UFOC

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Sample UFOC

TABLE OF CONTENTS

ITEM PAGE

1. THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES 1

2. BUSINESS EXPERIENCE 3

3. LITIGATION 4

4. BANKRUPTCY 5

5. INITIAL FRANCHISE FEE 5

6. OTHER FEES 6

7. INITIAL INVESTMENT 8

8. RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES 10

9. FRANCHISEiS'S OBLIGATIONS 11

10. FINANCING 13

11. FRANCHISOR'S OBLIGATIONS 15

12. TERRITORY 18

13. TRADEMARKS 18

14. PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION 19

15. OBLIGATION TO PARTICIPATE IN THE ACTUAL

OPERATION OF THE FRANCHISED BUSINESS 19

16. RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL 19

17. RENEWAL, TERMINATION, TRANSFER, AND DISPUTE RESOLUTION 20

18. PUBLIC FIGURES 23

19. EARNINGS CLAIMS 24

20. LIST OF OUTLETS 24

21. FINANCIAL STATEMENTS 36

22. CONTRACTS 37

23. RECEIPT 38

EXHIBITS

A. CONTACTS FOR MORE INFORMATION REGARDING FRANCHISES

B. AC's AGENT FOR SERVICE OF PROCESS

C. LOAN AGREEMENT

D. AC TRAINING PROGRAM

E. CALIFORNIA APPENDLX

F. NOTICE OF NEGOTIATED SALE OF FRANCHISE

ITEM1 THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES

In this offering circular, "AC" means Aero-Colours, Inc., the franchisor. "You" means the person or entity who buys the franchise. "Predecessor" in Item 1 means Flying Colours as described below from whom AC acquired a major oortion of its assets and the right to the proprietary painting touch-up process that AC is offering you use c'f. AC is a Minnesota corporation that was incorporated on October 25, 1985. AC's sole predecessor was a sole proprietorship known as Flying Colours, which existed from 1984 at 2617 Coty Court, Ceres, CA 95307 until AC purchased it in its entirety in October of 1985. AC does business only as Aero-Colours, Inc, Our principal place of business is 10824 Nesbitt Avenue South, Minneapolis, Minnesota 55437.

On February 9, 1 )95, all of the outstanding capital stock of AC was purchased by A Perfect Finish, Inc. ("APF"). APF wis incorporated in Minnesota in May, 1994 and has been a franchisee of AC since June, 1994. Immediately following APF's purchase of AC, APF was merged into AC with AC the surviving corporation of the merger.

AC's agent for service of process is disclosed in Exhibit "B" to this offering circular.

AC owns and operates a mobile, painting touch-up process and service that is performed primarily on cars at automobile dealerships or at the customer's home or place of business. The process can also be performed from a fixed site should you decide to establish one pursuant to the terms of the Franchise Agreement. You can also perform the AC process on boats or other vehicles if you desire.

AC franchises the right to use and perform its painting touch-up process in exclusive territories that contain at the time that the franchise is acquired at least forty (40) new-car dealerships.

Between October of 1985 and AC's becoming a franchisor in 1993, AC existed as a licensor. AC licensed the use of the AC trademark and service mark and sold the rights to use and perform its process in exclusive territories to licensees under terms similar to its present Franchise Agreement. The licensees paid an initial license fee and a royalty based upon the gross revenues generated by the licensee's business to AC. Under the terms of the Franchise Agreement, you are authorized to conduct business under the trade name and trade mark of AC in an exclusive territory in exchange for the payment of an initial Franchise Fee and royalties based upon the monthly gross revenue generated by the business.

The terms of the license and Franchise Agreement differ in various ways. The Franchise Agreement more specifically spells out the duties of AC with regard to the relationship. The licenses are generally for a term of one (1) year, renewable annually. The Franchise Agreement is for a term of ten (10) years and is renewable upon certain conditions. Unlike the license, the Franchise Agreement specifically sets out your obligations and the fees to be paid to AC. The Franchise Agreement also places greater restrictions on the transferability of the franchise. Further, the Franchise Agreement may be terminated if you fail to comply with certain requirements.

Existing licensees may convert their licenses to franchises via this offering circular. Conversion of an existing license to the franchise offered by this offering circular will be negotiated on an individual basis with the existing licensees. Licensees converting to franchises via this offering circular will execute the Franchise Agreement in Item 22 together with an addendum for converting licensees and will not be required to pay an initial Franchise Fee. Also, licensees converting to franchises will already possess all of the equipment, supplies and trailing necessary to operate the franchise and will not incur any expense for same. The converting licensees will already be operating the AC touch-up process and will not incur any additional start-up costs or expenses. The addendum for converting licensees incorporates the above discussed changes into the Franchise: Agreement.

The outlets listed in Item 20 are new franchisees and existing licensees. Neither AC nor its predecessor has ever offered licenses, franchises, or business opportunities in any other lines of business.

AC's painting process is regulated by the Environmental Protection Agency to the extent that it involves the handling, storage and disposal or recycling of hazardous and dangerous chemicals. Other state or local regulations may apply to the AC process in the territory you select.

AC's direct competition includes other franchisors offering similar services, local paint repair companies and detailers.

