<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from____________________ to___________________
--------------------
For Quarter Ended March 31, 1999 Commission file number 011230
Regis Corporation
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0749934
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7201 Metro Boulevard, Edina, Minnesota 55439
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(612)947-7777
----------------------------------------------------
(Registrant's telephone number, including area code)
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
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of May 3, 1999:
Common Stock, $.05 par value 36,661,686
- ---------------------------- ----------------
Class Number of Shares
<PAGE>
REGIS CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NOS.
--------
<S> <C> <C>
Item 1. Consolidated Financial Statements:
Balance Sheet as of March 31, 1999
and June 30, 1998 3
Statement of Operations for the three
months ended March 31, 1999 and 1998 4
Statement of Operations for the nine
months ended March 31, 1999 and 1998 5
Statement of Cash Flows for the nine
months ended March 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7-10
Review Report of Independent Accountants 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REGIS CORPORATION
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999 AND JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, 1999 JUNE 30, 1998
--------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 16,813 $ 4,774
Accounts receivable, net 11,902 10,604
Inventories 64,027 54,020
Deferred income taxes 5,964 6,069
Other current assets 8,989 6,706
---------- --------
Total current assets 107,695 82,173
Property and equipment, net 205,959 179,748
Goodwill 153,106 116,579
Other assets 12,543 10,389
---------- --------
Total assets $ 479,303 $388,889
---------- --------
---------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion $ 28,228 $ 19,741
Accounts payable 21,251 24,040
Accrued expenses 49,635 41,933
---------- --------
Total current liabilities 99,114 85,714
Long-term debt 144,967 104,688
Other noncurrent liabilities 13,006 8,329
Shareholders' equity:
Common stock, $.05 par value;
issued and outstanding, 36,646,761 and 35,730,543
shares at March 31, 1999 and
June 30, 1998, respectively 1,233 1,218
Additional paid-in capital 147,722 137,949
Accumulated other comprehensive income (1,199) (1,677)
Retained earnings 74,460 52,668
---------- --------
Total shareholders' equity 222,216 190,158
---------- --------
Total liabilities and shareholders' equity $ 479,303 $388,889
---------- --------
---------- --------
</TABLE>
See accompanying notes to unaudited Consolidated Financial Statements.
3
<PAGE>
REGIS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues:
Company-owned salons:
Service $ 165,190 $ 141,091
Product 66,667 55,714
--------- ---------
231,857 196,805
Franchise income 6,473 6,300
--------- ---------
238,330 203,105
Operating expenses:
Company-owned:
Cost of service 95,989 81,819
Cost of product 36,197 30,291
Direct salon 20,160 17,626
Rent 32,031 27,689
Depreciation 7,752 6,534
--------- ---------
192,129 163,959
Selling, general and administrative 25,381 22,239
Depreciation and amortization 3,577 2,476
Nonrecurring items 2,207
Other 343 376
--------- ---------
Total operating expenses 223,637 189,050
--------- ---------
Operating income 14,693 14,055
Other income (expense):
Interest (3,139) (2,676)
Other, net 367 324
--------- ---------
Income before income taxes 11,921 11,703
Income taxes (4,926) (4,829)
--------- ---------
Net income $ 6,995 $ 6,874
--------- ---------
--------- ---------
Net income per share:
Basic $ .19 $ .19
--------- ---------
--------- ---------
Diluted $ .19 $ .19
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to unaudited Consolidated Financial Statements.
4
<PAGE>
REGIS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues:
Company-owned salons:
Service $480,560 $416,388
Product 193,067 167,196
-------- --------
673,627 583,584
Franchise income 19,436 19,671
-------- --------
693,063 603,255
Operating expenses:
Company-owned:
Cost of service 276,957 240,785
Cost of product 103,879 91,464
Direct salon 58,149 53,388
Rent 92,444 80,983
Depreciation 22,288 19,221
-------- --------
553,717 485,841
Selling, general and administrative 75,302 65,071
Depreciation and amortization 9,903 6,770
Nonrecurring items 5,098 1,979
Other 1,098 1,166
-------- --------
Total operating expenses 645,118 560,827
Operating income 47,945 42,428
Other income (expense):
Interest (8,745) (7,902)
Other, net 1,157 788
-------- --------
Income before income taxes 40,357 35,314
Income taxes (16,036) (14,589)
-------- --------
Net income $ 24,321 $ 20,725
-------- --------
-------- --------
Net income per share:
Basic $ .67 $ .58
-------- --------
-------- --------
Diluted $ .65 $ .57
-------- --------
-------- --------
</TABLE>
See accompanying notes to unaudited Consolidated Financial Statements.
5
<PAGE>
REGIS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $24,321 $20,725
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 26,046 22,751
Amortization 6,185 3,512
Deferred income taxes (683) 8,783
Nonrecurring items 1,175 1,979
Other 2,455 124
Changes in assets and liabilities:
Accounts receivable (1,475) 2,281
Inventories (5,527) (1,880)
Other current assets (2,327) (2,296)
Other assets (1,751) (1,620)
Accounts payable (5,639) (4,427)
Accrued expenses 7,960 4,188
Other noncurrent liabilities 3,245 1,007
-------- --------
Net cash provided by operating activities 54,045 55,127
-------- --------
Cash flows from investing activities:
Capital expenditures (47,277) (42,840)
Purchases of salon assets, net of cash acquired and
certain obligations assumed (47,202) (23,694)
-------- --------
Net cash used in investing activities (94,479) (66,534)
-------- --------
Cash flows from financing activities:
Borrowings on revolving credit facilities 182,287 102,124
Payments on revolving credit facilities (161,519) (110,560)
Proceeds from issuance of long-term debt 49,312 17,000
Repayment of long-term debt (18,256) (6,883)
Dividends paid (2,532) (1,401)
Proceeds from issuance of common stock 3,295 11,245
-------- --------
Net cash provided by financing activities 52,587 11,525
-------- --------
Effect of exchange rate changes on cash (115) (60)
-------- --------
Increase in cash 12,039 58
Cash:
Beginning of year 4,774 8,212
-------- --------
End of period $ 16,813 $ 8,270
-------- --------
-------- --------
</TABLE>
See accompanying notes to unaudited Consolidated Financial Statements.
6
<PAGE>
REGIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
The unaudited interim consolidated financial statements of Regis
Corporation (the Company) as of March 31, 1999 and for the three and nine
months ended March 31, 1999 and 1998, reflect, in the opinion of
management, all adjustments (which, with the exception of the matters
discussed in Note 5 herein, include only normal recurring adjustments)
necessary to fairly present the consolidated financial position of Regis
Corporation (the Company) as of March 31, 1999 and the consolidated results
of operations and cash flows for the interim periods. The results of
operations and cash flows for any interim period are not necessarily
indicative of results of operations and cash flows for the full year.
The year-end consolidated balance sheet data was derived from audited
consolidated financial statements, but does not include all disclosures
required by generally accepted accounting principles. The unaudited interim
consolidated financial statements should be read in conjunction with the
Company's consolidated financial statements which are included on the
Company's 1998 Annual Report to Shareholders and incorporated by reference
in the Company's Annual Report on Form 10-K for the year ended June 30,
1998. PricewaterhouseCoopers LLP, the Company's independent accountants,
have performed limited reviews of the interim consolidated financial data
included herein. Their report on such reviews accompanies this filing.
Consolidated financial and share data for 1998 include the retroactive
effects of the March 1999 merger with Heidi's, Inc. (Heidi's) which was
accounted for as a pooling-of-interests (Note 7). The consolidated
financial statements have been restated by combining the historical
consolidated financial statements of Regis Corporation with those of
Heidi's for each of the periods presented.
COST OF PRODUCT REVENUES. On an interim basis, product costs are determined
by applying an estimated gross profit margin to product revenues.
2. COMPREHENSIVE INCOME
In the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
The standard requires the display and reporting of comprehensive income,
which includes all changes in shareholders' equity with the exception of
additional investments by shareholders or distributions to shareholders.
The adoption of this standard had no impact on the Company's current or
previously reported net income or shareholders' equity. Comprehensive
income for the Company includes net income and foreign currency translation
charged or credited to the cumulative translation account within
shareholders' equity. Comprehensive income for the three and nine months
ended March 31, 1999 and 1998 was as follows:
7
<PAGE>
2. COMPREHENSIVE INCOME (continued):
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED MARCH 31,
THREE MONTHS NINE MONTHS
---------------- ---------------
(Dollars in thousands)
Comprehensive income: 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $6,995 $6,874 $24,321 $20,725
Change in cumulative foreign currency translation (574) (254) 477 (228)
Less: reclassification adjustment for translation
losses realized in net income (964)
------ ------ ------- -------
Total comprehensive income $6,421 $6,620 $23,834 $20,497
------ ------ ------- -------
------ ------ ------- -------
</TABLE>
3. NET INCOME PER SHARE:
Basic earnings per share (EPS) 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, as amended.
Diluted EPS is calculated as net income divided by weighted average common
shares outstanding, increased to include assumed conversion of dilutive
securities.
