Franchise Manual

Overview

This section will walk you through an understanding acceptable location selection criteria for a BHRC Center.

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Site selection and site development are critical to the success of your Beverly Hills Rejuvenation Center (BHRC). BHRC Franchising, LLC supports your site search by providing you with criteria for evaluating prospective sites and visiting your first choice location.

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Following are key benchmarks of the site selection process:

• Selecting a commercial real estate broker
• Checking for medical practice regulations restrictions
• Understanding the demographics of your area
• Understanding key location criteria
• Learning about the competition in your area
• Obtaining BHRC, site selection input

As with any business, visibility, accurate demographics and easy access to customers are key factors in choosing an appropriate location. Obtaining market share is critical for revenue generation and growth. You should select 2-3 potential locations for review through our Site Assessment Review Form prior to a BHRC representative arriving to review each location. You must submit all....

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Opening Timeframes

The franchisee must identify and sign a lease (or purchase) a site within 180 days of signing the unit franchise agreement and the location must be open for business no later than 210 days from the date the franchise agreement was signed or if part of a development schedule, on or before the date prescribed in the development agreement.

Site Selection Process

You already know that location is key to your success. This section addresses specific details about what to look for in a location as well as the site and lease approval processes. As a BHRC Franchisee, you are responsible for learning about and abiding by all federal, state, and local laws and regulations that apply to the operation of your business.

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Process Flow Chart

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Brokers

A commercial real estate broker can be of tremendous assistance in finding a location for your center. The quality of your broker will directly translate into the quality of sites that you are offered as consideration for potential leasing. You will be connected with our

national commercial real estate experts at Morrow Hill. Morrow Hill will provide guidance through the site selection and lease negotiation process. In general, when considering a real estate broker, you want to look for a broker that has the following qualifications:

• A Commercial Real Estate broker license.
• An established network and track record in your specific market.
• Understands the constantly changing availability of commercial space.
• Has a strong understanding of the inventory of current and upcoming sites in your market.
• Can provide you with a book of multiple site opportunities in your given market/trade area, and work with you closely as you research and ultimately engage in negotiating a lease.
• Their fees are paid by the developer/shopping center, not the franchisee.
• Can provide to you at a minimum:
• Demographics
• Rental comparisons
• Competitive research

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Site Criteria

There is a wealth of information that your broker can provide to you in assessing the viability of the different sites you will consider for

development. Demographic information detailing population, average income, number of corporations, etc. can be easily accessed to provide you with critical information as to the population density around your center. Morrow Hill will provide this information.

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In addition to demographic information, look at neighborhood traffic generators, such as other retailers that draw people – especially women 35 years and older - to the area. Demographic information detailing population, average income, types of surrounding businesses, accessibility, etc., provide you with critical information as to the population.

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Locations may be single or multi-level depending on space availability and configuration and may be in Class A retail space.

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Note: You need to drive and/or walk around the area in which you are planning to open your location. Do not just rely on your broker; you need to understand the walk-by and drive-by traffic and the nature of the neighboring businesses.

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Location Criteria

Zoning and Permitting - Determine location regulations, ordinances, licenses and approvals and permits, including conditional use permits, required to build on the site

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Location Requirements

Download the form at the end of this table and give it to your broker.

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Site Evaluation

Once you feel confident about specific locations, it is required that a representative from the BHRC Development Team visit your market and review the locations and areas with you. BHRC will provide franchisees with one site acceptance visit for the franchisee’s first location only.

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Should you desire an additional site visit or if we require you to find an additional site, you must pay for all expenses of our site review visit and a fee of $2500 may be imposed (Item 11 of FDD). For this reason, we recommend that you identify 2-3 locations for our review on our first visit.

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You or your broker will communicate with the BHRC Development Team to arrange an area visit that is mutually convenient for everyone’s schedule. You and our broker must have the BHRC Site Assessment Review Form submitted for each location prior to a visit.

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Once you have found a location(s) that meets our minimum criteria to initiate the review and acceptance process, please send the following Site Packet to us for each location:

• Photos of the exterior and interior space and of adjacent storefronts.
• A completed Site Selection Assessment Form.
• If the landlord does not provide a depiction of the space, please provide a rough drawing of the space and proposed layout. Please note approximate square footage of each area on the drawing.

