Key Items to Watch out for in the PHENIX SALON SUITES FRANCHISING, LLC 2019 FDD

Please consider the following RISK FACTORS before you buy this franchise: 1. THE FRANCHISE AGREEMENT REQUIRES YOU TO RESOLVE DISPUTES WITH US BY ARBITRATION OR LITIGATION ONLY IN COLORADO. OUT-OF-STATE ARBITRATION OR LITIGATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST YOU MORE TO ARBITRATE OR LITIGATE WITH US IN COLORADO THAN IN YOUR OWN STATE. 2. THE FRANCHISE AGREEMENT PROVIDES THAT COLORADO LAW GOVERNS THE AGREEMENT, AND THIS LAW MAY NOT PROVIDE THE SAME PROTECTION AND BENEFITS AS LOCAL LAW. YOU MANY WANT TO COMPARE THESE LAWS. 3. THE LENGHTH OF THE FRANCHISE TERM IS COTERMINOUS WITH THE TERM OF YOUR LEASE. THE FRANCHISE AGREEMENT PROVIDES THAT, AFTER TEN (10) YEARS, THE FRANCHISOR HAS THE RIGHT TO UNILATERALLY MODIFY OR AMEND THE FRANCHISE AGREEMENT IN ORDER TO CONFORM ITS PROVISIONS TO THE CURRENT FORM OF FRANCHISE AGREEMENT OFFERED BY FRANCHISOR AT THAT TIME, WHICH MAY BE MATERIALLY DIFFERENT FROM THE TERMS AND PROVISIONS OF THE FRANCHISE AGREEMENT. 4. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.

We may use the services of one or more FRANCHISE BROKERS or referral sources to assist us in selling our franchise. A franchise broker or referral source represents us, not you. We pay this person a fee for selling our franchise or referring you to us. You should be sure to do your own investigation of the franchise.

Item 5: Initial Fees

Development Fee If you enter into a Development Agreement with us whereby you agree to develop two or more locations, you must pay us a development fee upon the execution of the agreement (the “Development Fee”). The Development Fee, which is based upon the number of locations to be developed, is $30,000 for each location to be developed. You enter into a Franchise Agreement with us for each location, however, you do not pay any initial franchise fee. The development fee is not refundable under any circumstances.

Initial Franchise Fee If you do not enter into a Development Agreement with us, you must pay us an initial franchise fee in a lump sum upon the execution of each Franchise Agreement. The initial franchise fee is generally $49,500, except that, if you are a franchisee in good standing and buy an additional franchise, the initial franchise fee is $40,500 for each additional franchise and the initial franchise fee for qualified veterans is $30,000 for each franchised business developed. The initial franchise fee is not refundable under any circumstances.

Site Evaluation Fee The Site Evaluation Fee is for visiting and evaluating potential sites for the Franchised Business to determine whether it meets our criteria. The Site Evaluation Fee is $2,750 per location, which is payable in advance, upon your receipt of our invoice

Layout and Design Approval Fee The Layout and Design Approval Fee is for PHENIX SALON SUITES’ review and approval of space design and layout. The Layout and Design Approval Fee is $500, which must be paid once the space Plan has been approved by PHENIX SALON SUITES and official notification of such approval has been given by PHENIX SALON SUITES via email and before the approved space plan is released to the architect.

Construction Management Fee The Construction Management Fee is for PHENIX SALON SUITES’ assistance in recruiting a contractor and negotiating the final contract. The Construction Management Fee is $6,500, which is payable in advance, upon your receipt of our invoice.

Collection Books You must purchase a collection book from us for each person who rents or licenses one of your suites. The cost of each collection book is $15-$20 and is payable upon your receipt of our invoice.

Initial Inventory If you operate a Phenix Salon Store at your salon, then you must purchase an initial inventory of our proprietary and private label products from us before the Business opens. The cost of an initial inventory of our proprietary and private label products ranges from $5,000 to $20,000 and is payable upon your receipt of our invoice. You are not required to operate a Phenix Salon Store.

Training Fees We provide our Initial Training Program and training materials to up to three trainees designated by you at no extra charge to you, however, if you send more than three people to initial training, we will charge you a $250 training fee for each additional person, which is payable upon your receipt of our invoice. Training fees are payable before you begin initial training and are uniform and non-refundable. In addition, you must pay for all of your trainees’ travel, meal and lodging expenses.

