HAIR CUTTERY - FDD UFOC ITEM 1 Detail

ITEMI

THE FRANCHISOR AND ANY PARENTS, PREDECESSORS AND AFFILIATES

The Franchisor

Hair Cuttery Franchise, LLC is the franchisor. For ease of reference, we will refer to Hair Cuttery Franchise, LLC as "us", "our" or "we." We are a Virginia limited liability company and were formed on March 3, 2004. Our principal place of business is at 1577 Spring Hill Road, Suite 500, Vienna, Virginia 22182. Our agents for service of process are listed in Exhibit E to this Disclosure Document.

We conduct our business under our entity name and the name "Hair Cuttery," and no others.

Other than the franchises being offered in this Disclosure Document, we do not and have not in the past offered franchises in this or any other line of business.

We began offering franchises for Hair Cuttery Salons (described below) in June 2004.

Our Parents, Predecessors and Affiliates

We do not have any parents or predecessors.

Our affiliate is Ratner Companies, L.C. ("Ratner Companies"), a Virginia limited liability company, formerly Creative Hairdressers Management Services, L.C. The members of Ratner Companies are Creative Hairdressers, Inc., Dimples, Inc., CHN, Inc., Louis Creative Hairdressers, Inc., Bubbles Inc., Salon Plaza, L.L.C., HCBS, L.L.C. and Hair Cuttery Franchise, L.L.C. Ratner Companies was formed to provide management services to its member entities. Each of the members (other than us and HCBS, L.L.C.) owns one or more hair salons, under the Hair Cuttery brand, or under one of the other brands described below. Ratner Companies provides various management services to these entities and/or their salons. Ratner Companies'' principal business address is at its Resource Center at 1577 Spring Hill Road, Suite 500, Vienna, Virginia 22182: All of these member entities have their principal business address at 1577 Spring Hill Road, Suite 500 in Vienna, Virginia.

Creative Hairdressers, Inc. ("CHI") is the dominant member of Ratner Companies. It is a Virginia corporation, formed in August 1974 by Dennis Ratner. CHI is also the owner of many of the trademarks and service marks used by Hair Cuttery Salons and other hair salons in the Ratner Companies family of brands. CHI has licensed us the right to use, and license others to use, the Marks (defined below). See Item 13 below for a discussion of the Marks. CHI, its subsidiaries, and affiliates own and operate Hair Cuttery Salons.

None of our affiliates offers or has in the past offered franchises in any line of business. Unless otherwise indicated, the principal place of business of all of our affiliates is at 1577 Spring Hilt Road, Suite 500, Vienna, Virginia 22182.

Dennis Ratner began his hairdresser career working in his father''s salon in Washington, D.C. The Ratner family has been in the hair salon business since 1936. The first salon opened by Dennis Ratner was a Hair Cuttery Salon in 1974.

Since the first Hair Cuttery opened, Ratner Companies has expanded its brands to include full-service salons, day spas, and exclusive hair color specialty salons. Ratner Companies, through its member entities, affiliates and divisions, owns and operates over 800 hair salons in the United States,

under four different brands, described below. Ratner Companies is the largest privately owned hair salon business in the United States. Ratner Companies employs approximately 12,000 associates in the United States. The different hair salon concepts are designed to meet the varied needs and personalities of its clientele. Ratner Companies'' clients include families who seek value and convenience; young professionals who change their hair color to match the seasons; grandparents who aren''t ready to go gray and men and women just looking for the right haircut. The following is a list of the salon concepts operated by Ratner Companies:

�          Hair Cuttery is an 867-unit salon chain with locations on the East Coast, in the Chicago area, and other midwest markets. Hair Cuttery offers a full complement of cutting, coloring, and texturing services at value prices with no appointment necessary.

�          Bubbles is a 33-unit salon chain for fashion-conscious clients who crave the latest hairstyles and colors. Clients leave this high-energy, full-service salon chain with the hippest, trendiest looks.

�          Salon Cielo is a 14-unit full-service chain for the most discriminating clients. Clients come for the salon''s peaceful atmosphere and the staffs expertise in creating timeless, classic looks. Most Salon Cielo locations also offer spa services.

�          Salon Plaza''s 11 locations lease private salon suites to independent business owners who set their own services, prices and who operate under their own brand.

