UFOC

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Sample UFOC

FRANCHISE OFFERING CIRCULAR

Nitelites

NITELITES FRANCHISE SYSTEMS, INC.

6107 Market Avenue

www.NiteLites.com

As a franchisee, you will operate a business offering superior-quality lighting products and services, and the design and installation of architectural and landscaping illumination products to upscale homeowners and commercial enterprises.

The initial franchise fee for a start-up franchise ranges from $50,000 to $115,000 based upon the population of the Protected Territory. The initial franchise fee for a distributorship converting to a franchise ("conversion franchise") is waived. The estimated initial investment ranges from $128,000 to $230,050 for a start-up franchisee and $4,000 to $89,800 for a conversion franchisee.

RISK FACTORS:

THE FRANCHISE AGREEMENT REQUIRES THAT MOST DISAGREEMENTS BE LITIGATED IN OHIO. OUT OF STATE LITIGATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST YOU MORE TO LITIGATE WITH US IN OHIO THAN IN YOUR HOME STATE. YOU SHOULD REVIEW THE STATE SPECIFIC ADDENDUM ATTACHED TO THIS OFFERING CIRCULAR AS EXHIBIT K FOR STATE SPECIFIC PROVISIONS.

THE FRANCHISE AGREEMENT STATES THAT THE LAWS OF THE STATE OF OHIO GOVERN THE AGREEMENT, AND THESE LAWS MAY NOT PROVIDE THE SAME PROTECTIONS AND BENEFITS AS LOCAL LAW. YOU MAY 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 SOME STATE FRANCHISE LAWS PROVIDE THAT CHOICE OF LAW PROVISIONS ARE VOID OR SUPERSEDED.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 THE STATE SPECIFIC ADDENDUM ATTACHED TO THIS OFFERING CIRCULAR AS EXHIBIT K FOR STATE SPECIFIC PROVISIONS.

YOUR BUSINESS WILL LIKELY BE SEASONAL AND AS A RESULT, YOU WILL EXPERIENCE PERIODS OF INACTIVITY.

THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.

Information comparing NITELITES FRANCHISE SYSTEMS, INC. with other franchisors is available. Call the state administrators listed in Exhibit A 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 administrator listed in Exhibit A.

The Effective Date of this offering circular is April 19, 2006 or as listed in Exhibit K for your state.


TABLE OF CONTENTS

ITEM                                                                                                                                    PAGE

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

2.    BUSINESS EXPERIENCE...........................................................................................3

3.    LITIGATION.................................................................................................................3

4.    BANKRUPTCY............................................................................................................3

5.    INITIAL FRANCHISE FEE...........................................................................................3

6.    OTHER FEES..............................................................................................................5

7.    INITIAL INVESTMENT.................................................................................................7

8.    RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES..........................11

9.    FRANCHISEE'S OBLIGATIONS.................................................................................14

10.    FINANCING................................................................................................................15

11.    FRANCHISOR'S OBLIGATIONS................................................................................15

12.    TERRITORY...............................................................................................................22

13.    TRADEMARKS...........................................................................................................23

14.    PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION.............................28

15.    OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION

OF THE FRANCHISED BUSINESS............................................................................28

16.    RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL.....................................29

17.    RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION..................29

18.    PUBLIC FIGURES......................................................................................................34

19.    EARNINGS CLAIM.....................................................................................................34

20.    LIST OF OUTLETS.....................................................................................................34

21.    FINANCIAL STATEMENTS........................................................................................35

22.    CONTRACTS.............................................................................................................35

23.    RECEIPT....................................................................................................LAST PAGE

EXHIBITS

A.    LIST OF STATE ADMINISTRATORS

B.    LIST OF STATE AGENTS FOR SERVICE OF PROCESS

C.    FRANCHISE AGREEMENT

D.   TABLE OF CONTENTS OF CONFIDENTIAL OPERATING MANUAL

E.    FINANCIAL STATEMENTS

F.    LIST OF CURRENT FRANCHISEES

G.   LIST OF TERMINATED FRANCHISEES

H.    FRANCHISEE DISCLOSURE QUESTIONNAIRE

I.     INITIAL TRAINING AGENDA

J.    INITIAL INVENTORY PACKAGE

K.    STATE ADDENDA


ITEM 1.           THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES

The Franchisor

To simplify the language in this Offering Circular, the words "we", "us" or "our" mean the franchisor, NiTELITES FRANCHISE SYSTEMS, INC. The word "you" means the person to whom we award the franchise. If you are a corporation, partnership, limited liability company, business trust or other business entity, certain provisions of this Offering Circular also apply to your owners and will be noted. We were incorporated in the State of Ohio on January 21, 2004. Our principal business address is 6107 Market Avenue, Franklin, Ohio 45005. We do business only under our corporate name and the name NITELITES.

Our Business Activities

Our business activities include the grant of franchises to qualified persons or entities. We offer a franchise grant for a business which provides superior-quality lighting products and services, and designs and installs architectural and landscaping illumination products for upscale homeowners and commercial enterprises in conjunction with the service mark "NITELITES" and certain associated logos referred to as the "Marks."1 We refer to these businesses as "NITELITES Businesses." We refer to the NITELITES Business you will operate as the "Franchised Business." You may apply for a franchise to utilize our System for a Franchised Business you plan to develop or (if you are an existing distributor of our Affiliate, NL Manufacturing and Distribution System, Inc.) to convert your distributorship to a Franchised Business. We refer to the conversion of an existing distributorship as a "conversion franchise" and the conversion of a distributor to a franchisee as a "conversion franchisee." If you are an existing NITELITES distributor and meet our other qualifications for conversion, and we agree to offer you a conversion franchise, we will waive your initial franchise fee. See ITEM 5 of this Offering Circular and the Conversion Addendum attached as Exhibit C to the Franchise Agreement.

