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MNC - FDD - 04/12

FRANCHISE DISCLOSURE DOCUMENT

Merle Norman Cosmetics, Inc.

A California Corporation

9130 Bellanca Avenue

Los Angeles, California 90045

(310) 337-2200

www.merlenorman.com

[email protected]

The Studio Owner will operate a retail store known as a “Studio,” which sells Merle Norman

cosmetic products.

The total investment necessary to begin operation of a Merle Norman Cosmetic Studio ranges

from approximately $91,891 to $190,778 for a Studio located in a regional mall and from approximately

$61,891 to $125,778 for a Studio that is not located in a regional mall and uses standard New Design

fixtures and from $51,936 to $95,649 for a Studio that is not located in a regional mall and uses E-Design

fixtures. This includes the price for one of several initial packages of Merle Norman Cosmetics, supplies

and other items which range from approximately $13,000 to $24,000 that must be paid to Merle Norman.

The total investment does not include rent for the business location.

This Disclosure Document summarizes certain provisions of your franchise agreement and other

information in plain English. Read this Disclosure Document and all accompanying agreements

carefully. You must receive this Disclosure Document at least 14 calendar-days before you sign a

binding agreement with, or make any payment to, the franchisor or an affiliate in connection with the

proposed franchise sale. Note, however, that no governmental agency has verified the information

contained in this document.

The terms of your contract will govern your franchise relationship. Don’t rely on the Disclosure

Document alone to understand your contract. Read all of your contract carefully. Show your contract

and this Disclosure Document to an advisor, like a lawyer or an accountant.

Buying a franchise is a complex investment. The information in this Disclosure Document can

help you make up your mind. More information on franchising, such as “A Consumer’s Guide to Buying

a Franchise,” which can help you understand how to use this Disclosure Document, is available from the

Federal Trade Commission. You can contact the FTC at 1-877-FTC-HELP or by writing to the FTC at

600 Pennsylvania Avenue, NW., Washington, DC 20580. You can also visit the FTC’s home page at

www.ftc.gov for additional information. Call your state agency or visit your public library for other

sources of information on franchising.

There may also be laws on franchising in your state. Ask your state agencies about them.

Issuance Date: April 27, 2012.

MNC - FDD – 04/12

STATE COVER PAGE

Your state may have a franchise law that requires us to register or file with a state administrator

before offering or selling in your state. REGISTRATION OF A FRANCHISE BY A STATE DOES

NOT MEAN THAT THE STATE RECOMMENDS THE FRANCHISE OR HAS VERIFIED THE

INFORMATION IN THIS DISCLOSURE DOCUMENT.

Call the state administrator listed in Exhibit A for more information about the franchisor, or about

franchising in your state.

MANY FRANCHISE AGREEMENTS DO NOT ALLOW YOU TO RENEW

UNCONDITIONALLY AFTER THE INITIAL TERM EXPIRES. YOU MAY HAVE TO SIGN A

NEW AGREEMENT WITH DIFFERENT TERMS AND CONDITIONS IN ORDER TO CONTINUE

TO OPERATE YOUR BUSINESS. BEFORE YOU BUY, CONSIDER WHAT RIGHTS YOU HAVE

TO RENEW YOUR FRANCHISE, IF ANY, AND WHAT TERMS YOU MIGHT HAVE TO ACCEPT

IN ORDER TO RENEW.

Please consider the following RISK FACTORS before you buy this franchise:

1. THE FRANCHISE AGREEMENT REQUIRES YOU TO RESOLVE DISPUTES WITH

US ONLY WHERE OUR PRINCIPAL OFFICE IS LOCATED, WHICH CURRENTLY

IS CALIFORNIA. OUT-OF-STATE LITIGATION MAY FORCE YOU TO ACCEPT

A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST YOU

MORE TO FILE SUIT IN CALIFORNIA THAN IN YOUR HOME STATE.

2. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.

The states of California, Hawaii, Illinois, Maryland, Michigan, Minnesota, North Dakota, Rhode

Island and Virginia require additional disclosures related to the information contained in this Disclosure

Document. The additional disclosures are contained in an addendum immediately following Item 23 of

this Disclosure Document.

This Disclosure Document is for use in the District of Columbia and all states.

The Effective Date of this Disclosure Document for the following states is listed below:

State Effective Date

Hawaii May 7, 2012

Illinois April 27, 2012

Maryland May 8, 2012

Minnesota May 7, 2012

New York April 27, 2012

North Dakota May 2, 2012

Rhode Island May 21, 2012

South Dakota April 30, 2012

Virginia May 4, 2012

Washington May 18, 2012

Wisconsin April 30, 2012

ii MNC - FDD - 04/12

TABLE OF CONTENTS

ITEM PAGE

Item 1 The Franchisor And Any Parents, Predecessors and Affiliates ........................................................ 1

Item 2 Business Experience ......................................................................................................................... 4

Item 3 Litigation .......................................................................................................................................... 6

Item 4 Bankruptcy........................................................................................................................................6

Item 5 Initial Fees ........................................................................................................................................ 6

Item 6 Other Fees......................................................................................................................................... 7

Item 7 Estimated Initial Investment ............................................................................................................. 9

Item 8 Restrictions on Sources of Products and Services.......................................................................... 14

Item 9 Franchisee’s Obligations ................................................................................................................ 15

Item 10 Financing ...................................................................................................................................... 16

Item 11 Franchisor’s Assistance, Advertising, Computer Systems and Training.....................................20

Item 12 Territory........................................................................................................................................ 26

Item 13 Trademarks ................................................................................................................................... 26

Item 14 Patents, Copyrights and Proprietary Information .........................................................................28

Item 15 Obligation to Participate in the Actual Operation of the Franchise Business............................... 28

Item 16 Restrictions on What the Franchisee May Sell............................................................................. 28

Item 17 Renewal, Termination, Transfer and Dispute Resolution............................................................. 29

Item 18 Public Figures............................................................................................................................... 34

Item 19 Financial Performance Representations........................................................................................34

Item 20 Outlets and Franchisee Information.............................................................................................. 39

Item 21 Financial Statements..................................................................................................................... 49

Item 22 Contracts....................................................................................................................................... 49

Item 23 Receipt..........................................................................................................................................49

iii MNC - FDD - 04/12

ADDENDUM: Additional Disclosures Required by California, Hawaii, Illinois, Maryland, Michigan,

Minnesota, North Dakota, Rhode Island and Virginia

EXHIBITS

A. List of State Administrators

B. List of Agents for Service of Process

C. Operations Manual Table of Contents

D. Financial Statements

E.1. Studio Agreement (and addenda required by Illinois, Maryland, Minnesota, North Dakota, Rhode

Island and Washington)

E.2. Gold Medallion Studio Addendum

E.3. Co-op Group Letter of Agreement

E.4. Credit Card Agreement

E.5. Promissory Note – MN POS & Hardware

E.6. Promissory Note - Fixtures

E.7. Security Agreement

E.8. POS Purchase Agreement

E.9. Software License Agreement

F.1. List of Active Studios

F.2. List of Inactive Studios

RECEIPT

MNC - FDD - 04/12

ITEM 1

THE FRANCHISOR AND ANY PARENTS, PREDECESSORS AND AFFILIATES

To simplify the language in this Disclosure Document, “MNC,” “we” or “us” means Merle

Norman Cosmetics, Inc., the franchisor. “You” means the person who is awarded a franchise.

MNC is a California corporation incorporated on June 12, 1974 as a successor to various

companies which have conducted the Merle Norman business since 1931. MNC’s principal place of

business is 9130 Bellanca Avenue, Los Angeles, California 90045. MNC does not have any parents or

affiliates. MNC’s agents for service of process are listed in Exhibit B.

MNC’s Business. In 1931, Merle Norman and J.B. Nethercutt, her nephew, began a cosmetics

business, selling cosmetics of their own manufacture in a retail store in Santa Monica, California under

the name “Merle Norman Cosmetics.”

In 1934, a former employee of Merle Norman opened the first independently-owned Merle

Norman Cosmetic Studio. Since that time, the business of manufacturing and distributing the Merle

Norman line of cosmetics through independently-owned Studios has been conducted by a number of

partnerships and corporations owned or controlled by Merle Norman, her husband, Andrew Norman, J.B.

Nethercutt (all of whom are now deceased) and members of J.B. Nethercutt’s family. J.B. Nethercutt and

his wife Dorothy ran MNC until their deaths in 2004. The third generation of the Nethercutt family, Jack

Nethercutt, J.B.’s and Dorothy’s son, now runs MNC.

MNC manufactures the Merle Norman line of high-quality cosmetics, which are sold through

independently-owned retail stores known as “Studios.” MNC’s predecessors began appointing Studios in

1934, and MNC has been appointing Studios since it was organized. As of December 31, 2011, MNC

operated four Studios, and there were 1,363 franchised Studios. MNC has never been in any other

business, nor has it offered franchises in other lines of business.

Description of a Merle Norman Studio. 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. 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 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 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 offer to sell or sell 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.

Your Studio must present the visual impression of a cosmetic studio featuring primarily MN

Products. You must, at all times, devote at least 50% of the Studio’s available front window space to MN

Products. If the Studio has less than 1,200 square feet of retail floor space, you must also dedicate at least

500 square feet of the retail floor space in the front of the Studio to MN Products. If the Studio has 1,200

or more square feet of retail floor space, you must dedicate a clearly-defined separate area of appropriate

size (as determined by MNC) located in the front of the Studio to MN Products. The interior and exterior

must be clean and well maintained, and fixtures, lighting and flooring must be attractive, professional and

2 MNC - FDD - 04/12

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/focal wall; and a cash and wrap area in matching finish.

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, at your option, either $3,000 cash or a $3,000 credit to your Studio

account for each applicant you refer who opens a Studio within one year from the date of the referral. If

you elect the cash incentive, MNC will first apply the incentive against any amount due on your Studio

account before paying you the balance. 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 usually 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.).

The Gold Medallion Program. The Gold Medallion Program is an additional program to

provide recognition to those Merle Norman Studios offering the highest level of services in a quality

environment and to provide additional benefits to those Studios. Participation in the Gold Medallion

Program is optional for new Studios, but is open to all new Studios that meet the criteria for the Gold

Medallion Program. Newly developed branch Studios usually will be required to be designed and

operated to comply with the requirements of the Gold Medallion Program. If your Studio qualifies, you

will sign the Gold Medallion Studio Addendum (attached as Exhibit E.2.).

3 MNC - FDD - 04/12

Pursuant to the Gold Medallion Guidelines in effect as of the date of this Disclosure Document,

in order to qualify for the Gold Medallion Program, your Studio must meet the following criteria:

A. Studio Appearance. Your Studio must present the visual impression of a cosmetic

studio featuring primarily MN Products and promotions. At least 50% of the available front window

must be devoted to MN Products. For Studios with less than 1,200 square feet of retail floor space, at

least 500 square feet of the front retail floor space must be devoted to MN Products. Studios with retail

floor space of 1,200 square feet or more must devote a clearly defined separate area of appropriate size

(as determined by MNC) located in the front of the Studio to 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.

B. Personnel. Your Studio’s staff must be properly trained in product knowledge, makeup

artistry, selling skills and customer service. All staff must maintain a well-groomed and professional

appearance, which includes the use of MN Products. You must provide continuing training programs

for your staff as MNC reasonably requires. You also are strongly encouraged to take advantage of all

training programs, in addition to MNC’s annual convention.

C. Location. Your Studio must be located in an appropriate retail environment.

D. Studio Operations. Your Studio must be actively managed by you or a manager who

has completed Home Office Training. You must keep your Studio open in conformance with the normal

business practice of retailers in your area. You must maintain a professional Studio environment at all

times, and your Studio account with MNC must be current. You must follow MNC’s recommended

return policy, including prominently displaying the Gold Medallion Satisfaction Guaranteed policy sign

in your Studio. When selling non-Merle Norman products, if return privileges on such items are limited,

you must inform your customers of this limitation.

E. Merchandising. The shelves in your Studio must be stocked with an adequate inventory

of MN Products, including a wide selection of both LUXIVA and Family Line Products. MN Products

and non-Merle Norman products must be merchandised in separate defined areas of the Studio. You must

keep current, and replace at least seasonally, all posters, silent salesmen, brochures and other

merchandising or support materials. You should not display handwritten signs visible to customers

anywhere in the Studio, and you should not place merchandise on the Studio floor.

F. Lessons. Your Studio must offer free makeover lessons to all customers. You may not

sell or give away lesson material. You must keep lesson material current and in good condition and apply

it according to MNC’s hygienic standards.

G. Advertising. MNC encourages you to maintain strong community involvement and to

participate in outside presentations, advertising, promotions and local public relations efforts. If a co-op

advertising group has been organized for your market, your participation is required.

H. Signage. “Merle Norman” or “Merle Norman Cosmetics” must be the predominant

exterior signage.

I. Product Line. Any products not purchased from MNC and all services offered at the

Studio must be compatible with MN Products and MNC’s quality image. They must not compete with

MN Products, and they must be clearly identified as non-Merle Norman products or services.

J. Gift Certificates. You must participate in MNC’s gift certificate program by honoring

Merle Norman gift certificates issued by other Studios. If you offer your own gift certificates, they must

comply with all applicable laws and clearly state that they are redeemable only at your Studio.

4 MNC - FDD - 04/12

Gold Medallion Studios receive additional benefits from MNC. As of the date of this Disclosure

Document, these include the right to utilize the Gold Medallion Marks, which include the words,

symbols, designs, trade names, service marks or combinations used to identify the Gold Medallion

Program, additional advertising support, priority shipment of new products, promotions and premiums

designed exclusively for Gold Medallion Studios and the opportunity to purchase from MNC recently

discontinued MN Products (including color collections, gifts and promotional items) at a discounted

price. In addition, Gold Medallion Studio Owners are eligible to be selected to serve as the Studio Owner

Advisor to the Board of Directors for a one-year term and are eligible to be selected to participate on a

Studio Advisory Panel to assist MNC in developing products, promotions and programs. MNC reserves

the right to change the benefits offered to Gold Medallion Studio Owners.

If your Studio fails to satisfy the Gold Medallion Program criteria continuously, including failure

to participate in an existing co-op advertising group, MNC may terminate your Gold Medallion status and

the associated benefits. (See Item 17.) A Studio that has lost its Gold Medallion status may seek to

requalify after 12 months.

Studio Resale Program. MNC has created a program to assist qualifying Studio Owners

identify potential purchasers for their Studios. MNC does not charge any fees in connection with this

Studio Resale Program and it does not represent either the selling Studio Owner or the potential purchaser

in these transactions.

* * *

Your receipt of this Disclosure Document does not mean that you will be approved as a Studio

Owner or that you may open a Studio. Before you may open a Studio, MNC must approve you as a

Studio Owner, MNC must approve the location of your proposed Studio, you must attend and

successfully complete Home Office Training and MNC and you must sign the Studio Agreement.

Among other things, you should not quit your current job or acquire any interest in a site for a Studio

until, at the earliest, MNC has approved you as a Studio Owner and MNC approves the site for your

Studio.

ITEM 2

BUSINESS EXPERIENCE

Chairman of the Board of Directors: Jack Boison Nethercutt

Mr. Nethercutt has been Chairman of the Board of Directors of MNC since February 2005. From

February 2004 to February 2005, he was Vice Chairman of the Board of Directors of MNC. From

February 2002 to February 2004, Mr. Nethercutt was a Director of MNC.

Vice Chair of the Board of Directors: Helen Nethercutt

Mrs. Nethercutt has been Vice Chair of the Board of Directors of MNC since July 2006. From

February 2005 to July 2006, she was a Director of MNC.

Director: Travis John Richards

Mr. Richards has been a Director of MNC since July 2006. Since August 2001, he has been a sales

consultant for Newport Meat Company in Irvine, California.

5 MNC - FDD - 04/12

Director and Chief Operating Officer: Rosanna Covella McCollough

Ms. McCollough has been Chief Operating Officer of MNC since February 2010 and a Director of MNC

since April 2012. From November 2007 to June 2009, she was General Manager of Evite.com in Los

Angeles, California. From December 1999 to October 2006, Ms. McCollough was Senior Vice President

and General Manager of WeddingChannel.com in Los Angeles, California. Prior to this, she spent

approximately seven years in the cosmetic industry in positions including Director of Marketing and

Assistant Marketing Manager.

Executive Vice President - Finance & Administration: Mark A. Grimmett

Mr. Grimmett has been with MNC in his present position since July 2000. From July 2006 to July 2009,

he was a member of MNC’s Executive Council. From July 2000 to July 2006, Mr. Grimmett was a

Director of MNC. Since 2004, he has been a member of the Board of Directors of Principal Investors

Fund, Inc. and Principal Variable Contracts Fund, Inc., which are mutual fund families sponsored by

Principal Life Insurance Company.

Studio Owner Advisor to the Board of Directors: Stefanie Fell

One Gold Medallion Studio Owner is appointed at MNC’s annual shareholders meeting to serve as the

Studio Owner Advisor to the Board of Directors. Ms. Fell was appointed the Studio Owner Advisor to

the Board of Directors for a two-year term in April 2012. She has been a Studio Owner since November

2009 and currently operates 1 Studio in Augusta, Georgia.

Vice President – Personnel: Dean H. Melnick

Mr. Melnick has been with MNC in his present position since December 1996.

Vice President - Sales & Communications: Sandra Haeberle

Ms. Haeberle has been with MNC in her present position since December 2000.

Vice President – Operations: Ken Thrapp

Mr. Thrapp has been with MNC in his present position since December 2011. From February 2011 to

December 2011, he was Assistant Vice President - Operations. From 1995 to February 2011, Mr. Thrapp

was Packaging Manager and from 1980 to 1995, he was Production Night Shift Superintendent for MNC.

Regional Vice President: Jordan Rosenthal

Mr. Rosenthal has been with MNC in his present position since March 1999.

Resale Consultant: Rosemarie Casalicchio

Ms. Casalicchio has been with MNC in her present position since January 2009. From September 2001 to

December 2008, she was a Regional Development Manager for MNC.

Franchise Consultant: Kenneth Verner Andersen

Mr. Andersen has been engaged in studio development for MNC since July 2002.

6 MNC - FDD - 04/12

Manager of Real Estate: Alice Okamoto

Ms. Okamoto has been with MNC in her present position since January 2009. From February 2004 to

December 2008, she was Real Estate Coordinator for MNC.

ITEM 3

LITIGATION

No litigation is required to be disclosed in this Item.

ITEM 4

BANKRUPTCY

No bankruptcy information is required to be disclosed in this Item.

ITEM 5

INITIAL FEES

There is no required initial franchise fee to become a Merle Norman Studio Owner, but you must

purchase an initial package of MN Products, supplies and other items when you sign your Studio

Agreement. The initial package includes a full range of MN Products, business forms, supplies and

materials. If you are purchasing an existing Studio from another Studio Owner, you are not required to

place an initial order.

The quantity and variety of MN Products and other items included in the initial package will vary

depending on the size and location of your Studio. The price you pay for an initial package ranges from

approximately $13,000 to $24,000. For new Studio Owners, the price for the initial package is payable

55% at the end of the Home Office Training, with the balance payable in 3 equal monthly installments

beginning 2 months after shipment of your initial package. For branch Studio Owners, the price for the

initial package is payable 30% before it is shipped to you, with the balance payable in 3 equal monthly

installments beginning 2 months after the order is shipped. Provided all payments are made as scheduled,

no interest is charged. The prices charged for these initial packages are uniform. If you wish to do so,

you may purchase additional MN Products at the time you purchase the initial package at wholesale

prices and on the same terms. For branch Studio Owners, under the Studio Branch Bonus Program as

now in effect, because you already operate one or more Studios, you will receive a $2,500 credit on your

Studio account for every branch Studio that you open, issued in two installments. You will receive an

initial credit of $1,000 when the branch Studio opens, and you will receive the remaining $1,500 credit

when the branch Studio is approved for the Gold Medallion Program.

Your payment for an initial package is not refundable; however, any MN Product purchased as

part of the initial package may be exchanged for other MN Products at any time within 90 days after you

receive the initial package.

There is no required initial fee or other required initial payment in connection with participation

in the Gold Medallion Program.

7 MNC - FDD - 04/12

ITEM 6

OTHER FEES

Type of Fee (1) Amount Due Date Remarks

Purchase of Additional MN

Products (2)

Variable (3) Within 30 days after

shipment

After your Studio opens, you may

purchase additional MN Products at

wholesale prices. You determine

the amount of those additional

purchases and the MN Products you

will purchase.

Delinquency Fee

As required by

MNC’s then-

current

payment

policies

If you fail to make

timely payments of all

amounts owed to MNC

We may require special

arrangements for future amounts

owed to us.

Advertising Co-op

Variable (4) Within 30 days after

billing to your Studio

account

For new Studio Owners, if there is

an advertising co-op group in the

area in which your Studio is

located, you may choose to join the

advertising co-op group. As

described in Item 11, if your Studio

is a Gold Medallion Studio, you

will be required to participate in

any advertising co-op group

established in your area.

MN POS Software Program

Annual Upgrades/Support

$300 Within 30 days after

billing to your Studio

account

You are required to participate in

ongoing upgrades and support for a

period of one year. If you have

financed any part of your purchase

of the MN POS system through

MNC, you are required to

participate in ongoing upgrades and

support until you have repaid MNC

the amount financed.

Home Office Training

We currently

do not charge a

tuition fee for

Home Office

Training, but

we may do so

in the future.

Prior to the

commencement of

Home Office Training

Although MNC will provide some

meals during training, you will be

required to pay all costs of travel,

living and other expenses incurred

by your manager and you while

attending training. Please see Item

11 for more details regarding Home

Office Training.

MN POS Training

We currently

do not charge a

tuition fee for

MN POS

training, but we

may do so in

the future.

Prior to the

commencement of MN

POS training

Although MNC will provide some

meals during MN POS training, you

will be required to pay all costs of

travel, living and other expenses

incurred by you while attending

MN POS training. Please see Item

11 for more details regarding the

MN POS training.

8 MNC - FDD - 04/12

Type of Fee (1) Amount Due Date Remarks

Indemnification

All liability,

damages, costs

and expenses

incurred in

connection with

any action or

claim arising

out of or

resulting from

or in

connection with

your operations

at the Studio.

As incurred Your indemnification obligation

does not include claims covered by

our product liability insurance.

NOTES

(1) Unless otherwise noted, all fees are imposed by, collected by and payable to MNC and are not

refundable.

(2) MNC will only accept returns of additional MN Products and issue a credit to your Studio

account (less any handling fees) in the event of a shipping or ordering error (provided MNC is

notified of the error within 10 days of the invoice date), a Studio closure or for certain specified

MN Products returned in compliance with our Premiere Privilege Return Policy (provided the

merchandise is returned within 55 days of the invoice date). MNC may be willing, in its sole

discretion and on a case-by-case basis, to permit you to return MN Products under additional

circumstances. You must obtain our prior written consent for all returns, except with respect to

Premiere Privilege returns. In order to receive credit, all returned MN Products must be of

current manufacture (i.e., not discontinued), in original packages and cartons with no tags or

stickers, and received in saleable condition.

(3) The amount of additional MN Products purchased varies widely among Studios depending on

such factors as the Studio Owner’s desires and plans for her business, whether another business

is operated at the Studio, the retail maturity of the location of the Studio, the Studio Owner’s

management skill, experience and business acumen, the local market for a Merle Norman Studio

and competition. During MNC’s 2011 fiscal year, purchases of additional MN Products by

Studios ranged from $2,025 to $305,830.

(4) If you participate in an advertising co-op group, as described in Item 11, MNC advances the

entire cost of the advertising co-op media plan and debits your Studio account on a monthly basis

for your proportionate share of the cost. Currently, monthly co-op payments (which are not

refundable) range between $67 and $471 per Studio, depending on the number of participating

Studios, the market and the media plan selected by the advertising co-op group members. The

co-op payments are used to reimburse MNC for the advertising costs that it has prepaid for the

advertising co-op group. There are no other fees paid to MNC.

END OF NOTES

Under the Studio Referral Program, as now in effect, you will receive at your option either $3,000

cash or a $3,000 credit to your Studio account for each applicant you refer who opens a Studio within one

year from the date of the referral. If you elect the cash incentive, MNC will first apply the incentive

against any amount due on your Studio account before paying you the balance.

