Exhibit 10.1

 

EXECUTION VERSION

 

 

 

 

 

SALLY HOLDINGS LLC

SALLY CAPITAL INC.

 

$750,000,000

 

6 7/8% Senior Notes due 2019

 

 

PURCHASE AGREEMENT

 

 

Dated November 3, 2011

 

 

 

 

 

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PURCHASE AGREEMENT

 

November 3, 2011

 

 

Merrill Lynch, Pierce, Fenner & Smith

Incorporated

One Bryant Park
New York, New York 10036

 

Credit Suisse Securities (USA) LLC

Eleven Madison Avenue

New York, New York 10010

 

Goldman, Sachs & Co.

200 West Street

New York, New York 10282

 

J.P. Morgan Securities LLC

383 Madison Avenue

New York, New York 10179

 

Wells Fargo Securities, LLC

One Wells Fargo Center

301 South College Street

Charlotte, North Carolina 28202

 

Ladies and Gentlemen:

 

Sally Holdings LLC, a Delaware limited liability company (the “Company”), and
Sally Capital Inc., a Delaware corporation (the “Co-Issuer” and, together with
the Company, the “Issuers”), propose, subject to the terms and conditions stated
herein, to issue and sell to the initial purchasers named in Schedule I hereto
(the “Initial Purchasers”), acting severally and not jointly, the respective
amounts set forth in such Schedule I of $750,000,000 aggregate principal amount
of the Issuers’ 6 7/8% Senior Notes due 2019 (the “Notes”).  Merrill, Lynch,
Pierce, Fenner & Smith Incorporated (“Merrill Lynch”) has agreed to act as the
representative of the several Initial Purchasers (the “Representative”) in
connection with the offering and sale of the Notes.

 

The Securities (as defined below) will be issued pursuant to an indenture, to be
dated as of November 8, 2011 (the “Indenture”), among the Issuers, the
Guarantors (as defined below) and Wells Fargo Bank, National Association, as
trustee (the “Trustee”).  The Notes will be issued only in book-entry form in
the name of Cede & Co., as nominee of The Depository Trust Company (the
“Depository”), pursuant to a blanket letter of representations, to be dated on
or before the Closing Date (as defined in Section 2 hereof) (the “DTC
Agreement”), between the Issuers and the Depository.

 

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The holders of the Securities will be entitled to the benefits of a registration
rights agreement, to be dated as of the Closing Date (as defined below) (the
“Registration Rights Agreement”), among the Issuers, the Guarantors and the
Initial Purchasers, pursuant to which the Issuers and the Guarantors will be
required to file with the Commission (as defined below), under the circumstances
set forth therein, (i) a registration statement under the Securities Act (as
defined below) relating to another series of debt securities of the Issuers with
terms substantially identical to the Notes (the “Exchange Notes”) to be offered
in exchange for the Securities (the “Exchange Offer”) and (ii) to the extent
required by the Registration Rights Agreement, a shelf registration statement
pursuant to Rule 415 of the Securities Act relating to the resale by certain
holders of the Notes.

 

The payment of principal of, premium, if any, and interest on the Notes will be
fully and unconditionally guaranteed on a senior unsecured basis, jointly and
severally, by (i) the entities listed on the signature pages hereof as
“Guarantors” and (ii) any subsidiary of the Issuers formed or acquired after the
Closing Date that executes an additional guarantee in accordance with the terms
of the Indenture, and their respective successors and assigns (collectively, the
“Guarantors”), pursuant to their guarantees (the “Guarantees”).  The Notes and
the Guarantees attached thereto are herein collectively referred to as the
“Securities”; and the Exchange Notes and the Guarantees attached thereto are
herein collectively referred to as the “Exchange Securities.”

 

As described in the Pricing Disclosure Package and the Final Offering Memorandum
(each as defined below), the net proceeds from the issuance and sale of the
Securities shall be used to redeem $430.0 million aggregate principal amount of
the Issuers’ outstanding 9.25% Senior Notes due 2014 (the “2014 Notes”), plus
accrued and unpaid interest to, but not including, the redemption date for the
2014 Notes, and to pay fees and expenses incurred in connection with the
issuance and sale of the Notes and the redemption of the 2014 Notes.

 

This Agreement, the Registration Rights Agreement, the DTC Agreement, the
Securities, the Exchange Securities, and the Indenture are referred to herein as
the “Transaction Documents.”

 

The Issuers understand that the Initial Purchasers propose to make an offering
of the Securities on the terms and in the manner set forth herein and in the
Pricing Disclosure Package and agree that the Initial Purchasers may resell,
subject to the conditions set forth herein, all or a portion of the Securities
to purchasers (the “Subsequent Purchasers”) on the terms set forth in the
Pricing Disclosure Package (the first time when sales of the Securities are made
is referred to as the “Time of Sale”).  The Securities are to be offered and
sold through the Initial Purchasers without being registered with the Securities
and Exchange Commission (the “Commission”) under the Securities Act of 1933 (as
amended, the “Securities Act,” which term, as used herein, includes the
rules and regulations of the Commission promulgated thereunder), in reliance
upon exemptions therefrom.  Pursuant to the terms of the Securities and the
Indenture, investors who acquire Securities shall be deemed to have agreed that
Securities may only be resold or otherwise transferred, after the date hereof,
if such Securities are registered for sale under the Securities Act or if an
exemption from the registration requirements of the Securities Act is available

 

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(including the exemptions afforded by Rule 144A under the Securities Act
(“Rule 144A”) or Regulation S under the Securities Act (“Regulation S”)).

 

The Issuers have prepared and delivered to each Initial Purchaser copies of a
Preliminary Offering Memorandum, dated November 3, 2011 (the “Preliminary
Offering Memorandum”), and have prepared and delivered to each Initial Purchaser
copies of a Pricing Supplement, dated November 3, 2011 (the “Pricing
Supplement”), describing the terms of the Securities, each for use by such
Initial Purchaser in connection with its solicitation of offers to purchase the
Securities.  The Preliminary Offering Memorandum and the Pricing Supplement are
herein referred to as the “Pricing Disclosure Package.”  Promptly after this
Agreement is executed and delivered, the Issuers will prepare and deliver to
each Initial Purchaser a final offering memorandum dated the date hereof (the
“Final Offering Memorandum”).

 

All references herein to the terms “Pricing Disclosure Package” and “Final
Offering Memorandum” shall be deemed to mean and include all information filed
under the Securities Exchange Act of 1934 (as amended, the “Exchange Act,” which
term, as used herein, includes the rules and regulations of the Commission
promulgated thereunder) prior to the Time of Sale and incorporated by reference
in the Pricing Disclosure Package (including the Preliminary Offering
Memorandum) or the Final Offering Memorandum (as the case may be), and all
references herein to the terms “amend,” “amendment” or “supplement” with respect
to the Final Offering Memorandum shall be deemed to mean and include all
information filed under the Exchange Act after the Time of Sale and incorporated
by reference in the Final Offering Memorandum.

 

SECTION 1.           Representations and Warranties.  Each of the Issuers and
the Guarantors, jointly and severally, represents and warrants to, and agrees
with, each of the Initial Purchasers that, as of the date hereof and as of the
Closing Date (references in this Section 1 to the “Offering Memorandum” are to
(x) the Pricing Disclosure Package in the case of representations and warranties
made as of the date hereof and (y) the Pricing Disclosure Package and the Final
Offering Memorandum in the case of representations and warranties made as of the
Closing Date):

 

(a)           No Registration Required.  Subject to compliance by the Initial
Purchasers with the representations and warranties set forth in Section 2 hereof
and with the procedures set forth in Section 7 hereof, it is not necessary in
connection with the offer, sale and delivery of the Securities to the Initial
Purchasers and to each Subsequent Purchaser in the manner contemplated by this
Agreement and the Offering Memorandum to register the Securities under the
Securities Act or, until such time as the Exchange Securities are issued
pursuant to an effective registration statement, to qualify the Indenture under
the Trust Indenture Act of 1939 (the “Trust Indenture Act,” which term, as used
herein, includes the rules and regulations of the Commission promulgated
thereunder).

 

(b)           No Integration of Offerings or General Solicitation.  None of
Sally Beauty Holdings, Inc. (the “Parent”), the Issuers, their affiliates (as
such term is defined in Rule 501 under the Securities Act) (each, an
“Affiliate”), or any person acting on their or any of their behalf (other than
the Initial Purchasers, as to whom the Issuers and the Guarantors make no
representation or warranty) has, directly or indirectly, solicited any offer to
buy or offered to sell,

 

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or will, directly or indirectly, solicit any offer to buy or offer to sell, in
the United States or to any United States citizen or resident, any security
which is or would be integrated with the sale of the Securities in a manner that
would require the Securities to be registered under the Securities Act.  None of
the Parent, the Issuers, their Affiliates, or any person acting on its or any of
their behalf (other than the Initial Purchasers, as to whom the Issuers and the
Guarantors make no representation or warranty) has engaged or will engage, in
connection with the offering of the Securities, in any form of general
solicitation or general advertising within the meaning of Rule 502 under the
Securities Act.  With respect to those Securities sold in reliance upon
Regulation S, (i) none of the Parent, the Issuers, their Affiliates or any
person acting on its or their behalf (other than the Initial Purchasers, as to
whom the Issuers and the Guarantors make no representation or warranty) has
engaged or will engage in any directed selling efforts within the meaning of
Regulation S and (ii) each of the Parent, the Issuers and their Affiliates and
any person acting on its or their behalf (other than the Initial Purchasers, as
to whom the Issuers and the Guarantors make no representation or warranty) has
complied and will comply with the offering restrictions set forth in Regulation
S.

 

(c)           Eligibility for Resale under Rule 144A.  The Securities are
eligible for resale pursuant to Rule 144A and will not be, at the Closing Date,
of the same class as securities listed on a national securities exchange
registered under Section 6 of the Exchange Act or quoted in a U.S. automated
interdealer quotation system.

 

(d)           The Pricing Disclosure Package and Offering Memorandum.  Neither
the Pricing Disclosure Package, as of the Time of Sale, nor the Final Offering
Memorandum, as of its date or (as amended or supplemented in accordance with
Section 3(a), as applicable) as of the Closing Date, includes or will include
any untrue statement of a material fact or omits or will omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that this representation and warranty shall not apply to statements in or
omissions from the Pricing Disclosure Package, the Final Offering Memorandum or
any amendment or supplement thereto made in reliance upon and in conformity with
information furnished in writing to the Issuers by any Initial Purchaser through
the Representative expressly for use therein.  The Pricing Disclosure Package
contains, and the Final Offering Memorandum will contain, all the information
specified in, and meeting the requirements of, Rule 144A.  Each of the Issuers
and the Guarantors has not distributed and will not distribute, prior to the
later of the Closing Date and the completion of the Initial Purchasers’
distribution of the Securities, any offering material in connection with the
offering and sale of the Securities other than the Pricing Disclosure Package
and the Final Offering Memorandum.

