PARTIES. The respective
obligations of Checkers and Rally's to effect the Merger shall be subject to the
satisfaction or waiver at or prior to the Closing of each of the following
conditions:

         (a) The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.

         (b) None of the parties hereto shall be subject to any order or
injunction of a court or Governmental Authority of competent jurisdiction that
prohibits the consummation of the transactions contemplated by this Agreement.
In the event any such order or injunction shall have been issued, each party
agrees to use its reasonable best efforts to have any such order overturned or
injunction lifted.

         (c) All consents, authorizations, orders and approvals of (or filings
or registrations with) any Governmental Authority required in connection with
the execution, delivery and performance of this Agreement (each a "Regulatory
Authorization") shall have been obtained or made, except for filings in
connection with the Merger and any other documents required to be filed after
the Effective Time and except where the failure to have obtained or made any
such consent, authorization, order, approval, filing or registration would not
have a Material Adverse Effect on Checkers following the Effective Time.

         (d) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the Commission and remain in effect.

         (e) This Agreement and the Merger shall have been duly approved by the
requisite vote under the DGCL of holders of outstanding voting securities of
Checkers and Rally's representing a majority of the votes entitled to be voted
on the matter.

         (f) Checkers and Rally's shall have received an opinion of Christensen,
Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP to the effect that the Merger
qualifies as a tax free reorganization under the Code.

         (g) Checkers shall have entered into a joint purchasing agreement with
CKE Restaurants, Inc., on terms and conditions satisfactory to Checkers and
Rally's in the exercise of reasonable judgment, providing for joint purchasing
by Checkers (for its Checkers and Rally's operations) and CKE Restaurants, Inc.
(for its Carl's, Jr., Hardee's and other restaurant operations) of all items
presently being jointly purchased and such additional items as may reasonably be
added in the future, including food, paper, beverage, signs building materials,
kitchen equipment and construction services.

                                       44


         (h) Checkers and Rally's shall have received an opinion of Christensen,
Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP to the effect that the
consummation of this Agreement and the transactions contemplated hereby will not
constitute or result in a Change of Control, as that term is used and defined in
the Indenture, or require Rally's, Checkers or any other person to make a Change
of Control Offer pursuant to Section 4.14 of the Indenture, or otherwise give
rise to any obligation to offer to purchase the securities issued pursuant to
the Indenture.

         7.2 CONDITIONS TO OBLIGATION OF RALLY'S. The obligation of Rally's to
effect the Merger shall be subject to the satisfaction or waiver at or prior to
the Closing of each of the following additional conditions:

         (a) The representations and warranties of Checkers set forth in this
Agreement which are qualified as to materiality and the representations and
warranties contained in Section 4.3 shall be true and correct in all respects,
and the representations and warranties of Checkers set forth in this Agreement
which are not qualified as to materiality shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of the
Effective Time with the same effect as though all such representations and
warranties had been made on and as of the Effective Time (except for any such
representations and warranties made as of a specified date, which shall be true
and correct in all respects or all material respects, as the case may be, as of
such date); provided, however that, except with respect to the representations
and warranties in Section 4.3, this condition shall be deemed satisfied unless
the failure of such condition to be satisfied would have a material adverse
effect on the benefits that the stockholders of Rally's are reasonably expected
to receive in the Merger.

         (b) The agreement of Checkers contained in Section 6.1(k) shall have
been duly performed and complied with in all respects and each of the agreements
and covenants of Checkers to be performed and complied with by Checkers pursuant
to this Agreement prior to the Effective Time shall have been duly performed and
complied with in all material respects; provided, however, that except for the
agreements contained in Sections 6.1(k), this condition shall be deemed
satisfied unless the failure of such condition to be satisfied would have a
material adverse effect on the benefits that the stockholders of Rally's are
reasonably expected to receive in the Merger.

