-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IF6gBh+pO77+ewTEhyTPqEpn+fzjuYFfq/rIMcOd0+W5qoy3Y7vHgHoa/E3iUTOM PD9mQPsiR+ejDR/e+ls0tw== 0000912057-96-008086.txt : 19960701 0000912057-96-008086.hdr.sgml : 19960701 ACCESSION NUMBER: 0000912057-96-008086 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960503 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGIS CORP CENTRAL INDEX KEY: 0000716643 STANDARD INDUSTRIAL CLASSIFICATION: 7200 IRS NUMBER: 410749934 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11230 FILM NUMBER: 96556343 BUSINESS ADDRESS: STREET 1: 7201 METRO BLVD CITY: MINNEAPOLIS STATE: MN ZIP: 55439 BUSINESS PHONE: 6129477777 MAIL ADDRESS: STREET 1: 7201 METRO BLVD CITY: MINNEAPOLIS STATE: MN ZIP: 55439 10-Q 1 10-Q 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, 1996 ------------------------------------------ [ ] 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 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 April 30, 1996: Common Stock, $.05 par value 11,884,128 - - ---------------------------- ------------- Class Number of Shares This document consists of 23 pages. The Exhibit Index is located on page 20. 1 REGIS CORPORATION INDEX PART I. Financial Information Page No. --------------------- -------- Item 1. Consolidated Financial Statements: Balance Sheet as of June 30, 1995 and March 31, 1996 3 Statement of Operations for the three months ended March 31, 1995 and 1996 4 Statement of Operations for the nine months ended March 31, 1995 and 1996 5 Statement of Cash Flows for the nine months ended March 31, 1995 and 1996 6 Notes to Consolidated Financial Statements 7-8 Review Report of Independent Accountants 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-20 Part II. Other Information ----------------- Item 6. Exhibits and Reports on Form 8-K 20-22 Signatures 23 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS REGIS CORPORATION CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1995 AND MARCH 31, 1996 (DOLLARS IN THOUSANDS)
June 30, 1995 March 31, 1996 (Unaudited) ------------- -------------- ASSETS Current assets: Cash and cash equivalents $ 1,244 $ 7,786 Accounts receivable 3,931 4,119 Inventories 23,406 26,383 Deferred income taxes 2,204 1,651 Other current assets 4,271 4,483 -------- -------- Total current assets 35,056 44,422 Property and equipment, net 73,939 88,316 Goodwill 51,421 61,253 Other assets 5,907 5,707 -------- -------- Total assets $166,323 $199,698 -------- -------- -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY - - ------------------------------------ Current liabilities: Long-term debt, current portion $ 11,990 $ 12,242 Accounts payable 9,163 12,573 Accrued expenses 23,985 27,426 -------- -------- Total current liabilities 45,138 52,241 Long-term debt 37,969 44,518 Deferred income taxes 109 344 Other noncurrent liabilities 6,680 6,380 Shareholders' equity: Common stock, $.05 par value; authorized, 25,000,000 shares; issued and outstanding, 11,288,044 shares at June 30, 1995 and 11,866,128 at March 31, 1996 565 593 Additional paid-in capital 65,460 72,631 Retained earnings 10,402 22,991 -------- -------- Total shareholders' equity 76,427 96,215 -------- -------- Total liabilities and shareholders' equity $166,323 $199,698 -------- -------- -------- --------
See accompanying notes to unaudited consolidated financial statements. 3 REGIS CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 1996 ---- ---- Sales: Company-owned operations: Service $ 74,477 $ 89,984 Product 27,008 35,169 -------- -------- 101,485 125,153 Franchise revenues 1,172 1,046 -------- -------- 102,657 126,199 -------- -------- Operating expenses: Cost of sales: Service 44,100 53,026 Product 14,419 18,735 Rent 13,284 17,333 Selling, general and administrative 19,374 22,441 Depreciation and amortization 3,739 4,731 Other, including franchise expenses 1,084 1,092 -------- -------- 96,000 117,358 -------- -------- Operating income 6,657 8,841 Other income (expense): Interest (1,576) (1,583) Nonrecurring gains 250 209 Other, net 47 24 -------- -------- Income before income taxes 5,378 7,491 Income taxes (2,162) (3,082) -------- -------- Net income $ 3,216 $ 4,409 -------- -------- -------- -------- Net income per share: Primary $ .28 $ .36 -------- -------- -------- -------- Fully diluted $ .27 $ .36 -------- -------- -------- -------- Common and common equivalent shares outstanding: Primary 11,455 12,170 -------- -------- -------- -------- Fully diluted 11,863 12,266 -------- -------- -------- --------
See accompanying notes to unaudited consolidated financial statements. 4 REGIS CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE NINE MONTHS ENDED MARCH 31, 1995 AND 1996 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 1996 ---- ---- Sales: Company-owned operations: Service $ 227,326 $ 258,172 Product 82,784 102,580 --------- --------- 310,110 360,752 Franchise revenues 3,282 3,771 --------- --------- 313,392 364,523 Operating expenses: Cost of sales: Service 133,681 150,586 Product 44,129 54,694 Rent 40,065 48,311 Selling, general and administrative 58,928 65,757 Depreciation and amortization 10,986 13,303 Other, including franchise expenses 3,861 4,236 --------- --------- 291,650 336,887 Operating income 21,742 27,636 Other income (expense): Interest (4,926) (4,504) Nonrecurring gains 945 486 Other, net 137 108 --------- --------- Income before income taxes 17,898 23,726 Income taxes (7,516) (9,965) --------- --------- Net income $ 10,382 $ 13,761 --------- --------- --------- --------- Net income per share: Primary $ .92 $ 1.16 --------- -------- --------- -------- Fully diluted $ .89 $ 1.14 --------- -------- --------- -------- Common and common equivalent shares outstanding: Primary 11,311 11,875 ------ ------ ------ ------ Fully diluted 11,716 12,115 ------ ------ ------ ------
See accompanying notes to unaudited consolidated financial statements. 5 REGIS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED MARCH 31, 1995 AND 1996 (DOLLARS IN THOUSANDS)
1995 1996 ---- ---- Cash flows from operating activities: Net income $ 10,382 $ 13,761 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,258 13,626 Deferred income taxes (1,237) (254) Nonrecurring items 1,805 Changes in assets and liabilities, exclusive of investing and financing activities 125 830 Other 1,402 1,356 --------- -------- Net cash provided by operating activities 23,735 29,319 --------- -------- Cash flows from investing activities: Capital expenditures (10,593) (18,778) Purchase of salon assets, net of cash acquired and certain obligations assumed (1,160) (14,921) Other 103 --------- -------- Net cash used in investing activities (11,650) (33,699) --------- -------- Cash flows from financing activities: Borrowings on line of credit 65,424 77,595 Payments on line of credit (77,461) (83,575) Proceeds from issuance of long-term debt 17,528 Repayment of long-term debt (390) (3,908) Dividends paid (871) Proceeds from issuance of common stock 4,300 --------- -------- Net cash provided by (used in) financing activities (12,427) 11,069 --------- -------- Effect of exchange rate changes on cash (134) (147) --------- -------- Increase (decrease) in cash and cash equivalents (476) 6,542 Cash and cash equivalents: Beginning of period 3,455 1,244 --------- -------- End of period $ 2,979 $ 7,786 --------- -------- --------- -------- Changes in assets and liabilities, exclusive of investing and financing activities: Accounts receivable $ 55 $ 1,733 Inventories 1,051 (1,327) Other current assets 525 (182) Accounts payable (3,149) 1,763 Accrued expenses 1,643 (1,157) --------- -------- $ 125 $ 830 --------- -------- --------- --------
See accompanying notes to unaudited consolidated financial statements. 6 REGIS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS: The unaudited consolidated statements of operations for the three and nine months ended March 31, 1995 and 1996, reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly present the results of operations for the interim periods. The results of operations for any interim period are not necessarily indicative of results for the full year. The year-end balance sheet data was derived from audited 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 consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended June 30, 1995. Coopers & Lybrand L.L.P., the Company's independent accountants, have performed a limited review of the financial data included herein. Their report on such review accompanies this filing. COST OF PRODUCT SALES. On an interim basis, product costs are determined by applying an estimated gross profit margin. ASSET IMPAIRMENT ASSESSMENTS. On a periodic basis, the Company measures and evaluates the recoverability of its tangible and intangible noncurrent assets using undiscounted cash flow analyses. 2. NONRECURRING GAINS: During the first, second and third quarters of fiscal 1996, the Company received $137,000, $140,000 and $209,000, respectively, of principal payments from Premier Salons. The Company had previously written off the related receivable, and accordingly, is recording all subsequent principal payments as nonrecurring gains. 3. ACQUISITIONS: In September 1995, the Company completed the acquisitions of Essanelle Limited (Essanelle) and S&L du Lac. The $6,300,000 aggregate purchase price was paid to the selling shareholder in cash at closing. Additionally, the Company made a $992,000 cash payment at closing to Essanelle to facilitate the payoff of existing debt of Essanelle. The purchase price has been funded through a combination of proceeds from the issuance of the Company's common stock and proceeds from long-term debt issued by banks. In January 1996, the Company announced the acquisitions of Steiner Salons Limited and Steiner Hairdressing Limited. The $2,800,000 aggregate purchase price was paid to the selling shareholder in cash at closing. The purchase price has been funded with borrowing under the Company's revolving credit facility and long-term debt from banks. In addition, the Company made numerous other acquisitions during 1996 with an aggregate purchase price of approximately $5,000,000. These acquisitions have been accounted for as purchases, and their results have been recorded from the date of their acquisitions. These acquisitions are not significant to the Company's overall results. 4. FINANCING ARRANGEMENTS: In February 1996, the Company borrowed $10,000,000 of Senior Notes which bear interest at 6.9 percent and are due in July 2005. 5. EMPLOYEE BENEFIT PLANS In March 1996, the Company granted incentive stock options to purchase approximately 150,000 shares of common stock granted for fair market value at the date of grant. 7 6. OTHER FINANCIAL STATEMENT DATA: The following provides supplemental disclosures of cash flow activity for the nine months ended March 31, 1995 and 1996: Cash paid during the period for: 1995 1996 ---- ---- Interest $4,929,000 $4,390,000 Income taxes 7,278,000 9,807,000 8 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, 1996, and the related consolidated statements of operations for the three and nine months ended March 31, 1995 and 1996, and the consolidated statement of cash flows for the nine months ended March 31, 1995 and 1996. 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 accompanying 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, 1995, 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 18, 1995, 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, 1995, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Minneapolis, Minnesota April 22, 1996 9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUMMARY Regis Corporation, based in Minneapolis, is the largest owner and operator of mall-based hair and retail product salons in the world. The Regis worldwide operations include 1,793 hairstyling salons at March 31, 1996 operating in four divisions: REGIS HAIRSTYLISTS, MASTERCUTS, TRADE SECRET and INTERNATIONAL. Worldwide operations include 81 franchised salons operating primarily in the TRADE SECRET division. The Company has more than 18,000 employees worldwide. During the third quarter of fiscal 1996, the Company's sales increased 22.9 percent to a record $126,199,000 and operating income increased 32.8 percent to $8,841,000. Exclusive of nonrecurring gains, fully diluted earnings per share increased 34.6 percent in the third quarter of fiscal 1996 to $.35 per share, compared to $.26 per share in the same period the prior year. 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 sales. All percentages were computed as a percentage of total revenue from company-owned salon operations. For purposes of this analysis, revenues from the Company's franchise operations have been netted against the related franchise expenses, as included in the cost category "Other, including franchise revenues and expenses." This was done to facilitate a meaningful comparison of the historical expense ratios of the Company. Franchise revenues are not material to the Company as they represent approximately 1 percent of total sales. 10 WORLDWIDE OPERATIONS
FOR THE PERIODS ENDED MARCH 31, ------------------------------- THREE MONTHS NINE MONTHS ------------ ----------- 1995 1996 1995 1996 ---- ---- ---- ---- Sales 100.0% 100.0% 100.0% 100.0% Operating expenses: Cost of sales 57.7 57.3 57.3 56.9 Rent 13.1 13.8 12.9 13.4 Selling, general and administrative 19.1 17.9 19.0 18.2 Depreciation and amortization 3.7 3.8 3.5 3.7 Other, including franchise revenues and expenses (0.2) 0.1 0.3 0.1 ---- ---- ---- ---- 93.4 92.9 93.0 92.3 ---- ---- ---- ---- Operating income 6.6 7.1 7.0 7.7 Other income (expense): Interest (1.5) (1.3) (1.6) (1.2) Nonrecurring gains 0.2 0.2 0.3 0.1 Other, net (0.1) (0.1) (0.1) ---- ---- ---- ---- Income before income taxes 5.2 5.9 5.7 6.5 Income taxes (2.1) (2.4) (2.4) (2.7) ---- ---- ---- ---- Net income 3.1% 3.5% 3.3% 3.8% ---- ---- ---- ---- ---- ---- ---- ----
SALES THREE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE MONTHS ENDED MARCH 31, 1995: SALES. Sales for the third quarter of fiscal 1996 grew to a record $126,199,000 representing an increase of $23,542,000, or 22.9 percent, over the same period in fiscal 1995. More than one-half of the increase is attributable to acquisitions occurring subsequent to the third quarter of fiscal 1995, with the remaining increase due to net salon openings and increases in customers served and product sales. REGIS HAIRSTYLISTS, MASTERCUTS and TRADE SECRET retail product salons in the United States and Canada (Domestic salons) accounted for $12,766,000 of the total sales increase, with the balance of the overall revenue growth generated from the Company's United Kingdom, South Africa, Switzerland and Mexico salon operations (International salons), largely influenced by the Company's recent salon acquisitions in the United Kingdom. 11 For the third quarter of fiscal 1996, sales from REGIS HAIRSTYLISTS were $66,724,000, an increase of 6.1 percent, sales from MASTERCUTS were $20,998,000, an increase of 22.1 percent, TRADE SECRET company-owned sales were $16,422,000, an increase of 46.6 percent and International salon sales were $21,009,000, an increase of 105 percent. During the third quarter of fiscal 1996, same store sales from Domestic salons open more than twelve months increased 4.8 percent compared to a 2.0 percent same store sales increase during the same period the previous year. Same store sales for the United Kingdom salons (U.K. salons), the primary component of International salons, decreased 0.4 percent. Same store sales increases achieved for Domestic salons during the third quarter of fiscal 1996 are primarily due to an increase in the number of customers served. The Company utilizes an audiovisual-based training system in its salons. Management believes this training system provides its employees with improved customer service and technical skills and positively contributes to the increase in customers served. SERVICE SALES. Service sales in the third quarter of fiscal 1996 were $89,984,000, an increase of $15,507,000, or 20.8 percent, over the same period in fiscal 1995. This increase was primarily due to acquisitions occurring subsequent to the third quarter of fiscal 1995, net salon openings and increases in customers served worldwide. PRODUCT SALES. Product sales in the third quarter of fiscal 1996 were $35,169,000, an increase of $8,161,000, or 30.2 percent, over the same period in fiscal 1995. Of the increase, the TRADE SECRET retail product salon operations represented $4,066,000, increased product sales from REGIS HAIRSTYLISTS and MASTERCUTS salons represented $2,604,000, and increased product sales from INTERNATIONAL salons represented $1,491,000. Product sales for REGIS HAIRSTYLISTS and MASTERCUTS salons represented 20.2 percent of their third quarter fiscal 1996 sales mix, compared to 18.8 percent in the same period of fiscal 1995. This increase continues to be primarily volume driven. This growth reflects continuing increased customer awareness and acceptance of national brand salon merchandise and sales training of Company employees. NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO NINE MONTHS ENDED MARCH 31, 1995: SALES. Sales for the first nine months of fiscal 1996 were a record $364,523,000 representing an increase of $51,131,000 or 16.3 percent, over the same period in fiscal 1995. More than one-half of this increase is attributable to acquisitions occurring subsequent to the third quarter of fiscal 1995, with the remaining increase due to net salon openings and increases in customers served and product sales. Domestic salons accounted for $31,949,000 of the total sales increase. The remaining sales growth was generated from the Company's International salons primarily due to recent acquisitions. 12 For the first nine months of fiscal 1996, sales from REGIS HAIRSTYLISTS were $199,720,000, an increase of 4.1 percent, sales from MASTERCUTS were $61,904,000, an increase of 19.4 percent, TRADE SECRET company-owned sales were $47,315,000, an increase of 40.4 percent and International salon sales were $51,813,000, an increase of 58.8 percent. During the first nine months of fiscal 1996, same store sales from Domestic salons open more than twelve months increased 3.7 percent compared to a 3.7 percent same store sales increase during the same period the previous year. Same store sales for the U.K. salons, the primary component of International salons, increased 0.4 percent during the first nine months. Same store sales increases achieved for domestic salons during the first nine months of fiscal 1996 are primarily due to an increase in the number of customers served. SERVICE SALES. Service sales in the first nine months of fiscal 1996 were $258,172,000, an increase of $30,846,000, or 13.6 percent, over the same period in fiscal 1995. This increase was primarily due to acquisitions occurring subsequent to the third quarter of fiscal 1995, net salon openings and increases in customers served worldwide. PRODUCT SALES. Product sales in the first nine months of fiscal 1996 were $102,580,000, an increase of $19,796,000, or 23.9 percent, over the same period in fiscal 1995. Of the increase, the TRADE SECRET retail product salon operations represented $10,751,000, and increased product sales from REGIS HAIRSTYLISTS and MASTERCUTS salons represented $6,426,000. Product sales for REGIS HAIRSTYLISTS and MASTERCUTS salons represented 20.3 percent of their sales mix for the first nine months of fiscal 1996 sales, compared to 19.1 percent in the same period of fiscal 1995. This increase continues to be primarily volume driven. COST OF SALES THREE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE MONTHS ENDED MARCH 31, 1995: Cost of sales in the third quarter of fiscal 1996 was $71,761,000, compared to $58,519,000, in the same period the previous year. The resulting combined gross margin percentage for the third quarter of fiscal 1996 improved to 42.7 percent compared to 42.3 percent in the same period the previous year. This improvement is due to several factors, the most significant of which is an improved utilization of salary and commissions at REGIS HAIRSTYLISTS, the major component of cost of sales. Improved gross margin was also the result of favorable mix changes, primarily an increase in sales from MASTERCUTS salons which have lower payroll costs as a percentage of sales compared to REGIS HAIRSTYLISTS salons, and an increase in the percentage of product sales at REGIS HAIRSTYLISTS and MASTERCUTS which have higher gross margins than service sales. 13 Service margins improved to 41.1 percent in the third quarter of fiscal 1996, compared to 40.8 percent in the same period the previous year. As previously noted, this improvement was due to improved payroll utilization and favorable sales mix changes. Retail product margins improved to 46.7 percent in the third quarter of fiscal 1996, compared to 46.6 percent in the same period the previous year. The improvement in product margins is due to favorable product mix changes and improved product purchasing power, partially offset by an increasing percentage of product sales from TRADE SECRET and INTERNATIONAL salons which have a slightly higher effective mix of product cost than the Company's other salon divisions. NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO NINE MONTHS ENDED MARCH 31, 1995: Cost of sales in the first nine months of fiscal 1996 was $205,280,000, compared to $177,810,000, in the same period the previous year. The resulting combined gross margin percentage for the first nine months of fiscal 1996 improved to 43.1 percent compared to 42.7 percent in the same period the previous year. This improvement is due to several factors, the most significant of which is an improved utilization of salary and commissions at REGIS HAIRSTYLISTS, the major component of cost of sales. Improved gross margin was also the result of favorable mix changes, primarily an increase in sales from MASTERCUTS salons which have lower payroll costs as a percentage of sales compared to REGIS HAIRSTYLISTS salons, and an increase in the percentage of product sales at REGIS HAIRSTYLISTS and MASTERCUTS which have higher gross margins than service sales. Service margins improved to 41.7 percent in the first nine months of fiscal 1996, compared to 41.2 percent in the same period the previous year. As previously noted, this improvement was due to improved payroll utilization and favorable sales mix changes. Retail product margins remained consistent at 46.7 percent in the third quarter of fiscal 1996, compared to 46.7 percent in the same period the previous year. The stable product margins are due to favorable product mix changes and improved product purchasing power, offset by an increasing percentage of product sales from TRADE SECRET and International salons which have a slightly higher effective mix of product cost than the Company's other salon divisions. RENT EXPENSE 14 THREE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE MONTHS ENDED MARCH 31, 1995: Rent expense in the third quarter of fiscal 1996 was $17,333,000, or 13.8 percent of sales, compared to $13,284,000, or 13.1 percent of sales, in the same period the previous year. The percentage increase is due to the recent U.K. acquisitions of the Essanelle department store salons and the Steiner salons in September 1995 and January 1996, respectively. When compared to Domestic salon operations, the U.K. salon operations have higher rent expenses and lower selling and administrative expenses because certain costs are absorbed by department stores and passed on as rent. Rent expense as a percentage of sales for the Company's REGIS HAIRSTYLISTS, MASTERCUTS and TRADE SECRET salons improved slightly between the two periods primarily due to sales leveraging of this fixed cost. NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO NINE MONTHS ENDED MARCH 31, 1995: Rent expense in the first nine months of fiscal 1996 was $48,311,000, or 13.4 percent of sales, compared to $40,065,000, or 12.9 percent of sales, in the same period the previous year. As noted above, the increase is due to the recent U.K. acquisitions of the Essanelle department store salons and the Steiner salons. Exclusive of the impact of the recent U.K. acquisitions rent as a percentage of sales would have been 12.8% for the first nine months of fiscal 1996. