UFOC

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Sample UFOC

CWerbusters!!

We *tn* Afr*M of no messl

FRANCHISE OFFERING CIRCULAR CI utter busters Franchising, Inc.. A Delaware Corporation 15521 Grinnell Terrace Derwood, Maryland 20855

(301)309-9614 www.clutterbusters.com

The franchise is to operate a "professional organizing" business that provides organizing products and services to residential clients.

The initial franchise fee paid to us for a Clutterbusters Franchise is $25,000. The estimated initial investment required ranges from $45,650 to $73,500.

RISK FACTORS:

1.          THE FRANCHISE AGREEMENT PERMITS YOU TO ARBITRATE AGAINST US ONLY WHERE OUR PRINCIPAL BUSINESS ADDRESS THEN IS LOCATED OR THE FEDERAL COURTS IN OUR HOME JUDICIAL DISTRICT WHERE OUR PRINCIPAL BUSINESS ADDRESS THEN IS LOCATED (CURRENTLY MONTGOMERY COUNTY, MARYLAND). OUT OF STATE LITIGATION MIGHT FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MIGHT ALSO COST YOU MORE TO SUE US IN MARYLAND THAN IN YOUR HOME STATE. SOME STATE FRANCHISE LAWS PROVIDE THAT CHOICE OF FORUM PROVISIONS ARE VOID OR SUPERSEDED. YOU MIGHT WANT TO INVESTIGATE WHETHER YOU ARE PROTECTED BY A STATE FRANCHISE LAW.

2.          THE FRANCHISE AGREEMENT STATES THAT MARYLAND LAW GOVERNS THE AGREEMENT, AND THIS LAW MIGHT NOT PROVIDE THE SAME PROTECTION AND BENEFITS AS LOCAL LAW. YOU MIGHT WANT TO COMPARE THESE LAWS. SOME STATE FRANCHISE LAWS PROVIDE THAT CHOICE OF LAW PROVISIONS ARE VOID OR SUPERSEDED. YOU MIGHT WANT TO INVESTIGATE WHETHER YOU ARE PROTECTED BY A STATE FRANCHISE LAW. YOU SHOULD REVIEW ANY ADDENDA OR RIDERS ATTACHED TO THIS OFFERING CIRCULAR FOR DISCLOSURES REGARDING STATE FRANCHISE LAWS.

3.

THERE MIGHT BE OTHER RISKS CONCERNING THIS FRANCHISE.

Information comparing franchisors is available. Call the state administrators listed in Exhibit A (as applicable) or your public library for sources of information.

Registration of this franchise with the state does not mean that the state recommends it or has verified the information in this Offering Circular. If you learn that anything in this Offering Circular is untrue, contact the Federal Trade Commission and the state administrators listed in Exhibit A.

Effective Date:

FOR USE ONLY IN THE STATE OF CALIFORNIA

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TABLE OF CONTENTS

Page ITEM1.........................................................................................................................................................1

THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES.........................................................1

ITEM 2.........................................................................................................................................................2

BUSINESS EXPERIENCE.......................................................................................................................2

LITIGATION............................................................................................................................................2

ITEM 4.........................................................................................................................................................2

BANKRUPTCY........................................................................................................................................2

ITEM 5.........................................................................................................................................................2

INITIAL FRANCHISE FEE.....................................................................................................................2

ITEM 6.........................................................................................................................................................3

OTHER FEES...........................................................................................................................................3

ITEM 7.........................................................................................................................................................5

INITIAL INVESTMENT..........................................................................................................................5

ITEM 8.........................................................................................................................................................7

RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES....................................................7

ITEM 9.........................................................................................................................................................9

FRANCHISEE'S OBLIGATIONS...........................................................................................................9

ITEM 10.....................................................................................................................................................11

FINANCING...........................................................................................................................................11

ITEM 11.....................................................................................................................................................11

FRANCHISOR'S OBLIGATIONS.........................................................................................................11

ITEM 12.....................................................................................................................................................18

TERRITORY..........................................................................................................................................18

ITEM 13.....................................................................................................................................................21

TRADEMARKS.....................................................................................................................................21

ITEM 14.....................................................................................................................................................22

PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION.................................................22

ITEM 15.....................................................................................................................................................22

OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE

BUSINESS..............................................................................................................................................22

ITEM 16.....................................................................................................................................................23

RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL..........................................................23

ITEM 17.....................................................................................................................................................23

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RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION....................................23

ITEM 18.....................................................................................................................................................27

PUBLIC FIGURES.................................................................................................................................27

ITEM 19.....................................................................................................................................................27

EARNINGS CLAIMS............................................................................................................................27

ITEM 20.....................................................................................................................................................29

LIST OF OUTLETS...............................................................................................................................29

ITEM 21.....................................................................................................................................................32

FINANCIAL STATEMENTS................................................................................................................32

ITEM 22.....................................................................................................................................................32

CONTRACTS.........................................................................................................................................32

ITEM 23.....................................................................................................................................................32

RECEIPTS..............................................................................................................................................32

EXHIBITS:

Exhibit A Exhibit B Exhibit C Exhibit D Exhibit E Exhibit F Exhibit G

List of State Agencies/A gents for Service of Process

State Specific Addendum

Franchise Agreement

Financial Statements

List of Franchisees

List of Franchisees Who Have Left the System

Table of Contents of Operations Manual

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ITEM1 THE FRANCHISOR. ITS PREDECESSORS AND AFFILIATES

The franchisor is Clutterbusters Franchising, Inc. ("we," "us", or "our"). "You" means the person to whom we grant a franchise. If you are a corporation, partnership, or other entity, your owners must sign our "Guaranty and Assumption of Obligations," (which is Exhibit C to our Franchise Agreement). If your owners sign the Guaranty, all of the provisions of our Franchise Agreement also will apply to your owners. The Franchise Agreement is attached as Exhibit C.

