10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2002

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________  to _____________

Commission file number 0-11230

Regis Corporation

(Exact name of registrant as specified in its charter)

Minnesota	41-0749934
State or other jurisdiction of incorporation or organization	(I.R.S. Employer Identification No.)
7201 Metro Boulevard, Edina, Minnesota	55439
(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number, including area code	(952) 947-7777
Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Name of each exchange on which registered
None	None

Securities registered pursuant to section 12(g) of the Act:

Common Stock, Par Value $.05 per share

(Title of class)

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TABLE OF CONTENTS

EX-10.(AA) Note Purchase Agreement

EX-13 Selected Pages of the 2002 Annual Report

EX-23 Consent of PricewaterhouseCoopers LLP

EX-99.1 Certification of Chief Executive Officer

EX-99.2 Certification of Chief Financial Officer

     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 o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

     The aggregate market value of the voting stock held by nonaffiliates of registrant (based upon closing price of $27.83 per share as of September 16, 2002, as quoted on the Nasdaq Stock Exchange), was $1,205,460,847.

     The number of outstanding shares of the registrant’s common stock, par value $.05 per share, as of September 16, 2002, was 43,315,158.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant’s Proxy Statement dated September 27, 2002 and Annual Report to Shareholders for the year ended June 30, 2002, are incorporated by reference into Parts I, II and III.

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PART I

Item 1. Business

Background

Regis Corporation (the Company), based in Minneapolis, Minnesota, is the largest owner, operator, franchisor and acquirer of hair and retail product salons in the world. The Company operates or franchises 6,618 domestic salons and 2,066 international salons. The Company executes its domestic operations through five primary concepts: Regis Salons, MasterCuts, Trade Secret, SmartStyle and Strip Center (primarily Supercuts and Cost Cutters) salons. Each of the concepts offers similar products and services, concentrates on the mass-market consumer marketplace and have consistent distribution channels. All of the salons within the North American concepts are located within high traffic retail shopping locations and the individual salons generally display similar economic characteristics. The Company’s international operations, which are primarily in Europe, are located in salons operating in malls, leading department stores, mass merchants and high-street locations. Based on the way in which the Company manages its business, it has presented its domestic and international operations as two reportable operating segments, domestic and international. During fiscal 2002, the Company and its franchisees provided services to 125 million customers worldwide. The Company has approximately 43,000 employees worldwide.

Industry Overview

Management estimates that annual revenues of the hair care industry are $53 billion in the United States and $135 billion worldwide. The industry is highly fragmented with the vast majority of hair care salons independently owned. However, the influence of chains, both franchise and company-owned, has increased substantially, although still accounting for a small percentage of total locations. Management believes that chains will continue to increase their presence. Management also believes that the demand for salon services and products will increase in the next decade as the population ages and desires additional hair care services, such as coloring.

Business Strategy

The Company’s goal is to provide high quality affordable hair care services and products to wide ranges of customers through physically attractive salons located in high traffic and convenient locations. The key elements of the Company’s strategy to achieve these goals are the following:

Consistent, Quality Service. The Company is committed to meeting its customer’s hair care needs by providing competitively priced services and products in high traffic retail locations with professional and knowledgeable hairstylists. The Company’s operations and marketing emphasize high quality services to create customer loyalty, to encourage referrals and to distinguish the Company’s salons from its competitors. The major services supplied by the Company’s salons are haircutting and styling, hair coloring, shampooing, conditioning and permanent waving. To promote quality and consistency of services provided throughout the Company’s salons, Regis has full and part-time artistic directors whose duties are to teach and train salon operators and to instruct the stylists in current styling trends.

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Diversification. The Company has the ability to diversify its salon base through location and concept. This provides the Company flexibility to meet consumer demand and demographics within the market.

The majority of the Company’s salons are in mall-based or strip center-based locations. The mall locations, which are aesthetically appealing and designed to attract customers from mall shoppers, provide a steady source of new business. The Company’s strip center salons are conveniently located in strip shopping centers with adequate traffic, appropriate trade area demographics, good visibility within the center or from adjoining streets, effective signage, easy access and adequate parking. The Company also operates salons within Wal-Mart stores and supercenters.

Regis’ North American salon concepts address the various customer preferences within the salon market. The Company’s regional mall salon concepts provide the Company with the ability to have multiple locations within a single mall. Because the square footage for each of the mall-based and strip center-based locations are approximately the same, the Company has the ability to determine which salon concept is best suited to a location or change the concept of existing salons to meet customer preference or demographic changes in the salon’s market.

The Company also has salons located internationally in malls, leading department stores, mass merchants and high-street locations, and is consistently focused on the moderate-to-upscale hair care and beauty market.

Expansion. The Company has grown through increasing revenues from existing salons, constructing additional salons, and mergers and acquisitions. Since 1995, the Company has added 7,150 net units (including franchised salons) to its worldwide salon base from new salon construction as well as mergers and acquisitions. During this same period of time, the Company added several new salon concepts, including SmartStyle, merged with Supercuts and The Barbers, and expanded its Regis Salons and MasterCuts concepts. In fiscal 2000, the Company added 68 salons operating under the Supercuts name through its merger with Supercuts UK. In fiscal 2002, the Company added 523 salons with its acquisition of the French franchise company Groupe Gerard Glemain (GGG), along with nearly 1,200 franchised salons with its acquisition of the European franchisor Jean Louis David (JLD). In addition to continuing its salon acquisition strategy, the Company expects to construct about 435 new company-owned salons and complete approximately 175 major remodeling and conversion projects during fiscal 2003.

The Company intends to focus future growth of salons in strip shopping centers across North America by adding company-owned salons and assisting current and new franchisees in their expansion and market development. The Company believes its growth opportunities in strip shopping centers of the retail hair care market in North America are vast and will complement the Company’s continuing growth of its mall-based concepts. In addition, the Company plans to continue pursuing expansion opportunities by adding company-owned and franchised salons located in Wal-Mart stores and supercenters. The Company also plans to expand its European presence through franchising its recently acquired brands in the GGG and JLD acquisitions.

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High Quality Hair care Products. Through Trade Secret and the Company’s other salons, Regis sells nationally-recognized hair care products such as Matrix®, Paul Mitchell®, Sebastian®, Redken®, Tigi®, Back To Basics® and a complete line of products sold under the Regis label. Salon branded products are typically sold only through professional salons and generate slightly higher gross margins than haircutting and other salon services. The Company’s stylists are trained and compensated to sell hair care products to their customers. Sales of hair care products increased 14.1 percent in fiscal 2002 to a record $412.7 million and represented 30.0 percent of company-owned revenues.

Control Over Salon Operations. Regis controls the quality of operations and enjoys certain economies of scale in terms of certain corporate and store level expenses. The Company has an extensive training program, including the production of training videos for use in the salons, to ensure its hairstylists are knowledgeable in the latest haircutting and fashion trends and provide consistent quality hair care services.

Economies of Scale. Management believes that due to its size and number of locations the Company has certain advantages which are not available to single location salons or small chains. The Company uses its point-of-sale system to track inventory at the salons and to accumulate and monitor service and product sales. This product and customer information is used to evaluate salon productivity and, in some cases, to determine the most appropriate salon use for the location. Additionally, as a result of its volume purchases, the Company is able to purchase hair care products, supplies and salon fixtures on an advantageous basis. The Company is also able to gain market recognition for the Regis name and its salon concepts through national and local advertising and promotional programs. Furthermore, the Company has employee benefit programs, training and career path opportunities which the smaller owner cannot provide.

Salon Concepts:

The Company has two reporting segments based on its management structure: domestic and international. The Company’s domestic segment consists of 6,618 salons (2,224 franchised), operating under five concepts, each offering attractive and affordable hair care products and services in the United States, Canada and Puerto Rico as discussed below:

Regis Salons. Regis Salons are full-service, mall-based salons providing complete hair care and beauty services aimed at moderate to upscale, fashion-conscious consumers. The customer mix at Regis Salons is approximately 75 percent women. These salons offer a full range of custom hairstyling, cutting, coloring, permanent wave and manicuring as well as hair care products. The average sale at Regis Salons is approximately $27. Regis Salons compete in their existing markets primarily by emphasizing the high quality of full services provided. The Company actively monitors the prices charged by its competitors in each area and makes every effort to maintain prices which, although in the higher range of local prices, remain competitive with prices of other salons offering similar, high quality services. At June 30, 2002, the Company operated 1,016 Regis Salons primarily in shopping malls in North America. Revenues from the Regis Salons increased to $416.2 million, or 28.6 percent of the Company’s total revenues, in fiscal 2002. The Company expects to construct about 50 new Regis Salons in fiscal 2003.

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MasterCuts Family Haircutters. MasterCuts Family Haircutters salons are mall-based and serve a broader customer base than Regis Salons and respond to competitive pressures for more moderate cost hair care services. MasterCuts salons emphasize quality haircutting, lower prices and time-saving services for the entire family. Hair coloring services have been a recent contributor to the growth in MasterCuts service revenues. Further, a number of MasterCuts salons have recently begun to offer facial waxing services. The customer mix at MasterCuts salons contains a greater percentage of men and children than at Regis Salons. MasterCuts salons cater to walk-in customers and provide a warm, inviting atmosphere that is comfortable for all members of the family. Many of the same product lines sold in Regis Salons are also available in MasterCuts salons. In addition, the new MasterCuts private label haircare line appeared in salons beginning in July of 2002. The average sale at MasterCuts salons is approximately $14. The MasterCuts salons place emphasis on discount or promotional pricing for the services being offered in order to compete more effectively with other salons. At June 30, 2002, the Company operated 551 MasterCuts salons in North America. Revenues from MasterCuts salons grew to $164.8 million, or 11.3 percent of the Company’s total revenues, in fiscal 2002. During fiscal 2003, the Company plans to construct approximately 40 new MasterCuts salons.

Trade Secret. Trade Secret salons are designed to emphasize the sale of hair care and beauty products in a mall-based retail setting while providing high quality hair care services. Trade Secret salons offer the same products as the Regis Salons and MasterCuts salons, but also have additional hair, skin and nail products. The average sale at Trade Secret salons is approximately $20. At June 30, 2002, the number of Trade Secret salons totaled 516 in North America, including 26 franchised locations. Revenues from company-owned Trade Secret salons and franchising activity during fiscal 2002 was $190.0 million and $2.9 million, respectively, or 13.3 percent of the Company’s total revenues. The Company anticipates constructing approximately 35 new Trade Secret salons in fiscal 2003.

SmartStyle. The Company expanded into the mass merchant retail arena in fiscal 1996 by acquiring 154 salons operating within Wal-Mart stores and supercenters. These salons share many operating characteristics with MasterCuts: pricing is promotional, services are focused on family hair services, and product revenues contribute solidly to overall revenues. In fiscal 1998, the Company introduced a new brand name, SmartStyle Family Hair Salons, for its company-owned Wal-Mart salons and rapidly expanded this new brand name into its Wal-Mart salons in fiscal 1999. As part of the merger with The Barbers in May 1999, the Company acquired 199 (158 franchised) salons operating as Cost Cutters in Wal-Mart stores and supercenters making Regis the primary provider of salon services in Wal-Marts. The Company operated 861 company-owned SmartStyle salons within Wal-Mart stores and supercenters at June 30, 2002. Revenue from company-owned SmartStyle salons grew to $178.7 million, or 12.3 percent of the Company’s total revenue in fiscal 2002. The average sale at SmartStyle salons is approximately $16. The Company anticipates constructing about 150 new company-owned SmartStyle salons in fiscal 2003. See the Cost Cutters section under Strip Center Salons for discussion of the 210 franchised salons within Wal-mart stores and supercenters.

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Strip Center Salons. The Company’s Strip Center Salons are comprised of 1,476 company-owned and 1,988 franchised salons operating in strip centers under the following concepts:

Supercuts. The Supercuts concept provides consistent high quality hair care services to its customers at convenient times and locations and at a reasonable price. The stores are designed for ease of operation and the demand for basic hair care is believed to be recession resistant and non-seasonal. This concept appeals to men, women and children, although male customers account for over 65 percent of total haircuts. The average sale at Supercuts salons is approximately $12. At June 30, 2002, the Company operated 1,664 Supercuts stores in North America, including 952 franchised locations. Revenues from company-owned Supercuts and franchising activity during fiscal 2002 was $165.5 million and $33.0 million, respectively, or 13.7 percent of the Company’s total revenues. The Company plans to construct 80 new company-owned salons and franchisees will open an additional 100 Supercuts stores in fiscal 2003.

Cost Cutters. This group of franchised salons was added to the Company’s salon base as a result of the merger with The Barbers in fiscal 1999, as previously discussed. Cost Cutters salons provide value-priced hair care services for men, women and children and sell a complete line of professional hair care products. The average sale at Cost Cutters salons is approximately $13. At June 30, 2002, the Company franchised 612 Cost Cutters salons in strip centers and 210 Cost Cutters salons in Wal-Mart stores and supercenters generating franchise revenues during fiscal 2002 of $23.7 million, or 1.6 percent of the Company’s total revenues. The Company plans to add 40 franchise salons in strip centers and an additional 40 franchised salons in Wal-Mart stores and supercenters during fiscal 2003. In addition to the franchised salons, the Company operates company-owned Cost Cutters salons, as discussed below.

Other Company-owned Strip Center Salon Concepts. Company-owned Strip Center Salons are made up of successful salon groups acquired over the past five years operating under the primary brands of Hair Masters, Style America, First Choice Haircutters, Best Cuts, Cost Cutters, BoRics and Magicuts, as well as other regional brand names. All concepts offer a full range of custom hairstyling, cutting, coloring and permanent wave as well as hair care products. Hair Masters offers moderately-priced services to a predominately female demographic, while the other brands primarily cater to time-pressed, value-orientated families. The average sale for a company-owned strip center salon is approximately $13. At June 30, 2002, the Company operated 764 salons within this concept. Revenues from this group of salons during fiscal 2002 were $155.9 million or 10.7 percent of the Company’s total revenues. The Company anticipates building 60 new salons in this group in fiscal 2003.

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Other Franchise Concepts. This group of franchised salons includes primarily First Choice Haircutters, Magicuts and Haircrafters, as well as other smaller brands which have been acquired in recent years. These concepts function primarily in the high volume, value-priced hair care market segment, with key selling features of value, convenience, quality and friendliness, as well as a complete line of professional hair care products. At June 30, 2002, the Company franchised 424 salons in this group, generating franchise revenue during fiscal 2002 of $4.4 million, or 0.3 percent of the Company’s total revenues. In addition to these franchised salons, the Company operates company-owned First Choice Haircutters and Magicuts salons, as previously discussed above.

International Salons:

At June 30, 2002, the Company operated 2,066 hair care salons, including 1,684 franchised salons, located througout Europe, primarily in the United Kingdom, France, Italy and Spain. The Company is currently positioned as the worldwide industry leader. During fiscal 2002, the Company added to its existing international salon concepts — primarily Regis Hairstylists, Trade Secret, Hair Express and Supercuts — with the acquisitions of the French franchisors, GGG and JLD. Salons associated with GGG operate under the brands Saint Algue, Coiff & Co., Intermede and City Looks. JLD operates primarily under the following concepts: JLD Diffusion, JLD Tradition and JLD Quick Service. Company-owned salons in the international division operate in malls, leading department stores, high-street locations and grocery and retail chains under license arrangements or real property leases, consistently focused on the value-priced, moderate and upscale hair care and beauty market. The average sale at an international salon is approximately $34. Revenues from company-owned and franchise operations for international salons grew to $105.5 million and $13.5 million, respectively, or 8.2 percent of the Company’s total revenues, in fiscal 2002. The Company expects to build approximately 19 company-owned and open an additional 125 to 150 franchised salons internationally during fiscal 2003.

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Salon Development

The table on the following pages sets forth the number of system-wide salons (company-owned and franchised) opened at the beginning and end of each of the last five years, as well as the number of salons opened, closed, relocated, converted and acquired during each of these periods.

SALON LOCATION SUMMARY

			1998			1999			2000			2001			2002
REGIS SALONS (3)
	Open at beginning of period			835			844			905			912			981
	Salons constructed			33			41			52			43			61
	Acquired			15			63			14			65			17
	Less relocations			15			20			29			17			17
		Net salon openings		33			84			37			91			61
	Conversions									(3	)		(1	)		(1	)
	Salons closed or sold			(24	)		(23	)		(27	)		(21	)		(25	)
	Open at end of period			844			905			912			981			1,016
MASTERCUTS
	Open at beginning of period			362			412			460			502			523
	Salons constructed			50			47			44			33			42
	Acquired			8			13			7			2			1
	Less relocations			4			7			5			10			2
		Net salon openings		54			53			46			25			41
	Conversions									1			1			1
	Salon closed or sold			(4	)		(5	)		(5	)		(5	)		(14	)
	Open at end of period			412			460			502			523			551
TRADE SECRET
Company-owned Salons:
	Open at beginning of period			302			340			432			460			478
	Salons constructed			32			44			49			39			34
	Acquired			14			64			13			3			1
	Less relocations			4			9			8			7			11
		Net salon openings		42			99			54			35			24
	Conversions (1)			2			(7	)		1			(2	)		(1	)
	Salon closed or sold			(6	)					(27	)		(15	)		(11	)
	Open at end of period			340			432			460			478			490
Franchised Salons:
	Open at beginning of period			38			34			27			26			25
	Salons added															1
	Acquired (4)
	Less relocations
		Net salon openings														1
	Conversions (1)			(2	)		(7	)
	Salon closed or sold			(2	)					(1	)		(1	)
	Open at end of period			34			27			26			25			26

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					1998			1999			2000			2001			2002
SMARTSTYLE/COST CUTTERS IN WAL-MART
Company-owned Salons:
	Open at beginning of period					198			293			386			547			722
	Salons constructed					48			96			126			152			125
	Acquired					47						43			38			17
	Less relocations								3			5			4			1
			Net salon openings			95			93			164			186			141
	Conversions (1)														(9	)
	Salon closed or sold											(3	)		(2	)		(2	)
	Open at end of period					293			386			547			722			861
Franchised Salons:
	Open at beginning of period					117			136			158			148			194
	Salons constructed					19			22			33			39			37
	Acquired (4)														2
	Less relocations														1
			Net salon openings			19			22			33			40			37
	Conversions (1)											(43	)		9			(17	)
	Salon closed or sold														(3	)		(4	)
	Open at end of period					136			158			148			194			210
STRIP CENTERS
Company-owned Salons:
		Open at beginning of period				423			500			667			982			1,383
		Salons constructed				7			60			83			114			69
		Acquired				47			143			276			341			76
		Less relocations							3			3			8			2
				Net salon openings		54			200			356			447			143
		Conversions (1)				38			(25	)		3			(13	)		(4	)
		Salon closed or sold				(15	)		(8	)		(44	)		(33	)		(46	)
		Open at end of period				500			667			982			1,383			1,476
Franchised Salons:
		Open at beginning of period				1,566			1,579			1,615			1,740			2,011
		Salons constructed				96			106			164			131			150
		Acquired (4)				30						147			184
		Less relocations				3			4			12			10			12
				Net salon openings		123			102			299			305			138
		Conversions (1)				(38	)		(2	)		(135	)		15			(78	)
		Salon closed or sold				(72	)		(64	)		(39	)		(49	)		(83	)
		Open at end of period				1,579			1,615			1,740			2,011			1,988

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INTERNATIONAL (2)			1998			1999			2000			2001			2002
Company-owned Salons:
	Open at beginning of period			481			460			372			352			364
	Salons constructed			27			12			17			35			18
	Acquired						1						3			16
	Less relocations
		Net salon openings		27			13			17			38			34
	Conversions												(3	)
	Salons closed or sold			(48	)		(101	)		(37	)		(23	)		(16	)
	Open at end of period			460			372			352			364			382
Franchised Salons:
	Salons constructed															69
	Acquired (4)															1,664
		Net salon openings														1,733
	Salon closed or sold															(49	)
	Open at end of period															1,684
Grand total, system-wide				4,598			5,022			5,669			6,681			8,684

(1)	Represents primarily the conversion of franchise operations to company-owned.
(2)	Canadian and Puerto Rican salons are included in the Regis Salons, Strip Center, MasterCuts and Trade Secret divisions and not included in the International salon totals.
(3)	Includes Mia & Maxx Hair Studio salons.
(4)	Represents primarily the acquisition of franchise networks.

The Company intends to construct approximately 435 new company-owned salons during fiscal 2003, up from 349 salons constructed in fiscal 2002. The Company has a program of modernizing its existing salons, ranging from redecoration to substantial reconstruction, in order to raise its older salons to the standards of its newly constructed locations. This program is implemented as management determines that a particular location will benefit from such modernization, or as required by lease renewals. A total of 134 salons were remodeled in fiscal 2002, and the Company anticipates completing approximately 175 projects in fiscal 2003.

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Retail Products

The Company continues to place emphasis on the sales of higher-margin professional hair care products, with the result that such revenues have become an increasingly important part of the Company’s business, having grown from 5.4 percent of total company-owned revenues in fiscal 1987 to 30.0 percent in fiscal 2002. A significant portion of this growth has resulted from the introduction of national brand merchandise in 1988, the acquisition of Beauty Express in November 1992 and Trade Secret in December 1993. The hair care products offered are primarily shampoos, hair conditioners and styling and finishing products. The Company actively reviews its product line offerings and continuously investigates the quality and sales potential of new products. The Company utilizes its national salon network as a testing ground for new product formulations. There are many potential sources of supply for the types of products used or sold at the salons, and the Company is not dependent upon any single supplier.

Site Selection

Strip Center Locations. There are more than 40,000 strip shopping centers in the United States and Canada which provide the Company with vast growth opportunity for new strip center salons. Regis’ financial strength, successful salon operations and national recognition causes the Company to be an attractive tenant to strip center landlords. In evaluating specific locations for its non-mall brands for both company-owned and franchise stores, the Company seeks conveniently located, highly visible strip shopping centers which allow customers adequate parking and quick and easy store access. The Company believes neighborhood shopping centers anchored by the number one or two grocery chains in the specific market, or a major mass merchant, provide access to a stable customer flow. Various other factors are considered in evaluating sites, including trade area demographics, availability and cost of space, location of competitors, traffic count, visibility, signage and other leasehold factors in a given center or area. All franchisee sites must be approved by the Company.

Mall Locations. The Company is the largest shopping mall tenant which operates hair care salons in North America and has attained national tenant status which makes the Company an attractive tenant for shopping mall owners and developers. Mall owners and developers typically seek retailers such as Regis due to the Company’s financial strength, successful salon operations and status as a national mall tenant. In the United States, there are approximately 1,800 enclosed malls which meet the Company’s size and performance criteria with six to ten new shopping malls developed each year. Because the Company’s different salon concepts target different mass-market customer groups depending on the size and location of the shopping malls, more than one of the Company’s salon concepts may be located in the same mall. As a result, there are numerous leasing opportunities in shopping malls for its Regis, MasterCuts, Trade Secret and Mia & Maxx Hair Studio salons, of which the Company has penetrated approximately 60 percent.

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The Company generally locates its Regis, MasterCuts, Trade Secret and Mia & Maxx Hair Studio salons in fully enclosed, climate-controlled shopping malls classified as “regional” having 400,000 or more square feet of leasable area and at least two full-line department store anchor tenants. The Company’s experience has been that selecting the proper mall and obtaining a favorable, high-traffic location within the mall are important determinants of the success of a new salon. For existing malls, the Company evaluates the current sales per square foot of selected tenants, the stature and strength of the anchor stores and the other major tenants, the location and traffic patterns within the mall, and the proximity of competitors. In addition, the Company may conduct site surveys and physical observations to assess the location, traffic patterns and competitive environment.

Several trends have enabled the Company to continue to lease high-profile space in existing malls. Leasing velocity and turnover have increased because the average length of shopping mall lease terms has declined over time. Also, many existing malls are being expanded, renovated and remerchandised. Because of these factors, the Company believes that it has ample expansion opportunities and therefore can be selective in establishing new mall locations.

Franchising Program

General

The Company has various franchising programs supporting its 3,908 franchised salons as of June 30, 2002, consisting mainly of Supercuts, Cost Cutters, First Choice Haircutters, Magicuts, Haircrafters, and franchisees operating under the European franchise companies of GGG and JLD.

The Company provides its franchisees with a comprehensive system of business training, stylist education, site approval and lease negotiation, professional marketing, promotion and advertising programs, and other forms of support designed to help the franchisee build a successful business.

Standards of Operations

Franchisees are required to conform to company-established operational policies and procedures relating to quality of service, training, design and decor of stores, and trademark usage. The Company’s field personnel make periodic visits to franchised stores to ensure that the stores are operating in conformity with the standards for each franchising program.

To further ensure conformity with all Supercuts and certain other franchises, the Company enters into the lease for the store site directly with the landlord, and subsequently subleases the site to the franchisee. The franchise agreement and sublease provide the Company with the right to terminate the sublease and gain possession of the store if the franchisee fails to comply with the Company’s operational policies and procedures. See Note 6 of “Notes to Consolidated Financial Statements” for further information.

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Franchise Terms

Pursuant to their franchise agreement with the Company, each franchisee pays an initial fee for each store and ongoing royalties to the Company. In addition, for most franchise concepts, the Company collects advertising funds from franchisees and administers the funds on behalf of the concept. Franchisees are responsible for the costs of leasehold improvements, furniture, fixtures, equipment, supplies, inventory and certain other items, including initial working capital.

Supercuts

The majority of existing Supercuts franchise agreements have a perpetual term, subject to termination of the underlying lease agreement or termination of the franchise agreement by either the Company or the franchisee. The agreements also provide the Company a right of first refusal if the store is to be sold. The franchisee must obtain the Company’s approval in all instances where there is a sale of the franchise. The current franchise agreement is site specific and does not provide any territorial protection to a franchisee, although some older franchise agreements do include limited territorial protection. During fiscal 2001, the Company began selling development agreements for new markets which include limited territory protection for the Supercuts brand. The Company has a comprehensive impact policy that resolves potential conflicts among franchisees and/or the Company regarding proposed salon sites.

Cost Cutters, First Choice Haircutters and Magicuts

The majority of existing Cost Cutters’ franchise agreements have a 15-year term with a 15-year option to renew, while the majority of First Choice Haircutters’ franchise agreements have a ten-year term with a five-year option to renew. The majority of Magicuts’ franchise agreements have a term equal to the greater of five years or the current initial term of the lease agreement with an option to renew for two additional five-year periods. All of the agreements also provide the Company a right of first refusal if the store is to be sold. The franchisee must obtain the Company’s approval in all instances where there is a sale of the franchise. The current franchise agreement is site specific. Franchisees may enter into development agreements with the Company which provides limited territorial protection.

Groupe Gerard Glemain(GGG) and Jean Louis David (JLD)

The majority of GGG’s franchise contracts have a five-year term with an implied option to renew for a term of three years. All new JLD contracts have five-year terms, although a substantial number of JLD’s existing contracts provide for an eight-year term. The franchise agreements for both GGG and JLD are site specific and only a small minority of the contracts provide for territorial exclusivity. The agreements provide for the right of first refusal if the salon is to be sold and the franchisee must obtain the Company’s approval before selling of the salon. Neither GGG nor JLD act as lessor for their franchisees.

14

Franchise Sales

Franchise expansion will continue to be a significant focus of the Company in the future. Existing franchisees and new franchisees that open multiple salons may receive a reduction in initial franchise fees.

Franchisee Training

The Company provides new franchisees with training, focusing on the various aspects of store management, including operations, personnel management, marketing fundamentals and financial controls. Existing franchisees receive training, counseling and information from the Company on a continuous basis. In addition, the Company provides store managers and stylists with extensive technical training for Supercuts franchises. For further description of the Company’s education and training programs, see the “Salon Training Programs” section of this document.

Markets and Marketing

The Company maintains various advertising, sales and promotion programs for its salons, budgeting a predetermined percent of revenues for such programs. The Company has developed promotional tactics and institutional sales messages for each of its divisions targeting certain customer types and positioning each concept in the marketplace. Print, radio, television and billboard advertising are developed and supervised at the Company’s headquarters, but most advertising is done in the immediate area of the particular salon.

The primary franchise brands maintain separate Advertising Funds (the “Funds”), managed by the Company, that provide comprehensive advertising and sales promotion support for each system. All stores, company-owned and franchised, contribute to the Funds, the majority of which are allocated to the contributing market for media placement and local marketing activities. The remainder is allocated for the creation of national advertising campaigns and system-wide activities. This intensive advertising program creates significant consumer awareness, a strong brand image and high loyalty.

Salon Training Programs

The Company has an extensive hands-on training program for its hairstylists which emphasizes both technical training in hairstyling and cutting, hair coloring, perming and hair treatment regimes as well as customer service and product sales. The objective of the training programs is to ensure that customers receive professional and quality service which the Company believes will result in more repeat customers, referrals and product sales.

The Company has full- and part-time artistic directors who teach and train the salon operators in techniques for providing the salon services and who instruct the stylists in current styling trends. The Company also has an audiovisual based training system in its salons designed to enhance technical skills of hairstylists.

15

The Company has a customer service training program to improve the interaction between employees and customers. Staff members are trained in the proper techniques of customer greeting, telephone courtesy and professional behavior through a series of professionally designed video tapes and instructional seminars.

Staff Recruiting and Retention

Recruiting quality managers and hairstylists is essential to the establishment and operation of successful salons. In search of salon managers, the Company’s supervisory team recruits or develops and promotes from within those stylists that display initiative and imagination. The Company has been and believes it will continue to be successful in recruiting capable managers and stylists for a number of reasons. The Company utilizes a broad compensation system including cash incentives, merchandise awards, company-sponsored trips and benefit programs. The Company believes that its compensation structure for salon managers and hairstylists is competitive within the industry. Stylists benefit from the Company’s high-traffic locations, as well as name-recognition from Regis and Supercuts, and receive a steady source of new business from walk-in customers. In addition, the Company offers a career path with the opportunity to move into managerial and training positions within the Company.

Salon Design

The Company’s salons are designed, built and operated in accordance with uniform standards and practices developed by the Company based on its experience. New salons are designed and constructed according to the Company’s standard specifications, thereby reducing design and construction costs and enhancing operating efficiencies. Salon fixtures and equipment are also uniform, allowing the Company to place large orders for these items with attendant cost savings.

The size of the Company’s salons ranges from 500 to 5,000 square feet, with the typical salon having about 1,200 square feet. At present, the cost to the Company of constructing and furnishing a new salon, including inventories, ranges from approximately $40,000 for a new SmartStyle to $185,000 for a Regis Salon. Of the total construction costs, approximately 70 percent of the cost is for leasehold improvements and the balance is for salon fixtures, equipment and inventories.

The Company maintains its own design and construction department, and designs and supervises the construction, furnishing and fixturing of all new company-owned salons and certain franchise locations. The Company has developed considerable expertise in designing visually appealing salons. The design and construction staff focuses on aesthetic appeal, efficient use of space, cost and rapid completion times. The Company’s salons are airy in appearance and have limited partitions. Hair care products offered for sale are prominently and attractively displayed in the salons.

16

Each of the Company’s salon concepts has a different design related to the image to be projected. Regis Salons are more upscale in design and utilize wood and marble floors, mirrors and contrasting black and creme colors. Supercuts salons are functional in design and tastefully furnished, consistent with its image of a quality provider of affordable haircutting services. Cost Cutters and Style America salons appeal to a broad range of customers, providing value-priced full services in convenient locations. Hair Masters is a more upscale version of Cost Cutters or Style America. MasterCuts salons are family oriented and include extensive use of woodwork and warm, comfortable colors. Trade Secret salons use many of the same design techniques as Regis Salons, and also have open and easily accessible product displays. SmartStyle salons, which are strategically located near the check out counters in the front of Wal-Mart stores and supercenters, are efficiently designed and brightly colored to complement the Wal-Mart retail environment.

Operations

Company-owned and franchised salons located in the United States, Puerto Rico and Canada are operated and managed as part of the Company’s North American (domestic) operations. International company-owned salons, located primarily in the United Kingdom, are operated and managed in Coventry, England. International franchised salons are located primarily in France, Italy and Spain and are operated and managed by the Company’s wholly-owned subsidiary located in Paris, France.

For each salon concept, the Company’s operations are divided into geographic regions throughout North America. Each region is headed by one of the Company’s salon directors, assisted by regional field managers and area supervisors, who coordinate the operations of the salons in the particular region. The area supervisors are responsible for hiring and training the managers for each salon. The salon directors for each salon concept report to the division’s Chief Operating Officer. Division Chief Operating Officers report to the Company’s Chief Executive Officer, who functions as the overall chief decision maker. The Chief Executive Officer regularly reviews salon operations and resource allocations with the salon directors.

Over the years, the Company has developed uniform procedures for opening new salons in such a manner as to maximize revenues from a new location as rapidly as possible. After opening, all salons are operated according to standard procedures which the Company has learned are desirable for the operation of an efficient, high quality, profitable salon.

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Management Information Systems

The Company utilizes a retail point-of-sale information system in all its corporate salons. This system collects data daily from each salon and consolidates the data into several management reports. The salon managers deposit all cash receipts into local accounts each night, which are then transferred into a centralized bank account. This process limits the Company’s need for working capital as cash is collected in advance of the payment of bills. Point-of-sale information is also used both to monitor salon performance and to generate customer data for use in identifying and anticipating industry trends for purposes of pricing and marketing. The Company has expanded the system to deliver on-line information as to sales of products to improve its inventory control system, including suggested monthly product purchase recommendations for a salon, a monthly report of sales and a perpetual inventory. Management believes that its information systems provide advantages in planning and analysis which are not available to a majority of its competitors which do not have management information systems.

Competition

The hair care industry is highly fragmented and competitive. In every area in which the Company has a salon, there are competitors offering similar hair care services and products at similar prices. The Company faces competition within malls from companies which operate salons within department stores and from smaller chains of salons, independently owned salons and, to a lesser extent, salons which, although independently owned, are operating under franchises from a franchising company that may assist such salons in areas of training, marketing and advertising.

Significant entry barriers exist for new chains due to the need to establish customer awareness, systems and infrastructure, recruitment of experienced hair care management and adequate store staff, and leasing of quality sites. The principal factors of competition in the affordable hair care category are quality, consistency and convenience. The Company continually strives to improve its performance in each of these areas and to create additional points of difference versus the competition. In order to obtain locations in shopping malls, the Company must be competitive as to rentals and other customary tenant obligations. The Company believes that because of its established relationships with many leading shopping center developers throughout the country, its status in the hair care industry as a national rather than a local tenant, and its financial resources, it should not be constrained in obtaining sufficient shopping center locations to continue its historical pattern of growth.

Trademarks

The Company holds numerous trademarks, both in the United States and in several foreign countries. The most recognized trademarks are “Regis Salons,” “Supercuts,” “MasterCuts,” “Trade Secret,” “SmartStyle,” “Cost Cutters,” “Hair Masters,” “Jean Louis David,” “St. Algue,” “First Choice Haircutters” and “Magicuts.”

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Although the Company believes the use of these trademarks is important in establishing and maintaining its reputation as a national operator of high quality hairstyling salons and is committed to protecting these trademarks by vigorously challenging any unauthorized use, the Company’s success and continuing growth are the result of the quality of its salon location selections and real estate strategies.

Employees

As of June 30, 2002, the Company had approximately 43,000 full- and part-time employees worldwide, of which approximately 37,000 employees were located in the United States. None of the Company’s employees are subject to a collective bargaining agreement and the Company believes that its employee relations are amicable.

Community Involvement

Many of the Company’s stylists volunteer their time to support charitable events for breast cancer research. Proceeds collected from such events are distributed through the Regis Foundation for Breast Cancer Research. The Company’s community involvement also includes a major sponsorship role for the Susan G. Komen Twin Cities Race for the Cure. This 5K run and one-mile walk is held in Minneapolis on Mother’s Day to help fund breast cancer research, education, screening and treatment. To date, the Company has raised more than $3.5 million in fundraising for breast cancer research.

Governmental Regulations

The Company is subject to various federal, state, local and provincial laws affecting its business as well as a variety of regulatory provisions relating to the conduct of its cosmetology business, including health and safety.

In the U.S., the Company’s franchise operations are subject to the Federal Trade Commission’s Trade Regulation Rule on Franchising (the “FTC Rule”) and by state laws and administrative regulations that regulate various aspects of franchise operations and sales. The Company’s franchises are offered to franchisees by means of an offering circular/disclosure document containing specified disclosures in accordance with the FTC Rule and the laws and regulations of certain states. The Company has registered its offering of franchises with the regulatory authorities of those states in which it offers franchises and in which such registration is required. State laws that regulate the franchisor-franchisee relationship presently exist in a substantial number of states and, in certain cases, apply substantive standards to this relationship. Such laws may, for example, require that the franchisor deal with the franchisee in good faith, may prohibit interference with the right of free association among franchisees, and may limit termination of franchisees without payment of reasonable compensation. The Company believes that the current trend is for government regulation of franchising to increase over time. However, such laws have not had, and the Company does not expect such laws to have, a significant effect on the Company’s operations.

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In Canada, the Company’s franchise operations are subject to both the Alberta Franchise Act and the Ontario Franchise Act. The offering of franchises in Canada occurs by way of a disclosure document, which contains certain disclosures required by the Ontario and Alberta Franchise Acts. Both the Ontario and Alberta Franchise Acts primarily focus on disclosure requirements, although each requires certain relationship requirements such as a duty of fair dealing and the right of franchisees to associate and organize with other franchisees.

The Company believes it is operating in substantial compliance with applicable laws and regulations governing its operations.

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Item 1a. Directors and Executive Officers of the Registrant

Information regarding the Directors of the Company and Exchange Act Section 16(a) filings is included on pages 3 and 4 of the Registrant’s Proxy Statement dated September 27, 2002, and is incorporated herein by reference.

Information relating to Executive Officers of the Company follows:

Name	Age		Position
Myron Kunin		73	Chairman of the Board of Directors
Paul D. Finkelstein		60	President, Chief Executive Officer and Director
Christopher A. Fox		52	Executive Vice President, Real Estate and Director
Randy L. Pearce		47	Executive Vice President, Chief Financial and Administrative Officer
Bruce Johnson		49	Senior Vice President, Design and Construction
Mark Kartarik		46	Senior Vice President, President, Franchise Division
Gordon Nelson		51	Senior Vice President, Fashion and Education
Bert M. Gross		72	Senior Vice President, General Counsel and Secretary
Raymond Duke		51	Senior Vice President, International Managing Director, Europe
Sharon Kiker		57	Chief Operating Officer, Regis Salons
Kris Bergly		41	Chief Operating Officer, Style America and Hair Masters
Robert Ribnick		41	Chief Operating Officer, MasterCuts Family Haircutters
Vicki Langan		46	Chief Operating Officer, Supercuts, Inc.
Norma Knudsen		44	Chief Operating Officer, Trade Secret
C. John Briggs		58	Chief Operating Officer, SmartStyle Family Hair Salons
Andrew Cohen		39	Chief Operating Officer, International

Myron Kunin has served as Chairman of the Board of Directors of the Company since 1983, as Chief Executive Officer of the Company from 1965 until July 1, 1996, as President of the Company from 1965 to 1987 and as a director of the Company since its formation in 1954. He is also Chairman of the Board and holder of the majority voting power of Curtis Squire, Inc., a 4.6 percent shareholder. Further, he is a director of Nortech Systems Incorporated.

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Paul D. Finkelstein has served as President, Chief Operating Officer and as a director of the Company since December 1987, as Executive Vice President of the Company from June 1987 to December 1987 and has served as Chief Executive Officer since July 1, 1996.

Christopher A. Fox was elected Executive Vice President, Real Estate in 1994, was Senior Vice President, Real Estate of the Company from 1988 to 1994, has served as Vice President from 1984 to 1988 and has served as a director of the Company since 1989.

Randy L. Pearce was elected Executive Vice President and Chief Administrative Officer in 1999, has served as Chief Financial Officer since 1998, was Senior Vice President, Finance from 1998 to 1999, has served as Vice President of Finance from 1995 to 1997 and as Vice President of Financial Reporting from 1991 to 1994.

Bruce Johnson was elected a Senior Vice President of Design and Construction in 1997 and has served as Vice President from 1988 to 1997.

Mark Kartarik has served as Senior Vice President of the Company since 1994 and as Vice President from 1989 to 1994. He was elected President of Supercuts, Inc. in 1998 and served as Chief Operating Officer of Supercuts, Inc. from 1997 to April 2001.

Gordon Nelson has served as Senior Vice President, Fashion and Education of the Company since 1994 and as Vice President from 1989 to 1994.

Bert M. Gross was elected Senior Vice President, General Counsel in 1997 and acted as outside legal counsel to the Company from 1957 to 1997.

Raymond Duke was elected Senior Vice President, International Managing Director, Europe in February, 1999 and has served as Vice President since 1992.

Sharon Kiker was elected Chief Operating Officer, Regis Salons in April 1998 and has served as Vice President, Salon Operations from 1989 to 1998.

Kris Bergly was elected Chief Operating Officer, Style America in March 1999 and has served as Chief Operating Officer, SmartStyle Family Hair Salons since April 1998 and as Vice President, Salon Operations from 1993 to 1998.

Robert Ribnick was elected Chief Operating Officer, MasterCuts Family Haircutters in April 1998 and has served as Vice President, Salon Operations from 1993 to 1998.

Vicki Langan was elected Chief Operating Officer, Supercuts in April 2001 and has served as Vice President, Supercuts Operations since November 1997.

Norma Knudsen was elected Chief Operating Officer, Trade Secret in February 1999 and has served as Vice President, Trade Secret Operations since 1995.

C. John Briggs was elected Chief Operating Officer, SmartStyle Family Hair Salons in March 1999, and has served as Vice President, Regis Operations since 1988.

Andrew Cohen was elected Chief Operating Officer, International in April 2002 and has served as Vice President, Salon Operations since 1998.

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Item 2. Properties

The Company’s corporate executive and administrative offices are headquartered in a 170,000 square foot three building complex in Edina, Minnesota owned by the Company. As of June 30, 2002, the Company utilizes 135,000 square feet of the available office space and the remainder is either leased to third parties or available to be leased. Should the Company require additional office space in the future, the Company could remove or relocate existing tenants at the end of their lease term in order to provide additional administrative office space for its own purposes.

The Company also operates small executive and administrative offices for the international division primarily located in Coventry, England and Paris, France. These offices are occupied under long-term leases.

The Company completed construction of a new distribution center in Chattanooga, Tennessee during fiscal 1998 and expanded the facility in fiscal 2001. The Chattanooga facility currently utilizes the maximum amount of space available, 250,000 square feet. During fiscal year 2001, the Company completed the construction and development of a new 210,000 square foot distribution center in Salt Lake City, Utah. This facility is leased and may be expanded to 290,000 square feet to accommodate future growth. As a result of opening the Salt Lake City warehouse, the Company closed its Eden Prairie, Minnesota warehouse facility and terminated its lease in December 2001.

The Company operates all of its salon locations under leases or license agreements. Substantially all of its North American locations which opened in regional malls during the past six years are operating under leases with an original term of at least ten years. Salons operating within strip centers and Wal-Mart stores and Wal-Mart Supercenters have leases with original terms of at least five years, generally with the ability to renew, at the Company’s option, for an additional five years. Salons operating within department stores in Canada and Europe operate under license agreements, while freestanding or shopping center locations in those countries have real property leases comparable to the Company’s domestic locations.

The Company also leases the premises in which certain franchisees operate and has entered into corresponding sublease arrangements with the franchisees. These leases have a five-year initial term and one or more five-year renewal options. All additional lease costs are passed through to the franchisees. Remaining franchisees, who do not enter into sub-lease arrangements with the Company, negotiate and enter into leases on their own behalf.

None of the Company’s salon leases are individually material to the operations of the Company, and the Company expects that it will be able to renew its leases on satisfactory terms as they expire. See Note 6 of “Notes to Consolidated Financial Statements.”

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Item 3. Legal Proceedings

The Company is a defendant in various lawsuits and claims arising out of the normal course of business. As of June 30, 2002, in the opinion of company counsel, the ultimate liabilities resulting from such lawsuits and claims are not anticipated to have a material adverse effect on the consolidated financial position, the results of operations or the liquidity of the Company.

Item 4. Submission of Matters to a Vote of Security Holders

On October 23, 2001, at the annual meeting of the shareholders of the Company, a vote on the election of the Company’s directors took place with the following results:

	FOR		WITHHOLD
AUTHORITY
Rolf F. Bjelland		35,066,366		1,391,069
Paul D. Finkelstein		30,596,823		5,860,612
Christopher A. Fox		30,596,951		5,860,484
Thomas L. Gregory		34,906,704		1,550,731
Van Zandt Hawn		35,066,066		1,391,369
Susan Hoyt		35,066,241		1,391,194
David B. Kunin		34,837,644		1,619,791
Myron Kunin		30,814,047		5,643,388

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PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

Data relating to Market Stock Data Information and dividends as set forth in the sections included on page 43 of the Registrant’s 2002 Annual Report to Shareholders, a copy of which is included as Exhibit 13 hereto, are incorporated herein by reference.

As of June 30, 2002, Regis shares were owned by approximately 27,476 shareholders based on the number of record holders and an estimate of individual participants in security position listings.

Item 6. Selected Financial Data

Five-Year Summary of Selected Financial Data which is included on page 18 of the Registrant’s 2002 Annual Report to Shareholders, a copy of which is included as Exhibit 13 hereto, is incorporated herein by reference.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Results of Operations and Financial Condition of the Company on pages 19 to 25 of the Registrant’s 2002 Annual Report to Shareholders, a copy of which is included as Exhibit 13 hereto, is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The primary market risk exposure of the Company relates to changes in interest rates in connection with its debt, some of which bears interest at floating rates based on LIBOR plus an applicable borrowing margin. To a lesser extent, the Company is also exposed to foreign currency translation risk related to its net investments in its foreign subsidiaries.

As of June 30, 2002, the Company had $55 million of floating and $244 of fixed rate debt outstanding. The Company manages its interest rate risk by balancing the amount of fixed and floating rate debt. On occasion the Company uses interest rate swaps to further mitigate the risk associated with changing interest rates and to maintain its desired balances of fixed and floating rate debt. Generally, the terms of the interest rate swap agreements contain quarterly settlement dates based on the notional amounts of the swap contracts. As of June 30, 2002, the Company has entered into interest rate swap agreements covering $55 million of its floating rate obligations and $111 million of its fixed rate obligations, as discussed in Note 5 of the Registrant’s 2002 Annual Report to Shareholders.

The Company has also entered into interest rate swap agreements with a notional amount of $11.8 million to hedge its variable rate operating lease obligations and a cross currency swap with a notional amount of $21.3 million to hedge its foreign currency exposure in certain of its net investments.

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The table below presents information about the Company’s debt obligations, variable lease obligations and derivative financial instruments that are sensitive to changes in interest rates. For fixed rate debt obligations, the table presents principal amounts and related weighted-average interest rates by year of maturity. For variable rate obligations, the table presents principal amounts and the weighted-average interest rates as of June 30, 2002. For variable lease obligations, the table presents the maximum potential obligation under the residual value guarantee. For the Company’s derivative financial instruments, the table presents notional amounts and weighted-average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract.

Expected maturity date as of June 30,

Liabilities			2003			2004			2005			2006			2007			Thereafter			TOTAL			Fair Value
(US$ equivalent in thousands)
Long-term debt:
	Fixed rate ($US)		$	6,173		$	19,540		$	14,123		$	12,549		$	22,037		$	164,596		$	239,018		$	241,340
		Average interest rate		7.60	%		7.44	%		7.63	%		6.92	%		7.91	%		7.30	%		7.38	%
	Fixed rate (GBP)		$	75																	$	75		$	75
		Average interest rate		5.23	%																	5.23	%
	Fixed rate (Euro)		$	973																	$	973		$	973
		Average interest rate		9.00	%																	9.00	%
	Variable rate ($US)					$	55,000		$	1,627											$	56,627		$	56,627
		Average interest rate					3.63	%		4.71	%											3.66	%
Operating Lease:
	Variable Rate ($US)								$	10,200	*										$	10,200		$	10,200
		Average Interest Rate								4.71	%											4.71	%
Total liabilities			$	7,221		$	74,540		$	25,950		$	12,549		$	22,037		$	164,596		$	306,893		$	309,215
Interest rate derivatives
(US$ equivalent in thousands)
Pay variable/receive fixed ($US)			$	2,500		$	7,500		$	12,500		$	12,500		$	22,000		$	54,000		$	111,000		$	2,323
	Average pay rate			4.66	%		6.42	%		7.23	%		7.60	%		7.68	%		7.23	%		7.25	%
	Average receive rate			7.25	%		7.21	%		7.15	%		7.18	%		6.85	%		6.78	%		6.92	%
Pay fixed/receive variable ($US)			$	55,000					$	11,800	*										$	66,800		$	(2,804	)
	Average pay rate			7.14	%					5.055	%											6.77	%
	Average receive rate			2.50	%					4.13	%											2.79	%

* Represents the maximum potential obligation of $10.2 million under a residual value guarantee, as discussed in Note 6 to the Consolidated Financial Statements. The residual value guarantee is on a variable rate operating lease whose rental payments are based on current interest rates and an $11.8 million notional amount. The Company has entered into a derivative financial instrument to hedge $11.8 million of the variability of the remaining future lease payments.

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The table below provides information about the Company’s net investments in foreign operations and derivative financial instruments by functional currency and presents such information in U.S. dollar equivalents. The table summarizes the Company’s exposure to foreign currency translation risk related to its net investments in its foreign subsidiaries along with its derivative financial instruments used to hedge against such exposure.

Net Investments:
(US$ Equivalent in thousands)
	Net Investment (CND)		$	51,429
	Net Investment (EURO)		$	72,053
	Net Investment (GBP)		$	29,266
Foreign Currency Derivate:
	Fixed-for-fixed cross currency swap (Euro/US)
		Euro Amount		€23,782
	Average Pay Euro Rate			8.29	%
		USD Amount	$	21,284
	Average Receive US Rate			8.39	%

The cross currency swap derivative financial instrument expires in fiscal 2007 and at June 30, 2002, the Company’s net investment in this derivative financial instrument was in a $2.4 million loss position, based on its estimated fair value.

At June 30, 2002, the Company’s cash is concentrated at a limited number of financial institutions. This exposes the Company to credit risk due to the concentrations of cash at these institutions. However, the Company believes that the credit risk is mitigated due to the financial strength of the financial institutions.

Item 8. Financial Statements and Supplementary Data

The Report of Independent Accountants on page 44, the Consolidated Financial Statements on pages 26 to 42 and the Quarterly Financial Data on page 43 of the Registrant’s 2002 Annual Report to Shareholders, a copy of which is included as Exhibit 13 hereto, are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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PART III

Item 10. Directors and Executive Officers of the Registrant

See Part I for information regarding Directors and Executive Officers of the Registrant.

Item 11. Executive Compensation

Executive compensation included on pages 6 and 7 of the Registrant’s Proxy Statement dated September 27, 2002, is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

(a)	Security Ownership of Certain Beneficial Owners and Management on page 10 and 11 of the Registrant’s Proxy Statement dated September 27, 2002, is incorporated herein by reference.
(b)	The following table provides information about the Registrant’s common stock that may be issued upon the exercise of stock options under all of the Registrant’s equity compensation plans in effect as of June 30, 2002.

					Number of securities
					remaining available for
					future issuance under
	Number of Securities to be				equity compensation
	issued upon exercise of		Weighted-average exercise		plans (excluding
Plan Category	outstanding options,		price of outstanding		securities reflected in the
	warrants and rights		options, warrants and rights		column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders (1)		6,141,307	$	15.85		819,650
Equity compensation plans not approved by security holders		—		—		—
Total		6,141,307	$	15.85		819,650

(1) Includes stock options granted under the Regis Corporation 2000 Stock Option Plan and 1991 Stock Option Plan. All of the Registrant’s equity compensation plans were approved by the shareholders. Information regarding the stock option plans included on pages 39 and 40 of the Registrant’s 2002 Annual Report to Shareholders is incorporated herein by reference.

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Item 13. Certain Relationships and Related Transactions

Information regarding certain relationships and related transactions is included on page 10 of the Registrant’s Proxy Statement dated September 27, 2002, and is incorporated herein by reference.

PART IV

Item 14. Controls and Procedures

There were no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of the Registrant’s most recent evaluation of its disclosure controls and procedures utilized to compile information included in this filing.

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) (1). The following Consolidated Financial Statements of Regis Corporation, and the Report of Independent Accountants thereon, included on pages 26 to 42 of the Registrant’s 2002 Annual Report to Shareholders, are incorporated by reference in Item 8:

Report of Independent Accountants

Consolidated Balance Sheet as of June 30, 2002 and 2001

Consolidated Statement of Operations for each of the three years in the period ended June 30, 2002

Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income for each of the three years in the period ended June 30, 2002

Consolidated Statement of Cash Flows for each of the three years in the period ended June 30, 2002

Notes to Consolidated Financial Statements

(2). The financial statement schedule required to be filed by Item 8 of this Form is as follows:

Report of Independent Accountants on Financial Statement Schedule

Schedule II — Valuation and Qualifying Accounts as of June 30, 2002, 2001 and 2000.

All other schedules are inapplicable to the Registrant, or equivalent information has been included in the Consolidated Financial Statements or the notes thereto, and have therefore been excluded.

29

(3). Listing of Exhibits:

Exhibit Number
3(a)	Election of the registrant to become governed by Minnesota Statutes Chapter 302A and Restated Articles of Incorporation of the registrant, dated March 11, 1983; Articles of Amendment to Restated Articles of Incorporation, dated October 29, 1984; Articles of Amendment to Restated Articles of Incorporation, dated August 14, 1987; Articles of Amendment to Restated Articles of Incorporation, dated October 21, 1987. (Filed as Exhibit 3(a) to the Registrant’s Registration Statement on Form S-1 (Reg. No. 40142) and incorporated herein by reference.)
3(b)	By-Laws of the registrant. (Filed as Exhibit 3(c) to the Registrant’s Registration Statement on Form S-1 (Reg. No. 40142) and incorporated herein by reference.)
4(a)	Three-for-two stock split. (Incorporated by reference to Exhibit A of the Company’s Report on Form 8-K dated May 2, 1996.)
4(b)	Shareholder Rights Agreement dated December 23, 1996 (Incorporated by reference to Exhibit 4 of the Company’s Report on Form 8-A12G dated February 4, 1997)
4(c)	Three-for-two stock split. (Incorporated by reference to Item 2 of the Company’s Report on Form 10-Q dated May 3, 1999 for the quarter ended March 31, 1999.)
10(a)	Employment and Deferred Compensation Agreement, Dated as of April 14, 1998, between the Company and Paul D. Finkelstein. (Incorporated by reference to the Company’s Report on Form 10-K dated September 17, 1998, for the year ended June 30, 1998)
10(b)	Form of Employment and Deferred Compensation Agreement between the Company and six executive officers. (Incorporated by reference to Exhibit 10(b) of the Company’s Report on Form 10-K date September 24, 1997.)
10(c)	Northwestern Mutual Life Insurance Company Policy Number 10327324, dated June 1, 1987, face amount $500,000 owned by the registrant, insuring the life of Paul D. Finkelstein and providing for division of death proceeds between the registrant and the insured’s designated beneficiary (split-dollar plan). (Filed as Exhibit 10(g) to the Registrant’s Registration Statement on Form S-1 (Reg. No. 40142) and incorporated herein by reference.)
10(d)	Schedule of omitted split-dollar insurance policies. (Filed as Exhibit 10(h) to the Registrant’s Registration Statement on Form S-1 (Reg. No. 40142) and incorporated herein by reference.)

30

10(e)	Employee Stock Ownership Plan and Trust Agreement dated as of May 15, 1992 between the registrant and Myron Kunin and Paul D. Finkelstein, Trustees (Incorporated by reference to Exhibit 10(q) as part of the Company’s Report on Form 10-K dated September 27, 1993, for the year ended June 30, 1993)
10(f)	Executive Stock Award Plan and Trust Agreement dated as of July 1, 1992 between the registrant and Myron Kunin, Trustee (Incorporated by reference to Exhibit 10(r) as part of the Company’s Report on Form 10-K dated September 27, 1993, for the year ended June 30, 1993)
10(g)	Survivor benefit agreement dated June 27, 1994 between the Company and Myron Kunin. (Incorporated by reference to Exhibit 10(t) part of the Company’s Report on Form 10-K dated September 28, 1994, for the year ended June 30, 1994.)
10(h)	Series A Senior Note drawn from Private Shelf Agreement dated as of February 21, 1996, between the registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(s) of the Company’s Report on Form 10-Q dated May 3, 1996, for the quarter ended March 31, 1996.)
10(i)	Series B Senior Note drawn from Private Shelf Agreement dated as of June 10, 1996, between the registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(v) of the Company’s Report on Form 10-K dated September 16, 1996, for the year ended June 30, 1996.)
10(j)	Series C Senior Note drawn from Private Shelf Agreement dated as of October 28, 1996, between the registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(x) of the Company’s Report on Form 10-K dated November 5, 1996, for the quarter ended September 30, 1996.)
10(k)	Term Note A Agreement between the registrant and LaSalle National Bank dated October 28, 1996. (Incorporated by reference to Exhibit 10(y) of the Company’s Report on Form 10-Q dated November 5, 1996, for the quarter ended September 30, 1996)
10(l)	Series E Senior Note drawn from Private Shelf Agreement dated as of April 7, 1997, between the registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(y) of the Company’s Report on Form 10-K dated September 24, 1997, for the year ended June 30, 1997.)
10(m)	Compensation and non-competition agreement dated May 7, 1997, between the Company and Myron Kunin. (Incorporated by reference to Exhibit 10(z) of the Company’s Report on Form 10-K dated September 24, 1997, for the year ended June 30, 1997.)

31

10(n)	Series F Senior Note drawn from Private Shelf Agreement dated as of July 28, 1997, between the registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(cc) of the Company’s Report on Form 10-K dated September 24, 1997, for the year ended June 30, 1997.)
10(o)	Private Shelf Agreement dated as of December 19, 1997 between the registrant and ING Investment Management, Inc. (Incorporated by reference to Exhibit 10(gg) of the Company’s Report on Form 10-Q dated February 9, 1998, for the quarter ended December 31, 1997.)
10(p)	Series R-1 Senior Note drawn from Private Shelf dated as of December 19, 1997, between registrant and ING Investment Management, Inc. (Incorporated by reference to Exhibit 10(hh) of the Company’s Report on Form 10-Q dated February 9, 1998, for the quarter ended December 31, 1997.)
10(q)	Series R-2 Senior Note drawn from Private Shelf dated as of December 19, 1997, between registrant and ING Investment Management, Inc. (Incorporated by reference to Exhibit 10(ii) of the Company’s Report on Form 10-Q dated February 9, 1998, for the quarter ended December 31, 1997.)
10(r)	Series G Senior Note dated as of July 10, 1998 between the registrant and Prudential Insurance Company of America. (Incorporated by reference to the Company’s Report on Form 10-K dated September 17, 1998, for the year ended June 30, 1998.)
10(s)	Term Note C Agreement between the registrant and LaSalle National Bank dated September 1, 1998. (Incorporated by reference to Exhibit 10(mm) of the Company’s Report on Form 10-Q dated November 9, 1998, for the quarter ended September 30, 1998.)
10(t)	Term Note H-1 Agreement between the registrant and Prudential Insurance Company of America dated March 26, 1999. (Incorporated by reference to Exhibit 10(oo) of the Company’s Report on Form 10-Q dated May 11, 1999, for the quarter ended March 31, 1999.)
10(u)	Term Note H-2 Agreement between the registrant and Prudential Insurance Company of America dated March 26, 1999. (Incorporated by reference to Exhibit 10(pp) of the Company’s Report on Form 10-Q dated May 11, 1999, for the quarter ended March 31, 1999.)
10(v)	Term Note H-3 Agreement between the registrant and Prudential Insurance Company of America dated March 26, 1999. (Incorporated by reference to Exhibit 10(qq) of the Company’s Report on Form 10-Q dated May 11, 1999, for the quarter ended March 31, 1999.)

32

10(w)	Term Note H-4 Agreement between the registrant and Prudential Insurance Company of America dated March 26, 1999. (Incorporated by reference to Exhibit 10(rr) of the Company’s Report on Form 10-Q dated May 11, 1999, for the quarter ended March 31, 1999.)
10(x)	Revolving Credit Agreement dated August 2, 1999 between the registrant, Bank of America, National Association, LaSalle Bank, N.A. and other financial institutions arranged by Bank of America Securities LLC. (Incorporated by reference to Exhibit 10(jj) of the Company’s Report on Form 10-K dated September 17, 1999, for the year ended June 30, 1999).
10(y)	Private Shelf Agreement dated October 3, 2000. (Incorporated by reference to Exhibit 10(ff) of the Company’s Report on Form 10-Q dated November 13, 2000, for the quarter ended September 30, 2000.)
10(z)	Term Note I-1 agreement between the registrant and Prudential Insurance Company of America dated October 3, 2000. (Incorporated by reference to Exhibit 10(aa) of the Company’s Report on Form 10-K dated September 12, 2001, for the year ended June 30, 2001.)
10(aa)	Note purchase agreement for $125,000,000 between the Registrant and purchasers listed in the attached Schedule A dated March 1, 2002.
10(bb)	Series A Senior Note between the Registrant and purchasers listed in the attached schedule A as referred to in 10(aa).
10(cc)	Series B Senior Note between the Registrant and purchasers listed in the attached schedule A as referred to in 10(aa).
13	Selected pages of the 2002 Annual Report to Shareholders
23	Consent of PricewaterhouseCoopers LLP
99.1	President and Chief Executive Officer of Regis Corporation:
	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
99.2	Executive Vice President, Chief Financial and Administrative Officer of Regis Corporation: Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

(b)	Reports on Form 8-K.
	The following reports on Form 8-K were filed during the three months ended June 30, 2002:
	None.

33

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

REGIS CORPORATION

By  /s/ Paul D. Finkelstein
   Paul D. Finkelstein, President and Chief Executive Officer

By  /s/ Randy L. Pearce
   Randy L. Pearce, Executive Vice President, Chief Financial and
   Administrative Officer
   (Principal Financial and Accounting Officer)

DATE: September 24, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/ Myron Kunin Myron Kunin, Chairman of the Board of Directors	Date: September 24, 2002
/s/ Paul D. Finkelstein Paul D. Finkelstein, Director	Date: September 24, 2002
/s/ Christopher A. Fox Christopher A. Fox, Director	Date: September 24, 2002
/s/ David B. Kunin David B. Kunin, Director	Date: September 24, 2002
/s/ Rolf Bjelland Rolf Bjelland, Director	Date: September 24, 2002
/s/ Van Zandt Hawn Van Zandt Hawn, Director	Date: September 24, 2002
/s/ Susan S. Hoyt Susan S. Hoyt, Director	Date: September 24, 2002
/s/Thomas L. Gregory Thomas L. Gregory, Director	Date: September 24, 2002

34

CERTIFICATIONS

CERTIFICATION PURSUANT TO RULE 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Paul D. Finkelstein, President and Chief Executive Officer of Regis Corporation, certify that:

1.	I have reviewed this annual report on Form 10-K of Regis Corporation;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report.

September 24, 2002

/s/ Paul D. Finkelstein
Paul D. Finkelstein, President and Chief Executive Officer

CERTIFICATION PURSUANT TO RULE 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Randy L. Pearce, Executive Vice President, Chief Financial and Administrative Officer of Regis Corporation, certify that:

1.	I have reviewed this annual report on Form 10-K of Regis Corporation;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report.

September 24, 2002

/s/Randy L. Pearce
Randy L. Pearce, Executive Vice President, Chief Financial and Administrative Officer

35

REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
of Regis Corporation:

Our audits of the consolidated financial statements referred to in our report dated August 27, 2002 appearing in the 2002 Annual Report to Shareholders of Regis Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Minneapolis, Minnesota
August 27, 2002

36

REGIS CORPORATION
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
as of June 30, 2002, 2001 and 2000
(dollars in thousands)

Column A	Column B		Column C					Column D			Column E
	Balance at		Charged to								Balance at
	beginning		costs and		Charged to						end of
Description	of period		expenses		Other Accounts			Deductions			period
June 30, 2002:
Valuation Account, Allowance for doubtful accounts	$	1,613	$	696	$	45	(1)	$	517	(2)	$	1,837
June 30, 2001:
Valuation Account, Allowance for doubtful accounts	$	710	$	807	$	373	(1)	$	277	(2)	$	1,613
June 30, 2000:
Valuation Account, Allowance for doubtful accounts	$	246			$	504	(1)	$	40	(2)	$	710

Notes:

(1) Related to the acquisition of franchise receivables.

(2) Represents primarily the write off of uncollectible receivables.