9 MNC - FDD - 04/12

ITEM 7

ESTIMATED INITIAL INVESTMENT

YOUR ESTIMATED INITIAL INVESTMENT (1)

REGIONAL MALL LOCATIONS

Type of Expenditure Amount

Method of

Payment (2)

When Due

To Whom Payment

is to be Made

Real Estate (3) Variable

Initial Package of

Inventory and Supplies

$13,000-24,000 See Note (4) As Scheduled MNC

Travel and Other

Expenses Incident to

Training (5)

$3,000-5,000 As Incurred As Incurred Airlines, Hotels,

Restaurants

Studio Costs: (6)

Fixtures

and Furnishings (7)

Millwork Fixtures

Acrylic Organizers

Chairs & Stools

Graphics

Mirrors

Merchandising

Pieces

Flooring (8)

Lighting

Exterior Signage

Construction

$13,000-23,000

$2,718-3,978

$700-1,000

$200-300

$145-500

$328-600

$2,000-4,000

$1,500-2,500

$3,500-6,000

$15,000-65,000

As Incurred

Suppliers

Landlord, Suppliers

Suppliers

Local Vendors

Landlord, Suppliers

Computer (hardware/

software) (9)

$1,800-4,900 As Incurred As Incurred Local Vendors/ MNC

Working Capital,

Deposits, Insurance, and

Advertising (10)

$35,000-50,000 As Incurred As Incurred MNC, Suppliers,

Utilities

Total (11) $91,891-190,778 (Does not include real estate costs)

10 MNC - FDD - 04/12

NON-MALL LOCATIONS

(NEW DESIGN FIXTURES)

Type of Expenditure Amount

Method of

Payment (2) When Due

To Whom Payment

is to be Made

Real Estate (3) Variable

Initial Package of

Inventory and Supplies

$13,000-24,000 See Note (4) As Scheduled MNC

Travel and Other

Expenses Incident to

Training (5)

$3,000-5,000 As Incurred As Incurred Airlines, Hotels,

Restaurants

Studio Costs: (6)

Fixtures

and Furnishings (7)

Millwork Fixtures

Acrylic Organizers

Chairs & Stools

Graphics

Mirrors

Merchandise

Pieces

Flooring (8)

Lighting

Exterior Signage

Construction

$13,000-23,000

$2,718-3,978

$700-1,000

$200-300

$145-500

$328-600

$2,000-4,000

$1,500-2,500

$3,500-6,000

$5,000-25,000

As Incurred

Suppliers

Landlord, Suppliers

Suppliers

Local Vendors

Landlord, Suppliers

Computer (hardware/

software) (9)

$1,800-4,900 As Incurred As Incurred Local Vendors/ MNC

Working Capital,

Deposits, Insurance, and

Advertising (10)

$15,000-25,000 As Incurred As Incurred MNC, Suppliers,

Utilities

Total (11) $61,891-125,778 (Does not include real estate costs)

NON-MALL LOCATIONS

(E-DESIGN FIXTURES) (12)

Type of Expenditure Amount

Method of

Payment (2) When Due

To Whom Payment

is to be Made

Real Estate (3) Variable

Initial Package of

Inventory and Supplies

$13,000-24,000 See Note (4) As Scheduled MNC

Travel and Other

Expenses Incident to

Training (5)

$3,000-5,000 As Incurred As Incurred Airlines, Hotels,

Restaurants

11 MNC - FDD - 04/12

Type of Expenditure Amount

Method of

Payment (2) When Due

To Whom Payment

is to be Made

Studio Costs: (6)

Fixtures

and Furnishings (7)

Millwork Fixtures

Acrylic Organizers

Chairs & Stools

Graphics

Mirrors

Merchandise

Pieces

Flooring (8)

Lighting

Exterior Signage

Construction

$7,000-9,000

$2,100-3,500

$220-659

$200-300

$145-500

$328-600

$1,643-2,190

$500-1,500

$2,000-3,500

$5,000-15,000

As Incurred

Suppliers

Landlord, Suppliers

Suppliers

Local Vendors

Landlord, Suppliers

Computer (hardware/

software) (9)

$1,800-4,900 As Incurred As Incurred Local Vendors/ MNC

Working Capital,

Deposits, Insurance, and

Advertising (10)

$15,000-25,000 As Incurred As Incurred MNC, Suppliers,

Utilities

Total (11) $51,936-95,649 (Does not include real estate costs)

NOTES

(1) The initial investment required to open your Studio will vary widely depending on a number of

factors, including whether the Studio will be a new business or an addition to an existing

business, the size of the Studio, the location of the Studio, the percentage of the Studio’s sales

that are MN Products and your desires and plans. Your initial investment also will vary

depending on whether your Studio is located in a regional mall or another location such as a strip

shopping center, a central business location or a free-standing building. In addition, your initial

investment will vary depending on the fixture package you purchase.

(2) Except for the initial inventory of MN Products, supplies and other items that must be purchased

from MNC and the optional purchase of the MN POS software program designed for use in

Merle Norman Studios (which is available only from MNC), all of these costs are paid to others,

so the amount, terms and refundability of the payment will depend on each supplier.

(3) Most regional shopping mall Studio locations are in rented spaces of 400 to 600 square feet.

Studio locations in strip shopping centers and other locations are typically in rented spaces of 600

to 1,400 square feet. It has been MNC’s experience that fair rental value for a suitable site is so

dependent on local real estate conditions that any reasonable estimate of your probable rental

expenses may prove inaccurate; however, MNC understands that rents for a suitable site vary

from $18 to $90 per square foot per year, depending on the location of the Studio. In some cases,

particularly in new shopping centers, you may be required to pay a portion of the cost of

completing the space.

(4) There is no initial franchise fee; however, you must purchase one of several initial packages of

MN Products and supplies. For new Studio Owners, at the end of the Home Office Training,

55% of the cost of the initial package is due. The balance is payable in 3 equal monthly

installments beginning 2 months after shipment of your initial package. For branch Studio

Owners, you must pay 30% of the cost of the initial package before the order is shipped. The

12 MNC - FDD - 04/12

balance is payable in 3 equal monthly installments beginning 2 months after the order is shipped.

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 that you open. If you are purchasing an existing

Studio from another Studio Owner, you are not required to place an initial order. (See Items 5

and 10.)

(5) As described in Item 11, before you become a Merle Norman Studio Owner, you or your

manager must satisfactorily complete Home Office Training. If you choose to purchase the MN

POS software program, you must also attend a two-day training program on the use of the

software program at MNC’s Home Office in Los Angeles, California or one of 4 other locations

or in any city where 3 or more Studio Owners participate in the training program. In lieu of the

two-day training program, MNC also offers an on-line tutorial program for POS software

training hosted via webx.com. The on-line tutorial program consists of two 4-1/2 hour sessions

on webx.com. MNC does not currently charge a fee for the Home Office Training or the MN

POS software training. MNC pays for some meals during both Home Office Training and the

MN POS software training (unless you choose the on-line tutorial program). You are responsible

for hotel charges, the cost of travel to and from the training center and all other expenses. If you

are purchasing from an existing Studio Owner a Studio that uses the MN POS software program

and you choose to continue using that program, you (or your manager) will be required to attend

the MN POS software training before MNC will approve the transfer of the Studio to you.

(6) MNC’s Studio Development Staff is available to assist you with retail site selection and space

criteria. In addition, at the request of certain Studio Owners, MNC has, on occasion, assisted in

lease negotiations for Studio Owners who are leasing space in regional malls. At your request,

MNC also will review the proposed lease for your Studio, provide general comments and an

analysis of the lease provisions, and provide suggestions for further negotiations and lease

revisions. There is no charge for this assistance; however, MNC reserves the right to limit the

amount of the assistance it provides.

(7) MNC’s Studio Design Staff, if provided with accurate measurements and other requested

information, will assist you in developing preliminary design concept plans for your Studio

(“Plans”). The Studio Design Staff will also assist you in determining the necessary fixtures for

your Studio. There is no charge for this assistance; however, MNC reserves the right to limit the

amount of the assistance it provides. You must obtain MNC’s approval of the Plans and all

furnishings, furniture, fixtures, floor coverings and signs used in the Studio.

This range of costs does not include freight costs and any applicable sales taxes. Since these

costs can vary greatly depending on the state in which your Studio is located and the shipping

distance, MNC is unable to estimate these costs. If you meet MNC’s credit standards, MNC may

finance up to $40,000 of the cost of your purchase of furnishings, fixtures and equipment for the

Studio. For a branch Studio Owner, the interest rate will be the prime rate as established by

Bank of America on the first business day of each calendar quarter. For new Studio Owners, the

interest rate will be one percentage point below the rate at which a financial institution has

committed to provide you financing for a business loan (i.e., not a home equity loan), but not

lower than the interest rate offered to a branch Studio Owner. For amounts financed up to and

including $10,000, the term of the financing is 2 years. For amounts financed of $10,001 to

$20,000, the term of the financing is the lesser of 3 years or the length of the initial term of the

lease of your Studio. For amounts financed in excess of $20,000, the term of the financing is the

lesser of 5 years or the length of the initial term of the lease for your Studio. (See Item 10 for the

terms and conditions of the financing offered by MNC.)

(8) This range of costs represents the cost of tile and carpet for a 750 square foot Studio location.

13 MNC - FDD - 04/12

(9) This includes the cost of the optional MN POS software program designed for use by Merle

Norman Studios and some computer hardware. As of the date of this Disclosure Document, the

cost of the MN POS software program (which can only be purchased from MNC) is $1,800. You

may purchase the computer hardware from MNC or any other source. If purchased from MNC,

the cost currently ranges from $2,000 to $3,000, depending on the computer and printer you

select. There are additional items of computer hardware that you may purchase from MNC or

any other source. These additional items are not required to utilize the MN POS software

program. These items include a credit card cable and a receipt printer/cash drawer. If you

choose to purchase these from MNC, the combined cost currently ranges from $100 to $1,000.

In addition, for a fee of $65, we will transfer your customer list from our computer system to

yours. Although purchasing the MN POS software program is entirely optional, MNC believes it

is an effective tool to assist in the operation of a Studio. MNC will finance 80% of the purchase

price of the MN POS software and computer hardware at an APR of 10%. At your election,

MNC will finance this purchase for 12, 24 or 36 months, to be repaid in equal monthly

installments. (See Item 10.)

(10) This includes items such as security deposits, initial utility deposits, advertising, insurance,

licenses, supplies and the like. This also estimates your initial start-up expenses for 6 months.

This does not include any salary for you or payment of your living expenses. This figure is an

estimate, and MNC cannot guarantee that you will not have additional expenses starting your

business. Your costs will depend on factors such as whether you will have any employees in

addition to yourself, the rent obligation, the retail maturity of the location, your management

skill, experience and business acumen, the local market for a Merle Norman Studio, competition

and the sales level reached during the initial period.

(11) Except where otherwise indicated, all costs and expenditures mentioned in this Disclosure

Document represent the best estimates known to MNC for these costs. These figures do not take

into account costs of financing which you will incur if you choose to finance any portion of these

expenses. As noted in Item 10, MNC offers financing only for the initial package and, in some

instances, for Studio fixtures and computer software and hardware. You should review these

figures with a business advisor before making any decision to purchase the franchise.

(12) Studios eligible for an E-Design are limited to non-mall locations and generally to locations with

populations under 40,000. E-Design is a value engineering design that utilizes slatwall and

shelving in place of some of the traditional cabinetry used with the New Design.

END OF NOTES

The following figures include the costs a Studio Owner may incur if, after the Studio initially

opens, she seeks to qualify for the Gold Medallion Program.

14 MNC - FDD - 04/12

MNC does not require a particular investment for the Gold Medallion Program, and a Studio

Owner will not be required to make any real estate investment, purchase any additional MN Products or

supplies or incur any training related expenses. In tabular form, the range of expenses a Studio Owner

may incur may be broken down as follows:

Type of Expenditure Amount

Method of

Payment (4) When Due

To Whom Payment

is to be Made

Studio Costs:

Fixtures (1)

$0-4,000 As Incurred As Incurred Suppliers

Renovations (2) $0-2,000 As Incurred As Incurred Suppliers

Signs (3) $0-2,000 As Incurred As Incurred Local Vendors

Total $0-8,000

NOTES

(1) In order to qualify for the Gold Medallion Program, a Studio Owner may be required to repair or

replace the fixtures in the Studio.

(2) In order to qualify for the Gold Medallion Program, a Studio Owner may be required to repaint

the Studio, clean or replace ceiling tiles and clean or replace carpeting.

(3) In order to qualify for the Gold Medallion Program, a Studio Owner may be required to repair or

replace the signs.

(4) Except where otherwise noted, these costs and expenditures represent the best estimates known

to MNC for these costs. These figures do not take into account costs of financing a Studio

Owner will incur if the Studio Owner chooses to finance any portion of these expenses. MNC

does not offer any financing in connection with the expenses a Studio Owner may incur to

qualify for the Gold Medallion Program. You should review these figures with a business

advisor before making any decisions regarding participation in the Gold Medallion Program.

ITEM 8

RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES

To become a Studio Owner, you must purchase an initial package of MN Products, supplies and

other materials from MNC. In the year ending December 31, 2011, MNC’s revenue from the sale of

initial packages to Studio Owners was $190,154 or approximately 0.24% of MNC’s total revenues of

approximately $78,233,000. The cost of the initial package, as described in Items 5 and 7, represents

approximately 8% to 65% of all purchases and leases of goods and services in connection with

establishing your Studio.

You are not required to purchase or lease any goods, services, supplies, fixtures, equipment,

inventory, computer hardware and software or real estate related to your Studio from MNC, designated

suppliers or pursuant to MNC’s specifications. In the year ended December 31, 2011, MNC derived

100% of its total revenues from the sale of MN Products, supplies, accessories, freight and other materials

to Studio Owners.

There are no approved suppliers in which any of our officers own an interest.

15 MNC - FDD - 04/12

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 lesson material provided by MNC), you

must obtain our prior written approval of any additional merchandise or services. In addition, you may

not sell or offer for sale: (1) any merchandise which is likely to confuse the public as to the origin or

quality of the merchandise or enable others to trade upon MNC’s Trademarks (as defined in Item 13) and

the goodwill of MNC or other Studio Owners; (2) any skin care or color cosmetic product other than MN

Products; or (3) any merchandise or service which MNC has determined is inconsistent with the image of

MNC or the MN System. There are no purchasing or distribution cooperatives. MNC will not derive

revenue from any of your purchases or leases, except for purchases from MNC. MNC does not negotiate

purchase arrangements with suppliers for the benefit of Studio Owners. MNC does not provide material

benefits to a Studio Owner based on a Studio Owner’s purchase of particular products or services or use

of particular suppliers.

You must maintain throughout the term of the Studio Agreement, at your cost and expense, that

insurance as you deem necessary or desirable, but at least the insurance that is required by your lease. We

have the right to specify (and later modify) the types of insurance you must have, including insurance

coverage for non-Merle Norman products and services offered at the Studio; specify (and later increase)

minimum required coverages; and require that your insurers achieve certain ratings by insurance rating

agencies. MNC must be an additional insured in each insurance policy to the extent that it has an

insurable interest, and you must provide MNC certificates of insurance.

ITEM 9

FRANCHISEE’S OBLIGATIONS

THIS TABLE LISTS YOUR PRINCIPAL OBLIGATIONS UNDER THE FRANCHISE AND OTHER

AGREEMENTS. IT WILL HELP YOU FIND MORE DETAILED INFORMATION ABOUT YOUR

OBLIGATIONS IN THESE AGREEMENTS AND IN OTHER ITEMS OF THIS DISCLOSURE

DOCUMENT.

Obligation

Section in the Studio

Agreement (“SA”) and Gold

Medallion Studio Addendum

(“GMSA”)

Disclosure Document

Item

a. Site selection and acquisition/lease Not Applicable Item 11

b. Pre-opening purchases/leases SA, Section 5 Items 5 & 7

c. Site development and other pre-

opening requirements

SA, Section 4 Items 7 & 11

d. Initial and ongoing training SA, Section 7 Items 7 & 11

e. Opening Not Applicable Item 11

f. Fees Not Applicable Items 5 & 6

g. Compliance with standards and

policies/Operating Manual

SA, Sections 6 & 8

GMSA, Section 4

Items 8 & 16

h. Trademarks and proprietary

information

SA, Section 9

GMSA, Section 5

Items 13 & 14

16 MNC - FDD - 04/12

Obligation

Section in the Studio

Agreement (“SA”) and Gold

Medallion Studio Addendum

(“GMSA”)

Disclosure Document

Item

i. Restrictions on products/services

offered

SA, Section 8.E. & 8.F.

GMSA, Section 4.C.

Items 8 & 16

j. Warranty and customer service

requirements

Not Applicable

k. Territorial development and sales

quotas

SA, Section 2

GMSA, Section 2

Item 12

l. Ongoing product/service purchases SA, Section 5 Item 8

m. Maintenance, appearance and

remodeling requirements

SA, Sections 8.A. & 8.D. Item 17

n. Insurance SA, Section 10.A. Item 11

o. Advertising SA, Sections 6.C. & 8.H.

GMSA, Section 4.A.

Item 11

p. Indemnification SA, Section 10.B. Item 6

q. Owner’s participation/management

staffing

Not Applicable Items 11 & 15

r. Records/reports SA, Section 8.C.

s. Inspections/audits SA, Section 6.B.

GMSA, Section 6.C.(2)

Item 11

t. Transfer SA, Section 11

GMSA, Section 2

Item 17

u. Renewal GMSA, Section 3.B. Item 17

v. Post-termination obligations SA, Section 14

GMSA, Section 7

Item 17

w. Non-competition covenants Not Applicable

x. Dispute resolution Not Applicable

ITEM 10

FINANCING

Except as described below, MNC does not offer direct or indirect financing. MNC does not

guarantee your note, lease or obligation. The Notes at the end of the following two Tables are an integral

part of the information you should know with respect to financing offered by MNC and you should

carefully read those notes.

17 MNC - FDD - 04/12

SUMMARY OF FINANCING OFFERED TO NEW STUDIO OWNERS (1)

Item Financed

Amount

Financed

Down

Payment

Term

(Months)

Apr

%

Monthly

Payment

Prepay

Penalty

Security

Required

Liability

Upon

Default

Loss of

Legal Right

on Default

Initial Package (2) 45% 55% 3 None

Equal

Installments

None None

Loss of

Franchise

None

MN POS Software

and Hardware (3)

80% 20% 12-36 10%

Equal

Installments

None

Personal

Guarantee,

Processing

all credit

card

purchases

through

MNC’s

preferred

credit card

vendor

Loss of

Franchise,

Attorneys’

Fees, Default

under other

agreements

with MNC

None

Fixtures Financing

(4)

Generally

$7,500 to

$40,000

None

See Note

(5)

See

Note

(5)

Equal

Installments

None

Studio

assets,

Personal

Guarantee,

Processing

all credit

card

purchases

through

MNC’s

preferred

credit card

vendor

Repossession,

Loss of

Franchise,

Attorneys’

Fees, Default

under other

agreements

with MNC

None

SUMMARY OF FINANCING OFFERED TO BRANCH STUDIO OWNERS (1)

Item Financed

Amount

Financed

Down

Payment

Term

(Months)

Apr

%

Monthly

Payment

Prepay

Penalty

Security

Required

Liability

Upon

Default

Loss of

Legal Right

on Default

Initial Package (6) 70% 30% 3 None

Equal

Installments

None None

Loss of

Franchise

None

MN POS Software

and Hardware (3)

80% 20% 12-36 10%

Equal

Installments

None

Personal

Guarantee,

Processing

all credit

card

purchases

through

MNC’s

preferred

credit card

vendor

Loss of

Franchise,

Attorneys’

Fees, Default

under other

agreements

with MNC

None

Fixtures Financing

(4)

Generally

$7,500 to

$40,000

None

See Note

(7)

See

Note

(7)

Equal

Installments

None

Studio

assets,

Personal

Guarantee,

Processing

all credit

card

purchases

through

MNC’s

preferred

credit card

vendor

Repossession,

Loss of

Franchise,

Attorneys’

Fees, Default

under other

agreements

with MNC

None

18 MNC - FDD - 04/12

NOTES

(1) If MNC provides financing (other than for the initial package), MNC will require, as additional

security for the financing and until you have repaid the amount financed, that all credit card

purchases be processed through MNC’s preferred credit card vendor. In connection with this

financing, you will be required to sign a credit card vendor agreement, an example of which may

be found at Exhibit E.4.

(2) For New Studio Owners, the initial package is payable 55% at the end of Home Office Training,

with the balance payable, without interest, in 3 equal monthly installments beginning 2 months

after shipment of your initial package.

(3) If you decide to purchase the MN POS software program and/or computer hardware through

MNC, MNC will finance 80% of the total purchase price at an APR of 10%. At your election,

MNC will finance this purchase for 12, 24 or 36 months, to be repaid in equal monthly

installments. In connection with this financing, you will be required to sign a Promissory Note,

an example of which may be found at Exhibit E.5. If you fail to make timely payments under the

Promissory Note, MNC can demand payment of the unpaid amount (Promissory Note, Default).

If you default under the Promissory Note, that constitutes a default under all other agreements

you have with MNC (Promissory Note, Default). If MNC files suit to recover on the Promissory

Note, it can also recover attorneys’ fees (Promissory Note, Default).

(4) MNC may finance between $7,500 and $40,000 of the cost of your purchase of furnishings,

fixtures and equipment (i.e., wall units, carpet, tile, fixtures, tables, chairs, stools, mirrors,

lighting, acrylics and graphics) for your Studio. (MNC reserves the right where it deems

appropriate to provide a greater or lesser amount of financing.) Generally, to be eligible for this

financing, you must meet MNC’s credit standards (i.e., have a satisfactory credit rating as

determined by an independent credit agency), have the intention and ability to participate

actively in the daily operation of the Studio, have a design plan approved by MNC’s Studio

Design Department and, unless approved in writing in advance by MNC’s Studio Design

Department, purchase from only MNC-approved vendors. Under this financing program, MNC

pays vendors directly for those items purchased by a Studio Owner, following the Studio

Owner’s approval of an invoice from the vendor. There are no fees paid to MNC in connection

with this financing program.

In connection with this financing, you will be required to sign a Promissory Note, an example of

which may be found at Exhibit E.6., and a Security Agreement, an example of which may be

found at Exhibit E.7., and MNC will retain a security interest in the financed collateral (Security

Agreement, Further Warranties and Covenants #4). If you fail to make timely payments under

the Promissory Note, MNC can demand payment of the unpaid amount (Promissory Note,

Default). If you default under the Promissory Note, that constitutes a default under all other

agreements you have with MNC (Promissory Note, Default). If MNC files suit to recover on the

Promissory Note, it can also recover attorneys’ fees (Promissory Note, Default). With respect to

the Security Agreement, if you fail to make timely payments, MNC can demand payment of the

unpaid amount and repossess and sell the financed collateral if you fail to pay (Security

Agreement, Default). If you default under the Security Agreement, that constitutes a default

under all other agreements you have with MNC (Security Agreement, Default). MNC can also

recover the costs of repossession and reasonable attorneys’ fees and legal expenses (Security

Agreement, Default).

19 MNC - FDD - 04/12

Existing Studio Owners who desire to remodel their Studios also may participate in this

financing program. In addition to executing the Promissory Note and Security Agreement,

existing Studio Owners who are remodeling their Studios must execute the current form of

Studio Agreement (Exhibit E.1.) to replace their existing Studio Agreement.

(5) For amounts financed up to and including $10,000, the term of the financing is 2 years. For

amounts financed of $10,001 to $20,000, the term of the financing is the lesser of 3 years or the

length of the initial term of the lease for your Studio. For amounts financed in excess of

$20,000, the term of the financing is the lesser of 5 years or the length of the initial term of the

lease for your Studio. In addition to the requirements described in Note (4), in order to qualify

for this financing, you must present to MNC written evidence of a loan commitment for a

business loan (i.e., not a home equity loan) from a financial institution to provide financing in the

same amount as you seek to obtain from MNC and for the same loan term, as well as the terms

and conditions of the financing. If MNC makes financing available to you, the interest rate will

be one percentage point below that offered to you by that financial institution, but not lower than

the interest rate offered to branch Studio Owners.

(6) For Branch Studio Owners, the initial package is payable 30% before it is shipped to you, with

the balance payable, without interest, in 3 equal monthly installments beginning 2 months after

the order is shipped.

(7) For amounts financed up to and including $10,000, the term of the financing is 2 years. For

amounts financed of $10,001 to $20,000, the term of the financing is the lesser of 3 years or the

length of the initial term of the lease of your Studio. For amounts financed in excess of $20,000,

the term of the financing is the lesser of 5 years or the length of the initial term of the lease for

your Studio. In addition to the requirements described in Note (4), in order to qualify for this

financing, you must have a history of timely paying MNC for your purchases of products. The

interest rate will be the prime rate as established by Bank of America on the first business day of

each calendar quarter. That interest rate will be applicable to a Studio Owner who applies for

financing during that calendar quarter, provided the Studio Owner closes on the financing within

30 days after the end of that calendar quarter. If a Studio Owner fails to close within that time,

the interest rate will be the prime rate established by Bank of America on the first business day of

the next calendar quarter. Once established, the interest rate will remain the same during the life

of the loan, unless the Studio Owner defaults on the loan.

END OF NOTES

With respect to all of the financing described in this Item, there is no penalty if you prepay the

amount financed; you are not required to confess judgment or waive a defense against MNC; MNC does

not arrange financing from other sources; commercial paper from Studio Owners has not been and is not

sold or assigned to anyone and MNC has no plans to do so; MNC does not receive direct or indirect

payments for placing financing; and MNC does not guarantee your obligations to third parties. Under the

Studio Agreement, if you fail to timely repay MNC for amounts financed, MNC may require you to pay a

delinquency fee and make special arrangements for future amounts owed to MNC (Studio Agreement,

Section 5), may discontinue selling MN Products to you (Studio Agreement, Section 5) and may place

you in default of the Studio Agreement (Studio Agreement, Section 13.B.).

20 MNC - FDD - 04/12

ITEM 11

FRANCHISOR’S ASSISTANCE, ADVERTISING,

COMPUTER SYSTEMS AND TRAINING

Except as listed below, MNC is not required to provide you any assistance.

MNC’s Pre-Opening Obligations

Before you open your Studio, MNC will:

1. Advise you within 30 days after we receive the design plans whether we approve the plans.

(Studio Agreement, Section 4.A.)

2. Advise you whether we approve all furnishings, furniture, fixtures, floor coverings and signs

used in the Studio. (Studio Agreement, Section 4.B.)

3. Sell you an initial package of MN Products, supplies and other items. (Studio Agreement,

Section 5)

4. Provide Home Office Training at MNC’s Home Office at 9130 Bellanca Avenue, Los Angeles,

California (as described later in this Item) prior to the time your Studio opens. (Studio

Agreement, Section 7.A.)

5. Loan you a copy of The Smart Book (“Operations Manual”), which is 190 pages in length. The

table of contents for the Operations Manual is attached as Exhibit C.

MNC’s Obligations During Operation of the Franchise

During the operation of your Studio, MNC will:

1. Make MN Products available for purchase by you as long as you are not in default of your

obligations to us. (Studio Agreement, Section 5)

2. Periodically make available for purchase by you sales aids, such as props, supplies, favors and

related items. (Studio Agreement, Section 6.E.)

3. Periodically provide you, at no cost, limited quantities of materials to use solely in connection

with providing customers free make-up or makeover lessons in your Studio. You may not sell,

or give away, lesson material. (Studio Agreement, Section 6.F.)

