UFOC

Sample UFOC

PIZZA FACTORY FRANCHISE REGISTRATION Q EIV E D

DEPT OF CORPORATIONS OFFERING CIRCULAR/FRANCHISE AGREeMM* ANCISCO CROSS-REFERENCE SHEET

'06 MAR 15 A9:14

OFFERING CIRCULAR FRANCHISE AGREEMENT

(References are to paragraphs)

Paragraph I ................................................................ Preface, Proprietary Rights

Paragraph 2 ................................................................ None

Paragraph 3 ................................................................ None

Paragraph 4 ................................................................ None

Paragraph 5A ................................................................ 2.01,2.02, Article 3

Paragraph 5B ................................................................ None

Paragraph 6 ................................................................ 1.03,2.01,2.02

4.12.4.19,8.01

Paragraph 8 ................................................................ 3.05,4.06,4.07,4.08,

7.01,7.02

Paragraph 9 This paragraph is internally cross-

referenced.

Paragraph 10 ................................................................ None

Paragraph 11 This paragraph is internally cross- Also see 1.04, 3.06,

referenced. 3.08,4.02,4.12

Paragraph 12 ................................................................ 1.04, 1.05

Paragraph 13 ................................................................ 5.01,5.02,5.03,

5.04

Paragraph 14 ................................................................ Article 5

Paragraph 15............................................................... Article .3.08,4,4.02,

4.16

Paragraph 16 ................................................................ 3.05,4.02,4.03,4.04,

4.05,4.06,4.07

Paragraph 17 This paragraph is internally cross- Also see 4.16,

referenced. 9.01 -9.04

Paragraph 18 ................................................................ None

Paragraph 19 ................................................................ None

Paragraph 20 ................................................................ None

Paragraph 21 ................................................................ None

Paragraph 22 ................................................................ None

Paragraph 23 ................................................................ 4.19

They're Awesome**

PIZZA VICTORY* Franchise Offering Circular for Prospective

. Franchisees Required by the State of California

Pizza Factory, Inc., a California corporation which has its principal address at 49430 Roa Suite D, P.O. Box 989, Oakhurst, California, 93644. Telephone (559) 683-3377.

The Franchisee will operate a pizza and pasta restaurant. The Franchisee shall pay an initial franchise fee of $20,000 for a Pizza Factory - Full-Size, $10,000 for a Pizza Factory - Mid-Size, or $5,000 for a Pizza Factory Express plus a fee for training of $2,500; the franchisee applicant shall also pay an additional fee for a consultation and market feasibility study of $5,000 which shall be applied towards the above-mentioned initial franchise and training fee in the event that the applicant is accepted and enters into the franchise agreement.

The estimated initial investment required ranges from $136,000 - $425,000 for a Pizza Factory -Full-Size, $100,200 - $229,400 for a Pizza Factory - Mid-Size and $69,200 - $171,900 for a Pizza Factory Express. The amount may vary, or even exceed this estimate, depending upon the cost of tenant improvements. Also, this sum does not include rent for the business location.

Risk Factors:

1. THE FRANCHISE AGREEMENT PERMITS THE FRANCHISEE TO SUE ONLY IN MADERA COUNTY, CALIFORNIA. LITIGATING IN MADERA COUNTY MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST MORE TO SUE IN MADERA COUNTY THAN IN YOUR HOME COUNTY.

2. THE FRANCHISE AGREEMENT REQUIRES THAT THE FRANCHISEE SIGN A GENERAL RELEASE OF ALL CLAIMS AGAINST THE FRANCHISOR IN ORDER TO TRANSFER OR ASSIGN THE FRANCHISEE'S RIGHTS AND OBLIGATIONS UNDER THE FRANCHISE AGREEMENT.

3. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.

Information comparing Franchisors is available. For sources of information, call or visit your local public library or call the California Department of Corporations, Securities Regulation Division at any of its offices located in Los Angeles, Sacramento, San Diego and San Francisco.

Registration of this franchise by a state does not mean that the state recommends it or has verified the information in this offering circular. If you learn that anything in the offering is untrue, contact the Federal Trade Commission and the California Department of Corporations at any of its offices.

The effective date of this offering circular is:________________, 2006.

THE CALIFORNIA FRANCHISE INVESTMENT LAW REQUIRES THAT A COPY OF ALL PROPOSED AGREEMENTS RELATING TO THE SALE OF THE FRANCHISE BE DELIVERED TOGETHER WITH THE OFFERING CIRCULAR.

THESE FRANCHISES HAVE BEEN REGISTERED UNDER THE FRANCHISE INVESTMENT LAW OF THE STATE OF CALIFORNIA. SUCH REGISTRATION DOES NOT CONSTITUTE APPROVAL, RECOMMENDATION OR ENDORSEMENT BY THE COMMISSIONER OF CORPORATIONS NOR FINDING BY THE COMMISSIONER THAT THE INFORMATION PROVIDED HEREIN IS TRUE, COMPLETE AND NOT MISLEADING.

TABLE OF CONTENTS ITEM

THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES

BUSINESS EXPERIENCE OF PERSONS AFFILIATED WITH THE FRANCHISOR, FRANCHISE BROKERS

LITIGATION

BANKRUPTCY

INITIAL FRANCHISE FEE AND OTHER INITIAL PAYMENT

OTHER FEES

YOUR ESTIMATED INITIAL INVESTMENT

RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES AND OTHER OPERATIONAL REQUIREMENTS

FRANCHISEE'S OBLIGATIONS

FINANCING

FRANCHISOR'S OBLIGATIONS

TERRITORY

TRADEMARKS

PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION

OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS

RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL AND PRICING

17. RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION

18. ARRANGEMENTS WITH PUBLIC FIGURES

19. EARNINGS CLAIMS

20. LIST OF OUTLETS

21. FINANCIAL STATEMENTS

22. CONTRACTS

23. RECEIPT

ITEM

MARKET FEASIBILITY AND CONSULTING AGREEMENT

CURRENT LIST OF EXISTING FRANCHISEES

FRANCHISOR'S AUDITED BALANCE SHEET AND PROFIT AND LOSS STATEMENTS

FRANCHISE AGREEMENT

Includes Security Agreement as Exhibit 1, UCC-1 Financing Statement as Exhibit 2, Checklist as Exhibit 3 and General Release as Exhibit 4.)

PIZZA FACTORY SAMPLE MENU

PIZZA FACTORY MANUAL OF STANDARD OPERATING PROCEDURES (TABLE OF CONTENTS ONLY)

LIST OF STATE ADMINISTRATORS AND AGENTS FOR SERVICE OF PROCESS

TRAINING TABLE

WEBSITE DISCLOSURE

1. THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES:

To simplify the language in this offering circular "Pizza Factory" means Pizza Factory, Inc., the Franchisor. "You" means the person, corporation, partnership or other entity who/which buys the franchise. Pizza Factory is a California corporation that was incorporated on June 3,1982. Pizza Factory does business in California as "Pizza Factory, Inc." You are referred to Exhibit I for information regarding Pizza Factory's website. Our principal business is 49430 Road 426, Suite D, P.O. Box 989, Oakhurst, California, 93644. Pizza Factory is affiliated with Wheeler & Willey, Inc., a California corporation doing business as W&W Seasonings. W&W Seasonings' principal place of business is 49430 Road 426, Suite D, P.O. Box 989, Oakhurst, California 93644. Pizza Factory is also affiliated with DR&S Leasing, Inc., a California corporation. DR&S Leasing's principle place of business is 49430 Road 426, Suite D, P.O. Box 989, Oakhurst, California, 93644.

Pizza Factory's agents for service of process are set out in Exhibit G of this circular.

Pizza Factory's business is the development and sale of franchises which are in the form of pizza restaurants known as Pizza Factory. These restaurants serve pizza, pasta, sandwiches, soft drinks, wine and beer. The food is prepared on the premises and served according to Pizza Factory's specifications and can either be consumed on the premises (except for Pizza Factory Express units) or be taken out. Franchises offered in California will be pizza restaurants known as Pizza Factory.

