The Kosnar Group

2306 Wales Drive

Cardiff by the Sea, CA 92007
Phone: (760) 632-8402
Mobile: 619-994-2258
Fax: (760) 632-0772

MEMORANDUM

To:

From: Carl J. Kosnar

Re: Questionnaire to Assist in Structuring the Franchise Agreement

Date:

_________________________________________________________________________

The federal franchise laws are basically "disclosure" laws. That is, they do not regulate to
any significant extent the terms of the agreement between you, as the franchisor, and a franchisee (the
"franchise agreement").

This Questionnaire focuses on information relative to the various types of provisions to be

included in your franchise agreement. Please try to answer the questions as fully as possible. If you
are unable to answer any questions completely, respond as best you can.

If any question is inapplicable to your franchise program, respond with "N/A." We have tried
to explain the reasons for many of the questions and have given you a choice of several possible
answers based on our franchising experience, where appropriate. These proposed answers are only
possibilities, not required responses. If you have a different answer, let us know. When responding
to questions on your franchise program, be reasonable and base your responses on any experience
you may have had to make your own business successful. We will review your responses to the
questions and schedule a time to discuss them with you.

This Questionnaire will be used to prepare a franchise agreement for a prospective franchisee
purchasing one single-unit franchise. Responses related to the Fair Franchising Standards are
highlighted in bold. More complex franchise arrangements such as area development (multiple-unit)
agreement, subfranchising (master franchising) and area representative (development agents) require
additional documents and disclosures. Most start-up franchisors concentrate on single-unit sales
initially.

The steps for preparation of your documents once we have received the completed
Questionnaire are: we prepare the franchise agreement and the exhibits for your review and
comment; we then have you complete our Questionnaire for the disclosure statement; we then
prepare the disclosure statement for your review and comment. The full document package will then

1
be finalized.

ALL RESPONSES SHOULD BE TYPEWRITTEN OR NEATLY PRINTED

- Attach separate sheets as necessary -

FRANCHISE AGREEMENT QUESTIONNAIRE

1. Identity of Franchisor. Please give us the name of the franchisor, type of organization (for
example, corporation, partnership) and state and county of organization. We would suggest
that you give consideration to forming a new entity to become the franchising
company to protect not only your personal assets but also the assets of your existing
company. There are some accounting reasons to do this as well if your present
company does not have audited financial statements.

(a) Name of entity:

(b) Type of entity:

(for example, corporation)

(c) State of organization:

(d) Principal business address (including county):

If already formed, send us your corporate minute book or partnership agreement.

2.000 Description of Your Franchise System. Please describe as clearly and succinctly as
possible your franchising concept and the trade name under which company-owned units and
franchised units will be operated.

(a) Franchising Concept:

(b) Trade name under which all units will do business:

3.000 Site Selection.

(a) Will the franchisee always have secured a site before signing the franchise agreement,
or will you sometimes designate a reserved area within which he or she may select a
specific site, which will occur after the franchise agreement is signed?

 Specific site

 Reserved area
 Describe:

(b) Will the franchisee be solely responsible for selecting a site, with your approval?

 Yes  No

(c) If a site may be selected after the franchise agreement is signed, how long will the
franchisee have to select a site? We generally suggest up to 6 months from the date
the franchise agreement is signed: __________ months

(d) If a site is not selected within the time period, do you want right to terminate the
agreement?

 Yes  No

If yes, what portion of the franchise fee or other prepaid items would you refund?

If no, what remedy do you want? ______________________________________

(e) Can the franchisee engage in take-out or home delivery?

 Yes  No

(f) Can the franchisee solicit business outside his or her area of dominant influence
through the use of an 800 number, catalog, direct mail or other advertising or
solicitation method?

 Yes  No

4.000 Protected Territory. Many franchisors give, and most franchisees expect, a protected
territory within which no other franchisee or company unit will be located. However, not
granting a protected territory gives you the most flexibility in determining the number of units
a market can handle. Please give thought as to whether you want to provide a protected
territory. The Fair Franchising Standards require you to give a franchisee reasonable
market protection.

 No Protected Territory - street address only

 Circular area having a ______ - mile radius from the premises

 An area having _________ persons or houses, etc.

 Other - Describe:
5. Relocation. There may be circumstances beyond the control of the franchisee which causes
a loss of the premises. Will the franchisee be permitted to relocate the premises within the
reserved area but not within a protected area of another franchisee, upon:

 Loss of lease, through no fault of the franchisee?

 Casualty to the premises?

 Condemnation of the premises?

 Other:

If you allow relocation will you charge a fee to cover your costs?