ITEM 2 BUSINESS EXPERIENCE

KATHLEEN T. SPELLMIRE - DIRECTOR, PRESIDENT OF COMPANY OPERATIONS AND CHIEF EXECUTIVE OFFICER

Ms. Spellmire is the Co-Chief Executive Officer of AC and President of Company Operations and a member of the Board of D rectors. She has been with AC in this capacity since February, 1995. Prior to joining AC in February, 1995, Ms. Spellmire held various management positions with major corporations in the United States. From Apn 1, 1994 through February, 1995 she was employed by Lifetouch Publishing as Controller of their Publishing Division. From October, 1992 through April, 1994, Ms. Spellmire was Chief Financial Officer of the Solutronix Corporation where she was responsible for all financial matters, sales, and operations. From September, 1990 through October, 1992, Ms. Spellmire was Corporate Controller of Northgate Computer Systems. Prior to September, 1990, Ms. Spellmire held various financial management positions with companies in the computer industry.

JAMES F. SPELLMIRE - DIRECTOR, PRESIDENT OF FRANCHISE OPERATIONS AND CHIEF EXECUTIVE OFFICER

Mr. Spellmire is the Co-Chief Executive Officer of AC and President of Franchise Operations and a member of the Board of D rectors. He has been with AC in this capacity since February, 1995. Prior to joining AC in February, 1995, Mr. Spellmire held various management positions with major corporations in the United States. From October, 1993 through October, 1994, Mr. Spellmire was Chief Financial Officer of Maintech Resources, Inc. From November, 1990 through October, 1993, Mr. Spellmire was Director of Finance and Administration a: Northwest Airlines. Prior to November 1990, Mr. Spellmire held various financial management posi ions with companies in the computer industry.

IRVIN ENGEBILETSON - DIRECTOR

Mr. Engebretson is a member of the Board of Directors of AC. He has been with AC in this capacity since February, 1995. Mr. Engebretson was the Chief Financial Officer of Cray Research, Inc. (Eagan, Minnesota) from 1972 until 1977, and the Senior Director of Finance for all company engineering and manufacturing from 1977 until hs retired from Cray Research, Inc. in April, 1993.

JOHN F. CARLSON - DKECTOR

Mr. Carlson is a member of the Board of Directors of AC. He has been with AC in this capacity since July, 1996. Mr. Carbon held various positions of increased responsibility with Cray Research, Inc. (Eagan, Minnesota). From 1993 to 1995 Mr. Carlson was Chairman and Chief Executive Officer of Cray Research, Inc. He held financial management positions including the office of Chief Financial Officer until 1991 when he was appointed the President and Chief Operating Officer of the company. Mr. Carlson began bis career with KPMG Peat Marwick LLP (Minneapolis, Minnesota) in 1964 and left in 1976 to work for Cray Research, Inc. Mr. Carlson has sever il professional and community affiliations.

ITEM 3

LITIGATION

H.J. Lavatv & Associates. Inc. v. Aero-Colours. Inc. (No. 94CH 0290) Circuit Court of the 18th Judicial Circuit, Du Page County, Wheaton, Illinois. At the direction of the Illinois Attorney General, AC provided our current licensee, H.J. Lavaty & Associates, with a Notice of Violation of the Illinois Franchise Disclosure Act in January 1994. Oi April 8, 1994, Lavaty filed an action seeking to rescind its current license and recover attorneys' fees anc costs incurred in connection with the action based upon AC's failure to comply with the Illinois Franchise Disclosure Act. Lavaty has alleged that its license with AC is subject to the Illinois Franchise Disclosure Act and that AC entered into the license without first registering under the Act and without delivering the required disclosure statement to Lavaty. AC filed a response to the complaint. Upon receiving the response from AC regarding the complaint, Lavaty filed suit in District Court to rescind its license agreement with AC and presented settlement terms to AC. AC did not accept these settlement terms and filed with the court a notion to dismiss the complaint. The court dismissed the suit. In February 1998, AC and Lavaty executed a settlement agreement whereby AC paid to Lavaty $2,000 and paid Lavaty's attorney fees in the amount of $11 000.

Carfrance SARL v. Aero-Colours. Inc. (Commercial Court of Paris, 1, Quai de Corse, 75004 Paris). On December 29,1998, Carfrance SARL executed a master franchise agreement with Aero-Colours, Inc. providing Carfrance with ths exclusive franchise rights to the country of France. On April 7, 2000, Carfrance SARL served a summons upon Aero-Colours, Inc. to appear before the Commercial Court of Paris on June 21, 2000. Carfrance SARL':; legal claim is that Aero-Colours, Inc. failed to comply with a section of the French code which requires a franchisor to provide disclosure documents and a draft agreement at least 20 days before the agreement is signed or a franchise fee paid. Carfrance SARL is seeking to have the master franchise agreement voided and to be paid $753,000. Aero-Colours, Inc. will counter-claim for amounts due under the master franchise agreement and is vigorously defending the Carfrance SARL claim. In July 2000 Carfrance SARL filed for protection under French bankruptcy laws and the bankruptcy trustee is continuing to support the original suit. According to French law, the plaintiff presented their documentation in January 2001. AC responded with their documentation in February, 2001. In August of 2002, the parties agreed to release each other from all liabilities related to the lawsuit. As of December 31,2003, the action has been removed from the docket of the Commercial Court of Paris and the parties have agreed to settlement terms, however, a settlement agreement has not been executed.

Other than these two (2) actions, no litigation is required to be disclosed in this offering circular.

None of AC nor iny person or franchise broker in Item 2 of this offering circular is subject to any currently effective order of any national securities association or national securities exchange, as defined in the Securities Exchange Act of 1934, 15 U.S.C.A. 78a et. seq., suspending or expelling such persons from membership in such association or exchange

ITEM 4

BANKRUPTCY

Neither AC, its Predecessor, nor any person previously identified in this offering circular has been involved as a debtor in pro feedings under the U.S. Bankruptcy Code required to be disclosed in this Item.