4. Provide, at no cost, consultation and advice to you as we deem appropriate in connection with the

development and operation of the Studio. We may delegate some or all of our obligations and

duties under the Studio Agreement to third parties, including affiliates, agents and independent

contractors. (Studio Agreement, Section 6.A.)

5. Inspect and record or photograph the Studio’s operation and the facility, remove samples of any

products, interview personnel and customers and inspect and copy any documents relating to the

operation of the Studio. (Studio Agreement, Section 6.B.)

6. Advise you whether we have approved your local advertising and promotional materials within

30 days after receipt of these materials. If we do not respond within 30 days, we will be

considered to have denied approval of that advertising. (Studio Agreement, Section 8.H.)

21 MNC - FDD - 04/12

7. Reimburse a portion of your local advertising expenses if the advertising and media are approved

by us and the amount spent is, in our judgment, reasonable in light of your sales of MN Products.

The details of this program, which we may modify or discontinue at any time, will be provided

separately to you. (Studio Agreement, Section 6.C.)

8. Upon 30 days’ notice to you, we may modify the MN System, including modifications to the

Operations Manual, the design, layout and furnishing of Studios (including the trade dress, décor,

and color schemes) and the method of payment of monies owed to us. (Studio Agreement,

Section 6.D.)

9. Periodically provide you with suggested retail price lists for the MN Products. (Studio

Agreement, Section 8.G.)

Advertising

MNC periodically conducts advertising for MN Products, primarily in national print media. You

are not required to pay MNC any monies for this advertising, which MNC conducts as it deems

appropriate. At present, this advertising is prepared by MNC’s in-house advertising department. There is

no formal arrangement for an advertising council composed of franchisees that advises MNC on

advertising policy.

You are not required to conduct any local advertising for your Studio, although you are

encouraged to do so. You may not, however, advertise your Studio outside of your trade area, and you

may not independently advertise on any on-line computer network. You may establish an Internet web

site only if done through MNC. You may not use MNC’s Trademarks (as defined in Item 13) to advertise

or promote any merchandise or services other than MN Products, regardless of whether the merchandise

or services have been approved by MNC. You must maintain, at your expense, one or more telephone

directory listings for your Studio as MNC requires from time to time.

Your local advertising and promotional materials must comply with all federal and local laws and

regulations and with our guidelines for advertising and promotions and must be submitted to us at least 30

days prior to first use for approval. If we do not respond within 30 days, we will be considered to have

denied approval of that advertising. All of your advertising and promotion must be completely factual

and must conform to the highest standards of ethical advertising. Your advertising may not contain any

statement or material which may be considered: (1) in bad taste or offensive to the public or to any group

of persons; (2) defamatory of any person or an attack on another Studio Owner or any competitor; (3) to

infringe upon any other person’s copyright, trade name, trademark, service mark or identification; or

(4) inconsistent with the image of MNC or the MN System.

Under our Studio’s Choice Co-operative Advertising Program, MNC will reimburse a portion of

the cost of your local advertising if the advertising materials and media are approved by MNC and the

amounts spent are, in the judgment of MNC, reasonable in light of your sales of MN Products. The

details of this Program will be provided separately to you. At present, MNC pays 60% of these costs, but

MNC may vary this amount. You do not pay MNC any monies in connection with the Studio’s Choice

Co-operative Advertising Program.

You may seek reimbursement for approved advertising by submitting a Request For Co-op

Advertising Credit Form (“Request”) with the required documentation within 60 days after the

advertising has run and you have paid the advertising vendor. These Requests normally are processed in

3 days, and reimbursement is made by a credit to your Studio account. MNC reserves the right to contact

directly the publisher or advertising vendor to review your records, as appropriate or necessary, to verify

any Request. In order to expedite reimbursement to you, verification procedures ordinarily will be carried

out after the reimbursement has been credited to your Studio account. If discrepancies are found, an

adjustment will be made to your Studio account through a debit or credit as appropriate.

22 MNC - FDD - 04/12

Studio Owners in any market may decide to form an advertising co-op group in that market in

order to share the cost of advertising in their market. The potential membership in an advertising co-op is

determined based on the Studios operating in the area covered by an A.C. Nielsen “Designated Market

Area” (“DMA”). If an advertising co-op group is formed in a market, all Gold Medallion Studios in that

area must participate in the group. Non-Gold Medallion Studios are not required to participate in an

advertising group.

When an advertising co-op group is established, MNC typically administers the advertising co-

op. Studio Owners who participate must sign a Co-op Group Letter of Agreement (attached as Exhibit

E.3.). Apart from this Agreement, there are no written governing documents for a co-op. Ordinarily, the

group members consider different media plans that could be implemented in the next 6 or 12 months and

then select a media plan. The group members’ required contribution for the 6 or 12 month period is based

upon the media plan selected and the number of participants. MNC pays a portion of the cost of the

media plan (currently 60%, but MNC may vary this amount), and the remainder of the cost is split among

the co-op members as they agree, usually on a per Studio basis. No annual or periodic financial

statements are prepared for an advertising co-op.

In order to facilitate execution of the media plan selected by a group and obtain the lowest

possible cost, MNC may prepay the cost of the media plan and debit each month over the media plan

period the Studio account of each participating Studio Owner an equal portion of that Studio Owner’s

total cost. At present, for those areas with an advertising co-op group, the monthly advertising co-op

charge per Studio ranges from $67 to $471 depending on the DMA, the number of participating Studios

and the media plan selected by the advertising co-op members.

At the conclusion of each media plan, the co-op members can choose whether to continue the

advertising co-op and, if so, to develop the new plan. MNC does not have the power to require

advertising co-op groups to be changed, dissolved or merged.

The MN POS Software Program

MNC owns a proprietary point of sale software program (known as the MN POS Software

Program), which you may purchase from MNC if you choose. While the purchase of the MN POS

software program is entirely optional, if you choose to purchase the MN POS software program, you must

sign a POS Purchase Agreement (attached as Exhibit E.8.). As of the date of this Disclosure Document,

the cost of the MN POS Software Program is $1,800. The MN POS software program has been in

continuous use by Studios since 1991. It produces a variety of information that can assist in the operation

of your Studio, including sales information, sales reports, inventory information, customer information,

employee information and mailing lists.

In addition to signing the POS Purchase Agreement, you must sign a Software License

Agreement (attached as Exhibit E.9.) which grants you the non-exclusive right to use the software and

under which MNC provides ongoing software upgrades and support. You are required to participate in

the ongoing upgrades and support for a period of one year. If you have financed any part of your

purchase of the MN POS Software Program through MNC, you are required to continue to participate in

ongoing upgrades and support until you have repaid MNC the amount financed. The current annual cost

of upgrades and support is $300.

MNC does not have independent access to the information generated by the MN POS software

program. MNC is aware of other similar point of sale software programs that are available. MNC has

neither approved nor refused to approve any other software program. You may use another software

program if you choose. Similarly, you are not required to use any software program.

23 MNC - FDD - 04/12

The MN POS software program requires a PC using Windows XP, Pentium 4 or new processor –

2 GB RAM. MNC recommends that you use a 17 inch LCD color monitor, 3COM 56K external fax

modem or faster fax modem and a Windows compatible printer, although you may purchase other models

that you choose. If you choose different equipment, it may not be compatible with MNC’s modem at our

Home Office or with the MN POS software.

You are not required to purchase the computer hardware from MNC. If you purchase computer

hardware from MNC, you must sign a POS Purchase Agreement (attached as Exhibit E.8.). MNC

currently offers Lenovo computers, 3COM 56K external fax modems, and Epson (receipt and report)

printers. If you purchase the computer hardware from MNC, the cost currently ranges from $2,000 to

$3,000, depending on the computer and printer you select. There are additional items of computer

hardware that you may purchase from MNC or any other source. These additional items are not required

to utilize the MN POS software program. These items include a credit card table and a receipt

printer/cash drawer. If you purchase those from MNC, the combined cost currently ranges from $100 to

$1,000. All of the computer equipment we offer includes manufacturers’ warranties.

Selecting the Location of Your Studio

We do not select the site for your Studio. You select the site for your Studio subject to MNC’s

approval. The Studio Agreement is signed only after your site has been approved by MNC. In evaluating

a proposed site, MNC considers whether additional representation in an area is warranted based on its

evaluation of past experience within the area, population density, traffic patterns, proximity of the

proposed site to other Studios and those other factors MNC considers appropriate to evaluate a specific

proposal. If MNC concludes that representation is appropriate in the general area, it will consider the

attributes of the specific site, including customer accessibility and Studio design.

MNC approves a Studio Owner appointment for one or several specified locations. There is no

time limit for MNC to approve or disapprove a site, although MNC typically advises a Studio Owner

regarding site approval within 60 days after MNC has received all required information. If MNC and you

cannot agree on a site, MNC will not issue a Studio Agreement.

A separate Studio Agreement is entered into between MNC and you for each approved location.

A Studio typically will be located in a small retail store in a regional shopping mall, a strip shopping

center, a central business district location or a free-standing building. While you will determine the size

and location best suited for your planned operations, most regional mall Studio locations are in rented

spaces of 400 to 600 square feet, while Studio locations in strip shopping centers and other locations are

typically in rented spaces of 600 to 1,400 square feet.

Typical Time Between Agreement Signing and Opening

Studio Owners typically open their Studios 4-8 months after they sign the Studio Agreement. On

rare occasions, if the Studio is going to be located in a shopping center that is under construction, it may

take up to 12 months to open the Studio after the Studio Agreement is signed. The factors that affect this

time period include the ability to obtain a lease, delays in the construction or completion of the Studio,

delays in the installation of equipment, fixtures or signs, financing, building permits, zoning or local

ordinances, weather conditions or problems with personnel.

Training

Before your Studio opens for business, you, or a manager, are required to complete satisfactorily

Home Office Training. This training also is required of any person who becomes a Studio Owner by

purchase from an existing Owner. Home Office Training is conducted at MNC’s Training Center at its

Home Office. MNC schedules approximately 10 training sessions each year. Every effort is made to

schedule training so that it is completed as soon as practicable before you open your Studio for business.

24 MNC - FDD - 04/12

MNC provides those attending Home Office Training a complimentary Continental Breakfast and

lunch each business day. You must pay for travel expenses to Los Angeles, California, hotel expenses

and all other expenses.

Home Office Training covers 8 days. Classes are held from 8:45 a.m. to 5:00 p.m. The

Operations Manual and Beauty Know-How Manual are the principal instructional materials used. In

addition, other hand-outs, training videos, slides and other audio-visual presentations are used, along with

makeup for use during the in-class makeup workshops. Home Office Training does not include on the job

training in a Merle Norman Studio.

Sandra Haeberle, Vice President of Sales and Communications, along with Robin Wilson,

Manager of Gold Medallion, conduct training on all matters that are the subject of the 8 day Home Office

Training. Ms. Haeberle began her career with Merle Norman in August 1998 as Director of Training.

Robin Wilson has been with Merle Norman since 1978. Ms. Wilson has held a variety of positions in

both the Consumer Relations Department and the Studio Communications Department.

The following list summarizes the subjects taught at Home Office Training:

TRAINING PROGRAM

Subject

Hours of

Classroom

Training (1)

Hours of on the Job

Training (1) Location

Skin Care 9:30 N/A

Home Office

Los Angeles, CA

Foundation 5:30 N/A

Home Office

Los Angeles, CA

Make-Up Artistry & Color 7:00 N/A

Home Office

Los Angeles, CA

Studio Development 0:15 N/A

Home Office

Los Angeles, CA

Merchandising :45 N/A

Home Office

Los Angeles, CA

Employee Relations 2:00 N/A

Home Office

Los Angeles, CA

Business Management 1:40 N/A

Home Office

Los Angeles, CA

Ordering, Customer Returns,

Discontinued Items & Returns

2:00 N/A

Home Office

Los Angeles, CA

Billing, Credit :30 N/A

Home Office

Los Angeles, CA

Product Retention 1:00 N/A

Home Office

Los Angeles, CA

Product Marketing :45 N/A

Home Office

Los Angeles, CA

Advertising/Marketing Studio 1:00 N/A

Home Office

Los Angeles, CA

Selling Skills & Activities 1:45 N/A

Home Office

Los Angeles, CA

25 MNC - FDD - 04/12

Subject

Hours of

Classroom

Training (1)

Hours of on the Job

Training (1) Location

Gold Medallion 1:00 N/A

Home Office

Los Angeles, CA

MN Connections 1:50 N/A

Home Office

Los Angeles, CA

History of MNC & Brand

Awareness

1:30 N/A Home Office

Los Angeles, CA

Miscellaneous (2) 8:00 N/A

Home Office

Los Angeles, CA

NOTES

(1) The length of the training on each topic is stated in hours and minutes.

(2) Throughout the eight-day period, you will be introduced to a number of employees of MNC who

will speak on various topics. You also will take a tour of MNC’s manufacturing facility.

END OF NOTES

MNC conducts an annual national convention for Studio Owners. Attendance at the convention

is voluntary. MNC encourages attendance since it gives you the opportunity to see and sample new

products and to prepare your staff to introduce and sell these new products. The convention also includes

presentations covering many areas of Studio operation and provides an opportunity for you to meet with

members of the Home Office Staff and other Studio Owners. You pay the cost of travel to and from the

convention, as well as room and living expenses while attending the convention.

MNC provides a required 2-day training program for purchasers of the MN POS software

program. This training, which covers operation of the MN POS software program, is provided at MNC’s

Home Office in Los Angeles, California and at 4 other locations, as well as in any city where 3 or more

Studio Owners participate in the training program. There is no charge for up to 2 persons per Studio for

the training. MNC provides a complimentary Continental Breakfast and lunch to attendees during the

training program. You must pay for travel expenses to the training site, hotel expenses and all other

expenses. In lieu of the 2-day training program, MNC also offers an on-line tutorial program for POS

software training hosted via webx.com. The on-line tutorial program consists of two 4 ½ hour sessions

on webx.com. If you are purchasing an existing Studio that uses the MN POS software program and you

choose to continue using that program, you (or your manager) will be required to attend the MN POS

software training before MNC will approve the transfer of the Studio to you.

MNC also provides a wide variety of continuing training seminars, which are available to you

and, in some cases, your employees. While these seminars are, in general, optional, MNC strongly

encourages you to take advantage of these seminars, and where it is believed that these seminars are

important to your effective representation, MNC may require attendance. MNC also offers videos to

support all new product introductions and for the color collections MNC launches each year.

There is no charge for any of these continuing training seminars; however, a cancellation fee may

be charged to your Studio account if you reserve a position in a seminar and fail to notify the Home

Office at least 5 business days prior to the start of class if you will be unable to attend. Your employees

and you are responsible for the cost of travel, hotel and living expenses at each of these seminars. MNC

provides complimentary Continental Breakfasts and lunches during these sessions.

26 MNC - FDD - 04/12

ITEM 12

TERRITORY

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.

There are no restrictions on our ability to solicit or accept orders from customers at any location, nor must

we compensate you if we solicit or accept orders.

MNC grants you a nonexclusive right to operate a Studio at a specified location, which must be

approved by MNC in advance. MNC reserves the right to establish other Studios (whether operated by us

or independent studio owners) at any location without regard to their proximity to your Studio that may

compete with your location. You do not have the right to sell MN Products or use the Trademarks or the

MN System at any location other than your approved Studio location. You may only sell MN Products to

customers who are physically present at the Studio Location and to customers at MNC approved

marketing events; you may not use any other method or channel of distribution. You may not relocate

your Studio without MNC’s prior written approval. You do not receive any right of first refusal (or

similar right) to develop or operate additional Studios, nor do you receive any option to develop or

operate additional Studios. You may only obtain the right to develop and operate additional Studios,

following approval by MNC, by signing a new studio agreement for each additional location.

One of the hallmarks of the Merle Norman System is our “Try Before You Buy” philosophy.

MNC, however, reserves the right to merchandise and distribute MN Products under the Proprietary

Marks and/or under other marks through any method or channel of distribution, including the Internet,

other than Merle Norman Studios.

ITEM 13

TRADEMARKS

MNC grants you the right to operate a Studio under the name “Merle Norman” and to use our

other current or future Trademarks that we designate in the operation of your Studio. By Trademarks,

MNC means all words, symbols, designs, trade names, service marks or combinations used to identify the

MN System and MN Products (developed by us) and services offered under the MN System. We may

restrict the use of certain Trademarks to fewer than all Studios. We periodically will advise you as to any

additions or deletions to the Trademarks and your right to use the Trademarks will be modified by these

additions or deletions.

MNC has registered the following principal trademarks with the United States Patent and

Trademark Office on the Principal Register, and all required affidavits of continued use have been filed

and accepted:

Mark Registration No. Registration Date

MERLE NORMAN 1,399,010

1,412,879

2,077,608

6/24/86

10/14/86

7/8/97

521,472 2/28/50

27 MNC - FDD - 04/12

Mark Registration No. Registration Date

1,391,300 4/29/86

2,555,168 4/2/02

Only Gold Medallion Studios will be licensed to use the Gold Medallion Studio mark.

You may use the Trademarks only in connection with the operation of your Studio at the

specified location and as expressly provided in the Studio Agreement and the Operations Manual. You

may not use any Trademark, any variation of any Trademark or any marks or names confusingly similar

to any Trademarks in any manner not authorized by us or in the name of your business entity. In all

public records and relationships with other persons and on stationery, business cards, checks, contracts,

receipts, advertising and other business documents and forms, you will indicate the independent

ownership of your Studio and that you are solely a franchisee of MNC. You may not use the Trademarks

to advertise or promote any merchandise or services other than MN Products, regardless of whether MNC

has approved the merchandise or services.

No agreements currently limit MNC’s rights to use or license the use of the Trademarks. MNC

does not know of any infringing uses that could materially affect your use of the Trademarks. There are

no currently effective material determinations of the patent and trademark office, the trademark trial and

appeal board, the trademark administrator of any state or any court, pending infringement, opposition or

cancellation proceedings or any pending material litigation involving MNC’s principal trademarks.

MNC does not indemnify you against the consequences of your use of the Trademarks unless

your use of the Trademarks is in accordance with the requirements of the Studio Agreement. As a

condition to indemnification, you must provide MNC notice of any claim within 10 days and tender the

defense of the claim to MNC. If MNC accepts the tender of the defense, MNC has the right to manage

the defense of the claim, including the right to compromise, settle or otherwise resolve the claim, and to

determine whether to appeal a final determination of the claim.

You may not use the Trademarks on any Internet domain name, e-mail address or in the operation

of any Internet web site without our prior written approval. We may require that any web site be hosted

by us, and we may designate the form and content of any web site.

28 MNC - FDD - 04/12

ITEM 14

PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION

No patents or copyrights are material to the franchise. Much of the instructional and promotional

material used by MNC is copyrighted, but these rights are not material to individual Studio Owners.

MNC also claims copyright ownership in the Operations Manual, the Gold Medallion Guidelines and in

all plans and drawings prepared by or at the direction of MNC for Studio Owners, although it has not

filed applications for copyright registration. The Operations Manual contains MNC’s detailed standards

for operating your Studio. The Operations Manual, the Gold Medallion Guidelines and all other materials

and information provided or disclosed to you by MNC are disclosed in confidence. You may disclose

this information only to your employees who have a need to know.

ITEM 15

OBLIGATION TO PARTICIPATE IN THE

ACTUAL OPERATION OF THE FRANCHISE BUSINESS

You are not required to participate personally in the direct operation of the Studio, but if the

Studio is not under your direct daily supervision, you must hire a manager. If you are not active in the

operation of the Studio, the manager must complete Home Office Training. The manager need not have

an ownership interest in the Studio. We do not require that you place restrictions on your manager. If

you are a corporation or a limited liability company, or transfer your Studio to a corporation or a limited

liability company, each owner or member must sign a guarantee agreeing and assuming to discharge all

obligations of the franchisee under the Studio Agreement.

ITEM 16

RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL

You must purchase an initial inventory of MN Products and certain required supplies from MNC.

You must use your best efforts to promote the sale of MN Products and must focus your efforts at the

Studio on the sale of MN Products and providing free makeover lessons using the lesson material

provided by MNC.

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 any additional merchandise or services. In addition, you

may not sell 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 MNC’s Trademarks and the goodwill of MNC

or other Studio Owners. You may not sell or offer to sell any skin care or color cosmetic products other

than the MN Products or any merchandise or service which we have determined is inconsistent with the

image of MNC or the MN System.

You must continuously use your best efforts to promote the sale of MN Products. In order to

maximize your sale of MN Products, you must employ a sufficient number of employees to operate the

Studio at its maximum capacity during the days and hours regularly maintained by other retail

establishments in your neighborhood or area. In addition, if your purchases of MN Products for the

Studio are in the bottom 10% of similarly situated Studios in comparably sized markets (which we will

determine) for 12 consecutive months, we may place you in default of the Studio Agreement.

29 MNC - FDD - 04/12

ITEM 17

RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION

This table lists certain important provisions of the Studio Agreement and the Gold

Medallion Studio Addendum. You should read these provisions in the agreements attached to this

Disclosure Document.

THE FRANCHISE RELATIONSHIP

Provision

Section in the Studio

Agreement Summary

a. Length of the franchise term Section 3.A. 10 years from the date the Franchised Studio

opens

b. Renewal or extension of the term Section 3.B. You can renew for a single Renewal Term of 10

years.

c. Requirements for you to renew or

extend

Section 3.B. You must give timely notice; not be in default

under any agreement with MNC; renovate and

update the Studio if requested by MNC; comply

with our training requirements; have the right to

remain in possession of the Studio location for the

Renewal Term; have operated your Studio in

compliance with the Studio Agreement; sign a

general release; and sign a new Studio Agreement.

The new Studio Agreement may contain terms and

conditions substantially different from your

original Studio Agreement.

d. Termination by you Section 12 You may terminate without cause by providing us

10 days’ advance written notice.

e. Termination by MNC without

cause

Not Applicable

f. Termination by MNC with cause Sections 13 MNC can terminate upon default.

g. “Cause” defined – curable

defaults

Section 13.B. You have 10 days to cure monetary defaults. You

have 30 days to cure all other defaults except those

discussed in h.

30 MNC - FDD - 04/12

Provision

Section in the Studio

Agreement Summary

h. “Cause” defined – non-curable

defaults

Sections 13.A, 13.B.

& 13.C.

MNC can terminate without providing you an

opportunity to cure if you sell MN Products

through any wholesale, mail order (except as

approved by MNC to existing customers) or e-

commerce distribution, or through any channel of

distribution other than the retail operation of the

Studio at the Studio location; sell, or give away,

lesson material or sell sales aids; cease operating

your Studio for more than 5 consecutive days

unless approved by MNC in advance or due to act

of God, fire or other natural disaster; remain in

default beyond the applicable cure period under

any other agreement with MNC; unauthorized

relocation; unauthorized transfer; default again

after receiving 1 or more notices of default in the

previous 12 months; and fail to come into

compliance within 30 days after your receipt of a

notice of default based on results of an inspection

of your Studio.

i. Your obligations on

termination/nonrenewal

Section 14 Obligations include cease operating the Studio and

cease selling MN Products; payment of amounts

due; return of all manuals, lesson material,

materials provided free of charge by MNC, and all

other materials furnished by MNC to MNC; cease

use of MNC’s Trademarks; resell MN Products to

MNC; cooperate with us in referring inquiries

regarding MN Products to person designated by

us; and de-identify the Studio.

j. Assignment of contract by MNC Not Applicable

k. “Transfer” by you - definition Section 11.A. Include sale, assignment, conveyance or transfer

of any interest in you, the Studio Agreement, or

the ownership of the Studio.

l. MNC’s approval of transfer by

franchisee

Section 11.A. MNC has the right to approve all transfers.

m. Conditions for MNC approval of

transfer

Section 11.A. MNC will not approve a transfer unless you have

paid all monetary obligations to MNC and all

other financial obligations related to the Studio;

you execute a general release; you are not in

default of any agreement with MNC; you provide

written certification that you have not made any

representations to the transferee that MNC has

granted you any exclusive territory or any right of

first refusal or similar option. Additionally, MNC

will not approve a transfer unless it determines

that the person who proposes to acquire a

substantial interest in the Studio or the proposed

new Studio Owner satisfies MNC’s managerial,

operational, experience, financial, quality,

character and business standards for a new studio

owner; transferee signs new Studio Agreement;

and transferee completes Home Office Training.

31 MNC - FDD - 04/12

Provision

Section in the Studio

Agreement Summary

n. MNC’s right of first refusal to

acquire your business

Not Applicable

o. MNC’s option to purchase your

business

Not Applicable

p. Your death or disability Section 11.B. Upon your death or permanent incapacity, your

executor, administrator, personal representative or

trustee has 12 months to transfer the affected

person’s interest. MNC must approve the transfer

based on the conditions in m. During that period,

the Franchised Studio must be operated by a

person who has completed Home Office Training.

q. Non-competition covenants

during the term of the franchise

Section 8.E. You may not display, sell or offer any

merchandise of any manufacturer that is likely to

confuse the public as to its origin or quality or

which will enable others to trade on the

Trademarks and goodwill of MNC or its other

Studios. You may not sell or offer to sell any skin

care or color cosmetic products other than MN

Products, or any merchandise or service which

MNC has determined is inconsistent with the

image of MNC or the MN System. You must

obtain prior written approval from MNC before

selling other merchandise (in addition to MN

Products) or offering other services (in addition to

free makeover lessons using the lesson material

provided by MNC).

r. Non-competition covenants after

the franchise is terminated or

expires

Not Applicable

s. Modification of the agreement Sections 6.D. &

17.A.