37 EX-10.(AA) 3 c71933exv10wxaay.txt EX-10.(AA) NOTE PURCHASE AGREEMENT CONFORMED COPY ================================================================================ REGIS CORPORATION $125,000,000 Senior Notes $58,000,000 6.73% Senior Notes, Series A due March 15, 2009 $67,000,000 7.20% Senior Notes, Series B due March 15, 2012 --------- NOTE PURCHASE AGREEMENT --------- Dated as of March 1, 2002 ================================================================================ Series A PPN: 758932 D# 1 Series B PPN: 758932 E* 4 TABLE OF CONTENTS

Section Page - ------- ---- 1. AUTHORIZATION OF NOTES..................................................................................1 2. SALE AND PURCHASE OF NOTES..............................................................................2 3. CLOSING.................................................................................................2 4. CONDITIONS TO CLOSING...................................................................................2 4.1. Representations and Warranties.................................................................2 4.2. Performance; No Default........................................................................2 4.3. Compliance Certificates........................................................................3 4.4. Opinions of Counsel............................................................................3 4.5. Purchase Permitted By Applicable Law, etc......................................................3 4.6. Sale of Other Notes............................................................................3 4.7. Payment of Special Counsel Fees................................................................4 4.8. Private Placement Numbers......................................................................4 4.9. Changes in Corporate Structure.................................................................4 4.10. Subsidiary Guaranty............................................................................4 4.11. Intercreditor Agreement........................................................................4 4.12. Proceedings and Documents......................................................................4 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................................................4 5.1. Organization; Power and Authority..............................................................5 5.2. Authorization, etc.............................................................................5 5.3. Disclosure.....................................................................................5 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates...............................6 5.5. Financial Statements...........................................................................6 5.6. Compliance with Laws, Other Instruments, etc...................................................7 5.7. Governmental Authorizations, etc...............................................................7 5.8. Litigation; Observance of Statutes and Orders..................................................7 5.9. Taxes..........................................................................................8 5.10. Title to Property; Leases......................................................................8 5.11. Licenses, Permits, etc.........................................................................8 5.12. Compliance with ERISA..........................................................................9 5.13. Private Offering by the Company...............................................................10 5.14. Use of Proceeds; Margin Regulations...........................................................10 5.15. Existing Debt.................................................................................10 5.16. Foreign Assets Control Regulations, etc.......................................................11 5.17. Status under Certain Statutes.................................................................11 5.18. Environmental Matters.........................................................................11 5.19. Solvency of Subsidiary Guarantors.............................................................11

i 6. REPRESENTATIONS OF THE PURCHASERS......................................................................12 6.1. Purchase for Investment.......................................................................12 6.2. Source of Funds...............................................................................12 7. INFORMATION AS TO COMPANY..............................................................................13 7.1. Financial and Business Information............................................................13 7.2. Officer's Certificate.........................................................................16 7.3. Inspection....................................................................................16 8. PREPAYMENT OF THE NOTES................................................................................17 8.1. No Scheduled Prepayments......................................................................17 8.2. Optional Prepayments with Make-Whole Amount...................................................17 8.3. Allocation of Partial Prepayments.............................................................17 8.4. Maturity; Surrender, etc......................................................................18 8.5. Purchase of Notes.............................................................................18 8.6. Make-Whole Amount.............................................................................18 9. AFFIRMATIVE COVENANTS..................................................................................19 9.1. Compliance with Law...........................................................................19 9.2. Insurance.....................................................................................20 9.3. Maintenance of Properties.....................................................................20 9.4. Payment of Taxes and Claims...................................................................20 9.5. Corporate Existence, etc......................................................................20 10. NEGATIVE COVENANTS.....................................................................................21 10.1. Consolidated Net Debt.........................................................................21 10.2. Priority Debt.................................................................................21 10.3. Fixed Charge Coverage.........................................................................21 10.4. Liens.........................................................................................21 10.5. Sale of Assets................................................................................23 10.6. Mergers, Consolidations, etc..................................................................23 10.7. Restricted Payments...........................................................................24 10.8. Investments...................................................................................25 10.9. Disposition of Stock of Restricted Subsidiaries...............................................26 10.10. Designation of Restricted and Unrestricted Subsidiaries.......................................26 10.11. Subsidiary Guaranty...........................................................................27 10.12. Nature of Business............................................................................27 10.13. Transactions with Affiliates..................................................................27 11. EVENTS OF DEFAULT......................................................................................27 12. REMEDIES ON DEFAULT, ETC...............................................................................30 12.1. Acceleration..................................................................................30 12.2. Other Remedies................................................................................30 12.3. Rescission....................................................................................30 12.4. No Waivers or Election of Remedies, Expenses, etc.............................................31 ii 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES..........................................................31 13.1. Registration of Notes.........................................................................31 13.2. Transfer and Exchange of Notes................................................................31 13.3. Replacement of Notes..........................................................................32 14. PAYMENTS ON NOTES......................................................................................32 14.1. Place of Payment..............................................................................32 14.2. Home Office Payment...........................................................................33 15. EXPENSES, ETC..........................................................................................33 15.1. Transaction Expenses..........................................................................33 15.2. Survival......................................................................................33 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT...........................................34 17. AMENDMENT AND WAIVER...................................................................................34 17.1. Requirements..................................................................................34 17.2. Solicitation of Holders of Notes..............................................................34 17.3. Binding Effect, etc...........................................................................35 17.4. Notes held by Company, etc....................................................................35 18. NOTICES................................................................................................35 19. REPRODUCTION OF DOCUMENTS..............................................................................36 20. CONFIDENTIAL INFORMATION...............................................................................36 21. SUBSTITUTION OF PURCHASER..............................................................................37 22. RELEASE OF SUBSIDIARY GUARANTOR........................................................................37 23. MISCELLANEOUS..........................................................................................38 23.1. Successors and Assigns........................................................................38 23.2. Payments Due on Non-Business Days.............................................................38 23.3. Severability..................................................................................38 23.4. Construction..................................................................................38 23.5. Counterparts..................................................................................38 23.6. Governing Law.................................................................................38 iii SCHEDULE A -- Information Relating to Purchasers SCHEDULE B -- Defined Terms SCHEDULE 4.9 -- Changes in Corporate Structure SCHEDULE 5.3 -- Disclosure Materials SCHEDULE 5.4 -- Subsidiaries; Affiliates SCHEDULE 5.5 -- Financial Statements SCHEDULE 5.8 -- Litigation SCHEDULE 5.11 -- Licenses, Permits, etc. SCHEDULE 5.14 -- Use of Proceeds SCHEDULE 5.15 -- Existing Debt SCHEDULE 10.4 -- Liens EXHIBIT 1(a) -- Form of Series A Senior Note EXHIBIT 1(b) -- Form of Series B Senior Note EXHIBIT 1(c) -- Form of Subsidiary Guaranty EXHIBIT 4.4(a) -- Form of Opinion of Counsel for the Company EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the Purchasers iv REGIS CORPORATION 7201 Metro Boulevard Edina, MN 55439 (952) 947-7777 Fax: (952) 947-7700 $125,000,000 Senior Notes $58,000,000 6.73% Senior Notes, Series A, due March 15, 2009 $67,000,000 7.20% Senior Notes, Series B, due March 15, 2012 Dated as of March 1, 2002 TO EACH OF THE PURCHASERS LISTED IN THE ATTACHED SCHEDULE A: Ladies and Gentlemen: REGIS CORPORATION, a Minnesota corporation (the "Company"), agrees with you as follows: 1. AUTHORIZATION OF NOTES. The Company has authorized the issue and sale of $58,000,000 aggregate principal amount of its 6.73% Senior Notes, Series A, due March 15, 2009 (the "Series A Notes") and $67,000,000 aggregate principal amount of its 7.20% Senior Notes, Series B, due March 15, 2012 (the "Series B Notes" and, collectively with the Series A Notes, the "Notes", such term to include any such Notes issued in substitution therefor pursuant to Section 13 of this Agreement). The Notes shall be substantially in the form set out in Exhibits 1(a) and 1(b) with such changes therefrom, if any, as may be approved by you, the Other Purchasers and the Company. Certain capitalized terms used in this Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. Subject to Section 22, the Notes will be guaranteed by each Subsidiary that is or in the future becomes a signatory to the Bank Guaranty, a borrower under the Credit Agreement or a guarantor of any Debt outstanding under the Private Shelf Agreements (individually, a "Subsidiary Guarantor" and collectively, the "Subsidiary Guarantors") pursuant to a guaranty in substantially the form of Exhibit 1(c) (the "Subsidiary Guaranty"). The Notes shall rank pari passu with the Company's Debt to Banks under the Credit Agreement and its Debt outstanding under the Private Shelf Agreements. 2. SALE AND PURCHASE OF NOTES. Subject to the terms and conditions of this Agreement, the Company will issue and sell to you and each of the other purchasers named in Schedule A (the "Other Purchasers"), and you and the Other Purchasers will purchase from the Company, at the Closing provided for in Section 3, Notes of the series and in the principal amount specified opposite your names in Schedule A at the purchase price of 100% of the principal amount thereof. Your obligation hereunder and the obligations of the Other Purchasers are several and not joint obligations and you shall have no liability to any Person for the performance or non-performance by any Other Purchaser hereunder. 3. CLOSING. The sale and purchase of the Notes to be purchased by you and the Other Purchasers shall occur at the offices of Gardner, Carton & Douglas, Quaker Tower, Suite 3400, 321 North Clark Street, Chicago, Illinois 60610 at 9:00 a.m., Chicago time, at a closing (the "Closing") on March 7, 2002 or on such other Business Day thereafter on or prior to March 28, 2002 as may be agreed upon by the Company and you and the Other Purchasers. At the Closing the Company will deliver to you the Notes to be purchased by you in the form of a single Note (or such greater number of Notes in denominations of at least $500,000 as you may request) dated the date of the Closing and registered in your name (or in the name of your nominee), against delivery by you to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company to account number 2347093, at LaSalle Bank, 135 South LaSalle Street, Chicago, IL 60603, ABA #071000505. If at the Closing the Company fails to tender such Notes to you as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any rights you may have by reason of such failure or such nonfulfillment. 4. CONDITIONS TO CLOSING. Your obligation to purchase and pay for the Notes to be sold to you at the Closing is subject to the fulfillment to your satisfaction, prior to or at the Closing, of the following conditions: 4.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company in this Agreement shall be correct when made and at the time of the Closing. 4.2. PERFORMANCE; NO DEFAULT. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing and after giving effect to the issue and sale of the Notes (and the application of the proceeds thereof as contemplated by Schedule 5.14) no Default or Event of Default shall 2 have occurred and be continuing. Neither the Company nor any Subsidiary shall have entered into any transaction since the date of the Memorandum that would have been prohibited by Sections 10.1 through 10.13 hereof had such Sections applied since such date. 4.3. COMPLIANCE CERTIFICATES. (a) Officer's Certificate. The Company shall have delivered to you an Officer's Certificate, dated the date of the Closing, certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled. (b) Secretary's Certificate. The Company shall have delivered to you a certificate certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Notes and the Agreement. 4.4. OPINIONS OF COUNSEL. You shall have received opinions in form and substance satisfactory to you, dated the date of the Closing (a) from Bert M. Gross, General Counsel for the Company, covering the matters set forth in Exhibit 4.4(a) and covering such other matters incident to the transactions contemplated hereby as you or your counsel may reasonably request (and the Company instructs its counsel to deliver such opinion to you) and (b) from Gardner, Carton & Douglas, your special counsel in connection with such transactions, substantially in the form set forth in Exhibit 4.4(b) and covering such other matters incident to such transactions as you may reasonably request. 4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC. On the date of the Closing your purchase of Notes shall (i) be permitted by the laws and regulations of each jurisdiction to which you are subject, without recourse to provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (ii) not violate any applicable law or regulation (including, without limitation, Regulation U, T or X of the Board of Governors of the Federal Reserve System) and (iii) not subject you to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by you, you shall have received an Officer's Certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted. 4.6. SALE OF OTHER NOTES. Contemporaneously with the Closing the Company shall sell to the Other Purchasers and the Other Purchasers shall purchase the Notes to be purchased by them at the Closing as specified in Schedule A. 3 4.7. PAYMENT OF SPECIAL COUNSEL FEES. Without limiting the provisions of Section 15.1, the Company shall have paid on or before the Closing the fees, charges and disbursements of your special counsel referred to in Section 4.4, to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the Closing. 4.8. PRIVATE PLACEMENT NUMBERS. A Private Placement Number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained by Gardner, Carton & Douglas for each series of the Notes. 4.9. CHANGES IN CORPORATE STRUCTURE. Except as specified in Schedule 4.9, the Company shall not have changed its jurisdiction of incorporation or been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Schedule 5.5. 4.10. SUBSIDIARY GUARANTY. Each Subsidiary Guarantor shall have executed and delivered the Subsidiary Guaranty in favor of you and the Other Purchasers. 4.11. INTERCREDITOR AGREEMENT. You and each of the Other Purchasers shall have entered into an Intercreditor Agreement (the "Intercreditor Agreement"), on terms satisfactory to you, with Bank of America, N.A., as administrative agent for the banks party to the Credit Agreement, and with the holders of outstanding senior notes issued pursuant to the Private Shelf Agreements. 4.12. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to you that: 4 5.1. ORGANIZATION; POWER AND AUTHORITY. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Notes and to perform the provisions hereof and thereof. 5.2. AUTHORIZATION, ETC. This Agreement and the Notes have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). The Subsidiary Guaranty has been duly authorized by all necessary corporate action on the part of each Subsidiary Guarantor and upon execution and delivery thereof will constitute the legal, valid and binding obligation of each Subsidiary Guarantor, enforceable against each Subsidiary Guarantor in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 5.3. DISCLOSURE. The Company, through its agent, Banc of America Securities LLC, has delivered to you and each Other Purchaser a copy of a Private Placement Memorandum, dated January 2002 (the "Memorandum"), relating to the transactions contemplated hereby. The Memorandum fairly describes, in all material respects, the general nature of the business and principal properties of the Company and its Subsidiaries. Except as disclosed in Schedule 5.3, this Agreement, the Memorandum, the documents, certificates or other writings delivered to you by or on behalf of the Company in connection with the transactions contemplated hereby and the financial statements listed in Schedule 5.5, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Except as disclosed in the Memorandum or as expressly described in Schedule 5.3, or in one of the documents, certificates or other writings identified therein, or in the financial statements listed in Schedule 5.5, since June 30, 2001, there has been no change in the financial condition, operations, business or 5 properties of the Company or any Subsidiary except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Memorandum or in the other documents, certificates and other writings delivered to you by or on behalf of the Company specifically for use in connection with the transactions contemplated hereby. 5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES. (a) Schedule 5.4 contains (except as noted therein) complete and correct lists of: (i) the Company's Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary, (ii) the Company's Affiliates, other than Subsidiaries, and (iii) the Company's directors and senior officers. Each Subsidiary listed in Schedule 5.4 is designated a Restricted Subsidiary by the Company. (b) All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4). (c) Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. (d) No Subsidiary is a party to, or otherwise subject to, any legal restriction or any agreement (other than this Agreement, the agreements listed on Schedule 5.4 and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary. 5.5. FINANCIAL STATEMENTS. The Company has delivered to you and each Other Purchaser copies of the financial statements of the Company and its Subsidiaries listed on Schedule 5.5. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations 6 and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments). 5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The execution, delivery and performance by the Company of this Agreement, the Intercreditor Agreement and the Notes will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary. The execution, delivery and performance by each Subsidiary Guarantor of the Subsidiary Guaranty will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of such Subsidiary Guarantor under any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which such Subsidiary Guarantor is bound or by which such Subsidiary Guarantor or any of its properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to such Subsidiary Guarantor or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to such Subsidiary Guarantor. 5.7. GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of this Agreement, the Intercreditor Agreement or the Notes or the execution, delivery or performance by each Subsidiary Guarantor of the Subsidiary Guaranty. 5.8. LITIGATION; OBSERVANCE OF STATUTES AND ORDERS. (a) Except as disclosed in Schedule 5.8, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (b) Neither the Company nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, 7 judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 5.9. TAXES. The Company and its Subsidiaries have filed all tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not individually or in the aggregate Material or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Company knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of Federal, state or other taxes for all fiscal periods are adequate. The Federal income tax liabilities of the Company and its Subsidiaries have been determined by the Internal Revenue Service and paid for all fiscal years up to and including the fiscal year ended June 30, 1993. 5.10. TITLE TO PROPERTY; LEASES. The Company and its Subsidiaries have good and sufficient title to their respective properties that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects. 5.11. LICENSES, PERMITS, ETC. Except as disclosed in Schedule 5.11, (a) the Company and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others; (b) to the best knowledge of the Company, no product of the Company infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and 8 (c) to the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the Company or any of its Subsidiaries. 5.12. COMPLIANCE WITH ERISA. (a) The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in Section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not be individually or in the aggregate Material. (b) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan's most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan's most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities. The term "benefit liabilities" has the meaning specified in section 4001 of ERISA and the terms "current value" and "present value" have the meaning specified in section 3 of ERISA. (c) The Company and its ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate are Material. (d) The expected postretirement benefit obligation (determined as of the last day of the Company's most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of the Company and its Subsidiaries is not Material. (e) The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first sentence of this Section 5.12(e) is made in reliance upon and subject to the accuracy of your representation in Section 6.2 as to the sources of the funds used to pay the purchase price of the Notes to be purchased by you. 9 5.13. PRIVATE OFFERING BY THE COMPANY. Neither the Company nor anyone acting on its behalf has offered the Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any person other than you, the Other Purchasers and not more than 50 other Institutional Investors, each of which has been offered the Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Notes to the registration requirements of Section 5 of the Securities Act. 5.14. USE OF PROCEEDS; MARGIN REGULATIONS. The Company will apply the proceeds of the sale of the Notes for general corporate purposes and to refinance Debt as set forth in Schedule 5.14. No part of the proceeds from the sale of the Notes will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 1% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 1% of the value of such assets. As used in this Section, the terms "margin stock" and "purpose of buying or carrying" shall have the meanings assigned to them in said Regulation U. 5.15. EXISTING DEBT. (a) Except as described therein, Schedule 5.15 sets forth a complete and correct list of all outstanding Debt of the Company and its Subsidiaries as of December 31, 2001, since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Debt of the Company or its Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Debt of the Company or such Subsidiary and no event or condition exists with respect to any Debt of the Company or any Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Debt to become due and payable before its stated maturity or before its regularly scheduled dates of payment. (b) Except as disclosed in Schedule 5.15, neither the Company nor any Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 10.4. 10 5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC. Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. 5.17. STATUS UNDER CERTAIN STATUTES. Neither the Company nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as amended by the ICC Termination Act, as amended, or the Federal Power Act, as amended. 5.18. ENVIRONMENTAL MATTERS. Neither the Company nor any Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against the Company or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. Except as otherwise disclosed to you in writing, (a) neither the Company nor any Subsidiary has knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect; (b) neither the Company nor any of its Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them and has not disposed of any Hazardous Materials in a manner contrary to any Environmental Laws in each case in any manner that could reasonably be expected to result in a Material Adverse Effect; and (c) all buildings on all real properties now owned, leased or operated by the Company or any of its Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect. 5.19. SOLVENCY OF SUBSIDIARY GUARANTORS. After giving effect to the transactions contemplated herein and after giving due consideration to any rights of contribution (i) each Subsidiary Guarantor has received fair consideration and reasonably equivalent value for the incurrence of its obligations under the 11 Subsidiary Guaranty, (ii) the fair value of the assets of each Subsidiary Guarantor (both at fair valuation and at present fair saleable value) exceeds its liabilities, (ii) each Subsidiary Guarantor is able to and expects to be able to pay its debts as they mature, and (iii) each Subsidiary Guarantor has capital sufficient to carry on its business as conducted and as proposed to be conducted. 6. REPRESENTATIONS OF THE PURCHASERS. 6.1. PURCHASE FOR INVESTMENT. You represent that you are purchasing the Notes for your own account or for one or more separate accounts maintained by you or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the disposition of your or their property shall at all times be within your or their control. You understand that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes. You represent that you are an "accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 of Regulation D under the Securities Act. 6.2. SOURCE OF FUNDS. You represent that at least one of the following statements is an accurate representation as to each source of funds (a "Source") to be used by you to pay the purchase price of the Notes to be purchased by you hereunder: (a) the Source is an "insurance company general account" as such term is defined in the Department of Labor Prohibited Transaction Exemption ("PTE") 95-60 (issued July 12, 1995) ("PTE 95-60") and as of the date of this Agreement there is no "employee benefit plan" with respect to which the aggregate amount of such general account's reserves and liabilities for the contracts held by or on behalf of such employee benefit plan and all other employee benefit plans maintained by the same employer (and affiliates thereof as defined in Section V(a)(1) of PTE 95-60) or by the same employee organization (in each case determined in accordance with the provisions of PTE 95-60) exceeds 10% of the total reserves and liabilities of such general account (as determined under PTE 95-60) (exclusive of separate account liabilities) plus surplus as set forth in the National Association of Insurance Commissioners Annual Statement filed with your state of domicile; or (b) the Source is either (i) an insurance company pooled separate account, within the meaning of PTE 90-1 (issued January 29, 1990), or (ii) a bank collective investment fund, within the meaning of PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to the Company in writing pursuant to this paragraph (b), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or 12 (c) the Source constitutes assets of an "investment fund" (within the meaning of Part V of the QPAM Exemption) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such QPAM and (ii) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this paragraph (c); or (d) the Source is a governmental plan; or (e) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this paragraph (e); or (f) the Source is the assets of one or more employee benefit plans that are managed by an "in-house asset manager," as that term is defined in PTE 96-23 and such purchase and holding of the Notes is exempt under PTE 96-23; or (g) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA. As used in this Section 6.2, the terms "employee benefit plan", "governmental plan" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 7. INFORMATION AS TO COMPANY. 7.1. FINANCIAL AND BUSINESS INFORMATION The Company will deliver to each holder of Notes that is an Institutional Investor: (a) Quarterly Statements -- within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of, (i) consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, (ii) consolidated statements of income of the Company and its Subsidiaries for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, and 13 (iii) consolidated statements of cash flows of the Company and its Subsidiaries for such quarter or (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments, provided that delivery within the time period specified above of copies of the Company's Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(a); (b) Annual Statements -- within 105 days after the end of each fiscal year of the Company, duplicate copies of, (i) consolidated balance sheet of the Company and its Subsidiaries, as at the end of such year, and (ii) consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, provided that the delivery within the time period specified above of the Company's Annual Report on Form 10-K for such fiscal year (together with the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(b); (c) Unrestricted Subsidiaries -- if, at the time of delivery of any financial statements pursuant to Section 7.1(a) or (b), Unrestricted Subsidiaries account for more than 10% of (i) the consolidated total assets of the Company and its Subsidiaries reflected in the balance sheet included in such financial statements or (ii) the consolidated revenues of the Company and its Subsidiaries reflected in the consolidated statement of income included in such financial statements, an unaudited balance sheet for all Unrestricted Subsidiaries taken as whole as at the end of the fiscal period included in such financial statements and the related unaudited statements of income, stockholders' equity and cash flows for such Unrestricted Subsidiaries for such period, together with 14 consolidating statements reflecting all eliminations or adjustments necessary to reconcile such group financial statements to the consolidated financial statements of the Company and its Subsidiaries shall be delivered together with the financial statements required pursuant to Sections 7.1(a) and (b); (d) SEC and Other Reports -- promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Restricted Subsidiary to public securities holders generally, and (ii) each regular or periodic report, each registration statement other than registration statements on Form S-8 (without exhibits except as expressly requested by such holder), and each prospectus and all amendments thereto filed by the Company or any Restricted Subsidiary with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Company or any Restricted Subsidiary to the public concerning developments that are Material; (e) Notice of Default or Event of Default -- promptly, and in any event within five Business Days after a Responsible Officer becoming aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given notice or taken any action with respect to a claimed default of the type referred to in Section 11(f), a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; (f) ERISA Matters -- promptly, and in any event within five Business Days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto: (i) with respect to any Plan, any reportable event, as defined in section 4043(b) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or (ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or (iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, 15 taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect; (g) Notices from Governmental Authority -- promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or any Subsidiary from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect; and (h) Requested Information -- with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any such holder of Notes. 7.2. OFFICER'S CERTIFICATE. Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or (b) shall be accompanied by a certificate of a Senior Financial Officer setting forth: (a) Covenant Compliance -- the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Section 10.1 through Section 10.13, inclusive, during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and (b) Event of Default -- a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including any such event or condition resulting from the failure of the Company or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto. 7.3. INSPECTION. The Company will permit the representatives of each holder of Notes that is an Institutional Investor: (a) No Default -- if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal 16 executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company's officers, and (with the consent of the Company, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and (b) Default -- if a Default or Event of Default then exists, at the expense of the Company, to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances, and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such times and as often as may be requested. 8. PREPAYMENT OF THE NOTES. 8.1. NO SCHEDULED PREPAYMENTS. No regularly scheduled prepayments are due on the Notes prior to their stated maturity. 8.2. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT. The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes in an amount not less than $1,000,000 in the aggregate in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus the Make-Whole Amount determined for the prepayment date with respect to such principal amount. The Company will give each holder of Notes written notice of each optional prepayment under this Section 8.2 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such date, the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date. 8.3. ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each partial prepayment of the Notes pursuant to this Section 8, the principal amount of the Notes to be prepaid shall be allocated among all of the Notes at the time 17 outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. 8.4. MATURITY; SURRENDER, ETC. In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and canceled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note. 8.5. PURCHASE OF NOTES. The Company will not and will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes except upon the payment or prepayment of the Notes in accordance with the terms of this Agreement and the Notes. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes. 8.6. MAKE-WHOLE AMOUNT. The term "MAKE-WHOLE AMOUNT" means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal, provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings: "CALLED PRINCIPAL" means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. "DISCOUNTED VALUE" means, 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 (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal. "REINVESTMENT YIELD" means, with respect to the Called Principal of any Note, .50% over the yield to maturity implied by (i) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as the "PX Screen" on the Bloomberg Financial Market Service (or such other display as may replace the PX Screen on 18 Bloomberg Financial Market 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 (ii) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day 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 will 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 (1) the actively traded U.S. Treasury security with the maturity closest to and greater than the Remaining Average Life and (2) the actively traded U.S. Treasury security with the maturity closest to and less than the Remaining Average Life. "REMAINING AVERAGE LIFE" means, with respect to any Called Principal, 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) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that 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" means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due 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, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or 12.1. "SETTLEMENT DATE" means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. 9. AFFIRMATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: 9.1. COMPLIANCE WITH LAW. The Company will, and will cause each Subsidiary to, comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, 19 certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 9.2. INSURANCE. The Company will, and will cause each Restricted Subsidiary to, maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated. 9.3. MAINTENANCE OF PROPERTIES. The Company will and will cause each Restricted Subsidiary to maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Restricted Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 9.4. PAYMENT OF TAXES AND CLAIMS. The Company will, and will cause each Subsidiary to, file all income tax or similar tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Company or any Subsidiary, provided that neither the Company nor any Subsidiary need pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in the aggregate could not reasonably be expected to have a Material Adverse Effect. 9.5. CORPORATE EXISTENCE, ETC. The Company will at all times preserve and keep in full force and effect its corporate existence. Subject to Sections 10.6, 10.6 and 10.9, inclusive, the Company will at all 20 times preserve and keep in full force and effect the corporate existence of each of its Restricted Subsidiaries (unless merged into the Company or a Restricted Subsidiary) and all rights and franchises of the Company and its Restricted Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect. 10. NEGATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: 10.1. CONSOLIDATED NET DEBT. The Company will not permit the ratio of Consolidated Net Debt (as of the last day of the most recently completed fiscal quarter) to Consolidated EBITDA (for the Company's then most recently completed four fiscal quarters) to be greater than 2.75 to 1.00 at any time. If, during the period for which Consolidated EBITDA is being calculated, the Company or a Restricted Subsidiary has (i) acquired one or more Persons (or the assets thereof) or (ii) disposed of one or more Restricted Subsidiaries (or substantially all of the assets thereof), Consolidated EBITDA shall be calculated on a pro forma basis as if all of such acquisitions (other than acquisitions by or resulting in Unrestricted Subsidiaries) and all such dispositions had occurred on the first day of such period. 10.2. PRIORITY DEBT. The Company will not permit Priority Debt to exceed 20% of Consolidated Net Worth at any time. 10.3. FIXED CHARGE COVERAGE. The Company will not permit the ratio (calculated as of the end of each fiscal quarter) of Consolidated EBITDAR to Consolidated Fixed Charges for the period of four quarters ending as of each fiscal quarter to be less than 1.50 to 1.00. 10.4. LIENS. The Company will not, and will not permit any Restricted Subsidiary to, permit to exist, create, assume or incur, directly or indirectly, any Lien on its properties or assets, whether now owned or hereafter acquired, except: (a) Liens for taxes, assessments or governmental charges not then due and delinquent or the nonpayment of which is permitted by Section 9.4; (b) Liens incidental to the conduct of business or the ownership of properties and assets (including landlords', lessors', carriers', warehousemen's, mechanics', materialmen's and other similar Liens) and Liens to secure the performance of bids, tenders, leases or trade contracts, or to secure statutory obligations (including obligations 21 under workers compensation, unemployment insurance and other social security legislation), surety or appeal bonds or other Liens of like general nature incurred in the ordinary course of business and not in connection with the borrowing of money; (c) any attachment or judgment Lien, unless the judgment it secures has not, within 60 days after the entry thereof, been discharged or execution thereof stayed pending appeal, or has not been discharged within 60 days after the expiration of any such stay; (d) Liens securing Debt of a Restricted Subsidiary to the Company or to a Wholly Owned Restricted Subsidiary; (e) Liens securing Debt existing on property or assets of the Company or any Restricted Subsidiary as of the date of this Agreement that are described in Schedule 10.4; (f) encumbrances in the nature of leases, subleases, zoning restrictions, easements, rights of way, minor survey exceptions and other rights and restrictions of record on the use of real property and defects in title arising or incurred in the ordinary course of business, which, individually and in the aggregate, do not materially impair the use or value of the property or assets subject thereto or which relate only to assets that in the aggregate are not material; (g) Liens (i) existing on property at the time of its acquisition by the Company or a Restricted Subsidiary and not created in contemplation thereof, whether or not the Debt secured by such Lien is assumed by the Company or a Restricted Subsidiary; or (ii) on property created contemporaneously with its acquisition or within 180 days of the acquisition or completion of construction thereof to secure or provide for all or a portion of the purchase price or cost of construction of such property after the date of Closing; or (iii) existing on property of a Person at the time such Person is merged or consolidated with, or becomes a Restricted Subsidiary of, or substantially all of its assets are acquired by, the Company or a Restricted Subsidiary and not created in contemplation thereof; provided that in the case of clauses (i), (ii) and (iii) such Liens do not extend to additional property of the Company or any Restricted Subsidiary (other than property that is an improvement to or is acquired for specific use in connection with the subject property) and, in the case of clause (ii) only, that the aggregate principal amount of Debt secured by each such Lien does not exceed the lesser of cost of acquisition or construction or the fair market value (determined in good faith by one or more officers of the Company to whom authority to enter into the transaction has been delegated by the board of directors of the Company) of the property subject thereto; (h) Liens resulting from extensions, renewals or replacements of Liens permitted by paragraphs (e) and (g), provided that (i) there is no increase in the principal amount or decrease in maturity of the Debt secured thereby at the time of such extension, renewal or replacement, (ii) any new Lien attaches only to the same property theretofore subject to such earlier Lien and (iii) immediately after such extension, renewal or replacement no Default or Event of Default would exist; and 22 (i) Liens securing Debt not otherwise permitted by paragraphs (a) through (h) above, provided that Priority Debt does not at any time exceed 20% of Consolidated Net Worth determined as of the end of the most recently ended fiscal quarter. 10.5. SALE OF ASSETS. Except as permitted by Section 10.6, the Company will not, and will not permit any Restricted Subsidiary to, sell, lease, transfer or otherwise dispose of, including by way of merger (collectively a "Disposition"), any assets, including capital stock of Restricted Subsidiaries, in one or a series of transactions, to any Person, other than: (a) Dispositions in the ordinary course of business; (b) Dispositions by the Company to a Wholly Owned Restricted Subsidiary or by a Restricted Subsidiary to the Company or a Wholly Owned Restricted Subsidiary; or (c) Dispositions not otherwise permitted by Section 10.5(a) or (b), provided that: (i) each such Disposition is made in an arms length transaction for a consideration at least equal to the fair market value of the property subject thereto; (ii) the aggregate net book value of all assets disposed of in any period of 365 consecutive days pursuant to this Section 10.5(c) does not exceed 10% of Consolidated Total Assets as of the end of the immediately preceding fiscal quarter; and (iii) at the time of such Disposition and after giving effect thereto no Default or Event of Default shall have occurred and be continuing. Notwithstanding the foregoing, the Company may, or may permit any Restricted Subsidiary to, make a Disposition and the assets subject to such Disposition shall not be subject to or included in the foregoing limitation and computation contained in Section 10.5(c)(ii) of the preceding sentence to the extent that (i) each such Disposition is for a consideration at least equal to the fair market value of the property subject thereto, and (ii) the net proceeds from such Disposition are within 180 days of such Disposition (A) reinvested in productive assets used or useful in carrying on the business of the Company and its Restricted Subsidiaries or (B) applied to the payment or prepayment of any outstanding Debt of the Company or any Restricted Subsidiary that is pari passu with or senior to the Notes, including the Notes. Any prepayment of Notes pursuant to this Section 10.5 shall be in accordance with Sections 8.2 and 8.3, without regard to the minimum prepayment requirements of Section 8.2. 10.6. MERGERS, CONSOLIDATIONS, ETC. The Company will not, and will not permit any Restricted Subsidiary to, consolidate with or merge with any other Person or convey, transfer, sell or lease all or 23 substantially all of its assets in a single transaction or series of transactions to any Person except that: (a) the Company may consolidate or merge with any other Person or convey, transfer, sell or lease all or substantially all of its assets in a single transaction or series of transactions to any Person, provided that: (i) the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer, sale or lease all or substantially all of the assets of the Company as an entirety, as the case may be, is a solvent corporation organized and existing under the laws of the United States or any state thereof (including the District of Columbia), and, if the Company is not such corporation, such corporation (y) shall have executed and delivered to each holder of any Notes its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the Notes and (z) shall have caused to be delivered to each holder of any Notes an opinion of independent counsel reasonably satisfactory to the Required Holders, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof; and (ii) immediately before and after giving effect to such transaction, no Default or Event of Default shall exist; and (b) Any Restricted Subsidiary may (x) merge into the Company (provided that the Company is the surviving corporation) or a Wholly Owned Restricted Subsidiary or (y) sell, transfer or lease all or any part of its assets to the Company or a Wholly Owned Restricted Subsidiary, or (z) merge or consolidate with, or sell, transfer or lease all or substantially all of its assets to, any Person in a transaction that is permitted by Section 10.5 or, as a result of which, such Person becomes a Restricted Subsidiary; provided in each instance set forth in clauses (x) through (z) that, immediately before and after giving effect thereto, there shall exist no Default or Event of Default; No such conveyance, transfer, sale or lease of all or substantially all of the assets of the Company shall have the effect of releasing the Company or any successor corporation that shall theretofore have become such in the manner prescribed in this Section 10.6 from its liability under this Agreement or the Notes. 10.7. RESTRICTED PAYMENTS. The Company will not, and will not permit any Restricted Subsidiary to, declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of its capital stock, or purchase, redeem or otherwise acquire for value any shares of its capital stock or any warrants, rights or options to acquire such shares, now or hereafter outstanding, except that any Restricted Subsidiary may declare and make dividend payments and other distributions to its shareholders on a pro rata basis and the Company may: 24 (a) Declare and make dividend payments or other distributions payable solely in its common stock; (b) Purchase, redeem or otherwise acquire shares of its common stock or warrants or options to acquire any such shares with the proceeds received from the substantially concurrent issue of new shares of its common stock; and (c) Declare or pay cash dividends to its stockholders and purchase, redeem or otherwise acquire shares of its capital stock or warrants, rights or options to acquire any such shares for cash and computed on a cumulative basis; provided, that (i) all such payments made in any period of four fiscal quarters (ending with the fiscal quarter in which any such payment is made), other than payments made in connection with any open market share repurchase program approved by the Company's board of directors (a "Repurchase Program"), shall not exceed 25% of the Company's Consolidated Net Income for the period of four fiscal quarters ending with the second preceding fiscal quarter prior to the fiscal quarter in which such payment is made (if positive), (ii) the total consideration paid to repurchase the Company's capital stock in connection with one or more Repurchase Programs shall not exceed $75,000,000 in the aggregate after December 31, 2001 and (iii) immediately after giving effect to such proposed action, no Default or Event of Default would exist (determined, for purposes of Section 10.1 and 10.3, on a pro forma basis as of the last day of the previous fiscal quarter). 10.8. INVESTMENTS. The Company will not, and will not permit any Restricted Subsidiary to, make or have any Investments other than: (a) Investments in Restricted Subsidiaries or in a Person that, immediately thereafter will be a Restricted Subsidiary; (b) Investments in obligations of or fully guaranteed by the United States of America, Canada, the United Kingdom or a sovereign country within Western Europe or an agency of any of the foregoing and maturing within one year from the date of acquisition; (c) Investments in demand deposits in banks in the ordinary course of business and certificates of deposit maturing within one year from the date of acquisition issued by commercial banks located and organized under the laws of the United States of America (or any state thereof or the District of Columbia), Canada (or a province thereof) or Western Europe, having combined capital surplus and undivided profits of not less than as of any date of determination combined capital, surplus and undivided profits of not less than $100,000,000 (determined in accordance with GAAP) and the outstanding senior Debt of which is rated A or better by S&P or A2 or better by Moody's or an equivalent rating by an internationally recognized rating agency; (d) Investments in commercial paper maturing within 270 days from the date of issuance and rated at least "A1" by Moody's or "P1" by S&P; 25 (e) Investments in mutual funds that invest at least 95% of their assets in instruments described in Sections 10.8(b) through (d); (f) the endorsement of negotiable instruments for collection in the ordinary course of business; and (g) other Investments, provided that the aggregate amount thereof shall at no time exceed 5% of Consolidated Net Worth. 10.9. DISPOSITION OF STOCK OF RESTRICTED SUBSIDIARIES. (a) The Company will not permit any Restricted Subsidiary to issue its capital stock, or any warrants, rights or options to purchase, or securities convertible into or exchangeable for, such capital stock, to any Person other than the Company or a Wholly Owned Restricted Subsidiary, except (i) for directors' qualifying shares or (ii) to satisfy local ownership requirements. (b) The Company will not, and will not permit any Restricted Subsidiary to, sell, transfer or otherwise dispose of any shares of capital stock of a Restricted Subsidiary if such sale would be prohibited by Section 10.5, except (i) for directors' qualifying shares or (ii) to satisfy local ownership requirements. (c) If a Restricted Subsidiary at any time ceases to be such as a result of a sale or issuance of its capital stock, any Liens on property of the Company or any other Restricted Subsidiary securing Debt owed to such Restricted Subsidiary, which is not contemporaneously repaid, together with such Debt, shall be deemed to have been incurred by the Company or such other Restricted Subsidiary, as the case may be, at the time such Restricted Subsidiary ceases to be a Restricted Subsidiary. 10.10. DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES. The Company may designate any Restricted Subsidiary as an Unrestricted Subsidiary and any Unrestricted Subsidiary as a Restricted Subsidiary; provided that, (a) if such Subsidiary initially is designated a Restricted Subsidiary, then such Restricted Subsidiary may be subsequently designated as an Unrestricted Subsidiary and such Unrestricted Subsidiary may be subsequently designated as a Restricted Subsidiary, but no further changes in designation may be made; (b) if such Subsidiary initially is designated an Unrestricted Subsidiary, then such Unrestricted Subsidiary may be subsequently designated as a Restricted Subsidiary and such Restricted Subsidiary may be subsequently designated as an Unrestricted Subsidiary, but no further changes in designation may be made; (c) the Company may not designate a Restricted Subsidiary as an Unrestricted Subsidiary unless: (i) such Restricted Subsidiary does not own, directly or indirectly, any Debt or capital stock of the Company or any other Restricted Subsidiary, (ii) such designation, considered as a sale of assets, is permitted pursuant to Sections 10.5, 10.6 26 and 10.9, (iii) immediately before and after such designation there exists no Default or Event of Default; and (d) a Subsidiary Guarantor may not be designated an Unrestricted Subsidiary. 10.11. SUBSIDIARY GUARANTY. The Company will not permit any Restricted Subsidiary to become a party to the Bank Guaranty or to directly or indirectly guarantee any of the Company's Debt or other obligations unless such Restricted Subsidiary is, or concurrently therewith becomes, a party to the Subsidiary Guaranty. 10.12. NATURE OF BUSINESS. The Company will not, and will not permit any Restricted Subsidiary to, engage in any business if, as a result, the general nature of the business in which the Company and its Restricted Subsidiaries, taken as a whole, would then be engaged would be substantially changed from the general nature of the business in which the Company and its Restricted Subsidiaries, taken as a whole, are engaged on the date of this Agreement as described in the Memorandum. 10.13. TRANSACTIONS WITH AFFILIATES. The Company will not and will not permit any Restricted Subsidiary to enter into directly or indirectly any Material transaction or Material group of related transactions (including without limitation the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than the Company or another Restricted Subsidiary), except in the ordinary course of the Company's or such Restricted Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than would be obtainable in a comparable arm's-length transaction with a Person not an Affiliate. 11. EVENTS OF DEFAULT. An "Event of Default" shall exist if any of the following conditions or events shall occur and be continuing: (a) the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or (b) the Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable; or (c) the Company defaults in the performance of or compliance with any term contained in Section 7.1(e) or Sections 10.1 through 10.13; or (d) the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b) and (c) of this 27 Section 11) and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Note; or (e) any representation or warranty made in writing by or on behalf of the Company or any Subsidiary Guarantor or by any officer of the Company or a Subsidiary Guarantor in this Agreement, the Subsidiary Guaranty or in any writing furnished in connection with the transactions contemplated hereby or thereby proves to have been false or incorrect in any material respect on the date as of which made; or (f) (i) the Company or any Restricted Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Debt that is outstanding in an aggregate principal amount of at least $5,000,000 beyond any period of grace provided with respect thereto, or (ii) the Company or any Restricted Subsidiary is in default in the performance of or compliance with any term of any evidence of any Debt that is outstanding in an aggregate principal amount of at least $5,000,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Debt has become, or has been declared (or one or more Persons are entitled to declare such Debt to be), due and payable before its stated maturity or before its regularly scheduled dates of payment, or (iii) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of Debt to convert such Debt into equity interests), (x) the Company or any Restricted Subsidiary has become obligated to purchase or repay Debt before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $5,000,000 or (y) one or more Persons have the right to require the Company or any Restricted Subsidiary so to purchase or repay such Debt; or (g) the Company or any Restricted Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or (h) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any Restricted Subsidiary, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any Restricted Subsidiary, 28 or any such petition shall be filed against the Company or any Restricted Subsidiary and such petition shall not be dismissed within 60 days; or (i) a final judgment or judgments for the payment of money aggregating at least $1,000,000 are rendered against one or more of the Company and its Restricted Subsidiaries, which judgments are not, within 60 days after entry thereof, bonded, discharged, dismissed or stayed pending appeal, or are not discharged within 60 days after the expiration of such stay; or (j) if (i) 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, (ii) 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 any such proceedings, (iii) 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 be at least $1,000,000, (iv) 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 provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any 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 Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect; or (k) any Subsidiary Guarantor defaults in the performance of or compliance with any term contained in the Subsidiary Guaranty, and such default continues beyond any period of grace in respect thereof, or the Subsidiary Guaranty ceases to be in full force and effect as a result of acts taken by the Company or any Subsidiary Guarantor, except as provided in Section 22, or is declared to be null and void in whole or in material part by a court or other governmental or regulatory authority having jurisdiction or the validity or enforceability thereof shall be contested by any of the Company or any Subsidiary Guarantor or any of them renounces any of the same or denies that it has any or further liability thereunder. As used in Section 11(j), the terms "employee benefit plan" and "employee welfare benefit plan" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 29 12. REMEDIES ON DEFAULT, ETC. 12.1. ACCELERATION. (a) If an Event of Default with respect to the Company described in paragraph (g) or (h) of Section 11 (other than an Event of Default described in clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by virtue of the fact that such clause encompasses clause (i) of paragraph (g)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable. (b) If any other Event of Default has occurred and is continuing, holders of a majority or more in principal amount of the Notes at the time outstanding may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable. (c) If any Event of Default described in paragraph (a) or (b) of Section 11 has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable. Upon any Notes becoming due and payable under this Section 12.1, whether automatically or by declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes, plus (x) all accrued and unpaid interest thereon and (y) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances. 12.2. OTHER REMEDIES. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. 12.3. RESCISSION. At any time after any Notes have been declared due and payable pursuant to clause (b) or (c) of Section 12.1, the holders of a majority in principal amount of the Notes then 30 outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 17, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. 12.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys' fees, expenses and disbursements. 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES. 13.1. REGISTRATION OF NOTES. The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor, promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes. 13.2. TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Notes (as 31 requested by the holder thereof) of the same series in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Exhibit 1(a) or 1(b), as appropriate. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $500,000, provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $500,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.2. 13.3. REPLACEMENT OF NOTES. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is, or is a nominee for, an original Purchaser or another Institutional Investor holder of a Note with a minimum net worth of at least $50,000,000, such Person's own unsecured agreement of indemnity shall be deemed to be satisfactory), or (b) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Note of the same series, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. 14. PAYMENTS ON NOTES. 14.1. PLACE OF PAYMENT. Subject to Section 14.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in Chicago, Illinois at the principal office of Bank of America in such jurisdiction. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction. 32 14.2. HOME OFFICE PAYMENT. So long as you or your nominee shall be the holder of any Note, and notwithstanding anything contained in Section 14.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule A, or by such other method or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, you shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1. Prior to any sale or other disposition of any Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 13.2. The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by you under this Agreement and that has made the same agreement relating to such Note as you have made in this Section 14.2. 15. EXPENSES, ETC. 15.1. TRANSACTION EXPENSES. Whether or not the transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including reasonable attorneys' fees of special counsel and, if reasonably required, local or other counsel) incurred by you and each Other Purchaser or holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement, the Notes, the Intercreditor Agreement or the Subsidiary Guaranty (whether or not such amendment, waiver or consent becomes effective), including: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement, the Notes, the Intercreditor Agreement or the Subsidiary Guaranty or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement, the Notes, the Intercreditor Agreement or the Subsidiary Guaranty, or by reason of being a holder of any Note, and (b) the costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save you and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those retained by you). 15.2. SURVIVAL. The obligations of the Company under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement. 33 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of you or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. 17. AMENDMENT AND WAIVER. 17.1. REQUIREMENTS. This Agreement, the Notes and the Subsidiary Guaranty may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is used therein), will be effective as to you unless consented to by you in writing, and (b) no such amendment or waiver may, without the written consent of the holder of each Note at the time outstanding affected thereby, (i) subject to the provisions of Section 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or 20. 17.2. SOLICITATION OF HOLDERS OF NOTES. (a) Solicitation. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes. (b) Payment. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an 34 inducement to the entering into by any holder of Notes or any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment. 17.3. BINDING EFFECT, ETC. Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. 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, the term "this Agreement" or "the Agreement" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. 17.4. NOTES HELD BY COMPANY, ETC. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding. 18. NOTICES. All notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (i) if to you or your nominee, to you or it at the address specified for such communications in Schedule A, or at such other address as you or it shall have specified to the Company in writing, (ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or (iii) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of the Chief Financial Officer, or at such other address as the Company shall have specified to the holder of each Note in writing. 35 Notices under this Section 18 will be deemed given only when actually received. 19. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by you at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to you, may be reproduced by you by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and you may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by you in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. 20. CONFIDENTIAL INFORMATION. For the purposes of this Section 20, "Confidential Information" means information delivered to you by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified in writing when received by you as being confidential information of the Company or such Subsidiary, provided that such term does not include information that (a) was publicly known or otherwise known to you prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by you or any person acting on your behalf, (c) otherwise becomes known to you other than through disclosure by the Company or any Subsidiary or (d) constitutes financial statements delivered to you under Section 7.1 that are otherwise publicly available. You will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by you in good faith to protect confidential information of third parties delivered to you, provided that you may deliver or disclose Confidential Information to (i) your directors, trustees, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by your Notes), (ii) your financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor to which you sell or offer to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (v) any Person from which you offer to purchase any security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (vi) any federal or state regulatory authority having jurisdiction over you, (vii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about your investment portfolio or (viii) any other Person to which such delivery or disclosure may be 36 necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to you, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which you are a party or (z) if an Event of Default has occurred and is continuing, to the extent you may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under your Notes and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 20. 21. SUBSTITUTION OF PURCHASER. You shall have the right to substitute any one of your Affiliates as the purchaser of the Notes that you have agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both you and such Affiliate, shall contain such Affiliate's agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall be deemed to refer to such Affiliate in lieu of you. In the event that such Affiliate is so substituted as a purchaser hereunder and such Affiliate thereafter transfers to you all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall no longer be deemed to refer to such Affiliate, but shall refer to you, and you shall have all the rights of an original holder of the Notes under this Agreement. 22. RELEASE OF SUBSIDIARY GUARANTOR. You and each subsequent holder of a Note agree to release any Subsidiary Guarantor from the Subsidiary Guaranty (i) if such Subsidiary Guarantor ceases to be such as a result of a Disposition permitted by Sections 10.5, 10.6 or 10.9 or (ii) at such time as the banks party to the Credit Agreement release such Subsidiary from the Bank Guaranty and any other holders of Debt guaranteed by such Subsidiary release such Subsidiary from such Guaranties; provided, however, that you and each subsequent holder will not be required to release a Subsidiary Guarantor from the Subsidiary Guaranty under the circumstances contemplated by clause (ii), if (A) a Default or Event of Default has occurred and is continuing, (B) such Subsidiary Guarantor is to become a borrower under the Credit Agreement or (C) such release is part of a plan of financing that contemplates such Subsidiary Guarantor guaranteeing any other Debt of the Company. Your obligation to release a Subsidiary Guarantor from the Subsidiary Guaranty is conditioned upon your prior receipt of a certificate from a Senior Financial Officer of the Company stating that none of the circumstances described in clauses (A), (B) and (C) above are true. 37 23. MISCELLANEOUS. 23.1. SUCCESSORS AND ASSIGNS. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not. 23.2. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or Make-Whole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day. 23.3. SEVERABILITY. Any provision of this Agreement that 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 (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. 23.4. CONSTRUCTION. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. 23.5. 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. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 23.6. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. 38 If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, REGIS CORPORATION By: /s/ Randy L. Pearce ----------------------------------------- Name: Randy L. Pearce --------------------------------------- Title: Executive Vice President -------------------------------------- Chief Financial and Administrative Officer S-1 The foregoing is agreed to as of the date thereof. TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA By: /s/ Lisa M. Ferraro ------------------------------- Name: Lisa M. Ferraro ----------------------------- Title: Director ---------------------------- S-2 MONUMENTAL LIFE INSURANCE COMPANY By: /s/ Bill Henricksen ------------------------------- Name: Bill Henricksen ----------------------------- Title: Vice President ---------------------------- S-3 JACKSON NATIONAL LIFE INSURANCE COMPANY By: PPM America, Inc., as attorney in fact, on behalf of Jackson National Life Insurance Company By: /s/ Chris Raub --------------------------------------- Name: Chris Raub ------------------------------------- Title: Senior Managing Director ------------------------------------ JACKSON NATIONAL LIFE INSURANCE COMPANY OF NEW YORK By: PPM America, Inc., as attorney in fact, on behalf of Jackson National Life Insurance Company of New York By: /s/ Chris Raub --------------------------------------- Name: Chris Raub ------------------------------------- Title: Senior Managing Director ------------------------------------ THE PRUDENTIAL ASSURANCE COMPANY LIMITED By: The Prudential Assurance Company Limited By: /s/ Chris Raub --------------------------------------- Name: Chris Raub ------------------------------------- Title: Senior Managing Director ------------------------------------ S-4 PACIFIC LIFE INSURANCE COMPANY By: /s/ Diane W. Dales ------------------------------- Name: Diane W. Dales ----------------------------- Title: Assistant Vice President ---------------------------- By: /s/ Cathy Schwartz ------------------------------- Name: Cathy Schwartz ----------------------------- Title: Assistant Secretary ---------------------------- S-5 PHOENIX LIFE INSURANCE COMPANY By: /s/ Christopher Wilkos --------------------------------------- Name: Christopher Wilkos ------------------------------------- Title: Senior Vice President ------------------------------------ PHL VARIABLE INSURANCE COMPANY By: /s/ Christopher Wilkos --------------------------------------- Name: Christopher Wilkos ------------------------------------- Title: Vice President ------------------------------------ S-6 PROVIDENT MUTUAL LIFE INSURANCE COMPANY By: /s/ James D. Kestner ------------------------------- Name: James D. Kestner ----------------------------- Title: Vice President ---------------------------- S-7 SECURITY FINANCIAL LIFE INSURANCE CO. By: /s/ Kevin W. Hammond ------------------------------- Name: Kevin W. Hammond ----------------------------- Title: Vice President ---------------------------- Chief Investment Officer ---------------------------- S-8 SCHEDULE A INFORMATION RELATING TO PURCHASERS

Principal Amount of Notes to be Purchased ------------------------- ------------------------- Name of Purchaser Series A Series B - ----------------- -------- -------- Teachers Insurance and Annuity Association of America $35,000,000

Register Notes in name of: TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA (1) All payments on or in respect of the Notes shall be made in immediately available funds at the opening of business on the due date by electronic funds transfer through the Automated Clearing House System to: Chase Manhattan Bank ABA No. 021-000-021 Account of: Teachers Insurance and Annuity Association of America Account No.: 900-9-000200 For further Credit to the TIAA Account Number: G07040 Reference: PPN#/Issuer/Mat. Date/Coupon Rate/P&I Breakdown (2) Contemporaneous with the above electronic funds transfer, advice setting forth (1) the full name, private placement number and interest rate of the Note, (2) allocation of payment between principal, interest, premium and any special payment; and (3) name and address of Bank (or Trustee) from which wire transfer was sent, shall be delivered, mailed or faxed to: Teachers Insurance and Annuity Association of America 730 Third Avenue New York, New York 10017-3206 Attention: Securities Accounting Division Telephone: (212) 916-6004 Fax: (212) 916-6955 (3) All other communications shall be delivered or mailed to: Teachers Insurance and Annuity Association of America 730 Third Avenue New York, New York 10017-3206 Attention: Securities Division/Lisa Ferraro Telephone: (212) 916-6547 (Telephone Number) (212) 490-9000 (General Telephone Number) Fax: (212) 916-6667 (Telecopier Number) Tax ID No. 13-1624203 Schedule A SCHEDULE A INFORMATION RELATING TO PURCHASERS

Principal Amount of Notes to be Purchased ------------------------- ------------------------- Name of Purchaser Series A Series B - ----------------- -------- -------- Monumental Life Insurance Company $30,000,000

Register Notes in name of: MONUMENTAL LIFE INSURANCE COMPANY (1) All payments on account of the Monumental Life Insurance Company shall be made by wire transfer of immediately available funds to: Citibank, NA 111 Wall Street New York, NY 10043 ABA #021000089 DDA #36218394 Custody Account No.847785 FC Monumental Life Insurance Company ADDITIONAL REQUIRED INFORMATION: Identify source and application of funds. Include the following: Security/Issuer Description, CUSIP (if available), principal and interest. (2) All notice of and confirmation of PAYMENT information should be sent to: AEGON USA Investment Management, LLC Attn: Neil Joss 4333 Edgewood Road NE Cedar Rapids, IA 52499-5113 Fax: (319) 247-6495 (3) All other communications including financial statements and reporting should be directed to both: AEGON USA Investment Management, LLC. Investment Management, LLC Attn: Director of Private Placements 4333 Edgewood Road N.E. Cedar Rapids, IA 52499-5335 FAX #: 319/369-2666 AND Schedule A AEGON USA Investment Management, LLC Attn: Lizz Taylor--Private Placements 400 West Market Street Louisville, KY 40202 Fax#: 502/560-2030 Tax ID No. 52-0419790 Schedule A SCHEDULE A INFORMATION RELATING TO PURCHASERS

Principal Amount of Notes to be Purchased ------------------------- ------------------------- Name of Purchaser Series A Series B - ----------------- -------- -------- Jackson National Life Insurance Company $9,000,000

Register Notes in name of: JACKSON NATIONAL LIFE INSURANCE COMPANY (1) Please wire all payments as follows. To ensure accurate and timely posting of principal and interest, please include all relevant information on the wire. The Bank of New York ABA # 021-000-018 BNF Account #: IOC566 FBO: Jackson National Life Ref: CUSIP / PPN, Description, and Breakdown (P&I) (2) Payment notices should be sent to: Jackson National Life Insurance Company c/o The Bank of New York Attn: P&I Department P. O. Box 19266 Newark, New Jersey 07195 Phone: (212) 437-3054, Fax: (212) 437-6466 (3) ORIGINAL documents and COPIES of notes and certificates, notices, waivers, amendments, consents, and financial information should be sent to: a) PPM America, Inc. b) Jackson National Life Insurance 225 West Wacker Drive, Suite 1200 Company Chicago, IL 60606-1228 225 West Wacker Drive, Suite 1200 Attn: Private Placements - Nicole Kidder Chicago, IL 60606-1228 Phone: (312) 634-2516 Attn: Investment Accounting - Mark Fax: (312) 236-0555 Stewart Phone: (312) 338-5832 Fax: (312) 236-5224 Tax ID No. 38-1659835 Schedule A SCHEDULE A INFORMATION RELATING TO PURCHASERS

Principal Amount of Notes to be Purchased ------------------------- ------------------------- Name of Purchaser Series A Series B - ----------------- -------- -------- Jackson National Life Insurance Company of New York $4,000,000

Register Notes in name of: JACKSON NATIONAL LIFE INSURANCE COMPANY OF NEW YORK (1) Please wire all payments as follows. To ensure accurate and timely posting of principal and interest, please include all relevant information on the wire. The Bank of New York ABA # 021-000-018 BNF Account #: IOC566 FBO: Jackson National Life Ref: CUSIP / PPN, Description, and Breakdown (P&I) (2) Payment notices should be sent to: Jackson National Life Insurance Company c/o The Bank of New York Attn: P&I Department P. O. Box 19266 Newark, New Jersey 07195 Phone: (212) 437-3054, Fax: (212) 437-6466 (3) ORIGINAL documents and COPIES of notes and certificates, notices, waivers, amendments, consents, and financial information should be sent to: a) PPM America, Inc. b) Jackson National Life Insurance 225 West Wacker Drive, Suite 1200 Company Chicago, IL 60606-1228 225 West Wacker Drive, Suite 1200 Attn: Private Placements - Nicole Kidder Chicago, IL 60606-1228 Phone: (312) 634-2516 Attn: Investment Accounting - Mark Fax: (312) 236-0555 Stewart Phone: (312) 338-5832 Fax: (312) 236-5224 Tax ID No. 13-3873709 Schedule A SCHEDULE A INFORMATION RELATING TO PURCHASERS

Principal Amount of Notes to be Purchased ------------------------- ------------------------- Name of Purchaser Series A Series B - ----------------- -------- -------- The Prudential Assurance Company Limited $8,400,000

Register Notes in name of: THE PRUDENTIAL ASSURANCE COMPANY LIMITED (1) Please wire all payments as follows. To ensure accurate and timely posting of principal and interest, please include all relevant information on the wire. Boston Safe Deposit ABA # 011001234 BNF DDA Account # 125261 FBO OBO-FI A/C# PMIF0583002 Ref: CUSIP/PPN, Description, and Breakdown (P&I) Special Instructions: Cost Center 1253 (2) Payment notices should be sent to: a) PPM America, Inc. b) Mellon Trust 225 West Wacker Drive, Suite 1200 135 Santilli Highway, Room 026- Chicago, IL 60606-1228 0035 Attn: Portfolio Services - Craig Close Everett, MA 02149-1950 Phone: (312) 634-2502 Attn: Melissa Chin Fax: (312) 634-0906 Phone: (617) 382-4392 Fax: (617) 382-2458 (3) ORIGINAL documents and COPIES of notes and certificates, notices, waivers, amendments, consents, and financial information should be sent to: a) PPM America, Inc. b) PPM America, Inc. 225 West Wacker Drive, Suite 1200 225 West Wacker Drive, Suite 1200 Chicago, IL 60606-1228 Chicago, IL 60606-1228 Attn: Private Placements - Nicole Kidder Attn: Portfolio Services- Craig Phone: (312) 634-2516 Close Fax: (312) 236-0055 Phone: (312) 338-5832 Fax: (312) 236-5224 Schedule A SCHEDULE A INFORMATION RELATING TO PURCHASERS

Principal Amount of Notes to be Purchased ----------------------------------------- Name of Purchaser Series A Series B - ----------------- -------- -------- The Prudential Assurance Company Limited $1,600,000

Register Notes in name of: THE PRUDENTIAL ASSURANCE COMPANY LIMITED (1) Please wire all payments as follows. To ensure accurate and timely posting of principal and interest, please include all relevant information on the wire. Boston Safe Deposit ABA # 011001234 BNF DDA Account # 125261 FBO SAL-FI A/C# PMIF0584002 Ref: CUSIP/PPN, Description, and Breakdown (P&I) Special Instructions: Cost Center 1253 (2) Payment notices should be sent to: a) PPM America, Inc. b) Mellon Trust 225 West Wacker Drive, Suite 1200 135 Santilli Highway, Room 026- Chicago, IL 60606-1228 0035 Attn: Portfolio Services - Everett, MA 02149-1950 Craig Close Attn: Melissa Chin Phone: (312) 634-2502 Phone: (617) 382-4392 Fax: (312) 634-0906 Fax: (617) 382-2458 (3) ORIGINAL documents and COPIES of notes and certificates, notices, waivers, amendments, consents, and financial information should be sent to: a) PPM America, Inc. b) PPM America, Inc. 225 West Wacker Drive, Suite 1200 225 West Wacker Drive, Suite Chicago, IL 60606-1228 1200 Attn: Private Placements - Chicago, IL 60606-1228 Nicole Kidder Attn: Portfolio Services- Phone (312) 634-2516 Craig Close Fax: (312) 236-0055 Phone: (312) 338-5832 Fax: (312) 236-5224 SCHEDULE A SCHEDULE A INFORMATION RELATING TO PURCHASERS

Principal Amount of Notes to be Purchased -------------------------------------------------- Name of Purchaser Series A Series B - ----------------- -------- -------- Pacific Life Insurance Company $10,000,000 $5,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000

Register Notes in name of: MAC & CO. (1) For payment of principal and interest: Federal Reserve Bank of Boston ABA# 0110-0123-4/BOS SAFE DEP DDA 125261 Attn: MBS Income CC: 1253 A/C Name: Pacific Life General Account/PLCF1810132 Regarding: Security Description & PPN (2) All notices of payments and written confirmations of such wire transfers to: Mellon Trust Attn: Pacific Life Accounting Team One Mellon Bank Center-Room 0930 Pittsburgh, PA 15258-0001 FAX# 412-236-7529 AND Pacific Life Insurance Company Attn: Securities Administration - Cash Team 700 Newport Center Drive Newport Beach, CA 92660-6397 FAX# 949-640-4013 SCHEDULE A (3) All other communications shall be addressed to: Pacific Life Insurance Company Attn: Securities Department 700 Newport Center Drive Newport Beach, CA 92660-6397 FAX# 949-219-5406 (4) For Physical Delivery of Certificates: Mellon Securities Trust Company 120 Broadway, 13th Floor New York, NY 10271 Attn: Robert Feraro 212.374.1918 A/C NAME: PACIFIC LIFE GENERAL ACCT. A/C#: PLCF1810132 Tax ID No. 95-1079000 SCHEDULE A SCHEDULE A INFORMATION RELATING TO PURCHASERS

Principal Amount of Notes to be Purchased ----------------------------------------- Name of Purchaser Series A Series B - ----------------- -------- -------- Phoenix Life Insurance Company $5,000,000

Register Notes in name of: PHOENIX LIFE INSURANCE COMPANY (1) All payments by wire transfer of immediately available funds to: Chase Manhattan Bank New York, NY ABA 021 000 21 Acct. Number: 900 9000 200 Acct. Name: Income Processing Reference: G05123, Phoenix Life Insurance, PPN: (2) All notices of payments and written confirmations of such wire transfers: Phoenix Investment Partners Attn: Private Placement Dept. 56 Prospect Street Hartford, CT 06115 Telephone: (860) 403-5519 Fax: (860) 403-7248 (3) All other communications: Phoenix Life Insurance Attn: John Mulrain One American Row Hartford, CT 06102 Telephone: (860) 403-5799 Fax: (860) 403-7203 Tax ID No. 06-0493340 SCHEDULE A SCHEDULE A INFORMATION RELATING TO PURCHASERS

Principal Amount of Notes to be Purchased ----------------------------------------- Name of Purchaser Series A Series B - ----------------- -------- -------- PHL Variable Insurance Company $3,000,000

Register Notes in name of: PHL VARIABLE INSURANCE COMPANY (1) All payments by wire transfer of immediately available funds to: Chase Manhattan Bank New York, NY ABA 021 000 21 Acct. Number: 900 9000 200 Acct. Name: Income Processing Reference: G05948, Phoenix Life Insurance, PPN: (2) All notices of payments and written confirmations of such wire transfers: Phoenix Investment Partners Attn: Private Placement Dept. 56 Prospect Street Hartford, CT 06115 Telephone: (860) 403-5519 Fax: (860) 403-7248 (3) All other communications: Phoenix Life Insurance Attn: John Mulrain One American Row Hartford, CT 06102 Telephone: (860) 403-5799 Fax: (860) 403-7203 Tax ID No. 06-1045829 SCHEDULE A SCHEDULE A INFORMATION RELATING TO PURCHASERS

Principal Amount of Notes to be Purchased --------------------------------------------- Name of Purchaser Series A Series B - ----------------- -------- -------- Provident Mutual Life Insurance Company $2,000,000 $3,000,000

Register Notes in name of: PROVIDENT MUTUAL LIFE INSURANCE COMPANY (1) All payments by wire transfer of immediately available funds to: PNC Bank Broad & Chestnut Streets Philadelphia, PA 19101 ABA # 031-000-053 For credit to Provident Mutual Life Insurance Company Account # 85-4084-2176 (2) All notices: Provident Mutual Life Insurance Company Attn: Investment Department 1000 Chesterbrook Blvd Berwyn, PA 19312 Tax ID No. 23-0990450 SCHEDULE A SCHEDULE A INFORMATION RELATING TO PURCHASERS

Principal Amount of Notes to be Purchased -------------------------------------------- Name of Purchaser Series A Series B - ----------------- -------- -------- Security Financial Life Insurance Co. $2,000,000

Register Notes in name of: SECURITY FINANCIAL LIFE INSURANCE CO. (1) All payments on or in respect of the Notes shall be made by wire transfer of immediately available funds at the opening of business on the due date to: Wells Fargo Bank, Nebraska, N.A. 1248 "O" Street Lincoln NE 68508 ABA No. 104-000-058 ACCOUNT OF: SECURITY FINANCIAL LIFE ACCOUNT OF: 79-40-797-624 Each such wire transfer shall set forth the name of the issuer, the full title of the Notes (including the rate and final redemption to maturity date) and application of such funds among principle, premium and interest, if applicable. (2) All notices of payments and written confirmations of such wire transfers should be sent to: Security Financial Life Insurance Co. 4000 Pine Lake Road P.O. Box 82248 Lincoln, NE 68516 Attention: Investment Division Fax: (402) 458-2170 Phone: (402) 434-9500 (3) All other communications should be sent to: Security Financial Life Insurance Co. 4000 Pine Lake Road P.O. Box 82248 Lincoln, NE 68501-2248 Tax ID No. 47-0293990 SCHEDULE A SCHEDULE B DEFINED TERMS As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term: "AFFILIATE" means, at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and (b) any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of the Company or any Subsidiary or any corporation of which the Company and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests. As used in this definition, "CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an "Affiliate" is a reference to an Affiliate of the Company. "BANK GUARANTY" means the Subsidiary Guaranty dated as of August 2, 1999 of the Subsidiary Guarantors of Debt outstanding under the Credit Agreement, as such Guaranty may be amended, restated or otherwise modified, and any successor thereto. "BANKS" means the banks party to the Credit Agreement, including Bank of America, N.A., as administrative agent for such banks. "BUSINESS DAY" means (a) for the purposes of Section 8.6 only, any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed, and (b) for the purposes of any other provision of this Agreement, any day other than a Saturday, a Sunday or a day on which commercial banks in Chicago, Illinois or New York City are required or authorized to be closed. "CAPITAL LEASE" means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. "CLOSING" is defined in Section 3. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "COMPANY" means Regis Corporation, a Minnesota corporation. "CONFIDENTIAL INFORMATION" is defined in Section 20. Schedule B "CONSOLIDATED EBITDA" means, for any period, the sum of Consolidated Net Income for such period, plus, to the extent deducted in determining such Consolidated Net Income, (i) federal, state, local and foreign income, value added and similar taxes, (ii) Consolidated Interest Expense and (iii) depreciation and amortization expense. "CONSOLIDATED EBITDAR" means, for any period, the sum of (i) Consolidated EBITDA for such period and (ii) Rental Expense for such period under all leases other than Capital Leases. "CONSOLIDATED FIXED CHARGES" means, for any period, the sum of (i) Rental Expense for such period under all leases other than Capital Leases and (ii) Consolidated Interest Expense for such period. "CONSOLIDATED INTEREST EXPENSE" means, for any period, the consolidated interest expense of the Company and its Restricted Subsidiaries for such period determined in accordance with GAAP. "CONSOLIDATED NET DEBT" means, as of any date, outstanding Debt of the Company and its Restricted Subsidiaries as of such date less cash and cash equivalents of the Company and its Restricted Subsidiaries as of such date, each as determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED NET INCOME" means, for any period, the net income or loss of the Company and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, but in any event excluding extraordinary or nonrecurring gains or losses. "CONSOLIDATED NET WORTH" means, as of any date, the consolidated stockholders' equity of the Company and its Restricted Subsidiaries as of such date, determined in accordance with GAAP. "CONSOLIDATED TOTAL ASSETS" means, as of any date, the assets and properties of the Company and its Restricted Subsidiaries as of such date, determined on a consolidated basis in accordance with GAAP. "CREDIT AGREEMENT" means the Amended and Restated Credit Agreement dated as of September 26, 2000 among the Company, Bank of America, N.A., as Administrative Agent, LaSalle Bank National Association, as Co-Administrative Agent and Swing Line Lender, Bank One, NA and First Union National Bank, as Co-Documentation Agents, and the other financial institutions party thereto, as such agreement may be hereafter amended, modified, restated, supplemented, refinanced, increased or reduced from time to time, and any successor credit agreement or similar facilities. "DEBT" with respect to any Person means, at any time, without duplication, Schedule B (a) its liabilities for borrowed money and its redemption obligations in respect of mandatorily redeemable Preferred Stock that can be required to be redeemed prior to the maturity of the Notes; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable and other accrued liabilities arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); (c) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capital Leases; and (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); and (e) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (d) hereof. Debt of any Person shall include all obligations of such Person of the character described in clauses (a) through (d) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. "DEFAULT" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "DEFAULT RATE" means that rate of interest that is the greater of (i) 2% per annum above the rate of interest stated in clause (a) of the first paragraph of the Notes or (ii) 2% over the rate of interest publicly announced by Bank of America in Chicago, Illinois as its "base" or "prime" rate. "DISPOSITION" is defined in Section 10.5. "ENVIRONMENTAL LAWS" means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under section 414 of the Code. Schedule B "EVENT OF DEFAULT" is defined in Section 11. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "GOVERNMENTAL AUTHORITY" means (a) the government of (i) the United States of America or any State or other political subdivision thereof, or (ii) any jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government. "GUARANTY" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such indebtedness or obligation or any property constituting security therefor; (b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation; (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or (d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof. Schedule B In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor. "HAZARDOUS MATERIAL" means any and all pollutants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including, without limitation, asbestos, urea formaldehyde foam insulation and polychlorinated biphenyls). "HOLDER" means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 13.1. "INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note, (b) any holder of more than $2,000,000 in aggregate principal amount of the Notes at the time outstanding, and (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form. "INTERCREDITOR AGREEMENT" is defined in Section 4.11. "INVESTMENTS" means all investments made, in cash or by delivery of property, directly or indirectly, by any Person, in any other Person, whether by acquisition of shares of capital stock, indebtedness or other obligations or securities or by loan, Guaranty, advance, capital contribution or otherwise. "LIEN" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements). "MAKE-WHOLE AMOUNT" is defined in Section 8.6. "MATERIAL" means material in relation to the business, operations, affairs, financial condition, assets or properties of the Company and its Restricted Subsidiaries taken as a whole. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and its Restricted Subsidiaries taken as a whole, or (b) the ability of the Company to perform its obligations under this Agreement and the Notes, or (c) the ability of any Subsidiary to perform its obligations under the Subsidiary Guaranty, or (d) the validity or enforceability of this Agreement, the Notes or the Subsidiary Guaranty. Schedule B "MEMORANDUM" is defined in Section 5.3. "MOODY'S" means Moody's Investors Service, Inc. "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "NOTES" is defined in Section 1. "OFFICER'S CERTIFICATE" means a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate. "OTHER PURCHASERS" is defined in Section 2. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "PERSON" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. "PLAN" means an "employee benefit plan" (as defined in section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability. "PREFERRED STOCK" means any class of capital stock of a corporation that is preferred over any other class of capital stock of such corporation as to the payment of dividends or the payment of any amount upon liquidation or dissolution of such corporation. "PRIORITY DEBT" means, as of any date, the sum (without duplication) of (a) outstanding Debt of Restricted Subsidiaries that are not Subsidiary Guarantors (other than Debt owed to the Company or a Wholly Owned Restricted Subsidiary and Debt of a Person that is not an Unrestricted Subsidiary outstanding at the time it becomes a Restricted Subsidiary) and (b) Debt of the Company and its Restricted Subsidiaries secured by Liens not otherwise permitted by Sections 10.4(a) through (h). "PRIVATE SHELF AGREEMENTS" means the Amended and Restated Private Shelf Agreement dated as of October 3, 2000 and the Private Shelf Agreement dated as of December 19, 1997 as amended by the Amendment dated August 2, 1999, each between the Company and the purchasers named therein, as such agreements may be amended, restated or otherwise modified, and any successor thereto. Schedule B "PROPERTY" or "PROPERTIES" means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate. "PURCHASER" means each purchaser listed in Schedule A. "QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor. "RENTAL EXPENSE" means, for any period, the sum of (i) all store rental payments, (ii) all common area maintenance payments and (iii) all real estate taxes paid by the Company and its Restricted Subsidiaries for such period. "REPURCHASE PROGRAM" is defined in Section 10.7. "REQUIRED HOLDERS" means, at any time, the holders of at least a majority in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates). "RESPONSIBLE OFFICER" means any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the relevant portion of this agreement. "RESTRICTED SUBSIDIARY" means any Subsidiary (a) of which at least a majority of the voting securities are owned by the Company and/or one or more Wholly Owned Restricted Subsidiaries and (b) that the Company has not designated an Unrestricted Subsidiary by notice in writing given to the holders of the Notes. "S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time. "SENIOR FINANCIAL OFFICER" means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company. "SERIES A NOTES" is defined in Section 1. "SERIES B NOTES" is defined in Section 1. "SOURCE" is defined in Section 6.2. "SUBSIDIARY" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership, limited liability company or Schedule B joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership, limited liability company or joint venture can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "SUBSIDIARY GUARANTOR" is defined in Section 1. "SUBSIDIARY GUARANTY" is defined in Section 1. "THIS AGREEMENT" OR "THE AGREEMENT" is defined in Section 17.3. "UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company that has been so designated by notice in writing given to the holders of the Notes. "VOTING STOCK" means the capital stock of any class or classes of a corporation having power under ordinary circumstances to vote for the election of members of the board of directors of such corporation, or person performing similar functions (irrespective of whether or not at the time stock of any of the class or classes shall have or might have special voting power or rights by reason of the happening of any contingency). "WHOLLY OWNED SUBSIDIARY" or "WHOLLY OWNED RESTRICTED SUBSIDIARY" mean, at any time, any Subsidiary, or Restricted Subsidiary, as the case may be, 100% of all of the equity interests (except directors' qualifying shares) and voting interests of which are owned by any one or more of the Company and the Company's other Wholly Owned Subsidiaries or Wholly Owned Restricted Subsidiaries, as the case may be, at such time. Schedule B SCHEDULE 4.9 CHANGES IN CORPORATE STRUCTURE NONE Schedule 4.9 SCHEDULE 5.3 DISCLOSURE MATERIALS NONE Schedule 5.3 SCHEDULE 5.4 SUBSIDIARIES AND AFFILIATES 1. COMPANY'S SUBSIDIARIES

SUBSIDIARIES OF % OWNERSHIP REGIS CORPORATION JURISDICTION STRUCTURE ----------------- ------------ --------- 1. THE BARBERS, HAIRSTYLING FOR MEN Minnesota 100.00% Regis Corporation & WOMEN, INC. A. WCH, Inc. * Minnesota 100.00% Barbers 1. We Care Hair Realty, Inc. * Delaware 100.00% WCH, Inc. B. CLS International, Inc. * Minnesota 100.00% Barbers C. The Barbers Export, Inc. * Minnesota 100.00% Barbers 2. SUPERCUTS, INC. Delaware 100% Regis Corporation A. Supercuts Corporate Shops, Inc . Delaware 100% Supercuts, Inc. B. Super Rico, Inc. Puerto Rico 100% Supercuts, Inc. C. SC Capital, Inc. * Delaware 100% Supercuts, Inc. 3. METROPOLIS GENERAL PARTNERSHIP Minnesota 1.18% Regis Corporation 98.82% Regis Inc. 4. N.A.H.C. ACQUISITION LLC Minnesota 100.00% Regis Corporation 5. TRADE SECRET, INC. Colorado 100.00% Regis Corporation 6. HAIR MASTERS SERVICES, INC. * Washington 100.00% Regis Corporation 7. REGIS, INC. Minnesota 100.00% Regis Corporation 8. LORICK ENTERPRISES, INC. * North Carolina 100.00% Regis Corporation 9. CALCO HAIR, INC. * Colorado 100.00% Regis Corporation 10. PACKER BROS., INC. OF CALIFORNIA * California 100.00% Supercuts, Inc. 11. JAMES A. JUNGMANN, INC. - TEXAS * Texas 100.00% Regis Corporation 12. TOTAL HAIR CARE OF N. FLORIDA * Florida 100.00% Trade Secret, Inc. 13. FIRST CHOICE HAIRCUTTERS (INTERNATIONAL) CORP Delaware 100.00% Regis Corporation 14. CUTCO ACQUISITION CORP. Minnesota 100.00% Regis Corporation A. Haircrafters of Brooksville, Inc. * Florida 100.00% Cutco Acquisition Corp. B. Haircrafters of Bushnell, Inc. * Florida 100.00% Cutco Acquisition Corp. C. Great Expectations Precision Haircrafters of Evans Towne Center, Inc. * Georgia 100.00% Cutco Acquisition Corp. D. Great Expectations Precision Haircrafters of Northlake Mall, Inc. Georgia 100.00% Cutco Acquisition Corp.