ITEM 5 INITIAL FRANCHISE FEE

You must pay a non-refundable Franchise Fee for your exclusive territory when the Franchise Agreement is signed. The min: mum fee is $10,000.00. The maximum fee is $125,000.00. The typical exclusive territory includes at least 50 new-car dealerships. While you can typically expect to pay between $400 and $700 for each new-car dealership in your territory, the amount of the non-refundable Franchise Fee is based upon a number of factors including the number of new car dealerships in your territory, the geographical size of your

territory, and the competitive nature of your territory. For the year ended December 31, 2004, the minimum Franchise Fee paid to AC was $17,500.00 and the maximum Franchise Fee paid to AC was $33,000.00. These Franchise Fee prices were based upon the number of car dealerships in the territories purchased, the geographical size of these territories and the competitive nature of the market in each territory. Prior to opening your business you will also pay to AC approximately $12,000.00 for painting equipment installed in your van, the cost of freight to deliver the painting equipment to you and $700.00 for a 3 months' reserve of Remover and other supplies. The only items which you must purchase from AC are the Remover and the painting equipment. All other equipment and supplies may be purchased or leased from third party vendors.

Payment for the painting equipment and 3 months' reserve of Remover and other supplies must be made in full upon delivery See Item 10 of this offering circular regarding available installment payment terms for the non-refundable Franchise Fee. AC requires a minimum down payment of Ninety Percent (90%). Under certain conditions AC will finance a portion of the non-refundable Franchise Fee over a term of 2 years at the "Prime Rate" plus five percentage points APR with monthly installments commencing 1 month after signing of the Franchise Agreement. Prime Rate shall mean the "prime rate" as stated in the "Money Rates" section of The Wall Street Journal (Midwest Edition). Interest accrues for the non-refundable Franchise Fee financed from the date you execute the Franchise Agreement.

Current licensees converting to franchises via this offering circular will not be required to pay a Franchise Fee and will already possess all of the equipment, supplies and training necessary to operate the franchise and will not incur any expense for same.

The terms of Item 5 of this Offering Circular have been negotiated with other Franchisees. A copy of all Negotiated Sales 1 Notices in Northern California in the last twelve months is attached as Exhibit F.

Name of fee

0) Royalty

Replacement Manager Training

	ITEM 6
	OTHER FEES
Amount	Due Date
(2) 7% of Gross Revenue	By 15th of month after month in which
	revenue was earned
Cost to AC plus 40%	Within 30 days after receipt of invoice for services provided

Continuing Education Training

Additional Consulting

Cost to AC plus 40%

Hourly/daily fee plus costs to AC

Within 30 days after receipt of invoice for Services provided

Within 30 days after receipt of invoice for services provided

Remarks

See footnotes (1), (2), and (3).

There is no fee for initial training. This expense applies only if you designate a replacement manager. The cost of training a replacement manager is estimated at between $1,000.00 and $2,500.00. You must also pay travel and lodging expenses. See footnote (1).

This fee may be charged by AC at its discretion. See footnote (1) and (5)

This cost does not refer to initial training, but for extra consultation after that.

Currently, AC charges $85.00 hourly or $680.00 daily for consulting fees. See footnote (1).

(1) All fees are non-refundable, imposed by and payable to AC.

(2) The Royalty Fee is seven percent (7%) of the gross revenue earned each month in your exclusive territory. Gross revenue includes all revenue from your franchise including those amounts which may be uncollectable by you. Gross revenue does not include sales tax or use tax. AC requires you to purchase or lease a computer and software so that you can provide to AC standardized financial records. Any late payments can be assessed with an interest penalty of eighteen percent APR (18% annual percentage rate) or a higher amou nt if allowed by law.

(3) The above fees will apply to current licensees converting to franchises via this offering circular.

(4) At the time oi'each monthly payment of the Royalty Fee, you are required to complete and submit to AC a Statement o f* Operations and an Operational Royalty Report in the form of Attachments E and F to the Franchise Agreement. AC has the right to audit your books and records. If any such audit discloses an underpaymenl of royalties, such amount shall be immediately due and payable by you. If the amount of the underpayment exceeds three percent (3%) of the royalty due for any period, you are required to reimburse AC for the costs of the audit, including without limitation, legal and accounting fees, costs of transportation and other related expenses.

(5) The cost to you for continuing education training provided to you is equal to the cost to AC plus a 40% markup on this cost. The costs to provide continuing education training includes travel and lodging expenses for AC personnel. This cost would then be increased by 40% to cover the administrative costs associated with this training.

Name of fee

Audits

Tradename Changes

Supplier Approval

Transfer Fee

Amount

Cost to AC if underpayment exceeds 3%

Cost to conform your mobile unit and fixed site with any new changes

$100

Renewal

There in no fee charged to the franchisee to transfer the franchise.

$1,000

Due Date

Upon completion of audit

Upon AC's changing its tradename or marks

When you request AC to approve a supplier not previously approved by AC at any time after the first three months of operation.

When you request AC to approve a transfer of your franchise business.

Upon renewal of your franchise

Remarks

Audits pertain

to underpaid

royalty fees

See footnote (1) and (4).

AC presently has no intent to change either its tradename or marks. AC estimates the cost to conform to any trade name changes at between $100.00 and $200.00. See footnote (1).

You incur the supplier approval fee at your discretion. See footnote (1).

Transfer is defined as a change in ownership of the franchise business that is greater than 34% or more of the capital or profits.