We were formed in Delaware in July, 2005, and have just begun operations. Our principal business address is 15521 Grinnell Terrace, Derwood, Maryland 20855. We operate under our corporate name and the trademarks described in Item 13 (the "Marks") and no other name.

If we have an agent in your state for service of process, we disclose that agent in Exhibit A.

We have no affiliates. Our predecessor is Choice Placements, Inc., a Maryland corporation, d/b/a "Clutterbusters!!" that was formed in March 2002. Its principal business address is the same as ours. It performs the same services as you will be performing under the "Clutterbusters" name. It operates in the Washington, DC and Greater Atlanta metropolitan areas only.

We grant franchises for businesses under the "Clutterbusters" name and other Marks. (We call these businesses "Clutterbusters". We will call your business Clutterbusters (the "Business"). Clutterbusters offers organizing services for our clients, and we can perform our services either by the hour or by the project, like a garage, bedroom or home office that needs to be organized (the "Services"). Typically, a client of Clutterbusters is considerably disorganized and has a current need that motivates them to pay for professional help. Most jobs are done within the client's residence or at a corporate location. If you acquire a franchise, you must operate your Business according to our business formats, methods, procedures, designs, layouts, standards, and specifications. Your Business must offer the products and services we specify. In certain instances we will offer franchises to individuals who are already in the professional organizing business and may discount our initial franchise fee to them.

We will begin offering franchises for Clutterbusters in September 2005. We do not operate and have not operated any Clutterbusters franchises. However, our predecessor operates Clutterbusters professional organizer businesses in the greater Washington, DC and greater Atlanta areas (See Item 20). It has operated the Washington, DC Business since March, 2002. We have no other business activities and have not offered franchises in other lines of business. Neither we nor our predecessor, has offered franchises in any other line of business.

You will compete with other businesses that offer organizing services to residential home owners and businesses, some of which might be franchise systems. You will offer your products and services to a specific target market, which is described in the Operations Manual. The professional organizing industry, while competitive, is relatively new and growing in most markets.

Most states do not have laws which regulate any aspects of your Business. You must comply with those that apply generally to all businesses. You should investigate these laws.

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ITEM 2 BUSINESS EXPERIENCE

President: Betsy Fein

Mrs. Fein has been President of Clutterbusters Franchising Inc. since inception. From March 2002 to the present she has held the same position with our predecessor, Choice Placements; Previous to that, Ms. Fein was in the HR/Recruitment field for 10 years; six of those years she worked as a Recruiting Director for a Fortune 500 company, hiring over 10,000 employees and directly managing 15 employees.

Chief Executive Officer; Richard Fein

Mr. Fein, Betsy Fein's husband, has been our CEO since inception. From March 2002 to present he has also served as CEO of our Predecessor. During that time, he was also a practicing real estate attorney in Rockville, Maryland, a Mortgage Banker with a leading home finance company, Director of Government Affairs for the Direct Marketing Association in Washington, DC, and General Counsel and Director of Taxation and Government Affairs with the National Society of Accountants in Alexandria, Virginia.

ITEM 3 LITIGATION

No litigation is required to be disclosed in this Offering Circular.

ITEM 4 BANKRUPTCY

No person previously identified in Item 1, and no officer previously identified in Item 2, of this offering circular has been involved as a debtor in proceedings under the U.S. Bankruptcy Code required to be disclosed in this Item.

ITEM 5 INITIAL FRANCHISE FEE

You must pay to us an initial franchise fee of $25,000 at the time you sign the Franchise Agreement. This amount is not refundable. If you wish to purchase a second franchise, we will discount the initial fee by 2/3's of the then current initial franchise fee, and this too is payable when you sign the Franchise Agreement and is not refundable.

In the State of Rhode Island only, we will defer the payment of the initial franchise fee, development fee and any other initial payment until all of our material pre-opening obligations have been satisfied. The initial franchise fee and development fee are deferred until you open your business and it is operating. However, you must execute the Franchise Agreement prior to looking for a site or beginning training.

If you are an existing organizer who wishes to join our system, and you have generated more than $60,000 in sales over the prior twelve month period, you will pay 50% of the then current initial franchise fee when you sign our Franchise Agreement. This fee is not refundable. In addition, we intend to convert our Atlanta location to a franchise, and will be discounting their initial franchise fee, and we may sell to selected relatives and friends at a substantially discounted fee.

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ITEM 6 OTHER FEES

Name of Fee

Amount

Due Date

Remarks (1)

Royalty

8% of Gross Revenues

Due every other Friday by automatic debit for the preceding 2 weeks.

Week defined as Monday thru Sunday Royalty due following Friday.

Royalties are payment for the use of the Marks, System, Territory, and Manuals. "Gross Revenues" means all income you derive from the business including all sales and revenue shares (but excluding taxes collected from customers and paid to taxing authorities).

National Marketing and Advertising Fund

3% of Gross Revenues

Due every other Friday by automatic debit for the preceding 2 weeks.

Week defined as Monday thru Sunday National Marketing and Advertising Fund fee due following Friday.

"Gross Revenues" means all income you derive from the business including all sales and revenue shares (but excluding taxes collected from customers and paid to taxing authorities).

Cooperative Advertising

As determined by cooperative

Weekly

A cooperative is formed by multiple franchisees operating in contiguous territories.

Local Advertising

No less than 4% of Gross Revenues of the preceding two weeks or $125, whichever is greater.

Varies

Must have listings in local white and yellow pages. Must have a dedicated business phone line with a 24 hour answering machine/service.

If more than one franchisee in local area, listing fees can be split between the franchisees equally.

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Name of Fee

Amount

Due Date

Remarks (1)

Indemnification

Will vary under circumstances

As incurred

You must reimburse us if we are held liable for claims from your Business's operation.

