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                                  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 Fiscal Year Ended December 29, 1996

                          Commission File Number 1-6553

                               CARROLS CORPORATION
             (Exact name of Registrant as specified in its charter)

DELAWARE                                                       16-0958146
-------------------------------                           --------------------
(State or other jurisdiction of                            (I.R.S. Employer
incorporation or organization)                            Identification No.)

968 JAMES STREET, SYRACUSE, NEW YORK                            13203
---------------------------------------                   --------------------
(Address of principal executive office)                       (Zip Code)

                                 (315) 424-0513
                        -------------------------------
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:   None

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

                          11-1/2% SENIOR NOTES DUE 2003
                        ---------------------------------
                                (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  ('SS'229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the 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. [X]

        The aggregate market value of the voting stock held by non-affiliates of
the Registrant: NO VOTING STOCK IS HELD BY NON-AFFILIATES.

        The number of shares outstanding of each of the Registrant's  classes of
common stock, as of March 15, 1997: 10.

Documents Incorporated by Reference:  NONE.

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               The  Company  uses a 52-53 week  fiscal year ending on the Sunday
closest to December 31. All references  herein to the fiscal years ended January
1, 1995, December 31, 1995 and December 29, 1996 will hereinafter be referred to
as the fiscal years ended December 31, 1994, 1995 and 1996, respectively.

                                     PART I

ITEM 1. BUSINESS

RECENT DEVELOPMENTS

ATLANTIC ACQUISITION

        Acquisition.  On April 3,  1996,  pursuant  to the  Securities  Purchase
Agreement (the "Atlantic  Agreement"),  dated as of March 6, 1996, among Carrols
Corporation  (the  "Company"  or  "Carrols"),   Carrols   Holdings   Corporation
("Holdings"),  the  stockholders  of Holdings  and  Atlantic  Restaurants,  Inc.
("Atlantic"),  Atlantic acquired Holdings,  the owner of 100% of the outstanding
capital  stock of the  Company  (the  "Atlantic  Acquisition").  Pursuant to the
Atlantic  Agreement,  Atlantic  acquired all of the  outstanding  voting capital
stock of Holdings for an aggregate  purchase price of approximately  $84 million
in cash.

        Atlantic.  Atlantic is an indirect  wholly-owned  subsidiary  of Bahrain
International Bank (E.C.), a Bahrain exempt joint stock company ("BIB").

        Redemption of Notes. The Atlantic  Acquisition  constituted a "change of
control"  under the Indenture  (the  "Indenture"),  dated as of August 17, 1993,
among the Company, Holdings and Marine Midland Bank, N.A., as trustee, governing
Carrols' $110 million  aggregate  principal  amount  (currently  $107.7  million
outstanding) of 11-1/2% Senior Notes Due 2003 (the "Notes").  In accordance with
the terms and conditions of the Indenture, the Company offered to each holder of
the Notes the right to require the Company to repurchase all or any part of such
holder's  Notes at a  repurchase  price in cash  equal to 101% of the  principal
amount of the Notes being  repurchased  (plus  accrued and unpaid  interest,  if
any). The holders of $838,000 in principal  amount of Notes redeemed their Notes
pursuant to such offer.

        Employment Agreements. In connection with the Atlantic Acquisition,  the
Company entered into Amended and Restated Employment Agreements (the "Employment
Agreements") with each of Alan Vituli (Chairman of the Board and Chief Executive
Officer of the Company) and Daniel T. Accordino  (President and Chief  Operating
Officer  of the  Company),  each  as  more  specifically  described  below.  The
Employment  Agreements  contain terms and  conditions  substantially  similar to
Messrs.  Vituli's and  Accordino's  respective  previous  employment  agreements
except that, in lieu of the previous  stock option plans  maintained by Holdings
(all of which were  terminated in connection with the Atlantic  Acquisition),  a
new stock option plan (the "1996 Plan") was adopted  pursuant to which employees
of the Company  were  eligible to be awarded  options to purchase up to 9.09% of
the outstanding Shares of Common Stock on a fully-diluted basis. Messrs.  Vituli
and Accordino received, pursuant to the 1996 Plan, 36% and 24%, respectively, of
the options (the "Option Agreements") that were available under the 1996 Plan.

        Board of Directors. Upon consummation of the Atlantic Acquisition,  each
of M. Bruce Adelberg,  Richard V. Cross and Franklin  Glasgall resigned from the
Board  of  Directors  of the  


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Company  and of  Holdings.  Immediately  following  completion  of the  Atlantic
Acquisition, Robin McIlvenny, David J. Mathies, Jr. and Paul W. Durrant, each an
officer  of  Atlantic  or  one of  its  affiliates,  were  each  elected  to the
five-person Board of Directors of the Company and of Holdings.

        Revised and Proposed  Credit  Facility.  In connection with the Atlantic
Acquisition,  the Company entered into a Seventh  Amendment to Third Amended and
Restated Loan Security  Agreement (the "Loan  Amendment"),  dated as of April 3,
1996, among Heller Financial,  Inc.  ("Heller"),  Holdings and the Company which
provides,  among other  things,  for  additional  availability  under the senior
secured  revolving credit facility (the "Senior Secured Credit Facility") of the
Company to repurchase Notes. The Company and Holdings are presently  negotiating
the terms of  additional  financing  (the "TCB  Refinancing")  pursuant to which
Texas Commerce Bank National  Association ("TCB"), as Administrative Agent for a
syndicate  of  lenders  (the  "Lenders"),  would  (i)  establish  a $25  million
Revolving  Credit  Facility that would replace the current Senior Secured Credit
Facility  and (ii)  establish a $127  million  Advance  Term Loan ($5 million of
which would be used to replace the current $5 million term loan with Heller).

        RECAPITALIZATION

        On February 20, 1997, the Certificate of  Incorporation  of Holdings was
amended (the  "Amendment")  such that (i) the  3,146,110  shares of Common Stock
held by Atlantic were converted  into 850,000 shares of Common Stock,  (ii) each
of the classes  consisting of (a) 882,353  shares of Non-Voting  Common Stock of
Holdings,  (b) 750 shares of Class B 10% Cumulative  Redeemable  Preferred Stock
(Series I) of Holdings, par value $0.01 per share, and (c) 750 shares of Class B
10% Cumulative  Redeemable  Preferred  Stock (Series lI) of Holdings,  par value
$.01 per share,  was  canceled  and (iii) the  outstanding  warrants to purchase
488,111 shares of Common Stock were converted into warrants to purchase  131,876
shares of Common  Stock.  After  giving  effect to the  foregoing,  Holdings had
850,000 shares of Common Stock outstanding,  all of which were held by Atlantic,
and no other voting capital stock  outstanding.  The  descriptions  below of the
1996  Plan  and the  Option  Agreements  are made  after  giving  effect  to the
foregoing.

        MADISON DEARBORN INVESTMENT

        MD  Investment.  On  February  25,  1997,  Holdings,  Atlantic,  Madison
Dearborn Capital  Partners,  L.P. and Madison Dearborn Capital Partners II, L.P.
(together with Madison  Dearborn  Capital  Partners,  L.P., the "MD  Investors")
entered into a Stock Purchase Agreement (the "MD Agreement"). Pursuant to the MD
Agreement and subject to certain  conditions  precedent  described below, the MD
Investors will acquire (the "MD Investment") (i) from Holdings 283,334 shares of
Common  Stock (the  "Holdings  Shares")  and (ii) from  Atlantic  283,333 of the
outstanding  shares of Common Stock (the "Atlantic  Shares," and,  together with
the  Holdings  Shares,  the  "MD Shares"). Pursuant to the MD Agreement, certain
members  of  senior management will purchase, in the aggregate, 10,810 shares of
Common Stock.

        The aggregate purchase price for the MD Shares will be approximately $61
million in cash (the "MD Purchase Price"), of which approximately  one-half will
be paid to Holdings.

        Stockholders  Agreement.  At the closing  (the "MD  Closing")  of the MD
Investment,  Holdings,  Atlantic,  the MD  Investors,  Alan  Vituli and  certain
other  members  of  senior management (collectively the "New Stockholders") will
enter into a stockholders agreement (the "Stockholders Agreement"). Pursuant  to
the Stockholders  Agreement, at the MD Closing the New Stockholders will elect a
new Board of Directors of Holdings and Holdings  will elect a new Board of
Directors of 

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Carrols. Such new board will include three representatives  designated by the MD
Investors (the "MD  Directors"),  three  representatives  designated by Atlantic
(the  "Atlantic  Directors")  and two  representatives  (each  of whom  shall be
executive  officers of the Company)  designated by Mr.  Vituli (the  "Management
Directors").  The  Stockholders  Agreement  also  includes  restrictions  on the
transfer of Common  Stock,  restrictions  on and  covenants  of Holdings and the
provision of preemptive, tag along and drag along rights to the parties thereto.

        Conditions  to MD  Closing.  The MD  Investment  is  subject  to several
conditions  customary  for  comparable  transactions  and is also subject to the
following conditions:

        1. The  execution  and  delivery of the  Stockholders  Agreement  by the
parties thereto;

        2. The  execution and delivery by Holdings,  Atlantic,  the MD Investors
and Messrs. Vituli,  Accordino and Joseph A. Zirkman (Vice President and General
Counsel of the Company) of a registration  rights  agreement (the  "Registration
Rights  Agreement")  granting rights  relating to the  registration of shares of
Common  Stock under the  Securities  Act of 1933,  as amended  (the  "Securities
Act");

        3. The execution by Holdings and each of Messrs.  Vituli  and  Accordino
of new employment agreements (the "New  Employment  Agreements)  providing for a
minimum of four year terms of employment for Messrs.  Vituli and Accordino;

        4. The  adoption  of the Carrols  Holdings  Corporation  1996  Long-Term
Incentive Plan (the "New 1996 Plan");

        5. The execution by Holdings and each of Messrs. Vituli and Accordino of
new  stock  option  agreements,  pursuant  to the New  1996  Plan (collectively,
the "New Plan Option Agreements") providing in the aggregate for the purchase of
72,250  shares  of  Common  Stock by them at an exercise  price of $101.7646 per
share, a portion of which options vest  immediately  and a portion of which vest
over a period of four years;

        6. The  execution  by Holdings and each of Messrs. Vituli, Accordino and
Zirkman  of  new  stock  option  agreements  (collectively,  the  "New  Non-Plan
Option Agreements") providing in the aggregate for the purchase of 32,427 shares
of Common  Stock by them at an  exercise  price of  $101.7646  per share,  which
options vest over a period of five years;

        7. The execution  and delivery of new  financing and related  agreements
with respect to the TCB Refinancing;

        8. Holdings shall have obtained a key-man life  insurance  policy on the
life of Mr. Vituli in the face amount of $10,000,000; and

        9. The  investment  by Messrs. Vituli, Accordino and Zirkman in Holdings
through the purchase of 9,827, 860 and 123 shares, respectively, of Common Stock
at the cash purchase price of $101.7646 per share.

        Prospective  Redemption of Notes.  The consummation of the MD Investment
will  constitute a "change of control" under the Indenture.  In accordance  with
the terms and  conditions  of the  Indenture,  upon a "change of control",  each
holder of the Notes will have the right to require that Carrols  repurchase  all
or  any  part  of such  holder's  Notes  at a repurchase  price in cash equal to
101% of the principal  amount  of  the  Notes  being  repurchased (plus  accrued



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interest,  if any).  See  "Management's  Discussion  and  Analysis of  Financial
Condition and Results of Operations - Liquidity and Capital Resources.

        PENDING OMEGA ACQUISITIONS

        The Company has entered into (i) a Purchase and Sale Agreement  dated as
of January  15,  1997 with Omega Food  Services,  Inc.  ("Omega")  and Harold W.
Hobgood,  as Omega's  agent (the  "Omega I  Agreement"),  pursuant  to which the
Company  will acquire the assets of 5 Burger King  restaurants  for an aggregate
purchase price of $5 million (subject to certain  adjustments for inventory) and
(ii) a Purchase and Sale  Agreement  dated as of January 15, 1997 with Omega and
Harold W.  Hobgood,  as Omega's  agent (the "Omega II  Agreement"),  pursuant to
which the Company will acquire the assets of 18 Burger King  restaurants  for an
aggregate  purchase  price of $16 million  (subject to certain  adjustments  for
inventory).  In  addition,  pursuant to the Omega I  Agreement  and the Omega II
Agreement the Company will  purchase,  upon their  construction,  two additional
Burger King restaurants.

                                      * * *

        The Atlantic Agreement,  the Employment  Agreements,  the 1996 Plan, the
Option Agreements,  the Insurance Agreements, the Loan Amendment, the commitment
letter describing the proposed TCB Refinancing, the Amendment, the MD Agreement,
the  Stockholders  Agreement,   the  Registration  Rights  Agreement,   the  New
Employment Agreements, the New 1996 Plan, the New Plan Option Agreements and the
New Non-Plan  Option  Agreements  are included as Exhibits to this Form 10-K and
are incorporated by reference herein. The discussions in this Form 10-K of those
instruments are qualified in their entirety by reference to those instruments.

HISTORICAL DEVELOPMENT

        Carrols was incorporated in 1968 and through 1976 its principal business
was the  operation  of fast food  hamburger  restaurants  under the name Carrols
Restaurants  and the operation of movie theaters under the name  CinemaNational.
In 1976, as a result of growing  competition  from larger and better  recognized
national fast food  restaurant  chains,  Carrols  became a franchisee of BKC and
began  converting  its  restaurants  into  Burger  King  restaurants  and ceased
operating and franchising restaurants under the name of Carrols Restaurants.  In
order to  facilitate  the  financing  of the  conversion  of these  restaurants,
Carrols disposed of a substantial portion of its movie theater assets.

        In 1969,  Carrols  offered its common  stock  through an initial  public
offering.  The  Company's  shares  were listed for trading on the New York Stock
Exchange in 1983.

        The Company was acquired in December  1986 (the "1986  Acquisition")  by
Holdings,  a corporation formed to effect the 1986 Acquisition by Mr. Vituli and
other  members  of the  Company's  then-current  senior  management,  a  private
investor  group and  certain  institutional  investors.  As a result of the 1986
Acquisition,  Carrols  became a  wholly-owned  subsidiary of Holdings.  In March
1992, Mr. Vituli,  who was Chairman of the Board of the Company from the time of
the 1986  Acquisition  in  December  1986,  was also  elected  to serve as Chief
Executive Officer of the Company.  Mr. Accordino was appointed  President of the
Company in February 1993. In January 1995, the Company  entered into  three-year
employment  agreements,  which  agreements were amended  effective April 3, 1996
pursuant to the Atlantic Acquisition, with each of Messrs. Vituli and Accordino.
See "Executive Compensation -- Employment Agreements".



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        At the time of the 1986  Acquisition,  the Company owned 138 Burger King
restaurants and a food distribution  business.  In August 1990, the Company sold
its food distribution  business to Burger King  Distribution  Services (BKDS), a
division  of  BKC.  Carrols  currently   purchases   substantially  all  of  its
requirements  for  foodstuffs  and paper and packaging  products from  ProSource
Services  Corporation  ("ProSource"),  the successor to BKDS, pursuant to a five
year supply  agreement which expires on March 31, 1999. See  "Business--Supplies
and Distribution."

        Since the 1986 Acquisition, Carrols has expanded its operations from 138
Burger King restaurants to 238 as of March 15, 1997. During this period, Carrols
built 38  restaurants,  purchased  75  restaurants  and disposed of or closed 13
restaurants. See "Business--Restaurant Locations." Since March 1994, the Company
has  acquired 36 Burger King  restaurants  through the 1994  acquisitions  of 22
Burger King restaurants for an aggregate  purchase price of approximately  $11.6
million,  the  1995  acquisition  of  one  Burger  King  restaurant,   the  1996
acquisitions  of 8 Burger King  restaurants  for an aggregate  purchase price of
approximately   $7.8  million  and  the  1997  acquisitions  of  5  Burger  King
restaurants for an aggregate purchase price of approximately $3.6 million.

COMPANY OPERATIONS

        General.  Since 1976,  the  Company's  principal  business  has been the
operation  of Burger King  restaurants.  The Company is the largest  independent
Burger King  franchisee in the United States.  As of March 15, 1997, the Company
operated,  as  franchisee,  238  Burger  King  restaurants,  of  which  217  are
free-standing  restaurants  and 21 are  located  in retail  shopping  centers or
specialty  stores.  Carrols  currently  operates Burger King restaurants in nine
Northeastern and Midwestern states and one Southeastern state.

        Carrols'  Burger King  restaurants  are typically open seven days a week
from  7:00  a.m.  to  11:00  p.m.  Substantially  all of  Carrols'  Burger  King
restaurants  offer a  breakfast  menu and the  traditional  Burger King menu for
lunch and dinner.  A standard,  free-standing  Burger King  restaurant  building
typically has an area of approximately 3,000 square feet with a seating capacity
of approximately  90,  drive-thru  service and adjacent  parking areas.  Smaller
Burger King  facilities  are utilized in retail  shopping  centers.  In Carrols'
free-standing  Burger King restaurants,  greater than 50% of sales are generally
generated  through  drive-thru  service.  Carrols  leases most of its restaurant
properties,  although it owns the land and  buildings  on which 28 of its Burger
King restaurants are located. See "Properties."

        Burger  King.  There are  approximately  8,700  Burger King  restaurants
worldwide making BKC the second largest fast food hamburger  operation.  BKC has
been franchising since 1954 and has expanded to locations in all 50 states,  the
District of Columbia and over 50 foreign countries.

        Burger King restaurants are fast food restaurants of distinctive  design
which serve a limited menu of  moderately-priced  foods and offer  efficient and
rapid  service.  The  Company  believes  that  convenience,   quality  of  food,
price/value  and speed of service  are the  primary  competitive  advantages  of
Burger King restaurants.  Burger King restaurants  appeal to a broad spectrum of
consumers.

        Burger King restaurants feature flame-broiled  hamburgers,  which are an
integral part of the Burger King identity, and several widely-known, trademarked
products,  the most popular  being the  Whopper'r'  sandwich,  which is a large,
flame-broiled  hamburger on a five-inch  toasted bun garnished with combinations
of  mayonnaise,  lettuce,  onions,  pickles and tomatoes.  The basic



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menu of all Burger  King  restaurants  consists  of  hamburgers,  cheeseburgers,
chicken sandwiches and filets, fish sandwiches,  french fried potatoes,  salads,
various breakfast products, shakes, desserts, soft drinks, milk and coffee. From
time to time, other promotional items are added to the menu for limited periods.
BKC  continually  seeks to develop new  products and concepts as it endeavors to
enhance the menu and service of Burger King restaurants.