No modification to the Studio Agreement unless in

writing and signed by the parties, but with 30

days’ notice, MNC may modify the MN System,

including the Operations Manual, the design and

layout of the Studios and the methods of payment

of monies owed to us.

t. Integration/merger clause Section 17.A. Only the terms of the Studio Agreement, the

Operations Manual, the documents referred to

therein and the attachments to the Studio

Agreement are binding. Any other oral or written

promises relating to the subject matter of the

Studio Agreement may not be enforceable. This is

not intended to disclaim any representation made

in this disclosure document.

u. Dispute resolution by arbitration

or mediation

Not Applicable

32 MNC - FDD - 04/12

Provision

Section in the Studio

Agreement Summary

v. Choice of forum Section 17.B. You can only file suit where our principal offices

are located. We may file suit in the jurisdiction

where our principal offices are located, where you

reside or do business, where the Studio is or was

located or where the claim arose. See the

Additional Disclosure Addendum to this

Disclosure Document for specific state provisions.

w. Choice of law Section 17.B. The laws of the state in which the Studio is located

apply. See the Additional Disclosure Addendum

to this Disclosure Document for specific state

provisions.

GOLD MEDALLION STUDIO ADDENDUM

Provision (1)

Section in the Gold

Medallion Studio

Addendum Summary

a. Length of the franchise term Section 3 3 years from date MNC signs the Addendum

b. Renewal or extension of the

term

Section 3 You can renew for successive 3-year periods.

c. Requirements for you to

renew or extend

Section 3 In order to renew, your Studio Agreement must

remain in effect; you and the Studio must be in

compliance with the then-current Gold Medallion

Guidelines; if requested by MNC, you must

submit photographs of the interior and exterior of

the Studio demonstrating compliance; and if

requested by MNC, you must sign a new Gold

Medallion Studio Addendum.

The new Gold Medallion Studio Addendum may

contain terms and conditions substantially

different from your original Gold Medallion

Studio Addendum.

d. Termination by you Section 6.B. You may terminate without cause by providing

MNC 30 days’ advance written notice.

e. Termination by MNC without

cause

Section 6.C. MNC can terminate if it decides to cancel the

Gold Medallion Program and provides you 60

days’ advance written notice.

f. Termination by MNC with

cause

Section 6.C. MNC can terminate if you default.

33 MNC - FDD - 04/12

Provision (1)

Section in the Gold

Medallion Studio

Addendum Summary

g. “Cause” defined – curable

defaults

Section 6.C. You have 60 days to cure if you fail to observe the

requirements of the Addendum, Gold Medallion

Program or the Gold Medallion Guidelines. The

Gold Medallion requirements include maintaining

an adequate inventory of MN Products; selling

only non-Merle Norman products that are

compatible with MN Products and MNC’s quality

image; offering non-Merle Norman products and

non-Merle Norman services in a separate, defined

area of the Studio; keeping the Studio clean and

well maintained; following MNC’s Gold

Medallion Return Policy; participating in a co-op

advertising group in your area (if one has been

started); participating in MNC’s gift certificate

program by honoring Merle Norman gift

certificates issued by other Studios; employing a

properly trained staff that maintains a professional

appearance and provides competent, courteous

service to customers; and the Studio must be

managed by you or a manager who has completed

Home Office Training.

h. “Cause” defined – non-

curable defaults

Section 6 MNC can terminate without providing you an

opportunity to cure if your Studio Agreement is

terminated; you relocate the Studio; you sell the

Studio, or a majority interest in the Studio, to a

third party; if you are any type of business entity,

you sell a majority interest in you; or if you

default after receiving 2 or more notices of default

within the previous 12 months.

i. Your obligations on

termination/nonrenewal

Section 7 Cease operating as a Gold Medallion Studio,

including cease all use of the Gold Medallion

Marks; cancel all advertising that contains any

Gold Medallion Marks; stop identifying the

Studio as a Gold Medallion Studio; and return

materials to MNC.

j. Assignment of contract by

MNC

Not Applicable

k. “Transfer” by you – definition Not Applicable

l. MNC’s approval of transfer

by franchisee

Not Applicable

m. Conditions for MNC’s

approval of transfer

Not Applicable

n. MNC’s right of first refusal to

acquire your business

Not Applicable

o. MNC’s option to purchase

your business

Not Applicable

p. Your death or disability Not Applicable

34 MNC - FDD - 04/12

Provision (1)

Section in the Gold

Medallion Studio

Addendum Summary

q. Non-competition covenants

during the term of the

franchise

Not Applicable

r. Non-competition covenants

after the franchise terminates

or expires

Not Applicable

s. Modification of the

agreement

Section 4 No modification generally, but MNC may modify

the Gold Medallion Guidelines and Program.

t. Integration/merger clause Not Applicable

u. Dispute resolution by

arbitration or mediation

Not Applicable

v. Choice of forum Not Applicable See the Additional Disclosure Addendum to this

Disclosure Document for specific state provisions.

w. Choice of law Not Applicable See the Additional Disclosure Addendum to this

Disclosure Document for specific state provisions.

NOTES

(1) With respect to those provisions that are not contained in the Gold Medallion Studio Addendum,

the provisions of the Studio Agreement govern MNC’s and your obligations.

ITEM 18

PUBLIC FIGURES

MNC does not use any public figures to promote its franchise.

ITEM 19

FINANCIAL PERFORMANCE REPRESENTATIONS

The FTC’s Franchise Rule permits a franchisor to provide information about the actual or

potential financial performance of its franchised and/or franchisor-owned outlets, if there is a reasonable

basis for the information, and if the information is included in the Disclosure Document. Financial

performance information that differs from that included in Item 19 may be given only if: (1) a franchisor

provides the actual records of an existing outlet you are considering buying; or (2) a franchisor

supplements the information provided in this Item 19, for example, by providing information about

possible performance at a particular location or under particular circumstances.

MNC does not receive from its Studio Owners any statements regarding the dollar amount of a

Studio Owner’s retail sales of MN Products, nor does MNC receive from its Studio Owners any

statements regarding a Studio Owner’s total sales, expenses, costs or profits. Since MNC does not have

this information, this financial performance representation only provides information as to the dollar

amount of purchases of MN Products by New Design Studios and the retail value of those purchases.

35 MNC - FDD - 04/12

Studio Owners are permitted to sell other merchandise (in addition to MN Products) and to offer

other services (in addition to free makeover lessons using the lesson material provided by MNC). While

MNC has not formally surveyed its Studio system, MNC believes that virtually all Studios sell

merchandise in addition to MN Products and/or offer other services. Accordingly, the dollar amounts

listed below as the “Retail Value of Purchases from MNC” are not intended to represent the total sales

volume of any New Design Studio(s). MNC is unable to estimate what percentage MN Products

comprise of a Studio’s total sales.

As mentioned in Item 1, in 1998, MNC completed the development of the New Design, the most

significant elements of which include 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/focal wall; and a cash and wrap area in matching finish.

Existing Studios are not required to implement the New Design; however, as of December 31,

2011, 701 U.S. Studios had implemented the New Design. A total of 684 Studios (97 Studios in regional

malls and 587 Studios in non-mall locations) operated in the United States under the New Design during

the one-year period from January 1, 2011 through December 31, 2011. This financial performance

representation relates only to those 684 New Design Studios.

The following information relates to the 97 U.S. New Design Studios located in regional malls

that operated under the New Design for the one-year period January 1, 2011 through December 31, 2011.

REGIONAL MALL LOCATIONS

Purchases from

MNC Per Studio (1)

Retail Value of

Purchases from MNC (2)

LOW

$24,991.23 $52,065.06

HIGH

$305,830.67 $637,147.23

AVERAGE

$102,049.85 $212,603.86

MEDIAN

$92,030.71 $191,730.65

Of the 97 U.S. New Design Studios located in regional malls, 36 Studios or 37% attained or

surpassed the Average Purchases from MNC Per Studio.

The following information relates to the 587 U.S. New Design Studios located in non-mall

locations that operated under the New Design for the one-year period January 1, 2011 through

December 31, 2011.

NON-MALL LOCATIONS

Purchases from

MNC Per Studio (1)

Retail Value of

Purchases From MNC (2)

LOW

$670.50 $1,396.88

HIGH

$213,705.54 $445,219.88

36 MNC - FDD - 04/12

Purchases from

MNC Per Studio (1)

Retail Value of

Purchases From MNC (2)

AVERAGE

$53,152.89 $110,735.18

MEDIAN

$46,848.24 $97,600.50

Of the 587 U.S. New Design Studios located in non-mall locations, 244 or 42% attained or

surpassed the Average Purchases from MNC Per Studio.

NOTES

(1) The information in this column represents the purchases from MNC of MN Products by

these 684 New Design Studios. MNC sells each of its products to all U.S. Studio Owners

at the same wholesale price.

(2) As noted above, Studio Owners are not required to provide MNC any statements

regarding a Studio’s sales of MN Products. For each cosmetic product MNC sells to its

Studio Owners, MNC establishes a suggested retail price. The wholesale price paid to

MNC varies from product to product, ranging from 40% to 50% of the suggested retail

price so that the gross profit percentage on individual products ranges from 50% to 60%.

The percentage gross profit that a particular Studio will realize during any period of

operations from its sales of MN Products will depend on whether the Studio Owner

adheres to the suggested retail prices and on the mix of products the Studio sells.

The information in this column is based on the assumption that sales of all MN Products

by the 684 New Design Studios included in this financial performance representation

were at the suggested retail price, and that the mix of sales of each such Studio was the

same as the mix of sales by MNC to its Studios during calendar year 2011. Based on

these assumptions, each Studio would have a gross profit percentage of 48%. The

information in this column represents the retail value of MN Products purchased by the

684 New Design Studios utilizing this gross profit percentage.

END OF NOTES

In addition to the preceding Notes, the following material factors should be considered in

reviewing this financial performance representation:

1. Studio Owners are not required to purchase any specified amount of MN Products from

MNC, other than the initial order of MN Products. (See Items 5 and 6.)

2. As noted above, Studio Owners are not required to provide MNC any statements

regarding a Studio’s total sales, nor are Studio Owners required to provide MNC any information

regarding their expenses, costs or profits. This financial performance representation does not provide any

information regarding total sales, expenses, costs or profits.

3. A small number of Studio Owners who operate multiple Studios may regularly, or

frequently, order MN Products for all of their Studios through one Studio, so that the purchases recorded

on MNC’s records for each of these Studios do not accurately reflect the purchases of MN Products for

each Studio. With respect to the New Design Studios included in this financial performance

representation, where MNC has determined that such activity is occurring, the purchases of each such

Studio are, for purposes of this financial performance representation, calculated by aggregating all

purchases by that Studio Owner and allocating purchases of MN Products to each Studio owned by that

37 MNC - FDD - 04/12

Studio Owner in the ratio of the purchases of all United States Studios of the same type and location to

total purchases of all Studios in the United States.

4. As noted above, Studio Owners are permitted to sell merchandise (in addition to MN

Products) and to offer other services (in addition to free makeover lessons using the lesson material

provided by MNC). Accordingly, the percentage of a Studio’s business that consists of MN Products can

vary widely.

5. The Studios included in this financial performance representation that are located in

regional malls include Studios in super regional malls and regional malls. According to the 2012

definitions of shopping centers published by the International Council of Shopping Centers, a super

regional mall has a gross leasable area of at least 800,000 square feet and is built around at least 3

department stores with a primary trade area of 5-25 miles, and a regional mall has a gross leasable area of

400,000 to 800,000 square feet and is built around at least 2 department stores with a primary trade area

of 5-15 miles.

6. The Studios included in this financial performance representation that are located in non-

mall locations operate in a variety of retail settings, including community shopping centers, neighborhood

centers, strip centers, office complexes and central business districts.

7. The New Design Studios included in this financial performance representation are

located in the following states:

State

Number of New Design

Studios

Regional Mall Locations

Non-Mall Locations

Alabama 27 3 24

Alaska 1 0 1

Arizona 10 3 7

Arkansas 33 4 29

California 27 5 22

Colorado 7 3 4

Connecticut 2 0 2

Delaware 1 0 1

Florida 42 7 35

Georgia 39 3 36

Hawaii 2 1 1

Idaho 2 2 0

Illinois 33 2 31

Indiana 24 5 19

Iowa 8 2 6

Kansas 4 0 4

Kentucky 27 5 22

Louisiana 33 4 29

Maryland 6 2 4

Michigan 12 3 9

Minnesota 5 0 5

Mississippi 19 2 17

Missouri 7 1 6

38 MNC - FDD - 04/12

State

Number of New Design

Studios

Regional Mall Locations

Non-Mall Locations

Nebraska 1 1 0

Nevada 3 0 3

New Jersey 5 0 5

New Mexico 4 0 4

New York 5 0 5

North Carolina 35 8 27

North Dakota 3 3 0

Ohio 18 2 16

Oklahoma 24 1 23

Oregon 4 0 4

Pennsylvania 10 1 9

South Carolina 29 1 28

South Dakota 1 0 1

Tennessee 42 4 38

Texas 89 13 76

Utah 2 0 2

Virginia 17 1 16

Washington 5 1 4

West Virginia 6 2 4

Wisconsin 10 2 8

Totals: 684 97 587

This financial performance representation was prepared by MNC and was not independently

audited. The statements of purchases of MN Products by these 684 New Design Studios were based upon

data utilizing a uniform accounting method. Upon your reasonable request, we will make available data

substantiating the figures presented in this statement.

The information in this Item does not reflect the cost of sales, operating expenses or other costs or

expenses that must be deducted from the gross revenue or gross sales figures to obtain your net income or

profit. You should conduct an independent investigation of the costs and expenses you will incur in

operating a Studio. Franchisees or former franchisees, listed in this Disclosure Document, may be one

source of this information.

This financial performance representation relates to specific Merle Norman Studios that have

implemented the New Design and should not be considered as the actual or potential purchases of MN

Products or retail sales of MN Products that will be realized by any Studio Owner who implements the

New Design. MNC does not represent that any Studio Owner can expect to attain such results whether or

not the New Design is implemented. A Studio Owner’s purchases and retail sales are likely to differ from

that stated in this claim.

Other than the preceding financial performance representation, MNC does not make any financial

performance representations. We also do not authorize our employees or representatives to make any

such representations either orally or in writing. If you are purchasing an existing outlet, however, we may

provide you with the actual records of that outlet. If you receive any other financial performance

information or projections of your future income, you should report it to the franchisor’s management by

contacting Marian Gahagan, Corporate Counsel, Merle Norman Cosmetics, Inc., 9130 Bellanca Avenue,

39 MNC - FDD - 04/12

Los Angeles, California 90045, (310) 337-2200, the Federal Trade Commission, and the appropriate state

regulatory agencies.

ITEM 20

OUTLETS AND FRANCHISEE INFORMATION

Table No. 1

Systemwide Studio Summary

For Years 2009 to 2011 (1)

Studio Type Year

Studios at Start

of the Year

Studios at End of

the Year

Net Change

2009

1596 1499 -97

2010

1499 1419 -80

Franchised

2011

1419 1363 -56

2009

5 5 0

2010

5 4 -1

Company

Owned

2011

4 4 0

2009

1601 1504 -97

2010

1504 1419 -81

Total Number of

Studios

2011

1423 1367 -56

NOTES

(1) The numbers for 2009-2011 are as of MNC’s fiscal year end (December 31 for each year).

Table No. 2

Transfers of Studios from Franchisees to New Owners

(Other than MNC)

For Years 2009 to 2011 (1)

State Year Number of Transfers

2009

3

2010

5

Alabama

2011

3

2009

0

2010

6

Arkansas

2011

2

40 MNC - FDD - 04/12

Table No. 2

Transfers of Studios from Franchisees to New Owners

(Other than MNC)

For Years 2009 to 2011 (1)

State Year Number of Transfers

2009

3

2010

0

California

2011

1

2009

1

2010

0

Colorado

2011

1

2009

2

2010

0

Florida

2011

3

2009

5

2010

4

Georgia

2011

2

2009

0

2010

1

Illinois

2011

2

2009

1

2010

0

Indiana

2011

1

2009

0

2010

1

Kansas

2011

0

2009

1

2010

1

Kentucky

2011

3

2009

0

2010

2

Louisiana

2011

3

2009

0

2010

1

Michigan

2011

0

41 MNC - FDD - 04/12

Table No. 2

Transfers of Studios from Franchisees to New Owners

(Other than MNC)

For Years 2009 to 2011 (1)

State Year Number of Transfers

2009

2

2010

3

Mississippi

2011

1

2009

0

2010

1

Missouri

2011

1

2009

1

2010

2

New Mexico

2011

0

2009

0

2010

1

New York

2011

0

2009

3

2010

2

North Carolina

2011

2

2009

0

2010

1

Ohio

2011

3

2009

1

2010

3

Oklahoma

2011

0

2009

1

2010

1

South Carolina

2011

2

2009

4

2010

2

Tennessee

2011

6

2009

15

2010

10

Texas

2011

5

42 MNC - FDD - 04/12

Table No. 2

Transfers of Studios from Franchisees to New Owners

(Other than MNC)

For Years 2009 to 2011 (1)

State Year Number of Transfers

2009

1

2010

0

Virginia

2011

0

2009

1

2010

1

Wisconsin

2011

2

2009

45

2010

48

Total

2011

43

NOTES

(1) The numbers for 2009-2011 are as of MNC’s fiscal year end (December 31 for each year).

Table No. 3

Status of Franchised Studios

For Years 2009 to 2011 (1) (2)

State Year

Studios

At

Start of

Year

Studios

Opened Terminations

Non-

Renewals

Reacquired

by MNC

Ceased

Operations

– Other

Reason (3)

Studios

at End

of the

Year (4)

2009

90 0 1 0 0 4 85

2010

85 3 1 0 0 7 78

Alabama

2011

78 1 0 0 0 3 76

2009

1 0 0 0 0 0 1

2010

1 1 0 0 0 0 2

Alaska

2011

2 0 0 0 0 0 2

2009

20 0 0 0 0 0 20

2010

20 0 0 0 0 2 18

Arizona

2011

18 0 0 0 0 0 18

2009

65 0 0 0 0 3 62

2010

62 1 2 0 0 2 59

Arkansas

2011

59 1 0 0 0 3 57

43 MNC - FDD - 04/12

Table No. 3

Status of Franchised Studios

For Years 2009 to 2011 (1) (2)

State Year

Studios

At

Start of

Year

Studios

Opened

Terminations

Non-

Renewals

Reacquired

by MNC

Ceased

Operations

– Other

Reason (3)

Studios

at End

of the

Year (4)

2009

59 0 1 0 0 3 54

2010

54 0 1 0 0 2 52

California

2011

52 0 1 0 1 2 48

2009

19 1 0 0 0 2 18

2010

18 0 1 0 0 2 15

Colorado

2011

15 0 0 0 0 1 14

2009

5 0 0 0 0 0 5

2010

5 0 1 0 0 0 4

Connecticut

2011

4 0 0 0 0 0 4

2009

1 1 0 0 0 0 2

2010

2 0 0 0 0 1 1

Delaware

2011

1 0 0 0 0 0 1

2009

87 2 2 0 0 4 83

2010

83 0 1 0 0 5 77

Florida

2011

77 1 1 0 0 7 71

2009

101 4 1 0 0 11 93

2010

93 1 2 0 0 5 87

Georgia

2011

87 0 0 0 0 6 81

2009

3 0 0 0 0 0 3

2010

3 0 0 0 0 0 3

Hawaii

2011

3 0 0 0 0 0 3

2009

3 0 0 0 0 0 3

2010

3 0 0 0 0 0 3

Idaho

2011

3 0 0 0 0 0 3

2009

57 0 0 0 0 1 56

2010

56 0 0 0 0 2 54

Illinois

2011

54 1 1 0 0 1 53

2009

41 1 2 0 0 1 39

2010

39 0 0 0 0 2 37

Indiana

2011

37 0 0 0 0 1 36

2009

16 0 0 0 0 2 14

2010

14 1

(5)

0 0 0 2 13

(5)

Iowa

2011

13 0 0 0 0 1 12

44 MNC - FDD - 04/12

Table No. 3

Status of Franchised Studios

For Years 2009 to 2011 (1) (2)

State Year

Studios

At

Start of

Year

Studios

Opened

Terminations

Non-

Renewals

Reacquired

by MNC

Ceased

Operations

– Other

Reason (3)

Studios

at End

of the

Year (4)

2009

16 0 0 0 0 0 16

2010

16 0 0 0 0 0 16

Kansas

2011

16 0 0 0 0 2 14

2009

57 0 0 0 0 3 54

2010

54 0 0 0 0 2 52

Kentucky

2011

52 1 0 0 0 2 51

2009

68 1 0 0 0 6 63

2010

63 1 0 0 0 4 60

Louisiana

2011

60 1 0 0 0 1 60

2009

1 0 0 0 0 1 0

2010

0 0 0 0 0 0 0

Maine

2011

0 0 0 0 0 0 0

2009

13 1

(6)

2 0 0 2 10

(6)

2010

10 0 0 0 0 1 9

Maryland

2011

9 0 0 0 0 0 9

2009

5 0 0 0 0 1 4

2010

4 0 0 0 0 0 4

Massachusetts

2011

4 0 0 0 0 0 4

2009

34 0 0 0 0 4 30

2010

30 0 0 0 0 2 28

Michigan

2011

28 0 0 0 0 1 27

2009

7 0 0 0 0 0 7

2010

7 0 0 0 0 0 7

Minnesota

2011

7 0 0 0 0 0 7

2009

64 1 2 0 0 2 61

2010

61 2 0 0 0 5 58

Mississippi

2011

58 0 0 0 0 1 57

2009

34 0 0 0 0 5 29

2010

29 0 0 0 0 1 28

Missouri

2011

28 0 0 0 0 1 27

2009

3 0 0 0 0 0 3

2010

3 0 0 0 0 0 3

Montana

2011

3 0 0 0 0 2 1

45 MNC - FDD - 04/12

Table No. 3

Status of Franchised Studios

For Years 2009 to 2011 (1) (2)

State Year

Studios

At

Start of

Year

Studios

Opened

Terminations

Non-

Renewals

Reacquired

by MNC

Ceased

Operations

– Other

Reason (3)

Studios

at End

of the

Year (4)

2009

6 0 0 0 0 0 6

2010

6 0 0 0 0 0 6

Nebraska

2011

6 0 0 0 0 0 6

2009

5 0 0 0 0 1 4

2010

4 0 0 0 0 0 4

Nevada

2011

4 1 1 0 0 0 4

2009

1 0 0 0 0 0 1

2010

1 0 0 0 0 0 1

New

Hampshire

2011

1 0 0 0 0 0 1

2009

12 0 0 0 0 0 12

2010

12 0 0 0 0 1 11

New Jersey

2011

11 0 0 0 0 1 10

2009

12 1 0 0 0 1 12

2010

12 0 0 0 0 0 12

New Mexico

2011

12 0 0 0 0 2 10

2009

19 0 0 0 0 3 16

2010

16 0 0 0 0 2 14

New York

2011

14 1 0 0 0 1 14

2009

77 0 1 0 0 7 69

2010

69 1 0 0 0 7 63

North

Carolina

2011

63 0 0 0 0 0 63

2009

4 0 0 0 0 0 4

2010

4 0 0 0 0 1 3

North Dakota

2011

3 0 0 0 0 0 3

2009

45 0 1 0 0 3 41

2010

41 2 1 0 0 0 40

Ohio

2011

40 1 1 0 0 0 40

2009

60 1 0 0 0 1 60

2010

60 1 0 0 0 2 59

Oklahoma

2011

59 2 2 0 0 7 52

2009

7 0 0 0 0 0 7

2010

7 0 0 0 0 0 7

Oregon

2011

7 0 0 0 0 0 7

46 MNC - FDD - 04/12

Table No. 3

Status of Franchised Studios

For Years 2009 to 2011 (1) (2)

State Year

Studios

At

Start of

Year

Studios

Opened

Terminations

Non-

Renewals

Reacquired

by MNC

Ceased

Operations

– Other

Reason (3)

Studios

at End

of the

Year (4)

2009

23 0 1 0 0 1 21

2010

21 0 0 0 0 0 21

Pennsylvania

2011

21 0 0 0 0 0 21

2009

1 0 0 0 0 0 1

2010

1 0 0 0 0 0 1

Rhode Island

2011

1 0 0 0 0 0 1

2009

49 3 0 0 0 3 49

2010

49 1 0 0 0 2 48

South

Carolina

2011

48 0 0 0 0 0 48

2009

4 0 0 0 0 0 4

2010

4 0 0 0 0 1 3

South Dakota

2011

3 0 0 0 0 0 3

2009

83 2 0 0 0 4 81

2010

81 0 0 0 0 1 80

Tennessee

2011

80 1 2 0 0 1 78

2009

222 2 0 0 0 16 208

2010

208 4 3 0 0 12 195

Texas

2011

195 1 0 0 0 9 187

2009

5 0 0 0 0 1 4

2010

4 0 0 0 0 0 4

Utah

2011

4 0 0 0 0 0 4

2009

1 0 0 0 0 0 1

2010

1 0 0 0 0 0 1

Vermont

2011

1 0 0 0 0 0 1

2009

41 0 0 0 0 2 39

2010

39 0 0 0 0 3 36

Virginia

2011

36 0 0 0 0 2 34

2009

9 0 0 0 0 0 9

2010

9 0 0 0 0 0 9

Washington

2011

9 0 0 0 0 0 9

2009

16 0 1 0 0 1 14

2010

14 0 0 0 0 1 13

West Virginia

2011

13 0 1 0 0 0 12

47 MNC - FDD - 04/12

Table No. 3

Status of Franchised Studios

For Years 2009 to 2011 (1) (2)

State Year

Studios

At

Start of

Year

Studios

Opened

Terminations

Non-

Renewals

Reacquired

by MNC

Ceased

Operations

– Other

Reason (3)

Studios

at End

of the

Year (4)

2009

23 0 1 0 0 2 20

2010

20 0 0 0 0 2 18

Wisconsin

2011

18 0 0 0 0 0 18

2009

1 0 0 0 0 0 1

2010

1 0 0 0 0 0 1

Wyoming

2011

1 0 0 0 0 0 1

2009

1596 20 16 0 0 101 1499

(6)

2010

1499 19 13 0 0 82 1419

(5)

Total

2011

1419 13 10 0 1 58 1363

(7)

NOTES

(1) The numbers for 2009-2011 are as of MNC’s fiscal year end (December 31 for each year). If

multiple events occurred affecting a Studio, this table shows the event that occurred last in time.