You will have to compete with other businesses and restaurants which serve prepared foods including other businesses which sell food items and services similar to Pizza Factory's such as national chains including "Round Table", "Pizza Hut", "Domino's Pizza", "Little Caesar's" as well as numerous local chains. The restaurant business generally and the pizza restaurant business specifically is highly competitive and is affected by variations in the preferences of the public, population and traffic trends and patterns, and local and national economic conditions, many of which are beyond the control of either Pizza Factory or the franchisee. Success within the industry are affected by numerous competitive factors including the quality and value of the food products offered, physical plant presentation and maintenance, advertising, service, name recognition, and location. You must comply with many state and local regulations regarding the construction and operation of the franchised business. All Pizza Factory restaurants are required to comply with federal, state and local laws applicable to the operation and licensing of a prepared food service outlet including approvals by local and state health agencies. It is important that you become aware of such local and state regulations and consider such prior to purchasing a franchise.

You are required to obtain a license to sell beer and wine for consumption on site before you open your Pizza Factory franchise. The availability, procedures and cost to obtain such a license vary greatly depending upon the location of your Pizza Factory franchise. Further, state and local laws governing the sale of alcohol vary greatly including possible liability arising from or related to the sale and consumption of alcohol.

There may be numerous other laws that affect the operation of a commercial restaurant including federal, state, and local agencies governing food preparation, service and sanitary conditions, employee's safety, regulations and restrictions, and other agencies or laws which may govern and regulate the emissions of ozone, carbon monoxide and particulate other matters, or otherwise regulate air quality inside or around the perimeter of a business, such as limitations on the use of tobacco products.

Pizza Factory has never conducted a business of the type to be operated by you until it acquired a company-owned Pizza Factory during 2002. However, the principal officers and shareholders of Pizza Factory have been in the business of operating pizza and pasta restaurants since 1980 including several Pizza Factory restaurants which they now operate. Pizza Factory has offered franchises for Pizza Factory restaurants since 1985. Pizza Factory has never offered franchises in any other line of business and Pizza Factory has no predecessors. Pizza Factory is involved in no other line of business other than selling Pizza Factory franchises and supervising and assisting owners of Pizza Factory franchises.

2. BUSINESS EXPERIENCE OF PERSONS AFFILIATED WITH THE FRANCHISOR, FRANCHISE BROKERS:

The following persons will have management responsibility in connection with the operation of Pizza Factory's business relating to the franchises offered by this offering circular and all franchise brokers:

(1) Daniel E.Wheeler; President of franchisor since December 1,1982. BornonAugust 20, 1940. Police officer with the Los Angeles Police Department from 1974 until 1977. Licensed as a real estate salesperson in 1977, was co-owner of real estate brokerage franchise between 1977 and 1979. Owner/operator of pizza/pasta restaurant from 1979 until the present.

(2) Carol L. Wheeler; Secretary-Treasurer of franchisor since December 1, 1982. Born in Huntsville, Alabama on September 23, 1949; licensed California real estate salesperson from 1977 until 1979. Owner/operator of pizza/pasta restaurant from 1979 until present.

(3) Ronald L. Willey; Vice President of franchisor since January, 1986. Born in Los Angeles, CA on September 21, 1949. Worked as a lather from 1968 through 1980. Owner/operator of pizza/pasta restaurant from 1980 until present.

(4) Pizza Factory utilizes no franchise brokers.

3. LITIGATION:

Pizza Factory, Inc. v. Roger and Paula Melikian, et al.; Superior Court of California, Madera County No. CV02138 and Superior Court of the State of Washington, King County No. 99-2-09708-4SEA. On March 31,1999, Pizza Factory sued the owners of the franchise in Vashon, Washington, Roger and Paula Melikian. The franchisees unilaterally terminated the franchise and sold the business to a third party without notice and without compliance with several provisions of the franchise agreement and also failed to make royalty and advertising fee payments. The case was ultimately resolved by the franchisees paying to Pizza Factory the sum of $26,000.00 representing past due royalty and advertising fees and as and for damages for termination of the franchise. Pizza Factory agreed not to seek additional damages, attorney's fees or costs in return for the franchisee's purchaser complying with all post termination contractual provisions regarding proprietary rights, trade secrets, trade records, trade names and the like.

Pizza Factory, Inc. v. Delhi Investments, Inc., et al., Superior Court of California, County of Madera, Case No. CV14534. On January 24,2002, Pizza Factory sued former franchisees, owners of the franchise in McCall, Idaho, based upon their non-payment of royalty and advertising fees, their unauthorized sale of the franchise and abandoning the franchised business. Delhi Investments, Inc. filed a cross-complaint against Pizza Factory claiming breach of the franchise agreement and violation of the franchise investment laws of the State of California and the State of Idaho. The case was dismissed after the parties entered into a mutually agreeable settlement the terms of which as well as the details of the suit were agreed to be kept confidential.

Except for the foregoing, no other litigation is required to be disclosed.

4. BANKRUPTCY:

No person 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.

5. INITIAL FRANCHISE FEE AND OTHER INITIAL PAYMENT:

A. Initial Fees and Payments for all Franchise Applicants.

After you submit an application for a franchise, we review your application for completeness and make an initial determination of whether or not you are financially qualified to purchase and operate a Pizza Factory restaurant. If we determine that you are not qualified, we advise you of such and the application procedure ends at that point without any financial obligation on your part. If we make an initial determination that you are financially qualified, we will advise you of such and, for the application procedure to proceed further, you must then sign a Market Feasibility and Consulting Agreement with Pizza Factory and pay a fee of $5,000 for services to be performed by Pizza Factory pursuant to the Market Feasibility and Consulting Agreement. Upon written request personally delivered to Pizza Factory's Oakhurst office within five days of the

signing of the Market Feasibility and Consulting Agreement, Pizza Factory shall refund to you all of this $5,000 fee. After we have completed the market feasibility study, we will advise you whether or not your application for a franchise is accepted. If your application for a franchise is not accepted, none of the $5,000 fee shall be returned. However, if your application for a franchise is accepted, the entire Market Feasibility and Consulting Agreement fee of $5,000 will be applied towards the initial franchise fee. In the event that you and Pizza Factory are unable to find a mutually satisfactory location for your franchise business and/or secure it with a lease signed by you within 180 days of signing the Market Feasibility and Consulting Agreement, Pizza Factory is no longer obligated under that Agreement and your application for a Pizza Factory franchise will be deemed "not accepted":

After your application for a Pizza Factory franchise has been accepted, and an acceptable location is found and you have signed a lease to secure that location, you will sign the Franchise Agreement and pay an initial franchise fee of $20,000.00 for a Pizza Factory - Full-Size, $10,000 for a Pizza Factory - Mid-Size or $5,000 for a Pizza Factory Express (less $5,000 for the Market Feasibility and Consulting Agreement fee) along with a training fee of $2,500, all of which is due at the time of the signing of the Franchise Agreement.

Within thirty (30) days after signing the Franchise Agreement, you may cancel the Franchise Agreement by delivering to Pizza Factory a written notice and the initial franchise fee and training fee paid by you will be refunded except for $10,000.00 for a Pizza Factory Full-Size and $7,500.00 for a Pizza Factory Mid-Size to cover Pizza Factory's expenses. For a Pizza Factory Express, after five (5) days from signing the Franchise Agreement, a refund of only up to the amount of the training fee will be refunded depending upon the amount of training completed.

B. Initial Fees Available to Some Existing Franchisees.

In certain cases, and at the sole discretion of Pizza Factory the amount of the franchise fee may be reduced if all the following conditions are met, in the opinion of Pizza Factory:

(1) Applicant is a franchisee of an existing Pizza Factory Restaurant;

(2) Applicant has demonstrated the ability to perform a substantial portion of the functions and duties normally performed by Pizza Factory in connection with a new installation and restaurant; and

(3) Applicant has adequate and competent personnel to operate his/her existing restaurant(s) while he/she is devoting his/her time and efforts to the preparation and opening of the new restaurant.

The existing franchisee applicant will pay to Pizza Factory an initial franchise fee based, at the determination of Pizza Factory, upon the amount of expense reduction and savings to Pizza Factory to the extent that the applicant performs the duties and functions normally performed

by Pizza Factory with respect to the opening of a new restaurant. In addition to the reduced franchise fee, the applicant is required to pay to Pizza Factory the sum of $25.00 per hour for the services of Pizza Factory's personnel to the extent that their assistance is necessary to aid the applicant.

OTHER FEES:

In addition to the franchise fee described in Item 5. above, you are required to pay the following to Pizza Factory (*A11 fees are imposed by and are payable to Pizza Factory except the Advertising Fee which is payable to "Pizza Factory Advertising Trust." All fees are nonrefundable):

NAME OF FEE

AMOUNT

DUE DATE

REMARKS

'Royalty

5% of total gross sales

Payable monthly on or before the last day of the following month.