See footnote (1)

		ITEM 7 INITIAL INVESTMENT
	AMOUNT	METHOD OF PAYMENT	WHEN DUE	TO WHOM PAYMENT IS TO BE MADE
INITIAL FRANCHISE FEE	See Item 5, $10,000 (minimum) to $125,000	See (Note 1) and Items 5,10	At signing of Contract	AC (Note 1)
TRAVEL AND LIVING EXPENSES WHILE TRAINS [G	$3,700	As Incurred	During Training	Airlines, Hotels and Restaurants
CHEVROLET ASTRO OR OTHER SIMILAR VAN	$10,000 to $20,000	As Incurred	Prior to Opening	(Note 2)
VAN EQUIPMENT	$12,000 (Note 3)	Lump Sum	Prior to Opening	AC
RESERVE AND OTHER SUPPLIES-3 months	$ 700	As Incurred	Prior to Opening	AC or Vendors (Note 4)
MISCELLANEOUS OPENING COSTS	$ 500	As Incurred	Prior to Opening	Suppliers, Utilities, Etc. (Note 5)
COMPUTER HARDWARE & SOFTWARE $250-$ 1,250		As Incurred	Prior to Opening	Vendors (Note 6)
REAL ESTATE & IMPROVEMENTS	(Note 7)	(Note 7)	(Note 7)	(Note 7)
ADVERTISING ■ 3 months	$ 250 (Note 8)	As Incurred	As Incurred	Vendors
ADDITIONAL FUNDS-3 months	$10,000 (Note 9)	As Incurred	As Incurred	Suppliers, Utilities, Etc.
TOTAL $47,400 to $173,400 Notes: No Real Property Investment is Required.		[DOES NOT INCLUDE REQUIRED INSURANCE, OR OPTIONAL FRANCHISE SITE COSTS (SEE NOTES 9 AND 10)]

(1) AC prefers not to finance the initial Franchise Fee. You may acquire financing from any source available to you. However, under certain conditions discussed in Item 10, AC may provide financing for a portion of the initial Franchise Fee. You are required to make a down payment of at least Ninety Percent (90%). A portion of the initial Franchise Fee may be financed by AC for a term of 2 years at the "Prime Rate" plus five percentage points APR with monthly installments commencing one (1) month after signing of the Franchise Agreement. Prime Rate shall mean the "prime rate" as stated in the "Money Rates" section of The Wall Street Journal (Midwest Edition).

(2) The van usually selected, but not required, is a Chevrolet Astro van which may be leased or purchased from any source available under any terms that you can reach with the owner of the vehicle. The approximate cost for a van varies, depending on its age and condition.

(3) The requiied painting equipment must be purchased from AC. The required painting equipment is described in more detail in Item 8 and Item 22 of this offering circular. This price includes AC's installatior of the equipment, and is non-refundable.

(4) The reserve supplies refers to the "Remover" and other supplies needed to perform the painting service, "he suggested reserve and other supplies should be sufficient for the initial three-month phase in cf the business. The suggested amount of reserve supplies that you purchase is $300.00. The "Remover" must be purchased from AC, and is non-refundable. The suggested amount of the other supplies, including the stationery and office supplies that you purchase is $400.00. You are free to purchase as much or as little of these supplies as you wish. These figures are suggestions only. All supplies other than the "Remover" may be purchased from any source available and under any terms that you ciin reach with the distributor.

(5) Includes s xurity deposits, business license fees, if any, and incorporation fees.

(6) You must prepare and submit financial and other reports to AC by computer. The equipment and software may be leased or purchased from any source available but should be compatible with AC's IBM-base I system. AC requires that you purchase the latest software version of Quickbooks Accountir g software.

(7) The Franchise Agreement does not require you to establish a fixed franchise site rather than operate out of yotr home. If you choose to operate a fixed franchise site, typical locations are light industrial and commercial areas. The typical AC fixed retail site has approximately 1,800 square feet. Rent is estimated to be between $6,000.00 and $15,000.00 per year depending on factors such as size, condition and location of the leased premises. You may have other expenses like the cost of leasing office equipment if you choose to operate a fixed franchise site.

(8) You are not required to pay any advertising fees to AC. It is expected that you will incur some advertising expenses in the initial start up and continuation of your business.

(9) This estimates your initial start-up expenses and the capital required to operate your franchise for 3 months. This figure does not include the price of the one million dollar insurance policy that you must acqiire from an insurer prior to your opening. This figure does not include any rental, overhead or other expenses that you may incur should you elect to establish a fixed franchise site rather than operate out of your home. Figures are estimates and AC cannot guarantee that you will not have additional expenses starting the business. Your costs will depend on factors such as: how much you follow AC's methods and procedures; your management skill, experience and business acumen; local economic conditions; the local market for our product and service; the prevailing wage rate; competition; and the sales level reached during the initial period.

(10) AC relied on its nineteen years of experience in the painting and touch up business to compile these estimates. You should review these figures carefully with a business advisor before making any decision to purchase the franchise.

(11) Current licensees converting to franchises via this offering circular will not be required to pay an initial Fninchise Fee and will already possess the necessary equipment supplies and training to operate the franchise and will not incur any expense for same. The only expense incurred by current

licensees converting to a franchise via this offering circular will be attorney and professional fees incurred in reviewing the Franchise Agreement and addendum estimated at approximately $500.00.

