Sally Beauty Supply 2007 Annual Report Download - page 33

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prepay certain other debt or amend specific debt agreements;
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change the fiscal year of Sally Holdings or its direct parent; and
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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 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 senior notes and the senior subordinated notes, which we refer to collectively as the Notes, also contain restrictive covenants that,
among other things, limit our ability and the ability of Sally Holdings and its restricted subsidiaries to:
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dispose of assets;
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incur additional indebtedness (including guarantees of additional indebtedness);
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pay dividends, repurchase stock or make other distributions;
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prepay subordinated debt;
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create liens on assets (which, in the case of the senior subordinated notes, would be limited in applicability to liens securingpari passu or
subordinated indebtedness);
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make investments (including joint ventures);
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engage in mergers, consolidations or sales of all or substantially all of Sally Holdings' assets;
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engage in certain transactions with affiliates; and
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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 who are borrowers under these agreements will be granted waivers or amendments to these
agreements if for any reason 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.
Our ability to comply with the covenants and restrictions contained in the senior credit facilities and the indentures for the Notes may be affected by economic,
financial and industry conditions beyond our control. The breach of any of these covenants or restrictions could result in a default under either the senior credit
facilities or the indentures that would permit the applicable lenders or note holders, as the case may be, to declare all amounts outstanding thereunder to be due
and payable, together with accrued and unpaid interest. If we are unable to repay debt, lenders having secured obligations, such as the lenders under the senior
credit facilities, could proceed against the collateral securing the debt. In any such case, our subsidiaries may be unable to borrow under the senior credit facilities
and may not be able to repay the amounts due under the Term Loans and the Notes. This could have serious consequences to our financial condition and results
of operations and could cause us to become bankrupt or insolvent.
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Source: Sally Beauty Holding, 10-K, November 29, 2007