 

(e)           Incorporated Documents.  The documents incorporated or deemed to
be incorporated by reference in the Offering Memorandum at the time they were or
hereafter are filed with the Commission (collectively, the “Incorporated
Documents”) complied and will comply in all material respects with the
requirements of the Exchange Act.  The Parent’s Form 10-K for the year ended
September 30, 2010, the Parent’s Form 10-Qs for the quarters ended December 31,
2010, March 31, 2011 and June 30, 2011 and the Parent’s Form 8-Ks since
September 30, 2010 (the “Parent SEC Filings”) at the time they were or hereafter
are filed with the Commission complied and will comply in all material respects
with the requirements of the Exchange Act.  Each such Parent SEC Filing, when
taken together with the Pricing Disclosure

 

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Package, did not as of the Time of Sale, and at the Closing Date will not,
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.

 

(f)            Company Additional Written Communications.  None of the Parent,
the Issuers, the Guarantors or any of their subsidiaries has prepared, made,
used, authorized, approved or distributed or will prepare, make, use, authorize
or distribute any written communication that constitutes an offer to sell or
solicitation of an offer to buy the Securities other than (i) the Pricing
Disclosure Package, (ii) the Final Offering Memorandum and (iii) any electronic
or written road show presentation or other written communications, in each case
used in accordance with Section 3(a).  Each such communication by the Issuers
and the Guarantors or their agents and representatives pursuant to clause
(iii) of the preceding sentence (each, a “Company Additional Written
Communication”), when taken together with the Pricing Disclosure Package, does
not conflict with the information contained in the Preliminary Offering
Memorandum and the Final Offering Memorandum, and did not as of the Time of
Sale, and at the Closing Date will not, contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions from each such Company Additional
Written Communication made in reliance upon and in conformity with information
furnished in writing to the Issuers by any Initial Purchaser through the
Representative expressly for use in any Company Additional Written
Communication.  In addition, the Parent, the Issuers and the Guarantors have not
made and will not make any offer relating to the Securities that, if the
offering of the Securities contemplated by this Agreement were conducted as a
public offering pursuant to a registration statement filed under the Securities
Act with the Commission, would constitute an “issuer free writing prospectus,”
as defined in Rule 433 under the Securities Act, without the prior written
consent of the Initial Purchasers.

 

(g)           No Material Adverse Change.  (i) The Parent, the Issuers and their
consolidated subsidiaries, taken together as a whole, have not sustained since
the date of the latest audited financial statements included in the Preliminary
Offering Memorandum any material loss or material interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth in the Preliminary Offering Memorandum; and
(ii) since the respective dates as of which information is given in the
Preliminary Offering Memorandum, there has not been any material change in the
capital stock or long-term debt of the Parent and its consolidated subsidiaries,
taken together as a whole, or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the general
affairs, management, financial position, stockholders’ equity or results of
operations of the Parent, the Issuers and their subsidiaries, taken as a whole,
otherwise than as set forth or contemplated in the Preliminary Offering
Memorandum.

 

(h)           Title to Properties.  The Parent, the Issuers and their
subsidiaries collectively have good title in fee simple to, or have valid rights
to lease or otherwise use, all items of real property, and title to, or valid
rights to lease or otherwise use, all personal property, which are material to
the business of the Parent, the Issuers and their subsidiaries, taken as a whole
(collectively, the “Business”), free and clear of all liens, encumbrances,
claims and title

 

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defects (collectively, “Liens”) that would reasonably be expected to have a
material adverse effect on the financial position, stockholders’ equity or
results of operations of the Parent, the Issuers and their subsidiaries, taken
as a whole (a “Material Adverse Effect”), other than Liens securing or otherwise
permitted by indebtedness described in the Preliminary Offering Memorandum, and
except as do not materially interfere with the use of such properties.

 

(i)            Incorporation and Good Standing of the Parent, the Issuers and
Guarantors.  Each of the Parent, the Issuers and the Guarantors has been duly
incorporated or formed, as applicable, and is validly existing as a corporation,
limited partnership or limited liability company, as applicable, in good
standing under the laws of the jurisdiction of its incorporation or
organization, and has corporate, partnership or limited liability company, as
applicable, power and authority to own its properties and conduct its business
as described in the Preliminary Offering Memorandum and the Final Offering
Memorandum and to enter into and perform its obligations under each of the
Transaction Documents to which it is a party.  Each of the Parent, the Issuers
and the Guarantors has been duly qualified as a foreign corporation, limited
partnership or limited liability company, as applicable, for the transaction of
business and is in good standing or equivalent status (if applicable) under the
laws of each other jurisdiction in which it owns or leases properties or
conducts any business so as to require such qualification, except where the
failure to be so organized or to be so qualified or have such corporate or other
power or authority would not reasonably be expected to have a Material Adverse
Effect; each of the Company’s subsidiaries is listed on Schedule II hereto.

 

(j)            Capitalization.  All of the issued shares of capital stock of the
Parent have been duly and validly authorized and issued and are fully paid and
non-assessable; none of the outstanding shares of capital stock of the Parent
were issued in violation of the preemptive or other similar rights of any
securityholder of the Parent; all of the issued shares of capital stock of each
of the Company and the Co-Issuer have been duly and validly authorized and
issued and are fully paid and non-assessable and are owned directly or
indirectly by the Parent; none of the outstanding shares of capital stock of the
Company and the Co-Issuer were issued in violation of the preemptive or other
similar rights of any securityholder of the Company and the Co-Issuer; all of
the issued shares of capital stock of each of the Guarantors that is a
corporation have been duly and validly authorized and issued, are fully paid and
non-assessable and, to the extent that a Guarantor is a partnership or a limited
liability company, all of the issued equity interests of each such Guarantor
have been duly and validly authorized and issued and, in each case, except as
otherwise set forth in the Preliminary Offering Memorandum, are owned directly
or indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims, other than Liens granted under or otherwise permitted by
indebtedness described in the Preliminary Offering Memorandum, as the same may
be amended, supplemented, waived or otherwise modified from time to time, or
refunded, refinanced, restructured, replaced, renewed, repaid, increased or
extended from time to time (whether in whole or in part).

 

(k)           The Purchase Agreement.  Each of the Parent, the Issuers and the
Guarantors has the requisite power and authority to execute, deliver and perform
its obligations under this Agreement and to consummate the transactions
contemplated hereby and thereby; and this Agreement has been duly authorized,
executed and delivered by the Parent and each of the Issuers and the Guarantors.

 

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(l)            The Registration Rights Agreement.  The Registration Rights
Agreement has been duly authorized and, on the Closing Date, will have been duly
executed and delivered by, and will constitute a valid and binding agreement of,
each of the Issuers and Guarantors, enforceable in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles and except
as rights to indemnification may be limited by applicable law.

 

(m)          Authorization of the Notes, the Guarantees and the Exchange Notes. 
The Notes to be purchased by the Initial Purchasers from the Issuers will on the
Closing Date be in the form contemplated by the Indenture, have been duly
authorized for issuance and sale pursuant to this Agreement and the Indenture
and, at the Closing Date, will have been duly executed by each of the Issuers
and, when authenticated by the Trustee in the manner provided for in the
Indenture (assuming the due authorization, execution and delivery of the
Indenture by the Trustee) and delivered against payment of the purchase price
therefor, will constitute valid and binding obligations of each of the Issuers,
enforceable in accordance with their terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or by
general equitable principles and will be entitled to the benefits of the
Indenture.  The Exchange Notes have been duly and validly authorized for
issuance by each of the Issuers and, when issued and authenticated by the
Trustee in accordance with the terms of the Indenture (assuming the due
authorization, execution and delivery of the Indenture by the Trustee), the
Registration Rights Agreement and the Exchange Offer, will constitute valid and
binding obligations of each of the Issuers, enforceable against each of the
Issuers in accordance with their terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or affecting enforcement of the rights and remedies of creditors or
by general principles of equity and will be entitled to the benefits of the
Indenture.  The Guarantees of the Notes on the Closing Date and the Guarantees
of the Exchange Notes when issued will be in the respective forms contemplated
by the Indenture and have been duly authorized for issuance pursuant to this
Agreement and the Indenture; the Guarantees of the Notes, at the Closing Date,
will have been duly executed by each of the Guarantors and, when the Notes have
been authenticated by the Trustee in the manner provided for in the Indenture
(assuming the due authorization, execution and delivery of the Indenture by the
Trustee) and issued and delivered against payment of the purchase price
therefor, the Guarantees of the Notes will constitute valid and binding
agreements of the Guarantors; and, when the Exchange Notes have been
authenticated by the Trustee in the manner provided for in the Indenture
(assuming the due authorization, execution and delivery of the Indenture by the
Trustee) and issued and delivered in accordance with the Registration Rights
Agreement, the Guarantees of the Exchange Notes will constitute valid and
binding agreements of the Guarantors, in each case, enforceable in accordance
with their terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by general
equitable principles and will be entitled to the benefits of the Indenture.

 

(n)           Authorization of the Indenture.  The Indenture has been duly
authorized by each of the Issuers and the Guarantors and, at the Closing Date,
will have been duly executed and delivered by each of the Issuers and the
Guarantors and (assuming the due authorization,

 

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execution and delivery by the Trustee) will constitute a valid and binding
agreement of each of the Issuers and the Guarantors, enforceable against each of
the Issuers and the Guarantors in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.

 

(o)           Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required.  The compliance by the Issuers and the
Guarantors with the Transaction Documents and the consummation of the
transactions therein contemplated will not (i) conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which any of the Parent, the Issuers or the
Guarantors is a party or by which any of the Parent, the Issuers or the
Guarantors is bound or to which any of the property or assets of the Parent, the
Issuers or the Guarantors is subject, (ii) violate any provision of the
certificate of incorporation or by-laws, or other organizational documents, as
applicable, of the Parent, the Issuers or any of the Guarantors or (iii) violate
any statute or any order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Parent, either of the Issuers or any of the
Guarantors or any of their properties; except, in the case of clauses (i) and
(iii), as would not reasonably be expected to have a Material Adverse Effect, in
the case of each such clause, after giving effect to any consents, approvals,
authorizations, orders, registrations, qualifications, waivers and amendments as
will have been obtained or made as of the date of this Agreement; and, assuming
the accuracy of the representations and warranties of the Initial Purchasers
hereunder, no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the execution, delivery and performance by the Issuers and the
Guarantors of their respective obligations under the Transaction Documents,
including the issuance and delivery of the Securities or the Exchange
Securities, or consummation by the Issuers and the Guarantors of the
transactions contemplated by this Agreement, except (x) the registration under
the Securities Act of the Exchange Securities, (y) such consents, approvals,
authorizations, registrations or qualifications as may be required under foreign
or state securities or Blue Sky laws, and (z) where the failure to obtain or
make any such consent, approval, authorization, order, registration or
qualification would not reasonably be expected to have a Material Adverse
Effect.