 Yes  No

If yes, what is the amount of the fee? $_______________________________________

6. Franchisee's Right of First Refusal.

A franchisor will occasionally offer a right of first refusal to a franchisee for additional units
close to a franchisee's existing unit. If you desire to open a company unit or franchised unit
in a county (or other area) that already has an existing franchise, do you want the closest
franchisee to have a right of first refusal to purchase that proposed franchise?

 Yes  No

7. Duties of the Franchisor. You, as a franchisor, will provide certain assistance and services
to the franchisee in exchange for the payment of an initial franchise fee and on-going
royalties. Please give serious consideration to your duties. A failure by you to fulfill your
duties may cause you to breach the franchise agreement. The following is a list, which is not
intended to be exhaustive, of possible franchisor services. Please let us know which services
you intend to supply:

(a) Site Selection Assistance:

 Written site selection criteria

 On-site evaluation

 Written approval of site

 _________________________________________________

(b) Lease Assistance:

 Written franchisee/tenant lease negotiation checklist

  Prior written approval of lease

 ___________________________________________

(c) Plans and Specifications:

 Loan of a sample set of standard building plans and specifications and/or

standard recommended floor plan

 Loan of specifications of your requirements for design, decoration, layout,

equipment, furniture, fixtures and signs

 Specifications for employee uniforms

 _________________________________________

(d) Business Planning Assistance

 Review and comment on franchisee's business plan

 Provide franchisee with leads for a working capital line of credit, term loan
and/or equipment lease financing

(e) Business Systems:

 Accounting systems

 Cost control systems

 Portion control systems

 Inventory control systems

 __________________________________________

(f) Forms and Schedules:

 Forms. Specify:________________________________________

 Schedule of items required to be purchased.

 Schedule of items recommended to be purchased.

 Schedule of sources for required purchases.

 Schedule of sources for recommended purchases.

  Schedule of your specifications for required items that may be purchased
from any source.

 Schedule of your specifications for recommended items that may be

purchased from any source.

(g) Employee Information and Assistance:

 Employee hiring information

 Pay scale guidelines

 Standardized interviewing/selection system

(h) Basic Management Training:

(i) Location:

(ii) Duration:

(iii) Content:

(iv) When training is to be conducted:

(v) Charges per trainee imposed by you, if any, for training: $__________; and
the franchisee will be responsible for travel, lodging and meals of the
attendees:

 Yes  No

(vi) Is any particular person required to be trained (for example, individual

franchisee, president of corporate franchisee, or any employee of franchisee)?

(vii) How many people do you require to receive training (for example, individual
franchisee and manager)?

(viii) How will you determine whether training was satisfactorily completed (for
example, objective written test, based on your sole discretion, in your
reasonable judgment, etc.)?

(ix) If the franchisee and/or its manager fails basic training management, will you
 retrain the franchisee and/or its manager or terminate the agreement?

 retrain  terminate

(x) If you terminate the franchise agreement, will you refund any of the initial
franchise fee and other fees?

 Yes  No

If yes, please state what amount will be withheld by you:

(xi) Other comments:

(i)0 Manuals:

 Operation manuals

 Marketing manuals

 Employee training materials

 Retail promotional/advertising packages

 Pamphlets and other printed materials

 Accounting systems

 __________________________

 __________________________

(j) Pre-Opening Inspection:

Will you provide periodic on-site assistance and inspection of the installation of
furniture, fixtures, equipment, signage, etc. to make sure that it conforms to
applicable standards before the opening date?

 Yes  No

If yes, what will it entail?

How often?

(k) Pre-Opening, On-Site Training, Opening Supervisor:

 (i) Will there be pre-opening, on-site training?

 Yes  No

How many days, if any, before grand opening? _________ days

How many days, if any, thereafter? ________ days

What will such a training program entail?

(ii) Will you supply an opening supervisor?

 Yes  No

What will the supervisor do?

Who will pay for his or her expenses? ____________________________

(l)0 Grand Opening Assistance:

 Coordinate expenditure of grand opening advertising fee

 Other:

(m) Continued Assistance:

 Periodic visits by a field representative

 A telephone line solely for informational assistance.

Will it be toll-free?  Yes;  No

 Consultation on such matters as operations, advertising, promotion and

business methods

 National and regional advertising campaigns using franchisees' advertising

contributions

 Promotional methods and materials

 Pre-approved radio scripts and camera-ready television commercials

  Continuing advisory assistance in the operation and promotion of the
franchised business

 Refresher and advanced training programs and seminars

 Special assistance at cost

 Research and development of new products, services, introductions and

techniques

 Other:

Do any of the above require the franchisee to pay additional fees and costs?

 Yes  No

If yes, specify:

(n) Software License:

Are computers and computer software which you own and develop (not "off-the-
shelf") an integral part of your franchise operation?

