Cucos, Inc

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International Guild of Hospitality & Restaurant Managers

Cucos, Inc. operates and franchises full-service restaurants serving moderately priced Sonoran and Tex-Mex Mexican appetizers and entrees and complementing alcoholic and non-alcoholic beverages. At the end of the fiscal 2000, 17 restaurants were operating under the Cucos name, of which 12 were owned by the Company and five were owned by franchisees. There were 18 restaurants in operation at the end of fiscal year 1999. During fiscal year 2000, one franchised restaurant was closed and two Company-owned restaurants became franchised restaurants when the Company sold the restaurants, one in Birmingham and one in Montgomery, Alabama, to former employees.

Company-owned Restaurants

Cucos Mexican Restaurants are full-service restaurants emphasizing fresh ingredients and the Company's own proprietary recipes. Cucos serves a variety of traditional Mexican dishes and appetizers such as sizzling steak, chicken or shrimp fajitas, burritos, enchiladas, tamales and chimichangas. Cucos also serves several large combination dinners. The restaurants serve vegetarian items, as well as burgers.

The restaurants are decorated with Mexican antiques and furniture, terracotta tile and large, hand-painted colorful murals that are unique to each Cucos restaurant. Mexican pottery, southwestern plants, colorful hand-made Mexican flowers and festive lighting add more Mexican touches to the casual restaurants. Food sales accounted for approximately 79% of revenues at the Company-owned restaurants operated in fiscal 2000, with alcoholic and other beverages representing approximately 19% of revenues.

Franchised Restaurants

The Company's franchise development agreements generally obligate the developer to construct a specified number of Cucos restaurants within the licensed territory. The restaurants may be either new restaurants or conversions of existing restaurants, although the Company encourages franchisees to convert existing restaurants whenever possible. A developer must open new Cucos restaurants within the development territory in accordance with the schedule set forth in the development agreement. If a developer fails to open restaurants in accordance with the schedule, generally the Company may notify the developer that it is in default under the development agreement and may terminate the agreement 30 days thereafter if the default has not been cured.

Generally franchisees are required to pay the Company under the license agreement a continuing royalty fee equal to 4% of gross revenues at the restaurant. In addition, franchisees are required to pay a continuing monthly contribution to an advertising materials fund equal to .5% of gross revenues at the restaurant and if a national advertising fund or a regional advertising fund applicable to the franchisee's region is established by the Company (the Company has not done so to date), the franchisees must also pay to the Company continuing monthly contributions, for use by such funds, equal to amounts not to exceed 1% and 2% of gross revenues of the restaurant, respectively, for the national media fund or the regional advertising fund in the franchisee's region.

The Company competes with several national chains including El Chico, Rio Bravo, Don Pablo's, El Patio, Chili's, Applebees, Olive Garden, LaFiesta and Chevy's, as well as many local dining concepts.

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