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The Hair Cuttery Concept

Hair Cuttery was founded upon the principle that everyone deserves a good haircut without having to endure the fuss and high prices associated with many salons. The first Hair Cuttery Salon, which opened in 1974 in West Springfield, Virginia, introduced a new brand of salons where clients could walk in and get a new look without the bother of having to make an appointment. Now, more than 30 years later, with more than 800 company-owned salons, Hair Cuttery is the largest division of Ratner Companies.

Every Hair Cuttery offers a full complement of cutting, coloring and texturing services as well as a wide selection of professional products that clients can take home to use on their own. Clients do not make appointments and can come in whenever it is convenient: on their lunch breaks, between errands, after work or the first thing in the morning. Hair Cuttery stylists are trained to discuss clients'' needs and give them the look they want with no frills, no fuss and no pretenses. Hair Cuttery Salons deliver quality and affordable style.

The Hair Cuttery Salon Franchise

We and our affiliates have, over a considerable time period and with considerable effort, developed (and continue to develop and modify) a system and franchise opportunity for the operation of retail hair salons offering a full complement of hair cutting, coloring, styling, and texturing services (collectively, "Salon Services"), as well as a wide selection of professional hair care and styling products from approved suppliers ("Salon Products"). Salons operate under the "Hair Cutlery" name and other trademarks ("Hair Cuttery Salons"). Hair Cutlery Salons have distinctive characteristics which include, without limitation, providing Salon Services at affordable prices with no appointment necessary; specialized products; procedures for operations; quality and uniformity of services and products offered; stylist retention programs; regional and national events; procedures for management; training and assistance; advertising and promotional programs; business formats, methods, procedures, designs, layouts, standards, and specifications.

We and our affiliates use, promote, and license certain trademarks, service marks, and other commercial symbols in operating Hair Cuttery Salons, which have gained and wilt continue to gain public acceptance and goodwill. We may create, use, and license other trademarks, service marks, and commercial symbols for Hair Cuttery Salons. Our current trademarks, service marks, and commercial symbols, and those that we may develop and use in the future, are collectively referred to as the "Marks."

We are offering franchises to persons or legal entities who meet our qualifications, and are willing to undertake the investment and effort to own and operate a Hair Cuttery Salon offering the Salon Services and Salon Products that we authorize. Franchisees will use our business formats, methods, techniques, procedures, signs, designs, layouts, standards, specifications, and Marks (the "Franchise System"). The Franchise System includes mandatory and suggested specifications, standards, operating procedures and rules ("System Standards") that we may periodically prescribe for operating a Hair Cuttery Salon. We prepare, and provide on loan to you, a confidential operations manual (the "Operations Manual") that includes the System Standards and other guidance and requirements regarding the operation and management of Hair Cuttery Salons.

Franchise Agreement

We may offer you the opportunity to enter into a franchise agreement ("Franchise Agreement") with us. (We will refer to the individuals, corporations, limited liability companies, or general or limited partnerships who will be the franchisee as "you" in this Disclosure Document.) Under the Franchise Agreement we will grant you a license to own and operate a Hair Cuttery Salon at an identified location (the "Premises"). If you have not identified the Premises, nor received our approval of the location before you sign the Franchise Agreement, the Premises will be identified as part of our site selection and approval process (described in Item 11 below and in Section 2 of the Franchise Agreement). Subject to the terms of the Franchise Agreement, we grant you a license (the "Franchise") to operate a Hair Cuttery Salon (the "SALON") at the Premises, and to use the Franchise System in its operation. You may use the Premises only for the SALON. You must perform your obligations under the Franchise Agreement faithfully, honestly, and diligently. You must use your best efforts to promote the SALON.

The Franchise Agreement will describe a territory ("Territory"). We and our affiliates will not operate or grant a franchise for the operation of another Hair Cuttery Salon at a location within the Territory during the term of the Franchise Agreement. The Territory is further described in Item 12 of this Disclosure Document and in the Franchise Agreement.

Salon "Turnkey" Development

If offered in your market, and if you choose to, you may sign a Salon Development Addendum ("Salon Development Addendum"), whereby we will manage the development and construction of your SALON. Under the Salon Development Addendum, we will charge you a fee in addition to the cost of construction, equipment, other products and services, third-party professional fees, and travel-related

expenses. For fees related to the Salon Development Addendum, please refer to Items 5 and 7. For a description of our obligations under the Salon Development Addendum, please refer to Item 11.