         (c) Checkers shall have delivered to Rally's a certificate, dated as of
the Closing Date and signed on its behalf by its chief executive officer and
chief financial officer, as to the satisfaction by it of the conditions set
forth in Sections 7.2(a) and 7.2(b), together with any other certificates or
documents which Rally's or its counsel may reasonably request in connection with
the consummation of the Merger and the other transactions contemplated herein.

         7.3 CONDITIONS TO OBLIGATION OF CHECKERS. The obligation of Checkers to
effect the Merger shall be subject to the satisfaction or waiver at or prior to
the Closing of each of the following additional conditions:

                                       45


         (a) The representations and warranties of Rally's set forth in this
Agreement which are qualified as to materiality and the representations and
warranties contained in Section 5.3 shall be true and correct in all respects,
and the representations and warranties of Rally's set forth in this Agreement
which are not qualified as to materiality shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of the
Effective Time with the same effect as though all such representations and
warranties had been made on and as of the Effective Time (except for any such
representations and warranties made as of a specified date, which shall be true
and correct in all respects or all material respects, as the case may be, as of
such date); provided, however that, except with respect to the representations
and warranties in Section 5.3, this condition shall be deemed satisfied unless
the failure of such condition to be satisfied would have a Material Adverse
Effect on the benefits that the stockholders of Checkers are reasonably expected
to receive in the Merger.

         (b) The agreement of Rally's contained in Section 6.2(k) shall have
been duly performed and complied with in all respects and each of the agreements
and covenants of Rally's to be performed and complied with by Rally's pursuant
to this Agreement prior to the Effective Time shall have been duly performed and
complied with in all material respects; provided, however, that except for the
agreements contained in Section 6.2(k), this condition shall be deemed satisfied
unless the failure of such condition to be satisfied would have a Material
Adverse Effect on the benefits that the stockholders of Checkers are reasonably
expected to receive in the Merger.

         (c) Rally's shall have delivered to Checkers a certificate, dated as of
the Closing Date and signed on its behalf by its chief executive officer and
chief financial officer, as to the satisfaction by it of the conditions set
forth in Sections 7.3(a) and 7.3(b), together with any other certificates or
documents which Checkers or its counsel may reasonably request in connection
with the consummation of the Merger and the other transactions contemplated
herein.

         (d) At least ten (10) days prior to the Closing, Rally's shall have
delivered to Checkers letters identifying all persons who would be deemed to be
Rule 145 Affiliates of Rally's, and Checkers shall have received an agreement
substantially in the form of Exhibit B to this Agreement from each Rule 145
Affiliate.

         (e) All agreements relating to the Rally's Common Stock, voting or
otherwise, to which Affiliates of Rally's are parties (other than this
Agreement), including those listed in SECTIONS 5.3(B) AND 5.11(A)(X) OF THE
RALLY'S DISCLOSURE MEMORANDUM, shall have been terminated without any liability
to Rally's or Checkers other than those liabilities fully satisfied prior to the
Closing.

                                    ARTICLE 8
                            TERMINATION OF AGREEMENT

         8.1 TERMINATION. Notwithstanding any other provision of this Agreement,
this Agreement may be terminated at any time prior to the Effective Time:

                                       46


         (a) by mutual written consent of Checkers and Rally's, whether or not
their respective stockholders have approved this Agreement and the Merger;

         (b) by Checkers or Rally's, upon written notice to the other party, if
the Merger shall not have been consummated on or prior to June 30, 1999 (the
"Termination Date");

         (c) by Checkers or Rally's, upon written notice to the other parties,
if a Governmental Authority of competent jurisdiction shall have issued an
injunction, order or decree enjoining or otherwise prohibiting the consummation
of the transactions contemplated by this Agreement, and such injunction, order
or decree shall have become final and non-appealable or if a Governmental
Authority has otherwise made a final determination that any required Regulatory
Authorization would not be forthcoming; provided, however, that the party
seeking to terminate this Agreement pursuant to this clause has used all
required efforts as specified in Section 8.1(b) to remove such injunction, order
or decree;

         (d) by Checkers or Rally's, if any condition to such party's
obligations to consummate the transactions contemplated hereby is incapable of
being satisfied on or prior to the Termination Date; provided, however, that the
terminating party has not breached the terms of this Agreement; or

         (e) by either Checkers or Rally's if, in the exercise of its good faith
business judgment, the Board of Directors of the terminating party determines
that such termination is required by reason of the receipt of a Superior
Proposal.