        Franchise Agreements.  Each of Carrols' Burger King restaurants operates
under a separate Franchise Agreement from BKC. The Franchise Agreements require,
among  other  things,  that all  restaurants  be of  standardized  design and be
operated in a prescribed  manner,  including  utilization of the standard Burger
King menu. The Franchise  Agreements generally provide for an initial term of 20
years and have an initial fee of $40,000. A Successor Franchise Agreement may be
granted by Burger King for an additional 20 year term,  provided the  restaurant
meets the then-current BKC operating standards and the Company is not in default
under the relevant  Franchise  Agreement.  Currently,  the  Successor  Franchise
Agreement  fee is  $40,000.  In  addition  to this  fee,  in order  to  obtain a
Successor  Franchise  Agreement,  a  franchisee  is  typically  required to make
capital  improvements  to the subject  restaurant to bring the  restaurant up to
BKC's  then-current  design standards.  The amount of such capital  expenditures
will vary widely  depending  upon the magnitude of the required  changes and the
degree to which the Company has made interim changes to the restaurant. Although
the  Company  estimates  that a  substantial  remodeling  can cost in  excess of
$250,000,  the Company's  average  remodeling  cost over the past five years has
been  approximately  $130,000  per  restaurant.  The  Franchise  Agreements  are
non-cancelable except for failure to abide by the terms thereof.

        Carrols believes that it enjoys a good relationship with BKC and that it
will  satisfy  BKC's  normal  Successor   Franchise   Agreement   policies  and,
accordingly, believes that Successor Franchise Agreements will be granted in due
course  by  BKC  at  the  expiration  of  its  existing  Franchise   Agreements.
Historically,  BKC has granted  each of the  Company's  requests for a Successor
Franchise Agreement for its restaurants.

        In addition to the initial franchise fee,  franchisees  currently pay to
BKC a monthly  royalty of 3-1/2% of the gross  revenues  from their  Burger King
restaurants.  Burger King  franchisees  currently also  contribute 4% of monthly
gross  revenues from their Burger King  restaurants  to fund BKC's  national and
regional  advertising.  BKC engages in substantial  advertising  and promotional
activities and other efforts to maintain and enhance the nationwide  Burger King
system.   Carrols   supplements  BKC's  marketing  with  local  advertising  and
promotional campaigns.  See  "Business--Business  Strategy" and "Advertising and
Promotion."

        The  franchisee  of a new  restaurant  must also  purchase the requisite
equipment,  furniture  and  signage  and pay  various  other costs to open a new
Burger King restaurant.  The Company estimates that the average initial cost for
a standard  free-standing  restaurant is approximately  $240,000  (excluding the
cost of the building,  land and site  improvements).  The Company estimates that
the aggregate cost of  constructing a  free-standing  restaurant and the cost of
land  and  site  improvements  varies considerably depending upon building type,
land cost and site work, and generally ranges from  $650,000  to  $1,000,000. 

        The BKC  Franchise  Agreements  do not grant any  franchisees  exclusive
rights to a defined territory.  The Company believes that BKC generally seeks to
ensure that newly granted  franchises  do not  materially  adversely  affect the
operations of existing Burger King restaurants.

        The Company is required to obtain BKC's consent prior to the acquisition
or  development  of new  Burger  King  restaurants.  BKC has the  right of first
refusal to purchase  any Burger  King  


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restaurant  which the  Company  wishes to  acquire  from other  franchisees.  In
addition,  BKC's prior consent is required for the sale by the Company of any of
its  restaurants.  Since  the  Acquisition,  BKC  has  consented  to each of the
Company's requests for consent to acquisitions.

        Management Structure;  Staffing;  Training.  Substantially all executive
management,  finance,  marketing and operation  support functions of the Company
are conducted centrally at Carrols' Syracuse, New York headquarters. The Company
currently has four vice  president-regional  directors who are each  responsible
for  the  operations  of  all of  Carrols'  Burger  King  restaurants  in  their
respective  regions.  Three of the  regional  directors  have been  employed  by
Carrols for over 20 years.  There are 32 district  supervisors who report to the
regional  directors.  Each  district  supervisor is  responsible  for the direct
supervision  of the  day-to-day  operations of an average of seven  restaurants.
Typically,  district supervisors previously served as restaurant managers at one
of Carrols'  restaurants.  Both regional directors and district  supervisors are
compensated  with a  fixed  salary  plus  an  incentive  bonus  based  upon  the
performance of the restaurants under their supervision.

        A typical  Carrols'  Burger  King  restaurant  is  staffed  with  hourly
employees  who are  supervised by a salaried  manager and two or three  salaried
assistant managers.

        Carrols  provides  both  classroom  and  in-restaurant  training for its
salaried and hourly personnel,  in addition to the training programs provided by
BKC. Carrols  believes that training and management  development are integral to
its success.

        Control   Systems.   Financial  and   management   control  of  Carrols'
restaurants is facilitated by the use of an integrated  computerized back office
and point of sale system which  electronically  retrieves  data from each of the
Company's  restaurants on a daily basis.  Sales reports,  payroll data, food and
labor cost analyses and other operating information for each restaurant are also
available daily to the restaurant  manager,  who is expected to react quickly to
trends or situations in his or her restaurant.  The district supervisors receive
key daily information for all restaurants under their respective  control,  both
on an individual unit and a cumulative  basis.  Daily information is accumulated
into  weekly and  monthly  operating  reports  covering  significant  restaurant
performance indicators for each restaurant.  These reports are monitored at each
management level from district  supervisor  through senior  management.  Carrols
believes that these systems materially enhance its ability to control and manage
its restaurant operations.

        Factors  Affecting  the  Company's  Operations.   Carrols'  business  is
affected by various  conditions  such as automobile  usage,  inclement  weather,
gasoline prices and road  construction.  Weather  conditions can be particularly
severe in the Northeast where the Company  operates a significant  number of its
Burger King  restaurants.  Historically,  the  Company's  business has also been
affected  by  changes in local and  national  economic  conditions,  demographic
trends and consumer  spending habits,  tastes and concerns about the nutritional
quality of fast food.

        Site  Selection.  The Company  believes that the location of each of its
restaurants  is very  important  to such  restaurant's  success.  Potential  new
development  sites are evaluated based upon  accessibility,  visibility,  costs,
surrounding traffic patterns,  competition and demographic characteristics.  The
Company's  senior  management,  based upon analyses  prepared by its real estate
professionals and its operations personnel,  determines the acceptability of all
acquisition and new development sites. See "Business--Business Strategy."


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<PAGE>



RESTAURANT LOCATIONS

        The  following  table sets forth the  locations  of the 238 Burger  King
restaurants in Carrols' system at March 15, 1997.

<TABLE>
<CAPTION>

NEW YORK (98)                         OHIO (68)                    MAINE (3)
<S>                                   <C>                          <C>
Greater Albany (14)                   Greater Akron (13)           Augusta (1)
Auburn (1)                            Alliance (2)                 Bangor (2)
Amsterdam (1)                         Archbold (1)
Greater Binghamton (6)                Ashland (1)
Boonville (1)                         Bowling Green (3)            MASSACHUSETTS (2)
Buffalo (1)                           Bryan (1)
Catskill (1)                          Greater Canton (11)          North Andover (1)
Cobleskill (1)                        Greater Cleveland (9)        Billerica (1)
Cortland (1)                          Defiance (1)
Fulton (1)                            Edon (1)
Glens Falls (2)                       Findlay (2)                  NEW JERSEY (2)
Gloversville (2)                      Fostoria (1)
Hamilton (1)                          Fremont (1)
Herkimer (1)                          Hartville (1)                Franklin (1)
Hudson (1)                            Lima (2)                     Newton (1)
Kingston (3)                          Mansfield (6)
Middletown (2)                        Medina (1)
New City (1)                          Mentor (1)                   CONNECTICUT (1)
Newburgh (3)                          New Philadelphia (2)
Niagara Falls (1)                     Ottawa (1)                   Westport (1)
Norwich (1)                           Streetsboro (1)
Oneonta (2)                           Tiffin (1)
Oswego (1)                            Van Wert (1)                 VERMONT (1)
Peekskill (1)                         Wapakoneta (1)
Plattsburgh (3)                       Wooster (2)                  Rutland (1)
Poughkeepsie (2)                      Wauseon (1)
Port Jarvis (1)
Greater Rochester (14)                MICHIGAN (21)
Rome (2)
Greater Syracuse (18)                 Ann Arbor (3)
Schodack (1)                          Battle Creek (4)
Greater Utica (4)                     Brooklyn (1)
Watertown (2)                         Dearborn (1)
Yorktown Heights (1)                  Kalamazoo (4)
                                      Jackson (3)
                                      Michigan Center (1)
NORTH CAROLINA (32)                   Parma (1)
                                      Roseville (2)
Greater Asheville (9)                 Washtenaw (1)
Durham (7)
Forest City (1)
Havelock (2)                          PENNSYLVANIA (10)
Hendersonville (2)
Kinston (3)                           Bradford (1)
Marion (1)                            East Stroudsburg (1)
Morganton (1)                         Harrisburg (2)
New Bern (3)                          Lebanon (1)
Raleigh (2)                           Reading (4)
Shelby (1)                            Tamaqua (1)



                                      -9-


<PAGE>
<PAGE>


ADVERTISING AND PROMOTION

        As a Burger King  franchisee,  a  significant  portion of the  Company's
advertising  and  promotional  programs are  established  and coordinated by BKC
through regional and national advertising  campaigns.  Carrols supplements BKC's
advertising  and promotional  activities with local  advertising and promotions,
including the purchase of additional  television,  radio and print  advertising.
Carrols  also  utilizes  promotional  programs,  such as  combination  meals and
discounted prices, targeted to its customers, thereby enabling Carrols to create
a flexible and directed marketing program.

        Most  BKC  franchisees   and  BKC-owned   restaurants  are  required  to
contribute 4% of their monthly gross revenues from  restaurant  operations to an
advertising fund, utilized by BKC for its advertising,  promotional programs and
public  relations  activities.  BKC's  advertising  programs consist of national
campaigns  supplemented by local  advertising.  BKC's advertising  campaigns are
generally  carried on television,  radio and in circulated print media (national
and regional  newspapers and magazines).  Carrols believes that one of the major
advantages  of being a Burger King  franchisee  is the leverage it realizes from
the marketing power of BKC.

SUPPLIES AND DISTRIBUTION

        As a Burger King franchisee,  Carrols is required to purchase all of its
foodstuffs,  paper goods and packaging  materials from  BKC-approved  suppliers.
Other non-food items such as kitchen utensils,  equipment  maintenance tools and
other  supplies may be purchased  from any suitable  source  provided such items
meet BKC product uniformity standards.  On April 1, 1994, Carrols entered into a
new supply agreement with its BKC-approved supplier, ProSource. Pursuant to that
agreement,  Carrols is required to obtain  substantially  all of its  foodstuffs
(other than bread  products),  paper goods,  promotional  premiums and packaging
materials  from  ProSource.  The supply  agreement with ProSource is a five-year
agreement which expires on March 31, 1999. The Company believes that ProSource's
services are competitive  with  alternatives  available to the Company.  Carrols
purchases its bread  products  from local  bakeries.  See  "Business--Historical
Development."

        There are other  BKC-approved  supplier/distributors  which compete with
ProSource. Carrols believes that it would be able to substitute another supplier
if ProSource  were unable,  for any reason,  or chose not to continue to service
the Company.

        All  BKC-approved  suppliers are required to purchase all foodstuffs and
supplies from BKC-approved  manufacturers and purveyors.  BKC is responsible for
monitoring quality control and supervision of these manufacturers and purveyors.
See "Business--Quality Assurance."

        BKC  monitors  all  BKC-approved  manufacturers  and  purveyors  of  its
foodstuffs.  BKC regularly visits these  manufacturers  and purveyors to observe
the  preparation  of  foodstuffs  and run various tests to ensure that only high
quality  foodstuffs  are sold to  BKC-approved  suppliers and  distributors.  In
addition,  BKC  coordinates  and  supervises  audits of approved  suppliers  and
distributors to determine  continuing  product  specification  compliance and to
ensure that manufacturing plant and distribution center standards are met.

QUALITY ASSURANCE

        All Burger King  franchisees,  including  Carrols,  operate subject to a
comprehensive  regimen of quality  assurance and health standards set by
BKC, as well as standards set by 


                                      -10-


<PAGE>
<PAGE>



Federal,  state and local  governmental  laws and  regulations.  These standards
include food preparation  rules regarding,  among other things,  minimum cooking
temperatures,  sanitation and  cleanliness.  The "conveyor  belt" cooking system
utilized in all Burger King restaurants, which is calibrated to carry hamburgers
through the flame broiler at regulated  speeds,  helps ensure that  standardized
cooking times and  temperatures  are met. In addition,  BKC has set maximum time
standards for holding unsold prepared food; for example,  unsold  sandwiches are
discarded  ten minutes after  preparation  and unsold french fries are discarded
seven minutes after preparation.

        Carrols,  through  its  regional  directors  and  district  supervisors,
closely  supervises the operation of all of its  restaurants to help ensure that
Company  standards and policies are followed and that product quality,  customer
service  and  cleanliness  of  the  restaurants  are  maintained.  BKC  conducts
unscheduled periodic  inspections of each Burger King restaurant  throughout the
Burger King system.

BUSINESS STRATEGY

        The  Company's  primary  business  strategy is to expand its  operations
through the acquisition and  construction of additional  Burger King restaurants
while  enhancing  the  quality of  operations  and  competitive  position of its
existing Burger King  restaurants.  Carrols  believes the size of the nationwide
Burger King system will continue to present  opportunities  for selective growth
through acquisitions.  In addition,  Carrols believes that the number of markets
in which the Company operates will provide opportunities for construction of new
restaurants.  The ability of the Company to expand through the  acquisition  and
construction  of additional  Burger King  restaurants is subject to, among other
things, the availability of financing and the obtaining of consent from BKC.

GOVERNMENT REGULATION

        Carrols is subject to various  Federal,  state and local laws  affecting
its business,  including various health, sanitation,  fire and safety standards.
Newly  constructed  or  remodeled  restaurants  are  subject  to state and local
building code and zoning  requirements.  In connection  with the  remodeling and
alteration of the Company's  restaurants,  the Company may be required to expend
funds  to  meet  certain  Federal,   state  and  local  regulations,   including
regulations   requiring  that  remodeled  or  altered  restaurants  be  handicap
accessible.  The  Company is also  subject to  Federal  and state  environmental
regulations,  although  such  regulations  have not had, and are not expected to
have, a material effect on the Company's operations.

        The Company is subject to the Fair Labor Standards Act and various state
laws  governing  such matters as minimum wage  requirements,  overtime and other
working  conditions and citizenship  requirements.  A significant  number of the
Company's  food  service  personnel  are paid at rates  which may be affected by
changes to the Federal minimum wage. The increase in the Federal minimum wage on
October 1, 1996 had the effect of increasing  the Company's  average hourly rate
by  approximately  2%. The  Federal  minimum  wage is  scheduled  to increase on
September 1, 1997.

        The Company believes that it is operating in substantial compliance with
applicable  Federal,   state  and  local  laws  and  regulations  governing  its
operations.



                                      -11-


<PAGE>
<PAGE>


COMPETITION

        The fast food  industry is highly  competitive.  In each of its markets,
Carrols'  restaurants  compete  with a large  number of  national  and  regional
restaurant chains, as well as locally-owned restaurants, offering low-priced and
medium-priced  fare.  Convenience  stores,  grocery store delicatessens and food
counters,  cafeterias  and other  purveyors  of  moderately  priced and  quickly
prepared  foods  also  compete  with  the  Company.  In the  Company's  markets,
McDonald's,  Wendy's and Hardee's provide the most significant competition.  The
Company's largest competitor is McDonald's. Carrols believes that BKC's national
brand name identification  provides a significant  competitive  advantage in the
fast food  business.  The  Company  believes  that  product  quality  and taste,
convenience of location,  speed of service,  menu variety and price are the most
important competitive factors in the fast food restaurant industry.

EMPLOYEES

        At December 31, 1996,  Carrols  employed  approximately  8,400  persons;
approximately  100 were  administrative  personnel  and  8,300  were  restaurant
operating  personnel.  None of  Carrols'  employees  are  covered by  collective
bargaining agreements. Approximately 7,600 of the restaurant operating personnel
at  December  31,  1996 were  part-time  employees.  Carrols  believes  that its
employee relations are satisfactory.

ITEM 2. PROPERTIES

        The Company owns the  approximately  20,000  square foot building at 968
James Street,  Syracuse,  New York, in which its executive  offices are located.
This building houses all of the Company's administrative  operations (except for
those  conducted  at three small  regional  offices)  and is adequate for future
expansion.  In  addition to the above,  at March 15,  1997 the Company  owned or
leased the following properties:


</TABLE>
<TABLE>
<CAPTION>

                                            Owned        Leased        Leased
                                            Land;         Land;        Land;
                                            Owned         Owned        Leased
                                           Building     Building      Building        Total
                                           --------     --------      --------        -----
<S>                                           <C>           <C>         <C>            <C>
Burger King restaurants                       28            16          194(a)         238

Excess properties:
  Leased to others                            --            --            4              4
  Available for sale or lease                  4            --           --              4
                                             ---          ----        -----          -----
Total properties                              32            16          198            246
                                             ===          ====        =====          =====

</TABLE>


(a)     Includes 21 restaurants located in mall shopping centers or specialty
        locations.

        Most of the Company's leases are coterminous with the related  Franchise
Agreements.  The Company  believes  that it  generally  will be able to renew at
commercially reasonable rates the leases whose terms expire prior to the subject
Franchise Agreements.


                                      -12-


<PAGE>
<PAGE>


        Most leases  require the  Company,  as lessee,  to pay utility and water
charges,  premiums on  insurance  and real  estate  taxes.  Certain  leases also
require  contingent  rentals  based upon a percentage of gross sales that exceed
specified minimums.