 Yes  No

If yes, describe:

8.000 Fees and Payment Requirements. Describe in detail all initial, recurring and isolated fees
or payments the franchisee is or may be required to pay to the franchisor or persons affiliated
with the franchisor, or which the franchisor or such affiliated person imposes or collects in
whole or in part on behalf of a third party.

(a) Initial Franchise Fee:

Usually the initial franchise fee, which may run from a few thousand dollars to a
hundred thousand dollars or more, is paid in full at the time the franchise agreement is
signed. Sometimes the franchisor is willing to take a portion of it in cash and a
portion payable over time evidenced by a promissory note. A deferral of a portion of
the initial franchise fee may create tax problems we will need to discuss. Please let us
know the amount of the franchise fee and when and how it is payable.

The initial franchise fee is non-refundable except under certain conditions which may
 be:

 The franchise agreement is not accepted by the franchisor at its home offices
within 30 days

 The franchisee fails basic management training

 The franchisee fails to obtain a suitable site within _____ months of signing
the franchise agreement

If refundable, how much will be refunded? $

Will the initial franchise fee and other initial payments be subject to an escrow
agreement?

 Yes  No

If yes, describe escrow: ______________________________________________

(b) Royalty Fee:

Usually, a franchisee will pay you a weekly, monthly or quarterly royalty fee during
the term of the franchise agreement, either of a fixed amount or as a percentage of
weekly/monthly/quarterly gross revenues. We generally prefer a percentage of gross
revenues instead of a fixed amount. Please designate the royalty fee and circle the
royalty period.

 Fixed royalty fee of $_________________ per week/month/quarter

 Variable royalty of _________% of weekly/monthly/quarterly gross revenues

 Minimum weekly/monthly/quarterly royalty fee of $__________ (regardless

of gross revenues) commencing on the _______ full calendar month after the
opening date

 Varying percentages of _____% up to $_______________ of annual gross

revenues; _____% from $_______________ to $_______________ of
annual gross revenues __________________________________________
______________________________________________________

 ______________________________________________________

(c) Grand Opening Advertising Fee:

You may want to require the franchisee to pay you a lump sum of several thousand
 dollars to be used for special grand opening advertising expenditures when his or her
franchised business first opens, or require the franchisee to spend such amount
directly. Is a grand opening advertising fee going to be charged?

 Yes  No

If no, will you require the franchisee to spend any stated amount directly?

 Yes  No

If yes to either, let us know how much, and describe what the expenditure would be
used for.

(d) Advertising Contributions:

(i) National and Regional Advertising. In many franchise systems the

franchisor creates a special marketing fund to administer the advertising
contributions paid by franchisees for regional and national advertising. Do
you want such a marketing fund?

 Yes  No

Will company units be required to contribute to the same extent as

franchisees?

 Yes  No

In most franchise programs the franchisee pays a certain percentage of his or

her weekly/monthly/quarterly gross revenues or a flat fee to the franchisor to
be put in a special marketing fund to be used by the franchisor for regional
and national advertising on behalf of all the franchisees. Sometimes the
franchisor requires an initial contribution to the marketing fund to kick it off.
We generally recommend a percentage fee.

 Initial Contribution of $__________________.

 Continuing weekly/monthly/quarterly contribution of $_________

 Continuing weekly/monthly/quarterly contribution of ______% of

weekly/monthly/ quarterly gross revenues

 Minimum weekly/monthly/quarterly advertising contributions of

$______________ (regardless of gross revenues) commencing on the
_______ full calendar month after the opening date
 Sometimes a franchisor will reserve the right to increase the amount of
advertising contributions under certain circumstances. Do you want to
reserve the right to increase the amount of the advertising contribution?

 Yes  No

If yes, what would be the highest percentage of monthly gross revenues you
may require to be contributed to the marketing fund?

 Fixed fee of $_________________ per week/month/quarter

 Variable fee of _________% of weekly/monthly/quarterly gross

revenues

If yes, will this be a franchisor-only decision or a joint decision with a majority

of the franchisees. The Fair Franchising Standards require a joint
decision.

 Franchisor Only

 Joint

(ii) Local Advertising by the Franchisee. In addition to requiring the franchisee

to contribute a certain amount to the marketing fund for regional and national
advertising conducted by you as discussed above, you may require the
franchisee to spend a certain amount for local advertising. Local advertising
is advertising that the franchisee conducts (subject to your approval) in his or
her local market area. This would include one or more of the following:

 A fixed amount of $______________ per week/month/quarter

 A variable amount equal to ______% of weekly/monthly/quarterly

gross revenues

 A sign in the premises indicating that you have franchise opportunities

available and for people to call you at a designated telephone number.
Your (800) number:

(800) -

 A Yellow Pages ad in the ____________ section of the local Yellow

Pages

(iii) Regional Cooperative Advertising. When you have more than one franchisee
in an area of dominant influence (ADI), do you want to have the right to form
and require the franchisee to join a regional advertising cooperative?
  Yes  No

If yes, how much should the franchisee contribute?