         8.2 EFFECT OF TERMINATION.

         (a) In the event of the termination of this Agreement pursuant to
Section 8.1, the respective obligations of the parties under this Agreement will
terminate except for Sections 6.1(o), 6.2(o), 6.3(b), 8.2, 9.2, 9.4, 9.5, 9.6,
9.10, 9.11, 9.12 and 9.13; provided, however, that the termination of this
Agreement will not relieve any party from liability for any breach of this
Agreement.

         (b) The parties acknowledge that in the event this Agreement is
terminated by Checkers or Rally's by reason of Section 8.1(a) hereof, each
non-terminating party shall be entitled to reimbursement from the terminating
party of the non-terminating party's reasonable and documented transaction
costs, including without limitation, legal and accounting expenses and amounts
paid or payable to its financial advisor in connection with obtaining the
Checkers Opinion or the Rally's Opinion, as applicable.

                                    ARTICLE 9
                            MISCELLANEOUS AND GENERAL

         9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained herein shall survive the Effective Time
or the 

                                       47


termination of this Agreement. The covenants and agreements contained herein
shall survive the Effective Time.

         9.2 EXPENSES. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses except as
expressly provided herein and except that the filing fees in connection with the
HSR Act filings shall be shared equally by Checkers and Rally's.

         9.3 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, but shall not be assignable by any party hereto without the prior
written consent of the other parties hereto.

         9.4 THIRD PARTY BENEFICIARIES. Except as set forth in Article 3 and
Section 6.8 (each of which shall inure to the benefit of the persons or entities
benefitting from the provisions thereof, which persons are intended to be third
party beneficiaries thereof; provided, however, that no person shall have third
party beneficiary or other rights under Article 3 of this Agreement if the
Merger has not been consummated, regardless of the reason that the Merger has
not been consummated), each party hereto intends that this Agreement shall not
benefit or create any right or cause of action in or on behalf of any person
other than the parties hereto.

         9.5 NOTICES. Any notice or other communication provided for herein or
given hereunder to a party hereto shall be sufficient if in writing, and sent by
facsimile transmission (electronically confirmed), delivered in person, mailed
by first class registered or certified mail, postage prepaid, or sent by Federal
Express or other overnight courier of national reputation, addressed as follows:

If to Checkers:       Checkers Drive-In Restaurants, Inc.
                      14255 49th Street North, Building I
                      Clearwater, Florida   33762
                      Attention:  Chief Executive Officer
                      Facsimile: (727) 519-2218

with a copy to:       Stradling Yocca Carlson & Rauth
                      660 Newport Center Drive
                      Suite 1600
                      P. O. Box 7680
                      Newport Beach, California   92658-7680
                      Attention:  C. Craig Carlson, Esq.
                      Fax:  (949) 725-4100

If to Rally's:        Rally's Hamburgers, Inc.
                      14255 49th Street North, Building I
                      Clearwater, Florida   33762
                      Attention:  Chief Executive Officer
                      Facsimile:  (727) 519-2218

                                       48


with a copy to:       Christensen, Miller, Fink, Jacobs, Glaser, Weil &
                        Shapiro, LLP
                      2121 Avenue of the Stars, 18th Floor
                      Los Angeles, California 90067
                      Attention: Gary N. Jacobs, Esq.
                      Facsimile: (310) 556-2920

or to such other address with respect to a party as such party shall notify the
other parties in writing as above provided.