Schedule 5.4 SCHEDULE 5.4 (continued) SUBSIDIARIES AND AFFILIATES (continued) CUTCO ACQUISITION CORP (CONTINUED) E. Great Expectations Precision Haircutters of Griffith Park, Inc. Indiana 100.00% Cutco Acquisition Corp. F. Great Expectations Precision Haircutters of Twin Towers, Inc. Indiana 100.00% Cutco Acquisition Corp. G. Cut & Curl of Northline, Inc. Texas 100.00% Cutco Acquisition Corp. H. Great Expectations Precision Haircutters of Brownsville, Inc. Texas 100.00% Cutco Acquisition Corp. I. Great Expectations Precision Haircutters of Mall del Norte, Inc. Texas 100.00% Cutco Acquisition Corp. J. Great Expectations Precision Haircutters of Valle Vista Mall, Inc. Texas 100.00% Cutco Acquisition Corp. K. Haircrafters of Jack Rabbit Plaza, Inc. Texas 100.00% Cutco Acquisition Corp 15. REGIS INTERNATIONAL LTD. Minnesota 100.00% Regis Corporation A. Regis Europe, Ltd * United Kingdom 100.00% Regis International Ltd. 1. Regis Suisse Limited * Delaware 100.00% Regis Europe, Ltd. B. Essanelle Limited * United Kingdom 100.00% Regis International Ltd. C. Steiner Salons Limited * United Kingdom 100.00% Regis International Ltd. D. Steiner Hairdressing Limited * United Kingdom 100.00% Regis International Ltd. 16. REGIS HAIRSTYLISTS, LTD Yukon 100.00% Regis Corporation A. Magicuts Zee, Inc. Ontario 100.00% Regis Hairstylists, LTD B. First Choice Haircutters, Ltd. Yukon 100.00% Regis Hairstylists, LTD C. Mission Enterprises, LTD * Alberta 100.00% Regis Hairstylists, LTD 17. REGIS CUTS ACQUISITION CORP. Nova Scotia 100.00% Regis Corporation Unlimited Liability Co. 18. REGIS NETHERLANDS, INC. Minnesota 100.00% Regis Corporation 19. RHS NETHERLANDS CV Netherlands .01% Regis Corporation 99.99% Regis Netherlands, Inc. A. RHS Netherlands Finance B.V. Netherlands 100.00% RHS Netherlands CV B. RHS Netherlands Holdings B.V. Netherlands 100.00% RHS Netherlands CV 1. Supercuts UK, Ltd United Kingdom 100.00% RHS Neth Holdings BV 2. RHS France SAS France 100.00% RHS Neth Holdings BV a. SAG SA France 100.00% RHS France SAS 20. Regis Corp. Minnesota 100.00% Regis Corporation 21. Regis Insurance Group, Inc. Vermont 100.00% Regis Corporation * INACTIVE Schedule 5.4 SCHEDULE 5.4 (continued) SUBSIDIARIES AND AFFILIATES (continued) 2. COMPANY'S AFFILIATES 1. Supercuts, Inc. 50% ownership in Tulsa's Best Haircut, LLC 3. COMPANY'S DIRECTORS AND SENIOR OFFICERS

BOARD OF DIRECTORS CORPORATE OFFICERS ------------------ ------------------ NAME NAME TITLE ---- ---- ----- Myron Kunin, Chairman Myron Kunin Chairman Paul D. Finkelstein Paul D. Finkelstein President and CEO Rolf Bjelland Christopher A. Fox Executive Vice President Christopher A. Fox Randy L. Pearce Executive VP, CAO and CFO Susan S. Hoyt Raymond Duke Senior V.P., International Managing Director, Europe Van Zandt Hawn Bert M. Gross Senior V.P., General Counsel, & Secretary Thomas L. Gregory Bruce D. Johnson Senior V.P., Design & Construction David B. Kunin Mark Kartarik, CFE Senior Vice President, Regis Corp President, Franchise Division Gordon Nelson Senior Vice President, Fashion Education & Marketing Kris Bergly Chief Operating Officer, Style America, Hairmasters C. John Briggs Chief Operating Officer, SmartStyle Sharon Kiker Chief Operating Officer, Regis Salons Norma Knudsen Chief Operating Officer, Trade Secret Rob Ribnick Chief Operating Officer, MasterCuts Vicki Langan Chief Operating Officer, Supercuts

Schedule 5.4 SCHEDULE 5.5 FINANCIAL STATEMENTS As provided in the Offering Memorandum and Enclosures: 1. Income Statement Summary for: - 3 months ended September 30, 2001 and September 30, 2000 - Fiscal years each ending June 30, 1997 through June 30, 2001 2. Consolidated Balance Sheet Summary for: - September 30, 2000 - Fiscal years each ending June 30, 1997 through June 30, 2001 3. Consolidated Cash Flow Statement Summaries for: - 3 months ended September 30, 2000 and September 30, 2001 - Fiscal years ending June 30, 1997 through June 30, 2001 4. Annual Financial Reports for fiscal years 1997 through 2001 5. SEC 10-K filing for fiscal years 1997 through 2001 6. SEC 10-Q filing for the first quarter ended September 30, 2001 Schedule 5.5 SCHEDULE 5.8 LITIGATION NONE Schedule 5.8 SCHEDULE 5.11 LICENSES, PERMITS, ETC. NONE Schedule 5.11 SCHEDULE 5.14 USE OF PROCEEDS 1. Refinance short term Libor and prime rate loans under a Revolving Credit Facility of approximately $72 million. 2. Fund future general corporate purposes, including but not limited to, acquisitions and capital expenditures. Schedule 5.14 SCHEDULE 5.15 EXISTING DEBT AS OF DECEMBER 31, 2001 Senior Fixed Rate Debt $111,481,250 Revolving Line of Credit $136,400,000 International Debt $ 786,025 Other (including acquired) $ 3,713,337 Capital Leases $ 2,665,740 TOTAL $255,046,352 Schedule 5.15 SCHEDULE 10.4 EXISTING LIENS

LIEN HOLDER ASSETS OUTSTANDING - ----------- ------ ----------- Information Leasing Corporation Various Salon Equipment $ 3,300,000 and Warehouse Equipment Steelcase Financial Services, Inc. Office Furniture $ 2,000,000 Atlantic Financial Group, Ltd. Synthetic Lease $11,800,000

Schedule 10.4 EXHIBIT 1(a) [FORM OF SERIES A NOTE] REGIS CORPORATION 6.73% SENIOR NOTE, SERIES A DUE MARCH 15, 2009 No. A-[_____] [Date] $[_______] PPN: 758932 D# 1 FOR VALUE RECEIVED, the undersigned, REGIS CORPORATION (herein called the "Company"), a corporation organized and existing under the laws of the State of Minnesota, promises to pay to [ ], or registered assigns, the principal sum of $[ ] on March 15, 2009, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 6.73% per annum from the date hereof, payable semiannually, on March 15 and September 15 in each year, commencing with the March or September next succeeding the date hereof (except that no interest payment shall be made on March 15, 2002), until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreement referred to below), payable semiannually 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) 8.73% or (ii) 2% over the rate of interest publicly announced by Bank of America from time to time in Chicago, Illinois as its "base" or "prime" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of Bank of America in Chicago, Illinois or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below. This Note is one of a series of Senior Notes (herein called the "Notes") issued pursuant to a Note Purchase Agreement dated as of March 1, 2002 (as from time to time amended, the "Note Purchase Agreement"), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) to have made the representation set forth in Section 6.2 of the Note Purchase Agreement. Exhibit 1(a) This Note is a registered Note and, as provided in the Note Purchase 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 a like 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 will not be affected by any notice to the contrary. This Note is subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement but not otherwise. If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement. Payment of the principal of, and interest and Make-Whole Amount, if any, on this Note, and all other amounts due under the Note Purchase Agreement, is guaranteed pursuant to the terms of a Guaranty dated as of March 1, 2002 of certain Subsidiaries of the Company.* This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. REGIS CORPORATION By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- - --------------------------- * This paragraph must be removed at such time as there are no Subsidiary Guarantors. 2 Exhibit 1(a) EXHIBIT 1(b) [FORM OF SERIES B NOTE] REGIS CORPORATION 7.20% SENIOR NOTE, SERIES B DUE MARCH 15, 2012 No. B-[_____] [Date] $[_______] PPN: 758932 E* 4 FOR VALUE RECEIVED, the undersigned, REGIS CORPORATION (herein called the "Company"), a corporation organized and existing under the laws of the State of Minnesota, promises to pay to [ ], or registered assigns, the principal sum of $[ ] on March 15, 2012, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 7.20% per annum from the date hereof, payable semiannually, on March 15 and September 15 in each year, commencing with the March or September next succeeding the date hereof (except that no interest payment shall be made on March 15, 2002), until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreement referred to below), payable semiannually 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) 9.20% or (ii) 2% over the rate of interest publicly announced by Bank of America from time to time in Chicago, Illinois as its "base" or "prime" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of Bank of America in Chicago, Illinois or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below. This Note is one of a series of Senior Notes (herein called the "Notes") issued pursuant to a Note Purchase Agreement dated as of March 1, 2002 (as from time to time amended, the "Note Purchase Agreement"), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) to have made the representation set forth in Section 6.2 of the Note Purchase Agreement. Exhibit 1(b) This Note is a registered Note and, as provided in the Note Purchase 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 a like 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 will not be affected by any notice to the contrary. This Note is subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement but not otherwise. If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement. Payment of the principal of, and interest and Make-Whole Amount, if any, on this Note, and all other amounts due under the Note Purchase Agreement, is guaranteed pursuant to the terms of a Guaranty dated as of March 1, 2002 of certain Subsidiaries of the Company.* This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. REGIS CORPORATION By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- - ------------------------ * This paragraph must be removed at such time as there are no Subsidiary Guarantors. 2 Exhibit 1(b) EXHIBIT 1(c) [FORM OF SUBSIDIARY GUARANTY] THIS GUARANTY (this "Guaranty") dated as of March 1, 2002 is made by the undersigned (each, a "Guarantor"), in favor of the holders from time to time of the Notes hereinafter referred to, including each purchaser named in the Note Purchase Agreement hereinafter referred to, and their respective successors and assigns (collectively, the "Holders" and each individually, a "Holder"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, REGIS CORPORATION, a Minnesota corporation (the "Company"), and the initial Holders have entered into a Note Purchase Agreement dated as of March 1, 2002 (the Note Purchase Agreement as amended, supplemented, restated or otherwise modified from time to time in accordance with its terms and in effect, the "Note Purchase Agreement"); WHEREAS, the Note Purchase Agreement provides for the issuance by the Company of $125,000,000 aggregate principal amount of Notes (as defined in the Note Purchase Agreement); WHEREAS, the Company owns all of the issued and outstanding capital stock of each Guarantor and, by virtue of such ownership and otherwise, each Guarantor will derive substantial benefits from the purchase by the Holders of the Company's Notes; WHEREAS, it is a condition precedent to the obligation of the Holders to purchase the Notes that each Guarantor shall have executed and delivered this Guaranty to the Holders; and WHEREAS, each Guarantor desires to execute and deliver this Guaranty to satisfy the conditions described in the preceding paragraph; NOW, THEREFORE, in consideration of the premises and other benefits to each Guarantor, and of the purchase of the Company's Notes by the Holders, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, each Guarantor makes this Guaranty as follows: SECTION 1. Definitions. Any capitalized terms not otherwise herein defined shall have the meanings attributed to them in the Note Purchase Agreement. SECTION 2. Guaranty. Each Guarantor, jointly and severally with each other Guarantor, unconditionally and irrevocably guarantees to the Holders the due, prompt and complete payment by the Company of the principal of, Make-Whole Amount, if any, and interest on, and each other amount due under, the Notes or the Note Purchase Agreement, when and as the same shall become due and payable (whether at stated maturity or by required or optional prepayment or by declaration or otherwise) in accordance with the terms of the Notes and the Note Purchase Agreement (the Notes and the Note Purchase Agreement being sometimes hereinafter collectively referred to as the "Note Documents" and the amounts payable by the Exhibit 1(c) Company under the Note Documents, and all other monetary obligations of the Company thereunder, being sometimes collectively hereinafter referred to as the "Obligations"). This Guaranty is a guaranty of payment and not just of collectibility and is in no way conditioned or contingent upon any attempt to collect from the Company or upon any other event, contingency or circumstance whatsoever. If for any reason whatsoever the Company shall fail or be unable duly, punctually and fully to pay such amounts as and when the same shall become due and payable, each Guarantor, without demand, presentment, protest or notice of any kind, will forthwith pay or cause to be paid such amounts to the Holders under the terms of such Note Documents, in lawful money of the United States, at the place specified in the Note Purchase Agreement, or perform or comply with the same or cause the same to be performed or complied with, together with interest (to the extent provided for under such Note Documents) on any amount due and owing from the Company. Each Guarantor, promptly after demand, will pay to the Holders the reasonable costs and expenses of collecting such amounts or otherwise enforcing this Guaranty, including, without limitation, the reasonable fees and expenses of counsel. Notwithstanding the foregoing, the right of recovery against each Guarantor under this Guaranty is limited to the extent it is judicially determined with respect to any Guarantor that entering into this Guaranty would violate Section 548 of the United States Bankruptcy Code or any comparable provisions of any state law, in which case such Guarantor shall be liable under this Guaranty only for amounts aggregating up to the largest amount that would not render such Guarantor's obligations hereunder subject to avoidance under Section 548 of the United States Bankruptcy Code or any comparable provisions of any state law. SECTION 3. Guarantor's Obligations Unconditional. The obligations of each Guarantor under this Guaranty shall be primary, absolute and unconditional obligations of each Guarantor, shall not be subject to any counterclaim, set-off, deduction, diminution, abatement, recoupment, suspension, deferment, reduction or defense based upon any claim each Guarantor or any other person may have against the Company or any other person, and to the full extent permitted by applicable law shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by, any circumstance or condition whatsoever (whether or not each Guarantor or the Company shall have any knowledge or notice thereof), including: (a) any termination, amendment or modification of or deletion from or addition or supplement to or other change in any of the Note Documents or any other instrument or agreement applicable to any of the parties to any of the Note Documents; (b) any furnishing or acceptance of any security, or any release of any security, for the Obligations, or the failure of any security or the failure of any person to perfect any interest in any collateral; (c) any failure, omission or delay on the part of the Company to conform or comply with any term of any of the Note Documents or any other instrument or agreement referred to in paragraph (a) above, including, without limitation, failure to give notice to any Guarantor of the occurrence of a "Default" or an "Event of Default" under any Note Document; 2 Exhibit 1(c) (d) any waiver of the payment, performance or observance of any of the obligations, conditions, covenants or agreements contained in any Note Document, or any other waiver, consent, extension, indulgence, compromise, settlement, release or other action or inaction under or in respect of any of the Note Documents or any other instrument or agreement referred to in paragraph (a) above or any obligation or liability of the Company, or any exercise or non-exercise of any right, remedy, power or privilege under or in respect of any such instrument or agreement or any such obligation or liability; (e) any failure, omission or delay on the part of any of the Holders to enforce, assert or exercise any right, power or remedy conferred on such Holder in this Guaranty, or any such failure, omission or delay on the part of such Holder in connection with any Note Document, or any other action on the part of such Holder; (f) any voluntary or involuntary bankruptcy, insolvency, reorganization, arrangement, readjustment, assignment for the benefit of creditors, composition, receivership, conservatorship, custodianship, liquidation, marshaling of assets and liabilities or similar proceedings with respect to the Company, any Guarantor or to any other person or any of their respective properties or creditors, or any action taken by any trustee or receiver or by any court in any such proceeding; (g) any discharge, termination, cancellation, frustration, irregularity, invalidity or unenforceability, in whole or in part, of any of the Note Documents or any other agreement or instrument referred to in paragraph (a) above or any term hereof; (h) any merger or consolidation of the Company or any Guarantor into or with any other corporation, or any sale, lease or transfer of any of the assets of the Company or any Guarantor to any other person; (i) any change in the ownership of any shares of capital stock of the Company or any change in the corporate relationship between the Company and any Guarantor, or any termination of such relationship; (j) any release or discharge, by operation of law, of any Guarantor from the performance or observance of any obligation, covenant or agreement contained in this Guaranty; or (k) any other occurrence, circumstance, happening or event whatsoever, whether similar or dissimilar to the foregoing, whether foreseen or unforeseen, and any other circumstance which might otherwise constitute a legal or equitable defense or discharge of the liabilities of a guarantor or surety or which might otherwise limit recourse against any Guarantor. 3 Exhibit 1(c) Notwithstanding any other provision contained in this Guaranty, each Guarantor's liability with respect to the principal amount of the Notes shall be no greater than the liability of the Company with respect thereto. SECTION 4. Full Recourse Obligations. The obligations of each Guarantor set forth herein constitute the full recourse obligations of such Guarantor enforceable against it to the full extent of all its assets and properties. SECTION 5. Waiver. Each Guarantor unconditionally waives, to the extent permitted by applicable law, (a) notice of any of the matters referred to in Section 3, (b) notice to such Guarantor of the incurrence of any of the Obligations, notice to such Guarantor or the Company of any breach or default by such Company with respect to any of the Obligations or any other notice that may be required, by statute, rule of law or otherwise, to preserve any rights of the Holders against such Guarantor, (c) presentment to or demand of payment from the Company or the Guarantor with respect to any amount due under any Note Document or protest for nonpayment or dishonor, (d) any right to the enforcement, assertion or exercise by any of the Holders of any right, power, privilege or remedy conferred in the Note Purchase Agreement or any other Note Document or otherwise, (e) any requirement of diligence on the part of any of the Holders, (f) any requirement to exhaust any remedies or to mitigate the damages resulting from any default under any Note Document, (g) any notice of any sale, transfer or other disposition by any of the Holders of any right, title to or interest in the Note Purchase Agreement or in any other Note Document and (h) any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge, release or defense of a guarantor or surety or which might otherwise limit recourse against such Guarantor. SECTION 6. Subrogation, Contribution, Reimbursement or Indemnity. Until one year and one day after all Obligations have been indefeasibly paid in full, each Guarantor agrees not to take any action pursuant to any rights which may have arisen in connection with this Guaranty to be subrogated to any of the rights (whether contractual, under the United States Bankruptcy Code, as amended, including Section 509 thereof, under common law or otherwise) of any of the Holders against the Company or against any collateral security or guaranty or right of offset held by the Holders for the payment of the Obligations. Until one year and one day after all Obligations have been indefeasibly paid in full, each Guarantor agrees not to take any action pursuant to any contractual, common law, statutory or other rights of reimbursement, contribution, exoneration or indemnity (or any similar right) from or against the Company which may have arisen in connection with this Guaranty. So long as the Obligations remain, if any amount shall be paid by or on behalf of the Company to any Guarantor on account of any of the rights waived in this paragraph, such amount shall be held by such Guarantor in trust, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Holders (duly endorsed by such Guarantor to the Holders, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Holders may determine. The provisions of this paragraph shall survive the term of this Guaranty and the payment in full of the Obligations. 4 Exhibit 1(c) SECTION 7. Effect of Bankruptcy Proceedings, etc. This Guaranty shall continue to be effective or be automatically reinstated, as the case may be, if at any time payment, in whole or in part, of any of the sums due to any of the Holders pursuant to the terms of the Note Purchase Agreement or any other Note Document is rescinded or must otherwise be restored or returned by such Holder upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any other person, or upon or as a result of the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to the Company or other person or any substantial part of its property, or otherwise, all as though such payment had not been made. If an event permitting the acceleration of the maturity of the principal amount of the Notes shall at any time have occurred and be continuing, and such acceleration shall at such time be prevented by reason of the pendency against the Company or any other person of a case or proceeding under a bankruptcy or insolvency law, each Guarantor agrees that, for purposes of this Guaranty and its obligations hereunder, the maturity of the principal amount of the Notes and all other Obligations shall be deemed to have been accelerated with the same effect as if any Holder had accelerated the same in accordance with the terms of the Note Purchase Agreement or other applicable Note Document, and such Guarantor shall forthwith pay such principal amount, Make-Whole Amount, if any, and interest thereon and any other amounts guaranteed hereunder without further notice or demand. SECTION 8. Term of Agreement. This Guaranty and all guaranties, covenants and agreements of each Guarantor contained herein shall continue in full force and effect and shall not be discharged until such time as all of the Obligations shall be paid and performed in full and all of the agreements of such Guarantor hereunder shall be duly paid and performed in full. SECTION 9. Representations and Warranties. Each Guarantor represents and warrants to each Holder that: (a) such Guarantor is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has the requisite power and authority to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged; (b) such Guarantor has the requisite power and authority and the legal right to execute and deliver, and to perform its obligations under, this Guaranty, and has taken all necessary action to authorize its execution, delivery and performance of this Guaranty; (c) this Guaranty constitutes a legal, valid and binding obligation of such Guarantor enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law); (d) the execution, delivery and performance of this Guaranty will not (i) contravene, result in any breach of, or constitute a default under, or result in the 5 Exhibit 1(c) creation of any Lien in respect of any property of such Guarantor under any indenture, mortgage, deed of trust, loan, credit agreement, corporate charter or by-laws, or any other agreement evidencing Debt, (ii) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of such Guarantor under, any other agreement or instrument to which such Guarantor is bound or by which such Guarantor or any of its properties may be bound or affected, except as could not reasonably be expected to have a Material Adverse Effect, (iii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to such Guarantor, except as could not reasonably be expected to have a Material Adverse Effect, or (iv) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to such Guarantor, except as could not reasonably be expected to have a Material Adverse Effect; (e) no consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by such Guarantor of this Guaranty; (f) except as disclosed in Section 5.8 of the Note Purchase Agreement, no litigation, investigation or proceeding of or before any arbitrator or governmental authority is pending or, to the knowledge of such Guarantor, threatened by or against such Guarantor or any of its properties or revenues (i) with respect to this Guaranty or any of the transactions contemplated hereby or (ii) which could reasonably be expected to have a material adverse effect upon the business, operations or financial condition of such Guarantor and its Subsidiaries taken as a whole; (g) such Guarantor (after giving due consideration to any rights of contribution) has received fair consideration and reasonably equivalent value for the incurrence of its obligations hereunder or as contemplated hereby and after giving effect to the transactions contemplated herein, (i) the fair value of the assets of such Guarantor (both at fair valuation and at present fair saleable value) exceeds its liabilities, (ii) such Guarantor is able to and expects to be able to pay its debts as they mature, and (iii) such Guarantor has capital sufficient to carry on its business as conducted and as proposed to be conducted. SECTION 10. Notices. All notices under the terms and provisions hereof shall be in writing, and shall be delivered or sent by telex or telecopy, mailed by first-class mail, postage prepaid, or sent by a recognized overnight delivery service, charges prepaid, addressed (a) if to the Company or any Holder at the address set forth in, the Note Purchase Agreement or (b) if to a Guarantor, in care of the Company at the Company's address set forth in the Note Purchase Agreement, or in each case at such other address as the Company, any Holder or such Guarantor shall from time to time designate in writing to the other parties. Any notice so addressed shall be deemed to be given when actually received. 6 Exhibit 1(c) SECTION 11. Survival. All warranties, representations and covenants made by each Guarantor herein or in any certificate or other instrument delivered by it or on its behalf hereunder shall be considered to have been relied upon by the Holders and shall survive the execution and delivery of this Guaranty, regardless of any investigation made by any of the Holders. All statements in any such certificate or other instrument shall constitute warranties and representations by such Guarantor hereunder. SECTION 12. Submission to Jurisdiction. Each Guarantor irrevocably submits to the jurisdiction of the courts of the State of Illinois and of the courts of the United States of America having jurisdiction in the State of Illinois for the purpose of any legal action or proceeding in any such court with respect to, or arising out of, this Guaranty, the Note Purchase Agreement or the Notes, the Security Agreements, the Subsidiary Guaranty or the Notes. Each Guarantor consents to process being served in any suit, action or proceeding by mailing a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to the address of such Guarantor specified in or designated pursuant to the Note Purchase Agreement. Each Guarantor agrees that such service upon receipt (i) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and (ii) shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon and personal delivery to such Obligor. SECTION 13. Miscellaneous. Any provision of this Guaranty 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. To the extent permitted by applicable law, each Guarantor hereby waives any provision of law that renders any provisions hereof prohibited or unenforceable in any respect. The terms of this Guaranty shall be binding upon, and inure to the benefit of, each Guarantor and the Holders and their respective successors and assigns. No term or provision of this Guaranty may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by each Guarantor and the Required Holders. The section and paragraph headings in this Guaranty and the table of contents are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof, and all references herein to numbered sections, unless otherwise indicated, are to sections in this Guaranty. This Guaranty shall in all respects be governed by, and construed in accordance with, the laws of the State of Illinois, including all matters of construction, validity and performance. 7 Exhibit 1(c) IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly executed as of the day and year first above written. TRADE SECRET, INC. By: ----------------------------- Name: --------------------------- Title: ---------------------------- SUPERCUTS, INC. By: ----------------------------- Name: --------------------------- Title: ---------------------------- THE BARBERS, HAIRSTYLING FOR MEN AND WOMEN, INC. By: ----------------------------- Name: --------------------------- Title: ---------------------------- REGIS INTERNATIONAL, LTD. By: ----------------------------- Name: --------------------------- Title: ---------------------------- 8 Exhibit 1(c) FORM OF JOINDER TO SUBSIDIARY GUARANTY The undersigned (the "Guarantor"), joins in the Subsidiary Guaranty dated as of March 1, 2002 from the Guarantors named therein in favor of the Holders, as defined therein, and agrees to be bound by all of the terms thereof and represents and warrants to the Holders that: (a) the Guarantor is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has the requisite power and authority to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged; (b) the Guarantor has the requisite power and authority and the legal right to execute and deliver this Joinder to Subsidiary Guaranty ("Joinder") and to perform its obligations hereunder and under the Subsidiary Guaranty and has taken all necessary action to authorize its execution and delivery of this Joinder and its performance of the Subsidiary Guaranty; (c) the Subsidiary Guaranty constitutes a legal, valid and binding obligation of the Guarantor enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law); (d) the execution, delivery and performance of this Joinder will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of such Guarantor under any indenture, mortgage, deed of trust, loan, credit agreement, corporate charter or by-laws, or any other agreement evidencing Debt, (ii) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of such Guarantor under, any other agreement or instrument to which such Guarantor is bound or by which such Guarantor or any of its properties may be bound or affected, except as could not reasonably be expected to have a Material Adverse Effect, (iii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to such Guarantor, except as could not reasonably be expected to have a Material Adverse Effect, or (iv) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to such Guarantor, except as could not reasonably be expected to have a Material Adverse Effect; (e) no consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by such Guarantor of this Joinder; 9 Exhibit 1(c) (f) except as disclosed in writing to the holders, no litigation, investigation or proceeding of or before any arbitrator or governmental authority is pending or, to the knowledge of the Guarantor, threatened by or against the Guarantor or any of its properties or revenues (i) with respect to this Joinder, the Subsidiary Guaranty or any of the transactions contemplated hereby or (ii) that could reasonably be expected to have a material adverse effect on the business, operations or financial condition of the Guarantor and its subsidiaries taken as a whole; (g) such Guarantor (after giving due consideration to any rights of contribution) has received fair consideration and reasonably equivalent value for the incurrence of its obligations hereunder or as contemplated hereby and after giving effect to the transactions contemplated herein, (i) the fair value of the assets of such Guarantor (both at fair valuation and at present fair saleable value) exceeds its liabilities, (ii) such Guarantor is able to and expects to be able to pay its debts as they mature, and (iii) such Guarantor has capital sufficient to carry on its business as conducted and as proposed to be conducted. Capitalized Terms used but not defined herein have the meanings ascribed in the Subsidiary Guaranty. IN WITNESS WHEREOF, the undersigned has caused this Joinder to Subsidiary Guaranty to be duly executed as of __________, ____. [Name of Guarantor] By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 10 Exhibit 1(c) EXHIBIT 4.4(a) FORM OF OPINION COUNSEL FOR THE COMPANY The opinion of Bert M. Gross, General Counsel for the Company, shall be to the effect that: 1. Each of the Company and each Subsidiary Guarantor is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and each has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted, and, in the case of the Company, to enter into and perform the Note Purchase Agreement and to issue and sell the Notes and, in the case of each Subsidiary Guarantor, to enter into and perform the Subsidiary Guaranty. 2. The Note Purchase Agreement and the Notes have been duly authorized by proper corporate action on the part of the Company, have been duly executed and delivered by an authorized officer of the Company and constitute the legal, valid and binding agreements of the Company, enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application relating to or affecting the enforcement of the rights of creditors or by equitable principles, regardless of whether enforcement is sought in a proceeding in equity or at law. 3. The Subsidiary Guaranty has been duly authorized by proper corporate action on the part of each Subsidiary Guarantor, has been duly executed and delivered by an authorized officer each such Subsidiary Guarantor and constitutes the legal, valid and binding obligation of each Subsidiary Guarantor, enforceable in accordance with its terms, except to the extent the enforcement thereof may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws of general application relating to or affecting the enforcement of the rights of creditors or by equitable principles, regardless of whether enforcement is sought in a proceeding in equity or at law. 4. A Minnesota court, or a federal court sitting in Minnesota, would honor the choice of Illinois law to govern the Note Purchase Agreement, the Notes and the Subsidiary Guaranty. 5. Based on the representations set forth in the Agreement, the offering, sale and delivery of the Notes and delivery of the Subsidiary Guaranty do not require the registration of the Notes or the Subsidiary Guaranty under the Securities Act of 1933, as amended, or the qualification of an indenture under the Trust Indenture Act of 1939, as amended. 6. No authorization, approval or consent of, and no designation, filing, declaration, registration and/or qualification with, any Governmental Authority is necessary or required in Exhibit 4.4(a) connection with the execution, delivery and performance by the Company of the Note Purchase Agreement or the offering, issuance and sale by the Company of the Notes, and no authorization, approval or consent of, and no designation, filing, declaration, registration and/or qualification with, any Governmental Authority is necessary or required in connection with the execution, delivery and performance by any Subsidiary Guarantor of the Subsidiary Guaranty. 7. The issuance and sale of the Notes by the Company, and the execution, delivery and performance by the Company of the terms and conditions of the Notes and the Note Purchase Agreement do not conflict with, or result in any breach or violation of any of the provisions of, or constitute a default under, or result in the creation or imposition of any Lien on, the property of the Company or any Subsidiary pursuant to the provisions of (i) the certificate or articles of incorporation or bylaws of the Company or any Subsidiary, (ii) any loan agreement known to such counsel to which the Company or any Subsidiary is a party or by which any of them or their property is bound, (iii) any other agreement or instrument known to such counsel to which the Company or any Subsidiary is a party or by which any of them or their property is bound, (iv) any law (including usury laws) or regulation applicable to the Company, or (v) to the knowledge of such counsel, any order, writ, injunction or decree of any court or Governmental Authority applicable to the Company. 8. The execution, delivery and performance of the Subsidiary Guaranty will not conflict with, or result in any breach or violation of any of the provisions of, or constitute a default under, or result in the creation or imposition of any Lien on, the property of any Subsidiary Guarantor pursuant to the provisions of (i) its certificate or articles of incorporation or by-laws, (ii) any loan agreement known to such counsel to which any Subsidiary Guarantor is a party or by which it or its property is bound, (iii) any other agreement or instrument known to such counsel to which any Subsidiary Guarantor is a party or by which it or its property is bound, (iv) any law or regulation applicable to any Subsidiary Guarantor, or (v) to the knowledge of such counsel, any order, writ, injunction or decree of any court or Governmental Authority applicable to any Subsidiary Guarantor. 9. Except as disclosed in Section 5.8 to the Note Purchase Agreement, to such counsel's knowledge there are no actions, suits or proceedings pending, or threatened against, or affecting the Company or any Subsidiary, at law or in equity or before or by any Governmental Authority, that are likely to result, individually or in the aggregate, in a Material Adverse Effect. 10. Neither the Company nor any Subsidiary is (i) a "public utility company" or a "holding company," or a "subsidiary company" of a "holding company," as such terms are defined in the Public Utility Holding Company Act of 1935, as amended, (ii) a "public utility" as defined in the Federal Power Act, as amended, or (iii) an "investment company" or a company "controlled" by an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. 11. The issuance of the Notes and the intended use of the proceeds of the sale of the Notes do not violate or conflict with Regulation U, T or X of the Board of Governors of the Federal Reserve System. 2 Exhibit 4.4(a) The opinion of Bert M. Gross shall cover such other matters relating to the sale of the Notes as the Purchasers may reasonably request. With respect to matters of fact on which such opinion is based, such counsel shall be entitled to rely on appropriate certificates of public officials and officers of the Company. The opinion of Bert M. Gross may be limited to the laws of the United States of America, the Delaware General Corporation Law and the laws of the State of Minnesota. For purposes of their opinion as to enforceability in paragraphs 2 and 3, Bert M. Gross may assume that Illinois law is substantially identical to Minnesota law. Such opinion shall state that subsequent transferees and assignees of the Notes may rely thereon. 3 Exhibit 4.4(a) EXHIBIT 4.4(b) FORM OF OPINION OF SPECIAL COUNSEL TO THE PURCHASERS The opinion of Gardner, Carton & Douglas, special counsel to the Purchasers, shall be to the effect that: 1. The Company is a corporation organized and validly existing in good standing under the laws of the State of Minnesota, with requisite corporate power and authority to enter into the Agreement and to issue and sell the Notes. 2. The Agreement and the Notes have been duly authorized, executed and delivered by and constitute the legal, valid and binding agreements of the Company, enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application relating to or affecting the enforcement of the rights of creditors or by equitable principles, regardless of whether enforcement is sought in a proceeding in equity or at law. 3. The Subsidiary Guaranty constitutes the legal, valid and binding obligation of each Subsidiary Guarantor, enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws of general application relating to or affecting the enforcement of the rights of creditors or by equitable principles, regardless of whether enforcement is sought in a proceeding in equity or at law. 4. Based upon the representations set forth in the Agreement, the offering, sale and delivery of the Notes and delivery of the Subsidiary Guaranty do not require the registration of the Notes or the Subsidiary Guaranty under the Securities Act of 1933, as amended, nor the qualification of an indenture under the Trust Indenture Act of 1939, as amended. 5. The issuance and sale of the Notes and compliance with the terms and provisions of the Notes and the Agreement will not conflict with or result in any breach of any of the provisions of the Certificate of Incorporation or By-Laws of the Company. 6. No approval, consent or withholding of objection on the part of, or filing, registration or qualification with, any governmental body, Federal or state, is necessary in connection with the execution and delivery of the Note Purchase Agreement or the Notes. The opinion of Gardner, Carton & Douglas shall cover such other matters relating to the sale of the Notes as the Purchasers may reasonably request. Such opinion shall state that subsequent transferees and assignees of the Notes may rely thereon. As to matters of Minnesota law, Gardner, Carton & Douglas may rely upon the opinion of Bert M. Gross. Exhibit 4.4(b) EX-13 4 c71933exv13.txt EX-13 SELECTED PAGES OF THE 2002 ANNUAL REPORT FINANCIAL REVIEW 18 Selected Financial Data 19 Management's Discussion and Analysis of Financial Condition and Results of Operations 26 Consolidated Balance Sheet 27 Consolidated Statement of Operations 28 Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income 29 Consolidated Statement of Cash Flows 30 Notes to Consolidated Financial Statements 43 Quarterly Financial Data 43 Stock Data 44 Report of Independent Accountants TABLE OF CONTENTS Regis Corporation Selected Financial Data The following table sets forth, for the periods indicated, selected financial data derived from the Company's Consolidated Financial Statements.

- ----------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) 2002 2001 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------- Revenues ..................................... $1,454,191 $1,311,621 $1,142,993 $ 991,900 $ 860,620 Operating income(a) .......................... 133,864 109,281 97,216 65,335 65,858 Net income(a) ................................ 72,054 53,088 49,654 32,205 33,894 Net income, excluding goodwill amortization(c) 72,054 61,954 57,395 38,432 37,975 Net income per diluted share(a) .............. 1.63 1.26 1.19 .78 .83 Net income per diluted share, excluding goodwill amortization(c) ................... 1.63 1.47 1.38 .93 .93 Total assets ................................. 957,190 736,505 628,355 500,582 408,733 Long-term debt, including current portion .... 299,016 261,558 234,601 166,986 126,960 Dividends declared(b) ........................ $ .12 $ .12 $ .12 $ .10 $ .06

(a) The following information is provided to facilitate comparisons of operating income, net income and net income per diluted share, absent the impact of certain non-recurring activities (see Note 11 to the Consolidated Financial Statements). Exclusive of nonrecurring items, operating income would have been $100,156, $81,468 and $67,837 in 2000, 1999 and 1998, respectively. Exclusive of nonrecurring items, net income would have been $70,304, $52,380, $43,759 and $35,006 in 2002, 2000, 1999 and 1998, respectively. The nonrecurring items increased reported net income per diluted share by $.04 in 2002 and reduced reported net income per diluted share by $.07 in 2000, $.27 in 1999 and $.03 in 1998. (b) In addition, Supercuts UK declared dividends of $367, $2,829 and $2,057 during 2000, 1999 and 1998, respectively. (c) Effective July 1, 2001, Regis changed its accounting to discontinue the amortization of goodwill. See Note 1 to the Consolidated Financial Statements. Annual Results The following table sets forth for the periods indicated certain information derived from the Company's Consolidated Statement of Operations expressed as a percent of revenues. The percentages are computed as a percent of total Company revenues, except as noted.

For the Years Ended June 30, - --------------------------------------------------------------------------------------- 2002 2001 2000 - --------------------------------------------------------------------------------------- Company-owned service revenues(1) ........................ 70.0% 71.2% 71.3% Company-owned product revenues(1) ........................ 30.0 28.8 28.7 Franchise revenues ....................................... 5.3 4.3 4.4 Company-owned operations: Profit margins on service(2) ....................... 43.4 43.0 43.3 Profit margins on product(3) ....................... 47.6 47.0 46.1 Direct salon(1) .................................... 9.0 9.0 8.5 Rent(1) ............................................ 14.3 14.1 14.0 Depreciation(1) .................................... 3.5 3.4 3.4 Direct salon contribution(1) .................. 17.8 17.7 18.2 Franchise direct costs, including product and equipment(4) 49.1 37.7 34.7 Corporate and franchise support costs .................... 9.6 9.6 10.1 Depreciation and amortization(5) ......................... 0.7 1.7 1.5 Nonrecurring items(6) .................................... 0.3 Operating income(5) ...................................... 9.2 8.3 8.5 Income before income taxes(5) ............................ 8.0 6.8 7.3 Net income(5) ............................................ 5.0 4.0 4.3 Operating income, excluding nonrecurring items(5)(6) ..... 9.2 8.3 8.8 Net income, excluding nonrecurring items(5)(6) ........... 4.8 4.0 4.6

(1) Computed as a percent of company-owned revenues. (2) Computed as a percent of service revenues. (3) Computed as a percent of product revenues. (4) Computed as a percent of franchise revenues. (5) See Note 1 to the Consolidated Financial Statements regarding discontinuation of goodwill amortization, effective July 1, 2001, and comparative financial information. (6) See Note 11 to the Consolidated Financial Statements regarding the nonrecurring income tax benefit in fiscal 2002 and the nonrecurring items in fiscal 2000. 18 Regis Corporation Management's Discussion and Analysis of Financial Condition and Results of Operations [BAR GRAPH] EBITDA (Exclusive of nonrecurring items in prior years) (Dollars in millions) 00 156 01 175 02 $194 Compounded Annual Growth Rate - 11.5% SUMMARY Regis Corporation, based in Minneapolis, Minnesota, is the world's largest owner, operator, franchisor and acquirer of hair and retail product salons. The Regis worldwide operations include 8,684 salons at June 30, 2002 operating in two reportable segments: domestic and international. Each of the Company's concepts have generally similar products and services. The Company is organized to manage its operations based on geographical location. The Company's domestic segment includes 6,618 salons, including 2,224 franchised salons, operating primarily under the trade names of Regis Salons, MasterCuts, Trade Secret, SmartStyle, Supercuts and Cost Cutters. The Company's international operations include 2,066 salons, including 1,684 franchised salons, located throughout Europe, primarily in the United Kingdom, France, Italy and Spain. The Company has approximately 43,000 employees worldwide. CRITICAL ACCOUNTING POLICIES The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these estimates on historical experience and other assumptions believed to be reasonable under the circumstances. However, actual results could differ from these estimates. Management believes the Company's critical accounting policies and areas that require more significant judgments and estimates used in the preparation of its Consolidated Financial Statements to be: - useful lives assigned to long-lived and intangible assets; - recoverability of long-lived and intangible assets, including goodwill; - allocation of the purchase price to acquired assets and liabilities, including goodwill and intangibles; - various commitments and contingencies. Depreciation and amortization are recognized using the straight-line method over the long-lived assets' estimated useful lives. The Company estimates useful lives based on historical data and industry trends. The Company periodically reassesses the estimated useful lives of its long-lived and intangible assets. Changes to estimated useful lives would impact the amount of depreciation and amortization expense recorded in earnings and potentially the need to record an impairment charge. The Company reviews long-lived and intangible assets, including goodwill, for impairment annually, or at any time events or circumstances indicate that the carrying value of such assets may not be fully recoverable. For long-lived assets and amortizable intangible assets, an impairment is evaluated based on the sum of undiscounted estimated future cash flows expected to result from use of the assets compared to its carrying value. The Company generally considers its brands to be reporting units when it tests for goodwill impairment because that is where the Company believes goodwill naturally resides. If an impairment is recognized, the carrying value of the impaired asset is reduced to its fair value based on discounted estimated future cash flows. For goodwill, an impairment is evaluated based on the fair value of the concept to which the goodwill relates. The Company makes numerous acquisitions that are recorded using the purchase method of accounting. Accordingly, the purchase prices are allocated to assets acquired, including intangible assets, and liabilities assumed based on their estimated fair values at the dates of acquisition. Fair value is estimated based on the amount for which the asset or liability could be bought or sold in a current transaction between willing parties. In the normal course of business, the Company must make continuing estimates of potential future loss accruals related to legal, tax, self-insurance accruals and uncollectible accounts. These accruals require the use of management's judgment on the outcome of various issues. Management's estimates for these items are based on the best available evidence, but due to changes in facts and circumstances, the ultimate outcomes of these accruals could be different than management estimates. 19 Regis Corporation Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) RESULTS OF OPERATIONS Revenues Revenues in fiscal 2002 grew to a record $1.5 billion, an increase of $142.6 million, or 10.9 percent, over fiscal 2001. Approximately 47 percent of this increase was attributable to new salon construction and 33 percent to salon acquisitions, with the remaining increase primarily due to same-store sales increases. Mall and strip center based salon operations in the United States and Canada (domestic salons) accounted for $116.7 million of the increase in total revenues, while franchise revenues increased $21.3 million, primarily due to International operations, and revenue from company-owned International operations increased $4.6 million. Revenues by concept for the years ended June 30, 2002, 2001 and 2000 were as follows:

- ---------------------------------------------------------------------------------------------------- (Dollars in thousands) 2002 2001 2000 - ---------------------------------------------------------------------------------------------------- Domestic: Regis Salons ................................................ $ 416,240 $ 401,756 $ 376,709 MasterCuts .................................................. 164,768 155,703 142,865 Trade Secret ................................................ 192,892 181,787 166,652 SmartStyle .................................................. 178,728 125,851 88,313 Strip Center Salons (primarily Supercuts and Cost Cutters)... 382,483 345,572 259,886 International ................................................. 119,080 100,952 108,568 - ---------------------------------------------------------------------------------------------------- $1,454,191 $1,311,621 $1,142,993 ====================================================================================================

Included in the table above, primarily as part of Strip Center Salons and International, are franchise revenues of $77.6 million, $56.3 million and $50.3 million during fiscal 2002, 2001 and 2000, respectively. During fiscal 2002, same-store sales from all domestic company-owned salons open more than 12 months increased 3.0 percent, compared to increases of 2.8 percent and 4.3 percent in fiscal 2001 and 2000, respectively. Same-store sales increases achieved during fiscal 2002 were driven primarily by higher product sales and a shift in the mix of service sales toward higher priced salon services, such as hair color. Same-store sales increases achieved during fiscal 2001 and 2000 were driven primarily by increased customer transactions and market based price increases in certain salon divisions. A total of 125 million customers were served system-wide in fiscal 2002 compared to 118 million and 106 million customers served in fiscal 2001 and 2000, respectively. System-wide sales, inclusive of non-consolidated sales generated from franchisee salons, grew to a record $2.3 billion, $1.9 billion and $1.7 billion in fiscal 2002, 2001 and 2000, respectively. The increase in system-wide sales in fiscal 2002 and 2001 was the result of same-store sales increases from existing salons and net salon openings, as well as salons added to the system through acquisitions. System-wide same-store sales increased 3.3 percent in fiscal 2002 and 2001, and 3.7 percent in fiscal 2000. Service Revenues. Service revenues increased to $963.9 million, $893.5 million and $779.6 million in fiscal 2002, 2001 and 2000, respectively. The growth in service revenues in fiscal 2002 and 2001 was driven by new salon construction, acquisitions and same-store sales growth. Product Revenues. Product revenues increased to $412.7 million, $361.9 million and $313.1 million in fiscal 2002, 2001 and 2000, respectively. The growth in product revenue in fiscal 2002 and 2001 continues a trend of escalating product revenues due to strong product same-store sales growth, a reflection of continuous focus on product awareness, training and acceptance of national label merchandise. In fiscal 2002, product revenues as a percent of total company-owned revenues increased to 30.0 percent of revenues, compared to 28.8 percent and 28.7 percent of revenues in fiscal 2001 and 2000, respectively. Franchise Revenues. Franchise revenues, including royalties and initial franchise fees from franchisees, and product and equipment sales made by the Company to franchisees, increased 37.8 percent, or $21.3 million, in fiscal 2002 to $77.6 million. In fiscal 2001, franchise revenues increased 12.0 percent, or $6.0 million, compared to fiscal 2000. The increase in fiscal 2002 franchise revenues was primarily the result of increased franchise royalties and fees related to the recently acquired European franchise companies, Groupe Gerard Glemain (GGG) and Jean Louis David (JLD). Increased sales of product to franchisee salons also contributed to the fiscal 2002 increase in franchise revenues and was the primary driver of the increase during fiscal 2001. Cost of Revenue The aggregate cost of product and service revenues for company-owned salons in fiscal 2002 was $762.4 million, compared to $700.8 million and $611.0 million in fiscal 2001 and 2000, respectively. The resulting gross margin percentage for fiscal 2002 improved to 44.6 percent of company-owned revenues compared to 44.2 percent and 44.1 percent of company-owned revenues in fiscal 2001 and 2000, respectively. Service margins improved 40 basis points to 43.4 percent of company-owned revenues in fiscal 2002 and declined 30 20 [BAR GRAPH] GROSS MARGINS 00 44.1% 01 44.2% 02 44.6% basis points to 43.0 percent in fiscal 2001. The fiscal 2002 improvement was primarily due to improved payroll and payroll related costs as compared to fiscal 2001. During fiscal 2001, payroll and payroll related costs were slightly higher than normal as a percentage of company-owned revenues due to certain fixed cost payroll components increasing in greater magnitude than the related increase in sales. This resulted in a lower gross margin due to a higher fixed payroll cost-to-sales ratio and caused the 30 basis point decline as a percentage of company-owned revenues during fiscal 2001. Product margins for fiscal 2002, as a percent of company-owned revenues, improved to 47.6 percent, compared to 47.0 percent in fiscal 2001 and 46.1 percent in fiscal 2000. The fiscal 2002 and 2001 improvements were primarily the result of a shift in the Company's mix of products sold. Beginning in the latter portion of fiscal 2001, the product mix changed to consist more heavily of products with a higher profit margin. Additionally, the fiscal 2002 improvement was driven by improved purchasing power, enabling the Company to buy retail product from vendors at lower prices. Direct Salon This expense category includes direct costs associated with salon operations such as salon advertising, insurance, telephone, utilities and janitorial costs. Direct salon expenses were $123.9 million in fiscal 2002, compared to $112.7 million and $92.8 million in fiscal 2001 and 2000, respectively, and remained consistent as a percent of company-owned revenue at 9.0 percent in fiscal 2002 and 2001, compared to 8.5 percent in fiscal 2000. During fiscal 2002, higher workers' compensation costs were offset by lower advertising costs on a per salon basis and same-store sales increasing at a rate faster than certain fixed cost components. The fiscal 2001 costs increased as a percentage of sales primarily due to higher utility and freight costs, increased workers' compensation rates and lower same-store sales increases. Rent Rent expense in fiscal 2002 was $197.3 million, compared to $176.9 million and $152.7 million in fiscal 2001 and 2000, respectively. Rent expense increased 20 basis points to 14.3 percent of company-owned revenues during fiscal 2002 primarily due to higher common area maintenance costs. In regional malls, landlords experienced higher maintenance, insurance and security costs which they are passing on to their tenants such as Regis. In fiscal 2001, rent expense increased ten basis points to 14.1 percent of company-owned revenue primarily due to lower same-store sales increases over which to spread this relatively fixed cost. Depreciation--Salon Level Depreciation expense at the salon level remained relatively consistent at 3.5 percent of company-owned revenue in fiscal 2002, compared to 3.4 percent in fiscal 2001 and 2000. Direct Salon Contribution For reasons previously discussed, direct salon contribution, representing company-owned salon revenues less associated operating expenses, improved in fiscal 2002 to $244.8 million, or 17.8 percent of company-owned revenues, compared to $222.2 million, or 17.7 percent, in fiscal 2001 and $199.4 million, or 18.2 percent, in fiscal 2000. Franchise Direct Costs, Including Product and Equipment Franchise direct costs include all direct costs related to franchise salons, such as the cost of products and equipment sold to franchisees and direct costs incurred at the Home Office and in Europe to support franchising activities. Franchise direct costs increased to $38.1 million, or 49.1 percent of franchise revenue, during fiscal 2002. The increase was primarily related to costs associated with the recently acquired European franchise companies, GGG and JLD. Additionally, growth in the sale of retail product to franchisees contributed to the fiscal 2002 increase. During fiscal 2001, franchise direct costs increased $3.8 million to $21.2 million, representing a 300 basis point increase to 37.7 percent of franchise revenue. The fiscal 2001 increase was due to acquisitions of two Canadian franchise companies in the second and third quarters of fiscal 2001. Corporate and Franchise Support Costs Corporate and franchise support costs include expenses related to field supervision (payroll, related taxes and travel) and home office administration costs (such as warehousing, salaries, occupancy costs and professional fees). Corporate and franchise support costs increased $13.7 million in fiscal 2002 to $139.7 million. As a percent of total revenue, corporate and franchise support costs during fiscal 2002 remained consistent at 9.6 percent. During fiscal 2001, corporate and franchise support costs increased $10.9 million from $115.1 million in fiscal 2000 and decreased 50 basis points as a percent of sales from 10.1 percent. The 50 basis point improvement for fiscal 2001 was primarily due to fiscal 2000 results including costs incurred related to the introduction of the new Regis retail product line as well as costs related to the Company's transition of the Supercuts UK home office. 21 Regis Corporation Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Depreciation and Amortization--Corporate Depreciation and amortization--corporate was 0.7 percent of total revenues in 2002, compared to 1.7 percent and 1.5 percent of total revenues in fiscal 2001 and 2000, respectively. The 100 basis point improvement in fiscal 2002 was related to the implementation of Statement of Financial Accounting Standards (FAS) No. 142, "Goodwill and Other Intangible Assets," in July 2001, which discontinued the amortization of acquired goodwill, as discussed in Note 1 to the Consolidated Financial Statements. The 20 basis point increase as a percent of total revenues in fiscal 2001 was primarily related to increased amortization expense due to the increased level of goodwill associated with the Company's salon acquisition activity, as well as increases in corporate depreciation related to self-developed software placed in service between periods. Nonrecurring Items See Note 11 to the Consolidated Financial Statements. Operating Income Operating income in fiscal 2002 increased to a record $133.9 million, compared to $109.3 million in fiscal 2001 and $97.2 million in fiscal 2000. This increase was driven primarily by the aforementioned change in accounting for goodwill. Fiscal 2000 operating income was impacted by merger and transaction costs associated with the Supercuts UK merger. Exclusive of fiscal 2000 nonrecurring items, operating income in fiscal 2001 increased by $9.1 million, representing 8.3 percent of revenues, compared to $100.2 million, or 8.8 percent of revenues, in fiscal 2000. The decrease in operating income, exclusive of fiscal 2000 nonrecurring items, as a percent of sales in 2001 was due to higher fixed payroll costs that were not offset by same-store sales growth as well as increased direct salon expenses due to higher utility and freight costs, increased workers' compensation rates and lower same-store sales increases. Interest Interest expense improved in fiscal 2002 to $19.0 million, compared to $21.5 million and $15.8 million in fiscal 2001 and 2000, representing 1.3 percent, 1.6 percent and 1.4 percent of total revenues, respectively. As a percent of sales, interest expense decreased during fiscal 2002 due to a reduction in interest rates on the Company's variable rate debt. Interest expense as a percent of sales increased in fiscal 2001 due to higher debt levels primarily resulting from the Company's acquisition program as well as slightly higher interest rates. Income Taxes The Company's effective tax rate improved to 37.7 percent of pre-tax income in fiscal 2002, compared to 40.3 percent in both fiscal 2001 and 2000. During fiscal 2002, management recognized a one-time income tax benefit of approximately $1.8 million resulting from the implementation of certain tax planning strategies. The fiscal 2000 effective tax rate was impacted by non-recurring merger and transaction costs associated with the Supercuts UK merger. Exclusive of such fiscal 2002 and 2000 nonrecurring items, the Company's effective tax rate was 39.2 percent, 40.3 percent and 39.3 percent in fiscal 2002, 2001 and 2000, respectively. The improvement in the fiscal 2002 effective rate, exclusive of the nonrecurring income tax benefit, was primarily due to the change in accounting for goodwill, as the permanent add-back for non-deductible goodwill amortization for stock acquisitions was eliminated. The increase in the fiscal 2001 annual rate, exclusive of nonrecurring items, compared to fiscal 2000 was due to discrete Canadian acquisitions, structured as stock purchases, which occurred during the second and third quarters of fiscal 2001. Net Income Net income in fiscal 2002 grew to a record $72.1 million, or $1.63 per diluted share, compared to net income of $53.1 million, or $1.26 per diluted share, in fiscal 2001, and $49.7 million, or $1.19 per diluted share, in fiscal 2000. In fiscal 2002, net income exclusive of the nonrecurring income tax benefit was $70.3 million. In fiscal 2000, net income exclusive of nonrecurring items was $52.4 million. Nonrecurring items increased reported net income per diluted share by $.04 in fiscal 2002 and decreased reported net income per diluted share by $.07 in fiscal 2000. The $.33 increase in earnings per diluted share exclusive of the nonrecurring income tax benefit during fiscal 2002 primarily resulted from the change in accounting for goodwill, sales increases, improved gross margins and leveraging of fixed costs against revenue increases, as previously discussed. On a pro forma basis, assuming goodwill had not been amortized during fiscal 2001 or 2000, net income would have been $62.0 million, or $1.47 per diluted share and $57.4 million, or $1.38 per diluted share, respectively. See Note 1 to the Consolidated Financial Statements. 22 [BAR GRAPH] OPERATING INCOME GROWTH (Exclusive of nonrecurring items) (Dollars in millions) 00 100 01 109 02 $134 Compounded Annual Growth Rate - 15.6% Effects of Inflation The Company primarily compensates its Regis and International salon employees with percentage commissions based on sales they generate, thereby enabling salon payroll expense as a percent of revenues to remain relatively constant. Accordingly, this provides the Company certain protection against inflationary increases as payroll expense and related benefits (the Company's major expense components) are, with respect to these concepts, variable costs of sales. The Company does not believe inflation, due to its low rate, has had a significant impact on the results of operations associated with hourly paid hairstylists for the remainder of its mall based and strip center salons. Recent Accounting Pronouncements Recent accounting pronouncements are discussed in Note 1 to the Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES Customers pay for salon services and merchandise in cash at the time of sale, which reduces the Company's working capital requirements. Net cash provided by operating activities in fiscal 2002 rose to a record $152.0 million compared to $110.3 million and $85.4 million in fiscal 2001 and 2000, respectively. The increases were primarily due to improved operating performance, as well as continued improvement related to inventory management during fiscal 2002. Capital Expenditures and Acquisitions During fiscal 2002, the Company had worldwide capital expenditures of $73.3 million, of which $7.1 million related to acquisitions. The Company constructed 349 new corporate salons in fiscal 2002, including 61 new Regis Salons, 42 new MasterCuts salons, 34 new Trade Secret salons, 125 new SmartStyle salons, 69 new Strip Center Salons and 18 new International salons, and completed 134 major remodeling projects. All capital expenditures during fiscal 2002 were funded by the Company's operations and borrowings under its revolving credit facility. The Company anticipates its worldwide salon development program for fiscal 2003 will include approximately 435 new company-owned salons, 300 to 350 new franchised salons, 175 major remodeling and conversion projects and 400 to 500 acquired salons. It is expected that expenditures for these development activities will be approximately $125 million to $145 million, of which $75 million is allocated to new salon construction and salon remodeling and conversions. In April of fiscal 2002, the Company announced its acquisition of Jean Louis David. The acquisition was funded by a portion of the proceeds from the Company's recent $125.0 million of private placement debt and the issuance of 800,000 shares of the Company's common stock. Other acquisitions during fiscal 2002, as discussed in Note 3 to the Consolidated Financial Statements, were funded by the Company's operations and borrowings under its revolving credit facility. See Note 4 to the Consolidated Financial Statements for additional information on the Company's financing arrangements. Contractual Obligations and Commercial Commitments The following table reflects a summary of obligations and commitments outstanding by payment date as of June 30, 2002:

Payments Due By Period - ------------------------------------------------------------------------------------------------ Within 5 Years (Dollars in thousands) 1 Year 1-2 Years 3-4 Years or After Total - ------------------------------------------------------------------------------------------------ Contractual cash obligations: Senior long-term debt ........ $ 4,369 $ 87,557 $ 35,345 $ 165,440 $ 292,711 Operating leases(a) .......... 170,626 268,361 153,275 127,235 719,497 Other long-term obligations... 4,050 7,361 12,068 1,872 25,351 - ------------------------------------------------------------------------------------------------ Total .......................... $ 179,045 $ 363,279 $ 200,688 $ 294,547 $1,037,559 ================================================================================================