Initial Training

Included for 2-5 people (Travel, car rental, hotel and food expenses at franchisee expense)

Included

Five days on site at our headquarters, two days at franchise location. (Franchisee pays Travel, car rental, hotel and food expenses for corporate trainers to their location)

Additional Training/ Retraining

We will charge a per diem fee of not less than $200 per day or our then current rate (Travel, car rental hotel and food expenses for corporate trainers are to be paid by franchisee)

Before start of the additional training session

Transfer Fee

40% of our then current initial franchise fee.

Due upon signing of franchise agreement

No charge if the transfer is to an entity controlled by you or to a spouse, parent or child. All transfers must be approved by us

Renewal Fee

None

N/A

N/A

Audit Fee

Cost of inspection or audit, plus 100% of understated Royalty and interest, at the rate of 12% per annum or the maximum rate permitted by applicable law, whichever is greater, and all late fees, from the date originally due until the date of payment

Due by automatic debit 15 days after billing

Due if you understate royalty by 3% or more or if you fail to furnish us on a timely basis reports, records, or other related information we request.

Technology Fee

A one time setup fee of $500 and a monthly fee of $75. These fees will go towards proprietary software licensing fees and into a fund to provide all future technology based solutions to operations requirements.

All due on the first day of the month by automatic debit.

Electronic fund transfer.

Payable to us

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Name of Fee

Amount

Due Date

Remarks (1)

Product Purchases

Purchase a Dell or other high quality, high speed computer with current Microsoft Office package, including MS Outlook, and Windows XP Pro. Must include Word, Excel and PowerPoint.

4-in-l

printer/fax/scanner/copier

high speed internet access

Latest version of QuickBooks Pro (no exceptions)

PDA cell phone with Internet access and e-mail

Before opening of

franchise

Ordered through local cellular provider

Third party Third Party

Third party Third party

NAPO Fee

$200

As incurred

You must become a member of this organization

IAPO Fee

If you choose to join this organization, the fee is $200

As incurred

Membership in this organization is optional

1.         Our current Franchise Agreement states that all Businesses which are members of a Cooperative

may vote to change the required cooperative allocation of expenditures among the media forms but not the total amount of contributions to the Cooperative or the allocation of expenses among the members. Each Business owner will have one vote regardless of the number of businesses that the owner operates within the Cooperative's area.

2.         You must generate a minimum amount of Gross Revenues in order to maintain your

"CI utter busters" franchise. During you first 12 months in operation you must generate no less than $30,000 in Gross Revenues; $60,000 during the second 12 months; and $120,000 during the third year of operations. (See Item 12). If you fail to achieve one of the required Gross Revenues, we may, at our discretion, either terminate your Business or reduce your territory size.

Liquidated Damages. If we terminate the Franchise Agreement with cause, you must pay us liquidated damages equal to the present value (using the then-current 30-Year Treasury Bond rate) of the Royalty Fees you would have paid us on the product of (a) your Business' average monthly Gross Revenue during its most recent 12 months of operation before the termination multiplied by (b)the number of months remaining in the Franchise Agreement had we not terminated it.

ITEM 7 INITIAL INVESTMENT

Expenditures

Estimated Low-High Range

When Due

Method of Payment

To Whom Paid

Initial Franchise Fee (1)

$25,000

Upon Signing

Franchise

Lump sum

Us

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Agreement

Leasehold Improvements (2)

$250-$1,500

Before Opening

As Agreed

Third Parties

Furniture, Fixtures and Equipment (3)

$3,250-$7,100

Before Opening

As Agreed

Third Parties

Signage

$500-$1,500

Before Opening

As Agreed

Third Parties

Initial Inventory and operating supplies including uniforms

$350 - $950

At Order Placement

Lump sum

Us or Third Parties

Grand Opening

Advertising and Promotion

$3,000-$5,000

Before Opening

Lump sum

Us

Three Months' Rent and Security Deposit (4)

$0 - $2,500

Monthly

As Agreed

Landlord

Deposits and Business Licenses

$0 -$250

As Incurred

As Incurred

Third Parties

Insurance

$300 - $700

Before Opening

Professional Fees

$1,000-$2,000

Before Opening

Training Expenses (5)

$2,000 - $4,000

As Incurred

As Incurred

Third Parties

Miscellaneous Opening Costs (6)

$2,000 - $3,000

As Incurred

As Incurred

Third Parties

Additional Funds (3 months) (7)

$8,000 - $20,000

As Incurred

As Incurred

Third Parties

Total Estimated Initial Investment

$45,650-$73,500

Explanatory Notes

1.           We describe the initial franchise fee in Item 5.

2.           We strongly recommend that you initially operate your Business from your home, thereby reducing your overhead expenses significantly. However, if you wish to operate the Business from an office location then the premises should be in an office building in a central location in the territory. We suggest that the premises be 500 to 1,000 square feet for most offices. Leasehold improvement costs, including floor covering, painting, window coverings, electrical, carpentry, and similar work, and contractor's fees, depend on the site's condition, location, and size; the demand for the site among prospective lessees; the site's previous use; the build-out required to conform the site for your Business; and any construction or other allowances the landlord grants. The low-end of the range contemplates a situation where the landlord includes the build- out in the regular lease payments, in which case you would not have any initial expense.

3.           Whether you operate from your home or not, you will need a computer, a telephone/fax/copier/scanner combo machine, a PDA phone and a vehicle that you will either already own, or that you will lease. If you choose to operate from office space, you will also need desks, chairs and a telephone system. We describe the telephone and computer systems in Item 11.

4.          Rent and security deposit depend on the site's size, condition, and location and the demand for the site among prospective lessees. However, we believe that an average acceptable range for leased

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space for your Business is $10.00 to $20.00 per square foot, depending on your location, plus common area maintenance charges.