Area Development Aereement

We may also offer you the opportunity to enter into an area development agreement ("Development Agreement") with us. If you sign a Development Agreement, we will grant to you the right, under the terms and conditions of the Development Agreement, to develop a specified number of SALONS within the area that is specified in the Development Agreement (the "Development Area"). If you sign a Development Agreement, you will be referred to as a "Developer." Your rights and our rights concerning the Development Area are discussed in Item 12 of this Disclosure Document. Under the Development Agreement, you must establish and operate SALONS according to the development schedule in the Development Agreement (the "Development Schedule").

If you sign a Development Agreement, you must also execute a Franchise Agreement for each SALON to be developed according to the Development Schedule. You, as developer, wilt also be the franchisee for each franchised SALON. We may, at our discretion, permit you, as the developer, to have one or more Franchise Agreements executed by entities other than you if the following three conditions are satisfied: (a) you own a controlling ownership interest in the franchise entity; (b) we approve the ownership structure of, and each of the owners of more than 20% equity in, the franchise entity; and (c) you, or one or more of your owners approved by us, execute a guarantee, guaranteeing to us the timely payment and performance of the franchisee''s obligations under the Franchise Agreement.

Each SALON you develop under the Development Agreement must be located at a site approved by us in the manner described Franchise Agreement and Development Agreement and must be located within the Development Area. (For more details on site selection, please refer to Item 11.)

You are not limited to developing the number of SALONS specified in your Development Schedule. If you are in full compliance with the Development Agreement and all agreements with us and our affiliates, and you have established, opened, and are operating all required SALONS under the Development Schedule before scheduled completion of the Development Schedule, you may establish, during the remainder of the Development Schedule time period, additional SALONS in the Development Area. You must comply with our System Standards, our site approval procedures, any protected, exclusive or territorial rights granted to other parties or franchisees, and execution of our then-current Franchise Agreement(s), if and when you develop these additional SALONS. You must comply with all terms and conditions in the Franchise Agreements, our Systems Standards and the Operations Manuals to qualify for these additional SALONS. You must notify us within 30 days of opening your last SALON under the Development Schedule of your intent to open additional SALONS.

Management of a Hair Clittery Salon

Management structure is one of the crucial elements in the operation of Hair Cuttery Salons. (The management structure and the terms referenced in this paragraph are described in more detail in Item 15.) If you are an entity, you must appoint an "Operating Principal." The Operating Principal will be the person with whom we will communicate on all major policy, financial, management and operation matters, and the only person from your entity that we wilt recognize as having authority to communicate for you and your entity. You, or your Operating Principal, will manage and provide general oversight of the SALON. Each SALON will also have a Salon Leader appointed by you.. If you and/or your affiliates own or control multiple SALONS, you must also hire a "General Manager" (which may be you or your Operating Principal) when you open your fourth SALON.

Additionally, under the Development Agreement, if you are an entity, you will have to appoint a "Managing Principal" to oversee and supervise the operation of the business under the Development Agreement and the development of the SALONS. Our philosophy is to invest in people, human resources and in management as a means to offer consistent and high quality services to customers. We will encourage that with all of our developers. In recognition of your investment of time and human resources to comply with our multiple operation organizational and management requirements, we will reduce your Royalty Fee (defined in Item 6) by V2% for all as long as you have four or more SALONS that are open and in operation in compliance with System Standards and the Operations Manual. This Multiple Unit Adjustment for Royalty Fees is described in Item 6.

Our Philosophy Toward Operating a Hair Cuttery Salon

The system that we develope''d for the Hair Cuttery Salons, and the Franchise System that you must follow as a franchisee, reflects our philosophy toward operating and managing a Hair Cuttery Salon. We expect that franchisees will follow this philosophy, as it is integral to various aspects of the business, including brand development and enhancement, stylist development and retention, and customer loyalty. Understanding our philosophy is critical to understanding how a franchised Hair Cuttery Salon should be operated. Our concept and culture are discussed as part of the training program.