ITEM 3. LEGAL PROCEEDINGS

        The Company is not a party to any pending  legal  proceeding  which,  in
management's  belief,  will have a  material  adverse  effect  on the  Company's
results of  operations  or financial  condition,  nor to any other pending legal
proceedings other than ordinary, routine litigation incidental to its business.

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

                                 Not applicable.


                                      -13-

<PAGE>
<PAGE>




                                     PART II

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

        There is no established  trading market for the Company's capital stock.
Holdings owns 10 shares of common stock of the Company (representing 100% of the
capital stock of the Company).

        Cash  dividends  per share were paid  during 1995 and 1996 by Carrols to
Holdings as follows:

           January, 1995       $   20,000.00
           April, 1995         $   20,000.00
           June, 1995          $    3,672.00
           July, 1995          $   20,000.00
           January, 1996       $      800.00
           March, 1996         $   41,480.00
           August, 1996        $   20,722.40
           October, 1996       $   37,000.38


        See discussion of dividend  restriction in "Management's  Discussion and
Analysis of Financial  Condition  and Results of  Operations  --  Liquidity  and
Capital Resources."


                                      -14-

<PAGE>
<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

CARROLS CORPORATION AND SUBSIDIARIES-SUMMARY OF SELECTED FINANCIAL DATA


<TABLE>
<CAPTION>

                                                             YEARS ENDED DECEMBER 31,
                                          --------------------------------------------------------------------
                                             1996         1995            1994           1993          1992
                                          ---------     ---------      ----------     ----------      --------
                                         (52 weeks)     (52 weeks)     (52 weeks)     (52 weeks)     (53 weeks)

                                           (Dollars in thousands except for per share data and restaurants)

OPERATING RESULTS:

<S>                                    <C>            <C>            <C>            <C>              <C>       
  Revenues                             $   241,125    $   226,458    $  204,254     $  171,634       $  156,413

  Income (loss) before taxes,
      extraordinary loss and
      cumulative effect of change in
      accounting principle                   6,283          5,100        (1,666)        (4,408)          (1,262)
       (Provision) benefit for taxes
                                            (3,100)         9,826          (165)

  Extraordinary loss on
extinguishment of debt                                                                  (4,883)
  Cumulative effect of change in
      accounting for post-
      retirement benefits                                                                                (1,037)
                                       ------------   ------------  ------------       --------        ----------
  Net income (loss)                    $     3,183    $    14,926   $    (1,831)       $(9,291)        $ (2,299)
                                       ============   ============  ============       ========        ==========
PER SHARE OF COMMON STOCK:

  Income (loss) before taxes,
      extraordinary loss and
       cumulative effect of change in
       accounting principle            $  628,300      $  510,000    $ (166,600)    $ (440,800)      $ (126,200)
       (Provision)
       benefit for taxes                 (310,000)       982,600        (16,500)

  Extraordinary loss on
extinguishment of debt                                                                (488,300)

  Cumulative effect of change in
      accounting for post-retirement
      benefits                                                                                          (103,700)
                                       ------------   ------------   ------------    -----------        ----------
    Net income (loss)                  $  318,300     $1,492,600     $ (183,100)     $ (929,100)      $ (229,900)
                                       ============   ============   ============     ==========        ==========
  Dividends Declared                   $  100,002     $   63,672     $  297,301      $  273,960       $   20,010

OTHER DATA:

  Total assets                         $   138,588    $   135,064   $   125,319      $  119,735       $  115,900
  Long-term debt                           118,180        116,375       120,680         114,197           91,245
  Capital lease obligations                  2,503          3,301         3,966           4,603            5,436
  Total long-term debt and capital 
    lease obligations                      120,683        119,676       124,646        118,800            96,681
  Common stockholder's deficit             (11,662)       (12,916)      (10,383)       (27,208)          (22,404)

  Burger King restaurants in
operation:
      At end of period                         232            219           219            195               177
      Annual weighted average                  225            219           207            185               169

</TABLE>

                                      -15-


<PAGE>
<PAGE>


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

        General. The following table sets forth for the years ended December 31,
1996,  1995 and  1994  certain  consolidated  financial  data  for the  Company,
expressed as a percentage of sales:

<TABLE>
<CAPTION>

                                                     PERCENTAGE OF SALES
                                                   YEARS ENDED DECEMBER 31
                                                 --------------------------
                                                  1996       1995      1994
                                                  ----       ----      ----

<S>                                               <C>        <C>       <C>   
     Sales                                        100.0%     100.0%    100.0%
     Other income                                    .1         .1        .2
     Cost of sales                                 28.3       28.1      28.4
     Restaurant wages and related expenses         29.4       29.1      29.4
     Other restaurant operating expenses           20.2       20.2      20.8
     Depreciation and amortization                  4.6        5.0       5.5
     Administrative expenses                        4.4        4.7       4.6
     Advertising expense                            4.5        4.3       4.3
     Loss on closing restaurants and other                                .9
     Costs associated with change of control         .2
     Operating income                               8.5        8.7       6.3
     Interest expense                               5.9        6.4       7.1
     Income (loss) before taxes                     2.6        2.3       (.9)
     (Provision) benefit for taxes                 (1.3)       4.3       (.1)
</TABLE>


1996 COMPARED TO 1995

        Sales.  Sales for the year  ended  December  31,  1996  increased  $14.6
million,  or 6.4%, as compared to the year ended  December 31, 1995. The Company
operated an average of 225 Burger King restaurants during 1996 as compared to an
average of 219 for 1995. Average unit sales increased 2.2% during the year ended
1996 as compared to 1995. Sales at comparable  restaurants,  the 211 restaurants
operating for the entirety of the compared periods,  increased $7.1 million,  or
3.2%.  Net  restaurant  selling  prices  decreased  3.5% from the prior year due
mainly to higher discount promotional activity offset by menu price increases of
approximately 1%.

        Cost of Sales.  Cost of sales (food and paper  costs) for the year ended
December  31,  1996  increased  in dollars  due to higher  sales.  Cost of sales
increased as a percentage of sales from 28.1% to 28.3% in 1996 due to the effect
of higher  discount  promotional  activity  partially  offset by  certain  lower
commodity costs especially beef.


                                      -16-

<PAGE>
<PAGE>


        Restaurant  Wages and  Related  Expenses.  Restaurant  wages and related
expenses increased from 29.1% of sales to 29.4% of sales when comparing the year
ended  December 31, 1995 to 1996 due mainly to increased  wage rates  (including
the  increase  in the minimum  wage  effective  October 1, 1996),  the effect of
higher  discount  promotional  activity  and  increased  group  insurance  costs
partially offset by reduced unemployment tax rates.

        Other Restaurant Operating Expenses. Other restaurant operating expenses
increased in dollars due to higher sales and more restaurants while the costs as
a percentage of sales remained at 20.2% of sales.

        Depreciation and Amortization.  Depreciation and amortization  decreased
$0.2 million from assets becoming fully  depreciated  offset  partially from the
additional depreciation and amortization of new restaurants.

        Administrative  Expenses.  Administrative  expenses remained  relatively
stable  during  the year ended  December  31,  1996 as  compared  to 1995.  Some
increased  costs  related to future  expansion  were offset by the effect of the
fixed element of other costs.

        Advertising  Expense. An increase in advertising payments to Burger King
Corporation  of $0.6 million  (based on sales  levels) and the costs  associated
with increased promotional activity were the principal causes of the increase in
advertising expense when comparing 1996 to 1995.

        Interest Expense. A reduction in average loan balances was the principal
cause for  interest  expense to  decrease  $0.3  million for 1996 as compared to
1995.

        Costs  Associated  with Change in Control.  Costs of $0.5 million during
the year ended December 31, 1996  related to the Atlantic Acquisition during the
second quarter of 1996.

        Provision for Income Taxes.  The higher than  anticipated  effective tax
rate is  principally  the  result of the $.5  million of costs  associated  with
change of control not being deductible.

1995 COMPARED TO 1994

        Sales.  Sales for the year  ended  December  31,  1995  increased  $22.3
million,  or 11.0%, as compared to the year ended December 31, 1994. The Company
operated an average of 219 Burger King  restaurants  for the year ended December
31, 1995 as compared to 207 for 1994.  Average  unit sales  increased  4.9% when
comparing 1995 to 1994. Sales at comparable restaurants, the 187 units operating
for the entirety of the compared periods,  increased $7.1 million,  or 3.8%. Net
restaurant  selling  prices  increased  approximately  0.5% from fewer  discount
promotions in 1995.

        Cost of Sales.  Cost of sales (food and paper  costs) for the year ended
December 31, 1995  increased in dollars due to higher sales.  Cost of sales as a
percentage of sales  decreased  0.3% from 1994 to 1995 as a result of the effect
of net  restaurant  selling  prices and  decreases in various  commodity  costs,
especially  beef,  partially  offset by the  introduction of  larger-sized  meat
patties in certain sandwiches.


                                      -17-

<PAGE>
<PAGE>


        Restaurant  Wages and  Related  Expenses.  Restaurant  wages and related
expenses decreased from 29.4% of sales to 29.1% of sales when comparing the year
ended December 31, 1994 to 1995. The effect of increased  selling prices,  lower
workers'  compensation  cost and lower health  insurance cost were the principal
reasons for the lower percentage in 1995.

        Other Restaurant Operating Expenses. Other restaurant operating expenses
increased by $3.2 million but  decreased  0.6% as a percentage of sales for 1995
compared  to 1994.  The  increase in dollars  was caused  primarily  by expenses
associated  with the  operation of the  additional  restaurants  during the most
recent year when  compared to the prior year.  The effect of higher sales on the
fixed element of some expenses like utilities, real estate taxes, linen and some
repair and  maintenance  costs was the  primary  reason for the  decrease in the
percentage from 1994 to 1995.

        Depreciation and  Amortization.  Depreciation and amortization  remained
relatively  equal to the year ended December 31, 1994.  Additional  depreciation
and  amortization  from new and  acquired  restaurants  were  offset  by  assets
becoming fully depreciated during the last two years.

        Administrative  Expenses.  Supervision and training expenses  associated
with  operating  additional  restaurants  were the principal  cause of increased
administrative  expenses  during the year ended December 31, 1995 as compared to
1994.

        Advertising  Expense. An increase in advertising payments to Burger King
Corporation of $0.9 million  (based on sales levels) was the principal  cause of
the increase in advertising expense when comparing 1995 to 1994.

        Interest  Expense.  Average  interest  rates and average  loan  balances
remained relatively the same in 1995 and 1994.

        (Provision)  Benefit for Taxes. The income tax benefit  reflected during
the twelve months ended December 31, 1995,  resulted from the elimination of the
valuation  allowance  for  the  net  deferred  income  tax  asset  which  arises
substantially  from the  availability  of tax loss  carryforwards.  A review  of
current and expected  future  pre-tax  earnings based upon  historical  earnings
adjusted for recent  acquisitions,  led to the conclusion that it is more likely
than not that the Company  will  realize the entire  benefit of the net deferred
income tax asset at December 31, 1995 of $10,061,000.

LIQUIDITY

        The  operating  activities  of the Company  during 1996  provided  $15.9
million of cash.

        Capital  spending during 1996 of $23.2 million included $7.9 million for
the  acquisition  of seven  restaurants  (including  real estate for five of the
restaurants)  in  North  Carolina  and one in New  York,  $3.4  million  for the
purchase  of real estate for five  restaurants  operated by the Company and $3.8
million for the construction of five new restaurants, including  the real estate
for one of the restaurants.  The balance of the spending went toward  restaurant
capital maintenance and remodeling. The Company completed 24 remodelings in 1996
at a cost of $2.5  million  principally  in  conjunction  with  the  renewal  of
franchises that were scheduled to expire in 1996 through 1998.


                                      -18-

<PAGE>
<PAGE>


        During  1996,  utilization  of the  Company's  revolving  line of credit
portion of the Senior  Secured  Credit  Facility  with  Heller  Financial,  Inc.
increased  $3.0  million.  Sale and  leasebacks  of five  restaurant  properties
generated $4.2 million.  Dividends of $1.0 million were paid to Holdings for the
payment by Holdings of 5 regular  quarterly  preferred stock dividends that were
in arrears.  The Company redeemed $.8 million of Notes pursuant to the change of
control resulting from the Atlantic Acquisition (see Redemption of Notes in Item
1 - Recent Developments).

        At December 31, 1996, the Company had $19.2 million  available under its
Senior  Secured  Credit  Facility  after  reserving $1.1 million for a letter of
credit  guaranteed by the Senior  Secured  Credit  Facility.  While  interest is
accrued  monthly,  payments of  approximately  $6.2  million for interest on the
Notes are made each February 15th and August 15th thus creating semi-annual cash
needs. The Company believes that future cash flow from operations  together with
funds  available  under the Senior Secured Credit Facility will be sufficient to
meet all  interest  and  principal  payments  under its  indebtedness,  fund the
maintenance of property and equipment, fund restaurant remodeling required under
the  Franchise  Agreements  and meet  required  payments in respect of Holdings'
Preferred  Stock  (subject to the terms of the Indenture and the Senior  Secured
Credit  Facility) for at least the next twelve months.  The balance will provide
funds for future acquisitions.

        The Company's loan agreements impose  limitations on certain  restricted
payments,  which include dividends and preferred stock redemptions.  The ability
to make such  restricted  payments is dependent upon either earnings or proceeds
from the issuance of new capital  stock.  As of March 15, 1997  dividends on the
Preferred  Stock for the last  quarter of 1996 of $.2  million  and a  scheduled
mandatory  preferred  stock  redemption  of $1.8 million were not paid.  As more
fully  explained in Note 6 to the  financial  statements,  the dividend  rate is
increased  if dividend  payments by Holdings are not made within  specific  time
periods.

        Consummation   of  the  MD  Closing   described   in   "Business--Recent
Developments"  will  constitute  a  "change  of  control"  under  the  Indenture
governing the Senior Notes.  In accordance  with the terms and conditions of the
Indenture, upon a "change of control", each holder of Senior Notes will have the
right to require the Company  (within a 30-60 day period,  as  determined by the
Company,  following  such a change of control) to repurchase  all or any part of
such  holder's  Senior Notes at a repurchase  price in cash equal to 101% of the
principal  amount of the Senior Notes being  repurchased (plus accrued interest,
if any). In light of current market conditions,  the Company does not anticipate
that a significant  number of Senior Note holders will exercise their repurchase
rights. To the extent that  such  repurchase  rights are exercised,  the Company
expects to finance the aggregate repurchase amount through  borrowings under the
TCB  Refinancing  (see  Revised  and  Proposed  Credit Facility in Item I Recent
Developments). Upon closing of the MD Investment (See MD Investment in  Item I -
Recent  Developments),  the  Company  will  be  receiving  new  cash  equity  of
approximately $30.5 million.

INFLATION

        While inflation can have a significant  impact on food, paper, labor and
other operating costs,  the Company has  historically  been able to minimize the
effect of inflation  through periodic price  increases,  and believes it will be
able to offset future inflation with price increases, if necessary.


                                      -19-

<PAGE>
<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The Index to Financial  Statements  attached hereto is set forth in Item
14.

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

        On October 29,  1996,  the board of  directors  of the Company  voted to
approve  the  dismissal  of the  accounting  firm of Coopers &  Lybrand,  L.L.P.
("Coopers & Lybrand") as their  principal  audit  accountant and has engaged the
services  of  Arthur  Andersen   LLP  ("Arthur  Andersen")  as  their  principal
accountants.

        Coopers & Lybrand were the principal  audit  accountants  during the two
years ended  December 31, 1995 and their report on the financial  statements for
the periods ended December 31, 1994 and 1995 did not contain an adverse  opinion
or  disclaimer of opinion nor were  financial  statement  opinions  qualified or
modified as to uncertainty, as to audit scope or as to accounting principals.

        There have been no disagreements on any matters of accounting principles
or practices, financial statement disclosure or auditing scope of procedure with
the  accounting  firm of Coopers & Lybrand  for the most recent two years or any
subsequent interim period.


                                      -20-


<PAGE>
<PAGE>


                                    PART III

ITEM 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

        The Company's Directors and executive officers are:

<TABLE>
<CAPTION>

      NAME                        AGE      POSITION WITH THE COMPANY
      ----                        ---      -------------------------
<S>                                <C>                                                    
      Daniel T. Accordino          46      President, Chief Operating Officer and Director
      Steven Barnes                48      Vice President--Regional Director
      Michael A. Biviano           40      Vice President--Regional Director
      Richard V. Cross             61      Executive Vice President - Finance and Treasurer
      Paul P. Drotar               50      Vice President--Corporate Controller
      Paul Durrant                 38      Director
      Richard H. Liem              43      Vice President--Financial Operations
      David Mathies                49      Director
      Robin McIlvenny              44      Director
      David R. Smith               47      Vice President--Regional Director
      James E. Tunnessen           42      Vice President--Regional Director
      Alan Vituli                  55      Chairman of the Board and Chief Executive Officer
      Joseph A. Zirkman            36      Vice President, General Counsel and Secretary

</TABLE>


        Certain  biographical  information  regarding each current  Director and
executive officer of the Company is set forth below:

        Mr. Accordino has been President, Chief Operating Officer and a Director
of Carrols since  February  1993.  Prior  thereto,  he served as Executive  Vice
President--Operations of Carrols from December 1986 and as Senior Vice President
from April 1984.  He is also a Director of Holdings.  From 1979 to April 1984 he
was Vice President responsible for restaurant operations of the Company,  having
previously served as the Company's Assistant Director of Restaurant  Operations.
Mr. Accordino has been employed by the Company since 1973.

        Mr. Barnes is Vice President--Regional  Director of Carrols. He has been
a Vice President since February 1997 and a Regional Director of Operations since
1993. Prior to joining  Carrols,  Mr. Barnes was Vice  President--Operations  of
Snapps Restaurants, Inc. from 1989 to 1993.

        Mr. Biviano is Vice President--Regional Director of Carrols. He has been
Regional  Director of Operations  since October 1989,  having served as District
Supervisor  from December 1983 to October 1989. Mr. Biviano has been employed by
the Company since 1973.