The following provides information related to the weighted average common
shares used in the calculation of the Company's basic and diluted EPS:
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED MARCH 31,
THREE MONTHS NINE MONTHS
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares for basic earnings per share 36,524,453 35,682,575 36,387,948 35,597,670
Dilutive effect of stock options 1,189,303 908,100 1,063,271 907,561
---------- ---------- ---------- ----------
Weighted average for diluted earnings per share 37,713,756 36,590,675 37,451,219 36,505,231
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
4. FINANCING ARRANGEMENTS:
In September 1998, the Company borrowed $7.5 million under a 6.55 percent
senior term note due September 2003 to refinance the Company's distribution
center revolving line of credit established in fiscal 1998.
During the third quarter of fiscal 1999, the Company borrowed $10 million
under a 6.83 percent senior term note due December 2005 and $15 million
under a 6.27 percent senior term note due June 2000 to finance recent
acquisitions by the Company. In March 1999, the Company retired its UK term
note due June 2001 with proceeds from its revolving line of credit. To
facilitate this, the Company amended an existing revolving line of credit
agreement to increase the amount available by $10 million to $45 million,
eliminating covenants related to the Company's international operations and
adding a multi-currency provision to the existing revolving credit
facility.
8
<PAGE>
5. NONRECURRING ITEMS:
Nonrecurring items included in operating income consist of gains or losses
on assets and business dispositions and other items of a nonrecurring
nature. The more significant items included in the third quarter and first
nine months of fiscal 1999 and 1998 are as follows:
- For the third quarter of fiscal 1999, the Company recorded $1.2 million
of merger and transaction costs associated with its pooling-of-interests
with Heidi's, Inc. (See note 7).
- For the third quarter and first nine months of fiscal 1999, the Company
recorded $1.0 million and $3.9 million, respectively, of expense
associated with year 2000 remediation.
- In the first quarter of fiscal 1998, the Company recorded a special
charge of approximately $2.0 million associated with the divestiture of
the business and assets of Anasazi Exclusive Salon Products, LLC
(Anasazi).
6. STOCK SPLIT:
In February 1999, the board of directors approved a three-for-two stock
split of its common stock in the form of a 50 percent stock dividend to be
distributed on March 1, 1999 to shareholders of record on February 15,
1999. All share and per share amounts have been restated to reflect the
stock split.
7. MERGERS AND ACQUISITIONS:
On January 25, 1999, the Company announced that it had entered into an
agreement and plan of merger with The Barbers Hairstyling for Men and
Women, Inc. (The Barbers), a provider of hairstyling and hair care products
through franchised and company-owned salons based in Minneapolis,
Minnesota. Under the terms of the agreement and plan of merger, each
shareholder of The Barbers will receive 0.5 shares of Regis common stock,
resulting in the issuance by the Company of approximately 2.3 million
shares of common stock, on a post-split basis. It is expected that the
transaction will be accounted for as a pooling-of-interests. Consummation
of the merger is subject to approval by the shareholders of The Barbers.
The transaction is expected to close during the Company's fiscal 1999
fourth quarter.
In March 1999, the Company entered into an agreement to acquire Heidi's,
Inc. (Heidi's), a chain of 24 salons operating in shopping malls based in
Detroit, Michigan. Under the terms of the agreement, the shareholders of
Heidi's, a privately held company, received 537,937 shares of Regis
Corporation common stock. The transaction was consummated on March 15, 1999
and was accounted for as a pooling-of-interests. Prior period financial
statements have been restated to reflect this merger as if the merged
companies had always been combined.
9
<PAGE>
7. MERGERS AND ACQUISITIONS (continued):
As a result of the merger, the Company recorded a pre-tax merger and
transaction charge of $1.2 million in the third quarter of fiscal 1999.
This charge included $675,000 for professional fees including investment
banking, legal, accounting and other miscellaneous items, $420,000 for
severance and a charge of $80,000 for duplicate rent expense and the
write-off of duplicate operating assets, principally associated with
the closure of the Heidi's headquarters. The severance expense of $420,000
covered termination of approximately 10 Heidi's employees who had duplicate
positions in the corporate office functions. The results of operations
for the separate companies and the combined amounts presented in the
consolidated statements of operations are as follows:
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED MARCH 31,
THREE MONTHS NINE MONTHS
------------ -----------
(Dollars in thousands)
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Regis $231,597 $197,273 $672,964 $584,906
Heidi's 6,733 5,832 20,099 18,349
-------- -------- -------- --------
Combined $238,330 $203,105 $693,063 $603,255
-------- -------- -------- --------
-------- -------- -------- --------
NET INCOME:
Regis $ 6,739 $ 6,769 $23,709 $20,522
Heidi's 256 105 612 203
------- ------- -------- -------
Combined $ 6,995 $ 6,874 $24,321 $20,725
------- ------- -------- -------
------- ------- -------- -------
</TABLE>
10
<PAGE>
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of Regis Corporation:
We have reviewed the accompanying consolidated balance sheet of Regis
Corporation as of March 31, 1999, and the related consolidated statements of
operations for the three months and nine months ended March 31, 1999 and 1998,
and cash flows for the nine months ended March 31, 1999 and 1998. These
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of June 30, 1998, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the year then ended (not fully presented herein); and in our report
dated August 21, 1998, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of June 30, 1998, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
April 27, 1999
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
Regis Corporation, based in Minneapolis, Minnesota, is the world's largest
owner, operator, franchisor and consolidator of hair and retail product salons
with 3,909 salons (842 franchised) in 50 states, Puerto Rico, Canada and four
other international countries at March 31, 1999. Regis operates and franchises
salons in six divisions: Regis Hairstylists, Strip Center Salons (primarily
Supercuts), MasterCuts, Trade Secret, Wal-Mart/SmartStyle and International, and
has more than 29,000 employees worldwide.
Consolidated financial data for all periods presented reflect the retroactive
effects of the March 1999 merger with Heidi's which has been accounted for as a
pooling-of-interests (See note 7 to the Consolidated Financial Statements). The
financial statements have been prepared by combining current and historical
financial statements of Regis Corporation with those of Heidi's for each period
presented.
On January 25, 1999, the Company announced that it had entered into an agreement
and plan of merger with The Barbers Hairstyling for Men and Women, Inc. (The
Barbers), a national franchiser, owner and operator of affordable hair care
salons, based in Minneapolis, Minnesota. The Barbers has 979 franchised and
company-owned salons, operating primarily under the names Cost Cutters, City
Looks Salons International and We Care Hair. Consummation of the merger is
subject to approval by the shareholders of The Barbers. The transaction is
expected to close during the Company's fiscal 1999 fourth quarter.
The Company has developed a restructuring plan related to its International
operations. This plan includes exiting operations in Ireland, Switzerland and
France, and downsizing and relocating its European headquarters out of London to
Coventry, England with the majority of the accounting and information technology
functions transferring to Minneapolis. This plan was finalized and approved by
the Company's Board of Directors during the fourth quarter of fiscal 1999 and
will result in a nonrecurring charge to earnings in the fourth quarter of
approximately $4 million to $5 million.
Third quarter fiscal 1999 revenues, including franchise income of $6.5 million,
grew to a record $238.3 million, a 17.3 percent increase over fiscal 1998 third
quarter total revenues of $203.1 million. Revenues for the nine months ended
March 31, 1999, including franchise income of $19.4 million, grew to a record
$693.1 million, a 14.9 percent increase over total revenues of $603.3 million in
the comparable fiscal 1998 period.
Fiscal 1999 results include costs associated with the Company's Year 2000
remediation program (see note 5 to the Consolidated Financial Statements) and
merger and transaction costs associated with the Company's merger with Heidi's,
Inc. (see note 7 to the Consolidated Financial Statements) which are
nonrecurring in nature. Fiscal 1998 results reflect the previously reported
nonrecurring charge associated with disposition of Anasazi. Exclusive of these
nonrecurring items, operating income for the third quarter of fiscal 1999 grew
20.2 percent to $16.9 million. Operating income for the nine months ended March
31, 1999 grew 19.4 percent to $53.0 million.
