Sally Beauty Supply 2006 Annual Report Download - page 38

Table of Contents
the separation transaction, the stockholders of Alberto-Culver prior to the separation became the beneficial owners of approximately
52% of our outstanding common stock on an undiluted basis and the CDR investors, who in the aggregate invested $575 million in
our company, received an equity interest representing approximately 48% of our outstanding common stock on an undiluted basis and
(iii) Alberto-Culver continues to own and operate its consumer products business.
In addition, on November 16, 2006, in connection with our separation from Alberto-Culver:
• Sally Holdings and certain of our other subsidiaries incurred approximately $1,850 million of indebtedness,
including (i) $1,070.0 million by drawing on its two senior term loan facilities, (ii) $70.0 million by drawing
on its ABL facility and (iii) $710 million from the issuance of $430.0 million of senior notes and
$280.0 million of senior subordinated notes;
• We used approximately $2,342 million, a substantial portion of the proceeds of the investment by the CDR
investors and the debt incurrence, to pay a $25.00 per share special cash dividend to holders of record of our
common stock, who were Alberto-Culver shareholders as of the record date for the separation transactions.
Alberto-Culver treated our separation from it as though it constituted a change in control for all employees and directors under its
equity and incentive compensation plans and as a change in control for our employees under its deferred compensation plan.
Accordingly, options to purchase Alberto-Culver common stock issued under Alberto-Culver equity compensation plans outstanding
as of the completion of the separation and held by our employees and John A. Miller, who was a non-employee director of Alberto-
Culver prior to the separation and is a member of our Board of Directors, became fully exercisable options to purchase our common
stock. Restrictions on restricted stock issued under Alberto-Culver equity compensation plans prior to completion of the separation,
including restricted stock held by executive officers of Alberto-Culver, lapsed on November 16, 2006. We estimate to record a one-
time charge of $5.3 million during the first quarter of fiscal year 2007 for the amount of future compensation expense that would have
been recognized in subsequent periods as the stock options and restricted shares for our employees vested over the original vesting
periods.
On November 16, 2006, pursuant to the investment agreement, we paid a transaction fee of $30 million to Clayton, Dubilier & Rice,
Inc., the manager of both Clayton, Dubilier & Rice Fund VII, L.P., the sole member of CDRS, and Parallel Fund. In addition, we paid
CDRS a portion of the expenses it incurred in connection with its investment in our company and our separation from Alberto-Culver
and will pay the remainder of CDRS’ expenses to it at a later date. Pursuant to the investment agreement, we also paid approximately
$20.1 million to Alberto-Culver for its expenses incurred in connection with the separation. We also paid approximately an additional
$48.4 million as fees for the debt financing incurred by our subsidiaries in connection with the separation. Transaction expenses and
the expenses of Alberto-Culver that are allocated to us are being expensed by us during the first quarter ending December 31, 2006. A
transaction cost analysis is being performed to identify expenses associated with the debt financing that will be deferred and amortized
in future periods.
On November 16, 2006, pursuant to the terms of the separation agreement entered into in connection with our separation from
Alberto-Culver, all of our and our subsidiaries’ cash, cash equivalents and short-term investments subsidiaries were transferred to
Alberto-Culver other than $91.1 million, equal to the sum of $52.7 million plus an additional amount equal to $38.4 million, which is
the sum of (i) an estimate of the amount needed to cover certain income taxes (as specified in the tax allocation agreement entered into
in connection with our separation from Alberto-Culver), (ii) an amount determined pursuant to a formula intended to reflect the
limitations placed on the number of our shares that the CDR investors were able to acquire without jeopardizing the intended tax-free
nature of the share distribution of shares of Alberto-Culver common stock to our stockholders in connection with the separation, and
(iii) unpaid balances on certain of our specified liabilities, minus other specified transaction costs. These amounts are subject to an
adjustment as determined under the terms of the separation and tax allocation agreements. All intercompany receivables, payables and
loans between us and our subsidiaries, on the one hand, and Alberto-Culver and its subsidiaries, on the other hand, other than those
specifically designated in the separation agreement to survive following the separation, were canceled immediately prior to the time of
the distributions we made on November 16, 2006, in connection with the separation. In addition, prior thereto, all intercompany
agreements between us and our subsidiaries and Alberto-Culver and its subsidiaries terminated, other than certain agreements
specifically designated in the separation agreement to survive following the separation.
32