         9.6 COMPLETE AGREEMENT. This Agreement and the other documents and
agreements delivered by the parties in connection herewith contain the complete
agreement among the parties hereto with respect to the Merger and the other
transactions contemplated hereby and thereby and supersede all prior agreements
and understandings among the parties hereto with respect thereto.

         9.7 CAPTIONS; REFERENCES. The captions contained in this Agreement are
for convenience of reference only and do not form a part of this Agreement. When
a reference is made in this Agreement to a clause, a Section, a subsection or an
Article, such reference shall be to such clause, Section, subsection or Article
of this Agreement unless otherwise indicated.

         9.8 AMENDMENT. At any time, the parties hereto, by action taken by
their respective Board of Directors or pursuant to authority delegated by their
respective Boards of Directors, may amend this Agreement. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.

         9.9 WAIVER. At any time prior to the Effective Time, the parties hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the parties hereto, (b) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant hereto, or
(c) waive compliance with any of the agreements or conditions contained herein,
to the extent permitted by applicable law. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
writing signed on behalf of such party. No party may assert a claim with respect
to a matter so waived.

         9.10 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware, without
regard to its rules of conflict of laws.

         9.11 SEVERABILITY. Any term or provision of this Agreement that is
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without rendering invalid, illegal or unenforceable the
remaining terms and provisions of this Agreement or affecting the validity,
legality or enforceability of any of the terms or provisions of this Agreement
in any other jurisdiction. If any 

                                       49


provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable.

         9.12 ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which they are entitled at law or in equity.

         9.13 CONSENT TO JURISDICTION. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the federal and state courts located in the State of Delaware or the County
of Los Angeles, State of California, (the "Designated Courts") for any
litigation arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any litigation relating thereto
except in such Designated Courts), waives any objection to the laying of venue
of any such litigation in the Designated Courts and agrees not to plead or claim
in any Designated Court that such litigation brought therein has been brought in
an inconvenient forum.

         9.14 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one instrument.

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date and year first above written.

CHECKERS DRIVE-IN RESTAURANTS, INC.,
a Delaware corporation

By: /s/JAMES J. GILLESPIE
    ------------------------------
Name: James J. Gillespie
Title:  President and Chief Executive Officer


RALLY'S HAMBURGERS, INC.,
a Delaware corporation

By: /S/JOSEPH N. STEIN
    ------------------------------
Name:   Joseph N. Stein
Title:  Executive Vice President and
        Chief Financial Officer

                                       50


                                LIST OF EXHIBITS

A.  Rally's Voting Agreement

B.  Form of Rule 145 Affiliate Letter

                                       51



                      CHECKERS DISCLOSURE MEMORANDUM INDEX

4.3(b)   Options, warrants, rights
4.3(c)   Issuances of Securities
4.4(a)   Subsidiaries
4.4(c)   Investments, etc.
4.5(b)   Filings and Consents
4.6(c)   Financial Statements
4.6(d)   Ordinary Course
4.6(e)   Material Adverse Effect
4.7(b)   Taxes
4.10     ERISA
4.11     Material Contracts
4.12     Legal Proceedings
4.16     Environmental
4.17     Personnel
4.19     Intellectual Property
4.21     Year 2000 compliance
6.1(d)   Dispositions or acquisitions of assets
6.1(e)   Incurrence of indebtedness
6.1(f)   Capital expenditures

                                       52


                       RALLY'S DISCLOSURE MEMORANDUM INDEX

5.3(b)   Options, warrants, rights
5.3(c)   Issuances of Securities
5.4(a)   Subsidiaries
5.4(c)   Investments, etc.
5.5(b)   Filings and Consents
5.6(d)   Ordinary Course
5.6(c)   Financial Statements
5.6(e)   Material Adverse Effect
5.7(b)   Taxes
5.10     ERISA
5.11     Material Contracts
5.12     Legal Proceedings
5.16     Environmental
5.17     Personnel
5.19     Intellectual Property
5.21     Year 2000 Compliance
6.2(d)   Dispositions or acquisitions of asset
6.2(e)   Incurrence of indebtedness
6.2(f)   Capital expenditures