BHRC Franchising, LLC site evaluation input is limited to verification that the site meets its criteria. Our input is not a guarantee of performance or that the location will be successful.

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Remember do not sign any legal documents with a landlord until you are able to proceed with the accepted location and your lawyer has reviewed the lease.

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Site Assessment Form

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Location Competition Research

When selecting a location for your BHRC, investigate locations of other Medical Spas. Learn where there are other locations that offer any and all of our services:

• Hormone Replacement Therapy
• Hair Restoration
• Ultherapy (non-surgical skin tightening)
• Laser Treatments
• Injectables
• Weight Loss
• Body Contouring
• Facials
• Medical Grade Peels
• Medical grade skin care products
• Supplements and nutraceutical products
• CVAC Hyperbaric Chamber
• Novothor PMB Light Pod
• Hair Restoration
• Stem Cell

Your proximity to competitive services may or may not be an issue since under some circumstances, similar businesses in one area signal to the consumer that it is the “go to” neighborhood or building for Medical Spa services. Call us to discuss this if you find a location of interest which has competing services nearby.

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Note: Save your competitive research from your site selection analysis: it will be the basis for important pricing research once your site is selected.

Letter Of Intent (LOI)

When a site opportunity is determined, you and your broker will want to demonstrate your interest by submitting to the developer/landlord a LOI. A LOI notifies the owner of the shopping center/building that you would like to engage in negotiations for a final lease and tenancy for a particular site. Your broker can advise you on the best strategy in this regard for each specific site.

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Other language added: A LOI is non-binding on both parties; therefore, you are not obligated to proceed to a lease merely by the submission of a LOI. Conversely, the developer/landlord is not obligated to lease you the space merely by your submission of a LOI. This is an important distinction. You may have multiple site opportunities that you are interested in pursuing, with the intent of only securing one location. So, you and your broker may submit more than one LOI in a more highly competitive market for real estate space, in the hopes of gaining acceptance of one of the LOI’s. Conversely, landlords and developers consider many candidates/prospects for tenancy of their space. They are attempting to lease the space you are considering to the strongest tenant they can acquire. Many factors go into their thought process: national/growing brand, financial strength of guarantors on the lease, does the use of the space ‘mix’ well with other tenants in their center, and what is the impact on parking.

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The LOI details the specifics that you are offering for the developer/ landlord to consider for your tenancy of their space. Often, the developer/landlord will have an “offer sheet” that spells out some of the basic details of the space, such as rent per square foot, tenant allowance(s) (TI), triple net (common area maintenance or CAM, taxes, and insurance) per square foot, etc. Once you express interest in a specific location, the developer/landlord may want to provide you with a form LOI for you to begin your negotiations. This LOI template encompasses all of the operations required needs for your center: electrical, plumbing, HVAC, water line size, etc. Other items included on the LOI, which are typically negotiated in addition to the rent per square foot and the triple net charges, are TI and “build out rent abatement / free rent”.

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Work Letter

During the LOI process you will also be negotiating the condition of the space upon delivery from the landlord. If the site you are considering meets many of the criteria but not all, consider what the cost would be to make adjustments to the space and whether, given those costs, the space is still affordable. We will provide the standard amount of work we would expect from a reasonably capitalized landlord in a traditional deal structure. This work letter is not set in stone – it is a recommended starting place for negotiations. Every space is different and we recommend you consult with your architect and general contractor to get a sense of the most important items to negotiate for each given space.

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For example, the sprinkler pipes or the HVAC units may exist for a space. Pending confirmation with your architect, these items could potentially be reused (pending age & condition) for considerable savings. On the contrary, taking on a space with existing older HVAC units could cost you more in the long run than simply starting with new ones at the beginning of your term. It is important to have qualified consultants review these items before entering into a binding agreement.

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Generally, your landlord provides the space with the following:

• Demolition complete (“vanilla box”)
• Interior walls drywalled
• Working HVAC
• Plumbing and electrical service to the space

Rent

Base Rent

Base rent is typically expressed as a dollar amount per square foot (ex. $150/sq. ft. depending on geographic areas) on an annual basis and is multiplied by the gross leasable area of your space. You will want to gain an understanding from your broker of what comparable rents are in the trade area/market that you are considering, to ensure you are paying a fair and reasonable rate for your space.