 A fixed amount of $______________ per week/month/quarter

 A variable amount equal to ______% of weekly/monthly/quarterly

gross revenues

We assume that any amounts paid to the cooperative will be credited against
any local advertising requirement.

 Yes  No

(e)0 Accounting Fee:

If you or an affiliate will be supplying accounting services to the franchisee, will there
be a fee?

 Yes  No

If yes, how much? .

(f) Software Fee and Fees for Programming Services:

(i) If you or an affiliate are supplying software to the franchisee, will there be an
initial fee?

 Yes  No

If yes, how much? $____________.

(ii) Will there be an on-going fee?

 Yes  No

If yes, how much? $____________.

(iii) Will there be fees for programming services?

 Yes  No

If yes, how much? $____________.

(g)0 Additional Training Fee:

If refresher training or advanced management training is supplied, will there be an

additional fee?
  Yes  No

If yes, describe how much and under what circumstances:

(h) Other Initial or Recurring Fees to You or Your Affiliates (not to unrelated third
parties) If yes, describe how much and under what circumstances:

 Site Selection and Lease Negotiation Fees:_________________________

 Construction Fees:_____________________________________________

 Rent and Other Lease Payments:_________________________________

 Sublease Administration Fee:____________________________________

 Opening Inventory:____________________________________________

 Additional Inventory: _________________________________________

 Fee for Lost Manuals (for example, $200):_________________________

 Other:_______________________________________________________

(i) Transfer Fee:

As discussed below, there will be certain provisions relating to the transfer of the
franchise by the franchisee. In such event you will want to impose a transfer fee at
least to reimburse you for your out-of-pocket expenses in investigating and
approving the transfer and the transferee and training of the transferee and his or her
manager. Transfer Fee of $____________________

(j) Payment Schedule:

We would suggest that the royalty fee and advertising contributions be made no later
than Wednesday of each week for the preceding week or the 10th day of each month
for the preceding month.

 Yes  No

 Weekly  Monthly

If none of the above, your suggestion:

(k) Payment System:

 Nowadays a franchisor often is not willing to rely on "the check's in the mail" and will
set up a procedure in the franchise agreement to allow the franchisor to access the
franchisee's operating account to make all required payments due from the franchisee
to the franchisor. Do you want to reserve the right to establish a payment system?

 Yes  No

If yes:

 Special operating account

 Electronic funds transfer system

 Pre-authorized transfers through the use of special checks

 ____________________________________________________________

(l) Late Charge:

If any payment due to you is not paid when due, we recommend that you reserve the
right to impose a late charge to cover your administrative costs in collecting a late
payment. Do you want to have a late charge provision?

 Yes  No

If yes, how much should the late charge be? $______________ (for example, $100).

(m) Interest on Late Payments:

In addition to a late charge, you may want to charge interest on late payments
because you have lost the use of the funds. We recommend the lesser of: (i) 18% per
annum; or (ii) the maximum rate of interest permitted by law. Do you want to charge
interest on late payments?

 Yes  No

If yes, how much should the interest be? $______________________

(n) Security for Performance:

You may want to secure the franchisee's obligations to you including monies due you
or claims you are to be indemnified for by one or more of the following security
devices:

 A security interest in the business assets of the franchisee

 Security deposit of $_________________________.

  Letter of credit of $_________________________.

 ______________________________________________.

9.000 Duties of the Franchisee. In order to maintain uniformity and quality control over the entire
franchise system, you will impose certain duties upon the franchisee. Please give serious
consideration to the duties you want your franchisee to undertake. The following is a
list, which is not intended to be exhaustive, of possible franchisee duties. Please let us know
which duties you want your franchisees to undertake:

(a)  Selection of a site

(b)  Initial Permit and Certifications:

 Permits and certifications must be obtained to commence

construction

 Permit must be obtained to dispense liquor at the premises?

 Yes  No

 Other:
(c)  Construction and Opening Requirements:

When should construction commence? ________ months from the date of

the franchise agreement.

When should construction be completed? ________ months from the date of

the franchise agreement.

When should business open? ________ days from the date of the franchise
agreement.

(d)  Use of the Premises:

Can the franchisee use the premises for other than the operation of the
franchise business?

 Yes  No

If yes, what other type of business?