        Mr. Cross is Executive Vice President--Finance and Treasurer of Carrols.
He has served as Executive  Vice  President  since 1986 and Treasurer from 1981.
Mr. Cross also served as Director of Carrols from 1981 to April 1996.  From 1984
through 1986, Mr. Cross was Senior Vice President of Carrols.  He also served as
a Director of Holdings  from 1981 to April 1996.  Prior to 1984,  Mr.  Cross was
Vice President and Controller of Carrols for more than five years. Mr. Cross has
been employed by the Company since 1969.

        Mr.  Drotar  has been Vice  President--Corporate  Controller  of Carrols
since April 1984. He was Assistant Controller from June 1982 through April 1984,
having  served as Manager of  



                                      -21-

<PAGE>
<PAGE>



Restaurant  Accounting  from  December  1980 to June 1982.  Mr.  Drotar has been
employed by the Company since 1973.

        Mr.  Durrant has served as a Director of Carrols since April 1996. He is
also a Director of Holdings.  Since 1994, Mr. Durrant has been Managing Director
of the  Merchant  Banking  group  at  Dilmun  Investments  Inc.  ("Dilmun"),  an
investment advisor and wholly owned subsidiary of BIB. From 1992 to 1994, he was
employed by Dilmun Investment  Advisors,  Ltd., London, where he was Director of
Direct Corporate Investments.

        Mr. Liem became Vice President--Financial  Operations in May 1994. Prior
to joining  Carrols Mr. Liem was a Senior Audit Manager with the accounting firm
of Price Waterhouse. Mr. Liem was with Price Waterhouse beginning in 1983.

        Mr.  Mathies has served as a Director of Carrols since April 1996. He is
also a Director of  Holdings.  Since 1988,  Mr.  Mathies has been  President  of
Dilmun.  From 1971 to 1988, he was employed by Mellon Bank, where he was Head of
Pension Management Group,  providing  investment  management  services to middle
market clients.

        Mr.  McIlvenny  has served as a Director of Carrols since April 1996. He
is also a  Director  of  Holdings.  Since  1991,  Mr.  McIlvenny  has been Chief
Executive  of BIB.  From 1989 to 1991,  he was  employed by Saudi  International
Bank,  London,  where he was  Assistant  General  Manager and Head of  Corporate
Finance.

        Mr. Smith is Vice  President--Regional  Director of Carrols. He has been
Regional Director of Operations since 1984, having served as District Supervisor
from 1975 to 1984. Mr. Smith has been employed by the Company since 1972.

        Mr. Tunnessen is Vice  President--Regional  Director of Carrols.  He has
been  Regional  Director of  Operations  since  August  1988,  having  served as
District Supervisor from 1979 to August 1988. Mr. Tunnessen has been employed by
the Company since 1972.

        Mr.  Vituli has been  Chairman  of the Board of  Carrols  since 1986 and
Chief Executive  Officer since March 1992. He is also a director and Chairman of
the Board of Holdings.  Mr.  Vituli is also general  partner of Morgan  Ventures
III, a limited  partnership  ("Morgan  Ventures").  Between  1983 and 1985,  Mr.
Vituli was employed by Smith  Barney,  Harris Upham & Co., Inc. as a senior vice
president  responsible  for real estate  transactions.  From 1966 until  joining
Smith Barney,  Mr. Vituli was associated  with the accounting  firm of Coopers &
Lybrand,  first as an  employee  and the last ten years as a partner.  Among the
positions  held by Mr.  Vituli at Coopers & Lybrand  was  national  director  of
mergers and  acquisitions.  Prior to joining  Coopers & Lybrand,  Mr. Vituli was
employed in a family owned restaurant business. Mr. Vituli currently serves as a
Director on the Board of Directors of Pollo Tropical, Inc.

        Mr.  Zirkman  became Vice  President  and General  Counsel of Carrols in
January 1993. He was appointed  Secretary of the Company in February 1993. Prior
to joining Carrols, Mr. Zirkman was an associate with the New York City law firm
of Baer Marks & Upham beginning in 1986.


                                      -22-
<PAGE>
<PAGE>




ITEM 11.       EXECUTIVE COMPENSATION

        The following tables set forth certain  information for the fiscal years
ended December 31, 1996, 1995 and 1994 for the Chief  Executive  Officer and the
next four most  highly  compensated  executive  officers of the Company who were
serving as executive officers at December 31, 1996 and whose annual compensation
exceeded $100,000.

<TABLE>
<CAPTION>


                                  SUMMARY COMPENSATION TABLE
             ---------------------------------------------------------------------
                                                                       LONG TERM
                                                                    COMPENSATION
                                     ANNUAL COMPENSATION               AWARDS
                            --------------------------------------  --------------


                                                                    NUMBER OF
                                                                    SECURITIES
             NAME AND PRINCIPAL                                     UNDERLYING
             POSITION             YEAR      SALARY ($)   BONUS ($)  OPTIONS (#)
             --------             ----      ----------   ---------  -----------
<S>                               <C>        <C>         <C>                  
             Alan Vituli          1996       $363,160    $128,210           ---
             Chairman of the      1995        352,632     245,000        20,000
             Board
             and Chief            1994        300,430      81,000           ---
             Executive
             Officer


             Daniel T.            1996        258,943      91,778            ---
             Accordino
             President, Chief     1995        250,751     150,322        10,000
             Operating            1994        226,216      60,891            ---
             Officer
             and Director

             Richard V. Cross     1996        161,264      57,144            ---
             Executive Vice       1995        161,522      80,262          5,000
             President--Finance   1994        156,378      42,106            ---
             and Treasurer

             Joseph A.            1996        115,288      40,934            ---
             Zirkman
             Vice President,      1995        105,249      41,995          3,000
             General Counsel      1994         95,890      24,303            ---
             and Secretary

             Richard H. Liem      1996         94,750      30,288            ---
             Vice President,      1995         93,092      37,153          3,000
             Financial            1994         57,552      15,423         10,000
             Operations


</TABLE>

                                      -23-


<PAGE>
<PAGE>



   Aggregated Option/SAR Exercises and Fiscal Year-End Options/SAR Value Table


<TABLE>
<CAPTION>

                                                     Number of Securities
                                                     Underlying Unexercised      Value of Unexercised In-the-
                                                     Options/SARs                Money Options/SARs
                    Shares Acquire   Value           at FY-End (#)               at FY-End ($)
Name                on Exercise(#)   Realized($)     Exercisable/Unexercisable   Exercisable/Unexercisable
----                --------------   -----------     -------------------------   --------------------------
<S>                 <C>              <C>              <C>                        <C>
Daniel T.                                                 0/0                      0/0
Accordino                ---           ---
Richard V. Cross         ---           ---                0/0                      0/0
Richard H. Liem         2,000       $38,484               0/0                      0/0
Alan Vituli              ---           ---                0/0                      0/0
Joseph A. Zirkman       1,000        19,242               0/0                      0/0

</TABLE>


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

        During the last fiscal year, no executive  officer of the Company served
as a director of or member of a  compensation  committee of any entity for which
any of the persons  serving on the Board of  Directors  of the Company or on the
Compensation Committee of the Board of Directors (the "Compensation  Committee")
is an executive officer.

        The Board of Directors  currently  has four  committees:  the  Executive
Committee,  of which  Messrs.  Vituli,  Accordino  and Durrant are members;  the
Finance Committee,  of which Messrs.  Vituli, Durrant and Cross (as advisor) are
members; the Compensation  Committee,  of which Messrs.  Mathies and Durrant are
members;  and the Audit  Committee,  of which  Messrs.  Mathies  and Durrant are
members.

        All Directors hold office until the next annual meeting of  stockholders
or until  their  successors  have been  elected  and  qualified.  The  executive
officers of the Company are chosen by the Board and serve at its discretion.

        All  non-employee  Directors of the Company receive a fee of $15,000 per
annum. All Directors are reimbursed for all reasonable expenses incurred by them
in acting as  Directors,  including as members of any  committee of the Board of
Directors.

        As permitted under the Delaware  General  Corporation Law, the Company's
Restated  Certificate of  Incorporation  provides that a Director of the Company
will not be personally  liable to the Company or its  stockholders  for monetary
damages for breach of a fiduciary duty owed to the Company or its  stockholders.
By its terms and in accordance with the laws of the State of Delaware,  however,
this  provision  does not  eliminate or limit the liability of a Director of the
Company (i) for any breach of the  Director's  duty of loyalty to the Company or
its  stockholders,  (ii)  for an act  or  omission  committed  in bad  faith  or
involving  intentional  misconduct or a knowing  violation of law, (iii) for any
transaction from which the Director derived an improper personal benefit or (iv)
for  an  improper   declaration  of  dividends  or  purchase  of  the  Company's
securities.

        The Company's  Restated  Certificate of Incorporation  provides that the
Company  shall  indemnify  its  Directors  and  officers to the  fullest  extent
permitted by Delaware law.


                                      -24-


<PAGE>
<PAGE>



DESCRIPTION OF PLANS

        Employee  Savings Plan. In 1979,  Carrols adopted two identical  savings
plans, qualified as profit-sharing plans, for its salaried employees, permitting
participating  employees  to make annual  contributions.  On December  31, 1994,
Carrols  merged  the two  plans  into a single  plan,  the  Carrols  Corporation
Corporate  Employee  Savings Plan (the "Savings  Plan").  In accordance with the
Savings Plan,  Carrols  matches up to $1,060 of an employee's  contributions  by
contributing  $0.50 for each dollar  contributed by the employee.  Employees are
fully vested in their own  contributions;  employees  become  vested in Carrols'
contributions  beginning  in the fourth  year of service,  and are fully  vested
after  seven  years of service  or upon  retirement  at age 65 with five  years'
service,  death,  permanent or total disability or termination.  Benefits may be
paid out upon the  occurrence  of any of the  foregoing  events in a single cash
lump sum, in periodic installments over not more than 15 years or in the form of
an annuity.  The employee's  contributions may be withdrawn at any time, subject
to restrictions on future contributions.  Carrols' matching contributions may be
withdrawn under certain conditions of financial necessity or hardship as defined
in the Savings Plan.

        Bonus Plans. Carrols has cash bonus plans designed to promote and reward
excellent  performance by providing employees with incentive  compensation.  Key
senior  management  executives  of each  operating  division can be eligible for
bonuses  equal to  varying  percentages  of  their  respective  annual  salaries
determined by the performance of the Company and the division.

        1996 Plan.  On December  26,  1996,  Holdings,  with the approval of its
stockholder,  adopted  the 1996 Plan  pursuant  to which the  Company  may grant
"Incentive  Stock Options" (as defined under Section 422 of the Internal Revenue
Code),  nonqualified stock options, stock appreciation rights, restricted stock,
performance  shares and  performance  units and other  stock-based  awards  (the
foregoing  collectively  "Awards")  to certain  officers  and  employees  of the
Company and its subsidiaries. The 1996 Plan is designed to advance the interests
of Holdings and the Company by providing an additional  incentive to attract and
retain  qualified  and  competent  persons  through the  encouragement  of stock
ownership or stock appreciation rights in Holdings.

        The 1996 Plan  permits the  Company's  Compensation  Committee to grant,
from time to time,  options to purchase an aggregate of up to 106,250  shares of
Common  Stock.  The  vesting  periods  for awards and the  expiration  dates for
exercisability  of Awards  granted  under the 1996  Plan are  determined  by the
Compensation Committee; however, the exercise period for an option granted under
the  1996  Plan may not  exceed  ten  years  from  the  date of the  grant.  The
Compensation Committee is authorized to grant options under the 1996 Plan to all
eligible  employees  of the Company and its  subsidiaries,  including  executive
officers  and  directors  (other  than  outside  Directors  and  members  of the
Compensation  Committee).  As of March 15, 1997,  the only  options  outstanding
under the 1996 Plan are  governed by the Option  Agreements,  each as  described
below.

        The option exercise price per share of any option granted under the 1996
Plan is determined by the Compensation Committee; however, in no event shall the
option price per share of any option  intended to qualify as an Incentive  Stock
Option be less than the fair market  value of the Common  Stock on the date such
option is granted.  Payment of such option  exercise  price shall be made (i) in
cash,  (ii) by delivering  shares of Common Stock already owned by the holder of
such options,  (iii) by  delivering a promissory  note payable over a three year
period and bearing  interest at the rate provided  under Section  1274(d) of the
Internal  Revenue  Code  of  1986,  as  amended  from  time to time or (iv) by a
combination  of any of the foregoing,  in accordance  with 



                                      -25-


<PAGE>
<PAGE>



the terms of the 1996  Plan,  the  applicable  stock  option  agreement  and any
applicable guidelines of the Compensation Committee in effect at the time.

        Pursuant  to the 1996  Plan,  in the  event of a Change of  Control  (as
defined in the 1996 Plan, any or all Stock Options (as defined in the 1996 Plan)
and Stock  Appreciation  Rights (as defined in the 1996 Plan) still  outstanding
shall,  notwithstanding any contrary terms of the Award Agreement (as defined in
the 1996  Plan),  accelerate  and become  exercisable  in full at least ten days
prior to (and shall expire on) the  consummation  of such Change of Control,  on
such  conditions  as the  Compensation  Committee  shall  determine,  unless the
successor   corporation   assumes  the   outstanding   Stock  Options  or  Stock
Appreciation Rights or substitutes substantially equivalent options.

               The New 1996  Plan.  The 1996  Plan  will be  replaced  at the MD
Closing by the New 1996 Plan. The New 1996 Plan will be subject to substantially
similar terms as the 1996 Plan,  provided,  however,  that,  pursuant to the New
1996 Plan, in the event that the holder of an option issued  pursuant to the New
1996 Plan  elects to pay the  exercise  price of such  option  by  delivering  a
promissory  note,  such  promissory  note may be either (i)  unsecured and fully
recourse  against the holder of such option or (ii)  nonrecourse  but secured by
the shares of Common Stock being  purchased by such exercise and by other assets
having a fair market value equal to not less than forty  percent of the exercise
price of such option and, in either  event,  such note shall mature on the fifth
anniversary of the date thereof.

               In  addition,  pursuant  to the New 1996 Plan,  in the event of a
Change  of  Control  (as  defined  in the New  1996  Plan)  during  the  term of
employment with Carrols of a holder of an option issued under the New 1996 Plan,
the  portion  of any such  option  that is not  vested  shall  vest  and  become
exercisable in full on the date of such Change of Control. In addition,  as soon
as practicable but in no event later than thirty days prior to the occurrence of
a Change of Control,  the  Compensation  Committee shall notify any holder of an
option granted under the New 1996 Plan of such Change of Control.  Further, upon
a Change of Control that  qualifies  as an Approved  Sale (as defined in the New
1996 Plan) in which the  outstanding  Common Stock is converted or exchanged for
or  becomes a right to  receive  any cash,  property  or  securities  other than
Illiquid  Consideration  (as  defined  in the New 1996  Plan),  (i) each  option
granted under the New 1996 Plan shall become  exercisable  solely for the amount
of such cash,  property or securities  that the holder of such option would have
been entitled to had such option been exercised  immediately prior to such event
(ii) the  holder of such  option  shall be given an  opportunity  to either  (A)
exercise  such  option  prior  to the  consummation  of the  Approved  Sale  and
participate in such sale as a holder of Common Stock or (B) upon consummation of
the Approved Sale,  receive in exchange for such option  consideration  equal to
the amount  determined by multiplying (1) the same amount of  consideration  per
share of Common Stock received by the holders of Common Stock in connection with
the  Approved  Sale less the  exercise  price per share of Common  Stock of such
option to  acquire  Common  Stock by (2) the  number  of shares of Common  Stock
represented by such option; and (iii) to the extent such option is not exercised
prior to or  simultaneous  with such  Approved  Sale,  any such option  shall be
canceled.

DESCRIPTION OF EMPLOYMENT AGREEMENTS

        Vituli  Employment  Agreements.  Upon the  consummation  of the Atlantic
Transaction,  the  Company  entered  into an  Amended  and  Restated  Employment
Agreement (the "Vituli Employment  Agreement"),  dated as of April 3, 1996, with
Alan  Vituli  pursuant to which Mr.  Vituli  serves as Chairman of the Board and
Chief  Executive  Officer of the Company.  The term of Mr.  Vituli's  employment
under the Vituli Employment  Agreement is deemed to have commenced 


                                      -26-


<PAGE>
<PAGE>


on January 1, 1995 and is for an initial term from such deemed commencement date
of three years, provided, however, that the employment term automatically renews
for successive one-year terms unless either the Company or Mr. Vituli elects not
to  renew by  giving  written  notice  to the  other  at least 90 days  before a
scheduled  expiration date.  Pursuant to the Vituli  Employment  Agreement,  Mr.
Vituli received a base salary of $350,000 in 1995,  which amount is subject to a
consumer  price  index  increase  for the  second  and third  years of the term.
Beginning in 1998, the base salary for each year thereafter will be increased in
accordance with the  recommendation of the Compensation  Committee.  Pursuant to
the Vituli Employment Agreement,  Mr. Vituli participates in the Executive Bonus
Plan of the Company and all stock option  programs of the Company  applicable to
executive employees.  In addition,  pursuant to the Vituli Employment Agreement,
the  Company  is  responsible  for   maintaining  the  premium   payments  on  a
split-dollar  life insurance  policy on the life of Mr. Vituli providing a death
benefit  of $1.5  million  payable to an  irrevocable  trust  designated  by Mr.
Vituli.

        On the date of the MD  Closing,  the  Company  will  enter into a Second
Amended  and  Restated   Employment   Agreement  (the  "New  Vituli   Employment
Agreement")  with  Alan  Vituli,  which  shall  amend  and  restate  the  Vituli
Employment  Agreement.  Pursuant  to the New Vituli  Employment  Agreement,  Mr.
Vituli  will  continue  to serve as  Chairman  of the Board and Chief  Executive
Officer of the  Company.  The New Vituli  Employment  Agreement  shall be for an
initial term of four years, commencing on the date of the MD Closing and will be
subject to automatic  renewals for  successive  one-year terms unless either the
Company or Mr. Vituli elects not to renew by giving  written notice to the other
at least 90 days before a scheduled  expiration date. Pursuant to the New Vituli
Employment Agreement,  Mr. Vituli will receive a base salary of $400,000 for the
first year of the term,  which  amount  increases  annually by at least  $25,000
subject to  additional  increases  that may be  authorized  by the  Compensation
Committee.  Pursuant to the New Vituli  Employment  Agreement,  Mr.  Vituli will
participate in the Executive Bonus Plan of the Company and any stock option plan
of the Company  applicable  to executive  employees.  The New Vituli  Employment
Agreement also will require that the Company is responsible  for maintaining the
premium  payments on a  split-dollar  life  insurance  policy on the life of Mr.
Vituli providing a death benefit of $1.5 million payable to an irrevocable trust
designated by Mr. Vituli.

