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ITEM 1.01.
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ENTRY INTO MATERIAL DEFINITIVE AGREEMENT.
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As previously disclosed, in October 2017, Regis Corporation and its subsidiaries (collectively, the “Company”) sold substantially all of its U.S. mall-based salon business (the “U.S. Salon Business”) to The Beautiful Group Management, LLC (“TBG US”) and its Canadian mall-based salon business (the “Canadian Salon Business” and collectively with the U.S. Salon Business, the “Salon Business”) to The Beautiful Group Salons (Canada) Ltd. (“TBG Canada” and collectively with TBG US, “TBG”) (such transactions, the “2017 transaction”). As part of such sale, the Company sold the assets in respect of salons in North America that principally operate under the Regis Salons and MasterCuts brands, including the intellectual property for the MasterCuts brand and other ancillary brands. In consideration for the purchase of the assets of the Salon Business, TBG assumed specified liabilities of the Company with respect to the operation of the Salon Business, including lease liabilities in respect of the Salon Business.
On December 30, 2019, the Company entered into Portfolio Transfer Agreements with TBG in the United States and Canada (the “Portfolio Transfer Agreements”), pursuant to which one or more affiliates of the Company will acquire from TBG certain assets of the Salon Business in the United States and Canada, respectively, that are used in the operation of salons at which the Company or its affiliates has residual liability under real estate leases as a result of the 2017 transaction, including the intellectual property for the MasterCuts brand and other ancillary brand. In consideration for the acquisition of such assets, affiliates of the Company will assume certain related liabilities primarily relating to certain employee benefits-related payments (the acquisition of such assets and assumption of such liabilities, the “Salon Repurchase”). As a result of the Salon Repurchase, the Company or one of its affiliates will acquire the assets to operate approximately 200 salons in the United States and Canada. In the United States, the Salon Repurchase was consummated in connection with an assignment for the benefit of TBG US’s creditors. The assets of the salons acquired in connection with the Salon Repurchase are, in aggregate, unprofitable, and the total lease liability related to such salons is approximately $30 million. The Salon Repurchase was completed on December 31, 2019.
The Portfolio Transfer Agreements have been included to provide investors with information regarding their terms. They are not intended to provide any other factual information about the Company or the parties to those agreements. The representations, warranties and covenants contained in the agreements were made only for purposes of the transactions contemplated thereby as of the specific dates therein, were solely for the benefit of the parties to the agreements, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the agreements instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors are not third-party beneficiaries under these agreements and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of representations and warranties may change after the date of the agreements, which subsequent information may or may not be fully reflected in the Company’s public disclosures.
In connection with the 2017 transaction, one or more affiliates of TBG subleased a number of the acquired salons from the Company and its affiliates under master subleases and operated as the manager of certain leases pursuant to Management and Operating Agreements until certain other leases were transferred in accordance with the terms thereof. In connection with the Salon Repurchase, on December 31, 2019, the Company or one of its affiliates terminated the sublease agreement and management services agreements previously entered into between affiliates of the Company and TBG in connection with the 2017 transaction.
As previously disclosed, on June 27, 2019, the Company entered into a Second US and Canada Omnibus Settlement Agreement (the “Settlement Agreement”) with TBG. Pursuant to the Settlement Agreement, among other things, the Company and TBG entered into certain Trademark License Agreements pursuant to which the Company granted TBG rights to use certain Company marks in connection with TBG’s operation of certain salons. In connection with the Salon Repurchase, such Trademark License Agreements were terminated on December 31, 2019. Also in connection with the Salon Repurchase, affiliates of each of the Company and TBG agreed to release certain claims against the other party under the Settlement Agreement and certain other transaction agreements entered into in connection with the 2017 transaction.