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE THREE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE MONTHS ENDED MARCH 31, 1995: Selling, general and administrative expense in the third quarter of fiscal 1996 was $22,441,000, or 17.9 percent of sales, compared to $19,374,000, or 19.1 percent of sales, in the same period the previous year. Such expenses include costs directly related to salon operations (such as advertising, promotion, insurance, telephone and utilities), field supervision costs (payroll, related taxes and travel) and home office administration costs (such as warehousing, salaries, occupancy costs and professional fees). The improvement is primarily attributable to the U.K. acquisitions for the reasons described under rent expenses above, and continued sales leveraging of fixed and semi-fixed costs during the period. NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO NINE MONTHS ENDED MARCH 31, 1995: Selling, general and administrative expense in the first nine months of fiscal 1996 was $65,757,000, or 18.2 percent of sales, compared to $58,928,000, or 19.0 percent of sales, in the same period the previous year. The improvement is primarily attributable to the U.K. acquisitions and continued sales leveraging of fixed and semi-fixed costs during the period. DEPRECIATION AND AMORTIZATION 15 THREE AND NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE AND NINE MONTHS ENDED MARCH 31, 1995: Depreciation and amortization expense in the third quarter of fiscal 1996 increased to 3.8 percent from 3.7 percent of sales last year. Depreciation and amortization expense in the first nine months of fiscal 1996 increased to 3.7 percent from 3.5 percent of sales last year. Amortization costs have increased in connection with the Company's salon acquisition activity and the related intangibles. Depreciation expense, the major component within this category, has remained relatively consistent as a percentage of sales. OPERATING INCOME THREE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE MONTHS ENDED MARCH 31, 1995: Operating income in the third quarter of fiscal 1996 improved to $8,841,000, an increase of $2,184,000, or 32.8 percent, over the same period the previous year. Operating income as a percentage of sales increased to 7.1 percent in the third quarter of fiscal 1996 compared to 6.6 percent in the same period the previous year. Such increase is attributable primarily to a reduction in cost of sales and the leveraging of selling, general and administrative expense as a percentage of sales. NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO NINE MONTHS ENDED MARCH 31, 1995: Operating income in the first nine months of fiscal 1996 improved to $27,636,000, an increase of $5,894,000, or 27.1 percent, over the same period the previous year. Operating income as a percentage of sales increased to 7.7 percent in the first nine months of fiscal 1996 compared to 7.0 percent in the same period the previous year. Such increase is attributable primarily to a reduction in cost of sales and the leveraging of selling, general and administrative expense as a percentage of sales. INTEREST EXPENSE THREE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE MONTHS ENDED MARCH 31, 1995: Interest expense of $1,583,000 for the third quarter of fiscal 1996 was consistent with $1,576,000, in the same period the previous year. The amount of interest expense was consistent with the same period the previous year due to slightly higher levels of average outstanding debt offset by slightly lower weighted average interest rates. NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO NINE MONTHS ENDED MARCH 31, 1995: 16 Interest expense for the first nine months of fiscal 1996 declined to $4,504,000, or 1.2 percent of sales, compared to $4,926,000, or 1.6 percent of sales, in the same period the previous year. This improvement reflects the effects of sales leveraging and lower average debt balances during the first nine months of fiscal 1996. NONRECURRING GAINS THREE AND NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE AND NINE MONTHS ENDED MARCH 31, 1995: During the first, second and third quarters of fiscal 1996, the Company received $137,000, $140,000 and $209,000 respectively, of principal payments from Premier Salons. As discussed in the following paragraph, the Company had previously written off the related receivable, and accordingly, is recording all subsequent principal payments as nonrecurring gains. During the first quarter of fiscal 1995, the Company received a $2,500,000 cash settlement with respect to its directors and officers insurance claim arising from resolution of the MEI Salons litigation matter. Based on certain events also occurring in the first quarter with respect to the Company's investment in and advances to Premier Salons, the Company re-evaluated and wrote off all remaining net assets associated with the fiscal 1994 MEI litigation settlement as a result of these two transactions, the Company recorded a net nonrecurring pre-tax gain of $195,000 in the first quarter of fiscal 1995. During the second quarter of fiscal 1995, the Company issued an incremental 93,220 shares of its common stock to the creditors of MEI Diversified as final resolution of the MEI Salons settlement guarantee. The incremental number of shares issued in December 1994 was less that the Company originally estimated based on its stock price guarantee which was issued when the transaction was recorded in December 1993 (the second quarter of fiscal 1994). As a result, the Company recorded a $500,000 adjustment of its previous estimate as a nonrecurring gain in the second quarter of fiscal 1995. During the third quarter of fiscal 1995, the Company received $250,000 of principal payments from Premier Salons and recorded a corresponding nonrecurring gain. INCOME TAXES THREE AND NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE AND NINE MONTHS ENDED MARCH 31, 1995: The Company's effective income tax rate for fiscal 1996 is estimated to be approximately 42.0 percent, consistent with fiscal 1995. The estimated effective rate reflects 17 higher levels of pretax earnings expected in fiscal 1996, offset by the discontinuance of targeted job credits; therefore the Company expects the effective tax rate in fiscal 1996 to be comparable with fiscal 1995. NET INCOME THREE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE MONTHS ENDED MARCH 31, 1995: Net income for the third quarter of fiscal 1996 increased to a record $4,409,000, or $.36 per share computed on a fully diluted basis, compared to net income of $3,216,000, or $.27 per share in the same period the previous year. Exclusive of the effect of nonrecurring gains, net income for the third quarter fiscal 1996 would have been $4,284,000 or $.35 per share on a fully diluted basis, compared to net income for the third quarter of fiscal 1995 of $3,068,000, or $.26 per share. NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO NINE MONTHS ENDED MARCH 31, 1995: Net income for the first nine months of fiscal 1996 increased to $13,761,000, or $1.14 per share computed on a fully diluted basis, compared to net income of $10,382,000, or $.89 per share in the same period the previous year. Exclusive of the effect of nonrecurring gains, net income for the first nine months of fiscal 1996 would have been $13,469,000 or $1.12 per share on a fully diluted basis, compared to net income for the same period of fiscal 1995 of $9,824,000, or $.85 per share. 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 (before capital expenditures and debt principal repayments) in the first nine months of fiscal 1996 increased to $29,319,000 compared to $23,735,000 during the same period the previous year. The increase between the two periods is mainly due to improved operating performance during the first nine months of fiscal 1996 and increased levels of depreciation and amortization. During the first nine months of fiscal 1996, the Company had worldwide capital expenditures of $27,636,000, of which $8,858,000 relates to acquisitions. The Company constructed 26 new REGIS HAIRSTYLISTS salons, 28 new MASTERCUTS salons, 33 new TRADE SECRET salons and 7 new International salons, and completed 38 major remodeling projects, including 8 conversions of existing salons to other salon concepts. All capital expenditures during the first nine months of fiscal 1996 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 1996 will 18 include approximately 110 new salons and 50 major remodeling and conversion projects (including the 94 new salons opened and 38 remodeling projects completed during the first nine months of fiscal 1996). It is expected that expenditures for these new salons and other projects will be approximately $22,000,000 in fiscal 1996, excluding acquisition activity. In September 1995, the Company completed the acquisitions of Essanelle Limited (Essanelle) and S&L du Lac. The $6,300,000 aggregate purchase price was paid to the selling shareholder in cash at closing. Additionally, the Company made a $992,000 cash payment at closing to Essanelle to facilitate the payoff of existing debt of Essanelle. The purchase price has been funded through a combination of proceeds from the issuance of the Company's common stock and long-term debt issued by banks. In January 1996, the Company announced the acquisitions of Steiner Salons Limited and Steiner Hairdressing Limited. The $2,800,000 aggregate purchase price was paid to the selling shareholder in cash at closing. The purchase price has been funded with borrowing under the Company's revolving credit facility and long-term debt from banks. The Company has $20,000,000 in revolving credit facilities which mature on June 30, 1997. The Company may borrow on a revolving basis under these credit facilities to provide working capital and fund capital expenditures. As of March 31, 1996, there were no outstanding balances under these credit facilities. Borrowings under these credit facilities bear interest at a rate per annum equal to the prime rate. Effective April 1, 1996, these credit facilities allow the Company to borrow funds at interest rates based on an adjusted LIBOR-based rate. The agreements contain certain financial and restrictive covenants and require a quarterly commitment fee at the rate of 1/2 percent per annum on the unused portion of the facility. In January 1996, the Company repaid the outstanding principal amount of $2,187,500 of subordinated debt associated with the financing of the Beauty Express acquisition. In a related transaction, the Company's subordinated convertible debenture of $2,062,500 was converted to 275,000 shares of the Company's common stock. In February 1996, the Company borrowed $10,000,000 of 6.9 percent senior notes which are due in July 2005. Proceeds associated with this borrowing although utilized to pay off borrowings under the revolving credit facilities are intended and will effectively refinance the $10,000,000 principal payment due on the 11.5 percent senior notes on June 30, 1996. The agreement under which the notes were issued contains financial and restrictive covenants identical in all material respects to those contained in the Company's existing senior notes. At March 31, 1996, the Company had outstanding $34,000,000 of 11.5 percent senior notes. The notes require annual mandatory payments of $10,000,000 on June 30, 1996 and 1997, and $14,000,000 on June 30, 1998. The agreement under which the notes were issued contains financial and restrictive covenants that are identical in all material respects to those contained in the Company's revolving credit facilities, and provides for a penalty based on yield maintenance in the event of voluntary prepayment. 19 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. The Company has paid quarterly dividends of $285,000, $289,000 and $297,000, 2 1/2 cents per share in each quarter this year. Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of" was issued in March 1995 and is effective for fiscal years beginning after December 15, 1995. The Company believes implementation of this accounting standard in fiscal 1997 will not have a material impact on earnings. In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based Compensation. The Company has elected to continue following the guidance of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, for measurement and recognition of stock-based transactions with employees. The Company will adopt the disclosure provisions of SFAS No. 123 in fiscal 1997. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit 10(s) $10,000,000 Note drawn from Private Shelf Agreement dated as of February 21, 1996, between the registrant and the Prudential Insurance Company of America. Exhibit 10(t) Modification to Senior Revolving Credit Agreement between the registrant and LaSalle National Bank and Bank Hapoalim dated March 19, 1996. Exhibit 11 Computation of Earnings per Share. Exhibit 15 Letter Re: Unaudited Interim Financial Information. 20 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 3, 1996 By:/s/ Frank E. Evangelist -------------------------------------- Frank E. Evangelist Senior Vice President, Finance Chief Financial Officer Signing on behalf of the registrant and as principal accounting officer 23 EX-10.S 2 EXHIBIT 10 JAMES F. EVERT Assistant General Counsel ThePRUDENTIAL[Logo] PRUDENTIAL CAPITAL GROUP Two Prudential Plaza, Suite 5600 Chicago, IL 60601-6716 312 540-4205 Fax: 312 540-4222 Exhibit 10(s) February 21, 1996 Randy Pearce Regis Corporation 7201 Metro Boulevard Minneapolis, Minnesota 55439 Dear Randy: Enclosed is your copy of a fully-executed confirmation of acceptance. Sincerely, /s/ James F. Evert James F. Evert JFE:sr Enclosures REGIS CORPORATION Reference is made to the Private Shelf Agreement (the "Agreement"), dated as of July 25, 1995 between Regis Corporation (the "Company"), on the one hand, and The Prudential Insurance Company of America ("Prudential") and each Prudential Affiliate which becomes party thereto, on the other hand. All terms used herein that are defined in the Agreement have the respective meanings specified in the Agreement. Prudential or the Prudential Affiliate which is named below as a Purchaser of Notes hereby confirms the representations as to such Notes set forth in paragraph 9 of the Agreement, and agrees to be bound by the provisions of paragraphs 2E and 2G of the Agreement relating to the purchase and sale of such Notes and by the provisions of the penultimate sentence of paragraph 11A of the Agreement. Pursuant to paragraph 2E of the Agreement, an Acceptance with respect to the following Accepted Notes is hereby confirmed: I. Accepted Notes: Aggregate principal amount $10,000,000 (a) Name of Purchaser: The Prudential Insurance Company of America (b) Principal amount: $10,000,000 (c) Final maturity date: July 1, 2005 (d) Principal prepayment dates and amounts: None (e) Interest rate: 6.94% (f) Interest payment period: Quarterly (g) Payment and notice instructions: As set forth on attached Purchaser Schedule II. Closing Day: February 21, 1996 Dated: February 16, 1996 REGIS CORPORATION By: /s/ Paul D. Finkelstein ----------------------- Title: President THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ P. Scott von Fisch ----------------------- Vice President PURCHASER SCHEDULE SERIES A NOTES REGIS CORPORATION
Aggregate Principal Amount of Notes to be Note Denom- Purchased ination(s) ----------- ------------ THE PRUDENTIAL INSURANCE COMPANY OF AMERICA $10,000,000 $10,000,000 (1) All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: Account No. 050-54-526 Morgan Guaranty Trust Company of New York 23 Wall Street New York, New York 10015 (ABA No.: 021-000-238) Each such wire transfer shall set forth the name of the Company, a reference to "6.94% Senior Notes due July 1, 2005, Security No. !INV____!," and the due date and application (as among principal, interest and Yield-Maintenance Amount) of the payment being made. (2) Address for all notices relating to payments: The Prudential Insurance Company of America c/o Prudential Capital Group Four Gateway Center 100 Mulberry Street Newark, New Jersey 07102 Attention: Manager, Investment Operations Group Telephone: (201) 802-5260 Telecopy: (201) 802-8055 (3) Address for all other communications and notices: The Prudential Insurance Company of America c/o Prudential Capital Group Two Prudential Plaza 180 North Stetson Street, Suite 5600 Chicago, Illinois 60601-6716 Attention: Managing Director Telecopy: (312) 540-4222 (4) Recipient of telephonic prepayment notices: Manager, Investment Structure and Pricing Telephone: (201) 802-6660 Telecopy: (201) 802-9425 (5) Tax Identification No.: 22-1211670
- - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- REGIS CORPORATION $50,000,000 PRIVATE SHELF AGREEMENT Dated as of July 25, 1995 - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- TABLE OF CONTENTS (Not Part of Agreement) Page ---- 1. AUTHORIZATION OF ISSUE OF NOTES . . . . . . . . . . . . . . . . . . . 1 2. PURCHASE AND SALE OF NOTES . . . . . . . . . . . . . . . . . . . . . 2 3. CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . . . . . . . . . 6 4. PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 5. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 9 6. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 15 7. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . 19 8. REPRESENTATIONS, COVENANTS AND WARRANTIES . . . . . . . . . . . . . . 23 9. REPRESENTATIONS OF THE PURCHASERS . . . . . . . . . . . . . . . . . 27 10. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 INFORMATION SCHEDULE EXHIBIT A -- FORM OF NOTE EXHIBIT B -- FORM OF REQUEST FOR PURCHASE EXHIBIT C -- FORM OF CONFIRMATION OF ACCEPTANCE EXHIBIT D -- FORM OF OPINION OF COMPANY'S COUNSEL SCHEDULE 8A -- LIST OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES SCHEDULE 8G -- LIST OF AGREEMENTS RESTRICTING DEBT REGIS CORPORATION 7201 Metro Boulevard Minneapolis, Minnesota 55439 As of July 25, 1995 The Prudential Insurance Company of America ("PRUDENTIAL") Each Prudential Affiliate (as hereinafter defined) which becomes bound by certain provisions of this Agreement as hereinafter provided (together with Prudential, the "PURCHASERS") c/o Prudential Capital Group Two Prudential Plaza Suite 5600 Chicago, Illinois 60601 Ladies and Gentlemen: The undersigned, Regis Corporation (herein called the "COMPANY"), hereby agrees with you as follows: 1. AUTHORIZATION OF ISSUE OF NOTES. The Company will authorize the issue of its senior promissory notes (the "NOTES") in the aggregate principal amount of $50,000,000, to be dated the date of issue thereof, to mature, in the case of each Note so issued, no less than five and no more than ten years after the date of original issuance thereof, to bear interest on the unpaid balance thereof from the date thereof at the rate per annum, and to have such other particular terms, as shall be set forth, in the case of each Note so issued, in the Confirmation of Acceptance with respect to such Note delivered pursuant to paragraph 2E and to be substantially in the form of EXHIBIT A attached hereto. The terms "NOTE" and "NOTES" as used herein shall include each Note delivered pursuant to any provision of this Agreement and each Note delivered in substitution or exchange for any such Note pursuant to any such provision. Notes which have (i) the same final maturity, (ii) the same principal prepayment dates, (iii) the same principal prepayment amounts (as a percentage of the original principal amount of each Note), (iv) the same interest rate, (v) the same interest payment periods and (vi) the same date of issuance (which, in the case of a Note issued in exchange for another Note, shall be deemed for these purposes the date on which such Note's ultimate predecessor Note was issued), are herein called a "SERIES" of Notes. 2. PURCHASE AND SALE OF NOTES. 2A. FACILITY. Prudential is willing to consider, in its sole discretion and within limits which may be authorized for purchase by Prudential and Prudential Affiliates from time to time, the purchase of Notes pursuant to this Agreement. The willingness of Prudential to consider such purchase of Notes is herein called the "FACILITY". At any time, the aggregate principal amount of Notes stated in paragraph 1, MINUS the aggregate principal amount of Notes purchased and sold pursuant to this Agreement prior to such time, MINUS the aggregate principal amount of Accepted Notes (as hereinafter defined) which have not yet been purchased and sold hereunder prior to such time, MINUS the aggregate principal amount of notes of the Company issued pursuant to the 1991 Agreement which are outstanding and held by Prudential and Prudential Affiliates at such time is herein called the "AVAILABLE FACILITY AMOUNT" at such time. NOTWITHSTANDING THE WILLINGNESS OF PRUDENTIAL TO CONSIDER PURCHASES OF NOTES, THIS AGREEMENT IS ENTERED INTO ON THE EXPRESS UNDERSTANDING THAT NEITHER PRUDENTIAL NOR ANY PRUDENTIAL AFFILIATE SHALL BE OBLIGATED TO MAKE OR ACCEPT OFFERS TO PURCHASE NOTES, OR TO QUOTE RATES, SPREADS OR OTHER TERMS WITH RESPECT TO SPECIFIC PURCHASES OF NOTES, AND THE FACILITY SHALL IN NO WAY BE CONSTRUED AS A COMMITMENT BY PRUDENTIAL OR ANY PRUDENTIAL AFFILIATE. 2B. ISSUANCE PERIOD. Notes may be issued and sold pursuant to this Agreement commencing July 1, 1995, and until the earlier of (i) June 30, 1998 and (ii) the thirtieth day after Prudential shall have given to the Company, or the Company shall have given to Prudential, a notice stating that it elects to terminate the issuance and sale of Notes pursuant to this Agreement (or if such thirtieth day is not a Business Day, the Business Day next preceding such thirtieth day). The period during which Notes may be issued and sold pursuant to this Agreement is herein called the "ISSUANCE PERIOD". 2C. REQUEST FOR PURCHASE. The Company may from time to time during the Issuance Period make requests for purchases of Notes (each such request being herein called a "REQUEST FOR PURCHASE"). Each Request for Purchase shall be made to Prudential by telecopier or overnight delivery service, and shall (i) specify the aggregate principal amount of Notes covered thereby, which shall not be less than $5,000,000 and not be greater than the Available Facility Amount at the time such Request for Purchase is made, (ii) specify the principal amounts, final maturities, and principal prepayment dates and amounts of the Notes covered thereby, (iii) specify the use of proceeds of such Notes, (iv) specify the proposed day for the closing of the purchase and sale of such Notes, which shall be a Business Day during the Issuance Period not less than 10 days and not more than 25 days after the making of such Request for Purchase, (v) specify the number of the account and the name and address of the depository institution to which the purchase prices of such Notes are to be transferred on the Closing Day for such purchase and sale, (vi) certify that the representations and warranties contained in paragraph 8 are true on and as of the date of such Request for Purchase and that there exists on the date of such Request for Purchase no Event of Default or Default, and 2 (vii) be substantially in the form of EXHIBIT B attached hereto. Each Request for Purchase shall be in writing and shall be deemed made when received by Prudential. 2D. RATE QUOTES. Not later than five Business Days after the Company shall have given Prudential a Request for Purchase pursuant to paragraph 2C, Prudential may, but shall be under no obligation to, provide to the Company by telephone or telecopier, in each case between 9:30 A.M. and 1:30 P.M. New York City local time (or such later time as Prudential may elect) interest rate quotes for the several principal amounts, maturities, principal prepayment schedules, and interest payment periods of Notes specified in such Request for Purchase. Each quote shall represent the interest rate per annum payable on the outstanding principal balance of such Notes at which Prudential or a Prudential Affiliate would be willing to purchase such Notes at 100% of the principal amount thereof. 2E. ACCEPTANCE. Within 30 minutes after Prudential shall have provided any interest rate quotes pursuant to paragraph 2D or such shorter period as Prudential may specify to the Company (such period herein called the "ACCEPTANCE WINDOW"), the Company may, subject to paragraph 2F, elect to accept such interest rate quotes as to not less than $5,000,000 aggregate principal amount of the Notes specified in the related Request for Purchase. Such election shall be made by an Authorized Officer of the Company notifying Prudential by telephone or telecopier within the Acceptance Window that the Company elects to accept such interest rate quotes, specifying the Notes (each such Note being herein called an "ACCEPTED NOTE") as to which such acceptance (herein called an "ACCEPTANCE") relates. The day the Company notifies an Acceptance with respect to any Accepted Notes is herein called the "ACCEPTANCE DAY" for such Accepted Notes. Any interest rate quotes as to which Prudential does not receive an Acceptance within the Acceptance Window shall expire, and no purchase or sale of Notes hereunder shall be made based on such expired interest rate quotes. Subject to paragraph 2F and the other terms and conditions hereof, the Company agrees to sell to Prudential or a Prudential Affiliate, and Prudential agrees to purchase, or to cause the purchase by a Prudential Affiliate of, the Accepted Notes at 100% of the principal amount of such Notes. As soon as practicable following the Acceptance Day, the Company, Prudential and each Prudential Affiliate which is to purchase any such Accepted Notes will execute a confirmation of such Acceptance substantially in the form of EXHIBIT C attached hereto (herein called a "CONFIRMATION OF ACCEPTANCE"). If the Company should fail to execute and return to Prudential within three Business Days following receipt thereof a Confirmation of Acceptance with respect to any Accepted Notes, Prudential may at its election at any time prior to its receipt thereof cancel the closing with respect to such Accepted Notes by so notifying the Company in writing. 