-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LJscfm/NzV0KsZGBiBDaDaRfEJ/DofCZaMyPDrMl4qXn8tPNXnNADE9cdDMgZPCQ J6aa/gfSgbJhq0iEcv7o8g== 0001047469-99-036112.txt : 19990920 0001047469-99-036112.hdr.sgml : 19990920 ACCESSION NUMBER: 0001047469-99-036112 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990917 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGIS CORP CENTRAL INDEX KEY: 0000716643 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 410749934 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-11230 FILM NUMBER: 99713302 BUSINESS ADDRESS: STREET 1: 7201 METRO BLVD CITY: MINNEAPOLIS STATE: MN ZIP: 55439 BUSINESS PHONE: 6129477000 MAIL ADDRESS: STREET 1: 7201 METRO BLVD CITY: MINNEAPOLIS STATE: MN ZIP: 55439 10-K 1 FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________to ___________ Commission file number 0-11230 ---------- Regis Corporation ---------------------- (Exact name of registrant as specified in its charter) Minnesota 41-0749934 - ---------------------------- ------------------- State or other jurisdiction (I.R.S. Employer of incorporation or organization Identification No.) 7201 Metro Boulevard, Edina, Minnesota 55439 - --------------------------------------- ------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (612) 947-7777 ----------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None - ----------------- --------------- Securities registered pursuant to section 12(g) of the Act: Common Stock, Par Value $.05 per share ---------------------------------------------- (Title of class) 1 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by nonaffiliates of registrant (based upon closing price of $19.875 per share as of September 3, 1999, as quoted on the NASDAQ), was $769,245,420. The number of outstanding shares of the registrant's common stock, par value $.05 per share, as of September 3, 1999, was 38,704,172. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement dated September 15, 1999 and Annual Report to Shareholders for the year ended June 30, 1999, are incorporated by reference into Parts I, II and III. 2 PART I ITEM 1. BUSINESS BACKGROUND Regis Corporation (the Company), based in Minneapolis, Minnesota, is the largest owner, operator, franchisor, and consolidator of hair and retail product salons in the world. The Regis worldwide operations include 4,954 hairstyling salons at June 30, 1999 operating in two segments: domestic and international. The Company's domestic operations include 4,650 salons operated and franchised primarily under the brand names of Regis Salons, MasterCuts, Trade Secret, SmartStyle, Supercuts and Cost Cutters. The Company's international operations include 304 salons located in the United Kingdom (U.K.). The Company has more than 31,000 employees worldwide. INDUSTRY OVERVIEW Management estimates that annual revenues of the haircare industry are $45 billion in the United States and $90 billion worldwide. The industry is highly fragmented with the vast majority of haircare salons independently owned. However, the influence of chains, both franchise and company-owned, has increased substantially, although still accounting for a small percentage of total locations. Management believes that chains will continue to increase their presence. Management also believes that the demand for salon services and products will increase in the next decade as the population ages and desires additional haircare services, such as coloring. BUSINESS STRATEGY The Company's goal is to provide high quality haircare services and products to customers in different market groups through physically attractive salons located in high profile and convenient locations. The key elements of the Company's strategy to achieve these goals are the following: CONSISTENT, QUALITY SERVICE. The Company is committed to meeting its customer's haircare needs by providing competitively priced services and products in convenient locations with professional and knowledgeable hairstylists. The Company's operations and marketing emphasize high-quality services to create customer loyalty, to encourage referrals and to distinguish the Company's salons from its competitors. The major services supplied by the Company's salons are haircutting and styling, hair coloring, shampooing, conditioning and permanent waving. To promote quality and consistency of services provided throughout the Company's salons, Regis has full and part-time artistic directors whose duties are to teach and train salon operators and to instruct the stylists in current styling trends. During fiscal 1999, the Company and its franchisees provided services to approximately 98 million customers worldwide. 3 MALL-BASED LOCATIONS. As the largest national mall-based operator in the hair salon industry, the Company has the ability to obtain desirable locations in high-profile, regional malls anchored by major department stores. Mall owners and developers typically seek retailers such as Regis due to the Company's financial strength, successful salon operations and status as a national mall tenant. The Company's locations, which are aesthetically appealing and designed to attract customers from mall shoppers, provide a steady source of new business. STRIP-CENTER-BASED LOCATIONS. The mergers with Supercuts, Inc. (Supercuts) in October 1996 and The Barbers, Hairstyling for Men & Women, Inc. (The Barbers) in May 1999 position the Company in the rapidly growing strip shopping center segment of the retail haircare market in the United States. In the past three years, the Company has grown this division to be a significant part of its operations with 2,282 salons as of June 30, 1999. The Company's strip center salons are conveniently located in strip shopping centers with adequate traffic, appropriate trade area demographics, good visibility within the center or from adjoining streets, effective signage, easy access and adequate parking. The Company seeks to locate its salons in so-called "power strips", anchored by the number one or two grocery chain in the specific market or alternatively, a major mass merchant. In addition, the Company has added 183 company-owned strip center salons, operating primarily as Hair Masters or Style America Salons, through acquisitions to its strip center salon base. MULTIPLE SALON CONCEPTS. Regis operates salons primarily under six concepts: Regis Salons, MasterCuts, Trade Secret, Wal-Mart/SmartStyle, Strip Center Salons (primarily Supercuts and Cost Cutters) and International. Regis' various salon concepts in the United States address the major segments of the salon market. The Company's regional mall salon concepts provide the Company with the ability to have multiple locations within a single mall. Regis Salons appeals primarily to women and are positioned at the moderate-to-upscale end of the salon market. MasterCuts appeal to the more value-conscious customer with promotional or discount prices and have a higher percentage of men and children as customers. Trade Secret provides hairstyling service and a broad selection of quality haircare and beauty products sold only through professional salons. Because the square footage for each of these concepts is approximately the same, the Company has the ability to determine which salon concept is best suited to a new location and change the concept of existing salons to meet customer preference or demographic changes in the salon's market. In addition, the Company also operates salons outside the mall, as previously mentioned. The company's Strip Center Salons division includes salons operated or franchised under the Supercuts, Cost Cutters, City Looks and We Care Hair, Hair Masters and Style America brand names. Supercuts, the Company's most recognized brand, targets the adult male looking for consistently high quality, affordable hair cuts in a convenient, no appointment setting. Through its fiscal 1999 merger with The Barbers, the Company added 783 franchised strip center salons operating under within three concepts: Cost Cutters, City Looks and We Care Hair. Cost Cutters salons provide high quality, value-priced hair care services for men, women and children. City Looks salons are higher-end, full service concepts based in upper-end strip centers and regional 4 centers. We Care Hair Salons offer full-service hair, nails, skincare and tanning in strip centers at affordable prices. The Company has also added 183 other company-owned strip center salons through its acquisition strategy in the past two years, which primarily operate under the Hair Masters and Style America brands. Both concepts are full-service, however, Style America caters to time-pressed, value-orientated families, while Hair Masters offers moderately-priced services to a predominately female demographic. SmartStyle Family Hair Salons located in Wal-Mart stores and supercenters offer promotionally priced, family-oriented hair care. In fiscal 1999, Regis became the primary provider of Wal-Mart salon services as a result of the merger with The Barbers, adding 199 (158 franchised) Cost Cutter salons located in Wal-Mart stores and supercenters. As of June 30, 1999, the Company operated or franchised a total 544 salons in Wal-Marts. This market position, coupled with Wal-Mart's renowned expansion provides an excellent opportunity for the Company. The Company's International salons are located in department stores, hotels and stand-alone locations and are primarily focused on the moderate-to-upscale market. EXPANSION. The Company has grown through increased revenues from existing salons, constructing additional salons, and mergers and acquisitions. Since 1994, the Company has added 3,475 net units (including franchised salons) to its worldwide salon base from new salon construction as well as mergers and acquisitions. During this same period of time, the Company added new salon concepts, Trade Secret and SmartStyle, merged with Supercuts and The Barbers, and expanded its Regis Salons and MasterCuts concepts. In addition to continuing its salon acquisition strategy, the Company expects to construct about 360 new company-owned salons and complete approximately 125 major remodeling and conversion projects during fiscal 2000. The Company intends to continue to focus future growth of salons in strip shopping centers across the United States as it adds additional company-owned salons and assists current and new franchisees in their expansion and market development. The Company believes the growth opportunities in the strip shopping center segment of the retail haircare market in the United States are vast, and will complement the Company's continuing growth of its mall-based concepts. The Company does not intend to refocus other concepts, located in enclosed shopping malls throughout the United States, into the strip shopping center segment of the retail haircare market, nor does it intend to refocus its strip center salons into the enclosed shopping mall segment of the retail haircare market in the United States. In addition, the company plans to continue pursuing expansion opportunities through adding company-owned and franchised salons in Wal-Mart stores and supercenters. HIGH QUALITY HAIRCARE PRODUCTS. Through Trade Secret and the Company's other salons, Regis sells nationally-recognized haircare products such as Matrix-Registered Trademark-, Paul Mitchell-Registered Trademark-, Sebastian-Registered Trademark-, Redken-Registered Trademark-, and Nexxus-Registered Trademark- and a complete line of products sold under the Regis label, which is one of the Company's best selling product lines. The salon branded products are typically sold only through professional salons and generate slightly higher gross margins than haircutting and other salon services. The Company's stylists are trained to sell haircare products as well as services such 5 as color treatments and manicures to their customers. Sales of haircare products increased 16.7 percent in fiscal 1999 to $263.7 million and represented 28.4 percent of company-owned revenues. CONTROL OVER SALON OPERATIONS. Regis controls the quality of operations and enjoys certain economies of scale in terms of certain corporate and store level expenses. The Company has an extensive training program, including the production of training videos for use in the salons, to ensure that hairstylists are knowledgeable and provide consistent quality haircare services. ECONOMIES OF SCALE. Management believes that due to its size and number of locations the Company has certain advantages which are not available to single location salons or small chains. The Company uses its point-of-sale system to track inventory at the salons and to accumulate and monitor service and product sales. This product and customer information is used to evaluate salon productivity and, in some cases, to determine the most appropriate salon use for the location. Additionally, as a result of its volume purchases, the Company is able to purchase haircare products and supplies and salon fixtures on an advantageous basis. The Company is also able to gain national and local market recognition for the Regis name and its salon concepts through national and local advertising and promotional programs. DOMESTIC SALONS: REGIS SALONS. Regis Salons are full-service salons providing complete haircare and beauty services aimed at moderate to upscale, fashion-conscious consumers. The customer mix at Regis Salons is approximately 70 percent women and 30 percent men. These salons offer a full range of custom hairstyling, cutting, coloring, permanent wave and manicuring as well as haircare products. The average sale at Regis Salons is approximately $23. Regis Salons compete in their existing markets primarily by emphasizing the high quality of full services provided. The Company actively monitors the prices charged by its competitors in each area and makes every effort to maintain prices which, although in the higher range of local prices, are not so high as to be uncompetitive with prices of other salons offering similar, high-quality services. At June 30, 1999, the Company operated 905 Regis Salons in shopping malls in North America. Revenues from the Regis Salons were $356 million, or 37 percent of the Company's total revenues, in fiscal 1999. The Company expects to construct about 50 new Regis Salons in fiscal 2000. MASTERCUTS FAMILY HAIRCUTTERS. MasterCuts Family Haircutters salons serve a broader customer base than Regis Salons and respond to competitive pressures for lower cost haircare services. MasterCuts salons emphasize quality haircutting, lower prices and time-saving services for the entire family. The customer mix at MasterCuts salons contains a greater percentage of men and children than at Regis Salons salons. MasterCuts salons cater to walk-in customers and provide a warm, inviting atmosphere that is comfortable for all members of the family. Many of the same product lines sold in Regis Salons are also available in MasterCuts salons. The average sale at MasterCuts salons is approximately $12. The MasterCuts salons place more emphasis on discount or promotional pricing for the services being offered in order to compete more effectively with the chains of salons, primarily franchises, now offering such services at discount prices. In certain markets, the Company has been able to improve a salon's performance by converting it to a MasterCuts salon. At June 30, 1999, the Company operated 460 MasterCuts salons in North 6 America. Revenues from MasterCuts salons accounted for $123 million, or 13 percent of the Company's total revenues, in fiscal 1999. During fiscal 2000, the Company plans to construct approximately 50 new MasterCuts salons. TRADE SECRET. Trade Secret salons emphasize haircare and beauty product sales in a retail setting while providing high-quality haircare services. Trade Secret salons are designed to display and attract sales of haircare and beauty products. Trade Secret salons offer the same products as the Regis Salons and MasterCuts salons, but also have additional haircare items. The average sale at Trade Secret salons is approximately $16. At June 30, 1999, the number of Trade Secret salons totaled 459 in North America, including 27 franchised locations. Revenues and franchise income from company-owned Trade Secret salons and franchising activity during fiscal 1999 was $137 million and $2 million, respectively, or 14 percent of the Company's total revenues. The Company anticipates constructing approximately 45 new Trade Secret salons in fiscal 2000. WAL-MART. The Company expanded into the mass merchant retail arena in May 1996 by acquiring 154 salons operating within Wal-Mart stores and supercenters. Wal-Mart salons share many operating characteristics with MasterCuts: pricing is promotional, services are focused on family hair cutting, and product revenues contribute solidly to overall revenues. In fiscal 1998, the Company introduced a new brand name, SmartStyle Family Hair Salons, for its company-owned Wal-Mart salons and rapidly expanded this new brand name into its Wal-Mart salons in fiscal 1999. As part of the merger with The Barbers in May 1999, the Company acquired 199 (158 franchised) salons operating as Cost Cutters in Wal-Mart stores and supercenters making Regis the primary provider of salon services in Wal-Marts. The Company operated 544 company-owned and franchised salons within Wal-Mart stores and supercenters at June 30, 1999. Revenue from company-owned Wal-Mart salons totaled $64 million, or 6 percent of the Company's total revenue. The Company anticipates constructing about 120 new company-owned SmartStyle salons and franchise 40 new Cost Cutters in Wal-Mart stores and supercenters in fiscal 2000. STRIP CENTER SALONS. The Company's Strip Center Salon division is comprised of 1,615 franchised and 667 company-owned salons operating under the following concepts: SUPERCUTS. The Supercuts concept provides consistent high quality haircare services to its customers at convenient times and locations and at a reasonable price. The services offered by Supercuts salons are limited and standardized. The salons are designed for ease of operation and the demand for basic haircare is believed to be recession resistant and non-seasonal. This concept appeals to men, women and children, although male customers account for over 75 percent of total haircuts. Consumer research indicates that males get their hair cut slightly more often (8-9 times annually) than females (7-8 times annually) and their haircuts generally take less time. The Supercuts concept targets a male audience. At June 30, 1999, the Company operated 1,316 Supercuts in North America, including 825 franchised locations. Revenues and franchise income from company-owned Supercuts and franchising activity during fiscal 1999 was $116 million and $24 million, respectively, or 14 percent of the Company's total revenues. The Company plans to construct 65 new company-owned and 110 franchised Supercuts stores in fiscal 2000. 7 COST CUTTERS FAMILY HAIR CARE/CITY LOOKS SALONS/WE CARE HAIR. This group of franchised salons were added to the Company's salon base as a result of the merger with The Barbers in fiscal 1999, as previously discussed. Cost Cutters Salons provide value-priced hair care services for men, women and children. In addition, Cost Cutters salons sell a complete line of professional hair care products. City Looks Salons are more upscale, full-service concepts located in regional centers and strip centers. We Care Hair Salons offer full-service hair, nails, skin care and tanning in strip centers at affordable prices. At June 30, 1999, the Company franchised 783 salons generating franchise income during fiscal 1999 of $21 million, or 2 percent of the Company's total revenues. The Company plans to add 40 franchise salons to the system in fiscal 2000. COMPANY-OWNED STRIP CENTER SALONS. The Company-owned Strip Center Salons is made up of successful salon groups acquired over the past two years. These salons have typically been or will be converted to either the Hair Masters or Style America brand names. Both concepts are full-service, however Style America caters to time-pressed, value-orientated families, while Hair Masters offers moderately-priced services to a predominately female demographic. At June 30, 1999, the Company operated 183 salons with fiscal 1999 revenues of $30 million. The Company anticipates adding 20 new salons to this group in fiscal 2000. INTERNATIONAL SALONS: The Company operated 304 hair care salons in the United Kingdom at June 30, 1999. Canadian salons operate primarily under the Regis Salons, MasterCuts, Supercuts and Trade Secret brand names and revenues are included within the respective operating divisions. Salons in the U.K. operate in malls, leading department stores, mass merchants, under license arrangements. During fiscal 1999, the International division divested its overseas salons outside the U.K. in order to focus on the U.K., which offers the Company stronger growth potential. Regis is the largest salon operator in the U.K. Revenues from the International salon operations were $101 million, or 10 percent of the Company's total revenues, in fiscal 1999. The Company expects to continue to modestly increase its International salon base in fiscal 2000. NEW SALON DEVELOPMENT The table on the following pages sets forth the number of Company salons opened at the beginning and end of each of the last five years, as well as the number of salons opened, closed, relocated, converted and acquired during each of these periods. 8 SALON LOCATION SUMMARY
1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- REGIS Open at beginning of period 825 811 821 835 844 Salons constructed 17 31 28 33 41 Acquired 9 9 18 15 63 Less: Relocations 11 11 10 15 20 ----- ----- ----- ----- ----- Net salon openings 15 29 36 33 Conversions (10) (4) (4) Salons closed or sold (19) (15) (18) (24) (23) ----- ----- ----- ----- ----- Open at end of period 811 821 835 844 905 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- STRIP CENTERS (PRIMARILY SUPERCUTS AND COST CUTTERS) Company-Owned: Open at beginning of period 332 470 516 423 500 Salons constructed 107 47 2 7 60 Acquired 16 1 47 143 Less: Relocations 3 ----- ----- ----- ----- ----- Net salon openings 123 48 6 54 200 Conversions (1) 21 9 (61) 38 (25) Salon closed or sold (6) (13) (38) (15) (8) ----- ----- ----- ----- ----- Open at end of period 470 516 423 500 667 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Franchised Salons: Open at beginning of period 1,234 1,269 1,328 1,566 1,579 Salons added 64 93 91 96 106 Acquired 3 104 30 Less: Relocations 3 4 ----- ----- ----- ----- ----- Net salon openings 64 96 195 123 102 Conversions (1) (21) (9) 61 (38) (2) Salon closed or sold (8) (28) (18) (72) (64) ----- ----- ----- ----- ----- Open at end of period 1,269 1,328 1,566 1,579 1,615 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- MASTERCUTS Open at beginning of period 257 283 327 362 412 Salons constructed 21 33 36 50 47 Acquired 1 12 2 8 13 Less: Relocations 2 3 3 4 7 ----- ----- ----- ----- ----- Net salon openings 20 42 35 54 Conversions 10 3 3 Salon closed or sold (4) (1) (3) (4) (5) ----- ----- ----- ----- ----- Open at end of period 283 327 362 412 460 ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
9
1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- TRADE SECRET Company-Owned: Open at beginning of period 106 152 219 302 340 Salons constructed 28 40 56 32 44 Acquired 19 11 11 14 64 Less: Relocations 1 4 4 4 9 ----- ----- ----- ----- ----- Net salon openings 46 47 63 42 Conversions (1) 2 20 24 2 (7) Salon closed or sold (2) (4) (6) ----- ----- ----- ----- ----- Open at end of period 152 219 302 340 432 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Franchised Salons: Open at beginning of period 64 68 55 38 34 Salons added 7 8 6 Acquired Less: Relocations 1 ----- ----- ----- ----- ----- Net salon openings 77 6 Conversions (1) (2) (19) (23) (2) (7) Salon closed or sold (1) (1) (2) ----- ----- ----- ----- ----- Open at end of period 68 55 38 34 27 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- WAL-MART/SMARTSTYLE/COST CUTTERS Company-owned: Open at beginning of period 0 3 168 198 293 Salons constructed 3 10 30 48 96 Acquired 154 47 0 Less: Relocations salons closed or sold 3 ----- ----- ----- ----- ----- Net salon openings 3 164 30 95 93 Open at end of period 3 168 198 293 386 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Franchised Salons: Open at beginning of period 31 81 117 136 Salons added 31 50 36 19 22 ----- ----- ----- ----- ----- Net salon openings 31 81 117 136 158 ----- ----- ----- ----- ----- Open at end of period 31 81 117 136 158 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- INTERNATIONAL (2) Open at beginning of period 251 244 408 423 292 Salons constructed 9 9 26 17 12 Acquired 2 178 3 1 Less: Relocations 1 ----- ----- ----- ----- ----- Net salon openings 11 186 29 17 ----- ----- ----- ----- ----- Salons closed or sold (18) (22) (14) (48) (101) ----- ----- ----- ----- ----- Open at end of period 244 408 423 392 304 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Grand total, system-wide 3,331 3,923 4,264 4,530 4,954 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Major remodeling & conversions 46 65 72 97 95 ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(1) Represents primarily the acquisition of franchise locations. (2) Canadian salons are included in the Regis, MasterCuts and Trade Secret divisions and not included in the International salon totals. 10 Of the 282 new company-owned salons constructed in fiscal 1999, 41 were Regis Salons, 60 were Strip Center Salon (primarily Supercuts), 47 were MasterCuts, 44 were Trade Secret, 78 were SmartStyle and 12 were International salons. In addition, 18 Cost Cutter Salon were constructed by The Barbers prior to the merger in fiscal 1999. The Company intends to construct approximately 360 new company-owned salons during fiscal 2000. The Company has a program of modernizing its existing salons, ranging from redecoration to substantial reconstruction, in order to raise its older salons to the standards of its newly constructed locations. This program is implemented as management determines that a particular location will benefit from such modernization, or as required by lease renewals. HAIRCARE PRODUCTS In recent years, the Company has placed emphasis on the sales of higher-margin haircare products, with the result that such revenues have become an increasingly important part of the Company's business, having grown from 5.4 percent of total company-owned revenues in fiscal 1987 to 28.4 percent in fiscal 1999. A significant portion of this growth has resulted from the introduction of national brand merchandise in 1988, the acquisition of Beauty Express in November 1992 and Trade Secret in December 1993. The haircare products offered are primarily shampoos, hair conditioners, fixatives and hair sprays. Regis, MasterCuts, Cost Cutters, and Trade Secret private label products, as well as lines of salon branded products are sold only through licensed beauty salons, including Matrix-Registered Trademark-, Paul Mitchell-Registered Trademark-, Redken-Registered Trademark-, Sebastian-Registered Trademark-, and Nexxus-Registered Trademark-. The Regis line continues to be one of the Company's best selling product lines. The Company actively reviews its product line offerings and continuously investigates the quality and sales potential of new products. The Company utilizes its national salon network as a testing ground for new product formulations. There are many potential sources of supply for the types of products used or sold at the salons, and the Company is not dependent upon any single supplier. SITE SELECTION The Company is the largest shopping mall tenant which operates haircare salons in the United States and has attained national tenant status which makes the Company an attractive tenant for shopping mall owners and developers. In the United States, there are approximately 1,800 enclosed malls which meet the Company's performance criteria with several new shopping malls developed each year. At June 30, 1999, the Company's 1,824 United States and Canadian mall-based salons were located in 1,164 shopping malls. Because the Company's different salon concepts target different customer groups depending on the size and location of the shopping malls, more than one of the Company's salon concepts may be located in the same mall. As a result, there are numerous leasing opportunities in shopping malls for its Regis, MasterCuts and Trade Secret salons, of which the Company has penetrated less than 50 percent. The Company generally locates its Regis, MasterCuts and Trade Secret salons in fully enclosed, climate-controlled shopping malls classified as "regional" having 400,000 or more square feet of leasable area and at least two full-line department store anchor tenants. The Company's experience has been that selecting the proper mall and obtaining a favorable, high-traffic location within the mall are important determinants of the success of a new salon. For existing malls, the Company 11 evaluates the current sales per square foot of selected tenants, the stature and strength of the anchor stores and the other major tenants, the location and traffic patterns within the mall, and the proximity of competitors. In addition, the Company may conduct site surveys and physical observations to assess the location, traffic patterns and competitive environment. Several trends have enabled the Company to continue to lease high-profile space in existing malls. Leasing velocity and turnover have increased because the average length of shopping mall lease terms has steadily descended. Also, many larger tenants are downsizing their leased areas to make better use of costly space, thereby creating available floor space which can be leased for other uses. Additionally, many existing malls are being expanded, renovated and remerchandised. Because of these factors, the Company believes that it has ample expansion opportunities and therefore can be selective in establishing new locations. In evaluating specific locations for Supercuts and Cost Cutter company-owned and franchise stores, the Company seeks conveniently located, highly visible strip shopping centers which allows customers adequate parking and quick and easy store access. The Company believes strip shopping centers anchored by the number one or two grocery chains in the specific market, or a major mass merchant, provide a profitable customer flow. Strip center customers are destination shoppers and, as a result, Supercuts and Cost Cutters is not dependent upon expensive regional shopping mall locations. Various other factors are considered in evaluating sites, including trade area demographics, availability and cost of space, location of competitors, traffic count, visibility, signage and other leasehold factors in a given center or area. All franchisee sites must be approved by the Company. SUPERCUTS FRANCHISING PROGRAM GENERAL The Company provides its Supercuts franchisees with a comprehensive system of business training, stylist education, site approval and lease negotiation, professional marketing, promotion and advertising programs, and other forms of support designed to help the franchisee build a successful business. The Company employs field staff personnel to assist franchisees in all aspects of operations, training and supervision. STANDARDS OF OPERATIONS All Supercuts franchisees are required to conform to Company-established operational policies and procedures relating to quality of service, training, design and decor of stores, and trademark usage. The Company's field personnel make periodic visits to franchised stores to ensure that the stores are operating in conformity with Supercuts standards. In addition, to further ensure such conformity, the Company enters into the lease for the store site directly with the landlord, and subsequently subleases the site to the franchisee. The sublease provides the Company with the right to terminate the sublease and gain possession of the store if the franchisee fails to comply with the Company's operational policies and procedures. See Note 5 of "Notes to the Consolidated Financial Statements" for further information. 12 FRANCHISE TERMS Supercuts franchisees pay monthly royalty fees based on service and product revenues. In addition, franchisees pay an advertising fee of five percent of service revenues, which is held in a separate account and administered by the Company. In calendar 1998, franchisees contributed approximately $11.0 million to the advertising fund. All royalties and advertising fees are due monthly. The franchisees pay an initial franchise fee for each new franchise location. Franchisees are responsible for the costs of leasehold improvement, furniture, fixtures, equipment, supplies, inventory and certain other items, including initial working capital. New franchisees also must pay an initial fee for franchisee training. The majority of existing franchise agreements have a perpetual term; subject to termination of the underlying lease agreement or termination of the franchise agreement by either the Company or the franchisee. The agreements also provide the Company a right of first refusal if the store is to be sold. The franchisee must obtain the Company's approval in all instances where there is a sale of the franchise. The current franchisee agreement is site specific and does not provide any territorial protection to a franchisee, although some older franchise agreements do include limited territorial protection. The Company has a comprehensive impact policy that resolves potential conflicts among franchisees and/or the Company regarding proposed salon site. FRANCHISE SALES Franchise expansion will continue to be a significant focus of the Company in the future. Existing franchisees and new franchisees who open more than one salon receive a reduction in initial franchise fees. FRANCHISEE TRAINING The Company provides new Supercuts franchisees with training, focusing on the various aspects of store management, including operations, personnel management, marketing fundamentals and financial controls. Existing franchisees receive training, counseling and information from the Company on a continuous basis. The mechanisms used for providing training include mail, "800" number information lines and e-mail. In addition, the company provides store manager and stylists with extensive training. For further description of the Company's education and training programs, see the "Salon Training Programs" section of this document. COST CUTTER FRANCHISING PROGRAM GENERAL The Company provides, pursuant to each franchise agreement, initial and ongoing operational training, advertising and marketing services, and financial analysis services to all of its franchises. In addition, the Company provides construction plans and sells all salon equipment necessary to 13 equip a franchise store with retail consumer goods, such as beauty and hair care products and appliances. STANDARDS OF OPERATIONS All Cost Cutters franchisees are required to conform to Company-established operation policies and procedures relating to quality of service, training, design and decor of stores, and trademark usage. The company's field personnel make periodic visits to franchised stores to ensure that the stores are operating in conformity with Cost Cutters standards. FRANCHISE TERMS Pursuant to their franchise agreement with the Company, each franchisee pays an initial fee and ongoing royalty and advertising fees to the Company. These fees vary depending upon the particular franchisee and the age of the franchise location. The franchisees pay an initial franchise fee for each new franchise location. Franchisees are responsible for the costs of leasehold improvements, furniture, fixtures, equipment, supplies, inventory and certain other items, including initial working capital. Cost Cutters franchisees pay monthly royalty fees based on service and product revenues. In addition, franchisees pay an advertising fee of up to six percent of gross revenues. All royalties and advertising fees are due weekly from the franchises. The majority of existing franchise agreements have a 15 year term with a 15 year option to reacquire. The agreements also provide the Company a right of first refusal if the store is to be sold. The franchisee must obtain the Company's approval in all instances where there is a sale of the franchise. The current franchise agreement is site specific. Franchisees may enter into development agreements with the Company which provides limited territorial protection. FRANCHISE SALES Franchise expansion will continue to be encouraged through both existing and new franchisees. Existing franchisees and new franchisees who open more than one salon receive a reduction in initial franchise fees. FRANCHISE TRAINING The Company provides new Cost Cutters franchisees with training, focusing on the various aspects of store management, including operations, personnel management, stylists training, marketing fundamentals and financial controls. Existing franchisees receive training, counseling and information from the Company on a continuous basis. The mechanisms used for providing training include mail and annual conventions. 14 MARKETS AND MARKETING Approximately half of the Company's North American salons are situated in "middle markets" with service area populations between 80,000 and 800,000. Approximately one-fourth of the Company's salons are located in smaller markets with a service area population below 80,000, and about one-fourth are located in major metropolitan areas with populations in excess of 800,000. The Company believes that the geographic dispersion of its salons throughout the United States may diminish the impact of fluctuations in regional business cycles. The Company maintains various advertising, sales and promotion programs for its salons, budgeting a predetermined percent of revenues for such programs. The Company has developed promotional tactics and institutional sales messages for each of its divisions targeting certain customer types and positioning each concept in the marketplace. Print, radio and television and billboard advertising are developed and supervised at the Company's headquarters, but most advertising is done in the immediate area of the particular salon. Supercuts maintains an Advertising Fund (the "Fund") that provides comprehensive advertising and sales promotion support for the Supercuts system. All Supercuts stores, company-owned and franchised, contribute five percent of service revenues to the Fund, 80 percent of which is allocated to the contributing market for media placement and local marketing activities and 20 percent of which is allocated for national advertising campaigns and system-wide activities. Each new franchised salon opened by a new franchisee or by an existing franchisee in a new market, contributes $5,000 for grand opening expenses. Additionally, stores may contribute supplemental funds to pay for advertising costs above their total market contributions. The Company's marketing department administers (at no additional cost to the franchisees or the Fund) the development of system-wide advertising and promotion, working with McCann-Erickson San Francisco, as agency of record. This intensive advertising program creates significant consumer awareness, a strong brand image and high loyalty. In calendar 1998, $16.2 million was paid into the Fund, by both franchised and company-owned Supercuts stores. Supercuts conducts regular, system-wide promotional programs for markets and an initial grand opening program for new stores. Each includes broadcast, print, direct mail and public relations campaigns. Cost Cutters also maintains an advertising fund that supports advertising and sales promotion for the Cost Cutter's system. Pursuant to the franchise agreement, each franchisee, depending upon the particular franchise and the age of the franchise agreement, pays up to six percent of their gross sales into an advertising fund managed by the Company. The Company uses a portion of the fund to provide market research, production materials, ad slicks, brochures, radio and television commercials to all franchisees. The balance of the fund is used for advertising and promotion development for franchisees. In addition, each franchisee is also required to spend one percent of its gross sales on local advertising. In many of the Company's stylists volunteer their time to support charitable events for breast cancer research. Proceeds collected from such events are distributed through the Regis Foundation for Breast Cancer Research. In a unique three-year agreement, the Company will support three postdoctoral fellows known as Regis Scholars, to conduct research in the field of breast cancer at the 15 Mayo Foundation, Rochester, MN. The goal of the Regis Scholars program is to further the prevention, diagnosis and treatment of breast cancer, and to recruit and train future leaders in the biology of the disease. The Company's community involvement also includes a major sponsorship role for the Susan G. Komen Breast Cancer Foundation Twin Cities Race for the Cure. This 5K run and one-mile walk is held in Minneapolis on Mother's Day to help fund breast cancer research, education, screening and treatment. The Company has reached nearly $2.5 million in fundraising for breast cancer charities. SALON TRAINING PROGRAMS The Company has an extensive hands-on training program for its salon managers and hairstylist associates which emphasizes both technical training in hairstyling and cutting, perming, hair coloring and hair treatment regimes as well as customer service and product sales. The objective of the training programs is to ensure that customers receive professional and quality service which the Company believes will result in more repeat customers, referrals and product sales. The Company has full- and part-time artistic directors who teach and train the salon operators in techniques for providing the salon services and who instruct the stylists in current styling trends. The Company also has an audiovisual based training system in its salons designed to enhance technical skills of hairstylists. The Company has a customer service training program to improve the interaction between employees and customers. Staff members are trained in the proper techniques of customer greeting, telephone courtesy and professional behavior through a series of professionally designed video tapes and instructional seminars. Supercuts provides extensive initial and ongoing training to stylists through its system of field educators. Every stylist must attend a training course at one of the Supercuts designated training centers at which they are taught the Supercuts, haircutting technique and customer service principles. Stylists may be recertified every six to nine months. For annual re-certification each stylist must participate in a combination of store seminars and studio visits. STAFF RECRUITING AND RETENTION Recruiting quality managers and hairstylists is essential to the establishment and operation of successful salons. The Company's supervisory team seeks to recruit entrepreneurial salon managers who display initiative and imagination. The Company has been successful in recruiting capable managers and stylists for a number of reasons. To employ and retain qualified and productive employees, the Company utilizes a broad compensation system including cash incentives, merchandise awards, Company-sponsored trips and benefit programs. The Company believes that its compensation structure for salon managers and hairstylists is competitive within the industry. Stylists benefit from the Company's high-traffic locations in quality malls, as well as name-recognition from Supercuts and Wal-Mart, and receive a steady source of new business from walk-in customers. In addition, the Company offers a career path with the opportunity to move into managerial and training positions within the Company. SALON DESIGN 16 The Company's salons are designed, built and operated in accordance with uniform standards and practices developed by the Company based on its experience. New salons are designed and constructed according to the Company's standard specifications, thereby reducing design and construction costs and enhancing operating efficiencies. Salon fixtures and equipment are also uniform, allowing the Company to place large orders for these items with attendant cost savings. The size of the Company's salons ranges from 500 to 5000 square feet, with the typical salon having about 1,200 square feet. At present, the cost to the Company of constructing and furnishing a new salon, including inventories, ranges from approximately $45,000 for a new Wal-Mart location to $190,000 for a new Trade Secret location, which has higher inventory levels. Of the total construction costs, approximately 70 percent of the cost is for leasehold improvements and the balance is for salon fixtures, equipment, and inventory. The Company maintains its own construction and design department, and designs and supervises the construction, furnishing and fixturing of all new company-owned salons. The Company has developed considerable expertise in designing upscale, visually appealing salons. The design and construction staff focuses on aesthetic appeal, efficient use of space, cost and rapid completion times. The Company's salons are airy in appearance and have limited partitions. Haircare products offered for sale are prominently and attractively displayed in the salons. Each of the Company's salon concepts has a different design related to the image to be projected. Regis Salons are more upscale in design and utilize wood and marble floors, mirrors and contrasting black and creme colors. Supercuts salons are functional in design and tastefully furnished, consistent with its image of a quality provider of affordable haircutting services. Cost Cutter salons are universally designed to appeal to a broad range of customers, providing value-priced full services in convenient locations. MasterCuts salons are family oriented and include extensive use of woodwork and warm, comfortable colors. Trade Secret salons use many of the same design techniques as Regis Salons, and also have open and easily accessible product displays. SmartStyle salons, which are strategically located near the check out counters in the front of Wal-Mart stores and supercenters, are efficiently designed and brightly colored to complement the Wal-Mart retail environment. OPERATIONS Company-owned and franchised salons located in the United States, Puerto Rico, and Canada, are operated and managed as part of the Company's North American operations. All other salons, located in department stores and high street locations in the United Kingdom are operated and managed through the Company's International branch located in England. For each salon concept, the Company's operations are divided into geographic regions throughout the United States. Each region is headed by one of the Company's salon directors, assisted by regional field managers and area supervisors, who coordinate the operations of the salons in the particular region. The area supervisors are responsible for hiring and training the managers for each salon. Over the years, the Company has developed uniform procedures for opening new salons in such a manner as to maximize revenues from a new location as rapidly as possible. After opening, all salons are operated according to standard procedures which the Company has learned are desirable for the operation of an efficient, high-quality, profitable salon. 17 MANAGEMENT INFORMATION SYSTEMS The Company utilizes a retail point-of-sale information system in all its salons. This system collects data daily from each salon and consolidates the data into several management reports. The Company's automated system polls terminals nightly and all salon cash receipts are transferred automatically into a centralized bank account, thereby significantly reducing administrative expenses. Point-of-sale information is also used both to monitor salon performance and to generate customer data for use in identifying and anticipating industry trends for purposes of pricing and marketing. The Company has expanded the system to deliver on-line information as to sales of products to improve its inventory and control system, including suggested monthly product purchase recommendations for a salon, a monthly report of sales and a perpetual inventory. Management believes that its information systems provide advantages in planning and analysis which are not available to a majority of its competitors which do not have management information systems. COMPETITION The haircare industry is highly competitive. In every area in which the Company has a salon, there are competitors offering similar haircare services and products at similar prices. The Company faces competition within malls from companies which operate salons as departments within department stores and from smaller chains of salons, independently owned salons and, to a lesser extent, salons which, although independently owned, are operating under franchises from a franchising company that may assist such salons in areas of training, marketing and advertising. 18 Significant entry barriers exist for new chains due to the need to establish brand identification, systems and infrastructure, recruitment of experienced haircare management and adequate store staff, and leasing of quality sites. The principal factors of competition in the affordable haircare category are quality, consistency and convenience. The Company continually strives to improve its performance in each of these areas and to create additional points of difference versus the competition. In order to obtain locations in shopping malls, the Company must be competitive as to rentals and other customary tenant obligations. The Company believes that because of its established relationships with many leading shopping center developers throughout the country, its status in the haircare industry as a national rather than a local tenant, and its financial resources, it will encounter little difficulty in obtaining sufficient shopping center locations to continue its historical pattern of growth. TRADEMARKS The Company holds numerous trademarks, both in the United States and in several foreign countries. The most important are the trademarks "Regis Salons," "Supercuts," "MasterCuts" "Trade Secret" and "Cost Cutters." The Company believes the use of these trademarks is important in establishing and maintaining its reputation as a national operator of high-quality hairstyling salons, and is committed to protecting these trademarks by vigorously challenging any unauthorized use. EMPLOYEES As of June 30, 1999, the Company had more than 31,000 full- and part-time employees worldwide, of which approximately 27,000 employees were located in the United States. None of the Company's employees is subject to a collective bargaining agreement and the Company believes that its employee relations are good. GOVERNMENTAL REGULATIONS The Company is subject to various federal, state and local laws affecting its business as well as a variety of regulatory provisions relating to the conduct of its cosmetology business, including health and safety. As a franchisor, the Company's franchise operations are subject to the Federal Trade Commission's Trade Regulation Rule on Franchising (the "FTC Rule") and by state laws and administrative regulations that regulate various aspects of franchise operations and sales. The Company's franchises are offered to franchisees by means of an offering circular containing specified disclosures in accordance with the FTC Rule and the laws and regulations of certain states. The Company has registered its offering of franchises with the regulatory authorities of those states in which it offers franchises and in which such registration is required. State laws that regulate the franchisor-franchisee relationship presently exist in a substantial number of states and, in certain cases, apply substantive standards to this relationship. Such laws may, for example, require that the franchisor deal with the franchisee in good faith, may prohibit interference with the right of free association among franchisees, and may limit termination of franchisees without payment of reasonable compensation. The Company believes that the current trend is for government regulation 19 of franchising to increase over time. However, such laws have not had, and the Company does not expect such laws to have, a significant effect on the Company's operations. The Company believes it is operating in substantial compliance with applicable laws and regulations governing operations. 20 ITEM 1A. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding the Directors of the Company and Exchange Act Section 16(a) filings is included on pages 3 and 4 of the Registrant's Proxy Statement dated September 17, 1998, and is incorporated herein by reference. Information relating to Executive Officers of the Company follows:
