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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-11230
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Regis Corporation
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(Exact name of registrant as specified in its charter)
Minnesota 41-0749934
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State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification No.)
7201 Metro Boulevard, Edina, Minnesota 55439
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 947-7777
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered pursuant to section 12(g) of the Act:
Common Stock, Par Value $.05 per share
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(Title of class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S- K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. / /
The aggregate market value of the voting stock held by nonaffiliates of
registrant (based upon closing price of $26.38 per share as of September 4,
1998, as quoted on the NASDAQ), was $472,840,607.
The number of outstanding shares of the registrant's common stock, par
value $.05 per share, as of September 4, 1998, was 23,838,780.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement dated September 17, 1998 and
Annual Report to Shareholders for the year ended June 30, 1998, are incorporated
by reference into Parts I, II and III.
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PART I
ITEM 1. BUSINESS
BACKGROUND
Regis Corporation (the Company), based in Minneapolis, is the largest owner,
operator, franchisor, and consolidator of hair and retail product salons in
the world. The Regis worldwide operations include 3,539 hairstyling salons at
June 30, 1998 operating in six divisions: Regis Hairstylists, Strip Center
Salons (primarily Supercuts), MasterCuts, Trade Secret, Wal-Mart/SmartStyle
and International. Worldwide operations include 2,723 company-owned salons
and 816 franchised salons operating primarily as Supercuts salons. The
Company has 28,000 employees worldwide (excluding franchisee operations).
INDUSTRY OVERVIEW
Management estimates that annual revenues of the haircare industry are $40
billion in the United States and $80 billion worldwide. The industry is
highly fragmented with the vast majority of haircare salons independently
owned. However, the influence of chains, both franchise and company-owned,
has increased substantially, although still accounting for a small percentage
of total locations. Management believes that chains will continue to increase
their presence. Management also believes that the demand for salon services
and products will increase in the next decade as the population ages and
desires additional haircare services, such as coloring.
BUSINESS STRATEGY
The Company's goal is to provide high quality haircare services and products
to customers in different market groups through physically attractive salons
located in high profile and convenient locations. The key elements of the
Company's strategy to achieve these goals are the following:
CONSISTENT, QUALITY SERVICE. The Company is committed to meeting its customer's
haircare needs by providing competitively priced services and products in
convenient locations with professional and knowledgeable hairstylists. The
Company's operations and marketing emphasize high-quality services to create
customer loyalty, to encourage referrals and to distinguish the Company's salons
from its competitors. The major services supplied by the Company's salons are
haircutting and styling, hair coloring, shampooing, conditioning and permanent
waving. To promote quality and consistency of services provided throughout the
Company's salons, Regis has full and part-time artistic directors whose duties
are to teach and train salon operators and to instruct the stylists in current
styling trends.
During fiscal 1998, the Company and its franchisees provided services to 71.8
million customers worldwide.
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MALL-BASED LOCATIONS. As the largest national mall-based operator in the hair
salon industry, the Company has the ability to obtain desirable locations in
high-profile, regional malls anchored by major department stores. Mall owners
and developers typically seek retailers such as Regis due to the Company's
financial strength, successful salon operations and status as a national mall
tenant. The Company's locations, which are aesthetically appealing and designed
to attract customers from mall shoppers, provide a steady source of new
business.
STRIP-MALL-BASED LOCATIONS. The merger with Supercuts on October 25, 1996,
positions the Company in the rapidly growing strip shopping center segment of
the retail haircare market in the United States (see below). Supercuts salons
are conveniently located in strip shopping centers with adequate traffic,
appropriate trade area demographics, good visibility within the center or
from adjoining streets, effective signage, easy access and adequate parking.
Supercuts seeks to locate its salons in so-called "power strips", anchored by
the number one or two grocery chain in the specific market or alternatively,
a major mass merchant. In addition to Supercuts, the Company has added 62
strip center salons (11 franchised) in 1998, which together with Supercuts,
comprise the Strip Center Salons division.
MULTIPLE SALON CONCEPTS. Regis operates six salon concepts: Regis
Hairstylists, Strip Center Salons (primarily Supercuts), MasterCuts, Trade
Secret, Wal-Mart/SmartStyle and International. Regis' various salon concepts
in the United States address the major segments of the salon market. The
Company's regional mall salon concepts provide the Company with the ability
to have multiple locations in a single mall and the flexibility to convert
concepts if mall demographics or customer preferences shift.
Regis Hairstylists appeal primarily to women and are positioned at the
moderate-to-upscale end of the salon market. MasterCuts appeal to the more
value-conscious customer with promotional or discount prices and have a
higher percentage of men and children as customers. Trade Secret provides
hairstyling service and a broad selection of quality haircare and beauty
products sold only through professional salons. Because the square footage
for each of these concepts is approximately the same, the Company has the
ability to determine which salon concept is best suited to a new location and
change the concept of existing salons to meet demographic changes in the
salon's market.
The Company also operates salons outside of the mall concepts, as mentioned
previously. The Strip Center Salons division primarily targets the male
population with affordable hair care salons in strip centers. SmartStyle
salons located in Wal-Mart stores and supercenters offer promotionally
priced, family-oriented hair care. The International salons are located in
department stores, hotels and stand-alone locations and are primarily focused
on the moderate-to-upscale market.
EXPANSION. The Company has grown through increased revenues from existing
salons, constructing additional salons, and mergers and acquisitions. During
the five year period ended June 30, 1998, the Company has added 2,228 net
units (including franchised salons) to its worldwide salon base from new
salon construction and merger and acquisitions. During this same period of
time, the Company added new operating divisions, Trade Secret and Wal-
Mart/SmartStyle, merged with Supercuts (see below), and expanded its Regis
Hairstylists,
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MasterCuts and International salon divisions. In addition to continuing its
salon acquisition strategy, the Company expects to construct about 275 new
company-owned salons and complete approximately 125 major remodeling and
conversion projects during fiscal 1999.
The Company intends to continue to focus future growth of salons in strip
shopping centers across the United States as it adds additional company-owned
salons and assists current and new franchisees in their expansion and market
development. The Company believes the growth opportunities in the strip
shopping center segment of the retail haircare market in the United States
are vast, and will complement the Company's continuing growth of other
divisions. The Company does not intend to refocus other divisions, now
located in enclosed shopping malls throughout the United States, into the
strip shopping center segment of the retail haircare market, nor does it
intend to refocus its strip center salons into the enclosed shopping mall
segment of the retail haircare market in the United States. The Strip Center
Salon division (primarily Supercuts) does not have operations outside North
America. The Company may elect to grow this division through international
expansion, but any such plans have not been finalized.
HIGH QUALITY HAIRCARE PRODUCTS. Through Trade Secret and the Company's other
salons, Regis sells nationally-recognized haircare products such as
Matrix-Registered Trademark-, Paul Mitchell-Registered Trademark-,
Sebastian-Registered Trademark-, Redken-Registered Trademark-, and
Nexxus-Registered Trademark- and a complete line of products sold under the
Regis label, which is the Company's best selling product line. The salon
branded products are typically sold only through professional salons and
generate slightly higher gross margins than haircutting and other salon
services. The Company's stylists are trained to sell haircare products as
well as services such as color treatments and manicures to their customers.
Sales of haircare products increased 18.1 percent in fiscal 1998 to $221.6
million and represented 28.7 percent of total revenues.
CONTROL OVER SALON OPERATIONS. Regis controls the quality of operations and
enjoys certain economies of scale in terms of certain corporate and store
level expenses. The Company has an extensive training program, including the
production of training videos for use in the salons, to ensure that
hairstylists are knowledgeable and provide consistent quality haircare
services.
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ECONOMIES OF SCALE. Management believes that due to its size and number of
locations the Company has certain advantages which are not available to
single location salons or small chains. The Company uses its point-of-sale
system to track inventory and to monitor service and product sales. This
product and customer information is used to evaluate salon productivity and,
in some cases, to determine the most appropriate salon use for the location.
Additionally, as a result of its volume purchases, the Company is able to
purchase haircare products and supplies and salon fixtures on an advantageous
basis. The Company is also able to gain national and local market recognition
for the Regis name and its salon concepts through national and local
advertising and promotional programs.
REGIS HAIRSTYLISTS
Regis Hairstylists are full-service salons providing complete haircare and
beauty services aimed at moderate to upscale, fashion-conscious consumers.
The customer mix at Regis Hairstylists salons is approximately 70 percent
women and 30 percent men. These salons offer a full range of custom
hairstyling, cutting, coloring, permanent wave and manicuring as well as
haircare products. The average sale at Regis Hairstylists salons is
approximately $21. Regis Hairstylists salons compete in their existing
markets primarily by emphasizing the high quality of full services provided.
The Company actively monitors the prices charged by its competitors in each
area and makes every effort to maintain prices which, although in the higher
range of local prices, are not so high as to be uncompetitive with prices of
other salons offering similar, high-quality services. At June 30, 1998, the
Company operated 820 Regis Hairstylists salons in shopping malls in North
America. Revenues from the Regis Hairstylists salons were $294.6 million, or
37.0 percent of the Company's total revenues, in fiscal 1998. The Company
expects to construct about 45 new Regis Hairstylists salons in fiscal 1999.
STRIP CENTER SALONS (PRIMARILY SUPERCUTS)
The Strip Center Salons division is primarily comprised of Supercuts stores.
This concept provides consistent high quality haircare services to its
customers at convenient times and locations and at a reasonable price. The
services offered by strip center salons are limited and standardized. The
salons are designed for ease of operation and the demand for basic haircare
is believed to be recession resistant and non-seasonal. This concept appeals
to men, women and children, although male customers account for over 75
percent of total haircuts. Consumer research indicates that males get their
hair cut slightly more often (8-9 times annually) than females (7-8 times
annually) and their haircuts generally take less time. The Strip Center
concept targets a male audience. At June 30, 1998, the Company operated 1,268
strip center salons in North America, including 775 franchised locations.
Revenues and income from company-owned strip center salons and franchising
activity was $108.1 million and $23.4 million, respectively, or 16.5 percent
of the Company's total revenues in fiscal 1998. The Company expects to
construct about 45 new company-owned and add about 80 franchised strip center
salons in fiscal 1999.
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MASTERCUTS FAMILY HAIRCUTTERS
MasterCuts Family Haircutters salons serve a broader customer base than Regis
Hairstylists and respond to competitive pressures for lower cost haircare
services. MasterCuts salons emphasize quality haircutting, lower prices and
time-saving services for the entire family. The customer mix at MasterCuts
salons contains a greater percentage of men and children than at Regis
Hairstylists salons. MasterCuts salons cater to walk-in customers and provide
a warm, inviting atmosphere that is comfortable for all members of the
family. Many of the same product lines sold in Regis Hairstylists salons are
also available in MasterCuts salons. The average sale at MasterCuts salons is
approximately $11. The MasterCuts salons place more emphasis on discount or
promotional pricing for the services being offered in order to compete more
effectively with the chains of salons, primarily franchises, now offering
such services at discount prices. In certain markets, the Company has been
able to improve a salon's performance by converting it to a MasterCuts salon.
At June 30, 1998, the Company operated 412 MasterCuts salons in North
America. Revenues from MasterCuts salons accounted for $107.8 million, or
13.5 percent of the Company's total revenues, in fiscal 1998. During fiscal
1999, the Company plans to construct approximately 50 new MasterCuts salons.
TRADE SECRET
Trade Secret salons emphasize haircare and beauty product sales in a retail
setting while providing high-quality haircare services. Trade Secret salons
are designed to display and attract sales of haircare and beauty products.
Trade Secret salons offer the same products as the Regis Hairstylists and
MasterCuts salons, but also have additional haircare items. The average sale
at Trade Secret salons is approximately $16. At June 30, 1998, the number of
Trade Secret salons totaled 374 in North America, including 34 franchised
locations. Revenues and franchise income from company-owned Trade Secret
salons and franchising activity during fiscal 1998 was $115.0 million and
$2.8 million, respectively, or 14.7 percent of the Company's total revenues.
The Company anticipates constructing approximately 40 new Trade Secret salons
in fiscal 1999.
WAL-MART/SMARTSTYLE FAMILY HAIR SALONS
The Company expanded into the mass merchant retail arena in May 1996 by
acquiring 154 salons operating within Wal-Mart stores and supercenters.
Wal-Mart salons share many operating characteristics with MasterCuts: pricing
is promotional, services are focused on family hair cutting, and product
revenues contribute solidly to overall revenues. In fiscal 1998, the Company
introduced a new brand name, SmartStyle Family Hair Salons, for its Wal-Mart
salons and plans to rapidly expand this new brand name into its Wal-Mart
salons in fiscal 1999. The Company operated 273 salons within Wal-Mart stores
and supercenters at June 30, 1998. Revenue from Wal-Mart salons totaled $40.3
million, or 5.0 percent of the Company's total revenue. The Company
anticipates constructing about 80 new SmartStyle salons in Wal-Mart stores
and supercenters in fiscal 1999.
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INTERNATIONAL SALON OPERATIONS
The Company operated 392 hair care salons in eight countries outside of the
United States at June 30, 1998, including 322 salons in the United Kingdom.
Canadian salons operate under the Regis Hairstylists, MasterCuts and Trade
Secret tradenames and revenues are included within the respective operating
divisions, while salons in the remaining seven countries operate in
freestanding locations and department stores under license arrangements.
Revenues from the International salon operations were $106.2 million, or 13.3
percent of the Company's total revenues, in fiscal 1998. The Company expects
to continue to modestly increase its International salon base in fiscal 1999.
NEW SALON DEVELOPMENT
The table on the following page sets forth the number of Company salons
opened at the beginning and end of each of the last five years, as well as
the number of salons opened, closed, relocated, converted and acquired during
each of these periods.
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<TABLE>
<CAPTION>
SALON LOCATION SUMMARY
1994 1995 1996 1997 1998
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<S> <C> <C> <C> <C> <C>
REGIS
Open at beginning of period 802 801 787 797 811
Salons constructed 24 17 31 28 33
Acquired 6 9 9 18 15
Less: Relocations 11 11 11 10 15
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Net salon openings 19 15 29 36 33
Conversions (3) (10) (4) (4)
Salons closed or sold (17) (19) (15) (18) (24)
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Open at end of period 801 787 797 811 820
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---- ---- ---- ---- ----
STRIP CENTERS (PRIMARILY SUPERCUTS)
Company-Owned:
Open at beginning of period 185 326 464 507 419
Salons constructed 87 107 44 4 4
Acquired 16 1 47
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Net salon openings 87 123 45 4 51
Conversions (1) 59 21 9 (61) 38
Salon closed or sold (5) (6) (11) (31) (15)
---- ---- ---- ---- ----
Open at end of period 326 464 507 419 493
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Franchised Salons:
Open at beginning of period 646 617 629 661 757
Salons added 35 41 41 37 41
Acquired 3 30
Less: Relocations 3
---- ---- ---- ---- ----
Net salon openings 35 41 44 37 68
Conversions (1) (59) (21) (9) 61 (38)
Salon closed or sold (5) (8) (3) (2) (12)
---- ---- ---- ---- ----
Open at end of period 617 629 661 757 775
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---- ---- ---- ---- ----
MASTERCUTS
Open at beginning of period 229 257 283 327 362
Salons constructed 25 21 33 36 50
Acquired 3 1 12 2 8
Less: Relocations 3 2 3 3 4
---- ---- ---- ---- ----
Net salon openings 25 20 42 35 54
Conversions 3 10 3 3
Salon closed or sold (4) (1) (3) (4)
---- ---- ---- ---- ----
Open at end of period 257 283 327 362 412
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
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<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
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<S> <C> <C> <C> <C> <C>
TRADE SECRET
Company-Owned:
Open at beginning of period 55 106 152 219 302
Salons constructed 22 28 40 56 32
Acquired 30 19 11 11 14
Less: Relocations 2 1 4 4 4
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Net salon openings 50 46 47 63 42
Conversions (1) 1 2 20 24 2
Salon closed or sold (2) (4) (6)
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Open at end of period 106 152 219 302 340
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Franchised Salons:
Open at beginning of period 64 68 55 38
Salons added 1 7 8 6
Acquired 64
Less: Relocations 1
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Net salon openings 65 7 7 6
Conversions (1) (1) (2) (19) (23) (2)
Salon closed or sold (1) (1) (2)
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Open at end of period 64 68 55 38 34
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WAL-MART/SMARTSTYLE
Open at beginning of period 157 181
Salons constructed 3 24 45
Acquired 154 47
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Net salon openings 157 24 92
Open at end of period 157 181 273
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INTERNATIONAL(2)
Open at beginning of period 225 251 244 408 423
Salons constructed 6 9 9 26 17
Acquired 27 2 178 3
Less: Relocations 1
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Net salon openings 33 11 186 29 17
Salons closed or sold (7) (18) (22) (14) (48)
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Open at end of period 251 244 408 423 392
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----- ----- ----- ----- -----
Grand total, system-wide 2,422 2,627 3,131 3,293 3,539
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Major remodelings & conversions 35 46 65 72 97
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
(1) Represents primarily the acquisition of franchise locations.
(2) Canadian salons are included in the Regis, MasterCuts and
Trade Secret divisions and not included in the International salon
totals.
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Of the 181 new company-owned salons constructed in fiscal 1998, 33 were Regis
Hairstylists salons, 4 were Strip Center Salons, 50 were MasterCuts, 32 were
Trade Secret, 45 were Wal-Mart/SmartStyle and 17 were International salons. The
Company intends to construct approximately 275 new company-owned salons during
fiscal year 1999. The Company has a program of modernizing its existing salons,
ranging from redecoration to substantial reconstruction, in order to raise its
older salons to the standards of its newly constructed locations. This program
is implemented as management determines that a particular location will benefit
from such modernization, or as required by lease renewals.
HAIRCARE PRODUCTS
In recent years, the Company has placed emphasis on the sales of
higher-margin haircare products, with the result that such revenues have
become an increasingly important part of the Company's business, having grown
from 5.4 percent of total company-owned revenues in fiscal 1987 to 28.7
percent in fiscal 1998. A significant portion of this growth has resulted
from the introduction of national brand merchandise in 1988 and the
acquisition of Beauty Express in November 1992 and Trade Secret in December
1993. The haircare products offered are primarily shampoos, hair
conditioners, fixatives and hair sprays. Regis, MasterCuts, and Trade Secret
private label products, as well as lines of salon branded products are sold
only through licensed beauty salons, including Matrix-Registered Trademark-,
Paul Mitchell-Registered Trademark-, Redken-Registered Trademark-,
Sebastian-Registered Trademark-, and Nexxus-Registered Trademark-. The Regis
line continues to be the Company's best selling product line. The Company
actively reviews its product line offerings and continuously investigates the
quality and sales potential of new products. The Company utilizes its
national salon network as a testing ground for new product formulations.
There are many potential sources of supply for the types of products used or
sold at the salons, and the Company is not dependent upon any single supplier.
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SITE SELECTION
The Company is the largest shopping mall tenant which operates haircare salons
in the United States and has attained national tenant status which makes the
Company an attractive tenant for shopping mall owners and developers. In the
United States, there are approximately 1,850 enclosed malls which meet the
Company's performance criteria with several new shopping malls developed each
year. At June 30, 1998, the Company's 1,606 United States and Canadian mall-
based salons were located in 1,047 shopping malls. Because the Company's
different salon concepts target different customer groups depending on the size
and location of the shopping malls, more than one of the Company's salon
concepts may be located in the same mall. As a result, there are numerous
leasing opportunities in shopping malls for its Regis Hairstylists, MasterCuts
and Trade Secret salons, of which the Company has penetrated less than 50
percent.
The Company generally locates its Regis, MasterCuts and Trade Secret salons in
fully enclosed, climate-controlled shopping malls classified as "regional"
having 400,000 or more square feet of leasable area and at least two full-line
department store anchor tenants. The Company's experience has been that
selecting the proper mall and obtaining a favorable, high-traffic location
within the mall are important determinants of the success of a new salon. For
existing malls, the Company evaluates the current sales per square foot of
selected tenants, the stature and strength of the anchor stores and the other
major tenants, the location and traffic patterns within the mall, and the
proximity of competitors. In addition, the Company may conduct site surveys and
physical observations to assess the location, traffic patterns and competitive
environment.
Several trends have enabled the Company to continue to lease high-profile space
in existing malls. Leasing velocity and turnover have increased because the
average length of shopping mall lease terms has steadily descended. Also, many
larger tenants are downsizing their leased areas to make better use of costly
space, thereby creating available floor space which can be leased for other
uses. Additionally, many existing malls are being expanded, renovated and
remerchandised. Because of these factors, the Company believes that it has ample
expansion opportunities and therefore can be selective in establishing new
locations.
In evaluating specific locations for Supercuts company-owned and franchise
stores, the Company seeks conveniently located, highly visible strip shopping
centers which allows customers adequate parking and quick and easy store access.
The Company believes strip shopping centers anchored by the number one or two
grocery chain in the specific market, or a major mass merchant, provide a
profitable customer flow. Supercuts' customers are destination shoppers and, as
a result, Supercuts is not dependent upon expensive regional shopping mall
locations. Various other factors are considered in evaluating sites, including
trade area demographics, availability and cost of space, location of
competitors, traffic count, visibility, signage and other leasehold factors in a
given center or area. All franchisee sites must be approved by the Company.
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SUPERCUTS FRANCHISING PROGRAM
GENERAL
The Company provides its Supercuts franchisees with a comprehensive system of
business training, stylist education, site approval and lease negotiation,
professional marketing, promotion and advertising programs, and other forms
of support designed to help the franchisee build a successful business. The
Company employs field staff personnel to assist franchisees in all aspects of
operations, training and supervision.
STANDARDS OF OPERATIONS
All Supercuts franchisees are required to conform to Company-established
operational policies and procedures relating to quality of service, training,
design and decor of stores, and trademark usage. The Company's field
personnel make periodic visits to franchised stores to ensure that the stores
are operating in conformity with Supercuts standards. In addition, to further
ensure such conformity, the Company enters into the lease for the store site
directly with the landlord, and subsequently subleases the site to the
franchisee. The sublease provides the Company with the right to terminate the
sublease and gain possession of the store if the franchisee fails to comply
with the Company's operational policies and procedures. See Note 5 of "Notes
to the Consolidated Financial Statements" for further information.
FRANCHISE SALES
Franchise expansion is now being encouraged and will continue to be a
significant focus of the Company in the future. Existing franchisees and new
franchisees who open more than one salon receive a reduction in franchise
fees.
FRANCHISEE TRAINING
The Company provides new Supercuts franchisees with training, focusing on the
various aspects of store management, including operations, personnel
management, marketing fundamentals and financial controls. Existing
franchisees receive training, counseling and information from the Company on
a continuous basis. The mechanisms include mail, "800" number information
lines and E-mail. In addition, the Company provides store managers and
stylists with extensive training. For a further description of the Company's
education and training programs, see "Education and Training" below.
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FRANCHISE TERMS
Supercuts franchisees pay monthly royalty fees based on service and product
revenues. In addition, franchisees pay an advertising fee of five percent of
service revenues, which is held in a separate account and administered by the
Company. In calendar 1997, franchisees contributed approximately $10.9
million to the advertising fund. All royalties and advertising fees are due
monthly.
The franchisees pay an initial franchise fee for each new franchise location.
Franchisees are responsible for the costs of leasehold improvements,
furniture, fixtures, equipment, supplies, inventory and certain other items,
including initial working capital. New franchisees also must pay an initial
fee for franchisee training.
The existing franchise agreements have an initial term of 10 years with the
option by the franchisee to renew for one additional ten-year period. Upon
renewal, franchisees pay a renewal fee of four percent of the franchisee's
total store revenues for the prior 12 months. During fiscal 1998, all
agreements eligible for renewal were renewed. The agreements also provide the
Company a right of first refusal if the store is to be sold. The franchisee
must obtain the Company's approval in all instances where there is a sale of
the franchise. The current franchise agreement is site specific and does not
provide any territorial protection to a franchisee, although some older
franchise agreements do include limited territorial protection. The Company
has a comprehensive impact policy that resolves potential conflicts among
franchisees and/or the Company regarding proposed salon sites.
MARKETS AND MARKETING
Approximately half of the Company's North American salons are situated in
"middle markets" with service area populations between 80,000 and 800,000.
Approximately one-fourth of the Company's salons are located in smaller
markets with a service area population below 80,000, and about one-fourth are
located in major metropolitan areas with populations in excess of 800,000.
The Company believes that the geographic dispersion of its salons throughout
the United States may diminish the impact of fluctuations in regional
business cycles.
The Company maintains various advertising, sales and promotion programs for
its salons, budgeting a predetermined percent of revenues for such programs.
The Company has developed promotional tactics and institutional sales
messages for each of its divisions targeting certain customer types and
positioning each concept in the marketplace. Print, radio and television and
billboard advertising are developed and supervised at the Company's
headquarters, but most advertising is done in the immediate area of the
particular salon.
Supercuts maintains an Advertising Fund (the "Fund") that provides
comprehensive advertising and sales promotion support for the Supercuts
system. All Supercuts stores, company-owned and franchised, contribute five
percent of service revenues to the Fund, 80 percent of which is allocated to
the contributing market for media placement and local marketing activities
and 20 percent of which is allocated for national advertising campaigns and
system-wide activities. Each new franchised salon opened by a new franchisee
or by an existing franchisee in a new market, contributes $5,000 for grand
opening expenses. Additionally, stores may contribute supplemental funds to
pay for advertising costs above their total market contributions. The
Company's marketing department administers (at no additional cost to the
franchisees or the Fund) the development of
14
<PAGE>
system-wide advertising and promotion, working with McCann-Erickson San
Francisco, as agency of record. This intensive advertising program creates
significant consumer awareness, a strong brand image and high loyalty. In
calendar 1997, $15.2 million was paid into the Fund, by both franchised and
company-owned Supercuts stores.
Supercuts conducts regular, system-wide promotional programs for markets and
an initial grand opening program for new stores. Each includes broadcast,
print, direct mail and public relations campaigns.
In many of the Company's salons, stylists volunteer their time to support
charitable events for breast cancer research. Proceeds collected from such
events are distributed through the Regis Foundation for Breast Cancer
Research. In a unique three-year agreement, the Company will support three
postdoctoral fellows known as Regis Scholars, to conduct research in the
field of breast cancer at the Mayo Foundation, Rochester, MN. The goal of the
Regis Scholars program is to further the prevention, diagnosis and treatment
of breast cancer, and to recruit and train future leaders in the biology of
the disease. The Company's community involvement also includes a major
sponsorship role for the Susan G. Komen Breast Cancer Foundation Twin Cities
Race for the Cure. This 5K run and one-mile walk is held in Minneapolis on
Mother's Day to help fund breast cancer research, education, screening and
treatment. The Company has reached nearly $2.2 million in fundraising for
breast cancer charities.
SALON TRAINING PROGRAMS
The Company has an extensive hands-on training program for its salon managers
and hairstylist associates which emphasizes both technical training in
hairstyling and cutting, perming, hair coloring and hair treatment regimes as
well as customer service and product sales. The objective of the training
programs is to ensure that customers receive professional and quality service
which the Company believes will result in more repeat customers, referrals
and product sales.
The Company has full- and part-time artistic directors who teach and train
the salon operators in techniques for providing the salon services and who
instruct the stylists in current styling trends. The Company also has an
audiovisual based training system in its salons designed to enhance technical
skills of hairstylists.
The Company has a customer service training program to improve the
interaction between employees and customers. Staff members are trained in the
proper techniques of customer greeting, telephone courtesy and professional
behavior through a series of professionally designed video tapes and
instructional seminars.
Supercuts provides extensive initial and ongoing training to stylists through
its system of field educators. Every stylist must attend a training course at
one of the Supercuts' designated training centers at which they are taught the
Supercuts' haircutting technique and customer service principles. Stylists
may be recertified every six to nine months. For annual re-certification each
stylist must participate in a combination of store seminars and studio visits.
15
<PAGE>
STAFF RECRUITING AND RETENTION
Recruiting quality managers and hairstylists is essential to the
establishment and operation of successful salons. The Company's supervisory
team seeks to recruit entrepreneurial salon managers who display initiative
and imagination. The Company has been successful in recruiting capable
managers and stylists for a number of reasons. To employ and retain qualified
and productive employees, the Company utilizes a broad compensation system
including cash incentives, merchandise awards, Company-sponsored trips and
benefit programs. The Company believes that its compensation structure for
salon managers and hairstylists is competitive within the industry. Stylists
benefit from the Company's high-traffic locations in quality malls, as well
as name-recognition from Supercuts and Wal-Mart, and receive a steady source
of new business from walk-in customers. In addition, the Company offers a
career path with the opportunity to move into managerial and training
positions within the Company.
SALON DESIGN
The Company's salons are designed, built and operated in accordance with
uniform standards and practices developed by the Company based on its
experience. New salons are designed and constructed according to the
Company's standard specifications, thereby reducing design and construction
costs and enhancing operating efficiencies. Salon fixtures and equipment are
also uniform, allowing the Company to place large orders for these items with
attendant cost savings.
The size of the Company's salons ranges from 500 to 2,300 square feet, with
the typical salon having about 1,100 square feet. At present, the cost to the
Company of constructing and furnishing a new salon, including inventories,
averages in the range of approximately $40,000 to $173,000, with about 80
percent of the total construction cost for leasehold improvements and the
balance for salon fixtures, equipment, and inventory.
The Company maintains its own construction and design department, and designs
and supervises the construction, furnishing and fixturing of all new salons.
The Company has developed considerable expertise in designing upscale,
visually appealing salons. The design and construction staff focuses on
aesthetic appeal, efficient use of space, cost and rapid completion times.
The Company's salons are airy in appearance with open storefronts and have
limited partitions. Haircare products offered for sale are prominently and
attractively displayed in the salons. Each of the Company's salon concepts
has a different design related to the image to be projected. Regis
Hairstylists salons are more upscale in design and utilize wood and marble
floors, mirrors and contrasting black and creme colors. Supercuts salons are
functional in design and tastefully furnished, consistent with its image of a
quality provider of affordable haircutting services. MasterCuts salons are
family oriented and include extensive use of woodwork and warm, comfortable
colors. Trade Secret salons use many of the same design techniques as Regis
Hairstylists salons, and also have open and easily accessible product
displays. Wal-Mart/SmartStyle salons, which are strategically located near the
check out counters in the front of Wal-Mart stores and supercenters, are
efficiently designed and brightly colored to complement the Wal-Mart retail
environment.
16
<PAGE>
OPERATIONS
Company-owned and franchised salons located in the United States, Puerto
Rico, Canada, and Mexico are operated and managed as part of the Company's
North American operations. All other salons, located in department stores in
the United Kingdom, South Africa, Switzerland, Ireland, France and the United
Arab Emirates are operated and managed through the Company's United Kingdom
subsidiary.
For each salon division, the Company's operations are divided into geographic
regions throughout the United States. Each region is headed by one of the
Company's salon directors, assisted by regional field managers and area
supervisors, who coordinate the operations of the salons in the particular
region. The area supervisors are responsible for hiring and training the
managers for each salon.
Over the years, the Company has developed uniform procedures for opening new
salons in such a manner as to maximize revenues from a new location as
rapidly as possible. After opening, all salons are operated according to
standard procedures which the Company has learned are desirable for the
operation of an efficient, high-quality, profitable salon.
MANAGEMENT INFORMATION SYSTEMS
The Company utilizes a retail point-of-sale information system in all its
salons. This system collects data daily from each salon and consolidates the
data into several management reports. The Company's automated system polls
terminals nightly and all salon cash receipts are transferred automatically
into a centralized bank account, thereby significantly reducing
administrative expenses. Point-of-sale information is also used both to
monitor salon performance and to generate customer data for use in
identifying and anticipating industry trends for purposes of pricing and
marketing. The Company has expanded the system to deliver on-line information
as to sales of products to improve its inventory and control system,
including suggested monthly product purchase recommendations for a salon, a
monthly report of sales and a perpetual inventory. Management believes that
its information systems provide advantages in planning and analysis which are
not available to a majority of its competitors which do not have management
information systems.
COMPETITION
The haircare industry is highly competitive. In every area in which the
Company has a salon, there are competitors offering similar haircare services
and products at similar prices. The Company faces competition within malls
from companies which operate salons as departments within department stores
and from smaller chains of salons, independently owned salons and, to a
lesser extent, salons which, although independently owned, are operating
under franchises from a franchising company that may assist such salons in
areas of training, marketing and advertising.
Significant entry barriers exist for new chains due to the need to establish
brand identification, systems and infrastructure, recruitment of experienced
haircare management and adequate store staff, and leasing of quality sites.
The principal factors of competition in the affordable haircare category are
quality, consistency and convenience. The Company continually strives to
improve its performance in each of these areas and to create additional
points of difference versus the competition.
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<PAGE>
In order to obtain locations in shopping malls, the Company must be
competitive as to rentals and other customary tenant obligations. The Company
believes that because of its established relationships with many leading
shopping center developers throughout the country, its status in the haircare
industry as a national rather than a local tenant, and its financial
resources, it will encounter little difficulty in obtaining sufficient
shopping center locations to continue its historical pattern of growth.
TRADEMARKS
The Company holds numerous trademarks, both in the United States and in
several foreign countries. The most important are the trademarks "Regis
Hairstylists," "Supercuts," "MasterCuts" and "Trade Secret."
The Company believes the use of these trademarks is important in establishing
and maintaining its reputation as a national operator of high-quality
hairstyling salons, and is committed to protecting these trademarks by
vigorously challenging any unauthorized use.
EMPLOYEES
As of June 30, 1998, the Company had 28,000 full- and part-time employees
worldwide, of which approximately 23,000 employees were located in the United
States. None of the Company's employees is subject to a collective bargaining
agreement and the Company believes that its employee relations are good.
GOVERNMENTAL REGULATIONS
The Company is subject to various federal, state and local laws affecting its
business as well as a variety of regulatory provisions relating to the
conduct of its cosmetology business, including health and safety. As a
franchisor, the Company's franchise operations are subject to the Federal
Trade Commission's Trade Regulation Rule on Franchising (the "FTC Rule") and
by state laws and administrative regulations that regulate various aspects of
franchise operations and sales. The Company's franchises are offered to
franchisees by means of an offering circular containing specified disclosures
in accordance with the FTC Rule and the laws and regulations of certain
states. The Company has registered its offering of franchises with the
regulatory authorities of those states in which it offers franchises and in
which such registration is required. State laws that regulate the
franchisor-franchisee relationship presently exist in a substantial number of
states and, in certain cases, apply substantive standards to this
relationship. Such laws may, for example, require that the franchisor deal
with the franchisee in good faith, may prohibit interference with the right
of free association among franchisees, and may limit termination of
franchisees without payment of reasonable compensation. The Company believes
that the current trend is for government regulation of franchising to
increase over time. However, such laws have not had, and the Company does not
expect such laws to have, a significant effect on the Company's operations.
The Company believes it is operating in substantial compliance with
applicable laws and regulations governing operations.
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<PAGE>
ITEM 1a. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Directors of the Company and Exchange Act Section
16(a) filings is included on pages 3 and 4 of the Registrant's Proxy
Statement dated September 17, 1998, and is incorporated herein by reference.
Information relating to Executive Officers of the Company follows:
<TABLE>
<CAPTION>
Name Age Position
- ---------------- --- ----------------------------------
<S> <C> <C>
Myron Kunin 69 Chairman of the Board of Directors
Paul D. Finkelstein 56 President, Chief Executive Officer
and Director
Christopher A. Fox 48 Executive Vice President and Director
Randy L. Pearce 43 Senior Vice President, Finance and
Chief Financial Officer
William E. Halfacre 57 Senior Vice President, Retail and
Purchasing
Bruce Johnson 45 Senior Vice President, Design and
Construction
Mark Kartarik 42 Senior Vice President and President,
Supercuts Inc.
Gordon Nelson 47 Senior Vice President, Fashion and
Education
Anthony W.E. Rammelt 61 Senior Vice President, International
Bert M. Gross 68 Senior Vice President, General Counsel
Mary Andert 43 Senior Vice President, Marketing
Sharon Kiker 53 Chief Operating Officer, Regis
Hairstylists
Kris Bergly 37 Chief Operating Officer,
Wal-Mart/SmartStyle
Robert Ribnick 37 Chief Operating Officer, MasterCuts
</TABLE>
Myron Kunin has served as Chairman of the Board of Directors of the Company
since 1983, as Chief Executive Officer of the Company from 1965 until July 1,
1996, as President of the Company from 1965 to 1987 and as a director of the
Company since its formation in 1954. He is also President, Chairman of the
Board and holder of the majority voting power of Curtis Squire, Inc., the
Company's principal shareholder. He is also a director of Nortech Systems
Incorporated and The Cerplex Group, Inc.
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<PAGE>
Paul D. Finkelstein has served as President, Chief Operating Officer and as a
director of the Company since December 1987, as Executive Vice President of
the Company from June 1987 to December 1987 and has served as Chief Executive
Officer since July 1, 1996.
Christopher A. Fox was elected Executive Vice President in 1994, was Senior
Vice President, Real Estate of the Company from 1988 to 1994, has served as
Vice President from 1984 to 1988 and has served as a director of the Company
since 1989.
Randy L. Pearce was elected Chief Financial Officer and Senior Vice
President, Finance in January 1998, has served as Vice President of Finance
from 1995 to 1997 and as Vice President of Financial Reporting from 1991 to
1994.
William E. Halfacre has served as Senior Vice President, Retail and
Purchasing of the Company since 1993 and as Vice President from 1990 to 1993.
Bruce Johnson was elected a Senior Vice President of Design and Construction
in 1997 and has served as Vice President from 1988 to 1997.
Mark Kartarik has served as Senior Vice President, Operations of the Company
since 1994 and as Vice President from 1989 to 1994. He was elected
President of Supercuts, Inc. in 1998 and served as Chief Operating Officer of
Supercuts, Inc. in 1997.
Gordon Nelson has served as Senior Vice President, Fashion and Education of
the Company since 1994 and as Vice President from 1989 to 1994.
Anthony W. E. Rammelt has served as Senior Vice President, International of
the Company since 1994 and as Vice President from 1993 to 1994.
Bert M. Gross was elected Senior Vice President, General Counsel in 1997 and
acted as outside legal counsel to the Company from 1957 to 1997.
Sharon Kiker was elected Chief Operating Officer, Regis Hairstylists in April
1998 and has served as Vice President, Salon Operations from 1989 to 1998.
Kris Bergly was elected Chief Operating Officer, Wal-Mart/SmartStyle in April
1998 and has served as Vice President, Salon Operations from 1993 to 1998.
Robert Ribnick was elected Chief Operating Officer, Mastercuts in April 1998 and
has served as Vice President, Salon Operations from 1993 to 1998.
20
<PAGE>
ITEM 2. PROPERTIES
The Company's corporate executive and administrative offices are
headquartered in a 100,000 square foot building in Edina, Minnesota owned by
the Company. In December 1997, the Company acquired two buildings, totaling
70,000 square feet of office space, located adjacent to the Company's current
headquarters in Edina. This office space is currently leased to nine tenants.
As leases terminate and additional office space is required, the Company
plans to remove or relocate existing tenants to provide additional
administrative office space for its own purposes.
The Company also leases warehouse space in Eden Prairie, Minnesota for
storing and distributing inventory. The Company completed construction of a
new distribution center in Chattanooga, Tennessee during fiscal 1998. The
Company believes that these two facilities will be adequate for inventory
storage needs for the near future.
The Company operates all of its salon locations under leases or licenses. All
of its North American locations opened in regional malls during the past five
years are operating under leases with an original term of at least ten years.
Salons operating within strip centers and Wal-Mart stores and supercenters
have leases with original terms of at least five years. Salons in the U.K.
operations which are located in department stores operate under license
agreements with the host department stores.
The Company also leases the premises in which the majority of its franchisees
operate and has entered into corresponding sublease arrangements with the
franchisees. These leases, generally with terms of approximately five years,
are expected to be renewed on expiration. Future minimum lease payments for
the next five years, which are reimbursable from the franchisees, are
approximately $17 million annually. All additional lease costs are passed
through to the franchisees.
None of the Company's salon leases is individually material to the operations
of the Company, and the Company expects that it will be able to renew its
leases on satisfactory terms as they expire. See Note 5 of "Notes to the
Consolidated Financial Statements".
ITEM 3. LEGAL PROCEEDINGS
During fiscal 1997, the Company resolved the litigation brought by David E.
Lipson and DEL Holding Corporation (DEL), a corporation controlled by Mr.
Lipson, against Supercuts. The Company paid Mr. Lipson and DEL $6.7 million
in complete settlement of all claims of Mr. Lipson, DEL or any other entity
controlled by Mr. Lipson. See Note 10 to the Consolidated Financial
Statements. This was funded through the issuance of the Company's common
stock.