____________________________________________________________

____________________________________________________________

(e)  Cash Register Requirements:

 What types of P.O.S. System, if any, will be required in recording gross
revenues (for example, non-resettable cash registers)?

_____________________________________________________________

_____________________________________________________________

(f)  Management of the Franchised Business:

Will more than one full-time manager be required to be present during normal
business hours?

 Yes  No

If yes, how many? ___________

Must all full-time managers receive training directly from you?

 Yes  No

(g)  Purchases from the Franchisor or Affiliates:

What products or services must the franchisee purchase from the franchisor
or an affiliate of the franchisor?

_____________________________________________________________

_____________________________________________________________

(h)  Approved Specifications and Sources of Supply

Will you have approved specifications for product purchases?

 Yes  No

Will you have a list of approved suppliers?

 Yes  No

(i)  Trade Secrets:

Do you have any secret recipe products, private label products or other trade
secrets that are part of the franchise system? If yes, describe generally:

____________________________________________________________

_____________________________________________________________
(j)  Credit Cards and Other Methods of Payment:

Will the franchisee be required to maintain certain credit card relationships

and other non cash methods of payment?

 Visa

 MasterCard

 American Express

 Diner's Club

 Discover

 Checks

 ______________________________________________________

(k)  Telephone and Answering Service:

How many telephones? At least _________ telephones

How many lines? At least _________ lines

 Answering service after business hours

 Telephone answering machine

 Public pay telephones installed in _____________ area of premises.

 A dedicated operating telephone line and telephone number to be used by

only you to monitor accounting and operational information via a modem
provided by the franchisor? or franchisee? (circle one)

(l)  Professional Affiliation:

Is there a professional association that you will require the franchisee to join?

 Yes  No

If yes, describe _______________________________________________

(m)  Customer Surveys:

 Do you want to reserve the right to require your franchisees to participate at
their expense in any customer surveys and marketing surveys you want to
perform using responses from the franchisees' customers?

 Yes  No

(n)  Franchisee's Performance Standards:

Many franchisors do not impose a minimum sales requirement or other

performance standard as a condition to the continuation of the franchise
agreement. However, you may end up in a situation where the franchisee is
not working as hard as you would like him or her to work. Therefore, you
may want to consider some sort of performance standard such as a minimum
sales or purchase requirement, etc. One of the potential problems with an
absolute minimum is that it may fail to take into account circumstances
beyond the franchisee's control such as economic conditions, shortages, etc.
Please give us your thoughts in this regard.

(o)  Renovation and Upgrading:

We assume you will want to reserve the right to impose upon the franchisee
the obligation to renovate and upgrade the franchised premises at his or her
own expense when you determine it to be necessary or appropriate in the
future.

 Yes  No

If yes, how often? Every ___ years; how much? $___________ every ___
years ("Capital Expenditure Limitation").

(p)  Liquidated Damages for Sale of Prohibited Products or Services. We suggest

you have a provision requiring the franchisee to pay some daily penalty for
selling unapproved products or services.

 Yes  No

If yes, how much? $ .

(q)  Financial Covenants:

Do you want to place any restrictions on the net worth of the franchisee to
ensure sufficient capital is available to fund the franchise?

 Yes  No
 If yes, please describe:

(r)  Other Duties:

Please list any other duties that you want the franchisee to perform:

10.000 Proprietary Marks. The proprietary marks (for example, your trademarks) constitute the
cornerstone of your franchise system. Some franchisors make no representations with
respect to the proprietary marks, others do. Typically, franchisees want the franchisor to
stand behind the trademarks. How much responsibility you want is up to you.

(a) The franchisor's representations as to the proprietary marks:

Franchisor will take all steps reasonably necessary to preserve and protect the
ownership and validity of the proprietary marks.

 Yes  No

Franchisor will indemnify the franchisee for any lawsuit arising out of any
infringement claims against the proprietary marks as long as the franchisee has used
the proprietary marks in accordance with the franchise agreement?

 Yes  No

(b) Secondary Marketing Opportunities.

The franchise agreement will provide that the franchisee can use the proprietary
marks only in connection with the franchise business. You will want to reserve for
yourself the right to use the proprietary marks in your company units and to grant
licenses and franchises to others to use the proprietary marks outside the franchisee's
protected territory, if any. Do you also want to reserve the right to sell, even if in
your franchisee's protected territory, directly to particular segments of your industry
such as national accounts, grocery chains, other special groups, etc., without having
to go through the franchisee? This may give you some benefit but it must be
specifically carved out of the franchise agreement. Otherwise, it may later cause
dissention among, or litigation by, your franchisees. Please give us your thoughts in
this regard:
11. Accounting and Records.