12
<PAGE>
Exclusive of nonrecurring items, net income in the third quarter of fiscal 1999
increased to $8.6 million, or $.23 per diluted share, an earnings per share
increase of 21.1 percent from third quarter fiscal 1998 net income of $6.9
million, or $.19 per diluted share. For the first nine months of fiscal 1999,
the Company reported net income of $27.6 million, or $.74 per diluted share,
compared to $21.8 million, or $.60 per diluted share, exclusive of the
nonrecurring items.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain information
derived from the Company's Consolidated Statement of Operations expressed as a
percentage of total revenues, except as noted.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
------------------ -------------------
1999 1998 1999 1998
----- ------ ----- -----
<S> <C> <C> <C> <C>
Company-owned service revenues (1) 71.2% 71.7% 71.3% 71.4%
Company-owned product revenues (1) 28.8 28.3 28.7 28.6
Franchise income 2.7 3.1 2.8 3.3
Company-owned operations:
Profit margins on service (2) 41.9 42.0 42.4 42.2
Profit margins on product (3) 45.7 45.6 46.2 45.3
Direct salon (1) 8.7 9.0 8.6 9.1
Rent (1) 13.8 14.1 13.7 13.9
Depreciation (1) 3.3 3.3 3.3 3.3
Direct salon contribution (1) 17.1 16.7 17.8 16.7
Selling, general and administrative 10.6 10.9 10.9 10.8
Depreciation and amortization 1.5 1.2 1.4 1.1
Nonrecurring items 0.9 0.7 0.3
Operating income 6.2 6.9 6.9 7.0
Income before income taxes 5.0 5.8 5.8 5.9
Net income 2.9 3.4 3.5 3.4
Operating income, excluding 7.1 6.9 7.7 7.4
nonrecurring items
Net income, excluding nonrecurring items 3.6 3.4 4.0 3.6
</TABLE>
(1) Computed as a percent of company-owned revenues
(2) Computed as a percent of company-owned service revenues
(3) Computed as a percent of company-owned product revenues
13
<PAGE>
RESULTS OF OPERATIONS
REVENUES
REVENUES for the third quarter of fiscal 1999 grew to a record $238.3 million,
an increase of $35.2 million or 17.3 percent, over the same period in fiscal
1998. Revenues for the first nine months of fiscal 1999 were a record $693.1
million, an increase of $89.8 million or 14.9 percent, over the same period in
fiscal 1998. System-wide sales, inclusive of non-consolidated sales generated
from franchise salons, increased to $306.4 million and $882.6 million,
respectively, for the third quarter and first nine months of fiscal 1999,
representing increases of 17 percent and 14 percent over the same periods a year
ago. These increases in company-owned and system-wide sales are the result of
the total number of salons added to the system through acquisitions and net
salon openings, as well as same-store sales increases from existing salons.
For the third quarters and first nine months of fiscal 1999 and 1998,
respectively, revenues by division are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
THREE MONTHS NINE MONTHS
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Regis Hairstylists $ 90,346 $ 79,641 $264,778 $237,940
Strip Center Salons (primarily Supercuts) 38,993 27,778 104,034 77,360
MasterCuts 31,176 26,789 91,384 79,979
Trade Secret 34,444 28,718 100,751 86,126
Wal-Mart/SmartStyle 14,508 10,586 40,169 28,245
International 22,390 23,293 72,511 73,934
Franchise income 6,473 6,300 19,436 19,671
-------- -------- -------- --------
$238,330 $203,105 $693,063 $603,255
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Same-store sales for domestic company-owned salons increased 6.0 percent and 5.8
percent in the third quarter and first nine months of fiscal 1999, respectively,
compared to 5.0 percent and 5.7 percent in the same periods in fiscal 1998.
System-wide same-store sales for the third quarter and first nine months of
fiscal 1999 increased 5.5 percent compared to 5.5 percent and 5.3 percent in the
same periods a year ago. Same-store sales increases achieved are primarily due
to an increase in the number of customers served and market based price
increases in certain salon divisions. A total of 19 million and 57 million
customers system-wide were served during the third quarter and first nine months
of fiscal 1999, respectively. The Company utilizes an audiovisual-based training
system in its company-owned 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.
SERVICE REVENUES in the third quarter of fiscal 1999 grew to $165.2 million, an
increase of $24.1 million or 17.1 percent, over the same period in fiscal 1998.
In the first nine months of fiscal 1999, service revenues were $480.6 million,
an increase of $64.2 million or 15.4 percent, over the same period a year ago.
The increase in service revenues is a result of salon acquisitions the Company
has made during the past twelve months, strong service same-store sales increase
of 5.7 percent and 6.3 percent in the third quarter and first nine months of
fiscal 1999, respectively, and accelerated new salon construction.
14
<PAGE>
PRODUCT REVENUES in the third quarter of fiscal 1999 grew to $66.7 million, an
increase of $11.0 million or 19.7 percent, over the same period in fiscal 1998.
In the first nine months of fiscal 1999, product revenues were $193.1 million,
an increase of $25.9 million or 15.5 percent, over the same period in fiscal
1998. These increases continue a trend of escalating product revenues due to
product same-store sales growth of 6.8 percent and 4.6 in the third quarter and
first nine months of fiscal 1999, respectively, a reflection of the continuous
focus on product awareness, training and acceptance of national label
merchandise. Product revenues as a percent of total company-owned revenues was
28.8 percent and 28.7 percent of revenues for the third quarter and first nine
months of fiscal 1999.
FRANCHISE INCOME, including royalties, initial franchise fees and product sales
made by the Company to franchisees, increased slightly to $6.5 million in the
third quarter while decreasing slightly to $19.4 million in the first nine
months of fiscal 1999, respectively. The slight increase in franchise income in
the third quarter of fiscal 1999 is a result of increased product sales to
Supercuts franchisees. The year-to-date decrease in franchise income is a result
of a reduction in royalty rates charged to franchisees, partially offset by
increases in franchise sales, which are not included in the Company's
consolidated revenues. The Company expects that the reduction in royalty rates
will not have an adverse affect on earnings due to a corresponding decrease in
the costs of services provided to franchisees.
COST OF REVENUES
The aggregate cost of service and product revenues in the third quarter of
fiscal 1999 were $132.2 million, compared to $112.1 million in the same period
in fiscal 1998. For the first nine months of fiscal 1999, the aggregate cost of
service and product revenues were $380.8 million, compared to $332.2 million in
the same period a year ago. The resulting combined gross margin percentages for
the third quarter of fiscal 1999 remained consistent at 43.0 percent while
improving 40 basis points to 43.5 percent for the first nine months of fiscal
1999 of company-owned revenues compared to the same periods in fiscal 1998. As
discussed below, the year-to-date improvement was primarily due to strong
same-store sales and increased sales leverage in the Company's fixed cost
payroll divisions.
SERVICE MARGINS were 41.9 percent in the third quarter of fiscal 1999, compared
to 42.0 percent in the same period in fiscal 1998. This 10 basis point reduction
is primarily due to higher initial payrolls resulting from recent acquisitions,
partially offset by payroll control and leverage from strong service same-store
sales increases of 5.7 percent and continued sales maturation.
For the first nine months of fiscal 1999, service margins improved to 42.4
percent, compared to 42.2 percent in the same period in fiscal 1998. This 20
basis point improvement is primarily due to continued sales leverage of fixed
cost payrolls in the Supercuts, MasterCuts and Wal-Mart/SmartStyle divisions and
strong service same-store sales growth of 6.3 percent.
PRODUCT MARGINS improved to 45.7 percent and 46.2 percent in the third quarter
and first nine months of fiscal 1999, compared to 45.6 percent and 45.3 percent
in the same periods a year ago. The respective 10 and 90 basis point
improvements are primarily a result of sales leveraging and decreased product
costs in Trade Secret and Supercuts salons resulting from the benefit of Regis'
purchasing power. In addition, the improvement in the third quarter was
partially offset by higher payroll costs in the Trade Secret division when
compared to the same period last year.
15
<PAGE>
DIRECT SALON
This expense category includes direct costs associated with salon operations
such as advertising, promotion, insurance, telephone and utilities. Direct salon
expense of $20.2 million improved as a percent of company-owned revenues to 8.7
percent in the third quarter of fiscal 1999 from 9.0 percent in the same period
in fiscal 1998. For the first nine months of fiscal 1999, direct salon expense
of $58.1 million improved as a percent of company-owned revenues to 8.6 percent
from 9.1 percent in the same period in fiscal 1998. These improvements resulted
from an increased ability to leverage these fixed costs against increased
revenues, which is a result of strong same-store sales and a maturing salon
base.
RENT
Rent expense in the third quarter of fiscal 1999 was $32.0 million, or 13.8
percent of company-owned revenues, compared to $27.7 million, or 14.1 percent of
company-owned revenues, in the same period in fiscal 1998. Rent expense in the
first nine months of fiscal 1999 was $92.4 million or 13.7 percent of
company-owned revenues, compared to $81.0 million or 13.9 percent of
company-owned revenues in the same period in fiscal 1998. The percentage
improvements in both periods are primarily due to leveraging this fixed cost
against strong same-store sales.
DEPRECIATION - SALON LEVEL
Depreciation expense at the salon level remained consistent at 3.3 percent of
company-owned revenues in both the third quarter and first nine months of fiscal
1999 and 1998.
DIRECT SALON CONTRIBUTION
For the reasons described above, direct salon contribution, representing
company-owned salon revenues less associated operating expenses, improved in the
third quarter of fiscal 1999 to $39.7 million, or 17.1 percent of company-owned
revenues, compared to $32.8 million or 16.7 percent of company-owned revenues in
the same period of fiscal 1998. For the first nine months of fiscal 1999, direct
salon contribution improved to $119.9 million, or 17.8 percent of company-owned
revenues, compared to $97.7 million or 16.7 percent of company-owned revenues in
the same period a year ago.
SELLING, GENERAL AND ADMINISTRATIVE
Expenses in this category include field supervision (payroll, related taxes and
travel), training and home office administration costs (such as warehousing,
salaries, occupancy costs and professional fees). Selling, general and
administrative (SG&A) expenses were $25.4 million, or 10.6 percent of total
revenues in the third quarter of fiscal 1999, compared to $22.2 million, or 10.9
percent of total revenues in the same period in fiscal 1998. For the first nine
months of fiscal 1999, SG&A expenses were $75.3 million, or 10.9 percent of
total revenues, compared to $65.1 million, or 10.8 percent of total revenues in
the same period in fiscal 1998. These 30 and 10 basis point improvements in rate
are a result of leveraging the fixed portion of this cost against sales volumes
during the quarter and year-to-date.