We believe that we have a distinct culture that places significant emphasis on the stylists. We understand that our stylists can turn consumers into loyal customers. We offer our stylists creative freedom, growth opportunities and we strive to give them a work environment where fun and individuality flourish. Unlike some salons, we encourage our stylists to develop a customer base and we give them the tools to do so. We expect that our franchisees will do the same.

The stylists that work for Hair Cuttery Salons are the backbone of our marketing. Retaining the best stylists, management and other staff is a key element of our operating and management philosophy. We have developed our "WOW" program for Hair Cuttery Salon management and employees to encourage and reward innovation, creativity and production. We also conduct Leadership Surveys to measure performance. These programs and surveys, funded by the Brand Fund (discussed in Item 11 below), provide ratings and comments from internal clients (the salon and system associates) and external clients (the system''s customers). The following are examples of these programs:

Happiness Survey - a program whereby all associates annually provide feedback and rate us, Ratner Companies, and other Hair Cuttery Salon franchisees. This feedback will help drive initiatives for the Hair Cuttery System.

External Wow - a program whereby clients rate Hair Cuttery Salons semi-annually to identify locations that are "WOWing" clients. Hair Cuttery Salon teams are rewarded for exceptional performance.

Internal Wow - a program whereby Hair Cuttery Salon franchisees, Field Leaders and stylists rate our support groups.

Leadership - a program whereby the associates rate their Salon Leaders semi-annually to assess their performance. Salon Leaders are rewarded for upholding the Hair Cuttery values.

Our goal is continuous improvement. The results have been loyal customers and a low employee turnover rate in an industry where high turnover is thought to be the norm.

We are looking for franchisees and developers that understand our philosophy and are committed to operate their Hair Cuttery Salon using our Franchise System and following our philosophy.

Industry-Specific Regulations

The operation and management of a hair cutting salon is subject to a variety of laws and regulations. These laws exist at the state (and some at the local) level. Most states require hair stylists and others that provide hair cutting, hair coloring, or skin care services to obtain and maintain appropriate cosmetology licenses.

You must secure and maintain in force all required licenses, permits and certificates concerning the operation of the SALON. This will include, among other things, the cosmetology and other licenses applicable to the stylists and other employees and business operating licenses for owners and operators. In addition to employee or stylist licenses, some states also have requirements or regulations regarding the management of a hair salon. While we do not operate in all states, and are not and will not be aware of all laws and regulations, we are aware that some states require some type of designated management or responsible party in the SALON: For example, we are currently aware of the following:

�          Manager Required:�� Alaska, Arizona, District of Columbia, Montana, North Dakota, Rhode Island, South Dakota and Tennessee.

�          Licensee Designate/Licensed Supervisor: Connecticut, Iowa, Massachusetts, Michigan, Nevada, New Hampshire, and Vermont.

You must operate the SALON in full compliance with all applicable laws, ordinances and regulations, including government regulations concerning occupational hazards, health, OSHA, worker''s compensation and unemployment insurance and withholding and payment of federal and state income taxes, social security taxes and sales and service taxes. You must also comply with all state cosmetology laws and regulations. You must not employ any person in a position that requires a license unless that person is currently licensed by all applicable authorities and a copy of the license or permit is in your business files. You must comply with all state and local laws and regulations regarding the staffing and on-premises management of licensed stylists, managers, and other employees. As discussed in Item 11 below, if any of your employees fail to maintain any of their state or local certificates, or any of our system-mandated certifications, you may not permit them to work in the SALON unless and until they obtain their certifications or recertifications.

It is your responsibility to prepare a site survey and all required construction plans and specifications to suit the Premises and to make sure that these plans and specifications comply with the Americans with Disabilities Act (the "ADA") and similar rules governing public accommodations for persons with disabilities, other applicable ordinances, building codes, and permit requirements.

You should consult with a local attorney, risk management/insurance advisors and/or other business advisor to determine what laws, insurance and regulations may be applicable to the operation of the SALON and your employees within the SALON.

Competition

The market for value priced salon services is mature. The fashion trend toward greater individuality has created a demand for an increased variety of services and prompted consumers to change their look with greater frequency. As our franchisee you will compete with other value chains, both franchisee! and company owned, independent salons, department store salons and, to some extent, do- it-yourself products purchased at retail stores.