(a) In accordance with accounting principles generally accepted in the United States of America, these obligations are not reflected in the accompanying audited Consolidated Balance Sheet. Operating leases primarily represent long-term obligations for the rental of salon premises, including franchisee accommodation leases of approximately $109.9 million, which are funded by franchisees. In the event of default by a franchise owner, the Company generally retains the right to acquire the related salon assets net of any outstanding obligations. Management has not experienced and does not expect any material loss to result from these contractual arrangements. 23 Regis Corporation Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Other long-term obligations that are included in the table above are composed of the following components: - $10.2(a) million related to the residual value guarantee of a five-year operating lease agreement for the Company's distribution center and various equipment in Salt Lake City, Utah. Under the agreement, the Company is obligated to pay the deficiency between the residual value guarantee and the fair market value at the termination of the agreement. Although the residual value guarantee is included in the table above, the Company expects the fair market value of the distribution center and related equipment, subject to the purchase or remarket options, to substantially reduce or eliminate the Company's potential liability under the residual value guarantee. - The Company is the guarantor on $8.9(a) million in lease agreements between its franchisees and leasing companies. This represents the undiscounted value of the remaining lease obligations. As of June 30, 2002, the discounted obligation the Company would be liable for is $7.1 million. Under the agreements, the leasing companies may elect to hold the Company liable if the franchisee defaults on the agreement. In such cases, the Company retains the right to possess the related salon operations. Management does not expect any material loss to result from these agreements. - $4.0 million related to capital leases and other. - $2.3 million related primarily to assumed debt from acquisitions. (a) In accordance with accounting principles generally accepted in the United States of America, these obligations are not reflected in the accompanying audited Consolidated Balance Sheet. The Company does not have other unconditional purchase obligations, or significant other commercial commitments such as commitments under lines of credit, standby letters of credit and standby repurchase obligations or other commercial commitments. The Company is in compliance with all covenants and other requirements of its credit agreements and indentures. Additionally, the credit agreements do not include rating triggers or subjective clauses that would accelerate maturity dates. As a part of its salon development program, the Company continues to negotiate and enter into leases and commitments for the acquisition of equipment and leasehold improvements related to future salon locations, and continues to enter into transactions to acquire established hair care salons and businesses. Financing Financing activities are discussed in Note 4 and derivative activities in Note 5 to the Consolidated Financial Statements. Management believes that cash generated from operations and amounts available under its existing debt facilities will be sufficient to fund its anticipated capital expenditures, acquisitions and required debt repayments for the foreseeable future. Additionally, the Company received an investment grade "2" rating in December 2001 from the NAIC, the rating agency that regulates insurance companies in the private placement debt market. The change in rating has proven to provide the Company with greater and less expensive access to long-term senior debt during the third quarter, and the Company expects this benefit to continue in the future. The Company operates in international markets and translates the financial statements of its international subsidiaries to U.S. dollars for financial reporting purposes, and accordingly is subject to fluctuations in currency exchange rates. Dividends The Company paid dividends of $.12 per share during fiscal 2002, 2001 and 2000. On August 16, 2002, the Board of Directors of the Company declared a $.03 per share quarterly dividend payable September 13, 2002 to shareholders of record on August 30, 2002. In addition, Supercuts UK declared and paid dividends of $0.4 million during fiscal 2000. Share Repurchase Program In May 2000, the Company's Board of Directors approved a stock repurchase program under which up to $50 million can be expended for the repurchase of the Company's common stock. The timing and amounts of any repurchases will depend on many factors, including the market price of the common stock and overall market conditions. As of June 30, 2002, 393,700 shares have been repurchased for $9.2 million. All repurchased shares are immediately retired. This repurchase program has no stated expiration date. 24 Outlook Regis Corporation is the world's largest owner, operator, franchisor and acquirer of hair and retail product salons in the $135 billion hair care industry. The 8,684 company-owned and franchised salons, which generated $2.3 billion of system-wide sales in fiscal year 2002, are located in the United States, Canada, France, Italy, the United Kingdom, Spain, Belgium, Switzerland, Poland, Brazil, and Puerto Rico. Over the last ten years, the Company has been able to average double-digit revenue and earnings growth through its strategy of building, acquiring and franchising salons in high traffic locations throughout North America and Europe. Eight times larger than its nearest competitor, the Company maintains just a two percent worldwide market share, signaling substantial opportunities for long-term future growth. The Company's growth strategy will continue to focus on building and acquiring company-owned and operated salons in convenient locations with good visibility, strong customer traffic and appropriate trade demographics. It will continue to focus on the middle to moderately upscale market with its broad-based salon concepts. The Company believes that the availability of real estate and quality stylists will not constrain its ability to achieve its long-term growth objectives. Franchising will also be a key component of the Company's future growth. Through the combination of company-owned and franchise salon growth, the Company expects to be able to strengthen its presence in existing markets as well as successfully enter new markets. In addition to growth in salon services, the Company has been successful in growing the retail product business. During fiscal year 2002, retail product sales increased 14 percent to $413 million. Through the offering of the largest assortment of professional hair care products in the industry and superior merchandising, the Company is confident that it can continue to successfully grow its retail product business. Today, the Company estimates that it serves approximately 10 percent of the U.S. retail product market. Maintaining financial flexibility is also a key element in continuing successful growth. With strong operating cash flow and an investment grade rating, the Company is confident that it will be able to financially support its future growth. SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This annual report, as well as information included in, or incorporated by reference from, future filings by the Company with the Securities and Exchange Commission and information contained in written material, press releases and oral statements issued by or on behalf of the Company contains or may contain "forward-looking statements" within the meaning of the federal securities laws, including statements concerning anticipated future events and expectations that are not historical facts. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements in this document reflect management's best judgment at the time they are made, but all such statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those expressed in or implied by the statements herein. Such forward-looking statements are often identified herein by use of words including, but not limited to, "may," "believe," "project," "expect," "estimate," "anticipate," and "plan." In addition, the following factors could affect the Company's actual results and cause such results to differ materially from those expressed in forward-looking statements. These factors include competition within the personal hair care industry, which remains strong, both domestically and internationally, and price sensitivity; changes in economic condition; changes in consumer tastes and fashion trends; labor and benefit costs; legal claim; risk inherent to international development (including currency fluctuations); the continued ability of the Company and its franchisees to obtain suitable locations and financing for new salon development; governmental initiatives such as minimum wage rates, taxes and possible franchise legislation; the ability of the Company to successfully identify and acquire salons that support its growth objectives; or other factors not listed above. 25 Regis Corporation Consolidated Balance Sheet

June 30, - ----------------------------------------------------------------------------------------------- (Dollars in thousands, except per share amounts) 2002 2001 - ----------------------------------------------------------------------------------------------- ASSETS Current assets: Cash ............................................................... $ 87,103 $ 24,658 Receivables, net ................................................... 26,901 18,861 Inventories ........................................................ 120,259 110,247 Deferred income taxes .............................................. 9,843 10,087 Other current assets ............................................... 12,580 8,794 - ----------------------------------------------------------------------------------------------- Total current assets ............................................ 256,686 172,647 Property and equipment, net ........................................... 318,482 300,990 Goodwill .............................................................. 304,529 236,117 Other intangibles, net ................................................ 54,907 10,854 Other assets .......................................................... 22,586 15,897 - ----------------------------------------------------------------------------------------------- Total assets .................................................... $ 957,190 $ 736,505 =============================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Long-term debt, current portion .................................... $ 7,221 $ 5,438 Accounts payable ................................................... 54,545 37,689 Accrued expenses ................................................... 97,523 68,788 - ----------------------------------------------------------------------------------------------- Total current liabilities ....................................... 159,289 111,915 Long-term debt ........................................................ 291,795 256,120 Other noncurrent liabilities .......................................... 61,441 28,969 Commitments and contingencies (Note 6) Shareholders' equity: Common stock, $.05 par value; issued and outstanding, 43,040,381 and 41,726,787 common shares at June 30, 2002 and 2001, respectively ..................................................... 2,152 2,087 Additional paid-in capital ......................................... 194,859 165,489 Accumulated other comprehensive income (loss) ...................... 3,938 (4,815) Retained earnings .................................................. 243,716 176,740 - ----------------------------------------------------------------------------------------------- Total shareholders' equity ...................................... 444,665 339,501 - ----------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity ................... $ 957,190 $ 736,505 ===============================================================================================

The accompanying notes are an integral part of the Consolidated Financial Statements. 26 Regis Corporation Consolidated Statement of Operations

Years Ended June 30, - --------------------------------------------------------------------------------------------------------------------------- (Dollars and shares in thousands, except per share amounts) 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------- Revenues: Company-owned salons: Service ................................................................. $ 963,884 $ 893,472 $ 779,604 Product ................................................................. 412,728 361,858 313,125 - --------------------------------------------------------------------------------------------------------------------------- 1,376,612 1,255,330 1,092,729 Franchise revenues: Royalties and fees ...................................................... 50,745 38,230 36,157 Product sales ........................................................... 26,834 18,061 14,107 - --------------------------------------------------------------------------------------------------------------------------- 77,579 56,291 50,264 - --------------------------------------------------------------------------------------------------------------------------- 1,454,191 1,311,621 1,142,993 Operating expenses: Company-owned salons: Cost of service ......................................................... 546,027 508,981 442,198 Cost of product ......................................................... 216,373 191,796 168,787 Direct salon ............................................................ 123,915 112,667 92,841 Rent .................................................................... 197,269 176,947 152,685 Depreciation ............................................................ 48,269 42,720 36,832 - --------------------------------------------------------------------------------------------------------------------------- 1,131,853 1,033,111 893,343 Franchise direct costs, including product and equipment .................... 38,114 21,237 17,443 Corporate and franchise support costs ...................................... 139,654 125,927 115,058 Depreciation and amortization .............................................. 10,706 22,065 16,993 Nonrecurring items ......................................................... 2,940 - --------------------------------------------------------------------------------------------------------------------------- Total operating expenses .............................................. 1,320,327 1,202,340 1,045,777 - --------------------------------------------------------------------------------------------------------------------------- Operating income ...................................................... 133,864 109,281 97,216 Other income (expense): Interest ................................................................... (19,010) (21,487) (15,839) Other, net ................................................................. 796 1,085 1,857 - --------------------------------------------------------------------------------------------------------------------------- Income before income taxes ............................................ 115,650 88,879 83,234 Income taxes: Provision .................................................................. (45,346) (35,791) (33,580) Nonrecurring income tax benefit ............................................ 1,750 - --------------------------------------------------------------------------------------------------------------------------- (43,596) (35,791) (33,580) - --------------------------------------------------------------------------------------------------------------------------- Net income ............................................................ $ 72,054 $ 53,088 $ 49,654 =========================================================================================================================== Net income per share: Basic ...................................................................... $ 1.70 $ 1.29 $ 1.22 =========================================================================================================================== Diluted .................................................................... $ 1.63 $ 1.26 $ 1.19 =========================================================================================================================== Weighted average shares outstanding: Basic ...................................................................... 42,283 41,221 40,612 =========================================================================================================================== Diluted .................................................................... 44,172 42,031 41,602 ===========================================================================================================================

Effective July 1, 2001, Regis changed its accounting for goodwill. For comparability purposes, see Note 1 for pro forma amounts. The accompanying notes are an integral part of the Consolidated Financial Statements. 27 Regis Corporation Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income

Accumulated Common Stock Additional Other --------------------- Paid-In Comprehensive Retained Comprehensive (Dollars in thousands) Shares Amount Capital Income (Loss) Earnings Total Income - ------------------------------------------------------------------------------------------------------------------------------- Balance, June 30, 1999 ................... 40,419,122 $2,021 $ 148,504 $(1,095) $ 84,789 $ 234,219 Net income ............................... 49,654 49,654 $ 49,654 Foreign currency translation adjustments.. (1,179) (1,179) (1,179) Pooling of interests adjustment .......... (665) (665) Stock repurchase plan .................... (115,000) (6) (1,419) (1,425) Proceeds from exercise of stock options .. 329,000 16 1,478 1,494 Shares issued in connection with salon acquisitions ..................... 69,585 4 1,584 1,588 Tax benefit realized upon exercise of stock options .......................... 646 646 Dividends ................................ (5,191) (5,191) - ------------------------------------------------------------------------------------------------------------------------------ Balance, June 30, 2000 ................... 40,702,707 2,035 150,793 (2,274) 128,587 279,141 $ 48,475 ======== Net income ............................... 53,088 53,088 53,088 Foreign currency translation adjustments.. (921) (921) (921) Transition adjustment relating to the adoption of FAS No. 133, net of taxes .. (160) (160) (160) Changes in fair market value of financial instruments designated as hedges of interest rate exposure, net of taxes and transfers ................. (1,460) (1,460) (1,460) Proceeds from exercise of stock options .. 298,362 16 1,971 1,987 Shares issued through franchise stock incentive program ...................... 10,662 149 149 Shares issued in connection with salon acquisitions ..................... 715,056 36 11,860 11,896 Tax benefit realized upon exercise of stock options .......................... 716 716 Dividends ................................ (4,935) (4,935) - ------------------------------------------------------------------------------------------------------------------------------ Balance, June 30, 2001 ................... 41,726,787 2,087 165,489 (4,815) 176,740 339,501 $ 50,547 ======== Net income ............................... 72,054 72,054 72,054 Foreign currency translation adjustments.. 9,460 9,460 9,460 Changes in fair market value of financial instruments designated as hedges of interest rate exposure, net of taxes and transfers .......................... (707) (707) (707) Stock repurchase plan .................... (278,700) (14) (7,729) (7,743) Proceeds from exercise of stock options .. 621,163 31 7,719 7,750 Shares issued through franchise stock incentive program ...................... 8,198 173 173 Shares issued in connection with salon acquisitions ..................... 962,933 48 26,253 26,301 Tax benefit realized upon exercise of stock options ....................... 2,954 2,954 Dividends ................................ (5,078) (5,078) - ------------------------------------------------------------------------------------------------------------------------------ Balance, June 30, 2002 ................... 43,040,381 $2,152 $ 194,859 $ 3,938 $243,716 $ 444,665 $ 80,807 ==============================================================================================================================

The accompanying notes are an integral part of the Consolidated Financial Statements. 28 Regis Corporation Consolidated Statement of Cash Flows

Years Ended June 30, - ------------------------------------------------------------------------------------------------- (Dollars in thousands) 2002 2001 2000 - ------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income ............................................. $ 72,054 $ 53,088 $ 49,654 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ........................................ 56,821 49,821 42,483 Amortization ........................................ 2,911 15,097 11,634 Deferred income taxes ............................... 11,890 3,249 (1,003) Other ............................................... 739 120 (381) Changes in operating assets and liabilities: Receivables ....................................... (575) (5,010) 267 Inventories ....................................... (7,759) (16,724) (20,350) Other current assets .............................. (2,761) 2,669 1,078 Other assets ...................................... (2,460) (3,295) (3,432) Accounts payable .................................. 7,354 1,369 1,799 Accrued expenses .................................. 13,070 7,766 (1,546) Other noncurrent liabilities ...................... 755 2,159 5,181 - ------------------------------------------------------------------------------------------------- Net cash provided by operating activities ........... 152,039 110,309 85,384 - ------------------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures ................................... (66,232) (80,224) (80,932) Proceeds from sale of assets ........................... 873 682 852 Business and salon acquisitions, net of cash acquired ............................................. (59,925) (45,165) (66,798) - ------------------------------------------------------------------------------------------------- Net cash used in investing activities ............... (125,284) (124,707) (146,878) - ------------------------------------------------------------------------------------------------- Cash flows from financing activities: Borrowings on revolving credit facilities .............. 250,800 321,200 413,786 Payments on revolving credit facilities ................ (336,300) (313,900) (321,928) Proceeds from issuance of long-term debt ............... 125,000 25,000 7,958 Repayments of long-term debt ........................... (5,212) (5,942) (33,842) Other, primarily increase in negative book cash balances ............................................. 4,937 695 5,054 Dividends paid ......................................... (5,078) (4,935) (5,191) Repurchase of common stock ............................. (7,743) (1,425) Proceeds from issuance of common stock ................. 7,750 1,987 1,494 - ------------------------------------------------------------------------------------------------- Net cash provided by financing activities ........... 34,154 24,105 65,906 - ------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash ................... 1,536 63 123 - ------------------------------------------------------------------------------------------------- Increase in cash .......................................... 62,445 9,770 4,535 Cash: Beginning of year ...................................... 24,658 14,888 10,353 - ------------------------------------------------------------------------------------------------- End of year ............................................ $ 87,103 $ 24,658 $ 14,888 =================================================================================================

The accompanying notes are an integral part of the Consolidated Financial Statements. 29 Regis Corporation Notes to Consolidated Financial Statements 1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Business Description: Regis Corporation (the Company) owns, operates and franchises hairstyling and hair care salons throughout the United States, the United Kingdom, France, Canada, Puerto Rico and several other countries. Substantially all of the hairstyling and hair care salons owned and operated by the Company in the United States are located in leased space in enclosed mall shopping centers or strip shopping centers. Franchised salons throughout the United States are primarily located in strip shopping centers. The company-owned and franchised salons in the United Kingdom, France and several other countries are owned and operated in malls, leading department stores, mass merchants and high-street locations. At June 30, 2002, approximately five percent of the Company's outstanding common stock is owned by Curtis Squire, Inc. (CSI), which is a holding company controlled by the Chairman of the Board of Directors of the Company, and approximately four percent is owned by management and the Company's benefit plans. Consolidation: The Consolidated Financial Statements include the accounts of the Company and all of its wholly-owned subsidiaries. In consolidation, all material intercompany accounts and transactions are eliminated. Use of Estimates: The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates made by management are the estimated useful lives and net realizable values of long-lived assets, the fair value of assets acquired in business combinations and various commitments and contingencies. Actual results could differ from those estimates. Foreign Currency Translation: Financial position, results of operations and cash flows of the Company's international subsidiaries are measured using local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rates in effect at each fiscal year end. Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive income (loss) within shareholders' equity. Income statement accounts are translated at the average rates of exchange prevailing during the year. The different exchange rates from period to period impact the amount of reported income from the Company's international operations. Inventories: Inventories consist principally of hair care products held either for use in salon services or for sale. Inventories are stated at the lower of cost or market with cost determined on a weighted average basis, which approximates the first-in, first-out method. Property and Equipment: Property and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation and amortization of property and equipment are computed on the straight-line method over estimated useful asset lives (30 to 39 years for buildings and improvements and five to ten years for equipment, furniture, software and leasehold improvements). The Company capitalizes both internal and external costs of developing or obtaining computer software for internal use. Costs incurred to develop internal-use software during the application development stage are capitalized, while data conversion, training and maintenance costs associated with internal-use software are expensed as incurred. As of June 30, 2002 and 2001, the net book value of capitalized computer software costs was $23.2 million and $24.1 million, respectively. Amortization expense related to capitalized computer software was $5.5 million in fiscal 2002, $4.8 million in fiscal 2001 and $3.3 million in fiscal 2000, which has been determined based on an estimated useful life of five or seven years. Expenditures for maintenance and repairs and minor renewals and betterments which do not improve or extend the life of the respective assets are expensed. All other expenditures for renewals and betterments are capitalized. The assets and related depreciation/amortization accounts are adjusted for property retirements and disposals with the resulting gain or loss included in operations. Fully depreciated/amortized assets remain in the accounts until retired from service. Goodwill: Prior to July 1, 2001, goodwill recorded in connection with the fiscal 1989 purchase of the publicly held minority interest in the Company, and acquisitions of business operations in which the Company had not previously been involved, was amortized on a straight-line basis over 40 years. Goodwill recorded in connection with acquisitions which expanded the Company's existing business activities (acquisitions of salon sites) was amortized on a straight-line basis, generally over 20 years. Effective July 1, 2001, the Company ceased all amortization of goodwill balances. See discussion under "Recent Accounting Pronouncements." 30 Goodwill is tested for impairment annually or at the time of a triggering event in accordance with the provisions of Statement of Financial Accounting Standards (FAS) No. 142, "Goodwill and Other Intangible Assets." Fair values are estimated based on the Company's best estimate of the expected present value of future cash flows and compared with the corresponding carrying value of the reporting unit, including goodwill. The Company generally considers its various primary brands to be reporting units when it tests for goodwill impairment because that is where the Company believes goodwill naturally resides. On July 1, 2001, goodwill was tested for impairment in this manner and the estimated fair value of each reporting unit exceeded its carrying amount, indicating no impairment of goodwill. The Company performs its annual goodwill impairment testing during its fiscal third quarter. Asset Impairment Assessments: The Company reviews long-lived assets for impairment whenever events or circumstances indicate that the carrying value of such assets may not be fully recoverable. An impairment is evaluated based on the sum of undiscounted estimated future cash flows expected to result from use of the assets compared to its carrying value. If an impairment is recognized, the carrying value of the impaired asset is reduced to its fair value, based on discounted estimated future cash flows. Franchise Revenues and Expenses: Franchise revenues include royalties, initial franchise fees from franchisees and sales of product to franchisees. Royalties are recognized as revenue in the month in which franchisee services are rendered or products are sold by franchisees. The Company recognizes revenue from initial franchise fees at the time franchisee salons are opened. Product sales by the Company to franchisees are recorded at the time product is shipped to franchise locations. Franchise expenses included in franchise direct costs in the Consolidated Statement of Operations include all direct expenses, such as the cost of product sold to franchisees. All other indirect expenses associated with franchise operations are included in corporate and franchise support costs in the Consolidated Statement of Operations. Advertising: Advertising costs are expensed as incurred. Advertising costs expensed were $31.3 million, $29.5 million and $24.9 million in fiscal 2002, 2001 and 2000, respectively. Advertising Funds: Franchisees and certain company-owned salons are required to contribute a percentage of sales to various advertising funds. The Company administers the advertising funds at the directive of or subject to input from the franchise community. Accordingly, amounts collected and spent by the advertising funds are not reflected as revenues and expenditures of the Company. Assets of the advertising funds administered by the Company, along with an offsetting obligation to spend such assets, are recorded in the Consolidated Balance Sheet. Income Taxes: Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or income tax returns. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using currently enacted tax rates in effect for the years in which the differences are expected to reverse. Income tax expense is the current tax payable for the period and the change during the period in deferred tax assets and liabilities. Net Income Per Share: Basic earnings per share (EPS) is calculated as net income divided by weighted average common shares outstanding. The Company's dilutive securities include shares issuable under the Company's stock option plan and shares issuable under contingent stock agreements. Diluted EPS is calculated as net income divided by weighted average common shares outstanding, increased to include assumed exercise of dilutive securities. Stock options with exercise prices greater than the average market value of the Company's common stock are excluded from the computation of diluted EPS. Reclassifications: Certain prior period amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on net income or shareholders' equity as previously presented. Comprehensive Income: Components of comprehensive income for the Company include net income, the transition adjustment for the adoption of FAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended and interpreted, changes in fair market value of financial instruments designated as hedges of interest rate exposure and foreign currency translation charged or credited to the cumulative translation account within shareholders' equity. These amounts are presented in the Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income. Recent Accounting Pronouncements: Effective July 1, 2001 and January 1, 2002, the Company adopted the provisions of FAS No. 141, "Business Combinations," and FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," respectively. The initial adoption of these Statements did not have a material impact on the Consolidated Statement of Operations. The Financial Accounting Standards Board ("FASB") recently issued FAS No. 143, "Accounting for Asset Retirement Obligations," which addresses financial accounting and reporting for obligations associated with the 31 Regis Corporation Notes to Consolidated Financial Statements (continued) retirement of tangible long-lived assets and the associated asset retirement costs. FAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company does not expect the initial adoption of this Statement to have a material impact on the Consolidated Statement of Operations. Effective July 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards (FAS) No. 142, "Goodwill and Other Intangible Assets." This statement discontinued the amortization of goodwill and indefinite-lived intangible assets, subject to periodic impairment testing. The effect of the change in accounting during the year ended June 30, 2002 was to increase net income by approximately $11.1 million, or $.25 per diluted share. The pro forma amounts shown below reflect the effect of retroactive application of the non-amortization of goodwill as if the new method of accounting had been in effect in the prior periods.

- -------------------------------------------------------------------------------- (Pro Forma Amounts) 2002 2001 2000 - -------------------------------------------------------------------------------- Net income (Dollars in thousands) Reported net income ..................... $ 72,054 $ 53,088 $ 49,654 Goodwill amortization (net of tax effect) ................................ 8,866 7,741 - -------------------------------------------------------------------------------- Adjusted net income ..................... $ 72,054 $ 61,954 $ 57,395 - -------------------------------------------------------------------------------- Basic earnings per share Reported basic earnings per share ....... $ 1.70 $ 1.29 $ 1.22 Goodwill amortization (net of tax effect) ................................ .21 .19 - -------------------------------------------------------------------------------- Pro forma basic earnings per share ...... $ 1.70 $ 1.50 $ 1.41 - -------------------------------------------------------------------------------- Diluted earnings per share Reported diluted earnings per share ..... $ 1.63 $ 1.26 $ 1.19 Goodwill amortization (net of tax effect) ................................ .21 .19 - -------------------------------------------------------------------------------- Pro forma diluted earnings per share .... $ 1.63 $ 1.47 $ 1.38 ================================================================================

In addition, the remaining estimated useful lives of intangible assets being amortized were reviewed in accordance with the provisions of the new standard and deemed to be appropriate. 2. OTHER FINANCIAL STATEMENT DATA The following provides additional information concerning selected balance sheet accounts as of June 30, 2002 and 2001:

- ------------------------------------------------------------------------------------------------ (Dollars in thousands) 2002 2001 - ------------------------------------------------------------------------------------------------ Property and equipment: Land ............................................................... $ 3,817 $ 3,817 Buildings and improvements ......................................... 29,518 29,449 Equipment, furniture and leasehold improvements .................... 479,662 433,374 Internal use software .............................................. 44,186 39,635 Equipment, furniture and leasehold improvements under capital leases ............................................................ 15,135 15,113 - ------------------------------------------------------------------------------------------------ 572,318 521,388 Less accumulated depreciation and amortization ..................... (243,888) (211,722) Less amortization of equipment, furniture and leasehold improvements under capital leases .............................................. (9,948) (8,676) - ------------------------------------------------------------------------------------------------ $ 318,482 $ 300,990 ================================================================================================ Accounts payable* ..................................................... $ 54,545 $ 37,689 ================================================================================================ Accrued expenses: Payroll and payroll related costs* ................................. $ 41,769 $ 34,344 Insurance .......................................................... 20,252 15,021 Acquisition purchase price payable ................................. 9,771 Restructuring ...................................................... 713 1,056 Other .............................................................. 25,018 18,367 - ------------------------------------------------------------------------------------------------ $ 97,523 $ 68,788 ================================================================================================ Other noncurrent liabilities: Deferred income taxes .............................................. $ 29,813 $ 1,971 Other .............................................................. 31,628 26,998 - ------------------------------------------------------------------------------------------------ $ 61,441 $ 28,969 ================================================================================================

*Accounts payable and accrued expenses include $11,869 and $5,762 of book overdrafts in fiscal 2002 and 2001, respectively. 32

- --------------------------------------------------------------------------------------------------------------------- 2002 2001 ------------------------------------ ------------------------------------ Accumulated Accumulated (Dollars in thousands) Cost Amortization Net Cost Amortization Net - --------------------------------------------------------------------------------------------------------------------- Amortized intangible assets: Trade names .......................... $ 29,343 $ (425) $ 28,918 $ 3,854 $ (35) $ 3,819 Franchise agreements ................. 22,831 (2,061) 20,770 6,115 (1,482) 4,633 Non-compete agreements ............... 5,132 (4,760) 372 5,029 (4,192) 837 Other ................................ 6,275 (1,428) 4,847 2,525 (960) 1,565 - --------------------------------------------------------------------------------------------------------------------- $ 63,581 $ (8,674) $ 54,907 $ 17,523 $ (6,669) $ 10,854 =====================================================================================================================

Certain intangible asset amounts set forth above are based on preliminary purchase price allocations associated with recent business acquisitions, and are subject to finalization and adjustment. All intangible assets have been assigned an estimated finite useful life, and are amortized on a straight-line basis over the number of years that approximate their respective useful lives (ranging from four to 30 years). The straight-line method of amortization allocates the cost of the intangible assets to earnings in proportion to the amount of economic benefits obtained by the Company in that reporting period. Total amortization expense related to other intangible assets during the years ended June 30 2002, 2001 and 2000 was approximately $2.3 million, $1.4 million and $1.0 million, respectively. As of June 30, 2002, future estimated amortization expense related to amortizable intangible assets will be:

Fiscal Year (Dollars in thousands) - -------------------------------------------------------------------------------- 2003 .................................................... $3,183 2004 .................................................... 2,948 2005 .................................................... 2,678 2006 .................................................... 2,634 2007 .................................................... 2,634

The following provides additional information concerning the Company's transaction and restructuring liabilities related to its fiscal 2000 merger with Supercuts UK, its fiscal 1999 mergers and its restructuring liability related to its fiscal 1999 restructuring plan for its international operations.

Restructuring--International Restructuring--Mergers ------------------------------------------------------------------------------- Salon Salon Transaction Closures and Closures and Charges-- (Dollars in thousands) Dispositions Other Subtotal Severance Dispositions Other Subtotal Mergers Total - ------------------------------------------------------------------------------------------------------------------------------------ June 30, 2000 ............. $ 583 $ 67 $ 650 $ 2,824 $ 23 $ 145 $ 2,992 $ 35 $ 3,677 Cash utilization .......... (534) (5) (539) (1,616) (27) (48) (1,691) (47) (2,277) Foreign currency effect ... (19) (62) (81) (209) 31 (97) (275) 12 (344) - ------------------------------------------------------------------------------------------------------------------------------------ June 30, 2001 ............. 30 30 999 27 1,026 1,056 Cash utilization .......... (31) (31) (348) (27) (375) (406) Foreign currency effect ... 1 1 62 62 63 - ------------------------------------------------------------------------------------------------------------------------------------ June 30, 2002 ............. $ -- $ -- $ -- $ 713 $ -- $ -- $ 713 $ -- $ 713 ====================================================================================================================================

The restructuring liability at June 30, 2002 relates to the October 31, 1999 merger with Supercuts UK and will be satisfied through periodic contractual payments by the end of fiscal 2004. In conjunction with the merger, the Company recorded a pre-tax merger and transaction charge of $3.1 million in the second quarter of fiscal 2000. This charge included approximately $2.6 million for severance and other costs principally associated with the closure of Supercuts UK's headquarters. Severance expense covered the termination of approximately 11 employees of Supercuts UK who had duplicate positions within the corporate office functions. The charge also included approximately $0.5 million for professional fees including investment banking, legal, accounting and miscellaneous transaction costs. See Note 11 for a listing of nonrecurring fiscal 2000 merger related activity included in operating income. The following table sets forth a reconciliation of shares used in the computation of basic and diluted earnings per share:

- ---------------------------------------------------------------------------------------------------------------- 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------- Weighted average shares for basic earnings per share .............. 42,283,308 41,220,925 40,611,928 Effect of dilutive securities: Dilutive effect of stock options ................................ 1,867,038 638,153 880,056 Contingent shares issuable under contingent stock agreements .... 21,986 171,895 110,298 - ---------------------------------------------------------------------------------------------------------------- Weighted average shares for diluted earnings per share ............ 44,172,332 42,030,973 41,602,282 ================================================================================================================

33 Regis Corporation Notes to Consolidated Financial Statements (continued) Stock options covering approximately 55,000, 2,819,000 and 1,070,000 shares were excluded from the shares used in the computation of diluted earnings per share for fiscal year 2002, 2001 and 2000, respectively, since they were anti-dilutive. The following provides supplemental disclosures of cash flow activity:

- -------------------------------------------------------------------------------- (Dollars in thousands) 2002 2001 2000 - -------------------------------------------------------------------------------- Cash paid during the year for: Interest .................................... $17,609 $20,534 $14,997 Income taxes ................................ 14,621 37,447 36,866

Significant non-cash investing and financing activities include the following: - In fiscal 2001 and 2000, the Company financed capital expenditures totaling $0.1 million and $2.3 million, respectively, through capital leases. - In fiscal 2002, 2001 and 2000, in connection with various acquisitions, the Company entered into seller-financed payables and non-compete agreements as well as issuing 962,933, 715,056 and 69,585 shares, respectively, of the Company's common stock (see Note 3). 3. MERGERS AND ACQUISITIONS: Supercuts (Holdings) Limited Merger: Effective October 31, 1999, the Company consummated a merger with Supercuts UK. Under the terms of the merger agreement, the shareholders of Supercuts UK, a privately held company, received approximately 1.8 million shares of Regis Corporation common stock. The transaction has been accounted for as a pooling-of-interests. Prior period financial statements have been restated to reflect this merger as if the merged companies had always been combined. See discussion of the related restructuring liability in Note 2. Other Acquisitions: During fiscal 2002, 2001 and 2000, the Company made numerous acquisitions in addition to its merger with Supercuts UK. These acquisitions have been recorded using the purchase method of accounting. Accordingly, the purchase prices have been allocated to assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. These acquisitions individually and in the aggregate are not material to the Company's operations. Operations of the acquired companies have been included in the operations of the Company since the date of the respective acquisition. The most significant of the fiscal 2002 acquisitions were the acquisition of the European franchise companies, Groupe Gerard Glemain (GGG) and Jean Louis David (JLD). With respect to these acquisitions, the Company is currently in the process of obtaining valuations of the identifiable intangible assets. Based upon the preliminary purchase price allocations, the components of the aggregate purchase prices of the acquisitions and the allocation of the purchase price were as follows:

- ---------------------------------------------------------------------------------- (Dollars in thousands) 2002 2001 2000 - ---------------------------------------------------------------------------------- Components of aggregate purchase price: Cash ......................................... $ 59,925 $ 45,165 $ 66,798 Stock ........................................ 26,301 11,896 1,588 Liabilities assumed or payable ............... 13,608 7,383 5,225 - ---------------------------------------------------------------------------------- $ 99,834 $ 64,444 $ 73,611 ================================================================================== Allocation of the purchase price: Net tangible assets (liabilities) acquired ... $ (4,486) $ 11,677 $ 7,576 Identifiable intangible assets ............... 41,181 8,672 -- Goodwill ..................................... 63,139 44,095 66,035 - ---------------------------------------------------------------------------------- $ 99,834 $ 64,444 $ 73,611 ==================================================================================

Based upon the preliminary purchase price allocations, the change in the carrying amount of the goodwill for the years ended June 30, 2002 and 2001 is as follows:

2002 2001 -------------------------- -------------------------- (Dollars in thousands) Domestic International Domestic International - ------------------------------------------------------------------------------------------ Balance at beginning of year ... $ 230,716 $ 5,401 $ 200,036 $ 6,361 Goodwill acquired .............. 21,297 41,842 44,076 19 Amortization ................... (13,112) (596) Translation rate adjustments ... 42 5,231 (284) (383) - ------------------------------------------------------------------------------------------ Balance at end of year ......... $ 252,055 $ 52,474 $ 230,716 $ 5,401 ==========================================================================================

34 Generally, the goodwill recognized in the domestic transactions is expected to be fully deductible for tax purposes and the goodwill recognized in the international transactions is non-deductible for tax purposes. The walk-in customer base of acquired salons was not recognized as an identifiable intangible asset as the customers are not known or identifiable by the Company. Therefore, the value of the customer base is recognized as part of residual goodwill. Internationally, the acquisition purchase price goodwill residual primarily represents the growth prospects that are not captured as part of acquired tangible or identified intangible assets. 4. FINANCING ARRANGEMENTS: The Company's long-term debt as of June 30, 2002 and 2001 consists of the following:

Interest Maturity Rate % Dates 2002 2001 - ---------------------------------------------------------------------------------------------------- (Dollars in thousands) Senior term notes ........................ 6.55- 8.39 2003-2012 $ 237,711 $ 113,163 Revolving credit facilities .............. 2.68- 8.23 2004 55,000 140,500 Equipment and leasehold notes payable .... 7.57-11.56 2004-2007 4,047 6,391 Other notes payable ...................... 5.00-10.00 2003-2009 2,258 1,504 ------------------------ 299,016 261,558 Less current portion ..................... (7,221) (5,438) ------------------------ Long-term portion ........................ $ 291,795 $ 256,120 ========================

During March of fiscal 2002, the Company completed a $125.0 million private debt placement, with an average life of 8.6 years and a fixed coupon rate of 6.98 percent. Proceeds were in part used to repay approximately $75.0 million of existing debt from the Company's revolving credit facility. The additional $50.0 million of proceeds were primarily used to fund the Jean Louis David acquisition, which was completed in April of 2002. In October 2000, the Company borrowed $25 million under an 8.39 percent senior term note due October 2010 to finance various acquisitions by the Company. In September 2000, the Company amended its senior revolving credit agreement to increase the amount available from $180 million to $250 million, extending the expiration date to September 2003, and modifying certain debt covenant restrictions. The facility bears interest at the prime rate or LIBOR plus 75 to 137.5 basis points based on the Company's debt-to-capitalization ratio and allows for multi-currency borrowings. The prime rate at June 30, 2002 and 2001 was 4.75 percent and 6.75 percent, respectively. The revolving credit facility requires a quarterly commitment fee of 15 to 25 basis points on the unused portion of the facility. The LIBOR credit spread and commitment fee are based on the Company's debt-to-EBITDA ratio at the end of each fiscal quarter. The facility is used for short-term financing of new salon and acquisition growth as well as to finance the general working capital requirements of the Company. In June 2000, the Company extended the term of a $4.0 million note payment originally due July 1, 2000. The $4.0 million is the final payment due under a $10.0 million senior term note entered into in October 1996. The maturity on the term note has been extended to September 2003. The equipment and leasehold notes payable are primarily comprised of capital lease obligations totaling $4.0 million and $5.9 million at June 30, 2002 and 2001, respectively. These capital lease obligations are payable in monthly installments through 2005. All of the Company's debt instruments are unsecured, except for its capital lease obligations which are collateralized by the assets purchased under the agreement. The debt agreements contain covenants, including limitations on incurrence of debt, granting of liens, investments, merger or consolidation, and transactions with affiliates. In addition, the Company must not exceed specified fixed charge coverage, leverage and debt-to-capitalization ratios. As a result of the fair value hedging activities discussed in Note 5, an adjustment of approximately $2.3 million was made to increase the carrying values of the Company's long-term fixed rate debt. Approximately 47 percent of the Company's fixed rate debt has been marked to market. Considering the mark-to-market adjustment and current market interest rates, the carrying values of the Company's debt instruments, based upon discounted cash flow analyses using the Company's current incremental borrowing rate, approximate their fair values at June 30, 2002. Aggregate maturities of long-term debt, including capital lease obligations at June 30, 2002, are as follows:

Fiscal Year (Dollars in thousands) - -------------------------------------------------------------------------------- 2003..................................................... $ 7,221 2004..................................................... 76,863 2005..................................................... 15,750 2006..................................................... 12,549 2007..................................................... 22,037 Thereafter............................................... 164,596 - -------------------------------------------------------------------------------- $299,016 ================================================================================

35 Regis Corporation Notes to Consolidated Financial Statements (continued) 5. DERIVATIVE INSTRUMENTS: Effective July 1, 2000, Regis adopted FAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended and interpreted. FAS 133 requires that all derivative instruments, such as interest rate swap contracts, be recognized in the financial statements and measured at their fair value. Changes in the fair value of derivative instruments are recognized each period in current earnings or shareholders' equity (as a component of other comprehensive income or loss), depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The adoption of FAS 133 did not have a material impact on the Company's primary financial statements, but did result in the recording of an unrealized loss of approximately $160,000, net of tax, in other comprehensive income (loss). In the normal course of business, the Company is exposed to changes in interest rates and foreign currency rates. In addition, the Company has investments in foreign subsidiaries, and the net assets of these subsidiaries are exposed to currency exchange-rate volatility. The Company has established policies and procedures that govern the management of these exposures through the use of financial instruments. By policy, the Company does not enter into such contracts for the purpose of speculation. The Company uses interest rate swaps to convert a portion of its variable rate debt to fixed rates, as well as to convert a portion of its nonprepayable fixed rate debt to variable rate debt. At June 30, 2002, Regis had interest rate swap contracts to pay fixed rates of interest (ranging from 5.1 percent to 7.2 percent) and receive variable rates of interest based on the three-month LIBOR rate (ranging from 1.9 percent to 3.7 percent during fiscal 2002) on $25 million, $30 million and $11.8 million notional amounts of indebtedness through April 2003, June 2003 and June 2005, respectively. These swaps have been designated as cash flow hedges of interest payments on a portion of the Company's revolving credit facility and rental payments on the Company's warehouse operating lease. During fiscal 2002, no hedge ineffectiveness occurred. The pay-fixed receive-variable interest rate swaps resulted in net settlement loss of approximately $2.7 million and $0.6 million that have been transferred from accumulated other comprehensive income (loss) to earnings during fiscal 2002 and 2001, respectively. Such amounts are classified as part of interest expense in the Consolidated Statement of Operations. As of June 30, 2002, the Company estimates, based on current interest rates, that approximately $2.7 million of deferred net unrealized losses on derivative instruments accumulated in other comprehensive income (loss) are expected to be transferred to earnings during the next twelve months. Such amounts will be transferred to earnings as interest payments are made on the variable rate debt. The net loss recorded in other comprehensive income, net of tax, was $3.4 million and $2.2 million during fiscal 2002 and 2001, respectively. During the third quarter of fiscal 2002, the Company entered into interest rate swap contracts to pay variable rates of interest based on the three-month and six-month LIBOR rate plus a credit spread (ranging from 3.6 percent to 6.3 percent during the period from March through June) and receive fixed rates of interest (ranging from 6.7 percent to 8.2 percent) on an aggregate $111 million notional amount of indebtedness, with maturation dates between July 2003 and March 2009. These swaps have been designated as fair value hedges of a portion of the Company's senior term notes. No hedge ineffectiveness occurred during the year. As a result, the swaps did not have a net impact on earnings. During the first quarter of fiscal 2002, the Company entered into a cross-currency swap, with a notional amount of $21.3 million, to hedge a portion of its net investments in its foreign operations. The purpose of this hedge is to protect against adverse movements in exchange rates. The cross-currency swap hedges approximately 14 percent of the Company's net investments in foreign operations at June 30, 2002. For the year ended June 30, 2002, $1.5 million of loss, net of tax, related to this derivative was charged to the cumulative translation adjustment account, which is a component of other comprehensive income. 6. COMMITMENTS AND CONTINGENCIES: Operating Leases: The Company is committed under long-term operating leases for the rental of most of its company-owned salon locations. The original terms of the leases range from one to 20 years, with many leases renewable for an additional five to ten year term at the option of the Company, and certain leases include escalation provisions. For certain leases, the Company is required to pay additional rent based on a percent of sales and, in most cases, real estate taxes and other expenses. Rent expense for the Company's international department store salons is based primarily on a percent of sales. The Company also leases the premises in which the majority of its franchisees operate and has entered into corresponding sublease arrangements with the franchisees. These leases, generally with terms of approximately five years, are expected to be renewed on expiration. All additional lease costs are passed through to the franchisees. Total rent expense, net of sublease rental obligations of $30.6 million in 2002, $28.0 million in 2001 and $26.3 million in 2000 that are passed through to the franchisees, includes the following:

- -------------------------------------------------------------------------------- (Dollars in thousands) 2002 2001 2000 - -------------------------------------------------------------------------------- Minimum rent ............................. $138,480 $124,261 $105,876 Percentage rent based on sales ........... 14,661 14,270 14,996 Real estate taxes and other expenses ..... 44,128 38,416 31,813 - -------------------------------------------------------------------------------- $197,269 $176,947 $152,685 ================================================================================

36 Future Minimum Lease Payments: As of June 30, 2002, future minimum lease payments (excluding percentage rents based on sales) due under existing noncancellable operating leases with remaining terms of greater than one year are as follows:

Corporate Reimbursable Fiscal Year Leases Franchisee Leases - ------------------------------------------------------------------------------------ (Dollars in thousands) 2003 ............................................. $138,595 $ 32,032 2004 ............................................. 120,797 27,627 2005 ............................................. 98,778 21,159 2006 ............................................. 76,279 13,788 2007 ............................................. 56,417 6,791 Thereafter ....................................... 118,781 8,453 - ------------------------------------------------------------------------------------ Total minimum lease payments ..................... $609,647 $109,850 ====================================================================================

In addition to the amounts listed in the table above, the Company is guarantor on a maximum of $8.9 million remaining payments in lease agreements between its franchisees and leasing companies. The Company entered into a five-year operating lease agreement in June 2000 related to its distribution center and various equipment in Salt Lake City, Utah. The future minimum lease payments, which are included in the table above, are estimated to be $1.8 million based on the cost of the distribution center and the related equipment. Under the agreement, the Company is obligated to pay the deficiency between the residual value guarantee and the fair market value at the termination of the agreement. The Company expects the fair market value of the distribution center and related equipment, subject to the purchase or remarket options, to eliminate or substantially reduce the Company's maximum potential liability of $10.2 million under the residual value guarantee. Thus, the impact of the guarantee is not included in the table of future minimum lease payments. Salon Development Program: As a part of its salon development program, the Company continues to negotiate and enter into leases and commitments for the acquisition of equipment and leasehold improvements related to future salon locations, and continues to enter into transactions to acquire established hair care salons and businesses. Contingencies: The Company is a defendant in various lawsuits and claims arising out of the normal course of business. As of June 30, 2002, in the opinion of the company counsel, the ultimate liabilities resulting from such lawsuits and claims are not anticipated to have a material adverse effect on the consolidated financial position, the results of operations or the liquidity of the Company. The Company is self-insured for most workers' compensation and general liability losses subject to per occurrence and aggregate annual liability limitations. The Company is insured for losses in excess of these limitations. The Company is also self-insured for health care claims for eligible participating employees subject to certain deductibles and limitations. The Company determines its liability for claims incurred but not reported on an actuarial basis. 7. INCOME TAXES: The provision for income taxes consists of:

- -------------------------------------------------------------------------------- (Dollars in thousands) 2002 2001 2000 - -------------------------------------------------------------------------------- Current: United States ....................... $ 27,815 $ 31,272 $ 32,176 Nonrecurring federal benefit ........ (1,750) International ....................... 2,891 2,228 2,407 Deferred: United States ....................... 14,640 2,291 (885) International ....................... (118) - -------------------------------------------------------------------------------- $ 43,596 $ 35,791 $ 33,580 ================================================================================

37 Regis Corporation Notes to Consolidated Financial Statements (continued) The components of the net deferred tax asset are as follows:

- -------------------------------------------------------------------------------- (Dollars in thousands) 2002 2001 - -------------------------------------------------------------------------------- Net current deferred tax asset: Insurance ................................... $ 1,677 $ 4,638 Payroll and payroll related costs ........... 3,015 2,538 Nonrecurring items .......................... 680 788 Other, net .................................. 4,471 2,123 - -------------------------------------------------------------------------------- $ 9,843 $ 10,087 ================================================================================ Net noncurrent deferred tax (liability) asset: Depreciation and amortization ............... $(38,126) $ (8,996) Deferred rent ............................... 3,221 2,986 Payroll and payroll related costs ........... 5,345 4,398 Other, net .................................. (253) (359) - -------------------------------------------------------------------------------- $(29,813) $ (1,971) ================================================================================

The components of income before income taxes are as follows:

- -------------------------------------------------------------------------------- (Dollars in thousands) 2002 2001 2000 - -------------------------------------------------------------------------------- Income before income taxes: United States ......................... $108,116 $ 83,484 $ 79,041 International ......................... 7,534 5,395 4,193 - -------------------------------------------------------------------------------- $115,650 $ 88,879 $ 83,234 ================================================================================

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory rate to earnings before income taxes, as a result of the following:

- --------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------- U.S. statutory rate .......................................................... 35.0% 35.0% 35.0% Nonrecurring federal benefit ................................................. (1.5) State income taxes, net of federal income tax benefit ........................ 3.3 3.3 3.4 Nondeductible merger and transaction costs ................................... 0.8 Other, primarily meals and entertainment, and nondeductible goodwill ......... 0.9 2.0 1.1 - --------------------------------------------------------------------------------------------------------------- 37.7% 40.3% 40.3% ===============================================================================================================

As of June 30, 2002, undistributed earnings of international subsidiaries of approximately $2.1 million were considered to have been reinvested indefinitely and, accordingly, the Company has not provided U.S. income taxes on such earnings. 8. BENEFIT PLANS: Employee Stock Ownership Plan: The Company has a qualified employee stock ownership plan (ESOP) covering substantially all field supervisors, warehouse and corporate office employees. The ESOP is a noncontributory defined contribution plan and contributions to the ESOP are at the discretion of the Company. Prior to January 22, 2002, such contributions were invested in common stock of the Company. Subsequent to that date, such contributions may be invested in a broad range of securities. Executive Stock Award Plan: The Company has a nonqualified executive stock award plan (ESAP) covering those employees not eligible to participate under the qualified ESOP. Contributions to the ESAP are at the discretion of the Company. Stock Purchase Plan: The Company has an employee stock purchase plan (SPP) available to substantially all employees. Under terms of the plan, eligible employees may purchase the Company's common stock through payroll deductions. The Company contributes an amount equal to 15 percent of the purchase price of the stock to be purchased on the open market and pays all expenses of the SPP and its administration, not to exceed an aggregate contribution of $4.0 million. At June 30, 2002, cumulative contributions to the SPP totaled $3.0 million. 38 Franchise Stock Purchase Plan: The Company has a franchise stock purchase plan (FSPP) available to substantially all franchisee employees. Under the terms of the plan, eligible franchisees and their employees may purchase the Company's common stock. The Company contributes an amount equal to five percent of the purchase price of the stock to be purchased on the open market and pays all expenses of the plan and its administration, not to exceed an aggregate contribution of $.7 million. At June 30, 2002, cumulative contributions to the FSPP totaled $54,100. Amounts expensed for company contributions to the aforementioned plans, excluding amounts paid for expenses and administration of the plans, for the three years in the period ended June 30, 2002, included the following:

- -------------------------------------------------------------------------------- (Dollars in thousands) 2002 2001 2000 - -------------------------------------------------------------------------------- ESOP ..................................... $2,689 $1,900 $1,358 ESAP ..................................... 711 600 242 SPP ...................................... 455 455 459 FSPP ..................................... 7 6 7

Stock Options: On October 24, 2000, the shareholders of Regis Corporation adopted the Regis Corporation 2000 Stock Option Plan (2000 Plan), which allows the Company to grant both incentive and nonqualified stock options and replaces the Company's 1991 Stock Option Plan (1991 Plan). Total options covering 3,500,000 shares of common stock may be granted under the 2000 Plan to employees of the Company for a term not to exceed ten years from the date of grant. The term may not exceed five years for incentive stock options granted to employees of the Company possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any subsidiary of the Company. Options may also be granted to the Company's outside directors for a term not to exceed ten years from the grant date. The 2000 Plan contains restrictions on transferability, time of exercise, exercise price and on disposition of any shares acquired through exercise of the options. Stock options are granted at not less than fair market value on the date of grant. The Board of Directors determines the 2000 Plan participants and establishes the terms and conditions of each option. The Company also has stock options granted under the 1991 Plan. The terms and conditions of the 1991 Plan are similar to the 2000 Plan. Total options covering 5,200,000 shares of common stock were available for grant under the 1991 Plan and, as of June 30, 2001, all available shares have been granted. In fiscal 2001, in addition to the regular options granted, the Board of Directors approved a special grant of options covering 2,263,000 shares of common stock from the 2000 Plan. These options begin vesting after two years at a rate of one-third per year for three years and expire ten years from the date of grant. In addition to the regular options granted during fiscal 2000, a special grant of 1,700,000 shares of common stock was approved by the Board of Directors. These options are fully vested five years from the date of grant and expire after ten years. Common shares available for grant under the Company's stock option plans were 819,650, 952,750 and 58,695 shares as of June 30, 2002, 2001 and 2000, respectively. Stock options outstanding and weighted average exercise prices are as follows:

Options Outstanding - -------------------------------------------------------------------------------- Weighted Average Shares Exercise Price - -------------------------------------------------------------------------------- Balance, June 30, 1999 ....................... 2,495,568 $ 9.88 Granted ...................................... 2,492,750 17.25 Cancelled .................................... (57,821) 16.87 Exercised .................................... (329,000) 4.61 - -------------------------------------------------------------------------------- Balance, June 30, 2000 ....................... 4,601,497 $ 14.15 Granted ...................................... 2,583,250 15.56 Cancelled .................................... (64,666) 15.54 Exercised .................................... (298,362) 6.68 - -------------------------------------------------------------------------------- Balance, June 30, 2001 ....................... 6,821,719 $ 14.97 Granted ...................................... 301,500 29.60 Cancelled .................................... (360,749) 16.27 Exercised .................................... (621,163) 12.48 - -------------------------------------------------------------------------------- Balance, June 30, 2002 ....................... 6,141,307 $ 15.85 ================================================================================

39 Regis Corporation Notes to Consolidated Financial Statements (continued) At June 30, 2002, the weighted average exercise prices and remaining contractual lives of stock options are as follows:

Range of Exercise Prices $2.66-$15.00 $15.13 $15.15-$16.50 $17.00-$29.60 Total - ------------------------------------------------------------------------------------------------------------------------------------ Total options outstanding ........................... 948,644 2,086,500 1,722,350 1,383,813 6,141,307 Weighted average exercise price ...................... $8.46 $15.13 $16.41 $21.32 $15.85 Weighted average remaining contractual life in years.. 3.40 8.08 7.39 7.63 7.06 Options exercisable .................................. 733,242 11,433 142,850 508,723 1,396,248 Weighted average price of exercisable options ........ $7.62 $15.13 $15.49 $18.52 $12.46

All stock option plans have been approved by the shareholders of the Company. The Company measures compensation cost for its incentive stock plans using the intrinsic value-based method of accounting. Had the Company used the fair-value-based method of accounting for its stock option and incentive plans beginning in 1996 and charged compensation cost against income, over the vesting period based on the fair value of options at the date of grant, net income and net income per share would have been as follows:

- ------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share amounts) 2002 2001 2000 - ------------------------------------------------------------------------------------------------- Net income: As reported .......................................... $ 72,054 $ 53,088 $ 49,654 Pro forma ............................................ $ 67,796 $ 49,178 $ 47,371 Basic net income per share: As reported .......................................... $ 1.70 $ 1.29 $ 1.22 Pro forma ............................................ $ 1.60 $ 1.19 $ 1.17 Net income per diluted share: As reported .......................................... $ 1.63 $ 1.26 $ 1.19 Pro forma ............................................ $ 1.53 $ 1.17 $ 1.14

The pro forma information above includes stock options granted from 1996 through 2002. The weighted average fair value per option granted during 2002, 2001 and 2000 was $14.31, $8.43 and $7.86, respectively, calculated by using the fair value of each option grant on the date of grant. The fair value of options was calculated utilizing the Black-Scholes option-pricing model and the following key weighted average assumptions:

- -------------------------------------------------------------------------------- 2002 2001 2000 - -------------------------------------------------------------------------------- Risk-free interest rate ....................... 4.86% 5.80% 6.33% Expected life in years ........................ 6.50 6.55 6.00 Expected volatility ........................... 43.27% 41.08% 39.34% Expected dividend yield ....................... .49% .83% .64%

Other: The Company has established unfunded deferred compensation plans which cover certain management and executive personnel. The Company maintains life insurance policies on the plans' participants. The amounts charged to earnings for these plans were $1.2 million, $1.0 million and $0.9 million in 2002, 2001 and 2000, respectively. The Company has entered into an agreement with the Chairman providing that the Chairman will continue to render services to the Company until at least May 2007, and for such further period as may be agreed upon mutually. The Company has agreed to pay the Chairman an annual amount of $0.6 million, adjusted for inflation, for the remainder of his life. The Chairman has agreed that during the period in which payments to him are made, as provided in the agreement, he will not engage in any business competitive with the business conducted by the Company. The Company has also agreed to pay the Chief Executive Officer an amount equal to 60 percent of his salary, adjusted for inflation, for the remainder of his life. Compensation associated with these agreements is charged to expense as services are provided. The Company has a survivor benefit plan for the Chairman of the Board of Directors' (the Chairman) spouse, payable upon his death, at a rate of $300,000 annually, adjusted for inflation, for the remaining life of his spouse. The Company has funded its future obligations under this plan through company-owned life insurance policies on the Chairman. 40 The Company has a survivor benefit plan for the Chief Executive Officer's spouse, payable upon his death, at a rate of one half of his deferred compensation benefit, adjusted for inflation, for the remaining life of his spouse. The Company has funded its future obligations under this plan through company-owned life insurance policies on the Chief Executive Officer. 9. SHAREHOLDERS' EQUITY: In addition to the shareholders' equity activity described in Note 8, the following activity has taken place: Authorized Shares and Designation of Preferred Class: The Company has 100 million shares of capital stock authorized, par value $.05, of which all outstanding shares, and shares available under the Stock Option Plans, have been designated as common. In addition, 250,000 shares of authorized capital stock have been designated as Series A Junior Participating Preferred Stock (preferred stock). None of the preferred stock has been issued. Shareholders' Rights Plan: The Company has a shareholders' rights plan pursuant to which one preferred share purchase right is held by shareholders for each outstanding share of common stock. The rights become exercisable only following the acquisition by a person or group, without the prior consent of the Board of Directors, of 20 percent or more of the Company's voting stock, or following the announcement of a tender offer or exchange offer to acquire an interest of 20 percent or more. If the rights become exercisable, they entitle all holders, except the takeover bidder, to purchase one one-hundredth of a share of preferred stock at an exercise price of $120, subject to adjustment, or in lieu of purchasing the preferred stock, to purchase for the same exercise price common stock of the Company (or in certain cases common stock of an acquiring company) having a market value of twice the exercise price of a right. Stock Repurchase Plan: In May 2000, the Company's Board of Directors approved a stock repurchase program under which up to $50 million can be expended for the repurchase of the Company's common stock. The timing and amounts of any repurchases will depend on many factors, including the market price of the common stock and overall market conditions. During the years ended June 30, 2002 and 2000, 278,700 and 115,000 shares were repurchased for $7.7 million and $1.4 million, respectively. No shares were repurchased during the fiscal year ended June 30, 2001. All repurchased shares are immediately retired. This repurchase program has no stated expiration date. 10. SEGMENT INFORMATION: The Company operates or franchises 6,618 domestic salons and 2,066 international salons. The Company executes its domestic operations through five primary concepts: Regis Salons, MasterCuts, Trade Secret, SmartStyle and Strip Center (primarily Supercuts and Cost Cutters) salons. Each of the concepts offers similar products and services, concentrates on the mass-market consumer marketplace and have consistent distribution channels. All of the salons within the North American concepts are located within high traffic retail (destination) shopping locations and the individual salons generally display similar economic characteristics. The Company's international operations, which are primarily in Europe, are located in salons operating in malls, leading department stores, mass merchants and high-street locations. Based on the way in which the Company manages its business, it has presented its domestic and international operations as two reportable operating segments, domestic and international. The accounting policies of the reportable operating segments are the same as those described in Note 1 to the Consolidated Financial Statements. The Company evaluates the performance of its concepts based on direct salon contribution, before supervision and corporate overhead expenses. Intersegment sales and transfers are not significant. Summarized financial information concerning the Company's reportable operating segments is shown in the following table as of June 30, 2002, 2001 and 2000:

- -------------------------------------------------------------------------------- (Dollars in thousands) 2002 2001 2000 - -------------------------------------------------------------------------------- Total revenues: Domestic ........................... $1,335,111 $1,210,669 $1,034,425 International ...................... 119,080 100,952 108,568 - -------------------------------------------------------------------------------- Total ............................ $1,454,191 $1,311,621 $1,142,993 ================================================================================ Salon contribution*: Domestic ........................... $ 267,523 $ 244,171 $ 215,519 International ...................... 16,701 13,102 16,688 - -------------------------------------------------------------------------------- Total ............................ $ 284,224 $ 257,273 $ 232,207 ================================================================================

*Includes franchise revenue less franchise direct costs. 41 Regis Corporation Notes to Consolidated Financial Statements (continued)

- -------------------------------------------------------------------------------- (Dollars in thousands) 2002 2001 2000 - -------------------------------------------------------------------------------- Depreciation and amortization: Domestic ............................. $ 44,949 $ 39,947 $ 33,735 International ........................ 3,320 2,773 3,097 Corporate ............................ 10,706 22,065 16,993 - -------------------------------------------------------------------------------- Total .............................. $ 58,975 $ 64,785 $ 53,825 ================================================================================ Total assets: Domestic ............................. $577,230 $538,055 $457,948 International ........................ 130,922 13,048 14,470 Corporate ............................ 249,038 185,402 155,937 - -------------------------------------------------------------------------------- Total .............................. $957,190 $736,505 $628,355 ================================================================================ Long-lived assets: Domestic ............................. $510,591 $475,008 $402,631 International ........................ 114,047 17,197 17,538 Corporate ............................ 53,280 55,756 49,087 - -------------------------------------------------------------------------------- Total .............................. $677,918 $547,961 $469,256 ================================================================================ Capital expenditures: Domestic ............................. $ 54,444 $ 62,072 $ 48,944 International ........................ 4,792 3,914 4,015 Corporate ............................ 6,996 14,238 27,973 - -------------------------------------------------------------------------------- Total .............................. $ 66,232 $ 80,224 $ 80,932 ================================================================================ Purchases of salon assets: Domestic ............................. $ 26,060 $ 64,422 $ 73,611 International ........................ 73,774 22 - -------------------------------------------------------------------------------- Total .............................. $ 99,834 $ 64,444 $ 73,611 ================================================================================

Included in the table above are franchise revenues of $77.6 million, $56.3 million and $50.3 million during fiscal 2002, 2001 and 2000, respectively, as part of consolidated revenues. The expenses associated with the Company's franchising activities are included in franchise direct costs, and corporate and franchise support costs within the Consolidated Statement of Operations, as described in Note 1 to the Consolidated Financial Statements. The current year presentation has been changed to reflect total revenues and salon contribution including franchise revenues and direct costs in order to show total segment operating results. In fiscal 2001, only company-owned operations were reflected in this disclosure. Corporate assets detailed above are primarily comprised of property and equipment associated with the Company's headquarters and distribution centers, corporate cash, inventories located at corporate distribution centers, deferred income taxes, franchise receivables and other corporate assets. 11. NONRECURRING ITEMS: Nonrecurring items included in operating income consist of gains or losses on assets and business dispositions and other items of a nonrecurring nature. The following table summarizes nonrecurring items recorded by the Company:

- -------------------------------------------------------------------------------- (Dollars in thousands) 2002 2001 2000 - -------------------------------------------------------------------------------- Merger transaction costs (Note 2) ........... $3,145 Change in estimate, merger costs ............ (548) Severance ................................... 343 Nonrecurring federal income tax benefit ..... $(1,750) $0 - -------------------------------------------------------------------------------- $(1,750) $0 $2,940 ================================================================================

In fiscal 2002, the Company implemented certain tax strategies resulting in approximately $1.8 million of economic benefit, which has been recognized as a nonrecurring income tax benefit in the third quarter, thus reducing fiscal 2002 income tax expense. The majority of the nonrecurring benefit will be realized through the amendment of previous tax filings. There were no nonrecurring items during fiscal 2001. In fiscal 2000, the Company evaluated the outstanding merger and restructuring accruals and determined that an adjustment of $0.5 million to the Restructuring charge--Mergers was appropriate based on remaining expected expenditures. 42 Regis Corporation Quarterly Financial Data (Unaudited)

Quarter Ended - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands, except per share amounts) September 30 December 31 March 31 June 30 Year Ended - ------------------------------------------------------------------------------------------------------------------------------------ 2002(a) Revenues .......................................... $349,668 $358,534 $361,578 $384,411 $1,454,191 Operating income .................................. 30,152 32,585 32,866 38,261 133,864 Net income ........................................ 15,356 16,967 19,334 20,397 72,054 Net income per diluted share(b)(c) ................ .36 .39 .44 .45 1.63 Dividends declared per share ...................... .03 .03 .03 .03 .12

Quarter Ended(a) - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands, except per share amounts) September 30 December 31 March 31 June 30 Year Ended - ------------------------------------------------------------------------------------------------------------------------------------ 2001 Revenues .......................................... $310,754 $324,049 $330,910 $345,908 $1,311,621 Operating income .................................. 25,761 25,435 26,375 31,710 109,281 Net income(a) ..................................... 12,715 12,087 12,533 15,753 53,088 Net income per diluted share(a)(b) ................ .31 .29 .30 .37 1.26 Dividends declared per share ...................... .03 .03 .03 .03 .12

(a) Effective July 1, 2001, Regis changed its accounting to discontinue the amortization of goodwill. For the quarters and year ended 2001, assuming the non-amortization of goodwill was applied retroactively, pro forma net income was $14.8, $14.0, $14.8, $18.4 million and $62.0 million, respectively, and pro forma earnings per diluted share was $.36, $.33, $.35, $.43 and $1.47, respectively. (b) The summation of quarterly net income per share does not equate to the calculation for the full fiscal year as quarterly calculations are performed on a discrete basis. (c) For the quarter ended March 31, 2002 and for the year ended June 30, 2002, a nonrecurring income tax benefit (Note 11) increased reported net income per diluted share by $.04. Regis Corporation Stock Data June 30, 2002 Regis common stock is listed and traded on the Nasdaq National Market under the symbol "RGIS." The accompanying table sets forth the high and low closing bid quotations as reported by Nasdaq for each quarter during the previous two fiscal years. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions. As of June 30, 2002, Regis shares were owned by approximately 27,476 shareholders. The common stock price was $24.48 per share on August 27, 2002.