 

None of the Parent, the Issuers or the Guarantors is (i) in violation of its
certificate of incorporation or by-laws (or other organizational document, as
applicable) or (ii) in default in the performance or observance of any
obligation, covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound, except in the case
of clause (ii) for any violation or default that would not reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect.

 

(p)           No Material Actions or Proceedings.  Other than as set forth in
the Preliminary Offering Memorandum and the Final Offering Memorandum, there are
no legal or governmental proceedings pending to which the Issuers or, to the
knowledge of each of the Issuers, any of their respective subsidiaries is a
party or of which any property of the Issuers or, to the knowledge of the
Issuers and the Guarantors, any of their respective subsidiaries is the subject
which would, individually or in the aggregate, reasonably be expected to have a
Material

 

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Adverse Effect; and, to the knowledge of the Issuers and the Guarantors, no such
proceedings are threatened by governmental authorities or by others.

 

(q)           Description of the Transaction Documents.  The Transaction
Documents will confirm in all material respects to the respective statements
relating thereto contained in the Offering Memorandum.

 

(r)            Regulation T, U, X.  Neither the Parent, the Issuers nor any
Guarantor nor any of their respective subsidiaries nor any agent thereof acting
on their behalf has taken, and none of them will take, any action that might
cause this Agreement or the issuance or sale of the Securities to violate
Regulation T, Regulation U or Regulation X of the Board of Governors of the
Federal Reserve System.

 

(s)           Issuers and Guarantors Not an “Investment Company”.  None of the
Parent, the Issuers or any of the Guarantors is, or after giving effect to the
offering and sale of the Securities will be, an “investment company,” as such
term is defined in the United States Investment Company Act of 1940, as amended
(the “Investment Company Act”).

 

(t)            Preparation of the Financial Statements.  The consolidated
historical financial statements of the Company incorporated by reference into
the Offering Memorandum present fairly in all material respects the financial
position of the Company and its consolidated subsidiaries, as of the dates
indicated, and the results of its and their operations and the changes in its
and their shareholders’ equity and cash flows for the periods specified (subject
to the omission of footnotes and normal year end audit and other adjustments, as
to any unaudited financial statements of the Company); such consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles in the United States (“GAAP”) applied on a consistent
basis, subject to the limitations set out in the notes to the respective
financial statements of the Company included in the Offering Memorandum.  The
consolidated historical financial statements of the Parent included in the
Parent SEC Filings present fairly in all material respects the financial
position of the Parent and its consolidated subsidiaries, as of the dates
indicated, and the results of its and their operations and the changes in its
and their shareholders’ equity and cash flows for the periods specified (subject
to the omission of footnotes and normal year end audit and other adjustments, as
to any unaudited financial statements of the Parent); such consolidated
financial statements have been prepared in accordance with GAAP applied on a
consistent basis, subject to the limitations set out in the notes to the
financial statements of the Parent.

 

(u)           Solvency.  Each of the Parent, the Issuers and the Guarantors is,
and immediately after the Closing Date will be, Solvent.  As used herein, the
term “Solvent” means, with respect to any person on a particular date, that on
such date (i) the fair market value of the assets of such person is greater than
the total amount of liabilities (including contingent liabilities) of such
person, (ii) the present fair salable value of the assets of such person is
greater than the amount that will be required to pay the probable liabilities of
such person on its debts as they become absolute and matured, (iii) such person
is able to realize upon its assets and pay its debts and other liabilities,
including contingent obligations, as they mature and (iv) such person does not
have unreasonably small capital.

 

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(v)                                 Independent Accountants.  KPMG LLP, who has
audited certain consolidated financial statements of the Company and its
consolidated subsidiaries incorporated by reference into the Offering
Memorandum, has advised the Company that they are independent public accountants
with respect to the Company as required by the Securities Act and the rules and
regulations of the Commission thereunder, the Exchange Act and the Public
Accounting Oversight Board.  KPMG LLP, who has audited certain consolidated
financial statements of the Parent and its consolidated subsidiaries, has
advised the Parent that they are independent public accountants with respect to
the Parent as required by the Securities Act and the rules and regulations of
the Commission thereunder, the Exchange Act and the Public Accounting Oversight
Board.

 

(w)                               Accounting Systems.  The Parent and the
Company each maintain a system of internal accounting controls sufficient to
provide reasonable assurance that transactions are executed in accordance with
management’s general or specific authorizations; transactions are recorded as
necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability;
access to assets is permitted only in accordance with management’s general or
specific authorization; and the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.

 

(x)                                   Internal Controls.  Since the date of the
latest audited financial statements incorporated by reference into the Offering
Memorandum, to the knowledge of the Issuers and the Guarantors, there has been
no change in the Company’s internal control over financial reporting that has
materially adversely affected, or would reasonably be expected to materially
adversely affect, the Company’s internal control over financial reporting.

 

(y)                                 Disclosure Controls and Procedures.  The
Parent and the Company each maintain disclosure controls and procedures (as such
term is defined in Rule 13a-15(e) under the Exchange Act) that comply with the
requirements of the Exchange Act; such disclosure controls and procedures have
been designed to ensure that material information relating to the Parent, the
Company and their respective subsidiaries is made known to the Parent’s and the
Company’s principal executive officer and principal financial officer by others
within those entities; and such disclosure controls and procedures are
effective.

 

(z)                                   All Necessary Permits, etc.  The Parent
and its subsidiaries collectively possess all licenses, permits, certificates,
consents, orders, approvals and other authorizations from, and have made all
declarations and filings with, all federal, state and other governmental
authorities, presently required or necessary to own or lease, as the case may
be, and to operate their properties and to carry on the business as set forth in
the Offering Memorandum (“Permits”), except where the failure to possess, make
or obtain such Permits (by possession, declaration or filing) would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

 

(aa)                            Compliance with Labor Laws.  There is no strike
or labor dispute, slowdown or work stoppage with the employees of the Parent or
any of its subsidiaries that is pending or, to the knowledge of the Issuers and
the Guarantors, threatened, except as would not reasonably be expected to have a
Material Adverse Effect.

 

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(bb)                          Compliance with and Liability Under Environmental
Laws.  Except as disclosed in the Offering Memorandum, there is no claim pending
or, to the knowledge of the Issuers and the Guarantors, threatened under any
Environmental Law (as defined below) against the Parent, the Issuers or their
subsidiaries that would reasonably be expected to have a Material Adverse
Effect.  The term “Environmental Law” means any federal, local or foreign law,
regulation, ordinance, order, judgment decree, permit or rule (including rule of
common law) now in effect governing pollution, or actual or alleged exposure to,
hazardous or toxic materials, substances or wastes, including but not limited
to, asbestos or asbestos-containing materials.

 

(cc)                            Insurance.  The Parent, the Company and their
respective subsidiaries collectively carry insurance (including self-insurance,
if any) in such amounts and covering such risks as in the Parent’s and the
Company’s reasonable determination is adequate for the conduct of the business
and the value of its properties, except where the failure to carry such
insurance would not reasonably be expected to have a Material Adverse Effect.

 

(dd)                          Intellectual Property Rights.  The Parent, the
Issuers and their respective subsidiaries collectively own, or have the legal
right to use, all United States patents, patent applications, trademarks,
trademark applications, trade names, copyrights, technology, know-how and
processes necessary for them to conduct the business as currently conducted (the
“Intellectual Property”), except for those the failure to own or have such legal
right to use would not be reasonably expected to have a Material Adverse
Effect.   Except as disclosed in the Offering Memorandum, no claim has been
asserted and is pending by any person challenging or questioning the use of any
such Intellectual Property or the validity or effectiveness of any such
Intellectual Property, nor do the Issuers know of any such claim, and, to the
knowledge of the Issuers and the Guarantors, the use of such Intellectual
Property by the Parent, the Company and their respective subsidiaries does not
infringe on the rights of any person, except for such claims and infringements
which in the aggregate, would not be reasonably expected to have a Material
Adverse Effect;

 

(ee)                            Tax Law Compliance.  Each of the Parent, the
Issuers and the Guarantors has filed or caused to be filed all United States
federal income tax returns and all other material tax returns which are required
to be filed and has paid (a) all taxes shown to be due and payable on such
returns and (b) all taxes shown to be due and payable on any assessments of
which it has received notice made against it or any of its property and all
other taxes, fees or other charges imposed on it or any of its property by any
governmental authority (other than any (i) taxes, fees or other charges with
respect to which the failure to pay, in the aggregate, would not reasonably be
expected to have a Material Adverse Effect or (ii) taxes, fees or other charges
the amount or validity of which are currently being contested in good faith by
appropriate proceedings diligently conducted and with respect to which reserves
in conformity with GAAP have been provided on the books of the Parent, the
Issuers or the Guarantors, as applicable).  No tax lien has been filed, and no
claim is being asserted, with respect to any such tax, fee or other charge,
against any of the Parent, the Issuers or the Guarantors, or to the knowledge of
the Issuers and the Guarantors, any of their subsidiaries, except for liens or
charges that would not, individually or in the aggregate, be reasonably expected
to have a Material Adverse Effect.

 

(ff)                                No Unlawful Contributions or Other
Payments.  Neither the Parent, the Issuers nor, to the knowledge of the Issuers
and the Guarantors, any of the Issuers’ subsidiaries

 

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or any director, officer or employee acting on behalf of the Parent, the Issuers
or any of their respective subsidiaries has (i) used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expense relating to
political activity, (ii) made any direct or indirect unlawful payment to any
government official or employee from corporate funds, (iii) violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended, or the Bribery Act 2010 of the United Kingdom or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment.

 

(gg)                          No Conflict with Money Laundering Laws.  The
operations of the Parent, the Issuers and, to the knowledge of the Issuers and
the Guarantors, the operations of Issuers’ subsidiaries are and have been
conducted at all times in all material respects in compliance with applicable
financial record-keeping and reporting requirements of the anti-money laundering
laws and regulations of the United States and any related or similar statutes
(including, without limitation, the U.S. PATRIOT Act of 2001), rules,
regulations or guidelines, issued, administered or enforced by any governmental
agency (collectively, the “Money Laundering Laws”), and no action, suit or
proceeding by or before any court or governmental agency, authority or body or
any arbitrator involving the Parent, the Company or any of their subsidiaries
with respect to the Money Laundering Laws is, to the knowledge of the Issuers
and the Guarantors, pending or threatened.

 

(hh)                          No Conflict with Sanctions Laws.  Neither the
Parent, the Issuers nor, to the knowledge of the Issuers and the Guarantors, the
Issuers’ subsidiaries, or any of their respective directors, officers or
employees, is currently subject to any U.S. sanctions administered by the Office
of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”).

 

(ii)                                  Consolidated Net Sales and EBITDA.  There
are no states in the United States in which the Company generated in excess of
7.5% of its consolidated net sales in the nine months ended June 30, 2011 other
than California, Florida and Texas.  In addition, the Guarantors organized in
Wisconsin, New Hampshire, Florida and Arkansas collectively contributed no more
than 5% of the Company’s consolidated sales and EBITDA during the nine months
ended June 30, 2011.

