10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended  December 31, 2004
	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  011230

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)

(952)947-7777

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of January 31, 2005:

Common Stock, $.05 par value	44,716,962
Class	Number of Shares

REGIS CORPORATION

INDEX

	Page Nos.
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheet as of December 31, 2004 and June 30, 2004	3
Condensed Consolidated Statement of Operations for the three months ended December 31, 2004 and 2003	4
Condensed Consolidated Statement of Operations for the six months ended December 31, 2004 and 2003	5
Condensed Consolidated Statement of Cash Flows for the six months ended December 31, 2004 and 2003	6
Notes to Condensed Consolidated Financial Statements	7-17
Review Report of Independent Registered Public Accounting Firm	18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19-37
Item 3. Quantitative and Qualitative Disclosures about Market Risk	38-39
Item 4. Controls and Procedures	40
Part II. Other Information
Item 1. Legal Proceedings	41
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	41
Item 4. Submission of Matters to a Vote of Security Holders	41-42
Item 6. Exhibits and Reports on Form 8-K	42
Signature	43
Purchase Agreement
Letter Re: Unaudited Interim Financial Information
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 906
Certification Pursuant to Section 906

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

REGIS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)

as of December 31, 2004 and June 30, 2004

(Dollars in thousands, except per share amounts)

	December 31, 2004		June 30, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	118,333	$	73,567
Receivables, net		45,771		35,033
Inventories		173,652		161,304
Deferred income taxes		14,373		15,285
Other current assets		28,370		28,253
Total current assets		380,499		313,442
Property and equipment, net		411,644		381,903
Goodwill		625,586		457,140
Other intangibles, net		210,751		79,174
Other assets		52,085		40,200
Total assets	$	1,680,565	$	1,271,859
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Long-term debt, current portion	$	6,368	$	19,128
Accounts payable		66,225		53,112
Accrued expenses		159,921		129,721
Total current liabilities		232,514		201,961
Long-term debt		513,295		282,015
Other noncurrent liabilities		164,828		100,322
Total liabilities		910,637		584,298
Commitments and contingencies
Shareholders’ equity:
Preferred stock, authorized 250,000 shares at December 31, 2004 and June 30, 2004
Common stock, $.05 par value; issued and outstanding 44,661,488 and 44,283,949 common shares at December 31, 2004 and June 30, 2004, respectively		2,228		2,214
Additional paid-in capital		230,550		220,204
Accumulated other comprehensive income		62,502		40,642
Retained earnings		474,648		424,501
Total shareholders’ equity		769,928		687,561
Total liabilities and shareholders’ equity	$	1,680,565	$	1,271,859

The accompanying notes are an integral part of the unaudited Condensed Consolidated Financial Statements.

3

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

for the three months ended December 31, 2004 and 2003

(Dollars in thousands, except per share amounts)

	2004			2003
Revenues:
Service	$	357,147		$	306,630
Product		160,249			147,442
Royalties and fees		19,936			18,380
		537,332			472,452
Operating expenses:
Cost of service		203,604			171,452
Cost of product		84,392			76,902
Site operating expenses		44,751			39,154
General and administrative		64,105			54,429
Rent		74,670			64,759
Depreciation and amortization		20,765			18,673
Total operating expenses		492,287			425,369
Operating income		45,045			47,083
Other income (expense):
Interest		(5,467	)		(3,851	)
Other, net		1,024			331
Income before income taxes		40,602			43,563
Income taxes		(13,838	)		(15,901	)
Net income	$	26,764		$	27,662
Net income per share:
Basic	$	0.60		$	0.63
Diluted	$	0.58		$	0.60
Weighted average common and common equivalent shares outstanding:
Basic		44,534			43,893
Diluted		46,468			45,973
Cash dividends declared per common share	$	0.04		$	0.03

The accompanying notes are an integral part of the unaudited Condensed Consolidated Financial Statements.

4

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

for the six months ended December 31, 2004 and 2003

(Dollars in thousands, except per share amounts)

	2004			2003
Revenues:
Service	$	696,582		$	609,582
Product		308,368			287,102
Royalties and fees		38,604			36,489
		1,043,554			933,173
Operating expenses:
Cost of service		396,190			341,853
Cost of product		161,976			151,215
Site operating expenses		88,052			77,701
General and administrative		121,806			107,873
Rent		146,719			127,818
Depreciation and amortization		40,560			36,299
Total operating expenses		955,303			842,759
Operating income		88,251			90,414
Other income (expense):
Interest		(9,775	)		(8,219	)
Other, net		1,701			671
Income before income taxes		80,177			82,866
Income taxes		(27,934	)		(30,246	)
Net income	$	52,243		$	52,620
Net income per share:
Basic	$	1.18		$	1.20
Diluted	$	1.13		$	1.15
Weighted average common and common equivalent shares outstanding:
Basic		44,423			43,795
Diluted		46,359			45,835
Cash dividends declared per common share	$	0.08		$	0.06

The accompanying notes are an integral part of the unaudited Condensed Consolidated Financial Statements.

5

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

for the six months ended December 31, 2004 and 2003

(Dollars in thousands)

	2004			2003
Cash flows from operating activities:
Net income	$	52,243		$	52,620
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		38,137			34,888
Amortization		2,423			1,724
Deferred income taxes		4,462			5,901
Other		595			179
Changes in operating assets and liabilities:
Receivables		(1,265	)		(2,408	)
Inventories		(8,407	)		4,883
Other current assets		1,546			(1,950	)
Other assets		(6,836	)		(2,870	)
Accounts payable		7,221			881
Accrued expenses		15,075			14,057
Other noncurrent liabilities		7,341			5,826
Net cash provided by operating activities		112,535			113,731
Cash flows from investing activities:
Capital expenditures		(46,709	)		(34,404	)
Proceeds from sale of assets		602			95
Purchases of salon net assets, net of cash acquired		(244,743	)		(33,611	)
Net cash used in investing activities		(290,850	)		(67,920	)
Cash flows from financing activities:
Borrowings on revolving credit facilities		890,315			385,175
Payments on revolving credit facilities		(760,633	)		(396,150	)
Proceeds from issuance of long-term debt		100,000			11,860
Repayment of long-term debt		(17,226	)		(20,110	)
Other, primarily increase (decrease) in negative book cash balances		2,672			(8,838	)
Dividends paid		(3,555	)		(2,631	)
Repurchase of common stock		(442	)		(3,373	)
Proceeds from issuance of common stock		6,425			10,390
Net cash provided by (used in) financing activities		217,556			(23,677	)
Effect of exchange rate changes on cash and cash equivalents		5,525			3,568
Increase in cash and cash equivalents		44,766			25,702
Cash and cash equivalents:
Beginning of period		73,567			55,454
End of period	$	118,333		$	81,156

The accompanying notes are an integral part of the unaudited Condensed Consolidated Financial Statements.

6

REGIS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.   BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

The unaudited interim Condensed Consolidated Financial Information of Regis Corporation (the Company) as of December 31, 2004 and for the three and six months ended December 31, 2004 and 2003, reflect, in the opinion of management, all adjustments (all of which are normal and recurring in nature) necessary to fairly present the consolidated financial position of the Company as of December 31, 2004 and the consolidated results of its operations and its cash flows for the interim periods. The results of operations and cash flows for any interim period are not necessarily indicative of results of operations and cash flows for the full year.

The Consolidated Balance Sheet data for June 30, 2004 was derived from audited Consolidated Financial Statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP). The unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2004 and other documents filed or furnished with the Securities and Exchange Commission (SEC) during the current fiscal year.

With respect to the unaudited condensed financial information of the Company for the three and six month periods ended December 31, 2004 and 2003 included in this Form 10-Q, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated January 26, 2005 appearing herein, states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited financial information because that report is not a “report” or a “part” of the registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.

Cost of Product Used and Sold:

Product costs related to the sale of product or services to salon customers are determined by applying estimated gross profit margins to service and product revenues, which are based on historical factors including product pricing trends and estimated shrinkage. In addition, the estimated gross profit margin is adjusted based on the results of physical inventory counts performed at least semi-annually. During September of fiscal year 2005, the Company performed a physical inventory count which was finalized during the second quarter and resulted in changes in the Company’s interim fiscal usage estimates, and a corresponding adjustment that increased second quarter cost of sales by approximately $1.5 million. Significant changes in product costs, volumes or shrinkage could have a material impact on the Company’s gross margin. Product costs related to the sale of product to franchisees are determined by weighted average cost.

Deferred Rent:

The Company’s operating lease agreements include certain escalation provisions. Accounting principles generally accepted in the United States of America require rent expense to be recognized on a straight-line basis over the lease term, which is equal to the amortization period for leasehold improvements. The difference between the rent due under the stated terms of the lease compared to that of the straight-line basis is recorded as deferred rent within other noncurrent liabilities in the Condensed Consolidated Balance Sheet.

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.

7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(cont.)
(Unaudited)

Stock-Based Employee Compensation Plans:

At December 31, 2004, the Company had two employee stock option plans, the 2004 Long Term Incentive Plan (2004 Plan) and the 2000 Stock Option Plan. Additionally, the Company has outstanding stock options under its 1991 Stock Option Plan, although the Plan terminated in 2001. Prior to July 1, 2003, the Company accounted for its 2000 Stock Option Plan and 1991 Stock Option Plan using the intrinsic value method under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25) and related Interpretations and applied Statement of Financial Accounting Standards (FAS) No. 123, “Accounting for Stock-Based Compensation” (FAS No. 123), as amended by FAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (FAS No. 148), for disclosure purposes only. The FAS No. 123 disclosures include pro forma net income and earnings per share as if the fair value-based method of accounting had been used. Under the provisions of APB No. 25, no stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying stock on the date of grant.

Effective July 1, 2003, the Company adopted the fair value recognition provisions of FAS No. 123 using the prospective transition method. Under the prospective method of adoption, compensation cost is recognized related to options granted, modified or settled after the beginning of the fiscal year in which the fair value method is first adopted. Under this approach, fiscal year 2005 and 2004 compensation expense is less than it would have been had the fair value recognition provisions of FAS No. 123 been applied from its original effective date because the fair value of the options vesting during the year which were granted prior to fiscal year 2004 are not recognized under the prospective transition method in the Condensed Consolidated Statement of Operations. Options granted in fiscal years prior to the adoption of the fair value recognition provisions continue to be accounted for under APB Opinion No. 25 during fiscal year 2005. The adoption of the fair value recognition provisions for stock options increased the Company’s second quarter and year-to-date fiscal year 2005 compensation expense by approximately $0.2 million, and is expected to increase total fiscal year 2005 compensation expense by approximately $0.3 million.

The 2004 Plan was approved by the Company’s Board of Directors in May of 2004 and received shareholder approval on October 28, 2004. In June 2004 (prior to shareholder approval), 72,500 shares of restricted stock and 110,750 stock appreciation rights (SARs) were awarded under the 2004 Plan, pending shareholder approval. No stock options have been granted under the 2004 Plan. Since the 2004 Plan did not receive shareholder approval until the second quarter of fiscal year 2005, no compensation expense was recognized related to the 2004 Plan prior to this quarter. During the three months ended December 31, 2004, compensation expense of approximately $0.1 million and less than $0.1 million was recognized related to restricted stock and SARs, respectively.

The Company’s pro forma net income and pro forma earnings per share for the three and six months ended December 31, 2004 and 2003 was as follows:

	For the Periods Ended December 31,
	Three Months						Six Months
(Dollars in thousands, except per share amounts)	2004			2003			2004			2003
Net income, as reported	$	26,764		$	27,662		$	52,243		$	52,620
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		164			—			214			—
Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects		(1,588	)		(1,651	)		(3,158	)		(3,328	)
Pro forma net income	$	25,340		$	26,011		$	49,299		$	49,292
Earnings per share:
Basic – as reported	$	0.60		$	0.63		$	1.18		$	1.20
Basic – pro forma	$	0.57		$	0.59		$	1.11		$	1.13
Diluted – as reported	$	0.58		$	0.60		$	1.13		$	1.15
Diluted – pro forma	$	0.56		$	0.59		$	1.10		$	1.12

8

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(cont.)
(Unaudited)

     The fair value of options was calculated utilizing the Black-Scholes option-pricing model and the following key weighted average assumptions:

	2004			2003
Risk-free interest rate		4.16	%		2.89	%
Expected life in years		5.50			7.25
Expected volatility		30.0	%		42.0	%
Expected dividend yield		0.37	%		0.45	%

2.   NEW ACCOUNTING PRONOUNCEMENTS:

In December 2004, the Financial Accounting Standards Board (FASB) issued a revised FAS No. 123, “Share-Based Payment (revised 2004)” (FAS No. 123R), which supersedes APB No. 25 and amends FAS No. 123 to require companies to expense the value of stock-based compensation plans. Additionally, FAS 123R, once adopted, disallows the use of the prospective transition method permitted by FAS No. 148. FAS 123R is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005 (i.e., the beginning of the Company’s fiscal year 2006).

As discussed in Note 1 in conjunction with stock-based employee compensation plans, the Company currently has three types of stock-based compensation: stock options, SARs and restricted stock. The Company adopted the fair value recognition provisions of FAS No. 123 using the prospective transition method as of the beginning of fiscal year 2004. No SARS or restricted stock were issued before fiscal year 2004; therefore, the adoption of FAS No. 123R has no effect with respect to these types of stock-based awards. However, in compliance with the prospective transition method under FAS No. 148, no compensation expense is currently recognized in the Company’s Condensed Consolidated Statement of Operations with respect to stock options granted prior to fiscal year 2004 (the date upon which Company adopted the fair value recognition provisions under FAS No. 123). The Company will adopt FAS No. 123R on July 1, 2005. Under the provisions of FAS 123R, compensation expense will also be recognized in earnings over the vesting period for stock options which remain unvested as of the date of adoption (July 1, 2005), regardless of their grant date. The Company expects the adoption of FAS 123R to incrementally increase compensation expense by approximately $2.6 million during fiscal year 2006.

In November, 2004, the FASB issued FAS No. 151, “Inventory Costs, an Amendment of ARB No. 43, Chapter 4” (FAS No. 151). FAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) by requiring all such costs to be recognized as current period charges regardless of whether or not the costs meet the criterion of “so abnormal.” Additionally, the Statement requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This Statement is effective prospectively for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is currently evaluating the impact of adopting this Statement on its Consolidated Financial Statements.

Also in December 2004, the FASB issued FAS No. 153, “Exchanges of Nonmonetary Assets – an Amendment of APB Opinion No. 29” (FAS No. 153). The guidance in APB Opinion No. 29 is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged, with the exception that nonmonetary exchanges of similar productive assets should be recorded on a carryover basis. FAS No. 153 amends APB Opinion No. 29 to eliminate this exception for similar productive assets and replace it with the general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of FAS No. 153 should be applied prospectively to nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005, with early application permitted. The Company does not expect the adoption of this Statement to have any impact on its Consolidated Financial Statements.

9

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(cont.)
(Unaudited)

In October, 2004, the FASB ratified the consensus reached by the Emerging Issues Task Force (EITF) on EITF Issue No. 04-1 “Accounting for Preexisting Relationships between the Parties to a Business Combination” (EITF 04-1). This EITF requires, upon the acquisition of a business, acquiring companies to separately account for any pre-existing contractual relationships with the acquired entity. Amounts paid in settlement of any executory contracts must be expensed, measured at the lesser of (a) the amount by which the contract is favorable or unfavorable to market (from the acquiring company’s perspective) or (b) any stated settlement provisions in the contract. The reacquisition of an acquired entity’s contractual right to use the acquiring company’s intangible assets must be recognized as an intangible asset apart from goodwill, measured at a value not to exceed any stated reacquisition amount included in the contract. If a business combination effectively settles a lawsuit or executory contract and that settlement results in a gain or loss for the acquiring company, that company must recognize a settlement gain or loss. The following disclosures are also required by EITF 04-1: (a) the nature of the pre-existing relationship; (b) the fair value of the acquired entity’s assets and liabilities that were settled, including how fair value was determined; and (c) the amount of the settlement gain or loss recognized. This EITF must be applied to business combinations after October 13, 2004. The adoption of EITF 04-1 has not had, and the Company does not expect it to have in the future, a material impact on its Consolidated Financial Statements. When purchasing its franchisees, the fair value of any reacquired franchise right is estimated and considered in the purchase price allocation.

Also during October 2004, the FASB ratified the consensus reached by the EITF with respect to EITF Issue No. 04-10, “Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds” (EITF 04-10), which clarifies the guidance in paragraph 19 of FAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (FAS No. 131). According to EITF 04-10, operating segments that do not meet the quantitative thresholds can be aggregated under paragraph 19 only if aggregation is consistent with the objective and basic principle of FAS No. 131, the segments have similar economic characteristics, and the segments share a majority of the aggregation criteria listed in items (a)-(e) in paragraph 17 of FAS No. 131. The FASB staff is currently working on a FASB Staff Position (FSP) to provide guidance in determining whether two or more operating segments have similar economic characteristics. The effective date of EITF 04-10 has been delayed in order to coincide with the effective date of the anticipated FSP, with early application is permitted. The adoption of EITF 04-10 is not expected to have an impact on the Company’s Consolidated Financial Statements.

On December 21, 2004, the FASB issued FASB Staff Position (FSP) No. FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.” FSP No. FAS 109-2 provides accounting and disclosure guidance for the repatriation provision under the American Jobs Creation Act of 2004, and allows additional time for entities potentially impacted by the provision to determine whether any foreign earnings will be repatriated under those provisions. As discussed in Note 8, the Company has completed a preliminary evaluation of the repatriation provisions and Treasury guidance and has determined that there is no advantage to electing repatriation under the Act.

3.   SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME:

Additional Paid-In Capital

The increase in additional paid-in capital during the six months ended December 31, 2004 was due to the following:

(Dollars in thousands)	Increase (Decrease)
Exercise of stock options	$	6,412
Tax benefit realized upon exercise of stock options		3,785
Stock option compensation		341
Franchise stock incentive program		250
Stock repurchase plan		(442	)
	$	10,346

10

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(cont.)
(Unaudited)

Comprehensive Income

Components of comprehensive income for the Company include net income, changes in fair market value of financial instruments designated as hedges of interest rate exposures and changes in foreign currency translation, including the impact of the cross-currency swap, recorded in the cumulative translation account within shareholders’ equity. Comprehensive income for the three and six months ended December 31, 2004 and 2003 were as follows:

	For the Periods Ended December 31,
	Three Months				Six Months
	2004		2003		2004		2003
(Dollars in thousands)
Net income	$	26,764	$	27,662	$	52,243	$	52,620
Other comprehensive income (loss):
Changes in fair market value of financial instruments designated as cash flow hedges of interest rate exposure, net of taxes		24		61		23		106
Change in cumulative foreign currency translation, net of taxes		17,143		12,739		21,837		13,791
Total comprehensive income	$	43,931	$	40,462	$	74,103	$	66,517

4.   NET INCOME PER SHARE:

Stock options covering 106,701 and 661 shares for the six months ended December 31, 2004 and 2003, respectively, were excluded from the shares used in the computation of diluted earnings per share since they were anti-dilutive. There were no anti-dilutive shares during the three months ended December 31, 2004 or 2003.

The following table sets forth a reconciliation of shares used in the computation of basic and diluted earnings per share:

	For the Periods Ended December 31,
	Three Months				Six Months
	2004		2003		2004		2003
Weighted average shares for basic earnings per share		44,533,777		43,893,120		44,422,516		43,795,288
Effect of dilutive securities:
Dilutive effect of stock-based compensation		1,894,154		2,079,748		1,896,367		2,004,612
Contingent shares issuable under contingent stock agreements (see Note 7)		39,678		—		39,678		35,017
Weighted average shares for diluted earnings per share		46,467,609		45,972,868		46,358,561		45,834,917

5.   SEGMENT INFORMATION:

The Company operates or franchises 8,381 North American salons (located in the United States, Canada and Puerto Rico), 2,031 international salons and 15 beauty schools. Additionally, the Company purchased 91 hair restoration centers (42 company-owned and 49 franchise locations) in conjunction with its purchase of Hair Club for Men and Women during December 2004. The Company operates its North American salon operations through five primary concepts: Regis Salons, MasterCuts, Trade Secret, SmartStyle and Strip Center salons. Each of the concepts offer similar products and services, concentrates on the mass-market consumer marketplace and has consistent distribution channels. All of the company-owned and franchise salons within the North American salon concepts are located in high traffic, retail shopping locations that attract mass-market consumers, and the individual salons generally display similar economic characteristics. The salons share interdependencies and a common support base. The Company’s international salon operations, which are primarily in Europe, are located in malls, leading department stores, mass merchants and high-street locations. The Company’s beauty schools are located in the United States and the United Kingdom. The Company’s newly acquired hair restoration centers are located in the United States and Canada.

11

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(Unaudited)

Based on the way the Company manages its business, it has reported its North American salons, international salons, beauty schools and hair restoration centers as four separate segments. In the prior fiscal year, the Company reported two segments: North American and international operations. Salons and beauty schools were included within each of these segments due to the way in which the Company managed its business at that time. Management began reviewing the operations of the beauty schools separately from the salon operations during fiscal year 2005 in anticipation of further expansion into the beauty school business. Further, the acquisition of Hair Club for Men and Women allowed the Company to expand into a new line of business, and thereby created an additional segment (hair restoration centers). Segment information for the second quarter and first six months of fiscal year 2004 has been reclassified to conform to the current year presentation.

Financial information for the Company’s reporting segments is shown in the following tables:

	For the Three Months Ended December 31, 2004
	Salons				Beauty		Hair Restoration		Unallocated
(Dollars in thousands)	North America		International		Schools		Centers		Corporate			Consolidated
Revenues:
Service	$	309,545	$	33,745	$	7,597	$	6,260	$	—		$	357,147
Product		145,854		12,463		435		1,497		—			160,249
Royalties and fees		9,919		9,389		—		628		—			19,936
		465,318		55,597		8,032		8,385		—			537,332
Operating expenses:
Cost of service		180,850		18,095		2,143		2,516		—			203,604
Cost of product		75,425		7,816		363		788		—			84,392
Site operating expenses		41,085		2,389		797		480		—			44,751
General and administrative		24,992		10,714		1,471		1,818		25,110			64,105
Rent		64,144		9,304		617		510		95			74,670
Depreciation and amortization		15,563		1,661		233		708		2,600			20,765
Total operating expenses		402,059		49,979		5,624		6,820		27,805			492,287
Operating income		63,259		5,618		2,408		1,565		(27,805	)		45,045
Other income (expense):
Interest		—		—		—		—		(5,467	)		(5,467	)
Other, net		—		—		—		—		1,024			1,024
Income before income taxes	$	63,259	$	5,618	$	2,408	$	1,565	$	(32,248	)	$	40,602

12

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(Unaudited)

	For the Three Months Ended December 31, 2003
	Salons				Beauty		Hair Restoration		Unallocated
(Dollars in thousands)	North America		International		Schools		Centers		Corporate			Consolidated
Revenues:
Service	$	274,507	$	28,577	$	3,546	$	—	$	—		$	306,630
Product		136,382		10,902		158		—		—			147,442
Royalties and fees		10,049		8,331		—		—		—			18,380
		420,938		47,810		3,704		—		—			472,452
Operating expenses:
Cost of service		156,609		13,760		1,083		—		—			171,452
Cost of product		69,406		7,398		98		—		—			76,902
Site operating expenses		36,717		1,939		498		—		—			39,154
General and administrative		22,921		9,007		315		—		22,186			54,429
Rent		55,887		8,520		255		—		97			64,759
Depreciation and amortization		14,586		1,764		59		—		2,264			18,673
Total operating expenses		356,126		42,388		2,308		—		24,547			425,369
Operating income		64,812		5,422		1,396		—		(24,547	)		47,083
Other income (expense):
Interest		—		—		—		—		(3,851	)		(3,851	)
Other, net		—		—		—		—		331			331
Income before income taxes	$	64,812	$	5,422	$	1,396	$	—	$	(28,067	)	$	43,563

	For the Six Months Ended December 31, 2004
	Salons				Beauty		Hair Restoration		Unallocated
(Dollars in thousands)	North America		International		Schools		Centers		Corporate			Consolidated
Revenues:
Service	$	611,411	$	65,753	$	13,158	$	6,260	$	—		$	696,582
Product		282,192		23,749		930		1,497		—			308,368
Royalties and fees		20,143		17,833		—		628		—			38,604
		913,746		107,335		14,088		8,385		—			1,043,554
Operating expenses:
Cost of service		355,039		34,501		4,134		2,516		—			396,190
Cost of product		145,532		15,042		614		788		—			161,976
Site operating expenses		81,266		4,514		1,792		480		—			88,052
General and administrative		49,413		19,266		2,329		1,818		48,980			121,806
Rent		126,749		18,128		1,129		510		203			146,719
Depreciation and amortization		30,895		3,488		471		708		4,998			40,560
Total operating expenses		788,894		94,939		10,469		6,820		54,181			955,303
Operating income		124,852		12,396		3,619		1,565		(54,181	)		88,251
Other income (expense):
Interest		—		—		—		—		(9,775	)		(9,775	)
Other, net		—		—		—		—		1,701			1,701
Income before income taxes	$	124,852	$	12,396	$	3,619	$	1,565	$	(62,255	)	$	80,177

13

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(Unaudited)

	For the Six Months Ended December 31, 2003
	Salons				Beauty		Hair Restoration		Unallocated
(Dollars in thousands)	North America		International		Schools		Centers		Corporate			Consolidated
Revenues:
Service	$	547,588	$	55,532	$	6,462	$	—	$	—		$	609,582
Product		267,065		19,749		288		—		—			287,102
Royalties and fees		20,818		15,671		—		—		—			36,489
		835,471		90,952		6,750		—		—			933,173
Operating expenses:
Cost of service		311,945		27,815		2,093		—		—			341,853
Cost of product		137,890		13,143		182		—		—			151,215
Site operating expenses		73,308		3,496		897		—		—			77,701
General and administrative		44,931		16,880		561		—		45,501			107,873
Rent		110,595		16,500		496		—		227			127,818
Depreciation and amortization		28,334		3,453		113		—		4,399			36,299
Total operating expenses		707,003		81,287		4,342		—		50,127			842,759
Operating income		128,468		9,665		2,408		—		(50,127	)		90,414
Other income (expense):
Interest		—		—		—		—		(8,219	)		(8,219	)
Other, net		—		—		—		—		671			671
Income before income taxes	$	128,468	$	9,665	$	2,408	$	—	$	(57,675	)	$	82,866

	Total Assets
(Dollars in thousands)	December 31, 2004		June 30, 2004
North American salons	$	841,120	$	782,915
International salons		233,867		198,679
Beauty schools		46,984		38,665
Hair restoration centers		294,692		—
Unallocated corporate		263,902		251,600
Consolidated	$	1,680,565	$	1,271,859

6.   GOODWILL AND OTHER INTANGIBLES:

The table below presents other intangible assets as of December 31, 2004 and June 30, 2004:

	December 31, 2004							June 30, 2004
	Accumulated							Accumulated
(Dollars in thousands)	Cost		Amortization			Net		Cost		Amortization			Net
Amortized intangible assets:
Trade names	$	111,271	$	(2,937	)	$	108,334	$	37,379	$	(2,104	)	$	35,275
Customer list		46,800		(390	)		46,410		—		—			—
Franchise agreements		25,386		(4,102	)		21,284		16,513		(3,413	)		13,100
Product license agreements		17,062		(1,555	)		15,507		15,338		(1,144	)		14,194
School-related licenses		5,700		(55	)		5,645		4,700		(8	)		4,692
Non-compete agreements		644		(536	)		108		600		(460	)		140
Other		15,027		(1,564	)		13,463		12,902		(1,129	)		11,773
	$	221,890	$	(11,139	)	$	210,751	$	87,432	$	(8,258	)	$	79,174

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 50 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. The weighted average amortization periods, in total and by major intangible asset class, are as follows:

14

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(Unaudited)

	Weighted Average
	Amortization Period
(Dollars in thousands)	(in years)
Amortized intangible assets:
Trade names		42
Customer list		10
Franchise agreements		20
Product license agreements		30
School-related licenses		50
Non-compete agreements		6
Other		19
Total		30

Total amortization expense related to amortizable intangible assets was approximately $1.4 and $0.7 million during the three months ended December 31, 2004 and 2003, respectively, and $2.2 and $1.4 million during the six months ended December 31, 2004 and 2003, respectively. As of June 30, 2004, future estimated amortization expense related to amortizable intangible assets is estimated to be:

(Dollars in thousands)
Fiscal Year
2006	$	10,324
2007		10,323
2008		10,292
2009		10,251
2010		10,237

Certain intangible assets are based on preliminary purchase price allocations associated with recent business acquisitions, and are subject to finalization and adjustment. Based upon the actual and preliminary purchase price allocations, the change in the carrying amount of the goodwill for the six months ended December 31, 2004 was as follows:

	Salons				Beauty		Hair Restoration
(Dollars in thousands)	North America		International		Schools		Centers		Consolidated
Balance at June 30, 2004	$	370,347	$	71,421	$	15,372	$	—	$	457,140
Goodwill acquired		19,266		1,341		5,439		132,079		158,125
Translation rate adjustments		3,544		6,777		—		—		10,321
Balance at December 31, 2004	$	393,157	$	79,539	$	20,811	$	132,079	$	625,586

7.   ACQUISITIONS:

During the six months ended December 31, 2004 and 2003, the Company made numerous acquisitions and 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.