                                       53

EX-21

                       CHECKERS DRIVE-IN RESTAURANTS, INC.
                              LIST OF SUBSIDIARIES
                                   EXHIBIT 21

The following entities are consolidated with the Company for financial reporting
purposes:

                                           % OWNED       STATE OF ORGANIZATION
- ------------------------------------------------------------------------------
CHA Partners                               50%           Delaware
Skipper Road Checkers Partnership          75%           Delaware
580 Partners                               50%           Delaware
Checkers/Conway, Inc.                      100%          Delaware
Checkers/Tempco Joint Venture              51%           Florida
Checkers of Chicago                        100%          Delaware
Metro Double Drive-Thru, L.P.              10.55%        Chicago
Greater Chicago Double Drive-Thru, L.P.    60.79%        Chicago
Stony Island Double Drive-Thru, L.P.       36.03%        Chicago
Northside Double Drive-Thru, L.P.          65.83%        Chicago
Chicagoland Double Drive-Thru V, L.P.      48.42%        Chicago
Chicago Double Drive-Thru VI, L.P.         25.08%        Chicago
Evergreen Double Drive-Thru, L.P.          54.73%        Chicago

EX-27

 

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CHECKERS DRIVE-IN RESTAURANTS, INC., FOR THE
QUARTERLY PERIODS ENDED DECEMBER 28, 1998 AND DECEMBER 29, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANICAL STATEMENTS.

       
                                                  
<PERIOD-TYPE>                   12-MOS                   12-MOS
<FISCAL-YEAR-END>                          DEC-28-1998             DEC-29-1997
<PERIOD-START>                             DEC-30-1997             DEC-31-1996
<PERIOD-END>                               DEC-28-1998             DEC-29-1997
<CASH>                                           4,663                   3,921
<SECURITIES>                                         0                       0
<RECEIVABLES>                                    1,803<F1>               1,821
<ALLOWANCES>                                         0                       0
<INVENTORY>                                      2,068                   2,222
<CURRENT-ASSETS>                                12,298                  13,872
<PP&E>                                          78,309<F2>              87,889
<DEPRECIATION>                                       0                       0
<TOTAL-ASSETS>                                 102,099                 115,401
<CURRENT-LIABILITIES>                           18,608                  28,025
<BONDS>                                         29,654                  29,401
<PREFERRED-MANDATORY>                               73                      73
<PREFERRED>                                          0                       0
<COMMON>                                             0                       0
<OTHER-SE>                                      44,355                  50,299
<TOTAL-LIABILITY-AND-EQUITY>                   102,099                 115,401
<SALES>                                        138,694                 136,878
<TOTAL-REVENUES>                               145,708                 143,894
<CGS>                                          126,853                 127,539
<TOTAL-COSTS>                                  142,437                 146,844
<OTHER-EXPENSES>                                  (345)                   (441)
<LOSS-PROVISION>                                 2,953                   1,027
<INTEREST-EXPENSE>                               6,007                   8,650
<INCOME-PRETAX>                                 (5,344)                (12,186)
<INCOME-TAX>                                         0                       0
<INCOME-CONTINUING>                             (5,344)                (12,186)
<DISCONTINUED>                                       0                       0
<EXTRAORDINARY>                                      0                       0
<CHANGES>                                            0                    (696)
<NET-INCOME>                                    (5,344)                (12,882)
<EPS-PRIMARY>                                    (0.07)                  (0.20)
<EPS-DILUTED>                                    (0.07)                  (0.20)

<F1> Receivables consist of -
     Accounts Receivable - net                 $ 1,327                 $ 1,175
     Notes Receivable                              476                     646
                                               -------                 -------
     Total                                     $ 1,803                 $ 1,821
                                               =======                 =======

<F2> PP&E is net of accumulated depreiation and amortization of $50,204 and
     $42,293, respectively.