 

(jj)                                  Regulation S.  The Parent, the Issuers,
the Guarantors and their respective affiliates and all persons acting on their
behalf (other than the Initial Purchasers, as to whom the Issuers and the
Guarantors make no representation) have complied with and will comply with the
offering restrictions requirements of Regulation S in connection with the
offering of the Securities outside the United States and, in connection
therewith, the Offering Memorandum will contain the disclosure required by
Rule 902.  The Company is a “reporting issuer” as defined in Rule 902 under the
Securities Act.

 

SECTION 2.                                Purchase, Sale and Delivery of the
Securities.

 

(a)                                  The Securities.  Each of the Issuers and
the Guarantors agrees to issue and sell to the Initial Purchasers, severally and
not jointly, all of the Securities, and subject to the conditions set forth
herein, the Initial Purchasers agree, severally and not jointly, to purchase
from the Issuers and the Guarantors the aggregate principal amount of Securities
set forth

 

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opposite their names on Schedule I hereto, at a purchase price of 98.5% of the
principal amount thereof payable on the Closing Date, in each case, on the basis
of the representations, warranties and agreements herein contained, and upon the
terms herein set forth.

 

(b)                                 The Closing Date.  Delivery of certificates
for the Securities in definitive form to be purchased by the Initial Purchasers
and payment therefor shall be made at the offices of Fried, Frank, Harris,
Shriver & Jacobson LLP, One New York Plaza, New York, New York 10004 (or such
other place as may be agreed to by the Company and the Representative) at 10:00
a.m., New York City time, on November 8, 2011, or such other time and date as
the Representative shall designate by notice to the Company (the time and date
of such closing are called the “Closing Date”).  The Issuers hereby acknowledge
that circumstances under which the Representative may provide notice to postpone
the Closing Date as originally scheduled include, but are in no way limited to,
any determination by the Issuers or the Initial Purchasers to recirculate to
investors copies of an amended or supplemented Offering Memorandum or a delay as
contemplated by the provisions of Section 9 hereof.

 

(c)                                  Delivery of the Notes.  The Issuers shall
deliver, or cause to be delivered, to the Representative for the accounts of the
several Initial Purchasers certificates for the Notes at the Closing Date
against the irrevocable release of a wire transfer of immediately available
funds for the amount of the purchase price therefor.  The certificates for the
Notes shall be in such denominations and registered in the name of Cede & Co.,
as nominee of the Depositary, pursuant to the DTC Agreement, and shall be made
available for inspection on the business day preceding the Closing Date at a
location in New York City, as the Representative may designate.  Time shall be
of the essence, and delivery at the time and place specified in this Agreement
is a further condition to the obligations of the Initial Purchasers.

 

(d)                                 Initial Purchasers as Qualified
Institutional Buyers.  Each Initial Purchaser severally and not jointly
represents and warrants to, and agrees with, the Issuers that:

 

(i)  it will offer and sell Securities only to (a) persons who it reasonably
believes are “qualified institutional buyers” within the meaning of Rule 144A
(“Qualified Institutional Buyers”) in transactions meeting the requirements of
Rule 144A or (b) upon the terms and conditions set forth in Annex I to this
Agreement;

 

(ii)  it is an institutional “accredited investor” within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act; and

 

(iii)  it will not offer or sell Securities by, any form of general solicitation
or general advertising, including but not limited to the methods described in
Rule 502(c) under the Securities Act.

 

SECTION 3.                                Additional Covenants.  Each of the
Issuers and the Guarantors, jointly and severally, further covenants and agrees
with each Initial Purchaser as follows:

 

(a)                                  Preparation of Final Offering Memorandum;
Initial Purchasers’ Review of Proposed Amendments and Supplements and Company
Additional Written Communications.  As promptly as practicable following the
Time of Sale and in any event not

 

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later than the second business day following the date hereof, the Issuers will
prepare and deliver to the Initial Purchasers the Final Offering Memorandum,
which shall consist of the Preliminary Offering Memorandum as modified only by
the information contained in the Pricing Supplement.  The Issuers will not amend
or supplement the Preliminary Offering Memorandum or the Pricing Supplement. 
The Issuers will not amend or supplement the Final Offering Memorandum prior to
the Closing Date unless the Representative shall previously have been furnished
a copy of the proposed amendment or supplement at least two business days prior
to the proposed use or filing, and shall not have objected to such amendment or
supplement.  Before making, preparing, using, authorizing, approving or
distributing any Company Additional Written Communication, the Issuers will
furnish to the Representative a copy of such written communication for review
and will not make, prepare, use, authorize, approve or distribute any such
written communication to which the Representative reasonably objects.

 

(b)                                 Amendments and Supplements to the Final
Offering Memorandum and Other Securities Act Matters.  If at any time prior to
the Closing Date (i) any event shall occur or condition shall exist as a result
of which any of the Pricing Disclosure Package as then amended or supplemented
would include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading or (ii) it is
necessary to amend or supplement any of the Pricing Disclosure Package to comply
with law, the Issuers and the Guarantors will immediately notify the Initial
Purchasers thereof and forthwith prepare and (subject to Section 3(a) hereof)
furnish to the Initial Purchasers such amendments or supplements to the Pricing
Disclosure Package as may be necessary so that the statements in any of the
Pricing Disclosure Package as so amended or supplemented will not, in the light
of the circumstances under which they were made, be misleading or so that any of
the Pricing Disclosure Package will comply with all applicable law.  If, prior
to the completion of the placement of the Securities by the Initial Purchasers
with the Subsequent Purchasers, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Final Offering
Memorandum, as then amended or supplemented, in order to make the statements
therein, in the light of the circumstances when the Final Offering Memorandum is
delivered to a Subsequent Purchaser, not misleading, or if in the judgment of
the Representative or counsel for the Initial Purchasers it is otherwise
necessary to amend or supplement the Final Offering Memorandum to comply with
law, the Issuers and the Guarantors agree to promptly prepare (subject to
Section 3(a) hereof), and furnish at its own expense to the Initial Purchasers,
amendments or supplements to the Final Offering Memorandum so that the
statements in the Final Offering Memorandum as so amended or supplemented will
not, in the light of the circumstances at the Closing Date and at the time of
sale of Securities, be misleading or so that the Final Offering Memorandum, as
amended or supplemented, will comply with all applicable law.

 

Following the consummation of the Exchange Offer or the effectiveness of an
applicable shelf registration statement and for so long as the Securities are
outstanding, if, in the judgment of the Representative, the Initial Purchasers
or any of their affiliates (as such term is defined in the Securities Act) are
required to deliver a prospectus in connection with sales of, or market-making
activities with respect to, the Securities, the Issuers and the Guarantors agree
to periodically amend the applicable registration statement so that the
information contained therein complies with the requirements of Section 10 of
the Securities Act, to amend the applicable

 

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registration statement or supplement the related prospectus or the documents
incorporated therein when necessary to reflect any material changes in the
information provided therein so that the registration statement and the
prospectus will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances existing as of the date the prospectus is so
delivered, not misleading and to provide the Initial Purchasers with copies of
each amendment or supplement filed and such other documents as the Initial
Purchasers may reasonably request.

 

(c)                                  Copies of the Offering Memorandum.  The
Issuers agree to furnish the Initial Purchasers, without charge, as many copies
of the Pricing Disclosure Package and the Final Offering Memorandum and any
amendments and supplements thereto as they shall reasonably request.

 

(d)                                 Blue Sky Compliance.  Each of the Issuers
and the Guarantors shall promptly from time to time take such action as the
Representative may reasonably request to qualify the Securities for offering and
sale under the securities laws of such jurisdictions as the Representative may
reasonably request and to comply with such laws so as to permit the continuance
of sales and dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Securities; provided, however,
that in connection therewith the Issuers and the Guarantors shall not be
required for any such purpose to (1) qualify as a foreign corporation, limited
partnership or limited liability company, as applicable, in any jurisdiction
wherein it would not otherwise be required to qualify but for the requirements
of this Section 3(d), (2) consent, or take any action that would subject them to
general service of process in any such jurisdiction or (3) make any changes to
its certificate of incorporation, by-laws or other organizational document, or
any agreement between it and any of its equityholders.

 

(e)                                  Use of Proceeds.  The Issuers shall apply
the net proceeds from the sale of the Securities sold by them in the manner
described under the caption “Use of Proceeds” in the Pricing Disclosure Package.

 

(f)                                    The Depository.  The Issuers will use
their best efforts to permit the Securities to be eligible for clearance and
settlement through the facilities of the Depositary.

 

(g)                                 Additional Issuer Information.  Prior to the
completion of the placement of the Securities by the Initial Purchasers with the
Subsequent Purchasers, the Company shall file, on a timely basis, with the
Commission all reports and documents required to be filed under Section 13 or 15
of the Exchange Act.  Subject to the last sentence in Section 3(i) below,
additionally, at any time when the Company is not subject to Section 13 or 15 of
the Exchange Act, for the benefit of holders and beneficial owners from time to
time of the Securities, the Issuers shall furnish, at their expense, upon
request, to holders and beneficial owners of Securities and prospective
purchasers of Securities information (“Additional Issuer Information”)
satisfying the requirements of Rule 144A(d).

 

(h)                                 Agreement Not To Offer or Sell Additional
Securities.  During the period of 30 days following the date hereof, Sally
Beauty Holdings, Inc., the Issuers and their subsidiaries will not, without the
prior written consent of Merrill Lynch (which consent may be withheld at the
sole discretion of Merrill Lynch), directly or indirectly, sell, offer, contract
or

 

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grant any option to sell, pledge, transfer or establish an open “put equivalent
position” within the meaning of Rule 16a-1 under the Exchange Act, or otherwise
dispose of or transfer, or announce the offering of, or file any registration
statement under the Securities Act in respect of, any debt securities of Sally
Beauty Holdings, Inc., either of the Issuers or any of their subsidiaries or
securities exchangeable for or convertible into debt securities of Sally Beauty
Holdings, Inc., either of the Issuers or any of their subsidiaries (other than
as contemplated by this Agreement and to register the Exchange Securities).