15

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(Unaudited)

Based upon purchase price allocations, which may have components representing preliminary allocations with respect to recent acquisitions, the components of the aggregate purchase prices of the acquisitions made during the six months ended December 31, 2004 and 2003, and the allocation of the purchase prices, were as follows:

	Six Months Ended
	December 31,
(Dollars in thousands)	2004			2003
Components of aggregate purchase prices:
Cash	$	244,743		$	33,611
Allocation of the purchase price:
Net tangible assets acquired, excluding deferred income taxes	$	9,412		$	5,222
Identifiable intangible assets		127,726			259
Goodwill		158,125			28,130
Deferred income tax liability		(50,520	)		—
	$	244,743		$	33,611

In a limited number of acquisitions, the Company has guaranteed that stock issued in conjunction with the acquisition will reach a certain market price. If the stock should not reach this price during an agreed-upon time frame (typically three years from the date of acquisition), the Company is obligated to issue additional shares to the sellers. Once the agreed-upon stock price is met or exceeded for a period of five consecutive days, the contingency is met and the Company is no longer liable. Based on the December 31, 2004 market price, the Company would be required to provide an additional 39,678 shares related to these acquisition contingencies if the agreed-upon time frames were all assumed to have expired December 31, 2004. These contingently issuable shares have been included in the calculation of diluted earnings per share for the three and six months ended December 31, 2004.

In December 2004, the Company purchased Hair Club for Men and Women (Hair Club) for approximately $210 million, financed with debt. Hair Club offers a comprehensive menu of hair restoration solutions ranging from Extreme Hair Therapy(TM) to the non-surgical Bio-Matrix(R) Process and the latest advancements in hair transplantation, based on an analysis of what is best for each customer’s situation. Hair Club operations have been included in the operations of the Company since the acquisition was completed on December 1, 2004, and are reported in Note 5 in the “hair restoration centers” segment. The hair restoration centers are expected to generate approximately $100 to $110 million in annual revenues, with an operating margin of approximately 20 percent of revenues.

The majority of the purchase price in salon acquisitions is accounted for as residual goodwill rather than identifiable intangible assets. This stems from the value associated with the walk-in customer base of the acquired hair salon brand. Residual goodwill further represents the Company’s opportunity to strategically combine the acquired business with the Company’s existing structure to serve a greater number of customers through its expansion strategies. In the acquisitions of international salons, beauty schools and hair restoration centers, the residual goodwill primarily represents the growth prospects that are not captured as part of acquired tangible or identified intangible assets. Generally the goodwill recognized in the North American salon transactions is expected to be fully deductible for tax purposes and the goodwill recognized in the international salon transactions is non-deductible for tax purposes. Goodwill generated in certain acquisitions, such as Hair Club, is generally not deductible for tax purposes due to the structure of the transaction.

In the Consolidated Financial Statements, the identifiable intangible assets are amortized over lives ranging from four to 50 years and, in accordance with FAS No. 142, “Goodwill and Other Intangible Assets,” goodwill has an unlimited useful life and is not amortized. However, in certain transactions, neither goodwill nor identifiable intangible assets are amortized for tax purposes. In these transactions, a deferred income tax liability is recognized at the date of acquisition in accordance with FAS No. 109, “Accounting for Income Taxes,” to account for the tax effect of the future amortization of the identifiable intangible assets which will be recognized in the Consolidated Financial Statements.

16

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(Unaudited)

8.   INCOME TAXES:

On October 4, 2004, President Bush signed an Act into law that included a provision reinstating the Work Opportunity and Welfare-to-Work Credits. The reinstatement is retroactive to January 1, 2004 and the credits will be available through December 31, 2005. For interim reporting purposes, the Company determines the best estimate of its annual effective tax rate and applies this rate in calculating income taxes on a year-to-date basis. Any immediate impact resulting from a change in tax law is recognized in the interim period in which the law change is enacted. Since the credits were reinstated (enacted) after September 30, 2004, they were not included in the Company’s calculation of the estimated annual effective tax rate in the first quarter ended September 30. The Company remeasured its annual estimated tax rate in the second quarter, with consideration given to the reinstated tax credit for the full fiscal year. The resulting catch-up adjustment related to the first quarter was recognized in the second quarter, effectively reducing the second quarter’s tax provision by less than $0.1 million. The Company expects this change in tax law to have an annual impact of approximately $0.9 million for fiscal year 2005.

Additionally, the President signed into law the American Jobs Creation Act of 2004 (Act) on October 22, 2004. The Act creates, among other things, a temporary incentive for United States (U.S.) multinational companies to repatriate accumulated income earned outside the U.S. at an effective U.S. income tax rate as low as 5.25 percent as long as the repatriated income is invested in the U. S. pursuant to a plan. On January 13, 2005, the Internal Revenue Service issued its guidelines for applying the repatriation provisions of the Act, including guidance on qualifying dividends and qualifying reinvestment plans. The Company has completed a preliminary evaluation of the repatriation provisions and Treasury guidance and has determined that there is no advantage to electing repatriation under the Act. However, no final decisions or plans regarding the repatriation of monies have been made to date.

17

REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Directors of Regis Corporation:

We have reviewed the accompanying condensed consolidated balance sheet of Regis Corporation as of December 31, 2004 and the related condensed consolidated statements of operations for the three and six month periods ended December 31, 2004 and 2003 and of cash flows for the six month periods ended December 31, 2004 and 2003. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of June 30, 2004, and the related consolidated statements of operations, of changes in shareholders’ equity and comprehensive income and of cash flows for the year then ended (not presented herein), and in our report dated August 24, 2004, which contained an explanatory paragraph indicating the Company changed its method of accounting for equity-based compensation arrangements to begin expensing new awards as of July 1, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the accompanying consolidated balance sheet information as of June 30, 2004, is fairly stated, in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP

PRICEWATERHOUSECOOPERS LLP

Minneapolis, Minnesota
January 26, 2005

18

Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF
	FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT’S OVERVIEW

Regis Corporation (RGS) is the industry leader in the hair service business, which includes three distinct, but related, elements: beauty salons, hair restoration centers and beauty schools. As of December 31, 2004, our worldwide operations included 10,412 system-wide North American and international salons, 91 hair restoration centers and 15 beauty schools. Each of our salon concepts offer generally similar products and services and serves mass-market consumers. Our salon operations are organized to be managed based on geographical location. Our North American salon operations include 8,381 salons, including 2,324 franchise salons, operating in the United States, Canada and Puerto Rico primarily under the trade names of Regis Salons, MasterCuts, Trade Secret, SmartStyle, Supercuts and Cost Cutters. Our international salon operations include 2,031 salons, including 1,600 franchise salons, located throughout Europe, primarily in the United Kingdom, France, Italy and Spain. In December 2004, we purchased Hair Club for Men and Women. This enterprise includes 91 North American locations, including 42 corporate and 49 franchise locations. Our beauty schools are managed in aggregate, regardless of geographical location, and include eleven locations in the United States and four locations in the United Kingdom. During the second quarter of fiscal year 2005, we had an average of approximately 52,000 corporate employees worldwide.

Our growth strategy consists of two primary, but flexible, building blocks. Through a combination of organic and acquisition growth, we seek to achieve our long-term objective of 10-to-14 percent annual revenue growth. We anticipate that going forward, the mix of organic and acquisition growth will be roughly equal. However, depending on several factors, including the ability of our salon development program to keep pace with the availability of real estate for new construction, student enrollment, hair restoration lead generation, the availability of attractive acquisition candidates and same-store sales trends, this mix will vary from year-to-year. We believe achieving revenue growth of 10-to-14 percent, including same-store sales increases in excess of two percent, will allow us to increase annual earnings at a low-to-mid teen percent growth rate. We anticipate expanding our presence in both North America and Europe. Additionally, we desire to enter the Asian market within the next five years.

Maintaining financial flexibility is a key element in continuing our successful growth. With strong operating cash flow and an investment grade credit rating, we are confident that we will be able to financially support our long-term growth objectives.

Salon Business

The strength of our salon business is in the fundamental similarity and broad appeal of our salon concepts that allow flexibility and multiple salon concept placements in shopping centers and neighborhoods. Each concept generally targets the middle market customer, however each attracts a different demographic. We anticipate expanding all of our salon concepts. In addition, we anticipate testing and developing new salon concepts to complement our existing concepts.

We execute our salon growth strategy by focusing on real estate. Our salon real estate strategy is to add new units in convenient locations with good visibility, strong customer traffic and appropriate trade demographics. Our various salon and product concepts operate in a wide range of retailing environments, including regional shopping malls, strip centers and Wal-Mart Supercenters. We believe that the availability of real estate will augment our ability to achieve the aforementioned long-term growth objectives. We anticipate that we will add approximately 1,000 net salons each year through a combination of organic, acquisition and franchise growth.

Organic salon revenue growth is achieved through the combination of new salon construction and salon same-store sales increases. Each fiscal year, we anticipate building several hundred corporate salons. We anticipate our franchisees will open several hundred salons as well. Older, unprofitable salons will be closed or relocated. Our long-term outlook for our salon business is for annual consolidated low single-digit same-store sales increases. Based on current fashion and economic cycles, we project our annual fiscal year 2005 consolidated same-store sales increase to be below the low end of our long-term outlook range.

Historically, our salon acquisitions have varied in size from as small as one salon to over one-thousand salons. The median acquisition size is approximately ten salons. From fiscal year 1994 to fiscal year 2004, we completed over 300 acquisitions, adding a net of nearly 7,000 salons. We anticipate adding several hundred corporate salons each year from acquisitions. Some of these acquisitions may include buying salons from our franchisees.

19

Hair Restoration Business

In December 2004, we acquired Hair Club for Men and Women. Hair Club for Men and Women is the industry leading provider of hair loss solutions with an estimated four to five percent share of the $4.3 billion domestic market. This industry is comprised of approximately 4,000 locations domestically and is highly fragmented. As a result, we believe there is an opportunity to consolidate this industry through acquisition. Expanding the hair loss business organically and through acquisition would allow us to add incremental revenue which is neither dependent upon nor dilutive to our existing salon and school businesses.

Our organic growth plans for hair restoration include the construction of a modest number of new locations in untapped markets domestically and internationally. However, the success of our hair restoration business is not dependent on the same real estate criteria used for salon expansion. In an effort to provide confidentiality for their customers, hair restoration centers operate primarily in professional or medical office buildings. Further, the hair restoration business is more marketing intensive. As a result, organic growth at our hair restoration centers will be dependent on successfully generating new leads and converting them into hair restoration customers. Our growth expectations for our hair restoration business are not dependent on referral business from, or cross-marketing with, our hair salon business, but will be evaluated closely for additional growth opportunities.

Beauty School Business

We have begun acquiring and are exploring the possibility of building beauty schools. The beauty school business is highly profitable, and often participates in governmental programs designed to encourage education. We believe there is an opportunity to place graduates in our various salon concepts which may provide us with another competitive advantage. Similar to the salon and hair loss industries, the beauty school industry is highly fragmented. As a result, we believe there is an opportunity to consolidate this industry through acquisition, as well. Expanding this business would allow us to add incremental revenue without cannibalizing our existing salon or hair restoration center businesses. Primarily through acquisition, we believe beauty schools could contribute over $100 million in annual revenue within a few years.

Our organic growth plans for the beauty school business include the construction of new locations; however, due to Department of Education policies, we will be limited in the number of new schools we are able to construct in the immediate future. The success of a beauty school location is not dependent on good visibility or strong customer traffic; however, access to parking and/or public transportation is important. The success of existing and newly constructed schools is dependent on effective marketing and recruiting to attract new enrollees.

For a discussion of our near-term expectations, please refer to the Investor Information section of our website at www.regiscorp.com.

20

CRITICAL ACCOUNTING POLICIES

The Condensed Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the Condensed Consolidated Financial Statements, we are required to make various judgments, estimates and assumptions that could have a significant impact on the results reported in the Condensed Consolidated Financial Statements. We base these estimates on historical experience and other assumptions believed to be reasonable under the circumstances. Changes in these estimates could have a material effect on our Condensed Consolidated Financial Statements.

Our significant accounting policies can be found in Note 1 to the Consolidated Financial Statements contained in Part II, Item 8 of the June 30, 2004 Annual Report on Form 10-K. We believe the accounting policies related to the valuation of goodwill, the valuation and estimated useful lives of long-lived assets, purchase price allocations, revenue recognition, the cost of product used and sold, self-insurance accruals, legal contingencies and estimates used in relation to tax liabilities and deferred taxes are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations. Discussion of each of these policies is contained under “Critical Accounting Policies” in Part II, Item 7 of our June 30, 2004 Annual Report on Form 10-K. No changes have been made to these policies since June 30, 2004.

RESULTS OF OPERATIONS

Consolidated Results of Operations

The following table sets forth, for the periods indicated, certain information derived from our Condensed Consolidated Statements of Operations, expressed as a percent of revenues. The percentages are computed as a percent of total consolidated revenues, except as noted.

	For the Periods Ended December 31,
	Three Months						Six Months
	2004			2003			2004			2003
Service revenues		66.5	%		64.9	%		66.8	%		65.3	%
Product revenues		29.8			31.2			29.5			30.8
Franchise royalties and fees		3.7			3.9			3.7			3.9
Operating expenses:
Cost of service (1)		57.0			55.9			56.9			56.1
Cost of product (2)		52.7			52.2			52.5			52.7
Site operating expenses		8.3			8.3			8.4			8.3
General and administrative		11.9			11.5			11.7			11.6
Rent		13.9			13.7			14.1			13.7
Depreciation and amortization		3.9			4.0			3.9			3.9
Operating income		8.4			10.0			8.5			9.7
Income before income taxes		7.6			9.2			7.7			8.9
Net income		5.0			5.9			5.0			5.6

     (1) Computed as a percent of service revenues.

     (2) Computed as a percent of product revenues.

Consolidated Revenues
Consolidated revenues include revenues of company-owned salons, product and equipment sales to franchisees, beauty school revenues, hair restoration center revenues, and franchise royalties and fees. During the second quarter and first half of fiscal year 2005, consolidated revenues increased 13.7 percent to $537.3 million and 11.8 percent to $1.0 billion, respectively, as compared to the corresponding periods of the prior fiscal year. The following table details our consolidated revenues by concept:

21

	For the Periods Ended December 31,
	Three Months						Six Months
(Dollars in thousands)	2004			2003			2004			2003
Revenues:
North American salons:
Regis Salons	$	118,870		$	118,731		$	235,327			$	236,686
MasterCuts		44,003			43,671			86,522				87,217
Trade Secret*		69,131			65,051			130,592				123,992
SmartStyle		84,400			69,964			166,683				138,411
Strip Center Salons*		148,914			123,521			294,622				249,165
Total North American Salons		465,318			420,938			913,746				835,471
International salons*		55,597			47,810			107,335				90,952
Beauty schools		8,032			3,704			14,088				6,750
Hair restoration centers*		8,385			—			8,385				—
Consolidated revenues	$	537,332		$	472,452		$	1,043,554			$	933,173
Percent change from prior year		13.7	%		13.9	%		11.8	%			14.6	%
Same-store sales increase		0.4	%		2.4	%		0.7	%			2.5	%

* Includes aggregate franchise royalties and fees of $19.9 and $18.4 million for the three months ended December 31, 2004 and 2003, respectively, and $38.6 and $36.5 million for the six months ended December 31, 2004 and 2003, respectively. North American franchise revenues (including franchise revenues hair restoration centers) represented 52.9 and 54.7 percent of total franchise revenues in the three months ended December 31, 2004 and 2003, respectively, and 53.8 and 57.1 percent of total franchise revenues in the six months ended December 31, 2004 and 2003, respectively.

Salon same-store sales increases or decreases are calculated on a daily basis as the total change in sales for company-owned salons which were open on a specific day of the week during the current period and the corresponding prior period. Quarterly and year-to-date salon same-store sales increases are the sum of the same-store sales increases computed on a daily basis. Relocated salons are included in same-store sales as they are considered to have been open in the prior period. International same-store sales are calculated in local currencies so that foreign currency fluctuations do not impact the calculation. Management believes that same-store sales, a component of organic growth, are useful in order to help determine the increase in salon revenues attributable to its organic growth (new salon construction and same-store sales growth) versus growth from acquisitions.

The 13.7 and 11.8 percent increases in consolidated revenues during the three and six months ended December 31, 2004, respectively, were driven by the following:

	Percentage Increase (Decrease) in Revenues
	For the Periods Ended December 31, 2004
	Three Months			Six Months
Acquisitions (previous twelve months)		7.4	%		6.5	%
Organic growth		5.3			4.6
Foreign currency		1.5			1.4
Franchise revenues		0.1			—
Closed salons		(0.6	)		(0.7	)
		13.7	%		11.8	%

We acquired 416 company-owned salons (including 160 franchise salon buybacks), 42 company-owned hair restoration centers and ten company-owned beauty schools during the twelve months ended December 31, 2004. The organic growth stemmed from the construction of 511 company-owned salons during the twelve months ended December 31, 2004, as well as consolidated same-store sales increases. During the second quarter and first half of fiscal year 2005, the foreign currency impact was driven by the further weakening of the United States dollar against the British pound, Euro and Canadian dollar as compared to the prior periods’ exchange rates. The impact of foreign currency was calculated by multiplying current year revenues in local currencies by the change in the foreign currency exchange rate between the current fiscal year and the prior fiscal year.

22

Consolidated revenues are primarily comprised of service and product revenues, as well as franchise royalties and fees. Fluctuations in these three major revenue categories were as follows:

Service Revenues. Service revenues include revenues generated from company-owned salons, tuition and service revenues generated within our beauty schools, and service revenues generated by hair restoration centers. For the three and six months ended December 31, 2004 and 2003, total service revenues were as follows:

(Dollars in thousands)			Increase Over Prior Fiscal Year
Periods Ended December 31,	Revenues		Dollar		Percentage
Three Months
2004	$	357,147	$	50,517		16.5	%
2003		306,630		35,942		13.3
Six Months
2004	$	696,582	$	87,000		14.3	%
2003		609,582		75,818		14.2

The growth in service revenues in the second quarter and first half of fiscal year 2005 were driven primarily by acquisitions and organic growth in our salons (new salon construction and same-store sales growth).

Product Revenues. Product revenues are primarily comprised of retail sales at company-owned salons, sales of product and equipment to franchisees, and retail product sales made by our beauty schools and hair restoration centers. Total product revenues for the three and six months ended December 31, 2004 and 2003 were as follows:

(Dollars in thousands)			Increase Over Prior Fiscal Year
Periods Ended December 31,	Revenues		Dollar		Percentage
Three Months
2004	$	160,249	$	12,807		8.7	%
2003		147,442		20,651		16.3
Six Months
2004	$	308,368	$	21,266		7.4	%
2003		287,102		41,282		16.8

Fiscal year 2005 product revenue increases were not as robust as in the corresponding periods of the prior fiscal year primarily due to lower same-store product sales increases in our company-owned salons. The large increase in same-store product sales during fiscal year 2004 was primarily driven by a trend towards sales of higher priced beauty tools, such as flat irons.

Franchise Royalties and Fees. Total franchise revenues, which include royalties and franchise fees, were as follows:

(Dollars in thousands)			Increase Over Prior Fiscal Year
Periods Ended December 31,	Revenues		Dollar		Percentage
Three Months
2004	$	19,936	$	1,556		8.5	%
2003		18,380		1,100		6.4
Six Months
2004	$	38,604	$	2,115		5.8	%
2003		36,489		2,091		6.1

Total franchise locations open at December 31, 2004 and 2003 were 3,973 (including 49 franchise hair restoration centers) and 3,995, respectively. We purchased 160 of our franchise salons during the twelve months ended December 31, 2004, which drove the overall decrease in the number of franchise salons between periods.

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The increase in consolidated franchise revenues during the three and six months ended December 31, 2004 was primarily due to favorable foreign currency exchange rate fluctuations, which caused franchise revenues to increase 5.0 and 4.2 percent, respectively. Exclusive of the effect of this favorable currency fluctuation, consolidated franchise revenues increased 3.5 and 1.6 percent in the quarter and six months ended December 31, 2004, respectively. These increases were primarily due to opening more new international franchise salons during the first half of fiscal year 2005 as compared to the first half of the prior fiscal year, as well as the acquisition of 49 franchise hair restoration centers.

Gross Margin

Our cost of revenues primarily includes labor costs related to salon employees, beauty school instructors and hair restoration center employees, the cost of product used in providing services and the cost of products sold to customers and franchisees. The resulting gross margin for the three and six months ended December 31, 2004 and 2003 was as follows:

(Dollars in thousands)			Margin as % of
Periods Ended	Total		Service and Product		Increase (Decrease) Over Prior Fiscal Year
December 31,	Margin		Revenues		Dollar		Percentage			Basis Point*
Three Months
2004	$	229,400		44.3	$	23,682		11.5	%		(100	)
2003		205,718		45.3		23,815		13.1			(50	)
Six Months
2004	$	446,784		44.5	$	43,168		10.7	%		(50	)
2003		403,616		45.0		50,035		14.2			(40	)

* Represents the basis point change in total margin as a percent of service and product revenues as compared to the corresponding periods of the prior fiscal year.

Service Margin. Service margin for the second quarter and first half of fiscal year 2005 and 2004 was as follows:

(Dollars in thousands)
Periods Ended	Service		Margin as % of		Increase (Decrease) Over Prior Fiscal Year
December 31,	Margin		Service Revenues		Dollar		Percentage			Basis Point*
Three Months
2004	$	153,543		43.0	$	18,365		13.6	%		(110	)
2003		135,178		44.1		17,173		14.6			50
Six Months
2004	$	300,392		43.1	$	32,663		12.2	%		(80	)
2003		267,729		43.9		34,276		14.7			20

* Represents the basis point change in service margin as a percent of service revenues as compared to the corresponding periods of the prior fiscal year.

The basis point decrease in service margins during the three and six months ended December 31, 2004 was related to overstaffing due to lower than expected same-store sales during the latter half of December 2004, a shift in the mix of services provided to include a greater proportion of higher cost services, such as colorings, and our decision to compensate employees while salons were closed in the southeast United States during the first quarter due to the hurricanes.

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Product Margin. Product margin for the second quarter and first half of fiscal year 2005 and 2004 was as follows:

(Dollars in thousands)
Periods Ended	Product		Margin as % of		Increase (Decrease) Over Prior Fiscal Year
December 31,	Margin		Product Revenues		Dollar		Percentage			Basis Point*
Three Months
2004	$	75,857		47.3	$	5,317		7.5	%		(50	)
2003		70,540		47.8		6,642		10.4			(260	)
Six Months
2004	$	146,392		47.5	$	10,505		7.7	%		20
2003		135,887		47.3		15,759		13.1			(160	)

* Represents the basis point change in product margin as a percent of product revenues as compared to the corresponding periods of the prior fiscal year.

The decrease in product margins as a percent of product revenues during the second quarter of fiscal year 2005 was due to lower same-store product sales increases in the Trade Secret salons, which have fixed-cost payrolls, and changes in the mix of products carried and sold.

Site Operating Expenses
This expense category includes direct costs incurred by our salons, beauty schools and hair restoration centers, such as on-site advertising, workers’ compensation, insurance, utilities and janitorial costs. As a percent of consolidated revenues, site operating expenses were relatively consistent with the corresponding periods of the prior fiscal year.

General and Administrative
General and administrative (G&A) includes costs associated with our field supervision, salon training and promotions, product distribution centers and corporate offices (such as salaries and professional fees), including costs incurred to support franchise, beauty school and hair restoration center operations. During the three and six months ended December 31, 2004 and 2003, G&A costs were as follows:

(Dollars in thousands)			Expense as %
Periods Ended			of Total		Increase (Decrease) Over Prior Fiscal Year
December 31,	G&A		Revenues		Dollar		Percentage			Basis Point*
Three Months
2004	$	64,105		11.9	$	9,676		17.8	%		40
2003		54,429		11.5		5,997		12.4			(20	)
Six Months
2004	$	121,806		11.7	$	13,933		12.9	%		10
2003		107,873		11.6		11,866		12.4			(20	)

* Represents the basis point change in G&A as a percent of total revenues as compared to the corresponding periods of the prior fiscal year.

The increase in G&A costs as a percent of total revenues during the second quarter and first half of fiscal year 2005 was primarily due to the addition of the hair restoration centers, which have slightly higher G&A costs due to the marketing-intensive nature of that business. Additionally, lower same-store sales increases in our salons contributed to the increase in these costs as a percent of revenues. For the six months ended December 31, 2004, the effect of these items was partially offset by a $1.3 million expense during the first quarter of the prior fiscal year related to the write-off of loans associated with split dollar life insurance arrangements and $0.6 million of expense related to the write-off of the cash surrender value of the related policies. The loans were written off due to final regulations issued by the IRS on the taxation of such split dollar arrangements.

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Rent
Rent expense, which includes base and percentage rent, common area maintenance and real estate taxes, was as follows:

(Dollars in thousands)			Expense as %
Periods Ended			of Total		Increase (Decrease) Over Prior Fiscal Year
December 31,	Rent		Revenues		Dollar		Percentage			Basis Point*
Three Months
2004	$	74,670		13.9	$	9,911		15.3	%		20
2003		64,759		13.7		7,839		13.8			—
Six Months
2004	$	146,719		14.1	$	18,901		14.8	%		40
2003		127,818		13.7		17,116		15.5			10

* Represents the basis point change in rent expense as a percent of total revenues as compared to the corresponding periods of the prior fiscal year.

The increase in this fixed-cost expense as a percent of total revenues during the three and six months ended December 31, 2004 was primarily due to rent expense increasing at a faster rate than salon same-store sales in the second quarter and first half of fiscal year 2005.

Interest
Interest expense was as follows:

(Dollars in thousands)			Expense as %
Periods Ended			of Total		Increase (Decrease) Over Prior Fiscal Year
December 31,	Interest		Revenues		Dollar			Percentage			Basis Point*
Three Months
2004	$	5,467		1.0	$	1,616			42.0	%		20
2003		3,851		0.8		(1,528	)		(28.4	)		(50	)
Six Months
2004	$	9,775		0.9	$	1,556			18.9	%		—
2003		8,219		0.9		(2,305	)		(21.9	)		(40	)

* Represents the basis point change in interest expense as a percent of total revenues as compared to the corresponding periods of the prior fiscal year.

The increase in interest expense as a percent total revenues during the three months ended December 31, 2004 was primarily due to an increase in our debt level stemming from our second quarter acquisition activity, including the hair restoration centers.

Income Taxes
Our reported effective tax rate was as follows:

Periods Ended	Effective			Basis Point
December 31,	Rate			Improvement
Three Months
2004		34.1	%		(240	)
2003		36.5			(180	)
Six Months
2004		34.8	%		(170	)
2003		36.5			(140	)

The improvement in our overall effective tax rate was primarily the result of the reinstated Work Opportunity Credit (refer to Note 8 of the Condensed Consolidated Financial Statements), as well a larger percentage of our income being generated in lower rate international tax jurisdictions.

Recent Accounting Pronouncements
Recent accounting pronouncements are discussed in Note 2 to the Condensed Consolidated Financial Statements.

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Effects of Inflation
We compensate some of our salon employees with percentage commissions based on sales they generate, thereby enabling salon payroll expense as a percent of company-owned salon revenues to remain relatively constant. Accordingly, this provides us certain protection against inflationary increases, as payroll expense and related benefits (our major expense components) are variable costs of sales. In addition, we may increase pricing in our salons to offset any significant increases in wages. Therefore, we do not believe inflation has had a significant impact on the results of operations.

Constant Currency Presentation
The presentation below demonstrates the effect of foreign currency exchange rate fluctuations from year to year. In the second quarter and first half of fiscal year 2005, foreign currency translation had a positive impact on consolidated revenues and net income before income taxes due to the strengthening of the Canadian dollar, British pound and Euro. To present this information, current period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the average exchange rates in effect during the corresponding period of the prior fiscal year, rather than the actual average exchange rates in effect during the current fiscal year. Therefore, the foreign currency impact is equal to current year results in local currencies multiplied by the change in the average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.