Name Age Position - ------------------- --- ------------------------------------------------- Myron Kunin 70 Chairman of the Board of Directors Paul D. Finkelstein 57 President, Chief Executive Officer and Director Christopher A. Fox 49 Executive Vice President Real Estate and Director Randy L. Pearce 44 Executive Vice President, Chief Administrative Officer and Chief Financial Officer Mary Andert 44 Executive Vice President, Merchandising and Marketing Bruce Johnson 46 Senior Vice President, Design and Construction Mark Kartarik 43 Senior Vice President, President and Chief Operating Officer, Supercuts Inc. Gordon Nelson 48 Senior Vice President, Fashion and Education Bert M. Gross 69 Senior Vice President, General Counsel and Secretary Raymond Duke 48 Senior Vice President, International Managing Director, Europe Sharon Kiker 54 Chief Operating Officer, Regis Salons Kris Bergly 38 Chief Operating Officer, StyleAmerica and Hair Masters Robert Ribnick 38 Chief Operating Officer, MasterCuts Norma Knudsen 41 Chief Operating Officer, Trade Secret C. John Briggs 55 Chief Operating Officer, SmartStyle Family Hair Salons
Myron Kunin has served as Chairman of the Board of Directors of the Company since 1983, as Chief Executive Officer of the Company from 1965 until July 1, 1996, as President of the Company from 1965 to 1987 and as a director of the Company since its formation in 1954. He is also Chairman of the Board and holder of the majority voting power of Curtis Squire, Inc., the Company's largest shareholder. He is also a director of Nortech Systems Incorporated. 21 Paul D. Finkelstein has served as President, Chief Operating Officer and as a director of the Company since December 1987, as Executive Vice President of the Company from June 1987 to December 1987 and has served as Chief Executive Officer since July 1, 1996. Christopher A. Fox was elected Executive Vice President Real Estate in 1994, was Senior Vice President, Real Estate of the Company from 1988 to 1994, has served as Vice President from 1984 to 1988 and has served as a director of the Company since 1989. Randy L. Pearce was elected Executive Vice President and Chief Administrative Officer in 1999, has served as Chief Financial Officer since 1998, was Senior Vice President, Finance from1998 to 1999, has served as Vice President of Finance from 1995 to 1997 and as Vice President of Financial Reporting from 1991 to 1994. Mary Andert was elected Executive Vice President, Marketing and Merchandising in February 1999, served as Senior Vice President, Marketing since 1998, and as Vice President, Marketing since 1997. Bruce Johnson was elected a Senior Vice President of Design and Construction in 1997 and has served as Vice President from 1988 to 1997. Mark Kartarik has served as Senior Vice President, of the Company since 1994 and as Vice President from 1989 to 1994. He was elected President of Supercuts, Inc. in 1998 and has served as Chief Operating Officer of Supercuts, Inc. since 1997. Gordon Nelson has served as Senior Vice President, Fashion and Education of the Company since 1994 and as Vice President from 1989 to 1994. Bert M. Gross was elected Senior Vice President, General Counsel in 1997 and acted as outside legal counsel to the Company from 1957 to 1997. Raymond Duke was elected Senior Vice President, International Managing Director, Europe in February, 1999 and has served as Vice President since 1992. Sharon Kiker was elected Chief Operating Officer, Regis Salons in April 1998 and has served as Vice President, Salon Operations from 1989 to 1998. Kris Bergly was elected Chief Operating Officer, StyleAmerica in March 1999 and has served as Chief Operating Officer, SmartStyle Family Hair Salons since April 1998 and as Vice President, Salon Operations from 1993 to 1998. Robert Ribnick was elected Chief Operating Officer, Mastercuts in April 1998 and has served as Vice President, Salon Operations from 1993 to 1998. Norma Knudsen was elected Chief Operating Officer, Trade Secret in February 1999 and has served as Vice President, Trade Secret Operations since 1995. C. John Briggs was elected Chief Operating Officer, SmartStyle Family Hair Salons in March 1999, and has served as Vice President, Regis Operations since 1988. 22 ITEM 2. PROPERTIES The Company's corporate executive and administrative offices are headquartered in a 100,000 square foot building in Edina, Minnesota owned by the Company. In December 1997, the Company acquired two buildings, totaling 70,000 square feet of office space, located adjacent to the Company's current headquarters in Edina. This office space is currently leased to several tenants. As leases terminate and additional office space is required, the Company plans to remove or relocate existing tenants to provide additional administrative office space for its own purposes. The Company also leases warehouse space in Eden Prairie, Minnesota for storing and distributing inventory and two supplement facilities which support the primary Eden Prairie facility. The Company completed construction of a new distribution center in Chattanooga, Tennessee during fiscal 1998. The Company anticipates that in addition to these two primary facilities additional warehouse space will be needed by mid-2001. The Company operates all of its salon locations under leases or licenses. All of its North American locations opened in regional malls during the past five years are operating under leases with an original term of at least ten years. Salons operating within strip centers and Wal-Mart stores and supercenters have leases with original terms of at least five years. Salons in the U.K. operations which are located in department stores operate under license agreements with the host department stores. The Company also leases the premises in which certain of its franchisees operate and has entered into corresponding sublease arrangements with the franchisees. These leases, generally with terms of approximately five years, are expected to be renewed on expiration. Future minimum lease payments for the next five years, which are reimbursable from the franchisees, are approximately $22.6 million annually. All additional lease costs are passed through to the franchisees. Remaining franchisees, who do not enter into sub-lease arrangements with the Company, negotiate and enter into leases on their own behalf. None of the Company's salon leases is individually material to the operations of the Company, and the Company expects that it will be able to renew its leases on satisfactory terms as they expire. See Note 5 of "Notes to the Consolidated Financial Statements". ITEM 3. LEGAL PROCEEDINGS None. 23 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On October 13, 1998, at the annual meeting of the shareholders of the Company, the elections of the Company's directors took place with the following results: Election of Directors:
FOR WITHHOLD AUTHORITY Rolf Bjelland 20,791,168 162,527 Paul D. Finkelstein 20,769,516 184,179 Christopher A. Fox 20,769,611 184,084 Thomas L. Gregory 20,767,225 186,470 Van Zandt Hawn 20,791,171 162,524 Susan S. Hoyt 20,791,183 162,512 David B. Kunin 20,766,647 187,047 Myron Kunin 20,767,933 185,762
PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Data relating to Market Stock Data Information and dividends as set forth in the sections included on pages 34 to 35 of the Registrant's 1999 Annual Report to Shareholders, a copy of which is included as Exhibit 13 hereto, are incorporated herein by reference. As of June 30, 1999, Regis shares were owned by approximately 13,200 shareholders based on the number of record holders and an estimate of individual participants in security position listings. ITEM 6. SELECTED FINANCIAL DATA Five-Year Summary of Selected Financial Data which is included on page 12 of the Registrant's 1999 Annual Report to Shareholders, a copy of which is included as Exhibit 13 hereto, is incorporated herein by reference. 24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Results of Operations and Financial Condition of the Company on pages 13 to 19 of the Registrant's 1999 Annual Report to Shareholders, a copy of which is included as Exhibit 13 hereto, is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Report of Independent Accountants on page 34, the Consolidated Financial Statements on pages 20 to 33 and the Quarterly Financial Data on page 34 of the Registrant's 1999 Annual Report to Shareholders, a copy of which is included as Exhibit 13 hereto, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 25 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See Part I for information regarding Directors and Executive Officers of the Registrant. ITEM 11. EXECUTIVE COMPENSATION Executive compensation included on pages 6 through 7 of the Registrant's Proxy Statement dated September 15, 1999 is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Beneficial Owners and Management on page 13 of the Registrant's Proxy Statement dated September 15, 1999 is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions is included on page 12 of the Registrant's Proxy Statement dated September 15, 1999 and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1). The following Consolidated Financial Statements of Regis Corporation, and the Report of Independent Accountants thereon, included on pages 20 to 34 of the Registrant's 1999 Annual Report to Shareholders, are incorporated by reference in Item 8: Report of Independent Accountants Consolidated Balance Sheet as of June 30, 1999 and 1998 Consolidated Statement of Operations for each of the three years in the period ended June 30, 1999 Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income for each of the three years in the period ended June 30, 1999 Consolidated Statement of Cash Flows for each of the three years in the period ended June 30, 1999 Notes to Consolidated Financial Statements (2). The financial statement schedule required to be filed by Item 8 of this Form is as follows: Report of Independent Accountants on Financial Statement Schedules Schedule II -- Valuation and Qualifying Accounts as of June 30, 1999, 1998 and 1997 26 All other schedules are inapplicable to the Registrant, or equivalent information has been included in the consolidated financial statements or the notes thereto, and have therefore been excluded. (3). Listing of Exhibits: EXHIBIT NUMBER 3(a) Election of the registrant to become governed by Minnesota Statutes Chapter 302A and Restated Articles of Incorporation of the registrant, dated March 11, 1983; Articles of Amendment to Restated Articles of Incorporation, dated October 29, 1984; Articles of Amendment to Restated Articles of Incorporation, dated August 14, 1987; Articles of Amendment to Restated Articles of Incorporation, dated October 21, 1987. (Filed as Exhibit 3(a) to the Registrant's Registration Statement on Form S-1 (Reg. No. 40142) and incorporated herein by reference.) 3(b) By-Laws of the registrant. (Filed as Exhibit 3(c) to the Registrant's Registration Statement on Form S-1 (Reg. No. 40142) and incorporated herein by reference.) 4(a) Three-for-two stock split. (Incorporated by reference to Exhibit A of the Company's report on Form 8-K dated May 2, 1996.) 4(b) Shareholder Rights Agreement dated December 23, 1996 (Incorporated by reference to Exhibit 4 of the Company's report on Form 8-A12G dated February 4, 1997) 4(c) Three-for-two stock split. (Incorporated by reference to Item 2 of the Company's report on Form dated May 3, 1999 for the quarter ended March 31, 1999.) 10(a) Employment and Deferred Compensation Agreement, Dated as of April 14, 1998, between the Company and Paul D. Finkelstein. (Incorporated by reference to the Company's report on Form 10-K dated September 17, 1998, for the year ended June 30, 1998). 10(b) Form of Employment and Deferred Compensation Agreement between the Company and six executive officers. (Incorporated by reference to Exhibit 10(b) of the Company's report on Form 10-K date September 24, 1997.) 10(c) Northwestern Mutual Life Insurance Company Policy Number 10327324, dated June 1, 1987, face amount $500,000 owned by the registrant, insuring the life of Paul D. Finkelstein and providing for division of death proceeds between the registrant and the insured's designated beneficiary (split-dollar plan). (Filed as Exhibit 10(g) to the Registrant's Registration Statement on Form S-1 (Reg. No. 40142) and incorporated herein by reference.) 27 10(d) Schedule of omitted split-dollar insurance policies. (Filed as Exhibit 10(h) to the Registrant's Registration Statement on Form S-1 (Reg. No. 40142) and incorporated herein by reference.) 10(e) Employee Stock Ownership Plan and Trust Agreement dated as of May 15, 1992 between the registrant and Myron Kunin and Paul D. Finkelstein, Trustees (Incorporated by reference to Exhibit 10(q) as part of the Company's Report on Form 10-K dated September 27, 1993, for the year ended June 30, 1993). 10(f) Executive Stock Award Plan and Trust Agreement dated as of July 1, 1992 between the registrant and Myron Kunin, Trustee (Incorporated by reference to Exhibit 10(r) as part of the Company's Report on Form 10-K dated September 27, 1993, for the year ended June 30, 1993). 10(g) Employee Profit Sharing Plan and Trust agreement, amended June 22, 1994 between the registrant and Myron Kunin, Trustee. (Incorporated by reference to Exhibit 10(t) part of the Company's report on Form 10-K dated September 28, 1994, for the year ended June 30, 1994.) 10(h) Survivor benefit agreement dated June 27, 1994 between the Company and Myron Kunin. (Incorporated by reference to Exhibit 10(t) part of the Company's report on Form 10-K dated September 28, 1994, for the year ended June 30, 1994.) 10(i) Private Shelf Agreement dated as of July 25, 1995 between the registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(m) of the Company's report on Form 10-K dated September 24, 1997, for the year ended June 30, 1997.) 10(j) Series A Senior Note drawn from Private Shelf Agreement dated as of February 21, 1996, between the registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(s) of the Company's report on Form 10-Q dated May 3, 1996, for the quarter ended March 31, 1996.) 10(k) Series B Senior Note drawn from Private Shelf Agreement dated as of June 10, 1996, between the registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(v) of the Company's report on Form 10-K dated September 16, 1996, for the year ended June 30, 1996.) 28 10(l) Agreement and plan of merger between the Company and Supercuts, Inc. (Incorporated by reference to Exhibit 2.1 to July 15, 1996, Form 8-K.) 10(m) Series C Senior Note drawn from Private Shelf Agreement dated as of October 28, 1996, between the registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(x) of the Company's report on Form 10-K dated November 5, 1996, for the quarter ended September 30, 1996.) 10(n) Term Note A Agreement between the registrant and LaSalle National Bank dated October 28, 1996. (Incorporated by reference to Exhibit 10(y) of the Company's report on Form 10-Q dated November 5, 1996, for the quarter ended September 30, 1996) 10(o) Series D Senior Note drawn from Private Shelf Agreement dated as of December 13, 1996, between the registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(w) of the Company's report on Form 10-K dated September 24, 1997, for the year ended June 30, 1997.) 10(p) Series E Senior Note drawn from Private Shelf Agreement dated as of April 7, 1997, between the registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(y) of the Company's report on Form 10-K dated September 24, 1997, for the year ended June 30, 1997.) 10(q) Compensation and non-competition agreement dated May 7, 1997, between the Company and Myron Kunin. (Incorporated by reference to Exhibit 10(z) of the Company's report on Form 10-K dated September 24, 1997, for the year ended June 30, 1997.) 10(r) Modification of Private Shelf Agreement in 10(m) dated July 11, 1997. (Incorporated by reference to Exhibit 10(bb) of the Company's report on Form 10-K dated September 24, 1997, for the year ended June 30, 1997.) 10(s) Series F Senior Note drawn from Private Shelf Agreement dated as of July 28, 1997, between the registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(cc) of the Company's report on Form 10-K dated September 24, 1997, for the year ended June 30, 1997.) 10(t) Modifications of Private Shelf Agreement in 10(bb) dated October 1, 1997. (Incorporated by reference to Exhibit 10(ff) of the Company's report on Form 10-Q dated February 9, 1998, for the quarter ended December 31, 1997.) 10(u) Revolving Credit Agreement dated December 30, 1997. (Incorporated by reference to Exhibit 10(jj) of the Company's report on Form 10-Q dated February 9, 1998, for the quarter ended December 31, 1997.) 10(v) Private Shelf Agreement dated as of December 19, 1997 between the registrant and ING Investment Management, Inc. (Incorporated by reference to Exhibit 10(gg) of the Company's report on Form 10-Q dated February 9, 1998, for the quarter ended December 31, 1997.) 29 10(w) Series R-1 Senior Note drawn from Private Shelf dated as of December 19, 1997, between registrant and ING Investment Management, Inc. (Incorporated by reference to Exhibit 10(hh) of the Company's report on Form 10-Q dated February 9, 1998, for the quarter ended December 31, 1997.) 10(x) Series R-2 Senior Note drawn from Private Shelf dated as of December 19, 1997, between registrant and ING Investment Management, Inc. (Incorporated by reference to Exhibit 10(ii) of the Company's report on Form 10-Q dated February 9, 1998, for the quarter ended December 31, 1997.) 10(y) Series G Senior Note dated as of July 10, 1998 between the registrant and Prudential Insurance Company of America. (Incorporated by reference to the Company's report on Form 10-K dated September 17, 1998, for the year ended June 30, 1998.) 10(z) Revolving Credit Agreement dated May 5, 1998 between the registrant and Bank of America National Trust and Savings Associations. (Incorporated by reference to Exhibit 10(ii) of the Company's report on Form 10-K dated September 17, 1998, for the year ended June 30, 1998.) 10(aa) Modifications to the Revolving Credit Agreement in 10(z) dated September 1, 1998. (Incorporated by reference to Exhibit 10(kk) of the Company's report on Form 10-K dated September 17, 1998, for the year ended June 30, 1998.) 10(bb) Term Note C Agreement between the registrant and LaSalle National Bank dated September 1, 1998. (Incorporated by reference to Exhibit 10(mm) of the Company's report on Form 10-Q dated November 9, 1998, for the quarter ended September 30, 1998.) 10(cc) Term Note Agreement between the registrant and Bank of America National Trust and Savings Association dated December 31, 1998. (Incorporated by reference to Exhibit 10(nn) of the Company's report on Form 10-Q dated May 11, 1999, for the quarter ended March 31, 1999.) 10(dd) Term Note H-1 Agreement between the registrant and the Prudential Insurance Company of America dated March 26, 1999. (Incorporated by reference to Exhibit 10(oo) of the Company's report on Form 10-Q dated May 11, 1999, for the quarter ended March 31, 1999.) 10(ee) Term Note H-2 Agreement between the registrant the Prudential Insurance Company of America dated March 26, 1999. (Incorporated by reference to Exhibit 10(pp) of the Company's report on Form 10-Q dated May 11, 1999, for the quarter ended March 31, 1999.) 30 10(ff) Term Note H-3 Agreement between the registrant the Prudential Insurance Company of America dated March 26, 1999. (Incorporated by reference to Exhibit 10(qq) of the Company's report on Form 10-Q dated May 11, 1999, for the quarter ended March 31, 1999.) 10(gg) Term Note H-4 Agreement between the registrant the Prudential Insurance Company of America dated March 26, 1999. (Incorporated by reference to Exhibit 10(rr) of the Company's report on Form 10-Q dated May 11, 1999, for the quarter ended March 31, 1999.) 10(hh) Modifications to the Revolving Credit Agreement dated February 1, 1999. (Incorporated by reference to Exhibit 10(ss) of the Company's Form 10-Q dated May 11, 1999, for the quarter ended March 31, 1999.) 10(ii) Agreement and plan of merger between the Company and The Barbers, Hairstyling for Men and Women (Incorporated by reference to the May 18, 1999, From S-4 (Reg. No. 333-75881)). 10(jj) Revolving Credit Agreement dated August 2, 1999 between the registrant, Bank of America, National Association, LaSalle Bank, N.A. and other financial institutions arranged by Bank of America Securities LLC. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 13 Select pages of the 1999 Annual Report to Shareholders. 23 Consent of Independent Accountants. 27 Financial Data Schedule (b) REPORTS ON FORM 8-K. The following reports on Form 8-K were filed during the three months ended June 30, 1999: Form 8-K dated May 21, 1999 related to the announcement of the company's earnings for the one month period ended April 30, 1999. 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REGIS CORPORATION By /s/ Paul D. Finkelstein -------------------------------- Paul D. Finkelstein, President and Chief Executive Officer By /s/ Randy L. Pearce -------------------------------- Randy L. Pearce, Executive Vice President, Chief Administrative Officer and Chief Financial Officer (Principal Financial and Accounting Officer) DATE: September 17, 1999 ------------------------------ Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Myron Kunin - ------------------------------- Myron Kunin, Chairman of the Board of Directors /s/ Paul D. Finkelstein - -------------------------------- Paul D. Finkelstein, Director /s/ Christopher A. Fox - -------------------------------- Christopher A. Fox, Director /s/ David B. Kunin - -------------------------------- David B. Kunin, Director /s/ Rolf Bjelland - -------------------------------- Rolf Bjelland, Director /s/ Van Zandt Hawn - -------------------------------- Van Zandt Hawn, Director /s/ Susan S. Hoyt - -------------------------------- Susan S. Hoyt, Director /s/Thomas L. Gregory - -------------------------------- Thomas L. Gregory, Director 32 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Regis Corporation Our audits of the consolidated financial statements referred to in our report dated August 24, 1999 appearing in the 1999 Annual Report to Shareholders of Regis Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP Minneapolis, Minnesota August 24, 1999 33 REGIS CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS as of June 30, 1999, 1998 and 1997 (dollars in thousands)
Column A Column B Column C Column D Column E - -------- -------- ---------------------- -------- --------- Balance at Charged to Balance at beginning costs and Charged to end of Description of period expenses Other Accounts Deductions period - ----------- --------- -------- -------------- ---------- -------- JUNE 30, 1999: Valuation Account, Allowance for doubtful accounts $ 678 $ 35 $467 $246 JUNE 30, 1998: Valuation Account, Receivable from Premier Salons $2,899 $2,899 (1) $0 Valuation Account, Premier Salons Preferred Stock $500 $500 (2) $0 Valuation Account, Allowance for doubtful accounts $ 650 $150 $122 $678 JUNE 30, 1997: Valuation Account, Receivable from Premier Salons $3,800 $901(3) $2,899 Valuation Account, Premier Salons Preferred Stock $500 $500 Valuation Account, Allowance for doubtful accounts $ 689 $341 $380 $650
Notes: - ------ (1) Includes a payment of $156,000 and salon assets totaling $629,000 received in partial settlement of previously reserved balance. (2) Redemption of Preferred Stock by Premier Salons. (3) Payments received on previously reserved balance. 34 EX-10.JJ 2 EXHIBIT 10.JJ INDEX TO CLOSING DOCUMENTS ---------------------------------------- CREDIT AGREEMENT dated as of August 2, 1999 among REGIS CORPORATION, BANK OF AMERICA, NATIONAL ASSOCIATION, as Administrative Agent, LASALLE BANK, N.A., as Co-Administrative Agent and as Swingline Lender, and THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO Arranged by BANC OF AMERICA SECURITIES LLC ---------------------------------------- Each capitalized term used but not otherwise defined herein shall have the meaning ascribed thereto in the Credit Agreement.
PARTIES Bank of America, National Association "Agent" Regis Corporation "Company" Bert M. Gross, Esq. "BMG" Winston & Strawn "W&S" The Prudential Insurance Company of America "Prudential" ING Investment Management, LLC "ING"
- ---------------------------------------------------------------------------------------------- TAB NO. DOCUMENT: - ---------------------------------------------------------------------------------------------- LOAN DOCUMENTS -------------- - ---------------------------------------------------------------------------------------------- 1. Credit Agreement - ---------------------------------------------------------------------------------------------- SCHEDULES: - ---------------------------------------------------------------------------------------------- 1.01 Existing Letters of Credit 2.01 Commitments and Pro Rata Shares 6.12 Environmental Matters 6.17 Capitalization; Subsidiaries and Minority Interests 8.01 Permitted Liens 8.04 Investments 8.05 Permitted Indebtedness 8.08 Contingent Obligations 11.02 Lending Offices; Addresses for Notices - ---------------------------------------------------------------------------------------------- EXHIBITS: - ---------------------------------------------------------------------------------------------- A. Form of Notice of Borrowing B. Form of Notice of Conversion/Continuation C. Form of Compliance Certificate D. Form of Assignment and Acceptance - ---------------------------------------------------------------------------------------------- -2- - ---------------------------------------------------------------------------------------------- TAB NO. DOCUMENT: - ---------------------------------------------------------------------------------------------- 2. Certificate of a Responsible Officer of the Company as to (a) representations and warranties, (b) no Default or Event of Default and (c) no event causing a Material Adverse Effect since June 30, 1998 - ---------------------------------------------------------------------------------------------- 3. Notes - ---------------------------------------------------------------------------------------------- 4. Subsidiary Guaranty - ---------------------------------------------------------------------------------------------- CORPORATE DOCUMENTS [FOR THE COMPANY AND EACH GUARANTOR]: - --------------------------------------------------------- - ---------------------------------------------------------------------------------------------- 5. Certificate/Articles of Incorporation certified by the Secretary of State of its jurisdiction of incorporation A. Regis Corporation B. Trade Secret, Inc. C. Supercuts, Inc. D. The Barbers, Hairstyling for Men & Women, Inc. E. Regis International Ltd. - ---------------------------------------------------------------------------------------------- 6. Certificate of the Secretary or Assistant Secretary certifying as to (a) Certificate/Articles of Incorporation, (b) by-laws, and (c) resolutions of its board of directors A. Regis Corporation B. Trade Secret, Inc. C. Supercuts, Inc. D. The Barbers, Hairstyling for Men & Women, Inc. E. Regis International Ltd. - ---------------------------------------------------------------------------------------------- 7. Certificate of good standing issued by the Secretary of State of its jurisdiction of incorporation A. Regis Corporation B. Trade Secret, Inc. C. Supercuts, Inc. D. The Barbers, Hairstyling for Men & Women, Inc. E. Regis International Ltd. - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- LEGAL OPINION - ------------- - ---------------------------------------------------------------------------------------------- 8. Opinion of Bert M. Gross, Esq., counsel to the Company and the Guarantors - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- -3- - ---------------------------------------------------------------------------------------------- TAB NO. DOCUMENT: - ---------------------------------------------------------------------------------------------- MISCELLANEOUS - ------------- - ---------------------------------------------------------------------------------------------- 9. Payoff Letter from LaSalle Bank National Association - ---------------------------------------------------------------------------------------------- 10. Payoff Letter from Bank of America, National Association - ---------------------------------------------------------------------------------------------- 11. Amendment No. 3 to LaSalle Amended and Restated Credit Agreement - ---------------------------------------------------------------------------------------------- 12. Amendment to Private Shelf Agreement among the Company, Life Insurance Company of Georgia, Golden American Life Insurance Company and Security Life of Denver Insurance Company - ---------------------------------------------------------------------------------------------- 13. Amendment to Private Shelf Agreement between the Company and the Prudential Insurance Company of America - ---------------------------------------------------------------------------------------------- 14. Intercreditor Agreement among the Revolving Lenders, the Term Lenders, the Agent, ING, and Prudential, on behalf of the Noteholders - ----------------------------------------------------------------------------------------------
-4- EXECUTION COPY CREDIT AGREEMENT DATED AS OF AUGUST 2, 1999 AMONG REGIS CORPORATION, BANK OF AMERICA, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT, LASALLE BANK, N.A., AS CO-ADMINISTRATIVE AGENT AND AS SWING LINE LENDER, AND THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO ARRANGED BY BANC OF AMERICA SECURITIES LLC TABLE OF CONTENTS
Section Page ARTICLE I..........................................................................................8 ARTICLE II........................................................................................30 2.06 UTILIZATION OF COMMITMENTS IN AN ALTERNATIVE CURRENCY...................................36 2.11 FEES. In addition to certain fees described in SECTION 3.08:...........................40 2.13 PAYMENTS BY THE COMPANY.................................................................41 ARTICLE III.......................................................................................43 ARTICLE IV........................................................................................51 ARTICLE V.........................................................................................55 (a) CREDIT AGREEMENT. This Agreement executed by each party thereto;...............55 (b) RESOLUTIONS; INCUMBENCY.........................................................55 ARTICLE VI........................................................................................57 6.07 ERISA COMPLIANCE........................................................................59 6.20 SOLVENCY. The Company and each of its Subsidiaries are Solvent.........................62 ARTICLE VII.......................................................................................63 ARTICLE VIII......................................................................................68 ARTICLE IX........................................................................................74 (k) CHANGE OF CONTROL. There occurs any Change of Control; or......................77 ARTICLE X.........................................................................................78 ARTICLE XI........................................................................................83 11.04 COSTS AND EXPENSES. The Company shall:................................................85
SCHEDULES Schedule 1.01 Existing Letters of Credit Schedule 2.01 Commitments and Pro Rata Shares Schedule 6.12 Environmental Matters Schedule 6.17 Capitalization; Subsidiaries and Minority Interests Schedule 8.01 Permitted Liens Schedule 8.04 Investments Schedule 8.05 Permitted Indebtedness Schedule 8.08 Contingent Obligations Schedule 11.02 Lending Offices; Addresses for Notices EXHIBITS Exhibit A Form of Notice of Borrowing Exhibit B Form of Notice of Conversion/Continuation Exhibit C Form of Compliance Certificate Exhibit D Form of Assignment and Acceptance CREDIT AGREEMENT This CREDIT AGREEMENT is entered into as of August 2, 1999, among Regis Corporation, a Minnesota corporation (the "COMPANY"), the several financial institutions from time to time party to this Agreement (collectively, the "LENDERS"; individually, a "LENDER"), Bank of America, National Association, as Administrative Agent for the Lenders, and LaSalle Bank, N.A., as Co-Administrative Agent for the Lenders and as Swing Line Lender. WHEREAS, the Lenders have agreed to provide certain credit facilities to the Company in order to refinance certain existing indebtedness and to provide funds for acquisitions, working capital and general corporate purposes, all upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: ARTICLE I DEFINITIONS 1.01 CERTAIN DEFINED TERMS. The following terms have the following meanings: "ABN AMRO" means ABN AMRO Bank N.V., an Affiliate of LaSalle. "ACQUISITION" means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of in excess of 50% of the capital stock, partnership interests, membership interests or equity of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary) provided that the Company or the Subsidiary is the surviving entity. "AFFILIATE" means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, membership interests, by contract, or otherwise. "AGENT" means BofA in its capacity as administrative agent for the Lenders hereunder, and any successor agent arising under SECTION 10.09. "AGENT-RELATED PERSONS" means BofA, LaSalle, any successor administrative agent or co-administrative agent arising under SECTION 10.09 and any successor letter of credit issuing bank hereunder, together with their respective Affiliates (including, in the case of BofA, the Arranger), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "AGGREGATE COMMITMENT" means the aggregate Commitments of the Lenders. "AGREED ALTERNATIVE CURRENCY" has the meaning specified in SUBSECTION 2.06(e). "AGREEMENT" means this Credit Agreement. "ALTERNATIVE CURRENCY LOANS" means Offshore Rate Loans denominated in a currency other than Dollars. "APPLICABLE COMMITMENT FEE PERCENTAGE" means, subject to the last sentence of this definition, for any period, the applicable of the following percentages in effect with respect to such period as the Debt to Capitalization Ratio of the Company shall fall within the indicated ranges:
APPLICATION COMMITMENT FEE PERCENTAGE DEBT TO CAPITALIZATION RATIO (IN BASIS POINTS) ---------------------------- ----------------- Less Greater Than Than or Equal to ---- ----------- .40:1.0 ---- 15.0 .45:1.0 .40:1.0 17.5 ---- .45:1.0 25.0
The Debt to Capitalization Ratio shall be calculated by the Company as of the end of each fiscal quarter, commencing with the fiscal quarter ending September 30, 1999, and shall be reported to the Co-Administrative Agent pursuant to a Compliance Certificate executed by a Responsible Officer of the Company and delivered pursuant to SUBSECTION 7.02(b) hereof. The Applicable Commitment Fee Percentage shall be adjusted, if necessary, on the third Business Day after the delivery of such certificate; PROVIDED, that if such certificate, together with the financial statements to which such certificate relates, is not delivered to the Co-Administrative Agent by the fifth Business Day after the date on which the related financial statements are due to be delivered to the Co-Administrative Agent pursuant to SUBSECTION 7.01(a) or (b), then, from such fifth Business Day until the third Business Day after delivery of such certificate, the Applicable Commitment Fee Percentage shall be equal to 25.0 basis points. From the Closing Date until adjusted as described above, the Applicable Commitment Fee Percentage shall be equal to 17.5 basis points. Notwithstanding the foregoing, no reduction in the Applicable Commitment Fee Percentage shall be effected if a Default or Event of Default shall have occurred and be continuing on the date when such change would otherwise occur, it being understood that on the third Business Day immediately succeeding the day on which such Default or Event of Default is either waived or cured (assuming no other Default or Event of Default shall then be pending), the Applicable Commitment Fee Percentage shall be reduced (on a prospective basis) in accordance with the then most recently delivered Compliance Certificate. "APPLICABLE CURRENCY" means, as to any particular payment or Loan, Dollars or the Offshore Currency in which it is denominated or payable. "APPLICABLE MARGIN" means, subject to the last sentence of this definition, for any period, the applicable of the following percentages in effect with respect to such period as the Debt to Capitalization Ratio of the Company shall fall within the indicated ranges: APPLICABLE MARGIN DEBT TO CAPITALIZATION RATIO (IN BASIS POINTS) ---------------------------- --------------- Less Greater Than Than or Equal to ---- ------------ .35:1.0 ---- 50.0 .40:1.0 .35:1.0 62.5 .45:1.0 .40:1.0 75.0 ---- .45:1.0 100.0
In addition, the Applicable Margin will be increased by 0.05% on each day on which the sum of (a) the aggregate Effective Amount of outstanding Loans plus (b) the aggregate Effective Amount of outstanding Letters of Credit exceeds 75% of the Aggregate Commitment. The Debt to Capitalization Ratio shall be calculated by the Company as of the end of each fiscal quarter, commencing with the fiscal quarter ending September 30, 1999, and shall be reported to the Co-Administrative Agent pursuant to a Compliance Certificate executed by a Responsible Officer of the Company and delivered pursuant to SUBSECTION 7.02(b) hereof. The Applicable Margin shall be adjusted, if necessary, on the third Business Day after the delivery of such certificate, with such adjustment to apply to all Interest Periods then outstanding and beginning thereafter until the next adjustment date; PROVIDED, that if such certificate, together with the financial statements to which such certificate relates, is not delivered to the Co-Administrative Agent by the fifth Business Day after the date on which the related financial statements are due to be delivered to the Co-Administrative Agent pursuant to SUBSECTION 7.01(a) or (b), then, from such fifth Business Day until the third Business Day after delivery of such certificate, the Applicable Margin shall be equal to 100.0 basis points. From the Closing Date until adjusted as described above, the Applicable Margin shall be equal to 75.0 basis points. Notwithstanding the foregoing, no reduction in the Applicable Margin shall be effected if a Default or Event of Default shall have occurred and be continuing on the date such change would otherwise occur, it being understood that on the third Business Day immediately succeeding the day on which such Default or Event of Default is either waived or cured (assuming no other Default or Event of Default shall then be pending) the Applicable Margin shall be reduced (on a prospective basis) in accordance with the then most recently delivered Compliance Certificate. "ARRANGER" means Banc of America Securities LLC. "ASSET DISPOSITION" has the meaning specified in SECTION 8.02. "ASSIGNEE" has the meaning specified in SUBSECTION 11.08(a). "ATTORNEY COSTS" means and includes all reasonable fees and disbursements of any law firm or other external counsel, the allocated cost of internal legal services and all disbursements of internal counsel. "BANKING DAY" means any day other than a Saturday, Sunday or other day on which commercial banks in Chicago, Illinois or San Francisco, California are authorized or required by law to close, and (a) with respect to disbursements and payments in Dollars, a day on which dealings are carried on in the applicable offshore Dollar interbank market and (b) with respect to any disbursements and payments in and calculations pertaining to any Offshore Rate Loan, a day on which dealings in the Offshore Currency are carried on in the applicable offshore foreign exchange interbank market in which disbursement of or payment in such Offshore Currency will be made or received hereunder. "BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. Section 101, ET SEQ.). "BASE RATE" means, with respect to an obligation denominated in Dollars for any day, the higher of (a) 0.50% per annum above the latest Federal Funds Rate and (b) the rate of interest in effect for such day as publicly announced from time to time by LaSalle in Chicago, Illinois, as its "reference rate". The "reference rate" is a rate set by LaSalle based upon various factors including LaSalle's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in the reference rate announced by LaSalle shall take effect at the opening of business on the day specified in the public announcement of such change. "BASE RATE LOAN" means a Loan or an L/C Advance that bears interest based on the Base Rate. "BASIS POINT" means one one-hundredth of one percent. "BOFA" means Bank of America, National Association, a national banking association. "BORROWING" means a borrowing hereunder consisting of Revolving Loans of the same Type made to the Company on the same day by the Lenders under ARTICLE II, and, in the case of Offshore Rate Loans, having the same Interest Period. The making of a Swing Line Loan shall not constitute a Borrowing. "BORROWING DATE" means any date on which a Borrowing occurs under SECTION 2.03. "BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which commercial banks in Chicago, Illinois or San Francisco, California are authorized or required by law to close and, if the applicable Business Day relates to any Offshore Rate Loan, means a Banking Day. "CAPITAL ADEQUACY REGULATION" means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank. "CAPITAL LEASE" has the meaning specified in the definition of "Capital Lease Obligations". "CAPITAL LEASE OBLIGATIONS" means all monetary obligations of the Company or any of its Subsidiaries under any leasing or similar arrangement which, in accordance with GAAP, is classified as a capital lease (a "CAPITAL LEASE"). "CAPITAL STOCK" means (a) in the case of a corporation, corporate stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (c) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "CASH COLLATERALIZE" means to pledge and deposit with or deliver to the Co-Administrative Agent, for the benefit of the Agent, the Co-Administrative Agent, the Issuer and the Lenders, as additional collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Co-Administrative Agent and the Issuer (which documents are hereby consented to by the Lenders). Derivatives of such term shall have corresponding meanings. The Company hereby grants the Co-Administrative Agent, for the benefit of the Agent, the Co-Administrative Agent, the Issuer and the Lenders, a security interest in all such cash and deposit account balances. Cash collateral shall be maintained in blocked deposit accounts at LaSalle. The Co-Administrative Agent shall invest any and all available funds deposited in such deposit accounts, within 10 business days after the date the relevant funds become available, in securities issued or fully guaranteed or insured by the United States Government or any agency thereof backed by the full faith and credit of the United States having maturities of three months from the date of acquisition thereof (collectively, "GOVERNMENTAL OBLIGATIONS"). The Company hereby acknowledges and agrees that the Co-Administrative Agent shall not have any liability with respect to, and the Company hereby indemnifies the Co-Administrative Agent against, any loss resulting from the acquisition of the Government Obligations and the Co-Administrative Agent shall not have any obligation to monitor the trading activity of any such Governmental Obligations on and after the acquisition thereof for the purpose of obtaining the highest possible return with respect thereto, the Co-Administrative Agent's responsibility being limited to acquiring such Governmental Obligations. "CASH EQUIVALENTS" means: (a) securities issued or fully guaranteed or insured by the United States Government or any agency thereof and backed by the full faith and credit of the United States having maturities of not more than six months from the date of acquisition; (b) certificates of deposit, time deposits, Eurodollar time deposits, repurchase agreements, reverse repurchase agreements, or bankers' acceptances, having in each case a term of not more than six months, issued by any Lender, or by any U.S. commercial bank having combined capital and surplus of not less than $100,000,000 whose short term securities are rated at least A-1 by S&P and P-1 by Moody's; and (c) commercial paper of an issuer rated at least A-1 by S&P or P-1 by Moody's and in either case having a tenor of not more than three months. "CERCLA" has the meaning specified in the definition of "Environmental Laws." "CHANGE OF CONTROL" means (a) any Person or any two or more Persons acting in concert acquiring beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Exchange Act), directly or indirectly, of capital stock of the Company (or other securities convertible into such capital stock) representing 20% or more of the combined voting power of all capital stock of the Company entitled to vote in the election of directors, other than capital stock having such power only by reason of the happening of a contingency; or (b) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the Company's board of directors (together with any new directors whose election by the Company's board of directors or whose nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reasons other than death or disability to constitute a majority of the directors then in office. "CLOSING DATE" means the date on which all conditions precedent set forth in SECTION 5.01 are satisfied or waived by all Lenders (or, in the case of SUBSECTION 5.01(e), waived by the Person entitled to receive such payment). "CO-ADMINISTRATIVE AGENT" means LaSalle in its capacity as co-administrative agent for the Lenders hereunder, and any successor co-administrative agent arising under SECTION 10.09. "CO-ADMINISTRATIVE AGENT'S PAYMENT OFFICE" means (a) in respect of payments in Dollars, the address for payments set forth on SCHEDULE 11.02 or such other address as the Co-Administrative Agent may from time to time specify, and (b) in the case of payments in any Offshore Currency, such address as the Co-Administrative Agent may from time to time specify in accordance with SECTION 11.02. "CODE" means the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder. "COMMITMENT" has the meaning specified in SECTION 2.01. "COMPANY" has the meaning specified in the introductory clause hereto. "COMPLIANCE CERTIFICATE" means a certificate substantially in the form of EXHIBIT C. "COMPUTATION DATE" has the meaning specified in SUBSECTION 2.06(a). "CONTINGENT OBLIGATION" means, as to any Person, any direct or indirect liability of that Person, whether or not contingent, with or without recourse, (a) with respect to any Indebtedness, lease, dividend, letter of credit or other obligation (the "PRIMARY OBLIGATIONS") of another Person (the "PRIMARY OBLIGOR"), including any obligation of that Person (i) to purchase, repurchase or otherwise acquire such primary obligations or any security therefor, (ii) to advance or provide funds for the payment or discharge of any such primary obligation, or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof (each, a "GUARANTY OBLIGATION"); (b) with respect to any Surety Instrument issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or payments; (c) to purchase any materials, supplies or other property from, or to obtain the services of, another Person if the relevant contract or other related document or obligation requires that payment for such materials, supplies or other property, or for such services, shall be made regardless of whether delivery of such materials, supplies or other property is ever made or tendered, or such services are ever performed or tendered; or (d) in respect of any Swap Contract. The amount of any Contingent Obligation, (x) in the case of Guaranty Obligations, shall be deemed equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof, (y) in the case of Contingent Obligations in respect of Swap Contracts, shall be deemed equal to the aggregate Swap Termination Value of such Swap Contracts, and (z) in the case of other Contingent Obligations shall be deemed equal to the maximum reasonably anticipated liability in respect thereof. "CONTRACTUAL OBLIGATION" means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound. "CONVERSION/CONTINUATION DATE" means any date on which, under SECTION 2.04, the Company (a) converts Loans of one Type to another Type, or (b) continues as Loans of the same Type, but with a new Interest Period, Loans having Interest Periods expiring on such date. "CREDIT EXTENSION" means and includes (a) the making of any Loans hereunder, and (b) the Issuance of any Letters of Credit hereunder. "CURRENT ASSETS" means all assets of the Company, on a consolidated basis, which should, in accordance with GAAP, be classified as current assets. "CURRENT LIABILITIES" means all liabilities of the Company, on a consolidated basis, which should, in accordance with GAAP, be classified as current liabilities, other than current maturities in respect of the Loans. "DEBT TO CAPITALIZATION RATIO" means, as of any date of determination, the ratio of (a) the Company's consolidated Indebtedness as of such date, to (b) the sum of (i) the Company's consolidated Indebtedness as of such date and (ii) the Company's Net Worth as of such date. "DEFAULT" means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "DOLLAR EQUIVALENT" means, at any time, (a) as to any amount denominated in Dollars, the amount thereof at such time, and (b) as to any amount denominated in an Offshore Currency, the equivalent amount in Dollars as determined by the Co-Administrative Agent at such time on the basis of the Spot Rate for the purchase of Dollars with such Alternative Offshore Currency on the most recent Computation Date provided for in SUBSECTION 2.06(a). "DOLLARS", "DOLLARS" and "$" each mean lawful money of the United States. "DOMESTIC SUBSIDIARY" means a Subsidiary that is organized under the laws of the United States or any state thereof. "EBITDAR" means, for any period, for the Company and its Subsidiaries on a consolidated basis, determined in accordance with GAAP, the sum of (a) the net income (or net loss) for such period, PLUS (b) all amounts treated as expenses for depreciation and interest and the amortization of intangibles of any kind to the extent included in the determination of such net income (or loss), PLUS (c) all accrued taxes on or measured by income to the extent included in the determination of such net income (or net loss), PLUS (d) all Rental Expense for such period, PLUS (e) to the extent applicable, the amount of the charge in respect of non-recurring expenses taken in the fourth quarter of the Company's 1999 fiscal year with respect to the Company's Acquisition of The Barbers, Hairstylists for Men & Women, Inc. and the restructuring of international operations, in an aggregate amount not to exceed $14,000,000, PLUS (f) the amount of any other charge in respect of non-recurring expenses arising in connection with Acquisitions, to the extent approved by the Agent and the Required Lenders. "EFFECTIVE AMOUNT" means (a) with respect to any Loans on any date, the aggregate outstanding principal Dollar Equivalent amount thereof after giving effect to any Borrowings and prepayments or repayments of Loans occurring on such date and any Swing Line Loans made on such date; and (b) with respect to any outstanding L/C Obligations on any date, the Dollar Equivalent amount of such L/C Obligations on such date after giving effect to any Issuances of Letters of Credit occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements of outstanding unpaid drawings under any Letters of Credit or any reductions in the maximum amount available for drawing under Letters of Credit taking effect on such date. "ELIGIBLE ASSIGNEE" means (a) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the United States; and (c) a Person that is primarily engaged in the business of commercial banking and that is (i) a Subsidiary of a Lender, (ii) a Subsidiary of a Person of which a Lender is a Subsidiary, or (iii) a Person of which a Lender is a Subsidiary. "ENVIRONMENTAL CLAIMS" means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), investigation, cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon the presence, placements, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or non-accidental, placements, spills, leaks, discharges, emissions or releases) of any Hazardous Material at, in, or from any property, whether or not owned by the Company or any Subsidiary or taken as collateral, or in connection with any operations of the Company. "ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, and the Emergency Planning and Community Right-to-Know Act. "ENVIRONMENTAL PERMITS" has the meaning specified in SUBSECTION 6.12(b). "ERISA" means the Employee Retirement Income Security Act of 1974, and regulations promulgated thereunder. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) under common control with the Company within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). "ERISA EVENT" means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability to the PBGC under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate. "EURO" means the single currency of participating member states of the European Monetary Union. "EURODOLLAR RESERVE PERCENTAGE" has the meaning specified in the definition of "Offshore Rate". "EVENT OF DEFAULT" means any of the events or circumstances specified in SECTION 9.01. "EXCHANGE ACT" means the Securities Exchange Act of 1934 and the regulations promulgated thereunder. "FDIC" means the Federal Deposit Insurance Corporation, and any Governmental Authority succeeding to any of its principal functions. "FEDERAL FUNDS RATE" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, "H.15(519)") on the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if for any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Co-Administrative Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (Chicago time) on that day by each of three leading brokers of Federal funds transactions in Chicago, Illinois selected by the Co-Administrative Agent. "FEE LETTERS" has the meaning specified in SUBSECTION 2.11(a). "FIXED CHARGES" means, with respect to the Company and its Subsidiaries on a consolidated basis, as of any date of determination, (a) interest expense paid on outstanding Indebtedness for the period of four fiscal quarters ending on the date of determination, and (b) Rental Expense paid in such period. "FRB" means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions. "FURTHER TAXES" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges (including, without limitation, net income taxes and franchise taxes), and all liabilities with respect thereto, imposed by any jurisdiction on account of amounts payable or paid pursuant to SECTION 4.01. "FX TRADING OFFICE" means the Chicago office of LaSalle, or such other office of LaSalle or ABN AMRO as the Co-Administrative Agent may designate from time to time. "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination. "GOVERNMENTAL AUTHORITY" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "GUARANTORS" means each of the Subsidiaries of the Company from time to time party to the Subsidiary Guaranty. "GUARANTY OBLIGATION" has the meaning specified in the definition of "Contingent Obligation." "HAZARDOUS MATERIALS" means all those substances that are regulated by, or which may form the basis of liability or a standard of conduct under, any Environmental Law, including any substance identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum-derived substance or waste. "HONOR DATE" has the meaning specified in SUBSECTION 3.03(b). "INDEBTEDNESS" of any Person means, without duplication, (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business on ordinary terms); (c) all reimbursement or payment obligations with respect to Surety Instruments and all L/C Obligations; (d) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property); (f) all Capital Lease Obligations; (g) the principal balance outstanding under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product to which such Person is a party, where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an operating lease in accordance with GAAP; (h) all indebtedness referred to in clauses (a) through (g) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and (i) all Guaranty Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (h) above. For all purposes of this Agreement, the Indebtedness of any Person shall include all recourse Indebtedness of any partnership or joint venture or limited liability company in which such Person is a general partner or a joint venturer or a member and as to which such Person is or may become directly liable. "INDEMNIFIED LIABILITIES" has the meaning specified in SECTION 11.05. "INDEMNIFIED PERSON" has the meaning specified in SECTION 11.05. "INDEPENDENT AUDITOR" has the meaning specified in SUBSECTION 7.01(a). "INSOLVENCY PROCEEDING" means, with respect to any Person, (a) any case, action or proceeding with respect to such Person before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; in each case, undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code. "INTERCOMPANY INDEBTEDNESS" means Indebtedness of the Company or any of its Subsidiaries which, in the case of the Company, is owing to any Subsidiary of the Company, and which, in the case of any Subsidiary, is owing to the Company or any of its other Subsidiaries. "INTEREST PAYMENT DATE" means, as to any Offshore Rate Loan, the last day of each Interest Period applicable to such Loan and, as to any Base Rate Loan, the last Business Day of each calendar quarter; PROVIDED, HOWEVER, that if any Interest Period for an Offshore Rate Loan exceeds three months, the date that falls three months after the beginning of such Interest Period and after each Interest Payment Date thereafter is also an Interest Payment Date. "INTEREST PERIOD" means, as to any Offshore Rate Loan, the period commencing on the Borrowing Date of such Loan or on the Conversion/Continuation Date on which the Loan is converted into or continued as an Offshore Rate Loan, and ending on the date one, two, three or six months thereafter as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation; PROVIDED that: (a) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (c) no Interest Period for any Loan shall extend beyond the Termination Date. "INVESTMENTS" has the meaning specified in SECTION 8.04. "IRS" means the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions under the Code. "ISSUANCE DATE" has the meaning specified in SUBSECTION 3.01(a). "ISSUE" means, with respect to any Letter of Credit, to issue or to extend the expiry of, or to renew or increase the amount of, such Letter of Credit; and the terms "ISSUED," "ISSUING" and "ISSUANCE" have corresponding meanings. "ISSUER" means LaSalle in its capacity as issuer of one or more Letters of Credit hereunder, together with any replacement letter of credit issuer arising under SUBSECTION 10.01(b) or SECTION 10.09. "JOINT VENTURE" means a single-purpose corporation, partnership, limited liability company, joint venture or other similar legal arrangement (whether created by contract or conducted through a separate legal entity) now or hereafter formed by the Company or any of its Subsidiaries with another Person in order to conduct a common venture or enterprise with such Person. "JUDGMENT CURRENCY" has the meaning specified in SECTION 11.18. "LASALLE" means LaSalle Bank, N.A., a national banking association. "L/C ADVANCE" means each Lender's participation in any L/C Borrowing in accordance with its Pro Rata Share. "L/C AMENDMENT APPLICATION" means an application form for amendment of outstanding standby letters of credit as shall at any time be in use at the Issuer, as the Issuer shall request. "L/C APPLICATION" means an application form for issuances of standby letters of credit as shall at any time be in use at the Issuer, as the Issuer shall request. "L/C BORROWING" means an extension of credit resulting from a drawing under any Letter of Credit which shall not have been reimbursed on the date when made nor converted into a Borrowing of Loans under SUBSECTION 3.03(d). "L/C COMMITMENT" means the commitment of the Issuer to Issue, and the commitment of the Lenders severally to participate in, Letters of Credit from time to time Issued or outstanding under ARTICLE III, in an aggregate amount not to exceed $5,000,000 on any date; PROVIDED that the L/C Commitment is a part of the Aggregate Commitment, rather than a separate, independent commitment. "L/C OBLIGATIONS" means at any time the sum of (a) the aggregate undrawn amount of all Letters of Credit then outstanding, plus (b) the amount of all unreimbursed drawings under all Letters of Credit, including all outstanding L/C Borrowings. "L/C-RELATED DOCUMENTS" means the Letters of Credit, the L/C Applications, the L/C Amendment Applications and any other document relating to any Letter of Credit, including any standard form documents used by the Issuer for letter of credit issuances. "LENDER" has the meaning specified in the introductory clause hereto. References to the "Lenders" shall include BofA and LaSalle, including in its capacity as Issuer and as Swing Line Lender; for purposes of clarification only, to the extent that LaSalle may have any rights or obligations in addition to those of the Lenders due to its status as an Issuer or as Swing Line Lender, respectively, its status as such will be specifically referenced. "LENDING OFFICE" means, as to any Lender, the office or offices, branches, subsidiaries or affiliates of such Lender specified as its "Lending Office" or "Domestic Lending Office" or "Offshore Lending Office", as the case may be, on SCHEDULE 11.02, or such other office or offices, branches, subsidiaries or affiliates as such Lender may from time to time notify the Company and the Agent. "LETTERS OF CREDIT" means (a) each of the outstanding standby letters of credit previously issued by LaSalle and described on SCHEDULE 1.01 hereto, and (b) any standby letter of credit issued by the Issuer pursuant to ARTICLE III on or after the date of the Agreement. "LIEN" means any security interest, mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preferential arrangement of any kind or nature whatsoever in respect of any property (including those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the Uniform Commercial Code or any comparable law) and any contingent or other agreement to provide any of the foregoing, but not including the interest of a lessor under an operating lease. "LOAN" means an extension of credit by a Lender to the Company under ARTICLE II or ARTICLE III in the form of a Revolving Loan, Swing Line Loan or L/C Advance. "LOAN DOCUMENTS" means this Agreement, any Notes, the Fee Letters, the L/C-Related Documents, the Subsidiary Guaranty, the Rate Swap Documents and all other documents delivered to the Agent, the Co-Administrative Agent or any Lender in connection herewith. "MARGIN STOCK" means "margin stock" as such term is defined in Regulation T, U or X of the FRB. "MATERIAL ADVERSE EFFECT" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, assets, liabilities (actual or contingent), condition (financial or otherwise) or prospects of the Company or the Company and its Subsidiaries taken as a whole; (b) a material impairment of the ability of the Company or any Subsidiary to perform under any Loan Document and to avoid any Event of Default; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Company or any Subsidiary of any Loan Document. "MORTGAGE" means any deed of trust, mortgage, leasehold mortgage, assignment of rents or other document creating a Lien on real property or any interest in real property. "MORTGAGED PROPERTY" means all property subject to a Lien pursuant to a Mortgage. "MULTIEMPLOYER PLAN" means a "multiemployer plan", within the meaning of Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate makes, is making, or is obligated to make contributions or, during the preceding three calendar years, has made, or been obligated to make, contributions. "NET WORTH" means the shareholders' equity of the Company as determined in accordance with GAAP. "NOTE" means a promissory note executed by the Company in favor of a Lender pursuant to SUBSECTION 2.02(b). "NOTE AGREEMENTS" means, collectively, (a) that certain Private Shelf Agreement dated as of July 25, 1995 and amended as of July 11, 1997, January 22, 1998 and July 30, 1999 between the Company and The Prudential Insurance Company of America and (b) that certain Private Shelf Agreement dated as of December 19, 1997 and amended as of July 30, 1999 between the Company and Life Insurance Company of Georgia, each as further amended, supplemented or modified from time to time. "NOTICE OF BORROWING" means a notice in substantially the form of EXHIBIT A. "NOTICE OF CONVERSION/CONTINUATION" means a notice in substantially the form of EXHIBIT B. "OBLIGATIONS" means all advances, debts, liabilities, obligations, covenants and duties arising under any Loan Document owing by the Company or any Subsidiary to any Lender, the Agent, the Co-Administrative Agent or any Indemnified Person, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising. "OFFSHORE CURRENCY" means at any time, pounds sterling, Canadian dollars and any Agreed Alternative Currency. "OFFSHORE CURRENCY LOAN" means any Offshore Rate Loan denominated in an Offshore Currency. "OFFSHORE CURRENCY LOAN SUBLIMIT" means $15,000,000. "OFFSHORE RATE" means, for any Interest Period, with respect to Offshore Rate Loans comprising part of the same Borrowing, the rate of interest per annum (rounded upward to the next 1/100th of 1%) determined by the Agent as follows: Offshore Rate = LIBOR ---------------------------------- 1.00 - Eurodollar Reserve Percentage Where, "EURODOLLAR RESERVE PERCENTAGE" means for any day for any Interest Period the maximum reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day (whether or not applicable to any Lender) under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"); and "LIBOR" means the rate of interest per annum determined by the Co-Administrative Agent as the rate at which deposits in the Applicable Currency in the approximate amount of the amount of the Loan to be made or continued as, or converted into, an Offshore Rate Loan by the Co-Administrative Agent and having a maturity comparable to such Interest Period would be offered by ABN AMRO's London Branch (or such other office as may be designated for such purpose by LaSalle), to major banks in the London interbank market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period. The Offshore Rate shall be adjusted automatically as to all Offshore Rate Loans then outstanding as of the effective date of any change in the Eurodollar Reserve Percentage. "OFFSHORE RATE LOAN" means a Loan that bears interest based on the Offshore Rate and may be an Offshore Currency Loan or a Loan denominated in Dollars. "ORGANIZATION DOCUMENTS" means, for any corporation, the certificate or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation. "OTHER TAXES" means any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, this Agreement or any other Loan Documents. "OVERNIGHT RATE" means, for any day, the rate of interest per annum at which overnight deposits in the Applicable Currency, in the amount approximately equal to the amount with respect to which such rate is being determined, would be offered for such day by ABN AMRO's London Branch to major banks in the London or other applicable offshore interbank market. "PARTICIPANT" has the meaning specified in SUBSECTION 11.08(e). "PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental Authority succeeding to any of its principal functions under ERISA. "PENSION PLAN" means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which the Company or any ERISA Affiliate sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or otherwise has any liability, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five (5) plan years. "PERMITTED LIENS" has the meaning specified in SECTION 8.01. "PERMITTED SWAP OBLIGATIONS" means all obligations (contingent or otherwise) of the Company or any Subsidiary existing or arising under Swap Contracts, provided that each of the following criteria is satisfied: (a) such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with liabilities, commitments or assets held or reasonably anticipated by such Person, or changes in the value of securities issued by such Person in conjunction with a securities repurchase program not otherwise prohibited hereunder, and not for purposes of speculation or taking a "market view", and (b) such Swap Contracts do not contain any provision ("walk-away" provision) exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party. "PERSON" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority. "PLAN" means an employee benefit plan (as defined in Section 3(3) of ERISA) which the Company or any ERISA Affiliate sponsors or maintains or to which the Company or any ERISA Affiliate makes, is making, or is obligated to make contributions or otherwise has any liability and includes any Pension Plan. "PROPERTY" means any interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible. "PRO RATA SHARE" means, as to any Lender, (a) at any time at which the Aggregate Commitment remains outstanding, the percentage equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of such Lender's Commitment in respect of all Loans divided by the Aggregate Commitment, and (b) after the termination of the Aggregate Commitment, the percentage equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of the principal amount of such Lender's outstanding Loans (including such Lender's ratable share of outstanding Swing Line Loans and L/C Obligations) divided by the aggregate principal amount of the outstanding Loans and L/C Obligations of all of the Lenders. "RATE SWAP DOCUMENTS" means, collectively, all Swap Contracts entered into between the Company and any Lender in respect of any portion of the Obligations. "RENTAL EXPENSE" means, for any period, the sum of (a) all store rental payments, (b) all common area maintenance payments and (c) all real estate taxes paid by the Company and its Subsidiaries. "REPORTABLE EVENT" means, any of the events set forth in Section 4043(c) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC. "REQUIRED LENDERS" means at any time Lenders then holding at least 51% of the Aggregate Commitment (or if the Aggregate Commitment has been terminated, then the aggregate principal amount outstanding of Revolving Loans and Swing Line Loans, plus the outstanding amount of L/C Obligations). "REQUIREMENT OF LAW" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "RESPONSIBLE OFFICER" means the chief financial officer of the Company or any other officer having substantially the same authority and responsibility. "REVOLVING LOAN" has the meaning specified in SECTION 2.01. "SAME DAY FUNDS" means (a) with respect to disbursements and payments in Dollars, immediately available funds, and (b) with respect to disbursements and payments in an Offshore Currency, same day or other funds as may be determined by the Agent to be customary in the place of disbursement or payment for the settlement of international banking transactions in the relevant Offshore Currency. "SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions. "SOLVENT" means, when used with respect to a Person, that (a) the fair saleable value of the assets of such Person is in excess of the total amount of the present value of its liabilities (including for purposes of this definition all liabilities (including loss reserves as determined by such Person), whether or not reflected on a balance sheet prepared in accordance with GAAP and whether direct or indirect, fixed or contingent, secured or unsecured, disputed or undisputed), (b) such Person is able to pay its debts or obligations in the ordinary course as they mature and (c) such Person does not have unreasonably small capital to carry out its business as conducted and as proposed to be conducted. "SOLVENCY" shall have a correlative meaning. "SPECIFIED ACQUISITION DEBT" means Indebtedness of a Person that was the subject of an Acquisition by the Company or any Subsidiary in an aggregate amount not to exceed $5,000,000 at any one time outstanding, (a) which remains outstanding no more than 30 days after the date on which such Acquisition was consummated, (b) which is the subject of a default under the terms thereof solely as a result of the consummation of such Acquisition and (c) which has not been accelerated or otherwise become immediately repayable and in respect of which the lenders thereof have not exercised any available remedies. "SPOT RATE" for a currency means the rate quoted by LaSalle as the spot rate for the purchase by LaSalle of such currency with another currency through its FX Trading Office at approximately 8:00 a.m. (Chicago time) on the date two Banking Days prior to the date as of which the foreign exchange computation is made. "SUBSIDIARY" of a Person means any corporation, association, partnership, limited liability company, joint venture or other business entity of which more than 50% of the voting stock, membership interests or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Company. "SUBSIDIARY GUARANTY" means that certain Subsidiary Guaranty dated as of the date hereof by certain of the Subsidiaries in favor of the Agent, the Co-Administrative Agent and the Lenders. "SURETY INSTRUMENTS" means all letters of credit (including standby and commercial), banker's acceptances, bank guaranties, shipside bonds, performance bonds, surety bonds and similar instruments. "SWAP CONTRACT" means any agreement, whether or not in writing, relating to any transaction that is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap or option, bond, note or bill option, interest rate option, forward foreign exchange transaction, cap, collar or floor transaction, currency swap, cross-currency rate swap, swaption, currency option or any other, similar transaction (including any option to enter into any of the foregoing) or any combination of the foregoing, and, unless the context otherwise clearly requires, any master agreement relating to or governing any or all of the foregoing. "SWAP TERMINATION VALUE" means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a) the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined by the Company based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include any Lender). "SWING LINE COMMITMENT" means at any time, the obligation of the Swing Line Lender to make Swing Line Loans pursuant to SECTION 2.05. "SWING LINE LENDER" means LaSalle, in its capacity as provider of the Swing Line Loans. "SWING LINE LOAN" means a Loan made by the Swing Line Lender. "TAXES" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges, and all liabilities with respect thereto, excluding, in the case of each Lender, the Agent and the Co-Administrative Agent, respectively, taxes imposed on or measured by its net income by the jurisdiction (or any political subdivision thereof) under the laws of which such Lender, the Agent or the Co-Administrative Agent, as the case may be, is organized or maintains a Lending Office. "TERMINATION DATE" means the earlier to occur of: (a) July 30, 2002; and (b) the date on which the Aggregate Commitment terminates in accordance with the provisions of this Agreement. A "TYPE" of Loan means its status as either a Base Rate Loan or an Offshore Rate Loan. "UNFUNDED PENSION LIABILITY" means the excess of a Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year. "UNITED STATES" and "U.S." each means the United States of America. "WHOLLY-OWNED SUBSIDIARY" means any corporation, association, partnership, limited liability company, joint venture or other business entity in which (other than directors' qualifying shares required by law) 100% of the equity interests of each class having ordinary voting power, and 100% of the equity interests of every other class, in each case, at the time as of which any determination is being made, is owned, beneficially and of record, by the Company, or by one or more of the other Wholly-Owned Subsidiaries, or both. "YEAR 2000 PROBLEM" has the meaning specified in SUBSECTION 5.01(i). 1.02 OTHER INTERPRETIVE PROVISIONS. (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. (b) The words "hereof", "herein", "hereunder" and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and subsection, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (c) (i) The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. (ii) The term "including" is not limiting and means "including without limitation." (iii) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding", and the word "through" means "to and including." (iv) The term "property" includes any kind of property or asset, real, personal or mixed, tangible or intangible. (d) Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation. (e) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. (f) This Agreement and other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. Unless otherwise expressly provided, any reference to any act of the Agent, the Co-Administrative Agent or the Lenders by way of consent, approval or waiver shall be deemed modified by the phrase "in its/their sole discretion". (g) This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Agent, the Co-Administrative Agent, the Company and the other parties, and are the products of all parties. Accordingly, they shall not be construed against the Lenders, the Agent or the Co-Administrative Agent merely because of the Agent's, the Co-Administrative Agent's or the Lenders' involvement in their preparation. 1.03 ACCOUNTING PRINCIPLES. (a) Unless the context otherwise clearly requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made, in accordance with GAAP, consistently applied. (b) References herein to "fiscal year" and "fiscal quarter" refer to such fiscal periods of the Company. (c) In the event that any changes in GAAP occur after the date of this Agreement and such changes result in a material variation in the method of calculation of financial covenants or other terms of this Agreement, then the Company, the Agent, the Co-Administrative Agent, and the Lenders agree to amend such provisions of this Agreement so as to equitably reflect such changes so that the criteria for evaluating the Company's financial condition will be the same after such changes as if such changes had not occurred. 1.04 CURRENCY EQUIVALENTS GENERALLY. For all purposes of this Agreement (but not for purposes of the preparation of any financial statements delivered pursuant hereto), the equivalent in any Offshore Currency or other currency of an amount in Dollars, and the equivalent in Dollars of an amount in any Offshore Currency or other currency, shall be determined at the Spot Rate. ARTICLE II THE CREDITS 2.01 AMOUNTS AND TERMS OF COMMITMENTS. Each Lender severally agrees, on the terms and conditions set forth herein, to make loans to the Company denominated in Dollars or in an Offshore Currency (each such loan, a "REVOLVING LOAN") from time to time on any Business Day during the period from the Closing Date to the Termination Date, in an aggregate principal Dollar Equivalent amount not to exceed at any time outstanding the amount set forth opposite such Lender's name on SCHEDULE 2.01 (such amount, as the same may be reduced under SECTION 2.07 or as a result of one or more assignments under SECTION 11.08, the Lender's "COMMITMENT"); PROVIDED, HOWEVER, that, after giving effect to any Borrowing of Revolving Loans, the Effective Amount of all outstanding Loans and of all L/C Obligations, shall not at any time exceed the Aggregate Commitment; PROVIDED FURTHER, that the Effective Amount of the Revolving Loans of any Lender plus the participation of such Lender in the Dollar Equivalent of the Effective Amount of all L/C Obligations and such Lender's Pro Rata Share of any outstanding Swing Line Loans shall not at any time exceed such Lender's Commitment; and PROVIDED, FURTHER, that after giving effect to any Borrowing of Offshore Currency Loans, the Effective Amount of all outstanding Offshore Currency Loans shall not exceed the Offshore Currency Loan Sublimit. Within the limits of each Revolving Lender's Commitment, and subject to the other terms and conditions hereof, the Company may borrow under this SECTION 2.01, prepay under SECTION 2.08 and reborrow under this SECTION 2.01. 2.02 LOAN ACCOUNTS. (a) The Loans made by each Lender and the Letters of Credit Issued by the Issuer shall be evidenced by one or more accounts or records maintained by such Lender or Issuer, as the case may be, in the ordinary course of business. The accounts or records maintained by the Co-Administrative Agent, the Issuer and each Lender shall be conclusive absent manifest error of the amount of the Loans made by the Lenders to the Company and the Letters of Credit Issued for the account of the Company, and the interest and payments thereon. Any failure so to record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Company hereunder to pay any amount owing with respect to the Loans or any Letter of Credit. (b) Upon the request of any Lender made through the Co-Administrative Agent, the Loans made by such Lender may be evidenced by one or more Notes, instead of or in addition to loan accounts. Each such Lender shall record on the schedule annexed to its Note(s) the date, amount and maturity of each Loan made by it and the amount and Applicable Currency of each payment of principal made by the Company with respect thereto. Each such Lender is irrevocably authorized by the Company to make such recordation on its Note, and each Lender's record shall be conclusive absent manifest error; PROVIDED, HOWEVER, that the failure of a Lender to make, or an error in making, a notation thereon with respect to any Loan shall not limit or otherwise affect the obligations of the Company hereunder or under any such Note to such Lender. 2.03 PROCEDURE FOR BORROWING. (a) Each Borrowing (other than an L/C Advance) shall be made upon the Company's irrevocable notice delivered to the Co-Administrative Agent in the form of a Notice of Borrowing (which notice must be received by the Co-Administrative Agent prior to 12:00 p.m. (Chicago time) (i) three Business Days prior to the requested Borrowing Date, in the case of Offshore Rate Loans denominated in Dollars, (ii) four Business Days prior to the requested Borrowing Date, in the case of Offshore Currency Loans, and (iii) on the requested Borrowing Date, in the case of Base Rate Loans), specifying: (A) the amount of the Borrowing, which shall be in an aggregate minimum amount of $500,000 or any multiple of $100,000 in excess thereof; (B) the requested Borrowing Date, which shall be a Business Day; (C) the Type of Loans comprising the Borrowing and in the case of an Offshore Rate Loan, the Applicable Currency; and (D) with respect to Offshore Rate Loans, the duration of the Interest Period applicable to such Loans included in such notice. If the Notice of Borrowing fails to specify the duration of the Interest Period for any Borrowing comprised of Offshore Rate Loans, such Interest Period shall be one month; PROVIDED, HOWEVER, that with respect to the Borrowing to be made on the Closing Date, such Borrowing will consist of Base Rate Loans only. (b) The Co-Administrative Agent will promptly notify each Lender of its receipt of any Notice of Borrowing and of the amount of such Lender's Pro Rata Share of that Borrowing. (c) Each Lender will make the amount of its Pro Rata Share of each Borrowing available to the Co-Administrative Agent for the account of the Company at the Co-Administrative Agent's Payment Office on the Borrowing Date requested by the Company in Same Day Funds and in the requested currency (i) in the case of a Borrowing comprised of Loans in Dollars, by 2:00 p.m. (Chicago time), and (ii) in the case of a Borrowing comprised of Offshore Currency Loans, by such time as the Co-Administrative Agent may specify. The proceeds of all such Loans will promptly thereafter be made available to the Company by the Co-Administrative Agent at such office by crediting the account of the Company on the books of LaSalle with the aggregate of the amounts made available to the Co-Administrative Agent by the Lenders and in like funds as received by the Co-Administrative Agent. (d) After giving effect to any Borrowing or any conversion or continuation of Loans pursuant to SECTION 2.04, unless the Co-Administrative Agent shall otherwise consent, there may not be more than 10 different Interest Periods in effect. (e) The Company hereby authorizes the Lenders and the Co-Administrative Agent to accept Notices of Borrowing based on telephonic notices made by any person or persons the Co-Administrative Agent or any Lender in good faith believes to be acting on behalf of the Company. The Company agrees to deliver promptly to the Co-Administrative Agent a written confirmation of each telephonic notice, signed by a Responsible Officer or an authorized designee. If the written confirmation differs in any material respect from the action taken by the Co-Administrative Agent and the Lenders, the records of the Co-Administrative Agent and the Lenders shall govern absent manifest error. 2.04 CONVERSION AND CONTINUATION ELECTIONS. (a) The Company may, upon irrevocable notice to the Co-Administrative Agent in accordance with SUBSECTION 2.04(b): (i) elect, as of any Business Day, in the case of Base Rate Loans, or as of the last day of the applicable Interest Period, in the case of Offshore Rate Loans, to convert any such Loans (or any part thereof in an amount not less than $500,000 or that is in an integral multiple of $100,000 in excess thereof) into Loans of any other Type; or (ii) elect as of the last day of the applicable Interest Period, to continue any Loans having Interest Periods expiring on such day (or any part thereof in an amount not less than $500,000, or that is in an integral multiple of $100,000 in excess thereof); PROVIDED, that if at any time the aggregate amount of Offshore Rate Loans denominated in Dollars in respect of any Borrowing is reduced, by payment, prepayment, or conversion of part thereof to be less than $500,000 such Offshore Rate Loans denominated in Dollars shall automatically convert into Base Rate Loans, and on and after such date the right of the Company to continue such Loans as, and convert such Loans into, Offshore Rate Loans shall terminate. (b) The Company shall deliver a Notice of Conversion/Continuation to be received by the Co-Administrative Agent not later than 12:00 p.m. (Chicago time) at least (i) three Business Days in advance of the Conversion/Continuation Date, if the Loans are to be converted into or continued as Offshore Rate Loans in Dollars, (ii) four Business Days in advance of the Conversion/Continuation Date, if the Loans are to be converted into or continued as Offshore Currency Loans, and (iii) on the Conversion/Continuation Date, if the Loans are to be converted into Base Rate Loans, specifying: (A) the proposed Conversion/Continuation Date; (B) the aggregate amount of Loans to be converted or continued; (C) the Type of Loans resulting from the proposed conversion or continuation and in the case of an Offshore Rate Loan, the Applicable Currency; and (D) other than in the case of conversions into Base Rate Loans, the duration of the requested Interest Period. (c) If upon the expiration of any Interest Period applicable to Offshore Rate Loans denominated in Dollars, the Company has failed to select timely a new Interest Period to be applicable to such Offshore Rate Loans, or if any Default or Event of Default then exists, the Company shall be deemed to have elected to convert such Offshore Rate Loans into Base Rate Loans effective as of the expiration date of such Interest Period. If the Company has failed to select a new Interest Period to be applicable to Offshore Currency Loans prior to the fourth Business Day in advance of the expiration date of the current Interest Period applicable thereto as provided in SUBSECTION 2.04(b), or if any Default or Event of Default shall then exist, subject to the provisions of SUBSECTION 2.06(d), the Company shall be deemed to have elected to continue such Offshore Currency Loans on the basis of a one-month Interest Period. (d) The Co-Administrative Agent will promptly notify each Lender of its receipt of a Notice of Conversion/Continuation, or, if no timely notice is provided by the Company, the Co-Administrative Agent will promptly notify each Lender of the details of any automatic conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Loans, with respect to which the notice was given, held by each Lender. (e) Unless the Required Lenders otherwise consent, during the existence of a Default or Event of Default, the Company may not elect to have a Loan in Dollars converted into or continued as an Offshore Rate Loan in Dollars, or an Offshore Currency Loan continued on the basis of an Interest Period exceeding one month. (f) The Company hereby authorizes the Lenders and the Co-Administrative Agent to accept Notices of Conversion/Continuation based on telephonic notices made by any person or persons the Co-Administrative Agent or any Lender in good faith believes to be acting on behalf of the Company. The Company agrees to deliver promptly to the Co-Administrative Agent a written confirmation of each telephonic notice, signed by a Responsible Officer. If the written confirmation differs in any material respect from the action taken by the Co-Administrative Agent and the Lenders, the records of the Co-Administrative Agent and the Lenders shall govern absent manifest error. 2.05 THE SWING LINE LOANS. (a) Subject to the terms and conditions hereof, the Swing Line Lender agrees to make Swing Line Loans to the Company denominated in Dollars from time to time prior to the Revolving Termination Date in an aggregate principal amount at any one time outstanding not to exceed $10,000,000; PROVIDED, that after giving effect to any such Swing Line Loan, the Effective Amount of all Revolving Loans, Swing Line Loans and L/C Obligations at such time would not exceed the Aggregate Commitment at such time; PROVIDED, FURTHER, that notwithstanding SECTION 2.01, the aggregate amount of the Revolving Loans and Swing Line Loans of the Swing Line Lender, plus the participation of the Swing Line Lender in the Dollar Equivalent of the Effective Amount of all L/C Obligations, may exceed LaSalle's Commitment so long as the condition set forth in the previous proviso is satisfied. Prior to the Termination Date, the Company may use the Swing Line Commitment by borrowing, prepaying the Swing Line Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. All Swing Line Loans shall bear interest at the Base Rate and shall not be entitled to be converted into Loans that bear interest at any other rate. (b) The Company may borrow under the Swing Line Commitment on any Business Day until the Termination Date; PROVIDED, that the Company shall give the Swing Line Lender irrevocable written notice signed by a Responsible Officer or an authorized designee (which notice must be received by the Swing Line Lender prior to 3:00 p.m. (Chicago time)) with a copy to the Co-Administrative Agent specifying the amount of the requested Swing Line Loan, which shall be in a minimum amount of $100,000 or a whole multiple of $100,000 in excess thereof. The proceeds of the Swing Line Loan will be made available by the Swing Line Lender to the Company in immediately available funds at the office of the Swing Line Lender by 4:00 p.m. (Chicago time) on the date of such notice. The Company may at any time and from time to time, prepay the Swing Line Loans, in whole or in part, without premium or penalty, by notifying the Swing Line Lender prior to 3:00 p.m. (Chicago time) on any Business Day of the date and amount of prepayment with a copy to the Co-Administrative Agent. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein. Partial prepayments shall be in an aggregate principal amount of $100,000 or a whole multiple of $100,000 in excess thereof. (c) If any Swing Line Loan shall remain outstanding at 11:00 a.m.(Chicago time) on the fifth day following the date of such Swing Line Loan and if by such time on such fifth day the Co-Administrative Agent shall have received neither (i) a Notice of Borrowing delivered by the Company pursuant to SECTION 2.03 requesting that Revolving Loans be made pursuant to SECTION 2.01 on the immediately succeeding Business Day in an amount at least equal to the principal amount of such Swing Line Loan nor (ii) any other notice satisfactory to the Co-Administrative Agent indicating the Company's intent to repay such Swing Line Loan on or before the immediately succeeding Business Day with funds obtained from other sources, then on such Business Day the Swing Line Lender shall (and on any Business Day the Swing Line Lender in its sole discretion may), on behalf of the Company (which hereby irrevocably directs the Swing Line Lender to act on its behalf) request the Co-Administrative Agent to notify each Lender to make a Base Rate Loan in an amount equal to such Lender's Pro Rata Share of (A) in the case of such a request which is required to be made, the amount of the relevant Swing Line Loan and (B) in the case of such a discretionary request, the aggregate principal amount of the Swing Line Loans outstanding on the date such notice is given. Unless any of the events described in SUBSECTION 9.01(f) OR (g) shall have occurred with respect to the Company (in which event the procedures of paragraph (e) of this SECTION 2.05 shall apply) each Lender shall make the proceeds of its Revolving Loan available to the Co-Administrative Agent for the account of the Swing Line Lender at the Co-Administrative Agent's Payment Office in funds immediately available prior to 1:00 p.m. (Chicago time) on the Business Day next succeeding the date such notice is given. The proceeds of such Revolving Loans shall be immediately applied to repay the outstanding Swing Line Loans. Effective on the day such Revolving Loans are made, the portion of the Swing Line Loans so paid shall no longer be outstanding as Swing Line Loans and shall no longer be due under the Swing Line Note. The Company shall pay to the Swing Line Lender, promptly following the Swing Line Lender's demand, the amount of its outstanding Swing Line Loans to the extent amounts received from the Lenders are not sufficient to repay in full such outstanding Swing Line Loans. (d) Notwithstanding anything herein to the contrary, the Swing Line Lender (i) shall not be obligated to make any Swing Line Loan if the conditions set forth in ARTICLE V have not been satisfied and (ii) shall not make any requested Swing Line Loan if, prior to 11:00 a.m. (Chicago time) on the date of such requested Swing Line Loan, it has received a written notice from the Agent, the Co-Administrative Agent or any Lender directing it not to make further Swing Line Loans because one or more of the conditions specified in ARTICLE V are not then satisfied. (e) If prior to the making of a Revolving Loan required to be made by SUBSECTION 2.05(c) an Event of Default described in SUBSECTION 9.01(f) OR 9.01(g) shall have occurred and be continuing with respect to the Company, each Lender will, on the date such Revolving Loan was to have been made pursuant to the notice described in SUBSECTION 2.05(b), purchase an undivided participating interest in the outstanding Swing Line Loans in an amount equal to its Pro Rata Share of the aggregate principal amount of Swing Line Loans then outstanding. Each Lender will immediately transfer to the Co-Administrative Agent for the benefit of the Swing Line Lender, in immediately available funds, the amount of its participation. (f) Whenever, at any time after a Lender has purchased a participating interest in a Swing Line Loan, the Swing Line Lender receives any payment on account thereof, the Swing Line Lender will distribute to the Co-Administrative Agent for delivery to each Lender its participating interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender's participating interest was outstanding and funded); PROVIDED, HOWEVER, that in the event that such payment received by the Swing Line Lender is required to be returned, such Lender will return to the Co-Administrative Agent for delivery to the Swing Line Lender any portion thereof previously distributed by the Swing Line Lender to it. (g) Each Lender's obligation to make the Revolving Loans referred to in SUBSECTION 2.05(c) and to purchase participating interests pursuant to SUBSECTION 2.05(c) shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Lender or the Company may have against the Swing Line Lender, the Company or any other Person for any reason whatsoever, (ii) the occurrence or continuance of a Default or an Event of Default, (iii) any adverse change in the condition (financial or otherwise) of the Company, (iv) any breach of this Agreement or any other Loan Document by the Company, any Subsidiary or any other Lender, or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 2.06 UTILIZATION OF COMMITMENTS IN AN ALTERNATIVE CURRENCY. (a) The Co-Administrative Agent will determine the Dollar Equivalent amount with respect to any (i) Borrowing comprised of Alternative Currency Loans as of the requested Borrowing Date, (ii) outstanding Offshore Currency Loans as of the last Banking Day of each month, and (iii) outstanding Offshore Currency Loans as of any redenomination date pursuant to this SECTION 2.06 or SECTION 4.05 (each such date under clauses (i) through (iii) a "COMPUTATION DATE"). Upon receipt of any Notice of Borrowing, the Co-Administrative Agent will promptly notify each Revolving Lender thereof and of the amount of such Lender's Pro Rata Share of the Borrowing. In the case of a Borrowing comprised of Offshore Currency Loans, such notice will provide the approximate amount of each Lender's Pro Rata Share of the Borrowing, and the Co-Administrative Agent will, upon the determination of the Dollar Equivalent amount of the Borrowing as specified in the Notice of Borrowing, promptly notify each Lender of the exact amount of such Lender's Pro Rata Share of the Borrowing. (b) In the case of a proposed Borrowing comprised of Offshore Currency Loans, the Lenders shall be under no obligation to make Offshore Currency Loans in the requested Offshore Currency as part of such Borrowing if the Co-Administrative Agent has received notice from any of the Lenders by 12:00 p.m. (Chicago time) four Business Days prior to the day of such Borrowing that such Lender cannot provide Loans in the requested Offshore Currency, in which event the Co-Administrative Agent will give notice to the Company no later than 9:30 a.m. (Chicago time) on the third Business Day prior to the requested date of such Borrowing that the Borrowing in the requested Offshore Currency is not then available, and notice thereof also will be given promptly by the Co-Administrative Agent to the Lenders. If the Co-Administrative Agent shall have so notified the Company that any such Borrowing in a requested Offshore Currency is not then available, the Company may, by notice to the Co-Administrative Agent not later than 10:30 a.m. (Chicago time) three Business Days prior to the requested date of such Borrowing, withdraw the Notice of Borrowing relating to such requested Borrowing. If the Company does so withdraw such Notice of Borrowing, the Borrowing requested therein shall not occur and the Co-Administrative Agent will promptly so notify each Lender. If the Company does not so withdraw such Notice of Borrowing, the Co-Administrative Agent will promptly so notify each Lender and such Notice of Borrowing shall be deemed to be a Notice of Borrowing that requests a Borrowing comprised of Base Rate Loans in an aggregate amount equal to the amount of the originally requested Borrowing as expressed in Dollars in the Notice of Borrowing, and in such notice by the Co-Administrative Agent to each Lender the Co-Administrative Agent will state such aggregate amount of such Borrowing in Dollars and such Lender's Pro Rata Share thereof. (c) In the case of a proposed continuation of Offshore Currency Loans for an additional Interest Period pursuant to SECTION 2.04, the Lenders shall be under no obligation to continue such Offshore Currency Loans if the Co-Administrative Agent has received notice from any of the Lenders by 4:00 p.m. (Chicago time) three Business Days prior to the day of such continuation that such Lender cannot continue to provide Loans in the Offshore Currency, in which event the Co-Administrative Agent will give notice to the Company not later than 9:00 a.m. (Chicago time) on the second Business Day prior to the requested date of such continuation that the continuation of such Offshore Currency Loans in the Offshore Currency is not then available, and notice thereof also will be given promptly by the Co-Administrative Agent to the Lenders. If the Co-Administrative Agent shall have so notified the Company that any such continuation of Offshore Currency Loans is not then available, any Notice of Continuation/Conversion with respect thereto shall be deemed withdrawn and such Offshore Currency Loans shall be redenominated into Base Rate Loans in Dollars with effect from the last day of the Interest Period with respect to any such Offshore Currency Loans. The Co-Administrative Agent will promptly notify the Company and the Lenders of any such redenomination and in such notice by the Co-Administrative Agent to each Lender the Co-Administrative Agent will state the aggregate Dollar Equivalent amount of the redenominated Offshore Currency Loans as of the Computation Date with respect thereto and such Lender's Pro Rata Share thereof. (d) Notwithstanding anything herein to the contrary, during the existence of a Default or an Event of Default, upon the request of the Required Lenders, all or any part of any outstanding Offshore Currency Loans shall be redenominated and converted into Base Rate Loans in Dollars with effect from the last day of the Interest Period with respect to any such Offshore Currency Loans. The Co-Administrative Agent will promptly notify the Company of any such redenomination and conversion request. (e) The Company shall be entitled to request that Revolving Loans hereunder also be permitted to be made in any other lawful currency constituting a eurocurrency (other than Dollars), in addition to the eurocurrencies specified in the definition of "Offshore Currency" herein, that in the opinion of the Required Lenders is at such time freely traded in the offshore interbank foreign exchange markets and is freely transferable and freely convertible into Dollars (an "AGREED ALTERNATIVE CURRENCY"). The Company shall deliver to the Co-Administrative Agent any request for designation of an Agreed Alternate Currency in accordance with SECTION 11.02, to be received by the Co-Administrative Agent not later than 11:00 a.m. (Chicago time) at least ten Business Days in advance of the date of any Borrowing hereunder proposed to be made in such Agreed Alternate Currency. Upon receipt of any such request the Co-Administrative Agent will promptly notify the Lenders thereof, and each Lender will use its best efforts to respond to such request within two Business Days of receipt thereof and any failure to respond in such time period shall be deemed to be a rejection thereof. Each Lender may grant or accept such request in its sole discretion. The Co-Administrative Agent will promptly notify the Company of the acceptance or rejection of any such request. 