Sally Beauty Supply 2011 Annual Report Download - page 44

Actions taken by the Lavin family stockholders or by the CDR investors could adversely affect the tax-free nature of
the share distribution of Alberto-Culver common stock in connection with the transactions separating us from
Alberto-Culver.
Sales and/or acquisitions by the Lavin family stockholders of our common stock or Alberto-Culver’s
common stock may adversely affect the tax-free nature of the share distribution of Alberto-Culver’s
common stock in the Separation Transactions. First, with certain exceptions, sales by the Lavin family
stockholders of our common stock or Alberto-Culver’s common stock at any time after the Separation
Transactions might be considered evidence that the share distribution was used principally as a device for
the distribution of earnings and profits, particularly if the selling stockholder was found to have an intent
to effect such sale at the time of the share distribution. If the IRS successfully asserted that the share
distribution was used principally as such a device, the share distribution would not qualify as a tax-free
distribution, and thus would be taxable to us. Second, with certain exceptions, if any of the Lavin family
stockholders had sold an amount of our common stock that it received in connection with the Separation
Transactions (or acquired additional shares of our common stock) within the two year period following
completion of the Alberto-Culver share distribution, and that amount of stock, if added to the common
stock that was acquired by CDR Investors were to equal or exceed 50% of our outstanding common stock,
as determined under the Code and applicable Treasury regulations, a deemed acquisition of control of us
in connection with the Alberto-Culver share distribution would be presumed. If this presumption were not
rebutted, we would be subject to significant U.S. federal income tax liabilities, which, if not reimbursed by
Alberto-Culver, would have a material adverse effect on us.
The CDR Investors own a significant percentage of our common stock which may discourage third party
acquisitions of us at a premium, and the interests of the CDR Investors may differ from the interests of other holders
of our common stock.
The CDR Investors currently own approximately 35.5%, in the aggregate on an undiluted basis, of the
outstanding shares of our common stock. Pursuant to the stockholders agreement entered into by us, the
CDR Investors and certain other stockholders, which we refer to as the Stockholders Agreement, CDRS
currently has the right to designate four of our eleven directors. CDRS’ right to nominate a certain number
of directors will continue so long as it owns specified percentages of our common stock. So long as the
CDR Investors continue to have influence over the election of our directors or directly or indirectly own a
significant percentage of the outstanding shares of our common stock, the CDR Investors will continue to
be able to strongly influence our decisions. The CDR Investors’ ownership of our common stock and their
ability to influence our decisions may have the effect of discouraging offers to acquire control of us and
may preclude holders of our common stock from receiving any premium above market price for their
shares that may otherwise be offered in connection with any attempt to acquire control of us. Furthermore,
the interests of the CDR Investors may differ from those of other holders of our common stock in material
respects. For example, the CDR Investors may have an interest in pursuing acquisitions, divestitures,
financings, re-financings, stockholder dividends or other transactions that, in their judgment, could
enhance their overall equity portfolio or the short-term value of their investment in us, even though such
transactions might involve substantial risks to other holders of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
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