(2) During the last three fiscal years, we have signed no confidentiality clauses with current or former

Studio Owners that would restrict them from speaking openly with you about their experiences

with us. As of the date of this Disclosure Document, there are no Merle Norman franchisee

organizations required to be disclosed.

(3) Exhibit F.2. lists the name, city and state, and current business telephone number of the 68 Studio

Owners whose Studio Agreements have, during the last fiscal year, been terminated or canceled

or who otherwise voluntarily or involuntarily ceased to do business or who have not

communicated with MNC within 10 weeks of the application date. If you buy this franchise, your

contact information may be disclosed to other buyers when you leave the franchise system.

(4) The name, Studio address and Studio telephone number of every Studio Owner is listed in

Exhibit F.1.

(5) One Studio in Iowa opened and closed in the same fiscal year.

(6) One Studio in Maryland opened and closed in the same fiscal year.

(7) One Studio in Oklahoma opened and closed in the same fiscal year.

48 MNC - FDD - 04/12

Table No. 4

Status of Company-Owned Studios

For Years 2009 to 2011 (1) (2)

State Year

Studios

at Start

of Year

Studios

Opened

Studios

Reacquired

from

Franchisees

Studios

Closed

Studios

Sold to

Franchisees

Studios

at End of

Year

2009

5 0 0 0 0 5

2010

5 0 0 1 0 4

California

2011

4 0 1 1 0 4

2009

5 0 0 0 0 5

2010

5 0 0 1 0 4

Total

2011

4 0 1 1 0 4

NOTES

(1) The numbers for 2009-2011 are as of MNC’s fiscal year end (December 31 for each year).

(2) If multiple events occurred affecting a Studio, this table shows the event that occurred last in

time.

Table No. 5

Projected Openings as of December 31, 2011

State

Studio Agreement

Signed but Studio Not

Open

Projected New Franchised

Studios in the Next Fiscal

Year

Projected New Company-

Owned Studios in the Next

Fiscal Year

Alabama 0 2 0

Arizona 0 1 0

California 0 2 0

Colorado 0 1 0

Connecticut 0 1 0

Florida 0 2 0

Georgia 0 2 0

Illinois 0 1 0

Kentucky 0 2 0

Mississippi 0 2 0

North Carolina 0 2 0

Ohio 0 1 0

Oklahoma 0 2 0

South Carolina 0 2 0

Tennessee 0 2 0

49 MNC - FDD - 04/12

Table No. 5

Projected Openings as of December 31, 2011

State

Studio Agreement

Signed but Studio Not

Open

Projected New Franchised

Studios in the Next Fiscal

Year

Projected New Company-

Owned Studios in the Next

Fiscal Year

Texas 1 4 0

West Virginia 0 1 0

Virginia 0 1 0

Totals 1 31 0

ITEM 21

FINANCIAL STATEMENTS

MNC’s audited financial statements, which include statements of income for the years ended as

of December 31, 2011, December 31, 2010 and December 31, 2009, are attached as Exhibit D.

ITEM 22

CONTRACTS

The following contracts are included as Exhibits to this Disclosure Document:

Exhibit E.1. Studio Agreement

Exhibit E.2. Gold Medallion Studio Addendum

Exhibit E.3. Co-op Group Letter of Agreement

Exhibit E.4. Credit Card Agreement

Exhibit E.5. Promissory Note – MN POS & Hardware

Exhibit E.6. Promissory Note – Fixtures

Exhibit E.7. Security Agreement

Exhibit E.8. POS Purchase Agreement

Exhibit E.9. Software License Agreement

ITEM 23

RECEIPT

The last two pages of this Disclosure Document are detachable receipt pages. Please sign and

date each of them as of the date you received this Disclosure Document and return one copy to us.

THIS PAGE IS LEFT BLANK INTENTIONALLY

Addendum to FDD – 04/12

ADDENDUM TO FDD

ADDITIONAL DISCLOSURES

REQUIRED BY CERTAIN STATES

CA Addendum to FDD – 04/12

ADDITIONAL DISCLOSURES

REQUIRED BY THE STATE OF CALIFORNIA

1. 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 DISCLOSURE DOCUMENT.

SEE THE COVER PAGE OF THE DISCLOSURE DOCUMENT FOR MNC’s URL ADDRESS.

OUR WEBSITE HAS NOT BEEN REVIEWED OR APPROVED BY THE CALIFORNIA

DEPARTMENT OF CORPORATIONS. ANY COMPLAINTS CONCERNING THE CONTENTS OF

THIS WEBSITE MAY BE DIRECTED TO THE CALIFORNIA DEPARTMENT OF

CORPORATIONS AT WWW.CORP.CA.GOV.

2. Item 3, Additional Disclosure. The following statement is added to Item 3:

Neither MNC nor any person listed in Item 2 is subject to any currently effective order of any national

securities association or national securities exchange, as defined in the Securities Exchange Act of 1934,

15 U.S.C.A. 78a et seq., suspending or expelling such parties from membership in such association or

exchange.

3. Item 17, Additional Disclosures. The following statements are added to Item 17:

California Business and Professions Code Sections 20000 through 20043 provide rights to you

concerning termination or non-renewal of the Franchised Studio. If the Studio Agreement contains a

provision that is inconsistent with the law, the law will control.

The Studio Agreement contains a choice of forum provision. This provision may not be enforceable

under California law.

You must sign a general release if you renew your franchise, and MNC may require you to sign a

general release if you transfer your franchise. These provisions may not be enforceable under California

law. California Corporations Code Section 31512 voids a waiver of your rights under the Franchise

Investment Law (California Corporations Code Sections 31000 through 31516). Business and

Professional Code Section 21000 voids a waiver of your rights under the Franchise Relations Act

(Business and Professions Code Sections 20000 through 20043).

Each provision of these Additional Disclosures shall be effective only to the extent, with respect to such

provision, that the jurisdictional requirements of the California Franchise Investment Law or the California

Franchise Relations Act are met independently without reference to these Additional Disclosures.

HI Addendum to FDD – 04/12

ADDITIONAL DISCLOSURES

REQUIRED BY THE STATE OF HAWAII

THESE FRANCHISES HAVE BEEN FILED UNDER THE FRANCHISE INVESTMENT LAW

OF THE STATE OF HAWAII. FILING DOES NOT CONSTITUTE APPROVAL,

RECOMMENDATION OR ENDORSEMENT BY THE DIRECTOR OF COMMERCE AND

CONSUMER AFFAIRS OR A FINDING BY THE DIRECTOR OF COMMERCE AND CONSUMER

AFFAIRS THAT THE INFORMATION PROVIDED HEREIN IS TRUE, COMPLETE AND NOT

MISLEADING.

THE FRANCHISE INVESTMENT LAW MAKES IT UNLAWFUL TO OFFER OR SELL ANY

FRANCHISE IN THIS STATE WITHOUT FIRST PROVIDING TO THE PROSPECTIVE

FRANCHISEE, OR SUBFRANCHISOR, AT LEAST SEVEN DAYS PRIOR TO THE EXECUTION BY

THE PROSPECTIVE FRANCHISEE, OF ANY BINDING FRANCHISE OR OTHER AGREEMENT,

OR AT LEAST SEVEN DAYS PRIOR TO THE PAYMENT OF ANY CONSIDERATION BY THE

FRANCHISEE, OR SUBFRANCHISOR, WHICHEVER OCCURS FIRST, A COPY OF THE

DISCLOSURE DOCUMENT, TOGETHER WITH A COPY OF ALL PROPOSED AGREEMENTS

RELATING TO THE SALE OF THE FRANCHISE.

THIS DISCLOSURE DOCUMENT CONTAINS A SUMMARY ONLY OF CERTAIN

MATERIAL PROVISIONS OF THE FRANCHISE AGREEMENT. THE CONTRACT OR

AGREEMENT SHOULD BE REFERRED TO FOR A STATEMENT OF ALL RIGHTS,

CONDITIONS, RESTRICTIONS AND OBLIGATIONS OF BOTH THE FRANCHISOR AND THE

FRANCHISEE.

Registered agent in the state authorized to receive service of process: Commissioner of Securities,

Department of Commerce and Consumer Affairs, Business Registration Division, Securities Compliance

Branch, 335 Merchant Street, Room 203, Honolulu, Hawaii 96813

IL Addendum to FDD – 04/12

ADDITIONAL DISCLOSURES

REQUIRED BY THE STATE OF ILLINOIS

1. Item 17, Additional Disclosures. The following statements are added to Item 17:

Any provision in the Studio Agreement that designates jurisdiction or venue in a forum outside of

Illinois is void with respect to any action which is otherwise enforceable in Illinois. In addition, Illinois

law will govern the Studio Agreement.

Each provision of these Additional Disclosures shall be effective only to the extent, with respect to such

provision, that the jurisdictional requirements of the Illinois Franchise Disclosure Act are met independently

without reference to these Additional Disclosures.

MD Addendum to FDD – 04/12

ADDITIONAL DISCLOSURE

REQUIRED BY THE STATE OF MARYLAND

1. Item 17, Additional Disclosure. The following statement is added to Item 17:

Any provisions requiring you to sign a general release of claims against MNC, including upon renewal

or transfer of the franchise, does not release any claim you may have under the Maryland Franchise

Registration and Disclosure Law.

The provision of this Additional Disclosure shall be effective only to the extent, with respect to such provision,

that the jurisdictional requirements of the Maryland Franchise Registration and Disclosure Law are met

independently without reference to this Additional Disclosure.

MI Addendum to FDD – 04/12

ADDITIONAL DISCLOSURES

REQUIRED BY THE STATE OF MICHIGAN

THE STATE OF MICHIGAN PROHIBITS CERTAIN UNFAIR PROVISIONS THAT ARE

SOMETIMES IN FRANCHISE DOCUMENTS. IF ANY OF THE FOLLOWING PROVISIONS ARE

IN THESE FRANCHISE DOCUMENTS, THE PROVISIONS ARE VOID AND CANNOT BE

ENFORCED AGAINST YOU.

Each of the following provisions is void and unenforceable if contained in any documents relating to a

franchise:

(a) A prohibition of the right of a franchisee to join an association of franchisees.

(b) A requirement that a franchisee assent to a release, assignment, novation, waiver, or estoppel

which deprives a franchisee of rights and protections provided in the Michigan Franchise Investment Law. This

shall not preclude a franchisee, after entering into a franchise agreement, from settling any and all claims.

(c) A provision that permits a franchisor to terminate a franchise prior to the expiration of its term

except for good cause. Good cause shall include the failure of the franchisee to comply with any lawful

provision of the franchise agreement and to cure such failure after being given written notice thereof and a

reasonable opportunity, which in no event need be more than 30 days, to cure such failure.

(d) A provision that permits a franchisor to refuse to renew a franchise without fairly compensating

the franchisee by repurchase or other means for the fair market value at the time of expiration of the franchisee’s

inventory, supplies, equipment, fixtures, and furnishings. Personalized materials which have no value to the

franchisor and inventory, supplies, equipment, fixtures, and furnishings not reasonably required in the conduct

of the franchise business are not subject to compensation. This subsection applies only if: (i) The term of the

franchise is less than 5 years; and (ii) the franchisee is prohibited by the franchise or other agreement from

continuing to conduct substantially the same business under another trademark, service mark, trade name,

logotype, advertising, or other commercial symbol in the same area subsequent to the expiration of the franchise

or the franchisee does not receive at least 6 months advance notice of franchisor’s intent not to renew the

franchise.

(e) A provision that permits the franchisor to refuse to renew a franchise on terms generally

available to other franchisees of the same class or type under similar circumstances. This section does not

require a renewal provision.

(f) A provision requiring that arbitration or litigation be conducted outside this state. This shall not

preclude the franchisee from entering into an agreement, at the time of arbitration, to conduct arbitration at a

location outside this state.

(g) A provision which permits a franchisor to refuse to permit a transfer of ownership of a

franchise, except for good cause. This subdivision does not prevent a franchisor from exercising a right of first

refusal to purchase the franchise. Good cause shall include, but is not limited to:

(i) The failure of the proposed transferee to meet the franchisor’s then current reasonable

qualifications or standards.

(ii) The fact that the proposed transferee is a competitor of the franchisor or subfranchisor.

(iii) The unwillingness of the proposed transferee to agree in writing to comply with all lawful

obligations.

MI Addendum to FDD – 04/12

(iv) The failure of the franchisee or proposed transferee to pay any sums owing to the franchisor or

to cure any default in the franchise agreement existing at the time of the proposed transfer.

(h) A provision that requires the franchisee to resell to the franchisor items that are not uniquely

identified with the franchisor. This subdivision does not prohibit a provision that grants to a franchisor a right of

first refusal to purchase the assets of a franchise on the same terms and conditions as a bona fide third party

willing and able to purchase those assets, nor does this subdivision prohibit a provision that grants the franchisor

the right to acquire the assets of a franchise for the market or appraised value of such assets if the franchisee has

breached the lawful provisions of the franchise agreement and has failed to cure the breach in the manner

provided in subdivision (c).

(i) A provision which permits the franchisor to directly or indirectly convey, assign, or otherwise

transfer its obligations to fulfill contractual obligations to the franchisee unless provision has been made for

providing the required contractual services.

THE FACT THAT THERE IS A NOTICE OF THIS OFFERING ON FILE WITH THE ATTORNEY

GENERAL DOES NOT CONSTITUTE APPROVAL, RECOMMENDATION, OR ENDORSEMENT

BY THE ATTORNEY GENERAL.

Any questions regarding this Notice shall be directed to the Department of Attorney General, Consumer

Protection Division, 670 Law Building, 525 West Ottawa Street, Lansing, Michigan 48913 (517) 373-7117.

MN Addendum to FDD – 04/12

ADDITIONAL DISCLOSURES

REQUIRED BY THE STATE OF MINNESOTA

1. Cover Page and Item 17, Additional Disclosures. The following statements are added to the cover

page and Item 17:

Minnesota Statute § 80C.21 and Minnesota Rule 2860.4400J prohibit us from requiring litigation to be

conducted outside Minnesota. In addition, nothing in the Disclosure Document or the Studio

Agreement can abrogate or reduce any of your rights as provided for in Minnesota Statutes, Chapter

80C, or your rights to any procedure, forum, or remedies provided for by the laws of the jurisdiction.

2. Item 17, Additional Disclosures. The following statements are added to Item 17:

With respect to franchises governed by Minnesota law, MNC will comply with Minnesota Statute

§ 80C.14, subdivisions 3, 4, and 5, which requires, except in certain specified cases, that a franchisee be

given 90 days notice of termination (with 60 days to cure) and 180 days notice for non-renewal of the

Studio Agreement.

Minnesota Rule 2860.4400D prohibits us from requiring you to assent to a release, assignment,

novation, or waiver that would relieve any person from liability imposed by Minnesota Statute

§§ 80C.01 - 80C.22.

Each provision of these Additional Disclosures shall be effective only to the extent, with respect to such

provision, that the jurisdictional requirements of the Minnesota Franchises Law are met independently without

reference to these Additional Disclosures.

ND Addendum to FDD –04/12

ADDITIONAL DISCLOSURES

REQUIRED BY THE STATE OF NORTH DAKOTA

Item 17, Additional Disclosures. The following statements are added to Item 17:

Pursuant to the North Dakota Franchise Investment Law, any provision requiring franchisees to consent

to the jurisdiction of courts outside North Dakota or to consent to the application of laws of a state other

than North Dakota is void.

On renewal, you are not required to release any claims you might have against us under the North

Dakota Franchise Investment Law.

Each provision of these Additional Disclosures shall be effective only to the extent, with respect to such

provision, that the jurisdictional requirements of the North Dakota Franchise Investment Law are met

independently without reference to these Additional Disclosures.

RI Addendum to FDD – 04/12

ADDITIONAL DISCLOSURE

REQUIRED BY THE STATE OF RHODE ISLAND

1. Item 17, Additional Disclosure. The following statement is added to Item 17:

Section 19-28.1-14 of the Rhode Island Franchise Investment Act provides that: “A provision in

a franchise agreement restricting jurisdiction or venue to a forum outside this state or requiring

the application of the laws of another state is void with respect to a claim otherwise enforceable

under this Act.”

The provision of this Additional Disclosure shall be effective only to the extent, with respect to such

provision, that the jurisdictional requirements of the Rhode Island Franchise Investment Law are met

independently without reference to this Additional Disclosure.

VA Addendum to FDD – 04/12

ADDITIONAL DISCLOSURE

REQUIRED BY THE COMMONWEALTH OF VIRGINIA

1. Item 8, Additional Disclosure. The following statement is added following the first sentence of

the third paragraph of Item 8:

We will notify you of our approval or disapproval of any additional merchandise or services

within 30-120 days after receipt by us of any designated materials.

The provision of this Additional Disclosure shall be effective only to the extent, with respect to such

provision, that the jurisdictional requirements of the Virginia Retail Franchising Act are met

independently without reference to this Additional Disclosure.

2. Additional Disclosures for Item 17.h. The following statements are added to Item 17.h.:

Pursuant to Section 13.1-564 of the Virginia Retail Franchising Act, it is unlawful for a franchisor

to cancel a franchise without reasonable cause. If any grounds for default or termination stated in the

Studio Agreement does not constitute “reasonable cause,” as that term may be defined in the Virginia

Retail Franchising Act or the laws of Virginia, that provision may not be enforceable.

Pursuant to Section 13.1-564 of the Virginia Retail Franchising Act, it is unlawful for a franchisor

to use undue influence to induce a franchisee to surrender any right given to him under the franchise. If

any provision of the Studio Agreement involves the use of undue influence by the franchisor to induce a

franchisee to surrender any rights given to him under the franchise, that provision may not be enforceable.

THIS PAGE IS LEFT BLANK INTENTIONALLY

MNC - FDD – 04/12

EXHIBIT A

LIST OF STATE ADMINISTRATORS

THIS PAGE IS LEFT BLANK INTENTIONALLY

Merle Norman Cosmetics, Inc. 04/12

LIST OF STATE ADMINISTRATORS

California:

Department of Corporations

1-866-275-2677

Los Angeles

320 West 4

th

Street, Suite 750

Los Angeles, CA 90013-2344

(213) 576-7500

Sacramento

1515 K Street, Suite 200

Sacramento, CA 95814-4052

(916) 445-7205

San Diego

1350 Front Street, Room 2034

San Diego, CA 92101-3697

(619) 525-4233

San Francisco

One Sansome Street, Suite 600

San Francisco, CA 94104

(415) 972-8559

Hawaii:

Commissioner of Securities

Department of Commerce and Consumer

Affairs

Business Registration Division

Securities Compliance Branch

335 Merchant Street

Room 203

Honolulu, Hawaii 96813

(808) 586-2722

Illinois:

Lisa Madigan

Illinois Attorney General

500 South Second Street

Springfield, IL 62706

(217) 782-4465

Indiana:

Christopher W. Naylor

Securities Commissioner

Securities Division

Room E-111

302 West Washington Street

Indianapolis, IN 46204

(317) 232-6681

Maryland:

Office of the Attorney General

Division of Securities

200 St. Paul Place

Baltimore, MD 21202-2020

(410) 576-6360

Michigan:

Katharyn Barron

Franchise Administrator

Antitrust and Franchise Unit

Consumer Protection Division

Department of Attorney General

670 Law Building

525 W. Ottawa Street

Lansing, MI 48913

(517) 373-7117

Minnesota:

Commissioner

Department of Commerce

85 7

th

Place East, Suite 500

St. Paul, MN 55101

(651) 296-6328

New York:

Joseph Punturo, Esq.

First Assistant Attorney General

New York State Department of Law

Bureau of Investor Protection

and Securities

120 Broadway, 23rd Floor

New York, NY 10271

(212) 416-8211

Merle Norman Cosmetics, Inc. 2 04/12

North Dakota:

Diane Lillis

Examiner/Budget Administrator

North Dakota Securities Department

State Capitol, 5th Floor

600 East Boulevard Avenue

Bismarck, ND 58505-0510

(701) 328-2910

Oregon:

Floyd G. Lanter

Administrator

Div. of Finance & Corp. Securities

Department of Consumer &

Business Services, Room 410

350 Winter Street, NE

Salem, OR 97301-3881

(503) 378-4140

Rhode Island:

Maria D’Allessandro Piccirilli

Deputy Director, Securities

Department of Business Regulation

Division of Banking and Securities

1511 Pontiac Avenue

John O. Pastore Complex-Bldg. 69-1

Cranston, Rhode Island 02920

(401) 222-3048

South Dakota:

Franchise Administrator

Division of Securities

Department of Revenue & Regulation

445 East Capitol Avenue

Pierre, SD 57501

(605) 773-4823

Virginia:

State Corporation Commission

Division of Securities &

Retail Franchising

1300 East Main Street, 9

th

Floor

Richmond, VA 23219

(804) 371-9051

Washington:

Deborah R. Bortner

Director of Securities

Securities Division

Department of Financial Institutions

150 Israel Road, SW

Olympia, WA 98501

(360) 902-8760

Wisconsin:

Mary Wells

Operations Program Associate

Division of Securities

Bureau of Regulation &

Enforcement

Department of Financial

Institutions, 4

th

Floor

345 W. Washington Avenue

Madison, WI 53703

(608) 266-8557

MNC - FDD – 04/12

EXHIBIT B

LIST OF AGENTS FOR SERVICE OF PROCESS

THIS PAGE IS LEFT BLANK INTENTIONALLY

Merle Norman Cosmetics, Inc. 1 10/08

AGENTS FOR SERVICE OF PROCESS

Alabama:

The Corporation Company

60 Commerce Street

Montgomery, Alabama 36104

Arizona:

CT Corporation System

3225 North Central Avenue

Phoenix, Arizona 85012

California:

CT Corporation System

Suite 1004

818 West 7

th

Street

Los Angeles, California 90017

California Corporations Commissioner

Department of Corporations

320 West 4

th

Street

Los Angeles, CA 90013-2344

Colorado:

The Corporation Company

1600 Broadway

Denver, Colorado 80202

Connecticut:

CT Corporation System

One Commercial Plaza

Hartford, Connecticut 06103

Delaware:

Corporation Trust Center

1209 Orange Street

Wilmington, Delaware 19801

Washington, D.C.:

CT Corporation System

Suite 400

1025 Vermont Avenue

Washington, D.C. 20005

Florida:

CT Corporation System

1200 South Pine Island Road

Plantation, Florida 33324

Georgia:

CT Corporation System

1201 Peachtree Street, N.E.

Atlanta, Georgia 30361

Hawaii:

Commissioner of Securities

Department of Commerce & Consumer

Affairs

Business Registration Division

Securities Compliance Branch

335 Merchant Street, Room 203

Honolulu, Hawaii 96813

Illinois:

CT Corporation

208 South La Salle Street

Chicago, Illinois 60604

Illinois Attorney General

500 South Second Street

Springfield, Illinois 62706

Indiana:

CT Corporation System

One North Capitol Avenue

Indianapolis, Indiana 46204

Kansas:

The Corporation Company, Inc.

151 South Kansas Avenue

Topeka, Kansas 66603

Maine:

CT Corporation System

One Portland Square

Portland, Maine 04101

Merle Norman Cosmetics, Inc. 2 10/08

Maryland:

The Corporation Trust Incorporated

32 South Street

Baltimore, Maryland 21202

Maryland Securities Commissioner

200 St. Paul Place

Baltimore, Maryland 21202

Massachusetts:

CT Corporation System

2 Oliver Street

Boston, Massachusetts 02109

Michigan:

The Corporation Company

30600 Telegraph Road

Bingham Farms, Michigan 48025

Minnesota:

CT Corporation System

405 Second Avenue, South

Minneapolis, Minnesota 55401

Minnesota Commissioner of Commerce

Department of Commerce

85 7

th

Place East, Suite 500

St. Paul, Minnesota 55101-2198

Missouri:

CT Corporation System

908 Olive Street

St. Louis, Missouri 63101

Nebraska:

CT Corporation System

206 South 13

th

Street

Suite 1500

Lincoln, Nebraska 68508

New Hampshire:

CT Corporation System

9 Capitol Street

Concord, New Hampshire 03301

New Jersey:

The Corporation Trust Company

Mountain View Office Park

820 Bear Tavern Road, 3rd Floor

West Trenton, New Jersey 08628

New York:

CT Corporation System

1633 Broadway

New York, New York 10019

Ohio:

CT Corporation System

815 Superior Avenue,

Cleveland, Ohio 44114

Oklahoma:

The Corporation Company

735 First National Building

Oklahoma City, Oklahoma 73102

Pennsylvania:

CT Corporation System

1635 Market Street

Philadelphia, Pennsylvania 19103

Rhode Island:

CT Corporation System

123 Dyer Street

Providence, Rhode Island 02903

Director of Rhode Island Department of

Business Regulation

Division of Banking and Securities

1511 Pontiac Avenue

John O. Pastore Complex–Building 69-1

Cranston, Rhode Island 02920

South Carolina:

CT Corporation System

75 Beattie Place

Two Shelter Centre

Greenville, South Carolina 29601

Merle Norman Cosmetics, Inc. 3 10/08

South Dakota:

Director, South Dakota Division of

Securities

445 East Capitol Avenue

Pierre, South Dakota 57501-3185

Texas:

CT Corporation System

Registered Agent

350 North St. Paul Street

Dallas, Texas 75201

Vermont:

CT Corporation System

148 College Street

Burlington, Vermont 05401

Virginia:

Edward R. Parker

5511 Staples Mill Road

Richmond, Virginia 23228

Clerk of the State Corporation

Commission

1300 E. Main Street, 1st Floor

Richmond, Virginia 23219-3630

Washington

Director of Securities Division

Department of Financial Institutions

150 Israel Road, SW

Olympia, Washington 98501

West Virginia

Secretary of State

Address for Receipt of Process

CT Corporation System

1600 Charleston National Plaza

Charleston, West Virginia 25301

Wisconsin

CT Corporation System

44 East Mifflin Street

Madison, Wisconsin 53703

Wisconsin Commissioner of Securities

Department of Financial Institutions

345 W. Washington Avenue, 4

th

Floor

Madison, WI 53703

THIS PAGE IS LEFT BLANK INTENTIONALLY

MNC - FDD – 04/12

EXHIBIT C

OPERATIONS MANUAL TABLE OF CONTENTS

THIS PAGE IS LEFT BLANK INTENTIONALLY

THE SMART BOOK

TABLE OF CONTENTS

Page

1

I. Standards and Services

A. The Merle Norman Way....................................................................1

B. Sanitary Guidelines ...........................................................................6

C. Facial Services.................................................................................10

D. FAQs ...............................................................................................28

E. Glossary...........................................................................................32

F. Product Lists....................................................................................45

II. Skin Care

A. Skin Physiology...............................................................................53

B. Eye Cleansers ..................................................................................62

C. Cleansers .........................................................................................64

D. Toners..............................................................................................71

E. Moisturizers.....................................................................................77

F. Eye Moisturizers..............................................................................92

G. Booster Cleansers ............................................................................96

H. Booster Exfoliators..........................................................................98

I. Booster Hydrators..........................................................................103

J. Anti-Aging.....................................................................................106

K. Oil/Blemish Control ......................................................................109

L. Lip Care .........................................................................................111

M. Sun Care ........................................................................................114

N. Men................................................................................................117

III. Makeup and Color

A. Foundations ...................................................................................120

B. Powders .........................................................................................128

C. Concealers .....................................................................................130

THE SMART BOOK

TABLE OF CONTENTS

Page

2

D. Eyeshadow Bases ..........................................................................135

E. Eyeshadows ...................................................................................136

F. Eyeliners........................................................................................141

G. Mascaras........................................................................................144

H. Brow Care......................................................................................146

I. Cheek Color...................................................................................149

J. Lip Color .......................................................................................154

K. Makeup Brushes ............................................................................159

IV. Other

A. Nail Care........................................................................................161

B. Body Care .....................................................................................163

C. Fragrance .......................................................................................174

V. Fast Facts, Pricing, Packaging, Q&A, Competitive Situation for:

A. Makeup Artistry Brush Collection ................................................175

B. Makeup Artistry Brush Cleaning Spray ........................................177

C. LUXIVA® Long Wear Lipcolor...................................................179

D. LUXIVA® Matte Shadow ............................................................181

E. LUXIVA® Ultra Rich Hand Cream..............................................183

F. LUXIVA® Flawless Effect Liquid Foundation............................185

G. LUXIVA® Daily Moisture ...........................................................187

Total Pages: 190

MNC - FDD – 04/12

EXHIBIT D

FINANCIAL STATEMENTS

THIS PAGE IS LEFT BLANK INTENTIONALLY

MNC - FDD – 04/12

EXHIBIT E.1.