2.07 VOLUNTARY TERMINATION OR REDUCTION OF REVOLVING LOAN COMMITMENTS. (a) The Company may, upon not less than five Business Days' prior notice to the Agent and the Co-Administrative Agent, terminate the Commitments, or permanently reduce the Commitments by an aggregate minimum amount of $5,000,000 or any multiple of $1,000,000 in excess thereof; UNLESS, after giving effect thereto and to any prepayments of Loans made on the effective date thereof, (a) the then outstanding Dollar Equivalent Effective Amount of all Revolving Loans, Swing Line Loans and L/C Obligations together would exceed the amount of the Aggregate Commitment then in effect, (b) the Effective Amount of all L/C Obligations then outstanding would exceed the L/C Commitment or (c) the Effective Amount of all Offshore Currency Loans would exceed the Offshore Currency Loan Sublimit. Once reduced in accordance with this Section, the Commitments may not be increased. Any reduction of the Commitments shall be applied to each Lender according to its Pro Rata Share. If and to the extent specified by the Company in the notice to the Agent and the Co-Administrative Agent, some or all of the reduction in the Aggregate Commitment shall be applied to reduce the L/C Commitment and/or the Offshore Currency Loan Sublimit. All accrued commitment fees and letter of credit fees to, but not including, the effective date of any reduction or termination of Commitments, shall be paid on the effective date of such reduction or termination. (b) At no time shall the Swing Line Commitment exceed the Aggregate Commitment, and any reduction of the Aggregate Commitment which reduces the Aggregate Commitment below the then-current amount of the Swing Line Commitment shall result in an automatic corresponding reduction of the Swing Line Commitment to the amount of the Aggregate Commitment, as so reduced, without any action on the part of the Swing Line Lender. At no time shall the Swing Line Commitment exceed the Commitment of the Swing Line Lender, and any reduction of the Aggregate Commitment which reduces the Commitment of the Swing Line Lender below the then-current amount of the Swing Line Commitment shall result in an automatic corresponding reduction of the Swing Line Commitment to the amount of the Commitment of the Swing Line Lender, as so reduced, without any action on the part of the Swing Line Lender. 2.08 PREPAYMENTS. (a) Subject to SECTION 4.04, the Company may, at any time or from time to time, upon not less than four (4) Business Days' irrevocable notice to the Co-Administrative Agent in the case of Offshore Rate Loans, and not later than 12:00 p.m. (Chicago time) on the prepayment date, in the case of Base Rate Loans, prepay Revolving Loans ratably among the Lenders in whole or in part, in minimum Dollar Equivalent amounts of $500,000 or any Dollar Equivalent multiple of $100,000 in excess thereof. Such notice of prepayment shall specify the date and amount of such prepayment and whether such prepayment is of Base Rate Loans or Offshore Rate Loans, or any combination thereof, and the Applicable Currency. Such notice shall not thereafter be revocable by the Company and the Co-Administrative Agent will promptly notify each Lender of its receipt of any such notice, and of such Lender's Pro Rata Share of such prepayment. If such notice is given by the Company, the Company shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together, in the case of Offshore Rate Loans, with accrued interest to each such date on the amount prepaid and any amounts required pursuant to SECTION 4.04. (b) Subject to SECTION 4.04, if on any Computation Date the Co-Administrative Agent shall have determined that the Dollar Equivalent Effective Amount of all Loans then outstanding exceeds the combined Commitments of the Lenders by more than $250,000 due to a change in applicable rates of exchange between Dollars and the Offshore Currency, then the Co-Administrative Agent may and at the direction of the Required Lenders shall give notice to the Company that a prepayment is required under this Section, and the Company agrees thereupon to promptly (but in no event later than three (3) Business Days following receipt of such notice) make prepayments of Loans such that, after giving effect to all such prepayments, the Effective Amount of all Loans plus the Effective Amount of L/C Obligations does not exceed the combined Commitments. (c) Subject to SECTION 4.04, if on any date the Effective Amount of all Revolving Loans and Swing Line Loans then outstanding plus the Effective Amount of all L/C Obligations exceeds the Aggregate Commitment, the Company shall immediately, and without notice or demand, prepay the outstanding principal amount of the Revolving Loans and L/C Advances by an amount equal to the applicable excess. 2.09 REPAYMENT. The Company shall repay to the Lenders on the Termination Date the aggregate principal amount of Revolving Loans outstanding on such date. 2.10 INTEREST. (a) Each Revolving Loan shall bear interest on the outstanding principal amount thereof from the applicable Borrowing Date at a rate per annum equal to (i) the Offshore Rate or the Base Rate, as the case may be (and subject to the Company's right to convert to other Types of Loans under SECTION 2.04), PLUS (ii) in the case of Offshore Rate Loans, the Applicable Margin. (b) Interest on each Loan shall be paid in arrears on each Interest Payment Date. Interest on Base Rate Loans shall also be paid on the date of any payment (including prepayment) in full of all Loans hereunder. Interest on Offshore Rate Loans shall also be paid on the date of any prepayment of Loans under SECTION 2.08 (including prepayment) in full thereof. During the existence of any Event of Default, interest on all Loans shall be paid on demand of the Agent or the Co-Administrative Agent at the request or with the consent of the Required Lenders. (c) Notwithstanding SUBSECTION 2.10(a), while any Event of Default exists or after acceleration, the Company shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the amount of all outstanding Obligations, at a rate per annum which is determined by adding 2% per annum to the applicable interest rate otherwise then in effect for such Loans; PROVIDED, HOWEVER, that on and after the expiration of any Interest Period applicable to any Offshore Rate Loan outstanding on the date of occurrence of such Event of Default or acceleration, the principal amount of such Loan shall, during the continuation of such Event of Default or after acceleration, bear interest at a rate per annum equal to the Base Rate plus the Applicable Margin plus 2%. (d) Anything herein to the contrary notwithstanding, the obligations of the Company to any Lender hereunder shall be subject to the limitation that payments of interest shall not be required for any period for which interest is computed hereunder, to the extent (but only to the extent) that contracting for or receiving such payment by such Lender would be contrary to the provisions of any law applicable to such Lender limiting the highest rate of interest that may be lawfully contracted for, charged or received by such Lender, and in such event the Company shall pay such Lender interest at the highest rate permitted by applicable law. 2.11 FEES. In addition to certain fees described in SECTION 3.08: (a) AGENCY FEES. The Company shall pay such fees to (i) the Agent and the Arranger as are required by the letter agreement between the Company and the Arranger and the Agent dated April 16, 1999 and (ii) the Co-Administrative Agent as are required by the letter agreement between the Company and the Co-Administrative Agent dated July 29, 1999 (collectively, the "FEE LETTERS"). (b) COMMITMENT FEES. The Company shall pay to the Co-Administrative Agent for the account of each Lender a commitment fee on the average daily unused portion of such Lender's Commitment, computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon the daily utilization for that quarter as calculated by the Co-Administrative Agent, equal to the Applicable Commitment Fee Percentage. For purposes of calculating utilization under this subsection, the Commitments shall be deemed used to the extent of the Effective Amount of Revolving Loans then outstanding, plus the Effective Amount of L/C Obligations then outstanding and shall not be deemed used by a Lender's Pro Rata Share of Swing Line Loans. Such commitment fee shall accrue from the date hereof to the Termination Date and shall be due and payable quarterly in arrears on the last Business Day of each calendar quarter commencing on September 30, 1999 through the Termination Date, with the final payment to be made on the Termination Date; PROVIDED that, in connection with any reduction or termination of Commitments under SECTION 2.07, the accrued commitment fee calculated for the period ending on such date shall also be paid on the date of such reduction or termination, with the following quarterly payment being calculated on the basis of the period from such reduction or termination date to such quarterly payment date. The commitment fees provided in this subsection shall accrue at all times after the above-mentioned commencement date, including at any time during which one or more conditions in ARTICLE V are not met. 2.12 COMPUTATION OF FEES AND INTEREST. (a) All computations of interest for Base Rate Loans when the Base Rate is determined by LaSalle's "reference rate" shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365/366-day year); PROVIDED, that computations of interest for Alterative Currency Loans will be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed if that is the market standard for the applicable Offshore Currency. Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. (b) For purposes of determining utilization of each Lender's Commitment in order to calculate the commitment fee due under SUBSECTION 2.11(b) and whether or not the utilization-based additions to the Base Rate and the Applicable Margin are applicable, the amount of any outstanding Revolving Loan which is an Offshore Currency Loan on any date shall be determined based upon the Dollar Equivalent amount as of the most recent Computation Date with respect to such Offshore Currency Loan. (c) Each determination of an interest rate or a Dollar Equivalent amount by the Co-Administrative Agent shall be conclusive and binding on the Company and the Lenders in the absence of manifest error. The Co-Administrative Agent will, at the request of the Company or any Lender, deliver to the Company or the Lender, as the case may be, a statement showing the quotations used by the Co-Administrative Agent in determining any interest rate or Dollar Equivalent amount. 2.13 PAYMENTS BY THE COMPANY. (a) All payments to be made by the Company shall be made without set-off, recoupment or counterclaim. Except as otherwise expressly provided herein, all payments by the Company shall be made to the Co-Administrative Agent for the account of the Lenders at the Co-Administrative Agent's Payment Office, and, with respect to principal of, interest on, and any other amounts relating to, any Offshore Currency Loan, shall be made in the Offshore Currency in which such Loan is denominated or payable, and, with respect to all other amounts payable hereunder, shall be made in Dollars. Such payments shall be made in Same Day Funds, and (i) in the case of Offshore Currency payments, no later than such time on the dates specified herein as may be determined by the Co-Administrative Agent to be necessary for such payment to be credited on such date in accordance with normal banking procedures in the place of payment, and (ii) in the case of any Dollar payments, no later than 11:00 a.m. (Chicago time) on the date specified herein. The Co-Administrative Agent will promptly distribute to each Lender its Pro Rata Share (or other applicable share as expressly provided herein) of such principal, interest, fees or other amounts, in like funds as received. Any payment which is received by the Co-Administrative Agent later than 11:00 a.m. (Chicago time) or later than the time specified by the Co-Administrative Agent as provided in clause (i) above (in the case of Offshore Currency payments), shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue. (b) Subject to the provisions set forth in the definition of "Interest Period" herein, whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. (c) Unless the Co-Administrative Agent receives notice from the Company prior to the date on which any payment is due to the Lenders that the Company will not make such payment in full as and when required, the Agent may assume that the Company has made such payment in full to the Co-Administrative Agent on such date in Same Day Funds and the Co-Administrative Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Company has not made such payment in full to the Co-Administrative Agent, each Lender shall repay to the Co-Administrative Agent on demand such amount distributed to such Lender, together with interest thereon at the Federal Funds Rate or, in the case of a payment in an Offshore Currency, the Overnight Rate, for each day from the date such amount is distributed to such Lender until the date repaid. 2.14 PAYMENTS BY THE LENDERS TO THE CO-ADMINISTRATIVE AGENT. (a) Unless the Co-Administrative Agent receives notice from a Lender on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one Business Day prior to the date of such Borrowing, that such Lender will not make available as and when required hereunder to the Co-Administrative Agent for the account of the Company the amount of that Lender's Pro Rata Share of the Borrowing, the Co-Administrative Agent may assume that each Lender has made such amount available to the Co-Administrative Agent in Same Day Funds on the Borrowing Date and the Agent may (but shall not be so required), in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent any Lender shall not have made its full amount available to the Co-Administrative Agent in Same Day Funds and the Co-Administrative Agent in such circumstances has made available to the Company such amount, that Lender shall on the Business Day following such Borrowing Date make such amount available to the Co-Administrative Agent, together with interest at the Federal Funds Rate, or, in the case of a payment in an Offshore Currency, the Overnight Rate, for each day during such period. A notice of the Co-Administrative Agent submitted to any Lender with respect to amounts owing under this subsection (a) shall be conclusive absent manifest error. If such amount is so made available, such payment to the Co-Administrative Agent shall constitute such Lender's Loan on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to the Co-Administrative Agent on the Business Day following the Borrowing Date, the Co-Administrative Agent will notify the Company of such failure to fund and, upon demand by the Co-Administrative Agent, the Company shall pay such amount to the Co-Administrative Agent for the Co-Administrative Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing. (b) The failure of any Lender to make any Loan on any Borrowing Date shall not relieve any other Lender of any obligation hereunder to make a Loan on such Borrowing Date, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on any Borrowing Date. 2.15 SHARING OF PAYMENTS, ETC. If, other than as expressly provided elsewhere herein, any Lender shall obtain on account of the Loans made by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its ratable share (or other share contemplated hereunder), such Lender shall immediately (a) notify the Co-Administrative Agent of such fact, and (b) purchase from the other Lenders such participations in the Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment pro rata with each of them; PROVIDED, HOWEVER, that if all or any portion of such excess payment is thereafter recovered from the purchasing Lender, such purchase shall to that extent be rescinded and each other Lender shall repay to the purchasing Lender the purchase price paid therefor, together with an amount equal to such paying Lender's ratable share (according to the proportion of (i) the amount of such paying Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Company agrees that any Lender so purchasing a participation from another Lender may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to SECTION 11.10) with respect to such participation as fully as if such Lender were the direct creditor of the Company in the amount of such participation. The Co-Administrative Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this Section and will in each case notify the Lenders following any such purchases or repayments. 2.16 SUBSIDIARY GUARANTY. All obligations of the Company under this Agreement and all other Loan Documents shall be unconditionally guaranteed by the Guarantors pursuant to the Subsidiary Guaranty. ARTICLE III THE LETTERS OF CREDIT 3.01 THE LETTER OF CREDIT SUBFACILITY. (a) On the terms and conditions set forth herein (i) the Issuer agrees, (A) from time to time on any Business Day, during the period from the Closing Date to the day which is five days prior to the Termination Date, to issue Letters of Credit for the account of the Company and to amend or renew Letters of Credit previously issued by it, in accordance with SUBSECTIONS 3.02(c) and 3.02(d), and (B) to honor drafts under the Letters of Credit; and (ii) the Lenders severally agree to participate in Letters of Credit Issued for the account of the Company; PROVIDED, that the Issuer shall not be obligated to Issue, and no Lender shall be obligated to participate in, any Letter of Credit if as of the date of Issuance of such Letter of Credit (the "ISSUANCE DATE") (1) the Effective Amount of all L/C Obligations plus the Effective Amount of all Revolving Loans and of all Swing Line Loans exceeds the Aggregate Commitment, (2) the participation of any Lender in the Effective Amount of all L/C Obligations plus the Effective Amount of the Revolving Loans of such Lender and such Lender's Pro Rata Share of any outstanding Swing Line Loans exceeds such Lender's Commitment, or (3) the Effective Amount of L/C Obligations exceeds the L/C Commitment. Within the foregoing limits, and subject to the other terms and conditions hereof, the Company's ability to obtain Letters of Credit shall be fully revolving, and, accordingly, the Company may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit which have expired or which have been drawn upon and reimbursed. (b) The Issuer is under no obligation to, and shall not, Issue any Letter of Credit if: (i) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuer from Issuing such Letter of Credit, or any Requirement of Law applicable to the Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuer shall prohibit, or request that the Issuer refrain from, the Issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the Issuer in good faith deems material to it; (ii) the Issuer has received written notice from any Revolving Lender, the Agent, the Co-Administrative Agent or the Company, on or prior to the Business Day prior to the requested date of Issuance of such Letter of Credit, that one or more of the applicable conditions contained in ARTICLE V is not then satisfied; (iii) the expiry date of any requested Letter of Credit is (A) more than 360 days after the date of Issuance, unless the Required Lenders have approved such expiry date in writing, or (B) after the date which is five days prior to the Revolving Termination Date, unless all of the Lenders have approved such expiry date in writing; (iv) the expiry date of any requested Letter of Credit is prior to the maturity date of any financial obligation to be supported by the requested Letter of Credit; (v) any requested Letter of Credit does not provide for drafts, or is not otherwise in form and substance acceptable to the Issuer, or the Issuance of a Letter of Credit shall violate any applicable policies of the Issuer; or (vi) such Letter of Credit is in a face amount less than $25,000, unless such amount is approved by the Agent and the Issuer or is to be denominated in a currency other than Dollars. 3.02 ISSUANCE, AMENDMENT AND RENEWAL OF LETTERS OF CREDIT. (a) Each Letter of Credit shall be issued upon the irrevocable written request of the Company received by the Issuer (with a copy sent by the Company to the Co-Administrative Agent) at least three days (or such shorter time as the Issuer may agree in a particular instance in its sole discretion) prior to the proposed date of issuance. Each such request for issuance of a Letter of Credit shall be by facsimile, confirmed immediately in an original writing, in the form of an L/C Application (or such other form as shall be acceptable to the Issuer), and shall specify in form and detail satisfactory to the Issuer: (i) the proposed date of issuance of the Letter of Credit (which shall be a Business Day); (ii) the face amount of the Letter of Credit; (iii) the expiry date of the Letter of Credit; (iv) the name and address of the beneficiary thereof; (v) the documents to be presented by the beneficiary of the Letter of Credit in case of any drawing thereunder; (vi) the full text of any certificate to be presented by the beneficiary in case of any drawing thereunder; and (vii) such other matters as the Issuer may require. (b) At least two Business Days prior to the Issuance of any Letter of Credit (or such shorter time as the Agent may agree in a particular instance in its sole discretion), the Issuer will confirm with the Agent (by telephone or in writing) that the Agent has received a copy of the L/C Application or L/C Amendment Application from the Company and, if not, the Issuer will provide the Agent with a copy thereof. Unless the Issuer has received notice on or before the Business Day immediately preceding the date the Issuer is to issue a requested Letter of Credit from the Agent (A) directing the Issuer not to issue such Letter of Credit because such issuance is not then permitted under SUBSECTION 3.01(a) as a result of the limitations set forth in clauses (1) through (3) thereof or SUBSECTION 3.01(b)(II); or (B) that one or more conditions specified in ARTICLE V are not then satisfied; then, subject to the terms and conditions hereof, the Issuer shall, on the requested date, issue a Letter of Credit for the account of the Company in accordance with the Issuer's usual and customary business practices. (c) From time to time while a Letter of Credit is outstanding and prior to the Termination Date, the Issuer will, upon the written request of the Company received by the Issuer (with a copy sent by the Company to the Co-Administrative Agent) at least three days (or such shorter time as the Issuer may agree in a particular instance in its sole discretion) prior to the proposed date of amendment, amend any Letter of Credit issued by it. Each such request for amendment of a Letter of Credit shall be made by facsimile, confirmed immediately in an original writing, made in the form of an L/C Amendment Application and shall specify in form and detail satisfactory to the Issuer: (i) the Letter of Credit to be amended; (ii) the proposed date of amendment of the Letter of Credit (which shall be a Business Day); (iii) the nature of the proposed amendment; and (iv) such other matters as the Issuer may require. The Issuer shall be under no obligation to amend any Letter of Credit if: (A) the Issuer would have no obligation at such time to issue such Letter of Credit in its amended form under the terms of this Agreement; or (B) the beneficiary of any such letter of Credit does not accept the proposed amendment to the Letter of Credit. The Co-Administrative Agent will promptly notify the Lenders of the receipt by it of any L/C Application or L/C Amendment Application. (d) The Issuer and the Lenders agree that, while a Letter of Credit is outstanding and prior to the Termination Date, at the option of the Company and upon the written request of the Company received by the Issuer (with a copy sent by the Company to the Co-Administrative Agent) at least five days (or such shorter time as the Issuer may agree in a particular instance in its sole discretion) prior to the proposed date of notification of renewal, the Issuer shall be entitled to authorize the automatic renewal of any Letter of Credit issued by it. Each such request for renewal of a Letter of Credit shall be made by facsimile, confirmed immediately in an original writing, in the form of an L/C Amendment Application, and shall specify in form and detail satisfactory to the Issuer: (i) the Letter of Credit to be renewed; (ii) the proposed date of notification of renewal of the Letter of Credit (which shall be a Business Day); (iii) the revised expiry date of the Letter of Credit; and (iv) such other matters as the Issuer may require. The Issuer shall be under no obligation so to renew any Letter of Credit if: (A) the Issuer would have no obligation at such time to issue or amend such Letter of Credit in its renewed form under the terms of this Agreement; or (B) the beneficiary of any such Letter of Credit does not accept the proposed renewal of the Letter of Credit. If any outstanding Letter of Credit shall provide that it shall be automatically renewed unless the beneficiary thereof receives notice from the Issuer that such Letter of Credit shall not be renewed, and if at the time of renewal the Issuer would be entitled to authorize the automatic renewal of such Letter of Credit in accordance with this SUBSECTION 3.02(d) upon the request of the Company but the Issuer shall not have received any L/C Amendment Application from the Company with respect to such renewal or other written direction by the Company with respect thereto, the Issuer shall nonetheless be permitted to allow such Letter of Credit to renew, and the Company and the Lenders hereby authorize such renewal, and, accordingly, the Issuer shall be deemed to have received an L/C Amendment Application from the Company requesting such renewal. (e) The Issuer may, at its election (or as required by the Agent or the Co-Administrative Agent at the direction of the Required Lenders), deliver any notices of termination or other communications to any Letter of Credit beneficiary or transferee, and take any other action as necessary or appropriate, at any time and from time to time, in order to cause the expiry date of such Letter of Credit to be a date not later than the date which is five days prior to the Termination Date. (f) This Agreement shall control in the event of any conflict with any L/C-Related Document (other than any Letter of Credit). (g) The Issuer will also deliver to the Co-Administrative Agent, concurrently or promptly following its delivery of a Letter of Credit, or amendment to or renewal of a Letter of Credit, to an advising bank or a beneficiary, a true and complete copy of each such Letter of Credit or amendment to or renewal of a Letter of Credit. 3.03 RISK PARTICIPATIONS, DRAWINGS AND REIMBURSEMENTS. (a) Immediately upon the Issuance of each Letter of Credit, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuer a participation in such Letter of Credit and each drawing thereunder in an amount equal to the product of (i) the Pro Rata Share of such Lender, times (ii) the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively. For purposes of SECTION 2.01, each Issuance of a Letter of Credit shall be deemed to utilize the Commitment of each Lender by an amount equal to the amount of such participation. (b) In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, the Issuer will promptly notify the Company. The Company shall reimburse the Issuer prior to 11:00 a.m. (Chicago time), on each date that any amount is paid by the Issuer under any Letter of Credit (each such date, an "HONOR DATE"), in an amount equal to the amount so paid by the Issuer. In the event the Company fails to reimburse the Issuer the full amount of any drawing under any Letter of Credit by 11:00 a.m. (Chicago time) on the Honor Date, the Issuer will promptly notify the Co-Administrative Agent and the Co-Administrative Agent will promptly notify each Lender thereof, and the Company shall be deemed to have requested that Base Rate Loans in an amount equal to such unreimbursed amount be made by the Revolving Lenders to be disbursed on the Honor Date under such Letter of Credit, subject to the amount of the unutilized portion of the Aggregate Commitment and subject to the conditions set forth in SECTION 5.02. Any notice given by the Issuer or the Co-Administrative Agent pursuant to this SUBSECTION 3.03(b) may be oral if immediately confirmed in writing (including by facsimile); provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. (c) Each Revolving Lender shall upon any notice pursuant to SUBSECTION 3.03(b) make available to the Co-Administrative Agent for the account of the relevant Issuer an amount in Dollars and in immediately available funds equal to its Pro Rata Share of the amount of the drawing, whereupon the participating Lenders shall (subject to SUBSECTION 3.03(d)) each be deemed to have made a Revolving Loan consisting of a Base Rate Loan to the Company in that amount. If any Lender so notified fails to make available to the Co-Administrative Agent for the account of the Issuer the amount of such Lender's Pro Rata Share of the amount of the drawing by no later than 12:00 noon (Chicago time) on the Honor Date, then interest shall accrue on such Lender's obligation to make such payment, from the Honor Date to the date such Lender makes such payment, at a rate per annum equal to the Federal Funds Rate in effect from time to time during such period. The Co-Administrative Agent will promptly give notice of the occurrence of the Honor Date, but failure of the Co-Administrative Agent to give any such notice on the Honor Date or in sufficient time to enable any Lender to effect such payment on such date shall not relieve such Lender from its obligations under this SECTION 3.03 once notice has been provided. (d) With respect to any unreimbursed drawing that is not converted into Revolving Loans consisting of Base Rate Loans to the Company in whole or in part, because of the Company's failure to satisfy the conditions set forth in SECTION 5.02 or for any other reason, the Company shall be deemed to have incurred from the Issuer an L/C Borrowing in the Dollar Equivalent of the amount of such drawing, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at a rate per annum equal to the Base Rate plus 2.0% per annum, and each Lender's payment to the Issuer pursuant to SUBSECTION 3.03(c) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its participation obligation under this SECTION 3.03. (e) Each Lender's obligation in accordance with this Agreement to make the Revolving Loans or L/C Advances, as contemplated by this SECTION 3.03, as a result of a drawing under a Letter of Credit, shall be absolute and unconditional and without recourse to the Issuer and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Issuer, the Company or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default, an Event of Default or a Material Adverse Effect; or (iii) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; PROVIDED, however, that each Lender's obligation to make Revolving Loans under this SECTION 3.03 is subject to the conditions set forth in SECTION 5.02. 3.04 REPAYMENT OF PARTICIPATIONS. (a) Upon (and only upon) receipt by the Co-Administrative Agent for the account of the Issuer of immediately available funds from the Company (i) in reimbursement of any payment made by the Issuer under the Letter of Credit with respect to which any Lender has paid the Co-Administrative Agent for the account of the Issuer for such Lender's participation in the Letter of Credit pursuant to SECTION 3.03 or (ii) in payment of interest thereon, the Co-Administrative Agent will promptly pay to each Lender, in the same funds as those received by the Co-Administrative Agent for the account of the Issuer, the amount of such Lender's Pro Rata Share of such funds, and the Issuer shall receive the amount of the Pro Rata Share of such funds of any Lender that did not so pay the Co-Administrative Agent for the account of the Issuer. (b) If the Agent, the Co-Administrative Agent or the Issuer is required at any time to return to the Company, or to a trustee, receiver, liquidator, custodian, or any official in any Insolvency Proceeding, any portion of the payments made by the Company to the Co-Administrative Agent for the account of the Issuer pursuant to SUBSECTION 3.04(a) in reimbursement of a payment made under the Letter of Credit or interest or fee thereon, each Lender shall, on demand of the Co-Administrative Agent, forthwith return to the Co-Administrative Agent or the Issuer the amount of its Pro Rata Share of any amounts so returned by the Co-Administrative Agent or the Issuer plus interest thereon from the date such demand is made to the date such amounts are returned by such Lender to the Agent, the Co-Administrative Agent or the Issuer, at a rate per annum equal to the Federal Funds Rate in effect from time to time. 3.05 ROLE OF THE ISSUER. (a) Each Lender and the Company agree that, in paying any drawing under a Letter of Credit, the Issuer shall not have any responsibility to obtain any document (other than any documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. (b) No Agent-Related Person nor any of the respective correspondents, participants or assignees of the Issuer shall be liable to any Lender for: (i) any action taken or omitted in connection herewith at the request or with the approval of the Lenders or the Required Lenders, as applicable; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any L/C-Related Document. (c) The Company hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; PROVIDED, however, that this assumption is not intended to, and shall not, preclude the Company's pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. No Agent-Related Person, nor any of the respective correspondents, participants or assignees of the Issuer, shall be liable or responsible for any of the matters described in clauses (i) through (vii) of SECTION 3.06; PROVIDED, however, anything in such clauses to the contrary notwithstanding, that the Company may have a claim against the Issuer, and the Issuer may be liable to the Company, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Company which the Company proves were caused by the Issuer's willful misconduct or gross negligence or the Issuer's willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a document strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing: (i) the Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary; and (ii) the Issuer shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. 3.06 OBLIGATIONS ABSOLUTE. The obligations of the Company under this Agreement and any L/C-Related Document to reimburse the Issuer for a drawing under a Letter of Credit, and to repay any L/C Borrowing and any drawing under a Letter of Credit converted into Revolving Loans, shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and each such other L/C-Related Document under all circumstances, including the following: (i) any lack of validity or enforceability of this Agreement or any L/C-Related Document; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Company in respect of any Letter of Credit or any other amendment or waiver of or any consent to departure from all or any of the L/C-Related Documents; (iii) the existence of any claim, recoupment, set-off, defense or other right that the Company may have at any time against any beneficiary or any transferee of any Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the Issuer or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the L/C-Related Documents or any unrelated transaction; (iv) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit; (v) any payment by the Issuer under any Letter of Credit against presentation of a document that does not strictly comply with the terms of any Letter of Credit; or any payment made by the Issuer under any Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of any Letter of Credit, including any arising in connection with any Insolvency Proceeding; (vi) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guarantee, for all or any of the obligations of the Company in respect of any Letter of Credit; or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Company or a guarantor. 3.07 CASH COLLATERAL PLEDGE. Upon (i) the request of the Agent or the Required Lenders, (A) if any Event of Default has occurred and is continuing, or (B) if, as of the Termination Date, any Letters of Credit may for any reason remain outstanding and partially or wholly undrawn, or (ii) the termination of the Aggregate Commitment, then the Company shall immediately Cash Collateralize the L/C Obligations in an amount equal to such L/C Obligations. 3.08 LETTER OF CREDIT FEES. (a) The Company shall pay to the Co-Administrative Agent for the account of each of the Lenders a letter of credit fee with respect to the Letters of Credit equal to the Applicable Margin times the average daily maximum amount available to be drawn of the outstanding Letters of Credit, computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon Letters of Credit outstanding for that quarter as calculated by the Co-Administrative Agent. Such letter of credit fees shall be due and payable quarterly in arrears on the last Business Day of each calendar quarter during which Letters of Credit are outstanding, commencing on the first such quarterly date to occur after the Closing Date, through the Termination Date (or such later date upon which the outstanding Letters of Credit shall expire), with the final payment to be made on the Termination Date (or such later expiration date). (b) The Company shall pay to the Issuer a letter of credit fronting fee for each Letter of Credit Issued by the Issuer equal to .125% per annum of the face amount (or increased or decreased face amount, as the case may be) of such Letter of Credit. Such Letter of Credit fronting fee shall be due and payable quarterly in arrears on the last Business Day of each calendar quarter during which such Letter of Credit is outstanding, commencing on the first such quarterly date to occur after such Letter of Credit is issued, through the Termination Date (or such later date upon which such Letter of Credit shall expire), with the final payment to be made on the Termination Date (or such later expiration date). (c) The Company shall pay to the Issuer from time to time on demand the normal issuance, presentation, amendment and other processing fees, and other standard costs and charges, of such Issuer relating to letters of credit as from time to time in effect. 3.09 UNIFORM CUSTOMS AND PRACTICE. The Uniform Customs and Practice for Documentary Credits as published by the International Chamber of Commerce most recently at the time of issuance of any Letter of Credit shall (unless otherwise expressly provided in the Letters of Credit) apply to the Letters of Credit. ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY 4.01 TAXES. (a) Any and all payments by the Company to each Lender, the Co-Administrative Agent or the Agent under this Agreement and any other Loan Document shall be made free and clear of, and without deduction or withholding for, any Taxes. In addition, the Company shall pay all Further Taxes and Other Taxes. (b) If the Company shall be required by law to deduct or withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable hereunder to any Lender, the Co-Administrative Agent or the Agent, then: (i) the sum payable shall be increased as necessary so that, after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section), such Lender, the Co-Administrative Agent or the Agent, as the case may be, receives and retains an amount equal to the sum it would have received and retained had no such deductions or withholdings been made; (ii) the Company shall make such deductions and withholdings; (iii) the Company shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and (iv) the Company shall also pay to each Lender, the Co-Administrative Agent or the Agent for the account of such Lender, at the time interest is paid, Further Taxes in the amount that the respective Lender specifies as necessary to preserve the after-tax yield the Lender would have received if such Taxes, Other Taxes or Further Taxes had not been imposed. (c) The Company agrees to indemnify and hold harmless each Lender, the Co-Administrative Agent and the Agent for the full amount of (i) Taxes, (ii) Other Taxes, and (iii) Further Taxes in the amount that the respective Lender specifies as necessary to preserve the after-tax yield the Lender would have received if such Taxes, Other Taxes or Further Taxes had not been imposed, and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Lender, the Co-Administrative Agent or the Agent makes written demand therefor. (d) Within 30 days after the date of any payment by the Company of Taxes, Other Taxes or Further Taxes, the Company shall furnish to each Lender, the Co-Administrative Agent or the Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to such Lender, the Co-Administrative Agent or the Agent. (e) If the Company is required to pay any amount to any Lender, the Co-Administrative Agent or the Agent pursuant to subsection (b) or (c) of this Section, then such Lender shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by the Company which may thereafter accrue, if such change in the sole judgment of such Lender is not otherwise disadvantageous to such Lender. 4.02 ILLEGALITY. (a) If any Lender determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make Offshore Rate Loans, then, on notice thereof by the Lender to the Company through the Co-Administrative Agent, any obligation of that Lender to make Offshore Rate Loans shall be suspended until the Lender notifies the Co-Administrative Agent and the Company that the circumstances giving rise to such determination no longer exist. (b) If a Lender determines that it is unlawful to maintain any Offshore Rate Loan, the Company shall, upon its receipt of notice of such fact and demand from such Lender (with a copy to the Co-Administrative Agent), prepay in full such Offshore Rate Loans of that Lender then outstanding, together with interest accrued thereon and amounts required under SECTION 4.04, either on the last day of the Interest Period thereof, if the Lender may lawfully continue to maintain such Offshore Rate Loans to such day, or immediately, if the Lender may not lawfully continue to maintain such Offshore Rate Loan. If the Company is required to so prepay any Offshore Rate Loan, then concurrently with such prepayment, the Company shall borrow from the affected Lender, in the amount of such repayment, a Base Rate Loan. (c) If the obligation of any Lender to make or maintain Offshore Rate Loans has been so terminated or suspended, the Company may elect, by giving notice to the Lender through the Co-Administrative Agent that all Loans which would otherwise be made by the Lender as Offshore Rate Loans shall be instead Base Rate Loans. (d) Before giving any notice to the Co-Administrative Agent under this Section, the affected Lender shall designate a different Lending Office with respect to its Offshore Rate Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of the Lender, be illegal or otherwise disadvantageous to the Lender. 4.03 INCREASED COSTS AND REDUCTION OF RETURN. (a) If any Lender determines that, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance by that Lender with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining any Offshore Rate Loans or participating in Letters of Credit, or, in the case of the Issuer, any increase in the cost to the Issuer of agreeing to issue, issuing or maintaining any Letter of Credit or of agreeing to make or making, funding or maintaining any unpaid drawing under any Letter of Credit, then the Company shall be liable for, and shall from time to time, upon demand (with a copy of such demand to be sent to the Co-Administrative Agent), pay to the Co-Administrative Agent for the account of such Lender, additional amounts as are sufficient to compensate such Lender for such increased costs. (b) If any Lender shall have determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Lender (or its Lending Office) or any corporation controlling the Lender with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by the Lender or any corporation controlling the Lender and (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy and such Lender's desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitment, loans, credits or obligations under this Agreement, then, upon demand of such Lender to the Company through the Co-Administrative Agent, the Company shall pay to the Lender, from time to time as specified by the Lender, additional amounts sufficient to compensate the Lender for such increase. 4.04 FUNDING LOSSES. The Company shall reimburse each Lender and hold each Lender harmless from any loss or expense which the Lender may sustain or incur as a consequence of: (a) the failure of the Company to make on a timely basis any payment of principal of any Offshore Rate Loan; (b) the failure of the Company to borrow, continue or convert a Loan after the Company has given (or is deemed to have given) a Notice of Borrowing, a Notice of Conversion/ Continuation or similar notice; (c) the failure of the Company to make any prepayment in accordance with any notice delivered under SECTION 2.08; (d) the prepayment or other payment (including after acceleration thereof) of an Offshore Rate Loan on a day that is not the last day of the relevant Interest Period; or (e) the automatic conversion under SECTION 2.04 of any Offshore Rate Loan to a Base Rate Loan on a day that is not the last day of the relevant Interest Period; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its Offshore Rate Loans or from fees payable to terminate the deposits from which such funds were obtained. For purposes of calculating amounts payable by the Company to the Lenders under this Section and under SUBSECTION 4.03(a), each Offshore Rate Loan made by a Lender (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the LIBOR used in determining the Offshore Rate for such Offshore Rate Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Offshore Rate Loan is in fact so funded. 4.05 INABILITY TO DETERMINE RATES. If the Co-Administrative Agent determines that for any reason adequate and reasonable means do not exist for determining the Offshore Rate for any requested Interest Period with respect to a proposed Offshore Rate Loan, or that the Offshore Rate applicable pursuant to SUBSECTION 2.11(a) for any requested Interest Period with respect to a proposed Offshore Rate Loan does not adequately and fairly reflect the cost to the Lenders of funding such Loan, the Co-Administrative Agent will promptly so notify the Company and each Lender. Thereafter, the obligation of the Lenders to make or maintain Offshore Rate Loans hereunder shall be suspended until the Co-Administrative Agent revokes such notice in writing. Upon receipt of such notice, the Company may revoke any Notice of Borrowing or Notice of Conversion/Continuation then submitted by it. If the Company does not revoke such Notice, the Lenders shall make, convert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as Base Rate Loans instead of Offshore Rate Loans, as the case may be. 4.06 RESERVES ON OFFSHORE RATE LOANS. The Company shall pay to each Lender, as long as such Lender shall be required under regulations of the FRB to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as "Eurocurrency liabilities"), additional costs on the unpaid principal amount of each Offshore Rate Loan to the Company equal to the actual costs of such reserves allocated to such Loan by the Lender (as determined by the Lender in good faith, which determination shall be conclusive), payable on each date on which interest is payable on such Loan, provided the Company shall have received at least 15 days' prior written notice (with a copy to the Co-Administrative Agent) of such additional interest from the Lender. If a Lender fails to give notice 15 days prior to the relevant Interest Payment Date, such additional interest shall be payable 15 days from receipt of such notice. 4.07 CERTIFICATES OF LENDERS. Any Lender claiming reimbursement or compensation under this ARTICLE IV shall deliver to the Company (with a copy to the Co-Administrative Agent) a certificate setting forth in reasonable detail the amount payable to the Lender hereunder and such certificate shall be conclusive and binding on the Company in the absence of manifest error. 