5.           This covers travel, car rental expenses, hotel and food for you while attending training. This also covers the travel, car rental expenses, hotel and food when our personnel travels to your location for the onsite training as part of the initial training program.

6.          This covers miscellaneous opening costs and expenses, including installing telephones; deposits for gas, electricity, and similar items; business licenses; legal and accounting expenses; and insurance premiums.

7.           This item estimates your initial start up expenses (other than the items identified separately in the table). These expenses include payroll costs and a reasonable draw or salary for you. These figures are estimates, and we cannot guarantee that you will not have additional expenses starting the business. Your costs depend on how much you follow our methods and procedures; your management skill, experience, and business acumen; local economic conditions; the local market for your products and services; the prevailing wage rate; competition; and the sales level reached during the initial period.

We relied on our Predecessor's experience since 2002 in operating the original Business during that time to compile these estimates. You should review these figures carefully with a business advisor before deciding to acquire the franchise. We do not offer financing directly or indirectly for any part of the initial investment at the present time. The availability and terms of financing depend on many factors, including the availability of financing generally, your creditworthiness and collateral, and lending policies of financial institutions from which you request a loan.

Except where otherwise noted, all fees that you pay to us are nonrefundable. Third-party lessors, contractors, and suppliers will decide if payments to them are refundable.

ITEM 8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES

You must operate the Business according to our System Standards. System Standards may regulate, among other things, the types, models, and brands of fixtures, furnishings, furniture, equipment (including a recommended or approved computer system and telephone system), and signs (collectively, "Operating Assets") required for the Business; required and authorized product and service categories; and designated and approved suppliers of these items and services, which could be limited to us, our affiliates, and other restricted sources, in which case you must acquire certain items for your Business only from such restricted sources at the prices we decide to charge. Except as described in this section, there are no goods, supplies, fixtures, equipment, inventory, or real estate for the Business that you currently must buy or lease from us (or an affiliate) or designated suppliers. As described in Item 11, you must license certain proprietary software from us and from no other entity. Any purchases from us and our affiliates, whether required or voluntary, generally will be at prices exceeding our costs by between 5% to 25%.

To maintain the quality of the goods and services that the Businesses sell and our system's reputation, we may condition your right to buy or lease Operating Assets, (including components of the phone and computer systems) and other items on their meeting our minimum standards and specifications and/or their being acquired from suppliers that we approve. Also, you must purchase from approved suppliers your advertising and marketing materials. We will formulate and modify standards and specifications based on our (and franchisees') experience in the industry and in operating the Businesses.

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Our standards and specifications may impose minimum requirements for delivery of services, performance, reputation, prices, quality, design, and appearance. Our Operations Manuals or other communications will identify our standards and specifications and/or names of approved suppliers. We will notify you and, where appropriate, the suppliers. There might be situations where you can obtain items from any supplier who can satisfy our requirements and, therefore, would be an approved supplier. We and our affiliates are approved (but not the only) suppliers of various marketing and promotional items. If you buy or lease any item from us (or an affiliate) because we are a designated or approved supplier (or the only supplier), we (or that affiliate) have the right to charge a price that exceeds our cost and includes a profit margin.

If we institute any type of restrictive sourcing program (which, as noted above, we have the right to do) and you want to use any item or service that we have not yet evaluated or to buy or lease from a supplier that we have not yet approved, you first must send us sufficient information, specifications, and samples so we can determine whether the item or service complies with System Standards or the supplier meets approved supplier criteria. We may charge you or the supplier a reasonable fee for the evaluation (see Item 6) and will, within a reasonable time (typically 30 to 60 days), give you our decision. We periodically will establish procedures for your requests and may limit the number of approved items, services, and/or suppliers as we think best. Supplier approval might depend on product quality, delivery frequency, service standards, financial capability, customer relations, and concentration of purchases with limited suppliers to obtain better prices and service. Approval might be temporary until we evaluate the supplier in more detail. We may inspect a proposed supplier's facilities during and after the approval process to make sure that the supplier meets our standards. If it does not, we may revoke our approval by notifying the supplier and you in writing.

Besides these purchases or leases, you must obtain and maintain, at your own expense, the insurance coverage that we periodically require and satisfy other insurance-related obligations. You currently must have comprehensive general liability insurance of $1,000,000 for bodily injury (per person), $1,000,000 per accident, and $1,000,000 for property damage; employer's liability insurance of at least $1,000,000 per occurrence; a surety bond with a minimum limit of $25,000; and workers' compensation insurance required by state law. Premiums depend on the insurance carrier's charges, terms of payment, and your history. A certificate of insurance designating us as an additional insured party is required to be sent to us before operations commence. Clutterbusters suggests you contact Bob Silverman of Silverman Insurance Associates, Rockville, Maryland before deciding upon your insurance provider ((800)364-4249).

Before you use them, you must send us for approval samples of all advertising, promotional, and marketing materials which we have not prepared or have not previously been approved by us. If you do not receive written or verbal approval within 20 days after we receive the materials, they are deemed disapproved. You may not use any advertising, promotional, or marketing materials that we have disapproved or that we have not specifically approved.

You are responsible for developing the Business, If you do not operate from your home office, we will give you mandatory and suggested specifications and layouts for a Business, including requirements for dimensions, design, image, interior layout, decor, operating assets, and color scheme. You must make sure that all required construction plans and specifications for the Business's site comply with applicable ordinances, building codes, permit requirements, and lease requirements and restrictions. We must review and approve all final plans and specifications before you begin constructing the Business. You must submit all revised or "as built" plans and specifications during construction. We may inspect the Business during its development.

You are required to become a member of the National Association of Professional Organizers

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8

(tcNAPO") and, optionally, the International Association of Professional Organizers.