Gross sales includes all revenue from the franchise location. Gross sales does not include sales tax or use tax.

'Advertising

2% of total gross sales

Same as royalty fee.

* Service Fee

$75.00 per month or 10% of amount due, whichever is greater.

Immediately upon assessment.

Assessment for each month that the Royalty fee or the advertising fee remains unpaid. If both remain unpaid then the fee is $150.00 per month or 10% of each amount due, whichever is greater.

* Service Fee (On Monthly Financial Reports)

$75.00 per month or 10% of the royalty and advertising fees due per month, whichever is greater.

Immediately upon assessment.

Assessment for each month that monthly financial report remain unsubmitted. Fee based on percentage is calculated on sum of both royalty and advertising fees found

due for the month of the missing information.

NAME OF FEE

(Cont.)

*Additional Initial Training

♦Optional Initial Training

Transfer Fee

AMOUNT

$500.00 per person

$12,000.00 (Full) $10,000 (Mid) $5,000 (Express)

DUE DATE

At time of payment of initial franchise fee or prior to commencement of initial training.

At time training is scheduled.

Prior to consummation of transfer.

REMARKS

The training fee discussed in paragraph 5 above is for one person. Each additional person sent to the initial training requires the additional payment.

You and Pizza Factory may agree upon extended initial training.

Payable when you sell transfer, or assign your franchise.

♦Renewal Fee

♦Voluntary or Mandatory recurrent training.

♦Supplemental Franchise Fee

$5,00.0.00

The rate then charged for additional training currently $25.00 per hour.

Thirty days before expiration of term.

On or before date training commences.

Difference between Prior to approval to See Section 1.04, 2.01

initial franchise fee actually paid and amount due for relocated or expanded size unit.

relocate or expand.

2.01 and 4.07 (a) of Franchise Agreement (Exhibit "D").

Your obligation to make these payments and perform other obligations of the Franchise Agreement is secured by a standard security agreement and a UCC-1 financing statement, sample copies of which are attached to the Franchise Agreement (Exhibit "D") as Exhibits 1 and 2, respectively. By the security agreement and UCC-1 financing statement, you will giveto Pizza Factory a security interest in all of your equipment and fixtures. You are required to sign the security agreement and financing statement prior to opening your store for business. Pizza Factory will accept a security interest in the equipment and fixtures which is second in priority only to a security interest you have given a lender for the purpose of establishing your franchise business or purchasing the equipment or fixtures. Otherwise, the security interest you are required to give Pizza Factory must be first in priority. (See Section 4.19 of the Franchise Offering Circular.)

Pizza Factory requires you to make payment of Royalties and Advertising Fees by electronic transfer on a monthly basis. No less than thirty (30) days prior to opening your Pizza Factory franchise, you must provide bank information to Pizza Factory to allow for electronic transfer and, thereafter, provide Pizza Factory any changes to that information within 48 hours of the effective time of the change.

The rest of this page is blank.

7. YOUR ESTIMATED INITIAL INVESTMENT (Note 10):

A. PIZZA FACTORY - FULL-SIZE: Dine In, Take Out & Delivery/Over 1500

sq.ft.

TYPE OF EXPENDITURE	AMOUNT	METHOD OF PAYMENT	WHEN DUE	TO WHOM PAYMENT IS TO BE MADE
MARKET FEASIBILITY AND CONSULTING	$5,000 (Note'l)	Lump Sum	Upon signing the Market Feasibility Agreement.	Pizza Factory
INITIAL FRANCHISE FEE	$15,000 (Note 2)	Lump Sum	At signing of franchise agreement.	Pizza Factory
TRAINING FEE	$2,500 to $4,000 (Note 3)	Lump Sum	At signing of franchise agreement. (Note 3)	Pizza Factory
TRAVEL AND LIVING EXPENSES WHILE TRAINING	$10,000 to $15,000	As Incurred	During training.	Airlines, Hotels and restaurants.
REAL ESTATE AND IMPROVEMENTS	$15,000 to $140,000 (Note 4)	Note 4	Note 4	Note 4

TYPE OF EXPENDITURE

(Cont.)

AMOUNT METHOD WHEN DUE OF PAYMENT

TO WHOM PAYMENT IS TO BE MADE

EQUIPMENT AND FIXTURES	$65,000 to $215,000	Note 5	Note 5	Vendors Note 5
MISCELLANEOUS OPENING COSTS (Note 6)	$10,000 to $12,000	As Incurred	Prior to opening.	Suppliers, utilities, etc.
OPENING INVENTORY/ INCIDENTALS	$6,000	Lump Sum	Prior to opening.	Suppliers and Vendors.
ADVERTISING FOR OPENING (Note 7)	$500 to $1,000	As Incurred	As Incurred	Newspapers, radios, printers, etc.
ADVERTISING (Note 7)	$1,000 to $2,000	As Incurred	Monthly	Pizza Factory . Advertising Trust

ADDITIONAL $6,000 to As Incurred As Incurred

FUNDS-3 months $10,000 (Note 8)

Employees, suppliers, utilities, etc.

TOTAL

(Note 9)

$136,000 to $425,000

(See pages 13-14 for notes to Item No. 7.)

7. YOUR ESTIMATED INITIAL INVESTMENT (Note 10):

B. PIZZA FACTORY - MID-SIZE: Dine In, Take Out & Delivery /1,000 to 1,500 sq. ft.

TYPE OF EXPENDITURE	AMOUNT	METHOD OF PAYMENT	WHEN DUE	TO WHOM PAYMENT IS TO BE MADE
MARKET FEASIBILITY & CONSULTING	$5,000 (Note 1)	Lump Sum	Upon signing the Market Feasibility	Pizza Factory
INITIAL FRANCHISE FEE	$5,000 (Note 2)	Lump Sum	At signing of Franchise Agreement	Pizza Factory
TRAINING FEE	$2,500 to $4,000 (Note 3)	Lump Sum	At signing of Franchise Agreemenl (Note 3)	Pizza Factory
TRAVEL & LIVING EXPENSES WHILE TRAINING	$10,000 to, $15,000	As Incurred	During training.	Airlines, Hotels and restaurants.
REAL ESTATE AND IMPROVEMENTS	$15,000 to $80,000 (Note 4)	Note 4	Note 4	Note 4

PIZZA FACTORY - MID-SIZE (Cont.)

TYPE OF EXPENDITURE (Cont)	AMOUNT	METHOD OF PAYMENT	WHEN DUE	TO WHOM PAYMENT IS TO BE MADE
EQUIPMENT & FIXTURES	$50,000 to $110,000	Note 5	Note 5	Vendors (Note 5)
MISCELLANEOUS OPENING COSTS (Note 6)	$3,200 to $3,900	As Incurred	Prior to opening	Suppliers, utilities, etc.
OPENING INVENTORY/ INCIDENTALS	$2,000 to $3,500	Lump Sum	Prior to opening	Suppliers & Vendors
ADVERTISING FOR OPENING (Note 7)	$500 to $1,000	As Incurred	As Incurred	Newspapers, radios, printers, etc.
ADVERTISING (Note 7)	$1,000 $2,000	As Incurred	As Incurred	Pizza Factory Advertising Trust
ADDITIONAL FUNDS-3 months (Note 8) TOTAL (Note 9)	$6,000 to $10,000 $ 100,200 to $ 229,400	As Incurred	As Incurred	Employees, suppliers, utilities, etc.

(See pages 13-14 for notes to Item No. 7.)

YOUR ESTIMATED INITIAL INVESTMENT (Note 10):

PIZZA FACTORY EXPRESS: Take Out & Delivery / 200 to 999 sq. ft.

TYPE OF EXPENDITURE	AMOUNT	METHOD OF PAYMENT	WHEN DUE	TO WHOM PAYMENT IS TO BE MADE
MARKET FEASIBILITY & CONSULTING	$5,000 (Note 1)	Lump Sum	Upon signing the Market Feasibility	Pizza Factory
INITIAL FRANCHISE FEE	-0-(Note 2)
TRAINING FEE	$2,500 to $4,000 (Note 3)	Lump Sum	At signing of Franchise Agreement (Note 3)	Pizza Factory t ■
TRAVEL & LIVING EXPENSES WHILE TRAINING	$10,000 to $15,000	As Incurred	During training	Airlines, Hotels and restaurants.
REAL ESTATE AND IMPROVEMENTS	$10,000 to $35,000	Note 4	Note 4	Note 4

PIZZA FACTORY EXPRESS (Cont.)