 

(i)                                     Future Reports to the Initial
Purchasers.  At any time when the Company is not subject to Section 13 or 15 of
the Exchange Act and any Securities or Exchange Securities remain outstanding,
the Company will furnish to the Representative and, upon request, to each of the
other Initial Purchasers:  (i) as soon as practicable after the end of each
fiscal year, copies of the Annual Report of the Company containing the balance
sheet of the Company as of the close of such fiscal year and statements of
income, stockholders’ equity and cash flows for the year then ended and the
opinion thereon of the Company’s independent public or certified public
accountants; (ii) as soon as practicable after the filing thereof, copies of
each proxy statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
Current Report on Form 8-K or other report filed by the Company with the
Commission, the Financial Industry Regulatory Authority (“FINRA”) or any
securities exchange; and (iii) as soon as available, copies of any report or
communication of the Company mailed generally to holders of its capital stock or
debt securities (including the holders of the Securities), if, in each case,
such documents are not filed with the Commission within the time periods
specified by the Commission’s rules and regulations under Section 13 or 15 of
the Exchange Act.  Notwithstanding the foregoing, the Company will be deemed to
have satisfied the requirements of this Section 3(i) and Section 3(g) if any
parent company of the Company files and provides reports, documents and
information of the types otherwise so required, in each case within the
applicable time periods, and the Company is not required to file such reports,
documents and information separately under the applicable rules and regulations
of the Commission (after giving effect to any exemptive relief) because of the
filings of such parent.

 

(j)                                     No Integration.  The Issuers agree that
they will not and will cause their respective Affiliates not to make any offer
or sale of securities of the Issuers of any class if, as a result of the
doctrine of “integration” referred to in Rule 502 under the Securities Act, such
offer or sale would render invalid (for the purpose of (i) the sale of the
Securities by the Issuers to the Initial Purchasers, (ii) the resale of the
Securities by the Initial Purchasers to Subsequent Purchasers or (iii) the
resale of the Securities by such Subsequent Purchasers to others) the exemption
from the registration requirements of the Securities Act provided by Section
4(2) thereof or by Rule 144A or by Regulation S thereunder or otherwise.

 

(k)                                  No General Solicitation or Directed Selling
Efforts.  The Issuers agree that they will not and will not permit any of their
respective Affiliates or any other person acting on their behalf (other than the
Initial Purchasers, as to which no covenant is given) to (i) solicit offers for,
or offer or sell, the Securities by means of any form of general solicitation or
general advertising within the meaning of Rule 502(c) of Regulation D or in any
manner involving a public offering within the meaning of Section 4(2) of the
Securities Act or (ii) engage in any directed selling efforts with respect to
the Securities within the meaning of Regulation S, and the

 

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Issuers will and will cause all such persons to comply with the offering
restrictions requirement of Regulation S with respect to the Securities.

 

(l)                                     No Restricted Resales.  The Issuers will
not, and will not permit any of their respective affiliates (as defined in Rule
144 under the Securities Act) to, resell any of the Notes that have been
reacquired by any of them.

 

(m)                               Legended Securities.  Each certificate for a
Note will bear substantially the same legend contained in “Notice to Investors”
in the Preliminary Offering Memorandum for the time period and upon the other
terms stated in the Preliminary Offering Memorandum.

 

Merrill Lynch on behalf of the several Initial Purchasers, may, in its sole
discretion, waive in writing the performance by any of the Issuers or Guarantors
of any one or more of the foregoing covenants or extend the time for their
performance.

 

SECTION 4.                                Payment of Expenses.  Each of the
Issuers and the Guarantors covenants and agrees with the several Initial
Purchasers that the Issuers and Guarantors will, jointly and severally, pay or
cause to be paid the following: (i) the fees, disbursements and expenses of the
Issuers’ and the Guarantors’ counsel and the Issuers’ and Guarantors’
accountants and all other expenses in connection with the preparation, printing
and reproduction of the Pricing Disclosure Package and the Final Offering
Memorandum and amendments and supplements thereto and the mailing and delivering
of copies thereof to the Initial Purchasers, (ii) the cost of printing this
Agreement, the Blue Sky Memorandum, the other Transaction Documents, closing
documents (including any compilations thereof) and any other documents in
connection with the offering, purchase, sale and delivery of the Securities,
(iii) up to $5,000 in connection with the qualification of the Securities for
offering and sale under state securities laws as provided in Section 3(d)
hereof, including the fees and disbursements of counsel for the Initial
Purchasers in connection with such qualification and in connection with the Blue
Sky Memorandum, (iv) all expenses incident to the issuance and delivery of the
Securities (including all printing and engraving costs), (v) all necessary
issue, transfer and other stamp taxes in connection with the issuance and sale
of the Securities to the Initial Purchasers, (vi) the fees and expenses of the
Trustee, including the fees and disbursements of counsel for the Trustee in
connection with the Indenture, the Securities and the Exchange Securities, (vii)
any fees payable in connection with the rating of the Securities or the Exchange
Securities with the ratings agencies, (viii) the filing fees incident to, and
the fees and disbursements of counsel for the Initial Purchasers in connection
with, any required review by FINRA of the terms of the sale of the Securities or
the Exchange Securities, (ix) all fees and expenses (including reasonable fees
and expenses of counsel) of the Issuers and the Guarantors in connection with
approval of the Securities by the Depositary for “book-entry” transfer, (x) the
costs and expenses of the Issuers and the Guarantors relating to investor
presentations on any “road show” undertaken in connection with the marketing of
the Securities, including without limitation expenses associated with the
production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations, travel and
lodging expenses of the representatives and officers of the Issuers and the
Guarantors and any such consultants, and the cost of aircraft and other
transportation chartered in connection with the road show, and (xi) all other
costs and expenses incident to the performance of the obligations of the Issuers
and the Guarantors hereunder which are not otherwise specifically provided for
in this Section.

 

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Except as provided in this Section and Sections 6 and 8 hereof, the Initial
Purchasers will pay all of their own costs and expenses, including the fees of
their counsel, and any advertising expenses connected with any offers they may
make.

 

SECTION 5.                                Conditions of the Obligations of the
Initial Purchasers.  The obligations of the Initial Purchasers to purchase and
pay for the Securities as provided herein on the Closing Date shall be subject,
in their discretion, to the condition that all representations and warranties
and other statements of the Issuers and the Guarantors set forth in Section 1
hereof are as of the date hereof, and as of the Closing Date, true and correct
as though then made, the condition that the Issuers and the Guarantors shall
have performed all of their respective obligations hereunder theretofore to be
performed, and the following additional conditions:

 

(a)                                  Opinion of Counsel for the Initial
Purchasers.  Fried, Frank, Harris, Shriver & Jacobson LLP, counsel for the
Initial Purchasers, shall have furnished to the Representative such written
opinion or opinions, dated as of the Closing Date, in form and substance
satisfactory to the Representative, and such counsel shall have received such
papers and information as they may reasonably request to enable them to pass
upon such matters.

 

(b)                                 Opinions of Counsel for the Company.  (i)
Alston & Bird LLP, counsel for the Issuers, shall have furnished to the
Representative its written opinion and negative assurance letter (forms of such
opinion and negative assurance letter are attached as Annexes II(a) and II(b)
hereto, and (ii) Matthew Haltom, Esq., Deputy General Counsel of the Issuers,
shall have furnished to the Representative his written opinion (a form of such
opinion is attached as Annex II(c) hereto), each dated as of the Closing Date.

 

(c)                                  Opinions of Counsel for the Guarantors.
Alston & Bird LLP, counsel for the Guarantors organized in Delaware, California
and Texas, shall have furnished to the Representative its written opinion, dated
as of the Closing Date, the form of which is attached as Annex II(a) hereto.

 

(d)                                 Accountants’ Comfort Letter.  On the date
hereof and on the Closing Date, KPMG LLP shall have furnished to the
Representative a “comfort” letter or “comfort” letters, dated the respective
dates of delivery thereof, in form and substance reasonably satisfactory to the
Representative and in accordance with professional auditing standards.

 

(e)                                  No Material Adverse Change.  (i) The
Parent, the Issuers and their consolidated subsidiaries, taken together as a
whole, have not sustained since the date of the latest audited financial
statements included in the Preliminary Offering Memorandum any loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Preliminary Offering Memorandum; (ii) since the respective
dates as of which information is given in the Preliminary Offering Memorandum,
there shall not have been any change in the capital stock or long-term debt of
the Parent and its subsidiaries, taken as a whole, or any change, or any
development involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders’ equity or results of operations of
the Parent and its subsidiaries, taken as a whole, otherwise than as set forth
or contemplated in the Preliminary Offering Memorandum, the effect of which, in
any such

 

18

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case described in clause (i) or (ii), is in the judgment of the Representative
so material and adverse as to make it impracticable or inadvisable to proceed
with the offering, sale or the delivery of the Securities on the terms and in
the manner contemplated in the Preliminary Offering Memorandum.

 

(f)                                    No Ratings Agency Change.  On or after
the Time of Sale, (i) no downgrading shall have occurred in the rating accorded
any debt of the Parent or any of its subsidiaries by any “nationally recognized
statistical rating organization”, as that term is defined by the Commission for
purposes of Rule 3(a)(62) under the Securities Act, and (ii) no such
organization shall publicly announce that it has under surveillance or review,
with possible negative implications, its rating of any debt of the Parent or any
of its subsidiaries.

 

(g)                                 No Disruptions or Crises.  From the date
hereof and on or prior to the Closing Date, there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange (the “Exchange”); (ii) a suspension or
material limitation in trading in the Parent’s securities on the Exchange; (iii)
a general moratorium on commercial banking activities declared by either Federal
or New York State authorities or a material disruption in commercial banking or
securities settlement or clearance services in the United States; (iv) the
outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war; or (v) the
occurrence of any other calamity or crisis or any change in financial, political
or economic conditions in the United States or elsewhere, if the effect of any
such event specified in clause (iv) or (v) in the judgment of the Representative
makes it impracticable or inadvisable to proceed with the offering, sale or the
delivery of the Securities on the terms and in the manner contemplated in the
Pricing Disclosure Package.

 

(h)                                 Officers’ Certificate.  The Issuers and the
Guarantors shall have furnished or caused to be furnished to the Representative
on the Closing Date certificates of officers of the Issuers and the Guarantors,
satisfactory to the Representative as to the accuracy of the representations and
warranties of the Issuers and the Guarantors, herein at and as of the Closing
Date, as to the performance by the Issuers and the Guarantors of all of their
obligations hereunder to be performed at or prior to such Closing Date and as to
such other matters as the Representative may reasonably request.

 

(i)                                     Indenture; Registration Rights
Agreement.  The Issuers and the Guarantors shall have executed and delivered the
Indenture to the Initial Purchasers, in form and substance reasonably
satisfactory to the Representative, and the Initial Purchasers shall have
received executed copies thereof.  The Issuers and the Guarantors shall have
executed and delivered the Registration Rights Agreement to the Initial
Purchasers, in form and substance reasonably satisfactory to the Representative,
and the Initial Purchasers shall have received such executed counterparts.

 

(j)                                     Delivery of Final Offering Memorandum. 
The Issuers shall have complied with the provisions of Section 3(a) hereof with
respect to delivery of the Final Offering Memorandum to the Initial Purchasers
not later than the second business day following the date of this Agreement.

 

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(k)                                  Additional Documents.  On or before the
Closing Date, the Initial Purchasers and counsel for the Initial Purchasers
shall have received such information, documents and opinions as they may
reasonably require for the purposes of enabling them to pass upon the issuance
and sale of the Securities as contemplated herein, or in order to evidence the
accuracy of any of the representations and warranties, or the satisfaction of
any of the conditions or agreements, herein contained.