Three Months Ended				Currency		Constant			Reported			Constant Currency
December 31, 2004	Reported			Translation		Currency			% Increase			% Increase
(Dollars in thousands)	Amount			Benefit		Amount			(Decrease)*			(Decrease)*
Total revenues:
North American salons	$	465,318		$	1,806	$	463,512			10.5	%		10.1	%
International salons		55,597			5,091		50,506			16.3			5.6
Beauty schools		8,032			297		7,735			116.8			108.8
Hair restoration centers		8,385			—		8,385			100.0			100.0
Total	$	537,332		$	7,194	$	530,138			13.7	%		12.2	%
Income before income taxes:
North American salons	$	63,259		$	240	$	63,019			(2.4	)%		(2.8	)%
International salons		5,618			489		5,129			3.6			(5.4	)
Beauty schools		2,408			146		2,262			72.5			62.0
Hair restoration centers		1,565			—		1,565			100.0			100.0
Corporate**		(32,248	)		64		(32,312	)		14.9			15.1
Total	$	40,602		$	939	$	39,663			(6.8	)%		(9.0	)%

Six Months Ended				Currency			Constant			Reported			Constant Currency
December 31, 2004	Reported			Translation			Currency			% Increase			% Increase
(Dollars in thousands)	Amount			Benefit (Loss)			Amount			(Decrease)*			(Decrease)*
Total revenues:
North American salons	$	913,746		$	2,702		$	911,044			9.4	%		9.0	%
International salons		107,335			9,939			97,396			18.0			7.1
Beauty schools		14,088			471			13,617			108.7			101.7
Hair restoration centers		8,385			—			8,385			100.0			100.0
Total	$	1,043,554		$	13,112		$	1,030,442			11.8	%		10.4	%
Income before income taxes:
North American salons	$	124,852		$	370		$	124,482			(2.8	)%		(3.1	)%
International salons		12,396			1,124			11,272			28.3			16.6
Beauty schools		3,619			160			3,459			50.3			43.6
Hair restoration centers		1,565			—			1,565			100.0			100.0
Corporate**		(62,255	)		(10	)		(62,245	)		7.9			7.9
Total	$	80,177		$	1,644		$	78,533			(3.2	)%		(5.2	)%

*	represents the percentage increase (decrease) over reported amounts in the corresponding period of the prior fiscal year
**	primarily general and administrative, corporate depreciation and amortization, and net interest expense

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Results of Operations by Segment

Based on our internal management structure, we report four segments: North American salons, international salons, beauty schools and hair restoration centers. Significant results of operations are discussed below with respect to each of these segments.

North American Salons

North American Salon Revenues. Total North American salon revenues were as follows:

(Dollars in thousands)			Increase Over Prior Fiscal Year					Same-Store
Periods Ended December 31,	Revenues		Dollar		Percentage			Sales Increase
Three Months
2004	$	465,318	$	44,380		10.5	%		0.2	%
2003		420,938		46,608		12.5			2.2
Six Months
2004	$	913,746	$	78,275		9.4	%		0.4	%
2003		835,471		97,694		13.2			2.3

The percentage increases during the three and six months ended December 31, 2004 were due to the following factors:

	Percentage Increase (Decrease) in Revenues
	For the Periods Ended December 31, 2004
	Three Months			Six Months
Acquisitions (previous twelve months)		5.4	%		5.3	%
Organic growth		5.0			4.2
Foreign currency		0.4			0.4
Franchise revenues		—			(0.1	)
Closed salons		(0.3	)		(0.4	)
		10.5	%		9.4	%

We acquired 385 company-owned North American salons during the twelve months ended December 31, 2004, including 160 franchise buybacks. The organic growth stemmed primarily from the construction of 487 company-owned salons in North America during the twelve months ended December 31, 2004. Revenues were negatively impacted during the first half of fiscal year 2005 by the hurricanes in the southeast United States, which caused nearly 650 of our company-owned salons to be closed for at least one day during the first quarter, as well as reduced customer visits to salons. The foreign currency impact during the second quarter and first half of fiscal years 2005 was driven by the weakening of the United States dollar against the Canadian dollar as compared to the prior periods’ exchange rates

North American Salon Operating Income. Operating income for the North American salons for the second quarter and first half of fiscal year 2005 and 2004 was as follows:

(Dollars in thousands)
Periods Ended	Operating		Operating Income as		Increase (Decrease) Over Prior Fiscal Year
December 31,	Income		% of Total Revenues		Dollar			Percentage			Basis Point*
Three Months
2004	$	63,259		13.6	$	(1,553	)		(2.4	)%		(180	)
2003		64,812		15.4		5,642			9.5			(40	)
Six Months
2004	$	124,852		13.7	$	(3,616	)		(2.8	)%		(170	)
2003		128,468		15.4		17,600			15.9			40

* Represents the basis point change in North American salon operating income as a percent of total North American salon revenues as compared to the corresponding periods of the prior fiscal year.

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The decrease in North American salon operating income during the three and six months ended December 31, 2004 was primarily related to lower same-store sales increases as compared to the prior fiscal year, overstaffing due to lower than expected same-store sales during the latter half of December 2004, changes in the mix of services provided and products carried and sold, and our decision to compensate employees while salons were closed in the southeast United States during the first quarter due to the hurricanes.

International Salons

International Salon Revenues. Total international salon revenues were as follows:

(Dollars in thousands)			Increase Over Prior Fiscal Year					Same-Store
Periods Ended December 31,	Revenues		Dollar		Percentage			Sales Increase
Three Months
2004	$	55,597	$	7,787		16.3	%		2.6	%
2003		47,810		7,889		19.8			5.6
Six Months
2004	$	107,335	$	16,383		18.0	%		4.1	%
2003		90,952		15,255		20.2			5.5

The percentage increases during the three and six months ended December 31, 2004 were due to the following factors:

	Percentage Increase (Decrease) in Revenues
	For the Periods Ended December 31, 2004
	Three Months			Six Months
Acquisitions (previous twelve months)		1.4	%		1.2	%
Organic growth		7.2			8.7
Foreign currency		10.7			10.9
Franchise revenues		0.3			0.8
Closed salons		(3.3	)		(3.6	)
		16.3	%		18.0	%

We acquired 31 company-owned international salons during the twelve months ended December 31, 2004. The organic growth stemmed from the construction of 24 company-owned international salons during the twelve months ended December 31, 2004, as well as international same-store sales increases. The foreign currency impact during the second quarter and first half of fiscal years 2005 was driven by the weakening of the United States dollar against the British pound and the Euro as compared to the prior periods’ exchange rates

International Salon Operating Income. Operating income for the international salons for the second quarter and first half of fiscal year 2005 and 2004 was as follows:

(Dollars in thousands)
Periods Ended	Operating		Operating Income as		Increase (Decrease) Over Prior Fiscal Year
December 31,	Income		% of Total Revenues		Dollar			Percentage			Basis Point*
Three Months
2004	$	5,618		10.1	$	196			3.6	%		(120	)
2003		5,422		11.3		357			7.0			(140	)
Six Months
2004	$	12,396		11.5	$	2,731			28.3	%		90
2003		9,665		10.6		(1,730	)		(15.2	)		(450	)

* Represents the basis point change in international salon operating income as a percent of total international salon revenues as compared to the corresponding periods of the prior fiscal year.

29

The basis point decrease in international salon operating income during the three months ended December 31, 2004 was primarily related to an adjustment to increase cost of sales by approximately $1.0 million stemming from our September 2004 physical inventory count, as well as increased supply costs. For the six months ended December 31, 2004, this was offset by improved rent expense stemming from favorable rent negotiations, as well as lower depreciation expense as a percent of revenues due to the continuing maturation of the salon base in the United Kingdom.

Beauty schools

Beauty school Revenues. Total beauty schools revenues were as follows:

(Dollars in thousands)			Increase Over Prior Fiscal Year
Periods Ended December 31,	Revenues		Dollar		Percentage
Three Months
2004	$	8,032	$	4,328		116.8	%
2003		3,704		3,196		629.1
Six Months
2004	$	14,088	$	7,338		108.7	%
2003		6,750		6,242		1,228.7

The percentage increases during the three and six months ended December 31, 2004 were due to the following factors:

	Percentage Increase (Decrease) in Revenues
	For the Periods Ended December 31, 2004
	Three Months			Six Months
Acquisitions (previous twelve months)		97.3	%		93.0	%
Organic growth		11.5			8.7
Foreign currency		8.0			7.0
		116.8	%		108.7	%

We acquired ten beauty schools during the twelve months ended December 31, 2004. The foreign currency impact during the second quarter and first half of fiscal years 2005 was driven by the weakening of the United States dollar against the British pound as compared to the prior periods’ exchange rates.

Beauty school Operating Income. Operating income for our beauty schools for the second quarter and first half of fiscal year 2005 and 2004 was as follows:

(Dollars in thousands)
Periods Ended	Operating		Operating Income as		Increase (Decrease) Over Prior Fiscal Year
December 31,	Income		% of Total Revenues		Dollar		Percentage			Basis Point*
Three Months
2004	$	2,408		30.0	$	1,012		72.5	%		(770	)
2003		1,396		37.7		1,218		684.3			270
Six Months
2004	$	3,619		25.7	$	1,211		50.3	%		(1,000	)
2003		2,408		35.7		2,230		1,252.8			70

* Represents the basis point change in beauty school operating income as a percent of total beauty school revenues as compared to the corresponding periods of the prior fiscal year.

We first began operating beauty schools during December 2002 (i.e., the second quarter of fiscal year 2003), in conjunction with the Vidal Sassoon acquisition. We have since expanded by acquiring six beauty schools during the fourth quarter of the prior fiscal year (i.e., fiscal year 2004) and four additional beauty schools in the second quarter of fiscal year 2005. Therefore, the year-over-year fluctuations in beauty school operating income stem primarily from our integration of the beauty schools and changes in the mix of beauty schools due to these acquisitions.

30

Hair Restoration Centers
As discussed in Note 7 to the Condensed Consolidated Financial Statements, we acquired Hair Club for Men and Women in December 2004. Therefore, our operating results for the three and six months ended December 31, 2004 include only one month of operations from this acquired entity (referred to as hair restoration centers for segment reporting purposes). Refer to Note 5 of the Condensed Consolidated Financial Statements for the December operations of the hair restoration centers which were included in our Condensed Consolidated Statement of Operations.

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LIQUIDITY AND CAPITAL RESOURCES

Overview
We continue to maintain a strong balance sheet to support system growth and financial flexibility. Our debt to capitalization ratio, calculated as total debt as a percentage of total debt and shareholders’ equity at fiscal quarter end, was as follows:

	Debt to	Basis Point
Date	Capitalization	(Increase) Decrease*
December 31, 2004	40.3%	(980)
June 30, 2004	30.5	440

* Change as compared to prior fiscal year end (June 30).

During December 2004, we financed the $210 million acquisition of Hair Club for Men and Women with debt, which drove the increase in debt over the prior fiscal year. Our principal on-going cash requirements are to finance construction of new stores, remodel certain existing stores, acquire salons and beauty schools, and purchase inventory. Customers pay for salon services and merchandise in cash at the time of sale, which reduces our working capital requirements.

Total assets at December 31, 2004 and June 30, 2004 were as follows:

(Dollars in thousands)	Total		$ Increase Over		% Increase Over
Date	Assets		Prior Period*		Prior Period*
December 31, 2004	$	1,680,565	$	408,706		32.1	%
June 30, 2004		1,271,859		158,904		14.3

* Change as compared to prior fiscal year end (June 30).

The acquisition of Hair Club for Men and Women in December 2004 was the primary driver of the increase in total assets between June 30 and December 31, 2004.

Total shareholders’ equity at December 31, 2004 and June 30, 2004 was as follows:

(Dollars in thousands)	Shareholders’		$ Increase Over		% Increase Over
Date	Equity		Prior Period*		Prior Period*
December 31, 2004	$	769,928	$	82,367		12.0	%
June 30, 2004		687,561		124,757		22.2

* Change as compared to prior fiscal year end (June 30).

During the first six months of fiscal year 2005, equity increased primarily as a result of net income, increased accumulated other comprehensive income due to foreign currency translation adjustments as the result of the strengthening of foreign currencies that underlie our investments in those markets, and additional paid-in capital primarily recorded in connection with the exercise of stock options.

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Cash Flows

Operating Activities
Net cash provided by operating activities in the first six months of fiscal year 2005 and 2004 was $112.5 and $113.7 million, respectively. The cash flows from operating activities were a result of the following:

	Operating Cash Flows
	For the Six Months Ended December 31,
(Dollars in thousands)	2004			2003
Net income	$	52,243		$	52,620
Depreciation and amortization		40,560			36,612
Deferred income taxes		4,462			5,901
Accounts payable and accrued expenses		22,296			14,938
Inventories		(8,407	)		4,883
Other		1,381			(1,223	)
	$	112,535		$	113,731

During the first six months of fiscal year 2005, inventories increased due to growth in the number of salons, as well as lower than expected same-store product sales. Additionally, accounts payable and accrued expenses increased primarily due to the timing of insurance payments for workers’ compensation and payments related to inventory purchases, as well as increased accrued payroll due to the holiday season.

Investing Activities
Net cash used in investing activities of $290.9 and $67.9 million in the first six months of fiscal year 2005 and 2004, respectively, was the result of the following:

	Investing Cash Flows
	For the Six Months Ended December 31,
(Dollars in thousands)	2004			2003
Business and salon acquisitions	$	(244,743	)	$	(33,611	)
Capital expenditures for new salon construction		(22,459	)		(14,840	)
Capital expenditures for remodels or other additions		(15,612	)		(15,086	)
Capital expenditures for the corporate office (including all technology-related expenditures)		(8,638	)		(4,478	)
Proceeds from the sale of assets		602			95
	$	(290,850	)	$	(67,920	)

We constructed 245 company-owned salons, and acquired 134 company-owned salons (67 of which were franchise buybacks) and four company-owned beauty schools during the first six months of fiscal year 2005. Further, we acquired 42 company-owned and 49 franchise hair restoration centers during December of 2004 (see Note 7 to the Condensed Consolidated Financial Statements). Acquisitions were primarily funded by a combination of operating cash flows and debt. The company-owned constructed and acquired salons consisted of the following number of salons in each concept:

	Six Months Ended
	December 31, 2004
	Constructed		Acquired
Regis Salons		21		—
MasterCuts		25		—
Trade Secret		30		7
SmartStyle		80		7
Strip Center		68		111
International		21		9
		245		134

Additionally, we completed 81 major remodeling projects during the first half of fiscal year 2005.

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Financing Activities
Net cash provided by financing activities was $217.6 million during the first six months of fiscal year 2005 and net cash used in financing activities was $23.7 million during the first six months of fiscal year 2004, resulting from the following:

	Financing Cash Flows
	For the Six Months Ended December 31,
(Dollars in thousands)	2004			2003
Net borrowings (payments) on revolving credit facilities	$	129,682		$	(10,975	)
Net proceeds from (repayments of) long-term debt		82,774			(8,250	)
Proceeds from the issuance of common stock		6,425			10,390
Dividend payments		(3,555	)		(2,631	)
Repurchase of common stock		(442	)		(3,373	)
Other		2,672			(8,838	)
	$	217,556		$	(23,677	)

The proceeds from the issuance of common stock were related to the exercise of stock options. In the third quarter of fiscal year 2004, the quarterly dividend was increased from its historical rate of $0.03 per share to $0.04 per share.

Acquisitions
The acquisitions during the first six months of fiscal year 2005 consisted of 67 franchise buybacks, 67 other acquired salons, four acquired beauty schools and 91 acquired hair restoration centers (including 49 franchise locations). These acquisitions individually and in the aggregate are not material to our operations. Therefore, pro forma information is not included in the Notes to the Condensed Consolidated Financial Statements. The acquisitions were funded primarily from operating cash flow and debt.

Contractual Obligations and Commercial Commitments
We acquired Hair Club for Men and Women in December 2004 for approximately $210 million. The acquisition was financed with approximately $110 million of debt under our existing revolving credit facility and $100 million of senior term notes issued under an existing agreement, with interest rates ranging from 4.0 to 4.9 percent and maturation dates between November 2007 and November 2010. There have been no other significant changes in our commercial commitments such as commitments under lines of credit or standby letters of credit since June 30, 2004. We are in compliance with all covenants and other requirements of our 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 our salon development program, we continue to negotiate and enter into leases and commitments for the acquisition of equipment and leasehold improvements related to future salon locations, and continue to enter into transactions to acquire established hair care salons and businesses. Thus far during the third quarter of fiscal year 2005, we have acquired 53 franchised salons and three beauty schools. We also signed multiple agreements to acquire approximately 200 salons and six beauty schools; these agreements are expected to close during the third quarter ending March 31, 2005. In the beginning of the third quarter of fiscal year 2005, we also made a minority investment in Cool Cuts 4 Kids, a Dallas, Texas-based company. This investment includes an option to purchase this business in three years. Cool Cuts 4 Kids currently operates 59 children’s salons in seven states.

Prior to December 31, 2002, we became guarantor on a limited number of equipment lease agreements between our franchisees and leasing companies. If the franchisee should fail to make payments in accordance with the lease, we will be held liable under such agreements and retain the right to possess the related salon operations. We believe the fair value of the salon operations exceeds the maximum potential amount of future lease payments for which we could be held liable. The existing guaranteed lease obligations, which have an aggregate undiscounted value of $2.3 million at December 31, 2004, terminate at various dates between June 2006 and April 2009. We have not experienced, and do not expect, any material loss to result from these arrangements.

34

Financing
Financing activities are discussed above and derivative activities are discussed in Item 3, “Quantitative and Qualitative Disclosures about Market Risk.” There were no other significant financing activities during the first six months of fiscal year 2005.

We believe that cash generated from operations and amounts available under our existing debt facilities will be sufficient to fund anticipated capital expenditures, acquisitions and required debt repayments for the foreseeable future.

Dividends
We paid dividends of $0.08 per share during the first six months of fiscal year 2005. On February 2, 2005, our Board of Directors declared a $0.04 per share quarterly dividend payable March 2, 2005 to shareholders of record on February 16, 2005.

Share Repurchase Program
Our Board of Directors has approved a stock repurchase program under which up to $100.0 million could be expended for the repurchase of Regis Corporation 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. The repurchases to date have been made primarily to eliminate the dilutive effect of shares issued in conjunction with acquisitions and stock option exercises. As of December 31, 2004, a total of 1.8 million shares have been repurchased for $53.9 million, including 10,000 shares for $0.4 million in the six months ended December 31, 2004. All repurchased shares are immediately retired. This repurchase program has no stated expiration date.

Risk Factors

Impact of Acquisition and Real Estate Availability

The key driver of our revenue and earnings growth is the number of locations we acquire or construct. While we believe that substantial future acquisition and organic growth opportunities exist, any material decrease in the number of such opportunities would have an impact on our revenue and earnings growth.

Impact of the Economic Environment

Changes to the United States, Canadian, United Kingdom and other European economies have an impact on our business. Visitation patterns to our salons and hair restoration centers can be adversely impacted by changes in unemployment rates and discretionary income levels.

Impact of Key Relationships

We maintain key relationships with certain companies. Termination of these relationships could have an adverse impact on our ability to grow or future operating results.

Impact of Fashion

Changes in consumer tastes and fashion trends can have an impact on our financial performance.

Impact of Changes in Regulatory and Statutory Laws

With more than 10,000 locations and an average of 52,000 corporate employees world-wide, our financial results can be adversely impacted by regulatory or statutory changes in laws.

Impact of Competition

Competition on a market by market basis remains strong. Therefore, our ability to raise prices in certain markets can be adversely impacted by this competition.

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Impact of Changes in Manufacturers’ Choice of Distribution Channels

The retail products that we sell are licensed to be carried exclusively by professional salons. Should the various product manufacturers decide to utilize other distribution channels, such as large discount retailers, it could negatively impact the revenue earned from product sales.

Impact of Changes to Interest Rates and Foreign Currency Exchange Rates

Changes in interest rates will have an impact on our expected results from operations. Currently, we manage the risk related to fluctuations in interest rates through the use of floating rate debt instruments and other financial instruments. See discussion in Item 3., “Quantitative and Qualitative Disclosures about Market Risk,” for additional information.

Changes in foreign currency exchange rates will have an impact on our reported results from operations. The majority of the revenue and costs associated with the performance of our foreign operations are denominated in local currencies such as the Canadian dollar, Euro and British pound. Therefore, we do not have significant foreign currency transaction risk; however, the translation at different exchange rates from period to period may impact the amount of reported income from our international operations. For the six months ended December 31, 2004, operations denominated in currencies other than the United States dollar represented approximately 25 percent of consolidated net income before income taxes, and changes in foreign currency exchange rates benefited net income before income taxes by approximately $1.6 million. This impact was calculated by multiplying current year net income before income taxes in local currencies by the change in the average foreign currency exchange rate between the first six months of the current fiscal year and the corresponding period of the prior fiscal year. Refer the constant currency discussion in “Management’s Discussion and Analysis” for further detail.

Impact of Seasonality

Our business is not subject to substantial seasonal variations in demand. However, the timing of Easter may cause a quarterly variation in the third and fourth quarters. Historically, our revenue and net earnings have generally been realized evenly throughout the fiscal year. The service and retail product revenues associated with our corporate salons, as well as our franchise revenues, are of a replenishment nature. We estimate that customer visitation patterns are generally consistent throughout the year.

Impact of Changes in Securities Laws and Regulations

The Sarbanes-Oxley Act of 2002 that became law in July 2002 requires changes in some of our corporate governance and securities disclosure or compliance practices. We are presently preparing for our required compliance with the Sarbanes-Oxley Act of 2002, and management’s assertion concerning financial reporting controls. While we believe that we can ultimately comply with the new legislated requirements associated with being a registrant with the Securities and Exchange Commission, this process is costly and presents both challenge and risk.

The Sarbanes-Oxley Act of 2002 also requires the SEC to promulgate new rules on a variety of subjects, in addition to rule proposals already made, and the New York Stock Exchange has approved revisions to its requirements for listed companies. We expect these developments to increase our compliance costs. These developments could possibly make it more difficult and more expensive to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These developments could make it more difficult for us to attract and retain qualified members of our board of directors, or qualified executive officers.

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SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This quarterly report on Form 10-Q, 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,” “forecast,” “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 claims; 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 and beauty schools that support its growth objectives; changes in key relationships with certain companies; changes in regulatory and statutory laws; changes in manufacturers’ choice of distribution channels; or other factors not listed above. The ability of the Company to meet its expected revenue growth is dependent on salon acquisitions, new salon construction and same-store sales increases, all of which are affected by many of the aforementioned risks. Additional information concerning potential factors that could affect future financial results is set forth herein and in the Company’s Annual Report on Form 10-K for the year ended June 30, 2004 and incorporated by reference into Form S-3 Registration Statement filed with the Securities and Exchange Commission on June 4, 2004. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made in our subsequent annual and periodic reports filed or furnished with the SEC on Forms 10-Q and 8-K and Proxy Statements on Schedule 14A.

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Item 3. 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. Additionally, the Company is exposed to foreign currency translation risk related to its net investments in its foreign subsidiaries. The Company has established policies and procedures that govern the management of these exposures. By policy, the Company does not enter into such contracts for the purpose of speculation. The following details the Company’s policies and use of financial instruments.

Interest Rate Risk:
The Company has established an interest rate management policy that attempts to minimize its overall cost of debt, while taking into consideration the earnings implications associated with the volatility of short-term interest rates. As part of this policy, the Company has elected to maintain a combination of floating and fixed rate debt. As of December 31, 2004 and June 30, 2004, the Company had the following outstanding debt balances, considering the effect of interest rate swaps and including $3.4 and $3.5 million related to the fair value swaps at December 31 and June 30, 2004, respectively:

	December 31,		June 30,
(Dollars in thousands)	2004		2004
Fixed rate debt	$	303,683	$	202,543
Floating rate debt		215,980		98,600
	$	519,663	$	301,143

In addition, the Company has entered into the following financial instruments:

Interest Rate Swap Contracts:
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.

 (Pay fixed rates, receive variable rates)
The Company had interest rate swap contracts that pay fixed rates of interest and receive variable rates of interest (based on the three-month LIBOR rate) on notional amounts of indebtedness of $11.8 million at December 31, 2004 and June 30, 2004. These swaps are being accounted for as cash flow swaps.

The cumulative tax-effected net loss recorded in other comprehensive income, set forth under the caption shareholders’ equity in the Condensed Consolidated Balance Sheet, related to the cash flow swap was $0.3 and $0.4 million at December 31, 2004 and 2003, respectively. The following table depicts the hedging activity recorded in the accumulated other comprehensive income account related to the cash flow swap for the three and six months ended December 31, 2004 and 2003.

	For the Periods Ended December 31,
	Three Months						Six Months
(Dollars in thousands)	2004			2003			2004			2003
Tax-effected (loss) gain on cash flow hedge recorded in other comprehensive income:
Realized net loss transferred from other comprehensive income to earnings	$	125		$	96		$	213		$	194
Unrealized net loss from changes in fair value of cash flow swap		(101	)		(35	)		(190	)		(88	)
	$	24		$	61		$	23		$	106

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(Pay variable rates, receive fixed rates)
The Company has interest rate swap contracts that pay variable rates of interest (based on the three-month and six-month LIBOR rates plus a credit spread) and receive fixed rates of interest on an aggregate $68.5 and $81.0 million notional amount at December 31, 2004 and June 30, 2004, respectively, with maturation dates between July 2005 and March 2009. These swaps were designated as hedges of a portion of the Company’s senior term notes and are being accounted for as fair value swaps.

The Company’s fair value swaps are recorded at fair value within other assets in the Condensed Consolidated Balance Sheet, with a corresponding cumulative adjustment to the underlying senior term note within long-term debt of $2.4 million at December 31, 2004 and June 30, 2004. Additionally, $1.0 and $1.1 million of deferred gain remained in long-term debt at December 31, 2004 and June 30, 2004, respectively, related to the early termination of a fair value swap contract. No hedge ineffectiveness occurred during the first half of fiscal year 2005 or 2004. As a result, the fair value swaps did not have a net impact on earnings.

Foreign Currency Exchange Risk:
The majority of the Company’s revenue, expense and capital purchasing activities are transacted in United States dollars. However, because a portion of the Company’s operations consists of activities outside of the United States, the Company has transactions in other currencies, primarily the Canadian dollar, British pound and Euro. In preparing the Condensed Consolidated Financial Statements, the Company is required to translate the financial statements of its foreign subsidiaries from the currency in which they keep their accounting records, generally the local currency, into United States dollars. Different exchange rates from period to period impact the amounts of reported income and the amount of foreign currency translation recorded in accumulated other comprehensive income. As part of its risk management strategy, the Company frequently evaluates its foreign currency exchange risk by monitoring market data and external factors that may influence exchange rate fluctuations. As a result, the Company may engage in transactions involving various derivative instruments to hedge assets, liabilities and purchases denominated in foreign currencies. As of December 31, 2004, the Company has entered into the following financial instrument:

Hedge of the Net Investment in Foreign Subsidiaries:
The Company has 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 hedged approximately six and seven percent of the Company’s net investments in foreign operations at December 31, 2004 and June 30, 2004, respectively.

The Company’s cross-currency swap is recorded at fair value within other noncurrent liabilities in the Condensed Consolidated Balance Sheet. At December 31, 2004 and June 30, 2004, the Company’s net investment in this derivative financial instrument was in a $12.3 and $8.7 million loss position, respectively, based on its estimated fair value. The corresponding tax-effected offset is charged to the cumulative translation adjustment account, which is a component of accumulated other comprehensive income set forth under the caption shareholders’ equity in the Condensed Consolidated Balance Sheet. For the quarters ended December 31, 2004 and 2003, $2.1 and $1.7 million of tax-effected loss related to this derivative was charged to the cumulative translation adjustment account, respectively. For the six months ended December 31, 2004 and 2003, $2.6 and $2.3 million of tax-effected loss related to this derivative was charged to the cumulative translation adjustment account, respectively.

For additional information, including a tabular presentation of the Company’s debt obligations and derivative financial instruments, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in the Company’s June 30, 2004 Annual Report on Form 10-K. Other than the information included above, there have been no material changes to this information during the six months ended December 31, 2004.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures:
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.

With the participation of management, the Company’s chief executive officer and chief financial officer evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures at the conclusion of the period ended December 31, 2004. Based upon this evaluation, the chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level in ensuring that material information required to be disclosed is included in the reports that it files with the Securities and Exchange Commission.