A Franchised Business typically may be operated from a home office or similar location, which will accommodate storage of a small inventory of NITELITES Products and Equipment. You will operate the Franchised Business in accordance with our standards, methods, procedures and specifications, which we refer to as our "System," which is more particularly described in our Franchise Agreement, attached as Exhibit C to this Offering Circular.

We have offered franchises since August 26, 2004. As described in ITEM 5 of this Offering Circular, we furnish you and other franchisees with a Start-up Kit of supplies and other items you will need to operate the Franchised Business. As described in ITEM 8 of this Offering Circular, we also operate a national call center service, which coordinates appointment setting for you and other franchisees. Except for selling franchises, supporting franchisees, supplying franchisees with a Start-up Kit of supplies and operating the national call center, we are not engaged in any other line of business. We do not own or operate a business of the type being franchised.

1 Capitalized terms, not otherwise defined, have the same meaning as in our Franchise Agreement attached as Exhibit C to this Offering Circular.

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Our Predecessors and Affiliate

We have no predecessors. We have 1 affiliate (the "Affiliate"), NL Manufacturing and Distribution Systems, Inc. We are owned by the same individuals as our Affiliate. We have no other Affiliates. No Affiliate has previously offered franchises in this or any other line of business. No Affiliate has ever conducted a business of the type being franchised.

Our Affiliate, NL Manufacturing and Distribution System, Inc. ("NLMDS"), is an Ohio corporation, which was incorporated on November 5, 2002 and is located at 6107 Market Avenue, Franklin, Ohio 45005. NLMDS developed a line of superior-quality exterior illumination products and equipment, which feature the NITELITES service mark and are referred to as "NITELITES Products and Equipment." NLMDS supplies NITELITES franchisees with NITELITES Products and Equipment. NLMDS has never owned or operated a business of the type being franchised. NLMDS does not and has not previously offered franchises in this or any other line of business. However, since June 2002, NLMDS has offered distributorships and sells the majority of its NITELITES Products and Equipment through independent distributors. As of December 31, 2005, there were 2 distributors selling NITELITES Products and Equipment, and 9 distributors have converted their distributorships to a Franchised Business.

NLMDS may sell distributorships that offer NITELITES Products and Equipment. The distributorship offered by NLMDS differs from the franchised business we offer in that NLMDS does not offer any assistance to their distributors, nor do they require the distributors to adhere to any system.

General Description of the Market and Competition

Our concept is marketed to both private and commercial customers. National, regional and local economic conditions, population density and general traffic conditions affect this industry and are generally difficult to predict. As a franchisee, you will likely face competition from other national and local businesses, distributors, and individuals performing similar services. You may also encounter competition from other NITELITES Businesses operated by other franchisees. In addition, as you expand your Franchised Business, you will face significant competition in this industry for qualified personnel.

Industry Specific Regulations

You must comply with all laws, rules and regulations governing the operation of the Franchised Business and obtain all permits and licenses necessary to operate the Franchised Business. Ohio and other states and local jurisdictions have enacted laws, rules, regulations and ordinances which may apply to the operation of your Franchised Business, including those which: (a) set standards pertaining to employee health and safety; and {b) set standards and requirements for fire safety and general emergency preparedness. You should investigate whether there are regulations and requirements that may apply in the geographic area in which you are interested in locating your franchise and should consider both their effect and cost of compliance, as well as seek the advice of your attorney.

Agents for Service of Process

Our agents for service of process are disclosed in Exhibit B to this Offering Circular.

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ITEM 2.           BUSINESS EXPERIENCE

President and CEO: Thomas A. Frederick

Mr. Frederick serves as President and CEO and has done so since our incorporation on January 21, 2004. In addition, since November 2002, Mr. Frederick has served as President and CEO of our Affiliate, NLMDS. From October 2001 through October 2005, he was CEO of Prescott Ellen, Inc., a company located in Franklin, Ohio, that offered marketing, forms management and promotion services. Previously, from March 1998 until October 2001, Mr. Frederick was Vice President of Proforma Business Communication Systems, Inc., a company involved in marketing, forms management and promotions, located in Springboro, Ohio.

Director of Marketing: Amanda Lewis

Ms. Lewis has served as our Director of Marketing since October 2005. From October 2001 to October 2005, she served as Vice President of Marketing, Web Development, and Internet Strategies at Prescott Ellen, Inc. Prescott Ellen, which, until October 2005, was an affiliate of NiteLites and shared office space with us, offered marketing, forms management and promotion services. In October 2005, it sold all of its assets to a Michigan company named Prograde/Horak, LLC. While at Prescott Ellen, Ms. Lewis consulted heavily with NiteLites and NLMDS to develop the marketing and Internet strategies that we use.

Director of Operations: Josh Johnston

Mr. Johnston has served as our Director of Operations since our incorporation. As Director of Operations, Mr. Johnston is responsible for training all franchisees and for supporting the daily operation of their NITELITES franchises. Since June 1998, Mr. Johnston has also served as the President of Nitelights, Inc., an Ohio corporation, that operates a business substantially similar to the Franchised Business in Myrtle Beach, South Carolina.

ITEM 3.           LITIGATION

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

ITEM 4.           BANKRUPTCY

No person previously identified in ITEMS 1 or 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 us a Franchise Fee based upon the population residing within your Protected Territory. See Franchise Fee schedule chart below for the range of the initial Franchise Fee for a start-up franchise. You must pay us the Franchise Fee in a lump sum when you sign the Franchise Agreement.

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Protected Territory Population

Franchise Fee

Less than 500,000

$50,000

500,000 to 1,000,000

$65,000

1,000,001 to 2,000,000

$75,000

2,000,001 to 3,000,000

$85,000

3,000,001 to 4,000,000

$95,000

4,000,001 to 5,000,000

$105,000

Over 5,000,000

$115,000 |

If you are a NITELITES distributor, the initial Franchise Fee is waived. Except as stated above, the Franchise Fee is uniform to all franchisees.

Refunds

The Franchise Fee is not refundable under any circumstances except if we, in our discretion, determine that you are unable to satisfactorily complete the training program described in ITEM 11 of this Offering Circular; then, we may terminate the Franchise Agreement and, if so, we will return 50% of the Franchise Fee to you.