21
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. On October 14, 1997, at the annual meeting of the
shareholders of the Company, the shareholders approved an
increase in the authorized shares available under the
Company's Stock Option Plan from 1,650,000 to 2,200,000. There
were 20,511,534 shares voted in favor of the proposal and
701,120 shares against the proposal. The elections of the
Company's directors also took place with the following
results:
Election of Directors:
<TABLE>
<CAPTION>
FOR WITHHOLD AUTHORITY
<S> <C> <C>
Rolf F. Bjelland 21,104,277 108,377
Frank E. Evangelist 21,099,647 113,007
Paul D. Finkelstein 21,101,155 111,499
Christopher A. Fox 21,097,072 115,582
Thomas L. Gregory 21,101,269 111,385
Van Zandt Hawn 21,105,435 107,219
Susan Hoyt 21,105,207 107,447
David B. Kunin 21,093,070 119,584
Myron Kunin 21,100,047 112,607
</TABLE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Data relating to Market Stock Data Information and dividends
as set forth in the sections included on Page 36 of the
Registrant's 1998 Annual Report to Shareholders, a copy of
which is included as Exhibit 13 hereto, are incorporated
herein by reference.
As of June 30, 1998, Regis shares were owned by approximately
13,000 shareholders based on the number of record holders and
an estimate of individual participants in security position
listings.
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Summary of Selected Financial Data which is included
on page 16 of the Registrant's 1998 Annual Report to
Shareholders, a copy of which is included as Exhibit 13
hereto, is incorporated herein by reference.
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Results of Operations
and Financial Condition of the Company on pages 17 to 23 of
the Registrant's 1998 Annual Report to Shareholders, a copy of
which is included as Exhibit 13 hereto, is incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Accountants on page 35, the
Consolidated Financial Statements on pages 24 to 35 and the
Quarterly Financial Data on page 36 of the Registrant's 1998
Annual Report to Shareholders, a copy of which is included as
Exhibit 13 hereto, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
23
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See Part I for information regarding Directors and Executive
Officers of the Registrant.
ITEM 11. EXECUTIVE COMPENSATION
Executive compensation included on pages 6 through 8 of the
Registrant's Proxy Statement dated September 17, 1998 is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial owners and Management
on page 10 of the Registrant's Proxy Statement dated September
17, 1998 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related
transactions is included on page 9 of the Registrant's Proxy
Statement dated September 17, 1998 and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1). The following Consolidated Financial Statements of Regis
Corporation, and the Report of Independent Accountants
thereon, included on pages 24 to 35 of the Registrant's 1998
Annual Report to Shareholders, are incorporated by reference
in Item 8:
Report of Independent Accountants
Consolidated Balance Sheet as of June 30, 1998 and 1997
Consolidated Statement of Operations for each of the three
years in the period ended June 30, 1998
Consolidated Statements of Changes in Shareholders' Equity
for each of the three years in the period ended
June 30, 1998
Consolidated Statement of Cash Flows for each of the three
years in the period ended June 30, 1998
Notes to Consolidated Financial Statements
(2). The financial statement schedule required to be filed by Item 8
of this form is as follows:
Report of Independent Accountants on Financial
Statement Schedule
Schedule II -- Valuation and Qualifying
Accounts as of June 30, 1998, 1997 and 1996
24
<PAGE>
All other schedules are inapplicable to the
Registrant, or equivalent information has been
included in the consolidated financial statements or
the notes thereto, and have therefore been excluded.
(3). Listing of Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NUMBER
<S> <C>
3(a) Election of the registrant to become governed by
Minnesota Statutes Chapter 302A and Restated Articles of
Incorporation of the registrant, dated March 11, 1983;
Articles of Amendment to Restated Articles of
Incorporation, dated October 29, 1984; Articles of
Amendment to Restated Articles of Incorporation, dated
August 14, 1987; Articles of Amendment to Restated
Articles of Incorporation, dated October 21, 1987.
(Filed as Exhibit 3(a) to the Registrant's Registration
Statement on Form S-1 (Reg. No. 40142) and incorporated
herein by reference.)
3(b) By-Laws of the registrant. (Filed as Exhibit 3(c) to the
Registrant's Registration Statement on Form S-1 (Reg.
No. 40142) and incorporated herein by reference.)
4(a) Three-for-two stock split. (Incorporated by reference to Exhibit A to
May 2, 1996, Form 8-K.)
4(b) Shareholder Rights Agreement dated December 23, 1996 (Incorporated by
reference to Exhibit 4 of the Company's report on Form 8-A12G dated
February 4, 1997)
10(a) Employment and Deferred Compensation Agreement, Dated as of April 14,
1998, between the Company and Paul D. Finkelstein.
10(b) Form of Employment and Deferred Compensation Agreement between the
Company and six executive officers. (Incorporated by reference to
Exhibit 10(b) of the Company's report on 10-K dated September 24,
1997, for the year ended June 30, 1997.)
10(c) Northwestern Mutual Life Insurance Company Policy Number
10327324, dated June 1, 1987, face amount $400,000 owned
by the registrant, insuring the life of Paul D.
Finkelstein and providing for division of death proceeds
between the registrant and the insured's designated
beneficiary (split-dollar plan). (Filed as Exhibit 10(g)
to the Registrant's Registration Statement on Form S-1
(Reg. No. 40142) and incorporated herein by reference.)
25
<PAGE>
10(d) Schedule of omitted split-dollar insurance policies.
(Filed as Exhibit 10(h) to the Registrant's Registration
Statement on Form S-1 (Reg. No. 40142) and incorporated
herein by reference.)
10(e) Note Agreement dated as of June 21, 1991 between the registrant and
The Prudential Insurance Company of America (Incorporated by
reference to Exhibit 10(o) as part of the Company's Report on 10-K
dated September 26, 1991 for the year ended June 30, 1991).
10(f) Employee Stock Ownership Plan and Trust Agreement dated as of May 15,
1992 between the registrant and Myron Kunin and Paul D. Finkelstein,
Trustees (Incorporated by reference to Exhibit 10(q) as part of the
Company's Report on 10-K dated September 27, 1993 for the year ended
June 30, 1993).
10(g) Executive Stock Award Plan and Trust Agreement dated as of July 1,
1992 between the registrant and Myron Kunin, Trustee (Incorporated by
reference to Exhibit 10(r) as part of the Company's Report on 10-K
dated September 27, 1993 for the year ended June 30, 1993).
10(h) Revolving Credit Agreement as of June 21, 1994 between the registrant
and LaSalle National Bank and Bank Hapoalim. (Incorporated by
reference to Exhibit 10(r) part of the Company's report on 10-K dated
September 28, 1994 for the year ended June 30, 1994.)
10(i) Employee Profit Sharing Plan and Trust agreement, amended June 22,
1994 between the registrant and Myron Kunin, Trustee. (Incorporated
by reference to Exhibit 10(t) part of the Company's report on 10-K
dated September 28, 1994 for the year ended June 30, 1994.)
10(j) Survivor benefit agreement dated June 27, 1994 between the Company
and Myron Kunin. (Incorporated by reference to Exhibit 10(t) part of
the Company's report on 10-K dated September 28, 1994 for the year
ended June 30, 1994.)
10(k) Modification to Revolving Credit Agreement in 10(h) dated July 20,
1995. (Incorporated by reference to Exhibit 10(n) part of the
Company's report on 10-K dated September 27, 1995 for the year ended
June 30, 1995.)
10(l) Modification of Note Agreement in 10(e) dated July 21, 1995.
(Incorporated by reference to Exhibit 10(g) part of the Company's
report on 10-K dated September 27, 1995 for the year ended June 30,
1995.)
10(m) Private Shelf Agreement dated as of July 25, 1995 between the
registrant and the Prudential Insurance Company of America.
(Incorporated by reference to Exhibit 10(m) of the Company's report
on 10-K dated September 24, 1997, for the year ended June 30, 1997.)
10(n) Agreements for Sale and Purchase dated as of December 29, 1995,
between the Company and Steiner Salons Limited and Steiner
Hairdressing Limited. (Incorporated by reference to Exhibit 10(r) of
the Company's report on 10-Q dated February 13, 1996, for the quarter
ended December 31, 1995.)
26
<PAGE>
10(o) Series A Senior Note drawn from Private Shelf Agreement dated as of
February 21, 1996, between the registrant and the Prudential
Insurance Company of America. (Incorporated by reference to Exhibit
10(s) of the Company's report on 10-Q dated May 3, 1996, for the
quarter ended March 31, 1996.)
10(p) Modification to Revolving Credit agreement in 10(k) dated March 19,
1996. (Incorporated by reference to Exhibit 10(t) of the Company's
report on 10-Q dated May 3, 1996, for the quarter ended March 31,
1996.)
10(q) Asset purchase agreement between the Company and National Hair Care
Centers LLC. (Incorporated by reference to Exhibit B to May 9, 1996,
Form 8-K.)
10(r) Series B Senior Note drawn from Private Shelf Agreement dated as of
June 10, 1996, between the registrant and the Prudential Insurance
Company of America. (Incorporated by reference to Exhibit 10(v) of
the Company's report on 10-K dated September 16, 1996, for the year
ended June 30, 1996.)
10(s) Modification to Revolving Credit agreement in 10(p) dated July 9,
1996. (Incorporated by reference to Exhibit 10(w) of the Company's
report on 10-K dated September 16, 1996, for the year ended
June 30, 1996.)
10(t) Agreement and plan of merger between the Company and Supercuts,
Inc. (Incorporated by reference to Exhibit 2.1 to July 15, 1996,
Form 8-K.)
10(u) Series C Senior Note drawn from Private Shelf Agreement dated as of
October 28, 1996, between the registrant and the Prudential Insurance
Company of America. (Incorporated by reference to Exhibit 10(x) of
the Company's report on 10-Q dated November 5, 1996, for the quarter
ended September 30, 1996.)
10(v) Term Note A Agreement between the registrant and LaSalle National
Bank dated October 28, 1996. (Incorporated by reference to Exhibit
10(y) of the Company's report on 10-Q dated November 5, 1996, for the
quarter ended September 30, 1996)
10(w) Series D Senior Note drawn from Private Shelf Agreement dated as of
December 13, 1996, between the registrant and the Prudential
Insurance Company of America. (Incorporated by reference to Exhibit
10(w) of the Company's report on 10-K dated September 24, 1997, for
the year ended June 30, 1997.)
10(x) Modification to Revolving Credit agreement in 10(s) dated March 19,
1997. (Incorporated by reference to Exhibit 10(x) of the Company's
report on 10-K dated September 24, 1997, for the year ended June 30,
1997.)
10(y) Series E Senior Note drawn from Private Shelf Agreement dated as of
April 7, 1997, between the registrant and the Prudential Insurance
Company of America. (Incorporated by reference to Exhibit 10(y) of
the Company's report on 10-K dated September 24, 1997, for the year
ended June 30, 1997.)
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<PAGE>
10(z) Compensation and non-competition agreement dated May 7, 1997, between
the Company and Myron Kunin. (Incorporated by reference to Exhibit
10(z) of the Company's report on 10-K dated September 24, 1997, for
the year ended June 30, 1997.)
10(aa) Term Note B Agreement between the registrant and LaSalle National
Bank dated July 11, 1997. (Incorporated by reference to Exhibit
10(aa) of the Company's report on 10-K dated September 24, 1997, for
the year ended June 30, 1997.)
10(bb) Modification of Private Shelf Agreement in 10(m) dated July 11, 1997.
(Incorporated by reference to Exhibit 10(bb) of the Company's report
on 10-K dated September 24, 1997, for the year ended June 30, 1997.)
10(cc) Series F Senior Note drawn from Private Shelf Agreement dated as of
July 28, 1997, between the registrant and the Prudential Insurance
Company of America. (Incorporated by reference to Exhibit 10(cc) of
the Company's report on 10-K dated September 24, 1997, for the year
ended June 30, 1997.)
10(dd) Modifications of Private Shelf Agreement in 10(bb) dated October 1,
1997. (Incorporated by reference to Exhibit 10(ff) of the Company's
report on 10-Q dated February 9, 1998, for the quarter ended December
31, 1997.)
10(ee) Private Shelf Agreement dated as of December 19, 1997 between the
registrant and ING Investment Management, Inc. (Incorporated by
reference to Exhibit 10(gg) of the Company's report on 10-Q dated
February 9, 1998, for the quarter ended December 31, 1997.)
10(ff) Series R-1 Senior Note drawn from Private Shelf dated as of December
19, 1997, between registrant and ING Investment Management, Inc.
(Incorporated by reference to Exhibit 10(hh) of the Company's report
on 10-Q dated February 9, 1998, for the quarter ended December 31,
1997.)
10(gg) Series R-2 Senior Note drawn from Private Shelf dated as of December
19, 1997, between registrant and ING Investment Management, Inc.
(Incorporated by reference to Exhibit 10(ii) of the Company's report
on 10-Q dated February 9, 1998, for the quarter ended December 31,
1997.)
10(hh) Modifications to Revolving Credit Agreement in 10 (x) dated December
30, 1997. (Incorporated by reference to Exhibit 10(jj) of the
Company's report on 10-Q dated February 9, 1998, for the quarter
ended December 31, 1997.)
10(ii) Revolving Credit Agreement dated as of May 5, 1998 between the
registrant and Bank of America National Trust and Savings
Association.
10(jj) Series G Senior Note dated as of July 10, 1998 between the registrant
and Prudential Insurance Company of America.
10(kk) Modifications to Revolving Credit Agreement in 10(hh) dated
September 1, 1998.
28
<PAGE>
10(ll) Variation and Restatement Agreement dated as of August 10, 1998
between Regis Europe Limited and National Westminster Bank Plc.
13 Select pages of the 1998 Annual Report to Shareholders.
23 Consent of Independent Accountants.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
There were no reports on Form 8-K filed during fiscal 1998.
</TABLE>
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
REGIS CORPORATION
By /s/ Myron Kunin
---------------------------
Myron Kunin, Chairman of the Board of Directors
By /s/ Randy L. Pearce
---------------------------
Randy L. Pearce, Senior Vice President, Finance and Chief
Financial Officer (Principal Financial and Accounting Officer)
DATE: September 17, 1998
-------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Myron Kunin
- -----------------------------
Myron Kunin, Chairman of the
Board of Directors
/s/ Paul D. Finkelstein
- -----------------------------
Paul D. Finkelstein, Director
/s/ Christopher A. Fox
- -----------------------------
Christopher A. Fox, Director
/s/ David Kunin
- -----------------------------
David Kunin, Director
/s/ Rolf F. Bjelland
- -----------------------------
Rolf F. Bjelland, Director
/s/ Van Zandt Hawn
- -----------------------------
Van Zandt Hawn, Director
/s/ Susan Hoyt
- -----------------------------
Susan Hoyt, Director
/s/ Tom Gregory
- -----------------------------
Tom Gregory, Director
30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Shareholders and Directors of
Regis Corporation:
Our report on the consolidated financial statements of Regis
Corporation has been incorporated by reference in this Form 10-K from page 35
of the 1998 Annual Report to Shareholders of Regis Corporation. In connection
with our audits of such financial statements, we have also audited the
related financial statement schedule listed in Item 14(a)(2) of this Form
10-K.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information required to
be included therein.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
August 21, 1998
31
<PAGE>
REGIS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
as of June 30, 1998, 1997 and 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- ------------------------ -------- --------
Balance at Charged to Balance at
beginning costs and Charged to end of
Description of period expenses Other Accounts Deductions period
- ----------- ---------- --------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
JUNE 30, 1998:
Valuation Account, Receivable from Premier Salons $2,899 xx xx $2,899 (1) $0
Valuation Account, Premier Salons Preferred Stock $500 xx xx $500 (2) $0
Valuation Account, Allowance for doubtful accounts $200 xx xx $122 $78
JUNE 30, 1997:
Valuation Account, Receivable from Premier Salons $3,800 xx xx $901(3) $2,899
Valuation Account, Premier Salons Preferred Stock $500 xx xx xx $500
Valuation Account, Allowance for doubtful accounts $344 $236 xx $380 $200
JUNE 30, 1996:
Valuation Account, Receivable from Premier Salons $4,500 xx xx $700(3) $3,800
Valuation Account, Premier Salons Preferred Stock $500 xx xx xx $500
Valuation Account, Allowance for doubtful accounts $73 $360 xx $89 $344
</TABLE>
NOTES:
(1) Includes a payment of $156,000 and salon assets totalling $629,000
received in partial settlement of previously reserved balance.
(2) Redemption of Preferred Stock by Premier Salons.
(3) Payments received on previously reserved balance.
32
<PAGE>
EMPLOYMENT
AND
DEEERRED COMPENSATION AGREEMENT
AGREEMENT, made as of April 14, 1998, between
REGIS CORPORATION, hereinafter referred to as the "Corporation",
and
Paul D. Finkelstein, hereinafter referred to as "Finkelstein".
IN CONSIDERATION of the mutual agreements hereinafter contained, the
parties hereby agree as follows:
1. DEFINITIONS.
"ADJUSTED MONTHLY BENEFIT" shall mean Finkelstein's Monthly Benefit
increased annually after the first year during which Monthly Benefits are
paid in proportion to any increase in the Consumer Price Index for the
preceding year.
"CAUSE" shall mean (i) the willful and continued failure by
Finkelstein to substantially perform his duties for the Corporation after a
written warning specifically identifying the lack of substantial
performance is delivered to him by the Corporation, (ii) the willful
engaging by Finkelstein in illegal conduct which is materially and
demonstrably injurious to the Corporation, or (iii) conviction of a felony.
"CHANGE IN CONTROL" shall be deemed to have occurred at such time as
any of the following events occur: (i) any person within the meaning of
Section 2(a)(2) of the Securities Act of 1933 and Section 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), other than Curtis
Squire, Inc. or the present shareholders of Curtis Squire, Inc., is or has
become the "beneficial owner," as defined in Rule 13d-3 under the Exchange
Act, of twenty percent (20%) or more of the common stock of the
Corporation, or (ii) approval by the stockholders of the Corporation of (a)
any consolidation or merger of the Corporation in which the Corporation is
not the continuing or surviving corporation or pursuant to which shares of
stock of the Corporation would be converted into cash, securities or other
property, or (b) any consolidation or merger in which the Corporation is
the continuing or surviving corporation but in which the common
stockholders of the Corporation immediately prior to the consolidation or
merger do not hold at least a majority of the outstanding common stock of
the continuing or surviving corporation, or (c) any sale, lease, exchange
or other transfer of all or substantially all the assets of the
Corporation, or (iii) individuals who constitute the Corporation's Board of
Directors on January 1, 1998 (the Incumbent Board") have ceased for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to January 1, 1998 whose election, or
nomination for election by the Corporation's stockholders, was
<PAGE>
approved by a vote of at least three-quarters (3/4) of the directors
comprising the Incumbent Board (either by specific vote or by approval
of the proxy statement of the Corporation in which such person is named
as nominee for director) shall be, for purposes of this Agreement,
considered as though such person were a member of the Incumbent Board.
"CONSUMER PRICE INDEX" shall be the "Consumer Price Index for all
urban consumers, U.S. city average, for all Items, 1982-1984 equals 100%"
published by the Bureau of Labor Statistics of the United States Department
of Labor. If publication of such Index is discontinued, the Consumer Price
Index shall be based upon comparable statistics on the cost of living as
computed and published by an agency of the United States or by a
responsible financial periodical of recognized authority.
"DISCOUNTED VESTED MONTHLY BENEFIT" shall be an amount determined by
discounting Finkelstein's Vested Monthly Benefit to present value based on
the number of months between (a) Finkelstein's age at the time of his
termination of employment, and (b) the date of his 65th birthday. The
discount rate to be used for this purpose shall be equal to the yield to
maturity, at the date of termination of Finkelstein's employment, of U.S.
Treasury Notes with a maturity date nearest the date of Finkelstein's 65th
birthday.
"MONTHLY BENEFIT" shall be an amount equal to sixty percent (60%) of
Finkelstein's average monthly compensation, excluding bonuses, for the
sixty (60) months immediately preceding his termination of employment or
disability.
"VESTED MONTHLY BENEFIT" shall be a percentage of Finkelstein's
Monthly Benefit determined on the basis of the number of Finkelstein's
completed years of service with the Corporation according to the following
schedule:
<TABLE>
<CAPTION>
Years of Service Percentage
---------------- ----------
<S> <C>
Less than 7 years 0%
7 years 5%
8 years 10%
9 years 15%
10 years 20%
11 years 25%
12 years 30%
13 years 35%
14 years 40%
15 years 50%
16 years 60%
l7 years 70%
18 years 80%
19 years 90%
20 or more years 100%
</TABLE>
-2-
<PAGE>
A year of service for purposes of vesting shall be a consecutive 12-month
period during which Finkelstein is employed by the Corporation.
2. EMPLOYMENT. The Corporation agrees to continue to employ
Finkelstein, and Finkelstein agrees to continue to serve the Corporation as
President and Chief Executive Officer of the Corporation, upon the terms and
conditions hereinafter set forth.
3. TERM. The employment of Finkelstein pursuant to this Agreement has
commenced as of the date of this Agreement and shall continue until
terminated by either of the parties hereto. The parties agree and acknowledge
that the employment of Finkelstein pursuant to this Agreement is at will and
may be terminated by either party without notice. Notwithstanding the
termination of employment of Finkelstein, this Agreement shall remain in full
force and effect during such time as Finkelstein is entitled to any Monthly
Benefit under this Agreement.
4. DUTIES. Finkelstein shall continue to serve the Corporation
faithfully and to the best of his ability as President and Chief Executive
Officer under the direction of the Board of Directors of the Corporation.
devoting his entire business time, energy and skill to such employment.
After attaining age 65. Finkelstein shall continue to render services to the
Corporation in an executive capacity, including but not limited to serving on
the Corporation's Board of Directors (subject to election to such office by
the shareholders of the Corporation), actively participating in the
Corporation's growth and acquisition strategies, and performing such other
duties as may be mutually agreed upon between Finkelstein and the
Corporation's Board of Directors from time to time. The parties contemplate
that Finkelstein's services shall continue at least until he attains age 70,
but his inability or failure to continue providing services to the
Corporation after attaining age 65 shall not adversely affect any deferred
compensation or other benefits to which he is otherwise entitled under this
Agreement.
5. BASE COMPENSATION. The Corporation agrees to pay to Finkelstein
during the term of his employment hereunder as base salary for his full time
active services the sum of $500,000 for the fiscal year beginning July 1,
1999. Such base salary shall be increased for each year thereafter by the
greater of (i) four percent (4%), or (ii) the percentage increase in the
Consumer Price Index from July 1, 1999 to each July 1 thereafter in which
Finkelstein is employed by the Corporation.
6. INCENTIVE-BASED COMPENSATION. Finkelstein shall participate with
other senior executive officers of the Corporation in the Corporation's
incentive-based bonus plan.
7. STOCK OPTIONS. During each year of employment with the
Corporation, subject to implementation of an appropriate stock option plan
for other senior executive officers of the Corporation, Finkelstein shall be
granted stock options to acquire shares of the Corporation's stock with the
number of shares subject to such options to be determined by the Compensation
Committee of the Corporation's Board of Directors. The exercise price for
such options shall be the price of the shares on each date when such options
are granted. If the Corporation at any time ceases to maintain a stock option
plan for its senior executives, Finkelstein shall receive in lieu
-3-
<PAGE>
of such options other annual benefits at least equal in value to the value of
the stock options annually granted to him while such plan was in effect.
8. SPLIT DOLLAR LIFE INSURANCE. Finkelstein and the Corporation shall
participate in a split dollar life insurance program whereby a trust
established by Finkelstein will acquire a $5 million combined whole-life/term
policy insuring the joint lives of Finkelstein and his spouse. The split
dollar insurance agreement shall provide for payments of premiums and
distribution of death benefits in accordance with Schedule A attached hereto.
9. DEFERRED COMPENSATION. The Corporation shall pay to Finkelstein,
if living, or to his spouse in the event of his death, the following sums
upon the terms and conditions and for the periods hereinafter set forth:
a] PAYMENTS UPON RETIREMENT OR INVOLUNTARY TERMINATION. Commencing
upon the last day of the month next following the month in which
Finkelstein (i) retires from employment with the Corporation after
attaining age 65, (ii) reaches age 65 if he is then disabled within
the meaning of Section 9(d), or (iii) is terminated by the Corporation
without Cause, the Corporation shall pay to Finkelstein his Adjusted
Monthly Benefit and shall continue to pay him such amounts monthly on
the same date of each succeeding month for the remainder of his life.
If Finkelstein's spouse survives him, the Corporation shall pay to
such spouse for the remainder of her life one-half of Finkelstein's
Adjusted Monthly Benefit.
b] EARLY VOLUNTARY TERMINATION. In the event Finkelstein voluntarily
terminates his employment with the Corporation before reaching age 65,
and prior to any Change of Control, the Corporation shall pay to
Finkelstein two-thirds of his Discounted Vested Monthly Benefit
commencing upon the last day of the month next following the month in
which the date such termination occurs, and shall continue to pay him
such amount monthly on the same date of each succeeding month for a
total of 240 months. If Finkelstein dies before receiving all 240
monthly payments specified herein, the Corporation shall pay to his
surviving spouse, or to such other person or persons as Finkelstein
shall have designated in writing, the remaining monthly payments as
they become due.
c] SPOUSAL PAYMENTS. If Finkelstein dies while employed by the
Corporation, the Corporation shall pay to his surviving spouse
one-half of the Adjusted Monthly Benefit to which Finkelstein would
have been entitled were he living, such payments to commence within
thirty (30) days after Finkelstein's death and to continue monthly
for the remainder of her life.
d] PAYMENTS DURING DISABILITY. In addition to the payments provided in
Subsections (a) and (b), should Finkelstein become disabled while
-4-
<PAGE>
employed by the Corporation, and such disability continues for a
period of six months the Corporation shall pay to Finkelstein his
Monthly Benefit during each month that Finkelstein remains disabled
until he attains age 65 or until his death prior to attaining such
age, at which time the payments provided in Subsections (a), (b) or
(c) (whichever is applicable) shall begin. The first payment under
this Section (d) shall be made during the seventh month of such
disability, and each succeeding payment shall be made on the same date
of each succeeding month thereafter. Payments shall be made under this
Section (d) only if Finkelstein is disabled within the meaning of the
disability clause of the Corporation's disability insurance policy, as
set forth in the waiver of premium provision.
e] TERMINATION FOR CAUSE. If Finkelstein's employment with the
Corporation is terminated at any time for Cause, the Corporation shall
have no obligation to make any payments to him under this Agreement
and all such future payments shall be forfeited.
f] REDUCTION IN STATUS. The Corporation shall be deemed to have
terminated Finkelstein's employment without Cause at such time as (i)
he is removed as Chief Executive Officer of the Corporation, or (ii)
the corporate prerequisites and benefits afforded him, including but
not limited to office space and facilities suitable to his position as
Chief Executive Officer of the Corporation, are reduced so as to be
less favorable than those presently afforded him, except if such
action is taken specifically for Cause.
The Corporation is the owner and beneficiary of certain insurance policies
on Finkelstein's life and insuring against his disability. No payments shall be
required under Sections (a), (c) or (d) of this Section 9, if because of any act
by Finkelstein, either (i) the applicable policy is canceled by the insurance
company issuing such policy or (ii) the insurance company refuses to pay the
proceeds of said policy.
10. TERMINATION AFTER CHANGE IN CONTROL. Notwithstanding any other
provision of the Agreement, Finkelstein, and upon his death, his surviving
spouse (as provided in Section 9(c) above) shall be entitled to immediate
payment of his Adjusted Monthly Benefit if his employment terminates following a
Change in Control, whether such termination is by Finkelstein or by the
Corporation, unless the termination is by the Corporation for Cause.
11. RESTRICTIVE COVENANT.
a] Finkelstein expressly agrees, as a condition to the performance by the
Corporation of its obligations hereunder, that during the term of this
Agreement and during the further period that such payments to him are
provided by this Agreement, he will not, directly or indirectly, own
any interest in, render any services of any nature
-5-
<PAGE>
to, become employed by, or participate or engage in the licensed
beauty salon business, except with the prior written consent of the
Corporation.
b] If Finkelstein voluntarily terminates his employment with the
Corporation and violates the restrictive covenant set forth in
subparagraph a] above during the first twenty-four (24) months after
such termination of employment, and such violation continues for
thirty (30) days after Finkelstein is notified in writing by the
Company that he is in violation of the restrictive covenant, then the
Corporation shall have no further obligation to make any payments to
him under this Agreement and all such future payments shall be
forfeited. If such violation occurs after twenty-four (24) months
after such termination and continues for thirty (30) days after notice
as provided hereinabove, Finkelstein shall forfeit one (1) month of
his Adjusted Monthly Benefit for each month that he is in violation of
the restrictive covenant.
c] If Finkelstein's employment with the Corporation is terminated by the
Corporation without Cause, and if he at any time after such
termination continues to violate the restrictive covenant for thirty
(30) days after being notified in writing by the Corporation that he
is in violation of the restrictive covenant, he shall forfeit one (1)
month of his Adjusted Monthly Benefit for each month or portion of a
month that he continues in violation of the restrictive covenant.
12. TRUST AGREEMENT. The Corporation has established a Trust Agreement
under the Regis Corporation Deferred Compensation Agreement and said Trust
Agreement is hereby incorporated by reference into this Agreement and made a
part hereof.
13. GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the laws of the State of Minnesota.
14. ARBITRATION. All controversies or claims arising out of or
relating to this Agreement or the breach thereof, shall be settled by
arbitration in Minneapolis, Minnesota, administered by the American
Arbitration Association under its then current Commercial Arbitration Rules,
and judgment on the award rendered by the arbitrator(s) may be entered in the
District Court of Hennepin County, Minnesota.
15. PROHIBITION AGAINST ASSIGNMENT. Finkelstein agrees, on behalf of
himself and his personal representatives, and any other person claiming any
benefits under him by virtue of this Agreement, that this Agreement and the
rights, interests and benefits hereunder shall not be assigned, transferred
or pledged in any way by Finkelstein or any person claiming under him by
virtue of this Agreement and shall not be subject to execution, attachment,
garnishment or similar process.
16. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of any successor of the Corporation, and any successor shall be
deemed substituted for the
-6-
<PAGE>
Corporation under the terms of this Agreement. As used in this Agreement, the
term "successor" shall include any person, firm, corporation or other business
entity which at any time, whether by merger, purchase, or otherwise, acquires
all or substantially all of the capital stock or assets of the Corporation.
17. PRIOR AGREEMENTS. This Agreement supersedes all prior Employment
and Deferred Compensation Agreements, and any amendments or supplements
thereto, between the parties to this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
REGIS CORPORATION
By: /s/ [ILLEGIBLE]
----------------------------
Chief Financial Officer
/s/ Paul D. Finkelstein
--------------------------------
Paul D. Finkelstein
-7-
<PAGE>
SPLIT DOLLAR PLAN
PREPARED FOR
REGIS INC.
Barbara Finkelstein Age 55 Page 1
Paul D. Finkelstein Age 55
$5,000,000 Joint CompLife Plan - ES $100,000.00 Initial Contract Premium
$3,000,000 Basic Amount Incl. $33,000.00 Additional Premium
$1,500,000 Additional Protection
Based on dividend interest rates which changes and are less than or equal to the
current dividend interest rate
Dividends initially used to purchase paid-up additions
This illustration assumes payment of all premiums when due. Policy paid-up at
age 100.
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6) (7) (8)
CORPORATE CUMULATIVE
ANNUAL CORPORATE EXECUTIVE CUMULATIVE
SPLIT SPLIT CORPORATE CORPORATE ANNUAL EXECUTIVE EXECUTIVE EXECUTIVE
DOLLAR DOLLAR DEATH CASH AFTER TAX AFTER TAX DEATH CASH
YEAR AGE PAYMENT* PAYMENT* BENEFIT* VALUE* COST* COST* BENEFIT* VALUE*
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 55 99,069 99,069 99,069 33,033 931 931 4,900,931 0
2 56 98,896 197,964 197,964 135,099 1,104 2,036 4,802,036 0
3 57 98,730 296,694 296,694 244,044 1,270 3,306 4,703,306 0
4 58 93,526 395,221 395,221 360,664 1,474 4,779 4,604,779 0
5 59 98,333 493,554 493,554 485,075 1,667 6,446 4,506,446 0
6 60 98,060 591,614 591,614 591,614 1,940 8,386 4,408,386 26,299
7 61 97,753 689,372 689,372 689,372 2,242 10,628 4,310,628 69,901
8 62 97,333 786,760 786,760 786,760 2,612 13,240 4,213,240 123,044
9 63 96,995 883,755 883,755 883,755 3,005 16,245 4,116,245 186,358
10 64 96,543 980,298 930,298 980,298 3,457 19,702 4,019,702 260,549
11 65 95,998 1,076,296 1,076,296 1,076,296 4,002 23,704 3,923,704 344,577
12 66 95,406 1,171,702 1,171,702 1,171,702 4,594 23,298 3,828,293 444,759
13 67 94,528 1,266,231 1,266,231 1,266,231 5,472 33,769 3,826,257 556,077
14 68 93,440 1,359,671 1,359,671 1,359,671 6,560 40,329 3,881,541 681,415
15 69 92,112 1,451,713 1,451,783 1,451,783 7,888 43,217 3,943,993 821,768
16 70 90,416 1,542,269 1,542,269 1,542,269 9,514 57,731 4,014,310 978,135
17 71 88,539 1,630,808 1,630,808 1,630,808 11,461 69,192 4,093,278 1,155,663
18 72 86,091 1,716,899 1,716,899 1,716,899 13,909 83,101 4,189,386 1,355,838
19 73 83,091 1,799,990 1,799,990 1,799,990 16,909 100,010 4,302,621 1,530,133
20 74 79,380 1,879,369 1,879,369 1,179,369 20,620 120,631 4,434,476 1,763,216
21 75 -1,879,369 0 0 0 0 120,631 3,533,997 1,382,271
22 76 0 0 0 0 0 120,631 3,569,822 2,007,301
23 77 0 0 0 0 0 120,631 3,615,094 2,138,252
24 78 0 0 0 0 0 120,631 3,669,291 2,275,015
25 79 0 0 0 0 0 120,631 3,731,954 2,417,611
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(SEE SPECIFICATIONS PAGES FOR PERTINENT INFORMATION)
*ILLUSTRATED VALUES AND BENEFITS INCLUDE DIVIDENDS. ILLUSTRATED DIVIDENDS
REFLECT CURRENT (1998 SCALE) CLAIM AND EXPENSE EXPERIENCE AND ARE NOT
ESTIMATES OR GUARANTEES OF FUTURE RESULTS. DIVIDENDS ACTUALLY PAID MAY BE
LARGER OR SMALLER THAN THOSE ILLUSTRATED. THIS ILLUSTRATION DOES NOT
RECOGNIZE THAT, BECAUSE OF INTEREST, A DOLLAR IN THE FUTURE HAS LESS VALUE
THAN A DOLLAR TODAY. 7.39% 1998 VARIABLE RATE LOAN PROVISIONS.
RP S/N SELECT/SELECT PREPARED BY MICHAEL L. FINKELSTEIN, CLU, 2/17/98
ILLUSTRATION NO. MN1320-LRSHD-092409 THE NORTHWESTERN MUTUAL LIFE - MILWAUKEE
(13.2)
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BANK OF AMERICA MULTICURRENCY DEMAND LOAN AGREEMENT
NATIONAL TRUST AND SAVINGS ASSOCIATION
231 South LaSalle Street
Chicago, Illinois 60697
- -------------------------------
May 5, 1998
Regis Corporation
7201 Metro Boulevard
Edina, Minnesota 55439
Attention: Kyle Didier
Ladies/Gentlemen:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "BANK") is
pleased to confirm that the Bank may, in its sole and absolute discretion, make
loans to REGIS CORPORATION (the "Borrower") from time to time, on the following
terms and conditions:
1. DEFINITIONS
"APPLICABLE CURRENCY": As to any particular Advance, Dollars or the
Offshore Currency in which it is denominated or is payable.
"BANKING DAY": A day other than a Saturday or a Sunday on which the Bank
is open for business in Chicago, Illinois and (a) with respect to disbursements
and payments in Dollars, a day on which dealings are carried on in the
applicable offshore Dollar interbank market, and (b) with respect to
disbursements and payments in and calculations pertaining to any Advance
denominated in an Offshore Currency, a day on which commercial banks are open
for foreign exchange business in London, England, and on which dealings in the
relevant Offshore Currency are carried on in the applicable offshore foreign
exchange interbank market. All payments received on a day which is not a Banking
Day will be applied to the line of credit on the next Banking Day.
"DOLLAR" and the sign "$": The lawful currency of the United States of
America.
"DOLLAR EQUIVALENT": At any time, (a) as to any amount denominated in
Dollars, the amount thereof at such time, and (b) as to any amount denominated
in an Offshore Currency, the equivalent amount in Dollars as determined by the
Bank at such time on the basis of its spot rate of exchange (including all
related costs of conversion) for the purchase of Dollars with such Offshore
Currency at approximately 11:00 a.m., Chicago time, on the date on which such
calculation would be necessary for the delivery of Dollars on the applicable
date contemplated in this Agreement.
"OFFSHORE CURRENCY": The lawful currencies constituting eurocurrencies
(other than Dollars) set forth in SCHEDULE 1 to this Agreement, and any other
eurocurrency which is, in the sole discretion of the Bank, freely traded in the
offshore interbank foreign exchange markets and is freely transferable and
freely convertible into Dollars.
"REFERENCE RATE": The rate of interest publicly announced from time to
time by the Bank in Chicago, Illinois, as its Reference Rate. The Reference Rate
is set by the Bank based on various factors, including the Bank's costs and
desired return, general economic conditions and other factors, and is used as a
reference point for pricing some loans. The Bank may price loans to its
customers at, above, or below the Reference Rate. Any change in the Reference
Rate will take effect at the opening of business on the day specified in the
public announcement of a change in the Reference Rate.
<PAGE>
Regis Corporation
May 5, 1998
Page 2
2. LINE OF CREDIT AMOUNT AND TERMS
2.1 LINE OF CREDIT AMOUNT. The Borrower may borrow, repay and reborrow from
the Bank to and including the Termination Date (defined below), unless sooner
notified by the Bank of the termination of this line of credit, such amounts
(the "ADVANCES") as the Borrower may from time to time request, but not
exceeding the Dollar Equivalent amount of $20,000,000, or such reduced amount as
may be fixed by the Bank by written notice to the Borrower (the "LINE OF CREDIT
AMOUNT") in the aggregate at any one time outstanding. If at any time the Bank
determines that the aggregate Dollar Equivalent amount of all Advances hereunder
exceeds the Line of Credit Amount due to a change in applicable rates of
exchange between Dollars and any Offshore Currency, then the Bank shall give
notice to the Borrower that a prepayment is required and the Borrower will make
such prepayment such that, after giving effect to such prepayment, the aggregate
Dollar Equivalent amount of all Advances does not exceed the Line of Credit
Amount.
2.2 "TERMINATION DATE" means May 4, 1999 or such later date to which the
Termination Date may be extended by the Bank in its sole and absolute discretion
and based on such review of the Borrower's financial performance and condition
and such other factors as the Bank considers relevant (which may include, but
not be limited to, future loan policies and other policies adopted by the Bank
unrelated to the Borrower's financial condition). Any such extension must be in
writing signed by the Bank and acknowledged by the Borrower. In the case of any
such extension, the Termination Date will be the date to which such extension
has been granted. The Bank is under no obligation or commitment to extend the
Termination Date and no such obligation or commitment on the part of the Bank
may be inferred from this provision.
2.3 NOTE EVIDENCING ADVANCES. The Advances will be evidenced by the
Borrower's promissory note (the "Note") in the form set forth as EXHIBIT A, and
will be payable on the earlier of the Termination Date or demand. The Bank will
record all Advances (and the Applicable Currency) made pursuant to this
Agreement and all payments of principal in its records, which records will be
rebuttable presumptive evidence of the subject matter thereof.
2.4 ADVANCES. The Borrower may elect to have an Advance denominated in
Dollars or in an Offshore Currency.
2.5 ELECTION TO MAKE ADVANCES; ALL ADVANCES PAYABLE ON DEMAND. The
Borrower agrees that its compliance with and its performance of the
provisions of this Agreement do not obligate the Bank to make any Advances
and that the Bank will make any Advance in its sole and absolute discretion.
The Borrower further agrees that, notwithstanding the Borrower's compliance
with and performance of the provisions of this Agreement, the Bank has the
right to demand payment of the Advances at any time.
2.6 INTEREST RATE.
(a) REFERENCE RATE. For any Advance denominated in Dollars, unless the
Borrower elects the Offshore Rate described below, the interest rate is the
Reference Rate, defined below, per annum.
(b) OFFSHORE RATE. The Borrower may elect to have any Advance denominated
in Dollars bear interest at the Offshore Rate plus 1.00% per annum. All Advances
denominated in an Offshore Currency will bear interest at the Offshore Rate plus
1.00% per annum. At the end of any interest period, unless the Borrower has
designated another interest period, any Advance denominated in an Offshore
Currency will be redenominated into Dollars (using the Dollar Equivalent) and
the interest rate for any Advance denominated in Dollars will revert to the rate
based on the Reference Rate. Designation of an Offshore Rate Advance is subject
to the following requirements:
(1) The interest period during which the Offshore Rate will be in
effect will be 1, 2 or 3 months, as agreed between the Bank and the
Borrower. The last day of the interest period will be determined by the
Bank using the practices of the inter-bank eurocurrency market.
