Merle Norman

9130 Bellanca Avenue

[email protected]

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Merle Norman Cosmetics, Inc. is a California corporation incorporated on June 12, 1974 as a successor to various companies which have conducted the Merle Norman business since 1931. Merle Norman Cosmetics, Inc.’s principal place of business is 9130 Bellanca Avenue, Los Angeles, California 90045.

A Merle Norman Studio is an independently-owned retail store licensed to use the Merle Norman name, which specializes in the sale of multiple lines of high quality skin care, color and other cosmetic products (“MN Products”) and offers customers free individualized instruction relating to skin care and the use of MN Products. In certain circumstances, a Merle Norman Studio may be operated in a location that also houses a separate retail business. In these circumstances, all references to the Studio in this Disclosure Document refer only to that portion of the premises designated for the sale of MN Products and not the other retail business. References to the Studio Location in this Disclosure Document include both the Studio and the other retail business. You must initially purchase an inventory of MN Products and certain required supplies from us. You must use your best efforts to promote the sale of the full line of MN Products, and you must focus your efforts at your Studio on selling MN Products and providing free makeover lessons using the lesson material provided by us. While MNC does not prohibit the sale of other merchandise (in addition to MN Products) or the offer of other services (in addition to free makeover lessons using the lesson material provided by MNC), you must obtain our prior written approval of the sale of any additional merchandise or services. In addition, you may not sell at the Studio Location any merchandise of any other manufacturer that is likely to confuse the public as to the origin or quality of the merchandise or enable others to trade upon the Merle Norman name and goodwill of MNC or other Studio Owners. You may not display non-Merle Norman merchandise in fixtures, furniture or equipment acquired from MNC or an MNC-approved supplier. You may not offer to sell or sell at the Studio Location any skin care or color cosmetic products other than MN Products or any merchandise or service that we have determined is inconsistent with the image of MNC or the MN System. In addition, unless MNC does not offer a comparable product, you may not use at the Studio Location any spa grade skin care products purchased by you in bulk other than MN Products. At all times, you must operate the Studio in compliance with our merchandising directives. Your Studio must present the visual impression of a cosmetic studio featuring primarily MN Products. You must dedicate a clearly-defined separate area of appropriate size (as determined by MNC) to the MN System and the MN Products. The interior and exterior must be clean and well maintained, and fixtures, lighting and flooring must be attractive, professional and complementary. Your counters, floor space and any areas within your Studio that are visible to customers should be kept clean and uncluttered. In 1998, MNC completed the development of a new Studio design (“New Design”). The New Design includes the following significant elements: an “open-sell” layout where merchandise is displayed for easy viewing and access; a design that supports either customer self-service or beauty consultant-assisted service; perimeter wall fixtures; consultation areas consisting of tables and stools; a tester area; a graphic image display; large screen digital monitor with preformatted video and audio content; and a cash and wrap area in matching finish. In 2015, MNC began the process of updating the New Design with re-design of the cabinetry to better utilize the open-sell environment along with adding new multi-media graphics, and in 2016, MNC changed the specifications for paint, flooring and visual merchandising props. In 2017, MNC continued the evolution of updating the New Design by adding an interactive “play table” for color cosmetic products. The laws and regulations that will apply to your Merle Norman Studio include those that apply generally to retail businesses. Most states also require cosmetologists or aestheticians to be licensed. Depending on how you operate your Studio, these licensing requirements may be applicable. Merle Norman Studios compete with many other businesses in the sale of cosmetics. The price of cosmetics varies greatly. MN Products are sold at prices roughly between those of department stores and drug stores, and slightly higher than the prices of “house-to-house” or “party plan” distributors. In addition, cosmetic products are sold at much higher prices in a few specialty stores, and at substantially lower prices in other types of outlets. MNC does not know of any other major national companies presently selling cosmetic products through studios that emphasize training the customer in the intelligent and appropriate use of their products. There are, however, a few other companies engaged in these operations on a local scale, or which are concentrating on locations in large shopping centers. MNC offers incentive programs to its Studio Owners to encourage the opening of additional (or branch) Studios. A Studio is considered a branch Studio if it is a new Studio; a Studio that is purchased from an existing Studio Owner is not considered a branch Studio. Under the Studio Branch Bonus Program, as now in effect, you will receive a $2,500 credit on your Studio account for every branch Studio you open (an initial credit of $1,000 when the Studio opens and the remaining $1,500 credit when the branch Studio is approved for the Gold Medallion Program). Under the Studio Referral Program, as now in effect, you will receive a $5,000 credit to your Studio account for each applicant you refer who opens a Studio within one year from the date of the referral. The referral credit is available only for a new Studio; a Studio that is purchased from an existing Studio Owner does not qualify for the referral credit. MNC reserves the right to change or discontinue these incentive programs at any time. The franchise described in this Disclosure Document is for those who wish to open a first Studio and also for those existing Studio Owners who desire to open an additional (or branch) Studio. References in this Disclosure Document to a “Studio” mean both new and branch Studios unless otherwise noted. In order for a Studio Owner to qualify for a branch Studio, the existing Studios operated by the Studio Owner must be Gold Medallion Studios, the Studio Owner must be in good standing with respect to her other Studios (that is, not in default) and must, in MNC’s view, be capable of operating an additional Studio. In addition, new branch Studios will be required to be designed and operated to comply with the requirements of the Gold Medallion Program as discussed below. At the time MNC appoints you to operate a Studio, you will sign the Studio Agreement (attached as Exhibit E.1.).