(a) How long should the franchisee keep his or her records? We suggest 6 years.
_______ years.

(b) How frequently do you want the franchisee to send you reports?

 Weekly reports by _____ of each week. Specify type of information:

_____________________________________________________________

_____________________________________________________________

 Monthly reports by the _____ day of each month. Specify type of

information:

_____________________________________________________________

_____________________________________________________________

 Quarterly reports within _____ days from the end of each quarter. Specify
type of information.

_____________________________________________________________

_____________________________________________________________

(c)  Sales records and sales tax returns

(d)  Annual financial statements for each fiscal year prepared by an independent
certified public accountant. The Fair Franchising Standards do not allow
audited financials before a franchisee is found to be underreporting.

 Compiled  Reviewed  Audited

(e)  Other: ______________________________________________________

12.000 Insurance. The franchise agreement will provide for the franchisee to carry certain types of
insurance coverage for its and your benefit. In this regard, you will need to discuss with
your insurance agent the types and amounts of coverage that make sense for your
franchisees' operations.

 Yes  No

Insurance may include:

 Commercial general liability insurance, completed operations and independent

contractors coverage in the amount of $______________ per person and
 $__________________ per occurrence

 Workers' compensation coverage in the amount of $__________/

$____________/$_____________ and employer's liability insurance

 Fire, vandalism and an extended coverage insurance

 Automobile liability insurance of not less than $_____________

 Commercial blanket bond in the amount of $_____________

 License bond of $______________

 Errors and omissions insurance of $______________/claim and $______________

in the aggregate

 Advertising liability insurance in the maximum amount of $______________

 Products liability insurance in the amount of $___________/claim and

$____________ in the aggregate

 Builder's risk insurance of at least $_____________ in case of any construction and

renovation

 _____________________________________________________________

_____________________________________________________________

We suggest that you receive evidence of proper insurance at least 10 days before the
franchised business opening and that you receive at least 30 days' written notice of any
cancellation or modification of the franchisee's insurance.

What insurance will you maintain?

 Franchisor errors and omissions insurance in the minimum amount of $_____;

 Product liability insurance covering all products sold to you by us or our Business
Affiliates in the minimum amount of $_______;

 Commercial general liability insurance in the amount of $______per person/or

occurrence for bodily injury and property damage combined with a general aggregate
of $________; and

 Other: _____________________________________________________________

13. Franchise Advisory Council or Independent Franchisee Association. In many franchise

systems, a franchise advisory council is created when there are a sufficient number of
 franchisees to justify a council. This is either set forth in the franchise agreement or when the
franchise agreement is silent, it just evolves. In most cases it is best for the franchisor to be a
guiding force in the creation of the franchise advisory council. The reason for this is that you
do not want the advisory council to take on an adversarial position with you. You want the
council to give you constructive ideas and criticisms and thereby minimize as much as
possible an "us vs. them" situation. Do you want the franchise agreement to reserve for you
the right to create the franchise advisory council?

 Yes  No

If yes, will you create this immediately or at some point in the future?
_______________________. If it's in the future, under what circumstance will it be created
(for example, a number of franchisees, time certain, etc.)? Please specify:

If a franchise advisory council is to be created, on what will it advise? You can have more
than one council.

 Advertising

 Marketing

 Operations

 New Product and Services Suggestions

 __________________________________________________________________

The Fair Franchising Standards contemplate that the franchisees form an independent
franchisee association which will elect its own directors and officers, develop its own
agenda, retain its own lawyers and other advisors and eventually, collectively negotiate
issues and agreements with you.

Independent Franchisee Association Yes  No

14. Annual Convention.

Do you plan to have an annual convention with your franchisees?

 Yes  No
Who will pay the costs? ___________________________________________________

15. Franchisor's Option to Purchase.

Some franchise agreements provide that the franchisor has the option to purchase the
franchisee's business at some specified time (for example, death of franchisee) and at some
valuation formula. Do you want a purchase option?
  Yes  No

If yes, under what circumstances?

At what valuation?

Do you want to implement a "key man" life insurance program whereby life insurance is
issued on the franchisee, the proceeds of which go to the franchisor as beneficiary, to be used
to purchase the franchise back upon the death of the franchisee?

 Yes  No

If yes, how much insurance? $ . Who pays for the premiums?

.

16. Transfer of Interest.

(a) Transfer by the franchisor:

We normally put in the franchise agreement that you have the absolute right to sell
the franchising company or otherwise transfer the franchise agreement without any
consent or approval by the franchisee. This gives you absolute flexibility in case you
go public, merge, sell out, etc. Do you want it another way? The Fair Franchising
Standards require that your buyer have sufficient business experience, aptitude
and financial resources to competently assume your obligations.