Changes in Internal Controls:
There were no changes in the Company’s internal controls or, to the knowledge of management of the Company, in other factors that could significantly affect internal controls subsequent to the date of the Company’s most recent evaluation of its disclosure controls and procedures utilized to compile information included in this filing.

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Part II – Other Information

Item 1. Legal Proceedings

The Company is a defendant in various lawsuits and claims arising out of the normal course of business. Like certain other large retail employers, the Company has been faced with allegations of purported class-wide wage and hour violations. The Company is currently a defendant in a collective action lawsuit in which the plaintiffs allege violations under the Fair Labor Standards Act (“FLSA”). The Company denies these allegations and will actively defend its position. However, litigation is inherently unpredictable and the outcome of these matters cannot presently be determined. Although company counsel believes that the Company has valid defenses in these matters, it could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations in any particular period.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

(e) Share Repurchase Program

The Company’s Board of Directors approved a stock repurchase program under which up to $100.0 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. All repurchased shares are immediately retired. This repurchase program has no stated expiration date.

All repurchases of the Company’s common stock during the quarter ended December 31, 2004 were part of this repurchase program. The following table shows the monthly second quarter fiscal year 2005 stock repurchase activity:

					Total Number of		Approximate Dollar
					Shares Purchased		Value of Shares that
					As Part of Publicly		May Yet Be Purchased
	Total Number of		Average Price		Announced Plans		under the Plans or
Period	Shares Purchased		Paid per Share		or Programs		Programs (in thousands)
10/1/04 – 10/31/04		—	$	—		—	$	46,590
11/1/04 – 11/30/04		10,000		44.23		10,000		46,148
12/1/04 – 12/31/04		—		—		—		46,148
Total		10,000	$	44.23		10,000

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

On October 28, 2004, at the annual meeting of the shareholders of the Company, a vote on the election of the Company’s directors, the ratification of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm and a proposal to approve the Company’s 2004 Long Term Incentive Plan and 2004 Short Term Incentive Plan took place with the following results:

Election of Directors:

AUTHORITY	FOR		WITHHOLD
Rolf F. Bjelland		39,067,568		2,096,076
Paul D. Finkelstein		40,047,560		1,116,084
Thomas L. Gregory		39,998,565		1,165,079
Van Zandt Hawn		39,121,723		2,041,921
Susan Hoyt		40,000,089		1,163,555
David B. Kunin		37,880,116		3,283,527
Myron Kunin		39,361,025		1,802,618

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Ratification of PricewaterhouseCoopers LLP as independent registered public accounting firm:

For	40,562,822
Against	583,403
Abstain	17,419

2004 Long Term Incentive Plan:

Approve	27,438,669
Veto	6,759,542
Abstain	569,100

2004 Short Term Incentive Plan:

Approve	37,156,261
Veto	3,438,251
Abstain	569,131

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

Exhibit 2	Purchase Agreement between Regis Corporation and Hair Club for Men and Women.
Exhibit 15	Letter Re: Unaudited Interim Financial Information.
Exhibit 31.1	Chairman of the Board of Directors, President and Chief Executive Officer of Regis Corporation: Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2	Executive Vice President, Chief Financial and Administrative Officer of Regis Corporation: Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1	Chairman of the Board of Directors, President and Chief Executive Officer of Regis Corporation: Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2	Executive Vice President, Chief Financial and Administrative Officer of Regis Corporation: Certification 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 December 31, 2004:

Form 8-K dated October 7, 2004 related to the announcement of the Company’s consolidated revenues and consolidated same-store sales for the month and quarter ended September 30, 2004.

Form 8-K dated October 27, 2004 related to the announcement of the Company’s financial results for its fiscal first quarter ended September 30, 2004.

Form 8-K dated November 15, 2004 related to the announcement of the Company’s acquisition of Hair Club for Men and Women.

Form 8-K dated December 2, 2004 related to the announcement of the closing of the Company’s acquisition of Hair Club for Men and Women.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		REGIS CORPORATION
Date: February 9, 2005	By: /s/ Randy L. Pearce
		Randy L. Pearce
		Executive Vice President
		Chief Financial and Administrative Officer
		Signing on behalf of the
		registrant and as principal
		accounting officer

43

EX-2

STOCK PURCHASE AGREEMENT

between

Regis Corporation

and

EdgeStone Capital Equity Fund, L.P. and its parallel investors

and

EdgeStone Capital Equity Fund II-A, L.P. and its parallel investors

and

EdgeStone Capital Mezzanine Fund II, L.P. and its parallel investors

and

Cameron Capital Corporation

and
1407718 Ontario Inc.
and

Steven K. Hudson

and

Leslie E.Martin

and

Scott Walmsley

and

Paul Morton

and

The Management Shareholders

and

The Optionholders

and

Hair Club Group Inc.

For the Purchase of All of the Outstanding Capital Stock of

Hair Club Group Inc.

Dated as of November 13, 2004

STOCK PURCHASE AGREEMENT

        THIS STOCK PURCHASE AGREEMENT dated as of the 13^th day of November, 2004 by and between (i) Regis Corporation, as Buyer; (ii) the EdgeStone Group, Hudson, Cameron Capital, the Martin Group, Walmsley, Morton, and each of the Management Shareholders by his or her representative and attorney, the U.S. Nominee as sellers of the Stock; (iii) each of the Optionholders, by his or her representative and attorney, the U.S. Nominee; and (iv) the Company. Buyer, Sellers and the Company are sometimes referred to in this Agreement, individually, as a “party” and, collectively, as the “parties”.

RECITALS:

        WHEREAS the Stock Sellers own 100% of the issued and outstanding capital stock of the Company, a corporation incorporated under the laws of Canada;

        AND WHEREAS the Optionholders and Morton beneficially own options to acquire common shares of the Company, which options are to be terminated on the Closing Date for (a) a payment determined in accordance with that certain Bonus Payment Agreement dated November 12, 2004 (the “Bonus Payment Agreement”), among the Company and the Optionholders, with respect to the Optionholders and (b) the payment of the Morton Termination Amount (as hereinafter defined) with respect to Morton;

        AND WHEREAS Buyer wishes to purchase the Stock from the Stock Sellers, and the Stock Sellers wish to sell the Stock, on the terms contained herein;

        AND WHEREAS it is contemplated that prior to Closing, Buyer shall assign its rights hereunder to a wholly-owned subsidiary in compliance with the terms of Section 15.17;

        AND WHEREAS the Optionholders and, in part, Morton have become party to this Agreement in consideration for the Option Bonus Amount (as hereinafter defined) and the Morton Termination Amount, respectively;

        NOW, THEREFORE, in consideration of the premises and of the representations and warranties, covenants and agreements hereinafter made, the parties hereto have agreed and do hereby agree in manner and form as hereinafter set forth:

1.   DEFINITIONS

(a)	“Agreement” means this stock purchase agreement, the Disclosure Schedule and all other schedules attached to this Agreement and the expressions “hereof”, “herein”, “hereto”, “hereunder”, “hereby” and similar expressions refer to this Agreement and unless otherwise indicated, references to Sections are sections in this Agreement;
(b)	“Bonus Payment Agreement” has the meaning set forth in the Recitals;

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(c)	“Business Day” means any day, other than Saturday, Sunday or any day in which banks located in Ontario, New York, Minnesota and Florida are authorized or required to be closed;
(d)	“Buyer” means Regis Corporation, a corporation incorporated under the laws of the State of Minnesota;
(e)	“Buyer Indemnified Parties” has the meaning set forth in Section 13.1 hereto;
(f)	“Cameron Capital” means Cameron Capital Corporation, a corporation incorporated under the laws of the Province of Ontario;
(g)	“Closing” means the closing of the transactions contemplated by this Agreement;
(h)	“Closing Date” means the date that is the later of (i) December 6, 2004, and (ii) the day which is five (5) Business Days after all such conditions herein have been satisfied or waived, but in no event later than December 21, 2004 or at such other time as the Buyer and the Sellers’ Representative shall mutually agree;
(i)	“Company” means Hair Club Group Inc., a corporation incorporated under the laws of Canada;
(j)	“Company Books and Records” has the meaning set forth in Section 12.2(a) hereto;
(k)	“Confidential Memorandum” has the meaning set forth in Section 15.10(a) hereto;
(l)	“Consideration” has the meaning set forth in Schedule 2.3 hereto;
(m)	“Contracts” has the meaning set forth in Section 3.12(a) hereto;
(n)	“Deductible” has the meaning set forth in Section 13.2(b) hereto;
(o)	“Disclosure Schedule” means the disclosure schedule of the Sellers attached to this Agreement including all exhibits thereto;
(p)	“ECE I Fund” means EdgeStone Capital Equity Partners, Inc., a corporation incorporated under the laws of the Province of Ontario, and EdgeStone Capital Equity Nominee, Inc., a corporation incorporated under the laws of Canada, in their respective capacities as general partner or agent of, and nominee of, EdgeStone Capital Equity Fund, L.P., a limited partnership established under the laws of the Province of Ontario and the parallel investors of EdgeStone Capital Equity Fund, L.P.;

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(q)	“ECE II Fund” means EdgeStone Capital Equity Fund II-B GP, Inc. and EdgeStone Capital Equity Fund II Nominee, Inc., each a corporation incorporated under the laws of Canada, in their respective capacities as agent and nominee of EdgeStone Capital Equity Fund II-A, L.P., a limited partnership established under the laws of the Province of Ontario and the parallel investors of EdgeStone Capital Equity Fund II-A, L.P.;
(r)	“ECM II Fund” means EdgeStone Capital Mezzanine II Partners, Inc. and EdgeStone Capital Mezzanine Fund II Nominee, Inc., each a corporation incorporated under the laws of Canada, in their respective capacities as general partner or agent of, and nominee of, EdgeStone Capital Mezzanine Fund II, L.P., a limited partnership established under the laws of the Province of Ontario and the parallel investors of EdgeStone Capital Mezzanine Fund II, L.P.;
(s)	“EdgeStone Funds” means EdgeStone Capital Equity Fund, L.P., EdgeStone Capital Affiliate 2000 Fund L.P., EdgeStone Affiliate 2000-B Equity Fund, L.P., EdgeStone Capital Affiliate 2001 Equity Fund, L.P., EdgeStone Capital Equity Fund II-A, L.P., EdgeStone Affiliate 2002 Equity Fund II, L.P., EdgeStone Affiliate 2004 Equity Fund II, L.P., EdgeStone Affiliate Non-Canadian 2002 Equity Fund II, L.P., EdgeStone Affiliate Non-Canadian 2004 Equity Fund II, L.P. EdgeStone Capital Equity Fund II-US, L.P., EdgeStone Capital Equity Fund II-US-Inst., L.P., EdgeStone Capital Mezzanine Fund II, L.P. and EdgeStone Affiliate 2001 Mezzanine Fund, L.P.;
(t)	“EdgeStone Group” means ECE I Fund, ECE II Fund and ECM II Fund;
(u)	“ERISA” has the meaning set forth in Section 3.16 hereto;
(v)	“ERISA Pension Plans” has the meaning set forth in Section 3.16 hereto;
(w)	“ERISA Welfare Plans” has the meaning set forth in Section 3.16 hereto;
(x)	“Escrow Agent” has the meaning specified in Section 2.3(a);
(y)	“Escrow Amount” has the meaning specified in Section 2.3(a);
(z)	“Escrow Agreement” has the meaning specified in Section 2.3(a);
(aa)	“Exchange Fund Agent” means Torys LLP;
(bb)	“Exchange Fund Agreement” means the exchange fund agreement between the Exchange Fund Agent, the Sellers and certain other Parties;
(cc)	“Final Certificate Delivery Day” has the meaning set forth in Schedule 2.3;
(dd)	“Financial Statements” has the meaning set forth in Section 3.7(a) hereto;
(ee)	“GAAP” has the meaning specified in Section 3.7(b);

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(ff)	“Governmental Authority” means any U.S. federal, state or local government or foreign federal, state, local or provincial government, or any U.S. or foreign court, administrative or regulatory agency or commission or other U.S. or foreign governmental instrumentality or agency;
(gg)	“HC (USA)” means HC (USA), Inc., a corporation incorporated under the laws of the State of Delaware;
(hh)	“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;
(ii)	“Hudson” means Steven K. Hudson;
(jj)	“Hudson Group” means Hudson and Cameron Capital;
(kk)	“Indebtedness Amount” means the principal, interest and other amounts (including prepayment fees, legal fees and other expenses) required to be paid to satisfy in full the obligations of the Company and the Subsidiaries pursuant to the items listed on Schedule l (kk);
(ll)	“Indemnified Party” has the meaning set forth in Section 13.5(a) hereto;
(mm)	“Indemnifying Party” has the meaning set forth in Section 13.5(a) hereto;
(nn)	“Indemnity Cap” has the meaning set forth in Section 13.2(c) hereto;
(oo)	“Intellectual Property Assets” has the meaning set forth in Section 3.15 hereto;
(pp)	“Interim Date” has the meaning set forth in Section 3.7(a) hereto;
(qq)	“Interim Financial Statements” has the meaning set forth in Section 3.7(a) hereto;
(rr)	“ITA” means the Income Tax Act (Canada) as now in effect and as it may be amended from time to time prior to the Closing Date;
(ss)	“Knowledge of the Company” has the meaning set forth in Section 15.19 hereto;
(tt)	“Leasehold Real Estate’ means, in respect of any Person, the real estate of such Person held under a lease, agreement to lease or other right of occupation;
(uu)	“Liens” means all liens, pledges, charges, mortgages or security interests;
(vv)	“LMco” means 1407718 Ontario Inc., a corporation incorporated under the laws of the Province of Ontario;
(ww)	“Loss” or “Losses” have the meaning set forth in Section 13.1 hereto;

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(xx)	“Management Representative Indemnified Parties” has the meaning set forth in Section 15.23 hereto;
(yy)	“Management Representative” means Hudson or, in the event that Hudson becomes incapacitated or ceases to be an employee or an officer of the Company or the Subsidiaries, Fraser Clarke or, in the event that both Fraser Clarke and Hudson become incapacitated or cease to be employees or officers of the Company or the Subsidiaries, that Management Sellers with the longest tenure at the Company;
(zz)	Management Sellers” means Hudson, Cameron Capital, the Optionholders and the Management Shareholders;
(aaa)	“Management Shareholders” means the individuals listed on Schedule l(aaa) hereto;
(bbb)	“Martin” means Leslie E. Martin;
(ccc)	“Martin Group” means Martin and LMco;
(ddd)	“Material Adverse Effect” means any change, effect, event, situation or condition that is or is reasonably likely to be materially adverse to the business, results of operations, properties or financial condition of the Company and the Subsidiaries taken as a whole; provided, however, that in determining whether there has been a Material Adverse Effect, any adverse change, effect, event, situation or condition attributable to the following shall be disregarded: (a) events, changes, developments, conditions or circumstances in worldwide, national or local conditions or circumstances (political, economic, regulatory or otherwise) that adversely affect the Company’s industry generally (except to the extent of any disproportionate impact they may have on the Company and its Subsidiaries), (b) an outbreak or escalation of war, armed hostilities, acts of terrorism, political instability or other national calamity, crisis or emergency, or any governmental response to any of the foregoing, in each case, whether occurring within or outside of the United States, (c) an announcement of this Agreement and the transactions contemplated hereby, (d) any change in law or accounting principles (and any changes resulting therefrom), or (e) any action taken by or omission of the Sellers with the written prior consent of the Buyer;
(eee)	“Midwest Joint Ventures” means the Hair Club for Men, Ltd., an Illinois corporation, and Hair Club for Men of Milwaukee, Ltd., a Wisconsin corporation;
(fff)	“Morton” means Paul Morton;
(ggg)	“Morton Termination Amount” means an amount equal to the difference between (a) the Fair Market Value (as defined below) of each of the common shares (the “Common Shares”) in the capital of the Company underlying Morton’s Options on the Closing Date and (b) the exercise price of Morton’s

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Options on the Closing Date for all of Morton’s Options (whether vested or unvested); multiplied by the applicable number of Morton’s Options. For the purposes of this definition, the “Fair Market Value” of each of the Common Shares on the Closing Date shall be equal to the Purchase Price, calculated without giving effect to the deduction for the Option Termination Amount, divided by 9,769,073 (representing the total number of Common Shares outstanding on the Closing Date on a fully diluted basis, calculated as if the Common Shares underlying all outstanding Options had been issued);

(hhh)	“Non-Canadian Sellers” means those Persons set out in Schedule l(hhh) hereto;
(iii)	“Notice” has the meaning set forth in Section 13.5(a) hereto;
(jjj)	“Optionholders” means the individuals listed on Schedule l(jjj) hereto and, for greater certainty, does not include Morton;
(kkk)	“Option Bonus Amount” means the amount required to be paid to terminate all the Options (including applicable withholdings on account of tax) of the Optionholders pursuant to the Bonus Payment Agreement;
(lll)	“Option Escrow Amount” has the meaning set forth in Section 2.3(a) hereto;
(mmm)	“Option Termination Amount” means the sum of the Option Bonus Amount and the Morton Termination Amount;
(nnn)	“Options” means any options, warrants, conversion privileges or other rights, agreements, arrangements or commitments (pre-emptive, contingent or otherwise) for the purchase or sale of securities of the Company;
(ooo)	“Permitted Liens” means: (i) Liens for Taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect to contested taxes are maintained on the books of the Company or the Subsidiaries; (ii) easements, encroachments and other minor imperfections of title to real property which do not materially detract from the value of or materially impair the use of any real property; (iii) constructions, mechanics, carriers’, warehousemen’s and material men’s Liens and any Lien in respect of vacation pay, workers’ compensation, employments insurance or similar statutory obligations provided the obligations secured by such Liens are not yet due and payable; (iv) encumbrances, Liens, charges and reservations and renewals thereof to secure the payment of the purchase price or the repayment of moneys borrowed to pay the purchase price of any assets, property or properties hereafter or previously acquired by the Company or a Subsidiary; (v) the rights of any landlord or any Person claiming an interest in any real property by or through any such landlord under any leases of real property occupied by the Company or the Subsidiaries as tenant, and encumbrances, liens, charges, reservations and renewals of the freehold interest in any such property having priority to any such leases; (vi) Liens

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related to amounts to be repaid as part of the Indebtedness Amount; and (vii) other Liens set forth in Section 3.9 of the Disclosure Schedule;

(ppp)	“Person” means any individual, partnership, limited partnership, joint venture, syndicate, sole proprietorship, company or corporation with or without share capital, unincorporated association, trust, trustee, executor, administrator or other legal personal representative or Governmental Authority;
(qqq)	“Pro Rata Liability Share” means with respect to each of the Sellers the percentage set forth opposite his, her or its name in Schedule l (qqq) hereto, which Schedule may be amended prior to Closing by the Sellers’ Representative to reflect the exercise of any outstanding Options if such an exercise occurs;
(rrr)	“Pro Rata Stock Share” means with respect to each of the Stock Sellers, the Percentage set forth opposite his, her or its name in Schedule l (rrr) hereto, which schedule may be amended prior to the Closing by the Sellers’ Representative to reflect the exercise of any outstanding Options if such an exercise occurs;
(sss)	“Purchase Price” has the meaning set forth in Section 2.1 hereto;
(ttt)	“Real Estate” means, with respect to any Person, the real estate of such Person held in fee simple;
(uuu)	“Records” has the meaning set forth in Section 12.2 hereto;
(vvv)	“Required Waiting Period” has the meaning set forth in Section 9.2 hereto;
(www)	“Schedules” means the schedules to this Agreement, including, for greater certainty, the Disclosure Schedule;
(xxx)	“Seller Indemnified Parties” has the meaning set forth in Section 13.3 hereto;
(yyy)	“Seller Tax Periods” shall mean and include any and all periods ending on or before the Closing Date, and in addition, the portion of any taxable period that includes, but does not end on or before, the Closing Date that consists of a partial period deemed to end on the Closing Date; provided that in the case of any Seller Tax Period that does not end on or before the Closing Date, for purposes hereof the books and records of the Company shall be deemed to have been closed at and as of the Closing Date;
(zzz)	“Sellers” means collectively the Stock Sellers, the Optionholders and Morton as a holder of Options, and each individually, a “Seller”;

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(aaaa)	“Sellers’ Representative” means EdgeStone Capital Partners Inc., a corporation incorporated under the laws of the Province of Ontario or any successor appointed pursuant to the terms hereof;
(bbbb)	“Sellers’ Representative Indemnified Parties” has the meaning set forth in Section 15.22 hereto or any successor appointed pursuant to the terms hereof;
(cccc)	“Stock” means the issued and outstanding capital stock of the Company;
(dddd)	“Stock Sellers” means collectively Hudson, Cameron Capital, the Martin Group, Morton, Walmsley, the EdgeStone Group and the Management Shareholders, and each individually, a “Stock Seller”;
(eeee)	“Subsidiaries” means with respect to the Company, any corporation or limited liability company of which the Company directly or indirectly owns greater than 50% of the voting or equity securities of such corporation; provided however that, for greater certainty, the Midwest Joint Ventures shall be deemed not to be “Subsidiaries” of the Company or its Subsidiaries;
(ffff)	“Supplement” has the meaning set forth in Section 15.8 hereto;
(gggg)	“Tax Claim” has the meaning set forth in Section 13.5(d) hereto;
(hhhh)	“Tax Notice” has the meaning set forth in Section 13.5(d) hereto;
(iiii)	“Tax Notice Period” has the meaning set forth in Section 13.5(d) hereto;
(jjjj)	“Tax Matter Arbitrator” has the meaning set forth in Section 9.3 hereto;
(kkkk)	“Tax Returns” has the meaning set forth in Section 3.18 hereto;
(llll)	“Taxes” means (i) any and all taxes, duties, fees, excises, premiums, assessments, imposts, levies and other charges or assessments of any kind whatsoever imposed by any Governmental Authority (other than a court), whether computed on a separate, consolidated, unitary, combined or other basis, including those levied on, or measured by, or described with respect to, income, gross receipts, profits, gains, windfalls, capital, capital stock, production, transfer, land transfer, license, gift, occupation, wealth, net worth, surplus, sales, goods and services, harmonized sales, use, value-added, excise, special assessment, stamp, withholding, business, franchise, real or personal property, payroll, workers’ compensation, employment or unemployment, social security, customs and all employment insurance, health insurance and government pension plan premiums or contributions, utility, surtaxes; and (ii) all interest, penalties, fines, additions to tax or other additional amounts imposed by any Governmental Authority (other than a court) on or in respect of amounts of the type described in clause (i) above or this clause (ii);
(mmmm)	“Transaction Benefits” means the deductions for Tax purposes available as a result of: (i) the payments to the Optionholders pursuant to the Bonus

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	Payment Agreement; (ii) the write-off of capitalized loan costs; and (iii) interest deductions relating to the payment of interest on intercompany indebtedness;
(nnnn)	“U.S. Nominee” means 4113773 Co., Inc. a corporation incorporated under the laws of the State of Delaware;
(oooo)	“Walmsley” means Scott Walmsley;
(PPPP)	“Withholding Agent” means Stikeman Elliott LLP; and
(qqqq)	“Withheld Amount” has the meaning set forth in Schedule 2.3.

1.2	Schedules
	The following are the schedules attached to this Agreement:

Schedule l(kk)	—	Indebtedness Amount
Schedule l(aaa)	—	Management Shareholders
Schedule l(hhh)	—	Non-Canadian Sellers
Schedule (jjj)	—	Optionholders
Schedule l(qqq)	—	Pro Rata Liability Share
Schedule l(rrr)	—	Pro Rata Stock Share
Schedule 2	—	Escrow Agreement
Schedule 2. l(e)	—	Other Amounts
Schedule 2.3	—	Withholdings Where Seller is Non-Canadian
Schedule 4	—	Exceptions to Representations and Warranties of the Sellers
Schedules 5	—	Exceptions to Representations and Warranties of the Buyer
Schedule 6.1	—	Negative Covenants
Schedule 10.7	—	Legal Opinion of Sellers’ Counsel
Schedule 11.6	—	Legal Opinion of Buyers’ Counsel
Disclosure Schedule

2.	PURCHASE PRICE AND RELATED MATTERS
2.1	Purchase Price.

        The aggregate purchase price (the “Purchase Price”) payable by the Buyer for the Stock shall be equal to:

(a)	$210,000,000
(b)	minus the sum of:

(i)	the Indebtedness Amount outstanding on the Closing Date;
(ii)	the amounts contemplated by Section 2.3(a)(ii);

(c)   minus an amount equal to the sum of $50,000;

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(d)	plus an amount equal to the product of (x) the number of calendar days commencing with and including the Closing Date and ending with and including December 31, 2004 multiplied by (y) $21,075;
(e)	minus the amount that would be required on the Closing Date to be paid to satisfy in full the obligations of the Company and the Subsidiaries pursuant to the items listed on Schedule 2.1(e), which amounts, for greater certainty, will remain outstanding on Closing;
(f)	plus an amount equal to the aggregate amount of the loans owing to the Company from certain Sellers referred to in Section 10.6 hereof;
(g)	plus an amount equal to all cash of the Company and the Subsidiaries as of November 30, 2004 less an amount equal to the amount of any cash of the Company or the Subsidiaries used after November 30, 2004 to repay any of the outstanding Indebtedness Amount; and
(h)	plus an amount equal to (x) $76,000 multiplied by (y) the number of calendar days in December commencing with December 1, 2004 and ending with and including the Closing Date.

        Each of the Stock Sellers shall receive as consideration for the sale of its Stock the amount equal to its Pro Rata Stock Share of the Purchase Price.

        Notwithstanding anything in this Agreement to be the contrary the Company and the Subsidiaries may apply cash on hand towards the repayment of indebtedness at any time and from time to time prior to or on the Closing Date.

2.2   Agreement to Purchase and Sell the Stock

        Subject to the terms of this Agreement, the parties hereto agree that the Stock Sellers shall sell and the Buyer shall purchase the Stock and the Buyer shall loan to the Company the Option Termination Amount and the Company shall pay the Option Termination Amount as provided in Section 2.3(a)(ii) below (subject to applicable withholding tax and, in respect of Optionholders who are not resident in Canada, compliance with section 116 of the ITA); provided, however, that such transactions shall occur in the following chronological order:

(a)   first, the Buyer shall loan to the Company the Option Termination Amount and the Company shall pay the Option Termination Amount to the Optionholders, Morton in respect of his Options and the Escrow Agent as contemplated by Section 2.3(a)(ii) and (iii) below, as applicable; and

(b)   second, the Buyer shall purchase all of the issued and outstanding Stock in accordance with the provisions hereof.

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2.3   Payment of Purchase Price and Other Amounts and Delivery of Stock Certificates

(a)   At the Closing,

(i)

the Buyer shall loan the Indebtedness Amount to the debtors of such Indebtedness Amount (which amount shall be directed to be paid to the Exchange Fund Agent) and the Exchange Fund Agent shall pay, pursuant to the Exchange Fund Agreement, on behalf of the Company and the Subsidiaries, to each creditor of such Indebtedness Amount owing to such creditor (which amount shall be the amount set forth in the applicable creditor’s pay out letter which the Company will cause to be delivered to the Buyer) in immediately available funds in such manner as directed by the creditor;

(ii)

the Buyer shall loan to the Company or, only in the case of (B) below, such Subsidiary which has incurred the amounts described below (which amount shall be directed to be paid to the Exchange Fund Agent) and the Exchange Fund Agent shall pay, pursuant to the Exchange Fund Agreement, the following amounts in immediately available funds in such manner as directed by the Sellers’ Representative:

(A)	the Option Termination Amount provided however that a portion of such amount equal to (x) the sum of the Pro Rata Liability Share of all of the Optionholders and Morton in respect of his Options multiplied by (y) the Escrow Amount (the “Option Escrow Amount”) shall be deposited with the Escrow Agent as contemplated by Section 2.3(a)(iii) below; and
(B)	such amounts as the Sellers’ Representative may direct in respect of transaction related fees, costs and expenses;

(iii)

an aggregate of $10,000,000 (the “Escrow Amount”) shall be paid to Stikeman Elliott LLP, in trust (the “Escrow Agent”) as follows: (A) as to the Option Escrow Amount, by the Exchange Fund Agent as described in Section 2.3(a)(ii) above; and (B) as to the balance by the Buyer, all pursuant to the terms and conditions of an escrow agreement substantially in the form of the escrow agreement attached as Schedule 2 (the “Escrow Agreement”), to be applied against any Losses indemnified by the Sellers pursuant to Section 13.1;

(iv)

the Buyer shall pay to the Exchange Fund Agent the balance of the Purchase Price less the amount, if any, transferred to the Withholding Agent pursuant to Schedule 2.3 (which Schedule 2.3 is hereby incorporated into and shall form a part of this Section 2) and the Exchange Fund Agent shall disburse such balance of the Purchase Price in the manner set forth in the Exchange Fund Agreement; and

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(v)   the Stock Sellers shall deliver to the Buyer share certificates representing the Stock duly endorsed in blank for transfer or accompanied by duly signed powers of attorney for transfer in blank.