 

If any condition specified in this Section 5 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the Representative
by notice to the Issuers at any time on or prior to the Closing Date, which
termination shall be without liability on the part of any party to any other
party, except that Sections 4, 6 and 8 hereof shall at all times be effective
and shall survive such termination.

 

SECTION 6.                                Reimbursement of Initial Purchasers’
Expenses.  If this Agreement shall be terminated pursuant to Section 9 hereof,
none of the Issuers shall then be under any liability to any Initial Purchaser
except as provided in Sections 4 and 8 hereof; but, if for any other reason any
Securities are not delivered by or on behalf of the Issuers and the Guarantors
as provided herein, the Issuers and the Guarantors will, jointly and severally,
reimburse the Initial Purchasers through the Representative for all
out-of-pocket expenses approved in writing by the Representative, including fees
and disbursements of counsel, reasonably incurred by the Initial Purchasers in
making preparations for the purchase, sale and delivery of the Securities not so
delivered, but none of the Issuers and the Guarantors shall then be under any
further liability to any Initial Purchaser except as provided in Sections 4 and
8 hereof.

 

SECTION 7.                                Offer, Sale and Resale Procedures. 
Each of the Initial Purchasers, on the one hand, and each of the Issuers and
Guarantors, on the other hand, hereby agree to observe the following procedures
in connection with the offer and sale of the Securities:

 

(a)                                  Offers and sales of the Securities will be
made only by the Initial Purchasers or Affiliates thereof qualified to do so in
the jurisdictions in which such offers or sales are made.  Each such offer or
sale shall only be made to persons whom the offeror or seller reasonably
believes to be Qualified Institutional Buyers or non-U.S. persons outside the
United States to whom the offeror or seller reasonably believes offers and sales
of the Securities may be made in reliance upon Regulation S upon the terms and
conditions set forth in Annex I hereto, which Annex I is hereby expressly made a
part hereof.

 

(b)                                 No general solicitation or general
advertising (within the meaning of Rule 502 under the Securities Act) will be
used in the United States in connection with the offering of the Securities.

 

(c)                                  Upon original issuance by the Issuers, and
until such time as the same is no longer required under the applicable
requirements of the Securities Act, the Notes (and all securities issued in
exchange therefor or in substitution thereof, other than the Exchange Notes)
shall bear substantially the following legend:

 

“THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE

 

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“SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, SUCH REGISTRATION. THE HOLDER HEREOF, BY PURCHASING THIS NOTE,
AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS
PURCHASED SECURITIES, THAT THIS NOTE OR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (I) TO SALLY
HOLDINGS LLC (THE “ISSUER”) OR ANY OF ITS SUBSIDIARIES, (II) SO LONG AS THIS
NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT
(“RULE 144A”), TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A) IN ACCORDANCE WITH RULE 144A,
(III) IN AN OFFSHORE TRANSACTION TO A NON-U.S. PERSON IN ACCORDANCE WITH RULE
903 OR 904 OF REGULATION S UNDER THE SECURITIES ACT, (IV) TO AN INSTITUTION THAT
IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER
THE SECURITIES ACT THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND
NOT FOR DISTRIBUTION, (V) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT (IF AVAILABLE), OR (VI) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, AND IN EACH OF SUCH CASES IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER
APPLICABLE JURISDICTION. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, REPRESENTS
AND AGREES THAT IT WILL NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE
RESTRICTIONS REFERRED TO ABOVE. THE FOREGOING LEGEND MAY BE REMOVED FROM THIS
NOTE ONLY WITH THE CONSENT OF THE ISSUER.”

 

Following the sale of the Securities by the Initial Purchasers to Subsequent
Purchasers pursuant to the terms hereof, the Initial Purchasers shall not be
liable or responsible to the Issuers for any losses, damages or liabilities
suffered or incurred by the Issuers, including any losses, damages or
liabilities under the Securities Act, arising from or relating to any resale or
transfer of any Security.

 

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SECTION 8.                                Indemnification and Contribution.

 

(a)                                  Indemnification of the Initial Purchasers. 
Each of the Issuers and Guarantors will, jointly and severally, indemnify and
hold harmless each Initial Purchaser and each person, if any, who controls each
Initial Purchaser within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act and their respective officers, directors,
employees, affiliates, and selling agents against any losses, claims, damages or
liabilities, joint or several, to which such Initial Purchaser, affiliate,
director, officer, employee, selling agent or controlling person may become
subject, under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in the Preliminary Offering Memorandum, the Pricing Supplement, the
Pricing Disclosure Package, any Company Additional Written Communication or the
Final Offering Memorandum (or any amendment or supplement thereto), or arise out
of or are based upon the omission or alleged omission to state therein a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and will reimburse
each Initial Purchaser and each such affiliate, director, officer, employee,
selling agent or controlling person for any legal or other expenses  reasonably
incurred by such Initial Purchaser or such affiliate, director, officer,
employee, selling agent or controlling person in connection with investigating
or defending any such action or claim as such expenses are incurred; provided,
however, that the Issuers and Guarantors shall not be liable to any Initial
Purchaser in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission related to such Initial Purchaser and
made in the Preliminary Offering Memorandum, the Pricing Supplement, the Pricing
Disclosure Package, any Company Additional Written Communication or the Final
Offering Memorandum (or any amendment or supplement thereto), in reliance upon
and in conformity with written information furnished to the Issuers and
Guarantors by any Initial Purchaser through the Representative expressly for use
therein.  For purposes of this Agreement, the only information furnished in
writing to the Issuers and the Guarantors by any Initial Purchaser through the
Representative shall be the information set forth in the table in the first
paragraph, the first sentence of the fifth paragraph, the third and fourth
sentences of the seventh paragraph, the first and second sentences of the ninth
paragraph, and the first and second sentences of the eleventh paragraph with
respect to the Initial Purchasers under the caption “Plan of Distribution” in
the Preliminary Offering Memorandum and the Final Offering Memorandum.

 

(b)                                 Indemnification of the Issuers and the
Guarantors.  Each Initial Purchaser will, severally and not jointly, indemnify
and hold harmless each of the Issuers, each Guarantor, and each person, if any,
who controls any of the Issuers or any Guarantor within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act and their
respective officers, directors, employees, affiliates and selling agents against
any losses, claims, damages or liabilities to which any Issuer, any Guarantor or
any such officer, director, employee, affiliate, selling agent or controlling
person may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in the Preliminary Offering Memorandum, the Pricing
Supplement, the Pricing Disclosure Package, any Company Additional Written
Communication or the Final Offering Memorandum (or any amendment or supplement
thereto), or arise out of or are based upon the

 

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omission or alleged omission to state therein a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission related to such Initial Purchaser and was made in the Preliminary
Offering Memorandum, the Pricing Supplement, the Pricing Disclosure Package, any
Company Additional Written Communication or the Final Offering Memorandum (or
any amendment or supplement thereto), in reliance upon and in conformity with
written information furnished to the Issuers by such Initial Purchaser through
the Representative expressly for use therein; and will reimburse any Issuer and
any Guarantor, and any such officer, director, employee, affiliate, selling
agent or controlling person for any legal or other expenses reasonably incurred
by any Issuer, any Guarantor, or such officer, director, employee, affiliate,
selling agent or controlling person in connection with investigating or
defending any such action or claim as such expenses are incurred.

 

(c)                                  Notifications and Other Indemnification
Procedures; Settlements.  Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party hereunder except to the extent the indemnifying party has
been materially prejudiced by such failure, and the failure to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party other than under Sections 8(a), 8(b) and 8(c) hereof.  In
case any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party (who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party), provided, however, if the defendants in any
such action include both the indemnified party and the indemnifying party and
the indemnified party shall have reasonably concluded that a conflict may arise
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties and, after notice from the indemnifying party
to such indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation.  It is
understood that the indemnifying party or parties shall not, in connection with
any one action or proceeding or separate but substantially similar actions or
proceedings arising out of the same general allegations be liable for the fees
and expenses of more than one separate firm of attorneys at any time for all
indemnified parties (except to the extent that local counsel (in addition to any
regular counsel) is required to effectively defend against any such action or
proceeding).  No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to,

 

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any pending or threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified party is an
actual or potential party to such action or claim) unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability arising out of such action or claim and (ii) does not
include a statement as to, or an admission of, fault, culpability or a failure
to act, by or on behalf of any indemnified party.

 

(d)                                 Contribution.  If the indemnification
provided for in this Section 8 is unavailable to or insufficient to hold
harmless an indemnified party under subsections (a) or (b) above in respect of
any losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Issuers and the
Guarantors on the one hand and the Initial Purchasers on the other from the
offering of the Securities.  If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under subsection (c) above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Issuers and the
Guarantors on the one hand and the Initial Purchasers on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations.  The relative benefits received by the Issuers and the
Guarantors on the one hand and the Initial Purchasers on the other shall be
deemed to be in the same respective proportion as the total net proceeds from
the offering (before deducting expenses) received by the Issuers and the total
discounts and commissions received by the Initial Purchasers bear to the
aggregate offering price of the Securities, in each case as set forth in the
table on the cover page of the Offering Memorandum.  The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Issuers or the Guarantors
on the one hand or the Initial Purchasers on the other and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.  Each of the Issuers, the Guarantors and the Initial
Purchasers agree that it would not be just and equitable if contribution
pursuant to this subsection (d) were determined by pro rata allocation (even if
the Initial Purchasers were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this subsection (d).  The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this subsection
(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim.  Notwithstanding the provisions of this subsection (d), no
Initial Purchaser shall be required to contribute any amount in excess of the
discounts and commissions received by such Initial Purchaser in connection with
the Securities distributed by it.  No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Initial Purchasers’ obligations in this
subsection (d) to contribute are several in proportion to their respective
commitments as set forth opposite their names in Schedule I hereto and not
joint.

 

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(e)                                  Additional Liability.  The obligations of
the Issuers and the Guarantors under this Section 8 shall be in addition to any
liability which the respective Issuers and Guarantors may otherwise have and
shall extend, upon the same terms and conditions, to each person, if any, who
controls any Initial Purchaser within the meaning of the Securities Act and the
Exchange Act and each broker dealer affiliate of any Initial Purchaser; and the
obligations of the Initial Purchasers under this Section 8 shall be in addition
to any liability which the respective Initial Purchasers may otherwise have and
shall extend, upon the same terms and conditions, to each officer and director
of the Issuers and the Guarantors and to each person, if any, who controls any
of the Issuers or Guarantors within the meaning of the Securities Act and the
Exchange Act.

 

SECTION 9.                                Default of One or More of the Several
Initial Purchasers.