16
<PAGE>
DEPRECIATION AND AMORTIZATION - CORPORATE
Corporate depreciation and amortization increased to 1.5 percent and 1.4 percent
of total revenues in both the third quarter and first nine months of fiscal
1999, compared to 1.2 percent and 1.1 percent, respectively, in the same periods
a year ago. This increase is related to additional depreciation associated with
the Company's fiscal 1998 purchases of additional corporate office buildings and
new distribution center as well as an increased level of intangible assets,
primarily goodwill, associated with the Company's acquisition activity during
the past twelve months.
NONRECURRING ITEMS
Nonrecurring items included in operating income consist of gains and losses on
assets and business dispositions, merger and transaction costs and other items
of a nonrecurring nature.
See discussion of year 2000 remediation within Liquidity and Capital Resources,
and refer to Note 5 to the unaudited Consolidated Financial Statements for a
description of the nonrecurring items.
OPERATING INCOME
Operating income in the third quarter of fiscal 1999, excluding nonrecurring
items, improved to $16.9 million, an increase of $2.8 million or 20.2 percent
over the same period in fiscal 1998. Operating income, excluding nonrecurring
items, as a percentage of total revenues grew to 7.1 percent in the third
quarter of fiscal 1999 compared to 6.9 percent in the same period in fiscal
1998. Exclusive of nonrecurring items, operating income in the first nine months
of fiscal 1999 improved to $53.0 million, or 7.7 percent of total revenues, an
increase of $8.6 million, or 19.4 percent over the prior year period operating
income of $44.4 million, or 7.4 percent of total revenues. These improvements
are primarily attributable to improved gross margins and the leveraging of
direct salon and rent expenses.
INTEREST
Interest expense in the third quarter and first nine months of fiscal 1999 was
$3.1 million and $8.7 million, respectively, representing 1.3 percent of total
revenues in the third quarter as well as the first nine months of fiscal 1999,
compared to $2.7 million and $7.9 million, or 1.3 percent of total revenues, in
the same periods in fiscal 1998. Interest expense as a percent of total revenues
has remained consistent between the two periods because, although debt levels
have increased, average interest rates were lower during the period.
INCOME TAXES
The Company's annual effective income tax rate for all of fiscal 1999 is
estimated to be slightly less than 40.0 percent, compared to 40.2 percent for
fiscal year 1998. The anticipated reduction in the annual effective tax rate is
a result of reduced state income taxes.
17
<PAGE>
NET INCOME
Net income in the third quarter of fiscal 1999 was to $7.0 million, or $.19 per
diluted share, compared to a net income of $6.9 million, or $.19 per diluted
share in the same period in fiscal 1998. Exclusive of nonrecurring items, net
income in the third quarter of fiscal 1999 increased to $8.6 million, or $.23
per diluted share, compared to net income in the same period in fiscal 1998 of
$6.9 million, or $.19 per diluted share, an earnings per share increase of 21.1
percent.
For the first nine months of fiscal 1999, net income grew to $24.3 million or
$.65 per diluted share, compared to net income of $20.7 million or $.57 per
diluted share in the same period in fiscal 1998. Exclusive of nonrecurring items
in both periods, net income in the first nine months of fiscal 1999 increased to
$27.6 million or $.74 per diluted share, compared to net income in the same
period in fiscal 1998 of $21.8 million or $.60 per diluted share, an earnings
per share increase of 23.3 percent.
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 the first nine months of fiscal 1999 was
$54.0 million which was relatively consistent with the $55.1 million generated
in the same period in fiscal 1998. The slight decrease in net cash provided by
operating activities is primarily due to an increase in inventory levels between
periods due to accelerated new store construction and acquisitions.
During the first nine months of fiscal 1999, the Company had worldwide capital
expenditures of $53.8 million, of which $6.1 million related to acquisitions of
294 salons, and $0.4 million of capital lease obligations that were entered into
during the current year. The Company constructed 212 new salons (29 new Regis
Hairstylists salons, 37 new MasterCuts salons, 32 new Trade Secret salons, 60
new Wal-Mart/SmartStyle salons, 42 new Strip Center Salons and 12 new
International salons), and completed 64 major remodeling projects. All salon
capital expenditures during the first nine months of fiscal 1999 were funded by
cash flow from the Company's operations and borrowings under its revolving
credit facilities.
The Company anticipates its worldwide salon development program for fiscal 1999
will include the construction of approximately 300 new company-owned salons, and
125 major remodeling and conversion projects. It is expected the Company's total
capital expenditures in fiscal 1999 will be approximately $55 to $60 million.
Expenditures will be funded in part through borrowings under existing credit
facilities and capital lease arrangements.
FINANCING
See Note 4 to the unaudited Consolidated Financial Statements.
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.
18
<PAGE>
DIVIDENDS
In February 1999, the board of directors approved a three-for-two stock split of
its common stock in the form of a 50 percent stock dividend which was
distributed on March 1, 1999 to shareholders of record on February 15, 1999. All
share and per share amounts have been restated to reflect the stock split.
During the first nine months of fiscal 1999, the Company paid quarterly
dividends of $2.5 million, or $.03 per share. In May 1999, the Board of
Directors of the Company approved a regular quarterly dividend of $.03 per share
payable on June 1, 1999 to shareholders of record on May 17, 1999.
YEAR 2000
The Company previously initiated a comprehensive project to prepare its computer
systems for the Year 2000. The Company has completed the awareness, assessment
and remediation phases of the project and is in the process of validation and
implementation. The validation and implementation phases have been substantially
completed by the end of the Company's third quarter. Accordingly, management
believes the Year 2000 will not have a significant impact on operations. As part
of the overall project, the Company is in the process of developing a
contingency plan to mitigate the Company's risk that primary vendors or other
external forces could have an impact on the Company's operations.
Costs associated with the Year 2000 are expensed as incurred and are funded
through operating cash flows. The Company has incurred $4.4 million related to
Year 2000 project costs from the project's inception in fiscal 1998 through the
first nine months of fiscal 1999, of which $3.9 million was incurred and charged
to earnings during the first nine months of fiscal 1999. As the Company has
completed the implementation and validation phases of the project, no
significant additional costs are anticipated to be incurred.
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. The results of the Company's inquiries have indicated that the
majority of our critical suppliers are either compliant or have a plan in place
to be compliant by the end of 1999. There can be no absolute assurance that
another company's failure to ensure Year 2000 compliance would not have an
adverse effect on the Company.
19
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10(nn) Term Note Agreement between the registrant and Bank of America
National Trust and Savings Association dated December 31, 1998.
Exhibit 10(oo) Term Note H-1 Agreement between the registrant and the Prudential
Insurance Company of America dated March 26, 1999.
Exhibit 10(pp) Term Note H-2 Agreement between the registrant the Prudential
Insurance Company of America dated March 26, 1999.
Exhibit 10(qq) Term Note H-3 Agreement between the registrant the Prudential
Insurance Company of America dated March 26, 1999.
Exhibit 10(rr) Term Note H-4 Agreement between the registrant the Prudential
Insurance Company of America dated March 26, 1999.
Exhibit 10(ss) Modifications to the revolving Credit Agreement in 10(hh) dated
September 1, 1998.
Exhibit 15 Letter Re: Unaudited Interim Financial Information.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the three months ended
March 31, 1999:
Form 8-K dated January 25, 1999 related to the announcement of the
Company's agreement and plan of merger with The Barbers, Hairstyling for
Men & Women, Inc.
20
<PAGE>
SIGNATURE
Pursuant to the requirements 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
Date: May 11, 1999 By: /s/ Randy L. Pearce
-----------------------------
Randy L. Pearce
Senior Vice President, Finance
Chief Financial Officer
Signing on behalf of the
registrant and as principal
accounting officer
21
<PAGE>
[LOGO] BANK OF AMERICA NATIONAL TRUST BUSINESS LOAN AGREEMENT
AND SAVINGS ASSOCIATION
- --------------------------------------------------------------------------------
This Agreement dated as of December 31, 1998, is between BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank") and REGIS CORPORATION (the
"Borrower").
1. TERM LOAN AMOUNT AND TERMS
1.1 LOAN AMOUNT. The Bank agrees to provide a term loan to the Borrower in
the amount of Fifteen Million Dollars ($15,000,000) (the "Commitment").
1.2 AVAILABILITY PERIOD. This term loan is available in one disbursement from
the Bank between the date of this Agreement and February 28,1999, unless the
Borrower is in default.
1.3 INTEREST RATE.
(a) Unless the Borrower elects an optional interest rate as described
below, the interest rate is a per annum rate equal to the Reference Rate defined
below:
(b) The Reference Rate is the rate of interest publicly announced from
time to time by the Bank in San Francisco, California, 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 Bank's Reference Rate.