TYPE OF EXPENDITURE (Cont)	AMOUNT	METHOD OF PAYMENT	WHEN DUE	TO WHOM PAYMENT IS TO BE MADE
EQUIPMENT & FIXTURES	$25,000 to $90,000	Note 5	Note 5	Vendors (Note 5)
MISCELLANEOUS $3,200 to OPENING COSTS $3,900 (Note 6)		As Incurred	Prior to opening	Suppliers, utilities, etc.
OPENING INVENTORY/ INCIDENTALS	$6,000	Lump Sum	Prior to opening	Suppliers & Vendors
ADVERTISING FOR OPENING (Note 7)	$500 to $1,000	As Incurred	As Incurred	Newspapers, radios, printers, etc.
ADVERTISING (Note 7)	$1,000 to $2,000	As Incurred	As Incurred	Pizza Factory Advertising Trust
ADDITIONAL FUNDS-3 months (Note 8) TOTAL (Note 9)	$6,000 to $10,000 $ 69,200 to $171,900	As Incurred	As Incurred	Employees, suppliers, utilities, etc.

(See pages 13-14 for notes to Item No. 7.)

(Notes to Item No. 7.)

Notes:

1. See Item 5. This fee is nonrefundable and Pizza Factory does not finance this or any other fee or cost incurred by you. See Item 5 for conditions when this fee is refundable.

2. See Item 5. Initial Franchise fee is $20,000 for a Pizza Factory - Full-Size, $10,000 for a Pizza Factory - Mid-Size, and $5,000 for a Pizza Factory Express, but market feasibility fee of $5,000.00 is applied for a net expense of $15,000, $5,000 or $ 0, respectively.

3. See Items 5 and 6. This varies according to number of persons attending and whether you want or need optional additional training.

4. This estimate is based upon leasing of adequate space. If you are not purchasing the building in which you will do business, you are required to enter into a lease with an initial term of no less than five years with option(s) to renew totaling no less than an additional ten years; subsequent renewals must be for a term of no less than five years or the remaining term of the franchise, whichever is less; month-to-month leases are prohibited without the express written consent of Pizza Factory. The cost of purchasing commercial property may be much higher. The total amount of funds necessary to lease suitable franchise premises will vary from location to location depending on a number of factors, including: location, size, term of lease, the extent of new construction or remodeling, the extent to which the landlord will build or remodel, and the amount of the security deposit. Currently, the typical Pizza Factory restaurant has 2,000 to 2,800 square feet and is located typically in shopping centers or store front type buildings. Although Pizza Factory may assist you in locating, negotiating and obtaining a lease, you contract directly with the landlord of the premises and make whatever financial and credit arrangements necessary with the landlord and obtain necessary funds or credit for leasehold improvements from whatever sources you choose. You are required to provide Pizza Factory with a copy of your lease and any modifications of your lease within 10 days of you signing that document. Again, Pizza Factory does not offer any form of financing for any of the fees or investment costs.

(See next page for continuation of notes.)

(Continuation of notes to Item 7.)

5. Although Pizza Factory may assist you in contacting professionals and negotiating with them for the preparation of plans, and contacting and negotiating with suppliers for the installation of fixtures and equipment, you contract directly with the contractors, purveyors and suppliers and make whatever financial and credit arrangements are necessary directly with them or obtain necessary funds or credit from whatever source you choose. Based upon our experience, you should be able to finance approximately one-half of the equipment and fixtures through either the suppliers, purveyors or other sources of financing which you might choose.

6. Although Pizza Factory does not require you to pay to Pizza Factory any security deposits, security deposits to the landlord as well as to utility suppliers will be required. This category also includes application fees and costs for an on-sale beer and wine license and any other licenses or permits required by the state or local law in order to commence operation of your Pizza Factory restaurant.

7. In addition to the advertising fee paid to Pizza Factory, described in Item 6 of this circular, many franchisees wish to purchase special advertisements locally, especially at the time they open their business.

8. This estimates your initial start-up expenses. These expenses include payroll costs. These figures are estimates and Pizza Factory can not guarantee that you will not have additional expenses starting the business. Your costs will depend upon factors such as: how much you follow Pizza Factory's methods and procedures; your management skill, experience and business acumen; local economic conditions; the local market for our product; the prevailing wage rate; competition; and the sales level reached during the initial period.

9.. Pizza Factory relied on the substantial experience of its principal officers in the pizza and pasta restaurant business to compile these estimates. You should review these figures carefully with a business advisor before making any decision to purchase the franchise.

10. Pizza Factory does not offer direct or indirect financing to you for any of these items.

8. RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES AND OTHER OPERATIONAL REQUIREMENTS:

You are required to purchase your requirements of dough mix, spaghetti sauce spice, pizza sauce spice, fiesta seasoning and meatball seasoning, and any other ingredient for authorized menu items as may be designated by us at any time from the purveyor designated by Pizza Factory, presently W&W Seasonings of Oakhurst, California. You are further required to purchase your other requirements of food, beverages (other than alcoholic beverages), materials and supplies from suppliers designated by Pizza Factory and, if not designated, from any other supplier meeting the standards and requirements set by Pizza Factory. You are also required to lease or purchase from Pizza Factory or from the supplier designated by Pizza Factory all signs, posters, or other forms of displays or advertisements bearing the name and trademarks of Pizza Factory.

W&W Seasonings is an affiliate of Pizza Factory. In the year ending December 31^st, 2005, the affiliate's revenues from the sale of dough mix, spaghetti sauce spice, pizza sauce spice, fiesta seasoning and meatball seasoning to the franchisees was $417,517.00. The purchase of dough mix, spaghetti sauce spice, fiesta seasoning, pizza sauce spice and meatball seasoning from W&W Seasonings will represent one percent (1%) of your overall cost of establishing the store and one to three percent (1-3%) of your overall purchases in operating the store. Your purchase or lease of other items from suppliers designated by Pizza Factory or from Pizza Factory will be approximately eighty to eighty-five percent (80-85%) of your total purchases in connection with operating the store.

From time to time, Pizza Factory is able to negotiate a contract with a major distributor, such as Coca Cola, which may provide a marketing incentive to you and all other franchisees in the event . that all franchisees of Pizza Factory agree to purchase the designated product. Pizza Factory reserves the right, upon thirty (30) days notice, to require that you purchase such a designated product. Pizza Factory reserves the right to retain any marketing incentives received as compensation for arranging for such products.

In the year ending December 31^s1,2005, Pizza Factory received no revenue whatsoever from the lease or purchase to franchisees of any signs, posters, or other forms of displays.

The cost of equipment purchased in accordance with specifications represents thirty-nine to forty-five percent (39-45%) of your total purchases in connection with the establishment of your store.

The fixtures and decoration of the franchise premises shall be in accordance with the specifications set forth by Pizza Factory. Also, dishes, glassware, eating utensils, table linens and menus shall be in accordance with the specifications set out by Pizza Factory and shall be purchased by suppliers approved by Pizza Factory. All other foods (other than pizza sauce spice, spaghetti sauce spice, fiesta seasoning and meatball seasoning and dough mix), beverages (other than alcoholic beverages), materials and supplies shall be purchased from suppliers who meet the standards and requirements set forth by Pizza Factory, subject to the rights of Pizza Factory to designate a

particular product or purveyor. There are numerous non-affiliated approved suppliers. All specifications necessary to establish and operate your Pizza Factory franchise are either contained in the Operations Manual or will be provided to you by Pizza Factory in writing.

There may be times when Pizza Factory requires that you make certain necessary refurbishments to your franchise business which must be made within thirty (30) days after notice from Pizza Factory subject to certain limitations as set forth in Section 4.08 of the franchise agreement, a copy of which is attached hereto as Exhibit "D".

Pizza Factory issues specifications for the purpose of maintaining the uniformity and quality standards of Pizza Factory restaurants and for the purpose of presenting a unique product, served in a unique manner, which the public can identify as being a Pizza Factory product. Pizza Factory reserves the right to modify the specifications at any time. You will be notified, in writing, as far in advance as possible, of the nature of the modification and its effective date. In the case of modifications of fixtures, architectural design or decoration of the franchise premises, such modifications will not be applicable to existing franchises or to franchises which are in the process of being constructed or remodeled, unless such modifications can be implemented without additional cost to you. In the case of modifications in the specifications of goods, services and supplies, you will have three (3) months from the effective date of the modification in which to implement the modification.