4.08 SUBSTITUTION OF BANKS. Upon the receipt by the Company from any Lender (an "AFFECTED LENDER") of a claim for compensation under SECTION 4.03 or SECTION 4.06, of notice that it cannot make Offshore Rate Loans under SECTION 4.02, or of a claim for Taxes or Further Taxes under SECTION 4.01, then the Agent, at the Company's direction, shall: (i) request the Affected Lender to use good faith efforts to obtain a replacement bank or financial institution satisfactory to the Company to acquire and assume all or a ratable part of all of such Affected Lender's Loans and Commitments at the face amount thereof (a "REPLACEMENT LENDER"); (ii) request one more of the other Lenders to acquire and assume all or part of such Affected Lender's Loans and Commitments; or (iii) designate a Replacement Lender. Any such designation of a Replacement Lender under clause (i) or (iii) shall be subject to the prior written consent of the Agent (which consent shall not be unreasonably withheld). Any transfer of Loans and Commitments shall be accompanied by the payment of any amounts due to the Affected Lender under SECTIONS 4.01, 4.03, 4.04 (calculated as if the assigned Loans were prepaid on the date of assignment) and 4.06 and shall be made in accordance with SECTION 11.08; PROVIDED, that the processing fee referenced in SECTION 11.08(a) shall not be required to be paid. 4.09 SURVIVAL. The agreements and obligations of the Company in this ARTICLE IV shall survive the payment of all other Obligations, and the Company will have no obligation to pay any amount hereunder unless a demand is made within 180 days after the date upon which the Agent's, the Co-Administrative Agent's or applicable Lender's right to reimbursement arises. ARTICLE V CONDITIONS PRECEDENT 5.01 CONDITIONS OF INITIAL CREDIT EXTENSIONS. The obligation of each Lender to make its initial Credit Extension hereunder is subject to the condition that the Agent shall have received on or before the date of the initial Credit Extension all of the following, in form and substance satisfactory to the Agent and each Lender, and in sufficient copies for each Lender: (a) CREDIT AGREEMENT. This Agreement executed by each party thereto; (b) RESOLUTIONS; INCUMBENCY. (i) Copies of the resolutions of the board of directors of the Company and each Subsidiary party to a Loan Document authorizing the transactions contemplated hereby, certified as of the Closing Date by the Secretary or an Assistant Secretary of such Person; and (ii) A certificate of the Secretary or Assistant Secretary of the Company and each Subsidiary party to a Loan Document certifying the names and true signatures of the officers of the Company or such Subsidiary authorized to execute, deliver and perform, as applicable, this Agreement and all other Loan Documents to be delivered by it hereunder; (c) ORGANIZATION DOCUMENTS; GOOD STANDING. Each of the following documents: (i) the articles or certificate of incorporation and the bylaws of the Company and each Subsidiary party to any Loan Document as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of the Company or such Subsidiary as of the Closing Date; and (ii) a good standing certificate or certificate of status for the Company and each Subsidiary party to any Loan Document from the Secretary of State (or similar, applicable Governmental Authority) of its state of incorporation; (d) LEGAL OPINION. An opinion of Bert M. Gross, Esq., counsel to the Company, addressed to the Agent and the Lenders. (e) PAYMENT OF FEES. Evidence of payment by the Company of all accrued and unpaid fees, costs and expenses to the extent then due and payable on the Closing Date, together with Attorney Costs of BofA to the extent invoiced prior to or on the Closing Date, plus such additional amounts of Attorney Costs as shall constitute BofA's reasonable estimate of Attorney Costs incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude final settling of accounts between the Company and BofA); including any such costs, fees and expenses arising under or referenced in SECTIONS 2.11 and 11.04; (f) CERTIFICATE. A certificate signed by a Responsible Officer, dated as of the Closing Date, stating that: (i) the representations and warranties contained in ARTICLE VI are true and correct on and as of such date, as though made on and as of such date; (ii) no Default or Event of Default exists or would result from the Credit Extension; and (iii) there has not occurred since June 30, 1998 any event or circumstance that has resulted or could reasonably be expected to result in a Material Adverse Effect; (g) SUBSIDIARY GUARANTY. The Subsidiary Guaranty executed by each Subsidiary Guarantor; (h) REPAYMENT OF PRIOR INDEBTEDNESS. All outstanding Indebtedness of the Company or any Subsidiary not specified on SCHEDULE 8.05 or otherwise permitted by SECTION 8.05 shall have been paid in full and all Liens securing such Indebtedness shall have been terminated; (i) YEAR 2000. Receipt and review, with results satisfactory to the Agent and the Lenders, of information confirming that (i) the Company and its Subsidiaries are taking all necessary and appropriate steps to ascertain the extent of, and to quantify and successfully address, business and financial risks facing the Company and its Subsidiaries as a result of what is commonly referred to as the "YEAR 2000 PROBLEM" (I.E., the inability of certain computer applications to recognize correctly and perform date-sensitive functions involving certain dates prior to and after December 31, 1999), including risks resulting from the failure of key vendors and customers of the Company and its Subsidiaries to successfully address the Year 2000 Problem, and (b) the Company's and its Subsidiaries' material computer applications and those of its key vendors and customers will, on a timely basis, adequately address the Year 2000 Problem in all material respects; and (j) OTHER DOCUMENTS. Such other approvals, opinions, documents or materials as the Agent, the Co-Administrative Agent or any Lender may request. 5.02 CONDITIONS TO ALL CREDIT EXTENSIONS. The obligation of each Lender to make any Revolving Loan to be made by it (including its initial Revolving Loan) and the obligation of the Issuer to Issue any Letter of Credit (including the initial Letter of Credit) is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date or Issuance Date: (a) NOTICE, APPLICATION. The Agent shall have received a Notice of Borrowing or in the case of any Issuance of any Letter of Credit, the Issuer and the Agent shall have received an L/C Application or L/C Amendment Application, as required under SECTION 3.02; (b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The representations and warranties in ARTICLE VI shall be true and correct on and as of such Borrowing Date or Issuance Date with the same effect as if made on and as of such Borrowing Date or Issuance Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date); and (c) NO EXISTING DEFAULT. No Default or Event of Default shall exist or shall result from such Borrowing or Issuance. Each Notice of Borrowing, L/C Application or L/C Amendment Application submitted by the Company hereunder shall constitute a representation and warranty by the Company hereunder, as of the date of each such notice and as of each Borrowing Date or Issuance Date, as applicable, that the conditions in this SECTION 5.02 are satisfied. ARTICLE VI REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Agent, the Co-Administrative Agent and each Lender that: 6.01 CORPORATE EXISTENCE AND POWER. The Company and each of its Subsidiaries: (a) is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation; (b) has the power and authority and all governmental licenses, authorizations, consents and approvals to own its assets, to carry on its business and to execute, deliver, and perform its obligations under the Loan Documents to which it is a party; (c) is duly qualified as a foreign corporation and is licensed and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license; and (d) is in compliance with all Requirements of Law; except, in each case referred to in clause (c) or clause (d), to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.02 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by the Company and its Subsidiaries of this Agreement and each other Loan Document to which such Person is party, have been duly authorized by all necessary corporate action, and do not and will not: (a) contravene the terms of any of that Person's Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, any document evidencing any Contractual Obligation to which such Person is a party or any order, injunction, writ or decree of any Governmental Authority to which such Person or its property is subject; or (c) violate any Requirement of Law. 6.03 GOVERNMENTAL AUTHORIZATION. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Company or any of its Subsidiaries of the Agreement or any other Loan Document. 6.04 BINDING EFFECT. This Agreement and each other Loan Document to which the Company or any of its Subsidiaries is a party constitute the legal, valid and binding obligations of the Company and any of its Subsidiaries to the extent it is a party thereto, enforceable against such Person in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. 6.05 LITIGATION. There are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of the Company, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against the Company, or its Subsidiaries or any of their respective properties: (a) which purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby or thereby; or (b) as to which there exists a substantial likelihood of an adverse determination, which determination could reasonably be expected to have a Material Adverse Effect. No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any other Loan Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided. 6.06 NO DEFAULT. No Default or Event of Default exists or would result from the incurring of any Obligations by the Company. As of the Closing Date, neither the Company nor any Subsidiary is in default under or with respect to any Contractual Obligation in any respect which, individually or together with all such defaults, could reasonably be expected to have a Material Adverse Effect, or that would, if such default had occurred after the Closing Date, create an Event of Default under SUBSECTION 9.01(e). 6.07 ERISA COMPLIANCE. (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS and to the best knowledge of the Company, nothing has occurred which would cause the loss of such qualification. The Company and each ERISA Affiliate has made all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. (b) There are no pending or, to the best knowledge of the Company, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. (c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability to the PBGC under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the Company nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 6.08 USE OF PROCEEDS; MARGIN REGULATIONS. The proceeds of the Loans are to be used solely for the purposes set forth in and permitted by SECTION 7.12, to the extent not prohibited by SECTION 8.07. Neither the Company nor any Subsidiary is generally engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock. No part of the proceeds of any Loan will be used to purchase or carry any margin stock (as defined in Regulation U of the FRB), directly or indirectly, or to extend credit for the purpose of purchasing or carrying any such margin stock for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the loans or extensions of credit under this Agreement to be considered a "purpose credit" within the meaning of Regulation T, U or X of the FRB. 6.09 TITLE TO PROPERTIES. The Company and each Subsidiary have good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of their respective businesses, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. As of the Closing Date, the property of the Company and its Subsidiaries is subject to no Liens, other than Permitted Liens. 6.10 TAXES. The Company and its Subsidiaries have filed all Federal and other material tax returns and reports required to be filed, and have paid all Federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Company or any Subsidiary that would, if made, have a Material Adverse Effect. 6.11 FINANCIAL CONDITION. (a) Each of (i) the audited consolidated financial statements of the Company and its Subsidiaries dated June 30, 1998, and the related consolidated statements of income or operations, shareholders' equity and cash flows for the fiscal year ended on that date, and (ii) the unaudited consolidated financial statements of the Company and its Subsidiaries dated March 31, 1999, and the related consolidated statements of income or operations, shareholders' equity and cash flows for the 9 months ended on that date: (x) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except for the absence of footnotes and as otherwise expressly noted therein, subject, in the case of such unaudited financial statements, to ordinary, good faith year end audit adjustments; (y) fairly present the financial condition of the Company and its Subsidiaries as of the date thereof and results of operations for the period covered thereby; and (z) except as specifically disclosed in SCHEDULE 6.11, show all material indebtedness and other liabilities, direct or contingent, of the Company and its Subsidiaries as of the date thereof. (b) Since December 31, 1998 there has been no Material Adverse Effect. 6.12 ENVIRONMENTAL MATTERS. Except as specifically disclosed in SCHEDULE 6.12: (a) The on-going operations of the Company and each of its Subsidiaries comply in all respects with all Environmental Laws, except such non-compliance which would not (if enforced in accordance with applicable law) result in liability in excess of $1,500,000 in the aggregate (exclusive of amounts payable under insurance policies and indemnity agreements which the Company or such Subsidiary reasonably expects to receive). (b) The Company and each of its Subsidiaries have obtained all licenses, permits, authorizations and registrations required under any Environmental Law ("ENVIRONMENTAL PERMITS") and necessary for their respective ordinary course operations, all such Environmental Permits are in good standing, and the Company and each of its Subsidiaries are in compliance with all material terms and conditions of such Environmental Permits. (c) None of the Company, any of its Subsidiaries or any of their respective present Property or operations, is subject to any outstanding written order from or agreement with any Governmental Authority, nor subject to (i) any judicial or docketed administrative proceeding, respecting any Environmental Law, Environmental Claim or Hazardous Material or (ii) to the extent that it could reasonably be expected to have a Material Adverse Effect, any claim, proceeding or written notice from any Person regarding any Environmental Law, Environmental Claim or Hazardous Material. (d) There are no Hazardous Materials or other conditions or circumstances existing with respect to any Property of the Company or any Subsidiary, or arising from operations prior to the Closing Date, of the Company or any of its Subsidiaries that would reasonably be expected to give rise to Environmental Claims with a potential liability of the Company and its Subsidiaries in excess of $1,500,000 in the aggregate for all such conditions, circumstances and Properties. In addition, (i) neither the Company nor any Subsidiary has any underground storage tanks (x) that are not properly registered or permitted under applicable Environmental Laws, or (y) that are leaking or disposing of Hazardous Materials off-site, and (ii) the Company and its Subsidiaries have met all material notification requirements under applicable Environmental Laws. 6.13 LABOR RELATIONS. There are no strikes, lockouts or other labor disputes against the Company or any of its Subsidiaries, or, to the best of the Company's knowledge, threatened against or affecting the Company or any of its Subsidiaries, and no significant unfair labor practice complaint is pending against the Company or any of its Subsidiaries or, to the best knowledge of the Company, threatened against any of them before any Governmental Authority. 6.14 REGULATED ENTITIES. None of the Company, any Person controlling the Company, or any Subsidiary, is an "Investment Company" within the meaning of the Investment Company Act of 1940. Neither the Company nor any Subsidiary is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other Federal or state statute or regulation limiting its ability to incur Indebtedness. 6.15 NO BURDENSOME RESTRICTIONS. Neither the Company nor any Subsidiary is a party to or bound by any Contractual Obligation, or subject to any restriction in any Organization Document, or any Requirement of Law, which could reasonably be expected to have a Material Adverse Effect. 6.16 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC. The Company and its Subsidiaries own or are licensed or otherwise have the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person. To the best knowledge of the Company, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Company or any Subsidiary infringes upon any rights held by any other Person. No claim or litigation regarding any of the foregoing is pending or threatened, and no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or, to the knowledge of the Company, proposed, which, in either case, could reasonably be expected to have a Material Adverse Effect. 6.17 SUBSIDIARIES. As of the Closing Date, the Company has no Subsidiaries other than those specifically disclosed in part (a) of SCHEDULE 6.17 hereto and has no equity investments in any other corporation or entity other than those specifically disclosed in part (b) of SCHEDULE 6.17. 6.18 INSURANCE. The properties of the Company and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Company in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and are similarly situated. 6.19 SWAP OBLIGATIONS. Neither the Company nor any of its Subsidiaries has incurred any outstanding obligations under any Swap Contracts, other than Permitted Swap Obligations. The Company has undertaken its own independent assessment of its consolidated assets, liabilities and commitments and has considered appropriate means of mitigating and managing risks associated with such matters and has not relied on any swap counterparty or any Affiliate of any swap counterparty in determining whether to enter into any Swap Contract. 6.20 SOLVENCY. The Company and each of its Subsidiaries are Solvent. 6.21 YEAR 2000 COMPLIANCE. The Company and its Subsidiaries have conducted a comprehensive review and assessment of its computer applications, and have made inquiry of their material suppliers, vendors and customers, with respect to any defect in computer software, data bases, hardware, controls and peripherals related to the occurrence of the year 2000 or the Year 2000 Problem in connection therewith. Based on the foregoing review, assessment and inquiry, the Company believes that no such defect could reasonably be expected to have a Material Adverse Effect. 6.22 FULL DISCLOSURE. None of the representations or warranties made by the Company or any Subsidiary in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, statement or certificate furnished by or on behalf of the Company or any Subsidiary in connection with the Loan Documents (including the offering and disclosure materials delivered by or on behalf of the Company or its Subsidiaries to the Lenders prior to the Closing Date), contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. ARTICLE VII AFFIRMATIVE COVENANTS So long as any Lender shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, unless the Required Lenders waive compliance in writing: 7.01 FINANCIAL STATEMENTS. The Company shall deliver to the Co-Administrative Agent, in form and detail satisfactory to the Agent, the Co-Administrative and the Required Lenders, with sufficient copies to be provided by the Co-Administrative Agent to each Lender: (a) as soon as available, but not later than the earlier of (i) five days after the filing thereof with the SEC and (ii) 105 days after the end of each fiscal year (commencing with the fiscal year ended June 30, 1999), a copy of the audited consolidated balance sheet of the Company and its Subsidiaries as at the end of such year and the related consolidated statements of income, shareholders' equity and cash flows for such year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied by the opinion of PriceWaterhouseCoopers LLP or another nationally-recognized independent public accounting firm ("INDEPENDENT AUDITOR") which report shall state that such consolidated financial statements present fairly the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years. Such opinion shall not be qualified or limited because of a restricted or limited examination by the Independent Auditor of any material portion of the Company's or any Subsidiary's records or because of a "going concern" exception; and (b) as soon as available, but not later than the earlier of (i) five days after the filing thereof with the SEC and (ii) 45 days after the end of each of the first three fiscal quarters of each fiscal year (commencing with the fiscal quarter ended September 30, 1999), a copy of the unaudited consolidated and consolidating balance sheet of the Company and its Subsidiaries as of the end of such fiscal quarter and the related consolidated and consolidating statements of income, shareholders' equity and cash flows for the period commencing on the first day and ending on the last day of such fiscal quarter, and certified by a Responsible Officer as fairly presenting, in accordance with GAAP (subject to ordinary, good faith year-end audit adjustments), the financial position and the results of operations of the Company and the Subsidiaries. 7.02 CERTIFICATES; OTHER INFORMATION. The Company shall furnish to the Agent and the Co-Administrative Agent, with sufficient copies to be provided by the Co-Administrative Agent to each Lender: (a) concurrently with the delivery of the financial statements referred to in SUBSECTION 7.01(a), a certificate of the Independent Auditor stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements referred to in SUBSECTIONS 7.01(a) and (b), a Compliance Certificate executed by a Responsible Officer; (c) concurrently with the delivery of the financial statements referred to in SUBSECTION 7.01(a), (i) a consolidating balance sheet and income statement for such year (which need not be audited) and setting forth in comparative form the figures for the previous fiscal year, and (ii) a budget for the next succeeding fiscal year; (d) promptly, copies of all financial statements and reports that the Company sends to its shareholders, and copies of all financial statements and regular, periodic or special reports (including Forms 10K, 10Q and 8K) that the Company or any Subsidiary may make to, or file with, the SEC; and (e) promptly, such additional information regarding the business, financial or corporate affairs of the Company or any Subsidiary as the Agent or the Co-Administrative Agent, at the request of any Lender, may from time to time reasonably request. 7.03 NOTICES. The Company shall promptly notify the Agent, the Co-Administrative Agent and each Lender: (a) of the occurrence of any Default or Event of Default, and of the occurrence or existence of any event or circumstance that foreseeably will become a Default or Event of Default; (b) of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including, to the extent so applicable, (i) any breach or non-performance of, or any default under, a Contractual Obligation of the Company or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Company or any Subsidiary and any Governmental Authority; (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Company or any Subsidiary, including pursuant to any applicable Environmental Laws; or (iv) any other Environmental Claims; (c) of the occurrence of any of the following events affecting the Company or any ERISA Affiliate (but in no event more than 10 days after such event), and deliver to the Agent and each Lender a copy of any notice with respect to such event that is filed with a Governmental Authority and any notice delivered by a Governmental Authority to the Company or any ERISA Affiliate with respect to such event: (i) an ERISA Event; (ii) a material increase in the Unfunded Pension Liability of any Pension Plan; (iii) the adoption of, or the commencement of contributions to, any Plan subject to Section 412 of the Code by the Company or any ERISA Affiliate; or (iv) the adoption of any amendment to a Plan subject to Section 412 of the Code, if such amendment results in a material increase in contributions or Unfunded Pension Liability; (d) of any material change in accounting policies or financial reporting practices by the Company or any of its consolidated Subsidiaries; (e) upon, but in no event later than 15 days after, any officer of the Company or any Subsidiary becoming aware of (i) any and all enforcement, investigation, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against the Company or any Subsidiary or any of their respective properties pursuant to any applicable Environmental Laws which could reasonably be expected to have a Material Adverse Effect, (ii) all other material Environmental Claims, and (iii) any environmental or similar condition on any real property adjoining or in the vicinity of the property of the Company or any Subsidiary that could reasonably be anticipated to cause such property of the Company or such Subsidiary or any part thereof to be subject to any material restrictions on the ownership, occupancy, transferability or use of such property under any Environmental Laws; and (f) upon the request from time to time of the Agent, the Swap Termination Values, together with a description of the method by which such values were determined, relating to any then-outstanding Swap Contracts to which the Company or any of its Subsidiaries is party. Each notice under this Section shall be accompanied by a written statement by a Responsible Officer setting forth details of the occurrence referred to therein, and stating what action the Company or any affected Subsidiary proposes to take with respect thereto and at what time. Each notice under SUBSECTION 7.03(a) shall describe with particularity any and all clauses or provisions of this Agreement or other Loan Document that have been (or foreseeably will be) breached or violated. 7.04 PRESERVATION OF CORPORATE EXISTENCE, ETC. The Company shall, and shall cause each Subsidiary to: (a) preserve and maintain in full force and effect its corporate existence and good standing under the laws of its state or jurisdiction of incorporation; (b) preserve and maintain in full force and effect all governmental rights, privileges, qualifications, permits, licenses and franchises necessary or desirable in the normal conduct of its business except in connection with transactions permitted by SECTION 8.03 and sales of assets permitted by SECTION 8.02; (c) use reasonable efforts, in the ordinary course of business, to preserve its business organization and goodwill; and (d) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect. The Company shall cause each Subsidiary which is a Wholly-Owned Subsidiary as of the date hereof to continue to exist as a Wholly-Owned Subsidiary so long as it shall be a Subsidiary. 7.05 MAINTENANCE OF PROPERTY. The Company shall maintain, and shall cause each Subsidiary to maintain, and preserve all its property which is used or useful in its business in good working order and condition, ordinary wear and tear excepted, and make all necessary repairs thereto and renewals and replacements thereof. 7.06 INSURANCE. The Company shall maintain, and shall cause each Subsidiary to maintain, with financially sound and reputable independent insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons, including workers' compensation insurance, public liability and property and casualty insurance. 7.07 PAYMENT OF OBLIGATIONS. The Company shall, and shall cause each Subsidiary to, pay and discharge as the same shall become due and payable, all their respective obligations and liabilities, including: (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary; and (b) all material lawful claims which, if unpaid, would by law become a Lien upon its property in violation of SECTION 8.01. 7.08 COMPLIANCE WITH LAWS. The Company shall comply, and shall cause each Subsidiary to comply, in all material respects with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business (including the Federal Fair Labor Standards Act), except such as may be contested in good faith or as to which a bona fide dispute may exist. 7.09 COMPLIANCE WITH ERISA. The Company shall, and shall cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law; (b) cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; and (c) make all required contributions to any Plan subject to Section 412 of the Code. 7.10 INSPECTION OF PROPERTY AND BOOKS AND RECORDS. The Company shall maintain and shall cause each Subsidiary to maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Company and such Subsidiary. The Company shall permit, and shall cause each Subsidiary to permit, representatives and independent contractors of the Agent or any Lender to visit and inspect any of their respective properties, to examine their respective corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss their respective affairs, finances and accounts with their respective directors, officers, and independent public accountants, all at the expense of the Company and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Company; PROVIDED, HOWEVER, when an Event of Default exists the Agent or any Lender may do any of the foregoing at the expense of the Company at any time during normal business hours and without advance notice; PROVIDED, FURTHER, that neither the Agent nor any Lender shall conduct any environmental testing of any owned or leased facility of the Company or any Subsidiary without the prior written consent of the Company, which shall not unreasonably be withheld. 7.11 ENVIRONMENTAL LAWS. (a) The Company shall, and shall cause each Subsidiary to, conduct its operations and keep and maintain its property in compliance with all Environmental Laws, the violation of which could reasonably be expected to result in liability to the Company and its Subsidiaries in excess of $1,500,000 in the aggregate (net of any payments under insurance policies or indemnity agreements which the Company or such Subsidiary reasonably expects to receive). (b) Upon the written request of the Agent or any Lender, the Company shall submit and cause each of its Subsidiaries to submit, to the Agent with sufficient copies for each Lender, at the Company's sole cost and expense, at reasonable intervals, a report providing an update of the status of any environmental, health or safety compliance, hazard or liability issue identified in any notice or report required pursuant to SUBSECTION 7.03(e), that could, individually or in the aggregate, result in liability in excess of $1,500,000 (net of any payments under insurance policies or indemnity agreements which the Company or such Subsidiary reasonably expects to receive). 7.12 USE OF PROCEEDS. The Company shall use the proceeds of the Loans (a) to finance Acquisitions permitted hereunder and to pay certain fees and expenses related thereto, (b) to refinance existing Indebtedness of the Company and its Subsidiaries and (c) for working capital and other general corporate purposes not in contravention of any Requirement of Law or of any Loan Document. 7.13 FURTHER ASSURANCES. (a) The Company shall ensure that all written information, exhibits and reports furnished to the Agent or the Lenders do not and will not contain any untrue statement of a material fact and do not and will not omit to state any material fact or any fact necessary to make the statements contained therein not misleading in light of the circumstances in which made, and will promptly disclose to the Agent and the Lenders and correct any defect or error that may be discovered therein or in any Loan Document or in the execution, acknowledgment or recordation thereof. (b) Promptly upon request by the Agent or the Required Lenders, the Company shall (and shall cause any of its Subsidiaries to) do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register, any and all such further acts, certificates, assurances and other instruments the Agent or such Lenders, as the case may be, may reasonably require from time to time in order (i) to carry out more effectively the purposes of this Agreement or any other Loan Document, and (ii) to better assure, convey, grant, assign, transfer, preserve, protect and confirm to the Agent and Lenders the rights granted or now or hereafter intended to be granted to the Lenders under any Loan Document or under any other document executed in connection therewith. 7.14 ADDITIONAL GUARANTIES. Effective upon any Person becoming a Domestic Subsidiary (other than any Domestic Subsidiary with total (gross) revenues of less than 5% of the total (gross) revenues of the Company and its Subsidiaries) such Person shall join as a guarantor under the Subsidiary Guaranty pursuant to an amendment thereto in form and substance acceptable to the Agent; PROVIDED, that any Domestic Subsidiary which does not become a party to the Subsidiary Guaranty because it does not satisfy the requirement above shall execute the Subsidiary Guaranty if it subsequently has sufficient revenues to satisfy such requirement; PROVIDED, FURTHER, that if all Domestic Subsidiaries which are not party to the Subsidiary Guaranty have total (gross) revenues of 7.5% or more of the total (gross) revenues of the Company and its Subsidiaries, then such Domestic Subsidiaries shall promptly execute the Subsidiary Guaranty so that, upon such execution, such 7.5% threshold is no longer exceeded. The Company shall promptly notify the Agent at any time at which, in accordance with this SECTION 7.14, any Subsidiary shall be required to join as a guarantor under the Subsidiary Guaranty. ARTICLE VIII NEGATIVE COVENANTS So long as any Lender shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, unless the Required Lenders waive compliance in writing: 8.01 LIMITATION ON LIENS. The Company shall not, and shall not suffer or permit any Subsidiary to, directly or indirectly, make, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its property, whether now owned or hereafter acquired, other than the following ("PERMITTED LIENS"): (a) any Lien existing on property of the Company or any Subsidiary on the Closing Date and set forth in SCHEDULE 8.01 securing Indebtedness outstanding on such date; (b) any Lien created under any Loan Document; (c) Liens for taxes, fees, assessments or other governmental charges which are not delinquent or remain payable without penalty, or to the extent that non-payment thereof is permitted by SECTION 7.07, provided that no notice of lien has been filed or recorded under the Code; (d) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto; (e) Liens (other than any Lien imposed by ERISA) consisting of pledges or deposits required in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation; (f) Liens on the property of the Company or its Subsidiaries securing (i) the non-delinquent performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, (ii) Contingent Obligations in connection with performance bonds, surety bonds and appeal bonds, and (iii) other non-delinquent obligations of a like nature, in each case, incurred in the ordinary course of business; PROVIDED that all such Liens in the aggregate could not reasonably be expected to cause a Material Adverse Effect; (g) Liens consisting of judgment or judicial attachment liens, provided that the enforcement of such Liens is effectively stayed and the obligations secured by all such Liens in the aggregate at any time outstanding for the Company and its Subsidiaries do not exceed $1,000,000, (h) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the businesses of the Company and its Subsidiaries; (i) Liens on assets of corporations which become Subsidiaries after the date of this Agreement, PROVIDED, HOWEVER, that such Liens existed at the time the respective corporations became Subsidiaries and were not created in anticipation thereof and the obligations secured by all such Liens in the aggregate at any time outstanding do not exceed (i) $15,000,000, LESS (ii) amounts outstanding under paragraphs (j) and (n); (j) purchase money security interests on any property acquired or held by the Company or its Subsidiaries, securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such property; PROVIDED THAT (i) any such Lien attaches to such property concurrently with or within 20 days after the acquisition thereof, (ii) such Lien attaches solely to the property so acquired in such transaction and other like assets in respect of which financing was provided by the same lender to the obligor of such Indebtedness, (iii) the principal amount of the debt secured thereby does not exceed 100% of the cost of such property, and (iv) the principal amount of the Indebtedness secured by any and all such purchase money security interests shall not at any time exceed, together with Indebtedness permitted under SUBSECTION 8.05(d), (i) $15,000,000, LESS (ii) amounts outstanding under paragraphs (i) and (n); (k) Liens securing obligations in respect of capital leases on assets subject to such leases, provided that such capital leases are otherwise permitted hereunder; (l) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; PROVIDED THAT (i) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company or any Subsidiary in excess of those set forth by regulations promulgated by the FRB, and (ii) such deposit account is not intended by the Company or any Subsidiary to provide collateral to the depository institution; (m) Liens on the Company's distribution facility, which facility is expected to be completed by December 31, 2001, (i) securing a mortgage loan, with an aggregate principal amount not to exceed the lesser of 100% of the cost of building such facility and $15,000,000 at any one time outstanding, which loan is used to construct such facility, or (ii) granted in connection with a sale/leaseback of such facility; and (n) Liens securing other obligations of the Company and its Subsidiaries not to exceed in the aggregate at any one time outstanding (i) $15,000,000 less (ii) amounts outstanding under paragraphs (i) and (j). 8.02 DISPOSITION OF ASSETS. The Company shall not, and shall not suffer or permit any Subsidiary to, directly or indirectly, (x) issue any equity interests of any Subsidiary to any Person which is not the Company or a Subsidiary or (y) sell, assign, lease, convey, transfer or otherwise dispose of (whether in one or a series of transactions) any property, including accounts and notes receivable, with or without recourse (each, an "ASSET DISPOSITION"), or enter into any agreement to do any of the foregoing, except: (a) dispositions of inventory, or used, worn-out or surplus equipment, all in the ordinary course of business; (b) the sale of equipment to the extent that such equipment is exchanged for credit against the purchase price of similar replacement equipment, or the proceeds of such sale are reasonably promptly applied to the purchase price of such replacement equipment; and (c) dispositions not otherwise permitted hereunder which are made for fair market value; PROVIDED, that (i) at the time of any disposition, no Event of Default shall exist or shall result from such disposition, (ii) at least 75% of the aggregate sales price from such dispositions shall be paid in cash, and (iii) the aggregate value of all assets so sold by the Company and its Subsidiaries after the date hereof, together, shall not (x) represent more than 5% of the total assets of the Company and its Subsidiaries, as would be shown in the consolidated financial statements of the Company and its Subsidiaries as at the end of the fiscal quarter next preceding the date on which such determination is made, or (y) be responsible for more than 5% of the consolidated net income of the Company and its Subsidiaries for the 12-month period ending as of the end of the fiscal quarter next preceding the date of determination. 8.03 CONSOLIDATIONS AND MERGERS. The Company shall not, and shall not suffer or permit any Subsidiary to, merge, consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except: (a) any Subsidiary may merge with the Company, provided that (i) the Company shall be the continuing or surviving corporation, or with any one or more Subsidiaries, and (ii) if any transaction shall be between a Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be the continuing or surviving corporation; and (b) any Subsidiary may sell all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Company or another Wholly-Owned Subsidiary; and (c) any Subsidiary may merge or consolidate with another Person in order to effect an Acquisition permitted by SECTION 8.04. 8.04 LOANS AND INVESTMENTS. The Company shall not purchase or acquire, or suffer or permit any Subsidiary to purchase or acquire, or make any commitment therefor, any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or make or commit to make any Acquisitions, or make or commit to make any advance, loan, extension of credit or capital contribution to or any other investment in, any Person including any Affiliate of the Company (together, "INVESTMENTS"), except for: (a) Investments held by the Company or Subsidiary in the form of Cash Equivalents; (b) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business; (c) Investments by the Company or any Subsidiary in (i) Wholly-Owned Subsidiaries party to the Subsidiary Guaranty or unsecured loans made by any Subsidiary to the Company or (ii) foreign Wholly-Owned Subsidiaries or non-Wholly-Owned Subsidiaries in an aggregate amount not to exceed $5,000,000 after the date hereof; (d) Investments incurred in order to consummate Acquisitions otherwise permitted herein, PROVIDED that (i) such Acquisitions are undertaken in accordance with all applicable Requirements of Law, (ii) the prior, effective written consent or approval to such Acquisition of the board of directors or equivalent governing body of the acquiree is obtained, (iii) the Company provides the Agent and the Lenders with a certificate at least ten days prior to the consummation of any such Acquisition for which the total consideration exceeds $20,000,000 evidencing that, after giving effect to such Acquisition, no Default or Event of Default shall have occurred and be continuing (as determined, in respect of SECTIONS 8.14 and 8.15, on a pro forma basis as of the last day of the preceding fiscal quarter), and (iv) the Person or business which is the subject of such Acquisition is in the same or similar line of business as the Company and its Subsidiaries; (e) Investments of up to $10,000,000 in the aggregate in Joint Ventures engaged in the same line of business in which the Company and its Subsidiaries are engaged as of the date hereof; and (f) Investments of a nature not contemplated by the foregoing clauses hereof that are outstanding as of the Closing Date and set forth in SCHEDULE 8.04 hereto. 8.05 LIMITATION ON INDEBTEDNESS. The Company shall not, and shall not suffer or permit any Subsidiary to, create, incur, assume, suffer to exist, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except: (a) Indebtedness incurred pursuant to this Agreement; (b) Indebtedness consisting of Contingent Obligations permitted pursuant to SECTION 8.08; (c) Indebtedness existing on the Closing Date and set forth in SCHEDULE 8.05; (d) Indebtedness incurred in connection with leases permitted pursuant to SECTION 8.10; (e) unsecured Indebtedness owed to the Company by any Subsidiary or owed by the Company or any Subsidiary to a Subsidiary so long as it is incurred in accordance with SECTION 8.04; and (f) other Indebtedness incurred by the Company or any Subsidiary from time to time; PROVIDED, that after giving effect to such increase, SECTION 8.14 would not be violated (as determined on a pro forma basis as of the last day of the previous fiscal quarter). 8.06 TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not suffer or permit any Subsidiary to, enter into any transaction with any Affiliate of the Company, except upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person not an Affiliate of the Company or such Subsidiary. 8.07 USE OF PROCEEDS. The Company shall not, and shall not suffer or permit any Subsidiary to, use any portion of the proceeds of any Loan or any Letter of Credit, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise refinance indebtedness of the Company or others incurred to purchase or carry Margin Stock, (iii) to extend credit for the purpose of purchasing or carrying any Margin Stock, or (iv) to acquire any security in any transaction that is subject to Section 13 or 14 of the Exchange Act. 8.08 CONTINGENT OBLIGATIONS. The Company shall not, and shall not suffer or permit any Subsidiary to, create, incur, assume or suffer to exist any Contingent Obligations except: (a) endorsements for collection or deposit in the ordinary course of business; (b) Permitted Swap Obligations; (c) Contingent Obligations of the Company and its Subsidiaries existing as of the Closing Date and listed in SCHEDULE 8.08; (d) Contingent Obligations with respect to Indebtedness of the Company's Wholly-Owned Subsidiaries permitted pursuant to SECTION 8.05; and (e) other Contingent Obligations not exceeding at any time $10,000,000 in the aggregate in respect of the Company and its Subsidiaries together. 8.09 RESTRICTED PAYMENTS. The Company shall not, and shall not suffer or permit any Subsidiary to, declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of its capital stock, or purchase, redeem or otherwise acquire for value any shares of its capital stock or any warrants, rights or options to acquire such shares, now or hereafter outstanding, except that any Subsidiary may declare and make dividend payments and other distributions to its shareholders on a pro rata basis and the Company may: (a) declare and make dividend payments or other distributions payable solely in its common stock; (b) purchase, redeem or otherwise acquire shares of its common stock or warrants or options to acquire any such shares with the proceeds received from the substantially concurrent issue of new shares of its common stock; and (c) declare or pay cash dividends to its stockholders and purchase, redeem or otherwise acquire shares of its capital stock or warrants, rights or options to acquire any such shares for cash and computed on a cumulative consolidated basis; PROVIDED, that, (i) all such payments made in any period of four fiscal quarters (ending with the fiscal quarter in which any such payment is made) shall not exceed 50% of the Company's consolidated net income for the period of four fiscal quarters ending with the second preceding fiscal quarter prior to the fiscal quarter in which such payment is made (if positive), and (ii) immediately after giving effect to such proposed action, no Default or Event of Default would exist (determined with respect to SECTIONS 8.14 and 8.15 on a pro forma basis as of the last day of the previous fiscal quarter). 8.10 ERISA. The Company shall not, and shall not suffer or permit any of its Subsidiaries to, (i) terminate any Plan subject to Title IV of ERISA so as to result in any material (in the opinion of the Required Lenders) liability to the Company or any ERISA Affiliate, (ii) permit to exist any ERISA Event or any other event or condition, which presents the risk of a material (in the opinion of the Required Lenders) liability to any member of the Controlled Group, (iii) make a complete or partial withdrawal (within the meaning of ERISA Section 4201) from any Multiemployer Plan so as to result in any material (in the opinion of the Required Lenders) liability to the Company or any ERISA Affiliate or, (iv) enter into any new Plan or modify any existing Plan so as to increase its obligations thereunder which could result in any material (in the opinion of the Required Lenders) liability to any member of the Controlled Group. 8.11 CHANGE IN BUSINESS. The Company shall not, and shall not suffer or permit any Subsidiary to, engage in any material line of business substantially different from those lines of business carried on by the Company and its Subsidiaries on the date hereof. 8.12 ACCOUNTING CHANGES. The Company shall not, and shall not suffer or permit any Subsidiary to, (a) make any significant change in accounting treatment or reporting practices, except as required by GAAP, or (b) change the fiscal year of the Company or of any Subsidiary; PROVIDED, that the fiscal year of the Company and its Subsidiaries may be changed to a year ending December 31. 8.13 AMENDMENTS TO CHARTER. The Company will not, nor will it permit any Subsidiary to, (a) make any amendment or modification to any terms or provisions of its Certificate or Articles of Incorporation or bylaws which is materially adverse to the Agent or the Lenders without the prior written consent of the Required Lenders or (b) issue any preferred stock. 8.14 DEBT TO CAPITALIZATION RATIO. The Company shall not, as of the last day of any fiscal quarter, permit its Debt to Capitalization Ratio to be greater than .50 to 1.0. 8.15 FIXED CHARGE COVERAGE RATIO. The Company shall not, as of the last day of any fiscal quarter, permit its ratio of (a) EBITDAR for the period of four fiscal quarters then ending to (b) Fixed Charges for such four fiscal quarter period to be less than 1.5 to 1.0. 8.16 RESTRICTIVE AGREEMENTS. The Company shall not, nor shall it permit any of its Subsidiaries to, enter into any indenture, agreement, instrument or other arrangement which directly or indirectly prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon, the ability of any Subsidiary to (a) pay dividends or make other distributions (i) on its Capital Stock or (ii) with respect to any other interest or participation in, or measured by, its profits, (b) make loans or advances to the Company or any Subsidiary, (c) repay loans or advances from the Company or any Subsidiary or (d) transfer any of its properties or assets to the Company or any Subsidiary. 