2F. MARKET DISRUPTION. Notwithstanding the provisions of paragraph 2E, if Prudential shall have provided interest rate quotes pursuant to paragraph 2D and thereafter prior to the time an Acceptance with respect to such quotes shall have been notified to Prudential in accordance with paragraph 2E the domestic market for U.S. Treasury securities or derivatives shall have closed or there shall have occurred a general suspension, material limitation, or significant disruption of trading in securities generally on the New York Stock 3 Exchange or in the domestic market for U.S. Treasury securities or derivatives, then such interest rate quotes shall expire, and no purchase or sale of Notes hereunder shall be made based on such expired interest rate quotes. If the Company thereafter notifies Prudential of the Acceptance of any such interest rate quotes, such Acceptance shall be ineffective for all purposes of this Agreement, and Prudential shall promptly notify the Company that the provisions of this paragraph 2F are applicable with respect to such Acceptance. 2G. NOTE CLOSINGS. Not later than 11:30 A.M. (New York City local time) on the Closing Day for any Accepted Notes, the Company will deliver to each Purchaser listed in the Confirmation of Acceptance relating thereto at the offices of the Prudential Capital Group, Two Prudential Plaza, Suite 5600, Chicago, Illinois 60601, the Accepted Notes to be purchased by such Purchaser in the form of one or more Notes in authorized denominations as such Purchaser may request for each Series of Accepted Notes to be purchased on the Closing Day, dated the Closing Day and registered in such Purchaser's name (or in the name of its nominee), against payment of the purchase price thereof by transfer of immediately available funds for credit to the Company's account specified in the Request for Purchase of such Notes. If the Company fails to tender to any Purchaser the Accepted Notes to be purchased by such Purchaser on the scheduled Closing Day for such Accepted Notes as provided above in this paragraph 2G, or any of the conditions specified in paragraph 3 shall not have been fulfilled by the time required on such scheduled Closing Day, the Company shall, prior to 1:00 P.M., New York City local time, on such scheduled Closing Day notify Prudential (which notification shall be deemed received by each Purchaser) in writing whether (i) such closing is to be rescheduled (such rescheduled date to be a Business Day during the Issuance Period not less than one Business Day and not more than 10 Business Days after such scheduled Closing Day (the "RESCHEDULED CLOSING DAY") and certify to Prudential (which certification shall be for the benefit of each Purchaser) that the Company reasonably believes that it will be able to comply with the conditions set forth in paragraph 3 on such Rescheduled Closing Day and that the Company will pay the Delayed Delivery Fee in accordance with paragraph 2H(iv) or (ii) such closing is to be canceled. In the event that the Company shall fail to give such notice referred to in the proceeding sentence, Prudential (on behalf of each Purchaser) may at its election, at any time after 1:00 P.M., New York City local time, on such scheduled Closing Day, notify the Company in writing that such closing is to be canceled. Notwithstanding anything to the contrary appearing in this Agreement, the Company may elect to reschedule a closing with respect to any given Accepted Notes on not more than one occasion, unless Prudential shall have otherwise consented in writing. 2H. FEES. 2H(i). STRUCTURING FEE. In consideration for the time, effort and expense involved in the preparation, negotiation and execution of this Agreement, at the time of the execution and delivery of this Agreement the Company will pay to Prudential in immediately available funds a fee (the "STRUCTURING FEE") in the amount of $100,000. 4 2H(ii). FACILITY FEE. At the time of the execution and delivery of this Agreement by the Company and Prudential, the Company will pay to Prudential in immediately available funds a fee (the "FACILITY FEE") in the amount of $50,000. If following payment of the Facility Fee a Refund Event shall occur, Prudential shall refund to the Company the Refundable Portion of the Facility Fee. 2H(iii). ISSUANCE FEE. The Company will pay to Prudential in immediately available funds a fee (herein called the "ISSUANCE FEE") on each Closing Day in an amount equal to 0.15% of the aggregate principal amount of Notes sold on such Closing Day. 2H(iv). DELAYED DELIVERY FEE. If the closing of the purchase and sale of any Accepted Note is delayed for any reason beyond the original Closing Day for such Accepted Note, the Company will pay to Prudential (a) on the Cancellation Date or actual closing date of such purchase and sale and (b) if earlier, the next Business Day following 90 days after the Acceptance Day for such Accepted Note and on each Business Day following 90 days after the prior payment hereunder, a fee (herein called the "DELAYED DELIVERY FEE") calculated as follows: (BEY - MMY) X DTS/360 X PA where "BEY" means Bond Equivalent Yield, I.E., the bond equivalent yield per annum of such Accepted Note, "MMY" means Money Market Yield, I.E., the yield per annum on a commercial paper investment of the highest quality selected by Prudential on the date Prudential receives notice of the delay in the closing for such Accepted Note having a maturity date or dates the same as, or closest to, the Rescheduled Closing Day or Rescheduled Closing Days (a new alternative investment being selected by Prudential each time such closing is delayed); "DTS" means Days to Settlement, I.E., the number of actual days elapsed from and including the original Closing Day with respect to such Accepted Note (in the case of the first such payment with respect to such Accepted Note) or from and including the date of the next preceding payment (in the case of any subsequent delayed delivery fee payment with respect to such Accepted Note) to but excluding the date of such payment; and "PA" means Principal Amount, I.E., the principal amount of the Accepted Note for which such calculation is being made. In no case shall the Delayed Delivery Fee be less than zero. Nothing contained herein shall obligate any Purchaser to purchase any Accepted Note on any day other than the Closing Day for such Accepted Note, as the same may be rescheduled from time to time in compliance with paragraph 2G. 2H(v). CANCELLATION FEE. If the Company at any time notifies Prudential in writing that the Company is canceling the closing of the purchase and sale of an Accepted Note, or if Prudential notifies the Company in writing under the circumstances set forth in the last sentence of paragraph 2E or the penultimate sentence of paragraph 2G that the closing of the purchase and sale of such Accepted Note is to be canceled, or if the closing of the purchase and sale of such Accepted Note is not consummated on or prior to the last day of the Issuance Period (the date of any such notification, or the last day of the Issuance Period, as the case 5 may be, being herein called the "CANCELLATION DATE"), the Company will pay to Prudential in immediately available funds an amount (the "CANCELLATION FEE") calculated as follows: PI X PA where "PI" means Price Increase, I.E., the quotient (expressed in decimals) obtained by dividing (a) the excess of the ask price (as determined by Prudential) of the Hedge Treasury Note(s) on the Cancellation Date over the bid price (as determined by Prudential) of the Hedge Treasury Note(s) on the Acceptance Day for such Accepted Note by (b) such bid price; and "PA" has the meaning ascribed to it in paragraph 2H(iv). The foregoing bid and ask prices shall be as reported by Telerate Systems, Inc. (or, if such data for any reason ceases to be available through Telerate Systems, Inc., any publicly available source of similar market data). Each price shall be based on a U.S. Treasury security having a par value of $100.00 and shall be rounded to the second decimal place. In no case shall the Cancellation Fee be less than zero. 3. CONDITIONS OF CLOSING. The obligation of any Purchaser to purchase and pay for any Notes is subject to the satisfaction, on or before the Closing Day for such Notes, of the following conditions: 3A. CERTAIN DOCUMENTS. Such Purchaser shall have received the following, each dated the date of the applicable Closing Day: (i) The Note(s) to be purchased by such Purchaser. (ii) Certified copies of the resolutions of the Board of Directors of the Company authorizing the execution and delivery of this Agreement and the issuance of the Notes, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement and the Notes. (iii) A certificate of the Secretary or an Assistant Secretary and one other officer of the Company certifiying the names and true signatures of the officers of the Company authorized to sign this Agreement and the Notes and the other documents to be delivered hereunder. (iv) Certified copies of the Certificate of Incorporation and By-laws of the Company. (v) A favorable opinion of Phillips & Gross, P.A., special counsel to the Company (or such other counsel designated by the Company and acceptable to the Purchaser(s)) satisfactory to such Purchaser and substantially in the form of EXHIBIT D attached hereto and as to such other matters as such Purchaser may reasonably request. The Company hereby directs such counsel to deliver such opinion, agrees that the issuance and sale of any Notes will constitute a reconfirmation of such direction, and understands and agrees that each Purchaser receiving such an opinion will and is hereby authorized to rely on such opinion. 6 (vi) A good standing certificate for the Company from the Secretary of State of Minnesota dated of a recent date and such other evidence of the status of the Company as such Purchaser may reasonably request. (vii) Certified copies of Requests for Information or Copies (Form UCC-11) or equivalent reports listing all effective financing statements which name the Company or any Restricted Subsidiary (under their present names and previous names) as debtor and which are filed in the offices of the Secretaries of State of Minnesota and Colorado together with copies of such financing statements. (viii) Additional documents or certificates with respect to legal matters or corporate or other proceedings related to the transactions contemplated hereby as may be reasonably requested by such Purchaser. 3B. OPINION OF PURCHASER'S SPECIAL COUNSEL. Such Purchaser shall have received from James F. Evert, Assistant General Counsel of Prudential, or such other counsel who is acting as counsel for it in connection with this transaction, a favorable opinion satisfactory to such Purchaser as to such matters incident to the matters herein contemplated as it may reasonably request. 3C. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations and warranties contained in paragraph 8 shall be true on and as of such Closing Day; there shall exist on such Closing Day no Event of Default or Default; and the Company shall have delivered to such Purchaser an Officer's Certificate, dated such Closing Day, to both such effects. 3D. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment for the Notes to be purchased by such Purchaser on the terms and conditions herein provided (including the use of the proceeds of such Notes by the Company) shall not violate any applicable law or governmental regulation (including, without limitation, Section 5 of the Securities Act or Regulation G, T or X of the Board of Governors of the Federal Reserve System) and shall not subject such Purchaser to any tax, penalty, liability or other onerous condition under or pursuant to any applicable law or governmental regulation, and such Purchaser shall have received such certificates or other evidence as it may request to establish compliance with this condition. 3E. PAYMENT OF FEES. The Company shall have paid to Prudential any fees due it pursuant to or in connection with this Agreement, including any Issuance Fee due pursuant to paragraph 2H(iii) and any Delayed Delivery Fee due pursuant to paragraph 2H(iv). 3F. OFFSET SHARING AGREEMENT. The Offset Sharing Agreement shall have been amended so as to apply to the Notes pursuant to a document in form and content satisfactory to the Purchaser. 7 3G. SUBORDINATION AGREEMENT. The terms of the Subordinated Debt shall have been amended so as to subordinate the Subordinated Debt to the Notes pursuant to a document in form and content satisfactory to the Purchaser. 3H. OTHER LOAN AGREEMENTS. The Company shall have demonstrated its compliance with the penultimate sentence of paragraph 8G to the satisfaction of the Purchaser. 4. PREPAYMENTS. The Notes shall be subject to required prepayment as and to the extent provided in paragraph 4A. The Notes shall also be subject to prepayment under the circumstances set forth in paragraph 4B. Any prepayment made by the Company pursuant to any other provision of this paragraph 4 shall not reduce or otherwise affect its obligation to make any required prepayment as specified in paragraph 4A. 4A. REQUIRED PREPAYMENTS OF NOTES. Each Series of Notes shall be subject to required prepayments, if any, set forth in the Notes of such Series. 4B(1). OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT. The Notes of each Series will be subject to prepayment, in whole at any time or from time to time in part (in integral multiples of $500,000) at the option of the Company, at 100% of the principal amount so prepaid plus interest thereon to the prepayment date and the Yield-Maintenance Amount, if any, with respect to each such Note. Any partial prepayment of a Series of Notes pursuant to this paragraph 4B(1) shall be applied in satisfaction of required payments of principal in inverse order of their scheduled due dates. 4B(2). PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT PURSUANT TO OFFSET SHARING AGREEMENT. If amounts are to be applied to the principal of the Notes pursuant to the terms of an Offset Sharing Agreement, interest owing thereon to the prepayment date and the Yield-Maintenance Amount, if any, with respect to each Note shall be due and payable on such date. Any partial prepayment of the Notes pursuant to this paragraph 4B(2) shall be applied in satisfaction of required payments of principal in inverse order of their scheduled due dates. 4(C). NOTICE OF OPTIONAL PREPAYMENT. The Company shall give the holder of each Note of a Series to be prepaid pursuant to paragraph 4B(1) irrevocable written notice of such prepayment not less than 10 Business Days prior to the prepayment date, specifying such prepayment date, the aggregate principal amount of the Notes of such Series to be prepaid on such date, the principal amount of the Notes of such Series held by such holder to be prepaid on that date and that such prepayment is to be made pursuant to paragraph 4B(1). Notice of prepayment having been given as aforesaid, the principal amount of the Notes specified in such notice, together with interest thereon to the prepayment date and together with the Yield-Maintenance Amount, if any, herein provided, shall become due and payable on such prepayment date. The Company shall, on or before the day on which it gives written notice of any prepayment pursuant to paragraph 4B(1), give telephonic notice of the principal amount of the Notes to be prepaid and the prepayment date to each Significant Holder which 8 shall have designated a recipient for such notices in the Purchaser Schedule attached to the applicable Confirmation of Acceptance or by notice in writing to the Company. 4D. APPLICATION OF PREPAYMENTS. In the case of each prepayment of less than the entire unpaid principal amount of all outstanding Notes or all outstanding Notes of any Series, as the case may be, pursuant to paragraphs 4A, 4b(1) or 4B(2), the amount to be prepaid shall be applied pro rata to all outstanding Notes or all outstanding Notes of such Series, as the case may be (including, for the purpose of this paragraph 4D only, all Notes prepaid or otherwise retired or purchased or otherwise acquired by the Company or any of its Subsidiaries or Affiliates other than by prepayment pursuant to paragraph 4A or 4B), according to the respective unpaid principal amounts thereof. 4E. RETIREMENT OF NOTES. The Company shall not, and shall not permit any of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or in part prior to their stated final maturity (other than by prepayment pursuant to paragraphs 4A or 4B or upon acceleration of such final maturity pursuant to paragraph 7A), or purchase or otherwise acquire, directly or indirectly, Notes of any Series held by any holder unless the Company or such Subsidiary or Affiliate shall have offered to prepay or otherwise retire or purchase or otherwise acquire, as the case may be, the same proportion of the aggregate principal amount of Notes of such Series held by each other holder of Notes of such Series at the time outstanding upon the same terms and conditions. Any Notes so prepaid or otherwise retired or purchased or otherwise acquired by the Company or any of its Subsidiaries or Affiliates shall not be deemed to be outstanding for any purpose under this Agreement, EXCEPT as provided in paragraph 4D. 5. AFFIRMATIVE COVENANTS. During the Issuance period and so long thereafter as any Note is outstanding and unpaid, the Company covenants as follows: 5A. FINANCIAL STATEMENTS; NOTICE OF DEFAULTS. The Company covenants that it will deliver to Prudential and each Significant Holder in triplicate: (i) as soon as practicable and in any event within 45 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, a consolidated balance sheet of the Company and its Subsidiaries and of the Company and its Restricted Subsidiaries as at the end of such quarterly period and the related consolidated statements of income and cash flows of the Company and its Subsidiaries and of the Company and its Restricted Subsidiaries for such period setting forth, in each case in comparative form, figures for the corresponding period in the preceding fiscal year, all in reasonable detail and certified by the chief financial officer or chief accounting officer of the Company as fairly presenting the consolidated financial position of the Company and its Subsidiaries and of the Company and its Restricted Subsidiaries as at the dates indicated and the consolidated results of their respective operations and cash flows, in each case for the periods indicated, in conformity with generally accepted accounting principles applied on a basis consistent with prior 9 periods (except as disclosed in such certificate), subject to changes resulting from year-end adjustments; (ii) as soon as practicable and in any event within 90 days after the end of each fiscal year, a consolidated and consolidating balance sheet of the Company and its Subsidiaries as at the end of such year and the related consolidated and consolidating statements of income and cash flows of the Company and its Subsidiaries for such year, all in reasonable detail and satisfactory in scope to the Required Holder(s), and (a) in the case of such consolidated financial statements, setting forth in each case in comparative form corresponding consolidated figures for the preceding fiscal year, and accompanied by a report thereon of independent public accountants of recognized national standing selected by the Company, which report shall state that, subject only to standard qualifications and limitations generally contained in an unqualified audit report, such consolidated financial statements present fairly the consolidated financial position of the Company and its Subsidiaries as at the dates indicated and the consolidated results of their operations and cash flows for the periods indicated in conformity with generally accepted accounting principles applied on a basis consistent with prior years (except as otherwise specified in such report) and that the audit by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards, and (b) in the case of such consolidating financial statements, (w) setting forth on supplemental schedules, in one column, the total amounts for the Company and its Restricted Subsidiaries, and, in a second column, the total amounts for the Company's other Subsidiaries, and showing all eliminations and adjustments made in aggregating the amounts of such columns to arrive at the Company's consolidated financial statements, (x) setting forth in comparative form the corresponding consolidated figures for the Company and its Restricted Subsidiaries for the preceding fiscal year, (y) certified by the chief financial officer or chief accounting officer of the Company as fairly presenting the respective financial positions of the separate entities reported on as at the dates indicated and the results of their respective operations and cash flows for the period indicated, in conformity with generally accepted accounting principles applied on a basis consistent with prior periods (except as otherwise specified in such certificate), and (z) accompanied by a report thereon of the independent public accountants reporting on the consolidated financial statements of the Company and its Subsidiaries for such fiscal year, which report shall state that, subject to the qualifications and limitations contained in their report on the consolidated financial statements of the Company and its Subsidiaries, and to the further qualification that the principles of consolidation followed in the preparation of such consolidated figures for the Company and its Restricted Subsidiaries conform to the provisions of this Agreement rather than to generally accepted accounting principles, such consolidated figures for the Company and its Restricted Subsidiaries present fairly the consolidated financial position of the Company and its Restricted Subsidiaries as at the dates indicated and the consolidated results of their operations and cash flows for the periods indicated in conformity with generally accepted accounting principles applied on a basis consistent with prior periods (except as otherwise specified in such report); 10 (iii) as soon as practicable and in any event within (a) 45 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year and (b) 120 days after the end of each fiscal year, balance sheets (which in the case of the fiscal year end shall be audited) of each Unrestricted Subsidiary as at the end of such period and the related statements of income and cash flows of each such Unrestricted Subsidiary for such period (which in the case of annual statements shall be audited); (iv) together with each delivery of financial statements pursuant to clauses (i) and (ii) of this paragraph 5A, an Officer's Certificate (a) stating that the signer has reviewed the terms of this Agreement and the Notes and has made, or caused to be made under his or her supervision, a review in reasonable detail of the transactions and condition of the Company and its Restricted Subsidiaries during the fiscal period covered by such financial statements and that such review has not disclosed the existence during or at the end of such fiscal period, and that the signer does not have knowledge of the existence as at the date of the Officer's Certificate, of any condition or event which constitutes a Default or Event of Default or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Company has taken or is taking or proposes to take with respect thereto, and (b) demonstrating (with computations in reasonable detail) compliance by the Company with the provisions of paragraphs 6A, 6B, 6C(1), 6C(2), 6C(3), 6C(4), 6C(6) and 6C(8) of this Agreement (herein called the "COMPUTATION PARAGRAPHS"); (v) together with each delivery of financial statements of the Company and its Subsidiaries pursuant to clause (ii) of this paragraph 5A, a certificate by the Company's independent public accountants stating (a) that their audit examination has included a review of the terms of this Agreement and of the Notes as they relate to accounting matters and that such review is sufficient to enable them to make the statement referred to in subclause (c) of this clause (v), (b) whether in the course of their audit examination there has been disclosed the existence during the fiscal year covered by such financial statements (and whether they have knowledge of the existence as of the date of such accountants' certificate) of any condition or event which constitutes a Default or Event of Default and if during their audit examination there has been disclosed (or if they have knowledge of) such a condition or event, specifying the nature and period of existence thereof (it being understood, however, that such