1.4 OPTIONAL INTEREST RATE. Instead of the interest rate based on the Bank's
Reference Rate, the Borrower may elect the IBOR Rate plus 1.20 percentage points
during interest periods agreed to by the Bank and the Borrower. The optional
interest rate shall be subject to the terms and conditions described later in
this Agreement. Any principal amount bearing interest at the optional rate under
this Agreement is referred to as a "Portion."
1.5 REPAYMENT TERMS.
(a) The Borrower will pay all accrued but unpaid interest on March 31,
1999 and then quarterly thereafter and upon payment in full of the principal of
the loan.
(b) The Borrower will repay principal in nineteen (19) successive
quarterly installments as set forth in the schedule below:
<TABLE>
<CAPTION>
Beginning Through Amount No. of Installments
--------- ------- ------ -------------------
<S> <C> <C> <C>
June 30, 1999 June 30, 2000 $300,000 5
September 30, 2000 June 30, 2001 $500,000 4
September 30, 2001 June 30, 2002 $1,000,000 4
September 30, 2002 December 31, 2003 $1,250,000 6
</TABLE>
-1-
<PAGE>
2. OPTIONAL INTEREST RATE
2.1 OPTIONAL RATE. The optional interest rate is a rate per year. Interest will
be paid on the last day of each interest period, and if the interest period is
longer than 90 days, then on the last day of each quarter during the interest
period. At the end of any interest period, the interest rate will revert to the
rate based on the Reference Rate, unless the Borrower has designated another
optional interest rate for the Portion. No Portion will be converted to a
different interest rate during the applicable interest period. Upon the
occurrence of an event of default under this Agreement, the Bank may terminate
the availability of optional interest rates for interest periods commencing
after the default occurs.
2.2 IBOR RATE. The election of IBOR Rates shall be subject to the following
terms and requirements:
(a) The interest period during which the IBOR Rate will be in effect
will be no shorter than 30 days and no longer than one year. The first day of
the interest period must be a Banking Day on which the Bank is also open for
business in California and dealing in offshore dollars. The last day of the
interest period will be determined by the Bank using the practices of the
offshore dollar inter-bank market.
(b) Each IBOR Rate Portion will be for an amount not less than the
following:
(i) for interest periods of 91 days or longer, Three Hundred
Thousand Dollars ($300,000).
(ii) for interest periods of between 31 and 90 days, Five
Hundred Thousand Dollars ($500,000).
(c) The Borrower may not elect an IBOR Rate with respect to any
principal amount which is scheduled to be repaid before the last day of the
applicable interest period.
(d) The "IBOR Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All amounts in the
calculation will be determined by the Bank as of the first day of the interest
period.)
IBOR Base Rate
IBOR Rate = --------------------------
(1.00- Reserve Percentage)
Where,
(i) "IBOR Base Rate" means the interest rate at which the
Bank's Grand Cayman Branch, Grand Cayman, British West Indies, would
offer U.S. dollar deposits for the applicable interest period to other
major banks in the offshore dollar inter-bank market.
(ii) "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 one percent. The percentage will be
expressed as a decimal, and will include, but not be limited to,
marginal, emergency, supplemental, special, and other reserve
percentages.
(e) Each prepayment of an IBOR Rate Portion, whether voluntary, by
reason of acceleration 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 an amount on a date earlier than the scheduled
payment date for such amount as required by this Agreement. The prepayment fee
shall be equal to the amount (if any) by which:
(i) the additional interest which would have been payable
during the interest period on the amount prepaid had it not been
prepaid, exceeds
(ii) the interest which would have been recoverable by the
Bank by placing the amount prepaid on deposit in the domestic
certificate of deposit market, the eurodollar deposit market, or other
appropriate money market selected by the Bank for a period starting on
the date on which it was
-2-
<PAGE>
prepaid and ending on the last day of the interest period for such
Portion (or the scheduled payment date for the amount prepaid, if
earlier).
(f) The Bank will have no obligation to accept an election for an IBOR
Rate Portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods
equal to the interest period, of an IBOR Rate Portion are not available
in the offshore Dollar inter-bank market; or
(ii) the IBOR Rate does not accurately reflect the cost of an
IBOR Rate Portion.
3. FEES AND EXPENSES
3.1 LOAN FEE. The Borrower agrees to pay a loan fee in the amount of Twenty
Thousand Dollars ($20,000). This fee is due on or before the date of this
Agreement.
3.2 EXPENSES. The Borrower agrees to reimburse the Bank upon demand, whether or
not any loan is made under this Agreement, for any expenses the Bank incurs in
the preparation, negotiation and execution of this Agreement and any agreement
or instrument required by this Agreement. Expenses include, but are not limited
to, reasonable attorneys' fees, including any allocated costs of the Bank's
in-house counsel.
4. DISBURSEMENTS, PAYMENTS AND COSTS
4.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be made
in writing in a manner acceptable to the Bank, or by another means acceptable to
the Bank.
4.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank will be made in
immediately available funds and will be evidenced by records kept by the Bank.
In addition, the Bank may, at its discretion, require the Borrower to sign one
or more promissory notes. Each payment made by the Borrower will be made without
set-off or counterclaim in immediately available funds not later than 2:00 p.m.,
Chicago time, on the date 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 under this Agreement 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.
4.3 TELEPHONE AND FACSIMILE AUTHORIZATION.
(a) The Bank may honor telephone or facsimile instructions for advances
or repayments or for the designation of optional interest rates 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 and repayments will be withdrawn from
the Borrower's account number 1233227795, or such other of the Borrower's
accounts with the Bank as designated in writing by the Borrower.
(c) Upon the Bank's request, the Borrower will provide written
confirmation to the Bank of any telephone or facsimile instructions within 2
days. If there is a discrepancy and the Bank has already acted on the
instructions, the telephone or facsimile 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 or facsimile instructions the
Bank reasonably believes are made by any individual authorized by the Borrower
to give such instructions. This indemnity and excuse will survive this
Agreement.
-3-
<PAGE>
4.4 DIRECT DEBIT.
(a) The Borrower agrees that interest and principal payments and any
fees will be deducted automatically on the due date from the Borrower's checking
account number 12233227795, or such other of the Borrower's accounts with the
Bank as designated in writing by the Borrower.
(b) 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.
(c) The Borrower will maintain sufficient funds in the account on the
dates the Bank enters debits authorized by this Agreement. If there are
insufficient funds in the account on the date the Bank enters any debit
authorized by this Agreement, the debit will be reversed.
4.5 BANKING DAYS. Unless otherwise provided in this Agreement, a "Banking Day"
is a day other than a Saturday or a Sunday on which the Bank is open for
business in Chicago, Illinois. All payments and disbursements which would be due
on a day which is not a Banking Day will be due on the next Banking Day. All
payments received on a day which is not a Banking Day will be applied to the
credit on the next Banking Day.
4.6 ADDITIONAL COSTS. The Borrower will pay the Bank, on demand, for the Bank's
costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency which is applicable to all national banks or
a class of all national banks. The costs and losses will be allocated to the
loan in a manner determined by the Bank, using any reasonable method. The costs
include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and
commitments for credit.
4.7 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360 day year and
the actual number of days elapsed. Installments of principal which are not paid
when due under this Agreement shall continue to bear interest until paid.
4.8 DEFAULT RATE. Upon the occurrence and during the continuation of any
default under this Agreement, principal amounts outstanding under this Agreement
will at the option of the Bank bear interest at a rate which is 2 percentage
point(s) higher than the rate of interest otherwise provided under this
Agreement. This will not constitute a waiver of any default.
5. CONDITIONS
The Bank must receive the following items, in form and content acceptable to the
Bank, before it is required to extend any credit to the Borrower under this
Agreement:
5.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance by
the Borrower (and any guarantor) of this Agreement and any instrument or
agreement required under this Agreement have been duly authorized.
5.2 GOVERNING DOCUMENTS. A copy of the Borrower's articles of incorporation.
5.3 PAYMENT OF FEES. Payment of all accrued and unpaid expenses incurred by the
Bank as required by the paragraph entitled "Expenses".
5.4 GOOD STANDING. A certificate of good standing for the Borrower from its
state of formation.
5.5 OTHER ITEMS. Any other items that the Bank reasonably requires.
-4-
<PAGE>
6. POST FUNDING REQUIREMENT. Borrower shall deliver, no later than March 31,
1999, an amended Offset Sharing Agreement, in form and content satisfactory to
the Bank, among the Bank and the Lenders under the currently existing Offset
Sharing Agreement.
7. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewed representation.
7.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.
7.2 AUTHORIZATION. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.
7.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
7.4 GOOD STANDING. In each state in which the Borrower does business, it is
property licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
7.5 NO CONFLICTS. This Agreement does not conflict with any law, agreement, or
obligation by which the Borrower is bound.
7.6 FINANCIAL INFORMATION. All financial and other information that has been or
will be supplied to the Bank, including the Borrower's financial statement dated
as of September 30,1998, is:
(a) sufficiently complete to give the Bank accurate knowledge of the
Borrower's (and any guarantor's) financial condition ,including all material
contingent liabilities.
(b) in compliance with all government regulations that apply.