Gina’s Platform You must use the Gina’s Platform app to manage the business and the collection of rents, including credit card processing, and which provides resources to your licensees. The one-time set up fee for the Gina’s Platform app is $500. The foregoing amounts include all fees and payments for services or goods received from us or an affiliate before your Business opens. The total amount of the initial fees that must be paid to the franchisor or an affiliate under a single franchise agreement ranges from $44,545 to $82,810 and the total amount of the initial fees that must be paid to the franchisor or an affiliate under a development agreement for the development of three franchises ranges from $130,545 to $146,810. None of these fees is refundable under any circumstances.

Item 8: Restrictions on Sources of Products and Services

To maintain the quality of the services that each PHENIX SALON SUITES Business provides and our system’s reputation, we may require you to purchase or lease any items from us, our affiliates, or other designated or approved suppliers. We may condition your right to buy or lease any goods or services (besides those described above that you may obtain only from us, our affiliates or other specified exclusive sources) on their meeting our minimum standards and specifications or being purchased from suppliers that we approve. We will formulate and modify standards and specifications based on our, our affiliates, and our franchisees’ experience in operating PHENIX SALON SUITES businesses. Our standards and specifications may impose minimum requirements for production, performance, reputation, prices, quality, design, and appearance. The criteria for our approval of suppliers are available to you in our Operations Manual or other written communications that will identify our standards and specifications.

Purchases or Leases from Us or Our Affiliates You must purchase our proprietary or private label products only from us or an affiliate (or other specified exclusive sources) at the prices that we and they decide to charge, which will include a mark-up over cost. We restrict your sources of our proprietary or private label products in order to protect our trade secrets, assure quality, assure a reliable supply of products that meet our standards, achieve better terms of purchase and delivery service, control usage of our Marks by third parties, and monitor the manufacture, packaging, processing, and sale of these items. You must also purchase the Gina’s Platform suite management software program only from us. Currently, except as disclosed above, neither we nor any persons affiliated with us are the only suppliers any other goods, services, supplies, fixtures, equipment, inventory, computer hardware and software, real estate, or comparable items related to establishing or operating the franchised business and you are not required to purchase any other goods, services, supplies, fixtures, equipment, inventory, computer hardware and software, real estate, or comparable items related to establishing or operating the franchised business from us or our affiliates.

Purchases or Leases from Designated and Approved Suppliers You must use one of our designated architects to prepare or review the space plan for your location. Space planning is the starting point to determine how many suites can fit into your space based upon our specifications. After the space planning has been completed, you can use our designated architect for the remainder of the work or a licensed architect of your own choice, however, construction must comply with our design plans and specifications. In addition, you must buy the POS System, if applicable, and all of your furniture, fixtures, equipment, furnishings and signs from designated or approved suppliers and our designated or approved suppliers are currently the only suppliers of these items. Our designated or approved suppliers are not currently the only suppliers of any other items.If you want to use any item or service that we have not yet evaluated or to buy or lease from a supplier that we not designated or have not yet approved, you first must send us sufficient information, specifications, and samples so that we can determine whether the item or service complies with System Standards or the supplier meets approved supplier criteria. We may charge you or the supplier a reasonable fee for the evaluation and will decide within a reasonable time (generally no more than 30 days) whether to approve the supplier. We periodically will establish procedures for your requests and may limit the number of approved items, services or suppliers, as we think best. Supplier approval might depend on product quality, delivery frequency and reliability, service standards, financial capability, customer relations, concentration of purchases with limited number of suppliers to obtain better prices and service, and/or a supplier’s willingness to pay us or our affiliates for the right to do business with our system. Supplier approval might be temporary until we evaluate the supplier in more detail. We may inspect a proposed supplier’s facilities during and after the approval process to make sure that the supplier meets our standards. If it does not, we may revoke our approval by notifying the supplier and you in writing. We have no obligation to approve any request for a new supplier, product, or service. We will identify all designated and approved suppliers in the Operations Manual or other written communications. There are no other goods, services, supplies, fixtures, equipment, inventory, computer hardware and software, or real estate for the Business that you currently must buy or lease from us, our affiliates or designated suppliers. We and our affiliates have the right to receive payments from suppliers on account of their actual or prospective dealings with you and other franchisees and to use all amounts that we and our affiliates receive without restriction (unless we and our affiliates agree otherwise with the supplier) for any purposes that we and our affiliates deem appropriate. Currently, neither we nor any affiliate receive payments from suppliers on account of their actual or prospective dealings with you or other franchisees. Certain of our officers own an interest in us. Except for our affiliates, Phenix Salon Products and Gina’s platform, none of our officers currently owns an interest in any other supplier. Except as disclosed above, you are not currently required to purchase any goods, services, supplies, fixtures, equipment, inventory, computer hardware and software, real estate, or comparable Items related to establishing or operating the franchised business from designated or approved suppliers.