accountants shall not be liable to any Person by reason of their failure to obtain knowledge of any Default or Event of Default which would not be disclosed in the course of an audit conducted in accordance with generally accepted auditing standards), and (c) that based on their annual audit examination, including a review of the Computation Paragraphs, nothing came to their attention which causes them to believe that the information relating to the Computation Paragraphs contained in the Officer's Certificate delivered therewith pursuant to clause (iv) of this paragraph 5A is not correct or that the matters set forth in such Officer's Certificate are not stated in accordance with the terms of this Agreement; 11 (vi) promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available generally by the Company and its Restricted Subsidiaries to its security holders (other than the Company in the case of Restricted Subsidiaries), of all regular and periodic reports and all registration statements and prospectuses, if any, filed by the Company or any of its Restricted Subsidiaries with any securities exchange or with the Securities and Exchange Commission or with NASDAQ, and of all press releases and other written statements made available generally by the Company or any of its Restricted Subsidiaries to the public concerning material developments in the business of the Company and its Restricted Subsidiaries; (vii) promptly upon receipt thereof by the Company, copies of all reports submitted to the Company by independent public accountants in connection with each annual, interim or special audit of the books of the Company or any of its Restricted Subsidiaries made by such accountants; (viii) promptly upon any Responsible Officer obtaining knowledge (a) that a condition or event exists that constitutes a Default or Event of Default, (b) that the holder of any Note has given any notice or taken any other action with respect to a claimed Default or Event of Default under this Agreement, (c) of any condition or event which could reasonably be expected to have a material adverse effect on the business, condition (financial or other), assets, properties, operations or prospects of the Company or the Company and its Restricted Subsidiaries taken as a whole (other than matters of a general economic or political nature which do not affect the Company or its Restricted Subsidiaries uniquely), (d) that any Person has given any notice to the Company or any Restricted Subsidiary or taken any other action with respect to a claimed default or event or condition of the type referred to in clause (iii) of paragraph 7A, (e) of the institution of any litigation involving claims against the Company or any Restricted Subsidiary in excess of the coverage provided under the Company's or such Restricted Subsidiary's insurance policies (treating any portion of such coverage which is subject to self-insurance or deductibles as a part of such excess) if the amount of the excess of such claims individually exceeds $500,000, or, when aggregated with the excess over insurance coverage of all other outstanding claims, exceeds $1,000,000, (f) of the initiation by the Securities and Exchange Commission of any proceeding against the Company or any Restricted Subsidiary or of any investigation of the Company or any Restricted Subsidiary or (g) of the initiation by any other governmental agency of any proceeding against the Company or any Restricted Subsidiary or of any investigation of the Company or any Restricted Subsidiary involving allegations (or which could reasonably be expected to result in allegations) of material illegal activities or misconduct on the part of the Company or any Restricted Subsidiary, an Officer's Certificate specifying the nature and period of existence of any such condition or event, or specifying the notice given or action taken by such holder or Person and the nature of such claimed Default, Event of Default, event or condition, or specifying the nature of such litigation, proceeding or 12 investigation, and what action the Company has taken, is taking or proposes to take with respect thereto; and (ix) with reasonable promptness, such other information and data with respect to the Company or any of its Subsidiaries as from time to time may be reasonably requested by such Significant Holder. 5B. INFORMATION REQUIRED BY RULE 144A. The Company covenants that it will, upon the request of the holder of any Note, provide such holder, and any qualified institutional buyer designated by such holder, such financial and other information as such holder may reasonably determine to be necessary in order to permit compliance with the information requirements of Rule 144A under the Securities Act in connection with the resale of Notes, except at such times as the Company is subject to and in compliance with the reporting requirements of section 13 or 15(d) of the Exchange Act. For the purpose of this paragraph 5B, the term "QUALIFIED INSTITUTIONAL BUYER" shall have the meaning specified in Rule 144A under the Securities Act. 5C. INSPECTION OF PROPERTY. The Company covenants that it will permit any Person designated by any Significant Holder in writing, at such Significant Holder's expense (unless a Default or Event of Default shall have occurred and be continuing, in which case at the Company's expense), to visit and inspect any of the properties of the Company and its Restricted Subsidiaries, to examine the corporate books and financial records of the Company and its Restricted Subsidiaries and made copies thereof or extracts therefrom and to discuss the affairs, finances and accounts of any of such corporations with the principal officers of the Company and its independent public accountants, all at such reasonable times and as often as such Significant Holder may reasonably request. 5D. COVENANT TO SECURE NOTES EQUALLY. The Company covenants that, if it or any Restricted Subsidiary shall create or assume any Lien upon any of its property or assets, whether now owned or hereafter acquired, other than Liens permitted by the provisions of paragraph 6C(1) (unless prior written consent to the creation or assumption thereof shall have been obtained pursuant to paragraph 11C), it will make or cause to be made effective provision whereby the Notes will be secured by such Lien equally and ratably with any and all other obligations thereby secured so long as any such other obligations shall be so secured. 5E. KEEPING OF BOOKS AND BANK ACCOUNTS. The Company covenants that it will, and will cause each of its Restricted Subsidiaries to (i) keep separate and proper books of record and account in which full and correct entries shall be made of all transactions, including any transactions between the Company or any Restricted Subsidiary and any Affiliate, all in accordance with generally accepted accounting principles, and (ii) maintain bank accounts which are separate and segregated from the bank accounts of any Unrestricted Subsidiary or Affiliate. 5F. INCORPORATION OF OTHER DEBT COVENANTS. The Company covenants that if it is or shall become subject to any operational or financial covenant in any document evidencing 13 or pertaining to Debt of the Company which is more favorable to a lender or other beneficiary than those set forth in paragraph 6 hereof, then (i) this Agreement shall be deemed to be automatically amended to include such more favorable covenant, (ii) the Company shall promptly give each holder of Notes notice thereof and (iii) if requested by Prudential or the Required Holder(s) of the Notes, the Company shall promptly execute and deliver a written amendment to this Agreement specifically incorporating such covenant herein. Once any such covenant has been included in this Agreement (whether or not pursuant to a written amendment), it may only be modified or eliminated by an amendment hereto entered into as contemplated by paragraph 11C hereof. 5G. CORPORATE EXISTENCE. The Company covenants that it will at all times preserve and keep in full force and effect its corporate existence, and rights and franchises material to its business, and those of each of its Restricted Subsidiaries, except as otherwise specifically permitted by paragraphs 6C(4) and 6C(5), and will qualify, and cause each of its Restricted Subsidiaries to qualify, to do business in any jurisdiction where the failure to do so would have a material adverse effect on the business, condition (financial and other), assets, properties, prospects or operations of the Company or the Company and its Restricted Subsidiaries taken as a whole, PROVIDED that the corporate existence of any Restricted Subsidiary may be terminated if, in the good faith judgment of the Board of Directors of the Company, such termination is in the best interests of the Company. 5H. PAYMENT OF TAXES AND CLAIMS. The Company covenant that it will, and will cause each of its Subsidiaries to, pay all income taxes before the same shall become delinquent, except where such income taxes are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, if adequate reserves therefor have been established on the books of the Company or its Subsidiaries in accordance with generally accepted accounting principles. The Company covenants that it will, and will cause each of its Subsidiaries to, pay all other taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or profits before any penalty accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien upon any of its properties or assets, PROVIDED that no such tax, assessment, charge or claim need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if such accrual or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made therefor. 5I. COMPLIANCE WITH LAWS, ETC. The Company covenants that it will, and will cause each of its Restricted Subsidiaries to, comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, the noncompliance with which would materially adversely affect the business, condition (financial or other), assets, properties, operations or prospects of the Company or the Company and its Restricted Subsidiaries taken as a whole. 14 5J. MAINTENANCE OF PROPERTIES; INSURANCE. The Company covenants that it will, and will cause each of its Restricted Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition all properties used or useful in the business of the Company and its Restricted Subsidiaries and from time to time make or cause to be made all appropriate repairs, renewals and replacements thereof. The Company will maintain or cause to be maintained, with financially sound and reputable insurers, (i) insurance with respect to its properties and business and the properties and business of its Restricted Subsidiaries against loss or damage of the kinds customarily insured against by corporations of established reputation engaged in the same or similar business and similarly situated, of such types and in such amounts as are customarily carried under similar circumstances by such other corporations, and (ii) life insurance, with the Company as the owner and named beneficiary, on the life of Myron Kunin in the amount (net of any premium loans thereon and interest due in connection therewith) of not less than $2,700,000, and on the life of Paul Finkelstein in the amount (net of any premium loans thereon and interest due in connection therewith) of not less than $2,400,000, each of which life insurance policies shall be free of premium loans (except as specifically provided herein) and other Liens on or offsets against proceeds payable to the Company. 5K. AFFILIATE TRANSACTIONS, KEEPING OF BOOKS, BANK ACCOUNTS. The Company covenants that it will (i) keep and cause each of its Restricted Subsidiaries to keep separate and proper books of record and account, in which full and correct entries shall be made of all transactions including any transactions between the Company or any Restricted Subsidiary and any Affiliate, all in accordance with generally accepted accounting principles, and (ii) maintain and cause each of its Subsidiaries to maintain bank accounts which are separate and segregated from the bank accounts of any Affiliate. 6. NEGATIVE COVENANTS. During the Issuance Period and so long thereafter as any Note or other amount due hereunder is outstanding and unpaid, the Company covenants as follows: 6A. INTEREST COVERAGE RATIO. The Company will not permit the Interest Coverage Ratio to be less than 2.0 to 1.0 at the end of any fiscal quarter. 6B. CONSOLIDATED NET WORTH. The Company will not permit: (i) Consolidated Net Worth at any time to be less than $60,000,000 plus, to the extent positive, 50% of Consolidated Net Income for the period (taken as one accounting period) commencing July 1, 1995, and ending on the last day of the fiscal quarter most recently ended as of any date of determination; or (ii) Tangible Net Worth at the end of any fiscal quarter to be less than $10,000,000. 6C. LIEN, DEBT AND OTHER RESTRICTIONS. The Company will not and will not permit any Restricted Subsidiary to: 15 6C(1). LIENS. Create, assume or suffer to exist any Lien upon any of its properties or assets, whether now owned or hereafter acquired (whether or not provision is made for the equal and ratable securing of the Notes in accordance with the provisions of paragraph 5D), EXCEPT: (i) Liens for taxes, assessments or governmental charges not yet due or which are being actively contested in good faith by appropriate proceedings, (ii) Liens incidental to the conduct of its business or the ownership of its property and assets which do not secure Debt and which do not in the aggregate materially detract from the value of its property or assets or materially impair the use thereof in the operation of its business, (iii) Liens on property or assets of a Restricted Subsidiary to secure obligations of such Restricted Subsidiary to the Company or a Wholly-Owned Restricted Subsidiary, (iv) Liens which are the subject of an Offset Sharing Agreement, and (v) other Liens securing Debt permitted by paragraph 6C(2), PROVIDED that Priority Debt shall at no time exceed 15% of Consolidated Net Worth; 6C(2). DEBT. Create, incur, assume or suffer to exist any Debt, EXCEPT: (i) Funded Debt evidenced by the Notes, (ii) Funded Debt which is outstanding under the 1991 Agreement, (iii) Current Debt the aggregate principal amount of which at no time exceeds $20,000,000, PROVIDED that any holder of such Current Debt is party to an Offset Sharing Agreement, and (iv) other Funded Debt, provided that at no time shall (a) the ratio of Total Debt to the sum of Total Debt and Consolidated Net Worth exceed .50 to 1.00 or (b) Priority Debt exceed 15% of Consolidated Net Worth; 6C(3). INVESTMENTS. Make or permit to remain outstanding any loan or advance to, or extend credit to, or own, purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any Person (all of the foregoing being referred to herein as "Investments"), EXCEPT that the Company or any Restricted Subsidiary may: 16 (i) make or permit to remain outstanding Investments to or in any Restricted Subsidiary or any corporation which immediately following such Investment will be a Restricted Subsidiary; (ii) own, purchase or acquire marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency thereof and maturing within one year from the date of acquisition thereof, (iii) make demand deposits in banks in the ordinary course of business, and make deposits or own certificates of deposit of United States dollars maturing within one year from the date of acquisition thereof issued by commercial banks chartered under the laws of the United States of America or any state thereof or the District of Columbia, each having as at any date of determination combined capital, surplus and undivided profits of not less than $100,000,000 (determined in accordance with generally accepted accounting principles), (iv) own, purchase or acquire commercial paper maturing no more than 270 days from the date of acquisition thereof and rated A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors Service, Inc., (v) make and own Investments in mutual funds which invest at least 95% of their assets in instruments described in clauses (ii), (iii) and (iv) of this paragraph 6C(3), (vi) endorse negotiable instruments for collection in the ordinary course of business, (vii) make or permit to remain outstanding Investments to or in any Unrestricted Subsidiary, PROVIDED that (a) the aggregate amount (at original cost) of all Investments in Unrestricted Subsidiaries (excluding up to a $4,000,000 equity contribution to a single United Kingdom based corporation if made after June 23, 1995 and prior to October 1, 1995) shall at no time exceed 10% of Consolidated Net Worth and (b) any Investment made in an Unrestricted Subsidiary subsequent to June 30, 1995, shall only be deemed an Investment for purposes of this paragraph 6C(3) to the extent it involves a cash or other asset contribution or advance (net of any return thereof), and (viii) make or permit to remain outstanding other Investments (exclusive of Investments in Unrestricted Subsidiaries), PROVIDED that the aggregate amount thereof shall at no time exceed 5% of Consolidate Net Worth. 6C(4). SALE OF STOCK AND DEBT OF SUBSIDIARIES. Sell or otherwise dispose of, or part with control of, any shares of stock or Debt of any Restricted Subsidiary, except to the Company or a Wholly-Owned Restricted Subsidiary, and except that all shares of stock and Debt of any Restricted Subsidiary at the time owned by or owed to the Company and all 17 Restricted Subsidiaries may be sold as an entirety for a cash consideration which represents the fair value (as determined in good faith by the Board of Directors of the Company) at the time of sale of the shares of stock and Debt so sold; PROVIDED that (i) such sale or other disposition, if treated as a Transfer of assets of such Restricted Subsidiary, would be permitted by paragraph 6C(6) and (ii) at the time of such sale, such Restricted Subsidiary shall not own, directly or indirectly, any shares of stock or Debt of any other Restricted Subsidiary (unless all of the shares of stock and Debt of such other Restricted Subsidiary owned, directly or indirectly, by the Company and all Restricted Subsidiaries are simultaneously being sold as permitted by this paragraph 6C(4)); 6C(5). MERGER AND CONSOLIDATION. Merge or consolidate with or into any other Person, EXCEPT that: (i) any Restricted Subsidiary may merge or consolidate with or into the Company, PROVIDED that the Company is the continuing or surviving corporation, (ii) any Restricted Subsidiary may merge or consolidate with or into another Restricted Subsidiary, PROVIDED that a Wholly-Owned Restricted Subsidiary shall be the continuing or surviving corporation, and (iii) the Company may merge or consolidate with any other corporation, PROVIDED that (a) either (x) the Company shall be the continuing or surviving corporation, or (y) the successor or acquiring corporation shall be a corporation organized under the laws of any state of the United States of America and shall expressly assume in writing all of the obligations of the Company under this Agreement and on the Notes, including all covenants herein and therein contained, and such successor or acquiring corporation shall succeed to and be substituted for the Company with the same effect as if it had been named herein as a party hereto and (b) immediately after giving effect to such transaction, no Default or Event of Default would exist hereunder (including a Default or Event of Default under clause (iii) of paragraph 6C(2)); 6C(6). TRANSFERS OF ASSETS. Transfer any of its assets EXCEPT that: (i) any Restricted Subsidiary may Transfer assets to the Company or a Wholly-Owned Restricted Subsidiary, (ii) the Company or any Restricted Subsidiary may sell inventory in the ordinary course of business, and (iii) the Company or any Restricted Subsidiary may otherwise Transfer assets, PROVIDED that after giving effect thereto (a) the Aggregate Percentage of Earnings Capacity Transferred pursuant to this clause (iii) shall not exceed 10% and (b) the Aggregate Percentage of Total Assets Transferred pursuant to this clause (iii) shall not exceed 10%; 18 6C(7). SALE OR DISCOUNT OF RECEIVABLES. Sell with recourse, or discount or otherwise sell for less than the face value thereof, any of its notes or accounts receivable; 6C(8). TRANSACTIONS WITH AFFILIATES. Directly or indirectly, engage in any transaction (including, without limitation, the purchase, sale or exchange of assets or the rendering of any service) with any Affiliate, unless (i) such transaction is in the ordinary course of and pursuant to the reasonable requirements of the Company's or such Restricted Subsidiary's business and upon fair and reasonable terms that are comparable to those which might be obtained in an arm's-length transaction between unaffiliated parties, and (ii) in the case of any such transaction in which the aggregate value of the assets or services involved, or of the payments made, exceeds $1,000,000, such transaction is authorized by a majority of the independent members of the Board of Directors of the Company; 6C(9). RESTRICTED SUBSIDIARY DIVIDEND RESTRICTIONS. Enter into, or otherwise be subject to, any contract or agreement (including its certificate or articles of incorporation), which limits the amount of, or otherwise imposes restrictions on the payment of, dividends by any Restricted Subsidiary; or 6C(10). TAX CONSOLIDATION. Consent to or permit the filing of or be a party to any consolidated income tax return with any Person, other than a consolidated income tax return with any Person, other than a consolidated tax return of the Company and its Subsidiaries. 6D. TRANSACTIONS BY RESTRICTED SUBSIDIARIES. The Company covenants that it will not permit any Restricted Subsidiary (either directly, or indirectly by the issuance of rights or options for, or securities convertible into, such shares) to issue, sell or otherwise dispose of (i) any shares of any class of its stock (other than Common Stock) except to the Company or another Restricted Subsidiary or (ii) any shares of its Common Stock except (a) to the Company or another Restricted Subsidiary and (b) concurrently with dispositions under (a) above, to any minority shareholders of such Restricted Subsidiary to the extent necessary to maintain such minority shareholders' percentage ownership of outstanding shares of Common Stock of such Restricted Subsidiary. 7. EVENTS OF DEFAULT. 