Pizza Factory approves suppliers based upon the supplier's demonstration that it is able to supply a commodity to the franchisee which meets Pizza Factory's specifications for such commodity, and that the supplier is of good standing in the business community with respect to its financial soundness and the reliability of its product and service. If you would like to purchase an item from another supplier, you may request that the supplier be approved by us. Based upon the information and samples you supply to us, we will test the item supplied and review the proposed supplier's financial records, business reputation, delivery performance, credit rating and other information. Our review typically is completed in thirty (30) days and we will not unreasonably withhold approval. However, you will be charged an amount by Pizza Factory which will not exceed the actual cost of such testing and investigation. This procedure does not apply to any product for which Pizza Factory has designated a specific supplier, such as W&W Seasonings.

Pizza Factory reserves the right to grant or revoke approval of suppliers at any time based upon reasonable cause. If approval is granted to a new supplier or if approval of a supplier is revoked by Pizza Factory, all franchisees will be notified, in writing, of the approval or revocation and the effective date of such.

You are also required to obtain a products liability and public liability insurance policy of no less than $500,000.00 per person and $1,000,000.00 per incident as well as $100,000.00 for property damage. Prior to beginning a delivery service, you are also required to obtain an appropriate auto insurance policy (non-owner and/or commercial) providing benefits of no less than $1,000,000.00 for public liability and public damage. You are required to provide Pizza Factory

with proof of your compliance with these insurance requirements before beginning your business, before beginning a delivery service, and for so long as you operate as a Pizza Factory franchisee. Pizza Factory must be named as an additional insured. Any action arising out of your operation of your business which results in Pizza Factory being a named party in a suit, you are required to defend us in that suit and hold us harmless from any damages.

You are required to operate the franchise seven (7) days per week throughout the year and have the business open from 11:00 A.M. to 10:00 P.M. or such other hours as may from time to time be specified by Pizza Factory. The franchise business may be closed on certain holidays or operate on abbreviated hours on Sundays as specified by Pizza Factory.

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

a. Site selection and

acquisition/lease

b. Pre-opening purchases/leases

c. Site development and other pre-opening requirements

Section in Agreement

Market Feasibility Agreement, paragraphs 1,6

Article 4 of Franchise Agreement

Sections 1.04, 1.05,2.01, 2.02 and 4.01 of Franchise Agreement

Item in Offering Circular

Items 6 and 11

Item 7, 8, 9

Items 1, 6, 7 and 11

d. Initial and ongoing Sections 3.08 and 4.02 training of Franchise Agreement

e. Opening

Fees

Article 4 of Franchise Agreement

Article 2 of Franchise Agreement

Items 11 and 15

Item 11

Items 5 and 6

Obligation (Cont.)

g. Compliance with

standards and policies/Operating Manual

Section in Agreement

Article 4 of Franchise Agreement

Item in Offering Circular

Items 11 and 15

h. Trademarks and

proprietary information

i. Restrictions on

products/services offered

Section 1.04 and Article 5 of Franchise Agreement

Article 4 of Franchise Agreement

Items 13 and 14

Item 16

j. Warranty and

customer service requirements

k. Territorial devel-

opment and sales quotas

1. Ongoing product/

service purchases

m. Maintenance, appearance and remodeling requirements

n. Insurance

o. Advertising

P-

Indemnification

None

Article 4 of Franchise Agreement

Section 7.01 of Franchise Agreement

Sections 3.06 and 4.12 of Franchise Agreement

Section 7.02 of Franchise Agreement

None

Item 8

Items 6 and 11

Item 8

Obligation	Section in Agreement	Item in Offering Circular
(Cont.)
Owner's participa-	Article 4 of Franchise	Items 11 and 15
tion management	Agreement
staffing
Records/reports	Sections 4.12, 4.17 and 4.19 of Franchise Agreement	Item 6
Inspections/audits	Sections 3.04, 3.07, 4.05, 4.17 of Franchise Agreement	Items 6 and 11
Transfer	Sections 1.04,8.01 of Franchise Agreement	Item 17
Renewal	Section 1.03 of Franchise Agreement	Item 17
Post-termination	Article 9 of Franchise	Item 17
obligations	Agreement
Non-competition	Sections 4.09, 4.16 and	Item 17
covenants	Article 5 of Franchise Agreement
Dispute resolution	Sections 9.05 and 10.10 of	Item 17

Franchise Agreement

Your obligation to satisfy the foregoing promises, covenants and restrictions is secured by a standard security agreement and a UCC-1 financing statement, sample copies of which are attached to the Franchise Agreement (Exhibit "D") as Exhibits 1 and 2, respectively. By the security agreement and UCC-1 financing statement, you will give to Pizza Factory a security interest in all of your equipment and fixtures. You are required to sign the security agreement and financing statement prior to opening your store for business. Pizza Factory will accept a security interest in the equipment and fixtures which is second in priority only to a security interest you have given a lender for the purpose of establishing your franchise business or purchasing the equipment or fixtures. Otherwise, the security interest you are required to give Pizza Factory must be first in priority. (See Section 4.19 of the Franchise Offering Circular.)

Prior to opening the restaurant you must satisfy all requirements necessary for opening as set forth on the Opening Checklist included in Exhibit D (Franchise Agreement) as Exhibit 3, and obtain the approval of Pizza Factory. Pizza Factory will promptly review your compliance with all the terms and provisions of the Agreement and shall issue its approval if it determines that you are in compliance.

10. FINANCING:

Pizza Factory does not offer direct or indirect financing. Pizza Factory does not guarantee your note, lease or obligation.

11. FRANCHISOR'S OBLIGATIONS:

Except as listed below, Pizza Factory need not provide any assistance to you. A. Before you open your business, Pizza Factory will:

(1) Conduct a market feasibility study regarding the acceptability and potential success of a Pizza Factory franchise at a location mutually agreeable between you and Pizza Factory (Market Feasibility and. Consulting Agreement: paragraphs 1, 3 and 4.)

(2) Conduct an investigation of the acceptability of you to develop and operate a Pizza Factory franchise in the mutually agreeable general vicinity of the prospective restaurant. (Market Feasibility and Consulting Agreement: paragraphs 2, 3 and 4.)

(3) Pizza Factory will provide you with a list of appropriate locations in the area in which you desire to do business including pertinent information regarding each of those proposed locations. The search and investigation for mutually agreeable locations will continue for 180 days after the signing of the Market Feasibility and Consulting Agreement. (Market Feasibility and Consulting Agreement: paragraph 6.)

(4) Your restaurant location will be purchased or leased by you from independent third parties. Once you have negotiated and signed a lease or purchased a mutually agreeable site, and after your application for a Pizza Factory franchise has otherwise been accepted, you and Pizza Factory will sign the Franchise Agreement. (Market Feasibility and Consulting Agreement, paragraph 5.)

(5) Within thirty days of you signing the Franchise Agreement, Pizza Factory will advise you about obtaining all initially required plans and specifications for the building, equipment, furnishings, decor, layout, menu and menu display, and all signs for or identified with Pizza Factory restaurants, together with advice and consultation concerning them. See Item 8 of this offering circular. You pay for the costs of any blueprints, plans, engineering consultation, and for the construction or remodeling. (Franchise Agreement, Section 3.02.)

(6) Upon the execution of the Franchise Agreement, Pizza Factory will provide you with a copy of the manual of Standard Operating Procedures. (Franchise Agreement, Section 3.03.)

(7) After the signing of the Franchise Agreement and prior to the opening of your store, Pizza Factory will provide to you advisory services regarding the operation of the franchise business. (Franchise Agreement, Section 3.04.)

(8) After the signing of the Franchise Agreement and prior to the opening of your store, Pizza Factory will assist you in selecting suppliers and purveyors of food ingredients, paper products and other necessary supplies. (Franchise Agreement, Section 3.05.) Pizza Factory will also assist you in selecting prices for sale of approved products. (Franchise Agreement, Section 4.07(e).)

