Sally Beauty Supply 2011 Annual Report Download - page 41

The ABL credit facility contains covenants that, among other things, restrict Sally Holdings and its
subsidiaries’ ability to:
• change their line of business;
• engage in certain mergers, consolidations and transfers of all or substantially all of their assets;
• make certain dividends, stock repurchases and other distributions;
• make acquisitions of all of the business or assets of, or stock representing beneficial ownership of,
any person;
• dispose of certain assets;
• make voluntary prepayments on the Notes or make amendments to the terms thereof;
• prepay certain other debt or amend specific debt agreements;
• change the fiscal year of Sally Holdings or its direct parent; and
• create or incur negative pledges.
The Term Loans contain a requirement that Sally Holdings not exceed a maximum ratio of net senior
secured debt to consolidated EBITDA (as those terms are defined in the relevant credit agreement). In
addition, if Sally Holdings fails to maintain a specified minimum level of borrowing capacity under the
ABL credit facility, it will then be obligated to maintain a specified fixed-charge coverage ratio. Our ability
to comply with these covenants in future periods will depend on our ongoing financial and operating
performance, which in turn will be subject to economic conditions and to financial, market and competitive
factors, many of which are beyond our control. Our ability to comply with these covenants in future periods
will also depend substantially on the pricing of our products, our success at implementing cost reduction
initiatives and our ability to successfully implement our overall business strategy.
The indentures governing the Notes also contain restrictive covenants that, among other things, limit our
ability and the ability of Sally Holdings and its restricted subsidiaries to:
• dispose of assets;
• incur additional indebtedness (including guarantees of additional indebtedness);
• pay dividends, repurchase stock or make other distributions;
• prepay subordinated debt;
• create liens on assets (which, in the case of the senior subordinated notes, would be limited in
applicability to liens securing pari passu or subordinated indebtedness);
• make investments (including joint ventures);
• engage in mergers, consolidations or sales of all or substantially all of Sally Holdings’ assets;
• engage in certain transactions with affiliates; and
• permit restrictions on Sally Holdings’ subsidiaries’ ability to pay dividends.
The restrictions in the indentures governing our Notes and the terms of our senior credit facilities may
prevent us from taking actions that we believe would be in the best interest of our business and may make
it difficult for us to successfully execute our business strategy or effectively compete with companies that
are not similarly restricted. We may also incur future debt obligations that might subject us to additional
restrictive covenants that could affect our financial and operational flexibility. We cannot assure you that
our subsidiaries, which are borrowers under these agreements, will be granted waivers or amendments to
these agreements if they are unable to comply with these agreements, or that we will be able to refinance
our debt on terms acceptable to us, or at all.
29