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There are other factors that will affect how much you offer per square foot to the landlord, such as whether there are any TI. This may determine how much Base rent you may want to offer the developer/landlord.

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Example: If you have to spend $50,000 to upgrade the space for HVAC, or electrical, you will want to recoup that cost that is permanently improving the landlord’s space. Therefore, you may want to offer a lower price per square foot to offset this investment in the landlord’s property.

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Negotiating Rent & Triple Net

Your broker will play a crucial role in helping you navigate these negotiations. Below are some basic things for you to consider as you discuss the broader negotiations of your potential tenancy with your broker.

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Triple Net Rent (often expressed as NNN) represents the Common Area Maintenance (CAM) charges, taxes & insurance. This is your pro-rata share of these expenses the landlord is paying to maintain the shopping center, office building, aesthetics including landscaping, lighting, snow removal, etc., your pro-rata portion of property taxes on the building, and your pro-rata portion of the insurance on the building. These are smaller amounts that are multiplied by your square footage to determine the monthly amount you will pay. You are typically provided an annual statement to see how these monies are spent/allocated. Most leases may have a provision for an “assessment” if these charges exceed what you are paying under your lease, and also provide a refund to you (or carry forward) should the shopping center have a surplus. If it can be negotiated, you want to put a “Cap” on the NNN.

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Increases In Rent

Most leases provide for increases over the term of the lease. Typically, these are 2% - 3% per year, and are either annual, or at certain milestones in the lease (example 10% increase in year 5 & 10). They may be based on an index (i.e. consumer price index / cost of living index) or other variable indexes. You want to limit these increases.

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Percentage Rent

In some instances, developers/landlords may have a provision for “percentage rent.” This is more common in higher demand shopping centers. Percentage rent is an additional rent charged should you exceed defined sales amounts for your space. It is typically a percent above your base rent, calculated on your space once you exceed a certain sales threshold. We advise our franchisees to avoid leases with percentage rent clauses. If you need assistance, should this be a requirement for your tenancy, please contact us to discuss in more detail.

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Free Rent

As part of your lease negotiation, you will want to ensure that you have a period where you are not paying rent, while you are building your center and in many cases after you open. This is typically referred to as a “stocking and fixturing” abatement. It takes several months from the signing of your lease to get your Center developed and opened depending on the specific site and location parameters. Therefore, you will want a sufficient timeframe for that period of rent abatement after you have signed your lease. Every situation is different. Some developers/ landlords may offer greater rent abatement and less TI or vice versa. You want to avoid having to pay rent when you are not open for business.

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You may also be able to negotiate a period of “free rent” after you are open for business. This will help your overall initial cash flow, as you ramp up your business. There may be circumstances where you can negotiate rent abatement while you are building your center, and also, a period of free rent after you have opened. Tenant Improvement allowances, rent abatement, and free rent are all important aspects of your lease negotiation. You typically will not receive all three, and the amounts and time that you do receive is often dependent on the strength of your broker and their negotiating ability.

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Tenant Improvement Allowance (TI)

Tenant Improvement Allowance is money that the developer/landlord provides to you to assist in the cost for developing your space. This will lower the cash/capital outlay typically required for your build-out. It is more common in a new shopping center space and shopping centers that are owned/represented by larger real estate developers or owners. These developers/landlords understand that there are costs you will incur in the build-out of your space, which will materially improve their property and will not be able to be recouped, should you vacate.

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This allowance varies greatly from region to region and project to project. It is typically expressed as a dollar per square foot amount. Tenant improvement allowance is a strong negotiating tool and as you gain greater TI allowances, you typically pay a higher base rent (the developer/landlord is funding your development and you are paying them back through rent - they are essentially acting as a lender). As mentioned earlier, if there is limited or no TI funds available, and you have to spend a substantial amount of money to convert the space to a BHRC, you should have a lower base rent, or lower your offer on the base amount to help you recapture your initial expenditures.

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Tenant Financials

It is common for landlords to ask tenants for their financials. This may include tax returns and balance sheets. The landlord uses these to determine your creditworthiness, and therefore determine the amount of security deposit required and the scope of any guaranties you may be required to execute.

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Lease

It is essential to hire an attorney to review your lease. Never simply sign the first lease document that a landlord sends to you. There is considerable legalese in any lease document, and only a qualified attorney can explain the risks associated with a lease document.