(9) Within thirty (30) days of the signing of the Franchise Agreement and prior to your opening of the franchise restaurant, Pizza Factory will train you and any other additional person(s) which you desire as follows:

(a) Pizza Factory will provide you with an initial training program which will consist of at least 325 hours of training over a ninety (90) day period. The training will take place at Pizza Factory's main offices in Oakhurst, California, or at such other location as may be designated by Pizza Factory, Currently, the training also takes place at the Pizza Factory Restaurants in Oakhurst, Mariposa, Madera Ranchos and Prather, California, as well as at the Payson, Arizona unit. The training program will cover subjects which are relevant to the operation and management of a Pizza Factory restaurant such as accounting, bookkeeping, employment practices, customer relations, etc. (See Table attached as Exhibit H.) (Franchise Agreement, Section 3.08.)

(b) Classroom training will consist of approximately fifteen hours. On-the-job training will consist of approximately 310 hours in which you will be observing and participating in the day-to-day operation of a Pizza Factory restaurant. Both classroom and on-the-job training will be under the guidance and assistance of instructors who have, at the minimum, experience including two years direct involvement in the operation of a Pizza Factory restaurant. The officers in charge of the training are Daniel Wheeler and Ron Willey whose experience is described in Item 2 at pages 1 and 2 of this circular. (Franchise Agreement, Section 3.08.)

(10) Pizza Factory charges for this training. See Items 5 and 7 of this offering circular. (Franchise Agreement, Section 3.08.)

(11) You select your business site within your exclusive area among the various sites identified by Pizza Factory upon completion of the market feasibility and consulting study. As mentioned above, Pizza Factory provides you information regarding various sites including population density, traffic patterns, and the proximity of the proposed sites to other Pizza Factory restaurants.

(12) Franchisees typically open their restaurants three (3) to twelve (12) months after they sign a Franchise Agreement. The factors that affect this time are the ability to obtain a lease, financing or building permits, zoning and local ordinances, weather conditions, shortages, and delayed installation of equipment, fixtures and signs.

B. During the operation of the franchise business, Pizza Factory will:

(1) Render advisory services regarding the operation of the franchise business such as preparation of food products in accordance with the manual, management of food supplies, development of personnel policy, training of employees. (Franchise Agreement, Section 3.04.) Pizza Factory will also review your requests for any changes to the menu approved for use at your location, including prices changes. However, no changes may be made to the menu, including pricing, unless first approved by Pizza Factory. (Franchise Agreement, Section 4.07(e).)

(2) Pizza Factory continues to assist you in selecting suppliers and in promoting the franchise business through advertising and public relations campaigns. (Franchise Agreement, Sections 3.05 and 3.06.)

(3) Pizza Factory will provide you consultation and advice through Pizza Factory's field representatives which may be accomplished either through personal visits, telephone calls, and/or mail. (Franchise Agreement, Section 3.07.)

(4) Provide you a copy of our operations manual which contains mandatory and suggested specifications, standards and procedures. This manual is confidential and remains our property. Pizza Factory will modify this manual regarding specifications for products, personnel, store decor, equipment and other aspects of the operation which you are required to follow, but such will not otherwise alter your status and rights under the Franchise Agreement. Upon termination, you are required to immediately return this manual and all modifications and amendments. (Franchise Agreement, Section 3.03.) A copy of the table of contents of our operations manual appears as Exhibit "F" attached to this circular.

(5) Pizza Factory periodically holds company-wide conferences to discuss sales techniques, personnel training, bookkeeping, accounting, inventory control, performance standards, advertising programs and merchandising procedures. There is no conference fee, but you must pay all your travel and living expenses. These mandatory conferences are held at a location selected by Pizza Factory. (Franchise Agreement, Section 4.18.)

(6) Pizza Factory provides advertising materials and services to you through an advertising fund ("the fund"). Materials provided by the fund and which are available to all franchisees include video and audio tapes, maps, posters, newspaper inserts and layouts, posters, banners and miscellaneous point of sale items. A sample of various advertising materials are periodically sent to each franchisee. If you want additional copies you must pay duplication costs. You may develop advertising materials for your own use, at your own cost. Pizza Factory must approve the advertising materials in advance and in writing. (Franchise Agreement, Section 4.12.)

(7) Provide supplemental or repeat training for you when we determine that you need such training. Such supplemental or additional training is mandatory. You will be required to pay the then current rate being charged for training services and you will be responsible for all travel, food, lodging and other expenses incidental to attendance at such training.

(8) Pizza Factory periodically provides in-house brochures, advertising materials, flyers, point of purchase displays and advertising boards on a local, regional and national basis. Pizza Factory provides these advertising tools/materials

by way of their own advertising department or, in some instances, through an independent advertising agency.

Pizza Factory occasionally provides for placement of advertising on behalf of the entire Pizza Factory system, including franchisees. However, most placement is done on a local basis, typically by local advertising agencies hired by the fund. Pizza Factory reserves the right to use advertising fees from the Pizza Factory system to place advertising in national media (including broadcast, print or other media) in the future. In the past Pizza Factory has used an outside advertising agency to create and place advertising. Neither Pizza Factory nor any of its affiliates receives payments from the fund except approximately $4,667.50 per month as compensation for related services, such as the preparation of advertising information and materials and the distribution of such.

The advertising fund is a separate account maintained by Pizza Factory into which all the advertising fees collected from all franchisees are deposited.

Advertising funds are used to promote the products sold by the franchisee and are not used to sell additional franchises. All payments to the fund must be spent on advertising, promotion and marketing of goods and services provided by Pizza Factory restaurants. You must contribute the amount described in Item 6 under "advertising." The fund is administered by Pizza Factory's accounting and marketing personnel under the direction of the director of marketing for Pizza Factory. At this time, there is no advertising board or council and an annual audited financial statement of the fund is available to any franchisee upon request. During the last fiscal year of the fund (ending on December 31 ^s\ 2005), the fund spent 78% of its expenditures on the production of advertisements and other promotional materials, 13% for media placement, and 9% for general administrative and advertising agency expenses.

There are no local advertising cooperatives established for Pizza Factory restaurants (see Item Nos. 6, 8 and 9).

12. TERRITORY:

Each franchisee receives the exclusive right to establish and operate a Pizza Factory restaurant and the exclusive right to use the name, service mark, logo and trademark of Pizza Factory at a specific location.

You will operate from one location and you must receive Pizza Factory's permission before relocating. Pizza Factory will not operate stores or grant franchises for a similar or competitive business within a three-mile radius of your location; this does not prevent franchisor or other franchisees from delivering in or soliciting customers within that area. You do not receive the right to acquire additional franchises within your area.

13. TRADEMARKS:

You will receive the exclusive right to operate a restaurant under the name "Pizza Factory." You may also use our other current or future trademarks to operate your restaurant. By trademark, Pizza Factory means trade names, trademarks, service marks and logos used to identify your restaurant. Pizza Factory registered the below trademarks with the United States Patent and Trademark Office as follows:

(1) The words "Pizza Factory" were registered with the United States Patent Office on February 7, 1989, No. 1523985, Principal Register.

(2) The designation of the Pizza Tosser was registered with the United States Patent Office on July 19, 1988, No. 1497228, Principal Register.

(3) The words "We Toss 'Em - They're Awesome - Pizza Factory" were registered with the United States Patent Office on November 29, 1988, No. 1514938, Principal Register.

(4) The words "We Toss 'Em - They're Awesome" were registered with the United States Patent Office on March 7, 1989, No. 1529080, Principal Register.

(5) The words "Think Pizza" were registered with the United States Patent Office on June 25, 2002, No. 2584901, Principal Register.

On December 9,1985, Pizza Factory successfully registered the words "Pizza Factory" and the designation of the Pizza Tosser as trademarks of Pizza Factory with the California Secretary of State, Registration No. 79472 . On December 9,1985, Pizza Factory also successfully registered the trade name/slogan of "We Toss 'Em - They're Awesome" with the California Secretary of State, Registration No. 25235. The registration for each of the marks registered with the United States Patent & Trademark Office and the California Secretary of State as mentioned above remain in full force and effect.

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

There are no presently effective determinations by the United States Patent Office, the trademark administrator of California, or any court and there is no pending interference, opposition or cancellation proceeding or any pending material litigation involving Pizza Factory's trademarks, trade names or service marks relevant to their use in California except as mentionedbelow. On or about July 31 st, 1987, Pizza Factory instituted an action in the Superior Court of California, County of El Dorado to enjoin certain individuals from utilizing the name of "Pizza Factory" in their business operating in that county. This action has been resolved by the issuance of a permanent injunction permitting the defendants in that action to utilize the name "Pizza Factory" in conjunction with the words "Take 'N Bake" only, and that the defendants may only use such designation within the County of El Dorado.