2.4   Payment/Location of Closing.

        Any reference in this Agreement or in any document delivered pursuant to this Agreement to payment shall mean payment by wire transfer of immediately available funds in U.S. dollars to the bank account or accounts designated by the recipient of such payment (or, in the case of the Sellers, Sellers’ Representative) in writing to the Buyer or to the Sellers’ Representative, as the case maybe, not less than two (2) Business Days prior to the date of such payment. The Closing shall be held at the offices of Torys LLP, Suite 3000, 79 Wellington Street West, TD Centre, Toronto, Ontario M5K 1N2 at 10:00 a.m., Toronto time, on the Closing Date or such other place as may be agreed by the Buyer and Sellers’ Representative.

3.   REPRESENTATIONS AND WARRANTIES OF THE COMPANY

        The Company represents and warrants to the Buyer as of the date hereof that (and acknowledges that the Buyer is relying on the representations and warranties in completing the transactions contemplated herein):

3.1   Organization and Qualifications of the Company, the Subsidiaries.

        Each of the Company and the Subsidiaries are duly incorporated or amalgamated, organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, amalgamation, or organization as the case may be. Each of the Company and the Subsidiaries is duly qualified, licensed and authorized to do business as a foreign corporation or an extra-provincial corporation, as applicable, and is in good standing as a foreign corporation or an extra-provincial corporation, as applicable, in the jurisdictions, if any, where it is required to be so licensed, qualified or authorized to conduct its business or own its property, except where the failure to be so licensed, qualified or authorized would not have a Material Adverse Effect.

3.2   Subsidiaries.

        Other than the Subsidiaries and the Midwest Joint Ventures, the Company owns no securities issued by any other corporation, partnership or joint venture, except temporary investments in the ordinary course of business.

3.3   Authority of Companv/Enforceability.

(a)	The execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate or other action of the Company.
(b)	This Agreement has been executed and delivered by the Company.
(c)	This Agreement constitutes the legal, valid and binding obligation of the Company and is enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium or similar laws now or

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hereinafter in effect relating to creditors’ rights generally and to the application of equitable principles.

3.4      Capitalization

(a)

The authorized and the issued and outstanding capital stock of the Company and each of the Subsidiaries and, in the case of each such Subsidiary, the registered and beneficial ownership of the issued capital stock of each such entity consists of the shares of capital stock set forth in Section 3.4(a) of the Disclosure Schedule. All of the shares of capital stock of the Company and each of the Subsidiaries are validly issued, fully paid and non-assessable. The Company owns, directly or indirectly through a Subsidiary, all of the outstanding shares of capital stock (or other ownership interests having by their terms ordinary voting power to elect directors or others performing similar functions with respect to such Subsidiary) of each of the Subsidiaries. Section 3.4(a) of the Disclosure Schedule sets forth a list of all Options, the name of the holders of such Options and the exercise price of such Options if the Closing Date occurs on December 21, 2004. Except for the Options set forth in Section 3.4(a) of the Disclosure Schedule, there are no options, warrants, conversion privileges or other rights, agreements, arrangements or commitments (pre-emptive, contingent or otherwise) for the purchase or sale of securities of the Company or any of the Subsidiaries.

(b)

To the Knowledge of the Company, the authorized and the issued and outstanding capital stock of each of the Midwest Joint Ventures and in each case the registered and beneficial ownership of the issued capital stock of each such entity consists of the shares of capital stock set forth in Section 3.4(b) of the Disclosure Schedule.

3.5     Government Approvals, Notice and Filings.

           Except as set forth in Section 3.5 of the Disclosure Schedule, no material consent or approval of, giving of notice to, registration with or taking of any action in respect of or by any Governmental Authority is required to be obtained or given by the Company or a Subsidiary with respect to the execution, delivery or performance by the Company of this Agreement.

3.6     Absence of Breach; Non-Contravention.

           Except as set forth in Section 3.6 of the Disclosure Schedule, the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein by the Company does not and will not with the passage of time or the giving of notice or both:

(a)   result in a breach of or constitute a default by the Company or the Subsidiaries or result in any right of termination under any indenture, agreement, lease or instrument to which the Company or a Subsidiary is a party or by which the property of the Company or a Subsidiary is bound or affected, which would have a Material Adverse Effect;

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(b)	result, except on account of facts or circumstances concerning Buyer and/or its affiliates, in a violation of or default under any law, rule, or regulation or any order, writ, judgment, injunction, decree, determination or award, now in effect having applicability to the Company or the Subsidiaries, which would have a Material Adverse Effect; or
(c)	violate any provisions of any charter document or by-law restriction of the Company or the Subsidiaries.

3.7   Financial Statements.

(a)

Attached hereto as Section 3.7 of the Disclosure Schedule are the audited consolidated balance sheet, statement of income and statement of retained earnings of the Company as at and for the twelve month period ending December 31, 2003, including the related notes and the audited consolidated balance sheet, statement of income and statement of retained earnings of HCM Canada Inc. as at and for the twelve month period ending December 31, 2003, including the related notes (the financial statements and notes referenced above are collectively referred to as the “Financial Statements”) and the unaudited consolidated balance sheet and statement of income of the Company as at and for the 9 month period ended September 30, 2004 (the “Interim Financial Statements”). September 30, 2004 is herein referred to as the “Interim Date”. For greater certainty, the “Financial Statements” do not include the unaudited combined financial statements of the Company and HCM Canada Inc.

(b)

The Financial Statements and the Interim Financial Statements: (i) fairly present in all material respects, the consolidated financial condition of the Company or HCM Canada Inc., as applicable, as at the dates thereof and the consolidated results of operations for the respective periods covered by such statements; and (ii) have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis (“GAAP”), except that the Interim Financial Statements are subject to normal year-end adjustments, income tax provisions (including deferred income tax adjustments), and the absence of notes thereto.

3.8   Absence of Other Liabilities.

(a)   Except (i) to the extent reflected or reserved against in the Financial Statements (including the notes thereto) or the Interim Financial Statements, (ii) to the extent disclosed in Section 3.8 of the Disclosure Schedule, (iii) for amounts, fees, costs and expenses within the scope of Section 2.3(a)(ii)(A) or (B), and (iv) for normal trade creditor liabilities and other liabilities incurred since the Interim Date in the ordinary course of business, neither the Company nor the Subsidiaries has any outstanding indebtedness or any other liabilities or obligations (whether accrued, absolute, contingent or otherwise, and whether due or to become due) to the extent such indebtedness or other

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liability is required to be set forth on a balance sheet in accordance with GAAP.

(b)   This Section 3.8 shall not apply to any outstanding indebtedness or any other liabilities or obligations (whether accrued, absolute, contingent or otherwise and whether due or to become due) to the extent the subject matter relating to such indebtedness, liability or obligation is addressed in any other representation and warranty.

3.9   Assets.

         Except for assets disposed of, consumed, sold, collected or used since the Interim Date in the ordinary course of business or otherwise noted in Section 3.9 of the Disclosure Schedule, each of the Company and each of the Subsidiaries owns all of its assets (including, without limitation, those reflected in the Interim Financial Statements) free and clear of all Liens, except for Permitted Liens, which assets, together with other assets which the Company or any Subsidiary has the right to use, constitute all of the material assets necessary for the conduct of, or otherwise material to, the business and operations of the Company and its Subsidiaries, as presently conducted.

3.10   Leasehold Real Estate.

         Except as disclosed in Section 3.10 of the Disclosure Schedule, all material leases of Leasehold Real Estate are in good standing and such Company or Subsidiaries as the case may be party thereto, is not in default in payment of rent or in performance of its material obligations thereunder.

3.11	Real Estate.
	The Company and the Subsidiaries own no Real Estate.
3.12	Contracts.

(a)   Other than any of the following that will be terminated, prepaid or repaid in full on or prior to Closing, Section 3.12 of the Disclosure Schedule sets forth a list as of the date of this Agreement of:

(i)	the franchise agreements for the top ten franchises based on the moneys paid to the Company or its Subsidiaries by the franchisees for the year ended December 31, 2003;
(ii)	the leases of Leasehold Real Estate for the top ten Hair Club corporate centers based on the EBITDA contribution to the Company and its Subsidiaries for the year ended December 31, 2003;
(iii)	all joint venture agreements with respect to the operation of a Hair Club center; and

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(iv)   all contracts, commitments or agreements to which any of the Company or the Subsidiaries is a party (other than the plans listed on Section 3.16 of the Disclosure Schedule) which provide for per annum payments to or from the Company and its Subsidiaries in excess of $250,000;

(all such leases, agreements, contracts or commitments, the “Contracts”). The Company has previously made available to the Buyer true and complete copies of each Contract, including true and complete descriptions of any oral Contract, in all cases as amended and in effect as of the date of this Agreement. All Contracts are valid and binding obligations of the Company or the Subsidiaries who are a party thereto, in accordance with their respective terms and conditions.

(b)   Except as disclosed in Section 3.12 of the Disclosure Schedule and except as would not have a Material Adverse Effect, (i) there has been no uncured breach or default of any provision of any Contract, by any of the Company, the Subsidiaries, or to the Knowledge of the Company any other party thereto, and (ii) no event or circumstance has occurred which with lapse of time or the giving of notice or both would constitute an uncured breach or default by any of the Company or the Subsidiaries with respect to any Contract.

3.13   Restrictions on Business Activities.

        Except as set out in Section 3.13 of the Disclosure Schedule, there is no agreement, judgment, injunction, order or decree binding upon the Company, or any of the Subsidiaries prohibiting the conduct of business by Company and the Subsidiaries as currently conducted.

3.14 Absence of Changes.

        Except as set forth in this Agreement or in Section 3.14 of the Disclosure Schedule, (i) since December 31, 2003, the Company and the Subsidiaries have conducted their business only in the ordinary course consistent with past practice in all material respects, and; (ii) the Company and the Subsidiaries have not since December 31, 2003:

(a)	suffered any material damage or destruction to any material assets, rights or properties of the Company and the Subsidiaries whether or not covered by insurance;
(b)	mortgaged, pledged or subjected to lien, charge or any encumbrance any of their assets, tangible or intangible, except for Permitted Liens;
(c)	terminated or suffered the termination of any Contract other than by the expiration of its term in the ordinary course of business;
(d)	sold, assigned, transferred, abandoned or otherwise disposed of any assets with a book value in excess of $250,000 other than in the ordinary course of its business;
(e)	changed or amended or taken any action to amend or change its constating documents or by-laws;

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(f)	made any material change in the accounting methods or practices of the Company or the Subsidiaries; or
(g)	declared or paid any dividends (including stock dividends), or made any other payments or distributions upon any of the capital stock of the Company.

3.15   Patents, Trademarks, Service Marks and Copyrights.

        All patents, patent applications, registered trademarks or service marks, trademark or service mark applications, registered copyrights and copyright applications owned by any of the Company or the Subsidiaries and material to the business of the Company and the Subsidiaries are listed in Section 3.15 of the Disclosure Schedule (“Intellectual Property Assets”). Each of the Intellectual Property Assets has been registered in, filed in or issued by the United States Patent and Trademark Office, the United States Register of Copyrights or the corresponding offices or registries of other countries, states or other jurisdictions to the extent set forth on said Section 3.15 of the Disclosure Schedule. Except as set forth in Section 3.15 of the Disclosure Schedule, none of the Company or the Subsidiaries has received any written notice within the past three (3) years from a third party claiming that the continuing conduct by the Company and the Subsidiaries of their business as presently conducted will result in the infringement of any patents, trade names, trademarks, service marks or copyrights owned by any third person or challenging the validity of any registration for and of the Intellectual Property Assets except for such instances where the claim has been settled without continuing liability.

3.16   Employee Benefit Plans.

(a)

Section 3.16 of the Disclosure Schedule lists all material employee benefit plans, policies and practices relating to employees or employee benefits with respect to which any of the Company or the Subsidiaries has, or may incur, any past, current, future or contingent obligations, including, without limitation, all plans, agreements, arrangements or policies relating to sick pay or leave, vacation pay or severance pay, deferred compensation, pensions, profit sharing, retirement income or other benefits, stock purchase and stock option plans, bonuses, severance arrangements, health benefits, disability benefits, insurance benefits and all other employee benefits or fringe benefits, excluding the Canada Pension Plan, the Ontario Health Insurance Plan and Canada Employment Insurance but including any: (i) employee welfare benefit plans within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (the “ERISA Welfare Plans”); (ii) employee benefit plans within the meaning of Section 3(2) of ERISA (the “ERISA Pension Plans”); and (iii) registered employee welfare benefit or pension benefit plans within the meaning of the Pension Benefits Act (Ontario) or any applicable legislation of any jurisdictions applicable to the Company and the Subsidiaries (individually, referred to as a “Plan” and, collectively, referred to as the “Plans”).

(b)

Copies of each such Plan, the most recent annual reports on Form 5500 filed with the Internal Revenue Service for any ERISA Welfare Plan or ERISA Pension Plan (if applicable) or any filing required to be made with any United

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	States or other Governmental Authorities with respect to the Plans and the most recent summary plan description for each Plan for which a summary plan description is required by law, have been made available to Buyer.
(c)	Each Plan has been administered and operated in all material respects in accordance with applicable law.
(d)	All reports and disclosures relating to such Plans required to be filed or distributed as of the Closing Date have been filed or distributed in material compliance with applicable law.
(e)	None of the Company or the Subsidiaries is a participant in any or has any liability with respect to a multi-employer Plan within the meaning of Section 3(37) of ERISA.
(f)	Neither the Company nor any Subsidiary maintains, sponsors or contributes to, or has maintained, sponsored or contributed in the past six years to, any “defined benefit plan” (within the meaning of Section 3(35) of ERISA) or a pension plan that provides for a “defined benefit” within the meaning of the Pension Benefits Act (Ontario).
(g)	No non-exempt “prohibited transaction” (within the meaning of Section 4975 of the Code and Section 406 of ERISA) has occurred with respect to any Plan which has subjected or could subject the Company or any Subsidiary to a material tax or penalty under Section 502 of ERISA or Section 4975 of the Code.
(h)	Other than claims in the ordinary course of benefits with respect to the Plans, there are no actions, suits or claims pending with respect to any Plan, or, to the Knowledge of the Company, any circumstances which might give rise to any such action, suit or claim.
(i)	Other than as set forth on Section 3.16 of the Disclosure Schedule, none of the Company or the Subsidiaries maintains any Plan which provides post-retirement benefits to employees.
(j)	The Company and the Subsidiaries have complied in all material respects with the health care coverage continuation requirements of Section 4980B of the Code.
(k)	Except as set forth in Section 3.16 of the Disclosure Schedule, the execution, delivery and performance of this Agreement by the Company and the Sellers and the consummation of the transactions contemplated by this Agreement by the Company and the Sellers will not result in an increase in the amount of compensation and benefits or the acceleration of the vesting or timing of payment of any compensation or benefits payable to or in respect of any current or former employee, officer, director or independent contractor of the Company or any of its Subsidiaries or any increased or accelerated funding obligation with respect to any Plan.

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(l)   Notwithstanding any provision of this Agreement to the contrary, this Section 3.16 and Section 3.17 shall be the exclusive representations and warranties in respect of matters relating to the Plans and conditions, liabilities or losses arising from any such matters.

3.17   Labor Relations.

        Except as set forth in Section 3.17 of the Disclosure Schedule, there is no unfair labor practice complaint against any of the Company or the Subsidiaries pending before the National Labor Relations Board or any applicable provincial labour board or, to the Knowledge of the Company, threatened before the National Labor Relations Board or any applicable provincial labour board. Except as set forth in Section 3.17 of the Disclosure Schedule, there are no proceedings pending or, to the Knowledge of the Company, threatened, before the National Labor Relations Board, the Equal Employment Opportunity Commission, the United States Departments of Labor, Civil Rights, and/or Justice or any other Governmental Authority in any jurisdiction with respect to any of the Company or the Subsidiaries that would have a Material Adverse Effect. There is no labor strike or lockouts pending or, to the Knowledge of the Company, threatened against any of the Company or the Subsidiaries that would have a Material Adverse Effect. To the Knowledge of the Company, there is no pending or threatened representation question involving an attempt to organize a bargaining unit, including any employees of any of the Company or the Subsidiaries. None of the Company or the Subsidiaries is a party to or bound by any collective bargaining agreement. No collective bargaining agreement is currently being negotiated by any of the Company or the Subsidiaries with respect to the employees of any of the Company or the Subsidiaries.

3.18	Taxes and Tax Returns.
	Except as disclosed in Section 3.18 of the Disclosure Schedule:

(a)

Each of the Company and the Subsidiaries has filed or caused to be filed within the time period and in the manner prescribed by applicable law, all U.S. federal, state, Canadian federal, provincial, local and foreign returns, reports or other declarations, elections, notices, forms, designations, filings, statements and information returns relating to Taxes required to be filed by it (collectively, the “Tax Returns”) and all such Tax Returns are true, complete and correct and each of the Company and the Subsidiaries has paid or caused to be paid all Taxes set forth on such Tax Returns as due and payable by it with respect to the periods covered by such Tax Returns and has paid all assessments and reassessments it has received in respect of Taxes.

(b)

Each of the Company and the Subsidiaries has paid in full all Taxes due and payable before the Closing Date which are not reflected in its Tax Returns and with respect to any Taxes of the Company and the Subsidiaries not yet due and payable, adequate reserves and accruals for such Taxes have been made in the Financial Statements or in the books and records of the Company and the Subsidiaries, respectively.

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(c)	None of the Company or the Subsidiaries has received written notice from any taxing authority of any deficiency relating to the payment or assessment of any Taxes for any period which remains unsettled at the date hereof, and to the Knowledge of the Company, there exists no reasonable basis to believe that any such deficiency exists in excess of reserves and accruals set forth in the Financial Statements or in the books and records of the Company or the Subsidiaries. None of the Company or the Subsidiaries is negotiating any final or draft assessment or reassessment in respect of Taxes with any Governmental Authority (other than a court) in respect of any Taxes for any period ending on or prior to the Closing Date and, to the Knowledge of the Company, there are no facts which would constitute grounds for the assessment or reassessment of Taxes payable by the Company for any period ending on or prior to the Closing Date, except in respect of Taxes that are provided for in the Financial Statements or in the books and records of the Company or the Subsidiaries.
(d)	None of the Company or the Subsidiaries has executed any waiver of any statute of limitations on the assessment or collection of Taxes with respect to the Company or the Subsidiaries or executed any agreement now in effect extending the period of time to assess or collect any Taxes with respect to the Company or the Subsidiaries.
(e)	There are no Liens for Taxes (other than Permitted Liens) upon, pending against or, to the Knowledge of the Company, threatened against any assets of the Company or the Subsidiaries.
(f)	None of the Company or the Subsidiaries is a party to any tax sharing agreement, or has assumed or guaranteed the Tax liability of any other Person. To the Knowledge of the Company, neither the Company nor any of its Subsidiaries has any transferee liability for any U.S. or Canadian federal, state, provincial or local Taxes. The Company and the Subsidiaries do not have any Tax liability under Treasury Regulations Section 1.1502-6 (or any comparable or similar provision of state of local).
(g)	Each of the Company and the Subsidiaries has (i) withheld and collected all amounts required by applicable law to be withheld or collected by it on account of Taxes and has remitted all such amounts to the appropriate Governmental Authority (other than a court) within the time required by applicable law, (ii) remitted all Canada Pension Plan contributions, Quebec Pension Plan Contributions, employment insurance premiums, employer health taxes and other Taxes payable by it in respect of its employees to the appropriate Governmental Authority (other than a court) within the time required by applicable law, and (iii) charged, collected and remitted on a timely basis all Taxes as required by applicable law on any sale, supply or delivery whatsoever, made by it.
(h)	None of the Company or the Canadian resident Subsidiaries has claimed any reserve under any provision of the ITA or any equivalent provincial provision,

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if any amount could be included in its income for any period ending after the Closing Date except to the extent such amounts are provided for on the books and records of the Company and the Subsidiaries. No amounts remain outstanding by the Company or a Canadian resident Subsidiary in respect of a deductible outlay or expense to a person with whom it was not dealing at arm’s length at the time the outlay or expense was incurred.

(i)

Notwithstanding any provision of this Agreement to the contrary, this Section 3.18 shall be the exclusive representation and warranty in respect of Tax matters of any kind or conditions, liabilities or losses arising from or relating to such matters.

3.19   Insurance.

        The physical properties, business, operations and assets of the Company and the Subsidiaries are insured against loss or damage pursuant to the insurance policies set forth in Section 3.19 of the Disclosure Schedule.

3.20   Environmental Matters.

(a)   Definitions. As used in this Agreement, the following terms shall have the following meanings:

(i)	“Environmental Laws” means any and all foreign, federal, state, provincial, municipal or local laws, rules, regulations orders, writs, judgments, injunctions, decrees, determinations or awards relating to pollution or protection of the environment, consisting of all laws and requirements relating to emissions, discharges, releases or threatened releases of Hazardous Materials.
(ii)	“Hazardous Materials” means any waste or other substance that is listed, defined, designated or classified as, or otherwise determined to be, hazardous, radioactive or toxic or a pollutant or a contaminant under or pursuant to any Environmental Law or otherwise regulated under any Environmental Law.
(iii)	“Release” or “Releasing” means spilling, or disposing, discharging, emitting, depositing, ejecting, leaching, escaping, of any Hazardous Material.

(b)   Except as described or referenced in Section 3.20 of the Disclosure Schedule or except for such instances as would not constitute a Material Adverse Effect:

(i)	The Company and its Subsidiaries have conducted their operations in compliance with applicable Environmental Laws.
(ii)	Neither the Company nor any of the Subsidiaries has within the past three years received any written citation, order, claim, litigation, investigation, proceeding, judgement, letter or other written communication from any

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	regulatory authority (for the purposes of this Section 3.20, a “Notice”) of non-compliance and to the Knowledge of the Company, there are no facts which could be reasonably expected to give rise to a Notice of non-compliance under any Environmental Laws, in respect of the operations of the Company or the Subsidiaries.
(iii)	Neither the Company nor any of the Subsidiaries has disposed of or Released any Hazardous material except in compliance with all applicable Environmental Laws.
(iv)	There are no civil, criminal or administrative actions, suits, demands, claims, hearings, notices or demand letters, notices of violation, investigations, or proceedings of any kind or nature pending or to the Knowledge of the Company threatened against the Company or the Subsidiaries pursuant to any applicable Environmental Law.

(c)   Notwithstanding any provision of this Agreement to the contrary, this Section 3.20 shall be the exclusive representation and warranty in respect of environmental matters or conditions, liabilities or losses arising from such matters.

3.21   Permits and Licenses.

        Except as set forth in Section 3.21, each of the Company and the Subsidiaries, respectively, holds all licenses, permits and authorizations necessary for the lawful operation of its business as presently conducted pursuant to all applicable statutes, laws, ordinances, rules and regulations of all Governmental Authorities having jurisdiction over the Company or any Subsidiary, other than such licenses, permits and authorizations the absence of which would not have a Material Adverse Effect.

3.22   Compliance with Laws.

        Except as set forth in Section 3.22 of the Disclosure Schedule, each of the Company and the Subsidiaries is in compliance with requirements of applicable statutes, laws, ordinances, regulations, rules, codes or decrees, whether foreign or domestic, federal, state, provincial, municipal or local, which affect it or its business or assets or to which it is subject (but excluding Environmental Laws which are covered exclusively by Section 3.20 (Environmental Matters) hereof, excluding laws regarding Taxes which are covered exclusively by Section 3.18 (Taxes and Tax Returns) and excluding laws regarding Plans covered exclusively by Section 3.16) (the “Laws”), except for such instances where the failure to comply would not constitute a Material Adverse Effect. To the Knowledge of the Company, none of the Company nor the Subsidiaries has received within the last twelve (12) months any written notice or other written communication from any Governmental Authority with respect to violation and/or failure to comply with the Laws.

3.23   Related Party Transactions.

        Except as set forth in Section 3.23 of the Disclosure Schedule, except in respect of employment benefits and employment compensation to and related non-competition and

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confidentiality covenants of officers, directors, and employees, except for those arrangements terminated without continuing liability to the Company or its Subsidiaries on or before Closing and except for arrangements between the Company and a Subsidiary or between Subsidiaries, none of the Company or the Subsidiaries is a party to any contract, agreement, loan or arrangement with any Seller or any director or executive officer of the Company or any Subsidiary.

3.24   Litigation.

        Except as set forth in Section 3.24 of the Disclosure Schedule, there is no action, suit, investigation, subpoena or proceeding pending or, to the Knowledge of the Company, threatened against any of the Company or the Subsidiaries.

3.25   Brokerage.

        Except as set forth in Section 3.25 of the Disclosure Schedule, the Company has not dealt with any broker or finder in connection with the transactions contemplated herein who would be entitled to a fee or commission from the Company or its Subsidiaries in connection with the transaction contemplated herein.

4.   REPRESENTATIONS AND WARRANTIES OF THE SELLERS.

        Each of the Sellers severally (and not jointly nor jointly and severally except as expressly provided in Section 13.8 with respect to the Hudson Group and the Martin Group) represents and warrants to the Buyer as of the date hereof that (and acknowledges that the Buyer is relying on the representation and warranties in completing the transaction contemplated herein):

4.1   Authority of Sellers/Enforceability.

(a)	The execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate or other action of such Seller.
(b)	This Agreement has been executed and delivered by such Seller.
(c)	This Agreement constitutes the legal, valid and binding obligation of such Seller and is enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereinafter in effect relating to creditors’ rights generally and to the application of equitable principles.

4.2 Capitalization.

        (i) Such Seller is the registered owner of the Stock indicated as being held by such Seller (hereinafter referred to in this Section 4.2 with respect to such Seller as such “Seller’s Stock”) in Section 4.2 of Schedule 4 (except that with respect to each member of the EdgeStone Group, such Seller’s Stock is registered in the name of a nominee and except that with respect to the Management Shareholders each of such Seller’s Stock is registered in the name of the U.S. Nominee), (ii) such Seller is the beneficial owner of such Seller’s Stock (iii) such Seller’s

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Stock is validly issued, fully paid and non-assessable, and (iv) except as disclosed in Section 4.2 of the Disclosure Schedule, such Seller has no Options or any options, warrants, conversion privileges or other rights, agreements, arrangements or commitments (pre-emptive, contingent or otherwise) for the purchase or sale of securities of the options, warrants, conversion privileges or other rights, agreements, arrangements or commitments (pre-emptive, contingent or otherwise) for the purchase or sale of securities of any of the Company or its Subsidiaries.

4.3   Residency.

        Unless such Seller’s name is listed on Section 4.3 of Schedule 4, such Seller is not a non-resident of Canada under the ITA. If such Seller is a partnership or limited partnership, Section 4.3 of Schedule 4 correctly sets out the names of all its partners that are non-resident of Canada under the ITA.

4.4   Brokerage.

        Except as set forth in Section 4.4 of Schedule 4, such Seller has not dealt with any broker or finder in connection with the transactions contemplated herein who would be entitled to a fee or commission in connection with the transactions contemplated herein.

4.5   Litigation.

        There is no action, suit, complaint, claim, cause of action, investigation, subpoena or proceeding pending, or to such Seller’s knowledge, threatened against such Seller, nor has any order, writ, injunction, subpoena or decree been issued by any court or Governmental Authority to such Seller which, in either case, prohibits or seeks to enjoin the transactions contemplated by this Agreement.

4.6   Related Party Transactions

        Except as set forth in Section 4.6 of Schedule 4, except in respect of employment benefits and employment compensation to any officer, director, or employee who is a Seller, and except for those arrangements terminated without continuing liability to the Company or its Subsidiaries on or before Closing, none of the Company or the Subsidiaries is a party to any contract, agreement, loan or arrangement with such Seller or, in the case of an individual Seller, any family member or relative of such Seller.

4.7   Buyer Securities

        In the case of each of the EdgeStone Funds: (i) such partnership (which, for greater certainty, does not include any partner of such a partnership or any parallel investor) does not own any shares of Regis Corporation, any securities that are convertible or exchangeable for the shares of Regis Corporation or, to the knowledge of the general partner of such partnership without inquiry, any other property the fair market value of which is attributable to any shares of Regis Corporation; and (ii) each such partnership does not have any current intention to acquire any shares of Regis Corporation, any securities that are convertible or exchangeable for the shares of Regis Corporation or, to the knowledge of the general partner of such partnership without inquiry, any property the fair market value of which is attributable to any shares of Regis Corporation.