 Yes  No

 Yes, Fair Franchising Standards

If yes, please describe:

(b) We normally put in the franchise agreement that the franchise may be transferred
from an individual franchisee to a wholly-owned corporation if certain conditions are
met (for example, individual franchisee or manager remains as full-time manager,
corporation is newly organized and owns only the franchised business, individual
franchisee remains personally liable, etc.). Do you agree with this arrangement?

 Yes  No
(c) Transfer by the Franchisee:

The franchisor normally imposes certain restrictions on the franchisee's ability to

transfer his or her interest in his or her company or in the franchise agreement. This
is because of the personal relationship between the franchisor and the franchisee.
However, because it is the franchisee's business and he or she has developed a certain
equity in the business, it would be unfair to totally restrict transfers by the franchisee
or its owners. Therefore, a fair compromise is for you to impose a set of reasonable
conditions to any transfer. These conditions may include:

 Your waiver of your right of first purchase [see Section 16(d)]

 Satisfaction of all of franchisee's accrued obligations

 Franchisee not in default under the franchise agreement

 Franchisee executes a general release to you (Don't check if you want to

satisfy the Fair Franchise Standards).

 Transferee:  assumes franchise agreement; or  enters into the standard

form franchise agreement you are then offering to new franchisees

 Transferee is approved by you

 Transferee must renovate the franchise business

 Transferee must assume lease or acquire title to the premises

 Transferee or its manager must satisfactorily complete basic management

training

 Franchisee must pay the transfer fee as described in Section 8(i).

(d) Death or Disability of Franchisee:

The franchise agreement should contain provisions governing the death or disability
of the franchisee. What requirements do you want to impose in this event?

 Franchise must be transferred in accordance with franchise agreement within

_____ days of death or disability

 Franchisee's heirs or guardian shall succeed to the franchisee's interest in the

franchise without qualification

 Franchisor has an obligation to purchase the franchise

 (e) Right of First Purchase.

The franchise agreement should contain a provision allowing you a right of first
purchase or a right of first refusal on the same terms of any proposed transfer of the
franchise. The Fair Franchising Standards allow a right of first purchase but
not a right of first refusal. Do you want a right of first purchase on transfers?

 Yes  No

Do you want this right of first refusal on transfers?

 Yes  No
(f) Securities offerings by the Franchisee:

A franchisee may want to sell stock in his or her company either through a public or
private stock sale. Subject to certain state law restrictions, you may not want to
allow such offerings, because, among other reasons, they may result in many
strangers owning the franchisee who are additional investors with whom you may not
want to deal. Also, to comply with the securities laws, the franchisee may be required
to prepare stock offering materials that may describe its franchise, the franchise
concept and your relationship to the franchisee. You will need to undertake the
burden to make sure that the information in such materials about you is as accurate as
possible and does not include confidential information. If you want to allow private
or public offerings in the franchisee, we normally require the franchisee to submit the
materials for your prior review and approval and require the payment of a substantial
offering fee. If you want to allow private or public offerings on such a basis, please
let us know.

 Yes  No

Comments:

17.000 Default and Termination.

The franchise agreement will contain numerous events of default, some occurring
automatically (for example, bankruptcy), others occurring after you give notice (for example,
abandonment of the premises) and still others after you give notice and give an opportunity
to cure (usually 30 days) (for example, a default in payment obligations). The Fair
Franchising Standards do not allow "insolvency" alone to be an event of default. After
you have read the default and termination part of the franchise agreement you may let us
know if there are any other events of default you would like to include.

After termination, the franchise agreement generally contains several provisions imposing
upon the franchisee the obligations to: (a) cease operations as part of your franchise system;
(b) pay all amounts due you; (c) discontinue the use of your name; (d) at your election, assign
the lease of the premises to you; (e) agree not to compete with you; and (f) return the
manuals and other confidential information, etc. In addition to these standard provisions,
 please give thought to the following:

(a) Your purchase rights - Do you want the right (but not the obligation) to purchase any
assets of the franchise, such as those items bearing your proprietary marks?

 Yes  No

If yes, what types of assets and under what valuation method (fair market value,
lower of franchisee's cost or book value, etc.)?

(b) Liquidated damages - If the franchisee continues to operate after termination, you
may want to have a liquidated damages provision. A liquidated damages provision
sets in advance what the parties agree will be the amount of your damages for a
default. The amount must be reasonable, or it will be considered an unenforceable
penalty. Also, if you choose liquidated damages, it may be your only remedy
available, preventing you, for example, from obtaining an injunction against further
breaches.