- ----------------------------------------------------------------------------- 2002 2001 ----------------- ---------------- High Low High Low - ----------------------------------------------------------------------------- 1st Quarter ..................... $21.24 $17.77 $15.72 $12.41 2nd Quarter ..................... 27.94 20.23 16.32 13.14 3rd Quarter ..................... 28.30 24.59 15.73 13.20 4th Quarter ..................... 30.46 25.82 20.99 13.92

43 Regis Corporation Report of Independent Accountants To the Shareholders and Directors of Regis Corporation: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of changes in shareholders' equity and comprehensive income and of cash flows present fairly, in all material respects, the consolidated financial position of Regis Corporation at June 30, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 2002, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." /s/ PricewaterhouseCoopers LLP Minneapolis, Minnesota August 27, 2002 44 EX-23 5 c71933exv23.txt EX-23 CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos.333-87482, 333-51094, 333-28511, 333-78793, 333-49165, 333-89279, 333-90809, 333-31874, 333-57092 and 333-72200), and Form S-8 (Nos. 33-44867 and 33-89882) of Regis Corporation of our report dated August 27, 2002, relating to the consolidated financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated August 27, 2002, relating to the financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Minneapolis, Minnesota September 20, 2002 EX-99.1 6 c71933exv99w1.txt EX-99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Regis Corporation (the Registrant) on Form 10-K for the fiscal year ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof, I, Paul D. Finkelstein, President and Chief Executive Officer of the Registrant, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: (1) The Annual Report on Form 10-K complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Registrant. September 24, 2002 /s/ Paul D. Finkelstein - ----------------------- Paul D. Finkelstein, President and Chief Executive Officer EX-99.2 7 c71933exv99w2.txt EX-99.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Regis Corporation (the Registrant) on Form 10-K for the fiscal year ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof, I, Randy L. Pearce, Executive Vice President, Chief Financial and Administrative Officer of the Registrant, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: (1) The Annual Report on Form 10-K complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Registrant. September 24, 2002 /s/Randy L. Pearce - ------------------ Randy L. Pearce, Executive Vice President, Chief Financial and Administrative Officer -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.(AA)

                                                                  CONFORMED COPY



================================================================================



                                REGIS CORPORATION


                                  $125,000,000
                                  Senior Notes



                                   $58,000,000
                          6.73% Senior Notes, Series A
                               due March 15, 2009

                                   $67,000,000
                          7.20% Senior Notes, Series B
                               due March 15, 2012



                                    ---------

                             NOTE PURCHASE AGREEMENT

                                    ---------



                            Dated as of March 1, 2002



================================================================================
                                                      Series A PPN:  758932 D# 1
                                                      Series B PPN:  758932 E* 4





                                TABLE OF CONTENTS




Section                                                                                                       Page
- -------                                                                                                       ----
                                                                                                          
1.       AUTHORIZATION OF NOTES..................................................................................1

2.       SALE AND PURCHASE OF NOTES..............................................................................2

3.       CLOSING.................................................................................................2

4.       CONDITIONS TO CLOSING...................................................................................2
         4.1.     Representations and Warranties.................................................................2
         4.2.     Performance; No Default........................................................................2
         4.3.     Compliance Certificates........................................................................3
         4.4.     Opinions of Counsel............................................................................3
         4.5.     Purchase Permitted By Applicable Law, etc......................................................3
         4.6.     Sale of Other Notes............................................................................3
         4.7.     Payment of Special Counsel Fees................................................................4
         4.8.     Private Placement Numbers......................................................................4
         4.9.     Changes in Corporate Structure.................................................................4
         4.10.    Subsidiary Guaranty............................................................................4
         4.11.    Intercreditor Agreement........................................................................4
         4.12.    Proceedings and Documents......................................................................4

5.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................................................4
         5.1.     Organization; Power and Authority..............................................................5
         5.2.     Authorization, etc.............................................................................5
         5.3.     Disclosure.....................................................................................5
         5.4.     Organization and Ownership of Shares of Subsidiaries; Affiliates...............................6
         5.5.     Financial Statements...........................................................................6
         5.6.     Compliance with Laws, Other Instruments, etc...................................................7
         5.7.     Governmental Authorizations, etc...............................................................7
         5.8.     Litigation; Observance of Statutes and Orders..................................................7
         5.9.     Taxes..........................................................................................8
         5.10.    Title to Property; Leases......................................................................8
         5.11.    Licenses, Permits, etc.........................................................................8
         5.12.    Compliance with ERISA..........................................................................9
         5.13.    Private Offering by the Company...............................................................10
         5.14.    Use of Proceeds; Margin Regulations...........................................................10
         5.15.    Existing Debt.................................................................................10
         5.16.    Foreign Assets Control Regulations, etc.......................................................11
         5.17.    Status under Certain Statutes.................................................................11
         5.18.    Environmental Matters.........................................................................11
         5.19.    Solvency of Subsidiary Guarantors.............................................................11





                                       i



                                                                                                         
6.       REPRESENTATIONS OF THE PURCHASERS......................................................................12
         6.1.     Purchase for Investment.......................................................................12
         6.2.     Source of Funds...............................................................................12

7.       INFORMATION AS TO COMPANY..............................................................................13
         7.1.     Financial and Business Information............................................................13
         7.2.     Officer's Certificate.........................................................................16
         7.3.     Inspection....................................................................................16

8.       PREPAYMENT OF THE NOTES................................................................................17
         8.1.     No Scheduled Prepayments......................................................................17
         8.2.     Optional Prepayments with Make-Whole Amount...................................................17
         8.3.     Allocation of Partial Prepayments.............................................................17
         8.4.     Maturity; Surrender, etc......................................................................18
         8.5.     Purchase of Notes.............................................................................18
         8.6.     Make-Whole Amount.............................................................................18

9.       AFFIRMATIVE COVENANTS..................................................................................19
         9.1.     Compliance with Law...........................................................................19
         9.2.     Insurance.....................................................................................20
         9.3.     Maintenance of Properties.....................................................................20
         9.4.     Payment of Taxes and Claims...................................................................20
         9.5.     Corporate Existence, etc......................................................................20

10.      NEGATIVE COVENANTS.....................................................................................21
         10.1.    Consolidated Net Debt.........................................................................21
         10.2.    Priority Debt.................................................................................21
         10.3.    Fixed Charge Coverage.........................................................................21
         10.4.    Liens.........................................................................................21
         10.5.    Sale of Assets................................................................................23
         10.6.    Mergers, Consolidations, etc..................................................................23
         10.7.    Restricted Payments...........................................................................24
         10.8.    Investments...................................................................................25
         10.9.    Disposition of Stock of Restricted Subsidiaries...............................................26
         10.10.   Designation of Restricted and Unrestricted Subsidiaries.......................................26
         10.11.   Subsidiary Guaranty...........................................................................27
         10.12.   Nature of Business............................................................................27
         10.13.   Transactions with Affiliates..................................................................27

11.      EVENTS OF DEFAULT......................................................................................27

12.      REMEDIES ON DEFAULT, ETC...............................................................................30
         12.1.    Acceleration..................................................................................30
         12.2.    Other Remedies................................................................................30
         12.3.    Rescission....................................................................................30
         12.4.    No Waivers or Election of Remedies, Expenses, etc.............................................31






                                       ii




                                                                                                         
13.      REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES..........................................................31
         13.1.    Registration of Notes.........................................................................31
         13.2.    Transfer and Exchange of Notes................................................................31
         13.3.    Replacement of Notes..........................................................................32

14.      PAYMENTS ON NOTES......................................................................................32
         14.1.    Place of Payment..............................................................................32
         14.2.    Home Office Payment...........................................................................33

15.      EXPENSES, ETC..........................................................................................33
         15.1.    Transaction Expenses..........................................................................33
         15.2.    Survival......................................................................................33

16.      SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT...........................................34

17.      AMENDMENT AND WAIVER...................................................................................34
         17.1.    Requirements..................................................................................34
         17.2.    Solicitation of Holders of Notes..............................................................34
         17.3.    Binding Effect, etc...........................................................................35
         17.4.    Notes held by Company, etc....................................................................35

18.      NOTICES................................................................................................35

19.      REPRODUCTION OF DOCUMENTS..............................................................................36

20.      CONFIDENTIAL INFORMATION...............................................................................36

21.      SUBSTITUTION OF PURCHASER..............................................................................37

22.      RELEASE OF SUBSIDIARY GUARANTOR........................................................................37

23.      MISCELLANEOUS..........................................................................................38
         23.1.    Successors and Assigns........................................................................38
         23.2.    Payments Due on Non-Business Days.............................................................38
         23.3.    Severability..................................................................................38
         23.4.    Construction..................................................................................38
         23.5.    Counterparts..................................................................................38
         23.6.    Governing Law.................................................................................38






                                      iii


                   
SCHEDULE A             --     Information Relating to Purchasers
SCHEDULE B             --     Defined Terms

SCHEDULE 4.9           --     Changes in Corporate Structure
SCHEDULE 5.3           --     Disclosure Materials
SCHEDULE 5.4           --     Subsidiaries; Affiliates
SCHEDULE 5.5           --     Financial Statements
SCHEDULE 5.8           --     Litigation
SCHEDULE 5.11          --     Licenses, Permits, etc.
SCHEDULE 5.14          --     Use of Proceeds
SCHEDULE 5.15          --     Existing Debt
SCHEDULE 10.4          --     Liens

EXHIBIT 1(a)           --     Form of Series A Senior Note
EXHIBIT 1(b)           --     Form of Series B Senior Note
EXHIBIT 1(c)           --     Form of Subsidiary Guaranty
EXHIBIT 4.4(a)         --     Form of Opinion of Counsel for the Company
EXHIBIT 4.4(b)         --     Form of Opinion of Special Counsel for the Purchasers










                                       iv




                                REGIS CORPORATION
                              7201 Metro Boulevard
                                 Edina, MN 55439
                                 (952) 947-7777
                               Fax: (952) 947-7700



                                  $125,000,000
                                  Senior Notes

          $58,000,000 6.73% Senior Notes, Series A, due March 15, 2009
          $67,000,000 7.20% Senior Notes, Series B, due March 15, 2012


                                                       Dated as of March 1, 2002


TO EACH OF THE PURCHASERS LISTED IN
         THE ATTACHED SCHEDULE A:

Ladies and Gentlemen:

                  REGIS CORPORATION, a Minnesota corporation (the "Company"),
agrees with you as follows:

1.       AUTHORIZATION OF NOTES.

                  The Company has authorized the issue and sale of $58,000,000
aggregate principal amount of its 6.73% Senior Notes, Series A, due March 15,
2009 (the "Series A Notes") and $67,000,000 aggregate principal amount of its
7.20% Senior Notes, Series B, due March 15, 2012 (the "Series B Notes" and,
collectively with the Series A Notes, the "Notes", such term to include any such
Notes issued in substitution therefor pursuant to Section 13 of this Agreement).
The Notes shall be substantially in the form set out in Exhibits 1(a) and 1(b)
with such changes therefrom, if any, as may be approved by you, the Other
Purchasers and the Company. Certain capitalized terms used in this Agreement are
defined in Schedule B; references to a "Schedule" or an "Exhibit" are, unless
otherwise specified, to a Schedule or an Exhibit attached to this Agreement.
Subject to Section 22, the Notes will be guaranteed by each Subsidiary that is
or in the future becomes a signatory to the Bank Guaranty, a borrower under the
Credit Agreement or a guarantor of any Debt outstanding under the Private Shelf
Agreements (individually, a "Subsidiary Guarantor" and collectively, the
"Subsidiary Guarantors") pursuant to a guaranty in substantially the form of
Exhibit 1(c) (the "Subsidiary Guaranty"). The Notes shall rank pari passu with
the Company's Debt to Banks under the Credit Agreement and its Debt outstanding
under the Private Shelf Agreements.










2.       SALE AND PURCHASE OF NOTES.

                  Subject to the terms and conditions of this Agreement, the
Company will issue and sell to you and each of the other purchasers named in
Schedule A (the "Other Purchasers"), and you and the Other Purchasers will
purchase from the Company, at the Closing provided for in Section 3, Notes of
the series and in the principal amount specified opposite your names in Schedule
A at the purchase price of 100% of the principal amount thereof. Your obligation
hereunder and the obligations of the Other Purchasers are several and not joint
obligations and you shall have no liability to any Person for the performance or
non-performance by any Other Purchaser hereunder.

3.       CLOSING.

                  The sale and purchase of the Notes to be purchased by you and
the Other Purchasers shall occur at the offices of Gardner, Carton & Douglas,
Quaker Tower, Suite 3400, 321 North Clark Street, Chicago, Illinois 60610 at
9:00 a.m., Chicago time, at a closing (the "Closing") on March 7, 2002 or on
such other Business Day thereafter on or prior to March 28, 2002 as may be
agreed upon by the Company and you and the Other Purchasers. At the Closing the
Company will deliver to you the Notes to be purchased by you in the form of a
single Note (or such greater number of Notes in denominations of at least
$500,000 as you may request) dated the date of the Closing and registered in
your name (or in the name of your nominee), against delivery by you to the
Company or its order of immediately available funds in the amount of the
purchase price therefor by wire transfer of immediately available funds for the
account of the Company to account number 2347093, at LaSalle Bank, 135 South
LaSalle Street, Chicago, IL 60603, ABA #071000505. If at the Closing the Company
fails to tender such Notes to you as provided above in this Section 3, or any of
the conditions specified in Section 4 shall not have been fulfilled to your
satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any rights you may
have by reason of such failure or such nonfulfillment.

4.       CONDITIONS TO CLOSING.

                  Your obligation to purchase and pay for the Notes to be sold
to you at the Closing is subject to the fulfillment to your satisfaction, prior
to or at the Closing, of the following conditions:

4.1.     REPRESENTATIONS AND WARRANTIES.

                  The representations and warranties of the Company in this
Agreement shall be correct when made and at the time of the Closing.

4.2.     PERFORMANCE; NO DEFAULT.

                  The Company shall have performed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by it prior to or at the Closing and after giving effect to the
issue and sale of the Notes (and the application of the proceeds thereof as
contemplated by Schedule 5.14) no Default or Event of Default shall




                                       2



have occurred and be continuing. Neither the Company nor any Subsidiary shall
have entered into any transaction since the date of the Memorandum that would
have been prohibited by Sections 10.1 through 10.13 hereof had such Sections
applied since such date.

4.3.     COMPLIANCE CERTIFICATES.

                  (a) Officer's Certificate. The Company shall have delivered to
         you an Officer's Certificate, dated the date of the Closing, certifying
         that the conditions specified in Sections 4.1, 4.2 and 4.9 have been
         fulfilled.

                  (b) Secretary's Certificate. The Company shall have delivered
         to you a certificate certifying as to the resolutions attached thereto
         and other corporate proceedings relating to the authorization,
         execution and delivery of the Notes and the Agreement.

4.4.     OPINIONS OF COUNSEL.

                  You shall have received opinions in form and substance
satisfactory to you, dated the date of the Closing (a) from Bert M. Gross,
General Counsel for the Company, covering the matters set forth in Exhibit
4.4(a) and covering such other matters incident to the transactions contemplated
hereby as you or your counsel may reasonably request (and the Company instructs
its counsel to deliver such opinion to you) and (b) from Gardner, Carton &
Douglas, your special counsel in connection with such transactions,
substantially in the form set forth in Exhibit 4.4(b) and covering such other
matters incident to such transactions as you may reasonably request.

4.5.     PURCHASE PERMITTED BY APPLICABLE LAW, ETC.

                  On the date of the Closing your purchase of Notes shall (i) be
permitted by the laws and regulations of each jurisdiction to which you are
subject, without recourse to provisions (such as Section 1405(a)(8) of the New
York Insurance Law) permitting limited investments by insurance companies
without restriction as to the character of the particular investment, (ii) not
violate any applicable law or regulation (including, without limitation,
Regulation U, T or X of the Board of Governors of the Federal Reserve System)
and (iii) not subject you to any tax, penalty or liability under or pursuant to
any applicable law or regulation, which law or regulation was not in effect on
the date hereof. If requested by you, you shall have received an Officer's
Certificate certifying as to such matters of fact as you may reasonably specify
to enable you to determine whether such purchase is so permitted.

4.6.     SALE OF OTHER NOTES.

                  Contemporaneously with the Closing the Company shall sell to
the Other Purchasers and the Other Purchasers shall purchase the Notes to be
purchased by them at the Closing as specified in Schedule A.




                                       3


4.7.     PAYMENT OF SPECIAL COUNSEL FEES.

                  Without limiting the provisions of Section 15.1, the Company
shall have paid on or before the Closing the fees, charges and disbursements of
your special counsel referred to in Section 4.4, to the extent reflected in a
statement of such counsel rendered to the Company at least one Business Day
prior to the Closing.

4.8.     PRIVATE PLACEMENT NUMBERS.

                  A Private Placement Number issued by Standard & Poor's CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of the
National Association of Insurance Commissioners) shall have been obtained by
Gardner, Carton & Douglas for each series of the Notes.

4.9.     CHANGES IN CORPORATE STRUCTURE.

                  Except as specified in Schedule 4.9, the Company shall not
have changed its jurisdiction of incorporation or been a party to any merger or
consolidation and shall not have succeeded to all or any substantial part of the
liabilities of any other entity, at any time following the date of the most
recent financial statements referred to in Schedule 5.5.

4.10.    SUBSIDIARY GUARANTY.

                  Each Subsidiary Guarantor shall have executed and delivered
the Subsidiary Guaranty in favor of you and the Other Purchasers.

4.11.    INTERCREDITOR AGREEMENT.

                  You and each of the Other Purchasers shall have entered into
an Intercreditor Agreement (the "Intercreditor Agreement"), on terms
satisfactory to you, with Bank of America, N.A., as administrative agent for the
banks party to the Credit Agreement, and with the holders of outstanding senior
notes issued pursuant to the Private Shelf Agreements.

4.12.    PROCEEDINGS AND DOCUMENTS.

                  All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and instruments
incident to such transactions shall be satisfactory to you and your special
counsel, and you and your special counsel shall have received all such
counterpart originals or certified or other copies of such documents as you or
they may reasonably request.

5.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

                  The Company represents and warrants to you that:



                                       4



5.1.     ORGANIZATION; POWER AND AUTHORITY.

                  The Company is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation, and is
duly qualified as a foreign corporation and is in good standing in each
jurisdiction in which such qualification is required by law, other than those
jurisdictions as to which the failure to be so qualified or in good standing
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. The Company has the corporate power and authority to
own or hold under lease the properties it purports to own or hold under lease,
to transact the business it transacts and proposes to transact, to execute and
deliver this Agreement and the Notes and to perform the provisions hereof and
thereof.

5.2.     AUTHORIZATION, ETC.

                  This Agreement and the Notes have been duly authorized by all
necessary corporate action on the part of the Company, and this Agreement
constitutes, and upon execution and delivery thereof each Note will constitute,
a legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
(ii) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

                  The Subsidiary Guaranty has been duly authorized by all
necessary corporate action on the part of each Subsidiary Guarantor and upon
execution and delivery thereof will constitute the legal, valid and binding
obligation of each Subsidiary Guarantor, enforceable against each Subsidiary
Guarantor in accordance with its terms, except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
(ii) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

5.3.     DISCLOSURE.

                  The Company, through its agent, Banc of America Securities
LLC, has delivered to you and each Other Purchaser a copy of a Private Placement
Memorandum, dated January 2002 (the "Memorandum"), relating to the transactions
contemplated hereby. The Memorandum fairly describes, in all material respects,
the general nature of the business and principal properties of the Company and
its Subsidiaries. Except as disclosed in Schedule 5.3, this Agreement, the
Memorandum, the documents, certificates or other writings delivered to you by or
on behalf of the Company in connection with the transactions contemplated hereby
and the financial statements listed in Schedule 5.5, taken as a whole, do not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading in light of the
circumstances under which they were made. Except as disclosed in the Memorandum
or as expressly described in Schedule 5.3, or in one of the documents,
certificates or other writings identified therein, or in the financial
statements listed in Schedule 5.5, since June 30, 2001, there has been no change
in the financial condition, operations, business or




                                       5


properties of the Company or any Subsidiary except changes that individually or
in the aggregate could not reasonably be expected to have a Material Adverse
Effect. There is no fact known to the Company that could reasonably be expected
to have a Material Adverse Effect that has not been set forth herein or in the
Memorandum or in the other documents, certificates and other writings delivered
to you by or on behalf of the Company specifically for use in connection with
the transactions contemplated hereby.

5.4.     ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES.

                  (a) Schedule 5.4 contains (except as noted therein) complete
         and correct lists of: (i) the Company's Subsidiaries, showing, as to
         each Subsidiary, the correct name thereof, the jurisdiction of its
         organization, the percentage of shares of each class of its capital
         stock or similar equity interests outstanding owned by the Company and
         each other Subsidiary, (ii) the Company's Affiliates, other than
         Subsidiaries, and (iii) the Company's directors and senior officers.
         Each Subsidiary listed in Schedule 5.4 is designated a Restricted
         Subsidiary by the Company.

                  (b) All of the outstanding shares of capital stock or similar
         equity interests of each Subsidiary shown in Schedule 5.4 as being
         owned by the Company and its Subsidiaries have been validly issued, are
         fully paid and nonassessable and are owned by the Company or another
         Subsidiary free and clear of any Lien (except as otherwise disclosed in
         Schedule 5.4).

                  (c) Each Subsidiary identified in Schedule 5.4 is a
         corporation or other legal entity duly organized, validly existing and
         in good standing under the laws of its jurisdiction of organization,
         and is duly qualified as a foreign corporation or other legal entity
         and is in good standing in each jurisdiction in which such
         qualification is required by law, other than those jurisdictions as to
         which the failure to be so qualified or in good standing could not,
         individually or in the aggregate, reasonably be expected to have a
         Material Adverse Effect. Each such Subsidiary has the corporate or
         other power and authority to own or hold under lease the properties it
         purports to own or hold under lease and to transact the business it
         transacts and proposes to transact.

                  (d) No Subsidiary is a party to, or otherwise subject to, any
         legal restriction or any agreement (other than this Agreement, the
         agreements listed on Schedule 5.4 and customary limitations imposed by
         corporate law statutes) restricting the ability of such Subsidiary to
         pay dividends out of profits or make any other similar distributions of
         profits to the Company or any of its Subsidiaries that owns outstanding
         shares of capital stock or similar equity interests of such Subsidiary.

5.5.     FINANCIAL STATEMENTS.

                  The Company has delivered to you and each Other Purchaser
copies of the financial statements of the Company and its Subsidiaries listed on
Schedule 5.5. All of said financial statements (including in each case the
related schedules and notes) fairly present in all material respects the
consolidated financial position of the Company and its Subsidiaries as of the
respective dates specified in such Schedule and the consolidated results of
their operations




                                       6



and cash flows for the respective periods so specified and have been prepared in
accordance with GAAP consistently applied throughout the periods involved except
as set forth in the notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments).

5.6.     COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.

                  The execution, delivery and performance by the Company of this
Agreement, the Intercreditor Agreement and the Notes will not (i) contravene,
result in any breach of, or constitute a default under, or result in the
creation of any Lien in respect of any property of the Company or any Subsidiary
under, any indenture, mortgage, deed of trust, loan, purchase or credit
agreement, lease, corporate charter or by-laws, or any other agreement or
instrument to which the Company or any Subsidiary is bound or by which the
Company or any Subsidiary or any of their respective properties may be bound or
affected, (ii) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of any court,
arbitrator or Governmental Authority applicable to the Company or any Subsidiary
or (iii) violate any provision of any statute or other rule or regulation of any
Governmental Authority applicable to the Company or any Subsidiary.

                  The execution, delivery and performance by each Subsidiary
Guarantor of the Subsidiary Guaranty will not (i) contravene, result in any
breach of, or constitute a default under, or result in the creation of any Lien
in respect of any property of such Subsidiary Guarantor under any indenture,
mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate
charter or by-laws, or any other agreement or instrument to which such
Subsidiary Guarantor is bound or by which such Subsidiary Guarantor or any of
its properties may be bound or affected, (ii) conflict with or result in a
breach of any of the terms, conditions or provisions of any order, judgment,
decree, or ruling of any court, arbitrator or Governmental Authority applicable
to such Subsidiary Guarantor or (iii) violate any provision of any statute or
other rule or regulation of any Governmental Authority applicable to such
Subsidiary Guarantor.

5.7.     GOVERNMENTAL AUTHORIZATIONS, ETC.

                  No consent, approval or authorization of, or registration,
filing or declaration with, any Governmental Authority is required in connection
with the execution, delivery or performance by the Company of this Agreement,
the Intercreditor Agreement or the Notes or the execution, delivery or
performance by each Subsidiary Guarantor of the Subsidiary Guaranty.

5.8.     LITIGATION; OBSERVANCE OF STATUTES AND ORDERS.

                  (a) Except as disclosed in Schedule 5.8, there are no actions,
         suits or proceedings pending or, to the knowledge of the Company,
         threatened against or affecting the Company or any Subsidiary or any
         property of the Company or any Subsidiary in any court or before any
         arbitrator of any kind or before or by any Governmental Authority that,
         individually or in the aggregate, could reasonably be expected to have
         a Material Adverse Effect.

                  (b) Neither the Company nor any Subsidiary is in default under
         any term of any agreement or instrument to which it is a party or by
         which it is bound, or any order,




                                       7



         judgment, decree or ruling of any court, arbitrator or Governmental
         Authority or is in violation of any applicable law, ordinance, rule or
         regulation (including without limitation Environmental Laws) of any
         Governmental Authority, which default or violation, individually or in
         the aggregate, could reasonably be expected to have a Material Adverse
         Effect.

5.9.     TAXES.

                  The Company and its Subsidiaries have filed all tax returns
that are required to have been filed in any jurisdiction, and have paid all
taxes shown to be due and payable on such returns and all other taxes and
assessments levied upon them or their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments (i) the amount
of which is not individually or in the aggregate Material or (ii) the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Company or a Subsidiary,
as the case may be, has established adequate reserves in accordance with GAAP.
The Company knows of no basis for any other tax or assessment that could
reasonably be expected to have a Material Adverse Effect. The charges, accruals
and reserves on the books of the Company and its Subsidiaries in respect of
Federal, state or other taxes for all fiscal periods are adequate. The Federal
income tax liabilities of the Company and its Subsidiaries have been determined
by the Internal Revenue Service and paid for all fiscal years up to and
including the fiscal year ended June 30, 1993.

5.10.    TITLE TO PROPERTY; LEASES.

                  The Company and its Subsidiaries have good and sufficient
title to their respective properties that individually or in the aggregate are
Material, including all such properties reflected in the most recent audited
balance sheet referred to in Section 5.5 or purported to have been acquired by
the Company or any Subsidiary after said date (except as sold or otherwise
disposed of in the ordinary course of business), in each case free and clear of
Liens prohibited by this Agreement. All leases that individually or in the
aggregate are Material are valid and subsisting and are in full force and effect
in all material respects.

5.11.    LICENSES, PERMITS, ETC.

                  Except as disclosed in Schedule 5.11,

                  (a) the Company and its Subsidiaries own or possess all
         licenses, permits, franchises, authorizations, patents, copyrights,
         service marks, trademarks and trade names, or rights thereto, that
         individually or in the aggregate are Material, without known conflict
         with the rights of others;

                  (b) to the best knowledge of the Company, no product of the
         Company infringes in any material respect any license, permit,
         franchise, authorization, patent, copyright, service mark, trademark,
         trade name or other right owned by any other Person; and




                                       8



                  (c) to the best knowledge of the Company, there is no Material
         violation by any Person of any right of the Company or any of its
         Subsidiaries with respect to any patent, copyright, service mark,
         trademark, trade name or other right owned or used by the Company or
         any of its Subsidiaries.

5.12.    COMPLIANCE WITH ERISA.

                  (a) The Company and each ERISA Affiliate have operated and
         administered each Plan in compliance with all applicable laws except
         for such instances of noncompliance as have not resulted in and could
         not reasonably be expected to result in a Material Adverse Effect.
         Neither the Company nor any ERISA Affiliate has incurred any liability
         pursuant to Title I or IV of ERISA or the penalty or excise tax
         provisions of the Code relating to employee benefit plans (as defined
         in Section 3 of ERISA), and no event, transaction or condition has
         occurred or exists that could reasonably be expected to result in the
         incurrence of any such liability by the Company or any ERISA Affiliate,
         or in the imposition of any Lien on any of the rights, properties or
         assets of the Company or any ERISA Affiliate, in either case pursuant
         to Title I or IV of ERISA or to such penalty or excise tax provisions
         or to Section 401(a)(29) or 412 of the Code, other than such
         liabilities or Liens as would not be individually or in the aggregate
         Material.

                  (b) The present value of the aggregate benefit liabilities
         under each of the Plans (other than Multiemployer Plans), determined as
         of the end of such Plan's most recently ended plan year on the basis of
         the actuarial assumptions specified for funding purposes in such Plan's
         most recent actuarial valuation report, did not exceed the aggregate
         current value of the assets of such Plan allocable to such benefit
         liabilities. The term "benefit liabilities" has the meaning specified
         in section 4001 of ERISA and the terms "current value" and "present
         value" have the meaning specified in section 3 of ERISA.

                  (c) The Company and its ERISA Affiliates have not incurred
         withdrawal liabilities (and are not subject to contingent withdrawal
         liabilities) under section 4201 or 4204 of ERISA in respect of
         Multiemployer Plans that individually or in the aggregate are Material.

                  (d) The expected postretirement benefit obligation (determined
         as of the last day of the Company's most recently ended fiscal year in
         accordance with Financial Accounting Standards Board Statement No. 106,
         without regard to liabilities attributable to continuation coverage
         mandated by section 4980B of the Code) of the Company and its
         Subsidiaries is not Material.

                  (e) The execution and delivery of this Agreement and the
         issuance and sale of the Notes hereunder will not involve any
         transaction that is subject to the prohibitions of section 406 of ERISA
         or in connection with which a tax could be imposed pursuant to section
         4975(c)(1)(A)-(D) of the Code. The representation by the Company in the
         first sentence of this Section 5.12(e) is made in reliance upon and
         subject to the accuracy of your representation in Section 6.2 as to the
         sources of the funds used to pay the purchase price of the Notes to be
         purchased by you.



                                       9


5.13.    PRIVATE OFFERING BY THE COMPANY.

                  Neither the Company nor anyone acting on its behalf has
offered the Notes or any similar securities for sale to, or solicited any offer
to buy any of the same from, or otherwise approached or negotiated in respect
thereof with, any person other than you, the Other Purchasers and not more than
50 other Institutional Investors, each of which has been offered the Notes at a
private sale for investment. Neither the Company nor anyone acting on its behalf
has taken, or will take, any action that would subject the issuance or sale of
the Notes to the registration requirements of Section 5 of the Securities Act.

5.14.    USE OF PROCEEDS; MARGIN REGULATIONS.

                  The Company will apply the proceeds of the sale of the Notes
for general corporate purposes and to refinance Debt as set forth in Schedule
5.14. No part of the proceeds from the sale of the Notes will be used, directly
or indirectly, for the purpose of buying or carrying any margin stock within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
(12 CFR 221), or for the purpose of buying or carrying or trading in any
securities under such circumstances as to involve the Company in a violation of
Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a
violation of Regulation T of said Board (12 CFR 220). Margin stock does not
constitute more than 1% of the value of the consolidated assets of the Company
and its Subsidiaries and the Company does not have any present intention that
margin stock will constitute more than 1% of the value of such assets. As used
in this Section, the terms "margin stock" and "purpose of buying or carrying"
shall have the meanings assigned to them in said Regulation U.

5.15.    EXISTING DEBT.

                  (a) Except as described therein, Schedule 5.15 sets forth a
         complete and correct list of all outstanding Debt of the Company and
         its Subsidiaries as of December 31, 2001, since which date there has
         been no Material change in the amounts, interest rates, sinking funds,
         installment payments or maturities of the Debt of the Company or its
         Subsidiaries. Neither the Company nor any Subsidiary is in default and
         no waiver of default is currently in effect, in the payment of any
         principal or interest on any Debt of the Company or such Subsidiary and
         no event or condition exists with respect to any Debt of the Company or
         any Subsidiary that would permit (or that with notice or the lapse of
         time, or both, would permit) one or more Persons to cause such Debt to
         become due and payable before its stated maturity or before its
         regularly scheduled dates of payment.

                  (b) Except as disclosed in Schedule 5.15, neither the Company
         nor any Subsidiary has agreed or consented to cause or permit in the
         future (upon the happening of a contingency or otherwise) any of its
         property, whether now owned or hereafter acquired, to be subject to a
         Lien not permitted by Section 10.4.



                                       10


5.16.    FOREIGN ASSETS CONTROL REGULATIONS, ETC.

                  Neither the sale of the Notes by the Company hereunder nor its
use of the proceeds thereof will violate the Trading with the Enemy Act, as
amended, or any of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.

5.17.    STATUS UNDER CERTAIN STATUTES.

                  Neither the Company nor any Subsidiary is subject to
regulation under the Investment Company Act of 1940, as amended, the Public
Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as
amended by the ICC Termination Act, as amended, or the Federal Power Act, as
amended.

5.18.    ENVIRONMENTAL MATTERS.

                  Neither the Company nor any Subsidiary has knowledge of any
claim or has received any notice of any claim, and no proceeding has been
instituted raising any claim against the Company or any of its Subsidiaries or
any of their respective real properties now or formerly owned, leased or
operated by any of them or other assets, alleging any damage to the environment
or violation of any Environmental Laws, except, in each case, such as could not
reasonably be expected to result in a Material Adverse Effect. Except as
otherwise disclosed to you in writing,

                  (a) neither the Company nor any Subsidiary has knowledge of
         any facts which would give rise to any claim, public or private, of
         violation of Environmental Laws or damage to the environment emanating
         from, occurring on or in any way related to real properties now or
         formerly owned, leased or operated by any of them or to other assets or
         their use, except, in each case, such as could not reasonably be
         expected to result in a Material Adverse Effect;

                  (b) neither the Company nor any of its Subsidiaries has stored
         any Hazardous Materials on real properties now or formerly owned,
         leased or operated by any of them and has not disposed of any Hazardous
         Materials in a manner contrary to any Environmental Laws in each case
         in any manner that could reasonably be expected to result in a Material
         Adverse Effect; and

                  (c) all buildings on all real properties now owned, leased or
         operated by the Company or any of its Subsidiaries are in compliance
         with applicable Environmental Laws, except where failure to comply
         could not reasonably be expected to result in a Material Adverse
         Effect.

5.19.    SOLVENCY OF SUBSIDIARY GUARANTORS.

                  After giving effect to the transactions contemplated herein
and after giving due consideration to any rights of contribution (i) each
Subsidiary Guarantor has received fair consideration and reasonably equivalent
value for the incurrence of its obligations under the




                                       11

Subsidiary Guaranty, (ii) the fair value of the assets of each Subsidiary
Guarantor (both at fair valuation and at present fair saleable value) exceeds
its liabilities, (ii) each Subsidiary Guarantor is able to and expects to be
able to pay its debts as they mature, and (iii) each Subsidiary Guarantor has
capital sufficient to carry on its business as conducted and as proposed to be
conducted.

6.       REPRESENTATIONS OF THE PURCHASERS.

6.1.     PURCHASE FOR INVESTMENT.

                  You represent that you are purchasing the Notes for your own
account or for one or more separate accounts maintained by you or for the
account of one or more pension or trust funds and not with a view to the
distribution thereof, provided that the disposition of your or their property
shall at all times be within your or their control. You understand that the
Notes have not been registered under the Securities Act and may be resold only
if registered pursuant to the provisions of the Securities Act or if an
exemption from registration is available, except under circumstances where
neither such registration nor such an exemption is required by law, and that the
Company is not required to register the Notes. You represent that you are an
"accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7)
of Rule 501 of Regulation D under the Securities Act.

6.2.     SOURCE OF FUNDS.

                  You represent that at least one of the following statements is
an accurate representation as to each source of funds (a "Source") to be used by
you to pay the purchase price of the Notes to be purchased by you hereunder:

                  (a) the Source is an "insurance company general account" as
         such term is defined in the Department of Labor Prohibited Transaction
         Exemption ("PTE") 95-60 (issued July 12, 1995) ("PTE 95-60") and as of
         the date of this Agreement there is no "employee benefit plan" with
         respect to which the aggregate amount of such general account's
         reserves and liabilities for the contracts held by or on behalf of such
         employee benefit plan and all other employee benefit plans maintained
         by the same employer (and affiliates thereof as defined in Section
         V(a)(1) of PTE 95-60) or by the same employee organization (in each
         case determined in accordance with the provisions of PTE 95-60) exceeds
         10% of the total reserves and liabilities of such general account (as
         determined under PTE 95-60) (exclusive of separate account liabilities)
         plus surplus as set forth in the National Association of Insurance
         Commissioners Annual Statement filed with your state of domicile; or

                  (b) the Source is either (i) an insurance company pooled
         separate account, within the meaning of PTE 90-1 (issued January 29,
         1990), or (ii) a bank collective investment fund, within the meaning of
         PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to
         the Company in writing pursuant to this paragraph (b), no employee
         benefit plan or group of plans maintained by the same employer or
         employee organization beneficially owns more than 10% of all assets
         allocated to such pooled separate account or collective investment
         fund; or

                                       12





                  (c) the Source constitutes assets of an "investment fund"
         (within the meaning of Part V of the QPAM Exemption) managed by a
         "qualified professional asset manager" or "QPAM" (within the meaning of
         Part V of the QPAM Exemption), no employee benefit plan's assets that
         are included in such investment fund, when combined with the assets of
         all other employee benefit plans established or maintained by the same
         employer or by an affiliate (within the meaning of Section V(c)(1) of
         the QPAM Exemption) of such employer or by the same employee
         organization and managed by such QPAM, exceed 20% of the total client
         assets managed by such QPAM, the conditions of Part I(c) and (g) of the
         QPAM Exemption are satisfied, neither the QPAM nor a person controlling
         or controlled by the QPAM (applying the definition of "control" in
         Section V(e) of the QPAM Exemption) owns a 5% or more interest in the
         Company and (i) the identity of such QPAM and (ii) the names of all
         employee benefit plans whose assets are included in such investment
         fund have been disclosed to the Company in writing pursuant to this
         paragraph (c); or

                  (d) the Source is a governmental plan; or

                  (e) the Source is one or more employee benefit plans, or a
         separate account or trust fund comprised of one or more employee
         benefit plans, each of which has been identified to the Company in
         writing pursuant to this paragraph (e); or

                  (f) the Source is the assets of one or more employee benefit
         plans that are managed by an "in-house asset manager," as that term is
         defined in PTE 96-23 and such purchase and holding of the Notes is
         exempt under PTE 96-23; or

                  (g) the Source does not include assets of any employee benefit
         plan, other than a plan exempt from the coverage of ERISA.

As used in this Section 6.2, the terms "employee benefit plan", "governmental
plan" and "separate account" shall have the respective meanings assigned to such
terms in Section 3 of ERISA.

7.       INFORMATION AS TO COMPANY.

7.1.     FINANCIAL AND BUSINESS INFORMATION

                  The Company will deliver to each holder of Notes that is an
Institutional Investor:

                  (a) Quarterly Statements -- within 60 days after the end of
         each quarterly fiscal period in each fiscal year of the Company (other
         than the last quarterly fiscal period of each such fiscal year),
         duplicate copies of,

                           (i) consolidated balance sheet of the Company and its
                  Subsidiaries as at the end of such quarter,

                           (ii) consolidated statements of income of the Company
                  and its Subsidiaries for such quarter and (in the case of the
                  second and third quarters) for the portion of the fiscal year
                  ending with such quarter, and


                                       13



                           (iii) consolidated statements of cash flows of the
                  Company and its Subsidiaries for such quarter or (in the case
                  of the second and third quarters) for the portion of the
                  fiscal year ending with such quarter,

         setting forth in each case in comparative form the figures for the
         corresponding periods in the previous fiscal year, all in reasonable
         detail, prepared in accordance with GAAP applicable to quarterly
         financial statements generally, and certified by a Senior Financial
         Officer as fairly presenting, in all material respects, the financial
         position of the companies being reported on and their results of
         operations and cash flows, subject to changes resulting from year-end
         adjustments, provided that delivery within the time period specified
         above of copies of the Company's Quarterly Report on Form 10-Q prepared
         in compliance with the requirements therefor and filed with the
         Securities and Exchange Commission shall be deemed to satisfy the
         requirements of this Section 7.1(a);

                  (b) Annual Statements -- within 105 days after the end of each
         fiscal year of the Company, duplicate copies of,

                           (i) consolidated balance sheet of the Company and its
                  Subsidiaries, as at the end of such year, and

                           (ii) consolidated statements of income, changes in
                  shareholders' equity and cash flows of the Company and its
                  Subsidiaries, for such year,

         setting forth in each case in comparative form the figures for the
         previous fiscal year, all in reasonable detail, prepared in accordance
         with GAAP, and accompanied by an opinion of independent certified
         public accountants of recognized national standing, which opinion shall
         state that such financial statements present fairly, in all material
         respects, the financial position of the companies being reported upon
         and their results of operations and cash flows and have been prepared
         in conformity with GAAP, and that the examination of such accountants
         in connection with such financial statements has been made in
         accordance with generally accepted auditing standards, and that such
         audit provides a reasonable basis for such opinion in the
         circumstances, provided that the delivery within the time period
         specified above of the Company's Annual Report on Form 10-K for such
         fiscal year (together with the Company's annual report to shareholders,
         if any, prepared pursuant to Rule 14a-3 under the Exchange Act)
         prepared in accordance with the requirements therefor and filed with
         the Securities and Exchange Commission shall be deemed to satisfy the
         requirements of this Section 7.1(b);

                  (c) Unrestricted Subsidiaries -- if, at the time of delivery
         of any financial statements pursuant to Section 7.1(a) or (b),
         Unrestricted Subsidiaries account for more than 10% of (i) the
         consolidated total assets of the Company and its Subsidiaries reflected
         in the balance sheet included in such financial statements or (ii) the
         consolidated revenues of the Company and its Subsidiaries reflected in
         the consolidated statement of income included in such financial
         statements, an unaudited balance sheet for all Unrestricted
         Subsidiaries taken as whole as at the end of the fiscal period included
         in such financial statements and the related unaudited statements of
         income, stockholders' equity and cash flows for such Unrestricted
         Subsidiaries for such period, together with




                                       14




         consolidating statements reflecting all eliminations or adjustments
         necessary to reconcile such group financial statements to the
         consolidated financial statements of the Company and its Subsidiaries
         shall be delivered together with the financial statements required
         pursuant to Sections 7.1(a) and (b);

                  (d) SEC and Other Reports -- promptly upon their becoming
         available, one copy of (i) each financial statement, report, notice or
         proxy statement sent by the Company or any Restricted Subsidiary to
         public securities holders generally, and (ii) each regular or periodic
         report, each registration statement other than registration statements
         on Form S-8 (without exhibits except as expressly requested by such
         holder), and each prospectus and all amendments thereto filed by the
         Company or any Restricted Subsidiary with the Securities and Exchange
         Commission and of all press releases and other statements made
         available generally by the Company or any Restricted Subsidiary to the
         public concerning developments that are Material;

                  (e) Notice of Default or Event of Default -- promptly, and in
         any event within five Business Days after a Responsible Officer
         becoming aware of the existence of any Default or Event of Default or
         that any Person has given any notice or taken any action with respect
         to a claimed default hereunder or that any Person has given notice or
         taken any action with respect to a claimed default of the type referred
         to in Section 11(f), a written notice specifying the nature and period
         of existence thereof and what action the Company is taking or proposes
         to take with respect thereto;

                  (f) ERISA Matters -- promptly, and in any event within five
         Business Days after a Responsible Officer becoming aware of any of the
         following, a written notice setting forth the nature thereof and the
         action, if any, that the Company or an ERISA Affiliate proposes to take
         with respect thereto:

                           (i) with respect to any Plan, any reportable event,
                  as defined in section 4043(b) of ERISA and the regulations
                  thereunder, for which notice thereof has not been waived
                  pursuant to such regulations as in effect on the date hereof;
                  or

                           (ii) the taking by the PBGC of steps to institute, or
                  the threatening by the PBGC of the institution of, proceedings
                  under section 4042 of ERISA for the termination of, or the
                  appointment of a trustee to administer, any Plan, or the
                  receipt by the Company or any ERISA Affiliate of a notice from
                  a Multiemployer Plan that such action has been taken by the
                  PBGC with respect to such Multiemployer Plan; or

                           (iii) any event, transaction or condition that could
                  result in the incurrence of any liability by the Company or
                  any ERISA Affiliate pursuant to Title I or IV of ERISA or the
                  penalty or excise tax provisions of the Code relating to
                  employee benefit plans, or in the imposition of any Lien on
                  any of the rights, properties or assets of the Company or any
                  ERISA Affiliate pursuant to Title I or IV of ERISA or such
                  penalty or excise tax provisions, if such liability or Lien,


                                       15




                  taken together with any other such liabilities or Liens then
                  existing, could reasonably be expected to have a Material
                  Adverse Effect;

                  (g) Notices from Governmental Authority -- promptly, and in
         any event within 30 days of receipt thereof, copies of any notice to
         the Company or any Subsidiary from any Federal or state Governmental
         Authority relating to any order, ruling, statute or other law or
         regulation that could reasonably be expected to have a Material Adverse
         Effect; and

                  (h) Requested Information -- with reasonable promptness, such
         other data and information relating to the business, operations,
         affairs, financial condition, assets or properties of the Company or
         any of its Subsidiaries or relating to the ability of the Company to
         perform its obligations hereunder and under the Notes as from time to
         time may be reasonably requested by any such holder of Notes.

7.2.     OFFICER'S CERTIFICATE.

                  Each set of financial statements delivered to a holder of
Notes pursuant to Section 7.1(a) or (b) shall be accompanied by a certificate of
a Senior Financial Officer setting forth:

                  (a) Covenant Compliance -- the information (including detailed
         calculations) required in order to establish whether the Company was in
         compliance with the requirements of Section 10.1 through Section 10.13,
         inclusive, during the quarterly or annual period covered by the
         statements then being furnished (including with respect to each such
         Section, where applicable, the calculations of the maximum or minimum
         amount, ratio or percentage, as the case may be, permissible under the
         terms of such Sections, and the calculation of the amount, ratio or
         percentage then in existence); and

                  (b) Event of Default -- a statement that such officer has
         reviewed the relevant terms hereof and has made, or caused to be made,
         under his or her supervision, a review of the transactions and
         conditions of the Company and its Subsidiaries from the beginning of
         the quarterly or annual period covered by the statements then being
         furnished to the date of the certificate and that such review shall not
         have disclosed the existence during such period of any condition or
         event that constitutes a Default or an Event of Default or, if any such
         condition or event existed or exists (including any such event or
         condition resulting from the failure of the Company or any Subsidiary
         to comply with any Environmental Law), specifying the nature and period
         of existence thereof and what action the Company shall have taken or
         proposes to take with respect thereto.

7.3.     INSPECTION.

                  The Company will permit the representatives of each holder of
Notes that is an Institutional Investor:

                  (a) No Default -- if no Default or Event of Default then
         exists, at the expense of such holder and upon reasonable prior notice
         to the Company, to visit the principal


                                       16




         executive office of the Company, to discuss the affairs, finances and
         accounts of the Company and its Subsidiaries with the Company's
         officers, and (with the consent of the Company, which consent will not
         be unreasonably withheld) its independent public accountants, and (with
         the consent of the Company, which consent will not be unreasonably
         withheld) to visit the other offices and properties of the Company and
         each Subsidiary, all at such reasonable times and as often as may be
         reasonably requested in writing; and

                  (b) Default -- if a Default or Event of Default then exists,
         at the expense of the Company, to visit and inspect any of the offices
         or properties of the Company or any Subsidiary, to examine all their
         respective books of account, records, reports and other papers, to make
         copies and extracts therefrom, and to discuss their respective affairs,
         finances, and accounts with their respective officers and independent
         public accountants (and by this provision the Company authorizes said
         accountants to discuss the affairs, finances and accounts of the
         Company and its Subsidiaries), all at such times and as often as may be
         requested.

8.       PREPAYMENT OF THE NOTES.

8.1.     NO SCHEDULED PREPAYMENTS.

                  No regularly scheduled prepayments are due on the Notes prior
to their stated maturity.

8.2.     OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT.

                  The Company may, at its option, upon notice as provided below,
prepay at any time all, or from time to time any part of, the Notes in an amount
not less than $1,000,000 in the aggregate in the case of a partial prepayment,
at 100% of the principal amount so prepaid, plus the Make-Whole Amount
determined for the prepayment date with respect to such principal amount. The
Company will give each holder of Notes written notice of each optional
prepayment under this Section 8.2 not less than 30 days and not more than 60
days prior to the date fixed for such prepayment. Each such notice shall specify
such date, the aggregate principal amount of the Notes to be prepaid on such
date, the principal amount of each Note held by such holder to be prepaid
(determined in accordance with Section 8.3), and the interest to be paid on the
prepayment date with respect to such principal amount being prepaid, and shall
be accompanied by a certificate of a Senior Financial Officer as to the
estimated Make-Whole Amount due in connection with such prepayment (calculated
as if the date of such notice were the date of the prepayment), setting forth
the details of such computation. Two Business Days prior to such prepayment, the
Company shall deliver to each holder of Notes a certificate of a Senior
Financial Officer specifying the calculation of such Make-Whole Amount as of the
specified prepayment date.

8.3.     ALLOCATION OF PARTIAL PREPAYMENTS.

                  In the case of each partial prepayment of the Notes pursuant
to this Section 8, the principal amount of the Notes to be prepaid shall be
allocated among all of the Notes at the time



                                       17



outstanding in proportion, as nearly as practicable, to the respective unpaid
principal amounts thereof not theretofore called for prepayment.

8.4.     MATURITY; SURRENDER, ETC.

                  In the case of each prepayment of Notes pursuant to this
Section 8, the principal amount of each Note to be prepaid shall mature and
become due and payable on the date fixed for such prepayment, together with
interest on such principal amount accrued to such date and the applicable
Make-Whole Amount, if any. From and after such date, unless the Company shall
fail to pay such principal amount when so due and payable, together with the
interest and Make-Whole Amount, if any, as aforesaid, interest on such principal
amount shall cease to accrue. Any Note paid or prepaid in full shall be
surrendered to the Company and canceled and shall not be reissued, and no Note
shall be issued in lieu of any prepaid principal amount of any Note.

8.5.     PURCHASE OF NOTES.

                  The Company will not and will not permit any Affiliate to
purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of
the outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the Notes. The Company will
promptly cancel all Notes acquired by it or any Affiliate pursuant to any
payment, prepayment or purchase of Notes pursuant to any provision of this
Agreement and no Notes may be issued in substitution or exchange for any such
Notes.

8.6.     MAKE-WHOLE AMOUNT.

                  The term "MAKE-WHOLE AMOUNT" means, with respect to any Note,
an amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of such Note over the
amount of such Called Principal, provided that the Make-Whole Amount may in no
event be less than zero. For the purposes of determining the Make-Whole Amount,
the following terms have the following meanings:

                  "CALLED PRINCIPAL" means, with respect to any Note, the
         principal of such Note that is to be prepaid pursuant to Section 8.2 or
         has become or is declared to be immediately due and payable pursuant to
         Section 12.1, as the context requires.

                  "DISCOUNTED VALUE" means, 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 (applied on the same periodic basis as that on which
         interest on the Notes is payable) equal to the Reinvestment Yield with
         respect to such Called Principal.

                  "REINVESTMENT YIELD" means, with respect to the Called
         Principal of any Note, .50% over the yield to maturity implied by (i)
         the yields reported, as of 10:00 A.M. (New York City time) on the
         second Business Day preceding the Settlement Date with respect to such
         Called Principal, on the display designated as the "PX Screen" on the
         Bloomberg Financial Market Service (or such other display as may
         replace the PX Screen on




                                       18



         Bloomberg Financial Market 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 (ii) if such
         yields are not reported as of such time or the yields reported as of
         such time are not ascertainable, the Treasury Constant Maturity Series
         Yields reported, for the latest day for which such yields have been so
         reported as of the second Business Day 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 will 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 (1) the actively traded U.S. Treasury
         security with the maturity closest to and greater than the Remaining
         Average Life and (2) the actively traded U.S. Treasury security with
         the maturity closest to and less than the Remaining Average Life.

                  "REMAINING AVERAGE LIFE" means, with respect to any Called
         Principal, 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) the principal component of
         each Remaining Scheduled Payment with respect to such Called Principal
         by (b) the number of years (calculated to the nearest one-twelfth year)
         that 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" means, with respect to the
         Called Principal of any Note, all payments of such Called Principal and
         interest thereon that would be due 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, provided that if such
         Settlement Date is not a date on which interest payments are due to be
         made under the terms of the Notes, then the amount of the next
         succeeding scheduled interest payment will be reduced by the amount of
         interest accrued to such Settlement Date and required to be paid on
         such Settlement Date pursuant to Section 8.2 or 12.1.

                  "SETTLEMENT DATE" means, with respect to the Called Principal
         of any Note, the date on which such Called Principal is to be prepaid
         pursuant to Section 8.2 or has become or is declared to be immediately
         due and payable pursuant to Section 12.1, as the context requires.

9.       AFFIRMATIVE COVENANTS.

                  The Company covenants that so long as any of the Notes are
outstanding:

9.1.     COMPLIANCE WITH LAW.

                  The Company will, and will cause each Subsidiary to, comply
with all laws, ordinances or governmental rules or regulations to which each of
them is subject, including, without limitation, Environmental Laws, and will
obtain and maintain in effect all licenses,



                                       19




certificates, permits, franchises and other governmental authorizations
necessary to the ownership of their respective properties or to the conduct of
their respective businesses, in each case to the extent necessary to ensure that
non-compliance with such laws, ordinances or governmental rules or regulations
or failures to obtain or maintain in effect such licenses, certificates,
permits, franchises and other governmental authorizations could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

9.2.     INSURANCE.

                  The Company will, and will cause each Restricted Subsidiary
to, maintain, with financially sound and reputable insurers, insurance with
respect to their respective properties and businesses against such casualties
and contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.

9.3.     MAINTENANCE OF PROPERTIES.

                  The Company will and will cause each Restricted Subsidiary to
maintain and keep, or cause to be maintained and kept, their respective
properties in good repair, working order and condition (other than ordinary wear
and tear), so that the business carried on in connection therewith may be
properly conducted at all times, provided that this Section shall not prevent
the Company or any Restricted Subsidiary from discontinuing the operation and
the maintenance of any of its properties if such discontinuance is desirable in
the conduct of its business and the Company has concluded that such
discontinuance could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

9.4.     PAYMENT OF TAXES AND CLAIMS.

                  The Company will, and will cause each Subsidiary to, file all
income tax or similar tax returns required to be filed in any jurisdiction and
to pay and discharge all taxes shown to be due and payable on such returns and
all other taxes, assessments, governmental charges, or levies imposed on them or
any of their properties, assets, income or franchises, to the extent such taxes
and assessments have become due and payable and before they have become
delinquent and all claims for which sums have become due and payable that have
or might become a Lien on properties or assets of the Company or any Subsidiary,
provided that neither the Company nor any Subsidiary need pay any such tax or
assessment or claims if (i) the amount, applicability or validity thereof is
contested by the Company or such Subsidiary on a timely basis in good faith and
in appropriate proceedings, and the Company or a Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of the Company
or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in
the aggregate could not reasonably be expected to have a Material Adverse
Effect.

9.5.     CORPORATE EXISTENCE, ETC.

                  The Company will at all times preserve and keep in full force
and effect its corporate existence. Subject to Sections 10.6, 10.6 and 10.9,
inclusive, the Company will at all





                                       20



times preserve and keep in full force and effect the corporate existence of each
of its Restricted Subsidiaries (unless merged into the Company or a Restricted
Subsidiary) and all rights and franchises of the Company and its Restricted
Subsidiaries unless, in the good faith judgment of the Company, the termination
of or failure to preserve and keep in full force and effect such corporate
existence, right or franchise could not, individually or in the aggregate, have
a Material Adverse Effect.

10.      NEGATIVE COVENANTS.

                  The Company covenants that so long as any of the Notes are
outstanding:

10.1.    CONSOLIDATED NET DEBT.

                  The Company will not permit the ratio of Consolidated Net Debt
(as of the last day of the most recently completed fiscal quarter) to
Consolidated EBITDA (for the Company's then most recently completed four fiscal
quarters) to be greater than 2.75 to 1.00 at any time. If, during the period for
which Consolidated EBITDA is being calculated, the Company or a Restricted
Subsidiary has (i) acquired one or more Persons (or the assets thereof) or (ii)
disposed of one or more Restricted Subsidiaries (or substantially all of the
assets thereof), Consolidated EBITDA shall be calculated on a pro forma basis as
if all of such acquisitions (other than acquisitions by or resulting in
Unrestricted Subsidiaries) and all such dispositions had occurred on the first
day of such period.

10.2.    PRIORITY DEBT.

                  The Company will not permit Priority Debt to exceed 20% of
Consolidated Net Worth at any time.

10.3.    FIXED CHARGE COVERAGE.

                  The Company will not permit the ratio (calculated as of the
end of each fiscal quarter) of Consolidated EBITDAR to Consolidated Fixed
Charges for the period of four quarters ending as of each fiscal quarter to be
less than 1.50 to 1.00.


10.4.    LIENS.

                  The Company will not, and will not permit any Restricted
Subsidiary to, permit to exist, create, assume or incur, directly or indirectly,
any Lien on its properties or assets, whether now owned or hereafter acquired,
except:

                  (a) Liens for taxes, assessments or governmental charges not
         then due and delinquent or the nonpayment of which is permitted by
         Section 9.4;

                  (b) Liens incidental to the conduct of business or the
         ownership of properties and assets (including landlords', lessors',
         carriers', warehousemen's, mechanics', materialmen's and other similar
         Liens) and Liens to secure the performance of bids, tenders, leases or
         trade contracts, or to secure statutory obligations (including
         obligations





                                       21




         under workers compensation, unemployment insurance and other social
         security legislation), surety or appeal bonds or other Liens of like
         general nature incurred in the ordinary course of business and not in
         connection with the borrowing of money;

                  (c) any attachment or judgment Lien, unless the judgment it
         secures has not, within 60 days after the entry thereof, been
         discharged or execution thereof stayed pending appeal, or has not been
         discharged within 60 days after the expiration of any such stay;

                  (d) Liens securing Debt of a Restricted Subsidiary to the
         Company or to a Wholly Owned Restricted Subsidiary;

                  (e) Liens securing Debt existing on property or assets of the
         Company or any Restricted Subsidiary as of the date of this Agreement
         that are described in Schedule 10.4;

                  (f) encumbrances in the nature of leases, subleases, zoning
         restrictions, easements, rights of way, minor survey exceptions and
         other rights and restrictions of record on the use of real property and
         defects in title arising or incurred in the ordinary course of
         business, which, individually and in the aggregate, do not materially
         impair the use or value of the property or assets subject thereto or
         which relate only to assets that in the aggregate are not material;

                  (g) Liens (i) existing on property at the time of its
         acquisition by the Company or a Restricted Subsidiary and not created
         in contemplation thereof, whether or not the Debt secured by such Lien
         is assumed by the Company or a Restricted Subsidiary; or (ii) on
         property created contemporaneously with its acquisition or within 180
         days of the acquisition or completion of construction thereof to secure
         or provide for all or a portion of the purchase price or cost of
         construction of such property after the date of Closing; or (iii)
         existing on property of a Person at the time such Person is merged or
         consolidated with, or becomes a Restricted Subsidiary of, or
         substantially all of its assets are acquired by, the Company or a
         Restricted Subsidiary and not created in contemplation thereof;
         provided that in the case of clauses (i), (ii) and (iii) such Liens do
         not extend to additional property of the Company or any Restricted
         Subsidiary (other than property that is an improvement to or is
         acquired for specific use in connection with the subject property) and,
         in the case of clause (ii) only, that the aggregate principal amount of
         Debt secured by each such Lien does not exceed the lesser of cost of
         acquisition or construction or the fair market value (determined in
         good faith by one or more officers of the Company to whom authority to
         enter into the transaction has been delegated by the board of directors
         of the Company) of the property subject thereto;

                  (h) Liens resulting from extensions, renewals or replacements
         of Liens permitted by paragraphs (e) and (g), provided that (i) there
         is no increase in the principal amount or decrease in maturity of the
         Debt secured thereby at the time of such extension, renewal or
         replacement, (ii) any new Lien attaches only to the same property
         theretofore subject to such earlier Lien and (iii) immediately after
         such extension, renewal or replacement no Default or Event of Default
         would exist; and

                                       22




                  (i) Liens securing Debt not otherwise permitted by paragraphs
         (a) through (h) above, provided that Priority Debt does not at any time
         exceed 20% of Consolidated Net Worth determined as of the end of the
         most recently ended fiscal quarter.

10.5.    SALE OF ASSETS.

                  Except as permitted by Section 10.6, the Company will not, and
will not permit any Restricted Subsidiary to, sell, lease, transfer or otherwise
dispose of, including by way of merger (collectively a "Disposition"), any
assets, including capital stock of Restricted Subsidiaries, in one or a series
of transactions, to any Person, other than:

                  (a) Dispositions in the ordinary course of business;

                  (b) Dispositions by the Company to a Wholly Owned Restricted
         Subsidiary or by a Restricted Subsidiary to the Company or a Wholly
         Owned Restricted Subsidiary; or

                  (c) Dispositions not otherwise permitted by Section 10.5(a) or
         (b), provided that:

                           (i) each such Disposition is made in an arms length
                  transaction for a consideration at least equal to the fair
                  market value of the property subject thereto;

                           (ii) the aggregate net book value of all assets
                  disposed of in any period of 365 consecutive days pursuant to
                  this Section 10.5(c) does not exceed 10% of Consolidated Total
                  Assets as of the end of the immediately preceding fiscal
                  quarter; and

                           (iii) at the time of such Disposition and after
                  giving effect thereto no Default or Event of Default shall
                  have occurred and be continuing.

         Notwithstanding the foregoing, the Company may, or may permit any
         Restricted Subsidiary to, make a Disposition and the assets subject to
         such Disposition shall not be subject to or included in the foregoing
         limitation and computation contained in Section 10.5(c)(ii) of the
         preceding sentence to the extent that (i) each such Disposition is for
         a consideration at least equal to the fair market value of the property
         subject thereto, and (ii) the net proceeds from such Disposition are
         within 180 days of such Disposition (A) reinvested in productive assets
         used or useful in carrying on the business of the Company and its
         Restricted Subsidiaries or (B) applied to the payment or prepayment of
         any outstanding Debt of the Company or any Restricted Subsidiary that
         is pari passu with or senior to the Notes, including the Notes. Any
         prepayment of Notes pursuant to this Section 10.5 shall be in
         accordance with Sections 8.2 and 8.3, without regard to the minimum
         prepayment requirements of Section 8.2.

10.6.    MERGERS, CONSOLIDATIONS, ETC.

                  The Company will not, and will not permit any Restricted
Subsidiary to, consolidate with or merge with any other Person or convey,
transfer, sell or lease all or




                                       23




substantially all of its assets in a single transaction or series of
transactions to any Person except that:

                  (a) the Company may consolidate or merge with any other Person
         or convey, transfer, sell or lease all or substantially all of its
         assets in a single transaction or series of transactions to any Person,
         provided that:

                           (i) the successor formed by such consolidation or the
                  survivor of such merger or the Person that acquires by
                  conveyance, transfer, sale or lease all or substantially all
                  of the assets of the Company as an entirety, as the case may
                  be, is a solvent corporation organized and existing under the
                  laws of the United States or any state thereof (including the
                  District of Columbia), and, if the Company is not such
                  corporation, such corporation (y) shall have executed and
                  delivered to each holder of any Notes its assumption of the
                  due and punctual performance and observance of each covenant
                  and condition of this Agreement and the Notes and (z) shall
                  have caused to be delivered to each holder of any Notes an
                  opinion of independent counsel reasonably satisfactory to the
                  Required Holders, to the effect that all agreements or
                  instruments effecting such assumption are enforceable in
                  accordance with their terms and comply with the terms hereof;
                  and

                           (ii) immediately before and after giving effect to
                  such transaction, no Default or Event of Default shall exist;
                  and

                  (b) Any Restricted Subsidiary may (x) merge into the Company
         (provided that the Company is the surviving corporation) or a Wholly
         Owned Restricted Subsidiary or (y) sell, transfer or lease all or any
         part of its assets to the Company or a Wholly Owned Restricted
         Subsidiary, or (z) merge or consolidate with, or sell, transfer or
         lease all or substantially all of its assets to, any Person in a
         transaction that is permitted by Section 10.5 or, as a result of which,
         such Person becomes a Restricted Subsidiary; provided in each instance
         set forth in clauses (x) through (z) that, immediately before and after
         giving effect thereto, there shall exist no Default or Event of
         Default;

No such conveyance, transfer, sale or lease of all or substantially all of the
assets of the Company shall have the effect of releasing the Company or any
successor corporation that shall theretofore have become such in the manner
prescribed in this Section 10.6 from its liability under this Agreement or the
Notes.

10.7.    RESTRICTED PAYMENTS.

                  The Company will not, and will not permit any Restricted
Subsidiary to, declare or make any dividend payment or other distribution of
assets, properties, cash, rights, obligations or securities on account of any
shares of any class of its capital stock, or purchase, redeem or otherwise
acquire for value any shares of its capital stock or any warrants, rights or
options to acquire such shares, now or hereafter outstanding, except that any
Restricted Subsidiary may declare and make dividend payments and other
distributions to its shareholders on a pro rata basis and the Company may:



                                       24



                  (a) Declare and make dividend payments or other distributions
         payable solely in its common stock;

                  (b) Purchase, redeem or otherwise acquire shares of its common
         stock or warrants or options to acquire any such shares with the
         proceeds received from the substantially concurrent issue of new shares
         of its common stock; and

                  (c) Declare or pay cash dividends to its stockholders and
         purchase, redeem or otherwise acquire shares of its capital stock or
         warrants, rights or options to acquire any such shares for cash and
         computed on a cumulative basis; provided, that (i) all such payments
         made in any period of four fiscal quarters (ending with the fiscal
         quarter in which any such payment is made), other than payments made in
         connection with any open market share repurchase program approved by
         the Company's board of directors (a "Repurchase Program"), shall not
         exceed 25% of the Company's Consolidated Net Income for the period of
         four fiscal quarters ending with the second preceding fiscal quarter
         prior to the fiscal quarter in which such payment is made (if
         positive), (ii) the total consideration paid to repurchase the
         Company's capital stock in connection with one or more Repurchase
         Programs shall not exceed $75,000,000 in the aggregate after December
         31, 2001 and (iii) immediately after giving effect to such proposed
         action, no Default or Event of Default would exist (determined, for
         purposes of Section 10.1 and 10.3, on a pro forma basis as of the last
         day of the previous fiscal quarter).

10.8.    INVESTMENTS.

                  The Company will not, and will not permit any Restricted
Subsidiary to, make or have any Investments other than:

                  (a) Investments in Restricted Subsidiaries or in a Person
         that, immediately thereafter will be a Restricted Subsidiary;

                  (b) Investments in obligations of or fully guaranteed by the
         United States of America, Canada, the United Kingdom or a sovereign
         country within Western Europe or an agency of any of the foregoing and
         maturing within one year from the date of acquisition;

                  (c) Investments in demand deposits in banks in the ordinary
         course of business and certificates of deposit maturing within one year
         from the date of acquisition issued by commercial banks located and
         organized under the laws of the United States of America (or any state
         thereof or the District of Columbia), Canada (or a province thereof) or
         Western Europe, having combined capital surplus and undivided profits
         of not less than as of any date of determination combined capital,
         surplus and undivided profits of not less than $100,000,000 (determined
         in accordance with GAAP) and the outstanding senior Debt of which is
         rated A or better by S&P or A2 or better by Moody's or an equivalent
         rating by an internationally recognized rating agency;

                  (d) Investments in commercial paper maturing within 270 days
         from the date of issuance and rated at least "A1" by Moody's or "P1" by
         S&P;



                                       25




                  (e) Investments in mutual funds that invest at least 95% of
         their assets in instruments described in Sections 10.8(b) through (d);

                  (f) the endorsement of negotiable instruments for collection
         in the ordinary course of business; and

                  (g) other Investments, provided that the aggregate amount
         thereof shall at no time exceed 5% of Consolidated Net Worth.

10.9.    DISPOSITION OF STOCK OF RESTRICTED SUBSIDIARIES.

                  (a) The Company will not permit any Restricted Subsidiary to
         issue its capital stock, or any warrants, rights or options to
         purchase, or securities convertible into or exchangeable for, such
         capital stock, to any Person other than the Company or a Wholly Owned
         Restricted Subsidiary, except (i) for directors' qualifying shares or
         (ii) to satisfy local ownership requirements.

                  (b) The Company will not, and will not permit any Restricted
         Subsidiary to, sell, transfer or otherwise dispose of any shares of
         capital stock of a Restricted Subsidiary if such sale would be
         prohibited by Section 10.5, except (i) for directors' qualifying shares
         or (ii) to satisfy local ownership requirements.

                  (c) If a Restricted Subsidiary at any time ceases to be such
         as a result of a sale or issuance of its capital stock, any Liens on
         property of the Company or any other Restricted Subsidiary securing
         Debt owed to such Restricted Subsidiary, which is not contemporaneously
         repaid, together with such Debt, shall be deemed to have been incurred
         by the Company or such other Restricted Subsidiary, as the case may be,
         at the time such Restricted Subsidiary ceases to be a Restricted
         Subsidiary.

10.10.   DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES.

                  The Company may designate any Restricted Subsidiary as an
Unrestricted Subsidiary and any Unrestricted Subsidiary as a Restricted
Subsidiary; provided that,

                  (a) if such Subsidiary initially is designated a Restricted
         Subsidiary, then such Restricted Subsidiary may be subsequently
         designated as an Unrestricted Subsidiary and such Unrestricted
         Subsidiary may be subsequently designated as a Restricted Subsidiary,
         but no further changes in designation may be made;

                  (b) if such Subsidiary initially is designated an Unrestricted
         Subsidiary, then such Unrestricted Subsidiary may be subsequently
         designated as a Restricted Subsidiary and such Restricted Subsidiary
         may be subsequently designated as an Unrestricted Subsidiary, but no
         further changes in designation may be made;

                  (c) the Company may not designate a Restricted Subsidiary as
         an Unrestricted Subsidiary unless: (i) such Restricted Subsidiary does
         not own, directly or indirectly, any Debt or capital stock of the
         Company or any other Restricted Subsidiary, (ii) such designation,
         considered as a sale of assets, is permitted pursuant to Sections 10.5,
         10.6





                                       26





         and 10.9, (iii) immediately before and after such designation there
         exists no Default or Event of Default; and

                  (d) a Subsidiary Guarantor may not be designated an
         Unrestricted Subsidiary.

10.11.   SUBSIDIARY GUARANTY.

                  The Company will not permit any Restricted Subsidiary to
become a party to the Bank Guaranty or to directly or indirectly guarantee any
of the Company's Debt or other obligations unless such Restricted Subsidiary is,
or concurrently therewith becomes, a party to the Subsidiary Guaranty.

10.12.   NATURE OF BUSINESS.

                  The Company will not, and will not permit any Restricted
Subsidiary to, engage in any business if, as a result, the general nature of the
business in which the Company and its Restricted Subsidiaries, taken as a whole,
would then be engaged would be substantially changed from the general nature of
the business in which the Company and its Restricted Subsidiaries, taken as a
whole, are engaged on the date of this Agreement as described in the Memorandum.

10.13.   TRANSACTIONS WITH AFFILIATES.

                  The Company will not and will not permit any Restricted
Subsidiary to enter into directly or indirectly any Material transaction or
Material group of related transactions (including without limitation the
purchase, lease, sale or exchange of properties of any kind or the rendering of
any service) with any Affiliate (other than the Company or another Restricted
Subsidiary), except in the ordinary course of the Company's or such Restricted
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Restricted Subsidiary than would be obtainable in a
comparable arm's-length transaction with a Person not an Affiliate.

