FIRST AMENDMENT TO THE INVESTMENT AGREEMENT

Exhibit 2.02

FIRST AMENDMENT

TO THE

INVESTMENT AGREEMENT

WHEREAS, New Xxxxx Holdings, Inc., a Delaware corporation (“New Xxxxx”), Xxxxx Holdings, Inc., a Delaware corporation (“Sally”), Xxxxxxx-Xxxxxx Company, a Delaware corporation (“Xxxxxxx-Xxxxxx”), New Aristotle Company, a Delaware corporation (“Merger Sub”) and CDRS Acquisition LLC, a Delaware limited liability company (“Investor”), entered into an Investment Agreement (the “Agreement”), dated as of June 19, 2006;

WHEREAS, the parties to the Agreement desire to amend certain provisions defining terms used in the Agreement and amend the Surplus and Solvency Opinion provisions in the Agreement to reflect the possibility that certain entities will convert from corporations to limited liability companies as part of the transactions contemplated by the Agreement; and

WHEREAS, Section 8.3 of the Agreement provides that the Agreement may be amended at any time before or after approval of the matters presented in connection with the Agreement and the transactions contemplated thereby by the stockholders of Xxxxxxx-Xxxxxx;

NOW, THEREFORE, the Agreement is hereby amended in the following respects:

1.a. The definition of “Tax” in Section 1.1(x) of the Agreement hereby is amended in its entirety to read as follows:

“Tax” (and, with correlative meaning, “Taxes” and “Taxable”) means any tax, in any sense, including (i) any federal, state, municipal, county, local, foreign or other Governmental Entity net income, gross income, receipts, windfall profit, severance, real, person, tangible, escheatable, unclaimed or abandoned property, goods and services, value added, estimated, capital stock, production, sales, use, license, excise, franchise, employment, unemployment, social security, payroll, withholding, alternative or add-on minimum, ad valorem, transfer, stamp, or environmental tax, or any other tax, customs, duty or other like assessment or charge of any kind whatsoever, together with any interest or penalty, addition to tax or additional amount imposed by any Governmental Entity, including any fines, penalties or interest arising under ERISA; and (ii) any liability for payments of a type described in clause (i) as a result of being or having been a member of an affiliated, consolidated, combined, unitary or similar group, or under a tax sharing, tax allocation, tax indemnity or other agreement, or as a result of being liable for another Person’s taxes as a transferee or successor, by contract or otherwise.

1b. The table of definitions at the end of Section 1.1 of the Agreement hereby is amended as follows in the appropriate alphabetical order:

BSG		3.1(b)(ii)
SBC		3.1(b)(ii)
Subsidiary LLC Conversions		3.1(b)(ii)

2. Section 3.1(b) of the Agreement hereby is amended in its entirety to read as follows:

(b) Conversion(s). (i) Upon the terms and subject to the conditions set forth in this Agreement, immediately following the AC Effective Time, Xxxxxxx-Xxxxxx shall effect the Xxxxxxx-Xxxxxx Conversion pursuant to applicable provisions of the DGCL and the Delaware Limited Liability Company Act (the “DLLCA”). Following the Xxxxxxx-Xxxxxx Conversion, New Xxxxxxx-Xxxxxx LLC will be a limited liability company all of whose membership interests are held by New Xxxxx and which is disregarded as an entity separate from New Xxxxx for U.S. federal income tax purposes.

(ii) At the written request of Investor delivered to Xxxxxxx-Xxxxxx at least one Business Day prior to Closing and upon the terms and subject to the conditions set forth in this Agreement, Xxxxxxx-Xxxxxx shall, immediately following the Xxxxxxx-Xxxxxx Conversion and prior to the distribution of any proceeds of the Debt Financing from Xxxxx, cause each of the following entities, in the following order, to be converted into a limited liability company organized under the laws of the State of Delaware, pursuant to applicable provisions of the DGCL and DLLCA: (A) Beauty Holding Company, Inc., a Delaware corporation, (B) Xxxxx Beauty International Finance Company, Inc., a Delaware corporation, (C) Xxxxx Beauty Company, Inc., a Delaware corporation (“SBC”), (D) Beauty Systems Group, Inc., a Delaware corporation (“BSG”), (E) Xxxxx Beauty Distribution, Inc. and (F) Sally (such conversions, the “Subsidiary LLC Conversions”); provided, however, that (x) Xxxxxxx-Xxxxxx shall have received notice in accordance with Section 7.3(d) and (y) Xxxxxxx-Xxxxxx shall not be obligated to cause any of the Subsidiary LLC Conversions if effecting one or more of such Subsidiary LLC Conversions would, individually or together with any other
event(s) or circumstance(s), cause one or more of the conditions set forth in Article VII or set forth in Section 3.06 of the Separation Agreement not to be satisfied. Investor acknowledges and agrees that notwithstanding anything to the contrary in this Agreement: (1) none of Xxxxxxx-Xxxxxx, Xxxxx, New Xxxxx or Merger Sub makes or shall have been deemed to make any representation or warranty with respect to the Subsidiary LLC Conversions or the effect thereof and none of them shall be deemed to have violated any covenant or agreement in this Agreement or any of the Transaction Agreements to the extent such violation is a result of effecting the Subsidiary LLC Conversions pursuant to the terms of this Agreement and (2) New Xxxxx shall bear all out-of-pocket expenses, fees and costs of Xxxxxxx-Xxxxxx and its Subsidiaries (including of New Xxxxx, Xxxxx and the Subsidiaries to be converted) related to the Subsidiary LLC Conversions (it being understood and agreed that such expenses, fees and costs shall not be an Expense governed by Section 6.6). Each of the limited liability companies converted in the Subsidiary LLC Conversions will be treated as a disregarded entity for U.S. federal income tax purposes. The Parties intend that, for Tax purposes, each of the Subsidiary LLC Conversions shall be a tax-free liquidation of the converting corporation under section 332 of the Code and comparable provisions of state, local and foreign Tax laws, in which no gain or loss is recognized by either the liquidating corporation or its parent, and the Parties agree to report the Subsidiary LLC Conversions consistent with such treatment unless otherwise required by law.