(2) Each Offshore Rate Advance will be for an amount not less than
the Dollar Equivalent amount of $500,000 and in integral multiples of the
Dollar Equivalent amount of $100,000.
<PAGE>
Regis Corporation
May 5, 1998
Page 3
(3) The Borrower must irrevocably request an Offshore Rate Advance
no later than 12:00 noon, Chicago time, three Banking Days before the
commencement of the interest period.
(4) "OFFSHORE RATE" means the interest rate determined by the
following formula, rounded upward to the nearest 1/100 of 1% (all amounts
in the calculation will be determined by the Bank as of the first day of
the interest period):
Offshore Rate = Interbank Rate
---------------------------
(1.00 - Reserve Percentage)
Where,
(A) "INTERBANK RATE" means the interest rate (rounded upward to the
nearest 1/16th of 1%) at which deposits in the Applicable Currency
for the applicable interest period are offered to the Bank by major
banks in the inter-bank eurocurrency market two Banking Days prior to
commencement of the interest period.
(B) "RESERVE PERCENTAGE" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member
banks of the Federal Reserve System for Eurocurrency Liabilities, as
defined in Federal Reserve Board Regulation D, rounded upward to the
nearest 1/100 of 1%. The percentage will be expressed as a decimal,
and will include, but not be limited to, marginal, emergency,
supplemental, special, and other reserve percentages.
(5) Any Advance already bearing interest at an Offshore Rate will not
be converted to a different rate during its interest period.
(6) Each prepayment of an Offshore Rate Advance, whether voluntary,
by reason of demand or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid and a prepayment fee as described
below. A "prepayment" is a payment of any amount on a date earlier than
the scheduled payment date for such amount as required by this Agreement.
The prepayment fee will be equal to the amount (if any) by which:
(A) the additional interest which would have been payable during
the interest period on the amount prepaid had it not been prepaid,
exceeds
(B) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the inter-bank eurocurrency
market for a period starting on the date on which it was prepaid and
ending on the last day of the interest period for such Advance, or
the scheduled payment date for the amount prepaid, if earlier.
(7) The Bank will have no obligation to accept an election for an
Offshore Rate Advance if any of the following described events has
occurred and is continuing:
(A) deposits in the Applicable Currency in the principal amount,
and for periods equal to the interest period, of an Offshore Rate
Advance are not available in the inter-bank eurocurrency market; or
(B) the Offshore Rate does not accurately reflect the cost of an
Offshore Rate Advance.
(c) INTEREST CALCULATION. Except as otherwise stated in this Agreement,
all interest will be computed on the basis of a 360-day year and the actual
number of days elapsed.
(d) DEFAULT RATE. After demand, the unpaid principal balance of the Note
will bear interest at a rate per annum which is 2% percent higher than the rate
of interest otherwise provided under this Agreement.
2.7 REPAYMENT TERMS.
<PAGE>
Regis Corporation
May 5, 1998
Page 4
(a) INTEREST. Interest accruing prior to demand on a Reference Rate
Advance will be payable monthly on the first day of each month and at the time
of demand, beginning with the first such date to occur after the initial
Advance. Interest accruing prior to demand on an Offshore Rate Advance will be
paid on the last day of each interest period. Interest accruing after demand
will be payable on demand.
(b) PRINCIPAL. If demand for payment is not sooner made, the Borrower
will repay in full all principal and any unpaid interest or other charges
outstanding under this Agreement no later than the Termination Date; PROVIDED,
HOWEVER, that any amount bearing interest at the Offshore Rate may be repaid at
the end of the applicable interest period, which will be no later than the
Termination Date.
2.8 CURRENCY EQUIVALENTS GENERALLY. For all purposes of this Agreement, the
equivalent in any Offshore Currency of an amount in Dollars, and the equivalent
in Dollars of an amount in any Offshore Currency, shall be determined by the
Bank on the basis of the spot rate of exchange (including all related costs of
conversion) at approximately 11:00 a.m., Chicago time, on the date on which such
calculation would be necessary for the delivery of Dollars or such Offshore
Currency on the applicable date contemplated in this Agreement. Any
determination made by the Bank pursuant to this SECTION 2.7 will be conclusive
and binding in the absence of manifest error.
3. DISBURSEMENTS, PAYMENTS AND COSTS
3.1 REQUESTS FOR ADVANCES. Each request for an Advance will be made in
writing in a manner acceptable to the Bank, or by another means acceptable to
the Bank.
3.2 DISBURSEMENTS AND PAYMENTS. Each Advance made by the Bank, in its sole
and absolute discretion, will be made in immediately available funds in the
Applicable Currency. Each payment by the Borrower will be made without set-off
or counterclaim in immediately available funds in the Applicable Currency not
later than 2:00 p.m., Chicago time, on the dates called for under this Agreement
at the Bank's office at 231 South LaSalle Street, Chicago, Illinois 60697. Funds
received on any day after such time will be deemed to have been received on the
next Banking Day. Whenever any payment to be made hereunder or on the Note is
stated to be due on a day which is not a Banking Day, such payment will be made
on the next succeeding Banking Day and such extension of time will be included
in the computation of any interest.
3.3 TELEPHONE AUTHORIZATION.
(a) The Bank may honor telephone instructions for Advances or repayments
given by any one of the individuals authorized to sign loan agreements on behalf
of the Borrower, or any other individual designated by any one of such
authorized signers.
(b) Advances will be deposited in the Borrower's account number 1233227795
(the "ACCOUNT") or such other of the Borrower's accounts with the Bank as
designated in writing by the Borrower.
(c) At the request of the Bank, the Borrower will promptly provide written
confirmation to the Bank of any telephone instructions. If there is a
discrepancy and the Bank has already acted on the telephone instructions, the
telephone instructions will prevail over the written confirmation.
(d) The Borrower indemnifies and excuses the Bank (including its officers,
employees, and agents) from all liability, loss, and costs in connection with
any act resulting from telephone instructions it reasonably believes are made by
any individual authorized by the Borrower to give such instructions. This
indemnity and excuse will survive this Agreement.
3.4 DIRECT DEBIT. The Borrower agrees that interest and principal payments
will be deducted automatically on the due date from the Account. The Bank will
debit the Account on the dates the payments become due. If a due date does not
fall on a Banking Day, the Bank will debit the Account on the first Banking Day
following the due date. If there are insufficient funds in the Account on the
date the Bank enters any debit the debit will be reversed.
<PAGE>
Regis Corporation
May 5, 1998
Page 5
3.5 TAXES. The Borrower will not deduct any taxes from any payments it makes
to the Bank. If any government authority imposes any taxes on any payments made
by the Borrower, the Borrower will pay the taxes and will also pay to the Bank,
at the time interest is paid, any additional amount which the Bank specifies as
necessary to preserve the after-tax yield the Bank would have received if such
taxes had not been imposed. Upon request by the Bank, the Borrower will confirm
that it has paid the taxes by giving the Bank official tax receipts (or
notarized copies) within 30 days after the due date. The Borrower will not pay
the Bank's net income taxes.
4. AGREEMENTS OF BORROWER.
4.1 FINANCIAL INFORMATION. The Borrower agrees to provide the following
financial information and statements in form and content acceptable to the Bank,
and such additional information as requested by the Bank from time to time.
(a) Within 90 days of the Borrower's fiscal year end, the Borrower's
annual financial statements. These financial statements must be audited (with an
unqualified opinion) by a Certified Public Accountant ("CPA") acceptable to the
Bank. The statements shall be prepared on a consolidated and consolidating
basis.
(b) Within 45 days of the period's end, the Borrower's quarterly financial
statements. These financial statements must be reviewed by a CPA acceptable to
the Bank. The statements shall be prepared on a consolidated and consolidating
basis.
(c) Within 30 days of the period's end, the Borrower's monthly financial
statements, including a report summarizing same store comparable sales for
mature salons from period to period, new salon openings as compared to the
Borrower's business plan, and new store operating performance as compared to
such business plan. These financial statements may be Borrower prepared. The
statements shall be prepared on a consolidating basis.
(d) Within the period(s) provided in (a) and (b) above, a compliance
certificate of the Borrower signed by an authorized financial officer of the
Borrower setting forth (i) the information and computations (in sufficient
detail) to establish that the Borrower is in compliance with all financial
covenants set forth in that certain Amended and Restated Credit Agreement, dated
as of December 30,1997 (the "LASALLE CREDIT AGREEMENT"), among the Borrower,
LaSalle National Bank, as Agent and the lenders thereunder, at the end of the
period covered by the financial statements then being furnished and (ii) whether
there existed as of the date of such financial statements and whether there
exists as of the date of the certificate, any default under the LaSalle Credit
Agreement and, if any such default exists, specifying the nature thereof and the
action the Borrower is taking and proposes to take with respect thereto.
4.2 LIENS. The Borrower agrees that Section 8C(1) ("Liens") of the LaSalle
Credit Agreement (and all definitions associated with such section) is
incorporated by reference herein as if set forth herein.
5. CONDITIONS Prior to requesting the initial Advance, the Borrower will
furnish the Bank with each of the following documents, each duly executed and
dated as of the date of the Borrower's acceptance of this
Agreement:
5.1 NOTE. The Note payable to the order of the Bank.
5.2 AUTHORIZATIONS. Evidence that the execution, delivery and performance by
the Borrower of this Agreement and the Note and any instrument or agreement
required under this Agreement have been duly authorized.
5.3 GOOD STANDING. Certificates of good standing for the Borrower from its
state of incorporation and from any other state in which the Borrower is
required to qualify to conduct its business.
5.4 OFFSET SHARING AGREEMENT. An Offset Sharing Agreement, in form and
content satisfactory to the Bank, among the Bank and the Lenders under the
LaSalle Credit Agreement.
<PAGE>
Regis Corporation
May 5, 1998
Page 6
5.5 OTHER ITEMS. Any other items that the Bank reasonably requires.
6. ENFORCING THIS AGREEMENT; MISCELLANEOUS
6.1 ILLINOIS LAW. This Agreement is governed by the internal laws of the
State of Illinois.
6.2 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and
the Bank's successors and assignees. The Borrower agrees that it may not assign
this Agreement.
6.3 SEVERABILITY; WAIVERS. If any part of this Agreement is not enforceable,
the rest of the Agreement may be enforced.
6.4 EXPENSES. The Borrower agrees to reimburse the Bank upon demand, whether
or not any Advance is made under this Agreement, for all reasonable expenses and
reasonable attorneys' fees, including any allocated costs of in-house counsel,
incurred by the Bank in (a) the preparation, negotiation and execution of this
Agreement, the Note and all other documents delivered in connection with this
Agreement; (b) enforcing the Borrower's obligations under this Agreement, the
Note or any other document delivered in connection with this Agreement; and (c)
participating in any proceeding (whether instituted by the Bank, the Borrower or
any other person and whether in bankruptcy or otherwise) or responding to any
claim in any way relating to this Agreement, the Note or any document delivered
in connection with this Agreement. The Borrower further agrees to pay, and save
the Bank harmless from all liability for, any stamp or other taxes which may be
payable with respect to the execution or delivery of this Agreement or the
issuance of the Note, which obligations will survive any termination of this
Agreement.
6.5 JUDGEMENT. If, for the purposes of obtaining judgment in any court, it is
necessary to convert a sum due under this Agreement or the Note in one currency
into another currency, the rate of exchange used will be that at which the Bank
could purchase the first currency with such other currency on the Banking Day
preceding that on which final judgment is given. The obligation of the Borrower
in respect of any such sum due from it to the Bank under this Agreement or the
Note will, notwithstanding any judgment in a currency (the "JUDGMENT CURRENCY")
other than that in which such sum is denominated in accordance with the
applicable provisions of this Agreement (the "AGREEMENT CURRENCY"), be
discharged only to the extent that on the Banking Day following receipt by the
Bank of any sum adjudged to be so due in the Judgment Currency, the Bank may
purchase the Agreement Currency with the Judgment Currency. If the amount of
the Agreement Currency so purchased is less than the sum originally due to the
Bank in the Agreement Currency, the Borrower agrees, as a separate obligation
and notwithstanding any such judgment, to indemnify the Bank against such loss.
If the amount of the Agreement Currency so purchased is greater than the sum
originally due to the Bank in such currency, the Bank agrees to return the
amount of any excess to the Borrower.
6.7 ONE AGREEMENT. This Agreement and any related other agreements required
by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the
Bank and the Borrower concerning this line of credit; and
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this line of credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
6.8 NOTICES. All notices required under this Agreement will be personally
delivered or sent by first class mail, postage prepaid, to the addresses set
forth above, or to such other addresses as the Bank and the Borrower may specify
from time to time in writing.
<PAGE>
Regis Corporation
May 5, 1998
Page 7
6.9 HEADINGS. Article and paragraph headings are for reference only and will
not affect the interpretation or meaning of any provisions of this Agreement.
6.10 COUNTERPARTS. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counterparts
each of which, when so executed, will be deemed an original but all such
counterparts will constitute but one and the same agreement.
6.12 CONSENT TO JURISDICTION. To induce the Bank to accept this Agreement, the
Borrower irrevocably agrees that subject to the Bank's sole and absolute
election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY ARISING OUT OF, FROM OR RELATED
TO THIS AGREEMENT OR THE NOTE WILL BE LITIGATED IN COURTS HAVING SITUS WITHIN
CHICAGO, ILLINOIS. THE BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION
OF ANY COURT LOCATED WITHIN CHICAGO, ILLINOIS, WAIVES PERSONAL SERVICE OF
PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED
MAIL DIRECTED TO THE BORROWER AT THE ADDRESS STATED ABOVE AND SERVICE SO MADE
WILL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT.
6.13 WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK EACH WAIVES ANY RIGHT TO
A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (a)
UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION WITH THIS
AGREEMENT OR (b) ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION
WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING WILL BE TRIED
BEFORE A COURT AND NOT BEFORE A JURY. THE BORROWER FURTHER AGREES THAT IT WILL
NOT ASSERT ANY CLAIM AGAINST THE BANK ON ANY THEORY OF LIABILITY FOR SPECIAL,
INDIRECT, CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES.
If the foregoing is acceptable, please indicate the Borrower's agreement
by signing a copy of this Agreement where indicated below.
Very truly yours,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ [ILLEGIBLE]
---------------------------
Title: Vice President
------------------------
The foregoing is agreed to this
5 day of May, 1998.
REGIS CORPORATION
By: /s/ Randy L. Pearce
---------------------------------
Title: RANDY L. PEARCE
SENIOR VICE PRESIDENT-FINANCE
CHIEF FINANCIAL OFFICER
----------------------------
<PAGE>
Regis Corporation
May 5, 1998
Page 8
[USE NOTARY BLOCK WHEN DOCUMENTS WILL BE DELIVERED BY MAIL]
STATE OF MINNESOTA )
)SS
COUNTY OF HENNEPIN )
Subscribed, sworn to and acknowledged before me this 5 day of May 1998
by Randy L. Pearce as Chief Financial Officer of Regis Corporation who
personally appeared before me.
Witness my hand and official seal.
/s/ Joyce L. Wallace
My commission expires: July 31, 2000 -----------------------------
Notary Public
[SEAL]
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$20,000,000 Chicago, Illinois: May 5, 1998
On the earlier of the Termination Date or demand, for value received,
REGIS CORPORATION (the "BORROWER") hereby promises to pay to the order of BANK
OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "BANK"), the Dollar
Equivalent principal sum of TWENTY MILLION AND NO/100 DOLLARS ($20,000,000) or,
if less, the aggregate unpaid principal amount of all Advances made by the Bank
to the undersigned hereunder. The initial Advance, all subsequent Advances and
all payments made on account of principal will be recorded by the holder in its
records. Capitalized terms used herein and not otherwise defined herein have the
meanings given such terms in the Loan Agreement.
The Borrower further promises to pay to the order of the Bank interest on
the aggregate unpaid principal amount of this Note outstanding from time to
time, from the date of this Note until paid in full, at the rates per annum
which will be determined in accordance with the provisions of the Loan
Agreement. Accrued interest will be payable on the dates specified in the Loan
Agreement.
All payments of principal and interest under this Note will be made in the
Applicable Currency in immediately available funds at the Bank's office at 231
South LaSalle Street, Chicago, Illinois 60697, or at such other place as may be
designated by the Bank to the Borrower in writing.
This Note is the Note referred to in, and evidences indebtedness incurred
under, a Multicurrency Demand Loan Agreement (as it may be amended, modified or
supplemented from time to time, the "LOAN AGREEMENT"), dated as of May54, 1998,
between the Borrower and the Bank, to which Loan Agreement reference is made for
a statement of the terms and provisions thereof.
All parties hereto, whether as makers, endorsers or otherwise, severally
waive presentment, demand, protest and notice of dishonor in connection with
this Note.
This Note is governed by the internal laws of the State of Illinois.
REGIS CORPORATION
By:
---------------------------
Title:
------------------------
Address:
7201 Metro Boulevard
Edina, Minnesota 55439
Attention: Kyle Didier
Telephone:
Fax No.:
<PAGE>
Regis Corporation
May 5, 1998
Page 10
SCHEDULE I
OFFSHORE CURRENCIES
Canadian Dollars
British Pounds Sterling
Mexican Pesos
<PAGE>
REGIS CORPORATION
SERIES G SENIOR NOTE
No.G-1
ORIGINAL PRINCIPAL AMOUNT: $14,000,000
ORIGINAL ISSUE DATE: July 10, 1998
INTEREST RATE: 7.14% per annum
INTEREST PAYMENT DATES: 2nd day of each October, January, April and July.
FINAL MATURITY DATE: July 2, 2008
PRINCIPAL PREPAYMENT DATES AND AMOUNTS: $9,000,000 on July 2, 2007 and
$5,000,000 on July 2, 2008
FOR VALUE RECEIVED, the undersigned, Regis Corporation (herein called
the "Company"), a corporation organized and existing under the laws of the
State of Minnesota, hereby promises to pay to The Prudential Insurance
Company of America, or registered assigns, the principal sum of FOURTEEN
MILLION DOLLARS ($14,000,000) on the Final Maturity Date specified above with
interest (computed on the basis of a 360-day year--30-day month) (a) on the
unpaid balance thereof at the Interest Rate per annum specified above,
payable on each Interest Payment Date specified above and on the Final
Maturity Date specified above, commencing October 2, 1998, until the
principal hereof shall have become due and payable, and (b) on any overdue
payment (including any overdue prepayment) of principal, any overdue payment
of Yield-Maintenance Amount and any overdue payment of interest, payable on
each Interest Payment Date as aforesaid (or, at the option of the registered
holder hereof, on demand), at a rate per annum from time to time equal to the
greater of (i) 2% over the Interest Rate specified above or (ii) 2% over the
rate of interest publicly announced by Morgan Guaranty Trust Company of New
York from time to time in New York City as its prime rate.
Payments of principal, Yield-Maintenance Amount, if any, and interest
are to be made at the main office of Bank of New York in New York City or at
such other place as the holder hereof shall designate to the Company in
writing, in lawful money of the United States of America.
This Note is one of a series of Senior Notes (herein called the "Notes")
issued pursuant to a Private Shelf Agreement, dated as of July 25, 1995, as
amended by that certain amendment dated July 11, 1997 and that certain
amendment dated as of January 22, 1998 (herein called the "Agreement"),
between the Company, on the one hand, and The Prudential Insurance Company of
America and each Prudential Affiliate (as defined in the Agreement) which
becomes party thereto, on the other hand, and is entitled to the benefits
thereof.
This Note is subject to optional prepayment, in whole or from time to
time in part, on the terms specified in the Agreement.
1
<PAGE>
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the
registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for the then outstanding principal amount will be issued
to, and registered in the name of, the transferee. Prior to due presentment
for registration of transfer, the Company may treat the person in whose name
this Note is registered as the owner hereof for the purpose of receiving
payment and for all other purposes, and the Company shall not be affected by
any notice to the contrary.
In case an Event of Default shall occur and be continuing, the principal
of this Note may be declared or otherwise become due and payable in the
manner and with the effect provided in the Agreement.
Capitalized terms used and not otherwise defined herein shall have the
meanings (if any) provided in the Agreement.
This Note is intended to be performed in the State of Illinois and shall
be construed and enforced in accordance with the internal law of such State.
REGIS CORPORATION
By: /s/ Randy L. Pearce
---------------------------------
Randy L. Pearce
Senior Vice President-Finance
2
<PAGE>
AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT No.1, dated as of September 1, 1998, among REGIS CORPORATION, a
Minnesota corporation ("Borrower"), the Lenders (as defined herein), and LASALLE
NATIONAL BANK, a national banking association ("LNB"), as agent for the Lenders
(LNB, in such capacity, together with its successors in such capacity, "Agent").
Borrower, Lenders and Agent are parties to an Amended and Restated Credit
Agreement, dated as of December 30,1997 (the "Credit Agreement"). Borrower,
Lenders and Agent desire to amend the Credit Agreement in certain respects and,
accordingly, Borrower, Lenders and Agent agree as follows:
1. DEFINITIONS. Except as otherwise provided herein, the terms defined in
the Credit Agreement are used herein as defined therein.
2. AMENDMENTS. Effective as of the date hereof, but subject to the
satisfaction of the conditions precedent set forth in Section 3 hereof, the
Credit Agreement is hereby amended as follows:
A. The following definitions in PARAGRAPH 1A are amended and
restated as follows:
"COMMERCIAL L/C MARGIN" means sixty-two and one-half (62.5) basis
points; PROVIDED, HOWEVER, that as long as the ratio of Total Debt to the
sum of Total Debt and Consolidated Net Worth does not exceed .40 to 1.00,
Commercial L/C Margin shall mean fifty-five (55) basis points.
"LIBOR MARGIN" means one hundred twenty-five (125) basis points;
provided, HOWEVER, that as long as the ratio of Total Debt to the sum of
Total Debt and Consolidated Net Worth does not exceed .40 to 1.00, LIBOR
Margin shall mean one hundred (100) basis points.
"LOAN" or "LOANS" means and includes all Base Rate Loans and
LIBOR Loans made under the Revolving Credit Commitment and under the Term
Loan B Commitment, and also means and includes Term Loan A and Term Loan C,
unless the context in which such term is used shall otherwise require.
<PAGE>
"MATURITY DATE" means October 31, 2001 with respect to the
Revolving Credit Commitment, July 1, 2000 with respect to Term Loan A,
December 31,1998 with respect to the Term Loan B Commitment, and September
1, 2003 with respect to Term Loan C.
"NOTES" means the Revolving Credit Notes, the Term Loan A Note,
the Term Loan B Notes and the Term Loan C Note.
"REQUIRED TERM LOAN A LENDERS" means the Term Loan A Lenders
holding more than sixty-six and two-thirds percent (66-2/3 %) of the unpaid
principal amount of the Term Loan A Loan.
"REVOLVING CREDIT AVAILABILITY" means the positive difference, if
any, between (i) the Total Revolving Credit Commitment and (ii) the sum of
the aggregate principal amounts outstanding in respect of the Revolving
Credit Loans plus the outstanding Letter of Credit Obligations.
"REVOLVING CREDIT COMMITMENT" means the LNB Revolving Credit
Commitment and the Paribas Revolving Credit Commitment.
"REVOLVING CREDIT NOTES" means those certain Replacement
Revolving Credit Notes dated as of the date of Amendment No. 1 to this
Agreement in the original aggregate maximum principal amount of $50,000,000
made payable by Borrower to the order of the Revolving Credit Lenders, as
such Revolving Credit Notes may be amended, modified or supplemented from
time to time, and together with any renewals thereof, and exchanges or
substitutions therefor.
"REVOLVING CREDIT PERCENTAGE" means the percentage set opposite
such Lender's name on the respective signature pages hereof under the
caption "Revolving Credit Percentage", as such percentage may be adjusted
by assignments permitted pursuant to Paragraph 12E.
"STANDBY L/C MARGIN" means one hundred twenty-five (125) basis
points; provided, however, that as long as the ratio of Total Debt to the
sum of Total Debt and Consolidated Net Worth does not exceed .40 to 1.00,
Standby L/C Margin shall mean one hundred (100) basis points.
"TOTAL REVOLVING CREDIT COMMITMENT" means the sum of the
commitments of all Revolving Credit Lenders with respect to the
Revolving Credit Commitment.
2
<PAGE>
B. The following definitions are added to PARAGRAPH 1A:
"CONSOLIDATED NET INCOME" means, with respect to any period, the
net income of Borrower and its Restricted Subsidiaries on a consolidated
basis, all determined in accordance with GAAP; provided that any
non-recurring charges related to acquisitions shall be excluded from the
determination of such net income.
"DEBT SERVICE" means, with respect to any period, an amount equal
to the sum of (a) Consolidated Interest Expense for such period and (b) the
scheduled amortization of Term Loans A and C.
"DEBT SERVICE COVERAGE RATIO" means, with respect to any period,
the ratio of (1) EBIT for such period to (ii) Debt Service for such period.
"LNB REVOLVING CREDIT COMMITMENT" means the obligations of LNB
to make Revolving Credit Loans in an aggregate amount at any one time
outstanding up to but not exceeding (a) $15,000,000 during the period
from the date of Amendment No. 1 to this Agreement, to and including
December 30, 1999, (b) $25,000,000 during the period from December 31,
1999, to and including December 30, 2000, and (c) $30,000,000 during the
period from December 31, 2000, to and including the Revolving Credit
Maturity Date.
"PARIBAS REVOLVING CREDIT COMMITMENT" means the obligations of
Paribas to make Revolving Credit Loans in an aggregate amount at any one
time outstanding up to but not exceeding $20,000,000.
"REQUIRED TERM LOAN C LENDERS" means the Term Loan C Lenders
holding more than sixty-six and two-thirds percent (66-2/3 %) of the unpaid
principal amount of the Term Loan C Loan.
"TERM LOAN C" shall have the meaning assigned to such term in
Paragraph 5-1A hereof.
"TERM LOAN C LENDER" means the holder of the Term Loan C Note.
"TERM LOAN C NOTE" means that certain Term Loan C Note dated as
of the date of Amendment No.1 to this Agreement in the principal amount of
$7,500,000 made payable by Borrower to the order of LNB, as such Term Loan
C Note may be amended, modified or supplemented from time to time, and
together with any renewals thereof, and exchanges or substitutions
therefor.
C. PARAGRAPH 2A is amended and restated as follows:
2A. REVOLVING CREDIT COMMITMENTS. On the terms and subject to the
conditions set forth in this Agreement, each Revolving Credit Lender,
severally and not jointly, agrees to make revolving credit available to
Borrower from time to time prior to the Revolving Credit Termination Date
in such aggregate amounts as Borrower may from time to time request but in
no event exceeding such Lender's Revolving Credit Percentage of the Total
Revolving Credit Commitment minus the outstanding Letter of Credit
Obligations. The Total Revolving Credit Commitment shall be available to
Borrower by means of the Revolving Credit Loans, it being understood that
the Revolving Credit Loans
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may be repaid and used again during the period from the date hereof to and
including the Revolving Credit Termination Date, at which time the
Revolving Credit Commitments shall expire.
D. PARAGRAPH 4A(9) is amended and restated as follows:
4A(9) TERMINATION DATES: CONTINUANCE OF OBLIGATIONS. ETC. This
Agreement, each Lender's obligation to loan monies to Borrower, and
Borrower's ability to borrow monies from the Lenders shall be in effect
until the Revolving Credit Termination Date, as to the Revolving Credit
Commitment, the Term Loan B Termination Date, as to Term Loan B, July 1,
2000, as to Term Loan A, and September 1, 2003, as to Term Loan C.
Notwithstanding the foregoing and until such date when Borrower's
Liabilities shall be paid in full, Borrower's obligations hereunder and
under the Other Agreements shall continue, interest shall continue to be
paid in accordance with the foregoing and the Lenders shall retain all of
their rights and remedies under this Agreement.
E. PARAGRAPH 4A(14) is amended and restated as follows:
4A(14) PREPAYMENT.
(a) PREPAYMENT. The principal, accrued interest and all other
amounts of the Revolving Credit and Term Loan B Loans may be prepaid at any
time by Borrower, in whole or in part, without premium or penalty. Term
Loan A may be prepaid subject to the provisions of Paragraph 5E. Term Loan
C may be prepaid subject to the provisions of Paragraph 5-1E.
(1) APPLICATION AFTER DEFAULT. Notwithstanding anything contained
in this Agreement to the contrary, upon the occurrence and during the
continuance of an Event of Default, any prepayments made under this
Paragraph 4A(14) shall be applied to Borrower's Liabilities in such order
of priority as Lenders, in their sole discretion, shall determine, and,
unless otherwise agreed by Lenders, to Term Loan A, Term Loan B, Term Loan
C and the Revolving Credit Loans pro rata based upon the principal amount
outstanding on each.
F. The following Article 5-1 is added to the Credit Agreement:
5-1 TERM LOAN C
5-1A. TERM LOAN C: TERM LOAN C NOTE. On the terms and subject to the
conditions set forth in this Agreement, LNB agrees to make a term loan (the
"Term Loan C") to Borrower in the principal amount of Seven Million, Five
Hundred Thousand
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Dollars ($7,500,000). Term Loan C shall be evidenced by a promissory note
to be executed and delivered by Borrower at or before the funding date
substantially in the form set forth in Exhibit 5-lA hereto (the "Term Loan
C Note").
5-1B. BORROWING PROCEDURE UNDER TERM LOAN C. Borrower shall give LNB
irrevocable telephonic notice, written notice or telecopied notice by no
later than 12:00 p.m., Chicago time, on the date it requests the Term Loan
C to be made.
5-1C. INTEREST RATE: DEFAULT RATE. Borrower hereby promises to pay
interest on the unpaid principal amount of Term Loan C at the rate of 6.55%
per annum (the "Fixed Rate"). If any payment of principal on Term Loan C is
not paid when due, Term Loan C shall bear interest from the date such
payment was due until paid in full, payable on demand, at a rate per annum
equal to the sum of 3 % plus the Fixed Rate. Interest on Term Loan C shall
be computed for the actual number of days elapsed on the basis of a 360-day
year. Interest shall be payable in arrears on the last Business Day of each
calendar month.
5-1D. INSTALLMENT PAYMENTS OF PRINCIPAL. The principal amount of
Term Loan C shall be payable in quarterly installments of $93,750 on each
December 31, March 31, June 30 and September30, commencing December
31,1998, and with a final installment on September 1, 2003, in the amount
of the unpaid principal balance.
5-1E. PREPAYMENTS. Borrower may, from time to time, prepay Term Loan
C in whole or in part and shall pay a prepayment fee equal to the "Make
Whole Amount", if any. Prepayments of less than all of the outstanding
balance of Term Loan C shall be applied to Term Loan C in reverse order of
application. The Make Whole Amount shall mean as of any prepayment date, to
the extent that the "Reinvestment Yield" on such date is lower than the
"Base Rate", the product of (a) the number of days remaining until maturity
of Term Loan C, multiplied by (b) the product of (i) the principal balance
being prepaid, multiplied by (ii) a percentage obtained by dividing (X) the
difference between the Reinvestment Yield and the Base Rate by (Y) 360. To
the extent that the Reinvestment Yield on any prepayment date is equal to
or higher than the interest rate payable on or in respect of such Term Loan
C less 150 basis points, the Make Whole Amount is zero. Base Rate shall
mean the Fixed Rate less 150 basis points. Reinvestment Yield shall mean
the yield as set forth on page "USD" of the Bloomberg Financial Markets
Service at 10:00 A.M. (Chicago time) on the prepayment date for actively
traded U.S. Treasury securities having a maturity equal to the "Weighted
Average Life to Maturity" of the Term Loan C Note Rounded to the nearest
month, or if such yields shall not be reported as of such time or the
yields as of such time are not ascertainable in accordance with the
preceding clause, then the arithmetic mean of the yields published in the
statistical release designated H. 15(519) of the Board of Governors of the
Federal Reserve System under the caption "U.S. Government
Securities--Treasury Constant
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Maturities" for the maturity corresponding to the remaining Weighted
Average Life to Maturity of Term Loan C Note as of the date of such
prepayment rounded to the nearest month. If no maturity exactly
corresponding to such rounded Weighted Average Life to Maturity shall
appear therein, yields for the two most closely corresponding published
maturities (one of which occurs prior and the other subsequent to the
Weighted Average Life to Maturity) shall be calculated pursuant to the
foregoing sentence and the Reinvestment Yield shall be interpolated from
such yields on a straight-line basis (rounding, in each of such relevant
periods, to the nearest month). For purposes hereof, Weighted Average Life
to Maturity shall mean the number of years obtained by dividing (a) the
then outstanding principal amount of the Term Loan C Note to be prepaid
into the sum of the products obtained by multiplying (i) the amount of each
then remaining other required prepayment, installment or payment, including
payment at final maturity, foregone by such prepayment by (ii) the number
of years (calculated to the nearest 1/12th) which would have elapsed
between such date and the making of such prepayment or payment.
5-1F. USE OF PROCEEDS. Borrower shall apply the proceeds of Term
Loan C to the prepayment of Term Loan B. No prepayment fee shall be payable
with respect to such prepayment.
G. PARAGRAPH 7A(iii) is amended and restated as follows:
(a) together with each delivery of financial statements pursuant to
clauses (i) and (ii) of this PARAGRAPH 7A, an officer's certificate
executed by a Responsible Officer (a) stating that the Responsible Officer
has reviewed the terms of this Agreement and the Notes and has made, or
caused to be made under his or her supervision, a review in reasonable
detail of the transactions and condition of Borrower and its Restricted
Subsidiaries during the fiscal period covered by such financial statements
and that such review has not disclosed the existence during or at the end
of such fiscal period, and that the Responsible Officer does not have
knowledge of the existence as at the date of the officer's certificate, of
any condition or event which constitutes an Event of Default or with the
giving of notice or passage of time or both would constitute an Event of
Default, or, if any such condition or event existed or exists, specifying
the nature and period of existence thereof and what action Borrower has
taken or is taking or proposes to take with respect thereto, and (b)
demonstrating (with computations in reasonable detail) compliance by
Borrower with the provisions of PARAGRAPHS 8A(i), 8A(ii), 8A(iii), 8A(iv),
8C(v), 8C(2), 8C(3)(vii), 8C(3)(viii) and 8C(6)(iii) of this Agreement
(herein called the "COMPUTATION PARAGRAPHS");
H. PARAGRAPH 7K is amended and restated as follows:
7K. MAINTENANCE OF ACCOUNTS. Borrower agrees to maintain its primary
operational accounts with Agent and shall maintain an average balance of
collected,
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available funds in a non-interest bearing demand deposit account with Agent
(the "Operating Account"). Borrower acknowledges that Agent will charge
Borrower negotiated service charges in effect from time to time for various
services performed by Agent in connection with any aspect of the
relationship between Borrower and Agent. Agent may cause interest and other
amounts payable on the obligations of Borrower to Agent and the Lenders
hereunder to be paid by making a direct charge to the applicable Operating
Account in accordance with the terms hereof. Subject to the provisions of
the Offset Sharing Agreement, Agent shall apply its offset rights to Term
Loan A, Term Loan B, Term Loan C and the Revolving Credit Loans pro rata
based upon the principal amount outstanding on each.
I. PARAGRAPH 8A is amended and restated as follows:
8A. (i) INTEREST COVERAGE. Permit the Interest Coverage Ratio
determined as at each December 31, March 31, June 30 and September 30 for
the four quarters then ended to be less than 4.0 to 1.0.
(ii) CONSOLIDATED NET WORTH. Permit Consolidated Net Worth at any
time to be less than $145,508,000 plus, to the extent positive, 80% of
Consolidated Net Income for the period (taken as one accounting period)
commencing July 1, 1998 and ending on the last day of the fiscal quarter
most recently ended as of any date of determination.
(iii) TANGIBLE NET WORTH. Permit Tangible Net Worth at any time to be
less than $10,000,000, which Tangible Net Worth amount shall be determined
at each September 30, December 31, March 31 and June 30.
(iv) DEBT SERVICE COVERAGE. Permit the Debt Service Coverage Ratio
determined as at each December 31, March 31, June 30 and September 30 for
the four quarters then ended to be less than 2.0 to 1.0.
J. The following paragraph is added to Article 9:
9X. YEAR 2000 COVENANT. Each of Borrower and its Restricted
Subsidiaries has reviewed the areas within its business and operations
which could be adversely affected by, and has developed or is developing a
program to address on a timely basis, the "Year 2000 Problem" (that is, the
risk that computer applications used by it may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to
and any date after December 31, 1999), and has made related appropriate
inquiry of material suppliers and vendors. Based on such review and
program, each of Borrower and its Restricted Subsidiaries believes that the
Year 2000 Problem will not have a material adverse effect on it. From time
to time, at the request of Agent, Borrower shall
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provide to Agent such updated information or documentation as is requested
regarding the status of the efforts of Borrower and each of its Restricted
Subsidiaries to address the Year 2000 Problem.
K. PARAGRAPH 10A is amended and restated as follows:
10 DEFAULT
1OA. EVENTS OF DEFAULT. The occurrence of any one of the following
events shall constitute a default ("Event of Default") by Borrower under
this Agreement: (a) if Borrower fails or neglects to perform, keep or
observe any covenant or agreement contained in PARAGRAPHS 7A, 7B, 7C or 7D
or any subparagraph of PARAGRAPH 8 of this Agreement which is required to
be performed, kept or observed by Borrower; (b) if Borrower fails or
neglects to perform, keep or observe any covenant or agreement contained in
PARAGRAPH 7E through PARAGRAPH 7J, inclusive, and such failure or neglect
shall not be cured within; twenty (20) days after Borrower obtains actual
knowledge thereof; (c) if Borrower fails or neglects to perform, keep or
observe any other covenant or agreement contained in this Agreement or the
Other Agreements and such failure or neglect shall not be cured within (90)
days after Borrower obtains actual knowledge thereof; (d) if any
representation or warranty made by Borrower herein or in any Other
Agreement is breached or is false or misleading in any material respect
when made, or any exhibit, schedule, certificate, financial statement,
report, notice or other writing furnished by Borrower or any of its
Responsible Officers to Agent or any Lender is false or misleading in any
material respect on the date as of which the facts therein set forth are
stated or certified; (e) if Borrower fails to pay Borrower's Liabilities
when due and payable or declared due and payable; provided, however, that
in the case of the payment of interest, costs, fees and expenses payable
hereunder, such failure continues for five (5) days after any such payment
is due; (f) if any of the property of Borrower or its Restricted
Subsidiaries having an aggregate value in excess of $500,000 is attached,
seized, subjected to a writ or distress warrant or is levied upon, or comes
within the possession of any receiver, trustee, custodian or assignee for
the benefit of creditors and the same is not terminated or dismissed within
twenty (20) days thereafter; (g) if a petition under any section or chapter
of the Bankruptcy Reform Act of 1978, as amended, or any similar law or
regulation shall be filed by Borrower or any of its Restricted Subsidiaries
or if Borrower or any of its Restricted Subsidiaries shall make an
assignment for the benefit of creditors or if any case or proceeding is
filed by Borrower or any of its Restricted Subsidiaries for their
respective dissolution or liquidation; (h) if Borrower or any of its
Restricted Subsidiaries is enjoined, restrained or in any way prevented by
court order from conducting all or any material part of its business
affairs or if a petition under any section or chapter of the Bankruptcy
Reform Act of 1978, as amended, or any similar law or regulation is filed
against Borrower or any of its Restricted Subsidiaries or if any case or
proceeding is filed against Borrower or any of its Restricted Subsidiaries
for its dissolution or liquidation and such injunction, restraint or
petition is not dismissed or
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stayed within ninety (90) days after the entry or filing thereof; (i) if an
application is made by Borrower or any of its Restricted Subsidiaries for
the appointment of a receiver, trustee or custodian for any assets of
Borrower or its Restricted Subsidiaries; Q) if an application is made by
any Person other than Borrower or its Restricted Subsidiaries for the
appointment of a receiver, trustee or custodian for the property of the
Borrower or its Restricted Subsidiaries having an aggregate value in excess
of $500,000 and the same is not dismissed within ninety (90) days after the
application therefor; (k) if a notice of lien, levy, or assessment is filed
of record with respect to any of the property of the Borrower or its
Restricted Subsidiaries having an aggregate value in excess of $500,000 by
the United States or any department, agency or instrumentality thereof or
by any state, county, municipal or other governmental agency, including
without limitation the PB GC, or if any taxes or debts owing at any time or
times thereafter to any one of them becomes a lien or encumbrance upon any
of the property of the Borrower or its Restricted Subsidiaries having an
aggregate value in excess of $500,000 and the same is not released within
ninety (90) days after the same becomes a lien or encumbrance; (l) if
Borrower or any Restricted Subsidiary becomes insolvent or is generally
unable to pay its debts as they become due; (m) a final judgment in an
amount in excess of $500,000 is rendered against Borrower or any Restricted
Subsidiary and, within ninety (90) days after entry thereof, such judgment
is not discharged or execution thereof stayed pending appeal, or within
ninety (90) days after the expiration of any such stay, such judgment is
not discharged; (n) the Borrower or any Restricted Subsidiary defaults
beyond any period of grace provided with respect thereto in any payment of
principal of or premium or interest on any other obligation for money
borrowed (or any Capitalized Lease Obligation, any obligation under a
conditional sale or other title retention agreement, any obligation issued
or assumed as full or partial payment for property whether or not secured
by a purchase money mortgage or any obligation under notes payable or
drafts accepted representing extensions of credit), or the Borrower or any
Restricted Subsidiary fails to perform or observe any other agreement, term
or condition contained in any agreement under which any such obligation is
created (or if any other event thereunder or under any such agreement shall
occur and be continuing) and the effect of such failure or other event is
to cause, or to permit the holder or holders of such obligation (or a
trustee on behalf of such holder or holders) to cause, such obligation to
become due prior to any stated maturity, provided that the aggregate amount
of all obligations as to which such a payment default shall occur and be
continuing or such a failure or other event causing or permitting
acceleration shall occur and be continuing exceeds $500,000; (o) the
occurrence of a material breach, a default or an event of default by
Borrower under any of the Other Agreements after any cure period applicable
to any such default or event of default has expired; (p) the occurrence of
a Change of Control; and (q) the occurrence of a "Default" or "Event of
Default" (as defined by the Note Agreement) by Borrower under the Note
Agreement (after the expiration of any applicable cure periods thereunder).