Initial Inventory Package Fee

Before beginning operation of the Franchised Business, you will need to purchase from us, our Affiliate, or a supplier designated by us, and install at the Franchise Premises an initial inventory of NITELITES Products and Equipment, which we refer to as the "Initial Inventory Package." You must pay us for the Initial Inventory Package when you attend the initial training program. The Initial Inventory Package, which is itemized on Exhibit J to this offering circular, includes transformers, fixtures, bulbs, lighting systems and other items, which you will use for sales demonstration and display purposes. Your cost for the Initial Inventory Package will be about $13,000. The cost of the Initial Inventory Package is included within the category "Initial Inventory" in ITEM 7 of this Offering Circular. If your Franchise Agreement terminates before you begin operations, we will repurchase the initial inventory and refund the Initial Inventory Package Fee provided the various products are unopened or unused and remain in saleable condition. You are responsible for the transportation costs in returning the Initial Inventory Package to us.

If you are a conversion franchisee, you may already have an adequate inventory of NITELITES Products and Equipment.

Start-up Kit

Before you open your Franchised Business, you must purchase, from us, our Affiliate, or a supplier designated by us, a Start-up Kit consisting of a product demonstration kit, tools, vehicle graphics package, trade show display, yard signs, uniforms and other supplies you will need for the operation of the Franchised Business. You must pay us for the Start Up Kit when you attend the initial training program. The cost of the Start-up Kit is $20,000, which is included within the category "Furniture, Fixtures and Equipment" in ITEM 7 of this Offering Circular. If your Franchise Agreement terminates before you begin operations, we will repurchase any

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unopened, unused items remaining in a saleable condition from the Start-up Kit supplied by us or our Affiliate and provide you with a refund for the returned items. You are responsible for the transportation costs in returning Start-up Kit items.

If you are a conversion franchisee, you will not be required to purchase any components of the Start-up Kit which you have previously acquired.

ITEM 6.           OTHER FEES

Below is a detailed description of other recurring or isolated fees or payments that you must pay to us or that we impose or collect for a third party. All payments are non-refundable.

Name of Fee

Amount

Due Date

Remarks

Royalty Fee

5% of Gross Sales (See Note 2)

15th of each month

Paid on Gross Sales for the preceding month.

Marketing Fund

Contribution

2% of your purchases of NITELITES Products and Equipment (See Note 1)

15th of each month

The Marketing Fund Contribution is invoiced and collected by our affiliate, NLMDS, and paid over to the NITELITES Marketing Fund. (Section 3.B3.D)

Local Advertising

7Yz% of Gross Sales (See Note 2)

As incurred (See Note 3)

You pay directly subject to our approval. (Section 10.A) Payable to the suppliers of advertising.

Cooperative Advertising

Any portion or all of the Marketing Fund Contribution plus any portion or all of required Local Advertising may be re-designated for Cooperative Advertising

As directed

We may establish a Cooperative Advertising program in your regional marketing area. (Section 10.C) Payable as directed to us or the advertising cooperative.

Call Center Service Fee

$500

1st of each month beginning on the 1st day of the 2nd calendar month

after the month in which you open your Franchised Business

You will pay to us or our Affiliate a fee for call center services as directed by us or as set forth in the Manual. (Section 3.G)

Internet Marketing Fee

$156

Prior to and every 6 months after opening

The Internet Marketing Fee is for promoting our trademarks and products through the Internet and World Wide Web, maintaining your e-mail accounts and updating your Internet presence. (Section 3.F)

Ongoing Purchases of NITELITES Products and Equipment

$50,000 to $155,000 in your first year (See Note 4)

As invoiced

Our Affiliate, NLMDS, will provide you with NITELITES Products and Equipment as described in ITEM 8. (Section13.E)

Audit Expenses

Cost of audit plus interest on underpayment

As invoiced

Audit costs payable only if the audit shows an understatement in amounts due of at least 3%. (Section 11.E)

Interest Fees

Highest applicable legal rate, not to exceed 1.5% per

month

As invoiced

Applies to all overdue Marketing Fund Contributions, Call Center Services Fees, Internet Marketing Fees and other amounts due to our Affiliate or us. (Section 3.I) Also applies to any understatement in amounts due revealed by an audit. (Section 11.E)

Suppliers' Approval

Reasonable cost of inspection and/or testing

Time of inspection or test

Applies to new suppliers or supplies you wish to purchase that we have not approved. (Section 13.C)

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Name of Fee

Amount

Due Date

Remarks

Insurance Policies

Amount of unpaid premiums

As invoiced

Payable to us only if you fail to maintain required insurance coverage and we elect to obtain coverage for you. (Section 15)

Transfer Fee

$5,000

At the time of transfer

Payable when you transfer or sell your franchise. This transfer fee does not apply to an assignment of interest to an entity controlled by you. (Section 19.B.7)

Additional Training

Current rates as published

in the Manual; currently $300 per day, per person, plus your expenses as well as your employees' expenses in attending

Time of service

We provide 32 hours over 1 week of training for you

and one additional person. You pay for additional training if you request it. (Section 9.A)

Additional Operations Assistance

Current rates as published in the Manual; currently $750 per day per person plus our expenses

Time of assistance

We provide 3 consecutive days of assistance around the beginning of operations. You pay for additional assistance if you request it. (Section 9.D)

Ongoing Training

You are required to pay your expenses as well as your employees' expenses in attending these programs

Time of program

Attendance will not be required more than 2 times per year and attendance will not exceed 4 days per calendar year. (Section 9.E)

Cost of Enforcement

Cost including attorney fees

As invoiced

You will reimburse us for all costs in enforcing obligations under the Franchise Agreement if we prevail. (Section 23.C)

Liquidated Damages

$100,000

Upon demand

If the Franchise Agreement terminates before its term is completed, we are entitled to receive monetary compensation. (Section 18.E)

Indemnification

Cost including attorney fees

As invoiced

You will defend suits at your cost and hold us harmless against suits involving damages resulting from your operation of the Franchised Business. (Section 22.B)

No other fees or payments are to be paid to us, nor do we impose or collect any other fees or payments for any other third party. All fees are generally non-refundable.