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You will want to negotiate a lease that provides you with enough term to match your franchise agreement and ideally an option period that will allow you to maintain your tenancy longer term. Most leases are initially structured as a 5 or 10-year terms with some number of options. Your broker will assist you in capturing the appropriate term for your lease.

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Lease Rider

Your franchise agreement requires a lease rider or addendum, in a form specified by BHRC, to be executed for each lease. The current form of Addendum to Lease follows.

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Lease Acceptance

At least 15 days before signing it, you must submit your proposed lease to BHRC FRANCHISING LLC. The lease must include the “Addendum to Lease” located in the Appendix of this manual.

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You must also provide the executed copy of the lease to us for our records.

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Purchase Approval

If you purchase the location, you must submit the purchase contract to BHRC Franchising LLC at least 15 days before you sign it and provide a fully signed copy within 15 days following its execution.

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Lease Addendum

THIS ADDENDUM TO LEASE (“Addendum”) is made this _____ day of __________, 20 by and among _______________________(“Landlord”), _______________________(“Tenant”) and BHRC Franchising LLC (“Company”), with reference to the following facts:

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         A.  Company and Tenant are parties to that certain Franchise Agreement dated _______________________, 20_____ (the “Franchise Agreement”), pursuant to which Company has granted Tenant a franchise and license to operate a Beverly Hills Rejuvenation Center (the “Center”) on the terms and conditions stated in the Franchise Agreement.

         B. Landlord and Tenant desire to enter into a lease (the “Lease”), a true and correct copy of which is attached hereto as Exhibit “A,” pursuant to which Tenant will occupy the premises located at the “Premises”) for the Center licensed under the Franchise Agreement.

         C. Tenant is required to execute and to cause Landlord to execute this Addendum.

NOW, THEREFORE, the parties agree as follows:

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1. Notwithstanding anything to the contrary contained in the Lease:

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         (a) The Premises shall only be used for the operation of the Center, and shall be constructed and improved pursuant to the Franchise Agreement including exterior signs displaying Company’s service marks, in accordance with Company’s standards and specifications;

         (b) Company or its designee, which may include, without limitation, an affiliate, franchisee or licensee of Company (a “Designee”) shall have the option, without cost or expense to Company or such Designee and without Landlord’s consent, to assume the Lease, or execute a substitute lease on the same terms, at any time, including, without limitation, upon Company’s (or its Designee’s) acquisition of Tenant (whether by asset purchase, equity purchase, merger, or otherwise), or upon the termination or expiration (including nonrenewal) of the Franchise Agreement for any reason;

         (c) Company or its Designee shall have the right, but not the obligation, to succeed to Tenant’s rights under the Lease if Tenant fails to exercise any option to renew, and/or extend the term of the Lease;

         (d) Upon Tenant’s actual or alleged default under the Lease, the Landlord shall notify Company in writing concurrently with notice to Tenant (but in no event less than 15 days prior to the date of termination or non-renewal of the Lease) and, in the case of a default, Company or its Designee shall have the right, but not the obligation, without liability to Tenant, to cure the default and to succeed to Tenant’s rights under said Lease or request that the Landlord terminate the Lease and enter into a substitute Lease with Company or its Designee on the same terms by giving written notice of such election to Tenant and such Landlord;

         (e) Tenant shall have the unrestricted right, without Landlord consent, payment to Landlord or modification of any term of the Lease, during the entire term of the Lease (including any renewal terms) to assign or sublet the Premises to Company or its Designee;
         (f) Except as permitted above, the Lease may not be assigned, subleased, modified or amended without Company’s prior written consent and that Company shall be provided with copies of all such assignments, subleases, modifications and amendments;

         (g) Landlord must disclose to Company, upon Company’s request, all sales and other information furnished to the Landlord by Tenant;

        (h) Company or its authorized Designee shall have the right to enter the Premises at any time to inspect Tenant’s operations;

         (i) Landlord shall notify Company in writing of non-renewal or expiration of the Lease at least 90 days prior to the date of non-renewal or expiration of the Lease; and

         (j) Upon expiration or termination of the Lease for any reason, Tenant shall, upon Company’s demand, remove all of Company’s proprietary trademarks from the Premises and modify the decor of the Premises so that it no longer resembles, in whole or in part, a Center, and otherwise comply with the Franchise Agreement. If Tenant shall fail do so, Company or its Designee will be given written notice and the right to enter the Premises to make such alterations, in which event Tenant shall reimburse Company or its Designee for all direct and indirect costs and expense it may incur in connection therewith, including attorneys’ fees.