7A. ACCELERATION. If any of the following events shall occur and be continuing for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or otherwise): (i) the Company defaults in the payment of any principal of, or Yield-Maintenance Amount payable with respect to, any Note when the same shall become due, either by the terms thereof or otherwise as herein provided; or (ii) the Company defaults in the payment of any interest on any Note for more than 5 days after the date due; or 19 (iii) the Company or any Subsidiary defaults (whether as primary obligor or as guarantor or other surety) in any payment of principal of or interest on any other obligation for money borrowed (or any Capitalized Lease Obligation, any obligation under a conditional sale or other title retention agreement, any obligation issued or assumed as full or partial payment for property whether or not secured by a purchase money mortgage or any obligation under notes payable or drafts accepted representing extensions of credit) beyond any period of grace provided with respect thereto, or the Company or any Subsidiary fails to perform or observe any other agreement, term or condition contained in any agreement under which any such obligation is created (or if any other event thereunder or under any such agreement shall occur and be continuing) and the effect of such failure or other event is to cause, or to permit the holder or holders of such obligation (or a trustee on behalf of such holder or holders) to cause, such obligation to become due (or to be repurchased by the Company or any Subsidiary) prior to any stated maturity, PROVIDED that the aggregate amount of all obligations as to which such a payment default shall occur and be continuing or such a failure or other event causing or permitting acceleration (or resale to the Company or any Subsidiary) shall occur and be continuing exceeds $500,000; or (iv) any representation or warranty made by the Company herein or by the Company or any of its officers in any writing furnished in connection with or pursuant to this Agreement shall be false in any material respect on the date as of which made; or (v) the Company fails to perform or observe any covenant or agreement contained in paragraph 6 or incorporated by reference into this Agreement pursuant to paragraph 5F; or (vi) the Company fails to perform or observe any other agreement, term or condition contained herein and such failure shall not be remedied within 30 days after any Responsible Officer obtains actual knowledge thereof; or (vii) the Company or any Restricted Subsidiary makes an assignment for the benefit of creditors or is generally not paying its debts as such debts become due; or (viii) any decree or order for relief in respect of the Company or any Restricted Subsidiary is entered under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law, whether now or hereafter in effect (herein called the "BANKRUPTCY LAW"), of any jurisdiction; or (ix) the Company or any Restricted Subsidiary petitions or applies to any tribunal for, or consents to, the appointment of, or taking possession by, a trustee, receiver, custodian, liquidator or similar official of the Company or any Restricted Subsidiary, or of any substantial part of the assets of the Company or any Restricted Subsidiary, or commences a voluntary case under the Bankruptcy Law of the United 20 States or any proceedings (other than proceedings for the voluntary liquidation and dissolution of a Restricted Subsidiary) relating to the Company or any Restricted Subsidiary under the Bankruptcy Law of any other jurisdiction; or (x) any such petition or application is filed, or any such proceedings are commenced, against the Company or any Restricted Subsidiary and the Company or such Restricted Subsidiary by any act indicates its approval thereof, consent thereto or acquiescence therein, or an order, judgment or decree is entered appointing any such trustee, receiver, custodian, liquidator or similar official, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than 30 days; or (xi) any order, judgment or decree is entered in any proceedings against the Company decreeing the dissolution of the Company and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (xii) any order, judgment or decree is entered in any proceedings against the Company or any Restricted Subsidiary decreeing a split-up of the Company or such Restricted Subsidiary which requires the divestiture of assets representing a substantial part, or the divestiture of the stock of a Restricted Subsidiary whose assets represent a substantial part, of the consolidated assets of the Company and its Restricted Subsidiaries (determined in accordance with generally accepted accounting principles) or which requires the divestiture of assets, or stock of a Restricted Subsidiary, which shall have contributed a substantial part of Consolidated Net Income for any of the three fiscal years then most recently ended, and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (xiii) one or more final judgments in an aggregate amount in excess of $500,000 is rendered against the Company or any Subsidiary and, within 60 days after entry thereof, any such judgment is not discharged or execution thereof stayed pending appeal, or within 60 days after the expiration of any such stay, such judgment is not discharged; or (xiv) (a) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under section 412 of the Code, (b) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of such proceedings, (c) the aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $500,000, (d) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax 21 provisions of the Code relating to employee benefit plans, (e) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (f) the Company or any Restricted Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Restricted Subsidiary thereunder; and any such event or events described in clauses (a) through (f) above, either individually or together with any other such event or events, could reasonably be expected to have a material adverse effect on the business or condition (financial or otherwise) of the Company and the Restricted Subsidiaries, taken as a whole; then (a) if such event is an Event of Default specified in clause (i) or (ii) of this paragraph 7A, any holder of any Note may at its option during the continuance of such Event of Default, by notice in writing to the Company, declare all of the Notes held by such holder to be, and all of the Notes held by such holder shall thereupon be and become, immediately due and payable at par together with interest accrued thereon, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company, (b) if such event is an Event of Default specified in clause (viii), (ix) or (x) of this paragraph 7A with respect to the Company, all of the Notes at the time outstanding shall automatically become immediately due and payable together with interest accrued thereon and together with the Yield-Maintenance Amount, if any, with respect to each Note, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company, and (c) with respect to any event constituting an Event of Default, the Required Holder(s) of the Notes of any Series may at its or their option during the continuance of such Event of Default, by notice in writing to the Company, declare all of the Notes of such Series to be, and all of the Notes of such Series shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with the Yield-Maintenance Amount, if any, with respect to each Note of such Series, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company. 7B. RESCISSION OF ACCELERATION. At any time after any or all of the Notes of any Series shall have been declared immediately due and payable pursuant to paragraph 7A, the Required Holder(s) of the Notes of such Series may, by notice in writing to the Company, rescind and annul such declaration and its consequences if (i) the Company shall have paid all overdue interest on the Notes of such Series, the principal of and Yield-Maintenance Amount, if any, payable with respect to any Notes of such Series which have become due otherwise than by reason of such declaration, and interest on such overdue interest and overdue principal and Yield-Maintenance Amount at the rate specified in the Notes of such Series, (ii) the Company shall not have paid any amounts which have become due solely by reason of such declaration, (iii) all Events of Defaults and Defaults, other than non-payment of amounts which have become due solely by reason of such declaration, shall have been cured or waived pursuant to paragraph 11C, and (iv) no judgment or decree shall have been entered for the payment of any amounts due pursuant to the Notes of such Series or this Agreement. No such rescission or annulment shall extend to or affect any subsequent Event of Default or Default or impair any right arising therefrom. 22 7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be declared immediately due and payable pursuant to paragraph 7A or any such declaration shall be rescinded and annulled pursuant to paragraph 7B, the Company shall forthwith give written notice thereof to the holder of each Note of each Series at the time outstanding. 7D. OTHER REMEDIES. If any Event of Default or Default shall occur and be continuing, the holder of any Note may proceed to protect and enforce its rights under this Agreement and such Note by exercising such remedies as are available to such holder in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in this Agreement or in aid of the exercise of any power granted in this Agreement. No remedy conferred in this Agreement upon the holder of any Note is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or now or hereafter existing at law or in equity or by statute or otherwise. 8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents, covenants and warrants as follows: 8A. ORGANIZATION. The Company is a corporation duly organized and existing in good standing under the laws of the State of Minnesota, each Subsidiary is duly organized and existing in good standing under the laws of the jurisdiction in which it is incorporated, and the Company has and each Restricted Subsidiary has the corporate power to own its respective property and to carry on its respective business as now being conducted. This Agreement and the Notes have been duly authorized by all necessary corporate action on the part of the Company and, when executed and delivered by the Company, will constitute legal, valid and binding obligations of the Company. SCHEDULE 8A attached hereto lists all Restricted Subsidiaries and all Unrestricted Subsidiaries. All of the outstanding stock (and all outstanding warrants, options and similar rights to acquire stock) of each Restricted Subsidiary is owned by the Company or a Restricted Subsidiary, except as otherwise disclosed in SCHEDULE 8A. 8B. FINANCIAL STATEMENTS. The Company has furnished each Purchaser of any Accepted Notes with the following financial statements, identified by a principal financial officer of the Company: (i) consolidating and consolidated balance sheets of the Company and its Subsidiaries as at June 30 in each of the three fiscal years of the Company most recently completed prior to the date as of which this representation is made or repeated to such Purchaser (other than fiscal years completed within 90 days prior to such date for which audited financial statements have not been released) and consolidating and consolidated statements of income, cash flows and a consolidated statement of shareholders' equity of the Company and its Subsidiaries for each such year, all reported on by Coopers & Lybrand L.L.P. and (ii) a consolidated balance sheet of the Company and its Subsidiaries and of the Company and its Restricted Subsidiaries as at the end of the quarterly period (if any) most recently completed prior to such date and after the end of such fiscal year (other than quarterly periods completed within 45 days prior to such date for which financial statements 23 have not been released) and the comparable quarterly period in the preceding fiscal year and consolidated statements of income and cash flows of the Company and Subsidiaries and of the Company and its Restricted Subsidiaries for the periods from the beginning of the fiscal years in which such quarterly periods are included to the end of such quarterly periods, prepared by the Company. Such financial statements (including any related schedules and/or notes) are true and correct in all material respects (subject, as to interim statements, to changes resulting from audits and year-end adjustments), have been prepared in accordance with generally accepted accounting principles consistently followed throughout the periods involved and show all liabilities, direct and contingent, of the Company and its Subsidiaries or the Company and its Restricted Subsidiaries (as the case may be) required to be shown in accordance with such principles. The balance sheets fairly present the condition of the Company and its Subsidiaries or the Company and its Restricted Subsidiaries (as the case may be) as at the dates thereof, and the statements of income, stockholders' equity and cash flows fairly present the results of the operations of the Company and its Subsidiaries or the Company and its Restricted Subsidiaries (as the case may be) and their cash flows for the periods indicated. There has been no material adverse change in the business, property or assets, condition (financial or otherwise), operations or prospects of the Company and its Subsidiaries or the Company and its Restricted Subsidiaries, in each case taken as a whole, since the end of the most recent fiscal year for which such audited financial statements have been furnished. 8C. ACTIONS PENDING. There is no action, suit, investigation or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of its Restricted Subsidiaries, or any properties or rights of the Company or any of its Restricted Subsidiaries, by or before any court, arbitrator or administrative or governmental body which might result in any material adverse change in the business, property or assets, condition (financial or otherwise) or operations of the Company and its Restricted Subsidiaries taken as a whole. 8D. OUTSTANDING DEBT. Neither the Company nor any of its Restricted Subsidiaries has outstanding any Debt except as permitted by paragraph 6C(2). There exists no default under the provisions of any instrument evidencing such Debt or of any agreement relating thereto. 8E. TITLE TO PROPERTIES. The Company has and each of its Restricted Subsidiaries has good and indefeasible title to its respective real properties (other than properties which it leases) and good title to all of its other respective properties and assets, including the properties and assets reflected in the most recent audited balance sheet referred to in paragraph 8B (other than properties and assets disposed of in the ordinary course of business), subject to no Lien of any kind except Liens permitted by paragraph 6C(1). All leases necessary in any material respect for the conduct of the respective businesses of the Company and its Restricted Subsidiaries are valid and subsisting and are in full force and effect. 8F. TAXES. The Company has and each of its Subsidiaries has filed all federal, state and other income tax returns which are required to be filed, and each has paid all taxes 24 as shown on such returns and on all assessments received by it to the extent that such taxes have become due, except such taxes as are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with generally accepted accounting principles. 8G. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company nor any of its Restricted Subsidiaries is a party to any contract or agreement or subject to any charter or other corporate restriction which materially and adversely affects its business, property or assets, condition (financial or otherwise) or operations. Neither the execution nor delivery of this Agreement or the Notes, nor the offering, issuance and sale of the Notes, nor fulfillment of nor compliance with the terms and provisions hereof and of the Notes will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Restricted Subsidiaries pursuant to, the charter or by-laws of the Company or any of its Restricted Subsidiaries, any award of any arbitrator or any agreement (including any agreement with stockholders), instrument, order, judgment, decree, statute, law, rule or regulation to which the Company or any of its Restricted Subsidiaries is subject. Neither the Company nor any of its Restricted Subsidiaries is a party to, or otherwise subject to any provision contained in, any instrument evidencing Debt of the Company or such Restricted Subsidiary, any agreement relating thereto or any other contract or agreement (including its charter) which limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Company of the type to be evidenced by the Notes except as set forth in the agreements listed in SCHEDULE 8G attached hereto. The Company is not party to any agreement evidencing or pertaining to Debt of the Company which includes any operational or financial covenant which is more favorable to a lender or other beneficiary than those set forth in paragraph 6 hereof. For purposes of the preceding sentence, no effect shall be given to paragraph 5F hereof. 8H. OFFERING OF NOTES. Neither the Company nor any agent acting on its behalf has, directly or indirectly, offered the Notes or any similar security of the Company for sale to, or solicited any offers to buy the Notes or any similar security of the Company from, or otherwise approached or negotiated with respect thereto with, any Person other than institutional investors, and neither the Company nor any agent acting on its behalf has taken or will take any action which would subject the issuance or sale of the Notes to the provisions of Section 5 of the Securities Act or to the provisions of any securities or Blue Sky law of any applicable jurisdiction. 8I. USE OF PROCEEDS. None of the proceeds of the sale of any Notes will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any "margin stock" as defined in Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve System (herein called "MARGIN STOCK") or for the purpose of maintaining, reducing or retiring any indebtedness which was originally incurred to purchase or carry any stock that is then currently a margin stock or for any other purpose which might constitute the purchase of such Notes a "purpose credit" within the meaning of such Regulation G, unless the Company shall have delivered to the Purchaser 25 which is purchasing such Notes, on the Closing Day for such Notes, an opinion of counsel satisfactory to such Purchaser stating that the purchase of such Notes does not constitute a violation of such Regulation G. Neither the Company nor any agent acting on its behalf has taken or will take any action which might cause this Agreement or the Notes to violate Regulation G, Regulation T or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act, in each case as in effect now or as the same may hereafter be in effect. 8J. ERISA. No accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan (other than a Multiemployer Plan). No liability to the Pension Benefit Guaranty Corporation has been or is expected by the Company or any ERISA Affiliate to be incurred with respect to any Plan (other than a Multiemployer Plan) by the Company, any Subsidiary or any ERISA Affiliate which is or would be materially adverse to the business, property or assets, condition (financial or otherwise) or operations of the Company and its Restricted Subsidiaries taken as whole. Neither the Company, any Subsidiary nor any ERISA Affiliate has incurred or presently expects to incur any withdrawal liability under Title IV of ERISA with respect to any Multiemployer Plan which is or would be materially adverse to the business, property or assets, condition (financial or otherwise) or operations of the Company and its Restricted Subsidiaries taken as a whole. The execution and delivery of this Agreement and the issuance and sale of the Notes will be exempt from or will not involve any transaction which is subject to the prohibitions of section 406 of ERISA and will not involve any transaction in connection with which a penalty could be imposed under section 502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the Code. The representation by the Company in the next preceding sentence is made in reliance upon and subject to the accuracy of the representation of each Purchaser in paragraph 9B as to the source of funds to be used by it to purchase any Notes. 8K. GOVERNMENTAL CONSENT. Neither the nature of the Company or of any Restricted Subsidiary, nor any of their respective businesses or properties, nor any relationship between the Company or any Restricted Subsidiary and any other Person , nor any circumstance in connection with the offering, issuance, sale or delivery of the Notes is such as to require any authorization, consent, approval, exemption or any action by or notice to or filing with any court or administrative or governmental body (other than routine filings after the Closing Day for any Notes with the Securities and Exchange Commission and/or state Blue Sky authorities) in connection with the execution and delivery of this Agreement, the offering, issuance, sale or delivery of the Notes or fulfillment of or compliance with the terms and provisions hereof or of the Notes. 8L. ENVIRONMENTAL COMPLIANCE. The Company and its Subsidiaries and all of their respective properties and facilities have complied at all times and in all respects with all foreign, federal, state, local and regional statutes, laws, ordinances and judicial or administrative orders, judgments, rulings and regulations relating to protection of the environment EXCEPT, in any such case, where failure to comply would not result in a material 26 adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Restricted Subsidiaries taken as a whole. 8M. DISCLOSURE. Neither this Agreement nor any other document, certificate or statement furnished to any Purchaser by or on behalf of the Company in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact peculiar to the Company or any of its Subsidiaries which materially adversely affects or in the future may (so far as the Company can now foresee) materially adversely affect the business, property or assets, condition (financial or otherwise) or operations of the Company or any of its Restricted Subsidiaries and which has not been set forth in this Agreement. 8N. HOSTILE TENDER OFFERS. None of the proceeds of the sale of any Notes will be used to finance a Hostile Tender Offer. 8O. RULE 144A. The Notes are not of the same class as securities of the Company, if any, listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system. 8P. FOREIGN ENEMIES AND REGULATIONS. Neither the issue and sale of the Notes by the Company, its use of the proceeds thereof nor any of the transactions contemplated by this Agreement will violate (i) any regulations promulgated or administered by the Office of Foreign Assets Control, United States Department of the Treasury, including, without limitation, the Foreign Assets Control Regulations, the Transaction Control Regulations, the Cuban Assets Control Regulations, the Foreign Funds Control Regulations, the Iranian Assets Control Regulations, the Nicaraguan Trade Control Regulations, the South African Transaction Regulations, the Iranian Transactions Regulations, the Iraqi Sanctions Regulations, the Soviet Gold Coin Regulations, the Panamanian Transaction Regulations or the Libyan Sanctions Regulations of the United States Treasury Department, 31 C.F.R., Subtitle B, Chapter V, as amended, (ii) the Trading with the Enemy Act, as amended, (iii) Executive Orders 8389, 9095, 9193, 12543 (Libya), 12544 (Libya), 12722 (Iraq) or 12724 (Iraq), 12775 (Haiti) or 12779 (Haiti), as amended, of the President of the United States, (iv) the Comprehensive Anti-Apartheid Act of 1986 or (v) any rule, regulation or executive order issued or promulgated pursuant to the laws or regulations described in the foregoing clauses (i) through (iv). 9. REPRESENTATIONS OF THE PURCHASERS. Each Purchaser represents as follows: 9A. NATURE OF PURCHASE. Such Purchaser is not acquiring the Notes purchased by it hereunder with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act, provided that the disposition of such Purchaser's property shall at all times be and remain within its control. 27 9B. SOURCE OF FUNDS. No part of the funds used by such Purchaser to pay the purchase price of the Notes purchased by such Purchaser hereunder constitutes assets allocated to any separate account maintained by such Purchaser in which any employee benefit plan, other than employee benefit plans identified on a list which has been furnished by such Purchaser to the Company, participates to the extent of 10% or more. For the purpose of this paragraph 9B, the terms "SEPARATE ACCOUNT" and "EMPLOYEE BENEFIT PLAN" shall have the respective meanings specified in section 3 of ERISA. 10. DEFINITIONS; ACCOUNTING MATTERS. For the purpose of this Agreement, the terms defined in paragraphs 10A and 10B (or within the text of any other paragraph) shall have the respective meanings specified therein and all accounting matters shall be subject to determination as provided in paragraph 10C. 10A. YIELD-MAINTENANCE TERMS. "CALLED PRINCIPAL" shall mean, with respect to any Note, the principal of such Note that is to be prepaid pursuant to paragraph 4B or is declared to be immediately due and payable pursuant to paragraph 7A, as the context requires. "DISCOUNTED VALUE" shall mean, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (as converted to reflect the periodic basis on which interest on such Note is payable, if payable other than on a semi-annual basis) equal to the Reinvestment Yield with respect to such Called Principal. "REINVESTMENT YIELD" shall mean, with respect to the Called Principal of any Note, the yield to maturity implied by (i) the yields reported, as of 10:00 A.M. (New York City local time) on the Business Day next preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page 678" on the Telerate Service (or such other display as may replace page 678 on the Telerate Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable, (ii) the Treasury Constant Maturity Series yields reported, for the latest day for which such yields shall have been so reported as of the Business Day next preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield shall be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between yields reported for various maturities. 