Since the date of the financial statement specified above, there has been no
material adverse change in the assets or the financial condition of the Borrower
(or any guarantor).
7.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower, which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.
7.8 PERMITS, FRANCHISES. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged.
7.9 OTHER OBLIGATIONS. The Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
7.10 INCOME TAXES. The Borrower has filed all tax returns required to be filed
and has paid, or made adequate provisions for the payment of, all taxes due and
payable pursuant to such returns and pursuant to any assessments made against it
or any of its property. No tax liens have been filed and no material claims are
being asserted with respect to any such taxes. The reserves on the books of the
Borrower in respect of taxes are adequate. The Borrower is not aware of any
proposed assessment or adjustment for additional taxes (or any basis for any
such assessment) which might be material to the Borrower.
7.11 NO EVENT OF DEFAULT. There is no event which is, or with notice or lapse of
time or both would be, a default under this Agreement.
-5-
<PAGE>
7.12 INSURANCE. The Borrower has obtained, and maintained in effect, the
insurance coverage required in the "Covenants" section of this Agreement.
7.13 ERISA PLANS.
(a) Each Plan (other than a multiemployer plan) is in compliance in all
material respects with the applicable provisions of ERISA, the Code and other
federal or state law. Each Plan has received a favorable determination letter
from the IRS and to the best knowledge of the Borrower, nothing has occurred
which would cause the loss of such qualification. The Borrower has fulfilled its
obligations, if any, under the minimum funding standards of ERISA and the Code
with respect to each Plan, and has not incurred any liability with respect to
any Plan under Title IV of ERISA.
(b) There are no claims, lawsuits or actions (including by any
governmental authority), and there has been no prohibited transaction or
violation of the fiduciary responsibility rules, with respect to any Plan which
has resulted or could reasonably be expected to result in a material adverse
effect.
(c) With respect to any Plan subject to Title IV of ERISA:
(i) No reportable event has occurred under Section 4043(c)
of ERISA for which the PBGC requires 30 day notice.
(ii) No action by the Borrower or any ERISA Affiliate to
terminate or withdraw from any Plan has been taken and no notice of
intent to terminate a Plan has been filed under Section 4041 of ERISA.
(iii) No termination proceeding has been commenced with
respect to a Plan under Section 4042 of ERISA, and no event has
occurred or condition exists which might constitute grounds for the
commencement of such a proceeding.
(d) The following terms have the meanings indicated for purposes of
this Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(ii) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time.
(iii) "ERISA Affiliate" means any trade or business (whether
or not incorporated) under common control with the Borrower within the
meaning of Section 414(b) or (c) of the Code.
(iv) "PBGC" means the Pension Benefit Guaranty Corporation.
(v) "Plan" means a pension, profit-sharing, or stock bonus
plan intended to qualify under Section 401(a) of the Code, maintained
or contributed to by the Borrower or any ERISA Affiliate, including any
multiemployer plan within the meaning of Section 4001(a)(3) of ERISA.
7.14 YEAR 2000 COMPLIANCE. The Borrower has conducted a comprehensive review and
assessment of the Borrower's computer applications and made inquiry of the
Borrower's key suppliers, vendors and customers with respect to the "year 2000
problem" (that is, the inability of computers, as well as embedded microchips in
non-computing devices, to be able to properly perform date-sensitive functions
after December 31, 1999) and, based on that review and inquiry, the Borrower
does not believe the year 2000 problem will result in a material adverse change
in the Borrower's business condition (financial or otherwise), operations,
properties or prospects, or ability to repay the credit.
-6-
<PAGE>
8. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
8.1 USE OF PROCEEDS. To use the proceeds of the credit only for the acquisition
of salons in the Pacific Northwest.
8.2 FINANCIAL INFORMATION. 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 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 (with an
unqualified opinion) by a Certified Public Accountant 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 60 days of each fiscal quarter end, 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, as amended by that certain Amendment No. 1 to Amended and
Restated Credit Agreement dated as of September 1, 1998 (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 this Agreement and/or 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.
8.3 INSURANCE.
(a) GENERAL BUSINESS INSURANCE. To maintain insurance as is usual for
the business it is in.
(b) EVIDENCE OF INSURANCE. Upon the request of the Bank, to deliver to
the Bank a copy of each insurance policy, or, if permitted by the Bank, a
certificate of insurance listing all insurance in force.
8.4 NEGATIVE COVENANTS. The Borrower agrees that Section 8 ("Negative
Covenants") of the LaSalle Credit Agreement (and all definitions associated with
such Section) is incorporated by reference herein as if set forth herein.
Notwithstanding the foregoing, the definition of Debt Service, for purposes of
this Agreement only, shall include the scheduled amortization hereunder.
8.5 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written consent:
(a) engage in any business activities substantially different from the
Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, pool, joint venture,
syndicate, or other combination, or become a partner in a partnership, a member
of a joint venture, or a member of a limited liability company.
(d) sell, assign, lease, transfer or otherwise dispose of any assets
for less than fair market value, or enter into any agreement to do so.
-7-
<PAGE>
(e) sell, assign, lease, transfer or otherwise dispose of all or a
substantial part of the Borrower's business or the Borrower's assets.
(f) voluntarily suspend its business for more than 5 days in any 30
day period.
8.6 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over One Million Dollars ($1,000,000) against the
Borrower (or any guarantor).
(b) any substantial dispute between the Borrower (or any guarantor) and
any government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's (or any guarantor's)
business condition (financial or otherwise), operations, properties or
prospects, or ability to repay the credit.
(e) any change in the Borrower's name, legal structure, place of
business, or chief executive office if the Borrower has more than one place of
business.
8.7 COVENANT TO AMEND. To provide the Bank with at least five (5) Business Days
prior notice of any amendment or modification of the Note Agreement (any
capitalized terms used herein, but not herein defined, shall have the meaning
given such terms in the LaSalle Credit Agreement). Borrower further covenants
that it will, if and as requested by the Bank, in its sole and absolute
discretion, immediately amend or modify the terms of this Agreement in a similar
manner.
8.8 ERISA PLANS. With respect to a Plan subject to Title IV of ERISA, to give
prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(c) of
ERISA for which the PBGC requires 30 day notice.
(b) Any action by the Borrower or any ERISA Affiliate to terminate or
withdraw from a Plan or the filing of any notice of intent to terminate under
Section 4041 of ERISA.
(c) The commencement of any proceeding with respect to a Plan under
Section 4042 of ERISA.
9. HAZARDOUS WASTE INDEMNIFICATION
The Borrower will indemnify and hold harmless the Bank from any loss or
liability directly or indirectly arising out of the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of a hazardous substance. This indemnity will apply whether
the hazardous substance is on, under or about the Borrower's property or
operations or property leased to the Borrower. The indemnity includes but is not
limited to attorneys' fees (including the reasonable estimate of the allocated
cost of in-house counsel and staff). The indemnity extends to the Bank, its
parent, subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys and assigns. "Hazardous substances" means any substance,
material or waste that is or becomes designated or regulated as "toxic,"
"hazardous," "pollutant," or "contaminant" or a similar designation or
regulation under any federal, state or local law (whether under common law,
statute, regulation or otherwise) or judicial or administrative interpretation
of such, including without limitation petroleum or natural gas. This indemnity
will survive repayment of the Borrower's obligations to the Bank.
10. DEFAULT
If any of the following events occurs, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If an event of default occurs under the
paragraph entitled
-8-
<PAGE>
"Bankruptcy" below, with respect to the Borrower, then the entire debt
outstanding under this Agreement will automatically be due immediately.
10.1 FAILURE TO PAY. The Borrower fails to make a payment under this Agreement
when due.
10.2 FALSE INFORMATION. The Borrower (or any guarantor) has given the Bank false
or misleading information or representations.
10.3 BANKRUPTCY. The Borrower (or any guarantor) files a bankruptcy petition, a
bankruptcy petition is filed against the Borrower (or any guarantor), or the
Borrower (or any guarantor) makes a general assignment for the benefit of
creditors.
10.4 RECEIVERS; TERMINATION. A receiver or similar official is appointed for the
Borrower's (or any guarantor's) business, or the business is terminated.
10.5 JUDGMENTS. Any judgments or arbitration awards are entered against the
Borrower (or any guarantor), or the Borrower (or any guarantor) enters into any
settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of Five Hundred Thousand Dollars ($500,000) or more and is not
discharged or stayed within 90 days.
10.6 GOVERNMENT ACTION. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's (or any guarantor's)
financial condition or ability to repay.
10.7 MATERIAL ADVERSE CHANGE. A material adverse change occurs , or is
reasonably likely to occur, in the Borrower's (or any guarantor's) business
condition (financial or otherwise), operations, properties or prospects, or
ability to repay the credit.
10.8 CROSS-DEFAULT. Any default occurs under any agreement in connection with
any credit the Borrower (or any guarantor) or any of the Borrower's related
entities or affiliates has obtained from anyone else or which the Borrower (or
any guarantor) or any of the Borrower's related entities or affiliates has
guaranteed in the amount of Five Hundred Thousand Dollars ($500,000) or more in
the aggregate if the default consists of failing to make a payment when due or
gives the other lender the right to accelerate the obligation.