ITEM 8

RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES

You are required Dy written agreement to purchase AC's proprietary product known as "Remover" which is the chemical used in the painting process (See section 7.4.5 of the Franchise Agreement). AC is currently selling the "Remover" at thirty one dollars ($31) per gallon. AC can adjust the price of the "Remover" each year based on the Consumer Price Index to reflect its cost to produce the same. Your purchases from AC for the "Remover" will be approximately 1% of your initial investment and approximately 1% of your operating expenses. In the year ended December 31,2004, the revenue AC receives from sales of the initial van operating supplies (as described below) and Remover to franchisees was approximately $96,100 or 5.7% of AC total revenues of $1,68",887.

AC will generally have in inventory all of the supplies necessary for you to run your franchise. You may acquire all of your post-opening supplies, with the exception of the "Remover," from any source that AC approves of. See sections 5.6 and 7.4.3 of the Franchise Agreement. The purchase of all other necessary supplies will represent seven to ten percent of your overall purchases. You may request that AC approve the other suppliers. Based on the information and samples you supply to us, we will test the items supplied and review the proposed suppliers' financial records, business reputation, delivery performance, credit rating and other information AC's supplier approval criteria is available for franchisees to review. Our review typically is completed in thirty days. There is no charge for AC approving your initial suppliers. A fee of $100.00 will be charged far AC to approve any additional suppliers after your first three months of operation. No suppliers will make payments to or rebates to AC for supplies purchased by you from the supplier.

You must purchase the required painting equipment to be installed in your van from AC including air tanks and compressors, hoses and fittings, air brush and hose assembly, detail spray gun, siphon caps and color cups, color chip books, formula books, alternate color selector, color wheel and tinting guides, microfiche reader, mixing color system, polishing rags and towels and standard forms as described in more detail in Part II to attachment "D" of the Franchise Agreement included in Item 22 of this offering circular. The $12,000 price of the equipment includes AC's installation of the equipment, and is nonrefundable. The cost of the equipment represents approximately 20% of your total purchases in connection with establishment of your business.

You are requirec. by written agreement to purchase comprehensive public liability insurance, including product liability : nsurance covering your business, personnel, and activities on an occurrence basis with a combined single limit for bodily injury, death or property damage for not less than $1,000,000.00; casualty insurance in a minimum amount equal to the replacement value of your interest in the business, and if you choose to establish a fixed site, business interruption insurance in an amount sufficient to cover rent for the leased premises, salary and wages of key personnel, and other fixed expenses. Such insurance may be purchased through the Aero-Colours, Inc. Franchise Insurance Program or from any insurance company of recognized responsibility. All insurance must designate AC and AC's officers and directors as additional named insureds. After you have obtained insurance coverage, you must deliver a certificate of the issuing insurance company to AC and AC will review the insurance company and coverage. Our review typically is completed within ten (10) days. AC will review the insurance company and the form, substance and coverage of the insurance purchased based upon the standards in the industry of other similar businesses. The cost of the insurance purchased in accordance with the specifications of the Franchise Agreement represents approximately 3% of your total purchases in connection with the establishment of your business.

AC requires you tD purchase or lease a computer and or software.

ITEM 9

FRANCHISEE'S OBLIGATIONS

THIS TABLE LISTS YOUR PRINCIPAL OBLIGATIONS UNDER THE FRANCHISE AGREEMENT AND OTHER AGREEMENTS, INCLUDING REQUIREMENTS THAT YOU PURCHASE OR LEASE IN ACCORDANCE WITH SPECIFICATIONS OR FROM APPROVED SUPPLIERS. IT WILL HELP YOU FIND MORE DETAILED INFORMATION ABOUT YOUR OBLIGATIONS IN THE FRANCHISE OR OTHER AGREEMENTS AND IN OTHER ITEMS OF THIS OFFERING CIRCULAR.

Obligation	Section in Agreement	Item in Offering Circular	Remarks
a. Site selection and acquisition and leases	Section 5.1 and 7.2	Item 7	No site required
b. Pre-opening purchases/ leases	Section 6.1 and 6.5	Items 7 and 8
c. Site development and other	Section 6.5 and 7.4	Items 6, 7 and 11
pre-opening requirements
d. Initial and ongoing training	Section 5.2	Items 6, 7 and 11
e. Opening	Section 7.4	Items 8 and 11
f. Fees	Section 6	Items 5, 6 and 10
g. Compliance with standards and policies/Operating Manual	Section 5.4 and 7.4	Items 11 and 12	No Manual provided
h. Trademarks an I proprietary information	Section 3 7.1 and 7.4.5	Items 13 and 14	See also post-termination obligations in Item 17
i. Restrictions on products/ services offered	Section 7.4.3	Item 16
j. Warranty and customer	Section 5.5 and 7.4	Item 11
service
requirements
k. Territorial development and sales	Section 4.2 and 7.3	Item 12
quotas

Obligation

1. Ongoing product/service purchases

m. Maintenance appearance and remodeling requirements

n. Insurance

o. Advertising

p. Indemnification

q. Owner's participation/ management staffing

r. Records/reports

s. Inspections/ audits

t. Transfer

u. Renewal

v. Post-termination obligations

w. Non-competition covenants

x. Dispute resolution

Section

in Agreement

Section 7.4.3 and 7.4.5

Section 4.3, 5.1,7.2, and 9.4

Section 7.7 Section 7.1.3 Section 8.5 Section 7.5

Section 7.6

Section 6.4, 6.5, and

Section 6.10 and 9

Section 4.3

Section 8.4 and 8.6

Section 11

Item in Offering Circular

Items 7 and 8

Remarks

Item 7

Item 8

Items 7 and 11

Items 11 and 15

Applies only if you select a site other than your home

Items 6, 7 and 11
Items 6 and 11 7.4.4
Item 17
Item 17
Section 10.3	Item 17
Item 17	Separate agreement must be signed