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3. Section 3.5(a) of the Agreement hereby is amended in its entirety to read as follows:

(a) Each share of Xxxxxxx-Xxxxxx Common Stock issued and outstanding immediately prior to the AC Effective Time (other than shares that are owned by any direct or indirect wholly-owned subsidiary of Xxxxxxx-Xxxxxx) shall be automatically converted into one fully paid and nonassessable share of New Xxxxx Common Stock.

4. Section 3.5(d) of the Agreement hereby is amended in its entirety to read as follows:

(d) (i) Each share of New Xxxxx Common Stock held by Xxxxxxx-Xxxxxx immediately prior to the AC Effective Time shall be cancelled and shall cease to exist and no stock or other consideration shall be delivered in exchange therefor.

(ii) Each share of Xxxxxxx-Xxxxxx Common Stock held by Xxxxxxx-Xxxxxx in treasury or owned by Xxxxxxx-Xxxxxx or any of its Subsidiaries shall be cancelled and shall cease to exist and no shares of stock or other consideration shall be delivered in exchange therefor.

5. Section 6.18 of the Agreement hereby is amended in its entirety to read as follows:

Section 6.18 Valuation Firm. Xxxxxxx-Xxxxxx shall engage a valuation or appraisal firm of national reputation reasonably acceptable to Investor (the “Valuation Firm”) and use its reasonable best efforts to obtain from the Valuation Firm (a) if Xxxxxxx-Xxxxxx requests, an opinion dated the date the Board of Directors (or similar body) of New Xxxxxxx-Xxxxxx LLC declares and effects the Xxxxx Distribution in form and substance reasonably satisfactory to the Board of Directors of Xxxxxxx-Xxxxxx and addressed to the members of the Board of Directors (or similar governing body) of New Xxxxxxx-Xxxxxx LLC as to the surplus (or similar concept under the DLLCA) of New Xxxxxxx-Xxxxxx LLC in connection with the declaration of the Xxxxx Distribution, (b) an opinion dated the date the Board of Directors of New Xxxxx declares the Share Distribution and the Cash Distribution and the date or dates on which the Share Distribution and the Cash Distribution are paid in form and substance reasonably satisfactory to the Board of Directors of New Xxxxx and addressed to the members of the Board of Directors of New Xxxxx as to the surplus of New Xxxxx in connection with the declaration of the Cash Distribution and the Share Distribution, (c) an opinion dated the date the Board of Directors (or similar body) of Xxxxx declares and effects any cash dividends to New Xxxxx that may be made in order for New Xxxxx to pay the Cash Distribution in form and substance reasonably satisfactory to the Board of Directors (or similar body) of Xxxxx and addressed to the members of the Board of Directors (or similar body) of Xxxxx as to the surplus (or similar concept under the DLLCA) of Xxxxx in connection with the declaration of such dividends, (d) an opinion dated the date the Board of Directors (or similar body) of BSG declares and effects any cash dividends to Xxxxx that may be made in order for New Xxxxx to pay the Cash Distribution in form and substance reasonably satisfactory to the Board of Directors (or similar body) of BSG and addressed to the members of the Board of Directors (or similar body) of BSG as to the

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surplus (or similar concept under the DLLCA) of BSG in connection with the declaration of such dividends, (e) an opinion dated the date the Board of Directors (or similar body) of SBC declares and effects any cash dividends to Xxxxx that may be made in order for Xxxxx to pay the Cash Distribution in form and substance reasonably satisfactory to the Board of Directors (or similar body) of SBC and addressed to the members of the Board of Directors (or similar body) of SBC as to the surplus (or similar concept under the DLLCA) of SBC in connection with the declaration of such dividends and (f) an opinion dated the date the Board of Directors of New Xxxxx declares the Share Distribution and the Cash Distribution and the date or dates on which the Share Distribution and the Cash Distribution are paid in form and substance reasonably satisfactory to the Board of Directors of New Xxxxx and addressed to the members of the Board of Directors of New Xxxxx as to the solvency of New Xxxxx and its Subsidiaries immediately after giving effect to the Transactions (the opinion in clause (a), only if requested by Xxxxxxx-Xxxxxx, and the opinions in clauses (b), (c) and (f) collectively, the “Surplus and Solvency Opinions”). For the avoidance of doubt, Xxxxxxx-Xxxxxx and its Subsidiaries shall have no obligation to make any capital contribution or loan to any member of the Xxxxx Group or take any other action not expressly required by this Agreement in connection with this Section 6.18. Each of Xxxxxxx- Xxxxxx and New Xxxxx shall be responsible for the payment of 50% of the fees and expenses of the Valuation Firms in connection with the opinions contemplated by this Section 6.18 as provided in Section 2.04(c) of the Separation Agreement (such fees and expenses, the “Valuation Firm Fees”). Notwithstanding the foregoing, members of the Xxxxxxx-Xxxxxx Group shall not be required to pay in the aggregate an amount in excess of the amount set forth in Section 6.18 to the Xxxxxxx-Xxxxxx Disclosure Schedule in connection with obtaining the opinions contemplated by this Section 6.18.