8.17 YEAR 2000. The Company will take, and will cause each of its Subsidiaries to take, all such actions as are reasonably necessary to successfully implement a program to assure that the Year 2000 Problem will not have a Material Adverse Effect. At the request of the Agent, the Company will provide a description of such program, together with any updates or progress reports with respect thereto. ARTICLE IX EVENTS OF DEFAULT 9.01 EVENT OF DEFAULT. Any of the following shall constitute an "EVENT OF DEFAULT": (a) NON-PAYMENT. The Company fails to pay, (i) when and as required to be paid herein, any amount of principal of any Loan or of any L/C Obligation, or (ii) within five (5) days after the same becomes due, any interest, fee or any other amount payable hereunder or under any other Loan Document; or (b) REPRESENTATION OR WARRANTY. Any representation or warranty by the Company or any Subsidiary made or deemed made herein or in any other Loan Document, or contained in any certificate, document or financial or other statement by the Company, any Subsidiary, or any Responsible Officer, furnished at any time under this Agreement, or in or under any other Loan Document, is incorrect in any material respect on or as of the date made or deemed made; or (c) SPECIFIC DEFAULTS. The Company fails to perform or observe any term, covenant or agreement contained in any of SECTION 7.03 or in ARTICLE VIII; or (d) OTHER DEFAULTS. The Company or any Subsidiary party thereto fails to perform or observe any other term or covenant contained in this Agreement or any other Loan Document, and such default shall continue unremedied for a period of 30 days after the earlier of (i) the date upon which any senior officer of the Company knew or reasonably should have known of such failure or (ii) the date upon which written notice thereof is given to the Company by the Agent or any Lender; or (e) CROSS-DEFAULT. (i) The Company or any Subsidiary (A) fails to make any payment in respect of any Indebtedness (other than Specified Acquisition Debt) or Contingent Obligation (other than in respect of Swap Contracts), having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $1,000,000 when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) and such failure continues after the applicable grace or notice period, if any, specified in the relevant document on the date of such failure; or (B) fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any such Indebtedness (other than Specified Acquisition Debt) or Contingent Obligation, and such failure continues after the applicable grace or notice period, if any, specified in the relevant document on the date of such failure if the effect of such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to be declared to be due and payable, or to be required to be repurchased, prior to its stated maturity, or such Contingent Obligation to become payable or cash collateral in respect thereof to be demanded; or (ii) there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from (1) any event of default under such Swap Contract as to which the Company or any Subsidiary is the Defaulting Party (as defined in such Swap Contract) or (2) any Termination Event (as so defined) as to which the Company or any Subsidiary is an Affected Party (as so defined) and, in either event, the Swap Termination Value owed by the Company or such Subsidiary as a result thereof is greater than $1,000,000; PROVIDED, that any Event of Default arising under clause (i)(B) in respect of Indebtedness evidenced or governed by either Note Agreement shall be determined without regard to any amendment to or waiver of any provision of such Note Agreement or any related document or instrument entered into by the parties thereto in anticipation of, concurrent with or subsequent to the occurrence of any such event or circumstance; or (f) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Company or any Subsidiary (i) ceases or fails to be solvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing; or (g) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency Proceeding is commenced or filed against the Company or any Subsidiary, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of the Company's or any Subsidiary's properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) the Company or any Subsidiary admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Company or any Subsidiary acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business; or (h) ERISA. (i) An ERISA Event shall occur with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Company or any ERISA Affiliate under Title IV of ERISA to such Pension Plan or Multiemployer Plan or to the PBGC in an aggregate amount for all such Pension Plans and Multiemployer Plans in excess of $1,000,000, less any outstanding amounts under clauses (ii) and (iii); (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans and Multiemployer Plans at any time exceeds $1,000,000, less any outstanding amounts under clauses (i) and (iii) (determined, in respect of Multiemployer Plans, by reference to the Unfunded Pension Liability for which the Company or any ERISA Affiliate may be liable); or (iii) the Company or any ERISA Affiliate shall fail to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $1,000,000, less any outstanding amounts under clauses (i) and (ii); or (i) MONETARY JUDGMENTS. One or more non-interlocutory judgments, non-interlocutory orders, decrees or arbitration awards is entered against the Company or any Subsidiary involving in the aggregate a liability (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related series of transactions, incidents or conditions, of $1,000,000 or more, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of 10 days after the entry thereof; or (j) NON-MONETARY JUDGMENTS. Any non-monetary judgment, order or decree is entered against the Company or any Subsidiary which does or would reasonably be expected to have a Material Adverse Effect, and there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (k) CHANGE OF CONTROL. There occurs any Change of Control; or (l) LOSS OF LICENSES. Any Governmental Authority revokes or fails to renew any material license, permit or franchise of the Company or any Subsidiary, or the Company or any Subsidiary for any reason loses any material license, permit or franchise, or the Company or any Subsidiary suffers the imposition of any restraining order, escrow, suspension or impound of funds in connection with any proceeding (judicial or administrative) with respect to any material license, permit or franchise; or (m) GUARANTOR DEFAULTS. Any Guarantor fails in any material respect to perform or observe any term, covenant or agreement in the Subsidiary Guaranty; or the Subsidiary Guaranty is for any reason partially (including with respect to future advances) or wholly revoked or invalidated, or otherwise ceases to be in full force and effect, or any Guarantor or any other Person contests in any manner the validity or enforceability thereof or denies that it has any further liability or obligation thereunder; or any event described at subsections (f) or (g) of this Section occurs with respect to any Guarantor. 9.02 REMEDIES. If any Event of Default occurs, the Agent shall, at the request of, or may, with the consent of, the Required Lenders, (a) declare the Commitment of each Lender to make Loans and any obligation of the Issuer to Issue Letters of Credit to be terminated, whereupon such Commitments and obligation shall be terminated; (b) declare an amount equal to the maximum aggregate amount that is or at any time thereafter may become available for drawing under any outstanding Letters of Credit (whether or not any beneficiary shall have presented, or shall be entitled at such time to present, the drafts or other documents required to draw under such Letters of Credit) to be immediately due and payable, and declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; and (c) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents or applicable law; PROVIDED, HOWEVER, that upon the occurrence of any event specified in subsection (f) or (g) of SECTION 9.01 (in the case of clause (i) of subsection (g) upon the expiration of the 60-day period mentioned therein), the obligation of each Lender to make Loans and any obligation of the Issuer to Issue Letters of Credit shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Agent, the Issuer or any Lender. 9.03 RIGHTS NOT EXCLUSIVE. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. ARTICLE X THE AGENT AND THE CO-ADMINISTRATIVE AGENT 10.01 APPOINTMENT AND AUTHORIZATION; "AGENT"; "CO-ADMINISTRATIVE AGENT". (a) Each Lender hereby irrevocably (subject to SECTION 10.09) appoints, designates and authorizes each of the Agent and the Co-Administrative Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, neither the Agent nor the Co-Administrative Agent shall have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent or the Co-Administrative Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent or the Co-Administrative Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement with reference to the Agent or the Co-Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. (b) The Issuer shall act on behalf of the Lenders with respect to any Letters of Credit Issued by it and the documents associated therewith until such time and except for so long as the Agent or the Co-Administrative Agent may agree at the request of the Required Lenders to act for the Issuer with respect thereto; PROVIDED, HOWEVER, that the Issuer shall have all of the benefits and immunities (i) provided to the Agent and the Co-Administrative Agent in this ARTICLE X with respect to any acts taken or omissions suffered by the Issuer in connection with Letters of Credit Issued by it or proposed to be Issued by it and the application and agreements for letters of credit pertaining to the Letters of Credit as fully as if the term "Agent", as used in this ARTICLE X, included the Issuer with respect to such acts or omissions, and (ii) as additionally provided in this Agreement with respect to the Issuer. 10.02 DELEGATION OF DUTIES. The Agent and the Co-Administrative Agent may execute any of their duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Neither the Agent nor the Co-Administrative Agent shall be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 10.03 LIABILITY OF AGENT AND CO-ADMINISTRATIVE AGENT. None of the Agent-Related Persons shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (b) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by the Company or any Subsidiary or Affiliate of the Company, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or for the value of or title to any Collateral, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Company or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Company or any of the Company's Subsidiaries or Affiliates. 10.04 RELIANCE BY AGENT AND CO-ADMINISTRATIVE AGENT. (a) The Agent and the Co-Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Company), independent accountants and other experts selected by the Agent and the Co-Administrative Agent. The Agent and the Co-Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless they shall first receive such advice or concurrence of the Required Lenders as they deem appropriate and, if they so request, they shall first be indemnified to their satisfaction by the Lenders against any and all liability and expense which may be incurred by them by reason of taking or continuing to take any such action. The Agent and the Co-Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. (b) For purposes of determining compliance with the conditions specified in SECTION 5.01, each Lender that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Agent or the Co-Administrative Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Lender. 10.05 NOTICE OF DEFAULT. Neither the Agent nor the Co-Administrative Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Agent or the Co-Administrative Agent for the account of the Lenders, unless the Agent and the Co-Administrative Agent shall have received written notice from a Lender or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". The Agent and the Co-Administrative Agent will notify the Lenders of their receipt of any such notice. The Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Lenders in accordance with ARTICLE IX; PROVIDED, HOWEVER, that unless and until the Agent has received any such request, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of the Lenders. 10.06 CREDIT DECISION. Each Lender acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by the Agent or the Co-Administrative Agent hereinafter taken, including any review of the affairs of the Company and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to the Agent and the Co-Administrative Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries, the value of and title to any Collateral, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Company hereunder. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by the Agent or the Co-Administrative Agent, neither the Agent nor the Co-Administrative Agent shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Company which may come into the possession of any of the Agent-Related Persons. 10.07 INDEMNIFICATION OF AGENT AND CO-ADMINISTRATIVE AGENT. Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Company and without limiting the obligation of the Company to do so), in accordance with such Lender's Pro Rata Share of all Loans and Commitments, from and against any and all Indemnified Liabilities; PROVIDED, HOWEVER, that no Lender shall be liable for the payment to the Agent-Related Persons of any portion of such Indemnified Liabilities resulting from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender shall reimburse each of the Agent and the Co-Administrative Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Agent or the Co-Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Agent or the Co-Administrative Agent is not reimbursed for such expenses by or on behalf of the Company. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of the Agent or the Co-Administrative Agent. 10.08 AGENT IN INDIVIDUAL CAPACITY. BofA, LaSalle and their Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Company and its Subsidiaries and Affiliates as though BofA were not the Agent hereunder and as though LaSalle were not the Co-Administrative Agent or the Issuer hereunder and without notice to or consent of the Lenders. The Lenders acknowledge that, pursuant to such activities, BofA, LaSalle or their Affiliates may receive information regarding the Company or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Company or such Subsidiary) and acknowledge that neither the Agent nor the Co-Administrative Agent shall be under any obligation to provide such information to them. With respect to its Loans, BofA and LaSalle shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent or the Issuer or the Co-Administrative Agent, respectively. 10.09 SUCCESSOR AGENT. Either the Agent or the Co-Administrative Agent may, and at the request of the Required Lenders shall, resign upon 30 days' notice to the Lenders. If the Agent or the Co-Administrative Agent resigns under this Agreement, the Required Lenders shall appoint from among the Lenders a successor agent or co-administrative agent for the Lenders subject, so long as no Event of Default has occurred and is then continuing, to the consent of the Company, which shall not be unreasonably withheld or delayed. If no successor agent is appointed prior to the effective date of the resignation of the Agent or the Co-Administrative Agent, the Agent or the Co-Administrative Agent may appoint, after consulting with the Lenders and the Company, a successor agent from among the Lenders. Upon the acceptance of its appointment as successor agent hereunder, such successor agent or co-administrative agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" or "Co-Administrative Agent", as applicable, shall mean such successor agent and the retiring Agent's or Co-Administrative Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's or Co-Administrative Agent's resignation hereunder as Agent or Co-Administrative Agent, the provisions of this ARTICLE X and SECTIONS 11.04 and 11.05 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent or Co-Administrative Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's or Co-Administrative Agent's notice of resignation, the retiring Agent's or Co-Administrative Agent's resignation shall nevertheless thereupon become effective and the Co-Administrative Agent shall perform all of the duties of the Agent, or the Agent shall perform all of the duties of the Co-Administrative Agent, as applicable, hereunder until such time, if any, as the Required Lenders appoint a successor agent or co-administrative agent as provided for above. Notwithstanding the foregoing, however, LaSalle may not be removed as the Co-Administrative Agent at the request of the Required Lenders unless LaSalle shall also simultaneously be replaced as an "Issuer" (if any letters of credit Issued by LaSalle are then outstanding) hereunder pursuant to documentation in form and substance reasonably satisfactory to LaSalle. 10.10 WITHHOLDING TAX. (a) If any Lender is a "foreign corporation, partnership or trust" within the meaning of the Code and such Lender claims exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such Lender agrees with and in favor of the Agent and the Company, to deliver to the Agent and the Company: (i) if such Lender claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, two properly completed and executed copies of IRS Form 1001 before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Lender claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Lender, two properly completed and executed copies of IRS Form 4224 before the payment of any interest is due in the first taxable year of such Lender and in each succeeding taxable year of such Lender during which interest may be paid under this Agreement; and (iii) such other form or forms as may be required under the Code or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Lender agrees to promptly notify the Agent and the Company of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Lender claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Lender, such Lender agrees to notify the Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of the Company to such Lender. To the extent of such percentage amount, the Agent will treat such Lender's IRS Form 1001 as no longer valid. (c) If any Lender claiming exemption from United States withholding tax by filing IRS Form 4224 with the Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Lender, such Lender agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Code. (d) If any Lender is entitled to a reduction in the applicable withholding tax, the Agent may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. However, if the forms or other documentation required by subsection (a) of this Section are not delivered to the Agent, then the Agent may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax imposed by Sections 1441 and 1442 of the Code, without reduction. (e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered or was not properly executed, or because such Lender failed to notify the Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify the Agent fully for all amounts paid, directly or indirectly, by the Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Agent under this Section, together with all costs and expenses (including Attorney Costs). The obligation of the Lenders under this subsection shall survive the payment of all Obligations and the resignation or replacement of the Agent. 10.11 CO-AGENTS. None of the Lenders identified on the facing page or signature pages of this Agreement as a "co-agent" shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, none of the Lenders so identified as a "co-agent" shall have or be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders so identified in deciding to enter into this Agreement or in taking or not taking action hereunder. ARTICLE XI MISCELLANEOUS 11.01 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of this Agreement or any other Loan Document (other than any Rate Swap Document), and no consent with respect to any departure by the Company or any applicable Subsidiary therefrom, shall be effective unless the same shall be in writing and signed by the Required Lenders (or by the Agent at the written request of the Required Lenders) and the Company and acknowledged by the Agent, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, HOWEVER, that no such waiver, amendment, or consent shall, unless in writing and signed by all the Lenders and the Company and acknowledged by the Agent, do any of the following: (a) increase or extend the Commitment of any Lender (or reinstate any Commitment terminated pursuant to SECTION 9.02); (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) or the Issuer hereunder or under any other Loan Document; (c) reduce the principal of, or the rate of interest specified herein on any Loan, or (subject to clause (iii) below) any fees or other amounts payable hereunder or under any other Loan Document; (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which is required for the Lenders or any of them to take any action hereunder or reduce the percentage specified in the definition of "Required Lenders"; (e) amend this Section, or SECTION 2.15, or any provision herein providing for consent or other action by all Lenders; or (f) discharge all or substantially all of the Guarantors; and, PROVIDED FURTHER, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Issuer in addition to the Required Lenders or all the Lenders, as the case may be, affect the rights or duties of the Issuer under this Agreement or any L/C-Related Document relating to any Letter of Credit Issued or to be Issued by it, (ii) no amendment, waiver or consent shall, unless in writing and signed by the Agent or the Co-Administrative Agent in addition to the Required Lenders or all the Lenders, as the case may be, affect the rights or duties of the Agent or the Co-Administrative Agent under this Agreement or any other Loan Document, (iii) no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Lender in addition to the Required Lenders or all the Lenders, as the case may be, affect the rights or duties of the Swing Line Lender under this Agreement or any other Loan Document, and (iv) either Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed by the parties thereto. 11.02 NOTICES. (a) All notices, requests, consents, approvals, waivers and other communications shall be in writing (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by the Company by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on SCHEDULE 11.02, and (ii) shall be followed promptly by delivery of a hard copy original thereof) and mailed, faxed or delivered, to the address or facsimile number specified for notices on SCHEDULE 11.02; or, as directed to the Company or the Agent, to such other address as shall be designated by such party in a written notice to the other parties, and as directed to any other party, at such other address as shall be designated by such party in a written notice to the Company and the Agent. (b) All such notices, requests and communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the U.S. mail, or if delivered, upon delivery; except that notices pursuant to ARTICLE II, III or X to the Agent or the Co-Administrative Agent shall not be effective until actually received by the Agent or the Co-Administrative Agent, and notices pursuant to ARTICLE III to the Issuer shall not be effective until actually received by the Issuer at the address specified on SCHEDULE 11.02. (c) Any agreement of the Agent and the Lenders herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Company. The Agent and the Lenders shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Company to give such notice and the Agent and the Lenders shall not have any liability to the Company or other Person on account of any action taken or not taken by the Agent or the Lenders in reliance upon such telephonic or facsimile notice. The obligation of the Company to repay the Loans and L/C Obligations shall not be affected in any way or to any extent by any failure by the Agent, the Co-Administrative Agent and the Lenders to receive written confirmation of any telephonic or facsimile notice or the receipt by the Agent, the Co-Administrative Agent and the Lenders of a confirmation which is at variance with the terms understood by the Agent, the Co-Administrative Agent and the Lenders to be contained in the telephonic or facsimile notice. 11.03 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Agent, the Co-Administrative Agent or any Lender, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 11.04 COSTS AND EXPENSES. The Company shall: (a) whether or not the transactions contemplated hereby are consummated, pay or reimburse BofA (including in its capacity as Agent) and the Arranger within five Business Days after demand (subject to SUBSECTION 5.01(e)) for all costs and expenses incurred by BofA (including in its capacity as the Agent) and the Arranger in connection with the development, preparation, delivery, administration, syndication and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including reasonable Attorney Costs incurred by BofA (including in its capacity as the Agent) and the Arranger with respect thereto; (b) pay or reimburse the Agent, the Co-Administrative Agent, the Arranger and each Lender within five Business Days after demand (subject to SUBSECTION 5.01(e)) for all costs and expenses (including Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or any other Loan Document during the existence of an Event of Default or after acceleration of the Loans (including in connection with any "workout" or restructuring regarding the Loans, and including in any Insolvency Proceeding or appellate proceeding); and (c) pay or reimburse BofA (including in its capacity as the Agent) within five Business Days after demand (subject to SUBSECTION 5.01(e)) for all reasonable appraisal (including the allocated cost of internal appraisal services), audit, environmental inspection and review (including the allocated cost of such internal services), search and filing costs, fees and expenses, incurred or sustained by BofA (including in its capacity as the Agent) in connection with the matters referred to under subsections (a) and (b) of this Section. 11.05 COMPANY INDEMNIFICATION. Whether or not the transactions contemplated hereby are consummated, the Company shall indemnify, defend and hold the Agent-Related Persons, the Arranger and each Lender and each of its respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "INDEMNIFIED PERSON") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans, the termination of the Letters of Credit and the termination, resignation or replacement of the Agent or replacement of any Lender or assignment by any Lender of its Loans or Commitments) be imposed on, incurred by or asserted against any Indemnified Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any Insolvency Proceeding or appellate proceeding) related to or arising out of this Agreement or the Loans or Letters of Credit or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "INDEMNIFIED LIABILITIES"); PROVIDED, that the Company shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities resulting solely from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this Section shall survive payment of all other Obligations. 11.06 MARSHALLING; PAYMENTS SET ASIDE. Neither the Agent, the Co-Administrative Agent nor the Lenders shall be under any obligation to marshall any assets in favor of the Company or any other Person or against or in payment of any or all of the Obligations. To the extent that the Company makes a payment to the Agent, the Co-Administrative Agent or the Lenders, or the Agent, the Co-Administrative Agent or the Lenders exercise their right of set-off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Agent, the Co-Administrative Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any Insolvency Proceeding or otherwise, then (a) to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Lender severally agrees to pay to the Agent or the Co-Administrative Agent upon demand its pro rata share of any amount so recovered from or repaid by the Agent or the Co-Administrative Agent. 11.07 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Agent, the Co-Administrative Agent and each Lender. 11.08 ASSIGNMENTS, PARTICIPATIONS, ETC. (a) Any Lender may, with the written consent of the Company at all times other than during the existence of an Event of Default and the Agent, the Swing Line Lender and the Issuer, which consents shall not be unreasonably withheld or delayed, at any time assign and delegate to one or more Eligible Assignees (each an "ASSIGNEE") all, or any part of all, of the Loans, the Commitments, the L/C Obligations and the other rights and obligations of such Lender hereunder, in a minimum amount of $5,000,000 or, if less, the total amount of such Lender's outstanding Loans and/or Commitments (provided that (x) no written consent of the Company, the Agent, the Swing Line Lender or the Issuer shall be required in connection with any assignment and delegation by a Lender to an Eligible Assignee that is an Affiliate of such Lender; PROVIDED, HOWEVER, that the Company, the Agent and the Co-Administrative Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Company, the Agent and the Co-Administrative Agent by such Lender and the Assignee; (ii) such Lender and its Assignee shall have delivered to the Company and the Agent an Assignment and Acceptance in the form of EXHIBIT D ("ASSIGNMENT AND ACCEPTANCE") together with any Note or Notes subject to such assignment and (iii) the assignor Lender or Assignee has paid to the Agent a processing fee in the amount of $3,500. (b) From and after the date that the Agent notifies the assignor Lender that it has received (and, if required, provided its consent with respect to) an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder (including without limitation any obligations under SECTION 10.10) have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents. (c) Within five Business Days after its receipt of notice by the Agent that it has received an executed Assignment and Acceptance and payment of the processing fee, (and, if required, provided that it consents to such assignment in accordance with SUBSECTION 11.08(a)), the Company shall execute and deliver to the Agent new Notes evidencing such Assignee's assigned Loans and Commitment and, if the assignor Lender has retained a portion of its Loans and its Commitment, replacement Notes in the principal amount of the Loans retained by the assignor Lender (such Notes to be in exchange for, but not in payment of, the Notes held by such Lender). Immediately upon each Assignee's making its processing fee payment under the Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments of the assigning Lender PRO TANTO. (d) Any Lender may at any time sell to one or more commercial banks or other Persons not Affiliates of the Company (a "PARTICIPANT") participating interests in any Loans, the Commitment of that Lender and the other interests of that Lender (the "ORIGINATING LENDER") hereunder and under the other Loan Documents; PROVIDED, HOWEVER, that (i) the originating Lender's obligations under this Agreement shall remain unchanged, (ii) the originating Lender shall remain solely responsible for the performance of such obligations, (iii) the Company, each Issuer and the Agent shall continue to deal solely and directly with the originating Lender in connection with the originating Lender's rights and obligations under this Agreement and the other Loan Documents, and (iv) no Lender shall transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment, consent or waiver would require unanimous consent of the Lenders as described in clause (a) (but only in respect of any increase of any Commitment of any Originating Lender), (b) or (c) of the FIRST PROVISO to SECTION 11.01. In the case of any such participation, the Participant shall be entitled to the benefit of SECTIONS 4.01, 4.03 and 11.05 as though it were also a Lender hereunder, and if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement. (e) Notwithstanding any other provision in this Agreement, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and the Notes held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. 11.09 CONFIDENTIALITY. Each Lender agrees to take and to cause its Affiliates to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information identified as "confidential" by the Company and provided to it by the Company or any Subsidiary, or by the Agent on the Company's or such Subsidiary's behalf, under this Agreement or any other Loan Document, and neither it nor any of its Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Loan Documents or in connection with other business now or hereafter existing or contemplated with the Company or any Subsidiary; except to the extent such information (i) was or becomes generally available to the public other than as a result of disclosure by the Lender; or (ii) was or becomes available on a non-confidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with the Company known to the Lender; PROVIDED, HOWEVER, that any Lender may disclose such information (A) at the request or pursuant to any requirement of any Governmental Authority to which the Lender is subject or in connection with an examination of such Lender by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable Requirement of Law; (D) to the extent reasonably required in connection with any litigation or proceeding to which the Agent, the Co-Administrative Agent, any Lender or their respective Affiliates may be party; (E) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; (F) to such Lender's independent auditors and other professional advisors; (G) to any Participant or Assignee, actual or potential, provided that such Person agrees to keep such information confidential to the same extent required of the Lenders hereunder; (H) as to any Lender or its Affiliate, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which the Company or any Subsidiary is party or is deemed party with such Lender or such Affiliate; (I) to its Affiliates; and (J) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about such Lender's investment portfolio in connection with ratings issued with respect to such Lender. 11.10 SET-OFF. In addition to any rights and remedies of the Lenders provided by law, if an Event of Default exists or the Loans have been accelerated, each Lender is authorized at any time and from time to time, without prior notice to the Company, any such notice being waived by the Company to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such Lender to or for the credit or the account of the Company against any and all Obligations owing to such Lender, now or hereafter existing, irrespective of whether or not the Agent or such Lender shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured. Each Lender agrees promptly to notify the Company and the Agent after any such set-off and application made by such Lender; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such set-off and application. 11.11 AUTOMATIC DEBITS OF FEES. With respect to any principal or interest due on the Loans, unreimbursed L/C Obligation, commitment fee, arrangement fee, letter of credit fee or other fee, or any other cost or expense (including Attorney Costs) due and payable to the Agent, the Co-Administrative Agent, the Issuer, BofA, LaSalle or the Arranger under the Loan Documents, the Company hereby irrevocably authorizes BofA or LaSalle to debit any deposit account of the Company with BofA or LaSalle or any of its Affiliates in an amount such that the aggregate amount debited from all such deposit accounts does not exceed such fee or other cost or expense. If there are insufficient funds in such deposit accounts to cover the amount of the fee or other cost or expense then due, such debits will be reversed (in whole or in part, in BofA's or LaSalle's sole discretion) and such amount not debited shall be deemed to be unpaid. No such debit under this Section shall be deemed a set-off. 11.12 NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC. Each Lender shall notify the Agent in writing of any changes in the address to which notices to the Lender should be directed, of addresses of any Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Agent shall reasonably request. 11.13 COUNTERPARTS. This Agreement may be executed in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. 11.14 SEVERABILITY. The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 11.15 NO THIRD PARTIES BENEFITED. This Agreement is made and entered into for the sole protection and legal benefit of the Company, the Lenders, the Agent, the Co-Administrative Agent, the Arranger and the Agent-Related Persons, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. 11.16 GOVERNING LAW AND JURISDICTION. (A) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW OF THE STATE OF ILLINOIS (WITHOUT REGARD TO CONFLICTS OF LAW PROVISIONS THEREOF); PROVIDED THAT THE COMPANY, THE AGENT AND THE LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE AGENT, THE CO-ADMINISTRATIVE AGENT AND THE LENDERS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, THE AGENT, THE CO-ADMINISTRATIVE AGENT AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE AGENT, THE CO-ADMINISTRATIVE AGENT AND THE LENDERS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY ILLINOIS LAW. 11.17 WAIVER OF JURY TRIAL. THE COMPANY, THE LENDERS, THE AGENT AND THE CO-ADMINISTRATIVE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE LENDERS, THE AGENT AND THE CO-ADMINISTRATIVE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 11.18 JUDGMENT. If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder or under any other Loan Document in one currency into another currency, the rate of exchange used shall be that at which in accordance with normal banking procedures the Co-Administrative Agent could purchase the first currency with such other currency on the Business Day preceding that on which final judgment is given. The obligation of the Company in respect of any such sum due from it to the Agent, the Co-Administrative Agent or any Lender hereunder or under the other Loan Documents shall, notwithstanding any judgment in a currency (the "JUDGMENT CURRENCY") other than that in which such sum is denominated in accordance with the applicable provisions of this Agreement (the "AGREEMENT CURRENCY"), be discharged only to the extent that on the Business Day following receipt by the Agent or such Lender of any sum adjudged to be so due in the Judgment Currency, the Agent, the Co-Administrative Agent or such Lender may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency. If the amount of the Agreement Currency so purchased is less than the sum originally due to the Agent, the Co-Administrative Agent or such Lender in the Agreement Currency, the Company agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Agent, the Co-Administrative Agent or such Lender or the Person to whom such obligation was owing against such loss. If the amount of the Agreement Currency so purchased is greater than the sum originally due to the Agent, the Co-Administrative Agent or such Lender in such currency, the Agent, the Co-Administrative Agent or such Lender agrees to return the amount of any excess to the Company (or to any other Person who may be entitled thereto under applicable law). 11.19 ENTIRE AGREEMENT. This Agreement, together with the other Loan Documents, embodies the entire agreement and understanding among the Company, the Lenders and the Agent, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof. 11.20 EURO CURRENCY. (a) If at any time that an Offshore Currency Loan is outstanding, the relevant Offshore Currency is replaced as the lawful currency of the country that issued such Offshore Currency (the "ISSUING COUNTRY") by the Euro then such Offshore Currency Loan shall be automatically converted into a Loan denominated in Euros in a principal amount equal to the amount of Euros into which the principal amount of such Offshore Currency Loan would be converted pursuant to the laws of the Issuing Country and thereafter (i) no further Loans will be available in such Offshore Currency and (ii) all references in the Loan Documents to such Offshore Currency shall be deemed to be the Euro. (b) The Company agrees, at the request of any Lender, to compensate each Lender for any loss, cost, expense or reduction in return that such Lender shall reasonably determine shall be incurred or sustained by such Lender as a result of the implementation of the European Monetary Union and the Euro and that would not have been incurred or sustained by such Lender but for the transactions provided for herein. A certificate of any such Lender setting forth such Lender's determination of the amount or amounts necessary to compensate such Lender shall be delivered to the Co-Administrative Agent for delivery to the Company and shall be conclusive absent manifest error so long as such determination is made by such Lender on a reasonable basis. The Company shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. The agreements and obligations of the Company in this SECTION 11.20 shall survive the payment of all obligations. [signature pages follow] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in Chicago, Illinois by their proper and duly authorized officers as of the day and year first above written. REGIS CORPORATION By:___________________________________ Title:________________________________ BANK OF AMERICA, NATIONAL ASSOCIATION, as Administrative Agent By:___________________________________ Title:________________________________ BANK OF AMERICA, NATIONAL ASSOCIATION, as a Lender By:___________________________________ Title:________________________________ LASALLE BANK, N.A., as Co-Administrative Agent, as a Lender and as Swing Line Lender By:___________________________________ Title:________________________________ THE FIRST NATIONAL BANK OF CHICAGO, as Co-Agent and a Lender By:___________________________________ Title:________________________________ FIRST UNION NATIONAL BANK, as Co-Agent and a Lender By:___________________________________ Title:________________________________ FIRSTAR BANK OF MINNESOTA, N.A. By:___________________________________ Title:________________________________ FLEET NATIONAL BANK By:___________________________________ Title:________________________________ NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By:___________________________________ Title:________________________________ SUNTRUST BANK, CENTRAL FLORIDA, N.A. By:___________________________________ Title:________________________________ SCHEDULE 1.01 EXISTING LETTERS OF CREDIT
- ------------------------------------------------------------------------------- L/C # Amount Expiration Beneficiary - ------------------------------------------------------------------------------- S501478 $740,000 6/30/00 Employers Insurance of Wausau - ------------------------------------------------------------------------------- S501478 150,000 Swiss Francs 10/31/99 Union Bank of Switzerland - ------------------------------------------------------------------------------- S514535 700,000 Canadian Dollars 12/31/99 Union Bank of Switzerland - -------------------------------------------------------------------------------
SCHEDULE 2.01 COMMITMENTS AND PRO RATA SHARES
Lender Commitment Pro Rata - ------ ---------- -------- Bank of America, National Association $28,000,000 15.56% LaSalle Bank, N.A. $28,000,000 15.56% The First National Bank of Chicago $22,000,000 12.22% First Union National Bank $22,000,000 12.22% Firstar Bank of Minnesota, N.A. $20,000,000 11.11% Fleet National Bank $20,000,000 11.11% Norwest Bank of Minnesota, National $20,000,000 11.11% SunTrust Bank, Central Florida, N.A. $20,000,000 11.11% TOTAL $180,000,000 100%
SCHEDULE 6.12 ENVIRONMENTAL MATTERS None SCHEDULE 6.17 SUBSIDIARIES Part A: Supercuts Inc. Trade Secret Inc. The Barbers Hairstyling for Men & Women, Inc. Regis International Ltd. Supercuts Canada Ltd. Regis Hairstylists Ltd. Part B: Equity Investments None SCHEDULE 8.01 PERMITTED LIENS Lien Holders Assets: Maturity: Outstanding Prime Leasing Inc. Various Salon Equipment 3/1/2000 $2.1 million Information Leasing Corp. Various Salon Equipment & 5/31/2004 $6.7 million Warehouse Equipment
Warehouse Equipment includes conveyors and material handling equipment and software. SCHEDULE 8.04 INVESTMENTS None SCHEDULE 8.05 PERMITTED INDEBTEDNESS Creditor: Amount Outstanding: Maturity: Prudential Senior Debt $74 million 1/2/2000 to 7/2/2008 LaSalle Term Notes $11.3 million 7/1/2000 to 9/1/2003 ING Senior Debt $7 million 12/31/2004 Various Acquisition Debt Regis Seller Notes $1.1 million 5/1/2001 Trade Secret Seller Notes $1.6 million 12/1/2000 Supercuts Seller Notes* $.5 million 10/01/2002 Heidi's Seller Note $.25 million 3/1/2009 Prime Capital Term Note* $2.3 million 1/1/2001 Hamilton County Term Note $.5 million 7/9/2007 Capital Lease Obligations Prime Leasing Inc. $2.1 million 3/1/2000 ILC $6.7 million 5/31/2004 UK Overdraft Facility $1.5 million 7/1/2002 (Currently outstanding with Natwest in London)
*Notes are held at the subsidiary level with Supercuts Inc. SCHEDULE 8.08 CONTINGENT OBLIGATION None Schedule 11.02 Offshore and Domestic Lending Offices; Addresses For Notices BANK OF AMERICA, NATIONAL ASSOCIATION, as Administrative Agent Bank of America, National Association Agency Management Services #33759 231 South LaSalle Street Chicago, Illinois 60697 Attention: Vice President Telephone: (312) 828-7933 Facsimile: (312) 828-9102 AGENT'S PAYMENT OFFICE: Bank of America, National Trust Association Agency Management Services #33759 231 South LaSalle Street Chicago, Illinois 60697 Attention: Vice President Telephone: (312) 828-7933 Facsimile: (312) 828-9102 LASALLE BANK, N.A, as Co-Administrative Agent LaSalle Bank, N.A. 135 South LaSalle Street Chicago, Illinois 60603 Attention: Diana Novoa Telephone: (312) 904-1662 Facsimile: (312) 904-4448 CO-ADMINISTRATIVE AGENT'S PAYMENT OFFICE: LaSalle Bank, N.A. 135 South LaSalle Street Chicago, Illinois 60603 Attention: Diana Novoa Telephone: (312) 904-1662 Facsimile: (312) 904-4448 BANK OF AMERICA, NATIONAL ASSOCIATION, as a Lender DOMESTIC AND OFFSHORE LENDING OFFICE: 231 South LaSalle Street Chicago, Illinois 60697 NOTICES (OTHER THAN BORROWING NOTICES AND NOTICES OF CONVERSION/CONTINUATION): Bank of America, National Association 231 South LaSalle Street Chicago, Illinois 60697 Attention: Vice President Telephone: (312) 828-7933 Facsimile: (312) 828-9102 LASALLE BANK, N.A., as a Lender DOMESTIC AND OFFSHORE LENDING OFFICE: 135 South LaSalle Street Chicago, Illinois 60603 NOTICES (OTHER THAN BORROWING NOTICES AND NOTICES OF CONVERSION/CONTINUATION): LaSalle Bank, N.A. 135 South LaSalle Street Chicago, Illinois 60603 Attention: Dana Friedman Telephone: (312) 904-6583 Facsimile: (312) 904-6457 FIRST UNION NATIONAL BANK DOMESTIC AND OFFSHORE LENDING OFFICE: 301 S. College Street Charlotte, North Carolina 28288-0735 NOTICES (OTHER THAN BORROWING NOTICES AND NOTICES OF CONVERSION/CONTINUATION): First Union National Bank 301 S. College Street Charlotte, North Carolina 28288-0735 Attention: Mary Amatore Telephone: (704) 374-2641 Facsimile: (704) 374-7236 FLEET NATIONAL BANK DOMESTIC AND OFFSHORE LENDING OFFICE: One Federal Street Boston, Massachusetts 02110 NOTICES (OTHER THAN BORROWING NOTICES AND NOTICES OF CONVERSION/CONTINUATION): Fleet National Bank One Federal Street Boston, Massachusetts 02110 Attention: Robert Storer Telephone: (617) 346-4223 Facsimile: (617) 346-0595 SUNTRUST, CENTRAL FLORIDA, N.A. - ------------------------------- DOMESTIC AND OFFSHORE LENDING OFFICE: 200 South Orange Avenue Orlando, Florida 32801 NOTICES (OTHER THAN BORROWING NOTICES AND NOTICES OF CONVERSION/CONTINUATION): Sun Trust Bank, Central Florida, N.A. 200 South Orange Avenue Orlando, Florida 32801 Attention: Joseph B. Kabourek Telephone: (407) 237-4284 Facsimile: (407) 237-6894 NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION - -------------------------------------------- DOMESTIC AND OFFSHORE LENDING OFFICE: Sixth and Marquette Minneapolis, Minnesota 55479-0085 NOTICES (OTHER THAN BORROWING NOTICES AND NOTICES OF CONVERSION/CONTINUATION): Norwest Bank Minnesota, National Association Sixth and Marquette Minneapolis, Minnesota 55479-0085 Attention: David Y. Kopolow Telephone: (612) 316-3891 Facsimile: (612) 667-2276 FIRSTAR BANK OF MINNESOTA, N.A. - ------------------------------- DOMESTIC AND OFFSHORE LENDING OFFICE: 101 East 5th Street, 12th Floor Corporate Banking Group St. Paul, Minnesota 55101-1806 NOTICES (OTHER THAN BORROWING NOTICES AND NOTICES OF CONVERSION/CONTINUATION): Firstar Bank of Minnesota 100 East 5th Street, 12th Floor Corporate Banking Group St. Paul, Minnesota 55101-1806 Attention: Kevin L. Campion Telephone: (612) 229-6519 Facsimile: (612) 298-6026 THE FIRST NATIONAL BANK OF CHICAGO - ---------------------------------- DOMESTIC AND OFFSHORE LENDING OFFICES: One First National Plaza Chicago, Illinois 60670 NOTICES (OTHER THAN BORROWING NOTICES AND NOTICES OF CONVERSION/CONTINUATION): The First National Bank of Chicago One First National Plaza Suite 0173 Chicago, Illinois 60670 Attention: J. Garland Smith Telephone: (312) 732-2735 Facsimile: (312) 732-1117 REGIS CORPORATION - ----------------- 7201 Metro Boulevard Minneapolis, Minnesota 55439 Attention: Randy L. Pearce Telephone: (612) 947-7777 Facsimile: (612) 947-7701 EXHIBIT A FORM OF NOTICE OF BORROWING [Date] LaSalle Bank, N.A., as Co-Administrative Agent for the Lenders party to the Credit Agreement referred to below 135 South LaSalle Street Chicago, Illinois Attn:__________________ Ladies and Gentlemen: The undersigned, Regis Corporation, refers to the Credit Agreement, dated as of August 2, 1999 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"; the terms defined therein being used herein as therein defined), among the undersigned, the financial institutions party thereto (the "LENDERS"), LaSalle Bank, N.A., as Co-Administrative Agent and as Swing Line Lender and Bank of America, National Association, as Administrative Agent, and hereby gives you notice pursuant to SECTION 2.03 of the Credit Agreement that the undersigned hereby requests a Borrowing under the Credit Agreement and, in that connection, sets forth below the information relating to such Borrowing, as required by SUBSECTION 2.03(a) of the Credit Agreement: 1. The aggregate amount of the proposed Borrowing is $______________.(1) 2. The requested Borrowing Date for the proposed Borrowing (which is a Business Day) is ______________, ____. 3. The Loans comprising the proposed Borrowing are [Base] [Offshore] Rate Loans [and shall be denominated in [Dollars] [Offshore Currency]]. 4. The duration of the Interest Period for each Offshore Rate Loan made as part of the proposed Borrowing, if applicable, is ___________ months (which shall be 1, 2, 3 or 6 months). __________________ (1) minimum of $500,000 or any multiple of $100,000 in excess thereof. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the proposed Borrowing, before and after giving effect thereto and to the application of the proceeds therefrom: (a) The representations and warranties contained in Article VI of the Credit Agreement are true and correct in all material respects as though made on and as of such date (except to the extent such representations and warranties expressly refer to an earlier date, in which case such representations and warranties are true and correct as of such earlier date); (b) No Default or Event of Default has occurred and is continuing, or would result from such proposed Borrowing; and (c) The proposed Borrowing will not cause the amount of all outstanding Loans to exceed the Aggregate Commitment. Very truly yours, REGIS CORPORATION By:_______________________ Name:_____________________ Title:____________________ -2- EXHIBIT B FORM OF NOTICE OF CONVERSION/CONTINUATION [Date] LaSalle Bank, N.A., as Co-Administrative Agent for the Lenders party to the Credit Agreement referred to below 135 South LaSalle Street Chicago, Illinois Attn: Vice President Ladies and Gentlemen: The undersigned, Regis Corporation, refers to the Credit Agreement, dated as of August 2, 1999 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"; the terms defined therein being used herein as therein defined), among the undersigned, the financial institutions party thereto (the "LENDERS"), LaSalle Bank, N.A., as Co-Administrative Agent and as Swing Line Lender, and Bank of America, National Association, as Administrative Agent, and hereby gives you notice pursuant to SECTION 2.04 of the Credit Agreement that the undersigned hereby requests a [conversion] [continuation] of Loans under the Credit Agreement, and in that connection sets forth below the information relating to such [conversion] [continuation], as required by SUBSECTION 2.04(b) of the Credit Agreement: 1. The date of the proposed [conversion] [continuation] is ______________, ____ (which shall be a Business Day). 2. The aggregate amount of the Loans proposed to be [converted] [continued] is $______________(1). [Specify which part is to be converted and which part is to be continued, if appropriate.] 3. The Loans to be [continued] [converted] are [Base Rate Loans] [Offshore Rate Loans] and the Loans resulting from the proposed [conversion] [continuation] will be [Base Rate Loans] [Offshore Rate Loans]. [If the Loans are to be Offshore Rate Loans, specify whether they will be denominated in Dollars or in Offshore Currency.] ______________________ (1) minimum of $500,000 or any multiple of $100,000 in excess thereof. 