11.      EVENTS OF DEFAULT.

                  An "Event of Default" shall exist if any of the following
conditions or events shall occur and be continuing:

                  (a) the Company defaults in the payment of any principal or
         Make-Whole Amount, if any, on any Note when the same becomes due and
         payable, whether at maturity or at a date fixed for prepayment or by
         declaration or otherwise; or

                  (b) the Company defaults in the payment of any interest on any
         Note for more than five Business Days after the same becomes due and
         payable; or

                  (c) the Company defaults in the performance of or compliance
         with any term contained in Section 7.1(e) or Sections 10.1 through
         10.13; or

                  (d) the Company defaults in the performance of or compliance
         with any term contained herein (other than those referred to in
         paragraphs (a), (b) and (c) of this




                                       27


         Section 11) and such default is not remedied within 30 days after the
         earlier of (i) a Responsible Officer obtaining actual knowledge of such
         default and (ii) the Company receiving written notice of such default
         from any holder of a Note; or

                  (e) any representation or warranty made in writing by or on
         behalf of the Company or any Subsidiary Guarantor or by any officer of
         the Company or a Subsidiary Guarantor in this Agreement, the Subsidiary
         Guaranty or in any writing furnished in connection with the
         transactions contemplated hereby or thereby proves to have been false
         or incorrect in any material respect on the date as of which made; or

                  (f) (i) the Company or any Restricted Subsidiary is in default
         (as principal or as guarantor or other surety) in the payment of any
         principal of or premium or make-whole amount or interest on any Debt
         that is outstanding in an aggregate principal amount of at least
         $5,000,000 beyond any period of grace provided with respect thereto, or
         (ii) the Company or any Restricted Subsidiary is in default in the
         performance of or compliance with any term of any evidence of any Debt
         that is outstanding in an aggregate principal amount of at least
         $5,000,000 or of any mortgage, indenture or other agreement relating
         thereto or any other condition exists, and as a consequence of such
         default or condition such Debt has become, or has been declared (or one
         or more Persons are entitled to declare such Debt to be), due and
         payable before its stated maturity or before its regularly scheduled
         dates of payment, or (iii) as a consequence of the occurrence or
         continuation of any event or condition (other than the passage of time
         or the right of the holder of Debt to convert such Debt into equity
         interests), (x) the Company or any Restricted Subsidiary has become
         obligated to purchase or repay Debt before its regular maturity or
         before its regularly scheduled dates of payment in an aggregate
         outstanding principal amount of at least $5,000,000 or (y) one or more
         Persons have the right to require the Company or any Restricted
         Subsidiary so to purchase or repay such Debt; or

                  (g) the Company or any Restricted Subsidiary (i) is generally
         not paying, or admits in writing its inability to pay, its debts as
         they become due, (ii) files, or consents by answer or otherwise to the
         filing against it of, a petition for relief or reorganization or
         arrangement or any other petition in bankruptcy, for liquidation or to
         take advantage of any bankruptcy, insolvency, reorganization,
         moratorium or other similar law of any jurisdiction, (iii) makes an
         assignment for the benefit of its creditors, (iv) consents to the
         appointment of a custodian, receiver, trustee or other officer with
         similar powers with respect to it or with respect to any substantial
         part of its property, (v) is adjudicated as insolvent or to be
         liquidated, or (vi) takes corporate action for the purpose of any of
         the foregoing; or

                  (h) a court or governmental authority of competent
         jurisdiction enters an order appointing, without consent by the Company
         or any Restricted Subsidiary, a custodian, receiver, trustee or other
         officer with similar powers with respect to it or with respect to any
         substantial part of its property, or constituting an order for relief
         or approving a petition for relief or reorganization or any other
         petition in bankruptcy or for liquidation or to take advantage of any
         bankruptcy or insolvency law of any jurisdiction, or ordering the
         dissolution, winding-up or liquidation of the Company or any Restricted
         Subsidiary,


                                       28





         or any such petition shall be filed against the Company or any
         Restricted Subsidiary and such petition shall not be dismissed within
         60 days; or

                  (i) a final judgment or judgments for the payment of money
         aggregating at least $1,000,000 are rendered against one or more of the
         Company and its Restricted Subsidiaries, which judgments are not,
         within 60 days after entry thereof, bonded, discharged, dismissed or
         stayed pending appeal, or are not discharged within 60 days after the
         expiration of such stay; or

                  (j) if (i) 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, (ii) 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 any such
         proceedings, (iii) 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 be at
         least $1,000,000, (iv) 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 provisions of the
         Code relating to employee benefit plans, (v) the Company or any ERISA
         Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or
         any 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 Subsidiary thereunder; and
         any such event or events described in clauses (i) through (vi) above,
         either individually or together with any other such event or events,
         could reasonably be expected to have a Material Adverse Effect; or

                  (k) any Subsidiary Guarantor defaults in the performance of or
         compliance with any term contained in the Subsidiary Guaranty, and such
         default continues beyond any period of grace in respect thereof, or the
         Subsidiary Guaranty ceases to be in full force and effect as a result
         of acts taken by the Company or any Subsidiary Guarantor, except as
         provided in Section 22, or is declared to be null and void in whole or
         in material part by a court or other governmental or regulatory
         authority having jurisdiction or the validity or enforceability thereof
         shall be contested by any of the Company or any Subsidiary Guarantor or
         any of them renounces any of the same or denies that it has any or
         further liability thereunder.

As used in Section 11(j), the terms "employee benefit plan" and "employee
welfare benefit plan" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.




                                       29




12.      REMEDIES ON DEFAULT, ETC.

12.1.    ACCELERATION.

                  (a) If an Event of Default with respect to the Company
         described in paragraph (g) or (h) of Section 11 (other than an Event of
         Default described in clause (i) of paragraph (g) or described in clause
         (vi) of paragraph (g) by virtue of the fact that such clause
         encompasses clause (i) of paragraph (g)) has occurred, all the Notes
         then outstanding shall automatically become immediately due and
         payable.

                  (b) If any other Event of Default has occurred and is
         continuing, holders of a majority or more in principal amount of the
         Notes at the time outstanding may at any time at its or their option,
         by notice or notices to the Company, declare all the Notes then
         outstanding to be immediately due and payable.

                  (c) If any Event of Default described in paragraph (a) or (b)
         of Section 11 has occurred and is continuing, any holder or holders of
         Notes at the time outstanding affected by such Event of Default may at
         any time, at its or their option, by notice or notices to the Company,
         declare all the Notes held by it or them to be immediately due and
         payable.

                  Upon any Notes becoming due and payable under this Section
12.1, whether automatically or by declaration, such Notes will forthwith mature
and the entire unpaid principal amount of such Notes, plus (x) all accrued and
unpaid interest thereon and (y) the Make-Whole Amount determined in respect of
such principal amount (to the full extent permitted by applicable law), shall
all be immediately due and payable, in each and every case without presentment,
demand, protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.

12.2.    OTHER REMEDIES.

                  If any Default or Event of Default has occurred and is
continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 12.1, the holder of any Note
at the time outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Note, or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or by
law or otherwise.

12.3.    RESCISSION.

                  At any time after any Notes have been declared due and payable
pursuant to clause (b) or (c) of Section 12.1, the holders of a majority in
principal amount of the Notes then



                                       30




outstanding, by written notice to the Company, may rescind and annul any such
declaration and its consequences if (a) the Company has paid all overdue
interest on the Notes, all principal of and Make-Whole Amount, if any, on any
Notes that are due and payable and are unpaid other than by reason of such
declaration, and all interest on such overdue principal and Make-Whole Amount,
if any, and (to the extent permitted by applicable law) any overdue interest in
respect of the Notes, at the Default Rate, (b) all Events of Default and
Defaults, other than non-payment of amounts that have become due solely by
reason of such declaration, have been cured or have been waived pursuant to
Section 17, and (c) no judgment or decree has been entered for the payment of
any monies due pursuant hereto or to the Notes. No rescission and annulment
under this Section 12.3 will extend to or affect any subsequent Event of Default
or Default or impair any right consequent thereon.

12.4.    NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.

                  No course of dealing and no delay on the part of any holder of
any Note in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice such holder's rights, powers or remedies. No
right, power or remedy conferred by this Agreement or by any Note upon any
holder thereof shall be exclusive of any other right, power or remedy referred
to herein or therein or now or hereafter available at law, in equity, by statute
or otherwise. Without limiting the obligations of the Company under Section 15,
the Company will pay to the holder of each Note on demand such further amount as
shall be sufficient to cover all costs and expenses of such holder incurred in
any enforcement or collection under this Section 12, including, without
limitation, reasonable attorneys' fees, expenses and disbursements.

13.      REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.

13.1.    REGISTRATION OF NOTES.

                  The Company shall keep at its principal executive office a
register for the registration and registration of transfers of Notes. The name
and address of each holder of one or more Notes, each transfer thereof and the
name and address of each transferee of one or more Notes shall be registered in
such register. Prior to due presentment for registration of transfer, the Person
in whose name any Note shall be registered shall be deemed and treated as the
owner and holder thereof for all purposes hereof, and the Company shall not be
affected by any notice or knowledge to the contrary. The Company shall give to
any holder of a Note that is an Institutional Investor, promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.

13.2.    TRANSFER AND EXCHANGE OF NOTES.

                  Upon surrender of any Note at the principal executive office
of the Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder of such
Note or his attorney duly authorized in writing and accompanied by the address
for notices of each transferee of such Note or part thereof), the Company shall
execute and deliver, at the Company's expense (except as provided below), one or
more new Notes (as




                                       31

requested by the holder thereof) of the same series in exchange therefor, in an
aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as such
holder may request and shall be substantially in the form of Exhibit 1(a) or
1(b), as appropriate. Each such new Note shall be dated and bear interest from
the date to which interest shall have been paid on the surrendered Note or dated
the date of the surrendered Note if no interest shall have been paid thereon.
The Company may require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer of Notes. Notes
shall not be transferred in denominations of less than $500,000, provided that
if necessary to enable the registration of transfer by a holder of its entire
holding of Notes, one Note may be in a denomination of less than $500,000. Any
transferee, by its acceptance of a Note registered in its name (or the name of
its nominee), shall be deemed to have made the representation set forth in
Section 6.2.

13.3.    REPLACEMENT OF NOTES.

                  Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of any Note (which evidence shall be, in the case of an Institutional
Investor, notice from such Institutional Investor of such ownership and such
loss, theft, destruction or mutilation), and

                  (a) in the case of loss, theft or destruction, of indemnity
         reasonably satisfactory to it (provided that if the holder of such Note
         is, or is a nominee for, an original Purchaser or another Institutional
         Investor holder of a Note with a minimum net worth of at least
         $50,000,000, such Person's own unsecured agreement of indemnity shall
         be deemed to be satisfactory), or

                  (b) in the case of mutilation, upon surrender and cancellation
         thereof,

the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note of the same series, dated and bearing interest from the date to which
interest shall have been paid on such lost, stolen, destroyed or mutilated Note
or dated the date of such lost, stolen, destroyed or mutilated Note if no
interest shall have been paid thereon.

14.      PAYMENTS ON NOTES.

14.1.    PLACE OF PAYMENT.

                  Subject to Section 14.2, payments of principal, Make-Whole
Amount, if any, and interest becoming due and payable on the Notes shall be made
in Chicago, Illinois at the principal office of Bank of America in such
jurisdiction. The Company may at any time, by notice to each holder of a Note,
change the place of payment of the Notes so long as such place of payment shall
be either the principal office of the Company in such jurisdiction or the
principal office of a bank or trust company in such jurisdiction.


                                       32


14.2.    HOME OFFICE PAYMENT.

                  So long as you or your nominee shall be the holder of any
Note, and notwithstanding anything contained in Section 14.1 or in such Note to
the contrary, the Company will pay all sums becoming due on such Note for
principal, Make-Whole Amount, if any, and interest by the method and at the
address specified for such purpose below your name in Schedule A, or by such
other method or at such other address as you shall have from time to time
specified to the Company in writing for such purpose, without the presentation
or surrender of such Note or the making of any notation thereon, except that
upon written request of the Company made concurrently with or reasonably
promptly after payment or prepayment in full of any Note, you shall surrender
such Note for cancellation, reasonably promptly after any such request, to the
Company at its principal executive office or at the place of payment most
recently designated by the Company pursuant to Section 14.1. Prior to any sale
or other disposition of any Note held by you or your nominee you will, at your
election, either endorse thereon the amount of principal paid thereon and the
last date to which interest has been paid thereon or surrender such Note to the
Company in exchange for a new Note or Notes pursuant to Section 13.2. The
Company will afford the benefits of this Section 14.2 to any Institutional
Investor that is the direct or indirect transferee of any Note purchased by you
under this Agreement and that has made the same agreement relating to such Note
as you have made in this Section 14.2.

15.      EXPENSES, ETC.

15.1.    TRANSACTION EXPENSES.

                  Whether or not the transactions contemplated hereby are
consummated, the Company will pay all costs and expenses (including reasonable
attorneys' fees of special counsel and, if reasonably required, local or other
counsel) incurred by you and each Other Purchaser or holder of a Note in
connection with such transactions and in connection with any amendments, waivers
or consents under or in respect of this Agreement, the Notes, the Intercreditor
Agreement or the Subsidiary Guaranty (whether or not such amendment, waiver or
consent becomes effective), including: (a) the costs and expenses incurred in
enforcing or defending (or determining whether or how to enforce or defend) any
rights under this Agreement, the Notes, the Intercreditor Agreement or the
Subsidiary Guaranty or in responding to any subpoena or other legal process or
informal investigative demand issued in connection with this Agreement, the
Notes, the Intercreditor Agreement or the Subsidiary Guaranty, or by reason of
being a holder of any Note, and (b) the costs and expenses, including financial
advisors' fees, incurred in connection with the insolvency or bankruptcy of the
Company or any Subsidiary or in connection with any work-out or restructuring of
the transactions contemplated hereby and by the Notes. The Company will pay, and
will save you and each other holder of a Note harmless from, all claims in
respect of any fees, costs or expenses if any, of brokers and finders (other
than those retained by you).

15.2.    SURVIVAL.

                  The obligations of the Company under this Section 15 will
survive the payment or transfer of any Note, the enforcement, amendment or
waiver of any provision of this Agreement or the Notes, and the termination of
this Agreement.


                                       33


16.      SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.

                  All representations and warranties contained herein shall
survive the execution and delivery of this Agreement and the Notes, the purchase
or transfer by you of any Note or portion thereof or interest therein and the
payment of any Note, and may be relied upon by any subsequent holder of a Note,
regardless of any investigation made at any time by or on behalf of you or any
other holder of a Note. All statements contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant to this Agreement
shall be deemed representations and warranties of the Company under this
Agreement. Subject to the preceding sentence, this Agreement and the Notes
embody the entire agreement and understanding between you and the Company and
supersede all prior agreements and understandings relating to the subject matter
hereof.

17.      AMENDMENT AND WAIVER.

17.1.    REQUIREMENTS.

                  This Agreement, the Notes and the Subsidiary Guaranty may be
amended, and the observance of any term hereof or of the Notes may be waived
(either retroactively or prospectively), with (and only with) the written
consent of the Company and the Required Holders, except that (a) no amendment or
waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any
defined term (as it is used therein), will be effective as to you unless
consented to by you in writing, and (b) no such amendment or waiver may, without
the written consent of the holder of each Note at the time outstanding affected
thereby, (i) subject to the provisions of Section 12 relating to acceleration or
rescission, change the amount or time of any prepayment or payment of principal
of, or reduce the rate or change the time of payment or method of computation of
interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage
of the principal amount of the Notes the holders of which are required to
consent to any such amendment or waiver, or (iii) amend any of Sections 8,
11(a), 11(b), 12, 17 or 20.

17.2.    SOLICITATION OF HOLDERS OF NOTES.

                  (a) Solicitation. The Company will provide each holder of the
         Notes (irrespective of the amount of Notes then owned by it) with
         sufficient information, sufficiently far in advance of the date a
         decision is required, to enable such holder to make an informed and
         considered decision with respect to any proposed amendment, waiver or
         consent in respect of any of the provisions hereof or of the Notes. The
         Company will deliver executed or true and correct copies of each
         amendment, waiver or consent effected pursuant to the provisions of
         this Section 17 to each holder of outstanding Notes promptly following
         the date on which it is executed and delivered by, or receives the
         consent or approval of, the requisite holders of Notes.

                  (b) Payment. The Company will not directly or indirectly pay
         or cause to be paid any remuneration, whether by way of supplemental or
         additional interest, fee or otherwise, or grant any security, to any
         holder of Notes as consideration for or as an



                                       34


         inducement to the entering into by any holder of Notes or any waiver or
         amendment of any of the terms and provisions hereof unless such
         remuneration is concurrently paid, or security is concurrently granted,
         on the same terms, ratably to each holder of Notes then outstanding
         even if such holder did not consent to such waiver or amendment.

17.3.    BINDING EFFECT, ETC.

                  Any amendment or waiver consented to as provided in this
Section 17 applies equally to all holders of Notes and is binding upon them and
upon each future holder of any Note and upon the Company without regard to
whether such Note has been marked to indicate such amendment or waiver. No such
amendment or waiver will extend to or affect any obligation, covenant,
agreement, Default or Event of Default not expressly amended or waived or impair
any right consequent thereon. 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, the term "this Agreement" or "the Agreement" and references thereto
shall mean this Agreement as it may from time to time be amended or
supplemented.

17.4.    NOTES HELD BY COMPANY, ETC.

                  Solely for the purpose of determining whether the holders of
the requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to be
given under this Agreement or the Notes, or have directed the taking of any
action provided herein or in the Notes to be taken upon the direction of the
holders of a specified percentage of the aggregate principal amount of Notes
then outstanding, Notes directly or indirectly owned by the Company or any of
its Affiliates shall be deemed not to be outstanding.

18.      NOTICES.

                  All notices and communications provided for hereunder shall be
in writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:

                           (i) if to you or your nominee, to you or it at the
                  address specified for such communications in Schedule A, or at
                  such other address as you or it shall have specified to the
                  Company in writing,

                           (ii) if to any other holder of any Note, to such
                  holder at such address as such other holder shall have
                  specified to the Company in writing, or

                           (iii) if to the Company, to the Company at its
                  address set forth at the beginning hereof to the attention of
                  the Chief Financial Officer, or at such other address as the
                  Company shall have specified to the holder of each Note in
                  writing.



                                       35


Notices under this Section 18 will be deemed given only when actually received.

19.      REPRODUCTION OF DOCUMENTS.

                  This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications that may hereafter
be executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. The
Company agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. This Section 19
shall not prohibit the Company or any other holder of Notes from contesting any
such reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.

20.      CONFIDENTIAL INFORMATION.

                  For the purposes of this Section 20, "Confidential
Information" means information delivered to you by or on behalf of the Company
or any Subsidiary in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary in nature and that was
clearly marked or labeled or otherwise adequately identified in writing when
received by you as being confidential information of the Company or such
Subsidiary, provided that such term does not include information that (a) was
publicly known or otherwise known to you prior to the time of such disclosure,
(b) subsequently becomes publicly known through no act or omission by you or any
person acting on your behalf, (c) otherwise becomes known to you other than
through disclosure by the Company or any Subsidiary or (d) constitutes financial
statements delivered to you under Section 7.1 that are otherwise publicly
available. You will maintain the confidentiality of such Confidential
Information in accordance with procedures adopted by you in good faith to
protect confidential information of third parties delivered to you, provided
that you may deliver or disclose Confidential Information to (i) your directors,
trustees, officers, employees, agents, attorneys and affiliates (to the extent
such disclosure reasonably relates to the administration of the investment
represented by your Notes), (ii) your financial advisors and other professional
advisors who agree to hold confidential the Confidential Information
substantially in accordance with the terms of this Section 20, (iii) any other
holder of any Note, (iv) any Institutional Investor to which you sell or offer
to sell such Note or any part thereof or any participation therein (if such
Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 20), (v) any Person
from which you offer to purchase any security of the Company (if such Person has
agreed in writing prior to its receipt of such Confidential Information to be
bound by the provisions of this Section 20), (vi) any federal or state
regulatory authority having jurisdiction over you, (vii) the National
Association of Insurance Commissioners or any similar organization, or any
nationally recognized rating agency that requires access to information about
your investment portfolio or (viii) any other Person to which such delivery or
disclosure may be



                                       36




necessary or appropriate (w) to effect compliance with any law, rule, regulation
or order applicable to you, (x) in response to any subpoena or other legal
process, (y) in connection with any litigation to which you are a party or (z)
if an Event of Default has occurred and is continuing, to the extent you may
reasonably determine such delivery and disclosure to be necessary or appropriate
in the enforcement or for the protection of the rights and remedies under your
Notes and this Agreement. Each holder of a Note, by its acceptance of a Note,
will be deemed to have agreed to be bound by and to be entitled to the benefits
of this Section 20 as though it were a party to this Agreement. On reasonable
request by the Company in connection with the delivery to any holder of a Note
of information required to be delivered to such holder under this Agreement or
requested by such holder (other than a holder that is a party to this Agreement
or its nominee), such holder will enter into an agreement with the Company
embodying the provisions of this Section 20.

21.      SUBSTITUTION OF PURCHASER.

                  You shall have the right to substitute any one of your
Affiliates as the purchaser of the Notes that you have agreed to purchase
hereunder, by written notice to the Company, which notice shall be signed by
both you and such Affiliate, shall contain such Affiliate's agreement to be
bound by this Agreement and shall contain a confirmation by such Affiliate of
the accuracy with respect to it of the representations set forth in Section 6.
Upon receipt of such notice, wherever the word "you" is used in this Agreement
(other than in this Section 21), such word shall be deemed to refer to such
Affiliate in lieu of you. In the event that such Affiliate is so substituted as
a purchaser hereunder and such Affiliate thereafter transfers to you all of the
Notes then held by such Affiliate, upon receipt by the Company of notice of such
transfer, wherever the word "you" is used in this Agreement (other than in this
Section 21), such word shall no longer be deemed to refer to such Affiliate, but
shall refer to you, and you shall have all the rights of an original holder of
the Notes under this Agreement.

22.      RELEASE OF SUBSIDIARY GUARANTOR.

                  You and each subsequent holder of a Note agree to release any
Subsidiary Guarantor from the Subsidiary Guaranty (i) if such Subsidiary
Guarantor ceases to be such as a result of a Disposition permitted by Sections
10.5, 10.6 or 10.9 or (ii) at such time as the banks party to the Credit
Agreement release such Subsidiary from the Bank Guaranty and any other holders
of Debt guaranteed by such Subsidiary release such Subsidiary from such
Guaranties; provided, however, that you and each subsequent holder will not be
required to release a Subsidiary Guarantor from the Subsidiary Guaranty under
the circumstances contemplated by clause (ii), if (A) a Default or Event of
Default has occurred and is continuing, (B) such Subsidiary Guarantor is to
become a borrower under the Credit Agreement or (C) such release is part of a
plan of financing that contemplates such Subsidiary Guarantor guaranteeing any
other Debt of the Company. Your obligation to release a Subsidiary Guarantor
from the Subsidiary Guaranty is conditioned upon your prior receipt of a
certificate from a Senior Financial Officer of the Company stating that none of
the circumstances described in clauses (A), (B) and (C) above are true.






                                       37



23.      MISCELLANEOUS.

23.1.    SUCCESSORS AND ASSIGNS.

                  All covenants and other agreements contained in this Agreement
by or on behalf of any of the parties hereto bind and inure to the benefit of
their respective successors and assigns (including, without limitation, any
subsequent holder of a Note) whether so expressed or not.

23.2.    PAYMENTS DUE ON NON-BUSINESS DAYS.

                  Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-Whole Amount or interest on
any Note that is due on a date other than a Business Day shall be made on the
next succeeding Business Day without including the additional days elapsed in
the computation of the interest payable on such next succeeding Business Day.

23.3.    SEVERABILITY.

                  Any provision of this Agreement that 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 (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.

23.4.    CONSTRUCTION.

                  Each covenant contained herein shall be construed (absent
express provision to the contrary) as being independent of each other covenant
contained herein, so that compliance with any one covenant shall not (absent
such an express contrary provision) be deemed to excuse compliance with any
other covenant. Where any provision herein refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.

23.5.    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. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.

23.6.    GOVERNING LAW.

                  This Agreement shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the law of the State
of Illinois excluding choice-of-law principles of the law of such State that
would require the application of the laws of a jurisdiction other than such
State.






                                       38


                  If you are in agreement with the foregoing, please sign the
form of agreement on the accompanying counterpart of this Agreement and return
it to the Company, whereupon the foregoing shall become a binding agreement
between you and the Company.

                          Very truly yours,

                          REGIS CORPORATION


                          By:            /s/ Randy L. Pearce
                               -----------------------------------------
                          Name:          Randy L. Pearce
                                 ---------------------------------------
                          Title:     Executive Vice President
                                  --------------------------------------
                                     Chief Financial and Administrative Officer








                                      S-1



The foregoing is agreed
to as of the date thereof.


TEACHERS INSURANCE AND ANNUITY
  ASSOCIATION OF AMERICA


By:      /s/ Lisa M. Ferraro
     -------------------------------
Name:    Lisa M. Ferraro
       -----------------------------
Title:   Director
        ----------------------------









                                      S-2




MONUMENTAL LIFE INSURANCE COMPANY


By:      /s/ Bill Henricksen
     -------------------------------
Name:    Bill Henricksen
       -----------------------------
Title:   Vice President
        ----------------------------









                                      S-3




JACKSON NATIONAL LIFE INSURANCE COMPANY
    By:  PPM America, Inc., as attorney in fact, on
    behalf of Jackson National Life Insurance Company


By:      /s/ Chris Raub
     ---------------------------------------
Name:    Chris Raub
       -------------------------------------
Title:   Senior Managing Director
        ------------------------------------



JACKSON NATIONAL LIFE INSURANCE COMPANY OF NEW YORK
    By:  PPM America, Inc., as attorney in fact, on behalf of
    Jackson National Life Insurance Company of New York


By:      /s/ Chris Raub
     ---------------------------------------
Name:    Chris Raub
       -------------------------------------
Title:   Senior Managing Director
        ------------------------------------



THE PRUDENTIAL ASSURANCE COMPANY LIMITED
    By:  The Prudential Assurance Company Limited


By:      /s/ Chris Raub
     ---------------------------------------
Name:    Chris Raub
       -------------------------------------
Title:   Senior Managing Director
        ------------------------------------



                                       S-4




PACIFIC LIFE INSURANCE COMPANY


By:      /s/ Diane W. Dales
     -------------------------------
Name:    Diane W. Dales
       -----------------------------
Title:   Assistant Vice President
        ----------------------------


By:      /s/ Cathy Schwartz
     -------------------------------
Name:    Cathy Schwartz
       -----------------------------
Title:   Assistant Secretary
        ----------------------------






                                       S-5




PHOENIX LIFE INSURANCE COMPANY

By:      /s/ Christopher Wilkos
     ---------------------------------------
Name:    Christopher Wilkos
       -------------------------------------
Title:   Senior Vice President
        ------------------------------------



PHL VARIABLE INSURANCE COMPANY

By:      /s/ Christopher Wilkos
     ---------------------------------------
Name:    Christopher Wilkos
       -------------------------------------
Title:   Vice President
        ------------------------------------







                                      S-6




PROVIDENT MUTUAL LIFE INSURANCE COMPANY


By:      /s/ James D. Kestner
     -------------------------------
Name:    James D. Kestner
       -----------------------------
Title:   Vice President
        ----------------------------











                                      S-7




SECURITY FINANCIAL LIFE INSURANCE CO.


By:      /s/ Kevin W. Hammond
     -------------------------------
Name:    Kevin W. Hammond
       -----------------------------
Title:   Vice President
        ----------------------------
         Chief Investment Officer
        ----------------------------









                                      S-8






                                                                      SCHEDULE A


                       INFORMATION RELATING TO PURCHASERS





                                                                        Principal Amount of Notes to be Purchased
                                                                     ------------------------- -------------------------
Name of Purchaser                                                            Series A                  Series B
- -----------------                                                            --------                  --------
                                                                                               
Teachers Insurance and Annuity Association of America                                                 $35,000,000



Register Notes in name of: TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA

(1)      All payments on or in respect of the Notes shall be made in immediately
         available funds at the opening of business on the due date by
         electronic funds transfer through the Automated Clearing House System
         to:

         Chase Manhattan Bank
         ABA No. 021-000-021
         Account of: Teachers Insurance and Annuity Association of America
         Account No.: 900-9-000200
         For further Credit to the TIAA Account Number: G07040
         Reference: PPN#/Issuer/Mat. Date/Coupon Rate/P&I Breakdown

(2)      Contemporaneous with the above electronic funds transfer, advice
         setting forth (1) the full name, private placement number and interest
         rate of the Note, (2) allocation of payment between principal,
         interest, premium and any special payment; and (3) name and address of
         Bank (or Trustee) from which wire transfer was sent, shall be
         delivered, mailed or faxed to:

         Teachers Insurance and Annuity Association of America
         730 Third Avenue
         New York, New York 10017-3206
         Attention: Securities Accounting Division
         Telephone:        (212) 916-6004
         Fax:              (212) 916-6955

(3)      All other communications shall be delivered or mailed to:

         Teachers Insurance and Annuity Association of America
         730 Third Avenue
         New York, New York 10017-3206
         Attention: Securities Division/Lisa Ferraro
         Telephone:        (212) 916-6547 (Telephone Number)
                           (212) 490-9000 (General Telephone Number)
         Fax:              (212) 916-6667 (Telecopier Number)

Tax ID No. 13-1624203





                                   Schedule A



                                                                      SCHEDULE A
                       INFORMATION RELATING TO PURCHASERS



                                                                        Principal Amount of Notes to be Purchased
                                                                     ------------------------- -------------------------
Name of Purchaser                                                            Series A                  Series B
- -----------------                                                            --------                  --------
                                                                                               
Monumental Life Insurance Company                                                                     $30,000,000


Register Notes in name of:   MONUMENTAL LIFE INSURANCE COMPANY

(1)      All payments on account of the Monumental Life Insurance Company shall
         be made by wire transfer of immediately available funds to:

         Citibank, NA
         111 Wall Street
         New York, NY 10043
         ABA #021000089
         DDA #36218394
         Custody Account No.847785
         FC Monumental Life Insurance Company

         ADDITIONAL REQUIRED INFORMATION: Identify source and application of
         funds. Include the following: Security/Issuer Description, CUSIP (if
         available), principal and interest.

(2)      All notice of and confirmation of PAYMENT information should be
         sent to:

         AEGON USA Investment Management, LLC
         Attn: Neil Joss
         4333 Edgewood Road NE
         Cedar Rapids, IA 52499-5113
         Fax: (319) 247-6495

(3)      All other communications including financial statements and reporting
         should be directed to both:

         AEGON USA Investment Management, LLC.
         Investment Management, LLC
         Attn:  Director of Private Placements
         4333 Edgewood Road N.E.
         Cedar Rapids, IA 52499-5335
         FAX #:  319/369-2666

         AND




                                   Schedule A



         AEGON USA Investment Management, LLC
         Attn:  Lizz Taylor--Private Placements
         400 West Market Street
         Louisville, KY 40202
         Fax#:  502/560-2030


Tax ID No. 52-0419790










                                   Schedule A



                                                                      SCHEDULE A
                       INFORMATION RELATING TO PURCHASERS




                                                                        Principal Amount of Notes to be Purchased
                                                                     ------------------------- -------------------------
Name of Purchaser                                                            Series A                  Series B
- -----------------                                                            --------                  --------
                                                                                                
Jackson National Life Insurance Company                                     $9,000,000


Register Notes in name of:  JACKSON NATIONAL LIFE INSURANCE COMPANY

(1)      Please wire all payments as follows. To ensure accurate and timely
         posting of principal and interest, please include all relevant
         information on the wire.

         The Bank of New York
         ABA # 021-000-018
         BNF Account #: IOC566
         FBO: Jackson National Life
         Ref: CUSIP / PPN, Description, and Breakdown (P&I)

(2)      Payment notices should be sent to:

         Jackson National Life Insurance Company
         c/o The Bank of New York
         Attn: P&I Department
         P. O. Box 19266
         Newark, New Jersey 07195
         Phone: (212) 437-3054, Fax: (212) 437-6466

(3)      ORIGINAL documents and COPIES of notes and certificates, notices,
         waivers, amendments, consents, and financial information should be sent
         to:
                                                 
     a)  PPM America, Inc.                           b)       Jackson National Life Insurance
         225 West Wacker Drive, Suite 1200                    Company
         Chicago, IL 60606-1228                               225 West Wacker Drive, Suite 1200
         Attn:  Private Placements - Nicole Kidder            Chicago, IL  60606-1228
         Phone:  (312) 634-2516                               Attn: Investment Accounting - Mark
         Fax:  (312) 236-0555                                 Stewart
                                                              Phone: (312) 338-5832
                                                              Fax: (312) 236-5224




Tax ID No. 38-1659835




                                   Schedule A



                                                                      SCHEDULE A
                       INFORMATION RELATING TO PURCHASERS




                                                                        Principal Amount of Notes to be Purchased
                                                                     ------------------------- -------------------------
Name of Purchaser                                                            Series A                  Series B
- -----------------                                                            --------                  --------
                                                                                               
Jackson National Life Insurance Company of New York                         $4,000,000


Register Notes in name of:  JACKSON NATIONAL LIFE INSURANCE COMPANY OF NEW YORK

(1)      Please wire all payments as follows. To ensure accurate and timely
         posting of principal and interest, please include all relevant
         information on the wire.

         The Bank of New York
         ABA # 021-000-018
         BNF Account #: IOC566
         FBO: Jackson National Life
         Ref: CUSIP / PPN, Description, and Breakdown (P&I)

(2)      Payment notices should be sent to:

         Jackson National Life Insurance Company
         c/o The Bank of New York
         Attn: P&I Department
         P. O. Box 19266
         Newark, New Jersey 07195
         Phone: (212) 437-3054, Fax: (212) 437-6466

(3)      ORIGINAL documents and COPIES of notes and certificates, notices,
         waivers, amendments, consents, and financial information should be sent
         to:
                                                 
     a)  PPM America, Inc.                           b)       Jackson National Life Insurance
         225 West Wacker Drive, Suite 1200                    Company
         Chicago, IL 60606-1228                               225 West Wacker Drive, Suite 1200
         Attn:  Private Placements - Nicole Kidder            Chicago, IL  60606-1228
         Phone:  (312) 634-2516                               Attn: Investment Accounting - Mark
         Fax:  (312) 236-0555                                 Stewart
                                                              Phone: (312) 338-5832
                                                              Fax: (312) 236-5224




Tax ID No. 13-3873709




                                   Schedule A



                                                                      SCHEDULE A
                       INFORMATION RELATING TO PURCHASERS





                                                                        Principal Amount of Notes to be Purchased
                                                                     ------------------------- -------------------------
Name of Purchaser                                                            Series A                  Series B
- -----------------                                                            --------                  --------
                                                                                               
The Prudential Assurance Company Limited                                    $8,400,000


Register Notes in name of:  THE PRUDENTIAL ASSURANCE COMPANY LIMITED

(1)      Please wire all payments as follows. To ensure accurate and timely
         posting of principal and interest, please include all relevant
         information on the wire.

         Boston Safe Deposit
         ABA # 011001234
         BNF DDA Account # 125261
         FBO OBO-FI A/C# PMIF0583002
         Ref: CUSIP/PPN, Description, and Breakdown (P&I)
         Special Instructions: Cost Center 1253

(2)      Payment notices should be sent to:
                                                  
     a)  PPM America, Inc.                           b)       Mellon Trust
         225 West Wacker Drive, Suite 1200                    135 Santilli Highway, Room 026-
         Chicago, IL 60606-1228                               0035
         Attn: Portfolio Services - Craig Close               Everett, MA 02149-1950
         Phone: (312) 634-2502                                Attn: Melissa Chin
         Fax: (312) 634-0906                                  Phone: (617) 382-4392
                                                              Fax: (617) 382-2458



(3)      ORIGINAL documents and COPIES of notes and certificates, notices,
         waivers, amendments, consents, and financial information should be sent
         to:
                                                 
     a)  PPM America, Inc.                           b)       PPM America, Inc.
         225 West Wacker Drive, Suite 1200                    225 West Wacker Drive, Suite 1200
         Chicago, IL 60606-1228                               Chicago, IL  60606-1228
         Attn:  Private Placements - Nicole Kidder            Attn: Portfolio Services- Craig
         Phone:  (312) 634-2516                               Close
         Fax:  (312) 236-0055                                 Phone: (312) 338-5832
                                                              Fax: (312) 236-5224









                                   Schedule A

                                                                      SCHEDULE A

                       INFORMATION RELATING TO PURCHASERS




                                                  Principal Amount of Notes to be Purchased
                                                  -----------------------------------------
Name of Purchaser                                    Series A                  Series B
- -----------------                                    --------                  --------
                                                                         
The Prudential Assurance Company Limited            $1,600,000



Register Notes in name of:  THE PRUDENTIAL ASSURANCE COMPANY LIMITED

(1)      Please wire all payments as follows. To ensure accurate and timely
         posting of principal and interest, please include all relevant
         information on the wire.

         Boston Safe Deposit
         ABA # 011001234
         BNF DDA Account # 125261
         FBO SAL-FI
         A/C# PMIF0584002
         Ref: CUSIP/PPN, Description, and Breakdown (P&I)
         Special Instructions: Cost Center 1253

(2)      Payment notices should be sent to:

     a)  PPM America, Inc.                  b)   Mellon Trust
         225 West Wacker Drive, Suite 1200       135 Santilli Highway, Room 026-
         Chicago, IL 60606-1228                  0035
         Attn: Portfolio Services -              Everett, MA 02149-1950
         Craig Close                             Attn: Melissa Chin
         Phone: (312) 634-2502                   Phone: (617) 382-4392
         Fax: (312) 634-0906                     Fax: (617) 382-2458


(3)      ORIGINAL documents and COPIES of notes and certificates, notices,
         waivers, amendments, consents, and financial information should be sent
         to:

     a)  PPM America, Inc.                  b)   PPM America, Inc.
         225 West Wacker Drive, Suite 1200       225 West Wacker Drive, Suite
         Chicago, IL 60606-1228                  1200
         Attn:  Private Placements -             Chicago, IL  60606-1228
         Nicole Kidder                           Attn:   Portfolio Services-
         Phone (312) 634-2516                    Craig Close
         Fax:  (312) 236-0055                    Phone: (312) 338-5832
                                                 Fax: (312) 236-5224


                                   SCHEDULE A



                                                                      SCHEDULE A

                       INFORMATION RELATING TO PURCHASERS




                                               Principal Amount of Notes to be Purchased
                                             --------------------------------------------------
Name of Purchaser                                     Series A                  Series B
- -----------------                                     --------                  --------
                                                                          
Pacific Life Insurance Company                       $10,000,000
                                                      $5,000,000
                                                      $1,000,000
                                                      $1,000,000
                                                      $1,000,000
                                                      $1,000,000
                                                      $1,000,000
                                                      $1,000,000
                                                      $1,000,000



Register Notes in name of:  MAC & CO.

(1)      For payment of principal and interest:

         Federal Reserve Bank of Boston
         ABA# 0110-0123-4/BOS SAFE DEP
         DDA 125261
         Attn:  MBS Income CC: 1253
         A/C Name:  Pacific Life General Account/PLCF1810132
         Regarding: Security Description & PPN

(2)      All notices of payments and written confirmations of such wire
         transfers to:

         Mellon Trust
         Attn:  Pacific Life Accounting Team
         One Mellon Bank Center-Room 0930
         Pittsburgh, PA  15258-0001
         FAX# 412-236-7529

         AND

         Pacific Life Insurance Company
         Attn: Securities Administration - Cash Team
         700 Newport Center Drive
         Newport Beach, CA  92660-6397
         FAX# 949-640-4013



                                   SCHEDULE A



(3)      All other communications shall be addressed to:

         Pacific Life Insurance Company
         Attn: Securities Department
         700 Newport Center Drive
         Newport Beach, CA  92660-6397
         FAX# 949-219-5406

(4)      For Physical Delivery of Certificates:

         Mellon Securities Trust Company
         120 Broadway, 13th Floor
         New York, NY 10271
         Attn: Robert Feraro 212.374.1918
         A/C NAME: PACIFIC LIFE GENERAL ACCT.
         A/C#:     PLCF1810132


Tax ID No.  95-1079000

                                   SCHEDULE A




                                                                      SCHEDULE A

                       INFORMATION RELATING TO PURCHASERS




                                                 Principal Amount of Notes to be Purchased
                                                 -----------------------------------------
Name of Purchaser                                    Series A                  Series B
- -----------------                                    --------                  --------
                                                                         
Phoenix Life Insurance Company                      $5,000,000



Register Notes in name of:  PHOENIX LIFE INSURANCE COMPANY

(1)      All payments by wire transfer of immediately available funds to:

         Chase Manhattan Bank
         New York, NY
         ABA 021 000 21
         Acct. Number:  900 9000 200
         Acct. Name:  Income Processing
         Reference:  G05123, Phoenix Life Insurance, PPN:

(2)      All notices of payments and written confirmations of such wire
         transfers:

         Phoenix Investment Partners
         Attn:  Private Placement Dept.
         56 Prospect Street
         Hartford, CT 06115
         Telephone:  (860) 403-5519
         Fax:  (860) 403-7248

(3)      All other communications:

         Phoenix Life Insurance
         Attn:  John Mulrain
         One American Row
         Hartford, CT 06102
         Telephone:  (860) 403-5799
         Fax:  (860) 403-7203

Tax ID No.  06-0493340


                                   SCHEDULE A




                                                                      SCHEDULE A

                       INFORMATION RELATING TO PURCHASERS




                                                 Principal Amount of Notes to be Purchased
                                                 -----------------------------------------
Name of Purchaser                                    Series A                  Series B
- -----------------                                    --------                  --------
                                                                         
PHL Variable Insurance Company                      $3,000,000



Register Notes in name of:  PHL VARIABLE INSURANCE COMPANY

(1)      All payments by wire transfer of immediately available funds to:

         Chase Manhattan Bank
         New York, NY
         ABA 021 000 21
         Acct. Number:  900 9000 200
         Acct. Name:  Income Processing
         Reference:  G05948, Phoenix Life Insurance, PPN:

(2)      All notices of payments and written confirmations of such wire
         transfers:

         Phoenix Investment Partners
         Attn:  Private Placement Dept.
         56 Prospect Street
         Hartford, CT 06115
         Telephone:  (860) 403-5519
         Fax:  (860) 403-7248

(3)      All other communications:

         Phoenix Life Insurance
         Attn:  John Mulrain
         One American Row
         Hartford, CT 06102
         Telephone:  (860) 403-5799
         Fax:  (860) 403-7203

Tax ID No.  06-1045829

                                   SCHEDULE A




                                                                      SCHEDULE A

                       INFORMATION RELATING TO PURCHASERS




                                              Principal Amount of Notes to be Purchased
                                            ---------------------------------------------
Name of Purchaser                                    Series A                  Series B
- -----------------                                    --------                  --------
                                                                         
Provident Mutual Life Insurance Company              $2,000,000
                                                     $3,000,000



Register Notes in name of:  PROVIDENT MUTUAL LIFE INSURANCE COMPANY

(1)      All payments by wire transfer of immediately available funds to:

         PNC Bank
         Broad & Chestnut Streets
         Philadelphia, PA  19101
         ABA #  031-000-053

         For credit to Provident Mutual Life Insurance Company
         Account #  85-4084-2176

(2)      All notices:

         Provident Mutual Life Insurance Company
         Attn: Investment Department
         1000 Chesterbrook Blvd
          Berwyn, PA  19312



Tax ID No.  23-0990450

                                   SCHEDULE A



                                                                      SCHEDULE A

                       INFORMATION RELATING TO PURCHASERS




                                                Principal Amount of Notes to be Purchased
                                               --------------------------------------------
Name of Purchaser                                    Series A                  Series B
- -----------------                                    --------                  --------
                                                                        
Security Financial Life Insurance Co.                                         $2,000,000



Register Notes in name of:  SECURITY FINANCIAL LIFE INSURANCE CO.

(1)      All payments on or in respect of the Notes shall be made by wire
         transfer of immediately available funds at the opening of business on
         the due date to:

         Wells Fargo Bank, Nebraska, N.A.
         1248 "O" Street
         Lincoln NE 68508 ABA No. 104-000-058

         ACCOUNT OF:   SECURITY FINANCIAL LIFE
         ACCOUNT OF:   79-40-797-624

         Each such wire transfer shall set forth the name of the issuer, the
         full title of the Notes (including the rate and final redemption to
         maturity date) and application of such funds among principle, premium
         and interest, if applicable.

(2)      All notices of payments and written confirmations of such wire
         transfers should be sent to:

         Security Financial Life Insurance Co.
         4000 Pine Lake Road
         P.O. Box 82248
         Lincoln, NE  68516
         Attention: Investment Division
         Fax:    (402) 458-2170
         Phone:  (402) 434-9500

(3)      All other communications should be sent to:

         Security Financial Life Insurance Co.
         4000 Pine Lake Road
         P.O. Box 82248
         Lincoln, NE 68501-2248


Tax ID No. 47-0293990

                                   SCHEDULE A




                                                                      SCHEDULE B

                                  DEFINED TERMS

                  As used herein, the following terms have the respective
meanings set forth below or set forth in the Section hereof following such term:

                  "AFFILIATE" means, at any time, and with respect to any
Person, (a) any other Person that at such time directly or indirectly through
one or more intermediaries Controls, or is Controlled by, or is under common
Control with, such first Person, and (b) any Person beneficially owning or
holding, directly or indirectly, 10% or more of any class of voting or equity
interests of the Company or any Subsidiary or any corporation of which the
Company and its Subsidiaries beneficially own or hold, in the aggregate,
directly or indirectly, 10% or more of any class of voting or equity interests.
As used in this definition, "CONTROL" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. Unless the context otherwise clearly requires, any
reference to an "Affiliate" is a reference to an Affiliate of the Company.

                  "BANK GUARANTY" means the Subsidiary Guaranty dated as of
August 2, 1999 of the Subsidiary Guarantors of Debt outstanding under the Credit
Agreement, as such Guaranty may be amended, restated or otherwise modified, and
any successor thereto.

                  "BANKS" means the banks party to the Credit Agreement,
including Bank of America, N.A., as administrative agent for such banks.

                  "BUSINESS DAY" means (a) for the purposes of Section 8.6 only,
any day other than a Saturday, a Sunday or a day on which commercial banks in
New York City are required or authorized to be closed, and (b) for the purposes
of any other provision of this Agreement, any day other than a Saturday, a
Sunday or a day on which commercial banks in Chicago, Illinois or New York City
are required or authorized to be closed.

                  "CAPITAL LEASE" means, at any time, a lease with respect to
which the lessee is required concurrently to recognize the acquisition of an
asset and the incurrence of a liability in accordance with GAAP.

                  "CLOSING" is defined in Section 3.

                  "CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and the rules and regulations promulgated thereunder from
time to time.

                  "COMPANY" means Regis Corporation, a Minnesota corporation.

                  "CONFIDENTIAL INFORMATION" is defined in Section 20.


                                   Schedule B




                  "CONSOLIDATED EBITDA" means, for any period, the sum of
Consolidated Net Income for such period, plus, to the extent deducted in
determining such Consolidated Net Income, (i) federal, state, local and foreign
income, value added and similar taxes, (ii) Consolidated Interest Expense and
(iii) depreciation and amortization expense.

                  "CONSOLIDATED EBITDAR" means, for any period, the sum of (i)
Consolidated EBITDA for such period and (ii) Rental Expense for such period
under all leases other than Capital Leases.

                  "CONSOLIDATED FIXED CHARGES" means, for any period, the sum of
(i) Rental Expense for such period under all leases other than Capital Leases
and (ii) Consolidated Interest Expense for such period.

                  "CONSOLIDATED INTEREST EXPENSE" means, for any period, the
consolidated interest expense of the Company and its Restricted Subsidiaries for
such period determined in accordance with GAAP.

                  "CONSOLIDATED NET DEBT" means, as of any date, outstanding
Debt of the Company and its Restricted Subsidiaries as of such date less cash
and cash equivalents of the Company and its Restricted Subsidiaries as of such
date, each as determined on a consolidated basis in accordance with GAAP.

                  "CONSOLIDATED NET INCOME" means, for any period, the net
income or loss of the Company and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, but in any event
excluding extraordinary or nonrecurring gains or losses.

                  "CONSOLIDATED NET WORTH" means, as of any date, the
consolidated stockholders' equity of the Company and its Restricted Subsidiaries
as of such date, determined in accordance with GAAP.

                  "CONSOLIDATED TOTAL ASSETS" means, as of any date, the assets
and properties of the Company and its Restricted Subsidiaries as of such date,
determined on a consolidated basis in accordance with GAAP.

                  "CREDIT AGREEMENT" means the Amended and Restated Credit
Agreement dated as of September 26, 2000 among the Company, Bank of America,
N.A., as Administrative Agent, LaSalle Bank National Association, as
Co-Administrative Agent and Swing Line Lender, Bank One, NA and First Union
National Bank, as Co-Documentation Agents, and the other financial institutions
party thereto, as such agreement may be hereafter amended, modified, restated,
supplemented, refinanced, increased or reduced from time to time, and any
successor credit agreement or similar facilities.

                  "DEBT" with respect to any Person means, at any time, without
duplication,

                                   Schedule B




                  (a) its liabilities for borrowed money and its redemption
         obligations in respect of mandatorily redeemable Preferred Stock that
         can be required to be redeemed prior to the maturity of the Notes;

                  (b) its liabilities for the deferred purchase price of
         property acquired by such Person (excluding accounts payable and other
         accrued liabilities arising in the ordinary course of business but
         including all liabilities created or arising under any conditional sale
         or other title retention agreement with respect to any such property);

                  (c) all liabilities appearing on its balance sheet in
         accordance with GAAP in respect of Capital Leases; and

                  (d) all liabilities for borrowed money secured by any Lien
         with respect to any property owned by such Person (whether or not it
         has assumed or otherwise become liable for such liabilities); and

                  (e) any Guaranty of such Person with respect to liabilities of
         a type described in any of clauses (a) through (d) hereof.

Debt of any Person shall include all obligations of such Person of the character
described in clauses (a) through (d) to the extent such Person remains legally
liable in respect thereof notwithstanding that any such obligation is deemed to
be extinguished under GAAP.

                  "DEFAULT" means an event or condition the occurrence or
existence of which would, with the lapse of time or the giving of notice or
both, become an Event of Default.

                  "DEFAULT RATE" means that rate of interest that is the greater
of (i) 2% per annum above the rate of interest stated in clause (a) of the first
paragraph of the Notes or (ii) 2% over the rate of interest publicly announced
by Bank of America in Chicago, Illinois as its "base" or "prime" rate.

                  "DISPOSITION" is defined in Section 10.5.

                  "ENVIRONMENTAL LAWS" means any and all Federal, state, local,
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.

                  "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.

                  "ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.

                                   Schedule B





                  "EVENT OF DEFAULT" is defined in Section 11.

                  "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

                  "GAAP" means generally accepted accounting principles as in
effect from time to time in the United States of America.

                  "GOVERNMENTAL AUTHORITY" means

                  (a)      the government of

                           (i) the United States of America or any State or
                  other political subdivision thereof, or

                           (ii) any jurisdiction in which the Company or any
                  Subsidiary conducts all or any part of its business, or which
                  asserts jurisdiction over any properties of the Company or any
                  Subsidiary, or

                  (b) any entity exercising executive, legislative, judicial,
         regulatory or administrative functions of, or pertaining to, any such
         government.

                  "GUARANTY" means, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing or in effect
guaranteeing any indebtedness, dividend or other obligation of any other Person
in any manner, whether directly or indirectly, including (without limitation)
obligations incurred through an agreement, contingent or otherwise, by such
Person:

                  (a) to purchase such indebtedness or obligation or any
         property constituting security therefor;

                  (b) to advance or supply funds (i) for the purchase or payment
         of such indebtedness or obligation, or (ii) to maintain any working
         capital or other balance sheet condition or any income statement
         condition of any other Person or otherwise to advance or make available
         funds for the purchase or payment of such indebtedness or obligation;

                  (c) to lease properties or to purchase properties or services
         primarily for the purpose of assuring the owner of such indebtedness or
         obligation of the ability of any other Person to make payment of the
         indebtedness or obligation; or

                  (d) otherwise to assure the owner of such indebtedness or
         obligation against loss in respect thereof.

                                   Schedule B




In any computation of the indebtedness or other liabilities of the obligor under
any Guaranty, the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.

                  "HAZARDOUS MATERIAL" means any and all pollutants, toxic or
hazardous wastes or any other substances that might pose a hazard to health or
safety, the removal of which may be required or the generation, manufacture,
refining, production, processing, treatment, storage, handling, transportation,
transfer, use, disposal, release, discharge, spillage, seepage, or filtration of
which is or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).

                  "HOLDER" means, with respect to any Note, the Person in whose
name such Note is registered in the register maintained by the Company pursuant
to Section 13.1.

                  "INSTITUTIONAL INVESTOR" means (a) any original purchaser of a
Note, (b) any holder of more than $2,000,000 in aggregate principal amount of
the Notes at the time outstanding, and (c) any bank, trust company, savings and
loan association or other financial institution, any pension plan, any
investment company, any insurance company, any broker or dealer, or any other
similar financial institution or entity, regardless of legal form.

                  "INTERCREDITOR AGREEMENT" is defined in Section 4.11.

                  "INVESTMENTS" means all investments made, in cash or by
delivery of property, directly or indirectly, by any Person, in any other
Person, whether by acquisition of shares of capital stock, indebtedness or other
obligations or securities or by loan, Guaranty, advance, capital contribution or
otherwise.

                  "LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or title
of any vendor, lessor, lender or other secured party to or of such Person under
any conditional sale or other title retention agreement or Capital Lease, upon
or with respect to any property or asset of such Person (including in the case
of stock, stockholder agreements, voting trust agreements and all similar
arrangements).

                  "MAKE-WHOLE AMOUNT" is defined in Section 8.6.

                  "MATERIAL" means material in relation to the business,
operations, affairs, financial condition, assets or properties of the Company
and its Restricted Subsidiaries taken as a whole.

                  "MATERIAL ADVERSE EFFECT" means a material adverse effect on
(a) the business, operations, affairs, financial condition, assets or properties
of the Company and its Restricted Subsidiaries taken as a whole, or (b) the
ability of the Company to perform its obligations under this Agreement and the
Notes, or (c) the ability of any Subsidiary to perform its obligations under the
Subsidiary Guaranty, or (d) the validity or enforceability of this Agreement,
the Notes or the Subsidiary Guaranty.

                                   Schedule B




                  "MEMORANDUM" is defined in Section 5.3.

                  "MOODY'S" means Moody's Investors Service, Inc.

                  "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).

                  "NOTES" is defined in Section 1.

                  "OFFICER'S CERTIFICATE" means a certificate of a Senior
Financial Officer or of any other officer of the Company whose responsibilities
extend to the subject matter of such certificate.

                  "OTHER PURCHASERS" is defined in Section 2.

                  "PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.

                  "PERSON" means an individual, partnership, corporation,
limited liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.

                  "PLAN" means an "employee benefit plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been established
or maintained, or to which contributions are or, within the preceding five
years, have been made or required to be made, by the Company or any ERISA
Affiliate or with respect to which the Company or any ERISA Affiliate may have
any liability.

                  "PREFERRED STOCK" means any class of capital stock of a
corporation that is preferred over any other class of capital stock of such
corporation as to the payment of dividends or the payment of any amount upon
liquidation or dissolution of such corporation.

                  "PRIORITY DEBT" means, as of any date, the sum (without
duplication) of (a) outstanding Debt of Restricted Subsidiaries that are not
Subsidiary Guarantors (other than Debt owed to the Company or a Wholly Owned
Restricted Subsidiary and Debt of a Person that is not an Unrestricted
Subsidiary outstanding at the time it becomes a Restricted Subsidiary) and (b)
Debt of the Company and its Restricted Subsidiaries secured by Liens not
otherwise permitted by Sections 10.4(a) through (h).

                  "PRIVATE SHELF AGREEMENTS" means the Amended and Restated
Private Shelf Agreement dated as of October 3, 2000 and the Private Shelf
Agreement dated as of December 19, 1997 as amended by the Amendment dated August
2, 1999, each between the Company and the purchasers named therein, as such
agreements may be amended, restated or otherwise modified, and any successor
thereto.

                                   Schedule B





                  "PROPERTY" or "PROPERTIES" means, unless otherwise
specifically limited, real or personal property of any kind, tangible or
intangible, choate or inchoate.

                  "PURCHASER" means each purchaser listed in Schedule A.

                  "QPAM EXEMPTION" means Prohibited Transaction Class Exemption
84-14 issued by the United States Department of Labor.

                  "RENTAL EXPENSE" means, for any period, the sum of (i) all
store rental payments, (ii) all common area maintenance payments and (iii) all
real estate taxes paid by the Company and its Restricted Subsidiaries for such
period.

                  "REPURCHASE PROGRAM" is defined in Section 10.7.

                  "REQUIRED HOLDERS" means, at any time, the holders of at least
a majority in principal amount of the Notes at the time outstanding (exclusive
of Notes then owned by the Company or any of its Affiliates).

                  "RESPONSIBLE OFFICER" means any Senior Financial Officer and
any other officer of the Company with responsibility for the administration of
the relevant portion of this agreement.

                  "RESTRICTED SUBSIDIARY" means any Subsidiary (a) of which at
least a majority of the voting securities are owned by the Company and/or one or
more Wholly Owned Restricted Subsidiaries and (b) that the Company has not
designated an Unrestricted Subsidiary by notice in writing given to the holders
of the Notes.

                  "S&P" means Standard & Poor's Ratings Group, a division of
McGraw Hill, Inc.

                  "SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time.

                  "SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer, treasurer or comptroller of the Company.

                  "SERIES A NOTES" is defined in Section 1.

                  "SERIES B NOTES" is defined in Section 1.

                  "SOURCE" is defined in Section 6.2.

                  "SUBSIDIARY" means, as to any Person, any corporation,
association or other business entity in which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient
equity or voting interests to enable it or them (as a group) ordinarily, in the
absence of contingencies, to elect a majority of the directors (or Persons
performing similar functions) of such entity, and any partnership, limited
liability company or


                                   Schedule B






joint venture if more than a 50% interest in the profits or capital thereof is
owned by such Person or one or more of its Subsidiaries or such Person and one
or more of its Subsidiaries (unless such partnership, limited liability company
or joint venture can and does ordinarily take major business actions without the
prior approval of such Person or one or more of its Subsidiaries). Unless the
context otherwise clearly requires, any reference to a "Subsidiary" is a
reference to a Subsidiary of the Company.

                  "SUBSIDIARY GUARANTOR" is defined in Section 1.

                  "SUBSIDIARY GUARANTY" is defined in Section 1.

                  "THIS AGREEMENT" OR "THE AGREEMENT" is defined in Section
17.3.

                  "UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company
that has been so designated by notice in writing given to the holders of the
Notes.

                  "VOTING STOCK" means the capital stock of any class or classes
of a corporation having power under ordinary circumstances to vote for the
election of members of the board of directors of such corporation, or person
performing similar functions (irrespective of whether or not at the time stock
of any of the class or classes shall have or might have special voting power or
rights by reason of the happening of any contingency).

                  "WHOLLY OWNED SUBSIDIARY" or "WHOLLY OWNED RESTRICTED
SUBSIDIARY" mean, at any time, any Subsidiary, or Restricted Subsidiary, as the
case may be, 100% of all of the equity interests (except directors' qualifying
shares) and voting interests of which are owned by any one or more of the
Company and the Company's other Wholly Owned Subsidiaries or Wholly Owned
Restricted Subsidiaries, as the case may be, at such time.



                                   Schedule B








                                                                    SCHEDULE 4.9


                         CHANGES IN CORPORATE STRUCTURE


NONE

                                  Schedule 4.9






                                                                    SCHEDULE 5.3


                              DISCLOSURE MATERIALS


NONE


                                  Schedule 5.3





                                                                    SCHEDULE 5.4


                           SUBSIDIARIES AND AFFILIATES

1.       COMPANY'S SUBSIDIARIES




               SUBSIDIARIES OF                                                    % OWNERSHIP
              REGIS CORPORATION                         JURISDICTION                STRUCTURE
              -----------------                         ------------                ---------

                                                                            
1.       THE BARBERS, HAIRSTYLING FOR MEN               Minnesota                 100.00% Regis Corporation
         & WOMEN, INC.
         A. WCH, Inc. *                                 Minnesota                 100.00% Barbers
            1.  We Care Hair Realty, Inc. *             Delaware                  100.00% WCH, Inc.
         B. CLS International, Inc. *                   Minnesota                 100.00% Barbers
         C. The Barbers Export, Inc. *                  Minnesota                 100.00% Barbers

2.       SUPERCUTS, INC.                                Delaware                  100% Regis Corporation
         A. Supercuts Corporate Shops, Inc .            Delaware                  100% Supercuts, Inc.
         B. Super Rico, Inc.                            Puerto Rico               100% Supercuts, Inc.
         C. SC Capital, Inc. *                          Delaware                  100% Supercuts, Inc.

3.       METROPOLIS GENERAL PARTNERSHIP                 Minnesota                 1.18% Regis Corporation
                                                                                  98.82%  Regis Inc.

4.       N.A.H.C. ACQUISITION LLC                       Minnesota                 100.00% Regis Corporation

5.       TRADE SECRET, INC.                             Colorado                  100.00% Regis Corporation

6.       HAIR MASTERS SERVICES, INC. *                  Washington                100.00% Regis Corporation

7.       REGIS, INC.                                    Minnesota                 100.00% Regis Corporation

8.       LORICK ENTERPRISES, INC. *                     North Carolina            100.00% Regis Corporation

9.       CALCO HAIR, INC. *                             Colorado                  100.00% Regis Corporation

10.      PACKER BROS., INC. OF CALIFORNIA *             California                100.00% Supercuts, Inc.

11.      JAMES A. JUNGMANN, INC. - TEXAS *              Texas                     100.00% Regis Corporation

12.      TOTAL HAIR CARE OF N. FLORIDA *                Florida                   100.00% Trade Secret, Inc.

13.      FIRST CHOICE HAIRCUTTERS (INTERNATIONAL) CORP  Delaware                  100.00% Regis Corporation

14.      CUTCO ACQUISITION CORP.                        Minnesota                 100.00% Regis Corporation
         A.  Haircrafters of Brooksville, Inc. *        Florida                   100.00% Cutco Acquisition Corp.
         B.  Haircrafters of Bushnell, Inc. *           Florida                   100.00% Cutco Acquisition Corp.
         C.  Great Expectations Precision Haircrafters
             of Evans Towne Center, Inc. *              Georgia                   100.00% Cutco  Acquisition Corp.
         D.  Great Expectations Precision Haircrafters
             of Northlake Mall, Inc.                    Georgia                   100.00% Cutco  Acquisition Corp.




                                  Schedule 5.4



                                                                    SCHEDULE 5.4
                                                                    (continued)

                           SUBSIDIARIES AND AFFILIATES
                                   (continued)


                                                                            
             CUTCO ACQUISITION CORP (CONTINUED)
         E.  Great Expectations Precision Haircutters
             of Griffith Park, Inc.                     Indiana                   100.00% Cutco Acquisition Corp.
         F.  Great Expectations Precision Haircutters
             of Twin Towers, Inc.                       Indiana                   100.00% Cutco Acquisition Corp.
         G.  Cut & Curl of Northline, Inc.              Texas                     100.00% Cutco Acquisition Corp.
         H.  Great Expectations Precision Haircutters
             of Brownsville, Inc.                       Texas                     100.00% Cutco Acquisition Corp.
         I.  Great Expectations Precision Haircutters
             of Mall del Norte, Inc.                    Texas                     100.00% Cutco Acquisition Corp.
         J.  Great Expectations Precision Haircutters
             of Valle Vista Mall, Inc.                  Texas                     100.00% Cutco Acquisition Corp.
         K.  Haircrafters of Jack Rabbit Plaza, Inc.    Texas                     100.00% Cutco Acquisition Corp


15.      REGIS INTERNATIONAL LTD.                       Minnesota                 100.00% Regis Corporation
         A.  Regis Europe, Ltd *                        United Kingdom            100.00% Regis International Ltd.
             1. Regis Suisse Limited *                  Delaware                  100.00% Regis Europe, Ltd.
         B.  Essanelle Limited *                        United Kingdom            100.00% Regis International Ltd.
         C.  Steiner Salons Limited *                   United Kingdom            100.00% Regis International Ltd.
         D.  Steiner Hairdressing Limited *             United Kingdom            100.00% Regis International Ltd.


16.      REGIS HAIRSTYLISTS, LTD                        Yukon                     100.00% Regis Corporation
         A.   Magicuts Zee, Inc.                        Ontario                   100.00% Regis Hairstylists, LTD
         B.   First Choice Haircutters, Ltd.            Yukon                     100.00% Regis Hairstylists, LTD
         C.   Mission Enterprises, LTD *                Alberta                   100.00% Regis Hairstylists, LTD

17.      REGIS CUTS ACQUISITION CORP.                   Nova Scotia               100.00% Regis Corporation
                                                        Unlimited Liability Co.

18.      REGIS NETHERLANDS, INC.                        Minnesota                 100.00% Regis Corporation

19.      RHS NETHERLANDS CV                             Netherlands                  .01% Regis Corporation
                                                                                   99.99% Regis Netherlands, Inc.
         A.  RHS Netherlands Finance B.V.               Netherlands               100.00% RHS Netherlands CV
         B.  RHS Netherlands Holdings B.V.              Netherlands               100.00% RHS Netherlands CV
             1. Supercuts UK, Ltd                       United Kingdom            100.00% RHS Neth Holdings BV
             2. RHS France SAS                          France                    100.00% RHS Neth Holdings BV
                a. SAG SA                               France                    100.00% RHS France SAS

20.      Regis Corp.                                    Minnesota                 100.00% Regis Corporation

21.      Regis Insurance Group, Inc.                    Vermont                   100.00% Regis Corporation





         * INACTIVE


                                  Schedule 5.4



                                                                    SCHEDULE 5.4
                                                                    (continued)
                           SUBSIDIARIES AND AFFILIATES
                                   (continued)



2.       COMPANY'S AFFILIATES

1.       Supercuts, Inc.  50% ownership in Tulsa's Best Haircut, LLC


3.       COMPANY'S DIRECTORS AND SENIOR OFFICERS




         BOARD OF DIRECTORS            CORPORATE OFFICERS
         ------------------            ------------------

         NAME                          NAME                       TITLE
         ----                          ----                       -----
                                                            
         Myron Kunin, Chairman         Myron Kunin                Chairman
         Paul D. Finkelstein           Paul D. Finkelstein        President and CEO
         Rolf Bjelland                 Christopher A. Fox         Executive Vice President
         Christopher A. Fox            Randy L. Pearce            Executive VP, CAO and CFO
         Susan S. Hoyt                 Raymond Duke               Senior V.P., International Managing Director, Europe
         Van Zandt Hawn                Bert M. Gross              Senior  V.P., General Counsel, & Secretary
         Thomas L. Gregory             Bruce D. Johnson           Senior V.P., Design & Construction
         David B. Kunin                Mark Kartarik, CFE         Senior Vice President, Regis Corp
                                                                  President, Franchise Division
                                       Gordon Nelson              Senior Vice President, Fashion Education &
                                                                  Marketing
                                       Kris Bergly                Chief Operating Officer, Style America, Hairmasters
                                       C. John Briggs             Chief Operating Officer, SmartStyle
                                       Sharon Kiker               Chief Operating Officer, Regis Salons
                                       Norma Knudsen              Chief Operating Officer, Trade Secret
                                       Rob Ribnick                Chief Operating Officer, MasterCuts
                                       Vicki Langan               Chief Operating Officer, Supercuts







                                  Schedule 5.4

                                                                    SCHEDULE 5.5


                              FINANCIAL STATEMENTS



         As provided in the Offering Memorandum and Enclosures:


1.       Income Statement Summary for:
         - 3 months ended September 30, 2001 and September 30, 2000
         - Fiscal years each ending June 30, 1997 through June 30, 2001

2.       Consolidated Balance Sheet Summary for:
         - September 30, 2000
         - Fiscal years each ending June 30, 1997 through June 30, 2001

3.       Consolidated Cash Flow Statement Summaries for:
         - 3 months ended September 30, 2000 and September 30, 2001
         - Fiscal years ending June 30, 1997 through June 30, 2001

4.       Annual Financial Reports for fiscal years 1997 through 2001

5.       SEC 10-K filing for fiscal years 1997 through 2001

6.       SEC 10-Q filing for the first quarter ended September 30, 2001









                                  Schedule 5.5


                                                                    SCHEDULE 5.8


                                   LITIGATION



         NONE










                                  Schedule 5.8



                                                                   SCHEDULE 5.11


                             LICENSES, PERMITS, ETC.