L. Paragraphs 12E(i) and (ii) are amended and restated as
follows:
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(i) This Agreement amends and restates in its entirety the Original
Credit Agreement and, upon effectiveness of this Agreement, the terms and
provisions of the Original Credit Agreement shall, subject to this PARAGRAPH
12E(i), be superseded hereby and thereby. All references to "Credit Agreement"
contained in the Other Agreements delivered in connection with the Original
Credit Agreement shall be deemed to refer to this Amended and Restated Credit
Agreement. Notwithstanding the amendment and restatement of the Original Credit
Agreement by this Agreement, the Loans owing to the Lenders by Borrower under
the Original Credit Agreement remain outstanding as of the date hereof and
constitute continuing Borrower's Liabilities hereunder. The Loans shall in all
respects be continuing, and this Agreement shall not be deemed to evidence or
result in a novation or repayment and reborrowing of the Loans. In furtherance
of and without limiting the foregoing, from and after the date of this
Agreement, the terms, conditions and covenants governing the Loans, the
Revolving Credit Commitment and the Term Loan B Commitment shall be solely as
set forth in this Agreement, which shall supersede the Original Credit Agreement
in its entirety.
(ii) This Agreement and the Other Agreements may not be modified,
altered or amended except by an agreement in writing signed by Borrower, Agent
and the Required Lenders, or by Borrower and Agent acting with the consent of
the Required Lenders, and no provision of this Agreement may be waived except
with the consent of the Required Lenders or by the Agent acting with the consent
of the Required Lenders; PROVIDED, that: (a) no amendment or waiver shall,
unless signed by each Lender directly affected thereby, increase or decrease any
Commitment of any Lender, reduce the amount of or rate applicable to or postpone
the date for payment of, any principal of or interest on any Loan or of any fee
payable hereunder, alter, amend or modify the provisions of this SECTION 12E,
the definitions of Required Lenders, Required Revolving Credit Lenders or
Required Term Loan B Lenders, or any condition precedent set forth in Sections
4A(6) and 4B hereof or the provisions of Sections 4(A)(4), 7C, 8C(l), 8C(2),
8C(4), 8C(5) and 8C(l0), or affect the number of Lenders required to take any
action hereunder; (b) any amendment of PARAGRAPH 3L hereof, or which increases
the obligations of L/C Issuer, shall require the consent of the L/C Issuer; (c)
any amendment of ARTICLE 11 hereof, or which increases the obligations of the
Agent hereunder, shall require the consent of the Agent; (d) any provision of
ARTICLE 5 hereof (Term Loan A) may be amended or waived by a writing signed by
Borrower, Agent and the Required Term Loan A Lenders; (e) any provision of
Article 6 hereof (Term Loan B) may be amended or waived by a writing signed by
Borrower, Agent and the Required Term Loan B Lenders; and (f) any provision of
Article 5-1 hereof (Term Loan C) may be amended or waived by a writing signed by
Borrower, Agent and the Required Term Loan C Lenders.
M. Exhibit 3A to the Credit Agreement is amended and restated in the
form attached hereto as Exhibit A and a new Exhibit 5-lA in the form
attached hereto as Exhibit B is added to the Credit Agreement.
3. CONDITIONS PRECEDENT. This Amendment No.1 shall become effective upon
the satisfaction of the following conditions precedent:
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3.1 PREPAYMENT OF TERM LOAN B. Term Loan B shall have been prepaid in
full, and all accrued interest thereon shall have been paid.
3.2 EXECUTION AND DELIVERY OF AMENDMENT NO.1. This Amendment No.1 or
counterparts thereof shall have been duly executed and delivered to Agent,
Lenders and Borrower.
3.3 DOCUMENTS AND OTHER AGREEMENTS. Lenders shall have received all
of the following, each in form and substance satisfactory to Lender:
a. $30,000,000 Replacement Revolving Credit Note payable to
LaSalle National Bank in the form of Exhibit A hereto.
b. $20,000,000 Replacement Revolving Credit Note payable to
Paribas in the form of Exhibit A hereto.
c. $7,500,000 Term Loan C Note payable to LaSalle National Bank
in the form of Exhibit B hereto.
d. The legal opinion of Borrower's counsel in the form of
Exhibit C hereto.
4. CONFIRMATION OF REPRESENTATIONS AND WARRANTIES. Borrower hereby
confirms that the representations and warranties of Borrower contained in the
Credit Agreement were correct in all material respects on and as of December 30,
1997, and that such representations and warranties are correct on the date
hereof, except (i) to the extent that any such representation or warranty
expressly relates to an earlier date, and (ii) for changes resulting from
transactions contemplated or permitted by the Credit Agreement and changes
occurring in the ordinary course of business that in the aggregate are not
materially adverse.
5. NO DEFAULT. Borrower represents and warrants that no default or Event
of Default exists as of the date hereof.
6. MISCELLANEOUS. The Credit Agreement is, and shall be, in full force
and effect and is hereby ratified and confirmed in all respects except that on
and after the date of this Amendment No. 1 (i) all references in the Credit
Agreement to "this Agreement', "hereto", "hereof", "hereunder" or words of like
import referring to the Credit Agreement shall mean the Credit Agreement as
amended by this Amendment No. 1, and (ii) all references in the other Loan
Documents to the "Credit Agreement", "thereto", "thereof", "thereunder" or words
of like import referring to the Credit Agreement shall mean the Credit Agreement
as amended by this Amendment No.1. The execution, delivery and effectiveness of
this Amendment No.1 shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of the Agent or any Lender under the Credit
Agreement or any other Loan Document, nor constitute a waiver of any provision
of the Credit Agreement or any other Loan Document. This Amendment No.1 and the
obligations arising hereunder shall be governed by, and construed and enforced
in
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accordance with, the laws of the State of Illinois applicable to contracts made
and performed in such state, without regard to the principles thereof regarding
conflict of laws, and any applicable laws of the United States of America.
7. COUNTERPARTS. This Amendment No.1 may be executed in any number of
separate counterparts, each of which shall, collectively and separately,
constitute one agreement.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, this Amendment No.1 has been duly executed as of the
date first above written.
REGIS CORPORATION
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
Address for Notices:
7201 Metro Boulevard
Minneapolis, Minnesota 55439
Telecopier No.: (612) 947-7900
Attention: Paul Finkelstein, President
5-1
<PAGE>
LASALLE NATIONAL BANK, as Lender and
as Agent
By: /s/ David G. Killpack
------------------------------------
Name: David G. Killpack
------------------------------
Title: Vice President
-----------------------------
Lending Office for all Loans:
135 South LaSalle Street
Chicago, Illinois 60603
Address for Notices:
135 South LaSalle Street
Chicago, Illinois 60603
Telecopier No.: (312) 904-6457
Attention: Mr. David G.
Vice President
BANQUE PARIBAS, as Lender and as L/C
Issuer
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
227 West Monroe Street, Suite 3300
Chicago, Illinois 60606
Address for Notices:
227 West Monroe Street, Suite 3300
Chicago, Illinois 60606
Telecopier No.: (312) 853-6020
Attention: Ms. Karen E. Coons
Vice President
S-2
<PAGE>
EXHIBIT A TO AMENDMENT NO.1
EXHIBIT 3A
TO
AMENDED AND RESTATED CREDIT AGREEMENT
REPLACEMENT REVOLVING CREDIT NOTE
$______________ Chicago, Illinois
September ,1998
FOR VALUE RECEWED, on or before October 31, 2001 (or, if such day is not a
Business Day, on the next following Business Day), the undersigned, REGIS
CORPORATION, a Minnesota corporation (herein, together with its successors and
assigns, called the "Borrower"), promises to pay to the order of
_____________________, a __________________ (herein, together with its
successors and assigns, called the "Bank"), the maximum principal sum of
_____________________ DOLLARS ($ ---------), or, if less, the aggregate unpaid
principal amount of all Revolving Credit Loans made by the Bank to the
undersigned pursuant to that certain Amended and Restated Credit Agreement dated
as of December 30, 1997, between the Borrower, the Lenders signatory thereto
from time to time, and LaSalle National Bank, as Agent for the Lenders (the
"Agent") (herein, as the same may be further amended, modified or supplemented
from time to time, called the "Credit Agreement"), as shown in the Bank's
records.
The Borrower further promises to pay to the order of the Bank interest on
the aggregate unpaid principal amount hereof from time to time outstanding from
the date hereof until paid in full at such rates and at such times as shall be
determined in accordance with the provisions of the Credit Agreement. Accrued
interest shall be payable on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in the lawful money
of the United States of America in immediately available funds at the Agent's
principal office at 135 South LaSalle Street, Chicago, Illinois 60603, for the
benefit of the Bank pursuant to the Credit Agreement, or at such other place as
may be designated by the Agent to the Borrower in writing.
This Note is the one of the Revolving Credit Notes referred to in,
evidences indebtedness incurred under, and is subject to the terms and
provisions of the Credit Agreement, including, without limitation, the
provisions in ARTICLES 2 AND 3 therein. The Credit Agreement, to which reference
is hereby made, sets forth said terms and provisions, including those under
which this Note may or must be paid prior to its due date or may have its due
date accelerated. Terms used but not otherwise defined herein are used herein as
defined in the Credit Agreement.
<PAGE>
In addition to, and not in limitation of, the foregoing and the provisions
of the Credit Agreement hereinabove referred to, the Borrower further agrees,
subject only to any limitation imposed by applicable law, to pay all expenses,
including attorneys' fees and expenses, incurred by the holder of this Note in
seeking to collect any amounts payable hereunder which are not paid when due,
whether by acceleration or otherwise.
This Note replaces in its entirety and is in substitution for but not in
payment of that certain Replacement Revolving Credit Note dated as of December
30,1997 (the "Prior Note") made by Borrower in favor of Bank in the maximum
principal amount available of $________, and does not and shall not be deemed to
constitute a novation thereof. Such Prior Note shall be of no further force and
effect upon the execution of this Note; PROVIDED, HOWEVER, that all outstanding
indebtedness, including, without limitation, principal and interest, under the
Prior Note as of the date of this Note is hereby deemed indebtedness evidenced
by this Note and is incorporated herein by this reference.
All parties hereto, whether as makers, endorsers or otherwise, severally
waive presentment, demand, protest and notice of dishonor in connection with
this Note.
This Note is binding upon the undersigned and its successors and assigns,
and shall inure to the benefit of the Bank and its successors and assigns. This
Note is made under and governed by the laws of the State of Illinois without
regard to conflict of laws principles.
REGIS CORPORATION
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
2
<PAGE>
EXHIBIT B TO AMENDMENT NO.1
EXHIBIT 5-1A
TO
AMENDED AND RESTATED CREDIT AGREEMENT
TERM LOAN C NOTE
$7,500,000 Chicago, Illinois
September ___ 1998
FOR VALUE RECEIVED, the undersigned, REGIS CORPORATION, a Minnesota
corporation (herein, together with its successors and assigns, called the
"Borrower"), promises to pay to the order of LASALLE NATIONAL BANK, a national
banking association (herein, together with its successors and assigns, called
the "Bank"), the principal sum of SEVEN MILLION, FIVE HUNDRED THOUSAND DOLLARS
($7,500,000), together with interest on the unpaid principal amount of this Note
outstanding from time to time.
This Note is the Term Loan C Note refereed to in, evidences indebtedness
incurred under, and is subject to the terms and provisions of, that certain
Amended and Restated Credit Agreement dated as of December 30, 1997, as amended,
between the Borrower, the Lenders signatory thereto from time to time, and
LaSalle National Bank, as Agent for the Lenders (the "Agent") (herein, as the
same may be further amended, modified or supplemented from time to time, called
the "Credit Agreement"), including, without limitation, the provisions in
Article 5-1 therein. The Credit Agreement, to which reference is hereby made,
sets forth said terms and provisions, including those under which this Term Loan
C Note may or must be paid prior to its due date or may have its due date
accelerated. Terms used but not otherwise defined herein are used herein as
defined in the Credit Agreement.
The Borrower further promises to pay to the order of the Bank interest on
the aggregate unpaid principal amount hereof from time to time outstanding from
the date hereof until paid in full at such rates and at such times as shall be
determined in accordance with the provisions of the Credit Agreement. Accrued
interest shall be payable on the dates specified in the Credit Agreement.
The principal amount of the indebtedness evidenced hereby shall be payable
in installments in the amounts and on the dates specified in the Credit
Agreement and, if not sooner paid in full, on, September 1, 2003.
<PAGE>
Payments of both principal and interest are to be made in the lawful money
of the United States of America in immediately available funds at the Bank's
principal office at 135 South LaSalle Street, Chicago, Illinois 60603, or at
such other place as may be designated by the Bank to the Borrower in writing.
In addition to, and not in limitation of, the foregoing and the provisions
of the Credit Agreement hereinabove referred to, the Borrower further agrees,
subject only to any limitation imposed by applicable law, to pay all expenses,
including attorneys' fees and expenses, incurred by the holder of this Note in
seeking to collect any amounts payable hereunder which are not paid when due,
whether by acceleration or otherwise.
All parties hereto, whether as makers, endorsers or otherwise, severally
waive presentment, demand, protest and notice of dishonor in connection with
this Note.
This Note is binding upon the undersigned and its successors and assigns,
and shall inure to the benefit of the Bank and its successors and assigns. This
Note is made under and governed by the laws of the State of Illinois without
regard to conflict of laws principles.
REGIS CORPORATION
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
2
<PAGE>
EXHIBIT C
TO
AMENDMENT NO.1
FORM OF OPINION OF BORROWER'S COUNSEL
September __ 1998
Each of the Lenders under the
Credit Agreement refereed to below
LaSalle National Bank, as Agent
for the Lenders under the
Credit Agreement refereed to below
135 South LaSalle Street
Chicago, IL 60603
Re: REGIS CORPORATION
Ladies and Gentlemen:
I have acted as legal counsel to Regis Corporation (the "Borrower") in
connection with the preparation, execution and delivery of an Amendment No.1 to
Amended and Restated Credit Agreement (the "Credit Agreement") dated as of
September , 1998, by and between the Borrower, the Lenders signatory thereto
from time to time, and LaSalle National Bank, as Agent for the Lenders (the
"Agent"), replacement Revolving Credit Notes dated September ,1998, payable to
each of the Lenders: and the Term Loan C Note payable to Lasalle National Bank
(the Credit Agreement, ~ Replacement Revolving Credit Notes and the Term Loan C
Note are collectively refereed to herein as the "Loan Documents"). In connection
with that representation, I have examined the Articles of Incorporation and
Bylaws of the Borrower and its Subsidiaries, the corporation records of the
meetings of the Board of Directors of said corporations, the Credit Agreement,
the replacement Revolving Credit Notes and the Term Loan C Note and such other
documents, records, instruments, laws and regulations, and have made such
inquiries, as I have deemed appropriate for purposes of this opinion. Except for
the signatures on behalf of the Borrower on the Credit Agreement, the
Replacement Revolving Credit Notes and the Term Loan C Note, I have assumed and
not independently verified that all signatures on all signed documents are
genuine. All defined terms used herein, except as otherwise defined herein, are
used with the same meaning as defined in or used in the Credit Agreement.
<PAGE>
September __, 1998
Page 2
Based on the foregoing, and relying thereon, I am of the opinion that under
current law:
I. Each of the Borrower and its Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of its state
of incorporation, and is in good standing, duly licensed and qualified to
transact business in all jurisdictions where the character of the property owned
or leased by it or the nature of the business transacted by it makes such
licensing or qualification necessary. Each of the Borrower and its Subsidiaries
has all requisite power and authority, corporate or otherwise, to conduct its
business and to own its properties, and to execute, deliver and perform all of
its obligations under the Credit Agreement.
II. The execution, delivery and performance by the Borrower of the Loan
Documents and all documents relating to the Loan Documents have been duly
authorized by all necessary action and do not (i) require any consent or
approval of the stockholders of any entity, or any consent or approval by any
governmental entity, or any consent or approval of any party to any indenture,
instrument or agreement known to me to which the Borrower or any of its
Subsidiaries is a party or by which any of them or their property may be bound,
(ii) violate any provision of any law, rule or regulation, order or decree
presently in effect having applicability to the Borrower, (iii) to the best of
my knowledge, conflict with, result in a breach of or constitute a default under
any indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Borrower or any of its Subsidiaries is a party or by
which any of them or their properties may be bound or affected, or (iv) result
in or require the creating or imposition of any mortgage, deed or trust, pledge,
lien, security interest, or other charge or encumbrance of any nature (other
than in favor of the Lenders) upon or with respect to any of the properties now
owned or hereafter acquired by the Borrower and its Subsidiaries.
III. The Credit Agreement constitutes the legal, valid and binding
obligations of the Borrower and is enforceable against the Borrower in
accordance with its terms, subject only to the application of bankruptcy,
insolvency, moratorium, reorganization and other laws affecting creditors'
rights generally and to usual equity principles. Each of the Loan Documents has
been duly executed and delivered by the Borrower.
IV. To the best of my knowledge, there are no actions, suits or
proceedings pending or threatened against the Borrower or any of its
Subsidiaries before any court or governmental entity which, if determined
adversely to the Borrower or any of its Subsidiaries, could have a material
adverse effect on the financial condition, properties or operations of the
Borrower or any of its Subsidiaries.
<PAGE>
September __,1998
Page 3
V. Borrower is not an "investment company" registered or required to be
registered under the Investment Company Act of 1940, as amended, or, to our
knowledge, controlled by such a company.
VI. Borrower is not a "holding company" or a "subsidiary company" of a
"holding company" or an "AFFILIATE" of a "holding company" within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
Very truly yours,
Bert M. Gross
<PAGE>
NATWEST ACQUISITION FINANCE
Thc Directors
Regis Europe Limited
110 Park Street
London W1Y 3RB
10 August 1998
Dear Sirs
CREDIT AGREEMENT DATED 22 SEPTEMBER 1995 AS VARIED AND RESTATED BY VARIATION AND
RE-STATEMENT AGREEMENTS DATED 22 MARCH 1996 AND 10 AUGUST 1998 MADE BETWEEN
(1) REGIS EUROPE LIMITED (THE "BORROWER") AND (2) NATIONAL WESTMINSTER BANK PLC
(THE "BANK") (THE "CREDIT AGREEMENT")
We refer to the Credit Agreement. This letter is the Overdraft Facility Letter
referred to in the Credit Agreement and this letter replaces the overdraft
facility letter of 6th February 1997.
Words and expressions defined in the Credit Agreement shall have the same
meaning when used herein, unless otherwise defined.
The following facilities are to be granted on the Bank's usual banking terms and
are repayable on demand.
For the avoidance of doubt, the Borrower by signing this letter, agrees that it
will comply with the obligations expressed to be undertaken or imposed upon it
under the Credit Agreement as if such obligations were set out in this letter
and, without prejudice to the Bank's right to make demand, if the Borrower fails
to comply with the said obligations then the Bank's rights shall be those under
the Credit Agreement.
The overdraft facility granted pursuant to this letter (the "Overdraft
Facility") is available through the Bank's Mayfair branch at P0 Box 4ND, 18a
Curzon Street, London W1A 4ND for the purpose of financing the overdraft
requirements of the Borrower from time to time and, without prejudice to our
right to make demand, it is our present intention to review the Overdraft
Facility annually.
No utilisation under the Overdraft Facility may be used for any unlawful purpose
including, in particular, for any purpose in breach of section 151 of the Act.
BORROWER: The Borrower
FACILITY Overdraft
LIMIT The maximum amount of the Overdraft Facility
(the "Limit") shall be L2,750,000.
[LETTERHEAD]
<PAGE>
INTEREST 1.75 per cent per annum over the Bank's base lending
rate from time to time. Interest will be debited to the
Borrower's current account on each quarter day in
accordance with the Bank's usual practice.
PAYMENTS: All payments under these facilities by the Borrower are
to be made free and clear of any set-off, deduction and
withholdings.
SECURITY: The Overdraft Facility ranks pari passu with the Term
Loan Facility and is to be secured under the Guarantees
and Debentures granted by each of the Borrower and
Target and the Keyman Insurance Assignment granted by
the Borrower.
GOVERNING LAW: The Overdraft Facility is to be governed by and
construed in accordance with English law.
AVAILABILITY: These facilities are available on the later of the date
when a signed copy of this letter is received by the
Bank and the Effective Date (as defined in the Second
Variation and Restatement Agreement).
Yours faithfully
/s/ [ILLEGIBLE]
For and on behalf of
NATIONAL WESTMINSTER BANK PLC
Accepted and Agreed,
/s/ [ILLEGIBLE]
For and on behalf of
REGIS EUROPE LIMITED
-2-
<PAGE>
DATED 10 August 1998
--------------------
REGIS EUROPE LIMITED
- and -
NATIONAL WESTMINSTER BANK Plc
------------------------------------
SECOND
VARIATION AND RESTATEMENT AGREEMENT
relating to a Credit Agreement dated
22nd September 1995
(as amended and restated by
an amendment and restatement agreement dated 22nd March 1996)
------------------------------------
W I L D E S A P T E
----
LONDON
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
CLAUSE DESCRIPTION PAGE NO.
<S> <C> <C>
1. INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . 1
2. AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . 2
3. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . 2
4. FEES AND EXPENSES. . . . . . . . . . . . . . . . . . . . . 2
5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 3
6. CREDIT AGREEMENT TO REMAIN IN FULL FORCE AND EFFECT . . . 3
7. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . 3
8. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . 3
9. LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SCHEDULE 1 - REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . 4
SCHEDULE 2 - RESTATED CREDIT AGREEMENT . . . . . . . . . . . . . . . 6
</TABLE>
<PAGE>
THIS AGREEMENT is made the 10 day of August 1998
BETWEEN:
(1) REGIS EUROPE LIMITED, a company incorporated under the laws of England and
Wales with registered number 02108396 (the "BORROWER");
(2) NATIONAL WESTMINSTER BANK Plc acting through its Mayfair Branch at P0 Box
4ND, 18a Curzon Street, London W1A 4ND (the "BANK");
WHEREAS
(A) Pursuant to a Credit Agreement dated 22nd September 1995 (as amended and
restated by an amendment and restatement agreement dated 22nd March 1996)
made between (1) the Borrower and (2) the Bank, (the "CREDIT AGREEMENT")
the Bank has made available to the Borrower loan facilities upon the terms
and conditions thereof.
(B) The Borrower has requested and the Bank has agreed to vary and amend
certain provisions of the Credit Agreement, and to restate the Credit
Agreement as so amended and varied.
NOW IT IS HEREBY AGREED as follows:
1. INTERPRETATION
1.1 References herein to this Agreement shall include the Schedules hereto and
words and expressions defined in the Credit Agreement shall have the same
meanings in this Agreement unless otherwise defined herein and in addition
the following words and expressions shall have the following meanings:
"AMENDING DOCUMENTS" means this Agreement and the Overdraft Facility
Letter.
"CONDITIONS PRECEDENT" means each of the conditions set out in Clause 3.
"EFFECTIVE DATE" means the date on which the Bank confirms in writing to
the Borrower that each of the Conditions Precedent has been satisfied in
full or waived.
"OVERDRAFT FACILITY LETTER" means the letter dated on or about today's date
under which an overdraft facility in an amount of L2,750,000 is to be made
available to the Borrower by the Bank.
1.2 For the avoidance of doubt only, but without prejudice to the generality of
Clause 2.1 below, it is hereby agreed and declared that the provisions set
out in Clauses 1.3 and 1.4 of the Credit Agreement shall apply to this
Agreement save that references in that Clause to "this Agreement" are
deemed to be references to this Agreement and not to the Credit Agreement.
-1-
<PAGE>
2. AMENDMENT
2.1 With effect from the Effective Date, the Credit Agreement shall be amended
and varied so as to be in the form set out in Schedule 2.
2.2 The terms of this Agreement shall be deemed to have been incorporated into
the Credit Agreement as of and with effect from the Effective Date. The
Credit Agreement as amended, varied and restated by this Agreement shall
remain in full force and effect and any reference therein to "this
Agreement", "hereof", "hereunder" and expressions of similar import shall,
unless the context otherwise requires, be read and construed as references
to the Credit Agreement amended and restated by this Agreement.
2.3 Clause 2.1 and the amendment and variation of the Credit Agreement effected
thereby shall not reduce, extinguish or otherwise adversely affect any of
the rights or remedies of the Bank, under the Credit Agreement prior to the
Effective Date.
3. CONDITIONS PRECEDENT
This Agreement shall only take effect upon the satisfaction of each of the
following conditions on or prior to 14th August 1998 (unless waived in
writing by the Bank on or prior to that date):
(a) The Bank shall have received each of the following in form and
substance satisfactory to the Bank:
(i) this Agreement duly executed by the parties hereto;
(ii) the Overdraft Facility Letter duly executed by the parties
hereto;
(iii) certified copies of the Certification of Incorporation and
the Memorandum and Articles of Association of each company
in the Charging Group or a certificate from the Company
Secretary of such company certifying that such Memorandum
and Articles of Association have not been amended since the
date on which copies of the same were last provided or so
certified to the Bank;
(iv) a Certified Copy of the minutes (in the agreed form) of a
meeting of the board of directors of the Borrower, approving
and authorising the execution and performance of the
Amending Documents and authorising a person or persons to
sign or otherwise attest the due execution of such
documents; and
(b) The Bank shall have received the arrangement fee referred to in
Clause 4.
4. FEES AND EXPENSES
4.1 In consideration of the Bank entering into this Agreement, the Borrower
shall on the date hereof pay to the Bank an arrangement fee of L36,000.
-2-
<PAGE>
4.2 The Borrower shall pay on demand all costs, fees and expenses (including
but not limited to legal fees) and any VAT thereon incurred by the Bank in
connection with the negotiation, preparation and execution of this
Agreement.
5. REPRESENTATIONS AND WARRANTIES
5.1 The Borrower hereby acknowledges that the Bank has entered into this
Agreement and accepted the security, guarantees and indemnities granted in
favour of the Bank in full reliance of the representations and warranties
made under this Clause 5.
5.2 The Borrower represents and warrants to the Bank in relation to itself and
each of the companies of the Charging Group that on the Effective Date the
representations and warranties made in Schedule 1 of this Agreement are
true and accurate.
6. CREDIT AGREEMENT TO REMAIN IN FULL FORCE AND EFFECT
Save as expressly amended by this Agreement, the Credit Agreement shall
remain in full force and effect.
7. SEVERABILITY
If at any time any provision of this Agreement is or becomes illegal,
invalid or unenforceable in any respect under the law of any jurisdiction
and the legality, validity or enforceability of the remaining provisions
hereof nor the legality, validity or enforceability of such provision under
the law of any other jurisdiction shall in any way be effected or impaired
thereby.
8. COUNTERPARTS
This Agreement may be executed in any number of counterparts which taken
together shall constitute one Agreement.
9. LAW
This Agreement shall be governed by and construed in accordance with
English law.
IN WITNESS whereof the parties hereto have caused this Agreement to be duly
executed the day and year first written above.
-3-
<PAGE>
SCHEDULE 1
REPRESENTATIONS AND WARRANTIES
1. It is a limited company incorporated under the laws of its jurisdiction of
incorporation, which possesses the capacity to sue and be sued in its own
name and which has the power to carry on its business and to own its
property and other assets.
2. It has power and capacity to execute, deliver and perform its obligations
under the Amending Documents to which it is a party and all necessary
corporate, shareholder and other action has been taken and consents given
to authorise the execution, delivery and performance of the same.
3. Its obligations under the Amending Documents to which it is a party
constitute its legal, valid and binding obligations and are in full force
and effect.
4. Its execution and delivery and performance and discharge of its obligations
and liabilities under the Amending Documents to which it is a party do not
and will not:
(i) contravene any law or regulation or any order of any governmental
or other official authority, body or agency or any judgment, order
or decree of any court having jurisdiction over it; or
(ii) conflict with, or result in any breach of any of the terms of, or
constitute a default under, any agreement or other instrument to
which it is a party or any licence or other authorisation to which
it is subject or by which it or any of its property is bound; or
(iii) contravene or conflict with any provision of its memorandum and
articles of association and, in particular, it has no limit on its
power to incur Indebtedness.
5. All licences, consents, exemptions, clearances, filings, registrations,
payments of duties or taxes, notarisations and authorisations as are or may
be necessary or desirable for the proper conduct of its business, trade and
ordinary activities and for the performance and discharge of its
obligations and liabilities under the Amending Documents to which it is a
party and which are required in connection with the execution, delivery,
validity, enforceability or admissibility in evidence of the Amending
Documents to which it is a party are in full force and effect;
6. It has not taken any action nor have any steps been taken or legal
proceedings been started or threatened in writing against it for
winding-up, dissolution or re-organisation, the enforcement of any
Encumbrance over its assets or for the appointment of a receiver,
administrative receiver, or administrator, trustee or similar officer
of it or of any or all of its assets or any other procedure under which
it obtains protection from any of its creditors.
7. It is not in breach or in default under any of any deed, instrument or
agreement to which it is a party or which is binding on it or any of its
assets.
8. No action, litigation, arbitration or administrative proceeding has been
started or (so far as it is aware having made all appropriate enquiry) is
pending or threatened against it, nor is there
-4-
<PAGE>
subsisting any unsatisfied judgment or award given against it by any court,
board of arbitration or other body.
9. All of its assets are free from any Encumbrances, other than Permitted
Encumbrances.
10. It has no Indebtedness outstanding other than Permitted Indebtedness.
11. No Default or Default Occurrence has occurred or is continuing unwaived.
-5-
<PAGE>
SCHEDULE 2
RESTATED CREDIT AGREEMENT
-6-
<PAGE>
22ND SEPTEMBER 1995
REGIS EUROPE LIMITED
- and -
NATIONAL WESTMINSTER BANK PLc
------------------------------------------------
CREDIT AGREEMENT
(as amended by amendment and restatement agreements dated 22nd March 1996
and 10 August 1998)
------------------------------------------------
WILDE SAPTE
London
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CLAUSE HEADING PAGE NO.
- ------ ------- --------
<S> <C> <C>
1. DEFINITONS AND INTERPRETATION . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Financial Undertakings Definitions. . . . . . . . . . . . . 9
1.3 Clause Headings . . . . . . . . . . . . . . . . . . . . . . 9
1.4 Interpretation. . . . . . . . . . . . . . . . . . . . . . . 9
2. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . 10
2.1 Satisfaction of Conditions Precedent. . . . . . . . . . . . 10
3. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . 10
3.1 Acknowledgement of Reliance on all Representations and
Warranties. . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2 Original Representations and Warranties . . . . . . . . . . 10
4. THE TERM LOAN FACILITY. . . . . . . . . . . . . . . . . . . 10
4.1 The Term Loan Facility. . . . . . . . . . . . . . . . . . . 10
4.2 Purpose of the Term Loan Facility . . . . . . . . . . . . . 10
4.3 Availability and Drawdown of the Term Loan. . . . . . . . . 11
5. INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.1 Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2 Duration of Interest Periods. . . . . . . . . . . . . . . . 11
5.3 Default Interest. . . . . . . . . . . . . . . . . . . . . . 12
5.4 Calculation and Payment of Interest . . . . . . . . . . . . 12
5.5 Bank's Determination. . . . . . . . . . . . . . . . . . . . 13
6. REPAYMENT AND PREPAYMENT. . . . . . . . . . . . . . . . . . 13
6.1 Repayment of the Term Loan. . . . . . . . . . . . . . . . . 13
6.2 Voluntary Prepayment of the Term Loan . . . . . . . . . . . 14
6.2.5 Order of Application of Prepayments . . . . . . . . . . . . 14
6.3 No re-borrowing . . . . . . . . . . . . . . . . . . . . . . 14
7. MARKET DISRUPTION, ILLEGALITY, INCREASED COSTS, GROSSING UP
AND OTHER INCREASED COSTS AND EXPENSES. . . . . . . . . . . 14
8. PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.1 Funds and Place . . . . . . . . . . . . . . . . . . . . . . 14
8.2 Business Day. . . . . . . . . . . . . . . . . . . . . . . . 14
8.3 Breakage Costs. . . . . . . . . . . . . . . . . . . . . . . 15
8.4 Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.5 Appropriation . . . . . . . . . . . . . . . . . . . . . . . 15
9. UNDERTAKINGS. . . . . . . . . . . . . . . . . . . . . . . . 15
9.1 Information Undertakings. . . . . . . . . . . . . . . . . . 15
9.2 Financial Undertakings. . . . . . . . . . . . . . . . . . . 18
9.3 Positive Undertakings . . . . . . . . . . . . . . . . . . . 28
9.4 Negative Undertakings . . . . . . . . . . . . . . . . . . . 29
10. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.1 Default . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.2 Acceleration. . . . . . . . . . . . . . . . . . . . . . . . 33
11. SET-OFF . . . . . . . . . . . . . . . . . . . . . . . . . . 34
<PAGE>
12. FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . 34
12.1 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 34
12.2 Arrangement Fee . . . . . . . . . . . . . . . . . . . . . . 34
12.3 Monitoring Fee. . . . . . . . . . . . . . . . . . . . . . . 34
13. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . 34
13.1 Severance . . . . . . . . . . . . . . . . . . . . . . . . . 34
13.2 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . 35
14. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . 35
14.1 Method. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
14.2 Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . 35
14.3 Addresses . . . . . . . . . . . . . . . . . . . . . . . . . 35
14.4 Deemed Receipt. . . . . . . . . . . . . . . . . . . . . . . 36
15. ASSIGNMENTS AND TRANSFERS . . . . . . . . . . . . . . . . . 36
15.1 Benefit of Agreement. . . . . . . . . . . . . . . . . . . . 36
15.2 Assignments and Transfers by the Borrower . . . . . . . . . 36
15.3 Assignments and Transfers by the Bank . . . . . . . . . . . 36
15.4 Disclosure of Information . . . . . . . . . . . . . . . . . 37
15.5 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . 37
16. LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SCHEDULE 1 - Details of the Group. . . . . . . . . . . . . . . . . . 38
SCHEDULE 2 - Conditions Precedent for the purpose of Clause 2. . . . 39
SCHEDULE 3 - Mandatory Liquid Assets Costs Formula . . . . . . . . . 41
SCHEDULE 4 - Part 1- Drawdown Notice . . . . . . . . . . . . . . . . 43
SCHEDULE 5 - Representations and Warranties made under Clause 3.2. . 44
SCHEDULE 6 - Part 1 Auditors' Confirmation . . . . . . . . . . . . . 46
Part 2 Certificate for Clause 9.1(e). . . . . . . . . . 49
SCHEDULE 7 - Market Disruption/Increased Costs etc. . . . . . . . . 55
SCHEDULE 8 - Base Case Model . . . . . . . . . . . . . . . . . . . . 59
</TABLE>
<PAGE>
THIS AGREEMENT is made the 22nd day of September 1995
BY:
(1) REGIS EUROPE LIMITED, a company incorporated in England and Wales and
registered under number 02108396 (the "BORROWER"); and
(2) NATIONAL WESTMINSTER BANK PLc acting through its Mayfair Branch at P0
Box 44ND, 18a Curzon Street, London W1A 4ND (the "BANK").
1. DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this Agreement, unless otherwise expressly provided:
"ACCOUNTANTS' REPORT" means the report prepared by Coopers & Lybrand
relating to the Group dated on or about 19th September and addressed to
the Bank;
"ACCOUNTING PERIOD" has the meaning given to it in Clause 9.1(b);
"ACCOUNTING PRINCIPLES" means the Generally Accepted Accounting
Principles used in the preparation of the Business Plan as such
principles may be amended; modified or supplemented in the way
contemplated in Clause 9.2.3;
"ACCOUNTS" means, for each Financial Year of the Borrower, the
Borrower's audited consolidated accounts (including all additional
information and notes thereto) for that Financial Year, audited by the
Auditors, together with the relative directors' report and Auditors'
report;
"ACQUISITION AGREEMENT" means the sale and purchase agreement dated 9th
August 1995 relating to the sale by the Vendor and purchase by the
Borrower of the Target Shares and under which Regis Corporation has
guaranteed the obligations of the Borrower to the Vendor on the terms
and subject to the conditions of that agreement;
"ACQUISITION DOCUMENTS" means all of:
(a) the Acquisition Agreement including the Exhibits referred to in
that agreement;
(b) a letter dated 9th August 1995 signed by Wella
Aktiengesellschaft; and
(c) a letter dated 9th August 1995 addressed to Regis Corporation
from the Vendor;
"ACQUISITION PURCHASE PRICE" means the aggregate purchase consideration
payable by the Borrower for the Target Shares under clause 4 of the
Acquisition Agreement;
"ACT" means the Companies Act 1985;
"AUDITORS" means, in relation to any company in the Charging Group,
Coopers & Lybrand or any other firm of chartered accountants which shall
have been previously approved by the Bank;
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"BASE CASE MODEL" means the base case model set out in Schedule 8;
"BUSINESS DAY" means a day on which banks are open for business in
London (excluding Saturdays and Sundays);
"BUSINESS PLAN" means the business plan for the Charging Group (in the
agreed form)
"CERTIFICATE DATE" has the meaning given to it in Clause 9.1(e);
"CERTIFIED COPY" means, in relation to any document, a copy of such
document bearing the endorsement "Certified on [specify date **] a true,
complete and accurate copy of the original, which has not as at the
above date been amended, varied, novated or supplemented otherwise than
by each document, a Certified Copy of which is attached hereto", signed
by a duly authorised officer of the company in question (or solicitors
acting on behalf of the company in question) and which complies with
such endorsement;
"CHANGE" means in relation to the Bank (or any company of which the Bank
is a Subsidiary), the introduction, implementation, repeal, withdrawal
or change in, or in the interpretation or application of, (a) any law,
regulation, practice or concession, or (b) any directive, requirement,
request or guidance (whether or not having the force of law but if not
having the force of law, one which applies generally to a class or
category of financial institutions of which the Bank (or that company)
forms part and compliance with which is in accordance with the general
practice of those financial institutions) of the European community, any
central bank including the European Central Bank, or any other fiscal,
monetary, regulatory or other authority.
"CHANGE OF CONTROL" means a change in the ownership of the issued share
capital of the Borrower where a person, other than a person which is
beneficial owner of shares in the capital of the Borrower on the date of
this Agreement, (whether alone or together with any associated person or
persons) becomes the beneficial owner of shares in the issued share
capital of the Borrower carrying the right to exercise more than 50 per
cent. of the votes exercisable at a general meeting of the Borrower:
(for the purposes of this definition, "associated person" means, in
relation to any person, a person who is either (a) acting in concert (as
defined in the City Code on Take-Overs and Mergers) with such aforesaid
person, or (b) "a connected person" of such aforesaid person as defined
in section 839 of the Income and Corporation Taxes Act 1988);
"CHARGING GROUP" means:
(a) the companies details of which are set out in Schedule 1; and
(b) any other company within the Group which shall have granted a
Guarantee and a Debenture in favour of the Bank;
"COMPLETION DATE" means 22nd September 1995;
"CONDITIONS PRECEDENT" means each of the conditions precedent listed in
Schedule 2;
"DEBENTURE" means a debenture in the Banks standard form NWB 1014;
"DEFAULT" means any of the events specified in Clause 10.1;
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<PAGE>
"DEFAULT OCCURRENCE" means any event which would constitute a Default if
all notices required to be given and periods of time required to have
expired under Clause 10.1 to make such event a Default, had been given,
or expired;
"DORMANT SUBSIDIARY" means a company in the Group incorporated in
England and Wales which is dormant within the meaning of section 250(3)
of the Act and has assets the aggregate gross value of which do not
exceed L5,000;
"DRAWDOWN DATE" means the Business Day on which any Term Loan Tranche is
or is proposed to be borrowed pursuant to a Drawdown Notice;
"DRAWDOWN NOTICE" means a notice substantially in the form set out in
Part 1 of Schedule 4;
"EMPLOYMENT CONTRACT" means the service agreement made or to be made
between the Borrower and Anthony Rammelt;
"ENCUMBRANCE" means any mortgage, charge, assignment for the purpose of
security, pledge, lien, right of set-off, retention of title provisions
or hypothecation or preferential right or trust arrangement for the
purpose of, or which has the effect of, granting security or other
security interest of any kind whatsoever, and any agreement, whether
conditional or otherwise to create or grant any of the same;
"FINANCIAL YEAR" has the meaning given to it in section 223 of the Act;
"FINANCING DOCUMENTS" means this Agreement, the Overdraft Facility
Letter, the Interest Rate Protection Agreements, any Drawdown Notice and
the Security Documents;
"FIRST VARIATION AND RESTATEMENT AGREEMENT" means the variation and
restatement agreement relating to this Credit Agreement between (1) the
Borrower and (2) the Bank dated 22nd March 1996.