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2. If Company or its Designee elects to succeed to Tenant’s rights under the Lease, Tenant shall assign to Company or such Designee all of its right, title and interest in and to the Lease. Upon such assignment, Landlord shall attorn to Company or such Designee as the tenant under the Lease. Tenant shall execute and deliver to Company or such Designee such assignment and take such further action as Company or such Designee, may deem necessary or advisable to affect such assignment. Upon demand, Company or such Designee shall be, and hereby is, appointed Tenant’s attorney in fact to execute such assignment and/or take further action in Tenant’s name and on its behalf. This power of attorney granted by Tenant to Company and such Designee is a special power of attorney coupled with an interest and is irrevocable and shall survive the death or disability of Tenant. Any sum expended by Company or such Designee to cure Tenant’s default of the Lease shall be deemed additional sums due Company and Tenant shall pay such amount to Company upon demand.

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3. Nothing in the Lease or this Addendum shall either create or purport to create any obligations on behalf of Company to Landlord or Tenant. Nothing in the Lease or this Addendum shall grant or purport to grant to Landlord any right to pursue any claim against Company arising out of Tenant’s breach or default under the Lease.
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4. Without limiting any other rights or obligations of Company set forth in this Addendum, Landlord agrees that it shall not accept Tenant’s voluntary surrender or abandonment of the Lease without providing Company with at least 15 days’ prior written notice.

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5. Any notices required in this Addendum must be in writing and will be deemed given when actually delivered by personal delivery or 4 days after being sent by certified or registered mail, return receipt requested, if addressed as follows:

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         Company: BHRC FRANCHISING LLC

         Phone: (___)__________
         Fax: (___)__________
         Attn: Manager

         Landlord: __________

         Tenant: __________

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Any party may change its address for receiving notices by appropriate written notice to the others.

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6. Tenant hereby authorizes Company and Landlord to communicate with one another for any purpose, including de- identification of the Premises following the termination or expiration (including nonrenewal) of the Lease, Tenant’s operations, Tenant’s defaults under the Lease, and negotiating a lease for the Premises following the termination or expiration of the Lease.

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7. Each party agrees to execute and deliver such additional documents and instruments and to perform such additional acts as may be necessary or appropriate to effectuate, carry out and perform the terms, provisions and conditions of this Addendum.

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8. This Addendum shall be binding upon, and shall inure to the benefit of, the successors, assigns, heirs, and personal representatives of the parties hereto.

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9. In the event of any conflict or inconsistency between the Lease and this Addendum, this Addendum shall control.

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[Signature page follows]

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IN WITNESS WHEREOF, the parties have executed this Addendum as of the date first set forth above.

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“Landlord” ______________________

By: ______________________________

Name: __________________________

Its: ______________________________

                   “Tenant”

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By: ______________________________

Name: __________________________

Its: ______________________________

                   “Company”

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BHRC FRANCHISING LLC

By: ______________________________

Name: __________________________

Its: ______________________________

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As lease negotiations are progressing, and you have received acceptance of your location, you will want to engage an architect to begin working on your plans and specifications (construction documents) for your center. It is recommended that you engage the

architect to begin work on these plans, as you get close to lease signing for your space.

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As a critical step to moving towards opening your center, this phase is to ensure that the design and development of your center is in

accordance with the BHRC brand and design standards. Your architect will develop drawings of your center to be used for building permit and construction.

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The prototype center drawings, computer aided design (CAD Files) will aid the architect by providing all design and brand standards for building a BHRC Center that includes all finish, lighting and equipment schedules, as well as addendum for exterior sign standards and interior signage and graphics standards.

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Design & Planning Flow Chart

Federal & Local Regulations

Depending on your local regulations and ordinances, certain permits, licenses, and approvals will be required related to building out your site. Your contractor should know what’s required and obtain these or provide you direction.

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As a BHRC Franchisee, you are responsible for learning about and abiding by all federal, state, and local laws and regulations that apply to the operation of your business.