Item 17

ITEM 10 FINANCING

SUMMARY OF FINANCING OFFERED

Item Financed (Source)	Amount Financed	Down Payment	Term (Yrs)	APR %	Monthly Payment	Prepay Penalty	Security Required	Liability Upon Default	Loss of Legal \| Right on 1 Default
Initial Fee (Note 1)(AC)	Will vary Based Upon Amount of Initial Fee	90% of Initial Fee Amount	2	The Prime Rate* plus five percen tage points	Will Vary Based Upon Amt. Finc'd.	None	Personal Guarantee/Ter ritory Rights	Unpaid Loan -Arty's Fees, Costs	Waiver of right to Trial by Jury
Equipment Purchase	None
\| Opening Invent.	None
\| Other Financing	None

* Prime Rate shall mean the "prime rate" as stated in the "Money Rates" section of The Wall Street Journal (Midwest Edition).

ITEM 10 (Continued)

FINANCING

AC prefers not to finance. If you meet AC's credit standards, AC will consider financing a portion of the initial Franchise Fee over a two-year period at the "Prime Rate" plus five percentage points APR with monthly installments commencing one (1) month after signing of the Franchise Agreement, using the standard form note in Exhibit C to this offering circular. Prime Rate shall mean the "prime rate" as stated in the "Money Rates" section of The Wall Street Journal (Midwest Edition). You may acquire financing from any source available to you. A down payment of 90% of the initial Franchise Fee is due upon signing of the Franchise Agreement. The amount financed must be paid in full within twenty-four (24) monthly installments. Interest accrues for the initial Franchise Fee financed from the date that you execute the Franchise Agreement. The only security AC requires is a personal guarantee of the note and the Franchise Agreement by you or by a third party. If you do not pay on time, AC can call the loan and demand immediate payment of the full outstanding balance, requiring you to pay a fixed sum as liquidated damages (Loan Agreement pages 1, 2). AC has the right to require additional collateral and accelerate the maturity of all installments if your financial condition becomes impaired (Loan Agreement page 2). If you default on the loan AC may sell any collateral without demand or notice to you (Loan Agreement page 2). AC can also obtain its costs, court costs and attorneys fees if a collection action is necessary. By executing the standard form note, you waive your right to trial by jury in any action or proceeding regarding the note (Loan Agreement page 3). AC does not require any other waiver of defenses or legal rights in any instrument of indebtedness.

AC's standards for advancing credit to franchisees are based upon the financial status and credit worthiness of the franchisee. If you request financing, AC will review and investigate the financial information and credit references provided by you to determine if you have the ability to repay the loans to AC in a timely manner. The determination of whether you meet AC's credit standards is usually completed within 10 days from submission of the requested information.

Except as discussed above, AC does not provide any other financing. AC does not guarantee any notes, leases or obligations.

AC has no past or present practice of nor intent to sell or assign any financing agreement executed with you. AC has no arrangement with any person for the placement of financing, and receives no fees from any financial institutions for your placement of financing. There is no prepayment penalty for any financing provided by AC. Third parties financing these fees may or may not assess a prepayment penalty.

AC will comply with all appropriate laws governing any direct financing offered by AC to you including, if applicable, the California Finance Lenders Law.

ITEM 11

FRANCHISOR'S OBLIGATIONS

EXCEPT AS LISTED BELOW, AC NEED NOT PROVIDE ANY ASSISTANCE TO YOU.

Before you open your franchise, AC will:

1) Designate your exclusive territory and approve the site of your franchise. If you decide to establish a site for your franchise other than out of your home, AC will provide a prototype of sample plans and specifications for at least one existing franchised business to guide you in constructing improvements, furnishing and equipping your franchise (Franchise Agreement Section 5.1). These plans and specifications will include the required square footage for van storage, equipment storage and supply inventories. No other factors are considered by Franchisor. Franchisee will, at its own expense, tailor the plans and specifications provided by Franchisor for individual use by the Franchisee and shall submit the customized plans and specifications to Franchisor for written approval, which approval shall not be unreasonably withheld. If the customized plans and specifications of the Franchisee are consistent with the plans and specifications provided by Franchsior, then Franchisor will approve the plans within fifteen (15) days upon written receipt of the plans and specifications. Franchisor will not approve plans and specifications which are inconsistent with those provided by Franchisor to Franchisee. If the Franchisee and Franchisor can not agree on the plans and specifications, then the matter will be arbitrated by an individual mutually agreeable to both Franchisee and Franchisor.

2) Conduct an initial training program in the operation of a franchised business under AC's system for as many as two (2) members of your management within thirty (30) days prior to opening as follows:

Subject	Time Begun	Instructional Material	Hours of Classroom Training	Hours of On the Job Training
Introduction to AC and Touch Up Process	Days 1, 6	AC Training Materials	1	1
Explanation of Equipment and Supplies	Days 1, 6	M M	3	3
Preparation of Mobil Service Unit	Days 1, 6	it ii	1	1
Service Writing	Days 1, 6	n H	1	1
Paint Mixing	Days 1-2, 6-7	H H	3	3
Touch Up Process	Days 2-3, 7-8	H ii	14	14
Bumpers and Trim Painting	Days 3-4, 8	n ii	5	2
Handling Special Repair	Days 4, 8	n n	4	2
Invoice Preparation	Days 5, 8	n ii	1	1
Territory Development	Days 5, 8-10	it ii	6	11
Safety	Days 5, 10	ii n	1	1
			Total 40	Total 40