The Business must be at a site that we approve, which may be your home. We have the right to approve the Business's lease or sublease and to require that it include certain provisions (listed in Article 2B of the Franchise Agreement), including our right to the Business's site in certain circumstances. At our request, you must conditionally assign the lease or sublease to us to make sure you comply with the Franchise Agreement and obtain the lessor's consent to the collateral assignment. This means that, if you do not fulfill your obligations, we may take over the premises.

Collectively, the purchases and leases described above are 25% - 50% of your total purchases and leases to establish, and approximately 25% - 50% of your total purchases and leases to operate, the Business. These expenses are limited if the Business is operated from your home environment.

We or our Predecessor will derive revenue on items you must or may buy from us, our affiliates or designated suppliers or national accounts. This revenue could range from 5% to 25% of the cost of the service or item. During our fiscal year ended December 31, 2004, we did not derive any revenue as a result of required purchases or leases of our franchisees. We (and our affiliates) also have the right to receive payments from suppliers on account of their dealings with you and other franchise owners and to use all amounts we receive without restriction (unless the supplier instructs us otherwise) for any purposes we deem appropriate. There currently are no purchasing or distribution cooperatives. We do negotiate purchase arrangements with suppliers (including price terms) for franchisees. We do not provide material benefits to a franchisee for using designated or approved sources.

As the franchise system grows, we expect to facilitate purchasing cooperatives that will create volume discounts for us and for our franchisees.

ITEM 9 FRANCHISEE'S OBLIGATIONS

THIS TABLE LISTS YOUR PRINCIPAL OBLIGATIONS UNDER THE FRANCHISE AND OTHER AGREEMENTS. IT WILL HELP YOU FIND MORE DETAILED INFORMATION ABOUT YOUR OBLIGATIONS IN THESE AGREEMENTS AND IN OTHER ITEMS OF THIS OFFERING CIRCULAR.

Obligation

Article in Franchise Agreement

Item in Offering Circular

(a) Site selection and acquisition/lease

Articles 2A and B of Franchise Agreement

Items 7, 8, 11 and 12

(b) Pre-opening purchases/leases

Articles 2C, D, E and F of Franchise Agreement

Items 7, 8 and 11

(c) Site development and other pre-opening requirements

Articles 2C, D, E and F of Franchise Agreement

Items 7, 8 and 11

(d) Initial and ongoing training

Articles 4A and B of Franchise Agreement

Items 6, 7 and 11

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(e) Opening

Article 2G of Franchise Agreement

Items 11 and 12

(f) Fees

Articles 3,4A, B, and C, 10, 12B, 13C and 17D of Franchise Agreement

Items 5, 6, 7 and 11

(g) Compliance with standards and policies/Operating Manual

Articles 4C and 8 of Franchise

Agreement

Items 8 and 11

(h) Trademarks and proprietary information

Articles 5 and 6 of Franchise Agreement

Items 13 and 14

(i) Restrictions on products/services offered

Articles ID and 8B of Franchise Agreement

Items 8, 11, 12, and 16

(j) Warranty and customer service requirements

None

(k) Territorial development and sales quotas

Articles 2 and 9B of Franchise Agreement

Item 12

(1) On-going product/service purchases

Articles 2D, E and F and 8 of

Franchise Agreement

Items 8

(m) Maintenance, appearance and remodeling requirements

Article 8A of Franchise Agreement

Items 8,11, 16 and 17

(n) Insurance

Article 8E of Franchise Agreement

Items 7 and 8

(o) Advertising

Article 10 of Franchise Agreement

Items, 6, 7, 8 and 11

(p) Indemnification

Articles 5E and 17D of Franchise Agreement

Item 6

(q) Owner's participation/ management/staffing

Article IB of Franchise Agreement

Items 11 and 15

(r) Records/reports

Article 11 of Franchise Agreement

(s) Inspections/audits

Article 12 of Franchise Agreement

Items 6 and 11

(t) Transfer

Article 13 of Franchise Agreement

Item 17

(u) Renewal

Article 14 of Franchise Agreement

Item 17

(v) Post-termination obligations

Article 16 of Franchise Agreement

Item 17

(w) Non-competition covenants

Articles 7, 13C and 16D of Franchise Agreement

Item 17

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(x) Dispute resolution

Article 18 of Franchise Agreement

Item 17

(y) Minimum number of Client Contracts

Article 9B of Franchise Agreement

Item 12

ITEM 10 FINANCING

We do not offer direct or indirect financing. We do not guarantee your note, lease, or other obligation.

ITEM 11 FRANCHISOR'S OBLIGATIONS

Except as listed below, we need not provide any assistance to you.

Before you open the Business, we will:

1.           If you do not operate from your home, give you our site selection criteria for the Business and, after you select and we approve the site, identify your specific territory. (See Item 12) You must sign a lease for the site within 30 days after you sign the Franchise Agreement. The site must meet our criteria for demographic characteristics; traffic patterns; parking; character of neighborhood; competition from, proximity to, and nature of other businesses; size; appearance; and other physical and commercial characteristics. (Franchise Agreement - Articles 2A. and 2B.)

2.           Give you mandatory and suggested specifications and layouts for a Business, including requirements for dimensions, design, image, interior layout, decor, Operating Assets, and color scheme, if you are not operating from your home. (Franchise Agreement - Article 2C.)

3.          As discussed in Item 8, identify the Operating Assets, products, materials, supplies, and services you must use to develop and operate the Business, the minimum standards and specifications that you must satisfy, and the designated and approved suppliers from whom you must or may buy or lease these items (which might be limited to or include us and/or our affiliates). (Franchise Agreement - Articles 2D, 2E, and 8.)

4.          Loan you one copy of the Operations Manual. (Franchise Agreement -Article 4C.) We will allow you to view the Table of Contents before you sign the Franchise Agreement. (Exhibit G in this document)

5.           Train up to five individuals, including your principal owners and key employees (who will be identified in the Franchise Agreement), including spending two days at your Business location. (Franchise Agreement - Article 4A.) We describe this training later in this Item.