"FRS" means a financial reporting standard issued by the Accounting
Standards Board for application in England and Wales and where
referenced by a number means that particular financial reporting
standard;
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means, in relation to
companies incorporated anywhere in the United Kingdom, accounting
principles, concepts, bases and policies generally adopted and accepted
in England for the preparation and presentation of audited financial
statements;
"GROUP" means the Borrower, all of the companies details of which are
set out in Schedule 1 and their respective Subsidiaries from time to
time;
"GUARANTEE" means a guarantee in the Bank's standard form NWB 1019;
"INDEBTEDNESS" means, in relation to any person, its obligation (whether
present or future, actual or contingent and whether incurred as
principal or surety) for the payment or repayment of money (whether in
respect of interest, principal or otherwise) incurred in respect of any
of:
(a) monies borrowed or raised;
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<PAGE>
(b) any bond, note, loan stock, debenture or similar instrument;
(c) acceptance credit, bill-discounting, note purchase, factoring
facilities and documentary credit facilities;
(d) any liability for the supply of any goods and services which is
more than 30 Business Days past the expiry of the period
customarily allowed by the relative supplier after the due date;
(e) payment obligations under hire purchase agreements, conditional
sale agreements and leases;
(f) guarantees, bonds, standby letters of credit or other similar
instruments issued in connection with the performance of
contracts;
(g) interest rate or currency swap agreements and any other hedging
instruments in respect of interest rates or currencies; and
(h) counter-indemnities, guarantees or other assurances against
financial loss in respect of the liability of obligation of any
person;
"INFORMATION PACKAGE" means:
(a) the Accountants' Report; and
(b) the Business Plan;
"INSTALLMENT" has the meaning given to it in Clause 6.1;
"INSTALLMENT REPAYMENT DATE" has the meaning given to it in Clause 6.1;
"INTEREST DATE" means the last day of an Interest Period;
"INTEREST PERIOD" means each period ascertained in accordance with
Clause 5.2 for the purpose of calculating interest on the Term Loan or
as the context requires, each period ascertained in accordance with
Clause 5.3 for the purpose of calculating interest on any sum which is
due and payable and unpaid;
"INTEREST RATE PROTECTION AGREEMENTS" means each of the agreements,
entered into or to be entered into by the Borrower and the Bank for the
purpose of hedging the Borrower's interest rate liabilities in relation
to all or any part of the Term Loan Facility;
"KEYMAN INSURANCE" means a keyman life assurance policy (in form and
content satisfactory to the Bank and with such insurer as the Bank has
approved) maintained or to be maintained by the Borrower in respect of
the death and disability of Anthony Rammelt or his successor, in the
amount of L300,000 and for a period of 4 years:
"KEYMAN INSURANCE ASSIGNMENT" means an assignment by way of security (in
the agreed form) of the benefit of the Keyman Insurance;
"LIBOR" means in respect of the Term Loan, part thereof or other sum,
the rate per annum at which the Bank offers deposits in Sterling in an
amount comparable with the Term Loan,
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<PAGE>
such part thereof or such sum, as the case may be, for a period equal to
the relative Interest Period to lending banks in the London Inter-Bank
Market at or about 11.00 a.m. (London time) on the first day of the
relative Interest Period;
"MANAGEMENT ACCOUNTS" has the meaning given to it in Clause 9.1(b);
"MANDATORY LIQUID ASSET COSTS" means the additional cost to the Bank of
compliance with the reserve asset ratio required by the Bank of England
from time to time (if any), expressed as a rate per cent. per annum,
calculated in accordance with the formula set out in Schedule 3;
"MARGIN" means 2.0 per cent. per annum;
"NEW ACCOUNTANTS' REPORT" means the reports prepared by Coopers &
Lybrand and Wilder Coe relating to SHL, SSL and Demigod each dated on or
about 6th March 1996 and addressed to the Bank together with a letter
from Coopers & Lybrand dated 6th March 1996 and addressed to the Bank;
"NEW ACQUISITION AGREEMENTS" means the sale and purchase agreements
dated 29th December relating to the sale by the New Vendor and the
purchase by the Borrower of the Shares of SHL and SSL;
"NEW ACQUISITION DOCUMENTS" means all of the New Acquisition Agreements
including the Exhibits and documents referred to therein;
"NEW BUSINESS PLAN" means the business plan for SHL and SSL in the
agreed form;
"NEW INFORMATION PACKAGE" means the New Business Plan and the New
Accountants Report;
"NEW TRANSACTION COSTS" means the costs and expenses (including VAT)
incurred by the Borrower under the New Transaction Documents (as defined
in the First Variation and Restatement Agreement) and in relation to the
New Information Package;
"NEW VENDOR" means Steiner Group Limited, a company incorporated in
England and Wales;
"OPERATING BUDGET" means:
(a) in relation to the period from the Completion Date to 30th June
1996, the Business Plan and the New Business Plan projections for
that period; and
(b) in relation to each Financial Year of the Borrower and Target SHL
and SSL starting after 30th June 1996, a projected consolidated
balance sheet, projected consolidated profit and loss account,
projected consolidated cash flow statement and projected Capital
Expenditure (as defined in Clause 9.2.1), (each on a month by
month basis) together with a summary of all material assumptions
and other bases upon which those projections were made for each
such Financial Year;
"OVERDRAFT FACILITY LETTER" means the letter dated 10 August 1998 under
which an overdraft facility in an amount of L2,750,000 is to be made
available to the Borrower by the Bank;
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<PAGE>
"OVERSEAS APPROVED FUNDING" means funding by the Borrower of Regis S.A.
or S & L out of the proceeds of:
(a) subscription for shares in the Borrower by Regis Corporation; and
(b) a loan or loans made to the Borrower by Regis Corporation,
in each case on terms and conditions approved by the Bank;
"OVERSEAS CAPITAL EXPENDITURE PROGRAMME" means expenditure by Regis S.A.
and S&L on fixed assets which is incurred within 3 years of the date of
this Agreement and which cumulatively does not exceed L100,000 in
aggregate per annum during such 3 year's period;
"PERMITTED ENCUMBRANCE" means, in relation to any company in the Group:
(a) Encumbrances subsisting under or in connection with any of the
Financing Documents;
(b) Encumbrances granted with the consent of the Bank;
(c) liens arising and subsisting by operation of law in the ordinary
course of trading activities;
(d) any retention of title to goods supplied to that company where
such retention is agreed in the ordinary course of its trading
activities and on customary terms; and
(e) rights of set-off arising by operation of law;
"PERMITTED INDEBTEDNESS" means:
(a) Indebtedness outstanding under the Financing Documents;
(b) Indebtedness outstanding under Finance Leases (as defined in
Clause 9.2) not exceeding in aggregate L60,000;
(c) Indebtedness outstanding under operating leases;
(d) Indebtedness in favour of Regis Corporation for Overseas Approved
Funding;
(e) Indebtedness outstanding under the Wella Agreement;
(f) Indebtedness outstanding under an unsecured loan to Barclays Bank
PLC in the sum of L15,000;
(g) Indebtedness in favour of Regis Corporation pursuant to Clause
9.2.2(e)(iv).
"PROPERTY" means all those freehold and leasehold properties owned by
companies within the Charging Group from time to time;
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<PAGE>
"QUALIFYING BANK" means an institution which is a bank for the purposes
of section 349 of the Income and Corporation Taxes Act 1988;
"QUARTERLY ACCOUNTING PERIODS" means, in each Financial Year, the third,
sixth, tenth and thirteenth Accounting Periods;
"REGIS CORPORATION" means Regis Corporation, a company organised and
existing under the laws of the state of Minnesota, whose principal
places of business is at 7201 Metro Boulevard Minneapolis, Minnesota, MN
55439, USA;
"REGIS CORPORATION INDEBTEDNESS" means the sum of L955,000 provided to
the Borrower on inter company account by Regis Corporation for the
purposes of financing the acquisitions made under the New Acquisition
Agreements;
"REGIS S.A." means Regis South Africa (Proprietary) Limited, a company
incorporated in the Republic of South Africa and registered under number
73/11138/07;
"REGIS S.A. COMFORT LETTER" means the letter (in the agreed form) issued
or to be issued by the Borrower in favour of Regis S.A.;
"REPAYMENT DATE" means 10th June 2001;
"RESTRUCTURING COSTS" means the costs and expenses anticipated in the
Business Plan and incurred by either the Borrower or Target on or after
the Completion Date in connection with the reorganisation of the Target;
"S & L" means S & L du Lac, Inc., a Delaware corporation having its
principal office at 220 Fifth Avenue, New York, New York 1001, USA;
"SECOND VARIATION AND RESTATEMENT AGREEMENT" means the variation and
restatement agreement relating to this Credit Agreement (as amended and
restated by the First Amendment and Restatement Agreement) between (1)
the Borrower and (2) the Bank dated 10 August 1998;
"SECURITY DOCUMENTS" means each Guarantee and each Debenture executed by
a company within the Group, the Keyman Insurance Assignment and any
other guarantee and security documents executed and delivered to the
Bank after the date hereof by any company in the Group;
"SECURITY PERIOD" means the period starting on the Completion Date and
ending on the date on which all of the obligations and liabilities of
the Borrower and the other companies in the Charging Group under each of
the Financing Documents to the Bank have been unconditionally discharged
in full and the Bank has no continuing liability to the Borrower in
relation to the Term Loan Facility;
"SSAP" means any statement of standard accounting practice issued by the
Institute of Chartered Accountants for application in England and Wales
and where referenced by a number means that particular statement;
"STERLING" and "L" each means the lawful currency for the time being of
the United Kingdom;
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<PAGE>
"SUBSIDIARY" means any subsidiary within the meaning of section 736 of
the Act and any subsidiary undertaking within the meaning of section 258
of the Act and "Subsidiaries" shall be construed accordingly;
"TARGET" means Essanelle Limited, a company incorporated in England and
Wales under registered number 1115693;
"TARGET SHARES" means all of the issued share capital of the Target;
"TAX" includes all present and future taxes, charges, imposts, duties,
levies, deductions, withholdings, or any amount payable on account of or
in connection with any of the foregoing;
"TAX ON OVERALL NET INCOME" means, in relation to the Bank, Tax (other
thin Tax deducted or withheld from any payment) imposed on such Bank on
its net profits by the United Kingdom;
"TERM LOAN" means the principal aggregate amount of the Term Loan
Tranches drawn down or to be drawn down under the Term Loan Facility and
thereafter the aggregate principal amount from time to time outstanding;
"TERM LOAN FACILITY" means the term loan facility referred to in
Clause 4.1;
"TERM LOAN TRANCHE" means any of Tranche A, Tranche B and Tranche C;
"TRANCHE A" means a tranche of an original principal amount of
L3,800,000 made available under the Term Loan Facility;
"TRANCHE B" means a tranche of an original principal amount of L500,000
made available under the Term Loan Facility under Clause 4.3.2;
"TRANCHE C" means a tranche of an original principal amount of
L1,000,000 made available under the Term Loan Facility under
Clause 4.3.2;
"TRANSACTION COSTS" means the costs and expenses (including VAT)
incurred by the Borrower under the Transaction Documents and in relation
to the preparation of the Information Package;
"TRANSACTION DOCUMENTS" means the Financing Documents, Acquisition
Documents and the New Acquisition Documents;
"VALUE ADDED TAX" and "VAT" means value added tax as provided for in the
Value Added Tax Act 1983 and legislation supplemental thereto;
"VENDOR" means FDB Friseur Dienstleistungs Betriebe GmbH & Co. Kg., a
limited liability company organised and existing under the laws of
Germany;
"VENDOR LOAN NOTES" means the retention note dated 29th December 1995
issued by SHL in favour of the New Vendor; and
-8-
<PAGE>
"WELLA AGREEMENT" means a finance agreement dated 1st December 1995
between (1) Intercosmetic (G.B.) Limited (trading as Wella Great
Britain), (2) Openpark, (3) California Lines Limited and (4) the
Borrower.
1.2 FINANCIAL UNDERTAKINGS DEFINITIONS
Various defined terms used for the financial undertakings in Clause 9.2
are set out in Clause 9.2.
1.3 CLAUSE HEADINGS
Clause headings in the Financing Documents are not to be used for the
construction or interpretation of any of the Financing Documents.
1.4 INTERPRETATION
In this Agreement, unless otherwise provided:
(a) references to this Agreement or any other agreement are to be
construed as references to this Agreement, or agreement in force
for the time being and as amended, varied, supplemented or
novated from time to time;
(b) references to any person are to be construed so as to include
that person's assigns or transferees (in accordance with the
terms of the relative agreement or deed) or successors in title;
(c) references to a document being "IN THE AGREED FORM" means that
the document has been approved by the Bank and which shall be
attached to a letter from the Bank to the Borrower confirming
that the relative document is in the agreed form;
(d) accounting terms are to be construed to be consistent with
Generally Accepted Accounting Principles;
(e) references to liabilities are to be construed so as to include
all actual, contingent, present or future liabilities of the
relative person;
(f) references to "COMPANY" or "COMPANIES" are to be construed to
include all persons and associations which are companies (within
the meaning of section 735 of the Act), bodies corporate (within
the meaning of section 740 of the Act) or would constitute (if
acquired by any person) subsidiary undertakings (within the
meaning of section 258 of the Act);
(g) references to Clauses and Schedules are to clauses and schedules
in this Agreement; and
(h) the words "including" and "in particular" shall be construed as
being by way of illustration or emphasis only and shall not be
construed as, nor shall they take effect as, limiting the
generality of any foregoing words.
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2. CONDITIONS PRECEDENT
2.1 SATISFACTION OF CONDITIONS PRECEDENT
All conditions precedent have been satisfied.
3. REPRESENTATIONS AND WARRANTIES
3.1 ACKNOWLEDGEMENT OF RELIANCE ON ALL REPRESENTATIONS AND WARRANTIES
The Borrower acknowledges that the Bank has entered into each of the
Financing Documents and has accepted the guarantees, indemnities and
security granted in its favour under the Security Documents in full
reliance on each of the representations and warranties made in this
Clause 3.
3.2 ORIGINAL REPRESENTATIONS AND WARRANTIES
3.2.1 It is acknowledged by the parties to this Agreement that the
representations and warranties set out in Schedule 5 of this Agreement
were given and made by the Borrower on or about the Completion Date and,
subject to Clause 2 of the First Variation and Restatement Agreement and
Clause 2 of the Second Variation and Restatement Agreement are not, nor
shall they be deemed to be given, by the Borrower at any time
thereafter.
3.2.2 Pursuant to Clause 2 of the First Variation and Restatement Agreement
and Clause 2 of the Second Variation and Restatement Agreement, the
Bank's right in relation to the above representations and warranties
continue in full force and effect.
4. THE TERM LOAN FACILITY
4.1 THE TERM LOAN FACILITY
Subject to the terms and conditions of this Agreement, the Bank, in full
reliance on each of the representations and warranties made by the
Borrower under Clause 3 agrees to make available to the Borrower a term
loan facility in the maximum principal amount of L3,040,000, to be made
available as Tranche A, Tranche B and Tranche C.
4.2 PURPOSE OF THE TERM LOAN FACILITY
4.2.1 (a) Tranche A has been used, in discharge of the Borrower's
obligations in relation to the Acquisition Purchase Price for the
Target Shares, repayment of certain of Target's Indebtedness and
payment of the Transaction Costs.
(b) Tranche B has been used in and towards the discharge of the
Restructuring Costs and Transaction Costs.
(c) Tranche C has been used in and towards the discharge in full of
the Regis Corporation Indebtedness and any balance of Tranche C
after discharge of the Regis Corporation Indebtedness has been be
used for the general corporate purposes of the Borrower.
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4.2.2 The Bank shall not be obliged to enquire into the application by the
Borrower of the proceeds of any Term Loan Tranche and the Bank shall not
be responsible for the application of the proceeds of any Term Loan
Tranche.
4.3 AVAILABILITY AND DRAWDOWN OF THE TERM LOAN
4.3.1 Tranche A was drawn down by the Borrower in full on 25th September 1995.
4.3.2 Tranche B has been drawn down in lull by the Borrower.
4.3.3 Tranche C was drawn down in full by the Borrower in March 1996.
4.3.4 The first Interest Period for Tranche B and Tranche C respectively shall
start on the respective Tranche B, or Tranche C Drawdown Date and end on
the next Interest Date for Tranche A.
4.3.5 Once given, any Drawdown Notice shall be irrevocable and shall oblige
the Borrower to borrow in accordance with such notice.
4.3.6 The proceeds of each Term Loan Tranche will be paid to the credit of the
Borrower's account with the Bank or otherwise as the Borrower may
reasonably direct.
5. INTEREST
5.1 AMOUNT
Interest shall accrue on the Term Loan from and including the Drawdown
Date to, but excluding, the Repayment Date, at the rate determined by
the Bank to be the aggregate of
(a) the Margin;
(b) LIBOR; and
(c) the Mandatory Liquid Asset Costs.
5.2 DURATION OF INTEREST PERIODS
5.2.1 Interest payable on the Term Loan shall be calculated by reference to
successive periods ascertained in accordance with this Clause 5.2 (each
an "INTEREST PERIOD").
5.2.2 (a) Except for the purpose of Clause 4.3, each Interest Period will
be of 1, 3 or 6 months' duration (or such other period as is
necessary for the Borrower to comply with its obligations under
Clause 5.2.6) or such other period as the Bank may allow.
(b) With effect from the Interest Date relating to Tranche B and
Tranche C falling on or after 31st March 1996 all the Term Loan
Tranches shall be consolidated into one Term Loan Tranche which
will constitute the Term Loan.
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5.2.3 The first Interest Period for any Term Loan Tranche shall start on the
relative Drawdown Date. Each succeeding Interest Period shall start on
the last day of the preceding Interest Period.
5.2.4 The Borrower shall, not less than 3 Business Days before the last
Business Day of each Interest Period, notify the Bank in writing of the
duration of the next Interest Period.
5.2.5 If for any reason the Borrower fails to select the duration of any
Interest Period for the Term Loan, it shall be deemed to have selected
an Interest Period of 3 months or such other period as is necessary for
the Borrower to comply with its obligations under Clause 5.2.6.
5.2.6 The Borrower shall ensure that an Interest Period ends on each
Installment Repayment Date.
5.2.7 Notwithstanding any contrary provision in this Agreement, no Interest
Period may be for a period such that it would expire after the Repayment
Date and if the Borrower selects an Interest Period expiring after the
Repayment Date, it shall be deemed to have selected one expiring on the
Repayment Date.
5.2.8 Any Interest Period which commences on the last Business Day in a month
or on a Business Day for which there is no numerically corresponding day
in the month in which that Interest Period is to end, shall (subject to
Clause 5.2.7) end on the last Business Day in that later month.
5.2.9 Any Interest Period which would otherwise end on a day which is not a
Business Day shall on the next succeeding Business Day or, if that day
falls in the following month, on the immediately preceding Business Day.
5.3 DEFAULT INTEREST
5.3.1 If the Borrower defaults in the payment of any amount due and payable
under any of the Financing Documents on the due date, the Borrower shall
pay default interest on such amount to the Bank from the due date to the
date of actual payment in full calculated by reference to successive
Interest Periods (each of such duration as the Bank may from time to
time select and the first beginning on the relative due date) at the
rate per annum being the aggregate of:
(a) 1 per cent. per annum;
(b) the Margin;
(c) LIBOR; and
(d) the Mandatory Liquid Asset Costs.
5.3.2 So long as such default continues, such rate shall be recalculated in
accordance with this Clause 5.3 on the last day of each such Interest
Period and unpaid interest then payable but unpaid under this Clause
shall be compounded at the end of each such Interest Period.
5.4 CALCULATION AND PAYMENT OF INTEREST
5.4.1 As soon as is practicable following the beginning of each Interest
Period, the Bank will notify the Borrower of the rate and amount of
interest payable for that Interest Period, (but
-12-
<PAGE>
in the case of such interest calculated under Clause 5.3.1, any such
notification need not be more than weekly).
5.4.2 Interest due from the Borrower to the Bank under this Agreement shall:
(a) accrue from day to day on the relative amount at the appropriate
rate calculated under this Clause 5;
(b) except as otherwise provided in this Agreement, be paid by the
Borrower to the Bank in arrear on each Interest Date, save that
in the case of any Interest Period which is longer than 6 months,
the Borrower shall pay interest 6 monthly in arrear and on the
relative Interest Date;
(c) be calculated on the basis of the actual number of days elapsed
and a 365 days year; and
(d) be payable after as well as before judgment.
5.5 BANK'S DETERMINATION
The determination by the Bank of the amount of any interest payable
under any of Clauses 5.1 and 5.3 shall, save for manifest error, be
conclusive and binding on the Borrower.
6. REPAYMENT AND PREPAYMENT
6.1 REPAYMENT OF THE TERM LOAN
Subject to the terms of this Agreement, the Borrower shall repay the
Term Loan by payment to the Bank on each date set out in Column A below
(each date being an "INSTALMENT REPAYMENT DATE"), the Sterling amount of
the instalment (each an "INSTALMENT") set out in Column B below opposite
the relevant Installment Repayment Date (so that the Term Loan is repaid
in full on or before the Repayment Date):
<TABLE>
<CAPTION>
COLUMN A COLUMN B
<S> <C>
25th September 1998 L250,000
21st December1998 L250,000
25th March 1999 L250,000
l0th June 1999 L250,000
25th September 1999 L250,000
21st December 1999 L250,000
25th March 2000 L250,000
l0th June 2000 L250,000
25th September 2000 L250,000
21st December 2000 L250,000
25th March 2001 L250,000
l0th June 2001 L290,000
</TABLE>
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<PAGE>
6.2 VOLUNTARY PREPAYMENT OF THE TERM LOAN
6.2.1 The Borrower may prepay all or any part of the Term Loan and, if part
only, in a amount of L100,000 and multiples of L100,000.
6.2.2 The full amount of any such prepayment shall be made on an Interest
Date.
6.2.3 The Borrower may make any such prepayment by giving not less than
10 Business Days' prior written notice. Such notice shall be irrevocable
and shall specify the amount of the prepayment and the date upon which
it is to be made.
6.2.4 Every prepayment must be accompanied by interest accrued on the amount
prepaid and all other amounts due in relation to the amount prepaid
(including amounts, if any, due under Clause 8.3)
6.2.5 ORDER OF APPLICATION OF PREPAYMENTS
Each prepayment made is to be applied in or towards the discharge and
reduction of the Instalments in inverse order to maturity.
6.3 NO RE-BORROWING
No amount repaid or prepaid in relation to the Term Loan may be
re-borrowed.
7. MARKET DISRUPTION, ILLEGALITY, INCREASED COSTS, GROSSING UP AND OTHER
INCREASED COSTS AND EXPENSES
All the Borrower's rights and liabilities under this Agreement are
subject to the provisions of Schedule 7.
8. PAYMENTS
8.1 FUNDS AND PLACE
All payments to be made by the Borrower under any of the Financing
Documents shall be made on the due date to the Bank in cleared Sterling
funds for value on the due date to such account, at such office or bank
in London as the Bank may from time to time designate to the Borrower by
not less than 2 Business Days' prior notice.
8.2 BUSINESS DAY
If, but for this Clause, any sum would become due for payment under this
Agreement on a day which is not a Business Day, such payment shall be
made on the next succeeding Business Day; if the next succeeding
Business Day falls in a new calendar month, then such payment shall be
made on the immediately preceding Business Day.
-14-
<PAGE>
8.3 BREAKAGE COSTS
8.3.1 The Borrower agrees to indemnity the Bank on demand against any loss or
expense sustained or incurred by the Bank in liquidating or employing
deposits required or contracted for to effect or maintain any part of
the Term Loan as a consequence of any of:
(a) any part of the Term Loan not being borrowed, following the
service of the Drawdown Notice (unless as a result of a breach by
the Bank of its obligations under this Agreement); and
(b) failure to make any prepayment or repayment on an Interest Date.
8.3.2 Any certifications of the calculation of any such loss or expense issued
by the Bank under this Clause shall be conclusive and binding on the
Borrower.
8.4 ACCOUNTS
The Bank shall maintain in accordance with its usual practice an account
or accounts, which shall, as between the Borrower and the Bank be prima
facie evidence of the amounts from time to time advanced by, owing to,
paid and repaid to the Bank under this Agreement.
8.5 APPROPRIATION
The Borrower hereby waives any rights it may have to make any
appropriation as between any amounts payable under any of the Financing
Documents.
9. UNDERTAKINGS
9.1 INFORMATION UNDERTAKINGS
The Borrower agrees with the Bank that throughout the Security Period it
shall:
(a) furnish to the Bank within 120 days of the end of each of its
Financial Years two copies of the Accounts together with a copy
of the management letter (if any) addressed by the Auditors to
the directors of the Borrower in connection with the preparation
of the relative financial statements as soon as reasonably
practicable after its receipt by the Borrower;
(b) within 30 days following the end of each successive Accounting
Period during the Security Period (none of which shall be more
than 4 weeks in duration ("ACCOUNTING PERIOD") furnish to the
Bank two copies of the management accounts ("MANAGEMENT
ACCOUNTS") for the relative Accounting Period for the Charging
Group and which shall include, without limitation, the following
information in respect of such Accounting Period:
1. a statement of its consolidated profit and loss
2. its consolidated balance sheet;
-15-
<PAGE>
3. its consolidated cash flow statement and a statement showing
separately all cash movements between any of the companies
in the Charging Group and Regis Corporation;
4. a schedule of all Capital Expenditure incurred by companies
in the Charging Group during that Financial Year and
budgeted to be incurred but not at that time incurred
(together with a commentary in reasonable detail on the
purpose for which any such Capital Expenditure has been or
is to be incurred together with a schedule of any moneys
paid to Regis S.A. and S&L for the Overseas Capital
Expenditure Programme), details of all BHS Receipts (defined
in Clause 9.2) and receipts relating to Reverse Premia
(defined in Clause 9.2) received during that Accounting
Period and details of all amounts received from Regis
Corporation during any one Financial Year on a cumulative
basis pursuant to Clause 9.2.2(f)(iv); and
5. any revised profit and cashflow forecasts for the Charging
Group for the remainder of the then current Financial Year,
including a reforecast of the results for that Financial
Year.
together with a commentary setting out in reasonable detail a
comparison of all such information with the projections,
forecasts and estimates contained in the Operating Budget (or any
replacement or substitution made in accordance with
Clause 9.1(d)(ii)) and including an analysis explaining any
material variations therefrom; and
within 45 days after each calendar quarter provide to the Bank, a
summary of the management information for S & L and Regis S.A.,
prepared on substantially the same basis as the information
provided in the Management Accounts; and
furnish to the Bank the audited accounts, and any other published
accounts of the Regis Corporation immediately after the same are
published and the quarterly results of the Regis Corporation as
soon as the same are produced.
(c) procure that all Management Accounts are prepared on a basis
consistent with the Accounting Principles and disclose with
reasonable accuracy the financial position of each company in the
Charging Group;
(d) (i) provide to the Bank a copy of the Operating Budget
(prepared on a basis consistent with the Accounting
Principles) for each of its Financial Years during the
Security Period, not less than 30 days before the start
of the relative Financial Year; and
(ii) if the Borrower shall determine that any of the
information, projections, estimates and forecasts made in
relation to any of its Financial Years during the
Security Period should be materially different from those
set out in the relative Operating Budget, provide the
Bank with revised information, projections, estimates and
forecasts in respect of any part of such Financial Year
in respect of which such revised information,
projections, estimates and forecasts are to apply
promptly following their approval by the board of
directors of the Borrower and subject to their approval
by the Bank, such revised information, projections,
estimates or forecasts shall be
-16-
<PAGE>
deemed to have replaced the projections, estimates or
forecasts previously applicable to such period as part of
the Operating Budget; and
(iii) not less than 30 days before each such 12 months' period,
provide to the Bank a cashflow forecast for the companies
in the Charging Group for the 12 months' period starting
on each 1st July and 1st January during the Security
Period;
(e) deliver to the Bank within 30 days after the end of each
Quarterly Accounting Period (each a "CERTIFICATE DATE") a
certificate (in substantially the terms set out in Part 2 of
Schedule 6) executed under the authority of the board of
directors of the Borrower certifying that in relation to the
3 months' period ending on the relative Certificate Date (or in
the case of the first Certificate Date, in respect of the period
from the Completion Date to the first Certificate Date) the
Borrower is in compliance with all of the undertakings given by
the Borrower under the Financing Documents (and including a
calculation of the financial undertakings set out in Clause 9.2
falling to be complied with at the end of that 3 months' period)
PROVIDED THAT for the purpose of this Clause 9.1(e):
(i) the calculations for Clause 9.2 shall be made by
reference to the Management Accounts prepared for the
period ending on the Certificate Date in relation to
which the certificate is to be given;
(ii) if there have been any breaches of any undertakings at
any time during the period to which such certificate
relates then the Borrower shall include in such
certificate relevant details of all such breaches and the
steps taken to remedy the breaches; and
(iii) the Borrower shall use all reasonable and practicable
endeavours to procure that the Auditors shall (if they
are so satisfied) within 120 days of the end of each
Financial Year of the Borrower and by reference to the
relative Accounts certify (if they are so satisfied) to
the Bank that any certificate given under this
Clause 9.1(e) in relation to the last Certificate Date in
such Financial Year is correct in relation to the
financial undertakings set out in Clause 9.2;
(f) as soon as practicable following the Bank's request, furnish to
the Bank, such information, projections, estimates or forecasts
in relation to any company in the Charging Group and any of their
respective businesses, turnover, assets, financial condition,
ownership or prospects as the Bank may from time to time
reasonably require;
(g) promptly notify the Bank of:
(i) any Default or any Default Occurrence which is
continuing;
(ii) any litigation, arbitration or administrative proceedings
commenced against any company in the Charging Group
involving a potential liability of at least L25,000;
(iii) any Encumbrance other thin a Permitted Encumbrance
attaching to any of the assets of any company in the
Charging Group;
-17-
<PAGE>
(iv) upon becoming aware thereof, any occurrence which will or
is likely to affect the ability of any of the companies
in the Charging Group to perform or discharge any of its
payment obligations under any of the Transaction
Documents; and
(v) any Change of Control;
(h) notify the Bank at least 15 Business Days before any proposed
Overseas Approved Funding is made and provide to the Bank details
of the amount of such proposed Overseas Approved Funding and the
terms and conditions upon which it is proposed to be made;
(i) notify the Bank of any notice given by Regis S.A. in relation to
the Regis S.A. Comfort Letter;
(j) deliver to the Bank the Closing Accounts (as defined in the
Acquisition Agreement) as soon as is practicable after their
being prepared in accordance with the Acquisition Agreement and
no later than the Accounting Date in December 1995;
(k) promptly deliver to the Bank within 30 days of the date of the
First Variation and Restatement Agreement the accounts of SHL at
Completion and the Completion Accounts of SSL (as Completion and
Completion Accounts are defined in the New Acquisition
Agreements);
(l) promptly deliver to the Bank a Certified Copy of all assignments
and consents that are completed in relation to Property and
promptly notify the Bank of any disputes or material delays in
relation to the completion of any assignment or consents
regarding Property; and
(m) provide regular updates on progress and a final report to the
Bank within 3 months on the pension arrangements that have been
made for employees previously employed by the New Vendor and who
are now employed by SHL or SSL, such report to contain
confirmation that the benefits accrued by such employees during
the course of their employment with the New Vendor are properly
secured or provided for under the New Vendor's pension
arrangements and that appropriate pension arrangements have been
made for them.
9.2 FINANCIAL UNDERTAKINGS
9.2.1 For the purpose of this Agreement and in particular this Clause 9.2,
unless otherwise provided:
"ACCOUNTING DATE" means the last date in an Accounting Period;
"ACQUISITION GOODWILL" means the net goodwill arising on the acquisition
of the Target Shares and the shares of SHL and SSL;
"CAPITAL EXPENDITURE" means, m relation to any period for which the
calculation is made, any expenditure which should be treated as capital
expenditure in accordance with the Accounting Principles after deducting
any amounts received by any company in the
-18-
<PAGE>
Charging Group in that period in relation to reverse premia for any
property leases which are capital expenditure in accordance with the
Accounting Principles ("REVERSE PREMIA"); and
amounts received by any company in the Charging Group from British Home
Stores in connection with the termination of any licence, tenancy
concession or similar agreement ("BHS RECEIPTS") where such receipts are
expended in accordance with Clause 9.2.2(g);
"CONSOLIDATED ADJUSTED NET WORTH" means, on any date, the aggregate
amount of the paid up share capital of the Borrower including amounts
standing to the credit of the share premium account and any capital
redemption reserves plus or minus the aggregate amount standing in the
Charging Group's capital and revenue reserves (on a consolidated basis):
(a) adding back any diminution due to the writing off of Acquisition
Goodwill and any diminution due to the writing off of any
Restructuring Costs;
(b) deducting any amounts attributable to any intangible asset
included as an asset in the Borrowers consolidated balance sheet
(excluding amounts attributable to Acquisition Goodwill and trade
marks or similar property);
(c) deducting any amounts of any capital accounts or reserves derived
from any writing up of book value of any assets of any of the
companies in the Group above historic cost less accumulated
Depreciation at any time after the Completion Date:
(d) deducting the amount of any minority interests arising on
consolidation;
(e) deducting the amount of any profits from Extraordinary Items and
Exceptional Items since the Completion Date;
(f) deducting the amount of any exchange gains or losses arising on
consolidation accounted for through reserves in accordance with
SSAP20;
(g) adding back any finance or issue costs arising from the
transaction, in accordance with FRS4, to the extent that they
have been written off against either the capital or revenue
reserves;
(h) deducting any amounts attributable to its investment in Regis
S.A. and S&L;
(i) adding any management charges accrued due and payable by the
Borrower in favour of Regis Corporation; and
(j) any amounts written off in the Financial Year ending 26th June
1998 in respect of computer equipment.
"CONSOLIDATED CASH FLOW BEFORE FINANCING" means, in relation to the
Charging Group and any period for which the calculation is made, the
aggregate of PBIT (but adding any loss and deducting any profit arising
on the disposal of a fixed asset to the extent that such profit and loss
has been included within PBIT), Depreciation charged to the profit and
loss account for such period and the amount of any management charge
payable by the Borrower to Regis Corporation in relation to that period
which is charged to the profit and loss account, but which has not been
paid:
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<PAGE>
(a) plus the proceeds of disposal of fixed assets during such
period, to the extent that they have been included in the
Business Plan for that period;
(b) plus income received from associated undertakings to the extent
received in cash and less any payments made to associated
undertakings whether Overseas Approved Funding or otherwise;
(c) plus dividends received;
(d) plus any decrease or minus any increase in Net Working Capital
for such period;
(e) plus or minus the movement in provisions for liabilities and
charges to the extent that this has been debited or credited to
PBIT;
(f) plus any receipts by way of Extraordinary Items and deducting
payments by way of Extraordinary Items in each case made during
such period;
(g) minus the aggregate of Taxes paid during such period;
(h) minus the amount of Capital Expenditure:
(i) funded otherwise than under a Finance Lease where the
Finance Lease Expenditure in respect thereof is included
in such Capital Expenditure paid or contractually required
to be paid during such period;
(ii) and in respect of any sums made available to the Borrower
by Regis Corporation in accordance with the terms of
Clause 9.2.2(f)(iv);
(i) plus realised exchange gains and minus realised exchange losses
charged during such period;
(j) plus any monies received from Regis Corporation in consideration
for additional share capital in the Borrower to the extent that
any monies so received from Regis Corporation do not exceed the
amount of monies paid to Regis Corporation by the Borrower during
the period; and
(k) deducting amounts paid by the Borrower to Regis Corporation in
relation to management charges that do not relate to the period
being tested, to the extent not already included in PBIT for the
period being tested.