Except as mentioned above, there are no agreements which limit Pizza Factory's right to use or license the use of Pizza Factory's trademarks, service marks or trade names.

Pizza Factory is obligated to protect any and all rights which you have to use Pizza Factory's trademarks and Pizza Factory is obligated to protect you against claims of infringement or unfair competition with respect to Pizza Factory's trademarks. However, you must modify or discontinue the use of any trademark or service mark if Pizza Factory modifies or discontinues such mark. If this happens because another person or business claims our use infringes on their mark or trade name, Pizza Factory will reimburse you for your tangible costs of compliance (for example, changing signs). You must not directly or indirectly contest our right to our trademarks, trade secrets or business techniques that are part of our business.

Except as noted above, Pizza Factory does not know of any infringing uses in California that could materially affect your use of Pizza Factory's trademarks.

14. PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION:

On April 20th, 1995, Pizza Factory obtained a copyright registration for its operations manual under Registration No. TX 4-034-939. Pizza Factory intends to renew this copyright and register amendments to its manual. You do not receive the right to use an item covered by a patent or copyright, but you can use the proprietary information in Pizza Factory's operations manual. The operations manual is described in Item 11. On October 18, 1999, Pizza Factory updated the copyright registration by filing an amendment, Registration No. TX5-079-854.

Pizza Factory's right to license this copyrighted item is not materially limited by any agreement or known infringing use. Item 11 describes limitations on the use of this manual by you

and your employees. You must also promptly tell us when you learn about unauthorized use of this proprietary information. Pizza Factory is not obligated to take any action but will respond to this information if we think appropriate.

If Pizza Factory decides to add, modify or discontinue the use of an item or process covered by a copyright or patent, you must also do so. Pizza Factory's sole obligation is to reimburse you for the tangible cost of complying with this obligation if such is the result of another person or business claiming that we are violating their patent or copyright. Pizza Factory is not obligated to defend your use of any proprietary item or process which is part of the Pizza Factory Program unless it exercises its option to do so. If it does not defend you, it will reimburse you for the reasonable costs incurred in litigation about any proprietary item or process.

15. OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS:

Pizza Factory does not require that youpersonally supervise the franchise business. The on-premises manager must operate your business so that the business complies with all the standards required by Pizza Factory. The absentee Franchisee will be required to train the manager according to the franchise training guidelines, and will sign and mail a training checklist to Franchisor showing that the on-premises manager has completed the required training. However, the on-premises manager can not have an interest or business relationship with any of Pizza Factory's business competitors. The manager must sign a written agreement to maintain confidentiality of the trade secrets described in Item 14 and the contents of the operations manual and any communications between Pizza Factory and the franchise business and to conform with the covenants not to compete described in Item 17. Each franchisee or the principal owners of any franchisee, if it is a corporation, must sign the same or similar agreement.

16. RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL AND PRICING:

Pizza Factory requires that you serve and dispense only those foods and beverages (other than alcoholic beverages) designated and approved by Pizza Factory. (See Item 9.) You must offer all goods and services that Pizza Factory designates as required for all franchisees which currently comprise those items shown on the sample menu which is attached as "Exhibit E." (See Item 8.) Pizza Factory has the right to add additional authorized products and services that you will be required to offer. There are no limits on Pizza Factory's right to do so.

With the assistance and approval of Pizza Factory, you will establish menu prices for each item prior to opening your business. Pricing may vary from location to location depending upon many factors including the cost of ingredients, supplies, labor, rent, competition, etc. You may only make changes to the menu approved for use at your business, including prices, with the prior approval of Pizza Factory.

17. RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION:

THIS TABLE LISTS CERTAIN IMPORTANT PROVISIONS OF THE FRANCHISE AND RELATED AGREEMENTS. YOU SHOULD READ THESE PROVISIONS IN THE AGREEMENTS ATTACHED TO THIS OFFERING CIRCULAR.

Provision

Section in Franchise Agreement

Summary

Term of the franchise.

Section 1.02

Initial term of franchises -twenty (20) years.

Renewal or extension of the term.

Section 1.03

If you are in good standing and if you have paid your bills relating to the franchise business within thirty (30) days of when due and if you can renew your lease beyond the end of the initial franchise term, you can renew franchise for additional ten (10) years, maximum of two (2) renewals.

c. Requirements for you to

renew or extend.

Section 1.03

Sign renewal agreement, pay fee, renew lease.

Termination by you. None

Termination by Pizza None

Factory without cause.

f. Termination by Pizza

Factory with cause.

Section 9.01, 9.02

Pizza Factory can terminate only if you default.

g. "Cause" defined -

defaults which can be cured.

Section 9.02(a)

You have thirty (30) days to cure: non-payment of fees, sanitation problems, non-submission of reports and other defaults not mentioned in Section 9.01.

Provision

(Cont.)

Section in Franchise Agreement

Summary

"Cause" defined - defaults Section 9.01 which can not be cured.

Your obligations on termination/nonrenewal.

Assignment of contract by Pizza Factory.

"Transfer" by you -definition.

Pizza Factory's approval of transfer.

Condition for Pizza Factory's approval of transfer.

Section 9.04

Section 8.01

Section 8.01'

Appointment of receiver, assignment for benefit of creditors, repeated failure to pay fees and other debts, termination of lease. Conviction of a felony, abandonment, trademark misuse, unapproved transfer, breach of confidentiality, failure to timely assign after death of principal.

Obligations include complete deidentification and payment of amounts due (also see r, below.)

No restriction of Pizza Factory's right to assign.

Includes transfer of contract or assets or ownership change, or bringing in new shareholder, partner.

Pizza Factory has the right to approve all transfers but will not unreasonably withhold approval.

New franchisee qualifies, transfer fee paid, purchase agreement approved, training arranged, release signed by you, all sales and escrow documents disclosed and current agreement signed by new franchisee (also see r, below.)

Provision

(Cont.)

n. Pizza Factory's right of

first refusal to acquire your business.

o. Pizza Factory's option

to purchase your business.

Section in Franchise Agreement

Section 9.03

Sections 8.01, 9.03

Summary

Upon termination of the franchise for cause, at end of term, or prior to transfer including after death.

See n, above.

Your death or disability.

Section 8.01, 9.01,9.03

Non-competition covenants Section 4.16

during the term of the

franchise.

Your interest must be assigned to an approved buyer within twelve months if Pizza Factory does not exercise its right of first refusal.

No involvement in competing business.

Non-competition covenants Section 4.16, 9.04 after the franchise is terminated or expires, or after assignment.

Modification of the agreement.

Section 10.09, 4.07,4.08

No competing business for eighteen (18) months within five (5) miles of another Pizza Factory restaurant.

No modifications generally

but specifications, product designation

and interior/exterior decor package

may be changed, subject to certain

limitations.

t. Integration/Merger Clause. Section 10.07

Dispute resolution by arbitration or mediation.

None

Only the terms of the franchise agreement are binding (subject to state law). Any other promises may not be enforceable.

Choice of forum.

Section 10.10

Litigation must be in Madera County, California.

Summary

California law applies except regarding Franchise Regulation and Relations, then the law of the state in which the franchise exists applies.

At option of Pizza Factory, one-half of the royalty due for the remainder of the franchise period based upon the average calculated royalties until default (Enforceability subject to state law restrictions and limitations -see below.)

California Business & Professions Code Section 2000 through 2043 provide rights to the franchisee concerning termination or non-renewal of a franchise. If the Franchise Agreement contains a provision that is inconsistent with the law, the law will control. Also, California courts may have rendered decisions which may supersede the Franchise Agreement in your relationship with the Franchisor including the areas of termination and renewal of your franchise.

The franchise agreement provides for termination upon bankruptcy. This provision may not be enforceable under Federal Bankruptcy Law (11 U.S.C.A. §101, et seq.) Also, the franchise agreement contains a covenant not to compete which extends beyond the termination of the franchise. This provision may not be enforceable under California law. The franchise agreement also contains a liquidated damage clause. Under California Civil Code §1671, certain liquidated damage clauses are unenforceable. As a condition to either transfer or assign your franchise, Pizza Factory will require that you sign a General Release of all claims you may.have against Pizza Factory, a copy of which is attached to the Franchise Agreement (Exhibit D) as Exhibit 4. The General Release required as a condition for renewal, sale, and/or assignment/transfer shall not apply to release of the type of liability that either the California Franchise Investment Law or the California Franchise Relations Act prohibits from being released or waived.

