Outback Franchise Agreement
The following information represents sales for unconsolidated development and development restaurants. These are restaurants that are not owned by the company and whose business receives only a deductible fee or a portion of their total net income. Management believes that revenue information is useful for franchised and unconsolidated development companies to analyze the company`s revenue, as franchisees and related companies pay royalties and/or royalties, usually based on one percent of revenue. Management also uses this information to make decisions about future development plans for other restaurants and new concepts, as well as for evaluating current operations. On December 11, 2002, there were 115 outback steakhouses and 45 outback international steakhouses. Each unrelated domestic franchisee paid an initial deductible of $40,000 for each restaurant and pays a continuous monthly fee of 3% of the restaurant`s gross sales and a monthly marketing fee of 0.5% of the restaurant`s gross sales. Initial fees and royalties for international franchisees vary depending on the market. Each unrelated international franchisee paid an initial deductible of $80,000 to $200,000 for each restaurant and pays a continuous monthly fee of 3 to 5% of the restaurant`s gross sales. In addition, until the creation of a national fund or regional advertising co-operative, all unrelated national franchisees are required to spend at least 3% of the gross sale of restaurants on local advertising each month. Once the company has established a national advertising fund or regional advertising co-operative, insured national franchisees must contribute 3.5% of the gross sale of restaurants to the fund or co-operative each month, rather than to local advertising. Since the company`s inception, the company has required its executives to enter into a five- to seven-year employment contract and to pay the company the right to obtain a percentage of their restaurants` annual cash flow for the duration of the agreement.
After the conclusion of the employment contract, the company generally grants managers stock options equal to an amount prescribed by its formula in its employment contract. Stock option grants under this plan are issued at the company`s weighted average closing price for the previous three months and may be exerciseable for up to 10 years. Options expire five years after options become exerciseable. In October 1999, the company purchased, through its wholly owned subsidiary OS Prime, Inc., a Florida company, three restaurants at Flemings Prime Steakhouse and Wine Bar (Flemings). At the same time, the company has reached an agreement with the founders of Flemings on the development and operation of other Flemish people around the world.