28 "REMAINING AVERAGE LIFE" shall mean, with respect to the Called Principal of any Note, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) each Remaining Scheduled Payment of such Called Principal (but not of interest thereon) by (b) the number of years (calculated to the nearest one-twelfth year) which will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due on or after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date. "SETTLEMENT DATE" shall mean, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to paragraph 4B or is declared to be immediately due and payable pursuant to paragraph 7A, as the context requires. "YIELD-MAINTENANCE AMOUNT" shall mean, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Called Principal of such Note over the sum of (i) such Called Principal plus (ii) interest accrued thereon as of (including interest due on) the Settlement Date with respect to such Called Principal. The Yield-Maintenance Amount shall in no event be less than zero. 10B. OTHER TERMS. "ACCEPTANCE" shall have the meaning specified in paragraph 2E. "ACCEPTANCE DAY" shall have the meaning specified in paragraph 2E. "ACCEPTANCE WINDOW" shall have the meaning specified in paragraph 2E. "ACCEPTED NOTE" shall have the meaning specified in paragraph 2E. "AFFILIATE" shall mean (i) any Responsible Officer or member of the Board of Directors of the Company, (ii) any holder of at least 10% of the total combined voting power of all classes of Voting Stock (or the equivalent) of the Company or of any corporation or other entity which directly or indirectly controls the Company, (iii) the spouse, any sibling (by blood or adoption) or any descendant (be blood or adoption) of any individual referred to in clause (i) or (ii) above, or any spouse of any such sibling or descendant or any descendant of any such sibling, (iv) any trust in which any Person referred to in clause (i), (ii) or (iii) above has a substantial beneficial interest, (v) any corporation or other entity (a) of which the Company or any Person referred to in clause (i), (ii), (iii) or (iv) above holds at least 10% of the total combined economic interest of all classes of Common Stock (or the equivalent) or at least 10% of the total combined voting power of all classes of Voting Stock (or the equivalent) or (b) directly or indirectly controlled by any Person referred to in clause (i), (ii), 29 (iii) or (iv) above, and (vi) any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the Company, PROVIDED that a Restricted Subsidiary shall not be an Affiliate. A Person shall be deemed to control a corporation or other entity if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation or other entity, whether through the ownership of voting securities, by contract or otherwise. "AGGREGATE PERCENTAGE OF EARNINGS CAPACITY TRANSFERRED" shall mean, with respect to any eight consecutive fiscal quarter period, the sum of the Percentages of Earnings Capacity Transferred for each asset of the Company and its Restricted Subsidiaries that is Transferred during such period. "AGGREGATE PERCENTAGE OF TOTAL ASSETS TRANSFERRED" shall mean, with respect to any eight consecutive fiscal quarter period, the sum of the Percentages of Total Assets Transferred for each asset of the Company and its Restricted Subsidiaries that is Transferred during such period. "AUTHORIZED OFFICER" shall mean (i) in the case of the Company, its chief executive officer, its chief financial officer, any vice president of the Company designated as an "Authorized Officer" of the Company in the Information Schedule attached hereto or any vice president of the Company designated as an "Authorized Officer" of the Company for the purpose of this Agreement in an Officer's Certificate executed by the Company's chief executive officer or chief financial officer and delivered to Prudential, and (ii) in the case of Prudential, any officer of Prudential designated as its "Authorized Officer" in the Information Schedule or any officer of Prudential designated as its "Authorized Officer" for the purpose of this Agreement in a certificate executed by one of its Authorized Officers. Any action taken under this Agreement on behalf of the Company by any individual who on or after the date of this Agreement shall have been an Authorized Officer of the Company and whom Prudential in good faith believes to be an Authorized Officer of the Company at the time of such action shall be binding on the Company even though such individual shall have ceased to be an Authorized Officer of the Company, and any action taken under this Agreement on behalf of Prudential by any individual who on or after the date of this Agreement shall have been an Authorized Officer of Prudential and whom the Company in good faith believes to be an Authorized Officer of Prudential at the time of such action shall be binding on Prudential even though such individual shall have ceased to be an Authorized Officer of Prudential. "AVAILABLE FACILITY AMOUNT" shall have the meaning specified in paragraph 2A. "AVERAGE CONSOLIDATED NET INCOME" shall mean, as of any time of determination thereof, the average Consolidated Net Income of the Company and Restricted Subsidiaries for the three complete fiscal years of the Company then most recently ended. "BANKRUPTCY LAW" shall have the meaning specified in clause (viii) of paragraph 7A. 30 "BUSINESS DAY" shall mean any day other than (i) a Saturday or a Sunday, (ii) a day on which commercial banks in New York City are required or authorized to be closed and (iii) for purposes of paragraph 2C hereof only, a day on which The Prudential Insurance Company of America is not open for business. "CANCELLATION DATE" shall have the meaning specified in paragraph 2H(v). "CANCELLATION FEE" shall have the meaning specified in paragraph 2H(v). "CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation which, under generally accepted accounting principles, is or will be required to be capitalized on the books of the Company or any Restricted Subsidiary, taken at the amount thereof accounted for as indebtedness (net of interest expenses) in accordance with such principles. "CLOSING DAY" shall mean, with respect to any Accepted Note, the Business Day specified for the closing of the purchase and sale of such Accepted Note in the Request for Purchase of such Accepted Note, PROVIDED that (i) if the Company and the Purchaser which is obligated to purchase such Accepted Note agree on an earlier Business Day for such closing, the "CLOSING DAY" for such Accepted Note shall be such earlier Business Day, and (ii) if the closing of the purchase and sale of such Accepted Note is rescheduled pursuant to paragraph 2G, the Closing Day for such Accepted Note, for all purposes of this Agreement except references to "original Closing Day" in paragraph 2H(iv), shall mean the Rescheduled Closing Day with respect to such Accepted Note. "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMMON STOCK" shall mean, as applied to any corporation, shares of such corporation which shall not be entitled to preference or priority over any other shares of such corporation in respect of either the payment of dividends or the distribution of assets upon liquidation. "COMPUTATION PARAGRAPHS" shall have the meaning specified in paragraph 5A(iv). "CONFIRMATION OF ACCEPTANCE" shall have meaning specified in paragraph 2E. "CONSOLIDATED INTEREST EXPENSE" shall mean, as to any period, consolidated interest expense of the Company and Restricted Subsidiaries for such period, calculated to (i) include imputed interest on Capitalized Lease Obligations and (ii) exclude amortization of debt discount to the extent not actually paid in cash. "CONSOLIDATED NET INCOME" shall mean, as to any period, the net income of the Company and Restricted Subsidiaries on a consolidated basis; provided that for periods ended on or prior to June 30, 1994, there shall be excluded from the determination of such net income any non-recurring charges related to MEI Diversified, Inc. 31 "CONSOLIDATED NET WORTH" shall mean, as of any time of determination thereof, (i) the shareholders' equity (or deficit) of the Company and its Restricted Subsidiaries, as the same would be shown on a consolidated balance sheet of the Company and its Restricted Subsidiaries, PLUS (ii) to the extent that (a) the convertible debenture of the Company issued to T. Rowe Price Strategic Partners II, L.P. remains outstanding and (b) the public market price of the Company's Common Stock is in excess of the conversion price set forth in such convertible debenture, the conversion price of such convertible debenture, MINUS (iii) the aggregate amount of Investments in Unrestricted Subsidiaries which are deemed not to be Investments for purposes of paragraph 6C(3) as a result of clause (vii)(b) thereof. "CURRENT DEBT" shall mean, with respect to any Person, all Indebtedness of such Person for borrowed money which by its terms or by the terms of any instrument or agreement relating thereto matures on demand or within one year from the date of the creation thereof, PROVIDED that Indebtedness outstanding under a revolving credit or similar agreement which obligates the lender or lenders to extend credit over a period of more than one year shall constitute Current Debt and not Funded Debt. "DEBT" shall mean Current Debt and Funded Debt. "DELAYED DELIVERY FEE" shall have the meaning specified in paragraph 2H(iv). "EBIT" shall mean, as to any period, Consolidated Net Income for such period PLUS (i) Consolidated Interest Expense for such period, PLUS or MINUS (as appropriate) (ii) any provision for income taxes for such period. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "ERISA AFFILIATE" shall mean any corporation which is a member of the same controlled group of corporations as the Company within the meaning of section 414(b) of the Code, or any trade or business which is under common control with the Company within the meaning of section 414(c) of the Code. "EVENT OF DEFAULT" shall mean any of the events specified in paragraph 7A, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act, and "DEFAULT" shall mean any of such events, whether or not any such requirement has been satisfied. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "FACILITY" shall have the meaning specified in paragraph 2A. "FACILITY FEE" shall have the meaning specified in paragraph 2H(ii). 32 "FUNDED DEBT" shall mean with respect to any Person, all Indebtedness of such Person which by it terms or by the terms of any instrument or agreement relating thereto matures, or which is otherwise payable or unpaid, more than one year from, or is directly or indirectly renewable or extendible at the option of the debtor to a date more than one year from, the date of the creation thereof, PROVIDED that Indebtedness outstanding under a revolving credit or similar agreement which obligates the lender or lenders to extend credit over a period of more than one year shall constitute Current Debt and not Funded Debt. "GENERAL INTANGIBLES" shall mean all choses in action, causes of action and all other intangible property of the Company and its Restricted Subsidiaries of every kind and nature now owned or hereafter acquired, including, without limitation, corporate and other business records, deposit accounts, inventions, designs, patents, patent and trademark registrations and applications, trademarks, trade names, trade secrets, goodwill, copyrights registrations, licenses, franchises, deferred tax benefits, tax refund claims, prepaid expenses, computer programs not included in Capital, Property and Equipment on the annual audited consolidated financial statements of the Company and its Restricted Subsidiaries, covenants not to compete, customer lists and mailing lists, contract rights, indemnification rights, and any letters of credit, guarantee claims, security interests or other security held by or granted to the Company or its Restricted Subsidiaries. "GUARANTEE" shall mean, with respect to any Person, any direct or indirect liability, contingent or otherwise, of such Person with respect to any indebtedness, lease, dividend or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business) or discounted or sold with recourse by such Person, or in respect of which such Person is otherwise directly or indirectly liable, including, without limitation, any such obligation in effect guaranteed by such Person through any agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain the solvency or any balance sheet or other financial condition of the obligor of such obligation, or to make payment for any products, materials or supplies or for any transportation or service, regardless of the non-delivery or non-furnishing thereof, in any such case if the purpose or intent of such agreement is to provide assurance that such obligation will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected against loss in respect thereof. The amount of any Guarantee shall be equal to the outstanding principal amount of the obligation guaranteed or such lesser amount to which the maximum exposure of the guarantor shall have been specifically limited. "HEDGE TREASURY NOTE(S)" shall mean, with respect to any Accepted Note, the United States Treasury Note or Notes whose duration (as determined by Prudential) most closely matches the duration of such Accepted Note. 33 "HOSTILE TENDER OFFER" shall mean, with respect to the use of proceeds of any Note, any offer to purchase, or any purchase of, shares of capital stock of any corporation or equity interests in any other entity, or securities convertible into or representing the beneficial ownership of, or rights to acquire, any such shares or equity interests, if such shares, equity interests, securities or rights are of a class which is publicly traded on any securities exchange or in any over-the-counter market, other than purchases of such shares, equity interests, securities or rights representing less than 5% of the equity interests or beneficial ownership of such corporation or other entity for portfolio investment purposes, and such offer or purchases has not been duly approved by the board of directors of such corporation or the equivalent governing body of such other entity prior to the date on which the Company makes the Request for Purchase of such Note. "INCLUDING" shall mean, unless the context clearly requires otherwise, "including without limitation". "INDEBTEDNESS" shall mean, with respect to any Person, without duplication, (i) all items (excluding items of (a) contingency reserves, (b) reserves for deferred income taxes, (c) deferred compensation to the extent that such deferred compensation items are fully funded by life insurance policies, (d) deferred rent, (e) post-retirement benefit liabilities determined in accordance with Financial Accounting Standards Board Statement No. 106 and (f) current liabilities for trade payables, tax and payroll obligations) which in accordance with generally accepted accounting principles would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as of the date on which Indebtedness is to be determined, (ii) all indebtedness secured by any Lien on any property or asset owned or held by such Person subject thereto, whether or not the indebtedness secured thereby shall have been assumed, and (iii) all indebtedness and other obligations of others with respect to which such Person has become liable by way of Guarantee. "INTEREST COVERAGE RATIO" shall mean, as to any period, the ratio of (i) EBIT for such period to (ii) Consolidated Interest Expense for such period. "ISSUANCE PERIOD" shall have the meaning specified in paragraph 2B. "LIEN" shall mean any mortgage, pledge, security interest, encumbrance, lien (statutory or otherwise) or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction) or any other type of preferential arrangement for the purpose, or having the effect, of protecting a creditor against loss or securing the payment or performance of an obligation. "MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA. 34 "1991 AGREEMENT" shall mean the note agreement dated as of June 21, 1991 pursuant to which the Company issued its 11.52% promissory notes due June 30, 1998 in the original principal amount of $55,000,000. "NOTES" shall have the meaning specified in paragraph 1. "OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of the Company by an Authorized Officer of the Company. "OFFSET SHARING AGREEMENT" shall mean the offset sharing agreement dated as of June 21, 1994, among Prudential, LaSalle National Bank, Bank Hapoalin and the other lenders named as parties thereto (as such agreement has been and may be amended from time to time) as well as any similar agreement which hereafter may be entered into by Prudential, other holders of the Notes and other lenders to the Company. "PBGC" shall mean the Pension Benefit Guaranty Corporation, or any successor or replacement entity thereto under ERISA. "PERCENTAGE(S) OF EARNINGS CAPACITY TRANSFERRED" shall mean, with respect to each asset Transferred pursuant to clause (iii) of paragraph 6C(6), the ratio (expressed as a percentage) of (i) Consolidated Net Income produced by, or attributable to, such asset during the four fiscal quarter period most recently ended prior to the effective date of such Transfer to (ii) Average Consolidated Net Income. "PERCENTAGE(S) OF TOTAL ASSETS TRANSFERRED" shall mean, with respect to each asset Transferred pursuant to clause (iii) of paragraph 6C(6), the ratio (expressed as a percentage) of (i) the greater of such asset's fair market value or net book value on the date of Transfer to (ii) the book value of the consolidated assets of the Company and Restricted Subsidiaries as of the last day of the fiscal quarter immediately preceding the day of Transfer. "PERSON" shall mean and include an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. "PLAN" shall mean any employee pension benefit plan (as such term is defined in section 3 of ERISA) which is or has been established or maintained, or to which contributions are or have been made, by the Company or any ERISA Affiliate. "PRIORITY DEBT" shall mean, as of any time of determination thereof, (i) Debt of any Restricted Subsidiary, other than Debt owed to the Company or a Wholly-Owned Restricted Subsidiary and (ii) Debt of the Company secured by any Lien. "PRUDENTIAL" shall mean The Prudential Insurance Company of America. 35 "PRUDENTIAL AFFILIATE" shall mean any corporation or other entity all of the Voting Stock (or equivalent voting securities or interests) of which is owned by Prudential either directly or through Prudential Affiliates. "PURCHASERS" shall mean with respect to any Accepted Notes, Prudential and/or the Prudential Affiliates(s), which are purchasing such Accepted Notes. "REFUND EVENT" shall mean (i) a termination of the Facility resulting from Prudential's provision of notice of termination as contemplated by clause (ii) of paragraph 2B or (ii) a termination of the Facility resulting from the Company's provision of a notice of termination as contemplated by clause (ii) of paragraph 2B, if such notice is provided by the Company within five Business Days following Prudential's failure to provide an interest rate quote (as contemplated by paragraph 2D), unless (a) the applicable Request for Purchase failed to conform in all respects with the requirements of paragraph 2C, (b) a Default or Event of Default existed at the time the applicable Request for Purchase was received or would have existed upon the issuance of the Notes described in the applicable Request for Purchase, (c) a market disrupting event described in paragraph 2F existed at any time during the five Business Day period following receipt of the applicable Request for Purchase, or (d) upon the issuance of the Notes described in the applicable Request for Purchase the Company's credit quality, as determined by Prudential, would have been below investment grade. "REFUNDABLE PORTION" shall mean, with respect to the Facility Fee, that portion thereof determined by multiplying the amount of such fee by a fraction, the denominator of which shall be 1,095 and the numerator of which shall be the difference between 1,095 and the number of days elapsed between the date of the Agreement and the date of the Refund Event. "REQUEST FOR PURCHASE" shall have the meaning specified in paragraph 2C. "REQUIRED HOLDER(S)" shall mean the holder or holders of at least 51% of the aggregate principal amount of the Notes or of a Series of Notes, as the context may require, from time to time outstanding. "RESCHEDULED CLOSING DAY" shall have the meaning specified in paragraph 2G. "RESPONSIBLE OFFICER" shall mean the chief executive officer, chief operating officer, chief financial officer or chief accounting officer of the Company, general counsel of the Company or any other officer of the Company involved principally in its financial administration or its controllership function. "RESTRICTED SUBSIDIARY" shall mean any Subsidiary organized under the laws of any state of the United States of America, Puerto Rico, Canada, or any province of Canada, which conducts substantially all of its business in the United States of America, Puerto Rico or Canada, and a least 80% of the total combined voting power of all classes of Voting Stock 36 of which shall, at the time as of which any determination is being made, be owned by the Company either directly or through Restricted Subsidiaries, PROVIDED that no such Subsidiary shall be a Restricted Subsidiary unless (i) it is listed as a Restricted Subsidiary in Schedule 8A attached hereto or (ii)(a) the Board of Directors of the Company hereafter designates such Subsidiary a Restricted Subsidiary, (b) notice of such designation is given by the Company to the holders of the Notes with the next succeeding delivery of financial statements pursuant to paragraph 5A, and (c) on the date of and immediately after giving effect to such designation, no Event of Default shall have occurred and be continuing. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SERIES" shall have the meaning specified in paragraph 1. "SIGNIFICANT HOLDER" shall mean (i) Prudential, so long as Prudential or any Prudential Affiliate shall hold (or be committed under this Agreement to purchase) any Note, or (ii) any other holder of at least 5% of the aggregate principal amount of the Notes of any Series from time to time outstanding. "SUBORDINATED DEBT" shall mean (i) that certain 7.25% promissory note of the Company due December 31, 1998 and (ii) that certain 7.25% convertible debenture of the Company due December 31, 1998, in each case originally issued to T. Rowe Price Strategic Partners II, L.P. "SUBSIDIARY" shall mean any corporation, association or other business entity which is required to be consolidated in the financial statements of the Company. "TANGIBLE NET WORTH" shall mean, as of any time of determination thereof, the net worth of the Company and its Restricted Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles, plus the amount of the cash surrender value of life insurance policies maintained by the Company on the lives of executive officers plus the amount of Debt permitted by this Agreement which is subordinate in right of payment to the Notes minus the sum of (i) the amount of any General Intangibles, (ii) amounts due from Affiliates and (iii) the amount of investments in Unrestricted Subsidiaries. "TOTAL DEBT" shall mean, as of any time of determination thereof, the aggregate amount of (i) all Funded Debt of the Company and Restricted Subsidiaries, PLUS (ii) the average outstanding daily balance of all Current Debt of the Company and Restricted Subsidiaries during the twelve calendar month period most recently ended as of any time of determination, MINUS (iii) Debt of Restricted Subsidiaries owed to the Company or a Wholly-Owned Subsidiary, MINUS (iv) to the extent that (a) the convertible debenture of the Company originally issued December 31, 1992, to T. Rowe Price Strategic Partners II, L.P. remains outstanding and (b) the public market price of the Company's Common Stock is in excess of the conversion price set forth in such convertible debenture, the conversion price of such convertible debenture. 37 "TRANSFER" shall mean, with respect to any item, the sale, exchange, conveyance, lease, transfer or other disposition of such item. "TRANSFEREE" shall mean any direct or indirect transferee of all or any part of any Note purchased by any Purchaser under this Agreement. "UNRESTRICTED SUBSIDIARY" shall mean any Subsidiary other than a Restricted Subsidiary. No Subsidiary which is or becomes a Restricted Subsidiary shall at any time thereafter become or be an Unrestricted Subsidiary. Notwithstanding the foregoing, solely for the purposes of clause (iii) of paragraph 5A, Regis Mexico, S.A. shall not be deemed an Unrestricted Subsidiary unless and until either it contributes greater than 5% of the consolidated revenues of the Company and Subsidiaries for any fiscal year of the Company or its assets constitute greater than 5% of the consolidated assets of the Company and Subsidiaries as at the end of any fiscal year of the Company. "VOTING STOCK" shall mean, with respect to any corporation, any shares of stock of such corporation whose holders are entitled under ordinary circumstances to vote for the election of directors of such corporation (irrespective of whether at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "WHOLLY-OWNED RESTRICTED SUBSIDIARY" shall mean a Restricted Subsidiary all the outstanding shares (other than directors' qualifying shares, if required by law) of every class of stock of which are at the time owned by the Company or by one or more Wholly-Owned Restricted Subsidiaries. 10C. ACCOUNTING PRINCIPLES, TERMS AND DETERMINATIONS. All references in this Agreement to "generally accepted accounting principles" shall be deemed to refer to generally accepted accounting principles in effect in the United States at the time of application thereof. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all unaudited financial statements and certificates and reports as to financial matters required to be furnished hereunder shall be prepared, in accordance with generally accepted accounting principles applied on a basis consistent with the most recent audited financial statements delivered pursuant to clause (ii) of paragraph 5A or, if no such statements have been so delivered, the most recent audited financial statements referred to in clause (i) of paragraph 8B. 11. MISCELLANEOUS. 11A. NOTE PAYMENTS. The Company agrees that, so long as any Purchaser shall hold any Note, it will make payments of principal of, interest on, and any Yield-Maintenance Amount payable with respect to, such Note, which comply with the terms of this Agreement, by wire transfer of immediately available funds for credit (not later than 12:00 noon, New York City local time, on the date due) to the account or accounts of such Purchaser specified 38 in the Purchaser Schedule specified in the Confirmation of Acceptance with respect to such Note or such other account or accounts in the United States as such Purchaser may from time to time designate in writing, notwithstanding any contrary provision herein or in any Note with respect to the place of payment. Each Purchaser agrees that, before disposing of any Note, it will make a notation thereon (or on a schedule attached thereto) of all principal payments previously made thereon and of the date to which interest thereon has been paid. The Company agrees to afford the benefits of this paragraph 11A to any Transferee which shall have made the same agreement as the Purchasers have made in this paragraph 11A. 11B. EXPENSES. The Company agrees, whether or not the transactions contemplated hereby shall be consummated, to pay, and save Prudential, each Purchaser and any Transferee harmless against liability for the payment of, all out-of-pocket expenses arising in connection with such transactions, including (i) all document production and duplication charges and the fees and expenses of any special counsel engaged by the Purchasers or any Transferee in connection with this Agreement, the transactions contemplated hereby and any subsequent proposed modification of, or proposed consent under, this Agreement, whether or not such proposed modification shall be effected or proposed consent granted, and (ii) the costs and expenses, including attorneys' fees, incurred by any Purchaser or any Transferee in enforcing (or determining whether or how to enforce) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the transactions contemplated hereby or by reason of any Purchaser's or any Transferee's having acquired any Note, including without limitation costs and expenses incurred in any bankruptcy case. The obligations of the Company under this paragraph 11B shall survive the transfer of any Note or portion thereof or interest therein by any Purchaser or any Transferee and the payment of any Note. 11C. CONSENT TO AMENDMENTS. This Agreement may be amended, and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, if the Company shall obtain the written consent to such amendment, action or omission to act, of the Required Holder(s) of the Notes of each Series except that, (i) with the written consent of the holders of all Notes of a particular Series, and if an Event of Default shall have occurred and be continuing, of the holders of all Notes of all Series, at the time outstanding (and not without such written consents), the Notes of such Series may be amended or the provisions thereof waived to change the maturity thereof, to change or affect the principal thereof, or to change or affect the rate or time of payment of interest on or any Yield-Maintenance Amount payable with respect to the Notes of such Series, (ii) without the written consent of the holder or holders of all Notes at the time outstanding, no amendment to or waiver of the provisions of this Agreement shall change or affect the provisions of paragraph 7A or this paragraph 11C insofar as such provisions relate to proportions of the principal amount of the Notes of any Series, or the rights of any individual holder of Notes, required with respect to any declaration of Notes to be due and payable or with respect to any consent, amendment, waiver or declaration, (iii) with the written consent of Prudential (and not without the written consent of Prudential) the provisions of paragraph 2 may be amended or waived (except insofar as any such amendment or waiver would affect any rights or obligations with respect to the purchase and sale of Notes which shall have become Accepted 39 Notes prior to such amendment or waiver), and (iv) with the written consent of all of the Purchasers which shall have become obligated to purchase Accepted Notes of any Series (and not without the written consent of all such Purchasers), any of the provisions of paragraph 2 and 3 may be amended or waived insofar as such amendment or waiver would affect only rights or obligations with respect to the purchase and sale of the Accepted Notes of such Series or the terms and provisions of such Accepted Notes. Each holder of any Note at the time or thereafter outstanding shall be bound by any consent authorized by this paragraph 11C, whether or not such Note shall have been marked to indicate such consent, but any Notes issued thereafter may bear a notation referring to any such consent. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein and in the Notes, the term "THIS AGREEMENT" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. 11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES. The Notes are issuable as registered notes without coupons in denominations of at least $1,000,000, except as may be necessary to reflect any principal amount not evenly divisible by $1,000,000. The Company shall keep at its principal office a register in which the Company shall provide for the registration of Notes and of transfers of Notes. Upon surrender for registration of transfer of any Note at the principal office of the Company, the Company shall, at its expense, execute and deliver one or more new Notes of like tenor and of a like aggregate principal amount, registered in the name of such transferee or transferees. At the option of the holder of any Note, such Note may be exchanged for other Notes of like tenor and of any authorized denominations, of a like aggregate principal amount, upon surrender of the Note to be exchanged at the principal office of the Company. Whenever any Notes are so surrendered for exchange, the Company shall, at its expense, execute and deliver the Notes which the holder making the exchange is entitled to receive. Each installment of principal payable on each installment date upon each new Note issued upon any such transfer or exchange shall be in the same proportion to the unpaid principal amount of such new Note as the installment of principal payable on such date on the Note surrendered for registration of transfer or exchange bore to the unpaid principal amount of such Note. No reference need to be made in any such new Note to any installment or installments of principal previously due and paid upon the Note surrendered for registration of transfer or exchange. Every Note surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer duly executed, by the holder of such Note or such holder's attorney duly authorized in writing. Any Note or Notes issued in exchange for any Note or upon transfer thereof shall carry rights to unpaid interest and interest to accrue which were carried by the Note so exchanged or transferred, so that neither gain nor loss of interest shall result from any such transfer or exchange. Upon receipt of written notice from the holder of any Note of the loss, theft, destruction or mutilation of such Note and, in the case of any such loss, theft or destruction, upon receipt of such holder's unsecured indemnity agreement, or in the case of any such mutilation upon surrender and cancellation of such Note, the Company will make and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Note. 40 11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment for registration of transfer, the Company may treat the Person in whose name any Note is registered as the owner and holder of such Note for the purpose of receiving payment of principal of and interest on, and any Yield-Maintenance Amount payable with respect to, such Note and for all other purposes whatsoever, whether or not such Note shall be overdue, and the Company shall not be affected by notice to the contrary. Subject to the preceding sentence, the holder of any Note may from time to time grant participations in all or any part of such Note to any Person on such terms and conditions as may be determined by such holder in its sole and absolute discretion. 11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein or made in writing by or on behalf of the Company in connection herewith shall survive the execution and delivery of this Agreement and the Notes, the transfer by any Purchaser of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any Transferee, regardless of any investigation made at any time by or on behalf of any Purchaser or any Transferee. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings relating to such subject matter. 11G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in this Agreement contained by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including, without limitation, any Transferee) whether so expressed or not. 11H. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given independent effect so that if a particular action or condition is prohibited by any one of such covenants, the fact that it would be permitted by an exception to, or otherwise be in compliance within the limitations of, another covenant shall not (i) avoid the occurrence of an Event of Default or Default if such action is taken or such condition exists or (ii) in any way prejudice an attempt by a holder or the holders of the Notes to prohibit (through equitable action or otherwise) the taking of any action by the Company or a Restricted Subsidiary which would result in an Event of Default or Default. 11I. NOTICES. All written communications provided for hereunder (other than communications provided for under paragraph 2) shall be sent by first class mail or nationwide overnight delivery service (with charges prepaid) and (i) if to any Purchaser, addressed as specified for such communications in the Purchaser Schedule attached to the applicable Confirmation of Acceptance or at such other address as any such Purchaser shall have specified to the Company in writing, (ii) if to any other holder of any Note, addressed to it at such address as it shall have specified in writing to the Company or, if any such holder shall not have so specified an address, then addressed to such holder in care of the last holder of such Note which shall have so specified an address to the Company and (iii) if to the Company, addressed to it at 7201 Metro Boulevard, Minneapolis, Minnesota 55439, Attention: Chief Financial Officer, PROVIDED, HOWEVER, that any such communication to the 41 Company may also, at the option of the Person sending such communication, be delivered by any other means either to the Company at its address specified above or to any Authorized Officer of the Company. Any communication pursuant to paragraph 2 shall be made by the method specified for such communication in paragraph 2, and shall be effective to create any rights or obligations under this Agreement only if, in the case of a telephone communication, an Authorized Officer of the party conveying the information and of the party receiving the information are parties to the telephone call, and in the case of a telecopier communication, the communication is signed by an Authorized Officer of the party conveying the information, addressed to the attention of an Authorized Officer of the party receiving the information, and in fact received at the telecopier terminal the number of which is listed for the party receiving the communication in the Information Schedule or at such other telecopier terminal as the party receiving the information shall have specified in writing to the party sending such information. 11J. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or interest on, or Yield-Maintenance Amount payable with respect to, any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day. If the date for any payment is extended to the next succeeding Business Day by reason of the preceding sentence, the period of such extension shall be included in the computation of the interest payable on such Business Day. 11K. SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 11L. DESCRIPTIVE HEADINGS. The descriptive headings of the several paragraphs of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 11M. SATISFACTION REQUIREMENT. If any agreement, certificate or other writing, or any action taken or to be taken, is by the terms of this Agreement required to be satisfactory to any Purchaser, to any holder of Notes or to the Required Holder(s), the determination of such satisfaction shall be made by such Purchaser, such holder or the Required Holder(s), as the case may be, in the sole and exclusive judgment (exercised in good faith) of the Person or Persons making such determination. 11N. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE INTERNAL LAW OF THE STATE OF ILLINOIS. 11O. SEVERALTY OF OBLIGATIONS. The sales of Notes to the Purchasers are to be several sales, and the obligations of Prudential and the Purchasers under this Agreement are 42 several obligations. No failure by Prudential or any Purchaser to perform its obligations under this Agreement shall relieve any other Purchaser or the Company of any of its obligations hereunder, and neither Prudential nor any Purchaser shall be responsible for the obligations of, or any action taken or omitted by, any other such Person hereunder. 11P. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 11Q. BINDING AGREEMENT. When this Agreement is executed and delivered by the Company and Prudential, it shall become a binding agreement between the Company and Prudential. This Agreement shall also inure to the benefit of each Purchaser which shall have executed and delivered a Confirmation of Acceptance, and each such Purchaser shall be bound by this Agreement to the extent provided in such Confirmation of Acceptance. Very truly yours, REGIS CORPORATION By: /s/ Paul D. Finkelstein ------------------------- Name: PAUL D. FINKELSTEIN Title: PRESIDENT The foregoing Agreement is hereby accepted as of the date first above written. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ P. Scott von Fischer JE ------------------------------ Vice President 43 INFORMATION SCHEDULE AUTHORIZED OFFICERS FOR PRUDENTIAL Allen A. Weaver P. Scott von Fischer Managing Director Senior Vice President Prudential Capital Group Prudential Capital Group Two Prudential Plaza Two Prudential Plaza Suite 5600 Suite 5600 Chicago, Illinois 60601 Chicago, Illinois 60601 Telephone: (312) 540-4211 Telephone: (312) 540-4225 Facsimile: (312) 540-4222 Facsimile: (312) 540-4222 Mark A. Hoffmeister Leonard H. Lillard IV Senior Vice President Vice President Prudential Capital Group Prudential Capital Group Two Prudential Plaza Two Prudential Plaza Suite 5600 Suite 5600 Chicago, Illinois 60601 Chicago, Illinois 60601 Telephone: (312) 540-4215 Telephone: (312) 540-4216 Facsimile: (312) 540-4222 Facsimile: (312) 540-4222 Jeffrey L. Dickson Vice President Prudential Capital Group Two Prudential Plaza Suite 5600 Chicago, Illinois 60601 Telephone: (312) 540-4214 Facsimile: (312) 540-4222 AUTHORIZED OFFICERS FOR THE COMPANY Paul Finkelstein Randy Pearce Chief Operating Officer & President Vice President, Finance Regis Corporation Regis Corporation 7201 Metro Boulevard 7201 Metro Boulevard Minneapolis, Minnesota 55439 Minneapolis, Minnesota 55439 Telephone: (612) 947-7911 Telephone: (612) 947-7603 Facsimile: (612) 947-7900 Facsimile: (612) 947-7600 Frank Evangelist Senior Vice President, Finance Regis Corporation 7201 Metro Boulevard Minneapolis, Minnesota 55439 Telephone: (612) 947-7699 Facsimile: (612) 947-7600 EXHIBIT A [FORM OF NOTE] REGIS CORPORATION SENIOR SERIES ___ NOTE No. ____ ORIGINAL PRINCIPAL AMOUNT: ORIGINAL ISSUE DATE: INTEREST RATE: INTEREST PAYMENT DATES: FINAL MATURITY DATE: PRINCIPAL PREPAYMENT DATES AND AMOUNTS: 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 ___________________, or registered assigns, the principal sum of ___________________ DOLLARS [on the Final Maturity Date specified above][, payable 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 Morgan Guaranty Trust Company 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. A-1 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 (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. This Note is a registered Note and, as provided in the Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for the then outstanding principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary. In case an Event of Default shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement. Capitalized terms used and not otherwise defined herein shall have the meanings (if any) provided in the Agreement. This Note is intended to be performed in the State of Illinois and shall be construed and enforced in accordance with the internal law of such State. REGIS CORPORATION By: --------------------------- Title: ------------------------ A-2 EXHIBIT B [FORM OF REQUEST FOR PURCHASE] REGIS CORPORATION Reference is made to the Private Shelf Agreement (the "Agreement"), dated as of July 25, 1995 between Regis Corporation (the "Company"), on the one hand, and The Prudential Insurance Company of America ("Prudential") and each Prudential Affiliate which becomes party thereto, on the other hand. Capitalized terms used and not otherwise defined herein shall have the respective meanings specified in the Agreement. Pursuant to Paragraph 2C of the Agreement, the Company hereby makes the following Request for Purchase: 1. Aggregate principal amount of the Notes covered hereby (the "Notes") .................... $____________ 2. Individual specifications of the Notes: Principal Final Prepayment Interest Principal Maturity Dates and Payment Amount(1) Date(2) Amounts Period - - --------- -------- ---------- -------- Quarterly 3. Use of proceeds of the Notes: 4. Proposed day for the closing of the purchase and sale of the Notes: - - --------------- (1) Minimum principal amount of $5,000,000. (2) No less than five and no more than ten years from the date of original issuance. B-1 5. The purchase price of the Notes is to be transferred to: Name, Address and ABA Routing Number of Number of Bank Account --------------- --------- 6. The Company certifies (a) that the representations and warranties contained in paragraph 8 of the Agreement are true on and as of the date of this Request for Purchase except to the extent of changes caused by the transactions contemplated in the Agreement and (b) that there exists on the date of this Request for Purchase no Event of Default or Default. Dated: REGIS CORPORATION By: ---------------------- Authorized Officer B-2 EXHIBIT C [FORM OF CONFIRMATION OF ACCEPTANCE] REGIS CORPORATION Reference is made to the Private Shelf Agreement (the "Agreement"), dated as of July 25, 1995 between Regis Corporation (the "Company"), on the one hand, and The Prudential Insurance Company of America ("Prudential") and each Prudential Affiliate which becomes party thereto, on the other hand. All terms used herein that are defined in the Agreement have the respective meanings specified in the Agreement. Prudential or the Prudential Affiliate which is named below as a Purchaser of Notes hereby confirms the representations as to such Notes set forth in paragraph 9 of the Agreement, and agrees to be bound by the provisions of paragraphs 2E and 2G of the Agreement relating to the purchase and sale of such Notes and by the provisions of the penultimate sentence of paragraph 11A of the Agreement. Pursuant to paragraph 2E of the Agreement, an Acceptance with respect to the following Accepted Notes is hereby confirmed: I. Accepted Notes: Aggregate principal amount $_______________ (A) (a) Name of Purchaser: (b) Principal amount: (c) Final maturity date: (d) Principal prepayment dates and amounts: (e) Interest rate: (f) Interest payment period: (g) Payment and notice instructions: As set forth on attached Purchaser Schedule (B) (a) Name of Purchaser: (b) Principal amount: (c) Final maturity date: (d) Principal prepayment dates and amounts: (e) Interest rate: (f) Interest payment period: (g) Payment and notice instructions: As set forth on attached Purchaser Schedule [(C), (D)...... same information as above.] C-1 II. Closing Day: Dated: REGIS CORPORATION By: ------------------------- Title: ---------------------- [THE PRUDENTIAL INSURANCE COMPANY OF AMERICA] By: ------------------------- Vice President [PRUDENTIAL AFFILIATE] By: ------------------------- Vice President C-2 EXHIBIT D [FORM OF OPINION OF COMPANY'S COUNSEL] [Date of Closing] [Name(s) and address(es) of purchaser(s)] Ladies and Gentlemen: We have acted as counsel for Regis Corporation (the "Company") in connection with the Private Shelf Agreement, dated as of July 25, 1995 (the "Agreement") between the Company, on the one hand, and The Prudential Insurance Company of America and each Prudential Affiliate which becomes a party thereto, on the other hand, pursuant to which the Company has issued to you today Senior Series ____ Notes of the Company in the aggregate principal amount of $_______ (the "Notes"). Capitalized terms used and not otherwise defined herein shall have the meanings provided in the Agreement. This letter is being delivered to you in satisfaction of the condition set forth in paragraph 3A(v) of the Agreement and with the understanding that you are purchasing the Notes in reliance on the opinions expressed herein. In this connection, we have examined such certificates of public officials, certificates of officers of the Company and copies certified to our satisfaction of corporate documents and records of the Company and of other papers, and have made such other investigations, as we have deemed relevant and necessary as a basis for our opinion hereinafter set forth. We have relied upon such certificates of public officials and of officers of the Company with respect to the accuracy of material factual matters contained therein which were not independently established. With respect to the opinion expressed in paragraph 3 below, we have also relied upon the representation made by [each of] you in paragraph 9A of the Agreement. Based on the foregoing, it is our opinion that: 1. The Company is a corporation duly organized and validly existing in good standing under the laws of the State of Minnesota. Each Subsidiary is a corporation duly organized and validly existing in good standing under the laws of its jurisdiction of incorporation. The Company and its Restricted Subsidiaries have the corporate power to carry on its their respective businesses as now being conducted. D-1 2. The Agreement and the Notes have been duly authorized by all requisite corporate action and duly executed and delivered by authorized officers of the Company, and are valid obligations of the Company, legally binding upon and enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 3. It is not necessary in connection with the offering, issuance, sale and delivery of the Notes under the circumstances contemplated by the Agreement to register the Notes under the Securities Act or to qualify an indenture in respect of the Notes under the Trust Indenture Act of 1939, as amended. 4. The extension, arranging and obtaining of the credit represented by the Notes do not result in any violation of regulation G, T or X of the Board of Governors of the Federal Reserve System. 5. The execution and delivery of the Agreement and the Notes, the offering, issuance and sale of the Notes and fulfillment of and compliance with the respective provisions of the Agreement and the Notes do not conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Restricted Subsidiaries pursuant to, or require any authorization, consent, approval, exemption, or other action by or notice to or filing with any court, administrative or governmental body or other Person (other than routine filings after the date hereof with the Securities and Exchange Commission and/or state Blue Sky authorities) pursuant to, the charter or by-laws of the Company or any of its Restricted Subsidiaries, any applicable law (including any securities or Blue Sky law), statute, rule or regulation or (insofar as is known to us after having made due inquiry with respect thereto) any agreement (including, without limitation, any agreement listed in Schedule 8G to the Agreement), instrument, order, judgment or decree to which the Company or any of its Restricted Subsidiaries is a party or otherwise subject. Very truly yours, D-2 SCHEDULE 8A REGIS CORPORATION SCHEDULE OF SUBSIDIARIES - - ------------------------------------------------------------------------------- Regis Hairstylists, Ltd. Restricted 100% Trade Secret, Inc. Restricted 100% Wilson Salons, Inc. Restricted 100% Regis Europe, Ltd. Unrestricted 99%* Regis Mexico, S.A. Unrestricted 100% Regis South Africa (Proprietary) Limited Unrestricted 100% Regis Hairstylists (Proprietary) Limited Unrestricted 100% - - ------------------- * Borrower owns 9,998 shares of the 10,000 shares which are outstanding. The two shares not controlled by Borrower are owned by two employees of Regis Europe, LTD. SCHEDULE 8G LISTING OF AGREEMENTS WHICH RESTRICT THE ABILITY OF REGIS TO INCUR DEBT 1. 