18. ARRANGEMENTS WITH PUBLIC FIGURES:

Pizza Factory does not use any public figures to promote its franchise at this time.

Provision Section in

Franchise (Cont.) Agreement

w. Choice of law. Section 10.02

x. Liquidated damage Section 9.02

clause

19. EARNINGS CLAIMS:

Pizza Factory does not furnish or authorize its salespersons to furnish oral or written information concerning the actual or potential sales, costs, income or profits of a Pizza Factory restaurant. Actual results may vary from unit to unit and Pizza Factory can not estimate the results of any particular franchise.

The rest of this page is blank.

20. LIST OF OUTLETS:

A. FRANCHISE STORE STATUS SUMMARY FOR YEARS 2005/2004/2003:

STATE TRANSFERS CANCELED OR NOTRE- REACQUIRED LEFT THE TOTAL FRANCHISES

TERMINATED NEWED BY FRANCH1- SYSTEM FROM OPERATING

SOR OTHER LEFT AT YEAR END

ARIZONA	0/0/0	0/1/1	0/0/0	0/0/0	0/0/1	0/1/2	3/3/4
CALIFORNIA	9/8/5	1/0/0	0/0/0	0/0/0	0/0/0	10/8/5	78/73/68
COLORADO	0/1/0	0/0/0	0/0/0	0/0/1	0/0/0	0/1/1	2/2/2
FLORIDA	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0
IDAHO	0/1/0	0/0/0	0/0/0	0/0/0	0/0/0	0/1/0	8/8/8
ILLINOIS	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	1/0/0
MARYLAND	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0
MINNESOTA	0/1/0	1/0/0	0/0/0	0/0/0	0/0/0	1/1/0	0/1/1
MONTANA	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	1/0/0
NEVADA	1/1/1	1/1/0	0/0/0	0/0/1	0/0/0	2/2/2	10/9/10
NEW MEXICO	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0
OREGON	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0
SO. DAKOTA	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0
TEXAS	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	3/2/0
UTAH	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	1/1/0
WASHINGTON	5/3/2	1/2/0	0/0/0	0/0/0	0/0/1	6/5/3	18/18/19
WYOMING	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0

TOTALS: 15/15/8 4/4/1 0/0/0 0/0/2 0/0/2 19/19/13 125/117/112

The above list is as of December 31, 2005.

B. CURRENT STORES: A current list of the names and addresses of our Franchisees are set forth on Exhibit "B". This list is effective as of December 31, 2005.

C. PROJECTED OPENINGS AS OF DECEMBER 31, 2005.

	FRANCHISE	PROJECTED	PROJECTED
	AGREEMENTS	FRANCHISED	COMPANY
	SIGNED BUT	NEW STORES	OPENINGS IN
	STORE NOT	IN THE NEXT	THE NEXT
STATE	OPENfn	FISCAL YEAR	FISCAL YEAR
ARIZONA	1	2	0
CALIFORNIA	7	5	0
COLORADO	0	1	0
FLORIDA	0	0	0
GEORGIA	0	0	0
IDAHO	0	1	0
ILLINOIS	0	0	0
MARYLAND	0	0	0
MINNESOTA	0	0	0
MONTANA	0	0	0
NEVADA	0	1	0
NEW MEXICO	0	0	0
OREGON	0	0	0
SOUTH DAKOTA	0	0	0
TEXAS	0	2	0

UTAH

WASHINGTON

WYOMING

Note (1): as of December 31, 2005.

STATUS OF COMPANY OWNED STORES.

As of December 31, 2005, Pizza Factory does not operate any company owned stores.

INFORMATION REGARDING RECENTLY TERMINATED FRANCHISEES:

The name and last known home address and telephone number of every Franchisee who has had an outlet terminated, canceled, not renewed, or otherwise voluntarily or involuntarily ceased to do business under the franchise agreement during the calendar year 2005 or any Franchisee who has not communicated with the Franchisor within ten weeks of March 1^st, 2006, are as follows:

Name, last known address, telephone number

Location of Franchise

Reason

Tom Kilcollins

1001 Woodcreek Oaks Blvd.

#225

Roseville, CA 95747

Cameron Park, CA

Transferred

Maggie Green P.O. Box 526 Chester, CA 96020

Chester, CA

Transferred

Eric Lombardi

1101 Rough Rider Court

Auburn, CA 95603

Colfax, CA

Transferred

Lucky Birring 1654 Milly Lane Ceres, CA 95307 Harman Pannu 1801 Ginkgo Court Ceres, CA 95307

Gustine, CA

Transferred

Marc Holt

33001 Hill Street

Temecula, CA 92592

Mike Carter

P.O. Box 1735

Big Bear Lake, CA 92315

Lake Elsinore, CA

Transferred

Name, last known address, telephone number

Tom Mazzaglia 3762 Garnet Road Pollock Pines, CA 95726

Lisa Faccinto

P.O. Box 5092

San Andreas, CA 95249

Nil Eren

2672 W. Canyon Avenue #514

San Diego, CA 92123

Paul and Audrey Kinser 53262 Road 419 Oakhurst, CA 93644

Ryun and Brooke O'Reilly 119 Broadview Winters, CA 95694

Maryann Gartner

930 White Water Avenue

St. Charles, MN 55972

Jessica Rinn

606 4th Avenue, NE

Kasson, MN 55944

Location of Franchise

Placerville, CA

San Andreas, CA

San Diego, CA

Walnut Grove, CA

Winters, CA

St. Charles, MN

Reason

Transferred

Closed

Eric Lombardi

1101 Rough Rider Court

Auburn, CA 95603

Larry Warden P.O. Box 434 Wellington, NV 89444

Marv and Debra Adam 730 B Street Blaine, WA 98230

Hawthorne, NV

Yerington, NV

Blaine, WA

Transferred

Closed

Transferred

Name, last known address, Location of Franchise Reason

telephone number

IRM c/o Ron Ray Coupville, WA Transferred

2119 21st Street Anacortes, WA 98221

Jan Speelman Medical Lake, WA Transferred

Route l,Box217C St. Maries, ID 83861

Derek Wortner Sedro Woolley, WA Transferred

11221 N.Skagit, Street, #A Burlington, WA 98233

Joe & Sandy O'Hagan Suncrest, WA Transferred

P.O. Box 946

Deer Park, WA 99006

Dave Hawley Vashon Island, WA Closed

4861 S. Torrey Pines Dr. #204

Las Vegas, NV 89103

Barbara Sinnott

673 Tiffany Meadows Dr. NE

Bainbridge Island, WA 98110

21. FINANCIAL STATEMENTS:

The Franchisor's audited balance sheet and profit and loss statement for the years ending December 31,2005, December 31,2004, and December 31,2003, are attached hereto marked "Exhibit C".

22. CONTRACTS:

Attached to this offering circular as "Exhibit D" is a copy of the Franchise Agreement for Pizza Factory's franchises including all security agreements, general release agreements, lease agreements, option agreements, and purchase agreements. Attached as "Exhibit A" is a copy of the Market Feasibility and Consulting Agreement.

23. RECEIPT:

Two copies of a Receipt by you of this Offering Circular are attached at the end of the Circular. Please review it carefully, sign and date one copy and return to Pizza Factory and retain the other for your records.

This offering circular summarizes provisions of the Franchise Agreement and other information in plain language. Read this offering circular and all agreements carefully.

If Pizza Factory offers you a franchise, Pizza Factory must provide this offering circular to you by the earliest of:

1. The first personal meeting to discuss the franchise; or

2. Ten (10) business days before signing of a binding agreement; or

3. Ten (10) business days before any payment to Pizza Factory.

If Pizza Factory does not deliver this offering circular on time or if it contains a false or misleading statement, or a material omission, a violation of federal and state law may have occurred and should be reported to the Federal Trade Commission, Washington, D.C., 20580, and the state agency listed in Exhibit G.

Pizza Factory's agents authorized to accept service of process are listed in Exhibit G of this Circular.

L :\PIZZ A\Cal i fCi r2006. wpd

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