Your attendance or that of your management and successful passing of the program is mandatory. The program will take place within the thirty (30) days prior to your opening at AC's Minneapolis, Minnesota training facility, and will not exceed eighty (80) hours of training. The content of the training program will include all of the issues discussed in AC's Training Program pamphlet, attached as Exhibit D to this offering circular. The instructors are AC service technicians who have been tested on and advised of current developments in AC's process and who have regularly performed the AC process in the course of their employment with AC for at least one (1) year. You will be financially responsible for all traveling and living expenses incurred by you or your manager(s) while attending the initial training program. Licensees converting to franchises via this offering circular will have already undergone the initial training and will not be required to repeat the process. Additional, optional consultation is available at no additional charge to you as outlined below (Franchise Agreement Section 5.2.1). AC currently provides no other training that is required of the Franchisee.

3) Although not obligated to do so by the franchise or other agreements, assist you in locating and

acquiring a van and install the painting equipment you purchased in your van (See Item 7), and deliver to you copies of all forms used by AC to hire, train employees, to solicit business, to service your customers, to operate your franchise.

4) Consider any supplier of goods and services that you would like to use if the supplier meets AC's

standards and specifications (Franchise Agreement Section 5.5).

During the operation of your franchise, AC will:

1) Within the first thirty (30) days of your executing the Franchise Agreement, and at no additional

charge, make its personnel available to you for up to eighty (80) hours of consultation by telephone, email, telecopier, or in person if AC deems it necessary (Franchise Agreement Section 5.3).

2) Use its best efforts to ensure that you have a readily available supply of AC's proprietary chemical

product known as "Remover." (Franchise Agreement Section 5.6).

Although not obligated to do so by the franchise or other agreement, AC has in the past and intends in the future to perform the following services for franchisees (including licensees converting to franchises):

1) Supply you at no additional charge with an updated Paint Formula Book for each of your vans

approximately once a year.

2) Provide a toll-free telephone number available from anywhere within the continental United States

for you or your employee to call for technical assistance or to order supplies.

3) Maintain an inventory of all equipment and supplies used in the AC process, and make such items

available to you at prices that may be below retail prices of other suppliers.

4) Provide you with bulletins, updates, and other technical information concerning the AC process or

related paint information that may help you in the operation of your franchise.

5) Provide you with accounting, bookkeeping, and billing training and assistance relating to your

franchise.

AC will assist you in selecting and must approve of the area and location of your franchise. The location will contain at least twenty (20) new-car dealerships at the time that the Franchise Agreement is executed. AC will not authorize any other franchisee or itself to operate within your location. AC will not unreasonably withhold its consent to allow you to relocate your franchise within your territory (Franchise Agreement Section 4.2).

After you sign the Franchise Agreement, you can generally have your franchise open for business within thirty (30) days if you operate the franchise from your home. A factor that affects this time is your decision to locate your franchise within your home as opposed to a business site which would involve your obtaining a lease, and possibly financing and permits for building out the site. If you choose a business site outside of

your home it may take thirty (30) to sixty (60) days to open for business after you sign the Franchise Agreement. Other factors that may affect the time are the ability to obtain financing or the necessary permits, shortages, and delayed installation of equipment and signs. In instances where current licensees are converting to franchises, you will be able to immediately begin operations of the business.

AC does not currently have an advertising program. You may develop advertising materials for your own use, at your own cost. AC must approve the advertising materials in advance and in writing. AC may on occasion provide for placement of advertising on behalf of the entire AC system, including franchisees. However, most placement is done on a local basis, typically by local advertising agencies hired by individual franchisees. AC will approve or disapprove of advertising materials submitted to it within thirty (30) days. AC will base its approval on the conformity of the advertising to the AC system, accuracy and appropriateness. (Franchise Agreement Section 7.1.3).

The Franchise Agreement requires you to purchase or lease a computer and communications equipment and software in order to allow you to create the required standardized financial reports and to transmit the reports to AC (Franchise Agreement Section 7.6.2). You are required to submit on or before the 15th day of each month to AC financial reports on the income and expenses of the business for the prior month in the format specified by AC (Franchise Agreement Section 7.6.2, attachments E, F). You must file all of your reports electronically. You are not required to purchase any specific hardware component, but your computer should be an IBM or an IBM compatible unit with at least 256 MB memory, 200 RAM and a high-speed internet connection. We recommend that you utilize either Microsoft Excel or Lotus 1-2-3 spreadsheets and Word Perfect 5.1 or Word for Windows word processing programs. AC requires that you purchase the latest software version of Quickbooks Accounting software. You have no contractual obligation to upgrade or update the software component and hardware programs during the term of the franchise. AC will not have independent access to information and data that maybe electronically collected.

The operational and financial information contained in the Statement of Operations (Franchise Agreement Section 7.6.2, attachment E) which you are required to submit to AC on a monthly basis allows AC to compare your operations to other AC franchises and company-owned stores. Utilizing this information, AC will be able to formulate and make recommendations to you to assist in improving your business.

AC has the right during normal working hours to audit the books and records, including tax returns of your business (Franchise Agreement Section 6.4).

AC currently does not have an operations manual which it provides to franchisees. Attached to this offering circular as Exhibit D is a copy of AC's training program.

In instances where current licensees are converting to franchises, you will already have a designated territory and possess all of the necessary equipment, supplies and training. Licensees converting to franchises will undergo no additional training other than the continuing visits and training provided to all operating franchisees by AC. AC will continue to provide converting licensees the same services as it provides to its other franchisees.