STUDIO AGREEMENT

(and addenda required by Illinois, Maryland, Minnesota, North Dakota, Rhode

Island and Washington)

THIS PAGE IS LEFT BLANK INTENTIONALLY

03/09

MERLE NORMAN COSMETICS STUDIO AGREEMENT

BETWEEN

MERLE NORMAN COSMETICS, INC.

(REFERRED TO AS “MNC,” “WE,” “US” OR “OUR”)

AND

__________________________________________________________

(REFERRED TO AS “STUDIO OWNER,” “YOU” OR “YOUR”)

FOR THE MERLE NORMAN COSMETIC STUDIO LOCATED AT:

____________________________________ _____________

(“STUDIO LOCATION”)

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1. Background. As the result of the expenditure of time, skill, effort and money, we have

developed, and continue to develop, a unique and distinctive system (“MN System”) for the development

and operation of retail Merle Norman Cosmetic Studios (“Studios”) that feature multiple lines of high

quality skin care, color and other cosmetic products (“MN Products”). Studios specialize in the sale of

MN Products and offer customers free individualized instruction relating to skin care and the use of MN

Products. We identify the Studios and the MN Products developed by us by means of certain trademarks,

service marks, trade names, signs and logos (collectively “Trademarks”).

2. Appointment. We hereby grant you the nonexclusive right to operate a Studio at the Studio

Location that will sell MN Products and use the Trademarks and the MN System (“Franchised Studio”),

subject to the terms and conditions of this Agreement and your strict compliance with the MN System,

including our confidential Studio Resource Manual (“Operations Manual”) which we will loan to you and

which must be kept current and up-to-date and at the Franchised Studio. (The “Operations Manual” also

includes other publications, materials, drawings, memoranda, videotapes, audio tapes, compact disc and

electronic media that MNC from time to time may loan to you.) The Operations Manual may be

supplemented or amended from time to time by letter, electronic mail, bulletin, videotapes, audio tapes,

CDs, DVDs, software or other communications concerning the MN System, to reflect changes in the

image, specifications and standards relating to developing, equipping, furnishing and operating a Merle

Norman Cosmetic Studio.

We reserve the absolute right to establish other Studios (whether operated by us or independent

studio owners) at any location without regard to their proximity to the Franchised Studio. We also

reserve all rights to use and license the MN System and the Trademarks other than those expressly

granted in this Agreement. The rights granted to you by this Agreement are limited and, among other

things: (A) you do not have the right to sell MN Products developed by us or use the Trademarks or the

MN System at any location other than the Studio Location; (B) you may not relocate the Franchised

Studio without our prior written approval; (C) you do not have a right of first refusal or similar option

with respect to any additional Studios; and (D) you may only obtain the right to develop and operate

additional Studios, following approval by MNC, by signing a new studio agreement for each additional

location.

3. Term.

A. Initial Term. The Initial Term of this Agreement and the rights granted by this

Agreement begin on the date MNC signs this Agreement and, unless this Agreement is terminated at an

earlier date, end on the 10-year anniversary of the date the Franchised Studio first opened for business.

B. Renewal Term. At the end of the Initial Term, you will have the option to remain a

studio owner at the Studio Location for a single Renewal Term of 10 years. You must give us written

notice of whether or not you intend to exercise your renewal option not less than 3 months, nor more than

6 months, before the end of the Initial Term. If you fail to timely provide us notice, we will assume that

you have elected not to remain a studio owner for the Renewal Term and this Agreement will terminate at

the end of the Initial Term.

If you want to remain a studio owner for the Renewal Term, you must also satisfy all of the

following conditions: (1) you may not be in default of this Agreement or any other agreement with us;

(2) if requested by MNC, you will renovate and update the Franchised Studio so that it reflects the image

of the MN System for Studios being developed at that time; (3) you and your employees at the Franchised

Studio must complete any training required by us; (4) you have the right to remain in possession of the

Studio Location, or another location acceptable to us, for the Renewal Term; (5) during the Initial Term,

you consistently operated the Franchised Studio in compliance with the MN System and timely met your

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financial obligations to your vendors and us; (6) you and all guarantors must execute a general release and

a covenant not to sue, in the form specified by us, of all claims against MNC and its past and present

officers, directors, shareholders, agents and employees, in their corporate and individual capacities; and

(7) you must execute a new studio agreement in the form we are using at that time.

4. Development of the Franchised Studio.

A. Studio Design. You assume all cost, liability and expense for designing, constructing

and equipping the Franchised Studio. All proposed design concept plans for the Franchised Studio

(“Plans”) must be approved by us. We will advise you, within 30 days after we receive the Plans,

whether the Plans have been approved. (Our approval will not be unreasonably withheld.) You must

develop the Franchised Studio in accordance with the Plans approved by us and you must fully comply

with all applicable laws, ordinances, rules and regulations. At all times, you must devote at least 50% of

the Franchised Studio’s available front window space to MN Products. In addition, if the Franchised

Studio has less than 1,200 square feet of retail floor space, you must dedicate at least 500 square feet of

retail floor space in the front of the Franchised Studio to MN Products. If the Franchised Studio has

1,200 or more square feet of retail floor space, you must dedicate a clearly-defined separate area of

appropriate size (as determined by MNC) in the front of the Franchised Studio to MN Products.

B. Furnishings. All furnishings, furniture, fixtures, floor coverings and signs used in the

Franchised Studio must be approved by us for use in Studios. In addition, you must prominently display

at the Franchised Studio (both interior and exterior) those signs, emblems, logos and display materials

required by us or which we approve in writing and Merle Norman signage must be the predominant

signage. You may not display any handwritten signs at the Franchised Studio and you may only display

signs that we have approved.

5. MN Products. We will make available the MN Products for purchase by you as long as you are

not in default of your obligations to us. We have the right to modify and change the MN Products from

time to time, including the right to discontinue the sale of certain MN Products and certain colors of MN

Products. We also have the right to develop MN Products that are available for purchase by fewer than

all Studios. We will set, and we can subsequently change at any time without prior notice, the prices we

charge for the MN Products, the wholesale discounts you receive and our credit terms. Unless otherwise

specified, all prices for the MN Products are F.O.B. Los Angeles, California. If you fail to make timely

payments of all amounts owed to us, in addition to paying the amount owed, you must pay a delinquency

fee as required by our payment policies in effect at that time and we may require special arrangements for

future amounts owed to us. You may not return any MN Products to us without our prior approval.

6. Additional Services by MNC.

A. Assistance. During the term of this Agreement, we will provide consultation and advice

to you as we deem appropriate in connection with the development and operation of the Franchised

Studio. We may delegate some or all of our obligations and duties under this Agreement to third parties,

including affiliates, agents and independent contractors.

B. Inspections. We have the right at any reasonable time and without prior notice to enter

the Franchised Studio and inspect and record or photograph its operations and the facility, remove

samples of any products, interview personnel and customers and inspect and copy any documents relating

to the operation of the Franchised Studio. You agree to cooperate fully with these inspections and to take

all steps necessary to immediately correct any deficiencies, including but not limited to, stopping the

display, use or sale of any unapproved merchandise or services.

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C. Advertising. MNC will reimburse a portion of your local advertising expenses if the

advertising and media are approved by us and the amount spent is, in our judgment, reasonable in light of

your sales of MN Products. The details of this program, which we may modify or discontinue at any

time, will be provided separately to you.

D. Modifications of the MN System. We have the right, in our sole discretion and with 30

days’ notice to you, to modify the MN System, including modifications to the Operations Manual, the

design, layout and furnishing of Studios (including the trade dress, décor and color schemes), and the

methods of payment of monies owed to us. We also have the right to modify the Trademarks without

prior notice to you. You will use or display in the Franchised Studio any such modifications and make

those expenditures required to do so.

E. Sales Aids. We will periodically make available for purchase by you sales aids such as

props, supplies, favors, etc. to assist you in selling and promoting MN Products at the Franchised Studio.

You may not sell the sales aids.

F. Lesson Materials. We will periodically provide you, at no cost, reasonable quantities of

materials to use solely in connection with providing customers free make-up or makeover lessons in your

Franchised Studio. You may not sell, or give away, lesson materials.

7. Training.

A. Home Office Training. Before the Franchised Studio opens for business, you (or, if you

are any type of a business entity, those of your owners designated by us) or your Studio manager must

attend and successfully complete Home Office Training, an initial training program in the operation of a

Studio, that is currently offered at MNC’s Home Office. We do not charge tuition, but you must pay all

travel, living and other expenses incurred by your Studio manager and you while attending the training.

We may dismiss from Home Office Training any person whom we do not believe will perform acceptably

in the Franchised Studio and you must provide a suitable replacement within one month of dismissal.

B. Training by You. You will use your best efforts to ensure that all of your beauty

advisors and sales personnel are fully trained and comply with the MN System.

8. Standards for Studio Operation. MN Products, the MN System and the Studios have a

reputation for high quality. This reputation has been developed and maintained by MNC and it is

important to MNC and all studio owners that this reputation continue to be maintained through high

quality service to customers and compliance with the MN System. In order to realize the mutual benefits

that come from maintaining this reputation for quality, you will fully comply with all requirements of the

MN System including the following requirements:

A. General Standards and Policies. You will operate the Franchised Studio, sell all MN

Products, provide all services and make all payments due to us as required by our standards and policies

as set forth in the Operations Manual or otherwise in writing (and whether in effect now or in the future).

You will use your best efforts to ensure that your employees and you maintain a neat and clean

appearance, dress in a manner that will not hurt the image and reputation of MNC or the MN System, and

provide competent, courteous service to your customers.

B. Best Efforts. You will purchase an initial inventory of MN Products, as agreed to by

MNC and you, and you will continuously use your best efforts to promote the sale of MN Products. In

order to maximize your sale of MN Products, you will employ a sufficient number of employees to

operate the Franchised Studio at its maximum capacity during the days and hours regularly maintained by

other retail establishments in your neighborhood or area. In addition, if your purchases of MN Products

for the Franchised Studio are in the bottom 10% of similarly situated Studios in comparably sized markets

(which we will determine) for 12 consecutive months, we may place you in default of this Agreement.

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Notwithstanding the provisions of Section 13, in order to cure that default, you may be required to:

(1) develop a detailed written business plan (and provide it to us within 30 days) that establishes specific

steps for increasing your purchases of MN Products; (2) promptly modify the plan as requested by us;

(3) immediately implement the plan once it has been finalized; and (4) increase your purchases of MN

Products over an extended period.

C. Financial Statements. At MNC’s request, you will, at your expense, provide us a profit

and loss statement and balance sheet for the Franchised Studio, within 60 days after the end of each fiscal

year, which present fairly your financial position and the results of operations during the period covered.

You must submit to us those other forms, reports, records, information and data regarding the Franchised

Studio when and as we reasonably designate.

D. Upkeep. You will constantly maintain (including performing all necessary repairs and

maintenance) and continuously operate the Franchised Studio and all furniture, fixtures, furnishings, floor

coverings, interior and exterior signage, the building interior and exterior, and interior and exterior

lighting in first-class condition and repair and in accordance with the requirements of the MN System.

You will not make any alterations to the Franchised Studio that affect its operations or the image of the

MN System without our prior written approval.

E. Approved Merchandise and Services. You agree to focus your efforts at the

Franchised Studio on the sale of MN Products and providing free makeover lessons using the lesson

materials provided by us. In addition:

(1) You may not display, sell or offer for sale any merchandise of any other

manufacturer which is likely to confuse the public as to the origin or quality of the merchandise or to

enable others to trade upon the Trademarks and goodwill of MNC or other studio owners.

(2) You may not sell or offer to sell: (a) any skin care or color cosmetic products other

than MN Products; or (b) any merchandise or service which we have determined is inconsistent with the

image of MNC or the MN System.

(3) You may only sell other merchandise (in addition to MN Products) and offer other

services (in addition to free makeover lessons using the lesson materials provided by MNC) if you first

obtain our prior written approval. We will not unreasonably withhold our approval, but our approval may

be revoked for reasonable cause on 30 days’ notice. We will advise you in writing, within 30 days after

we receive notice of your desire to sell additional merchandise or offer additional services at the

Franchised Studio, if we have approved the particular merchandise or service. We may condition our

approval on, among other things, your placing signs that indicate that these additional products and

services are not affiliated with MNC.

F. Limitation on Channels of Distribution. You may only sell MN Products to customers

who are physically present at the Studio Location and to customers at MNC approved marketing events.

You may not sell MN Products in connection with the use of a toll free telephone number or in any

wholesale, mail order or e-commerce distribution, or any channel of distribution other than the retail

operation of the Franchised Studio at the Studio Location; however, following your written request, we

may approve your accepting orders for MN Products from existing customers that are to be mailed to

those customers.

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G. Retail Prices. We periodically will provide you with suggested retail price lists for the

MN Products. You have the right to determine the prices for all non-Merle Norman merchandise and

services we have approved in accordance with Section 8.E., but you may not charge customers for

makeover lessons when lesson materials provided by MNC are used.

H. Advertising. You may conduct local advertising for your Studio using the Trademarks at

your expense; however, you may only advertise in your trade area (as defined by us), and you may not

independently advertise on any on-line computer network. You may not use the Trademarks to advertise

or promote any merchandise or services other than MN Products regardless of whether the merchandise

or services have been approved by MNC in accordance with Section 8.E. You will maintain, at your

expense, one or more telephone directory listings for the Franchised Studio as we require from time to

time.

Your local advertising and promotional materials must comply with all federal and local laws and

regulations and with our guidelines for advertising and promotions and must be submitted to us at least 30

days prior to first use for our approval. If we do not respond within 30 days, we will be considered to

have denied approval of that advertising. All of your advertising and promotion must be completely

factual and must conform to the highest standards of ethical advertising. Your advertising may not

contain any statement or material which may be considered: (1) in bad taste or offensive to the public or

to any group of persons; (2) defamatory of any person or an attack on another studio owner or any

competitor; (3) to infringe upon any other person’s copyright, trade name, trademark, service mark,

identification or other intellectual property; or (4) inconsistent with the image of MNC or the MN System.

I. Good Business Practices. You will secure and maintain in force in your name all

required licenses, permits and certificates for the Franchised Studio. You will operate the Franchised

Studio in full compliance with all applicable laws, ordinances and regulations, including, but not limited

to, all laws or regulations governing the withholding and payment of federal and state income taxes,

social security taxes and sales taxes. You will, in all dealings with your customers, vendors and the

public, adhere to the highest standards of honesty, integrity, fair dealing and ethical conduct and you will

comply with MNC’s return policy on MN Products. You may not engage in any business or advertising

practice that could damage the goodwill associated with the Trademarks or the business of MNC.

9. Trademarks. The term “Trademarks” refers to all words, symbols, designs, trade names, service

marks or combinations used to identify the MN System and the MN Products and services offered under

the MN System. We may restrict the use of certain Trademarks to fewer than all Studios. We

periodically will advise you as to any additions or deletions to the Trademarks and your right to use the

Trademarks will be modified by these additions or deletions.

You may use the Trademarks only in connection with the operation of the Franchised Studio at

the Studio Location and as expressly provided in this Agreement and the Operations Manual. You may

not use any Trademark, any variation of any Trademark or any marks or names confusingly similar to any

Trademark in any manner not authorized by us or in the name of your business entity. If local laws or

ordinances require that you file an affidavit of doing business under a fictitious name, you will include in

the filing an indication that the filing is made “as an authorized studio owner of Merle Norman

Cosmetics, Inc., Los Angeles, California.” You will use the symbol ® with all registered Trademarks and

the symbol ™ or

SM

with all other Trademarks. You may not use the Trademarks on any Internet domain

name, e-mail address or in the operation of any Internet web site without our prior written approval. We

may require that any web site be hosted by us and we may designate the form and content of any web site.

You agree that you do not have any right, title or interest in the Trademarks (except the right to

use the Trademarks pursuant to this Agreement); that the Trademarks are the sole property of MNC; that

you will not directly or indirectly challenge the validity or our ownership of the Trademarks or our right

to license the Trademarks; and that all uses of the Trademarks by you and the goodwill that arises from

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your uses of the Trademarks are for our benefit. Any unauthorized use of the Trademarks by you or

attempt by you, directly or indirectly, to register the Trademarks in any jurisdiction will constitute a

breach of this Agreement and an infringement of our rights.

10. Insurance and Indemnification.

A. Insurance. You will maintain throughout the term of this Agreement, at your cost and

expense, that insurance as you deem necessary or desirable, but at least that insurance which is required

by your lease. We have the right to specify (and later modify) the types of insurance you must have,

including insurance coverage for non-Merle Norman merchandise and services offered at the Franchised

Studio; specify (and later increase) minimum required coverages; and require that your insurers achieve

certain ratings by insurance rating agencies. We must be an additional insured in each insurance policy to

the extent we have an insurable interest and you will provide us certificates of insurance.

B. Indemnification. You will indemnify and hold us harmless from all liability, damages,

costs and expenses incurred in connection with any action or claim arising out of or resulting from or in

connection with your operations at the Studio Location. Your indemnification obligation does not include

claims covered by our product liability insurance.

11. Transfers.

A. Generally. Your obligations to MNC under this Agreement are personal to you. We

have entered into this Agreement based on your business, marketing and operational skills, financial

capacity and personal character. Accordingly, you may not, directly or indirectly, sell, assign, convey or

transfer any interest in this Agreement, in the ownership of the Franchised Studio or in you (if you are a

business entity) without our prior written approval. Any attempted transfer without our prior written

approval will have no effect on MNC. Before we can consider whether to grant approval, you must

provide us a copy of all written agreements relating to the proposed transfer. We will not unreasonably

withhold our approval; however, in deciding whether to approve a transfer, we may condition our

approval on, and we may consider, many factors we believe to be relevant, including the following:

(1) All of your monetary obligations to us and all other financial obligations related

to the Franchised Studio are paid and you are not in material default of any provision of this Agreement

or any other agreement with MNC. We reserve the right to require that a reasonable sum of money be

placed in escrow to ensure that all of these obligations will be satisfied.

(2) You execute a general release and a covenant not to sue, in the form specified by

us, of any and all claims against MNC and its past and present officers, directors, shareholders, agents and

employees, in their corporate and individual capacities.

(3) You provide us written certification that you have not made any representations

to the transferee that MNC has granted you any exclusive territory or any right of first refusal or similar

option.

(4) The transferee: (a) satisfies our then-current managerial, operational, experience,

financial, quality, character and business criteria for new studio owners; (b) executes the form of studio

agreement in use at that time for an initial term ending on the expiration of the Initial Term of this

Agreement; and (c) completes Home Office Training.

B. Transfer Upon Death or Permanent Incapacity. Upon the death or permanent

incapacity of any individual who signs this Agreement or, if you are a business entity, any individual who

owns an interest in you, the executor, administrator, personal representative or trustee of that person will

have 12 months in which to transfer the affected person’s interest. During that period, the Franchised

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Studio must be operated by a person who has completed Home Office Training. MNC must approve any

transfer as provided in Section 11.A. Failure to timely transfer the interest shall be a default of this

Agreement.

C. Ownership Interests. If you are any type of a business entity, you represent that: (1) the

entity is in good standing under the laws of the state of its formation and is qualified to do business in the

state in which the Franchised Studio is located; (2) the name, address, ownership interest (whether legal

or beneficial) and office held by each person as of the date of this Agreement are listed on Exhibit A

(which must be completed by you); and (3) some or all your owners, as requested by MNC, have signed

the Guarantee attached to this Agreement.

12. Termination by You. You may terminate this Agreement without cause by providing us 10

days’ advance written notice of your intent to terminate.

13. Termination by MNC.

A. Termination Without Cure Period. In addition to the grounds for termination that are

stated elsewhere in this Agreement, we may terminate this Agreement, and the rights granted by this

Agreement, upon written notice to you without an opportunity to cure if: (1) you sell MN Products

through any wholesale, mail order (except as approved by MNC to existing customers) or e-commerce

distribution, or through any channel of distribution other than the retail operation of the Franchised Studio

at the Studio Location and MNC approved marketing events; (2) you sell, or give away, lesson materials

or you sell sales aids; (3) you close the Franchised Studio for more than 5 consecutive days, unless the

closing is due to an act of God, fire or other natural disaster or is approved in writing in advance by us;

(4) you (or if you are any type of a business entity, any of your owners) remain in default beyond the

applicable cure period under any other agreement with MNC; or (5) you relocate the Franchised Studio

or undertake any transfer (as defined in Section 11.A.) without our prior written approval.

B. Termination Following Expiration of Cure Period. Except for those items listed in

preceding Section 13.A., you will have 30 days (10 days for a monetary default) after your receipt of

written notice of default from us in which to remedy the default and provide evidence of that remedy to

us. If any such default is not cured in that time, this Agreement will terminate without further notice to

you effective immediately upon expiration of that time, unless we notify you otherwise in writing. You

will be in default under this Section for any failure to materially comply with any of the requirements of

this Agreement, the Operations Manual or the MN System, or to carry out the terms of this Agreement in

good faith. If you have received 1 or more notices of default in the previous 12 months, we may send you

a notice of termination upon your next default in that 12 month period without providing you an

opportunity to remedy the default.

C. Termination Following Inspection. We intend to periodically inspect the Franchised

Studio to evaluate your compliance with the MN System, the Operations Manual and this Agreement. If,

following the inspection, we conclude that you are not materially complying with this Agreement, the

Operations Manual or the MN System, we may send you a notice of default and terminate this Agreement

if you fail to come into compliance within 30 days after your receipt of the notice of default and fail to

remain in compliance for an extended period.

D. Statutory Limitations. If any valid, applicable law or regulation of a competent

governmental authority with jurisdiction over this Agreement requires a longer notice or cure period, this

Agreement will be considered amended to comply with the minimum notice or cure period required by

the applicable law or regulation.

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14. Post-Termination Obligations. Upon the expiration or termination of this Agreement:

A. You must immediately stop operating a Merle Norman Cosmetic Studio at the Studio

Location; immediately stop selling MN Products; and promptly make those alterations and modifications

to the Studio Location to distinguish it from a Studio, including those specific changes we may request.

B. You must immediately pay us all monies you owe to us.

C. You must promptly return to us, at your cost, the Operations Manual, any copies of the

Operations Manual, lesson materials and any other materials provided by MNC to you at no charge and

all other materials and information furnished by MNC to you.

D. You must immediately discontinue all use of the Trademarks; remove the Trademarks

from the Franchised Studio (including all signage) and from items used in the operation of the Franchised

Studio; cancel all advertising that contains any Trademarks (including telephone directory listings); and

cancel all filings or registrations for the Franchised Studio (including any fictitious business name

certificates) that identify you as a Merle Norman Cosmetic Studio or contain any Trademarks. You

appoint MNC as your attorney-in-fact to cancel those filings and registrations if you fail to do so.

E. Unless you operate another Studio, within 15 days after termination, you must sell to us,

and we will buy, all MN Products and any other merchandise and supplies which you purchased from us.

You will pay all freight charges incurred in shipping these items to us and, except as described below, the

purchase price for the MN Products, merchandise and supplies will be the price paid by you less 10% for

handling and restocking costs. We are not obligated to purchase, although we may purchase, those MN

Products that we no longer manufacture and/or distribute and those MN Products that are not in saleable

and useable condition (as we determine). The purchase price for those MN Products will be separately

negotiated. We may deduct from the monies to be paid to you for repurchase of these MN Products,

merchandise and supplies all monies that you owe to us and we may hold some or all of the monies to be

paid to you for up to 6 months to ensure that no additional monies become owed to us.