4. The duration of the requested Interest Period for each Offshore Rate Loan made as part of the proposed [conversion] [continuation] is ___________ months (which shall be 1, 2, 3 or 6 months). The undersigned hereby certifies that before and after giving effect to the proposed [conversion] [continuation] and to the application of the proceeds therefrom, no Default or Event of Default has occurred and is continuing or would result from such proposed [conversion] [continuation]. Very truly yours, REGIS CORPORATION By:_______________________ Name:_____________________ Title:____________________ -2- EXHIBIT C FORM OF COMPLIANCE CERTIFICATE Bank of America, National Association, as Administrative Agent for the Lenders party to the Credit Agreement referred to below Agency Management Services #33759 231 South LaSalle Street Chicago, Illinois 60697 Attn: Vice President Ladies and Gentlemen: This certificate is furnished to you by Regis Corporation (the "COMPANY"), pursuant to Section 7.02(b) of that certain Credit Agreement, dated as of July __, 1999, among the Company, the financial institutions party thereto (the "LENDERS"), Bank of America, National Association, as Administrative Agent and LaSalle Bank, N.A., as Co-Administrative Agent and as Swingline Lender (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), concurrently with the delivery of the financial statements required pursuant to Section 7.01 of the Credit Agreement. Terms not otherwise defined herein are used herein as defined in the Credit Agreement. The undersigned, on behalf of the Company, hereby certifies that: I. no Default or Event of Default has occurred and is continuing, except as described in Attachment 1 hereto; II. the financial data and computations set forth in Schedule 1 below, evidencing compliance with the covenants set forth in Sections 8.01, 8.02, 8.04, 8.05, 8.08, 8.11, 8.16, 8.17, and 8.18 of the Credit Agreement are true and correct as of ________________, ____(1) (the "COMPUTATION DATE"); and III. if the financial statements of the Company being concurrently delivered were not prepared in accordance with GAAP, Attachment 2 hereto sets forth any derivations required to conform the relevant data in such financial statements to the computations set forth below. _________________________ (1) The last day of the accounting period for which financial statements are being concurrently delivered. The foregoing certifications, together with the computations set forth in Schedule 1 hereto and the financial statements delivered with this Compliance Certificate in support hereof, are made and delivered as of this ________ day of ______________, ____. REGIS CORPORATION By:____________________________ Name:__________________________ Its:________________________(2) _____________________ (2) To be executed by a Responsible Officer of the Company. -2- SCHEDULE 1 COMPUTATIONS - ----------------------------------------------------------------------------------------------------------------------- I. SECTION 8.01 LIMITATION ON LIENS - ----------------------------------------------------------------------------------------------------------------------- A. Section 8.01(g): - ----------------------------------------------------------------------------------------------------------------------- 1. Permitted judgment liens $1,000,000 - ----------------------------------------------------------------------------------------------------------------------- 2. Actual judgment liens $ _______________________ - ----------------------------------------------------------------------------------------------------------------------- B. Section 8.01(i): - ----------------------------------------------------------------------------------------------------------------------- 1. Permitted liens on assets of new Subsidiaries $ 15,000,000 LESS amounts outstanding under paragraphs (C) and (D) below - ----------------------------------------------------------------------------------------------------------------------- 2. Actual liens on assets of new Subsidiaries $ _______________________ - ----------------------------------------------------------------------------------------------------------------------- C. Section 8.01(j): - ----------------------------------------------------------------------------------------------------------------------- 1. Permitted purchase money Indebtedness $15,000,000 LESS amounts (including amounts of Indebtedness outstanding under (B) and permitted pursuant to Section 8.01(d)) (D) - ----------------------------------------------------------------------------------------------------------------------- 2. Actual purchase money Indebtedness $_______________________ - ----------------------------------------------------------------------------------------------------------------------- D. Section 8.01(n): - ----------------------------------------------------------------------------------------------------------------------- 1. Permitted Liens securing miscellaneous $15,000,000 LESS amounts obligations of the Company and its outstanding under (B) and Subsidiaries (C) above - ----------------------------------------------------------------------------------------------------------------------- 2. Actual Liens securing miscellaneous obligations of the Company and its $_______________________ Subsidiaries - ----------------------------------------------------------------------------------------------------------------------- II. SECTION 8.04 LOANS AND INVESTMENTS - ----------------------------------------------------------------------------------------------------------------------- A. Section 8.04(c): - ----------------------------------------------------------------------------------------------------------------------- 1. Aggregate permitted investments in foreign Wholly-Owned Subsidiaries or non-Wholly-Owned Subsidiaries $ 5,000,000 - ----------------------------------------------------------------------------------------------------------------------- 2. Actual aggregate investments in foreign Wholly-Owned Subsidiaries or non-Wholly-Owned Subsidiaries $_______________________ - ----------------------------------------------------------------------------------------------------------------------- B. Section 8.04(e): - ----------------------------------------------------------------------------------------------------------------------- 1. Permitted investments in Joint Ventures $ 10,000,000 - ----------------------------------------------------------------------------------------------------------------------- 2. Actual investments in Joint Ventures $ _______________________ - ----------------------------------------------------------------------------------------------------------------------- -3- - ----------------------------------------------------------------------------------------------------------------------- III. SECTION 8.02 DISPOSITION OF ASSETS - ----------------------------------------------------------------------------------------------------------------------- 1. Permitted asset dispositions under Section 8.02(c): 5% of consolidated total assets of the Company and its $_______________________ Subsidiaries as of the last day of preceding fiscal quarter** $_______________________ 2. Actual such asset dispositions for such period **Note: Must also demonstrate (to the extent calculable) that total asset dispositions for such period do not involve property which is responsible for more than 5% of the consolidated net income of the Company and its Subsidiaries for the 12-month period ending as of the last day of the fiscal quarter next preceding the date of determination. - ----------------------------------------------------------------------------------------------------------------------- IV. SECTION 8.08 CONTINGENT OBLIGATIONS - ----------------------------------------------------------------------------------------------------------------------- 3. Permitted miscellaneous Contingent Obligations $ 10,000,000 - ----------------------------------------------------------------------------------------------------------------------- 4. Actual miscellaneous Contingent Obligations $ _______________________ - ----------------------------------------------------------------------------------------------------------------------- V. SECTION 8.14 DEBT TO CAPITALIZATION RATIO - ----------------------------------------------------------------------------------------------------------------------- 1. Required .50 to 1.0 - ----------------------------------------------------------------------------------------------------------------------- 2. Actual: - ----------------------------------------------------------------------------------------------------------------------- (a) Consolidated Indebtedness as of the date of determination $ _______________________ - ----------------------------------------------------------------------------------------------------------------------- (b) (i) Consolidated Indebtedness as of the date of determination $ _______________________ (ii) Net Worth of the Company $ _______________________ (iii) (i) plus (ii) $ _______________________ - ----------------------------------------------------------------------------------------------------------------------- (c) Ratio of (a) to (b) to 1.0 - ----------------------------------------------------------------------------------------------------------------------- VI. SECTION 8.15 FIXED CHARGE COVERAGE RATIO - ----------------------------------------------------------------------------------------------------------------------- 1. Required 1.5 to 1.0 - ----------------------------------------------------------------------------------------------------------------------- -4- - ----------------------------------------------------------------------------------------------------------------------- 2. Actual: - ----------------------------------------------------------------------------------------------------------------------- (a) EBITDAR for the period of four fiscal quarters ending on the date of determination: (i) Net income (or net loss) $ ______________________ (ii) Amounts treated as expenses for depreciation, $ ______________________ interest and the amortization of intangibles and included in determining net income (or net loss) (iii) Accrued income taxes included in determination of $ ______________________ net income (or net loss) $ ______________________ (iv) Rental expense $ ______________________ (a) store rental payments $ ______________________ (b) common area maintenance payments $ ______________________ (c) real estate taxes paid by the Company and its Subsidiaries $ ______________________ (d) (a) plus (b) plus (c) (v) Lesser of (A) amount of charge in respect of non-recurring expenses taken in the fourth quarter of the Company's 1999 fiscal year with respect to the Company's $ ______________________ acquisition of The Barbers, Hairstylists for Men and Women, Inc. and (B) $14,000,000(3) (vii) (i) plus (ii) plus (iii) plus (iv) plus (v) - ----------------------------------------------------------------------------------------------------------------------- (b) Fixed Charges for the period of four fiscal quarters ending on the date of determination: $ ______________________ (i) interest expense in respect of Indebtedness (ii) Rental expense: (a) store rental payments (b) common area maintenance payments (c) real estate taxes paid by the Company and its Subsidiaries $ ______________________ (d) (a) plus (b) plus (c) $ ______________________ (iii) (i) plus (ii) - ----------------------------------------------------------------------------------------------------------------------- (c) Ratio of (a) to (b) _____ to 1.0 - -----------------------------------------------------------------------------------------------------------------------
- -------------------- (3) Only applicable for measurements through the third quarter of fiscal year 2000; may also include other charges in respect of non-recurring expenses arising in connection with acquisitions, to the extent approved by the Agent and Required Lenders -5- ATTACHMENT 1 DESCRIPTION OF ANY DEFAULTS OR EVENTS OF DEFAULT -6- ATTACHMENT 2 DERIVATIONS REQUIRED TO CONFORM RELEVANT DATA IF FINANCIAL STATEMENTS WERE NOT PREPARED IN ACCORDANCE WITH GAAP -7- EXHIBIT D FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "ASSIGNMENT AND ACCEPTANCE") dated as of ___________, 199_/200_ is made between __________________________ (the "ASSIGNOR") and _________________________ (the "ASSIGNEE"). RECITALS WHEREAS, the Assignor is party to that certain Credit Agreement, dated as of August 2, 1999 (as amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among Regis Corporation (the "COMPANY"), the financial institutions party thereto (including the Assignor, the "LENDERS"), LaSalle Bank, N.A., as Co-Administrative Agent and as Swing Line Lender, and Bank of America, National Association, as Administrative Agent (the "ADMINISTRATIVE AGENT"). Any terms defined in the Credit Agreement and not defined in this Assignment and Acceptance are used herein as defined in the Credit Agreement; WHEREAS, as provided under the Credit Agreement, the Assignor has committed to making Loans to the Company in an aggregate amount not to exceed $___________ (the "COMMITMENT"); WHEREAS, the Assignor wishes to assign to the Assignee [part] [all] of the rights and obligations of the Assignor under the Credit Agreement in respect of its Commitment, which represents its outstanding portion of the Loans in an amount equal to $____________ (the "ASSIGNED AMOUNT") on the terms and subject to the conditions set forth herein and the Assignee wishes to accept assignment of such rights and to assume such obligations from the Assignor on such terms and subject to such conditions; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: 1. ASSIGNMENT AND ACCEPTANCE. (a) Subject to the terms and conditions of this Assignment and Acceptance, (i) the Assignor hereby sells, transfers and assigns to the Assignee, and (ii) the Assignee hereby purchases, assumes and undertakes from the Assignor, without recourse and without representation or warranty (except as provided in this Assignment and Acceptance) __% (the "ASSIGNEE'S PERCENTAGE SHARE") of (A) the Aggregate Commitment and the Loans and (B) all related rights, benefits, obligations, liabilities and indemnities of the Assignor under and in connection with the Credit Agreement and the Loan Documents. [IF APPROPRIATE, ADD PARAGRAPH SPECIFYING PAYMENT TO ASSIGNOR BY ASSIGNEE OF OUTSTANDING PRINCIPAL OF, ACCRUED INTEREST ON, AND FEES WITH RESPECT TO, LOANS ASSIGNED.] (b) With effect on and after the Effective Date (as defined in Section 5 hereof), the Assignee shall be a party to the Credit Agreement and succeed to all of the rights and be obligated to perform all of the obligations of a Lender under the Credit Agreement (including without limitation under Article II thereof), including the requirements concerning confidentiality and the payment of indemnification, with a Commitment in an amount equal to the Assigned Amount. The Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender. It is the intent of the parties hereto that the Commitment of the Assignor shall, as of the Effective Date, be reduced by an amount equal to the Assigned Amount and the Assignor shall relinquish its rights and be released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee; PROVIDED, HOWEVER, the Assignor shall not relinquish its rights under Section 11.05 of the Credit Agreement to the extent such rights relate to the time prior to the Effective Date. (c) After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignee's Commitment will be $____________ [MINIMUM AMOUNT OF $5,000,000 OR, IF LESS, 100% OF THE ASSIGNOR'S OUTSTANDING LOANS AND/OR COMMITMENT]. (d) After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignor's Commitment will be $___________. 2. PAYMENTS. (a) As consideration for the sale, assignment and transfer contemplated in Section 1 hereof, the Assignee shall pay to the Assignor on the Effective Date in immediately available funds an amount equal to $____________, representing the Assignee's Pro Rata Share of the principal amount of Loans. (b) The [Assignor] [Assignee] further agrees to pay to the Agent a processing fee in the amount specified in Section 11.08(a) of the Credit Agreement, if required. 3. REALLOCATION OF PAYMENTS. Any interest, fees and other payments accrued to the Effective Date with respect to the Commitment and Loans shall be for the account of the Assignor. Any interest, fees and other payments accrued on and after the Effective Date with respect to the Assigned Amount shall be for the account of the Assignee. Each of the Assignor and the Assignee agrees that it will hold in trust for the other party any interest, fees and other amounts which it may receive to which the other party is entitled pursuant to the two preceding sentences and pay to the other party any such amounts which it may receive promptly upon receipt. 4. INDEPENDENT CREDIT DECISION. The Assignee (a) acknowledges that it has received a copy of the Credit Agreement and the Schedules and Exhibits thereto, together with copies of the most recent financial statements -2- referred to in Section 7.01 of the Credit Agreement, and such other documents and information as it has deemed appropriate to make its own credit and legal analysis and decision to enter into this Assignment and Acceptance; and (b) agrees that it will, independently and without reliance upon the Assignor, the Administrative Agent, the Co-Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit and legal decisions in taking or not taking action under the Credit Agreement. 5. EFFECTIVE DATE; NOTICES. (a) As between the Assignor and the Assignee, the effective date for this Assignment and Acceptance shall be ____________, _____ (the "EFFECTIVE DATE"); PROVIDED that the following conditions precedent have been satisfied on or before the Effective Date: (i) this Assignment and Acceptance shall be executed and delivered by the Assignor and the Assignee; (ii) the consents of the Administrative Agent and the Company, to the extent required for an effective assignment of the Assigned Amount by the Assignor to the Assignee under Section 11.08(a) of the Credit Agreement, shall have been duly obtained and shall be in full force and effect as of the Effective Date; (iii) the Assignee shall pay to the Assignor all amounts due to the Assignor under this Assignment and Acceptance; (iv) the Assignee shall have complied with Section 11.08 of the Credit Agreement (if applicable); (v) the processing fee referred to in SECTION 2(b) hereof and in Section 11.08(a) of the Credit Agreement shall have been paid to the Administrative Agent, if required; and (vi) the Assignor shall have assigned and the Assignee shall have assumed a percentage equal to the Assignee's Percentage Share of the rights and obligations of the Assignor under the Credit Agreement (if such agreement exists). (b) Promptly following the execution of this Assignment and Acceptance, the Assignor shall deliver to the Company and the Administrative Agent for acknowledgment by the Administrative Agent, a Notice of Assignment substantially in the form attached hereto as SCHEDULE 1. 6. ADMINISTRATIVE AGENT. (a) The Assignee hereby appoints and authorizes each of the Administrative Agent and Co-Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Administrative Agent and the Co-Administrative Agent by the Lenders pursuant to the terms of the Credit Agreement. -3- [(b) The Assignee shall assume no duties or obligations held by the Assignor in its capacity as [Administrative Agent][Co-Administrative Agent] under the Credit Agreement.] [INCLUDE ONLY IF ASSIGNOR IS ADMINISTRATIVE AGENT OR CO-ADMINISTRATIVE AGENT] 7. WITHHOLDING TAX. The Assignee (a) represents and warrants to the Lender, the Administrative Agent, the Co-Administrative Agent and the Company that under applicable law and treaties no tax will be required to be withheld by the Lender with respect to any payments to be made to the Assignee hereunder, (b) agrees to furnish (if it is organized under the laws of any jurisdiction other than the United States or any State thereof) to the Administrative Agent, the Co-Administrative Agent and the Company prior to the time that the Administrative Agent, the Co-Administrative Agent or Company is required to make any payment of principal, interest or fees hereunder, duplicate executed originals of either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein the Assignee claims entitlement to the benefits of a tax treaty that provides for a complete exemption from U.S. federal income withholding tax on all payments hereunder) and agrees to provide a new Form 4224 or 1001 upon the expiration of any previously delivered form or comparable statements in accordance with applicable U.S. law and regulations and amendments thereto, duly executed and completed by the Assignee, and (c) agrees to comply with all applicable U.S. laws and regulations with regard to such withholding tax exemption. 8. REPRESENTATIONS AND WARRANTIES. (a) The Assignor represents and warrants that (i) it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any Lien or other adverse claim; (ii) it is duly organized and existing and it has the full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance and to fulfill its obligations hereunder; (iii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance, and apart from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any Person is required of it for such execution, delivery or performance; and (iv) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignor, enforceable against the Assignor in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles. (b) The Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto. The Assignor makes no representation or warranty in connection with, and assumes no responsibility with respect to, the solvency, financial condition or -4- statements of the Company, or the performance or observance by the Company, of any of its respective obligations under the Credit Agreement or any other instrument or document furnished in connection therewith. (c) The Assignee represents and warrants that (i) it is duly organized and existing and it has full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance, and to fulfill its obligations hereunder; (ii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance; and apart from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any Person is required of it for such execution, delivery or performance; (iii) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignee, enforceable against the Assignee in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles; and (iv) it is an Eligible Assignee. 9. FURTHER ASSURANCES. The Assignor and the Assignee each hereby agree to execute and deliver such other instruments, and take such other action, as either party may reasonably request in connection with the transactions contemplated by this Assignment and Acceptance, including the delivery of any notices or other documents or instruments to the Company, the Administrative Agent or the Co-Administrative Agent which may be required in connection with the assignment and assumption contemplated hereby. 10. MISCELLANEOUS. (a) Any amendment or waiver of any provision of this Assignment and Acceptance shall be in writing and signed by the parties hereto. No failure or delay by either party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof and any waiver of any breach of the provisions of this Assignment and Acceptance shall be without prejudice to any rights with respect to any other or further breach thereof. (b) All payments made hereunder shall be made without any set-off or counterclaim. (c) The Assignor and the Assignee shall each pay its own costs and expenses incurred in connection with the negotiation, preparation, execution and performance of this Assignment and Acceptance. (d) This Assignment and Acceptance may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. -5- (e) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS (WITHOUT REGARD TO CONFLICTS OF LAW PROVISIONS THEREOF). The Assignor and the Assignee each irrevocably submits to the non-exclusive jurisdiction of any State or Federal court sitting in Illinois over any suit, action or proceeding arising out of or relating to this Assignment and Acceptance and irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such Illinois State or Federal court. Each party to this Assignment and Acceptance hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. (f) THE ASSIGNOR AND THE ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS ASSIGNMENT AND ACCEPTANCE, THE CREDIT AGREEMENT, ANY RELATED DOCUMENTS AND AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, OR STATEMENTS (WHETHER ORAL OR WRITTEN). [OTHER PROVISIONS TO BE ADDED AS MAY BE NEGOTIATED BETWEEN THE ASSIGNOR AND THE ASSIGNEE, PROVIDED THAT SUCH PROVISIONS ARE NOT INCONSISTENT WITH THE CREDIT AGREEMENT.] -6- IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Assignment and Acceptance to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By:_________________________ Name:_______________________ Title:______________________ Address:____________________ [ASSIGNEE] By:_________________________ Name:_______________________ Title:______________________ Address:____________________ -7- SCHEDULE 1 NOTICE OF ASSIGNMENT AND ACCEPTANCE [Date] Bank of America, National Association, as Administrative Agent for the Lenders party to the Credit Agreement referred to below Agency Management Services #33499 231 South LaSalle Street Chicago, Illinois 60697 Attn: Vice President Regis Corporation 2201 Metro Boulevard Minneapolis, Minnesota 55439 Attn: Randy L. Pearce Ladies and Gentlemen: We refer to the Credit Agreement, dated as of August 2, 1999 (as amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among Regis Corporation (the "COMPANY"), the financial institutions party thereto (the "LENDERS"), Bank of America, National Association, as Administrative Agent (the "ADMINISTRATIVE AGENT") and LaSalle Bank, N.A., as Co-Administrative Agent. Terms defined in the Credit Agreement are used herein as therein defined. 1. We hereby give you notice of, and request your consent to, the assignment by ____________ (the "ASSIGNOR") to _________________ (the "ASSIGNEE") of _____% of the right, title and interest of the Assignor in and to the Credit Agreement (including, without limitation, the right, title and interest of the Assignor in and to the Commitment of the Assignor and all outstanding Loans made by the Assignor pursuant to the Assignment and Acceptance Agreement attached hereto (the "ASSIGNMENT AND ACCEPTANCE"). Before giving effect to such assignment the Assignor's Commitment is $____________ and the aggregate amount of its outstanding Loans is $___________. 2. The Assignee agrees that, upon receiving the consent of the Administrative Agent and the Company, to the extent required, to such assignment, the Assignee will be bound by the terms of the Credit Agreement as fully and to the same extent as if the Assignee were the Lender originally holding such interest in the Credit Agreement. -8- 3. The following administrative details apply to the Assignee: (A) Notice Address: Assignee name:______________________________ Address:____________________________________ Attention:__________________________________ Telephone: (___)____________________________ Fax No.: (___)____________________________ (B) Payment Instructions: Account No.:________________________________ At:_____________________________ Reference:__________________________________ Attention:__________________________________ 4. You are entitled to rely upon the representations, warranties and covenants of each of the Assignor and Assignee contained in the Assignment and Acceptance. -9- IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Notice of Assignment and Acceptance to be executed by their respective duly authorized officials, officers or agents as of the date first above mentioned. Very truly yours, [NAME OF ASSIGNOR] By:________________________ Name:______________________ Title:_____________________ [NAME OF ASSIGNEE] By:________________________ Name:______________________ Title:_____________________ ACKNOWLEDGED AND ASSIGNMENT CONSENTED TO: BANK OF AMERICA, NATIONAL ASSOCIATION, as Administrative Agent By:________________________ Name:______________________ Title:_____________________ REGIS CORPORATION By:________________________ Name:______________________ Title:_____________________ -10- EX-13 3 EXHIBIT 13 SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The following table sets forth, for the periods indicated, selected financial data derived from the Company's consolidated financial statements.
1999 1998 1997 1996 1995 Revenues $ 974,872 $ 848,444 $ 756,242 $ 654,642 $ 556,616 Operating income (a) 62,802 63,816 31,555 28,624 28,108 Net income (a) 30,346 32,699 8,258 11,077 12,366 Net income per diluted share (a) .76 .84 .22 .30 .35 Total assets 493,624 402,914 349,892 317,481 256,332 Long-term debt, including current portion 166,986 126,628 120,242 107,061 90,975 Dividends declared $ .10 $ .06 $ .05 $ .05
(a) The following information is provided to facilitate comparisons of operating income, net income and net income per diluted share, absent the impact of certain nonrecurring activities (See Note 10 to the consolidated financial statements). Exclusive of nonrecurring items, operating income would have been $78,935, $65,795, $50,286 and $41,447 in 1999, 1998, 1997 and 1996, respectively. Exclusive of nonrecurring items, net income and net income per diluted share, respectively, would have been $41,901 and $1.05 in 1999; $33,811 and $.87 in 1998; $23,021 and $.61 in 1997; $18,607 and $.51 in 1996; and $11,661 and $.33 in 1995. KEY RATIOS
For the Years Ended June 30, 1999 1998 1997 Net income per diluted share exclusive of goodwill amortization* 1.20 1.00 0.72 Gross margin percentage 43.5 % 43.2 % 42.4 % Salon contribution percentage 17.7 % 17.1 % 15.8 % Product sales mix 28.4 % 28.2 % 26.9 % Operating income as a percent of revenues* 8.1 % 7.8 % 6.6 % Debt-to-capitalization ratio 41.4 % 39.0 % 43.5 % * Excludes nonrecurring items (see Note 10 to the consolidated financial statements)
ANNUAL RESULTS The following table sets forth for the periods indicated certain information derived from the Company's consolidated statement of operations expressed as a percent of revenues. The percentages are computed as a percent of total Company revenues, except as noted.
For the Years Ended June 30, 1999 1998 1997 Company-owned service revenues (1) 71.6% 71.8 % 73.1 % Company-owned product revenues (1) 28.4 28.2 26.9 Franchise revenue 4.9 5.4 5.8 Company-owned operations: Profit margins on service (2) 42.4 42.3 41.4 Profit margins on product (3) 46.2 45.4 45.1 Direct salon (1) 8.6 8.9 9.3 Rent (1) 13.8 13.9 13.9 Depreciation (1) 3.3 3.3 3.4 Direct salon contribution (1) 17.7 17.1 15.8 Selling, general and administrative 11.3 11.5 11.8 Depreciation and amortization 1.3 1.2 1.1 Nonrecurring items 1.7 0.2 2.5 Operating income 6.4 7.5 4.2 Income before income taxes 5.4 6.4 3.0 Net income 3.1 3.9 1.1 Operating income, excluding nonrecurring items 8.1 7.8 6.6 Net income, excluding nonrecurring items 4.3 4.0 3.0
(1) Computed as a percent of company-owned revenues (2) Computed as a percent of service revenues (3) Computed as a percent of product revenues 12 Regis Corporation 1999 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SUMMARY Regis Corporation, based in Minneapolis, is the largest owner, operator, franchisor and consolidator of hair and retail product salons in the world. The Regis worldwide operations include 4,954 hairstyling salons at June 30, 1999 operating in two segments: domestic and international. The Company's domestic segment includes 4,650 salons operating primarily under the brand names of Regis Salons, MasterCuts, Trade Secret, SmartStyle, Supercuts and Cost Cutters. The Company's international operations include 304 salons located in the United Kingdom. The Company has more than 31,000 employees worldwide. During fiscal 1999, the Company's consolidated revenues increased 14.9 percent to $974.9 million. Exclusive of nonrecurring items, operating income grew 20.0 percent to $78.9 million and net income per diluted share increased 20.7 percent to $1.05 per share, compared to $.87 per share in the prior year. During fiscal 1998, the Company's consolidated revenues increased 12.2 percent to a record $848.4 million. Exclusive of nonrecurring items, operating income grew 30.8 percent to $65.8 million and net income per diluted share increased 42.6 percent to $.87 per share, compared to $.61 per share in the prior year. Financial data presented for fiscal 1998 and 1997 reflect the retroactive effects of the March 1999 merger with Heidi's, Inc. (Heidi's) and the May 1999 merger with The Barbers, Hairstyling for Men & Women, Inc. (The Barbers) which were accounted for as poolings-of interests (see Note 3 to the Consolidated Financial Statements). The financial statements have been prepared by combining the historical financial statements of Regis Corporation with those of Heidi's and The Barbers for each of these periods. RESULTS OF OPERATIONS REVENUES Revenues in fiscal 1999 grew to a record $974.9 million, an increase of $126.4 million, or 14.9 percent, over fiscal 1998. Approximately 30 percent of this increase is attributable to increases in same-store sales, with the remaining increase due to net salon openings and acquisitions occurring in fiscal 1999 and the full year impact of fiscal 1998 net salon openings and acquisitions. Mall based and strip center salon operations in the United States and Canada (Domestic salons) accounted for $129.9 million of the increase in total revenues. Franchise income increased $1.8 million due to an increase in sales of franchised salons. These increases were offset by a decrease in revenue from the Company's International operations. During fiscal 1999, the Company closed or disposed of its salon operations in South Africa, Mexico, Ireland, Switzerland and France which resulted in a decrease in revenues when compared to fiscal 1998. BUSINESS MIX (DOLLARS IN THOUSANDS) 1999 1998 1997 Domestic: Regis $356,473 $319,404 $297,454 MasterCuts $123,454 $107,821 $ 94,963 Trade Secret $136,874 $115,024 $ 91,412 Wal-Mart $ 63,480 $ 45,908 $ 34,625 Strip Centers $145,888 $108,146 $ 94,904 Franchise Income $ 47,732 $ 45,965 $ 43,536 International: $100,971 $106,176 $ 99,848 -------- -------- -------- $974,872 $848,444 $756,242 ======== ======== ======== REGIS CORPORATION 1999 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION During fiscal 1999, same-store sales from all Domestic company-owned salons open more than 12 months increased 5.6 percent, compared to increases of 5.8 percent and 3.1 percent in fiscal 1998 and 1997, respectively. Same-store sales for the United Kingdom salons (U.K. salons) increased 1.2 percent in fiscal 1999. Same-store sales increases achieved during fiscal 1999, 1998 and 1997 were driven primarily by increased customer transactions and market based price increases in certain salon divisions. A total of 98 million customers were served in fiscal 1999 compared to 91 million and 85 million customers served in fiscal 1998 and 1997, respectively. The Company utilizes an audiovisual-based training system in its salons. Management believes this training system provides its employees with improved customer service and technical skills, and positively contributes to the increase in customers served. System-wide sales, inclusive of non-consolidated sales generated from franchisee salons, grew to $1.5 billion, $1.3 billion, and $1.1 billion in fiscal 1999, 1998 and 1997, representing increases of 15.4 percent, 18.2 percent and 10.0 percent, respectively. The increase in system-wide sales in fiscal 1999 and 1998 was the result of same-store sales increases from existing salons and net salon openings as well as the total number of salons added to the system through acquisitions. System-wide same-store sales increased 5.4 percent, 5.3 percent and 2.6 percent in fiscal 1999, 1998 and 1997, respectively. SERVICE REVENUES increased to $663.5 million, $576.5 million and $521.0 million for 1999, 1998 and 1997. The growth in service revenues of 15.1 percent and 10.7 percent in fiscal 1999 and 1998, respectively, was driven by acquisitions, same store-sales growth, and accelerated new salon construction. PRODUCT REVENUES increased to $263.7 million, $226.0 million and $191.7 million in fiscal 1999, 1998 and 1997. The growth in product revenue of 16.7 percent and 17.9 percent in fiscal 1999 and 1998, respectively, continues a trend of escalating product revenues due to strong product same-store sales growth, a reflection of continuous focus on product awareness, training and acceptance of national label merchandise and opening an additional 108 Trade Secret salons through new construction or acquisitions between the two periods. In fiscal 1999, product revenues as a percent of total company-owned revenues increased to 28.4 percent of revenues, compared to 28.2 percent and 26.9 percent of revenues in 1998 and 1997, respectively. FRANCHISE REVENUE, including royalties and initial franchise fees from franchisees, and product and equipment sales made by the Company to franchisees, increased 3.8 percent in fiscal 1999 to $47.7 million from $46.0 million in fiscal 1998. In fiscal 1998, franchise revenue increased 5.6 percent, or $2.4 million, compared to fiscal 1997. The increase in franchise revenue in 1999 and 1998 is primarily the result of an increase in royalties on increased franchise sales, which sales are not included in the Company's consolidated revenues and an increase in product and equipment sales to franchisees. REVENUES INCREASED 15 PERCENT FROM 1998. REVENUE COMPONENTS 5 YEAR COMPOUND ANNUAL GROWTH RATE: 14.7% $ MILLIONS 1997 1998 1999 Service 521.0 576.5 663.5 Product 191.7 226.0 263.7 Franchise 43.5 45.9 47.7 Total $756.2 $848.4 $974.9 14 REGIS CORPORATION 1999 COST OF REVENUE The aggregate cost of product and service revenues in fiscal 1999 was $524.1 million, compared to $455.7 million and $410.8 million in fiscal 1998 and 1997, respectively. As discussed in the following paragraphs, the resulting gross margin percentage for fiscal 1999 improved to 43.5 percent of company-owned revenues compared to 43.2 percent and 42.4 percent of company-owned revenues in fiscal 1998 and 1997. SERVICE MARGINS for fiscal 1999 improved 10 basis points to 42.4 percent of company-owned revenues, compared to 42.3 percent and 41.4 percent in the two preceding fiscal years. This continued improvement was driven by ongoing efforts by the Company to control payroll costs in all operating divisions and growth in the mix of the Company's higher service margin salon concepts, primarily Supercuts, MasterCuts and Wal-Mart/SmartStyle. PRODUCT MARGINS for fiscal 1999 improved to 46.2 percent of company-owned revenues, compared to 45.4 percent and 45.1 percent in fiscal 1998 and 1997. This 80 basis point improvement was primarily driven by lower product costs in Supercuts and Trade Secret salons resulting from the benefit of Regis' purchasing power. Fiscal 1998 product margins also benefited from lower product costs, primarily in the Supercuts and Wal-Mart/SmartStyle salons. COMBINED GROSS MARGINS CONTINUED TO IMPROVE IN 1999. COMBINED GROSS MARGINS 1997 1998 1999 42.4% 43.2% 43.5% DIRECT SALON This expense category includes direct costs associated with salon operations such as advertising, promotion, insurance, telephone and utilities. Direct salon expenses were $80.0 million in fiscal 1999, compared to $71.7 million and $66.3 million in fiscal 1998 and 1997, and improved as a percent of company-owned revenue to 8.6 percent, compared to 8.9 percent and 9.3 percent in fiscal 1998 and 1997. The fiscal 1999 improvement in direct salon expenses is a result of the Company's increased ability to leverage these costs against strong same-store sales and a maturing salon base. The fiscal 1998 improvement in direct salon expenses was due to the closures of under-performing stores, primarily Supercuts salons, as well as sales leverage. DIRECT SALON CONTRIBUTION INCREASED 60 BASIS POINTS OVER 1998. DIRECT SALON CONTRIBUTION 1997 1998 1999 15.8% 17.1% 17.7% RENT Rent expense in fiscal 1999 was $127.9 million, compared to $111.8 million and $99.0 million in fiscal 1998 and 1997. Rent expense in fiscal 1999 increased 14.4 percent or $16.1 million from fiscal 1998. Rent expense in fiscal 1999 improved 10 basis points to 13.8 percent of company-owned revenues compared to 13.9 percent in fiscal 1998 and 1997, respectively. The slight improvement is a result of leveraging this fixed cost against same-store sales increases. DEPRECIATION--SALON LEVEL Depreciation expense at the salon level remained consistent in fiscal 1999 at 3.3 percent of revenues compared to 3.3 percent and 3.4 percent in fiscal 1998 and 1997. REGIS CORPORATION 1999 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION DIRECT SALON CONTRIBUTION For reasons previously discussed, direct salon contribution, representing company-owned salon revenues less associated operating expenses, improved in fiscal 1999 to $164.2 million or 17.7 percent of company-owned revenues, compared to $137.0 million or 17.1 percent in fiscal 1998 and $112.5 million or 15.8 percent in fiscal 1997. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative (SG&A) expenses include field supervision (payroll, related taxes and travel) and home office administration costs (such as warehousing, salaries, occupancy costs and professional fees). SG&A expenses increased $12.5 million in fiscal 1999 to $110.3 million, compared to $97.9 million in fiscal 1998, but improved as a percent of total revenue to 11.3 percent in 1999 from 11.5 percent and 11.8 percent in fiscal 1998 and 1997, respectively. The 20 basis point improvement in SG&A in 1999 is a result of the Company's ability to leverage the fixed cost components of this category against revenue increases. The 30 basis point improvement in SG&A in fiscal 1998 was primarily driven by cost reductions associated with the amalgamation of the Supercuts administrative office functions. DEPRECIATION AND AMORTIZATION--CORPORATE Depreciation and amortization--corporate was 1.3 percent of total revenues in 1999, compared to 1.2 percent and 1.1 percent of total revenues in fiscal 1998 and 1997, respectively. Amortization expense increased in fiscal 1999 and 1998 due to the increased level of goodwill, associated with the Company's salon acquisition activity. Fiscal 1999 depreciation expense increased over fiscal 1998 and 1997, primarily due to increased depreciation levels associated with the Company's fiscal 1998 purchases of additional corporate office buildings and new distribution center. NONRECURRING ITEMS See Note 10 to the Consolidated Financial Statements. OPERATING INCOME Operating income in fiscal 1999 was $62.8 million, compared to $63.8 million in fiscal 1998. Fiscal 1999 operating income was impacted by merger and transaction costs associated with the Heidi's and The Barbers mergers, a nonrecurring charge related to restructuring the Company's International operations and nonrecurring costs associated with the Company's year 2000 remediation program. Operating income increased to $63.8 million in 1998 from $31.6 million in fiscal 1997. Fiscal 1997 was significantly affected by Supercuts-related merger and transaction costs, and restructuring charges (nonrecurring items). Exclusive of nonrecurring items, operating income in fiscal 1999 improved 20.0 percent to $78.9 million, or 8.1 percent of revenues, compared to $65.8 million and $50.3 million in fiscal 1998 and 1997, respectively. The annual improvements were driven by improved gross margins and the overall leveraging of fixed costs. OPERATING INCOME INCREASED 20% OVER 1998. OPERATING INCOME $ MILLIONS EXCLUDING NONRECURRING ITEMS 1997 1998 1999 $50.3 $65.8 $78.9 16 REGIS CORPORATION 1999 INTEREST Interest expense in fiscal 1999 was $11.6 million, compared to $10.5 million and $10.7 million in fiscal 1998 and 1997, representing 1.2 percent, 1.2 percent and 1.4 percent of total revenues, respectively. Although debt levels have increased, interest expense as a percent of sales has remained relatively consistent due to the benefit of reduced interest rates and the Company's ability to leverage this cost against revenue increases. INCOME TAXES The Company's effective tax rate in fiscal 1999 was 42.5 percent of pre-tax income compared to 39.9 percent and 63.1 percent in fiscal 1998 and 1997. In fiscal 1999, the Company's effective tax rate was negatively impacted by nondeductible merger and transaction costs associated with the Company's mergers with Heidi's and The Barbers, and the U.K. restructuring charges. In fiscal 1997, the Company's effective tax rate was negatively affected by nondeductible merger and transaction costs associated with the Supercuts merger. Exclusive of nonrecurring items, the Company's effective tax rate was 39.2 percent, 39.9 percent and 42.7 percent, respectively, in fiscal 1999, 1998 and 1997. In fiscal 1999, the Company's effective tax rate benefited from net operating losses utilized by Heidi's, Inc. prior to the merger and an increase in international pre-tax income during the fourth quarter of fiscal 1999 which is taxed at a lower rate. The fiscal 1997 effective tax rate was negatively affected by the Company's inability to fully utilize the income tax benefits of Supercuts operating costs in certain states. Additionally, as part of its June 30, 1997 income tax provision, the Company recorded a $1.5 million change in estimate associated with income tax matters related to years prior to 1997. NET INCOME Net income in fiscal 1999 was $30.3 million, or $0.76 per diluted share, compared to net income of $32.7 million, or $.84 per diluted share, in fiscal 1998, and $8.3 million, or $.22 per diluted share, in fiscal 1997. Exclusive of nonrecurring items, net income in fiscal 1999 increased to a record $41.9 million, or $1.05 per diluted share, compared to net income, exclusive of nonrecurring items, of $33.8 million, or $.87 per diluted share, in fiscal 1998 and $23.0 million, or $.61 per diluted share in fiscal 1997. Earnings per diluted share, exclusive of nonrecurring items, increased 20.7 percent and 42.6 percent in fiscal 1999 and 1998, respectively. These increases primarily resulted from sales increases, improved gross margins and leveraging of fixed costs, as previously discussed. EARNINGS PER SHARE INCREASED 21% OVER 1998. EARNINGS PER SHARE DILUTED EXCLUDING NONRECURRING ITEMS 1997 1998 1999 $0.61 $0.87 $1.05 REGIS CORPORATION 1999 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION EFFECTS OF INFLATION The Company compensates its Regis and International salon employees with percentage commissions based on sales they generate, thereby enabling salon payroll expense as a percent of revenues to remain relatively constant. Accordingly, this provides the Company certain protection against inflationary increases as payroll expense and related benefits (the Company's major expense components) are, with respect to these divisions, variable costs of sales. The Company does not believe inflation, due to its low rate, has had a significant impact on the results of operations associated with hourly paid hairstylists for the remainder of its mall-based and strip center salons. LIQUIDITY AND CAPITAL RESOURCES Customers pay for salon services and merchandise in cash at the time of sale, which reduces the Company's working capital requirements. Net cash provided by operating activities in fiscal 1999 rose to $72.2 million compared to $70.7 million in fiscal 1998. The increase in fiscal 1999 is due to improved operating performance during the year partially offset by cash paid for merger costs associated with The Barbers and Heidi's mergers of $3.0 million and the U.K. restructuring of $.3 million. CAPITAL EXPENDITURES AND ACQUISITIONS During fiscal 1999, the Company had worldwide capital expenditures of $76.2 million, of which $6.4 million related to acquisitions of 280 salons and $3.5 million for equipment acquired under capital leases. During fiscal 1999, the Company constructed 282 new salons. The Company also completed 95 major remodeling projects. All capital expenditures during fiscal 1999 were funded by the Company's operations and borrowings under its revolving credit facility. NEW SALON CONSTRUCTION 1999 Regis 41 MasterCuts 47 Trade Secret 44 Wal-Mart/SmartStyle 78 Strip Centers (primarily Supercuts) 60 International 12 The Company anticipates its worldwide salon development program for fiscal 2000 will include approximately 360 new salons and 125 major remodeling and conversion projects. It is expected that expenditures for these new salons and other projects will be approximately $66.0 million in fiscal 2000, excluding capital expenditures associated with acquisitions. PROJECTED SALON CONSTRUCTION 2000 Regis 50 MasterCuts 50 Trade Secret 45 Wal-Mart/SmartStyle 120 Strip Centers (primarily Supercuts) 85 International 10 FINANCING Financing activities are discussed in Note 4 to the Consolidated Financial Statements. Subsequent to the company's fiscal 1999 year end, the Company replaced both of its existing revolving credit facilities with a new senior credit facility which allows for borrowings of $180 million due in July, 2002, and bears interest at prime rate or LIBOR rate plus .50 percent to 1.00 percent, based on the Company's debt to capitalization ratio. Merger and transaction costs are discussed in Note 3 to the Consolidated Financial Statements. Nonrecurring items are discussed in Note 10 to the Consolidated Financial Statements. 18 REGIS CORPORATION 1999 The Company translates the financial statements of its international subsidiaries to U.S. dollars for financial reporting purposes, and accordingly is subject to fluctuations in currency exchange rates. Management believes that cash generated from operations and amounts available under its existing debt facilities will be sufficient to fund its anticipated capital expenditures and required debt repayments for the foreseeable future. DIVIDENDS In February 1999, the board of directors approved a three-for-two stock split of its common stock in the form of a 50 percent stock dividend distributed on March 1, 1999 to shareholders of record on February 15, 1999. All share and per share amounts have been restated to reflect the stock split. The Company paid dividends of $.10 per share during fiscal 1999 and $.06 per share during fiscal 1998. On August 24, 1999 the Board of Directors of the Company declared a $.03 per share quarterly dividend payable September 22, 1999 to shareholders of record on September 7, 1999. RETURN ON EQUITY INCREASED 20 BASIS POINTS IN 1999. RETURN ON EQUITY NET INCOME BEFORE NONRECURRING ITEMS AS A PERCENT OF AVERAGE EQUITY 1997 1998 1999 16.0% 19.1% 19.3% YEAR 2000 The Company previously initiated a comprehensive project to prepare its computer systems for the Year 2000. The Company has completed all phases of the project including the awareness, assessment, validation and implementation phases. Accordingly, management believes the Year 2000 will not have a significant impact on operations. As part of the overall project, the Company is in the process of developing a contingency plan to mitigate the Company's risk that primary vendors or other external forces could have an impact on the Company's operations. Costs associated with the Year 2000 are expensed as incurred and are funded through operating cash flows. The Company has incurred $4.6 million related to Year 2000 project costs from the project's inception in fiscal 1998 through fiscal 1999, of which $4.1 million was incurred and charged to earnings during fiscal 1999. No significant additional costs are anticipated to be incurred in the future. The Company has contacted critical suppliers of products and services to assess whether the suppliers' operations and the products and services they provide are Year 2000 compliant or to monitor their progress toward Year 2000 compliance. The results of the Company's inquiries have indicated that the majority of our critical suppliers are either compliant or have a plan in place to be compliant by the end of 1999. There can be no absolute assurance that another company's failure to ensure Year 2000 compliance would not have an adverse effect on the Company. REGIS CORPORATION 1999 19 CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JUNE 30 1999 1998 ASSETS Current assets: Cash $ 7,351 $ 7,678 Receivables, net 16,506 14,414 Inventories 70,056 56,030 Deferred income taxes 8,596 6,429 Other current assets 10,570 6,818 ----------------------------- Total current assets 113,079 91,369 Property and equipment, net 213,299 181,107 Goodwill 153,954 119,042 Other assets 13,292 11,396 ----------------------------- Total assets $ 493,624 $ 402,914 ============================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Long-term debt, current portion $ 23,945 $ 20,091 Accounts payable 22,754 25,394 Accrued expenses 53,310 43,595 ----------------------------- Total current liabilities 100,009 89,080 Long-term debt 143,041 106,537 Other noncurrent liabilities 14,377 8,939 Commitments (Note 5) Shareholders' equity: Common stock, $.05 par value; issued and outstanding, 38,641,122 and 38,238,121 common shares at June 30, 1999 and 1998, respectively 1,932 1,275 Additional paid-in capital 148,591 138,677 Accumulated other comprehensive loss (1,148) (1,677) Retained earnings 86,822 60,083 ----------------------------- Total shareholders' equity 236,197 198,358 ----------------------------- Total liabilities and shareholders' equity $ 493,624 $ 402,914 =============================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 20 REGIS CORPORATION 1999 CONSOLIDATED STATEMENT OF OPERATIONS (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED JUNE 30 1999 1998 1997 Revenues: Company-owned salons: Service $ 663,426 $ 576,497 $ 520,990 Product 263,714 225,982 191,716 ---------------------------------------------- 927,140 802,479 712,706 Franchise income 47,732 45,965 43,536 ---------------------------------------------- 974,872 848,444 756,242 ---------------------------------------------- Operating expenses: Company-owned: Cost of service 382,080 332,360 305,550 Cost of product 142,002 123,323 105,242 Direct salon 79,979 71,661 66,315 Rent 127,876 111,758 99,037 Depreciation 31,024 26,361 24,027 ---------------------------------------------- 762,961 665,463 600,171 Selling, general and administrative 110,336 97,875 88,963 Depreciation and amortization 12,983 10,012 8,403 Nonrecurring items 16,133 1,979 18,731 Other 9,657 9,299 8,419 ---------------------------------------------- Total operating expenses 912,070 784,628 724,687 ---------------------------------------------- Operating income 62,802 63,816 31,555 Other income (expense): Interest (11,576) (10,492) (10,674) Other, net 1,507 1,104 1,519 ---------------------------------------------- Income before income taxes 52,733 54,428 22,400 Income taxes (22,387) (21,729) (14,142) ---------------------------------------------- Net income $ 30,346 $ 32,699 $ 8,258 ============================================== Net income per share: Basic $ .79 $ .87 $ .23 ============================================== Diluted $ .76 $ .84 $ .22 ============================================== Weighted average common and common equivalent shares outstanding 39,740 38,826 37,489 ==============================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. REGIS CORPORATION 1999 21 CONSOLIDATED STATEMENTS OF CHANGES ON SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