ITEM 12

TERRITORY

You will receive an exclusive territory with at least twenty (20) new-car dealerships at the time that the Franchise Agreement is executed, as discussed above. You must receive AC's permission before relocating the site of your franchise to another location within your exclusive territory. AC will not unreasonably withhold consent for you to relocate. AC has not and will not operate a company-owned franchise, a competing business under another name, or sell the right to open a competing business under another name that provides the AC process within your area, provided that you are in compliance with the Franchise Agreement. AC has not and will not grant another AC franchise within your area, provided that you are in compliance with the Franchise Agreement. AC has the right to establish another channel of distribution for selling the AC Remover utilizing the AC trademark. However, we currently do not, and do not intend to, sell the Remover through channels of distribution other than through franchisees and existing licensees.

You are precluded from conducting the AC process outside of your territory, irrespective of whether that outside territory is possessed by another franchisee. All revenue derived from any service that you provide outside of your exclusive territory shall belong to AC. You are advised that a competing franchise or company-owned franchise may exist in a territory that is adjoining and contiguous with yours. AC and all franchisees will be permitted to use AC's trade name and trademark. AC does not guarantee that your territory will continue to contain at least twenty (20) new-car dealerships.

Continuation of your territory's exclusivity is dependent upon your complying with the Development Schedule discussed in section 7.3 of the Franchise Agreement, and attached as Attachment B thereto. At the time the Franchise Agreement is executed, we will agree with you on a Development Schedule for your territory based upon the size of the territory, the number of new-car dealerships, the size of those dealerships, and the presence of businesses which compete with the AC system within the territory. The Development Schedule will include a schedule for identifying, targeting and contacting the new and used car dealers and the possible commercial and fleet accounts in your territory. The Development Schedule will call for mailings to potential customers and the personal solicitation of key personnel at the targeted dealers and accounts. A typical Development Schedule will require you to contact at least one new account per week until all targeted dealers and accounts have been personally contacted at least once. The Development Schedule will vary from territory to territory. Your Development Schedule will include a mutually agreed upon schedule for you to contact the identified dealers and accounts to solicit their business. Your failure to comply with the Development Schedule could result in your territory being reduced in size, and/or its boundaries being re-identified. In such event you shall not be entitled to a refund of the initial Franchise Fee, or a reduction in the percentage of royalties payable. You do not receive the right to acquire additional franchises within your area.

ITEM 13

TRADEMARKS

AC grants you the right to operate a franchised business under the name Aero-Colours. You may also use our other current or future trademarks to operate your franchise. By trademark, AC means trade names, trademarks, service marks and logos used to operate your franchise. AC registered its service mark for automobile service on February 17, 1987, and on January 26, 1993, for airplanes, appliances, bicycles, furniture, motorcycles, utensils and painting of various surfaces of metal, plastic, wood and other non-porous materials in the Principal Register of the United States Patent and Trademark Office, Registration Numbers 1429534 and 1748877 respectively. In addition, AC registered its service mark in the state of California, Registration number 25728. AC has filed all required affidavits.

You must follow our rules when you use these marks. You can not use a name or mark as part of a corporate name or with modifying words, designs or symbols except for those which AC licenses to you. You may not use AC's registered name in connection with the sale of an unauthorized product or service or in a manner not authorized in writing by AC.

Presently, there are no effective material determinations of the patent and trademark office, trademark trial and appeal board, the trademark administrator of this state or any court; any pending infringement, opposition or cancellation proceeding; or any pending material litigation involving AC's trademarks.

No agreements limit AC's right to use or license the use of AC's trademark.

You must notify AC immediately when you learn about an infringement of or challenge to your use of AC's trademark. AC will take the action that AC thinks is appropriate. AC is not required by the Franchise Agreement or otherwise to protect any of your rights or to defend you against a claim against your use of our commercial symbol or for unfair competition.

AC does not know any infringing uses that could materially affect your use of AC's trademark.

ITEM 14

PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION

You do not receive the right to use any item covered by a patent or copyright, but you can use AC's proprietary painting process and information provided to you by AC during the initial training and later. Although the written information provided to you by AC is not copyrighted, the information is proprietary and considered a trade secret under the law. Also, the formula for the "Remover" is considered a trade secret under the law. You must promptly tell us when you learn about unauthorized use of this proprietary information. AC is not obligated to take any action but will respond to this information as we think appropriate. The Franchise Agreement requires you to maintain the confidentiality of the proprietary information provided to you by us. You and your employees must sign agreements agreeing to keep the proprietary information confidential (Franchise Agreement Section 8.4, and Attachment G).

ITEM 15

OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS

AC does not require that you personally supervise the franchised business. The business must be directly supervised "on-premises" by a designated manager or other employee who has successfully completed AC's initial training program whenever the franchise is open for business. The designated manager need not have an ownership interest in a corporate or partnership franchisee. The designated manager and all employees must not have any ownership, employment or other interest in a competitor while working at an AC franchise and, must sign a written agreement to maintain trade secrets described in Item 13 and to conform with the covenants not to compete described in Item 17.

ITEM 16

RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL

AC requires you to offer and sell only and all of those goods and services that AC has approved (See Item 9; Franchise Agreement Section 7.4.3). AC further limits your ability to sell those goods and services only to customers in your exclusive territory (See Item 12; Franchise Agreement Section 4.2). AC has the right to modify its existing process or to add additional authorized services that the franchisee is required to offer. There are no limits on AC's right to do so.

The original documents were scanned as an image. The original file can be downloaded at the link above.

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