NOTES:

1  Our Affiliate, NLMDS, has developed a line of architectural and landscaping and illumination products and equipment (referred to as "NITELITES Products and Equipment") that you will sell to your customers. The NITELITES Products and Equipment are listed in the Manual. As described in ITEM 8, you must purchase all of your requirements of NITELITES Products and Equipment from our Affiliate. (Section 13.D)

2 "Gross Sales" means the aggregate of ail revenue accrued from the sale of all exterior lighting products and related products from all sources in connection with the Franchised Business, whether or not collected by you and whether for check, cash, credit or otherwise, including all proceeds from any business interruption insurance, but excluding all refunds made in good faith, promotional and coupon discounts, and any sales and equivalent taxes which are collected by you for or on behalf of any governmental taxing authority. (Section 1)

3 "Local Advertising" means advertising, promotions and public relations within the local area to be serviced by your Franchised Business. Within 30 days after each calendar quarter, you must submit a report detailing your Local Advertising expenses for the quarter. If you fail to spend at

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least 714% of your Gross Sales on Local Advertising for 2 consecutive calendar quarters, we have the right to terminate your franchise.

4 Ongoing Purchases of Products and Equipment. Each year, you must purchase a minimum amount of NITELITES Products and Equipment from us, our Affiliate, or a supplier designated by us. The minimum annual purchase requirement is based upon population of your Protected Territory:

Protected Territory Population

Minimum Annual

Franchisee Purchases

First 12 Months

Less than 500,000

$50,000

500,000 to 1,000,000

$65,000

1,000,001 to 2,000,000

$80,000

2,000,001 to 3,000,000

$95,000

3,000,001 to 4,000,000

$115,000

4,000,001 to 5,000,000

$135,000

Over 5,000,000

$155,000

Your minimum annual purchase requirement will increase each year by 15%. ITEM 7.           INITIAL INVESTMENT

We anticipate that you will incur the following estimated initial expenditures in the establishment of your Franchised Business.

Names of Expenditures

Actual or Estimated Amounts for You

Method of Payment

When Due

To Whom Payment Is to be Made

Franchise Fee1

$50,000 to 115,000

Cashier's Check

Upon Signing Franchise Agreement

Us

Rent2

$ 0 to 5,600

As Arranged

As Incurred

Lessor

Utility Deposits3

$ 0 to 500

As Arranged

As Incurred

Utilities

Leasehold Improvements4

$ 0 to 250

As Arranged

As Incurred

Third Parties

Furniture, Fixtures & Equipment5

$20,500 to 21,000

As Arranged

As Incurred

Us, Suppliers

Insurance6

$ 500 to 1,000

As Arranged

As Incurred

Suppliers

Signage7

$ 0 to 500

As Arranged

As Incurred

Suppliers

Initial Inventory8

$ 13,000

As Arranged

As Incurred

Us Suppliers

Vehicles9

$ 450 to 1,350

As Arranged

As Incurred

Suppliers

Office Equipment & Supplies10

$ 3,000 to 5,000

As Arranged

As Incurred

Third Parties

Training11

$ 4,000 to 7,500

As Arranged

As Incurred

Us, Third Parties

Licenses & Permits12

$ 50 to 850

As Arranged

As Incurred

Licensing Authority

Legal & Accounting13

$ 1,500 to 3,500

As Arranged

As Incurred

Attorney, Accountant

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87


Names of Expenditures

Actual or Estimated Amounts for You

Method of Payment

When Due

To Whom Payment Is to be Made

Grand Opening14

$10,000 to 15,000

As Arranged

First 3 Months of Operation

Third Parties

Additional Funds15 (3 months)

$ 25,000 to 40,000

As Arranged

As Incurred

You Determine

TOTAL16

$128,000 to 230,050

We anticipate that you will incur the following estimated initial expenditures in converting a current NITELITES distributorship to a Franchised Business.

| Names of Expenditures

Actual or Estimated Amounts for You

Method of Payment

When Due

To Whom Payment Is to be Made

Franchise Fee1

$ - 0 -

Cashier's Check

Upon Signing Franchise Agreement

Us

Rent2

$ 0 to 1,000

As Arranged

As Incurred

Lessor

Utility Deposits3

$ 0 to 200

As Arranged

As Incurred

Utilities

Leasehold Improvements4

$ 0 to 200

As Arranged

As Incurred

Third Parties

Furniture, Fixtures & Equipment5

$ 0 to 16,000

As Arranged

As Incurred

Us, Suppliers

Insurance6

$ 0 to 1,000

As Arranged

As Incurred

Suppliers

Signage7

$ 0 to 1,000

As Arranged

As Incurred

Suppliers I

Initial Inventory8

$ 0 to 12,950

As Arranged

As Incurred

Us Suppliers

Vehicles9

$ 0 to 1,350

As Arranged

As Incurred

Suppliers

Office Equipment &

Supplies

$ 0 to 5,000

As Arranged

As Incurred

Third Parties

Training11

$ 4,000 to 7,500

As Arranged

As Incurred

Us, Third Parties

Licenses & Permits12

$ 0 to 100

As Arranged

As Incurred

Licensing Authority

Legal & Accounting13

$ 0 to 3,500

As Arranged

As Incurred

Attorney, Accountant

Grand Opening14

$ - 0 -

As Arranged

First 3 Months of Operation

Third Parties

Additional Funds15 (3 months)

$ 0 to 40,000

As Arranged

As Incurred

You Determine

TOTAL16

$4,000 to 89,800

NOTES

1  Franchise Fee. The Franchise Fee is described in greater detail in ITEM 5 of this Offering Circular. If you are a conversion franchisee who is converting a NITELITES distributorship to a Franchised Business, the Franchise Fee is waived.