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        In the case of Hudson and Cameron Capital: (i) each such Person and any Person not dealing at arm’s length with such Person for purposes of the ITA does not own any shares of Regis Corporation, any securities that are convertible or exchangeable for the shares of Regis Corporation or, to its knowledge without inquiry, any other property the fair market value of which is attributable to any shares of Regis Corporation and (ii) each such Person and any Person not dealing at arm’s length with such Person for purposes of the ITA does not have any current intention to acquire any shares of Regis Corporation, any securities that are convertible or exchangeable for the shares of Regis Corporation or, to the knowledge of such Person without inquiry, any property the fair market value of which is attributable to any shares of Regis Corporation.

        In the case of Martin and LMco: (i) each such Person and any Person not dealing at arm’s length with such Person for purposes of the ITA does not own any shares of Regis Corporation, any securities that are convertible or exchangeable for the shares of Regis Corporation or, to its knowledge without inquiry, any other property the fair market value of which is attributable to any shares of Regis Corporation and (ii) each such Person and any Person not dealing at arm’s length with such Person for purposes of the ITA does not have any current intention to acquire any shares of Regis Corporation, any securities that are convertible or exchangeable for the shares of Regis Corporation or, to the knowledge of such Person without inquiry, any property the fair market value of which is attributable to any shares of Regis Corporation.

5.   REPRESENTATIONS AND WARRANTIES OF BUYER.

        Buyer represents and warrants to Sellers as of the date hereof that (and acknowledges that the Sellers are relying on the representation and warranties in completing the transaction contemplated herein):

5.1   Organization and Qualification of Buyer.

        The Buyer is duly incorporated or amalgamated, organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization as the case may be. The Buyer is duly qualified, licensed and authorized to do business as a foreign corporation or an extra-provincial corporation, as applicable, and is in good standing as a foreign corporation or an extra-provincial corporation, as applicable, in the jurisdictions, if any, where it is required to be so licensed, qualified or authorized to conduct its business or own its property, except where jurisdictions in which the failure to be so licensed, qualified or authorized would not have a Material Adverse Effect.

5.2   Authority of Buyer.

(a)	The execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate or other action of the Buyer (including its investment committee).
(b)	This Agreement has been executed and delivered by each of the Buyer.

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(c)   This Agreement constitutes the legal, valid and binding obligation of the Buyer and is enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereinafter in effect relating to creditors’ rights generally and to the application of equitable principles.

5.3   Government Approvals, Notices and Filings.

        Except as set forth in Section 5.3 of Schedule 5, no consent or approval of, giving of notice to, registration with, or taking of any action in respect of or by, any Governmental Authority, is required with respect to the execution, delivery or performance by Buyer of this Agreement.

5.4 Investment Representations.

        Buyer is an accredited investor within the meaning of the Securities Act of 1933, as amended to date, and acknowledges that it is able to evaluate, and can bear, the economic risk of its investment. Buyer has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Stock. Buyer is acquiring the Stock for investment and not with a view to, or for sale in connection with, any distribution thereof nor with any present intention of distributing or selling such Stock. Buyer acknowledges that the Stock shall not be transferable in the absence of: (i) registration under relevant federal and state laws, the rules promulgated thereunder or an exemption therefrom; and/or (ii) registration or qualification under the provisions of any applicable blue sky laws or an exemption therefrom. Except for the representations and warranties set forth in Section 3 and Section 4 hereof, Buyer acknowledges that Sellers and Company have made no representations or warranties, implied or expressed, regarding Sellers, the Company or the Subsidiaries, the assets, liabilities or business of the Company or the Subsidiaries, or the Stock.

5.5   Litigation.

        There is no action, suit, complaint, claim, cause of action, investigation, subpoena or proceeding pending, or to Buyer’s knowledge, threatened against Buyer, nor has any order, writ, injunction, subpoena or decree been issued by any court or Governmental Authority to Buyer which, in either case, prohibits or seeks to enjoin the transactions contemplated by this Agreement.

5.6   Brokerage.

        Except as set forth in Section 5.6 of Schedule 5, Buyer has not dealt with any broker or finder in connection with the transactions contemplated herein.

5.7   Financing.

        As at and from the date hereof, the Buyer is solvent and has and will have at Closing, sufficient financial resources to pay the Purchase Price in full in cash and make the loans contemplated by Section 2.3(a)(i) and (ii) in accordance with the terms of this Agreement and without limiting, the foregoing, the Buyer’s sources of such funds contain no conditions to the

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Buyer’s drawing such funds and the Buyer will draw all such necessary funds on the Closing Date.

6.   COVENANTS OF COMPANY.

        The Company covenants and agrees with the Buyer as follows prior to the Closing Date:

6.1   Restrictions.

        Except as contemplated by this Agreement (including the Disclosure Schedule) and except with the prior written consent of the Buyer (which consent shall not be unreasonably withheld, conditioned or delayed in the case of subsections (g) and (h) below), the Company shall and shall cause each of the Subsidiaries to conduct its business only in the ordinary course of business, including without limitation with respect to working capital, and, furthermore, except as contemplated by this Agreement (including the Disclosure Schedule), the Company and the Subsidiaries shall not (except with the prior written consent of Buyer, which consent shall not be unreasonably withheld, conditioned or delayed in the case of subsections (g) and (h) below):

(a)	declare or pay any dividends (including stock dividends), or make any other payments or distributions upon any of the capital stock of the Company;
(b)	sell, lease, transfer or otherwise dispose of all or any material portion of its assets, including, without limitation, rights to patents, know-how, intellectual property or other intangible assets or cancel any debts or claims, except in the ordinary course of business;
(c)	make any change in the Certificate or Articles of Incorporation or Bylaws or other charter documents of any of the Company or the Subsidiaries;
(d)	effect any dissolution, winding-up, liquidation or termination of the Company or any Subsidiary;
(e)	effect any merger, amalgamation or consolidation of the Company or the Subsidiaries whether or not it is the survivor thereof or effect any reorganization or recapitalization of the Company or the Subsidiaries;
(f)	incur any indebtedness in excess of $250,000 or amend the terms of any existing indebtedness in excess of $250,000;
(g)	enter into, assume or amend any Contract, other than Contracts entered into in the ordinary course of business consistent with past practice and providing for per annum payments of no more than $250,000 in the aggregate;
(h)	make any capital commitments for capital expenditures, in an amount in excess of $100,000 in the aggregate except for any commitments not in excess of the amounts described in Schedule 6.1;

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(i)	change its method of accounting or accounting principles or practice, except for any such change required by reason of a concurrent change in GAAP;
(j)	agree, in writing or otherwise, to take any of the foregoing actions.

6.2   Access.

        The Company will, upon reasonable notice, permit Buyer, Buyer’s counsel, auditors, environmental consultants, appraisers and other advisers and representatives to review and inspect all financial and business records and documents (except for trade secrets) of the Company and the Subsidiaries in the custody, care or control of Company or a Subsidiary and to have reasonable access to the Company and the Subsidiaries throughout all regular business hours upon reasonable prior notice, provided the same does not unduly disrupt the conduct of their business, and subject to existing confidentiality and non-disclosure obligations of Buyer and its affiliates.

7.   COVENANTS OF SELLERS.

        Each of the Sellers (severally and not jointly nor jointly and severally except as expressly provided in Section 13.8 with respect to the Hudson Group and the Martin Group) covenants and agrees with Buyer as follows throughout the period from the date hereof through the Closing:

7.1   No Transfer of Interest.

        Such Seller shall not sell, transfer, assign, pledge or otherwise convey to any person or entity other than Buyer or its nominees any of such Seller’s Stock or any Options owned by such Seller except that such Seller may sell, transfer, assign or otherwise convey any of such Seller’s Stock to one or more of its affiliates prior to the Closing provided that such Seller shall cause any such affiliate to sell, transfer, assign or otherwise convey such Stock to Buyer or its nominee in accordance with the terms of this Agreement. In the event of such transfer, the term “Seller” in this Agreement shall apply to both such Seller and the affiliate or affiliates to which such Seller has transferred any of the Stock.

7.2   Authorization / Consummation.

        Such Seller shall use reasonable efforts to obtain all authorizations, consents and approvals of third persons and Governmental Authorities that may be required to permit the consummation by such Seller of the transactions contemplated by this Agreement. Such Seller shall use its reasonable efforts to satisfy all conditions to the Closing that are within its control to the end that the transactions contemplated by this Agreement shall be fully carried out. In making reasonable efforts under this Section 7.2, such Seller shall not be required to make any payment (other than reasonable legal fees) that they are not presently contractually required to make, enter into any other agreement or arrangement with any person that it is not presently contractually required to enter into, accept any significant modification in any existing agreement or arrangement, or agree to any of the foregoing.

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7.3   Non-Solicitation.

        From and after the date of this Agreement until Closing, such Seller shall not, directly or indirectly, solicit, initiate, or encourage any inquiries or proposals from, discuss or negotiate with, provide any non-public information to, or enter into any agreement with, any Person (other than the Buyer) relating to any transaction involving the sale of any shares of the Company (except as permitted under Section 7.1 hereof), the sale of all or a portion of the business or assets of the Company or its Subsidiaries (other than sales of assets in the ordinary course consistent with past practice), or any other business combination transaction involving the Company or its Subsidiaries.

7.4   Acquisition Covenant.

        Such Seller shall not, for and during the period of three (3) years from the Closing Date, without Buyer’s prior consent, which consent may be withheld in the Buyer’s discretion, acquire all or any significant portion of the capital stock of, or all or any material portion of the assets of, Bosley Medical Institute, Inc., a Delaware corporation or Medical Hair Restoration, a Florida corporation.

7.5   Employment Non-Solicit.

        Such Seller shall not, for and during the period of three years from the Closing Date, employ, offer employment to or solicit the employment or engagement of any individual who is employed by the Company or any of its Subsidiaries in a senior management position or was so employed by the Company or any such its Subsidiary within 3 months prior to such employment, offer or solicitation by such Seller.

7.6    Buyer Securities

        In the case of the Hudson Group and the Martin Group only, each of Hudson, Cameron Capital, Martin and LMCo covenants not to acquire within the two year period following the Closing Date shares of Regis Corporation, any securities that are convertible or exchangeable for shares of Regis Corporation or any other property the fair market value of which is attributable to any shares of Regis Corporation, and each of Hudson, Cameron Capital, Martin and LMCo shall use his or its reasonable best efforts to ensure that Persons with whom such Seller does not deal at arm’s length (within the meaning of the ITA) do not acquire within the two year period following the Closing Date shares of Regis Corporation, any securities that are convertible or exchangeable for shares of Regis Corporation or any other property the fair market value of which is attributable to any shares of Regis Corporation.

        In the case of each EdgeStone Fund only, such EdgeStone Fund covenants not to acquire within the two year period following the Closing Date shares of Regis Corporation, any securities that are convertible or exchangeable for shares of Regis Corporation or any interests in any entity the value of which, to the knowledge of such EdgeStone Fund without inquiry, is derived primarily from such shares or securities and such EdgeStone Fund shall not knowingly cause Persons controlled by such EdgeStone Fund for purposes of the ITA to acquire within the two year period following the Closing Date shares of Regis Corporation, any securities that are convertible or exchangeable for shares of Regis Corporation or any interests in any entity the

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value of which, to the knowledge of such EdgeStone Fund without inquiry, is derived primarily from such shares or securities.

8. COVENANTS OF BUYER.

     Buyer covenants and agrees with Sellers as follows throughout the period from the date hereof through the Closing:

8.1 Confidentiality.

     The Buyer reaffirms the non-disclosure agreement dated August 19, 2004 (the “Confidentiality Agreement”), between the Buyer and the Company, and agrees to fulfill its obligations thereunder through the Closing Date. If this Agreement is, for any reason, terminated prior to the Closing, the Confidentiality Agreement shall nonetheless continue in full force and effect.

8.2 Authorization / Consummation.

     Buyer shall use its reasonable efforts to obtain all authorizations, consents and approvals of third persons and Governmental Authorities that may be required to permit the consummation by Buyer of the transactions contemplated by this Agreement. Buyer shall use reasonable efforts to satisfy all conditions to the Closing that are within their control to the end that the transactions contemplated by this Agreement shall be fully carried out.

     Except in respect of fees required to be paid by Buyer as described in Sections 9.1 and 9.2, in making reasonable efforts under this Section 8.2, Buyer shall not be required to make any payment (other than reasonable legal fees) that they are not presently contractually required to make, enter into any other agreement or arrangement with any person that it is not presently contractually required to enter into, accept any significant modification in any existing agreement or arrangement, or agree to any of the foregoing.

9. MUTUAL COVENANTS OF COMPANY AND BUYER.

9.1 Regulatory Filings.

     Each of the Company and the Buyer hereto will furnish to the other such necessary information and reasonable assistance as such other may reasonably request in connection with its preparation of filings or submissions to any Governmental Authority required in connection with this Agreement and the transactions contemplated hereby. Buyer shall be responsible for all filing fees and other expenses that are payable in connection with such filings and submissions required by applicable law to be made by Buyer (including, for greater certainty, all filing fees under the HSR Act required in connection with the transactions contemplated by this Agreement). The Company shall be responsible for all filing fees and other expenses that are payable in connection with such filings and submissions required by applicable law to be made by the Company and, for greater certainty, the Company shall not be responsible for any filing fees in respect of any filing required under the HSR Act or any similar law in connection with the transactions contemplated herein.

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9.2 Hart-Scott-Rodino Act.

     Buyer and Company, at Buyer’s expense, shall prepare all necessary documentation and perform all other necessary actions to complete all necessary filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) and shall each request early termination of the waiting period in their respective filings. The Company and the Buyer shall file a notification and report form pursuant to the HSR Act as promptly as practicable after the date of execution of this Agreement (and in any event within two (2) Business Days of the date of execution of this Agreement). Each party agrees to use reasonable efforts to respond to any request for additional information within five (5) days of receipt of the request. In the event the applicable waiting period (which term includes the extension period) under the HSR Act (a “Required Waiting Period”) has not expired or terminated by the Closing Date, the Closing Date shall be delayed until five (5) Business Days after expiration of the last applicable Required Waiting Period or, if required by law, after approval has been obtained but in no event shall the Closing Date be delayed later than December 21, 2004.

9.3 Tax Matters.

(a)   The Sellers’ Representative shall be given the opportunity to review, comment upon and suggest changes or corrections to, any Tax Returns to be filed by the Company or any Subsidiary which include any Seller Tax Period and any amendment to such Tax Return or any Tax Return filed by the Company or any Subsidiary prior to the Closing (and the work papers of the Company, the Subsidiaries, and its accountants used in the preparation thereof), in each case prior to the filing thereof (but in no event less than 30 days prior to such filing). Without limiting the generality of Sections 12.2 and 12.3 hereof, the Buyer shall, and shall cause the Company and the Subsidiaries to, fully cooperate with and assist the Sellers’ Representative (including, without limitation, allowing access by the Sellers’ Representative and its representatives (including, without limitation, its counsel and independent auditors) to the books and records (written and computer) of the Company and the Subsidiaries and allowing the Sellers’ Representative (and their representatives) to make copies thereof) in connection with the review by the Sellers’ Representative of any such Tax Returns or amendments); and the Sellers Representative (and their representatives) shall not be charged with any cost or expense for the assistance rendered by the Buyer, the Company or the Subsidiaries in connection therewith. In the event of any dispute regarding the matters set forth in this Section 9.3(a), then Ernst & Young LLP (the “Tax Matter Arbitrator”) shall be requested to make a written determination resolving any such dispute and such determination shall be final and binding. The Tax Matter Arbitrator shall allow the Buyer and the Sellers’ Representative to present their respective positions regarding any such dispute (provided that, for greater certainty, such presentations are limited to matters described in the Sellers’ Representative’s dispute notice) or any dispute regarding a proposed compromise or settlement referred to in Section 13.5(d)(iii), and each of the Buyer and the Sellers’ Representative shall have the right to present additional documents, materials and other information, and make an oral presentation to the Tax Matter Arbitrator, regarding such dispute

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and the Tax Matter Arbitrator shall consider such additional documents, materials and other information and such oral presentation. Any such other documents, materials or other information shall be copied to each of the Buyer and the Sellers’ Representative and each of the Sellers’ Representative and the Buyer shall be entitled to attend any such oral presentation. The parties shall use best efforts to cause the Tax Matter Arbitrator to complete its work within 30 calendar days of its engagement. The fees and disbursements of the Tax Matter Arbitrator shall be allocated between the Buyer and the Sellers equally.

(b)	Except as required by law, without the Sellers’ Representative prior written consent, none of the Buyer, the Company or the Subsidiaries shall take any position on any tax return, report or other declaration (including without limitation any amendment thereto) which the Sellers’ Representative does not have an opportunity to review and dispute pursuant to Section 9.3(a) above for any taxable period which might result in any increase in Tax (over accruals therefore on the books and records of the Company as of the end of the day prior to the Closing Date) for any Seller Tax Period.
(c)	The Sellers and the Buyer agree that the Company and any Canadian resident Subsidiaries shall elect under subsection 256(9) of the ITA in its Tax Return filed under the ITA for its taxation year ending immediately before the time of Closing not to have subsection 256(9) apply (with the result that such taxation year will end immediately before the time of Closing and not at the commencement of the Closing Date), and further agree that the Company and such Subsidiaries shall make any similar elections under any applicable provincial tax legislation.
(d)	For greater certainty and notwithstanding anything to the contrary in this Agreement, any reference in this Agreement to a year or period ending on or before the Closing Date or on and including the Closing Date or to Taxes accruing due on or before the Closing Date or similar terms shall not include any year or period, or any Taxes in respect of any year or period, of the Company or any Canadian resident Subsidiaries, ending on or immediately prior to the Closing Date other than the year or period ending by reason of the acquisition of control of the Company by the Buyer pursuant to this Agreement.
(e)	Notwithstanding anything to the contrary contained herein, the parties hereto agree that:

(i)   for greater certainty, after the Closing, the Company and the Subsidiaries shall pay the amounts due and payable in respect of Taxes for the year ended December 31, 2003 of approximately $750,000 and the Company and the Subsidiaries shall be entitled to any refund of Taxes of approximately $750,000 for the year ending on the Closing Date. No party may make a claim under this Agreement for indemnity for Taxes or otherwise or an adjustment to the Purchase Price as a result of such amounts;

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(ii)	Transaction Benefits shall be claimed in the Tax Return of a United States Subsidiary for the tax year ending on the Closing Date; and
(iii)	if it should be determined that all or any portion of the tax deduction relating to the Transaction Benefits are properly allocable to a period ending after the Closing Date, such deduction shall be treated for all purposes of this Agreement as arising in the Seller Tax Period for purposes of determining the Taxes attributable to the Seller Tax Period.

10. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER TO CLOSE.

     The obligation of Buyer to acquire the Stock as contemplated hereby, and the obligation of the Buyer to perform its other obligations hereunder to be performed on or after the Closing Date, shall be subject to the fulfillment, on or prior to the Closing Date, unless otherwise waived in writing by Buyer, of the following conditions:

10.1 Representations and Warranties.

     The representations and warranties of (i) the Company set forth in Section 3 hereof and (ii) the Sellers set forth in Section 4 hereof; shall (disregarding all qualifications and exceptions contained in such representations relating to materiality or Material Adverse Effect) be true and correct on the Closing Date as if made on and as of such date or, to the extent that any such representations and warranties, by their terms, are made expressly as of the date hereof or another date, as of such other date (except, in any case, where such failure to be true and correct shall not have a Material Adverse Effect).

10.2 Performance of Covenants.

     Sellers and Company shall have performed in all material respects all of their obligations contained in this Agreement to be performed on or prior to the Closing Date.

10.3 Threatened or Pending Proceedings.

     No proceedings shall have been initiated (and not dismissed) by any Governmental Authority seeking to enjoin or otherwise restrain the consummation of the transactions contemplated hereby.

10.4 Consents and Approvals.

     Any applicable waiting periods under the HSR Act shall have expired or been terminated.

10.5 Delivery of Stock.

     All of the Stock shall have been delivered to Buyer as required by the terms hereof.

10.6 Options and Stock Loans.

     All Options in respect of stock of the Company shall have been exercised or terminated at or prior to Closing. All loans made by the Company to a Seller in connection with the purchase

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of stock shall be repaid on Closing and any security granted by such Seller to the Company shall be released.

10.7 Legal Opinion of Torys LLP.

     Buyer shall have received opinions dated as of the Closing Date of Tory s LLP in the form attached as Schedule 10.7.

10.8 No Adverse Changes.

     During the period from the date hereof through the Closing Date, there shall not have been any changes in the business, results of operations, properties or financial condition of the Company and the Subsidiaries taken as a whole since the Interim Date, which have had a Material Adverse Effect.

10.9 Escrow Agreement

     The Sellers (or the Sellers’ Representative on behalf of the Sellers) shall have executed and delivered the Escrow Agreement.

11. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS TO CLOSE.

     The obligation of the Sellers to sell the Stock as contemplated hereby, and to perform their other obligations hereunder to be performed on or after the Closing, shall be subject to the fulfillment, on or prior to the Closing Date, unless otherwise waived in writing by the Sellers’ Representative, of the following conditions:

11.1 Representations and Warranties.

     The representations and warranties of Buyer set forth in Section 5 hereof shall be true and correct in all material respects on the Closing Date as if made on and as of such date, unless otherwise specified therein.

11.2 Performance of Covenants.

     Buyer shall have performed in all material respects all of its obligations contained in this Agreement to be performed on or prior to the Closing Date.

11.3 Threatened or Pending Proceedings.

     No proceedings shall have been initiated (and not dismissed) by any Governmental Authority seeking to enjoin or otherwise restrain the consummation of the transactions contemplated hereby.

11.4 Consents and Approvals.

     Any applicable waiting periods under the HSR Act shall have expired or terminated.

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11.5 Options and Stock Loans.

        All Options in respect of stock of the Company shall have been exercised or terminated at or prior to Closing. All loans made by the Company to a Seller in connection with the purchase of stock shall be repaid on Closing and any security granted by such Seller to the Company shall be released.

11.6 Legal Opinion of Buyer’s Counsel.

        Sellers shall have received opinions, dated as of the Closing Date of counsel to Buyer in the form attached as Schedule 11.6.

11.7 Escrow Agreement

        The Buyer shall have executed and delivered the Escrow Agreement.

12.   CERTAIN RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.

12.1 Survival of Representations, Warranties, Agreements, Covenants and Obligations.

        All representations and warranties contained herein, and all agreements and covenants contained herein, or in either case in any other certificate executed and delivered by any party to another party in connection with this Agreement, shall be deemed to have been relied upon by the other party and shall survive the execution and delivery of this Agreement, and the sale and purchase of the Stock and payment therefore. Notwithstanding the foregoing, all such representations, warranties, agreements and covenants shall expire and terminate on October 31, 2006, except that: (i) the representations and warranties of each Seller contained in Sections 4.2 {Capitalization} and of the Company contained in Section 3.4 {Capitalization} shall survive indefinitely and (ii) the representations and warranties of the Company contained in Section 3.18 {Tax Matter} shall survive until 30 days after which no assessment, reassessment or other document assessing tax may be issued to the Company or any Subsidiaries in respect of a taxation year to which such representations and warranties extend.

12.2 Company Books and Records.

        For a period of seven (7) years from the Closing Date (or such longer period as may be required of Buyer by any Governmental Authority or requested by Sellers’ Representative in connection with disputes or litigation):

(a)   Buyer shall not (and shall cause the Company and the Subsidiaries not to) dispose of or destroy any of the books, records, files and data (“Records”) of any of the Company or the Subsidiaries relating to the periods prior to the Closing if any such Records (i) relate to Tax matters; (ii) relate to any matter which the Sellers may be required to indemnify the Buyer Indemnified Parties pursuant to Section 13.1 of this Agreement, or (iii) at the time of any such disposition or destruction, are or are reasonably likely to be material to the Business or operations of the Company or any Subsidiary (“Company Books and Records”) without first offering to turn over possession thereof to Sellers

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by written notice to Sellers’ Representative at least thirty (30) days prior to the proposed date of such disposition or destruction; and

(b)

Buyer shall allow (and shall cause the Company and the Subsidiaries to allow) Sellers’ Representative and their respective agents, upon reasonable notice, reasonable access to all Company Books and Records and any other Records during normal working hours at the principal place of business of the Company and the Subsidiaries or any location where Company Books and Records or other Records are stored, and Sellers’ Representative shall have the right to make copies of any Company Books and Records or other Records; provided, however, that any such access or copying shall be accomplished at Seller’s expense in such a manner so as not to interfere with the normal conduct of business of the Company and the Subsidiaries.

12.3 Further Assurances.

     From time to time after the Closing without further consideration, the parties will execute and deliver or arrange for the execution and delivery of, such other instruments of conveyance and transfer and take such other action or arrange for such other action as may reasonably be requested to more effectively complete any of the transactions provided for in the Agreement or any document contemplated hereby.

13.    INDEMNIFICATION.

13.1 Indemnification by Sellers.

     Subject to the provisions of this Section 13, from and after Closing, each of the Sellers (severally and not jointly nor jointly and severally) agrees to indemnify and hold Buyer, the Company and the Subsidiaries (the “Buyer Indemnified Parties”) harmless from and against any damages, liabilities, losses and expenses (including, but not limited to, reasonable attorney’s fees incurred in defending any claim by a third person, and amounts paid in settlement of any claim or suit), fines, penalties and interest (collectively, “Loss” or “Losses”) which is sustained or suffered by the Buyer Indemnified Parties to the extent caused by or arising from:

(a)	a breach of any representation or warranty made by such Seller or the Company herein;
(b)	a failure to perform any covenant made by such Seller herein;
(c)	a failure to perform any covenant made by the Company that is to be performed by the Company prior to the Closing; or
(d)	any and all Taxes (i) in respect of any taxation year or period ending on or prior to the Closing Date, and (ii) in the case of any taxation year or period beginning before and ending after the Closing Date, in respect of the portion of such period ending on and including the Closing Date, in each case with respect to which the Buyer has received after the Closing Date an assessment, reassessment or other form of recognized document from a Governmental

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Authority (other than a court) assessing a liability for such Taxes, but only to the extent that the aggregate amount of all Taxes described in both (i) and (ii) above exceeds the amount accrued as a liability for Taxes on the Interim Financial Statements;

(e)

any claim against the Company or any of its Subsidiaries by any of their employees or former employees or by any Governmental Authority (other than a court) on behalf of any such employee or former employee only if: (i) Notice with respect to such claim has been received by the Sellers’ Representative prior to October 31, 2005; (ii) the matter or matters giving rise to such claim relate solely to the period prior to the Closing Date (and, for greater certainty, such matter or matters do not relate to any conduct or action occurring on or after the Closing Date) (any such claim satisfying both (i) and (ii) of this Section 13.1(e), an “Employee Claim”), and provided however, notwithstanding any other provision in this Agreement to the contrary; (iii) no indemnification shall be payable by such Seller pursuant to this Section 13.1(e) to the extent that any of the Buyer Indemnified Parties has insurance coverage for any Losses relating to such Employee Claim; (iv) the aggregate liability of all Sellers pursuant to this Section 13.1(e) shall not exceed 75% of the total amount of indemnification payments which would be payable pursuant to this Section 13.1(e) calculated without giving effect to this clause (iv); (v) the aggregate liability of all Sellers for indemnification payable under this Section 13.1(e) shall not exceed $5,000,000 with respect to all Employee Claims for which the Sellers’ Representative has received Notice with respect to such Employee Claim after May 31, 2005; (vi) the aggregate liability of all Sellers for indemnification payable under this Section 13.1(e) shall not exceed $10,000,000 in the aggregate; and (vii) this Section 13.1(e) shall be the exclusive remedy in respect of any claim by any employee or former employee of the Company or any of its Subsidiaries or by any Governmental Authority (other than a court) on behalf of such employee or former employee except to the extent such claim results in a breach of any other representation or warranty under Section 3 or 4 (for greater certainty, if any such claim results in a breach of any other representation or warranty, this Section 13.1(e) shall not be applicable).