        Accordino Employment  Agreements.  Upon the consummation of the Atlantic
Transaction,  the  Company  entered  into an  Amended  and  Restated  Employment
Agreement (the  "Accordino  Employment  Agreement"),  dated as of April 3, 1996,
with Daniel T. Accordino pursuant to which Mr. Accordino serves as President and
Chief Operating Officer of the Company.  The term of Mr. Accordino's  employment
under the Accordino  Employment Agreement is deemed to have commenced on January
1, 1995 and is for an initial term from such deemed  commencement  date of three
years,  provided,  however,  that the employment term  automatically  renews for
successive  one-year terms unless either the Company or Mr. Accordino elects not
to  renew by  giving  written  notice  to the  other  at least 90 days  before a
scheduled expiration date. Pursuant to the Accordino Employment  Agreement,  Mr.
Accordino received a base salary of $250,000 in 1995, which amount is subject to
a consumer  price  index  increase  for the second and third  years of the term.
Beginning in 1998, the base salary for each year thereafter will be increased in
accordance with the  recommendation of the Compensation  Committee.  Pursuant to
the Accordino Employment Agreement,  Mr. Accordino participates in the Executive
Bonus  Plan  of the  Company  and  all  stock  option  programs  of the  Company
applicable  to  executive  employees.  In  addition,  pursuant to the  Accordino
Employment  Agreement,  the Company is responsible  for  maintaining the premium
payments on a split-dollar  life insurance  policy on the life of Mr.  Accordino
providing  a  death  benefit  of $1  million  payable  to an  irrevocable  trust
designated by Mr. Accordino.


                                      -27-


<PAGE>
<PAGE>



        On the date of the MD  Closing,  the  Company  will  enter into a Second
Amended  and  Restated  Employment  Agreement  (the  "New  Accordino  Employment
Agreement")  with  Daniel  T.  Accordino,  which  shall  amend and  restate  the
Accordino  Employment  Agreement.  Pursuant  to  the  New  Accordino  Employment
Agreement, Mr. Accordino will continue to serve as President and Chief Operating
Officer of the company.  The New Accordino  Employment Agreement shall be for an
initial term of four years, commencing on the date of the MD Closing and will be
subject to automatic  renewal for  successive  one-year  terms unless either the
Company or Mr.  Accordino  elects not to renew by giving  written  notice to the
other at least 90 days before a scheduled  expiration date.  Pursuant to the New
Accordino  Employment  Agreement,  Mr.  Accordino  will receive a base salary of
$300,000 for the first year of the term, which amount  increases  annually by at
least $20,000 subject to  additional  increases  that may be  authorized  by the
Compensation Committee.  Pursuant to the New Accordino Employment Agreement, Mr.
Accordino will  participate  in the Executive  Bonus Plan of the Company and any
stock  option plan of the Company  applicable  to executive  employees.  The New
Accordino Employment Agreement also will require that the Company is responsible
for maintaining the premium payments on a split-dollar  life insurance policy on
the life of Mr. Accordino  providing a death benefit of $1 million payable to an
irrevocable trust designated by Mr. Accordino.

DESCRIPTION OF OPTION AGREEMENTS

        OPTION AGREEMENTS PURSUANT TO STOCK OPTION PLANS

        Vituli  Plan  Option  Agreements.  On  December  30,  1996  (during  the
Company's 1997 fiscal year), pursuant to the Atlantic  Transaction,  the Company
granted to Alan Vituli,  under the 1996 Plan, an option (the "Vituli Option") to
purchase  43,350 shares of Common Stock.  The Vituli Option (i) was  immediately
exercisable with regard to 15,300 shares of Common Stock at an exercise price of
$110.00 per share and (ii) becomes  exercisable on December 31, 1997 with regard
to (a) 15,300  shares of Common Stock at an exercise  price of $130.00 per share
and (b) 12,750 shares of Common Stock at an exercise price of $140.00 per share.
Pursuant to its terms,  the Vituli Option may not be exercised after the earlier
of a Change in Control (as  defined in the 1996 Plan) and the tenth  anniversary
of the date of grant.

        On the date of the MD Closing,  the Vituli  Option will be canceled  and
Holdings will grant to Mr. Vituli,  under the New 1996 Plan, an option (the "New
Vituli Plan  Option") to purchase  43,350  shares of Common Stock at an exercise
price of  $101.7646  per share.  The New Vituli Plan Option shall have a term of
ten years from the date of grant and shall (i) become exercisable on the date of
grant  with  regard to  15,300  shares of  Common  Stock and (ii)  shall  become
exercisable  (a) on  December  31,  1997 with  regard to 5,610  shares of Common
Stock, (b) on December 31, 1998 with regard to 5,610 shares of Common Stock, (c)
on  December  31, 1999 with  regard to 5,610  shares of Common  Stock and (d) on
December 31, 2000 with regard to 11,220 shares of Common Stock.

        Accordino  Plan  Option  Agreements.  On December  30, 1996  (during the
Company's 1997 fiscal year), pursuant to the Atlantic  Transaction,  the Company
granted to Daniel T.  Accordino,  under the 1996 Plan, an option (the "Accordino
Option") to purchase 28,900 shares of Common Stock. The Accordino Option (i) was
immediately  exercisable  with  regard  to 10,200  shares of Common  Stock at an
exercise price of $110.00 per share and (ii) becomes exercisable on December 31,
1997 with regard to (a) 10,200  shares of Common  Stock at an exercise  price of
$130.00 per share and (b) 8,500 shares of Common  Stock at an exercise  price of
$140.00  per share.  Pursuant  to its  terms,  the  Accordino  Option may not be
exercised after the earlier of a Change in Control (as defined in the 1996 Plan)
and the tenth anniversary of the date of grant.


                                      -28-


<PAGE>
<PAGE>




        On the date of the MD Closing, the Accordino Option will be canceled and
the Company will grant to Mr. Accordino, under the New 1996 Plan, an option (the
"New  Accordino  Plan  Option") to purchase  28,900 shares of Common Stock at an
exercise price of $101.7646 per share.  The New Accordino Plan Option shall have
a term of ten years from the date of grant and shall (i) become  exercisable  on
the date of grant with  regard to 10,200  shares of Common  Stock and (ii) shall
become  exercisable  (a) on December  31,  1997 with  regard to 3,740  shares of
Common  Stock,  (b) on December  31, 1998 with regard to 3,740  shares of Common
Stock,  (c) on December 31, 1999 with regard to 3,740 shares of Common Stock and
(d) on December 31, 2000 with regard to 7,480 shares of Common Stock.

        OTHER OPTION AGREEMENTS

        Vituli  Non-Plan  Option  Agreement.  On the  date  of  the MD  Closing,
Holdings  will grant to Mr.  Vituli a  nonqualified  stock  option (the  "Vituli
Non-Plan Option") to purchase 29,480 shares of Common Stock at an exercise price
of $101.7646. The Vituli Non-Plan Option shall have a term of ten years from the
date of grant and  shall  become  exercisable  in five  equal  parts on the five
consecutive  anniversaries of the date of grant. The Vituli Non-Plan Option will
have substantially the same terms as options issued under the New 1996 Plan with
respect  to (i) the  method  of  payment  of the  exercise  price of the  Vituli
Non-Plan  Option and (ii) the effect of a Change in Control  (as  defined in the
New 1996 Plan) on the Vituli Non-Plan Option.

        Accordino  Non-Plan  Option  Agreement.  On the date of the MD  Closing,
Holdings will grant to Mr. Accordino a nonqualified stock option (the "Accordino
Non-Plan  Option") to purchase 2,579 shares of Common Stock at an exercise price
of $101.7646.  The Accordino Non-Plan Option shall have a term of ten years from
the date of grant and shall become  exercisable  in five equal parts on the five
consecutive anniversaries of the date of grant.

        The Accordino  Non-Plan Option will have substantially the same terms as
the Vituli Non-Plan Option.

        Zirkman  Non-Plan  Option  Agreement.  On the  date  of the MD  Closing,
Holdings  will  grant to Joseph A.  Zirkman a  nonqualified  stock  option  (the
"Zirkman Non-Plan Option") to purchase 368 shares of Common Stock at an exercise
price of $101.7646.  The Zirkman  Non-Plan Option shall have a term of ten years
from the date of grant and shall become exercisable in five substantially  equal
parts on the five consecutive anniversaries of the date of grant.

        The Zirkman  Non-Plan Option will have  substantially  the same terms as
the Vituli Non-Plan Option.


                                      -29-


<PAGE>
<PAGE>




ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PRINCIPAL STOCKHOLDERS

        The  following  tables set forth the number and  percentage of shares of
voting  common stock of the Company and of Holdings  beneficially  owned,  as of
March 15,  1997,  by (i) all persons  known by the Company to be the  beneficial
owners of more than 5% of the  shares of such  voting  common  stock,  (ii) each
Director of the Company who owns shares of such voting common stock,  (iii) each
executive  officer of the Company  included in the  Summary  Compensation  Table
above and (iv) all executive officers and Directors of the Company as a group.

                              CARROLS' COMMON STOCK

<TABLE>
<CAPTION>
                                      NUMBER OF SHARES
NAME OF BENEFICIAL OWNER              BENEFICIALLY OWNED             PERCENT OF SHARES
------------------------              ------------------             -----------------
<S>                                      <C>                         <C> 
Carrols Holdings Corporation                              10                    100%
968 James Street
Syracuse, New York 13203
</TABLE>


                             HOLDINGS' COMMON STOCK

<TABLE>
<CAPTION>

                                      NUMBER OF SHARES
NAME OF BENEFICIAL OWNER              BENEFICIALLY OWNED (a)         PERCENT OF SHARES (a)
------------------------              ---------------------          ---------------------
<S>                                                  <C>                        <C> 
Atlantic Restaurants, Inc.                           850,000                    100%
Deemer Corporation (b)                               131,876                   13.4%
Alan Vituli (c)                                       15,300                    1.8%
Daniel T. Accordino (d)                               10,200                    1.2%
Joseph A. Zirkman                                        ---                    ---
Richard V. Cross                                         ---                    ---
Richard H. Liem                                          ---                    ---
Directors and executive officers of
Carrols as a group (13 persons)                       25,500                    2.9%

</TABLE>



        (a) As used in this  table,  "beneficial  ownership"  means  the sole or
shared  power to vote,  or to direct the voting of, a  security,  or the sole or
shared  investment  power with respect to a security (i.e., the power to dispose
of, or to direct the disposition of, a security).  For purposes of this table, a
person is deemed as of any date to have  "beneficial  ownership" of any security
that such  person  has the right to acquire  within 60 days after such date.  As
calculated  in  this  table,  the  percent  of  shares  is the  percent  of each
beneficial  owner's  shares  to the  total  shares  of  Holdings'  common  stock
outstanding  plus the shares to which that person has a right to acquire  within
60 days.


                                      -30-


<PAGE>
<PAGE>



        (b) Consists of currently  exercisable warrants (the "Warrants") for the
purchase of 119,195  shares of Holdings  voting common stock at $3.590 per share
and 12,681  shares of  Holdings  voting  common  stock at $3.701 per share.  The
address for Deemer  Corporation  ("Deemer") is 276 Fifth Avenue,  New York,  New
York 10001.  Holdings has the option to purchase  the  Warrants  from Deemer for
$19.033  per  warrant if  exercised  before  November  2, 1997,  and  $19.109 if
exercised after November 1, 1997. The option expires on November 1, 2000. Deemer
purchased the Warrants from Heller on November 2, 1995 for the sum of $2,500,000
and  borrowed  the  purchase  price from  Holdings  which loan was  secured by a
collateral pledge of the shares of Deemer and the Warrants.  The Company intends
to  exercise  its  option  to  purchase  the  Warrants   from  Deemer  upon  the
consummation of the MD Investment.

        (c) Consists of currently  exercisable  stock options to purchase Common
Stock. The address of Mr. Vituli is c/o Carrols  Corporation,  968 James Street,
Syracuse, New York 13203.

        (d) Consists of currently  exercisable  stock options to purchase Common
Stock.  The  address of Mr.  Accordino  is c/o  Carrols  Corporation,  968 James
Street, Syracuse, New York 13203.


                                      -31-

<PAGE>
<PAGE>




ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

        None

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

               (a)    Financial Statements

                      CARROLS CORPORATION AND SUBSIDIARIES:
<TABLE>
<CAPTION>
                                                                                          Page
                                                                                          ----
<S>                                                                                       <C> 
                      Opinion of Independent Certified                                  F-1 to
                      Public Accountants                                                   F-2

                      Financial Statements:

                      Consolidated Balance Sheets                                       F-3 to
                                                                                           F-4

                      Consolidated Statements of Operations                                F-5

                      Consolidated Statements of Stockholder's Deficit                     F-6

                      Consolidated Statements of Cash Flows                             F-7 to
                                                                                           F-8

                      Notes to Consolidated Financial                                   F-9 to
                      Statements                                                          F-20
</TABLE>


               (b)    Financial Statement Schedules

<TABLE>
<CAPTION>
Schedule              Description                                                         Page
--------              -----------                                                         ----
<S>                   <C>                                                                 <C>
                      CARROLS CORPORATION AND SUBSIDIARIES:

II                    Valuation and Qualifying Accounts                                   F-21

</TABLE>


        Schedules  other than those  listed are omitted for the reason that they
are not required,  not applicable,  or the required  information is shown in the
financial statements or notes thereto.

        Separate  financial  statements  of the  Company  are not  filed for the
reasons that (1)  consolidated  statements  of the Company and its  consolidated
subsidiaries are filed and (2) the Company is primarily an operating Company and
all  subsidiaries  included in the consolidated  financial  statements filed are
wholly-owned,  and indebtedness of all subsidiaries included in the consolidated
financial  statements to any person other than the Company does not exceed 5% of
the total  assets as shown by the  Consolidated  Balance  Sheet at December  31,
1996.


                                      -32-


<PAGE>
<PAGE>


               (c)    Exhibits Required by Item 601 of Regulation S-K

<TABLE>
<CAPTION>

                                                        INCORPORATION BY REFERENCE TO THE FOLLOWING
                                                           INSTRUMENTS PREVIOUSLY FILED WITH THE
EXHIBIT NUMBER          DESCRIPTION                          SECURITIES AND EXCHANGE COMMISSION
--------------          -----------                      ------------------------------------------
<S>             <C>                                      <C> 
      2.1      Purchase and Sale Agreement dated        Exhibit 2.1 to the Company's 1994 Annual
               February 10, 1994 between Carrols        Report on Form 10-K
               Corporation, as Purchaser, and KIN
               Restaurant, Inc., as Seller

      2.2      Purchase and Sale Agreement dated        Exhibit 2.2 to the Company's 1994 Annual
               April 18, 1994 among Carrols             Report on Form 10-K
               Corporation, as Purchaser, and Riva
               Development Corporation and John Riva,
               as Seller

      2.3      Purchase and Sale Agreement dated May    Exhibit 2.3 to the Company's 1994 Annual
               31, 1994 among Carrols Corporation, as   Report on Form 10-K
               Purchaser, and Michael P. Jones and
               Donald M. Cepiel, Sr., and the
               corporations listed therein

      2.4      Securities Purchase Agreement dated as   Exhibit 2.1 to the Company's current report
               of March 6, 1996, by and among           on Form 8-K filed March 21, 1996
               Atlantic Restaurants, Inc., Carrols
               Holdings Corporation, Carrols
               Corporation and certain Selling
               Shareholders

      2.5      Deferred Securities  Purchase Agreement  Exhibit  2.2  to  the
               dated as of March 6, 1996 by and among   Company's  current  report on 
               Atlantic Restaurants, Inc., Alan         Form 8-K filed March 21, 1996
               Vituli and Pryor, Cashman, Sherman &
               Flynn

      3.1      Restated Certificate of Incorporation    Exhibit 3.(3)(a) to the Company's 1987
                                                        Annual Report on Form 10-K

      3.2      Certificate of Amendment of the
               Restated Certificate of Incorporation

      3.3      Restated By-laws                         Exhibit 3.(3)(b) to the Company's 1987
                                                        Annual Report on Form 10-K

      4.1      Indenture dated as of August 17, 1993    Exhibit 4.1 to Amendment No. 3 to the
               among Holdings, the Company and Marine   Company's Registration Statement on Form
               Midland Bank, N.A.                       S-1 (Number 3365100) filed August 10, 1993
</TABLE>


                                      -33-


<PAGE>
<PAGE>


<TABLE>
<CAPTION>
                                                             INCORPORATION BY REFERENCE TO THE
                                                          FOLLOWING INSTRUMENTS PREVIOUSLY FILED
EXHIBIT NUMBER             DESCRIPTION                 WITH THE SECURITIES AND EXCHANGE COMMISSION
--------------             -----------                 -------------------------------------------
<S>            <C>                                      <C>        
     10.1      First Amended and Restated Loan          Exhibit 10.1 to the Company's 1987 Annual
               Security and Preferred Stock Purchase    Report on Form 10-K
               Agreement by and among Carrols Merger
               Corporation, Carrols Holdings
               Corporation and Heller Financial, Inc.
               dated as of December 22, 1986

     10.2      Second Amended and Restated Loan and     Exhibit 10.15 to the Company's 1992 Annual
               Security Agreement by and among          Report on Form 10-K
               Carrols Corporation, Carrols Holdings
               Corporation and Heller Financial, Inc.
               dated as of September 15, 1992

     10.3      Senior Subordinated Credit Agreement     Exhibit 10.17 to the Company's Annual
               dated as of September 15, 1992 between   Report on Form 10-K

               Carrols Corporation, Carrols Holdings
               Corporation and World Subordinated
               Debt Partners, L.P.