10.9 DEFAULT UNDER RELATED DOCUMENTS. Any guaranty, subordination agreement,
security agreement, mortgage, deed of trust, or other document required by this
Agreement is violated or no longer in effect.
10.10 OTHER BANK AGREEMENTS. The Borrower (or any guarantor) fails to meet the
conditions of, or fails to perform any obligation under any other agreement the
Borrower (or any guarantor) has with the Bank or any affiliate of the Bank, or
demand is made by the Bank or any affiliate of the Bank on any obligation owing
to the Bank or such affiliate under any other agreement the Borrower (or any
guarantor) has with the Bank or any affiliate of the Bank.
10.11 ERISA PLANS. The occurrence of any one or more of the following events
with respect to a Plan subject to Title IV of ERISA, provided such event or
events could reasonably be expected, in the judgment of the Bank, to subject the
Borrower to any tax, penalty or liability (or any combination of the foregoing)
which, in the aggregate, could have a material adverse effect on the financial
condition of the Borrower:
(a) A reportable event shall occur under Section 4043(c) of ERISA with
respect to a Plan.
(b) Any Plan termination (or commencement of proceedings to terminate a
Plan) or the full or partial withdrawal from a Plan by the Borrower or any ERISA
Affiliate.
10.12 OTHER BREACH UNDER AGREEMENT. The Borrower fails to meet the conditions
of, or fails to perform any obligation under, any term of this Agreement not
specifically referred to in this Article. This includes any failure or
anticipated failure by the Borrower to comply with any financial covenants set
forth in this Agreement, whether such failure is evidenced by financial
statements delivered to the Bank or is otherwise known to the Borrower or the
Bank.
-9-
<PAGE>
11. ENFORCING THIS AGREEMENT; MISCELLANEOUS
11.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
11.2 ILLINOIS LAW. THIS AGREEMENT IS GOVERNED BY THE INTERNAL LAWS OF THE STATE
OF ILLINOIS.
11.3 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 without the Bank's prior consent. The Bank may sell participations in
or assign this loan, and may exchange financial information about the Borrower
with actual or potential participants or assignees.
11.4 SEVERABILITY; WAIVERS. If any part of this Agreement is not enforceable,
the rest of the Agreement may be enforced. The Bank retains all rights, even if
it makes a loan after default. If the Bank waives a default, it may enforce a
later default. Any consent or waiver under this Agreement must be in writing.
11.5 ADMINISTRATION COSTS. The Borrower will pay the Bank for all reasonable
costs incurred by the Bank in connection with administering this Agreement.
11.6 ATTORNEYS' FEES. The Borrower shall reimburse the Bank for any reasonable
costs and attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and in
connection with any amendment, waiver, "workout" or restructuring under this
Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing
party is entitled to recover costs and reasonable attorneys' fees incurred in
connection with the lawsuit or arbitration proceeding, as determined by the
court or arbitrator. In the event that any case is commenced by or against the
Borrower under the Bankruptcy Code (Title 11, United States Code) or any similar
or successor statute, the Bank is entitled to recover costs and reasonable
attorneys' fees incurred by the Bank related to the preservation, protection, or
enforcement of any rights of the Bank in such a case. As used in this paragraph,
"attorneys' fees" includes the allocated costs of the Bank's in-house counsel.
11.7 ONE AGREEMENT. This Agreement and any related security or other agreements
required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the
Bank and the Borrower concerning this credit; and
(b) replace any prior oral or written agreements between the Bank and
the Borrower concerning this 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.
11.8 INDEMNIFICATION. The Borrower will indemnify and hold the Bank harmless
from any loss, liability, damages, judgments, and costs of any kind relating to
or arising directly or indirectly out of (a) this Agreement or any document
required hereunder, (b) any credit extended or committed by the Bank to the
Borrower hereunder, and (c) any litigation or proceeding related to or arising
out of this Agreement, any such document, or any such credit. This indemnity
includes but is not limited to attorneys' fees (including the allocated cost of
in-house counsel). This indemnity extends to the Bank, its parent, subsidiaries
and all of their directors, officers, employees, agents, successors, attorneys,
and assigns. This indemnity will survive repayment of the Borrower's obligations
to the Bank. All sums due to the Bank hereunder shall be obligations of the
Borrower, due and payable immediately without demand.
-10-
<PAGE>
11.9 NOTICES. All notices required under this Agreement will be in writing and
will be transmitted by personal delivery, first class mail, overnight courier,
or facsimile to the addresses or facsimile numbers on the signature page of this
Agreement, or to such other addresses or facsimile numbers as the Bank and the
Borrower may specify from time to time in writing.
11.10 HEADINGS. Article and paragraph headings are for reference only and do not
affect the interpretation or meaning of any provisions of this Agreement.
11.11 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.
11.12 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 OR RELATED TO
THIS AGREEMENT WILL BE LITIGATED IN COURTS HAVING SITUS IN CHICAGO. ILLINOIS.
THE BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY COURT
LOCATED WITHIN CHICAGO, ILLINOIS, WAIVES PERSONAL SERVICE OF PROCESS UPON THE
BORROWER, AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED
MAIL DIRECTED TO THE BORROWER AT THE ADDRESS STATED ON THE SIGNATURE PAGE HEREOF
AND SERVICE SO MADE WILL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT.
11.13 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 ANY RELATED 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 AGREES THAT IT WILL NOT ASSERT ANY CLAIM AGAINST THE BANK OR ANY
OTHER PERSON INDEMNIFIED UNDER THIS AGREEMENT ON ANY THEORY OF LIABILITY FOR
SPECIAL, INDIRECT, CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES.
This Agreement is executed as of the date stated at the top of the first page.
BANK OF AMERICA NATIONAL TRUST REGIS CORPORATION
AND SAVINGS ASSOCIATION
By: By: /s/ Randy Pearce
----------------------------------- --------------------------
Title: Title: Senior Vice President -
-------------------------------- Finance
Chief Financial Officer
Address and facsimile number Address and facsimile number where
where notices to the Bank are notices to the Borrower are to be
to be sent: to be sent:
231 South LaSalle Street 7201 Metro Boulevard
Chicago, IL 60697 Minneapolis, MN 55439
Attn: Jeffrey B. Mattson Attn: Kyle Didier
(312) 828-4635 (612) 947-7791
FAX: (312) 974-0761 FAX: (612) 947-7701
-11-
<PAGE>
REGIS CORPORATION
SERIES H SENIOR NOTE
No. H-1
ORIGINAL PRINCIPAL AMOUNT: $6,000,000
ORIGINAL ISSUE DATE: March 26, 1999
INTEREST RATE: 6.83% per annum
INTEREST PAYMENT DATES: June 30, September 30, December 31 and March 31
FINAL MATURITY DATE: December 31, 2005
PRINCIPAL PREPAYMENT DATES AND AMOUNTS: $1,500,000 on each of December 31,
2002, December 31, 2003, December 31,
2004 and December 31, 2005
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 SIX MILLION DOLLARS
($6,000,000) payable in installments on the Principal Prepayment Dates and in
the amounts specified above, and on the Final Maturity Date specified above in
an amount equal to the unpaid balance of the principal hereof, with interest
(computed on the basis of a 360-day year--3 0-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 with the Interest Payment Date next succeeding the date
hereof, until the principal hereof shall have become due and payable, and ~) 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 (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.
Dated: March 26, 1999 REGIS CORPORATION
By: /s/ Randy L. Pearce
------------------------------
Randy L. Pearce
Senior Vice President-Finance
2
<PAGE>
REGIS CORPORATION
SERIES H SENIOR NOTE
No. H-2
ORIGINAL PRINCIPAL AMOUNT: $2,000,000
ORIGINAL ISSUE DATE: March 26, 1999
INTEREST RATE: 6.83% per annum
INTEREST PAYMENT DATES: June 30, September 30, December 31 and March 31
FINAL MATURITY DATE: December 31, 2005
PRINCIPAL PREPAYMENT DATES AND AMOUNTS: $500,000 on each of December 31, 2002,
December 31, 2003, December 31, 2004
and December 31, 2005
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 TWO MILLION DOLLARS
($2,000,000) payable in installments on the Principal Prepayment Dates and in
the amounts specified above, and on the Final Maturity Date specified above in
an amount equal to the unpaid balance of the principal hereof, with interest
(computed on the basis of a 360-day year--3 0-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 with the Interest Payment Date next succeeding the date
hereof, until the principal hereof shall have become due and payable, and ) 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 (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.
Dated: March 26, 1999 REGIS CORPORTION
By: /s/ Randy L. Pearce
--------------------------------
Randy L. Pearce
Senior Vice President-Finance
2
<PAGE>
REGIS CORPORATION
SERIES H SENIOR NOTE
No. H-3
ORIGINAL PRINCIPAL AMOUNT: $1,000,000
ORIGINAL ISSUE DATE: March 26, 1999
INTEREST RATE: 6.83% per annum
INTEREST PAYMENT DATES: June 30, September 30, December 31 arid March 31
FINAL MATURITY DATE: December 31, 2005
PRINCIPAL PREPAYMENT DATES AND AMOUNTS: $250,000 on each of December 31, 2002,
December 31, 2003, December 31, 2004
and December 31, 2005
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 Prudential Life Insurance Company of New
Jersey, or registered assigns, the principal sum of ONE MILLION DOLLARS
($1,000,000) payable in installments on the Principal Prepayment Dates and in
the amounts specified above, and on the Final Maturity Date specified above in
an amount equal to the unpaid balance of the principal hereof, 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 with the Interest Payment Date next succeeding the date
hereof, until the principal hereof shall have become due and payable, and ~) 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 (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.