 

(a)                                  If any Initial Purchaser shall default in
its obligation to purchase the Securities which it has agreed to purchase
hereunder on the Closing Date, the Representative may in its discretion arrange
for the Representative or another party or other parties to purchase such
Securities on the terms contained herein.  If within thirty-six hours after such
default by any Initial Purchaser, the Representative does not arrange for the
purchase of such Securities, then the Issuers and the Guarantors shall be
entitled to a further period of thirty-six hours within which to procure another
party or other parties satisfactory to the Representative to purchase such
Securities on such terms.  In the event that, within the respective prescribed
periods, the Representative notifies the Issuers and the Guarantors that the
Representative has so arranged for the purchase of such Securities, or the
Issuers notify the Representative that they have so arranged for the purchase of
such Securities, the Representative or the Issuers shall have the right to
postpone such Closing Date for a period of not more than seven days, in order to
effect whatever changes may thereby be made necessary in the Offering
Memorandum, or in any other documents or arrangements, and the Issuers agree to
effect whatever changes which in the Representative’s opinion may thereby be
made necessary in the Offering Memorandum. The term “Initial Purchaser” as used
in this Agreement shall include any person substituted under this
Section 9(a) with like effect as if such person had originally been a party to
this Agreement with respect to such Securities.

 

(b)                                 If, after giving effect to any arrangements
for the purchase of the Securities of a defaulting Initial Purchaser or Initial
Purchasers by the Representative and the Issuers and the Guarantors as provided
in subsection (a) above, the aggregate principal amount of such Securities which
remains unpurchased does not exceed one-tenth of the aggregate principal amount
of all the Securities to be purchased on the Closing Date, then the Issuers
shall have the right to require each non-defaulting Initial Purchaser to
purchase the principal amount of Securities which such defaulting Initial
Purchaser agreed to purchase hereunder on the Closing Date and, in addition, to
require each non-defaulting Initial Purchaser to purchase its pro rata share
(based on the number of Securities which such Initial Purchaser agreed to
purchase hereunder) of the Securities of such defaulting Initial Purchaser or
Initial Purchasers for which such arrangements have not been made; but nothing
herein shall relieve a defaulting Initial Purchaser from liability for its
default.

 

(c)                                  If, after giving effect to any arrangements
for the purchase of the Securities of a defaulting Initial Purchaser or Initial
Purchasers by the Representative and the

 

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Issuers and Guarantors as provided in subsection (a) above, the aggregate number
of such Securities which remains unpurchased exceeds one-tenth of the aggregate
number of all the Securities to be purchased on the Closing Date, or if the
Issuers shall not exercise their rights described in subsection (b) above to
require non-defaulting Initial Purchasers to purchase Securities of a defaulting
Initial Purchaser or Initial Purchasers, then this Agreement shall thereupon
terminate, without liability on the part of any non-defaulting Initial Purchaser
or the Issuers and Guarantors, except for the expenses to be borne by the
Issuers and the Guarantors and the Initial Purchasers as provided in Section 4
hereof and the indemnity and contribution agreements in Section 8 hereof; but
nothing herein shall relieve a defaulting Initial Purchaser from liability for
its default.

 

SECTION 10.                          Amendments and Waivers.  This Agreement may
not be amended or modified unless in writing by all of the parties hereto, and
no condition herein (express or implied) may be waived unless waived in writing
by each party whom the condition is meant to benefit.

 

SECTION 11.                          Partial Unenforceability.  The invalidity
or unenforceability of any section, paragraph or provision of this Agreement
shall not affect the validity or enforceability of any other section, paragraph
or provision hereof.  If any section, paragraph or provision of this Agreement
is for any reason determined to be invalid or unenforceable, there shall be
deemed to be made such minor changes (and only such minor changes) as are
necessary to make it valid and enforceable.

 

SECTION 12.                          Representations and Indemnities to Survive
Delivery.  The respective indemnities, agreements, representations, warranties
and other statements of the Issuers, the Guarantors, and the several Initial
Purchasers, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Initial Purchaser or any controlling person of any
Initial Purchaser, or the Issuers, or any of the Guarantors, or any officer or
director or controlling person of the Issuers or Guarantors, and shall survive
delivery of and payment for the Securities.

 

SECTION 13.                          Authority of the Representative.  Any
action by the Initial Purchasers hereunder may be taken by Merrill Lynch on
behalf of the Initial Purchasers, and any such action taken by Merrill Lynch
shall be binding upon the Initial Purchasers.

 

SECTION 14.                          Notices.  All statements, requests, notices
and agreements hereunder shall be in writing, and if to the Initial Purchasers
shall be delivered or sent by mail, telex or facsimile transmission to Merrill
Lynch, Pierce, Fenner & Smith Incorporated, One Bryant Park, New York, NY 10036,
Facsimile: (646) 855 3073, Attention: Syndicate Department, with a copy to:
Fried, Frank, Harris, Shriver & Jacobson LLP, One New York Plaza, New York, New
York 10004, Facsimile: (212) 859-4000, Attention: Valerie Ford Jacob, Esq. and
Michael A. Levitt, Esq., and if to the Issuers or the Guarantors shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Issuers set forth in the Offering Memorandum, Attention: Matthew Haltom, Vice
President, Assistant Secretary and Deputy General Counsel, with a copy (which
shall not constitute notice) to Alston & Bird LLP, One Atlanta Center, 1201 West
Peachtree Street, Atlanta Georgia, 30309-3424, Attn: Scott Ortwein; provided,
however, that any

 

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notice to an Initial Purchaser pursuant to Section 8(d) hereof shall be
delivered or sent by mail, telex or facsimile transmission to such Initial
Purchaser at its address set forth in its Initial Purchaser’s Questionnaire, or
telex constituting such Questionnaire, which address will be supplied to the
Issuers or the Guarantors by the Representative upon request.  Any such
statements, requests, notices or agreements shall take effect upon receipt
thereof.  Any party hereto may change the address or facsimile number for
receipt of communications by giving written notice to the others.

 

SECTION 15.                          Successors.  This Agreement shall be
binding upon, and inure solely to the benefit of, the Initial Purchasers, the
Issuers and the Guarantors and, to the extent provided in Sections 6 and 8
hereof, the officers and directors of the Issuers and the Guarantors and each
person who controls any Issuer, any Guarantor or any of the Initial Purchasers,
and their respective heirs, executors, administrators, successors and assigns,
and no other person shall acquire or have any right under or by virtue of this
Agreement.  No Subsequent Purchaser or other purchaser of any of the Securities
from any Initial Purchaser shall be deemed a successor or assign by reason
merely of such purchase.

 

SECTION 16.                          Time is of the Essence.  Time shall be of
the essence of this Agreement.  As used herein, the term “business day” shall
mean any day when the Commission’s office in Washington D.C. is open for
business.

 

SECTION 17.                          No Advisory or Fiduciary Responsibility. 
Each of the Issuers and the Guarantors acknowledges and agrees that (i) the
purchase and sale of the Securities pursuant to this Agreement is an
arm’s-length commercial transaction between the Issuers and the Guarantors, on
the one hand, and the several Initial Purchasers, on the other, (ii) in
connection therewith and with the process leading to such transaction, each
Initial Purchaser is acting solely as a principal and not the agent or fiduciary
of the Issuers and the Guarantors, (iii) no Initial Purchaser has assumed an
advisory or fiduciary responsibility in favor of the Issuers or the Guarantors
with respect to the offering contemplated hereby or the process leading thereto
(irrespective of whether such Initial Purchasers has advised or is currently
advising the Issuers or the Guarantors on other matters) or any other obligation
to the Issuers or the Guarantors except the obligations expressly set forth in
this Agreement and (iv) the Issuers and the Guarantors have consulted their own
legal and financial advisors to the extent they deemed appropriate.  Each of the
Issuers and the Guarantors agrees that it will not claim that the Initial
Purchasers, or any of them, has rendered advisory services of any nature or
respect, or owes a fiduciary or similar duty to the Issuers or the Guarantors,
in connection with such transaction or the process leading thereto.

 

SECTION 18.                          Initial Purchasers Are Full Service
Securities Firms.  The Issuers and Guarantors acknowledges that each Initial
Purchaser is a full service securities firm and as such from time to time,
subject to applicable securities laws, may effect transactions for its own
account or the account of its customers and hold long or short positions in debt
or equity securities of the companies which may be the subject of the
transactions contemplated by this Agreement.

 

SECTION 19.                          USA PATRIOT Act.  In accordance with the
requirements of the USA PATRIOT Act (Title III of Public Law 107-56 (signed into
law October 26, 2001)), each Initial

 

27

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Purchaser is required to obtain, verify and record information that identifies
its clients, including the Issuers, which information may include the name and
address of their respective clients, as well as other information that will
allow each Initial Purchaser to properly identify its respective clients.

 

SECTION 20.                          Entire Agreement.  This Agreement
supersedes all prior agreements and understandings (whether written or oral)
between the Issuers, the Guarantors and the Initial Purchasers, or any of them,
with respect to the subject matter hereof.

 

SECTION 21.                          Governing Law Provisions.  This Agreement
and any claim, controversy or dispute arising under or related to this Agreement
shall be governed by and construed in accordance with the laws of the State of
New York.

 

SECTION 22.                          Waiver of Jury Trial.  Each of the Issuers,
the Guarantors and the Initial Purchasers hereby irrevocably waives, to the
fullest extent permitted by applicable law, any and all right to trial by jury
in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.

 

SECTION 23.                          General Provisions.  This Agreement may be
executed by any one or more of the parties hereto in any number of counterparts,
each of which shall be deemed to be an original, but all such counterparts shall
together constitute one and the same instrument.  Delivery of an executed
counterpart of a signature page to this Agreement by telecopier, facsimile or
other electronic transmission (i.e., a “pdf” or “tif”) shall be effective as
delivery of a manually executed counterpart thereof.  The section headings
herein are for the convenience of the parties only and shall not affect the
construction or interpretation of this Agreement.

 

[Signature Pages Follow]

 

28

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If the foregoing is in accordance with your understanding, please sign and
return to us four counterparts hereof, and upon the acceptance hereof by the
Representative, on behalf of each of the Initial Purchasers, this Agreement and
such acceptance hereof shall constitute a binding agreement between each of the
Initial Purchasers, each of the Issuers and each of the Guarantors.  It is
understood that acceptance of this Agreement by the Representative on behalf of
each of the Initial Purchasers is pursuant to the authority set forth in a form
of Agreement among Underwriters, the form of which shall be submitted to the
Issuers and the Guarantors for examination upon request, but without warranty on
the Representative’s part as to the authority of the signers thereof.

 

 

 

Very truly yours,

 

 

 

SALLY HOLDINGS LLC

 

 

 

By:

/s/  Mark J. Flaherty

 

 

Name:   Mark J. Flaherty

 

 

Title:  Senior Vice President and CFO

 

 

 

SALLY CAPITAL INC.

 

 

 

By:

/s/  Mark J. Flaherty

 

 

Name:   Mark J. Flaherty

 

 

Title:  Senior Vice President and CFO

 

29

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ARMSTRONG McCALL HOLDINGS L.L.C.