6.          Provide you with a copy of our then-current form of Client Contract. You are responsible for ensuring that the Client Contract complies with applicable law. If you believe that any portion of the Client Contract is contrary to applicable law you must tell us. (Franchise Agreement - Article 9A.)

During your operation of the Business, we will:

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1.           Advise you regarding the Business's operation based on your reports or our inspections. We also will guide you on standards, specifications, and operating procedures and methods that the Businesses use; purchasing required; Operating Assets and inventory; advertising and marketing programs; employee training (including mandatory training and testing for newly hired organizers), administrative, bookkeeping, and accounting procedures. We will guide you in our Operation Manuals, bulletins, or other written materials, during telephone consultations, and/or during consultations at our office or the Business. (Franchise Agreement - Article 4B.)

2.          Give you, at your request, additional or special guidance, assistance, and training. (Franchise Agreement - Article 4B.) (See Item 6)

3.          Loan you one copy of the Operation Manual, containing the materials necessary to operate the Businesses. The Operation Manual contains mandatory and suggested specifications, standards, operating procedures, and rules ("System Standards") that we periodically require. We may modify the Operation Manual periodically to reflect changes in System Standards. (Franchise Agreement -Article 4C.)

4.          Inspect and observe the operation of the Business to help you comply with the Franchise Agreement and all System Standards. (Franchise Agreement -Article 12A.)

5.          Let you use our confidential information. (Franchise Agreement - Article 6)

6.            Let you use our Marks. (Franchise Agreement - Article 5)

7.          Periodically offer refresher training courses. (Franchise Agreement -Article 4A.)

8.          Periodically, provide you with our current form of the Client Contract (if revised) which you sign with each client of the Business prior to the commencement of services. You are responsible for ensuring that the Client Contract complies with applicable law. If you believe any portion of the Client Contract is contrary to applicable law, you must tell us. (Franchise Agreement -Article 9A.)

9.           Periodically set a maximum price that you may charge under certain Client Contracts (Franchise Agreement - Article 8F.)

Advertising and Marketing

National Marketing and Advertising Fund. When created, you agree to contribute toward a "National Marketing and Advertising Fund" an amount equal to 3% of your weekly Gross Revenues every two weeks ending Sunday, and due on the following Friday. Businesses that we or our affiliates own will contribute to the National Marketing and Advertising Fund on the same basis as our franchisees.

We will direct all programs that the National Marketing and Advertising Fund finances, with sole control over the creative concepts, materials and endorsements used and their geographic, market and media placement and allocation. The National Marketing and Advertising Fund may pay for preparing and producing local, regional or national advertisements, video, audio and written materials and electronic media; administering regional and multi-regional marketing and advertising programs, (including, without limitation, using in-house or outside advertising, promotion and marketing agencies and other advisors to provide assistance); and supporting public relations, market research and other advertising, promotion and marketing activities. The National Marketing and Advertising Fund periodically will give you samples of advertising, marketing and promotional formats and materials at no cost and will sell you multiple copies

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of these materials at its direct cost of producing them, plus any related shipping, handling and storage charges, or will arrange for you to purchase these materials directly from the printer or other supplier.

We will account for the National Marketing and Advertising Fund separately from our other funds and will not use the National Marketing and Advertising Fund for any of our general operating expenses, except to compensate the reasonable salaries, administrative costs, travel expenses and overhead we incur in administering the local media placement account and National Marketing and Advertising Fund and their programs, including, without limitation, conducting market research, preparing advertising, promotion and marketing materials, and collecting and accounting for local media placement account funds and National Marketing and Advertising Fund contributions. The National Marketing and Advertising Fund will not be our asset. The National Marketing and Advertising Fund is not a trust, and we do not owe you fiduciary obligations because of our maintaining, directing or administering the National Marketing and Advertising Fund or any other reason. We will not use National Marketing and Advertising Fund contributions for advertising that is principally a solicitation for the sale of franchises except that in certain ads with available space, we may insert a tag line regarding the availability of franchise opportunities. The National Marketing and Advertising Fund may spend in any fiscal year more or less than the total National Marketing and Advertising Fund contributions in that year, borrow from us or others to cover deficits, or invest any surplus for future use. We will use all interest earned on National Marketing and Advertising Fund contributions to pay costs before using the National Marketing and Advertising Fund's other assets. We will prepare, and furnish to you upon written request, an annual, unaudited statement of National Marketing and Advertising Fund collections and expenses and give you the statement upon of the funds collected and costs incurred. We may incorporate the National Marketing and Advertising Fund or operate it through a separate entity whenever we deem appropriate. Currently, our practice is to pass through all National Marketing and Advertising Fund monies we collect to our advertising agency. The National Marketing and Advertising Fund will not place any advertisements. Rather, the National Marketing and Advertising Fund, will create the advertisements that are placed with each franchisee's local media placement account monies. However, in the future, the National Marketing and Advertising Fund may also place advertisements.

We intend the National Marketing and Advertising Fund to maximize recognition of the Marks and patronage of the Businesses. Although we will try to use the National Marketing and Advertising Fund to develop advertising and marketing materials and programs, and to place advertising and marketing, that will benefit all Businesses, we need not ensure that National Marketing and Advertising Fund expenditures in or affecting any geographic area are proportionate or equivalent to the National Marketing and Advertising Fund contributions by Businesses operating in that geographic area or that any Business benefits directly or in proportion to its National Marketing and Advertising Fund contribution from the development or placement of advertising and marketing materials. We have the right, but no obligation, to use collection agents and institute legal proceedings to collect National Marketing and Advertising Fund contributions at the National Marketing and Advertising Fund's expense. We also may forgive, waive, settle and compromise all claims by or against the National Marketing and Advertising Fund. We assume no direct or indirect liability or obligation to you for collecting amounts due to, maintaining, directing or administering the National Marketing and Advertising Fund.