Purchases or Leases in Accordance with Our Specifications You may purchase the computer system and specified software that you are required to use in connection with the operation of your Business from any supplier(s), so long as each component of the computer system meets our specifications. Except as disclosed above, you are not currently required to purchase any other goods, services, supplies, fixtures, equipment, inventory, computer hardware and software, real estate, or comparable Items related to establishing or operating the franchised business in accordance with our specifications. Collectively, the required purchases and/or leases from us or our designated or approved suppliers represent approximately 90% of your overall purchases and leases in establishing the Business and 30% of your overall purchases and leases in operating the Business. During fiscal year 2018, we did not derive any revenue (other than the fees described in Items 5 and 6) from selling items to franchisees nor did we or any affiliate receive any rebates from suppliers on account of purchases of required and approved items by franchisees, however, we reserve the right and may receive such payments in the future. Our affiliate,Phenix Salon Products, derived revenue in 2018 from the sale of products to franchisees that operate a Phenix Salon Store. Certain of our officers own an interest in us. Except for our affiliate, Phenix Salon Products, none of our officers currently owns an interest in any other supplier. There currently are no purchasing or distribution cooperatives. We may negotiate purchase agreements with suppliers (including price terms) for the benefit of the franchise system. We do not provide material benefits to you (for example, renewal or granting additional franchises) based on your purchase of particular products or services or use of particular suppliers.

Insurance You must obtain and maintain, at your own expense, the insurance coverage that we periodically require and satisfy other insurance-related obligations. You currently must have Commercial General Liability Insurance, including coverage for contractual liability, personal and advertising injury, fire damage, medical expenses, having a combined single limit for bodily injury and property damage of $1,000,000 per occurrence and $2,000,000 in the aggregate (except for fire damage and medical expense coverage, which may have different limits of not less than $1,000,000 for one fire and $2,000,000 per year; and $5,000 for one person medical expense coverage). All such coverages shall be on an occurrence basis and shall provide for waivers of subrogation.

Advertising Materials Before you use them, you must send us for review samples of all advertising, promotional, and marketing materials that we have not prepared or previously approved. If you do not receive written disapproval within 5 business after we receive the materials, they are deemed to be approved. You may not use any advertising, promotional, or marketing materials that we have not approved or that we have disapproved.

Development You must develop the Business. We will give you mandatory and suggested specifications and layouts for a PHENIX SALON SUITES(R) Business, including requirements for dimensions, design, image, interior layout, d?cor, Operating Assets, and color scheme, and you must comply with all mandatory specifications. These specifications and layouts might not reflect the requirements of any federal, state, or local law, code, or regulation, including those arising under the Americans with Disabilities Act (“ADA”) or similar rules governing public accommodations for person with disabilities. You must prepare a site survey and all required construction plans and specifications for the Business site and make sure that they comply with the ADA and similar rules, other applicable ordinances, building codes, permit requirements, lease requirements and restrictions and our specifications.

Business Site The Business must be located at a site that we approve. We also have the right to approve your lease or sublease and to require that it include certain provisions, including our right to occupy the Business site if the Franchise is terminated or not renewed or if you lose possession because of your default under the lease pursuant to a Franchise Addendum to Lease. You may not sign a lease for the Business without our prior written approval.