F. You must cooperate with us in referring inquiries regarding MN Products to the person(s)

designated by us.

G. We will be free to continue to use any customer lists you provided to us.

15. Our Relationship. This Agreement does not create a fiduciary or other special relationship

between us. You are an independent contractor who controls the Franchised Studio and its operations,

subject only to this Agreement. No agency, employment, or partnership is created or implied by this

Agreement and you are not and may not hold yourself out as an agent, legal representative, partner,

subsidiary, joint venturer or employee of MNC. In all public records and relationships with other persons

and on stationery, business cards, checks, contracts, receipts, advertising and other business documents

and forms, you will indicate the independent ownership of the Franchised Studio and that you are solely a

franchisee of MNC. You will post a sign, approved by us, in a conspicuous location in the Franchised

Studio, which will contain your name and mailing address and state that the Franchised Studio is operated

by you under a studio agreement with MNC.

16. Notices. No notice, demand, request or other communication to either of us will be binding

unless the notice is in writing, refers specifically to this Agreement and is addressed to: (A) if to you,

addressed to you at the Studio Location; and (B) if to MNC, addressed to Merle Norman Cosmetics, Inc.

at 9130 Bellanca Avenue, Los Angeles, California 90045 (Attn: Legal Department). Each of us may

designate a new address for notices by giving written notice of the new address pursuant to this Section;

however, even if you designate a new notice address, we can still send notices to the Studio Location in

addition to the new address. Notices will be effective upon receipt or first rejection and may be:

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(1) delivered personally or sent by facsimile with confirmation of receipt; (2) mailed in the United States

mail, postage prepaid, certified mail, return receipt requested; or (3) mailed via overnight courier.

17. General Provisions.

A. Entire Agreement. This Agreement, the Operations Manual, the documents referred to

in this Agreement, and the attachments to this Agreement constitute the entire, full and complete

agreement between us concerning your appointment as a studio owner and your operation of the

Franchised Studio and supersede all other negotiations, discussions, or understandings. There are no

other oral or written promises or agreements between us that relate to the matters covered by this

Agreement. Except as expressly set forth in this Agreement, no amendment or change to this Agreement

will be binding upon either of us unless in writing and signed by both of us. Notwithstanding the

foregoing, nothing in this Agreement is intended to disclaim any representation made in MNC’s

Franchise Disclosure Document.

B. Governing Law and Forum. This Agreement and the relationship between us will be

governed by and construed in accordance with the laws of the state in which the Franchised Studio is

located. We both agree that, to the extent that any disputes cannot be resolved directly between us, you

may file suit against MNC only in the federal or state court having jurisdiction where our principal offices

are located at the time the suit is filed. MNC may file suit in the federal or state court located in the

jurisdiction where our principal offices are located at the time suit is filed or in the jurisdiction where you

reside or do business or where the Franchised Studio is or was located or where the claim arose. You

consent to the personal jurisdiction of those courts over you and to venue in those courts.

C. Limitations. Except for payments owed by one of us to the other, and unless prohibited

by applicable law, any legal action brought with respect to any dispute arising from or related to this

Agreement or any breach of this Agreement must be brought within a period of 2 years after the initial

occurrence of any act or omission that is the basis of the legal action, whenever discovered. We each

waive, to the fullest extent permitted by law: (1) the right to bring, or be a class member in, any class

action suits; and (2) any right or claim of any punitive or exemplary damages against each other.

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D. Attorneys’ Fees. If either of us brings an action to enforce this Agreement in a judicial

proceeding, the party prevailing in that proceeding will be entitled to reimbursement of attorneys’ fees

and expenses, whether incurred prior to, in preparation for, or in contemplation of the filing of, the

proceeding. In any judicial proceeding, the amount of these costs and expenses will be determined by the

court and not by a jury.

MERLE NORMAN COSMETICS, INC.

By: Date:

As Its:

STUDIO OWNER(S):

Date:

03/09

EXHIBIT A

ENTITY INFORMATION

The following must be completed if the party signing the Studio Agreement is a corporation or any

other type of business entity:

1. Name of Entity: .

2. Type of Entity: .

3. Date Formed: .

4. State of Formation: .

5. Ownership Information: As of the date of the Studio Agreement, the following is the name,

address, ownership interest and office held by each person with any legal or beneficial ownership interest

in the party signing the Studio Agreement:

Name Address Ownership Interest Office Held

________________

_________________

6. Contact Information: While each person listed above has the authority to act for and legally

bind the Studio Owner, notices need only be sent to the following person:

03/09

GUARANTEE

The Guarantors who have signed below: (1) have signed a Merle Norman Studio Agreement and

desire to transfer the Studio Agreement to a corporation or other business entity in which they are all of

the owners; or (2) are all of the owners of a corporation or other business entity which is entering into a

Merle Norman Studio Agreement with Merle Norman Cosmetics, Inc. to operate a Merle Norman

Cosmetic Studio. Merle Norman will be referred to in this Guarantee as “MNC,” each of the Guarantors

will be referred to as “you,” and the business entity that will operate the Studio will be referred to as

“Studio Owner.”

You personally and unconditionally: (A) guarantee to MNC for the term of the Studio

Agreement that the Studio Owner will punctually pay and perform each obligation and covenant in the

Studio Agreement; and (B) agree to be bound by, and personally liable for, the breach of each provision

of the Studio Agreement.

You agree not to protest MNC’s enforcement of this Guarantee, and you waive all notices and

legal or equitable defenses to which you may be entitled. You consent and agree that: (i) you will be

responsible for all obligations of the Studio Owner as if you were the only guarantor; (ii) you will pay

MNC any amount, and perform any action, required under the Studio Agreement immediately upon

MNC’s request if the Studio Owner fails or refuses to do so punctually; (iii) MNC need not enforce or

attempt to enforce any remedies against the Studio Owner or any other person before MNC may enforce

this Guarantee against you; and (iv) your liability will not be lessened, forgiven or otherwise affected by

MNC’s grant of any extension of time, credit or other indulgence to the Studio Owner or to any other

person, such as MNC’s acceptance of partial payments or performance, or the compromise or release of

any claims, none of which will in any way modify or amend this Guarantee. Your obligations under this

Guarantee are continuing and irrevocable during the term of the Studio Agreement and for so long

thereafter as the Studio Owner continues to owe monies or obligations to MNC.

We each understand the terms of this Guarantee and agree to honor its provisions.

GUARANTOR(S):

Date:

MNC - IL – 04/12

ADDENDUM TO THE MERLE NORMAN COSMETICS

STUDIO AGREEMENT

REQUIRED FOR ILLINOIS STUDIO OWNERS

This Addendum to the Merle Norman Cosmetics Studio Agreement dated

_______________________________ between Merle Norman Cosmetics, Inc. (referred to as “MNC,” “we,”

“us” or “our”) and _________________________________________________________ (referred to as

“Studio Owner,” “you” or “your”) is entered into simultaneously with the execution of the Studio Agreement.

1. The provisions of this Addendum form an integral part of, and are incorporated into the Studio

Agreement. This Addendum is being executed because: (A) the offer or sale of the franchise to you

was made in the State of Illinois; (B) you are a resident of the State of Illinois; and/or (C) the Franchised

Studio will be located or operated in the State of Illinois.

2. The second sentence of Section 17.A. is deleted and replaced with the following:

There are no other oral or written promises or agreements between us that relate to the matters covered

by this Agreement (except for, or other than, those contained in the Disclosure Document).

3. The following sentence is added after the first sentence of Section 17.B.:

Notwithstanding the foregoing, Illinois law shall govern this Agreement.

4. The following sentence is added to the end of Section 17.B.:

Section 4 of the Illinois Franchise Disclosure Act provides that any provision in a franchise agreement

which designates jurisdiction or venue in a forum outside of Illinois is void with respect to any cause of

action which otherwise is enforceable in Illinois.

5. The following sentence is added after the first sentence of Section 17.C.:

Section 27 of the Illinois Franchise Disclosure Act provides that causes of action under the Act must be

brought within the earlier of: 3 years of the violation, 1 year after the franchisee becomes aware of the

underlying facts or circumstances or 90 days after delivery to the franchisee of a written notice

disclosing the violation.

6. The following Section 17.E. is added to the end of Section 17:

E. Waivers Void. Section 41 of the Illinois Franchise Disclosure Act states that any condition,

stipulation or provision purporting to bind any person acquiring any franchise to waive compliance with

any provision of the Act is void.

7. Any capitalized terms that are not defined in this Addendum shall have the meaning given them in the

Studio Agreement.

8. The provisions of this Addendum will be effective only to the extent that the jurisdictional requirements

of the Illinois Franchise Disclosure Act are met independently of this Addendum.

MNC - IL – 04/12

9. Except as expressly modified by this Addendum, the Studio Agreement remains unmodified and in full

force and effect.

MERLE NORMAN COSMETICS, INC.

By: Date:

As Its:

STUDIO OWNER(S):

Date:

MNC - MD – 04/12

ADDENDUM TO THE MERLE NORMAN COSMETICS

STUDIO AGREEMENT

REQUIRED FOR MARYLAND STUDIO OWNERS

This Addendum to the Merle Norman Cosmetics Studio Agreement dated

_______________________________ between Merle Norman Cosmetics, Inc. (referred to as “MNC,” “we,”

“us” or “our”) and _________________________________________________________ (referred to as

“Studio Owner,” “you” or “your”) is entered into simultaneously with the execution of the Studio Agreement.

1. The provisions of this Addendum form an integral part of, and are incorporated into the Studio

Agreement. This Addendum is being executed because: (A) the offer or sale of the franchise to you

was made in the State of Maryland; (B) you are a resident of the State of Maryland; and/or (C) the

Franchised Studio will be located or operated in the State of Maryland.

2. The following sentence is added to the end of Sections 3.B.(6) (Renewal Term) and 11.A.(2) (Transfers

– Generally):

Any provision requiring you to sign a general release of claims against MNC does not release any claim

you may have under the Maryland Franchise Registration and Disclosure Law.

3. The following sentence is added after the first sentence of Section 17.C. (Limitations):

Any claims arising under the Maryland Franchise Registration and Disclosure Law must be brought

within 3 years after the grant of the franchise.

4. Any capitalized terms that are not defined in this Addendum shall have the meaning given them in the

Studio Agreement.

5. The provisions of this Addendum will be effective only to the extent that the jurisdictional requirements

of the Maryland Franchise Registration and Disclosure Law are met independently of this Addendum.

6. Except as expressly modified by this Addendum, the Studio Agreement remains unmodified and in full

force and effect.

MERLE NORMAN COSMETICS, INC.

By: Date:

As Its:

STUDIO OWNER(S):

Date:

MNC – MN – 04/12

ADDENDUM TO THE MERLE NORMAN COSMETICS

STUDIO AGREEMENT

REQUIRED FOR MINNESOTA STUDIO OWNERS

This Addendum to the Merle Norman Cosmetics Studio Agreement dated

_______________________________ between Merle Norman Cosmetics, Inc. (referred to as “MNC,” “we,”

“us” or “our”) and _________________________________________________________ (referred to as

“Studio Owner,” “you” or “your”) is entered into simultaneously with the execution of the Studio Agreement.

1. The provisions of this Addendum form an integral part of, and are incorporated into the Studio

Agreement. This Addendum is being executed because: (A) the offer or sale of the franchise to you

was made in the State of Minnesota; (B) you are a resident of the State of Minnesota; and/or (C) the

Franchised Studio will be located or operated in the State of Minnesota.

2. The following sentence is added to the end of Sections 3.B.(6) and 11.A.(2):

Notwithstanding the foregoing, Franchisee will not be required to assent to a release, assignment,

novation, or waiver that would relieve any person from liability imposed by Minnesota Statute

§§ 80C.01 - 80C.22.

3. The following sentence is added to the end of Section 3.B.:

With respect to franchises governed by Minnesota law, we will comply with Minnesota Statute

§ 80C.14, Subdivision 3, 4, and 5 which requires, except in certain cases, that a franchisee be given 90

days notice of termination (with 60 days to cure) and 180 days notice for non-renewal of franchise

agreements.

4. The following sentence is added to the end of Section 9:

Notwithstanding the foregoing, we will indemnify you against liability to a third party resulting from

claims that your use of a Trademark infringes trademark rights of a third party; provided, that we will

not indemnify against the consequences of your use of the Trademarks unless the use is in accordance

with the requirements of this Agreement and the MNC System.

5. The following sentence is added to the end of Section 13:

With respect to franchises governed by Minnesota law, we will comply with Minnesota Statute

§ 80C.14, Subdivision 3, 4, and 5 which requires, except in certain cases, that a franchisee be given 90

days notice of termination (with 60 days to cure) and 180 days notice for non-renewal of franchise

agreements.

6. The following sentences are added to the end of Sections 17.B.:

Minnesota Statute § 80C.21 and Minnesota Rule 2860.4400J prohibit us from requiring litigation to be

conducted outside Minnesota. In addition, nothing in the Disclosure Document or agreements can

abrogate or reduce any of your rights as provided for in Minnesota Statutes, Chapter 80C, or your rights

to any procedure, forum, or remedies provided for by the laws of the jurisdiction.

7. Any capitalized terms that are not defined in this Addendum shall have the meaning given them in the

Studio Agreement.

8. The provisions of this Addendum will be effective only to the extent that the jurisdictional requirements

of the Minnesota Statute are met independently of this Addendum.

MNC – MN – 04/12

9. Except as expressly modified by this Addendum, the Studio Agreement remains unmodified and in full

force and effect.

MERLE NORMAN COSMETICS, INC.

By: Date:

As Its:

STUDIO OWNER(S):

Date:

MNC- ND – 04/12

ADDENDUM TO THE MERLE NORMAN COSMETICS

STUDIO AGREEMENT

REQUIRED FOR NORTH DAKOTA STUDIO OWNERS

This Addendum to the Merle Norman Cosmetics Studio Agreement dated

_______________________________ between Merle Norman Cosmetics, Inc. (referred to as “MNC,” “we,”

“us” or “our”) and _________________________________________________________ (referred to as

“Studio Owner,” “you” or “your”) is entered into simultaneously with the execution of the Studio Agreement.

1. The provisions of this Addendum form an integral part of, and are incorporated into the Studio

Agreement. This Addendum is being executed because: (A) the offer or sale of the franchise to you

was made in the State of North Dakota; (B) you are a resident of the State of North Dakota; and/or

(C) the Franchised Studio will be located or operated in the State of North Dakota.

2. Section 3.B.(6) is deleted.

3. The following sentence is added to the end of Section 17.B.:

Pursuant to the North Dakota Franchise Investment Law, any provision requiring franchisees to consent

to the jurisdiction of courts outside North Dakota or to consent to the application of laws of a state other

than North Dakota is void.

4. The following sentence is added after the end of the first sentence of Section 17.C.:

Notwithstanding the foregoing, the statute of limitations under North Dakota law applies.

5. Any capitalized terms that are not defined in this Addendum shall have the meaning given them in the

Studio Agreement.

6. The provisions of this Addendum will be effective only to the extent that the jurisdictional requirements

of the North Dakota Franchise Investment Law are met independently of this Addendum.

7. Except as expressly modified by this Addendum, the Studio Agreement remains unmodified and in full

force and effect.

MERLE NORMAN COSMETICS, INC.

By: Date:

As Its:

STUDIO OWNER(S):

Date:

MNC - RI – 04/12

ADDENDUM TO THE MERLE NORMAN COSMETICS

STUDIO AGREEMENT

REQUIRED FOR RHODE ISLAND STUDIO OWNERS

This Addendum to the Merle Norman Cosmetics Studio Agreement dated

_______________________________ between Merle Norman Cosmetics, Inc. (referred to as “MNC,” “we,”

“us” or “our”) and _________________________________________________________ (referred to as

“Studio Owner,” “you” or “your”) is entered into simultaneously with the execution of the Studio Agreement.

1. The provisions of this Addendum form an integral part of, and are incorporated into the Studio

Agreement. This Addendum is being executed because: (A) the offer or sale of the franchise to you

was made in the State of Rhode Island; (B) you are a resident of the State of Rhode Island; and/or

(C) the Franchised Studio will be located or operated in the State of Rhode Island.

2. The following language is added to the end of Section 17.B.:

Section 19-28.1-14 of the Rhode Island Franchise Investment Act provides that “A provision in a

franchise agreement restricting jurisdiction or venue to a forum outside this state or requiring the

application of the laws of another state is void with respect to a claim otherwise enforceable under this

Act.”

3. Any capitalized terms that are not defined in this Addendum shall have the meaning given them in the

Studio Agreement.

4. The provisions of this Addendum will be effective only to the extent that the jurisdictional requirements

of the Rhode Island Franchise Investment Act are met independently of this Addendum.

5. Except as expressly modified by this Addendum, the Studio Agreement remains unmodified and in full

force and effect.

MERLE NORMAN COSMETICS, INC.

By: Date:

As Its:

STUDIO OWNER(S):

Date:

MNC - WA – 04/12

ADDENDUM TO THE MERLE NORMAN COSMETICS

STUDIO AGREEMENT

REQUIRED FOR WASHINGTON STUDIO OWNERS

This Addendum to the Merle Norman Cosmetics Studio Agreement dated

_______________________________ between Merle Norman Cosmetics, Inc. (referred to as “MNC,”

“we,” “us” or “our”) and _________________________________________________________ (referred

to as “Studio Owner,” “you” or “your”) is entered into simultaneously with the execution of the Studio

Agreement.

1. The provisions of this Addendum form an integral part of, and are incorporated into the Studio

Agreement. This Addendum is being executed because: (A) the offer or sale of the franchise to

you was made in the State of Washington; (B) you are a resident of the State of Washington;

and/or (C) the Franchised Studio will be located or operated in the State of Washington.

2. The state of Washington has a statute, the Washington Franchise Investment Protection Act,

RCW 19.100.180 (“Act”), which may supersede this Agreement in your relationship with us

including the areas of termination and renewal of your franchise. There also may be court

decisions which may supersede this Agreement in your relationship with us including the areas of

termination and renewal of your franchise.

3. In any arbitration involving a franchise purchased in Washington, the arbitration site shall be

either in the State of Washington, or in a place mutually agreed upon at the time of the arbitration,

or as determined by the arbitrator.

4. In the event of a conflict of laws, the provisions of the Act shall prevail.

5. A release or waiver of rights executed by you shall not include rights under the Act except when

executed pursuant to a negotiated settlement after the agreement is in effect and where the parties

are represented by independent counsel. Provisions such as those which unreasonably restrict or

limit the statute of limitations period for claims under the Act, rights or remedies under the Act

such as a right to a jury trial may not be enforceable.

6. Transfer fees are collectable to the extent that they reflect the franchisor’s reasonable estimated or

actual costs in effecting a transfer.

7. Any capitalized terms that are not defined in this Addendum shall have the meaning given them

in the Studio Agreement.

8. The provisions of this Addendum will be effective only to the extent that the jurisdictional

requirements of the Act are met independently of this Addendum.

THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK

MNC - RI – 04/12

9. Except as expressly modified by this Addendum, the Studio Agreement remains unmodified in

full force and effect.

MERLE NORMAN COSMETICS, INC.

By: Date:

As Its:

STUDIO OWNER(S):

Date:

MNC - FDD – 04/12

EXHIBIT E.2.

GOLD MEDALLION STUDIO ADDENDUM

THIS PAGE IS LEFT BLANK INTENTIONALLY

10/04

GOLD MEDALLION STUDIO ADDENDUM

BETWEEN

MERLE NORMAN COSMETICS, INC.

(REFERRED TO AS “MNC,” “WE,” “US” OR “OUR”)

AND

__________________________________________________________

(REFERRED TO AS “STUDIO OWNER,” “YOU” OR “YOUR”)

FOR THE MERLE NORMAN COSMETIC STUDIO LOCATED AT:

__________ _______________________________________

(“STUDIO LOCATION”)

Gold Medallion Studio Addendum 10/04

1. Background. As the result of the expenditure of time, skill, effort and money, we have

developed a program, which is known as the “Gold Medallion Program,” to provide internal and external

recognition to those Merle Norman Cosmetic Studios offering the highest level of services in a quality

environment. We offer additional benefits to Gold Medallion Studios and require that Gold Medallion

Studios comply with additional requirements.

You have represented to us that the Merle Norman Cosmetic Studio which you operate

(“Franchised Studio”) meets the minimum criteria of the Gold Medallion Program and you have applied

to have the Franchised Studio recognized by us as a Gold Medallion Studio. You understand and

acknowledge the importance of our high and uniform standards for Gold Medallion Studios and the

necessity of operating the Franchised Studio in compliance with this Addendum, the Gold Medallion

Program and the Gold Medallion Guidelines.

2. Appointment. We have determined, based on the information you provided, that the Franchised

Studio meets the minimum criteria of the Gold Medallion Program and we hereby grant you the

nonexclusive right to participate in the Gold Medallion Program and to operate a Gold Medallion Studio

at the Studio Location, subject to the terms and conditions of this Addendum and your strict compliance

with the Gold Medallion Program and the Gold Medallion Guidelines.

We reserve the absolute right to appoint other Studios as Gold Medallion Studios (whether

operated by us or independent studio owners) at any location without regard to their proximity to the

Franchised Studio. In addition, the rights granted to you by this Addendum are limited and, among other

things: (A) you may not use the Gold Medallion Program or operate a Gold Medallion Studio at any

location other than the Studio Location, including at other Merle Norman Studios you operate, unless

MNC and you sign a Gold Medallion Studio Addendum for each additional location; (B) this Addendum

will automatically terminate if you relocate the Franchised Studio; you must qualify for the Gold

Medallion Program at any new location for the Franchised Studio even if we have approved the new

location; and (C) this Addendum will automatically terminate if you sell the Franchised Studio, a

majority interest in the Franchised Studio or, if you are a business entity, a majority interest in you; the

purchaser must qualify for the Gold Medallion Program.

3. Term. The term of this Addendum (and your right to participate in the Gold Medallion Program

and to operate a Gold Medallion Studio at the Studio Location) ends on the 3-year anniversary of the date

MNC signs this Addendum. You may renew this Addendum and your right to operate a Gold Medallion

Studio for successive 3 year periods, provided:

A. Your Studio Agreement for the Studio Location remains in effect.

B. At least 60 days before the end of the term, you demonstrate to our satisfaction that the

Franchised Studio and you continue to be in compliance with the then-current Gold Medallion

Guidelines. In that regard, we may require, among other things, that you submit photographs of the

interior and exterior of the Franchised Studio. We will assume that you have elected to withdraw from

the Gold Medallion Program for the Franchised Studio if you fail to timely provide us this information.

After we receive your information, we will advise you in writing if we determine that the Franchised

Studio does not comply with the Gold Medallion Guidelines in effect at that time and we will give you 30

days to bring the Franchised Studio into compliance. If you fail to do so, this Addendum will expire at

the end of the 3-year term or at the end of the 30 day period, whichever is later.

C. If requested by us, you must sign the a new Gold Medallion Studio Addendum in the form

we are using at the time or a similar document demonstrating the renewal of your rights.

4. The Gold Medallion Program and Guidelines. You have received on loan from us the current

Gold Medallion Guidelines. We may periodically supplement or amend the Guidelines to reflect changes

in the Gold Medallion Program. You must keep your copy of the Gold Medallion Guidelines at the

Gold Medallion Studio Addendum 2 10/04

Franchised Studio and keep it current and up-to-date with all modifications provided by us, not reproduce

the Gold Medallion Guidelines or any part of them and treat the Gold Medallion Guidelines as

confidential. As long as the Franchised Studio is a Gold Medallion Studio, you will be entitled to receive

the additional services and benefits that are only available to Gold Medallion Studios. You must,

however, maintain the quality of service and image and standards of excellence of a Gold Medallion

Studio. Accordingly, at all times you must operate the Franchised Studio in strict compliance with the

Gold Medallion Program and the Gold Medallion Guidelines, which includes complying with the

following requirements:

A. Advertising. You must contribute to, and participate in, a regional co-op advertising

group if one is formed for the geographic area that includes the Franchised Studio.

B. Returns. You must comply with our recommended return policy and prominently

display the Gold Medallion Satisfaction Guaranteed policy in the Studio. If return privileges on non-

Merle Norman products are limited, you must display a sign informing customers of the applicable return

policy.

C. Non-Merle Norman Products and Services. Any products not purchased from us and

all services offered at the Franchised Studio must comply with the requirements of your Studio

Agreement, as well as with the following requirements: (1) the products and services must be compatible

with Merle Norman products and MNC’s quality image, they must not compete with Merle Norman

products and they must clearly be identified as non-Merle Norman products or services; (2) the products

must be merchandised, and the services must be offered, in a separate, defined area of the Franchised

Studio; and (3) you must display a sign (in the form we specify) that states that the Franchised Studio is

independently owed and operated and that you are solely responsible for all non-Merle Norman products

and services.

D. Gift Certificates. You must participate in our gift certificate program by honoring Merle

Norman gift certificates (but only for the purchase of Merle Norman products) issued by other Studios. If

you offer your own gift certificates, they must comply with all applicable laws and clearly state that they

are redeemable only at the Franchised Studio.

5. Gold Medallion Marks. The term “Gold Medallion Marks” refers to all words, symbols,

designs, trade names, service marks or combinations used to identify the Gold Medallion Program and

Gold Medallion Studios. We periodically will advise you as to any additions or deletions to the Gold

Medallion Marks and your right to use the Gold Medallion Marks will be modified by these additions or

deletions.

You may use the Gold Medallion Marks only in connection with the operation of the Franchised

Studio at the Studio Location and as expressly provided in this Addendum and the Gold Medallion

Guidelines. You may not use any Gold Medallion Mark, any variation of any Gold Medallion Mark or

any marks or names confusingly similar to any Gold Medallion Mark in any manner not authorized by us

or in the name of your business entity. You will use the symbol ® with all registered Gold Medallion

Marks and the symbol ™ or

SM

with all other Gold Medallion Marks. You may not use the Gold

Medallion Marks on any Internet domain name, e-mail address or in the operation of any Internet web site

without our prior written approval. We may require that any web site be hosted by us and we may

designate the form and content of any web site.