ACCUMULATED COMMON STOCK ADDITIONAL OTHER PAID-IN COMPREHENSIVE RETAINED COMPREHENSIVE SHARES AMOUNT CAPITAL INCOME (LOSS) EARNINGS TOTAL INCOME Balance, June 30, 1996 24,173,835 $ 1,209 $ 110,595 $ (2,088) $ 22,963 $ 132,679 Net income 8,258 8,258 $ 8,258 Foreign currency translation adjustments 739 739 739 Proceeds from sale of common stock 500,000 25 11,100 11,125 Proceeds from exercise of stock options 271,082 14 3,696 3,710 Shares issued under company- sponsored programs 15,058 1 237 238 Tax benefit realized upon exercise of stock options 853 853 Dividends (1,722) (1,722) ------------------------------------------------------------------------------------------- Balance, June 30, 1997 24,959,975 1,249 126,481 (1,349) 29,499 155,880 $ 8,997 ========== Net income 32,699 32,699 32,699 Foreign currency translation adjustments (328) (328) (328) Proceeds from sale of common stock 400,000 20 10,390 10,410 Proceeds from exercise of stock options 124,605 6 1,348 1,354 Shares issued under company- sponsored programs 4,415 61 61 Tax benefit realized upon exercise of stock options 397 397 Dividends (2,115) (2,115) ------------------------------------------------------------------------------------------- Balance, June 30, 1998 25,488,995 1,275 138,677 (1,677) 60,083 198,358 $ 32,371 ========== Net income 30,346 30,346 30,346 Foreign currency translation adjustments 529 529 529 Less: Reclassification adjustment for translation losses realized in net income (964) Stock split effected in the form of a stock dividend 12,741,490 637 (637) Proceeds from exercise of stock options 309,929 15 3,794 3,809 Shares issued under company- sponsored programs 17,941 1 235 236 Shares issued in connection with salon acquisitions 82,767 4 2,103 2,107 Tax benefit realized upon exercise of stock options 1,389 1,389 Contribution of shareholder debt to capital 3,030 3,030 Dividends (3,607) (3,607) ------------------------------------------------------------------------------------------- Balance, June 30, 1999 38,641,122 $ 1,932 $ 148,591 $ (1,148) $ 86,822 $ 236,197 $ 29,911 ===========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 22 REGIS CORPORATION 1999 CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEARS ENDED JUNE 30 1999 1998 1997 Cash flows from operating activities: Net income $ 30,346 $ 32,699 $ 8,258 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 35,772 30,176 26,951 Amortization 8,296 6,455 5,808 Deferred income taxes (1,065) 7,143 1,059 Nonrecurring items 4,400 1,979 330 Other 1,638 233 537 Changes in operating assets and liabilities: Accounts receivable (3,338) 1,992 (2,199) Inventories (9,988) (11,335) (8,385) Other current assets (3,649) 1 2,367 Other assets (2,191) (2,075) (2,096) Accounts payable (3,120) (1,733) 6,556 Accrued expenses 11,055 3,919 (3,589) Other noncurrent liabilities 4,011 1,229 (729) ---------------------------------------------- Net cash provided by operating activities 72,167 70,683 34,868 ---------------------------------------------- Cash flows from investing activities: Capital expenditures (66,325) (57,705) (40,831) Proceeds from sale of assets 4,453 501 425 Purchases of salon assets, net of cash acquired and certain obligations assumed (51,017) (24,837) (10,370) ----------------------------------------------- Net cash used in investing activities (112,889) (82,041) (50,776) ----------------------------------------------- Cash flows from financing activities: Borrowings on revolving credit facilities 237,668 163,254 187,328 Payments on revolving credit facilities (225,075) (148,952) (203,425) Proceeds from issuance of long-term debt 46,533 9,000 47,000 Repayment of long-term debt (18,768) (25,506) (21,379) Increase (decrease) in negative book cash balances 602 (4,992) Dividends paid (3,607) (2,115) (1,722) Proceeds from issuance of common stock 3,701 11,825 15,073 ----------------------------------------------- Net cash provided by financing activities 40,452 8,108 17,883 ----------------------------------------------- Effect of exchange rate changes on cash (57) (77) 8 ----------------------------------------------- (Decrease) increase in cash (327) (3,327) 1,983 Cash: Beginning of year 7,678 11,005 9,022 ----------------------------------------------- End of year $ 7,351 $ 7,678 $ 11,005 ===============================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. REGIS CORPORATION 1999 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES: BUSINESS DESCRIPTION: Regis Corporation (the Company) owns, operates and franchises hairstyling and hair care salons throughout the United States, the United Kingdom, Canada and Puerto Rico. Substantially all of the hairstyling and hair care salons owned and operated by the Company in the United States are located in leased space in enclosed mall shopping centers or strip shopping centers. Franchised salons are primarily located in strip shopping centers throughout the United States. At June 30, 1999, approximately 15 percent of the Company's outstanding common stock is owned by Curtis Squire, Inc. (CSI), which is a holding company controlled by the Chairman of the Board of Directors of the Company, and approximately 5 percent is owned by management and the Company's benefit plans. BASIS OF PRESENTATION: Consolidated financial statements for 1998 and 1997 have been restated to include the retroactive effects of the March 1999 merger with Heidi's, Inc. (Heidi's) and the May 1999 merger with The Barbers, Hairstyling for Men & Women, Inc. (The Barbers). Both transactions were accounted for as poolings-of-interests (Note 3). RECLASSIFICATION: Certain prior period amounts have been reclassified to conform to the current year presentation. CONSOLIDATION: The financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. In consolidation, all material intercompany accounts and transactions are eliminated. FOREIGN CURRENCY TRANSLATION: Financial position, results of operations and cash flows of the Company's international subsidiaries are measured using local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rates in effect at each fiscal year end. Income statement accounts are translated at the average rates of exchange prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive income (loss) within shareholders' equity. INVENTORIES: Inventories consist principally of hair care products held either for use in salon services or for sale. Inventories are stated at the lower of cost or market with cost determined on the first-in, first-out method. PROPERTY AND EQUIPMENT: Property and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation and amortization of property and equipment are computed on the straight-line method over estimated useful asset lives (shorter of asset life or lease term for leasehold improvements). Expenditures for maintenance and repairs and minor renewals and betterments which do not improve or extend the life of the respective assets are expensed. All other expenditures for renewals and betterments are capitalized. The assets and related depreciation accounts are adjusted for property retirements and disposals with the resulting gain or loss included in operations. Fully depreciated assets remain in the accounts until retired from service. Effective July 1, 1998, the Company adopted Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". The SOP requires the Company to capitalize both internal and external costs of developing or obtaining computer software for internal use based on certain criteria. Previously, the Company only capitalized costs associated with externally developed or purchased computer software. GOODWILL: Goodwill recorded in connection with the fiscal 1989 purchase of the publicly held minority interest in the Company, and acquisitions of business operations in which the Company has not previously been involved, is amortized on a straight-line basis, generally over 40 years. Goodwill recorded in connection with acquisitions which expand the Company's existing business activities (acquisition of salon sites) is amortized on a straight-line basis, generally over 20 years. ASSET IMPAIRMENT ASSESSMENTS: The Company periodically measures and evaluates the recoverability of its tangible and intangible noncurrent assets using undiscounted cash flow analyses. FRANCHISE INCOME AND EXPENSES: Franchise income includes royalties, initial franchise fees from franchisees and sales of product and equipment to franchisees. Royalties are recognized as income in the month in which franchisee services are rendered or products are sold by franchisees. The Company recognizes income from initial franchise fees at the time franchisee salons are opened. Product sales by the Company to franchisees are recorded at the time product is shipped to franchise locations. Franchise expenses include all direct expenses such as the cost of product and equipment sold to franchisees, salaries, marketing costs, and an allocation of general corporate overhead and occupancy expenses. Cost of product and equipment sold to franchisees is included in other operating expenses in the Consolidated Statement of Operations. All other expenses described above associated with franchise operations are included in selling, general and administrative expenses in the Consolidated Statement of Operations. 24 REGIS CORPORATION 1999 INCOME TAXES: Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using currently enacted tax rates in effect for the years in which the differences are expected to reverse. Income tax expense is the current tax payable for the period and the change during the period in deferred tax assets and liabilities. NET INCOME PER SHARE: Basic earnings per share is calculated as net income divided by weighted-average common shares outstanding. The Company's only dilutive securities are issuable under the Company's stock option plan. Diluted earnings per share is calculated as net income divided by weighted-average common shares outstanding, increased to include assumed exercise of dilutive stock options (common equivalent shares). The following table sets forth a reconciliation of shares used in the computation of basic and diluted earnings per share:
1999 1998 1997 Weighted average shares for basic earnings per share 38,426,712 37,712,951 36,402,041 Dilutive effect of stock options 1,312,886 1,112,825 1,087,282 ---------------------------------------------- Weighted average shares for diluted earnings per share 39,739,598 38,825,776 37,489,323 ==============================================
USE OF ESTIMATES: The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. COMPREHENSIVE INCOME: Effective July 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". This statement established standards for reporting and presenting comprehensive income and its components. Components of comprehensive income for the Company include net income and foreign currency translation adjustments and are presented in the Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income. 2. OTHER FINANCIAL STATEMENT DATA The following provides additional information concerning selected balance sheet accounts:
(DOLLARS IN THOUSANDS) 1999 1998 Property and equipment: Land $ 2,190 $ 2,190 Buildings and improvements 20,377 19,468 Equipment, furniture, software and leasehold improvements 340,105 285,336 Equipment, furniture and lease- hold improvements under capital leases 14,093 13,718 --------------------------- 376,765 320,712 Less accumulated depreciation and amortization (157,828) (135,730) Less amortization of equipment, furniture and leasehold improvements under capital leases (5,638) (3,875) --------------------------- $ 213,299 $ 181,107 =========================== Goodwill $ 190,272 $ 147,123 Less accumulated amortization (36,318) (28,081) --------------------------- $ 153,954 $ 119,042 =========================== Accrued expenses: Payroll and payroll related costs $ 26,308 $ 24,700 Insurance 8,656 6,989 Transaction and restructuring 5,981 1,630 Other 12,365 10,276 --------------------------- $ 53,310 $ 43,595 ===========================
Transaction and Restructuring:
UTILIZATION JULY 1, 1999 JUNE 30, 1998 CHARGE CASH NON-CASH 1999 Restructuring-- International Severance $ 966 $ (404) $ 562 Salon closures & dispositions 3,806 193 $ (2,812) 1,187 Other 844 (105) (388) 351 -------------------------------------------------------------------- 5,616 (316) (3,200) 2,100 Restructuring--Mergers Severance $ 1,232 2,526 (875) 2,883 Salon closures & dispositions 398 430 (93) (620) 115 Other 1,400 (74) (580) 746 -------------------------------------------------------------------- 1,630 4,356 (1,042) (1,200) 3,744 Transaction Charges-- Mergers 2,066 (1,929) 137 -------------------------------------------------------------------- 1,630 $12,038 $ (3,287) $ (4,400) $ 5,981 ====================================================================
REGIS CORPORATION 1999 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following provides supplemental disclosures of cash flow activity:
(DOLLARS IN THOUSANDS) 1999 1998 1997 Cash paid during the year for: Interest $ 11,256 $ 10,111 $ 10,985 Income taxes $ 24,180 $ 14,486 $ 13,985
Non-cash investing and financing activities include the following: - - In 1999 and 1998, the Company financed capital expenditures totaling $3.5 million and $5.9 million, respectively, through the issuance of capital leases. - - In 1999, in connection with the Company's merger with Heidi's, a shareholder contributed a $3.0 million note to equity. - - In 1999 and 1998, in connection with various acquisitions, the Company entered into seller-financed payables and non-compete agreements as well as issuing 82,767 shares of the Company's stock (Note 3). - - In 1997, in connection with various acquisitions, the Company entered into seller-financed notes payable of approximately $2.6 million. 3. MERGERS AND ACQUISITIONS: THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC. MERGER: Effective May 20, 1999, the Company consummated the merger with The Barbers, Hairstyling for Men & Women, Inc. (The Barbers) in a stock-for-stock transaction. The Barbers was a national operator and franchisor of 979 affordable hair care salons. Each shareholder of The Barbers received .50 shares of the Company's common stock in exchange for each share of The Barbers common stock, resulting in the issuance of approximately 2.0 million shares of the Company's common stock. The Barbers transaction has been accounted for as a pooling-of-interests. Prior period financial statements have been restated to reflect this merger as if the merged companies had always been combined. As a result of the merger, the Company recorded a nonrecurring charge of $4.8 million during the quarter ended June 30, 1999. This charge included $1.4 million for professional fees including investment banking, legal, accounting and miscellaneous transaction costs and $3.4 million for severance and other costs, principally associated with the closure of The Barbers headquarters. Severance expense of $2.1 million covered the termination of approximately 20 employees of The Barbers who had duplicate positions within the corporate office functions. These corporate overhead departments primarily included finance, accounting and human resources. Revenues and net income for each of the combining entities prior to the merger were as follows (dollars in thousands):
NINE MONTHS YEAR YEAR ENDED ENDED ENDED MARCH 31, JUNE 30, JUNE 30, 1999 1998 1997 REVENUES: Regis $693,063 $822,964 $735,415 The Barbers 20,984 25,480 20,827 ---------------------------------------- Combined total $714,047 $848,444 $756,242 ======================================== NET INCOME: Regis $ 24,321 $ 30,988 $ 7,034 The Barbers 1,472 1,711 1,224 ---------------------------------------- Combined total $ 25,793 $ 32,699 $ 8,258 ========================================
HEIDI'S, INC. MERGER: Effective March 15,1999, the Company consummated the merger with Heidi's, Inc. (Heidi's), a company based in Detroit, Michigan which operated 24 salons in shopping malls. Under the terms of the merger agreement, the shareholders of Heidi's, a privately held company, received 537,937 shares of Regis Corporation common stock. The transaction has been accounted for as a pooling-of-interests. Prior period financial statements have been restated to reflect this merger as if the merged companies had always been combined. As a result of the merger, the Company recorded a nonrecurring charge of $1.2 million during the quarter ended March 31, 1999. This charge included $0.7 million for professional fees including investment banking, legal, accounting and miscellaneous transaction costs, $0.5 million for severance and other costs principally associated with the closure of Heidi's headquarters. Severance expense of $0.4 million covered the termination of approximately ten Heidi's employees who had duplicate positions within corporate office functions. In addition, during the fourth quarter of 1999, the Company recorded a $0.4 million charge related to impaired salon assets. Revenues and net income for each of the combining entities prior to the merger were as follows (dollars in thousands):
SIX MONTHS YEAR YEAR ENDED ENDED ENDED DECEMBER 31, JUNE 30, JUNE 30, 1998 1998 1997 REVENUES: Regis $ 441,367 $ 798,144 $ 713,219 Heidi's 13,367 24,820 22,196 --------------------------------------- Combined total $ 454,734 $ 822,964 $ 735,415 ======================================= NET INCOME: Regis $ 16,882 $ 30,488 $ 6,574 Heidi's 443 500 460 --------------------------------------- Combined total $ 17,325 $ 30,988 $ 7,034 =======================================
26 REGIS CORPORATION 1999 SUPERCUTS, INC. MERGER: During October 1996, the Company received shareholder approval for its merger with Supercuts, Inc. (Supercuts) in a stock-for-stock transaction, resulting in the issuance of 4.5 million shares of the Company's common stock. Supercuts was the national operator of approximately 430 company-owned and franchisor of approximately 740 affordable hair care salons at the acquisition date. As a result of the merger, the Company recorded a pre-tax merger restructuring and transaction charge of $14.3 million. The Supercuts transaction has been accounted for as a pooling-of-interests. Prior period financial statements were restated to reflect this merger as if the merged companies had always been combined. To effect the restatement, significant accounting adjustments were necessary to conform the accounting practices of Supercuts to those of Regis. OTHER ACQUISITIONS: During 1999 and 1998, the Company made numerous acquisitions in addition to its mergers with The Barbers and Heidi's. These acquisitions have been recorded using the purchase method of accounting. Accordingly, the purchase prices have been allocated to assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The acquisitions recorded using the purchase method of accounting, individually and in the aggregate, are not material to the Company's operations. Costs in excess of net tangible and identifiable intangible assets acquired and components of the aggregate purchase prices of the acquisitions were as follows:
(DOLLARS IN THOUSANDS) 1999 1998 Costs in excess of net tangible and identifiable intangible assets acquired $45,147 $21,743 ====================== Components of aggregate purchase price: Cash $51,017 $24,837 Stock 2,107 Current and noncurrent payables 2,830 2,180 ---------------------- $55,954 $27,017 ======================
4. FINANCING ARRANGEMENTS: The Company's long-term debt consists of the following:
(DOLLARS IN THOUSANDS) INTEREST MATURITY RATE % DATES 1999 1998 Senior term notes 6.27 - 8.18 2000-2008 $ 109,919 $ 68,000 Revolving credit facilities 5.96 - 7.38 2000-2001 41,343 28,750 Equipment and leasehold notes payable 8.00 - 11.90 2000-2004 11,236 12,113 U.K. term notes 5.23 - 5.40 2001-2003 520 5,827 Other notes payable 5.00 - 11.90 2000-2007 3,968 11,938 --------------------------- 166,986 126,628 Less current portion (23,945) (20,091) --------------------------- Long-term portion $ 143,041 $ 106,537 ===========================
In January 1999, the Company borrowed $15 million under a 6.27 percent senior term note due June 2003 and $10 million under a 6.83 percent senior term note due December 2005 to finance recent acquisitions by the Company. In September 1998, the Company borrowed $7.5 million under a 6.55 percent senior term note due September 2003 to refinance the Company's distribution center revolving line of credit established in fiscal 1998. In July 1998, the Company paid down its revolving credit facilities by $14.0 million with the proceeds of a 7.14 percent senior term note with interest due quarterly, and principal payments of $9.0 million and $5.0 million due in July 2007 and 2008, respectively. In March 1997, the Company entered into a treasury lock agreement for the purpose of establishing the effective interest rate on the refinancing of a $14.0 million senior term note which matured in June 1998. The contract was entered into to reduce the risk to the Company of future interest rate fluctuations. The contract had a notional amount of $14.0 million and was tied to the U.S. government ten-year treasury note rate. Upon settlement of the agreement in June 1998, the Company incurred a loss of $1.6 million on the contract. This loss is being amortized as additional interest expense through 2008. The Company does not enter into financial instruments for trading or speculative purposes. In March 1999, the Company retired the majority of its U.K. term notes due June 2001 with proceeds from its revolving line of credit. To facilitate this, the Company amended its existing working capital line of credit agreement to increase the amount available by $10 million to $45 million, eliminated covenants related to the Company's international operations and added a multi- REGIS CORPORATION 1999 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS currency provision to the existing revolving credit facility. This facility bears interest at the prime rate or LIBOR rate plus 1.00 to 1.25 percent based on the Company's debt to capitalization ratio. The prime rate at June 30, 1999 and 1998 was 7.75 percent and 8.5 percent, respectively. The revolving credit facility requires a quarterly commitment fee at the rate of 1/4 percent per year on the unused portion of the facility. Letters of credit totaling $0.9 million were outstanding at June 30, 1999 and 1998, which reduce the amount available under the revolving credit facility. The Company also has an additional revolving credit facility which, at the discretion of the lender, allows for borrowings up to $20.0 million and bears interest at the prime rate or LIBOR plus 1.0 percent. There were $10 million of borrowings under this facility as of June 30, 1999, and no borrowings as of June 30, 1998. In July 1999, the Company replaced both of its existing revolving credit facilities with a new senior credit facility which allows for borrowings of $180 million due in July, 2002, and bears interest at prime rate or LIBOR rate plus .50 percent to 1.00 percent, based on the Company's debt to capitalization ratio. The equipment and leasehold notes payable are primarily comprised of capital lease obligations totaling $8.9 million at June 30, 1999 and 1998, respectively. These capital lease obligations are payable in monthly installments over five years. The debt agreements contain covenants, including limitations on incurrence of debt, granting of liens, investments, merger or consolidation, and transactions with affiliates. In addition, the Company must maintain specified interest coverage and debt-to-equity ratios. The fair values of the senior term, equipment and leasehold and subordinated notes payable, based upon discounted cash flow analyses using the Company's current incremental borrowing rate, approximate their carrying values at June 30, 1999. Aggregate maturities of long-term debt at June 30, 1999 are as follows:
FISCAL YEAR (DOLLARS IN THOUSANDS) 2000 $ 23,945 2001 17,043 2002 34,710 2003 10,545 2004 17,676 Thereafter 63,067 ---------- $ 166,986 ==========
5. COMMITMENTS: OPERATING LEASES: The Company is committed under long-term operating leases for the rental of most of its company-owned salon locations. The terms of the leases range from one to 20 years, with many leases renewable for an additional five to ten year term at the option of the Company, and certain leases include escalation provisions. For certain leases, the Company is required to pay additional rent based on a percent of sales and, in most cases, real estate taxes and other expenses. Rent expense for the Company's international department store salons is based primarily on a percent of sales. The Company also leases the premises in which the majority of its franchisees operate and has entered into corresponding sublease arrangements with the franchisees. These leases, generally with terms of approximately five years, are expected to be renewed on expiration. Future minimum lease payments for the next five years, which are reimbursable from the franchisees under sublease arrangements, are approximately $22.6 million annually. All additional lease costs are passed through to the franchisees. Total rent expense, net of sublease income from franchisees, includes the following:
(DOLLARS IN THOUSANDS) 1999 1998 1997 Minimum rent $ 79,499 $ 73,265 $ 64,580 Percentage rent based on sales 22,513 16,912 16,799 Real estate taxes and other expenses 25,864 21,581 17,658 ---------------------------------------- $ 127,876 $ 111,758 $ 99,037 ========================================
FUTURE MINIMUM LEASE PAYMENTS: As of June 30, 1999, future minimum lease payments (excluding percentage rents based on sales and sublease rental obligations which are passed through to the franchisees) due under existing noncancellable operating leases with remaining terms of greater than one year are as follows:
FISCAL YEAR (DOLLARS IN THOUSANDS) 2000 $ 92,084 2001 79,165 2002 66,939 2003 55,342 2004 43,064 Thereafter 98,837 --------- Total minimum lease payments $ 435,431 =========
28 REGIS CORPORATION 1999 SALON DEVELOPMENT PROGRAM: As a part of its salon development program, the Company continues to negotiate and enter into leases and commitments for the acquisition of equipment and leasehold improvements related to future salon locations. 6. INCOME TAXES: The provision for income taxes consists of:
(DOLLARS IN THOUSANDS) 1999 1998 1997 Current: Federal $ 20,661 $ 12,401 $ 11,070 State 3,190 2,019 1,721 International (399) 166 292 Deferred: United States (393) 7,039 1,083 International (672) 104 (24) ---------------------------------- $ 22,387 $ 21,729 $ 14,142 ==================================
The components of the net deferred tax assets are as follows:
(DOLLARS IN THOUSANDS) 1999 1998 Net current deferred tax asset: Insurance $ 2,587 $ 2,234 Payroll and payroll 2,624 2,200 related costs Nonrecurring items 2,581 2,065 Other, net 804 (70) ------------------------- $ 8,596 $ 6,429 ========================= Net noncurrent deferred tax asset: Depreciation and amortization $ (3,496) $ (1,235) Deferred rent 2,128 1,985 Payroll and payroll related costs 2,444 1,265 Other, net (268) (105) ------------------------- $ 808 $ 1,910 =========================
(DOLLARS IN THOUSANDS) 1999 1998 1997 Income (loss) before income taxes: United States $ 58,567 $ 54,437 $ 23,034 International (5,834) (9) (634) ------------------------------------------- $ 52,733 $ 54,428 $ 22,400 ===========================================
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory rate to earnings before income taxes, as a result of the following:
1999 1998 1997 U.S. statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal income tax benefit 3.4 3.6 5.0 Nondeductible merger and transaction costs 2.5 9.9 Change in estimate 6.7 Other, principally non-deductible goodwill 1.6 1.3 6.5 ------------------------------- 42.5% 39.9% 63.1% ===============================
During 1997, the Company recorded a $1.5 million change in estimate associated with income tax matters related to years prior to 1996 resulting from the completion of an Internal Revenue Service examination. 7. EMPLOYEE BENEFIT PLANS: EMPLOYEE STOCK OWNERSHIP PLAN: The Company has a qualified employee stock ownership plan (ESOP) covering substantially all field supervisors, warehouse and corporate office employees. Contributions to the ESOP are at the discretion of the Company. EXECUTIVE STOCK AWARD PLAN: The Company has a nonqualified executive stock award plan (ESAP) covering those employees not eligible to participate under the qualified ESOP. Contributions to the ESAP are at the discretion of the Company. STOCK PURCHASE PLAN: The Company has an employee stock purchase plan (SPP) available to substantially all employees. Under terms of the plan, eligible employees may purchase the Company's common stock through payroll deductions. The Company contributes an amount equal to 15 percent of the purchase price of the stock to be purchased on the open market, not to exceed an aggregate contribution of $2.2 million. REGIS CORPORATION 1999 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Company contributions to the aforementioned plans, which are charged to earnings in the period contributed, included the following:
(DOLLARS IN THOUSANDS) 1999 1998 1997 ESOP $1,303 $1,146 $ 662 ESAP 248 301 257 SPP 341 274 223
REGIS 401(K)PLAN: Effective July 1, 1999, the Company established a qualified 401(k) defined contribution plan covering substantially all field supervisors, warehouse and corporate office employees. STOCK OPTIONS: The Company's Stock Option Plan (the Plan), as amended, provides for granting both incentive stock options and nonqualified stock options. A total of 3,300,000 shares of common stock may be granted under the Plan to employees of the Company for a term not to exceed 10 years from the date of grant. Options granted to employees generally vest over a five year period. Options may also be granted under this Plan to the Company's outside directors for a term not to exceed five years from the vesting date. Options granted to outside directors vest over a four year period. The Plan contains restrictions on transferability, time of exercise, exercise price and on disposition of any shares acquired through exercise of the options. Incentive stock options are granted at not less than fair market value on the date of grant. The Board of Directors determines the Plan participants and establishes the terms and conditions of each option. In May 1999, in connection with The Barbers merger (Note 3) and effective termination of The Barbers stock option plans, outstanding stock options and warrants of The Barbers were converted to options to purchase approximately 370,000 shares of Regis common stock on the basis of the exchange ratio established to effect the merger. In October 1996, in connection with the Supercuts merger (Note 3) and effective termination of the Supercuts stock option plans, outstanding Supercuts stock options were converted to options to purchase approximately 400,000 shares of Regis common stock on the basis of the exchange ratio established to effect the merger. Common shares available for grant as of June 30, 1999, 1998 and 1997, were 611,095, 579,820 and 895,275, respectively. Stock options outstanding and weighted average exercise prices are as follows:
OPTIONS OUTSTANDING WEIGHTED AVERAGE EXERCISE SHARES PRICE Balance, June 30, 1996 2,817,452 $ 8.18 Granted 485,250 13.47 Cancelled (150,924) 14.45 Exercised (412,100) 8.71 ------------------------ Balance, June 30, 1997 2,739,678 $ 8.69 Granted 538,505 17.24 Cancelled (272,163) 13.41 Exercised (191,748) 7.20 ------------------------ Balance, June 30, 1998 2,814,272 $ 9.97 Granted 28,500 $ 19.53 Cancelled (37,275) 14.30 Exercised (309,929) 11.29 ------------------------ Balance, June 30, 1999 2,495,568 $ 9.88 ========================
At June 30, 1999, the weighted average exercise prices and remaining contractual lives of stock options are as follows:
RANGE OF $2.10- $5.45- $9.33- $16.67- EXERCISE PRICES $5.00 $8.25 $15.50 $24.25 TOTAL Total options outstanding 719,825 646,613 559,050 570,080 2,495,568 Weighted average exercise price $ 4.20 $ 6.52 $ 13.21 $ 17.64 $ 9.88 Weighted average remaining contractual life in years 3.97 5.13 7.15 8.49 6.01 Options exercisable 539,822 598,801 282,077 142,050 1,562,750 Weighted average price of exercisable options $ 3.93 $ 6.39 $ 12.75 $ 17.95 $ 7.74
30 REGIS CORPORATION 1999 The Company measures compensation cost for its incentive stock plans using the intrinsic value-based method of accounting. Had the Company used the fair-value-based method of accounting for its stock option and incentive plans beginning in 1996 and charged compensation cost against income, over the vesting period based on the fair value of options at the date of grant net income and net income per share would have been as follows:
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1997 Net income: As reported $ 30,346 $ 32,699 $ 8,258 Pro forma 29,213 32,046 7,609 Net income per diluted share: As reported $ .76 $ .84 $ .22 Pro forma $ .74 $ .83 $ .20
The pro forma information above only includes stock options granted in 1999, 1998 and 1997. Compensation expense under the fair-value-based method of accounting will increase over the next few years as additional stock option grants are considered. The weighted-average fair value per option granted during 1999, 1998 and 1997 was $12.23, $7.33 and $5.90, respectively, calculated by using the fair value of each option grant on the date of grant. The fair value of options was calculated utilizing the Black-Scholes option-pricing model and the following key assumptions:
1999 1998 1997 Risk-free interest rate 5.60 % 5.56 % 6.41 % Expected life in years 6.0 6.0 6.5 Expected volatility 37.35 % 34.16 % 35.50 % Expected dividend yield .42 % .38 % .39 %
OTHER: The Company has established unfunded deferred compensation plans which cover certain management and executive personnel. The Company maintains life insurance policies on the plans' participants. The amounts charged to earnings for these plans were $1.9 million, $0.6 million and $0.4 million in 1999, 1998 and 1997, respectively. The Company has a survivor benefit plan for the Chairman of the Board's spouse, payable upon his death, at a rate of $300,000 annually, adjusted for inflation, for the remaining life of his spouse. The Company has funded its future obligations under this plan through life insurance policies on the Chairman of the Board (the Chairman). The Company has entered into an agreement with the Chairman providing that the Chairman will continue to render services to the Company until at least May 2007, and for such further period as may be agreed upon mutually. The Company has agreed to pay the Chairman an annual amount of $0.6 million, adjusted for inflation, for the remainder of his life. The Chairman has agreed that during the period in which payments to him are made, as provided in the agreement, he will not engage in any business competitive with the business conducted by the Company. Compensation associated with this agreement is charged to expense as services are provided. Effective July 1, 1998, the Company established a survivor benefit plan for the Chief Executive Officer's spouse, payable upon his death, at a rate of one half of his deferred compensation benefit, adjusted for inflation, for the remaining life of his spouse. The Company has funded its future obligations under this plan through life insurance policies on the Chief Executive Officer. 8. SHAREHOLDERS' EQUITY: In addition to the shareholder equity activity described in Note 7, the following activity has taken place: STOCK SPLIT In February 1999, the board of directors approved a three-for-two stock split of its common stock in the form of a 50 percent stock dividend distributed on March 1, 1999 to shareholders of record on February 15, 1999. All share and per share amounts have been restated to reflect the stock split. AUTHORIZED SHARES AND DESIGNATION OF PREFERRED CLASS: The Company has 50 million shares of capital stock authorized, par value $.05, of which all outstanding shares, and shares available under the Stock Option Plan, have been designated as common. In addition, 250,000 shares of authorized capital stock have been designated as Series A Junior Participating Preferred Stock (preferred stock). None of the preferred stock has been issued. REGIS CORPORATION 1999 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHAREHOLDERS' RIGHTS PLAN: The Company has a shareholders' rights plan pursuant to which one preferred share purchase right is held by shareholders for each outstanding share of common stock. The rights become exercisable only following the acquisition by a person or group, without the prior consent of the Board of Directors, of 20 percent or more of the Company's voting stock, or following the announcement of a tender offer or exchange offer to acquire an interest of 20 percent or more. If the rights become exercisable, they entitle all holders, except the take-over bidder, to purchase one one-hundredth of a share of preferred stock at an exercise price of $120, subject to adjustment, or in lieu of purchasing the preferred stock, to purchase for the same exercise price common stock of the Company (or in certain cases common stock of an acquiring company) having a market value of twice the exercise price of a right. 9. SEGMENT INFORMATION: Commencing with its 1999 fiscal year end reporting, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". This new standard requires that public companies report financial and descriptive information about their reportable operating segments, generally based on the way that management organized the segments within the enterprise for making operating decisions and assessing performance. Each of the Company's operating segments have generally similar product and services. The Company is organized to manage its operations based on geographical location. The Company's operating segments have been aggregated into two reportable segments: domestic salons and international salons. The Company operates or franchises 4,650 domestic salons located within high-profile regional malls and strip shopping centers under several different concepts including Regis Salons, MasterCuts, Trade Secret, SmartStyle, Supercuts and Cost Cutters brand names. The Company's International segment includes 304 salons operating in leading department stores, mass merchants and high street locations. The accounting policies of the reportable segments are the same as those described in Note 1 to the Consolidated Financial Statements. The Company evaluates the performance of its operating segments based on direct salon contribution, before supervision and corporate overhead expenses. Intersegment sales and transfers are not significant. Summarized financial information concerning the Company's reportable segments is shown in the following table.
(DOLLARS IN THOUSANDS) 1999 1998 1997 Company-owned revenues: Domestic $826,169 $696,303 $613,358 International 100,971 106,176 99,348 ---------------------------------------- Total $927,140 $802,479 $712,706 ======================================== Salon contribution: Domestic $151,643 $124,137 $101,711 International 12,536 12,879 10,824 ---------------------------------------- Total $164,179 $137,016 $112,535 ======================================== Salon depreciation and amortization: Domestic $ 27,696 $ 23,108 $ 20,879 International 3,328 3,253 3,148 ---------------------------------------- Total $ 31,024 $ 26,361 $ 24,027 ======================================== Total assets: Domestic $372,956 $274,192 $226,703 International 19,250 26,408 30,671 Corporate 101,418 102,314 93,219 ---------------------------------------- Total $493,624 $402,914 $350,593 ======================================== Long-lived assets: Domestic $307,439 $239,423 $198,622 International 16,236 21,333 23,957 Corporate 43,578 39,393 20,359 ---------------------------------------- Total $367,253 $300,149 $242,938 ======================================== Capital expenditures: Domestic $ 50,445 $ 38,180 $ 32,063 International 3,402 2,706 3,211 Corporate 12,478 16,819 5,557 ---------------------------------------- Total $ 66,325 $ 57,705 $ 40,831 ======================================== Purchases of salon assets: Domestic $ 50,866 $ 24,837 $ 9,941 International 151 429 ---------------------------------------- Total $ 51,017 $ 24,837 $ 10,370 ========================================
In addition to the company-owned revenues detailed in the table above, the Company also recorded franchise income of $47.7 million, $46.0 million and $43.5 million, respectively, as part of consolidated revenues. The expenses associated with the Company's franchising activities are included in selling, general & administrative and other operating expenses within the Consolidated Statement of Operations, as described in Note 1 to the consolidated financial statements. 32 REGIS CORPORATION 1999 Corporate assets detailed above are primarily comprised of fixed assets associated with the Company's headquarters and distribution centers, corporate cash, inventories located at corporate distribution centers, deferred income taxes, franchise receivables, and other corporate assets. 10. NONRECURRING ITEMS: Nonrecurring items included in operating income consist of gains or losses on assets and business dispositions and other items of a nonrecurring nature. The following table summarizes nonrecurring items recorded by the Company:
(DOLLARS IN THOUSANDS) 1999 1998 1997 Restructuring charge-- International $ 5,616 Restructuring charge-- Mergers (Note 3) 4,356 $ 1,500 Merger transaction costs (Note 3) 2,066 14,322 Year 2000 remediation 4,095 Loss on divestiture of Anasazi business and assets $ 1,979 Resolution of Supercuts officer litigation 2,909 -------------------------------- $16,133 $ 1,979 $18,731 ================================
During the fourth quarter of fiscal 1999, the Company's Board of Directors approved a restructuring plan associated with its International operations headquartered in the United Kingdom. This plan includes relocating the headquarters out of London to Coventry, England with the majority of the accounting and information technology functions transferring to the Company's corporate headquarters in Minneapolis, Minnesota and divestiture of certain markets and salons which have been generating negative cash flows. The restructuring charge related to the plan described above was $5.6 million. Of the total charge, $1.0 million related to severance payments due to the elimination of duplicative accounting and information technology functions, $0.2 million for legal, professional and other miscellaneous fees, $0.3 million for duplicate rent related to the relocation of operations to Coventry, and $0.3 million related to the write-off of assets, primarily at the prior London headquarters, and $3.8 million related to salon closing and dispositions. International salons identified for closure or disposition in the restructuring charge described above, contributed $8.0 million in annual revenues with associated after-tax annualized operating losses of approximately $0.9 million. During 1999, the Company recorded $4.1 million of expense associated with Year 2000 remediation. Anasazi Exclusive Salons, LLC, a salon products manufacturing company, was sold to Curtis Acquisition LLC, which is controlled by two members of the Company's Board of Directors, one of whom is the Chairman. In 1997, the Company recorded an additional $2.9 million charge to earnings to revise restructuring charge estimates made in 1996 related to resolution of Supercuts officer litigation. The Company also recorded a $1.5 million charge associated with identified Regis salon closures during 1997. Approximately $4.4 million, $2.0 million and $0.3 million of the nonrecurring items in 1999, 1998, and 1997, respectively, are non-cash in nature. REGIS CORPORATION 1999 33 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Directors of Regis Corporation: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, changes in shareholders' equity and comprehensive income and cash flows present fairly, in all material respects, the consolidated financial position of Regis Corporation at June 30, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 1999, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Minneapolis, Minnesota August 24, 1999 - ------------------------------------------------------------------------------- QUARTERLY FINANCIAL DATA - -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) QUARTER ENDED --------------------------------------------------------------- YEAR SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 ENDED 1999 Revenues $227,699 $240,913 $245,435 $260,825 $974,872 Operating income 16,531 18,276 15,457 12,538 62,802 Net income 8,664 9,652 7,477 4,553 30,346 Net income per diluted share (a) .22 .24 .19 .11 .76 Dividends declared per share .02 .02 .03 .03 .10 1998 Revenues $200,810 $211,873 $209,548 $226,213 $848,444 Operating income 13,223 16,531 14,848 19,214 63,816 Net income 6,493 8,173 7,334 10,699 32,699 Net income per diluted share (b) .17 .21 .19 .27 .84 Dividends declared per share .013 .013 .013 .020 .060
(a) For the quarters ended March 31 and June 30, 1999 and the full year 1999, exclusive of nonrecurring items (Note 10), net income per diluted share would have been $.23 and $.32 and $1.05, respectively. (b) For quarter ended September 30, 1997 and the full year 1998, exclusive of nonrecurring items (Note 10), net income per diluted share would have been $.20 and $.87, respectively. 34 REGIS CORPORATION 1999 STOCK DATA Regis common stock is listed and traded on the Nasdaq National Market under the symbol "RGIS". The accompanying table sets forth the high and low closing bid quotations as reported by Nasdaq for each quarter during the previous two fiscal years. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions. As of June 30, 1999, Regis shares were owned by approximately 13,200 shareholders. The common stock price was $19.875 per share on August 13, 1999.
1999 1998 HIGH LOW HIGH LOW 1st quarter $ 21.00 $ 15.17 $ 17.00 $ 15.29 2nd quarter 26.67 17.33 18.00 15.31 3rd quarter 28.44 23.17 20.00 16.67 4th quarter 26.88 19.19 20.00 17.33
REGIS CORPORATION 1999 35 EX-23 4 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-28511, 333-49165, and 333-78793), and Form S-8 (Nos. 33-44867 and 33-89882) of Regis Corporation of our report dated August 24, 1999 relating to the consolidated financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated August 24, 1999 relating to the financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP Minneapolis, Minnesota September 17, 1999 EX-27 5 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGIS CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR YEAR YEAR JUN-30-1999 JUN-30-1998 JUN-30-1997 JUL-01-1998 JUL-01-1997 JUL-01-1996 JUN-30-1999 JUN-30-1998 JUN-30-1997 7,351 7,678 11,005 0 0 0 16,752 15,092 16,052 246 678 650 70,056 56,030 44,241 113,079 91,369 84,617 376,765 320,712 263,179 163,466 139,605 119,222 493,624 402,914 349,892 100,009 89,080 96,758 0 0 0 0 0 0 0 0 0 1,932 1,275 1,290 234,265 197,083 154,589 493,624 402,914 349,892 263,714 225,982 191,716 974,872 848,444 756,242 142,002 123,323 105,242 912,070 784,628 724,687 38,773 21,290 35,553 0 0 0 11,576 10,492 10,674 52,733 54,428 22,400 22,387 21,729 14,142 0 0 0 0 0 0 0 0 0 0 0 0 30,346 32,699 8,258 .79 .87 .23 .76 .84 .22 Includes nonrecurring year 2000 remediation costs of $4,095, restructuring charges for international of $5,616, restructuring charges for mergers of $4,356 and merger transaction costs of $2,066. Includes a charge of $1,979 associated with the divestiture of Anasazi Exclusive Salon Products Inc. Includes a merger transaction and restructuring charge of $18,731 associated with the merger of Supercuts, Inc. Excluding nonrecurring items, fully diluted EPS would have been $1.05 Excluding nonrecurring items, fully diluted EPS would have been $.87 Excluding nonrecurring items, fully diluted EPS would have been $.61
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