Item 10: Financing

Neither we nor any agent or affiliate offers direct or indirect financing to you, guarantees any note, lease or obligation of yours, or has any practice or intent to sell, assign or discount to any third party all or any part of any financing arrangement of yours. We do not know whether you will be able to obtain financing for all or part of your investment and, if so, the terms of the financing. We do not place financing for you or receive direct or indirect payments for placing financing.

Item 12: Territory

If you enter into a Development Agreement with us, you will be granted the non-exclusive right to establish PHENIX SALON SUITES businesses within a specific development area (the “Development Area”). The rights with respect to any specific location within your Development Area will be granted to the first party to enter into a Franchise Agreement with us for a PHENIX SALON SUITES business at such location (or when we approve such location as the location for a PHENIX SALON SUITES business to be established by such party) and a lease for such location that we have approved. You will not receive an exclusive territory. You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control.

When you purchase a Franchise, you will operate the Business at a location that we approve and you may not relocate the Business without our prior written approval. If the approved location for the Business is determined prior to the execution of the Franchise Agreement, it will be specified in the Franchise Agreement. If the approved location for the Business is not determined prior to the execution of the Franchise Agreement, it must be selected by you and approved by us at a later date and you will not receive any rights with respect to any specific location until it has been approved by us as the location for the Business pursuant to the provisions of the Franchise Agreement and you sign a lease for such location. You may not sign a lease for the Business without our prior written approval and you will not receive any rights with respect to any specific location by entering into a letter of intent for such location with the landlord.

When the approved location for the Business (the “Approved Location”) is determined, you will receive a protected territory (the “Protected Territory”). The Protected Territory is based upon the estimated population or daytime population, whichever is greater, within a three (3) mile radius from the Approved Location (the “Surrounding Area”). If the estimated population within the Surrounding Area is 100,000 or less, the Protected Territory is a two and one-half (2-1/2) mile radius from the Approved Location; if the estimated population within the Surrounding Area is more than 100,000 but less than 200,000, the Protected Territory is a two (2) mile radius from the Approved Location; if the estimated population within the Surrounding Area is 200,000 or more but less than 300,000, the Protected Territory is a one and one-half (1-1/2) mile radius from the Approved Location; if the estimated population within the Surrounding Area is 300,000 or more but less than 400,000, the Protected Territory is a one (1) mile radius from the Approved Location; if the estimated population within the Surrounding Area is 400,000 but less than 500,000, the Protected Territory is a one-half (1/2) mile radius from the Approved Location; and if the estimated population within the Surrounding Area is 500,000 or more, the Protected Territory is a one-quarter (1/4) mile radius from the Approved Location. The estimated population within the Surrounding Area is determined by the Sitewise software that we use in connection with the operation of our business or a similar software program that we select for that purpose.

So long as you are in full compliance with all of the terms and provisions of the Franchise Agreement and the Franchise Agreements remains in effect, we will not establish either a company-owned or licensed outlet selling the same or similar goods or services under the Marks or similar trademarks or service marks within the Protected Territory. In addition, we will offer you a right of first refusal (the “Right of First Refusal”) with respect to any location within the area, if any, outside of the Protected Territory but within a 2-1/2 mile radius from the Approved Location (the “Right of First Refusal Area”), upon such terms as we establish from time to time. By way of illustration, if the Protected Territory is a one (1) mile radius from the Approved Location, we will offer you a Right of First Refusal with respect to any location outside of the one (1) mile radius of the Protected Territory but within a two and one-half (2-1/2) mile radius from the Approved Location. If the Protected Territory is a two and one-half (2-1/2) mile radius from the Approved Location, we will not offer you a Right of First Refusal since the Protected Territory and the Right of First Refusal Area are the same.