You agree that you do not have any right, title or interest in the Gold Medallion Marks (except

the right to use the Gold Medallion Marks pursuant to this Addendum); that the Gold Medallion Marks

are the sole property of MNC; that you will not directly or indirectly challenge the validity or our

ownership of the Gold Medallion Marks or our right to license the Gold Medallion Marks; and that all

uses of the Gold Medallion Marks by you and the goodwill that arises from your uses of the Gold

Medallion Marks are for our benefit. Any unauthorized use of the Gold Medallion Marks by you or

Gold Medallion Studio Addendum 3 10/04

attempt by you, directly or indirectly, to register the Gold Medallion Marks in any jurisdiction will

constitute a breach of this Addendum and an infringement of our rights.

6. Termination.

A. Automatic Termination. This Addendum will automatically terminate without notice

if: (1) your Studio Agreement is terminated; (2) you relocate the Franchised Studio; (3) you sell the

Franchised Studio, or a majority interest in the Franchised Studio, to a third party; or (4) if you are any

type of business entity, you sell a majority interest in you.

B. Termination by You. You may terminate this Addendum without cause by providing us

30 days’ advance written notice of your intent to terminate.

C. Termination by MNC.

(1) We may terminate this Addendum (and the termination will be effective upon

your receipt of notice of termination) if: (A) you fail to comply with any of the requirements of this

Addendum, the Gold Medallion Program or the Gold Medallion Guidelines and you fail to come into

compliance within 60 days after your receipt of a written notice of default and fail to remain in

compliance for an extended period; or (B) we, in our reasonable business judgment, decide to cancel the

Gold Medallion Program and provide you 60 days’ advance written notice of cancellation.

(2) We intend to periodically inspect the Franchised Studio to evaluate your

compliance with the Gold Medallion Program, the Gold Medallion Guidelines and this Addendum. If,

following the inspection, we conclude that you are not materially complying with this Addendum, the

Gold Medallion Guidelines or the Gold Medallion Program, we may send you a written notice of default

and terminate this Addendum if you fail to come into compliance within 60 days after your receipt of a

written notice of default and fail to remain in compliance for an extended period.

(3) If you have received 2 or more notices of default of this Addendum within the

previous 12 months, we may send you a notice of termination upon your next default of this Addendum

within that 12 month period without providing you an opportunity to remedy the default.

D. Statutory Limitations. If any valid, applicable law or regulation of a competent

governmental authority with jurisdiction over this Addendum requires a longer notice or cure period, this

Addendum will be considered amended to comply with the minimum notice or cure period required by

the applicable law or regulation.

7. Post-Termination Obligations. Upon the expiration or termination of this Addendum:

A. You will no longer be authorized to participate in the Gold Medallion Program at the

Franchised Studio or operate the Franchised Studio as a Gold Medallion Studio. This will require you to

cease all use of the Gold Medallion Marks, to cancel all advertising for the Franchised Studio that

contains any Gold Medallion Mark (including telephone directory listings) and to stop identifying the

Franchised Studio as a Gold Medallion Studio. You will, however, be entitled to sell any Gold Medallion

products remaining in the Franchised Studio.

B. You must immediately return to us at your cost the Gold Medallion Guidelines, any

copies of the Guidelines and all other Gold Medallion materials provided by MNC to you at no charge.

C. Your Studio Agreement will continue to govern your relationship with us (unless it also

has been terminated) and you will continue to operate the Franchised Studio under the terms of that

Agreement.

Gold Medallion Studio Addendum 4 10/04

Except to the extent your Studio Agreement is expressly amended by this Addendum, that Agreement

remains unmodified and in full force and effect.

MERLE NORMAN COSMETICS, INC.

By: Date:

As Its:

STUDIO OWNER(S):

Date:

THIS PAGE IS LEFT BLANK INTENTIONALLY

MNC - FDD – 04/12

EXHIBIT E.3.

CO-OP GROUP LETTER OF AGREEMENT

THIS PAGE IS LEFT BLANK INTENTIONALLY

Co-op Group Letter of Agreement 10/05

CO-OP GROUP LETTER OF AGREEMENT

1. I, ____________________________, a Studio Owner in the ________________ area, agree to

participate for a ____________________ (__) month period in the ________________ Area Co-Op

by contributing a total of $_______________ to be spent in accordance with the ________________

Area Co-Op Group’s approved media plan.

2. I understand that my total financial commitment will be spread over the next _____ (__) months and

that my Studio Account # ________________ will be debited on the first day of each month for

_____ (__) months, beginning ____________________ and ending ____________________ at an

amount of $ ____________ per month.

3. If, at any time during the media plan I am delinquent on my Studio account, I shall pay Merle

Norman directly for my share prior to each advertisement.

4. Should I close or sell my Studio after the date I sign this Agreement but before I have fully paid my

share, I understand that the balance of my payments will immediately become due and payable.

5. Merle Norman Home Office will debit the individual accounts of all other Studios participating in the

Co-Op Advertising program for each Studio’s individual share.

6. If, during the course of the media plan, advertising materials other than those already produced and

provided by the Company are required, the cost of the production will be the responsibility of the

Group.

7. I understand that it is an important part of the media plan to track the effectiveness of the media plan

with the sales in my Studio. I therefore agree to provide the Company with sales and tracking

information as requested by Home Office.

Signed Date

Studio # Studio Telephone #

Studio Address Adv. Address

THIS PAGE IS LEFT BLANK INTENTIONALLY

MNC - FDD –04/12

EXHIBIT E.4.

CREDIT CARD AGREEMENT

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Credit Card Agreement 03/03

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Studio No. ______________

EDC AGREEMENT

THIS is an agreement dated as of _____________ between MERLE NORMAN COSMETICS,

INC., a California corporation (“Merle Norman”), and

(“Studio”).

1. Introduction

1.1 From time to time Merle Norman may enter into agreements with banks or other

processors of credit card charges (each a “Processor”) that allow Merle Norman

Cosmetic Studios (including Studio) to submit charges from credit cards bearing the

symbols of VISA USA, Inc., Visa International (collectively, “Visa”), MasterCard

International, Inc. (“MasterCard”), American Express Company (“American Express”),

Discover Card Services, Inc. (“Discover”), Diners Club International (“Diners”), Carte

Blanche International (“Carte Blanche”) and JCB cards (“JCB”), for processing by the

Processor. Until directed otherwise by Merle Norman, Studio agrees to permit holders

of valid cards bearing the symbols of VISA, MASTERCARD, AMERICAN EXPRESS,

DISCOVER, DINERS, CARTE BLANCHE and JCB to charge purchases of goods and

services from Studio. For each charge, Merle Norman will cause a Processor to

purchase the resulting debt if the transaction complies with this Agreement and is

actually a sale of goods or services. The Processors may credit any or all charges to a

bank account maintained by Merle Norman and report any and all charges solely to

Merle Norman. Merle Norman shall apply any credits received from the Processors to

the account of the proper Merle Norman Cosmetic Studio (including Studio) and provide

a monthly report.

1.2 From time to time, Merle Norman may provide Studio with a credit card authorization

terminal. Merle Norman will not charge Studio for such terminal and Studio shall use

the terminal solely for the purpose of processing transactions of holders of credit cards

bearing the symbols of VISA, MASTERCARD, AMERICAN EXPRESS, DISCOVER,

DINERS, CARTE BLANCE and JCB through a Processor named by Merle Norman.

1.3 The Processor will not be required to transmit any transactions of Studio to any person

other than Merle Norman. Studio will only submit charges that arise out of a charge by

a cardholder with Studio.

1.4 Studio may submit charges related to mail orders and or telephone orders but may be

assessed an additional handling fee if charged by a Processor to Merle Norman.

1.5 If Merle Norman has provided Studio financing in excess of Five Thousand and No/100

Dollars ($5,000.00), as additional security for that financing, Studio must process all

credit card purchases through Merle Norman’s Processors until the amount financed has

been repaid in full.

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2. Procedures. Upon receipt of information from the Processor, Merle Norman will credit or charge

(where Processor reverses a previously allowed item or otherwise charges an amount to Merle

Norman that relates to Studio) Studio’s account for the gross amount of each transaction less all

applicable processing fees which processing fees shall be indicated (as may be changed) from time to

time by Merle Norman to Studio. Studio agrees to follow any agreement that it has with the

Processor or directions given to it by the Processor and to be bound by the operating regulations of

VISA, MASTERCARD, AMERICAN EXPRESS, DISCOVER, DINERS, CARTE BLANCHE and

JCB in effect from time to time.

2.1 Studio agrees to balance and settle a minimum of every forty-eight (48) hours,

(preferably every twenty-four (24) hours if they have one or more transactions in forty-

eight (48) hours). In the event Studio does not balance and settle a minimum of once

every forty-eight (48) hours, Studio may be assessed an additional service charge.

3. Marketing. Studio shall clearly display the VISA, MASTERCARD, AMERICAN EXPRESS,

DISCOVER, DINERS, CARTE BLANCHE and JCB service marks and other promotional materials

supplied to it by the Processor or Merle Norman. Studio’s right to use or display the VISA,

MASTERCARD, AMERICAN EXPRESS, DISCOVER, DINERS, CARTE BLANCHE and JCB

service marks shall continue as long as this Agreement remains in effect or until Studio is notified to

cease their use and display.

4. Financial Information. Studio agrees to retain the “Bank Copy” of all paper sales slips, electronic

sales slips and credit slips for as long as requested by Merle Norman or the Processor. If Studio is

requested to provide a Processor with the original or a copy of a sales draft and cannot, the Processor

may charge the item back to Merle Norman and Merle Norman will charge it back to Studio.

5. Equipment and Supplies.

5.1 Merle Norman will provide the terminal and credit card imprinters (collectively,

“Terminal”) at no cost to Studio. Merle Norman or the Processor will provide Studio

with instructions for the installation and use of the Terminal and Studio will use and

operate the terminal only as directed.

5.2 All sales drafts, credit drafts, decals and other supplies shall be supplied at no cost to

Studio.

5.3 The Terminal shall only be used by Studio to process transactions through a Processor to

Merle Norman. Studio is prohibited from using the Terminal to process transactions

directly to or from VISA, MASTERCARD, AMERICAN EXPRESS, DISCOVER,

DINERS, CARTE BLANCHE, JCB, or some other third party processor.

5.4 Studio may, at its option, use the Terminal in connection with a check guarantee system.

Studio must arrange for the check guarantee system to be installed and pay any related

fees.

5.5 Studio will promptly notify Merle Norman or the Processor of any equipment

malfunction, failure or other incident resulting in the loss of use of the Terminal or need

for repair or maintenance. Merle Norman or the Processor will arrange for repair or

replacement of the Terminal. Merle Norman or the Processor may advance the charges,

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if any, for replacement or repair of the Terminal. Studio’s account will be charged for

any amounts advanced on its behalf, including shipping costs.

5.6 Studio agrees to protect the Terminal from loss, theft, damage or any legal encumbrance.

If the Terminal is lost, destroyed or stolen, or is rendered inoperative as a result of any

negligence or willful conduct of Studio, its agents or employees, Studio will be liable for

the replacement cost of the Terminal. The replacement cost for the Terminal will not

exceed Five Hundred and No/100 Dollars ($500.00), which will be charged to Studio’s

account.

6. Return of Equipment. In the event of the closure of the Studio, or in the event this Agreement is

terminated for any reason, Studio will immediately return the Terminal to Merle Norman to facilitate

the transfer of the unit to another studio, unless Merle Norman gives its advance written consent to

Studio’s retention thereof. If Studio fails to return the Terminal to Merle Norman within ten (10)

days, after the closure or termination, Studio will be liable for the replacement cost of the Terminal.

7. Transferability. Studio may not assign its rights under this Agreement or transfer ownership of the

Terminal without the consent of Merle Norman.

8. Term and Termination. This Agreement shall remain in full force and effect until properly

terminated by either party as allowed in this section 8.

8.1 Studio may terminate this agreement at any time for any reason, provided that Studio has

repaid in full any financing provided by Merle Norman, so long as Studio properly

terminates any agreement with a Processor at the same time.

8.2 Merle Norman may terminate its obligations under this Agreement if: (a) Studio fails to

perform its obligations under this Agreement; or (b) Studio fails to follow the rules and

regulations of the Processor or any operating rule or regulation of an applicable credit

card association; or (c) Studio makes, or Merle Norman discovers that the Studio has

made, any false statement or misrepresentation (including failing to report matters that

are material to Merle Norman); (d) Studio fails in any respect to perform its obligations

under its Business Agreement with Merle Norman; (e) Studio ceases, for any reason, to

be a Merle Norman Cosmetic Studio.

8.3 Even if this Agreement is terminated, Studio’s obligations under this Agreement shall

remain in force in connection with any charges processed before such termination,

including but not limited to chargebacks, items presented for collection, unpaid but

accrued fees, processing fees and service fees.

9. No Liability of Merle Norman. Studio acknowledges that Merle Norman is offering Studio the

ability to use the Processor’s services as an accommodation, and that Merle Norman has no

responsibility for the services to be so provided by the Processor used by Studio.

10. Amendments. Studio acknowledges that it has been informed that Processors may change their

rules and regulations from time to time, and may also make other changes to this Agreement as

required by a credit card association. Merle Norman or the Processor will promptly notify Studio of

any material change or material amendments required by a credit card association and such

amendment or change shall become effective no earlier than the date specified by the applicable

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credit card association. Such amendment shall be binding upon Studio on the effective date of such

amendment and Studio hereby agrees to abide by such amendments.

11. Indemnity. Studio agrees to satisfy any claim or complaint arising in connection with any purchase

directly with the cardholder. Under no circumstances shall Merle Norman be liable to Studio or to

any third person for losses, claims, reimbursements, chargebacks or damages arising out of any

transaction between a cardholder, a Processor or any third party, whether or not Merle Norman is an

intermediary or otherwise involved in the transaction. Studio agrees to indemnify and hold Merle

Norman harmless from and against any and all liabilities, losses, claims, damages, disputes, offsets,

claims or counterclaims made by a cardholder or other party with regard to charges processed by

Studio through a Processor or any other service provided, except for claims arising out of the

negligence or willful misconduct of Merle Norman.

12. Third Party Beneficiary. Studio agrees that a Processor may have rights, as a third party

beneficiary, and may be permitted to enforce any of the obligations of this Agreement.

13. Governing Law. The form, execution, validity and construction of this Agreement shall be

determined in accordance with the laws of the State of California.

14. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto and

supersedes all prior discussions, negotiations and agreements, whether oral or written.

“MERLE NORMAN”

MERLE NORMAN COSMETICS, INC.

By:

Its: Chief Financial Officer

“STUDIO”

(If Incorporated or Partnership)

By:

Its:

“STUDIO”

(If not incorporated)

MNC - FDD –04/12

EXHIBIT E.5.

PROMISSORY NOTE – MN POS &

HARDWARE

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Promissory Note – MN POS & Hardware 10/05

PROMISSORY NOTE

Amount: $ ___________ , 2___

FOR VALUE RECEIVED, the undersigned ______________ and ____________ (collectively “Maker”), with a mailing

address of __________________, hereby promise to pay to the order of Merle Norman Cosmetics, Inc. (“Lender”) at 9130

Bellanca Avenue, Los Angeles, California 90045, $ (the “Principal Amount”) plus interest on the

outstanding Principal Amount at the applicable Interest Rate (as defined below) compounded monthly until paid, and all

other applicable fees, costs and charges, if any, not yet paid.

1. Interest. Interest on the outstanding Principal Amount of this Note will accrue beginning on ________________ at a

rate equal to 10% per annum (the “Interest Rate”). The Interest Rate shall remain constant throughout the term of this Note.

Interest shall be calculated on the basis of a year of 365 days and charged for the actual number of days elapsed. In the

event of a Default (as defined below), this Note shall bear interest at a rate per annum equal to the lesser of 18% or the

highest rate permitted by applicable law. Following a permitted cure or waiver of a Default, this Note shall again bear

interest at the Interest Rate.

2. Payment.

(a) Payment Schedule. Commencing on the ____ day of ___________, 2___ and on the first day of each month

thereafter for ______ consecutive months, Maker shall pay monthly installments of principal and interest in the amount set

forth in the Amortization Schedule attached hereto as Schedule 1 and incorporated herein by reference.

(b) Prepayment/Late Fees. This Note may be prepaid at the option of Maker, in whole or in part, without

penalty. Any such prepayment shall be applied first to interest, fees and other charges and then to the Principal Amount.

Maker agrees not to send Lender payments marked “paid in full,” “without recourse,” or similar language. If Maker sends

such a payment, Lender may accept it without losing any of Lender’s rights under this Note, and Maker will remain

obligated to pay any further amount owed to Lender. If Maker is late in paying in full any scheduled installment payment,

final or balloon payment or other amounts owed to Lender under this Note, on or before its applicable due date

(notwithstanding any grace or notice period), Maker shall pay Lender a late fee equal to 5% of the amount of such

installment or other payment.

3. Default.

(a) Events of Default. Any of the following events shall constitute an event of default (“Default”):

(i) Maker fails to make any payment of principal, interest, late fees or other amounts owing under this

Note when due, which is not fully corrected within 5 days after a notice of Default is received by Maker from Lender;

(ii) The breach of any representation or warranty by or obligation of Maker contained herein, which is

not fully corrected within 30 days after a notice of Default is received by Maker from Lender;

(iii) The occurrence of a default by Maker under any other agreement between Maker and Lender

(“Related Agreement”), including without limitation the Studio Agreement between Maker and Lender, which default has

not been cured within the applicable cure period, if any; or

(iv) The death, dissolution, termination or cessation of Maker’s existence as a going business, or the

appointment of a trustee or receiver for Maker or for all or a substantial portion of the assets of Maker, or Maker makes a

general assignment for the benefit of Maker’s creditors, or Maker files for bankruptcy, or an involuntary bankruptcy

petition is filed against Maker, or any change occurs in the ownership of Maker without Lender’s prior written consent.

(b) Remedies. Upon the occurrence of any Default, Lender may, at its option and in addition to any right, power,

or remedy permitted by law or equity, declare the entire unpaid Principal Amount of this Note due and payable in its

entirety together with accrued interest thereon. No waiver by Lender of any Default(s) shall operate as a waiver of any

other Default or the same Default on a future occasion. If this Note is not paid in accordance with its provisions, Maker

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hereby agrees to pay, in addition to the unpaid balance of the Note, all expenses, including but not limited to legal

expenses, court costs, reasonable attorneys’ fees, and any other costs, incurred by Lender in endeavoring to collect

indebtedness owed pursuant to this Note, or any part thereof, and in enforcing its rights under this Note or any Related

Agreement. Maker acknowledges that a Default under the terms of this Note shall constitute a default under each of the

Related Agreements.

4. Notices. Any notice required to be given under this Note shall be given in writing, and shall be effective when

received (or first refused) if hand delivered, sent via a nationally recognized overnight courier or mailed first class,

certified, or registered mail, postage prepaid, and directed to the addresses shown near the beginning of this Note. Any

party may change its notice address under this Note by giving formal written notice to the other parties, specifying that the

purpose of the notice is to change the party’s address. If there is more than one Maker, any notice given by Lender to any

Maker is deemed to be notice given to all Makers.

5. Miscellaneous. If Maker has signed a Security Agreement with Lender, this Note shall be subject to the provisions of

that Security Agreement. This Note is personal to Maker and is not assignable by Maker. This Note is assignable by

Lender. The terms of this Note shall be binding upon Maker, and upon Maker’s heirs, personal representatives, successors

and assigns, and shall inure to the benefit of Lender and its successors and assigns. If signed by more than one person or

entity, the obligations hereunder shall be joint and several as to each signatory. Maker acknowledges that its obligations

under this Note are unconditional and are separate from and independent of any other representations, warranties,

commitments, agreements or understandings, whether oral or written, express or implied, between Maker and Lender, and

that this Note contains the entire agreement of Maker and Lender with respect to the subject matter hereof. Maker hereby

waives presentment and demand for payment, notice of non-payment, notice of dishonor, protest of dishonor, and notice of

protest.

PRIOR TO SIGNING THIS NOTE, EACH MAKER ACKNOWLEDGES THAT IT HAS READ AND

UNDERSTANDS ALL OF THE PROVISIONS OF THIS NOTE AND AGREES TO THE TERMS OF THIS

NOTE.

IN WITNESS WHEREOF, the undersigned Maker has affixed its signature, under seal, as of the date first

written above.

MAKER: MAKER:

(seal) (seal)

Print Name: Print Name:

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GUARANTEE

The undersigned Guarantors are owners of a corporation or a limited liability company that signed the foregoing

Promissory Note in favor of Merle Norman Cosmetics, Inc. as “Maker.” Merle Norman will be referred to in this

Guarantee as "MNC" and each of the Guarantors will be referred to as "you".

You personally and unconditionally: (1) guarantee to MNC that Maker shall punctually pay and perform each

obligation in the Promissory Note; and (2) agree personally to be liable for any Default of the Promissory Note (as defined

in the Promissory Note).

You consent and agree that: (A) you will be responsible for all obligations of Maker as if you were the only

guarantor; (B) you will pay MNC any amount required under the Promissory Note immediately upon MNC's request if

Maker fails or refuses to do so punctually; (C) MNC need not enforce or attempt to enforce any remedies against Maker or

any other person before MNC may enforce this Guarantee against you; and (D) your liability will not be lessened, forgiven

or otherwise affected by MNC's grant of any extension of time, credit or other indulgence to Maker or to any other person,

such as MNC's acceptance of partial payments or performance, or the compromise or release of any claims, none of which

shall in any way modify or amend this Guarantee. Your obligations under this Guarantee are continuing and irrevocable for

so long as Maker owes MNC any monies under the Promissory Note.

The undersigned understand the terms of this Guarantee and agree to honor its provisions.

GUARANTOR(S):

Date:______________________________ _________________________________

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MNC - FDD –04/12

EXHIBIT E.6.

PROMISSORY NOTE – FIXTURES

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Promissory Note - Fixtures 03/03

PROMISSORY NOTE AND LOAN AGREEMENT

Up to a maximum of: $ ___________ , 2___

FOR VALUE RECEIVED, the undersigned ______________ and ____________ (collectively “Maker”), with a mailing

address of __________________, hereby promise to pay to the order of Merle Norman Cosmetics, Inc. (“Lender”) at 9130

Bellanca Avenue, Los Angeles, California 90045, the Principal Amount (as defined below) plus interest on the outstanding

Principal Amount at the applicable Interest Rate (as defined below) compounded monthly until paid, and all other

applicable fees, costs and charges, if any, not yet paid.

1. Advances; Principal Amount. The purpose of this loan is to assist Maker in its purchase of furnishings, fixtures and

equipment sold through vendors approved by Lender for use in Maker’s licensed Merle Norman Studio. From time to time

during the term of this Note, and in accordance with the provisions and procedures herein, Maker may request one or more

loan advances from Lender up to a maximum outstanding amount as set forth above (each an “Advance” and collectively

the “Advances”). In order to initiate an Advance, Maker shall first obtain written approval of its design plans for the

planned improvements to its Merle Norman Studio from Lender’s Studio Design Department. After obtaining such

approval, Maker shall send Lender a Cost Estimate Sheet signed by Maker containing the identity of and contact

information for each vendor that supplies labor or materials to Maker for the approved work. Upon the identified vendors’

successful completion of the services or delivery of the materials, as specified in the Cost Estimate Sheet, Maker shall

certify that completion and forward the invoice to Lender’s Studio Design Department which shall then pay the identified

vendors the amounts indicated in each invoice, up to the maximum amount set forth above. (Maker’s certification shall be

conclusive evidence of the borrowing.) The aggregate amount of unpaid Advances shall constitute the “Principal Amount.”

Once the maximum amount set forth above is met, Maker shall be responsible for paying applicable vendors directly for all

additional expenses, goods or services.

2. Interest. Interest on the outstanding Principal Amount of this Note will accrue beginning on the date of the first

Advance at a rate equal to __________ % per annum (the “Interest Rate”). The Interest Rate shall remain constant

throughout the term of this Note. Interest shall be calculated on the basis of a year of 365 days and charged for the actual

number of days elapsed. In the event of a Default (as defined below), this Note shall bear interest at a rate per annum equal

to the lesser of 18% or the highest rate permitted by applicable law. Following a permitted cure or waiver of a Default, this

Note shall again bear interest at the Interest Rate.

3. Payment.

(a) Payment Schedule. Commencing on the ____ day of ___________, 2___ and on the first day of each month

thereafter for ______ consecutive months, Maker shall pay monthly installments of principal and interest in the amount set

forth in the Amortization Schedule attached hereto as Schedule 1 and incorporated herein by reference. Following each

borrowing by Maker, the aggregate unpaid Principal Amount shall be reamortized over the remaining period and Lender

shall advise Maker of the new amount of its monthly payment.

(b) Prepayment/Late Fees. This Note may be prepaid at the option of Maker, in whole or in part, without

penalty. Any such prepayment shall be applied first to interest, fees and other charges and then to the Principal Amount.

Maker agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language. If Maker sends

such a payment, Lender may accept it without losing any of Lender’s rights under this Note, and Maker will remain

obligated to pay any further amount owed to Lender. If Maker is late in paying in full any scheduled installment payment,

final or balloon payment or other amounts owed to Lender under this Note, on or before its applicable due date

(notwithstanding any grace or notice period), Maker shall pay Lender a late fee equal to 5% percent of the amount of such

installment or other payment.

4. Default.

(a) Events of Default. Any of the following events shall constitute an event of default (“Default”):

(i) Maker fails to make any payment of principal, interest, late fees or other amounts owing under this

Note when due, which is not fully corrected within 5 days after a notice of Default is received by Maker from Lender;