11.52% Senior Note Agreement, dated June 21, 1991 (as amended) 2. Bank Credit Agreement, dated June 21, 1994 (as amended) 3. Note and Convertible Debenture Purchase Agreement with T. Rowe Price Strategic Partners Fund II, L.P., dated December 31, 1992 (as amended) EX-10.T 3 EXHIBIT 10(T) THIRD AMENDMENT TO CREDIT AGREEMENT THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as of the 19th day of March, 1996, by and among REGIS CORPORATION, a Minnesota corporation ("Borrower"), each of the lending institutions that is signatory hereto (each, a "Bank" and collectively, the "Banks"), and LaSalle National Bank, a national banking association, as agent for the Banks (in such capacity, the "Agent"). W I T N E S S E T H: WHEREAS, Banks, Borrower and Agent entered into that certain Credit Agreement dated as of June 21, 1994, as amended by that certain Amendment to Credit Agreement dated as of March 10, 1995 and that certain Second Amendment to Credit Agreement dated as of July 20, 1995 (collectively, the "Agreement"), and now desire to further amend such Agreement pursuant to this Amendment. NOW, THEREFORE, for and in consideration of the premises and mutual agreements herein contained and for the purposes of setting forth the terms and conditions of this Amendment, the parties, intending to be bound, hereby agree as follows: 1. INCORPORATION OF THE AGREEMENT. All capitalized terms which are not defined hereunder shall have the same meanings as set forth in the Agreement, and the Agreement, to the extent not inconsistent with this Amendment, is incorporated herein by this reference as though the same were set forth in its entirety. To the extent any terms and provisions of the Agreement are inconsistent with the amendments set forth in PARAGRAPH 2 below, such terms and provisions shall be deemed superseded hereby. Except as specifically set forth herein, the Agreement shall remain in full force and effect and its provisions shall be binding on the parties hereto. 2. AMENDMENT OF THE AGREEMENT. The Agreement is hereby amended as follows: (a) The definitions of the terms "ADJUSTED LIBOR RATE", "BASE RATE LOAN", "CONVERSION DATE", "INTEREST PERIOD", "LIBOR", "LIBOR LOAN", "LIBOR MARGIN" and "RESERVE PERCENTAGE" are hereby appended to PARAGRAPH 1.1 as follows: "ADJUSTED LIBOR RATE" shall mean a rate per annum determined pursuant to the following formula: Adjusted LIBOR Rate = LIBOR --------------------------------------- 100% - Reserve Percentage "BASE RATE LOAN" shall mean a Loan bearing interest as specified in PARAGRAPH 3C(i). "CONVERSION DATE" means the Business Day on which a Base Rate Loan is converted to a LIBOR Loan. "INTEREST PERIOD" means with respect to the LIBOR Loans, the period used for the computation of interest commencing on the date the relevant LIBOR Loan is effected by conversion or continued and concluding on the date thirty (30), sixty (60) or ninety (90) days thereafter, at Borrower's option, with any subsequent Interest Period commencing on the last day of the immediately preceding Interest Period and concluding thirty (30), sixty (60) or ninety (90) days thereafter, at Borrower's option; provided, however, that no Interest Period for any LIBOR Loan made under the Credit Commitment may extend beyond the Maturity Date. Each Interest Period for a LIBOR Loan which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (unless such next succeeding Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the next preceding Business Day). "LIBOR" means for each Interest Period the rate of interest per annum as determined by Agent (rounded upward, if necessary, to the nearest whole multiple of one-sixteenth of one percent (1/16th of 1%) or such other integral multiple thereof at which interest rates for LIBOR-based loans are commonly quoted to major banks in the interbank eurodollar market) at which deposits of United Stages Dollars in immediately available and freely transferable funds would be offered at 11:00 a.m., Chicago time, two (2) Business Days prior to the commencement of such Interest Period by the principal offshore funding office of Agent to major banks in the interbank eurodollar market upon request by such major banks for a period equal to such Interest Period and in an amount equal to the principal amount of the LIBOR Loan to be outstanding from Agent during such Interest Period. Each determination of LIBOR made by Agent in accordance with this paragraph shall be conclusive and binding on Borrower except in the case of manifest error. "LIBOR Loan" means a Loan bearing interest as specified in PARAGRAPH 3C(ii). "LIBOR MARGIN" means one and 65/100 percent (1 65/100%); provided, however, that as long as the ratio of Total Debt to the sum of Total 2 Debt and Consolidated Net Worth does not exceed .35 to 1.00, LIBOR Margin shall mean one and one-half percent (1 1/2%). "RESERVE PERCENTAGE" means, for the purpose of computing the Adjusted LIBOR Rate, the reserve requirement imposed by the Board of Governors of the Federal Reserve System (or any successor) under Regulation D on Eurocurrency liabilities (as such term is defined in Regulation D) for the applicable Interest Period as of the first day of such Interest Period, but subject to any amendments of such reserve requirement by such Board or its successor, and taking into account any transitional adjustments thereto becoming effective during such Interest Period. For purposes of this definition, LIBOR Loans shall be deemed to be Eurocurrency liabilities as defined in Regulation D without benefit of or credit for prorations, exemptions or offsets under Regulation D. (b) The definitions of the terms "BUSINESS DAY" and "LOAN" or "LOANS" set forth in PARAGRAPH 1.1 are hereby amended and restated to read in their entirety as follows: "BUSINESS DAY" means any day on which the Agent is open for the transaction of commercial banking business in Chicago, Illinois other than a Saturday or Sunday and with respect to LIBOR Loans, dealing in United States dollar deposits in London, England. "LOAN" or "LOANS" means and includes all Prime Rate Loans and LIBOR Loans made under the Credit Commitment, unless the context in which such term is used shall otherwise require. (c) PARAGRAPH 2B is amended and restated to read in its entirety as follows: 2B. BORROWING PROCEDURES UNDER THE CREDIT COMMITMENT. Borrower shall give Agent irrevocable telephonic notice, written notice or telecopied notice by no later than 12:00 p.m., Chicago time, on the date it requests to make a Loan hereunder. Each such notice shall be effective upon receipt by Agent and shall specify the date of the Loan (which shall be a Business Day), the amount of such Loan, whether the Loan is a Base Rate Loan or LIBOR Loan and, with respect to a LIBOR Loan, the Interest Period applicable thereto. Borrower shall give Agent irrevocable telephonic notice (which notice shall be promptly confirmed in writing) no later than 10:00 a.m., Chicago time, three (3) Business Days prior to the date that it requests Agent to effect a conversion from a Base Rate Loan to a LIBOR Loan, including a reborrowing as provided in PARAGRAPH 3E. Borrower agrees that Agent may rely on any notice given by any person it reasonably believes to be an authorized officer of 3 Borrower without the necessity of independent investigation. Each borrowing shall be on a Business Day. (d) Paragraph 3C and 3D are amended and restated to read in their entirety as follows: 3C. APPLICABLE BORROWING AMOUNTS; INTEREST RATES; DEFAULT RATE (i) Borrower hereby promises to pay interest on the unpaid principal amount of each Loan at a rate per annum equal to the Base Rate from time to time in effect for the period commencing on the date of such Loan until such Base Rate Loan is (A) converted to a LIBOR Loan pursuant to PARAGRAPH 3E hereof, or (B) paid in full. Accrued interest on the outstanding principal amount of Loans shall be payable (i) monthly in arrears on the last Business Day of each calendar month in the case of a Base Rate Loan, (ii) on the last day of the Interest Period therefor in the case of a LIBOR Loan, (iii) upon conversion of any Loan into a LIBOR Loan (such amount of accrued interest then coming due to be calculated based on the principal amount of the Loan so converted) and (iv) upon the Credit Termination Date, which payments shall commence with the last Business Day of March, 1996 in the case of a Base Rate Loan. After the Credit Termination Date or Conversion Date, as applicable, accrued interest on such Loans shall be payable on demand. (ii) Each LIBOR Loan shall be in a minimum amount of $100,000 or such greater amount which is an integral multiple of $100,000 and shall bear interest (computed on the basis of a year of 360 days and actual days elapsed) on the unpaid principal amount thereof from the date such LIBOR Loan is effected by conversion or continued until maturity (whether by acceleration or otherwise) at a rate per annum equal to the sum of the LIBOR Margin plus the Adjusted LIBOR Rate, with such interest payable in accordance with PARAGRAPH 3C(i) above. (iii) If any payment of principal on any Loan is not made when due, such Loan shall bear interest from the date such payment was due until paid in full, payable on demand, at a rate per annum (the "Default Rate") equal to the sum of three percent (3%) plus the applicable interest rate from time to time in effect (computed on the basis of a 360 day year and actual days elapsed). 3D. COMPUTATION OF INTEREST. Interest on each Loan shall be computed for the actual number of days elapsed on the basis of a 360-day 4 year. The interest rate applicable to each Base Rate Loan shall change simultaneously with each change in such Base Rate. Upon conversion of less than all the aggregate principal amount of Base Rate Loans outstanding at any one time to a LIBOR Loan, interest on the remaining principal amount of Base Rate Loans outstanding after such conversion shall be calculated assuming such LIBOR Loan replaced a corresponding amount of Base Rate Loans bearing interest at the Base Rate applicable thereto immediately prior to such conversion such that the remaining principal amount of Base Rate Loans outstanding after such conversion shall bear interest at the Base Rate which would have been applicable to such Base Rate Loans had no such conversion been effected. (e) PARAGRAPH 3E shall be deemed to be moved to PARAGRAPH 3I and the following PARAGRAPHS 3E, 3F, 3G and 3H are appended to the Agreement: 3E. CONVERSION AND REBORROWING OF LOANS. (i) Provided that no Event of Default has occurred and is continuing, Base Rate Loans may, subject to PARAGRAPHS 2B AND 3C(ii) hereof, at any time be converted by Borrower to LIBOR Loans, which LIBOR Loans shall mature and become due and payable on the last day of the Interest Period applicable thereto. Provided that no Event of Default has occurred and is continuing, Borrower shall have the right, subject to the terms and conditions of this Agreement, to reborrow through a new LIBOR Loan in whole or in part, subject to PARAGRAPH 3C(ii), any LIBOR Loan from any current Interest Period into a subsequent Interest Period, provided that Borrower shall give Agent notice of the reborrowing of any such LIBOR Loan as provided in PARAGRAPH 2B hereof. (ii) In the event that (x) Borrower fails to give notice pursuant to PARAGRAPH 2B hereof of the reborrowing of any LIBOR Loan or fails to specify the Interest Period applicable to such reborrowing or (y) an Event of Default has occurred and is continuing at the time any such LIBOR Loan is to be reborrowed hereunder, then such LIBOR Loan shall be automatically reborrowed as a Base Rate Loan, subject to PARAGRAPHS 3C(ii) (IN THE CASE OF SUBPART (y) OF THIS PARAGRAPH 3E(ii) AND 8B hereof if an Event of Default has occurred and is continuing, whichever is applicable, unless the relevant LIBOR Loan is paid in full on the last day of the then applicable Interest Period. 3F. CHANGE OF LAW. Notwithstanding any other provisions of this Agreement or the Notes, if at any time Agent shall determine in good faith that any change in applicable law or regulation or in the interpretation thereof makes it unlawful or impossible for Agent to effect a conversion of a Base Rate 5 Loan into a LIBOR Loan or to continue to maintain any LIBOR Loan, Agent shall promptly give notice thereof (together with an explanation of the reasons therefor) to Borrower, and the obligation of Agent to effect by conversion or continue such LIBOR Loan under this Agreement shall terminate until it is no longer unlawful or impossible for Agent to effect by conversion or maintain such LIBOR Loan. Upon the receipt of such notice, Borrower may elect to either (i) pay or prepay, as the case may be, the outstanding principal amount of any such LIBOR Loan, together with all interest accrued thereon and all other amounts payable to the Banks under this Agreement, or (ii) convert the principal amount of such affected LIBOR Loan to a Base Rate Loan available hereunder, subject to the terms and conditions of this Agreement. 3F. UNAVAILABILITY OF DEPOSITS OR INABILITY TO ASCERTAIN THE LIBOR RATE OR ADJUSTED LIBOR RATE. Notwithstanding any other provision of this Agreement or the Notes to the contrary, if prior to the commencement of any Interest Period Agent shall determine in good faith (i) that deposits in the amount of any LIBOR Loan scheduled to be outstanding are not available to Agent in the relevant market or (ii) by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the LIBOR rate or Adjusted LIBOR Rate, then Agent shall promptly give notice thereof to Borrower, and the obligation of Agent to effect by conversion or continue any such LIBOR Loan in such amount and for such Interest Period shall terminate until deposits in such amount and for the Interest Period selected by Borrower shall again be readily available in the relevant market and adequate and reasonable means exist for ascertaining the LIBOR rate or Adjusted LIBOR Rate, as the case may be. Upon the giving of such notice, Borrower may elect to either (i) pay or prepay, as the case may be, the outstanding principal amount of any such LIBOR Loan, together with all interest accrued thereon and all other amounts payable to the Banks under this Agreement or (ii) convert the principal amount of such affected LIBOR Loan to a Base Rate Loan available hereunder, subject to all the terms and conditions of this Agreement. 3G. YIELD PROTECTION, ETC. (i) INCREASED COSTS. If (x) Regulation D of the Board of Governors of the Federal Reserve System, or (y) the adoption of any applicable law, treaty, rule, regulation or guideline, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank or its lending branch with any request or directive (whether or note having the force of law) of any such authority, central bank or comparable agency, 6 (A) shall subject such Bank, its lending branch or any Loan to any tax,duty, change, stamp tax, fee, deduction, withholding or other charge in respect to this Agreement, any Loan, the Notes or the obligation of such Bank to make or maintain any Loan, or shall change the basis of taxation of payments to such Bank of the principal of or interest on any Loan or any other amounts due under this Agreement in respect of any Loan or its obligation to make or maintain any Loan (except for changes in the rate of tax on the overall net income of such Bank imposed by the federal, state or local jurisdiction in which such Bank's principal executive office or its lending branch is located); (B) shall impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank; or (C) shall impose on any Bank any penalty with respect to the foregoing or any other condition affecting this Agreement, any Loan, the Notes or the obligation of such Bank to make or maintain any Loan; and the result of any of the foregoing is to increase the cost to (or to impose a cost on) any Bank of making or maintaining any Loan, or to reduce the amount of any sum received or receivable by any Bank under this Agreement or under the Notes with respect thereto, then Agent shall notify Borrower after it receives final notice of any of the foregoing and, within 45 days after demand by Agent (which demand shall be accompanied by a statement setting forth the basis of such demand), Borrower shall pay directly to the applicable Bank for such additional amount or amounts as will compensate the Bank for such increased cost or such reduction. (ii) CAPITAL ADEQUACY. If either (i) the introduction of or any change in or change in the interpretation of any law or regulation or (ii) compliance by any Bank with any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Bank or any corporation controlling such Bank and such Bank determines that the amount of such capital is increased solely by or solely based upon the existence of such Bank's commitment to lend hereunder and other commitments of this type, then, upon demand by Agent, Borrower shall immediately pay to the applicable 7 Bank, from time to time as specified by the Bank, additional amounts sufficient to compensate such Bank in the light of such circumstances, to the extent that such Bank reasonably determines such increase in capital to be allocable to the existence of such Bank's commitment to lend hereunder. 3H. FUNDING INDEMNITY. In the event any Bank shall incur any loss, cost or expense (including, without limitation, any loss of profit and any loss, cost or expense incurred by reason of the liquidation or re-employment of deposits or other funds acquired by such Bank to fund or maintain any LIBOR Loan or the relending or reinvesting of such deposits or amounts paid or prepaid to such Bank) as a result of: (i) any payment of a LIBOR Loan on a date other than the last day of the then applicable Interest Period; (ii) any failure by Borrower to effect by conversion or continue any LIBOR Loan on the date specified in the notice given pursuant to PARAGRAPH 2B hereof; (iii) any failure by Borrower to make any payment of principal or interest when due on any LIBOR Loan, whether at stated maturity, by acceleration or otherwise; or (iv) the occurrence of any Event of Default; then, upon the demand by Agent, Borrower shall pay to the applicable Bank such amount as will reimburse such Bank for such loss, cost or expense. If any Bank makes such a claim for compensation under this PARAGRAPH 3H, Agent shall provide to Borrower a certificate setting forth the amount of such loss, cost or expense in reasonable detail and such certificate shall be conclusive and binding on Borrower as to the amount thereof except in the case of manifest error. 3I. DISCRETION OF AGENT AS TO MANNER OF FUNDING. Notwithstanding any provision of this Agreement to the contrary other than PARAGRAPH 3H, Agent shall be entitled to fund and maintain its funding of all or any part of the Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if Agent had actually funded and maintained each LIBOR Loan during each Interest Period for such LIBOR Loan through the purchase of deposits in the London Interbank Market having a maturity corresponding to such Interest Period and bearing an interest rate equal to the Adjusted LIBOR Rate for such Interest Period. 8 (f) Any and all references in PARAGRAPH 4A(14) to "three quarters of one percent (.75%)" shall hereby be deemed amended to refer to "one-half of one percent (.50%)." 3. REPRESENTATIONS AND WARRANTIES. The representations and warranties set forth in ARTICLE 7 and all covenants set forth in ARTICLES 5 AND 6 of the Agreement shall be deemed remade and affirmed as of the date hereof by Borrower, except that any and all references to the Agreement in such representations, warranties and covenants shall be deemed to include this Amendment. 4. NO BREACH OR DEFAULT. Borrower hereby represents and warrants that no Event of Default, breach or default has occurred under this Agreement. Borrower further represents and affirms that there are no defenses, setoffs, claims or counterclaims which could be asserted against Banks or Agent related to the Agreement. 5. EFFECTUATION. The amendments to the Agreement contemplated by this Amendment shall be deemed effective immediately upon the full execution of this Amendment and without any further action required by the parties hereto. There are no conditions precedent or subsequent to the effectiveness of this Amendment. 9 6. COUNTERPARTS. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the date first above written. ATTEST: REGIS CORPORATION By: /s/ [Illegible] By: /s/ [Illegible] ----------------------------- ----------------------------- Its: Secretary Its: President LASALLE NATIONAL BANK By: /s/ [Illegible] ----------------------------- Its: First Vice President BANK HAPOALIM B.M. By: /s/ [Illegible] ----------------------------- Its: Vice President By: /s/ Michael J. Byrne ----------------------------- Its: Vice President LASALLE NATIONAL BANK, as Agent By: /s/ [Illegible] ----------------------------- Its: Assistant Vice President 10 EX-11 4 EXHIBIT 11 Exhibit 11 COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
Three Months Ended March 31, Nine Months Ended March 31, ---------------------------- --------------------------- 1995 1996 1995 1996 ---- ---- ---- ---- PRIMARY EARNINGS PER SHARE: Net income $ 3,216,000 $ 4,409,000 $10,382,000 $13,761,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding during the period 11,241,841 11,811,336 11,098,023 11,559,458 Common equivalent shares 213,094 358,927 213,026 315,709 ----------- ----------- ----------- ----------- Total common and common equivalent shares outstanding 11,454,935 12,170,263 11,311,049 11,875,167 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income per common and common equivalent share, primary $ 0.28 $ 0.36 $ 0.92 $ 1.16 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- FULLY DILUTED EARNINGS PER SHARE: Net income $ 3,216,000 $4,409,000 $10,382,000 $13,761,000 Net income adjustment - interest on convertible debt, net of tax benefit 30,000 7,000 91,000 54,000 ----------- ----------- ----------- ----------- Adjusted net income $ 3,246,000 $ 4,416,000 $10,473,000 $13,815,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding during the period 11,241,841 11,811,336 11,098,023 11,559,458 Common equivalent shares assuming full dilution 620,865 454,317 617,638 555,787 ----------- ----------- ----------- ----------- Total common and common equivalent shares assuming full dilution 11,862,706 12,265,653 11,715,661 12,115,245 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income per common and common equivalent share, fully diluted $ 0.27 $ 0.36 $ 0.89 $ 1.14 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income per common share as shown on the Company's Consolidated Statement of Operations is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during each period. Common equivalent shares relate primarily to stock options. Convertible debt is the principal reason for increased common equivalent shares for the fully diluted earnings per share computation. EX-15 5 EXHIBIT 15 Exhibit 15 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION Securities and Exchange Commission 450 Fifth Street, North West Washington, D.C. 20549 RE: Regis Corporation Registrations on Form S-8 (File No. 33-44867, No. 33-89882) Registrations on Form S-3 (File No. 33-82094, No. 33-86276, No. 33-89150, No. 33-92244, No. 33-96224 and No. 33-80337) We are aware that our report dated April 22, 1996, on our reviews of the interim financial information of Regis Corporation as of March 31, 1996 and for the periods ended March 31, 1996 and 1995, and included in the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1996 is incorporated by reference in these registration statements. Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of the registration statement prepared or certified by us within the meaning of Sections 7 and 11 of that Act. /s/ Coopers & Lybrand L.L.P. Minneapolis, Minnesota May 3, 1996 (b) Reports on Form 8-K: The Company did not file any current reports on Form 8-K during the three months ended March 31, 1996. EX-27 6 FDS EX-27
5 This schedule contains summary financial information extracted from the third quarter balance sheet and income statement and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS JUN-30-1996 JUL-01-1995 MAR-31-1996 7,786 0 4,119 0 26,383 44,422 177,086 88,770 199,698 52,241 0 0 0 73,224 22,991 199,698 102,580 364,523 54,694 253,591 17,539 0 4,504 23,726 9,965 13,761 0 0 0 13,761 1.16 1.14
-----END PRIVACY-ENHANCED MESSAGE-----