Except as expressly provided above, we and our affiliates retain all rights with respect to the PHENIX SALON SUITES Business, the Marks, the sale of similar or dissimilar products and services, and any other activities we deem appropriate whenever and wherever we desire, including but not limited to: (1) the right to establish and operate and to grant to others the right to establish and operate businesses offering dissimilar services, either inside or outside the Territory, under the Marks, on any terms and conditions that it deems appropriate, in its sole and absolute discretion; (2) the right to establish and operate, and to grant to others the right to establish and operate businesses offering Franchisor’s products through similar or dissimilar channels of distribution, either inside or outside the Territory, under the Marks, on any terms and conditions that it deems appropriate, in its sole and absolute discretion; (3) the right to operate, and to grant others the right to operate PHENIX SALON SUITES businesses located anywhere outside the Territory under any terms and conditions that it deems appropriate, in its sole and absolute discretion, regardless of proximity to the Business; (4) the right to acquire the assets or ownership interests of one or more businesses providing products and services similar to those provided by PHENIX SALON SUITES businesses, and franchising, licensing or creating similar arrangements with respect to these businesses once acquired, wherever these businesses (or the franchisees or licensees of these businesses) are located or operating (including the Territory); and (5) the right to be acquired (whether through acquisition of assets, ownership interests or otherwise regardless of the form of transaction), by a business providing products and services similar to those provided at PHENIX SALON SUITES businesses, or by another business, even if such business operates, franchises and/or licenses competitive businesses in the Territory; and (6) the sole and exclusive right to use the Internet in connection with the marketing and promotion of PHENIX SALON SUITES businesses, and Franchisee’s use of the Internet in connection with the operation of the Business will be limited and restricted to the use authorized in the Manual.

We are not required to pay you if we exercise any of the rights specified above. There are no other circumstances that permit us to modify your territorial rights. You have no options, rights of first refusal, or similar rights to acquire additional franchises and you do not have the right to subfranchise. Although we and our affiliates have the right to do so (as described above), we and our affiliates have not operated or franchised, and have no plans to operate or franchise, other businesses. However, we have introduced a line of proprietary and private label products that you may purchase for sale at your salon and that we intend to sell through other channels of distribution, such as kiosks located at shopping malls and other high traffic locations and the Internet.

Continuation of your Franchise or territorial rights does not depend on your achieving a certain sales volume, market penetration, or other contingency. Your development rights terminate if you fail to comply with the development schedule. We do not restrict you from soliciting customers from outside your Territory, however, any use of the Internet in connection with the operation of your Business must in the manner that we specify or approve.

Item 15: Obligation to Participate in the Actual Operation of the Franchise Business

You (or, if you are an entity, your managing owner) must act as the general manager of the Business with responsibility for direct, on-premises supervision of the Business. You (or your managing owner) must devote full time and efforts to the management and supervision of the Business. You must at all times faithfully, honestly, and diligently perform your contractual obligations and use best efforts to promote and enhance the Business. System Standards may regulate the Business’s staffing levels, identifying the Business’s personnel, and employee qualifications, training, dress, and appearance. If you are a legal entity, you must appoint a shareholder, member, or partner (as applicable) to be your “Managing Owner,” responsible for overseeing and supervising the Business’s operation. You will need a full-time manager or part-time receptionists, unless you elect to fulfill one or both of these roles.

You must keep us informed at all times of the identity of any supervisory employees acting as assistant managers of the Business. Your assistant managers need not have an equity interest in the Business or you but must agree in writing to preserve confidential information to which they have access and not to compete with you, us, and other franchisees. We may regulate the form of agreement that you use and must be a third-party beneficiary of that agreement with independent enforcement rights. If you are a corporation, limited liability company or partnership and you enter into a franchise agreement with us, each individual who or entity that holds a twenty percent (20%) or greater ownership or beneficial ownership interest in you, directly or indirectly (including each individual holding a fifty (50%) or greater interest in any partnership or corporation which has a twenty percent (20%) or greater interest in you) must enter into a continuing Personal Guaranty Agreement and a Personal Assumption of Obligations, which are attached to the Franchise Agreement as Exhibits A and B.

If you are a corporation, limited liability company or partnership and you enter into a development agreement with us, each of your owners must personally assume your obligations under the development agreement pursuant to the “Personal Assumption of Obligations” that is attached to the Development Agreement as Attachment C.

Item 16: RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL

You must offer and sell all products and services that we periodically require for a PHENIX SALON SUITES Business and you may not offer or sell any products or offer any services that we have not authorized or approved. (See Item 8) We periodically may change required and/or authorized Items and there are no limits on our right to do so. (See Item 8) We do not impose any restrictions or conditions that limit your access to customers, however, your use of the Internet in connection with the operation of the Business is restricted.

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