13.2 Limitations on Amount of Indemnification by Sellers.

        Notwithstanding anything provided in this Agreement to the contrary, the indemnification obligations of each Seller pursuant to Section 13.1 shall be limited as follows:

(a)   no indemnification shall be payable by such Seller with respect to any claim for breach of any representation or warranty made by such Seller or the Company or failure by such Seller or the Company to perform any covenant asserted by any Buyer Indemnified Party after the expiration or termination date, if any, prescribed for such representation, warranty or covenant in Section 12.1 hereof;

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(b)	no indemnification shall be payable by any Seller hereunder until the total of recoverable claims for indemnification against all the Sellers shall exceed $1,000,000 (the “Deductible”) (such amount being a deductible amount versus a threshold), in which event the Buyer Indemnified Parties shall then only be entitled to recover the amount of such recoverable claims in excess of the Deductible; provided, however that the Deductible shall not apply to any claims for indemnification as a result of the disallowance of any deduction claimed by the United States Subsidiaries for the Transaction Benefits described in subsection (i) or (ii) of such definition (and for greater certainty, any such amount shall not be included in any calculation of whether the total of recoverable claims against all the Sellers exceeds the Deductible);
(c)	the aggregate liability of the Sellers for indemnification payable under this Agreement shall not exceed $20,000,000 (the “Indemnity Cap”); provided that, solely in the case of a Tax Claim, the Indemnity Cap will be increased up to, but in no event in excess of $40,000,000 to the extent necessary to satisfy any such liability. For greater certainty, the parties acknowledge and agree that (i) the amount represented by any such increase in the Indemnity Cap will be available solely to satisfy any liability arising pursuant to a Tax Claim and (ii) any and all payments made pursuant to Section 13.1(e) shall reduce (dollar for dollar) the aggregate amount otherwise available for indemnification under this Section 13.2(c);
(d)	notwithstanding any other provision hereof, the maximum aggregate liability of each Seller shall be such Seller’s Pro Rata Liability Share of the applicable Indemnity Cap; and
(e)	the maximum liability of each Seller for a particular indemnity claim (other than an indemnity claim regarding a representation or warranty given by such Seller in Section 4) shall be limited solely to an amount which is equal to the amount of such indemnity claim, multiplied by such Seller’s Pro Rata Liability Share.

13.3 Indemnification by Buyer.

     Subject to the provisions of this Section 13, from and after Closing, Buyer agrees to indemnify and hold Sellers and their shareholders, general and limited partners, officers, directors, employees and agents (the “Seller Indemnified Parties”), harmless from and against any Losses sustained or suffered by the Seller Indemnified Parties to the extent caused by or arising from: (a) a breach of any representation or warranty made by Buyer herein; (b) a failure to perform any covenant made by Buyer herein; or (c) any act or occurrence, which takes place after the Closing pertaining in any way to the operation of the business of the Company and the Subsidiaries by Buyer or any of its affiliates after the Closing (including, without limitation, any warranty or product liability claims, and any liability under employment, labor, discrimination, Tax, Environmental or other laws).

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13.4 Limitations on Amount of Indemnification by Buyer.

     Notwithstanding anything provided in this Agreement to the contrary, the indemnification obligations of Buyer pursuant to Section 13.3 shall be limited as follows:

(a)	no indemnification shall be payable by Buyer with respect to any claim for breach of any representation or warranty made by Buyer or failure to perform any covenant asserted by a Seller Indemnified Party after the expiration or termination date, if any, prescribed for such representation, warranty or covenant in Section 12.1 hereof.
(b)	The aggregate liability of the Buyer for indemnification payable under this Agreement shall not exceed the Indemnity Cap.

13.5 Notice and Defense of Claims.

(a)	In the event that any Person shall incur or suffer any Losses in respect of which indemnification may be sought by such Person pursuant to the provisions of this Section 13 (including any application of the Deductible), the Person seeking to be indemnified hereunder (the “Indemnified Party”) shall assert a claim for indemnification by written notice (a “Notice”) to the Person from whom indemnification is sought (the “Indemnifying Party”) stating the nature and basis of such claim and including copies of all relevant pleadings and other demands. In the case of Losses arising by reason of any third party claim, the Notice shall be given within fifteen (15) days of the filing or other written assertion of any such claim against the Indemnified Party, but the failure of the Indemnified Party to give the Notice within such time period shall not relieve the Indemnifying Party of any liability that the Indemnifying Party may have to the Indemnified Party unless and to the extent that the Indemnifying Party is actually prejudiced thereby.
(b)	The Indemnified Party shall provide to the Indemnifying Party on request all information and documentation reasonably necessary to support and verify any Losses which the Indemnified Party believes give rise to a claim for indemnification hereunder and shall give the Indemnifying Party reasonable access to all premises, books, records and personnel in the possession or under the control of the Indemnified Party which would have bearing on such claim.
(c)	In the case of any third party claims for which indemnification is sought, the Indemnifying Party shall have the right to: (i) conduct and control any proceedings or negotiations; (ii) perform and control or direct the performance of activities required, including remedial activities under Environmental Laws, (iii) take all other steps to settle or defend any such claim (provided that the Indemnifying Party shall not settle any such claim without the consent of the Indemnified Party (which consent shall not be unreasonably withheld, conditioned or delayed) unless the settlement includes a complete release of the Indemnified Party with respect to the claim); and (iv) employ counsel to contest any such claim or liability. In the event the Indemnifying Party elects

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to conduct and control any proceedings itself, the Indemnified Party shall be entitled to fully participate at its own expense and by its own counsel in any proceedings relating to any third-party claim. The Indemnifying Party shall, within thirty (30) days after delivery of the Notice to Indemnifying Party, notify the Indemnified Party of its intention as to the conduct and control of the defense of such claim, provided that the Indemnified Party and its counsel cooperate with the Indemnifying Party and its counsel. Until the Indemnified Party has received notice of the Indemnifying Party’s election whether to defend any claim, the Indemnified Party shall take reasonable steps to defend (but may not settle) such claim. If the Indemnifying Party shall decline to assume the defense of any such claim, or the Indemnifying Party shall fail to notify the Indemnified Party within thirty (30) days after delivery of the Notice of the Indemnifying Party’s election to defend such claim, the Indemnified Party shall defend against such claim provided that the Indemnified Party shall not settle such claim without the consent of the Indemnifying Party (which consent shall not be unreasonably withheld, conditioned or delayed). The expenses of all proceedings, contests or lawsuits in respect of such claims shall be borne by the Indemnifying Party but only if the Indemnifying Party is responsible pursuant hereto to indemnify the Indemnified Party in respect of the third party claim and, if applicable, only to the extent required by Section 13.2, and Section 13.4, as the case may be, and subject to the limitations of Section 13.5 and Section 13.6 . In the event that defendants in any third party claim subject to this Section 13.5(c) include the Indemnified Party and the Indemnifying Party and the Indemnified Party shall have received advice from counsel that the Indemnified Party has available to it one or more material defenses or counterclaims that are inconsistent with one or more of those that may be available to the Indemnifying Party in respect of such claim or any litigation relating thereto, in each case, the Indemnified Party shall have the right to employ its own counsel in such claim, and, in such event, the reasonable fees and out-of-pocket disbursements of such counsel shall be borne by the Indemnifying Party. Regardless of whether the Indemnified Parties or the Indemnifying Parties shall assume the defense of the claim, the Indemnified Parties and the Indemnifying Parties agree to cooperate fully with one another in connection therewith and to keep each other reasonably informed of the status of the claim and any related proceeding and the Indemnified Party shall take no action or make any admissions or statements not required by applicable law which would adversely effect the defense of any such claim.

(d)

(i) If a claim shall be made by any taxing authority, which, if successful, might result in an indemnity payment to any Buyer Indemnified Party including for greater certainty, any claim under Section 13.1(d), the Buyer shall promptly (and in any event no later than 15 days following notice of any Buyer Indemnified Party of such claim) notify the Sellers’ Representative and the Management Representative in writing (a “Sellers’ Representative Tax Notice”) of such claim (a “Tax Claim”) and shall include with such Sellers’ Representative Tax Notice any and all notices of audit, assessment or other written communication received from the taxing authority. If a Sellers’

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Representative Tax Notice is not given to the Sellers’ Representative within such 15 day period, the Sellers shall not be liable to any Buyer Indemnified Party to the extent that the Sellers’ position is prejudiced as a result thereof. Without limiting the foregoing, the Buyer will promptly deliver to the Sellers’ Representative any notice of audit or notice of inquiry by any taxing authority which may result in an indemnity payment under this Agreement.

(ii) With respect to any Tax Claim, the Sellers’ Representative shall have the right to control and conduct all audits, proceedings and negotiations, at its sole expense, in connection with such Tax Claim (including, without limitation, selection of counsel) and, without limiting the foregoing, may in its sole discretion pursue or forego any and all administrative appeals, proceedings, hearings and conferences with any taxing authority with respect thereto, and may, in its sole discretion, either pay the Tax claimed and sue for a refund where applicable law permits such refund suits or contest the Tax Claim in any permissible manner. The Sellers’ Representative shall, within 30 days of receipt of a Sellers’ Representative Tax Notice with respect to a Tax Claim (the “Tax Notice Period”), notify the Buyer in writing of its intention to control and conduct the proceedings and negotiations, in connection with such Tax Claim, provided that, solely in the event that the Buyer Indemnified Party is required by applicable law to pay any amount relating to such Tax Claim (a “Required Tax Payment”), Sellers’ Representative shall not have such right to control the proceedings relating to such Tax Claim unless Sellers’ Representative causes such Required Tax Payment to be paid or posts a bond or other security in the amount of such Required Tax Payment. In the event that the Sellers’ Representative does notify the Buyer of its intention to control and conduct the proceedings and negotiations in connection with any Tax Claim as provided above, the Buyer shall have the right to fully participate in such proceedings and negotiations (including, without limitation, with counsel of its choice), at its sole expense, and the Sellers’ Representative shall fully cooperate with the Buyer in connection with such participation. If the Sellers’ Representative does not deliver to the Buyer within the Tax Notice Period written notice that it will control and conduct the proceedings and negotiations in connection with a Tax Claim, the Buyer may control, or cause the Company or the Subsidiaries to control, and conduct such proceedings and negotiations in such manner as it may deem appropriate subject in all cases to Section 13.5(d)(iii) below. In the event that the Sellers’ Representative does not exercise its right to control and conduct the proceedings and negotiations in connection with any Tax Claim as provided above, the Sellers’ Representative shall have the right to fully participate in such proceedings and negotiations (including, without limitation, with counsel of its choice), at its sole expense, and the Buyer shall, and shall cause the Company and the Subsidiaries to, fully cooperate with the Sellers’ Representative and its accountants and other representatives in connection with such participation, and in all cases the Buyer shall keep the Sellers’ Representative fully informed as to all matters concerning such Tax Claim and shall promptly notify the Seller in writing of any and all significant developments relating thereto. Without limiting Sections 12.2 and 12.3 and

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9.3, the Buyer shall (and the Buyer shall cause the Company and the Subsidiaries to) fully cooperate with the Sellers’ Representative in contesting any Tax Claim, which cooperation shall include, without limitation, the retention and (upon the Sellers’ Representative’s request) the provision to the Sellers’ Representative of records and information which are relevant to such Tax Claim, and making officers and employees available on a timely and mutually convenient basis to provide additional information or explanation of any material provided hereunder or to testify at proceedings relating to such Tax Claim.

(iii) Notwithstanding anything to the contrary contained herein, in no event shall the Buyer settle or otherwise compromise (or permit the Company or the Subsidiaries to settle or otherwise compromise) any Tax Claim without the Sellers’ Representative’s prior written consent (which consent shall not be unreasonably withheld), provided, however, if the Sellers’ Representative is not controlling and conducting the proceedings relating to a Tax Claim and has not consented to a proposed settlement or compromise of such Tax Claim by the Buyer, then at the request of the Buyer, the Buyer and the Sellers’ Representative will submit the proposed settlement or compromise to the Tax Matters Arbitrator to make a written determination as to whether the proposed settlement or compromise is reasonable under the circumstance and should be accepted and agreed to by the Sellers’ Representative pursuant to the procedures described in Section 9.3(a) which determination shall be final and binding.

13.6 Further Limitations and Qualifications on Indemnification.

(a)	Notwithstanding anything herein to the contrary: (i) the Indemnified Parties shall have no right to indemnification with respect to any loss of profits or any consequential or punitive damages, and (ii) the Sellers shall have no liability under this Agreement with respect to any matter to the extent the expense, loss or liability comprising the Loss with respect to such matter has been reserved or provided for in the Interim Financial Statements.
(b)	If at the Closing, (i) any Seller has given notice to Buyer under this Agreement that any of the representations and warranties of Company contained in Section 3 or any Seller in Section 4 is untrue, and (ii) Buyer has a resulting right to terminate this Agreement pursuant to Section 14.1, and Buyer elects to consummate the transactions contemplated hereby, then Sellers shall have no liability or indemnification obligation hereunder by reason of any such misrepresentation or breach of warranty.
(c)	The amount which the Indemnifying Party is required to pay to, for, or on behalf of the Indemnified Party pursuant to this Section 13 shall be reduced by any foreign, federal, state or local Income Tax benefit to the Indemnified Party (including the Company and the Subsidiaries in the case of Buyer) applicable to the indemnifiable Losses.

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(d)	The Indemnifying Party shall make any indemnification payments determined to be payable to the Indemnified Party hereunder without regard to any expectation that the Indemnified Party (including, for this section in the case of the Buyer, the Company and the Subsidiaries) will recover insurance proceeds or other amounts as a result of the matter giving rise to the claim for which indemnification payments are to be made. If the Indemnified Party receives any insurance proceeds or other amounts as a result of the matter giving rise to any indemnification claim of the Indemnified Party prior to the date upon which the Indemnifying Party is given notice of the claim, the Indemnifying Party’s indemnification obligation with respect to such claim shall be reduced by the amount of any such insurance proceeds actually received by the Indemnified Party. If the Indemnified Party receives any insurance proceeds or other amounts as a result of the matter giving rise to any indemnification claim of the Indemnified Party against the Indemnifying Party after the Indemnifying Party has paid such indemnification claim to the Indemnified Party, then the Indemnified Party shall promptly turn over any such insurance proceeds or other amounts received to the Indemnifying Party to the extent of the payments made by the Indemnifying Party to the Indemnified Party on the claim.
(e)	Other than in case of actual fraud, from and after Closing, the sole recourse and exclusive remedy of the Buyer Indemnified Parties and the Seller Indemnified Parties arising out of this Agreement or otherwise arising out of Buyer’s acquisition of the Stock, whether based on tort, contract, statutory or common law remedy or equitable remedy or otherwise, including but not limited to, any misrepresentation, breach of warranty or otherwise, shall be to assert a claim for indemnification under the indemnification provisions of this Section 13, and Buyer and Sellers each covenant that it (and Indemnified Parties) will not seek to obtain any remedy except as provided in this Section 13.
(f)	The indemnification obligations of the Indemnifying Party pursuant to this Agreement with respect to a specific claim for which indemnification is provided under this Agreement shall extend beyond the time period for indemnification set forth herein with respect to such specific claim until it has been fully discharged or resolved or settled; provided, however, written notice with reasonable specificity of the claim, the estimate amount of the claim and the breach, inaccuracy, nonperformance or provision of the Agreement to which such claim relates shall have been given to the Indemnifying Party on or prior to end of such time period.
(g)	The Indemnified Party shall take reasonable steps to mitigate any Losses.

13.7 Indemnification Adjustment to Purchase Price.

     Any amounts payable by any of the Sellers under this Section 13 shall constitute a reduction in the Purchase Price and the Option Termination Amount, as appropriate.

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13.8 Certain Joint and Several Liability

     Notwithstanding anything herein to the contrary, (a) Hudson and Cameron Capital shall be jointly and severally liable for any amounts payable hereunder by either of them; (b) Martin and LMco shall be jointly and severally liable for any amounts payable hereunder by either of them.

14. TERMINATION OF AGREEMENT.

14.1 Termination.

     At any time prior to the Closing, this Agreement may be terminated: (i) by the mutual written agreement of Buyer and Sellers’ Representative; (ii) by Sellers’ Representative, if the Sellers and the Company are not in material breach of this Agreement, and, if there has been a material misrepresentation, breach of warranty or breach of agreement or covenant by Buyer in its representations, warranties, agreements and covenants set forth herein which misrepresentation or breach remains uncured on the earlier of (a) the date which is fifteen (15) days following Buyer’s receipt of written notice thereof from Sellers’ Representative and (b) December 21, 2004; (iii) by Buyer, if Buyer is not in material breach of this Agreement, and, if there has a been a misrepresentation, breach of warranty or breach of agreement or covenant by Sellers or the Company in their representations, warranties, agreements and covenants set forth herein which misrepresentation or breach (A) constitutes a Material Adverse Effect; and (B) remains uncured on the earlier of (a) the date which is fifteen (15) days following Sellers’ Representative’s receipt of written notice thereof from Buyer and (b) December 21, 2004; (iv) by Buyer, upon written notice to the Sellers’ Representative within five (5) Business Days of receipt of a Supplement in the event that any matter set forth in such Supplement would have a Material Adverse Effect; provided that such matter has not been corrected on the earlier of (a) the date which is fifteen (15) days following delivery of such notice and (b) December 21, 2004; (v) by Buyer or Sellers’ Representative if the Closing has not occurred before the close of business on December 21, 2004, unless such Buyer’s or Sellers’ breach results in the failure of the Closing to occur by such date; or (vi) by Sellers’ Representative upon written notice to the Buyer at any time after receipt of a Buyer Reserve Notice (as defined in Section 15.8).

14.2 Notice of Termination.

     In the event of termination by any party pursuant to Section 14.1, written notice setting forth the reasons therefore shall be given by the terminating party to the other parties.

14.3 Effect of Termination.

     If this Agreement shall be terminated as above provided, all obligations of the parties hereunder shall terminate without liability of any party to the other (other than Sections 8.1, 14.3 15.1, 15.2, 15.4, 15.12 to 15.18 and 15.20 to 15.23); provided, however, that nothing in this Section 14 shall prevent any party from seeking or obtaining damages or appropriate equitable relief for the willful breach of any representation, warranty, agreement or covenant made by any other party (including, without limitation, specific performance for willful failure to close).

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15. MISCELLANEOUS.

15.1 Expenses.

     Buyer shall pay the fees and expenses of its accountants and legal counsel incurred in connection with the transactions contemplated by this Agreement. Buyer shall be responsible for all transfer fees or transfer taxes arising from the transfer of the Stock to Buyer. To the extent not paid by the Company in connection with Section 2.3(a)(ii), each Seller shall pay the fees and expenses of its accountants and legal counsel incurred in connection with the transactions contemplated by this Agreement.

15.2 Notices.

     Any notice or other communication required or permitted to be given to any Person hereunder shall be in writing and shall be given to such Person at such Person’s address set forth below, or such other address as such party may hereafter specify by notice in writing to the other Person. Any such notice or other communication shall be addressed as aforesaid and given by: (1) certified mail (registered mail in Canada), return receipt requested, with first class postage prepaid; (2) hand delivery; (3) reputable overnight courier; or (4) facsimile transmission. Any notice or other communication will be deemed to have been duly given: (1) on the fifth day after mailing, provided receipt of delivery is confirmed, if mailed by certified mail (registered mail in Canada), return receipt requested, with first class postage prepaid; (2) on the date of service if served personally; (3) on the Business Day after delivery to an overnight courier service, provided receipt of delivery has been confirmed; or (4) on the date of transmission if sent via facsimile transmission, provided confirmation of receipt is obtained promptly after completion of transmission.

     To Sellers’ Representative :

EdgeStone Capital Partners Inc.
130 King Street West,
Suite 600, The Exchange Tower
Toronto, ON M5X 1A6

ATTN: Sandra Cowan and Gilbert S. Palter
FAX:    (416) 860-9838

With a copy to:

Torys LLP
Suite 3000, P.O. Box 270
79 Wellington Street West
TD Centre
Toronto, ON M5K 1N2

ATTN: Stephen Donovan
FAX:    (416) 865-7357

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To Management
Representative :

Steven K. Hudson
1515 S Federal Hwy
Boca Raton, FL 33432-7450
United States of America

ATTN: Steven K. Hudson
FAX:    (561) 393-8723

With a copy to:

Blake, Cassels & Graydon LLP
Commerce Court West
2800-199 Bay St.
Toronto, ON M5L 1A9

ATTN: David Toswell
FAX: (416) 863-2653

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     To Buyer:

Regis Corporation
7201 Metro Blvd.
Minneapolis MN 55439
USA

ATTN: Paul D. Finkelstein
             President & CEO
FAX:    (952) 947-7900

With a copy to:

Regis Corporation
7201 Metro Blvd.
Minneapolis MN 55439
USA

ATTN: Eric A. Bakken, Esq.,
             Vice President, General Counsel & Secretary
FAX:    (952) 947-7200

With a copy to:

Stikeman Elliott LLP
5300 Commerce Court West
199 Bay Street
Toronto, Ontario M5L 1B9

ATTN: Brian Pukier
FAX:    (416) 947-0866

15.3 Amendment.

     No amendment to this Agreement may be made unless agreed to by the parties hereto in writing.

15.4 Section Headings.

     The section headings in this Agreement are for convenience of reference only and shall not be deemed to be a part of this Agreement or to alter or affect any provisions, terms or conditions contained herein.

15.5 Gender and Number

     In this Agreement, unless the context otherwise requires, words importing the singular include the plural and vice versa and words importing gender include all genders.

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15.6 Calculations in U.S. Dollars.

     All amounts in this Agreement are stated and shall be paid in U.S. dollars.

15.7 Generally Accepted Accounting Principles.

     In this Agreement, except to the extent otherwise expressly provided, references to “generally accepted accounting principles” mean United States generally accepted accounting principles as provided from time to time by the Financial Accounting Standards Board, and consistent with past practice of Company.

15.8 Supplements to Disclosure Schedule or Schedule 4.

     From time to time prior to the Closing Date, Sellers’ Representative may supplement or amend the Disclosure Schedule or Schedule 4 delivered pursuant to this Agreement: (a) if any matter hereafter arises which, if existing or occurring at the date of this Agreement, would have been required to be set forth or described in such supplemental or amended Disclosure Schedule or Schedule 4, as applicable to make the applicable representation true and correct; (b) to correct any information in the Disclosure Schedule or in Schedule 4 or in this Agreement which is inaccurate as a result of any matter resulting or arising after the date hereof; or (c) if otherwise contemplated by this Agreement. Any such supplement or amendment (a “Supplement”), upon written notice thereof to Buyer, shall be effective to modify this Agreement, the Disclosure Schedule and Schedule 4, to qualify the representations and warranties contained in Sections 3 and 4 and to cure any misrepresentation or breach of warranty that otherwise might have existed under this Agreement for all purposes (any such modification, qualification or cure, collectively, an “Amendment”), including, without limitation, determination of the satisfaction of conditions to Closing set forth in Sections 9 and 10 hereof; provided, however, that if the matter or matters to which such Supplement relate would have a Material Adverse Effect, the Buyer may terminate this Agreement in accordance with Section 14.1(iv), provided further, however, if such matter or matters to which such Supplement relate would not have a Material Adverse Effect, and if Buyer notifies Sellers’ Representative in writing within 4 Business Days after delivery of such Supplement that it elects not to have such Supplement be deemed on Amendment (a “Buyer Reserve Notice”), then such Supplement shall not be deemed an Amendment and Sellers’ Representative shall have the right to terminate this Agreement in accordance with Section 14.1(vi).

15.9 Disclosure Schedules and Exhibits.

(a)

The Schedules shall be deemed to be attached hereto and made a part hereof. All references herein to this Agreement shall include the Schedules.

(b)

Nothing in the Schedules is intended to broaden the scope of any representation or warranty contained in the Agreement. The Schedules and the information and disclosures contained therein are intended only to qualify and limit the representations, warranties and covenants of Sellers, the Company or Buyer, as the case may be, contained in the Agreement and shall not be deemed to expand in any way the scope or effect of any of such representations, warranties or covenants.

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(c)

The disclosure of any item in any Schedules (or section thereof), including for greater certainty in any Supplement, shall be deemed disclosure of that item for all purposes for which disclosure is required under this Agreement and in all appropriate sections of the Schedules to the extent it is reasonably apparent on its face that such disclosure is applicable.

(d)

No reference to or disclosure of any item or other matter in any Schedule (or any section thereof) shall be construed as an admission or indication that such item is required to be referred to or disclosed in any Schedule (or any section thereof). Inclusion of any item in a Schedule (or any section thereof) does not constitute a determination by the representing party that such item is material and shall not be deemed to establish a standard of materiality. No disclosure a Schedule (or any section thereof) relating to any possible breach or violation of any agreement, law or regulation or any potential adverse contingency shall be construed as an admission or indication that any such breach or violation exists or has actually occurred or that such adverse contingency will actually occur.

15.10 Disclaimer of Other Representations, Projections

     The Buyer acknowledges and agrees that, except for the representations and warranties made by the Company or the Sellers and expressly set forth in Sections 3 or 4, neither the Company, any Subsidiary, any Seller nor any representative thereof has made and shall not be construed as having made to the Buyer or to any representative thereof, and neither the Buyer nor any representative thereof has relied upon or regarded as material, any representation or warranty of any kind. Without limiting the generality of the foregoing, and notwithstanding any otherwise express representations and warranties made by the Company or the Seller in Sections 3 or 4, as applicable, the Buyer agrees that neither the Company, any Subsidiary, any Seller nor any representative thereof makes or has made any representation or warranty to the Buyer or any representative thereof with respect to:

(a)

(i) any projections, financial models, estimates, forecasts or budgets contained in that certain confidential offering memorandum, dated August, 2004 relating to the Company and the Subsidiaries (the “Confidential Memorandum”) or (ii) any projections, financial models, estimates, forecasts or budgets relating to the business of the Company or the Subsidiary otherwise heretofore or hereafter delivered to, presented to (including, for greater certainty, in any management presentation) or made available to the Buyer or its counsel, accountants, advisors, lenders, representatives or affiliates ; and

(b)

any other information, statement or documents heretofore or hereafter delivered to, presented to (including, for greater certainty, in any management presentation) or made available to the Buyer or its counsel, accountants, advisors, lenders, representatives or affiliates (including in the Confidential Memorandum, the data room or otherwise) with respect to the Company or the Subsidiaries or the business, operations or affairs of the Company or the Subsidiaries, except to the extent and as expressly covered by a representation and warranty contained in Sections 3 or 4.

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     Without limiting the foregoing, with respect to any projections, financial models, estimates, forecasts or budgets relating to the business of the Company or the Subsidiary, Buyer acknowledges and agrees that (i) there are uncertainties inherent in attempting to make any projections, financial models, estimates, forecasts or budgets, (ii) it is familiar with such uncertainties, (iii) it is taking full responsibility for making its own evaluation of the adequacy and accuracy of all such projections, financial models, estimates, forecasts or budgets so furnished to it, (iv) planned efficiencies or business opportunities may not materialize for a number of reasons, and (v) the Buyer shall have no claim against the Company, the Sellers or any of their directors, officers, employees, agents, representatives, shareholders, partners or affiliates with respect thereto.

15.11 Severability.

     Wherever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law. If any portion of this Agreement is declared invalid for any reason in any jurisdiction, such declaration shall have no effect upon the remaining portions of this Agreement which shall continue in full force and effect as if this Agreement had been executed with the invalid portions thereof deleted; provided, however, if such severability will negate in any material respect the monetary terms of this Agreement, then the parties shall negotiate in good faith to amend the invalid terms in a manner so that such terms shall not be invalid and will not modify in any material respect the monetary terms of this Agreement unless otherwise agreed to by the parties. Furthermore, the entirety of this Agreement shall continue in full force and effect in all other jurisdictions.

15.12 Entire Understanding.

     This Agreement sets forth the entire agreement and understanding between the parties with respect to the subject matter hereof and supercedes any and all prior discussions, negotiations, letters of intent or agreements in principle between them.

15.13 Binding Effect; No Third Party Beneficiaries.

     Except for the provisions of Section 13 relating to the Seller Indemnified Parties and the Buyer Indemnified Parties and Section 15.22 relating to the Sellers’ Representative Indemnified Parties and Section 15.23 relating to the Management Representative Indemnified Parties, this Agreement shall be binding upon and shall inure to the exclusive benefit of the parties hereto and their respective heirs, executors, administrators, legal representatives, successors and permitted assigns and nothing herein, express or implied, is intended to, nor shall it, confer in any other Person any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. The parties agree that, for the purpose of giving enforceable rights under this Agreement: (i) to the Buyer Indemnified Parties who are not party to this Agreement, Buyer is contracting as the agent of such Persons and will hold the rights of such Persons in trust for them; (ii) to the Seller Indemnified Parties who are not party to this agreement, each Seller is contracting as the agent of such Persons and will hold the rights of such Persons in trust for them; (iii) to the Sellers’ Representative Indemnified Parties who are not party to this agreement, the Sellers’ Representative is contracting as the agent of such Persons and will hold the rights of such Persons in trust for them; and (iv) to the Management Representative Indemnified Parties

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who are not party to this agreement, the Management Representative is contracting as the agent of such Persons and will hold the rights of such Persons in trust for them.