6. Section 6.19 of the Agreement hereby is amended in its entirety to read as follows:

Section 6.19 Pre-Closing Estimates. Five days prior to the Closing Date, Xxxxxxx-Xxxxxx will provide Investor with calculations of the Adjustment Amount and components thereof, including an estimate of Xxxxxxx-Xxxxxx Taxes, and the Estimated Required Retained Cash Amount together with such supporting data as Investor may reasonably request.

7. Section 7.1(h) of the Agreement hereby is amended in its entirety to read as follows:

(h) NYSE Listing. The (i) shares of New Xxxxx Common Stock to be issued in the Xxxxxxx-Xxxxxx Merger and to be reserved for issuance upon exercise of New Xxxxx Substitute Options and (ii) the shares of New Xxxxxxx-Xxxxxx Common Stock to be distributed in the Share Distribution and to be reserved for issuance upon exercise of New Xxxxxxx-Xxxxxx Stock Options shall have been approved for listing on the NYSE, subject to official notice of issuance.

8. Section 7.1(i) of the Agreement hereby is amended in its entirety to read as follows:

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(i) Surplus and Solvency Opinions. The Board of Directors (or similar body) of New Xxxxxxx-Xxxxxx LLC, if applicable, the Board of Directors of New Xxxxx and the Board of Directors (or similar body) of Xxxxx, as applicable, shall have received the Surplus and Solvency Opinions and such opinions shall not have been withdrawn, modified or rescinded.

9. Section 9.1 of the Agreement hereby is amended in its entirety to read as follows:

Section 9.1 Non-Survival of Representations, Warranties, Covenants and Agreements. This Article IX and the agreements of Xxxxxxx-Xxxxxx, New Xxxxx, Xxxxx and Investor, contained in clause (2) of Section 3.1(b)(ii) (Conversion(s)), Section 3.6 (Exchange of Shares), Section 3.8 (Post Transaction Matters), Section 6.4(a) (last sentence) (Reasonable Best Efforts), Section 6.6 (Fees and Expenses), Section 6.10(b)(y) and Section 6.10(d) (last sentence) (Private Letter Ruling; Tax-Free Reorganization Treatment; Pre-Distribution Tax Returns: Dividend Withholding), Section 6.12 (Employee Benefits Matters) and Section 6.13 (Non-Competition, Non-Solicitation) shall survive the Closing Date. All other representations, warranties, covenants and agreements in this Agreement shall not survive the Closing Date.

10. New Xxxxx agrees that, if on or prior to the Closing Date any member of the Xxxxx Group consummates an acquisition which was consented to in writing in advance by Investor, at Closing it will pay to Xxxxxxx-Xxxxxx an amount equal to the purchase price of each such acquisition.

11. Exhibit C to the Agreement is hereby amended in its entirety to read as set forth on Annex B hereto.

12. This Amendment will be governed by and construed in accordance with the laws of the State of Delaware (without giving effect to choice of law principles thereof).

13. Except as specifically provided in this Amendment, all other provisions of the Agreement shall remain in full force and effect.

14. This Amendment may be executed in separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts will together constitute the same agreement.

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties have caused this Amendment to be executed in their names by a duly authorized officer as of October 3, 2006.

NEW XXXXX HOLDINGS, INC.
By:		/s/ Xxxx X. Xxxxxxx
		Name: Xxxx X. Xxxxxxx
		Title: President
XXXXX HOLDINGS, INC.
By:		/s/ Xxxx Xxxxxxxxxxxx
		Name: Xxxx Xxxxxxxxxxxx
		Title: President
XXXXXXX-XXXXXX COMPANY
By:		/s/ Xxxx X. Xxxxxxx
		Name: Xxxx X. Xxxxxxx
		Title: Senior Vice President, General Counsel and Secretary
NEW ARISTOTLE COMPANY
By:		/s/ Xxxx X. Xxxxxxx
		Name: Xxxx X. Xxxxxxx
		Title: President
CDRS ACQUISITION LLC
By:		/s/ Xxxxxxx X. Xxxxxxx
		Name: Xxxxxxx X. Xxxxxxx
		Title: President

[Signature page to First Amendment to the Investment Agreement]

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