NONE










                                  Schedule 5.11


                                                                   SCHEDULE 5.14


                                 USE OF PROCEEDS


         1.  Refinance short term Libor and prime rate loans under a Revolving
             Credit Facility of approximately $72 million.

         2.  Fund future general corporate purposes, including but not limited
             to, acquisitions and capital expenditures.







                                 Schedule 5.14


                                                                   SCHEDULE 5.15


                                  EXISTING DEBT



AS OF DECEMBER 31, 2001

                          
Senior Fixed Rate Debt       $111,481,250
Revolving Line of Credit     $136,400,000
International Debt           $    786,025
Other (including acquired)   $  3,713,337
Capital Leases               $  2,665,740

 TOTAL                       $255,046,352













                                 Schedule 5.15





                                                                   SCHEDULE 10.4


                                 EXISTING LIENS




LIEN HOLDER                                 ASSETS                   OUTSTANDING
- -----------                                 ------                   -----------
                                                               
Information Leasing Corporation     Various Salon Equipment          $ 3,300,000
                                    and Warehouse Equipment

Steelcase Financial Services, Inc.  Office Furniture                 $ 2,000,000

Atlantic Financial Group, Ltd.      Synthetic Lease                  $11,800,000











                                 Schedule 10.4




                                                                    EXHIBIT 1(a)


                             [FORM OF SERIES A NOTE]


                                REGIS CORPORATION

                           6.73% SENIOR NOTE, SERIES A
                               DUE MARCH 15, 2009


No. A-[_____]                                                             [Date]
$[_______]                                                     PPN:  758932 D# 1

                  FOR VALUE RECEIVED, the undersigned, REGIS CORPORATION (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Minnesota, promises to pay to [ ], or registered assigns, the
principal sum of $[ ] on March 15, 2009, with interest (computed on the basis of
a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the
rate of 6.73% per annum from the date hereof, payable semiannually, on March 15
and September 15 in each year, commencing with the March or September next
succeeding the date hereof (except that no interest payment shall be made on
March 15, 2002), until the principal hereof shall have become due and payable,
and (b) to the extent permitted by law on any overdue payment (including any
overdue prepayment) of principal, any overdue payment of interest and any
overdue payment of any Make-Whole Amount (as defined in the Note Purchase
Agreement referred to below), payable semiannually 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) 8.73% or (ii) 2% over the rate of
interest publicly announced by Bank of America from time to time in Chicago,
Illinois as its "base" or "prime" rate.

                  Payments of principal of, interest on and any Make-Whole
Amount with respect to this Note are to be made in lawful money of the United
States of America at the principal office of Bank of America in Chicago,
Illinois or at such other place as the Company shall have designated by written
notice to the holder of this Note as provided in the Note Purchase Agreement
referred to below.

                  This Note is one of a series of Senior Notes (herein called
the "Notes") issued pursuant to a Note Purchase Agreement dated as of March 1,
2002 (as from time to time amended, the "Note Purchase Agreement"), between the
Company and the respective Purchasers named therein and is entitled to the
benefits thereof. Each holder of this Note will be deemed, by its acceptance
hereof, (i) to have agreed to the confidentiality provisions set forth in
Section 20 of the Note Purchase Agreement and (ii) to have made the
representation set forth in Section 6.2 of the Note Purchase Agreement.




                                  Exhibit 1(a)


                  This Note is a registered Note and, as provided in the Note
Purchase 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 a like 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 will not be affected by any notice to
the contrary.

                  This Note is subject to optional prepayment, in whole or from
time to time in part, at the times and on the terms specified in the Note
Purchase Agreement but not otherwise.

                  If an Event of Default, as defined in the Note Purchase
Agreement, occurs and is continuing, the principal of this Note may be declared
or otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.

                  Payment of the principal of, and interest and Make-Whole
Amount, if any, on this Note, and all other amounts due under the Note Purchase
Agreement, is guaranteed pursuant to the terms of a Guaranty dated as of March
1, 2002 of certain Subsidiaries of the Company.*

                  This Note shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the law of the State of
Illinois excluding choice-of-law principles of the law of such State that would
require the application of the laws of a jurisdiction other than such State.

                                 REGIS CORPORATION


                                 By:
                                      --------------------------------------
                                 Name:
                                        ------------------------------------
                                 Title:
                                         -----------------------------------



- ---------------------------
* This paragraph must be removed at such time as there are no Subsidiary
  Guarantors.



                                        2

                                  Exhibit 1(a)



                                                                    EXHIBIT 1(b)


                             [FORM OF SERIES B NOTE]


                                REGIS CORPORATION

                           7.20% SENIOR NOTE, SERIES B
                               DUE MARCH 15, 2012


No. B-[_____]                                                             [Date]
$[_______]                                                      PPN: 758932 E* 4

                  FOR VALUE RECEIVED, the undersigned, REGIS CORPORATION (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Minnesota, promises to pay to [ ], or registered assigns, the
principal sum of $[ ] on March 15, 2012, with interest (computed on the basis of
a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the
rate of 7.20% per annum from the date hereof, payable semiannually, on March 15
and September 15 in each year, commencing with the March or September next
succeeding the date hereof (except that no interest payment shall be made on
March 15, 2002), until the principal hereof shall have become due and payable,
and (b) to the extent permitted by law on any overdue payment (including any
overdue prepayment) of principal, any overdue payment of interest and any
overdue payment of any Make-Whole Amount (as defined in the Note Purchase
Agreement referred to below), payable semiannually 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) 9.20% or (ii) 2% over the rate of
interest publicly announced by Bank of America from time to time in Chicago,
Illinois as its "base" or "prime" rate.

                  Payments of principal of, interest on and any Make-Whole
Amount with respect to this Note are to be made in lawful money of the United
States of America at the principal office of Bank of America in Chicago,
Illinois or at such other place as the Company shall have designated by written
notice to the holder of this Note as provided in the Note Purchase Agreement
referred to below.

                  This Note is one of a series of Senior Notes (herein called
the "Notes") issued pursuant to a Note Purchase Agreement dated as of March 1,
2002 (as from time to time amended, the "Note Purchase Agreement"), between the
Company and the respective Purchasers named therein and is entitled to the
benefits thereof. Each holder of this Note will be deemed, by its acceptance
hereof, (i) to have agreed to the confidentiality provisions set forth in
Section 20 of the Note Purchase Agreement and (ii) to have made the
representation set forth in Section 6.2 of the Note Purchase Agreement.






                                  Exhibit 1(b)



                  This Note is a registered Note and, as provided in the Note
Purchase 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 a like 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 will not be affected by any notice to
the contrary.

                  This Note is subject to optional prepayment, in whole or from
time to time in part, at the times and on the terms specified in the Note
Purchase Agreement but not otherwise.

                  If an Event of Default, as defined in the Note Purchase
Agreement, occurs and is continuing, the principal of this Note may be declared
or otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.

                  Payment of the principal of, and interest and Make-Whole
Amount, if any, on this Note, and all other amounts due under the Note Purchase
Agreement, is guaranteed pursuant to the terms of a Guaranty dated as of March
1, 2002 of certain Subsidiaries of the Company.*

                  This Note shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the law of the State of
Illinois excluding choice-of-law principles of the law of such State that would
require the application of the laws of a jurisdiction other than such State.

                                   REGIS CORPORATION


                                   By:
                                        --------------------------------------
                                   Name:
                                          ------------------------------------
                                   Title:
                                           -----------------------------------








- ------------------------
* This paragraph must be removed at such time as there are no Subsidiary
Guarantors.






                                       2


                                  Exhibit 1(b)





                                                                    EXHIBIT 1(c)

                          [FORM OF SUBSIDIARY GUARANTY]

         THIS GUARANTY (this "Guaranty") dated as of March 1, 2002 is made by
the undersigned (each, a "Guarantor"), in favor of the holders from time to time
of the Notes hereinafter referred to, including each purchaser named in the Note
Purchase Agreement hereinafter referred to, and their respective successors and
assigns (collectively, the "Holders" and each individually, a "Holder").

                              W I T N E S S E T H:
                              - - - - - - - - - -

         WHEREAS, REGIS CORPORATION, a Minnesota corporation (the "Company"),
and the initial Holders have entered into a Note Purchase Agreement dated as of
March 1, 2002 (the Note Purchase Agreement as amended, supplemented, restated or
otherwise modified from time to time in accordance with its terms and in effect,
the "Note Purchase Agreement");

         WHEREAS, the Note Purchase Agreement provides for the issuance by the
Company of $125,000,000 aggregate principal amount of Notes (as defined in the
Note Purchase Agreement);

         WHEREAS, the Company owns all of the issued and outstanding capital
stock of each Guarantor and, by virtue of such ownership and otherwise, each
Guarantor will derive substantial benefits from the purchase by the Holders of
the Company's Notes;

         WHEREAS, it is a condition precedent to the obligation of the Holders
to purchase the Notes that each Guarantor shall have executed and delivered this
Guaranty to the Holders; and

         WHEREAS, each Guarantor desires to execute and deliver this Guaranty to
satisfy the conditions described in the preceding paragraph;

         NOW, THEREFORE, in consideration of the premises and other benefits to
each Guarantor, and of the purchase of the Company's Notes by the Holders, and
for other good and valuable consideration, the receipt and sufficiency of which
are acknowledged, each Guarantor makes this Guaranty as follows:

         SECTION 1. Definitions. Any capitalized terms not otherwise herein
defined shall have the meanings attributed to them in the Note Purchase
Agreement.

         SECTION 2. Guaranty. Each Guarantor, jointly and severally with each
other Guarantor, unconditionally and irrevocably guarantees to the Holders the
due, prompt and complete payment by the Company of the principal of, Make-Whole
Amount, if any, and interest on, and each other amount due under, the Notes or
the Note Purchase Agreement, when and as the same shall become due and payable
(whether at stated maturity or by required or optional prepayment or by
declaration or otherwise) in accordance with the terms of the Notes and the Note
Purchase Agreement (the Notes and the Note Purchase Agreement being sometimes
hereinafter collectively referred to as the "Note Documents" and the amounts
payable by the


                                  Exhibit 1(c)





Company under the Note Documents, and all other monetary obligations of the
Company thereunder, being sometimes collectively hereinafter referred to as the
"Obligations"). This Guaranty is a guaranty of payment and not just of
collectibility and is in no way conditioned or contingent upon any attempt to
collect from the Company or upon any other event, contingency or circumstance
whatsoever. If for any reason whatsoever the Company shall fail or be unable
duly, punctually and fully to pay such amounts as and when the same shall become
due and payable, each Guarantor, without demand, presentment, protest or notice
of any kind, will forthwith pay or cause to be paid such amounts to the Holders
under the terms of such Note Documents, in lawful money of the United States, at
the place specified in the Note Purchase Agreement, or perform or comply with
the same or cause the same to be performed or complied with, together with
interest (to the extent provided for under such Note Documents) on any amount
due and owing from the Company. Each Guarantor, promptly after demand, will pay
to the Holders the reasonable costs and expenses of collecting such amounts or
otherwise enforcing this Guaranty, including, without limitation, the reasonable
fees and expenses of counsel. Notwithstanding the foregoing, the right of
recovery against each Guarantor under this Guaranty is limited to the extent it
is judicially determined with respect to any Guarantor that entering into this
Guaranty would violate Section 548 of the United States Bankruptcy Code or any
comparable provisions of any state law, in which case such Guarantor shall be
liable under this Guaranty only for amounts aggregating up to the largest amount
that would not render such Guarantor's obligations hereunder subject to
avoidance under Section 548 of the United States Bankruptcy Code or any
comparable provisions of any state law.

         SECTION 3. Guarantor's Obligations Unconditional. The obligations of
each Guarantor under this Guaranty shall be primary, absolute and unconditional
obligations of each Guarantor, shall not be subject to any counterclaim,
set-off, deduction, diminution, abatement, recoupment, suspension, deferment,
reduction or defense based upon any claim each Guarantor or any other person may
have against the Company or any other person, and to the full extent permitted
by applicable law shall remain in full force and effect without regard to, and
shall not be released, discharged or in any way affected by, any circumstance or
condition whatsoever (whether or not each Guarantor or the Company shall have
any knowledge or notice thereof), including:

                  (a) any termination, amendment or modification of or deletion
         from or addition or supplement to or other change in any of the Note
         Documents or any other instrument or agreement applicable to any of the
         parties to any of the Note Documents;

                  (b) any furnishing or acceptance of any security, or any
         release of any security, for the Obligations, or the failure of any
         security or the failure of any person to perfect any interest in any
         collateral;

                  (c) any failure, omission or delay on the part of the Company
         to conform or comply with any term of any of the Note Documents or any
         other instrument or agreement referred to in paragraph (a) above,
         including, without limitation, failure to give notice to any Guarantor
         of the occurrence of a "Default" or an "Event of Default" under any
         Note Document;



                                       2

                                  Exhibit 1(c)





                  (d) any waiver of the payment, performance or observance of
         any of the obligations, conditions, covenants or agreements contained
         in any Note Document, or any other waiver, consent, extension,
         indulgence, compromise, settlement, release or other action or inaction
         under or in respect of any of the Note Documents or any other
         instrument or agreement referred to in paragraph (a) above or any
         obligation or liability of the Company, or any exercise or non-exercise
         of any right, remedy, power or privilege under or in respect of any
         such instrument or agreement or any such obligation or liability;

                  (e) any failure, omission or delay on the part of any of the
         Holders to enforce, assert or exercise any right, power or remedy
         conferred on such Holder in this Guaranty, or any such failure,
         omission or delay on the part of such Holder in connection with any
         Note Document, or any other action on the part of such Holder;

                  (f) any voluntary or involuntary bankruptcy, insolvency,
         reorganization, arrangement, readjustment, assignment for the benefit
         of creditors, composition, receivership, conservatorship,
         custodianship, liquidation, marshaling of assets and liabilities or
         similar proceedings with respect to the Company, any Guarantor or to
         any other person or any of their respective properties or creditors, or
         any action taken by any trustee or receiver or by any court in any such
         proceeding;

                  (g) any discharge, termination, cancellation, frustration,
         irregularity, invalidity or unenforceability, in whole or in part, of
         any of the Note Documents or any other agreement or instrument referred
         to in paragraph (a) above or any term hereof;

                  (h) any merger or consolidation of the Company or any
         Guarantor into or with any other corporation, or any sale, lease or
         transfer of any of the assets of the Company or any Guarantor to any
         other person;

                  (i) any change in the ownership of any shares of capital stock
         of the Company or any change in the corporate relationship between the
         Company and any Guarantor, or any termination of such relationship;

                  (j) any release or discharge, by operation of law, of any
         Guarantor from the performance or observance of any obligation,
         covenant or agreement contained in this Guaranty; or

                  (k) any other occurrence, circumstance, happening or event
         whatsoever, whether similar or dissimilar to the foregoing, whether
         foreseen or unforeseen, and any other circumstance which might
         otherwise constitute a legal or equitable defense or discharge of the
         liabilities of a guarantor or surety or which might otherwise limit
         recourse against any Guarantor.



                                       3

                                  Exhibit 1(c)





Notwithstanding any other provision contained in this Guaranty, each Guarantor's
liability with respect to the principal amount of the Notes shall be no greater
than the liability of the Company with respect thereto.

         SECTION 4. Full Recourse Obligations. The obligations of each Guarantor
set forth herein constitute the full recourse obligations of such Guarantor
enforceable against it to the full extent of all its assets and properties.

         SECTION 5. Waiver. Each Guarantor unconditionally waives, to the extent
permitted by applicable law, (a) notice of any of the matters referred to in
Section 3, (b) notice to such Guarantor of the incurrence of any of the
Obligations, notice to such Guarantor or the Company of any breach or default by
such Company with respect to any of the Obligations or any other notice that may
be required, by statute, rule of law or otherwise, to preserve any rights of the
Holders against such Guarantor, (c) presentment to or demand of payment from the
Company or the Guarantor with respect to any amount due under any Note Document
or protest for nonpayment or dishonor, (d) any right to the enforcement,
assertion or exercise by any of the Holders of any right, power, privilege or
remedy conferred in the Note Purchase Agreement or any other Note Document or
otherwise, (e) any requirement of diligence on the part of any of the Holders,
(f) any requirement to exhaust any remedies or to mitigate the damages resulting
from any default under any Note Document, (g) any notice of any sale, transfer
or other disposition by any of the Holders of any right, title to or interest in
the Note Purchase Agreement or in any other Note Document and (h) any other
circumstance whatsoever which might otherwise constitute a legal or equitable
discharge, release or defense of a guarantor or surety or which might otherwise
limit recourse against such Guarantor.

         SECTION 6. Subrogation, Contribution, Reimbursement or Indemnity. Until
one year and one day after all Obligations have been indefeasibly paid in full,
each Guarantor agrees not to take any action pursuant to any rights which may
have arisen in connection with this Guaranty to be subrogated to any of the
rights (whether contractual, under the United States Bankruptcy Code, as
amended, including Section 509 thereof, under common law or otherwise) of any of
the Holders against the Company or against any collateral security or guaranty
or right of offset held by the Holders for the payment of the Obligations. Until
one year and one day after all Obligations have been indefeasibly paid in full,
each Guarantor agrees not to take any action pursuant to any contractual, common
law, statutory or other rights of reimbursement, contribution, exoneration or
indemnity (or any similar right) from or against the Company which may have
arisen in connection with this Guaranty. So long as the Obligations remain, if
any amount shall be paid by or on behalf of the Company to any Guarantor on
account of any of the rights waived in this paragraph, such amount shall be held
by such Guarantor in trust, segregated from other funds of such Guarantor, and
shall, forthwith upon receipt by such Guarantor, be turned over to the Holders
(duly endorsed by such Guarantor to the Holders, if required), to be applied
against the Obligations, whether matured or unmatured, in such order as the
Holders may determine. The provisions of this paragraph shall survive the term
of this Guaranty and the payment in full of the Obligations.


                                       4

                                  Exhibit 1(c)





         SECTION 7. Effect of Bankruptcy Proceedings, etc. This Guaranty shall
continue to be effective or be automatically reinstated, as the case may be, if
at any time payment, in whole or in part, of any of the sums due to any of the
Holders pursuant to the terms of the Note Purchase Agreement or any other Note
Document is rescinded or must otherwise be restored or returned by such Holder
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
the Company or any other person, or upon or as a result of the appointment of a
custodian, receiver, trustee or other officer with similar powers with respect
to the Company or other person or any substantial part of its property, or
otherwise, all as though such payment had not been made. If an event permitting
the acceleration of the maturity of the principal amount of the Notes shall at
any time have occurred and be continuing, and such acceleration shall at such
time be prevented by reason of the pendency against the Company or any other
person of a case or proceeding under a bankruptcy or insolvency law, each
Guarantor agrees that, for purposes of this Guaranty and its obligations
hereunder, the maturity of the principal amount of the Notes and all other
Obligations shall be deemed to have been accelerated with the same effect as if
any Holder had accelerated the same in accordance with the terms of the Note
Purchase Agreement or other applicable Note Document, and such Guarantor shall
forthwith pay such principal amount, Make-Whole Amount, if any, and interest
thereon and any other amounts guaranteed hereunder without further notice or
demand.

         SECTION 8. Term of Agreement. This Guaranty and all guaranties,
covenants and agreements of each Guarantor contained herein shall continue in
full force and effect and shall not be discharged until such time as all of the
Obligations shall be paid and performed in full and all of the agreements of
such Guarantor hereunder shall be duly paid and performed in full.

         SECTION 9. Representations and Warranties. Each Guarantor represents
and warrants to each Holder that:

                  (a) such Guarantor is duly organized, validly existing and in
         good standing under the laws of its jurisdiction of organization and
         has the requisite power and authority to own and operate its property,
         to lease the property it operates as lessee and to conduct the business
         in which it is currently engaged;

                  (b) such Guarantor has the requisite power and authority and
         the legal right to execute and deliver, and to perform its obligations
         under, this Guaranty, and has taken all necessary action to authorize
         its execution, delivery and performance of this Guaranty;

                  (c) this Guaranty constitutes a legal, valid and binding
         obligation of such Guarantor enforceable in accordance with its terms,
         except as enforceability may be limited by bankruptcy, insolvency,
         reorganization, moratorium or similar laws affecting the enforcement of
         creditors' rights generally and by general equitable principles
         (regardless of whether such enforceability is considered in a
         proceeding in equity or at law);

                  (d) the execution, delivery and performance of this Guaranty
         will not (i) contravene, result in any breach of, or constitute a
         default under, or result in the




                                       5

                                  Exhibit 1(c)




         creation of any Lien in respect of any property of such Guarantor under
         any indenture, mortgage, deed of trust, loan, credit agreement,
         corporate charter or by-laws, or any other agreement evidencing Debt,
         (ii) contravene, result in any breach of, or constitute a default
         under, or result in the creation of any Lien in respect of any property
         of such Guarantor under, any other agreement or instrument to which
         such Guarantor is bound or by which such Guarantor or any of its
         properties may be bound or affected, except as could not reasonably be
         expected to have a Material Adverse Effect, (iii) conflict with or
         result in a breach of any of the terms, conditions or provisions of any
         order, judgment, decree, or ruling of any court, arbitrator or
         Governmental Authority applicable to such Guarantor, except as could
         not reasonably be expected to have a Material Adverse Effect, or (iv)
         violate any provision of any statute or other rule or regulation of any
         Governmental Authority applicable to such Guarantor, except as could
         not reasonably be expected to have a Material Adverse Effect;

                  (e) no consent, approval or authorization of, or registration,
         filing or declaration with, any Governmental Authority is required in
         connection with the execution, delivery or performance by such
         Guarantor of this Guaranty;

                  (f) except as disclosed in Section 5.8 of the Note Purchase
         Agreement, no litigation, investigation or proceeding of or before any
         arbitrator or governmental authority is pending or, to the knowledge of
         such Guarantor, threatened by or against such Guarantor or any of its
         properties or revenues (i) with respect to this Guaranty or any of the
         transactions contemplated hereby or (ii) which could reasonably be
         expected to have a material adverse effect upon the business,
         operations or financial condition of such Guarantor and its
         Subsidiaries taken as a whole;

                  (g) such Guarantor (after giving due consideration to any
         rights of contribution) has received fair consideration and reasonably
         equivalent value for the incurrence of its obligations hereunder or as
         contemplated hereby and after giving effect to the transactions
         contemplated herein, (i) the fair value of the assets of such Guarantor
         (both at fair valuation and at present fair saleable value) exceeds its
         liabilities, (ii) such Guarantor is able to and expects to be able to
         pay its debts as they mature, and (iii) such Guarantor has capital
         sufficient to carry on its business as conducted and as proposed to be
         conducted.

         SECTION 10. Notices. All notices under the terms and provisions hereof
shall be in writing, and shall be delivered or sent by telex or telecopy, mailed
by first-class mail, postage prepaid, or sent by a recognized overnight delivery
service, charges prepaid, addressed (a) if to the Company or any Holder at the
address set forth in, the Note Purchase Agreement or (b) if to a Guarantor, in
care of the Company at the Company's address set forth in the Note Purchase
Agreement, or in each case at such other address as the Company, any Holder or
such Guarantor shall from time to time designate in writing to the other
parties. Any notice so addressed shall be deemed to be given when actually
received.


                                       6

                                  Exhibit 1(c)




         SECTION 11. Survival. All warranties, representations and covenants
made by each Guarantor herein or in any certificate or other instrument
delivered by it or on its behalf hereunder shall be considered to have been
relied upon by the Holders and shall survive the execution and delivery of this
Guaranty, regardless of any investigation made by any of the Holders. All
statements in any such certificate or other instrument shall constitute
warranties and representations by such Guarantor hereunder.

         SECTION 12. Submission to Jurisdiction. Each Guarantor irrevocably
submits to the jurisdiction of the courts of the State of Illinois and of the
courts of the United States of America having jurisdiction in the State of
Illinois for the purpose of any legal action or proceeding in any such court
with respect to, or arising out of, this Guaranty, the Note Purchase Agreement
or the Notes, the Security Agreements, the Subsidiary Guaranty or the Notes.
Each Guarantor consents to process being served in any suit, action or
proceeding by mailing a copy thereof by registered or certified mail, postage
prepaid, return receipt requested, to the address of such Guarantor specified in
or designated pursuant to the Note Purchase Agreement. Each Guarantor agrees
that such service upon receipt (i) shall be deemed in every respect effective
service of process upon it in any such suit, action or proceeding and (ii)
shall, to the fullest extent permitted by law, be taken and held to be valid
personal service upon and personal delivery to such Obligor.

         SECTION 13. Miscellaneous. Any provision of this Guaranty 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. To the extent permitted
by applicable law, each Guarantor hereby waives any provision of law that
renders any provisions hereof prohibited or unenforceable in any respect. The
terms of this Guaranty shall be binding upon, and inure to the benefit of, each
Guarantor and the Holders and their respective successors and assigns. No term
or provision of this Guaranty may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by each Guarantor and the
Required Holders. The section and paragraph headings in this Guaranty and the
table of contents are for convenience of reference only and shall not modify,
define, expand or limit any of the terms or provisions hereof, and all
references herein to numbered sections, unless otherwise indicated, are to
sections in this Guaranty. This Guaranty shall in all respects be governed by,
and construed in accordance with, the laws of the State of Illinois, including
all matters of construction, validity and performance.

                                       7

                                  Exhibit 1(c)



                  IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to
be duly executed as of the day and year first above written.


                                            TRADE SECRET, INC.


                                            By:
                                                 -----------------------------
                                            Name:
                                                   ---------------------------
                                            Title:
                                                  ----------------------------


                                            SUPERCUTS, INC.

                                            By:
                                                 -----------------------------
                                            Name:
                                                   ---------------------------
                                            Title:
                                                  ----------------------------


                                            THE BARBERS, HAIRSTYLING FOR MEN
                                            AND WOMEN, INC.

                                            By:
                                                 -----------------------------
                                            Name:
                                                   ---------------------------
                                            Title:
                                                  ----------------------------


                                            REGIS INTERNATIONAL, LTD.


                                            By:
                                                 -----------------------------
                                            Name:
                                                   ---------------------------
                                            Title:
                                                  ----------------------------


                                       8

                                  Exhibit 1(c)



                     FORM OF JOINDER TO SUBSIDIARY GUARANTY


         The undersigned (the "Guarantor"), joins in the Subsidiary Guaranty
dated as of March 1, 2002 from the Guarantors named therein in favor of the
Holders, as defined therein, and agrees to be bound by all of the terms thereof
and represents and warrants to the Holders that:

                  (a) the Guarantor is duly organized, validly existing and in
         good standing under the laws of its jurisdiction of organization and
         has the requisite power and authority to own and operate its property,
         to lease the property it operates as lessee and to conduct the business
         in which it is currently engaged;

                  (b) the Guarantor has the requisite power and authority and
         the legal right to execute and deliver this Joinder to Subsidiary
         Guaranty ("Joinder") and to perform its obligations hereunder and under
         the Subsidiary Guaranty and has taken all necessary action to authorize
         its execution and delivery of this Joinder and its performance of the
         Subsidiary Guaranty;

                  (c) the Subsidiary Guaranty constitutes a legal, valid and
         binding obligation of the Guarantor enforceable in accordance with its
         terms, except as enforceability may be limited by bankruptcy,
         insolvency, reorganization, moratorium or similar laws affecting the
         enforcement of creditors' rights generally and by general equitable
         principles (regardless of whether such enforceability is considered in
         a proceeding in equity or at law);

                  (d) the execution, delivery and performance of this Joinder
         will not (i) contravene, result in any breach of, or constitute a
         default under, or result in the creation of any Lien in respect of any
         property of such Guarantor under any indenture, mortgage, deed of
         trust, loan, credit agreement, corporate charter or by-laws, or any
         other agreement evidencing Debt, (ii) contravene, result in any breach
         of, or constitute a default under, or result in the creation of any
         Lien in respect of any property of such Guarantor under, any other
         agreement or instrument to which such Guarantor is bound or by which
         such Guarantor or any of its properties may be bound or affected,
         except as could not reasonably be expected to have a Material Adverse
         Effect, (iii) conflict with or result in a breach of any of the terms,
         conditions or provisions of any order, judgment, decree, or ruling of
         any court, arbitrator or Governmental Authority applicable to such
         Guarantor, except as could not reasonably be expected to have a
         Material Adverse Effect, or (iv) violate any provision of any statute
         or other rule or regulation of any Governmental Authority applicable to
         such Guarantor, except as could not reasonably be expected to have a
         Material Adverse Effect;

                  (e) no consent, approval or authorization of, or registration,
         filing or declaration with, any Governmental Authority is required in
         connection with the execution, delivery or performance by such
         Guarantor of this Joinder;


                                       9

                                  Exhibit 1(c)




                  (f) except as disclosed in writing to the holders, no
         litigation, investigation or proceeding of or before any arbitrator or
         governmental authority is pending or, to the knowledge of the
         Guarantor, threatened by or against the Guarantor or any of its
         properties or revenues (i) with respect to this Joinder, the Subsidiary
         Guaranty or any of the transactions contemplated hereby or (ii) that
         could reasonably be expected to have a material adverse effect on the
         business, operations or financial condition of the Guarantor and its
         subsidiaries taken as a whole;

                  (g) such Guarantor (after giving due consideration to any
         rights of contribution) has received fair consideration and reasonably
         equivalent value for the incurrence of its obligations hereunder or as
         contemplated hereby and after giving effect to the transactions
         contemplated herein, (i) the fair value of the assets of such Guarantor
         (both at fair valuation and at present fair saleable value) exceeds its
         liabilities, (ii) such Guarantor is able to and expects to be able to
         pay its debts as they mature, and (iii) such Guarantor has capital
         sufficient to carry on its business as conducted and as proposed to be
         conducted.

Capitalized Terms used but not defined herein have the meanings ascribed in the
Subsidiary Guaranty.

                  IN WITNESS WHEREOF, the undersigned has caused this Joinder to
Subsidiary Guaranty to be duly executed as of __________, ____.


                                      [Name of Guarantor]


                                      By:
                                           -------------------------------------
                                      Name:
                                             -----------------------------------
                                      Title:
                                              ----------------------------------


                                       10

                                  Exhibit 1(c)

                                                                  EXHIBIT 4.4(a)


                             FORM OF OPINION COUNSEL
                                 FOR THE COMPANY


         The opinion of Bert M. Gross, General Counsel for the Company, shall be
to the effect that:

         1. Each of the Company and each Subsidiary Guarantor is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and each has all requisite corporate power and
authority to own and operate its properties, to carry on its business as now
conducted, and, in the case of the Company, to enter into and perform the Note
Purchase Agreement and to issue and sell the Notes and, in the case of each
Subsidiary Guarantor, to enter into and perform the Subsidiary Guaranty.

         2. The Note Purchase Agreement and the Notes have been duly authorized
by proper corporate action on the part of the Company, have been duly executed
and delivered by an authorized officer of the Company and constitute the legal,
valid and binding agreements of the Company, enforceable in accordance with
their terms, except to the extent that enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of
general application relating to or affecting the enforcement of the rights of
creditors or by equitable principles, regardless of whether enforcement is
sought in a proceeding in equity or at law.

         3. The Subsidiary Guaranty has been duly authorized by proper corporate
action on the part of each Subsidiary Guarantor, has been duly executed and
delivered by an authorized officer each such Subsidiary Guarantor and
constitutes the legal, valid and binding obligation of each Subsidiary
Guarantor, enforceable in accordance with its terms, except to the extent the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or similar laws of general
application relating to or affecting the enforcement of the rights of creditors
or by equitable principles, regardless of whether enforcement is sought in a
proceeding in equity or at law.

         4. A Minnesota court, or a federal court sitting in Minnesota, would
honor the choice of Illinois law to govern the Note Purchase Agreement, the
Notes and the Subsidiary Guaranty.

         5. Based on the representations set forth in the Agreement, the
offering, sale and delivery of the Notes and delivery of the Subsidiary Guaranty
do not require the registration of the Notes or the Subsidiary Guaranty under
the Securities Act of 1933, as amended, or the qualification of an indenture
under the Trust Indenture Act of 1939, as amended.

         6. No authorization, approval or consent of, and no designation,
filing, declaration, registration and/or qualification with, any Governmental
Authority is necessary or required in



                                 Exhibit 4.4(a)


connection with the execution, delivery and performance by the Company of the
Note Purchase Agreement or the offering, issuance and sale by the Company of the
Notes, and no authorization, approval or consent of, and no designation, filing,
declaration, registration and/or qualification with, any Governmental Authority
is necessary or required in connection with the execution, delivery and
performance by any Subsidiary Guarantor of the Subsidiary Guaranty.

         7. The issuance and sale of the Notes by the Company, and the
execution, delivery and performance by the Company of the terms and conditions
of the Notes and the Note Purchase Agreement do not conflict with, or result in
any breach or violation of any of the provisions of, or constitute a default
under, or result in the creation or imposition of any Lien on, the property of
the Company or any Subsidiary pursuant to the provisions of (i) the certificate
or articles of incorporation or bylaws of the Company or any Subsidiary, (ii)
any loan agreement known to such counsel to which the Company or any Subsidiary
is a party or by which any of them or their property is bound, (iii) any other
agreement or instrument known to such counsel to which the Company or any
Subsidiary is a party or by which any of them or their property is bound, (iv)
any law (including usury laws) or regulation applicable to the Company, or (v)
to the knowledge of such counsel, any order, writ, injunction or decree of any
court or Governmental Authority applicable to the Company.

         8. The execution, delivery and performance of the Subsidiary Guaranty
will not conflict with, or result in any breach or violation of any of the
provisions of, or constitute a default under, or result in the creation or
imposition of any Lien on, the property of any Subsidiary Guarantor pursuant to
the provisions of (i) its certificate or articles of incorporation or by-laws,
(ii) any loan agreement known to such counsel to which any Subsidiary Guarantor
is a party or by which it or its property is bound, (iii) any other agreement or
instrument known to such counsel to which any Subsidiary Guarantor is a party or
by which it or its property is bound, (iv) any law or regulation applicable to
any Subsidiary Guarantor, or (v) to the knowledge of such counsel, any order,
writ, injunction or decree of any court or Governmental Authority applicable to
any Subsidiary Guarantor.

         9. Except as disclosed in Section 5.8 to the Note Purchase Agreement,
to such counsel's knowledge there are no actions, suits or proceedings pending,
or threatened against, or affecting the Company or any Subsidiary, at law or in
equity or before or by any Governmental Authority, that are likely to result,
individually or in the aggregate, in a Material Adverse Effect.

         10. Neither the Company nor any Subsidiary is (i) a "public utility
company" or a "holding company," or a "subsidiary company" of a "holding
company," as such terms are defined in the Public Utility Holding Company Act of
1935, as amended, (ii) a "public utility" as defined in the Federal Power Act,
as amended, or (iii) an "investment company" or a company "controlled" by an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended.

         11. The issuance of the Notes and the intended use of the proceeds of
the sale of the Notes do not violate or conflict with Regulation U, T or X of
the Board of Governors of the Federal Reserve System.




                                       2

                                 Exhibit 4.4(a)



The opinion of Bert M. Gross shall cover such other matters relating to the sale
of the Notes as the Purchasers may reasonably request. With respect to matters
of fact on which such opinion is based, such counsel shall be entitled to rely
on appropriate certificates of public officials and officers of the Company. The
opinion of Bert M. Gross may be limited to the laws of the United States of
America, the Delaware General Corporation Law and the laws of the State of
Minnesota. For purposes of their opinion as to enforceability in paragraphs 2
and 3, Bert M. Gross may assume that Illinois law is substantially identical to
Minnesota law. Such opinion shall state that subsequent transferees and
assignees of the Notes may rely thereon.








                                       3

                                 Exhibit 4.4(a)




                                                                  EXHIBIT 4.4(b)

                       FORM OF OPINION OF SPECIAL COUNSEL
                                TO THE PURCHASERS

         The opinion of Gardner, Carton & Douglas, special counsel to the
Purchasers, shall be to the effect that:

         1. The Company is a corporation organized and validly existing in good
standing under the laws of the State of Minnesota, with requisite corporate
power and authority to enter into the Agreement and to issue and sell the Notes.

         2. The Agreement and the Notes have been duly authorized, executed and
delivered by and constitute the legal, valid and binding agreements of the
Company, enforceable in accordance with their terms, except to the extent that
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application relating to or
affecting the enforcement of the rights of creditors or by equitable principles,
regardless of whether enforcement is sought in a proceeding in equity or at law.

         3. The Subsidiary Guaranty constitutes the legal, valid and binding
obligation of each Subsidiary Guarantor, enforceable in accordance with their
terms, except to the extent that enforcement thereof may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar laws of general application relating to or affecting the
enforcement of the rights of creditors or by equitable principles, regardless of
whether enforcement is sought in a proceeding in equity or at law.

         4. Based upon the representations set forth in the Agreement, the
offering, sale and delivery of the Notes and delivery of the Subsidiary Guaranty
do not require the registration of the Notes or the Subsidiary Guaranty under
the Securities Act of 1933, as amended, nor the qualification of an indenture
under the Trust Indenture Act of 1939, as amended.

         5. The issuance and sale of the Notes and compliance with the terms and
provisions of the Notes and the Agreement will not conflict with or result in
any breach of any of the provisions of the Certificate of Incorporation or
By-Laws of the Company.

         6. No approval, consent or withholding of objection on the part of, or
filing, registration or qualification with, any governmental body, Federal or
state, is necessary in connection with the execution and delivery of the Note
Purchase Agreement or the Notes.

The opinion of Gardner, Carton & Douglas shall cover such other matters relating
to the sale of the Notes as the Purchasers may reasonably request. Such opinion
shall state that subsequent transferees and assignees of the Notes may rely
thereon. As to matters of Minnesota law, Gardner, Carton & Douglas may rely upon
the opinion of Bert M. Gross.






                                 Exhibit 4.4(b)

EX-13

FINANCIAL REVIEW



18     Selected Financial Data

19     Management's Discussion and Analysis of
       Financial Condition and Results of Operations

26     Consolidated Balance Sheet

27     Consolidated Statement of Operations

28     Consolidated Statements of Changes in
       Shareholders' Equity and Comprehensive Income

29     Consolidated Statement of Cash Flows

30     Notes to Consolidated Financial Statements

43     Quarterly Financial Data

43     Stock Data

44     Report of Independent Accountants



TABLE OF CONTENTS




Regis Corporation

Selected Financial Data


     The following table sets forth, for the periods indicated, selected
financial data derived from the Company's Consolidated Financial Statements.



- -----------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)               2002         2001         2000          1999         1998
- -----------------------------------------------------------------------------------------------------------------
                                                                                      
Revenues .....................................   $1,454,191   $1,311,621   $1,142,993   $  991,900   $  860,620
Operating income(a) ..........................      133,864      109,281       97,216       65,335       65,858
Net income(a) ................................       72,054       53,088       49,654       32,205       33,894
Net income, excluding goodwill amortization(c)       72,054       61,954       57,395       38,432       37,975
Net income per diluted share(a) ..............         1.63         1.26         1.19          .78          .83
Net income per diluted share, excluding
  goodwill amortization(c) ...................         1.63         1.47         1.38          .93          .93
Total assets .................................      957,190      736,505      628,355      500,582      408,733
Long-term debt, including current portion ....      299,016      261,558      234,601      166,986      126,960
Dividends declared(b) ........................   $      .12   $      .12   $      .12   $      .10   $      .06



(a)  The following information is provided to facilitate comparisons of
     operating income, net income and net income per diluted share, absent the
     impact of certain non-recurring activities (see Note 11 to the Consolidated
     Financial Statements). Exclusive of nonrecurring items, operating income
     would have been $100,156, $81,468 and $67,837 in 2000, 1999 and 1998,
     respectively. Exclusive of nonrecurring items, net income would have been
     $70,304, $52,380, $43,759 and $35,006 in 2002, 2000, 1999 and 1998,
     respectively. The nonrecurring items increased reported net income per
     diluted share by $.04 in 2002 and reduced reported net income per diluted
     share by $.07 in 2000, $.27 in 1999 and $.03 in 1998.
(b)  In addition, Supercuts UK declared dividends of $367, $2,829 and $2,057
     during 2000, 1999 and 1998, respectively.
(c)  Effective July 1, 2001, Regis changed its accounting to discontinue the
     amortization of goodwill. See Note 1 to the Consolidated Financial
     Statements.


Annual Results
      The following table sets forth for the periods indicated certain
information derived from the Company's Consolidated Statement of Operations
expressed as a percent of revenues. The percentages are computed as a percent of
total Company revenues, except as noted.




                                                          For the Years Ended June 30,
- ---------------------------------------------------------------------------------------
                                                               2002    2001    2000
- ---------------------------------------------------------------------------------------
                                                                     
Company-owned service revenues(1) ........................     70.0%   71.2%   71.3%
Company-owned product revenues(1) ........................     30.0    28.8    28.7
Franchise revenues .......................................      5.3     4.3     4.4
Company-owned operations:
      Profit margins on service(2) .......................     43.4    43.0    43.3
      Profit margins on product(3) .......................     47.6    47.0    46.1
      Direct salon(1) ....................................      9.0     9.0     8.5
      Rent(1) ............................................     14.3    14.1    14.0
      Depreciation(1) ....................................      3.5     3.4     3.4
           Direct salon contribution(1) ..................     17.8    17.7    18.2
Franchise direct costs, including product and equipment(4)     49.1    37.7    34.7
Corporate and franchise support costs ....................      9.6     9.6    10.1
Depreciation and amortization(5) .........................      0.7     1.7     1.5
Nonrecurring items(6) ....................................                      0.3
Operating income(5) ......................................      9.2     8.3     8.5
Income before income taxes(5) ............................      8.0     6.8     7.3
Net income(5) ............................................      5.0     4.0     4.3
Operating income, excluding nonrecurring items(5)(6) .....      9.2     8.3     8.8
Net income, excluding nonrecurring items(5)(6) ...........      4.8     4.0     4.6




(1)  Computed as a percent of company-owned revenues.
(2)  Computed as a percent of service revenues.
(3)  Computed as a percent of product revenues.
(4)  Computed as a percent of franchise revenues.
(5)  See Note 1 to the Consolidated Financial Statements regarding
     discontinuation of goodwill amortization, effective July 1, 2001, and
     comparative financial information.
(6)  See Note 11 to the Consolidated Financial Statements regarding the
     nonrecurring income tax benefit in fiscal 2002 and the nonrecurring items
     in fiscal 2000.


18

                                                               Regis Corporation

                 Management's Discussion and Analysis of Financial Condition and
                                                           Results of Operations

[BAR GRAPH]

EBITDA
(Exclusive of nonrecurring
items in prior years)

(Dollars in millions)
    
00       156

01       175

02      $194


Compounded Annual
Growth Rate - 11.5%


SUMMARY
      Regis Corporation, based in Minneapolis, Minnesota, is the world's largest
owner, operator, franchisor and acquirer of hair and retail product salons. The
Regis worldwide operations include 8,684 salons at June 30, 2002 operating in
two reportable segments: domestic and international. Each of the Company's
concepts have generally similar products and services. The Company is organized
to manage its operations based on geographical location. The Company's domestic
segment includes 6,618 salons, including 2,224 franchised salons, operating
primarily under the trade names of Regis Salons, MasterCuts, Trade Secret,
SmartStyle, Supercuts and Cost Cutters. The Company's international operations
include 2,066 salons, including 1,684 franchised salons, located throughout
Europe, primarily in the United Kingdom, France, Italy and Spain. The Company
has approximately 43,000 employees worldwide.

CRITICAL ACCOUNTING POLICIES
      The preparation of Consolidated Financial Statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Management bases these
estimates on historical experience and other assumptions believed to be
reasonable under the circumstances. However, actual results could differ from
these estimates.
     Management believes the Company's critical accounting policies and areas
that require more significant judgments and estimates used in the preparation of
its Consolidated Financial Statements to be:
     -   useful lives assigned to long-lived and intangible assets;
     -   recoverability of long-lived and intangible assets, including goodwill;
     -   allocation of the purchase price to acquired assets and liabilities,
         including goodwill and intangibles;
     -   various commitments and contingencies.
     Depreciation and amortization are recognized using the straight-line method
over the long-lived assets' estimated useful lives. The Company estimates useful
lives based on historical data and industry trends. The Company periodically
reassesses the estimated useful lives of its long-lived and intangible assets.
Changes to estimated useful lives would impact the amount of depreciation and
amortization expense recorded in earnings and potentially the need to record an
impairment charge.
     The Company reviews long-lived and intangible assets, including goodwill,
for impairment annually, or at any time events or circumstances indicate that
the carrying value of such assets may not be fully recoverable. For long-lived
assets and amortizable intangible assets, an impairment is evaluated based on
the sum of undiscounted estimated future cash flows expected to result from use
of the assets compared to its carrying value. The Company generally considers
its brands to be reporting units when it tests for goodwill impairment because
that is where the Company believes goodwill naturally resides. If an impairment
is recognized, the carrying value of the impaired asset is reduced to its fair
value based on discounted estimated future cash flows. For goodwill, an
impairment is evaluated based on the fair value of the concept to which the
goodwill relates.
      The Company makes numerous acquisitions that are recorded using the
purchase method of accounting. Accordingly, the purchase prices are allocated to
assets acquired, including intangible assets, and liabilities assumed based on
their estimated fair values at the dates of acquisition. Fair value is estimated
based on the amount for which the asset or liability could be bought or sold in
a current transaction between willing parties.
     In the normal course of business, the Company must make continuing
estimates of potential future loss accruals related to legal, tax,
self-insurance accruals and uncollectible accounts. These accruals require the
use of management's judgment on the outcome of various issues. Management's
estimates for these items are based on the best available evidence, but due to
changes in facts and circumstances, the ultimate outcomes of these accruals
could be different than management estimates.



                                                                              19


Regis Corporation

Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)


RESULTS OF OPERATIONS

Revenues
     Revenues in fiscal 2002 grew to a record $1.5 billion, an increase of
$142.6 million, or 10.9 percent, over fiscal 2001. Approximately 47 percent of
this increase was attributable to new salon construction and 33 percent to salon
acquisitions, with the remaining increase primarily due to same-store sales
increases. Mall and strip center based salon operations in the United States and
Canada (domestic salons) accounted for $116.7 million of the increase in total
revenues, while franchise revenues increased $21.3 million, primarily due to
International operations, and revenue from company-owned International
operations increased $4.6 million.
     Revenues by concept for the years ended June 30, 2002, 2001 and 2000 were
as follows:



- ----------------------------------------------------------------------------------------------------
(Dollars in thousands)                                             2002         2001         2000
- ----------------------------------------------------------------------------------------------------
                                                                                
Domestic:
  Regis Salons ................................................ $  416,240   $  401,756   $  376,709
  MasterCuts ..................................................    164,768      155,703      142,865
  Trade Secret ................................................    192,892      181,787      166,652
  SmartStyle ..................................................    178,728      125,851       88,313
  Strip Center Salons (primarily Supercuts and Cost Cutters)...    382,483      345,572      259,886
International .................................................    119,080      100,952      108,568
- ----------------------------------------------------------------------------------------------------
                                                                $1,454,191   $1,311,621   $1,142,993
====================================================================================================



     Included in the table above, primarily as part of Strip Center Salons and
International, are franchise revenues of $77.6 million, $56.3 million and $50.3
million during fiscal 2002, 2001 and 2000, respectively.
      During fiscal 2002, same-store sales from all domestic company-owned
salons open more than 12 months increased 3.0 percent, compared to increases of
2.8 percent and 4.3 percent in fiscal 2001 and 2000, respectively. Same-store
sales increases achieved during fiscal 2002 were driven primarily by higher
product sales and a shift in the mix of service sales toward higher priced salon
services, such as hair color. Same-store sales increases achieved during fiscal
2001 and 2000 were driven primarily by increased customer transactions and
market based price increases in certain salon divisions. A total of 125 million
customers were served system-wide in fiscal 2002 compared to 118 million and 106
million customers served in fiscal 2001 and 2000, respectively.
     System-wide sales, inclusive of non-consolidated sales generated from
franchisee salons, grew to a record $2.3 billion, $1.9 billion and $1.7 billion
in fiscal 2002, 2001 and 2000, respectively. The increase in system-wide sales
in fiscal 2002 and 2001 was the result of same-store sales increases from
existing salons and net salon openings, as well as salons added to the system
through acquisitions. System-wide same-store sales increased 3.3 percent in
fiscal 2002 and 2001, and 3.7 percent in fiscal 2000.

Service Revenues. Service revenues increased to $963.9 million, $893.5 million
and $779.6 million in fiscal 2002, 2001 and 2000, respectively. The growth in
service revenues in fiscal 2002 and 2001 was driven by new salon construction,
acquisitions and same-store sales growth.

Product Revenues. Product revenues increased to $412.7 million, $361.9 million
and $313.1 million in fiscal 2002, 2001 and 2000, respectively. The growth in
product revenue in fiscal 2002 and 2001 continues a trend of escalating product
revenues due to strong product same-store sales growth, a reflection of
continuous focus on product awareness, training and acceptance of national label
merchandise. In fiscal 2002, product revenues as a percent of total
company-owned revenues increased to 30.0 percent of revenues, compared to 28.8
percent and 28.7 percent of revenues in fiscal 2001 and 2000, respectively.

Franchise Revenues. Franchise revenues, including royalties and initial
franchise fees from franchisees, and product and equipment sales made by the
Company to franchisees, increased 37.8 percent, or $21.3 million, in fiscal 2002
to $77.6 million. In fiscal 2001, franchise revenues increased 12.0 percent, or
$6.0 million, compared to fiscal 2000. The increase in fiscal 2002 franchise
revenues was primarily the result of increased franchise royalties and fees
related to the recently acquired European franchise companies, Groupe Gerard
Glemain (GGG) and Jean Louis David (JLD). Increased sales of product to
franchisee salons also contributed to the fiscal 2002 increase in franchise
revenues and was the primary driver of the increase during fiscal 2001.

Cost of Revenue
     The aggregate cost of product and service revenues for company-owned salons
in fiscal 2002 was $762.4 million, compared to $700.8 million and $611.0 million
in fiscal 2001 and 2000, respectively. The resulting gross margin percentage for
fiscal 2002 improved to 44.6 percent of company-owned revenues compared to 44.2
percent and 44.1 percent of company-owned revenues in fiscal 2001 and 2000,
respectively.
     Service margins improved 40 basis points to 43.4 percent of company-owned
revenues in fiscal 2002 and declined 30



20

[BAR GRAPH]

GROSS MARGINS
     
00      44.1%

01      44.2%

02      44.6%



basis points to 43.0 percent in fiscal 2001. The fiscal 2002 improvement was
primarily due to improved payroll and payroll related costs as compared to
fiscal 2001. During fiscal 2001, payroll and payroll related costs were slightly
higher than normal as a percentage of company-owned revenues due to certain
fixed cost payroll components increasing in greater magnitude than the related
increase in sales. This resulted in a lower gross margin due to a higher fixed
payroll cost-to-sales ratio and caused the 30 basis point decline as a
percentage of company-owned revenues during fiscal 2001.
     Product margins for fiscal 2002, as a percent of company-owned revenues,
improved to 47.6 percent, compared to 47.0 percent in fiscal 2001 and 46.1
percent in fiscal 2000. The fiscal 2002 and 2001 improvements were primarily the
result of a shift in the Company's mix of products sold. Beginning in the latter
portion of fiscal 2001, the product mix changed to consist more heavily of
products with a higher profit margin. Additionally, the fiscal 2002 improvement
was driven by improved purchasing power, enabling the Company to buy retail
product from vendors at lower prices.

Direct Salon
     This expense category includes direct costs associated with salon
operations such as salon advertising, insurance, telephone, utilities and
janitorial costs. Direct salon expenses were $123.9 million in fiscal 2002,
compared to $112.7 million and $92.8 million in fiscal 2001 and 2000,
respectively, and remained consistent as a percent of company-owned revenue at
9.0 percent in fiscal 2002 and 2001, compared to 8.5 percent in fiscal 2000.
During fiscal 2002, higher workers' compensation costs were offset by lower
advertising costs on a per salon basis and same-store sales increasing at a rate
faster than certain fixed cost components. The fiscal 2001 costs increased as a
percentage of sales primarily due to higher utility and freight costs, increased
workers' compensation rates and lower same-store sales increases.

Rent
     Rent expense in fiscal 2002 was $197.3 million, compared to $176.9 million
and $152.7 million in fiscal 2001 and 2000, respectively. Rent expense increased
20 basis points to 14.3 percent of company-owned revenues during fiscal 2002
primarily due to higher common area maintenance costs. In regional malls,
landlords experienced higher maintenance, insurance and security costs which
they are passing on to their tenants such as Regis. In fiscal 2001, rent expense
increased ten basis points to 14.1 percent of company-owned revenue primarily
due to lower same-store sales increases over which to spread this relatively
fixed cost.

Depreciation--Salon Level
     Depreciation expense at the salon level remained relatively consistent at
3.5 percent of company-owned revenue in fiscal 2002, compared to 3.4 percent in
fiscal 2001 and 2000.

Direct Salon Contribution
     For reasons previously discussed, direct salon contribution, representing
company-owned salon revenues less associated operating expenses, improved in
fiscal 2002 to $244.8 million, or 17.8 percent of company-owned revenues,
compared to $222.2 million, or 17.7 percent, in fiscal 2001 and $199.4 million,
or 18.2 percent, in fiscal 2000.

Franchise Direct Costs, Including Product and Equipment
     Franchise direct costs include all direct costs related to franchise
salons, such as the cost of products and equipment sold to franchisees and
direct costs incurred at the Home Office and in Europe to support franchising
activities. Franchise direct costs increased to $38.1 million, or 49.1 percent
of franchise revenue, during fiscal 2002. The increase was primarily related to
costs associated with the recently acquired European franchise companies, GGG
and JLD. Additionally, growth in the sale of retail product to franchisees
contributed to the fiscal 2002 increase. During fiscal 2001, franchise direct
costs increased $3.8 million to $21.2 million, representing a 300 basis point
increase to 37.7 percent of franchise revenue. The fiscal 2001 increase was due
to acquisitions of two Canadian franchise companies in the second and third
quarters of fiscal 2001.

Corporate and Franchise Support Costs
     Corporate and franchise support costs include expenses related to field
supervision (payroll, related taxes and travel) and home office administration
costs (such as warehousing, salaries, occupancy costs and professional fees).
Corporate and franchise support costs increased $13.7 million in fiscal 2002 to
$139.7 million. As a percent of total revenue, corporate and franchise support
costs during fiscal 2002 remained consistent at 9.6 percent. During fiscal 2001,
corporate and franchise support costs increased $10.9 million from $115.1
million in fiscal 2000 and decreased 50 basis points as a percent of sales from
10.1 percent. The 50 basis point improvement for fiscal 2001 was primarily due
to fiscal 2000 results including costs incurred related to the introduction of
the new Regis retail product line as well as costs related to the Company's
transition of the Supercuts UK home office.



                                                                              21


Regis Corporation

Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)

Depreciation and Amortization--Corporate
     Depreciation and amortization--corporate was 0.7 percent of total revenues
in 2002, compared to 1.7 percent and 1.5 percent of total revenues in fiscal
2001 and 2000, respectively. The 100 basis point improvement in fiscal 2002 was
related to the implementation of Statement of Financial Accounting Standards
(FAS) No. 142, "Goodwill and Other Intangible Assets," in July 2001, which
discontinued the amortization of acquired goodwill, as discussed in Note 1 to
the Consolidated Financial Statements. The 20 basis point increase as a percent
of total revenues in fiscal 2001 was primarily related to increased amortization
expense due to the increased level of goodwill associated with the Company's
salon acquisition activity, as well as increases in corporate depreciation
related to self-developed software placed in service between periods.

Nonrecurring Items
     See Note 11 to the Consolidated Financial Statements.

Operating Income
     Operating income in fiscal 2002 increased to a record $133.9 million,
compared to $109.3 million in fiscal 2001 and $97.2 million in fiscal 2000. This
increase was driven primarily by the aforementioned change in accounting for
goodwill. Fiscal 2000 operating income was impacted by merger and transaction
costs associated with the Supercuts UK merger.
     Exclusive of fiscal 2000 nonrecurring items, operating income in fiscal
2001 increased by $9.1 million, representing 8.3 percent of revenues, compared
to $100.2 million, or 8.8 percent of revenues, in fiscal 2000. The decrease in
operating income, exclusive of fiscal 2000 nonrecurring items, as a percent of
sales in 2001 was due to higher fixed payroll costs that were not offset by
same-store sales growth as well as increased direct salon expenses due to higher
utility and freight costs, increased workers' compensation rates and lower
same-store sales increases.

Interest
     Interest expense improved in fiscal 2002 to $19.0 million, compared to
$21.5 million and $15.8 million in fiscal 2001 and 2000, representing 1.3
percent, 1.6 percent and 1.4 percent of total revenues, respectively. As a
percent of sales, interest expense decreased during fiscal 2002 due to a
reduction in interest rates on the Company's variable rate debt. Interest
expense as a percent of sales increased in fiscal 2001 due to higher debt levels
primarily resulting from the Company's acquisition program as well as slightly
higher interest rates.

Income Taxes
     The Company's effective tax rate improved to 37.7 percent of pre-tax
income in fiscal 2002, compared to 40.3 percent in both fiscal 2001 and 2000.
     During fiscal 2002, management recognized a one-time income tax benefit of
approximately $1.8 million resulting from the implementation of certain tax
planning strategies. The fiscal 2000 effective tax rate was impacted by
non-recurring merger and transaction costs associated with the Supercuts UK
merger. Exclusive of such fiscal 2002 and 2000 nonrecurring items, the Company's
effective tax rate was 39.2 percent, 40.3 percent and 39.3 percent in fiscal
2002, 2001 and 2000, respectively. The improvement in the fiscal 2002 effective
rate, exclusive of the nonrecurring income tax benefit, was primarily due to the
change in accounting for goodwill, as the permanent add-back for non-deductible
goodwill amortization for stock acquisitions was eliminated. The increase in the
fiscal 2001 annual rate, exclusive of nonrecurring items, compared to fiscal
2000 was due to discrete Canadian acquisitions, structured as stock purchases,
which occurred during the second and third quarters of fiscal 2001.

Net Income
     Net income in fiscal 2002 grew to a record $72.1 million, or $1.63 per
diluted share, compared to net income of $53.1 million, or $1.26 per diluted
share, in fiscal 2001, and $49.7 million, or $1.19 per diluted share, in fiscal
2000.
     In fiscal 2002, net income exclusive of the nonrecurring income tax benefit
was $70.3 million. In fiscal 2000, net income exclusive of nonrecurring items
was $52.4 million. Nonrecurring items increased reported net income per diluted
share by $.04 in fiscal 2002 and decreased reported net income per diluted share
by $.07 in fiscal 2000. The $.33 increase in earnings per diluted share
exclusive of the nonrecurring income tax benefit during fiscal 2002 primarily
resulted from the change in accounting for goodwill, sales increases, improved
gross margins and leveraging of fixed costs against revenue increases, as
previously discussed. On a pro forma basis, assuming goodwill had not been
amortized during fiscal 2001 or 2000, net income would have been $62.0 million,
or $1.47 per diluted share and $57.4 million, or $1.38 per diluted share,
respectively. See Note 1 to the Consolidated Financial Statements.



22


[BAR GRAPH]

OPERATING INCOME GROWTH
(Exclusive of nonrecurring items)

(Dollars in millions)
     
00       100

01       109

02      $134



Compounded Annual
Growth Rate - 15.6%

Effects of Inflation
     The Company primarily compensates its Regis and International salon
employees with percentage commissions based on sales they generate, thereby
enabling salon payroll expense as a percent of revenues to remain relatively
constant. Accordingly, this provides the Company certain protection against
inflationary increases as payroll expense and related benefits (the Company's
major expense components) are, with respect to these concepts, variable costs of
sales. The Company does not believe inflation, due to its low rate, has had a
significant impact on the results of operations associated with hourly paid
hairstylists for the remainder of its mall based and strip center salons.

Recent Accounting Pronouncements
     Recent accounting pronouncements are discussed in Note 1 to the
Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES
     Customers pay for salon services and merchandise in cash at the time of
sale, which reduces the Company's working capital requirements. Net cash
provided by operating activities in fiscal 2002 rose to a record $152.0 million
compared to $110.3 million and $85.4 million in fiscal 2001 and 2000,
respectively. The increases were primarily due to improved operating
performance, as well as continued improvement related to inventory management
during fiscal 2002.

Capital Expenditures and Acquisitions
     During fiscal 2002, the Company had worldwide capital expenditures of $73.3
million, of which $7.1 million related to acquisitions. The Company constructed
349 new corporate salons in fiscal 2002, including 61 new Regis Salons, 42 new
MasterCuts salons, 34 new Trade Secret salons, 125 new SmartStyle salons, 69 new
Strip Center Salons and 18 new International salons, and completed 134 major
remodeling projects. All capital expenditures during fiscal 2002 were funded by
the Company's operations and borrowings under its revolving credit facility.
     The Company anticipates its worldwide salon development program for fiscal
2003 will include approximately 435 new company-owned salons, 300 to 350 new
franchised salons, 175 major remodeling and conversion projects and 400 to 500
acquired salons. It is expected that expenditures for these development
activities will be approximately $125 million to $145 million, of which $75
million is allocated to new salon construction and salon remodeling and
conversions.
     In April of fiscal 2002, the Company announced its acquisition of Jean
Louis David. The acquisition was funded by a portion of the proceeds from the
Company's recent $125.0 million of private placement debt and the issuance of
800,000 shares of the Company's common stock. Other acquisitions during fiscal
2002, as discussed in Note 3 to the Consolidated Financial Statements, were
funded by the Company's operations and borrowings under its revolving credit
facility. See Note 4 to the Consolidated Financial Statements for additional
information on the Company's financing arrangements.

Contractual Obligations and Commercial Commitments
      The following table reflects a summary of obligations and commitments
outstanding by payment date as of June 30, 2002:


                                                    Payments Due By Period
- ------------------------------------------------------------------------------------------------
                                    Within                                 5 Years
(Dollars in thousands)              1 Year     1-2 Years     3-4 Years    or After      Total
- ------------------------------------------------------------------------------------------------
                                                                       
Contractual cash obligations:
  Senior long-term debt ........  $    4,369   $   87,557   $   35,345   $  165,440   $  292,711
  Operating leases(a) ..........     170,626      268,361      153,275      127,235      719,497
  Other long-term obligations...       4,050        7,361       12,068        1,872       25,351
- ------------------------------------------------------------------------------------------------
Total ..........................  $  179,045   $  363,279   $  200,688   $  294,547   $1,037,559
================================================================================================


(a)  In accordance with accounting principles generally accepted in the United
     States of America, these obligations are not reflected in the accompanying
     audited Consolidated Balance Sheet.

     Operating leases primarily represent long-term obligations for the rental
of salon premises, including franchisee accommodation leases of approximately
$109.9 million, which are funded by franchisees. In the event of default by a
franchise owner, the Company generally retains the right to acquire the related
salon assets net of any outstanding obligations. Management has not experienced
and does not expect any material loss to result from these contractual
arrangements.


                                                                              23


Regis Corporation

Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)

     Other long-term obligations that are included in the table above are
composed of the following components:
     -   $10.2(a) million related to the residual value guarantee of a five-year
         operating lease agreement for the Company's distribution center and
         various equipment in Salt Lake City, Utah. Under the agreement, the
         Company is obligated to pay the deficiency between the residual value
         guarantee and the fair market value at the termination of the
         agreement. Although the residual value guarantee is included in the
         table above, the Company expects the fair market value of the
         distribution center and related equipment, subject to the purchase or
         remarket options, to substantially reduce or eliminate the Company's
         potential liability under the residual value guarantee.
     -   The Company is the guarantor on $8.9(a) million in lease agreements
         between its franchisees and leasing companies. This represents the
         undiscounted value of the remaining lease obligations. As of June 30,
         2002, the discounted obligation the Company would be liable for is $7.1
         million. Under the agreements, the leasing companies may elect to hold
         the Company liable if the franchisee defaults on the agreement. In such
         cases, the Company retains the right to possess the related salon
         operations. Management does not expect any material loss to result from
         these agreements.
     -   $4.0 million related to capital leases and other.
     -   $2.3 million related primarily to assumed debt from acquisitions.

(a)  In accordance with accounting principles generally accepted in the United
     States of America, these obligations are not reflected in the accompanying
     audited Consolidated Balance Sheet.

     The Company does not have other unconditional purchase obligations, or
significant other commercial commitments such as commitments under lines of
credit, standby letters of credit and standby repurchase obligations or other
commercial commitments.
     The Company is in compliance with all covenants and other requirements of
its credit agreements and indentures. Additionally, the credit agreements do not
include rating triggers or subjective clauses that would accelerate maturity
dates.
     As a part of its salon development program, the Company continues to
negotiate and enter into leases and commitments for the acquisition of equipment
and leasehold improvements related to future salon locations, and continues to
enter into transactions to acquire established hair care salons and businesses.

Financing
     Financing activities are discussed in Note 4 and derivative activities in
Note 5 to the Consolidated Financial Statements.
     Management believes that cash generated from operations and amounts
available under its existing debt facilities will be sufficient to fund its
anticipated capital expenditures, acquisitions and required debt repayments for
the foreseeable future. Additionally, the Company received an investment grade
"2" rating in December 2001 from the NAIC, the rating agency that regulates
insurance companies in the private placement debt market. The change in rating
has proven to provide the Company with greater and less expensive access to
long-term senior debt during the third quarter, and the Company expects this
benefit to continue in the future.
      The Company operates in international markets and translates the financial
statements of its international subsidiaries to U.S. dollars for financial
reporting purposes, and accordingly is subject to fluctuations in currency
exchange rates.

Dividends
     The Company paid dividends of $.12 per share during fiscal 2002, 2001 and
2000. On August 16, 2002, the Board of Directors of the Company declared a $.03
per share quarterly dividend payable September 13, 2002 to shareholders of
record on August 30, 2002.
     In addition, Supercuts UK declared and paid dividends of $0.4 million
during fiscal 2000.

Share Repurchase Program
     In May 2000, the Company's Board of Directors approved a stock repurchase
program under which up to $50 million can be expended for the repurchase of the
Company's common stock. The timing and amounts of any repurchases will depend on
many factors, including the market price of the common stock and overall market
conditions. As of June 30, 2002, 393,700 shares have been repurchased for $9.2
million. All repurchased shares are immediately retired. This repurchase program
has no stated expiration date.


24


Outlook
     Regis Corporation is the world's largest owner, operator, franchisor and
acquirer of hair and retail product salons in the $135 billion hair care
industry. The 8,684 company-owned and franchised salons, which generated $2.3
billion of system-wide sales in fiscal year 2002, are located in the United
States, Canada, France, Italy, the United Kingdom, Spain, Belgium, Switzerland,
Poland, Brazil, and Puerto Rico.
     Over the last ten years, the Company has been able to average double-digit
revenue and earnings growth through its strategy of building, acquiring and
franchising salons in high traffic locations throughout North America and
Europe.
     Eight times larger than its nearest competitor, the Company maintains just
a two percent worldwide market share, signaling substantial opportunities for
long-term future growth.
     The Company's growth strategy will continue to focus on building and
acquiring company-owned and operated salons in convenient locations with good
visibility, strong customer traffic and appropriate trade demographics. It will
continue to focus on the middle to moderately upscale market with its
broad-based salon concepts.
     The Company believes that the availability of real estate and quality
stylists will not constrain its ability to achieve its long-term growth
objectives.
     Franchising will also be a key component of the Company's future growth.
Through the combination of company-owned and franchise salon growth, the Company
expects to be able to strengthen its presence in existing markets as well as
successfully enter new markets.
     In addition to growth in salon services, the Company has been successful in
growing the retail product business. During fiscal year 2002, retail product
sales increased 14 percent to $413 million. Through the offering of the largest
assortment of professional hair care products in the industry and superior
merchandising, the Company is confident that it can continue to successfully
grow its retail product business. Today, the Company estimates that it serves
approximately 10 percent of the U.S. retail product market.
     Maintaining financial flexibility is also a key element in continuing
successful growth. With strong operating cash flow and an investment grade
rating, the Company is confident that it will be able to financially support its
future growth.

SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
     This annual report, as well as information included in, or incorporated by
reference from, future filings by the Company with the Securities and Exchange
Commission and information contained in written material, press releases and
oral statements issued by or on behalf of the Company contains or may contain
"forward-looking statements" within the meaning of the federal securities laws,
including statements concerning anticipated future events and expectations that
are not historical facts. These forward-looking statements are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The forward-looking statements in this document reflect management's best
judgment at the time they are made, but all such statements are subject to
numerous risks and uncertainties, which could cause actual results to differ
materially from those expressed in or implied by the statements herein. Such
forward-looking statements are often identified herein by use of words
including, but not limited to, "may," "believe," "project," "expect,"
"estimate," "anticipate," and "plan." In addition, the following factors could
affect the Company's actual results and cause such results to differ materially
from those expressed in forward-looking statements. These factors include
competition within the personal hair care industry, which remains strong, both
domestically and internationally, and price sensitivity; changes in economic
condition; changes in consumer tastes and fashion trends; labor and benefit
costs; legal claim; risk inherent to international development (including
currency fluctuations); the continued ability of the Company and its franchisees
to obtain suitable locations and financing for new salon development;
governmental initiatives such as minimum wage rates, taxes and possible
franchise legislation; the ability of the Company to successfully identify and
acquire salons that support its growth objectives; or other factors not listed
above.


                                                                              25


Regis Corporation

Consolidated Balance Sheet




                                                                                June 30,
- -----------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)                            2002         2001
- -----------------------------------------------------------------------------------------------
                                                                               
ASSETS
Current assets:
   Cash ...............................................................   $  87,103   $  24,658
   Receivables, net ...................................................      26,901      18,861
   Inventories ........................................................     120,259     110,247
   Deferred income taxes ..............................................       9,843      10,087
   Other current assets ...............................................      12,580       8,794
- -----------------------------------------------------------------------------------------------
      Total current assets ............................................     256,686     172,647
Property and equipment, net ...........................................     318,482     300,990
Goodwill ..............................................................     304,529     236,117
Other intangibles, net ................................................      54,907      10,854
Other assets ..........................................................      22,586      15,897
- -----------------------------------------------------------------------------------------------
      Total assets ....................................................   $ 957,190   $ 736,505
===============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Long-term debt, current portion ....................................   $   7,221   $   5,438
   Accounts payable ...................................................      54,545      37,689
   Accrued expenses ...................................................      97,523      68,788
- -----------------------------------------------------------------------------------------------
      Total current liabilities .......................................     159,289     111,915
Long-term debt ........................................................     291,795     256,120
Other noncurrent liabilities ..........................................      61,441      28,969

Commitments and contingencies (Note 6)

Shareholders' equity:
   Common stock, $.05 par value; issued and outstanding, 43,040,381
     and 41,726,787 common shares at June 30, 2002 and 2001,
     respectively .....................................................       2,152       2,087
   Additional paid-in capital .........................................     194,859     165,489
   Accumulated other comprehensive income (loss) ......................       3,938      (4,815)
   Retained earnings ..................................................     243,716     176,740
- -----------------------------------------------------------------------------------------------
      Total shareholders' equity ......................................     444,665     339,501
- -----------------------------------------------------------------------------------------------
         Total liabilities and shareholders' equity ...................   $ 957,190   $ 736,505
===============================================================================================


The accompanying notes are an integral part of the Consolidated
Financial Statements.




26


                                                               Regis Corporation

                                            Consolidated Statement of Operations






                                                                                            Years Ended June 30,
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars and shares in thousands, except per share amounts)                           2002           2001           2000
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                                       
Revenues:
   Company-owned salons:
      Service .................................................................   $   963,884    $   893,472    $   779,604
      Product .................................................................       412,728        361,858        313,125
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                    1,376,612      1,255,330      1,092,729
   Franchise revenues:
      Royalties and fees ......................................................        50,745         38,230         36,157
      Product sales ...........................................................        26,834         18,061         14,107
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                       77,579         56,291         50,264
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                    1,454,191      1,311,621      1,142,993
Operating expenses:
   Company-owned salons:
      Cost of service .........................................................       546,027        508,981        442,198
      Cost of product .........................................................       216,373        191,796        168,787
      Direct salon ............................................................       123,915        112,667         92,841
      Rent ....................................................................       197,269        176,947        152,685
      Depreciation ............................................................        48,269         42,720         36,832
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                    1,131,853      1,033,111        893,343
   Franchise direct costs, including product and equipment ....................        38,114         21,237         17,443
   Corporate and franchise support costs ......................................       139,654        125,927        115,058
   Depreciation and amortization ..............................................        10,706         22,065         16,993
   Nonrecurring items .........................................................                                       2,940
- ---------------------------------------------------------------------------------------------------------------------------
        Total operating expenses ..............................................     1,320,327      1,202,340      1,045,777
- ---------------------------------------------------------------------------------------------------------------------------
        Operating income ......................................................       133,864        109,281         97,216
Other income (expense):
   Interest ...................................................................       (19,010)       (21,487)       (15,839)
   Other, net .................................................................           796          1,085          1,857
- ---------------------------------------------------------------------------------------------------------------------------
        Income before income taxes ............................................       115,650         88,879         83,234
Income taxes:
   Provision ..................................................................       (45,346)       (35,791)       (33,580)
   Nonrecurring income tax benefit ............................................         1,750
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                      (43,596)       (35,791)       (33,580)
- ---------------------------------------------------------------------------------------------------------------------------
        Net income ............................................................   $    72,054    $    53,088    $    49,654
===========================================================================================================================
Net income per share:
   Basic ......................................................................   $      1.70    $      1.29    $      1.22
===========================================================================================================================
   Diluted ....................................................................   $      1.63    $      1.26    $      1.19
===========================================================================================================================
Weighted average shares outstanding:
   Basic ......................................................................        42,283         41,221         40,612
===========================================================================================================================
   Diluted ....................................................................        44,172         42,031         41,602
===========================================================================================================================


Effective July 1, 2001, Regis changed its accounting for goodwill. For
comparability purposes, see Note 1 for pro forma amounts. The accompanying notes
are an integral part of the Consolidated Financial Statements.




                                                                              27

Regis Corporation

Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income





                                                                                 Accumulated
                                                  Common Stock       Additional     Other
                                              ---------------------   Paid-In   Comprehensive  Retained           Comprehensive
(Dollars in thousands)                          Shares      Amount    Capital   Income (Loss)  Earnings   Total      Income
- -------------------------------------------------------------------------------------------------------------------------------
                                                                                             
Balance, June 30, 1999 ...................    40,419,122    $2,021   $ 148,504     $(1,095)   $ 84,789  $ 234,219
Net income ...............................                                                      49,654     49,654     $ 49,654
Foreign currency translation adjustments..                                          (1,179)                (1,179)      (1,179)
Pooling of interests adjustment ..........                                                        (665)      (665)
Stock repurchase plan ....................      (115,000)       (6)     (1,419)                            (1,425)
Proceeds from exercise of stock options ..       329,000        16       1,478                              1,494
Shares issued in connection with
  salon acquisitions .....................        69,585         4       1,584                              1,588
Tax benefit realized upon exercise of
  stock options ..........................                                 646                                646
Dividends ................................                                                      (5,191)    (5,191)
- ------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2000 ...................    40,702,707     2,035     150,793      (2,274)    128,587    279,141     $ 48,475
                                                                                                                      ========
Net income ...............................                                                      53,088     53,088       53,088
Foreign currency translation adjustments..                                            (921)                  (921)        (921)
Transition adjustment relating to the
  adoption of FAS No. 133, net of taxes ..                                            (160)                  (160)        (160)
Changes in fair market value of
  financial instruments designated as
  hedges of interest rate exposure, net
  of taxes and transfers .................                                          (1,460)                (1,460)      (1,460)
Proceeds from exercise of stock options ..       298,362        16       1,971                              1,987
Shares issued through franchise stock
  incentive program ......................        10,662                   149                                149
Shares issued in connection with
  salon acquisitions .....................       715,056        36      11,860                             11,896
Tax benefit realized upon exercise of
  stock options ..........................                                 716                                716
Dividends ................................                                                      (4,935)    (4,935)
- ------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2001 ...................    41,726,787     2,087     165,489      (4,815)    176,740    339,501     $ 50,547
                                                                                                                      ========
Net income ...............................                                                      72,054     72,054       72,054
Foreign currency translation adjustments..                                           9,460                  9,460        9,460
Changes in fair market value of financial
  instruments designated as hedges of
  interest rate exposure, net of taxes
  and transfers ..........................                                            (707)                  (707)        (707)
Stock repurchase plan ....................      (278,700)      (14)     (7,729)                            (7,743)
Proceeds from exercise of stock options ..       621,163        31       7,719                              7,750
Shares issued through franchise stock
  incentive program ......................         8,198                   173                                173
Shares issued in connection with
  salon acquisitions .....................       962,933        48      26,253                             26,301
Tax benefit realized upon exercise
  of stock options .......................                               2,954                              2,954
Dividends ................................                                                      (5,078)    (5,078)
- ------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2002 ...................    43,040,381    $2,152   $ 194,859     $ 3,938    $243,716  $ 444,665     $ 80,807
==============================================================================================================================


The accompanying notes are an integral part of the Consolidated Financial
Statements.


28


                                                               Regis Corporation

                                            Consolidated Statement of Cash Flows






                                                                     Years Ended June 30,
- -------------------------------------------------------------------------------------------------
(Dollars in thousands)                                           2002         2001         2000
- -------------------------------------------------------------------------------------------------
                                                                               
Cash flows from operating activities:
   Net income .............................................   $  72,054    $  53,088    $  49,654
   Adjustments to reconcile net income to net cash provided
     by operating activities:
      Depreciation ........................................      56,821       49,821       42,483
      Amortization ........................................       2,911       15,097       11,634
      Deferred income taxes ...............................      11,890        3,249       (1,003)
      Other ...............................................         739          120         (381)

      Changes in operating assets and liabilities:
        Receivables .......................................        (575)      (5,010)         267
        Inventories .......................................      (7,759)     (16,724)     (20,350)
        Other current assets ..............................      (2,761)       2,669        1,078
        Other assets ......................................      (2,460)      (3,295)      (3,432)
        Accounts payable ..................................       7,354        1,369        1,799
        Accrued expenses ..................................      13,070        7,766       (1,546)
        Other noncurrent liabilities ......................         755        2,159        5,181
- -------------------------------------------------------------------------------------------------
      Net cash provided by operating activities ...........     152,039      110,309       85,384
- -------------------------------------------------------------------------------------------------
Cash flows from investing activities:
   Capital expenditures ...................................     (66,232)     (80,224)     (80,932)
   Proceeds from sale of assets ...........................         873          682          852
   Business and salon acquisitions, net of cash
     acquired .............................................     (59,925)     (45,165)     (66,798)
- -------------------------------------------------------------------------------------------------
      Net cash used in investing activities ...............    (125,284)    (124,707)    (146,878)
- -------------------------------------------------------------------------------------------------
Cash flows from financing activities:
   Borrowings on revolving credit facilities ..............     250,800      321,200      413,786
   Payments on revolving credit facilities ................    (336,300)    (313,900)    (321,928)
   Proceeds from issuance of long-term debt ...............     125,000       25,000        7,958
   Repayments of long-term debt ...........................      (5,212)      (5,942)     (33,842)
   Other, primarily increase in negative book cash
     balances .............................................       4,937          695        5,054
   Dividends paid .........................................      (5,078)      (4,935)      (5,191)
   Repurchase of common stock .............................      (7,743)                   (1,425)
   Proceeds from issuance of common stock .................       7,750        1,987        1,494
- -------------------------------------------------------------------------------------------------
      Net cash provided by financing activities ...........      34,154       24,105       65,906
- -------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash ...................       1,536           63          123
- -------------------------------------------------------------------------------------------------
Increase in cash ..........................................      62,445        9,770        4,535
Cash:
   Beginning of year ......................................      24,658       14,888       10,353
- -------------------------------------------------------------------------------------------------
   End of year ............................................   $  87,103    $  24,658    $  14,888
=================================================================================================


The accompanying notes are an integral part of the Consolidated Financial
Statements.





                                                                              29



Regis Corporation

Notes to Consolidated Financial Statements


1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Business Description:
     Regis Corporation (the Company) owns, operates and franchises hairstyling
and hair care salons throughout the United States, the United Kingdom, France,
Canada, Puerto Rico and several other countries. Substantially all of the
hairstyling and hair care salons owned and operated by the Company in the United
States are located in leased space in enclosed mall shopping centers or strip
shopping centers. Franchised salons throughout the United States are primarily
located in strip shopping centers. The company-owned and franchised salons in
the United Kingdom, France and several other countries are owned and operated in
malls, leading department stores, mass merchants and high-street locations.
     At June 30, 2002, approximately five percent of the Company's outstanding
common stock is owned by Curtis Squire, Inc. (CSI), which is a holding company
controlled by the Chairman of the Board of Directors of the Company, and
approximately four percent is owned by management and the Company's benefit
plans.

Consolidation:
      The Consolidated Financial Statements include the accounts of the Company
and all of its wholly-owned subsidiaries. In consolidation, all material
intercompany accounts and transactions are eliminated.

Use of Estimates:
      The preparation of Consolidated Financial Statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. The more significant
estimates made by management are the estimated useful lives and net realizable
values of long-lived assets, the fair value of assets acquired in business
combinations and various commitments and contingencies. Actual results could
differ from those estimates.

Foreign Currency Translation:
     Financial position, results of operations and cash flows of the Company's
international subsidiaries are measured using local currency as the functional
currency. Assets and liabilities of these subsidiaries are translated at the
exchange rates in effect at each fiscal year end. Translation adjustments
arising from the use of differing exchange rates from period to period are
included in accumulated other comprehensive income (loss) within shareholders'
equity. Income statement accounts are translated at the average rates of
exchange prevailing during the year. The different exchange rates from period to
period impact the amount of reported income from the Company's international
operations.

Inventories:
     Inventories consist principally of hair care products held either for use
in salon services or for sale. Inventories are stated at the lower of cost or
market with cost determined on a weighted average basis, which approximates the
first-in, first-out method.

Property and Equipment:
     Property and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization of property and equipment are
computed on the straight-line method over estimated useful asset lives (30 to 39
years for buildings and improvements and five to ten years for equipment,
furniture, software and leasehold improvements).
     The Company capitalizes both internal and external costs of developing or
obtaining computer software for internal use. Costs incurred to develop
internal-use software during the application development stage are capitalized,
while data conversion, training and maintenance costs associated with
internal-use software are expensed as incurred. As of June 30, 2002 and 2001,
the net book value of capitalized computer software costs was $23.2 million and
$24.1 million, respectively. Amortization expense related to capitalized
computer software was $5.5 million in fiscal 2002, $4.8 million in fiscal 2001
and $3.3 million in fiscal 2000, which has been determined based on an estimated
useful life of five or seven years.
     Expenditures for maintenance and repairs and minor renewals and betterments
which do not improve or extend the life of the respective assets are expensed.
All other expenditures for renewals and betterments are capitalized. The assets
and related depreciation/amortization accounts are adjusted for property
retirements and disposals with the resulting gain or loss included in
operations. Fully depreciated/amortized assets remain in the accounts until
retired from service.

Goodwill:
     Prior to July 1, 2001, goodwill recorded in connection with the fiscal 1989
purchase of the publicly held minority interest in the Company, and acquisitions
of business operations in which the Company had not previously been involved,
was amortized on a straight-line basis over 40 years. Goodwill recorded in
connection with acquisitions which expanded the Company's existing business
activities (acquisitions of salon sites) was amortized on a straight-line basis,
generally over 20 years. Effective July 1, 2001, the Company ceased all
amortization of goodwill balances. See discussion under "Recent Accounting
Pronouncements."


30

     Goodwill is tested for impairment annually or at the time of a triggering
event in accordance with the provisions of Statement of Financial Accounting
Standards (FAS) No. 142, "Goodwill and Other Intangible Assets." Fair values are
estimated based on the Company's best estimate of the expected present value of
future cash flows and compared with the corresponding carrying value of the
reporting unit, including goodwill. The Company generally considers its various
primary brands to be reporting units when it tests for goodwill impairment
because that is where the Company believes goodwill naturally resides. On July
1, 2001, goodwill was tested for impairment in this manner and the estimated
fair value of each reporting unit exceeded its carrying amount, indicating no
impairment of goodwill. The Company performs its annual goodwill impairment
testing during its fiscal third quarter.

Asset Impairment Assessments:
     The Company reviews long-lived assets for impairment whenever events or
circumstances indicate that the carrying value of such assets may not be fully
recoverable. An impairment is evaluated based on the sum of undiscounted
estimated future cash flows expected to result from use of the assets compared
to its carrying value. If an impairment is recognized, the carrying value of the
impaired asset is reduced to its fair value, based on discounted estimated
future cash flows.

Franchise Revenues and Expenses:
     Franchise revenues include royalties, initial franchise fees from
franchisees and sales of product to franchisees. Royalties are recognized as
revenue in the month in which franchisee services are rendered or products are
sold by franchisees. The Company recognizes revenue from initial franchise fees
at the time franchisee salons are opened. Product sales by the Company to
franchisees are recorded at the time product is shipped to franchise locations.
Franchise expenses included in franchise direct costs in the Consolidated
Statement of Operations include all direct expenses, such as the cost of product
sold to franchisees. All other indirect expenses associated with franchise
operations are included in corporate and franchise support costs in the
Consolidated Statement of Operations.

Advertising:
     Advertising costs are expensed as incurred. Advertising costs expensed were
$31.3 million, $29.5 million and $24.9 million in fiscal 2002, 2001 and 2000,
respectively.

Advertising Funds:
     Franchisees and certain company-owned salons are required to contribute a
percentage of sales to various advertising funds. The Company administers the
advertising funds at the directive of or subject to input from the franchise
community. Accordingly, amounts collected and spent by the advertising funds are
not reflected as revenues and expenditures of the Company. Assets of the
advertising funds administered by the Company, along with an offsetting
obligation to spend such assets, are recorded in the Consolidated Balance Sheet.

Income Taxes:
     Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of events that have been included in the financial
statements or income tax returns. Deferred income tax assets and liabilities are
determined based on the differences between the financial statement and tax
basis of assets and liabilities using currently enacted tax rates in effect for
the years in which the differences are expected to reverse. Income tax expense
is the current tax payable for the period and the change during the period in
deferred tax assets and liabilities.

Net Income Per Share:
     Basic earnings per share (EPS) is calculated as net income divided by
weighted average common shares outstanding. The Company's dilutive securities
include shares issuable under the Company's stock option plan and shares
issuable under contingent stock agreements. Diluted EPS is calculated as net
income divided by weighted average common shares outstanding, increased to
include assumed exercise of dilutive securities. Stock options with exercise
prices greater than the average market value of the Company's common stock are
excluded from the computation of diluted EPS.

Reclassifications:
     Certain prior period amounts have been reclassified to conform to the
current year presentation. These reclassifications had no effect on net income
or shareholders' equity as previously presented.

Comprehensive Income:
     Components of comprehensive income for the Company include net income, the
transition adjustment for the adoption of FAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended and interpreted,
changes in fair market value of financial instruments designated as hedges of
interest rate exposure and foreign currency translation charged or credited to
the cumulative translation account within shareholders' equity. These amounts
are presented in the Consolidated Statements of Changes in Shareholders' Equity
and Comprehensive Income.

Recent Accounting Pronouncements:
     Effective July 1, 2001 and January 1, 2002, the Company adopted the
provisions of FAS No. 141, "Business Combinations," and FAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets," respectively. The initial
adoption of these Statements did not have a material impact on the Consolidated
Statement of Operations.
      The Financial Accounting Standards Board ("FASB") recently issued FAS No.
143, "Accounting for Asset Retirement Obligations," which addresses financial
accounting and reporting for obligations associated with the


                                                                              31

Regis Corporation

Notes to Consolidated Financial Statements (continued)




retirement of tangible long-lived assets and the associated asset retirement
costs. FAS No. 143 is effective for financial statements issued for fiscal years
beginning after June 15, 2002. The Company does not expect the initial adoption
of this Statement to have a material impact on the Consolidated Statement of
Operations.
     Effective July 1, 2001, the Company adopted the provisions of Statement of
Financial Accounting Standards (FAS) No. 142, "Goodwill and Other Intangible
Assets." This statement discontinued the amortization of goodwill and
indefinite-lived intangible assets, subject to periodic impairment testing. The
effect of the change in accounting during the year ended June 30, 2002 was to
increase net income by approximately $11.1 million, or $.25 per diluted share.
The pro forma amounts shown below reflect the effect of retroactive application
of the non-amortization of goodwill as if the new method of accounting had been
in effect in the prior periods.




- --------------------------------------------------------------------------------
(Pro Forma Amounts)                            2002          2001        2000
- --------------------------------------------------------------------------------
                                                             
Net income (Dollars in thousands)
Reported net income .....................   $   72,054   $   53,088   $   49,654
Goodwill amortization (net of tax
 effect) ................................                     8,866        7,741
- --------------------------------------------------------------------------------
Adjusted net income .....................   $   72,054   $   61,954   $   57,395
- --------------------------------------------------------------------------------
Basic earnings per share
Reported basic earnings per share .......   $     1.70   $     1.29   $     1.22
Goodwill amortization (net of tax
 effect) ................................                       .21          .19
- --------------------------------------------------------------------------------
Pro forma basic earnings per share ......   $     1.70   $     1.50   $     1.41
- --------------------------------------------------------------------------------
Diluted earnings per share
Reported diluted earnings per share .....   $     1.63   $     1.26   $     1.19
Goodwill amortization (net of tax
 effect) ................................                       .21          .19
- --------------------------------------------------------------------------------
Pro forma diluted earnings per share ....   $     1.63   $     1.47   $     1.38
================================================================================


     In addition, the remaining estimated useful lives of intangible assets
being amortized were reviewed in accordance with the provisions of the new
standard and deemed to be appropriate.

 2. OTHER FINANCIAL STATEMENT DATA
     The following provides additional information concerning selected balance
sheet accounts as of June 30, 2002 and 2001:



- ------------------------------------------------------------------------------------------------
(Dollars in thousands)                                                       2002         2001
- ------------------------------------------------------------------------------------------------
                                                                                 
Property and equipment:
   Land ...............................................................   $   3,817    $   3,817
   Buildings and improvements .........................................      29,518       29,449
   Equipment, furniture and leasehold improvements ....................     479,662      433,374
   Internal use software ..............................................      44,186       39,635
   Equipment, furniture and leasehold improvements under capital
    leases ............................................................      15,135       15,113
- ------------------------------------------------------------------------------------------------
                                                                            572,318      521,388
   Less accumulated depreciation and amortization .....................    (243,888)    (211,722)
   Less amortization of equipment, furniture and leasehold improvements
    under capital leases ..............................................      (9,948)      (8,676)
- ------------------------------------------------------------------------------------------------
                                                                          $ 318,482    $ 300,990
================================================================================================
Accounts payable* .....................................................   $  54,545    $  37,689
================================================================================================
Accrued expenses:
   Payroll and payroll related costs* .................................   $  41,769    $  34,344
   Insurance ..........................................................      20,252       15,021
   Acquisition purchase price payable .................................       9,771
   Restructuring ......................................................         713        1,056
   Other ..............................................................      25,018       18,367
- ------------------------------------------------------------------------------------------------
                                                                          $  97,523    $  68,788
================================================================================================
Other noncurrent liabilities:
   Deferred income taxes ..............................................   $  29,813    $   1,971
   Other ..............................................................      31,628       26,998
- ------------------------------------------------------------------------------------------------
                                                                          $  61,441    $  28,969
================================================================================================


*Accounts payable and accrued expenses include $11,869 and $5,762 of book
overdrafts in fiscal 2002 and 2001, respectively.




32



- ---------------------------------------------------------------------------------------------------------------------
                                                         2002                                   2001
                                        ------------------------------------     ------------------------------------
                                                      Accumulated                            Accumulated
(Dollars in thousands)                     Cost      Amortization      Net          Cost     Amortization       Net
- ---------------------------------------------------------------------------------------------------------------------
                                                                                           
Amortized intangible assets:
Trade names ..........................  $ 29,343      $   (425)     $ 28,918     $  3,854      $    (35)     $  3,819
Franchise agreements .................    22,831        (2,061)       20,770        6,115        (1,482)        4,633
Non-compete agreements ...............     5,132        (4,760)          372        5,029        (4,192)          837
Other ................................     6,275        (1,428)        4,847        2,525          (960)        1,565
- ---------------------------------------------------------------------------------------------------------------------
                                        $ 63,581      $ (8,674)     $ 54,907     $ 17,523      $ (6,669)     $ 10,854
=====================================================================================================================


     Certain intangible asset amounts set forth above are based on preliminary
purchase price allocations associated with recent business acquisitions, and are
subject to finalization and adjustment.

     All intangible assets have been assigned an estimated finite useful life,
and are amortized on a straight-line basis over the number of years that
approximate their respective useful lives (ranging from four to 30 years). The
straight-line method of amortization allocates the cost of the intangible assets
to earnings in proportion to the amount of economic benefits obtained by the
Company in that reporting period. Total amortization expense related to other
intangible assets during the years ended June 30 2002, 2001 and 2000 was
approximately $2.3 million, $1.4 million and $1.0 million, respectively. As of
June 30, 2002, future estimated amortization expense related to amortizable
intangible assets will be:



Fiscal Year                                                (Dollars in thousands)
- --------------------------------------------------------------------------------
                                                        
2003 ....................................................            $3,183
2004 ....................................................             2,948
2005 ....................................................             2,678
2006 ....................................................             2,634
2007 ....................................................             2,634


     The following provides additional information concerning the Company's
transaction and restructuring liabilities related to its fiscal 2000 merger with
Supercuts UK, its fiscal 1999 mergers and its restructuring liability related to
its fiscal 1999 restructuring plan for its international operations.




                                Restructuring--International               Restructuring--Mergers
                            -------------------------------------------------------------------------------
                               Salon                                         Salon                            Transaction
                            Closures and                                  Closures and                         Charges--
(Dollars in thousands)      Dispositions   Other    Subtotal  Severance   Dispositions     Other   Subtotal     Mergers       Total
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                               
June 30, 2000 ............. $      583     $  67    $  650    $  2,824    $         23    $  145   $  2,992    $    35     $  3,677
Cash utilization ..........       (534)       (5)     (539)     (1,616)            (27)      (48)    (1,691)       (47)      (2,277)
Foreign currency effect ...        (19)      (62)      (81)       (209)             31       (97)      (275)        12         (344)
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, 2001 .............         30                  30         999              27                1,026                   1,056
Cash utilization ..........        (31)                (31)       (348)            (27)                (375)                   (406)
Foreign currency effect ...          1                               1              62                   62                      63
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, 2002 ............. $       --     $  --    $   --    $    713    $         --    $   --   $    713    $    --     $    713
====================================================================================================================================


     The restructuring liability at June 30, 2002 relates to the October 31,
1999 merger with Supercuts UK and will be satisfied through periodic contractual
payments by the end of fiscal 2004. In conjunction with the merger, the Company
recorded a pre-tax merger and transaction charge of $3.1 million in the second
quarter of fiscal 2000. This charge included approximately $2.6 million for
severance and other costs principally associated with the closure of Supercuts
UK's headquarters. Severance expense covered the termination of approximately 11
employees of Supercuts UK who had duplicate positions within the corporate
office functions. The charge also included approximately $0.5 million for
professional fees including investment banking, legal, accounting and
miscellaneous transaction costs. See Note 11 for a listing of nonrecurring
fiscal 2000 merger related activity included in operating income.

     The following table sets forth a reconciliation of shares used in the
computation of basic and diluted earnings per share:



- ----------------------------------------------------------------------------------------------------------------
                                                                        2002            2001            2000
- ----------------------------------------------------------------------------------------------------------------
                                                                                             
Weighted average shares for basic earnings per share ..............    42,283,308     41,220,925      40,611,928
Effect of dilutive securities:
  Dilutive effect of stock options ................................     1,867,038        638,153         880,056
  Contingent shares issuable under contingent stock agreements ....        21,986        171,895         110,298
- ----------------------------------------------------------------------------------------------------------------
Weighted average shares for diluted earnings per share ............    44,172,332     42,030,973      41,602,282
================================================================================================================


                                                                              33

Regis Corporation

Notes to Consolidated Financial Statements (continued)

     Stock options covering approximately 55,000, 2,819,000 and 1,070,000 shares
were excluded from the shares used in the computation of diluted earnings per
share for fiscal year 2002, 2001 and 2000, respectively, since they were
anti-dilutive.
     The following provides supplemental disclosures of cash flow activity:



- --------------------------------------------------------------------------------
(Dollars in thousands)                           2002        2001        2000
- --------------------------------------------------------------------------------
Cash paid during the year for:
                                                              
Interest ....................................  $17,609     $20,534     $14,997
Income taxes ................................   14,621      37,447      36,866


     Significant non-cash investing and financing activities include the
following:
     - In fiscal 2001 and 2000, the Company financed capital expenditures
       totaling $0.1 million and $2.3 million, respectively, through capital
       leases.
     - In fiscal 2002, 2001 and 2000, in connection with various acquisitions,
       the Company entered into seller-financed payables and non-compete
       agreements as well as issuing 962,933, 715,056 and 69,585 shares,
       respectively, of the Company's common stock (see Note 3).

3. MERGERS AND ACQUISITIONS:

Supercuts (Holdings) Limited Merger:
     Effective October 31, 1999, the Company consummated a merger with Supercuts
UK. Under the terms of the merger agreement, the shareholders of Supercuts UK, a
privately held company, received approximately 1.8 million shares of Regis
Corporation common stock. The transaction has been accounted for as a
pooling-of-interests. Prior period financial statements have been restated to
reflect this merger as if the merged companies had always been combined. See
discussion of the related restructuring liability in Note 2.

Other Acquisitions:
     During fiscal 2002, 2001 and 2000, the Company made numerous acquisitions
in addition to its merger with Supercuts UK. These acquisitions have been
recorded using the purchase method of accounting. Accordingly, the purchase
prices have been allocated to assets acquired and liabilities assumed based on
their estimated fair values at the dates of acquisition. These acquisitions
individually and in the aggregate are not material to the Company's operations.
Operations of the acquired companies have been included in the operations of the
Company since the date of the respective acquisition. The most significant of
the fiscal 2002 acquisitions were the acquisition of the European franchise
companies, Groupe Gerard Glemain (GGG) and Jean Louis David (JLD). With respect
to these acquisitions, the Company is currently in the process of obtaining
valuations of the identifiable intangible assets.
     Based upon the preliminary purchase price allocations, the components of
the aggregate purchase prices of the acquisitions and the allocation of the
purchase price were as follows:




- ----------------------------------------------------------------------------------
(Dollars in thousands)                             2002          2001        2000
- ----------------------------------------------------------------------------------
                                                                 
Components of aggregate purchase price:
  Cash ......................................... $ 59,925    $ 45,165     $ 66,798
  Stock ........................................   26,301      11,896        1,588
  Liabilities assumed or payable ...............   13,608       7,383        5,225
- ----------------------------------------------------------------------------------
                                                 $ 99,834    $ 64,444     $ 73,611
==================================================================================
Allocation of the purchase price:
  Net tangible assets (liabilities) acquired ... $ (4,486)   $ 11,677     $  7,576
  Identifiable intangible assets ...............   41,181       8,672           --
  Goodwill .....................................   63,139      44,095       66,035
- ----------------------------------------------------------------------------------
                                                 $ 99,834    $ 64,444     $ 73,611
==================================================================================


     Based upon the preliminary purchase price allocations, the change in the
carrying amount of the goodwill for the years ended June 30, 2002 and 2001 is as
follows:



                                            2002                           2001
                                 --------------------------     --------------------------
(Dollars in thousands)           Domestic     International     Domestic     International
- ------------------------------------------------------------------------------------------
                                                                 
Balance at beginning of year ... $ 230,716      $   5,401      $ 200,036      $   6,361
Goodwill acquired ..............    21,297         41,842         44,076             19
Amortization ...................                                 (13,112)          (596)
Translation rate adjustments ...        42          5,231           (284)          (383)
- ------------------------------------------------------------------------------------------
Balance at end of year ......... $ 252,055      $  52,474      $ 230,716      $   5,401
==========================================================================================


34

     Generally, the goodwill recognized in the domestic transactions is expected
to be fully deductible for tax purposes and the goodwill recognized in the
international transactions is non-deductible for tax purposes. The walk-in
customer base of acquired salons was not recognized as an identifiable
intangible asset as the customers are not known or identifiable by the Company.
Therefore, the value of the customer base is recognized as part of residual
goodwill. Internationally, the acquisition purchase price goodwill residual
primarily represents the growth prospects that are not captured as part of
acquired tangible or identified intangible assets.

4. FINANCING ARRANGEMENTS:
     The Company's long-term debt as of June 30, 2002 and 2001 consists of the
following:



                                                Interest       Maturity
                                                Rate %           Dates         2002          2001
- ----------------------------------------------------------------------------------------------------
                                                                             (Dollars in thousands)
                                                                               
Senior term notes ........................     6.55- 8.39     2003-2012     $ 237,711      $ 113,163
Revolving credit facilities ..............     2.68- 8.23          2004        55,000        140,500
Equipment and leasehold notes payable ....     7.57-11.56     2004-2007         4,047          6,391
Other notes payable ......................     5.00-10.00     2003-2009         2,258          1,504
                                                                            ------------------------
                                                                              299,016        261,558
Less current portion .....................                                     (7,221)        (5,438)
                                                                            ------------------------
Long-term portion ........................                                  $ 291,795      $ 256,120
                                                                            ========================


     During March of fiscal 2002, the Company completed a $125.0 million private
debt placement, with an average life of 8.6 years and a fixed coupon rate of
6.98 percent. Proceeds were in part used to repay approximately $75.0 million of
existing debt from the Company's revolving credit facility. The additional $50.0
million of proceeds were primarily used to fund the Jean Louis David
acquisition, which was completed in April of 2002.
     In October 2000, the Company borrowed $25 million under an 8.39 percent
senior term note due October 2010 to finance various acquisitions by the
Company.
     In September 2000, the Company amended its senior revolving credit
agreement to increase the amount available from $180 million to $250 million,
extending the expiration date to September 2003, and modifying certain debt
covenant restrictions. The facility bears interest at the prime rate or LIBOR
plus 75 to 137.5 basis points based on the Company's debt-to-capitalization
ratio and allows for multi-currency borrowings. The prime rate at June 30, 2002
and 2001 was 4.75 percent and 6.75 percent, respectively. The revolving credit
facility requires a quarterly commitment fee of 15 to 25 basis points on the
unused portion of the facility. The LIBOR credit spread and commitment fee are
based on the Company's debt-to-EBITDA ratio at the end of each fiscal quarter.
The facility is used for short-term financing of new salon and acquisition
growth as well as to finance the general working capital requirements of the
Company.
     In June 2000, the Company extended the term of a $4.0 million note payment
originally due July 1, 2000. The $4.0 million is the final payment due under a
$10.0 million senior term note entered into in October 1996. The maturity on the
term note has been extended to September 2003.
     The equipment and leasehold notes payable are primarily comprised of
capital lease obligations totaling $4.0 million and $5.9 million at June 30,
2002 and 2001, respectively. These capital lease obligations are payable in
monthly installments through 2005.
     All of the Company's debt instruments are unsecured, except for its capital
lease obligations which are collateralized by the assets purchased under the
agreement.
     The debt agreements contain covenants, including limitations on incurrence
of debt, granting of liens, investments, merger or consolidation, and
transactions with affiliates. In addition, the Company must not exceed specified
fixed charge coverage, leverage and debt-to-capitalization ratios.
     As a result of the fair value hedging activities discussed in Note 5, an
adjustment of approximately $2.3 million was made to increase the carrying
values of the Company's long-term fixed rate debt. Approximately 47 percent of
the Company's fixed rate debt has been marked to market. Considering the
mark-to-market adjustment and current market interest rates, the carrying values
of the Company's debt instruments, based upon discounted cash flow analyses
using the Company's current incremental borrowing rate, approximate their fair
values at June 30, 2002.
     Aggregate maturities of long-term debt, including capital lease obligations
at June 30, 2002, are as follows:



Fiscal Year                                              (Dollars in thousands)
- --------------------------------------------------------------------------------
                                                      
2003.....................................................           $  7,221
2004.....................................................             76,863
2005.....................................................             15,750
2006.....................................................             12,549
2007.....................................................             22,037
Thereafter...............................................            164,596
- --------------------------------------------------------------------------------
                                                                    $299,016
================================================================================



                                                                              35

Regis Corporation

Notes to Consolidated Financial Statements (continued)

5. DERIVATIVE INSTRUMENTS:
      Effective July 1, 2000, Regis adopted FAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended and interpreted. FAS
133 requires that all derivative instruments, such as interest rate swap
contracts, be recognized in the financial statements and measured at their fair
value. Changes in the fair value of derivative instruments are recognized each
period in current earnings or shareholders' equity (as a component of other
comprehensive income or loss), depending on whether a derivative is designated
as part of a hedge transaction and, if it is, the type of hedge transaction. The
adoption of FAS 133 did not have a material impact on the Company's primary
financial statements, but did result in the recording of an unrealized loss of
approximately $160,000, net of tax, in other comprehensive income (loss).
     In the normal course of business, the Company is exposed to changes in
interest rates and foreign currency rates. In addition, the Company has
investments in foreign subsidiaries, and the net assets of these subsidiaries
are exposed to currency exchange-rate volatility. The Company has established
policies and procedures that govern the management of these exposures through
the use of financial instruments. By policy, the Company does not enter into
such contracts for the purpose of speculation. The Company uses interest rate
swaps to convert a portion of its variable rate debt to fixed rates, as well as
to convert a portion of its nonprepayable fixed rate debt to variable rate debt.
     At June 30, 2002, Regis had interest rate swap contracts to pay fixed rates
of interest (ranging from 5.1 percent to 7.2 percent) and receive variable rates
of interest based on the three-month LIBOR rate (ranging from 1.9 percent to 3.7
percent during fiscal 2002) on $25 million, $30 million and $11.8 million
notional amounts of indebtedness through April 2003, June 2003 and June 2005,
respectively. These swaps have been designated as cash flow hedges of interest
payments on a portion of the Company's revolving credit facility and rental
payments on the Company's warehouse operating lease. During fiscal 2002, no
hedge ineffectiveness occurred. The pay-fixed receive-variable interest rate
swaps resulted in net settlement loss of approximately $2.7 million and $0.6
million that have been transferred from accumulated other comprehensive income
(loss) to earnings during fiscal 2002 and 2001, respectively. Such amounts are
classified as part of interest expense in the Consolidated Statement of
Operations. As of June 30, 2002, the Company estimates, based on current
interest rates, that approximately $2.7 million of deferred net unrealized
losses on derivative instruments accumulated in other comprehensive income
(loss) are expected to be transferred to earnings during the next twelve months.
Such amounts will be transferred to earnings as interest payments are made on
the variable rate debt. The net loss recorded in other comprehensive income, net
of tax, was $3.4 million and $2.2 million during fiscal 2002 and 2001,
respectively.
     During the third quarter of fiscal 2002, the Company entered into interest
rate swap contracts to pay variable rates of interest based on the three-month
and six-month LIBOR rate plus a credit spread (ranging from 3.6 percent to 6.3
percent during the period from March through June) and receive fixed rates of
interest (ranging from 6.7 percent to 8.2 percent) on an aggregate $111 million
notional amount of indebtedness, with maturation dates between July 2003 and
March 2009. These swaps have been designated as fair value hedges of a portion
of the Company's senior term notes. No hedge ineffectiveness occurred during the
year. As a result, the swaps did not have a net impact on earnings.
     During the first quarter of fiscal 2002, the Company entered into a
cross-currency swap, with a notional amount of $21.3 million, to hedge a portion
of its net investments in its foreign operations. The purpose of this hedge is
to protect against adverse movements in exchange rates. The cross-currency swap
hedges approximately 14 percent of the Company's net investments in foreign
operations at June 30, 2002. For the year ended June 30, 2002, $1.5 million of
loss, net of tax, related to this derivative was charged to the cumulative
translation adjustment account, which is a component of other comprehensive
income.

6. COMMITMENTS AND CONTINGENCIES:

Operating Leases:
     The Company is committed under long-term operating leases for the rental of
most of its company-owned salon locations. The original terms of the leases
range from one to 20 years, with many leases renewable for an additional five to
ten year term at the option of the Company, and certain leases include
escalation provisions. For certain leases, the Company is required to pay
additional rent based on a percent of sales and, in most cases, real estate
taxes and other expenses. Rent expense for the Company's international
department store salons is based primarily on a percent of sales.
     The Company also leases the premises in which the majority of its
franchisees operate and has entered into corresponding sublease arrangements
with the franchisees. These leases, generally with terms of approximately five
years, are expected to be renewed on expiration. All additional lease costs are
passed through to the franchisees.
     Total rent expense, net of sublease rental obligations of $30.6 million in
2002, $28.0 million in 2001 and $26.3 million in 2000 that are passed through to
the franchisees, includes the following:



- --------------------------------------------------------------------------------
(Dollars in thousands)                          2002         2001         2000
- --------------------------------------------------------------------------------
                                                               
Minimum rent .............................    $138,480     $124,261     $105,876
Percentage rent based on sales ...........      14,661       14,270       14,996
Real estate taxes and other expenses .....      44,128       38,416       31,813
- --------------------------------------------------------------------------------
                                              $197,269     $176,947     $152,685
================================================================================



36

Future Minimum Lease Payments:
     As of June 30, 2002, future minimum lease payments (excluding percentage
rents based on sales) due under existing noncancellable operating leases with
remaining terms of greater than one year are as follows:



                                                      Corporate       Reimbursable
Fiscal Year                                            Leases      Franchisee Leases
- ------------------------------------------------------------------------------------
                                                       (Dollars in thousands)
                                                                 
2003 .............................................    $138,595         $ 32,032
2004 .............................................     120,797           27,627
2005 .............................................      98,778           21,159
2006 .............................................      76,279           13,788
2007 .............................................      56,417            6,791
Thereafter .......................................     118,781            8,453
- ------------------------------------------------------------------------------------
Total minimum lease payments .....................    $609,647         $109,850
====================================================================================


     In addition to the amounts listed in the table above, the Company is
guarantor on a maximum of $8.9 million remaining payments in lease agreements
between its franchisees and leasing companies.
     The Company entered into a five-year operating lease agreement in June 2000
related to its distribution center and various equipment in Salt Lake City,
Utah. The future minimum lease payments, which are included in the table above,
are estimated to be $1.8 million based on the cost of the distribution center
and the related equipment. Under the agreement, the Company is obligated to pay
the deficiency between the residual value guarantee and the fair market value at
the termination of the agreement. The Company expects the fair market value of
the distribution center and related equipment, subject to the purchase or
remarket options, to eliminate or substantially reduce the Company's maximum
potential liability of $10.2 million under the residual value guarantee. Thus,
the impact of the guarantee is not included in the table of future minimum lease
payments.

Salon Development Program:
     As a part of its salon development program, the Company continues to
negotiate and enter into leases and commitments for the acquisition of equipment
and leasehold improvements related to future salon locations, and continues to
enter into transactions to acquire established hair care salons and businesses.

Contingencies:
     The Company is a defendant in various lawsuits and claims arising out of
the normal course of business. As of June 30, 2002, in the opinion of the
company counsel, the ultimate liabilities resulting from such lawsuits and
claims are not anticipated to have a material adverse effect on the consolidated
financial position, the results of operations or the liquidity of the Company.
     The Company is self-insured for most workers' compensation and general
liability losses subject to per occurrence and aggregate annual liability
limitations. The Company is insured for losses in excess of these limitations.
The Company is also self-insured for health care claims for eligible
participating employees subject to certain deductibles and limitations. The
Company determines its liability for claims incurred but not reported on an
actuarial basis.

7. INCOME TAXES:
     The provision for income taxes consists of:



- --------------------------------------------------------------------------------
(Dollars in thousands)                       2002         2001           2000
- --------------------------------------------------------------------------------
                                                             
Current:
  United States .......................   $ 27,815      $ 31,272      $ 32,176
  Nonrecurring federal benefit ........     (1,750)
  International .......................      2,891         2,228         2,407

Deferred:
  United States .......................     14,640         2,291          (885)
  International .......................                                   (118)
- --------------------------------------------------------------------------------
                                          $ 43,596      $ 35,791      $ 33,580
================================================================================




                                                                              37


Regis Corporation

Notes to Consolidated Financial Statements (continued)


     The components of the net deferred tax asset are as follows:



- --------------------------------------------------------------------------------
(Dollars in thousands)                                2002           2001
- --------------------------------------------------------------------------------
                                                            
Net current deferred tax asset:
  Insurance ...................................    $  1,677       $  4,638
  Payroll and payroll related costs ...........       3,015          2,538
  Nonrecurring items ..........................         680            788
  Other, net ..................................       4,471          2,123
- --------------------------------------------------------------------------------
                                                   $  9,843       $ 10,087
================================================================================

Net noncurrent deferred tax (liability) asset:
  Depreciation and amortization ...............    $(38,126)      $ (8,996)
  Deferred rent ...............................       3,221          2,986
  Payroll and payroll related costs ...........       5,345          4,398
  Other, net ..................................        (253)          (359)
- --------------------------------------------------------------------------------
                                                   $(29,813)      $ (1,971)
================================================================================

     The components of income before income taxes are as follows:



- --------------------------------------------------------------------------------
(Dollars in thousands)                         2002        2001         2000
- --------------------------------------------------------------------------------
                                                              
Income before income taxes:
  United States .........................    $108,116     $ 83,484     $ 79,041
  International .........................       7,534        5,395        4,193
- --------------------------------------------------------------------------------
                                             $115,650     $ 88,879     $ 83,234
================================================================================


     The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory rate to earnings before
income taxes, as a result of the following:



- ---------------------------------------------------------------------------------------------------------------
(Dollars in thousands)                                                             2002         2001      2000
- ---------------------------------------------------------------------------------------------------------------
                                                                                                 
U.S. statutory rate ..........................................................       35.0%      35.0%     35.0%
Nonrecurring federal benefit .................................................       (1.5)
State income taxes, net of federal income tax benefit ........................        3.3        3.3       3.4
Nondeductible merger and transaction costs ...................................                             0.8
Other, primarily meals and entertainment, and nondeductible goodwill .........        0.9        2.0       1.1
- ---------------------------------------------------------------------------------------------------------------
                                                                                     37.7%      40.3%     40.3%
===============================================================================================================


     As of June 30, 2002, undistributed earnings of international subsidiaries
of approximately $2.1 million were considered to have been reinvested
indefinitely and, accordingly, the Company has not provided U.S. income taxes on
such earnings.

8. BENEFIT PLANS:

Employee Stock Ownership Plan:
     The Company has a qualified employee stock ownership plan (ESOP) covering
substantially all field supervisors, warehouse and corporate office employees.
The ESOP is a noncontributory defined contribution plan and contributions to the
ESOP are at the discretion of the Company. Prior to January 22, 2002, such
contributions were invested in common stock of the Company. Subsequent to that
date, such contributions may be invested in a broad range of securities.

Executive Stock Award Plan:
     The Company has a nonqualified executive stock award plan (ESAP) covering
those employees not eligible to participate under the qualified ESOP.
Contributions to the ESAP are at the discretion of the Company.

Stock Purchase Plan:
     The Company has an employee stock purchase plan (SPP) available to
substantially all employees. Under terms of the plan, eligible employees may
purchase the Company's common stock through payroll deductions. The Company
contributes an amount equal to 15 percent of the purchase price of the stock to
be purchased on the open market and pays all expenses of the SPP and its
administration, not to exceed an aggregate contribution of $4.0 million. At June
30, 2002, cumulative contributions to the SPP totaled $3.0 million.



38

Franchise Stock Purchase Plan:
     The Company has a franchise stock purchase plan (FSPP) available to
substantially all franchisee employees. Under the terms of the plan, eligible
franchisees and their employees may purchase the Company's common stock. The
Company contributes an amount equal to five percent of the purchase price of the
stock to be purchased on the open market and pays all expenses of the plan and
its administration, not to exceed an aggregate contribution of $.7 million. At
June 30, 2002, cumulative contributions to the FSPP totaled $54,100.
     Amounts expensed for company contributions to the aforementioned plans,
excluding amounts paid for expenses and administration of the plans, for the
three years in the period ended June 30, 2002, included the following:



- --------------------------------------------------------------------------------
(Dollars in thousands)                          2002       2001       2000
- --------------------------------------------------------------------------------
                                                            
ESOP .....................................     $2,689     $1,900     $1,358
ESAP .....................................        711        600        242
SPP ......................................        455        455        459
FSPP .....................................          7          6          7


Stock Options:
     On October 24, 2000, the shareholders of Regis Corporation adopted the
Regis Corporation 2000 Stock Option Plan (2000 Plan), which allows the Company
to grant both incentive and nonqualified stock options and replaces the
Company's 1991 Stock Option Plan (1991 Plan).
     Total options covering 3,500,000 shares of common stock may be granted
under the 2000 Plan to employees of the Company for a term not to exceed ten
years from the date of grant. The term may not exceed five years for incentive
stock options granted to employees of the Company possessing more than ten
percent of the total combined voting power of all classes of stock of the
Company or any subsidiary of the Company. Options may also be granted to the
Company's outside directors for a term not to exceed ten years from the grant
date.
     The 2000 Plan contains restrictions on transferability, time of exercise,
exercise price and on disposition of any shares acquired through exercise of the
options. Stock options are granted at not less than fair market value on the
date of grant. The Board of Directors determines the 2000 Plan participants and
establishes the terms and conditions of each option.
     The Company also has stock options granted under the 1991 Plan. The terms
and conditions of the 1991 Plan are similar to the 2000 Plan. Total options
covering 5,200,000 shares of common stock were available for grant under the
1991 Plan and, as of June 30, 2001, all available shares have been granted.
     In fiscal 2001, in addition to the regular options granted, the Board of
Directors approved a special grant of options covering 2,263,000 shares of
common stock from the 2000 Plan. These options begin vesting after two years at
a rate of one-third per year for three years and expire ten years from the date
of grant.
     In addition to the regular options granted during fiscal 2000, a special
grant of 1,700,000 shares of common stock was approved by the Board of
Directors. These options are fully vested five years from the date of grant and
expire after ten years.
     Common shares available for grant under the Company's stock option plans
were 819,650, 952,750 and 58,695 shares as of June 30, 2002, 2001 and 2000,
respectively.
     Stock options outstanding and weighted average exercise prices are as
follows:




                                                       Options Outstanding
- --------------------------------------------------------------------------------
                                                                Weighted Average
                                                   Shares        Exercise Price
- --------------------------------------------------------------------------------
                                                          
Balance, June 30, 1999 .......................    2,495,568          $    9.88

Granted ......................................    2,492,750              17.25
Cancelled ....................................      (57,821)             16.87
Exercised ....................................     (329,000)              4.61
- --------------------------------------------------------------------------------
Balance, June 30, 2000 .......................    4,601,497          $   14.15

Granted ......................................    2,583,250              15.56
Cancelled ....................................      (64,666)             15.54
Exercised ....................................     (298,362)              6.68
- --------------------------------------------------------------------------------
Balance, June 30, 2001 .......................    6,821,719          $   14.97

Granted ......................................      301,500              29.60
Cancelled ....................................     (360,749)             16.27
Exercised ....................................     (621,163)             12.48
- --------------------------------------------------------------------------------
Balance, June 30, 2002 .......................    6,141,307          $   15.85
================================================================================



                                                                              39

Regis Corporation

Notes to Consolidated Financial Statements (continued)

     At June 30, 2002, the weighted average exercise prices and remaining
contractual lives of stock options are as follows:



Range of Exercise Prices                                $2.66-$15.00     $15.13      $15.15-$16.50    $17.00-$29.60       Total
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       
Total options outstanding ...........................        948,644    2,086,500       1,722,350       1,383,813       6,141,307
Weighted average exercise price ......................         $8.46       $15.13          $16.41          $21.32          $15.85
Weighted average remaining contractual life in years..          3.40         8.08            7.39            7.63            7.06
Options exercisable ..................................       733,242       11,433         142,850         508,723       1,396,248
Weighted average price of exercisable options ........         $7.62       $15.13          $15.49          $18.52          $12.46


     All stock option plans have been approved by the shareholders of the
Company.
     The Company measures compensation cost for its incentive stock plans using
the intrinsic value-based method of accounting. Had the Company used the
fair-value-based method of accounting for its stock option and incentive plans
beginning in 1996 and charged compensation cost against income, over the vesting
period based on the fair value of options at the date of grant, net income and
net income per share would have been as follows:




- -------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)            2002            2001          2000
- -------------------------------------------------------------------------------------------------
                                                                               
Net income:
  As reported ..........................................  $ 72,054       $ 53,088       $ 49,654
  Pro forma ............................................  $ 67,796       $ 49,178       $ 47,371
Basic net income per share:
  As reported ..........................................  $   1.70       $   1.29       $   1.22
  Pro forma ............................................  $   1.60       $   1.19       $   1.17
Net income per diluted share:
  As reported ..........................................  $   1.63       $   1.26       $   1.19
  Pro forma ............................................  $   1.53       $   1.17       $   1.14


     The pro forma information above includes stock options granted from 1996
through 2002.
     The weighted average fair value per option granted during 2002, 2001 and
2000 was $14.31, $8.43 and $7.86, respectively, calculated by using the fair
value of each option grant on the date of grant. The fair value of options was
calculated utilizing the Black-Scholes option-pricing model and the following
key weighted average assumptions:


- --------------------------------------------------------------------------------
                                                     2002      2001      2000
- --------------------------------------------------------------------------------
                                                               
Risk-free interest rate .......................      4.86%     5.80%     6.33%
Expected life in years ........................      6.50      6.55      6.00
Expected volatility ...........................     43.27%    41.08%    39.34%
Expected dividend yield .......................       .49%      .83%      .64%



Other:
     The Company has established unfunded deferred compensation plans which
cover certain management and executive personnel. The Company maintains life
insurance policies on the plans' participants. The amounts charged to earnings
for these plans were $1.2 million, $1.0 million and $0.9 million in 2002, 2001
and 2000, respectively.
     The Company has entered into an agreement with the Chairman providing that
the Chairman will continue to render services to the Company until at least May
2007, and for such further period as may be agreed upon mutually. The Company
has agreed to pay the Chairman an annual amount of $0.6 million, adjusted for
inflation, for the remainder of his life. The Chairman has agreed that during
the period in which payments to him are made, as provided in the agreement, he
will not engage in any business competitive with the business conducted by the
Company. The Company has also agreed to pay the Chief Executive Officer an
amount equal to 60 percent of his salary, adjusted for inflation, for the
remainder of his life. Compensation associated with these agreements is charged
to expense as services are provided.
     The Company has a survivor benefit plan for the Chairman of the Board of
Directors' (the Chairman) spouse, payable upon his death, at a rate of $300,000
annually, adjusted for inflation, for the remaining life of his spouse. The
Company has funded its future obligations under this plan through company-owned
life insurance policies on the Chairman.




40

     The Company has a survivor benefit plan for the Chief Executive Officer's
spouse, payable upon his death, at a rate of one half of his deferred
compensation benefit, adjusted for inflation, for the remaining life of his
spouse. The Company has funded its future obligations under this plan through
company-owned life insurance policies on the Chief Executive Officer.

9. SHAREHOLDERS' EQUITY:
     In addition to the shareholders' equity activity described in Note 8, the
following activity has taken place:

Authorized Shares and Designation of Preferred Class:
     The Company has 100 million shares of capital stock authorized, par value
$.05, of which all outstanding shares, and shares available under the Stock
Option Plans, have been designated as common.
     In addition, 250,000 shares of authorized capital stock have been
designated as Series A Junior Participating Preferred Stock (preferred stock).
None of the preferred stock has been issued.

Shareholders' Rights Plan:
     The Company has a shareholders' rights plan pursuant to which one preferred
share purchase right is held by shareholders for each outstanding share of
common stock. The rights become exercisable only following the acquisition by a
person or group, without the prior consent of the Board of Directors, of 20
percent or more of the Company's voting stock, or following the announcement of
a tender offer or exchange offer to acquire an interest of 20 percent or more.
If the rights become exercisable, they entitle all holders, except the takeover
bidder, to purchase one one-hundredth of a share of preferred stock at an
exercise price of $120, subject to adjustment, or in lieu of purchasing the
preferred stock, to purchase for the same exercise price common stock of the
Company (or in certain cases common stock of an acquiring company) having a
market value of twice the exercise price of a right.

Stock Repurchase Plan:
     In May 2000, the Company's Board of Directors approved a stock repurchase
program under which up to $50 million can be expended for the repurchase of the
Company's common stock. The timing and amounts of any repurchases will depend on
many factors, including the market price of the common stock and overall market
conditions. During the years ended June 30, 2002 and 2000, 278,700 and 115,000
shares were repurchased for $7.7 million and $1.4 million, respectively. No
shares were repurchased during the fiscal year ended June 30, 2001. All
repurchased shares are immediately retired. This repurchase program has no
stated expiration date.

10. SEGMENT INFORMATION:
      The Company operates or franchises 6,618 domestic salons and 2,066
international salons. The Company executes its domestic operations through five
primary concepts: Regis Salons, MasterCuts, Trade Secret, SmartStyle and Strip
Center (primarily Supercuts and Cost Cutters) salons. Each of the concepts
offers similar products and services, concentrates on the mass-market consumer
marketplace and have consistent distribution channels. All of the salons within
the North American concepts are located within high traffic retail (destination)
shopping locations and the individual salons generally display similar economic
characteristics. The Company's international operations, which are primarily in
Europe, are located in salons operating in malls, leading department stores,
mass merchants and high-street locations. Based on the way in which the Company
manages its business, it has presented its domestic and international operations
as two reportable operating segments, domestic and international.
     The accounting policies of the reportable operating segments are the same
as those described in Note 1 to the Consolidated Financial Statements. The
Company evaluates the performance of its concepts based on direct salon
contribution, before supervision and corporate overhead expenses. Intersegment
sales and transfers are not significant.
     Summarized financial information concerning the Company's reportable
operating segments is shown in the following table as of June 30, 2002, 2001 and
2000:



- --------------------------------------------------------------------------------
(Dollars in thousands)                     2002           2001           2000
- --------------------------------------------------------------------------------
Total revenues:
                                                          
  Domestic ...........................   $1,335,111    $1,210,669    $1,034,425
  International ......................      119,080       100,952       108,568
- --------------------------------------------------------------------------------
    Total ............................   $1,454,191    $1,311,621    $1,142,993
================================================================================
Salon contribution*:
  Domestic ...........................   $  267,523    $  244,171    $  215,519
  International ......................       16,701        13,102        16,688
- --------------------------------------------------------------------------------
    Total ............................   $  284,224    $  257,273    $  232,207
================================================================================


*Includes franchise revenue less franchise direct costs.



                                                                              41

Regis Corporation

Notes to Consolidated Financial Statements (continued)



- --------------------------------------------------------------------------------
(Dollars in thousands)                       2002         2001         2000
- --------------------------------------------------------------------------------
                                                            
Depreciation and amortization:
  Domestic .............................   $ 44,949     $ 39,947     $ 33,735
  International ........................      3,320        2,773        3,097
  Corporate ............................     10,706       22,065       16,993
- --------------------------------------------------------------------------------
    Total ..............................   $ 58,975     $ 64,785     $ 53,825
================================================================================
Total assets:
  Domestic .............................   $577,230     $538,055     $457,948
  International ........................    130,922       13,048       14,470
  Corporate ............................    249,038      185,402      155,937
- --------------------------------------------------------------------------------
    Total ..............................   $957,190     $736,505     $628,355
================================================================================
Long-lived assets:
  Domestic .............................   $510,591     $475,008     $402,631
  International ........................    114,047       17,197       17,538
  Corporate ............................     53,280       55,756       49,087
- --------------------------------------------------------------------------------
    Total ..............................   $677,918     $547,961     $469,256
================================================================================
Capital expenditures:
  Domestic .............................   $ 54,444     $ 62,072     $ 48,944
  International ........................      4,792        3,914        4,015
  Corporate ............................      6,996       14,238       27,973
- --------------------------------------------------------------------------------
    Total ..............................   $ 66,232     $ 80,224     $ 80,932
================================================================================
Purchases of salon assets:
  Domestic .............................   $ 26,060     $ 64,422     $ 73,611
  International ........................     73,774           22
- --------------------------------------------------------------------------------
    Total ..............................   $ 99,834     $ 64,444     $ 73,611
================================================================================


     Included in the table above are franchise revenues of $77.6 million, $56.3
million and $50.3 million during fiscal 2002, 2001 and 2000, respectively, as
part of consolidated revenues. The expenses associated with the Company's
franchising activities are included in franchise direct costs, and corporate and
franchise support costs within the Consolidated Statement of Operations, as
described in Note 1 to the Consolidated Financial Statements. The current year
presentation has been changed to reflect total revenues and salon contribution
including franchise revenues and direct costs in order to show total segment
operating results. In fiscal 2001, only company-owned operations were reflected
in this disclosure.
     Corporate assets detailed above are primarily comprised of property and
equipment associated with the Company's headquarters and distribution centers,
corporate cash, inventories located at corporate distribution centers, deferred
income taxes, franchise receivables and other corporate assets.

11. NONRECURRING ITEMS:
     Nonrecurring items included in operating income consist of gains or losses
on assets and business dispositions and other items of a nonrecurring nature.
The following table summarizes nonrecurring items recorded by the Company:



- --------------------------------------------------------------------------------
(Dollars in thousands)                              2002     2001      2000
- --------------------------------------------------------------------------------
                                                             
Merger transaction costs (Note 2) ...........                         $3,145
Change in estimate, merger costs ............                           (548)
Severance ...................................                            343
Nonrecurring federal income tax benefit .....    $(1,750)     $0
- --------------------------------------------------------------------------------
                                                 $(1,750)     $0      $2,940
================================================================================


      In fiscal 2002, the Company implemented certain tax strategies resulting
in approximately $1.8 million of economic benefit, which has been recognized as
a nonrecurring income tax benefit in the third quarter, thus reducing fiscal
2002 income tax expense. The majority of the nonrecurring benefit will be
realized through the amendment of previous tax filings.
     There were no nonrecurring items during fiscal 2001.
     In fiscal 2000, the Company evaluated the outstanding merger and
restructuring accruals and determined that an adjustment of $0.5 million to the
Restructuring charge--Mergers was appropriate based on remaining expected
expenditures.


42

                                                               Regis Corporation

                                                        Quarterly Financial Data
                                                                     (Unaudited)





                                                                                      Quarter Ended
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)    September 30   December 31      March 31        June 30        Year Ended
- ------------------------------------------------------------------------------------------------------------------------------------
2002(a)
                                                                                                  
Revenues ..........................................    $349,668      $358,534       $361,578       $384,411        $1,454,191
Operating income ..................................      30,152        32,585         32,866         38,261           133,864
Net income ........................................      15,356        16,967         19,334         20,397            72,054
Net income per diluted share(b)(c) ................         .36           .39            .44            .45              1.63
Dividends declared per share ......................         .03           .03            .03            .03               .12




                                                                                     Quarter Ended(a)
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)    September 30  December 31        March 31       June 30       Year Ended
- ------------------------------------------------------------------------------------------------------------------------------------
2001
                                                                                                  
Revenues ..........................................    $310,754      $324,049        $330,910      $345,908       $1,311,621
Operating income ..................................      25,761        25,435          26,375        31,710          109,281
Net income(a) .....................................      12,715        12,087          12,533        15,753           53,088
Net income per diluted share(a)(b) ................         .31           .29             .30           .37             1.26
Dividends declared per share ......................         .03           .03             .03           .03              .12



(a) Effective July 1, 2001, Regis changed its accounting to discontinue the
    amortization of goodwill. For the quarters and year ended 2001, assuming the
    non-amortization of goodwill was applied retroactively, pro forma net income
    was $14.8, $14.0, $14.8, $18.4 million and $62.0 million, respectively, and
    pro forma earnings per diluted share was $.36, $.33, $.35, $.43 and $1.47,
    respectively.
(b) The summation of quarterly net income per share does not equate to the
    calculation for the full fiscal year as quarterly calculations are performed
    on a discrete basis. (c) For the quarter ended March 31, 2002 and for the
    year ended June 30, 2002, a nonrecurring income tax benefit (Note 11)
    increased reported net income per diluted share by $.04.

                                                               Regis Corporation

                                                                      Stock Data
                                                                   June 30, 2002


     Regis common stock is listed and traded on the Nasdaq National Market under
the symbol "RGIS."
     The accompanying table sets forth the high and low closing bid quotations
as reported by Nasdaq for each quarter during the previous two fiscal years. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions.
     As of June 30, 2002, Regis shares were owned by approximately 27,476
shareholders. The common stock price was $24.48 per share on August 27, 2002.



- -----------------------------------------------------------------------------
                                               2002                2001
                                       -----------------     ----------------
                                        High        Low       High       Low
- -----------------------------------------------------------------------------
                                                           
1st Quarter .....................      $21.24     $17.77     $15.72    $12.41
2nd Quarter .....................       27.94      20.23      16.32     13.14
3rd Quarter .....................       28.30      24.59      15.73     13.20
4th Quarter .....................       30.46      25.82      20.99     13.92




                                                                              43

Regis Corporation

Report of Independent Accountants

To the Shareholders and Directors of
Regis Corporation:

      In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of changes in shareholders'
equity and comprehensive income and of cash flows present fairly, in all
material respects, the consolidated financial position of Regis Corporation at
June 30, 2002 and 2001, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended June 30, 2002, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
     As discussed in Note 1 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets."





/s/ PricewaterhouseCoopers LLP


Minneapolis, Minnesota
August 27, 2002


44

EX-23

                                                                      EXHIBIT 23




                          CONSENT OF INDEPENDENT ACCOUNTANTS

         We hereby consent to the incorporation by reference in the Registration
         Statements on Form S-3 (Nos.333-87482, 333-51094, 333-28511, 333-78793,
         333-49165, 333-89279, 333-90809, 333-31874, 333-57092 and 333-72200),
         and Form S-8 (Nos. 33-44867 and 33-89882) of Regis Corporation of our
         report dated August 27, 2002, relating to the consolidated financial
         statements, which appears in the Annual Report to Shareholders, which
         is incorporated in this Annual Report on Form 10-K. We also consent to
         the incorporation by reference of our report dated August 27, 2002,
         relating to the financial statement schedule, which appears in this
         Form 10-K.



         /s/ PricewaterhouseCoopers LLP

         PricewaterhouseCoopers LLP



         Minneapolis, Minnesota
         September 20, 2002

EX-99.1

                                                                    EXHIBIT 99.1

    CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Regis Corporation (the Registrant) on
Form 10-K for the fiscal year ending June 30, 2002 as filed with the Securities
and Exchange Commission on the date hereof, I, Paul D. Finkelstein, President
and Chief Executive Officer of the Registrant, certify, pursuant to 18 U.S.C.
ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that:

(1)    The Annual Report on Form 10-K complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)    The information contained in the Annual Report on Form 10-K fairly
presents, in all material respects, the financial condition and results of
operations of the Registrant.

September 24, 2002

/s/ Paul D. Finkelstein
- -----------------------
Paul D. Finkelstein, President and Chief Executive Officer

EX-99.2

                                                                    EXHIBIT 99.2

    CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Regis Corporation (the Registrant) on
Form 10-K for the fiscal year ending June 30, 2002 as filed with the Securities
and Exchange Commission on the date hereof, I, Randy L. Pearce, Executive Vice
President, Chief Financial and Administrative Officer of the Registrant,
certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002, that:

(1)    The Annual Report on Form 10-K complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)    The information contained in the Annual Report on Form 10-K fairly
presents, in all material respects, the financial condition and results of
operations of the Registrant.

September 24, 2002

/s/Randy L. Pearce
- ------------------
Randy L. Pearce, Executive Vice President, Chief Financial and
Administrative Officer