 No liquidated damages

 Liquidated damages of $________________ per day

 Liquidated damages of a lump sum of $_____________ (for example, 36

months of royalty and advertising contributions)

 _____________________________________________________________

_____________________________________________________________

_____________________________________________________________

18.000 Franchisee's Covenants.

Covenants Not to Interfere or Compete:

A franchise agreement normally provides that during its term and for a period thereafter (for
example, 24 months) a franchisee cannot compete with you within a given area. Covenants
not to compete generally are enforceable against franchisees in Florida and certain other (but
not all) states, but only if they are reasonable in scope, duration and geographic location. In
this regard, please let us know whether you want to impose covenants not to compete after
termination of the franchise due to franchisee's default.
 Yes  No

If yes, for how long? ________________________________;

 In what area? _______________________________________________________;

What types of activities would be considered competitive by you?

Other than the franchisee, who should be restricted by such covenants?  Stockholders in
the franchisee who own at least _______% of stock;  officers of a corporate franchisee; 
directors of a corporate franchisee;  partners in a partnership franchisee who own at least
_____% of the franchisee;  spouses of the above persons;  other:
___________________________________.

19. Arbitration; Waiver of Jury Trial; Waiver of Punitive Damages.

(a) Reasonable minds are divided on whether to require arbitration or litigation of

franchise disputes. The arguments in favor of arbitration include that it's cheaper,
faster, and more private. The arguments against arbitration are that the arbitrators are
more inclined to "split the difference," the arbitrators are not as professional as
judges, the discovery process is limited, legal precedent is not necessarily followed,
the arbitration award is not appealable and that many times it ends up not being
quicker or cheaper. It appears that a person's opinion as to arbitration is based on his
or her most recent experience, if any. We would appreciate your thoughts:

 Mediation

 Arbitration provision

 No Arbitration provision

(b) If arbitration is not selected, the right to trial by jury may be waived by you and the
franchisee and have all the issues decided by a judge. The Fair Franchising
Standards do not allow for a waiver of jury trial.

 Waive right to trial by jury

 Don't waive right to trial by jury

(c) Do you want to limit you and the franchisee to any recovery to actual damages and
not to punitive damages. The Fair Franchising Standards do not allow for a
waiver of punitive damage claims.

 Yes  No
20.000 Initial Term. How long do you want the term of the franchise agreement to be? You do not
want it to be perpetual and the franchisee wants it to be long enough for him or her to
reasonably amortize his or her investment. Terms generally vary from 5 to 20 years, usually
10 years. Your term will be:

 Five Years

 Ten Years

 Twenty Years

 ___________ Years

 ______________________________

21. Option to Obtain Successor Franchise Agreement. An option to obtain a successor

franchise agreement may be preferable to a renewal of the existing agreement. The reason
for this is to give you flexibility in changing certain provisions of the franchise agreement due
to changes in the franchise system, changes in technology, inflation, demographic changes,
etc., particularly, the right to increase the royalties and advertising contributions and to
reduce the size of any protected territory. The Fair Franchising Standards require
unlimited "evergreen" rights to renew provided your renewal conditions are met. In
this regard we need to know:

(a) Length of Successor Term:

 Same as initial term; or

 _______________ Years

(b) Notice to Exercise Option: How much notice would you require? We suggest not
less than 9 nor more than 12 months prior to the end of the initial term

__________________________________________________________________

(c) Option Fee: Normally on a renewal or execution of a successor franchise agreement,

the franchisee usually does not pay the entire initial franchise fee again but rather
something less ranging from 75% of the initial franchise fee then being paid by new
franchisees, down to several hundred dollars merely covering your out-of-pocket
costs in issuing a new agreement. We suggest something in between such as 50% of
the initial franchise fee then being paid by new franchisees: The Fair Franchising
Standards require that there be no renewal fee.

 No Option Fee

 $___________________________

 _______% of then initial franchise fee then being charged to new franchisees
22.000 Authority. To avoid having too many levels of authority authorized to sign a franchise
agreement or any amendments, or to give any consent or approval on your behalf, authority
may be limited to one or two people. At the early stages it may be appropriate that the
president of the franchising company be the only person authorized to sign a franchise
agreement or any amendments thereto, and to give any consent or approval required under
the franchise agreement. Please let us know who will have authority for you:

________________________________________________________________________

*******************

There will be other provisions in the franchise agreement that will be included, although not
discussed in this Questionnaire. In addition, this Questionnaire may not have included all of your
ideas or concepts. If we have not addressed something please let us know.

We hope that this exercise has been helpful in your formulation and initial fine-tuning of your
franchise program. We look forward to going over this Questionnaire and any other questions or
comments you may have and then to drafting your franchise agreement.

Sincerely,

Carl J. Kosnar