PROVIDED ALWAYS THAT no item shall be counted more than once and all
payments in relation to Total Obligations shall be excluded;
"CURRENT ASSETS" means, in relation to the companies in the Charging
Group, the aggregate value of its assets which are treated as current
assets in accordance with Accounting Principles;
"CURRENT LIABILITIES" means, in relation to the companies in the
Charging Group, the aggregate value of its liabilities which are treated
as current liabilities in accordance with Accounting Principles;
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<PAGE>
"DEPRECIATION" has the meaning given to it by Accounting Principles;
"EXTRAORDINARY ITEMS" has the meaning given to that term in FRS3,
including those items listed in Paragraph 20 of FRS3;
"EXCEPTIONAL ITEMS" has the meaning given to that term in FRS3, but
shall exclude those items listed in Paragraph 20 of FRS3;
"FINANCE LEASE" means any lease, hire agreement, credit sale agreement,
purchase agreement, conditional sale agreement or instalment sale and
purchase agreement which should be treated in accordance with SSAP 21
(or any successor thereto) as a finance lease or in the same way as a
finance lease;
"FRS" means a financial reporting standard issued by the Accounting
Standards Board for application in England and Wales and, where
referenced by a number, means that particular financial reporting
standard;
"GEARING" means at any time the Total Debt of the Charging Group divided
by the Consolidated Adjusted Net Worth of the Charging Group;
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means, in relation to the
companies in the Charging Group, accounting principles, concepts, bases
and policies generally adopted and accepted in the United Kingdom for
the preparation and presentation of audited financial statements;
"NET WORKING CAPITAL" means at any time the aggregate of:
(a) Current Assets (excluding all cash at a bank and in hand, all
assets in relation to Tax and accrued interest receivable);
(b) less the aggregate of Current Liabilities (excluding monies due
in relation to Total Debt, and liabilities in relation to Tax,
Extraordinary Items, and dividends payable): for the avoidance of
doubt Tax excludes PAYE, VAT and Customs and Excise duty;
"PBIT" means, in relation to the companies in the Charging Group and any
period for which the calculation is made, the consolidated profit on
ordinary trading activities (including Exceptional Items and credit
interest receivable in respect of positive cash balances) before Tax and
Total Debt Costs, excluding:
(a) amounts written off the value of investments;
(b) profit attributable to minority interests;
(c) amounts written off the value attributed to Acquisition Goodwill
and amounts written off in relation to Restructuring Costs;
(d) Extraordinary hems;
(e) any profit arising on the disposal of fixed assets;
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<PAGE>
(f) income from shares in interests in associated undertakings and
income from any other fixed asset investment;
(g) acquisition expenses required to be capitalised in accordance
with Paragraph 85 of FRS7;
(h) amounts amortised on finance costs and issue costs arising from
this transaction in accordance with FRS4;
(i) realised and unrealised exchange gains and losses;
(j) any costs associated with the completion, acquisition and start
up costs; and
(k) excluding any payments by Openpark or the Borrower in accordance
with the Wella Agreement; and
(l) any amounts written off in the Financial Year ending 26th June
1998 in respect of computer equipment;
PROVIDED ALWAYS THAT no item shall be counted more than once and all
Total Debt Costs shall be excluded;
"SSAP" means any statement of standard accounting practice issued by the
Institute of Chartered Accountants for application in England and Wales
and, where referenced by a number, means that particular statement;
"TOTAL DEBT COSTS" means, in relation to a period of time, the aggregate
of:
(a) all interest, commissions, periodic fees and other financing
charges (except fees and commissions due and payable on the
Completion Date) paid or accrued by any member of the Charging
Group during such period (including the interest element payable
under Finance Leases, but excluding any amounts amortised on
finance costs and issue costs arising from this transaction in
accordance with FRS4);
(b) less any sums receivable or plus any sums paid or accrued by the
Borrower under any interest rate protection agreement of whatever
description during such period;
(c) excluding interest receivable; and
(d) for the avoidance of doubt excluding all scheduled repayments of
Total Debt and any fees and commissions paid on completion and
any interest payable under the Vendor Loan Notes and the Wella
Agreement;
"TOTAL DEBT" means, at any time in relation to the Charging Group, the
indebtedness for or in respect of:
(a) monies borrowed;
(b) bonds, notes, loan stock, debentures or similar instruments;
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<PAGE>
(c) monies raised under acceptance credit, bill discounting,
factoring, note purchase and documentary credit facilities;
(d) the acquisition cost of assets or services to the extent payable
on deferred terms, but only to the extent the same involves
deferral of payment of any sum for more than 90 days;
(e) the capital element of rental payments under leases (whether in
respect of land, machinery or otherwise) entered into primarily
as a method of raising finance or financing the acquisition of
the property or asset leased but excluding rental payments under
a lease of property which would not be treated as a Finance
Lease;
(f) payments under hire purchase and conditional sale agreements;
(g) guarantees, bonds, standby letters of credit or similar
instruments issued in connection with the performance of
contracts; and
(h) guarantees, indemnities or other assurances against financial
loss in respect of the liability of any person falling within (a)
to (g) above;
(i) payments under the Vendor Loan Notes; and
(j) payments under the Wella Agreement;
"TOTAL OBLIGATIONS" means, in relation to the Charging Group and the
period for which the calculation is made, the aggregate of:
(a) Total Debt Costs for such period;
(b) all scheduled repayments and any prepayments of the Term Loan in
that period to the extent, for the purposes of this definition
only, that any scheduled repayments do not exceed, in aggregate,
L1,000,000 in any such period
(c) all dividends declared in that period;
(d) the capital element of all rentals or, as the case may be, other
payments payable or paid in that period under any Finance Leases
entered into by any member of the Charging Group; and
(e) any interest payments made in accordance with the Vendor Loan
Notes and any payments of interest and principal in relation to
the Wella Agreement;
9.2.2 The Borrower hereby undertakes with the Bank to ensure that:
(a) PBIT TO TOTAL DEBT COSTS
The ratio of PBIT to Total Debt Costs of the Charging Group in
respect of each period referred to in Column A shall not be less
than the ratio set out in Column B below opposite such period;
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<PAGE>
<TABLE>
<CAPTION>
COLUMN A COLUMN B
<S> <C>
The 4 Quarterly Accounting Periods preceding the Accounting Date in 2.50
June 1998
The 4 Quarterly Accounting Periods preceding the Accounting Date in 2.25
September 1998
The 4 Quarterly Accounting Periods preceding the Accounting Date in 2.25
December 1998
The 4 Quarterly Accounting Periods preceding the Accounting Date in 2.25
April 1999
The 4 Quarterly Accounting Periods preceding the Accounting Date in 2.25
June 1999
The 4 Quarterly Accounting Periods preceding the Accounting Date in 3.00
September 1999
The 4 Quarterly Accounting Periods preceding the Accounting Date in 3.50
December 1999
The 4 Quarterly Accounting Periods preceding the Accounting Date in 3.50
April 2000
The 4 Quarterly Accounting Periods preceding the Accounting Date in 4.00
June 2000
The 4 Quarterly Accounting Periods preceding the Accounting Date in 4.00
September 2000
The 4 Quarterly Accounting Periods preceding the Accounting Date in 4.00
December 2000
The 4 Quarterly Accounting Periods preceding the Accounting Date in 4.00
March 200l
</TABLE>
(b) CONSOLIDATED CASH FLOW BEFORE FINANCING TO TOTAL OBLIGATIONS
The ratio of Consolidated Cash Flow Before Financing to Total
Obligations in respect of each of the periods set out in Column
A below shall be no less than the ratio set out in Column B:
<TABLE>
<CAPTION>
COLUMN A COLUMN B
<S> <C>
The 4 Quarterly Accounting Periods preceding the Accounting Date in 1:1
June 1998
The 4 Quarterly Accounting Periods preceding the Accounting Date in 1:1
September 1998
The 4 Quarterly Accounting Periods preceding the Accounting Date in 1:1
December 1998
The 4 Quarterly Accounting Periods preceding the Accounting Date in 1:1
April 1999
The 4 Quarterly Accounting Periods preceding the Accounting Date in 1:1
June 1999
The 4 Quarterly Accounting Periods preceding the Accounting Date in 1:1
September 1999
The 4 Quarterly Accounting Periods preceding the Accounting Date in 1:1
December 1999
The 4 Quarterly Accounting Periods preceding the Accounting Date in 1:1
April 2000
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<PAGE>
The 4 Quarterly Accounting Periods preceding the Accounting Date in 1:1
June 2000
The 4 Quarterly Accounting Periods preceding the Accounting Date in 1:1
September 2000
The 4 Quarterly Accounting Periods preceding the Accounting Date in 1:1
December 2000
The 4 Quarterly Accounting Periods preceding the Accounting Date in 1:1
March 2001
</TABLE>
(c) CONSOLIDATED ADJUSTED NET WORTH
The Consolidated Adjusted Net Worth of the Charging Group shall
not at any time during the period set out in Column A below be
less than the amount set out opposite the relative period in
Column B below:
<TABLE>
<CAPTION>
COLUMN A COLUMN B
<S> <C>
the Accounting Date in March 1998 to L6,660,000
the day before the Accounting Date in
June 1998
the Accounting Date in June 1998 L6,965,000
the day after the Accounting Date in June L6,845,000
1998 to the day before the Accounting
Date in September 1998
the Accounting Date in September 1998 L7,000,000
to the day before the Accounting Date in
December 1998
the Accounting Date in December 1998 to L7,320,000
the day before the Accounting Date in
April 1999
the Accounting Date in March 1999 to L7,575,000
the day before the Accounting Date in
June 1999
the Accounting Date in June 1999
to the day before the Accounting Date in L8,135,000
September 1999
the Accounting Date in September 1999 L8,255,000
to the day before the Accounting Date in
December 1999
the Accounting Date in December 1999 to L8,645,000
the day before the Accounting Date in
April 2000
the Accounting Date in April 2000 to the L9,010,000
day before the Accounting Date in
June 2000
the Accounting Date in June 2000
to the day before the Accounting Date in
September 2000 L9,490,000
the Accounting Date in September 2000 L9,570,000
to the day before the Accounting Date in
December 2000
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<PAGE>
the Accounting Date in December 2000 to L9,975,000
the day before the Accounting Date in
March 2001
the Accounting Date in March 2001 to L10,340,000
the Accounting Date in June 2001
</TABLE>
(d) CAPITAL EXPENDITURE
the aggregate amount of Capital Expenditure incurred by the
companies in the Charging Group together with any expenditure
incurred in relation to any acquisition permitted under Clause
9.4(g)(ii) for each period referred to in Column A below shall
not exceed the amount referred to in Column B below opposite
such period:
<TABLE>
<CAPTION>
COLUMN A COLUMN B
<S> <C>
The 3 Quarterly Accounting Periods preceding L900,000
the Accounting Date in June 1998
The 6 Quarterly Accounting Periods preceding L1,400,000
the Accounting Date in December 1998
The 10 Quarterly Accounting Periods preceding L1,800,000
the Accounting Date in April 1999
The 13 Quarterly Accounting Periods preceding L2,000,000
the Accounting Date in June 1999
The 3 Quarterly Accounting Periods preceding L900,000
the Accounting Date in September 1999
The 6 Quarterly Accounting Periods preceding L1,400,000
the Accounting Date in December 1999
The 10 Quarterly Accounting Periods preceding L1,800,000
the Accounting Date in April 2000
The 13 Quarterly Accounting Periods preceding L2,000,000
the Accounting Date in June 2000
The 3 Quarterly Accounting Periods preceding L900,000
the Accounting Date in September 2000
The 6 Quarterly Accounting Periods preceding L1,400,000
the Accounting Date in December 2000
The 10 Quarterly Accounting Periods preceding L1,800,000
the Accounting Date in April 2001
The 13 Quarterly Accounting Periods preceding L2,000,000
the Accounting Date in June 2001
</TABLE>
(e) that at no time during the Security Period will the net cash flow
between Regis Corporation and the Borrower or any other company
in the Charging Group (where it is a negative amount in relation
to the Borrower or any other company in the Charging Group)
exceed L25,000 in any one Financial Year (except during the
period from the Completion Date to the Accounting Date in June
1996 in which period the negative amount which it may not exceed
is L37,000) and in aggregate L50,000 throughout the Security
Period. For the avoidance of doubt any calculation of the amount
of such net cashflows is to exclude:
(i) the payment by the Borrower of the inter company balance
(not exceeding in aggregate L737,000) to Regis Corporation
out of the
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<PAGE>
proceeds of the subscription for ordinary shares referred
to in the certificate referred to in paragraph (k) of
Schedule 2;
(ii) any monies received by the Borrower from Regis
Corporation in December 1995 in connection with
acquisitions made under the New Acquisition Agreements;
(iii) the payment by the Borrower of the Regis Corporation
Indebtedness;
(iv) subject to Clause 9.1(k), any sums made available to the
Borrower either by subscription for ordinary shares in
the share capital of the Borrower or by loan or loans
made to the Borrower by Regis Corporation at its
discretion up to a maximum aggregate of L500,000 in any
one Financial Year save that such sums shall be applied
exclusively in Capital Expenditure;
(v) Overseas Approved Funding;
(f) that BHS Receipts defined in the definition of Capital
Expenditure (Clause 9.2.1) are to be applied in Capital
Expenditure within 6 months after receipt.
9.2.3 If the directors of the Borrower determine at any time during the
Security Period that any of the Accounting Principles applied in the
preparation of any of the Accounts and the Management Accounts shall be
different from the Accounting Principles or if as a result of the
introduction or implementation of any SSAP or FRS or any other
accounting standard or any change in any of them or in applicable law,
the Accounting Principles are required to be changed, then the Borrower
shall promptly give written notice to the Bank of such determination or
requirement. Thereafter, in the case of any change in any of the
relative Accounting Principles, and as soon as practicable after the
Bank's demand, the Borrower and the Bank shall agree such adjusted or
amended financial undertakings as would in the Bank1s opinion, provide
the Bank with substantially the same protections as the financial
undertakings set out in Clause 9.2 (but which are not materially more
onerous than those set out in Clause 9.2 as at the date of this
Agreement to the extent that any revised financial undertakings will, as
nearly as practicable, be based on a similar differential as that
between the financial projections in the Business Plan and the financial
undertakings as at the date of this Agreement).
9.2.4 In the circumstances set out in Clause 9.2.3, until amended financial
undertakings are agreed under Clause 9.2.3, the Borrower shall procure
that there are delivered to the Bank copies of the Borrower's Accounts
audited by the Auditors in accordance with the Accounting Principles
prevailing before the relative determination, introduction or
implementation and all Management Accounts required to be delivered to
the Bank under Clause 9.1 shall also be prepared in a manner consistent
with such Accounting Principles and, for the avoidance of doubt, during
such period, the financial undertakings set out in this Clause 9.2 shall
be calculated in accordance with the Accounting Principles prevailing
before the relative determination, introduction or implementation.
9.2.5 The calculation of ratios and other amounts under this Clause 9.2 shall
be made by the Bank on the basis of the latest information required to
be delivered to the Bank under Clause 9.1 for the period in relation to
which the calculation is to be made and such calculations shall, in the
absence of manifest error, be conclusive and binding on the Borrower.
-27-
<PAGE>
9.3 POSITIVE UNDERTAKINGS
The Borrower agrees with the Bank that throughout the Security Period it
shall, and it shall procure that each of its Subsidiaries in the
Charging Group shall, unless the Bank agrees Otherwise:
(a) at all times comply with all laws and regulations applicable to
it and which are required in relation to the conduct of its
business, trade and activities as anticipated in the Business
Plan and the New Business Plan and obtain, effect and maintain in
full force and effect all governmental and other regulatory
consents, licences, exemptions, clearances, filings,
registrations and authorisations required for the validity and
enforceability in evidence of any of the Financing Documents;
(b) that where it maintains its transmission and banking business in
the United Kingdom with the Bank, it continues to maintain such
business with the Bank throughout the Security Period PROVIDED
THAT where companies in the Charging Group use other banks and
building societies authorised by the Bank of England and the
Building Societies Commission respectively for the purpose of
receiving cash and transferring it to the Bank credit balances
with each branch of each bank or building society may never
exceed L5,000 (and the aggregate of all such credit balances may
never exceed L250,000) and all such credit balances are
transferred to the Bank at the end of each week during the
Security Period;
(c) immediately upon request by the Bank permit that any one or more
persons representing or instructed by the Bank, be allowed to
have access to its assets, books and records and to inspect the
same during normal business hours and it shall, promptly
following the request of the Bank authorise and instruct any of
its officers to discuss all such information relating to any of
its financial condition, trading activities and prospects as the
Bank may request;
(d) maintain insurances as are usually maintained by prudent
companies carrying on similar businesses;
(e) use all practicable endeavours to procure that within 30 Business
Days of the date of their appointment as auditors of the
Borrower, the relative firm of chartered accountants shall
deliver to the Bank a letter addressed to the Bank from such
newly appointed Auditors in substantially the form set out in
Schedule 6;
(f) take all steps to preserve its rights arising under any of the
Acquisition Documents and New Acquisition Documents and in the
event of any breach of any of the warranties and indemnities
given thereunder by the Vendor the New Vendor, Regis Corporation
or any other person promptly and at its own cost and expense take
all practicable steps to enforce such rights;
(g) pay and discharge all Taxes and governmental charges before the
date on which the same become overdue unless, and only to the
extent that, such Taxes and charges shall be contested in good
faith by appropriate proceedings, pending determination of which
payment may lawfully be withheld, and there shall be set aside
adequate reserves with respect to any such Taxes or charges so
contested in accordance with Generally Accepted Accounting
Principles;
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<PAGE>
(h) comply in all respects with Sections 151 to 158 of the Act
including in relation to the execution of the Security Documents
and the payment of amounts due under this Agreement;
(i) change the Target's accounting reference date from 31st December
to 30th June within 30 days after the date of this Agreement;
(j) change SHL's and SSL's accounting reference date to 30th June
within 30 days after the date of the Amendment and Restatement
Agreement;
(k) enter into the Interest Rate Protection Agreements within 14 days
after the Completion Date;
(l) within 14 days after the Completion Date, properly execute and
deliver to the Bank the Keyman Insurance Assignment;
(m) procure that all necessary assignments and other consents
relating to Property are obtained expeditiously;
(n) procure that equivalent pension arrangements and death in service
benefits enjoyed by those employees previously employed by the
New Vendor and now employed by SHL or SSL are maintained
throughout the duration of their employment with SHL or SSL;
9.4 NEGATIVE UNDERTAKINGS
The Borrower agrees with the Bank that during the Security Period it
shall not, and it shall procure that none of its Subsidiaries in the
Charging Group shall, unless the Bank agrees otherwise:
(a) create or permit to subsist any Encumbrance (other than a
Permitted Encumbrance) over any of its assets from time to time;
(b) incur or permit to remain outstanding any Indebtedness other than
Permitted Indebtedness;
(c) sell, transfer, lease, factor, discount, lend or otherwise
dispose of or enter into any agreement under which it may be or
become obliged to sell, transfer, lease, factor, discount, lend
or dispose of any of its assets (whether in a single transaction
or a series of connected transactions) other than:
(i) in the ordinary course of its trading activities;
(ii) the exchange of assets for other assets required for or
in connection with its trading activities of similar or
greater value than the assets disposed of and otherwise
on normal commercial terms;
(iii) disposals of assets by any company in the Charging Group
except to a company in the Charging Group;
-29-
<PAGE>
(iv) in any such case which would not result in the companies
within the Charging Group making disposals (not included
in paragraphs (i) to (iii) above) of assets in any
Financial Year of the Borrower with an aggregate book
value or if higher the actual consideration in excess of
L50,000;
(v) in relation to the Overseas Capital Expenditure
Progranmme during the 3 years' period starting on the date
of this Agreement or Overseas Approved Funding; and
(vi) any disposals arising in relation to any arrangement
under which any company if the Charging Group receives
payments as compensation for the undepreciated element of
fixed assets used for any trading activity conducted from
property in relation to which the relative licence,
tenancy or occupation is terminated;
(d) merge or consolidate with any other person (whether by
winding-up, dissolution or other means);
(e) make, pay or declare any dividend or other distribution in
relation to any shares forming part of the issued share capital
of the Borrower or make any payment or repayment in relation to
Indebtedness owed to Regis Corporation in relation to Overseas
Approved Funding;
(f) make any loans or grant any credit to or for the benefit of any
person other than:
(i) credit allowed by the relative company in the normal
course of the conduct of its trading activities (subject
to Clause 9.4(m));
(ii) loans made between companies in the Charging Group;
(iii) loans made to employees of any companies in the Charging
Group not exceeding L50,000 in aggregate; and
(iv) loans or credit for the purpose of funding the Regis S.A.
Capital Expenditure Programme during the 3 years' period
starting on the date of this Agreement or Overseas
Approved Funding;
(g) incorporate any company as its Subsidiary or acquire any business
of or shares or securities issued by any company after the
Completion Date or enter into any agreement under which it may be
or become bound to acquire any business of, shares or securities
issued by, any company except for the acquisition of businesses
(similar to those carried on by the Borrower or Target at the
date hereof), where the aggregate purchase consideration for any
acquisition, when taken together with similar consideration
incurred by any companies in the Charging Group and the gross
liabilities, which when taken together with similar liabilities
incurred by any companies in the Charging Group assumed at the
time of the acquisition by any companies in the Charging Group in
any Financial Year, do not exceed in aggregate for any period
specified in Column A in Clause 9.2.2(e) the amount set out
opposite that period in Column B opposite such period (on the
basis that all monies used in such acquisitions are classified as
Capital Expenditure);
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<PAGE>
(h) otherwise than in the ordinary course of the conduct of its
trading activities, make any material change in the terms and
conditions upon which it does business or carry on any trading
activities other than the trading activities carried on at the
date hereof;
(i) pay any fees or commissions to any person other than:
(i) those on open market terms in the ordinary course and for
the purpose of its trading activities;
(ii) the Transaction Costs;
(iii) fees due and payable under the Acquisition Documents; and
(iv) subject to Clause 9.2.2(f), management charges due and
payable by the Borrower to Regis Corporation;
(j) subject to Clause 9.3(i) change its accounting reference date
from 30th June;
(k) permit or effect any variations, novations or amendments, or
waive any conditions to, any of the Acquisition Documents;
(1) make any payment directly or indirectly under the Vendor Loan
Notes prior to funds being received from Regis Corporation in
accordance with the terms of a letter of undertaking set out in
Schedule 2 of the First Variation and Restatement Agreement;
(m) vary, amend, restate or extend the terms of the Wella Agreement,
or repay Indebtedness in excess of L780,472 thereunder without
the written consent of the Bank;
(n) take any action to dissolve any member of the Charging Group
without the prior written consent of the Bank and any other party
to any of the Transaction Documents, the New Transaction
Documents or the Wella Agreement where the consent of that other
patty is required; and
(o) directly or indirectly make any repayments of principal and
interest under the Wella Agreement exceeding L112,000 in any
Financial Year.
10. DEFAULT
10.1 DEFAULT
There shall be a Default if:
(a) any amount payable under this Agreement is not paid by the
Borrower on the date and at the place at which it is expressed to
be payable in accordance with the terms of this Agreement; or
(b) any of the members of the Charging Group fails to comply with any
of its obligations and undertakings under any of the Financing
Documents (other than
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<PAGE>
the obligations and undertakings referred to in the foregoing
Clause 10.1(a) and, if such failure is capable of remedy (as
determined by the Bank) such default is not remedied within 5
Business Days after notice of such failure has been given by the
Bank to the Borrower; or
(c) any representation, warranty or statement made or deemed to be
repeated by or on behalf of any of the companies in the Charging
Group under any of the Financing Documents or in any notice,
certificate, confirmation or statement referred to in or
delivered under any of the Financing Documents is not or proves
not to have been true and accurate in any respect when made or
deemed to have been repeated; or
(d) any of the Financing Documents is not or ceases to be in full
force and effect or the validity or enforceability of any of the
terms of any of the Financing Documents shall be contested by any
of the companies in the Charging Group; or
(e) any Indebtedness of any of the companies in the Charging Group:
(i) is declared to be or otherwise becomes due and payable
prior to its specified maturity; or
(ii) is not paid when due or within any applicable grace
period;
or a creditor or any creditor or creditors of members of the
Charging Group become(s) entitled to declare any such
Indebtedness due and payable prior to its specified maturity; or
(f) a creditor or encumbrancer attaches or takes possession of, or a
distress, execution, sequestration or other process is levied or
enforced upon or sued out against, any of the assets of any of
the companies in the Charging Group; or
(g) any of the companies in the Charging Group:
(i) suspends payment of its debts or is unable or admits its
inability to pay its debts as they fall due; or
(ii) commences negotiations with one or more of its creditors
with a view to the general readjustment or rescheduling
of all or part of its Indebtedness which it would
otherwise not be able to pay as it falls due; or
(iii) proposes or enters into any composition or other
arrangement for the benefit of its creditors generally or
any class of creditors; or
(h) any person takes any action or any legal proceedings are started
or other steps taken for:
(i) any of the companies in the Charging Group (other than a
Dormant Subsidiary) to be adjudicated or found bankrupt
or insolvent; or
(ii) the winding-up or dissolution of any of the companies in
the Charging Group (other thin a Dormant Subsidiary); or
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<PAGE>
(iii) the appointment of a trustee, receiver, administrative
receiver, or similar officer to any of the companies in
the Charging Group (other than a Dormant Subsidiary) or
the whole or any part of their respective assets; or
(i) any adjudication, order or, as the case may be, appointment is
made under or in relation to any of the proceedings referred to
in Clause 10.1(h); or
(j) an application is made to the Court for an administration order
under the Insolvency Act 1986 with respect to any of the
companies within the Charging Group; or
(k) any of the companies in the Charging Group suspends, ceases or
threatens to suspend or cease to carry on its business; or
(l) at any time there occurs a material adverse change in the
financial condition, business condition or prospects of any of
the companies in the Charging Group constituting a material
adverse change to such company in the Charging Group so that it
appears that any of the companies in the Charging Group may be
unable to meet its obligations under any of the Financing
Documents; or
(m) there is any redemption, purchase or reduction of the Borrower's
issued share capital or any distribution in relation to any of
the Borrower's issued share capital without the Bank's prior
written consent; or
(n) Anthony Rammelt ceases to be both an officer and an employee of
the Borrower or a company in the Charging Group or ceases to
devote the whole of his working time to the activities of the
companies in the Charging Group under the terms of his Employment
Contract and is not replaced within 6 months of the date of such
cessation with a person satisfactory to the Bank; or
(o) there occurs a Change of Control; or
(p) any event occurs or proceeding is taken with respect to any
company in the Charging Group or Regis Corporation in any
jurisdiction to which it is subject which has an effect in
relation to that company equivalent or substantially similar to
any of the events mentioned in Clauses 10.1(f), (g), (h), (i) or
(j), or any appointment or order is made in relation to Regis
Corporation for protection from its creditors generally.
10.2 ACCELERATION
At any time when any Default remains unremedied the Bank may take any of
the following steps:
(a) by notice to the Borrower, cancel the Term Loan Facility (or part
thereof) and require the Borrower immediately to repay all or
part thereof together with accrued interest thereon and
immediately to pay all or any other sums payable by them under
this Agreement to be paid or repaid, whereupon the same shall
become immediately due and payable; and
(b) by notice to the Borrower, place all or any of the Term Loan on
demand, so that it shall become immediately due and payable upon
the Bank's demand.
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<PAGE>
11. SET-OFF
The Borrower authorises the Bank:
(a) to apply any credit balance on any of its accounts with the Bank
(by set-off, combination or otherwise) in satisfaction of any
sum due and payable and unpaid from it pursuant to the terms of
any of the Financing Documents; and
(b) to purchase with the moneys standing to the credit of any such
account such other currencies as may be necessary to effect such
application.
12. FEES AND EXPENSES
12.1 EXPENSES
The Borrower shall pay on demand all costs, fees and expenses
(including, but not limited to, legal, valuation and accounting fees) and
any VAT thereon incurred by the Bank:
(a) in connection with the negotiation, preparation and execution of
any of the Financing Documents and the other documents
contemplated hereby or thereby;
(b) in connection with the grant of any release, waiver or consent or
in connection with any variation of or supplement to any of the
Financing Documents; or
(c) in exercising, enforcing, perfecting, protecting or preserving
(or attempting so to do) any of its rights, or in suing for or
recovering any sum due from the Borrower or any other person
under any of the Financing Documents.
12.2 ARRANGEMENT FEE
The Borrower has previously paid on 25th September 1995 an arrangement
fee of L75,000 to the Bank and on 22nd March 1996 an arrangement fee of
L20,000.
12.3 MONITORING FEE
The Borrower shall pay to the Bank a monitoring fee of L10,000 per annum
payable on the 22nd September 1997 and each anniversary thereof provided
that such monitoring fee shall be reduced to L5,000 per annum from the
Financial Year ending 26th June 1999 onwards if in the 12 month period
preceeding such date there has been no breach of any of the financial
undertakings specified in Clause 9.2 of this Agreement. In the event of
such a breach, the monitoring fee shall remain at L10,000.
13. SEVERABILITY
13.1 SEVERANCE
If at any time any provision hereof is or becomes illegal, invalid or
unenforceable in any respect under the law of any jurisdiction neither
the legality, validity or enforceability of the
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<PAGE>
remaining provisions hereof nor the legality, validity or enforceability
of such provision under the law of any other jurisdiction shall in any
way be affected or impaired thereby.
13.2 WAIVERS
No failure to exercise, and no delay in the exercise, by the Bank of any
right or remedy under any of the Financing Documents shall operate as a
waiver of such right or remedy, nor shall any single or partial exercise
of any right or remedy prevent any further or other exercise thereof or
the exercise of any other right or remedy. The rights and remedies under
this Agreement are cumulative and not exclusive of any rights or
remedies provided by law.
14. NOTICES
14.1 METHOD
Each communication to be made under this Agreement shall be made in
writing but, unless otherwise stated, may be made by facsimile message
or letter.
14.2 DELIVERY
Any communication or document to be made or delivered by one person to
another for any purpose under this Agreement shall (unless the one has
by 15 days' written notice to the other specified another address) be
made or delivered to that other person at the respective addresses given
in Clause 14.3.
14.3 ADDRESSES
The addresses referred to in Clause 14.2 above are:
(a) the Borrower:
Regis Europe Limited
110 Park Street
London
W1Y 3RB
Attention: Managing Director/Finance Director
Fax: (0171 491 1647)
(b) the Bank:
(for the issue of Drawdown Notices and selection of the duration
of Interest Periods)
National Westminster Bank Plc
Mayfair Business Centre
24 Albermarle Street
London W1X 4JS
Attention: Manager
Fax: 0171 290 4690/1/2
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<PAGE>
and otherwise for all other notices to
National Westminster Bank Plc
Acquisition Finance Unit
4th Floor
Crosby Court
38 Bishopsgate
London EC2N 4DP
Attention: Niki Fitch/James Moody
Fax: 0171 665 6161
14.4 DEEMED RECEIPT
Any notice given in relation to any of the Financing Documents by the
Bank shall be deemed to have been received:
(a) if sent by facsimile message followed by receipt at the
transmitting terminal of a confirmatory transmission report
acknowledging receipt by a terminal with the facsimile number to
which the relative notice was transmitted, on the Business Day on
which transmitted;
(b) in the case of a written notice lodged by hand, at the time of
actual delivery; or
(c) if posted, on the second Business Day following the day on which
it was properly despatched by first class mail postage prepaid.
14.5 Any notice given to the Bank shall be deemed to have been received by
the Bank only upon actual receipt by the Bank.
15. ASSIGNMENTS AND TRANSFERS
15.1 BENEFIT OF AGREEMENT
This Agreement shall be binding upon and enure to the benefit of each
party hereto and its successors and assigns.
15.2 ASSIGNMENTS AND TRANSFERS BY THE BORROWER
The Borrower shall not be entitled to assign or transfer all or any of
its rights, benefits and obligations under this Agreement.
15.3 ASSIGNMENTS AND TRANSFERS BY THE BANK
The Bank may assign or transfer all or any of its rights and obligations
under any of the Financing Documents provided that any transferee is a
Qualifying Bank and the Borrower shall enter into such documents as the
Bank may stipulate in order to effect such transfer or assignment.
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<PAGE>
15.4 DISCLOSURE OF INFORMATION
The Bank shall keep confidential any information furnished or made
available to it under any of the Financing Documents by the Borrower
other than that which is available in the public domain, or which the
Bank is by law or regulation required to disclose. The Bank may disclose
such information to its professional advisers and to any actual or
potential assignee, transferee or sub-participant, subject to the
condition that each of the same keeps confidential any such information.
15.5 PUBLICITY
Save where immediate disclosure of information is required by law or by
any regulatory authority or by any court of competent jurisdiction,
neither the Bank nor the Borrower and any companies in the Group shall
make or consent to the making of any public statement or announcement
concerning the terms of this Agreement or the continuance or the
provision of the Term Loan Facility or any security therefor, to the
Stock Exchange or otherwise, without first obtaining the approval of the
other party as to the content thereof.
16. LAW
This Agreement shall be governed by, and construed in all respects in
accordance with, English Law.
IN WITNESS whereof the parties hereto have caused this Agreement to be duly
executed the day and year first above written.
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<PAGE>
SCHEDULE 1
CHARGING GROUP AS AT * 1996
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation Registered Number Shares Owned By
- ---- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Regis Europe Limited England and Wales 02108396 Regis Corporation
Essanelle Limited England and Wales 1115693 Regis Europe Limited
Steiner Hairdressing Limited England and Wales 3112915 Openpark Limited
Steiner Salons Limited England and Wales 146422 Openpark Limited
Openpark Limited England and Wales 2457287 Regis Europe Limited
</TABLE>
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<PAGE>
SCHEDULE 2
CONDITIONS PRECEDENT FOR THE PURPOSE OF CLAUSE 2
The Bank is satisfied that no Default or Default Occurrence is continuing and
shall have received each of the following (in form and substance satisfactory to
the Bank):
(a) a Certified Copy of the certificate of incorporation (and any
relative certificate of incorporation on change of name) of each
member of the Charging Group;
(b) a Certified Copy of the Memorandum of Association and the
Articles of Association of each member of the Charging Group;
(c) a Certified Copy of the minutes (in the agreed form) of a meeting
of the board of directors of each member of the Charging Group
approving and authorising the execution and performance of each
of the Transaction Documents to which such company is a party on
the terms and conditions thereof and in each case establishing:
(i) that the meeting was duly convened and quorate in
accordance with the relative company's articles of
association;
(ii) due consideration by all the directors of the relative
company of the obligations and liabilities arising
thereunder and in particular where necessary, the
application and relative relaxation procedures in
relation to the provisions of sections 151 to 158 of the
Act;
(iii) the making of all declarations of interests as may be
required in connection with any of the Transaction
Documents; and
(iv) the authorisation of any of the directors of the relative
company whose names and specimen signatures are set out
therein to sign or otherwise duly attest the execution of
such documents and any other documents to be executed or
delivered pursuant thereto;
(d) Certified Copies of any necessary statutory declarations made in
the prescribed form (and each being in the agreed form) by all of
the directors of each company listed in Part 2 of Schedule 1 as
required by Section 155 of the Act together with a Certified Copy
of the statutory report by its Auditors required under Section
156(4) of the Act and confirmation by the Auditors that each such
company has net assets (as defined in section 152(2) of the Act)
and that the relative net assets are not reduced by the giving of
the financial assistance or any reduction in net assets does not
exceed distributable profits;
(e) a Certified Copy of each of:
(i) the Acquisition Documents;
(ii) the Disclosure Letter;
(iii) the Employment Contract;
(iv) a consultancy contract made between the Borrower and
Arthur Fabricant;
-39-
<PAGE>
each having been duly executed by the parties thereto;
(f) a Guarantee and a Debenture duly executed by each company listed
in Part 1 of Schedule 1 together, in each case, with all
documents deliverable therewith;
(g) evidence from the Borrower that the Keyman Insurance has been
properly effected;
(h) the Overdraft Facility Letter duly executed by the Borrower;
(i) a certificate (in the agreed form) from a director of the
Borrower to the effect that:
**[number] ordinary shares in the Borrower have been
duly allotted to Regis Corporation;
such shares have been subscribed for an amount of at
least L2,700,000 out of which the Borrower has received
in cash at least L2,700.000;
share certificates in respect of such shares have been
issued to Regis Corporation;
(j) all items forming the Information Package;
(k) a letter from the Auditors addressed to the Bank in substantially
the form set out in Schedule 6;
(1) the Drawdown Notice duly executed by the Borrower;
(m) a cheque for all fees and expenses payable on the Drawdown Date
pursuant to Clause 12;
(n) a cheque for all legal expenses payable to Wilde Sapte pursuant
to Clause 12;
(o) a letter of comfort addressed to the Bank from Regis Corporation;
(p) all relative deeds of release (in the agreed form) relating to
all Encumbrances over any of Target's assets (other than
Permitted Encumbrances) existing on or before the Completion
Date;
(q) the Bank being satisfied with the provisions of all arrangements
relating to all premises from which the Target conducts its
business or trading activities;
(r) a Certified Copy of all documents under which the Borrower is to
purchase or has purchased all the issued share capital of S & L;
and
(s) a Certified Copy of the Regis S.A. Comfort Letter.
-40-
<PAGE>
SCHEDULE 3
MANDATORY LIQUID ASSETS COSTS FORMULA
The additional rate relative to the Term Loan is, subject as hereinafter
provided, arrived at by applying the following formula:
Additional Costs = BY + L(Y-X) + S(Y-Z) per cent. per annum
-------------------
100 - (B+S)
(a) Where on the day of the application of the formula:
B is the percentage of the Bank's eligible liabilities which the
Bank of England then requires the Bank to hold on a
non-interest-bearing deposit account in accordance with its cash ratio
requirements;
Y is the rate at which Sterling deposits are offered by the Bank to
leading banks in the London inter-bank market at our about 11.00
a.m. on that day for the relative period;
L is the percentage of eligible liabilities which (as a result of
the requirements of the Bank of England) the Bank maintains as
secured money with members of the London Discount Market
Association or in certain marketable or callable securities
approved by the Bank of England, which percentage shall (in the
absence of evidence that any other figure is appropriate) be
conclusively presumed to be 5 per cent.;
X is the rate at which secured Sterling deposits may be placed by
the Bank with members of the London Discount Market Association
at or about 11.00 a.m. on that day for the relative period or, if
greater, the rate at which Sterling bills of exchange (of a tenor
equal to the duration of the relative period) eligible for
rediscounting at the Bank of England can be discounted in the
London discount market at or about 11.00 a.m. on that day;
S is the percentage of the Bank's eligible liabilities which the
Bank of England requires the Bank to place as a special deposit;
and
Z is the interest rate per annum allowed by the Bank of England on
special deposits.
(b) For the purposes of this Schedule:
(i) "ELIGIBLE LIABILITIES" and "SPECIAL DEPOSITS" have the meanings
given to them at the time of application of the formula by the
Bank of England; and
(ii) "RELEVANT PERIOD" in relation to each Interest Period means:
(A) if it is 3 months or less, that Interest Period; or
(B) if it is more than 3 months.
-41-
<PAGE>
(c) In the application of the formula, B, Y, L, X, S and Z
are included in the formula as figures and not as
percentages, e.g. if B = 0.5 per cent. and Y = 15 per
cent., BY is calculated as 0.5 x 15.
(d) The formula is applied on the first day of each relative
period. Each amount is rounded up to the nearest four
decimal places.
(e) If the Bank determines that a change in circumstances has
rendered, or will render, the formula inappropriate, the
Bank shall notify the Borrower of the manner in which the
additional rate will subsequently be calculated. The
manner of calculation so notified by the Bank shall be
binding on the Borrower.
-42-
<PAGE>
SCHEDULE 4
PART 1
DRAWDOWN NOTICE
To: National Westminster Bank Plc
Mayfair Branch
P0 Box 4ND
18a Curzon Street
London W1A 4ND
Date:
Dear Sirs,
CREDIT AGREEMENT DATED 22ND SEPTEMBER 1995 (AS AMENDED FROM TIME TO TIME) MADE
BETWEEN (1) REGIS EUROPE LIMITED AND (2) NATIONAL WESTMINSTER BANK PLC (THE
"CREDIT AGREEMENT")
Words and expressions defined in the Credit Agreement have the same meaning in
this Drawdown Notice.
We hereby give you notice of the borrowing of a Term Loan Tranche:
(a) date: **
(b) tranche
(c) amount: **
(d) duration of Interest Period: ** months (n.b. Clause 4.3.2(d))
(e) ** payment instructions
For and on behalf of
REGIS EUROPE LIMITED
(a company incorporated in England and Wales with registered number 02108396)
- ------------------------
NOTE: Where a Term Loan Tranche is a tranche within Tranche B, a schedule of
the Restructuring Costs or Transaction Costs to be paid or reimbursed
out of the proceeds is to be attached to this notice and the amount of
the further tranche may not exceed the amount of such Restructuring
Costs or Transaction Costs.
-43-
<PAGE>
SCHEDULE 5
REPRESENTATIONS AND WARRANTIES MADE
UNDER CLAUSE 3.2
1. It is a limited company incorporated under the laws of its jurisdiction
of incorporation, which possesses the capacity to sue and be sued in its
own name and which has the power to carry on its business and to own its
property and other assets.
2. It has power and capacity to execute, deliver and perform its
obligations under each of the Transaction Documents to which it is or is
to be a party and all necessary corporate, shareholder and other action
has been taken and consents given to authorise the execution, delivery
and performance of the same.
3. Its obligations under each of the Transaction Documents to which it is a
party constitute its legal, valid and binding obligations and are in
full force and effect.
4. Its execution and delivery and performance and discharge of its
obligations and liabilities under each of the Transaction Documents to
which it is or is to be a party do not and will not:
(i) contravene any law or regulation or any order of any governmental
or other official authority, body or agency or any judgment,
order or decree of any court having jurisdiction over it; or
(ii) conflict with, or result in any breach of any of the terms of, or
constitute a default under, any agreement or other instrument to
which it is a party or any licence or other authorisation to
which it is subject or by which it or any of its property is
bound; or
(iii) contravene or conflict with any provision of its memorandum and
articles of association and, in particular, it has no limit on
its power to incur Indebtedness.
5. All licences, consents, exemptions, clearances, filings, registrations,
payments of duties or taxes, notarisations and authorisations as are or
may be necessary or desirable for the proper conduct of its business,
trade and ordinary activities and for the performance and discharge of
its obligations and liabilities under each of the Transaction Documents
and which are required in connection with the execution, delivery,
validity, enforceability or admissibility in evidence of each of the
Transaction Documents are in full force and effect;
6. It has not taken any action nor have any steps been taken or legal
proceedings been started or threatened in writing against it for
winding-up, dissolution or re-organisation, the enforcement of any
Encumbrance over its assets or for the appointment of a receiver,
administrative receiver, or administrator, trustee or similar officer of
it or of any or all of its assets or any other procedure under which it
obtains protection from any of its creditors.
7. It is not in breach or in default under any of any deed, instrument or
agreement to which it is a party or which is binding on it or any of its
assets.
8. No action, litigation, arbitration or administrative proceeding has been
started or (so far as it is aware having made all appropriate enquiry)
is pending or threatened against it, nor is there
-44-
<PAGE>
subsisting any unsatisfied judgment or award given against it by any
court, board of arbitration or other body.
9. Since the date of Accountants' Report, there has been no material
adverse change in any of its business or financial constitution,
prospects and undertaking.
10. All of its assets are free from any Encumbrances, other than Permitted
Encumbrances.
11. It has no Indebtedness outstanding other than Permitted Indebtedness.
12. In relation to the Information Package:
(i) all assumptions and presumptions contained in the Accountants'
Report were reasonable at the time they were made and in relation
to the period in respect of which they were made;
(ii) all factual information contained in the Information Package was,
at the date of the relative reports, true and accurate in all
respects and not misleading, and there are no other facts the
omission of which would make any fact or statement therein
misleading; and
(iii) all forecasts, projections and estimates attributable to it
contained or referred to in the Information Package and all
assumptions and presumptions upon the basis of which the same
were made, at the time they were made were reasonable and nothing
has occurred since the date of the Accountants' Report which
makes it necessary to change any of those forecasts, projections
and estimates.
13. Immediately prior to the Completion Date, the Borrower has no
Subsidiaries other than Regis S.A.
14. There are no arrangements (whether legally binding or not) between the
Borrower and any of its Subsidiaries for financial support other than
under the terms of the Regis S.A. Comfort Letter.
15. There is no disclosure made in any Exhibit to the Acquisition Agreement
or any other disclosure to any of the Acquisition Documents that is not
fully and accurately disclosed in the Information Package.
-45-
<PAGE>
SCHEDULE 6
PART 1
AUDITORS' CONFIRMATION
National Westminster Bank Plc
135 Bishopsgate
London
EC2M 3UR
[Date]
Gentlemen,
CREDIT AGREEMENT TO BE DATED 22ND SEPTEMBER 1995 AS VARIED AND RESTATED BY
VARIATION AND AGREEMENTS DATED 22ND MARCH 1996 AND [** 1998] MADE BETWEEN
(1) REGIS EUROPE LIMITED AND (2) NATIONAL WESTMINSTER BANK PLC (THE "CREDIT
AGREEMENT")
We confirm, as auditors of Regis Europe Limited and those of its subsidiary
companies that are registered in England and Wales, that we will, from time to
time and at your request, issue to you a report in substantially the form
enclosed.
Your draft letter of instructions and our draft form of report are enclosed
initialed for purposes of identification.
Yours faithfully,
- -------------------------------
for and on behalf of
** as Auditors
-46-
<PAGE>
(TO BE SENT BY NATIONAL WESTMINSTER BANK PLC
TO AUDITORS OF REGIS EUROPE LIMITED)
Auditors' details **
[Date]
**
Dear Sirs,
REGIS EUROPE LIMITED (THE "BORROWER")
We refer to the Credit Agreement entered into between the Borrower and ourselves
dated 22nd September 1995 as varied and restated on 22nd March 1996 and
[** 1998] an executed copy of which is enclosed with this letter (the "CREDIT
AGREEMENT").