We may at any time defer or reduce the National Marketing and Advertising Fund contributions of a Business and, upon thirty days' prior written notice, reduce or suspend National Marketing and Advertising Fund contributions and operations for one or more periods of any length and terminate (and, if terminated, reinstate) the National Marketing and Advertising Fund. If we terminate the National Marketing and Advertising Fund, we will distribute all unspent monies to all Businesses (whether franchised or operated by us or our affiliates) in proportion to their respective National Marketing and Advertising Fund contributions during the preceding twelve month period.

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Advertising By You. You will be required to spend no less than 4% of your Gross Revenues for the preceding two weeks or $125, whichever is greater, on local advertising and marketing. Ad spending requirements may be expended over the period of two weeks preceding, in which the ad spending requirements are calculated, or may be carried over to the next bi-weekly period; however carry-over total ad spending requirements shall not exceed $1,000. If you decide to spend more than the minimum biweekly requirement, your total expenditures may be credited towards future ad spending requirements. The amount will be determined based upon the location of your Business. You will spend each week the dollar amount which will be filled in your Franchise Agreement (See Item 6). You agree to list and advertise the Business in each classified telephone directory (including applicable internet yellow pages) covering the Site (in the business classifications we prescribe from time to time) and, if we require, to use our standard form of classified telephone directory advertisement. If there are other Businesses located within the distribution area of one or more of those directories, we require, and you agree to participate in a collective advertisement with those other Businesses and pay your share of that collective advertisement. The amount you spend on advertising in classified telephone directories will be credited toward the amount you are required to spend on local advertising.

You agree that your advertising promotion and marketing will be completely clear, factual and not misleading and conform to the highest standards of ethical advertising and marketing and the advertising and marketing policies that we prescribe from time to time. Before you use them, you must send us for approval samples of all advertising, promotional and marketing materials which we have not prepared or previously approved. If you do not receive written or verbal approval within twenty days after we receive the materials, they are deemed to be disapproved. You may not use any advertising, promotional or marketing materials that we have disapproved. Advertising promotional or marketing materials which we must approve include any information on a web home page or otherwise on the Internet. You may not operate any web site involving, referring to or in any way related to a competitive business. As described in Item 13, you may not use the Marks as part of any domain name, electronic address or search engine and cannot maintain your own website under any circumstances.

Advertising Cooperatives. Advertising Cooperatives are governed in a form and manner, and begin operating on a date, that we determine in advance. Each Cooperative's purpose is, with our approval, to administer advertising programs and develop advertising, marketing and promotional materials for the area that the Cooperative covers. If, as of the time you sign the Franchise Agreement, we have established a Cooperative for the geographic area in which the Business is located, or if we establish a Cooperative in that area during the Franchise Agreement's term, you agree to sign the documents we require to become a member of the Cooperative and to participate in the Cooperative as those documents require. If we establish a Cooperative, it will operate from written governing documents which will be available for your review. A Cooperative will not be required to produce annual accounting statements.

You agree to contribute to the Cooperative the amounts determined by us and set forth in the governing document for the Cooperative. We shall determine the total amount of contributions to the Cooperative based upon the projected advertising, marketing and promotional expenditures within the Cooperative's area. We will allocate the Cooperative's expenses among the members based on equitable factors we establish. Changes to the allocation of the expenditures among media forms (but not for the amount of contribution to the Cooperative or the allocation of expenses among their members) may be recommended upon a majority vote of all Business owners who are members of that Cooperative, subject to our approval (which will not be unreasonably withheld). Each Business owner (including us, our affiliates and franchisees) will have one vote, regardless of the number of Businesses that the owner operates within the Cooperative's area.

You agree to submit to us and the Cooperative any reports that we or the Cooperative requires. The Cooperative will operate solely to collect and spend cooperative contributions for the purposes

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described above. The Cooperative and its members may not use any advertising, marketing or promotional plans or materials without our prior written consent. There currently are no advertising cooperatives. We have the power to form, change, dissolve, or merge Cooperatives.

Advertising Council

Once we have between 15 and 20 franchisees we may choose to create a franchisee Advisory Council. We will select 6 franchisees. The first 3 will have an 18 month term, the next 3 will have a 12 month term. Elections will be held in December of each year to elect 6 new members. Members will hold two consecutive terms, then must sit out for 6 months before being reelected.

Computer System and Phone System

You agree to use in operating the Business the computer equipment, operating software and telephone equipment we specify- We may require you to obtain specified telephone equipment, computer hardware and software (as described below), and may periodically modify our specifications. If we modify our specifications, it may require you to acquire new or modified phone equipment, computer hardware or software. Although we cannot estimate the future cost of the phone or computer system, you agree to incur the costs of obtaining the phone and computer systems and required service or support. We have no obligation to reimburse you for any costs related to the phone system or computer system. You agree to acquire any components of the phone or computer system within 60 days after you receive notice from us.

No other provider of software outside of the Microsoft and QuickBooks Pro software are permitted to be used in conjunction with your Business. Anti-virus and firewall protection software are required, to prevent potential systemwide problems.