     10.4      Third Amended and Restated Loan and      Exhibit 10.19 to Amendment No. 2 to the
               Security Agreement by, and among         Company's Form S-1 Registration Statement
               Carrols Corporation, Carrols Holdings    filed August 4, 1993
               Corporation and Heller Financial, Inc.
               dated as of August 9, 1993

     10.5      First Amendment to Third Amended and     The Company's 1993 Annual Report on Form
               Restated Loan and Security Agreement     10-K
               by and among Carrols Corporation,
               Carrols Holdings Corporation and
               Heller Financial, Inc. dated as of
               October 27, 1993

     10.6      Second Amendment to Third Amended and    The Company's 1993 Annual Report on Form
               Restated Loan and Security Agreement     10-K
               by and among Carrols Corporation,
               Carrols Holdings Corporation and
               Heller Financial, Inc. dated as of
               March 11, 1994

</TABLE>


                                      -34-


<PAGE>
<PAGE>


<TABLE>
<CAPTION>
                                                             INCORPORATION BY REFERENCE TO THE
                                                          FOLLOWING INSTRUMENTS PREVIOUSLY FILED
EXHIBIT NUMBER             DESCRIPTION                 WITH THE SECURITIES AND EXCHANGE COMMISSION
--------------             -----------                 -------------------------------------------
<S>            <C>                                      <C>        
     10.7      Third Amendment to Third Amended and     Exhibit 10.9 to the Company's 1994 Annual
               Restated Loan and Security Agreement     Report on Form 10-K
               among Carrols Holdings Corporation,
               Carrols Corporation and Heller
               Financial, Inc. dated as of May 2, 1994

     10.8      Fourth Amendment to Third Amended and    Exhibit 10.10 to the Company's 1994 Annual
               Restated Loan and Security Agreement     Report on Form 10-K
               among Carrols Holdings Corporation,
               Carrols Corporation and Heller
               Financial, Inc. dated as of December
               20, 1994

     10.9      Supply Agreement between ProSource       Exhibit 10.11 to the Company's 1994 Annual
               Services Corporation and Carrols         Report on Form 10-K
               Corporation dated April 1, 1994

     10.10     Fifth Amendment to Third Amended and
               Restated Loan and Security Agreement
               among Carrols Holdings Corporation,
               Carrols Corporation and Heller
               Financing, Inc. dated as of February
               22, 1995

     10.11     Sixth Amendment to Third Amended and
               Restated Loan and Security Agreement
               among Carrols Holdings Corporation,
               Carrols Corporation and Heller
               Financing, Inc. dated as of February
               14, 1996

     10.12     Stock Purchase Agreement dated as of
               February 25, 1997 by and among Madison
               Dearborn Capital Partners, L.P.,
               Madison Dearborn Capital Partners II,
               L.P., Atlantic Restaurants, Inc. and
               Carrols Holdings Corporation

     10.13     1994 Regional Directors Bonus Plan       Exhibit 10.19 to the Company's 1994 Annual
                                                        Report on Form 10-K

</TABLE>


                                      -35-


<PAGE>
<PAGE>


<TABLE>
<CAPTION>
                                                             INCORPORATION BY REFERENCE TO THE
                                                          FOLLOWING INSTRUMENTS PREVIOUSLY FILED
EXHIBIT NUMBER             DESCRIPTION                 WITH THE SECURITIES AND EXCHANGE COMMISSION
--------------             -----------                 -------------------------------------------
<S>            <C>                                      <C>        
     10.14     Carrols Corporation Corporate            Exhibit 10.21 to the Company's 1994 Annual
               Employee's Savings Plan dated December   Report on Form 10-K
               31, 1994

     10.15     Commitment Letter from Texas Commerce
               Bank National Association and Chase
               Securities Inc. and accepted and
               agreed to by Carrols Corporation as of
               January 8, 1997

     10.16     Escrow Agreement dated as of March 6,    Exhibit 2.3 to the Company's Current
               1996 by and among Atlantic               Report on Form 8-K filed March 21, 1996
               Restaurants, Inc., Bahrain
               International Bank (E.C.), Carrols
               Holdings Corporation, Carrols
               Corporation, certain selling
               shareholders and Baer Marks & Upham
               L.L.P.

     10.17     Seventh Amendment to Third Amended and   Exhibit 10.27 to the Company's current
               Restated Loan and Security Agreement     report on Form 8-K filed April 10, 1996
               by and among Heller Financial, Inc.,
               Carrols Holdings Corporation and
               Carrols Corporation dated as of April
               3, 1996

     10.18     Amended and Restated  Employment         Exhibit 10.23 to the Company's
               Agreement dated as of                    Current Report on Form 8-K
               April 3, 1996 by and between Carrols     filed on April 10, 1996
               Corporation and Alan Vituli

     10.19     Amended and Restated Employment          Exhibit 10.24  to the Company's Current
               Agreement dated as of April 3, 1996 by   Report on Form 8-K filed on April 10, 1996
               and between Carrols Corporation and
               Daniel T. Accordino

     10.20     Carrols Corporation 1996 Long-Term
               Incentive Plan

     10.21     Stock Option Agreement dated as of
               December 30, 1996 by and between
               Carrols Corporation and Alan Vituli
</TABLE>


                                      -36-


<PAGE>
<PAGE>


<TABLE>
<CAPTION>
                                                             INCORPORATION BY REFERENCE TO THE
                                                          FOLLOWING INSTRUMENTS PREVIOUSLY FILED
EXHIBIT NUMBER             DESCRIPTION                 WITH THE SECURITIES AND EXCHANGE COMMISSION
--------------             -----------                 -------------------------------------------
<S>            <C>                                      <C>        
     10.22     Stock Option Agreement dated as of
               December 30, 1996 by and between
               Carrols Corporation and Daniel T.
               Accordino

     10.23     Form of Stockholders Agreement by and
               among Carrols Holdings Corporation,
               Madison Dearborn Capital Partners,
               L.P., Madison Dearborn Capital
               Partners II, L.P., Atlantic
               Restaurants, Inc., Alan Vituli, Daniel
               T. Accordino and Joseph A. Zirkman

     10.24     Form of Registration Agreement by and
               among Carrols Holdings Corporation,
               Atlantic Restaurants, Inc., Madison
               Dearborn Capital Partners, L.P.,
               Madison Dearborn Capital Partners II,
               L.P., Alan Vituli, Daniel T. Accordino
               and Joseph A. Zirkman


     10.25     Form of Second Amended and Restated
               Employment Agreement by and between
               Carrols Corporation and Alan Vituli

     10.26     Form of Second Amended and Restated
               Employment Agreement by and between
               Carrols Corporation and Daniel T.
               Accordino

     10.27     Form of Carrols Holdings Corporation
               1996 Long-Term Incentive Plan

     10.28     Form of Stock Option Agreement by and
               between Carrols Holdings Corporation
               and Alan Vituli

     10.29     Form of Stock Option Agreement by and
               between Carrols Holdings Corporation
               and Daniel T. Accordino
</TABLE>


                                      -37-


<PAGE>
<PAGE>


<TABLE>
<CAPTION>
                                                             INCORPORATION BY REFERENCE TO THE
                                                          FOLLOWING INSTRUMENTS PREVIOUSLY FILED
EXHIBIT NUMBER             DESCRIPTION                 WITH THE SECURITIES AND EXCHANGE COMMISSION
--------------             -----------                 -------------------------------------------
<S>            <C>                                      <C>        
     10.30     Form of Unvested Stock Option
               Agreement by and between Carrols
               Holdings Corporation and Alan Vituli

     10.31     Form of Unvested Stock Option
               Agreement by and between Carrols
               Holdings Corporation and Daniel T.
               Accordino

     10.32     Form of Unvested Stock Option
               Agreement by and between Carrols
               Holdings Corporation and Joseph A.
               Zirkman

     16.1      Letter re change in certifying
               accountant

     22.1      Subsidiaries of the Registrant, all
               wholly-owned are:

               Carrols J.G. Corp.
               Carrols Realty Holdings Corp.
               Carrols Realty I Corp.
               Carrols Realty II Corp.
               CDC Theater Properties, Inc.
               H.N.S. Equipment & Leasing Corp.
               Quanta Advertising Corp.
               Confectionery Square Corp.
               Jo-Ann Enterprises, Inc.

               (d)    Reports on Form 8-K

</TABLE>


               One report on Form 8-K,  dated November 4, 1996, was filed during
the  quarter  ended  December  29,  1996  reporting  a change  of the  Company's
certifying accountant.


                                      -38-

<PAGE>
<PAGE>


                                   SIGNATURES

        Pursuant to the  requirements  of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized in the City of Syracuse,
State of New York on the 25th day of March, 1996

                                              CARROLS CORPORATION

                                              BY:  /s/ Alan Vituli

                                              Alan Vituli, Chairman
                                              and Chief Executive Officer

        Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

           SIGNATURE                         TITLE                            DATE
           ---------                         -----                            ----
<S>                              <C>                                     <C> 
/s/Alan Vituli                   Director,  Chairman  and Chief          March 25, 1997
(Alan Vituli)                    Executive Officer


/s/Daniel T. Accordino           Director,  President and Chief          March 25, 1997
(Daniel T. Accordino)            Operating Officer

/s/ Robin McIlvenny              Director                                March 25, 1997
(Robin McIlvenny)

/s/ Paul Durrant                 Director                                March 25,1997
(Paul Durrant)

/s/ David Mathies                Director                                March 25,1997
(David Mathies)
</TABLE>


                                      -39-

<PAGE>
<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Carrols Corporation:

We  have  audited  the  accompanying   consolidated  balance  sheet  of  Carrols
Corporation (a  wholly-owned  subsidiary of Carrols  Holdings  Corporation)  and
subsidiaries as of December 29, 1996, and the related consolidated statements of
operations, stockholder's deficit, and cash flows for the year then ended. These
consolidated  financial  statements  and the schedule  referred to below are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  and schedule based on our
audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position  of Carrols  Corporation  and
subsidiaries  as of December 29, 1996,  and the results of their  operations and
their cash flows for the year then ended, in conformity with generally  accepted
accounting principles.

Our audit was made for the purpose of forming an opinion on the basic  financial
statements  taken as a whole.  The schedule for the year ended December 29, 1996
listed in the index at Item 14 is presented  for purposes of complying  with the
Securities  and  Exchange  Commission's  rules  and is  not  part  of the  basic
financial  statements.   This  schedule  has  been  subjected  to  the  auditing
procedures  applied in the audit of the basic  financial  statements and, in our
opinion,  fairly states in all material  respects the financial data required to
be set forth therein in relation to the basic  financial  statements  taken as a
whole.

                                          /s/ Arthur Andersen LLP


Rochester, New York
  March 7, 1997


                                      F-1


<PAGE>
<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors of
 Carrols Corporation

We have audited the consolidated  balance sheet of Carrols Corporation (a wholly
owned  subsidiary  of  Carrols  Holdings  Corporation)  and  Subsidiaries  as of
December 31,  1995  and  the  related  consolidated  statements  of  operations,
stockholder's  deficit and  cash flows for  each of the  two years in the period
ended December 31, 1995. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements and financial statement schedule 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 financial  statements  referred to above present fairly, in
all  material   respects,   the  consolidated   financial  position  of  Carrols
Corporation  and  Subsidiaries  as of December  31, 1995,  and the  consolidated
results  of their  operations  and their cash flows for each of the two years in
the period ended  December 31,  1995,  in  conformity  with  generally  accepted
accounting principles.

Our audit was  conducted  for the  purpose  of  forming  an opinion on the basic
consolidated  financial  statements taken as a whole. The accompanying  schedule
for the years ended  December 31, 1995 and 1994 as listed in Item 14 of the Form
10-K is presented for purposes of additional analysis and is not a required part
of the  basic  consolidated  financial  statements.  Such  information  has been
subjected  to the  auditing  procedures  applied  in  the  audit  of  the  basic
consolidated  financial  statements and, in our opinion, is fairly stated in all
material  respects in relation to the basic  consolidated  financial  statements
taken as a whole.
                                          /s/ Coopers & Lybrand, L.L.P.

Syracuse, New York
March 1, 1996


                                      F-2

<PAGE>
<PAGE>


                      CARROLS CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 1996 AND 1995

                                   -----------

<TABLE>
<CAPTION>

               ASSETS                                                        1996              1995
                                                                             -----             ----

<S>                                                                    <C>               <C>        
Current assets:
  Cash and cash equivalents                                            $ 1,314,000       $ 1,463,000
  Trade and other receivables net of
   reserves of $310,000 and $419,000
   for 1996 and 1995, respectively                                         793,000           688,000
  Inventories                                                            2,163,000         2,292,000
  Prepaid real estate taxes                                                725,000           664,000
  Deferred income taxes                                                  3,264,000         3,641,000
  Prepaid expenses and other current assets                                932,000           830,000
                                                                       -----------       -----------
      Total current assets                                               9,191,000         9,578,000
                                                                       -----------       -----------

Property and equipment, at cost:
  Land                                                                   9,066,000         6,888,000
  Buildings and improvements                                            16,175,000        15,049,000
  Leasehold improvements                                                38,816,000        36,260,000
  Equipment                                                             46,834,000        42,361,000
  Capital leases                                                        14,548,000        15,352,000
                                                                       -----------       -----------
                                                                       125,439,000       115,910,000
  Less accumulated depreciation
   and amortization                                                   (63,356,000)       (59,631,000)
                                                                      ------------       -----------
      Net property and equipment                                        62,083,000        56,279,000
                                                                      ------------       -----------
Franchise rights, at cost (less accumulated amortization of
$21,787,000 and 19,648,000 for 1996 and 1995, respectively)
                                                                        46,203,000        44,582,000
Beneficial leases, at cost (less accumulated
  amortization of $7,748,000 and $7,655,000
  for 1996 and 1995, respectively)                                       6,907,000         7,705,000

Excess of cost over fair value of assets acquired
  (less accumulated amortization
  of $578,000 and $520,000 for 1996 and
  1995, respectively)                                                    1,733,000         1,791,000
Deferred income taxes                                                    6,637,000         6,420,000

Other assets                                                             5,834,000         8,709,000
                                                                      ------------      ------------
                                                                      $138,588,000      $135,064,000
                                                                      ============      ============

</TABLE>


The accompanying notes are an integral part of these balance sheets.


                                      F-3

<PAGE>
<PAGE>


                      CARROLS CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (Continued)

                           DECEMBER 31, 1996 AND 1995

                                   -----------

<TABLE>
<CAPTION>

LIABILITIES AND STOCKHOLDER'S DEFICIT                                     1996             1995
                                                                          ----             ----
<S>                                                                    <C>                <C>
Current liabilities:
  Current portion of long-term debt                                    $    8,000         $  258,000
  Current portion of capital lease obligations                            574,000            644,000
  Accounts payable                                                      9,319,000          8,909,000
  Accrued liabilities:
    Taxes                                                               2,334,000          1,426,000
    Payroll and employee benefits                                       3,837,000          4,000,000
    Interest                                                            4,741,000          4,809,000
    Other                                                               3,382,000          3,134,000
                                                                        ---------         ----------
        Total current liabilities                                      24,195,000         23,180,000

Long-term debt, net of current portion                                118,180,000        116,375,000
Capital lease obligations, net of current portion                       2,503,000          3,301,000
Deferred income - sale/leaseback of real estate                         2,154,000          1,773,000
Accrued postretirement benefits                                         1,522,000          1,424,000
Other liabilities                                                       1,696,000          1,927,000
                                                                      -----------        -----------
        Total liabilities                                             150,250,000        147,980,000
                                                                      -----------        -----------

Commitments and contingencies

Stockholder's deficit:
  Common stock, par value $1; authorized
    1,000 shares, issued and outstanding -
    10 shares                                                                  10                 10
  Additional paid-in capital                                            1,411,990            840,990
  Accumulated deficit                                                (10,574,000)       (13,757,000)
  Less: note receivable - redemption of warrants                      (2,500,000)       
                                                                     -----------       ------------
        Total stockholder's deficit                                  (11,662,000)       (12,916,000)
                                                                    ------------       ------------
                                                                    $138,588,000       $135,064,000
                                                                    ============       ============
</TABLE>

The accompanying notes are an integral part of these balance sheets.

                                      F-4


<PAGE>
<PAGE>









                      CARROLS CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

                                   -----------



<TABLE>
<CAPTION>

                                                          1996               1995               1994
                                                       (52 WEEKS)         (52 WEEKS)         (52 WEEKS)
                                                       ----------         ----------         ----------
<S>                                                   <C>               <C>                 <C>         
Revenues:
  Sales                                               $240,809,000      $226,257,000        $203,927,000
  Other income                                             316,000           201,000             327,000
                                                      ------------      ------------        ------------
                                                       241,125,000       226,458,000         204,254,000
                                                      ------------      ------------        ------------

Costs and expenses:

  Cost of sales                                         68,031,000        63,629,000          57,847,000
  Restaurant wages and related expenses                 70,894,000        65,932,000          59,934,000
  Other restaurant operating expenses                   48,683,000        45,635,000          42,390,000
  Depreciation and amortization                         11,015,000        11,263,000          11,259,000
  Administrative expenses                               10,703,000        10,635,000           9,449,000
  Advertising expense                                   10,798,000         9,764,000           8,785,000
  Loss on closing restaurants and other                                                        1,800,000
  Costs associated with change of control                  509,000
                                                       -----------       -----------         -----------
      Total operating expenses                         220,633,000       206,858,000         191,464,000
                                                       -----------       -----------         -----------

    Operating income                                    20,492,000        19,600,000          12,790,000

  Interest expense                                      14,209,000        14,500,000          14,456,000
                                                        ----------        ----------          ----------

    Income (loss) before taxes                           6,283,000         5,100,000         (1,666,000)

(Provision) benefit for taxes                           (3,100,000)        9,826,000           (165,000)
                                                       -----------       -----------        -----------
    NET INCOME (LOSS)                                  $ 3,183,000       $14,926,000        $(1,831,000)
                                                       ===========       ===========        ===========

</TABLE>









The accompanying notes are an integral part of the financial statements.