Clause 9.2 of the Credit Agreement sets out the financial undertakings of the
Borrower. We or, as the case may be, the Borrower, may require you to review the
covenant calculations under Clause 9.2 (whether for the purpose of Clause 9.1(e)
or otherwise).
In any such event, whether the request is made by either the Borrower or us we
should be grateful if your review would confirm that such calculations have been
made in accordance with the terms of the Credit Agreement, or if not, that any
revised calculations made by you in relation to such calculations have been so
made.
According to the provisions of Clause 9.1(a) of the Credit Agreement the
Borrower is required to send us its Accounts within 120 days of the end of each
Financial Year. You should report to us the results of your review of the
calculations of those covenants which fall to be tested as at the end of each
such Financial Year, in the terms set forth in the enclosed draft, within 14
days following the compliance by the Borrower with that requirement.
Your fees for this work are for the account of the Borrower and should be agreed
with them in advance.
Yours faithfully,
- -------------------------------
for and on behalf of
NATIONAL WESTMINSTER BANK PLC
-47-
<PAGE>
[FORM OF AUDITORS' REPORT]
[Date]
Dear Sirs,
We refer to the Credit Agreement entered into between Regis Europe Limited (the
"Borrower") and yourselves, dated 22nd September 1995 as varied and restated on
22nd March 1996 and [** 1998] (the "CREDIT AGREEMENT").
The definitions set out in the Credit Agreement shall have the same meaning in
this report.
In accordance with your instructions set out in your letter dated ** 19** we
have reviewed the enclosed schedule of calculations for the financial
undertakings in Clause 9.2 for the Financial Year ended on ** 19**. The
schedule has been initialed by us for purposes of identification.
As Auditors of the Borrower, we confirm that the respective amounts of PBIT,
Total Debt Costs, Consolidated Cash Flow Before Financing, Total Obligations,
Consolidated Adjusted Net Worth, Gearing and Capital Expenditure have been
calculated in accordance with the provisions set out in the Credit Agreement for
the Financial Year ended ** 19**.
Yours faithfully,
- ----------------------------
for and on behalf of
** as Auditors
-48-
<PAGE>
SCHEDULE 6
PART 2
The Manager
Acquisition Finance
NatWest Markets
135 Bishopsgate
London EC2M 3UR
Dear Sir/Madam,
CREDIT AGREEMENT DATED 22ND SEPTEMBER 1995 MADE BETWEEN REGIS EUROPE LIMITED AND
NATIONAL WESTMINSTER BANK PLC AS VARIED AND RESTATED ON 22ND MARCH 1996 AND
[** 1997] (THE "CREDIT AGREEMENT")
In accordance with Clause 9.1(e) of the Credit Agreement dated xxxxx, we hereby
certify that during the period xxxx to xxxx, all of our undertakings under the
Financing Documents including the financial undertakings in Clause 9.2
(calculations of which are attached) have been complied with.
Signed
on behalf of the Board of Regis Europe Limited
-49-
<PAGE>
FINANCIAL UNDERTAKING CALCULATIONS FOR THE PERIOD XXX TO XXX
<TABLE>
<S> <C> <C>
1. PBIT: TOTAL DEBT COSTS
PBIT
July x
August x
September x _
... x
x
---
---
Total Debt Costs
July x
August x
September x
... x _
x
---
---
Ratio x
Covenant x
2. CONSOLIDATED CASH FLOW BEFORE FINANCING TO TOTAL OBLIGATIONS
Consolidated Cash Flow Before Financing
PBIT
July x
August x
September x
... x _
x
---
---
+Depreciation
July x
August x
September x
... x _
x
---
---
-50-
<PAGE>
<S> <C> <C>
+ management charges payable but not paid
July x
August x
September x
... x _
x
---
---
+ receipts from Regis Corporation for share subscriptions
July x
August x
September x
... x -
x
---
---
-payments to Regis Corporation not already included in PBIT
July x
August x
September x
... x _
x
---
---
+/- Net Working Capital Movement
July x
August x
September x
... x _
x
---
---
+/- Extraordinary Items
July x
August x
September x
... x _
x
---
---
-51-
<PAGE>
<S> <C> <C>
- Capital Expenditure
July x
August x
September x
... x _
x
---
---
- Taxes Paid
July x
August x
September x
.. x _
x
---
---
Consolidated Cash Flow Before Financing _
x
---
---
Total Obligations
Total Debt Costs
July x
August x
September x
... x _
x
---
---
Loan Repayments
July x
August x
September x
... x _
x
---
---
-52-
<PAGE>
<S> <C> <C>
Loan Prepayments
July x
August x
September x
... x -
x
---
---
Finance Lease Repayments
July x
August x
September x
... x -
x
---
---
Total Obligations x
Ratio x
Covenant x
3. CONSOLIDATED ADJUSTED NET WORTH
Share Capital x
Regis Corp Intercompany Loan x
Acquisition Goodwill Written Off x
Less Intangibles (excluding Acquisition Goodwill) x
Less Investment in Regis SA and S&L x
Profit and Loss Reserve x
Covenant x
4. GEARING
Total Debt
Term Loan x
Overdraft Facility x
Finance Leases x
Other x
Consolidated Adjusted Net Worth x
Gearing x%
Covenant x%
</TABLE>
-53-
<PAGE>
5. CAPITAL EXPENDITURE
<TABLE>
<CAPTION>
Charging Regis South Total Cumulative Covenant
Group Africa YTD
<S> <C> <C> <C> <C> <C>
July x x x x x
August x x x x x
September x x x x x
... x x x x x
--- --- --- --- ---
x x x x x
</TABLE>
*Please also schedule:
(i) Reverse Premia received in respect of new leases;
(ii) BHS Receipts that have been reinvested as Capital Expenditure.
-54-
<PAGE>
SCHEDULE 7
1. MARKET DISRUPTION
If the Bank determines that, by reason of circumstances generally
affecting the London inter-bank market, means do not exist for
ascertaining LIBOR:
(a) the Bank shall promptly notify the Borrower in writing of such
event ("MARKET DISRUPTION NOTICE");
(b) the Bank and the Borrower shall, as the circumstances may
require, discuss an alternative basis for calculating the
relative rate of interest for the Term Loan on the basis that the
net return to the Bank shall be no less (but no more) than it
would have been had such event not occurred;
(c) the Borrower shall either:
(i) throughout any period in relation to which a market
disruption notice is in effect, subject always to
paragraph 1(d), pay interest to the Bank on the Term Loan
at the rate per annum determined by the Bank to be the
aggregate of:
(x) the Margin;
(y) the rate determined by the Bank to be the rate
which expresses as a percentage rate per annum the
cost to the Bank of funding the Term Loan from
whatever sources it may select (acting
reasonably); and
(z) Mandatory Liquid Asset Costs; or
(ii) promptly following receipt of a market disruption notice,
prepay the Term Loan, together with interest accrued
thereon and all other amounts payable under this
Agreement (including all amounts payable under Clause
9.2); or
(d) if the Borrower and the Bank shall agree an alternative basis,
then such alternative basis shall take effect in accordance with
its terms and shall be deemed to take effect under this Agreement
until such time the circumstances giving rise to the market
disruption notice have ceased.
2. CHANGES IN CIRCUMSTANCES
2.1 ILLEGALITY
If by reason of the introduction of; or any change in, any applicable
law or any regulation or regulatory requirement of the Bank of England
or of any other governmental, monetary or other authority (with the
requests or requirements of which the Bank is accustomed to
-55-
<PAGE>
comply and whether in the United Kingdom or elsewhere) or any change in
the interpretation or application thereof it becomes unlawful or it is
prohibited for the Bank to maintain the Term Loan Facility or otherwise
give effect to any of its obligations under this Agreement, the Bank
shall inform the Borrower to that effect, whereupon its obligation to
permit the Term Loan Facility to remain outstanding shall forthwith
terminate and the Borrower shall, within such period (if any) as may be
allowed by the relevant law, regulation or regulatory requirement,
prepay to the Bank the Term Loan together with all other amounts payable
under this Agreement (including all amounts payable under Clause 9.2).
Without prejudice to the foregoing, the Bank confirms that if it informs
the Borrower as aforesaid it shall thereafter use reasonable endeavours
to avoid or mitigate the effects of such unlawfulness or prohibition
(including, without limitation, designation of an alternative Lending
Office or the transfer or assignment of the Term Loan Facility to a
Qualifying Bank pursuant to Clause 15) and will enter into negotiations
in good faith with the Borrower with a view to finding a means of
avoiding or mitigating the effects of such unlawfulness or prohibition
PROVIDED THAT the Bank shall not be obliged to continue such
negotiations for a period exceeding 30 days (or if shorter, the period
from notification to the date upon which the relative law, regulation or
requirement comes into effect) after the day upon which the Bank informs
the Borrower pursuant to this paragraph 2.1.
2.2 INCREASED COSTS
If, after the date hereof, any of the implementation: introduction,
abolition, withdrawal and any change in:
(a) any law, regulation, practice and concession; or
(b) any official directive, regulatory requirement, request and
guidance (whether or not having the force of law but if not
having the force of law, imposed by any body or authority with
whose requirements, requests or guidance the Bank customarily
complies) of the Bank of England, the European Union and of any
other governmental, monetary or other authority (whether in the
United Kingdom or elsewhere) having jurisdiction over the
relative Bank; or
(c) any change in the interpretation or application thereof,
shall increase the cost to the Bank of making available the Term Loan
Facility or maintaining the Term Loan or any part thereof or of carrying
out any of the transactions provided for or contemplated by any of the
Financing Documents or reduce the amount of any payment received or
receivable by the Bank or reduce its return from the Term Loan Facility,
then and in any such case the Bank shall notify the Borrower who shall
pay (as additional interest) from time to time to the Bank within 5
Business Days of such notification all amounts which the Bank certifies
(in a certificate which shall set out in reasonable detail so far as is
practicable the basis of the computation of such amounts) to be
necessary to compensate the Bank for the additional cost or reduction.
Without prejudice to the foregoing, the Bank confirms that on notifying
the Borrower as aforesaid the Bank shall take such steps as the Bank
considers reasonable to reduce or avoid the additional cost or reduction
and, if the Borrower so requests, the Bank shall consult with the
Borrower with a view to finding a means of reducing or avoiding the
additional cost or reduction PROVIDED THAT the Bank shall not be obliged
to continue such negotiations in respect of any such notification for a
period of longer than 30 days after the date of the giving of
notification pursuant to this paragraph 2.2.
-56-
<PAGE>
The Borrower will not be obliged to compensate the Bank under paragraph
2.2 (Increased Costs) in respect of any increased cost:
(a) compensated for by payment of the MLA Costs; or
(b) attributable to a change in the rate of Tax on the Overall Net
Income of the Bank; or
(c) compensated for by the operation of paragraph 3 (Grossing Up) or
would have been so compensated for but for the operation of
paragraph 3.4.
2.3 CERTIFICATES
The certificate or notification of the Bank as to any of the matters
referred to in paragraphs 2.1 and 2.2 shall, in the absence of manifest
error, be conclusive and binding on the Borrower.
3. GROSSING UP
3.1 Subject to paragraph 3.2, all sums payable to the Bank pursuant to or in
connection with any of the Financing Documents shall be paid in full
without any set-off or counterclaim whatsoever and free and clear of all
deductions or withholdings whatsoever.
3.2 If any deduction or withholding is required by law in respect of any
payment due to the Bank pursuant to or in connection with any of the
Financing Documents, the Borrower shall ensure that the deduction or
withholding is made and that it does not exceed the minimum legal
requirement therefor and that the full amount deducted or withheld is
paid to the relevant taxation or other authority in accordance with the
applicable law.
3.3 If any deduction or withholding is made in relation to any payment
payable by the Borrower to the Bank, the Borrower shall pay to the Bank
that amount which results in the net amount received by the Bank after
the deduction or withholding (and after taking account of any further
deduction or withholding which is required to be made as a consequence
of the increase) being equal to the amount which the Bank would have
been entitled to receive in the absence of any requirement to make any
deduction or withholding.
3.4 A Borrower shall not be required to pay an additional amount under this
CLAUSE 11.9 if the payment in respect of which the deduction or
withholding is required is a payment of interest on an Advance and:
(a) at the time that Advance was made, the Bank was not a Qualifying
Bank otherwise than as a consequence of a Change occurring after
the date of this Agreement (and the obligation to deduct or
withhold would not have arisen if that Advance had been made by a
Quilting Bank); or
(b) at the time when the interest is paid, the Bank is not
beneficially entitled to it or, being beneficially entitled to
it, the Bank is not within the charge to United Kingdom
corporation tax as respects it otherwise than as a consequence of
a Change occurring after the date of this Agreement (and the
obligation to deduct or withhold would not have arisen if the
Bank had been beneficially entitled to the interest and had been
within the charge to United Kingdom corporation tax as respects
it).
-57-
<PAGE>
3.5 If the Borrower pays to the Bank any additional amount under this
paragraph 3 by reason of a deduction or withholding for or on account of
Taxes and the Bank determines in its absolute discretion that it has
obtained a refund of Tax, or credit against Tax, by reason of the
payment of that additional amount and the Bank is able to identify such
refund or credit as being attributable to that payment, then the Bank
shall reimburse to the Borrower such amount as the Bank shall determine
in its absolute discretion to be the proportion of the credit or refund
in question as will leave the Bank (after that reimbursement) in no
better or worse position than that in which it would have been had the
payment of the additional amount concerned not been required, but the
Bank need not make any reimbursement if it believes the making of the
reimbursement would cause it to lose the benefit of the credit or
refund. The Bank will have an absolute discretion as to whether to claim
any credit for or refund of Taxes and, if it does claim, the extent,
order and manner in which it does so. The Bank will not be obliged to
disclose any information regarding its tax affairs or computations to
the Borrower.
4. DOCUMENTARY TAXES INDEMNITY
All stamp, documentary, registration or other like duties or Taxes,
including any penalties, additions, fines, surcharges or interest
relating thereto, which are imposed or chargeable on or in connection
with any of the Financing Documents shall be paid by the Borrower
PROVIDED THAT the Bank shall be entitled but not obliged to pay any such
duties or Taxes (whether or not they are its primary responsibility),
whereupon the Borrower shall on demand indemnify the Bank for all costs
and expenses so incurred.
5. VAT
All payments made under the Financing Documents are calculated without
regard to VAT. If any such payment constitutes the whole or any part of
the consideration for a taxable or deemed taxable supply (whether that
supply is taxable pursuant to the exercise of an option or otherwise) by
the Bank, the amount of that payment shall be increased by an amount
equal to the amount of VAT which is chargeable in respect of the taxable
supply in question.
-58-
<PAGE>
SCHEDULE 8
BASE CASE MODEL
-59-
<PAGE>
THE BORROWER
SIGNED BY )
and ) /s/ [Illegible]
for and on behalf of )
REGIS EUROPE LIMITED )
THE BANK
SIGNED BY )
) /s/ [Illegible]
for and on behalf of )
NATIONAL WESTMINSTER BANK PLC )
-60-
<PAGE>
The Borrower
SIGNED by )
for and on behalf of ) /s/ [Illegible]
REGIS EUROPE LIMITED )
The Bank
SIGNED by )
for and on behalf of ) /s/ [Illegible]
NATIONAL WESTMINSTER )
BANK PLC )
-7-
<PAGE>
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth, for the periods indicated, selected
financial data derived from the Company's consolidated financial statements.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Revenues $ 798,144 $ 713,219 $ 617,307 $ 524,253 $ 453,561
Operating income (a) 59,929 28,447 26,167 26,644 25,712
Net income (a) 30,488 6,574 9,451 11,590 3,883
Net income per diluted share (a) 1.27 .28 .42 .53 .20
Total assets 382,350 331,535 303,954 244,836 226,944
Long-term debt, including
current portion 120,736 113,462 102,381 85,092 82,991
Dividends declared .09 .08 .07 -- --
</TABLE>
(a) The following information is provided to facilitate comparisons of
operating income, net income and net income per diluted share, absent
the impact of certain nonrecurring activities (See Notes 3 and 10 to
the Consolidated Financial Statements). Exclusive of nonrecurring
items, operating income would have been $61,908, $47,178, $38,990 in
1998, 1997 and 1996, respectively. Exclusive of nonrecurring items,
net income and net income per diluted share, respectively, would have
been $31,600 and $1.31 in 1998, $21,337 and $.92 in 1997, $16,981 and
$.75 in 1996, $10,885 and $.50 in 1995, $9,883 and $.50 in 1994.
KEY RATIOS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
1998 1997 1996
<S> <C> <C> <C>
Cash flow per share* $ 2.25 $ 1.77 $ 1.50
Net income per diluted share
excluding goodwill amortization** $ 1.50 $ 1.09 $ .89
Gross margin percentage 43.7% 42.8% 42.4%
Product sales mix 28.7% 27.3% 25.3%
Operating income as a percent
of revenues** 7.8% 6.6% 6.3%
Debt-to-capitalization ratio 38.9% 43.2% 36.9%
</TABLE>
* Represents net income, excluding nonrecurring and noncash items
** Excludes nonrecurring items (see Notes 3 and 10 to the Consolidated
Financial Statements)
- --------------------------------------------------------------------------------
ANNUAL RESULTS
The following table sets forth for the periods indicated certain information
derived from the Company's Consolidated Statement of Operations expressed as
a percent of revenues. The percentages are computed as a percent of total
Company revenues, except as noted.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
1998 1997 1996
<S> <C> <C> <C>
Company-owned service revenues(1) 71.3% 72.7% 74.7%
Company-owned product revenues(1) 28.7 27.3 25.3
Franchise income 3.3 3.8 4.1
Company-owned operations:
Profit margins on service(2) 43.0 41.9 41.3
Profit margins on product(3) 45.4 45.0 45.7
Direct salon(1) 9.1 9.5 10.1
Rent(1) 14.0 14.0 13.8
Depreciation(1) 3.3 3.4 3.6
Direct salon contribution(1) 17.3 15.9 14.9
Selling, general and administrative 10.8 11.0 10.6
Depreciation and amortization 1.2 1.2 1.0
Operating income 7.5 4.0 4.2
Income before income taxes 6.4 2.8 2.8
Net income 3.8 .9 1.5
Operating income, excluding
nonrecurring items 7.8 6.6 6.3
Net income, excluding nonrecurring items 4.0 3.0 2.8
</TABLE>
(1) Computed as a percent of company-owned revenues
(2) Computed as a percent of service revenues
(3) Computed as a percent of product revenues
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SUMMARY
Regis Corporation, based in Minneapolis, is the largest owner, operator,
franchisor and consolidator of hair and retail product salons in the world. The
Regis worldwide operations include 3,539 hairstyling salons at June 30, 1998
operating in six divisions: Regis Hairstylists, Strip Center Salons (primarily
Supercuts), MasterCuts, Trade Secret, Wal-Mart/SmartStyle and International.
Worldwide operations include 816 franchised salons operating primarily as
Supercuts salons. The Company has 28,000 employees worldwide.
During fiscal 1998, the Company's consolidated revenues increased 11.9 percent
to a record $798.1 million. Exclusive of nonrecurring items, operating income
grew 31.1 percent to $61.9 million and net income increased 42.4 percent to
$1.31 per share, compared to $.92 per share in the prior year.
Financial data for fiscal 1997 and 1996 presented reflect the retroactive
effects of the October 1996 merger with Supercuts, Inc. (Supercuts) which was
accounted for as a pooling-of-interests (see Note 3 to the Consolidated
Financial Statements). The financial statements have been prepared by combining
the historical financial statements of Regis Corporation with those of Supercuts
for each of these periods and include adjustments to conform the historical
accounting policies and practices of Supercuts to those of Regis.
RESULTS OF OPERATIONS
REVENUES
REVENUES in fiscal 1998 were a record $798.1 million, an increase of $84.9
million, or 11.9 percent, over fiscal 1997. Approximately 41 percent of this
increase is attributable to increases in same-store sales, with the remaining
increase due to net salon openings and acquisitions occurring in fiscal 1998 and
the full year impact of fiscal 1997 net salon openings and acquisitions. Regis
Hairstylists, Strip Center Salons, MasterCuts, Trade Secret and
Wal-Mart/SmartStyle salons in the United States and Canada (Domestic salons)
accounted for $78.1 million of the increase in total revenues. The remainder of
the revenue increase of $6.8 million resulted from the Company's International
operations. The Company's International salons are located in the United
Kingdom, South Africa, Switzerland, Mexico, Ireland, France and The United Arab
Emirates.
Revenue by division for fiscal 1998, 1997 and 1996, respectively, are shown in
the Business Mix table (right).
During fiscal 1998, same-store sales from all Domestic company-owned salons open
more than 12 months increased 5.8 percent, compared to increases of 3.1 percent
and 3.6 percent in fiscal 1997 and 1996, respectively. Same-store sales for the
United Kingdom salons (U.K. salons), the primary component of International
salons, increased 5.3 percent in fiscal 1998. Same-store sales increases
achieved during fiscal 1998, 1997 and 1996 were driven primarily by increased
customer transactions, rather than price increases. A total of 71.8 million
customers were served in fiscal 1998 compared to 69.0 million and 64.4 million
customers served in fiscal 1997 and 1996, respectively. The Company utilizes an
audiovisual-based training system in its salons. Management believes this
training system provides its employees with improved customer service and
technical skills, and positively contributes to the increase in customers
served.
<TABLE>
<CAPTION>
BUSINESS MIX
(DOLLARS IN THOUSANDS)
1998 1997 1996
<S> <C> <C> <C>
Regis $ 294,584 $ 275,258 $ 267,576
MasterCuts 107,821 94,963 83,411
Wal-Mart/
SmartStyle 40,256 30,294 2,459
Strip Centers 108,146 94,904 97,196
Trade Secret 115,024 91,412 64,960
International 106,176 99,348 76,287
Franchise
Income 26,137 27,040 25,418
----------- ------------ -----------
$ 798,144 $ 713,219 $ 617,307
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
REGIS CORPORATION 1998 17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
REVENUES INCREASED 12 PERCENT IN 1998
5 YEAR COMPOUND ANNUAL GROWTH RATE:15.5%
<TABLE>
<CAPTION>
$ MILLIONS
1996 1997 1998
<S> <C> <C> <C>
FRANCHISE 25.4 27.0 26.1
PRODUCT 149.5 187.6 221.6
SERVICE 442.4 498.6 550.4
------ ------ ------
TOTAL $617.3 $713.2 $798.1
------ ------ ------
------ ------ ------
</TABLE>
COMPANY-OWNED
REVENUES
<TABLE>
<CAPTION>
COMBINED GROSS MARGINS IMPROVED
90 BASIS POINTS IN 1998
<S> <C>
1996 42.4%
1997 42.8%
1998 43.7%
</TABLE>
COMBINED GROSS
MARGINS
System-wide sales, inclusive of non-consolidated sales generated from franchisee
salons, were $1.1 billion, $955.1 million, and $845.5 million in fiscal 1998,
1997 and 1996, representing increases of 10.8 percent, 13.0 percent and 17.4
percent, respectively. The increase in system-wide sales in fiscal 1998 was the
result of same-store sales increases from existing salons and net salon openings
as well as the total number of salons added to the system through acquisitions.
System-wide same-store sales increased 5.3 percent, 2.6 percent and 3.3 percent
in fiscal 1998, 1997 and 1996, respectively.
SERVICE REVENUES were $550.4 million, $498.6 million and $442.4 million for
1998, 1997 and 1996, representing increases of 10.4 percent, 12.7 percent and
16.7 percent, respectively. The growth in service revenues was driven by same
store-sales growth, accelerated new salon construction, and acquisitions.
PRODUCT REVENUES were $221.6 million, $187.6 million and $149.5 million in
fiscal 1998, 1997 and 1996, representing increases of 18.1 percent, 25.5 percent
and 24.2 percent, respectively. The growth in product revenue in fiscal 1998
continues a trend of escalating product revenues due to strong product
same-store sales growth, a reflection of continuous focus on product awareness,
training and acceptance of national label merchandise and opening an additional
38 Trade Secret salons between the two periods. In fiscal 1998, product revenues
as a percent of total company-owned revenues increased to 28.7 percent of
revenues, compared to 27.3 percent and 25.3 percent of revenues in 1997 and
1996, respectively.
FRANCHISE INCOME, including royalties and initial franchise fees from
franchisees, and product sales made by the Company to franchisees, decreased 3.3
percent in fiscal 1998 to $26.1 million from $27.0 million in fiscal 1997. The
decrease in franchise income is a result of a reduction in royalty rates charged
to franchisees, partially offset by increases in franchisee sales, which are not
included in the Company's consolidated revenues. The Company feels the reduction
in royalty rates will not have an adverse affect on earnings due to a
corresponding decrease in costs of services provided to the franchisees.
In fiscal 1997, franchise income increased 6.4 percent, or $1.6 million,
compared to fiscal 1996. This increase is the result of an increase in
franchisee sales, which are not included in the Company's consolidated revenues.
COST OF REVENUE
The aggregate cost of revenues in fiscal 1998 was $434.8 million, compared to
$392.8 million and $340.9 million in fiscal 1997 and 1996, respectively. As
discussed in the following paragraphs, the resulting gross margin percentage for
fiscal 1998 improved to 43.7 percent of company-owned revenues compared to 42.8
percent and 42.4 percent of company-owned revenues in fiscal 1997 and 1996.
SERVICE MARGINS for fiscal 1998 improved 110 basis points to 43.0 percent of
company-owned revenues, compared to 41.9 percent and 41.3 percent in the two
preceding fiscal years. This continued improvement was driven by ongoing payroll
control in all operating divisions and growth in the mix of the Company's higher
service margin salon concepts, primarily Strip Center Salons, MasterCuts and
Wal-Mart/SmartStyle.
18 REGIS CORPORATION 1998
<PAGE>
PRODUCT MARGINS for fiscal 1998 improved to 45.4 percent of company-owned
revenues, compared to 45.0 percent in fiscal 1997. This 40 basis point
improvement was primarily driven by lower product costs in Supercuts and
Wal-Mart salons resulting from the benefit of Regis' purchasing power.
Product margins declined 70 basis points to 45.0 percent in fiscal 1997,
compared to 45.7 in fiscal 1996. This decline was primarily a result of an
increase in Trade Secret revenues as a percent of total Company revenues, as
Trade Secret product margins are somewhat lower than the other divisions.
Additionally, the Company responded to a disappointing Christmas season by
discounting retail products in the third quarter of 1997. This bolstered the
same-store sales growth but also reduced fiscal 1997 margins.
DIRECT SALON
This expense category includes direct costs associated with salon operations
such as advertising, promotion, insurance, telephone and utilities. Direct salon
increased to $70.1 million in fiscal 1998, compared to $65.0 million and $60.0
million in fiscal 1997 and 1996, but improved as a percent of company-owned
revenue to 9.1 percent, compared to 9.5 percent and 10.1 percent in fiscal 1997
and 1996. The continued improvement in fiscal 1998 direct salon expenses
resulted from an increased ability to leverage these costs against strong
same-store sales increases and a maturing salon base, as well as the closures of
under-performing stores, primarily Supercuts salons. The fiscal 1997 improvement
resulted from leveraging fixed costs against increased revenues as well as
reductions in advertising costs in the Regis Hairstylists and MasterCuts
divisions.
RENT
Rent expense in fiscal 1998 was $107.9 million, compared to $95.7 million and
$81.6 million in fiscal 1997 and 1996. Rent expense in fiscal 1998 remained
consistent with fiscal 1997 at 14.0 percent of company-owned revenues. In fiscal
1997, rent expense increased 20 basis points due to the mid-year fiscal 1997
acquisitions in the United Kingdom, as well as the Wal-Mart acquisition in June
1996. When compared to Domestic salon operations, the U.K. salons acquired have
higher rent expense and lower selling, general and administrative expense
because certain costs are absorbed by department stores and passed on as rent.
Wal-Mart salons acquired have a higher rent expense, as a percent of
company-owned revenues, as this division has a developing salon base and,
therefore, this fixed cost is spread over a lower sales volume compared to the
majority of the Company's domestic salon base.
DEPRECIATION--SALON LEVEL
Depreciation expense at the salon level remained fairly consistent at 3.3
percent of revenues compared to 3.4 percent and 3.6 percent in fiscal 1997 and
1996. This positive trend is due to leveraging this fixed cost against
increasing revenues.
DIRECT SALON CONTRIBUTION
For reasons described above, direct salon contribution, representing
company-owned salon revenues less associated operating expenses, improved in
fiscal 1998 to $133.7 million and 17.3 percent of company-owned revenues,
compared to $109.3 million and 15.9 percent in fiscal 1997 and $88.4 million and
14.9 percent in fiscal 1996.
<TABLE>
<CAPTION>
DIRECT SALON
CONTRIBUTION
INCREASED 140 BASIS
POINTS IN 1998
<S> <C>
1996 14.9%
1997 15.9%
1998 17.3%
</TABLE>
DIRECT SALON CONTRIBUTION
REGIS CORPORATION 1998 19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OPERATING INCOME
INCREASED 31%
IN 1998
<TABLE>
<CAPTION>
$ MILLIONS
EXCLUDING NONRECURRING ITEMS
<S> <C>
1996 $39.0-6.3%
1997 $47.2-6.6%
1998 $61.9-7.8%
</TABLE>
OPERATING INCOME
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses include field supervision
(payroll, related taxes and travel) and home office administration costs (such
as warehousing, salaries, occupancy costs and professional fees). SG&A expenses
increased $7.8 million in fiscal 1998 to $86.5 million, but improved as a
percent of total revenue to 10.8 percent from 11.0 percent in fiscal 1997. The
20 basis point improvement in SG&A in fiscal 1998 was primarily driven by cost
reductions associated with the amalgamation of the Supercuts administrative
office functions, partially offset by costs incurred to prepare the Company's
internal computer systems for the year 2000.
In fiscal 1997, SG&A expenses increased $13.6 million to $78.7 million and
deteriorated as a percent of total revenue by 40 basis points. This
deterioration was primarily a result of higher distribution center expenses due
to volume increases. In addition, SG&A expense for the International division
was higher in fiscal 1997 than fiscal 1996 due to an extended transition period
for the associated 1996 acquisitions.
DEPRECIATION AND AMORTIZATIONCORPORATE
Depreciation and amortization was 1.2 percent of total revenues, compared to 1.2
percent and 1.0 percent in fiscal 1997 and 1996, respectively. Amortization
expense increased in fiscal 1998 and 1997 due to the increased level of
intangible assets, primarily goodwill, associated with the Company's salon
acquisition activity. In fiscal 1998, depreciation expense within this category
has remained relatively consistent with fiscal 1997 and 1996 as a percent of
revenues.
NONRECURRING ITEMS
See Notes 3 and 10 to the Consolidated Financial Statements.
OPERATING INCOME
Operating income in fiscal 1998 increased to $59.9 million, compared to $28.4
million and $26.2 million in fiscal 1997 and 1996, respectively. Both fiscal
1997 and 1996 were significantly affected by Supercuts-related merger and
transaction costs, and restructuring charges (nonrecurring items).
Exclusive of nonrecurring items, operating income in fiscal 1998 improved to
$61.9 million, or 7.8 percent of revenues, compared to $47.2 million and $39.0
million in fiscal 1997 and 1996. This 31.1 percent improvement was driven by
improved gross margins and the overall leveraging of fixed costs. The fiscal
1997 improvement is primarily attributable to improved gross margins, the
leveraging of direct salon expenses, partially offset by higher SG&A expense as
a percent of revenues.
INTEREST
Interest expense in fiscal 1998 was $10.1 million compared to $10.3 million and
$9.9 million in fiscal 1997 and 1996, representing 1.3 percent, 1.4 percent and
1.6 percent of total revenues, respectively. The decline in interest expense as
a percent of total revenues in fiscal 1998 and 1997 is due to the benefit of
reduced interest rates in the respective periods.
20 REGIS CORPORATION 1998
<PAGE>
INCOME TAXES
The Company's effective tax rate in fiscal 1998 was 40.2 percent of pre-tax
income compared to 66.6 percent and 45.6 percent in fiscal 1997 and 1996. In
fiscal 1997, the Company's effective tax rate was negatively affected by
nondeductible merger and transaction costs associated with the Supercuts merger.
Exclusive of nonrecurring items, the Company's effective tax rate was 40.2
percent, 43.1 percent and 42.4 percent, respectively, in fiscal 1998, 1997 and
1996. The fiscal 1997 and 1996 effective tax rates, exclusive of nonrecurring
items, were negatively affected by the Company's inability to fully utilize the
income tax benefits of Supercuts operating costs in certain states.
Additionally, as part of its June 30, 1997 income tax provision, the Company
recorded a $1.5 million change in estimate associated with income tax matters
related to years prior to 1997.
NET INCOME
Net income in fiscal 1998 grew to a record $30.5 million, or $1.27 per diluted
share, compared to net income of $6.6 million, or $.28 per diluted share, in
fiscal 1997 and $9.5 million, or $.42 per diluted share, in fiscal 1996.
Exclusive of nonrecurring items, net income in fiscal 1998 increased to $31.6
million, or $1.31 per diluted share, compared to net income of $21.3 million, or
$.92 per diluted share, in fiscal 1997 and $17.0 million, or $.75 per diluted
share in fiscal 1996. Earnings per diluted share, exclusive of nonrecurring
items, increased 42.4 percent, 22.7 percent and 50.0 percent in fiscal 1998,
1997 and 1996, respectively. These increases have primarily resulted from sales
increases, improved gross margins and leveraging of fixed costs, as previously
discussed.
EFFECTS OF INFLATION
The Company compensates its Regis Hairstylists and International salon employees
with percentage commissions based on sales they generate, thereby enabling salon
payroll expense as a percent of revenues to remain relatively constant.
Accordingly, this provides the Company certain protection against inflationary
increases as payroll expense and related benefits (the Company's major expense
components) are, with respect to these divisions, variable costs of sales. The
Company does not believe inflation, due to its low rate, has had a significant
impact on the results of operations associated with hourly paid hairstylists for
the Strip Center, MasterCuts, Trade Secret or Wal-Mart/SmartStyle divisions.
LIQUIDITY AND CAPITAL RESOURCES
Customers generally pay for salon services and merchandise in cash at the time
of sale, which reduces the Company's working capital requirements. Net cash
provided by operating activities in fiscal 1998 rose to $67.7 million compared
to $34.9 million in fiscal 1997. The increase in fiscal 1998 is due to improved
operating performance during the year and to payments in fiscal 1997 associated
with the Supercuts merger and restructuring costs. Cash payments associated with
these costs were $18.4 million in fiscal 1997.
CAPITAL EXPENDITURES AND ACQUISITIONS
During fiscal 1998, the Company had worldwide capital expenditures of $65.9
million, of which $4.4 million related to acquisitions of 201 salons, $5.9
million for equipment acquired under capital leases, $9.7 million for the
Company's new distribution center and $7.0 million for the purchase of
additional administrative office facilities. During fiscal 1998, the Company
constructed 181 new salons (33 Regis Hairstylists, 4 Strip Center Salons, 50
MasterCuts, 32 Trade Secret, 45 Wal-Mart/SmartStyle and 17 International) and
added 201 salons through acquisitions. The Company also completed 97 major
remodeling projects. All capital expenditures during fiscal 1998 were funded by
the Company's operations and borrowings under its revolving credit facility.
EARNINGS PER SHARE
GREW 42% IN 1998
<TABLE>
<CAPTION>
DILUTED
EXCLUDING NONRECURRING ITEMS
<S> <C>
1996 $0.75
1997 $0.92
1998 $1.31
</TABLE>
EARNINGS PER SHARE
CASH FLOW PER
SHARE INCREASED
27% IN 1998
<TABLE>
<CAPTION>
NET INCOME BEFORE NONRECURRING
AND NONCASH ITEMS
<S> <C>
1996 $1.50
1997 $1.77
1998 $2.25
</TABLE>
CASH FLOW PER SHARE
REGIS CORPORATION 1998 21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
<TABLE>
<CAPTION>
NEW SALON
CONSTRUCTION 1998
<S> <C>
Strip Centers
(primarily Supercuts) 4
Wal-Mart/SmartStyle 45
MasterCuts 50
Trade Secret 32
Regis 33
International 17
</TABLE>
<TABLE>
<CAPTION>
PROJECTED SALON
CONSTRUCTION
1999
<S> <C>
Strip Centers
(primarily Supercuts) 45
Wal-Mart/SmartStyle 80
MasterCuts 50
Trade Secretq 40
Regis 45
International 15
</TABLE>
The Company anticipates its worldwide salon development program for fiscal 1999
will include approximately 275 new salons and 125 major remodeling and
conversion projects. It is expected that expenditures for these new salons and
other projects will be approximately $50.0 million in fiscal 1999, excluding
capital expenditures associated with acquisitions.
FINANCING
The Company renewed its revolving credit facility in June 1998. Under the terms
of the renewal, the revolving credit facility allows for borrowings up to $25.0
million through December 1998, $35.0 million through December 1999, $45.0
million through December 2000 and $50.0 million through October 2001, and bears
interest at the prime rate. The prime rate at June 30, 1998 and 1997 was 8.50
percent. The facility also allows for borrowings bearing interest at LIBOR rates
plus 1.00 to 1.25 percent, based on the Company's debt to capitalization ratio.
The weighted average interest rate associated with this facility was 7.67
percent and 7.63 percent, respectively, during fiscal 1998 and 1997. The
revolving credit facility requires a quarterly commitment fee at the rate of 1/4
percent per year on the unused portion of the facility. Letters of credit
totaling $0.9 million were outstanding at June 30, 1998, which reduces the
amount available under the revolving credit facility.
In May 1998, the Company also entered into an additional uncommitted revolving
credit facility which allows for borrowings up to $20.0 million, bears interest
at the prime rate or LIBOR plus 1.0 percent, and matures in May 1999. There are
no borrowings under this facility as of June 30, 1998.
In July 1998, the Company paid down its revolving credit facilities by $14.0
million with the proceeds of a 7.14 percent senior term note with interest due
quarterly, and principal payments of $9.0 million and $5.0 million due in July
2007 and 2008, respectively.
In March 1997, the Company entered into a treasury lock agreement for the
purpose of establishing the effective interest rate on the refinancing of a
$14.0 million senior term note which matured in June 1998. The contract was
entered into to reduce the risk to the Company of future interest rate
fluctuations. The contract had a notional amount of $14.0 million and was tied
to the U.S. government ten-year treasury note rate. Upon settlement of the
agreement in June 1998, the Company incurred a loss of $1.6 million on the
contract. This loss will be amortized as interest expense through 2008. The
Company does not enter into financial instruments for trading or speculative
purposes.
See merger and transaction costs discussed in Note 3 to the Consolidated
Financial Statements.
See nonrecurring items discussed in Note 10 to the Consolidated Financial
Statements.
The Company translates the financial statements of its international
subsidiaries to U.S. dollars for financial reporting purposes, and accordingly
is subject to fluctuations in currency exchange rates.
22 REGIS CORPORATION 1998
<PAGE>
Management believes that cash generated from operations and amounts available
under its revolving credit facilities will be sufficient to fund its anticipated
capital expenditures and required debt repayments for the foreseeable future.
DIVIDENDS
The Company paid dividends of $.09 per share during fiscal 1998 and $.08 per
share during fiscal 1997. On August 27, 1998, the Board of Directors of the
Company declared a $.03 per share quarterly dividend payable September 23, 1998,
to shareholders of record on September 8, 1998.
YEAR 2000
The Company has initiated a comprehensive project to prepare its computer
systems for the year 2000. The Company has completed the awareness and
assessment phases of the project and is in the process of remediation. The
remediation, validation, and implementation phases are planned to be completed
by late summer of calendar year 1999. Accordingly, management believes the year
2000 will not have a significant impact on operations. If necessary modification
and conversions are not completed on a timely basis, the year 2000 could have an
adverse effect on the Company's operations. At this time, the Company believes
it is unnecessary to adopt a contingency plan covering the possibility that the
project will not be completed in a timely manner, but as part of the overall
project, the Company will continue to assess the need for a contingency plan.
Costs associated with the year 2000 are expensed as incurred and are funded
through operating cash flows. Based on the Company's most recent assessment, the
associated expense to be incurred is estimated to be approximately $5 million
and will be charged to earnings, primarily over the next 18 months. In fiscal
1998, primarily in the fourth quarter, the Company charged $0.5 million in year
2000 project costs to earnings.
The Company is in contact with critical suppliers of products and services to
assess whether the suppliers' operations and the products and services they
provide are year 2000 capable or to monitor their progress toward year 2000
compliance. There can be no absolute assurance that another company's failure to
ensure year 2000 compliance would not have not have an adverse effect on the
Company.
Time and cost estimates are based on currently available information and are
management's best estimates. However, there is no guarantee that these estimates
will be achieved, and actual results may differ materially from those
anticipated. Developments which could affect estimates include, but are not
limited to, the availability and cost of trained personnel; the ability to
locate and correct all relevant computer code and equipment; and planning and
modification success of third party suppliers of products and services. The
Company will continue to assess and evaluate cost estimates and target dates for
completion of each phase of the year 2000 project on a periodic basis.
OTHER
During fiscal 1997, the Company resolved the litigation brought by David E.