15.14 Governing Law.

     This Agreement is and shall be deemed to be a contract entered into and made pursuant to the laws of the Province of Ontario and shall in all respects be governed, construed, applied and enforced in accordance with the laws of said Province, without reference to its conflict of laws rules or principles.

15.15 Choice of Forum and Consent to Jurisdiction.

     Any action arising out of or under this Agreement, any other document, instrument or agreement contemplated herein or delivered pursuant hereto, or the transactions contemplated by this Agreement or any of such other documents, instruments or agreements, shall be brought only in a federal or provincial court having jurisdiction and venue in Ontario, Canada, and each of the parties hereto hereby irrevocably submits to the exclusive jurisdiction of such courts and agrees that venue in Ontario is proper. Sellers hereby irrevocably designates, appoints and empowers (a) in the case of any Management Seller, Cameron Capital and (b) in the case of any other Seller, the Sellers’ Representative and its successors as its authorized special agent to receive, for and on behalf of Sellers, service of process in any such legal action or proceeding, a copy of such process to also be sent in the manner required above for notices to such party. Buyer hereby irrevocably designates, appoints and empowers Stikeman Elliott LLP and its successors, as its authorized special agent to receive, for and on behalf of Buyer and its affiliates, service of process in any such legal action or proceeding, a copy of such process to also be sent in the manner required above for notices to such party. To the extent permitted by applicable law, final judgment against such party (a certified copy of which shall be conclusive evidence of the fact and of the amount of any indebtedness of such party hereunder) in any such legal action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on an unsatisfied judgment or similar proceeding. Each of the parties hereto hereby irrevocably waives and agrees not to assert, by way of motion, as a defense, or otherwise, in any legal action or proceeding, any defense or any claim that it is not personally subject to the jurisdiction of the above-named Ontario courts for any reason, including claims that such party may be immune from the above-described legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, or otherwise), or that such proceeding is brought in an inconvenient or otherwise improper forum or that this Agreement or any of the other aforementioned documents, instruments or agreements, or the subject matter hereof or thereof, may not be enforced in or by such courts, or that the same are governed by the laws of a jurisdiction other than Ontario. Each of the parties hereby specifically agrees that it shall not bring any actions, suits or proceedings arising out of or under this Agreement, any other document, instrument or agreement contemplated herein or delivered pursuant hereto, or the transactions contemplated by this Agreement or any of such other documents, instruments or agreements, in the courts of any jurisdiction other than the above-named courts of Ontario, that any such action brought by any party shall be dismissed upon the basis of the agreements, terms and provisions set forth in this Section 15.15, and that any order or judgment obtained in any such action from a court other than the courts of Ontario shall be void ab initio provided that, notwithstanding the foregoing provisions of this Section 15.15, any party may bring and enforce an action seeking injunctive or other equitable relief in any court of competent jurisdiction.

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15.16 Waiver of Trial by Jury

     EACH PARTY HERETO HEREBY EXPRESSLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM, SUIT, LITIGATION, ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE PARTIES HERETO AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS PROVISION WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED FOR AGREEMENT BETWEEN THE PARTIES IRREVOCABLY TO WAIVE TRIAL BY JURY, AND THAT SUCH PROCEEDING WHATSOEVER BETWEEN THEM SHALL INSTEAD BY TRIED BY A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

15.17 Assignability.

(a)	Except as set forth in Section 15.17(b) below or in Section 7.1, no party hereto shall sell, pledge, assign or otherwise transfer its rights under this Agreement without the prior written consent of the other parties hereto.
(b)	The Buyer may assign and transfer its rights and benefits under this Agreement to any wholly-owned subsidiary of the Buyer, if such subsidiary delivers to the Sellers’ Representative an instrument in writing that it is bound by and shall perform the obligations of the Buyer under this Agreement as if it were an original signatory hereto; provided that no such sale, assignment or transfer shall release the Buyer from any of its obligations hereunder.
(c)	In the event of an assignment contemplated by Section 15.17(b), any reference in this Agreement to the “Buyer” shall be deemed to include such subsidiary.

15.18 Counterparts; Delivery by Facsimile.

     This Agreement may be executed in counterparts and by each party hereto on a separate counterpart, all of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier or facsimile transmission shall be effective as delivery of a manually executed counterpart of this Agreement.

15.19 Knowledge of Company.

     For purposes of this Agreement, the term or phrase “Knowledge of the Company” shall mean and be limited to the actual knowledge of Steven K. Hudson, Fraser Clarke, Michael Brisson and David O’ Toole and without personal liability for any such knowledge.

15.20 Public Announcements.

     No public announcements or other publicity regarding the transactions referred to herein shall be made by the Buyer, the Company or Sellers without the prior written approval of the other parties as to form, timing and manner of distribution or publications, except to the extent

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otherwise required by law or stock exchange rules, except that each party may disclose to their current and prospective banks, shareholders, partners, investors and advisors the name of the other party, the date of the transaction, the price and the key terms under this Agreement and except that the EdgeStone Group may disclose information regarding its investment in the Company and the disposition thereof (including relevant terms) in connection with fund raising activities.

15.21 Mutual Drafting.

     The parties hereto are sophisticated and have been represented by lawyers throughout the transactions contemplated hereby who have carefully negotiated the provisions hereof. As a consequence, the parties do not intend that any presumptions or rules related to the interpretation of contracts against the drafter or any particular clause should be applied to this Agreement and therefore waive their effects.

15.22 Sellers’ Representative.

(a)   The Sellers’ Representative, on the terms hereafter set out, shall act for the Sellers with respect to the calculation of the Purchase Price, with respect to the execution of all agreements and documents (including the Escrow Agreement and the Exchange Fund Agreement) and the making of all deliveries required to be made by the Sellers hereunder, with respect to the waiver of any condition under, and the decision to terminate this Agreement pursuant to, Sections 11 or 14, with respect to claims for indemnification made under Section 13 by the Buyer Indemnified Parties, with respect to claims by the Sellers against the Buyer made under Section 13, with respect to amendments to this Agreement, provided that such amendment shall not adversely affect the rights of any particular Seller or increase the liability or potential liability of any particular Seller in a manner which is not consistent with the manner in which the rights, liabilities or potential liabilities of the other Sellers are to be affected, with respect to amendments to the Schedules as contemplated by Section 15.8 and with respect to any other decision or consent to be made by the Sellers hereunder, provided however that (i) the Sellers’ Representative shall not act for a particular Seller in respect of any matter relating to a claim for indemnification specific to a particular Seller only, and (ii) if the Management Representative has specific authority under Section 15.23 to act for the Management Sellers then the Sellers’ Representative shall have no authority to act for the Management Sellers in connection with such matter. For greater certainty, the assumption by the Sellers’ Representative of the responsibilities set out in this Section 15.22 does not make any Seller liable for more than their respective Pro Rata Liability Share of any claim by the Buyer Indemnified Parties. In each such case in this Agreement, the Buyer shall be entitled to direct all communications through, and rely on decisions made by, the Sellers’ Representative. With respect to all such matters, the Sellers’ Representative may (i) take any and all actions (including without limitation executing and delivering any documents), incurring any costs and expenses for the account of the Sellers and make any and all determinations which may be required or

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	permitted to be taken by the Sellers under this Agreement, including in connection with Sections 11 or 14 of this Agreement, (ii) exercise such other rights, power and authority as are authorized, delegated and granted to the Sellers’ Representative under this Agreement, (iii) dispute or refrain from disputing any claim made by the Buyer Indemnified Parties under this Agreement, (iv) negotiate and compromise any dispute that may arise under and exercise or refrain from exercising any remedies available under this Agreement, (v) execute any settlement agreement, release or other document with respect to such dispute or remedy, and (vi) exercise such rights, power and authority as are incidental to the foregoing.
(b)	Each of the Sellers acts through the Sellers’ Representative with respect to the matters set out in Section 15.22(a) and none of the Sellers have the right to act independently with respect to any such matter or to institute or participate in any suit, action or proceeding, now existing or hereafter arising, against or by the Buyer with respect to this Agreement, any such right being irrevocably and exclusively with the Sellers’ Representative. Notwithstanding any disagreement or dispute among the Sellers or between any of the Sellers and the Sellers’ Representative, the Buyer shall be entitled to rely on any and all action taken by the Sellers’ Representative under this Agreement with respect to matters set out in Section 15.22(a), without any liability to, or obligation to inquire of, any of the Sellers.
(c)	The power and authority of the Sellers’ Representative, as described in this Agreement, shall be effective until all rights and obligations of the Sellers under this Agreement, have terminated, expired or been fully performed. Each of the Sellers shall promptly do, make, execute, deliver, or cause to be done, made, executed or delivered, all such further acts, documents and things as the Sellers’ Representative may require from time to time for the purpose of giving effect to this Section 15.22 and shall use best efforts and take all such steps as may be within its power to implement to their full extent the provisions of this Section 15.22.
(d)	Each of the Sellers shall severally indemnify and hold the Sellers’ Representative (including, for greater certainty, the shareholders, general and limited partners, officers, directors, employees, agents and affiliates of the Sellers’ Representative) (the “Sellers’ Representative Indemnified Parties”) harmless from and against such Seller’s Pro Rata Liability Share of any loss, damage or deficiencies (except as a result from the Sellers’ Representative’s willful misconduct as determined by a court of competent jurisdiction) that the Sellers’ Representative Indemnified Parties may suffer or incur in connection with any action taken by the Sellers’ Representative. Each of the Sellers (including the members of the EdgeStone Group) shall bear its Pro Rata Liability Share of such loss, damage or deficiency. The Sellers’ Representative Indemnified Parties shall not be liable to any of the Sellers with respect to any action or omission taken or omitted to be taken by the Sellers’ Representative pursuant to this Section 15.22, except in respect of the Sellers’ Representative’s willful misconduct as determined by a court of

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	competent jurisdiction. The Sellers’ Representative Indemnified Parties shall not be responsible in any manner whatsoever for any failure or inability of the Buyer to honor any of the provisions of this Agreement. The Sellers’ Representative Indemnified Parties shall be fully protected by the Sellers in acting or relying upon any written notice, direction, request, waiver, notice, consent, receipt or other paper or document which the Sellers’ Representative in good faith believes to be genuine and to have been signed or presented by the proper party or parties. The Sellers’ Representative Indemnified Parties shall not be liable to the Sellers or the Buyer for any error of judgment, or any act done or step taken or omitted in good faith or for any mistake in fact or law, or for anything which it may do or refrain from doing in connection herewith, except for its own willful misconduct as determined by a court of competent jurisdiction.
(e)	The Sellers’ Representative may seek the advice of legal counsel, engage experts or otherwise incur reasonable expenses in the event of any dispute or question as to the construction of any of the provisions of this Agreement, or its duties hereunder, and the Sellers’ Representative Indemnified Parties shall incur no liability to the Sellers with respect to any action taken, omitted or suffered by it in good faith in accordance with the opinion of such counsel or advice of such expert.
(f)	The Sellers shall severally reimburse or otherwise hold the Sellers’ Representative Indemnified Parties harmless from and against their Pro Rata Liability Share of any and all costs and expenses incurred by the Sellers’ Representative in connection with this Agreement and the transactions contemplated hereby, including attorneys’ fees or fees of other experts, and, in addition to any and all other remedies available, the Sellers’ Representative Indemnified Parties shall have the right to direct that any amounts due to the Sellers under this Agreement be paid to the Sellers’ Representative Indemnified Parties to satisfy such costs and expenses.
(g)	The Sellers’ Representative may resign at any time upon thirty days notice by submitting a written resignation to the Management Representative. In the case of the resignation of the Sellers’ Representative, the EdgeStone Group shall promptly appoint a successor.
(h)	By execution and delivery of this Agreement by such Seller or his or her representative, agent or attorney, each of the Sellers hereby irrevocably constitutes and appoints the Sellers’ Representative as the true and lawful agent and attorney-in-fact of such Seller, which appointment is coupled with an interest, with full authority and power of substitution, except to the extent expressly provided to the contrary herein, to act in the name, place and stead of such Seller with respect to all powers and rights in this Agreement (including without limitation to (i) amend or terminate this Agreement in accordance with this Agreement, (ii) receive or deliver any and all notices to be delivered to or by any of the Sellers hereunder, (iii) receive, hold and deliver to the Buyer Stock certificates and any other documents (including

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stock powers or other instruments or transfer relating thereto, and (iv) execute, acknowledge, deliver, record and file all ancillary agreements, certificates and documents which the Sellers’ Representative deems necessary or appropriate in its sole discretion in connection with the consummation of the transactions contemplated by the terms and provisions of this Agreement). Buyer and each of the Sellers hereby acknowledges that the Sellers’ Representative, with respect to the matters set out in this Section 15.22, will not be acting in such Person’s individual capacity pursuant to the terms of this Agreement, but solely in its capacity as the Sellers’ Representative (and accordingly, as a representative of the Sellers). Buyer and each of the Sellers hereby agrees that the Sellers’ Representative will not be liable to that party for any action taken or omitted in good faith in its capacity as the Sellers’ Representative.

15.23 Management Representative.

(a)

The Management Representative, on the terms hereafter set out, shall act for the Management Sellers with respect to any claim for indemnification made under Section 13 by the Buyer Indemnified Parties (other than relating to third party claims or a Tax Claim). For greater certainty, the assumption by the Management Representative of the responsibilities set out in this Section 15.23 does not make any of Management Sellers liable for more than their respective Pro Rata Liability Share of any claim by the Buyer Indemnified Parties. In each such case in this Agreement, the Buyer shall be entitled to direct all communications to the Management Sellers through, and rely on decisions made by, the Management Representative. With respect to all such matters, the Management Representative may (i) take any and all actions (including without limitation executing and delivering any documents), incurring any costs and expenses for the account of the Management Sellers and making any and all determinations which may be required or permitted to be taken by the Management Representative under this Agreement, (ii) exercise such other rights, power and authority as are authorized, delegated and granted to the Management Representative under this Agreement, (iii) dispute or refrain from disputing any claim made by the Buyer Indemnified Parties under this Agreement against the Management Sellers, (iv)with respect to the Management Sellers, negotiate and compromise any dispute that may arise under and exercise or refrain from exercising any remedies available under this Agreement, (v) execute any settlement agreement, release or other document with respect to such dispute or remedy, and (vi) exercise such rights, power and authority as are incidental to the foregoing.

(b)

Each of the Management Sellers acts through the Management Representative with respect to the matters set out in Section 15.23(a) and none of the Management Sellers have the right to act independently with respect to any such matter or to institute or participate in any suit, action or proceeding, now existing or hereafter arising, against or by the Buyer with respect to this Agreement, any such right being irrevocably and exclusively with the Management Representative. Notwithstanding any disagreement or dispute

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	among the Management Sellers or between any of the Management Sellers and the Management Representative, the Buyer shall be entitled to rely on any and all action taken by the Management Representative under this Agreement with respect to matters set out in Section 15.23(a), without any liability to, or obligation to inquire of, any of the Management Sellers.
(c)	The power and authority of the Management Representative, as described in this Agreement, shall be effective until all rights and obligations of the Management Sellers under this Agreement, have terminated, expired or been fully performed. Each of the Management Sellers shall promptly do, make, execute, deliver, or cause to be done, made, executed or delivered, all such further acts, documents and things as the Management Representative may require from time to time for the purpose of giving effect to this Section 15.23 and shall use best efforts and take all such steps as may be within its power to implement to their full extent the provisions of this Section 15.23.
(d)	Each of the Management Sellers shall severally indemnify and hold the Management Representative (including, for greater certainty, his heirs, executors and personal representatives) (the “Management Representative Indemnified Parties”) harmless from and against such Management Sellers’ proportionate share (relative to the other Management Shareholders) of any loss, damage or deficiencies (except as a result from the Management Representative’s willful misconduct as determined by a court of competent jurisdiction) that the Management Representative Indemnified Parties may suffer or incur in connection with any action taken by the Management Representative. Each of the Management Sellers (including the members of the Hudson Group) shall bear his, her or its proportionate share (relative to the other Management Shareholders) of such loss, damage or deficiency. The Management Representative Indemnified Parties shall not be liable to any of the Management Sellers with respect to any action or omission taken or omitted to be taken by the Management Representative pursuant to this Section 15.23, except in respect of the Management Representative’s willful misconduct as determined by a court of competent jurisdiction. The Management Representative Indemnified Parties shall not be responsible in any manner whatsoever for any failure or inability of the Buyer to honor any of the provisions of this Agreement. The Management Representative Indemnified Parties shall be fully protected by the Management Sellers in acting or relying upon any written notice, direction, request, waiver, notice, consent, receipt or other paper or document which the Management Representative in good faith believes to be genuine and to have been signed or presented by the proper party or parties. The Management Representative Indemnified Parties shall not be liable to the Management Sellers or the Buyer for any error of judgment, or any act done or step taken or omitted in good faith or for any mistake in fact or law, or for anything which it may do or refrain from doing in connection herewith, except for its own willful misconduct as determined by a court of competent jurisdiction.

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(e)	The Management Representative may seek the advice of legal counsel, engage experts or otherwise incur reasonable expenses in the event of any dispute or question as to the construction of any of the provisions of this Agreement, or its duties hereunder, and the Management Representative Indemnified Parties shall incur no liability to the Management Sellers with respect to any action taken, omitted or suffered by it in good faith in accordance with the opinion of such counsel or advice of such expert.
(f)	Each of the Management Sellers shall severally reimburse or otherwise hold the Management Representative Indemnified Parties harmless from and against his, her or its proportionate share (relative to the other Management Shareholders) of any and all costs and expenses incurred by the Management Representative in connection with this Agreement and the transactions contemplated hereby, including attorneys’ fees or fees of other experts, and, in addition to any and all other remedies available, the Management Representative Indemnified Parties shall have the right to direct that any amounts due to the Management Sellers under this Agreement be paid to the Management Representative Indemnified Parties to satisfy such costs and expenses.
(g)	By execution and delivery of this Agreement by such Management Seller or his or her representative, agent or attorney, each of the Management Sellers hereby irrevocably constitutes and appoints the Management Representative as the true and lawful agent and attorney-in-fact of such Management Seller which appointment is coupled with an interest, with full authority and power of substitution, except to the extent expressly provided to the contrary herein, to act in the name, place and stead of such Management Seller with respect to the matters set out in Section 15.23(a) (including without limitation to receive or deliver any and all notices to be delivered to or by any of the Management Sellers hereunder). Buyer and each of the Management Sellers hereby acknowledges that the Management Representative, with respect to the matters set out in this Section 15.23, will not be acting in such Person’s individual capacity pursuant to the terms of this Agreement, but solely in its capacity as the Management Representative (and accordingly, as a representative of the Management Sellers). Buyer and each of the Management Sellers hereby agrees that the Management Representative will not be liable to that party for any action taken or omitted in good faith in its capacity as the Management Representative.

15.24 Morton Option Termination

     Morton hereby agrees that, effective automatically upon the Closing, the Options held by him and any and all option agreements, plans or other agreements or documents of any kind relating to options or other rights to acquire Common Shares (other than this Agreement, the Escrow Agreement and any other agreement executed and delivered in connection herewith), shall terminate and become null and void and Morton shall have no further rights thereunder and that the Company and its subsidiaries are released from any obligation pursuant to such matters.

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[Signature Page Follows]

           IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

REGIS CORPORATION
by:	/s/ Paul D. Finkelstein
	Name: Paul D. Finkelstein
	Title:   Chairman and CEO
by:	/s/ [ILLEGIBLE]
	Name:
	Title:
EDGESTONE CAPITAL EQUITY PARTNERS, INC., as general partner or agent for and on behalf of EDGESTONE CAPITAL EQUITY FUND, L.P. and its parallel investors
by:
	Name:
	Title:
by:
	Name:
	Title:
EDGESTONE CAPITAL EQUITY NOMINEE, INC. as nominee for and on behalf of EDGESTONE CAPITAL EQUITY FUND, L.P. and its parallel investors
by:
	Name:
	Title:
by:
	Name:
	Title:

           IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

REGIS CORPORATION
by:
	Name:
	Title:
by:
	Name:
	Title:
EDGESTONE CAPITAL EQUITY PARTNERS, INC., as general partner or agent for and on behalf of EDGESTONE CAPITAL EQUITY FUND, L.P. and its parallel investors
by:	/s/ [ILLEGIBLE]
	Name:
	Title:
by:
	Name:
	Title:
EDGESTONE CAPITAL EQUITY NOMINEE, INC. as nominee for and on behalf of EDGESTONE CAPITAL EQUITY FUND, L.P. and its parallel investors
by:	/s/ [ILLEGIBLE]
	Name:
	Title:
by:
	Name:
	Title:

EDGESTONE CAPITAL EQUITY FUND II-B GP, INC., as agent for and on behalf of EDGESTONE CAPITAL EQUITY FUND II-A, L.P. and its parallel investors
by:	/s/ [ILLEGIBLE]
	Name:
	Title:
by:
	Name:
	Title:
EDGESTONE CAPITAL EQUITY FUND II NOMINEE, INC. as nominee for and on behalf of EDGESTONE CAPITAL EQUITY FUND II-A, L.P. and its parallel investors
by:	/s/ [ILLEGIBLE]
	Name:
	Title:
by:
	Name:
	Title:
EDGESTONE CAPITAL MEZZANINE II PARTNERS, INC. as general partner or agent for and on behalf of EDGESTONE CAPITAL MEZZANINE FUND II, L.P. and its parallel investors
by:	/s/ [ILLEGIBLE]
	Name:
	Title:
by:
	Name:
	Title:

EDGESTONE CAPITAL MEZZANINE FUND II NOMINEE, INC., as nominee for and on behalf of EDGESTONE CAPITAL MEZZANINE FUND II, L.P., and its parallel investors
by:	/s/ [ILLEGIBLE]
	Name:
	Title:
by:
	Name:
	Title:
CAMERON CAPITAL CORPORATION
by:
	Name: Steve Hudson
	Title:   President

EDGESTONE CAPITAL MEZZANINE FUND II NOMINEE, INC., as nominee for and on behalf of EDGESTONE CAPITAL MEZZANINE FUND II, L.P., and its parallel investors
by:
	Name:
	Title:
by:
	Name:
	Title:
CAMERON CAPITAL CORPORATION
by:	/s/ Steve Hudson
	Name: Steve Hudson
	Title:   President

1407718 ONTARIO INC.
by:	/s/ Leslie Martin
	Name: Leslie Martins
	Title:
by:
	Name:
	Title:
Each of the MANAGEMENT SHAREHOLDERS, by his or her representative and attorney 4113773 CO. INC.
by:
	Name:
	Title:
by:
	Name:
	Title:
Each of the OPTIONHOLDERS, by his or her representative and attorney 4113773 CO. INC.
by:
	Name:
	Title:
by:
	Name:
	Title:

1407718 ONTARIO INC.
by:
	Name: Leslie Martin
	Title:
by:
	Name:
	Title:
Each of the MANAGEMENT SHAREHOLDERS, by his or her representative and attorney 4113773 CO. INC.
by:	/s/ [ILLEGIBLE]
	Name:
	Title:
by:
	Name:
	Title:
Each of the OPTIONHOLDERS, by his or her representative and attorney 4113773 CO. INC.
by:	/s/ [ILLEGIBLE]
	Name:
	Title:
by:
	Name:
	Title:

	)
	)
	)
	)
	)
/s/ [ILLEGIBLE]	)	/s/ Steven K. Hudson
Witness		Steven K. Hudson
	)
	)
	)
	)
	)
	)
Witness		Leslie Martin
	)
	)
	)
	)
	)
	)
Witness		Scott Walmsley
	)
	)
	)
	)
	)
	)
Witness		Paul Morton

HAIR CLUB GROUP INC.
by:
	Name:
	Title:
by:
	Name:
	Title:

	)
	)
	)
	)
	)
	)
Witness		Steven K. Hudson
	)
	)
	)
	)
	)
/s/ [ILLEGIBLE]	)	/s/ Leslie Martin
Witness		Leslie Martin
	)
	)
	)
	)
	)
	)
Witness		Scott Walmsley
	)
	)
	)
	)
	)
	)
Witness		Paul Morton

HAIR CLUB GROUP INC.
by:
	Name:
	Title:
by:
	Name:
	Title:

	)
	)
	)
	)
	)
	)
Witness		Steven K. Hudson
	)
	)
	)
	)
	)
	)
Witness		Leslie Martin
	)
	)
	)
	)
	)
/s/ [ILLEGIBLE]	)	/s/ Scott Walmsley
Witness		Scott Walmsley
	)
	)
	)
	)
	)
	)
Witness		Paul Morton

HAIR CLUB GROUP INC.
by:
	Name:
	Title:
by:
	Name:
	Title:

	)
	)
	)
	)
	)
	)
Witness		Steven K. Hudson
	)
	)
	)
	)
	)
	)
Witness		Leslie Martin
	)
	)
	)
	)
	)
	)
Witness		Scott Walmsley
	)
	)
	)
	)
	)
/s/ [ILLEGIBLE]	)	/s/ Paul Morton
Witness		Paul Morton

HAIR CLUB GROUP INC.
by:
	Name:
	Title:
by:
	Name:
	Title:

	)
	)
	)
	)
	)
	)
Witness		Steven K. Hudson
	)
	)
	)
	)
	)
	)
Witness		Leslie Martin
	)
	)
	)
	)
	)
	)
Witness		Scott Walmsley
	)
	)
	)
	)
	)
	)
Witness		Paul Morton

HAIR CLUB GROUP INC.
by:	/s/ [ILLEGIBLE]
	Name:
	Title:
by:
	Name:
	Title:

     The following executes this Agreement as the Sellers’ Representative solely to obtain the benefit of the indemnities provided to it in Section 15.22.

EDGESTONE CAPITAL PARTNERS INC.
by:	/s/ [ILLEGIBLE]
	Name:
	Title:
by:
	Name:
	Title:

     The following executes this Agreement as the Management Representative solely to obtain the benefit of the indemnities provided to him in Section 15.23.

	)
	)
	)
	)
	)
	)
Witness		Steven K. Hudson

     The following executes this Agreement as the Sellers’ Representative solely to obtain the benefit of the indemnities provided to it in Section 15.22.

EDGESTONE CAPITAL PARTNERS INC.
by:
	Name:
	Title:
by:
	Name:
	Title:

     The following executes this Agreement as the Management Representative solely to obtain the benefit of the indemnities provided to him in Section 15.23.

	)
	)
	)
	)
	)
/s/ [ILLEGIBLE]	)	/s/ Steven K. Hudson
Witness		Steven K. Hudson

EX-15

Exhibit No. 15

February 9, 2005

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington DC 20549

RE: Regis Corporation Registration Statements on Form S-3 (File No. 333-100327, No. 333-51094, No. 333-28511, No. 333-78793, No. 333-49165, No. 333-89279, No. 333-90809, No. 333-31874, No. 333-57092, No. 333-72200, No. 333-87482, No. 333-102858 and No. 333-116170), and Form S-8 (File No. 33-44867 and No. 33-89882)

Commissioners:

We are aware that our report dated January 26, 2005, on our reviews of the interim condensed consolidated financial information of Regis Corporation (the “Company”) as of December 31, 2004, and for the three and six month periods ended December 31, 2004 and 2003 included in the Company’s quarterly report on Form 10-Q for the quarter then ended, is incorporated by reference in the above referenced registration statements.

Yours very truly,

/s/ PRICEWATERHOUSECOOPERS LLP

PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota

EX-31.1

Exhibit No. 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

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

1.	I have reviewed this quarterly report on Form 10-Q of Regis Corporation;
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.	The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.   The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s Board of Directors:

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

February 9, 2005

/s/ Paul D. Finkelstein
Paul D. Finkelstein, Chairman of the Board of Directors, President and Chief Executive Officer

EX-31.2

Exhibit No. 31.2

CERTIFICATION 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 quarterly report on Form 10-Q of Regis Corporation;
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.	The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.   The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s Board of Directors:

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

February 9, 2005

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

EX-32.1

Exhibit No. 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Regis Corporation (the Registrant) on Form 10-Q for the fiscal quarter ending September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof, I, Paul D. Finkelstein, Chairman of the Board of Directors, President and Chief Executive Officer of the Registrant, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Quarterly Report on Form 10-Q 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 Quarter Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

February 9, 2005

/s/ Paul D. Finkelstein
Paul D. Finkelstein, Chairman of the Board of Directors, President and Chief Executive Officer

EX-32.2

Exhibit No. 32.2

CERTIFICATION PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Regis Corporation (the Registrant) on Form 10-Q for the fiscal quarter ending September 30, 2004 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. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

February 9, 2005

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