2 Rent. You must purchase or lease a suitable premises from which to operate the Franchised Business. Subject to zoning rules and local ordinances, you may operate the Franchised Business from your home. We anticipate that most NITELITES Businesses not operated from the franchisee's home will be located in Class C retail commercial or light industrial areas. The figures in the chart represent the rent for the start-up phase of the business (which we calculate to be approximately 3 months) for approximately 200 square feet for an office, an 80 square foot

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storage bay and a parking space. The figures are based upon a combined range of $15 to $20 per square foot. It is difficult to estimate lease acquisition costs because of the wide variation in these costs between various locations. Lease costs will vary based upon variance in square footage, cost per square foot and required maintenance costs. The estimates do not include real estate taxes and assume that rent commences when the Franchised Business opens. The terms of your lease will depend on the size, location, condition and desirability of the premises. Rent payments may or may not include site preparation and build-out costs, which will depend on the arrangements that you negotiate with your landlord. We assume the landlord will require the first month's rent and a security deposit equal to one month's rent. The amounts paid are typically not refundable except for a security deposit which may be refunded. The estimates assume that you will operate the Franchised Business from your home or lease space for the Franchised Business, and so do not include costs related to the purchase of land or the construction of any buildings. If you purchase and/or construct a site for the Franchised Business, your initial costs will likely be significantly greater than the estimates in the chart. As a conversion franchisee, it is unlikely that you will incur any incremental expenses as you will likely already have a premises for the operation of your distributorship.

3  Utility Deposits. You will generally incur certain deposits with local utilities if you are a new customer; for example, electric, telephone, gas, water and others. The amount of deposit will vary depending upon the policy of the local utility. Monthly utility expenses are not included in this section. They are however, disclosed in Additional Funds. As a conversion franchisee, you are not likely to incur any incremental expenses.

4 Leasehold Improvements. You may need to make minimal leasehold improvements to install additional electrical or phone lines for an office. The cost of leasehold improvements will vary based upon size, condition and location of the Franchised Business, local wage rates and materia! costs. No leasehold improvements may be necessary if you operate the Franchised Business from your home. As a conversion franchisee, we do not anticipate that you will incur any incremental expenses.

5 Furniture. Fixtures & Equipment. In addition to office furniture, which you may purchase from any approved supplier, you will need to purchase a Start-up Kit consisting of a product demonstration kit, a vehicle graphics package, a trade show display, yard signs, uniforms, specified tools, supplies and small equipment. You must purchase the Start-up Kit from us, our Affiliate or a supplier designated by us. The estimated cost of the Start-up Kit is $20,000. As a conversion franchisee, you may have already acquired some of the components of the Start-up Kit.

6  Insurance. Requirements are described in greater detail in Section 15 of the Franchise Agreement. Factors that may affect your cost of insurance include location of the Franchised Business, value of the leasehold improvements, amount of inventory, the model, year and type of vehicle you use and other factors. As a conversion franchisee you should not incur any incremental expenses.

7 Signage. You will receive 5 yard signs and a graphics package for 1 vehicle in the Start-up Kit, the cost of which is included under "Furniture, Fixtures & Equipment." If you operate the Franchised Business from your home, you should not incur any costs for signage beyond that

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which is included in the Start-up Kit. The high estimate in this category reflects the approximate cost of office or warehouse signage used in the Franchised Business if you lease space. As a conversion franchisee, your costs may be lower if you have previously acquired office or warehouse signage which you may use for your Franchise Premises.

8  Initial Inventory. You will need to purchase an initial inventory of NITELITES Products and Equipment, including transformers, fixtures, bulbs, lighting systems, and other items for sales demonstration and display purposes. See ITEM 5. Although the initial inventory may be purchased on an open account, the range shown represents the full cost of purchase. As a conversion franchisee, we assume you already have a supply of some of these items in your inventory.

9 Vehicles. The low figure provided above represents 1 month's lease payment. The high figure represents 3 months' lease payments. As a conversion franchisee, we assume you already have a suitable vehicle.

10 Office Equipment and Supplies. You must purchase general office equipment and supplies including a computer system which is described in ITEM 11. Factors that may affect your cost of office equipment and supplies include local market conditions, the suppliers and other factors. As a conversion franchisee, we assume you already have some of the necessary office equipment and supplies.

11  Training. You are not charged an additional fee for initial training. You are responsible for transportation and expenses for meals and lodging and employees' salaries (if applicable), while attending training. The total cost will vary depending on how far you travel and the type of accommodations you choose. As a conversion franchisee, your costs of attendance may be lower if we determine that it is not necessary for you to attend certain portions of the initial training program.

12 Licenses & Permits. These amounts will be incurred for costs such as operating licenses and permits. Your actual costs may vary from the estimates based on the requirements of local government authorities. As a conversion franchisee, it is unlikely that you will incur any incremental expenses.

13 Legal & Accounting. You will need to employ an attorney, an accountant and other consultants to assist you in establishing your Franchised Business. These fees may vary from state to state depending upon each state's laws and the prevailing rate of attorneys' and accountants' fees. As a conversion franchisee, it is likely that you will not incur any incremental expenses.

14  Grand Opening. You wilt be required to spend a minimum of $10,000 on grand opening advertising during the first 3 months of operation. You may choose to spend more. Factors that may affect your decision on the actual amount to spend includes local media cost, location of the Franchised Business and customer demographics in the surrounding area. As a conversion franchisee, you are not required to advertise the opening of the Franchised Business.

15 Additional Funds. This amount estimates operating expenses for the start-up phase of the Franchised Business, which we calculate as 3 months, including employees' salaries, and utility expenses, and miscellaneous expenses. These amounts are estimates, and we cannot

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guarantee that such an amount will be sufficient. Additional working capital may be required if sales are low or fixed costs are high.