BEAUTY HOLDING LLC

SALLY BEAUTY INTERNATIONAL FINANCE LLC

DIORAMA SERVICES COMPANY, LLC

SALLY BEAUTY DISTRIBUTION LLC

BEAUTY SYSTEMS GROUP LLC

SALLY BEAUTY SUPPLY LLC

ARMSTRONG McCALL MANAGEMENT L.C.

SALON SUCCESS INTERNATIONAL, L.L.C.

ARMSTRONG McCALL, L.P.

ARMSTRONG McCALL HOLDINGS, INC.

BRENTWOOD BEAUTY LABORATORIES INTERNATIONAL, INC.

BEYOND THE ZONE, INC.

COLORESSE, INC.

ENERGY OF BEAUTY, INC.

ESTHETICIAN SERVICES, INC.

FOR PERMS ONLY, INC.

HIGH INTENSITY PRODUCTS, INC.

ION PROFESSIONAL PRODUCTS, INC.

LAND OF DREAMS, INC.

MIRACLE LANE, INC.

VENIQUE, INC.

NAIL LIFE, INC.

NEW IMAGE PROFESSIONAL PRODUCTS, INC.

PROCARE LABORATORIES, INC.

SALLY BEAUTY DISTRIBUTION OF OHIO, INC.

SATIN STRANDS, INC.

SEXY U PRODUCTS, INC.

SILK ELEMENTS, INC.

TANWISE, INC.

SOREN ENTERPRISES, INC.

POWER IQ, INC.

DESIGN LENGTHS, INC.

FEMME COUTURE INTERNATIONAL, INC.

GENERIC VALUE PRODUCTS, INC.

INNOVATIONS – SUCCESSFUL SALON SERVICES

ARNOLDS, INC.

NEKA SALON SUPPLY, INC.

AERIAL COMPANY, INC.,

 

 

 

as Guarantors

 

 

 

 

By:

/s/ Mark J. Flaherty

 

 

Name:  Mark J. Flaherty

 

 

Title:  Senior Vice President and CFO

 

[Signature Page — Purchase Agreement —Guarantors]

 

30

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SALLY BEAUTY HOLDINGS, INC.

 

(for purposes of Section 3(h))

 

 

 

 

 

By:

/s/ Mark J. Flaherty

 

 

Name:  Mark J. Flaherty

 

 

Title:  Senior Vice President and CFO

 

31

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The foregoing Purchase Agreement is hereby confirmed and accepted by the Initial
Purchasers as of the date first above written.

 

 

Merrill Lynch, Pierce, Fenner & Smith

                     Incorporated

 

 

 

 

 

By:

/s/ Adam Cady

 

 

Name:  Adam Cady

 

 

Title:  Managing Director

 

 

 

 

 

 

 

Credit Suisse Securities (USA) LLC

 

 

 

 

 

 

 

By:

/s/ Sarah Marie Martin

 

 

Name:  Sarah Marie Martin

 

 

Title:  Managing Director

 

 

 

 

 

 

 

Goldman, Sachs & Co.

 

 

 

 

 

By:

/s/ Goldman, Sachs & Co.

 

 

 

 

 

 

 

J.P. Morgan Securities LLC

 

 

 

 

 

 

 

By:

/s/ Uri Birkenfeld

 

 

Name:  Uri Birkenfeld

 

 

Title:  Vice President

 

 

 

 

 

 

 

Wells Fargo Securities, LLC

 

 

 

 

 

 

 

By:

/s/ David Gillespie

 

 

Name:  David Gillespie

 

 

Title:  Managing Director

 

 

32

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SCHEDULE I

 

Initial Purchasers

 

Aggregate Principal
Amount of Securities to
be Purchased

 

Merrill Lynch, Pierce, Fenner & Smith
Incorporated

 

$

150,000,000

 

Credit Suisse Securities (USA) LLC

 

150,000,000

 

Goldman, Sachs & Co.

 

150,000,000

 

J.P. Morgan Securities LLC

 

150,000,000

 

Wells Fargo Securities, LLC

 

150,000,000

 

 

 

 

 

Total

 

$

750,000,000

 

 

I-1

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SCHEDULE II

 

Name of Subsidiary

 

Jurisdiction

Beauty Systems Group LLC

 

Delaware

Armstrong McCall Holdings, Inc.

 

Texas

Arnolds, Inc.

 

Arkansas

Armstrong McCall Holdings, L.L.C.

 

Delaware

Armstrong McCall Management, L.C.

 

Texas

Armstrong McCall, L.P.

 

Texas

Innovations-Successful Salon Services

 

California

Procare Laboratories, Inc.

 

Delaware

Neka Salon Supply, Inc.

 

New Hampshire

Salon Success International, LLC

 

Florida

Aerial Company, Inc.

 

Wisconsin

Sally Beauty Supply LLC

 

Delaware

Diorama Services Company, LLC

 

Delaware

Sally Capital Inc.

 

Delaware

Sally Beauty Distribution LLC

 

Delaware

Sally Beauty International Finance LLC

 

Delaware

Beauty Holding LLC

 

Delaware

Beyond the Zone, Inc.

 

Delaware

Silk Elements, Inc.

 

Delaware

High Intensity Products, Inc.

 

Delaware

Nail Life, Inc.

 

Delaware

Sexy U Products, Inc.

 

Delaware

For Perms Only, Inc.

 

Delaware

Energy of Beauty, Inc.

 

Delaware

Miracle Lane, Inc.

 

Delaware

Tanwise, Inc.

 

Delaware

Satin Strands, Inc.

 

Delaware

Brentwood Beauty Laboratories International, Inc.

 

Texas

Ion Professional Products, Inc.

 

Delaware

New Image Professional Products, Inc.

 

Delaware

Esthetician Services Inc.

 

Delaware

Femme Couture International, Inc.

 

Delaware

Generic Value Products, Inc.

 

Delaware

Venique, Inc.

 

Delaware

Land of Dreams, Inc.

 

Delaware

Coloresse, Inc.

 

Delaware

Design Lengths, Inc.

 

Delaware

Power IQ, Inc.

 

Delaware

Soren Enterprises, Inc.

 

Delaware

Sally Beauty Distribution of Ohio, Inc.

 

Delaware

Sally Beauty International, Inc.

 

Delaware

 

II-1

 

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Sally Beauty Supply BV

 

Netherlands

Pro-Duo Deutschland GmbH

 

Germany

Sally Beauty Canada Holdings LLC

 

Delaware

SBCBSG Company de Mexico, s. de R.I. de C.V.

 

Mexico

SBIFCO Company de Mexico, S.A. de C.V.

 

Mexico

Sally Beauty International Holdings, C.V.

 

Netherlands

Sally International Holdings LLC

 

Delaware

Sally Beauty Holdings LP

 

Bermuda

Sally EURO Holdings LLC

 

Delaware

Sally CAN Holdings LLC

 

Delaware

Sally GBP Holdings LLC

 

Delaware

Gen X Beauty LLC

 

Delaware

Sally Beauty Worldwide Holdings BV

 

Netherlands

SBH Finance B.V.

 

Netherlands

Sally Beauty de Puerto Rico, Inc.

 

Puerto Rico

Sally Beauty Global Holdings BV

 

Netherlands

Sally Beauty Colombia S.A.S.

 

Colombia

BSG Canada Holdings Company

 

Nova Scotia

SBH Netherlands Cooperatief U.A.

 

Netherlands

Beauty Systems Group (Canada), Inc.

 

New Brunswick

Salon Success BV

 

Netherlands

Sally Salon Services (Ireland) Ltd

 

Ireland

Pro-Duo Spain SL

 

Spain

Salon del Exito, S.L.

 

Spain

Sally UK Holdings Limited

 

England

Sally Salon Services Ltd

 

England

MHR Limited

 

England

Sally Chile Holding SpA

 

Chile

Sinelco Group BVBA

 

Belgium

Sinelco International BVBA

 

Belgium

Sinelco Italiana SRL

 

Italy

Sinelco France SAS

 

France

Salon Services (Hair and Beauty Supplies) Ltd

 

Scotland

Salon Services Franchising Ltd

 

Scotland

Salon Success Limited

 

England

Ogee Limited

 

England

Pro-Duo NV

 

Belgium

Pro-Duo France SAS

 

France

Vigox BVBA

 

Belgium

Montane Importaciones, S.L.

 

Spain

Pro-Duo Nederland BV

 

Netherlands

Wacos NV

 

Belgium

Ainat Lilibeth, S.L.

 

Spain

 

II-2

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HUSH BVBA

 

Belgium

Kapperscentrale Bauwens N.V.

 

Belgium

Kapersservice Floral B.V.

 

Netherlands

Exphair B.V.

 

Netherlands

Hair Zone B.V.

 

Netherlands

 

II-3

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ANNEX I

 

Resale Pursuant to Regulation S or Rule 144A. Each Initial Purchaser understands
that:

 

Such Initial Purchaser agrees that it has not offered or sold and will not offer
or sell the Securities in the United States or to, or for the benefit or account
of, a U.S. person (other than a distributor), in each case, as defined in
Rule 902 of Regulation S (i) as part of its distribution at any time and
(ii) otherwise until 40 days after the later of the commencement of the offering
of the Securities pursuant hereto and the Closing Date, other than in accordance
with Regulation S or another exemption from the registration requirements of the
Securities Act.  Such Initial Purchaser agrees that, during such 40-day
restricted period, it will not cause any advertisement with respect to the
Securities (including any “tombstone” advertisement) to be published in any
newspaper or periodical or posted in any public place and will not issue any
circular relating to the Securities, except such advertisements as are permitted
by and include the statements required by Regulation S.

 

Such Initial Purchaser agrees that, at or prior to confirmation of a sale of
Securities by it to any distributor, dealer or person receiving a selling
concession, fee or other remuneration during the 40-day restricted period
referred to in Rule 903 of Regulation S, it will send to such distributor,
dealer or person receiving a selling concession, fee or other remuneration a
confirmation or notice to substantially the following effect:

 

“The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933, as amended (the “Securities Act”), and may not be
offered and sold within the United States or to, or for the account or benefit
of, U.S. persons (i) as part of your distribution at any time or (ii) otherwise
until 40 days after the later of the date the Securities were first offered to
persons other than distributors in reliance upon Regulation S and the Closing
Date, except in either case in accordance with Regulation S under the Securities
Act (or in accordance with Rule 144A under the Securities Act or to accredited
investors in transactions that are exempt from the registration requirements of
the Securities Act), and in connection with any subsequent sale by you of the
Securities covered hereby in reliance on Regulation S under the Securities Act
during the period referred to above to any distributor, dealer or person
receiving a selling concession, fee or other remuneration, you must deliver a
notice to substantially the foregoing effect.  Terms used above have the
meanings assigned to them in Regulation S under the Securities Act.”

 

A-I-1

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