Lipson and DEL Holding Corporation (DEL), a corporation controlled by Mr.
Lipson, against Supercuts. The Company paid Mr. Lipson and DEL $6.7 million in
complete settlement of all claims of Mr. Lipson, DEL or any other entity
controlled by Mr. Lipson. See Note 10 to the Consolidated Financial Statements.
This was funded through the issuance of the Company's common stock.
RETURN ON BEGINNING
EQUITY INCREASED 450
BASIS POINTS IN 1998
<TABLE>
<CAPTION>
NET INCOME BEFORE
NONRECURRING ITEMS AS A PERCENT
OF BEGINNING EQUITY
<S> <C>
1996 16.1%
1997 16.7%
1998 21.2%
</TABLE>
RETURN ON
BEGINNING EQUITY
REGIS CORPORATION 1998 23
<PAGE>
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30
<S> <C> <C>
ASSETS 1998 1997
Current assets:
Cash $ 4,774 $ 8,935
Accounts receivable, net 10,556 12,388
Inventories 53,826 42,596
Deferred income taxes 6,069 6,335
Other current assets 6,688 6,819
--------------------
Total current assets 81,913 77,073
Property and equipment, net 175,831 139,573
Goodwill 114,217 99,818
Other assets 10,389 15,071
--------------------
Total assets $382,350 $331,535
--------------------
--------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion $ 19,741 $ 30,722
Accounts payable 22,374 24,111
Accrued expenses 41,650 37,291
--------------------
Total current liabilities 83,765 92,124
Long-term debt 100,995 82,740
Other noncurrent liabilities 8,329 7,557
Commitments (Note 5)
Shareholders' equity:
Common stock, $.05 par value; issued and
outstanding, 23,820,362 and 23,317,924
common shares at June 30, 1998 and 1997,
respectively 1,191 1,166
Additional paid-in capital 132,560 120,483
Retained earnings 55,510 27,465
--------------------
Total shareholders' equity 189,261 149,114
--------------------
Total liabilities and shareholders' equity $382,350 $331,535
--------------------
--------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
24 REGIS CORPORATION 1998
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
1998 1997 1996
<S> <C> <C> <C>
Revenues:
Company-owned salons:
Service $550,448 $498,559 $442,366
Product 221,559 187,620 149,523
-------------------------------
772,007 686,179 591,889
Franchise income 26,137 27,040 25,418
-------------------------------
798,144 713,219 617,307
-------------------------------
Operating expenses:
Company-owned:
Cost of service 313,931 289,621 259,765
Cost of product 120,914 103,181 81,165
Direct salon 70,094 64,962 59,915
Rent 107,912 95,726 81,634
Depreciation 25,463 23,430 21,042
-------------------------------
638,314 576,920 503,521
Selling, general and administrative 86,452 78,666 65,133
Depreciation and amortization 9,941 8,325 6,315
Nonrecurring items 1,979 18,731 12,823
Other 1,529 2,130 3,348
-------------------------------
Total operating expenses 738,215 684,772 591,140
-------------------------------
Operating income 59,929 28,447 26,167
Other income (expense):
Interest (10,056) (10,264) (9,880)
Other, net 1,104 1,519 1,090
-------------------------------
Income before income taxes 50,977 19,702 17,377
Income taxes (20,489) (13,128) (7,926)
-------------------------------
Net income $ 30,488 $ 6,574 $ 9,451
-------------------------------
-------------------------------
Net income per share:
Basic $ 1.30 $ .29 $ .43
-------------------------------
-------------------------------
Diluted $ 1.27 $ .28 $ .42
-------------------------------
-------------------------------
Weighted average common and
common equivalent shares outstanding 24,086 23,231 22,720
-------------------------------
-------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
REGIS CORPORATION 1998 25
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES ON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
COMMON STOCK ADDITIONAL
PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995 14,263,395 $ 714 $ 90,689 $ 14,016 $ 105,419
Shares issued in connection with
subordinated debt conversion 375,000 19 2,794 2,813
Stock split effected in the form of a
stock dividend 7,438,190 372 (372)
Proceeds from sale of common stock 370,000 18 10,013 10,031
Shares issued in connection with employee
benefit plans 12,842 1 101 102
Proceeds from exercise of stock options 77,734 3 819 822
Tax benefit realized upon exercise of
stock options 590 590
Dividends (1,235) (1,235)
Foreign currency translation adjustments (358) (358)
Net income 9,451 9,451
-----------------------------------------------------------------------
Balance, June 30, 1996 22,537,161 1,127 104,634 21,874 127,635
Proceeds from sale of common stock 500,000 25 11,100 11,125
Shares issued in connection with employee
benefit plans 13,056 1 240 241
Proceeds from exercise of stock options 267,707 13 3,656 3,669
Tax benefit realized upon exercise of
stock options 853 853
Dividends (1,722) (1,722)
Foreign currency translation adjustments 739 739
Net income 6,574 6,574
-----------------------------------------------------------------------
Balance, June 30, 1997 23,317,924 1,166 120,483 27,465 149,114
Proceeds from sale of common stock 400,000 20 10,390 10,410
Proceeds from exercise of stock options 102,438 5 1,290 1,295
Tax benefit realized upon exercise of
stock options 397 397
Dividends (2,115) (2,115)
Foreign currency translation adjustments (328) (328)
Net income 30,488 30,488
-----------------------------------------------------------------------
Balance, June 30, 1998 23,820,362 $ 1,191 $ 132,560 $ 55,510 $ 189,261
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
SATEMENTS.
26 REGIS CORPORATION 1998
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
YEARS ENDED JUNE 30
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 30,488 $ 6,574 $ 9,451
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 29,265 26,381 23,357
Amortization 6,396 5,703 4,432
Deferred income taxes 7,264 1,114 (3,059)
Nonrecurring items 1,979 18,731 12,823
Other 255 259 503
Changes in operating assets and liabilities:
Accounts receivable 1,673 (1,222) (1,190)
Inventories (10,777) (8,376) (3,682)
Other current assets 20 2,339 (3,299)
Other assets (1,713) 13 (1,996)
Accounts payable (1,358) 6,487 1,948
Accrued expenses 3,072 (22,396) (80)
Other noncurrent liabilities 1,110 (750) (402)
------------------------------
Net cash provided by operating activities 67,674 34,857 38,806
------------------------------
Cash flows from investing activities:
Capital expenditures (55,631) (39,425) (32,605)
Purchases of salon assets, net of cash acquired
and certain obligations assumed (24,775) (10,370) (29,343)
------------------------------
Net cash used in investing activities (80,406) (49,795) (61,948)
------------------------------
Cash flows from financing activities:
Borrowings on revolving credit facilities 163,254 187,328 150,758
Payments on revolving credit facilities (148,952) (203,425) (147,158)
Proceeds from issuance of long-term debt 9,000 45,000 29,435
Repayment of long-term debt (24,620) (21,067) (17,164)
Increase (decrease) in negative book cash balances 376 (4,842) 1,957
Dividends paid (2,115) (1,722) (1,235)
Proceeds from issuance of common stock 11,705 15,035 10,955
------------------------------
Net cash provided by financing activities 8,648 16,307 27,548
------------------------------
Effect of exchange rate changes on cash (77) 8 (30)
------------------------------
(Decrease) increase in cash (4,161) 1,377 4,376
Cash:
Beginning of year 8,935 7,558 3,182
------------------------------
End of year $ 4,774 $ 8,935 $ 7,558
------------------------------
------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
REGIS CORPORATION 1998 27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION AND
SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS DESCRIPTION:
Regis Corporation (the Company) owns, operates and franchises hairstyling and
hair care salons throughout the United States and in a number of other
countries, principally the United Kingdom (U.K.). Substantially all of the
hairstyling and hair care salons owned and operated by the Company in the United
States are located in leased space in enclosed mall shopping centers or strip
shopping centers. Franchised salons are primarily located in strip shopping
centers throughout the United States.
At June 30, 1998, approximately 20 percent of the Company's outstanding common
stock is owned by Curtis Squire, Inc. (CSI), which is a holding company
controlled by the Chairman of the Board of Directors of the Company, and
approximately 6 percent is owned by management and the Company's benefit plans.
BASIS OF PRESENTATION:
Financial and share data for 1996 reflect the retroactive effects of the October
1996 merger with Supercuts, Inc. (Supercuts) which was accounted for as a
pooling-of-interests (Note 3).
CONSOLIDATION:
The financial statements include the accounts of the Company and all of its
wholly-owned subsidiaries. In consolidation, all material intercompany accounts
and transactions are eliminated.
FOREIGN CURRENCY TRANSLATION:
Financial position, results of operations and cash flows of the Company's
international subsidiaries are measured using local currency as the functional
currency. Assets and liabilities of these subsidiaries are translated at the
exchange rates in effect at each fiscal year end. Income statement accounts are
translated at the average rates of exchange prevailing during the year.
Translation adjustments arising from the use of differing exchange rates from
period to period are included in the cumulative translation account grouped
within shareholders' equity.
INVENTORIES:
Inventories consist principally of hair care products held either for use in
salon services or for sale. Inventories are stated at the lower of cost or
market with cost determined on the first-in, first-out method.
PROPERTY AND EQUIPMENT:
Property and equipment are carried at cost, less accumulated depreciation and
amortization. Depreciation and amortization of property and equipment are
computed on the straight-line method over estimated useful asset lives (shorter
of asset life or lease term for leasehold improvements).
Expenditures for maintenance and repairs and minor renewals and betterments
which do not improve or extend the life of the respective assets are expensed.
All other expenditures for renewals and betterments are capitalized. The assets
and related depreciation accounts are adjusted for property retirements and
disposals with the resulting gain or loss included in operations. Fully
depreciated assets remain in the accounts until retired from service.
GOODWILL:
Goodwill recorded in connection with the fiscal 1989 purchase of the publicly
held minority interest in the Company, and acquisitions of business operations
in which the Company has not previously been involved, is amortized on a
straight-line basis, generally over 40 years. Goodwill recorded in connection
with acquisitions which expand the Company's existing business activities
(acquisition of salon sites) is amortized on a straight-line basis, generally
over 12 to 19 years depending upon the lease terms of the salon sites acquired.
ASSET IMPAIRMENT ASSESSMENTS:
The Company periodically measures and evaluates the recoverability of its
tangible and intangible noncurrent assets using undiscounted cash flow analyses.
FRANCHISE INCOME AND EXPENSES:
Franchise income includes royalties and initial franchise fees from franchisees.
Royalties are recognized as income in the month in which franchisee services are
rendered or products are sold by franchisees. The Company recognizes income from
initial franchise fees at the time franchisee salons are opened. All expenses
associated with franchise operations are included in selling, general and
administrative expenses in the Consolidated Statement of Operations.
INCOME TAXES:
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred income tax assets and liabilities are
determined based on the differences between the financial statement and tax
basis of assets and liabilities using currently enacted tax rates in effect for
the years in which the differences are expected to reverse. Income tax expense
is the tax payable for the period and the change during the period in deferred
tax assets and liabilities.
NET INCOME PER SHARE:
In fiscal 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings per Share", and has disclosed basic and diluted
earnings per share for all periods presented in accordance with the standard.
Basic earnings per share is calculated as net income divided by weighted average
common shares outstanding. The Company's only dilutive securities are issuable
under the Company's stock option plan. Diluted earnings per share is calculated
as net income divided by weighted average common shares outstanding, increased
to include assumed exercise of dilutive stock options. Prior periods have been
restated to reflect the new standard.
28 REGIS CORPORATION 1998
<PAGE>
The following table sets forth a reconciliation of shares used in the
computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Weighted average shares
for basic earnings per share 23,481,064 22,624,037 21,936,209
Diluted effect of
stock options 604,704 607,075 783,983
---------------------------------------
Weighted average shares
for diluted earnings
per share 24,085,768 23,231,112 22,720,192
---------------------------------------
---------------------------------------
</TABLE>
USE OF ESTIMATES:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS:
Effective with the Company's first quarter reporting of fiscal 1999, the Company
will adopt SFAS No. 130, "Reporting Comprehensive Income". This statement
establishes standards for reporting and presenting comprehensive income and its
components. Components of comprehensive income for the Company include net
income and foreign currency translation adjustments. The effects of foreign
currency translation adjustments are disclosed in the Consolidated Statements of
Changes in Shareholders' Equity.
Effective with the Company's fiscal 1999 year end reporting, the Company will
adopt SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information". This statement establishes standards for defining operating
segments and reporting certain information regarding operating segments. The
Company is reviewing the requirements of this statement and believes that it may
change, to some degree, the nature and extent of its current business segment
disclosures. This statement does not impact the basic consolidated financial
statements; it affects the disclosure of segment information in the Notes to
Consolidated Financial Statements.
2. OTHER FINANCIAL STATEMENT DATA
The following provides additional information concerning selected balance sheet
accounts:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1998 1997
<S> <C> <C>
Property and equipment:
Land $ 2,190 $ 700
Buildings and improvements 19,468 6,172
Equipment, furniture and
leasehold improvements 275,826 237,845
Equipment, furniture and
leasehold improvements
under capital leases 13,718 9,983
----------------------
311,202 254,700
Less accumulated depreciation
and amortization (131,496) (113,228)
Less amortization of equipment,
furniture and leasehold
improvements under
capital leases (3,875) (1,899)
----------------------
$ 175,831 $ 139,573
----------------------
----------------------
Goodwill $ 140,703 $ 120,429
Less accumulated amortization (26,486) (20,611)
----------------------
$ 114,217 $ 99,818
----------------------
----------------------
Accrued expenses:
Payroll and payroll
related costs $ 23,455 $ 19,923
Insurance 6,989 5,653
Other 11,206 11,715
----------------------
$ 41,650 $ 37,291
----------------------
----------------------
</TABLE>
The following provides supplemental disclosures of cash flow activity:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1998 1997 1996
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 9,918 $10,862 $ 9,052
Income taxes 13,239 13,016 15,227
</TABLE>
Non-cash investing and financing activities include the following:
Years ended June 30, 1998 and 1997:
- - In connection with various acquisitions, the Company entered into
seller-financed notes payable (Note 3).
- - In 1998, the Company financed capital expenditures totaling $5.9 million
through the issuance of capital leases.
REGIS CORPORATION 1998 29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1996:
- - In connection with the conversion of the Company's $2.8 million of
convertible debt, 562,500 shares of common stock were issued.
- - In connection with various acquisitions, the Company entered into
seller-financed notes payable of approximately $4.2 million.
3. MERGERS AND ACQUISITIONS:
SUPERCUTS, INC. MERGER:
Effective October 25, 1996, the Company received shareholder approval for the
merger agreement with Supercuts in a stock-for-stock merger transaction.
Supercuts was the national operator of approximately 430 company-owned, and
franchisor of approximately 740 affordable hair care salons at the acquisition
date.
As a result of the merger, the Company recorded a nonrecurring charge of $14.3
million during the quarter ended December 31, 1996. This charge included $7.7
million for professional fees including investment banking, legal, accounting
and miscellaneous transaction costs, $3.5 million for severance, and a non-cash
charge of $3.1 million for the write-off of duplicative operating assets,
principally associated with the closure of the Supercuts headquarters.
The Supercuts transaction has been accounted for as a pooling-of-interests,
therefore prior period financial statements were restated to reflect this merger
as if the merged companies had always been combined. To effect the restatement,
significant accounting adjustments were necessary to conform the accounting
practices of Supercuts to those of Regis.
Revenues and net income (loss) for the combining entities were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
SUPERCUTS,
YEAR ENDED JUNE 30 REGIS AS CONFORMED COMBINED
<S> <C> <C> <C>
1997
Revenues $594,714 $118,505 $713,219
Net income (loss) 13,206 (6,632) 6,574
1996
Revenues 499,442 117,865 617,307
Net income (loss) 19,124 (9,673) 9,451
</TABLE>
OTHER ACQUISITIONS:
During 1998 and 1997, the Company made numerous acquisitions in addition to
Supercuts. Costs in excess of net tangible and identifiable assets and
components of the aggregate purchase price of the acquisitions were as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1998 1997
<S> <C> <C>
Costs in excess of net tangible
and identifiable assets $ 21,743 $ 9,700
------------------------------
------------------------------
Components of aggregate
purchase price:
Cash $ 24,837 $ 11,300
Notes payable 2,130 2,600
------------------------------
$ 26,967 $ 13,900
------------------------------
------------------------------
</TABLE>
The aforementioned acquisitions, except Supercuts, have been recorded using the
purchase method of accounting. Accordingly, the purchase prices have been
allocated to assets acquired and liabilities assumed based on their estimated
fair values at the date of acquisition. The acquisitions recorded using the
purchase method, individually and in the aggregate, are not material to the
Company's operations.
4. FINANCING ARRANGEMENTS:
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
INTEREST MATURITY
RATE % DATE 1998 1997
<S> <C> <C> <C> <C>
Senior term notes 6.94 -8.18 1998-2006 $ 68,000 $ 74,000
Revolving credit
facilities 6.99 -7.67 1998-2001 28,750 14,448
Equipment and
leasehold notes
payable 8.00-11.90 2000-2002 12,113 9,664
U.K. term notes 4.00-8.42 2001-2003 5,827 8,083
Other subordinated
notes payable 5.00-12.00 2000-2004 6,046 7,267
-------------------------
120,736 113,462
Less current portion (19,741) (30,722)
-------------------------
Long-term portion $ 100,995 $ 82,740
-------------------------
-------------------------
</TABLE>
In July 1998, the Company paid down its revolving credit facilities by $14.0
million with the proceeds of a 7.14 percent senior term note with interest due
quarterly, and principal payments of $9.0 million and $5.0 million due in July
2007 and 2008, respectively.
30 REGIS CORPORATION 1998
<PAGE>
In March 1997, the Company entered into a treasury lock agreement for the
purpose of establishing the effective interest rate on the refinancing of a
$14.0 million senior term note which matured in June 1998. The contract was
entered into to reduce the risk to the Company of future interest rate
fluctuations. The contract had a notional amount of $14.0 million and was tied
to the U.S. government ten-year treasury note rate. Upon settlement of the
agreement in June 1998, the Company incurred a loss of $1.6 million on the
contract. This loss will be amortized as interest expense through 2008. The
Company does not enter into financial instruments for trading or speculative
purposes.
The Company renewed its working capital revolving credit facility in June 1998.
Under the terms of the renewal, the revolving credit facility allows for
borrowings up to $25.0 million through December 1998, $35.0 million through
December 1999, $45.0 million through December 2000 and $50.0 million through
October 2001, and bears interest at the prime rate. The prime rate at June 30,
1998 and 1997 was 8.50 percent. The facility also allows for borrowings bearing
interest at LIBOR rates plus 1.00 to 1.25 percent based on the Company's debt to
capitalization ratio. The revolving credit facility requires a quarterly
commitment fee at the rate of 1/4 percent per year on the unused portion of the
facility. Letters of credit totaling $0.9 million were outstanding at June 30,
1998, which reduce the amount available under the revolving credit facility.
The Company also has an additional revolving credit facility which, at the
discretion of the lender, allows for borrowings up to $20.0 million and bears
interest at the prime rate or LIBOR plus 1.0 percent. There are no borrowings
under this facility as of June 30, 1998.
The equipment and leasehold notes payable are primarily comprised of capital
lease obligations totaling $8.9 million and $5.1 million at June 30, 1998 and
1997, respectively. These capital lease obligations are payable in monthly
installments over five years.
The debt agreements contain covenants, including limitations on incurrence of
debt, granting of liens, investments, merger or consolidation, and transactions
with affiliates. In addition, the Company must maintain specified interest
coverage and debt-to-equity ratios.
The fair value of the senior term, equipment and leasehold and subordinated
notes payable, based upon discounted cash flow analyses using the Company's
current incremental borrowing rate, approximate their carrying values at June
30, 1998.
Aggregate maturities of long-term debt at June 30, 1998 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR (DOLLARS IN THOUSANDS)
<S> <C>
1999 $ 19,741
2000 14,967
2001 11,680
2002 21,910
2003 1,960
Thereafter 50,478
----------
$ 120,736
----------
----------
</TABLE>
5. COMMITMENTS:
OPERATING LEASES:
The Company is committed under long-term operating leases for the rental of most
of its company-owned salon locations. The terms of the leases range from one to
20 years, with many leases renewable for an additional five to ten year term at
the option of the Company, and certain leases include escalation provisions. For
certain leases, the Company is required to pay additional rent based on a
percent of sales and, in most cases, real estate taxes and other expenses. Rent
expense for the Company's international department store salons is based
primarily on a percent of sales.
The Company also leases the premises in which the majority of its franchisees
operate and has entered into corresponding sublease arrangements with the
franchisees. These leases, generally with terms of approximately five years, are
expected to be renewed on expiration. Future minimum lease payments for the next
five years, which are reimbursable from the franchisees, are approximately $17.0
million annually. All additional lease costs are passed through to the
franchisees.
Total rent expense, excluding sublease rental obligations which are passed
through to the franchisees, includes the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1998 1997 1996
<S> <C> <C> <C>
Minimum rent $ 70,372 $ 62,125 $ 49,667
Percentage rent
based on sales 16,912 16,799 16,078
Real estate taxes and
other expenses 20,628 16,802 15,889
----------------------------------------
$107,912 $ 95,726 $ 81,634
----------------------------------------
----------------------------------------
</TABLE>
FUTURE MINIMUM LEASE PAYMENTS:
As of June 30, 1998, future minimum lease payments (excluding percentage rents
based on sales and sublease rental obligations which are passed through to the
franchisees) due under existing
REGIS CORPORATION 1998 31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
noncancellable operating leases with remaining terms of greater than one year
are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR (DOLLARS IN THOUSANDS)
<S> <C>
1999 $ 78,800
2000 68,301
2001 53,975
2002 43,880
2003 36,420
Thereafter 109,094
----------
Total minimum lease payments $ 390,470
----------
----------
</TABLE>
SALON DEVELOPMENT PROGRAM:
As a part of its salon development program, the Company continues to negotiate
and enter into leases and commitments for the acquisition of equipment and
leasehold improvements related to future salon locations.
6. INCOME TAXES:
The provision for income taxes consists of:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1998 1997 1996
<S> <C> <C> <C>
Current:
Federal $ 11,210 $ 10,133 $ 9,142
State 1,849 1,589 1,828
International 166 292 15
Deferred:
United States 7160 1,138 (2,596)
International 104 (24) (463)
--------------------------------------------
$ 20,489 $ 13,128 $ 7,926
--------------------------------------------
--------------------------------------------
</TABLE>
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1998 1997
<S> <C> <C>
Net current deferred tax asset:
Insurance $ 2,234 $ 1,756
Payroll and payroll
related costs 2,097 1,313
Nonrecurring items 2,065 3,266
Other, net (327)
------------------------
$ 6,069 $ 6,335
------------------------
------------------------
Net noncurrent deferred tax asset:
Depreciation and amortization $ (1,380) $ 3,898
Deferred rent 1,985 1,785
Payroll and payroll
related costs 1,167 1,115
Other, net (248) 1,724
------------------------
$ 1,524 $ 8,522
------------------------
------------------------
</TABLE>
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1998 1997 1996
<S> <C> <C> <C>
Income (loss) before
income taxes:
United States $ 50,986 $ 20,336 $ 16,709
International (9) (634) 668
---------------------------------------
$ 50,977 $ 19,702 $ 17,377
---------------------------------------
---------------------------------------
</TABLE>
A reconciliation of the provision for income taxes and the amount computed by
applying the federal statutory income tax rate to income before income taxes is
as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1998 1997 1996
<S> <C> <C> <C>
Computed income tax
expense at federal
statutory rate $ 17,842 $ 6,945 $ 6,082
Increase in income taxes
resulting from:
State income taxes,
net of federal
income tax benefit 1,836 1,033 953
Nondeductible merger
and transaction costs 2,228
Change in estimate 1,500
Other, principally
nondeductible
goodwill 811 1,422 891
------------------------------------
Income
tax expense $ 20,489 $ 13,128 $ 7,926
------------------------------------
------------------------------------
</TABLE>
During 1997, the Company recorded a $1.5 million change in estimate associated
with income tax matters related to years prior to 1996 resulting from the
completion of an Internal Revenue Service examination.
7. EMPLOYEE BENEFIT PLANS:
EMPLOYEE STOCK OWNERSHIP PLAN:
The Company has a qualified employee stock ownership plan (ESOP) covering
substantially all field supervisors, warehouse and corporate office employees.
Contributions to the ESOP are at the discretion of the Company.
PROFIT SHARING PLAN:
The Company has a qualified profit sharing plan (PSP) covering the same
employees as its ESOP. Contributions to the PSP are at the discretion of the
Company.
32 REGIS CORPORATION 1998
<PAGE>
EXECUTIVE STOCK AWARD PLAN:
The Company has a nonqualified executive stock award plan (ESAP) covering those
employees not eligible to participate under the qualified ESOP and PSP.
Contributions to the ESAP are at the discretion of the Company.
STOCK PURCHASE PLAN:
The Company has an employee stock purchase plan (SPP) available to substantially
all employees. Under terms of the plan, eligible employees may purchase the
Company's common stock through payroll deductions. The Company contributes an
amount equal to 15 percent of the purchase price of the stock to be purchased on
the open market, not to exceed an aggregate contribution of $2.2 million.
Company contributions to the aforementioned plans, which are charged to earnings
in the period contributed, included the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1998 1997 1996
<S> <C> <C> <C>
ESOP $ 1,146 $ 662 $ 616
ESAP 301 257 231
SPP 274 223 172
</TABLE>
STOCK OPTIONS:
The Company's Stock Option Plan (the Plan), as amended, provides for granting
both incentive stock options and nonqualified stock options. A total of
2,200,000 shares of common stock may be granted under the Plan to employees of
the Company for a term not to exceed 10 years from the date of grant. Options
granted to employees generally vest over a five year period. Options may also be
granted under this Plan to the Company's outside directors for a term not to
exceed five years from the vesting date. Options granted to outside directors
vest over a four year period, although the previous Supercuts Board members were
fully vested at the time of the merger.
The Plan contains restrictions on transferability, time of exercise, exercise
price and on disposition of any shares acquired through exercise of the options.
Incentive stock options are granted at not less than fair market value on the
date of grant. The Board of Directors determines the Plan participants and
establishes the terms and conditions of each option.
Separate from the Stock Option Plan described above, in an action approved by
shareholders in October 1996 in connection with the merger (Note 3) and
effective termination of the Supercuts stock option plans, outstanding Supercuts
stock options were converted to options to purchase approximately 400,000 shares
of Regis common stock on the basis of the exchange ratio established to effect
the merger.
Common shares available for grant as of June 30 were 467,550, 53,850 and 405,356
for 1998, 1997 and 1996, respectively.
Stock options outstanding and weighted average exercise prices are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
<S> <C> <C>
Balance, June 30, 1995 1,353,817 $12.24
Granted 473,400 16.25
Cancelled (79,262) 20.62
Exercised (114,150) 7.34
-----------------------------
Balance, June 30, 1996 1,633,805 13.32
Granted 307,500 20.44
Cancelled (102,117) 21.68
Exercised (271,357) 13.18
-----------------------------
Balance, June 30, 1997 1,567,831 14.20
Granted 328,500 26.00
Cancelled (236,570) 17.58
Exercised (105,664) 12.40
-----------------------------
Balance, June 30, 1998 1,554,097 $ 16.30
-----------------------------
-----------------------------
</TABLE>
At June 30, 1998, the weighted average exercise price and remaining contractual
life of stock options are as follows:
<TABLE>
<CAPTION>
RANGE OF $ 4.00- $ 12.38- $ 26.25-
EXERCISE PRICES $ 8.67 $ 26.00 $ 34.38 TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total options
outstanding 622,547 834,950 96,600 1,554,097
Weighted average
exercise price $ 7.76 $ 21.09 $ 29.89 $ 16.30
Weighted average
remaining
contractual
life in years 5.4 8.5 4.7 7.0
Options exercisable 361,247 195,150 96,600 652,997
Weighted average
price of exercisable
options $ 7.60 $ 16.38 $ 29.89 $ 13.52
</TABLE>
In 1997, the Company adopted SFAS No. 123, a standard of accounting and
reporting for stock-based compensation plans. The Company has continued to
measure compensation cost for its incentive stock plans using the intrinsic
value-based method of accounting it has historically used and, therefore, the
standard has no effect on the Company's operating results.
REGIS CORPORATION 1998 33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Had the Company used the fair-value-based method of accounting for its stock
option and incentive plans beginning in 1996 and charged compensation cost
against income, over the vesting period, based on the fair value of options at
the date of grant, net income and net income per share would have been as
follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
1998 1997 1996
<S> <C> <C> <C>
Net income:
As reported $ 30,488 $ 6,574 $ 9,451
Pro forma 29,989 6,000 8,528
Net income per share:
As reported $ 1.27 $ .28 $ .42
Pro forma 1.25 .26 .38
</TABLE>
The pro forma information above only includes stock options granted in 1998,
1997 and 1996. Compensation expense under the fair-value-based method of
accounting will increase over the next few years as additional stock option
grants are considered.
The weighted average fair value per option granted during 1998, 1997 and 1996
was $10.92, $9.47 and $11.00, respectively. The weighted average fair value was
calculated by using the fair value of each option grant on the date of grant.
The fair value of options was calculated utilizing the Black-Scholes
option-pricing model and the following key assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Risk-free interest rate 5.56 % 6.41 % 5.91 %
Expected life in years 6.0 6.5 7.0
Expected volatility 34.16 % 35.50 % 41.43 %
Expected dividend yield .38 % .39 % .25 %
</TABLE>
OTHER:
The Company has established unfunded deferred compensation plans which cover
certain management and executive personnel. The Company maintains life insurance
policies on the plans' participants. The amounts charged to earnings for these
plans were $0.6 million, $0.4 million and $0.4 million in 1998, 1997 and 1996,
respectively.
The Company has a survivor benefit plan for the Chairman of the Board's spouse,
payable upon his death, at a rate of $0.3 million annually, adjusted for
inflation, for the remaining life of his spouse. The Company has funded its
future obligations under this plan through life insurance policies on the
Chairman of the Board (the Chairman).
The Company has entered into an agreement with the Chairman providing that the
Chairman will continue to render services to the Company until at least May
2007, and for such further period as may be agreed upon mutually. The Company
has agreed to pay the Chairman an annual amount of $0.6 million, adjusted for
inflation, for the remainder of his life. The Chairman has agreed that during
the period in which payments to him are made, as provided in the agreement, he
will not engage in any business competitive with the business conducted by the
Company. Compensation associated with this agreement is charged to expense as
services are provided.
Effective July 1, 1998, the Company established a survivor benefit plan for the
Chief Executive Officer's spouse, payable upon his death, at a rate of one half
of his deferred compensation benefit, adjusted for inflation, for the remaining
life of his spouse. The Company has funded its future obligations under this
plan through life insurance policies on the Chief Executive Officer.
8. SHAREHOLDERS' EQUITY:
In addition to the shareholder equity activity described in Note 7, the
following activity has taken place:
INCREASE IN AUTHORIZED SHARES AND DESIGNATION OF PREFERRED CLASS:
The Company has 50 million shares of capital stock authorized, par value $.05,
of which all outstanding shares and shares available under the Stock Option Plan
have been designated as common.
In addition, 250,000 shares of authorized capital stock have been designated as
Series A Junior Participating Preferred Stock (preferred stock). None of the
preferred stock has been issued.
SHAREHOLDERS' RIGHTS PLAN:
The Company has a shareholders' rights plan pursuant to which one preferred
share purchase right is held by shareholders for each outstanding share of
common stock.
The rights become exercisable only following the acquisition by a person or
group, without the prior consent of the Board of Directors, of 20 percent or
more of the Company's voting stock, or following the announcement of a tender
offer or exchange offer to acquire an interest of 20 percent or more. If the
rights become exercisable, they entitle all holders, except the take-over
bidder, to purchase one one-hundredth of a share of preferred stock at an
exercise price of $120, subject to adjustment, or in lieu of purchasing the
preferred stock, to purchase for the same exercise price common stock of the
Company (or in certain cases common stock of an acquiring company) having a
market value of twice the exercise price of a right.
34 REGIS CORPORATION 1998
<PAGE>
9. GEOGRAPHIC BUSINESS OPERATIONS:
The Company owns and operates hairstyling and hair care salons throughout the
United States and in several other countries, principally the U.K. A summary of
the Company's operations for the United States and International is presented
below. All intercompany revenues and expenses have been eliminated.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1998 1997 1996
<S> <C> <C> <C>
Revenues:
United States $ 679,777 $ 603,170 $ 531,599
International 118,367 110,049 85,708
-------------------------------------------
$ 798,144 $ 713,219 $ 617,307
-------------------------------------------
-------------------------------------------
Operating income:
United States $ 57,106 $ 26,584 $ 23,552
International 2,823 1,863 2,615
-------------------------------------------
$ 59,929 $ 28,447 $ 26,167
-------------------------------------------
-------------------------------------------
Total assets:
United States $ 356,369 $ 300,814 $ 275,954
International 25,981 30,721 28,000
-------------------------------------------
$ 382,350 $ 331,535 $ 303,954
-------------------------------------------
-------------------------------------------
</TABLE>
10. NONRECURRING ITEMS:
The following table summarized nonrecurring items recorded by the Company:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1998 1997 1996
<S> <C> <C> <C>
Salon closures and
dispositions,
primarily Supercuts $ 1,500 $ 7,000
Resolution of Supercuts
officer litigation 2,909 5,823
Merger and transaction
costs (Note 3) 14,322
Loss on divestiture of
Anasazi business
and assets $ 1,979
----------------------------------------
$ 1,979 $ 18,731 $ 12,823
----------------------------------------
----------------------------------------
</TABLE>
Anasazi Exclusive Salon Products, LLC., a salon products manufacturing company,
was sold to Curtis Acquisition LLC, which is controlled by two members of the
Company's Board of Directors, one of whom is the Chairman.
Approximately $2.0 million, $.3 million and $4.4 million of the nonrecurring
items in 1998, 1997 and 1996, respectively, are non-cash in nature.
REPORT OF INDEPENDENT
ACCOUNTANTS
To the Shareholders and Directors of
Regis Corporation:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows present fairly, in all material respects, the consolidated financial
position of Regis Corporation at June 30, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended June 30, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
August 21, 1998
REGIS CORPORATION 1998 35
<PAGE>
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER ENDED
------------------------------------------------------------ YEAR
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 ENDED
<S> <C> <C> <C> <C> <C>
1998
Revenues $ 188,681 $ 198,952 $ 197,273 $ 213,238 $ 798,144
Operating income 12,115 15,821 13,889 18,104 59,929
Net income 5,796 7,957 6,769 9,966 30,488
Net income per
diluted share (a) .24 .33 .28 .41 1.27(c)
Dividends declared per share .02 .02 .02 .03 .09
1997
Revenues $ 170,605 $ 176,458 $ 175,488 $ 190,668 $ 713,219
Operating income 12,360 (7,966) 9,773 14,280 28,447
Net income (loss) 4,541 (8,880) 4,251 6,662 6,574
Net income (loss) per
diluted share (b) .20 (.38) .18 .29 .28(c)
Dividends declared per share .02 .02 .02 .02 .08
</TABLE>
(a) For the quarter ended September 30, 1997 and for the full year 1998,
exclusive of nonrecurring items (Notes 3 and 10), net income per diluted share
would have been $.29 and $1.31, respectively.
(b) For quarters ended September 30, 1996, December 31, 1996, March 31, 1997,
June 30, 1997, and for the full year 1997, exclusive of nonrecurring items
(Notes 3 and 10), net income per diluted share would have been $.25, $.21, $.18,
$.28 and $.92, respectively.
(c) The summation of quarterly net income per share amounts does not equate to
the calculation for the full fiscal year, as quarterly calculations are
performed on a discrete basis.
STOCK DATA
Regis common stock is listed and traded on the Nasdaq National Market under
the symbol "RGIS".
The accompanying table sets forth the high and low closing bid quotations as
reported by Nasdaq for each quarter during the previous two fiscal years. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions.
As of June 30, 1998, Regis shares were owned by approximately 13,000
shareholders. The common stock price was $29.19 per share on August 14, 1998.
<TABLE>
<CAPTION>
1998 1997
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
1st quarter $25.50 $22.94 $34.00 $21.75
2nd quarter 27.00 22.97 27.50 15.25
3rd quarter 30.00 25.00 18.50 15.75
4th quarter 30.00 26.00 24.00 17.63
</TABLE>
36 REGIS CORPORATION 1998
<PAGE>
CORPORATE INFORMATION
BOARD OF DIRECTORS
Myron Kunin
CHAIRMAN OF THE BOARD
Regis Corporation
Paul D. Finkelstein
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Regis Corporation
Christopher A. Fox
EXECUTIVE VICE PRESIDENT
Regis Corporation
Rolf Bjelland
EXECUTIVE VICE PRESIDENT
CHIEF INVESTMENT OFFICER
Lutheran Brotherhood
Thomas L. Gregory
CONSULTANT
TLG Associates
Van Zandt Hawn
DIRECTOR AND FOUNDER
Goldner Hawn Johnson &
Morrison Incorporated
Susan S. Hoyt
EXECUTIVE VICE PRESIDENT
HUMAN RESOURCES
Staples, Inc.
David B. Kunin
CHAIRMAN
Anasazi Exclusive Salon
Products, LLC
CORPORATE OFFICERS
Myron Kunin
CHAIRMAN
Paul D. Finkelstein
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Christopher A. Fox
EXECUTIVE VICE PRESIDENT
Mary Anders
SENIOR VICE PRESIDENT,
MARKETING
Kris Bergly
CHIEF OPERATING OFFICER
Wal-Mart/SmartStyle Family
Hair Salons
Bert M. Gross
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND
SECRETARY
William E. Halfacre
SENIOR VICE PRESIDENT,
RETAIL AND PURCHASING
CHIEF OPERATING OFFICER
Trade Secret
Bruce D. Johnson
SENIOR VICE PRESIDENT,
DESIGN AND CONSTRUCTION
Mark Kartarik
SENIOR VICE PRESIDENT
PRESIDENT AND
CHIEF OPERATING OFFICER
Supercuts, Inc.
Sharon Kiker
CHIEF OPERATING OFFICER
Regis Hairstylists
Gordon Nelson
SENIOR VICE PRESIDENT,
FASHION AND EDUCATION
Randy L. Pearce
SENIOR VICE PRESIDENT, FINANCE,
AND CHIEF FINANCIAL OFFICER
Anthony W. E. Rammelt
SENIOR VICE PRESIDENT,
INTERNATIONAL MANAGING
DIRECTOR, EUROPE
Rob Ribnick
CHIEF OPERATING OFFICER
MasterCuts
ANNUAL MEETING
The annual meeting of Regis shareholders will be held at The Minneapolis
Institute of Arts, 2400 Third Avenue South, Minneapolis, Minnesota, on
October 13, 1998, at 4:00 p.m.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's annual report to the Securities and Exchange
Commission on Form 10-K for the fiscal year ended June 30, 1998, may be
obtained without charge by writing to:
Bert M. Gross, Secretary
Regis Corporation
7201 Metro Boulevard
Minneapolis, Minnesota 55439
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A.
South St. Paul, Minnesota
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
CORPORATE HEADQUARTERS
7201 Metro Boulevard
Minneapolis, Minnesota 55439
PHONE (612) 947-7777
FAX (612) 947-7700
WEBSITE
http://www.regiscorp.com
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Regis Corporation on Form S-3 (File Nos. 333-28511, No.
33-82094, No. 33-86276, No. 33-89150, No. 33-92244, No. 33-96224, No.
33-80337, and No. 333-49165), Form S-4 (File No. 333-12099) and Form S-8
(File No. 33-44867 and No. 33-89882) of our reports dated August 21, 1998, on
our audits of the consolidated financial statements and financial statement
schedule of Regis Corporation as of June 30, 1998 and 1997, and for each of
the three years in the period ended June 30, 1998, which reports are
incorporated by reference or included in its Annual Report on Form 10-K for
the year ended June 30, 1998.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
September 17, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGIS
CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED JUNE
30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 4,774
<SECURITIES> 0
<RECEIVABLES> 10,634
<ALLOWANCES> 78
<INVENTORY> 53,826
<CURRENT-ASSETS> 81,913
<PP&E> 311,202
<DEPRECIATION> 135,371
<TOTAL-ASSETS> 382,350
<CURRENT-LIABILITIES> 83,765
<BONDS> 0
0
0
<COMMON> 1,191
<OTHER-SE> 188,070
<TOTAL-LIABILITY-AND-EQUITY> 382,350
<SALES> 221,559
<TOTAL-REVENUES> 798,144
<CGS> 120,914
<TOTAL-COSTS> 638,314
<OTHER-EXPENSES> 13,449<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,056
<INCOME-PRETAX> 50,977
<INCOME-TAX> 20,489
<INCOME-CONTINUING> 30,488
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,488
<EPS-PRIMARY> 1.30<F2>
<EPS-DILUTED> 1.27<F3>
<FN>
<F1>Includes a nonrecurring charge of $1,979.
<F2>Reflects basic EPS according to FAS No. 128.
<F3>Excluding nonrecurring items, fully diluted EPS would have been $1.31.
</FN>
</TABLE>