You must also purchase a Handheld PDA from any local representative. We recommend that you use the following hardware configuration:

Dimension 4600

Catalog Number / Description

Product Code

SKU

Id

Dell Dimension 4600 Series:

Pentium® 4 Processor with HT Technology 3GHzw/800MHzFSB

W308H

[221-3720]

1

Operating System:

Microsoft® Windows® XP Professional

WPXP

[420-1922] [313-7222] [412-0409]

11

Memory:

512MB Dual Channel DDR SDRAM at 400 MHz

(2x256M)

512M4

[311-9002]

3

Hard Drive:

80GB Ultra ATA/I 00 Hard Drive (7200 RPM)

80

[341-0834]

8

Floppy Drive and Additional Storage Devices:

64MB Dell USB Memory Key only

64MK

[341-0217] [340-8688]

10

CD or DVD Drive:

Dual Drives: 16x DVD-ROM Drive + 48x CD-RW Drive

DVDCDR

[313-2610] [430-0594] [313-2238] [462-7810]

16

Enhanced Software for CD or DVD Burner:

RNDLX

[430-0579]

72

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RecordNow! Deluxe: Burn, Copy CD Music/Data, Backup, Labeling (CD-RW/DVD+RW only)

Limited Warranty, Services and Support Options:

3 Year Limited Warranty plus 3 Year At-Home Service

SQ30S

[950-4400] [950-4402] [950-3339] [412-0359]

29

CompleteCare Accidental Damage Service;

Add CompleteCare Accidental Damage Service to 4 Yr. Lim. Warranty

CCADP4

[960-0027] [412-0358]

33

Productivity Software:

Microsoft® Office Professional 2003 w/Microsoft® Money Standard

XPEPROM

[412-0467] 412-0551]

22

Security Software:

McAfee Security Center w/VirusScan, Firewall and Privacy, 1-year subscription

MCAFE1Y

[412-0634]

25

Monitor:

15 inch or above CRT Monitor

E773

[320-3818]

5

Video Card:

128MD DDR NVIDIA GeForce FX 5200 Graphics Card with TV-Out and DVI

128FX52

[320-0735] [320-2575]

6

Sound:

Integrated 5.1 Channel Audio

IS

[313-2758]

17

Keyboard:

Dell® Quietkey® Keyboard

QK

[310-1582]

4

Mouse:

Dell® 2-button scroll mouse

SM

[310-1871]

12

Speakers:

Dell A215 Speakers

ADA215

[313-1874]

18

Dell Media Experience:

Dell Media Experience

DMX

[412-0519]

115

Digital Music:

Dell Jukebox powered by MUSICMATCH

MMBASE

[412-0516]

27

Digital Photography:

Dell Picture Studio, Paint Shop Pro Trial, Photo Album Starter Edition

DPS

[412-0521]

28

Network Card:

Integrated Intel® PRO 10/100 Ethernet

IN

[430-0412]

13

Modem:

56K PCI Data Fax Modem

DFAX

[313-2279]

14

This hardware and Microsoft software can be purchased or leased from suppliers of computer equipment. We reserve the right to require you to download and utilize any proprietary software that we may develop. We estimate that this cost will be a one-time licensing fee of $500 and a monthly maintenance fee of $75. You must also maintain high speed Internet access (such as Tl line, cable modem or DSL) at all times.

All hardware components are the proprietary property of their manufacturers, who need not provide ongoing maintenance, repairs, upgrades, or updates unless you pay for them. Their charges depend on the length and nature of the service contract. We will have independent access to data on your computer system and there are no contractual limits on our rights to access your data.

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You must upgrade the computer system, and/or obtain service and support, as we require or as is necessary because of technological developments or events. There are no contractual limitations on the frequency and cost of this obligation. We have no obligation to reimburse you for any of these costs. We will have independent, unlimited access to information on your computer system.

Site Selection

Unless you are operating from a home-based office, you are responsible for selecting the site for your Business, but you must obtain our written approval of any proposed site in accordance with our procedures. You must submit to us a complete site report for the proposed site which shall contain such demographic, commercial and other information and photographs as we require. We will approve or disapprove each site you propose by giving you written notice. We will use reasonable efforts to deliver such a notice to you within 7 days after we receive your complete site report. In evaluating a site, we may consider such factors as we deem material including demographic characteristics, traffic patterns, parking, the predominant character of the neighborhood, competition within the area, rental obligations, and the site's size, appearance and other physical characteristics. If we and you cannot agree on a site in time for you to sign a lease for the site within 30 days after you sign the Franchise Agreement, then we can terminate the Franchise Agreement.

Once we approve a proposed site, you must sign a lease for the site. You must sign a lease for the site within 30 days after signing the Franchise Agreement. Any site lease must be in a form satisfactory to us and must contain certain clauses which we require. You must deliver to us a copy of the lease for the site, and you may not execute a lease without our prior written approval of its terms. If we do not approve a proposed lease within 7 days after we receive it, it shall be deemed disapproved. If you have failed to sign a lease for the site within 30 days after signing the Franchise Agreement, we may, in addition to our termination rights, withdraw approval of the site.

Opening

We estimate that it will be 60 to 90 days after you sign the Franchise Agreement before you open the Business, but this depends on the site's location and condition, whether you operate from the home or external office, the Business's construction schedule, the extent to which you must upgrade or remodel an existing location, the delivery schedule for equipment and supplies, completing training, and complying with local laws and regulations. You may not open the Business until: (1) we determine that the Business meets our standards and specifications: (2) pre-opening training is completed to our satisfaction; (3) you pay the initial franchise fee and all other amounts then due to us; and (4) you give us certificates for all required insurance policies; Subject to these conditions, you must open the Business within 60 days after you sign a lease for the site, but no more than 90 days after signing the Franchise Agreement. (Franchise Agreement - Article 2G.)

Training

Before the Business opens, we will train up to five owners and/or operators (who will be identified in the Franchise Agreement) on operating the Business. Approximately one week of training will be held at our principal business address, an operating Business, or another location we designate. You and your operator must satisfactorily complete initial training and participate in all other activities required to operate the Business. Although we do not charge you separately for this training (provided that you attend a regularly scheduled training session, rather than a session scheduled specifically for you), you must pay all travel and living expenses which attendees incur. We may require you to replace the operator if we determine that he or she is not qualified to hold that position. You must pay us for

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