16 Total. This total is an estimate of your initial investment and the expenses you will incur during the first 3 months of operations. In compiling this chart, we relied on 6 years of experience of our Director of Operations, Josh Johnston, in operating a NITELITES Business that is similar to the Franchised Business you will establish and operate. The amounts shown are estimates only and may vary for many reasons including the capabilities of your management team, the geographic location of your Franchised Business and your business experience and acumen. The total listed above does not include compensation for your time or labor. Neither does the total take into account any finance charges or other costs which you may incur to finance all or any portion of your investment. In addition to the initial investment itemized in the above chart, you will also need sufficient savings or a source of income to cover your personal living expenses during the start-up phase of the business. You should review these estimates carefully with an accountant or other business advisor before making any decision to buy a franchise. These figures are estimates only and we cannot guarantee that you will not have additional expenses starting your Franchised Business.

ITEM 8.           RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES

Except as described in this ITEM, you are not required to purchase or lease any goods, services, supplies, fixtures, equipment, inventory or real estate relating to the establishment or operation of the Franchised Business from us or designated suppliers.

Specifications/Approved Suppliers

All computer hardware and software, equipment, forms, marketing materials, stationery, supplies, products, tools, and other materials used in the Franchised Business shall comply with our specifications and, if required by us, shall be purchased only from "Approved Suppliers" that we designate or approve (which might include us, an Affiliate or another supplier we designate). If we or one of our Affiliates is an Approved Supplier, you will be required to sign a purchase, lease, and license or supply agreement. We will provide you, in the Manual or other written or electronic form, a list of services and products requiring approval and, if required, a list of Approved Suppliers for some or all of these services and products and will from time to time issue revisions. We formulate and modify our specifications and standards for products and services based on our industry knowledge and our Director of Operation's 6 years of experience in operating a similar business.

If you desire to use any item or service in operating the Franchised Business that we have not approved (for items or services that require supplier approval), you will first send us sufficient information, specifications and/or samples for us to determine whether the item or service complies with our standards and specifications or the supplier meets our Approved Supplier criteria. You will bear all reasonable expenses incurred by us in connection with determining whether we will approve an item, service or supplier. We will decide and notify you within a reasonable time (usually 30 days) after receiving the required information whether you may purchase or lease such items or services or from such supplier. We reserve the right to review from time to time our approval of any items or suppliers. You acknowledge and agree that we may revoke our approval of any item, service or supplier at any time, in our sole discretion, by

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notifying you and/or the supplier. You agree, at your own expense, to promptly cease using, selling or providing any items or services disapproved by us and to promptly cease purchasing from suppliers, which we disapprove.

We apply the following general criteria in approving a proposed supplier: its ability to provide sufficient quantity of product; the quality of its products and/or services at competitive prices; its production and delivery capability; and the dependability and general reputation of the supplier. Nothing requires us to approve any particular supplier or to make available to prospective suppliers, standards and specifications that we, in our discretion, deem confidential.

NITELITES Products and Equipment

Our Affiliate, NLMDS, manufactures and supplies you and our other franchisees with our proprietary line of NITELITES Products and Equipment. NITELITES Products and Equipment include: transformers, fixtures, bulbs, timers, outlets, lens covers, connectors, and lighting systems for path, spot, deck, grill and water lighting and other items described in our Manual which are specially suited for superior quality architectural and landscape illumination. There are no alternate sources of supply. We may introduce new or modify existing NITELITES Products and Equipment and there are no limits on our right to do so. We do not require you to carry a full line of NITELITES Products and Equipment at all times. You will be required at all times to maintain a sufficient inventory of NITELITES Products and Equipment to operate the Franchised Business at full capacity. When you sign the Franchise Agreement, you will also enter into a Supply Agreement with NLMDS. A copy of our standard form of Supply Agreement is included as Exhibit E to the Franchise Agreement. As a result of NLMDS's sale of NITELITES Products and Equipment to you and other franchisees, NLMDS will derive revenue equal to the price it charges you and other franchisees for the items.

We estimate that your purchases of NITELITES Products and Equipment will represent 6% to 10% of your initial .investment and 30% to 40% of your operating expenses. If you are a conversion franchisee, we estimate that your purchases of NITELITES Products and Equipment represent approximately 0% to 75% of your initial investment and 30% to 40% of your operating expenses.

Call Center Services

We have developed a centralized call center specially designed to manage customer inquiries about NITELITES illumination design and installation services. The NITELITES Call Center Service processes customer inquiries and sales leads, coordinates sales calls and product demonstration appointments for you and other franchisees. We currently charge a fee of $500 per month for Call Center Services. You will not be required to pay the monthly Service Fee until the beginning of the second month after you begin operations of the franchise. When you sign the Franchise Agreement, you will also be required to sign the Call Center Service Agreement. A copy of this agreement is included as Exhibit D to the Franchise Agreement. We will derive revenue equal to the Call Center Service Fees we charge you and other franchisees.

We estimate that Call Center Service Fees represent 0% of your initial investment and less than 1% of your operating expenses. If you are a conversion franchisee, we estimate that Call Center

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Service Fees represent 0% of your initial investment and less than 1% of your operating expenses.

Internet Marketing Fee

We have established an Internet site which posts advertisements and information about the products and services provided by you and other franchisees. We currently charge a semiannual fee of $156 for Internet Marketing. Our Internet Marketing services and policies are detailed in our Manual. Fees are collected in February and August each year through an electronic transfer account that we require all franchisees to establish for the payment of Marketing Fund Contributions and Internet Marketing Fees. Further details about advertising programs and our systemwide Marketing Fund are provided in ITEM 11 of this Offering Circular. We will derive revenue from you and other franchisees equal to the fees you and other franchisees pay for Internet Marketing conducted by us.

We estimate that Internet Marketing Fees represent 0% of your initial investment and less than 1% of your operating expenses. If you are a conversion franchisee, we estimate that Internet Marketing Fees represent 0% of your initial investment and less than 1% of your operating expenses.

Start-up Kit

Before you open your Franchised Business, you are required to purchase, from us, our Affiliate, or a supplier designated by us, a Start-up Kit consisting of a product demonstration kit, tools, vehicle graphics package, tradeshow display, yard signs, uniforms and other supplies you will need for the operation of the Franchised Business. As a result of our or NLMDS's sale of the Start-up Kit to you and other franchisees, we or NLMDS will derive revenue equal to the price you and other franchisees pay for the Start-up Kit.