                                      F-5

<PAGE>
<PAGE>


                      CARROLS CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

                                   -----------



<TABLE>
<CAPTION>
                                                           ADDITIONAL                            TOTAL
                                               COMMON        PAID-IN        ACCUMULATED        STOCKHOLDER'S
                                                STOCK        CAPITAL          DEFICIT           DEFICIT
                                               ------       ---------       -----------        ---------
<S>                                              <C>       <C>              <C>              <C>           
Balances at December 31, 1993                    $ 10      $ 4,447,990      $(26,852,000)    $ (22,404,000)
Net loss                                                                      (1,831,000)       (1,831,000)
Dividends declared                                          (2,973,000)                         (2,973,000)
                                                  ---      -----------      ------------     -------------
Balances at December 31, 1994                      10        1,474,990       (28,683,000)      (27,208,000)
Net income                                                                    14,926,000        14,926,000
Dividends declared                                            (636,000)                           (636,000)
Exercise of stock options                                        2,000                               2,000
                                                  ---      -----------      ------------     -------------

Balances at December 31, 1995                      10          840,990       (13,757,000)      (12,916,000)
Net income                                                                     3,183,000         3,183,000
Dividends declared                                          (1,000,000)                         (1,000,000)
Exercise of stock options                                       12,000                              12,000
Tax benefit related to stock
  options canceled due to change
  of control                                                 1,559,000                           1,559,000
Note receivable-redemption of warrants                                                          (2,500,000)
                                                  ---      -----------      ------------     -------------
Balances at December 31, 1996                   $ 10       $ 1,411,990      $(10,574,000)    $ (11,662,000)
                                              =======      ===========      ============     =============

</TABLE>












The accompanying notes are an integral part of the financial statements.

                                      F-6


<PAGE>
<PAGE>


                      CARROLS CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

                                   -----------

                Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>

                                                            1996              1995               1994
                                                         (52 WEEKS)         (52 WEEKS)         (52 WEEKS)
                                                        -----------         ----------         ----------
<S>                                                       <C>                <C>              <C>          
Cash flows from operating activities:
  Net income (loss)                                       $ 3,183,000        $14,926,000      $ (1,831,000)
    Adjustments to reconcile net income
    (loss) to net cash provided by
    operating activities:
      (Gain) loss on disposal of
         property and equipment                              (314,000)           156,000                
      Depreciation and amortization                        11,015,000         11,263,000         11,259,000
      Non cash charges included
        in loss on closing restaurants
        and other                                                                                 1,800,000
      Deferred income taxes                                 1,719,000       (10,061,000)
      Change in operating assets and
        liabilities:

          Trade and other receivables                        (105,000)          (156,000)           100,000
          Inventories                                         129,000            (38,000)          (203,000)
          Prepaid expenses and other
            current assets                                   (174,000)           (45,000)          (256,000)
          Other assets                                       (611,000)           (80,000)          (494,000)
          Accounts payable                                    410,000          1,363,000          1,209,000
          Accrued interest                                    (68,000)           (90,000)            35,000
          Accrued liabilities and
            other                                             697,000          (556,000)          2,781,000
                                                          -----------         ----------         ----------
              Cash provided by operating
                activities                                15,881,000          16,682,000         14,400,000
                                                          -----------         ----------         ----------
Cash flows from investing activities:
  Capital expenditures:
    Real estate and equipment                             (9,642,000)         (4,846,000)        (4,509,000)
    Construction of new restaurants                       (4,714,000)         (2,607,000)        (1,357,000)
    Acquisition of restaurants                            (7,945,000)           (516,000)       (11,615,000)
    Franchise fees and renewals                             (899,000)           (569,000)          (158,000)
  Notes and mortgages issued                                (749,000)         (2,503,000)                 
  Payments received on notes, mortgages
    and capital subleases receivable                          39,000              32,000            112,000
  Disposal of property, equipment
    and franchise rights                                   2,342,000              17,000            569,000
  Other investments                                        1,330,000          (1,356,000)              
                                                          -----------         ----------        -----------
              Net cash used for
                investing activities                     (20,238,000)        (12,348,000)       (16,958,000)
                                                          ----------         ----------         -----------

</TABLE>


The accompanying notes are an integral part of the financial statements.

                                    Continued

                                      F-7

<PAGE>
<PAGE>


                      CARROLS CORPORATION AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS, (Continued)

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

                                   -----------

                Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>
                                                                 1996            1995                1994
                                                               (52 WEEKS)     (52 WEEKS)         (52 WEEKS)
                                                               ----------  -------------         ----------
<S>                                                            <C>               <C>          <C>        
Cash flows from financing activities:
  Proceeds from long-term debt                                $ 2,997,000       $ 4,376,000  $ 6,800,000
  Principal payments on long-term debt                           (154,000)       (7,181,000)    (267,000)
  Retirement of long-term debt                                   (450,000)                       (75,000)
  Purchase of senior notes                                       (838,000)       (1,387,000)           
  Proceeds from sale-leaseback transactions                     4,246,000           861,000      672,000
  Dividends paid                                               (1,000,000)         (636,000)  (3,473,000)
  Principal payments on capital leases                           (605,000)         (616,000)    (561,000)
  Exercise of employee stock options                               12,000             2,000
                                                              -----------        ----------   ----------
    Net cash provided by (used for)
     financing activities                                      4,208,000         (4,581,000)   3,096,000
                                                              -----------        ----------   ----------

    Increase (decrease) in cash
       and cash equivalents                                     (149,000)         (247,000)      538,000

Cash and cash equivalents,
  beginning of year                                            1,463,000         1,710,000     1,172,000
                                                             -----------         ----------   ----------

    CASH AND CASH EQUIVALENTS,
      END OF YEAR                                            $ 1,314,000       $ 1,463,000   $ 1,710,000
                                                             ===========        ===========   ==========


Supplemental disclosures:
  Interest paid on debt                                      $14,277,000        $14,590,000  $ 14,421,000
  Taxes paid                                                 $   393,000        $   153,000  $    126,000


</TABLE>






The accompanying notes are an integral part of the financial statements.


                                      F-8

<PAGE>
<PAGE>


                      CARROLS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                -------------
1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Policies

The following is a summary of certain  significant  accounting policies followed
in the preparation of the consolidated financial statements.

Basis of Consolidation

The  consolidated   financial   statements   include  the  accounts  of  Carrols
Corporation and its subsidiaries (the "Company").  All significant  intercompany
transactions   have  been  eliminated  in   consolidation.   The  Company  is  a
wholly-owned subsidiary of Carrols Holdings Corporation ("Holdings").

At  December  31,  1996 the  Company  operated,  as  franchisee,  232 fast  food
restaurants  under  the  trade  name  "Burger  King"  in nine  Northeastern  and
Midwestern  states  and one  Southeastern  state.  As  reported  by Burger  King
Corporation  ("BKC"),  the Burger King system is the second  largest  "hamburger
fast food"  restaurant  system in the United States in terms of sales and number
of restaurants. The Company is the largest independent Burger King franchisee in
the United States.

Cash and Cash Equivalents

The Company  considers  all highly liquid  investments  with a maturity of three
months or less when purchased to be cash equivalents.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market.

Depreciation and Amortization

Depreciation  and  amortization  is  provided  on the  straight-line  method for
financial  reporting purposes.  The useful lives for computing  depreciation and
amortization are as follows:

        Buildings and improvements          5 to 20 years
        Leasehold improvements              Remaining life of lease including
                                            renewal options or life of asset,
                                            whichever is shorter
        Equipment                           3 to 10 years
        Capital leases                      Remaining life of lease

At the time of  retirement  or  other  disposition,  the  cost  and  accumulated
depreciation  is removed  from the accounts and any gain or loss is reflected in
income.  Depreciation  expense for the years ended  December 31, 1996,  1995 and
1994 was $7,300,000, $7,594,000 and $7,404,000,  respectively.

Franchise Rights and Beneficial Leases

Fees for initial  franchises  and renewals paid to Burger King  Corporation  are
amortized  using  the  straight-line  method  over  the  term of the  agreement,
generally twenty years.

Acquisition  costs  allocated  to  franchise  rights and  beneficial  leases are
amortized using the straight-line  method,  principally over the remaining lives
of the leases including renewal options, but not in excess of 40 years.


                                      F-9

<PAGE>
<PAGE>


                      CARROLS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ------------
1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Excess of Cost Over Fair Value

The  excess  of cost  over  fair  value of assets  acquired  is  amortized  on a
straight-line basis over 40 years.

Long-lived Assets

The  recoverability  of the carrying  values of property,  equipment,  franchise
rights and  beneficial  leases is  periodically  evaluated  based on current and
forecasted  undiscounted  cash flows,  future  market  opportunities,  strategic
importance and estimated disposal values.

Deferred Financing Costs

Financing  costs  incurred  in  obtaining  long-term  debt are  capitalized  and
amortized over the life of the related debt on an effective interest basis.

Income Taxes

The Company and its subsidiaries are included in the consolidated federal income
tax  return of  Holdings  through  the date of the change of control at April 3,
1996.  The Company and its  subsidiaries  will file separate  federal income tax
returns for the period April 4, 1996 to December 31, 1996.

Advertising Costs

All advertising costs are expensed as incurred.

Use of Estimates

The preparation of 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.
Estimates also affect the reported  amounts of revenues and expenses  during the
reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The  following  methods  were used to  estimate  the fair value of each class of
financial instruments for which it is practicable to estimate that fair value:

Current Assets and Liabilities - The carrying value of cash and cash equivalents
and accrued liabilities approximates fair value because of the short maturity of
those instruments.

Senior Notes - The fair value of senior notes is based on quoted market  prices.
The recorded amount, as of December 31, 1996, approximates fair value.

Revolving Line of Credit and Acquisition Loan - Rates currently available to the
Company  for debt  with  similar  terms  and  remaining  maturities  are used to
estimate fair value. The recorded amount, as of December 31, 1996,  approximates
fair value.


                                      F-10

<PAGE>
<PAGE>


                      CARROLS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   -----------

1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Self Insurance

The Company is self insured for workers compensation and general liability up to
predetermined  amounts  above which third party  insurance  applies.  Losses are
accrued based upon the Company's estimates of the aggregate liability for claims
incurred based on the Company's experience.

Stock-Based Compensation

In October 1995,  Statement of Financial  Accounting  Standards  (SFAS) No. 123,
"Accounting  for  Stock-Based  Compensation"  was issued which sets forth a fair
value method of recognizing stock based  compensation  expense.  As permitted by
SFAS No. 123, the Company intends to continue to measure  compensation  for such
plans using the  intrinsic  value based method of  accounting  prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and will disclose the
additional  information  relative  to  issued  stock  options  and pro forma net
income, as if the options granted were expensed at their estimated fair value at
the time of grant. There was no effect on the Company's financial  statements as
a result of adopting this statement.

Fiscal Year

The  Company  uses a 52-53 week  fiscal  year  ending on the  Sunday  closest to
December 31. The  financial  statements  included  herein are as of December 29,
1996  (52  weeks),  December 31, 1995 (52 weeks), and January 1, 1995 (52 weeks)
and  are referred to as the fiscal years ended December 31, 1996, 1995 and 1994,
respectively.

Reclassification

Certain amounts for prior years have been reclassified to conform to the current
year presentation.

2.  INVENTORIES

Inventories at December 31 consisted of:

<TABLE>
<CAPTION>
                                                                         1996               1995
                                                                         ----               ----

<S>                                                                    <C>              <C>        
               Raw materials (food and paper products)                 $ 1,386,000      $ 1,458,000
               Supplies                                                    777,000          834,000
                                                                       -----------      -----------
                                                                       $ 2,163,000      $ 2,292,000
                                                                       ===========      ===========
</TABLE>


3.  LEASES

The Company  utilizes land and buildings in its  operations  under various lease
agreements. These leases are generally for initial terms of twenty years and, in
most  cases,  contain  renewal  options  for two to four  additional  five  year
periods.  The rent payable  under such leases is generally a percentage of sales
with a provision for minimum rent. In addition,  most leases require  payment of
property taxes, insurance and utilities.


                                      F-11

<PAGE>
<PAGE>



                      CARROLS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   -----------

3.  LEASES CONTINUED

Deferred  gains  of  approximately  $2,815,000  were  recorded  as a  result  of
sale/leaseback  transactions  and are  being  amortized  over  the  lives of the
leases. These leases are operating leases, have a 20 year primary term with four
five-year  renewal options and provide for additional rent based on a percentage
of sales in excess of predetermined  levels. The net deferred gain of $2,154,000
and  $1,773,000  at December 31, 1996 and 1995,  respectively,  is the result of
these transactions.

Accumulated  amortization  pertaining  to  capital  leases  for the years  ended
December 31, 1996 and 1995 was $9,151,000 and $8,945,000, respectively.

Minimum rent commitments under noncancelable leases as of December 31, 1996, are
as follows:

<TABLE>
<CAPTION>

                                                  CAPITAL             OPERATING
                                                  -------             ---------
    Years Ending:
    <S>                                           <C>              <C>        
      1997                                        $927,000         $11,459,000
      1998                                         758,000          10,889,000
      1999                                         541,000          10,255,000
      2000                                         480,000           9,965,000
      2001                                         470,000           9,388,000
      2002 and thereafter                        1,758,000          78,886,000
                                                 ---------        ------------
    Total minimum lease payments                 4,934,000        $130,842,000
                                                                  ============
      Less amount representing interest 
(7.7% to 16.6%)                                  1,857,000
                                                 ---------
    Total obligations under capital leases       3,077,000
      Less: current portion                        574,000
                                                ----------
    Long term obligations under capital leases  $2,503,000
                                                ==========
</TABLE>



Total rent  expense  on  operating  leases,  including  percentage  rent on both
operating and capital leases, for the years ended December 31, was as follows:

<TABLE>
<CAPTION>
                                                          1996                 1995             1994
                                                          ----                 ----             ----
<S>                                                <C>                 <C>               <C>         
    Minimum rent on real property                  $ 11,590,000        $ 11,108,000      $ 10,147,000
    Additional rent based on a
      percentage of sales                             2,700,000           2,548,000         1,917,000
    Equipment rent                                      167,000             164,000           109,000
                                                   ------------        ------------      ------------
                                                   $ 14,457,000        $ 13,820,000      $ 12,173,000
                                                   ============        ============      ============
</TABLE>


                                      F-12


<PAGE>
<PAGE>


                      CARROLS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   -----------

4.  LONG-TERM DEBT

Long-term debt at December 31 consisted of:
<TABLE>
<CAPTION>

                                                      1996               1995
                                                    ---------          ---------
<S>                                                 <C>                <C>        
   Collateralized:
      Revolving line of credit                      $4,669,000         $ 1,700,000
      Acquisition loan                               5,000,000           5,000,000
      Industrial Development Revenue bonds                 --              596,000
      Other notes payable with 
        interest rates tp 10%                          857,000             837,000
      Unsecured:
       Senior notes                                107,662,000         108,500,000
                                                   -----------         -----------
                                                   118,188,000         116,633,000
      Less: current portion                              8,000             258,000
                                                  ------------        ------------
                                                  $118,180,000        $116,375,000
                                                  ============        ============
</TABLE>

The Company  issued $110 million of unsecured  senior notes in August 1993.  The
senior notes bear  interest at a rate of 11.5%,  payable  semi-annually  on each
February 15 and August 15, and are due August 15, 2003. The notes are redeemable
at the option of the Company in whole or in part on or after  August 15, 1998 at
specified redemption prices. Provisions of the revolving line of credit facility
place  limitations  on the  redemption or repurchase of the notes so long as the
facility remains in effect. During 1996, the Company purchased $0.8 million face
value of senior notes.

On December 20, 1994,  the  revolving  line of credit  agreement  was amended to
provide  for an  additional  acquisition  loan  of $5  million.  The $5  million
acquisition  loan was  collateralized  by the  twenty-two  restaurants  acquired
during 1994 and was fully advanced during 1995.


                                      F-13

<PAGE>
<PAGE>


                      CARROLS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               -----------------

4.  LONG-TERM DEBT (CONTINUED)

Effective  December 20, 1994,  in  conjunction  with the  additional  $5 million
acquisition  loan, the revolving line of credit  agreement was amended to reduce
the interest rate on all  borrowings  thereunder to either the London  Interbank
Offering  Rate plus  2.5% or the  prime  rate plus  1.25%,  as  selected  by the
Company.  If the  revolving  line of credit  and  acquisition  loan  exceed  $25
million,  the interest rate is increased to either the London Interbank Offering
Rate plus 3.5% or the prime rate plus 2.25% on the amount of the loan  exceeding
$25  million.  The  amount  available  under the  revolving  line of credit  was
increased to $25 million with no future  reductions until its maturity in August
2000. At December 31, 1996 there was $19.2 million available under the revolving
line of credit facility after  reduction for the $4.7 million  outstanding and a
$1.1 million  letter of credit  guaranteed by the facility.  A commitment fee of
1/2% is payable on the unused  balance.  At December 31, 1996,  the facility was
collateralized by substantially all assets of the Company.

The  Industrial  Development  Revenue bonds were  collateralized  by a warehouse
which was sold during 1996, at which time the bonds were  retired.  Interest was
at seventy-five percent of prime.

Restrictive  covenants  of the  senior  notes and the  revolving  line of credit
facility include limitations with respect to the issuance of additional debt and
redeemable  preferred stock; the sale of assets;  dividend  payments and capital
stock  redemption;  transactions with affiliates;  investments;  consolidations,
mergers and transfers of assets and minimum  interest and fixed charge  coverage
ratios.