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You must furnish the following to us before beginning construction:

• Copies of all permits, licenses, contractors’ liability insurance certificates, or other items required for the construction, remodeling, equipping and operation of your location.
• Copies of all construction or remodeling contracts and documents, and waivers.
• These permits and licenses may include but are not limited to:
• Zoning
• Construction
• Americans with Disabilities Act (ADA)

Your architect must certify to us that the plans and specifications for your BHRC location comply with the ADA, the architectural guidelines under the ADA, and all applicable state and local laws, rules and regulations for accessible facilities.

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In addition to building-related regulations, you must determine and abide by medical, weight management and aesthetician-related federal, state and local regulations. These include but are not limited to:

• The Stark Law
• HIPAA Privacy Rule
• Security Standards
• Medical licenses, corporate practice of medicine, and medical entity ownership and management

There are numerous other regulations related to operating a business you must learn about and abide by including but not limited to:

• The Fair Labor Standards Act
• EEOC
• OSHA
• Gramm-Leach-Bliley Act
• The Patriot Act
• Federal Truth in Lending and other laws dealing with credit transactions and collections Digital Millennium Copyright Act
• Regulations governing MMS, SMS, emails and telemarketing

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3.2.1 Selecting An Architect

You must hire an architect to develop the building permit drawing set, as well as a landlord approval set, bid set and construction documents. Your architect must be licensed in the state where your site is located. We also require that you engage your architect in implementing and obtaining all permits for the design and construction process. Using your architect for permitting will save you time and typically gets the doors open sooner.

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Franchisees are required to get a complete set of plans, which includes engineered drawings, additional work and time will need to be allowed. Engineered drawings are drawn by a specific engineer, such as an electrical, mechanical, or structural engineer, and will normally require additional time and expenses. Some municipalities require engineered plans for permitting.

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The local building department may require a full set of engineered drawings to issue a building permit. Please consult with the local government agency responsible for issuing the permit before submitting plans.

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Architect Drawings

The architectural plans are to include a floor plan, reflective ceiling plan, interior elevation plan, and exterior storefront showing the proposed sign. The plans may require the addition of engineered drawings (i.e. electrical, mechanical, plumbing) for permitting purposes. The architectural plans must be completed and approved BHRC construction representative prior to the generation of a materials list.

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Your architect should know all local codes for construction and ones that ensure your space is within codes for naturally occurring events such as earthquakes, hurricane etc.

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Example CAD Drawings

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Creating Bid Documents

The construction bid documents will be needed for you to receive bids from contractors for the construction of your center, and also to gain a building permit from the municipalities for development of your center. A general outline of production timing for the Construction Documents is outlined.

1. 50% review set – 2 weeks
2. Landlord Review set (90% complete documents) – 4 weeks
3. Permit and bid documents (100% complete documents) – 1 week from landlord approval, incorporates landlord comments

The Area Design and Specification portion of the Facility Design Guide is an invaluable resource for anyone planning to build or renovate a commercial space. This section provides clear and concise information on how each space should be laid out, what equipment, furniture, fixtures, and finishes should be used and includes an example design for each space. With this guide, you can be confident that your space will meet all of your needs and function in the most efficient way possible. Whether you are designing a new office space or planning a renovation, the Facility Design Guide is an essential tool that will help you create a successful and comfortable work environment.

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Signage and Store Front

There are several different types of Exterior Signage that may be used on your facility. The type of signage will be dictated by the space you are placing your facility, the rules and regulations for that space if it is in a commercial complex, local, county, or state regulations, and the storefront layout. We recommend your storefront signage be provided by a single manufacturer to ensure design and color consistency.  Exterior signage must be of the design, detail, sizes, types, and message content shown on the example drawings, must conform to the requirements specified, and must be provided at the locations indicated.

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Signage Requirements

Each Beverly Hills Rejuvenation must have at least one Primary Signage Type but can have as many secondary signage types as needed.

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Signage Types & Classifications

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Interior Reception/Lobby

Coming soon…

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Consultation Room(s)

Coming soon…

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Treatment Rooms

Coming soon…

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Manager’s Office

Coming soon…

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Staff Break Room

Coming soon…

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Storage Room

Coming soon…

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Restroom(s)

Coming soon…

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Hallways

Coming soon…