We estimate that your purchases of the Start-up Kit represent approximately 7% to 13% of your initial investment and 0% of your operating expenses. If you are a conversion franchisee, we estimate that your purchases of the Start-up Kit represent approximately 0% to 17% of your initial investment and 0% of your operating expenses.

We reserve the right to develop other proprietary products and services specially designed for use in the NITELITES System and to require you and other franchisees to purchase such products from us. We also reserve the right to designate ourselves as an Approved Supplier for any items or materials used in the operation of your Franchised Business. Neither we, nor our Affiliate, derive revenue as a result of your purchases from Approved Suppliers, although we reserve the right to do so in the future.

Computer Hardware and Software

You are required to install and utilize the computer hardware and software as described in ITEM 11 of this Offering Circular. We do not derive revenue as a result of your purchase of computer hardware and software.

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Insurance

You shall procure, at your sole expense, and maintain in full force and effect during the term of the Franchise Agreement, insurance as specified in Section 15 of the Franchise Agreement, naming us as an additional insured and/or loss payee, in addition to any other insurance that may be required by applicable law, or by any lender or lessor. We do not derive revenue as a result of your purchase of insurance.

Vehicles

You will need to lease or purchase a vehicle to operate your Franchised Business. You will use your vehicle to carry your tools and equipment and to make sales calls and service customers within your Protected Territory. We do not derive any revenue as a result of your lease or purchase of vehicles.

Miscellaneous

We may negotiate group rates, as appropriate, for purchases of equipment and supplies necessary for the operation of the Franchised Business. Presently, there are no such purchase or supply agreements in effect. There are no purchasing or distribution cooperatives, which you are required to join. Neither we nor our Affiliate receive revenue or other material consideration from any third-party suppliers as a result of purchases by you or any other franchisee. We may, however, do so in the future. We may receive volume rebates, markups and other benefits from suppliers, or in connection with the furnishing of suppliers, and you agree that all such benefits shall accrue to our benefit and that you shall have no entitlement or interest.

We estimate that 16% to 32% of your required expenditures for leases and purchases in establishing your Franchised Business and 40% to 50% of your expenditures on an ongoing basis will be for goods and services which must be purchased from approved or designated suppliers or in accordance with our specifications.

As a result of the sale of all required purchases and leases of products and services to NITELITES franchisees in calendar year 2005, we derived $40,792 in revenue, representing 6.8% of our total revenue of $596,166 as reflected on our audited statement of operations, and NLMDS derived $1,283,108, or 62% of its total revenue of $2,058,699.

We do not provide or withhold material benefits to you (such as renewal rights or the right to open additional Franchised Businesses) based on whether or not you purchase through the sources we designate or approve, however, purchases of unapproved products or from unapproved suppliers in violation of the Franchise Agreement will entitle us, among other things, to terminate the Franchise Agreement.

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 THE OFFERING CIRCULAR.

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Q Obligation

Section in Franchise Agreement

ITEM in Offering Circular

| a.

Site selection and acquisition/lease

Section 4.D

ITEM 12

b.

Pre-opening purchases/leases

Sections 4.D, 11.D, 13 and 15

ITEMS 7 and 8

c.

Site development and other pre-opening requirements

Sections 4.D and 9

ITEMS 6, 7 and 11

d.

Initial and ongoing training

Sections 9.A and 9.E

ITEMS 6, 7 and 11

e.

Opening

Sections4.D, 9.A, 10.D, 13Jand 15

ITEM 11

f.

Fees

Sections 3, 9, 10, 11.D, 11.E, 12.B, 13.J, 15, 19,21 and23.C

ITEMS 5 and 6

g-

Compliance with standards and policies/Operating Manual

Sections 6, 7, 8 10,11,12 and 15

ITEM 8

h.

Trademarks and proprietary information

Sections 6, 7 and 8

ITEMS 13 and 14

i.

Restrictions on products/services offered

Sections 4.D, 6, 8, 12 and 13

ITEMS 8 and 16

J-

Warranty and customer service requirements

Section 13

ITEM 16

k.

Territorial development and sales quotas

Section 13.E

ITEM 12

1.

Ongoing product/service purchases

Section 13

ITEMS 8 and 11

m.

Maintenance, appearance and remodeling requirements

Sections 4,D, 12.B and 13.F

ITEMS 6 and 17

1 n-

Insurance

Section 15

ITEMS 6, 7 and 8

[ 0.

Advertising

Section 10

ITEMS 6 and 11

P

Indemnification

Section 22.B

ITEM 6

1 q

Owner's participation/ management/staffing

Section 13

ITEM 15

1 r

Records and reports

Section 11

ITEM 11

1 s-

Inspections and audits

Sections 6,11.E and 13.N

ITEMS 6, 11 and 13

t.

Transfer

Section 19

ITEM 17

u.

Renewal

Section 4.B

ITEM 17

V.

Post-termination obligations

Section 18

ITEM 17

w.

Non-competition covenants

Section 16

ITEM 17

X.

Dispute resolution

Section 24

ITEM 17

ITEM 10.         FINANCING

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

ITEM 11.         FRANCHISOR'S OBLIGATIONS

Except as listed below, we need not provide any assistance to you under the Franchise Agreement.

A. Pre-Openinq Assistance. Before you begin operating your Franchised Business, we will:

1. Designate your "Protected Territory" within which you will operate your Franchised Business. See ITEM 12 for additional information on the Protected Territory. (Section 2. D)

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2.         Review and approve your lease or purchase agreement for the site for the operation of the Franchised Business. (Section 5.B)

OUR REVIEW OF YOUR LEASE OR PURCHASE AGREEMENT AND ANY ADVICE NOR RECOMMENDATIONS WE MAY OFFER IS NOT A REPRESENTATION OR GUARANTEE BY US THAT YOU WILL SUCCEED AT THE LEASED OR PURCHASED PREMISES.