At December 31, 1996,  principal  payments required on all long-term debt are as
follows:

<TABLE>

<S>               <C>                                               <C>         
                  1997                                              $      8,000
                  1998                                                     8,000
                  1999                                                   192,000
                  2000                                                 9,789,000
                  2001                                                         
                  2002 and thereafter                                108,191,000
                                                                    ------------
                                                                    $118,188,000
                                                                    ============
</TABLE>

5.  INCOME TAXES

The income tax  (provision)  benefit was  comprised of the following at December
31:

<TABLE>
<CAPTION>
                                                1996             1995            1994
                                                ----             ----            ----
<S>                                         <C>              <C>                  <C>
       Current:
         Federal                            $  (981,000)     $  (35,000)              
         State                                 (400,000)       (200,000)       $(165,000)
                                            ------------     -----------        ---------
                                             (1,381,000)       (235,000)        (165,000)
                                            ------------     -----------        ---------
       Deferred:
         Federal                             (1,199,000)       8,552,000               
         State                                 (520,000)       1,509,000           
                                            ------------     -----------        ---------
                                            (1,719,000)      10,061,000            
                                            ------------     -----------        ---------
                                            $(3,100,000)     $ 9,826,000      $ (165,000)
                                            ============     ===========        =========

</TABLE>


                                      F-14


<PAGE>
<PAGE>


                      CARROLS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   -----------

5.  INCOME TAXES CONTINUED

The components of deferred income tax assets and liabilities at December 31, are
as follows:

<TABLE>
<CAPTION>
                                                                             1996               1995
                                                                             ----               ----
<S>                                                                  <C>                  <C>        
      Deferred tax assets:
        Receivable and other reserves                                $   503,000          $   405,000
        Accrued vacation benefits                                        427,000              484,000
        Deferred income on sale/leaseback
          of real estate                                                 853,000              709,000
        Postretirement benefits                                          602,000              569,000
        Capital leases                                                   463,000              545,000
        Property and equipment                                           671,000              138,000
        Alternative minimum tax credit carryforward                                            35,000
        Net operating loss carryforwards                              12,348,000           12,458,000
                                                                      ----------           ----------
                                                                      15,867,000           15,343,000
      Deferred tax liabilities:
        Franchise rights                                               5,966,000            5,282,000
                                                                      ----------           ----------

           Net deferred income tax asset                             $ 9,901,000          $10,061,000
                                                                      ==========           ==========
</TABLE>


The Company has net  operating  loss  carryforwards  for income tax  purposes of
approximately  $32  million.  The net  operating  loss  carryforwards  expire in
varying amounts beginning 2003 through 2010.  Realization of the deferred income
tax  assets  relating  to the net  operating  loss is  dependent  on  generating
sufficient  taxable  income prior to the  expiration of the loss  carryforwards.
Based upon results of operations, management believes it is more likely than not
that the Company will generate sufficient future taxable income to fully realize
the benefit of the net  operating  loss  carryforwards  and  existing  temporary
differences,  although  there can be no assurance of this.  Accordingly,  during
1995, the  previously  provided  valuation  allowance was eliminated and the net
deferred tax asset was recognized as a deferred income tax benefit.

Reconciliation  of the  statutory  federal  income tax rate to the effective tax
rate is as follows:

<TABLE>
<CAPTION>

                                                                    1996
                                                                    ----
<S>                                                                  <C>   
                  Statutory federal income tax rate                  34.00%
                  Change in valuation allowance
                  State Income Taxes, net of
                      federal benefit                                 9.66%
                  Nondeductible expenses                              3.13%
                  Miscellaneous                                       2.54%
                                                                     -----
                                                                     49.34%
                                                                     ===== 
</TABLE>

A  non-cash  tax  benefit  of  $1,559,000   resulting  from  the   disqualifying
disposition  of incentive  stock options  associated  with the change of control
transaction was credited  directly to paid in capital and increased the deferred
income tax asset.


                                      F-15
<PAGE>
<PAGE>


                      CARROLS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ---------------
6.  STOCKHOLDER'S EQUITY

The Company

The Company has 1,000 shares of common stock  authorized  of which 10 shares are
issued and  outstanding.  Dividends on the Company's common stock are restricted
to amounts permitted by various loan agreements.

Additional   paid-in  capital  was  reduced  for  cash  dividends   declared  of
$1,000,000, $636,000, and $2,973,000 in 1996, 1995 and 1994, respectively.

Holdings

The sole  activity of Holdings is the  ownership of 100% of the stock of Carrols
Corporation. In February 1997, a 1 for 3.701 reverse stock split was effected to
reduce the outstanding shares of common stock of Holdings to 850,000 shares.

Holdings,  the  parent,  has issued  various  classes of stock with  redemption,
convertibility  and  cumulative  dividend  payment  requirements.  The following
amounts  have been  restated to reflect  the effects of the reverse  stock split
at December 31,:

<TABLE>
<CAPTION>

                                                                1996                        1995
                                                                ----                        ----
<S>                                                             <C>                         <C>
      Preferred stock:
       Class A, 10% cumulative redeemable,
         par value $.01, authorized, issued
         and outstanding 7,250 shares at
         liquidation preference and
         redemption price                                      $7,250,000                   $7,250,000
       Class B, convertible, 10% cumulative
         redeemable Series I, par value $.01,
         authorized, 750 shares, issued and
         outstanding - none for 1996 and 750
         shares for 1995                                                                       750,000
       Class B, 10% cumulative  redeemable 
         Series II, par value $.01, authorized
         750 shares, issued - none
      Common stock:
       Voting, par value $.01, authorized
         6,000,000 shares, issued and
         outstanding 850,000 and 610,801
         shares for 1996 and 1995, respectively                     9,000                        6,000
       Non-voting, par value $.01, authorized
         882,353 shares, issued - none

</TABLE>


The Class A Preferred  Stock,  issued in December  1986, is subject to mandatory
redemptions  equally over each of the tenth through thirteenth  anniversaries of
issuance.  In addition,  subject to the redemption  restrictions of various loan
agreements,  all preferred stock may be redeemed at the option of Holdings, at a
price of $1,000  per  share,  plus  accrued  dividends.  In the  event  that the
scheduled  redemptions  are not timely  made,  the annual  dividend  rate on the
amount of Class A Preferred Stock scheduled to be redeemed but not redeemed will
automatically increase to 14%.


                                      F-16

<PAGE>
<PAGE>


                      CARROLS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   -----------


6.  STOCKHOLDER'S EQUITY CONTINUED

Holders of the  Preferred  Stock are entitled to  cumulative  dividends  payable
quarterly at the rate of 10% per annum.  In the event that Holdings fails to pay
four  consecutive  quarterly  dividends  on the  Class A  preferred  stock,  the
subsequent  dividend rate  increases to 11.5%;  if eight  consecutive  quarterly
dividends are missed,  the rate  increases to 13% per annum until such dividends
are paid.  Because  of  certain  restrictive  covenants  in the  Company's  loan
agreements,  at December 31, 1996, the first scheduled  redemption of $1,813,000
and dividends of $182,000 for the last quarter of 1996 have not been paid.

In conjunction with various financings completed between 1986 and 1992, warrants
to purchase shares of Holdings  Common  Stock at an exercise  price of $3.590 to
$3.701  per share were granted with 131,886 and 201,338 outstanding  at December
31, 1996 and 1995, respectively.

The warrants  outstanding at December 31, 1996 are owned by an independent third
party.  The  warrants  were  originally  owned  by  Heller  Financial,  Inc.  To
facilitate the sale and purchase of the warrants,  Holdings loaned $2,500,000 to
the purchaser of the warrants  which loan was secured by a collateral  pledge of
the  shares of the  purchaser  and of the  warrants.  Holdings  has an option to
purchase the warrants at an aggregate  price of $2,510,000  if exercised  before
November 2, 1997 and $2,520,000 if exercised  after November 1, 1997. The option
expires on  November 1, 2000.  Upon  completion  of the sale of Holdings  common
stock  referred to in Note 11 - Subsequent  Event,  Holdings  will  exercise its
option to purchase the warrants.  Accordingly, to reflect the ultimate effect of
the Company's  exercise of the option,  the receivable has been  reclassified to
increase stockholder's deficit as of December 31, 1996.

Change of Control

On April 3, 1996, Carrols Holdings Corporation,  Carrols Corporation and certain
selling  shareholders of Carrols  Holdings  Corporation  sold  approximately  97
percent of the issued  common  stock and common stock  equivalents  (the Class B
Convertible  Preferred  stock,  warrants to buy common  stock and options to buy
common  stock)  exclusive  of the  warrants  referred  to above.  This change in
control  resulted  in the  Company  incurring  a one-time  charge of $509,000 in
fiscal 1996.

The sale of stock  pursuant to this agreement  constituted  an ownership  change
under certain  provisions of the Internal  Revenue Code which resulted in annual
limitations on utilization of the net operating loss carryforward referred to in
Note 5.

This transaction constituted a "change of control" under the Indenture governing
the  senior  notes due 2003. Accordingly, each holder of the notes had the right
to require the Company to repurchase all or any part of such holder's notes at a
repurchase  price  in  cash  equal  to 101% of the principal amount of the notes
being  repurchased  plus  accrued and unpaid interest. Such  redemptions totaled
$838,000 in fiscal 1996.

                                      F-17

<PAGE>
<PAGE>


                      CARROLS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   -----------

6.  STOCKHOLDER'S EQUITY CONTINUED

Stock Options

Carrols Holdings  Corporation adopted an Employee Stock Option and Award Plan on
December 14, 1993. Effective April 1, 1994, Holdings also adopted a Stock Option
Plan  for  non-employee  directors.  The  Plans  allowed  for  the  granting  of
non-qualified  stock  options,  stock  appreciation  rights and incentive  stock
options to directors,  officers and certain other Company employees. The Company
was  authorized to grant options for up to 850,000  shares,  100,000  shares for
non-employee directors and 750,000 shares for employees.  Options were generally
exercisable over 5 years with 94,600 options  exerciseable at December 31, 1995.
As of December 31, 1995,  non-employee  directors were granted options  totaling
18,000.  Under the  non-employee  director  plan,  no options were  exercised or
canceled during 1995. During 1996,  210,800 options (135,400 at $4.00 and 75,400
at $6.12) were  canceled  by the sale of such  options in  conjunction  with the
change of control transaction and the plans were canceled. The remaining 120,000
options  were  subject to a deferred  purchase  agreement  whereby  the sale and
cancellation occurred in January, 1997.

The Company  accounts for its stock-based  compensation  plans under APB Opinion
No. 25.  Accordingly,  compensation  cost has been recognized only to the extent
the exercise price was below the fair market value at the time of the grant. The
pro forma effect on the Company's net income, assuming the compensation cost for
the Company's  stock-based  compensation  plans had been determined based on the
fair value at the grant dates for awards  consistent with the method of SFAS No.
123, would be immaterial.

Option activity during 1995, and 1996 consisted of:

<TABLE>
<CAPTION>

                                                               OPTIONS AT $4.00        OPTIONS AT $6.12
                                                               ----------------        ----------------
<S>                                                                <C>                  <C>
     Balance at December 31, 1994                                 257,000                       0
       Granted                                                                             99,100
       Exercised                                                     (600)
       Canceled                                                   (12,400)                 (2,300)
                                                                  -------               --------
     Balance at December 31, 1995                                 244,000                  96,800
       Exercised                                                   (3,000)
       Canceled                                                  (141,000)                (76,800)
                                                                 --------                --------
     Balance at December 31, 1996                                 100,000                  20,000
                                                                 ========                ========
</TABLE>

On December 26, 1996, the Company adopted an incentive stock option plan whereby
the  Company  may grant options to purchase up to 106,250 shares of Common Stock
to  eligible  officers  and  employees  of the Company. As of the Company's most
recent year end, no options were granted.


7.  LITIGATION

The  Company is a party to various  legal  proceedings  arising  from the normal
course of business. Management believes adverse decisions relating to litigation
and  contingencies  in the aggregate  would not materially  effect the Company's
results of operations, financial condition or cash flows.

                                      F-18
<PAGE>
<PAGE>


                      CARROLS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   -----------

8.  EMPLOYEE SAVINGS PLAN

The  Company  offers a  savings  plan for  salaried  employees.  Under the plan,
participating  employees may contribute up to 10% of their salary annually.  The
Company's  contributions,  which  begin to vest after three years and fully vest
after seven years of service,  are equal to 50% of the employee's  contributions
to a maximum Company  contribution of $530 annually.  The employees have various
investment  options  available  under a trust  established by the plan. The plan
expense was $164,000,  $125,000,  and $125,000 for the years ended  December 31,
1996, 1995 and 1994, respectively.

9.  POSTRETIREMENT BENEFITS

While the Company reserves the right to change its policy,  the Company provides
postretirement  medical and life insurance  benefits covering  substantially all
salaried employees.

The following sets forth the plan status at December 31:

   Accumulated Postretirement Benefit Obligation (APBO):

<TABLE>
<CAPTION>

                                                                      1996                    1995
                                                                      ----                    ----
<S>                                                            <C>                         <C>        
   Retirees                                                    $   518,000                 $   411,000
   Fully eligible active participants                               26,000                     242,000
   Other active plan participants
     not fully eligible                                            697,000                     580,000
                                                               -----------                 -----------
       Total APBO                                                1,241,000                   1,233,000
   Unrecognized benefit from plan changes                          315,000                     255,000
   Unrecognized net loss                                           (34,000)                    (64,000)
                                                               -----------                 -----------
       Accrued postretirement
         benefit obligation                                    $ 1,522,000                 $ 1,424,000
                                                               ===========                 ===========

</TABLE>

   Net periodic postretirement benefit cost included the following components:

<TABLE>
<CAPTION>

                                                         1996                 1995              1994
                                                         ----                 ----              ----
<S>                                                      <C>                 <C>                <C>    
     Service cost                                        $64,000             $47,000            $47,000
     Interest cost                                        77,000              76,000             70,000
     Net amortization of
       gains,losses and unrecognized
       benefit from plan changes                         (25,000)            (29,000)           (20,000)
                                                        --------              ------             ------
                                                        $116,000             $94,000            $97,000
                                                        ========              ======             ======

</TABLE>

A 6.75% annual rate of increase in the per capita  costs of covered  health care
benefits was assumed for 1996,  gradually  decreasing  to 5.5% by the year 2001.
Increasing the assumed  health care cost trend rates by one percentage  point in
each year would increase the accumulated postretirement benefit obligation as of
December 31, 1996 by $157,000 and


                                      F-19

<PAGE>
<PAGE>


                      CARROLS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   -----------

9.  POST RETIREMENT BENEFITS CONTINUED

increase the aggregate of the service cost and interest  cost  components of net
periodic  postretirement  benefit cost for 1996 by $23,000. For 1996 and 1995, a
discount rate of 7% was used to determine the accumulated postretirement benefit
obligation.  Actual  benefit costs paid on behalf of retirees in 1996,  1995 and
1994 amounted to $24,000, $24,000, and $31,000, respectively.

10. LOSS ON CLOSING RESTAURANTS AND OTHER

The loss on closing  restaurants and other of $1.8 million for 1994 included the
write-down of assets to net  realizable  value and estimated  lease  termination
costs for the closing during 1995 of certain restaurants operating at a negative
annual  cash  flow  and the  write  down to net  realizable  value  of a  vacant
warehouse held for sale. The vacant warehouse was sold in 1996.

11. SUBSEQUENT EVENT

In February  1997, a 1 for 3.701  reverse stock split was effected to reduce the
outstanding shares of common stock of Holdings to 850,000 shares.

On February 25, 1997,  Carrols  Holdings  Corporation  and its sole  stockholder
entered into an agreement  whereby each agreed to sell 283,334  shares of common
stock  of  Carrols   Holdings   Corporation  to  an  independent   third  party.
Consummation of the transaction is subject to certain conditions, among which is
the completion of a new credit facility  satisfactory  to the independent  third
party.  Additionally,  Holdings agreed to sell 10,810 shares to certain officers
of the  Company.  The sale of the new common  stock by  Holdings  will result in
approximately $31.0 million of new equity for the Company.

The  consummation  of  the  transaction   contemplated  by  the  agreement  will
constitute a "change of control" under the indenture  governing the senior notes
due 2003.  Accordingly,  each holder of the notes will have the right to require
the Company to repurchase all or any part of such holder's notes at a repurchase
price  in  cash  equal  to 101%  of the  principal  amount  of the  notes  being
repurchased plus accrued and unpaid interest, if any, within a 30-60 day period,
as  determined by the Company.  The Company  anticipates  that an  insignificant
number of note holders  will  exercise  their  rights,  based on current  market
conditions.  However,  to the extent holders exercise their rights,  the Company
expects to finance the aggregate  repurchase amount through borrowings under the
revolving line of credit portion of its senior  secured credit  facility  and/or
through other financing.


                                      F-20

<PAGE>
<PAGE>


                      CARROLS CORPORATION AND SUBSIDIARIES
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
               Col. A                       Col. B           Col. C            Col. D            Col E
               ------                       ------           ------            ------            -----
                                                            Additions
                                          Balance at       Charged to                        Balance at
                                          Beginning         Costs and                           End
             Description                  of Period         Expenses         Deductions      of Period
             -----------                  ---------        -----------       ----------      ----------
<S>                                       <C>               <C>            <C>              <C>         
Year ended December 31, 1996:
 Accumulated depreciation of
property   and equipment                  $  59,631,000     $  7,300,000   $(3,575,000)(d)  $ 63,356,000
 Accumulated amortization of
  franchise rights                           19,648,000        2,575,000      (436,000)(a)    21,787,000
 Accumulated amortization of
  beneficial leases                           7,655,000          634,000      (541,000)(a)     7,748,000
 Accumulated amortization of excess
  cost over fair value of assets                520,000           58,000                         578,000

 Reserve for doubtful trade accounts
  receivable                                    419,000           16,000      (125,000)(b)       310,000

 Other reserves (c)                             788,000                        (35,000)(b)       753,000

Year ended December 31, 1995:
 Accumulated depreciation of property
  and equipment                              53,969,000        7,594,000    (1,932,000)(d)    59,631,000
 Accumulated amortization of
  franchise rights                           17,548,000        2,512,000      (412,000)(a)    19,648,000
 Accumulated amortization of
  beneficial leases                           7,433,000          721,000      (499,000)(a)     7,655,000
 Accumulated amortization of excess
  cost over fair value of assets                462,000           58,000                         520,000

 Reserve for doubtful trade accounts
  receivable                                    424,000           12,000       (17,000)(b)       419,000

 Other reserves (c)                             542,000          388,000      (142,000)(b)       788,000

Year ended December 31, 1994:
 Accumulated depreciation of property
  and equipment                              47,254,000        7,404,000      (689,000)(d)    53,969,000
 Accumulated amortization of
  franchise rights                           15,146,000        2,402,000                      17,548,000
 Accumulated amortization of
  beneficial leases                           6,921,000          785,000      (273,000)(a)     7,433,000
 Accumulated amortization of excess
  cost over fair value of assets                404,000           58,000                         462,000

 Reserve for doubtful trade accounts
  receivable                                    563,000            2,000      (141,000)(b)       424,000

 Other reserves (c)                             521,000           21,000                         542,000

</TABLE>


(a) Represents reduction of accumulated  amortization due to sale or disposition
    of restaurants.
(b) Represents write-offs of accounts.
(c) Included principally in other assets
(d) Represents retirements of fixed assets.



                     STATEMENT OF DIFFERENCES

The registered trademark symbol shall be expressed as...............'r'
The section symbol shall be expressed as............................'SS'








<PAGE>