Dated: March 26,1999 - REGIS CORPORATION
By /s/ Randy L. Pearce
--------------------------------------
Randy L Pearce
Senior Vice President-Finance
2
<PAGE>
REGIS CORPORATION
SERIES H SENIOR NOTE
No. H-4
ORIGINAL PRINCIPAL AMOUNT: $1,000,000
ORIGINAL ISSUE DATE: March 26, 1999
INTEREST RATE: 6.83% per annum
INTEREST PAYMENT DATES: June 30, September 30, December 31 and March 31
FINAL MATURITY DATE: December 31, 2005
PRINCIPAL PREPAYMENT DATES AND AMOUNTS: $250,000 on each of December 31, 2002,
December 31, 2003, December 31, 2004
and December 31, 2005
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 Prudential Life Insurance Company, or
registered assigns, the principal sum of ONE MILLION DOLLARS ($1,000,000)
payable in installments on the Principal Prepayment Dates and in the amounts
specified above, and on the Final Maturity Date specified above in an amount
equal to the unpaid balance of the principal hereof, 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
with the Interest Payment Date next succeeding the date hereof, 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 (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.
Dated: March 26, 1999 REGIS CORPORATION
By: /s/ Randy L. Pearce
------------------------------------
Randy L. Pearce
Senior Vice President-Finance
2
<PAGE>
AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT No. 2, dated as of February 1, 1999, 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, as amended by Amendment No.1 to
Amended and Restated Credit Agreement dated as of September 1, 1998 (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 4 hereof, the
Credit Agreement is hereby amended as follows:
A. The following definition is added to Paragraph lA:
"BORROWER'S U.K. SUBSIDIARY" means Regis Europe LTD.
B. The definition of "LNB Revolving Credit Commitment" in
Paragraph lA is amended and restated as follows:
"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) $25,000,000 during the period from the
date of Amendment No.2 to this Agreement, to and
including December 30, 1999, and (b) $30,000,000 during
the period from December 31, 1999, to and including the
Revolving Credit Maturity Date.
C. The following Paragraph 2C is added following
Paragraph 2B:
2C. FOREIGN CURRENCY EXCHANGE. To facilitate loans in
British Pounds by Borrower to Borrower's U.K.
Subsidiary, subject to the availability to Agent of
British Pounds in the New York interbank foreign
currency market, at the request of Borrower, Agent shall
exchange
1
<PAGE>
currency market, at the request Borrower, Agent shall
exchange the proceeds of any Revolving Credit Loan
hereunder for British Pounds at Agent's spot rate of
exchange, meaning the rate of exchange at which Agent
would sell British Pounds for U.S. dollars in the New
York interbank foreign currency market, and shall remit
such proceeds in British Pounds to Borrower's U.K.
Subsidiary; PROVIDED. HOWEVER, that the aggregate amount
of such loans outstanding at any time shall not exceed
$8,500,000.
D. Paragraph 3N is amended and restated as follows:
3N. USE OF PROCEEDS. Borrower shall apply the proceeds
of the Revolving Credit Loan to working capital, general
corporate purposes and, subject to the provisions of
Paragraphs 2C and 8C(3)(vii), loans to Borrower's U.K.
Subsidiary.
E. Paragraph SC(3)(vii) is amended and restated as
follows:
(vii) make or permit to remain outstanding Investments
to or in Unrestricted Subsidiaries, provided that (a)
the aggregate amount (at original cost) of all
Investments in Unrestricted Subsidiaries shall at no
time exceed 10% of Consolidated Net Worth, (b) any
Investment made in an Unrestricted Subsidiary subsequent
to June 30, 1995 shall only be deemed an Investment for
purposes of this PARAGRAPH 8C(3) to the extent it
involves a cash or other asset contribution or advance
(net of any return thereof), and (c) the aggregate
amount of all loans to Borrower's U.K. Subsidiary shall
at no time exceed $8,500,000; and
3. CONDITIONS PRECEDENT. This Amendment No. 2 shall become effective
upon the satisfaction of the following conditions precedent:
3.1 EXECUTION AND DELIVERY OF AMENDMENT NO. 2. This Amendment
No.2 or counterparts thereof shall have been duly executed and delivered to
Agent, Lenders and Borrower.
3.2 LEGAL OPINION OF BORROWER'S COUNSEL. Agent and Lenders shall
have received the legal opinion of Borrower's counsel in the form of Exhibit A
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
2
<PAGE>
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. 2 (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. 2, 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.2. The execution, delivery and effectiveness of
this Amendment No.2 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.2 and the
obligations arising hereunder shall be governed by, and construed and enforced
in 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. 2 may be executed in any number
of separate counterparts, each of which shall, collectively and separately,
constitute one agreement.
[SIGNATURE PAGES FOLLOW)
3
<PAGE>
IN WITNESS WHEREOF, this Amendment No. 2 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
S-1
<PAGE>
LASALLE NATIONAL BANK, as Lender and as
Agent
By:__________________________
Name:____________________
Title: _____________________
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. Killpack
Vice President
PARIBAS, as Lender and as L/C Issuer
By:______________________________
Name: _______________________
Title: ________________________
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. 2
FORM OF OPINION OF BORROWER'S COUNSEL
February __, 1999
Each of the Lenders under the
Credit Agreement referred to below
LaSalle National Bank, as Agent
for the Lenders under the
Credit Agreement referred 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. 2
(the "Amendment"), dated as of February 1, 1999, to the Amended and Restated
Credit Agreement, dated as of December 30, 1997, by and between the Borrower,
the Lenders signatory thereto from time to time, and LaSalle National Bank, as
Agent for the Lenders (the "Agent"), as amended by Amendment No. 1 thereto dated
as of September 1,1998 (the "Credit Agreement"). 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 Amendment, the Credit Agreement 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 Amendment, 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.
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
<PAGE>
February __, 1999 Page 2
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 as amended by the Amendment.
II. The execution, delivery and performance by the Borrower of the
Amendment and all documents relating to the Amendment 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 as amended by the Amendment constitutes the
legal, valid and binding obligation 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. The Amendment 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.
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.
<PAGE>
February __, 1999 Page 3
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>
Exhibit 15
LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION
May 11, 1999
Securities and Exchange Commission
450 Fifth Street NW
Washington, D.C. 20549
RE: 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
333-75881) and Form S-8 (File No.
33-44867 and No. 33-89882)
Commissioners:
We are aware that our report dated April 27, 1999, on our reviews of the interim
financial information of Regis Corporation as of March 31, 1999 and for the
three and nine month periods ended March 31, 1999 and 1998, and included in the
Company's quarterly report on Form 10-Q for the quarter ended March 31, 1999, is
incorporated by reference in these registration statements.
Yours very truly,
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGIS
CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDED
MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1998
<PERIOD-START> JUL-01-1998 JUL-01-1997
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 16,813 8,270
<SECURITIES> 0 0
<RECEIVABLES> 11,980 10,060
<ALLOWANCES> 78 86
<INVENTORY> 64,027 45,139
<CURRENT-ASSETS> 107,695 78,353
<PP&E> 361,142 308,123
<DEPRECIATION> 155,183 134,345
<TOTAL-ASSETS> 479,303 377,053
<CURRENT-LIABILITIES> 99,114 106,365
<BONDS> 0 0
0 0
0 0
<COMMON> 1,233 1,217
<OTHER-SE> 220,983 179,034
<TOTAL-LIABILITY-AND-EQUITY> 479,303 377,053
<SALES> 193,067 167,196
<TOTAL-REVENUES> 693,063 603,255
<CGS> 103,879 91,464
<TOTAL-COSTS> 553,717 485,841
<OTHER-EXPENSES> 16,099<F1> 9,915<F2>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8,745 7,902
<INCOME-PRETAX> 40,357 35,314
<INCOME-TAX> 16,036 14,589
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 24,321 20,725
<EPS-PRIMARY> .67 .58
<EPS-DILUTED> .65<F3> .57<F4>
<FN>
<F1>INCLUDES NONRECURRING YEAR 2000 REMEDIATION COSTS OF $3,923 AND MERGER AND
TRANSACTION COSTS OF $1,175
<F2>INCLUDES A CHARGE OF $1,979 ASSOCIATED WITH THE DIVESTITURE OF ANASAZI
EXCLUSIVE SALON PRODUCTS INC.
<F3>EXCLUDING NONRECURRING ITEMS, FULLY DILUTED EPS WOULD HAVE BEEN $.74
<F4>EXCLUDING NONRECURRING ITEMS, FULLY DILUTED EPS WOULD HAVE BEEN $.60
</FN>
</TABLE>