3.         Provide you with standard plans and specifications for the build-out and equipping of the Franchise Premises and vehicles and for the products and services to be used in and offered for sale by the Franchised Business and a list of Approved Suppliers either through the Manual or through written or electronic form. (Section 5.C)

4.         Provide an initial training program for approximately 32 hours over 1 week. All training we provide will be subject to the terms in Section 9.A of the Franchise Agreement. This training is described in detail later in this ITEM.

5.         Provide to you, on loan, one copy of the NITELITES FRANCHISE SYSTEMS, INC. Operating Manual and other manuals, which are part of the System, as more fully described in Section 8 of the Franchise Agreement. The Table of Contents of the Operating Manual is included as Exhibit D to this Offering Circular.

B. Ongoing Assistance. During the operation of your Franchised Business, we will:

1.         Provide you with on-site assistance and guidance for approximately 3 days to assist you with any questions you may have. (Section 9.D)

2.         From time to time, be available by telephone, e-mail or facsimile to discuss any problem and to render advice and guidance with respect to planning, opening and operation of the Franchised Business and other aspects of the System during our normal business hours. We do not charge for these services, however, we retain the right to discontinue this service should you, in our discretion, be deemed to be utilizing this service too frequently or in an unintended manner. (Section 14.A)

3.         Make periodic visits to your Franchised Business for the purposes of consultation, assistance and guidance in various aspects of the operation and management of the Franchised Business. We may prepare written reports outlining any suggested changes or improvements. (Section 14.B)

4.         Provide you with modifications to the NITELITES Operating Manual as they are made available to franchisees. (Section 8.B)

5.         Periodically make available changes and additions to the System as generally made available to all franchisees. (Section 12.B)

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6.         Provide forms of advertising and promotional materials including ad-slicks, brochures, fliers and other materials to you for use in the operation of the Franchised Business. (Section 14.C)

7.         Make available to you ongoing training programs as we deem necessary. (Section 9.E)

Advertising and Promotion

1.         You must spend 7.5% of your Gross Sales on Local Advertising. You will make these expenditures directly subject to our approval. (Section 10.A)

2.         We have established a systemwide Marketing Fund, to which you are required to make a contribution of 2% of your NITELITES Product and Equipment purchases. The Marketing Fund is maintained and administered by us or our designee as follows: (Section 10.B)

We will oversee all advertising programs with sole discretion over the creative concepts, materials and media used in such programs and the placement and allocation thereof. The media used may include print, television, radio, Internet or other media. We cannot and do not ensure that any particular franchisee will benefit directly or pro rata from the placement of advertising by the Marketing Fund.

Your Marketing Fund Contribution may be used to meet any and all costs of producing, maintaining, administering and directing consumer advertising (including the cost of preparing and conducting television, radio, Internet, magazine and newspaper advertising campaigns and other public relations activities developing and/or hosting an Internet web page of similar activities; employing advertising agencies to assist; and providing promotional brochures and other marketing materials to franchisees). We initially plan to conduct all advertising in-house, but may use a national or regional advertising agency in the future. All contributions by you to the Marketing Fund will be maintained in a separate account from our funds and will not be used to defray any of our general operating expenses, except for such reasonable administrative costs and overhead, if any, as we may incur in activities reasonably related to the administration of the Marketing Fund.

Affiliate and franchisor-owned businesses operating under the same System and Marks as the Franchised Business will make similar contributions to the Marketing Fund.

We anticipate that all contributions to the Marketing Fund will be expended for advertising and promotional purposes during our fiscal year within which the contributions are made. All expenditures in the following fiscal years will be made first out of any interest or other earnings of the Marketing Fund, next out of current contributions. Although we intend the Marketing Fund to be of perpetual duration, we maintain the right to terminate the Marketing Fund. The

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Marketing Fund will not be terminated, however, until all monies in the Marketing Fund have been expended for advertising and promotional purposes or returned to you on a pro rata basis.

An accounting of the operation of the Marketing Fund will be prepared annually and will be made available to you upon request. We reserve the right, at our option, to require that such annual accounting include an audit of the operation of the Marketing Fund prepared by an independent certified public accountant selected by us and prepared at the expense of the Marketing Fund.

The Marketing Fund is not a trust and we assume no fiduciary duty in administering the Marketing Fund. (Section 10.B)

Although not obligated to do so, we may create a Cooperative Advertising program for the benefit of all NITELITES Businesses located within a particular geographic area. We have the right to (a) allocate any portion of your Marketing Fund Contributions; and (b) collect and designate all or a portion of your required Local Advertising expenditures for a Cooperative Advertising program. We have the right to determine the composition of all geographic territories and market areas for the implementation of Cooperative Advertising and promotion campaigns and to require that you participate in such Cooperative Advertising programs when established by us. If a Cooperative Advertising program is implemented on behalf of a particular region, we reserve the right to establish an advertising council for a particular region to enable the council to self-administer the Cooperative Advertising program, and you agree to participate in such council according to the council's rules and procedures and to abide by the council's decisions. (Section 10.C)

During the first 3 months of operation, you must spend at least $10,000 on Grand Opening Advertising. We will provide you with guidance for conducting Grand Opening Advertising and you must obtain our prior approval of your Grand Opening Advertising materials. Your expenditures for Grand Opening Advertising are in addition to Local Advertising. (Section 10.D) If you are a conversion franchisee, you are not required to advertise the opening of your Franchised Business.

You are required to list and advertise the telephone number for the Franchised Business in the "white pages" telephone directory and the classified or "yellow pages" telephone directory distributed in the trade area of the Franchised Business and in such directory heading or category as we specify. The telephone number must be listed under an address or other location within your Protected Territory. You must place the classified directory advertisement and listings together with other NITELITES Businesses operating under the same System and Marks within the distribution area of the directories. If a joint listing is obtained, the cost of the advertisements and listings will be apportioned by all Franchised Businesses placed together. (Section 10.E)

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